-----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, MPqTw/MGAhvk4AsUON3VSj4Un1YWNcOUAv5Jy4x/yR0nAjC2VGRvtXKJA5dZPzjH jI7S1vt6CPz0HmEXtJ+B6g== /in/edgar/work/20000731/0000835582-00-000011/0000835582-00-000011.txt : 20000921 0000835582-00-000011.hdr.sgml : 20000921 ACCESSION NUMBER: 0000835582-00-000011 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20000617 FILED AS OF DATE: 20000731 FILER: COMPANY DATA: COMPANY CONFORMED NAME: HOMELAND HOLDING CORP CENTRAL INDEX KEY: 0000835582 STANDARD INDUSTRIAL CLASSIFICATION: [5411 ] IRS NUMBER: 731311075 STATE OF INCORPORATION: DE FISCAL YEAR END: 1228 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-11555 FILM NUMBER: 682131 BUSINESS ADDRESS: STREET 1: 2601 N W EXPRESSWAY STREET 2: SUITE 1100E CITY: OKLAHOMA CITY STATE: OK ZIP: 73112 BUSINESS PHONE: 4058796600 MAIL ADDRESS: STREET 1: 2601 N W EXPRESSWAY STREET 2: SUITE 1100E CITY: OKLAHOMA CITY STATE: OK ZIP: 73112 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-Q 1 0001.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) Quarterly Report Under Section 13 or 15 (d) of the Securities Exchange Act of 1934 For the quarterly period ended June 17, 2000 OR Transition Report Pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934 For the transition period from _________ to _________ Commission file No.: 33-48862 HOMELAND HOLDING CORPORATION (Exact name of registrant as specified in its charter) Delaware 73-1311075 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 2601 Northwest Expressway Oil Center-East, Suite 1100 Oklahoma City, Oklahoma 73112 (Address of principal executive offices) (Zip Code) (405) 879-6600 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ___ Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15 (d) of the Securities Exchange Act of 1934 subsequent to the distribution under a plan confirmed by a court. Yes X No ___ Indicate the number of shares outstanding of each of the registrant's classes of common stock as of August 1, 2000: Homeland Holding Corporation Common Stock: 4,924,529 shares HOMELAND HOLDING CORPORATION FORM 10-Q FOR THE TWELVE WEEKS ENDED JUNE 17, 2000 INDEX Page PART I FINANCIAL INFORMATION ITEM 1. Financial Statements.......................................... 1 Consolidated Balance Sheets June 17, 2000, and January 1, 2000........................... 1 Consolidated Statements of Operations Twelve Weeks and Twenty-four Weeks ended June 17, 2000, and June 19, 1999............................ 3 Consolidated Statements of Cash Flows Twelve Weeks and Twenty-four Weeks ended June 17, 2000, and June 19, 1999............................ 4 Notes to Consolidated Financial Statements.................... 6 ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.................................... 7 PART II OTHER INFORMATION ITEM 4. Submission of Matters to a Vote of Security Holders........... 16 ITEM 6. Exhibits and Reports on Form 8-K.............................. 17 i PART 1 - FINANCIAL INFORMATION Item 1. Financial Statements HOMELAND HOLDING CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In thousands, except share and per share amounts) ASSETS (Unaudited) June 17, January 1, 2000 2000 Current assets: Cash and cash equivalents $ 7,568 $ 6,136 Receivables, net of allowance for uncollectible accounts of $738 and $1,361 10,054 11,353 Inventories 55,214 52,663 Prepaid expenses and other current assets 2,025 2,176 Total current assets 74,861 72,328 Property, plant and equipment: Land and land improvements 8,820 9,046 Buildings 21,659 21,962 Fixtures and equipment 40,849 36,818 Leasehold improvements 21,554 20,446 Software 7,519 7,181 Leased assets under capital leases 8,737 8,737 Construction in progress 125 19 109,263 104,209 Less, accumulated depreciation and amortization 35,491 30,728 Net property, plant and equipment 73,772 73,481 Other assets and deferred charges 26,361 22,045 Total assets $ 174,994 $ 167,854 Continued The accompanying notes are an integral part of these consolidated financial statements. 1 HOMELAND HOLDING CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS, Continued (In thousands, except share and per share amounts) LIABILITIES AND STOCKHOLDERS' EQUITY (Unaudited) June 17, January 1, 2000 2000 Current liabilities: Accounts payable - trade $ 20,792 $ 22,968 Salaries and wages 2,058 3,168 Taxes 4,423 3,616 Accrued interest payable 2,500 2,671 Other current liabilities 8,135 6,992 Current portion of long-term debt 3,048 2,918 Current portion of obligations under capital leases 501 501 Total current liabilities 41,457 42,834 Long-term obligations: Long-term debt 101,290 94,668 Obligations under capital leases 950 1,197 Other noncurrent liabilities 3,196 1,501 Total long-term obligations 105,436 97,366 Stockholders' equity: Common stock $0.01 par value, authorized - 7,500,000 shares, issued 4,923,446 shares and 4,917,860 shares at June 17, 2000, and January 1, 2000, respectively 49 49 Additional paid-in capital 56,254 56,254 Accumulated deficit (28,202) (28,649) Total stockholders' equity 28,101 27,654 Total liabilities and stockholders' equity $ 174,994 $ 167,854 The accompanying notes are an integral part of these consolidated financial statements. 2 HOMELAND HOLDING CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF OPERATIONS (In thousands, except share and per share amounts) 12 weeks ended 24 weeks ended June 17, June 19, June 17, June 19, 2000 1999 2000 1999 Sales, net $ 142,620 $ 127,276 $ 279,227 $ 250,944 Cost of sales 109,672 97,049 214,271 191,792 Gross profit 32,948 30,227 64,956 59,152 Selling and administrative expenses 30,556 27,468 59,753 53,535 Amortization of excess reorganization value - 2,539 - 5,178 Operating profit 2,392 220 5,203 439 Gain (loss) on disposal of assets (56) 10 (29) 14 Interest income 172 130 344 259 Interest expense (2,455) (2,013) (4,797) (4,013) Income (loss) before income taxes 53 (1,653) 721 (3,301) Income tax provision (20) (334) (274) (709) Net income (loss) $ 33 $ (1,987) $ 447 $ (4,010) Net income (loss) per share: Basic $ 0.01 $ (0.40) $ 0.09 $ (0.82) Diluted $ 0.01 $ (0.40) $ 0.09 $ (0.82) Weighted average shares outstanding: Basic 4,922,163 4,910,459 4,920,760 4,908,481 Diluted 4,964,288 4,910,459 4,963,231 4,908,481 The accompanying notes are an integral part of these consolidated financial statements. 3 HOMELAND HOLDING CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS (In thousands, except share and per share amounts) (Unaudited) 12 weeks ended 24 weeks ended June 17, June 19, June 17, June 19, 2000 1999 2000 1999 Cash flows from operating activities: Net income (loss) $ 33 $ (1,987) $ 447 $ (4,010) Adjustments to reconcile net loss to net cash from operating activities: Depreciation and amortization 2,547 2,381 5,068 4,665 Amortization of beneficial interest in operating leases 28 28 56 56 Amortization of excess reorganization value - 2,539 - 5,178 Amortization of goodwill 192 42 318 42 Amortization of financing costs 14 11 27 23 Loss (gain) on disposal of assets 56 (10) 29 (14) Deferred income taxes (10) 333 214 702 Change in assets and liabilities: (Increase) decrease in receivables (2,568) (1,857) 1,299 1,076 Decrease in inventories 837 330 1,037 267 (Increase) decrease in prepaid expenses and other current assets 987 99 267 (807) Increase in other assets and deferred charges (179) (18) (221) (13) Increase (decrease) in accounts payable - trade (563) 1,297 (2,176) (1,474) Increase (decrease) in salaries and wages 339 180 (1,110) (686) Increase in taxes 676 791 864 776 Increase (decrease) in accrued interest payable 1,369 1,367 (171) (132) Increase (decrease) in other current liabilities 617 540 642 (1,454) Decrease in other noncurrent liabilities (278) (142) (748) (226) Total adjustments 4,064 7,911 5,395 7,979 Net cash provided by operating activities 4,097 5,924 5,842 3,969 Cash flows from investing activities: Capital expenditures (564) (2,233) (1,563) (3,095) Acquisition of stores (3,518) (1,315) (3,663) (1,315) Cash received from sale of assets 47 7 473 17 Net cash used in investing activities (4,035) (3,541) (4,753) (4,393) Cash flows from financing activities: Borrowings under term loan 5,000 - 5,000 - Payments under term loan (417) (417) (829) (417) Borrowings under revolving credit loans 32,836 33,958 77,916 63,113 Payments under revolving credit loans (33,787) (31,438) (77,881) (61,341) Payment on tax notes (12) (15) (24) (31) Proceeds from issuance of common stock - 21 - 31 Principal payments under notes payable (534) (2,189) (3,592) (2,189) Principal payments under capital lease obligations (109) (256) (247) (518) Net cash provided by (used in) financing activities 2,977 (336) 343 (1,352) Net increase (decrease) in cash and cash equivalents 3,309 2,047 1,432 (1,776) Cash and cash equivalents at beginning of period 4,529 4,033 6,136 7,856 Cash and cash equivalents at end of period $ 7,568 $ 6,080 $ 7,568 $ 6,080 Continued The accompanying notes are an integral part of these consolidated financial statements. 