-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, H9uZBmpOGxzjjv9jfJcOnr8RHAwB3/psQ+RvMK/34nJRy845PrnVUuFt0J4F8de4 Hh7A67bOwx6PUwWU6lg7Kg== 0000835582-96-000027.txt : 19961009 0000835582-96-000027.hdr.sgml : 19961009 ACCESSION NUMBER: 0000835582-96-000027 CONFORMED SUBMISSION TYPE: 10-12G PUBLIC DOCUMENT COUNT: 8 FILED AS OF DATE: 19961008 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: HOMELAND HOLDING CORP CENTRAL INDEX KEY: 0000835582 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-GROCERY STORES [5411] IRS NUMBER: 731311075 STATE OF INCORPORATION: DE FISCAL YEAR END: 0101 FILING VALUES: FORM TYPE: 10-12G SEC ACT: 1934 Act SEC FILE NUMBER: 000-21503 FILM NUMBER: 96640513 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 10-12G 1 U.S. $37,500,000 LOAN AGREEMENT Dated as of August 2, 1996 Among IBJ SCHRODER BANK & TRUST COMPANY, HELLER FINANCIAL, INC., and NATIONAL BANK OF CANADA, individually, and in its capacity as Agent and HOMELAND STORES, INC., as Borrower, and HOMELAND HOLDING CORPORATION, as Guarantor TABLE OF CONTENTS Page SECTION 1. DEFINITIONS AND ACCOUNTING TERMS 1 1.1. CERTAIN DEFINED TERMS 1 1.2. TERMS DEFINED IN THE UNIFORM COMMERCIAL CODE 36 1.3. COMPUTATION OF TIME PERIODS 36 1.4. ACCOUNTING TERMS 36 1.5. OTHER PROVISIONS REGARDING DEFINITIONS 36 SECTION 2. AMOUNT AND TERMS OF REVOLVING CREDIT FACILITY 37 2.1. REVOLVING CREDIT FACILITY ADVANCES 37 2.2. REVOLVING CREDIT FACILITY COMMITMENT AND REVOLVING LOAN BORROWING LIMIT 37 2.3. REVOLVING NOTES 38 2.4. NOTICE OF BORROWING; BORROWER'S CERTIFICATE 38 2.5. TERMINATION OF REVOLVING CREDIT FACILITY COMMITMENT 40 2.6. INTEREST ON REVOLVING LOAN 40 2.7. PAYMENTS OF PRINCIPAL 40 2.8. ESTABLISHMENT OF RESERVES 40 SECTION 3. AMOUNT AND TERMS OF TERM LOAN FACILITY 41 3.1. TERM LOAN FACILITY ADVANCES 41 3.2. TERM LOAN FACILITY COMMITMENT 41 3.3. TERM NOTES 41 3.4. INTEREST ON TERM LOAN 42 3.5. PRINCIPAL PAYMENTS 42 3.6. EXCESS CASH FLOW RECAPTURE 42 SECTION 4. TERMS AND FEES COMMON TO BOTH FACILITIES 42 4.1. INTEREST 42 4.2. CONVERSION OF BORROWINGS; RENEWALS 43 4.3. COMPUTATION OF INTEREST. 44 4.4. COLLECTIONS THROUGH LOCKBOX 44 4.5. INCREASED COSTS 44 4.6. CHANGE IN LAW RENDERING EURODOLLAR ADVANCES UNLAWFUL 46 4.7. EURODOLLAR AVAILABILITY 47 4.8. INDEMNITIES 47 4.9. DISBURSEMENT 51 4.10. AGENT'S AVAILABILITY ASSUMPTION 51 4.11. PRO RATA TREATMENT AND PAYMENTS 52 4.12. SHARING OF PAYMENTS, ETC. 52 4.13. EXCESS OPERATING FUNDS 53 4.14. EURODOLLAR OFFICES 53 4.15. TELEPHONIC NOTICE 53 4.16. MAXIMUM INTEREST 53 4.17. COMPOSITION AND APPLICATION OF PAYMENTS AND COLLECTIONS 54 SECTION 5. PAYMENTS, PREPAYMENTS AND REDUCTIONS 54 5.1. MANDATORY PAYMENTS AND REDUCTIONS 54 5.2. PAYMENT FROM INSURANCE PROCEEDS 55 5.3. OPTIONAL PREPAYMENTS 55 5.4. PROCEDURES FOR PAYMENT 56 5.5. COMMITMENT FEE 58 5.6. PREPAYMENT FEE 58 5.7. AGENCY FEE 59 5.8. CLOSING FEE 59 5.9. CONTINGENT FEE 59 5.10. PREPAYMENTS TO INCLUDE INTEREST 60 SECTION 6. LETTERS OF CREDIT 60 6.1. LETTERS OF CREDIT 60 6.2. LETTER OF CREDIT FEES 61 6.3. INDEMNITY 62 6.4. REIMBURSEMENT OF CERTAIN COSTS 62 6.5. PAYMENT OF DRAFTS 64 6.6. ISSUING LENDER'S ACTIONS 65 SECTION 7. SECURITY AND GUARANTY 65 7.1. SECURITY AGREEMENTS 65 7.2. MORTGAGES 66 7.3. FILING AND RECORDING 67 7.4. INTERPRETATION OF SECURITY DOCUMENTS AND MORTGAGES 67 7.5. GUARANTEES 67 7.6. BANKRUPTCY COURT APPROVAL 68 7.7. RELEASE OF MORTGAGES 68 7.8. POWER OF ATTORNEY 68 SECTION 8. CONDITIONS PRECEDENT TO INITIAL BORROWING AND ISSUANCE OF LETTERS OF CREDIT 69 8.1. OPINIONS OF COUNSEL 69 8.2. AUDIT RESULTS 69 8.3. MATERIAL ADVERSE CHANGE 69 8.4. QUALIFICATION 69 8.5. SECURITY DOCUMENTS AND INSTRUMENTS 69 8.6. EVIDENCE OF INSURANCE 70 8.7. EXAMINATION OF BOOKS 70 8.8. CORPORATE STRUCTURE 70 8.9. NOTES 70 8.10. FEES TO AGENT AND LENDERS 70 8.11. MANAGEMENT; OWNERSHIP 70 8.12. DISBURSEMENT AUTHORIZATION 70 8.13. LITIGATION 70 8.14. COMPLIANCE WITH LAW 71 8.15. PROCEEDINGS; RECEIPT OF DOCUMENTS 71 8.16. PROJECTIONS. 72 8.17. APPROVAL OF SUBORDINATED NOTES;CAPITALIZATION, ETC. 72 8.18. COLLECTION AND CONCENTRATION ACCOUNTS; LOCK-BOX ACCOUNTS; CASH MANAGEMENT AGREEMENT. 72 8.19. NO MARKET DISRUPTION 73 8.20. LANDLORDS' LIENS 73 8.21. UCC SEARCH RESULTS 73 8.22. CLOSING DATE BORROWING BASE CERTIFICATE. 73 8.23. NO DEFAULT 74 8.24. BANKRUPTCY COURT ORDERS 74 8.25. MINIMUM BORROWING BASE AVAILABILITY 74 SECTION 9. CONDITIONS PRECEDENT TO EACH BORROWING AND ISSUANCE OF LETTERS OF CREDIT 75 9.1. BORROWER'S CERTIFICATE; OTHERS 75 9.2. WRITTEN NOTICE 76 SECTION 10. USE OF PROCEEDS 76 SECTION 11. AFFIRMATIVE COVENANTS 77 11.1. FINANCIAL STATEMENTS AND OTHER INFORMATION 77 11.2. TAXES AND CLAIMS 82 11.3. INSURANCE 83 11.4. BOOKS AND RESERVES 84 11.5. PROPERTIES IN GOOD CONDITION 84 11.6. MAINTENANCE OF EXISTENCE, ETC. 84 11.7. INSPECTION BY THE AGENT 84 11.8. PAY INDEBTEDNESS TO LENDERS AND PERFORM OTHER COVENANTS 85 11.9. NOTICE OF DEFAULT 85 11.10. REPORTING OF MISREPRESENTATIONS 85 11.11. COMPLIANCE WITH LAWS, ETC. 85 11.12. ERISA 86 11.13. FURTHER ASSURANCES 87 11.14. AUDITS AND APPRAISALS 87 11.15. ENVIRONMENTAL MATTERS, ETC. 88 11.16. FINANCIAL COVENANTS 89 11.17. COLLECTION AND CONCENTRATION ACCOUNTS; LOCK-BOX ACCOUNTS 91 11.18. ENVIRONMENTAL REPORTS 94 11.19. SPECIAL COUNSEL FEES 94 11.20. LANDLORDS' LIENS 94 11.21. OVERDUE LEASE 94 11.22. COMPLIANCE WITH EQUIPMENT LEASES 94 SECTION 12. NEGATIVE COVENANTS 95 12.1. CAPITAL EXPENDITURES 95 12.2. LIENS 95 12.3. INDEBTEDNESS 98 12.4. LOANS, INVESTMENTS AND GUARANTEES 98 12.5. MERGER, SALE OF ASSETS, DISSOLUTION, ETC. 101 12.6. DIVIDENDS, REDEMPTIONS AND OTHER PAYMENTS 101 12.7. TRANSACTIONS WITH AFFILIATES 102 12.8. MANAGEMENT FEES AND OTHER PAYMENTS 102 12.9. COMPROMISE OF PLEDGED ACCOUNTS 102 12.10. NONCOMPLIANCE WITH ERISA 102 12.11. AMENDMENTS AND MODIFICATIONS 103 12.12. FISCAL YEAR 103 12.13. CHANGE OF BUSINESS 103 12.14. NO NEGATIVE PLEDGES 104 12.15. COLLECTION AND CONCENTRATION ACCOUNTS; LOCK-BOX ACCOUNTS 104 12.16. TAX SHARING AGREEMENTS 105 12.17. COVENANT OF PARENT 105 12.18. MAXIMUM RETURNED INVENTORY 106 12.19. THIRD PARTY PAYORS 106 SECTION 13. DEFAULTS AND REMEDIES 107 13.1. EVENTS OF DEFAULT 107 13.2. SUITS FOR ENFORCEMENT 111 13.3. RIGHTS AND REMEDIES CUMULATIVE 111 13.4. RIGHTS AND REMEDIES NOT WAIVED 111 13.5. APPLICATION OF PROCEEDS 111 13.6. INVENTORY COUNTING AND APPRAISAL 113 SECTION 14. REPRESENTATIONS AND WARRANTIES 113 14.1. CORPORATE STATUS 113 14.2. POWER AND AUTHORITY 114 14.3. NO VIOLATION OF AGREEMENTS 114 14.4. NO LITIGATION 115 14.5. GOOD TITLE TO PROPERTIES 115 14.6. FINANCIAL STATEMENTS AND CONDITION 115 14.7. TRADEMARKS, PATENTS, ETC. 116 14.8. TAX LIABILITY 116 14.9. GOVERNMENTAL ACTION 116 14.10. DISCLOSURE 116 14.11. REGULATION U 117 14.12. INVESTMENT COMPANY 117 14.13. EMPLOYEE BENEFIT PLANS 117 14.14. PERMITS, ETC. 119 14.15. ENVIRONMENTAL STATUS 120 14.16. MEDICARE/MEDICAID AND THIRD PARTY PAYOR AGREEMENTS 121 14.17. VALIDITY OF RECEIVABLES 121 14.18. COLLECTION AND CONCENTRATION ACCOUNTS; LOCK-BOX ACCOUNTS 121 14.19. PARENT 122 14.20. VALIDITY OF PHARMACEUTICAL RECEIVABLES 122 SECTION 15. MISCELLANEOUS 122 15.1. COLLECTION COSTS 122 15.2. AMENDMENT, MODIFICATION AND WAIVER 122 15.3. NEW YORK LAW 124 15.4. NOTICES 124 15.5. FEES AND EXPENSES 124 15.6. STAMP OR OTHER TAX 125 15.7. WAIVER OF JURY TRIAL AND SET-OFF 125 15.8. TERMINATION OF AGREEMENT 125 15.9. CAPTIONS 126 15.10. LIEN; SETOFF BY LENDERS 126 15.11. PAYMENT DUE ON NON-BUSINESS DAY 127 15.12. SERVICE OF PROCESS 127 15.13. NATIONAL BANK OF CANADA, AS AGENT 127 15.14. SALE, ASSIGNMENT OR TRANSFER TO ADDITIONAL LENDERS 132 15.15. BENEFIT OF AGREEMENT 133 15.16. COUNTERPARTS; FACSIMILE SIGNATURE 134 15.17. INVALIDITY 134 15.18. LETTER OF CREDIT PARTICIPATIONS AND CERTAIN PAYMENTS 135 15.19. DISCLOSURE OF FINANCIAL INFORMATION 136 15.20. AMENDMENT AND RESTATEMENT 136 SCHEDULES AND EXHIBITS Schedule 1.1(A) - Lenders and Commitments Schedule 1.1(B) - Loans and Advances to Officers and Directors Schedule 1.1(C) - Excluded Properties Schedule 4.1(f) - May 8, 1996 Homeland Stores, Inc. Financial Projections for 1996 Schedule 8.15 - Jurisdictions Schedule 11.14(a) - Inventory Categories Schedule 11.17(c) - Special Account Stores Schedule 11.18 - Environmental Report Stores Schedule 12.2(c) - Existing Liens Schedule 12.3(c) - Existing Indebtedness for Borrowed Money and Contingent Obligations Schedule 12.4 - Existing Investments Schedule 12.6(b) - Permitted Prepayments Schedule 14.1 - Subsidiaries Schedule 14.4 - Description of Overtly Threatened or Pending Litigation Schedule 14.5(a) - Real Property Schedule 14.5(c) - Lease payments 30 days past due Schedule 14.13(a) - Reportable Events Schedule 14.13(e) - Multiemployer Plans; Section 4204 of ERISA Schedule 14.14(a) - Permits Schedule 14.15 - Environmental Information Schedule 14.16 - Medicare/Medicaid and Third Party Payor Agreements Schedule 14.18(a) - Collection Account Agreement; Concentration Account - Agreement; Lock-Box Agreement Schedule 14.18(b) - Special Accounts Exhibit 1.1 - Form of Lock-Box Account Agreement Exhibit 2.3 - Form of Revolving Note Exhibit 2.4 - Form of Borrower's Certificate Exhibit 3.3 - Form of Term Note Exhibit 7.1 - Form of Security Agreement Exhibit 7.2 - Form of Mortgage Exhibit 7.5 - Form of Guarantee Exhibit 8.1 - Form of Opinion of Special Counsel for the Credit Parties Exhibit 8.12 - Form of Disbursement Authorization Letter Exhibit 8.18(b) - Form of Concentration Account Agreement Exhibit 8.18(d) - Form of Pharmaceutical Collection Account Agreement Exhibit 11.1(j) - Form of Borrowing Base Certificate Exhibit 11.1(k) - Form of Schedule of Receivables, Accounts Payable and Inventory Exhibit 11.1(p) - Form of Coupon Certificate Exhibit 11.1(q) - Form of Pharmaceutical Receivable Certificate Exhibit 11.17(b) - Form of Collection Account Agreement Exhibit 11.20 - Form of Landlord's Lien Waiver LOAN AGREEMENT, dated as of August 2, 1996 among HOMELAND STORES, INC., a Delaware corporation (the "Borrower"), HOMELAND HOLDING CORPORATION, a Delaware corporation ("Parent") (Borrower and Parent are sometimes hereinafter collectively referred to as the"Companies" and individually as a "Company"), IBJ SCHRODER BANK & TRUST COMPANY ("IBJ"), HELLER FINANCIAL, INC. ("Heller"), NATIONAL BANK OF CANADA ("NBC"), and other financial institutions which may hereafter become parties hereto (such lenders and other financial institutions and their respective successors and assigns, individually, a "Lender" and collectively, the "Lenders"), and NBC, as agent for the Lenders (in such capacity, the "Agent"). WHEREAS, the Companies are parties to that certain Amended and Restated Revolving Credit Agreement, dated as of April, 21 1995, as amended by the Ratification and Amendment Agreement dated May 10, 1996 (together, the "Existing Agreement"), by and among Borrower, Parent, NBC, Heller, and NBC as agent; and WHEREAS, the Companies, Lenders and the Agent desire to enter into this Agreement to amend, modify and restate in its entirety the Existing Agreement through the execution of this Agreement, which will supersede and control all prior agreements among the parties hereto; and WHEREAS, Borrower desires to borrow from the Lenders hereunder from time to time certain sums on a revolving credit basis, the proceeds of which shall be applied to its working capital needs and for other general corporate purposes consistent with the terms of this Agreement; and WHEREAS, Borrower desires to borrow from the Lenders hereunder an amount up to $10,000,000 under a term loan, the proceeds of which shall be applied consistent with the terms of this Agreement; and WHEREAS, Borrower desires to cause each Issuing Lender (as hereinafter defined) to issue one or more letters of credit (each a "Letter of Credit") for the account of Borrower to secure the performance of certain obligations that Borrower may have from time to time to third parties in the normal conduct of its business; and WHEREAS, the Lenders are willing, subject to and upon the terms and conditions herein set forth, to extend such financial accommodations to Borrower; NOW, THEREFORE, IT IS AGREED: SECTION 1. DEFINITIONS AND ACCOUNTING TERMS. 1.1. CERTAIN DEFINED TERMS. For all purposes of this Agreement, unless the context otherwise requires (the following meanings to be equally applicable to both the singular and plural forms of the terms defined): "Additional Indebtedness" shall mean all Lender Debt other than principal of the Revolving Loan and the Term Loan. "Additional Lenders" shall have the meaning set forth in Section 15.14 hereof. "Adjusted Eurodollar Rate" shall mean, with respect to each Interest Period for a Eurodollar Advance, the rate obtained by dividing (i) the Eurodollar Rate for such Interest Period by (ii) a percentage equal to 1 minus the stated maximum rate (stated as a decimal) of all reserves required to be maintained against "Eurocurrency liabilities" as specified in Regulation D (or against any other category of liabilities which includes deposits by reference to which the interest rate on Eurodollar Advances is determined or any category of extensions of credit or other assets which includes loans by a non-United States office of any Lender to United States residents). "Advance" shall mean each and any Revolving Credit Advance and Term Loan Advance. "Affiliate" of any specified Person shall mean any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person or which is a director, officer or partner (limited or general) of such specified Person. For the purposes of this definition, (i) "control," when used with respect to any specified Person, means the possession, direct or indirect, of the power to vote five percent (5%) or more of the securities having ordinary voting power for the election of directors or the power to direct or cause the direction of the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise, and the terms "controlling" and "controlled" have meanings correlative to the foregoing, and (ii) any full time employee of Borrower shall not, solely by virtue of such employment, be deemed to be an Affiliate of Borrower, although the degree of "control" possessed by such employee as a consequence of such employment or otherwise can be taken into account in determining whether such employee is an Affiliate of Borrower. "Agent" shall have the meaning set forth in the preamble to this Agreement and in Section 15.13(j) hereof. "Agreement" shall mean this Loan Agreement, as amended, modified, supplemented or restated from time to time. "Approved Delegate" shall have the meaning set forth in Section 15.13(n) hereof. "Asset Sale" shall mean any sale, lease, conveyance, transfer or other disposition (including by way of merger or consolidation of a Subsidiary or sale-leaseback transaction), whether in a single transaction or in a group of transactions that are part of a common plan, other than any sale, transfer or other disposition under paragraphs (a), (b), (c), (e) or (f) of Section 12.5 hereof and other than any exchange of assets leased pursuant to Capital Leases for other assets to be leased pursuant to such leases (or other leases on substantially the same terms) to the extent such exchange is permitted under paragraph (g) of Section 12.5 hereof. "Authorized Representative" shall mean each Person designated from time to time, as appropriate, in a Written Notice to the Agent for the purposes of giving notices of borrowing, conversion or renewal of, Advances, or requesting Letters of Credit, which designation shall continue in force and effect until terminated in a Written Notice to the Agent. "Avoidance Actions" shall mean all claims of the Companies for recovery or avoidance, as the case may be, of obligations, transfers of property, or interests in property, offsets, lawful currency or its equivalents, and other types or kinds of property (or the value thereof) recoverable or avoidable under Chapter 5 of the Federal Bankruptcy Code from or in connection with the Companies' Bankruptcy Proceedings or under other applicable law. "AWG" shall mean Associated Wholesale Grocers, Inc., a Missouri corporation. "AWG Equity" shall mean all equity, deposits, credits, sums and indebtedness of any kind or description, whatsoever, at any time owed by AWG to Borrower or at any time standing in the name of or to the credit of Borrower on the books and/or records of AWG, including, without limitation, AWG Membership Stock, members deposit certificates, patronage refund certificates, members savings, direct patronage or year-end patronage, concentrated purchase allowance, quarterly payments and any other amounts due from AWG to Borrower under the Supply Agreement. "AWG Membership Stock" shall mean the Class A common Stock, par value $100 per share, of AWG. "AWG Purchase Agreement" shall mean that certain Asset Purchase Agreement, dated as of February 6, 1995, by and between the Borrower and AWG. "AWG Sale" shall mean the sale of assets pursuant to the AWG Purchase Agreement. "Bankruptcy Court" shall mean the United States Bankruptcy Court for the District of Delaware. "Bankruptcy Proceedings" shall mean the proceedings from the Cases. "Base Rate" shall mean a fluctuating interest rate per annum as shall be in effect from time to time, which rate per annum shall at all times be equal to the rate of interest announced publicly by NBC in New York, New York from time to time as its prime rate for U.S. dollar loans, such rate to change when and as such announced rate changes: "Base Rate Advance" shall mean any portion of an Advance which is not a Eurodollar Advance. "Board" shall mean the Board of Governors of the Federal Reserve System or any successor agency or entity performing substantially the same functions. "Borrower" has the meaning set forth in the preamble to this Agreement. "Borrower Case" shall mean the Chapter 11 case of Borrower under the Federal Bankruptcy Code captioned In re: Homeland Stores, Inc., Case No. 96-747-PJW (Chapter 11) in the Bankruptcy Court. "Borrower's Certificate" shall have the meaning set forth in Section 2.4 hereof. "Borrowing Base" shall mean, as of any time, an amount equal to the sum of the following: (a) up to sixty-five percent (65%) of the Net Amount of Eligible Inventory, (b) up to sixty-five percent (65%) of the Net Amount of Eligible Pharmaceutical Inventory, (c) up to eighty-five percent (85%) of the Net Amount of Eligible Coupons, and (d) up to fifty percent (50%) of the Net Amount of Eligible Pharmaceutical Receivables, as determined by reference to and as set forth in the last Borrowing Base Certificate required to be delivered to the Agent and each Lender prior to such time pursuant to Section 11.1(j) hereof. "Borrowing Base Availability" shall mean the amount,determined at any time and from time to time, of the Revolving Loan Borrowing Limit minus the sum of (i) the aggregate unpaid principal amount of the Revolving Credit Advances outstanding at any time plus (ii) the Letter of Credit Usage at such time. "Borrowing Base Certificate" shall have the meaning set forth in Section 11.1(j) hereof. "Business Day" shall mean: (i) for Base Rate Advances and in any event for the purposes of Section 13.1(b) hereof, any day other than a Saturday, Sunday or other day on which banks in New York, New York are authorized or required to close, and (ii) for Eurodollar Advances on which interest accrues based upon the Eurodollar Rate but in no event for the purposes of Section 13.1(b) hereof, the days described in the immediately preceding subclause (i) for the definition of Business Day, but excluding therefrom any day on which commercial banks are not open for dealings in U.S. Dollar deposits in the London (England, U.K.) interbank market. "Calendar Month" or "calendar month" shall mean (i) except in the case of Sections 11.1, 11.16 and 12.18 hereof, a calendar month, and (ii) for the purposes of Sections 11.1, 11.16 and 12.18 one of Borrower's four-week or five-week accounting periods, of which there are thirteen (13) in each Fiscal Year. "Capital Expenditures" shall mean, for any period, the capital expenditures made by the Borrower and its Subsidiaries during such period, determined in accordance with GAAP, less Capital Leases to the extent included in the calculation of Capital Expenditures. "Capital Lease" of any Person shall mean any lease of any property (whether real, personal or mixed) by that Person as lessee which, in conformity with GAAP, is, or is required to be, accounted for as a capital lease on the balance sheet of such Person. "Capitalized Lease Obligations" of any Person shall mean, at any time, all obligations under Capital Leases of such Person in each case taken at the amount thereof accounted for as liabilities at such time in accordance with GAAP. "Cases" shall mean, collectively, the Borrower Case and the Parent Case. "Certificate of Exemption" shall have the meaning set forth in Section 5.4(b) hereof. "Change of Control" shall mean such time as (i) Borrower or Parent liquidates or dissolves, or (ii) Parent shall cease to own and control, beneficially and of record, 100% of all capital stock of Borrower, or (iii) a "Change of Control", as defined in the Indenture (as in effect from time to time), shall occur. "Claims" shall have the meaning set forth in Section 4.8(c) hereof. "Closing Date" shall mean August 2, 1996. "Code" shall mean, at any date, the Internal Revenue Code of 1986, as the same shall be in effect at such date. "Collateral" shall mean all property of Borrower and Parent, wherever located, of any kind or nature, in which a Lien has been granted to Agent and Lenders as security for Lender Debt, or any guarantee thereof, pursuant to the Loan Documents, and shall include, without limitation, the following personal property of Borrower and Parent, and all products and proceeds thereof (including, without limitation, claims of Borrower and Parent against third parties for loss or damage to such property), including all accessions thereto, substitutions and replacements thereof, and wherever located: (i) Inventory. All inventory in all of its forms, wherever located, now or hereafter acquired by either of the Companies, now or hereafter existing, including but not limited to: (A) all inventory, raw materials, work in process and finished products intended for sale or lease or to be furnished under contracts of service in the ordinary course of business, of every kind and description, including, without limitation, all Pharmaceutical Inventory; (B) goods in which either of the Companies have or may acquire an interest in mass or a joint or other interest or right of any kind (including, without limitation, goods in which either of the Companies have any interest or right as consignee); and (C) goods which are returned to or repossessed by either of the Companies, and all accessions thereto and products thereof and documents (including without limitation, all warehouse receipts, negotiable documents, bills of lading and other title documents) therefor (any and all such inventory, accessions, products and documents being, for the purpose of this definition of Collateral, the "Inventory"); (ii) Accounts. All accounts and contract rights and other obligations of any kind, whether secured or unsecured, now or hereafter acquired by either of the Companies, now or hereafter existing, and including, without limitation, all Pharmaceutical Receivables, all Coupons and coupon receivables, and any note or other document or instrument evidencing any such account or contract right or other obligation (the "Accounts"); (iii) Special Accounts. All of the Companies'lock-box accounts, collection accounts and concentration accounts containing cash proceeds of the Collateral, all funds now or hereafter held therein, all present or future claims, demands and choses in action in respect thereof and all certificates and instruments, if any, from time to time representing or evidencing such accounts and all investments made therefrom and all securities representing or evidencing such investments (for the purpose of this definition of Collateral, the "Special Accounts"); (iv) Records. All of the Companies' cash registers, scanning systems, books and records, including, without limitation, computer records, disks, tapes and other media on which any information relating to Inventory, inventory control systems or the Accounts is stored or recorded and all computer software, management information systems and other systems and copies of every kind thereof relating to Inventory, inventory controls or the Accounts and all customer lists (for the purpose of this definition of Collateral, collectively, the "Records and Other Property"); (v) Avoidance Actions. All claims of either of the Companies for recovery or avoidance, as the case may be, of obligations, transfers of property, or interests in property, offsets, lawful currency or its equivalents, and other types or kinds of property (or the value thereof) recoverable or avoidable under Chapter 5 of the Federal Bankruptcy Code from or in connection with the Companies' Bankruptcy Proceedings or under other applicable law (collectively, the "Avoidance Actions"); (vi) Intellectual Property. All of the Companies' intellectual property, including, without limitation, patents, patent applications, trademarks, trademark applications, service marks, service mark applications, tradenames, technical knowledge and processes, formal or informal licensing arrangements, blueprints, technical specifications, computer software, copyrights, copyright applications and other trade secrets, and all embodiments thereof and rights thereto and all of the Companies' rights to use the patents, trademarks, service marks or other property of the aforesaid nature of other persons now or hereafter licensed to the Companies, together with the goodwill of the business symbolized by or connected with the Companies' trademarks, service marks, licenses and the other rights under this section; (vii) General Intangibles. All of the Companies' general intangibles, instruments, securities, credits, claims, demands, documents, letters of credit and letter of credit proceeds, chattel paper, documents of title, certificates of title, certificates of deposit, warehouse receipts, bills of lading, leases which are permitted to be assigned or pledged, tax refund claims, contract rights which are permitted to be assigned or pledged, customer lists, books and records (including, without limitation, software, data bases, materials, books, records, magnetic tapes and disks and other storage media) and other rights (including all rights to the payment of money); (viii) Equipment. All of the Companies' equipment, including, without limitation, machinery, equipment, office equipment and supplies, computers and related equipment, cash registers, scanning systems, furniture, furnishings, shelving, refrigeration equipment, fixtures, fork lifts, trucks, trailers, motor vehicles, and other equipment (the foregoing being the "Equipment"); (ix) Real Property. All real properties owned or leased by either of the Companies, other than those real properties described on Schedule 1.1(C) attached to this Agreement (the "Excluded Properties"), but only so long as the Company that owns or leases an Excluded Property grants the Agent and the Lenders a negative pledge on the Excluded Properties and agrees that the net proceeds from any disposition of the Excluded Properties will be applied to the Revolving Credit Facility upon receipt thereof by the Companies; and (x) Proceeds. (A) All proceeds of every kind or nature of any and all of the foregoing Collateral (including, without limitation, all checks, money, drafts, instruments and other evidences of payment and all proceeds of such property which constitute property of the types described in clauses (i), (ii), (iii), (iv) (v), (vi), (vii), (viii) or (ix) above, and property of such type or types acquired with any such proceeds), and (B) to the extent not otherwise included, all (1) payments under insurance or any indemnity, warranty or guaranty, payable by reason of loss or damage to or otherwise with respect to any of the foregoing Collateral, and (2) cash proceeds of the foregoing Collateral (collectively, the "Proceeds"). "Collection Account" shall mean each deposit account of Borrower established pursuant to Section 8.18(a) hereof (or as otherwise established with the prior written consent of the Agent), maintained at a bank, into which Borrower deposits cash proceeds of Inventory and Pledged Accounts, and, to the extent required by Section 11.17(b) hereof, as to which all amounts deposited in which and all claims arising under which have been pledged to the Agent for the benefit of the Agent and the Lenders pursuant to a Collection Account Agreement. "Collection Account Agreement" shall mean a collection account agreement substantially in the form of Exhibit 11.17(b) hereto (with such modifications as are acceptable to the Agent and as amended, modified or supplemented from time to time. "Commitment Letter" shall mean the commitment letter dated July 18, 1996, among the Companies, the Lenders and the Agent. "Company" shall have the meaning set forth in the recitals to this Agreement. "Concentration Account" shall mean a deposit account of Borrower, established pursuant to Section 8.18(b) hereof, into which only cash proceeds of Inventory and Pledged Accounts shall be deposited, all amounts deposited in which and all claims arising under which have been pledged to the Agent for the benefit of the Agent and the Lenders pursuant to a Concentration Account Agreement. "Concentration Account Agreement" shall have the meaning set forth in Section 8.18(b) hereof. "Consolidated Current Ratio" of Parent and its Subsidiaries shall mean the ratio of Consolidated Current Assets to Consolidated Current Liabilities. "Consolidated Current Assets" of Parent and its Subsidiaries determined at any time, shall mean all assets of Parent and its Subsidiaries that would, in accordance with GAAP, be classified as consolidated current assets of a company conducting a business the same or similar to that of such Person, after deducting adequate reserves in each case in which a reserve is proper in accordance with GAAP, reduced by the amount of the accounts receivable owing to Borrower by AWG. "Consolidated Current Liabilities" of Parent and its Subsidiaries, determined at any time, shall mean all liabilities of Parent and its Subsidiaries which would, in accordance with GAAP, be classified as consolidated current liabilities, except that the liabilities of Borrower under the Revolving Loan and the Term Loan will be excluded from the determination of consolidated current liabilities. "Consolidated Fixed Charge Coverage Ratio" shall mean, for any period, the ratio obtained by dividing (i) the aggregate EBITDAR of Parent and its Subsidiaries on a consolidated basis for such period, by (ii) the scheduled payments of Indebtedness for Borrowed Money of Borrower and its Subsidiaries for such period plus the Consolidated Tax Expense, the Consolidated Interest Expense (exclusive, however, of interest that accrued prior to the Closing Date under the Old Indenture) and the Net Capital Expenditures (after the Closing Date) of Borrower and its Subsidiaries on a consolidated basis for such period. "Consolidated Interest Expense" of any Person for any period shall mean the amount by which (i) the aggregate amount of interest expense in respect of Indebtedness of such Person and its Subsidiaries for such period, on a consolidated basis, determined in accordance with GAAP (including, without limitation, all net payments and receipts in respect of Hedge Agreements and the interest component of Capitalized Lease Obligations, excluding non-cash interest expense (other than for Funded Debt) and amortization of financing costs), exceeds (ii) the aggregate interest income of such Person (excluding any non-cash interest from securities which do not have a rating of at least A-2 from Standard & Poor's Corporation or at least P-2 from Moody's Investor Service, Inc.) for such period, all as determined in accordance with GAAP. "Consolidated Tax Expense" of any Person for any period shall mean the amount of taxes upon or determined by reference to such Person's net income, in each case, due and payable by such Person during such period. "Contingent Obligations" of any Person shall mean any direct or indirect liability, contingent or otherwise, of such Person: (i) with respect to any indebtedness, lease, dividend, letter of credit or other obligation of another if the primary purpose or intent in creating such liability is to provide assurance to the obligee of such obligation of another that such obligation of another will be paid or discharged, or that any agreements relating thereto will be complied with, or that the holders of such obligation will be protected (in whole or in part) against loss in respect thereof; (ii) under any letter of credit issued for the account of such Person or for which such Person is otherwise liable for reimbursement thereof; (iii) under any Hedge Agreement; or (iv) to advance or supply funds or otherwise to assure or hold harmless the owner of such primary obligation against loss in respect thereof. Contingent Obligations shall include, without limitation: (A) the direct or indirect guarantee, endorsement (other than for collection or deposit in the ordinary course of business), co-making, discounting with recourse or sale with recourse by such Person of the obligation of another, and (B) any liability of such Person for the obligations of another through any agreement (contingent or otherwise): (1) to purchase, repurchase or otherwise acquire such obligation or any security therefor, or to provide funds for the payment or discharge of such obligation (whether in the form of loans, advances, stock purchases, capital contributions or otherwise); (2) to maintain the Solvency or any balance sheet item, level of income or financial condition of another; or (3) to make take-or-pay or similar payments if required regardless of non-performance by any other party or parties to an agreement, if in the case of any agreement described under subclauses (1) or (2) of this sentence the primary purpose or intent thereof is as described in the immediately preceding sentence. The amount of any Contingent Obligation shall be equal to the amount of the obligation so guaranteed or otherwise supported. "Coupons" of any Person shall mean any and all parts of an advertisement entitling the bearer to certain stated benefits, at a minimum consisting of a cash refund, now or hereafter acquired, intended for redemption for cash, by the issuer of such coupons, in the ordinary course of business of such Person, of every kind and description. "Credit Parties" shall mean and include Borrower and each Guarantor. "Default" shall mean an event, act or condition which with the giving of notice or the lapse of time, or both, would constitute an Event of Default. "Disclosure Statement" shall mean the First Amended Disclosure Statement for Joint Plan of Reorganization of Homeland Stores, Inc. and Homeland Holding Corporation, filed by the Companies in the Bankruptcy Proceedings. "EBITDA" of any Person for any period shall mean the sum of: (i) the net income (or net loss) from operations of such Person and its Subsidiaries on a consolidated basis (determined in accordance with GAAP) for such period, without giving effect to any extraordinary or unusual gains (losses) or gains (losses) from the sale of assets (other than the sale of Inventory in the ordinary course of business); plus (ii) to the extent that any of the items referred to in any of clauses (A) through (C) below were deducted in calculating such net income: (A) Consolidated Interest Expense of such Person for such period; (B) income tax expense of such Person and its Subsidiaries with respect to their operations for such period; and (C) the amount of all non-cash charges (including, without limitation, depreciation and amortization) of such Person and its Subsidiaries for such period. "EBITDAR" of any person for any period shall mean EBITDA of such Person for such period, plus Reorganization Costs. "EFS" shall have the meaning set forth in Section 11.17(d) hereof. "Eligible Coupons" shall mean only such Coupons of Borrower as the Agent, in its reasonable discretion, shall from time to time elect to consider Eligible Coupons for purposes of this Agreement. The value of such Coupons (the "Net Amount of Eligible Coupons" shall be determined at any time by reference to the then most recent Borrowing Base Certificate delivered under Section 11.1(j) hereof, which Borrowing Base Certificate shall reflect the value of such Coupons at their book value determined in accordance with GAAP (on a basis consistent with the accounting method used by Borrower as of the Closing Date). Criteria for eligibility may be fixed and revised from time to time by the Agent in its reasonable discretion. By way of example only, and without limiting the discretion of the Agent to consider any Coupons not to be Eligible Coupons, the Agent may consider any of the following classes of Coupons not to be Eligible Coupons: (i) Coupons subject to any Lien (whether or not any such lien is permitted under this Agreement), other than those granted in favor of the Agent; (ii) Coupons which are obsolete, damaged, expired, unredeemable or otherwise unfit for return to the issuer for redemption for cash in accordance with the face and tenor thereof; (iii) Coupons which are prohibited, restricted, void or taxed under law of the jurisdiction that is applicable to the transaction that otherwise would give rise to an Eligible Coupon; (iv) Coupons not in the possession and control of Borrower or the Processing Agent; (v) Coupons in respect of which the relevant Security Agreement, after giving effect to the related filings of financing statements that have then been made, if any, does not or has ceased to create a valid and perfected first priority Lien in favor of the Lenders securing the Lender Debt; and (vi) Coupons, to the extent such Coupons are subject to a contractual or statutory Lien (whether or not such Lien is permitted under this Agreement) in favor of any third person. "Eligible Inventory" shall mean only such Inventory of Borrower as the Agent, in its reasonable discretion, shall from time to time elect to consider Eligible Inventory for purposes of this Agreement. The value of such Inventory (the "Net Amount of Eligible Inventory") shall be determined at any time by reference to the then most recent Borrowing Base Certificate delivered under Section 11.1(j) hereof, which Borrowing Base Certificate shall reflect the value of Inventory at its book value determined in accordance with GAAP (on a basis consistent with the accounting method used by Borrower as of the Closing Date, which includes, without limitation, first-in, first-out inventory reporting). Criteria for eligibility may be fixed and revised from time to time by the Agent in its reasonable discretion. By way of example only, and without limiting the discretion of the Agent to consider any Inventory not to be Eligible Inventory, the Agent may consider any of the following classes of Inventory not to be Eligible Inventory: (i) Inventory subject to any Lien (whether or not any such Lien is permitted under this Agreement), other than those granted in favor of the Agent; (ii) Inventory financed by bankers' acceptances, but only until the payment in full of the related bankers' acceptances by such Person; (iii) Inventory which is obsolete, damaged, unsalable or otherwise unfit for use; (iv) Inventory located on any premises not owned or leased by Borrower; (v) Inventory in respect of which the relevant Security Agreement, after giving effect to the related filings of financing statements that have then been made, if any, does not or has ceased to create a valid and perfected first priority Lien in favor of the Lenders securing the Lender Debt; (vi) Inventory on which a Lien has arisen or may arise (A) in favor of agricultural producers under the Perishable Agricultural Commodities Act of 1930, as amended (7 U.S.C. 499(e)), and the regulations thereunder, or any comparable state or local laws or (B) in favor of a seller of livestock under the Packer and Stockyards Act (7 U.S.C. 196) and the regulations thereunder, or under any comparable state or local laws; (vii) Inventory comprised of dairy products, eggs, perishable merchandise (excluding cheese), fresh meat, prescription products, S & F Beverages, delicatessen products, bakery products, produce and consigned Inventory; and (viii) Inventory at a location leased by Borrower (A) for which Agent has not received a waiver substantially in the form and substance as set forth in Exhibit 11.22 hereto, duly executed by the owner/landlord of such location and, if applicable, the sub-lessor to Borrower at such location, and (B) to the extent such Inventory is subject to a contractual or statutory Lien (whether or not such Lien is permitted under this Agreement) in favor of such landlord or sub-lessor. "Eligible Pharmaceutical Inventory" shall mean only such Pharmaceutical Inventory of the Borrower as the Agent, in its reasonable discretion, shall from time to time elect to consider Eligible Pharmaceutical Inventory for purposes of this Agreement. The value of such Pharmaceutical Inventory (the "Net Amount of Eligible Pharmaceutical Inventory") shall be determined at any time by reference to the then most recent Borrowing Base Certificate delivered under Section 11.1(j) hereof, which Borrowing Base Certificate shall reflect the value of Pharmaceutical Inventory at its book value determined in accordance with GAAP (on a basis consistent with the accounting method used by Borrower as of the Closing Date, which includes, without limitation, first-in, first-out inventory reporting). Criteria for eligibility may be fixed and revised from time to time by the Agent in its reasonable discretion. By way of example only, and without limiting the discretion of the Agent to consider any Pharmaceutical Inventory not to be Eligible Pharmaceutical Inventory, the Agent may consider any of the following classes of Pharmaceutical Inventory not to be Eligible Pharmaceutical Inventory: (i) Pharmaceutical Inventory subject to any Lien (whether or not any such Lien is permitted under this Agreement), other than those granted in favor of the Agent; (ii) Pharmaceutical Inventory financed by banker's acceptances, but only until the payment in full of the related bankers' acceptances by such Person; (iii) Pharmaceutical Inventory which is obsolete, damaged, unsalable or otherwise unfit for use; (iv) Pharmaceutical Inventory located on any premises not owned or leased by Borrower; (v) Pharmaceutical Inventory in respect of which the relevant Security Agreement, after giving effect to the related filings of financing statements that have then been made, if any, does not or has ceased to create a valid and perfected first priority Lien in favor of the Lenders securing the Lender Debt; (vi) Pharmaceutical Inventory comprised of consigned Pharmaceutical Inventory; (vii) Pharmaceutical Inventory at a location leased by Borrower (A) for which Agent has not received a waiver substantially in the form and substance as set forth in Exhibit 11.22 hereto, duly executed by the landlord of such location, and, if applicable, the sub-lessor to Borrower at such location, and (B) to the extent such Pharmaceutical Inventory is subject to a contractual or statutory Lien (whether or not such Lien is permitted under this Agreement) in favor of such landlord; and (viii) Pharmaceutical Inventory comprised of "narcotics," as such term is defined in the regulation promulgated by the United States Food and Drug Administration and codified at 21 C.F.R. 1308.02(f). "Eligible Pharmaceutical Receivables" shall mean, at the time of calculation, bona fide outstanding Pharmaceutical Receivables: (i) upon which the Agent has a first priority perfected security interest; (ii) as to which the obligor thereof has been directed by borrower (if so directed to do so by the Agent) to make payment to a Pharmaceutical Collection Account; (iii) which arose in the ordinary course of Borrower's business; and (iv) as to which all applicable services have been duly performed or as to which all goods have been delivered to the account debtor. The term "Eligible Pharmaceutical Receivables" shall not include any Pharmaceutical Receivable: (a) with respect to which any of the representations and warranties contained in Section 14.20 hereof are not or have ceased to be true, complete and correct; (b) with respect to which, in whole or in part, a check, promissory note, draft, trade acceptance or other instrument for the payment of money has been received, presented for payment and returned uncollected for any reason; (c) as to which Borrower has extended the time for payment without the consent of the Agent; (d) as to which any Third Party Payor has terminated, extended or suspended the time for payment without the consent of the Agent; (e) owed by an account debtor which: (i) does not maintain its chief executive office in the United States; (ii) is not organized under the laws of the United States or any State thereof; or (iii) has taken any action, or suffered any event to occur, of the type described in paragraph (f) or (g) of Section 13.1 hereof; (f) owed by an account debtor which is (i) an affiliate of a Credit Party, or (ii) except for a Pharmaceutical Receivable owing from a Medicare/Medicaid Account Debtor, a federal or state government or any agency of instrumentality thereof; (g) except for a Pharmaceutical Receivable owing from a Medicare/Medicaid Account Debtor, as to which either the perfection, enforceability, or validity of the security interest in such Pharmaceutical Receivables, is governed by any federal, state, or local statutory requirements other than those of the UCC; (h) except for a Pharmaceutical Receivable owing from a Medicare/Medicaid Account Debtor, owed by an account debtor to which Borrower is indebted in any way, or which is subject to any right of set-off by the account debtor; or if the account debtor thereon has disputed liability or acknowledged its inability to pay or made any claim with respect to any other Pharmaceutical Receivable due from such account debtor, but in each such case only to the extent of such indebtedness, set-off, dispute, or claim; (i) if such Pharmaceutical Receivable or the sale or provision of goods or services giving rise thereto contravenes any applicable law, rule or regulation, including any law, rule or regulation relating to truth in lending, fair credit billing, fair credit reporting, equal credit opportunity, fair debt collection practices or privacy; (j) owed by a Third Party Payor or a Medicare/Medicaid Account Debtor if such Pharmaceutical Receivable: (i) is subject to any limitation which would make payment by such Third Party Payor or Medicare/Medicaid Account Debtor conditional, to the extent the payment of such Pharmaceutical Receivable is conditional; (ii) has not been billed or forwarded to such Third Party Payor or Medicare/Medicaid Account Debtor for payment in accordance, in all material respects, with applicable laws and in compliance, in all material respects, with any and all requisite procedures, requirements and regulations governing payment by such Third Party Payor or Medicare/Medicaid Account Debtor; (iii) if payable by a Third Party Payor, is not properly payable directly to Borrower or by such Third Party Payor in accordance with the terms and conditions of a validly existing and legally binding certification, participation agreement, provider agreement or other written contract; (iv) if payable by a Medicare/Medicaid Account Debtor, is not properly payable directly to Borrower or by such Medicare/Medicaid Account Debtor in accordance with the terms and conditions of any applicable certification, agreement, contract, law or regulation, if any; or (v) remains unpaid for more than sixty (60) days from the date a claim is properly made to the Third Party Payor or Medicare/Medicaid Account Debtor; (k) payable in part (but not in whole) by a Third Party Payor or Medicare/Medicaid Account Debtor, to the extent such Pharmaceutical Receivable exceeds the portion payable by such Third Party Payor or Medicare/Medicaid Account Debtor; (l) payable by any individual beneficiary and not a Third Party Payor or Medicare/Medicaid Account Debtor, to the extent the portion of such Pharmaceutical Receivable is payable by the individual beneficiary; or (m) if the Agent (A) believes in its reasonable discretion that the prospect of payment of such Pharmaceutical Receivable is impaired for any reason or that the Pharmaceutical Receivable may not be paid by reason of the account debtor's financial inability to pay, or (B) is not reasonably satisfied with the credit standing of the account debtor with respect to the amount of Pharmaceutical Receivables payable to Borrower by such account debtor. "Employee Plan" shall mean an "employee benefit plan" as defined in Section 3(3) of ERISA which is maintained for employees of any of the Credit Parties or any ERISA Affiliate, other than a Multiemployer Plan. "Environmental Law" shall mean the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended, the Resource Conservation and Recovery Act of 1976, as amended, any "Superfund" or "Superlien" law, the Hazardous Materials Transportation Act, as amended, and any other Federal, state, or local statute, rule, regulation, ordinance, interpretation, order, judgment, or decree, as now or at any time hereafter amended or in effect and applicable to Borrower and its Subsidiaries, regulating, relating to or imposing liability or standards of conduct concerning the manufacture, processing, distribution, use, treatment, handling, storage, disposal, or transportation of Hazardous Materials, or air emissions, water discharges, noise emissions, or otherwise concerning the protection of the outdoor or indoor environment, or health or safety of persons or property. "Equipment Lease" shall mean any lease, title retention agreement, conditional sale agreement or similar agreement under which Parent, Borrower or any Subsidiary of Parent or Borrower is the lessee, purchaser or similarly situated contracting party, which agreement covers equipment or other goods not held for sale or lease by Borrower in the ordinary course of Borrower's business. The term "Equipment Lease" includes specifically, but without limitation, leases covering "point-of-sale" computer equipment. "ERISA" shall mean, at any date, the Employee Retirement Income Security Act of 1974 and the regulations promulgated and rulings issued thereunder, all as the same shall be in effect at such date. "ERISA Affiliate" shall mean any Person that for purposes of Title I or Title IV of ERISA is a member of any Credit Party's controlled group, or under common control with any Credit Party, within the meaning of Section 414(b), (c) or (m) of the Code and the regulations promulgated and rulings issued thereunder. "Eurodollar Advance" shall mean that portion of any Advance designated to bear interest based upon the Adjusted Eurodollar Rate as provided in Section 2 hereof or in Section 3 hereof. "Eurodollar Lending Office" shall mean, for any Lender, the branch or Affiliate of such Lender designated as the Eurodollar Lending Office of such Lender on the signature pages hereto. "Eurodollar Rate" shall mean, for any Interest Period for any Eurodollar Advance, an interest rate per annum equal to the offered quotation, if any, to first-class banks in the London (England, U.K.) interbank market by three reference banks selected by the Agent for U.S. Dollar deposits of amounts in funds comparable to the principal amount of such Eurodollar Advance requested by Borrower for which the Eurodollar Rate is being determined with maturities comparable to the Interest Period for which such Eurodollar Rate will apply as of approximately 11:00 A.M. (London setting time) two (2) Business Days prior to the commencement of such Interest Period, subject, however, to the provisions of Section 4.7 hereof. "Eurodollar Rate Margin" shall mean the following, as applicable: (A) in the case of principal outstanding under the Revolving Credit Facility, the Revolving Credit Eurodollar Margin; and (B) in the case of principal outstanding under the Term Loan Facility, the Term Loan Eurodollar Margin. "Event of Default" shall have the meaning set forth in Section 13.1 hereof. "Excess Cash Flow" shall mean, with respect to Borrower and its Subsidiaries, on a consolidated basis, for any period, consolidated net income for such period, plus (x) minus (y), where (x) equals the sum of the following: (i) the aggregate amounts deducted in determining such consolidated net income in respect of all depreciation expenses and amortization expenses and other non-cash expenses, and (ii) all non-cash losses deducted in determining such consolidated net income; and (y) equals the sum of the following: (i) scheduled payments or required prepayments of the principal of Indebtedness (to the extent paid, and to the extent that Borrower was permitted pursuant to the provisions hereof to make such payments during such period), but only to the extent that such payment cannot be reborrowed or redrawn or is not refinanced during such period, (ii) the aggregate amount of Net Capital Expenditures of Borrower made during such period, (iii) repayments during such period of the portion of Capitalized Lease Obligations of Borrower or any of its Subsidiaries not allocable to Consolidated Interest Expense, and (iv) all non-cash gains included in determining such consolidated net income. "Excess Funds" shall have the meaning set forth in Section 4.11 hereof. "Excluded Claims" shall have the meaning set forth in Section 4.8(c) hereof. "Excluded Properties" shall have the meaning given such term in the definition of Collateral. "Excluded Taxes" shall mean franchise taxes, taxes on doing business or taxes measured by capital or net worth of any Lender and taxes upon or determined by reference to any Lender's net income, in each case, imposed: (i) by the United States of America or any political subdivision or taxing authority thereof or therein (including, without limitation, branch taxes imposed by the United States or similar taxes imposed by any subdivision thereof); (ii) by any jurisdiction in which the Eurodollar Lending Office or other branch of any Lender is located or in which any Lender is organized or has its principal or registered office; (iii) by reason of any connection, including, without limitation, a present or former connection, between the jurisdiction imposing such tax and such Lender other than a connection arising solely from this Agreement or any related agreements or any transaction contemplated hereby or thereby; or (iv) by reason of the failure of any Lender to provide documentation required to be provided by such Lender pursuant to Section 5.4(b) hereof. "Existing Agreement" shall have the meaning set forth in the recitals to this Agreement. "Federal Bankruptcy Code" shall mean the United States Bankruptcy Code, 11 U.S.C. 101, et seq., in effect as of the date hereof, together with all rules, regulations and interpretations thereunder or related thereto, as amended, modified, supplemented or recodified from time to time. "Federal Funds Rate" shall mean, for any day, the rate per annum (rounded upwards, if necessary, to the nearest 1/100th of 1%) equal to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers on such day, as published by the Federal Reserve Bank of New York on the Business Day next succeeding such day, provided that (i) if such day is not a Business Day, the Federal Funds Rate for such day shall be such rate on such transactions on the next preceding Business Day as so published on the next succeeding Business Day, and (ii) if no such rate is so published on such next succeeding Business Day, the Federal Funds Rate for such day shall be the average rate quoted to the Agent on such day on such transactions as determined by the Agent. "Final Financing Order" shall mean the Joint Stipulation and Agreed Order Authorizing Final Financing, Granting Senior Liens And Priority Administrative Expense Status, Providing For Adequate Protection, Modifying The Automatic Stay, And Authorizing Debtors To Enter Into Agreements With Lenders And Agent, entered by the Bankruptcy Court on June 7, 1996, as amended, modified, supplemented or extended from time to time. "Financing Orders" shall mean the Interim Financing Order and the Final Financing Order, as amended, modified, supplemented or extended from time to time. "First Offer Rights" shall mean (i) AWG's right of first offer with respect to the stores owned or operated by Borrower listed on Exhibit B to the Supply Agreement, as such agreement may be amended from time to time, and (ii) any public recordation of such first offer rights, provided that any such public recordation shall be terminable from time to time as set forth in Section 7(f) of the Supply Agreement. "Fiscal Quarter" shall mean, with respect to the Companies and with respect to each of the first three (3) "Fiscal Quarters" of each Fiscal Year, a period of twelve (12) consecutive weeks, beginning on the first day after the last day of the preceding Fiscal Year of Borrower and ending on the Saturday on or closest to the next Fiscal Quarter; and with respect to the fourth and last "Fiscal Quarter" of each Fiscal Year, a period of sixteen (16) or seventeen (17) weeks, as the case may be, beginning on the first day after the last day of the third Fiscal Quarter of each Fiscal Year. The fourth Fiscal Quarter for the Companies' Fiscal Year 1996 begins September 8, 1996. "Fiscal Year" shall mean, with respect to the Companies, a period of fifty-two (52) or fifty-three (53) consecutive weeks beginning on the first day after the last day of the preceding "Fiscal Year" of and ending on the Saturday on or closest to the next December 31, beginning with the fifty-two (52)-week period ending December 30, 1995. "Floating Rate" shall mean a fluctuating interest rate per annum as shall be in effect from time to time, which rate per annum shall at all times be equal to the sum of (i) the Base Rate plus (ii) the following, as applicable: (A) in the case of principal outstanding under the Revolving Credit Facility, the Revolving Credit Base Rate Margin; and (B) in the case of principal outstanding under the Term Loan Facility, the Term Loan Base Rate Margin. "Foreign Lender" shall have the meaning set forth in Section 5.4(b) hereof. "Funded Debt" of any Person shall mean: (i) all Indebtedness for Borrowed Money of such Person; (ii) Capitalized Lease Obligations of such Person; (iii) notes payable and drafts accepted representing extensions of credit of such Person whether or not representing obligations for borrowed money (other than any balance that constitutes an accrued expense or trade payable); (iv) any obligation owed by such Person for all or any part of the deferred purchase price of property or services that have been rendered, which purchase price is (y) due more than one year from the date of incurrence of the obligation in respect thereof, or (z) evidenced by a note or similar written instrument, in each case except any such obligation that constitutes an accrued expense or trade payable; (v) all indebtedness of such Person secured by any Lien on any property or asset owned or held by that Person regardless of whether the indebtedness secured thereby shall have been assumed by that Person or is non-recourse to the credit of that Person; (vi) all reimbursement obligations and other liabilities of such Person with respect to letters of credit issued for such Person's account; and (vii) the guarantee or joint obligation of that Person of items described in any of clauses (i)-(vi) above guaranteed by such Person; provided, however, in the case of any of the foregoing items (i) - (vi), the term "Funded Debt" shall include any such item only to the extent such item would appear as a liability upon a balance sheet of such Person prepared on a consolidated basis in accordance with GAAP. "Funded Debt-to-EBITDAR Ratio" shall mean, for any Fiscal Quarter of the Companies, the ratio obtained by dividing (i) the Funded Debt of the Parent and its Subsidiaries on a consolidated basis as of the last day of such Fiscal Quarter, by (ii) the aggregate amount of EBITDAR of the Parent and its Subsidiaries on a consolidated basis for the four (4) Fiscal Quarter periods ending at the end of such Fiscal Quarter. "GAAP" shall have the meaning specified in Section 1.4 hereof. "Gross Proceeds" shall mean, as to any transaction, an amount equal to the Net Proceeds, calculated, however, without the deductions set forth in clauses (A) and (C) of clause (i) of the definition of Net Proceeds. "Guarantor" shall mean, at any time, the Parent and each of Borrower's present or future Subsidiaries. "Guaranty" shall mean any guaranty executed and delivered pursuant to Section 7.5 hereof, as each may be amended, supplemented or otherwise modified from time to time in accordance with its terms. "Hazardous Material" shall mean any pollutant, contaminant, chemical, or industrial or hazardous, toxic or dangerous waste, substance or material, defined or regulated as such in (or for purposes of) any Environmental Law and any other toxic, reactive, or flammable chemicals, including (without limitation) any asbestos, any petroleum (including crude oil or any fraction), any radioactive substance and any polychlorinated biphenyls; provided, in the event that any Environmental Law is amended so as to broaden the meaning of any term defined thereby, such broader meaning shall apply subsequent to the effective date of such amendment; and provided, further, to the extent that the applicable laws of any state establish a meaning for "hazardous material," "hazardous substance," "hazardous waste," "solid waste" or "toxic substance" which is broader than that specified in any Environmental Law, such broader meaning shall apply. "Hedge Agreement" shall have the meaning specified in clause (v) of the definition of Indebtedness. "Indebtedness" of any Person shall mean all items which, in accordance with GAAP, would be included in determining total liabilities of such Person as shown on the liability side of a balance sheet as at the date Indebtedness of such Person is to be determined and, in any event, shall include (without limitation and without duplication): (i) all Indebtedness for Borrowed Money of such Person; (ii) any liability of such Person secured by any Lien on property owned or acquired by such Person, whether or not such liability shall have been assumed; (iii) all Contingent Obligations of such Person; (iv) letters of credit and all obligations of such Person relating thereto; and (v) all obligations (other than obligations to pay fees in connection therewith) of such Person in respect of interest rate swap agreements, currency swap agreements and other similar agreements designed to hedge against fluctuations in interest rates or foreign exchange rates (each, a "Hedge Agreement"). "Indebtedness for Borrowed Money" of any Person shall mean all Indebtedness for borrowed money or evidenced by notes, bonds, debentures or similar evidences of Indebtedness of such Person, all obligations of such Person for the deferred and unpaid purchase price of any property, service or business (other than trade accounts payable and similar current accrued liabilities incurred in the ordinary course of business and constituting Current Liabilities), and all obligations of such Person under Capitalized Lease Obligations. "Indemnified Party" shall have the meaning set forth in Section 4.8(c) hereof. "Indenture" shall mean the indenture dated as of August 2, 1996 (as originally in effect or as amended in accordance with the terms of this Agreement) among Borrower, as issuer, Parent, as guarantor, and the Trustee, pursuant to which Borrower's 10% Senior Subordinated Notes due 2003 were issued (collectively, the "Subordinated Notes"). "Interest Payment Date" shall mean, with respect to each Eurodollar Advance, the last day of the Interest Period for such Eurodollar Advance; provided, however, that with respect to each Interest Period for any Eurodollar Advance of a duration of three or more months, the Interest Payment Date with respect to such Eurodollar Advance shall include, in addition to the last day of such Interest Period, each day which occurs every three months after the initial date of such Interest Period. "Interest Period" shall mean, with respect to each Eurodollar Advance, initially, the period commencing on, as the case may be, the borrowing or conversion date with respect to such Eurodollar Advance and ending one, two, three or six months thereafter, as selected by Borrower, subject however, to Section 4.1(f) hereof; and thereafter, each period commencing on the last day of the next preceding Interest Period applicable to such Eurodollar Advance and ending one, two, three or six months thereafter, as selected by Borrower subject, however, to Section 4.1(f) hereof; provided, however, that no Interest Period may be selected for a Eurodollar Advance which expires later than the Maturity Date, subject however, to Section 4.1(f) hereof; and provided, further, that any Interest Period in respect of a Eurodollar Advance which begins on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall, subject to the foregoing proviso, end on the last Business Day of a calendar month. Notwithstanding the above, all Interest Periods shall be adjusted in accordance with Section 15.11 hereof. "Interim Financing Order" shall mean the Joint Stipulation and Agreed Order Authorizing Interim Financing, Granting Senior Liens And Priority Administrative Expense Status, Providing For Adequate Protection, Modifying The Automatic Stay, And Authorizing Debtors To Enter Into Agreements With Lenders And Agent, entered by the Bankruptcy Court on or about May 13, 1996, as amended, modified, supplemented or extended from time to time. "Interim Period" shall mean the period beginning on the 46th day following the end of a Fiscal Quarter and ending on the 45th day of the next following Fiscal Quarter. "Inventory" of any Person shall mean any and all inventory, raw materials, work-in-process and finished products of such Person, now or hereafter acquired, intended for sale or lease or to be furnished under contracts of service in the ordinary course of business of such Person, of every kind and description. "Investment" shall have the meaning set forth in Section 12.4 hereof. "Issuing Lender" shall have the meaning set forth in Section 6.1 hereof. "Lease" shall mean each lease or sublease of real property existing on the Closing Date under which Parent, Borrower or any of its Subsidiaries is the lessee or sublessee and each future lease or sublease of real property under which Borrower or any of its Subsidiaries is the lessee or sublessee. "Lender" and "Lenders" shall have the meanings set forth in the preamble to this Agreement. "Lender Debt" shall mean and include all Advances and all other Indebtedness owing at any time by Borrower, any one or more of its Subsidiaries or any other Credit Party to Agent or any one or more of Lenders (including, without limitation, all principal and interest, Letter of Credit reimbursement obligations, fees, indemnities, costs, charges and other amounts payable under the Letter of Credit Agreements or in respect of the Letters of Credit or under any of the other Loan Documents), arising under or in connection with this Agreement, the Notes, any Security Document, any of the other Loan Documents, or any Guaranty in favor of the Agent or any one or more of the Lenders, in each instance, whether absolute or contingent, secured or unsecured, due or not, and whether arising by operation of law or otherwise, and all interest and other charges thereon. "Letter of Credit" shall have the meaning set forth in the preamble to this Agreement, and any extension, modification, amendment, renewal or replacement thereof. "Letter of Credit Agreement" shall mean an application and agreement, as amended, modified or supplemented from time to time, with respect to the issuance and reimbursement of and otherwise with respect to a Letter of Credit, in form and substance satisfactory to the Agent. "Letter of Credit Cash Collateral" shall mean cash deposited by Borrower with the Agent to secure obligations of Borrower under Letters of Credit (contingent or otherwise) pursuant to agreements in form and substance satisfactory to the Agent. "Letter of Credit Fee" shall mean the percentage indicated below that corresponds to the period of time and, where applicable, the EBITDAR of the Companies for the Fiscal Year indicated below: from the from May 1, 1997 through from May 1, 1998 Closing Date and including April 30, 1998 and thereafter through and including April 30, 1997 If Fiscal Year If Fiscal Year If Fiscal Year If Fiscal Year 1996 EBITDAR 1996 EBITDAR 1997 EBITDAR 1997 EBITDAR is greater than is greater than is greater than is less than or $17,000,000 or equal to $25,000,000 equal to $17,000,000 $25,000,000 1.75% per 1.5% per annum 1.75% per 1.5% per annum 1.75% per annum annum annum "Letter of Credit Sublimit" shall mean the lesser of (i) $18,000,000, and (ii) the Borrowing Base. "Letter of Credit Usage" shall mean, at any time, (i) the aggregate undrawn amount at such time of all outstanding Letters of Credit, plus (ii) the aggregate amount of unreimbursed drawings at such time under Letters of Credit. "Lien" shall mean any lien, mortgage, pledge, security interest or other type of charge or encumbrance of any kind, or any other type of preferential arrangement, including, without limitation, the lien or retained security title of a conditional vendor, any lien in favor of a landlord (whether or not perfected and whether or not notice of any such lien has been filed) and any easement, right of way or other encumbrance on title to real property and any financing statement filed in respect of any of the foregoing. For the purposes of this Agreement, a Credit Party shall be deemed to be the owner of any property which it has placed in trust for the benefit of the holder of Indebtedness of such Credit Party which Indebtedness is deemed to be extinguished under GAAP but for which such Credit Party remains legally liable, and such trust shall be deemed to be a Lien. "Loan Documents" shall mean, collectively, the Agreement, each Security Document, each Mortgage, each Guaranty, the Notes, each Letter of Credit Agreement, each Borrower's Certificate, each Borrowing Base Certificate, each Landlord's Certificate, each Collection Account Agreement, each Concentration Account Agreement, each Lock-Box Agreement, each Pharmaceutical Collection Account Agreement, and each other document or instrument now or hereafter delivered to the Agent or any Lender by any Credit Party pursuant to or in connection herewith or therewith and as each of the same are further amended, modified, supplemented, extended, renewed, restated or replaced from time to time. "Local Bank Special Account" shall have the meaning set forth in Section 11.17(c) hereof. "Lock-Box Account" means an account maintained for the purpose of receiving all cash collections and other cash proceeds of Pledged Accounts. "Lock-Box Agreement" means an agreement in substantially the form of Exhibit 1.1 hereto. "Material Adverse Effect" shall mean a material adverse effect on (i) the business, assets, prospects, operations or financial or other condition of Parent, Borrower and Borrower's Subsidiaries, taken as a whole, (ii) Borrower's ability to pay the Lender Debt in accordance with the terms hereof, (iii) the Collateral, or (iv) the Agent's Liens on the Collateral or the priority of any such Lien. "Maturity Date" shall mean the date three (3) years from the Closing Date. "Maximum Lawful Rate" shall have the meaning set forth in Section 4.16(a) hereof. "Maximum Permissible Rate" shall have the meaning set forth in Section 4.16(b) hereof. "Medicare/Medicaid Account Debtor" shall mean the following Persons who are or may become obligated for payment of any Pharmaceutical Receivables: (i) the United States of America acting under the Medicare Program established pursuant to the Social Security Act, (ii) any State acting pursuant to a health plan adopted pursuant to Title XIX of the Social Security Act, or (iii) any agent for any of the foregoing. "Membership Sign-Up Documents" shall mean (i) the Application for Membership by Homeland Stores, Inc., between Borrower and AWG and (ii) the Stock Power of Attorney granted to AWG by Borrower with respect to the AWG Membership Stock owned by Borrower. "Mortgages" shall have the meaning specified in Section 7.2(a) hereof. "Multiemployer Plan" shall mean a "multiemployer plan" as defined in Section 4001(a)(3) of ERISA to which any of the Credit Parties or any ERISA Affiliate contributes. "Net Amount of Eligible Coupons" shall have the meaning set forth in the definition of Eligible Coupons. "Net Amount of Eligible Inventory" shall have the meaning set forth in the definition of Eligible Inventory. "Net Amount of Eligible Pharmaceutical Inventory" shall have the meaning set forth in the definition of Eligible Pharmaceutical Inventory. "Net Amount of Eligible Pharmaceutical Receivables" shall have the meaning set forth in the definition of Eligible Pharmaceutical Receivables. "Net Capital Expenditures" shall mean for any period, the Capital Expenditures made by Borrower and its Subsidiaries in such period, less net cash proceeds from the sale of Excluded Properties. "Net Proceeds" shall mean, with respect to any transaction, (i) cash (freely convertible into U.S. dollars) received by any Credit Party from such transaction (including cash received as consideration for the assumption or incurrence of liabilities incurred in connection with or in anticipation of such transaction), after (A) provision for all income, title, recording or other taxes measured by or resulting from such transaction after taking into account all available deductions and credits, (B) payment of all brokerage commissions, reasonable investment banking and legal fees and other fees and expenses related to such transaction, (C) deduction of appropriate amounts to be provided by such Credit Party as a reserve, in accordance with GAAP, against any liabilities associated with the assets sold or disposed of in such transaction and retained by such Credit Party after such transaction, including, without limitation, pension and other post-employment benefit liabilities and liabilities related to environmental matters or against any indemnification obligations associated with the assets sold or disposed of in such transaction, (D) amounts paid to satisfy Indebtedness (other than the Lender Debt and Subordinated Notes) which are required to be repaid in connection with any such transaction, and (E) so long as no Default or Event of Default is continuing, payment of trade payables incurred as a result of the purchase of Inventory sold in connection with such transaction; and (ii) promissory notes received by such Credit Party from such transaction or such other disposition upon the liquidation or conversion of such notes into cash. "Note" and "Notes" shall mean the Revolving Notes and the Term Notes. "Old Indenture" shall mean the indenture of Borrower, as issuer, Parent, as guarantor, and the United States Trust Company of New York, as Trustee, dated as of March 4, 1992, providing for $120,000,000 Series A Senior Secured Floating Rate Notes due 1997 and Series B Senior Secured Fixed Rate Notes due 1999. "Overadvance" shall have the meaning set forth in Section 2.2(c) hereof. "Parent" shall have the meaning set forth in the preamble hereto. "Parent Case" shall mean the Chapter 11 case of Parent under the Federal Bankruptcy Code captioned In re: Homeland Holding Corporation, Case No. 96-748-PJW (Chapter 11) in the Bankruptcy Court. "Payment Office" shall have the meaning set forth in Section 2.4(c) hereof. "PBGC" shall mean the Pension Benefit Guaranty Corporation, or any successor thereof under ERISA. "Pension Benefit Plan" shall mean an "employee pension benefit plan" as defined in Section 3(2) of ERISA which is maintained for employees of any of the Credit Parties or any ERISA Affiliate, other than a Multiemployer Plan. "Permitted Transaction" shall mean: (i) payments on behalf of Parent: (A) to pay reasonable and necessary operating costs and taxes incurred in the ordinary course of business including, without limitation, (1) the execution, delivery and performance by Parent or Borrower of indemnification and contribution agreements in favor of each Person who becomes a director of Parent, Borrower or any of their respective Subsidiaries in respect of liabilities (a) arising under the Securities Act, the Securities Exchange Act, and any other applicable securities laws or otherwise in connection with any offering of securities by Parent, Borrower or any of their respective Subsidiaries, (b) incurred to third parties for any action or failure to act of Parent, Borrower or any of their Subsidiaries or successors, (c) arising out of the fact that any indemnitee was or is a director of Holding, Borrower, or any of their respective Subsidiaries, or is or was serving at the request of any such corporation as director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, or (d) to the fullest extent permitted by Delaware law, out of any breach or alleged breach by such an indemnitee of his or her fiduciary duty as a director of Parent, Borrower or any of their respective Subsidiaries, (2) loans and advances to officers and directors of Parent, Borrower or any of their respective Subsidiaries (or employees thereof, if approved by an officer of Borrower) existing on the Closing Date and set forth on Schedule 1.1(B) hereto or made in the ordinary course of business for reasonable travel, entertainment and relocation expenses, or (3) customary compensation and severance arrangements with officers, directors, and employees of Parent, and (B) to permit Parent to cover its expenses (including all reasonable professional fees and expenses) incurred in connection with (1) the Parent Case, (2) so long as no Default or Event of Default in payment of principal of or interest on Lender Debt has occurred and is continuing, public offerings of its equity securities or debt permitted by the Indenture, and its obligations to register securities with the Securities and Exchange Commission (and any government agency succeeding to its functions) and similar state agencies or (3) to comply with its reporting obligations under the federal and state securities laws; and (ii) payments to any Affiliate of reasonable fees and reasonable expenses incurred by any such Affiliate in connection with its performance of services to Parent, Borrower and their respective Subsidiaries. "Person" shall mean an individual, a corporation, an association, a joint stock company, a business trust, a partnership, a trust, a joint venture, an unincorporated organization or other entity, or a government or any agency or political subdivision thereof. "Pharmaceutical Collection Account" shall mean a deposit account of Borrower, established pursuant to Section 8.18(e) hereof, into which only cash proceeds of Pharmaceutical Receivables shall be deposited, all amounts deposited in which and all claims arising under which have been pledged to the Agent for the benefit of the Agent and the Lenders pursuant to a Pharmaceutical Collection Account Agreement; provided, however, that Borrower shall have access to such account. "Pharmaceutical Collection Account Agreement" shall have the meaning set forth in Section 8.18(e) hereof. "Pharmaceutical Inventory" of any Person shall mean any and all inventory and stock of prescription products, now or hereafter acquired, intended for sale or lease or to be furnish under contracts of service in the ordinary course of business of such Person, of every kind and description. "Pharmaceutical Receivables" shall mean and include all accounts, contract rights, instruments, documents, chattel paper and general intangibles, whether secured or unsecured, now existing and hereafter created, of the Credit Parties, whether or not specifically sold or assigned to the Agent or the Lenders, and arising form a sale or other disposition of Pharmaceutical Inventory by Borrower in the ordinary course of Borrower's business including, without limitation, all rights to receive payments from Third Party Payors and Medicare/Medicaid Account Debtors and any and all contracts related to payment by such Third Party Payors and Medicare/Medicaid Account Debtors. "Plan" shall mean that certain First Amended Joint Plan Of Reorganization Of Homeland Stores, Inc. And Homeland Holding Corporation, dated June 13, 1996 and filed June 13, 1996, as amended, in the Bankruptcy Proceedings. "Pledged Accounts" shall have the meaning set forth in Section 7.1(a) hereof. "Processing Agent" shall mean International Data, L.L.C., an Indiana limited liability company, Borrower's agent for processing of Coupons pursuant to the terms of the Processing Agreement and any successor agent for processing of coupons that is approved by the Lenders and that has entered into a coupon processing service agreement acceptable to Lenders. "Processing Agreement" shall mean that certain Coupon Processing Service Agreement (Cash Advance Program) dated as of September 18, 1995, between the Processing Agent and Borrower, as amended, modified, supplemented or restated from time to time. "Real Property" shall have the meaning set forth in the definition of Collateral. "pro rata" shall mean, with respect to each Lender, a percentage equal to the ratio that (x) the sum of the Revolving Commitment and the Term Loan Commitment of such Lender bears (y) to the sum of the Revolving Credit Facility Commitment and the Term Loan Facility Commitment. "Receivables" shall mean and include all accounts, contract rights, instruments, documents, chattel paper and general intangibles, whether secured or unsecured, now existing or hereafter created, of the Credit Parties, and whether or not specifically sold or assigned to the Agent or the Lenders. "Records and Other Property" shall have the meaning set forth in Section 7.1(a) hereof. "Regulation D" shall mean Regulation D of the Board as from time to time in effect and any successor to all or a portion thereof establishing reserve requirements. "Release" shall mean any releasing, spilling, escaping, leaking, seepage, pumping, pouring, emitting, emptying, discharging, injecting, escaping, leaching, disposing or dumping. The meaning of the term shall also include any threatened Release. "Reorganization Costs" shall mean the sum of the following: (a) legal, professional and bank facility fees associated with the reorganization of the Companies incurred in connection with the Bankruptcy Proceedings, (b) severance expenses for the Employee Buyout Offer not to exceed $6,600,000, (c) expenses, up to $750,000, in the aggregate, paid to establish the Health and Welfare Benefit Plan, as described in section XIV(B) of the Disclosure Statement, (d) expenses incurred in discontinuing operations at Borrower's stores numbered 488 and 602, not to exceed $1,806,250 in the aggregate, of which total, the cash expenses will not exceed $400,000 and the non- cash expenses will not exceed $1,406,250, and (e) to the extent actually incurred and not reimbursed from any source, the net transition expenses incurred in connection with termination of Borrower's prior Health and Welfare Benefit Plan, such expenses not to exceed, in the aggregate, $900,000. (f) cure items. "Reportable Event" shall mean any reportable event described in Section 4043(b) of ERISA or the regulations thereunder, as to which the PBGC has not by regulation waived the notice requirement of Section 4043(a) of ERISA. "Required Lenders" shall mean, at any time, Lenders having more than sixty-six and two-thirds percent (66 2/3%) of the sum of (i) the aggregate outstanding principal balance of the Revolving Loan, (ii) the Letter of Credit Usage (which shall be deemed to be held by the Lenders in accordance with their exposure under Section 15.18 hereof), (iii) the aggregate outstanding principal balance of the Term Loan, and (iv) the aggregate amount of unutilized Revolving Commitments of the Lenders, in each case, at such time. "Revolving Commitment", as to any Lender, shall have the meaning set forth in Section 2.2(b) hereof. For purposes of Sections 4.5, 4.8 and 6.4 hereof, the Revolving Commitment of any Lender shall include the participation interest of such Lender in Letters of Credit as provided in Section 15.18 hereof. "Revolving Credit Advance" shall have the meaning set forth in Section 2.1(a) hereof. "Revolving Credit Base Rate Margin" shall mean the percentage indicated below that corresponds to the period of time and, where applicable, the EBITDAR of Borrower for the Fiscal Year indicated below: from the Closing Date through April from May 1,1997 through 30, 1997 and including April 30, 1998 From May 1, 1998 and thereafter If Fiscal Year If Fiscal Year If Fiscal Year If Fiscal Year 1996 EBITDAR 1996 EBITDAR 1997 EBITDAR 1997 EBITDAR is greater than is less than or is greater than is less than or $17,000,000 equal to $25,000,000 equal to $17,000,000 $25,000,000 0.75% 0.50% 0.75% 0.50% 0.75% "Revolving Credit Eurodollar Margin" shall mean the percentage indicated below that corresponds to the period of time and, where applicable, the EBITDAR of Borrower for the Fiscal Year indicated below: from the Closing Date through April from May 1, 1997 through and 30,1997 including April 30, 1998 from May 1,1998 and thereafter If Fiscal Year If Fiscal Year If Fiscal Year If Fiscal Year 1996 EBITDAR 1996 EBITDAR 1997 EBITDAR 1997 EBITDAR is greater than is less than or is greater than is less than or $17,000,000 equal to $25,000,000 equal to $17,000,000 $25,000,000 3.00% 2.75% 3.00% 2.75% 3.00% "Revolving Credit Facility Commitment" shall mean Twenty- Seven Million Five Hundred Thousand Dollars ($27,500,000). "Revolving Loan" shall have the meaning set forth in Section 2.1(a) hereof. "Revolving Loan Borrowing Limit" shall have the meaning set forth in Section 2.2(a) hereof. "Revolving Note" and "Revolving Notes" shall have the meanings set forth in Section 2.3(a) hereof. "Securities Act" shall mean the Securities Act of 1933, as amended from time to time. "Securities Exchange Act" shall mean the Securities Exchange Act of 1934, as amended from time to time. "Security Agreement" shall have the meaning specified in Section 7.1(a) hereof. "Security Documents" shall have the meaning specified in Section 7.1(a) hereof. "Settlement Date" shall have the meaning set forth in Section 2.4(c). "Settlement Notice" shall have the meaning set forth in Section 2.4(c). "Sight Draft Special Account" shall have the meaning set forth in Section 11.17(c) hereof. "Solvent" and "Solvency" shall mean, with respect to any Person on a particular date, that on such date, (i) the fair value of the property of such Person is greater than the total amount of liabilities, including, without limitation, contingent liabilities, of such Person; and (ii) the present fair salable value of the assets of such Person is not less than the amount that will be required to pay the probable liability of such Person on its debts as they become absolute and matured; and (iii) such Person does not intend to, and does not believe that it will, incur debts or liabilities beyond such Person's ability to pay as such debts and liabilities mature; and (iv) such Person is not engaged in business or a transaction, and is not about to engage in business or a transaction, for which such Person's property would constitute an unreasonably small capital. "Special Account" shall have the meaning set forth in Section 11.17(c) hereof. "Store Deposit" shall have the meaning set forth in Section 11.17(c) hereof. "Subordinated Note Documents" shall mean the Indenture and each instrument, document and agreement evidencing, securing, creating, guaranteeing or governing the Indebtedness evidenced by the Subordinated Notes or entered into in connection therewith, in each case as originally in effect or as amended in accordance with the terms of this Agreement. "Subordinated Notes" shall have the meaning specified in the definition of the term "Indenture". "Subsidiary" of any Person shall mean (i) any corporation of which more than fifty percent (50%) of the issued and outstanding securities having ordinary voting power for the election of directors is owned or controlled, directly or indirectly, by such Person and/or one or more of its Subsidiaries, and (ii) any partnership in which a Person and/or one or more Subsidiaries of such Person shall have an interest (whether in the form of voting or participation in profits or capital contribution) of more than fifty percent (50%). "Supply Agreement" shall mean the Supply Agreement, dated as of April 21, 1995, by and between AWG and Borrower. "Term Commitment", as to any Lender, shall have the meaning set forth in Section 3.2(b) hereof. "Term Loan Facility Commitment" shall mean Ten Million Dollars ($10,000,000). "Term Loan" shall have the meaning set forth in Section 3.1(a) hereof. "Term Loan Advance" shall have the meaning set forth in Section 3.1(a) hereof. "Term Loan Base Rate Margin" shall mean the percentage indicated below that corresponds to the period of time and, where applicable, the EBITDAR of Borrower for the Fiscal Year indicated below: from the Closing Date through April from May 1,1997 through and 30, 1997 including April 30,1998 from May 1, 1998 and thereafter If Fiscal Year If Fiscal Year If Fiscal Year If Fiscal Year 1996 EBITDAR 1996 EBITDAR 1997 EBITDAR 1997 EBITDAR is greater than is lessthan or is greater than is less than or $17,000,000 equal to $25,000,000 equal to $17,000,000 $25,000,000 1.0% 0.75% 1.0% 0.75% 1.0% "Term Loan Eurodollar Margin" shall mean the percentage indicated below that corresponds to the period of time and, where applicable, the EBITDAR of Borrower for the Fiscal Year indicated below: from the Closing Date through April from May 1, 1997 through and 30,1997 including April 30, 1998 from May 1, 1998 and thereafter If Fiscal Year If Fiscal Year If Fiscal Year If Fiscal Year 1996 EBITDAR 1996 EBITDAR 1997 EBITDAR 1997 EBITDAR is greater than is less than or is greater than is less than or $17,000,000 equal to $25,000,000 equal to $17,000,000 $25,000,000 3.25% 3.00% 3.25% 3.00% 3.25% "Term Note" and "Term Notes" shall have the meanings set forth in Section 3.3(a) hereof. "Total Commitment" shall mean the total amount available to Borrower under the Revolving Credit Facility Commitment and the Term Loan Facility Commitment. "Third Party Payor" shall mean any insurance company third-party payor or managed care payor that makes payment for the provision of goods or services related to medical treatment provided to an individual, including, but not limited to, any commercial payor, hospital or pharmacy. "Trustee" shall mean Fleet National Bank, as trustee under the Indenture, and any successor trustee appointed pursuant to the applicable provisions of the Indenture. "UCC" shall mean the Uniform Commercial Code (or any successor statute) of the State of New York or of any other state the laws of which are required by Section 9-103 of the UCC of New York to be applied in connection with the perfection of a security interest in favor of the Agent hereunder or under any Security Document. "U.S. Dollars" and "$" shall mean lawful currency of the United States of America. "Use Restrictions" shall mean (i) Borrower's agreement under Section 8(b) of the Supply Agreement to dedicate (to the extent of its interest therein (including leasehold interests)) certain real property and the improvements thereon to the exclusive use of a retail grocery facility (including all activities which from time to time are commonly associated with the operation of a grocery facility) which is owned by a retail member of AWG and (ii) any public recordations of such agreement, provided that any such public recordation shall be terminable from time to time as set forth in Section 8(b) of the Supply Agreement. "Written Notice" and "in writing" shall mean any form of written communication or a communication by means of telex, telecopier device, telegraph or cable. 1.2. TERMS DEFINED IN THE UNIFORM COMMERCIAL CODE. Each term defined in the UCC of the State of New York and used herein shall have the meaning given therein unless otherwise defined herein. 1.3. COMPUTATION OF TIME PERIODS. In this Agreement in the computation of periods of time from a specified date to a later specified date, the word "from" shall mean "from and including" and the words "to" and "until" each shall mean "to but excluding." 1.4. ACCOUNTING TERMS. (a) All accounting terms not specifically defined herein shall be construed, as to a specified Person, in accordance with generally accepted accounting principles in the United States, consistent with those applied in the preparation of the financial statements of such Person ("GAAP"). (b) If any change in accounting principles from those used in the preparation of any financial statements previously delivered to Lenders under the Existing Agreement are hereafter occasioned by promulgation of rules, regulations, pronouncements or opinions by or are otherwise required by the Financial Accounting Standards Board or the American Institute of Certified Public Accountants (or successors thereto or agencies with similar functions), Borrower shall cause its independent auditors promptly to report such change and the effect thereof on Borrower (and Parent) and its financial reporting to the Agent in writing. If Parent and Borrower do not adopt such change and the Agent determines that such change is material to the Parent, Borrower and their Subsidiaries and requests that Parent, Borrower and their respective Subsidiaries adopt such change, then Parent, Borrower and their Subsidiaries shall adopt such change (but not prior to the date that such Credit Party is required to adopt such change by such authorities). If such change results in a change in the method of calculation of, or affects the results of such calculation of, any of the financial covenants, standards or terms found in any Loan Document, then the parties hereto agree to enter into and diligently pursue negotiations in order to amend such financial covenants, standards or terms so as to equitably reflect such change, with the desired result that the criteria for evaluating a Credit Party's financial condition and results of operations shall be the same after such change as if such change had not been made. 1.5. OTHER PROVISIONS REGARDING DEFINITIONS. (a) The words "hereof," "herein" and "hereunder" and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement. (b) The terms defined in this Section 1, unless the context requires otherwise, will have the meanings applied to them in this Section 1, references to an "Exhibit," "exhibit," "Schedule" or "schedule" are, unless otherwise specified, to one of the exhibits or schedules attached to this Agreement and references to a "section" or "Section" are, unless otherwise specified, to one of the sections of this Agreement. (c) The term "or" is not exclusive. SECTION 2. AMOUNT AND TERMS OF REVOLVING CREDIT FACILITY. 2.1. REVOLVING CREDIT FACILITY ADVANCES. (a) Each of the Lenders severally, but not jointly, agrees to lend to Borrower, subject to and upon the terms and conditions herein set forth, at any time or from time to time on or after the Closing Date and before the Maturity Date, such Lender's pro rata share of such amounts as may be requested or be deemed requested by Borrower in accordance with the terms of this Agreement (each such borrowing, a "Revolving Credit Advance" and the outstanding principal balance of all Revolving Credit Advances from time to time, the "Revolving Loan"), subject to the limitations contained in Section 2.2 hereof. (b) Each Revolving Credit Advance shall be made on the date specified in the Written Notice or telephonic notice confirmed in writing as described in Section 2.4; provided, however, that if Borrower shall be deemed to request a Revolving Credit Advance under Section 6.1(c) hereof, no notice of a borrowing shall be necessary and such Advance shall be in an amount equal to the reimbursement obligation of Borrower for the drawing made under the Letter of Credit for which such Advance is deemed requested. 2.2. REVOLVING CREDIT FACILITY COMMITMENT AND REVOLVING LOAN BORROWING LIMIT. (a) The aggregate unpaid principal amount of the Revolving Credit Advances outstanding at any time shall not exceed an amount equal to the lesser of (i) the Revolving Credit Facility Commitment minus the Letter of Credit Usage at such time (after giving effect to any concurrent reimbursement of a Letter of Credit with the proceeds of an Advance pursuant to Section 6.1(c) hereof), and (ii) the Borrowing Base as of such time minus the Letter of Credit Usage at such time (after giving effect to any concurrent reimbursement of a Letter of Credit with the proceeds of an Advance pursuant to Section 6.1(c) hereof) (the lesser of (i) and (ii) being the "Revolving Loan Borrowing Limit"). (b) Subject to the limitations of Sections 2 and 4 hereof, Borrower may borrow, repay and reborrow the Revolving Loan. The portion of the Revolving Loan to be funded by each Lender shall not exceed in aggregate principal amount at any one time outstanding, and no Lender shall have any obligation to make its pro rata share of the Revolving Loan outstanding at any one time in the aggregate in excess of, the revolving commitment amount set forth opposite such Lender's name on Schedule 1.1(A) hereto for the Revolving Credit Facility Commitment (for each Lender, its "Revolving Commitment"). (c) Insofar as Borrower may request and Lenders may be willing at their option to make Revolving Credit Advances to Borrower at a time when the aggregate unpaid principal amount of the Revolving Credit Advances exceeds, or would exceed with the making of any such Revolving Credit Advance, the Borrowing Base minus the Letter of Credit Usage at such time (but not exceed the Revolving Credit Facility Commitment minus Letter of Credit Usage at such time) by no more than ten percent (10%) of the Borrowing Base minus the Letter of Credit Usage (any such Advance or Advances being herein referred to individually as an "Overadvance" and collectively as "Overadvances") Agent may, at its own option, make such Overadvance or Overadvances. All Overadvances shall be secured by the Collateral and shall bear interest at an annual rate equal to the lesser of (i) the rate then applicable to such Revolving Credit Advance, plus one percent (1%), or (ii) the Maximum Lawful Rate. The principal amount of all Overadvances shall be paid on demand, and interest thereon shall be paid as provided in Section 2.6 hereof. 2.3. REVOLVING NOTES. (a) The pro rata portion of the Revolving Credit Advances made by each Lender to Borrower shall be evidenced by, and be repayable with interest in accordance with the terms of, a promissory note issued by Borrower, in each case payable to the order of such Lender, and in the maximum principal amount of such Lender's Revolving Commitment, in the form of Exhibit 2.3 hereto (together with any replacement, modification, renewal or substitution thereof, individually, a "Revolving Note" and collectively, the "Revolving Notes"). (b) Each Revolving Note shall be dated the Closing Date and be duly completed, executed and delivered by Borrower. (c) Each Lender shall endorse that portion of the amount of each Revolving Credit Advance which it has made to Borrower and the amount of each payment or prepayment of principal thereon in the appropriate space on the grid sheet attached to its Revolving Note (or so note the same in its records); provided, however, that the failure of any Lender to make any such endorsement or recordation shall not in any manner affect the obligation of Borrower to repay to such Lender the portion of the Revolving Credit Advance advanced by such Lender under the Revolving Note held by such Lender. Any such endorsement or recordation shall represent conclusive evidence of the date and amount of such Lender's pro rata share of any Revolving Credit Advance or payment or prepayment of principal thereon, absent manifest error. (d) Each of the Revolving Notes shall mature on the Maturity Date (or earlier as hereinafter provided), and shall be subject to payment and prepayment as provided in Sections 2 and 4 hereof. 2.4. NOTICE OF BORROWING; BORROWER'S CERTIFICATE. (a) Except as provided in Section 6.1(c) hereof, whenever Borrower desires to make a borrowing of a Revolving Credit Advance, it shall give the Agent, at its address designated in Section 15.4 hereof, prior Written Notice or telephonic notice from an Authorized Representative confirmed promptly in writing (which notice shall be irrevocable) of its desire to make a borrowing of a Revolving Credit Advance (i) not later than 12:00 noon (New York time) on the proposed borrowing date of each Revolving Credit Advance that is a Base Rate Advance, and (ii) not later than 11:00 a.m. (New York time) three (3) Business Days prior to the proposed borrowing date of each Revolving Credit Advance that is a Eurodollar Advance. Each notice of borrowing under this Section 2.4 shall be substantially in the form of Exhibit 2.4 hereto (each, together with each Written Notice delivered under Section 6.1(a) hereto, a "Borrower's Certificate"), shall be dated the date of such notice (which notice shall be deemed repeated on the date of such borrowing), and specify the date on which Borrower desires to make a borrowing of a Revolving Credit Advance (which in each instance shall be a Business Day), the amount of such borrowing, whether such borrowing shall be a Base Rate Advance or a Eurodollar Advance or a combination thereof, and, in the case of the selection of a Eurodollar Advance, the proposed Interest Period therefor, and shall refer to the most recent Borrowing Base Certificate delivered by Borrower to the Agent and each Lender pursuant to Section 11.1(j) hereof, and set forth the Borrowing Base provided therein. If such notice shall be with respect to a borrowing of a Eurodollar Advance but fails to state an applicable Interest Period therefor, then such notice shall be deemed to be a request for a one-month Interest Period. If (x) Borrower shall fail to state in any such notice whether such Revolving Credit Advance shall be a Base Rate Advance or a Eurodollar Advance, or (y) Borrower shall be deemed to have made a borrowing of a Revolving Credit Advance pursuant to Section 6.1(c) hereof, then Borrower shall be deemed to have selected a Base Rate Advance. Subject to the other provisions of this Agreement, Base Rate Advances and Eurodollar Advances of more than one type may be outstanding at the same time; provided, however, that Eurodollar Advances shall be available for election by Borrower only for (1) advances of $1,000,000 or any integral multiple of $100,000 in excess of $1,000,000 and, (2) one, two, three and six month interest periods, subject, however, to Section 4.1(f) hereof. (b) Borrower shall not be permitted to select a borrowing of a Eurodollar Advance in any Borrower's Certificate (i) to the extent such selection would be prohibited by Section 4.1(f), Section 4.6, or Section 4.7 hereof, or (ii) if a Default or an Event of Default shall be in existence as of the date of selection of the applicable Interest Period. (c) On or before 12:00 noon (New York time) on Wednesday of each week (or at such other time or on such other day as the Agent determines) prior to the expiration of the Revolving Credit Facility Commitment (or, if any such Wednesday is not a Business Day, the next preceding Business Day (each a "Settlement Date")), Agent shall notify each Lender by telephone (confirmed immediately by Written Notice) of the terms of Revolving Credit Advances outstanding at the time of such notice and the amount of such Lender's pro rata portion of such Revolving Credit Advances (each a "Settlement Notice"). If the Revolving Credit Advances outstanding at the time of such Settlement Notice exceed the Revolving Credit Advances outstanding at the time of the immediately preceding Settlement Notice, then each Lender shall, before 3:00 p.m. (New York time) on such Settlement Date, deposit with Agent the amount of such Lender's pro rata portion of the increase to the Revolving Credit Advances in U.S. dollars in immediately available funds at the office of the Agent located at 125 West 55th, New York, New York 10019 or such other office as the Agent may from time to time direct (the "Payment Office"). If the Revolving Credit Advances at the time of such Settlement Notice are less than the Advances outstanding at the time of the immediately preceding Settlement Notice, Agent will distribute to each Lender such Lender's pro rata portion of such difference before 3:00 p.m. (New York time) on such Settlement Date. (d) Except for Revolving Credit Advances made pursuant to Section 6.1(c) hereof (which Revolving Credit Advances shall be applied to the reimbursement of drawings under the Letter of Credit for which such Revolving Credit Advance was made in accordance with such Section 6.1(c) hereof), subject to satisfaction of closing conditions, proceeds of a Revolving Credit Advance received by the Agent shall be made available to Borrower by the Agent at its Payment Office (or such other office of the Agent in New York State as Agent may from time to time specify in writing to the Borrower). 2.5. TERMINATION OF REVOLVING CREDIT FACILITY COMMITMENT. Borrower shall have the right, upon not less than five (5) Business Days' prior Written Notice to the Agent (which shall promptly notify each Lender thereof in writing or by telephone confirmed promptly in writing), to terminate the Revolving Credit Facility Commitment; provided, however, that any such termination of the Revolving Credit Facility Commitment shall be accompanied by prepayment in full of the Revolving Loan then outstanding and the Term Loan then outstanding, together with the payment of any unpaid fees owing with respect to the Revolving Credit Facility Commitment or the Term Loan Facility Commitment, any fees, premiums, costs and charges required to be paid by Borrower pursuant to Section 4.8 and Section 5.6 hereof, and accrued interest on the amount so prepaid to the date of such prepayment; provided, further, that Borrower may not cancel the Revolving Credit Facility Commitment while any Letter of Credit Usage is outstanding. 