-----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, H4WUi6zkpUkeD9C1QuAXx7q+jWxzL3J/v9vdDfq6K4Q6Etl9Ul9eFvDoRxeb2DcH eF4N+uofP+IDF0YuHWMxwg== 0000835582-01-500016.txt : 20010509 0000835582-01-500016.hdr.sgml : 20010509 ACCESSION NUMBER: 0000835582-01-500016 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20010324 FILED AS OF DATE: 20010508 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: 1228 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-11555 FILM NUMBER: 1625706 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 q10qtr1.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 X Exchange Act of 1934 For the quarterly period ended March 24, 2001 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 May 3, 2001: Homeland Holding Corporation Common Stock: 4,925,871 shares HOMELAND HOLDING CORPORATION FORM 10-Q FOR THE 12 WEEKS ENDED MARCH 24, 2001 INDEX Page PART I FINANCIAL INFORMATION ITEM 1. Financial Statements 1 Consolidated Balance Sheets March 24, 2001, and December 30, 2000 1 Consolidated Statements of Operations and Comprehensive Income Twelve Weeks ended March 24, 2001, and March 25, 2000 3 Consolidated Statements of Cash Flows Twelve Weeks ended March 24, 2001, and March 25, 2000 4 Notes to Consolidated Financial Statements 6 ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 8 PART II OTHER INFORMATION ITEM 3. Exhibits and Reports on Form 8-K 16 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) March 24, December 30, 2001 2000 Current assets: Cash and cash equivalents $ 6,841 $ 10,198 Receivables, net of allowance for uncollectible accounts of $318 and $331 9,756 14,079 Inventories 50,319 54,707 Prepaid expenses and other current assets 2,106 1,610 Total current assets 69,022 80,594 Property, plant and equipment: Land and land improvements 8,797 8,797 Buildings 21,694 21,691 Fixtures and equipment 43,468 43,305 Leasehold improvements 21,238 21,202 Software 7,775 7,760 Leased assets under capital leases 9,892 9,886 Construction in progress 226 165 113,090 112,806 Less, accumulated depreciation and amortization 43,532 41,036 Net property, plant and equipment 69,558 71,770 Other assets and deferred charges 27,602 27,394 Total assets $ 166,182 $ 179,758 Continued The accompanying notes are an integral part of these consolidated financial statements. 1 HOMELAND HOLDING CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET, Continued (In thousands, except share and per share amounts) LIABILITIES AND STOCKHOLDERS' EQUITY (Unaudited) March 24, December 30, 2001 2000 Current liabilities: Accounts payable - trade $ 21,098 $ 28,869 Salaries and wages 1,916 2,107 Taxes 3,250 3,606 Accrued interest payable 1,111 2,819 Other current liabilities 6,330 7,013 Current portion of long-term debt 3,860 3,860 Current portion of obligations under capital leases 564 564 Total current liabilities 38,129 48,838 Long-term obligations: Long-term debt 102,719 104,592 Obligations under capital leases 1,861 1,996 Other noncurrent liabilities 2,254 3,235 Total long-term obligations 106,834 109,823 Stockholders' equity: Common stock $0.01 par value, authorized - 7,500,000 shares, issued 4,925,871 shares at March 24, 2001, and December 30, 2000, respectively 49 49 Additional paid-in capital 56,274 56,274 Accumulated deficit (34,416) (34,538) Accumulated other comprehensive income (688) (688) Total stockholders' equity 21,219 21,097 Total liabilities and stockholders' equity $ 166,182 $ 179,758 The accompanying notes are an integral part of these consolidated financial statements 2 HOMELAND HOLDING CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF OPERATIONS AND COMPREHENSIVE INCOME (In thousands, except share and per share amounts) (Unaudited 12 weeks 12 weeks ended ended March 24, March 25, 2001 2000 Sales, net $ 125,533 $ 136,607 Cost of sales 94,686 104,599 Gross profit 30,847 32,008 Selling and administrative expenses 28,326 29,197 Operating profit 2,521 2,811 Gain on disposal of assets 1 27 Interest income 202 172 Interest expense (2,602) (2,342) Income before income taxes 122 668 Income tax provision - (254) Net income $ 122 $ 414 Other comprehensive income - - Comprehensive income $ 122 $ 414 Net income (loss) per share: Basic $ 0.02 $ 0.08 Diluted $ 0.02 $ 0.08 Weighted average shares outstanding: Basic 4,925,871 4,919,357 Diluted 4,925,871 4,962,174 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 12 weeks ended ended March 24, March 25, 2001 2000 Cash flows from operating activities: Net income (loss) $ 122 $ 414 Adjustments to reconcile net loss to net cash from operating activities: Depreciation and amortization 2,486 2,521 Amortization of beneficial interest in operating leases 28 28 Amortization of goodwill 175 126 Amortization of financing costs 16 13 Gain on disposal of assets (1) (27) Deferred income taxes - 224 Change in assets and liabilities: Decrease in receivables 4,323 4,998 Decrease in inventories 4,388 200 Increase in prepaid expenses and other current assets (496) (720) Increase in other assets and deferred charges (528) (42) Decrease in accounts payable - trade (7,771) (3,128) Decrease in salaries and wages (191) (1,449) Increase (decrease) in taxes (356) 188 Decrease in accrued interest payable (1,708) (1,540) Increase (decrease) in other current liabilities (683) 25 Decrease in other noncurrent liabilities (969) (470) Total adjustments (1,287) 947 Net cash provided by (used in) operating activities (1,165) 1,361 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 12 weeks ended ended March 24, March 25, 2001 2000 Cash flows used in investing activities: Capital expenditures (188) (999) Store acquisition - (145) Cash received from sale of assets 4 426 Net cash used in investing Activities (184) (718) Cash flows from financing activities: Payments under term loan (595) (412) Borrowings under revolving credit loans 30,047 45,080 Payments under revolving credit loans (31,006) (44,094) Payment on tax notes (13) (12) Principal payments under notes payable (306) (3,058) Principal payments under capital lease obligations (135) (138) Net cash used in financing activities (2,008) (2,634) Net decrease in cash and cash equivalents (3,357) (1,991) Cash and cash equivalents at beginning of period 10,198 10,237 Cash and cash equivalents at end of period $ 6,841 $ 8,246 Supplemental information: Cash paid during the period for interest $ 3,973 $ 3,676 Cash paid during the period for income taxes $ - $ 30 Supplemental schedule of noncash investing and financing activities: Debt assumed in acquisition of stores $ - $ 6,162 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 December 30, 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 December 30, 2000, and the notes thereto. 3. January 2001 Store Closings: In December 2000, the Company committed to a plan to close seven stores in January 2001 and recorded a store closing charge of $4,246. The charge included the write-down of property, plant and equipment and other assets of $2,010, inventory write-downs of $1,423, which was recorded as a part of cost of sales, and holding costs of $813. Holding costs primarily consist of obligations under operating leases and related expenses expected to be paid over the remaining lease terms which range from 2001 to 2004. 