-----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, Ws+aYEPW8NQ/Xs7CjzqAfi8HR5dCeLdX4YWoJLS57C6fyGiCA3/xgQyR2kKZsXgr jkKFO55AoKYcgyG/szfdUw== 0000950134-01-509121.txt : 20020412 0000950134-01-509121.hdr.sgml : 20020412 ACCESSION NUMBER: 0000950134-01-509121 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20010908 FILED AS OF DATE: 20011129 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: 1934 Act SEC FILE NUMBER: 001-11555 FILM NUMBER: 1802918 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 ACQUISTION CORP DATE OF NAME CHANGE: 19890716 FORMER COMPANY: FORMER CONFORMED NAME: SWO HOLDING CORP DATE OF NAME CHANGE: 19901017 10-Q 1 d91648e10-q.txt FORM 10-Q FOR QUARTER ENDED SEPTEMBER 30, 2001 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) [X] Quarterly Report Under Section 13 or 15 (d) of the Securities Exchange Act of 1934 For the quarterly period ended September 8, 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 November 27, 2001: Homeland Holding Corporation Common Stock: 4,925,871 shares HOMELAND HOLDING CORPORATION FORM 10-Q FOR THE TWELVE WEEKS ENDED SEPTEMBER 8, 2001 INDEX
Page ---- PART I FINANCIAL INFORMATION ITEM 1. Financial Statements........................................................... 1 Consolidated Balance Sheets September 8, 2001, and December 30, 2000.................................... 1 Consolidated Statements of Operations and Comprehensive Income Twelve Weeks and Thirty-six Weeks ended September 8, 2001, and September 9, 2000............................... 3 Consolidated Statements of Cash Flows Twelve Weeks and Thirty-six Weeks ended September 8, 2001, and September 9, 2000................................ 4 Notes to Consolidated Financial Statements..................................... 6 ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations......................................... 10 PART II OTHER INFORMATION ITEM 1. Legal Proceedings.............................................................. 18 ITEM 6. Exhibits and Reports on Form 8-K............................................... 18
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) September 8, December 30, 2001 2000 ------------ ------------ Current assets: Cash and cash equivalents $ 7,262 $ 10,198 Receivables, net of allowance for uncollectible accounts of $262 and $331 10,929 14,079 Inventories 46,882 54,707 Prepaid expenses and other current assets 1,389 1,610 ------------ ------------ Total current assets 66,462 80,594 Property, plant and equipment: Land and land improvements 8,215 8,797 Buildings 20,221 21,691 Fixtures and equipment 38,692 43,305 Leasehold improvements 17,019 21,202 Software 7,444 7,760 Leased assets under capital leases 8,919 9,886 Construction in progress 393 165 ------------ ------------ 100,903 112,806 Less, accumulated depreciation and amortization 46,703 41,036 ------------ ------------ Net property, plant and equipment 54,200 71,770 Other assets and deferred charges 22,746 27,394 ------------ ------------ Total assets $ 143,408 $ 179,758 ============ ============ 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) September 8, December 30, 2001 2000 ------------ ------------ Current liabilities: Accounts payable - trade $ 14,313 $ 28,869 Salaries and wages 1,213 2,107 Taxes 2,763 3,606 Accrued interest payable 148 2,819 Other current liabilities 4,629 7,013 Current portion of long-term debt 48,166 3,860 Current portion of obligations under capital leases 495 564 ------------ ------------ Total current liabilities 71,727 48,838 Long-term obligations: Long-term debt -- 104,592 Obligations under capital leases 590 1,996 Other noncurrent liabilities 202 3,235 ------------ ------------ Total long-term obligations 792 109,823 Liabilities subject to compromise 79,416 -- Stockholders' equity: Common stock $0.01 par value, authorized - 7,500,000 shares, issued 4,925,871 shares at September 8, 2001, and December 30, 2000, respectively 49 49 Additional paid-in capital 56,274 56,274 Accumulated deficit (64,162) (34,538) Accumulated other comprehensive income (688) (688) ------------ ------------ Total stockholders' equity (8,527) 21,097 ------------ ------------ Total liabilities and stockholders' equity $ 143,408 $ 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 ended 36 weeks ended September 8, September 9, September 8, September 9, 2001 2000 2001 2000 ------------ ------------ ------------ ------------ Sales, net $ 117,092 $ 136,501 $ 366,034 $ 415,728 Cost of sales 91,115 104,141 279,418 318,412 ------------ ------------ ------------ ------------ Gross profit 25,977 32,360 86,616 97,316 Selling and administrative expenses 28,835 32,111 85,880 91,864 Asset impairment -- -- 1,702 -- ------------ ------------ ------------ ------------ Operating profit (loss) (2,858) 249 (966) 5,452 Loss on disposal of assets (3) -- (17) (29) Interest income 197 176 596 520 Interest expense (1,882) (2,522) (6,905) (7,319) ------------ ------------ ------------ ------------ Loss before reorganization expense and income taxes (4,546) (2,097) (7,292) (1,376) Reorganization expense (22,332) -- (22,332) -- ------------ ------------ ------------ ------------ Loss before income taxes (26,878) (2,097) (29,624) (1,376) Income tax benefit -- 274 -- -- ------------ ------------ ------------ ------------ Net loss $ (26,878) $ (1,823) $ (29,624) $ (1,376) ============ ============ ============ ============ Net loss per share: Basic $ (5.46) $ (0.37) $ (6.01) $ (0.28) ============ ============ ============ ============ Diluted $ (5.46) $ (0.37) $ (6.01) $ (0.28) ============ ============ ============ ============ Weighted average shares outstanding: Basic 4,925,871 4,924,869 4,925,871 4,922,130 ============ ============ ============ ============ Diluted 4,925,871 4,924,869 4,925,871 4,922,130 ============ ============ ============ ============
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 36 weeks ended September 8, September 9, September 8, September 9, 2001 2000 2001 2000 ------------ ------------ ------------ ------------ Cash flows from operating activities: Income (loss) before reorganization expense and income taxes $ (4,546) $ (1,823) $ (7,292) $ (1,376) Adjustments to reconcile income (loss) before reorganization expense and income taxes to net cash from operating activities: Depreciation and amortization 2,432 2,568 7,380 7,636 Amortization of beneficial interest in operating leases 27 28 82 84 Amortization of goodwill 140 177 461 495 Amortization of financing costs 33 15 88 42 Loss (gain) on disposal of assets 3 -- 17 29 Asset impairment -- -- 1,702 -- Deferred income taxes -- (214) -- -- Change in assets and liabilities: (Increase) decrease in receivables (949) (1,918) 3,150 2,705 Decrease in inventories 3,241 82 7,825 1,119 (Increase) decrease in prepaid expenses and other current assets (220) (292) 221 (25) (Increase) decrease in other assets and deferred charges (938) 901 (2,041) (237) Increase (decrease) in accounts payable-trade (387) 283 (10,603) (5,529) Increase (decrease) in salaries and wages 77 69 (166) (1,041) Increase (decrease) in taxes (227) 371 799 1,235 Increase (decrease) in accrued interest payable 471 (1,614) 329 (1,785) Increase (decrease) in other current liabilities 1,127 (797) 608 (155) Increase (decrease) in other noncurrent liabilities 36 (144) (1,116) (892) ------------ ------------ ------------ ------------ Total adjustments 4,866 (485) 8,736 3,681 ------------ ------------ ------------ ------------ Net cash provided by (used in) operating activities before reorganization expense and income taxes 320 (2,308) 1,444 2,305 Reorganization fees paid (2,816) -- (2,816) -- ------------ ------------ ------------ ------------ Net cash provided by (used in) operating activities (2,496) (2,308) (1,372) 2,305 ------------ ------------ ------------ ------------
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 36 weeks ended September 8, September 9, September 8, September 9, 2001 2000 2001 2000 ------------ ------------ ------------ ------------ Cash flows from investing activities: Capital expenditures (239) (1,603) (891) (3,166) Store acquisitions -- -- -- (3,663) Cash received from sale of assets 5 2 27 475 ------------ ------------ ------------ ------------ Net cash used in investing activities (234) (1,601) (864) (6,354) ------------ ------------ ------------ ------------ Cash flows from financing activities: Borrowings under term loan 10,000 -- 10,000 5,000 Payments under term loan (7,624) (595) (8,814) (1,424) Borrowings from AWG 19,600 -- 19,600 -- Borrowings under revolving credit loans 27,827 33,063 78,683 110,979 Payments under revolving credit loans (46,477) (29,847) (98,163) (107,728) Payment on tax notes (14) (13) (40) (37) Principal payments under notes payable (921) (290) (1,552) (3,882) Principal payments under capital lease obligations (141) (112) (414) (359) ------------ ------------ ------------ ------------ Net cash provided by (used in) financing activities 2,250 2,206 (700) 2,549 ------------ ------------ ------------ ------------ Net decrease in cash and cash equivalents (480) (1,703) (2,936) (1,500) Cash and cash equivalents at beginning of period 7,742 10,440 10,198 10,237 ------------ ------------ ------------ ------------ Cash and cash equivalents at end of period $ 7,262 $ 8,737 $ 7,262 $ 8,737 ============ ============ ============ ============ Supplemental information: Cash paid during the period for interest $ 923 $ 4,076 $ 5,470 $ 8,731 ============ ============ ============ ============ Cash paid during the period for income taxes $ -- $ -- $ -- $ 30 ============ ============ ============ ============ 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. ("SLB"), (collectively referred to herein as the "Company"), reflect all adjustments, which consist, except as discussed below, 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 interim 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. As a result of the bankruptcy filings discussed in Note 3 below, the accompanying interim consolidated financial statements have been prepared in accordance with AICPA Statement of Position 90-7 ("SOP 90-7"), "Financial Reporting by Entities in Reorganization Under Bankruptcy Code," on a going concern basis, which contemplates continuity of operations, realization of assets and liquidation of liabilities in the ordinary course of business. However, as a result of the voluntary bankruptcy filings, such realization of certain of Company assets and liquidation of certain of Company liabilities are subject to significant uncertainty. While operating as debtors-in-possession, the Company may sell or otherwise dispose of assets and liquidate or settle liabilities for amounts other than those reflected in the consolidated financial statements. Further, a plan of reorganization could materially change the amounts and classifications reported in the interim consolidated financial statements, which do not give effect to any adjustments to the carrying value or classification of assets or liabilities that might be necessary as a consequence of a plan of reorganization. 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. Voluntary Bankruptcy Filing On August 1, 2001, Holding and Homeland filed voluntary petitions (the `Filing") under Chapter 11 of the United States Bankruptcy Code ("Bankruptcy Code") with the United States Bankruptcy Court for the Western District of Oklahoma ("Bankruptcy Court"). The cases filed by Holding and Homeland are In re Homeland Holding Corporation, Debtor, Case No. 01-17869TS, and In re Homeland Stores, Inc., Debtor, Case No. 01-17870TS, respectively ("Chapter 11 Cases"). Holding and Homeland continue in possession of their properties and the management of their businesses as debtors-in-possession pursuant to Section 1107 and Section 1108 of the Bankruptcy Code. Holding and Homeland continue to be managed by their respective directors and officers, subject in each case to the supervision of the Bankruptcy Court. 6 JCH and SLB did not file voluntary petitions under the Bankruptcy Code as part of the Filing. Assets and results of operations of those entities are less than 1% of consolidated totals. The Filing was made in response to increasing liquidity difficulties during the second quarter of 2001, particularly following amendments to the Loan Agreement reducing available credit, on which National Bank of Canada ("NBC") and the other lenders under the then effective NBC Loan Agreement (as defined below) insisted in the second quarter. While trade creditors generally continued to provide credit to the Company on customary credit terms during that quarter, some trade creditors had imposed tighter credit terms, further reducing the liquidity of the Company. Under the Indenture with Fleet National Bank (predecessor to State Bank and Trust Company), Homeland was required to make an interest payment on August 1, 2001 on its $60.0 million principal amount in 10% Senior Subordinated Notes ("Notes"). Homeland failed to make the required $3.0 million interest payment, which constituted a default under the Indenture. On August 15, 2001,in connection with the Chapter 11 Cases, the Company entered into New Loan Agreements (as defined below) with Fleet Retail Finance Inc. ("Fleet"), Back Bay Capital Funding L.L.C. ("Back Bay") and Associated Wholesale Grocers, Inc. ("AWG") for debtor-in-possession financing ("DIP Financing") and terminated the existing NBC Loan Agreement with NBC and certain other lenders. Under the DIP Financing, Fleet and Back Bay provide a revolving credit facility ("Revolver") under which the Company may borrow the lesser of (a) $25.0 million or (b) the applicable borrowing base ($17.9 million at September 8, 2001), and a $10.0 million term loan for a maximum aggregate principal amount of $35.0 million. Funds borrowed under the Revolver were used to repay borrowings under the NBC Loan Agreement, pay certain pre-petition indebtedness approved by the Bankruptcy Court and for general corporate purposes of the Company. The DIP Financing matures on the earlier of (a) August 1, 2003, (b) emergence through a confirmed plan of reorganization approved by the Bankruptcy Court or (c) other events as defined in the New Loan Agreements. An additional $29.0 million of DIP financing was provided by AWG which included a new $16.5 million term loan (used to repay borrowings under the NBC Loan Agreement), a restated term loan totaling $9.4 million replacing previously outstanding acquisition-related loans, and a $3.1 million term loan replacing amounts AWG had previously advanced under a supply agreement. The DIP Financing loans are secured by liens on, or security interests in, all of the assets of the Company and would have a super-priority administrative status under the Bankruptcy Code. In conjunction with the AWG loans described above, the Company entered into a new 10-year Supply Agreement with AWG, which contains volume protection rights similar to those in the previous Supply Agreement with AWG. The interest rate payable on the Revolver can be characterized as either a London Interbank Offered Rate ("LIBOR") Loan or base rate loan based on the prime rate publicly announced by Fleet National Bank plus a percentage which varies based on a number of factors, including: (a) excess availability under the Revolver; (b) the time period; and (c) whether the Company elects to use LIBOR. The current interest rate pricing under the Revolver is either the base rate plus 50 basis points or LIBOR plus 250 basis points. As of September 8, 2001, the Company had $9.6 million of borrowings under the Revolver at a rate of 6.28% and $8.3 million of excess availability. The $10.0 million Back Bay term loan, which was fully funded on August 15, 2001, bears interest at an annual fixed rate of 16.50%. The $16.5 million AWG term loan, which was fully funded on August 15, 2001, bears interest at the prime rate plus 200 basis points (8.00% at September 8, 2001). There are no scheduled principal payments on either of the term loans; however, the Company is required to make certain mandatory prepayments as defined in the New Loan Agreements. The application of the mandatory prepayments to the outstanding principal balances of the term loans is subject to an Inter-Creditor Agreement between Fleet/Back Bay and AWG. The $9.4 million AWG restated term loan, which was fully funded on August 15, 2001, bears interest at the prime rate plus 100 basis points (7.00% at September 8, 2001), subject to minimum limitations. Principal payments are required weekly. The $3.1 7 million AWG term loan, which was fully funded on August 15, 2001, bears interest at the prime rate plus 200 basis points (8.00% at September 8, 2001). Principal payments are required each four-week period. The New Loan Agreements include 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 New Loan Agreement also provides for acceleration of principal and interest payments in the event of certain material adverse changes, as determined by the lenders. The Debtors have received approval from the Bankruptcy Court to pay or otherwise honor certain of their pre-petition obligations in the ordinary course of business, including critical trade creditors, employee wages and benefits and customer programs. As provided by the Bankruptcy Code, the Company initially has the exclusive right to propose a plan of reorganization ("Plan"). As of this time, the Company has not yet filed its proposed Plan. An Unsecured Creditors Committee has been appointed in the Chapter 11 Cases. In accordance with the provisions of the Bankruptcy Code, this committee will have the right to be heard on all matters that come before the Bankruptcy Court in the Chapter 11 Cases. The Company is required to bear certain of the committee's costs and expenses, including those of their counsel and other advisors. 4. Store Closing Charge and Asset Impairment Although the Company has not submitted its formal Plan to the Bankruptcy Court, the Company has begun executing selected portions of its strategic plan with the Bankruptcy Court's approval. In August 2001, the Company committed to a strategy to close eight stores in September 2001 and recorded a store closing charge during the third quarter of $10,629. The charge included the write-down of property, plant and equipment and other assets of $5,462, the write-down of inventory of $1,487, which was recorded as a part cost of sales, and holding costs of $3,680. 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 2010. The Company periodically assesses the carrying value of its long-lived assets whenever events or circumstances indicate that the carrying value may not be recoverable. During the third quarter, the Company recorded an asset impairment charge of $9,919 pertaining to other stores for the write-down of property, plant and equipment and other assets which the Company believes will not be recoverable. 5. Liabilities Subject to Compromise and Reorganization Costs Pursuant to SOP 90-7, Homeland's pre-petition liabilities that are subject to compromise are reported separately on the balance sheet at an estimate of the amount that will ultimately be allowed by the Bankruptcy Court. As of September 8, 2001, the components of the estimated pre-petition liabilities that are subject to compromise are as follows (amounts are in thousands): Debt, pre-petition plus accrued interest $64,165 Accounts payable 3,953 Other accrued liabilities 11,298 ------- Total: $79,416
8 SOP 90-7 also requires separate reporting of certain expenses, realized gains and losses, and provisions for losses related to the Filing as reorganization items. As of September 8, 2001, the components of the reorganization items are as follows (amounts are in thousands): Asset impairment $15,381 Store closing charge 3,680 Claims Expense 455 Fees 2,816 ------- Total: $22,332
In accordance with SOP 90-7, interest expense associated with unsecured debt has not been reported subsequent to the date of the Filing. The contractual amount of interest expense on those obligations exceeds the amount reported by $0.7 million. 6. New Accounting Pronouncements In June 2001, the Financial Accounting Standards Board ("FASB") issued SFAS No. 141, "Business Combinations," and SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS No 141 prohibits the use of the pooling-of-interest method in accounting for business combinations and further clarifies the criteria to recognize intangible assets separately from goodwill. SFAS No. 141 is effective for business combinations initiated after June 30, 2001. SFAS No. 142 changes the accounting for goodwill and intangible assets with indefinite lives to no longer require amortization, but rather an annual review for impairment (or more frequently if impairment indicators arise). Separable intangible assets that are not deemed to have an indefinite life will continue to be amortized over their useful lives. SFAS No. 142 is effective for fiscal years beginning after December 15, 2001 for goodwill and intangible assets acquired prior to July 1, 2001, and applies to all goodwill and other intangible assets recognized in an entity's financial statements as of that date. Goodwill and intangible assets acquired after June 30, 2001 will be immediately subject to the nonamortization and amortization provisions of SFAS No. 142. Amortization expense for the 36 weeks ended September 8, 2001 of $0.5 million includes $0.3 million related to the amortization of goodwill and intangible assets that will not be required for fiscal years beginning after December 15, 2001. In June 2001, the FASB also issued SFAS No. 143, "Accounting for Asset Retirement Obligations." SFAS No. 143, effective for fiscal years beginning after June 15, 2002, addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. In August 2001, the FASB issued SFAS No. 144, "Accounting for Impairment of Long-lived Assets and Long-lived Assets to be Disposed Of." SFAS No. 144, effective for fiscal years beginning after December 15, 2001, supercedes existing pronouncements related to impairment and disposal of long-lived assets. The Company is currently assessing the impact of these pronouncements on its financial statements. 9 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 36 weeks ended September 8, September 9, September 8, September 9, 2001 2000 2001 2000 ------------ ------------ ------------ ------------ Net Sales 100.0% 100.0% 100.0% 100.0% Cost of sales 77.8 76.3 76.3 76.6 Gross Profit 22.2 23.7 23.7 23.4 Selling and administrative expenses 24.6 23.5 23.5 22.1 Asset impairment -- -- 0.5 -- Operating profit (loss) (2.4) 0.2 (0.3) 1.3 Loss on disposal of assets -- -- -- -- Interest income 0.1 0.1 0.2 0.1 Interest expense (1.6) (1.8) (1.9) (1.7) Loss before reorganization expense and income taxes (3.9) (1.5) (2.0) (0.3) Reorganization Expense (19.1) -- (6.1) -- Loss before income taxes (23.0) (1.5) (8.1) (0.3) Income tax benefit -- 0.2 -- -- Net income (loss) (23.0) (1.3) (8.1) (0.3)