2.6. INTEREST ON REVOLVING LOAN. Borrower shall pay interest on the unpaid principal amount of each Revolving Credit Advance madeto it which is outstanding from time to time in accordance with the terms and conditions of Section 4 hereof. 2.7. PAYMENTS OF PRINCIPAL. Principal on the Revolving Credit Facility shall be due in full at maturity of the Revolving Credit Facility. 2.8. ESTABLISHMENT OF RESERVES. The Agent may at any time and from time to time in its discretion establish reserves against the Receivables or the Inventory of Borrower. The amount of such reserves shall be subtracted from the Borrowing Base Availability, when calculating the amount of the Revolving Loan Borrowing Limit. Without limiting the foregoing, the Credit Parties specifically agree that the Agent may establish reserves against the Inventory of Borrower with respect to any leased store location of Borrower that constitutes a Real Property where the Agent has not received a waiver of landlord's lien, substantially in the form and substance of the form of Landlord's Waiver attached as Exhibit 11.20 hereto or such other form as approved by Agent. Borrower specifically acknowledges that the existing landlord's waivers received in conjunction with the Existing Agreement are not satisfactory for purposes of satisfying Borrower's obligations under Sections 8.20 or 11.20 of this Agreement, that Agent and Lenders nevertheless shall be entitled to enjoy the benefits of such existing landlord's waivers, and that Agent's and Lenders' enjoyment of the benefits of such existing landlord's waivers shall not constitute approval thereof for purposes of this Section 2.8. The amount of the reserve established as a result of the failure of Agent to receive a Landlord's Waiver will be equal to the amount of rent payable with respect to the applicable store and Real Property for a period of ninety (90) days. SECTION 3. AMOUNT AND TERMS OF TERM LOAN FACILITY 3.1. TERM LOAN FACILITY ADVANCES. (a) Each of the Lenders severally, but not jointly, agrees to lend to Borrower, subject to and upon the terms and conditions herein set forth, at any time in a single Advance on or after the Closing Date and before the Maturity Date, such Lender's pro rata share of such amounts as may be requested or be deemed requested by Borrower in accordance with the terms of this Agreement (each such borrowing, a "Term Loan Advance" and the outstanding principal balance of all Term Loan Advances from time to time, the "Term Loan"), subject to the limitations contained in Section 3.2 hereof. (b) Each Term Loan Advance shall be made on the date specified in the Written Notice or telephonic notice confirmed in writing as described in Section 3.4. 3.2 TERM LOAN FACILITY COMMITMENT. (a) The maximum amount available under the Term Loan Facility shall be the Term Loan Facility Commitment. (b) The portion of the Term Loan to be funded by each Lender shall not exceed in aggregate principal amount at any one time outstanding, and no Lender shall have any obligation to make its pro rata share of the Term Loan outstanding at any one time in the aggregate in excess of, the term loan commitment amount set forth opposite such Lender's name on Schedule 1.1(A) hereto for the Term Loan Facility Commitment (for each Lender its "Term Commitment"). 3.3. TERM NOTES. (a) The pro rata portion of the Term Loan Advances made by each Lender to Borrower shall be evidenced by, and be repayable with interest in accordance with the terms of, a promissory note issued by Borrower, in each case payable to the order of such Lender, and in the maximum principal amount of such Lender's Term Commitment, in the form of Exhibit 3.3 hereto (together with any replacement, modification, renewal or substitution thereof, individually, a "Term Note" and collectively, the "Term Notes"). (b) Each Term Note shall be dated the Closing Date and be duly completed, executed and delivered by Borrower. (c) Each Lender shall endorse that portion of the amount of each Term Loan Advance which it has made to Borrower and the amount of each payment or prepayment of principal thereon in the appropriate space on the grid sheet attached to its Term Note (or so note the same in its records); provided, however, that the failure of any Lender to make any such endorsement or recordation shall not in any manner affect the obligation of Borrower to repay to such Lender the portion of the Term Loan Advance advanced by such Lender under the Term Note held by such Lender. Any such endorsement or recordation shall represent conclusive evidence of the date and amount of such Lender's pro rata share of any Term Loan Advance or payment or prepayment of principal thereon, absent manifest error. (d) Each of the Term Notes shall mature on the Maturity Date (or earlier as hereinafter provided), and shall be subject to payment and prepayment as provided in Sections 3 and 4 hereof. 3.4. INTEREST ON TERM LOAN. Borrower shall pay interest on the unpaid principal amount of each Term Loan Advance made to it which is outstanding from time to time in accordance with the terms and conditions of Section 4 hereof. 3.5. PRINCIPAL PAYMENTS. Principal payments, each in the amount of one twenty-fourth of the original amount used and advanced under the Term Loan (i.e., a six-year amortization, based on quarterly payments), shall be paid on the last day of March, June, September, and December of each calendar year, commencing September 30, 1997. 3.6. EXCESS CASH FLOW RECAPTURE. Borrower shall pay, on an annual basis, an amount equal to fifty percent (50%) of Excess Cash Flow. Such payments shall be applied to payments due under the Term Loan in inverse order of maturity. Each payment of Excess Cash Flow shall be paid on the earlier of (a) fifteen (15) days after the Agent receives the financial statements of Parent and its Subsidiaries required to be furnished by Section 11.1(b) hereof, or (b) one hundred thirty-five days after the close of each Fiscal Year of Parent. The first payment of Excess Cash Flow shall be due with respect to Borrower's Excess Cash Flow determined for Fiscal Year 1997. SECTION 4. TERMS AND FEES COMMON TO BOTH FACILITIES 4.1. INTEREST. (a) Interest on Eurodollar Advances. Except as provided in Section 4.1(c) hereof, Borrower shall pay interest on the unpaid principal amount of each Eurodollar Advance made to it which is outstanding from time to time, on each Interest Payment Date with respect to such Eurodollar Advance, at the date of conversion of such Eurodollar Advance (or portion thereof) to a Base Rate Advance, at maturity of such Eurodollar Advance and, after maturity of such Eurodollar Advance (whether by acceleration or otherwise) upon demand, at an interest rate per annum equal during the Interest Period for such Eurodollar Advance to the Adjusted Eurodollar Rate for the Interest Period in effect for such Eurodollar Advance plus the applicable Eurodollar Rate Margin. (b) Interest on Base Rate Advances. Except as provided in Section 4.1(c) hereof, Borrower shall pay interest on the unpaid principal amount of the Base Rate Advances made to it hereunder, and, to the extent due and payable, Additional Indebtedness incurred by it, in each case, which is outstanding from time to time at an interest rate per annum equal to the Floating Rate in effect from time to time. Interest on Base Rate Advances shall be paid quarterly in arrears on the last day of each March, June, September and December of each calendar year commencing with September 30, 1996, upon conversion thereof to a Eurodollar Advance and at maturity (whether by acceleration or otherwise) and thereafter on demand. Interest on Additional Indebtedness shall be paid upon demand. (c) Default Interest. Notwithstanding anything to the contrary contained herein, while any Event of Default is continuing, interest on the Base Rate Advances, Eurodollar Advances, Additional Indebtedness and interest thereon (to the extent such interest is in default) shall be payable at a rate per annum equal to two percentage points (2%) in excess of the rate then otherwise applicable thereto under this Agreement (or in the case of interest in default, otherwise applicable to the principal in respect of which such interest accrued). (d) Eurodollar Rate Determination. The Agent, upon determining the Eurodollar Rate and the Adjusted Eurodollar Rate for any Interest Period, shall promptly notify by telephone (confirmed promptly in writing) or in writing Borrower and the Lenders of such rates. Such determination shall, in the absence of manifest error, be conclusive and binding upon Borrower and the Lenders. (e) Changes in Base Rate. After each change in the Base Rate, the Agent shall promptly notify Borrower and each Lender of the date of such change and the new Floating Rate; provided, however, that the failure of the Agent to so notify Borrower or any Lender shall not affect the effectiveness of such change. (f) Availability of Six Month Interest Period. Borrower may not select a six-month Interest Period for any Eurodollar Advance during Fiscal Year 1996. Borrower's ability to select a six-month Interest Period for a Eurodollar Advance for any period after Fiscal Year 1996 will be subject to Borrower having met its EBITDAR projections (as set forth in the May 8, 1996 Homeland Stores, Inc. EBITDAR Projections for 1996) during Fiscal Year 1996 (a copy of which is attached as Schedule 4.1(f) to this Agreement), as certified to the Agent and the Lenders in the financial statements required to be delivered by Borrower by Section 11.1 hereof. 4.2. CONVERSION OF BORROWINGS; RENEWALS. (a) Unless otherwise prohibited under Section 4.1(f), Section 4.5 or Section 4.6 hereof, Borrower may, from time to time prior to the Maturity Date, convert (i) all or a portion of outstanding Base Rate Advances made to Borrower to one or more Eurodollar Advances, except as provided in Section 4.5 or 4.6 hereof, and only in aggregate amounts of $1,000,000 or any integral multiple of $100,000 excess of $1,000,000, or (ii) all or a portion of outstanding Eurodollar Advances made to Borrower to one or more Base Rate Advances so long as the aggregate principal balance of the portion of the Eurodollar Advances made to Borrower not being converted, if any, is $1,000,000 or an integral multiple of $100,000 in excess thereof; provided, however, that Borrower shall not be entitled to convert any Base Rate Advance, or portion thereof, to a Eurodollar Advance or any Eurodollar Advance, or portion thereof, to a Base Rate Advance unless all accrued interest on the Base Rate Advance, or portion thereof, or Eurodollar Advance or portion thereof, as the case may be, to be converted through the date of such conversion shall have been paid in full; and provided, further, that only four (4) Interest Periods for a Eurodollar Advance shall be in effect at any one time. Each conversion by Borrower of any Advance or portion thereof (other than a conversion pursuant to Section 4.5 or 4.6 hereof) shall be made on a Business Day on at least three (3) Business Days' prior Written Notice or telephonic notice from an Authorized Representative confirmed promptly in writing to the Agent from Borrower. Each such notice (which notice shall be irrevocable) shall specify (i) the date of the conversion and the amount to be converted, (ii) the particular Advance, or portion thereof, to be converted, and (iii) in the case of conversion of any Advance, or portion thereof, to a Eurodollar Advance, the duration of the Interest Period for such Eurodollar Advance. Notwithstanding the above, Borrower shall not be entitled to convert any Advance, or portion thereof, to a Eurodollar Advance if a Default or Event of Default shall have occurred and be continuing. Except as provided in Section 4.5, any conversion of a Eurodollar Advance, or portion thereof, to a Base Rate Advance shall be made only on the last day of the Interest Period with respect to such Eurodollar Advance. (b) Each renewal by Borrower of an outstanding Eurodollar Advance or portion thereof shall be made on notice to the Agent given not later than 11:00 a.m. (New York time) on the third Business Day prior to the last day of the Interest Period just ending for such Eurodollar Advance. Each notice (which notice shall be irrevocable) by Borrower of the renewal of a Eurodollar Advance or portion thereof, shall be in writing or by telephone from an Authorized Representative confirmed promptly in writing and shall specify (i) the amount of such renewal of the Eurodollar Advance or portion thereof and (ii) the duration of the Interest Period for such renewal; provided, however, that if Borrower fails to select the duration of any Interest Period for the renewal of such Eurodollar Advance or portion thereof, the duration of such Interest Period shall be one month. Notwithstanding the above, Borrower shall not be entitled to renew a Eurodollar Advance or a portion thereof, (x) if at the time of the selection of such renewal there shall exist a Default or an Event of Default, or (y) to the extent such renewal would be prohibited by Section 4.5 or 4.6 hereof. (c) Any Eurodollar Advance or portion thereof as to which the Agent shall not have received a proper notice of conversion or renewal as provided in Section 4.2(a) or 4.2(b) hereof or notice of payment or prepayment by 11:00 a.m. (New York time) at least three (3) Business Days prior to the last day of the Interest Period just ending for such Eurodollar Advance shall (whether or not any Default or Event of Default has occurred) automatically be converted to a Base Rate Advance on the last day of the Interest Period for such Eurodollar Advance. 4.3. COMPUTATION OF INTEREST. Interest on all Advances and Additional Indebtedness calculated on the basis of a rate per annum shall be computed on the basis of actual days elapsed over a 360-day year. Any rate of interest on the Revolving Loan, the Term Loan and Additional Indebtedness which is computed on the basis of the Base Rate shall change when and as the Floating Rate changes. 4.4 COLLECTIONS THROUGH LOCKBOX. Borrower shall collect daily all receivables, cash, checks, monies, drafts and other proceeds of the Collateral through the lockbox and collection accounts set forth in Section 11.17. Borrower shall pledge to the Agent and Lenders a lien on all deposit and disbursement accounts and any other account maintained by Borrower at any bank or financial institution, except for Borrower's payroll and medical disbursement accounts. 4.5. INCREASED COSTS. In the case of the pro rata share of any Lender in any Eurodollar Advance, in the event of any change in conditions or the introduction or change in any applicable law, regulation, treaty, order or directive or condition or interpretation thereof (including, without limitation, any request, guideline or policy whether or not having the force of law with which such Lender must reasonably comply), including, without limitation, Regulation D, by any authority charged with the administration or interpretation thereof, shall occur, which: (i) subjects such Lender or any branch or Affiliate of such Lender to any tax, duty or other charge with respect to such share of such Eurodollar Advance (other than Excluded Taxes); or (ii) changes the basis of taxation of payments to any Lender or any branch or Affiliate of such Lender of principal of and/or interest on such share of such Eurodollar Advance and/or other fees and amounts payable hereunder with respect thereto (other than Excluded Taxes); or (iii) imposes, modifies or deems applicable any reserve, deposit or similar requirement against any assets held by, deposits with or for the account of, or loans or commitments by, an office of any Lender or any branch or Affiliate of such Lender; or (iv) imposes upon such Lender or any branch or Affiliate of such Lender any other condition with respect to such share of such Eurodollar Advance or this Agreement; and the result of any of the foregoing is to increase the actual cost by an amount such Lender deems to be material to such Lender or any branch or Affiliate of such Lender of making, funding or maintaining such share of such Eurodollar Advance hereunder (except to the extent such Lender has determined that such amount has been already included in the determination of the applicable Adjusted Eurodollar Rate for Eurodollar Advances), or to reduce the amount of any payment (whether of principal, interest, or otherwise) received or receivable by such Lender or any branch or Affiliate of such Lender, or to require such Lender or any branch or Affiliate of such Lender to make any payment, in each case by or in an amount which such Lender in its sole judgment deems material, then and in any such case: (x) such Lender shall promptly notify Borrower, the Agent and the other Lenders in writing of the happening of such event; (y) such Lender shall promptly deliver to Borrower, the Agent and the other Lenders a certificate stating the change which has occurred, or the reserve requirements or other conditions which have been imposed on such Lender or branch or Affiliate of such Lender, or the request, directive or requirement with which it has complied, together with the date thereof, the amount of such increased cost, reduction or payment and the way in which such amount has been calculated; and (z) Borrower hereby agrees to pay such Lender within five (5) Business Days following demand such an amount or amounts as will compensate such Lender or its branch or Affiliate for such additional cost, reduction or payment. The certificate of such Lender as to the additional amounts payable pursuant to this Section 4.5 delivered to Borrower shall in the absence of manifest error be conclusive of the amount thereof. Each Lender agrees to use reasonable efforts to avoid or minimize the payment by Borrower of any additional amounts under this Section 4.5, including, without limitation, by the designation of another branch or Affiliate of such Lender from which such Lender could make such Lender's pro rata share of Eurodollar Advances so long as such designation is not disadvantageous to such Lender as reasonably determined by such Lender. The protection of this Section 4.5 shall be available to such Lender regardless of any possible contention of invalidity or inapplicability of the law, regulation, treaty, order, directive, interpretation or condition which has been imposed. In the event that after Borrower shall have paid any additional amount under this Section 4.5 a Lender shall have successfully contested such law, regulation, treaty, order, directive, interpretation or condition, then to the extent that such Lender does not incur any increased cost or amount payable or reduction in an amount receivable, such Lender shall refund, on an after-tax basis, to Borrower such additional amount. 4.6. CHANGE IN LAW RENDERING EURODOLLAR ADVANCES UNLAWFUL. (a) Notwithstanding anything to the contrary herein contained, in the event that any new law, treaty, order, directive, rule or regulation or any change in any existing law, treaty, order, directive, rule or regulation or in the interpretation thereof by any governmental or other regulatory authority charged with the administration thereof, makes it unlawful for any Lender to fund any portion of a Eurodollar Advance or to give effect to its obligations as contemplated hereby with respect to Eurodollar Advances, such Lender shall, upon the happening of such event, notify the Agent, the other Lenders and Borrower thereof in writing stating the reason therefor, and the obligation of such Lender to allow conversion to or selection or renewal with respect to its pro rata share of any Eurodollar Advance by Borrower shall, upon the happening of such event, forthwith be suspended for the duration of such illegality and during such illegality such Lender shall fund its share of all Advances as Base Rate Advances and there shall be no renewal of, or conversion to, any share of such Lender in any Eurodollar Advance. If and when such illegality ceases to exist, such suspension shall cease and such affected Lender shall similarly notify the Agent, the other Lenders and Borrower. (b) Notwithstanding anything to the contrary contained herein, in the event that any new law, treaty, order, directive, rule or regulation or any change in any existing law, treaty, order, directive, rule or regulation or in the interpretation thereof by any governmental or other regulatory authority charged with the administration thereof shall make it commercially impracticable or unlawful for any Lender to continue in effect the funding of any portion of a Eurodollar Advance previously made by it hereunder and then outstanding, such Lender shall, upon the happening of such event, notify the Agent, the other Lenders and Borrower thereof in writing stating the reasons therefor, and such Lender's pro rata share of such Eurodollar Advance shall automatically be converted to a Base Rate Advance. Borrower shall pay to the Agent for the benefit of such Lender accrued interest owing on such converted portion of such Eurodollar Advance made to Borrower through the date of such conversion, together with any amounts payable under Section 4.8 hereof with respect to such prepayment. After such notice shall have been given and until the circumstances giving rise to such notice no longer exist, each request for such Lender's pro rata share of a Eurodollar Advance or for conversion to or renewal of such Lender's pro rata share of a Eurodollar Advance shall be deemed a request by Borrower for a Base Rate Advance. If and when such impracticability or illegality ceases to exist, such suspension shall cease and such affected Lender shall similarly notify the Agent, the other Lenders and Borrower. 4.7. EURODOLLAR AVAILABILITY. (a) In the event, and on each occasion, that on the day two (2) Business Days prior to the commencement of any Interest Period for a Eurodollar Advance, the Agent shall have determined in good faith (which determination shall, in the absence of manifest error, be conclusive and binding upon Borrower) that dollar deposits in the amount of the principal amount of such Eurodollar Advance are not generally available in the London (England, U.K.) interbank market, or that the rate at which such dollar deposits are being offered will not accurately reflect the cost to one or more Lenders of making or funding the principal amount of their portions of such Eurodollar Advance during such Interest Period, or that reasonable means do not exist for ascertaining the Eurodollar Rate, the Agent shall, as soon as practicable thereafter, give Written Notice or telephonic notice of such determination to the Lenders and Borrower and any request by Borrower for a Eurodollar Advance pursuant to Section 2.4 hereof or for conversion to or renewal of a Eurodollar Advance pursuant to Section 4.2 hereof shall thereupon, and until the circumstances giving rise to such notice no longer exist (as notified by the Agent to Borrower and the Lenders), be deemed a request by Borrower for the making of or conversion to a Base Rate Advance. (b) If, at any time, the Agent shall have determined (which determination shall, in the absence of manifest error, be conclusive and binding upon Borrower) that any contingency has occurred which adversely affects the London (England, U.K.) interbank market or that any new law, treaty, order, directive, rule or regulation or any change in any existing law, treaty, order, directive, rule or regulation or in the interpretation thereof or other circumstance affecting one or more Lenders, in the London (England, U.K.) interbank market makes the funding of any portion of a Eurodollar Advance impracticable, the Agent shall, as soon as practicable thereafter, give Written Notice or telephonic notice of such determination to the Lenders and Borrower and any request by Borrower for a Eurodollar Advance pursuant to Section 2.4 hereof or for conversion to or renewal of a Eurodollar Advance pursuant to Section 4.2 hereof shall thereupon, and until the circumstances giving rise to such notice no longer exist (as notified by the Agent to Borrower and the Lenders), be deemed a request by Borrower for the making of or conversion to a Base Rate Advance. 4.8. INDEMNITIES. (a) Borrower hereby agrees to indemnify each Lender on demand against any loss or expense which such Lender or its branch or Affiliate may sustain or incur as a consequence of: (i) any default in payment or prepayment of the principal amount of any Eurodollar Advance made to it or any portion thereof or interest accrued thereon, as and when due and payable (at the due date thereof, by irrevocable notice of payment or prepayment, or otherwise), (ii) the effect of the occurrence of any Event of Default upon any Eurodollar Advance made to it, (iii) the payment or prepayment of the principal amount of any Eurodollar Advance made to it or any portion thereof, pursuant to Sections 2, 3 or 4 hereof, or otherwise, on any day other than the last day of an Interest Period or the payment of any interest on any Eurodollar Advance made to it, or portion thereof, on a day other than an Interest Payment Date for such Eurodollar Advance, or (iv) the failure by Borrower to accept or make a borrowing of a Eurodollar Advance or a conversion to or renewal of a Eurodollar Advance after it has requested such borrowing, conversion or renewal, in each case including, but not limited to, any loss or expense sustained or incurred in liquidating or employing deposits from third parties acquired to effect or maintain such Eurodollar Advance or any portion thereof. Each Lender shall provide to Borrower, the Agent and the other Lenders a statement, supported where applicable by documentary evidence, explaining the amount of any such loss or expense it incurs, which statement shall be conclusive absent manifest error. (b) If any law, regulation or change in any law or regulation or in the interpretation thereof or any ruling, decree, judgment or recommendation, or any guideline or directive (whether or not giving the force of law) in any case adopted, issued or effective after the Closing Date (and including in any event all risk based capital guidelines heretofore adopted by the Comptroller of the Currency, the Board or any other banking regulatory agency, domestic or foreign, to the extent that any provision contained therein does not have to be complied with as of the Closing Date), by any regulatory body, court or any administrative or governmental authority charged or claiming to be charged with the administration thereof, shall: (i) impose upon, modify, require, make or deem applicable to any one or more Lenders, or any of their Affiliates or branches, any reserve requirement, special deposit requirement, insurance assessment or similar requirement against or affecting the Revolving Commitment or Term Commitment of such Lender or Lenders or such Affiliates or branches, or (ii) impose any condition upon or cause in any manner the addition of, any supplement to or any increase of any kind to the capital or cost base of such Lender or Lenders, or such Affiliates or branches thereof, for extending or maintaining the Revolving Commitment or Term Commitment of such Lender, which results in an increase in the capital requirement supporting such Revolving Commitment or Term Commitment, or (iii) impose upon, modify, require, make or deem applicable to such Lender or Lenders or any such Affiliates or branches any capital requirement, increased capital requirement or similar requirement, and the result of any events referred to in clause (i), (ii) or (iii) above shall be to (x) increase the amount of capital required or expected to be required to be maintained by such Lender or any such Affiliate or branch and such Lender determines that the amount of such capital requirement is incurred by or based on such Revolving Commitment, Term Commitment or other commitments of this type or (y) increase the costs or decrease the benefit in any way to such Lender or Lenders, or any such Affiliate or branch, of extending or maintaining such Revolving Commitment, Term Commitment or extending or maintaining such Lender's or Lenders' portion of the Loans or holding any Collateral; then and in such event Borrower shall, on or prior to the tenth (10th) Business Day after the giving of Written Notice of such increased costs and/or decreased benefits to Borrower and the Agent by such Lender or Lenders (or any such Affiliate or branch), pay to such Lender or Lenders all such additional amounts (other than those which, in the reasonable and good faith judgment of such Lender or Lenders, are reflected in the interest rates charged on the Revolving Loan or the Term Loan, as applicable,) which in the sole good faith calculation of such Lender or Lenders are properly allocable to the Revolving Commitment or the Term Commitment of such Lender, such Lender's or Lenders' portion of the Revolving Loan, the Term Loan and/or the Collateral, as the case may be, and which: (1) in the case of events referred to in clause (i) above, shall be sufficient to compensate it for all such increased costs and/or decreased benefits, and/or (2) in the case of events referred to in clauses (ii) and (iii) above, shall be an amount equal to the reduction, as reasonably determined by such Lender, in the after-tax rate of return on such Lender's capital resulting from any such capital or increased capital or similar requirement (including, without limitation, any such Lender's or Lender's Affiliates' or branches' cost of taking action in anticipation of the effectiveness of any event described in clause (ii) or (iii) in order to enable such Lender, Lenders, Affiliate or branch to be in compliance therewith upon such effectiveness), all as certified by such Lender or Lenders in said Written Notice to Borrower. Such certification shall be conclusive and binding on Borrower absent manifest error. (c) Borrower hereby agrees to indemnify and hold harmless the Agent and each Lender and their respective Affiliates, directors, officers, agents, representatives, counsel and employees and each other Person, if any, controlling them or any of their Affiliates within the meaning of either Section 15 of the Securities Act or Section 20(a) of the Securities Exchange Act (each an "Indemnified Party"), from and against any and all losses, claims, damages, costs, expenses (including reasonable counsel fees and disbursements) and liabilities which may be incurred by or asserted against such Indemnified Party with respect to or arising out of the commitments hereunder to make the Advances or to issue Letters of Credit, or the financings contemplated hereby, the other Loan Documents, the Collateral (including, without limitation, the use thereof by any of such Persons or any other Person, the exercise by the Agent or any Lender of rights and remedies or any power of attorney with respect thereto, and any action or inaction of the Agent or any Lender under any Security Document), the use of proceeds of any financial accommodations provided hereunder, any investigation, litigation or other proceeding brought or threatened relating to the role of any such Person or Persons in connection with the foregoing whether or not they or any other Indemnified Party is named as a party to any legal action or proceeding ("Claims"). Borrower will not, however, be responsible to any Indemnified Party hereunder for any Claims to the extent that a court having jurisdiction shall have determined by a final judgment that any such Claim shall have arisen out of or resulted from actions taken or omitted to be taken by such Indemnified Party which constitute the gross negligence or willful misconduct of such Indemnified Party ("Excluded Claims"). Further, should any of the Agent's or any of the Lenders' employees be involved in any legal action or proceeding in connection with the transactions contemplated hereby (other than relating to an Excluded Claim), Borrower hereby agrees to pay to the Agent and each Lender such per diem compensation as the Agent or such Lender shall request for each employee for each day or portion thereof that such employee is involved in preparation and testimony pertaining to any such legal action or proceeding. The Indemnified Party shall give Borrower prompt Written Notice of any Claim setting forth a description of those elements of the Claim of which such Indemnified Party has knowledge. Borrower shall have the right at any time during which a Claim is pending to select counsel to defend and settle any Claims so long as in any such event Borrower shall have stated in a writing delivered to the applicable Indemnified Party that, as between Borrower and such Indemnified Party, Borrower is responsible to such Indemnified Party with respect to such Claim; provided, however, that Borrower shall not be entitled to control the defense of any Claim in the event that there are defenses available to the Indemnified Party which are not available to Borrower. In any other case, the Indemnified Party shall have the right to select counsel and control the defense of any Claims; provided, however, that no Indemnified Party shall settle any Claim as to which it is controlling the defense without the consent of Borrower, which consent shall not be unreasonably withheld or delayed. With respect to any Claim for which Borrower is entitled to select counsel, each Indemnified Party shall have the right, at its expense, to participate in the defense of such Claim. In the event that, with respect to any Claim, more than one Indemnified Party shall be permitted hereunder to select counsel to defend such Claim at the expense of Borrower and shall decide to do so, then all such Indemnified Parties shall select the same counsel to defend such Indemnified Parties with respect to such Claim; provided, however, that if any such Indemnified Party shall in its reasonable opinion consider that the retention of one joint counsel as aforesaid shall result in a conflict of interest adverse to it, such Indemnified Party may, at the expense of Borrower, select its own counsel to defend such Indemnified Party with respect to such Claim. The Indemnified Parties and Borrower shall cooperate with each other in all reasonable respects and their respective counsel in any investigation, trial and defense of any such Claim and any appeal arising therefrom. (d) If for any reason the foregoing indemnity is unavailable to any Indemnified Party or insufficient to hold it free and harmless as contemplated by the preceding paragraph (c), then Borrower shall contribute to the amount paid or payable by the Indemnified Party as a result of any Claim in such proportion as is appropriate to reflect, not only the relative benefits received by Borrower on the one hand and such Indemnified Party on the other hand, but also the relative fault of Borrower and such Indemnified Party, as well as any other relevant equitable considerations. 4.9. DISBURSEMENT. Each Advance shall be disbursed by the Agent from the Payment Office, shall be charged, together with interest, fees and other amounts payable by Borrower hereunder, to the account of Borrower on the books of the Agent from time to time, and shall be payable at such office. 4.10. AGENT'S AVAILABILITY ASSUMPTION. (a) The Agent may assume that each Lender will make such Lender's pro rata portion of the Advances available to the Agent on the date set forth in Section 2.4(c) hereof and the Agent may, in reliance upon such assumption, make available to Borrower the amount of each requested Advance. If Lender's pro rata portion of the Advances is not in fact made available to the Agent by such Lender in accordance with Section 2.4(c) hereof, the Agent shall be entitled to recover such amount on demand from such Lender, which demand shall be made in a reasonably prompt manner. If such Lender does not pay such amount forthwith upon the Agent's demand therefor, the Agent shall promptly notify the other Lenders and Borrower, and Borrower shall pay such amount to the Agent. (b) The Agent shall also be entitled to recover from such Lender or Borrower interest on such corresponding amount in respect of each day from the date such corresponding amount was made available by the Agent to Borrower to the date such corresponding amount is recovered by the Agent, at a rate per annum equal to (i) if paid by such Lender, the cost to the Agent of funding such amount as notified in writing by the Agent to such Lender, or (ii) if paid by Borrower, the applicable rate for Base Rate Advances or Eurodollar Advances, as the case may be. (c) In the event that any Lender shall fail to fund its pro rata share of any Advance made pursuant to Section 6.1(c) hereof or to purchase its letter of credit participation under Section 15.18 hereof, the Agent on behalf of the relevant Issuing Lender shall be entitled to recover such amount on demand from such Lender. If such Lender does not pay such amount forthwith upon the Agent's demand therefor, the Agent shall promptly notify Borrower and the other Lenders thereof and Borrower shall pay such amount to the Agent. The Agent on behalf of such Issuing Lender shall also be entitled to recover from such Lender or Borrower, as the case may be, interest on such amount in respect of each day from the date such Advance was made or the date such purchase was to have been made, as the case may be, to the date such amount is recovered by the Agent, at a rate per annum equal to (i) if paid by such Lender, the cost to the relevant Issuing Lender of the payment of the drawing under the Letter of Credit for which the Advance was (or was to have been) made in the case of an Advance made pursuant to Section 6.1(c) hereof or a participation under Section 15.18 hereof, as the case may be, or (ii) if paid by Borrower, the applicable rate for Base Rate Advances. (d) Nothing herein shall be deemed to relieve any Lender from its obligation to fund its pro rata share of any Advance or purchase any participation as required hereunder, or to prejudice any rights which Borrower may have against any Lender as a result of any default by such Lender hereunder. No Lender shall be responsible for any default of any other Lender in respect of any other Lender's obligation to make its pro rata share of any Advances hereunder, nor shall the Revolving Commitment of any Lender hereunder be increased as a result of such default of any other Lender. Each Lender shall be obligated to the extent provided herein regardless of the failure of any other Lender to fulfill its obligations hereunder. 4.11. PRO RATA TREATMENT AND PAYMENTS. (a) Except as contemplated by this Agreement, including, without limitation, Sections 2.5, 4.5, 4.6, 4.8, 5.5, 6, 15.1, 15.5, 15.13(h) and 15.14 hereof, each borrowing by Borrower from the Lenders and each payment (including each prepayment) on account of the principal of and interest on the Advances and fees described in this Agreement shall be made to or by, as the case may be, each Lender according to their respective pro rata percentage. Other than payments to be applied to principal, payment of which is addressed in Section 2.4(c) hereof, 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)). Unless Agent shall have received notice from Borrower prior to the date on which any payment is due to Lenders hereunder that Borrower will not make such payment in full, Agent may assume that Borrower has made such payment in full to Agent on such date and Agent may, in reliance upon such assumption, cause to be distributed to each Lender on such date or any date thereafter an amount equal to the amount then due such Lender. If and to the extent Borrower shall not have so made such payment in full to Agent, each Lender shall repay to Agent forthwith on demand such amount distributed to such Lender, together with interest thereon for each day from the date such amount is distributed to such Lender until the date such Lender repays such amount to Agent, at the Federal Funds Rate. (b) Pursuant to the Concentration Account Agreement, Borrower has agreed that all amounts deposited into the Concentration Account shall be transferred to the Payment Office or as otherwise directed by the Agent on a daily basis. Subject to Section 13.5 hereof, all amounts so transferred shall be applied to the Lender Debt as mandatory prepayments thereof as follows: first, to Base Rate Advances until all Base Rate Advances are paid in full; and second, to the payment of all other Lender Debt that is then due and payable until such Lender Debt is paid in full. 4.12. SHARING OF PAYMENTS, ETC. If any Lender shall obtain any payment (whether voluntary, involuntary, through the exercise of any right of set-off, or otherwise) in excess of such Lender's percentage of payments shared pro rata by all Lenders, such Lender shall forthwith purchase from the other Lenders such participations in the Advances made by them as shall be necessary to cause such purchasing Lender to share the excess payment ratably with each of them; provided, however, if all or any portion of such excess payment is thereafter recovered from such purchasing Lender, such purchase from the other Lenders shall be rescinded and each other Lender shall repay to the purchasing Lender the purchase price to the extent of such recovery together with an amount equal to such Lender's ratable share (according to the proportion of (i) the amount of such Lender's required repayment, to (ii) the total amount so recovered from the purchasing Lender) of any interest or other amount paid or payable by the purchasing Lender in respect of the total amount recovered. Borrower agrees that any Lender purchasing a participation from another Lender pursuant to this Section 4.12 may, to the fullest extent permitted by law, exercise all of its rights of payment (including the right of set-off) with respect to such participation as fully as if such Lender were the direct creditor of Borrower in the amount of such participation. 4.13. EXCESS OPERATING FUNDS. If, at any time and from time to time during the term hereof, the balance of the Advances has been reduced to zero and Borrower then has funds in its account at NBC in excess of the aggregate face amount of all undrawn Letters of Credit ("Excess Funds"), Borrower may, if it so elects, upon at least one (1) Business Day's notice to Agent and NBC, invest such Excess Funds in an interest-bearing account at NBC, or acquire with such Excess Funds certificates of deposit maturing within one year from the date of acquisition and issued by NBC. 4.14. EURODOLLAR OFFICES. Each Lender intends to initially fulfill its commitment with respect to such Lender's pro rata share of any Eurodollar Advance by causing the Eurodollar Lending Office of such Lender to make such Lender's pro rata share of such Eurodollar Advance; provided, however, that each Lender may, at its option fulfill such commitment by causing another branch or an Affiliate of such Lender to make such Lender's pro rata share of such Eurodollar Advance; and provided, further, that the selection by such Lender of the Eurodollar Lending Office of such Lender or any other such branch or Affiliate shall not affect the obligations of Borrower to repay such Lender's pro rata share of the Eurodollar Advances in accordance with the terms of this Agreement. 4.15. TELEPHONIC NOTICE. Without in any way limiting Borrower's obligation to confirm in writing any telephonic notice of a borrowing, conversion or renewal, the Agent may act without liability upon the basis of telephonic notice believed by the Agent in good faith to be from an Authorized Representative of Borrower prior to receipt of written confirmation. 4.16. MAXIMUM INTEREST. (a) No provision of this Agreement or any Note shall require the payment to any Lender or permit the collection by any Lender of interest in excess of the maximum rate permitted by any applicable law (the "Maximum Lawful Rate"). (b) If the amount of interest computed without giving effect to this Section 4.16 and payable on any interest payment date in respect of the preceding interest computation period would exceed the amount of interest computed in respect of such period at the maximum rate of interest from time to time permitted (after taking into account all consideration which constitute interest) by laws applicable to any Lender (such maximum rate being such Lender's "Maximum Permissible Rate"), the amount of interest payable to such Lender on such date in respect of such period shall be computed at such Lender's Maximum Permissible Rate. (c) If at any time and from time to time (i) the amount of interest payable to any Lender on any interest payment date shall be computed at such Lender's Maximum Permissible Rate pursuant to the preceding subsection (b) and (ii) in respect of any subsequent interest computation period the amount of interest otherwise payable to such Lender would be less than the amount of interest payable to such Lender computed at such Lender's Maximum Permissible Rate, then the amount of interest payable to such Lender in respect of such subsequent interest computation period shall continue to be computed at such Lender's Maximum Permissible Rate until the amount of interest payable to such Lender shall equal the total amount of interest which would have been payable to such Lender if the total amount of interest had been computed without giving effect to the preceding clause (b). 4.17. COMPOSITION AND APPLICATION OF PAYMENTS AND COLLECTIONS. Subject to Section 13.5 hereof, Borrower does hereby irrevocably agree that Agent shall have the continuing exclusive right to apply and reapply any and all payments and collections at any time or times hereafter received by Agent or Lenders against the Lender Debt, in such manner as Agent may determine. SECTION 5. PAYMENTS, PREPAYMENTS AND REDUCTIONS. 5.1. MANDATORY PAYMENTS AND REDUCTIONS. (a) Except as otherwise provided in Section 2.2(c) hereof, if at any time the sum of the then aggregate outstanding principal amount of the Revolving Loan plus the Letter of Credit Usage at such time shall exceed the Revolving Loan Borrowing Limit at such time, Borrower shall immediately eliminate such excess by paying the Revolving Loan until the Revolving Loan is paid in full and, to the extent then necessary to eliminate any remaining excess after payment in full of the Revolving Loan, by depositing cash in an amount equal to the remaining excess 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. (b) Borrower shall, on each date that any Credit Party receives Gross Proceeds of an Asset Sale (other than the sale of an Excluded Property) by any Credit Party, prepay the outstanding principal of the Advances and unreimbursed Letters of Credit (or, if no Advance or unreimbursed Letter of Credit is then outstanding, to provide Letter of Credit Cash Collateral until an amount equal to the undrawn amount of all outstanding Letters of Credit has been secured by Letter of Credit Cash Collateral, and thereafter to Borrower) in an amount equal to 100% of the Net Proceeds of such Asset Sale (other than the sale of an Excluded Property) of such Net Proceeds to be applied to prepay first, the outstanding principal of the Term Loan Advances, in inverse order of maturity, and then to prepay the outstanding principal of the Advances and unreimbursed Letters of Credit (or, if no Revolving Credit Advance or unreimbursed Letter of Credit is then outstanding, to provide Letter of Credit Cash Collateral until an amount equal to the undrawn amount of all outstanding Letters of Credit has been secured by Letter of Credit Cash Collateral, and thereafter to Borrower). (c) Borrower shall, on each date that any Credit Party receives Gross Proceeds of an Asset Sale of an Excluded Property by any Credit Party, prepay the outstanding principal of the Revolving Credit Advances and unreimbursed Letters of Credit (or, if no Revolving Credit Advance or unreimbursed Letter of Credit is then outstanding, to provide Letter of Credit Cash Collateral until an amount equal to the undrawn amount of all outstanding Letters of Credit has been secured by Letter of Credit Cash Collateral, and thereafter to Borrower) in an amount equal to 100% of the Net Proceeds of such Asset Sale of an Excluded Property. (d) All prepayments under this Section 5.1 that are to be applied to Term Loan Advances shall be made together with accrued interest to the date of such prepayment on the principal amount prepaid. 5.2. PAYMENT FROM INSURANCE PROCEEDS. Not later than the fifteenth (15th) calendar day following the receipt by the Agent or any Credit Party or Subsidiary of any Credit Party of any proceeds of any insurance required to be maintained pursuant to Section 11.3(a) on account of each separate loss, damage or injury in excess of $250,000 (or, if there shall be continuing an Event of Default, of any amount of Net Proceeds) to any Collateral of such Credit Party or such Subsidiary, such Credit Party or Subsidiary shall notify the Agent of such receipt in writing or by telephone promptly confirmed in writing, and not later than the fifteenth (15th) calendar day following receipt by the Agent or such Credit Party or Subsidiary of $250,000 or more of such Net Proceeds (or, if there shall be continuing an Event of Default, of any amount of Net Proceeds), there shall become due and payable a prepayment of principal in an amount equal to such Net Proceeds. Prepayments from such Net Proceeds shall be applied as follows: FIRST, to the outstanding principal of the Term Loan, until the Term Loan has been paid in full, SECOND, to the outstanding principal of the Revolving Loan, until the Revolving Loan has been paid in full, THIRD, to repay the amount of all unreimbursed Letters of Credit until reimbursed in full, and then to provide cash collateral (on terms reasonably satisfactory to the Agent) for any outstanding Letters of Credit, until there shall have been provided cash collateral equal to the undrawn amount of all Letters of Credit (which cash collateral shall constitute part of the Collateral), and FOURTH, to the Credit Party or Subsidiary thereof, as the case may be, whose property was lost, damaged or injured or whoever else shall be legally entitled thereto. Any such prepayment on the Revolving Loan shall be made without penalty or premium but shall be subject to payment of any applicable indemnity obligations pursuant to Section 4.8 hereof. 5.3. OPTIONAL PREPAYMENTS. (a) Upon not less than three (3) Business Days' prior Written Notice to the Agent with respect to Advances constituting Eurodollar Advances and not less than one (1) Business Day's prior Written Notice to the Agent with respect to Advances constituting Base Rate Advances, Borrower shall have the right from time to time to prepay in part, without premium, fee or charge (except as provided in Sections 4.8 and 5.6 hereof), any Advances, so long as each such prepayment is in the amount of $1,000,000 or an integral multiple of $100,000 in excess thereof or, if less, the then aggregate outstanding principal balance of the Revolving Loan or the Term Loan, as the case may be, and so long as, concurrently with the making of any such prepayment, Borrower pays any fees, premiums, charges or costs provided for under Sections 4.8 and 5.6 hereof. (b) No Eurodollar Advance or portion thereof may be prepaid under this Section 5.3 until the last day of the Interest Period therefor. Upon the giving of notice of prepayment, the amount therein specified to be prepaid shall be due and payable on the date therein specified for such prepayment, together with all accrued interest thereon to such date plus any fees, premiums, charges or costs provided for under Sections 4.8 and 5.6 hereof. The Agent shall, promptly after receipt of any notice of prepayment of any Advance as provided in this Section 5.3, notify each Lender in writing or by telephone confirmed promptly in writing of Borrower's intention so to prepay all or part of such Advance. 5.4. PROCEDURES FOR PAYMENT. (a) Each payment or prepayment hereunder and under the Notes shall be made not later than 12:00 noon (New York City time) on the day when due in lawful money of the United States of America to the Agent at the Payment Office in immediately available funds, without counterclaim, offset, claim or recoupment of any kind. Each payment or prepayment hereunder and under the Notes shall be made without setoff or counterclaim and free and clear of, and without deduction for, any present or future withholding or other taxes, duties or charges of any nature imposed on such payments or prepayments by or on behalf of any government or any political subdivision or agency thereof or therein, except for Excluded Taxes. If any such taxes, duties or charges (other than any Excluded Taxes) are so levied or imposed on any payment or prepayment to any Lender, Borrower will make additional payments in such amounts as may be necessary so that the net amount received by such Lender, after withholding or deduction for or on account of all taxes, duties or charges, including deductions applicable to additional sums payable under this Section 5.4(a) (other than Excluded Taxes), will be equal to the amount provided for herein or in such Lender's Note or Notes. Whenever any taxes, duties or charges (other than Excluded Taxes) are payable by Borrower with respect to any payments or prepayments hereunder or under any of the Notes, Borrower shall furnish promptly to the Agent for the account of the applicable Lender official receipts (to the extent that the relevant governmental authority delivers such receipts) evidencing payment of any such taxes, duties or charges so withheld or deducted. If Borrower fails to pay any such taxes, duties or charges when due to the appropriate taxing authority or fails to remit to the Agent for the account of the applicable Lender the required receipts evidencing payment of any such taxes, duties or charges so withheld or deducted, Borrower shall indemnify the affected Lender for any incremental taxes, duties, charges, interest or penalties that may become payable by such Lender as a result of any such failure. (b) (i) Each Lender organized under the laws of a jurisdiction outside of the United States (a "Foreign Lender") shall provide to Borrower and the Agent a properly completed and executed Internal Revenue Service Form 4224 or Form 1001 or other applicable form, certificate or document prescribed by the Internal Revenue Service of the United States certifying as to such Foreign Lender's entitlement to complete exemption from United States withholding tax (a "Certificate of Exemption"). Each Foreign Lender, if a party to this Agreement on the Closing Date, shall provide such a Certificate of Exemption on or before the Closing Date and, assuming that it is proper, under then existing United States withholding tax statutes and applicable tax treaties, to issue such Certificate of Exemption from time to time thereafter upon the reasonable request of Borrower or the Agent. Each Foreign Lender that becomes a Lender pursuant to Section 15.14 or 15.15 hereof after the Closing Date shall provide a Certificate of Exemption on or before the date such Foreign Lender becomes a Lender and, assuming that it is proper, under then existing United States withholding tax statutes and applicable tax treaties, to issue such Certificate of Exemption from time to time thereafter upon the reasonable request of Borrower or the Agent. (ii) Each Foreign Lender shall provide to Borrower (x) in the case of a Foreign Lender which is a party to this Agreement on the Closing Date, on or before the Closing Date, and (y) in the case of a Foreign Lender that becomes a Lender pursuant to Section 15.14 or 15.15 hereof, on or before such Foreign Lender becomes a Lender, a statement describing all taxes, duties or charges that are in effect and applicable on the Closing Date or the date that such Foreign Lender becomes a Lender hereunder, as the case may be, with respect to which Borrower would be required to make additional payments to such Foreign Lender under the third sentence of Section 5.4(a) hereof. (iii) Within thirty (30) days after the written reasonable request of Borrower, each Foreign Lender shall execute and deliver to Borrower such certificates, forms or other documents which can be furnished consistent with the facts and which are reasonably necessary to assist Borrower in applying for refunds of taxes paid by Borrower hereunder or making payment of taxes hereunder; provided, however, that no Foreign Lender shall be required to furnish to Borrower any financial information with respect to itself or other information which it considers confidential. (iv) If a Foreign Lender that originally provided a Certificate of Exemption indicating that such Foreign Lender was exempt from United States withholding tax thereafter ceases to qualify for such exemption, Borrower shall have the right to require such Foreign Lender to assign its Revolving Commitment, its Term Commitment and its pro rata share of the Advances (including its pro rata share of the interest accrued thereon) to one or more banks or financial institutions identified by Borrower at a purchase price equal to the principal of and accrued but unpaid interest and fees (to the date of purchase) on such Foreign Lender's pro rata share of the Advances. (c) Notwithstanding anything contained in Section 5.1(b) or 5.2 hereof, the Agent shall not, to the extent requested in writing by Borrower, apply any mandatory prepayment under such Sections to any portion of the Revolving Loan or the Term Loan which constitutes a Eurodollar Advance until the last day of the respective Interest Period therefor or the earlier maturity of such portion of such Revolving Loan or such Term Loan, as the case may be, by acceleration or otherwise, such mandatory prepayment, until it can be so applied, to be applied to the prepayment of such portion of the Loan comprising Base Rate Advances. If there shall remain any portion of such mandatory prepayment after payment in full of such portion of the Revolving Loan or the Term Loan constituting Base Rate Advances, then until such remaining portion of the mandatory prepayment can be applied to the Eurodollar Advances as aforesaid, such remaining portion of such mandatory prepayment shall be invested and reinvested by and in the name of the Agent in investments of the type permitted under Section 12.4(b) hereof with the type and maturity of such investments to be mutually agreed to by the Agent and Borrower. All interest earned on such investments shall be for the account and risk of Borrower. Interest earned on any portion of principal applied to a Eurodollar Advance shall be, so long as no Default or Event of Default shall have occurred and be continuing, and to the extent received by the Agent, turned over to Borrower promptly following application of such principal to such Eurodollar Advance. As additional collateral security for the Lender Debt, Borrower hereby grants to the Agent a security interest in (i) any such mandatory prepayments and any investments thereof, including, without limitation, any certificates or instruments evidencing any such investments, and all claims and choses in action in respect of the foregoing, (ii) any interest or other payment made in respect of such investments and (iii) any and all proceeds of any of the above and all claims and causes in action in respect of the foregoing (all of the foregoing constituting part of the Collateral). To the extent the Agent makes any such investments, Borrower hereby authorizes the Agent to hold any certificate or instrument evidencing such investments. 5.5. COMMITMENT FEE. Borrower shall pay to the Agent for the account of the Lenders a fee which shall accrue from and after the Closing Date until the date of the expiration, termination or cancellation of the Revolving Credit Facility Commitment payable quarterly in arrears beginning on September 30, 1996, and on each December 31, March 31, June 30 and September 30 occurring thereafter (and on the date of maturity or earlier expiration, termination or cancellation of the Revolving Credit Facility Commitment), of the percent per annum indicated below that corresponds to the time and, where applicable, the EBITDAR of Borrower for the Fiscal Year indicated below on the amount by which $27,500,000 (as such amount may be reduced upon any permanent reduction in the Revolving Credit Facility Commitment) exceeds the aggregate outstanding principal amount of the Revolving Loan (plus the Letter of Credit Usage) (calculated daily): from the Closing Date through from May 1, 1997 through and from May 1, 1998 April 30, 1997 including April 30, 1998 and thereafter If Fiscal Year If Fiscal Year 1996 If Fiscal Year If Fiscal Year 1996 EBITDAR EBITDAR is less 1997 EBITDAR 1997 EBITDAR is greater than than or equal to is greater than is less than or $17,000,000 &17,000,000 $25,000,000 $25,000,000 0.5% per 0.375% per 0.5% per annum 0.375% per 0.5% per annum annum annum annum 5.6. PREPAYMENT FEE. In the event the Revolving Credit Facility Commitment is terminated pursuant to Section 2.5 hereof on or prior to the first anniversary of the Closing Date, such termination shall be accompanied by a prepayment fee equal to one percent (1.0%) of the amount of the Revolving Credit Facility Commitment as of the date of such termination. In the event the Revolving Credit Facility Commitment is terminated pursuant to Section 2.5 hereof after the first anniversary of the Closing Date and on or prior to the second anniversary of the Closing Date, such termination shall be accompanied by a prepayment fee equal to one-half percent (0.5%) of the amount of the Revolving Credit Facility Commitment as of the date of such termination. Borrower may prepay all of the amount advanced under the Term Loan (but not less than all), including prepayments from Excess Cash Flow, without any prepayment fee, subject, however, to Section 5.3 hereof.. 5.7. AGENCY FEE. On the Closing Date and quarterly in advance on the first Business Day of each calendar quarter thereafter, so long as any Advance, any portion of the Revolving Credit Facility Commitment or any Letter of Credit remains outstanding, Borrower shall pay to the Agent for its own account an agency fee of $10,000 per quarter. Borrower will be entitled to a credit to the agency fee due on the Closing Date in an amount calculated on the basis of the pro-rata portion of the unexpired period of the existing month for which the agency fee was paid under the Existing Agreement. 5.8. CLOSING FEE. Borrower shall pay to the Agent for the account of the Lenders in the amounts indicated below, a closing fee equal to $186,060: (i) NBC $ 63,924 (ii) Heller $ 45,386 (iii) IBJ $ 76,750 Total: $186,060 Borrower shall be entitled to a credit to the closing fee for the portion of the closing fee paid to Agent for the account of Lenders in connection with Borrower's acceptance of the commitment letter dated July 18, 1996 among the Agent, the Lenders and the Companies, issued for the Revolving Loan and the Term Loan. 5.9. CONTINGENT FEE. Borrower shall pay to the Agent for the account of the Lenders in the amount indicated below respectively for each Lender on the first and second anniversaries of the Closing Date in the event that the annual risk rating of the Exit Financing Facility, as assigned by the Federal banking examiners under the Shared National Credit Review Program, results in either the Revolving Loan or the Term Loan being classified or criticized on the basis of its evaluated ability to be repaid, as of the first or second anniversary of the Closing Date, as applicable: Lender Annual Contingent Fee NBC $26,424 Heller $18,761 IBJ $20,875 Total : $66,060 To the extent that applicable Federal law requires the confidentiality of the results of such examinations or otherwise prohibits or restricts disclosures of such examinations, neither the Agent nor the Lenders shall be required to disclose to the Companies the results of any such examinations or risk ratings. 5.10. PREPAYMENTS TO INCLUDE INTEREST. All prepayments pursuant to this Section 5, except optional prepayments on Advances, shall be made together with accrued interest to the date of such prepayment on the principal amount prepaid. SECTION 6. LETTERS OF CREDIT. 6.1. LETTERS OF CREDIT. (a) Borrower may request, subject to the terms and conditions herein set forth (including, without limitation, the conditions set forth in Section 9 hereof and the definitions contained in Section 1 hereof), from time to time prior to the termination of the Revolving Credit Facility Commitment and upon five (5) Business Days' Written Notice (which Written Notice shall be deemed repeated on the date of issuance of each Letter of Credit issued in response thereto), that NBC (or any other Lender approved by NBC) issue, and NBC (or any such other Lender) shall, subject to such conditions, issue (each such Lender, upon issuance of a Letter of Credit, being an "Issuing Lender" in respect of such Letter of Credit) Letters of Credit; provided, however, that (i) the aggregate undrawn amount of all Letters of Credit at any time outstanding, together with the amount of unreimbursed drawings thereunder, shall not exceed the Letter of Credit Sublimit; and (ii) the aggregate undrawn amount of all Letters of Credit at any time outstanding, together with the amount of unreimbursed drawings thereunder and the then aggregate unpaid principal amount of the Revolving Loan, shall not exceed the Revolving Loan Borrowing Limit; provided, further, that in no event shall NBC or any other Lender issue any Letter of Credit if the sum of the original undrawn amount thereof (less amounts in respect of which any Lender is obligated to NBC or such other Lender under Section 15.18 hereof), plus the aggregate undrawn and unreimbursed amounts immediately prior to the time of such issuance of all other Letters of Credit issued by such Lender (less amounts in respect of which any Lender is obligated to NBC or such other Lender under Section 15.18 hereof) plus such Lender's pro rata portion of the aggregate unpaid principal amount of the Revolving Loan, exceeds such Lender's Revolving Commitment. For purposes of determining the aggregate amount of undrawn and unreimbursed Letters of Credit as at any date, the undrawn and unreimbursed amounts under Letters of Credit that are denominated in foreign currency shall be converted into U.S. Dollars at the rate of exchange for cable transfers (as determined by the Agent) in effect on the date of determination. (b) Each Letter of Credit shall be a standby Letter of Credit or a documentary Letter of Credit, shall be in form, scope and substance satisfactory to the Agent, and shall be issued pursuant to a Letter of Credit Agreement. Each Letter of Credit that is a standby Letter of Credit shall expire no later than the earlier of the Maturity Date and the date one year following the date of issuance thereof. Each Letter of Credit that is a documentary Letter of Credit shall expire no later than the earlier of the Maturity Date and the date ninety (90) days following the date of issuance thereof. (c) Borrower shall reimburse the Issuing Lender of each Letter of Credit issued hereunder for any draft paid under such Letter of Credit within one (1) Business Day following the date of such payment. Borrower shall, to the extent of availability under the Revolving Credit Facility Commitment, effect such payment with the proceeds of a Revolving Credit Advance (which shall be entirely a Base Rate Advance) made to Borrower in the amount of such payment (whether or not any request therefor has been made by Borrower), which Revolving Credit Advance shall at such time be made and applied to payment of reimbursement of such drawing without any notice by or consent of Borrower (except that no such Revolving Credit Advance shall be required to be made by the Lenders to the extent prevented by applicable law or following any Event of Default of the type described in Section 13.1(f) or 13.1(g) hereof), and shall be repayable, together with interest thereon, in accordance with the provisions of Section 2 hereof. The Issuing Lender shall promptly notify the Agent, the other Lenders and Borrower in writing or by telephone confirmed promptly in writing of any such drawing under a Letter of Credit and the making of such Revolving Credit Advance. Any payments by an Issuing Lender of drawings under any Letter of Credit in foreign currency shall be reimbursed by Borrower in U.S. Dollars at the rate of exchange for cable transfers in effect on the date of payment by such Issuing Lender. (d) Notwithstanding anything contained in Section 6.1(c) hereof, the obligation of Borrower to reimburse a drawing under a Letter of Credit shall not be affected or impaired by any failure of any Lender to fund a Revolving Credit Advance under Section 6.1(c) hereof unless Borrower shall have satisfied all conditions to the making of such Revolving Credit Advance (other than notice requirements and the delivery of a Borrower's Certificate). (e) Upon not less than one (1) Business Day's prior Written Notice to the Agent, the Borrower may terminate or cause to be terminated any Letter of Credit, provided that the Borrower has obtained the prior written consent of each beneficiary of such Letter of Credit to such termination. (f) The face amounts of issued and outstanding documentary and standby letters of credit issued for the account of Borrower shall be 100% reserved against availability on the Revolving Loan Borrowing Limit. 6.2. LETTER OF CREDIT FEES. Borrower shall pay to Agent, for the account of Lenders, a fee on the average face amount of each standby and documentary Letter of Credit issued by an Issuing Lender in an amount equal to the applicable Letter of Credit Fee, payable quarterly in advance on the first Business Day of each calendar quarter. In addition, Borrower shall pay to each Issuing Lender, in respect of each standby and documentary Letter of Credit issued by such Issuing Lender hereunder, on demand, all standard fees and other charges charged by such Issuing Lender with respect to the issuance and maintenance of any Letter of Credit including, without limitation, in the case of each standby Letter of Credit, an amount equal to one-fourth of one percent (0.25%) of the face amount of such standby Letter of Credit. 6.3. INDEMNITY. Borrower agrees to indemnify each Issuing Lender, each of its correspondents and the Lenders and hold them harmless from and against any and all claims, damages, losses, liabilities, costs and expenses whatsoever which they may incur or suffer by reason of or in connection with the execution and delivery or assignment of or payment or presentation under or in respect of any Letter of Credit issued by such Issuing Lender or any action taken or omitted to be taken with respect to any Letter of Credit issued by such Issuing Lender, except only if and to the extent that any such claims, damages, losses, liabilities, costs or expenses shall be caused by the willful misconduct or gross negligence of such Issuing Lender or such correspondent in making payment against any draft presented under any Letter of Credit which does not substantially comply with the terms thereof, or in failing to make payment against any such draft which strictly complies with the terms of such Letter of Credit, it being understood that (a) in making such payment, such Issuing Lender's or such correspondent's exclusive reliance in good faith on the documents presented to and believed to be genuine by it in accordance with the terms of such Letter of Credit as to any and all matters set forth therein, including, without limitation, reliance in good faith on any affidavit presented pursuant to such Letter of Credit and on the amount of any sight draft presented pursuant to any Letter of Credit whether or not any statement or any other document presented pursuant to such Letter of Credit proves to be forged, fraudulent, invalid or insufficient in any respect or any statement therein proves to be untrue or inaccurate in any respect whatsoever, and (b) any such noncompliance in a non-material respect shall, in each case, not be deemed willful misconduct or gross negligence of such Issuing Lender or such correspondent. Upon demand by any Issuing Lender, such correspondent or any Lender at any time, Borrower shall reimburse such Issuing Lender, such correspondent or such Lender for any legal or other expenses incurred in connection with investigating or defending against any of the foregoing, except if the same is due to such Issuing Lender's or such correspondent's gross negligence or willful misconduct as aforesaid. The indemnities contained herein shall survive the expiration or termination of the Letters of Credit and this Agreement and shall be payable upon demand. 6.4. REIMBURSEMENT OF CERTAIN COSTS. (a) Unless at the time prohibited by an order of a court of competent jurisdiction, the obligations of Borrower hereunder with regard to Letters of Credit are absolute and unconditional under any and all circumstances and irrespective of any setoff, counterclaim or defense to payment which Borrower may have against any Person, including, without limitation, the beneficiary of such Letter of Credit and any Issuing Lender, and all sums payable by Borrower hereunder with respect to any such Letter of Credit, whether of principal, interest, fees, expenses or otherwise, shall be paid in full, without any deduction or withholding whatsoever. In the event that Borrower is compelled by applicable law to make any such deduction or withholding, then, unless prohibited by applicable law, it shall pay to each Issuing Lender such additional amount as will result in the receipt by each Issuing Lender of a net sum equal to the sum it would have received if no such deduction or withholding had been required to be made. (b) In the event that any change in conditions or the adoption of any law, regulation or directive or any change in applicable law, regulation or directive, or interpretation thereof (including any request, guideline or policy whether or not having the force of law and including, without limitation, Regulation D promulgated by the Board as now and from time to time hereafter in effect) by any authority charged with the administration or interpretation thereof, occurs which: (i) subjects any Issuing Lender to any tax with respect to any amount paid or to be paid by such Issuing Lender as the issuer of any Letter of Credit (other than any Excluded Tax) or its commitment under any Letter of Credit; or (ii) changes the basis of taxation of payments to any Issuing Lender with respect to any Letter of Credit or such commitment (other than any Excluded Tax); or (iii) imposes, modifies, requires, makes or deems applicable any reserve, deposit, insurance assessment or similar requirements against any assets held by, deposits with or for the account of, or loans or commitments by, an office of any Issuing Lender in connection with payments by such Issuing Lender under any Letter of Credit or commitments under any Letter of Credit; or (iv) imposes any condition upon or causes in any manner the addition of any supplement to or an increase of any kind to any Issuing Lender's capital or cost base for issuing any Letter of Credit which results in an increase in the capital requirement supporting such Letter of Credit; or (v) imposes, modifies, requires, makes or deems applicable to any Issuing Lender any capital requirement, increased capital requirement or similar requirement such as, without limitation, the deeming of any Letter of Credit to be an asset held by such Issuing Lender for capital calculation or other purposes; and the result of any of the foregoing is to reduce the after-tax rate of return on such Issuing Lender's capital, increase the cost to any Issuing Lender of making any payment under, or maintaining its commitment under, any Letter of Credit, or to reduce the amount of any payment (whether of principal, interest or otherwise) or benefit received or receivable by such Issuing Lender with respect to any Letter of Credit or to require such Issuing Lender to make any payment on or calculated by reference to the gross amount of any sum received by it with respect to any Letter of Credit, in each case by an amount which such Issuing Lender in its sole judgment deems material (including, without limitation, such Issuing Lender's cost of taking action in anticipation of the effectiveness of any event referred to above in order to enable such Issuing Lender to be in compliance therewith upon effectiveness), then and in any such case: (x) such Issuing Lender shall promptly notify Borrower, the Agent and the other Lenders in writing of the happening of such event; (y) such Issuing Lender shall promptly deliver to Borrower, the Agent and the other Lenders a certificate stating the change which has occurred or the reserve requirements or other conditions which have been imposed on such Issuing Lender or the request, directive or requirement with which it has complied, together with the date thereof and the amount of such increased cost, reduction or payment; and (z) Borrower shall pay to such Issuing Lender, upon demand, after delivery of the notice referred to in clause (x) above, such amount or amounts as will compensate for such additional cost, reduction or payment, to the extent permitted by law. A certificate delivered by an Issuing Lender pursuant to clause (y) above as to the additional amounts payable pursuant to this paragraph shall, in the absence of manifest error, be conclusive evidence of the amount thereof. The protection of this Section 6.4 shall be available to each Issuing Lender regardless of any possible contention of invalidity or inapplicability of the law, regulation, directive or condition which has been imposed. In the event that after Borrower shall have paid any additional amount under this Section 6.4 with respect to any Letter of Credit, an Issuing Lender shall have successfully contested such law, regulation, treaty, directive or condition then, to the extent that such Issuing Lender does not incur any increased cost or reduction in payment (as to which such Issuing Lender is entitled to indemnification hereunder) with respect to any Letter of Credit for which Borrower has paid such additional amount, such Issuing Lender shall refund, on an after-tax basis, to Borrower such additional amount. 6.5. PAYMENT OF DRAFTS. Delivery to the Agent, any Issuing Lender or their correspondents of any documents purporting to comply with the requirements of any Letter of Credit shall be sufficient evidence of the validity, genuineness, and sufficiency thereof and of the good faith and proper performance of the drawers and/or users of any Letter of Credit, their agents and assignees, and the Agent, such Issuing Lender and their correspondents may rely and act thereon without liability or responsibility with respect thereto or with respect to the correctness or condition of any shipment of merchandise to which the same may relate. Upon receipt by the Agent or any Issuing Lender of written approval thereof from Borrower, the Agent or any such Issuing Lender, as the case may be, may (but shall not be required to) accept or pay overdrafts or irregular drafts or drafts with irregular documents attached or with respect to which time limits have been extended, and no such acceptance or payment shall impair any rights of the Agent or any Issuing Lender under this Agreement. In case of any variation between the documents called for by any Letter of Credit and the documents accepted by the Agent, an Issuing Lender or their correspondents, Borrower shall be conclusively deemed to have waived any right to object to such variation with respect to any action of the Agent, such Issuing Lender or such correspondents relating to such documents and to have ratified and approved such action as having been taken on the direction of Borrower, unless Borrower within ten (10) Business Days of the receipt of such documents or acquisition of knowledge of such variation files an objection with the Agent or such Issuing Lender in writing. No Issuing Lender (nor the Agent) shall be liable for any delay in giving, or failing to give, notice of the arrival of any goods or any other notice, or for any error, neglect or default of any of its correspondents; nor shall any Issuing Lender (or the Agent) be responsible for the non-fulfillment of any requirement of any Letter of Credit that (a) drafts bear appropriate reference to any Letter of Credit, (b) the amount of any draft be noted on the reverse of any Letter of Credit, (c) any Letter of Credit be surrendered or taken up or (d) documents be forwarded apart from any drafts; and the Agent, each Issuing Lender and their correspondents may, if they see fit, waive any such requirements. 6.6. ISSUING LENDER'S ACTIONS. Any Letter of Credit may, in the discretion of the Issuing Lender thereof or such Issuing Lender's correspondents, be interpreted by it or any such correspondent (to the extent not inconsistent with such Letter of Credit) in accordance with the Uniform Customs and Practice for Documentary Credits of the International Chamber of Commerce, as adopted or amended from time to time, or any other rules, regulations and customs prevailing at the place where any Letter of Credit is available or the drafts are drawn or negotiated. An Issuing Lender and its correspondents may accept and act upon the name, signature or act of any party purporting to be the executor, administrator, receiver, trustee in bankruptcy or other legal representative of any party designated in any Letter of Credit issued by such Issuing Lender in the place of the name, signature or act of such party. SECTION 7. SECURITY AND GUARANTY. As security for the full and timely payment and performance of the Lender Debt, whether now existing or hereafter arising: 7.1. SECURITY AGREEMENTS. (a) Each of the Credit Parties shall duly execute and deliver to the Agent one or more security agreements, pledges or assignments, substantially in the form of Exhibit 7.1 hereto (each as amended, supplemented or otherwise modified from time to time in accordance with its terms, a "Security Agreement" and, together with the Mortgages, the Collection Account Agreements, the Concentration Account Agreement, the Lock-Box Agreements, and any other agreement now existing or hereafter created providing collateral security for the payment or performance of any Lender Debt, in each case, as amended, modified or supplemented from time to time, collectively referred to as the "Security Documents"), and all consents of third parties necessary to permit the effective granting of the Liens created in such security agreements, in form and substance satisfactory to the Agent, as may be required by the Agent to grant to the Agent for the benefit of the Agent and the Lenders, except to the extent otherwise permitted under Section 12.2 hereof, a valid, perfected and enforceable first priority lien on and security interest in all present and future Collateral, including but not limited to, Inventory, accounts (to the extent arising from the sale or lease of Inventory or the providing of services) ("Pledged Accounts"), in each case, of such Credit Party or such Credit Party's Subsidiaries, wherever located, and all proceeds thereof, and a valid perfected second priority security interest in all cash registers and scanning systems, and all books and records, including, without limitation, computer records, disks, tapes and other media in which any information relating to Inventory, inventory control systems or such accounts is stored or recorded and all computer software, management information systems and other systems and copies of every kind thereof relating to Inventory, inventory controls or such accounts and all customer lists ("Records and Other Property"), in each case, of such Credit Party or such Credit Party's Subsidiaries, wherever located, and all proceeds thereof, in each case to the extent a Lien therein is granted in such Security Documents, together with: (i) evidence of the completion of all recordings and filings of or with respect to the Security Documents that the Agent may deem necessary or desirable in order to perfect and protect the Liens created thereby, (ii) evidence of the insurance required by the terms of any Security Document, (iii) copies of each assigned agreement, if any, referred to in any Security Document, together with a consent to such assignment in form and substance satisfactory to the Lenders, duly executed by each party to such assigned agreements other than Borrower, and (iv) evidence that all other action that the Agent may deem necessary or desirable in order to perfect and protect the Liens created by the Security Documents has been taken. (b) The Agent shall have received acknowledgment copies or stamped receipt copies of proper financing statements, duly filed on or before the day of the initial borrowing hereunder under the UCC of all jurisdictions that the Agent may deem necessary or desirable in order to perfect and protect the Liens created by the Security Documents, covering the collateral described in the Security Documents. 7.2. MORTGAGES. (a) Each of the Credit Parties shall duly execute and deliver to the Agent one or more mortgages or deeds of trust, as appropriate for the applicable jurisdiction in which the real property encumbered thereby is located, substantially in the form of Exhibit 7.2 hereto (each as amended, supplemented or otherwise modified from time to time in accordance with its terms, a "Mortgage" and, as amended, modified or supplemented from time to time, collectively referred to as the "Mortgages"), and all consents of third parties necessary to permit the effective granting of the Liens created in such mortgages and deeds of trust, in form and substance satisfactory to the Agent, as may be required by the Agent to grant to the Agent for the benefit of the Agent and the Lenders, except to the extent otherwise permitted under Section 12.2 hereof, a valid, perfected and enforceable first priority lien on and security interest in all present and future Real Property of such Credit Party or such Credit Party's Subsidiaries, wherever located, and all proceeds thereof, together with: (i) evidence of the insurance required by the terms of any Mortgage, (ii) copies of each assigned agreement, if any, referred to in any Mortgage, together with a consent to such assignment in form and substance satisfactory to the Lenders, duly executed by each party to such assigned agreements other than Borrower, and (iii) evidence that all other action that the Agent may deem necessary or desirable in order to perfect and protect the Liens created by the Mortgages has been taken. (b) Each of the Credit Parties shall provide, at the Credit Parties' expense, such additional documentation as the Agent and the Lenders' would ordinarily require in connection with real estate collateral, including without limitation, the following for each parcel of Real Property owned by a Credit Party (other than Excluded Properties): (i) an appraisal performed in accordance with applicable law; (ii) a mortgagee's policy of title insurance naming Agent for the benefit of the Lenders as insured; (iii) an environmental audit or such other due diligence or investigation as may be acceptable to the Agent and Lenders; and (iv) additionally with respect to all Real Properties (other than Excluded Properties), whether owned or leased by a Credit Party, such other certificates, consents, estoppel letters and third party documents as the Agent and Lenders may request. 7.3. FILING AND RECORDING. (a) Borrower shall, at its cost and expense (except where otherwise prohibited by applicable law), cause all instruments and documents given as security pursuant to this Agreement to be duly recorded and/or filed or otherwise perfected in all places necessary, in the opinion of the Agent, to perfect and protect the Lien of the Agent in the property covered thereby. (b) Each of the Credit Parties hereby authorizes the Agent to file one or more financing statements or continuation statements or amendments thereto or assignments thereof in respect of any Lien created pursuant to this Agreement and the Security Documents which may at any time be required or which, in the opinion of the Agent, may at any time be desirable without the signature of such Credit Party where permitted by law. (c) In the event that any re-recording or refiling of any financing statement (or the filing of any statements of continuation or amendment or assignment of any financing statement) or Mortgage is required to protect and preserve such Lien, Borrower shall, at its cost and expense, cause the same to be recorded and/or refiled at the time and in the manner requested by the Agent (except where otherwise prohibited by applicable law). 7.4. INTERPRETATION OF SECURITY DOCUMENTS AND MORTGAGES. In the case of any conflict between the terms and provisions of a Security Document and this Agreement, the terms and provisions of this Agreement shall control, unless the terms of such Security Document expressly provide otherwise. 7.5. GUARANTEES. (a) On or prior to the Closing Date, Parent and each Subsidiary of Borrower in existence on the Closing Date shall execute and deliver to the Agent an amended and restated guaranty, substantially in the form of Exhibit 7.5 hereto, of all present and future Lender Debt. Parent's obligations under the guaranty will be secured by a pledge of 100% of the issued and outstanding capital stock of Borrower. (b) Upon the formation or acquisition, after the Closing Date, of any Subsidiary of Borrower, such Subsidiary shall execute and deliver to the Agent a guaranty, substantially in the form of Exhibit 7.5 hereto, of all then existing or thereafter incurred Lender Debt. Nothing contained in this Section 7.5 shall permit Borrower or any Subsidiary thereof to form or acquire any Subsidiarywhich is otherwise prohibited by this Agreement. 7.6. BANKRUPTCY COURT APPROVAL. The security interests and liens of the Agent and the Lenders shall be authorized and approved by the Bankruptcy Court by entry of a Final Order confirming the Plan. For purposes of this Agreement, the term "Final Order" means an order issued by the Bankruptcy Court or another court of competent jurisdiction: (a) which has not been reversed, vacated, stayed or amended (unless otherwise consented to by the Agent, and the Lenders); and (b) as to which the time to appeal or to seek certiorari has expired and no appeal or petition for certiorari has been timely taken or as to which any appeal that has been or may be taken or any petition for certiorari that has been or may be filed has been resolved by the highest court to which the order was appealed or from which certiorari was sought. The Agent may, in its sole discretion and at the Companies' cost, take whatever further action it deems necessary or desirable to perfect the security interests of Agent and the Lenders, including, without limitation, the filing or recording of liens and financing statements or other instruments, and the Companies will execute any such documents upon the Lenders' and the Agent's request. The Companies will obtain all required regulatory and judicial consents and approvals for the granting of such security interests. 7.7. RELEASE OF MORTGAGES. Upon any full and final payment of the Term Loan arising from a re-financing of the Term Loan, the Agent and the Lenders will release the Liens on the Real Properties, so long as satisfactory third-party agreements covering each of the Real Properties (e.g., landlord's waivers, mortgagee waivers, etc.) have been delivered to the Agent and no Default or Event of Default has occurred and is continuing at the time of such payment. If Borrower repays the Term Loan in the ordinary course of payments and pre-payments with Borrower's own assets, exclusive of sources other than a re-financing of the Term Loan, then the Liens on the Real Properties will remain in favor of the Agent and the Lenders. Nothing in this Section 7.7 shall be construed to modify or waive the provisions of Section 12.3 of this Agreement; and any re-financing of the Term Loan, along with any obligation of the Agent and the Lenders to release the Liens on any of the Real Properties, will be subject to compliance with the other provisions of this Agreement, in general, and Section 12, in particular. 7.8. POWER OF ATTORNEY. Borrower hereby appoints the Agent or any other Person whom the Agent may designate as Borrower's attorney, with power to: (i) endorse Borrower's name on any checks, notes, acceptances, money orders, drafts or other forms of payment or security that may come into the Agent's or any Lender's possession; (ii) sign Borrower's name on any invoice or bill of lading relating to any Receivables and drafts against customers; (iii) verify the validity, amount or any other matter relating to any Receivable by mail, telephone, telegraph or otherwise with account debtors; (iv) do all things necessary to carry out this Agreement and any Security Documents; and (v) on or after the occurrence and during the continuation of an Event of Default, notify the post office authorities to change the address for delivery of Borrower's mail to an address designated by the Agent, and to receive, open and dispose of all mail addressed to Borrower. Borrower hereby ratifies and approves all acts of the attorney. Neither the Agent nor the attorney will be liable for any acts or omissions or for any error of judgment or mistake of fact or law. This power, being coupled with an interest, is irrevocable so long as any Receivable which is assigned to the Bank or in which the Bank has a security interest remains unpaid and until the Lender Debt has been fully satisfied. SECTION 8. CONDITIONS PRECEDENT TO INITIAL BORROWING AND ISSUANCE OF LETTERS OF CREDIT. No Advance shall be made and no Letter of Credit shall be issued hereunder until the fulfillment (or waiver in writing by the Required Lenders) of the following conditions precedent on or prior to the Closing Date: 8.1. OPINIONS OF COUNSEL. The Agent shall have received on or before the day of such initial borrowing, from Messrs. Crowe & Dunlevy, a professional corporation, special counsel to the Credit Parties, in sufficient copies for each Lender, opinions addressed to the Lenders and the Agent and dated the Closing Date, substantially in the form of Exhibit 8.1 hereto. 8.2. AUDIT RESULTS. The Agent and the Lenders shall have performed such audits of Borrower's Receivables and Inventory as the Agent and the Lenders shall have required, and the results thereof shall have been satisfactory to the Agent and the Lenders. 8.3. MATERIAL ADVERSE CHANGE. In the judgment of the Agent, (a) no material adverse change shall have occurred in the business, operations, liabilities, assets, properties, prospects or condition (financial or otherwise) of Borrower since June 15, 1996, as reflected in the unaudited financial information contained in the June 15, 1996 financial statements of Borrower, and (b) the Agent shall not have become aware of any previously undisclosed materially adverse information with respect to Borrower and there shall not have occurred any disruption or adverse change in the financial or capital markets generally which the Agent, in its reasonable discretion, deems material. 8.4. QUALIFICATION. Each Credit Party shall be duly qualified and in good standing in each jurisdiction in which it owns or leases property or in which the conduct of its business requires it to so qualify, except where the failure to so qualify could not reasonably be expected to have a Material Adverse Effect. 8.5. SECURITY DOCUMENTS AND INSTRUMENTS. The Agent shall have received, in sufficient copies for each Lender, all the instruments and documents then required to be delivered pursuant to Section 7 hereof or any other provision of this Agreement or pursuant to the instruments and documents referred to in Section 7 hereof and the same shall be in full force and effect and shall grant, create or perfect the Liens, rights, powers, priorities, remedies and benefits contemplated herein or therein, as the case may be. 8.6. EVIDENCE OF INSURANCE. The Agent shall have received, in sufficient copies for each Lender, evidence, in form, scope and substance and with such insurance carriers reasonably satisfactory to the Agent, of all insurance policies required pursuant to Section 11.3(a) hereof. 8.7. EXAMINATION OF BOOKS. The Agent and all Lenders shall have had the opportunity to examine the material contracts, properties, books of account, records, leases, Leases, contracts, pension plans, insurance coverage and properties of Borrower and of each Credit Party, and to perform such other due diligence regarding Borrower and each Credit Party as the Agent or any Lender shall have requested, the results of all of which shall have been satisfactory to the Agent and all Lenders in all material respects. 8.8. CORPORATE STRUCTURE. The Lenders shall be satisfied with the corporate structure and capitalization of each of the Credit Parties and all documentation relating thereto, including without limitation, the ownership of assets thereby and the terms and conditions of each charter, bylaws and each class of capital stock of each Credit Party. 8.9. NOTES. Each Lender shall have received its Note, each duly completed, executed and delivered in accordance with Section 2.3 and 3.2 hereof. 8.10. FEES TO AGENT AND LENDERS. All fees payable to the Agent and the Lenders with respect to the financing hereunder on or prior to the Closing Date shall have been paid in full in immediately available funds. 8.11. MANAGEMENT; OWNERSHIP. The Agent and all Lenders shall be reasonably satisfied with the management and board of directors of each of the Credit Parties, and the arrangements and agreements by and among each of the Credit Parties and such management. 8.12. DISBURSEMENT AUTHORIZATION. The Agent shall have received a disbursement authorization letter, substantially in the form of Exhibit 8.12 hereto, duly executed and delivered by Borrower as to the disbursement on the Closing Date of the proceeds of the initial Advance. 8.13. LITIGATION. There shall be no pending or, to the knowledge of any Credit Party, threatened litigation with respect to any of the Credit Parties or any of their Subsidiaries or (relating to the transactions contemplated herein) with respect to the Agent or any of the Lenders, which challenges or relates to the financing arrangements to be provided hereunder, or to the business, operations, liabilities, assets, properties, prospects or condition (financial or otherwise) of any of the Credit Parties or their Subsidiaries, which pending or threatened litigation could, in the Agent's reasonable judgment, be expected to have a Material Adverse Effect. There shall exist no judgment, order, injunction or other similar restraint prohibiting any transaction contemplated hereby. 8.14. COMPLIANCE WITH LAW. The Agent shall be satisfied that each Credit Party (a) has obtained all authorizations and approvals of any governmental authority or regulatory body required for the due execution, delivery and performance by such Credit Party of each Loan Document to which it is or will be a party and for the perfection of or the exercise by the Agent and each Lender of their respective rights and remedies under the Loan Documents, and (b) shall be in compliance with, and shall have obtained appropriate approvals pertaining to, all applicable laws, rules, regulations and orders, including, without limitation, all governmental, environmental, ERISA and other requirements, regulations and laws, the violation or failure to obtain approvals for which could reasonably be expected to have a Material Adverse Effect. 8.15. PROCEEDINGS; RECEIPT OF DOCUMENTS. All requisite corporate and/or partnership action and proceedings in connection with the borrowings and the execution and delivery of the Loan Documents and the issuance of the Letters of Credit shall be satisfactory in form and substance to the Agent and the Agent shall have received, on or before Closing Date, all information and copies of all documents, including, without limitation, records of requisite corporate and/or partnership action and proceedings, which the Agent may have requested in connection therewith, such documents where requested by the Agent to be certified by appropriate corporate Persons or governmental authorities. Without limiting the generality of the foregoing, the Agent shall have received on or before the Closing Date the following, each dated such day (unless otherwise specified), in form and substance satisfactory to the Agent (unless otherwise specified) and, except for the Notes, in sufficient copies for each Lender: (a) a copy of the certificate of incorporation of Borrower, and all amendments thereto, certified (as of a date reasonably near the date of the initial borrowing), by the Secretary of State of the State of Delaware as being a true and correct copy thereof; (b) a copy of the articles or certificate of incorporation, as the case may be, of each other Credit Party and all amendments thereto, in each case certified (as of a date reasonably near the date of the initial borrowing), by the Secretary of State of the state of formation or incorporation of each such Credit Party; (c) certified copies of the resolutions of the Board of Directors of each of Borrower and each Credit Party approving this Agreement, the Notes, and each other Loan Document to which it is a party or by which it is bound, and of all documents evidencing other necessary corporate action and governmental approvals, if any, with respect to this Agreement, the Notes, and each other Loan Document; (d) a copy of a certificate of the Secretary of State of each State listed on Schedule 8.15 hereto, dated a date reasonably near the date of the initial Advance, stating that Borrower and each Credit Party, as the case may be, is duly qualified and in good standing as a foreign entity in such State; (e) a certificate of each Credit Party signed on behalf of such Person by an appropriate officer of such Person, certifying as to (i) the absence of any amendments to the charter of such Person since the date of the Secretary of State's certificate for such Person referred to above, (ii) a true and correct copy of the bylaws of such Person as in effect on the date of the initial borrowing; (f) a certificate of the Secretary or an Assistant Secretary of each Credit Party certifying the names and true signatures of the officers of such Person authorized to sign, on behalf of such Person, this Agreement, the Notes and each other Loan Document, to which such Person is a party or by which it is bound; and (g) copies of the Subordinated Note Documents to be entered into on or about the Closing Date, which shall be satisfactory in form, scope and substance to the Agent, which shall be certified by an appropriate officer of Borrower to be true and complete in all respects. 8.16. PROJECTIONS. The Agent and the Lenders shall have received, not later than ten (10) days prior to the Closing Date, projections of the operations and financial affairs of the Companies, after giving effect to the Employee Buyout Offer, in form, substance and detail satisfactory to the Agent and Lenders; and the Agent and the Lenders shall have reviewed and approved such projections. 8.17. APPROVAL OF SUBORDINATED NOTES; CAPITALIZATION, ETC. The Agent and all Lenders shall have approved (which approval shall not be unreasonably withheld) all terms and conditions of the Subordinated Notes and the Subordinated Note Documents, including, without limitation, any and all amendments and other modifications thereto entered into as of the Closing Date, and, without in any way limiting the scope and generality of the foregoing approval requirement (which applies to all terms and conditions), in any event, there shall be no prepayment required under the terms of any Subordinated Note Document from cash flow, excess cash flow or the like while any Advance or Letter of Credit Usage (other than fully cash collateralized undrawn Letters of Credit) is outstanding, provided that prepayment from such sources may be required to effect a prepayment of Subordinated Notes if on the date when notice of such prepayment is first mailed to holders of the Subordinated Notes as contemplated by the Indenture (so long as such notice is mailed within five (5) Business Days following the earliest date that such notice can be mailed under the Indenture and provides the earliest date for prepayment which can be set under the Indenture, in each case as such Indenture is in effect on the Closing Date) a prepayment could be made in compliance with this Section 8.17. 8.18. COLLECTION AND CONCENTRATION ACCOUNTS; LOCK-BOX ACCOUNTS; CASH MANAGEMENT AGREEMENT. (a) Prior to the Closing Date, Borrower shall have established one or more Collection Accounts into which the cash receipts for each store operated by Borrower or a Subsidiary of Borrower (to the extent such cash receipts constitute proceeds of any Collateral) shall be deposited. (b) Borrower shall have established a Concentration Account at NBC or another financial institution acceptable to the Agent and shall have delivered to the Agent on or before the day of such initial borrowing, with respect to such Concentration Account, a concentration account agreement in the form of Exhibit 8.18(b) hereto (as amended, modified or supplemented from time to time, a "Concentration Account Agreement"), duly executed and delivered by Borrower and duly acknowledged by the bank at which such Concentration Account is established. (c) Borrower shall have established one or more Lock-Box Accounts and shall have delivered to the Agent on or before the day of such initial borrowing, with respect to each such Lock-Box Account, an executed Lock-Box Agreement duly executed and delivered by Borrower and duly acknowledged by the bank at which such Lock-Box Account is established. (d) Borrower shall have established one or more Pharmaceutical Collection Accounts and shall have delivered to the Agent on or before the day of the initial borrowing following the Closing Date, with respect to each such Pharmaceutical Collection Account, an executed pharmaceutical collection account agreement in the form of Exhibit 8.18(d) hereto (as amended, modified or supplemented from time to time, a "Pharmaceutical Collection Account Agreement") duly executed and delivered by Borrower and duly acknowledged by the bank at which such Pharmaceutical Collection Account is established. (e) Borrower shall have established its general disbursements account with the Agent on or before the day of the initial borrowing. 