4 HOMELAND HOLDING CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS, continued (In thousands, except share and per share amounts) (Unaudited) 12 weeks ended 24 weeks ended June 17, June 19, June 17, June 19, 2000 1999 2000 1999 Supplemental information: Cash paid during the period for interest $ 979 $ 651 $ 4,655 $ 4,124 Cash paid during the period for income taxes $ - $ - $ 30 $ - Supplemental schedule of noncash investing and financing activities: Debt assumed in acquisition of stores $ - $ 6,752 $ 6,162 $ 6,752 The accompanying notes are an integral part of these consolidated financial statements. 5 HOMELAND HOLDING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 1. Basis of Preparation of Consolidated Financial Statements: The accompanying unaudited interim consolidated financial statements of Homeland Holding Corporation ("Holding"), through its wholly-owned subsidiary, Homeland Stores, Inc. ("Homeland") and Homeland's wholly-owned subsidiary, JCH Beverage, Inc. ("JCH") and JCH's wholly-owned subsidiary, SLB Marketing, Inc., (collectively referred to herein as the "Company"), reflect all adjustments, which consist only of normal and recurring adjustments, which are, in the opinion of management, necessary for a fair presentation of 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 period ended January 1, 2000, and the notes thereto. 2. Accounting Policies: The significant accounting policies of the Company are summarized in the consolidated financial statements of the Company for the 52 weeks ended January 1, 2000, and the notes thereto. 3. Reserves for Doubtful Accounts: In the fourth quarter of 1999, the Company increased its reserves for doubtful accounts by approximately $0.6 million related to the uncertainty of collection of a receivable from a vendor. This receivable was subsequently collected during the twelve weeks ended June 17, 2000, resulting in the reduction of the related reserves for doubtful accounts and a reduction in selling and administrative expenses during the quarter. 4. Store Acquisitions: In February 2000, the Company completed its acquisition of three stores from Belton Food Center Inc. ("BFC"), in Oklahoma City. The net purchase price was $0.2 million which represents $4.2 million for fixtures and equipment, leasehold improvements and goodwill, plus $2.0 million for inventory and $0.2 million for transaction costs, offset by $6.2 million of long-term debt, which relates to BFC's obligation to Associated Wholesale Grocers, Inc. ("AWG") assumed by the Company. The Company will lease all three of the stores from AWG. The Company financed this acquisition principally through the assumption of $6.2 million in long-term debt, together with increased borrowings under its Revolving Facility. 6 The debt incurred by the Company to AWG is secured by liens on, and security interest in, the assets associated with the three stores. Subsequent to the closing of the acquisition, the Company repaid a portion of its indebtedness to AWG, which related to inventory, and, therefore, AWG released its security interest in the inventory. The Company has subsequently closed one of the stores due to the proximity to other Company stores and has established a reserve, which approximates $1.3 million for future rent payments and other holding costs. On April 25, 2000, the Company completed its acquisition of three Baker's Supermarkets from Fleming Companies Inc. ("Fleming"). The purchase price was approximately $3.5 million, which represents $1.7 million for fixtures and equipment, leasehold improvements, goodwill and a non-compete agreement, $1.6 million for inventory, and approximately $0.2 million in transaction costs. In conjunction with the transaction, the Company also recorded $1.6 million of identified intangibles and $1.6 million in liabilities related to an unfavorable contract. The Company will sublease the three stores from Fleming. A fourth location will be leased upon the completion of its construction, which is anticipated during fiscal year 2000. The Company financed this acquisition principally through increased borrowings under its working capital facility. Item 2. Management's Discussion and Analysis of Financial Conditions and Results of Operations General The table below sets forth selected items from the Company's consolidated income statement as a percentage of net sales for the periods indicated: 12 weeks ended 24 weeks ended June 17, June 19, June 17, June 19, 2000 1999 2000 1999 Net Sales 100.0% 100.0% 100.0% 100.0% Cost of sales 76.9 76.2 76.7 76.4 Gross Profit 23.1 23.8 23.3 23.6 Selling and administrative expenses 21.4 21.6 21.4 21.3 Amortization of excess reorganization value - 2.0 - 2.1 Operating profit 1.7 0.2 1.9 0.2 Gain (loss) on disposal of assets (0.1) - - - Interest income 0.1 0.1 0.1 0.1 Interest expense (1.7) (1.6) (1.7) (1.6) Income (loss) before income taxes - (1.3) 0.3 (1.3) Income tax provision - 0.3 0.1 0.3 Net income (loss) - (1.6) 0.2 (1.6) 7 Results of Operations. Comparison of the Twelve Weeks Ended June 17, 2000 with the Twelve Weeks Ended June 19, 1999 Net sales increased $15.3 million, or 12.0%, from $127.3 million for the twelve weeks ended June 19, 1999, to $142.6 million for the twelve weeks ended June 17, 2000. The increase in sales is attributable to the acquisition of four stores in November 1999, the acquisition of three stores in February 2000, and the acquisition of three stores in April 2000, partially offset by a 2.7% decline in comparable store sales and the closing of one store in 1999. The decrease in comparable store sales is primarily attributable to competitive openings during fiscal year 2000, and a labor dispute at AWG, the Company's primary supplier of merchandise. Since the beginning of Fiscal 2000, there have been six new competitive openings within the Company's markets including: three Wal-Mart Neighborhood Markets in Oklahoma City, two Wal-Mart Supercenters in Oklahoma City and one United Supermarket in Amarillo, Texas. Based on information publicly available, the Company expects that, during the remainder of 2000, Wal-Mart will open a total of three Supercenters and four Neighborhood Markets; and regional chains and independents will open one additional store. AWG's labor dispute involved warehousing and transportation employees and impacted the Company's sales through informational leaflets dissuading customers from patronizing Company stores, through inaccurate store order fulfillment, and late deliveries. The labor dispute, which began April 1, 2000 was resolved in mid-June. Based in part on the anticipated impact of proposed and recent new store openings and remodelings by competitors, management believes that market conditions will remain highly competitive, placing continued pressure on comparable store sales and net sales. As a result of these highly competitive conditions, management believes that comparable store sales will decline approximately 2.5% during the third quarter of 2000. In response to this highly competitive environment, the Company intends to build on its strengths which consist of: (a) high quality perishable departments; (b) market position and competitive pricing; (c) customer service; (d) excellent locations; and (e) the "Homeland Savings Card," a customer loyalty card program. The Company is upgrading its stores by focusing its capital expenditures on projects that will improve the overall appeal of its stores to targeted customers and is using its merchandising strategy to emphasize a competitive pricing structure, as well as leadership in quality products and services, selection and convenient store locations. Additionally, the in-store merchandising strategy combines a strong presentation of fresh products along with meaningful values throughout the store on a wide variety of fresh and shelf stable products each week. The Company's main vehicle of value delivery is its Homeland Savings Card, which allows customers with the card the opportunity to purchase over 2,000 items at a 8 reduced cost each week. Finally, the Company continues the use of market research in order to maintain a better understanding of customer behavior and trends in certain markets. Gross profit as a percentage of sales decreased 0.7% from 23.8% for the twelve weeks ended June 19, 1999, to 23.1% for the twelve weeks ended June 17, 2000. The decrease in gross profit margin reflects a reduction in the anticipated AWG annual patronage rebate due to the labor dispute; the impact of specific promotional activities as the Company responded to certain new competitive store openings and special advertisements for the grand openings of the Company's acquired stores; and the impact of increased cost of goods for pharmaceutical products. Selling and administrative expenses as a percentage of sales decreased 0.2% from 21.6% for the twelve weeks ended June 19, 1999, to 21.4% for the twelve weeks ended June 17, 2000. The decrease in operating expenses as a percentage of sales is attributable to a reduction in the reserves for doubtful accounts (see Note 3 of Notes to Consolidated Financial Statements (Unaudited) and a reduction in general liability reserves due to improved claims experience, partially offset by increased occupancy costs associated with the acquired