4. Business Conditions and Liquidity The markets in which the Company operates remain increasingly competitive negatively affecting the Company's liquidity. The Company's near and long-term operating strategies focus on improving sales, improving operational efficiencies, and the productivity of assets. The Company intends to pursue its merchandising strategy in an attempt to increase its sales and the Company has devised plans to improve its gross margin and expense performance. Also, if necessary, the Company will close or sell under-performing stores or assets. Currently, the Company has letters of intent regarding certain asset sales to transfer leases and sell property related to four of the seven stores closed in January 2001 and to sell a parcel of undeveloped land. The estimated proceeds from these asset sales are $1.4 million and the transactions are subject to, among other things the signing of definitive agreements for each 6 transaction. The Company has also retained McDonald Investments Inc. as a financial advisor to explore options for re-financing and raising capital. Adequate liquidity in 2001 is predicated on the Company's ability to achieve improvements in gross margin and expense performance over historical results and successful completion of the $1.4 million asset sale in the second quarter of 2001. Improvement over historical gross margin and expense performance is expected to occur in part as a result of the January closing of seven underperforming stores. Further improvement in gross margin is projected to result from an increase in the annual AWG patronage rebate as AWG is expected to return to a more historic level of profitability. The Company's lowest level of liquidity is expected to occur in the third quarter of 2001. If the Company is successful in meeting its cash flow projections, including completion of the asset sale in the second quarter of 2001, sufficient borrowings under the Revolving Facility will be available to meet the Company's liquidity needs during the third and fourth quarters of 2001. Furthermore, the projections do not include the potential favorable cash flow impact of closing or selling additional underperforming stores or assets. Effective April 24, 2001, the Company entered into an amendment to the Loan Agreement which, among other things, amends the financial covenants pertaining to minimum availability, EBITDA, funded debt to EBITDA ratio, and capital expenditures. In addition to the covenant changes, the Loan Agreement was amended to increase the applicable interest rates by 25 basis points and limit the use of London Interbank Offered rates. The Company does not expect the increase in rates will have a material impact on its ability to meet its cash flow projections or financial covenants. Based on its current projections, management believes that the Company will be able to meet the revised covenants set forth in the Loan Agreement, as amended, for the foreseeable future and, that to the extent the Company is unable to meet these revised covenants, to obtain waivers from the agent and the lenders. Management continues to monitor compliance with the revised covenants, particularly the minimum availability covenant. There can be no assurances the Company will be able to satisfy the revised covenants or to obtain such waivers. However, since the amendment to the financial covenants is applicable only through 2001 and since the Loan Agreement matures on August 2, 2002, the Company intends to refinance its existing Loan Agreement indebtedness during 2001. There can be no assurance that the Company will be able to successfully refinance its existing indebtedness on terms that are acceptable to it. The Company believes that cash on hand, net cash flow from operations, proceeds from certain expected asset sales and borrowings under the Revolving Facility will be sufficient to fund its cash requirements through fiscal year 2001, which will consist primarily of payment of principal and interest on outstanding indebtedness, working capital requirements and capital expenditures. However, there can be no assurance that the asset sales will be consummated as planned. The Company's future operating performance and ability to service or refinance its current indebtedness, as well as its liquidity, will be subject to 7 future economic conditions and to financial, business and other factors, many of which are beyond the Company's control. 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: March 24, March 25, 2001 2000 Net Sales 100.0% 100.0% Cost of sales 75.4 76.6 Gross Profit 24.6 23.4 Selling and administrative expenses 22.6 21.4 Operating profit 2.0 2.0 Interest income 0.2 0.2 Interest expense (2.1) (1.7) Income before income taxes 0.1 0.5 Income tax provision - (0.2) Net income 0.1 0.3 Results of Operations. Comparison of the Twelve Weeks Ended March 24, 2001 with the Twelve Weeks Ended March 25, 2000 Net sales decreased $11.1 million, or 8.1%, from $136.6 million for the twelve weeks ended March 25, 2000, to $125.5 million for the twelve weeks ended March 24, 2001. The decrease in sales is attributable to a 7.8% decline in comparable store sales and the closing of seven stores in January 2001, partially offset by the sales of stores acquired in February 2000 and the stores acquired in April 2000. The decrease in comparable store sales is the result of fiscal year 2000 competitive openings which have yet to anniversary, increased sales in 2000 due to the Company's own promotional activities associated with the grand opening of its acquired stores, fiscal year 2001 new competitive openings, and increased promotional activity this year by existing competitors. During the twelve weeks ended March 24, 2001, there were two new competitive openings within the Company's markets including: one Wal-Mart Neighborhood Market in Oklahoma City and one independent in rural Oklahoma. Based on information publicly available, the Company expects that, during the remainder of 2001, Wal-Mart will open 2 Supercenters and three Neighborhood Markets; Albertsons will open one store; and regional chains and independents will open two additional stores. Based in part on the anticipated impact of proposed and recent new store openings and remodelings by competitors, management believes that market 8 conditions will remain highly competitive, placing continued pressure on comparable store sales and net sales. Management believes that comparable store sales will decline approximately 8.0%, during the second quarter of 2001. In response to this highly competitive environment, the Company intends to utilize its merchandising strategy to emphasize a competitive pricing structure, as well as leadership in quality products and services, selection and convenient store locations. 