Results of Operations. COMPARISON OF THE TWELVE WEEKS ENDED SEPTEMBER 8, 2001 WITH THE TWELVE WEEKS ENDED SEPTEMBER 9, 2000 Net sales decreased $19.4 million, or 14.2%, from $136.5 million for the twelve weeks ended September 9, 2000, to $117.1 million for the twelve weeks ended September 8, 2001. The decrease in sales is attributable to a 9.4% decline in comparable store sales and the closing of seven stores in January 2001. The decrease in comparable store sales is the result of certain competitive events, the Company's inability to effectively promote during the liquidity challenges of the third quarter, and the disruption caused by the bankruptcy filing. The competitive events relate to fiscal year 2000 competitive openings which have yet to reach their first 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 36 weeks ended September 8, 2001, there were six new competitive openings within the Company's markets including: one Wal-Mart Supercenter in Oklahoma City, one Wal-Mart Neighborhood Market in Edmond, Oklahoma, one Wal-Mart Neighborhood Market and one independent store in Tulsa, and two independent stores in rural Oklahoma. Based on information publicly available, the Company expects that, during the remainder of 2001, Wal-Mart will open two Neighborhood Markets; Albertson's will open one store; and Fleming will open one additional store. 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. Additionally, sales could continue to be impacted by the disruption 10 of the bankruptcy proceedings (See "Liquidity and Capital Resources"). As a result of these pressures on sales, management believes that comparable store sales will decline approximately 6.0%, during the fourth 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. Gross profit as a percentage of sales decreased 1.5%, from 23.7% for the twelve weeks ended September 9, 2000, to 22.2% for the twelve weeks ended September 8, 2001. The decrease in gross profit margin is primarily attributable to the 1.3% impact of the one-time inventory write-down associated with the third quarter store closing charge (See Notes to Consolidated Financial Statements). The remaining decrease in gross profit margin reflects continued pressure on pharmacy and health and beauty care margins and reduced promotional funding dollars from vendors partially offset by an increase in the AWG patronage rebate accrual, which was lower in 2000 as a result of the AWG strike. Selling and administrative expenses as a percentage of sales increased 1.1% from 23.5% for the twelve weeks ended September 9, 2000, to 24.6% for the twelve weeks ended September 8, 2001. The increase in operating expense ratio is attributable to increased occupancy costs (primarily as a result of higher utility costs), and employee benefit expenses, partially offset by a reduction in advertising expenditures and supply costs. Operating profit decreased $3.1 million from $0.2 million for the twelve weeks ended September 9, 2000, to an operating loss of $2.9 million for the twelve weeks ended September 8, 2001. The decrease primarily reflects the one-time inventory write-down, the decline in sales and the corresponding decrease in gross profit dollars partially offset by a decrease in selling and administrative expense dollars. Interest expense, net of interest income, decreased $0.6 million from $2.3 million for the twelve weeks ended September 9, 2000, to $1.7 million for the twelve weeks ended September 8, 2001. The decrease reflects a reduction in accrued interest since August 1, 2001 for the Notes (See Notes to Consolidated Financial Statements), a reduction in the variable interest rates and additional interest income from the interest bearing certificates of AWG, partially offset by additional interest expense attributable to the acquired stores and increased borrowings under the New Loan Agreements. In accordance with SOP 90-7, interest expense associated with unsecured debt has not been reported subsequent to the date of the Filing. The contractual amount of interest expense on those obligations exceeds the amount reported by $0.7 million. See "Liquidity and Capital Resources." For the twelve weeks ended September 8, 2001, the Company recorded reorganization charges, which included a store closing charge and an asset impairment charge (See Notes to Consolidated Financial Statements). The store closing charge of $9.1 million (excluding inventory write-down) included the write-down of property, plant and equipment and other assets of $5.5 million and holding costs of $3.6 million. 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 2010. Additionally, the Company also has recorded an asset impairment charge of $9.9 million to other stores for the write-down of property, plant and equipment and other assets which the Company believes will not be recoverable. Finally, the reorganization charge also includes an estimated $0.5 million in accrued liabilities related to potential bankruptcy claims and $2.8 million in fees attributable to the DIP Financing and other related bankruptcy expenses. Based upon its estimated annual tax rate, the Company did not record income tax expense or benefit for the twelve weeks ended September 8, 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, 11 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 loss increased $28.7 million from net loss of $1.8 million, or net loss per diluted share of $0.37, for the twelve weeks ended September 9, 2000 to net loss of $26.9 million, or net loss per diluted share of $5.46, for the twelve weeks ended September 8, 2001. EBITDA (as defined below) decreased $1.8 million from $3.0 million, or 2.2% of sales, for the twelve weeks ended September 9, 2000 to $1.2 million, or 1.1% of sales for the twelve weeks ended September 8, 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. COMPARISON OF THE 36 WEEKS ENDED SEPTEMBER 8, 2001 WITH THE 36 WEEKS ENDED SEPTEMBER 9, 2000 Net sales decreased $49.7 million, or 12.0%, from $415.7 million for the 36 weeks ended September 9, 2000, to $366.0 million for the 36 weeks ended September 8, 2001. The decrease in sales is attributable to a 8.5% 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 certain competitive events, the Company's inability to effectively promote during the liquidity challenges of the third quarter, and the disruption caused by the bankruptcy filings. The competitive events relate to fiscal year 2000 competitive openings which have yet to reach their first 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. Gross profit as a percentage of sales increased 0.3% from 23.4% for the 36 weeks ended September 9, 2000, to 23.7% for the 36 weeks ended September 8, 2001. The increase in gross profit margin reflects an increase in the AWG patronage rebate accrual which was lower in 2000 as a result of the AWG strike, and 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. The increase in gross profit margin was partially offset by the one-time impact of the inventory write-down associated with the third quarter 2001 store closing charge, continued pressure on pharmacy and health and beauty care margins and reduced promotional funding dollars from vendors. Selling and administrative expenses as a percentage of sales increased 1.4% from 22.1% for the 36 weeks ended September 9, 2000, to 23.5% for the 36 weeks ended September 8, 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, during the 36 weeks ended September 9, 2000, the Company's expense ratio was lower as a result of reductions in the reserves for doubtful accounts and in general liability reserves. During the second quarter of 2001, the Company recorded an asset impairment charge of $1.7 million related to the portion of goodwill which the Company believes will not be recoverable. Operating profit decreased $6.5 million from $5.5 million for the 36 weeks ended September 9, 2000, to an operating loss of $1.0 million for the 36 weeks ended September 8, 2001. The decrease primarily 12 reflects the one-time inventory write-down, the second quarter 2001 asset impairment charge, the decline in sales and the corresponding decrease in gross profit dollars partially offset by a decrease in selling and administrative expense dollars. Interest expense, net of interest income, decreased $0.5 million from $6.8 million for the 36 weeks ended September 9, 2000, to $6.3 million for the 36 weeks ended September 8, 2001. The decrease reflects a reduction in accrued interest since August 1, 2001 for the Notes (See Notes to Consolidated Financial Statements), a reduction in the variable interest rates and additional interest income from the interest bearing certificates of AWG, partially offset by additional interest expense attributable to the acquired stores and increased borrowings under the New Loan Agreement. In accordance with SOP 90-7, interest expense associated with unsecured debt has not been reported subsequent to the date of the Filing. The contractual amount of interest expense on those obligations exceeds the amount reported by $0.7 million. See "Liquidity and Capital Resources." For the 36 weeks ended September 8, 2001, the Company recorded reorganization charges, which included a store closing charge and an asset impairment charge (See Notes to Consolidated Financial Statements). The store closing charge of $9.1 million (excluding inventory write-down) included the write-down of property, plant and equipment and other assets of $5.5 million and holding costs of $3.6 million. 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 2010. Additionally, the Company also has recorded an asset impairment charge of $9.9 million to other stores for the write-down of property, plant and equipment and other assets which the Company believes will not be recoverable. Finally, the reorganization charge also includes an estimated $0.5 million in accrued liabilities related to potential bankruptcy claims and $2.8 million in fees attributable to the DIP Financing and other related bankruptcy expenses. Net loss increased $31.0 million from net loss of $1.4 million, or net loss per diluted share of $0.28, for the 36 weeks ended September 9, 2000 to net loss of $29.6 million, or net loss per diluted share of $6.01, for the 36 weeks ended September 8, 2001. EBITDA decreased $3.6 million from $13.7 million, or 3.3% of sales, for the 36 weeks ended September 9, 2000 to $10.1 million, or 2.8% of sales for the 36 weeks ended September 8, 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 August 1, 2001, Holding and Homeland filed voluntary petitions under Chapter 11 of the United States Bankruptcy Code ("Bankruptcy Code") with United States Bankruptcy Court for the Western District of Oklahoma ("Bankruptcy Court"). The cases filed by Holding and Homeland are In re Homeland Holding Corporation, Debtor, Case No. 01-17869TS, and In re Homeland Stores, Inc., Debtor, Case No. 01-17870TS, respectively. Holding and Homeland continue in possession of their properties and the management of their businesses as debtors-in-possession pursuant to Section 1107 and Section 1108 of the Bankruptcy Code. The Company continues to be managed by their respective directors and officers, subject in each case to the supervision of the Bankruptcy Court. On December 17, 1998, the Company entered into a Loan Agreement, as subsequently amended, 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 provided a working capital and letter of credit facility, and a term loan facility ("NBC Loan Agreement"). On August 1, 2001, the Bankruptcy Court approved the 13 provision by the lenders led by NBC, of continued financing under the Loan Agreement. The financing provided by NBC and the other lenders was provided on substantially the same terms as NBC and the lenders provided financing prior to August 1, 2001, with two notable exceptions; the maturity date was shortened to August 18, 2001, from August 2, 2002, and the maximum amount available under the Revolving Facility was reduced to $33.0 million from $37.0 million. Additionally, the Bankruptcy Court approved the provision by Associated Wholesale Grocers, Inc. ("AWG"), the primary supplier to the Company, of an advance of $3.1 million under a supply agreement between AWG and the Company. The advance provided by AWG bears interest at the prime rate plus 200 basis points per annum, has a maturity date of April 2002 and is secured by liens on, and security interest in, the equity of the Company in AWG, as well as the other assets which secured the pre-petition obligations of the Company to AWG. On August 15, 2001, in connection with the Chapter 11 Cases, the Company entered into New Loan Agreements with Fleet Retail Finance Inc. ("Fleet"), Back Bay Capital Funding L.L.C. ("Back Bay") and Associated Wholesale Grocers, Inc. ("AWG") for debtor-in-possession financing ("DIP Financing") and terminated the existing Loan Agreement with NBC and certain other lenders. Under the DIP Financing, Fleet and Back Bay provide a revolving credit facility ("Revolver") under, which the Company may borrow the lesser of (a) $25.0 million or (b) the applicable borrowing base ($17.9 million at September 8, 2001), and a $10.0 million term loan for a maximum aggregate principal amount of $35.0 million. Funds borrowed under the Revolver were used to repay borrowings under the NBC Loan Agreement, pay certain pre-petition indebtedness approved by the Bankruptcy Court and for general corporate purposes of the Company. The DIP Financing matures on the earlier of (a) August 1, 2003, (b) emergence through a confirmed plan of reorganization approved by the Bankruptcy Court or (c) other events as defined in the New Loan Agreements. An additional $29.0 million of DIP financing was provided by AWG which included a new $16.5 million term loan (used to repay borrowings under the NBC Loan Agreement), a restated term loan totaling $9.4 million replacing previously outstanding acquisition-related loans, and a $3.1 million term loan replacing amounts AWG had previously advanced under a supply agreement. The DIP Financing loans are secured by liens on, or security interests in, all of the assets of the Company and would have a super-priority administrative status under the Bankruptcy Code. In conjunction with the AWG loans described above, the Company entered into a new 10-year Supply Agreement with AWG, which contains volume protection rights similar to those in the previous Supply Agreement with AWG. The interest rate payable on the Revolver can be characterized as either a London Interbank Offered Rate ("LIBOR") Loans, or base rate loan based on the prime rate publicly announced by Fleet National Bank plus a percentage which varies based on a number of factors, including: (a) excess availability under the Revolver; (b) the time period; and (c) whether the Company elects to use LIBOR. The current interest rate pricing under the Revolver is either the base rate plus 50 basis points or LIBOR plus 250 basis points. As of September 8, 2001, the Company had $9.6 million of borrowings under the Revolver at a rate of 6.28% and $8.3 million of excess availability. The $10.0 million Back Bay term loan, which was fully funded on August 15, 2001, bears interest at an annual fixed rate of 16.50%. The $16.5 million AWG term loan, which was fully funded on August 15, 2001, bears interest at the prime rate plus 200 basis points (8.00% at September 8, 2001). There are no scheduled principal payments on either of the term loans; however, the Company is required to make certain mandatory prepayments as defined in the New Loan Agreements. The application of the mandatory prepayments to the outstanding principal balances of the term loans is subject to an Inter-Creditor Agreement between Fleet/Back Bay and AWG. The $9.4 million AWG restated term loan, which was fully funded on August 15, 2001, bears interest at the prime rate plus 100 basis points (7.00% at September 8, 2001), subject to minimum limitations. Principal payments are required weekly. The $3.1 million AWG term loan, which was fully funded on August 15, 2001, bears interest at the prime rate plus 200 basis points (8.00% at September 8, 2001). Principal payments are required each four-week period. The New Loan Agreements include 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 New Loan Agreement also provides for acceleration of principal and interest payments in the event of certain material adverse changes, as determined by the lenders. 14 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 principal amount of 10% Senior Subordinated Notes due 2003 ("Notes"). Homeland failed to make the required $3.0 million interest payment on August 1, 2001, which constituted a default under the Indenture; enforcement by the holders of the Notes of their remedies is stayed by the Bankruptcy Code. During the second quarter of 2001, the Company began to experience increasing liquidity difficulties, particularly following amendments to the NBC Loan Agreement reducing available credit on which NBC and the other lenders under the then effective NBC Loan Agreement in the second quarter. While trade creditors generally continued to provide credit to the Company on customary credit terms during that quarter, some trade creditors had imposed tighter credit terms, further reducing the liquidity of the Company. Since the August 1, 2001 filing, the Company has been in negotiations with its critical vendors and has been encouraged by the support received relative to the return to trade terms received by the Company prior to the filing. The Company believes that the availability of funds sufficient to permit the Company to pay its trade creditors in accordance with their customary credit terms is critical to the continued willingness of the trade creditors to supply the Company. Working Capital and Capital Expenditures. The Company's primary sources of capital have been borrowing availability under revolving facilities 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, inventory write-down, store closing charges, asset impairment, reorganization items 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 12 weeks 36 weeks 36 weeks ended ended ended ended September 8, September 9, September 8, September 9, 2001 2000 2001 2000 ------------ ------------ ------------ ------------ Income (loss) before income taxes $ (26,878) $ (2,097) $ (29,624) $ (1,376) Inventory write-down 1,487 -- 1,487 -- Asset impairment -- -- 1,702 -- Reorganization expense 22,332 -- 22,332 -- Interest income (197) (176) (596) (520) Interest expense 1,882 2,522 6,905 7,319 Loss on disposal of assets 3 -- 17 29 Depreciation and amortization 2,599 2,773 7,923 8,215 ------------ ------------ ------------ ------------ EBITDA $ 1,228 $ 3,022 $ 10,146 $ 13,667 ============ ============ ============ ============ As a percentage of sales 1.05% 2.21% 2.77% 3.29% As a multiple of interest expense, net of interest income 0.73x 1.29x 1.61x 2.01x
15 Net cash provided by operating activities decreased $3.7 million, from net cash provided of $2.3 million for the 36 weeks ended September 9, 2000 to net cash used of $1.4 million for the 36 weeks ended September 8, 2001. The decrease versus the prior year principally reflects unfavorable decreases in trade payables, the payment of fees related to the bankruptcy, and the decline in EBITDA, partially offset by favorable decreases in inventory and receivables. The decrease in trade payables is attributable to reduced trade credit by selected vendors, the decline in sales and the closing of seven stores in January 2001. The reduction in inventory is primarily attributable to the seven stores closed in January 2001. Net cash used in investing activities decreased $5.5 million, from $6.4 million for the 36 weeks ended September 9, 2000 to $0.9 million for the 36 weeks ended September 8, 2001. Capital expenditures decreased $2.3 million from $3.2 million for the 36 weeks ended September 9, 2000 to $0.9 million for the 36 weeks ended September 8, 2001. Net cash used in financing activities decreased $3.2 million from net cash provided by financing activities of $2.5 million for the 36 weeks ended September 9, 2000 to net cash used in financing activities of $0.7 million for the 36 weeks ended September 8, 2001. The decrease primarily reflects additional principal payments of the obligations thus far during 2001 and the changes resulting from the DIP Financing. The Company considers its capital expenditure program a strategic part of the overall plan to support its market competitiveness. Cash capital expenditures for 2001, which will be invested primarily in the on-going maintenance and modernization of certain stores and does not include provisions for acquisitions, are anticipated to be approximately $2.0 million. The funds for the capital expenditures are expected to be provided by internally-generated cash flows from operations and borrowings under the New Loan Agreement with Back Bay and Fleet. 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 inflation or deflation will not affect the Company's business in future periods. New Accounting Pronouncements In June 2001, the Financial Accounting Standards Board ("FASB") issued SFAS No. 141, "Business Combinations," and SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS No 141 prohibits the use of the pooling-of-interest method in accounting for business combinations and further clarifies the criteria to recognize intangible assets separately from goodwill. SFAS No. 141 is effective for business combinations initiated after June 30, 2001. SFAS No. 142 changes the accounting for goodwill and intangible assets with indefinite lives to no longer require amortization, but rather an annual review for impairment (or more frequently if impairment indicators arise). Separable intangible assets that are not deemed to have an indefinite life will continue to be amortized over their useful lives. SFAS No. 142 is effective for fiscal years beginning after December 15, 2001 for goodwill and intangible assets acquired prior to July 1, 2001, and applies to all goodwill and other intangible assets recognized in an entity's financial statements as of that date. Goodwill and intangible assets acquired after June 30, 2001 will be immediately subject to the nonamortization and amortization provisions of SFAS No. 142. Amortization expense for the 36 weeks ended September 8, 2001 of $0.5 million includes $0.3 million related to the 16 amortization of goodwill and intangible assets that will not be required for fiscal years beginning after December 15, 2001. In June 2001, the FASB also issued SFAS No. 143, "Accounting for Asset Retirement Obligations." SFAS No. 143, effective for fiscal years beginning after June 15, 2002, addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. In August 2001, the FASB issued SFAS No. 144, "Accounting for Impairment of Long-lived Assets and Long-lived Assets to be Disposed Of." SFAS No. 144, effective for fiscal years beginning after December 15, 2001, supercedes existing pronouncements related to impairment and disposal of long-lived assets. The Company is currently assessing the impact of these pronouncements on its financial statements. 17 PART II - OTHER INFORMATION Item 1. Legal Proceedings On August 1, 2001, Holding and Homeland filed voluntary petitions under Chapter 11 of the United States Bankruptcy Code ("Bankruptcy Code") with United States Bankruptcy Court for the Western District of Oklahoma ("Bankruptcy Court"). The cases filed by Holding and Homeland are In re Homeland Holding Corporation, Debtor, Case No. 01-17869TS, and In re Homeland Stores, Inc., Debtor, Case No. 01-17870TS, respectively. Holding and Homeland continue in possession of their properties and the management of their businesses as debtors-in-possession pursuant to Section 1107 and Section 1108 of the Bankruptcy Code. The Company continues to be managed by their respective directors and officers, subject in each case to the supervision of the Bankruptcy Court. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits: The following exhibits are filed as part of this report:
Exhibit No. Description ----------- ----------- 10aaa Credit Agreement dated as of August 15, 2001 with Associated Wholesale Grocers, Inc. 10aab Supply Agreement dated as of August 15, 2001 with Associated Wholesale Grocers, Inc. 10aac Credit Agreement dated as of August 15, 2001 with Fleet Retail Finance, Inc. and Back Bay Capital Funding L.L.C.