stores, increased depreciation costs attributable to the Company's capital expenditure program for store remodels and maintenance and modernization, and start-up expenses related to the Company's April 2000 acquisition. The Company continues to review the alternatives to reduce selling and administrative expenses and cost of sales. The amortization of the excess reorganization value amounted to $2.5 million for the twelve weeks ended June 19, 1999. The excess reorganization value was amortized over three years, on a straight-line basis, and became fully amortized in the third quarter of 1999. Operating profit increased $2.2 million from $0.2 million for the twelve weeks ended June 19, 1999, to $2.4 million for the twelve weeks ended June 17, 2000. The increase primarily reflects the elimination of the amortization of the excess reorganization value. Interest expense, net of interest income, increased $0.4 million from $1.9 million for the twelve weeks ended June 19, 1999, to $2.3 million for the twelve weeks ended June 17, 2000. The increase reflects additional interest expense attributable to the acquired stores and increases in variable interest rates, partially offset by additional interest income from the interest bearing certificates of AWG. During 2000, the Company anticipates that interest expense will increase due to increased debt and additional increases in variable interest rates. See "Liquidity and Capital Resources." The Company recorded $20,000 of income tax expense for the twelve weeks ended June 17, 2000, substantially all of which is deferred income tax. 9 In accordance with SOP 90-7, the tax benefit realized from utilizing the pre- reorganization net operating loss carryforwards is recorded as a reduction of the reorganization value in excess of amounts allocable to identifiable assets rather than realized as a benefit on the statement of operations. Additionally, upon the completion of the amortization of reorganization value in excess of amounts allocable to identifiable assets, the tax benefit realized from utilizing the pre-reorganization net operating loss carryforwards is recorded as a reduction of other intangibles existing at the reorganization date until reduced to zero and then as an increase to stockholder's equity. Due to the uncertainty of realizing future tax benefits, a full valuation allowance has been deemed necessary to entirely offset the net deferred tax assets. At January 1, 2000, the Company had a tax net operating loss carryforward of approximately $29.5 million, which may be utilized to offset future taxable income to the limited amount of $5.7 million for 2000 and $3.3 million each year thereafter. If the Company's current trend toward profitability continues, then net deferred tax assets of approximately $16.0 million could be recognized. Net income increased $2.0 million from a net loss of $2.0 million, or net loss per diluted share of $0.40, for the twelve weeks ended June 19, 1999 to net income of $33,000, or net income per diluted share of $0.01, for the twelve weeks ended June 17, 2000. Excluding the amortization of reorganization value during the twelve weeks ended June 19, 1999, net income decreased $0.6 million from a net income of $0.6 million, or net income per diluted share of $0.11, for the twelve weeks ended June 19, 1999 to net income of $33,000, or net income per diluted share of $0.01, for the twelve weeks ended June 17, 2000. EBITDA (as defined hereinafter) was $5.2 million, or 4.1% of sales, for the twelve weeks ended June 19, 1999 and was $5.2 million, or 3.6% of sales for the twelve weeks ended June 17, 2000. The Company believes that EBITDA is a useful supplemental disclosure for the investment community. EBITDA, however, should not be construed as a substitute for earnings or cash flow information required under generally accepted accounting principles. Comparison of the 24 Weeks Ended June 17, 2000 with the 24 Weeks Ended June 19, 1999 Net sales increased $28.3 million, or 11.3%, from $250.9 million for the 24 weeks ended June 19, 1999, to $279.2 million for the 24 weeks ended June 17, 2000. The increase in sales is attributable to the acquisition of nine stores in April 1999, the acquisition of four stores in November 1999, the acquisition of three stores in February 2000, and the acquisition of three stores in April 2000, partially offset by a 2.7% decline in comparable store sales and the closing of one store in 1999. The decrease in comparable store sales is the result of competitive openings during fiscal year 2000, the advancement of purchases by customers into the final week of 1999 due to uncertainty with the year 2000 year-end transition, the labor dispute at AWG, the cycling of strong promotions in the first quarter of 1999, and the mild winter weather in the Company's trade areas. 10 Gross profit as a percentage of sales decreased 0.3% from 23.6% for the 24 weeks ended June 19, 1999, to 23.3% for the 24 weeks ended June 17, 2000. Gross profit margin reflects the impact of specific promotional activities as the Company responded to certain new competitive store openings and special advertisements for the grand openings of the Company's acquired stores; the impact of a reduction in the anticipated AWG annual patronage rebate due to the labor dispute; and the impact of increased cost of goods for pharmaceutical products. Selling and administrative expenses as a percentage of sales increased 0.1% from 21.3% for the 24 weeks ended June 19, 1999, to 21.4% for the 24 weeks ended June 17, 2000. The increase in operating expenses as a percentage of sales is attributable to increased occupancy costs associated with the acquired stores, increased depreciation costs attributable to the Company's capital expenditure program for store remodels and maintenance and modernization, and start-up expenses related to the Company's February and April 2000 acquisitions, partially offset by a reduction in the reserves for doubtful accounts and a reduction in general liability reserves due to improved claims experience. The amortization of the excess reorganization value amounted to $5.2 million for the 24 weeks ended June 19, 1999. The excess reorganization value was amortized over three years, on a straight-line basis, and became fully amortized in the third quarter of 1999. Operating profit increased $4.8 million from $0.4 million for the 24 weeks ended June 19, 1999, to $5.2 million for the 24 weeks ended June 17, 2000. The increase primarily reflects the elimination of the amortization of the excess reorganization value. Interest expense, net of interest income, increased $0.7 million from $3.8 million for the 24 weeks ended June 19, 1999, to $4.5 million for the 24 weeks ended June 17, 2000. The increase reflects additional interest expense attributable to the acquired stores and increases in variable interest rates, partially offset by additional interest income from the interest bearing certificates of AWG. See "Liquidity and Capital Resources." The Company recorded $0.3 million of income tax expense for the 24 weeks ended June 17, 2000 substantially all of which is deferred income tax. Net income increased $4.4 million from a net loss of $4.0 million, or net loss per diluted share of $0.82, for the 24 weeks ended June 19, 1999 to net income of $0.4 million, or net income per diluted share of $0.09, for the 24 weeks ended June 17, 2000. Excluding the amortization of reorganization value during the 24 weeks ended June 19, 1999, net income decreased $0.8 million from a net income of $1.2 million, or net income per diluted share of $0.24, for the 24 weeks ended June 19, 1999 to net income of $0.4 million, or net income per diluted share of $0.09, for the 24 weeks ended June 17, 2000. EBITDA (as defined hereinafter) increased $0.2 million from $10.4 11 million, or 4.1% of sales, for the 24 weeks ended June 19, 1999 to $10.6 million, or 3.8% of sales for the 24 weeks ended June 17, 2000. 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. On December 17, 1998, the Company entered into a Loan Agreement with NBC, as agent and lender, and two other lenders, Heller Financial, Inc. and IBJ Whitehall Business Credit, Inc., under which these lenders provide a working capital and letter of credit facility ("Revolving Facility"), a term loan ("Term Loan") and, prior to its termination in April, 2000, an acquisition term loan ("Acquisition Term Loan") through August 2, 2002. The Loan Agreement, as amended, permits the Company to borrow under the Revolving Facility up to the lesser of (a) $37.0 million or (b) the applicable borrowing base. Funds borrowed under the Revolving Facility are available for general corporate purposes of the Company. The Term Loan, which had an outstanding balance as of June 17, 2000, of $10.0 million, represents the balance of $5.0 borrowed under the prior loan agreement to finance costs and expenses associated with the consummation of the restructuring of the Company under its bankruptcy reorganization proceedings in August, 1996, plus $5.0 million borrowed in connection with the termination of the Acquisition Term Loan, permitting a corresponding reduction in the Revolving Facility, in April 2000. The Company is required to make quarterly principal paydowns of approximately $0.6 million. The interest rate payable quarterly under the Loan Agreement is based on the prime rate publicly announced by National Bank of Canada from time to time in New York, New York plus a percentage which varies based on a number of factors, including: (a) whether it is the Revolving Facility or the Term Loan; (b) the time period; and (c) whether the Company elects to use a London Interbank Offered Rate. The obligations of the Company under the Loan Agreement are secured by liens on, and security interests in, substantially all of the assets of Homeland and are guaranteed by Holding, with a pledge of its Homeland stock to secure its obligation. The Loan Agreement includes certain customary restrictions on acquisitions, asset dispositions, capital expenditures, consolidations and mergers, distributions, divestitures, indebtedness, liens and security interests and transactions with affiliates and payment of dividends. The Loan Agreement also requires the Company to comply with certain financial and other covenants. 