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, a customer loyalty card program, which allows customers with the card the opportunity to purchase over 2,000 items at a reduced cost each week. Additionally, the Company continues the use of market research in order to maintain a better understanding of customer behavior and trends in certain markets. Finally, the Company intends to upgrade its stores by focusing its discretionary capital expenditures on projects that will improve the overall appeal of its stores to targeted customers. Gross profit as a percentage of sales increased 1.2% from 23.4% for the twelve weeks ended March 25, 2000, to 24.6% for the twelve weeks ended March 24, 2001. The increase in gross profit margin reflects a reduced level of promotional spending versus the prior year as the prior year included more competitive openings and the grand opening of the Company's acquired stores. Additionally, the seven stores closed in January had gross margin rate performance which in the aggregate was below the total Company average. Selling and administrative expenses as a percentage of sales increased 1.2% from 21.4% for the twelve weeks ended March 25, 2000, to 22.6% for the twelve weeks ended March 24, 2001. The increase in operating expense ratio is attributable to increased occupancy costs, as a result of higher utility costs and increased rent expense attributable to the acquired stores, and increased labor and employee benefit costs, partially offset by a reduction in advertising expenditures and the absence of start-up expenses of stores acquired in 2000. Additionally, the seven stores closed in January had expense ratio performance which in the aggregate was above the total company average. The Company continues to review the alternatives to reduce selling and administrative expenses and cost of sales. Operating profit decreased $0.3 million from $2.8 million for the twelve weeks ended March 25, 2000, to $2.5 million for the twelve weeks ended March 24, 2001. The decrease primarily reflects the decline in sales and the corresponding decrease in gross profit dollars partially offset by a decrease in selling and administrative expenses. Interest expense, net of interest income, increased $0.2 million from $2.2 million for the twelve weeks ended March 25, 2000, to $2.4 million for the twelve weeks ended March 24, 2001. The increase reflects additional interest expense attributable to the acquired stores and increased borrowings under the Loan Agreement, partially offset by a decrease in variable interest rates and additional interest income from the interest bearing certificates of AWG. During the remainder of 2001, the Company anticipates that interest expense will increase due to increased debt and increased interest rates under the Loan Agreement. See "Liquidity and Capital Resources." 9 Based upon its estimated annual tax rate, the Company did not record income tax expense or benefit for the twelve weeks ended March 24, 2001. In accordance with SOP 90-7, the tax benefit realized from utilizing 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 pre-reorganization net operating loss carryforwards is recorded as a reduction of other intangibles existing at the reorganization date until reduced to zero and then as an increase to stockholder's equity. At December 30, 2000, the Company had a tax net operating loss carryforward of approximately $32.5 million, which may be utilized to offset future taxable income to the limited amount of $11.4 million in 2001 and $3.3 million per year thereafter. Due to the uncertainty of realizing future tax benefits, a full valuation allowance was deemed necessary to offset entirely the net deferred tax assets as of December 30, 2000. Net income decreased $0.3 million from net income of $0.4 million, or net income per diluted share of $0.08, for the twelve weeks ended March 25, 2000 to net income of $0.1 million, or net income per diluted share of $0.02, for the twelve weeks ended March 24, 2001. EBITDA (as defined hereinafter) decreased $0.3 million from $5.5 million, or 4.0% of sales, for the twelve weeks ended March 25, 2000 to $5.2 million, or 4.2% of sales for the twelve weeks ended March 24, 2001. 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. 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 National Bank of Canada ("NBC"), as agent and lender, and two other lenders, Heller Financial, Inc. and IBJ Whitehall Business Credit, Inc., under which these lenders provide a working capital and letter of credit facility ("Revolving Facility") a term loan ("Term Loan") and an acquisition term loan ("Acquisition Term Loan") through August 2, 2002. The Loan Agreement, as amended, permits the Company to borrow under the Revolving Facility up to the lesser of (a) $37.0 million or (b) the applicable borrowing base. The Company, with the consent of lenders, can access an over-advance facility which allows the Company to borrow amounts above the borrowing base but not above the total Revolving Facility. The lenders have consented to the use of the over-advance facility through April 30, 2001. Funds borrowed under the Revolving Facility are available for general corporate purposes of the Company. Effective April 24, 2001, the Loan Agreement was amended and the changes are hereinafter discussed within this Liquidity and Capital Resources section. 10 The Term Loan, which had an outstanding balance as of March 24, 2001, of $8.2 million, represents the remaining 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, or monthly if the borrowings are characterized as a London Interbank Offered Rate Loan, 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. In addition, the Loan Agreement provides for acceleration of principal and interest payments in the event of certain material adverse changes, as determined by the lender. 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 ("Notes"). The Notes, which are unsecured, will mature on August 1, 2003. Interest on the Notes accrues at the rate of 10% per annum and is payable on February 1 and August 1 of each year. The Indenture contains certain customary restrictions on acquisitions, asset sales, consolidations and mergers, distributions, indebtedness, transactions with affiliates and payment of dividends. 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, store closing charges, asset impairment, and gain/loss on disposal of assets), as presented below, is the Company's 11 measurement of internally-generated operating cash for working capital needs, capital expenditures and payment of debt obligations: 12 weeks 12 weeks ended ended March 24, March 25, 2001 2000 Income before income taxes $ 122 $ 668 Interest income (202) (172) Interest expense 2,602 2,342 Gain on disposal of assets (1) (27) Depreciation and amortization 2,689 2,675 EBITDA $ 5,210 $ 5,486 As a percentage of sales 4.15% 4.02% As a multiple of interest expense, net of interest income 2.17x 2.53x Net cash provided by operating activities decreased $2.5 million, from net cash provided of $1.4 million for the twelve weeks ended March 25, 2000 to net cash used of $1.1 million for the twelve weeks ended March 24, 2001. The decrease versus the prior year principally reflects unfavorable decreases in trade payables and accounts receivable partially offset by a favorable decrease in inventory. Net cash used in investing activities decreased $0.5 million, from $0.7 million for the twelve weeks ended March 25, 2000 to $0.2 million for the twelve weeks ended March 24, 2001. Capital expenditures decreased $0.8 million from $1.0 million for the twelve weeks ended March 25, 2000 to $0.2 million for the twelve weeks ended March 24, 2001. In February 2000, the Company completed its acquisition of three stores from Belton Food Center, Inc. ("BFC") in Oklahoma City. The net purchase price, prior to the closed store reserve discussed below, was $0.2 million which represents $4.2 million for fixtures and equipment, and leasehold improvements, 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. 