(b) Report on Form 8-K: The following report on Form 8-K was filed during the quarter ended September 8, 2001.
Date Description ---- ----------- August 13, 2001 The filing of Chapter 11 petitions by Homeland Holding Corporation and Homeland Stores, Inc. on August 1, 2001.
18 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: November 28, 2001 By: /s/ David B. Clark ------------------------------------ David B. Clark, President, Chief Executive Officer, and Director (Principal Executive Officer) Date: November 28, 2001 By: /s/ Wayne S. Peterson ------------------------------------ Wayne S. Peterson, Senior Vice President/Finance, Chief Financial Officer and Secretary (Principal Financial Officer) INDEX TO EXHIBITS
EXHIBIT NUMBER DESCRIPTION - ------- ----------- 10aaa Credit Agreement dated as of August 15, 2001 with Associated Wholesale Grocers, Inc. 10aab Supply Agreement dated as of August 15, 2001 with Associated Wholesale Grocers, Inc. 10aac Credit Agreement dated as of August 15, 2001 with Fleet Retail Finance, Inc. and Back Bay Capital Funding L.L.C.
EX-10.AAA 3 d91648ex10-aaa.txt CREDIT AGREEMENT DATED AUGUST 15, 2001 EXHIBIT 10aaa ================================================================================ CREDIT AGREEMENT Dated as of August 15, 2001 among HOMELAND HOLDING CORPORATION, Chapter 11 Debtor-in-Possession And HOMELAND STORES, INC., Chapter 11 Debtor-in-Possession as Borrowers, and ASSOCIATED WHOLESALE GROCERS, INC. as Lender ================================================================================ TABLE OF CONTENTS
PAGE ---- 1. AMOUNT AND TERMS OF CREDIT.......................................................... 2 1.1 Term Loans .................................................................... 2 1.2 Reliance on Notices; Appointment of Borrower Representative ................... 4 1.3 Prepayment .................................................................... 4 1.4 Use of Proceeds ............................................................... 5 1.5 Interest and Applicable Margins ............................................... 6 1.6 Intentionally Omitted ......................................................... 7 1.7 Intentionally Omitted ......................................................... 7 1.8 Intentionally Omitted ......................................................... 7 1.9 Fees .......................................................................... 7 1.10 Receipt of Payments ........................................................... 7 1.11 Application and Allocation of Payments ........................................ 7 1.12 Loan Account and Accounting ................................................... 8 1.13 Indemnity ..................................................................... 8 1.14 Access ........................................................................ 9 1.15 Taxes ......................................................................... 9 1.16 Capital Adequacy; Increased Costs; Illegality ................................. 10 2. CONDITIONS PRECEDENT ............................................................... 10 2.1 Conditions Precedent to the Term Loans ........................................ 10 3. REPRESENTATIONS AND WARRANTIES ..................................................... 12 3.1 Corporate Existence; Compliance with Law ...................................... 13 3.2 Executive Offices; FEIN ....................................................... 13 3.3 Corporate Power, Authorization, Enforceable Obligations ....................... 13 3.4 Financial Statements and Projections .......................................... 14 3.5 Material Adverse Effect ....................................................... 15 3.6 Ownership of Property; Liens .................................................. 15 3.7 Labor Matters ................................................................. 15 3.8 Ventures, Subsidiaries and Affiliates; Outstanding Stock and Indebtedness ..... 16 3.9 Government Regulation ......................................................... 16 3.10 Margin Regulations ............................................................ 16 3.11 Taxes ......................................................................... 17
i 3.12 ERISA ......................................................................... 18 3.13 No Litigation ................................................................. 18 3.14 Brokers ....................................................................... 19 3.15 Intellectual Property ......................................................... 19 3.16 Full Disclosure ............................................................... 19 3.17 Environmental Matters ......................................................... 19 3.18 Insurance ..................................................................... 20 3.19 Deposit and Disbursement Accounts ............................................. 20 3.20 Government Contracts .......................................................... 20 3.21 Intentionally Omitted ......................................................... 20 3.22 Agreements and Other Documents ................................................ 20 3.23 Ownership of Homeland ......................................................... 21 3.24 Subordinated Debt ............................................................. 21 4. FINANCIAL STATEMENTS AND INFORMATION ............................................... 21 4.1 Reports and Notices ........................................................... 21 4.2 Communication with Accountants ................................................ 21 5. AFFIRMATIVE COVENANTS .............................................................. 21 5.1 Maintenance of Existence and Conduct of Business .............................. 21 5.2 Payment of Obligations ........................................................ 22 5.3 Books and Records ............................................................. 22 5.4 Insurance; Damage to or Destruction of Collateral ............................. 22 5.5 Compliance with Laws .......................................................... 24 5.6 Supplemental Disclosure ....................................................... 24 5.7 Intellectual Property ......................................................... 24 5.8 Environmental Matters ......................................................... 24 5.9 Landlords' Agreements, Mortgagee Agreements and Bailee Letters ................ 25 5.10 Further Assurances ............................................................ 25 5.11 Reorganization Matters ........................................................ 25 5.12 Period Budgets ................................................................ 26 5.13 Member Status ................................................................. 26 6. NEGATIVE COVENANTS ................................................................. 26 6.1 Mergers, Subsidiaries, Etc. ................................................... 26 6.2 Investments; Loans and Advances ............................................... 26 6.3 Indebtedness .................................................................. 26
ii 6.4 Employee Loans and Affiliate Transactions .................................... 27 6.5 Capital Structure and Business ............................................... 27 6.6 Guaranteed Indebtedness ...................................................... 27 6.7 Liens ........................................................................ 28 6.8 Sale of Stock and Assets ..................................................... 28 6.9 ERISA ........................................................................ 28 6.10 Intentionally Omitted ........................................................ 28 6.11 Hazardous Materials .......................................................... 28 6.12 Sale-Leasebacks .............................................................. 28 6.13 Cancellation of Indebtedness ................................................. 29 6.14 Restricted Payments .......................................................... 29 6.15 Change of Corporate Name or Location; Change of Fiscal Year .................. 29 6.16 No Impairment of Intercompany Transfers ...................................... 29 6.17 No Speculative Transactions .................................................. 29 6.18 Leases ....................................................................... 29 6.19 Changes Relating to Subordinated Debt ........................................ 29 6.20 Reorganization Matters ....................................................... 30 6.21 AWG Leases ................................................................... 30 6.22 No Other Supply Agreement or Right of First Refusal .......................... 30 7. TERM .............................................................................. 30 7.1 Termination .................................................................. 30 7.2 Survival of Obligations Upon Termination of Financing Arrangements ........... 30 8. EVENTS OF DEFAULT: RIGHTS AND REMEDIES ............................................ 31 8.1 Events of Default ............................................................ 31 8.2 Remedies ..................................................................... 34 8.3 Waivers by Borrowers ......................................................... 34 8.4 Cross-Default ................................................................ 34 9. INTENTIONALLY OMITTED ............................................................. 34 10. SUCCESSORS AND ASSIGNS ............................................................ 34 10.1 Successors and Assigns ....................................................... 34 11. MISCELLANEOUS ..................................................................... 35 11.1 Complete Agreement; Modification of Agreement ................................ 35 11.2 Amendments and Waivers ....................................................... 35
iii 11.3 Legal Fees and Expenses ..................................................... 35 11.4 No Waiver ................................................................... 36 11.5 Remedies .................................................................... 37 11.6 Severability ................................................................ 37 11.7 Conflict of Terms ........................................................... 37 11.8 Confidentiality ............................................................. 37 11.9 GOVERNING LAW ............................................................... 37 11.10 Notices ..................................................................... 38 11.11 Section Titles .............................................................. 39 11.12 Counterparts ................................................................ 39 11.13 WAIVER OF JURY TRIAL ........................................................ 39 11.14 Press Releases .............................................................. 39 11.15 Reinstatement ............................................................... 39 11.16 Advice of Counsel ........................................................... 40 11.17 No Strict Construction ...................................................... 40 11.18 Existing Loan Documents ..................................................... 40 11.19 Release OF Claims and Waiver ................................................ 40 12. CROSS-GUARANTY .................................................................... 41 12.1 Cross-Guaranty .............................................................. 41 12.2 Waivers by Borrowers ........................................................ 41 12.3 Benefit of Guaranty ......................................................... 42 12.4 Subordination of Subrogation, Etc. .......................................... 42 12.5 Election of Remedies ........................................................ 42 12.6 Limitation .................................................................. 42 12.7 Contribution with Respect to Guaranty Obligations ........................... 43 12.8 Liability Cumulative ........................................................ 44
iv INDEX OF APPENDICES Annex A (Recitals) - Definitions Annex B (Section 2.1(a)) - Schedule of Additional Closing Documents Annex C (Section 11.10) - Notice Addresses Exhibit 1.1(a)(i) - Form of $16.5 Million Term Note Exhibit 1.1(b)(i) - Form of Restated Term Note Exhibit 1.1(b)(ii) - Amortization Schedule Exhibit 1.1(c)(i) - Form of Supply Term Note Schedule 1.4 - Sources and Uses; Funds Flow Memorandum Schedule 3.1 - Jurisdictions of Incorporation Schedule 3.2 - Executive Offices; FEIN; Legal Names Schedule 3.4(A) - Financial Statements Schedule 3.4(B) - Pro Forma Schedule 3.4(C) - Projections Schedule 3.6 - Real Estate and Leases Schedule 3.7 - Labor Matters Schedule 3.8 - Ventures, Subsidiaries and Affiliates; Outstanding Stock Schedule 3.11 - Tax Matters Schedule 3.12 - ERISA Plans Schedule 3.13 - Litigation Schedule 3.15 - Intellectual Property Schedule 3.17 - Hazardous Materials Schedule 3.18 - Insurance Schedule 3.19 - Deposit Accounts Schedule 3.20 - Government Contracts Schedule 3.22 - Material Agreements Schedule 5.1 - Trade Names Schedule 6.3 - Indebtedness Schedule 6.4(a) - Transactions with Affiliates Schedule 6.4(c) - Compensation Levels Schedule 6.7 - Existing Liens v CREDIT AGREEMENT, dated as of August 15, 2001 among HOMELAND HOLDING CORPORATION, Chapter 11 debtor-in-possession, a Delaware corporation ("Holding"), HOMELAND STORES, INC., Chapter 11 debtor-in-possession, a Delaware corporation ("Homeland") (Holding and Homeland are sometimes collectively referred to herein as the "Borrowers" and individually as a "Borrower") and ASSOCIATED WHOLESALE GROCERS, INC., a Missouri corporation (hereinafter "AWG" or "Lender"). RECITALS The following Recitals are a material part of this Credit Agreement: A. AWG is a wholesaler of grocery and supermarket products operating in a cooperative manner. B. Homeland, a wholly-owned subsidiary of Holding, is a retail grocery operator of 78 grocery stores. C. Pursuant to the Existing Supply Protection Agreements, AWG is Homeland's primary supplier of grocery and supermarket products. D. Homeland and Holding, as of August 1, 2001, have filed for bankruptcy in the Bankruptcy Court pursuant to the Bankruptcy Code. E. Homeland and Holding desire for AWG to continue to supply grocery and supermarket products to Homeland as Homeland's primary supplier during the pendency of the Bankruptcy Cases and after confirmation of an Acceptable Plan of Reorganization. F. Borrowers, in an effort to continue operations during the Bankruptcy Cases, desire that Lender extend debtor-in-possession financing consisting of term credit facilities to Borrowers of up to Twenty Nine Million Sixty-Five Thousand Nine Hundred Fifty-Six and 66/100 Dollars ($29,065,956.66) in the aggregate for the purpose of refinancing certain senior creditor secured indebtedness of Borrowers and to provide (a) working capital financing for Borrowers and (b) funds for other general corporate purposes of Borrowers; and for these purposes, Lender is willing to make certain debtor-in-possession loans and other extensions of credit to Borrowers of up to such amount upon the terms and conditions set forth herein. G. The above-referenced term credit facilities will have three (3) components, consisting of the following: (i) a $16,500,000 loan; (ii) an approximate $9,400,000 loan (to consolidate certain existing indebtedness of Homeland to AWG under the Existing Notes); and (iii) a $3,100,000 restated loan (which loan relates to the restatement of that certain Promissory Note dated August 1, 2001 made by Borrowers in favor of Lender (the "First Day Note"), which First Day Note evidences an advancement of anticipated sums due under the 1995 Supply Agreement) H. AWG is unwilling to enter into this Credit Agreement unless (i) Homeland executes and delivers to AWG, among other things, the New Supply Agreement, the ROFR, the Use Restriction Agreements and the other Loan Documents; and (ii) that such agreements are each - 1 - approved by the Bankruptcy Court as part of Homeland's first day motion for order approving the debtor-in-possession financing contemplated by this Agreement. I. Borrowers desire to secure all of their obligations under the Loan Documents by granting to Lender a security interest in and Lien upon all of their existing and after-acquired personal and real property which Liens shall receive superpriority Lien status and shall be first-priority Liens subject only to certain Liens which may be granted in favor of Fleet Retail Finance, Inc. in connection with debtor-in-possession financing made to Borrowers on or about the date herewith, which is approved by AWG, as provided for in the Intercreditor Agreement. J. Capitalized terms used in this Agreement shall have the meanings ascribed to them in Annex A. All Annexes, Disclosure Schedules, Exhibits and other attachments (collectively, "Appendices") hereto, or expressly identified to this Agreement, are incorporated herein by reference, and taken together, shall constitute but a single agreement. These Recitals shall be construed as part of the Agreement. NOW, THEREFORE, in consideration of the premises and the mutual covenants hereinafter contained, and for other good and valuable consideration, the parties hereto agree as follows: 1. AMOUNT AND TERMS OF CREDIT 1.1. Term Loans (a) $16.5 Million Term Loan. (i) Subject to the terms and conditions hereof, Lender agrees to make a term loan on the Closing Date to Borrowers in the amount of the $16.5 Million Loan Commitment (the "$16.5 Million Term Loan"). Such $16.5 Million Term Loan shall be evidenced by a promissory note substantially in the form of Exhibit 1.1(a)(i) ("$16.5 Million Term Note"). The $16.5 Million Term Note shall represent the obligation of Borrowers to pay the amount of the $16.5 Million Term Loan made to Borrowers, together with interest thereon as prescribed in Section 1.5. Notwithstanding the above, any payments made by Lender to Fleet Retail Finance Inc. pursuant to the Intercreditor Agreement shall be deemed advances under the $16.5 Million Term Loan and shall be evidenced by the $16.5 Million Term Note, notwithstanding the fact that any such advance (A) causes or may cause the outstanding principal balance of the $16.5 Million Term Loan to exceed $16,500,000 or (B) Borrowers may not have requested, demanded or consented to any such advance. At the time of any such advance, upon Lender's request, Borrowers shall issue a restated note evidencing such advance. Lender has no obligation to make any such advance. (ii) Borrowers shall pay, and the aggregate outstanding principal balance of the $16.5 Million Term Loan shall be due and payable in full in immediately available funds on the $16.5 Million Payment Date, if not sooner paid in full. - 2 - (b) Restated Term Loan. (i) Subject to the terms and conditions hereof, Lender agrees to make a term loan on the Closing Date to Borrowers in the amount of the Restated Loan Commitment (the "Restated Term Loan") for the sole purpose of repaying Homeland's Indebtedness to Lender on the Existing Notes. Such Restated Term Loan shall be evidenced by a promissory note substantially in the form of Exhibit 1.1 (b)(i) ("Restated Term Note"). The Restated Term Note shall represent the obligation of Borrowers to pay the amount of the Restated Term Loan made to Borrowers, together with interest thereon as prescribed in Section 1.5. (ii) Borrowers shall pay to Lender weekly installments of principal and interest on the dates corresponding to payments of principal and interest required as set forth on Exhibit 1.1(b)(ii), which such initial payment of $42,928.47 shall be subject to change in accordance with Section 1.5(b). (iii) Notwithstanding the foregoing, the aggregate outstanding principal balance of the Restated Term Loan shall be due and payable in full in immediately available funds on the Restated Term Maturity Date. (c) Supply Term Loan. (i) Subject to the terms and conditions hereof, Lender agrees to make a term loan on the Closing Date to Borrowers in the amount of the Supply Loan Commitment (the "Supply Term Loan"). Such Supply Term Loan shall be evidenced by a promissory note substantially in the form of Exhibit 1.1(c)(i) ("Supply Term Note"). The Supply Term Note shall represent the obligation of Borrowers to pay the amount of the Supply Term Loan made to Borrowers, together with interest thereon as prescribed in Section 1.5. The Supply Term Note shall restate, amend, replace and supercede the First Day Note. The current outstanding principal balance of the First Day Note is $3,100,000, which such amount was advanced in full on August 3, 2001. (ii) Borrowers shall pay, and the aggregate outstanding principal balance of the Supply Term Loan shall be due and payable in immediately available funds on the dates, from and after the Closing Date, and in the amounts that payments are due to Homeland from AWG under the 1995 Supply Agreement, modified, however, such that the remaining payments shall be paid (and due and payable under the Supply Term Loan) each four (4) week period (on the second Friday of each period) rather than quarterly and the amount paid during each such period (and due and payable under the Supply Term Loan) shall be the applicable amount shown on Exhibit "D" to the 1995 Supply Agreement multiplied by four (4) and divided by thirteen (13). Homeland acknowledges and agrees that AWG may, at its election, set-off such payments against the payments due on the Supply Term Loan hereunder, without notice of any type or nature. This Section 1.1(c)(ii) modifies the terms of the 1995 Supply Agreement as to, and only as to the express provisions hereof. Except as modified hereby, the 1995 Supply Agreement remains in full force and effect. - 3 - (iii) Notwithstanding the foregoing, the aggregate outstanding principal balance of the Supply Term Loan shall be due and payable in full in immediately available funds on the Supply Term Maturity Date. (iv) If a Default or Event of Default shall have occurred or be continuing, Lender, without accelerating the Term Loans pursuant to Section 8.2(ii), shall have the right to set off or apply any portion of the Collateral against the Obligations or any portion thereof in Lender's sole discretion. 