12 As of August 2, 1996, the Company entered into an Indenture with Fleet National Bank (predecessor to State Bank and Trust Company), as trustee, under which the Company issued $60.0 million of 10% Senior Subordinated Notes due 2003 ("New Notes"). The New Notes, which are unsecured, will mature on August 2, 2003. Interest on the New Notes accrues at the rate of 10% per annum and is payable on February 2 and August 2 of each year. The Indenture contains certain customary restrictions on acquisitions, asset sales, consolidations and mergers, distributions, indebtedness, transactions with affiliates and payment of dividends. Working Capital and Capital Expenditures. The Company's primary sources of capital have been borrowing availability under the Revolving Facility and cash flow from operations, to the extent available. The Company uses the available capital resources for working capital needs, capital expenditures and repayment of debt obligations. The Company's EBITDA (earnings before net interest expense, taxes, depreciation and amortization, asset impairment, and gain/loss on disposal of assets), as presented below, is the Company's measurement of internally- generated operating cash for working capital needs, capital expenditures and payment of debt obligations: 12 weeks ended 24 weeks ended June 17, June 19, June 17, June 19, 2000 1999 2000 1999 Income (loss) before income taxes $ 53 $ (1,653) $ 721 $ (3,301) Interest income (172) (130) (344) (259) Interest expense 2,455 2,013 4,797 4,013 (Gain) loss on disposal of assets 56 (10) 29 (14) Amortization of excess reorganization value - 2,539 - 5,178 Depreciation and amortization 2,767 2,451 5,442 4,763 EBITDA $ 5,159 $ 5,210 $ 10,645 $ 10,380 As a percentage of sales 3.62% 4.09% 3.81% 4.14% As a multiple of interest expense, net of interest income 2.26x 2.77x 2.39x 2.77x 13 Net cash provided by operating activities increased $1.8 million, from $4.0 million in 1999 to $5.8 million in 2000. The increase principally reflects a reductions in current assets and an increase in EBITDA, partially offset by reductions in certain current liabilities. Net cash used in investing activities increased $0.4 million, from $4.4 million in 1999 to $4.8 million in 2000. The Company invested $9.0 million and $12.4 million in capital expenditures for 1999 and 1998, respectively. In April 1999, the Company completed its acquisition of nine stores from AWG, in eastern Oklahoma. The net purchase price was $1.3 million which represents $5.6 million for real property, fixtures and equipment and goodwill plus $2.3 million for inventory and $0.2 million for transaction costs, offset by $6.8 million in long-term debt assumed by the Company. The Company acquired title to one store and leases the remaining eight from AWG. The one store to which Homeland acquired title in Pryor, Oklahoma, was closed (and subsequently sold to a non-grocery user) as a result of the proximity to an existing Company store. The Company financed this acquisition principally through the assumption of $6.8 million in long-term debt, together with increased borrowings under its Revolving Facility. The debt incurred by the Company to AWG is secured by liens on, and security interest in, the assets associated with the nine stores. Subsequent to the closing of the acquisition, the Company repaid a portion of its indebtedness to AWG which related to inventory and the Pryor store which was sold. Therefore, AWG released its security interest in the assets relating to the Pryor store and the inventory. In November 1999, the Company completed its acquisition of four stores from Brattain Foods, Inc. ("BFI"), in Muskogee, Oklahoma. The net purchase price was $1.1 million which represents $6.0 million for fixtures and equipment and goodwill plus $1.9 million for inventory and $0.2 million for transaction costs, offset by $7.0 million of long-term debt (BFI's obligation to AWG) assumed by the Company. The Company leases three of the stores from AWG and leases the fourth from a third party. The Company financed this acquisition principally through the assumption of $7.0 million in long-term debt, together with increased borrowings under its Revolving Facility. The debt incurred by the Company to AWG is secured by liens on, and security interest in, the assets associated with the four stores. Subsequent to the closing of the acquisition, the Company repaid a portion of its indebtedness to AWG, which related to inventory and therefore, AWG released its security interest in the inventory. In February 2000, the Company completed its acquisition of three stores from BFC in Oklahoma City. The net purchase price was $0.2 million which represents $4.2 million for fixtures and equipment, leasehold improvements and goodwill, plus $2.0 million for inventory and $0.2 million for transaction costs, offset by $6.2 million of long-term debt (BFC's obligation to AWG) assumed by the Company. The Company leases all three of the stores from AWG. 14 The Company financed this acquisition principally through the assumption of $6.2 million in long-term debt, together with increased borrowings under its Revolving Facility. The debt incurred by the Company to AWG is secured by liens on, and security interest in, the assets associated with the three stores. Subsequent to the closing of the acquisition, the Company repaid a portion of its indebtedness to AWG, which related to inventory and therefore, AWG released its security interest in the inventory. In April 2000, the Company completed its acquisition of three Baker's Supermarkets from Fleming. The purchase price was approximately $3.5 million, which represents $1.7 million for fixtures and equipment, leasehold improvements, goodwill and a non-compete agreement, $1.6 million for inventory, and approximately $0.2 million in transaction costs. In conjunction with the transaction, the Company also recorded $1.6 million of identified intangibles and $1.6 million in liabilities related to an unfavorable contract. The Company will sublease the three stores from Fleming. A fourth location will be leased upon the completion of its construction, which is anticipated during fiscal year 2000. The Company financed this acquisition principally through increased borrowings under its working capital facility. As of June 17, 2000, the Company had an outstanding balance on the assumed obligations to AWG of $11.0 million. The loans have a seven year term with principal and interest payments scheduled each week, and have a variable interest rate equal to the prime rate plus 100 basis points. Under the various agreements with respect to the acquisitions, the individual markets where the stores are located are subject to non-compete, supply and right-of-first-refusal agreements with AWG. In addition to the other customary terms associated with a right-of-first refusal agreement, the right-of-first refusal agreement provides for the repurchase by AWG of the stores based upon the occurrence of certain exercise events. The exercise events include, among other events, a change in control of Homeland and a transfer of more than 20% of the ownership interest of Holding or Homeland. Net cash provided by financing activities increased $1.7 million, from net cash used by financing activities of $1.4 million in 1999, to net cash provided by financing activities of $0.3 million in 2000. The increase primarily reflects the borrowings under the Term Loan in connection with the termination of the Acquisition Term Loans, partially offset by lower net borrowings under the Revolving Facility and principal payments made to AWG under the various obligations assumed by the Company. The Company considers its capital expenditure program a critical and strategic part of the overall plan to support its market competitiveness. Cash capital expenditures for 2000 are expected to be at approximately $10.0 million. The Loan Agreement limits the Company's capital expenditures for 2000 