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 12 interest in the inventory. In April 2000, the Company closed one of the acquired stores due to its proximity to other Company stores and established a reserve, which approximated $1.3 million, for future rent payments and other holding costs. Establishment of the reserve increased the goodwill balance associated with the acquisition. In October 2000, the lease on the closed store was assigned resulting in a reduction in the reserve and goodwill of $0.5 million. Substantially all other costs reserved were paid in 2000. In April 2000, the Company completed its acquisition of three Baker's Supermarkets. The purchase price was approximately $4.2 million, which represents $2.4 million for fixtures and equipment, leasehold improvements, 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 unfavorable contract represents a five-year minimum purchase commitment and is expected to result in payments of $405, $864 and $321 in 2001, 2002 and 2003, respectively. The related intangible asset is amortized on a straight-line basis over the life of the contract. The Company will sublease the three stores. On September 15, 2000, the Company subsequently leased a fourth location upon the completion of its construction. Concurrent with the opening of the acquired store, the Company closed an existing store resulting in a charge to operations of approximately $0.3 million, which included future rent payments, other holding costs, and the write-off of property, plant and equipment. Payments of rent and other holding costs are expected to continue through 2001. The Company financed this acquisition principally through increased borrowings under its working capital facility. As of March 24, 2001, the Company had an outstanding balance on these assumed obligations to AWG of $10.0 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 these acquisitions, the individual markets where the stores are located are subject to non-compete, supply and right-of- first-refusal agreements with AWG. In addition to the other customary terms associated with a right-of-first refusal agreement, the right-of-first refusal agreement provides for the repurchase by AWG of the stores based upon the occurrence of certain exercise events. The exercise events include, among other events, a change in control of Homeland and a transfer of more than 20% of the ownership interest of Holding or Homeland. Net cash used in financing activities decreased $0.6 million, from $2.6 million for the twelve weeks ended March 25, 2000 to $2.0 million for the twelve weeks ended March 24, 2001. The decrease primarily reflects lower principal payments of the obligations thus far during 2001. The Company considers its capital expenditure program a strategic part of the overall plan to support its market competitiveness. Cash capital expenditures for 2001 are expected to be at approximately $2.0 million. The Loan Agreement limits the Company's capital expenditures for 2001 to $5.0 million. The estimated 2001 capital expenditures of $2.0 is expected to be invested primarily in the on-going maintenance and modernization of certain stores and does not include provisions for acquisitions. The funds for the 13 capital expenditures are expected to be provided by internally-generated cash flows from operations and borrowings under the Loan Agreement. As of March 24, 2001, the Company had under its Revolving Facility $28.3 million of borrowings, $30,000 letter of credit outstanding and $7.6 million of availability, which includes $3.0 million of the Overadvance Facility. The markets in which the Company operates remain increasingly competitive negatively affecting the Company's liquidity. The Company's near and long-term operating strategies focus on improving sales, improving operational efficiencies, and the productivity of assets. The Company intends to pursue its merchandising strategy in an attempt to increase its sales and the Company has devised plans to improve its gross margin and expense performance. Also, if necessary, the Company will close or sell under-performing stores or assets. Currently, the Company has letters of intent regarding certain asset sales to transfer leases and sell property related to four of the seven stores closed in January 2001 and to sell a parcel of undeveloped land. The estimated proceeds from these asset sales are $1.4 million and the transactions are subject to, among other things the signing of definitive agreements for each transaction. The Company has also retained McDonald Investments Inc. as a financial advisor to explore options for re-financing and raising capital. Adequate liquidity in 2001 is predicated on the Company's ability to achieve improvements in gross margin and expense performance over historical results and successful completion of the $1.4 million asset sale in the second quarter of 2001. Improvement over historical gross margin and expense performance is expected to occur in part as a result of the January closing of seven underperforming stores. Further improvement in gross margin is projected to result from an increase in the annual AWG patronage rebate as AWG is expected to return to a more historic level of profitability. The Company's lowest level of liquidity is expected to occur in the third quarter of 2001. If the Company is successful in meeting its cash flow projections, including completion of the asset sale in the second quarter of 2001, sufficient borrowings under the Revolving Facility will be available to meet the Company's liquidity needs during the third and fourth quarters of 2001. Furthermore, the projections do not include the potential favorable cash flow impact of closing or selling additional underperforming stores or assets. Effective April 24, 2001, the Company entered into an amendment to the Loan Agreement which, among other things, amends the financial covenants pertaining to minimum availability, EBITDA, funded debt to EBITDA ratio, and capital expenditures. In addition to the covenant changes, the Loan Agreement was amended to increase the applicable interest rates by 25 basis points and limit the use of London Interbank Offered rates. The Company does not expect the increase in rates will have a material impact on its ability to meet its cash flow projections or financial covenants. Based on its current projections, management believes that the Company will be able to meet the revised covenants set forth in the Loan Agreement, as amended, for the foreseeable future and, that to the extent the Company is unable to meet these revised covenants, to obtain waivers from the agent and the lenders. Management continues to monitor compliance with the revised covenants, particularly the minimum availability covenant. There can be no assurances the Company will be able to satisfy the revised covenants or to obtain such waivers. However, since the amendment to the 14 financial covenants is applicable only through 2001 and since the Loan Agreement matures on August 2, 2002, the Company intends to refinance its existing Loan Agreement indebtedness during 2001. There can be no assurance that the Company will be able to successfully refinance its existing indebtedness on terms that are acceptable to it. The Company believes that cash on hand, net cash flow from operations, proceeds from certain expected asset sales and borrowings under the Revolving Facility will be sufficient to fund its cash requirements through fiscal year 2001, which will consist primarily of payment of principal and interest on outstanding indebtedness, working capital requirements and capital expenditures. However, there can be no assurance that the asset sales will be consummated as planned. The Company's future operating performance and ability to service or refinance its current indebtedness, as well as its liquidity, will be subject to future economic conditions and to financial, business and other factors, many of which are beyond the Company's control. 