8.19. NO MARKET DISRUPTION. There shall have occurred no disruption or adverse change in the financial or capital markets generally which the Agent, in its reasonable discretion, deems material. 8.20. LANDLORDS' LIENS. None of the Collateral shall be subject to any contractual or statutory Lien or Liens in favor of any lessor under any Lease, except such Liens as the Agent, in its sole discretion, shall deem not material, and except such Liens that have been waived or subordinated to the Liens in favor of Agent and the Lenders in a manner satisfactory to the Agent, in its sole discretion. 8.21. UCC SEARCH RESULTS. The Agent shall have received the completed requests for information referred to and in compliance with the requirements of Section 11.20 hereof. 8.22. CLOSING DATE BORROWING BASE CERTIFICATE. The Agent shall have received a completed Borrowing Base Certificate dated prior to the Closing Date, certified by an authorized officer of Borrower, evidencing the actual amount of the Borrowing Base as of a date that is acceptable to the Agent and the Lenders as being satisfactorily close to the Closing Date. 8.23 NO DEFAULT. There shall exist no material default or Event of Default in any of the Companies' obligations to the Agent and the Lenders under (a) any applicable legal requirements, (b) the Financing Orders entered in the Bankruptcy Proceedings, or (c) the Existing Agreement, except for those defaults as contemplated by and disclosed in the Existing Agreement. 8.24 BANKRUPTCY COURT ORDERS. The Agent and the Lenders shall have received, in form and substance satisfactory to the Agent and the Lenders, the Companies' Plan and a Final Order confirming such Plan, which shall include, among other things, (a) approval of the Exit Financing Agreement (as defined below) and the Loan Documents; (b) a finding that the Exit Financing Agreement and the Exit Financing Loan Documents are in the best interests of the debtors, their respective estates, the Companies, the Reorganized Companies, have been negotiated in good faith and at arm's length (and without intent to hinder, delay or defraud any creditor of the debtors, the Companies or the Reorganized Companies) and the transactions contemplated thereunder shall be deemed to have been entered into in good faith and for good and valuable consideration; (c) a finding that the terms and conditions of this Agreement and the Loan Documents and the form thereof as may be finalized, upon execution thereof by the Companies, shall constitute the legal, valid and binding obligations of the Companies, enforceable against the Companies in accordance with their terms; (d) the discharge of the Companies' pre-confirmation liabilities, except as otherwise provided under the Plan; (e) an injunction against any creditor of the Companies from enforcing, attaching, collecting or recovering in any manner any judgment, award, decree or order against the Companies, or their respective property post-confirmation, except as otherwise provided under the Plan; (f) an injunction against any creditor of the Companies' from creating, perfecting or enforcing any lien or encumbrance against the Companies post-confirmation, except as otherwise provided under the Plan; and (g) a finding that the liens and security interests granted by the Companies in favor of Agent and the Lenders are perfected. 8.25 MINIMUM BORROWING BASE AVAILABILITY. The amount available to Borrower under the Revolving Loan Borrowing Limit on the Closing Date, as calculated according to the Borrowing Base as of a date that is no more than fifteen (15) days prior to the Closing Date, shall be at least the sum of (a) $8,000,000 plus (b) accrued and unpaid professional fees relating to the restructuring of Borrower and Parent in accordance with the Plan in an amount not to exceed $1,350,000. The Borrower shall submit a Borrowing Base Certificate to the Agent and the Lenders, prior to the Closing Date, certified by an authorized officer of Borrower, evidencing the actual amount of the Borrowing Base as of a date that is acceptable to the Agent and the Lenders as being satisfactorily close to the Closing Date. SECTION 9. CONDITIONS PRECEDENT TO EACH BORROWING AND ISSUANCE OF LETTERS OF CREDIT. The obligation of the Lenders to make any Advance and issue any Letter of Credit is subject to fulfillment (or prior waiver in writing by the Required Lenders) of the following conditions precedent to the satisfaction of the Agent: 9.1. BORROWER'S CERTIFICATE; OTHERS. (a) Except in the case of Advances for reimbursement of Letters of Credit described in Section 6.1(c) hereof, Borrower delivers to the Agent a Borrower's Certificate. (b) (i) All representations and warranties made by each of the Credit Parties contained herein or otherwise made in any Loan Document (including, without limitation, each Borrower's Certificate), officer's certificate or any agreement, instrument, certificate, document or other writing delivered to the Agent or any Lender in connection herewith or therewith, shall be true and correct in all material respects with the same effect as though such representations and warranties had been made on and as of the date of such borrowing or issuance of such Letter of Credit (unless any such representation or warranty speaks as of a particular date, in which case it shall be deemed repeated as of such date); (ii) on the date of such borrowing or issuance there shall exist no Default or Event of Default; (iii) if Borrower is requesting a Letter of Credit, the Agent on behalf of any Issuing Lender shall have (to the extent requested by any Issuing Lender) received a duly executed and delivered Letter of Credit Agreement with respect thereto; (iv) Borrower shall have complied with all procedures and given all certificates, notices and other documents required hereunder for such advance or issuance; (v) the Agent shall have received such other approvals, opinions or documents as any Lender through the Agent may reasonably request; and (vi) the making of such Advance or issuance of such Letter of Credit shall not cause the Revolving Loan, Letter of Credit Usage or any combination thereof to exceed the Revolving Loan Borrowing Limit, the Revolving Credit Facility Commitment or any other limit on availability contained in this Agreement. 9.2. WRITTEN NOTICE. Except as otherwise provided in Section 6.1 hereof, prior to the time of each Advance or the renewal or conversion of any Advance, or portion thereof, the Agent shall have received Written Notice of such Advance or the renewal or conversion of such Advance, or portion thereof, as the case may be, in accordance with Sections 2, 3 and 4 hereof. SECTION 10. USE OF PROCEEDS. (a) The proceeds of the Revolving Credit Facility shall be used solely to fund Borrower's working capital needs and other general corporate purposes. (b) The proceeds of the Term Loan, subject to the Term Commitment, will be used solely as follows: (i) up to $93,030 to pay the balance of the closing fee provided for in Section 5.8 hereof; (ii) up to the outstanding principal balance of the revolving credit facility under the Existing Agreement, which was funding the Companies as debtors-in-possession in the Bankruptcy Proceedings, to make a partial reduction (or full reduction, in the event that the amount available exceeds the outstanding balance) under such facility; (iii) up to $6,600,000 to fund the Employee Buyout Offer, as described in section XIV(C) of the Disclosure Statement; (iv) $750,000 to establish the Health and Welfare Benefit Plan, as described in section XIV(B) of the Disclosure Statement; (v) up to $1,350,000 to pay projected accrued and unpaid professional fees relating to the restructuring of the Companies; and (vi) to pay "cure amounts" associated with (A) executory contracts, (B) other secured financings and (C) unexpired leases, all consistent with the provisions of the Plan and as disclosed to Agent and Lenders in writing. Any funds that would otherwise be available and which are not used as provided above, will reduce the actual amount advanced under the Term Loan. The final amounts of funds allocated to the uses specified above will be determined and certified on the Closing Date and, subject to the general limits and ranges stated above, will be subject to review and approval by the Agent and the Lenders. SECTION 11. AFFIRMATIVE COVENANTS. Each of Borrower and Parent hereby covenants and agrees that, so long as any Advance or any Letter of Credit is outstanding or any Lender has any Revolving Commitment or Term Commitment hereunder, unless specifically waived by the Required Lenders in writing: 11.1. FINANCIAL STATEMENTS AND OTHER INFORMATION. Borrower shall furnish or cause to be furnished to the Agent and each Lender: (a) as soon as practicable and in any event within forty-five (45) days after the close of each Fiscal Quarter of each Fiscal Year of Borrower: (i) a consolidated balance sheet of Parent and its Subsidiaries; (ii) from and after the formation of any Subsidiary of Borrower, a consolidating balance sheet of Parent and its Subsidiaries; (iii) a consolidated statement of income of Parent and its Subsidiaries; (iv) from and after the formation of any Subsidiary of Borrower, a consolidating statement of income of Parent and its Subsidiaries; (v) a consolidated statement of cash flows of Parent and its Subsidiaries; and (vi) from and after the formation of any Subsidiary of Borrower, a consolidating statement of cash flows of Parent and its Subsidiaries; in each case, as at the end of and for the period commencing at the end of the previous Fiscal Year and ending with such quarter just closed and for the period commencing at the end of the previous quarter and ending with such quarter just closed, setting forth for each such period in comparative form, (x) the corresponding figures for the applicable quarter and year to date of the preceding Fiscal Year and (y) budgets of Parent and its Subsidiaries for such quarter and year to date previously delivered under Section 11.1(l) hereof, all in reasonable detail and certified by the chief executive or financial officer of Parent to have been prepared in accordance with GAAP, subject to normal recurring year-end audit adjustments, together with a schedule in form satisfactory to the Agent, (1) setting forth the Companies' EBITDA and EBITDAR for such quarter, actual Net Capital Expenditures made by Parent and its Subsidiaries during such quarter and indicating that such capital expenditures were made in compliance with Section 12.1 hereof, and (2) showing the computations used by Parent in determining compliance with the covenants contained in Section 11.16 hereof; (b) as soon as practicable and in any event within one hundred twenty (120) days after the close of each Fiscal Year of Parent: (i) an audited consolidated balance sheet of Parent and its Subsidiaries; (ii) from and after the formation of a Subsidiary of Borrower, an audited consolidated balance sheet of Parent and its Subsidiaries; (iii) an audited consolidated statement of operations of Parent and its Subsidiaries; (iv) from and after the formation of a Subsidiary of Borrower, an audited consolidated statement of operations of Parent and its Subsidiaries; (v) an audited consolidated statement of cash flows of Parent and its Subsidiaries; and (vi) from and after the formation of a Subsidiary of Borrower, an audited consolidating statement of cash flows of Parent and its Subsidiaries; in each case, as at the end of and for the Fiscal Year just closed, (x) setting forth in comparative form the corresponding figures for the preceding Fiscal Year and (y) accompanied by a separate report certified by the chief financial officer of Parent, which shall not be subject to the certification or statement of the accountants set forth below, setting forth the budgets of Parent and its Subsidiaries for such Fiscal Year previously delivered under Section 11.1(l) hereof, all in reasonable detail and (except for such budgets and comparisons with such budgets) certified (with qualifications or exceptions deemed acceptable to the Agent) by independent public accountants selected by Parent and satisfactory to the Agent; and concurrently with such financial statements, a certificate, in form satisfactory to the Agent, signed by such independent accountants (1) stating that in making the examination necessary for their certification of such financial statements, they have not obtained any knowledge of the existence of any Default or Event of Default or, if such independent accountants shall have obtained from such examination any such knowledge, they shall disclose in such written statement the Default or Event of Default and the nature thereof, it being understood that such independent accountant shall be under no liability, directly or indirectly, to anyone for failure to obtain knowledge of any such Default or Event of Default and (2) showing in detail the calculations supporting such certificate in respect of compliance with the covenants set forth in Sections 11.16 and 12.1 hereof and setting forth the calculations (in detail acceptable to the Agent) underlying such compliance. (c) as soon as practicable and in any event within forty-five (45) days after the close of each calendar month: (i) a consolidated balance sheet of Parent and its Subsidiaries; (ii) from and after the formation of a Subsidiary of Borrower, a consolidated balance sheet of Parent and its Subsidiaries; (iii) a consolidated statement of income of Parent and its Subsidiaries; (iv) from and after the formation of a Subsidiary of Borrower, a consolidated statement of income of Parent and its Subsidiaries; (v) a consolidated statement of cash flows of Parent and its Subsidiaries; and (vi) from and after the formation of a Subsidiary of Borrower, a consolidating statement of cash flows of Parent and its Subsidiaries as at the end of and for the period commencing at the end of the previous Fiscal Year and ending with such month just closed and for the period commencing at the end of the previous month and ending with such month just closed; in each case prepared by management of Parent, setting forth in comparative form (x) the corresponding figures for the appropriate month and year to date of the previous Fiscal Year and (y) the budgets of Parent and its Subsidiaries for such month and year to date previously delivered under Section 11.1(l) hereof, all in reasonable detail (including, without limitation, stating the amount of interest expensed on each of the Revolving Loan, the Letters of Credit, the Term Loan and all other Indebtedness for Borrowed Money of Parent and its Subsidiaries for such calendar month and the depreciation and amortization and the rental expense of Parent and its Subsidiaries for such calendar month) and certified by the chief executive or financial officer of Parent to have been prepared in accordance with GAAP, subject to normal year-end adjustments; (d) as soon as practicable and in any event within forty-five (45) days after the close of each calendar month, a statement of cash balances for the Concentration Account (unless any such account is maintained at NBC) and, upon the request of the Agent, a statement of cash balances for any one or more of the Special Accounts permitted pursuant to Section 11.17(c) hereof, together, in each case, if requested by the Agent, with a copy of the bank statements in respect thereof and all canceled checks and advances of credit and debits in respect of the Concentration Account or such Special Account (except to the extent that any such account is maintained at NBC); (e) promptly upon receipt thereof, copies of all financial reports (including, without limitation, management letters), if any, submitted to Parent or any of its Subsidiaries by its auditors, in connection with each annual or interim audit or review of its books by such auditors, to the extent reasonably requested by the Agent; (f) promptly upon the issuance thereof, copies of all reports, if any, to or other documents filed by Parent or any of its Subsidiaries with the Securities and Exchange Commission under the Securities Act or the Securities Exchange Act (other than on Form S-8 or 8-A or similar forms), and all reports, notices or statements sent or received by Parent or any of its Subsidiaries to or from the holders of any Indebtedness for Borrowed Money of Parent or any such Subsidiary or to or from the trustee under any indenture under which the same is issued; (g) (i) concurrently with the delivery of the financial statements required to be furnished by Sections 11.1(a), 11.1(b), and 11.1(c) hereof, a certificate signed by the chief executive or financial officer of Parent, (x) stating that a review of the activities of Parent and its Subsidiaries during such quarter or Fiscal Year, as the case may be, has been made under his immediate supervision with a view to determining whether Parent and its Subsidiaries have observed, performed and fulfilled all of its respective obligations under each Loan Document to which it is a party, and (y) demonstrating, in a format satisfactory to the Agent, the compliance by Parent and its Subsidiaries with the financial covenants contained herein and stating that there existed during such month, quarter or Fiscal Year no Default, or Event of Default or if any such Default or Event of Default existed, specifying the nature thereof, the period of existence thereof and what action Parent or any of its Subsidiary proposes to take, or has taken, with respect thereto, and (ii) promptly upon the occurrence of any Event of Default, a certificate signed by the chief executive or financial officer of Parent, specifying the nature thereof and the action Parent or any of its Subsidiaries proposes to take or has taken with respect thereto; (h) promptly upon the commencement thereof, Written Notice of any litigation, including arbitrations, and of any proceedings before any governmental agency which could, if successful, reasonably be expected to have a Material Adverse Effect or where the amount involved exceeds $250,000; (i) with reasonable promptness, such other information respecting the business, operations and financial condition of Parent or any of its Subsidiaries as any Lender may from time to time reasonably request; (j) not later than fifteen (15) Business Days after (i) the 14th day of each such calendar month, and (ii) the end of each such calendar month, a certificate dated the 14th day or the last day of such calendar month just ended, as applicable, from Parent, in each case substantially in the form of Exhibit 11.1(j) hereto (except that each Borrowing Base Certificate dated as of the 14th day of any calendar month may utilize (A) the total for exclusions of milk, eggs and other perishable items in grocery, excluding cheese, and (B) the calculation of month-end adjustments for Eligible Inventory established in the Borrowing Base Certificate dated as the last day of the immediately prior calendar month) and signed by the chief executive officer, chief financial officer or chief accounting officer of Parent (each such certificate, a "Borrowing Base Certificate"); (k) not later than fifteen (15) Business Days after the end of each fiscal month, a certificate dated as of the last day of such fiscal month just ended from Borrower substantially in the form of Exhibit 11.1(k) hereto and signed by the chief executive officer, chief financial officer or chief accounting officer of Parent setting forth (i) a schedule of Receivables and a detail aging of such Receivables as of the date of such certificate, (ii) a schedule of Borrower's accounts payable and a detail aging of such accounts payable, and (iii) a listing of Inventory as of the date of such certificate; (l) not later than forty-five (45) days after the commencement of each Fiscal Year of Parent beginning with the Fiscal Year commencing on December 29, 1996, a one Fiscal-Year budget of the financial condition and results of operations of Parent and its Subsidiaries for such Fiscal Year (covering in any event balance sheets, statements of cash flow and of income for each quarter and calendar month); in all instances in form, scope and substance reasonably satisfactory to the Agent; and Borrower shall cause such budget to be updated from time to time as material changes in the financial condition and results of operations of Parent and its Subsidiaries necessitate and shall promptly furnish or cause to be furnished to the Agent and each Lender a copy of any such updated budget; (m) promptly, and in any event within ten (10) Business Days of the date that Borrower obtains knowledge thereof, notice of any of the following events, to the extent that any of such events is reasonably expected to cause cost and expense to Borrower and its Subsidiaries of $500,000 or more: (i) receipt by a Credit Party or any Subsidiary thereof, or any tenant or other occupant of any property of a Credit Party or Subsidiary thereof, of any claim, complaint, charge or notice of a violation or potential violation of any Environmental Law; (ii) the occurrence of a spill or other Release of a Hazardous Material upon, under or about or affecting any of the properties of a Credit Party or Subsidiary thereof, or Hazardous Materials at levels or in amounts that may have to be reported, remedied or responded to under any Environmental Law are detected on or in the soil or groundwater; (iii) that a Credit Party or Subsidiary thereof is or may be liable for any costs of cleaning up or otherwise responding to a Release of Hazardous Materials; (iv) that any part of the properties of a Credit Party or any Subsidiary thereof is or may be subject to a Lien under any Environmental Law; and (v) that a Credit Party or Subsidiary will undertake or has undertaken any cleanup or other response action with respect to any Hazardous Material; and (n) within ten (10) days following the occurrence thereof, any loss, damage or other event which can reasonably be expected to result in an insurance claim by Borrower or any Subsidiary of $250,000 or more; (o) promptly upon receipt thereof, copies of any correspondence received from Medicare/Medicaid Account Debtors or their agents or any other governmental entity or any Third Party Payor relating to any audit, investigation or statutorily-authorized inquiry relating to Borrower and any Pharmaceutical Receivable; (p) not later than fifteen (15) Business Days after (i) the 14th day of each such calendar month, and (ii) the end of each such calendar month,, a certificate dated the 14th day or the last day of such calendar month just ended, as applicable, from Borrower, substantially in the form of Exhibit 11.1(p) hereto and signed by the chief executive officer, chief financial officer or chief accounting officer of Borrower, setting forth (i) the aggregate redemption value of Coupons forwarded to the Processing Agent during such period, as applicable, and (ii) the amount of payments actually received by Borrower from the Processing Agent during such period, as applicable for redemption of Coupons; Borrower hereby agrees to forward all Coupons to the Processing Agent for processing, on a weekly basis, in accordance with the terms of the Processing Agreement and to deposit or cause to be deposited all proceeds of Coupons in a Collection Account established pursuant to Section 8.18(a) hereof or otherwise in accordance with Agent's written instructions; and (q) not later than fifteen (15) Business Days after (i) the 14th day of each such calendar month, and (ii) the end of each such calendar month, 14th day or the last day of such calendar month just ended, as applicable, from the Borrower, substantially in the form such calendar month a certificate dated as of the of Exhibit 11.1(q) hereto and signed by the chief executive officer, chief financial officer or chief accounting officer of Borrower, setting forth (i) the amount of outstanding Pharmaceutical Receivables as of the beginning of period as applicable, (ii) the amount of new Pharmaceutical Receivables generated during such period, as applicable (iii) the amount of payments received on outstanding Pharmaceutical Receivables during such period, as applicable, and (iv) a reconciliation of the foregoing. (r) with reasonable promptness, information regarding Inventory as Agent may from time to time reasonably request. 11.2. TAXES AND CLAIMS. Each of Parent and Borrower shall, and shall cause each of Borrower's Subsidiaries, to, pay and discharge when due (except to the extent that (a) any such taxes, assessments, governmental charges or claims are diligently contested in good faith by appropriate proceedings and proper reserves are established on the books of Parent, Borrower or any such Subsidiary, and (b) any Liens arising from the non-payment thereof when due have not attached to any of the Collateral in a manner which could have priority over the Lien of the Agent thereon or risk the sale of or foreclosure on such Collateral, or (c) Parent and Borrower are permitted to defer paying any such taxes, assessments, governmental charges or claims by applicable provisions of the Federal Bankruptcy Code or pursuant to the Plan) (i) all taxes, assessments and governmental charges upon or against it or its properties or assets prior to the date on which penalties attach thereto and (ii) all lawful claims, whether for labor, materials, supplies, services or anything else, which might or could, if unpaid, become a Lien or charge upon its properties or assets. 11.3. INSURANCE. (a) Borrower shall, and shall cause each of its Subsidiaries to, (i) keep all its properties, including Real Properties, Inventory and Equipment, adequately insured at all times with responsible insurance carriers, in amounts and pursuant to insurance policies reasonably acceptable to the Agent, against loss or damage by fire and other hazards and, (ii) maintain adequate insurance at all times with responsible insurance carriers, in amounts and pursuant to insurance policies reasonably acceptable to the Agent, against liability on account of damage to Persons and property and under all applicable workers' compensation laws and (iii) maintain adequate insurance covering such other risks as the Agent may reasonably request. For purposes of complying with this Section 11.3(a), adequate insurance shall in any event prevent Borrower and its Subsidiaries from becoming a co-insurer (excluding any deductibles thereunder reasonably acceptable to the Agent). (b) Except as otherwise agreed in writing by the Agent, each liability policy and each hazard policy on Collateral required pursuant to this Section 11.3 shall name the Agent and each Lender as additional insured or first loss payee, as appropriate, and shall be primary without right of contribution from any other insurance which is carried by the Lenders or the Agent to the extent that such other insurance provides it with contingent and/or excess liability insurance with respect to its interest as such in the Collateral and shall expressly provide that all of the provisions thereof, except the limits of liability (which shall be applicable to all insureds as a group) and except liability for premiums (which shall be solely a liability of Borrower or its Subsidiaries, as the case may be), shall operate in the same manner as if there were a separate policy covering each insured. (c) Borrower shall, and shall cause each of its Subsidiaries to, from time to time upon request of the Agent, promptly furnish or cause to be furnished to the Agent (1) evidence, in form and substance reasonably satisfactory to the Agent, of the maintenance of all insurance required to be maintained by this Section 11.3, including, but not limited to, such copies as the Agent may request of policies, certificates of insurance, riders and endorsements relating to such insurance and proof of premium payments, and, (2) a written report, satisfactory to Agent in form and substance, from an insurance broker acceptable to the Agent confirming that the amount of insurance obtained under such policies, and the terms and conditions thereof, are substantially similar to policies customarily maintained by companies similarly situated to Borrower and engaged in the same in similar business as Borrower. 11.4. BOOKS AND RESERVES. Each of Parent and Borrower shall and shall cause each of Borrower's Subsidiaries to: (a) maintain, at all times, true and complete books, records and accounts in which true and correct entries shall be made of its transactions, all in accordance with GAAP; and (b) by means of appropriate entries, reflect in its accounts and in all financial statements furnished pursuant to Section 11.1 proper liabilities and reserves for all taxes and proper provision for depreciation and amortization of its properties and bad debts, all in accordance with GAAP. 11.5. PROPERTIES IN GOOD CONDITION. Borrower shall keep, and shall cause each of its Subsidiaries to keep, its properties (including properties subject to Equipment Leases) in good repair, working order and condition, ordinary wear and tear excepted, and, from time to time, make all necessary and proper repairs, renewals, replacements, additions and improvements thereto, so that the business carried on may be properly and advantageously conducted at all times in accordance with prudent business management. 11.6. MAINTENANCE OF EXISTENCE, ETC. Each of Parent and Borrower shall preserve and maintain, and cause each of Borrower's Subsidiaries, to preserve and maintain, their respective statutory existence, rights and franchises. 11.7. INSPECTION BY THE AGENT. Each of Parent and Borrower shall allow, and shall cause each of Borrower's Subsidiaries to allow, any representative of the Agent or Lenders, in conjunction with the Agent, to visit and inspect any of Borrower's properties, to examine its books of account and other records and files, to make copies thereof and to discuss its affairs, business, finances and accounts with its officers and employees and independent accountants (and each of Parent and Borrower hereby irrevocably authorizes its independent accountants to discuss with the Agent the financial affairs of each of Parent and Borrower and Borrower's Subsidiaries), all at such reasonable times during normal business hours and as often as the Agent or Lenders, in conjunction with Agent, may reasonably request upon reasonable notice (or, during the continuance of a Default or Event of Default, at such times and as often as the Agent or Lenders, in conjunction with the Agent, may request). Any representative of the Agent or Lenders, in conjunction with the Agent may at any time verify Borrower's Receivables utilizing an audit control company or any other agent of the Agent or Lenders, which verification may include direct requests for verifications from Borrower's customers and account debtors. At any time following the occurrence and continuance of an Event of Default, the Agent or the Agent's designee may notify customers or account debtors of the Agent's and the Lenders' security interest in Receivables, collect them directly and charge the collection costs and expenses to Borrower's account, but, unless and until the Agent does so or gives Borrower other instructions, Borrower shall collect all Receivables for the Lenders, receive all payments thereon for the Lenders' benefit in trust as the Lenders' trustee and immediately deliver them to the Bank in the original form with all necessary endorsements or, as directed by the Bank, deposit such payments as directed by the Lenders. Borrower shall furnish, at the Agent's request, copies of contracts, invoices or the equivalent, and any original shipping and delivery receipts for all merchandise sold or services rendered and such other documents and information as the Agent may require. Borrower agrees to bear the cost of, and reimburse Agent for any and all reasonable expenses incurred by Agent, prior to the occurrence of a Default, in connection with the inspections, examinations, verifications and discussions referred to in this Section 11.7. Borrower agrees to bear the cost of, and reimburse Agent and Lenders for any and all reasonable expenses incurred by Agent and Lenders, after the occurrence and during the continuance of a Default or an Event of Default, in connection with, the inspections, examinations, verifications and discussions referred to in this Section 11.7. 11.8. PAY INDEBTEDNESS TO LENDERS AND PERFORM OTHER COVENANTS. Borrower shall (a) make full and timely payment of all payments required to be made by Borrower in respect of the Lender Debt, including without limitation, the Revolving Loan and the Term Loan, whether now existing or hereafter arising, (b) strictly comply, and cause each of its Subsidiaries to strictly comply, with all the terms and covenants contained in each Loan Document to which it is a party, all at the times and places and in the manner set forth therein, and (c) except for the filing of continuation statements and the making of other filings by the Agent as secured party or assignee, at all times take all action necessary to maintain the Liens provided for under or pursuant to this Agreement or any Security Document as valid and perfected Liens on the property intended to be covered thereby (subject to no other Liens except those liens expressly permitted under Section 12.2) and supply all information to the Agent or the Lenders necessary for such maintenance. 11.9. NOTICE OF DEFAULT. Borrower shall promptly (and in any event within five (5) Business Days) notify the Agent in writing of any Default or Event of Default or a default under any other agreement (other than any Capitalized Lease involving an aggregate notional principal amount of less than $500,000) in respect of Indebtedness for Borrowed Money to which Borrower or any of its Subsidiaries is a party (other than any such Defaults, Events of Default or defaults resulting solely from the filing of the Cases and which are cured in accordance with the Plan), in each case describing the nature thereof and the action Borrower proposes to take with respect thereto. 11.10. REPORTING OF MISREPRESENTATIONS. In the event that Borrower or any Subsidiary of Borrower discovers that any representation or warranty made in any Loan Document by any Credit Party was incorrect in any material respect when made and such incorrectness is continuing and remains material, Borrower shall promptly report, or shall cause such Subsidiary promptly to report, the same to the Agent and take, or cause to be taken, all available steps to correct such misrepresentation or breach of warranty. 11.11. COMPLIANCE WITH LAWS, ETC. Each of Parent and Borrower shall comply, and shall cause each of Borrower's Subsidiaries to comply, in all material respects, with all applicable laws, rules, regulations and orders, and each of Parent and Borrower shall duly observe, and cause each of Borrower's Subsidiaries to duly observe, in all material respects, all valid requirements of applicable governmental authorities and all applicable statutes, rules and regulations, including, without limitation, all applicable statutes, rules and regulations relating to public and employee health and safety in any case, the non-observance of which could reasonably be expected to have a Material Adverse Effect, involves criminal penalties or could expose the Agent or any Lender to any civil or criminal penalties. 11.12. ERISA. (a) Each of Parent and Borrower shall pay and discharge, and shall cause each of Borrower's Subsidiaries to pay and discharge, when due any material liability which is imposed upon it pursuant to the provisions of Title IV of ERISA, unless the amount, applicability or validity of such liability is being diligently contested in good faith by appropriate proceedings and proper reserves are established on its books in accordance with GAAP. (b) Borrower shall deliver to the Agent promptly, and in any event within ten (10) days in the case of clauses (ii), (iii), (vi) and (viii) below, or twenty (20) days in the case of clauses (i), (iv), (v) and (vii) below, after (i) Borrower knows, or has reason to know, of the occurrence of any Reportable Event with respect to any Pension Benefit Plan, a copy of the materials that are filed by the applicable plan administrator with the PBGC; (ii) a Credit Party or an ERISA Affiliate thereof or an administrator of any Pension Benefit Plan files with participants, beneficiaries or the PBGC a notice of intent to terminate any Pension Benefit Plan under Section 4041 of ERISA, a copy of any such notice; (iii) the receipt of notice by a Credit Party or any ERISA Affiliate thereof or an administrator of any Pension Benefit Plan from the PBGC of the PBGC's intention to terminate such Plan or to appoint a trustee to administer such Plan, a copy of such notice; (iv) the filing thereof with the Internal Revenue Service, copies of each annual report that is filed on Treasury Form 5500 with respect to any Pension Benefit Plan subject to Title IV, together with any actuarial statements on Schedule B to such Form 5500; (v) a Credit Party or any ERISA Affiliate thereof knows or has reason to know of any event or condition which could reasonably be expected to constitute grounds under the provisions of Section 4042 of ERISA for the termination of (or the appointment of a trustee to administer) any Pension Benefit Plan, an explanation of such event or condition; (vi) the receipt by a Credit Party or any ERISA Affiliate thereof of an assessment of withdrawal liability under Section 4201 of ERISA from a Multiemployer Plan, a copy of such assessment; (vii) a Credit Party or any ERISA Affiliate knows or has reason to know of the termination or insolvency (under Sections 4241 or 4245 of ERISA) of any Multiemployer Plan, a notice of such event; or (viii) an application has been made to the Secretary of the Treasury for a waiver of the minimum funding standard under the provisions of Section 412 of the Code with respect to any Pension Benefit Plan, a copy of such application; and in each case described above, together with a statement signed by an appropriate officer of such Credit Party setting forth details as to such reportable event, notice event or condition and the action that will be taken with respect thereto. 11.13. FURTHER ASSURANCES. (a) Each of Parent and Borrower shall, and shall cause each of Borrower's Subsidiaries to, at its cost and expense, upon request of the Agent from time to time, duly execute and deliver, or cause to be duly executed and delivered, to the Agent such further instruments and do and cause to be done such further acts as may be necessary or proper in the reasonable opinion of the Agent to carry out more effectually the provisions and purposes of this Agreement or any other Loan Document or to enable the Agent and the Lenders to exercise and enforce their rights and remedies hereunder with respect to any Collateral. Without limiting the generality of the foregoing, Borrower will: (i) at the request of the Agent, mark conspicuously each chattel paper included in the Collateral and each of its records pertaining to the Collateral with a legend, in form and substance satisfactory to the Agent, indicating that such chattel paper is subject to the security interest granted hereby; (ii) if any account shall be evidenced by a promissory note or other instrument or chattel paper, deliver and pledge to the Agent hereunder such note, instrument or chattel paper duly endorsed and accompanied by duly executed instruments of transfer or assignment, all in form and substance satisfactory to the Agent; and (iii) execute and file such financing or continuation statements, or amendments thereto, and such other instruments or notices, as may be necessary or desirable, or as the Agent may request, in order to create, evidence perfect or preserve the security interests granted or purported to be granted hereby. (b) Each of Borrower and Parent hereby authorizes the Agent to file one or more financing or continuation statements, and amendments thereto, relative to all or any part of the Collateral without the signature of Borrower or Parent where permitted by law. Borrower and Parent hereby agree that a carbon, photographic, photostatic or other reproduction of any Security Document or of a financing statement is sufficient as a financing statement where permitted by law. (c) Borrower and Parent will furnish to the Agent from time to time, in addition to the information required to be delivered to the Agent by the other provisions of this Agreement, such statements and schedules further identifying and describing the Collateral and such other reports in connection with the Collateral as the Agent may reasonably request, all in reasonable detail. 11.14. AUDITS AND APPRAISALS. (a) Borrower shall, at its expense, cause its auditors to supervise and review a physical inventory of Inventory and Pledged Accounts of Borrower and its Subsidiaries once each Fiscal Year, to be conducted in the normal course of Borrower's audit process, and shall deliver to the Agent promptly, and in any event within thirty (30) days after the same becomes available, the results of such audit. Borrower shall, at Agent's request not more than once each Fiscal Year, engage auditors to confirm and report inventory classifications and other information reasonably requested by Agent, based upon inventory procedures agreed upon by Agent and the auditors. (b) In addition to audits referred to in paragraph (a) of this Section 11.14, each of Parent and Borrower shall allow, and shall cause each of Borrower's Subsidiaries to allow, the Agent or Lenders, in conjunction with the Agent, or their designees to enter any locations of Borrower, at any reasonable time or times during regular business hours, to inspect the Collateral and to inspect, audit and to make copies or extractions from the books, records, journals, orders, receipts, correspondence and other data relating to the Collateral. (c) At Agent's request at any time, on no more than one occasion per calendar year prior to the occurrence of a Default and as frequently as Agent may desire so long as a Default or an Event of Default has occurred and is continuing, allow a third-party appraiser acceptable to Agent to perform an appraisal of the Inventory, copies of which shall be made available to Borrower, Agent and Lenders. (d) Borrower agrees to bear the cost of, and reimburse Agent for any and all reasonable expenses incurred by Agent, prior to the occurrence of a Default, in connection with, the audits and appraisals referred to in this Section 11.14. Borrower agrees to bear the cost of, and reimburse Agent and Lenders for any and all reasonable expenses incurred by Agent and Lenders, after the occurrence and during the continuance of a Default or an Event of Default, in connection with, the audits and appraisals referred to in this Section 11.14. For informational purposes and not in limitation thereof, Agent's auditor expenses as of the Closing Date are $450.00 per auditor per day, plus any and all out-of-pocket expenses. 11.15. ENVIRONMENTAL MATTERS, ETC. (a) Each of Parent and Borrower shall, and shall cause each of Borrower's Subsidiaries to, comply, in all material respects, with the provisions of all Environmental Laws and all applicable Federal, state and local occupational health, safety and sanitation laws, ordinances, codes, rules and regulations, permits, licenses and interpretations and orders of regulatory and administrative authorities with respect thereto in any case, the non-compliance with which could reasonably be expected to have a Material Adverse Effect, involves criminal penalties or could expose the Agent or any Lender to any civil or criminal penalties, and shall keep its properties and the properties of its Subsidiaries free of any Lien imposed pursuant to any Environmental Law other than any Lien which will not attach to any of the Collateral in a manner which would (or could) have priority over the Lien of the Agent thereon or risk the sale or foreclosure on such Collateral or is in an amount material to Borrower. Neither Parent nor Borrower shall, nor shall Parent or Borrower suffer or permit, any of Borrower's Subsidiaries to cause or suffer or permit, the property of Parent, Borrower or such Subsidiary, to be used for the generation, production, processing, handling, storage, transporting or disposal of any Hazardous Material except the removal or the taking of remedial action in response to Hazardous Materials on or about the properties of Parent, Borrower or any of Borrower's Subsidiaries and except in the ordinary course of Borrower's business as conducted as of the Closing Date. (b) Each of Parent and Borrower shall supply to the Agent copies of all submissions by Parent or Borrower or any of Borrower's Subsidiaries to any governmental authority and of the reports of all environmental audits and of all other environmental tests, studies or assessments (including the data derived from any sampling or survey of asbestos, soil, or subsurface or other materials or conditions) that may be conducted or performed (by or on behalf of Parent, Borrower or any of Borrower's Subsidiaries) on or regarding the properties of Parent, Borrower or any of Borrower's Subsidiaries or regarding any conditions that might have been affected by Hazardous Materials on or Released or removed from such properties. Each of Parent and Borrower shall also permit and authorize, and shall cause Borrower's Subsidiaries to permit and authorize, the consultants, attorneys or other persons that prepare such submissions or reports or perform such audits, tests, studies or assessments to discuss non-privileged portions of such submissions or reports with the Agent and the Lenders. (c) Borrower shall timely undertake and complete any cleanup or other response actions required by (i) any governmental authority, or (ii) any Environmental Law if, in the case of this clause (ii) only, failure so to undertake or complete could have a Material Adverse Effect, involves criminal penalties or could expose the Agent or any Lender to any civil or criminal penalties or is required under such Environmental Law to safeguard the health of any persons. (d) Without in any way limiting the scope of Section 4.8 hereof and in addition to any obligations thereunder, Borrower hereby indemnifies and agrees to hold the Agent and the Lenders harmless from and against any liability, loss, damage, suit, action or proceeding arising out of its business or the business of its Subsidiaries pertaining to Hazardous Materials, including, but not limited to claims of any Federal, state or municipal government or quasi-governmental agency or any third person, whether arising under CERCLA, RCRA, or any other Environmental Law, or tort, contract or common law. 11.16. FINANCIAL COVENANTS. The Companies covenant and agree to the following financial covenants: a. Minimum EBITDAR. The Companies shall not permit their EBITDAR, for the four (4) Fiscal Quarter period ending at the end of the Fiscal Quarter indicated below to be less than the amount indicated below for such Fiscal Quarter: Minimum Fiscal Quarter EBITDAR Fiscal Year-to-date through November 2, 1996: $ 12,000,000 Fiscal Quarter-4, 1996: $ 15,500,000 Fiscal Quarter-1, 1997: $ 16,000,000 Fiscal Quarter-2, 1997: $ 17,500,000 Fiscal Quarter-3, 1997: $ 19,000,000 Fiscal Quarter-4, 1997: $ 22,000,000 Fiscal Quarter-1, 1998: $ 22,000,000 Fiscal Quarter-2, 1998: $ 22,500,000 Fiscal Quarter-3, 1998: $ 22,500,000 Fiscal Quarter-4, 1998 and thereafter: $ 22,500,000 The Companies will also disclose to Agent and Lenders, in writing, its EBITDA with each calculation of EBITDAR, and will also provide an itemization of the Reorganization Costs, in detail reasonably satisfactory to the Agent and the Lenders. The calculation of EBITDA and of EBITDAR for Fiscal Quarter-4 of each Fiscal Year will be made on the basis of the audited financial statements required to be furnished pursuant to Section 11.1(b) hereof. b. Minimum Fixed Charge Coverage. Borrower shall not permit its Consolidated Fixed Charge Coverage Ratio for the four (4) Fiscal Quarter period ending at the end of each Fiscal Quarter indicated below to be less than the ratio indicated below for such Fiscal Quarter: Minimum Consolidated Fixed Charge Fiscal Quarter: Coverage Ratio: Fiscal Year-to-date through November 2, 1996: N/A Fiscal Quarter 4, 1996: 1.00 to 1.0 Fiscal Quarter-1, 1997: 0.95 to 1.0 Fiscal Quarter-2, 1997: 0.90 to 1.0 Fiscal Quarter-3, 1997: 0.95 to 1.0 Fiscal Quarter-4, 1997: 1.00 to 1.0 Fiscal Quarter-1, 1998: 1.00 to 1.0 Fiscal Quarter-2, 1998: 1.00 to 1.0 Fiscal Quarter-3, 1998: 1.00 to 1.0 Fiscal Quarter-4, 1998 and thereafter: 1.00 to 1.0 The calculation of the Consolidated Fixed Charge Coverage Ratio for Fiscal Quarter-4 of each Fiscal Year will be made on the basis of the audited financial statements required to be furnished pursuant to Section 11.1(b) hereof. c. Minimum Borrowing Base Availability. The Companies shall not permit the Borrowing Base Availability to be less than $3,000,000 during any Interim Period which occurs following a Fiscal Quarter where the Consolidated Fixed Charge Coverage Ratio, as calculated at the end of such Fiscal Quarter, based on the financial statements submitted to the Agent and the Lenders pursuant to Section 11.1(a) hereof, is less than 1.00 to 1.0. The calculation of the Borrowing Base Availability for Fiscal Quarter-4 of each Fiscal Year will be made on the basis of the unaudited financial statements required to be furnished pursuant to Section 11.1(a) hereof. d. Funded Debt-to-EBITDAR Ratio. The Companies shall not permit their Funded Debt-to-EBITDAR Ratio ending at the end of the Fiscal Quarter indicated below to be greater than the ratio indicated below for such Fiscal Quarter: Maximum Debt-to- Fiscal Quarter: EBITDAR Ratio Fiscal Year-to-date through November 2, 1996: 5.75 to 1.0 Fiscal Quarter-4, 1996: 5.50 to 1.0 Fiscal Quarter-1, 1997: 5.50 to 1.0 Fiscal Quarter-2, 1997: 5.00 to 1.0 Fiscal Quarter-3, 1997: 4.50 to 1.0 Fiscal Quarter-4, 1997: 4.25 to 1.0 Fiscal Quarter-1, 1998: 4.25 to 1.0 Fiscal Quarter-2, 1998: 4.25 to 1.0 Fiscal Quarter-3, 1998: 4.25 to 1.0 Fiscal Quarter-4, 1998 and thereafter: 4.00 to 1.0 For purposes of the calculation of the Funded Debt-to-EBITDAR Ratio for the Fiscal Year-to-date through November 2, 1996, EBITDAR will be determined on an annualized basis. The calculation of the Funded Debt-to-EBITDAR Ratio for Fiscal Quarter-4 of each Fiscal Year will be made on the basis of the audited financial statements required to be furnished pursuant to Section 11.1(b) hereof. e. Minimum Current Ratio. The Companies shall not permit their Consolidated Current Ratio at the end of each Fiscal Quarter, beginning with Fiscal Quarter 4, 1996, to be less than 1.25 to 1.0. The calculation of the Consolidated Current Ratio for Fiscal Quarter-4 of each Fiscal Year will be made on the basis of the audited financial statements required to be furnished pursuant to Section 11.1(b) hereof. 11.17. COLLECTION AND CONCENTRATION ACCOUNTS; LOCK-BOX ACCOUNTS. (a) Borrower shall (i) cause all cash proceeds (as defined in Article 9 of the UCC) of Pledged Accounts to be deposited directly by the account debtor thereof into a Lock-Box Account, (ii) except as otherwise permitted under subsection (d) or subsection (e) of this Section 11.17, deposit or cause to be deposited all cash proceeds (as defined in Article 9 of the UCC) of Inventory and Pledged Accounts into a Collection Account, (iii) deposit or cause to be deposited all Gross Proceeds of an Asset Sale into a Collection Account, (iv) deposit or cause to be deposited all cash proceeds (as defined in Article 9 of the UCC) of Coupons into a Collection Account, (v) deposit or cause to be deposited all cash proceeds (as defined in Article 9 of the UCC) of Pharmaceutical Receivables into a Pharmaceutical Collection Account, and (vi) on each Business Day, except as otherwise permitted under subsection (f) of this Section 11.17, transfer all collected balances from all Collection Accounts and Lock-Box Accounts to the Concentration Account. (b) Borrower shall, except as otherwise permitted under subsection (d) or subsection (e) of this Section 11.17, cause all cash receipts of all stores operated by Borrower and its Subsidiaries (to the extent such cash receipts constitute proceeds of any Collateral) to be deposited daily (except Sundays, holidays, and Saturdays, but only if the bank into which Borrower would otherwise deposit cash proceeds of Inventory and Pledged Accounts is closed on Saturdays) into a Collection Account; provided that the failure to cause such cash receipts to be so deposited shall not constitute a default hereunder if such late deposit results solely from good faith human error and is made promptly following discovery of such error. (c) Notwithstanding the provisions of subsections (a)(ii) and (b) of this Section 11.17, the Borrower may: (i) cause a portion of the cash proceeds of Pledged Accounts or of Inventory generated by one of the stores listed on Schedule 11.17(c) hereto, as may be amended from time to time with the prior written consent of the Agent, to be deposited directly to a deposit account maintained at a local bank for such store which is not a Collection Account (each, a "Local Bank Special Account"); provided that: (A) except as permitted in this Section 11.17(c), the Borrower shall not be permitted to write checks or otherwise draw funds from such Local Bank Special Account, except that the Borrower may debit such Local Bank Special Account for change orders and it may agree with the bank at which such Local Bank Special Account is maintained that such bank may debit the Local Bank Special Account for such bank's servicing fees and charges for return items; (B) an amount (the "Store Deposit") equal to the amount deposited in such Local Bank Special Account (less change orders, servicing fees and charges for return items) for each store's business day (as reasonably determined by the Borrower) is transferred to a Collection Account on the same day or the relevant banks' next business day after such deposit; (C) the failure to make a Store Deposit for each store's business day shall not constitute a default hereunder if such late Store Deposit results solely from good faith human error and is made promptly following discovery of such error; and (D) the transfer of any Store Deposit to a Collection Account on a day other than the same day or the relevant banks' next business day after such Store Deposit shall not constitute a default hereunder if such late transfer results solely from good faith human error and is made promptly following discovery of such error; (ii) cause a portion of the cash proceeds of Pledged Accounts or of Inventory to be deposited directly to a checking account at Liberty Bank and Trust Company of Oklahoma City, N.A., or another financial institution acceptable to the Agent, that is not a Collection Account, for the sole purpose of having access to funds for sight drafts to purchase alcoholic beverages for resale or to cover returned checks (each such checking account being a "Sight Draft Special Account", and together with each Local Bank Special Account, being a "Special Account"); provided that no more than $70,000 may be on deposit in any Sight Draft Special Account and no more than $70,000 may be on deposit in all Sight Draft Special Accounts at the end of any relevant bank's business day (after deducting all offsetting debits for sight drafts and returned checks at the end of the relevant banks' business day); (iii) permit such debits to a Collection Account as may be specified in a Collection Account Agreement; and (iv) maintain, at store number 145, located in Dodge City, Kansas, a portion of the cash proceeds of Pledged Accounts or of Inventory in an amount not to exceed $150,000 solely for the purpose of providing funds for check-cashing services to customers and potential customers of Borrower. The Borrower shall, at the request of the Agent, use its best efforts to cause each bank at which one or more Special Accounts are maintained to execute and deliver to the Agent an agreement, in form and substance satisfactory to the Agent, pursuant to which such bank expressly waives any right of set-off such bank may have against such account and covering such other matters as may be required by the Agent; provided, however, that the Agent and the Lenders agree that such efforts shall not require the Borrower to confer any economic benefit upon any such bank in order to cause such bank to execute such agreement. (d) Notwithstanding the provisions of subsections (a)(ii) and (c) of this Section 11.17, the Borrower may make payments to (i) EFS, Inc. ("EFS") pursuant to the Supermarket Industry Merchant Agreement, Electronic Authorization and Payment, dated as of May 1, 1992 between EFS and the Borrower, and the related letter dated May 6, 1992 from the Borrower to Mr. Ed Labry of EFS and (ii) one or more other credit or charge card service providers in connection with arrangements enabling the Borrower to accept payment for merchandise by credit or charge card, including, without limitation, deductions by EFS or such other credit or charge card service providers from amounts otherwise payable to the Borrower under their servicing arrangements with the Borrower; provided, that on and after the Closing Date, all documentation with respect to such arrangements mentioned in clause (ii) above shall be in form and substance reasonably satisfactory to the Agent. (e) Notwithstanding anything to the contrary in subsection (a)(iv) of this Section 11.17, the Borrower shall be permitted to exempt from the transfers required by such subsection on any day a maximum of (i) $100,000 of collected balances on deposit in the Collection Account maintained by the Borrower with Liberty Bank and Trust Company of Oklahoma City, N.A., or another financial institution acceptable to the Agent, (ii) $5,000 of collected balances on deposit in the Collection Account maintained by the Borrower with Bank of Oklahoma, N.A., or another financial institution acceptable to the Agent, and (iii) $5,000 of collected balances on deposit in the Collection Account maintained by the Borrower with Amarillo National Bank, or another financial institution acceptable to the Agent. 11.18. ENVIRONMENTAL REPORTS. If so requested, Borrower shall deliver to the Agent an environmental report of a qualified third party engineer in form and substance satisfactory to the Agent (a) on any one or more of the stores listed on Schedule 11.18 hereto or (b) with respect to any event for which Borrower supplied a notice under Section 11.1(m) hereof. 11.19. SPECIAL COUNSEL FEES. Borrower shall pay in full, within ten (10) days following the Closing Date, all reasonable fees, costs and expenses of Hughes & Luce, L.L.P., special counsel to the Agent, billed on or prior to the Closing Date. 11.20. LANDLORDS' LIENS. Borrower shall provide to Lenders a waiver of landlord lien for all Real Properties leased by Borrower, substantially in the form and substance of the form of Landlord's Waiver attached as Exhibit 11.20 hereto. 11.21. OVERDUE LEASE. Borrower shall disclose to the Lenders all leases with regard to which the payments are or become, at any time and from time to time, more than thirty (30) days past due. Such disclosure shall include the name of the lessor, the store number, the location of the store, the amount of the monthly lease payments and the total amount of past due payments with respect to each such lease. The leases with regard to which the payments are more than thirty (30) days past due as of the Closing Date are set forth in Schedule 14.5(c) to this Agreement. 11.22. COMPLIANCE WITH EQUIPMENT LEASES. Each of Parent and Borrower shall comply, and shall cause each of Borrower's Subsidiaries to comply, in all material respects, with all Equipment Leases; and each of Parent and Borrower shall duly observe, and cause each of Borrower's Subsidiaries to duly observe, in all material respects, all valid requirements of applicable Equipment Leases, the non-observance of which could reasonably be expected to have a Material Adverse Effect. SECTION 12. NEGATIVE COVENANTS. Each of Parent and Borrower covenants and agrees that, so long any Advance or any Letter of Credit or reimbursement obligation for a Letter of Credit is outstanding or any Lender has any Revolving Commitment or Term Commitment hereunder, each of Parent and Borrower shall not, and shall not suffer or permit any of Borrower's Subsidiaries (and, in the case of Section 12.10 hereof, any ERISA Affiliate) to, without the prior written consent of the Required Lenders: 12.1. CAPITAL EXPENDITURES. (a) The Companies shall not suffer or permit Net Capital Expenditures of the Parent and its Subsidiaries to exceed the amount indicated: Maximum Net Fiscal Year: Capital Expenditures Fiscal Year 1996: $ 8,700,000 Fiscal Year 1997: $12,000,000 Fiscal Year 1998: $13,000,000 The maximum amount for a particular Fiscal Year may be increased by an amount equal to fifty percent (50%) of Excess Cash Flow calculated for the immediately prior Fiscal Year, any such increase being effective only after actual payment of the Excess Cash Flow has been paid to Lenders and applied to the Term Loan following the end of such prior Fiscal Year, as contemplated by Section 3.6 hereof. (b) In no event shall Parent, Borrower or any Subsidiary of Borrower assume or incur any Indebtedness in connection with the acquisition of a fixed or capital asset (including, without limitation, under a Capitalized Lease) if the fair market value (as determined by an independent appraisal or as determined in good faith by management of Borrower) of such asset does not exceed the aggregate principal (or notional principal, in the case of Capitalized Lease Obligations, which notional principal amount shall be calculated in accordance with GAAP but assuming an implicit interest rate of the higher of 15% or the market rate of interest available to the Company, as determined by the Company in its good faith judgment) amount of such Indebtedness so incurred or assumed. 12.2. LIENS. Create, incur, assume or suffer to exist any Lien upon or defect in title to or restriction upon the use of any of its property or assets of any character, whether owned at the Closing Date or hereafter acquired, or hold or acquire any property or assets of any character under conditional sales, finance lease or other title retention agreements, other than: (a) (i) Liens in favor of the Agent or the Lenders pursuant to this Agreement or the Security Documents; and (ii) Liens described in clause (vi) of the definition of "Eligible Inventory"; (b) (i) Liens, other than in favor of the PBGC, arising out of judgments or awards in respect of which Borrower or any of its Subsidiaries shall in good faith be prosecuting an appeal or proceedings for review and in respect of which it shall have secured a subsisting stay of execution pending such appeal or proceedings for review, provided it shall have set aside on its books adequate reserves, in accordance with GAAP, with respect to such judgment or award; (ii) Liens for taxes, assessments or governmental charges or levies, provided payment thereof shall not at the time be required in accordance with the provisions of Section 11.2 hereof; (iii) deposits, Liens or pledges to secure payments of workmen's compensation and other payments, unemployment and other insurance, old-age pensions or other social security obligations, or the performance of bids, tenders, leases, contracts (other than contracts for the payment of money), public or statutory obligations, surety, stay or appeal bonds, or other similar obligations arising in the ordinary course of business; (iv) mechanics', workmen's, repairmen's, warehousemen's, vendors' or carriers' Liens, or other similar Liens arising in the ordinary course of business and securing sums which are not past due, or are being contested in good faith (so long as there is no risk of the sale or forfeiture of the property subject to such Lien or enforcement of such Lien has been stayed), or deposits or pledges to obtain the release of any such Liens; (v) (i) Statutory landlord's Liens on property located in Texas under Leases or of mortgagees of any such landlord, in each case, to which Borrower or any of its Subsidiaries is a party and (ii) Liens described in Section 8.20 hereof existing as of the date of the first Advance or Letter of Credit issued hereunder and deemed not material by the Agent under Section 8.20 hereof; (vi) zoning restrictions, easements, licenses, covenants, restrictions on the use of real property or minor irregularities in title thereto, which do not materially impair the use of such property in the normal operation of the business of Borrower or any of its Subsidiaries; and (vii) deposits, Liens or pledges up to an aggregate of $1,000,000 to secure payments due to public utilities for services provided in the ordinary course of business; (c) existing Liens set forth in Schedule 12.2(c) hereto and any renewals thereof, but not any increase in amount thereof and not any extension thereof to other property; (d) (i) purchase money mortgages or other purchase money Liens (excluding Capital Leases) upon any fixed or capital assets hereafter acquired, or purchase money mortgages or other purchase money Liens (excluding Capital Leases), on any such assets hereafter acquired or existing at the time of acquisition of such assets, whether or not the related Indebtedness is recourse to Borrower, in each case, to the extent that any such Lien does not exist on the Closing Date, so long as (x) such Lien does not extend to or cover any other asset of Borrower or any of its Subsidiaries, (y) such Lien secures the obligation to pay the purchase price of such asset and interest thereon and other customary obligations relating thereto only, and (z) the principal amount of the aggregate Indebtedness incurred from and after the Closing Date and secured by all such purchase money Liens (excluding Capital Leases) does not exceed $5,000,000 in the aggregate, and (ii) Liens consisting of Capital Leases (including any such Capital Lease permitted by Section 12.5(f) hereof and other than any Capital Lease outstanding on the Closing Date), upon any fixed or capital assets now owned or hereafter acquired, incurred in any Fiscal Year and not exceeding in aggregate notional principal amount for any Fiscal Year the sum of (A) $7,000,000, plus (B) an amount, not to exceed $3,500,000, determined by subtracting from $7,000,000, the amount of the aggregate notional principal amount of Capital Leases actually acquired or incurred by Borrower during the immediately preceding Fiscal Year. (e) at any time, Liens covering consigned Inventory received by Borrower as part of a consignment arrangement between Borrower and the vendor of such Inventory so long as the most recent Borrowing Base Certificate delivered to the Agent under Section 11.1(j) hereof prior to such time has set forth the total dollar value of consigned Inventory of Borrower; (f) Liens on any property or asset, other than the Collateral, acquired by Borrower or any Subsidiary of Borrower which are in existence on the date of acquisition of such property or asset and, in the case of a Person which becomes a Subsidiary of Borrower, Liens on its property or capital stock in existence on the date such Person becomes a Subsidiary of Borrower; (g) Liens on AWG Equity owned or hereafter acquired by Borrower to secure Borrower's obligations to AWG under the Supply Agreement and the Membership Sign-Up Documents; (h) Liens consisting of the Use Restrictions; and (i) Liens consisting of the First Offer Rights. 12.3. INDEBTEDNESS. Create, incur, assume or suffer to exist, contingently or otherwise, any Indebtedness, other than: (a) Indebtedness under the Loan Documents; (b) unsecured Current Liabilities incurred in the ordinary course of business other than unsecured Current Liabilities for Indebtedness for Borrowed Money or which are evidenced by bonds, debentures, notes or other similar instruments; (c) Indebtedness for Borrowed Money and Contingent Obligations set forth on Schedule 12.3(c) hereto; (d) Indebtedness (not overdue) secured by Liens permitted by Section 12.2(d) hereof; (e) Indebtedness under the Subordinated Note Documents not exceeding $60,000,000 in aggregate principal amount, less any repayments of principal or redemptions of Subordinated Notes, and any replacement or refinancing of such Indebtedness on terms acceptable to the Agent in its sole discretion; (f) payments constituting Permitted Transactions; (g) Indebtedness in respect of obligations owed to AWG by Borrower under the Supply Agreement and the Membership Sign-Up Documents; (h) Priority Tax Claims, as defined and described in the Plan; and (i) Indebtedness of Borrower existing under the employee stock bonus plan trust, which is or will be established on behalf of Borrower's unionized employees, as more fully described in the Disclosure Statement. 12.4. LOANS, INVESTMENTS AND GUARANTEES. Lend or advance money or credit to any Person, or invest in (by capital contribution, creation of Subsidiaries or otherwise), or purchase or repurchase the stock or Indebtedness, or all or a substantial part of the assets or properties, of any Person, or enter into any exchange of securities with any Person, or guarantee, assume, endorse or otherwise become responsible for (directly or indirectly or by any instrument having the effect of assuring any Person's payment or performance or capability) the Indebtedness, performance, obligations, stock or dividends of any Person (each of the foregoing, an "Investment"), or agree to do any of the foregoing, other than: (a) endorsement of negotiable instruments for deposit or collection in the ordinary course of business; (b) (i) Investments in securities issued, or that are directly and fully guaranteed or insured, by the United States Government or any agency or instrumentality thereof having maturities of not more than six months from the date of acquisition, (ii) time deposits and certificates of deposit having maturities of not more than six months from the date of acquisition of (x) any Lender or (y) any other domestic commercial bank having capital and surplus in excess of $100,000,000, the holding company of which has outstanding commercial paper meeting the requirements specified in clause (iv) below, (iii) repurchase agreements with a term of not more than seven (7) days for underlying securities of the types described in clauses (i) and (ii) above (provided that the underlying securities of the type described in clause (i) may have maturities of more than six months from the date of acquisition) entered into with any Lender or any other bank meeting the qualifications specified in clause (ii) above or with securities dealers of recognized national standing, provided that the terms of such agreements comply with the guidelines set forth in the Federal Financial Institutions Examination Council Supervisory Policy Repurchase Agreements of Depository Institutions With Securities Dealers and Others as adopted by the Comptroller of the Currency on October 31, 1985 (the "Supervisory Policy"), and provided, further, that possession or control of the underlying securities is established as provided in the Supervisory Policy, and (iv) commercial paper rated (as of the date of acquisition thereof) at least A-1 or the equivalent thereof by Standard & Poor's Corporation and P-1 or the equivalent thereof by Moody's Investors Service, Inc. and in either case maturing within six (6) months after the date of its acquisition; (c) Investments representing stock or obligations issued to Borrower or any of its Subsidiaries in settlement of claims against any other Person by reason of a composition or readjustment of debt or a reorganization of any debtor of Borrower or such Subsidiary; (d) Investments representing the Indebtedness of any Person owing as a result of the sale by Borrower or any of its Subsidiaries in the ordinary course of business of products or services (on customary trade terms); (e) Investments in the stock of any present Subsidiary, but not any additional investments therein; (f) Guaranties in favor of the Agent or in favor of any one or more Lenders, in each case, of all or any portion of Lender Debt; (g) Guaranties by Parent or any Subsidiaries of the "Obligations" (as such term is defined in the Indenture as of the Closing Date); (h) Investments and guaranties outstanding on the Closing Date and described on Schedule 12.4 hereto; (i) (i) Investments in the Collection Accounts, the Lock-Box Accounts, the Concentration Account and the Special Accounts permitted pursuant to Section 11.17(c) hereof, so long as the same are maintained in accordance with Sections 11.17 and 12.15 hereof and (ii) other deposit accounts maintained by Borrower or Parent; (j) Investments in Indebtedness for Borrowed Money arising from any sale or disposition permitted under Section 12.5(a), (b) or (d) hereof; (k) Investments in interest rate caps purchased by Borrower; (l) Investments that are Permitted Transactions; (m) Investments in the form of cash deposits to secure payments described in Section 12.2(b)(iii); provided, that no such cash deposit shall exceed an amount equal to 55% of the face amount of any Letter of Credit that the Borrower is permitted to cause to be issued to support the applicable payment, and provided, further, that the aggregate outstanding amount of all such cash deposits shall not at any time exceed $3,500,000; (n) Investments consisting of (i) the purchase by Borrower of 15 shares of AWG Membership Stock and (ii) AWG members deposit certificates, patronage refund certificates or similar types of AWG Equity received or earned by Borrower from time to time based on Borrower's gross purchases from AWG pursuant to the Supply Agreement or in lieu of receiving cash rebates or refunds from AWG; (o) Investments consisting of (i) purchases of capital stock, in an aggregate amount not exceeding $25,000, of retail purchasing cooperatives (including, without limitation, Farm Fresh, Inc., an Oklahoma retail dairy cooperative ("Farm Fresh") in connection with becoming a member of such cooperatives and (ii) additional capital stock of such cooperatives which is received or earned by Borrower, in an aggregate amount not exceeding $1,000,000 in the case of Farm Fresh and $150,000 in the case of all other cooperatives, based on Borrower's gross purchases from such cooperatives or in lieu of receiving cash rebates or refunds from such cooperatives; provided that, in each case, such stock is purchased, received or earned in connection with a supply agreement or arrangement between Borrower and such cooperative which is on terms at least as favorable to Borrower as the terms that could be obtained by Borrower in a comparable transaction made on an arms' length basis with another cooperative, wholesaler or supplier; and (p) Investments in assets or properties that constitute a supermarket business, the amount of such Investments not to exceed twenty percent (20%) of the lesser of (i) the indicated amount of Net Capital Expenditures as permitted under Section 12.1 hereof for the then current Fiscal Year, without adjustment as otherwise provided in Section 12.1 hereof, or (ii) the actual amount of Net Capital Expenditures incurred during the then current Fiscal Year. 12.5. MERGER, SALE OF ASSETS, DISSOLUTION, ETC. Without the prior written consent of the Agent and the Required Lenders, (i) enter into any transaction of merger or consolidation, (ii) change its name, (iii) acquire all or a substantial portion of the assets of any Person, or (iv) transfer, sell, assign, lease, or otherwise dispose of all or any part of its properties or assets, or any of its notes or Receivables, or any stock of Borrower or any of its Subsidiaries, or wind up, liquidate or dissolve, or agree to do any of the foregoing, except: (a) sales, not exceeding $1,000,000 in aggregate book value, in the ordinary course of business of assets and properties of Borrower or a Subsidiary of Borrower no longer necessary for the proper conduct of its business; (b) sales or other dispositions by Borrower, Guarantor or any Subsidiary thereof of worn out or obsolete property (including motor vehicles and inventory) in the ordinary course of business; (c) sales of Inventory in the ordinary course of business; (d) sales or other dispositions (including leases) of Excluded Properties at a price with respect to each such Excluded Property at least equal to its fair market value, as determined by the President of Borrower in good faith. (e) the abandonment of any assets and properties of Borrower or any Subsidiary thereof which are no longer useful in its business and cannot be sold; (f) the sale of any asset (other than any Collateral) pursuant to a transaction in which such asset is, concurrently with such sale, leased by Borrower as lessee for use in the business of Borrower; (g) the exchange of assets leased pursuant to Capital Leases for other assets ("exchanged assets") to be leased pursuant to such leases (or other leases on substantially the same terms), provided, however, that such exchanged assets are acquired within forty-five days of the disposition of such leased assets. 12.6. DIVIDENDS, REDEMPTIONS AND OTHER PAYMENTS. (a) Declare or pay any distributions or dividends on any of its shares of capital stock of any class, or purchase, redeem, cancel or acquire any of its capital stock or capital stock of any of its Subsidiaries or any option, warrant, or other right to acquire such capital stock, or apply or set apart any of its assets therefor, or make any distribution (by reduction of capital or otherwise) in respect of any such shares of capital stock or any such option, warrant or other right, except that in any Fiscal Year of Borrower any Subsidiary of Borrower may pay dividends to its direct parent; or (b) make any optional prepayment or optional redemption of or purchase or repurchase any Indebtedness for Borrowed Money or give any notice thereof (other than (i) the Advances and the Funded Debt described in Schedule 12.6(b) hereto, (ii) prepayments up to an aggregate of $1,000,000 of Capitalized Lease Obligations solely in connection with the exchange of assets leased pursuant to Capital Leases for other assets ("exchanged assets") to be leased pursuant to such leases (provided, however, that such exchanged assets are acquired within forty-five days of the disposition of such leased assets), (iii) prepayments, optional redemptions, purchases or repurchases of Indebtedness for Borrowed Money relating to assets to be purchased by Borrower, and thereafter sold to AWG, in connection with the AWG Purchase Agreement, or in connection with stores to be closed; provided, however, that nothing contained in this Section 12.6 shall prohibit any Permitted Transaction. 12.7. TRANSACTIONS WITH AFFILIATES. Except for transactions specifically required or permitted by the terms of this Agreement, enter into or perform any transaction, including, without limitation, the purchase, leasing, sale or exchange of property or assets or the rendering of any service, with any Affiliate of Parent, Borrower or any Subsidiary thereof, except for any transaction which is in the ordinary course of its business, and which transaction is, in the good faith determination of the board of directors of Borrower, upon fair and reasonable terms no less favorable to it than it could obtain in a comparable arm's length transaction with a Person not an Affiliate of Parent, Borrower or a Subsidiary of Borrower; provided, however, that nothing contained in this Section 12.7 shall prohibit any Permitted Transaction or any other transaction specifically permitted under this Agreement. 12.8. MANAGEMENT FEES AND OTHER PAYMENTS. Pay, directly or indirectly, during any Fiscal Year of Parent, any management, consulting or similar fees to, or make any other payments of any kind to (a) Parent or (b) in respect of employment, management, consulting, servicing or similar services or in respect of any non-competition or similar agreement, any officers, directors, general or limited partners of, or other management of, or any stockholders of, Parent, Borrower or any Affiliate of Parent or Borrower, in each case, other than any payment constituting a Permitted Transaction. 12.9. COMPROMISE OF PLEDGED ACCOUNTS. Compromise or adjust any of the Pledged Accounts (or extend the time for payment thereof) or grant any discounts, allowances or credits thereon, other than discounts of Pledged Accounts in the ordinary course of business. 12.10. NON-COMPLIANCE WITH ERISA. (a) Engage in any transaction in connection with which a Credit Party or any of its ERISA Affiliates could be subject to either a material civil penalty assessed pursuant to the provisions of Section 502(i) of ERISA or a material tax imposed under the provisions of Section 4975 of the Code; (b) adopt an amendment to any Pension Benefit Plan requiring the provision of security under Section 307 of ERISA or Section 401(a)(29) of the Code; (c) terminate any Pension Benefit Plan in a "distress termination" under Section 4041(c) of ERISA; or (d) fail to make payment when due of all material amounts which, under the provisions of any Pension Benefit Plan or Multiemployer Plan, it is required to pay as contributions thereto or, with respect to any Pension Benefit Plan, permit to exist any "accumulated funding deficiency" (within the meaning of Section 302 of ERISA and Section 412 of the Code). 12.11. AMENDMENTS AND MODIFICATIONS. (a) Directly or indirectly, amend, modify, supplement, waive compliance with, seek a waiver under, or assent to noncompliance with (i) any of the Subordinated Note Documents or any document relating thereto, if the effect of any such amendment, waiver, modification, supplement, or assent is to (u) increase the interest rate or increase or add any fee or other amount payable thereunder, (v) advance to an earlier date any payment of principal (by prepayment or redemption or otherwise) thereunder, (w) add any covenant, make any covenant as in effect on the Closing Date thereunder more burdensome, more difficult to achieve or comply with or otherwise more adverse to Borrower, (x) add any event of default or change in a manner more adverse to Borrower any event of default as in effect on the Closing Date or (z) make any term or provision thereof more adverse to Borrower than those in effect on the Closing Date or (ii) any instrument, document or agreement evidencing, creating, guaranteeing or governing any Indebtedness for Borrowed Money permitted under Section 12.3(c) hereof or entered into in connection therewith, other than amendments, modifications, supplements or waivers of Capital Leases but solely to the extent that the Agent has received prior written notice of such amendments, modifications, supplements or waivers and such amendments, modifications, supplements or waivers are not adverse to the Borrower. (b) Amend, modify or supplement the charter or by-laws of Borrower, Parent or any of Borrower's Subsidiaries, except as specifically provided for in the Plan with regard to non-voting stock of the Borrower and the parent. 12.12. FISCAL YEAR. Change for financial reporting purposes hereunder its Fiscal Year from a period of fifty-two (52) or fifty-three (53) consecutive weeks beginning on the first day following the end of the previous Fiscal Year and ending on the Saturday on or closest to the next December 31. 12.13. CHANGE OF BUSINESS. Alter the nature of its business or engage in any business other than the supermarket business, except changes attendant to the Plan. No change or amendment shall occur in any of the material supplier contracts and related arrangements of Borrower (including without limitation the Supply Agreement and the Membership Sign-Up Documents) which would have a Material Adverse Effect on the financial condition or operations of Borrower; and Borrower shall not permit there to exist any default in Borrower's obligations under such material supplier contracts and related arrangements of Borrower (including without limitation the Supply Agreement and the Membership Sign-Up Documents). 12.14. NO NEGATIVE PLEDGES. Except under the Subordinated Note Documents, the Supply Agreement as in effect on the Closing Date, and the Membership Sign-Up Documents as in effect on the Closing Date, enter into or become subject to, directly or indirectly, including, without limitation, as a non-party Subsidiary of a party to any agreement, (a) any agreement prohibiting or restricting, in any manner (including, without limitation, by way of covenant, representation or event of default), (i) the incurrence, creation or assumption of any Indebtedness, or any Lien upon any property of any Credit Party other than, in the case of an agreement for a purchase money financing (including a Capitalized Lease Obligation), the asset subject to such financing, (ii) the sale, disposition or pledge of any asset of any Credit Party other than, in the case of an agreement for a purchase money financing (including a Capitalized Lease Obligation), the asset subject to such financing, (iii) the incurrence or existence of any Contingent Obligations of any Credit Party, (iv) any investments of any Credit Party, (v) any capital expenditures by any Credit Party, (vi) any acquisition, merger or consolidation involving any Credit Party, (vii) any change in control of any Credit Party, or (viii) any amendment or supplement to or waiver under this Agreement or any other Loan Document or other document relating to the Lender Debt, or (b) which provides that any default by any Credit Party which is not a party to such agreement of any obligation not arising under such agreement is a default under such agreement. 12.15. COLLECTION AND CONCENTRATION ACCOUNTS; LOCK-BOX ACCOUNTS. (a) Deposit, or cause to be deposited, into any Collection Account any funds other than funds constituting proceeds of Inventory or Pledged Accounts, miscellaneous income not arising from Asset Sales, and as may be specified in a Collection Account Agreement, funds from another Collection Account at the time of such deposit; or (b) deposit, or cause to be deposited, into any Lock-Box Account any funds other than funds constituting proceeds of Pledged Accounts at the time of such deposit; or (c) deposit, or cause to be deposited, into the Concentration Account any funds other than funds from a Collection Account or a Lock-Box Account; or (d) withdraw or transfer funds from any Lock-Box Account or Collection Account except to the Concentration Account or as may be specified in a Collection Account Agreement other than to (1) repay the Term Loan, (2) prepay the Revolving Loan, or if no Revolving Loan is then outstanding, provide Letter of Credit Cash Collateral, or (3) to the extent not required to be applied under (1) above, the Concentration Account (to the extent representing proceeds of Collateral) and thereafter as otherwise determined by Borrower; or (e) make any change in its instructions to account debtors regarding payments to be made to any Lock-Box Account; or (f) suffer or permit, except with the prior written consent of the Agent, any Collection Account, Lock-Box Account, or the Concentration Account to be closed or terminated, or the Collection Account Agreement, Lock-Box Agreement, or Concentration Account Agreement relating thereto, as the case may be, to be terminated or no longer in full force and effect. 12.16. TAX SHARING AGREEMENTS. Enter into any tax sharing agreement pursuant to which (a) Borrower's provision for taxes would be greater than such provision would be in the absence of such agreement or (b) Borrower would not be promptly reimbursed in the amount of any refunds received by the consolidated group which are attributable to Borrower. 12.17. COVENANT OF PARENT. Parent will not engage in any type of business activity other than (in each case, subject to any restriction contained herein): (a) maintenance of its corporate existence and compliance with applicable law; (b) the issuance of equity securities to any Person; (c) the issuance of debt securities unsecured by any assets of Parent; (d) any guarantee of any obligation of Borrower or any of its Subsidiaries not otherwise prohibited by this Agreement, including, without limitation, any guarantee of the obligations under this Agreement and the Indenture; (e) the registration of any of its securities under the Securities Act, the Securities Exchange Act or any state or local securities law; (f) the listing of any securities with any securities exchange, any interdealer quotation system or the National Association of Securities Dealers, Inc. or its successor; (g) the ownership and disposition of the common stock of Borrower; (h) accounting, legal, public relations, investor relations, financial or management activities (including the employment of employees, counsel, accountants, consultants, bankers, advisors or other professionals) in connection with, or which are reasonably incidental to, any of the foregoing activities; (i) entering into, performing its obligations and exercising its rights under this Agreement and the Plan; or (j) activities in connection with, required by, or reasonably incidental to, any of the foregoing. 12.18. MAXIMUM RETURNED INVENTORY. The Borrower shall not suffer or permit the Inventory of the Borrower and its subsidiaries that Borrower or its Subsidiaries returns to AWG, for whatever reason (other than manufacturer recalls), to exceed $350,000, in the aggregate, during any calendar month. 12.19. THIRD PARTY PAYORS. Borrower shall not suffer or permit any certificate of need, provider number or contract listed on Schedule 14.16 to be amended, altered, suspended, terminated or made provisional, in any material way, without giving immediate written notice to Agent. Borrower shall immediately notify Agent in writing of any new provider number or any execution by Borrower of any contract with any Third Party Payor. Borrower shall give immediate written notice to Agent if any existing certificate of need is amended, altered, suspended, or made provisional, or any new certificate of need or other governmental consent is applied for by Borrower, if such amendment, alteration, suspension, or being made provisional, or such new certificate of need or other governmental consent, would have a material effect on Borrower or Agent hereafter requests that it be notified of such circumstances. SECTION 13. DEFAULTS AND REMEDIES. 13.1. EVENTS OF DEFAULT. If any one or more of the following events (herein called "Events of Default") shall occur for any reason whatsoever (and whether such occurrence shall be voluntary or involuntary or come about or be effected by operation of law or pursuant to or in compliance with any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body): (a) default shall be made in the due and punctual payment of the principal of any of the Revolving Loan, the Term Loan or the reimbursement of any drawings under Letters of Credit, when and as the same shall become due and payable whether pursuant to Section 2 hereof, at maturity, by acceleration or otherwise (other than any failure to reimburse a Letter of Credit drawing to the extent that such failure is caused by the failure of any Lender to fund its pro rata share of a Advance in respect of which Borrower shall have satisfied all conditions to the making of such Advance (other than notice requirements and the delivery of a Borrower's Certificate)); or (b) default shall be made in the due and punctual payment of any amount of interest on the Revolving Loan, the Term Loan or other Lender Debt or of any fee owing to any Lender or the Agent pursuant to any of the Loan Documents, when and as such amount of interest or fee shall become due and payable and such default shall continue unremedied for five (5) Business Days; or (c) default shall be made in the due and punctual payment of any expense owing to any Lender or the Agent pursuant to any of the Loan Documents, when and as such expense shall become due and payable or default shall be made by any Credit Party in the performance or observance of, or shall occur under, any covenant, agreement or provision (other than as described in clause (a) or (b) above) contained in this Agreement or any other Loan Document or in any instrument or document evidencing or creating any obligation, guaranty or Lien in favor of the Agent or delivered to the Lenders or the Agent in connection with or pursuant to this Agreement or any Lender Debt, and, except in the case of the agreements and covenants contained in Sections 11.1(a), 11.1(b), 11.1(c), 11.1(g)(i), 11.1(j), 11.1(k), 11.1(l), 11.6, 11.7, 11.8, 11.14, 11.16, 11.17 and Section 12 (as to each of which no notice or grace period, except as otherwise set forth in this Section 13.1, shall apply), continuance of such default for a period of thirty (30) days after there has been given Written Notice of such default to any of the Credit Parties by the Agent, or if this Agreement or any other Loan Document or any such other instrument or document shall terminate, be terminable or be terminated or become void or unenforceable for any reason whatsoever without the written consent of the Agent; or (d) (i) one or more defaults shall occur in the payment of any principal, interest or premium with respect to any Indebtedness for Borrowed Money or any obligation which is the substantive equivalent of Indebtedness for Borrowed Money (including, without limitation, obligations under conditional sales contracts, finance leases and the like but excluding trade payables incurred in the ordinary course of business) of which any Credit Party is principal, guarantor, or other surety, outstanding in a principal amount of at least $1,000,000 in the aggregate, or (ii) one or more defaults shall occur under any agreement or instrument under or pursuant to which any such Indebtedness for Borrowed Money or obligation may have been issued, evidenced, created, assumed, guaranteed or secured by any Credit Party and, in the case of either clause (i) or (ii) of this Subsection 13.1(d), such default shall continue for more than the period of grace, if any, therein specified or any holder of any such Indebtedness for Borrowed Money (or any agent or trustee therefor) shall be entitled to take any action to realize upon any Lien on any property securing same, or (iii) any such Indebtedness for Borrowed Money or obligation shall be declared due and payable prior to the stated maturity thereof; or (e) any representation, warranty or other statement of fact given herein or in any writing, certificate, report or statement at any time furnished by or on behalf of any Credit Party to any Lender or the Agent pursuant to or in connection with this Agreement (including, without limitation, any Borrower's Certificate) or any other Loan Document, shall be false or misleading in any material respect when given and shall remain false and misleading in any material respect; or (f) any Credit Party shall (i) be unable to pay its debts generally as they become due or is generally not paying its debts as they become due; (ii) file a petition to take advantage of any insolvency act; (iii) make an assignment for the benefit of its creditors; (iv) commence a proceeding for the appointment of a receiver, trustee, liquidator or conservator of itself or of a whole or any substantial part of its property; (v) file a petition or answer seeking reorganization or arrangement or similar relief under the Federal Bankruptcy Code or any other applicable law or statute of the United States of America or any state; or vi) by appropriate proceedings of the board of directors of any Credit Party or other governing body, authorize the filing of any such petition, making of such assignment or commencement of such a proceeding; or (g) a court of competent jurisdiction shall enter an order, judgment or decree appointing a custodian, receiver, trustee, liquidator or conservator of any Credit Party or of the whole or any substantial part of its properties, or approve a petition filed against any Credit Party seeking reorganization or arrangement or similar relief under the Federal Bankruptcy Code or any other applicable law or statute of the United States of America or any state; or if, under the provisions of any other law for the relief or aid of debtors, a court of competent jurisdiction shall assume custody or control of any Credit Party or of the whole or any substantial part of its properties; or if there is commenced against any Credit Party any proceeding for any of the foregoing relief and such proceeding or petition remains undismissed for a period of sixty (60) days; or if any Credit Party by any act indicates its consent to or approval of any such proceeding or petition; or (h) (i) a final judgment shall be rendered against any Credit Party which, with other outstanding final judgments against such Credit Party, to the extent not covered by insurance, by itself or together with all other such judgments, exceeds in the aggregate $1,000,000 and if, within thirty (30) days after entry thereof, such judgment shall not have been discharged or execution thereof stayed pending appeal, or if, within thirty (30) days after the expiration of any such stay, such judgment shall not have been discharged; or (ii) any of the assets of a Credit Party or any Subsidiary thereof shall be attached, seized, levied upon or subject to an injunction, execution, writ or distress warrant and shall remain unstayed or undismissed for a period of thirty (30) days, which by itself or together with all other attachments, seizures, levies, injunctions, executions, writs or distress warrants against properties of such Credit Party or Subsidiary remaining unstayed or undismissed for a period of thirty (30) days is for an amount in excess of $1,000,000; or (i) (i) a Reportable Event shall have occurred with respect to a Pension Benefit Plan; (ii) any Credit Party or any ERISA Affiliate thereof, or an administrator of any Pension Benefit Plan, shall have filed a notice of intent to terminate a Pension Benefit Plan in a "distress termination" under the provisions of Section 4041(c) of ERISA; (iii) any Credit Party or any ERISA Affiliate thereof, or an administrator of a Pension Benefit Plan shall have received a notice that the PBGC has instituted proceedings to terminate (or appoint a trustee to administer) a Pension Benefit Plan; (iv) any other event or condition exists which, in the reasonable opinion of the Required Lenders, constitutes grounds under the provisions of Section 4042 of ERISA for the termination of (or the appointment of a trustee to administer) any Pension Benefit Plan by the PBGC; (v) any Credit Party or any ERISA Affiliate has incurred a liability under the provisions of Section 4063, 4064 or 4201 of ERISA; (vi) any Person shall engage in any transaction in connection with which any Credit Party will, in the reasonable opinion of the Required Lenders, be subject to either a civil penalty assessed pursuant to the provisions of Section 502(i) of ERISA or a tax imposed under the provisions of Section 4975 of the Code; or (vii) any Credit Party or any ERISA Affiliate fails to pay the full amount of any installment due under Section 412(m) of the Code or any "accumulated funding deficiency" (within the meaning of Section 302 of ERISA and Section 412 of the Code) shall exist with respect to any Pension Benefit Plan; and in each case in clauses (i) through (vii) above, in the reasonable opinion of the Required Lenders, such event or condition, together with all other such events or conditions, if any, will subject a Credit Party to any tax, penalty or other liability which, in the aggregate, after giving effect to any available indemnity or bond, will be in excess of $1,000,000; (j) a Change of Control shall occur; (k) a default by any Credit Party under any provision of any Lease which, together with other Leases in default, involve annual base rent of $600,000 or more, shall occur and continue beyond any applicable grace period which would permit the lessor thereunder to (i) terminate the Lease or (ii) exercise any other rights under such Lease which would have an adverse effect on the Lenders' interest in any Collateral located on the premises in respect of such Lease; (l) a materially adverse change, as determined by the Agent in good faith, occurs in the financial condition of either Borrower or Parent; then, and in any such event and at any time thereafter, if such or any other Event of Default shall then be continuing: (A) either or both of the following actions may be taken: (i) the Agent shall, at the direction of all Lenders, (x) declare any obligation to lend hereunder terminated, and/or (y) declare any obligation to issue Letters of Credit hereunder terminated, whereupon such obligation to make further Advances or issue Letters of Credit hereunder shall terminate immediately and (ii) the Agent may, at its option, or, the Agent shall, upon the direction of the Required Lenders, declare any or all of the Lender Debt to be due and payable, and the same shall forthwith become due and payable without presentment, demand, protest or notice of any kind, all of which are hereby expressly waived, anything contained herein or in any instrument evidencing the Lender Debt to the contrary notwithstanding; provided, however, that notwithstanding the above, if there shall occur an Event of Default under clause (f) (other than clause (f) (i)) or (g) above, then the obligation of the Lenders to lend and issue Letters of Credit hereunder shall automatically terminate and any and all of the Lender Debt shall be immediately due and payable without any action by the Agent or any Lender; (B) the Agent, at the direction of all Lenders, shall have and may exercise all rights and remedies of a secured party under the UCC in effect in the State of New York at such time, whether or not applicable to the affected Collateral, and otherwise, including, without limitation, the right to foreclose the Liens granted herein or in any of the Security Documents by any available judicial procedure and/or to take possession of any or all of the Collateral, the other security for the Lender Debt and the books and records relating thereto, with or without judicial process; for the purposes of the preceding sentence, the Agent may enter upon any or all of the premises where any of the Collateral, such other security or books or records may be situated and take possession and remove the same therefrom; and (C) the Agent, at the direction of all Lenders, shall have the right, in its sole discretion, to determine which rights, Liens or remedies it shall at any time pursue, relinquish, subordinate, modify or take any other action with respect thereto, without in any way modifying or affecting any of them or any of the Lenders' rights hereunder; and any moneys, deposits, Pledged Accounts, balances or other property which may come into any Lender's or the Agent's hands at any time or in any manner, may be retained by such Lender or the Agent and applied to any of the Indebtedness of the Credit Parties to the Agent and the Lenders hereunder. 13.2. SUITS FOR ENFORCEMENT. In case any one or more Events of Default shall occur and be continuing, the Agent, at the direction of all Lenders, on behalf of the Agent and the Lenders may proceed to protect and enforce their rights or remedies either by suit in equity or by action at law, or both, whether for the specific performance of any covenant, agreement or other provision contained herein or in any document or instrument delivered in connection with or pursuant to this Agreement or any other Loan Document, or to enforce the payment of the Lender Debt or any other legal or equitable right or remedy. 13.3. RIGHTS AND REMEDIES CUMULATIVE. No right or remedy herein conferred upon the Lenders or the Agent is intended to be exclusive of any other right or remedy contained herein or in any instrument or document delivered in connection with or pursuant to this Agreement or any other Loan Document, and every such right or remedy shall be cumulative and shall be in addition to every other such right or remedy contained herein and therein or now or hereafter existing at law or in equity or by statute, or otherwise. 13.4. RIGHTS AND REMEDIES NOT WAIVED. No course of dealing between any of the Credit Parties and any Lender or the Agent or any failure or delay on the part of any Lender or the Agent in exercising any rights or remedies hereunder shall operate as a waiver of any rights or remedies of the Lenders or the Agent and no single or partial exercise of any rights or remedies hereunder shall operate as a waiver or preclude the exercise of any other rights or remedies hereunder or of the same right or remedy on a future occasion. 