to $13.0 million plus $2.6 million in carryover from the previous year. The estimated 2000 capital expenditures of $10.0 million is expected to be invested primarily in the equipment and leasehold improvements of the one store yet to be acquired from Fleming, and the remodeling and maintenance of selected stores. The funds for the capital expenditures are expected to be provided by internally-generated cash flows from operations and borrowings under the Loan Agreement. As of June 15 17, 2000, the Company had $23.2 million of borrowings, $30,000 of letters of credit outstanding and $11.0 million of availability under its Revolving Facility. The Company's ability to meet its working capital needs, meet its debt and interest obligations and meet its capital expenditure requirements is dependent on its future operating performance. There can be no assurance that future operating performance will provide positive net cash and, if the Company is not able to generate positive cash flow from its operations, management believes that this could have a material adverse effect on the Company's business. Information discussed herein includes statements that are forward- looking in nature, as defined in the Private Securities Litigation Reform Act. As with any forward-looking statements, these statements are subject to a number of factors and assumptions, including competitive activities, economic conditions in the market area and results of its future capital expenditures. In reviewing such information, it should be kept in mind that actual results may differ materially from those projected or suggested in such forward-looking statements. Inflation/Deflation Although the Company does not expect inflation or deflation to have a material impact in the future, there can be no assurance that the Company's business will not be affected by inflation or deflation in future periods. PART II - OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders The Company held its 2000 Annual Meeting of Stockholders on June 1, 2000. At such meeting, Robert E. (Gene) Burris, David B. Clark, Edward B. Krekeler, Jr., Laurie M. Shahon, John A. Shields, William B. Snow and David N. Weinstein were elected to serve on the Board of Directors for a one-year term, ending at the next annual meeting. In the matter of the election of directors, the votes cast were as follows: For Withhold Authority Robert E. (Gene) Burris 3,918,582 51,383 David B. Clark 3,948,205 21,760 Edward B. Krekeler, Jr. 3,700,867 269,098 Laurie M. Shahon 3,730,867 239,098 John A. Shields 3,946,546 23,419 William B. Snow 3,700,867 269,098 David N. Weinstein 3,735,867 234,098 16 In addition, an amendment to the Homeland Holding Corporation 1996 Stock Option Plan to increase the number of shares of Common Stock available for the issuance of stock options thereunder from 432,222 shares to 832,222 shares, 1,843,864 votes were cast in favor of approval, 389,407 votes were cast against, holders of 37,379 shares abstained or did not vote and there were 1,699,315 broker non-votes. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits: The following exhibit is filed as part of this report: Exhibit No. Description 10ae Computation of Diluted Earnings Per Share. 10af Sixth Amendment to Loan Agreement dated as of April 25, 2000, among IBJ Whitehall Business Credit Corporation, Heller Financial, Inc., and National Bank of Canada, Homeland and Holding. 10ag Letter Agreement and Promissory Note to David B. Clark regarding relocation expenses. 27 Financial Data Schedule. (b) Report on Form 8-K: The Company did not file any Form 8-K during the quarter ended June 17, 2000. 17 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. HOMELAND HOLDING CORPORATION Date: August 1, 2000 By: /s/ David B. Clark David B. Clark, President, Chief Executive Officer, and Director (Principal Executive Officer) Date: August 1, 2000 By: /s/ Wayne S. Peterson Wayne S. Peterson, Senior Vice President/ Finance, Chief Financial Officer and Secretary (Principal Financial Officer) EX-1 2 0002.txt SIXTH AMENDMENT TO LOAN AGREEMENT This SIXTH AMENDMENT TO LOAN AGREEMENT (this "Amendment") is made and entered into effective as of April ___, 2000 by and among the following parties: (a) HOMELAND STORES, INC. ("Borrower"), a Delaware corporation, (b) HOMELAND HOLDING CORPORATION ("Parent"), a Delaware corporation (Borrower and Parent are sometimes hereinafter referred to as the "Companies" and individually as a "Company"), (c) SLB MARKETING, INC. ("SLB"), a Texas corporation, as a Credit Party under the Loan Agreement, (d) JCH BEVERAGE, INC. ("JCH"), a Texas corporation, as a Credit Party under the Loan Agreement, (e) IBJ WHITEHALL BUSINESS CREDIT CORPORATION ("IBJ"), formerly IBJ Schroder Business Credit Corporation, the assignee of IBJ Schroder Bank & Trust Company, (f) HELLER FINANCIAL, INC. ("Heller"), (g) NATIONAL BANK OF CANADA ("NBC"), (such lenders and other financial institutions and their respective successors and assigns, individually, a "Lender" and collectively, the "Lenders"), and (h) NBC, as agent for Lenders (in such capacity, the "Agent"). RECITALS: A. Pursuant to that certain Loan Agreement, dated as of December 17, 1998, by and among Borrower, Parent, Lenders and Agent, as amended by the following: (1) First Amendment to Loan Agreement, dated as of April 23, 1999, by and among Borrower, Parent, Lenders and Agent, (2) Second Amendment to Loan Agreement, dated as of October 22, 1999, by and among Borrower, Parent, Lenders, Agent and SLB, (3) Third Amendment to Loan Agreement, dated as of November 2, 1999, by and among Borrower, Parent, Lenders and Agent, 1 (4) Fourth Amendment to Loan Agreement, dated as of November 19, 1999, by and among Borrower, Parent, Lenders, Agent, SLB and JCH, and (5) Fifth Amendment to Loan Agreement, dated as of February 29, 2000, by and among Borrower, Parent, Lenders, Agent, SLB and JCH (as the same may be amended, renewed, extended, restated or otherwise modified from time to time, the "Loan Agreement"), Lenders agreed to provide to Borrower a senior secured revolving credit and letter of credit facility, a senior secured term loan facility, and two secured acquisition term loan facilities. B. Borrower and Parent have requested that Agent and Lenders amend the Loan Agreement to: (1) reflect Borrower's acquisition (the "Baker Acquisition") of certain property and assets from Fleming Companies, Inc., an Oklahoma corporation ("Fleming"), pursuant to the terms of that certain Store Purchase Agreement (the "Store Purchase Agreement"), dated as of April 7, 2000, between Borrower and Fleming; (2) advance an additional $5,000,000 under the Term Loan and increase the present outstanding principal balance of the Term Notes by $5,000,000; and (3) terminate the Acquisition Term Loan Facility. C. Borrower and Parent have requested that Agent and Lenders, pursuant to the terms of the Loan Agreement, consent to: (1) the assumption by Borrower of certain Indebtedness as contemplated in that certain Assignment and Assumption of Assumed Liabilities and Operating Contracts (the "Assumption Agreements"), dated as of April __, 2000, between Borrower and Fleming and that certain Assignment and Assumption Agreement, dated as of April __, 2000, between Borrower and Fleming and that certain Assignment, dated as of April __, 2000, between Borrower and Fleming; and (2) the acquisition by Borrower of a portion of the assets of Fleming under the terms of the Store Purchase Agreement. 2 AGREEMENTS: NOW, THEREFORE, in consideration of the mutual covenants and agreements contained herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows: 1. Terms Defined. Unless otherwise defined in this Amendment, each capitalized term used in this Amendment has the meaning given to such term in the Loan Agreement (as amended by this Amendment). 2. Amendment to Supply Agreement. Section 1.1 of the Loan Agreement is hereby amended by amending the following definition contained therein to read in its entirety as follows: "Supply Agreement" shall mean (i) the Supply Agreement, dated as of April 21, 1995, by and between AWG and Borrower, as amended by that certain First Amendment to Supply Agreement, dated effective as of August 2, 1996, by and between AWG and Borrower, and that certain Second Amendment to Supply Agreement dated August 12, 1997, by and between AWG and Borrower and that certain Third Amendment to Supply Agreement dated April __, 2000, by and between AWG and Borrower, (ii) the Supply Agreement, dated as of April 23, 1999, by and between AWG and Borrower, (iii) the Supply Agreement, dated as of November 2, 1999, by and between AWG and Borrower, (iv) the Supply Agreement, dated as of February 29, 2000, by and between AWG and Borrower. 3. Amendment to Term Loan Facility Commitment. The definition of Term Loan Facility Commitment in Section 1.1 of the Loan Agreement is hereby amended to read in its entirety as follows: "Term Loan Facility Commitment" shall mean Ten Million Four Thousand Six Hundred Forty and 17/100 Dollars ($10,004,640.17). 