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. 15 PART II - OTHER INFORMATION Item 3. Exhibits and Reports on Form 8-K (a) Exhibits: The following exhibits are filed as part of this report: Exhibit No. Description 10ar* Eighth Amendment to Loan Agreement dated as of March 23, 2001, among IBJ Whitehall Business Credit Corporation, Heller Financial, Inc., and National Bank of Canada, Homeland and Holding. 10as* Ninth Amendment to Loan Agreement dated as of April 24, 2001, among IBJ Whitehall Business Credit Corporation, Heller Financial, Inc., and National Bank of Canada, Homeland and Holding. 11e Computation of Diluted Earnings Per Share. (b) Report on Form 8-K: The Company did not file any Form 8-K during the quarter ended March 24, 2001. 16 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: May 7, 2001 By: /s/ David B. Clark David B. Clark, President, Chief Executive Officer, and Director (Principal Executive Officer) Date: May 7, 2001 By: /s/ Wayne S. Peterson Wayne S. Peterson, Senior Vice President/Finance, Chief Financial Officer and Secretary (Principal Financial Officer) EX-1 2 amend8.txt EIGHTH AMENDMENT TO LOAN AGREEMENT This EIGHTH AMENDMENT TO LOAN AGREEMENT (this "Amendment") is made and entered into effective as of March 23, 2001 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"), a Canadian chartered bank, (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; EIGHTH AMENDMENT TO LOAN AGREEMENT - Page 1 December 22, 2000, by and among Borrower, Parent, Lenders, Agent, SLB, and JCH. (3) Third Amendment to Loan Agreement, dated as of November 2, 1999, by and among Borrower, Parent, Lenders, and Agent; (4) Fourth Amendment to Loan Agreement, dated as of November 19, 1999, by and among Borrower, Parent, Lenders, Agent, SLB, and JCH; (5) Fifth Amendment to Loan Agreement, dated as of February 29, 2000, by and among Borrower, Parent, Lenders, Agent, SLB, and JCH; (6) Sixth Amendment to Loan Agreement, dated as of April 25, 2000, by and among Borrower, Parent, Lenders, Agent, SLB, and JCH; (7) Seventh Amendment to Loan Agreement, dated as of December 22, 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 amend the financial covenant in the Loan Agreement pertaining to the Funded Debt-to EBITDA Ratio for the Fiscal Quarter of 2001 ending March 24, 2001. 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. Funded Debt-to-EBITDA Ratio: The first sentence of Subsection 12.16(c) of the Loan Agreement is hereby amended to read as follows: EIGHTH AMENDMENT TO LOAN AGREEMENT - Page 2 The Companies shall not permit their Funded Debt-to-EBITDA Ratio ending at the end of each Fiscal Quarter to be greater than the ratio indicated below for such Fiscal Quarter: Fiscal Quarter Funded Debt-to-EBITDA Ratio The fourth Fiscal Quarter of Fiscal Year 2000: 5.75 to 1.0 The first Fiscal Quarter of Fiscal Year 2001: 5.50 to 1.0 The second Fiscal Quarter of Fiscal Year 2001 5.25 to 1.0 The third Fiscal Quarter of Fiscal Year 2001 and each Fiscal Quarter thereafter: 5.00 to 1.0 3. 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"); and (ii) 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) 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. (c) Amendment Fee. In consideration of the Lenders' entry into the agreements set forth in this Amendment, Borrower shall pay, and Lenders shall have received, an amendment fee in the amount of $15,000. 4. Representations and Warranties. Each Company hereby represents and warrants to Agent and Lenders that, as of the date of and after giving effect EIGHTH AMENDMENT TO LOAN AGREEMENT - Page 3 to this Amendment, (a) the execution, delivery and performance of this Amendment has been authorized by all requisite corporate action on the part of each Company and will not violate the corporate charter or bylaws of any Company, (b) all representations and warranties set forth in the Loan Agreement and in any other Loan Documents are true and correct, in all material respects, as if made again on and as of such date (including, without limitation, the representations and warranties previously made as of the Closing Date in the Loan Agreement), (c) no Default or Event of Default has occurred and is continuing, and (d) the Loan Agreement (as amended by this Amendment), the Notes (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. 5. 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. 6. 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. 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. 8. 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. 9. 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. 10. 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, EIGHTH AMENDMENT TO LOAN AGREEMENT - Page 4 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. 11. 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. 12. 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. 13. 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. 14. 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. 15. 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. 16. Headings. The headings, captions and arrangements used in this Amendment are for convenience only and shall not affect the interpretation of this Amendment. [Signature Pages Follow] EIGHTH AMENDMENT TO LOAN AGREEMENT - Page 5 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: Wayne S. Peterson, Attorney-in-Fact JCH BEVERAGE, INC. By: Wayne S. Peterson, Attorney-in-Fact EIGHTH AMENDMENT TO LOAN AGREEMENT - Page 6 AGENT AND A LENDER: NATIONAL BANK OF CANADA, a Canadian chartered bank By: __________________________________ Name: ________________________________ Title: _______________________________ By: __________________________________ Name: ________________________________ Title: _______________________________ ADDITIONAL LENDERS: IBJ WHITEHALL BUSINESS CREDIT CORPORATION By: __________________________________ Name: ________________________________ Title: _______________________________ HELLER FINANCIAL, INC. By: __________________________________ Name: ________________________________ Title: _______________________________ EIGHTH AMENDMENT TO LOAN AGREEMENT - Page 7 EX-2 3 amend9.txt NINTH AMENDMENT TO LOAN AGREEMENT This NINTH AMENDMENT TO LOAN AGREEMENT (this "Amendment") is made and entered into effective as of April 24, 2001 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"), a Canadian chartered bank, (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; NINTH AMENDMENT TO LOAN AGREEMENT - Page 1 (3) Third Amendment to Loan Agreement, dated as of November 2, 1999, by and among Borrower, Parent, Lenders, and Agent; (4) Fourth Amendment to Loan Agreement, dated as of November 19, 1999, by and among Borrower, Parent, Lenders, Agent, SLB, and JCH; (5) Fifth Amendment to Loan Agreement, dated as of February 29, 2000, by and among Borrower, Parent, Lenders, Agent, SLB, and JCH; (6) Sixth Amendment to Loan Agreement, dated as of April 25, 2000, by and among Borrower, Parent, Lenders, Agent, SLB, and JCH; (7) Seventh Amendment to Loan Agreement, dated as of December 22, 2000, by and among Borrower, Parent, Lenders, Agent, SLB, and JCH; and (8) Eighth Amendment to Loan Agreement, dated as of March 23, 2001, 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 provide for the following: (a) amend the applicable interest rate margins for the Loans; (b) amend financial covenants in the Loan Agreement pertaining to EBITDA, the Funded Debt-to EBITDA Ratio, and capital expenditures. 