1.2. Reliance on Notices; Appointment of Borrower Representative. Lender shall be entitled to rely upon, and shall be fully protected in relying upon, any notice believed by Lender to be genuine. Lender may assume that each Person executing and delivering such a notice was duly authorized, unless the responsible individual acting thereon for Lender has actual knowledge to the contrary. Each Borrower hereby designates Homeland as its representative and agent on its behalf for the purposes of giving instructions with respect to the disbursement of the proceeds of the Term Loans, giving and receiving all other notices and consents hereunder or under any of the other Loan Documents and taking all other actions (including in respect of compliance with covenants) on behalf of any Borrower or Borrowers under the Loan Documents. Borrower Representative hereby accepts such appointment. Lender may regard any notice or other communication pursuant to any Loan Document from Borrower Representative as a notice or communication from all Borrowers, and may give any notice or communication required or permitted to be given to any Borrower or Borrowers hereunder to Borrower Representative on behalf of such Borrower or Borrowers. Each Borrower agrees that each notice, election, representation and warranty, covenant, agreement and undertaking made on its behalf by Borrower Representative shall be deemed for all purposes to have been made by such Borrower and shall be binding upon and enforceable against such Borrower to the same extent as if the same had been made directly by such Borrower. 1.3. Prepayment. (a) Voluntary Prepayments. Borrowers may at any time voluntarily prepay all or part of the Term Loans. Each such prepayment shall be applied in accordance with clause (c) below. (b) Mandatory Prepayments. (i) Borrowers shall be required to make prepayments under the $16.5 Million Term Loan to the extent such prepayments are permitted under the Intercreditor Agreement. (ii) Immediately upon receipt by any Borrower of proceeds of any asset disposition (including condemnation proceeds, but excluding proceeds of asset dispositions permitted by Section 6.8) or any sale of Stock of any Subsidiary of any Borrower, Borrowers shall prepay the Term Loans in an amount equal to all such proceeds, net of (A) commissions and other reasonable and customary transaction costs, fees and expenses properly attributable to such transaction and payable by such Borrower - 4 - in connection therewith (in each case, paid to non-Affiliates), (B) transfer taxes, and (C) amounts payable to holders of senior Liens (to the extent such Liens constitute Permitted Encumbrances hereunder), if any. Any such prepayment shall be applied in accordance with clause (c) below. (c) Application of Certain Mandatory Prepayments. Any prepayments made by any Borrower pursuant to clauses (a) or (b) above shall be applied as follows: (i) first, to Fees and reimbursable expenses of Lender then due and payable pursuant to any of the Loan Documents; (ii) second, to interest then due and payable on the $16.5 Million Term Loan; (iii) third, to interest then due and payable on the Restated Term Loan; (iv) fourth, to interest then due and payable on the Supply Term Loan; (v) fifth, to prepay the outstanding principal payments on the $16.5 Million Term Loan; (vi) sixth, to prepay the outstanding principal payments on the Restated Term Loan in inverse order of maturity; and (vii) seventh, to prepay the outstanding principal payments on the Supply Term Loan in inverse order of maturity. (d) Application of Prepayments from Insurance Proceeds. Prepayments from insurance proceeds in accordance with Section 5.4(c) shall be applied to the Term Loans at Lender's discretion. (e) Nothing in this Section 1.3 shall be construed to constitute Lender's consent to any transaction referred to in clause (b)(ii) above which is not permitted by other provisions of this Agreement or the other Loan Documents. 1.4. Use of Proceeds. Unless otherwise specifically set forth elsewhere herein, Borrowers shall utilize the proceeds of the Term Loans solely for the Refinancing (and to pay any related transaction expenses) and for the financing of Borrowers' ordinary working capital and general corporate needs (but excluding in any event the making of any Restricted Payment not specifically permitted by Section 6.14) in accordance with budgets approved pursuant to Section 5.12. Disclosure Schedule (1.4) contains a description of Borrowers' sources and uses of funds as of the Closing Date, including Term Loans to be made on that date, and a funds flow memorandum detailing how funds from each source are to be transferred to particular uses. - 5 - 1.5. Interest. (a) With respect to the $16.5 Million Term Loan and the Supply Term Loan, Borrowers shall pay interest to Lender in arrears on each applicable Interest Payment Date beginning on the Closing Date at the Prime Rate plus two percent (2%) per annum. Notwithstanding anything to the contrary contained herein, the interest rate charged on the outstanding principal balance of the $16.5 Million Term Loan and the Supply Term Loan shall never be less than the current rate of interest payable by AWG to Homeland on patronage certificates issued by AWG and held by Homeland. (b) With respect to the Restated Term Loan, Borrowers shall pay principal and interest to Lender in accordance with the payment schedule set forth in Section 1.1(b)(ii) above at the Prime Rate plus one percent (1%) per annum. The initial payment of principal and interest in the amount of $42,928.47 is subject to adjustment by Lender to reflect fluctuations in the Prime Rate. Notwithstanding anything to the contrary contained herein, the interest rate charged on the outstanding principal balance of the Restated Term Loan shall never be less than the current rate of interest payable by Lender to Homeland on patronage certificates issued by AWG and held by Homeland. (c) If any payment on any Term Loan becomes due and payable on a day other than a Business Day, the maturity thereof will be extended to the next succeeding Business Day and, with respect to payments of principal, interest thereon shall be payable at the then applicable rate during such extension. (d) All computations of Fees calculated on a per annum basis and interest shall be made by Lender on the basis of a three hundred sixty four (364) day year, in each case for the actual number of days occurring in the period for which such interest and Fees are payable. Each determination by Lender of an interest rate hereunder shall be conclusive, absent manifest error. (e) So long as an Event of Default shall have occurred and be continuing under Sections 8.1(a) or (h) or so long as any other Default or Event of Default shall have occurred and be continuing, and at the election of Lender confirmed by written notice from Lender to Borrower Representative, the interest rate applicable to the Term Loans shall be increased by four percent (4%) per annum ("Default Rate"), and all outstanding Obligations shall bear interest at the Default Rate applicable to such Obligations. (f) Interest at the Default Rate shall accrue from the initial date of such Default or Event of Default until that Default or Event of Default is cured or waived and shall be payable upon demand. (g) Notwithstanding anything to the contrary set forth in this Section 1.5, if a court of competent jurisdiction determines in a final order that the rate of interest payable hereunder exceeds the highest rate of interest permissible under law (the "Maximum Lawful Rate"), then so long as the Maximum Lawful Rate would be so exceeded, the rate of interest payable hereunder shall be equal to the Maximum Lawful Rate; provided, - 6 - however, that if at any time thereafter the rate of interest payable hereunder is less than the Maximum Lawful Rate, Borrowers shall continue to pay interest hereunder at the Maximum Lawful Rate until such time as the total interest received by Lender is equal to the total interest which would have been received had the interest rate payable hereunder been (but for the operation of this paragraph) the interest rate payable since the Closing Date as otherwise provided in this Agreement. Thereafter, interest hereunder shall be paid at the rate(s) of interest and in the manner provided in Sections 1.5(a) through (d) above, unless and until the rate of interest again exceeds the Maximum Lawful Rate, and at that time this paragraph shall again apply. In no event shall the total interest received by Lender pursuant to the terms hereof exceed the amount which Lender could lawfully have received had the interest due hereunder been calculated for the full term hereof at the Maximum Lawful Rate. If the Maximum Lawful Rate is calculated pursuant to this paragraph, such interest shall be calculated at a daily rate equal to the Maximum Lawful Rate divided by the number of days in the year in which such calculation is made. If, notwithstanding the provisions of this Section 1.5(g), a court of competent jurisdiction shall finally determine that Lender has received interest hereunder in excess of the Maximum Lawful Rate, Lender shall, to the extent permitted by applicable law, promptly apply such excess in the order specified in Section 1.11 and thereafter shall refund any excess to Borrowers or as a court of competent jurisdiction may otherwise order. 1.6. Intentionally Omitted. 1.7. Intentionally Omitted. 1.8. Intentionally Omitted. 1.9. Fees. Borrowers shall pay all of Lender's reasonable attorney fees, document preparation fees, due diligence expenses, court costs and all other reasonable legal or legal related fees and expenses related either directly or indirectly with the transactions contemplated hereunder (collectively "Fees") and such Fees shall be due and payable on demand from Lender. In addition, in the event Lender makes any advances to pay Fleet Retail Finance, Inc. pursuant to the terms of the Intercreditor Agreement, Borrowers shall pay (a) all costs and expenses related to such advance which is not otherwise covered herein or covered under any other document assumed by or assigned to Lender in connection with such advances, (b) any prepayment penalty, charge, or other similar fee charged by Fleet Retail Finance, Inc. in connection with such advance. 1.10. Receipt of Payments. Borrowers shall make each payment under this Agreement not later than 2:00 p.m. central time on the day when due in immediately available funds in Dollars to the Collection Account. For purposes of computing interest and Fees as of any date, all payments shall be deemed received on the day of receipt of immediately available funds therefor in the Collection Account prior to 2:00 p.m. central time. Payments received after 2:00 p.m. central time on any Business Day shall be deemed to have been received on the following Business Day. 1.11. Application and Allocation of Payments. So long as no Default or Event of Default shall have occurred and be continuing, (i) payments matching specific scheduled payments then due shall be applied to those scheduled payments; (ii) voluntary prepayments shall be applied - 7 - as set forth in Section 1.3(a); and (iii) mandatory prepayments shall be applied as set forth in Sections 1.3(c) and (d). As to each other payment, and as to all payments made when a Default or Event of Default shall have occurred and be continuing or following the Termination Date, each Borrower hereby irrevocably waives the right to direct the application of any and all payments received from or on behalf of such Borrower, and each Borrower hereby irrevocably agrees that Lender shall have the continuing exclusive right to apply any and all such payments against the Obligations of Borrowers as Lender may deem advisable notwithstanding any previous entry by Lender in the Loan Account or any other books and records. In the absence of a specific determination by Lender with respect thereto, payments shall be applied to amounts then due and payable in the following order: first, to Fees and reimbursable expenses of Lender then due and payable pursuant to any of the Loan Documents; second, to interest then due and payable on the $16.5 Million Term Loan; third, to interest then due and payable on the Restated Term Loan; fourth, to interest then due and payable on the Supply Term Loan; fifth, to prepay the outstanding principal payments on the $16.5 Million Term Loan; sixth, to prepay the outstanding principal payments on the Restated Term Loan in inverse order of maturity; and seventh, to prepay the outstanding principal payments on the Supply Term Loan in inverse order of maturity. 1.12. Loan Account and Accounting. Lender shall maintain a loan account (the "Loan Account") on its books to record the Term Loans, all payments made by Borrowers, and all other debits and credits as provided in this Agreement with respect to the Term Loans or any other Obligations. All entries in the Loan Account shall be made in accordance with Lender's customary accounting practices as in effect from time to time. The balance in the Loan Account, as recorded on Lender's most recent printout or other written statement, shall, absent manifest error, be presumptive evidence of the amounts due and owing to Lender by each Borrower; provided that any failure to so record or any error in so recording shall not limit or otherwise affect any Borrower's duty to pay the Obligations. Lender, upon written request, by Borrower, which request shall be no more often than annually, shall render to Borrower Representative a periodic accounting of transactions with respect to the Term Loans setting forth the balance of the Loan Account as to each Borrower but shall have no obligation to do so. Unless Borrower Representative notifies Lender in writing of any objection to any such accounting (specifically describing the basis for such objection), within thirty (30) days after the date thereof, each and every such accounting shall (absent manifest error) be deemed final, binding and conclusive upon Borrowers in all respects as to all matters reflected therein. Only those items expressly objected to in such notice shall be deemed to be disputed by Borrowers. 1.13. Indemnity. Borrowers shall jointly and severally indemnify and hold harmless each of Lender and its Affiliates, and each such Person's respective officers, directors, employees, attorneys, agents and representatives (each, an "Indemnified Person"), from and against any and all suits, actions, proceedings, claims, damages, losses, liabilities and expenses (including reasonable attorneys' fees and disbursements and other costs of investigation or defense, including those incurred upon any appeal) which may be instituted or asserted against or incurred by any such Indemnified Person as the result of credit having been extended, suspended or terminated under this Agreement and the other Loan Documents and the administration of such credit, and in connection with or arising out of the transactions contemplated hereunder and thereunder and any actions or failures to act in connection therewith, including any and all Environmental Liabilities and legal costs and expenses arising out of or incurred in connection with disputes between or - 8 - among any parties to any of the Loan Documents (collectively, "Indemnified Liabilities"); provided, that no Borrower shall be liable for any indemnification to an Indemnified Person to the extent that any such suit, action, proceeding, claim, damage, loss, liability or expense results from that Indemnified Person's gross negligence or willful misconduct. 1.14. Access. Each Borrower which is a party hereto shall, during normal business hours, from time to time upon one (1) Business Day's prior notice as frequently as Lender determines to be appropriate: (a) provide Lender and any of its officers, employees and agents access to its properties, facilities, advisors and employees (including officers) of each Borrower and to the Collateral, (b) permit Lender, and any of its officers, employees and agents, to inspect, audit and make extracts from such Borrower's books and records, and (c) permit Lender, and its officers, employees and agents, to inspect, review, evaluate, appraise and make test verifications and counts of the Accounts, Inventory and other Collateral of any Borrower. Notwithstanding the foregoing, so long as no Event of Default shall have occurred or is continuing, Lender shall conduct such inspections and visits no more frequently than once every three (3) fiscal periods. If a Default or Event of Default shall have occurred and be continuing or if access is necessary to preserve or protect the Collateral as determined by Lender, each such Borrower shall provide such access at all times and without advance notice. Furthermore, so long as any Event of Default shall have occurred and be continuing, Borrowers shall provide Lender with access to their suppliers and customers. Each Borrower shall make available to Lender and its counsel, as quickly as is possible under the circumstances, originals or copies of all books and records which Lender may request. Each Borrower shall deliver any document or instrument necessary for Lender, as it may from time to time request, to obtain records from any service bureau or other Person which maintains records for such Borrower, and shall maintain duplicate records or supporting documentation on media, including computer tapes and discs owned by such Borrower. 1.15. Taxes. (a) Any and all payments by each Borrower hereunder (including any payments made pursuant to Section 12) or under the Notes shall be made, in accordance with this Section 1.15, free and clear of and without deduction for any and all present or future Taxes. If any Borrower shall be required by law to deduct any Taxes from or in respect of any sum payable hereunder (including any sum payable pursuant to Section 12) or under the Notes, (i) the sum payable shall be increased as much as shall be necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section 1.15) Lender receives an amount equal to the sum it would have received had no such deductions been made, (ii) such Borrower shall make such deductions, and (iii) such Borrower shall pay the full amount deducted to the relevant taxing or other authority in accordance with applicable law. Within thirty (30) days after the date of any payment of Taxes, Borrower Representative shall furnish to Lender the original or a certified copy of a receipt evidencing payment thereof. (b) Each Borrower that is a signatory hereto shall jointly and severally indemnify and, within ten (10) days of demand therefor, pay Lender for the full amount of Taxes (including any Taxes imposed by any jurisdiction on amounts payable under this - 9 - Section 1.15) paid by Lender, and any liability (including penalties, interest and expenses) arising therefrom or with respect thereto, whether or not such Taxes were correctly or legally asserted. 1.16. Capital Adequacy; Increased Costs; Illegality. (a) If Lender shall have determined that the adoption after the date hereof of any law, treaty, governmental (or quasi-governmental) rule, regulation, guideline or order regarding capital adequacy, reserve requirements or similar requirements or compliance by Lender with any request or directive regarding capital adequacy, reserve requirements or similar requirements (whether or not having the force of law), in each case, adopted after the Closing Date, from any central bank or other Governmental Authority increases or would have the effect of increasing the amount of capital, reserves or other funds required to be maintained by Lender and thereby reducing the rate of return on Lender's capital as a consequence of its obligations hereunder, then Borrowers shall from time to time upon demand by Lender pay to Lender additional amounts sufficient to compensate Lender for such reduction. A certificate as to the amount of that reduction and showing the basis of the computation thereof submitted by Lender to Borrower Representative shall, absent manifest error, be final, conclusive and binding for all purposes. (b) If, due to either (i) the introduction of or any change in any law or regulation (or any change in the interpretation thereof) or (ii) the compliance with any guideline or request from any central bank or other Governmental Authority (whether or not having the force of law), in each case adopted after the Closing Date, there shall be any increase in the cost to Lender of agreeing to make or making, funding or maintaining the Term Loans, then Borrowers shall from time to time, upon demand by Lender pay to Lender additional amounts sufficient to compensate Lender for such increased cost. A certificate as to the amount of such increased cost, submitted to Borrower Representative by Lender, shall be conclusive and binding on Borrowers for all purposes, absent manifest error. Lender agrees that, as promptly as practicable after it becomes aware of any circumstances referred to above which would result in any such increased cost, Lender shall, to the extent not inconsistent with Lender's internal policies of general application, use reasonable commercial efforts to minimize costs and expenses incurred by it and payable to it by Borrowers pursuant to this Section 1.16(b). 