4. Amendment to Acquisition Term Loan A Facility Commitment. Section 1.1 of the Loan Agreement is hereby amended by amending the following definition contained therein to read in its entirety as follows: "Acquisition Term Loan A Facility Commitment" shall mean Zero Dollars ($0). 5. Amortization of Term Loan. Section 3.5 of the Loan Agreement, which provides for the amortization of the Term Loan, is hereby amended to add the following terms, as follows: Notwithstanding the foregoing, and effective as of the Sixth Amendment to Loan Agreement, principal payments, each in the amount of Five Hundred Ninety-Five Thousand Two Hundred Thirty-Eight and 10/100 Dollars ($595,238.10), shall be paid on the last day of March, June, September, and December of each calendar year, commencing June 30, 2000. 3 6. Amendment to Schedules. The Loan Agreement is hereby amended as follows: (a) Lenders and Commitments. Schedule 1.1(A) to the Loan Agreement is hereby amended by replacing the existing Schedule 1.1(A) in its entirety with Schedule 1.1(A) attached hereto. (b) Real Property. Schedule 15.5(a) to the Loan Agreement is hereby amended by supplementing the existing Schedule 15.5(a) with Schedule 15.5 (a) attached hereto. (c) Environmental Information. Schedule 15.15 to the Loan Agreement is hereby amended by supplementing the existing Schedule 15.15 with Schedule 15.15 attached hereto. (d) Medicare/Medicaid and Third Party Payor Agreements. Schedule 15.16 to the Loan Agreement is hereby amended by supplementing the existing Schedule 15.16 with Schedule 15.16 attached hereto. 7. Consent. Subject to satisfaction of and compliance with all terms and conditions set forth in this Amendment and in the Loan Agreement, Agent and Lenders consent to: (a) the assumption by Borrower of certain Liens and Indebtedness, in accordance with the terms and conditions of the Assumption Agreements; and (b) the acquisition by Borrower of a substantial portion of the assets of Fleming, in accordance with the terms and conditions of the Store Purchase Agreement (to the extent that the acquired assets constitute a substantial portion of the assets of Fleming). 8. Conditions Precedent. The effectiveness of this Amendment is expressly conditioned upon the satisfaction of the following conditions precedent: (a) Agent shall have received all of the following, each dated (unless otherwise indicated) the date of this Amendment, in form and substance satisfactory to Agent: (i) Amendment Documents. This Amendment and any other instrument (including, document or certificate required by Agent to be executed or delivered by Borrower, Parent or any other party in connection with this Amendment or any consent granted herein, duly executed by the parties thereto (collectively, the "Amendment Documents"). (ii) Security Documents and Instruments. All the instruments and documents then required to be delivered pursuant to Section 8 of the 4 Loan Agreement or any other provision of the Loan Agreement or pursuant to the instruments and documents referred to in Section 8 of the Loan Agreement with regard to the assets being acquired by Borrower in the Baker Acquisition; and the same shall be in full force and effect and shall grant, create or perfect the Liens, rights, powers, priorities, remedies and benefits contemplated herein or therein, as the case may be. (iii) Financial Covenants. A pro forma statement for each Company detailing the financial covenants listed in Section 12.16 of the Loan Agreement after giving effect to the Baker Acquisition, for the Fiscal Year ending December 30, 2000. (iv) Revised Budget for Fiscal Year 2000. A budget of the financial condition and results of operations of each Company after giving effect to the Baker Acquisition, for the Fiscal Year ending December 30, 2000. (v) Lease and Sublease Payments. A statement listing the current monthly rent payable by Borrower under each lease and sublease for real estate where Borrower sells its Inventory, including each sublease executed by Borrower in connection with the Baker Acquisition. (vi) Sublandlord's Waivers. A Sublandlord's Waiver duly executed by the landlords and sublandlords of each sublease executed by Borrower in connection with the Baker Acquisition. (vii) Legal Opinion. A legal opinion from Companies' counsel, Crowe & Dunlevy, a professional corporation, in form and substance satisfactory to Agent, dated as of the date of the Baker Acquisition, stating, among other things, that the assumption of debt, the borrowings and all transactions contemplated by the Baker Acquisition, will not violate any term of the Indenture. (viii) Certificate of No Default. A Certificate executed by each of the Companies, in form and substance satisfactory to Agent and dated as of the date of the Baker Acquisition, stating that no Default or Event of Default shall have occurred and be continuing after giving effect to the Baker Acquisition. (ix) Subordination Agreement. A Subordination Agreement, effective as of the date of this Amendment, in form and substance satisfactory to Agent in Agent's sole option, executed by Agent and Fleming. (x) Evidence of Insurance. Within fourteen (14) days of the date of this Amendment, evidence, in form, scope and substance and with such insurance carriers reasonably satisfactory to Agent, of all insurance policies required pursuant to Section 12.3(a) of the Loan Agreement with regard to the assets being acquired by Borrower in the Baker Acquisition. 5 (xi) Leasehold Mortgages. In accordance with Section 8.2 of the Loan Agreement, a Mortgage for each property leased or subleased by Borrower under the terms of the Baker Acquisition. (xii) Additional Information. Such additional documents, instruments and information as Agent or its legal counsel, Hughes & Luce, L.L.P., special counsel to Agent, and all local counsel to Agent, may reasonably request to effect the transactions contemplated hereby. (b) Fleming Documents. Agent and Lenders shall have had the opportunity to examine all documents between Borrower and Fleming relating to the Baker Acquisition and the related material contracts, properties, books of account, records, leases, contracts, insurance coverage and properties of each Company, and to perform such other due diligence regarding the Baker Acquisition and each Company as Agent or any Lender shall have requested, the results of all of which shall have been satisfactory to Agent and Lenders in all material respects. (c) Litigation. There shall be no pending or, to the knowledge of any Company, threatened litigation with respect to any Company or any of its Subsidiaries or (relating to the transactions contemplated herein) with respect to Agent or any of the Lenders, which challenges or relates to the financing arrangements to be provided to fund the Baker Acquisition or to the business, operations, liabilities, assets, properties, prospects or condition (financial or otherwise) of any Company or its Subsidiaries, which pending or threatened litigation could, in Agent's reasonable judgment, be expected to have a Material Adverse Effect. There shall exist no judgment, order, injunction or other similar restraint prohibiting any transaction contemplated hereby. (d) Compliance with Law. Agent shall be satisfied that each Company (i) has obtained all authorizations and approvals of any governmental authority or regulatory body required for the due execution, delivery and performance by such Company, of this Amendment and any document related to each of the Amendment Documents and the Baker Acquisition, to which it is or will be a party and for the perfection of or the exercise by Agent and each Lender of their respective rights and remedies under the Loan Documents, and (ii) shall be in compliance with, and shall have obtained appropriate approvals pertaining to, all applicable laws, rules, regulations and orders, including, without limitation, all governmental, environmental, ERISA and other requirements, regulations and laws, the violation or failure to obtain approvals for which could reasonably be expected to have a Material Adverse Effect. (e) No Market Disruption. There shall have occurred no disruption or adverse change in the financial or capital markets generally which Agent, in its reasonable discretion, deems material. (f) Landlord's Liens. None of the Collateral shall be subject to any contractual or statutory Lien or Liens in favor of any lessor under any 6 Lease, except (i) such Liens as Agent, in its sole discretion, shall deem not material, (ii) such Liens that are created under the terms of the subleases between Fleming and Borrower executed in connection with the Baker Acquisition, and (iii) such Liens that have been waived or subordinated to the Liens in favor of Agent and Lenders in a manner satisfactory to Agent, in its sole discretion. (g) Delivery of Documents. All corporate proceedings taken in connection with the transactions contemplated by this Amendment and all other agreements, documents and instruments executed and/or delivered pursuant hereto, and all legal matters incident thereto, shall be satisfactory to Agent and its legal counsel, Hughes & Luce, L.L.P. (h) No Default. No Default or Event of Default shall have occurred and be continuing after giving effect to the Baker Acquisition. 