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. Borrowing Base. The definition of Borrowing Base, as set forth in Section 1.1 of the Loan Agreement, is hereby amended to read in full as follows: NINTH AMENDMENT TO LOAN AGREEMENT - Page 2 "Borrowing Base" shall mean, as of any time, an amount equal to the sum of the following: (a) up to fifty-six percent (56%) of the Net Amount of Eligible Inventory, (b) up to fifty-six percent (56%) of the Net Amount of Eligible Pharmaceutical Inventory, (c) up to eighty-five percent (85%) of the Net Amount of Eligible Coupons, (d) up to fifty percent (50%) of the Net Amount of Eligible Pharmaceutical Receivables, and (e) up to sixty-five percent (65%) of the Net Amount of Eligible Vendor 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 12.1(j) hereof. Without in any way waiving or modifying Agent's right to establish reserves as provided otherwise in this Agreement, the Agent and the Lenders intend to, and shall have the right to, adjust the percentages set forth above in the event that either the appraisal prepared by Great American Appraisal & Valuations Services, LLC and presented to the Agent on April 18, 2001, any of the appraisals required by Section 12.14(c) hereof, or any further information received by Agent from appraisers indicate appraised values of the Inventory, which, in the Agent's discretion, make a reduction in such percentages appropriate, with conforming adjustments to be made to the Borrowing Base Certificate. The Credit Parties, Agent, and Lenders acknowledge that the Lenders intend to, and shall have the right to, adjust the percentages set forth above subsequent to the execution and delivery of this Amendment, in the event that the appraisal prepared by Great American Appraisal & Valuations Services, LLC and presented to the Agent on April 18, 2001 indicates appraised values of the Inventory, which, inthe Agent's discretion, make a reduction in such percentages appropriate. 3. Interest Rate Increase. The definitions of Revolving Credit Base Rate Margin, Revolving Credit Eurodollar Margin, Term Loan Base Rate Margin, and Term Loan Eurodollar Margin, as set forth in Section 1.1 of the Loan Agreement, are hereby amended to read in full as follows: "Revolving Credit Base Rate Margin" shall mean three-quarters percent (0.75%). NINTH AMENDMENT TO LOAN AGREEMENT - Page 3 "Revolving Credit Eurodollar Margin" shall mean two and three- quarters percent (2.75%). "Term Loan Base Rate Margin" shall mean one percent (1.00%). "Term Loan Eurodollar Margin" shall mean three and one-quarter percent (3.25%). 4. Suspension of Eurodollar Advances. Notwithstanding anything to the contrary contained in the Loan Agreement in general, and in Sections 2.4 and 5.2 of the Loan Agreement in particular, from and after the date hereof, and until otherwise agreed in writing by Agent, Borrower shall not be entitled or permitted to select a borrowing of a Eurodollar Advance or to convert any Base Rate Advance, or portion thereof, to a Eurodollar Advance. 5. Establishment of Additional Reserves. Section 2.4 of the Loan Agreement is hereby amended by adding the following sentence, to read as follows: Further, and without limiting any of the foregoing, the Credit Parties specifically agree that the Agent may establish reserves against the Borrowing Base of Borrower in an amount equal to the amount of the Net Proceeds of any sale or disposition of an Excluded Property or any Real Property that is leased by any Credit Party, which reserves shall be in addition to any other reserves established by Agent. 6. Proceeds of Sales of Excluded Properties. Subsection 6.1(c) of the Loan Agreement is hereby amended to read as follows: (c) Borrower shall, on each date that any Credit Party receives Gross Proceeds of any sale or disposition of an Excluded Property or any Real Property that is leased by any Credit Party, prepay, as determined by Agent at the option of Agent, either (i) the outstanding principal of the Advances and unreimbursed Letters of Credit, or (ii) the outstanding principal of the Term Loan Advances, in inverse order of maturity, in each case, as applicable, in an amount equal to 100% of the Net Proceeds of such sale or disposition; and then if no Revolving Credit Advance, unreimbursed Letter of Credit or Term Loan Advance is then outstanding, provide Letter of Credit Cash Collateral until an amount NINTH AMENDMENT TO LOAN AGREEMENT - Page 4 equal to the undrawn amount of all outstanding Letters of Credit has been secured by Letter of Credit Cash Collateral; and thereafter Borrower may retain the remaining Net Proceeds, if any. Further, and consistent with the above, clause (viii) of the definition of Collateral in Section 1.1 of the Loan Agreement is hereby amended to read as follows: (viii) 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 in accordance with Section 6.1(c) of this Agreement upon receipt thereof by the Companies; and 7. Shared National Credit Program. Article 6 of the Loan Agreement is hereby amended by adding Section 6.9, to read in its entirety as follows: Sec. 6.9. CONTINGENT FEE Borrower shall pay to the Agent for the account of the Lenders an annual contingent fee in the amount of $100,000 in the event that, at any time during the twelve months preceding any anniversary of the Closing Date, the annual risk rating of the Revolving Loan, the Term Loan, or any other loan hereunder, as assigned by the Federal banking examiners under the Shared National Credit Review Program, results in the Revolving Loan, the Term Loan or any other loan hereunder being classified or criticized on the basis of its evaluated ability to be repaid. The annual contingent fee will be payable at the earliest of the Maturity Date, termination of this Agreement or re-financing of this Agreement. 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. 8. Quarterly Reports. The introductory phrase to Subsection 12.1(a) of the Loan Agreement is hereby amended require the Borrower's quarterly reports to be furnished to the Agent and each Lender thirty (30), instead of 45, days after the close or each Fiscal Quarter of Borrower, and to read as follows: (a) as soon as practicable and in any event within thirty (30) days after the close of each Fiscal Quarter of each Fiscal Year of Borrower: 9. Report on Minimum Availability. Section 12.1 of the Loan Agreement is hereby amended by adding the following clause (t), to read as follows: (t) not later than the next Business Day after the first (1st) and the fifteenth (15th) days of each fiscal month, a certificate dated as NINTH AMENDMENT TO LOAN AGREEMENT - Page 5 of the first (1st) and the fifteenth (15th) day of such month, as applicable, or, if such day is not a Business Day, then on the next following Business Day, from Borrower and signed by the chief executive officer, chief financial officer or chief accounting officer of Parent setting forth the average availability under the Revolving Credit Facility Commitment for a period of ten (10) Business Days prior to the first (1st) and the fifteenth (15th) day of each month, as applicable, or, if such day is not a Business Day, then on the next following Business Day. 10. Borrowing Base Certificate. The form of the Borrowing Base Certificate attached to the Loan Agreement as Exhibit 12.1(j) is hereby amended and replaced by the form of the Borrowing Base Certificate attached as Exhibit 12.1(j) to this Amendment. 