2. CONDITIONS PRECEDENT 2.1. Conditions Precedent to the Term Loans. Lender shall not be obligated to make the Term Loans on the Closing Date or to take, fulfill, or perform any other action hereunder, until the following conditions have been satisfied, in Lender's sole discretion, or waived in writing by Lender: (a) Credit Agreement; Loan Documents. This Agreement or counterparts hereof shall have been duly executed by, and delivered to, Borrowers and Lender; and Lender shall have received such duly executed documents, instruments, agreements and - 10 - legal opinions as Lender shall reasonably request in connection with the transactions contemplated by this Agreement and the other Loan Documents, including, but not limited to, the New Supply Agreement, the ROFR, the Use Restriction Agreements and all those other documents listed in the Closing Checklist attached hereto as Annex B, each in form and substance satisfactory to Lender. (b) Repayment of Prior Indebtedness. Lender shall have received a fully executed original of a pay-off letter satisfactory to Lender confirming that the Prior Indebtedness may be repaid in full from the proceeds of the Term Loans and the Fleet Loan and all Liens upon any of the property of Borrowers or any of their Subsidiaries in favor of Prior Lender shall be terminated by Prior Lender immediately upon such payment on the Closing Date. (c) Approvals. Lender shall have received (i) satisfactory evidence that the Borrowers have obtained all required consents and approvals of all Persons including all requisite Governmental Authorities, to the execution, delivery and performance of this Agreement and the other Loan Documents and the consummation of the Related Transactions or (ii) an officer's certificate in form and substance satisfactory to Lender affirming that no such consents or approvals are required. (d) Payment of Fees. Borrowers shall have paid the Fees required to be paid on the Closing Date, if any, in the respective amounts specified in Section 1.9, and shall have reimbursed Lender for all fees, costs and expenses of closing incurred in connection with the transactions contemplated herein presented as of the Closing Date. (e) Capital Structure: Other Indebtedness. The capital structure of each Borrower and the terms and conditions of all Indebtedness of each Borrower shall be acceptable to Lender in its sole discretion as of the Closing Date. (f) Interim Financing Order. The Interim Financing Order shall have been entered, containing terms and conditions satisfactory to Lender, including without limitation, provisions to the effect that (i) upon the occurrence of an Event of Default, (A) Borrowers shall be prohibited from any other borrowings from any other Person (including borrowings under the Fleet Loan), (B) the automatic stay imposed by Section 362 of the Bankruptcy Code shall have been prospectively vacated to the extent necessary to enable Lender to exercise Lender's other rights and remedies five (5) business days after Lender declares an Event of Default and Borrowers receive notice of the declaration of such Event of Default, and (C) the stay imposed by Bankruptcy Rule 4001(a)(3) shall have been prospectively vacated to the extent necessary to enable Lender to exercise Lender's other rights and remedies five (5) business days after Lender declares an Event of Default and Borrowers receive notice of the declaration of such Event of Default, (ii) all of Lender's claims for payment with respect to the Obligations shall have superpriority status pursuant to Section 364(c)(1) of the Bankruptcy Code (subject to the terms of the Intercreditor Agreement) and that no costs or expenses of administration shall be imposed against Lender or the Collateral pursuant to Section 506(c) of the Bankruptcy Code or otherwise, (iii) all of Lender's claims for payment with respect to the Obligations shall be - 11 - secured by a Lien senior and prior to all Liens on property of the estate pursuant to Section 364(d)(1) of the Bankruptcy Code (subject to the terms of the Intercreditor Agreement), (iv) any challengers to Lender's Pre-Petition security interest under the Existing Loan Documents or to Lender's Pre-Petition priority with respect to the Pre-Petition Collateral shall be limited to bringing such challenges within a period thirty (30) days from the date of the issuing of the Interim Financing Order, and (v) the terms and provisions of the Interim Financing Order shall be specifically binding on any subsequently appointed Chapter 11 or Chapter 7 trustee. (g) Good Faith. The Bankruptcy Court has found that the Term Loans are made by Lender in "good faith" within the meaning of Section 364(e) of the Bankruptcy Code. (h) Fleet Loan. As to each Term Loan satisfaction of all conditions precedent to the Fleet Loan. (i) Liens. Lender shall have received searches reflecting the filing of its financing statements and fixture filings and all Liens on the Collateral other than the Liens of Lender and Permitted Encumbrances shall have been terminated. (j) Related Transactions. As to each Term Loan, Borrowers shall have consummated the Related Transactions, upon terms acceptable to AWG, including entering into and receiving an acceptable initial funding of the Fleet Loan and the execution and delivery of the Intercreditor Agreement. (k) Appraisal of Real Estate. Lender shall have received from Borrowers an appraisal or appraisals in form acceptable to Lender and prepared by a licensed appraiser or appraisers reasonably satisfactory to Lender evidencing that all Real Estate owned by Homeland has an aggregate fair market value equal to or in excess of $23,000,000. (l) Value of Inventory. Lender shall have received an affidavit in form and content acceptable to Lender from the chief financial officer of Homeland, attesting to and certifying to Lender that as of the Closing Date Homeland has Inventory, valued at cost, equal to or in excess of $48,000,000. (m) Final Order. The First Day Interim Financing Order shall have become a Final Order and the Interim Financing Order shall have become a Final Order. (n) No Defaults. Borrowers shall be current on all Obligations and no default shall exist under the Existing Loan Documents or any of the Leases. 3. REPRESENTATIONS AND WARRANTIES To induce Lender to make the Term Loans, the Borrowers executing this Agreement, jointly and severally, make the following representations and warranties to Lender with respect to all Borrowers, each and all of which shall survive the execution and delivery of this Agreement. - 12 - 3.1. Corporate Existence; Compliance with Law. Each Borrower (a) is a corporation duly incorporated, validly existing and in good standing under the laws of its jurisdiction of incorporation as set forth in Disclosure Schedule 3.1; (b) is duly qualified to conduct business and is in good standing in each other jurisdiction where its ownership or lease of property or the conduct of its business requires such qualification, except where the failure to be so qualified would not result in exposure to losses, damages or liabilities in excess of $10,000; (c) has the requisite corporate power and authority and the legal right to own, pledge, mortgage or otherwise encumber and operate its properties, to lease the property it operates under lease and to conduct its business as now, heretofore and proposed to be conducted; (d) subject to specific representations regarding Environmental Laws, has all licenses, permits, consents or approvals from or by, and has made all filings with, and has given all notices to, all Governmental Authorities having jurisdiction, to the extent required for such ownership, operation and conduct, except to the extent that the failure to have any of such licenses, permits, consents or approvals could not reasonably be expected to have a Material Adverse Effect; (e) is in compliance with its charter, articles of organization, by-laws and/or operating agreement; and (f) subject to specific representations set forth herein regarding ERISA, Environmental Laws, tax and other laws, is in compliance with all applicable provisions of law, except where the failure to comply, individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect. 3.2. Executive Offices; FEIN; State Organizational Identification Number; Legal Names. As of the Closing Date, the current location of each Borrower's chief executive office and principal place of business is set forth in Disclosure Schedule (3.2) and none of such locations have changed within the twelve (12) months preceding the Closing Date. In addition, Disclosure Schedule (3.2) lists the federal employer identification number of each Borrower, the state organizational identification number of each Borrower and the exact legal name of each Borrower. 3.3. Corporate Power, Authorization, Enforceable Obligations. The execution, delivery and performance by each Borrower of the Loan Documents to which it is a party and the creation of all Liens provided for therein: (a) are within such Person's corporate power; (b) have been duly authorized by all necessary or proper corporate and shareholder action; (c) do not contravene any provision of such Person's charter, articles or bylaws; (d) do not violate any law or regulation, or any order or decree of any court or Governmental Authority, except to the extent that any such violation could not reasonably be expected to have a Material Adverse Effect; (e) do not conflict with or result in the breach or termination of, constitute a default under or accelerate or permit the acceleration of any performance required by, any indenture, mortgage, deed of trust, lease, agreement or other instrument to which such Person is a party or by which such Person or any of its property is bound, except to the extent such breach, default or acceleration could not reasonably be expected to have a Material Adverse Effect or to the extent such breach, termination, default or acceleration is stayed pursuant to the Bankruptcy Code; (f) do not result in the creation or imposition of any Lien upon any of the property of such Person other than those in favor of Lender pursuant to the Loan Documents; and (g) do not require the consent or approval of any Governmental Authority or any other Person, other than the Bankruptcy Court or except those referred to in Section 2.1(c), all of which will have been duly obtained, made or complied with prior to the Closing Date. On or prior to the Closing Date, each of the Loan Documents shall have been duly executed and delivered by each Borrower thereto - 13 - and each such Loan Document shall then constitute a legal, valid and binding obligation of such Borrower enforceable against it in accordance with its terms. 3.4. Financial Statements and Projections. Except for the Projections and the Fair Salable Balance Sheet, all Financial Statements concerning Borrowers and their respective Subsidiaries which are referenced below have been prepared in accordance with GAAP consistently applied throughout the periods covered (except as disclosed therein and except, with respect to unaudited Financial Statements, for the absence of footnotes and normal year-end audit adjustments) and present fairly in all material respects the financial position of the Persons covered thereby as at the dates thereof and the results of their operations and cash flows for the periods then ended. (a) The following Financial Statements attached hereto as Disclosure Schedule (3.4(A)) have been delivered on the date hereof: (i) The audited consolidated and consolidating balance sheets at December 31, 1999 and 2000 and the related statements of income and cash flows of Borrowers and their Subsidiaries for the Fiscal Years then ended, certified by PriceWaterhouseCoopers, LLP. (ii) The unaudited balance sheet(s) at June 16, 2001 and the related statement(s) of income and cash flows of Borrowers and their Subsidiaries for the portion of the Fiscal Year then ended. (b) Pro Forma. The Pro Forma delivered on the date hereof and attached hereto as Disclosure Schedule (3.4(B)) was prepared by Borrowers giving pro forma effect to the Related Transactions, was based on the unaudited consolidated and consolidating balance sheets of Borrowers and their Subsidiaries dated June 16, 2001. (c) Projections. The Projections delivered on the date hereof and attached hereto as Disclosure Schedule (3,4(C)) have been prepared by Borrowers in light of the past operations of their businesses, but including future payments of known contingent liabilities reflected on the Fair Salable Balance Sheet, and reflect projections for the three (3) year period beginning on August 1, 2001 on a month by month basis for the first year and on a year by year basis thereafter. The Projections are based upon estimates and assumptions stated therein, all of which Borrowers believe to be reasonable and fair in light of current conditions and current facts known to Borrowers and, as of the Closing Date, reflect Borrowers' good faith and reasonable estimates of the future financial performance of Borrowers and of the other information projected therein for the period set forth therein. (d) Fair Salable Balance Sheet. The Fair Salable Balance Sheet delivered on the date hereof and attached hereto as Disclosure Schedule (3.4(D)) was prepared by Borrowers on the same basis as the Pro Forma, except that Borrowers' assets are set forth therein at their fair salable values on a going concern basis and the liabilities set forth - 14 - therein include all contingent liabilities of Borrowers stated at the reasonably estimated present values thereof. 3.5. Material Adverse Effect. Between December 31, 2000 and the Closing Date, (a) no Borrower has incurred any obligations, contingent or non-contingent liabilities, liabilities for Charges, long-term leases or unusual forward or long-term commitments which are not reflected in the Pro Forma and which, alone or in the aggregate, could reasonably be expected to have a Material Adverse Effect, (b) no contract, lease or other agreement or instrument has been entered into by any Borrower or has become binding upon any Borrower's assets and no law or regulation applicable to any Borrower has been adopted which has had or could reasonably be expected to have a Material Adverse Effect, and (c) no Borrower is in default and to the best of Borrowers' knowledge no third party is in default under any material contract, lease or other agreement or instrument, which alone or in the aggregate could reasonably be expected to have a Material Adverse Effect. Other than the Bankruptcy Cases, between December 31, 2000 and the Closing Date no event has occurred, which alone or together with other events, could reasonably be expected to have a Material Adverse Effect. In addition, between December 31, 2000 and the Closing Date, there has been no material change in either Homeland's sales or net income. 3.6. Ownership of Property; Liens. As of the Closing Date, the real estate ("Real Estate") listed on Disclosure Schedule (3.6) constitutes all of the real property owned, leased, subleased, or used by any Borrower. Each Borrower owns good and marketable fee simple title to all of its owned Real Estate, and valid and marketable leasehold interests in all of its leased Real Estate, all as described on Disclosure Schedule (3.6), and copies of all such leases ("Leases") or a summary of terms thereof satisfactory to Lender have been delivered to Lender. Disclosure Schedule (3.6) further describes any Real Estate with respect to which any Borrower is a lessor, sublessor or assignor as of the Closing Date. Each Borrower also has good and marketable title to, or valid leasehold interests in, all of its personal properties and assets. As of the Closing Date, none of the properties and assets of any Borrower are subject to any Liens other than Permitted Encumbrances, and there are no facts, circumstances or conditions known to any Borrower that may result in any Liens (including Liens arising under Environmental Laws) other than Permitted Encumbrances. Each Borrower has received all deeds, assignments, waivers, consents, non-disturbance and recognition or similar agreements, bills of sale and other documents, and has duly effected all recordings, filings and other actions necessary to establish, protect and perfect such Borrower's right, title and interest in and to all such Real Estate and other properties and assets. Disclosure Schedule (3.6) also describes any purchase options, rights of first refusal or other similar contractual rights pertaining to any Real Estate. As of the Closing Date, no portion of any Borrower's Real Estate has suffered any material damage by fire or other casualty loss which has not heretofore been repaired and restored in all material respects to its original condition or otherwise remedied. As of the Closing Date, all material permits required to have been issued or appropriate to enable the Real Estate to be lawfully occupied and used for all of the purposes for which they are currently occupied and used have been lawfully issued and are in full force and effect. 3.7. Labor Matters. As of the Closing Date (a) no strikes or other material labor disputes against any Borrower are pending or, to any Borrower's knowledge, threatened; (b) hours worked by and payment made to employees of each Borrower comply in all material - 15 - respects with the Fair Labor Standards Act and each other federal, state, local or foreign law applicable to such matter; (c) all payments due from any Borrower for employee health and welfare insurance have been paid or accrued as a liability on the books of such Borrower; (d) except as set forth in Disclosure Schedule (3.7), no Borrower is a party to or bound by any collective bargaining agreement, management agreement, consulting agreement or any employment agreement (and true and complete copies of any agreements described on Disclosure Schedule (3.7) have been delivered to Lender); (e) there is no organizing activity involving any Borrower pending or, to any Borrower's knowledge, threatened by any labor union or group of employees; (f) there are no representation proceedings pending or, to any Borrower's knowledge, threatened with the National Labor Relations Board, and no labor organization or group of employees of any Borrower has made a pending demand for recognition; and (g) except as set forth in Disclosure Schedule (3.7), there are no complaints or charges against any Borrower pending or, to the knowledge of any Borrower, threatened to be filed with any Governmental Authority or arbitrator based on, arising out of, in connection with, or otherwise relating to the employment or termination of employment by any Borrower of any individual. 3.8. Ventures. Subsidiaries and Affiliates; Outstanding Stock and Indebtedness. Except as set forth in Disclosure Schedule (3.8), no Borrower has any Subsidiaries, is engaged in any joint venture or partnership with any other Person, or is an Affiliate of any other Person. All of the issued and outstanding Stock of Homeland is owned by Holding. There are no outstanding rights to purchase, options, warrants or similar rights or agreements pursuant to which Homeland may be required to issue, sell, repurchase or redeem any of its Stock or other equity securities or any Stock or other equity securities of its Subsidiaries. All outstanding Indebtedness of each Borrower as of the Closing Date is described in Section 6.3 (including Disclosure Schedule (6.3)). 3.9. Government Regulation. No Borrower is an "investment company" or an "affiliated person" of, or "promoter" or "principal underwriter" for, an "investment company," as such terms are defined in the Investment Company Act of 1940 as amended. No Borrower is subject to regulation under the Public Utility Holding Company Act of 1935, the Federal Power Act, or any other federal or state statute that restricts or limits its ability to incur Indebtedness or to perform its obligations hereunder. The making of any Term Loan by Lender to Borrowers, the application of the proceeds thereof and repayment thereof and the consummation of the Related Transactions will not violate any provision of any such statute or any rule, regulation or order issued by the Securities and Exchange Commission. 3.10. Margin Regulations. No Borrower is engaged, nor will it engage, principally or as one of its important activities, in the business of extending credit for the purpose of "purchasing" or "carrying" any "margin security" as such terms are defined in Regulation U of the Federal Reserve Board as now and from time to time hereafter in effect (such securities being referred to herein as "Margin Stock"). No Borrower owns any Margin Stock, and none of the proceeds of any Term Loan or other extensions of credit under this Agreement will be used, directly or indirectly, for the purpose of purchasing or carrying any Margin Stock, for the purpose of reducing or retiring any Indebtedness which was originally incurred to purchase or carry any Margin Stock or for any other purpose which might cause any of the Term Loans or other extensions of credit under this Agreement to be considered a "purpose credit" within the meaning of Regulation T, U or X of the Federal Reserve Board. No Borrower will take or permit to be - 16 - taken any action which might cause the Loan Documents to violate any regulation of the Federal Reserve Board. 