9. Amendment Fee. Borrower agrees to pay to Agent for the account of the Lenders, on or before the date of this Amendment and in addition to any other amount due hereunder, an amendment fee equal to the sum of Twelve Thousand Five Hundred and No/100 Dollars ($12,500.00). 10. Representations and Warranties. Each Company hereby represents and warrants to Agent and Lenders that, as of the date of and after giving effect to this Amendment, (a) the execution, delivery and performance of this Amendment has been authorized by all requisite corporate action on the part of each Company and will not violate the corporate charter or bylaws of any Company, (b) all representations and warranties set forth in the Loan Agreement and in any other Loan Documents are true and correct, in all material respects, as if made again on and as of such date (including, without limitation, the representations and warranties previously made as of the Closing Date in the Loan Agreement), (c) no Default or Event of Default has occurred and is continuing (after giving effect to Sections 2 through 4 of this Amendment), and (d) the Loan Agreement (as amended by this Amendment), the Notes (as the same may be amended and restated from time to time) and the other Loan Documents are and remain legal, valid, binding and enforceable obligations of each Company, as applicable. 11. Liens. Each of Borrower and Parent hereby covenants and agrees that Section 13.2 of the Loan Agreement (as amended by this Amendment), which prohibits each of Borrower and Parent from incurring Liens upon any of its property or assets, other than the Liens permitted in such Section 13.2, shall apply to each of the stores acquired by Borrower in the Baker Acquisition. 12. Amendment Documents as Loan Documents. The term Loan Documents as defined in the Loan Agreement and as used in any of the Loan Documents includes, without limitation, this Amendment and each of the other Amendment Documents executed in connection herewith. 13. Governing Law. THIS AMENDMENT AND THE OTHER LOAN DOCUMENTS SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO THE CONFLICT OF LAW PRINCIPLES THEREOF. 7 14. Counterparts. This Amendment may be executed in any number of counterparts, all of which when taken together shall constitute one agreement, and any of the parties hereto may execute this Amendment by signing any such counterpart. 15. No Oral Agreements. THIS AMENDMENT, TOGETHER WITH THE LOAN AGREEMENT AND THE OTHER LOAN DOCUMENTS AS WRITTEN, REPRESENT THE FINAL AGREEMENTS BETWEEN AND AMONG THE PARTIES HERETO AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN (A) BORROWER, OR PARENT, AND (B) AGENT OR ANY LENDER. 16. Loan Agreement Remains in Effect: No Waiver. Except as expressly provided herein, all terms and provisions of the Loan Agreement and the other Loan Documents shall remain unchanged and in full force and effect and are hereby ratified and confirmed. No waiver by Agent or any Lender of any Default or Event of Default shall be deemed to be a waiver of any other Default or Event of Default. No delay or omission by Agent or any Lender in exercising any power, right or remedy shall impair such power, right or remedy or be construed as a waiver thereof or an acquiescence therein, and no single or partial exercise of any such power, right or remedy shall preclude other or further exercise thereof or the exercise of any other power, right or remedy under the Loan Agreement, the Loan Documents or otherwise. 17. Ratification of Guaranties. Each of Parent and by their signature below SLB and JCH, reaffirms its respective obligations under its respective Guaranty, agrees that its respective Guaranty shall remain in full force and effect not withstanding execution of this Amendment and the Amendment Documents, and agrees that its respective Guaranty and the Loan Agreement shall continue to be legal, valid and binding obligations of such Guarantor, enforceable in accordance with the terms therein with regard to the Indebtedness. 18. Fees and Expenses. Borrower agrees to pay all expenses paid or incurred by Agent in connection with this Amendment and any related documents, including but not limited to recording fees, computer fees, duplication fees, telephone and telecopier fees, travel and transportation fees, search and filing fees, and the reasonable fees and expenses of Hughes & Luce, L.L.P., counsel to Agent and Lenders. 19. Survival of Representations and Warranties. All representations and warranties made in this Amendment or any other Amendment Document shall survive the execution and delivery of this Amendment and the other Amendment Documents, and no investigation by Lender or any closing shall affect the representations and warranties or the right of Lender to rely upon them. 8 20. Reference to Loan Agreement. Each of the Loan Documents, including the Loan Agreement, the Amendment Documents and any and all other agreements, documents or instruments now or hereafter executed and/or delivered pursuant to the terms hereof or pursuant to the terms of the Loan Agreement as amended hereby, are hereby amended so that any reference in such Loan Documents to the Loan Agreement shall mean a reference to the Loan Agreement as amended hereby. 21. Severability. Any provision of this Amendment held by a court of competent jurisdiction to be invalid or unenforceable shall not impair or invalidate the remainder of this Amendment and the effect thereof shall be confined to the provision so held to be invalid or unenforceable. 22. Successors and Assigns. This Amendment is binding upon and shall inure to the benefit of Agent, Lenders, Borrower, Parent, SLB and JCH and their respective successors and assigns, except Borrower, Parent, SLB and JCH may not assign or transfer any of their rights or obligations hereunder without the prior written consent of Lenders. 23. Headings. The headings, captions and arrangements used in this Amendment are for convenience only and shall not affect the interpretation of this Amendment. [Signature Page Follows] 9 IN WITNESS WHEREOF, Borrower, Parent, SLB, JCH, Agent and Lenders have caused this Amendment to be executed and delivered by their duly authorized officers effective as of the date first above written. BORROWER: HOMELAND STORES, INC. By: Wayne S. Peterson, Senior Vice President - Finance and Chief Financial Officer and Secretary PARENT: HOMELAND HOLDING CORPORATION By: Wayne S. Peterson, Senior Vice President - Finance and Chief Financial Officer and Secretary CREDIT PARTIES: SLB MARKETING, INC. By: Jack C. Hensley, President and Secretary JCH BEVERAGE, INC. By: Jack C. Hensley, President and Secretary 10 AGENT AND A LENDER: NATIONAL BANK OF CANADA By: Name: Title: By: ___________________________________ Name: Title: ADDITIONAL LENDERS: IBJ WHITEHALL BUSINESS CREDIT CORPORATION By: John C. Williams, Vice President HELLER FINANCIAL, INC. By: Thomas W. Bukowski, Senior Vice President 11
Schedule 1.1(A) LENDERS AND COMMITMENTS Revolving Term Acquisition Term Acquisition Term Total Lender Lenders: Commitment Commitment* Loan A Commitment Loan B Commitment Commitments* National Bank of Canada $14,800,000.00 $4,001,856.07 $0 $0 $18,801,856.07 125 West 55th New York, New York 10019 Heller Financial, Inc. $10,508,000.00 $2,841,317.81 $0 $0 $13,349,317.81 500 West Monroe Street Chicago, Illinois 60661 IBJ Whitehall Business $11,692,000.00 $3,161,466.29 $0 $0 $14,853,466.29 Credit Corporation One State Street New York, New York 10004 ______________ _____________ ____________ ____________ ______________ Total Facility Commitment $37,000,000.00 $10,004,640.17 $0 $0 $47,004,640.17 * Effective as of the Third Amendment to Loan Agreement.