11. Inventory Audits. Subsection 12.14(c) of the Loan Agreement is hereby amended to read as follows: (c) At Agent's request at any time and from time to time, allow a third-party appraiser acceptable to Agent to perform an appraisal of the Inventory, copies of which shall be made available to Agent and Lenders. 12. Real Estate Appraisals. Subsection 12.14 of the Loan Agreement is hereby amended by adding the following clause (e), to read as follows: (e) At Agent's request at any time, allow a third party appraiser, acceptable to the Agent in its sole discretion, and at Borrower's expense, to provide directly to the Agent and the Lenders appraisals of the Borrower's real property owned and Equipment located on such owned real estate, in form and detail acceptable to the Agent and the Lenders. 13. Minimum EBITDA. The first sentence of Subsection 12.16(a) of the Loan Agreement is hereby amended to read as follows: The Companies shall not permit their EBITDA, for the four (4)- Fiscal Quarter period ending at the end of each Fiscal Quarter specified below or, if a Fiscal Year is specified below, then ending at the end of each Fiscal Quarter occurring during or at the end of the Fiscal Year indicated below, to be less than the amount indicated below for such Fiscal Year or Fiscal Quarter, as applicable: NINTH AMENDMENT TO LOAN AGREEMENT - Page 6 Fiscal Quarter/Fiscal Year Minimum EBITDA The fourth Fiscal Quarter of Fiscal Year 2000: $19,000,000 The first, second, third and fourth Fiscal Quarters of Fiscal Year 2001: $17,000,000 Fiscal Quarter Year 2002 and thereafter: $19,000,000 14. Funded Debt-to-EBITDA Ratio: The first sentence of Subsection 12.16(c) of the Loan Agreement is hereby amended to read as follows: The Companies shall not permit their Funded Debt-to-EBITDA Ratio ending at the end of each Fiscal Quarter to be greater than the ratio indicated below for such Fiscal Quarter: Funded Fiscal Quarter Debt-to-EBITDA Ratio The fourth Fiscal Quarter of Fiscal Year 2000: 5.75 to 1.0 The first Fiscal Quarter of Fiscal Year 2001: 6.00 to 1.0 The second Fiscal Quarter of Fiscal Year 2001 6.00 to 1.0 The third Fiscal Quarter of Fiscal Year 2001: 6.50 to 1.0 The fourth Fiscal Quarter of Fiscal Year 2001 6.50 to 1.0 The first Fiscal Quarter of Fiscal Year 2002 and each Fiscal Quarter thereafter: 6.50 to 1.0 15. Minimum Availability. Section 12.16 of the Loan Agreement is hereby amended by adding the following clause (d), to read as follows: (d) Minimum Availability. The average availability under the Revolving Credit Facility Commitment for a period of ten (10) Business Days prior to the first (1st) and the fifteenth (15th) day of each month, or, if such day is not a Business Day, then on the next following Business Day, shall be at least One Million Dollars ($1,000,000). 16. Capital Expenditures: Subsection 13.1(a) of the Loan Agreement is hereby amended to read as follows: NINTH AMENDMENT TO LOAN AGREEMENT - Page 7 The Companies shall not suffer or permit Net Capital Expenditures of the Parent and its Subsidiaries during Fiscal Year 2001 to exceed $5,000,000. Thereafter, the Companies shall not suffer or permit Net Capital Expenditures of the Parent and its Subsidiaries during any Fiscal Year to exceed the sum of (a) $13,000,000, plus (b) the Carryover Capital Expenditures Amount, if any. 17. Amendment to Events of Default: Section 14.1(c) of the Loan Agreement is hereby amended to include Subsection 12.1(t), which is added by this Amendment, among the series of Sections listed in Section 14.1(c) as being excepted from the applicability of provisions for notice and cure, as set forth in Section 14.1(c). 18. Amendments, Modification and Waiver. (a) Amendment to Increase the Interest Rate: Clause (i) of Section 16.2(c) of the Loan Agreement is hereby amended to provide that consent of all of the Lenders to a change in the rate of interest is required only if the change is a decrease, as opposed to an increase, and to read as follows: (i) extend the due date of the principal of or interest on the Revolving Loan, the Term Loan, the Acquisition Term Loan, or any other amount payable hereunder, or portion thereof, decrease 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; (b) Amendment to Financial Covenants: Section 16.2(c) of the Loan Agreement is hereby amended to provide that consent of all of the Lenders to an amendment to the financial covenants is required, by adding the following clause (ix) to read as follows: (ix) amend Section 12.16 hereof, titled "Financial Covenants." 19. 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"); and NINTH AMENDMENT TO LOAN AGREEMENT - Page 8 (ii) 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) 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. (c) Amendment Fee. In consideration of the Lenders' entry into the agreements set forth in this Amendment, Borrower shall pay, and Lenders shall have received, an amendment fee in the amount of $50,000. 20. Conditions Subsequent. The effectiveness of this Amendment is expressly conditioned upon the satisfaction of the conditions subsequent that Agent shall have received all of the following, in form and substance satisfactory to Agent: (a) Availability Forecasts. Not later than not later than the next Business Day after the first (1st) and the fifteenth (15th) days of each fiscal month, a forecast of availability under the Revolving Credit Facility Commitment for the immediately following four (4) week period, in form, scope and substance reasonably satisfactory to the Agent; (b) Monthly Budgets. Not later than April 30, 2001, a month-by- month budget of the financial condition and results of operations of Parent and its Subsidiaries for the Fiscal Year ending December 29, 2001 (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; and (c) Fiscal Year 2002 Budget. Not later than November 30, 2001, a preliminary Fiscal-Year budget of the financial condition and results of operations of Parent and its Subsidiaries for Fiscal Year 2002 (covering in any event balance sheets, statements of cash flow and of income for each quarter and calendar month, together with financial covenant calculations); in all instances in form, scope and substance reasonably satisfactory to the Agent. NINTH AMENDMENT TO LOAN AGREEMENT - Page 9 21. Real Estate and Equipment Appraisals; Legal Review; and Consultant. (a) Real Estate and Equipment Appraisals. Borrower agrees that the Agent may engage a third party, acceptable to the Agent in its sole discretion, and at Borrower's expense, to provide directly to the Agent and the Lenders appraisals of the Borrower's real property owned and Equipment located on such owned real estate, in form and detail acceptable to the Agent and the Lenders. (b) Legal Review. Borrower agrees that the Agent may conduct a legal review at Borrower's expense. (c) Consultant. Borrower agrees that the Agent and the Lenders will have the right to retain a consultant to review any and all aspects of the Borrower's operations, including coordinating with and reviewing the McDonald & Co. engagement. The Borrower will agree to retain such Consultant, who shall be acceptable to the Bank Group, within 30 days of this Amendment. 