3.11. Taxes. Except to the extent failure to do so could not reasonably be expected to have a Material Adverse Effect, and except to the extent enforcement of any such failure is stayed by the Bankruptcy Code, all tax returns, reports and statements, including information returns, required by any Governmental Authority to be filed by any Borrower have been filed with the appropriate Governmental Authority and all Charges have been paid prior to the date on which any fine, penalty, interest or late charge may be added thereto for nonpayment thereof (or any such fine, penalty, interest, late charge or loss has been paid), excluding Charges or other amounts being contested in accordance with Section 5.2(b). Proper and accurate amounts have been withheld by each Borrower from its respective employees for all periods in full and complete compliance with all applicable federal, state, local and foreign law and such withholdings have been timely paid to the respective Governmental Authorities. Disclosure Schedule (3.11) sets forth as of the Closing Date those taxable years for which any Borrower's tax returns are currently being audited by the IRS or any other applicable Governmental Authority and any assessments or threatened assessments in connection with such audit, or otherwise currently outstanding. Except as described on Disclosure Schedule (3.11), no Borrower has executed or filed with the IRS or any other Governmental Authority any agreement or other document extending, or having the effect of extending, the period for assessment or collection of any Charges. None of the Borrowers and their respective predecessors are liable for any Charges: (a) under any agreement (including any tax sharing agreements) or (b) to each Borrower's knowledge, as a transferee. As of the Closing Date, no Borrower has agreed or been requested to make any adjustment under IRC Section 481(a), by reason of a change in accounting method or otherwise, which would have a Material Adverse Effect. - 17 - 3.12. ERISA (a) Disclosure Schedule (3.12) lists and separately identifies all Title IV Plans, Multiemployer Plans, ESOPs and Retiree Welfare Plans. Copies of all such listed Plans, together with a copy of the latest form 5500 for each such Plan, have been delivered to Lender. Except with respect to Multiemployer Plans, each Qualified Plan has been determined by the IRS to quality under Section 401 of the IRC, and the trusts created thereunder have been determined to be exempt from tax under the provisions of Section 501 of the IRC, and nothing has occurred which would cause the loss of such qualification or tax-exempt status. Each Plan is in compliance with the applicable provisions of ERISA and the IRC, including the filing of reports required under the IRC or ERISA, except to the extent that the failure to so comply could not reasonably be expected to have a Material Adverse Effect. No Borrower or ERISA Affiliate has failed to make any contribution or pay any amount due as required by either Section 412 of the IRC or Section 302 of ERISA or the terms of any such Plan, except to the extent that the failure to do so could not reasonably be expected to have a Material Adverse Effect. No Borrower or ERISA Affiliate has engaged in a prohibited transaction, as defined in Section 4975 of the IRC, in connection with any Plan, which would subject any Borrower to a material tax on prohibited transactions imposed by Section 4975 of the IRC. (b) Except as set forth in Disclosure Schedule (3.12): (i) no Title IV Plan has any Unfunded Pension Liability; (ii) no ERISA Event or event described in Section 4062(e) of ERISA with respect to any Title IV Plan has occurred or is reasonably expected to occur; (iii) there are no pending, or to the knowledge of any Borrower, threatened claims (other than claims for benefits in the normal course), sanctions, actions or lawsuits, asserted or instituted against any Plan or any Person as fiduciary or sponsor of any Plan; (iv) no Borrower or ERISA Affiliate has incurred or reasonably expects to incur any liability as a result of a complete or partial withdrawal from a Multiemployer Plan; (v) within the last five years no Title IV Plan with Unfunded Pension Liabilities has been transferred outside of the "controlled group" (within the meaning of Section 4001(a)(14) of ERISA) of any Borrower or ERISA Affiliate; and (vi) no liability under any Title IV Plan has been satisfied with the purchase of a contract from an insurance company that is not rated AAA by the Standard & Poor's Corporation or the equivalent by another nationally recognized rating agency. 3.13. No Litigation. Other than the Bankruptcy Cases, no action, claim, lawsuit, demand, investigation or proceeding is now pending or, to the knowledge of any Borrower, threatened against any Borrower, before any Governmental Authority or before any arbitrator or panel of arbitrators (collectively, "Litigation"), (a) which challenges any Borrower's right or power to enter into or perform any of its obligations under the Loan Documents to which it is a party, or the validity or enforceability of the Loan Documents or any action taken thereunder, or (b) which has a reasonable risk of being determined adversely to any Borrower and which, if so determined, could have a Material Adverse Effect. Except as set forth on Disclosure Schedule (3.13), as of the Closing Date there is no Litigation pending or threatened which seeks damages in excess of $10,000 or injunctive relief or alleges criminal misconduct of any Borrower. - 18 - 3.14. Brokers. Other than McDonald Investments, no broker or finder acting on behalf of any Borrower brought about the obtaining, making or closing of the Term Loans or the Related Transactions, and no Borrower has any obligation to any Person in respect of any finder's or brokerage fees in connection therewith. Notwithstanding the foregoing, Lender has no obligation to any Person in respect to any finder's or brokerage fees and Borrowers agree to indemnify and hold Lender harmless from any such obligation. 3.15. Intellectual Property. As of the Closing Date, each Borrower owns or has rights to use all Intellectual Property necessary to continue to conduct its business as now or heretofore conducted by it or proposed to be conducted by it, and each Patent, Trademark, Copyright and License is listed, together with application or registration numbers, as applicable, in Disclosure Schedule (3.15) hereto. Each Borrower conducts its business and affairs without infringement of or interference with any Intellectual Property of any other Person. 3.16. Full Disclosure. No information contained in this Agreement, any of the other Loan Documents, any Projections, Financial Statements or other reports from time to time delivered hereunder or any written statement furnished by or on behalf of any Borrower to Lender pursuant to the terms of this Agreement contains or will contain any untrue statement of a material fact or omits or will omit to state a material fact necessary to make the statements contained herein or therein not misleading in light of the circumstances under which they were made. The Liens granted to Lender pursuant to the Collateral Documents will at all times be fully perfected first priority Liens in and to the Collateral described therein, subject, as to priority, only to Permitted Encumbrances with respect to the Collateral other than Accounts. 3.17. Environmental Matters. (a) Except as set forth in Disclosure Schedule (3.17), as of the Closing Date: to the Borrower's knowledge, (i) the Real Estate is free of contamination from any Hazardous Material except for such contamination that would not adversely impact the value or marketability of such Real Estate and which would not result in Environmental Liabilities which could reasonably be expected to exceed $5,000; (ii) no Borrower has caused or suffered to occur any Release of Hazardous Materials on, at, in, under, above, to, from or about any of its Real Estate; (iii) the Borrowers are and have been in compliance with all Environmental Laws, except for such noncompliance which would not result in Environmental Liabilities which could reasonably be expected to exceed $5,000; (iv) the Borrowers have obtained, and are in compliance with, all Environmental Permits required by Environmental Laws for the operations of their respective businesses as presently conducted or as proposed to be conducted, except where the failure to so obtain or comply with such Environmental Permits would not result in Environmental Liabilities which could reasonably be expected to exceed $5,000, and all such Environmental Permits are valid, uncontested and in good standing; (v) no Borrower is involved in operations or knows of any facts, circumstances or conditions, including any Releases of Hazardous Materials, that are likely to result in any Environmental Liabilities of such Borrower which could reasonably be expected to exceed $5,000, and no Borrower has permitted any current or former tenant or occupant of the Real Estate to engage in any such operations; (vi) there is no Litigation arising under or related to any Environmental Laws, - 19 - Environmental Permits or Hazardous Material which seeks damages, penalties, fines, costs or expenses in excess of $5,000 or injunctive relief, or which alleges criminal misconduct by any Borrower; (vii) no notice has been received by any Borrower identifying it as a "potentially responsible party" or requesting information under CERCLA or analogous state statutes, and to the knowledge of the Borrowers, there are no facts, circumstances or conditions that may result in any Borrower being identified as a "potentially responsible party" under CERCLA or analogous state statutes; and (viii) the Borrowers have provided to Lender copies of all existing environmental reports, reviews and audits and all written information pertaining to actual or potential Environmental Liabilities, in each case relating to any Borrower. (b) Each Borrower hereby acknowledges and agrees that Lender (i) is not now, and has not ever been, in control of any of the Real Estate or any Borrower's affairs, and (ii) does not have the capacity through the provisions of the Loan Documents or otherwise to influence any Borrower's conduct with respect to the ownership, operation or management of any of its Real Estate or compliance with Environmental Laws or Environmental Permits. 3.18. Insurance. Disclosure Schedule (3.18) lists all insurance policies of any nature maintained, as of the Closing Date, for current occurrences by each Borrower, as well as a summary of the terms of each such policy. 3.19. Deposit and Disbursement Accounts. Disclosure Schedule (3.19) lists all banks and other financial institutions at which any Borrower maintains deposits and/or other accounts as of the Closing Date and such Schedule correctly identifies the name, address and telephone number of each depository, the name in which the account is held, a description of the purpose of the account, and the complete account number. 3.20. Government Contracts. Except as set forth in Disclosure Schedule (3.20), as of the Closing Date, no Borrower is a party to any contract or agreement with any Governmental Authority and no Borrower's Accounts are subject to the Federal Assignment of Claims Act, as amended (31 U.S.C. Section 3727) or any similar state or local laws. 3.21. Intentionally Omitted. 3.22. Agreements and Other Documents. As of the Closing Date, each Borrower has provided to Lender or its counsel accurate and complete copies (or summaries) of all of the following agreements or documents to which any it is subject and each of which are listed on Disclosure Schedule (3.22): supply agreements and purchase agreements not terminable by such Borrower within sixty (60) days following written notice issued by such Borrower and involving transactions in excess of $100,000 per annum; any lease of Equipment having a remaining term of one year or longer and requiring aggregate rental and other payments in excess of $50,000 per annum; licenses and permits held by the Borrowers, the absence of which could be reasonably likely to have a Material Adverse Effect; instruments or documents evidencing Indebtedness of such Borrower and any security interest granted by such Borrower with respect thereto; and - 20 - instruments and agreements evidencing the issuance of any equity securities, warrants, rights or options to purchase equity securities of such Borrower. 3.23. Ownership of Homeland. Holding owns and controls one hundred percent (100%) of the outstanding capital Stock of Homeland. 3.24. Subordinated Debt. Except as otherwise set forth in the Intercreditor Agreement, the principal of and interest on the Notes and all other Obligations will constitute "senior debt" as that or any similar term is or may be used in any instrument evidencing or applicable to any Subordinated Debt. Borrowers acknowledge that Lender is entering into this Agreement and is extending the Commitments in reliance upon the subordination provisions of this Section 3.24 4. FINANCIAL STATEMENTS AND INFORMATION 4.1. Reports and Notices. Each Borrower executing this Agreement hereby agrees that from and after the Closing Date and until the Termination Date, it shall deliver to Lender the Financial Statements, notices, Projections and other information at the times, to the Persons and in the manner as Lender shall reasonably require from time to time. In addition, Borrowers shall deliver to Lender all Financial Statements, notices, Projections and other information at the times and in the manner required under the Fleet Loan Documents to be delivered to Fleet Retail Finance, Inc. 4.2. Communication with Accountants. Each Borrower executing this Agreement authorizes Lender to communicate directly with its independent certified public accountants including PriceWaterhouseCoopers, LLP and authorizes and shall instruct those accountants and advisors to disclose and make available to Lender any and all Financial Statements and other supporting financial documents, schedules and information relating to any Borrower (including copies of any issued management letters) with respect to the business, financial condition and other affairs of any Borrower. 5. AFFIRMATIVE COVENANTS Each Borrower executing this Agreement jointly and severally agrees as to all Borrowers that from and after the date hereof and until the Termination Date: 5.1. Maintenance of Existence and Conduct of Business. Each Borrower shall: do or cause to be done all things necessary to preserve and keep in full force and effect its corporate existence and its rights and franchises; continue to conduct its business substantially as now conducted or as otherwise permitted hereunder; at all times maintain, preserve and protect all of its assets and properties used or useful in the conduct of its business, and keep the same in good repair, working order and condition in all material respects (taking into consideration ordinary wear and tear) and from time to time make, or cause to be made, all necessary or appropriate repairs, replacements and improvements thereto consistent with industry practices; and transact business only in such corporate and trade names as are set forth in Disclosure Schedule (5.1). - 21 - 5.2. Payment of Obligations (a) Subject to Section 5.2(b), each Borrower shall pay and discharge or cause to be paid and discharged promptly all Post-Petition Charges payable by it, including (A) Charges imposed upon it, its income and profits, or any of its property (real, personal or mixed) and all Charges with respect to tax, social security and unemployment withholding with respect to its employees, and (B) lawful claims for labor, materials, supplies and services or otherwise, before any thereof shall become past due. Pre-Petition Charges may be paid upon the written consent of Lender and approval of the Bankruptcy Court by a Final Order. (b) Each Borrower may in good faith contest, by appropriate proceedings, the validity or amount of any Charges described in Section 5.2(a); provided, that (i) adequate reserves with respect to such contest are maintained on the books of such Borrower, in accordance with GAAP, (ii) no Lien shall be imposed to secure payment of such Charges that is superior to any of the Liens securing the Obligations and such contest is maintained and prosecuted continuously and with diligence and operates to suspend collection or enforcement of such Charges, (iii) none of the Collateral becomes subject to forfeiture or loss as a result of such contest, (iv) such Borrower shall promptly pay or discharge such contested Charges or claims and all additional charges, interest, penalties and expenses, if any, and shall deliver to Lender evidence acceptable to Lender of such compliance, payment or discharge, if such contest is terminated or discontinued adversely to such Borrower or the conditions set forth in this Section 5.2(b) are no longer met, and (v) Lender has not advised Borrowers in writing that Lender reasonably believes that. nonpayment or nondischarge thereof could have or result in a Material Adverse Effect. 5.3. Books and Records. Each Borrower shall keep adequate books and records with respect to its business activities in which proper entries, reflecting all financial transactions, are made in accordance with GAAP and on a basis consistent with the Financial Statements attached as Disclosure Schedule (3.4(A)). 5.4. Insurance; Damage to or Destruction of Collateral. (a) The Borrowers shall, at their sole cost and expense, maintain the policies of insurance described on Disclosure Schedule (3.18) as in effect on the date hereof or otherwise in form and amounts and with insurers acceptable to Lender. If any Borrower at any time or times hereafter shall fail to obtain or maintain any of the policies of insurance required above or to pay all premiums relating thereto, Lender may at any time or times thereafter obtain and maintain such policies of insurance and pay such premiums and take any other action with respect thereto which Lender deems advisable. Lender shall have no obligation to obtain insurance for any Borrower or pay any premiums therefor. By doing so, Lender shall not be deemed to have waived any Default or Event of Default arising from any Borrower's failure to maintain such insurance or pay any premiums therefor. All sums so disbursed, including attorneys' fees, court costs and other charges related thereto, shall be payable on demand by Borrowers to Lender and shall be additional Obligations hereunder secured by the Collateral. - 22 - (b) Lender reserves the right at any time upon any change in any Borrower's risk profile (including any change in the product mix maintained by any Borrower or any laws affecting the potential liability of such Borrower) to require additional forms and limits of insurance to, in Lender's opinion, adequately protect Lender's interests in all or any portion of the Collateral and to ensure that each Borrower is protected by insurance in amounts and with coverage customary for its industry. If requested by Lender, each Borrower shall deliver to Lender from time to time a report of a reputable insurance broker, satisfactory to Lender, with respect to its insurance policies. (c) Each Borrower shall deliver to Lender, in form and substance satisfactory to Lender, endorsements to (i) all "All Risk" and business interruption insurance naming Lender as loss payee, and (ii) all general liability and other liability policies naming Lender as additional insured. Each Borrower irrevocably makes, constitutes and appoints Lender (and all officers, employees or agents designated by Lender), so long as any Default or Event of Default shall have occurred and be continuing or the anticipated insurance proceeds exceed $250,000, as such Borrower's true and lawful agent and attorney-in-fact for the purpose of making, settling and adjusting claims under such "All Risk" policies of insurance, endorsing the name of such Borrower on any check or other item of payment for the proceeds of such "All Risk" policies of insurance and for making all determinations and decisions with respect to such "All Risk" policies of insurance. Lender shall have no duty to exercise any rights or powers granted to it pursuant to the foregoing power-of-attorney. Borrower Representative shall promptly notify Lender of any loss, damage, or destruction to the Collateral in the amount of $50,000 or more, whether or not covered by insurance. After deducting from such proceeds the expenses, if any, incurred by Lender in the collection or handling thereof, Lender may, at its option, apply such proceeds to the reduction of the Obligations in accordance with Section 1.3(d); or permit or require the applicable Borrower to use such money, or any part thereof, to replace, repair, restore or rebuild the Collateral in a diligent and expeditious manner with materials and workmanship of substantially the same quality as existed before the loss, damage or destruction. Notwithstanding the foregoing, if the casualty giving rise to such insurance proceeds could not reasonably be expected to have a Material Adverse Effect and such insurance proceeds do not exceed $100,000 in the aggregate, Lender shall permit the applicable Borrower to replace, restore, repair or rebuild the property; provided that if such Borrower shall not have completed or entered into binding agreements to complete such replacement, restoration, repair or rebuilding within 90 days of such casualty, Lender may apply such insurance proceeds to the Obligations in accordance with Section 1.3(d). All insurance proceeds made available to any Borrower to replace, repair, restore or rebuild Collateral shall be deposited in a cash collateral account. Thereafter, such funds shall be made available to that Borrower to provide funds to replace, repair, restore or rebuild the Collateral as follows: (i) Borrower Representative shall request that a release from the cash collateral account be made to such Borrower in the amount requested to be released; and (ii) Lender shall release such funds from the cash collateral account. To the extent not used to replace, repair, restore or rebuild the Collateral, such insurance proceeds shall be applied in accordance with Section 1.3(d). - 23 - 5.5. Compliance with Laws. Each Borrower shall comply with all federal, state, local and foreign laws and regulations applicable to it, including those relating to licensing, ERISA and labor matters and Environmental Laws and Environmental Permits, except to the extent the failure to comply, individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect. 5.6. Supplemental Disclosure. From time to time as may be requested by Lender (which request will not be made more frequently than once each year absent the occurrence and continuance of a Default or an Event of Default), the Borrowers shall supplement each Disclosure Schedule hereto, or any representation herein or in any other Loan Document, with respect to any matter hereafter arising which, if existing or occurring at the date of this Agreement, would have been required to be set forth or described in such Disclosure Schedule or as an exception to such representation or which is necessary to correct any information in such Disclosure Schedule or representation which has been rendered inaccurate thereby (and, in the case of any supplements to any Disclosure Schedule, such Disclosure Schedule shall be appropriately marked to show the changes made therein); provided that (a) no such supplement to any such Disclosure Schedule or representation shall be or be deemed a waiver of any Default or Event of Default resulting from the matters disclosed therein, except as consented to by Lender in writing; and (b) no supplement shall be required as to representations and warranties that relate solely to the Closing Date. 5.7. Intellectual Property. Each Borrower will conduct its business and affairs without infringement of or interference with any Intellectual Property of any other Person in any material respect. 