13.5. APPLICATION OF PROCEEDS. After the occurrence of an Event of Default and acceleration of the Lender Debt, the proceeds of the Collateral, other collections received from the Credit Parties and proceeds of property of Persons other than the Credit Parties securing the Lender Debt and collections from each Guaranty shall be applied by the Agent to payment of the Lender Debt in the following order, unless a court of competent jurisdiction shall otherwise direct: (a) FIRST, to payment of all costs and expenses of the Agent and the Lenders incurred in connection with the preservation, collection and enforcement of the Lender Debt or any Guaranties, or of any of the Liens granted to the Agent pursuant to the Security Documents or otherwise, including, without limitation, any amounts advanced by the Agent or the Lenders to protect or preserve the Collateral; (b) SECOND, to payment of that portion of the Lender Debt constituting accrued and unpaid interest and fees and indemnities payable under Sections 3, to the extent applicable to Term Loan Advances, Section 4 hereof, ratably amongst the Agent and the Lenders in accordance with the proportion which the accrued interest and fees and indemnities payable under Section 3 and, to the extent applicable to Term Loan Advances, Section 4 hereof constituting the Lender Debt owing to the Agent and each such Lender at such time bears to the aggregate amount of accrued interest and fees and indemnities payable under Section 3 and, to the extent applicable to Term Loan Advances, Section 4 hereof constituting the Lender Debt owing to the Agent and all of the Lenders at such time until such interest, fees and indemnities shall be paid in full; (c) THIRD, to payment of that portion of the Lender Debt constituting accrued and unpaid interest and fees and indemnities payable under Section 2, and, to the extent applicable to Revolving Credit Advances, Section 4, hereof, ratably amongst the Agent and the Lenders in accordance with the proportion which the accrued interest and fees and indemnities payable under Section 2, to the extent applicable to Revolving Credit Advances, Section 4 hereof constituting the Lender Debt owing to the Agent and each such Lender at such time bears to the aggregate amount of accrued interest and fees and indemnities payable under Section 2, to the extent applicable to Revolving Credit Advances, Section 4 hereof constituting the Lender Debt owing to the Agent and all of the Lenders at such time until such interest, fees and indemnities shall be paid in full; (d) FOURTH, to each Issuing Lender to reimburse the Issuing Lender for that portion of any payments made by it with respect to Letters of Credit for which a Lender, as a participant in such Letter of Credit, failed to pay its pro rata share thereof as required pursuant to Section 15.18 hereof; (e) FIFTH, to payment of the principal of the Term Loan Advances, ratably amongst the Lenders in accordance with the proportion which the principal amount of the Term Loan Advances owing to each such Lender bears to the aggregate principal amount of the Term Loan Advances owing to all of the Lenders until such principal of the Term Loan Advances shall be paid in full; (f) SIXTH, to payment of the principal of the Revolving Credit Advances (excluding the aggregate undrawn amount of any then outstanding Letters of Credit), ratably amongst the Lenders in accordance with the proportion which the principal amount of the Revolving Credit Advances owing to each such Lender bears to the aggregate principal amount of the Revolving Credit Advances owing to each such Lender bears to the aggregate principal amount of the Revolving Credit Advances (excluding the aggregate undrawn amount of any then outstanding Letters of Credit) owing to all of the Lenders until such principal of the Revolving Credit Advances shall be paid in full; (g) SEVENTH, to the extent, with respect to Letters of Credit, that the collateral, if any, held by the Agent as security for the Letters of Credit outstanding at the time of distribution hereunder is insufficient, to the Agent to be held by the Agent as additional collateral therefor; (h) EIGHTH, to the payment of all other Lender Debt, ratably amongst the Lenders in accordance with the proportion which the amount of such other Lender Debt owing to each such Lender bears to the aggregate principal amount of such other Lender Debt owing to all of the Lenders until such other Lender Debt shall be paid in full; and (i) NINTH, the balance, if any, after all of the Lender Debt has been satisfied, shall, except as otherwise provided in the Security Documents, 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. The Credit Parties acknowledge and agree that they shall remain liable to the extent of any deficiency between the amount of the proceeds of the Collateral and collections under the Guaranties and the aggregate amount of the sums referred to in the first through sixth clauses above. 13.6 INVENTORY COUNTING AND APPRAISAL. After the occurrence of a Default or an Event of Default, the Agent has the right to engage a third party, acceptable to the Agent in its sole discretion, and at Borrower's expense, to (a) provide directly to the Agent and the Lenders sampling counts of Borrower's Inventory at times acceptable to the Agent and the Lenders, and (b) provide directly to the Agent and the Lenders appraisals of the Borrower's Inventory at times acceptable to the Agent and the Lenders. SECTION 14. REPRESENTATIONS AND WARRANTIES. Each of Parent and Borrower hereby represents and warrants as follows (which representations and warranties shall survive the execution and delivery of this Agreement and shall be deemed to be incorporated in each officer's certificate submitted to the Agent pursuant to Section 9.1 hereof, and shall be deemed repeated and confirmed with respect to, and as of the date of, each borrowing and each issuance of a Letter of Credit hereunder, provided that any representation or warranty which is made as of a specified date shall be deemed repeated as of such date): 14.1. CORPORATE STATUS. (a) Each Credit Party is a duly organized and validly existing corporation in good standing under the laws of the state of its incorporation with perpetual corporate existence, and has the corporate power and authority to own its properties and to transact the business in which it is engaged or presently proposes to engage. (b) Each Credit Party is qualified as a foreign corporation and in good standing in each other jurisdiction in which it owns or leases property of a nature, or transacts business of a type, that would make such qualification necessary, except where the failure to so qualify could not reasonably be expected to have a Material Adverse Effect. (c) The capital stock of each Credit Party is owned as set forth on Schedule 14.1 hereto (which shall be updated from time to time upon the formation of any new Subsidiary of Borrower and delivered to the Agent and each Lender), which Schedule 14.1 correctly sets forth all Liens encumbering the equity interests of Parent in the capital stock of Borrower. (d) None of the Credit Parties has any Subsidiaries except as set forth in Schedule 14.1 hereto (which shall be updated from time to time upon the formation of any new Subsidiary of Borrower and delivered to the Agent and each Lender), which Schedule 14.1 correctly sets forth the name of each such Subsidiary, its jurisdiction of incorporation and a statement of the outstanding capitalization of each such Subsidiary as of the date of delivery of such Schedule 14.1. 14.2. POWER AND AUTHORITY. Each of the Credit Parties has the corporate power and authority to execute, deliver and perform the terms and provisions of this Agreement and the other Loan Documents, in each case, to which it is a party, and all instruments and documents delivered by it pursuant thereto and hereto and each of the Credit Parties has duly taken or caused to be duly taken all necessary corporate action (including, without limitation, the obtaining of any consent of stockholders required by law or its certificate of incorporation or bylaw), to authorize the execution, delivery and performance of this Agreement and each other Loan Document, in each case, to which it is a party, and the instruments and documents delivered by it pursuant thereto and hereto. Each of this Agreement and the other Loan Documents, and each of the other instruments and documents executed and delivered by any of the Credit Parties, pursuant hereto and thereto to which it is a party constitute a legal, valid and binding obligation of such Person, and is enforceable in accordance with its terms. 14.3. NO VIOLATION OF AGREEMENTS. None of the Credit Parties is in violation of any provision of its certificate or articles of incorporation, as the case may be, or its bylaws or is in default under any lease, indenture, mortgage, deed of trust, agreement or other instrument, in any case, involving total payments to or total payments by, Borrower or Parent of $1,000,000 or more, to which any of them is a party or by which any of them may be bound. Neither the execution and delivery of this Agreement, the other Loan Documents or any of the instruments and documents to be delivered pursuant hereto or thereto, the consummation of the transactions herein and therein contemplated, compliance with the provisions hereof or thereof, nor the execution, delivery and performance by any Credit Party of this Agreement, the other Loan Documents or any of such instruments or documents, nor compliance with the provisions hereof or thereof, will violate any provision of the certificate of incorporation or bylaws of any Credit Party or any law or regulation, or any order or decree of any court or governmental instrumentality, or will (a) conflict with, or result in the breach of, or constitute a default or permit termination under, any lease, indenture, mortgage, deed of trust, agreement or other instrument, in any case, involving total payments to or total payments by Borrower of $1,000,000 or more, to which any Credit Party is a party or by which any of them or their respective properties may be bound, or (b) except as contemplated under this Agreement or under any other Loan Document, result in the creation or imposition of any Lien upon any property of any Credit Party. 14.4. NO LITIGATION. (a) Except for the Cases and as set forth in Schedule 14.4 hereto, there are no actions, suits or proceedings pending or, to the best knowledge of Borrower, threatened against any of the Credit Parties or any of their respective Subsidiaries before any court, arbitrator or governmental or administrative body or agency which challenge the validity or propriety of the transactions contemplated under this Agreement, the other Loan Documents or the documents, instruments and agreements executed or delivered in connection herewith, therewith or related thereto, or which, if adversely determined, could reasonably be expected to have a Material Adverse Effect. (b) No Credit Party or any Subsidiary thereof is in default in any material respect under any applicable statute, rule, order, decree or regulation of any court, arbitrator or governmental body or agency having jurisdiction over such Credit Party or Subsidiary. (c) No judgment, order, injunction or other similar restraint with respect to any Credit Party or any Subsidiary thereof exists which prohibits any of the other transactions contemplated hereby or in connection herewith. 14.5. GOOD TITLE TO PROPERTIES. (a) Each Credit Party and its Subsidiaries has good and marketable title to all the material properties and assets reflected on its balance sheet and valid leasehold interests in the property it leases, including, without limitation, the Collateral, subject to no Liens, except such as would be permitted under Section 12.2 of this Agreement. All real property owned by or leased to any Credit Party or any Subsidiary thereof is described on Schedule 14.5(a) annexed hereto. Notwithstanding the foregoing, this Section 14.5 specifically excludes any representation or warranty with respect to Excluded Properties. (b) Each Lease described on Schedule 14.5(a) hereto is in full force and effect, is valid and binding and is enforceable in accordance with its terms. There exists no default by any Credit Party, or to the best knowledge of Borrower by any other Person, under any provision of any Lease which would permit the lessor thereunder to terminate the Lease or to exercise any other rights under such Lease which would have an adverse effect on the Lenders' interest in any Collateral located on the premises in respect of any Lease. (c) No payment due on any Lease described on Schedule 14.5(a) is more than thirty (30) days past due, except for those Leases described on Schedule 14.5(c) annexed hereto and except for contested rental payments not required to be paid under the Plan. 14.6. FINANCIAL STATEMENTS AND CONDITION. (a) The audited financial statements of Parent and its Subsidiaries for the year ended December 30, 1995, present fairly in accordance with GAAP (i) the financial position of Borrower as of the date of such financial statements and (ii) the results of operations of Borrower for such period. Borrower had no direct or indirect contingent liabilities as of the date of such financial statements which are not reserved for therein or which in accordance with GAAP would have to be included in footnotes thereto, such financial statements have been prepared in accordance with GAAP applied on a basis consistently maintained throughout the period involved (subject to normal year end adjustments), and there has been no material adverse change in the business, operations, liabilities, assets, properties, prospects or condition (financial or otherwise) of Borrower since December 31, 1995. There has been no material adverse change in the business, operations, liabilities, assets, properties, prospects or condition (financial or otherwise) of any Credit Party since June 15, 1996. (b) The Agent has been furnished projections of the future performance of Borrower and its Subsidiaries. The projections and pro forma financial information contained in such materials are based upon good faith estimates and assumptions believed by Borrower to be reasonable at the time made, it being recognized by the Lenders that such projections as to future events are not to be viewed as facts and that actual results during the period or periods covered by such projections may differ from the projected results. No fact is known to any Credit Party which could reasonably be expected to have a Material Adverse Effect, that has not been set forth in the financial statements referred to in this Section 14.6 or disclosed herein or otherwise disclosed to the Agent in writing prior to the most recent date on which the representation contained in this Section 14.6 is made or repeated. (c) The budget dated as of May 8, 1996, a copy of which is attached hereto as Exhibit 14.6(c), is the budget of the financial condition and results of operations of Parent and its Subsidiaries for the Fiscal Year ending December 28, 1996, required to be delivered pursuant to Section 11.1(l). 14.7. TRADEMARKS, PATENTS, ETC. Each of the Credit Parties possesses all the trademarks, trade names, copyrights, patents, licenses or rights in any thereof adequate for the conduct of its business, without conflict with the rights of others. 14.8. TAX LIABILITY. Each of the Credit Parties and their respective Subsidiaries has filed all tax returns which are required to be filed, and, except as otherwise permitted by Section 11.2 hereof, has paid all taxes which have become due pursuant to such returns or pursuant to any assessment received by it. 14.9. GOVERNMENTAL ACTION. No action of, or filing with, any governmental or public body or authority (other than normal reporting requirements or filing as to Collateral under the provisions of Section 7 hereof) is required to authorize, or is otherwise required in connection with, the execution, delivery or performance of this Agreement, the Security Documents, the Guaranties, the Notes, the other Loan Documents, or any of the instruments or documents to be delivered pursuant hereto or thereto, except such as have been made or will be made as contemplated by such agreements. 14.10. DISCLOSURE. Neither the Schedules hereto, nor the financial statements referred to in Section 14.6 hereof, nor the certificates, statements, reports or other documents furnished to any Lender or the Agent by or on behalf of any of the Credit Parties in connection herewith or in connection with any transaction contemplated hereby, nor this Agreement or any other Loan Document, at the time furnished, contained any untrue statement of a material fact or omitted to state any material fact (known to any such Person in the case of any document not furnished by it) necessary in order to make the statements contained herein or therein not misleading in light of the circumstances in which the same were made. 14.11. REGULATION U. None of the Credit Parties or any of their respective Subsidiaries owns any "margin stock" as such term is defined in Regulation U, as amended (12 C.F.R. Part 221), of the Board. The proceeds of the borrowings made hereunder will be used only for the purposes set forth in Section 10 hereof. None of the proceeds will be used, directly or indirectly, for the purpose of purchasing or carrying any margin stock or for the purpose of reducing or retiring any Indebtedness which was originally incurred to purchase or carry margin stock or for any other purpose which might constitute the Revolving Loan under this Agreement a "purpose credit" within the meaning of said Regulation U or Regulation X (12 C.F.R. Part 224) of the Board. None of the Credit Parties or any of their respective Subsidiaries or any agent acting in its behalf has taken or will take any action which might cause this Agreement or any of the documents or instruments delivered pursuant hereto to violate any regulation of the Board or to violate the Securities Exchange Act or any applicable state securities laws. 14.12. INVESTMENT COMPANY. None of the Credit Parties or any of their respective Subsidiaries is an "investment company," or an "Affiliated person" of, or "promoter" or "principal underwriter" for, an "investment company," as such terms are defined in the Investment Company Act of 1940, as amended (15 U.S.C. 80a-1, et seq.). None of the transactions contemplated by this Agreement, the other Loan Documents or the Subordinated Note Documents will violate such Act. 14.13. EMPLOYEE BENEFIT PLANS. (a) Except as set forth on Schedule 14.13(a) hereto, no Reportable Event has occurred with respect to any Pension Benefit Plan. (b) No Credit Party has engaged in, or has any knowledge of, any non-exempt prohibited transaction (within the meaning of Section 406 of ERISA or Section 4975 of the Code) with respect to any Employee Plan. (c) All of the Employee Plans comply currently both as to form (to the extent required by Section 401(b) of the Code) and operation, in all material respects, with their terms (to the extent consistent with the currently applicable provisions of the Code) and with the provisions of ERISA and the Code, and all other applicable laws, rules and regulations. A favorable determination as to the qualification under Section 401(a) of the Code has been made by the Internal Revenue Service with respect to each Pension Benefit Plan and, to the best knowledge of each of the Credit Parties, nothing has occurred since the date of such determination that would adversely affect such qualification. (d) The amount for which the Credit Parties or any of their respective ERISA Affiliates would be liable pursuant to the provisions of Sections 4062, 4063 or 4064 of ERISA if each Pension Benefit Plan were terminated as described therein could not reasonably be expected to have a Material Adverse Effect. (e) Except as set forth on Schedule 14.13(e) hereto, none of the Credit Parties nor any of their respective ERISA Affiliates is now, or has been during the preceding five years, a contributing employer to a Multiemployer Plan. None of the Credit Parties nor any of their respective ERISA Affiliates has: (i) ceased operations at a facility so as to become subject to the provisions of Section 4062(e) of ERISA, (ii) withdrawn as a substantial employer so as to become subject to the provisions of Section 4063 of ERISA, (iii) ceased making contributions to any Pension Benefit Plan subject to the provisions of Section 4064(a) of ERISA to which any of the Credit Parties or any of their respective ERISA Affiliates made contributions, (iv) incurred or caused to occur a "complete withdrawal" (within the meaning of Section 4203 of ERISA) or a "partial withdrawal" (within the meaning of Section 4205 of ERISA) from a Multiemployer Plan so as to incur withdrawal liability under Section 4201 of ERISA (without regard to subsequent reduction or waiver of such liability under Sections 4207 or 4208 of ERISA) which could reasonably be expected to have a Material Adverse Effect, or (v) been a party to any transaction or agreement under which the provisions of Section 4204 of ERISA were applicable and which could reasonably be expected to result in liability for any Credit Party. (f) The potential withdrawal liability to the Multiemployer Plans, in the aggregate, (i) at the Closing Date does not exceed $6,000,000 based on the most recent estimate of such liability provided to the Credit Parties by each such Plan and (ii) at any time thereafter, will not exceed an amount that would have a Material Adverse Effect if imposed. (g) (i) No notice of intent to terminate a Pension Benefit Plan under Section 4041(c) of ERISA has been filed by any of the Credit Parties or any of their respective ERISA Affiliates, (ii) no Pension Benefit Plan been terminated, pursuant to the provisions of Section 4041(e) of ERISA and (iii) no Credit Party has any outstanding liability as a result of any other termination of a Pension Benefit Plan subject to Title IV of ERISA which could reasonably be expected to have a Material Adverse Effect. (h) The PBGC has not instituted proceedings to terminate (or appoint a trustee to administer) a Pension Benefit Plan, and no event has occurred or condition exists which could reasonably be expected to constitute grounds under the provisions of Section 4042 of ERISA for the termination of (or the appointment of a trustee to administer) any such Plan. (i) None of the Credit Parties has any reason to believe that, with respect to each Pension Benefit Plan that is subject to the provisions of Title I, Subtitle B, Part 3 of ERISA, the funding method used in connection with such Plan is not acceptable under ERISA, and the actuarial assumptions and methods used in connection with funding such Pension Benefit Plan are not reasonable. No such Pension Benefit Plan has incurred any "accumulated funding deficiency" (as defined in Section 412 of the Code), whether or not waived. (j) There are no actions, suits or claims pending (other than routine claims for benefits) or, to the knowledge of any of the Credit Parties, which could reasonably be expected to be asserted, against any Employee Plan maintained for employees or the assets of any such Employee Plan. No civil or criminal action brought pursuant to the provisions of Title I, Subtitle B, Part 5 of ERISA is pending or, to the best knowledge of any Credit Party, threatened against any fiduciary or any Employee Plan. 14.14. PERMITS, ETC. (a) Except as set forth in Schedule 14.14(a) hereto, each Credit Party and each Subsidiary thereof possesses all permits, licenses, approvals and consents of Federal, state and local governments and regulatory authorities required to conduct properly its business as presently conducted and proposed to be conducted, except to the extent failure to have any such permit, license, approval or consent could not be reasonably be expected to have a Material Adverse Effect. (b) Each such permit, license, approval and consent is and will be in full force and effect, and no event has occurred which permits (or with the passage of time would permit) the revocation or termination of any such permit, license, approval or consent or the imposition of any restriction thereon of such nature as may materially limit the operation of the business covered thereby. (c) All approvals, applications, filings, registrations, consents or other actions required of any local, state or Federal authority to enable each Credit Party and the Subsidiaries thereof to exploit any such permit, license, approval or consent has been obtained or made. (d) No Credit Party nor any Subsidiary of any Credit Party (i) is in violation of any duty or obligation required by law or any rule or regulation applicable to the operation of any of its businesses, which violation could reasonably be expected to have a Material Adverse Effect, or (ii) has received any notice from the granting body or any other governmental authority with respect to any material breach of any covenant under, or any material default with respect to, any such permit, license, approval or consent. (e) Before and upon giving effect to this Agreement, the Notes and the other Loan Documents, no material default shall have occurred and be continuing under any such permit, license, approval or consent. (f) All consents and approvals of, filings and registrations with, and all other actions in respect of, all governmental agencies, authorities or instrumentalities required to maintain any such permit, license, approval or consent in full force and effect prior to the scheduled date of expiration thereof has been, or, prior to the time when required, will have been, obtained, given, filed or taken and are or will be in full force and effect. (g) There is not pending or, to the best knowledge of any Credit Party or Subsidiary thereof, threatened, any action to revoke, cancel, suspend, modify or refuse to renew any such permit, license, approval or consent and each business covered by each such permit, license, approval or consent is being operated in compliance with such permit, license, approval or consent. (h) There is not now issued or outstanding or, to the best knowledge of any Credit Party or Subsidiary thereof, threatened any notice of any hearing, violation or complaint against such Credit Party or Subsidiary thereof with respect to any such permit, license, approval or consent and no Credit Party or Subsidiary thereof has any knowledge that any Person intends to contest the renewal of any such permit, license, approval or consent. 14.15. ENVIRONMENTAL STATUS. (a) Except as described on Schedule 14.15 hereto, none of the Credit Parties or any of their respective Subsidiaries is in violation of any applicable Environmental Law, nor are any of the Credit Parties or any of their respective Subsidiaries under investigation or under review by any governmental agency or authority with respect to compliance therewith or with respect to the generation, use, treatment, storage or Release of any Hazardous Material in any case, except as to any such violation, investigation or review existing as of the Closing Date, which could reasonably be expected to have a Material Adverse Effect, involve criminal penalties or could expose the Agent or any Lender to civil or criminal penalties. (b) None of the Credit Parties nor any of their respective Subsidiaries has any liability or contingent or potential liability in connection with the past generation, use, treatment, storage, or Release of any Hazardous Material in any case, (i) which exists as of the Closing Date and which could reasonably be expected to cause cost and expense to Borrower and its Subsidiaries of in excess of $500,000 individually or in the aggregate, except as set forth on Schedule 14.15 hereto, or (ii) which does not exist on the Closing Date and which (x) was required to be disclosed to the Agent under Section 11.1(m) hereof and which has not been disclosed in writing to the Agent or (y) could reasonably be expected to have a Material Adverse Effect, involve criminal penalties or could expose the Agent or any Lender to civil or criminal penalties. (c) Except as described on Schedule 14.15 hereto, there is no Hazardous Material that may pose any material risk to safety, health, or the environment, or that is defined or regulated as a hazardous, toxic or dangerous waste or other substance under any Environmental Law on, under or about any property owned, leased or operated by any Credit Party or any Subsidiary thereof except any such Hazardous Material that is required in the ordinary course of Borrower's business as conducted as of the Closing Date and that is adequately protected or contained in accordance with applicable Environmental Laws, and there has been no Release of any such Hazardous Material on, under or about such property in any case, (i) which exists as of the Closing Date and which could reasonably be expected to cause cost and expense to Borrower and its Subsidiaries of in excess of $500,000 individually or in the aggregate, except as set forth on Schedule 14.15 hereto, or (ii) which does not exist on the Closing Date and which (x) was required to be disclosed to the Agent under Section 11.1(m) hereof and which has not been disclosed in writing to the Agent or (y) could reasonably be expected to have a Material Adverse Effect, involve criminal penalties or could expose the Agent or any Lender to civil or criminal penalties. 14.16. MEDICARE/MEDICAID AND THIRD PARTY PAYOR AGREEMENTS. Borrower has obtained and currently has in place valid and binding provider agreements or other written agreements necessary to enable Borrower to receive payment form Medicare/Medicaid Account Debtors, Third Party Payors or other governmental entities. All written agreements between Borrower and such Medicare/Medicaid Account Debtors, Third Party Payors and other governmental entities, and all provider numbers which Borrower is required to have in its own name in order to operate its business as presently conducted are listed on the attached Schedule 14.16. 14.17. VALIDITY OF RECEIVABLES. (a) Except with respect to Receivables, the aggregate amount of which would not constitute a material percentage of all Receivables at any given time and Receivables the failure of which to satisfy the following requirements, would not have a material adverse effect on the value of the Collateral, each Receivable existing on the Closing Date is, and each future Receivable will be, at the time of its creation, a genuine obligation enforceable against the account debtor thereof in accordance with its terms, and represents an undisputed and bona fide indebtedness owing to Borrower by an account debtor, without defense, setoff or counterclaim, free and clear of all Liens other than the security interest in favor of the Agent under the Security Documents; and no payment has been received with respect to any Receivable and no Receivable is subject to any credit or extension or agreement therefor. (b) No Receivable is evidenced by any note, draft, trade acceptance or other instrument for the payment of money. 14.18. COLLECTION AND CONCENTRATION ACCOUNTS; LOCK-BOX ACCOUNTS. (a) The names and addresses of all the banks holding one or more Collection Accounts, Lock-Box Accounts, and/or Pharmaceutical Collection Accounts, and the name and address of the bank holding the Concentration Account, together with the account numbers of the Collection Accounts, the Lock-Box Accounts, the Pharmaceutical Collection Accounts, and the Concentration Account at such banks, are specified in Schedule 14.18(a) hereto, as amended from time to time with the prior written consent of the Agent. (b) The names and addresses of all the banks holding one or more Special Accounts, together with the account numbers of such Special Accounts at such banks, are specified in Schedule 14.18(b) hereto, as amended from time to time with the prior written consent of the Agent. 14.19. PARENT. Parent neither owns nor controls access to (a) inventory or accounts or (b) books or records relating to Collateral of Borrower. 14.20. VALIDITY OF PHARMACEUTICAL RECEIVABLES. (a) Except with respect to Pharmaceutical Receivables, the aggregate amount of which would not constitute a material percentage of all Pharmaceutical Receivables at any given time and Pharmaceutical Receivables the failure of which to satisfy the following requirements, would not have a material adverse effect on the value of the Collateral, each Pharmaceutical Receivable existing at the Closing Date is, and each future Pharmaceutical Receivable will be, at the time of its creation, a genuine obligation enforceable against the account debtor thereof in accordance with its terms, and represents an undisputed and bona fide indebtedness owing to borrower by an account debtor, without defense, setoff or counterclaim, free and clear of all Liens other than the security interest in favor of the Agent under the Security Documents; and no payment has been received with respect to any Pharmaceutical Receivable and no Pharmaceutical Receivable is subject to any credit or extension or agreement therefor. (b) No Pharmaceutical Receivable is evidenced by any note, draft, trade acceptance or other instrument for the payment of money. SECTION 15. MISCELLANEOUS. 15.1. COLLECTION COSTS. If an Event of Default occurs, the Credit Parties, jointly and severally, shall pay all court costs and costs of collection, including, without limitation, reasonable fees, expenses and disbursements of counsel employed in connection with any and all collection efforts. The attorney's fees arising from such services, including those of any appellate proceedings, and all reasonable out-of-pocket expenses, costs, charges and other fees incurred by such counsel in any way or with respect to or arising out of or in connection with or relating to any of the events or actions described in this Section 15.1 shall be payable by the Credit Parties to the Agent or the Lenders, as the case may be, on demand, and shall be additional obligations under this Agreement. Without limiting the generality of the foregoing, such expenses, costs, charges and fees may include: recording costs, appraisal costs, paralegal fees, costs and expenses; accountants' fees, costs and expenses; court costs and expenses; photocopying and duplicating expenses; court reporter fees, costs and expenses; long distance telephone charges; air express charges; telegram charges; telecopier charges; secretarial overtime charges; and expenses for travel, lodging and food paid or incurred in connection with the performance of such legal services. 15.2. AMENDMENT, MODIFICATION AND WAIVER. (a) No amendment, modification or waiver of any provision of the Loan Documents and no consent by the Agent or the Lenders to any departure therefrom by any of the Credit Parties shall be effective unless such amendment, modification or waiver shall be in writing and signed by a duly authorized officer of the appropriate Credit Party, the Agent, the Lenders or the Required Lenders, as the case may be (as more fully described below), and the same shall then be effective only for the period and on the conditions and for the specific instances and purposes specified in such writing. (b) No notice to or demand on any of the Credit Parties in any case shall entitle any of the Credit Parties to any other or further notice or demand in similar or other circumstances. (c) Any term or provision of any Loan Document may be amended or modified and the observance of any provision of any Loan Document may be waived with the written consent of the Credit Parties being a party to such Loan Document and the Required Lenders; provided, however, that no such amendment, modification or waiver shall, without the prior written consent of the Agent, amend or waive any of the provisions of Section 4.8, 5.7, 15.13, 15.14 or 15.15 hereof, or otherwise change any of the rights or obligations of the Agent under any of the Loan Documents; provided, further, that no amendment, modification or waiver of any of the provisions of Section 6, 15.14, 15.15 or 15.18 hereof shall be effective without the prior written consent of the Agent and, in the case of any amendment to any of the provisions of (x) Section 6 or Section 15.18 hereof or (y) any other provision relating to Letters of Credit which adversely affects any Issuing Lender, with the prior written consent of such Issuing Lender; provided, further, that no such amendment, modification or waiver shall, without the prior written consent of all of the Lenders: (i) extend the due date of the principal of or interest on the Revolving Loan, the Term Loan, or any other amount payable hereunder, or portion thereof, change the rate of interest on the Revolving Loan, the Term Loan, or portion thereof, or reduce the amount of any principal payable on the Revolving Loan, the Term Loan or portion thereof, or reduce the fees payable to the Lenders hereunder or extend the time of payment thereof; (ii) substitute, discharge, release or surrender any material portion of the Collateral or use any portion of the Collateral to secure any Indebtedness for Borrowed Money other than Lender Debt, except as permitted in such Loan Document (it being understood that a release of Collateral under circumstances where the Net Proceeds of the disposition of such Collateral are applied to Lender Debt shall not require unanimous consent, but shall be governed under Section 12.5 and Section 5.1(b) hereof) or amend the terms of any Guaranty or release any such Guaranty; (iii) except as provided in Section 15.14 hereof, change the dollar amount or percentage of either the Revolving Commitment or the Term Commitment of any Lender; (iv) modify any provision of this Section 15.2 or any other provision which expressly requires the consent of all Lenders; (v) amend the definition of "Required Lenders"; (vi) amend Section 13.5 hereof; or (vii) amend or modify the definition of "Borrowing Base" to increase the percentage advance rates against the Net Amount of Eligible Inventory, the Net Amount of Eligible Pharmaceutical Inventory, the Net Amount of Eligible Coupons, or the Net Amount of Eligible Pharmaceutical Receivables. The Agent, the Lenders other than NBC, and the Credit Parties hereby agree to cooperate with NBC to effectuate the provisions of Section 15.14 hereof, including, without limitation, with respect to the execution of one or more amendments of this Agreement or any other Loan Document. 15.3. NEW YORK LAW. THIS AGREEMENT AND THE NOTES SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO THE CONFLICT OF LAW PRINCIPLES THEREOF. 15.4. NOTICES. All notices, requests, demands or other communications provided for herein shall be in writing (unless otherwise expressly provided herein) and shall be deemed to have been given (a) if by registered or certified mail, return receipt requested, four (4) Business Days following the date when sent, (b) if by telex, when sent and answer-back received, (c) if by overnight courier, when received, (d) if by telecopier, when sent, or (e) if personally delivered or delivered by messenger, when receipted for, in each case, addressed to the appropriate Credit Party or to the Agent or any Lender, at its respective office under its name on the signature pages of this Agreement and to the attention of the Person so designated, or to such Person or address as any party hereto shall designate to the other from time to time in writing forwarded in like manner. 15.5. FEES AND EXPENSES. Whether or not any Advances or other financial accommodations are made hereunder, Borrower shall pay all expenses paid or incurred by the Agent in connection with the transactions contemplated hereunder including but not limited to appraisal fees, syndication fees, title insurance fees, audit fees, recording fees, computer fees, duplication fees, telephone and telecopier fees, travel and transportation fees, search and filing fees, and the reasonable fees and expenses of Hughes & Luce, L.L.P., special counsel to the Agent, and all local counsel to the Agent. Borrower shall also pay all reasonable costs and expenses paid or incurred by the Agent, at any time, or any Lender, after the occurrence of a Default, in connection with any waivers, amendments, modifications, extensions, renewals, internal assessments, renegotiations or "work-outs" of this Agreement or any instrument or document delivered in connection herewith and any consents or approvals provided hereunder or otherwise requested by any Credit Party. Without limiting the generality of the foregoing, such expenses, costs, charges and fees may include: recording costs, appraisal costs, paralegal fees, costs and expenses; accountants' or other consultants' fees, costs and expenses; photocopying and duplicating expenses; long distance telephone charges; air express charges; telegram charges; telecopier charges; secretarial overtime charges; and expenses for travel, lodging and food paid or incurred in connection with the performance of such legal services. 15.6. STAMP OR OTHER TAX. Should any stamp or excise tax become payable in respect of this Agreement, any Note, any other Loan Document, the Lender Debt, the Collateral or any modification hereof or thereof, each of the Credit Parties shall pay, the liability of which is joint and several, the same (including interest and penalties, if any) and shall hold the Lenders and the Agent harmless with respect thereto. 15.7. WAIVER OF JURY TRIAL AND SET-OFF. IN ANY LITIGATION IN ANY COURT WITH RESPECT TO, IN CONNECTION WITH, OR ARISING OUT OF THIS AGREEMENT, ANY OF THE ADVANCES, ANY OF THE NOTES OR OTHER LOAN DOCUMENTS, THE COLLATERAL, OR ANY INSTRUMENT OR DOCUMENT DELIVERED PURSUANT TO THIS AGREEMENT, OR THE VALIDITY, PROTECTION, INTERPRETATION, COLLECTION OR ENFORCEMENT THEREOF, OR ANY OTHER CLAIM OR DISPUTE HOWSOEVER ARISING, BETWEEN ANY CREDIT PARTIES AND THE LENDERS OR THE AGENT, EACH OF THE CREDIT PARTIES HEREBY, TO THE FULLEST EXTENT IT MAY EFFECTIVELY DO SO, (A) WAIVES THE RIGHT TO INTERPOSE ANY SETOFF, RECOUPMENT, COUNTERCLAIM OR CROSS-CLAIM IN CONNECTION WITH ANY SUCH LITIGATION, IRRESPECTIVE OF THE NATURE OF SUCH SETOFF, RECOUPMENT, COUNTERCLAIM OR CROSS-CLAIM, UNLESS SUCH SETOFF, RECOUPMENT, COUNTERCLAIM OR CROSS-CLAIM COULD NOT, BY REASON OF ANY APPLICABLE FEDERAL OR STATE PROCEDURAL LAWS, BE INTERPOSED, PLEADED OR ALLEGED IN ANY OTHER ACTION AND (B) WAIVES TRIAL BY JURY IN CONNECTION WITH ANY SUCH LITIGATION. EACH OF THE CREDIT PARTIES AGREES THAT THIS SECTION 15.7 IS A SPECIFIC AND MATERIAL ASPECT OF THIS AGREEMENT AND ACKNOWLEDGES THAT THE LENDERS WOULD NOT EXTEND TO BORROWER ANY FINANCIAL ACCOMMODATIONS HEREUNDER IF THIS SECTION 15.7 WERE NOT PART OF THIS AGREEMENT. 15.8. TERMINATION OF AGREEMENT. (a) Subject to the Agent's and Borrower's rights to terminate this Agreement earlier as set forth below, Lender's commitment to make Advances hereunder shall be for an original period extending from the Closing Date through the Maturity Date. (b) The Agent on behalf of the Lenders shall have the right to, upon the direction of the Required Lenders, terminate this Agreement immediately, at any time, during the continuance of an Event of Default under Section 13 hereof. (c) Borrower may terminate this Agreement at any time when no Letters of Credit are outstanding upon not less than five (5) days' prior Written Notice (which shall be irrevocable) to the Agent (which shall promptly notify each Lender thereof in writing or by telephone confirming immediately in writing) of termination and by prepaying the Revolving Loan in whole, terminating the Revolving Credit Facility Commitment and paying all other amounts payable hereunder and all applicable penalties, fees, charges, premiums and costs, all as provided hereunder, including specifically, but without limitation, the fees payable under Section 5.6 hereof. (d) The termination of this Agreement shall not affect any rights of the Credit Parties, the Lenders or the Agent or any obligation of any of the Credit Parties, the Lenders or the Agent to the others, arising on or prior to the effective date of such termination, and the provisions hereof shall continue to be fully operative until all Lender Debt and obligations of the Credit Parties and their Subsidiaries hereunder incurred on or prior to such termination have been paid and performed in full. (e) Upon the giving of notice of termination of this Agreement, all Lender Debt shall be due and payable on the date of termination specified in such notice. (f) The Liens and rights granted to the Agent on behalf of the Agent and the Lenders hereunder shall continue in full force and effect, notwithstanding the termination of this Agreement, until all of the Lender Debt has been indefeasibly paid in full. (g) All representations, warranties, covenants, waivers and agreements contained herein shall survive termination hereof unless otherwise provided. (h) Notwithstanding the foregoing, if after receipt of any payment of all or any part of the Lender Debt, the Agent or any Lender is for any reason compelled to surrender such payment to any Person or entity because such payment is determined to be void or voidable as a preference, an impermissible setoff, a diversion of trust funds or for any other reason, this Agreement shall continue in full force, and the Credit Parties, as appropriate, shall be liable to, and shall indemnify and hold such Lender or the Agent harmless for, the amount of such payment surrendered until such Lender or the Agent, as the case may be, shall have been finally and irrevocably paid in full. The provisions of the foregoing sentence shall be and remain effective notwithstanding any contrary action which may have been taken by the Lenders or the Agent in reliance upon such payment, and any such contrary action so taken shall be without prejudice to the Lenders' or the Agent's rights under this Agreement and shall be deemed to have been conditioned upon such payment having become final and irrevocable. (i) All indemnities provided for under this Agreement and the other Loan Documents, including, without limitation, under Sections 4.8 and 15.5, shall survive the termination of this Agreement and the payment in full of the Lender Debt. 15.9. CAPTIONS. The captions of the various sections and paragraphs of this Agreement have been inserted only for the purposes of convenience; such captions are not a part of this Agreement and shall not be deemed in any manner to modify, explain, enlarge or restrict any of the provisions of this Agreement. 15.10. LIEN; SETOFF BY LENDERS. Each of the Credit Parties hereby grants to each Lender and the Agent a continuing Lien for all Lender Debt upon any and all monies, securities and other property of such Credit Party and the proceeds thereof, now or hereafter held or received by, or in transit to, such Lender or the Agent from or for such Credit Party, whether for safekeeping, custody, pledge, transmission, collection or otherwise, and also upon any and all deposits (general or special) and credits of such Credit Party with, and any and all claims of such Credit Party against, any Lender or the Agent, at any time existing (which shall constitute part of the Collateral). Upon the occurrence and during the continuance of an Event of Default, each Lender and the Agent is hereby authorized at any time and from time to time, without notice to such Credit Party, to setoff, appropriate and apply any or all items hereinabove referred to against all Lender Debt. After any such setoff by the Agent or any Lender, the Agent or such Lender shall notify the Credit Party against which it setoff of the exercise by it of such right of setoff, provided that the failure of the Agent or such Lender to so notify such Credit Party shall not affect the validity of such setoff or create a cause of action against the Agent or such Lender. 15.11. PAYMENT DUE ON NON-BUSINESS DAY. Whenever any payment to be made hereunder or under any other Loan Document or on the Revolving Loan shall be stated to be due and payable, or whenever the last day of any Interest Period would otherwise occur, on a day which is not a Business Day, such payment shall be made and the last day of such Interest Period shall occur on the next succeeding Business Day and such extension of time shall in such case be included in computing interest on such payment; provided, however, if such extension would cause a payment of a Eurodollar Advance to be made, or the last day of such Interest Period for a Eurodollar Advance to occur, in the next following calendar month, such payment shall be made and the last day of such Interest Period shall occur on the next preceding Business Day. 15.12. SERVICE OF PROCESS. Each of the Credit Parties hereby irrevocably consents to the jurisdiction of the courts of the State of New York and of any Federal Court located in the City of New York in connection with any action or proceeding arising out of or relating to this Agreement, any Guaranty, any of the Security Documents, all or any of the Lender Debt, the Collateral, all or any of the Notes, any other Loan Document or any document or instrument delivered pursuant to this Agreement. In any such litigation, each of the Credit Parties waives, to the fullest extent it may effectively do so, personal service of any summons, complaint or other process and agrees that the service thereof may be made by certified or registered mail directed to any Credit Party at its address set forth in Section 15.4 hereof. Within thirty (30) days after such mailing, such Credit Party shall appear, answer or move in respect of such summons, complaint or other process. Should such Credit Party fail to appear or answer within said thirty (30)-day period, such Credit Party shall be deemed in default and judgment may be entered by the Agent on behalf of the Lenders against such Credit Party for the amount as demanded in any summons, complaint or other process so served. Each of the Credit Parties hereby waives, to the fullest extent it may effectively do so, the defenses of forum non conveniens and improper venue. 15.13. NATIONAL BANK OF CANADA, AS AGENT. (a) Each Lender hereby irrevocably designates and appoints NBC as the agent of such Lender under each of the Loan Documents in which NBC is named as agent, and each such Lender hereby irrevocably authorizes NBC, as the agent for such Lender, to take such action on behalf of each Lender under the provisions of the Loan Documents and to exercise such powers and perform such duties as are expressly delegated to the Agent by the terms of the Loan Documents, together with such other powers as are reasonably incidental thereto. Notwithstanding any provision to the contrary elsewhere in the LoanDocuments, the Agent shall not have any duties or responsibilities except those expressly set forth in the Loan Documents, nor any fiduciary relationship with any Lender, and no implied covenants, functions, responsibilities, duties, obligations or liabilities shall be read into the Loan Documents or otherwise exist against the Agent. (b) The Agent may execute any of its duties under the Loan Documents by or through agents or attorneys-in-fact and shall be entitled to advice of counsel concerning all matters pertaining to such duties. The Agent shall not be responsible for the negligence or misconduct of any agents or attorneys-in-fact selected by it with reasonable care. (c) Neither the Agent nor any of its officers, directors, employees, agents, attorneys-in-fact or Affiliates shall be (i) liable for any action lawfully taken or omitted to be taken by it or such Person under or in connection with the Loan Documents (except for its or such Person's own gross negligence or willful misconduct), or (ii) responsible in any manner to any Lender for any recitals, statements, representations or warranties made by any of the Credit Parties or any of their respective Subsidiaries or any officer thereof contained in the Loan Documents or in any certificate, report, statement or other document referred to or provided for in, or received by the Agent under or in connection with the Loan Documents, or for the value, validity, effectiveness, genuineness, enforceability or sufficiency of the Loan Documents or for any failure of any of the Credit Parties or any of their respective Subsidiaries to perform its obligations under the Loan Documents. The Agent shall not be under any obligation to any Lender to ascertain or to inquire as to the observance or performance of any of the agreements contained in, or conditions of, the Loan Documents, or to inspect the properties, books or records of any of the Credit Parties or any of their respective Subsidiaries. (d) The Agent shall be entitled to rely, and shall be fully protected in relying, upon any Note, writing, resolution, notice, consent, certificate, affidavit, letter, cablegram, telegram, telecopy, telex or teletype message, statement, order or other document or conversation reasonably believed by it to be genuine and correct and to have been signed, sent or made by the proper Person or Persons and upon advice and statements of legal counsel (including, without limitation, counsel to the Credit Parties), independent accountants and other experts selected by the Agent. The Agent may deem and treat the payee of any Note as the owner thereof for all purposes unless a Written Notice of assignment, negotiation or transfer thereof shall have been filed with the Agent. (e) The Agent shall be fully justified in failing or refusing to take any action under the Loan Documents unless it shall first receive such advice or concurrence of the Required Lenders as it deems appropriate or it shall first be indemnified to its satisfaction by the Lenders against any and all liability and expense which may be incurred by it by reason of taking or continuing to take any such action. The Agent shall in all cases be fully protected in acting, or in refraining from acting, under the Loan Documents in accordance with a request of the Required Lenders (or where required by the terms of this Agreement, the Lenders), and such request and any action taken or failure to act pursuant thereto shall be binding upon all the Lenders and all future holders of the Notes. (f) The Agent shall not be deemed to have knowledge or notice of the occurrence of any Default or Event of Default hereunder unless the Agent shall have received notice from a Lender or one of the Credit Parties referring to this Agreement, describing such Default or Event of Default and stating that such notice is a "notice of default". In the event that the Agent receives such a notice, or if the Agent has actual knowledge of the occurrence of any Default or Event of Default, the Agent shall give prompt notice thereof to the Lenders. The Agent shall take such action with respect to such Default or Event of Default as shall be reasonably directed by the Required Lenders; provided that, unless and until the Agent shall have received such directions, the Agent may (but shall not be obligated to) take such action, or refrain from taking such action, with respect to such Default or Event of Default as it shall deem advisable in the best interests of the Lenders. (g) Each Lender expressly acknowledges that neither the Agent nor any of its officers, directors, employees, agents, attorneys-in-fact or Affiliates has made any representations or warranties to it and that no act by the Agent hereinafter taken, including any review of the affairs of any of the Credit Parties or any of their respective Subsidiaries, shall be deemed to constitute any representation or warranty by the Agent to any Lender. Each Lender represents to the Agent that it has, independently and without reliance upon the Agent or any other Lender, and based on such documents and information as it has deemed appropriate, made its own appraisal of and investigation into the business, operations, property, financial and other condition and creditworthiness of each of the Credit Parties and their respective Subsidiaries, and made its own decision to make its loans hereunder and enter into this Agreement. Each Lender also represents that it will, independently and without reliance upon the Agent or any other Lender, and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit analysis, appraisals and decisions in taking or not taking action under this Agreement, and to make such investigation as it deems necessary to inform itself as to the business, operations, liabilities, assets, properties and condition (financial or otherwise) and creditworthiness of each of the Credit Parties and their respective Subsidiaries. Except for notices, reports and other documents expressly required to be furnished to the Lenders by the Agent hereunder, the Agent shall not have any duty or responsibility to provide any Lender with any credit or other information concerning the business, operations, property, financial and other condition or creditworthiness of any of the Credit Parties or any of their respective Subsidiaries which may come into the possession of the Agent or any of its officers, directors, employees, agents, attorneys-in-fact or Affiliates. (h) Each Lender agrees to indemnify the Agent in its capacity as such (to the extent not reimbursed by the Credit Parties and without limiting the obligation of the Credit Parties to do so), ratably according to such Lender's pro rata share of the Revolving Credit Facility Commitment and the Term Loan Facility Commitment from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind whatsoever which may at any time (including without limitation at any time following the payment of the Notes) be imposed on, incurred by or asserted against the Agent in any way relating to or arising out of the Loan Documents or the transactions contemplated thereby or any action taken or omitted by the Agent under or in connection with any of the foregoing; provided that no Lender shall be liable for the payment of any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements resulting from the Agent's gross negligence or willful misconduct. The agreements in this Section 15.13(h) shall survive the payment of the Notes and the Lender Debt. (i) The Agent and its Affiliates may make loans to, accept deposits from and generally engage in any kind of business with the Credit Parties as though the Agent were not the Agent hereunder. With respect to its pro rata share of the Advances made or renewed by it and any Note issued to it, the Agent shall have the same rights and powers under this Agreement as any Lender and may exercise the same as though it were not the Agent. The terms "Lender" and "Lenders" shall include the Agent in its individual capacity. (j) The Agent may resign as Agent upon thirty (30) days' Written Notice to the Lenders. In the event that the Agent shall enter receivership, then the Lenders (other than the Lender which is an acting as Agent, if applicable) may by unanimous consent of such Lenders, remove the Agent under this Agreement. If the Agent shall give a notice of its intention to resign as Agent under this Agreement or the Agent shall be removed, then the Required Lenders shall, within such thirty (30)-day period, appoint a successor agent for the Lenders, whereupon such successor agent shall succeed to the rights, powers and duties of the Agent, and the term "Agent" shall mean such successor agent effective upon its appointment, and the former Agent's rights, powers and duties as Agent shall be terminated, without any other or further act or deed on the part of such former Agent or any of the parties to this Agreement or any holders of the Notes. After any retiring Agent's resignation hereunder as Agent or any Agent's removal, the provisions of this Section 15.13 shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Agent under this Agreement. (k) Each Lender agrees that (i) all obligations of the Credit Parties to each Lender under this Agreement and under the Notes rank pari passu in all respects with each other, and (ii) if any Lender shall, through the exercise of a right of banker's lien, setoff, counterclaim or otherwise, obtain payment with respect to any portion of the Revolving Loan or the Term Loan which results in its receiving more than its pro rata share of the aggregate payments in respect of the Revolving Loan or the Term Loan, as the case may be, then (A) such Lender shall be deemed to have simultaneously purchased from each of the other Lenders a share in the portion of the Revolving Loan or the Term Loan advanced by the other Lenders so that the portions of the Revolving Loan and the Term Loan advanced by each Lender shall be pro rata and (B) such other adjustments shall be made from time to time as shall be equitable to ensure that all Lenders share such payments ratably. If all or any portion of any such excess payment is thereafter recovered from the Lender which received the same, the purchase provided in this Section 15.13(k) shall be deemed to have been rescinded to the extent of such recovery, without interest. Each of the Credit Parties expressly consents to the foregoing arrangements and agrees that each Lender so purchasing a portion of the Revolving Loan or the Term Loan advanced by another Lender may exercise all rights of payment (including, without limitation, all rights of setoff, banker's lien or counterclaim) with respect to such portion as fully as if such Lender were the direct holder of such portion. (l) The Agent agrees that it shall promptly deliver to each Lender copies of all notices, demands, statements and communications which the Agent receives from or gives to the Credit Parties, except for routine notices of payments due under the Loan Documents and other miscellaneous notices, demands, statements and communications, which are not material to the interests of any Lender. The Agent shall have no liability to any Lender, nor shall a cause of action arise against the Agent, as a result of the failure of the Agent to deliver to any Lender any such notice, demand, statement or communication. (m) The Agent shall endeavor to exercise the same care in administering the Loan Documents as it exercises with respect to similar transactions in which it is involved and where no other co-lenders or participants are involved; provided that the liability of the Agent for failing to do so shall be limited as provided in the preceding paragraphs of this Section 15.13. (n) (i) If at any time or times it shall be necessary or prudent in order to conform to any law of any jurisdiction in which any of the Collateral shall be located, or the Agent shall be advised by counsel, that it is so necessary or prudent in the interest of the Lenders, or the Agent shall deem it necessary for its own protection in the performance of its duties hereunder, the Agent and (to the extent required by the Agent) each Credit Party shall execute and deliver all instruments and agreements reasonably necessary or proper to constitute another bank or trust company, or one or more individuals approved by the Agent (to the extent necessary or requested by the Agent) (each an "Approved Delegate"), either to act as co-agent or co-agents or trustee of all or any of the Collateral, jointly with the Agent originally named herein or any successor, or to act as separate agent or agents or trustee of any such Collateral. In the event that any of the Credit Parties shall not have joined in the execution of such instruments or agreements with any Approved Delegate within thirty (30) Business Days after the receipt of a written request from the Agent to do so, or in case an Event of Default shall have occurred and be continuing, each of the Credit Parties hereby irrevocably appoints the Agent as its agent and attorney to act for it under the foregoing provisions of this Section 15.13(n) in such contingency. (ii) Every separate agent and every co-agent and every trustee, other than any agent which may be appointed as successor to the Agent, shall, to the extent permitted by applicable law, be appointed to act and be such, subject to the following provisions and conditions, namely: (A) except as otherwise provided herein, all rights, remedies, powers, duties and obligations conferred upon, reserved or imposed upon the Agent in respect of the custody, control and management of moneys, paper or securities shall be exercised solely by the Agent hereunder; (B) all rights, remedies, powers, duties and obligations conferred upon, reserved to or imposed upon the Agent hereunder shall be conferred, reserved or imposed and exercised or performed by the Agent except to the extent that the instrument appointing such separate agent or separate agents or co-agent or co-agents or trustee shall otherwise provide, and except to the extent that under any law of any jurisdiction in which any particular act or acts are to be performed, the Agent shall be incompetent or unqualified to perform such act or acts, in which event such rights, remedies, powers, duties and obligations shall be exercised and performed by such separate agents or co-agent or co-agents to the extent specifically directed in writing by the Agent; (C) no power given hereby to, or which it is provided hereby may be exercised by, any such separate agent or separate agents or co-agent or co-agents or trustee shall be exercised hereunder by such separate agent or separate agents or co-agent or co-agents or trustee except jointly with, or with the consent in writing of, the Agent, anything herein contained to the contrary notwithstanding; (D) no separate agent or co-agent or trustee constituted under this Section 15.13(n) shall be personally liable by reason of any act or omission of any other agent, separate agent, co-agent or trustee hereunder; and (E) the Agent, at any time by an instrument in writing, executed by it, may accept the resignation of or remove any such separate agent or co-agent or trustee, and in that case, by an instrument in writing executed by the Agent and the Credit Parties (to the extent necessary or requested by the Agent) jointly, may appoint a successor to such separate agent or co-agent or trustee, as the case may be, anything herein contained to the contrary notwithstanding. In the event that any of the Credit Parties shall not have joined in the execution of any such instrument with a Person or entity within ten (10) days after the receipt of a written request from the Agent to do so, or in the case an Event of Default shall have occurred and be continuing, the Agent, acting alone, may appoint a successor and may execute any instrument in connection therewith, and the Credit Parties hereby irrevocably appoint the Agent its agent and attorney to act for it in such connection in either or such contingencies. 15.14. SALE, ASSIGNMENT OR TRANSFER TO ADDITIONAL LENDERS. (a) Without limiting any additional rights which NBC may have as a Lender under Section 15.13 hereof, NBC may: (i) in its individual capacity, from time to time after consultation with Borrower, sell, assign or transfer one or more portions of its pro rata share of any Revolving Credit Advance, Term Loan Advance, the Revolving Credit Facility Commitment or the Term Loan Facility Commitment to any one or more banks or other financial institutions of its choosing, in its sole discretion (the "Additional Lenders") without the consent of any other party; provided, however, if Heller or IBJ is a Lender at such time hereunder, NBC must obtain the consent of Heller and IBJ, respectively, to any sale, assignment or transfer by NBC of a portion of its pro rata share of the Revolving Credit Facility Commitment or the Term Loan Facility Commitment, as the case may be, if, after giving effect thereto, (A) with regard to Heller, NBC's pro rata share of the Revolving Credit Facility Commitment or the Term Loan Facility Commitment would be less than Heller's pro rata share of the Revolving Credit Facility Commitment or the Term Loan Facility Commitment, as the case may be, and (B) with regard to IBJ, NBC's pro rata share of the Revolving Credit Facility Commitment or the Term Loan Facility Commitment would be less than IBJ's pro rata share of the Revolving Credit Facility Commitment or the Term Loan Facility Commitment, as the case may be; and (ii) in its capacity as Agent and in accordance with Section 15.2 hereof, execute one or more amendments of this Agreement or any other Loan Document so that each Additional Lender shall be a named party thereof with all of the rights and obligations of any Lender hereunder (to the extent sold, assigned or transferred by NBC). (b) Each Credit Party hereby agrees that it shall execute and deliver, at the request of NBC: (i) if part of NBC's pro rata share of any Revolving Loan, Term Loan, the Revolving Credit Facility Commitment or the Term Loan Facility Commitment is sold, assigned or transferred to any Lender or Additional Lender, to the extent requested by NBC, one or more Notes to the order of NBC and such Lender and/or Additional Lender to evidence the portions of the Revolving Loan and/or the Revolving Credit Facility Commitment or the Term Loan and/or the Term Loan Facility Commitment retained and sold; and (ii) any amendment to any Loan Document to effectuate this Section 15.14 (without limiting the right of the Agent as set forth in Section 15.2 to execute an amendment in connection with this Section 15.14). The terms "sale," "assignment" or "transfer" shall include a novation or assumption by any Additional Lender of all or any portion of the obligations and commitments of NBC hereunder. 15.15. BENEFIT OF AGREEMENT. (a) This Agreement shall be binding upon and inure to the benefit of the parties hereto, and their respective successors and assigns, except that the obligation of the Lenders to make Advances and other financial accommodations hereunder shall not inure to the benefit of any successors and assigns of Borrower. (b) No Credit Party may assign or transfer any of its interest hereunder without the prior written consent of the Lenders. Each of the Lenders may make, carry or transfer its pro rata share of the Revolving Loan or the Term Loan at, to or for the account of any of its branch offices or the office of one or more of its Affiliates. (c) Each Lender may, with the prior written consent of the Agent, which consent shall not be unreasonably withheld, and after consultation with Borrower, assign its rights and delegate its obligations under this Agreement and may, with the prior written consent of the Agent, assign, sell, or without the consent of the Agent grant participation in, all or any part of its pro rata share of the Revolving Loan, its Revolving Commitment, the Term Loan, its Term Commitment, or any other interest herein or in its Notes to another bank or other entity, in which event: (i) in the case of an assignment, upon notice thereof by such Lender to Borrower, the assignee shall have, to the extent of such assignment (unless otherwise provided therein), the same rights and benefits as it would have if it were such Lender hereunder and the holder of a Note, and (ii) in the case of a participation, the participant shall not have any rights under this Agreement or any Note or any other Loan Document (the participant's rights against such Lender in respect of such participation to be those set forth in the agreement executed by such Lender in favor of the participant relating thereto which agreement shall not, in any event, grant to the participant the right of consent as to any matter under the Loan Documents other than those which require the consent of all Lenders). (d) Each Lender may furnish any information concerning the Credit Parties and their respective Subsidiaries in the possession of such Lender from time to time to assignees and participants (including prospective assignees and participants). (e) In the event that any Lender shall assign or sell its Notes, such Lender shall at the time of such assignment or sale give Written Notice to the Agent of the name and address of the assignee (including the name of the account officer if applicable), and shall make all endorsements to the grid schedule attached thereto to make the information contained therein accurate. (f) Each Credit Party hereby agrees that it shall execute and deliver, at the request of: any Lender if part of such Lender's pro rata share of any Revolving Loan or Term Loan and/or the Revolving Credit Facility Commitment or the Term Loan Facility Commitment is sold, assigned or transferred, to the extent requested by such Lender, one or more Notes to the order of such Lender and/or purchasers, assignees or transferees to evidence the portions of the Revolving Loan or Term Loan and/or the Revolving Credit Facility Commitment or the Term Loan Facility Commitment retained and sold. 15.16. COUNTERPARTS; FACSIMILE SIGNATURE. (a) This Agreement may be executed by the parties hereto individually or in any combination, in one or more counterparts, each of which shall be an original and all of which shall together constitute one and the same agreement. (b) Delivery of an executed counterpart of a signature page to this Agreement by telecopier shall be effective as delivery of a manually executed counterpart of this Agreement. 15.17. INVALIDITY. Whenever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under all applicable laws and regulations. If, however, any provision of this Agreement shall be prohibited by or invalid under any such law or regulation, it shall be deemed modified to conform to the minimum requirements of such law or regulation, or, if for any reason it is not deemed so modified, it shall be ineffective and invalid only to the extent of such prohibition or invalidity without the remainder thereof or any of the remaining provisions of this Agreement being prohibited or invalid. 15.18. LETTER OF CREDIT PARTICIPATIONS AND CERTAIN PAYMENTS. (a) Each Lender agrees that upon any acceleration of the Lender Debt as provided in Section 13 hereof or upon the occurrence of any Event of Default under clause (f) or (g) of Section 13.1 hereof, each such Lender shall and hereby does, without any further action, take as of the date of issuance of each Letter of Credit an undivided participating interest from each Issuing Lender in all Letters of Credit outstanding at such time and the Letter of Credit Agreements relating thereto in a percentage equal to such Lender's pro rata share of the Revolving Credit Facility Commitment. Each Lender shall hold the relevant Issuing Lender harmless and indemnify such Issuing Lender for such Lender's pro rata share of any drawing under any Letter of Credit in which it has taken such an undivided participating interest under this Section 15.18. (b) The obligation of each Lender to make payments to an Issuing Lender with respect to any Letter of Credit after having taken a participation therein as provided above shall be irrevocable and shall not be subject to any qualification or exception whatsoever and shall be made in accordance with the terms and conditions of this Agreement under all circumstances, including without limitation any of the following circumstances: (i) any lack of validity or enforceability of this Agreement, any of the Loan Documents, and all other documents and instruments executed by any of the Credit Parties or any Affiliate thereof and delivered to the Agent, NBC, the Issuing Lender of a Letter of Credit or any other Lender in connection with or related to the Revolving Loan, the Letters of Credit or the Collateral, together with any and all amendments, extensions, renewals and modifications thereof; (ii) the existence of any claim, set-off, defense or other right which Borrower may have at any time against NBC or any claim, set-off, defense or other right which any Credit Party may have at any time against the beneficiary named in any Letter of Credit or any transferee of any Letter of Credit (or any person for whom any such transferee may be acting), the Agent, NBC, the Issuing Lender of a Letter of Credit, any other Lender or any other person, whether in connection with this Agreement, a Letter of Credit, the transactions contemplated herein or any unrelated transactions (including any underlying transactions between any Credit Party or any Subsidiary thereof and the beneficiary named in a Letter of Credit); (iii) any draft, certificate or any other document presented under any Letter of Credit proving to be forged, fraudulent, invalid or insufficient in any respect or any statement therein being untrue or inaccurate in any respect; (iv) the surrender or impairment of any security for the performance or observance of any of the terms of any of this Agreement or any of the Loan Documents; or (v) the occurrence of any Default or Event of Default. 15.19. DISCLOSURE OF FINANCIAL INFORMATION. Each Lender shall hold all non-public information obtained pursuant to the requirements of this Agreement which has been identified as such by Borrower in writing in accordance with its customary procedure for handling confidential information of this nature and in accordance with safe and sound banking practices; provided, however, that the Agent and each Lender are each hereby authorized to deliver a copy of any financial statement or any other information relating to the business, operations or financial condition of Borrower and each of its Subsidiaries which may be furnished to it hereunder or otherwise, to any other Lender, any court, regulatory body or agency having jurisdiction over the Agent or such Lender, to any Person which shall, or shall have any right or obligation to, succeed to all or any part of the Agent's or such Lender's interest in any of the Advances, the Letters of Credit, this Agreement and any Collateral or to any actual or prospective participant therein or assignee thereof. 15.20. AMENDMENT AND RESTATEMENT. This Agreement is given in amendment, modification, supplementation, restatement and renewal (and not in extinguishment or satisfaction) of the Amended and Restated Revolving Credit Agreement dated as of April 21, 1995, made by and among Borrower, Parent, Heller and NBC, individually and as agent for Heller and NBC, as previously amended by that certain Ratification and Amendment Agreement dated as of May 10, 1996. All rights, titles, liens, security interests and priorities under the Existing Agreement are preserved, maintained and carried forward under this Agreement, subject, however, to the terms of this Agreement. [REST OF PAGE INTENTIONALLY LEFT BLANK] IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective officers thereunto duly authorized as of the day and year first above written. HOMELAND STORES, INC. By: Larry W. Kordisch, Executive Vice President-Finance Address for Notice: 2601 Northwest Expressway Oklahoma City, Oklahoma 73112 Attention: Chief Financial Officer Telecopier No.: (405) 879-4614 HOMELAND HOLDING CORPORATION By: Larry W. Kordisch, Executive Vice President-Finance Address for Notice: 2601 Northwest Expressway Oklahoma City, Oklahoma 73112 Attention: Chief Financial Officer Telecopier No.: (405) 879-4614 NATIONAL BANK OF CANADA, as Agent By: Larry L. Sears Group Vice President By: John T. Dixon Vice President Address for Notice: 2121 San Jacinto, Suite 1850 Dallas, Texas 75201 Attention: Larry L. Sears Telecopier No. (214) 871-2015 LENDERS: IBJ SCHRODER BANK & TRUST COMPANY By: James M. Steffy Vice President Address for Notice: IBJ Schroder Bank & Trust Company One State Street New York, New York 10004 Attention: James M. Steffy Telecopier No.: (212) 858-2151 Domestic Lending Office: IBJ Schroder Bank & Trust Company One State Street New York, New York 10004 Attention: James M. Steffy Telecopier No.: (212) 858-2151 Eurodollar Lending Office: IBJ Schroder Bank & Trust Company Cayman Branch One State Street New York, New York 10004 Attention: James M. Steffy Telecopier No.: (212) 858-2151 HELLER FINANCIAL, INC. By: Elizabeth Manning Vice President Address for Notice: c/o Heller Financial, Inc. 500 West Monroe Street Chicago, Illinois 60661 Attention: HBC Portfolio Manager Telecopier No.: (312) 441-7026 Domestic Lending Office: Heller Financial, Inc. c/o Heller Business Credit - Eastern Region 101 Park Avenue, 10th Floor New York, New York 10178 Attention: HBC Portfolio Manager Eurodollar Lending Office: Heller Financial, Inc. c/o Heller Business Credit - Eastern Region 101 Park Avenue, 10th Floor New York, New York 10178 Attention: HBC Portfolio Manager NATIONAL BANK OF CANADA By: Larry L. Sears Group Vice President By: John T. Dixon Vice President Address for Notice: 2121 San Jacinto, Suite 1850 Dallas, Texas 75201 Attention: Larry L. Sears Telecopier No. (214) 871-2015 Domestic Lending Office: National Bank of Canada 125 West 55th New York, New York 10019 Eurodollar Lending Office: National Bank of Canada 125 West 55th New York, New York 10019 06729.0021:0174197.08 vii 06729.0021:0174197.08 cxxxi 06729.0021:0174197.01 Loan Agreement - Page 169 06729.0021:0174197.08 Loan Agreement - Page 174 06729.0021:0174197.08 EX-3 2 AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF HOMELAND HOLDING CORPORATION (FORMERLY SWO HOLDING CORPORATION) TO THE SECRETARY OF STATE OF THE STATE OF DELAWARE: The undersigned officers of Homeland Holding Corporation ("Corporation") do hereby certify as follows: 1. The Certificate of Incorporation of the Corporation was originally filed with the Secretary of State of the State of Delaware ("Secretary of State") on November 6, 1987. At the time of its original incorporation, the name of the Corporation was "SWO Holding Corporation." 2. Such certificate of incorporation has been previously amended and restated on July 14, 1989, and August 2, 1990. The name of the Corporation was changed to "Homeland Holding Corporation" on August 2, 1989. Such certificate of incorporation, as previously amended and restated, is referred to in this Amended and Restated Certificate of Incorporation as the "Prior Certificate of Incorporation." 3. This Amended and Restated Certificate of Incorporation has been amended for the purpose of modifying the capital structure of the Corporation in accordance with the Plan of Reorganization of Homeland Stores, Inc. and Homeland Holding Corporation confirmed by the United States Bankruptcy Court for the District of Delaware ("Court") under Chapter 11 of the United States Bankruptcy Code in the cases styled In re Homeland Stores, Inc., Debtor, Case No. 96-747 (PJW), and In re Homeland Holding Corporation, Debtor, Case No. 96-748 (PJW), on July 19, 1996. The cases were filed with the Court on May 13, 1996. 4. This Amended and Restated Certificate of Incorporation has been duly adopted in accordance with the provisions of Section 242, Section 245 and Section 303 of the General Corporation Law of the State of Delaware. 5. The text of the Prior Certificate of Incorporation is hereby further amended by this Amended and Restated Certificate of Incorporation and is restated to read in its entirety as follows: FIRST: The name of the Corporation is Homeland Holding Corporation. SECOND: The Corporation's registered office in the State of Delaware is at 15 North Street in the City of Dover, County of Kent. The name of its registered agent at such address is National Corporate Research, Ltd. THIRD: The nature of the business of the Corporation and its purpose is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of the State of Delaware. FOURTH: The capital stock of the Corporation shall consist of a single class and the total number of shares of stock which the Corporation shall have authority to issue is 7,500,000 shares of Common Stock, par value $0.01 per share. Each share of Common Stock shall entitle the record holder thereof to one vote on all matters submitted to the shareholders. The Corporation shall not have the authority to issue non-voting equity securities. FIFTH: The following provisions are inserted for the management of the business and for the conduct of the affairs of the Corporation and for the purpose of creating, defining, limiting and regulating the powers of the Corporation and its directors and stockholders: (a) The number of directors of the Corporation shall be fixed and may be altered from time to time in the manner provided in the By-laws and vacancies in the Board of Directors and newly created directorships resulting from any increase in the authorized number of directors may be filled, and directors may be removed, as provided in the By-laws. (b) The election of directors may be conducted in any manner approved by the shareholders at the time when the election is held and need not be by ballot. (c) All corporate powers and authority of the Corporation (except as at the time otherwise provided by law, by this Amended and Restated Certificate of Incorporation or by the By-laws) shall be vested in and exercised by the Board of Directors. (d) The Board of Directors shall have the power without the assent or vote of the stockholders to adopt, amend, alter or repeal the By-laws of the Corporation, except to the extent that the this Amended and Restated Certificate of Incorporation or the By-laws otherwise provide. (e) No director of the Corporation shall be liable to the Corporation or its stockholders for monetary damages for breach of his or her fiduciary duty as a director, provided that nothing contained in this Amended and Restated Certificate of Incorporation shall eliminate or limit the liability of a director (i) for any breach of the director's duty of loyalty to the Corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of the law, (iii) under Section 174 of the General Corporation Law of the State of Delaware or (iv) for any transaction from which the director derived an improper personal benefit. SIXTH: The Corporation reserves the right to amend or repeal any provision contained in this Amended and Restated Certificate of Incorporation in the manner now or hereafter prescribed by the laws of the State of Delaware, and all rights herein conferred upon shareholders or directors are granted subject to this reservation. IN WITNESS WHEREOF, the undersigned officers have signed this Amended and Restated Certificate of Incorporation this day of , 1996. HOMELAND HOLDING CORPORATION By: James A. Demme, President ATTEST: Secretary (SEAL) 160277 EX-4 3 WARRANT AGREEMENT WARRANT AGREEMENT, dated as of August 2, 1996 (the "Agreement"), between HOMELAND HOLDING CORPORATION, a Delaware corporation (the "Company"), and LIBERTY BANK AND TRUST COMPANY OF OKLAHOMA CITY, N.A., as Warrant Agent (the "Warrant Agent"). WHEREAS, in connection with the financial restructuring (the "Restructuring") of the Company and its subsidiary, Homeland Stores, Inc., a Delaware corporation ("Homeland"), to be consummated pursuant to their Plan of Reorganization (as such term and all other capitalized terms used herein are defined in section 15), the Company proposes to issue the Warrants described herein to purchase up to an aggregate of 263,158 shares of Common Stock, subject to adjustment as provided herein (the "Warrants"), to the holders of the Old Common Stock in exchange (together with certain shares of Common Stock) for all issued and outstanding shares of Old Common Stock, pursuant to the Plan of Reorganization; and WHEREAS, the Company desires the Warrant Agent to act on behalf of the Company, and the Warrant Agent is willing to act, in connection with the issuance, transfer, exchange, replacement and exercise of the Warrant Certificates and other matters as provided herein; and WHEREAS, the Company desires to enter into this Agreement to set forth the terms and conditions of the Warrants and the rights of the holders thereof; and WHEREAS, concurrently with the execution hereof, and in connection with the consummation of the Restructuring, the Company and certain stock holders of the Company are entering into a Registration Rights Agreement, dated as of the date hereof (the "Registration Rights Agreement"), under which the Company will grant certain registration rights to the holders of the Warrants; NOW, THEREFORE, in consideration of the foregoing premises and of the mutual agreements set forth herein, the Company and the Warrant Agent hereby agree as follows: 1. Issuance of Warrants. 1.1 Initial Issuance; Initial Share Amount. On the date hereof (the "Original Issue Date"), the Company shall issue an aggregate of 263,158 Warrants to the holders of the Old Common Stock, pursuant to the Plan of Reorganization. The number of shares of Common Stock issuable upon exercise of all such Warrants shall be subject to all adjustments from and after the Original Issue Date provided in sections 4 and 5, as set forth in section 3.1, whether or not such Warrants were issued on or after the date on which any event resulting in an adjustment occurred. 1.2 Form of Warrant Certificates. The Warrants shall be evidenced by certificates substantially in the form attached hereto as Exhibit A (the "Warrant Certificates"). Each Warrant Certificate shall be dated as of the date on which it is countersigned by the Warrant Agent, which shall be either on the Original Issue Date or other date of issuance thereof, or on division, exchange, substitution or transfer of any of the Warrants. Each Warrant Certificate may have such legends and endorsements stamped, printed, lithographed or engraved thereon as the Company may deem appropriate and as are not inconsistent with the provisions of this Agreement, or as may be required to comply with any law or with any rule or regulation pursuant thereto or with any rule or regulation of any securities exchange on which the Warrants may be listed. 1.3 Execution of Warrant Certificates. Warrant Certificates shall be executed on behalf of the Company by its President, any Vice President, its Treasurer or Secretary, either manually or by facsimile signature printed thereon. In case any such officer of the Company whose signature shall have been placed upon any Warrant Certificate shall cease to be such officer of the Company before countersignature by the Warrant Agent or issuance and delivery thereof, such Warrant Certificate nevertheless may be countersigned by the Warrant Agent and issued and delivered with the same force and effect as though such person had not ceased to be such officer of the Company. 1.4 Countersignature of Warrant Certificates. Warrant Certificates shall be manually countersigned by an authorized signatory of the Warrant Agent and shall not be valid for any purpose unless so countersigned. Such manual countersignature shall constitute conclusive evidence of such authorization. The Warrant Agent is hereby authorized to countersign, in accordance with the provisions of this section 1.4, and deliver any new War rant Certificates as and when required pursuant to the provisions of sections 12 and 13. Each Warrant Certificate shall, when manually countersigned by an authorized signatory of the Warrant Agent, entitle the registered holder thereof to exercise the rights as the holder of the number of Warrants set forth thereon, subject to the provisions of this Agreement. 2. Duration of Warrants. Irrespective of the date ofissuance, each Warrant shall entitle the holder thereof to purchase from the Company one share of Common Stock, at any time up to and including 5:00 p.m., New York City time on August 2, 2001 (the "Expiration Date"). 3. Exercise of Warrants. 3.1 Manner of Exercise. All or any of the Warrants represented by a Warrant Certificate may be exercised by the registered holder thereof during normal business hours on any Business Day, by surrendering such Warrant Certificate, with the subscription form set forth therein duly executed by such holder, by hand or by mail to the Warrant Agent at the address set forth in Section 17.1 (or, if such exercise shall be in connection with an underwritten Public Offering, at the location designated by the Company). Such Warrant Certificate shall be accompanied by payment in respect of each Warrant that is exercised, which shall be made by certified or official bank or bank cashier's check payable to the order of the Company. Such payment shall be in an amount equal to the product of (i) the number of shares of Common Stock (without giving effect to any adjustment therein) designated in such subscription form multiplied by (ii) the Warrant Purchase Price in effect as of the date of such exercise. Upon such surrender and payment, such holder shall thereupon be en titled to receive the number of duly authorized, validly issued, fully paid and nonassessable shares of Common Stock (or Other Securities) determined as provided in sections 4 and 5. 3.2 When Exercise Effective. Each exercise of any Warrant pursuant to section 3.1 shall be deemed to have been effected immediately prior to the close of business on the Business Day on which the Warrant Certificate representing such Warrant, duly executed, with accompanying payment shall have been delivered as provided in section 3.1, and at such time the Person or Persons in whose name or names the certificate or certificates for Common Stock (or Other Securities) shall be issuable upon such exercise as provided in section 3.3 shall be deemed to have become the holder or holders of record thereof. 3.3 Delivery of Certificates, etc. (a) As promptly as practicable after the exercise of any Warrant, and in any event within five Business Days thereafter (or, if such exercise is in connection with an underwritten Public Offering concurrently with such exercise), the Company at its expense (other than as to payment of transfer taxes) will cause to be issued and delivered to such holder, or as such holder may direct in writing (subject to section 13), (i) a certificate or certificates for the number of full shares of Common Stock (or Other Securities) to which such holder is entitled, (ii) any cash payment in lieu of any fraction of a share or security as provided in section 3.4, and (iii) if less than all the Warrants represented by a Warrant Certificate are exercised, a new Warrant Certificate or Certificates of the same tenor and for the aggregate number of Warrants that were not exercised, executed and countersigned in accordance with sections 1.3 and 1.4. (b) The Warrant Agent shall countersign any new Warrant Certificate, register it in such name or names as may be directed in writing by such holder, and shall deliver it to the person entitled to receive the same in accordance with section 3.3(a). The Company, whenever required by the Warrant Agent, will supply the Warrant Agent with Warrant Certificates executed on behalf of the Company for such purpose. 3.4 Fractional Shares. No fractional shares of Common Stock (or Other Securities) shall be issued upon any exercise of Warrants. If more than one Warrant Certificate shall be delivered for exercise at one time by the same holder, the number of full shares or securities that shall be issuable upon exercise shall be computed on the basis of the aggregate number of Warrants exercised. As to any fraction of a share of Common Stock (or Other Securities), the Company shall pay a cash adjustment in respect thereto in an amount equal to the product of the Market Price per share of Common Stock (or Other Securities) as of the Business Day next preceding the date of such exercise multiplied by such fraction. 4. Adjustment of Common Stock Issuable Upon Exercise. 4.1 Adjustment of Number of Shares. The number of shares of Common Stock that the holder of a Warrant shall be entitled to receive upon each exercise thereof shall be determined by multiplying the number of shares of Common Stock that would otherwise (but for the provisions of this section 4) be issuable upon such exercise, as designated by such holder pursuant to section 3.1, by a fraction of which (i) the numerator is $11.85 and (ii) the denominator is the Warrant Purchase Price in effect on the date of such exercise. 4.2 Adjustment of Warrant Purchase Price. (a) The "Warrant Purchase Price" shall initially be $11.85 per share, shall be adjusted and readjusted from time to time as provided in this section 4 and, as so adjusted or readjusted, shall remain in effect until a further adjustment or readjustment thereof is required by this section 4. (b) Additional Shares of Common Stock. If at any time or from time to time after the Original Issue Date, the Company shall issue or sell Additional Shares of Common Stock without consideration or for a consideration per share less than the Current Market Price in effect on the date of and immediately prior to such issuance or sale or Additional Shares of Common Stock are deemed to be issued pursuant to section 4.4 or 4.5, then in each such case (subject to section 4.9), the Warrant Purchase Price then in effect shall be reduced, concurrently with such issuance or sale, to a price (calculated to the nearest .001 of a cent) determined by multiplying such Warrant Purchase Price by a fraction, (i) the numerator of which shall be (A) the number of shares of Common Stock outstanding immediately prior to such issuance or sale plus (B) the number of shares of Common Stock that the aggregate consideration received by the Company (computed in accordance with section 4.6) for the total number of such Additional Shares of Common Stock so issued or sold would purchase at the Current Market Price, and (ii) the denominator of which shall be the number of shares of Common Stock outstanding immediately after such issuance or sale, provided that, for the purposes of this section 4.2(b), (x) immediately after any Additional Shares of Common Stock are deemed to have been issued pursuant to section 4.3(a) or 4.4, such Additional Shares shall be deemed to be out standing, and (y) treasury shares shall not be deemed to be outstanding. 4.3 Extraordinary Dividends and Distributions. In case the Company at any time or from time to time after the Original Issue Date shall declare, order, pay or make a dividend or other distribution (including, without limitation, any distribution of other or additional stock or other securities or property or Options by way of dividend or spin-off, reclassification, recapitalization or similar corporate rearrangement) on any Common Stock, other than (a) a dividend payable in Additional Shares of Common Stock or in Options for Common Stock or (b) a regular, periodic dividend payable in cash and declared out of the earned surplus of the Company as at the date hereof as increased by any credits (other than credits resulting from a revaluation of property) and decreased by any debits made thereto after such date, then, and in each such case, subject to section 4.9, the Warrant Purchase Price in effect immediately prior to the close of business on the record date fixed for the determination of holders of any class of securities entitled to receive such dividend or distribution shall be reduced, effective as of the close of business on such record date, to a price (calculated to the nearest .001 of a cent) determined by multiplying such Warrant Purchase Price by a fraction, (i) the numerator of which shall be the Current Market Price in effect on such record date or, if the Common Stock trades on an ex-dividend basis, on the date prior to the commencement of ex- dividend trading, less the value of such dividend or distribution (as determined in good faith by the Board of Directors of the Company) applicable to one share of Common Stock, and (ii) the denominator of which shall be such Current Market Price. 4.4 Options and Convertible Securities. (a) If at any time or from time to time after the Original Issue Date, the Company shall issue, sell, grant or assume, or shall fix a record date for the determination of holders of any class of securities entitled to receive, any Options or Convertible Securities, then in each such case, the maximum number of Additional Shares of Common Stock issuable (as set forth in the instruments relating thereto, without regard to any provision thereof for subsequent adjustment of such number) upon the exercise of such Options or the conversion or exchange of such Convertible Securities (and in the case of Options for Convertible Securities, the exercise of such Options and the conversion or exchange of such Convertible Securities), shall be deemed to be issued for purposes of section 4.2(b) as of the time of such issuance, sale, grant or assumption or, in case such a record date shall have been fixed, as of the close of business on such record date, provided that such Additional Shares of Common Stock shall not be deemed to have been issued unless the consideration per share (determined pursuant to section 4.6) for such shares would be less than the Current Market Price in effect on the date of and immediately prior to such issuance, sale, grant or assumption or immediately prior to the close of business on such record date (or, if the Common Stock trades on an ex-dividend basis, on the date prior to the commencement of ex-dividend trading), as the case may be. In any such case in which Additional Shares of Common Stock are deemed to be issued, (i) no further adjustment of the Warrant Purchase Price shall be made upon the subsequent issuance or sale of Additional Shares of Common Stock or Convertible Securities upon the exercise of such Options or the conversion or exchange of such Convertible Securities; (ii) if such Options or Convertible Securities by their terms provide, with the passage of time or otherwise, for any increase in the consideration payable to the Company, or decrease in the number of Additional Shares of Common Stock issuable, upon the exercise, conversion or exchange thereof (by change of rate or otherwise), the Warrant Purchase Price computed upon the original issuance, sale, grant or assumption thereof or upon the occurrence of the record date with respect thereto, and any subsequent adjustments based thereon, shall, upon any such in crease or decrease becoming effective, be recomputed to reflect such increase or decrease insofar as it affects such Options, or the rights of conversion or exchange under such Convertible Securities, that are outstanding at such time; (iii) upon the expiration of any such Options or of the rights of conversion or exchange under any such Convertible Securities that shall not have been exercised (or upon purchase by the Company and cancellation or retirement of any such Options that shall not have been exercised or of any such Convertible Se curities the rights of conversion or exchange under which shall not have been exercised), the Warrant Purchase Price computed upon the original issuance, sale, grant or assumption thereof or upon the occurrence of the record date with respect thereto, and any subsequent adjustments based thereon, shall, upon such expiration (or such cancellation or retirement, as the case may be), be recomputed as if: (A) in the case of Options for Common Stock or of Convertible Securities, the only Additional Shares of Common Stock issued or sold were the Additional Shares of Common Stock, if any, actually issued or sold upon the exercise of such Options or the conversion or exchange of such Convertible Securities, and the consideration received therefor was an amount equal to (x) the consideration actually received by the Company for the issuance, sale, grant or assumption of all such Options, whether or not exercised, or all such Convertible Securities that were actually converted or exchanged, plus (y) the consideration actually received by the Company upon such exercise, conversion or exchange, if any, minus (z) the consideration paid by the Company for any purchase of any such Options that were not exercised, or any such Convertible Securities the rights of conversion or exchange under which were not exercised, and (B) in the case of Options for Convertible Securities, only the Convertible Securities, if any, actually issued or sold upon the exercise of such Options were issued at the time of the issuance, sale, grant or assumption of such Options, and the consideration received by the Company for the Additional Shares of Common Stock deemed to have then been issued was an amount equal to (x) the consideration actually received by the Company for the issuance, sale, grant or assumption of all such Options, whether or not exercised, plus (y) the consideration deemed to have been received by the Company (pursuant to section 4.8) upon the issuance or sale of the Convertible Securities with respect to which such Options were actually exercised, minus (z) the consideration paid by the Company for any purchase of such Options that were not exercised; and (iv) no readjustment pursuant to clause (ii) or (iii) above shall have the effect of increasing the Warrant Purchase Price by an amount in excess of the amount of the adjustment thereof originally made in respect of the issuance, sale, grant or assumption of such Options or Convertible Securities. (b) Notwithstanding section 4.4(a), in the case of any such Options that expire by their terms not more than 30 days after the date of issuance, sale, grant or assumption thereof, no adjustment of the Warrant Purchase Price shall be made until the expiration or exercise of all such Options, whereupon such adjustment shall be made in the manner provided in clause (iii) of section 4.4(a) above. (c) If at any time or from time to time after the Original Issue Date, the Company shall be required to increase the number of Additional Shares of Common Stock subject to any Option or into which any Convertible Securities are convertible or exchangeable pursuant to the operation of anti-dilution provisions applicable thereto, such Additional Shares of Common Stock shall be deemed to be issued for purposes of section 4.2(b) as of the time of such increase. 4.5 Stock Dividends, Stock Splits, etc. If at any time or from time to time after the Original Issue Date, the Company shall declare or pay any dividend or other distribution on any class of stock of the Company payable in Common Stock, or shall effect a subdivision of the outstanding shares of Common Stock into a greater number of shares of Common Stock (by reclassification or otherwise than by payment of a dividend in Common Stock), then in each such case, Additional Shares of Common Stock shall be deemed to have been issued for the purposes of section 4.2(b), (i) in the case of any such dividend, immediately after the close of business on the record date for the determination of holders of any class of securities entitled to receive such dividend, or (ii) in the case of any such subdivision, at the close of business on the day immediately prior to the day upon which such subdivision becomes effective. 