22. Default Fee. Borrower agrees to pay a "Default Fee" to Agent and the Lenders upon the occurrence of any Event of Default from and after the date of this Amendment, other than an Event of Default resulting from a failure to comply with the financial covenant in Section 12.16(d), styled "Minimum Availability". The Default Fee will be in the amount of Two Hundred Thousand Dollars ($200,000) and will be in addition to any waiver or other amendment fees that may be required. 23. Representations and Warranties. Each Company hereby represents and warrants to Agent and Lenders that, as of the date of and after giving effect to this Amendment, (a) the execution, delivery and performance of this Amendment has been authorized by all requisite corporate action on the part of each Company and will not violate the corporate charter or bylaws of any Company, (b) all representations and warranties set forth in the Loan Agreement and in any other Loan Documents are true and correct, in all material respects, as if made again on and as of such date (including, without limitation, the representations and warranties previously made as of the Closing Date in the Loan Agreement), (c) no Default or Event of Default has occurred and is continuing, and (d) the Loan Agreement (as amended by this Amendment), the Notes (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. 24. 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. 25. 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. NINTH AMENDMENT TO LOAN AGREEMENT - Page 10 26. 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. 27. 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. 28. 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. 29. 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. 30. Counterclaims. EACH CREDIT PARTY DECLARES THAT SUCH CREDIT PARTY HAS NO SET-OFF, COUNTERCLAIM, DEFENSE OR OTHER CAUSES OF ACTION (TOGETHER, THE "COUNTERCLAIMS") AGAINST AGENT OR ANY LENDER ARISING OUT OF THE TRANSACTIONS EVIDENCED BY THE LOAN AGREEMENT AND THE LOAN DOCUMENTS (INCLUDING ALL AMENDMENTS THERETO) OR ANY TRANSACTIONS THAT WERE RENEWED OR EXTENDED BY THE LOAN DOCUMENTS. TO THE EXTENT ANY COUNTERCLAIMS MAY EXIST, WHETHER KNOWN OR UNKNOWN, SUCH ARE WAIVED AND RELEASED HEREBY BY EACH CREDIT PARTY. EACH CREDIT PARTY AGREES TO INDEMNIFY AND HOLD AGENT AND LENDERS HARMLESS FROM ANY AND ALL COUNTERCLAIMS THAT SUCH CREDIT PARTY OR ANY OTHER PERSON OR ENTITY CLAIMING BY, THROUGH, OR UNDER SUCH CREDIT PARTY MAY AT ANY TIME ASSERT AGAINST AGENT OR ANY LENDER. NINTH AMENDMENT TO LOAN AGREEMENT - Page 11 31. 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. 32. 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. 33. 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. 34. 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. 35. 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. 36. Headings. The headings, captions and arrangements used in this Amendment are for convenience only and shall not affect the interpretation of this Amendment. [Signature Pages Follow] NINTH AMENDMENT TO LOAN AGREEMENT - Page 12 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:________________________________ Wayne S. Peterson, Attorney-in-Fact JCH BEVERAGE, INC. By:________________________________ Wayne S. Peterson, Attorney-in-Fact NINTH AMENDMENT TO LOAN AGREEMENT - Page 13 AGENT AND A LENDER: NATIONAL BANK OF CANADA, a Canadian chartered bank By:_______________________________ Name:_____________________________ Title:____________________________ By:_______________________________ Name:_____________________________ Title:____________________________ ADDITIONAL LENDERS: IBJ WHITEHALL BUSINESS CREDIT CORPORATION By: _____________________________ Name:____________________________ Title:___________________________ HELLER FINANCIAL, INC. By:______________________________ Name:____________________________ Title:___________________________ NINTH AMENDMENT TO LOAN AGREEMENT - Page 14 EXHIBIT 12.1(j) FORM OF BORROWING BASE CERTIFICATE as of ______, 200_ (Capitalized terms used herein have the meanings given them in the Loan Agreement.) A. Determination of Borrowing Availability. Inventory (excluding Pharmaceutical Inventory) 1. (a) Grocery (b) Variety (c) Meat (d) S & F Beverage (e) Delicatessen (f) Bakery (g) Produce 2. Total Inventory: $___________ 3. Net Amount of Eligible Inventory: $___________ 4. Advance Rate x 56% = $___________ Pharmaceutical Inventory: 5. Total Pharmaceutical Inventory: $___________ 6. Less: Ineligible Pharmaceutical Inventory: $___________ 7. Net Amount of Eligible Pharmaceutical Inventory: $___________ 8. Advance Rate x 56% = $___________ Coupons 9. Total Coupons: $___________ 10. Less: Ineligible Coupons: $___________ 11. Net Amount of Eligible Coupons: $___________ Exhibit 12.1(j) Form of Borrowing Base Certificate - Page 1 12. Advance Rate x 85% = $___________ Pharmaceutical Receivables 13. Total Pharmaceutical Receivables: $___________ 14. Less: Ineligible Pharmaceutical Receivables: $___________ 15. Net Amount of Eligible Pharmaceutical Receivables: $___________ 16. Advance Rate x 50% = $___________ Vendor Receivables 17. Total Vendor Receivables: $___________ 18. Less: Ineligible Vendor Receivables: $___________ 19. Net Amount of Eligible Vendor Receivables: $___________ 20. Advance Rate x 65% = $___________ 21. Borrowing Base (Sum of Items 4, 8, 12, 16 and 20): $___________ 22. Less: Letter of Credit Usage: $___________ 23. Less: Reserves against Receivables (if any): $___________ 24. Less: Reserves against Inventory (if any): $___________ 25. Less: Outstanding balance of Revolving Credit Advances: $___________ 26. Availability under Borrowing Base: $___________ B. Determination of Revolving Loan Borrowing Limit. 1. Revolving Credit Facility Commitment: $37,000,000.00 2. Less: Letter of Credit Usage: $_____________ 3. Availability under Revolving Loan Borrowing Limit: $_____________ Compare A.26 to B.3 - The Advance requested may not exceed the lesser of A-26 and B.3. Exhibit 12.1(j) Form of Borrowing Base Certificate - Page 2 CERTIFICATION There are no other stores leased by Homeland on which the rental payments are more than thirty (30) days past due, other than those listed on the attached Schedule "A". Homeland hereby reaffirms the grant of a security interest in the Collateral, securing the payment, performance and observance of the Obligations to the Agent for the ratable benefit of the Lenders. All representations and warranties made by Homeland Stores, Inc. in the Mortgages, the Coupon Certificate dated as of _________, and the Pharmaceutical Receivables Certificate dated as of __________, are true and correct in all material respects with the same effect as though such representations and warranties had been made on the date hereof (unless any such representation or warranty speaks as of a particular date, in which case it shall be deemed repeated as of such date). The undersigned hereby certifies on this date as to the accuracy of the information set forth in this certificate on and as of the ____ day of __________________, 200_. Dated:_____________, 200_ HOMELAND STORES, INC. By: _________________________ Name:________________________ Title:_______________________ Certification Exhibit A Monthly Amount of Name of Lessor Store No. Store Location Lease Payment Past Due Payment -----END PRIVACY-ENHANCED MESSAGE-----