5.8. Environmental Matters. Each Borrower shall and shall cause each Person within its control to: (a) conduct its operations and keep and maintain its Real Estate in compliance with all Environmental Laws and Environmental Permits other than noncompliance which could not reasonably be expected to result in a Material Adverse Effect; (b) implement any and all investigation, remediation, removal and response actions which are appropriate or necessary to maintain the value and marketability of the Real Estate or to otherwise comply with Environmental Laws and Environmental Permits pertaining to the presence, generation, treatment, storage, use, disposal, transportation or Release of any Hazardous Material on, at, in, under, above, to, from or about any of its Real Estate; (c) notify Lender promptly after such Borrower becomes aware of any violation of Environmental Laws or Environmental Permits or any Release on, at, in, under, above, to, from or about any Real Estate which is reasonably likely to result in Environmental Liabilities in excess of $5,000; and (d) promptly forward to Lender a copy of any order, notice, request for information or any communication or report received by such Borrower in connection with any such violation or Release or any other matter relating to any Environmental Laws or Environmental Permits that could reasonably be expected to result in Environmental Liabilities in excess of $5,000, in each case whether or not the Environmental Protection Agency or any Governmental Authority has taken or threatened any action in connection with any such violation, Release or other matter. If Lender at any time has a reasonable basis to believe that there may be a violation of any Environmental Laws or Environmental Permits by any Borrower or any Environmental Liability arising thereunder, or a Release of Hazardous Materials on, at, in, under, above, to, from or about any of its Real Estate, then each Borrower shall, upon Lender's written request (i) cause the performance of such - 24 - environmental audits including subsurface sampling of soil and groundwater, and preparation of such environmental reports, at Borrowers' expense, as Lender may from time to time reasonably request, which shall be conducted by reputable environmental consulting firms acceptable to Lender and shall be in form and substance reasonably acceptable to Lender, and (ii) permit Lender or its representatives to have access to all Real Estate for the purpose of conducting such environmental audits and testing as Lender deems appropriate, including subsurface sampling of soil and groundwater. Borrowers shall reimburse Lender for the costs of such audits and tests and the same will constitute a part of the Obligations secured hereunder. 5.9. Landlords' Agreements, Mortgagee Agreements and Bailee Letters. Each Borrower shall use its best efforts to obtain a landlord's agreement, mortgagee agreement or bailee letter, as applicable, from the lessor of each leased property or mortgagee of owned property or with respect to any warehouse, processor or converter facility or other location where Collateral is located, which letter or agreement shall contain an acknowledgement that such landlord, mortgagee or bailee is holding the Collateral for Lender and a waiver or subordination of all Liens or claims that the landlord, mortgagee or bailee may assert against the Inventory or Collateral at that location and shall otherwise be satisfactory in form and substance to Lender. After the Closing Date, no real property or warehouse space shall be leased or acquired by any Borrower and no Inventory shall be shipped to a processor or converter under arrangements established after the Closing Date without the prior written consent of Lender, or unless and until a satisfactory landlord or mortgagee agreement or bailee letter, as appropriate, shall first have been obtained with respect to such location. To the extent deemed reasonable by Lender, Lender shall attempt to coordinate the form of such agreements and letters with other debtor-in-possession lenders. Each Borrower shall timely and fully pay and perform its obligations under all leases and other agreements with respect to each leased location or public warehouse where any Collateral is or may be located. 5.10. Further Assurances. Each Borrower executing this Agreement agrees that it shall and shall cause each other Borrower to, at such Borrower's expense and upon request of Lender, duly execute and deliver, or cause to be duly executed and delivered, to Lender such further instruments and do and cause to be done such further acts as may be necessary or proper in the reasonable opinion of Lender to carry out more effectively the provisions and purposes of this Agreement or any other Loan Document. 5.11. Reorganization Matters Each Borrower must use its best efforts to pursue an Acceptable Plan of Reorganization which shall include, without limitation, provisions for (a) a nominally priced warrant in favor of Lender for ten percent (10%) of Holding common stock on a fully diluted basis; (b) approval by the Bankruptcy Court of the financing transactions contemplated by this Agreement and the other Loan Documents including, without limitation, the New Supply Agreement, the ROFR, and the Use Restriction Agreements and (c) payment in full and termination of the Fleet Loan on or before the effective date of the Plan of Reorganization. Without limiting the foregoing, Borrowers shall file an Acceptable Plan of Reorganization on or before April 1, 2002. The Parties hereto acknowledge that the requirement for the warrant described in Subpart (a) of this Section 5.11 is in lieu of requiring Borrowers to pay customary loan fees typically charged by lenders who make loans of the nature and type described herein. - 25 - 5.12. Period Budgets, Borrowers shall prepare and discuss with Lender such budgets as Lender shall reasonably request from time to time setting forth projected costs and expenses of Borrowers'. Borrowers shall conform all spending consistent with such budgets absent written consent of Lender, which such consent shall be given in Lender's sole and absolute discretion. 5.13. Member Status. Homeland shall at all times during the term hereof continue to be a member of AWG. 5.14. Financial Covenants. Borrowers shall at all times comply with all financial covenants which may be required by Fleet Retail Finance, Inc. pursuant to the Fleet Loan, and upon execution of the documents evidencing the Fleet Loan, such financial covenants shall be added hereto as Annex D and incorporated herein by this reference. 5.15. Fleet Loan. In the event that Lender advances funds to fully pay Fleet Retail Finance, Inc. under the Fleet Loan pursuant to Lender exercising its rights under the Intercreditor Agreement, including without limitation, Sections 6 and 7 thereof, Borrowers shall terminate the Fleet Loan. 6. NEGATIVE COVENANTS Each Borrower executing this Agreement jointly and severally agrees as to all Borrowers that, without the prior written consent of Lender, from and after the date hereof until the Termination Date: 6.1. Mergers, Subsidiaries, Etc. No Borrower shall directly or indirectly, by operation of law or otherwise, (a) form or acquire any Subsidiary, or (b) merge with, consolidate with, acquire all or substantially all of the assets or capital stock of, or otherwise combine with or acquire, any Person, except that any Borrower may merge with another Borrower, provided that Borrower Representative shall be the survivor of any such merger to which it is a party. 6.2. Investments; Loans and Advances. Except as otherwise expressly permitted by this Section 6, no Borrower shall make or permit to exist any investment in, or make, accrue or permit to exist loans or advances of money to, any Person, through the direct or indirect lending of money, holding of securities or otherwise, except that each Borrower may maintain its existing investments in its Subsidiaries as of the Closing Date. 6.3. Indebtedness. (a) No Borrower shall create, incur, assume or permit to exist any Indebtedness, except (without duplication) (i) Indebtedness secured by purchase money security interests and Capital Leases permitted in clause (c) of Section 6.7, (ii) the Term Loans and the other Obligations, (iii) unfunded pension fund and other employee benefit plan obligations and liabilities to the extent they are permitted to remain unfunded under applicable law, and (iv) Prior Indebtedness described in Disclosure Schedule (6.3) and refinancings thereof or amendments or modifications thereof which do not have the effect of increasing the principal amount thereof or changing the amortization thereof (other than to extend the same) and which are otherwise on terms and conditions no less favorable to - 26 - any Borrower or Lender, as determined by Lender, than the terms of the Indebtedness being refinanced, amended or modified. No Borrower shall obtain any debtor-in-possession financing from Fleet Retail Finance, Inc. or other Person except upon such terms as Lender shall approve in its sole discretion. (b) No Borrower shall, directly or indirectly, voluntarily purchase, redeem, defease or prepay any principal of, premium, if any, interest or other amount payable in respect of any Indebtedness, other than (i) the Obligations, and (ii) Indebtedness secured by a Permitted Encumbrance. 6.4. Employee Loans and Affiliate Transactions. (a) No Borrower shall enter into or be a party to any transaction with any other Borrower or any Affiliate thereof except in the ordinary course of and pursuant to the reasonable requirements of such Borrower's business and upon fair and reasonable terms that are no less favorable to such Borrower than would be obtained in a comparable arm's length transaction with a Person not an Affiliate of such Borrower. In addition, if any such transaction or series of related transactions involves payments in excess of $50,000 in the aggregate, the terms of these transactions must be disclosed in advance to Lender. All such transactions existing as of the date hereof are described on Disclosure Schedule (6.4(a)). (b) No Borrower shall enter into any lending or borrowing transaction with any employees of any Borrower, except loans to their respective employees on an arm's-length basis in the ordinary course of business consistent with past practices for travel expenses, relocation costs and similar purposes up to a maximum of $25,000 to any employee and up to a maximum of $100,000 in the aggregate at any one time outstanding. (c) No Borrower shall increase the direct or indirect aggregate compensation (excluding stock options) of the ten most highly compensated employees of the Borrowers, taken as a whole, by more than 5% per annum in excess of the current compensation level for those employees, expressed as an aggregate dollar amount, and set forth in Disclosure Schedule (6.4(c)). 6.5. Capital Structure and Business. No Borrower shall (a) make any changes in any of its business objectives, purposes or operations which could in any way adversely affect the repayment of the Term Loans or any of the other Obligations or could reasonably be expected to have or result in a Material Adverse Effect, (b) make any change in its capital structure as described on Disclosure Schedule (3.8), including the issuance of any shares of Stock, warrants or other securities convertible into Stock or any revision of the terms of its outstanding Stock, or (c) amend its charter or bylaws in a manner which would adversely affect Lender or such Borrower's duty or ability to repay the Obligations. No Borrower shall engage in any business other than the businesses currently engaged in by it. 6.6. Guaranteed Indebtedness. No Borrower shall create, incur, assume or permit to exist any Guaranteed Indebtedness except (a) by endorsement of instruments or items of payment - 27 - for deposit to the general account of any Borrower, and (b) for Guaranteed Indebtedness incurred for the benefit of any other Borrower if the primary obligation is expressly permitted by this Agreement. 6.7. Liens. No Borrower shall create, incur, assume or permit to exist any Lien on or with respect to its Accounts or any of its other properties or assets (whether now owned or hereafter acquired) except for (a) Permitted Encumbrances; (b) Liens in existence on the date hereof and summarized on Disclosure Schedule (6.7); and (c) Liens created after the date hereof by conditional sale or other title retention agreements (including Capital Leases) or in connection with purchase money Indebtedness with respect to Equipment and Fixtures acquired by any Borrower in the ordinary course of business, involving the incurrence of an aggregate amount of purchase money Indebtedness and Capital Lease Obligations of not more than $5,000,000 outstanding at any one time for all such Liens (provided that such Liens attach only to the assets subject to such purchase money debt and such Indebtedness is incurred within twenty (20) days following such purchase and does not exceed 100% of the purchase price of the subject assets). In addition, no Borrower shall become a party to any agreement, note, indenture or instrument, or take any other action, which would prohibit the creation of a Lien on any of its properties or other assets in favor of Lender as additional collateral for the Obligations, except operating leases, Capital Leases or Licenses which prohibit Liens upon the assets that are subject thereto. 6.8. Sale of Stock and Assets. No Borrower shall, and Lender does not authorize any Borrower to, sell, transfer, convey, assign or otherwise dispose of any of its properties or other assets other than the sale of Inventory in the ordinary course of business without the prior written consent of Lender, which consent may be in the form of a disposition plan submitted by Borrowers to Lender and approved by Lender. All proceeds derived from any disposition of Collateral other than the sale of Inventory in the ordinary course of business shall be paid to Lender, and applied to the Obligations in the manner set forth in Section 1.3(c) of this Agreement, subject to the provisions of the Intercreditor Agreement. 6.9. ERISA. No Borrower shall, or shall cause or permit any ERISA Affiliate to, cause or permit to occur an event which could result in the imposition of a Lien under Section 412 of the IRC or Section 302 or 4068 of ERISA or cause or permit to occur an ERISA Event. 6.10. Intentionally Omitted 6.11. Hazardous Materials. No Borrower shall cause or permit a Release of any Hazardous Material on, at, in, under, above, to, from or about any of the Real Estate where such Release would (a) violate in any respect, or form the basis for any Environmental Liabilities under, any Environmental Laws or Environmental Permits or (b) otherwise adversely impact the value or marketability of any of the Real Estate or any of the Collateral, other than such Environmental Liabilities which could individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect. 6.12. Sale-Leasebacks. No Borrower shall engage in any sale leaseback, synthetic lease or similar transaction involving any of its assets. - 28 - 6.13. Cancellation of Indebtedness. No Borrower shall cancel any claim or debt owing to it, except for reasonable consideration negotiated on an arm's-length basis and in the ordinary course of its business consistent with past practices. 6.14. Restricted Payments. No Borrower shall make any Restricted Payment, except (a) dividends and distributions by Subsidiaries of any Borrower paid to such Borrower, (b) employee loans permitted under Section 6.4(b) above, (c) scheduled payments of interest with respect to the Subordinated Debt. 6.15. Change of Corporate Name or Location; Change of Fiscal Year. No Borrower shall (a) change its corporate name, or (b) change its chief executive office, principal place of business, state of incorporation, corporate offices or warehouses or locations at which Collateral is held or stored, or the location of its records concerning the Collateral, in any case without at least thirty (30) days prior written notice to Lender and after Lender's written acknowledgment that any reasonable action requested by Lender in connection therewith, including to continue the perfection of any Liens in favor of Lender in any Collateral, has been completed or taken, and provided that any such new location shall be in the continental United States. No Borrower shall change its Fiscal Year. 6.16. No Impairment of Intercompany Transfers. No Borrower shall directly or indirectly enter into or become bound by any agreement, instrument, indenture or other obligation (other than this Agreement and the other Loan Documents) which could directly or indirectly restrict, prohibit or require the consent of any Person with respect to the payment of dividends or distributions or the making or repayment of intercompany loans by a Subsidiary of any Borrower to any Borrower or between Borrowers. 6.17. No Speculative Transactions. No Borrower shall engage in any transaction involving commodity options, futures contracts or similar transactions, except solely to hedge against fluctuations in the prices of commodities owned or purchased by it and the values of foreign currencies receivable or payable by it and interest swaps, caps or collars. 6.18. Leases. No Borrower shall enter into any operating lease for Equipment or Real Estate. 6.19. Changes Relating to Subordinated Debt. No Borrower shall change or amend the terms of any Subordinated Debt (or any indenture or agreement in connection therewith) if the effect of such amendment is to: (a) increase the interest rate on such Subordinated Debt; (b) change the dates upon which payments of principal or interest are due on such Subordinated Debt other than to extend such dates; (c) change any default or event of default other than to delete or make less restrictive any default provision therein, or add any covenant with respect to such Subordinated Debt; (d) change the redemption or prepayment provisions of such Subordinated Debt other than to extend the dates therefor or to reduce the premiums payable in connection therewith; (e) grant any security or collateral to secure payment of such Subordinated Debt; or (t) change or amend any other term if such change or amendment would materially increase the obligations of the obligor or confer additional material rights to the holder of such Subordinated Debt in a manner adverse to any Borrower or Lender. At the time of the execution of this - 29 - Agreement, the parties hereto acknowledge that there exists no Subordinated Debt other than pursuant that certain Indenture dated August 2, 1996. 6.20. Reorganization Matters. Borrowers shall actively oppose any Plan of Reorganization which is not filed by Borrowers, Fleet or Lender unless such plan is an Acceptable Plan of Reorganization . 6.21. AWG Leases and Existing Supply Protection Agreements. Borrowers shall not reject any of the Existing Supply Protection Agreements, Existing Loan Documents, or any of the Leases on which AWG is the landlord or sub-landlord or any membership open account agreement, or any other agreement which inures to AWG's benefit without AWG's prior written consent. 6.22. No Other Supply Agreement or Right of First Refusal. No Borrower, without the prior written consent of Lender, shall (i) enter into any supply agreement for the supply of products covered by the New Supply Agreement or (ii) grant to any party any option or right of first refusal to purchase any property owned by such Borrower. Further, no Borrower shall take any action to evade or circumvent or otherwise permit the evasion or circumvention of the terms, provisions, and intended benefits of any of the Existing Supply Protection Agreements, the New Supply Agreement, the ROFR, the Use Restriction Agreements or any of the other Loan Documents. 