Schedule 15.5(a) (Supplemental) REAL PROPERTY II. Leased Real Property Leased or Store # and Location Subleased Comments ___ 7001 Northwest Expressway Subleased None Oklahoma City, Oklahoma 73132 Oklahoma County ___ 2121 Northwest 23rd Subleased None Oklahoma City, Oklahoma 73107 Oklahoma County ___ 1202 N.W. 40th Street Subleased None Lawton, Oklahoma 73505 Comanche County ___ 104th & S. Pennsylvania Subleased None Oklahoma City, Oklahoma 73159 Cleveland County Schedule 15.15 (Supplemental) ENVIRONMENTAL INFORMATION Store No. ___ Updated Environmental Assessment - Trinman, Incorporated, February 1, 1999 ___ Environmental Site Assessment - Stanley Engineering, Inc., March 24, 2000 ___ Environmental Site Assessment - Stanley Engineering, Inc., March 24, 2000 ___ Environmental Site Assessment - Stanley Engineering, Inc., March 24, 2000 Schedule 15.16 (Supplemental) MEDICARE/MEDICAID AND THIRD PARTY PAYOR AGREEMENTS STORE PHONE# HOMELAND PHARMACIES MM/NABP ___ 7012 Northwest Expressway 371-9032 Oklahoma City, OK 73132 ___ 24 East 33rd 372-0148 Edmond, OK 73013 ___ 2213 S.W. 74th 371-9359 Oklahoma City, OK 73159 PROVIDER ADDRESS CITY ST ZIP EFFECTIVE DATE 1 Advanced BC BS Tex 2 Advance BC BS 3 Allied National 4 Alpha Scrip Incorporated 5 Alta RX 6 Provantage Amer Med Secur 7 Advance RX Mang. 8 Adv Ark 9 Alpha Scrips 10 Automated RX Net 11 Prud. PLU AT&T Manual 12 BC/BS of Alabama 13 BC California (Proserv) 14 Bravell 15 Lincsrx BC/BS of Ok 16 BC/BS Illinois - Proserv 17 BCBS Utica - Watertown 18 Beniscript All Plans 19 BCBS Maryland 20 BCBS of Nebraska 21 Cash Sales 22 Community Care HMO 23 Choice RX 24 Cigna RX Prima & HMO 25 Claimspro Preferred PROVIDER ADDRESS CITY ST ZIP EFFECTIVE DATE 26 Champus OK 27 Columbia Pharmacy 28 Complete RX Network 29 Complete Pharmacy Network 30 Caremark Inc. 31 AIA 32 CPS 33 Dun and Bradstreet 34 Diversified Pharm Service 35 DPS Healthcare Oklahoma 36 Darden Restaurants, Inc. 37 Employers Health Option 38 Eckerd Health Care 39 Executive RX Admin 40 Fireman's Worker's Comp 41 FHS IPS (Sooercare) Foundation 42 Foundation Health HMO 43 Foundation 44 BC/BS Generic 45 Gold Net (Pharmacy Gold) 46 Healthcomp 47 Healthcare Oklahoma 48 Health Care Delivery System 49 Heartland Health Plan 50 Healthsource RX 51 Systemized 52 IPS 53 Lincsrx BC/BS of OK 54 Mature RX 55 Mede America 56 Medimet-Met Life 57 Mutually Preferred 58 Managed Pharmacy Benefits 59 Managed Presc Network 60 Managed RX Service 61 Medical Security Card 62 Mutual Preferred Omaha 63 Northwestern National Life PROVIDER ADDRESS CITY ST ZIP EFFECTIVE DATE 64 National Prescription Adm 65 Nat'l Pharmaceutical Serv 66 Plan Plus 67 Blue Cross Plan 65 Plan H 68 RX Solutions 69 Allied Health Presc. Solut 70 Pacificare of OK 71 Paid GM Health Care Program 72 Paid Management Care Pharmacy 73 Paid Occidental Pet Corp 74 Paid Samba RX Plan 75 PAI Pharmacy Assoc., Inc. 76 PCN 77 Prescription Card Services 78 PCS Managed Care Program 79 PCS Recap Network Plans 80 PCS MCP Fed Government Emp 81 PCS Recap Network Plans 82 Pharmacy Direct Network 83 Prescription D Service 84 Pod GM Strike 85 BC/BS Perform Cost Management 86 Perform Okla Farm Bureau 87 Pharmacare 88 PHS Caremark 89 Physicians, Inc. 90 Provider Medical Pharmacies 91 PPO-Argus 92 PPO Oklahoma 93 Polling 94 AT&T Claims 95 RX Providers of OK Send DEA 96 PPSI 97 Prescript (Stockton Group) 98 Prucare OKC Pru Plus & Ne - HMO EX-2 3 0003.txt Homeland Stores, Inc. P.O. Box 25008 Oklahoma City, Oklahoma 73125 June 1, 2000 Mr. David B. Clark President and Chief Executive Officer Homeland Stores, Inc. P. O. Box 25008 Oklahoma City, Oklahoma 73125 Dear Dave: With respect to the loss you incurred on the sale of your residence in Birmingham, Alabama after your relocation to Oklahoma to join Homeland Stores, Inc. (the "Company") as President and Chief Executive Officer, the Company has agreed to loan you the sum of $90,000.00. The loan will be evidenced by a promissory note, in the form of Exhibit A attached hereto. You agree to apply the proceeds of the loan to purchase no less than 15,000 shares of stock of Homeland Holding Corporation (the "Stock") in open market purchase transactions during the period from March 1, 2000 through June 30, 2000. You will provide to the Chairman of the Company's Compensation and Benefits Committee copies of confirmations of your purchases of Stock within 30 days from the date hereof. This letter agreement shall be binding upon and inure to the benefit of your heirs and representatives and the successors and assigns of the Company, but neither this letter agreement nor any rights or obligations hereunder shall be assignable or otherwise subject to hypothecation by you (except by will or by operation of the laws of intestate succession) or by the Company, except that the Company may assign this letter agreement to any successor (whether by merger, purchase or otherwise) to all or substantially all of the stock, assets or businesses of the Company, if such successor expressly agrees to assume the obligations of the Company hereunder. By signing below, you represent to the Company that your purchases of the Stock have been and will be in compliance with applicable federal and state securities laws and the Company's insider trading policies and that you have complied and will comply with all applicable reporting and other obligations with respect to the purchase, holding and sale of the Stock. Mr. David B. Clark June 1, 2000 Page 2 Please confirm your agreement with the foregoing by signing below and returning one signed copy of this letter agreement to me. Sincerely, HOMELAND STORES, INC. Laurie M. Shahon, Chairman of the Compensation & Benefits Committee of the Board of Directors ACCEPTED AND AGREED as of the 1st day of June, 2000 __________________________________________ David B. Clark EXHIBIT A PROMISSORY NOTE $90,000.00 Oklahoma City, Oklahoma June 1, 2000 FOR VALUE RECEIVED, the undersigned, David B. Clark (the "Executive"), hereby unconditionally promises to pay to the order of Homeland Stores, Inc., a Delaware corporation (the "Company"), at its offices, in lawful money of the United States of America, the principal amount of Ninety Thousand and No/100 Dollars ($90,000.00) (the "Loan"). Interest on the Loan shall accrue at the federal funds rate as quoted in The Wall Street Journal for the close of business on June 1, 2000, and the amount of accrued interest shall be added to the unpaid principal amount of the Loan on each anniversary date of this Promissory Note. Payments due on this Promissory Note are payable in equal principal installments in the amount of Thirty Thousand and No/100 Dollars ($30,000.00) each, plus interest accrued thereon, on June 1, 2001, June 1, 2002 and June 1, 2003. So long as the Executive remains employed by the Company on the foregoing payment dates, each such date's payment of principal and interest will be forgiven by the Company and treated as additional wages to the Executive as of each such payment date. Notwithstanding the foregoing payment schedule, the principal amount then outstanding on the Loan, together with all interest accrued thereon, shall be paid on the earliest to occur of (i) the Executive's termination of employment by the Company for Cause (as defined in that certain letter agreement dated February 17, 1998, between the Company and the Executive (the "Agreement")), (ii) the Executive's termination of employment by the Executive unless such termination by the Executive occurs following a Trigger Event (as defined in the Agreement), or (iii) six months after the Executive's termination of employment without Cause by the Company or by reason of the Executive's death or Disability (as defined in the Agreement); provided, however, that in the event (a) the Executive remains in continuous employment with the Company until June 1, 2003, or (b) the Executive terminates his employment following a Trigger Event, the Loan, including all interest accrued thereon, shall be forgiven in its entirety and this Promissory Note shall be deemed canceled and of no further force and effect. Default in payment when due and payable, upon acceleration or otherwise, of the principal of and interest on this Note shall constitute an "Event of Default" under the terms of this Note. "Default" means any event that is, or with the passage of time or the giving of notice or both would be, an Event of Default. Upon the occurrence of an Event of Default, all amounts then remaining unpaid on this Note shall become, or may be declared by the Company to be, immediately due and payable. The Executive hereby agrees that the Company, at its option, may withhold from time to time from compensation or other amounts payable by the Company to the Executive, any amounts required to make payments of principal of and interest on this Note. While any Default exists hereunder, the Company may Mr. David B. Clark June 1, 2000 Page 4 set off all amounts herein promised to be paid against compensation or other amounts payable by the Company to the Executive. This Note is subject to optional prepayment in whole or in part at any time. This Note is made pursuant to a letter agreement of even date between the Company and the Executive. The provisions of such letter agreement are incorporated herein by reference. All parties now and hereafter liable with respect to this Note, whether maker, principal, surety, guarantor, endorser or otherwise, hereby waive presentment, demand, protest and all other notices of any kind. Such parties consent to any extension of time (whether one or more) of payment hereof or release of any party liable for the payment of this obligation. Any such extension or release may be made without notice to any such party and without discharging such party's liability hereunder. The Executive agrees that if, and as often as, this Note is placed in the hands of an attorney for collection or to defend or enforce any of the holder's rights hereunder, the Executive will pay to the holder its reasonable attorney's fees together with all court costs and other expenses of collection paid by such holder. THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF OKLAHOMA. _________________________________ David B. Clark EX-27 4 0004.txt
5 6-MOS DEC-30-2000 JUN-17-2000 7,568 0 10,792 738 55,214 74,861 109,263 35,491 174,994 41,457 60,000 0 0 49 28,052 174,994 279,227 279,227 214,271 214,271 59,782 0 4,453 721 274 447 0 0 0 447 0.09 0.09
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