4.6 Computation of Consideration. For the purposes of this section 4: (a) Subject to the other provisions of this section 4.6, the consideration for the issuance or sale of any Additional Shares of Common Stock or for the issuance, sale, grant or assumption of any Options, Convertible Securities or Other Securities, irrespective of the accounting treatment of such consideration, shall equal (i) (x) insofar as it consists of cash, the amount of cash received by the Company, without deducting any expenses paid or incurred (including but not limited to any commissions or compensation paid or payable or concessions or discounts allowed to underwriters, dealers or others performing similar services), and any accrued interest or dividends, in connection with such issuance, sale, grant or assumption, plus (y) insofar as it consists of consideration other than cash (including securities and other property), the Fair Value, at the time of such issuance, sale, grant or assumption, of such consideration received by the Company, without deducting any expenses paid or incurred (including but not limited to any commissions or compensation paid or payable or concessions or discounts allowed to underwriters, dealers or others performing similar services), and any accrued interest or dividends, in connection with such issuance, sale, grant or assumption, or (ii) if Additional Shares of Common Stock are issued or sold or Options or Convertible Securities are issued, sold, granted or assumed together with other stock or securities or other assets of the Company or a Subsidiary for a consideration that covers both, the proportion of such consideration so received, computed as provided in clause (i) above, allocable based on relative Fair Value to such Additional Shares of Common Stock, Options, or Convertible Securities, as the case may be, all as determined in good faith by the Board of Directors of the Company. (b) All Options or Convertible Securities issued or delivered in payment of any dividend or other distribution on any class of stock of the Company, shall be deemed to have been issued without consideration. (c) All Additional Shares of Common Stock shall be deemed to have been issued without consideration that are (x) issued or delivered in payment of any dividend or other distribution on any class of stock of the Company, (y) issued to effect a subdivision of the outstanding shares of Common Stock into a greater number of shares of Common Stock (by reclassification or otherwise than by payment of a dividend in Common Stock), or (z) issued or deemed to have been issued pursuant to the operation of anti-dilution provisions applicable to Options, Convertible Securities or other securities of the Company or a Subsidiary, whether as a result of the adjustments provided for hereby or otherwise. (d) For purposes of section 4.4 (subject to section 4.6(c)), Additional Shares of Common Stock shall be deemed to have been issued for a consideration per share determined by dividing (i) the total amount, if any, received and receivable by the Company as consideration for the issuance, sale, grant or assumption of the relevant Options or Convertible Securities, plus the minimum aggregate amount of additional consideration (as set forth in the instruments relating thereto, without regard to any provision thereof for subsequent adjustment of such consideration) payable to the Company upon the exercise in full of such Options or the conversion or exchange of such Convertible Securities (and in the case of Options for Convertible Securities, the exercise of such Options and the conversion or exchange of such Convertible Securities), in each case computing such consideration as provided in section 4.6(a) or 4.6(b), by (ii) the maximum number of shares of Common Stock issuable (as set forth in the instruments relating thereto, without regard to any provision thereof for subsequent adjustment of such number) upon the exercise of such Options or the conversion or exchange of such Convertible Securities (and in the case of Options for Convertible Securities, the exercise of such Options and the conversion or exchange of such Convertible Securities). 4.7 Adjustments for Combinations, etc. If at any time or from time to time after the Original Issue Date, the outstanding shares of Common Stock shall be combined or consolidated, by reclassification or otherwise, into a lesser number of shares of Common Stock, the Warrant Purchase Price in effect immediately prior to such combination or consolidation shall, at the close of business on the day on which such combination or consolidation becomes effective, be proportionately increased. 4.8 Dilution in Case of Other Securities. If at any time or from time to time after the Original Issue Date the Warrants shall be exercisable for Other Securities (either alone or in addition to Common Stock), and Other Securities shall be issued, sold, granted or assumed, or shall become subject to issuance, sale, grant or assumption upon any exercise, conversion or exchange of any stock, options or convertible or other securities (including but not limited to any Options or Other Securities) of the Company (or any issuer of Other Securities or any other Person referred to in section 5), or to subscription, purchase or other acquisition pursuant to any Options issued or granted by the Company (or any other issuer or Person), for a consideration such as to dilute, on a basis consistent with the standards established in the other provisions of this section 4, the rights to purchase Other Securities granted hereunder and under the Warrants, then in each such case, the computations, adjustments and readjustments provided for in this section 4 with respect to the Warrant Purchase Price shall be made as nearly as possible in the manner so provided and applied to determine the amount of Other Securities from time to time receivable upon the exercise of the Warrants, so as to protect the holders of the Warrants against the effect of such dilution. 4.9 Minimum Adjustment of Warrant Purchase Price. If the amount of any adjustment of the Warrant Purchase Price required pursuant to this section 4 would be less than one-tenth of one percent (0.1%) of the Warrant Purchase Price in effect at the time such adjustment is otherwise so required to be made, such amount shall be carried forward and adjustment with respect thereto made at the time of and together with any subsequent adjustment that, together with such amount and any other amount or amounts so carried forward, shall aggregate at least one-tenth of one percent (0.1%) of such Warrant Purchase Price; provided that, upon exercise of this Warrant, all adjustments carried forward and not theretofore made up to and including the date of such exercise shall be made to the nearest one one-hundredth (.01) of a cent. 4.10 Other Dilutive Events. If any event shall occur as to which the provisions of this section 4 or of section 5 are not strictly applicable but the failure to make any adjustment would not fairly protect the purchase rights represented by this Agreement and the Warrants issued hereunder in accordance with the essential intent and principles of such sections, then in each such case, the Company shall appoint a firm of independent public accountants of recognized national standing (which may be the regular auditors of the Company), which shall give their opinion upon the adjustment, if any, on a basis consistent with the essential intent and principles established in sections 4 and 5, necessary to preserve, without dilution, the purchase rights represented by this Agreement and the Warrants issued hereunder. Upon receipt of such opinion, the Company will promptly mail a copy thereof to the Warrant Agent and each holder of a Warrant and shall make the adjustments described therein. 5. Consolidation, Merger, Sale of Assets, Reorganization, etc. 5.1 General Provisions. In case the Company, after the Original Issue Date, (a) shall consolidate with or merge into any other Person and shall not be the continuing or surviving corporation of such consolidation or merger, or (b) shall permit any other Person to consolidate with or merge into the Company and the Company shall be the continuing or surviving Person but, in connection with such consolidation or merger, Common Stock or Other Securities shall be changed into or exchanged for cash, stock or other securities of any other Person or any other property, or (c) shall transfer all or substantially all of its properties and assets to any other Person, or (d) shall effect a capital reorganization or reclassification of Common Stock or Other Securities (other than a capital reorganization or reclassification resulting in the issue of Additional Shares of Common Stock for which adjustment in the Warrant Purchase Price is provided in section 4.2(b) or 4.3), then, and in the case of each such transaction, the Company shall give written notice thereof to each holder of any Warrant not less than 30 days prior to the consummation thereof and proper provision shall be made so that, upon the basis and the terms and in the manner provided in this section 5, the holder of this Warrant, upon the exercise hereof at any time after the consummation of such transaction, shall be entitled to receive, at the aggregate Warrant Purchase Price in effect at the time of such consummation for all Common Stock (or Other Securities) issuable upon such exercise immediately prior to such consummation, in lieu of the Common Stock (or Other Securities) issuable upon such exercise prior to such consummation, either of the following, as such holder shall elect by written notice to the Company on or before the date immediately preceding the date of the consummation of such transaction: (i) the highest amount of cash, securities or other property to which such holder would actually have been entitled as a shareholder upon such consummation if such holder had exercised this Warrant immediately prior thereto, subject to adjustments (subsequent to such consummation) as nearly equivalent as possible to the adjustments provided for in section 4 and this section 5, provided that if a purchase, tender or exchange offer shall have been made to and accepted by the holders of Common Stock under circumstances in which, upon completion of such purchase, tender or exchange offer, the maker thereof, together with members of any group (within the meaning of Rule 13d-5(b)(1) under the Exchange Act) of which such maker is a part, and together with any affiliate or associate of such maker (within the meaning of Rule 12b-2 under the Exchange Act) and any members of any such group of which any such affiliate or associate is a part, own beneficially (within the meaning of Rule 13d-3 under the Exchange Act) more than 50% of the outstanding shares of Common Stock, and if the holder of this Warrant so designates in such notice given to the Company, the holder of this Warrant shall be entitled to receive the highest amount of cash, securities or other property to which such holder would actually have been entitled as a shareholder if the holder of this Warrant had exercised this Warrant prior to the expiration of such purchase, tender or exchange offer and accepted such offer (or, if prorationing shall have been applicable to such purchase, tender or exchange offer, the combined amount per share of cash, securities or other property to which such holder would have been entitled if such holder had accepted such offer and sold the same percentage of shares pursuant thereto as other accepting shareholders, and, as to the shares not sold in such offer, had the same rights to receive cash, securities or other property per share as other shareholders holding shares immediately prior to the consummation of such transaction), subject to adjustments (from and after the consummation of such purchase, tender or exchange offer) as nearly equivalent as possible to the adjustments provided for in section 4 and this section 5; or (ii) in the event of a Stock Sale, the number of shares of capital stock (or equivalent equity interests) of the Acquiring Person (the "Merger Stock"), subject to adjustments (subsequent to such corporate action) as nearly equivalent as possible to the adjustments provided for in section 4 and this section 5, determined by dividing (x) the product obtained by multiplying (1) the number of shares of Common Stock (or Other Securities) to which the holder of this Warrant would have been entitled had such holder exercised this Warrant immediately prior to the consummation of such transaction, times (2) the greater of the Acquisition Price and the Warrant Purchase Price in effect on the date immediately preceding the date of such consummation, by (y) the Current Market Price per share of the the Merger Stock, on the date immediately preceding the date of such consummation. 5.2 Assumption of Obligations, etc. Notwithstanding anything contained in this Agreement to the contrary, the Company will not effect any of the transactions described in clauses (a) through (d) of section 5.1 unless, prior to the consummation thereof, (a) each Person (other than the Company) that may be required to deliver any cash, stock or other securities or other property upon the exercise of the Warrants as provided herein shall assume, by written instrument delivered to, and reasonably satisfactory to, the Warrant Agent, (x) the obligations of the Company under this Agreement (and if the Company shall survive the consummation of such transaction, such assumption shall be in addition to, and shall not release the Company from, any continuing obligations of the Company under this Agreement) and (y) the obligation to deliver to each holder of a Warrant such cash, stock or other securities or other property as such holder may be entitled to receive in accordance with the provisions of section 5.1, and (b) such Person shall have similarly delivered to the Warrant Agent an opinion of counsel for such Person, which counsel may be an in-house counsel of such Person or such other counsel reasonably satisfactory to the Warrant Agent and which opinion shall be reasonably satisfactory to the Warrant Agent, addressed to the Warrant Agent and stating that this Agreement and the Warrants issued hereunder shall thereafter continue in full force and effect and the terms hereof and thereof (in cluding, but not limited to, all of the provisions of section 4 and this section 5) shall be applicable to the cash, stock or other securities or other property that such Person may be required to deliver upon any exercise of any Warrant or the exercise of any rights pursuant thereto. Nothing in this sec tion 5 or in section 8 shall be deemed to authorize the Company to enter into any transaction not otherwise permitted by this Agreement. 6. No Dilution or Impairment. The Company will not, by amendment of its certificate of incorporation or through any consolidation, merger, reorganization, transfer of assets, dissolution, issuance or sale of securities or any other voluntary action or omission, avoid or seek to avoid the observance or performance of any of the terms of this Agreement or any of the Warrants issued hereunder, but will at all times in good faith observe and perform all such terms and take all such action as may be necessary or appropriate in order to protect the rights of each holder of a Warrant against dilution or other impairment. Without limiting the generality of the foregoing, the Company (a) will not permit the par value of any shares of stock receivable upon the exercise of any Warrant to exceed the amount payable therefor upon such exercise, (b) will take all such action as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and nonassessable shares of stock upon the exercise of all of the Warrants from time to time outstanding, (c) will not take any action that results in any adjustment of the Warrant Purchase Price if the total number of shares of Common Stock (or Other Securities) issuable after the action upon the exercise of all of the Warrants would exceed the total number of shares of Common Stock (or Other Securities) then authorized by the Company's certificate of incorporation and available for the purpose of issuance upon such exercise and (d) will not issue any capital stock of any class that (x) has the right to more than one vote per share or (y) is preferred as to dividends or as to the distribution of assets upon voluntary or involuntary dissolution, liquidation or winding-up, unless such stock is sold for a cash consideration at least equal to the amount of its preference upon voluntary or involuntary dissolution, liquidation or winding-up and the rights of the holders thereof shall be limited to a fixed per centage (not exceeding 15%) of such cash consideration in respect of participation in dividends. 7. Accountants' Reports. In each case of any adjustment or readjustment in the Warrant Purchase Price or the shares of Common Stock (or Other Securities) issuable upon the exercise of the Warrants, the Company at its expense will promptly compute such adjustment or readjustment in accordance with the terms of this Agreement and cause independent public accountants of recognized national standing selected by the Company (which may be the regular auditors of the Company) to verify each such computation and prepare a report setting forth such adjustment or readjustment and showing in reasonable detail the method of calculation thereof and the facts upon which such adjustment or readjustment is based, including, but not limited to, a statement of (a) the consideration received or to be received by the Company for any Additional Shares of Common Stock issued, sold or transferred or deemed hereby to have been issued, (b) the number of shares of Common Stock outstanding or deemed hereby to be outstanding, and (c) the Warrant Purchase Price in effect immediately prior to such issuance or sale and as adjusted and readjusted (if required by section 4) on account thereof. The Company will forthwith mail a copy of each such report to the Warrant Agent, which shall promptly mail a copy to each holder of a Warrant. The Warrant Agent will cause the same to be available for inspection at its principal office during normal business hours by any holder of a Warrant or any prospective purchaser of a Warrant designated by the holder thereof. 8. Notification of Certain Events. 8.1 Corporate Action. In the event of: (a) any taking by the Company of a record of the holders of any class of securities for the purpose of determining the holders thereof who are entitled to receive any dividend (other than a regular periodic dividend payable in cash out of earned surplus in an amount not exceeding by more than 10% the amount of the cash dividend for the immediately preceding period) or other distribution of any kind, or any right to subscribe for, purchase or otherwise acquire any shares of stock of any class or any other securities or property, or to receive any other right or interest of any kind; or (b) any capital reorganization of the Company, any reclassification or recapitalization of the Common Stock or other capital stock of the Company, any consolidation or merger involving the Company, or any sale or transfer of all or substantially all of the assets of the Company; or (c) the voluntary or involuntary dissolution, liquidation, or winding up of the Company or Homeland; the Company shall cause to be filed with the Warrant Agent and mailed to each holder of a Warrant a notice specifying (i) the date or expected date on which any such record is to be taken for the purpose of such dividend, distribution or rights, and the amount and character of such dividend, distribution or right, or, if a record is not to be taken, the date as of which the holders of Common Stock of record to be entitled to such dividend, distribution or rights are to be determined, and the amount and character of such dividend, distribution or right, and (ii) the date or expected date on which any such reorganization, reclassification, recapitalization, consolidation, merger, sale, transfer, dissolution, liquidation or winding up is expected to become effective, and the time, if any such time is to be fixed, as of which holders of record of Common Stock (or Other Securities) shall be entitled to exchange their shares of Common Stock (or Other Securities) for the securities or other property deliverable upon such reorganization, reclassification, recapitalization, consolidation, merger, sale, transfer, dissolution, liquidation or winding up. Such notice shall be delivered not less than 20 days prior to such date therein specified, in the case of any such date referred to in clause (i) of the preceding sentence, and not less than 45 days prior to such date therein specified, in the case of any such date referred to in clause (ii) of the preceding sentence. 8.2 Expiration Date. The Company shall give each holder of a Warrant written notice of the Expiration Date. Such notice may be given by the Company not fewer than 30 days but not more than 60 days prior to the Expiration Date. 8.3 Available Information. The Company shall promptly file with the Warrant Agent copies of its annual reports and of the information, documents and other reports (or copies of such portions of any of the foregoing as the Commission may by rules and regulations prescribe) that the Company is required to file with the Commission pursuant to Section 13 or 15(d) of the Exchange Act. If the Company is not required to make such filings, the Company shall promptly deliver to the Warrant Agent adequate current public information with respect to the Company within the meaning of paragraph (c)(2) of Rule 144 of the General Rules and Regulations under the Securities Act. 9. Registration Rights Agreement. (a) Each holder of a Warrant or of any securities issued or issuable upon the exercise thereof or any securities issued or issuable upon the exercise, conversion or exchange of such securities is entitled to the benefits of the Registration Rights Agreement, to the extent and for so long as therein provided. By acceptance of a Warrant Certificate or of any securities issued or issuable upon the exercise thereof or any securities issued or issuable upon the exercise, conversion or exchange of such securities, each holder of a Warrant agrees to be bound by the terms of the Registration Rights Agreement, to the extent and for so long as therein provided. (b) Each Warrant Certificate issued hereunder and each Warrant Certificate issued upon transfer or in substitution for any such Warrant Certificate pursuant to section 13 or 14 shall be stamped or otherwise imprinted with a legend in substantially the following form, until such time as the rights of any holder thereof under the Registration Rights Agreement shall terminate in accordance with the terms thereof: "Each holder of this Warrant Certificate or any shares acquired upon the exercise of any Warrant represented hereby by acceptance of this Warrant Certificate or any certificate representing any such shares acknowledges that such holder is entitled to the benefits of and bound by the terms of the Registration Rights Agreement, dated as of August 2, 1996, among the Company and certain of its stockholders and holders of other equity interests, a copy of which is on file at the offices of the Company." (c) Each certificate for Common Stock (or Other Securities) issued upon the exercise of any Warrant and each certificate issued upon the direct or indirect transfer of any such Common Stock (or Other Securities) shall be stamped or otherwise imprinted with a legend in substantially the following form, until such time as the rights of any holder thereof under the Registration Rights Agreement shall terminate in accordance with the terms thereof: "Each holder of the shares represented by this certificate by acceptance of this certificate acknowledges that such holder is entitled to the benefits of and bound by the terms of the Registration Rights Agreement, dated as of August 2, 1996, among the Company and certain of its stockholders and holders of other equity interests, a copy of which is on file at the offices of the Company." 10. Reservation of Stock, etc. 10.1 Reservation; Due Authorization, etc. The Company shall at all times reserve and keep available, free from preemptive rights, out of its authorized but unissued Common Stock (or out of authorized Other Securities), solely for issuance and delivery upon exercise of Warrants, the full number of shares of Common Stock (and Other Securities) from time to time issuable upon the exercise of all Warrants from time to time outstanding. All shares of Common Stock (and Other Securities) shall be duly authorized and, when issued upon such exercise, shall be duly and validly issued, and (in the case of shares) fully paid and non assessable, and free from all taxes, liens, charges, security interests, encumbrances and other restrictions created by or through the Company. 10.2 Compliance with Law. The Company will use its best efforts, at its expense and on a continual basis, to assure that all shares of Common Stock (and Other Securities) that may be issued upon exercise of Warrants may be so issued and delivered without violation of any Federal or state securities law or regulation, or any other law or regulation applicable to the Company or any of its subsidiaries, provided that with respect to any such exercise involving a sale or transfer of Warrants or any such securities issuable upon such exercise, the Company shall have no obligation to register such Warrants or securities under any such securities law except as provided in the Registration Rights Agreement. 11. Payment of Taxes. The Company will pay any and all documentary stamp or similar issue taxes payable to the United States of America or any State, or any political subdivision or taxing authority thereof or therein, in respect of the issuance or delivery of shares of Common Stock (or Other Securities) on exercise of Warrants, provided that the Company shall not be required to pay any tax that may be payable in respect of any transfer involved in the issuance and delivery of Common Stock (or Other Securities) in a name other than that of the registered holder of the Warrants to be exercised, and no such issuance or delivery shall be made unless and until the person requesting such issuance has paid to the Company the amount of any such tax or has established, to the reasonable satisfaction of the Company, that such tax has been paid. 12. Loss or Mutilation. Upon receipt by the Company and the Warrant Agent of evidence reasonably satisfactory to them of the ownership of and the loss, theft, destruction or mutilation of any Warrant Certificate and of an indemnity bond reasonably satisfactory to them in form or amount, and (in the case of mutilation) upon surrender and cancellation thereof, then, in the absence of notice to the Company or the Warrant Agent that the Warrants represented thereby have been acquired by a bona fide purchaser, the Company shall execute and deliver to the Warrant Agent and, upon the Company's request, an authorized signatory of the Warrant Agent shall manually countersign and deliver, to the registered holder of the lost, stolen, destroyed or mutilated Warrant Certificate, in exchange for or in lieu thereof, a new Warrant Certificate of the same tenor and for a like aggregate number of Warrants. Upon the issuance of any new Warrant Certificate under this section 12, the Company may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto and any other expenses (including the reasonable fees and expenses of the Warrant Agent) in connection there with. Every new Warrant Certificate executed and delivered pursuant to this section 12 in lieu of any lost, stolen or destroyed Warrant Certificate shall be entitled to the same benefits of this Agreement equally and proportionately with any and all other Warrant Certificates, whether or not the allegedly lost, stolen or destroyed Warrant Certificate shall be at any time enforceable by anyone. The provisions of this section 12 are exclusive and shall preclude (to the extent lawful) all other rights or remedies with respect to the replacement of mutilated, lost, stolen or destroyed Warrant Certificates. 13. Warrant Registration. 13.1 Registration. The Warrant Certificates shall be issued inregistered form only and shall be registered in the names of the record holders of the Warrant Certificates to whom they are to be delivered. The Company shall maintain or cause to be maintained a register in which, subject to such reasonable regulations as it may prescribe, the Company shall provide for the registration of Warrants and of transfers or exchanges of Warrant Certificates as provided in this Agreement. Such register shall be maintained at the office of the Company or the Warrant Agent located at the respective address therefor as provided in section 17.1. Such register shall be open for inspection upon notice at all reasonable times by the Warrant Agent and each holder of a Warrant. 13.2 Transfer or Exchange. At the option of the holder, Warrant Certificates may be exchanged or transferred for other Warrant Certificates for a like aggregate number of Warrants, upon surrender of the Warrant Certificates to be exchanged at the office of the Company or the Warrant Agent maintained for such purpose at the respective address therefor as provided in section 17.1, and upon payment of the charges hereinafter provided. Whenever any Warrant Certificates are so surrendered for exchange or transfer, the Company shall execute, and an authorized signatory of the Warrant Agent shall manually countersign and deliver, the Warrant Certificates that the holder making the exchange is entitled to receive. All Warrant Certificates issued upon any registration of transfer or exchange of Warrant Certificates shall be the valid obligations of the Company, evidencing the same obligations, and entitled to the same benefits under this Agreement, as the Warrant Certificates surrendered for such registration of transfer or exchange. Every Warrant Certificate surrendered for registration of transfer or exchange shall (if so required by the Company or the Warrant Agent) be duly endorsed, or be accompanied by an instrument of transfer in form reasonably satisfactory to the Company and the Warrant Agent and duly executed, by the registered holder thereof or such holder's officer or representative duly authorized in writing. No service charge shall be made for any registration of transfer or exchange of Warrant Certificates. Any Warrant Certificate surrendered for registration of transfer, exchange or the exercise of the Warrants represented thereby shall, if surrendered to the Company, be delivered to the Warrant Agent, and all Warrant Certificates surrendered or so delivered to the Warrant Agent shall be promptly cancelled by the Warrant Agent. Any such Warrant Certificate shall not be reissued by the Company and, except as provided in this section 13 in case of an exchange or transfer, in section 12 in case of a mutilated Warrant Certificate and in section 3 in case of the exercise of less than all the Warrants represented thereby, no Warrant Certificate shall be issued hereunder in lieu thereof. The Warrant Agent shall deliver to the Company from time to time or otherwise dispose of such cancelled Warrant Certificates in a manner reasonably satisfactory to the Company. 14. Warrant Agent. The Warrant Agent undertakes the duties and obligations imposed by this Agreement upon the terms and conditions set forth in this section 14. The Company, and the holders of Warrants by their acceptance thereof, shall be bound by all of such terms and conditions. (a) The Warrant Agent shall not by countersigning Warrant Certificates or by any other act hereunder be accountable with respect to or be deemed to make any representations as to the validity or authorization of the Warrants or the Warrant Certificates (except as to its countersignature thereon), as to the validity, authorization or value (or kind or amount) of any Common Stock or of any other securities or other property delivered or deliverable upon exercise of any Warrant, or as to the purchase price of such Common Stock, securities or other property. The Warrant Agent shall not (i) be liable for any recital or statement of fact contained herein or in the Warrant Certificates or for any action taken, suffered or omitted by the Warrant Agent in good faith in the belief that any Warrant Certificate or any other document or any signature is genuine or properly authorized, (ii) be responsible for determining whether any facts exist that may require any adjustment of the purchase price and the number of shares of Common Stock purchasable upon exercise of Warrants, or with respect to the nature or extent of any such adjustments when made, or with respect to the method of adjustment employed, (iii) be responsible for any failure on the part of the Company to issue, transfer or deliver any Common Stock or other securities or property upon the surrender of any Warrant for the purpose of exercise or to comply with any other of the Company's covenants and obligations contained in this Agreement or in the Warrant Certificates or (iv) be liable for any act or omission in connection with this Agreement except for its own negligence or willful misconduct. (b) The Warrant Agent is hereby authorized to accept instructions with respect to the performance of its duties hereunder from the President, any Vice President, the Treasurer or any Assistant Treasurer of the Company and to apply to any such officer for advice or instructions. The Warrant Agent shall not be liable for any action taken, suffered or omitted by it in good faith in accordance with the instructions of any such officer. (c) The Warrant Agent may execute and exercise any of the rights and powers hereby vested in it or perform any duty hereunder either itself or by or through its attorneys, agents or employees, provided reasonable care has been exercised in the selection and in the continued employment of any such attorney, agent or employee. The Warrant Agent shall not be under any obligation or duty to institute, appear in, or defend any action, suit or legal proceeding in respect hereof, but this provision shall not affect the power of the Warrant Agent to take such action as the Warrant Agent may consider proper. The Warrant Agent shall promptly notify the Company in writing of any claim made or action, suit or proceeding instituted against the Warrant Agent arising out of or in connection with this Agreement. (d) The Company will perform, execute, acknowledge and deliver or cause to be performed, executed, acknowledged and delivered all such further acts, instruments and assurances as may reasonably be required by the Warrant Agent in order to enable the Warrant Agent to carry out or perform its duties under this Agreement. (e) The Warrant Agent shall act solely as agent. The Warrant Agent shall not be liable except for the performance of such duties as are specifically set forth herein, and no implied covenants or obligations shall be read into this Agreement against the Warrant Agent, whose duties and obligations shall be determined solely by the express provisions hereof. (f) The Warrant Agent may at any time consult with legal counsel satisfactory to it (who may be legal counsel for the Company) and the Warrant Agent shall incur no liability or responsibility to the Company or to any Warrant holder for any action taken, suffered or omitted by the Warrant Agent in good faith in accordance with the opinion or advice of such counsel. (g) The Company agrees to pay the Warrant Agent reasonable compensation for its services hereunder and to reimburse the Warrant Agent for its reasonable expenses hereunder; and further agrees to indemnify the Warrant Agent and hold it harmless against any and all liabilities, including, but not limited to, judgments, costs and counsel fees, for anything done, suffered or omitted by the Warrant Agent in the execution of its duties and powers hereunder, except for any such liabilities that arise as a result of the Warrant Agent's negligence or willful misconduct. (h) The Warrant Agent shall account promptly to the Company with respect to Warrants exercised and concurrently pay to the Company all moneys received by the Warrant Agent on behalf of the Company on the purchase of shares of Common Stock through the exercise of Warrants. (i) The Warrant Agent and any stockholder, director, officer or employee of the Warrant Agent may buy, sell or deal in any of the Warrants or other securities of the Company or become pecuniarily interested in any transaction in which the Company may be interested, or contract with or lend money to the Company or otherwise act as fully and freely as though it were not Warrant Agent under this Agreement. Nothing herein shall preclude the Warrant Agent from acting in any other capacity for the Company or for any other legal entity. (j) The Warrant Agent may resign its duties and be discharged from all further duties and liabilities hereunder (except liabilities arising as a result of the Warrant Agent's negligence or willful misconduct), after giving 30 days' prior written notice to the Company. The Company may remove the Warrant Agent upon 30 days' written notice, and the Warrant Agent shall thereupon in like manner be discharged from all further duties and liabilities hereunder, except as to liabilities arising as a result of the Warrant Agent's negligence or willful misconduct. The Company shall cause to be mailed (by first class mail, postage prepaid) to each registered holder of a Warrant at such holder's last address as shown on the register of the Company, at the Company's expense, a copy of such notice of resignation or notice of removal, as the case may be. Upon such resignation or removal the Company shall promptly appoint in writing a new warrant agent. If the Company shall fail to make such appointment within a period of 30 days after it has been notified in writing of such resignation by the resigning Warrant Agent or after such removal, then the holder of any Warrant may apply to any court of competent jurisdiction for the appointment of a new warrant agent. Pending appointment of a successor to the Warrant Agent, either by the Company or by such a court, the duties of the Warrant Agent shall be carried out by the Company. Any successor warrant agent, whether appointed by the Company or by such a court, shall be a corporation, incorporated under the laws of the United States or of any State thereof and authorized under such laws to exercise corporate trust powers, be subject to supervision and examination by Federal or State authority, and have a combined capital and surplus of not less than $100,000,000 as set forth in its most recent published annual report of condition. After acceptance in writing of such appointment by the new warrant agent it shall be vested with the same powers, rights, duties and responsibilities as if it had been originally named herein as the Warrant Agent, without any further assurance, conveyance, act or deed; but if for any reason it shall be necessary or expedient to execute and deliver any further assurance, conveyance, act or deed, the same shall be done at the expense of the Company and shall be legally and validly executed and delivered by the resigning or removed Warrant Agent. Not later than the effective date of any such appointment the Company shall file notice thereof with the resigning or removed Warrant Agent and shall forthwith cause a copy of such notice to be mailed (by first class mail, postage prepaid) to each registered holder of a Warrant at such holder's last address as shown on the register of the Company. Failure to give any notice provided for in this paragraph (j), or any defect in any such notice, shall not affect the legality or validity of the resignation of the Warrant Agent or the appointment of a new warrant agent, as the case may be. (k) If at any time the name of the Warrant Agent shall be changed and at such time any of the Warrant Certificates shall have been countersigned but not delivered, the Warrant Agent may adopt the countersignature under its prior name and deliver Warrant Certificates so countersigned; and if at that time any of the Warrant Certificates shall not have been countersigned, the Warrant Agent may countersign such Warrant Certificates either in its prior name or in its changed name; and in all such cases such Warrant Certificates shall have the full force and effect provided in the Warrant Certificates and this Agreement. (l) Any corporation into which the Warrant Agent or any new warrant agent may be merged or any corporation resulting from any consolidation to which the Warrant Agent or any new warrant agent shall be a party or any corporation succeeding to all or sub stantially all the agency business of the Warrant Agent or any new warrant agent shall be a successor Warrant Agent under this Agreement without any further act, provided that such corporation would be eligible for appointment as a new warrant agent under the provisions of paragraph (j) of this section 14. The Company shall promptly cause notice of the succession as Warrant Agent of any such successor Warrant Agent to be mailed (by first class mail, postage prepaid) to each registered holder of a Warrant at his last address as shown on the register of the Company. 15. Definitions. As used herein, the following terms have the following respective meanings: Acquiring Person: (a) the continuing or surviving corporation of a consolidation or merger with the Company (if other than the Company), (b) the transferee of substantially all of the properties and assets of the Company, (c) the corporation consolidating with, merging into or acquiring the Company in a consolidation, merger or other transaction in connection with which the Common Stock is changed into or exchanged for stock or other securities of any other Person or cash or any other property, or (d) in the case of a capital reorganization or reclassification or recapitalization, the Company. Acquisition Price: as applied to the Common Stock, with respect to any transaction to which section 5 applies, (a) the price per share equal to the greater of the following, determined in each case as of the date immediately preceding the date of consummation of such transaction: (i) the Market Price of the Common Stock and (ii) the highest amount of cash plus the Fair Value of the highest amount of securities or other property which the holder of this Warrant would have been entitled as a shareholder to receive upon such consummation if such holder had exercised this Warrant immediately prior thereto, or (b) if a purchase, tender or an exchange offer is made by the Acquiring Person (or by any of its affiliates) to the holders of the Common Stock and such offer is accepted by the holders of more than 50% of the outstanding shares of Common Stock, the greater of (i) the price determined in accordance with the foregoing subdivision (a) and (ii) the price per share equal to the greater of the following, determined in each case as of the date immediately preceding the acceptance of such offer by the holders of more than 50% of the outstanding shares of Common Stock: (x) the Market Price of the Common Stock and (y) the highest amount of cash plus the Fair Value of the highest amount of securities or other property which the holder of this Warrant would be entitled as a shareholder to receive pursuant to such offer if such holder had exercised this Warrant immediately prior to the expiration of such offer and accepted the same. Additional Shares of Common Stock: all shares (including treasury shares) of Common Stock issued or sold (or, pursuant to section 4.4 or 4.5, deemed to be issued) by the Company after the Original Issue Date, whether or not subsequently reacquired or retired by the Company, other than (a) shares of Common Stock issued or issuable upon the exercise of Warrants issued hereunder and (b) not more than 263,158 shares of Common Stock issued or issuable upon the exercise of the Management Stock Options. Affiliate: with respect to any Person, any Person directly or indirectly controlling or controlled by or under direct or indirect common control with such Person. For purposes of this definition, (a) "control" when used with respect to any Person means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of Voting Common Stock (or equivalent equity interests), by contract or otherwise, and the terms "controlling" or "controlled" have meanings correlative to the foregoing, and (b) a Subsidiary is an Affiliate of the Company and each other Subsidiary. Bankruptcy Court: the United States Bankruptcy Court for the District of Delaware. Business Day: any day other than a Saturday or a Sunday or a day on which commercial banking institutions in New York City are authorized by law to be closed, provided that, in determining the period within which certificates or Warrants are to be issued and delivered pursuant to section 3.1 at a time when shares of Common Stock (or Other Securities) are listed or admitted to trading on any national securities exchange or in the over-the-counter market and in determining the Market Price of any securities listed or admitted to trading on any national securities exchange orin the over-the-counter market, "Business Day" shall mean any day when the principal exchange on which such securities are then listed or admitted to trading is open for trading or, if such securities are traded in the over-the-counter market in the United States, such market is open for trading, and provided further that any reference in this Agreement to "days" (unless Business Days are specified) shall mean calendar days. Commission: the Securities and Exchange Commission or any other Federal agency at the time administering the Securities Act or the Exchange Act, whichever is the relevant statute for the particular purpose. Common Stock: the Company's Common Stock, par value $.01 per share, as constituted on the Original Issue Date after giving effect to the consummation of the Restructuring, any stock into which such Common Stock shall have been changed or any stock resulting from any reclassification of such Common Stock, and all other stock of any class or classes (however designated) of the Company the holders of which have the right, without limitation as to amount, either to all or to a share of the balance of current dividends and liquidating dividends after the payment of dividends and distributions on any shares entitled to preference. Company: the meaning specified in the opening paragraphs of this Agreement. Convertible Securities: any evidences of indebtedness, shares of stock (other than Common Stock) or other securities directly or indirectly convertible into or exchangeable for Common Stock. Current Market Price: on any date specified herein, (a) with respect to Common Stock or to Voting Stock (or equivalent equity interests) of an Acquiring Person or its Parent, (i) the average daily Market Price during the period of the most recent 20 consecutive Business Days ending on such date, or (ii) if shares of Common Stock are not then listed or admitted to trading on any national securities exchange and if the closing bid and asked prices thereof are not then quoted or published in the over-the-counter market, the Market Price on such date and (b) with respect to any other securities, the Market Price on such date. Exchange Act: the Securities Exchange Act of 1934, or any similar Federal statute, and the rules and regulations of the Commission thereunder, all as the same shall be amended and in effect at the time. Reference to a particular section of the Securities Exchange Act of 1934 shall include a reference to the comparable section, if any, of any such similar Federal statute. Expiration Date: the meaning specified in section 2. Fair Value: with respect to any securities or other property, the Fair Value thereof as of a date which is within 15 days of the date as of which the determination is to be made (a) determined by an agreement between the Company and the Requisite Holders of Warrants or (b) if the Company and the Requisite Holders of Warrants fail to agree, determined jointly by an independent investment banking firm retained by the Company and by an independent investment banking firm retained by the Requisite Holders of Warrants, either of which firms may be an independent investment banking firm regularly retained by the Company or any such holder or (c) if the Company or such holders shall fail so to retain an independent investment banking firm within five Business Days of the retention of such firm by such holders or the Company, as the case may be, determined solely by the firm so retained or (d) if the firms so retained by the Company and by such holders shall be unable to reach a joint determination within 15 Business Days of the retention of the last firm so retained, determined by another independent investment banking firm which is not a regular investment banking firm of the Company or any such holder chosen by the first two such firms. Management Stock Options: the options to purchase up to 263,158 shares of Common Stock to be granted to certain executive officers and key employees of the Company and its Subsidiaries pursuant to Management Stock Option Plan to be implemented in connection with the Restructuring. Market Price: on any date specified herein, (a) with respect to Common Stock, the amount per share equal to (i) the last sale price of shares of Common Stock, regular way, on such date or, if no such sale takes place on such date, the average of the closing bid and asked prices thereof on such date, in each case as officially reported on the principal national securities exchange on which the Common Stock is then listed or admitted to trading, or (ii) if the Common Stock is not then listed or admitted to trading on any national securities exchange but the Common Stock is designated as a national market system security by the NASD, the last trading price of the Common Stock on such date, or if the Common Stock is not so designated, the average of the reported closing bid and asked prices thereof on such date as shown by the NASD automated quotation system or, if no shares thereof are then quoted in such system, as published by the National Quotation Bureau, Incorporated or any successor organization, and in either case as reported by any member firm of the New York Stock Exchange selected by the Company, or (iii) if the Common Stock is not then listed or admitted to trading on any national exchange or designated as a national market system security and if no closing bid and asked prices thereof are then so quoted or published in the over-the-counter market, the higher of (x) the book value thereof as determined by any firm of independent public accountants of recognized national standing selected by the Board of Directors of the Company, as of the last day of any month ending within 60 days preceding the date as of which the determination is to be made and (y) the Fair Value thereof, determined on the basis of an assumed sale of the Company and its Subsidiaries as a whole without giving effect to any control premium, to any discount for lack of liquidity or to the fact that the Company has no class of equity securities registered under the Exchange Act; and (b) with respect to any other securities, (x) the value as determined in accordance with the methods provided in (i) and (ii) of clause (a) above or (y) if such other security is not then listed or admitted to trading on any national exchange or designated as a national market system security and if no closing bid and asked prices thereof are then quoted or published in the over-the-counter market, the Fair Value thereof. Merger Stock: the meaning specified in section 5.1(i). NASD: the National Association of Securities Dealers. Old Common Stock: the Company's former Class A Common Stock, $.01 par value per share, outstanding immediately prior to the effectiveness of the Plan of Reorganization. Options: options, warrants or other rights to subscribe for, purchase or otherwise acquire either Common Stock or Convertible Securities. Original Issue Date: the meaning specified in section 1.1. Other Securities: any stock (other than Common Stock) and other securities of the Company or any other Person (corporate or otherwise) that the holders of the Warrants at any time shall be entitled to receive, or shall have received, upon the exercise of the Warrants, in lieu of or in addition to Common Stock, or that at any time shall be issuable or shall have been issued in exchange for or in replacement of Common Stock or Other Securities pursuant to section 5 or otherwise. Parent: as to any Acquiring Person, any corporation that (a) controls the Acquiring Person directly or indirectly through one or more intermediaries, (b) is required to include the Acquiring Person in its consolidated financial statements under generally accepted accounting principles and (c) is not itself included in the consolidated financial statements of any other Person (other than its consolidated subsidiaries). Person: any individual, partnership, association, joint venture, corporation, business, trust, unincorporated organization, government or department, agency or subdivision thereof, or other person or entity. Plan of Reorganization: the Joint Plan of Reorganization of the Company and Homeland, which was approved by the Bankruptcy Court on July 19, 1996 and pursuant to which the Restructuring will be consummated. Public Offering: any offering of Common Stock (or Other Securities) to the public pursuant to an effective registration statement under the Securities Act. Registration Rights Agreement: the meaning specified in the recitals of this Agreement. Requisite Holders of Warrants: the holders of at least a majority of all Warrants at the time outstanding, determined on the basis of the number of shares of Common Stock or Other Securities deliverable upon exercise thereof. Restructuring: the meaning specified in the recitals of this Agreement. Securities Act: the Securities Act of 1933, or any successor Federal statute, and the rules and regulations of the Commission thereunder, all as the same shall be amended and in effect at the time. Reference to a particular section of the Securities Act of 1933 shall include a reference to the comparable section, if any, of any such successor Federal statute. Stock Sale: a transaction of the type described in clauses (a), (b), (c) or (d) of section 5.1, pursuant to which Common Stock or Other Securities are changed into or exchanged for capital stock (or equivalent equity interests, including, without limitation, Convertible Securities) of an Acquiring Person. Subsidiary: any corporation, association or other business entity a majority (by number of votes) of the Voting Common Stock (or equivalent equity interests entitled to vote for the election of a majority of the directors thereof or persons performing similar functions therefor) of which is at the time owned by the Company or by one of or more Subsidiaries or by the Company and one or more Subsidiaries. Voting Common Stock: with respect to any corporation, stock of any class or classes if the holders of the stock of such class or classes are ordinarily (in the absence of contingencies) entitled to vote for the election of a majority of the directors of such corporation. Warrant: the meaning specified in section 1.1. Warrant Certificates: the meaning specified in section 1.2. Warrant Purchase Price: the meaning specified in section 4.2. Warrants: the meaning specified in the opening recitals of this Agreement. 16. Remedies, etc. 16.1 Remedies. The Company stipulates that the remedies at law of each holder of a Warrant in the event of any default or threatened default by the Company in the performance of or compliance with any of the terms of this Warrant are not and will not be adequate and that, to the fullest extent permitted by law, such terms may be specifically enforced by a decree for the specific performance of any agreement contained herein or by an injunction against a violation of any of the terms hereof or otherwise. 16.2 Warrant Holder Not Deemed a Stockholder. Prior to the exercise of the Warrants represented thereby no holder of a Warrant Certificate, as such, shall be entitled to any rights of a stockholder of the Company, including, but not limited to, the right to vote, to receive dividends or other distributions, to exercise any preemptive right or to receive any notice of meetings of stockholders, and no such holder shall be entitled to receive notice of any proceedings of the Company except as provided in this Agreement. Nothing contained in this Agreement shall be construed as imposing any liabilities on such holder to purchase any securities or as a stockholder of the Company, whether such liabilities are asserted by the Company or by creditors or stockholders of the Company or otherwise. 16.3 Right of Action. All rights of action in respect of this Agreement are vested in the registered holders of the Warrants. Any registered holder of any Warrant, without the consent of the Warrant Agent or the registered holder of any other Warrant, may in such holder's own behalf and for such holder's own benefit enforce, and may institute and maintain any suit, action or proceeding against the Company suitable to enforce, or otherwise in respect of, such holder's right to exercise such holder's Warrants in the manner provided in the Warrant Certificate representing such Warrants and in this Agreement. 17. Miscellaneous. 17.1 Notices. Any notice, demand or delivery authorized by this Agreement shall be sufficiently given or made if sent by first class mail, postage prepaid, addressed to any registered holder of a Warrant at such holder's last known address appearing on the register of the Company, and to the Company or the Warrant Agent as follows: To the Company: Homeland Holding Corporation 2601 Northwest Expressway Oil Center East, 11th Floor Oklahoma City, OK 73112 Attention: Secretary with a copy to: Crowe & Dunlevy 1800 Mid-American Tower 20 North Broadway Oklahoma City, OK 73102-8273 Attention: Kenni B. Merritt, Esq. To the Warrant Agent: By Hand Liberty Bank and Trust Company of Oklahoma, N.A. 100 North Broadway, Ninth Floor Stock Transfer Department Oklahoma City, OK 73102 By Mail Liberty Bank and Trust Company of Oklahoma, N.A. P.O. Box 25848 Oklahoma City, OK 73125 Attention: Stock Transfer Department or such other address as shall have been furnished in writing, in accordance with this section 17.1, to the party giving or making such notice, demand or delivery. 17.2 Governing Law. This Agreement, each Warrant Certificate issued hereunder and all rights arising hereunder shall be construed and determined in accordance with the laws of the State of New York, without giving effect to the conflict of laws principles or rules thereof, and the performance thereof shall be governed and enforced in accordance with such laws. 17.3 Benefits of this Agreement. This Agreement shall be binding upon and inure to the benefit of the Company and the Warrant Agent and their respective successors and assigns, and the registered and beneficial holders from time to time of the Warrants. Nothing in this Agreement is intended or shall be construed to confer upon any person, other than the Company, the Warrant Agent and the registered and beneficial holders of the Warrants, any right, remedy or claim under or by reason of this Agreement or any part hereof. 17.4 Agreement of Holders of Warrant Certificates. Every holder of a Warrant Certificate, by accepting the same, consents and agrees with the Company, the Warrant Agent and with every other holder of a Warrant Certificate that the Warrant Certificates are transferable on the registry books of the Warrant Agent only upon the terms and conditions set forth in this Agreement, and the Company and the Warrant Agent may deem and treat the person in whose name the Warrant Certificate is registered as the absolute owner for all purposes whatsoever and neither the Company nor the Warrant Agent shall be affected by any notice to the contrary. 17.5 Counterparts. This Agreement may be executed in any number of counterparts and each such counterpart shall for all purposes be deemed to be an original, and all such counterparts shall together constitute but one and the same instrument. 17.6 Amendments. The Warrant Agent may, without the consent or concurrence of the holders of the Warrants, by supplemental agreement or other writing, join with the Company in making any amendments or modifications of this Agreement that they shall have been advised by counsel (a) are required to cure any ambiguity or to correct any defective or inconsistent provision or clerical omission or mistake or manifest error herein contained, (b) add to the covenants and agreements of the Company in this Agreement further covenants and agreements of the Company thereafter to be observed, or surrender any rights or power reserved to or conferred upon the Company in this Agreement or (c) do not and will not adversely affect, alter or change the rights, privileges or immunities of the registered holders of Warrants. Any other amendment to this Agreement may be effected only with the consent of the Requisite Holders of Warrants. 17.7 Headings. The table of contents hereto and the descriptive headings of the several sections here of are inserted for convenience only and shall not control or affect the meaning or construction of any of the provisions hereof. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed, as of the day and year first above written. HOMELAND HOLDING CORPORATION By:_____________________________ Name: Title: LIBERTY BANK AND TRUST COMPANY OF OKLAHOMA CITY, N.A., as Warrant Agent By:_____________________________ Name: 175444 Title: WARRANT AGREEMENT between HOMELAND HOLDING CORPORATION and LIBERTY BANK AND TRUST COMPANY OF OKLAHOMA CITY, N.A., as Warrant Agent 263,158 Warrants Dated as of August 2, 1996 EXHIBIT A [FORM OF FACE OF WARRANT CERTIFICATE] Warrant No. __________ Number of Warrant(s): ___________ Exercisable On or Before August 2, 2001 WARRANT TO PURCHASE COMMON STOCK OF HOMELAND HOLDING CORPORATION SEE REVERSE FOR CERTAIN DEFINITIONS This Certifies that _____________ or registered assigns, is the owner of the number of WARRANTS set forth above, each of which represents the right, at any time after the date hereof and on or before 5:00 p.m., New York City time, on August 2, 2001, to purchase from Homeland Holding Corporation, a Delaware corporation (the "Company"), at the price of $ (the "Warrant Purchase Price"), one share of Common Stock, $.01 par value, of the Company as such stock was constituted as of August 2, 1996, subject to adjustment as provided in the Warrant Agreement hereinafter referred to, upon surrender hereof, with the subscription form on the reverse hereof duly executed, by hand or by mail to Liberty Bank and Trust Company of Oklahoma City, National Association, as warrant agent under the Warrant Agreement, at its office at 100 North Broadway, Ninth Floor, Stock Transfer Department, Oklahoma City, Oklahoma 73102, or to any successor thereto, as the warrant agent under the Warrant Agreement, at the office of such successor maintained for such purpose (any such warrant agent being herein called the "Warrant Agent") (or, if such exercise shall be in connection with an underwritten public offering of shares of such Common Stock (or Other Securities (as such term and other capitalized terms used herein are defined in the Warrant Agreement)) subject to the Warrant Agreement, at the location at which the Company shall have agreed to deliver such securities), and simultaneous payment in full (by certified or official bank or bank cashier's check payable to the order of the Company) of the Warrant Pur chase Price in respect of each Warrant represented by this Warrant Certificate that is so exercised, all subject to the terms and conditions hereof and of the Warrant Agreement. Upon any partial exercise of the Warrants represented by this Warrant Certificate, there shall be issued to the holder hereof a new Warrant Certificate representing the Warrants that were not exercised. No fractional shares will be issued upon the exercise of rights to purchase hereunder. As to any final fraction of a share that the same holder of one or more Warrant Certificates, the rights under which are exercised in the same transaction, would otherwise be entitled to purchase on such exercise, the Company shall pay a cash amount equal to the value thereof determined as provided in the Warrant Agreement. This Warrant Certificate is issued under and in accordance with a Warrant Agreement, dated as of August 2, 1996 (the "Warrant Agreement"), between the Company and Liberty Bank and Trust Company of Oklahoma City, National Association, as Warrant Agent, and is subject to the terms and provisions contained therein, all of which terms and provisions the holder of this Warrant Certificate consents to by acceptance hereof. Copies of the Warrant Agreement are on file at the above-mentioned office of the Warrant Agent and may be obtained by writing to the Warrant Agent. REFERENCE IS HEREBY MADE TO THE FURTHER PROVISIONS OF THIS WARRANT SET FORTH ON THE REVERSE HEREOF, WHICH FURTHER PROVISIONS SHALL FOR ALL PURPOSES HAVE THE SAME EFFECT AS IF SET FORTH AT THIS PLACE. Dated:August 2, 1996 HOMELAND HOLDING CORPORATION By:________________________ Title: Countersigned: Liberty Bank and Trust Company of Oklahoma City, N.A., as Warrant Agent By:__________________________ Authorized Signatory [FORM OF REVERSE OF WARRANT CERTIFICATE] HOMELAND HOLDING CORPORATION The transfer of this Warrant Certificate and all rights hereunder is registrable by the registered holder hereof, in whole or in part, on the register of the Company upon surrender of this Warrant Certificate at the office or agency of the Company or the office of the Warrant Agent maintained for such purpose in Oklahoma City, Oklahoma, duly endorsed or accompanied by a written instrument of transfer duly executed and in form satisfactory to the Company and the Warrant Agent, by the registered holder hereof or his attorney duly authorized in writing and upon payment of any necessary transfer tax or other governmental charge imposed upon such transfer or registration thereof. Upon any partial transfer the Company will cause to be delivered to such holder a new Warrant Certificate or Certificates with respect to any portion not so transferred. This Warrant Certificate may be exchanged at the office or agency of the Company or the office of the Warrant Agent maintained for such purpose in Oklahoma City, Oklahoma, for Warrant Certificates representing the same aggregate number of Warrants, each new Warrant Certificate to represent such number of Warrants as the holder hereof shall designate at the time of such exchange. Prior to the exercise of the Warrants represented hereby, the holder of this Warrant Certificate, as such, shall not be entitled to any rights of a stockholder of the Company, including, but not limited to, the right to vote, to receive dividends or other distributions, to exercise any preemptive right or to receive any notice of meetings of stockholders, and shall not be entitled to receive notice of any proceedings of the Company except as provided in the Warrant Agreement. Nothing contained herein shall be construed as imposing any liabilities upon the holder of this Warrant Certificate to purchase any securities or as a stockholder of the Company, whether such liabilities are asserted by the Company or by creditors or stockholders of the Company or otherwise. This Warrant Certificate shall be void and all rights represented hereby shall cease unless exercised on or before the close of business on August 2, 2001. This Warrant Certificate shall not be valid for any purpose until it shall have been manually countersigned by an authorized signatory of the Warrant Agent. Witness the facsimile seal of the Company and the signature of its duly authorized officer. SUBSCRIPTION FORM (To be executed only upon exercise of Warrant) TO HOMELAND HOLDING CORPORATION c/o [Warrant Agent's address] The undersigned (i) irrevocably exercises ___________ of the Warrants represented by the within Warrant Certificate, (ii) purchases one share of Common Stock of Homeland Holding Corporation (before giving effect to the adjustments provided in the Warrant Agreement referred to in the within Warrant Certificate) for each Warrant so exercised and herewith makes payment in full of the purchase price of $ in respect of each Warrant so exercised as provided in the Warrant Agreement (such payment being by certified or official bank or bank cashier's check payable to the order of Homeland Holding Corporation), all on the terms and conditions specified in the within Warrant Certificate and the Warrant Agreement, (iii) surrenders this Warrant Certificate and all right, title and interest therein to Homeland Holding Corporation and (iv) directs that the securities or other property deliverable upon the exercise of such Warrants be registered or placed in the name and at the address specified below and delivered thereto. Dated:_____________, 19__ _________________________________ (Owner)* _________________________________ (Signature of Authorized Representative) _________________________________ (Street Address) _________________________________ (City) (State) (Zip Code) Securities or property to be issued and delivered to: ____________________________ Signature Guaranteed** Please insert social security or other identifying number Name__________________________________________________ Street Address___________________________________________ City, State and Zip Code___________________________________ *The signature must correspond with the name as written upon the face of the within Warrant Certificate in every particular, without alteration or enlargement or any change whatsoever. **The signature must be guaranteed by a securities transfer agents medallion program ("stamp") participant or an institution receiving prior approval from the Warrant Agent. FORM OF ASSIGNMENT FOR VALUE RECEIVED, the undersigned registered holder of the within Warrant Certificate hereby sells, assigns and transfers unto the Assignee named below all of the rights of the undersigned under the within Warrant Certificate, with respect to the number of Warrants set forth below: Name of No. of Assignee Address Warrants Please insert social security or other identifying number of Assignee and does hereby irrevocably constitute and appoint ___________ attorney to make such transfer on the books of Homeland Holding Corporation maintained for the purpose, with full power of substitution in the premises. Dated: _______, 19__ Name______________________________* Signature of Authorized Representative____________________ Signature Guaranteed_____________** *The signature must correspond with the name as written upon the face of the within Warrant Certificate in every particular, without alteration or enlargement or any change whatsoever. **The signature must be guaranteed by a securities transfer agents medallion program ("stamp") participant or an institution receiving prior approval from the Warrant Agent. TABLE OF CONTENTS Page 1. Issuance of Warrants 1 1.1. Initial Issuance; Initial Share Amount 1 1.2. Form of Warrant Certificates 2 1.3. Execution of Warrant Certificates 2 1.4. Countersignature of Warrant Certificates 2 2. Duration of Warrants 2 3. Exercise of Warrants 2 3.1. Manner of Exercise 2 3.2. When Exercise Effective 3 3.3. Delivery of Certificates, etc. 3 3.4. Fractional Shares 4 4. Adjustment of Common Stock Issuable Upon Exercise 4 4.1. Adjustment of Number of Shares 4 4.2. Adjustment of Warrant Purchase Price 4 4.3. Extraordinary Dividends and Distributions 5 4.4. Options and Convertible Securities 5 4.5. Stock Dividends, Stock Splits, etc. 7 4.6. Computation of Consideration 8 4.7. Adjustments for Combinations, etc. 9 4.8. Dilution in Case of Other Securities 9 4.9. Minimum Adjustment of Warrant Purchase Price 10 4.10. Other Dilutive Events 10 5. Consolidation, Merger, Sale of Assets, Reorganization, etc. 10 5.1. General Provisions 10 5.2. Assumption of Obligations, etc. 12 6. No Dilution or Impairment 12 7. Accountants' Reports 13 Page 8. Notification of Certain Events 13 8.1. Corporate Action 13 8.2. Expiration 14 8.3. Available Information 14 9. Registration Rights Agreement 14 10. Reservation of Stock, etc. 15 10.1. Reservation; Due Authorization, etc. 15 10.2. Compliance with Law 15 11. Payment of Taxes 16 12. Loss or Mutilation 16 13. Warrant Registration 17 13.1. Registration 17 13.2. Transfer 17 14. Warrant Agent 18 15. Definitions 21 16. Remedies, etc. 26 16.1. Remedies 26 16.2. Warrant Holder Not Deemed a Stockholder 26 16.3. Right of Action 26 17. Miscellaneous 26 17.1. Notices 26 17.2. Governing Law 27 17.3. Benefits of this Agreement 27 17.4. Agreement of Holders of Warrant Certificates 27 17.5. Counterparts 28 17.6. Amendments 28 17.7. Headings 28 Exhibit A - Form of Warrant Certificate EX-4 4 EQUITY REGISTRATION RIGHTS AGREEMENT EQUITY REGISTRATION RIGHTS AGREEMENT, dated as of August 2, 1996 (this "Agreement"), by Homeland Holding Corporation, a Delaware corporation (the "Company"), for the benefit of the beneficial owners as of the Confirmation Date (as such term and other capitalized terms are defined in Section 1.1) of Old Common Stock (the "Old Equity Holders"). WHEREAS, the Company and Homeland Stores, Inc., a Delaware corporation and a wholly owned subsidiary of the Company ("Homeland"), filed a Joint Plan of Reorganization with the United States Bankruptcy Court, District of Delaware (the "Bankruptcy Court") on May 13, 1996 (the "Plan"); WHEREAS, the Plan was accepted by, among others, the holders of the requisite percentage and amount of the Old Common Stock (designated as "Class 7 Interests" under the Plan), and the Bankruptcy Court entered an order confirming the Plan on July 19, 1996 (the "Confirmation Date"); WHEREAS, the Plan became effective on August 2, 1996 (the "Effective Date"); and WHEREAS, pursuant to the Plan, (i) the Old Equity Holders are to receive an aggregate 250,000 shares of Common Stock (the "Original Shares") and warrants to purchase an aggregate 263,158 shares of Common Stock (the "Original Warrants" and, together with the Original Shares, the "Original Securities") in exchange for their Old Common Stock and (ii) registration rights are to be granted to the Old Equity Holders with respect to such Original Securities on the terms and conditions set forth in this Agreement. NOW, THEREFORE, in consideration of the mutual covenants and agreements contained herein, the Company agrees, and each Old Equity Holder by receipt of its Original Securities pursuant to the Plan is deemed to agree, as follows: DEFINITIONS SECTION 1.1 Definitions. As used herein, the following terms shall have the meanings indicated: "Bankruptcy Court" shall have the meaning given in the recitals to this Agreement. "Business Day" shall mean any day other than a Saturday, Sunday or other day on which commercial banks in the City of New York are authorized or obligated by law or executive order to close. Unless specifically stated as a Business Day, all days referred to herein shall mean calendar days. "Common Stock" shall mean the common stock, par value $.01 per share, of the Company after the Company's Restated Certificate of Incorporation is filed with the Secretary of State of the State of Delaware pursuant to the Plan and any and all securities of any kind whatsoever of the Company which may be issued after such filing with respect to, or in exchange for, shares of Common Stock pursuant to a merger, consolidation, reclassification, stock split, stock dividend, rights offering, combination, recapitalization of the Company or otherwise. "Complying Response" shall mean, with respect to any Registration, each written request (other than an Initial Request) submitted by a Remaining Class 7 Holder in connection with such Registration that (i) complies with Section 2.1(c) and (ii) is received by the Company within 15 Business Days from the date on which the Company shall have given notice of the Initial Request for such Registration pursuant to Section 2.1(a). "Confirmation Date" shall have the meaning given in the recitals to this Agreement. "Designated Securities" shall mean, with respect to any Participating Holder in connection with any Registration, the Registrable Securities of such Participating Holder requested for inclusion in such Registration in compliance with Section 2.1(c). "Effective Date" shall have the meaning given in the recitals to this Agreement. "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder. "Included Securities" shall mean, with respect to any Registration, all of the Designated Securities requested for inclusion in such Registration or, in the case of a Registration in connection with an Underwritten Offering, any lesser number of securities to which such Registration may be limited pursuant to Section 2.1(h). "Initial Request" shall have the meaning given in Section 2.1(a). "Managing Underwriter" shall have the meaning given in Section 2.1(g). "NASD" shall mean the National Association of Securities Dealers, Inc. "Old Common Stock" shall mean the Company's Common Stock, par value $.01 per share, which was exchanged for the Original Securities pursuant to the Plan. "Old Equity Holders" shall have the meaning given in the recitals to this Agreement. "Original Securities" shall have the meaning given in the recitals to this Agreement. "Original Shares" shall have the meaning given in the recitals to this Agreement. "Original Warrants" shall have the meaning given in the recitals to this Agreement. "Participating Holder" shall mean, with respect to any Registration, each Remaining Class 7 Holder that shall have submitted the Initial Request or a Complying Response in connection with such Registration. "Permitted Transferee" shall mean a Transferee that satisfies the eligibility, notice and other requirements set forth in Section 2.1(b)(ii). "Person" shall mean any individual, partnership, corporation, business trust, joint stock company, trust, unincorporated association, joint venture, or other entity of whatever nature. "Plan" shall have the meaning given in the recitals to this Agreement. "Qualifying Old Equity Holder" shall mean an Old Equity Holder that satisfies the notice requirements set forth in Section 2.1(b)(i). "Registrable Securities" shall mean, at any time, (i) all Original Securities owned beneficially by either Old Equity Holders or Permitted Transferees, (ii) all shares of Common Stock issuable upon exercise of the Original Warrants and (iii) all securities that at the time of issuance were issued in respect of Registrable Securities to the Remaining Class 7 Holder of such Registrable Securities by way of a stock dividend or stock split or in connection with a combination of shares, reclassification, rights offering recapitalization, merger, consolidation, other reorganization or otherwise, provided that such securities are owned beneficially by either Qualifying Old Equity Holders or Permitted Transferees. "Registration" shall mean any registration of Registrable Securities by the Company with the SEC under the Securities Act pursuant to Section 2.1(a). "Registration Document" means any Registration Statement and any prospectus included therein (including any preliminary prospectus) and any amendment or supplement to such Registration Statement or prospectus, in each case, including all exhibits thereto and documents incorporated by reference therein. "Registration Expenses" shall mean all expenses incident to any Registration, whether or not such Registration shall become effective and whether or not all or a portion of the Registrable Securities originally requested to be included in such Registration are ultimately included in such Registration, including, but not limited to: (i) all SEC and stock exchange or NASD registration and filing fees and expenses; (ii) all fees and expenses of compliance with applicable state securities or "blue sky" laws (including, but not limited to, reasonable fees and disbursements of counsel for the Managing Underwriter, if any, in connection with "blue sky" qualifications of the Included Securities); (iii) all word processing, duplicating, printing expenses, messenger and delivery expenses; (iv) all fees and expenses incurred in connection with the listing of the Included Securities on each securities exchange or national market system on which the Common Stock is then listed; (v) all fees and disbursements of counsel for the Company and all independent certified public accountants (including the expenses of any annual audit and "cold comfort" letters required by or incident to such performance and compliance); (vi) all fees and disbursements of underwriters customarily paid by issuers or sellers of securities (including the fees and expenses of any "qualified independent underwriter" required by the NASD); (vii) the reasonable fees and expenses of one counsel retained by Participating Holders owning a majority in number of the Included Securities (which counsel shall be reasonably satis factory to the Company); (viii) the reasonable fees and expenses of any special experts or other Persons retained by the Company; and (ix) premiums and other costs of policies of insurance against liabilities arising out of the public offering of the Included Securities. The foregoing shall not include any underwriting discounts or commissions or transfer taxes, if any, attributable to the sale of Included Securities by Participating Holders. "Registration Statement" shall mean a registration statement under the Securities Act. "Registration Trigger Amount" shall mean either (i) 125,000 Original Shares or (ii) 131,579 Original Warrants. "Remaining Class 7 Holder" shall mean, at any time, (i) each Qualifying Old Equity Holder that is at such time the beneficial owner of any Registrable Securities and (ii) each Permitted Transferee that is at such time the beneficial owner of any Registrable Securities. "Required Included Securities" shall mean, at any time that number of Included Securities by which the aggregate Included Securities at such time exceed the Requisite Class 7 Percentage plus one Included Security. "Revocation Notice" shall have the meaning given in Section 2.1(j). "Rule 144" shall mean Rule 144 of the General Rules and Regulations promulgated under the Securities Act, or any successor rule to similar effect. "Rule 144A" shall mean Rule 144A of the General Rules and Regulations promulgated under the Securities Act, or any successor rule to similar effect. "SEC" shall mean the Securities and Exchange Commission and any successor commission or agency having similar powers. "Securities Act" shall mean the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder. "Transferee" shall mean any beneficial owner of Registrable Securities other than an Old Equity Holder. "Underwritten Offering" shall mean a sale of securities of the Company to an underwriter or underwriters for reoffering to the public. "Warrants" shall mean warrants to purchase the Common Stock, including, without limitation, the Original Warrants. SECTION 1.2 Construction. Unless the context otherwise requires, words in the singular include the plural, and in the plural include the singular and "or" is not exclusive. SECTION 2.1 Demand Registration. (a) Demand Registration Rights. Subject to the terms and conditions of this Agreement (including, without limitation, Sec tions 2.1(b), (c), (d) and (j)), at any one time after the second anniversary of the Effective Date, one or more Remaining Class 7 Holders owning Registrable Securities at such time equal to or exceeding the Registration Trigger Amount may make a written request, which shall comply with Section 2.1(c) (an "Initial Request"), for Registration of all of their Registrable Securities or any portion thereof, provided that, in the case of a Registration of New Common Stock, the number of shares of New Common Stock requested to be registered shall not be less than 125,000 shares and, in the case of a Registration of New Warrants, the number of New Warrants requested to be registered shall not be less than 131,579 warrants. Within 10 Business Days after receipt of such Initial Request, the Company shall give written notice thereof to all other Remaining Class 7 Holders and, subject to Section 2.1(c), such other Remaining Class 7 Holders may request the inclusion of their Registrable Securities in such Registration. Thereafter, the Company shall, in accordance with Section 2.4, file a Registration Statement covering the Included Securities and use all reasonable efforts to cause such Registration Statement to become effective. (b) Limitation on Registration Rights. (i) Notwithstanding any other provision of this Agreement, the Company shall have no obligations hereunder to any Old Equity Holder and no Old Equity Holder shall have any rights hereunder (other than an Old Equity Holder listed on Schedule I hereto, each of whom will be deemed to have satisfied the identification requirements set forth in this subsection 2.1(b)) unless and until such Old Equity Holder shall have established to the reasonable satisfaction of the Company (A) that such Old Equity Holder was the beneficial owner as of the Confirmation Date of Old Common Stock and (B) the number of shares and certificate numbers thereof, which facts such Old Equity Holder can so establish by (1) delivering to the Company within 90 days of the Effective Date the written certification as to such facts of the record holder as of the Confirmation Date of such Old Equity Holder's Old Common Stock or (2) such other proof as shall be reasonably satisfactory to the Company. (ii) Notwithstanding any other provision of this Agreement, the Company shall have no obligations hereunder to any Transferee and no Transferee shall have any rights hereunder unless (A) the Original Securities held by such Transferee were originally owned by a Qualifying Old Equity Holder and each subsequent Transferee of such Original Securities (including, without limitation, the Person from whom such Transferee purchased or acquired such Original Securities) has complied timely with the requirements set forth in clauses (B) and (C) of this Section 2.1(b)(ii), (B) within 30 days of such Transferee's acquisition or purchase of such Original Securities, such Transferee delivers to the Company a written certification (signed by an authorized representative of such Transferee) certifying (1) the date of such Transferee's acquisition or purchase of such Original Securities and the number of Original Securities acquired or purchased by such Transferee, (2) the identity (including record and beneficial owner) and mailing address of such Transferee and the Person from whom such Transferee purchased or acquired such Original Securities, (3) the certificate number(s) of the Original Securities transferred (if reasonably available), (4) to the knowledge of such Transferee, that the Person from whom such Transferee purchased or acquired such Original Securities was, at the time of such purchase or transfer, a Remaining Class 7 Holder (it being understood that such Transferee shall be entitled to rely on a certificate or written representation of such Person in making such certification), and (5) that such securities transferred constitute Registrable Securities and (C) within 30 days of such Transferee's acquisition or purchase of such Original Securities, such Transferee executes and delivers to the Company a supplement, in form and substance reasonably satisfactory to the Company, pursuant to which such Transferee shall agree to be bound by the terms of this Agreement, including, without limitation, Section 2.5. (c) Form of Request. Any Remaining Class 7 Holder's request for Registration pursuant to this Section 2.1 shall (i) state the number of Registrable Securities to be included in such Registration, (ii) contain reasonably detailed information as to prior sales of Original Securities by or on behalf of such Remaining Class 7 Holder, (iii) contain an undertaking to (1) furnish all such information and materials and take all such action as may be reasonably required in order to permit the Company to comply with all applicable requirements of the SEC and to obtain acceleration of the effective date of the Registration Statement filed in connection with such Registration, (2) update, to the extent required by applicable law, any information about such Remaining Class 7 Holder contained in such Registration Statement during the period such Registration Statement is effective, (3) indemnify and hold harmless each of the parties specified in Section 2.5(b) to the extent provided in such Section 2.5(b) and to comply with the other provisions of Section 2.5 and (4) comply with all other provisions of this Agreement, (iv) in the case of an Initial Request, indicate whether an Underwritten Offering is requested in connection with such Registration and (v) contain a certification of such Remaining Class 7 Holder that, as of the date of delivery of such Remaining Class 7 Holder's request pursuant to this paragraph (c), (1) such Remaining Class 7 Holder is a "Remaining Class 7 Holder" as defined in Section 1.1 and (2) the securities identified in such request as Registrable Securities are "Registrable Securities" as defined in Section 1.1. (d) Limitations on Filings. Notwithstanding Section 2.1(a), the Company shall not be obligated to file a Registration Statement pursuant to this Section 2.1 (i) other than pursuant to the first Initial Request received by the Company and any Complying Responses in connection therewith (except as otherwise provided in Section 2.1(i)), (ii) with respect to any Designated Securities excluded from a Registration pursuant to Section 2.1(h), (iii) with respect to any Designated Securities with respect to which the Company shall not have received the undertaking referred to in Section 2.5(b), (iv) with respect to any Designated Securities that shall have ceased to be Registrable Securities, (v) after such time as Designated Securities that continue to be Registrable Securities no longer represent the Requisite Class 7 Percentage or (vi) during the 180 day period following the date on which an earlier filed Registration Statement (other than a Registration Statement on Form S-8) relating to shares of Common Stock or Warrants shall have become effective. (e) Registration Form. In the case of a Registration in connection with an Underwritten Offering that is a firm commitment underwriting, if the Company proposes to file a Registration Statement on Form S-3 (or any similar short-form Registration Statement), the Company will comply with any request by the Managing Underwriter to use another permitted form of Registration Statement if such Managing Underwriter advises the Company in writing that, in its opinion, the use of another form of Registration Statement is of material importance to the success of the offering, in which case such Registration shall be effected on the form recommended by the Managing Underwriter. (f) Expenses. All Registration Expenses shall be paid by the Company. (g) Underwritten Offering; Managing Underwriter. If the Initial Request shall so request, the offering of Registrable Securities pursuant to any Registration shall be an Underwritten Offering, in which event the Company shall have the right to select a nationally recognized investment banker (or investment bankers), reasonably acceptable to Participating Holders owning a majority in number of the Included Securities, that shall manage the offering (collectively, the "Managing Underwriter"). If requested by the Managing Underwriter for any Underwritten Offering, the Company shall enter into an underwriting agreement with the underwriters for such offering, such agreement to contain such representations and warranties by the Company and such other terms and provisions as are customarily contained in agreements of this type, including, without limitation, indemnities to the effect and to the extent provided in Section 2.5. The Participating Holders shall be parties to such underwriting agreement and the representations and warranties by, and the other agreements on the part of, the Company to and for the benefit of such underwriters shall also be made to and for the benefit of such Participating Holders and the conditions precedent to the obligations of such Participating Holders under such underwriting agreement shall be satisfactory to such Participating Holders. Such Participating Holders shall not be required to make any representations or warranties to the Company or its underwriters other than representations or warranties regarding such Participating Holder and such Participating Holder's intended method of distribution. (h) Priority. In the case of a Registration in connection with an Underwritten Offering, if the Managing Underwriter shall advise the Company in writing that, in its opinion, due to market conditions, the number of shares of Common Stock or Warrants included in such Underwritten Offering should be limited to fewer than the aggregate number of Designated Securities, then (i) the Registration shall be limited to such aggregate number of securities as the Managing Underwriter shall advise and (ii) the Company will promptly give written notice of such fact to each Participating Holder, indicating the number of Designated Securities of such Participating Holder that will be included in the Registration as so limited; provided that exclusions of Designated Securities shall be on a pro rata basis among all Participating Holders on the basis of the number of Designated Securities of each such Participating Holder. (i) Delay of Filing. The Company shall be entitled to postpone for a reasonable period of time, not to exceed 180 days from the date of receipt of an Initial Request, the filing of the Registration Statement otherwise required to be filed by it pursuant to this Section 2.1 if the Board of Directors of the Company (i) in good faith determines at such time that such Regis tration and related offering would materially adversely affect or interfere with any proposed or pending financing, acquisition, corporate reorganization or other transaction or the conduct or outcome of any litigation, in each case, that involves the Company or any subsidiary thereof and is material to the Company and its subsidiaries, taken as a whole, and (ii) as promptly as practicable gives all Participating Holders written notice of such postponement, setting forth the duration of and reasons for such postponement; provided, however, that the Company shall not effect such a postponement more than once in any 360 day period. (j) Revocation of Request. In any Registration, Participating Holders owning the Required Included Securities may, on behalf of all Participating Holders, revoke the request for such Registration, without incurring any liability to the Company or to any other Participating Holder, by providing written notice (a "Revocation Notice") to the Company at any time prior to the initial filing with the SEC of a Registration Statement in such Registration. A request for Registration that is revoked pursuant to this Section 2.1(j) shall not constitute a request pursuant to Section 2.1(a) and the Remaining Class 7 Holders shall continue to have the right to make one request for Registration pursuant to Section 2.1(a) if such revocation is pursuant to (i) a Revocation Notice that is received by the Company within 10 Business Days of the date on which the Company shall have given written notice of postponement of the filing of the Registration Statement in such Registration pursuant to Section 2.1(i) or (ii) the first Revocation Notice to have been received by the Company in circumstances other than as described in the preceding clause (i). (k) Effectiveness. A registration requested pursuant to Section 2.1(a) shall not be deemed to have been effected: (i) unless a Registration Statement with respect thereto has been declared effective by the SEC and remains effective in compliance with the provisions of the Securities Act and the laws of any state or other jurisdiction applicable to the disposition of all Included Securities covered by such Registration Statement until such time as all of such Included Securities have been disposed of in accordance with such Registration Statement; (ii) if, after it has become effective, such Registration is interfered with by any stop order, injunction or other order or requirement of the SEC or other governmental or regulatory agency or court for any reason other than a violation of applicable law solely by the holders of Included Securities and has not thereafter become effective; or (iii) if, in the case of an Underwritten Offering, the conditions to closing specified in the underwriting agreement to which the Registrant(s) are party are not satisfied other than by reason of any breach or failure by the holders of the Included Securities, or are not otherwise waived. SECTION 2.2 Limitations on Registration Rights. (a) No Incidental Registrations. The Company shall not be entitled to include in a Registration any shares of Common Stock or Warrants other than the Designated Securities, nor shall any Participating Holder have the right to include any of its Registrable Securities in any Registration Statement other than pursuant to a Registration hereunder. (b) No Other Registration Rights. The Company will not hereafter enter into any agreement with respect to any shares of Common Stock or Warrants that grants to any Person incidental registration rights with respect to any Registration Statement pursuant to a Registration hereunder. SECTION 2.3 Holdback Agreements. In the case of a Registration in connection with an Underwritten Offering, each Remaining Class 7 Holder and the Company agree not to effect any sale or distribution, including any private placement or any sale pursuant to Rule 144, of any shares of Common Stock or Warrants (other than the Included Securities pursuant to such Underwritten Offering) during the seven-day period prior, and the 180-day period following, the effective date of the Registration Statement in such Registration. SECTION 2.4 Registration Procedures. If and whenever the Company is required to effect a Registration, the Company shall, except as provided in Section 2.1(i), as expeditiously as possible: (a) prepare and file with the SEC as promptly as practicable, but in any event not later than 45 days after receipt of an Initial Request, a Registration Statement on any form for which the Company then qualifies which counsel for the Company shall deem appropriate, subject to Section 2.1(e), and which form shall be available for the sale of the Included Securities in accordance with the intended methods of distribution thereof, and use all reasonable efforts to cause such Registration Statement to become effective; provided that as promptly as practicable, but in any event not later than four Business Days before filing any Registration Document with the SEC, the Company will furnish to each Participating Holder, the Managing Underwriter, if any, and one counsel selected by Participating Holders owning a majority in number of the Included Securities copies of such Registration Document, which shall be subject to review by such Persons and the Company shall not file any Registration Document to which the Managing Underwriter, if any, or Participating Holders owning a majority in number of the Included Securities or such counsel of such Participating Holders shall have reasonably objected within three Business Days after receipt of such Registration Document (provided that the fore going shall not limit the right of any Participating Holder identified in such Registration Document reasonably to object, within three Business Days after receipt of such Registration Document, to any particular information contained therein relating specifically to such Participating Holder, including any information describing the manner in which such Participating Holder acquired its Included Securities and the intended method of distribution thereof) and if the Company is unable to file any such Registration Document due to any objection as provided herein, use its best efforts to cooperate with the Managing Under writer, if any, and the Participating Holders to prepare, as promptly as reasonably practicable, a document that is satisfactory to the Company, the Managing Underwriter, if any, and the Participating Holders; provided further that if such Registration Document refers to any Participating Holder by name or otherwise as the holder of any Included Securities, then such Participating Holder shall have the right to require (i) the insertion therein of language, in form and substance satisfactory to such Participating Holder, to the effect that the holding by such Participating Holder of such securities does not necessarily make such Participating Holder a "Controlling Person" of the Company within the meaning of the Securities Act and is not to be construed as a recommendation by such Participating Holder of the investment quality of the Common Stock or the Warrants, as the case may be, covered thereby and that such holding does not imply that such Participating Holder will assist in meeting any future financial requirements of the Company, or (ii) in the event that such reference to such Participating Holder by name or otherwise is not required by the Securities Act or any rules and regulations promulgated thereunder, the deletion of the reference to such Participating Holder; and the Company shall notify each Participating Holder of any stop order issued or threatened by the SEC and take all reasonable actions required to prevent the entry of such stop order or to remove it if entered; (b) prepare and file with the SEC such additional Registration Documents as may be necessary to keep the Registration Statement in such Registration effective until the earlier of (i) such time as all Included Securities have been sold and (ii) 90 days from the effective date of such Registration Statement or such longer period as may be required by the Securities Act, and comply with the provisions of the Securities Act with respect to the disposition of all Included Securities during such period in accordance with the intended methods of disposition thereof set forth in such Registration Statement; (c) furnish to each Participating Holder and the Managing Underwriter, if any, copies of such Registration Documents in such Registration and in such numbers as may be required by the Securities Act or as any of the foregoing may reasonably request; (d) use all reasonable efforts to register or qualify the Included Securities under such other state securities or "blue sky" laws of such jurisdictions as any Participating Holder or the Managing Underwriter, if any, reasonably requests and do any and all other acts and things that may be reasonably necessary or advisable to enable the Participating Holders and the Managing Underwriter, if any, to consummate the disposition in such jurisdictions of the Included Securities; provided that the Company will not be required to (i) qualify generally to do business in any jurisdiction where it would not otherwise be required to qualify but for this Section 2.4(d), (ii) subject itself to taxation in any such jurisdiction or (iii) consent to general service of process in any such jurisdiction; (e) use all reasonable efforts to cause the Included Securities to be registered with or approved by such other governmental agencies or authorities as may be necessary by virtue of the business and operations of the Company to enable each Participating Holder to consummate the disposition of its Included Securities; (f) at any time when a prospectus relating to the Included Securities is required to be delivered under the Securities Act, immediately notify each Participating Holder and the Managing Underwriter, if any, of the happening of any event that comes to the Company's attention if as a result of such event the prospectus included in such Registration Statement contains any untrue statement of a material fact or omits to state any material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, and the Company will promptly prepare and furnish to each Participating Holder and the Managing Underwriter, if any, a supplement or amendment to such prospectus so that, as thereafter delivered to purchasers of Included Securities, such prospectus will not contain any untrue statement of a material fact or omit to state any material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading; (g) use all reasonable efforts to cause the Included Securities to be listed on each securities exchange or national market system on which the Common Stock is then listed, if any, and enter into such customary agreements including a listing application and indemnification agreement in customary form, provided that the applicable listing requirements are satisfied, and to provide a transfer agent and registrar for the Included Securities no later than the effective date of Registration Statement in such Registration; (h) enter into such customary agreements (including an underwriting agreement in customary form) and take all such other actions as Participating Holders owning a majority in number of the Included Securities or the Managing Underwriter, if any, reasonably request in order to expedite or facilitate the disposition of the Included Securities, including customary indemnification; (i) make available for inspection by any Participating Holder, the Managing Underwriter, if any, and any attorney, accountant or other agent retained by any Participating Holder or the Managing Underwriter, if any, all financial and other records, pertinent corporate documents and properties of the Company and its subsidiaries as shall be reasonably necessary to enable such Persons to exercise their due diligence responsibility, and cause the Company's and its subsidiaries' officers, directors and employees to supply all information and respond to all inquiries reasonably requested by any such Person in connection with the Registration Statement in such Registration; (j) deliver an opinion of counsel for the Company and a "cold comfort" letter from the Company's independent public accountants in customary form and covering such matters of the type customarily covered by opinions of issuer's counsel and "cold comfort" letters and such other matters as Participating Holders owning a majority in number of the Included Securities or the Managing Underwriters, if any, reasonably request; and (k) otherwise use all reasonable efforts to comply with all applicable rules and regulations of the SEC, and make available to its security holders, as soon as reasonably practicable, an earnings statement no later than 60 days after the end of the 12- month period commencing at the end of the fiscal quarter of the Company in which the effective date of the Registration Statement shall have occurred (as the term "effective date" is defined in Rule 158(c) under the Securities Act), which earnings statement shall satisfy the provisions of Section 11(a) of the Securities Act and Rule 158 thereunder. Each Participating Holder agrees that, upon receipt of any notice from the Company of the happening of any event of the kind described in Sec tion 2.4(f), such Participating Holder will forthwith discontinue disposition of its Included Securities until such Participating Holder's receipt of the copies of the supplemented or amended prospectus contemplated by Section 2.4(f), and, if so directed by the Company such Participating Holder will deliver to the Company (at the Company's expense) all copies (including, but not limited to, any and all drafts), other than permanent file copies, then in such Participating Holder's possession, of the prospectus covering the Included Securities current at the time of receipt of such notice. In the event the Company shall give any such notice, the period mentioned in Section 2.4(b) shall be extended by the greater of (i) 90 days and (ii) the number of days during the period from and including the date of the giving of such notice pursuant to Section 2.4(f) to and including the date when each Participating Holder shall have received the copies of the supplemented or amended prospectus contemplated by Section 2.4(f). SECTION 2.5 Indemnification. (a) Indemnification by the Company. In any Registration, the Company will, and it hereby does, indemnify and hold harmless, to the full extent permitted by law, each Participating Holder, its directors and officers, general partners, limited partners, managing directors, agents and representatives and each other Person who participates as an underwriter in the offering or sale of such securities and each affiliate of such Participating Holder or underwriter (and directors, officers, controlling Persons, partners, managing directors, agents and representatives of any of the foregoing), against any and all losses, claims, damages or liabilities, joint or several, and expenses (including any amounts paid in any settlement) to which such Participating Holder or underwriter, or any such director, officer, controlling person, partner, managing director, agent or representative may become subject under the federal securities laws, state securities or "blue sky" laws, common law or otherwise, insofar as such losses, claims, damages or liabilities (or actions or proceedings in respect thereof) or expenses arise out of or are based upon (i) any untrue statement or alleged untrue statement of any material fact contained in any Registration Document in such Registration, (ii) any omission or alleged omission to state therein a material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, or (iii) any violation or alleged violation by the Company of any federal, state or common law rule or regulation applicable to the Company and relating to action required of or inaction by the Company in connection with such Registration, and the Company will reimburse each Participating Holder or underwriter and each such director, officer, controlling person, partner, managing director, agent or representative for any legal or any other expenses reasonably incurred by them, as and when incurred, in connection with investigating or defending such loss, claim, damage, liability, action or proceeding; provided that the Company shall not be liable in any such case to the extent that any such loss, claim, damage, liability (or action or proceeding in respect thereof) or expense arises out of or is based upon any untrue statement or alleged untrue statement or omission or alleged omission made in such Registration Document in reliance upon and in conformity with written information furnished to the Company through an instrument duly executed by such Participating Holder in such Participating Holder's capacity as a stockholder of the Company or any such director, officer, controlling Person, partner, managing director, agent, representative or underwriter specifically stating that it is for use in the preparation thereof; provided further that the Company shall not be liable to any Participating Holder, any Person, if any, who participates as an underwriter in the offering or sale of Included Securities or any other Person, if any, who controls such underwriter within the meaning of the Securities Act, pursuant to this Section 2.5 with respect to any Registration Document, to the extent that any such loss, claim, damage or liability of such underwriter or controlling Person results from the fact that such underwriter sold Included Securities to a Person to whom there was not sent or given, at or prior to the written confirmation of such sale, a copy of the final prospectus or of the final prospectus as then amended or supplemented, whichever is most recent, covering such Included Securities if the Company had previously furnished copies thereof to such underwriter and such final prospectus, as then amended or supplemented, had corrected any such misstatement or omission. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of such Participating Holder or underwriter or any such director, officer, controlling person, partner, managing director, agent or representative and shall survive the transfer by such Participating Holder of its Included Securities. (b) Indemnification by the Participating Holders and Under writers. As a condition to including any Designated Securities in any Registration, the Company shall have received an undertaking reasonably satisfactory to it from each Participating Holder or any underwriter, to indemnify and hold harmless (in the same manner and to the same extent as set forth in Section 2.5(a)) the Company and its directors, officers, controlling Persons and all other prospective sellers (including, but not limited to, all other Participating Holders) and their respective directors, officers, general and limited partners, managing directors, and their respective controlling Persons with respect to any statement or alleged statement in or omission or alleged omission from any Registration Document in such Registration, if such statement or alleged statement or omission or alleged omission was made in reliance upon and in conformity with written information furnished to the Company or its representatives through an instrument duly executed by or on behalf of such Participating Holder or underwriter specifically stating that it is for use in the preparation of such Registration Document. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of the Company or any Participating Holder, underwriter or any of their respective directors, officers, general or limited partners, managing directors or controlling Persons and shall survive the transfer by such Participating Holder of its Included Securities; provided, however, that no such Participating Holder shall be liable under Section 2.5 for any amounts exceeding the product of the proceeds (net of any underwriting commissions, discounts and the like) per share to be received by such Participating Holder in the sale of its Included Securities and the number of Included Securities owned by such Participating Holder. (c) Notices of Claims, Etc. Promptly after receipt by an indemnified party hereunder of, written notice of the commencement of any action or proceeding with respect to which a claim for indemnification may be made pursuant to this Section 2.5, such indemnified party will, if a claim in respect thereof is to be made against an indemnifying party, promptly give written notice to the indemnifying party of the commencement of such action; provided, that the failure of any indemnified party to give notice as provided herein shall not relieve the indemnifying party of its obligations under the preceding subsections of this Section 2.5, except to the extent that the indemnifying party is actually materially prejudiced by such failure to give notice. In case any such action is brought against an indemnified party, unless in such indemnified party's reasonable judgment a conflict of interest between such indemnified and indemnifying parties may exist in respect of such claim, the indemnifying party will be entitled to participate in and, jointly with any other indemnifying party similarly notified, to assume the defense thereof, to the extent that it may wish, with counsel reasonably satisfactory to such indemnified party, and after notice from the indemnifying party to such indemnified party of its election so to assume the defense thereof, the indemnifying party will not be liable to such indemnified party for any legal or other expenses subsequently incurred by the latter in connection with the defense thereof, unless in such indemnified party's reasonable judgment a conflict of interest between such indemnified and indemnifying parties arises in respect of such claim after the assumption of the defense thereof. No indemnifying party will consent to entry of any judgment or enter into any settlement which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such indemnified party of a release from all liability in respect of such claim or litigation. An indemnifying party who is not entitled to, or elects not to, assume the defense of a claim will not be obligated to pay the fees and expenses of more than one counsel in any single jurisdiction for all parties indemnified by such indemnifying party with respect to such claim, unless in the reasonable judgment of any indemnified party a conflict of interest may exist between such indemnified party and any other of such indemnified parties with respect to such claim, in which event the indemnifying party shall be obligated to pay the fees and expenses of such additional counsel or counsels as may be reasonably necessary. Notwithstanding anything to the contrary set forth herein, and without limiting any of the rights set forth above, in any event each Participating Holder will have the right to retain at its own expense, counsel with respect to the defense of a claim. (d) Other Indemnification. Indemnification similar to that specified in the preceding subsections of this Section 2.5 (with appropriate modifications) shall be given by the Company and each Participating Holder with respect to any required registration or other qualification of securities under any federal or state law or regulation or governmental authority other than the Securities Act. (e) Contribution. In order to provide for just and equitable contribution in circumstances in which the indemnity agreement provided for in this Section 2.5 is for any reason held to be unavailable to an indemnified party in accordance with its terms, the Company and each Participating Holder shall contribute to the aggregate losses, liabilities, claims, damages and expenses of the nature contemplated by said indemnity agreement incurred by the Company and the Participating Holder (i) in such proportion as is appropriate to reflect the relative benefits received by the Company on the one hand and the Participating Holder in question on the other or (ii) if the allocation provided by clause (i) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the benefits referred to in clause (i), but also the relative fault of each of the Company and the Participating Holder in question in connection with the statements or omissions which resulted in such losses, liabilities, claims, damages and expenses, as well as any other relevant equitable considerations. The relative fault of the Company on the one hand and of the Participating Holder on the other shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission to state a material fact relates to information supplied by the Company on the one hand or by the Participating Holder on the other hand and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. No Person guilty of fraudulent misrepresentation (within the meaning of subsection 11(f) of the Securities Act) shall be entitled to contribution from any person who is not guilty of such fraudulent misrepresentation. The foregoing contribution agreement shall in no way affect the contribution liabilities of any Person having liability under Section 11 of the Securities Act other than the Company and the Participating Holders. MISCELLANEOUS SECTION 3.1 Effectiveness. The terms of this Agreement shall be effective as of the Effective Date. SECTION 3.2 Amendments. This Agreement cannot be amended, modified or supplemented except (a) as contemplated by Section 2.1(b)(ii)(C) and (b) by a written instrument signed by the Company and the Remaining Class 7 Holders owning at the time of execution thereof not less than a majority in number of the Registrable Securities at such time, provided, however, that without the written consent of each such holder affected thereby no amendment, modification or supplement pursuant to clause (b) above may make a change that (i) increases the obligations of such holder or (ii) adversely affects the rights of such holder under Section 2.5. SECTION 3.3 Term of Agreement. This Agreement shall commence on the Effective Date and shall terminate, except for the provisions of Section 2.5 which shall survive such termination, on the earliest to occur of (i) the seventh anniversary of the Effective Date, (ii) the date on which the effectiveness of a Registration Statement that has become effective (within the meaning of Section 2.1(k)) in a Registration shall have been terminated and (iii) such time as the Registrable Securities no longer represent the Registration Trigger Amount. SECTION 3.4. Calculation of Requisite Class 7 Percentage and Required Included Securities. For purposes of calculating the Required Class 7 Percentage and the Required Included Securities, and for purposes of any similar calculation or determination to be made under this Agreement, each Original Warrant to purchase one share of Common Stock shall be treated as one share of Original Common Stock. SECTION 3.5. Headings. The descriptive headings of the several Articles and Sections of this Agreement are inserted for convenience only and do not constitute a part of this Agreement. SECTION 3.6. Specific Performance. Irreparable damage would occur in the event any of the provisions of this Agreement were not to be performed in accordance with the terms hereof and the Company and the Remaining Class 7 Holders, as the case may be, shall be entitled to specific performance of the terms hereof, in addition to any other remedy at law or equity. SECTION 3.7. Complete Agreement. This Agreement contains the entire agreement of the Company and the Old Equity Holders in respect of the subject matter contained herein and the transactions contemplated hereby. There are no restrictions, agreements, promises, representations, warranties, covenants, or undertakings with respect to the subject matter hereof, other than those expressly set forth or referred to herein. This Agreement supersedes all prior agreements and understandings between the parties hereto with respect to the subject matter hereof. SECTION 3.8. Assignment. The registration and other rights provided in this Agreement, and the obligations of the Company hereunder, are not assignable to any Person (including, without limitation, any Transferee) except to the extent expressly provided in Section 2.1(b)(ii). SECTION 3.9. Notices. Any notice, request, instruction or other document to be given hereunder shall be in writing, shall be delivered personally or sent by Federal Express or other overnight delivery service, (a) if to the Company, to Homeland Holding Corporation, 2601 Northwest Expressway, Oil Center East, 11th Floor, Oklahoma city, OK 73112, Attention: Secretary, or to such other address as the Company shall specify by written notice, (b) if to any Old Equity Holder listed on Schedule I, to the address listed on such schedule and (c) if to any other Old Equity Holder or Permitted Transferee, to such address (which shall not be a post office box, but shall be an address to which overnight delivery services will deliver) as such Old Equity Holder or Permitted Transferee shall have specified in a written notice to the Company (which may be amended by subsequent written notice), a copy of which written notice shall be on file with the Secretary of the Company. Notwithstanding any other provision of this Agreement, unless and until the Company shall have received such notice of address from an Old Equity Holder or Permitted Transferee, the Company shall have no obligation to such Old Equity Holder or Permitted Transferee with respect to the giving of any notice otherwise required hereunder. Notice shall be effective when sent in the manner, and directed as, provided above or, if delivered personally, when received. SECTION 3.10. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of New York, without regard to applicable principles of conflicts of laws. SECTION 3.11. Severability. Whenever possible, each provision of this Agreement will be interpreted in such a manner as to be effective and valid under applicable law, but if any provision of this Agreement is held to be prohibited by or invalid under applicable law, such provision will be ineffective only to the extent of such prohibition or invalidity, without invalidating the remainder of this Agreement, except to the extent that such prohibition or invalidity would constitute a material change in the terms of this Agreement taken as a whole. SECTION 3.12. Rule 144 and Rule 144A. The Company shall take all actions reasonably necessary to enable the Remaining Class 7 Holders to sell their Registrable Securities without registration under the Securities Act within the limitation of the exemptions provided by (i) Rule 144, (ii) Rule 144A, or (iii) any similar rules or regulations hereafter adopted by the SEC, including, without limitation, filing on a timely basis all reports required to be filed under the Exchange Act. Upon the request of any such holder, the Registrant(s) shall deliver to such holder a written statement as to whether they have complied with such requirements. IN WITNESS WHEREOF, the Company has executed, and each Old Equity Holder by receipt of its Original Securities is deemed to have executed, this Agreement as of the date first above written. HOMELAND HOLDING CORPORATION By:_____________________ Name: Title: Identified Holders Number of Shares Holder of Old Common Stock The Clayton & Dubilier 11,700,000 Private Equity Fund III Limited Partnership, 270 Greenwich Avenue Greenwich, CT 06830 The Clayton & Dubilier 13,153,089 Private Equity Fund IV Limited Partnership 270 Greenwich Avenue Greenwich, CT 06830 178465 EX-4 5 NOTEHOLDER REGISTRATION RIGHTS AGREEMENT NOTEHOLDER REGISTRATION RIGHTS AGREEMENT, dated as of August 2, 1996 (this "Agreement"), by Homeland Holding Corporation, a Delaware corporation ("Holding"), and Homeland Stores, Inc. ("Homeland"), for the benefit of the beneficial owners as of the Confirmation Date (as such term and other capitalized terms are defined in Section 1.1) of Old Notes (the "Old Debt Holders"). WHEREAS, Holding and Homeland filed a Joint Plan of Reorganization with the United States Bankruptcy Court, District of Delaware (the "Bankruptcy Court") on May 13, 1996 (the "Plan"); WHEREAS, the Plan was accepted by, among others, the holders of the requisite percentage and amount of claims designated as "Class 5 Claims" under the Plan (including claims in respect of the Old Notes), and the Bankruptcy Court entered an order confirming the Plan on July 19, 1996; WHEREAS, the Plan became effective on August 2, 1996 (the "Effective Date"); and WHEREAS, pursuant to the Plan, (i) the Old Debt Holders are to receive, among other things, approximately 2,827,972 shares of Common Stock in the aggregate (the "Original Shares") and $60,000,000 aggregate principal amount of Senior Subordinated Notes (the "Original Notes" and, collectively with the Original Shares, the "Original Securities") and (ii) registration rights are to be granted to the Old Debt Holders with respect to such Original Securities on the terms and conditions set forth in this Agreement. NOW, THEREFORE, in consideration of the mutual covenants and agreements contained herein, Holding and Homeland agree, and each Old Debt Holder by receipt of its Original Securities pursuant to the Plan is deemed to agree, as follows: DEFINITIONS SECTION 1.1 Definitions. As used herein, the following terms shall have the meanings indicated: "Bankruptcy Court" shall have the meaning given in the recitals to this Agreement. "Business Day" shall mean any day other than a Saturday, Sunday or other day on which commercial banks in the City of New York are authorized or obligated by law or executive order to close. Unless specifically stated as a Business Day, all days referred to herein shall mean calendar days. "Common Stock" shall mean the common stock, par value $.01 per share, of Holding after Holding's Amended and Restated Certificate of Incorporation is filed with the Secretary of State of the State of Delaware pursuant to the Plan and any and all securities of any kind whatsoever of Holding which may be issued after such filing with respect to, or in exchange for, shares of Common Stock pursuant to a merger, consolidation, reclassification, stock split, stock dividend, rights offering, combination, recapitalization of Holding or otherwise. "Complying Response" shall mean, with respect to any Registration, each written request (other than an Initial Request) submitted by a Remaining Class 5 Holder in connection with such Registration that (i) complies with Section 2.1(c) and (ii) is received by the Registrant(s) within 15 Business Days from the date on which the Registrant(s) shall have given notice of the Initial Request for such Registration pursuant to Section 2.1(a). "Confirmation Date" shall have the meaning given in the Plan. "Designated Notes" shall mean, with respect to any Participating Holder in connection with any Registration, the Registrable Notes of such Participating Holder requested for inclusion in such Registration in compliance with Section 2.1(c). "Designated Securities" shall mean, collectively, the Designated Notes and the Designated Shares. "Designated Shares" shall mean, with respect to any Participating Holder in connection with any Registration, the Registrable Shares of such Participating Holder requested for inclusion in such Registration in compliance with Section 2.1(c). "Effective Date" shall have the meaning given in the recitals to this Agreement. "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder. "Included Notes" shall mean, with respect to any Registration, all of the Designated Notes requested for inclusion in such Registration or, in the case of a Registration in connection with an Underwritten Offering, any lesser amount of securities to which such Registration may be limited pursuant to Section 2.1(h). "Included Securities" shall mean, collectively, the Included Notes and the Included Shares. "Included Shares" shall mean, with respect to any Registration, all of the Designated Shares requested for inclusion in such Registration or, in the case of a Registration in connection with an Underwritten Offering, any lesser number of shares to which such Registration may be limited pursuant to Sec tion 2.1(h). "Initial Request" shall have the meaning given in Section 2.1(a). "Managing Underwriter" shall have the meaning given in Section 2.1(g). "NASD" shall mean the National Association of Securities Dealers, Inc. "Old Debt Holders" shall have the meaning given in the recitals of this Agreement. "Old Notes" shall mean, collectively, Homeland's Series A Senior Secured Floating Rate Notes due 1997, Series C Senior Secured Fixed Rate Notes due 1999 and Series D Senior Secured Floating Rate Notes due 1997. "Original Notes" shall have the meaning given in the recitals to this Agreement. "Original Securities" shall have the meaning given in the recitals to this Agreement. "Original Shares" shall have the meaning given in the recitals to this Agreement. "Participating Holder" shall mean, with respect to any Registration, each Remaining Class 5 Holder that shall have submitted the Initial Request or a Complying Response in connection with such Registration. "Permitted Transferee" shall mean a Transferee that satisfies the eligibility, notice and other requirements set forth in Section 2.1(b)(ii). "Person" shall mean any individual, partnership, limited liability company, corporation, business trust, joint stock company, trust, unincorporated association, joint venture, or other entity of whatever nature. "Plan" shall have the meaning given in the recitals of this Agreement. "Qualifying Old Debt Holder" shall mean an Old Debt Holder that satisfies the notice requirements set forth in Section 2.1(b)(i). "Registrable Notes" shall mean, at any time, all Original Notes owned beneficially by either Qualifying Old Debt Holders or Permitted Transferees. "Registrable Securities" shall mean, collectively, the Registrable Notes and the Registrable Shares. "Registrable Shares" shall mean, at any time, (i) all Original Shares owned beneficially by either Old Debt Holders or Permitted Transferees and (ii) all securities that at the time of issuance were issued in respect of Registrable Shares to the Remaining Class 5 Holder of such Registrable Shares by way of a stock dividend or stock split or in connection with a combination of shares, reclassification, rights offering, recapitalization, merger, consolidation, other reorganization or otherwise, provided that such securities are owned beneficially by either Qualifying Old Debt Holders or Permitted Transferees. "Registrant(s)" shall mean (i) Holding, in the case of a Registration of Registrable Shares only and (ii) Holding and Homeland, in the case of a Registration of Registrable Shares and Registrable Notes. "Registration" shall mean any registration of Registrable Securities by the Registrant(s) with the SEC under the Securities Act pursuant to Section 2.1(a). "Registration Document" means any Registration Statement and any prospectus included therein (including any preliminary prospectus) and any amendment or supplement to such Registration Statement or prospectus, in each case, including all exhibits thereto and documents incorporated by reference therein. "Registration Expenses" shall mean all expenses incident to any Registration, whether or not such Registration shall become effective and whether or not all or a portion of the Registrable Securities originally requested to be included in such Registration are ultimately included in such Registration, including, but not limited to: (i) all SEC and stock exchange or NASD registration and filing fees and expenses; (ii) all fees and expenses of compliance with applicable state securities or "blue sky" laws (including, but not limited to, reasonable fees and disbursements of counsel for the Managing Underwriter, if any, in connection with "blue sky" qualifications of the Included Securities); (iii) all word processing, duplicating, printing expenses, messenger and delivery expenses; (iv) all fees and expenses incurred in connection with the listing of the Included Securities on each securities exchange or national market system on which such securities are then listed; (v) all fees and disbursements of counsel for the Registrant(s) and all independent certified public accountants (including the expenses of any annual audit and "cold comfort" letters required by or incident to such performance and compliance); (vi) all fees and disbursements of underwriters customarily paid by issuers or sellers of securities (including the fees and expenses of any "qualified independent underwriter" required by the NASD); (vii) the reasonable fees and expenses of one counsel retained by Participating Holders owning not less than the Required Included Securities (which counsel shall be reasonably satisfactory to the Registrant(s)); (viii) the reasonable fees and expenses of any special experts or other Persons retained by the Registrant(s)); and (ix) premiums and other costs of policies of insurance against liabilities arising out of the public offering of the Included Securities. The foregoing shall not include any underwriting discounts or commissions or transfer taxes, if any, attributable to the sale of Included Securities by Participating Holders. "Registration Statement" shall mean a registration statement under the Securities Act. "Registration Trigger Amount" shall mean 470,000 Original Shares. "Remaining Class 5 Holder" shall mean, at any time (i) each Qualifying Old Debt Holder that is at such time the beneficial owner of any Registrable Securities and (ii) each Permitted Transferee that is at such time the beneficial owner of any Registrable Securities. "Required Included Securities" shall mean, at any time, a majority of the Included Shares. "Revocation Notice" shall have the meaning given in Section 2.1(j). "Rule 144" shall mean Rule 144 of the General Rules and Regulations promulgated under the Securities Act, or any successor rule to similar effect. "Rule 144A" shall mean Rule 144A of the General Rules and Regulations promulgated under the Securities Act, or any successor rule to similar effect. "SEC" shall mean the Securities and Exchange Commission and any successor commission or agency having similar powers. "Securities Act" shall mean the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder. "Senior Subordinated Notes" shall mean the 10% Senior Subordinated Notes Due 2003 of Homeland. "Transferee" shall mean any beneficial owner of Registrable Securities other than an Old Debt Holder. "Underwritten Offering" shall mean a sale of securities of the Company to an underwriter or underwriters for reoffering to the public. "Warrants" shall mean warrants to purchase Common Stock, including, without limitation, the Warrants of Holding issued pursuant to the Plan. SECTION 1.2 Construction. Unless the context otherwise requires, words in the singular include the plural, and in the plural include the singular and "or" is not exclusive. ARTICLE II SECTION 2.1 Demand Registration. (a) Demand Registration Rights. Subject to the terms and conditions of this Agreement (including, without limitation, Sections 2.1(b), (c), (d) and (j)), at any one time after the second anniversary of the Effective Date, one or more Remaining Class 5 Holders owning Registrable Shares at such time equal to or exceeding the Registration Trigger Amount may make a written request, which shall comply with Section 2.1(c) (an "Initial Request"), for Registration of (i) all of their Registrable Shares or any portion thereof that at such time constitutes in the aggregate not less than the Registration Trigger Amount and/or (ii) all of their Registrable Notes or any portion thereof that at such time constitutes in the aggregate not less $6,000,000 aggregate principal amount. Within 10 Business Days after receipt of such Initial Request, the Registrant(s) shall give written notice thereof (in the form attached hereto as Exhibit A) to all other Remaining Class 5 Holders and, subject to Section 2.1(c), such other Remaining Class 5 Holders may request the inclusion of their Registrable Securities in such Registration. Thereafter, the Registrant(s) shall, in accordance with Section 2.4, file a Registration Statement covering the Included Securities and use all reasonable efforts to cause such Registration Statement to become effective. (b) Limitation on Registration Rights. (i) Notwithstanding any other provision of this Agreement, the Registrant(s) shall have no obligations hereunder to any Old Debt Holder and no Old Debt Holder shall have any rights hereunder unless and until such Old Debt Holder shall have established to the reasonable satisfaction of the Registrant(s) (A) that such Old Debt Holder was the beneficial owner as of the Confirmation Date of Old Notes and (B) the series and principal amount thereof, which facts such Old Debt Holder can so establish by (1) delivering to Holding within 90 days of the Effective Date the written certification as to such facts of the record holder as of the Confirmation Date of such Old Debt Holder's Old Notes or (2) such other proof as shall be reasonably satisfactory to Holding. (ii) Notwithstanding any other provision of this Agreement, the Registrant(s) shall have no obligations hereunder to any Transferee and no Transferee shall have any rights hereunder unless (A) the Original Securities held by such Transferee were originally owned by a Qualifying Old Debt Holder and each subsequent Transferee of such Original Securities (including, without limitation, the Person from whom such Transferee purchased or acquired such Original Securities) has complied timely with the requirements set forth in clauses (B) and (C) of this Section 2.1(b)(ii), (B) within 30 days of such Transferee's acquisition or purchase of such Original Securities, such Transferee delivers to Holding a written certification (signed by an authorized representative of such Transferee) certifying (1) the date of such Transferee's acquisition or purchase of such Original Securities and the number of Original Shares and/or the principal amount of Original Notes acquired or purchased by such Transferee, (2) the identity (including record and beneficial owner) and mailing address of such Transferee and the Person from whom such Transferee purchased or acquired such Original Securities, (3) the certificate number(s) and/or serial number(s) of the Original Securities transferred (if reasonably available), (4) to the knowledge of such Transferee, that the Person from whom such Transferee purchased or acquired such Original Securities was, at the time of such purchase or transfer, a Remaining Class 5 Holder (it being understood that such Transferee shall be entitled to rely on a certificate or written representation of such Person in making such certification), and (5) that such securities transferred constitute Registrable Securities and (C) within 30 days of such Transferee's acquisition or purchase of such Original Securities, such Transferee executes and delivers to Holding a supplement, in form and substance reasonably satisfactory to Registrant(s), pursuant to which such Transferee shall agree to be bound by the terms of this Agreement, including, without limitation, Section 2.5. (c) Form of Request. Any Remaining Class 5 Holder's request for Registration pursuant to this Section 2.1 shall (i) state the number of Registrable Shares and the aggregate principal amount of Registrable Notes to be included in such Registration, (ii) contain reasonably detailed information as to prior sales of Original Securities by or on behalf of such Remaining Class 5 Holder, (iii) contain an undertaking to (1) furnish all such information and materials and take all such action as may be reasonably required in order to permit the Registrant(s) to comply with all applicable requirements of the SEC and to obtain acceleration of the effective date of the Registration Statement filed in connection with such Registration, (2) update, to the extent required by applicable law, any information about such Remaining Class 5 Holder contained in such Registration Statement during the period such Registration Statement is effective, (3) indemnify and hold harmless each of the parties specified in Section 2.5(b) to the extent provided in such Section 2.5(b) and to comply with the other provisions of Section 2.5 and (4) comply with all other provisions of this Agreement, (iv) in the case of an Initial Request, indicate whether an Underwritten Offering is requested in connection with such Registration and (v) contain a certification of such Remaining Class 5 Holder that, as of the date of delivery of such Remaining Class 5 Holder's request pursuant to this paragraph (c), (1) such Remaining Class 5 Holder is a "Remaining Class 5 Holder" as defined in Section 1.1, and (2) the securities identified in such request as Registrable Securities are "Registrable Securities" as defined in Section 1.1. (d) Limitations on Filings. Notwithstanding Section 2.1(a), the Registrant(s) shall not be obligated to file a Registration Statement pursuant to this Section 2.1 (i) other than pursuant to the first Initial Request received by the Registrant(s) and any Complying Responses in connection therewith (except as otherwise provided in Section 2.1(i)), (ii) with respect to any Designated Securities excluded from a Registration pursuant to Section 2.1(h), (iii) with respect to any Designated Securities with respect to which the Company shall not have received the undertaking referred to in Section 2.5(b), (iv) with respect to any Designated Securities that shall have ceased to be Registrable Securities, (v) after such time as Designated Shares that continue to be Registrable Shares no longer represent the Registration Trigger Amount or (vi) during the 180 day period following the date on which an earlier filed Registration Statement (other than a Registration Statement on Form S-8) relating to shares of Common Stock, Warrants or other securities shall have become effective. (e) Registration Form. In the case of a Registration in connection with an Underwritten Offering that is a firm commitment underwriting, if the Registrant(s) propose or proposes to file a Registration Statement on Form S-3 (or any similar short-form Registration Statement), the Registrant(s) will comply with any request by the Managing Underwriter to use another per mitted form of Registration Statement if such Managing Underwriter advises the Company in writing that, in its opinion, the use of another form of Registration Statement is of material importance to the success of the offering, in which case such Registration shall be effected on the form recommended by the Managing Underwriter. (f) Expenses. All Registration Expenses shall be paid by the Registrant(s). (g) Underwritten Offering; Managing Underwriter. If the Initial Request shall so request, the offering of Registrable Securities pursuant to any Registration shall be an Underwritten Offering, in which event the Registrant(s) shall have the right to select a nationally recognized investment banker (or investment bankers) reasonably acceptable to the holders of the Required Included Securities that shall manage the offering (collectively, the "Managing Underwriter"). If requested by the Managing Underwriter for any Underwritten Offering, the Registrant(s) shall enter into an underwriting agreement with the underwriters for such offering, such agreement to contain such representations and warranties by the Registrant(s) and such other terms and provisions as are customarily contained in agreements of this type, including, without limitation, indemnities to the effect and to the extent provided in Section 2.5. The Participating Holders shall be parties to such underwriting agreement and the representations and warranties by, and the other agreements on the part of, the Registrant(s) to and for the benefit of such underwriters shall also be made to and for the benefit of such Participating Holders and the conditions precedent to the obligations of such Participating Holders under such underwriting agreement shall be satisfactory to such Participating Holders. Such Participating Holders shall not be required to make any representations or warranties to the Registrant(s) or its underwriters other than representations or warranties regarding such Participating Holder and such Participating Holder's intended method of distribution. (h) Priority. In the case of a Registration in connection with an Underwritten Offering, if the Managing Underwriter shall advise the Registrant(s) in writing that, in its opinion, due to market conditions, the number of shares of Common Stock included in such Underwritten Offering should be limited to fewer than the aggregate number of Designated Shares, or the amount of Senior Subordinated Notes included in such Underwritten Offering should be limited to less than the aggregate amount of Designated Notes, then (i) the Registration shall be limited to such aggregate number of shares of Common Stock and such aggregate amount of Senior Subordinated Notes as the Managing Underwriter shall advise and (ii) the Registrant(s) will promptly give written notice of such fact to each Participating Holder, indicating the number of Designated Securities of such Participating Holder that will be included in the Registration as so limited; provided that exclusions of Designated Securities shall be on a pro rata basis among all Participating Holders on the basis of the number of Designated Shares (in the case of Designated Shares) and the aggregate principal amount of Designated Notes (in the case of Designated Notes) of each such Participating Holder (treating the Designated Notes and the Designated Shares as separate classes for purposes of such pro rata treatment). (i) Delay of Filing. The Registrant(s) shall be entitled to postpone for a reasonable period of time, not to exceed 180 days from the date of receipt of an Initial Request, the filing of the Registration Statement otherwise required to be filed by it pursuant to this Section 2.1 if the Board(s) of Directors of the Registrant(s) (i) in good faith determines at such time that such Registration and related offering would materially adversely affect or interfere with any proposed or pending financing, acquisition, corporate reorganization or other transaction or the conduct or outcome of any litigation, in each case, that involves the Registrant(s) or any subsidiary thereof and is material to the Registrant(s) and its subsidiaries, taken as a whole, and (ii) as promptly as practicable gives all Participating Holders written notice of such postponement, setting forth the duration of and reasons for such postponement; provided, however, that the Registrant(s) shall not effect such a postponement more than once in any 360 day period. (j) Revocation of Request. In any Registration, Participating Holders owning the Required Included Securities may, on behalf of all Participating Holders, revoke the request for such Registration, without incurring any liability to the Registrant(s) or to any other Participating Holder, by providing written notice (a "Revocation Notice") to the Registrant(s) at any time prior to the initial filing with the SEC of a Registration Statement in such Registration. A request for Registration that is revoked pursuant to this Section 2.1(j) shall not constitute a request pursuant to Section 2.1(a) and the Remaining Class 5 Holders shall continue to have the right to make one request for Registration pursuant to Section 2.1(a) if such revocation is pursuant to (i) a Revocation Notice that is received by the Registrant(s) within 10 Business Days of the date on which the Registrant(s) shall have given written notice of postponement of the filing of the Registration Statement in such Registration pursuant to Section 2.1(i) or (ii) the first Revocation Notice to have been received by the Registrant(s) in circumstances other than as described in the preceding clause (i). (k) Effectiveness. A registration requested pursuant to Section 2.1(a) shall not be deemed to have been effected: (i) unless a Registration Statement with respect thereto has been declared effective by the SEC and remains effective in compliance with the provisions of the Securities Act and the laws of any state or other jurisdiction applicable to the disposition of all Included Securities covered by such Registration Statement until such time as all of such Included Securities have been disposed of in accordance with such Registration Statement; (ii) if, after it has become effective, such Registration is interfered with by any stop order, injunction or other order or requirement of the SEC or other governmental or regulatory agency or court for any reason other than a violation of applicable law solely by the holders of Included Securities and has not thereafter become effective; or (iii) if, in the case of an Underwritten Offering, the conditions to closing specified in the underwriting agreement to which the Registrant(s) are party are not satisfied other than by reason of any breach or failure by the holders of the Included Securities, or are not otherwise waived. SECTION 2.2 Limitations on Registration Rights. (a) No Incidental Registrations. The Registrant(s) shall not be entitled to include in a Registration any shares of Common Stock or any Senior Subordinated Notes other than the Designated Securities, nor shall any Participating Holder have the right to include any of its Registrable Securities in any Registration Statement other than pursuant to a Registration hereunder. (b) No Other Registration Rights. The Company will not hereafter enter into any agreement with respect to any shares of Common Stock or Warrants that grants to any Person incidental registration rights with respect to any Registration Statement pursuant to a Registration hereunder. SECTION 2.3 Holdback Agreements. In the case of a Registration in connection with an Underwritten Offering, each Remaining Class 5 Holder and the Registrant(s) agree not to effect any sale or distribution, including any private placement or any sale pursuant to Rule 144, of any shares of Common Stock or any Senior Subordinated Notes (other than the Included Securities pursuant to such Underwritten Offering) during the seven-day period prior, and the 180-day period following, the effective date of the Registration Statement in such Registration. SECTION 2.4 Registration Procedures. If and whenever the Registrant(s) is or are required to effect a Registration, the Registrant(s) shall, except as provided in Section 2.1(i), as expeditiously as possible: (a) prepare and file with the SEC as promptly as practicable, but in any event not later than 45 days after receipt of an Initial Request, a Registration Statement on any form for which the Registrant(s) then qualifies which counsel for the Company shall deem appropriate, subject to Section 2.1(e), and which form shall be available for the sale of the Included Securities in accordance with the intended methods of distribution thereof, and use all reasonable efforts to cause such Registration Statement to become effective; provided that as promptly as practicable, but in any event not later than four Business Days before filing any Registration Document with the SEC, the Registrant(s) shall furnish to each Participating Holder, the Managing Underwriter, if any, and one counsel selected by Participating Holders owning not less than the Required Included Securities copies of such Registration Document, which shall be subject to review by such Persons; the Registrant(s) shall not file any Registration Document to which the Managing Underwriter, if any, or Participating Holders owning not less than the Required Included Securities or such counsel of such Participating Holders shall have reasonably objected within three Business Days after receipt of such Registration Document (provided that the foregoing shall not limit the right of any Participating Holder identified in such Registration Document reasonably to object, within three Business Days after receipt of such Registration Document, to any particular information contained therein relating specifically to such Participating Holder, including any information describing the manner in which such Participating Holder acquired its Included Securities and the intended method of distribution thereof) and if the Registrant(s) is or are unable to file any such Registration Document due to any objection as provided herein, use its best efforts to cooperate with the Managing Underwriter, if any, and the Participating Holders to prepare, as promptly as reasonably practicable, a document that is satisfactory to the Registrant(s), the Managing Underwriter, if any, and the Participating Holders; provided further that if such Registration Document refers to any Participating Holder by name or otherwise as the holder of any Included Securities, then such Participating Holder shall have the right to require (i) the insertion therein of language, in form and substance satisfactory to such Participating Holder, to the effect that the the Registrant(s) by such Participating Holder of such securities does not necessarily make such Participating Holder a "Controlling Person" of the Registrant(s) within the meaning of the Securities Act and is not to be construed as a recommendation by such Participating Holder of the investment quality of the securities covered thereby and that such holding does not imply that such Participating Holder will assist in meeting any future financial requirements of the Registrant(s), or (ii) in the event that such reference to such Participating Holder by name or otherwise is not required by the Securities Act or any rules and regulations promulgated thereunder, the deletion of the reference to such Participating Holder; and the Registrant(s) shall notify each Participating Holder of any stop order issued or threatened by the SEC and take all reasonable actions required to prevent the entry of such stop order or to remove it if entered; (b) prepare and file with the SEC such additional Registration Documents as may be necessary to keep the Registration Statement in such Registration effective until the earlier of (i) such time as all Included Securities have been sold and (ii) 90 days from the effective date of such Registration Statement or such longer period as may be required by the Securities Act, and comply with the provisions of the Securities Act with respect to the disposition of all Included Securities during such period in accordance with the intended methods of disposition thereof set forth in such Registration Statement; (c) furnish to each Participating Holder and the Managing Underwriter, if any, copies of such Registration Documents in such Registration and in such numbers as may be required by the Securities Act or as any of the foregoing may reasonably request; (d) use all reasonable efforts to register or qualify the Included Securities under such other state securities or "blue sky" laws of such jurisdictions as any Participating Holder or the Managing Underwriter, if any, reasonably requests and do any and all other acts and things that may be reasonably necessary or advisable to enable the Participating Holders and the Managing Underwriter, if any, to consummate the disposition in such jurisdictions of the Included Securities; provided that the Registrant(s) will not be required to (i) qualify generally to do business in any jurisdiction where it would not otherwise be required to qualify but for this Section 2.4(d), (ii) subject itself to taxation in any such jurisdiction or (iii) consent to general service of process in any such jurisdiction; (e) use all reasonable efforts to cause the Included Securities to be registered with or approved by such other governmental agencies or authorities as may be necessary by virtue of the business and operations of the Registrant to enable each Participating Holder to consummate the disposition of its Included Securities; (f) at any time when a prospectus relating to the Included Securities is required to be delivered under the Securities Act, immediately notify each Participating Holder and the Managing Underwriter, if any, of the happening of any event that comes to the attention of the Registrant(s) if as a result of such event the prospectus included in such Registration Statement contains any untrue statement of a material fact or omits to state any material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, and the Registrant(s) will promptly prepare and furnish to each Participating Holder and the Managing Underwriter, if any, a supplement or amendment to such prospectus so that, as thereafter delivered to purchasers of Included Securities, such prospectus will not contain any untrue statement of a material fact or omit to state any material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading; (g) use all reasonable efforts to cause the Included Securities to be listed on each securities exchange or national market system on which such securities are then listed, if any, and enter into such customary agreements including a listing application and indemnification agreement in customary form, provided that the applicable listing requirements are satisfied, and to provide a transfer agent and registrar for the Included Securities no later than the effective date of Registration Statement in such Registration; (h) enter into such customary agreements (including an underwriting agreement in customary form) and take all such other actions as Participating Holders owning the Required Included Securities or the Managing Underwriter, if any, reasonably request in order to expedite or facilitate the disposition of the Included Securities, including customary indemnification; (i) make available for inspection by any Participating Holder, the Managing Underwriter, if any, and any attorney, accountant or other agent retained by any Participating Holder or the Managing Underwriter, if any, all financial and other records, pertinent corporate documents and properties of the Registrant(s) and its subsidiaries as shall be reasonably necessary to enable such Persons to exercise their due diligence responsibility, and cause the Registrant(s) and its or their subsidiaries' officers, directors and employees to supply all information and respond to all inquiries reasonably requested by any such Person in connection with the Registration Statement in such Registration; (j) deliver an opinion of counsel for the Registrant(s) and a "cold comfort" letter from the independent public accountants of the Registrant(s) in customary form and covering such matters of the type customarily covered by opinions of issuer's counsel and "cold comfort" letters and such other matters as Participating Holders owning the Required Included Securities or the Managing Underwriters, if any, reasonably request; and (k) otherwise use all reasonable efforts to comply with all applicable rules and regulations of the SEC, and make available to its security holders, as soon as reasonably practicable, an earnings statement no later than 60 days after the end of the 12- month period commencing at the end of the fiscal quarter of the Registrant(s) in which the effective date of the Registration Statement shall have occurred (as the term "effective date" is defined in Rule 158(c) under the Securities Act), which earnings statement shall satisfy the provisions of Section 11(a) of the Securities Act and Rule 158 thereunder. Each Participating Holder agrees that, upon receipt of any notice from the Registrant(s) of the happening of any event of the kind described in Sec tion 2.4(f), such Participating Holder will forthwith discontinue disposition of its Included Securities until such Participating Holder's receipt of the copies of the supplemented or amended prospectus contemplated by Section 2.4(f), and, if so directed by the Registrant(s) such Participating Holder will deliver to the Registrant(s) (at the expense of the Registrant(s)) all copies (including, but not limited to, any and all drafts), other than permanent file copies, then in such Participating Holder's possession, of the prospectus covering the Included Securities current at the time of receipt of such notice. In the event the Registrant(s) shall give any such notice, the period mentioned in Section 2.4(b) shall be extended by the greater of (i) 90 days and (ii) the number of days during the period from and including the date of the giving of such notice pursuant to Section 2.4(f) to and including the date when each Participating Holder shall have received the copies of the supplemented or amended prospectus contemplated by Section 2.4(f). SECTION 2.5 Indemnification. (a) Indemnification by the Registrant(s). In any Registration, each Registrant will, and it hereby does, indemnify and hold harmless, to the full extent permitted by law, each Participating Holder, its directors and officers, general partners, limited partners and managing directors, agents and representatives and each other Person who participates as an underwriter in the offering or sale of such securities and each affiliate of such Participating Holder or underwriter (and directors, officers, controlling Persons, partners, managing directors, agents and representatives of any of the foregoing), against any and all losses, claims, damages or liabilities, joint or several, and expenses (including any amounts paid in any settlement) to which such Participating Holder or underwriter, or any such director, officer, controlling person, partner, managing director, agent or representative may become subject under the federal securities laws, state securities or "blue sky" laws, common law or otherwise, insofar as such losses, claims, damages or liabilities (or actions or proceedings in respect thereof) or expenses arise out of or are based upon (i) any untrue statement or alleged untrue statement of any material fact contained in any Registration Document in such Registration, (ii) any omission or alleged omission to state therein a material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, or (iii) any violation or alleged violation by the Registrant(s) of any federal, state or common law rule or regulation applicable to the Registrant(s) and relating to action required of or inaction by the Registrant(s) in connection with such Registration, and the Registrant(s) will reimburse each Participating Holder or underwriter and each such director, officer, controlling person, partner, managing director, agent or representative for any legal or any other expenses reasonably incurred by them, as and when incurred, in connection with investigating or defending such loss, claim, damage, liability, action or proceeding; provided that the Registrant(s) shall not be liable in any such case to the extent that any such loss, claim, damage, liability (or action or proceeding in respect thereof) or expense arises out of or is based upon any untrue statement or alleged untrue statement or omission or alleged omission made in such Registration Document in reliance upon and in conformity with written information furnished to the Registrant(s) through an instrument duly executed by such Participating Holder in such Participating Holder's capacity as a stockholder or debt holder of the Registrant(s) or any such director, officer, controlling Person, partner, managing director, agent, representative or underwriter specifically stating that it is for use in the preparation thereof; provided further that the Registrant(s) shall not be liable to any Participating Holder, any Person, if any, who participates as an underwriter in the offering or sale of Included Securities or any other Person, if any, who controls such underwriter within the meaning of the Securities Act, pursuant to this Section 2.5 with respect to any Registration Document, to the extent that any such loss, claim, damage or liability of such underwriter or controlling Person results from the fact that such underwriter sold Included Securities to a Person to whom there was not sent or given, at or prior to the written confirmation of such sale, a copy of the final prospectus or of the final prospectus as then amended or supplemented, whichever is most recent, covering such Included Securities if the Registrant(s) had previously furnished copies thereof to such underwriter and such final prospectus, as then amended or supplemented, had corrected any such misstatement or omission. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of such Participating Holder or underwriter or any such director, officer, controlling person, partner, managing director, agent or representative and shall survive the transfer by such Participating Holder of its Included Securities. (b) Indemnification by the Participating Holders and Under writers. As a condition to including any Designated Securities in any Registration, each Registrant shall have received an undertaking reasonably satisfactory to it from each Participating Holder or any underwriter, to indemnify and hold harmless (in the same manner and to the same extent as set forth in Section 2.5(a)) each Registrant and its or their directors, officers, controlling Persons and all other prospective sellers (including, but not limited to, all other Participating Holders) and their respective directors, officers, general and limited partners, managing directors, and their respective controlling Persons with respect to any statement or alleged statement in or omission or alleged omission from any Registration Document in such Registration, if such statement or alleged statement or omission or alleged omission was made in reliance upon and in conformity with written information furnished to the Registrant(s) or its or their representatives through an instrument duly executed by or on behalf of such Participating Holder or underwriter specifically stating that it is for use in the preparation of such Registration Document. Such indemnity shall remain in full force and effect regardless of any inves tigation made by or on behalf of the Registrant(s) or any Participating Holder, underwriter or any of their respective directors, officers, general or limited partners, managing directors or controlling Persons and shall survive the transfer by such Participating Holder of its Included Securities; provided, however, that no such Participating Holder shall be liable under Section 2.5 for any amounts exceeding the amount of proceeds (net of any underwriting commissions, discounts and the like) to be received by such Participating Holder in connection with the sale of its Included Securities. (c) Notices of Claims, Etc. Promptly after receipt by an indemnified party hereunder of, written notice of the commencement of any action or proceeding with respect to which a claim for indemnification may be made pursuant to this Section 2.5, such indemnified party will, if a claim in respect thereof is to be made against an indemnifying party, promptly give written notice to the indemnifying party of the commencement of such action; provided, that the failure of any indemnified party to give notice as provided herein shall not relieve the indemnifying party of its obligations under the preceding subsections of this Section 2.5, except to the extent that the indemnifying party is actually materially prejudiced by such failure to give notice. In case any such action is brought against an indemnified party, unless in such indemnified party's reasonable judgment a conflict of interest between such indemnified and indemnifying parties may exist in respect of such claim, the indemnifying party will be entitled to participate in and, jointly with any other indemnifying party similarly notified, to assume the defense thereof, to the extent that it may wish, with counsel reasonably satisfactory to such indemnified party, and after notice from the indemnifying party to such indemnified party of its election so to assume the defense thereof, the indemnifying party will not be liable to such indemnified party for any legal or other expenses subsequently incurred by the latter in connection with the defense thereof, unless in such indemnified party's reasonable judgment a conflict of interest between such indemnified and indemnifying parties arises in respect of such claim after the assumption of the defense thereof. No indemnifying party will consent to entry of any judgment or enter into any settlement which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such indemnified party of a release from all liability in respect of such claim or litigation. An indemnifying party who is not entitled to, or elects not to, assume the defense of a claim will not be obligated to pay the fees and expenses of more than one counsel in any single jurisdiction for all parties indemnified by such indemnifying party with respect to such claim, unless in the reasonable judgment of any indemnified party a conflict of interest may exist between such indemnified party and any other of such indemnified parties with respect to such claim, in which event the indemnifying party shall be obligated to pay the fees and expenses of such additional counsel or counsels as may be reasonably necessary. Notwithstanding anything to the contrary set forth herein, and without limiting any of the rights set forth above, in any event each Participating Holder will have the right to retain at its own expense, counsel with respect to the defense of a claim. (d) Other Indemnification. Indemnification similar to that specified in the preceding subsections of this Section 2.5 (with appropriate modifications) shall be given by the Registrant(s) and each Participating Holder with respect to any required registration or other qualification of securities under any federal or state law or regulation or governmental authority other than the Securities Act. (e) Contribution. In order to provide for just and equitable contribution in circumstances in which the indemnity agreement provided for in this Section 2.5 is for any reason held to be unavailable to an indemnified party in accordance with its terms, the Registrant(s) and each Participating Holder shall contribute to the aggregate losses, liabilities, claims, damages and expenses of the nature contemplated by said indemnity agree ment incurred by Registrant(s) and the Participating Holder (i) in such proportion as is appropriate to reflect the relative benefits received by the Registrant(s), on the one hand, and the Participating Holder in question, on the other hand, or (ii) if the allocation provided by clause (i) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the benefits referred to in clause (i), but also the relative fault of the Registrant(s) and each Participating Holder in question in connection with the statements or omissions which resulted in such losses, liabilities, claims, damages and expenses, as well as any other relevant equitable considerations. The relative fault of the Registrant(s), on the one hand, and of the Participating Holder, on the other hand, shall, be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission to state a material fact relates to information supplied by each Registrant(s), on the one hand, or by the Participating Holder, on the other hand, and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. No Person guilty of fraudulent misrepresentation (within the meaning of subsection 11(f) of the Securities Act) shall be entitled to contribution from any person who is not guilty of such fraudulent misrepresentation. The foregoing contribution agreement shall in no way affect the contribution liabilities of any Person having liability under Section 11 of the Securities Act other than the Registrant(s) and the Participating Holders. ARTICLE II MISCELLANEOUS SECTION 3.1 Effectiveness. The terms of this Agreement shall be effective as of the Effective Date. SECTION 3.2 Amendments. This Agreement cannot be amended, modified or supplemented except (a) as contemplated by Section 2.1(b)(ii)(C) and (b) by a written instrument signed by Holding, Homeland and the Remaining Class 5 Holders owning at the time of execution thereof not less than a majority in number of the Registrable Shares and a majority in aggregate principal amount of Registrable Notes, provided, however, that without the written consent of each such holder affected thereby no amendment, modification or supplement pursuant to clause (b) above may make a change that (i) increases the obligations of such holder or (ii) adversely affects the rights of such holder under Section 2.5. SECTION 3.3 Term of Agreement. This Agreement shall commence on the Effective Date and shall terminate, except for the provisions of Section 2.5 which shall survive such termination, on the earliest to occur of (i) the seventh anniversary of the Effective Date, (ii) the date on which the effectiveness of a Registration Statement that has become effective (within the meaning of Section 2.1(k)) in a Registration shall have been terminated and (iii) such time as the Registrable Shares and the Registrable Notes no longer represent the Registration Trigger Amount. SECTION 3.4 Headings. The descriptive headings of the several Articles and Sections of this Agreement are inserted for convenience only and do not constitute a part of this Agreement. SECTION 3.5 Specific Performance. Irreparable damage would occur in the event any of the provisions of this Agreement were not to be performed in accordance with the terms hereof and the Registrant(s) and the Remaining Class 5 Holders, as the case may be, shall be entitled to specific performance of the terms hereof, in addition to any other remedy at law or equity. SECTION 3.6 Complete Agreement. This Agreement contains the entire agreement of Holding, Homeland and the Old Debt Holders in respect of the subject matter contained herein and the transactions contemplated hereby. There are no restrictions, agreements, promises, representations, warranties, covenants, or undertakings with respect to the subject matter hereof, other than those expressly set forth or referred to herein. This Agreement supersedes all prior agreements and understandings between the parties hereto with respect to the subject matter hereof. SECTION 3.7. Assignment. The registration and other rights provided in this Agreement, and the obligations of Holding and Homeland hereunder, are not assignable to any Person (including, without limitation, any Transferee) except to the extent expressly provided in Section 2.1(b)(ii). SECTION 3.8. Notices. Any notice, request, instruction or other document to be given hereunder shall be in writing, shall be delivered personally or sent by Federal Express or other overnight delivery service, (a) if to Holding or Homeland, to Homeland Holding Corporation, 2601 Northwest Expressway, Oil Center East, 11th Floor, Oklahoma city, OK 73112, Attention: Secretary, or to such other address as Holding or Homeland shall specify by written notice, and (b) if to any Old Debt Holder or Permitted Transferee, to such address (which shall not be a post office box, but shall be an address to which overnight delivery services will deliver) as such Old Debt Holder or Permitted Transferee shall have specified in a written notice to Holding (which may be amended by subsequent written notice), a copy of which written notice shall be on file with the Secretary of Holding. Notwithstanding any other provision of this Agreement, unless and until Holding shall have received such notice of address from an Old Debt Holder or Permitted Transferee, the Registrant(s) shall have no obligation to such Old Debt Holder with respect to the giving of any notice otherwise required hereunder. Notice shall be effective when sent in the manner, and directed as, provided above or, if delivered per sonally, when received. SECTION 3.9. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of New York, without regard to applicable principles of conflicts of laws. SECTION 3.10. Severability. Whenever possible, each provision of this Agreement will be interpreted in such a manner as to be effective and valid under applicable law, but if any provision of this Agreement is held to be prohibited by or invalid under applicable law, such provision will be ineffective only to the extent of such prohibition or invalidity, without invalidating the remainder of this Agreement, except to the extent that such prohibition or invalidity would constitute a material change in the terms of this Agreement taken as a whole. SECTION 3.11. Rule 144 and Rule 144A. The Registrant(s) shall take all actions reasonably necessary to enable the Remaining Class 5 Holders to sell their Registrable Securities without registration under the Securities Act within the limitation of the exemptions provided by (i) Rule 144, (ii) Rule 144A, or (iii) any similar rules or regulations hereafter adopted by the SEC, including, without limitation, filing on a timely basis all reports required to be filed under the Exchange Act. Upon the request of any such holder, the Registrant(s) shall deliver to such holder a written statement as to whether they have complied with such requirements. IN WITNESS WHEREOF, each of Holding and Homeland has executed, and each Old Debt Holder by receipt of its Original Shares is deemed to have executed, this Agreement as of the date first above written. HOMELAND STORES, INC. HOMELAND HOLDING CORPORATION By: _____________________ By:___________________________ Name: Name: Title: Title: 175446 EX-10 6 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10 GENERAL FORM FOR REGISTRATION OF SECURITIES Pursuant to Section 12(b) or (g) of The Securities Exchange Act of 1934 HOMELAND HOLDING CORPORATION (Exact name of registrant as specified in its charter) Delaware 73-1311075 (State or other jurisdiction of (I.R.S.Employer incorporation or organization) Identification No.) 2601 N. W. Expressway Oklahoma City, Oklahoma 73112 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (405) 879-6600 Securities to be registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchange on which to be so registered each class is to be registered None Securities to be registered pursuant to Section 12(g) of the Act: Common Stock, par value $.01 per share HOMELAND HOLDING CORPORATION FORM 10 TABLE OF CONTENTS Page Item 1. Business...........................................................1 General............................................................1 Restructuring......................................................1 Background.........................................................2 Business Strategy..................................................2 AWG Transaction....................................................3 Homeland Supermarkets..............................................4 Merchandising Strategy and Pricing.................................6 Customer Service...................................................6 Advertising and Promotion..........................................6 Products...........................................................7 Supply Arrangements................................................7 Employees and Labor Relations......................................8 Computer and Management Information Systems........................9 Competition........................................................9 Trademarks and Service Marks......................................10 Regulatory Matters................................................10 Item 2. Financial Information.............................................11 Selected Consolidated Financial Data..............................12 Management's Discussion and Analysis of Financial Condition and Results of Operations..............................14 Results of Operations.............................................14 General...........................................................14 Liquidity and Capital Resources...................................19 Recently-Issued Accounting Standards..............................22 Inflation/Deflation...............................................23 Item 3. Properties........................................................23 Item 4. Security Ownership of Certain Beneficial Owners and Management....23 Item 5. Directors and Executive Officers..................................25 Item 6. Executive Compensation............................................28 Summary of Cash and Certain Other Compensation....................28 Employment Agreements.............................................29 Management Incentive Plan.........................................31 Retirement Plan...................................................31 Management Stock Option Plan......................................32 Compensation Committee Interlocks and Insider Participation.......32 Item 7. Certain Relationships and Related Transactions....................32 Item 8. Legal Proceedings.................................................33 Item 9. Market Price of and Dividends on the Registrants's Common Equity and Related Stockholders Matters...................34 Item 10. Recent Sales of Unregistered Securities...........................34 Item 11. Description of Registrant's Securities to be Registered...........35 General...........................................................35 Equity Registration Rights Agreement..............................36 Noteholder Registration Rights Agreement..........................37 Item 12. Indemnification of Directors and Officers.........................38 Transfer Agent....................................................39 Item 13. Financial Statements and Supplementary Data.......................39 Item 14. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure...........................39 Item 15. Financial Statements and Exhibits.................................39 HOMELAND HOLDING CORPORATION FORM 10 Item 1. Business General Homeland Holding Corporation ("Holding"), through its wholly-owned subsidiary, Homeland Stores, Inc. ("Homeland," and, together with Holding, the "Company"), is a leading supermarket chain in the Oklahoma, southern Kansas and Texas Panhandle region. The Company operates in four distinct market places: Oklahoma City, Oklahoma, Tulsa, Oklahoma, Amarillo, Texas and certain rural areas of Oklahoma, Kansas and Texas. As of September 1, 1996, the Company operated 65 stores throughout these markets. The Company's executive offices are located at 2601 N.W. Expressway, Oklahoma City, Oklahoma 73112, and its telephone number is (405) 879-6600. Restructuring On May 13, 1996, Holding and Homeland filed chapter 11 petitions with the United States Bankruptcy Court for the District of Delaware (the "Bankruptcy Court"). Simultaneous with such filings, the Company submitted a "pre-arranged" plan of reorganization and a disclosure statement, which set forth the terms of the restructuring of the Company (the "Restructuring"). The purposes of the Restructuring were to reduce substantially the Company's debt service obligations and labor costs and to create a capital and cost structure that will allow the Company to maintain and enhance the competitive position of its business and operations. The Restructuring was negotiated with and supported by the lenders under the Company's then existing revolving credit facility, an ad hoc committee (the "Noteholders Committee") representing approximately 80% of the Company's outstanding Old Notes (as defined under "Management's Discussion and Analysis of Financial Conditions and Results of Operations -- Liquidity and Capital Resources") and the Company's labor unions. The Bankruptcy Court confirmed the Company's First Amended Joint Plan of Reorganization, as modified (the "Plan of Reorganization") on July 19, 1996, and the Plan of Reorganization became effective on August 2, 1996 (the "Effective Date"). Pursuant to the Restructuring, the $95 million of the Company's Old Notes (plus accrued interest) were canceled, and the noteholders will receive (in the aggregate) $60 million face amount of newly-issued 10% Senior Subordinated Notes Due 2003 of the Company (the "New Notes") and $1.5 million in cash. In addition, the noteholders and the Company's general unsecured creditors will receive approximately 60% and 35%, respectively, of the equity of reorganized Holding (assuming total unsecured claims of approximately $63 million, including noteholder unsecured claims). Holding's existing equity holders will receive the remaining 5% of the new equity, together with five- year warrants to purchase an additional 5% of such equity. In connection with the Restructuring, the Company negotiated an agreement with its labor unions to modify certain elements of the Company's existing collective bargaining agreements. These modifications provide for, among other things, wage and benefit modifications, the buyout of certain employees and the issuance and purchase of new equity to a trust acting on behalf of the unionized employees. The modified collective bargaining agreements became effective on the Effective Date. See "Business -- Employees and Labor Relations." On the Effective Date, the Company entered into a loan agreement (the "New Credit Agreement") with National Bank of Canada ("NBC"), as agent and lender, and two other lenders, Heller Financial, Inc. and IBJ Schroder Bank and Trust Company, under which the lenders will provide a working capital and letter of credit facility and a term loan. The New Credit Agreement permits the Company to borrow, under the working capital and letter of credit facility, up to the lesser of (a) $27.5 million and (b) the applicable borrowing base. Funds borrowed under such facility will be available for general corporate purposes of the Company. The New Credit Agreement also provides the Company a $10.0 million term loan, which will be used to fund certain obligations of the Company under the Plan of Reorganization, including an employee buyout offer and a health and welfare plan required by the modified collective bargaining agreements, professional fees and "cure amounts" which must be paid in connection with executory contracts, secured financings and unexpired leases. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources" for a description of the New Credit Agreement. Background The Company was organized in 1987 by a group of investors led by Clayton, Dubilier & Rice, Inc. ("CD&R"), a private investment firm specializing in leveraged acquisitions with the participation of management, for the purpose of acquiring substantially all of the assets and assuming specified liabilities of the Oklahoma division (the "Oklahoma Division") of Safeway Inc. ("Safeway") (the "Acquisition"). The stores changed their name to Homeland in order to highlight the Company's regional identity. Prior to the Acquisition, the Company did not have any significant assets or liabilities or engage in any activities other than those incidental to the Acquisition. Holding owns all of the outstanding capital stock of Homeland and has no other significant assets. Prior to the Effective Date, the Clayton & Dubilier Private Equity Fund III Limited Partnership ("C&D Fund III"), a Connecticut limited partnership managed by CD&R, owned 35.9% of Holding's outstanding Class A Common Stock, par value $.01 per share (including redeemable Class A Common Stock, the "Common Stock"). Prior to the Effective Date, the Clayton & Dubilier Private Equity Fund IV Limited Partnership ("C&D Fund IV"), a Connecticut limited partnership also managed by CD&R, owned 40.4% of the Class A Common Stock. Following consummation of the Restructuring, C&D Fund III and C&D Fund IV will own less than 5% of the New Common Stock outstanding. Business Strategy Following the Acquisition, Homeland adopted a business strategy which was designed to maintain and improve its market leadership in its operating area. The Company's business strategy from 1987 through 1993 involved: (a) substantial investment to upgrade and remodel the existing store network and to build or acquire additional stores, which could be serviced by Homeland's existing warehouse and distribution center; and (b) adoption of a value-oriented merchandising concept combining a flexible high-low pricing structure (i.e., pricing of advertised or promotional items below the store's regular price and at or below the price offered by the store's competitors while allocating prime shelf space to high margin items) with a wide selection of products and an emphasis on quality and service. Increased advertising and promotion were used to expand the Company's customer base. The Company's decision to commit significant financing and human resources to upgrade and remodel its existing stores marked a sharp turnaround for the supermarket business that had constituted Safeway's Oklahoma Division. The Company's business has been adversely affected in recent years by the entry of new competition into the Company's key markets, which has resulted in a decline in the Company's comparable store sales. The Company was unable to effectively respond to this increased competition because (a) the high labor costs associated with the Company's unionized workforce made it difficult for the Company to price its goods competitively with competitors (none of which has a unionized workforce), and (b) the high fixed overhead costs associated with its warehouse operation made the closure of marginal and unprofitable stores financially prohibitive. In the fourth quarter of 1994, the Company developed a plan to improve its financial position and to address the operating problems discussed above. In November 1994, the Company hired James A. Demme, a 35-year veteran of the wholesale and retail food distribution business, to be the Company's new President and Chief Executive Officer. Following the completion of the AWG Transaction (as defined under "Business -- AWG Transaction"), Mr. Demme and his new management team began implementing the Company's new marketing plan consisting of the following elements: (a) increasing sales of specialty items and perishables; (b) distinguishing the Company from its competitors by promoting and enhancing the Company's reputation for good service and emphasizing the Company's local identity; (c) increasing utilization of the Company's "high-low" pricing approach; (d) upgrading the Company's management information systems; (e) introducing the "Homeland Savings Card," a frequent- shopper card; and (f) building customer loyalty and improving the Company's "pricing image" through the Company's private label program. As part of its strategic plan, the Company's management team also implemented a program to close marginal and unprofitable stores. The Company closed 14 stores in 1995 (seven prior to the AWG sale and seven after such sale) and closed two additional stores during the second quarter of 1996. The Company sold its store in Ponca City, Oklahoma in April 1996. For additional information, see also "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources." AWG Transaction On April 21, 1995, the Company sold 29 of its stores and its warehouse and distribution center to Associated Wholesale Grocers, Inc. ("AWG") pursuant to an Asset Purchase Agreement dated as of February 6, 1995 (the "AWG Purchase Agreement"), for a cash purchase price of approximately $72.9 million including inventory, and the assumption of certain liabilities by AWG. At the closing, the Company and AWG also entered into a seven-year supply agreement, whereby the Company became a retail member of the AWG cooperative and AWG became the Company's primary supplier. The transactions between the Company and AWG are referred to herein as the "AWG Transaction." AWG is a buying cooperative which sells groceries on a wholesale basis to its retail member stores. AWG has 800 member stores located in a ten-state region and is the nation's fourth largest grocery wholesaler, with approximately $2.97 billion in revenues in 1995. Of the proceeds from the AWG Transaction, $25.0 million was allocated to the Old Notes and $12.2 million was allocated to indebtedness under the Prior Credit Agreement (as hereafter defined under "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources"). The remaining proceeds from the AWG Transaction were (a) used to pay certain costs, expenses and liabilities required to be paid in connection with the AWG Transaction and (b) deposited into escrow for reinvestment by the Company. The AWG Transaction enabled the Company: (a) to reduce the Company's borrowed money indebtedness in respect of the Old Notes and under the Prior Credit Agreement by approximately $37.2 million in the aggregate; (b) to have AWG assume, or provide certain undertakings with respect to, certain contracts and leases and certain pension liabilities of the Company; (c) to sell the Company's warehouse and distribution center, which eliminated the high fixed overhead costs associated with the operation of the warehouse and distribution center and thereby permit the Company to close marginal and unprofitable stores; and (d) to obtain the benefits of becoming a member of the AWG cooperative, including increased purchases of private label products, special product purchases, dedicated support programs and access to AWG's store systems and participation in the membership rebate and patronage programs. In August 1996, AWG filed a registration statement with the Securities and Exchange Commission with respect to a proposed conversion from a cooperative to a public general business corporation and a related initial public offering. If the conversion is consummated, AWG would cease paying annual patronage rebates and Homeland is expected to receive a one-time distribution of approximately 1.1 million shares of common stock in the new public company. This stock would be restricted from public sale for two years. AWG has indicated in its registration statement that the market value of each share of its common stock is anticipated to be $20.00. AWG expects to pay an initial annualized dividend of $0.20 on each share. Homeland has notified AWG that Homeland does not support the proposed conversion and believes that the conversion and initial public offering may constitute a default by AWG under the Supply Agreement. Homeland Supermarkets The Company's current network of stores features three basic store formats. Homeland's conventional stores are primarily in the 25,000 total square feet range and carry the traditional mix of grocery, meat, produce and variety products. These stores contain more than 20,000 stock keeping units, including food and general merchandise. Sales volumes of conventional stores range from $60,000 to $125,000 per week. Homeland's superstores are in the 35,000 total square feet range and offer, in addition to the traditional departments, two or more specialty departments. Sales volumes of superstores range from $95,000 to $265,000 per week. Homeland's combo store format includes stores of approximately 45,000 total square feet and larger and was designed to enable the Company to expand shelf space devoted to general merchandise. Sales volume of combo stores range from $140,000 to $300,000 per week. The Company's new stores and certain remodeled locations have incorporated Homeland's new, larger superstore and combo formats. Of the 65 stores operated by the Company at September 1, 1996, 10 are conventional stores, 44 are superstores and 11 are combo stores. The chart below summarizes Homeland's store development over the last three years: _____________Fiscal Year Ended__________ 12/30/95 12/31/94 01/01/94 Average sale per store (in millions) $7.9(1) $7.1 $7.2 Average total square feet per store 38,204 34,700 34,700 Average sales per square feet $207(1) $208 $205 Number of stores: Stores at start of period 111 112 113 Stores remodeled 5 10 3 New stores opened 0 0 1 Stores sold or closed 43 1 2 Stores at end of period 68 111 112 Size of stores: Less than 25,000 sq. ft. 8 24 24 25,000 to 35,000 sq. ft. 24 38 39 35,000 sq. ft. or greater 36 49 49 Store formats: Conventional 11 29 29 SuperStore 44 65 66 Combo 13 17 17 (1) Reflects the operation of 68 stores in 1995. The Company's network of stores is managed by district managers on a geographical basis through four districts. Each district manager oversees store operations for approximately 16 stores. Store managers are responsible for determining staffing levels, managing store inventories (within the confines of certain parameters set by the Company's corporate headquarters) and purchasing products. Store managers have significant flexibility with respect to the quantities of items carried, but not necessarily types of products purchased. The Company's corporate headquarters is directly responsible for merchandising, advertising, pricing and capital expenditure decisions. Merchandising Strategy and Pricing The Company's merchandising strategy emphasizes competitive pricing through a high-low pricing structure, as well as the Company's leadership in quality products and service, selection, convenient store locations, specialty departments and perishable products (i.e., meat, produce, bakery and seafood). The Company's strategy is to price competitively with each conventional supermarket operator in each market area. In areas with discount store competition, the Company attempts to be competitive on high-volume, price sensitive items. The Company's in-store promotion strategy is to offer all display items at a lower price than the store's regular price and at or below the price offered by the store's competitors. The Company also currently offers double coupons, with some limitations, in all areas in which it operates. Customer Service The Company's stores provide a variety of customer services including, among other things, carry-out services, postal services, automated teller machines, pharmacies, video rentals, check cashing and money orders. The Company believes it is able to attract new customers and retain its existing customers because of its high level of customer service. Advertising and Promotion All advertising and promotion decisions are made by the Company's central merchandising and advertising staff. The Company's advertising strategy is designed to enhance its value- oriented merchandising concept and emphasize its reputation for fast, friendly service, variety and quality. Accordingly, the Company is focused on presenting itself as a competitively- priced, promotions oriented operator that offers value to its customers and an extensive selection of high quality merchandise in clean, attractive stores. This strategy allows the Company to accomplish its marketing goals of attracting new customers and building loyalty with existing customers. In May 1995, the Company introduced a new weekly advertising layout that improved product presentation and enhanced price perception. In addition, new signage was implemented in the stores calling attention to various in-store specials and creating a friendlier and more stimulating shopping experience. The Company currently utilizes a broad range of print and broadcast advertising in the markets it serves, including newspaper advertisements, advertising inserts and circulars, television and radio commercials and promotional campaigns that cover substantially all of the Company's markets. The Company receives co-operative and performance advertising reimbursements from vendors which reduce its advertising costs. In September 1995, the Company introduced a frequent- shopper card called the "Homeland Savings Card," in its Texas stores. The Company believes that it is the only supermarket chain in its market area that can capitalize on a frequent- shopper card program because of the Company's advertising and market share dominance. The Company introduced the Homeland Savings Card in its other stores in August 1996. Products The Company provides a wide selection of name-brand and private label products to its customers. All stores carry a full line of meat, dairy, produce, frozen food, health and beauty aids and selected general merchandise. As of the close of fiscal year 1995, approximately 82% of the Company's stores had service delicatessens and/or bakeries and approximately 65% had in-store pharmacies. In addition, some stores provide additional specialty departments that offer ethnic food, fresh and frozen seafood, floral services and salad bars. The Company's private label name is "Pride of America." The Company's private label program allows customers to purchase high quality products at lower than national brand retail prices. The Company's private label products include over 400 items covering virtually every major category in the Company's stores, including dairy products, meat, frozen foods, canned fruits and vegetables, eggs, health and beauty care products and plastic wrap. As a result of the Company's supply relationship with AWG, the Company's stores also offer certain AWG private label goods, including Best Choicer and Always Saver. Private label products generally represent quality and value to customers and typically contribute to a higher gross profit margin than national brands. The promotion of private label products is an integral part of the Company's merchandising philosophy of building customer loyalty as well as improving the Company's "pricing image." Supply Arrangements The Company is a party to the supply agreement with AWG (the "Supply Agreement"), pursuant to which the Company became a member of the AWG cooperative and AWG is the Company's primary supplier. AWG currently supplies approximately 70% of the goods sold in the Company's stores. AWG is a buying cooperative which sells groceries on a wholesale basis to its retail member stores. AWG has approximately 800 member stores located in a ten-state region and is the nation's fourth largest grocery wholesaler, with approximately $2.97 billion in revenues in 1995. Pursuant to the Supply Agreement, AWG is required to supply products to the Company at the lowest prices and on the best terms available to AWG's retail members from time to time. In addition, the Company is (a) eligible to participate in certain cost-savings programs available to AWG's other retail members and (b) is entitled to receive certain member rebates and refunds based on the dollar amount of the Company's purchases from AWG's distribution center and periodic cash payments from AWG, up to a maximum of approximately $1.3 million per fiscal quarter, based on the dollar amount of the Company's purchases from AWG's distribution centers during such fiscal quarter. The Company purchases goods from AWG on an open account basis. AWG requires that each member's account be secured by a letter of credit or certain other collateral in an amount based on such member's estimated weekly purchases through the AWG distribution center. The Company's open account with AWG is currently secured by an $8.4 million letter of credit (the "AWG Letter of Credit") issued in favor of AWG by NBC. In addition, the Company's obligations to AWG are secured by a first lien on all "AWG Equity" owned from time to time by the Company, which includes, among other things, AWG membership stock, the Company's right to receive monthly payments and certain other rebates, refunds and other credits owed to the Company by AWG (including patronage refund certificates, direct patronage or year-end patronage and concentrated purchase allowances). See " -- AWG Transaction" for description of AWG's proposed conversion from a cooperative to a public general business corporation. The amount of the AWG Letter of Credit may be decreased on a biannual basis upon the request of the Company based on the Company's then-current average weekly volume of purchases and by an amount equal to the face amount of the Company's issued and outstanding AWG patronage refund certificates. In the event that the Company's open account with AWG exceeds the amount of the AWG Letter of Credit plus any other AWG Equity held as collateral for the Company's open account, AWG is not required to accept orders from, or deliver goods to, the Company until the amount of the AWG Letter of Credit has been increased to make up for any such deficiency. In the event AWG consummates its proposed conversion to a general business corporation, patronage refund certificates would no longer be issued to the Company to reduce the amount of the AWG Letter of Credit. Under the Supply Agreement, AWG has certain "Volume Protection Rights," including (a) the right of first offer (the "First Offer Rights") with respect to any proposed sales of stores supplied under the Supply Agreement (the "Supplied Stores") and proposed transfers of more than 50% of the outstanding stock of the Company or Holding to an entity primarily engaged in the retail or wholesale grocery business, (b) the Company's agreement not to compete with AWG as a wholesaler of grocery products during the term of the Supply Agreement, and (c) the Company's agreement to dedicate the Supplied Stores to the exclusive use of a retail grocery facility owned by a retail member of AWG (the "Use Restrictions"). The Company's agreement not to compete and the Use Restrictions contained in the Supply Agreement are terminable with respect to a Supplied Store upon the occurrence of certain events, including the Company's compliance with AWG's First Offer Rights with respect to any proposed sale of such store. In addition, the Supply Agreement provides AWG with certain purchase rights in the event the Company closes 90% or more of the Supplied Stores. Employees and Labor Relations At September 1, 1996, the Company had a total of 4,697 employees, of whom 3,524, or approximately 75%, were employed on a part-time basis. The Company employs 4,593 in its supermarket operations. The remaining employees are corporate and administrative personnel. The Company is the only unionized grocery chain in its market areas. Approximately 92% of the Company's employees are union members, represented primarily by the United Food and Commercial Workers of North America ("UFCW"). In March 1996, the Company and representatives of the UFCW reached an agreement in principle regarding certain modifications to the Company's existing collective bargaining agreements. The modified union agreements were ratified during the week of March 11, 1996, by substantially all of each of the UFCW local union chapters. In addition the local union chapter of the Bakery, Confectionery and Tobacco Workers International Union (the "BCT"), representing 30 of the Company's in-store bakery employees, ratified modifications to its union agreement on the same terms and conditions as the modified union agreements with the UFCW (the modified union agreements with the UFCW and the BCT are referred to collectively as the "Modified Union Agreements"). The Modified Union Agreements have a term of five years commencing on the Effective Date. The Modified Union Agreements consist of five basic elements: (a) wage rate and benefit contribution reductions and work rule changes; (b) a buyout offer extended to certain of the Company's unionized employees (the "Employee Buyout Offer") in the aggregate amount of $6.5 million; (c) the establishment of an employee stock ownership trust (acting on behalf of the Company's unionized employees), which will receive, or be entitled to purchase, up to 522,222 shares of New Common Stock, or 10% of the New Common Stock, pursuant to the terms of the Modified Union Agreements; (d) the UFCW's right to designate one member of the Boards of Directors of Homeland and Holding following the Restructuring; and (e) the elimination of certain "snap back" provisions, incentive plans and "maintenance of benefits" provisions. As of August 3, 1996 consummation date of the Employee Buyout Offer, 833 of the Company's unionized employees had accepted the Employee Buyout Offer. On or about that date, the Company paid 774 of these employees an aggregate "buyout price" of $5.9 million, ranging from $4,500 to $11,000 per employee (depending on job classification, date of hire and full- or part- time status). The balance of $0.6 million was paid to the remaining 59 employees who accepted the Employee Buyout Offer in September 1996. The Company funded the Employee Buyout Offer through borrowings under the New Credit Agreement. The Company estimates that the Modified Union Agreements will result in cost savings of approximately $10 million during the first full contract year following the Restructuring. There can be no assurance, however, that such cost savings will actually be realized. In addition, cost savings in future contract years will be offset in part by certain wage and benefit increases including the recent federal mandated minimum wage increase. Computer and Management Information Systems During 1995, the Company installed new client/server systems in order to enhance its information management capabilities, improve its competitive position and enable the Company to terminate its outsourcing arrangements. The new system includes the following features: time and attendance, human resource, accounting and budget tracking, and scan support and merchandising systems. Prior to March 1996, the Company outsourced its management information system and electronic data processing functions pursuant to an agreement with K-C Computer Services, Inc. The Company terminated the outsourcing agreement effective March 31, 1996. The Company has installed laser-scanning checkout systems in all of its 65 stores. The Company utilizes the information collected through its scanner systems to track sales and to coordinate purchasing. Competition The supermarket business is highly competitive but very fragmented and includes small independent operators. The Company estimates that these operators represent over 40% of its markets. The Company also competes with larger store chains such as Albertson's and Wal-Mart, which operate 42 stores and 18 stores, respectively, in the Company's market areas, "price impact" stores such as Mega-Market, large independent store chains such as IGA, regional chains such as United and discount warehouse stores. The Company is a leading supermarket chain in Oklahoma, southern Kansas and the Texas Panhandle region. The Company attributes its leading market position to certain advantages it has over certain of its competitors including economies of scale for purchasing and advertising, excellent store locations and a strong reputation within the communities in which the Company operates. The Company, under its capital expenditures program, plans to open 1 new store in Amarillo in late 1996 and continue to remodel and upgrade its store facilities. The Company's business has been adversely affected in recent years by the entry of new competition into the Company's key markets, which has resulted in a decline in the Company's comparable store sales. In 1994, there were 14 competitive openings in the Company's market areas including 11 new Wal-Mart supercenters, 2 new Albertson's and 1 new Mega Market. In 1995, there were 8 additional competitive openings in the Company's market areas, including 3 new Albertson's and 1 new Wal-Mart. Based on information publicly available, the Company expects that, in late 1996 or 1997, Albertson's will open 3 new stores, Wal-Mart will open 2 new stores, Reasor's and Crest will each open 1 new store in the Company's market areas. Trademarks and Service Marks During the transition from "Safeway" to "Homeland," the Company was able to generate a substantial amount of familiarity with the "Homeland" name. The Company continues to build and enhance this name recognition through promotional advertising campaigns. The "Homeland" name is considered material to the Company's business and is registered for use as a service mark and trademark. The Company has received federal and state registrations of the "Homeland" mark as a service mark and a trademark for use on certain products. The Company also received a federal registration of the service mark "A Good Deal Better" in 1994. Regulatory Matters Homeland is subject to regulation by a variety of local, state and federal governmental agencies, including the United States Department of Agriculture, state and federal pharmacy regulatory agencies and state and local alcoholic beverage and health regulatory agencies. By virtue of this regulation, Homeland is obligated to observe certain rules and regulations, the violation of which could result in suspension or revocation of various licenses or permits held by Homeland. In addition, most of Homeland's licenses and permits require periodic renewals. To date, Homeland has experienced no material difficulties in obtaining or renewing its regulatory licenses and permits. Item 2. Financial Information Selected Consolidated Financial Data The following selected consolidated financial information is derived from the audited consolidated financial statements of the Company and should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the consolidated financial statements and the notes thereto, appearing elsewhere herein. The selected consolidated financial information for both the 24 weeks ended June 17, 1995 and June 15, 1996 is unaudited.
Selected Consolidated Financial Data (In thousands, except per share amounts) 52 weeks 53 weeks 52 weeks 52 weeks 52 weeks 24 weeks 24 weeks ended ended ended ended ended ended ended 12/28/91 01/02/93 01/01/94 12/31/94 12/30/95 06/17/95 06/15/96 Unaudited Statement of Operations Data: Sales, net $786,785 $830,964 $810,967 $785,121 $630,275 $325,068 $246,331 Cost of sales 573,470 609,906 603,220 588,405 479,119 246,015 185,910 Gross profit 213,315 221,058 207,747 196,716 151,156 79,053 60,421 Selling and administrative 187,312 199,547 190,483 193,643 151,985 76,008 55,422 Operational restructuring costs(1) - - - 23,205 12,639 - - Operating profit (loss) 26,003 21,511 17,264 (20,132) (13,468) 3,045 4,999 Gain on sale of plants - - 2,618 - - - - Interest expense (22,257) (24,346) (18,928) (18,067) (15,992) 8,310 5,207 Income(loss) before reorganization items, income taxes and extraordinary items 3,746 (2,835) 954 (38,199) (29,460) (5,265) (208) Reorganization items (2) - - - - - - 3,150 Income(loss) before income taxes and extraordinary items 3,746 (2,835) 954 (38,199) (29,460) (5,265) (3,358) Income taxes benefit (provision) (992) (982) 3,252 (2,446) - - - Income(loss) before extraordinary items 2,754 (3,817) 4,206 (40,645) (29,460) (5,265) (3,358) Extraordinary items (3)(4)(5) - (877) (3,924) - (2,330) (2,330) - Net income(loss) 2,754 (4,694) 282 (40,645) (31,790) (7,595) (3,358) Reduction(accretion) in redemption value of redeemable common stock (132) - - 7,284 940 - - Net income(loss) available to common stockholders $ 2,622 $(4,694) $ 282 $(33,361) $(30,850) $ (7,593) $ (3,358) Net income(loss) per common share (6) $ .07 $ (.13) $ .01 $ (.96) $ (.93) $ (.22) $ (.10) Consolidated Balance Sheet Data: 12/28/91 01/02/93 01/01/94 12/31/94 12/30/95 06/17/95 06/15/96 Unaudited Total assets $285,735 $305,644 $274,290 $239,134 $137,582 $160,042 $129,096 Long-term obligations, including current portion of long-term obligations (7) $179,680 $198,380 $172,600 $176,731 $124,242 $126,419 $116,681 Redeemable common stock $ 10,616 $ 9,470 $ 8,853 $ 1,235 $ 17 $ 17 $ 17 Stockholers' equity(deficit) $ 41,844 $ 37,150 $ 36,860 $ 4,071 $(28,106) $ (3,524) $(31,464) Operating Data: Stores at end of period 114 113 112 111 68 76 65
NOTES TO SELECTED CONSOLIDATED FINANCIAL DATA (In thousands) (1) Operational restructuring costs during 1995 included the write-off of software no longer utilized by the Company, the write-off of goodwill in connection with the Restructuring and a termination charge resulting from the cancellation of the Company's computer outsourcing agreement. Operational restructuring costs during 1994 included the estimated losses to be incurred on the AWG Transaction and associated expenses and the estimated losses and expenses in connection with the anticipated closing of 15 stores during 1995. (2) Reorganization items for the 24 weeks ended June 15, 1996 are primarily professional fees related to the Restructuring. (3) Extraordinary items during 1995 included the payment of $906 in premiums and consent fees on the redemption of $15,600 of the Company's Old Notes and $1,424 in unamortized financing costs related to the Old Notes so redeemed as well as the replacement of the prior revolving credit facility. (4) Extraordinary items during 1993 included the payment of approximately $2,776 in premiums on the redemption of $47,750 in aggregate principal amount of the Company's remaining 15-1/2% Subordinated Notes due November 1, 1997 (the "Subordinated Notes") at a purchase price of 105.8% of the outstanding principal amount, and $1,148 in unamortized financing costs related to the Subordinated Notes so redeemed. (5) Extraordinary items during 1992 included the payment of approximately $1,225 in premiums on the repurchase of $12,250 in aggregate principal amount of the Company's Subordinated Notes at a purchase price of 110% of the outstanding principal amount, $371 in unamortized financing costs related to the Subordinated Notes so purchased, and a credit representing the discount of $500 on the Company's prepayment of $1,500 on the $5,000 note payable to Furrs, Inc. issued in connection with the Company's acquisition of certain stores from Furrs, Inc. in September 1991. The extraordinary items have been shown net of income taxes of $219. (6) Common Stock held by management investors prior to the Restructuring is presented as redeemable common stock and excluded from stockholders' equity since the Company has agreed to repurchase such shares under certain defined conditions, such as death, retirement or permanent disability. In addition, net income (loss) per common share reflects the accretion in/reduction to redemption value as a reduction/increase in income available to all common stockholders. (7) Long-term obligations, including current obligations of long- term obligations, as of June 15, 1996 includes certain liabilities that may be subject to compromise as a result of the Restructuring. Management's Discussion and Analysis of Financial Condition and Results of Operations Results of Operations General The table below sets forth for the periods indicated, the percentage relationship that the various consolidated Statement of Operations items bear to sales:
Fiscal Year 24 weeks 24 weeks ended ended 1993 1994 1995 June 17, 1995 June 15, 1996 Unaudited Sales, net 100.00% 100.00% 100.00% 100.00% 100.00% Cost of sales 74.38 74.94 76.02 75.68 75.47 Gross Profit 25.62 25.06 23.98 24.32 24.53 Selling and administrative 23.49 24.67 24.11 23.38 22.50 Operational restructuring costs - 2.96 2.01 - - Operational profit (loss) 2.13 (2.57) (2.14) 0.94 2.03 Gain on sale of plants 0.32 - - - - Interest expense (2.33) (2.30) (2.53) (2.56) (2.11) Income(loss) before reorganization items, income taxes and extraordinary items 0.12 (4.87) (4.67) (1.62) (0.68) Reorganization items - - - - (1.28) Income(loss) before income taxes and extraordinary items 0.12 (4.87) (4.67) (1.62) (1.36) Income tax benefit (provision) 0.40 (0.31) - - - Income(loss) before extraordinary items 0.52 (5.18) (4.67) (1.62) (1.36) Extraordinary items (0.48) - (0.37) (0.72) - Net income(loss) 0.04 (5.18) (5.04) (2.34) (1.36)
The following discussion includes statements that are forward- looking in nature. As with any forward-looking statements, these statements are subject to a number of factors including competitive activities, economic conditions in the market area and consummation of the Restructuring that tend to influence the accuracy of the statements. Comparison of Twenty-Four Weeks Ended June 15, 1996 with Twenty-Four Weeks Ended June 17, 1995 Net sales for the 24 weeks ended June 15, 1996 decreased 24.2% over the net sales of the corresponding periods of 1995. The decrease in net sales was due primarily to the sale of 29 stores to AWG on April 21, 1995 and the closing of 14 stores in 1995, 5 of which occurred during the first quarter of 1995, 2 during the second quarter of 1995, and the remainder over the balance of 1995. Comparable store sales for the 24 weeks ended June 15, 1996 decreased by 0.2% compared to the corresponding period of 1995. The decrease in comparable store sales was primarily due to higher 1995 general merchandise sales resulting from certain continuity programs that did not recur in 1996. Gross profit as a percentage of sales for the 24 weeks ended June 15, 1996 increased to 24.5% compared to 24.3% for the corresponding period of 1995. The improvement was primarily due to higher vendor allowances and rebates, which were lower in 1995 due to the pending sale of the Company's distribution center and 29 stores to AWG. The higher vendor allowances and rebates are somewhat offset by the higher cost of goods purchased through AWG versus self-supply. For the 24 weeks ended June 15, 1996, selling and administrative expenses decreased to 22.5% from 23.4%. The decrease in expenses was due to a reduction in health and welfare costs and lower corporate office expenses. Interest expense for the 24 weeks ended June 15, 1996 decreased to $5.2 million from $8.3 million in the corresponding period of 1995. The decrease in interest expense is primarily a result of the Company filing chapter 11 petitions with the Bankruptcy Court on May 13, 1996. The filing stayed the Company's interest obligation on the Old Notes which would have amounted to approximately $950,000 for the period of May 13, 1996 to June 15, 1996. Additionally, interest expense decreased due to the redemption of $25.0 million of senior secured notes on June 1, 1995. The Company incurred $3.2 million of reorganization expenses for the 24 weeks ended June 15, 1996. The reorganization expenses were primarily professional fees. Extraordinary items for the 24 weeks ended June 17, 1995 consisted of refinancing costs associated with the Company's sale of 29 stores and its distribution center to AWG on April 21, 1995. Comparison of Fifty-Two Weeks Ended December 30, 1995 with Fifty-Two Weeks Ended December 31, 1994 Sales. Net sales for 1995 declined to $630.3 million, a 19.7% decrease from sales of $785.1 million in 1994. The decrease in net sales was due primarily to the sale of 29 stores to AWG on April 21, 1995 and the closing of 14 underperforming stores over the course of 1995. These stores were closed pursuant to the Company's plan to close certain marginal and underperforming stores. Net sales were also impacted by increased competition in the Company's market area resulting from additional store openings of Wal-Mart supercenter stores and Albertsons stores during 1994. There was one new Wal-Mart supercenter store and three Albertson's stores that opened in the Company's market area during 1995. The Company's comparable stores sales for the 68 stores increased by 0.2% compared to the prior year, due primarily to improved store conditions, a new advertising program and increased promotional pricing. Cost and Expenses. Gross profit as a percentage of sales decreased to 24.0% in 1995 compared to 25.1% in 1994. The continued erosion of the Company's gross margins was the result of a number of factors including (a) the difficulties in transforming the Company from a self-supplier to a member of a purchasing cooperative and (b) additional competitive openings (there were eight additional competitive openings in the Company's market areas in 1995) and the aggressive pricing practices of certain competitors. Selling and administrative expenses as a percentage of sales decreased in 1995 to 24.1% from 24.7% in 1994. The Company was able to implement personnel and other cost reductions at the corporate office as a result of the sale of 29 stores and its distribution center to AWG. This included a reduction of headcount by approximately 50% at the corporate office, lower travel, telephone, and service charges, computer expenses and other related administrative expenses. The decrease was also due to an additional workers compensation accrual during 1994 that did not recur in 1995. The Company is continuing its drive to contain and reduce costs. New systems have recently been installed that allowed the Company to terminate its expensive computer outsourcing agreement, thereby reducing future computer and information systems costs. Furthermore, the Company expects to streamline numerous other processes that will benefit expense reduction efforts. Operational Restructuring Costs. Operational restructuring costs for 1995 amounted to $12.6 million which included the write-off of computer software no longer being utilized by the Company, the write-off of goodwill in connection with the Restructuring and a termination fee associated with the cancellation of the Company's computer outsourcing agreement. Operating Loss. Operating loss was $13.5 million in 1995 compared to an operating loss of $20.1 million in 1994. The lower operating loss was due primarily to lower operational restructuring costs which declined from $23.2 million in 1994 to $12.6 million in 1995. Interest Expense. Interest expense for 1995 decreased to $16.0 million from $18.1 million in 1994. The lower interest expense was due primarily to the redemption of $25.0 million of Old Notes on June 1, 1995. Income Tax Provision. The Company did not record any provision for income taxes for 1995. At December 30, 1995, the Company had tax net operating loss carryforwards of approximately $48.6 million. Extraordinary Items. Extraordinary items for the year consist of the payment of $600,000 in consent fees to the holders of the Old Notes (as defined in Liquidity and Capital Resources of this section), $306,000 in premiums on the redemption of $15.6 million of New Fixed Rate Notes (as defined in Liquidity and Capital Resources of this section) and $1.4 million in unamortized financing costs related to the redemption of $25.0 million of Old Notes and the replacement of the Prior Credit Agreement. Net Loss. The Company had a net loss of $31.8 million in 1995 compared to a net loss of $40.6 million in 1994. The lower net loss in 1995 was due primarily to a reduction in operational restructuring costs from $23.2 million in 1994 to $12.6 million in 1995. Comparison of Fifty-Two Weeks Ended December 31, 1994 with Fifty-Two Weeks Ended January 1, 1994 Sales. Net sales for 1994 decreased to $785.1 million, a 3.2% decrease over 1993 net sales. The decrease in net sales for fiscal 1994 is primarily attributable to the increased competition in the Company's market area resulting primarily from additional store openings of Wal-Mart supercenter stores during 1993 and 1994. There were 11 new Wal-Mart supercenter stores opened in the Company's market area during 1994. The Company's comparable store sales decreased by 2.6% compared to the prior year due primarily to competitors' store openings in the Company's market area. Cost and Expenses. Gross profit as a percentage of sales for 1994 decreased to 25.1% compared to 25.6% in 1993. The decrease in the gross profit margin was partially due to increased promotional pricing in response to the increased competition in the Company's market area. The decrease was also partially due to a decrease in the period of time for amortizing video rental tapes. The decrease was partially offset by a reduction in the inventory losses accounted for in the Company's retail stores during 1994. The retail store inventory losses were approximately $1.8 million less than inventory losses in 1993, resulting principally from a reduction in the losses in the meat department. The improvement in the meat department losses was due to a change in the procedures to process only the amount of product anticipated to be sold and not processing excessive quantities of fresh beef and pork to fill the display areas. The decline in gross profit margin was also due in part to an increase in warehouse and transportation expense as a percent of sales in 1994 which was due to an increase in the warehouse square footage and an increase in the number of warehouse personnel resulting from converting the former ice cream plant into additional frozen food warehouse space. Selling and administrative expenses as a percentage of sales increased in 1994 to 24.7% from 23.5% for 1993. The increase in selling and administrative expenses as a percentage of sales was due in large part to the decrease in sales for 1994 as compared to the prior year. However, the expenses also increased during 1994 due in part to the contractual increase in the monthly fees in connection with the Company's computer services agreement and a one-time change in the administration of the vacation policy which occurred during 1993 and did not recur in 1994. Expenses also increased due to additional reserves recorded for estimated bad debts on accounts receivable due from vendors and wholesale customers which may not be collected in full as a result of the AWG Transaction and the Company wrote down certain fixed assets to fair market value. The Company also recorded an increase of $5.7 million in the accrual for workers' compensation claims in 1994 as compared to the prior year due to an increase in the actuarially projected ultimate costs of the self-insured plans reflecting increases in claims and related settlements. These increases in expense were partially offset by a reduction in retail wages and benefits resulting from the modified collective bargaining agreement entered into with the UFCW in December 1993. Operational Restructuring Costs. Operational restructuring costs for 1994 were $23.2 million which included an estimate of the expenses to be incurred in connection with the sale of the warehouse and 29 stores to AWG and the closing of 15 stores during 1995. The accrual included the fixed costs of the closed stores from the time they were expected to be closed until they could be sold or the leases expire. Operating Loss. Operating loss was $20.1 million for 1994 compared to operating profit of $17.3 million in 1993. The decrease in operating profit was due to the decrease in sales, the decrease in gross profit margin, the increase in selling and administrative expenses and the operational restructuring costs recorded in 1994. Gain on Sale of Plants. The Company recognized a $2.6 million gain from the sale of equipment and related assets associated with its milk and ice cream plants in 1993. Interest Expense. Interest expense for 1994 decreased to $18.1 million from $18.9 million in 1993 due primarily to the redemption of the Company's Subordinated notes which were redeemed by the Company on March 1, 1993. Income Tax Provision. The Company recognized income tax expense of $2.4 million in 1994, compared to an income tax benefit of $3.3 million in 1993. The expense in 1994 was the result of increasing the valuation allowance on the Company's deferred tax asset from the prior year due to the uncertainty of realizing the future tax benefits. The expense was offset in part by the recognition of a tax benefit for alternative minimum tax net operating losses that were carried back to prior years. The income tax benefit for 1993 was the result of the reversal of the prior valuation allowance on the Company's deferred tax asset due to the proposed disposition of assets, net of the estimated amount management believed the Company may be required to pay in connection with the IRS audit. The IRS concluded in December 1993 a field audit of the Company's income tax returns for the fiscal years 1990, 1991 and 1992. On January 31, 1994, the IRS issued a Revenue Agent's Report for those fiscal years proposing adjustments that would result in additional taxes in the amount of $1.6 million (this amount is net of any available operating loss carryforwards, which would be eliminated under the proposed adjustment). The Company filed its protest with the IRS Appeals Office on June 14, 1994. On June 28, 1995, the Company reached a tentative agreement with the IRS Appeals office to settle the above claims. Management has analyzed the proposed settlement and has provided for, in accordance with generally accepted accounting principles, amounts which it currently believes are adequate. Extraordinary Items. There were no extraordinary items incurred during fiscal 1994. Extraordinary items in 1993 consisted of the payment of $2.776 million in premiums on the redemption of $47.750 million in aggregate principal amount of the Subordinated Notes at a purchase price of 105.8% of the outstanding principal amount and $1.148 million in unamortized financing costs related to the redemption of the subordinated notes on March 1, 1993. See "Liquidity and Capital Resources" in this section. Net Income (Loss). The Company had net loss of $40.6 million during 1994 compared to net income of $282,000 in 1993. The net loss experienced in 1994 was due primarily to the operational restructuring costs, reduction of sales and gross profit margin, increase in selling and administrative expenses and an increase in income tax expense. Liquidity and Capital Resources Debt. The primary sources of liquidity for the Company's operations have been borrowings under credit facilities and internally generated funds. In March 1992, the Company refinanced its indebtedness by entering into an Indenture with United States Trust Company of New York, as trustee, pursuant to which the Company had outstanding as of July 15, 1996, $59.4 million of Series C Senior Secured Fixed Rate Notes due 1999, $26.1 million of Series D Senior Secured Floating Rate Notes due 1997 and $9.5 Series A Senior Secured Floating Rates Notes due 1997 (collectively, the "Old Notes"). On May 13, 1996, Holding and Homeland filed Chapter 11 petitions with the Bankruptcy Court. The Restructuring was designed to reduce substantially the Company's debt service obligations and labor costs and to create a capital and cost structure that will allow the Company to maintain and enhance the competitive position of its business and operations. The Restructuring was negotiated with and supported by the lenders under the Prior Credit Agreement, the Noteholders Committee and the Company's labor unions. On July 19, 1996, the Bankruptcy Court confirmed the Company's Plan of Reorganization and the Plan of Reorganization became effective on the Effective Date. Under the Plan of Reorganization, holders of the Old Notes were deemed to have two claims: (a) an aggregate secured claim of $61.5 million; and (b) an aggregate unsecured claim of approximately $40.1 million. In exchange for their secured claims in respect of the Old Notes, the noteholders will receive under the Plan of Reorganization (i) $60.0 million aggregate principal amount of New Notes and (ii) $1.5 million in cash. The New Notes will mature in 2003, bear interest semi-annually at a rate of 10% per annum and will not be secured. In exchange for their unsecured claims in respect of the Old Notes, the noteholders will receive their ratable portion of 4,450,000 shares of New Common Stock, sharing ratably with other allowed general unsecured claims against the Company. It is anticipated that the noteholders and the Company's general unsecured creditors will receive approximately 60% and 35%, respectively, of the equity of the reorganized Company (assuming total unsecured claims of approximately $63 million, including noteholders' unsecured claims). The Company's existing equity holders will receive 5% of the new equity, plus five-year warrants to purchase an additional 5% of such equity. On April 21, 1995, the Company entered into a revolving credit agreement (the "Prior Credit Agreement") with National Bank of Canada, ("NBC"), as agent and as lender, Heller Financial, Inc. The Prior Credit Agreement permitted borrowings up to $25 million, subject to a borrowing base, for working capital needs including certain letters of credit. On May 13, 1996, the Company entered into an interim debtor-in-possession lending facility ("DIP Facility"), with its existing bank group to provide up to $27 million of working capital financing. The DIP Facility permitted the Company to borrow up to the lesser of $27 million and the borrowing base. The borrowings under the DIP Facility bear interest at a rate equal to the prime rate announced publicly by NBC from time to time in New York, New York plus two percent. The DIP Facility matured on the Effective Date. On the Effective Date, the Company entered into the New Credit Agreement with NBC, as agent and lender, and two other lenders, Heller Financial, Inc. and IBJ Schroder Bank and Trust Company, under which those lenders provided a working capital and letter of credit facility and a term loan. The New Credit Agreement permits the Company to borrow, under the working capital and letter of credit facility, up to the lesser of (a) $27.5 million or (b) the applicable borrowing base. Funds borrowed under such facility are available for general corporate purposes of the Company. The New Credit Agreement also provides the Company a $10.0 million term loan, which will be used to fund certain obligations of the Company under the Plan of Reorganization, including the Employee Buyout Offer and a new health and welfare plan required by the Modified Union Agreements, professional fees and "cure amounts" which were required to be paid under the Plan of Reorganization in connection with executory contracts, secured financing and unexpired leases. The interest rate under the New Credit Agreement is based on the prime rate publicly announced by National Bank of Canada from time to time in New York, New York plus a percentage which varies based on a number of factors, including (a) the amount which is part of the working capital and letter of credit facility and the amount which is part of the term loan, (b) the time period, (c) whether the Company elects to use a London Interbank Offered Rate, and (d) the earnings of the Company before interest, taxes, depreciation and amortization expenses. The indebtedness under the New Credit Agreement will mature three years from the Effective Date. The obligations of the Company under the New Credit Agreement are secured by liens on, and security interests in, substantially all of the assets of Homeland and are guaranteed by Holding, with a pledge of its Homeland stock to secure its obligation. The collateral includes the assets which, prior to the Effective Date, secured the obligations of the Company to the holders of the Old Notes. The New Credit Agreement includes certain customary restrictions on acquisitions, asset dispositions, capital expenditures, consolidations and mergers, distributions, divestitures, indebtedness, liens and security interests and transactions with affiliates. The New Credit Agreement also requires the Company to comply with certain financial and other covenants. Labor Savings. An integral part of the Restructuring is the Company's negotiated deal with its labor unions to modify certain elements of the Company's existing collective bargaining agreements. The Modified Union Agreements provide for, among other things, wage and benefit modifications, the Employee Buyout Offer and the issuance and purchase of new equity to a trust acting on behalf of the unionized employees. The Modified Union Agreements became effective on the Effective Date. The Company estimates that the Modified Union Agreements will result in cost savings of approximately $10 million during the first full contract year following the Restructuring. There can be no assurance, however, that such cost savings will actually be realized. In addition, cost savings in future contract years will be offset in part by certain wage and benefit increases. Working Capital and Capital Expenditures. The Company's primary sources of capital have been borrowing availability under the Prior Credit Agreement and cash flow from operations, to the extent available. The Company uses the available capital resources for working capital needs, capital expenditures and repayment of debt obligations. The Company suffered a negative cash flow from operations of $8.0 million in 1995 compared to positive cash flow of $0.3 million in 1994 and $13.0 million in 1993. The cash flow deficit in 1995 is due to the Company incurring a net cash outflow before working capital changes of $7.3 million, which is the net loss of $31.8 million offset by $24.5 million of non-cash charges. The remainder of the cash outflow from operations is from net working capital changes that resulted primarily from the AWG Transaction. The Company's investing activities provided net cash of $65.1 million in 1995 and used net cash of $4.0 million and $3.1 million in 1994 and 1993, respectively. The substantial increase of cash provided by investing activities in 1995 was the result of sale of the warehouse, 29 stores and associated inventory to AWG. Capital expenditures were $4.7 million, $5.4 million and $7.1 million in 1995, 1994 and 1993, respectively. The Company expects to make total capital expenditures of approximately $8.3 million in 1996, primarily for one new store, remodel stores and store information systems. As of August 10, 1996, the Company has funded $2.4 million of capital expenditures with the remaining escrow funds of approximately $1.7 million available for reinvestment from the AWG transaction, cash flow from operations, the Prior Credit Agreement and the DIP Facility. The funds required for the remaining $5.9 million of 1996 capital expenditures would come from cash flow from operations and the New Credit Agreement. Financing activities of the Company used net cash of $51.0 million in 1995, provided net cash of $1.9 million in 1994 and used net cash of $33.5 million in 1993. The net cash usage in 1995 was primarily due to the paydown of $25.0 million in Old Notes and $21.0 million of revolving credit facility loans. The Company expects to increase its capital expenditures for fiscal 1997 and 1998 as compared to 1996, subject to the limitations under the New Credit Agreement. The New Credit Agreement limits the Company's capital expenditures for 1997 to $12.0 million cash capital expenditures and for 1998 to $13.0 million cash capital expenditures and $7.0 million of capital leases for each fiscal year. The Company intends to remodel and upgrade certain stores plus continue to improve its store and corporate information systems. The funds for such capital expenditures are expected to be obtained from the Company's operating cash flow and borrowings under the New Credit Agreement. Net cash provided by the Company's operations for the 24 weeks ended June 15, 1996, was approximately $8.0 million (after adjusting for reorganization items of $3.2 million). The positive net cash from operations was the result of decrease in inventories of $3.3 million and the non-payment of the scheduled $4.4 million of interest payments on the Old Notes. The Company utilized $1.4 million for capital expenditures for the 24 weeks ended June 15, 1996, reflecting the Company's cash preservation efforts prior to and during the Restructuring process. The capital expenditures during this period were more than offset by the cash proceeds from the sale of the Company's Ponca City store. The Company used most of its net cash from operations and investing to fund the $3.4 million of reduced borrowings under the DIP Facility and $1.2 million in principal payments under its capital leases obligations. The Company's ability to continue to meet its working capital needs, meet its debt and interest obligations and capital expenditure requirements is dependent on its future operating performance, which may be negatively affected by the proposed AWG conversion to a general business corporation. Management believes that the Restructuring will have a favorable effect on the Company's future liquidity by (a) reducing future interest cost, (b) reducing labor costs, (c) extending the maturities of the Company's long-term debt, (d) reducing the Company's store lease obligations by the rejection of seven store leases and (e) permitting additional borrowings through the release of collateral under the Indenture relating to the Old Notes. There can be no assurance that future operating performance will provide positive net cash or that the Restructuring will ultimately be successful. If the Company is not able to generate positive cash flow from its operations or if the Restructuring is not ultimately successful, management believes that this could have a material adverse effect on the Company's business and the continuing viability of the Company. Accounting Standards The Company's Restructuring will be accounted for pursuant to the American Institute of Certified Public Accountants Statement of Position No. 90-7, entitled "Financial Reporting by Entities in Reorganization under the Bankruptcy Code" ("SOP No. 90-7"). SOP No. 90-7 is applicable because holders of the Old Common Stock will receive less than 50% of the Company's New Common Stock (see Item 4. Security Ownership of Certain Beneficial Owners and Management) and the reorganized value of the assets of the reorganized Company is less than the total of all post-petition liabilities and allowed claims. The accounting of SOP No. 9-7 will result in "fresh- start" reporting, in which the Company's assets and liabilities will be adjusted to their fair market value and a new reporting entity will be created with no retained earnings or accumulated deficit as of the Effective Date. Inflation/Deflation In recent years, deflation has not had a material impact upon the Company's operating results. Although the Company does not expect inflation or deflation to have a material impact in the future, there can be no assurance that the Company's business will not be affected by inflation or deflation in future periods. Item 3. Properties Of the 65 supermarkets operated by the Company at September 1, 1996, 12 are owned and the balance are held under leases which expire at various times between 1996 and 2013. Most of the leases are subject to six five-year renewal options. Out of 53 leased stores, only seven have terms (including option periods) of fewer than 20 years remaining. Most of the leases require the payment of taxes, insurance and maintenance costs and many of the leases provide for additional contingent rentals based on sales. No individual store operated by Homeland is by itself material to the financial performance or condition of Homeland as a whole. The average rent per square foot under Homeland's existing leases is $3.11 (without regard to amortization of beneficial interest). Substantially all of the Company's properties are subject to mortgages securing the borrowings under the New Credit Agreement. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources." Although the Company believes that most of its existing store leases are at or below the current market rate, certain of the Company's stores were subject to burdensome lease terms. As part of the Restructuring, the Company rejected seven store leases. Item 4. Security Ownership of Certain Beneficial Owners and Management Under the Company's Plan of Reorganization, each holder of a general unsecured claim against the Company, including $40.1 million of general unsecured claims in respect of the Old Notes, will receive its ratable share of 4,450,000 shares of New Common Stock, based on the amount of such holder's claim relative to all general unsecured claims. In addition, under the Plan of Reorganization, all of the Company's issued and outstanding Class A Common Stock, par value $.01 per share (the "Old Common Stock"), will be exchanged for (a) an aggregate of 250,000 shares of newly-issued common stock, par value $.01 per share, of the Company (the "New Common Stock"), representing approximately 5.3% of the New Common Stock to be outstanding upon consummation of the Restructuring, and (b) warrants to purchase (in the aggregate) up to 263,158 shares of New Common Stock (the "New Warrants") at an exercise price of $11.85 per share. Upon consummation of the Restructuring, each holder of the Old Common Stock will receive 7.73 shares of New Common Stock and 8.14 New Warrants for each 1,000 shares of Old Common Stock held by such holders. As a result of the equity recapitalization and the issuance of the shares of New Common Stock to the holders of general unsecured claims pursuant to the Plan of Reorganization, the persons who, as of the Effective Date, will own at least five percent of the shares of New Common Stock may be significantly different than the persons who owned at least five percent of the shares of Old Common Stock prior to the Effective Date. The Company is unable to determine at this time the identity of the persons who will own at least five percent of the New Common Stock to be outstanding upon consummation of the Restructuring because, among other reasons, the actual amount of general unsecured claims (other than general unsecured claims in respect of the Old Notes) has not been finally determined. The Company does not anticipate any beneficial ownership of 5% or greater. See "Legal Proceedings" for a description of the claims resolution process. Under the Plan of Reorganization, the Company will reserve for the account of each creditor holding a disputed general unsecured claim the New Common Stock that would otherwise be distributable to such creditor on the Effective Date if such disputed claim were allowed by the Bankruptcy Court. If a disputed claim is disallowed in whole or in part, the Company will distribute the New Common Stock held in reserve ratably to holders of general unsecured claims allowed by the Bankruptcy Court. Such distributions will be made on December 31, 1996, and on June 30 and December 31 of each following year until the earlier of (a) the date on which all disputed claims have been resolved or (b) less than 5,000 shares of New Common Stock are on deposit in the disputed claims reserve. If any time after the Effective Date, the number of shares of New Common Stock in the disputed claims reserve is less than 5,000, the remaining shares of New Common Stock held in such reserve will, at the Company's option, be canceled or treated as treasury shares. The Company estimates that total general unsecured claims will be approximately $63.1 million, consisting of approximately $40.1 million in general unsecured claims in respect of the Old Notes and approximately $23.0 million of other general unsecured claims. Based on such estimate (a) holders of the Old Notes will receive (in the aggregate) approximately 2,827,922 shares of New Common Stock representing approximately 60.2% of the New Common Stock to be outstanding upon consummation of the Restructuring and (b) holders of the other general unsecured claims will receive (in the aggregate) approximately 1,622,029 shares of New Common Stock representing approximately 34.5% of the New Common Stock to be outstanding upon consummation of the Restructuring. Under the Plan of Reorganization, holders of the Old Common Stock will receive the remaining approximately 5.3% of the New Common Stock, together with New Warrants to purchase an additional approximately 5.3% of the New Common Stock. None of the directors of the Company will own any of the New Common Stock immediately upon consummation of the Restructuring. The officers of the Company who will own New Common Stock immediately upon consummation of the Restructuring are as follows: Steven M. Mason, Vice President - Marketing, who will own 324 shares of the New Common Stock (less than 1%) and 341 New Warrants; and Alfred F. Fideline, Sr., Vice President - Retail Operations, who will own 8 shares of the New Common Stock (less than 1%) and 8 New Warrants. Item 5. Directors and Executive Officers Set forth below are the names, ages, present positions and years of service (in the case of members of management) of the directors and management of Homeland: Years with the Name Age Position Company and/or Safeway James A. Demme* 56 Chairman of the 2 Board, President and Chief Executive Officer Larry W. Kordisch* 49 Executive Vice 1 President-Finance, Chief Financial Officer, Treasurer and Secretary Steven M. Mason 41 Vice President - 26 Marketing Terry M. Marczewski* 41 Chief Accounting 1 Officer, Assistant Treasurer and Assistant Secretary Alfred F. Fideline, Sr. 59 Vice President- 40 Retail Operations Prentess E. Alletag, Jr. 49 Vice President- 29 Human Resources Robert E. (Gene) Burris 49 Director -- Edward B. Krekeler, Jr. 52 Director -- Laurie M. Shahon 44 Director -- John A. Shields 53 Director -- William B. Snow 65 Director -- David M. Weinstein 37 Director -- *Holding's Board of Directors is identical to that of Homeland. Mr. Demme serves as Holding's Chairman, President and Chief Executive Officer, Mr. Kordisch as Executive Vice President - Finance, Treasurer, Chief Financial Officer and Secretary and Mr. Marczewski as Chief Accounting Officer, Assistant Treasurer and Assistant Secretary. James A. Demme was elected Chairman of the Board in September 1996. He became President, Chief Executive Officer and a director of the Company as of November 30, 1994. From 1992 to 1994, Mr. Demme served as Executive Vice President of Retail Operations of Scrivner, Inc. He was responsible for the operations of their 170 retail stores which had a total volume exceeding $2 billion. From 1991 to 1992, Mr. Demme served as Senior Vice President of Marketing of Scrivner, Inc. where he was responsible for restructuring and refocusing the merchandising department to retail orientation. From 1988 to 1991, Mr. Demme was President and Chief Operating Officer of Shaws Supermarkets, which was the nation's fifteenth largest retail chain with sales of $1.7 billion. Larry W. Kordisch joined the Company in February 1995 and became Executive Vice President - Finance, Treasurer, Chief Financial Officer and Secretary as of May 1995. Prior to joining Homeland, Mr. Kordisch served as Executive Vice President - Finance and Administration, Chief Financial Officer and member of the Board of Directors of Scrivner, Inc. and was responsible for the Finance, Accounting, Risk Management, Legal and Administrative functions. Steven M. Mason joined Safeway in 1970 and the Oklahoma Division in 1986. At the time of the Acquisition, he was serving as Special Projects Coordinator for the Oklahoma Division. In November 1987, he joined Homeland and in October 1988, he was appointed to the position of Vice President - Retail Operations. In October 1993, Mr. Mason was appointed to the position of Vice President - Marketing. Terry M. Marczewski joined the Company in April 1995 and became the Chief Accounting Officer, Assistant Treasurer and Assistant Secretary as of May 1995. From July 1994 to April 1995, he was the controller at Fleming Companies, Inc.- Scrivner Group. From 1990 to July 1994, Mr. Marczewski was the Vice President and Controller at Scrivner, Inc., the nation's third largest grocery wholesaler, prior to its acquisition by Fleming Companies, Inc. Alfred F. Fideline, Sr. joined Safeway in 1957. At the time of the Acquisition, he was serving as a District Manager of the Oklahoma Division. In November 1987, Mr. Fideline joined Homeland as a District Manager and in May 1994, he was appointed to the position of Vice President - Retail Operations. Prentess E. Alletag, Jr. joined the Oklahoma Division in October 1969, where, at the time of the Acquisition, he was serving as Human Resources and Public Affairs Manager. In November 1987, Mr. Alletag joined Homeland as Vice President - Human Resources. Robert E. (Gene) Burris became a director of the Company and Holding on August 2, 1996. Since 1988, Mr. Burris has been President of the UFCW Local No. 1000, which represents approximately 65% of the Company's unionized employees. Pursuant to the Modified UFCW Agreements, the UFCW has the right to designate one member of the Boards of Directors of Holding and Homeland. Mr. Burris is the designee of the UFCW. Since February 1995, Mr. Burris has been the Chief Executive Officer and owner of G&E Railroad, a retail store. Edward B. Krekeler, Jr. became a director of the Company and Holding on August 2, 1996. Since 1994, he has been Managing Director of Creative Capital Consultancy, a financial consulting firm. From 1984 to 1994, he served in various positions as an officer of Washington Square Capital, Inc., including Vice-President, Special Investments, Vice-President, Administration, Private Placements, Vice-President, Portfolio Manager, Private Placements, and Chief Investment Analyst. From 1970 to 1984, Mr. Krekeler was Director, Fixed Income Investments, of The Ohio National Life Insurance Company, Inc. He was Chairman of the Board of Directors of Convenient Food Marts, Inc. from 1990 to 1994. Laurie M. Shahon became a director of the Company and Holding on August 2, 1996. Ms. Shahon has been President of Wilton Capital Group, a private direct investment firm since January 1994. Ms. Shahon previously served as Vice Chairman and Chief Operating Officer of Color Tile, Inc. in 1989. From 1988 to 1993, she served as Managing Director of `21' International Holdings, Inc., a private holding company. From 1980 to 1988, she was Vice President of Salomon Brothers, Inc., where she was founder and head of the retailing and consumer products group. From 1976 to 1980, Ms. Shahon was an Associate with Morgan Stanley & Co., Incorporated. Ms. Shahon is a director of Arbor Drugs, Inc., One Price Clothing Stores, Inc. and Ames Department Stores, Inc. John A. Shields became a director of the Company and Holding in May 1993. Mr. Shields has been the Chairman and Chief Executive Officer of Delray Farms Fresh Markets, a retail perishables specialty chain, since January 1994. From 1983 to 1993, he served as President, Chief Executive Officer, Chief Operating Officer and a member of the Board of Directors of First National Supermarkets. Mr. Shields is also a director of D.I.Y. Home Warehouse, Inc. William B. Snow became a director of the Company and Holding on August 2, 1996. Mr. Snow has served as Vice Chairman of Movie Gallery, Inc., the second largest video specialty retailer in the United States, since 1994. From 1985 to 1994, he was Executive Vice President and a director of Consolidated Stores Corporation. From 1980 to 1985, Mr. Snow was Chairman, President and Chief Executive Officer of Amerimark, Inc., a diversified supermarket retailer and institutional food service distributor. From 1974 to 1980, he was President of Continental Foodservice, Inc. From 1966 to 1974, Mr. Snow was Senior Vice President of Hartmarx, Inc. Mr. Snow is a director of Movie Gallery, Inc. and Action Industries, Inc. David N. Weinstein became a director of the Company and Holding on August 2, 1996. He is the Managing Director of the High Yield Capital Markets group at Bank of Boston. From 1993 to March 1996, he served as Managing Director and High Yield Capital Market Specialist of Chase Securities, Inc. From 1990 to 1993, Mr. Weinstein was head of the Capital Markets group in the High Yield Department of Lehman Brothers and later was a director in the High Yield/Private Financing Group of Smith Barney Shearson. From 1988 to 1990, he was Director of Investments of LeBow, Welcsel & Co. From 1987 to 1988, Mr. Weinstein was retained at the direction of the Board of Directors of National Securities and Research Corporation to manage, analyze and restructure the portfolio of the National Bond Fund. From 1985 to 1987, he was an Associate in Mergers and Acquisitions and a Business Consultant to Whitcom Investment Company. From 1982 to 1985, Mr. Weinstein practiced law in New York City, specializing in syndication finance, origination and taxation. Item 6. Executive Compensation Summary of Cash and Certain Other Compensation The following table provides certain summary information concerning compensation paid or accrued by the Company to or on behalf of the Company's Chief Executive Officer, each of the three other most highly compensated executive officers of the Company and one former executive officer (hereinafter referred to as the "Named Executive Officers") for the fiscal years ended December 30, 1995, December 31, 1994, and January 1, 1994: SUMMARY COMPENSATION TABLE Annual Compensation All Other Name and Principal Other Annual Compensation Position Year Salary Bonus Compensation (3)(4) James A. Demme(1) Chairman, President and 1995 $200,000 $100,000 (2) $ 4,396 Chief Executive Officer 1994 11,538 - (2) - Mark S. Sellers (6) 1995 $ 81,922 $140,656 $271,613(5) $208,207 Former Executive Vice Pres. 1994 153,000 130,050 114,474(5) 43,447 Finance, Treasurer, Chief 1993 160,192 153,000 80,852(5) 34,604 Financial Officer and Secretary Larry W. Kordisch (7) 1995 $126,923 $100,000 (2) $ 3,907 Executive Vice Pres. Finance, Treasurer, Chief Financial Officer and Secretary Steven M. Mason 1995 $130,500 $ 19,575 (2) $ 6,414 Vice President - 1994 130,500 110,925 (2) 8,963 Marketing 1993 107,250 103,500 (2) 3,904 Terry M. Marczewski(8) 1995 $ 69,326 $ 20,000 (2) $ 43 Chief Accounting Officer, Assistant Treasurer, and Assistant Secretary ______________ (1) Mr. Demme joined the Company as President, Chief Executive Officer and a director as of November 30, 1994. In September 1996, he was elected Chairman of the Board. (2) Personal benefits provided to the Named Executive Officer under various Company programs do not exceed 10% of total annual salary and bonus reported for the Named Executive Officer. (3) All other compensation includes contributions to the Company's defined contribution plan on behalf of each of the Named Executive Officers to match 1993 pre-tax elective deferral contributions (there was no match for 1994 and 1995) (included under Salary) made by each to such plan, as follows: Steven M. Mason, $2,956. (4) The Company provides reimbursement for medical benefit insurance premiums for the Named Executive Officers. These persons obtain individual fully-insured private medical benefit insurance policies with benefits substantially equivalent to the medical benefits currently provided under the Company's group plan. The Company also provides for life insurance premiums for executive officers, including the Named Executive Officers and one other executive officer, who obtain fully-insured private term life insurance policies with benefits of $500,000 per person. Amounts paid during 1995 are as follows: James A. Demme, $1,547; Mark S. Sellers, $11,069; Larry W. Kordisch, $2,073; Steven M. Mason, $1,616; and Terry M. Marczewski, $43. (5) Includes reimbursement of relocation expenses in the amount of $271,613 in 1995, $95,378 in 1994 and $78,058 in 1993. (6) Mr. Sellers was Executive Vice President-Finance and Chief Financial Officer of the Company until his resignation in May 1995. (7) Mr. Kordisch joined the Company in February 1995 and was appointed Executive Vice President-Finance, Chief Financial Officer, Treasurer and Secretary of the Company as of May 5, 1995. (8) Mr. Marczewski joined the Company in April 1995 and was appointed the Chief Accounting Officer and Controller of the Company as of May 5, 1995. Directors who are not employees of the Company or otherwise affiliated with the Company (presently consisting of Ms. Shahon and Messrs. Burris, Krekeler, Shields, Snow and Weinstein) are paid annual retainers of $15,000 and meeting fees of $1,000 for each meeting of the board or any committee attended in person and $250 for each meeting attended by telephone. Directors are reimbursed for all reasonable travel and other expenses of attending meetings of the Board or a Committee of the Board. Mr Shields also serves as a consultant to the Company from time to time at the request of CD&R. During 1995, Mr. Shields received $166,662 from CD&R for consulting fees for services provided to the Company. Employment Agreements In November 1994, the Company entered into an employment agreement with James A. Demme, the Company's President and Chief Executive Officer, for an indefinite term. The agreement provides a base annual salary of not less than $200,000 subject to increase from time to time at the discretion of the Board of Directors. The agreement entitles Mr. Demme to participate in the Company's Management Incentive Plan with a maximum annual bonus equal to 100% of base salary. The agreement also provides for awards under a long term incentive compensation plan which is to be established by the Company and authorizes reimbursement for certain business-related expenses. The agreement was amended in April 1996, to provide that, if the agreement is terminated by the Company for other than cause or disability prior to December 31, 1997, or is terminated by Mr. Demme following a change of control or a trigger event (as defined), Mr. Demme is entitled to receive (a) payment, which would not be subject to any offset as a result of his receiving compensation from other employment, equal to two years' salary, plus a pro rata amount of the incentive compensation for the portion of the incentive year that precedes the date of termination, and (b) continuation of welfare benefit arrangements for a period of two years after the date of termination. The Restructuring is a trigger event under the agreement only if Mr. Demme terminates his employment for good reason (as defined) or if, following the Effective Date, a subsequent trigger event occurs, such as a change of control or sale of assets. On September 26, 1995, the Company entered into an employment agreement with Larry W. Kordisch, the Company's Executive Vice President-Finance and Chief Financial Officer. The agreement provides for a base annual salary of not less than $150,000, subject to increase from time to time at the discretion of the Board of Directors. Mr. Kordisch is also entitled to participate in the Management Incentive Plan based upon the attainment of performance objectives as the Board of Directors shall determine from time to time. The agreement was amended in April 1996, to provide that, if the agreement is terminated by the Company for other than cause or disability prior to December 31, 1997, or is terminated by Mr. Kordisch following a change of control or a trigger event (as defined), Mr. Kordisch is entitled to receive (a) payment, which would not be subject to any offset as a result of his receiving compensation from other employment, equal to two years' salary, plus a pro rata amount of the incentive compensation for the portion of the incentive year that precedes the date of termination, and (b) continuation of welfare benefit arrangements for a period of two years after the date of termination. The Restructuring is a trigger event under the agreement only if Mr. Kordisch terminates his employment for good reason (as defined) or if, following the Effective Date, a subsequent trigger event occurs, such as a change of control or sale of assets. On September 26, 1995, the Company entered into an employment agreement with Terry M. Marczewski, the Company's Controller and Chief Accounting Officer. The agreement, which is for an indefinite term, provides for a base annual salary of $90,000, subject to increase from time to time at the discretion of the Board of Directors. Mr. Marczewski is also entitled to participate in the Management Incentive Plan based upon the attainment of performance objectives as the Board shall determine from time to time. The agreement was amended in April 1996, to provide that, in the event his employment is terminated prior to December 31, 1997 for any reason other than cause or disability, the Company will pay Mr. Marczewski his annual salary for a period of one year after the termination date or until December 31, 1997, whichever is longer, plus a pro rata amount of the incentive compensation for the portion of the incentive year that precedes the date of terminations. In April 1996, the Company entered into employment agreements with Steve Mason, the Company's Vice President of Marketing, and Alfred F. Fideline, Sr., the Company's Vice President of Retail Operations. The agreements, which are for an indefinite term, provide a base annual salary of $130,500 for Mr. Mason and $80,000 for Mr. Fideline, subject to increase from time to time at the discretion of the Board of Directors. In the event their employment is terminated prior to December 31, 1997 for any reason other than cause or disability, the Company will pay Mr. Mason and Mr. Fideline their annual salaries for a period of one year after the termination date or until December 31, 1997, whichever is longer, plus a pro rata amount of the incentive compensation for the portion of the incentive year that precedes the date of termination On January 30, 1995, the Company entered into an agreement with Mark S. Sellers, the Company's former Executive Vice President-Finance, Chief Financial Officer, Treasurer and Secretary. Pursuant to such agreement, in May 1995, Mr. Sellers was paid $348,139, which included $195,000 of retention payment, $140,656 of pro rata bonus related to the Management Incentive Plan and $12,483 of unpaid vacation and retroactive pay adjustments. The Company entered into a settlement agreement as of August 31, 1995 with Jack M. Lotker, the Company's former Senior Vice President-Administration, in connection with the termination of his employment with the Company. In connection with the settlement, the Company agreed to grant to Mr. Lotker warrants to purchase 100,000 shares of Holding's Class A Common Stock at an exercise price of $0.50 per share and at Mr. Lotker's discretion, the Company agreed to either (a) pay Mr. Lotker a single lump sum of $188,000 or (b) cause PHH Home Equity to purchase Mr. Lotker's current principal residence at a price equal to the appraised value but not less than $575,000. In November 1995, Mr. Lotker elected for the Company to pay him a single lump sum of $188,000. However, due to the Company's liquidity constraints, the Company has not been able to make this payment and accordingly the Company is in default with respect to the settlement agreement. Mr. Lotker filed suit against the Company, demanding recovery under the settlement agreement, together with penalties and interest. This action was stayed by the Company's bankruptcy case and Mr. Lotker has a general unsecured claim against the Company. Management Incentive Plan Homeland maintains a Management Incentive Plan to provide incentive bonuses for members of its management and key employees. Bonuses are determined according to a formula based on both corporate, store and individual performance and accomplishments or other achievements and are paid only if minimum performance and/or accomplishment targets are reached. Minimum bonuses range from 0 to 100% of salary for officers (as set forth in the plan), including the Chief Executive Officer. Maximum bonus payouts range from 75% to 200% of salary for officers and up to 200% of salary for the Chief Executive Officer. Performance levels must significantly exceed target levels before the maximum bonuses will be paid. Under limited circumstances, individual bonus amounts can exceed these levels if approved by the Compensation Committee of the Board. Incentive bonuses paid to managers and supervisors vary according to their reporting and responsibility levels. The plan is administered by a committee consisting, unless otherwise determined by the Board of Directors, of members of the Board who are ineligible to participate in the plan. Incentive bonuses earned for certain highly compensated executive officers under the plan for performance during fiscal year 1995 are included in the Summary Compensation Table. Retirement Plan Homeland maintains a retirement plan in which all non-union employees, including members of management, participate. Under the plan, employees who retire at or after age 65 and after completing five years of vesting service (defined as calendar years in which employees complete at least 1,000 hours of service) will be entitled to retirement benefits equal to 1.50% of career average annual compensation (including basic, overtime and incentive compensation) plus .50% of career average annual compensation in excess of the social security covered compensation, such sum multiplied by years of benefit service (not to exceed 35 years). Service with Safeway prior to the Acquisition is credited for vesting purposes under the plan. Retirement benefits will also be payable upon early retirement beginning at age 55, at rates actuarially reduced from those payable at normal retirement. Benefits are paid in annuity form over the life of the employee or the joint lives of the employee and his or her spouse or other beneficiary. Under the retirement plan, estimated annual benefits payable to the named executive officers of Homeland upon retirement at age 65, assuming no changes in covered compensation or the social security wage base, would be as follows: James A. Demme, $27,280; Larry W. Kordisch, $44,375; Steven M. Mason, $85,129; and Terry M. Marczewski, $35,372. Management Stock Option Plan On the Effective Date, 263,158 shares of New Common Stock were reserved for issuance under a new management stock option plan (the "Management Stock Option Plan") to be established by the Board of Directors following consummation of the Restructuring. The terms and conditions of the Management Stock Option Plan, including the identity of the participants and the number of options to be granted, will be determined by the Board of Directors. Compensation Committee Interlocks and Insider Participation Ms. Laurie Shahon and Messrs. William B. Snow and John A. Shields currently serve on the Company's Compensation and Benefits Committee of the Board of Directors. During 1995, Mr. Shields received $166,662 from CD&R for consulting fees for services provided to the Company at the request of CD&R. Item 7. Certain Relationships and Related Transactions Prior to the Effective Date, the Company's largest stockholders were C&D Fund III, which owned approximately 35.9% of the Old Common Stock, and C&D Fund IV, which owned approximately 40.4% of the Old Common Stock. After consummation of the Restructuring, C&D Fund III and C&D Fund IV will own less than 5% of the New Common Stock to be outstanding. C&D Fund III and C&D Fund IV are private investment funds managed by CD&R. Amounts contributed to C&D Fund III and C&D Fund IV by the limited partners thereof are invested at the discretion of the general partner in the equity of corporations organized for the purpose of carrying out leveraged acquisitions involving the participation of management, or, in the case of C&D Fund IV, in corporations where the infusion of capital coupled with the provision of managerial assistance by CD&R can be expected to generate returns on investments comparable to returns historically achieved in leveraged buy-out transactions. The general partner of C&D Fund III is Clayton & Dubilier Associates III Limited Partnership, a Connecticut limited partnership ("Associates III"). The general partner of C&D Fund IV is Clayton & Dubilier Associates IV Limited Partnership, a Connecticut limited partnership ("Associates IV"). B. Charles Ames, a principal of CD&R, a holder of an economic interest in Associates III and a general partner of Associates IV, also served as Chairman of the Board of the Company until the effective date of the Plan of Reorganization. Andrall E. Pearson, a principal of CD&R and a former director of the Company, is a general partner of Associates IV. Michael G. Babiarz, a former director of the Company, is a professional employee of CD&R. Hubbard C. Howe, a principal of CD&R and a former director of the Company, is a general partner of Associates IV. Through 1995, CD&R received an annual fee for management and financial consulting services provided to the Company and reimbursement of certain expenses. The consulting fees paid to CD&R were $125,000 in 1995, $150,000 in 1994 and $200,000 in 1993. CD&R agreed to forgo the consulting fee after October 1995, in view of the Company's financial position and in order to facilitate the proposed Restructuring. CD&R, C&D Fund III and the Company entered into an Indemnification Agreement on August 14, 1990, pursuant to which the Company agreed to indemnify CD&R, C&D Fund III, Associates III and their respective directors, officers, partners, employees, agents and controlling persons against certain liabilities arising under the federal securities laws and certain other claims and liabilities. CD&R, C&D Fund III, C&D Fund IV and the Company entered into a separate Indemnification Agreement, dated as of March 4, 1992, pursuant to which the Company agreed, subject to any applicable restrictions in the Indenture relating to the Old Notes (the "Old Indenture"), the Prior Credit Agreement, the Subordinated Note Indenture, the 1987 Registration and Participation Agreement, and the 1990 Registration and Participation Agreement, to indemnify CD&R, C&D Fund III, C&D Fund IV, Associates III, Associates IV and their respective directors, officers, partners, employees, agents and controlling persons against certain liabilities arising under the federal securities laws and certain other claims and liabilities. Homeland has made temporary loans to certain members of management to enable such persons to make principal payments under loans from third-party financial institutions. As of September 1, 1996, $65,000 of such loans remains outstanding and are currently due on January 21, 1997. The loans bear interest at a variable rate equal to the rate applicable to the Company's borrowings under the New Credit Agreement plus one percent. Mr. Gene Burris, a director of the Company, is President of UFCW Local No. 1000, which represents approximately 65% of the Company's unionized employees. Pursuant to the Modified Union Agreements, the UFCW has the right to designate one member of the Board of Directors of Holding and Homeland. Mr. Burris is the designee of the UFCW. Ms. Shahon and Messrs. Krekeler, Snow and Weinstein were nominated by the Noteholders' Committee to serve as directors of the Company. Item 8. Legal Proceedings The Company is a party to ordinary routine litigation incidental to its business. With respect to general unsecured claims against the Company arising prior to the May 13, 1996 commencement of the bankruptcy case, each holder of a general unsecured claim will receive its ratable portion of 4,450,000 shares of New Common Stock, based on the amount of such holder's claim relative to all general unsecured claims. The Company is in the process of analyzing the general unsecured claims and designating certain general unsecured claims as disputed. The Company will file objections to any such claims within 90 days after the later of the Effective Date or the date that a proof of claim with respect to such claim is filed or deemed to have been filed with the Bankruptcy Court. The Company will reserve for the account of each creditor holding a disputed general unsecured claim the New Common Stock that would otherwise be distributable to such creditor on the Effective Date is such disputed claim was a claim allowed by the Bankruptcy Court. Item 9. Market Price of and Dividends on the Registrants's Common Equity and Related Stockholders Matters There is no established public trading market for the New Common Stock, the only class of common equity of Holding currently issued and outstanding. Under the Plan of Reorganization, the Company has undertaken to use its best efforts to secure the listing of the New Common Stock on the NASDAQ National Market System (or, in the event the Company fails to meet the listing requirements of the NASDAQ National Market System, on such other exchange or system on which the New Common Stock may be listed) as soon as practicable following the Effective Date. There can be no assurance that the New Common Stock will ultimately be listed on NASDAQ (National Market System) or any such other exchange or system. Item 10. Recent Sales of Unregistered Securities Under the Plan of Reorganization, the Old Common Stock will be exchanged for (a) an aggregate of 250,000 shares of New Common Stock, representing approximately 5.3% of the New Common Stock to be outstanding upon consummation of the Restructuring, and (b) New Warrants to purchase (in the aggregate) up to 263,158 shares of New Common Stock at an exercise price of $11.85 per share. Upon consummation of the Restructuring, each holder of the Old Common Stock will receive 7.73 shares of New Common Stock and 8.14 New Warrants for each 1,000 shares of Old Common Stock held by such holders. In addition, under the Plan of Reorganization, each holder of a general unsecured claim, including holders of the Old Notes, will receive its ratable portion of 4,450,000 shares of New Common Stock (representing the remaining approximately 94.7% of the New Common Stock to be outstanding upon consummation of the Restructuring), based on the amount of such holder's claim relative to all general unsecured claims. The issuance of the New Common Stock and the New Warrants under the Plan of Reorganization is exempt from the registration requirements of the Securities Act pursuant to Section 1145(a)(1) of the Bankruptcy Code. On April 21, 1995, the Company made an offer to repurchase shares of its Common Stock owned by certain officers and employees of the Company at a cash purchase price of $0.50 per share, plus a warrant equal to the number of shares purchased with an exercise price of $0.50. As a result of this offer, the Company redeemed 1,688,493 shares of its Common Stock and issued 1,550,493 warrants. The warrants were issued in reliance on the exemption from registration provided by Section 4 (2) of the Securities Act of 1933, as amended (the "Securities Act"), for transactions not involving any public offering("Section 4 (2)"). In March 1995, the Company, pursuant to a settlement agreement, repurchased from its former President and Chief Executive Officer, Max E. Raydon, 455,000 shares of Common Stock at $0.50 per share plus a warrant for the same number of shares with an exercise price of $0.50. Exemption from registration was claimed under Section 4 (2). In 1993 and early 1994, the Company repurchased 134,000 and 106,000 shares of Common Stock, respectively, from certain of its employees at $2.41 per share. The repurchases were made in compliance with certain provisions in their respective Management Stock Subscription Agreements. Again, exemption from registration was claimed under Section 4 (2). Section 4 (2) of the Securities Act exempts from the registration provisions of the Securities Act transactions by an issuer not involving any public offering. Item 11. Description of Registrant's Securities to be Registered General The Company is authorized to issue 7,500,000 shares of New Common Stock, with a par value of $0.01 per share, of which 4,700,000 million shares will be issued under the Plan of Reorganization, 263,158 shares will be reserved for issuance under the New Warrants, 263,158 shares will be reserved for issuance under the Management Stock Option Plan and 522,222 shares will be reserved for issuance under the Modified Union Agreements. All of the shares to be issued under the Plan of Reorganization will be validly issued, fully paid and non- assessable. Each holder of New Common Stock will be entitled to one vote for each share held of record on each matter submitted to the shareholders. At a meeting of stockholders at which a quorum is present, a majority of the votes cast decides all questions, unless the matter is one upon which a different vote is required by express provisions of law or the Company's Certificate of Incorporation or By-Laws. Cumulative voting for the election of directors is not permitted. Holders of New Common Stock will be entitled to receive dividends to the extent that Holding's Board of Directors declares such dividends out of the funds legally available for such purposes. Holding does not anticipate paying any dividends on shares of the New Common Stock. The New Credit Agreement and the Indenture restrict the ability of Holding to pay dividends on the New Common Stock. Upon the dissolution or liquidation of Holding, each holder of New Common Stock will participate, pro rata, in any distribution of the assets of Holding after payment of, or provision for, all of the other obligations of Holding. Holders of New Common Stock have no conversion, preemptive or redemption rights. Under the Plan, Holding has undertaken to use its best efforts to secure the listing of the New Common Stock on the NASDAQ National Market System (or, in the event Holding fails to meet the listing requirements of the NASDAQ National Market System, on such other exchange or system on which the New Common Stock may be listed) as soon as practicable following the Effective Date. There can be no assurance, however, that the New Common Stock will be listed on the NASDAQ National Market System or such other exchange or system. Equity Registration Rights Agreement In connection with the Restructuring, Holding granted certain registration rights to the holders of the Old Common Stock who receive New Common Stock and New Warrants pursuant to the Plan of Reorganization. Pursuant to an equity registration rights agreement (the "Equity Registration Rights Agreement"), Holding granted certain registration rights to (a) holders of Old Common Stock who receive New Securities pursuant to the Plan and continue to hold such New Securities as of the date of a registration request and (b) certain permitted transferees of such holders that satisfy certain eligibility, notice and other requirements set forth in the Equity Registration Rights Agreement (the "Remaining Stockholders"). Remaining Stockholders will have registration rights only with respect to New Securities issued to holders of Old Common Stock pursuant to the Plan and shares of New Common Stock issuable upon exercise of the New Warrants (the "Registrable Stockholder Securities"). The Equity Registration Rights Agreement provides that, following the second anniversary of the Effective Date, Remaining Stockholders holding at least 125,000 shares of New Common Stock or 131,579 New Warrants issued to holders of the Old Common Stock pursuant to the Plan of Reorganization have the right to initiate one demand that Holding register under the Securities Act all or any portion of the Registrable Stockholder Securities held by such holders, provided that the aggregate number of shares of New Common Stock requested to be registered may not be less than 125,000 shares and the aggregate number of New Warrants requested to be registered may not be less than 131,579 New Warrants. After receipt of a registration demand, Holding will notify all other Remaining Stockholders (who have previously identified themselves to Holding as Remaining Stockholders) of the registration demand. Such other Remaining Stockholders will be entitled to request that some or all of their Registrable Stockholder Securities be included in such registration. Such Registrable Stockholder Securities will be included in such registration subject to certain priority cutbacks. Following receipt of a proper demand, Holding and/or the Company will be required to file a registration statement under the Securities Act for all Registrable Stockholder Securities requested to be included in such registration. Holding will pay all expenses in connection with such registration, including expenses of one counsel representing the selling security holders. No registration request may be made sooner than six months after the termination of effectiveness of Holding's most recent registration statement under the Securities Act for New Common Stock or New Warrants. Holding is entitled to postpone, once in any 360-day period, any demand registration for a period not to exceed 180 days if Holding's Board of Directors determine that such registration would interfere with any proposed financing, acquisition or other extraordinary corporate action or would otherwise have a material adverse effect on Holding. The Equity Registration Rights Agreement terminates with respect to the registration of the Registrable Stockholder Securities on the earlier of (a) the seventh anniversary of the Effective Date, (b) such time as the number of shares of New Common Stock constituting Registrable Stockholder Securities is less than 125,000 and the number of New Warrants constituting Registrable Stockholder Securities is less than 131,579 and (c) the date on which the effectiveness of a registration statement that has become effective pursuant to a registration under the Equity Registration Rights Agreement has been terminated. Noteholder Registration Rights Agreement In connection with the Restructuring, Holding granted certain registration rights to the holders of the Old Notes who receive New Common Stock and New Notes pursuant to the Plan of Reorganization. Pursuant to a noteholder registration rights agreement (the "Noteholder Registration Rights Agreement"), Holding and/or the Company (as applicable) granted certain registration rights to (a) holders of Old Notes who will receive New Securities pursuant to the Plan and continue to hold such New Securities and (b) certain permitted transferees of such holders that satisfy certain eligibility, notice and other requirements set forth in the Noteholder Registration Rights Agreement (the "Remaining Noteholders"). Remaining Noteholders have registration rights only with respect to New Securities issued to holders of Old Notes pursuant to the Plan (the "Registrable Noteholder Securities"). The Noteholder Registration Rights Agreement provides that following the second anniversary of the Effective Date, Remaining Noteholders holding at least 470,000 shares of New Common Stock issued pursuant to the Plan (the "Registration Trigger Amount") will have the right to initiate one demand that Holding and/or the Company (as applicable) register under the Securities Act all or any portion of the Registrable Noteholder Securities held by such holders, provided that the aggregate number of shares of New Common Stock requested to be registered may not be less than the Registration Trigger Amount and the aggregate principal amount of New Notes requested to be registered may not be less than $6 million. After receipt of a registration demand, Holding and/or the Company (as applicable) will notify all other Remaining Noteholders (who have previously identified themselves to Holding as Remaining Noteholders) of the registration demand. Such other Remaining Noteholders will be entitled to request that some or all of their Registrable Noteholder Securities be included in such registration. Such Registrable Noteholder Securities will be included in such registration subject to certain priority cutbacks. Following receipt of a proper demand, Holding and/or the Company (as applicable) will be required to file a registration statement under the Securities Act for all Registrable Noteholder Securities requested to be included in such registration. Holding and/or the Company (as applicable) also will pay all expenses in connection with such registration, including expenses of one counsel representing the selling securityholders. No registration request may be made sooner than six months after the termination of effectiveness of Holding's most recent registration statement under the Securities Act for New Common Stock or New Warrants. Holding is entitled to postpone, once in any 360-day period, any demand registration for a period not to exceed 180 days if the Board of Directors of Holding and/or the Company (as applicable) determines that such registration would interfere with any proposed financing, acquisition or other extraordinary corporate action or would otherwise have a material adverse effect on Holding and/or the Company (as applicable). The Noteholder Registration Rights Agreement terminates with respect to the registration of shares of Registrable Noteholder Securities, on the earlier of (a) the seventh anniversary of the Effective Date, (b) such time as the Registrable Noteholder Securities no longer represent the Requisite Percentage and (c) the date on which the effectiveness of a registration statement that has become effective pursuant to a registration under the Noteholder Registration Rights Agreement has been terminated. Item 12. Indemnification of Directors and Officers The Certificates of Incorporation of Holding and Homeland provide that no director of the Company shall be liable to the Company or its stockholders for monetary damages for breach of his or her fiduciary duty as a director. This provision of the Certificates of Incorporation does not eliminate or limit the liability of a director (i) for any breach of the director's duty of loyalty to the Company or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of the law, (iii) for payment of dividends or approval of stock repurchases or redemptions that are unlawful under Delaware law or (iv) for any transaction from which the director derived an improper personal benefit. This provision also does not affect a director's responsibilities under any other law, such as the state or federal securities law. Under the Delaware General Corporation Law, Holding and Homeland have broad powers to indemnify their directors and officers against liabilities they may incur in such capacities, including liabilities under state or federal securities law. The By-Laws of Holding and Homeland requires the Company to indemnify its directors and officers against expenses, judgments, fines, settlements and other amounts incurred in connection with any proceedings, if he or she acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of the Company, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. However, in the case of a derivative action, any officer or director will not be entitled to indemnification in respect of any claim, issue or matter as to which such person is adjudged to be liable to the Company, unless and only to the extent that the court in which the action was brought determines that such person is fairly and reasonably entitled to indemnity for expenses. The Company currently holds a directors and officers insurance policy with an aggregate limit of $10,000,000, with a deductible of $150,000, providing coverage for losses occurring after the Effective Date. The Company also holds a similar directors and officers insurance policy with an aggregate limit of $20,000,000, with a deductible of $250,000, for coverage of losses that occurred prior to the Effective Date. The directors and officers policies provide coverage for losses of the Company, their directors and officers that may arise from claims of alleged wrongful acts of the directors and officers of the Company in such capacities. CD&R, C&D Fund III and the Company entered into an Indemnification Agreement on August 14, 1990, pursuant to which the Company agreed to indemnify CD&R, C&D Fund III, Associates III and their respective directors, officers, partners, employees, agents and controlling persons against certain liabilities arising under the federal securities laws and certain other claims and liabilities. CD&R, C&D Fund III, C&D Fund IV and the Company entered into a separate Indemnification Agreement, dated as of March 4, 1992, pursuant to which the Company agreed, subject to any applicable restrictions in the Indenture relating to the Old Notes (the "Old Indenture"), the Prior Credit Agreement, the Subordinated Note Indenture, the 1987 Registration and Participation Agreement, and the 1990 Registration and Participation Agreement, to indemnify CD&R, C&D Fund III, C&D Fund IV, Associates III, Associates IV and their respective directors, officers, partners, employees, agents and controlling persons against certain liabilities arising under the federal securities laws and certain other claims and liabilities. There is currently no pending litigation or proceeding involving a director or officer of the Company as to which indemnification is being sought nor is the Company aware of any threatened litigation that may result in claims for indemnification by any officer or director. Transfer Agent Fleet National Bank, Hartford, Connecticut, is the transfer agent and registrar for the New Common Stock. Item 13. Financial Statements and Supplementary Data The Company's consolidated financial statements and notes thereto are included in this Registration Statement following the signature pages. Item 14. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None. Item 15. Financial Statements and Exhibits The following documents are filed as part of this Registration Statement: 1. Financial Statements. The Company's financial statements are included in this report following the signature page. See Index to Financial Statements and Financial Statement Schedules on page F-1. 2. Exhibits. See attached Exhibit Index on page E-1. SIGNATURES Pursuant to the requirements of Section 12 of the Securities Exchange Act of 1934, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized. HOMELAND HOLDING CORPORATION Date: October 3, 1996 By:______________________________ James A. Demme, Chairman, President and Chief Executive Officer INDEX TO FINANCIAL STATEMENTS HOMELAND HOLDING CORPORATION Unaudited Consolidated Balance Sheet as of June 15, 1996 F-2 Unaudited Consolidated Statement of Operations for the 24 weeks ended June 15, 1996 and June17, 1995 F-4 Unaudited Consolidated Statement ofStockholders' Equity (Deficit) for the 24 weeks ended June 15, 1996 and June 17, 1995 F-5 Unaudited Consolidated Statement of Cash Flows for the 24 weeks ended June 15, 1996 and June 17, 1995 F-6 Notes to Unaudited Consolidated Financial Statements F-7 Report of Independent Accountants F-10 Consolidated Balance Sheets as of December 30, 1995 and December 31, 1994 F-11 Consolidated Statements of Operations for the 52 weeks ended December 30, 1995, December 31, 1994 and January 1, 1994 F-13 Consolidated Statements of Stockholders' Equity (Deficit) for the 52 weeks ended December 30, 1995, December 31, 1994 and January 1, 1994 F-14 Consolidated Statements of Cash Flows for the 52 weeks ended December 30, 1995, December 31, 1994 and January 1, 1994 F-15 Notes to Consolidated Financial Statements F-16 HOMELAND HOLDING CORPORATION AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS (In thousands, except share and per share amounts) (Unaudited) ASSETS June 15, 1996 Current assets: Cash and cash equivalents $ 6,854 Receivables, net of allowance for uncollectible accounts of $1,848 and $2,661 7,502 Inventories 39,476 Prepaid expenses and other current assets 2,055 Total current assets 55,887 Property, plant and equipment: Land 9,810 Buildings 22,219 Fixtures and equipment 43,935 Land and leasehold improvements 22,582 Software 3,012 Leased assets under capital leases 27,079 Construction in progress 2,697 131,334 Less accumulated depreciation and amortization 64,874 Net property, plant and equipment 66,460 Other assets and deferred charges 6,749 Total assets $129,096 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) (Unaudited) LIABILITIES AND STOCKHOLDERS' DEFICIT June 15, 1996 Current liabilities: Accounts payable - trade $ 17,501 Salaries and wages 1,556 Taxes 5,146 Accrued interest payable 6,540 Other current liabilities 13,119 Long-term obligations in default classified as current 97,053 Current portion of obligations under capital leases 2,746 Current portion of restructuring reserve 3,062 Total current liabilities 146,723 Long-term obligations: Obligations under capital leases 6,141 Other noncurrent liabilities 5,224 Noncurrent restructuring reserve 2,455 Total long-term obligations 13,820 Commitments and contingencies - Redeemable common stock, Class A, $.01 par value, 1,720,718 shares at June 15, 1996 and at December 30, 1995, at redemption value 17 Stockholders' deficit: Common stock Class A, $.01 par value, authorized - 40,500,000 shares, issued - 33,748,482 shares at June 15, 1996 and at December 30, 1995, outstanding - 30,878,989 shares 337 Additional paid-in capital 55,886 Accumulated deficit (83,546) Minimum pension liability adjustment (1,327) Treasury stock, 2,869,493 shares at June 15, 1996 and at December 30, 1995, at cost (2,814) Total stockholders' deficit (31,464) Total liabilities and stockholders' deficit $129,096 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) (Unaudited) 24 weeks 24 weeks ended ended June 15, June 17, 1996 1995 Sales, net $246,331 $325,068 Cost of sales 185,910 246,015 Gross profit 60,421 79,053 Selling and administrative 55,422 76,008 Operating profit 4,999 3,045 Interest expense 5,207 8,310 Loss before reorganization items, income taxes and extraordinary items (208) (5,265) Reorganization items 3,150 - Loss before income taxes and extraordinary items (3,358) (5,265) Income tax expense - - Loss before extraordinary items (3,358) (5,265) Extraordinary items - (2,330) Net loss $ (3,358) $ (7,595) Loss before extraordinary items per common share $ (.10) $ (.15) Extraordinary items per common share - (.07) Net loss per common share $ (.10) $ (.22) Weighted average shares outstanding 32,599,707 33,957,711 The accompanying notes are an integral part of these consolidated financial statements. HOMELAND HOLDING CORPORATION AND SUBSIDIARY CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) (In thousands, except share and per share amounts) (Unaudited)
Class A Additional Pension Total Common Stock Paid-in Accumulated Liability Treasury Stock Stockholders' Shares Amount Capital Deficit Adjustment Shares Amount Equity (Deficit) Balance, December 31,1994 31,604.989 $316 $53,896 $(48,398) $ - 726,000 $(1,743) $ 4,071 Purchase of Treasury Stock 2,116,183 21 1,037 - - 2,116,183 (1,058) - Net loss - - - (7,595) - - - (7,595) Balance, June 17, 1995 33,721,172 $337 $54,933 $(55,993) - 2,842,183 $(2,801) $(3,524) Balance, December 30, 1995 33,748,482 $337 $55,886 $(80,188) $ (1,327) 2,869,493 $(2,814) $(28,106) Net loss - - - (3,358) - - (3,358) Balance, June 15, 1996 33,748,482 $337 $55,886 $(83,546) $ (1,327) 2,869,493 $(2,814) $(31,464)
The accompanying notes are an integral part of these consolidated financial statements. HOMELAND HOLDING CORPORATION AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands, except share and per share amounts) (Unaudited) 24 weeks 24 weeks ended ended June 15, June 17, 1996 1995 Cash flows from operating activities: Net loss $(3,358) $(7,595) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Depreciation and amortization 3,282 6,460 Amortization of financing costs 315 585 Write-off of financing costs on long term debt retired - 1,424 Gain on disposal of assets (41) (146) Amortization of beneficial interest in operating leases 59 105 Change in assets and liabilities: Decrease in receivables 549 2,920 Decrease in receivable for taxes - 719 Decrease in inventories 3,354 17,374 Decrease (increase) in prepaid expenses and other current assets (3) 3,723 Decrease (increase) in other assets and deferred charges (540) 26 Decrease in accounts payable - trade (231) (14,146) Increase (decrease) in salaries and wages (53) 418 Increase (decrease) in taxes 270 (472) Increase (decrease) in accrued interest payable 3,649 (808) Decrease in other current liabilities (1,201) (5,771) Decrease in restructuring reserve (353) (10,338) Decrease in other noncurrent liabilities (872) (938) Net cash provided by (used in) operating activities 4,826 (6,460) Cash flows from investing activities: Capital expenditures (1,404) (409) Cash received from sale of assets 1,729 73,038 Net cash provided by investing activities 325 72,629 Cash flows from financing activities: Payments under senior secured floating rate notes - (9,375) Payments under senior secured fixed rate notes - (15,625) Borrowings under revolving credit loans 60,423 34,582 Payments under revolving credit loans (63,838) (56,644) Net payments under swing loans - (1,500) Principal payments under notes payable - (750) Principal payments under capital lease obligations (1,239) (5,612) Payments to acquire treasury stock - (1,058) Net cash used by financing activities (4,654) (55,982) Net increase in cash and cash equivalents 497 10,187 Cash and cash equivalents at beginning of period 6,357 339 Cash and cash equivalents at end of period $ 6,854 $10,526 Supplemental information: Cash paid during the period for interest $ 1,287 $ 8,533 The accompanying notes are an integral part of these financial statements. HOMELAND HOLDING CORPORATION AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 1. Basis of Preparation of Consolidated Financial Statements: The accompanying unaudited consolidated financial statements of Homeland Holding Corporation ("Holding") and its Subsidiary, Homeland Stores, Inc. ("Stores" and together with Holding, the "Company"), reflect all adjustments consisting only of normal and recurring adjustments which are, in the opinion of management, necessary to present fairly the consolidated financial position and the consolidated results of operations and cash flows for the periods presented. These unaudited consolidated financial statements should be read in conjunction with the consolidated financial statements of the Company for the 52 weeks ended December 30, 1995 and the notes thereto. The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities and commitments in the normal course of business. The consolidated financial statements do not include any adjustments to the assets or liabilities that may result from the outcome of the bankruptcy proceedings. 2. Accounting Policies: The policies of the Company are summarized in the consolidated financial statements of the Company for the 52 weeks ended December 30, 1995 and the notes thereto. 3. Operational Restructuring: On April 21, 1995, the Company sold 29 of its stores and its distribution center to Associated Wholesale Grocers, Inc. ("AWG"), pursuant to a strategic plan approved by the Board of Directors in December 1994. In connection with the plan, the Company closed 14 underperforming stores in 1995, sold one store and closed one store in the second quarter of 1996. The Company closed one final store in July 1996 pursuant to such plan. During the first 24 weeks ended June 15, 1996, the Company incurred expenses associated with the operational restructuring as follows: Payments applied against operational Operational restructuring Operational restructuring reserve for restructuring reserve at the 24 weeks ended reserve at December 30, 1995 June 15, 1996 June 15, 1996 Expenses associated with the planned store closings, primarily occupancy costs from closing date to lease termination or sublease date $4,860 $ (350) $4,510 Expenses associated with the AWG transaction, primarily service and equipment contract cancellation fees 58 - 58 Estimated severance costs associated with the AWG transaction 927 5 932 Legal and consulting fees associated with the AWG transaction 25 (8) 17 Operational restructuring reserve $5,870 $ (353) $5,517 The separately identifiable revenue and store contribution to operating profit related to the stores sold to AWG or closed and expenses related to the warehouse facility are as follows: 24 weeks 24 weeks ended ended June 15, June 17, 1996 1995 Sales, net $6,429 $81,079 Store contribution to operating profit before allocation of administrative and advertising expenses (394) 2,407 Warehouse expenses - 3,853 4.Reorganization: On May 13, 1996, the Company filed chapter 11 petitions with the United States Bankruptcy Court for the District of Delaware (the "Bankruptcy Court"). Simultaneous with the filing of such petitions, the Company filed a plan of reorganization and a disclosure statement, which sets forth the terms of a proposed restructuring of the Company. On June 13, 1996, the Company filed a first amended plan of reorganization and disclosure statement. The Company's plan of reorganization was confirmed by the Bankruptcy Court on July 19, 1996. As a result of the chapter 11 filings, certain claims against the Company that existed prior to the filing date are stayed and will be subject to compromise. Liabilities subject to compromise as of June 15, 1996, are as follows (dollars in thousands): June 15, 1996 (unaudited) Long-term obligation in default classified as current $ 95,000 Other 43,732 $138,732 Resolution of the above liabilities subject to compromise is contingent upon the approval of the Bankruptcy Court. 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 as of December 30, 1995 and December 31, 1994 and for the 52 weeks ended December 30, 1995, December 31, 1994 and January 1, 1994 listed in the index on page F-1 of this Form 10. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Homeland Holding Corporation and Subsidiary as of December 30, 1995 and December 31, 1994, and the consolidated results of their operations and their cash flows for the 52 weeks ended December 30, 1995, December 31, 1994 and January 1, 1994, in conformity with generally accepted accounting principles. The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company has incurred recurring losses from operations, negative cash flows from operations for the year ended December 30, 1995, a stockholders' deficit as of December 30, 1995 and has been unable to comply with its debt covenants. In addition, on March 27, 1996, the Company reached an agreement in principle with members of an ad-hoc noteholders committee with respect to a financial restructuring of the Company. The Company and the ad- hoc noteholders committee have agreed to implement the financial restructuring under a pre-arranged plan of reorganization to be filed under Chapter 11 of the United States Federal Bankruptcy Code. These factors raise substantial doubt about the Company's ability to continue as a going concern. The continuation of its business as a going concern is contingent upon, among other things, the ability to (1) complete the pre-arranged plan of reorganization and (2) sustain satisfactory levels of future earnings and cash flows. Management's plans with regard to such financial restructuring are set forth in Note 15 to the financial statements. The financial statements do not include any adjustments that might result from the outcome of these uncertainties or adjustments relating to the establishment, settlement and classification of liabilities that may be required in connection with the pre-arranged plan of reorganization of Homeland Holding Corporation and Subsidiary under Chapter 11 of the United States Federal Bankruptcy Code. Coopers & Lybrand, L.L.P. New York, New York March 27, 1996 HOMELAND HOLDING CORPORATION AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS (In thousands, except share and per share amounts) ASSETS (Note 4) December 30, December 31, 1995 1994 Current assets: Cash and cash equivalents (Notes 3 and 5) $ 6,357 $ 339 Receivables, net of allowance for uncollectible accounts of $2,661 and $2,690 8,051 12,235 Receivable for taxes (Note 6) - 2,270 Inventories 42,830 89,850 Prepaid expenses and other current assets 2,052 6,384 Total current assets 59,290 111,078 Property, plant and equipment: Land 9,919 10,997 Buildings 22,101 29,276 Fixtures and equipment 44,616 61,360 Land and leasehold improvements 23,629 32,410 Software (Note 3) 1,991 17,876 Leased assets under capital leases (Note 9) 29,062 46,015 Construction in progress 4,201 2,048 135,519 199,982 Less, accumulated depreciation and amortization 63,827 82,603 Net property, plant and equipment 71,692 117,379 Excess of purchase price over fair value of net assets acquired, net of amortization of $830 in fiscal 1994 (Note 3) - 2,475 Other assets and deferred charges 6,600 8,202 Total assets $137,582 $239,134 Continued The accompanying notes are an integral part of these consolidated financial statements. HOMELAND HOLDING CORPORATION AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS, Continued (In thousands, except share and per share amounts) LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) December 30, December 31, 1995 1994 Current liabilities: Accounts payable - trade $ 17,732 $ 30,317 Salaries and wages 1,609 1,925 Taxes 4,876 6,492 Accrued interest payable 2,891 3,313 Other current liabilities 14,321 15,050 Current portion of long-term debt (Notes 4, 5 and 15) - 2,250 Long-term obligations in default classified as current (Notes 4, 5 and 15) 100,467 - Current portion of obligations under capital leases (Note 9) 2,746 7,828 Current portion of restructuring reserve (Note 14) 3,062 - Total current liabilities 147,704 67,175 Long-term obligations: Long-term debt (Notes 4, 5 and 15) - 145,000 Obligations under capital leases (Note 9) 9,026 11,472 Other noncurrent liabilities 6,133 5,176 Noncurrent restructuring reserve (Note 14) 2,808 5,005 Total long-term obligations 17,967 166,653 Commitments and contingencies (Notes 8, 9 and 12) - - Redeemable common stock, Class A, $.01 par value, 1,720,718 shares at December 30, 1995 and 3,864,211 shares at December 31, 1994, at redemption value (Notes 10 and 11) 17 1,235 Stockholders' equity (deficit): Common stock (Note 10): Class A, $.01 par value, authorized - 40,500,000 shares, issued - 33,748,482 shares at December 30, 1995 and 31,604,989 at December 31, 1994, outstanding - 30,878,989 shares 337 316 Additional paid-in capita l55,886 53,896 Accumulated deficit (80,188) (48,398) Minimum pension liability adjustment (Note 8) (1,327) - Treasury stock, 2,869,493 shares at December 30, 1995 and 726,000 shares at December 31, 1994, at cost (2,814) (1,743) Total stockholders' equity (deficit) (28,106) 4,071 Total liabilities and stockholders' equity (deficit) $137,582 $239,134 The accompanying notes are an integral part of these consolidated financial statements. HOMELAND HOLDING CORPORATION AND SUBSIDIARY CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except share and per share amounts) 52 weeks 52 weeks 52 weeks ended ended ended December 30, December 31, January 1, 1995 1994 1994 Sales, net $630,275 $785,121 $810,967 Cost of sales 479,119 588,405 603,220 Gross profit 151,156 196,716 207,747 Selling and administrative expenses 151,985 193,643 190,483 Operational restructuring costs (Note 14) 12,639 23,205 - Operating profit (loss) (13,468) (20,132) 17,264 Gain on sale of plants - - 2,618 Interest expense (15,992) (18,067) (18,928) Income (loss) before income tax benefit (provision) and extraordinary items (29,460) (38,199) 954 Income tax benefit (provision) (Note 6) - (2,446) 3,252 Income (loss) before extraordinary items (29,460) (40,645) 4,206 Extraordinary items (Note 4) (2,330) - (3,924) Net income (loss) (31,790) (40,645) 282 Reduction in redemption value - redeemable common stock 940 7,284 - Net income (loss) available to common stockholders $(30,850) $(33,361) $282 Income (loss) before extraordinary items per common share $ (.86) $ (.96) $ .12 Extraordinary items per common share (.07) - (.11) Net income (loss) per common share $ (.93) $ (.96) $ .01 Weighted average shares outstanding 33,223,675 34,752,527 34,946,460 The accompanying notes are an integral part of these consolidated financial statements. HOMELAND HOLDING CORPORATION AND SUBSIDIARY CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) (In thousands, except share and per share amounts)
Minimum Class A Additional Pension Total Common Stock Paid-in Accumulated Liability Treasury Stock Stockholders' Shares Amount Capital Deficit Adjustment Shares Amount Equity (Deficit) Balance, January 2, 1993 31,364,989 $314 $46,036 $(8,035) $ - 486,000 $(1,165) $37,150 Purchase of treasury stock 134,000 1 322 - - 134,000 (323) - Adjustment to recognize minimum liability - - - - (572) - - (572) Net income - - - 282 - - - 282 Balance, January 1, 1994 31,498,989 315 46,358 (7,753) (572) 620,000 (1,488) 36,860 Purchase of treasury stock 106,000 1 254 - - 106,000 (255) - Adjustment to eliminate minimum liability - - - - 572 - - 572 Redeemable common stock reduction in redemption value - - 7,284 - - - - 7,284 Net loss - - - (40,645) - - - (40,645) Balance, December 31, 1994 31,604,989 316 53,896 (48,398) - 726,000 (1,743) 4,071 Purchase of treasury stock 2,143,493 21 1,050 - - 2,143,493 (1,071) - Adjustment to recognize minimum liability - - - - (1,327) - - (1,327) Redeemable common stock reduction in redemption value - - 940 - - - - 940 Net loss - - - (31,790) - - - (31,790) Balance, December 30, 1995 33,748,482 $337 $55,886 $(80,188) $(1,327) 2,869,493 $(2,814) $(28,106)
The accompanying notes are an integral part of these consolidated financial statements. HOMELAND HOLDING CORPORATION AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands, except share and per share amounts)
52 weeks 52 weeks 52 weeks ended ended ended December 30, December31, January 1, 1995 1994 1994 Cash flows from operating activities: Net income (loss) $ (31,790) $ (40,645) $ 282 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 11,192 17,458 16,797 Amortization of financing costs 1,019 1,443 1,484 Write-off of financing costs on long-term debt retired 1,424 - 1,148 (Gain) loss on disposal of assets 8,349 384 (2,284) (Gain) on sale of sold stores (15,795) - - Amortization of beneficial interest in operating leases 181 258 261 Impairment of assets 2,360 14,325 744 (Increase) decrease in deferred tax assets - 3,997 (3,997) Provision for losses on accounts receivable 1,750 1,213 75 Provision for write down of inventories 847 - - Change in assets and liabilities: (Increase) decrease in receivables 3,227 2,301 (1,131) (Increase) decrease in receivable for taxes 2,270 (2,270) - Decrease in inventories 18,297 2,097 1,236 (Increase) decrease in prepaid expenses and other current assets 5,542 (2,687) (862) (Increase) decrease in other assets and deferred charges (1,215) 103 (238) Increase (decrease) in accounts payable-trade (12,587) 832 (5,464) Decrease in salaries and wages (316) (821) (1,994) Increase (decrease) in taxes (1,616) 1,768 (3,629) Decrease in accrued interest payable (422) (53) (1,102) Increase (decrease) in other current liabilities (3,264) (34) 7,371 Increase in restructuring reserve 1,356 5,005 - Increase (decrease) in other noncurrent liabilities 1,157 (4,417) 4,301 Net cash provided by (used in) operating activities (8,034) 257 12,998 Cash flows from investing activities: Capital expenditures (4,681) (5,386) (7,129) Purchase of assets under capital leases (3,966) - - Cash received from sale of assets 73,721 1,363 3,991 Net cash provided by (used in) investing activities 65,074 (4,023) (3,138) Cash flows from financing activities: Payments under senior secured floating rate notes (9,375) - - Payments under senior secured fixed rate notes (15,625) - - Payments on subordinated debt - - (47,750) Borrowings under revolving credit loans 104,087 66,000 100,000 Payments under revolving credit loans (123,620) (56,000) (85,000) Net borrowings (payments) under swing loans (1,500) (3,500) 5,000 Principal payments under notes payable (750) (1,000) (1,250) Principal payments under capital lease obligations (3,166) (3,334) (4,198) Payments to acquire treasury stock (1,073) (255) (323) Net cash provided by (used in) financing activities (51,022) 1,911 (33,521) Continued
HOMELAND HOLDING CORPORATION AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS, Continued (In thousands, except share and per share amounts) 52 weeks 52 weeks 52 weeks ended ended ended December 30, December 31, January 1, 1995 1994 1994 Net increase (decrease) in cash and cash equivalents $ 6,018 $ (1,855) $ (23,661) Cash and cash equivalents at beginning of period 339 2,194 25,855 Cash and cash equivalents at end of period $ 6,357 $ 339 $ 2,194 Supplemental information: Cash paid during the period for interest $ 13,439 $ 16,642 $ 18,738 Cash paid during the period for income taxes $ - $ 236 $ 890 Supplemental schedule of noncash investing activities: Capital lease obligations assumed $ - $ 1,493 $ 3,218 Capital lease obligations retired $ - $ - $ 31 The accompanying notes are an integral part of these consolidated financial statements. HOMELAND HOLDING CORPORATION AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except share and per share amounts) 1. Organization: Homeland Holding Corporation ("Holding"), a Delaware corporation, was incorporated on November 6, 1987, but had no operations prior to November 25, 1987. Effective November 25, 1987, Homeland Stores, Inc. ("Homeland"), a wholly-owned subsidiary of Holding, acquired substantially all of the net assets of the Oklahoma Division of Safeway Inc. Holding and its consolidated subsidiary, Homeland, are collectively referred to herein as the "Company". Holding has guaranteed substantially all of the debt issued by Homeland. Holding is a holding company with no significant operations other than its investment in Homeland. Separate financial statements of Homeland are not presented herein since they are identical to the consolidated financial statements of Holding in all respects except for stockholder's equity (which is equivalent to the aggregate of total stockholders' equity and redeemable common stock of Holding) which is as follows: December 30, December 31, 1995 1994 Homeland stockholder's equity: Common stock, $.01 par value, authorized, issued and outstanding 100 shares 1 1 Additional paid-in capital 53,435 53,713 Accumulated deficit (80,198) (48,408) Minimum pension liability adjustment (1,327) - Total Homeland stockholder's equity (deficit) $(28,089) $ 5,306 2. Basis of Presentation: The accompanying consolidated financial statements of Holding have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the ordinary course of business. Accordingly, the consolidated financial statements do not include any adjustments relating to the recoverability or classification of recorded asset amounts or the amount and classification of liabilities that might be necessary should Holding be unable to successfully complete the financial restructuring described in Note 15 and continue as a going concern. 2. Basis of Presentation, continued: As shown in the accompanying financial statements, the Company incurred significant losses in 1995 and 1994 and, at December 30, 1995, had a stockholders' deficit of $28,106. As discussed in Note 4, at December 30, 1995, as a consequence of Homeland's financial position and the results of its operations for the year ended December 30, 1995, the Company was not in compliance with the Consolidated Fixed Charge Coverage Ratio and Debt-to-Equity Ratio covenants under its Senior Note Indenture and Revolving Credit Agreement; however, waivers of such noncompliance through April 15, 1996 and May 20, 1996, respectively, have been received. In addition, the Company failed to make a scheduled interest payment under its Senior Note Indenture, due March 1, 1996, and the waiver under such Senior Note Indenture thereby expired. Furthermore, as discussed in Note 15, negotiations for the restructuring of the Company's long-term debt and union agreements are being conducted which, if unsuccessful, could have a material adverse effect on the Company's financial condition. 3. Summary of Significant Accounting Policies: Fiscal year - The Company has adopted a fiscal year which ends on the Saturday nearest December 31. Basis of consolidation - The consolidated financial statements include the accounts of Homeland Holding Corporation and its wholly owned subsidiary. All significant intercompany balances and transactions have been eliminated in consolidation. Revenue recognition - The Company recognizes revenue at the "point of sale", which occurs when groceries and related merchandise are sold to its customers. 3. Summary of Significant Accounting Policies, continued: Concentrations of credit and business risk - Financial instruments which potentially subject the Company to concentrations of credit risk consist principally of temporary cash investments and receivables. The Company places its temporary cash investments with high quality financial institutions. Concentrations of credit risk with respect to receivables are limited due to the diverse nature of those receivables, including a large number of retail customers within the region and receivables from vendors throughout the country. The Company purchases approximately 70% of its products from Associated Wholesale Grocers, Inc. ("AWG"). Although there are similar wholesalers that could supply the Company with merchandise, if AWG were to discontinue shipments, this could have a material adverse effect on the Company's financial condition. Restricted Cash - The Company has two escrow accounts at United States Trust Company of New York, one for reinvestment in capital expenditures to which the Company is committed ("Capital Escrow") and one for the redemption of Senior Notes (as subsequently defined in Note 4) ("Redemption Escrow"). As of December 30, 1995, the Company has $1,729 deposited in the Capital Escrow and $800 deposited in the Redemption Escrow. The deposited funds in the Capital Escrow is restricted for reinvestment in capital expenditures to which the Company is committed or must be used to permanently pay down the Senior Notes. The Redemption Escrow consisting of net proceeds from asset sales occurring after the AWG Transaction (as subsequently defined in Note 14) is restricted to permanently pay down the Senior Notes when the aggregate amount reaches $2,000. Inventories - Inventories are stated at the lower of cost or market, with cost being determined primarily using the retail method. 3. Summary of Significant Accounting Policies, continued: Property, plant and equipment - Property, plant and equipment obtained at acquisition are stated at appraised fair market value as of that date; all subsequently acquired property, plant and equipment are stated at cost or, in the case of assets under capital leases, at the lower of cost or the present value of future lease payments. Depreciation and amortization, including amortization of leased assets under capital leases, are computed on a straight-line basis over the lesser of the estimated useful life of the asset or the remaining term of the lease. Depreciation and amortization for financial reporting purposes are based on the following estimated lives: Estimated lives Buildings 10 - 40 Fixtures and equipment 5 - 12.5 Leasehold improvements 15 Transportation equipment 5 - 10 Software 5 - 10 The costs of repairs and maintenance are expensed as incurred, and the costs of renewals and betterments are capitalized and depreciated at the appropriate rates. Upon sale or retirement, the cost and related accumulated depreciation are eliminated from the respective accounts and any resulting gain or loss is included in the results of operations for that period. In the fourth quarter of 1995, approximately $7.9 million of capitalized software costs, net of accumulated depreciation, have been charged to operational restructuring costs in the Statement of Operations as a result of management's decision to replace such software as part of its operational restructuring initiatives. Excess of purchase price over fair value of net assets acquired - As discussed in Notes 2 and 14, the Board of Directors approved a strategic plan in December 1995 to refocus the Company's restructuring efforts, which commenced in 1994, to address continuing significant losses from operations as well as evaluating various financial restructuring alternatives in an effort to improve cash flows from operations and reduce interest costs on the Company's long-term debt. There is no assurance that such restructuring efforts will be successful and, accordingly, the Company determined during the fourth quarter of 1995 that the recovery of any remaining unamortized excess of purchase price over fair value of net assets acquired could not be assured from future operating cash flows. Consequently, the unamortized 3. Summary of Significant Accounting Policies, continued: balance of the excess of purchase price over fair value of net assets acquired was charged to operational restructuring costs in the statement of operations. Other assets and deferred charges - Other assets and deferred charges consist primarily of financing costs amortized using the effective interest rate method over the term of the related debt and beneficial interests in operating leases amortized on a straight-line basis over the remaining terms of the leases, including all available renewal option periods. Net income (loss) per common share - Net income (loss) per common share is computed based on the weighted average number of shares, including shares of redeemable common stock outstanding during the period. Net income (loss) is reduced (increased) by the accretion to (reduction in) redemption value to determine the net income (loss) available to common stockholders. Cash and cash equivalents - For purposes of the statements of cash flows, the Company considers all short-term investments with an original maturity of three months or less when purchased to be cash equivalents. Capitalized interest - The Company capitalizes interest as a part of the cost of acquiring and constructing certain assets. No interest cost was capitalized in 1995. Interest costs of $35 and $44 were capitalized in 1994 and 1993, respectively. Advertising costs - Costs of advertising are expensed as incurred. Gross advertising costs for 1995, 1994 and 1993, respectively, were $10,700, $13,615 and $14,100. Use of estimates - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenues and expenses during the reporting periods. The most significant assumptions and estimates relate to the reserve for restructuring, the reserve for self-insurance programs, the deferred income tax valuation allowance, the accumulated benefit obligation relating to the employee retirement plan, the allowance for bad debts and depreciation rates of property and equipment. Actual results could differ from those estimates. 3. Summary of Significant Accounting Policies, continued: Income taxes - The Company provides for income taxes based on enacted tax laws and statutory tax rates at which items of income and expense are expected to be settled in the Company's income tax return. Certain items of revenue and expense are reported for Federal income tax purposes in different periods than for financial reporting purposes, thereby resulting in deferred income taxes. Deferred taxes also are recognized for operating losses that are available to offset future taxable income and tax credits that are available to offset future Federal income taxes. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. Self-insurance reserves - The Company is self-insured for property loss, general liability and automotive liability coverage and was self-insured for workers' compensation coverage until June 30, 1994, subject to specific retention levels. Estimated costs of these self-insurance programs are accrued at their present value based on projected settlements for claims using actuarially determined loss development factors based on the Company's prior history with similar claims. Any resulting adjustments to previously recorded reserves are reflected in current operating results. Impact of Recently Issued Accounting Pronouncement - The Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 121, " Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of" ("SFAS No.121"), in March 1995 to establish standards for the impairment of long-lived assets, certain identifiable intangibles and goodwill related to those assets to be held and used. The Company has not yet adopted this accounting standard, which becomes effective in 1996 for Homeland, nor has it evaluated the potential impact of adoption in 1996. The impact of SFAS No. 121 is not reasonably estimable at this time due to certain factors discussed in Note 2 to the consolidated financial statements; although this standard may affect reported earnings and the carrying values of long-lived assets, there will be no impact on cash flows. 4. Current and long-term Debt: In March 1992, the Company entered into an Indenture with United States Trust Company of New York, as trustee, pursuant to which the Company issued $45,000 in aggregate principal amount of Series A Senior Secured Floating Rate Notes due 1997 (the "Old Floating Rate Notes") and $75,000 in aggregate principal amount of Series B Senior Secured Fixed Rate Notes due 1999 (the "Old Fixed Rate Notes", and collectively, the "Old Notes"). Certain proceeds from this issuance were used to repay all outstanding amounts under the previous credit agreement. In October and November 1992, the Company exchanged a portion of its Series D Senior Secured Floating Rate Notes due 1997 (the "New Floating Rate Notes") and its Series C Senior Secured Fixed Rate Notes due 1999 (the "New Fixed Rate Notes", and collectively, the "New Notes") for equal principal amounts of the Old Notes. The New Notes are substantially identical to the Old Notes, except that the offering of the New Notes was registered with the Securities and Exchange Commission. At the expiration of the exchange offer in November 1992, $33,000 in principal amount of the Old Floating Rate Notes and $75,000 in principal amount of the Old Fixed Rate Notes had been tendered and accepted for exchange. On March 1, 1993, the Company redeemed all remaining outstanding subordinated notes ($47,750 principal amount) at the optional redemption price, including a premium of $2,776 or 5% of the outstanding principal amount specified in the subordinated note agreement, together with accrued interest. On April 21, 1995, the Company and the Indenture trustee entered into a supplemental indenture effecting certain amendments to the Indenture. On June 1, 1995, the Company redeemed $15,625 of its New Fixed Rate Notes, $6,874 of New Floating Rate Notes and $2,501 of Old Floating Rate Notes. Also on April 21, 1995, the Company entered into a revolving credit agreement (the "Revolving Credit Agreement") with National Bank of Canada ("NBC") as agent and lender, Heller Financial, Inc. and any other lenders thereafter parties thereto. The Revolving Credit Agreement provides a commitment of up to $25 million in collateralized revolving credit loans, including certain documentary and standby letters of credit. 4. Current and long-term Debt, continued: As a result of the 1995 and 1993 redemptions, the Company incurred the following extraordinary losses: 1995 1993 Premium on redemption/repurchase of the Company's 15.5% subordinated notes due November 1, 1997 $ - $(2,776) Unamortized financing costs relating to the redemption/ repurchase of the Company's 15.5% subordinated notes due November 1, 1997 - (1,148) Consent fee equal to $5,000 for each principal amount of the $120.0 million Senior Notes (600) - Premium on redemption of $15.6 million of the Senior Secured Fixed Rate Notes, due March 1, 1999 (306) - Unamortized financing costs relating to the redemption of $25.0 million of the Senior Notes and the replacement of the prior revolving credit agreement (1,424) - Net extraordinary loss $(2,330) $(3,924) 4. Current and long-term Debt, continued: Long-term debt at year end consists of: December 30, December 31, 1995 1994 Note payable* $ - $ 750 Senior Notes Series A** 9,499 12,000 Senior Notes Series D** 26,126 33,000 Senior Notes Series C** 59,375 75,000 Revolving credit loans*** 5,467 26,500 100,467 147,250 Less current portion - 2,250 Less long-term debt obligation in default classified as current 100,467 - Long-term debt due after one year $ - $145,000 *The Company issued a $3,000 note payable in 1992 for the purchase of fixed assets related to the acquisition of five stores. The note matured on March 1, 1995 and was repaid. **The Series A and Series D Senior Secured Floating Rate Notes mature on February 27, 1997. Interest payments are due quarterly and bear interest at the applicable LIBOR rate, as defined in the Indenture (8.43% at December 30, 1995). The Series C Senior Secured Fixed Rate Notes mature on March 1, 1999. Interest payments are due semiannually at an annual rate of 12.25%. The notes are collateralized by substantially all of the consolidated assets of the Company except for accounts receivable and inventories. The notes, among other things, require the maintenance of a Debt-to-EBITDA and a consolidated fixed charge coverage ratio, as defined, and a capital expenditure covenant, as well as limiting the incurrence of additional indebtedness, providing for mandatory prepayment of the Senior Floating Rate Notes in an amount equal to 80% of excess cash flow, as defined, upon certain conditions and limiting the payment of dividends. At December 30, 1995, the Company was not in compliance with the Debt-to-EBITDA and the fixed charge coverage ratio covenants. 4. Current and long-term Debt, continued: Although a waiver was received by the Company for such noncompliance through April 15, 1996, the Company failed to make a scheduled interest payment on March 1, 1996 and, accordingly, such waiver expired. As the Company may not be able to comply with these debt covenants in 1996, the aggregate principal amount of the outstanding debt was classified as current obligations. ***Borrowings under the Revolving Credit Agreement bear interest at the NBC Base Rate plus 1.5% for the first year, payable on a quarterly basis in arrears. At December 30, 1995, the interest rate on borrowings under the Revolving Credit Agreement was 10.0%. Subsequent year's interest rates will be dependent upon the Company's earnings but will not exceed the NBC base rate plus 2.0%. All borrowings under the Revolving Credit Agreement are subject to a borrowing base, which was $23.7 million as of December 30, 1995, and mature no later than February 27, 1997, with the possibility of extending the maturity date to March 31, 1998 if the Company's Series A Senior Secured Floating Rate Notes due February 27, 1997, are extended or refinanced on terms acceptable to NBC. The Revolving Credit Agreement, among other things, requires the maintenance of a Debt-to-EBITDA ratio and consolidated fixed charge coverage ratio, as defined, and limits the Company's net capital expenditures, incurrence of additional indebtedness and the payment of dividends. The notes are collateralized by accounts receivable and inventories of the Company. At December 30, 1995, the Company was not in compliance with the Debt-to-EBITDA coverage ratio and the consolidated fixed charge coverage ratio. The lenders waived compliance of such default through May 20, 1996. As the Company may not be able to comply with existing covenants in 1996, the outstanding borrowings have been classified as current obligations (See Note 2 -Basis of Presentation and Note 15 - Subsequent Events). 5. Fair Value of Financial Instruments: The estimated fair value of financial instruments has been determined by the Company using available market information and appropriate valuation methodologies. However, considerable judgment is necessarily required in interpreting market data to develop the estimates of fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts that the Company could realize in a current market exchange. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts. The carrying amount and fair value of financial instruments as of December 30, 1995 and December 31, 1994 are as follows: December 30, 1995 December 31, 1994 Carrying Fair Carrying Fair Amount Value Amount Value Assets: Cash and Cash Equivalents $6,357 $6,357 $339 $339 Liabilities: Current and Long-Term Obligations in default classified as current $100,467 $56,411 - - Long-Term Debt - - $147,250 $141,250 Cash and cash equivalents - The carrying amount of this item is a reasonable estimate of its fair value due to its short- term nature. Current and long-term obligations in default classified as current; long-term debt - The fair value of publicly traded debt (the Senior Secured Notes) is valued based on quoted market values. The amount reported in the balance sheet for the remaining long-term obligations in default classified as current approximates fair value based on quoted market prices of comparable instruments or by discounting expected cash flows at rates currently available for debt of the same remaining maturities. 6. Income Taxes: The components of the income tax benefit (provision) for fiscal 1995, 1994 and 1993 were as follows: 1995 1994 1993 Federal: Current - AMT $ - $ 1,551 $ (36) Deferred - (3,997) 3,288 Total income tax benefit (provision) $ - $(2,446) $3,252 A reconciliation of the income tax benefit (provision) at the statutory Federal income tax rate to the Company's effective tax rate is as follows: 1995 1994 1993 Federal income tax at statutory rate $11,127 $13,370 $1,010 AMT in excess of regular tax - - (36) AMT loss carryback - 1,551 - Change in valuation allowance (10,074) (16,075) 3,288 Other - net (1,053) (1,292) (1,010) Total income tax benefit (provision) $ - $(2,446) $3,252 During the year ended December 30, 1995, the Company received an income tax refund amounting to $1,339, due to the recognition of a tax benefit from its year ended December 31, 1994 for net alternative minimum tax operating losses that were carried back to prior tax years. 6. Income Taxes, continued: The components of deferred tax assets and deferred tax liabilities are as follows: December 30, December 31, 1995 1994 Current assets (liabilities): Allowance for uncollectible receivables $ 1,090 $ 942 Termination of Borden supply agreement - 789 Operational restructuring reserve 1,282 5,918 Other, net 406 (800) Net current deferred tax assets 2,778 6,849 Noncurrent assets (liabilities): Property, plant and equipment 251 (4,577) Targeted job credit carryforward 815 815 Self-insurance reserves 2,150 3,183 Operational restructuring reserve 969 1,745 Net operating loss carryforwards 17,001 7,048 AMT credit carryforwards 630 507 Capital leases 1,111 600 Other, net 444 (95) Net noncurrent deferred tax assets 23,371 9,226 Total net deferred assets 26,149 16,075 Valuation allowance (26,149) (16,075) Net deferred tax assets $ - $ - Due to the uncertainty of realizing the future tax benefits, the full valuation allowance established in fiscal 1994 was increased to entirely offset the net deferred tax assets as of December 30, 1995. At December 30, 1995, the Company had the following operating loss and tax credit carryforwards available for tax purposes: 6. Income Taxes, continued: Expiration Amount Dates Federal regular tax net operating loss carryforwards $48,575 2002-2010 Federal AMT credit carryforwards against regular tax $ 630 indefinite Federal tax credit carryforwards (Targeted Jobs Credit) $ 815 2003-2009 The Internal Revenue Service ("IRS") concluded a field audit of the Company's income tax returns for the fiscal years 1990, 1991 and 1992. On January 31, 1994, the IRS issued a Revenue Agent's Report for those fiscal years proposing adjustments that would result in additional taxes of $1,589 (this amount is net of any available operating loss carryforwards which would be eliminated under the proposed adjustment). The Company filed its protest with the IRS Appeals Office on June 14, 1994. On June 28, 1995, the Company reached a tentative agreement with the IRS appeals office to settle the above claim. Management has analyzed the proposed settlement and has provided for amounts which it believes are adequate. 7. Incentive Compensation Plan: The Company has bonus arrangements for store management and other key management personnel. During 1995, 1994, and 1993, approximately $934, $1,939, and $2,900, respectively, was charged to costs and expenses for such bonuses. 8. Retirement Plans: Effective January 1, 1988, the Company adopted a non- contributory, defined benefit retirement plan for all executive and administrative personnel. Benefits are based on length of service and career average pay with the Company. The Company's funding policy is to contribute an amount equal to or greater than the minimum funding requirement of the Employee Retirement Income Security Act of 1974, but not in excess of the maximum deductible limit. (Assets were held in investment mutual funds during 1995 and 1994.) In accordance with the provisions of Statement of Financial Accounting Standards No. 87, "Employers' Accounting for Pensions", the Company recorded an additional minimum liability at December 30, 1995 and January 1, 1994 representing the excess of the accumulated benefit obligation over the fair value of plan assets and accrued pension liability. The liabilities have been offset by intangible assets to the extent of previously unrecognized prior service cost. The accumulated benefit obligation for December 30, 1995 was determined using a 7.25% discount rate; if the discount rate used had been at least 7.35%, the additional minimum liability would not have been recorded. Net pension cost consists of the following: 1995 1994 1993 Service cost $ 517 $709 $663 Interest cost 465 366 292 Loss (return) on assets (1,140) 63 (319) Net amortization and deferral 690 (419) 43 Curtailment charge (37) - - Net periodic pension cost $ 495 $719 $680 The funded status of the plan and the amounts recognized in the Company's balance sheet at December 30, 1995 and December 31, 1994 consist of the following: 1995 1994 Actuarial present value of benefit obligations: Vested benefits $(6,928) $(4,499) Non-vested benefits (88) (151) Accumulated benefit obligations $(7,016) $(4,650) 8. Retirement Plans, continued: 1995 1994 Projected benefit obligations $(7,693) $(5,441) Plan assets at fair value 6,902 4,960 Projected benefit obligations in excess of plan assets (791) (481) Unrecognized prior service cost (95) (144) Unrecognized net loss from past experience different from that assumed and changes in actuarial assumptions 2,096 1,340 Adjustment to recognize minimum liability (1,327) - Net pension asset (liability) recognized in statement of financial position $ (117) $ 715 Actuarial assumptions used to determine year-end plan status were as follows: 1995 1994 Assumed rate for determination of net periodic pension cost 9.0% 7.5% Assumed discount rate to determine the year-end plan disclosures 7.25% 9.0% Assumed long-term rate of return on plan assets 9.0% 9.0% Assumed range of rates of future compensation increases (graded by age) for net periodic pension cost 5.0% to 7.0% 3.5% to 5.5% Assumed range of rates of future compensation increases (graded by age) for year-end plan disclosures 3.5% to 5.5% 5.0% to 7.0% The prior service cost is being amortized on a straight line basis over approximately 13 years. 8. Retirement Plans, continued: As a result of the sale of the Company's warehouse and distribution center and 29 stores to AWG, as well as the closure of 14 under-performing stores during 1995 (See Note 14), a significant number of employees were terminated that participated in the Company's non-contributory defined benefit retirement plan. The effect of the curtailment resulting from the terminations of such employees was not material to the Statement of Operations for the year ended December 30, 1995. The Company also contributes to various union-sponsored, multi-employer defined benefit plans in accordance with the collective bargaining agreements. The Company could, under certain circumstances, be liable for the Company's unfunded vested benefits or other costs of these multi-employer plans. The allocation to participating employers of the actuarial present value of vested and nonvested accumulated benefits in multi-employer plans as well as net assets available for benefits is not available and, accordingly, is not presented. The costs of these plans for 1995, 1994, and 1993 were $2,110, $3,309, and $3,565, respectively. Effective January 1, 1988, the Company adopted a defined contribution plan covering substantially all non- union employees of the Company. Prior to 1994, the Company contributed a matching 50% for each one dollar the participants contribute in pre-tax matched contributions. Participants may contribute from 1% to 6% of their pre-tax compensation which was matched by the Company. Participants may make additional contributions of 1% to 6% of their pre-tax compensation, but such contributions were not matched by the Company. Effective January 2, 1994, the plan was amended to allow a discretionary matching contribution formula based on the Company's operating results. The cost of this plan for 1995, 1994, and 1993, was $0, $0, and $425, respectively. 9. Leases: The Company leases substantially all of its retail store properties under noncancellable agreements, the majority of which range from 15 to 25 years. These leases, which include both capital leases and operating leases, generally are subject to six five-year renewal options. Most leases also require the payment of taxes, insurance and maintenance costs and many of the leases covering retail store properties provide for additional contingent rentals based on sales. Leased assets under capital leases consists of the following: December 30, December31, 1995 1994 Buildings $16,670 $21,616 Equipment 7,014 8,340 Beneficial interest in capital leases 5,378 16,059 29,062 46,015 Accumulated amortization 17,851 21,010 Net leased assets $11,211 $25,005 Future minimum lease payments under capital leases and noncancellable operating leases as of December 30, 1995 are as follows: 9. Leases, continued: Capital Operating Fiscal Year Leases Leases 1996 $ 4,035 $ 8,849 1997 2,754 8,239 1998 2,134 5,779 1999 1,707 5,448 2000 982 4,899 Thereafter 9,350 38,891 Total minimum obligations 20,962 $72,105 Less estimated interest 9,190 Present value of net minimum obligations 11,772 Less current portion 2,746 Long-term obligations under capital leases $ 9,026 Rent expense is as follows: 1995 1994 1993 Minimum rents $10,264 $12,560 $12,642 Contingent rents 107 178 214 $10,371 $12,738 $12,856 10. Common Stock and Warrants: Holding has agreed to repurchase shares of stock held by management investors under certain conditions (as defined), such as death, retirement, or permanent disability. Pursuant to requirements of the Securities and Exchange Commission, the shares of Class A common stock held by management investors have been presented as redeemable common stock and excluded from stockholders' equity. The changes in the number of shares outstanding and the value of the redeemable common stock is as follows: 10. Common Stock and Warrants, continued: Shares Amount Balance, January 2, 1993 4,104,211 $ 9,470 Repurchase of common stock (134,000) (323) Increase in management stock loans - (294) Balance, January 1, 1994 3,970,211 8,853 Repurchase of common stock (106,000) (255) Reduction in redemption value - (7,284) Increase in management stock loans - (79) Balance, December 31, 1994 3,864,211 1,235 Repurchase of common stock (2,143,493) (1,071) Reduction in redemption value - (940) Decrease in management stock loans - 793 Balance, December 30, 1995 1,720,718 $ 17 The shares of redeemable common stock are reported on the balance sheets at redemption value (estimated fair value). The reduction in redemption value has been reflected as an increase in additional paid-in capital. The shares of treasury stock are reported on the balance sheets at cost. Holding also has 40,500,000 shares of Class B nonvoting common stock authorized at December 30, 1995 and December 31, 1994 with a $.01 par value. No shares were issued or outstanding at either December 30, 1995 or December 31, 1994. In 1995, Holding repurchased 2,143,493 shares of its Common Stock from certain officers and employees of the Company at a cash price of $0.50 per share plus, at the election of seller, warrants up to the number of shares purchased. As a result of the purchase, Holding issued 2,105,493 warrants to such officers and employees of the Company. The warrant and the shares issuable upon exercise, are subject to certain restrictions on transferability, including certain first refusal rights, as set forth in the warrant. 10. Common Stock and Warrants, continued: The holders of the warrants may, at any time prior to the expiration date (defined as five years after issuance date), purchase from Holding the amount of Common Stock indicated on such warrant, in whole or in part, at a purchase price of $0.50 per share. 11. Related Party Transactions: Clayton, Dubilier & Rice, Inc., a private investment firm of which four directors of the Company are employees, received $125 in 1995, $150 in 1994, and $200 in 1993, for financial advisory and consulting services. The Company made loans during 1995 and 1994 to certain members of management and key employees for principal payments on their loans made by the credit union in connection with their purchase of common stock. The loans bear interest at a variable rate equal to the Company's prime lending rate plus 1.0%. Loans outstanding at December 30, 1995 and December 31, 1994 were $82 and $794, respectively. The outstanding loans mature in July 1996. 12. Commitments and Contingencies: Effective January 1, 1989, the Company implemented stock appreciation rights ("SAR's") plans for certain of its hourly union and non-union employees as well as salaried employees. Participants in the plans are granted at specified times "appreciation units" which, upon the occurrence of certain triggering events, entitle them to receive cash payments equal to the increase in value of a share of the common stock over $1.00 from the date of the plan's establishment. The Company expects the SAR's to be triggered as a result of the restructuring, discussed in Note 14, at no liability to the Company due to the continued decline in per share value below $1.00. Effective October 1, 1991, the Company entered into an outsourcing agreement whereby an outside party provides virtually all of the Company's EDP requirements and assumed substantially all of the Company's existing hardware and software leases and related maintenance agreements. The ten year agreement calls for minimum annual service charges, increasing over its term, as well as other variable charges. The Company terminated the outsourcing agreement as of March 31, 1996. Pursuant to the outsourcing agreement, there is a 12. Commitments and Contingencies, continued: $3.0 million charge for the termination, of which AWG is responsible for 52%. The Company has provided for amounts in the financial statements that management believes to be reasonable and adequate. The Company has entered into employment contracts with certain key executives providing for the payment of minimum salary and bonus amounts in addition to certain other benefits in the event of termination of the executives or change of control of the Company. The Company is also a party to various lawsuits arising in the normal course of business. Management believes that the ultimate outcome of these matters will not have a material effect on the Company's consolidated financial position, results of operations and cash flows. The Company has outstanding at December 30, 1995, $12,000 in letters of credit which are not reflected in the accompanying financial statements. The letters of credit are issued under the Revolving Credit Agreement and the Company paid associated fees of $335 and $195 in 1995 and 1994, respectively. 13. Sale of Plants: In November 1993 the Company entered into an asset purchase agreement with Borden, Inc. ("Borden") whereby certain of the Company's milk and ice cream processing equipment and certain other assets and inventory relating to its milk and ice cream plants was sold. In connection with the sale, the Company entered into a seven-year agreement with Borden under which Borden would supply all of the Company's requirements for most of its dairy, juice and ice cream products and the Company agreed to purchase minimum volumes of products. The Company recognized a gain on the sale of personal property in the amount of $2,618. A $4,000 payment received in connection with the supply agreement was deferred and was to be recognized as earned over the term of the supply agreement. In December 1994, the Company entered into a settlement agreement with Borden whereby the seven-year supply agreement entered into in November 1993 was terminated and a temporary supply agreement for a maximum period of 120 days was entered into. As part of the settlement agreement, the Company repaid $1,650 plus interest in December 1994 and $1,650 plus interest in April 1995. Upon final settlement payment, the Company 13. Sale of Plants, continued: recognized an additional gain of approximately $700 in 1995. The Company has made arrangements with another dairy supplier to begin supplying its dairy and ice cream requirements in April 1995. 14. Restructuring: In the fourth quarter of 1995, the Company refocused its restructuring plan, which commenced in 1994. The intent of the revised restructuring program and new business plan is to further reduce the Company's indebtedness in respect of its Senior Notes and its Revolving Credit Agreement, restructure certain of its lease obligations and negotiate modifications to certain of its union agreements in an effort to reduce costs and improve profitability and cash flow. In connection with the closing of stores following the sale of 29 stores and the warehouse facility to AWG, the Company recognized charges aggregating $12,639 in 1995 and $23,205 in 1994. The major components of the restructuring charges in 1995 are summarized as follows: Write-off of capitalized software costs replaced as part of operational restructuring initiatives $ 7,971 Write-off of unamortized balance of the excess of purchase price over fair value of net assets acquired due to uncertainty of recovery from future operating cash flows 2,360 Expense associated with the termination of an EDP outsourcing agreement 1,410 Expenses associated with remaining store closings, primarily occupancy costs from closing date to lease termination or revised sublease date 898 Total restructuring charges $12,639 The asset write-offs described above, aggregating $10,331, have been reflected in their respective balance sheet account classifications, the EDP expense is included in Other current liabilities and the expenses associated with the remaining 14. Restructuring, continued: store closings are included in the Noncurrent restructuring reserve as of December 30, 1995. In accordance with a strategic plan approved by the Board of Directors in December 1994, the Company entered into an agreement with Associated Wholesale Grocers, Inc. ("AWG") on February 6, 1995, pursuant to which the Company sold 29 of its stores and its warehouse and distribution center to AWG on April 21, 1995. In connection with this strategic plan, the Company closed fourteen under-performing stores during 1995 and expects to close an additional store and sell one store by the second quarter of 1996. During fiscal 1995, the Company incurred expenses associated with the operational restructuring as follows:
Operational (Payments) proceeds Operational restructuring applied against restructuring reserve at restructuring reserve at December 31, 1994 reserve in 1995 December 30, 1995 Expenses associated with the planned store closings, primarily occupancy costs from closing date to lease termination or sublease date $ 8,319 $ (3,459) (a) $ 4,860 Expenses associated with the AWG transaction, primarily service and equipment contract cancellation fees 5,649 (5,591) 58 Estimated severance costs associated with the AWG transaction 5,624 (4,697) 927 Legal and consulting fees associated with the AWG transaction 4,905 (4,880) 25 Net gain on sale of property, plant and equipment to AWG (19,492) 19,492 - Operational restructuring reserve $ 5,005 $ 865 $ 5,870
(a) Such amount is net of additional charges of $898 in 1995 14. Restructuring, continued: The separately identifiable revenue and store contribution to operating profit related to the stores sold to AWG or closed during 1995 and expenses related to the warehouse facility are as follows: 1995 1994 1993 Sales, net $91,462 $253,221 $262,460 Store contribution to operating profit (loss) before allocation of administrative and advertising expenses $ 2,494 $ 7,795 $ 9,854 Warehouse expenses $ 3,853 $ 12,455 $ 11,080 Under the AWG supply agreement, the ongoing costs of warehousing are built into the cost of goods purchased from AWG. 15. Subsequent Events: On March 27, 1996, the Company entered into an agreement in principle (the "Noteholder Agreement") with members of an ad- hoc noteholders committee (the "Committee") with respect to a financial restructuring of the Company. The Committee has advised the Company that it represents approximately 80% of the Company's outstanding Senior Notes. The Noteholder Agreement provides for the filing by the Company of a bankruptcy petition and simultaneously the submission of a "pre- arranged" plan of reorganization and disclosure statement under Chapter 11 of the United States Federal Bankruptcy Code. (the "Restructuring"), all of which is expected to occur on or about May 13, 1996. If approved by the United States Bankruptcy Court (the "Bankruptcy Court"), the Company's creditors and labor unions, the Restructuring will result in a reduction of the Company's debt service obligations and labor costs and a capital and cost structure that will allow the Company to maintain and enhance the competitive position of its business and operations. 15. Subsequent Events, continued: Pursuant to the Noteholder Agreement, upon completion of the Restructuring, the $95 million of Senior Notes currently outstanding (together with accrued interest) will be canceled and the noteholders will receive $60 million in aggregate principal amount of new senior subordinated notes, a majority of the new equity of the reorganized Company and approximately $1.5 million in cash. The new senior subordinated notes will mature in 2003, bear interest semi-annually at a rate of 10% per annum and will not be secured. In March 1996, the Company also reached agreements with representatives of its unionized workforce regarding certain modifications to the Company's existing collective bargaining agreements. These modifications will provide for, among other things, wage and benefit concessions, the severance of certain employees and the issuance and purchase of new equity of the reorganized Company to a trust acting on behalf of the unionized employees. The modifications to the collective bargaining agreements have been ratified by the union membership and are conditioned on, and will be effective upon, completion of the Restructuring. In order to facilitate the Restructuring, as provided under the Noteholder Agreement the Company intends to file papers with the Bankruptcy Court seeking approval of a debtor-in-possession financing facility. The Company anticipates that such facility will provide it with the financing necessary to maintain its normal business operations during its period of operations under supervision of the Bankruptcy Court, including the payment of postpetition claims of trade creditors and salaries, wages and benefits of employees. The Company anticipates that the Restructuring will be completed by the third quarter of 1996. EXHIBIT INDEX Exhibit No. Description 2a Disclosure Statement for Joint Plan of Reorganization of Homeland Stores, Inc. and Homeland Holding Corporation dated as of May 13,1996 (Incorporated by reference to Exhibit 2a to Form 8-K dated May 31, 1996) 2b First Amended Joint Plan of Reorganization, as modified, of Homeland Holding Corporation ("Holding") and Homeland Stores, Inc. ("Homeland"), dated July 19, 1996 (Incorporated by reference to Exhibit 2b to Form 10-Q for the quarterly period ended June 15,1996). 3a* Restated Certificate of Incorporation of Holding, dated August 2, 1996. 3b By-laws of Holding, as amended and restated on November 14, 1989 and further amended on September 23, 1992. (Incorporated by reference to Exhibit 3b to Form 10-Q for quarterly period ended June 19, 1993) 3c* Restated Certificate of Incorporation of Homeland, dated August 2, 1996. 3d By-laws of Homeland, as amended and restated on November 14, 1989 and further amended on September 23, 1992. (Incorporated by reference to Exhibit 3d to Form 10-Q for quarterly period ended June 19, 1993) 4a Indenture, dated as of November 24, 1987, among Homeland, The Connecticut National Bank ("CNB"), as Trustee, and Holding, as Guarantor. (Incorporated by reference to Exhibit 4a to Form S-1 Registration Statement, Registration No. 33-22829) 4a.1 First Supplement to Indenture, dated as of August 15, 1988, among Homeland, CNB and Holding. (Incorporated by reference to Exhibit 4a.1 to Form S-1 Registration Statement, Registration No. 33-22829) 4b Purchase Agreement, dated November 24, 1987, among Homeland, Holding and initial purchasers of Subordinated Notes. (Incorporated by reference to Exhibit 4b to Form S-1 Registration Statement, Registration No. 33-22829) 4c Form of Registration Rights Agreement, dated as of November 24, 1987, among Homeland, Holding and initial purchasers of Subordinated Notes. (Incorporated by reference to Exhibit 4c to Form S-1 Registration Statement, Registration No. 33-22829) 4d Indenture, dated as of March 4, 1992, among Homeland, United States Trust Company of New York ("U.S.Trust"), as Trustee, and Holding, as Guarantor. (Incorporated by reference to Exhibit 4d to Form 10-K for fiscal year ended December 28, 1991) 4d.1 First Supplement to Indenture, dated as of June 17, 1992, among Homeland, Holding and U.S. Trust. (Incorporated by reference to Exhibit 4d.1 to Form S-1 Registration Statement, Registration No. 33-48862) 4d.3 Partial Release of Collateral, dated as of May 22, 1992, by U.S. Trust, as Collateral Trustee, in favor of Homeland. (Incorporated by reference to Exhibit 4d.3 to Form S-1 Registration Statement, Registration No. 33-48862) 4e Form of Purchase Agreement, dated as of March 4, 1992, among Homeland and initial purchasers of Senior Notes. (Incorporated by reference to Exhibit 4e to Form 10-K for fiscal year ended December 28, 1991) 4f Form of Registration Rights Agreement, dated as of March 4, 1992, among Homeland and the initial purchasers of Senior Notes. (Incorporated by reference to Exhibit 4f to Form 10-K for fiscal year ended December 28, 1991) 4g Indenture, dated as of August 2, 1996, among Homeland, Fleet National Bank, as Trustee, and Holding, as Guarantor. (Incorporated by reference to Exhibit T3C to Form T-3 of Homeland, SEC File No. 22-22239) 4h* Warrant Agreement, dated as of August 2, 1996, between Holding and Liberty Bank and Trust Company of Oklahoma City, N.A., as Warrant Agent. 4i* Equity Registration Rights Agreement, dated as of August 2, 1996, by Holding for the benefit of holders of Old Common Stock. 4j* Noteholder Registration Rights Agreement, dated as of August 2, 1996, by Holding for the benefit of holders of Old Notes. 10a Asset Purchase Agreement, dated as of September 15, 1987. (Incorporated by reference to Exhibit 10a to Form S-1 Registration Statement, Registration No. 33-22829) 10b First Amendment to Asset Purchase Agreement, dated November 24, 1987. (Incorporated by reference to Exhibit 10b to Form S-1 Registration Statement, Registration No. 33-22829) 10c Stock Subscription Agreement, dated as of November 24, 1987, between Holding and The Clayton & Dubilier Private Equity Fund III Limited Partnership. (Incorporated by reference to Exhibit 10c to Form S-1 Registration Statement, Registration No. 33-22829) 10e Purchase Agreement for Safeway Brand Products, dated as of November 24, 1987, between Homeland and Safeway. (Incorporated by reference to Exhibit 10e to Form S-1 Registration Statement, Registration No. 33-22829) 10f Manufacturing and Supply Agreement, dated as of November 24, 1987, between Homeland and Safeway. (Incorporated by reference to Exhibit 10f to Form S-1 Registration Statement, Registration No. 33-22829) 10g Form of Common Stock Purchase Agreement, dated November 24, 1987, between Holding and certain institutional investors. (Incorporated by reference to Exhibit 10g to Form S-1 Registration Statement, Registration No. 33-22829) 10h 1 Form of Management Stock Subscription Agreement, dated as of October 20, 1988, between Holding and the purchasers named therein, involving purchase of Holding common stock for cash. (Incorporated by reference to Form 10-K for fiscal year ended December 31, 1988) 10h.1 1 Form of Management Stock Subscription Agreement, dated as of October 20, 1988, between Holding and the purchasers named therein, involving purchase of Holding common stock using funds held under purchasers' individual retirement accounts. (Incorporated by reference to Form 10-K for fiscal year ended December 31, 1988) 10h.2 1 Form of Management Stock Subscription Agreement, dated as of November 29, 1989, between Holding and the purchasers named therein, involving purchase of Holding common stock for cash. (Incorporated by reference to Form 10-K for fiscal year ended December 30, 1989) 10h.3 1 Form of Management Stock Subscription Agreement, dated as of November 29, 1989, between Holding and the purchasers named therein, involving purchase of Holding common stock using funds held under purchasers' individual retirement accounts. (Incorporated by reference to Form 10-K for fiscal year ended December 30, 1989) 10h.4 1 Form of Management Stock Subscription Agreement dated as of August 14, 1990, between Holding and the purchasers named therein, involving purchase of Holding common stock for cash. (Incorporated herein by reference to Exhibit 10h.4 to Form 10-K for fiscal year ended December 29, 1990) 10h.5 1 Form of Management Stock Subscription Agreement dated as of August 14, 1990, between Holding and the purchasers named therein, involving purchase of Holding common stock using funds held under purchasers' individual retirement accounts. (Incorporated herein by reference to Exhibit 10h.5 to Form 10-K for fiscal year ended December 29, 1990) 10i.1 Form of Registration and Participation Agreement, dated as of November 24, 1987, among Holding, The Clayton & Dubilier Private Equity Fund III Limited Partnership, and initial purchasers of Common Stock. (Incorporated by reference to Exhibit 10i to Form S-1 Registration Statement, Registration No. 33-22829) 10i.2 1990 Registration and Participation Agreement dated as of August 13, 1990, among Homeland Holding Corporation, Clayton & Dubilier Private Equity Fund IV Limited Partnership and certain stockholders of Homeland Holding Corporation. (Incorporated by reference to Exhibit 10y to Form 10-Q for quarterly period ended September 8, 1990) 10i.3 Form of Store Managers Stock Purchase Agreement. (Incorporated by reference to Exhibit 10z to Form 10-Q for quarterly period ended September 8, 1990) 10j Indenture, dated as of November 24, 1987. (Incorporated by reference to Exhibit 10j to Form S-1 Registration Statement, Registration No. 33-22829) 10j.1 First Supplement to Indenture, dated as of August 15, 1988. (Incorporated by reference to Exhibit 10j.1 to Form S-1 Registration Statement, Registration No. 33-22829) 10k Form of Purchase Agreement, dated November 24, 1987, among Homeland, Holding and initial purchasers of Subordinated Notes (Filed as Exhibit 4b). (Incorporated by reference to Exhibit 10k to Form S-1 Registration Statement, Registration No. 33-22829) 10l Form of Registration Rights Agreement, dated as of November 24, 1987, among Homeland, Holding and initial purchasers of Subordinated Notes. (Incorporated by reference to Exhibit 10l to Form S-1 Registration Statement, Registration No. 33-22829) 10q 1 Homeland Profit Plus Plan, effective as of January 1, 1988. (Incorporated by reference to Exhibit 10q to Form S-1 Registration Statement, Registration No. 33-22829) 10q.1 1 Homeland Profit Plus Plan, effective as of January 1, 1989 (Incorporated by reference to Exhibit 10q.1 to Form 10-K for the fiscal year ended December 29, 1990) 10r Homeland Profit Plus Trust, dated March 8, 1988, between Homeland and the individuals named therein, as Trustees. (Incorporated by reference to Exhibit 10r to Form S-1 Registration Statement, Registration No. 33-22829) 10r.1 Homeland Profit Plus Trust, dated January 1, 1989, between Homeland and Bank of Oklahoma, N.A., as Trustee (Incorporated by reference to Exhibit 10r.1 to Form 10-K for the fiscal year ended December 29, 1990) 10s 1 1988 Homeland Management Incentive Plan. (Incorporated by reference to Exhibit 10s to Form S-1 Registration Statement, Registration No. 33-22829) 10s.1 1 1989 Homeland Management Incentive Plan. (Incorporated by reference to Exhibit 10s.1 to Form 10-K for fiscal year ended December 31, 1988) 10s.2 1 1990 Homeland Management Incentive Plan. (Incorporated by reference to Exhibit 10s.2 to Form S-1 Registration Statement, Registration No. 33-48862) 10s.3 1 1991 Homeland Management Incentive Plan. (Incorporated by reference to Exhibit 10s.3 to Form S-1 Registration Statement, Registration No. 33-48862) 10s.4 1 1992 Homeland Management Incentive Plan. (Incorporated by reference to Exhibit 10s.4 to Form S-1 Registration Statement, Registration No. 33-48862) 10s.5 1 1993 Homeland Management Incentive Plan. (Incorporated by reference to Exhibit 10s.5 to Form 10-K for fiscal year ended January 1, 1994) 10s.6 1 1994 Homeland Management Incentive Plan. (Incorporated by reference to Exhibit 10.s6 to Form 10-K for fiscal year ended December 31, 1994) 10s.7 1 1995 Homeland Management Incentive Plan. (Incorporated by reference to Exhibit 10s.7 to Form 10-K for fiscal year ended December 30, 1995) 10t 1 Form of Homeland Employees' Retirement Plan, effective as of January 1, 1988. (Incorporated by reference to Exhibit 10t to Form S-1 Registration Statement, Registration No. 33-22829) 10t.1 1 Amendment No. 1 to Homeland Employees' Retirement Plan effective January 1, 1989. (Incorporated herein by reference to Form 10-K for fiscal year ended December 30, 1989) 10t.2 1 Amendment No. 2 to Homeland Employees' Retirement Plan effective January 1, 1989. (Incorporated herein by reference to Form 10-K for fiscal year ended December 30, 1989) 10t.3 1 Third Amendment to Homeland Employees' Retirement Plan effective as of January 1, 1988. (Incorporated herein by reference to Exhibit 10t.3 to Form 10-K for fiscal year ended December 29, 1990) 10t.4 1 Fourth Amendment to Homeland Employees' Retirement Plan effective as of January 1, 1989. (Incorporated herein by reference to Exhibit 10t.4 to Form 10-K for the fiscal year ended December 28, 1991) 10t.5 1 Fifth Amendment to Homeland Employees' Retirement Plan effective as of January 1, 1989 (Incorporated herein by reference to Form 10-Q for the quarterly period ended September 9, 1995) 10u 1 Employment Agreement, dated as of January 11, 1988, between Homeland and Jack M. Lotker. (Incorporated by reference to Exhibit 10u to Form S-1 Registration Statement, Registration No. 33-22829) 10v UFCW Stock Appreciation Rights Plan of Homeland. (Incorporated by reference to Exhibit 10v to Form 10-Q for quarterly period ended March 25, 1989) 10v.1 Stock Appreciation Rights Plan of Homeland for Non-Union Employees. (Incorporated by reference to Exhibit 10v.1 to Form 10-Q for quarterly period ended March 25, 1989) 10v.2 Teamsters Stock Appreciation Rights Plan of Homeland. (Incorporated by reference to Exhibit 10v.2 to Form S-1 Registration Statement, Registration No. 33-48862) 10v.3 BC&T Stock Appreciation Rights Plan of Homeland. (Incorporated by reference to Exhibit 10v.3 to Form S-1 Registration Statement, Registration No. 33-48862) 10w 1 Employment Agreement, dated as of September 26, 1989, between Homeland and Max E. Raydon. (Incorporated by reference to Exhibit 10w to Form 10-Q for quarterly period ended September 9, 1989) 10x Indemnification Agreement, dated as of August 14, 1990, among Holding, Homeland, Clayton & Dubilier, Inc. and The Clayton & Dubilier Private Equity Fund III Limited Partnership. (Incorporated by reference to Exhibit 10x to Form 10-Q for quarterly period ended September 8, 1990) 10y Indenture, dated as of March 4, 1992, among Homeland, United States Trust Company of New York, as Trustee, ("U.S. Trust") and Holding, as Guarantor. (Filed as Exhibit 4d) 10y.1 First Supplement to Indenture, dated as of June 17, 1992, among Homeland, Holding and U.S. Trust. (Filed as Exhibit 4d.1) 10y.2 Second Supplement to Indenture, dated as of April 21, 1995, among Homeland, Holding and United States Trust Company of New York, as Trustee. (Incorporated by reference to Exhibit 10y.2 to Form 10-Q for the quarterly period ended March 25, 1995) 10y.3 Amendment No. 2 to the Company Security Agreement, dated as of April 21, 1995, between Homeland and United States Trust Company of New York as Collateral Trustee. (Incorporated by reference to Exhibit 10y.3 to Form 10-Q for the quarterly period ended March 25, 1995) 10y.4 Amendment No. 1 to the Intercreditor Agreement, dated as of April 21, 1995, among National Bank of Canada, United States Trust Company of New York and such other persons as may become parties to the Intercreditor Agreement as provided therein. (Incorporated by reference to Exhibit 10y.4 to Form 10-Q for the quarterly period ended March 25, 1995) 10y.5 Amendment No. 1 to the Mortgage Security Agreement and Financing Statement, dated as of April 21, 1995, from Homeland to United States Trust Company of New York as Collateral Trustee. (Incorporated by reference to Exhibit 10y.5 to Form 10-Q for the quarterly period ended March 25, 1995) 10z Form of Purchase Agreement, dated as of March 4, 1992, among Homeland, Holding and the initial purchasers of Senior Notes. (Filed as Exhibit 4e) 10aa Form of Registration Rights Agreement, dated as of March 4, 1992, among Homeland and the initial purchasers of Senior Notes. (Filed as Exhibit 4f) 10bb Form of Parent Pledge Agreement, dated as of March 4, 1992, made by Holding in favor of U.S. Trust, as collateral trustee for the holders of the Senior Notes. (Incorporated by reference to Exhibit 10bb to Form 10-K for the fiscal year ended December 28, 1991) 10cc Revolving Credit Agreement, dated as of March 4, 1992, among Homeland, Holding, Union Bank of Switzerland, New York Branch, as Agent and lender, and any other lenders and other financial institutions thereafter parties thereto. (Incorporated by reference to Exhibit 10cc to Form 10-K for the fiscal year ended December 28, 1991) 10cc.1 Letter Waiver (Truck Sale), dated as of May 19, 1992, among Homeland, Holding, UBS, as agent, and the other lenders and financial institutions parties to the Revolving Credit Agreement. (Incorporated by reference to Exhibit 10cc.1 to Form S-1 Registration Statement, Registration No. 33-48862) 10cc.2 Form of Amendment Agreement, dated as of June 15, 1992, among Homeland, Holding, UBS, as agent, and the other lenders and financial institutions parties to the Revolving Credit Agreement. (Incorporated by reference to Exhibit 10cc.2 to Form S-1 Registration Statement, Registration No. 33-48862) 10cc.3 Form of Second Amendment Agreement, dated as of September 23, 1992, among Homeland, Holding, UBS, as agent, and the other lenders and financial institutions parties to the Revolving Credit Agreement. (Incorporated by reference to Exhibit 10cc.3 to Form S-1 Registration Statement, Registration No. 33-48862) 10cc.4 Third Amendment Agreement, dated as of February 10, 1993, among Homeland, Holding, UBS, as agent, and the other lenders and financial institutions parties to the Revolving Credit Agreement. 10cc.5 Fourth Amendment Agreement, dated as of June 8, 1993, among Homeland, Holding, UBS, as agent, and the other lenders and financial institutions parties to the Revolving Credit Agreement. (Incorporated by reference to Exhibit 10cc.5 to Form 10-Q for the quarterly period ended June 19, 1993) 10cc.6 Fifth Waiver and Amendment Agreement, dated as of April 14, 1994, among Homeland, Holding, UBS, as agent, and the other lenders and financial institutions parties to the Revolving Credit Agreement. (Incorporated by reference to Exhibit 10cc.6 to Form 10-K for the fiscal year ended January 1, 1994) 10cc.7 Sixth Waiver and Amendment Agreement, dated as of February 7, 1995, among Homeland, Holding, UBS, as agent, and the other lenders and financial institutions parties to the Revolving Credit Agreement. (Incorporated by reference to Exhibit 10cc.7 to Form 10-K for the fiscal year ended December 30, 1995) 10dd Agreement for Systems Operations Services, effective as of October 1, 1991, between Homeland and K-C Computer Services, Inc. (Incorporated by reference to Exhibit 10dd to Form 10-K for the fiscal year ended December 28, 1991) 10dd.1 Amendment No. 1 to Agreement for Systems Operations Services, dated as of September 10, 1993, between Homeland and K-C Computer Services, Inc. (Incorporated by reference to Exhibit 10dd.1 to Form 10-K for the fiscal year ended January 1, 1994) 10ee Form of Indemnification Agreement, dated as of March 4, 1992, among Homeland, Holding, Clayton & Dubilier, Inc., The Clayton & Dubilier Private Partnership Equity Fund III Limited Partnership, and The Clayton & Dubilier Private Equity Fund IV Limited Partnership. (Incorporated by reference to Exhibit 10ee to Form 10-K for the fiscal year ended December 28, 1991) 10ff Product Transportation Agreement, dated as of March 18, 1992, between Homeland and Drake Refrigerated Lines, Inc. (Incorporated by reference to Exhibit 10ff to Form 10-K for the fiscal year ended December 28, 1991) 10gg Assignment and Pledge Agreement, dated March 5, 1992, made by Homeland in favor of Manufacturers Hanover Trust Company. (Incorporated by reference to Exhibit 10gg to Form 10-K for the fiscal year ended December 28, 1991) 10hh Transportation Closure Agreement Summary, dated May 28, 1992, between Homeland and the International Brotherhood of Teamsters, Chauffeurs, Warehousemen and Helpers of America. (Incorporated by reference to Exhibit 10hh to Form S-1 Registration Statement, Registration No. 33-48862) 10ii 1 Description of terms of employment with Mark S. Sellers. (Incorporated by reference to Exhibit 10ii to Form 10-K for the fiscal year ended January 2, 1993) 10jj 1 Settlement Agreement, dated as of July 26, 1993, between Homeland and Donald R. Taylor. (Incorporated by reference to Exhibit 10jj to Form 10-K for the fiscal year ended January 1, 1994) 10kk 1 Executive Officers Medical/Life Insurance Benefit Plan effective as of December 9, 1993. (Incorporated by reference to Exhibit 10kk to Form 10-K for the fiscal year ended January 1, 1994) 10ll 1 Employment Agreement, dated as of August 11, 1994, between Homeland and Max E. Raydon. (Incorporated by reference to Exhibit 10ll to Form 10-Q for the quarterly period ended September 10, 1994) 10mm 1 Employment Agreement, dated as of August 11, 1994, between Homeland and Jack M. Lotker. (Incorporated by reference to Exhibit 10mm to Form 10-Q for the quarterly period ended September 10, 1994) 10nn 1 Employment Agreement, dated as of August 11, 1994, between Homeland and Steve Mason. (Incorporated by reference to Exhibit 10nn to Form 10-Q for the quarterly period ended September 10, 1994) 10oo 1 Employment Agreement, dated as of August 11, 1994, between Homeland and Al Fideline. (Incorporated by reference to Exhibit 10oo to Form 10-Q for the quarterly period ended September 10, 1994) 10pp Letter of Intent, executed on November 30, 1994, between Homeland and Associated Wholesale Grocers, Inc. (Incorporated by reference to Exhibit 10pp to Form 8-K dated November 29, 1994) 10pp.1 Asset Purchase Agreement, dated as of February 6, 1995, between Homeland and Associated Wholesale Grocers, Inc. (Incorporated by reference to Exhibit 10pp.1 to Form 10-K for fiscal year ended December 30, 1995) 10qq Solicitation Statement, dated April 4, 1995. (Incorporated by reference to Exhibit 10qq to Form 8-K dated April 4, 1995) 10rr 1 Employment Agreement, dated as of November 22, 1994, between Homeland and James A. Demme. (Incorporated by reference to Exhibit 10rr to Form 10-K for fiscal year ended December 30, 1995) 10rr.11 Amendment to Employment Agreement between Homeland and James A. Demme, dated as of April 29, 1996. (Incorporated by reference to Exhibit 10rr.1 to Form 10-K for fiscal year ended December 30, 1995) 10ss 1 Settlement Agreement, dated as of December 31, 1994, between Homeland and Max E. Raydon. (Incorporated by reference to Exhibit 10ss1 to Form 10-K for fiscal year ended December 30, 1995) 10tt 1 Employment Agreement, dated as of January 30, 1995, between Homeland and Mark S. Sellers. (Incorporated by reference to Exhibit 10tt1 to Form 10-K for fiscal year ended December 30, 1995) 10uu Amended and Restated Revolving Credit Agreement, dated as of April 21, 1995, among Homeland, Holding, National Bank of Canada, as Agent and lender, Heller Financial, Inc. and any other lenders thereafter parties thereto. (Incorporated by reference to Exhibit 10uu to Form 8-K dated March 14, 1996) 10uu.1 Waiver Agreement, dated as of December 29, 1995 among Homeland, Holding, National Bank of Canada and Heller Financial, Inc. (Incorporated by reference to Exhibit 10uu.1 to Form 8-K dated March 14, 1996) 10uu.2 Second Waiver Agreement, dated as of March 1, 1996 among Homeland, Holding, National Bank of Canada and Heller Financial, Inc. (Incorporated by reference to Exhibit 10uu.2 to Form 8-K dated March 14, 1996) 10uu.3 Ratification and Amendment Agreement to the $27,000,000 Amended and Restated Revolving Credit Agreement, dated as of May 10, 1996, among Homeland, Holding, National Bank of Canada, as Agent and lender, Heller Financial, Inc. and any other lenders thereafter parties thereto. (Incorporated by reference to Exhibit 10uu.3 to Form 10-Q for quarterly period ended March 23, 1996) 10vv 1 Employment Agreement dated as of July 10, 1995 and as amended September 26, 1995, between Homeland and Larry W. Kordisch. (Incorporated by reference to Exhibit 10pp to Form 10-K dated September 9, 1995) 10vv.1 Amendment to Employment Agreement between Homeland and Larry W. Kordisch, dated as of April 29, 1996. (Incorporated by reference to Exhibit 10vv.1 to Form 10-K for fiscal year ended December 30, 1995) 10ww 1 Employment Agreement dated as of April 29, 1996, between Homeland and Terry M. Marczewski. (Incorporated by reference to Exhibit 10ww.1 to Form 10-K for fiscal year ended December 30, 1995) 10xx 1 Settlement Agreement, dated as of August 31, 1995, between Homeland and Jack M. Lotker. (Incorporated by reference to Exhibit 10xx to Form 10-K for fiscal year ended December 30, 1995) 10yy 1 Employment Agreement, dated as of April 29, 1996, between Homeland and Steve M. Mason. (Incorporated by reference to Exhibit 10yy to Form 10-K for fiscal year ended December 30, 1995) 10zz 1 Employment Agreement, dated as of April 29, 1996, between Homeland and Alfred Fideline. (Incorporated by reference to Exhibit 10zz to Form 10-K for fiscal year ended December 30, 1995) 10aaa Indenture, dated as of August 2, 1996, among Homeland, Fleet National Bank, as Trustee, and Holding, as Guarantor. (Incorporated by reference to Exhibit 10aaa to Form 8-K dated September 30, 1996) 10bbb * Loan Agreement, dated as of August 2, 1996, among IBJ Schroder Bank & Trust Company, Heller Financial, Inc., National Bank of Canada, Homeland and Holding. 22 Subsidiaries. (Incorporated by reference to Exhibit 22 to Form S-1 Registration Statement, Registration No. 33-22829) 27* Financial Data Schedule. 99a Press release issued by Homeland on November 30, 1994. (Incorporated by reference to Exhibit 99a to Form 8-K dated November 29, 1994) 99b Unaudited Summary Financial Data for the 52 weeks ended December 31, 1994. (Incorporated by reference to Exhibit 99b to Form 8-K dated November 29, 1994) 99c Press Release issued by Homeland on April 13, 1995. (Incorporated by reference to Exhibit 99c to Form 8-K/A dated April 21, 1995) 99d Press Release issued by Homeland on April 24, 1995. (Incorporated by reference to Exhibit 99d to Form 8-K/A dated April 21, 1995) 99e Press Release issue by Homeland Stores, Inc. on March 1, 1996. (Incorporated by reference to Exhibit 99e to Form 8-K dated March 14, 1996) 99f Press Release issued by Homeland Stores, Inc. on March 27, 1996. (Incorporated by reference to Exhibit 99f to Form 10-K for fiscal year ended December 30, 1995) 99h Press Release issued by Homeland Stores, Inc. on July 19, 1996. (Incorporated by reference to Exhibit 99h to Form 10-Q for quarterly period ended June 15, 1996) EX-3 7 AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF HOMELAND STORES, INC. (FORMERLY SWO ACQUISITION CORPORATION) TO THE SECRETARY OF STATE OF THE STATE OF DELAWARE: The undersigned officers of Homeland Stores, Inc. ("Corporation") do hereby certify as follows: 1. The Certificate of Incorporation of the Corporation was originally filed with the Secretary of State of the State of Delaware ("Secretary of State") on September 15, 1987. At the time of its original incorporation, the name of the Corporation was "SWO Acquisition Corporation." 2. Such certificate of incorporation has been previously amended and restated on October 21, 1987, November 6, 1987, and March 2, 1989. The name of the Corporation was changed to "Homeland Stores, Inc." on March 2, 1989. Such certificate of incorporation, as previously amended and restated, is referred to in this Amended and Restated Certificate of Incorporation as the "Prior Certificate of Incorporation." 3. This Amended and Restated Certificate of Incorporation has been amended for the purpose of modifying the capital structure of the Corporation in accordance with the Plan of Reorganization of Homeland Stores, Inc. and Homeland Holding Corporation confirmed by the United States Bankruptcy Court for the District of Delaware ("Court") under Chapter 11 of the United States Bankruptcy Code in the cases styled In re Homeland Stores, Inc., Debtor, Case No. 96-747 (PJW), and In re Homeland Holding Corporation, Debtor, Case No. 96-748 (PJW), on July 19, 1996. The cases were filed with the Court on May 13, 1996. 4. This Amended and Restated Certificate of Incorporation has been duly adopted in accordance with the provisions of Section 242, Section 245 and Section 303 of the General Corporation Law of the State of Delaware. 5. The text of the Prior Certificate of Incorporation is hereby further amended by this Amended and Restated Certificate of Incorporation and is restated to read in its entirety as follows: FIRST: The name of the Corporation is Homeland Stores, Inc. SECOND: The Corporation's registered office in the State of Delaware is at 15 North Street in the City of Dover, County of Kent. The name of its registered agent at such address is National Corporate Research, Ltd. THIRD: The nature of the business of the Corporation and its purpose is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of the State of Delaware. FOURTH: The capital stock of the Corporation shall consist of a single class and the total number of shares of stock which the Corporation shall have authority to issue is 100 shares of Common Stock, par value $0.01 per share. Each share of Common Stock shall entitle the record holder thereof to one vote on all matters submitted to the shareholders. The Corporation shall not have the authority to issue non-voting equity securities. FIFTH: The following provisions are inserted for the management of the business and for the conduct of the affairs of the Corporation and for the purpose of creating, defining, limiting and regulating the powers of the Corporation and its directors and stockholders: (a) The number of directors of the Corporation shall be fixed and may be altered from time to time in the manner provided in the By-laws and vacancies in the Board of Directors and newly created directorships resulting from any increase in the authorized number of directors may be filled, and directors may be removed, as provided in the By-laws. (b) The election of directors may be conducted in any manner approved by the shareholders at the time when the election is held and need not be by ballot. (c) All corporate powers and authority of the Corporation (except as at the time otherwise provided by law, by this Amended and Restated Certificate of Incorporation or by the By-laws) shall be vested in and exercised by the Board of Directors. (d) The Board of Directors shall have the power without the assent or vote of the stockholders to adopt, amend, alter or repeal the By-laws of the Corporation, except to the extent that the this Amended and Restated Certificate of Incorporation or the By-laws otherwise provide. (e) No director of the Corporation shall be liable to the Corporation or its stockholders for monetary damages for breach of his or her fiduciary duty as a director, provided that nothing contained in this Amended and Restated Certificate of Incorporation shall eliminate or limit the liability of a director (i) for any breach of the director's duty of loyalty to the Corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of the law, (iii) under Section 174 of the General Corporation Law of the State of Delaware or (iv) for any transaction from which the director derived an improper personal benefit. SIXTH: The Corporation reserves the right to amend or repeal any provision contained in this Amended and Restated Certificate of Incorporation in the manner now or hereafter prescribed by the laws of the State of Delaware, and all rights herein conferred upon shareholders or directors are granted subject to this reservation. IN WITNESS WHEREOF, the undersigned officers have signed this Amended and Restated Certificate of Incorporation this day of , 1996. HOMELAND STORES, INC. By: James A. Demme, President ATTEST: Secretary (SEAL) 135908 EX-27 8
5 6-MOS DEC-28-1996 JUN-15-1996 6,854 0 7,502 0 39,476 2,055 131,334 64,874 129,096 146,723 0 0 0 337 (31,801) 129,096 121,981 121,981 91,703 91,703 29,242 0 2,051 (1,015) 0 (1,015) 0 0 0 (1,015) (.03) (.03)
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