7. TERM 7.1. Termination. The financing arrangements contemplated hereby shall be in effect until the Termination Date, and the Term Loans and all other Obligations shall be automatically due and payable in full on such date. 7.2. Survival of Obligations Upon Termination of Financing, Arrangements. Except as otherwise expressly provided for in the Loan Documents, no termination or cancellation (regardless of cause or procedure) of any financing arrangement under this Agreement shall in any way affect or impair the obligations, duties and liabilities of the Borrowers or the rights of Lender relating to any unpaid portion of the Term Loans or any other Obligations, due or not due, liquidated, contingent or unliquidated or any transaction or event occurring prior to such termination, or any transaction or event, the performance of which is required after the Termination Date. Except as otherwise expressly provided herein or in any other Loan Document, all undertakings, agreements, covenants, warranties and representations of or binding upon the Borrowers, and all rights of Lender, all as contained in the Loan Documents, shall not terminate or expire, but rather shall survive any such termination or cancellation and shall continue in full force and effect until the Termination Date; provided however, that in all events the provisions of Section 11, the payment obligations under Sections 1.15 and 1.16, and the indemnities contained in the Loan Documents shall survive the Termination Date. - 30 - 8. EVENTS OF DEFAULT: RIGHTS AND REMEDIES 8.1. Events of Default. The occurrence of any one or more of the following events (regardless of the reason therefor) shall constitute an "Event of Default" hereunder: (a) Any Borrower (i) fails to make any payment of principal of, or interest on, or Fees owing in respect of, any Term Loan or any of the other Obligations when due and payable, or (ii) fails to pay or reimburse Lender for any expense reimbursable hereunder or under any other Loan Document within ten (10) days following Lender's demand for such reimbursement or payment of expenses. (b) Any Borrower shall fail or neglect to perform, keep or observe any of the provisions of this Agreement. (c) Any Borrower shall default under, fail or neglect to perform, keep or observe any other provision of the Existing Loan Documents, the New Supply Agreement, the ROFR, any of the other Loan Documents (other than any provision embodied in or covered by any other clause of this Section 8.1) or any other agreement constituting, securing, evidencing or otherwise relating to the Obligations. (d) A default or breach shall occur under any other agreement, document or instrument to which any Borrower is a party (including but not limited to those documents evidencing or securing Borrowers obligations under the Fleet Loan) which is not cured within any applicable grace period, and such default or breach (i) involves the failure to make any payment when due in respect of any Indebtedness (other than the Obligations) of any Borrower in excess of $100,000 in the aggregate, or (ii) causes, or permits any holder of such Indebtedness or a trustee to cause, Indebtedness or a portion thereof in excess of $100,000 in the aggregate to become due prior to its stated maturity or prior to its regularly scheduled dates of payment, regardless of whether such default is waived, or such right is exercised, by such holder or trustee. (e) Any representation or warranty herein or in any other Loan Document or in any written statement, report, financial statement or certificate made or delivered to Lender by any Borrower is untrue or incorrect in any material respect as of the date when made or deemed made. (f) A final judgment or judgments for the payment of money in excess of $100,000 in the aggregate at any time outstanding shall be rendered against any Borrower which is not covered by insurance or stayed pursuant to 11 U.S.C. Section 362, and the same shall not, within thirty (30) days after the entry thereof, have been discharged or execution thereof stayed or bonded pending appeal, or shall not have been discharged prior to the expiration of any such stay. (g) Assets of any Borrower with a fair market value of $25,000 or more shall be attached, seized, levied upon or subjected to a writ or distress warrant, or come within - 31 - the possession of any receiver, trustee, custodian or assignee for the benefit of creditors of any Borrower and such condition continues for thirty (30) days or more. (h) Any case or proceeding, except in connection with the current Bankruptcy Cases, shall have been commenced against any Borrower seeking a decree or order in respect of such Person (i) under Title 11 of the United States Code, as now constituted or hereafter amended or any other applicable federal, state or foreign bankruptcy or other similar law, (ii) appointing a custodian, receiver, liquidator, assignee, trustee or sequestrator (or similar official) for any Borrower or of any substantial part of any such Person's assets, or (iii) ordering the winding-up or liquidation of the affairs of any Borrower, and such case or proceeding shall remain undismissed or unstayed for sixty (60) days or more or such court shall enter a decree or order granting the relief sought in such case or proceeding. (i) Any Borrower, except in connection with the current Bankruptcy Cases (i) shall file a petition seeking relief under Title 11 of the United States Code, as now constituted or hereafter amended, or any other applicable federal, state or foreign bankruptcy or other similar law, (ii) shall fail to contest in a timely and appropriate manner or shall consent to the institution of proceedings thereunder or to the filing of any such petition or to the appointment of or taking possession by a custodian, receiver, liquidator, assignee, trustee or sequestrator (or similar official) of any Borrower or of any substantial part of any such Person's assets, (iii) shall make an assignment for the benefit of creditors, (iv) shall take any corporate action in furtherance of any of the foregoing; or (v) shall admit in writing its inability to, or shall be generally unable to, pay its debts as such debts become due. (j) Any material provision of the Loan Documents shall for any reason cease to be valid, binding and enforceable in accordance with its terms (or any Borrower shall challenge the enforceability of the Loan Documents or shall assert in writing, or engage in any action or inaction based on any such assertion, that any provision of any of the Loan Documents has ceased to be or otherwise is not valid, binding and enforceable in accordance with its terms), or any security interest created under the Loan Documents shall cease to be a valid and perfected first priority security interest or Lien (except as otherwise permitted herein or therein) in any of the Collateral purported to be covered thereby. (k) Any "Change of Control" shall occur or if any of the Borrowers' stock ownership or membership in Lender is terminated for any reason. (l) Any default or breach by any Borrower shall occur and be continuing under any material portion of such Borrower's equipment leases or servicing agreements, or any material portion or such Borrower's equipment leases or servicing agreements shall be terminated for any reason. - 32 - (m) Any conversion or dismissal of the Bankruptcy Cases or the application by the Borrowers for such conversion or dismissal, unless such dismissal is consented to, in writing, by the Lender. (n) Any order shall be entered by the Bankruptcy Court, or the Borrowers shall file an application for an order, (i) appointing a trustee in the Bankruptcy Cases, or (ii) appointing an examiner or other fiduciary in the Bankruptcy Cases with the authority to perform the duties of a trustee. (o) If(i) the Bankruptcy Court fails to convert the Interim Financing Order into a Final Order no later than August 31, 2001; (ii) the Interim Financing Order, or such Interim Finance Order which has become a Final Order, shall be modified, vacated, supplemented, amended or reversed except with the prior written consent of Lender; or (iii) the Borrowers shall apply to the Bankruptcy Court for authority to do so without the prior written consent of the Lender. (p) The commencement of a liquidation process or going out-of-business sale with respect to any substantial portion of the Borrowers assets (other than those associated with certain store locations which Borrowers elect to sell or close as set forth on Exhibit F to the New Supply Agreement, pursuant to Section 6 of the Intercreditor Agreement), without the prior written consent of Lender. (q) The Bankruptcy Court shall enter an order authorizing or allowing any claim or lien (except as permitted in this Agreement) in the Bankruptcy Cases having a priority whether under Section 364 of the Bankruptcy Code or otherwise superior to or pari passu with that of the Lender except as may be permitted in the Interim Financing Order or Final Order. (r) Borrowers commence any action or proceeding or tile any claims or objections of any type against the Lender to contest (i) the pre-petition indebtedness of Borrowers to Lender and/or the Liens of Lender on any Collateral securing such indebtedness; or (ii) the validity and priority of the post-petition Liens on the Collateral, evidenced by the Loan Documents or the validity of the post-petitions indebtedness to Borrowers to the extent actually advanced to or on behalf of Borrowers. (s) Any creditor of any Borrower or any other party is granted a termination of the automatic stay under 11 U.S.C. Section 362 without the prior written consent of Lender. (t) Any submission by Borrowers or any other Person to the Bankruptcy Court proposing a Plan of Reorganization which is not an Acceptable Plan of Reorganization. (u) The entry of an order by the Bankruptcy Court approving a Plan of Reorganization which is not an Acceptable Plan of Reorganization. - 33 - (v) The occurrence of an "exercise event" under any right of first refusal agreement between any Borrower and Lender and any Borrower fails to comply with the provisions of such applicable right of first refusal agreement. (w) The transfer of more than twenty percent (20%) of the stock of Holding to an entity primarily engaged (including through any subsidiary, affiliate or otherwise) in the retail or wholesale grocery business. 8.2. Remedies. If any Default or Event of Default shall have occurred and be continuing, Lender may, without notice, (i) increase the rate of interest applicable to the Term Loans to the Default Rate; (ii) declare all or any portion of the Obligations, including all or any portion of the Term Loans to be forthwith due and payable, all without presentment, demand, protest or further notice of any kind, all of which are expressly waived by Borrowers and each other Borrower; and (iii) setoff the Obligations, or any portion thereof, against any or all funds of Borrowers' on deposit with Lender or represented by any obligations owed or issued by Lender to any Borrower; (iv) exercise any rights and remedies provided to Lender under the Loan Documents and/or at law or equity, including all remedies provided under the Code; provided, however, that upon the occurrence of an Event of Default specified in Sections 8.1(g), (h) or (i), all of the Obligations shall become immediately due and payable without declaration, notice or demand by any Person. 8.3. Waivers by Borrowers. Except as otherwise provided for in this Agreement or by applicable law, each Borrower waives (including for purposes of Section 12): (a) presentment, demand and protest and notice of presentment, dishonor, notice of intent to accelerate, notice of acceleration, protest, default, nonpayment, maturity, release, compromise, settlement, extension or renewal of any or all commercial paper, accounts, contract rights, documents, instruments, chattel paper and guaranties at any time held by Lender on which any Borrower may in any way be liable, and hereby ratifies and confirms whatever Lender may do in this regard, (b) all rights to notice and a hearing prior to Lender's taking possession or control of, or to Lender's replevy, attachment or levy upon, the Collateral or any bond or security which might be required by any court prior to allowing Lender to exercise any of its remedies, and (c) the benefit of all valuation, appraisal, marshaling and exemption laws. 8.4. Cross-Default. Homeland hereby agrees that a default under this Agreement shall automatically constitute a default under each of the other Obligations. 9. INTENTIONALLY OMITTED 10. SUCCESSORS AND ASSIGNS 10.1. Successors and Assigns. This Agreement and the other Loan Documents shall be binding on and shall inure to the benefit of each Borrower, Lender and their respective successors and assigns (including, in the case of any Borrower, a debtor-in-possession on behalf of such Borrower), except as otherwise provided herein or therein. No Borrower may assign, transfer, hypothecate or otherwise convey its rights, benefits, obligations or duties hereunder or under any of the other Loan Documents without the prior express written consent of Lender. Any such - 34 - purported assignment, transfer, hypothecation or other conveyance by any Borrower without the prior express written consent of Lender shall be void. The terms and provisions of this Agreement are for the purpose of defining the relative rights and obligations of each Borrower and Lender with respect to the transactions contemplated hereby and no Person shall be a third party beneficiary of any of the terms and provisions of this Agreement or any of the other Loan Documents. 11. MISCELLANEOUS 11.1. Complete Agreement; Modification of Agreement. The Loan Documents constitute the complete agreement between the parties with respect to the subject matter thereof and may not be modified, altered or amended except as set forth in Section 11.2 below. Any letter of interest, commitment letter, fee letter between any Borrower and Lender or any of their respective affiliates, predating this Agreement and relating to a financing of substantially similar form, purpose or effect shall be superseded by this Agreement. 11.2. Amendments and Waivers. No amendment, modification, termination or waiver of any provision of this Agreement or any of the Notes or other Loan Documents, or any consent to any departure by any Borrower therefrom, shall in any event be effective unless the same shall be in writing and signed by Lender and Borrowers. Upon indefeasible payment in full in cash and performance of all of the Obligations (other than indemnification Obligations under Section 1.13), termination of the Commitments and a release of all claims against Lender, and so long as no suits, actions proceedings, or claims are pending or threatened against any Indemnified Person asserting any damages, losses or liabilities that are Indemnified Liabilities, Lender shall deliver to Borrowers termination statements, mortgage releases and other documents necessary or appropriate to evidence the termination of the Liens securing payment of the Obligations. 11.3. Legal Fees and Expenses. Borrowers shall reimburse Lender for all reasonable out-of-pocket legal and legal-related expenses incurred in connection with the preparation of the Loan Documents. Borrowers shall reimburse Lender for all reasonable legal and legal related fees, costs and expenses, including the reasonable fees, costs and expenses of counsel or other advisors for advice, assistance, or other representation both Pre-Petition and Post-Petition in connection with: (a) the forwarding to Borrowers or any other Person on behalf of Borrowers by Lender of the proceeds of the Term Loan; (b) any amendment, modification or waiver of, or consent with respect to, any of the Loan Documents or Related Transactions Documents or advice in connection with the administration of the Term Loans made pursuant hereto or its rights hereunder or thereunder; (c) any litigation, contest, dispute, suit, proceeding or action (whether instituted by Lender, any Borrower or any other Person) in any way relating to the - 35 - Collateral, any of the Loan Documents or any other agreement to be executed or delivered in connection therewith or herewith, whether as party, witness, or otherwise, including any litigation, contest, dispute, suit, case, proceeding or action, and any appeal or review thereof, in connection with a case commenced by or against any or all of the Borrowers or any other Person that may be obligated to Lender by virtue of the Loan Documents; including any such litigation, contest, dispute, suit, proceeding or action arising in connection with any work-out or restructuring of the Term Loans during the pendency of one or more Events of Default; (d) any attempt to enforce any remedies of Lender against any or all of the Borrowers or any other Person that may be obligated to Lender by virtue of any of the Loan Documents; including any such attempt to enforce any such remedies in the course of any work-out or restructuring of the Term Loans during the pendency of one or more Events of Default; (e) any work-out or restructuring of the Term Loans during the pendency of one or more Events of Default; (f) efforts to (i) monitor the Term Loans or any of the other Obligations, (ii) evaluate, observe or assess any of the Borrowers or their respective affairs, and (iii) verify, protect, evaluate, assess, appraise, collect, sell, liquidate or otherwise dispose of any of the Collateral, whether before or after Default; (g) any and all matters which may arise under or in connection with the Bankruptcy Cases; including, as to each of clauses (a) through (g) above, all reasonable attorneys' and other professional and service providers' fees arising from such services, including those in connection with any appellate proceedings; and all legal or legal related expenses, costs, charges and other fees incurred by such counsel and others in any way or respect arising in connection with or relating to any of the events or actions described in this Section 11.3 shall be payable, on demand, by Borrowers to Lender. Without limiting the generality of the foregoing, such reasonable expenses, costs, charges and fees may include: fees, costs and expenses of paralegals; court costs and expenses; photocopying and duplication expenses; court reporter fees, costs and expenses; long distance telephone charges; air express charges; telegram or telecopy charges; secretarial overtime charges; and expenses for travel, lodging and food paid or incurred in connection with the performance of such legal or other advisory services. 11.4. No Waiver. Lender's failure, whether pursuant to a prohibitive term in the Intercreditor Agreement or otherwise, at any time or times, to require strict performance by the Borrowers of any provision of this Agreement and any of the other Loan Documents shall not waive, affect or diminish any right of Lender thereafter to demand strict compliance and performance therewith. Any suspension or waiver of an Event of Default, whether pursuant to a prohibitive term in the Intercreditor Agreement or otherwise, shall not suspend, waive or affect any other Event of Default whether the same is prior or subsequent thereto and whether the same or of a different type. None of the undertakings, agreements, warranties, covenants and - 36 - representations of any Borrower contained in this Agreement or any of the other Loan Documents and no Default or Event of Default by any Borrower shall be deemed to have been suspended or waived by Lender, unless such waiver or suspension is by an instrument in writing signed by an officer of or other authorized employee of Lender and directed to Borrowers specifying such suspension or waiver. 11.5. Remedies. Lender's rights and remedies under this Agreement shall be cumulative and nonexclusive of any other rights and remedies which Lender may have under any other agreement, including the other Loan Documents, by operation of law or otherwise. Recourse to the Collateral shall not be required. 11.6. Severability. Wherever possible, each provision of this Agreement and the other Loan Documents shall be interpreted in such a manner as to be effective and valid under applicable law, but if any provision of this Agreement shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Agreement. 11.7. Conflict of Terms. Except as otherwise provided in this Agreement or any of the other Loan Documents by specific reference to the applicable provisions of this Agreement, if any provision contained in this Agreement is in conflict with, or inconsistent with, any provision in any of the other Loan Documents, the provision contained in this Agreement shall govern and control. 11.8. Confidentiality. Lender agrees to use commercially reasonable efforts (equivalent to the efforts Lender applies to maintaining the confidentiality of its own confidential information) to maintain as confidential all confidential information provided to it by the Borrowers and designated as confidential for a period of two (2) years following receipt thereof, except that Lender may disclose such information (a) to Persons employed or engaged by Lender in evaluating, approving, structuring or administering the Term Loans and the Commitments; (b) to any bona fide assignee or participant or potential assignee or participant that has agreed to comply with the covenant contained in this Section 11.8 (and any such bona fide assignee or participant or potential assignee or participant may disclose such information to Persons employed or engaged by them as described in clause (a) above); (c) as required or requested by any Governmental Authority or reasonably believed by Lender to be compelled by any court decree, subpoena or legal or administrative order or process; (d) as, on the advice of Lender's counsel, required by law; (e) in connection with the exercise of any right or remedy under the Loan Documents or in connection with any Litigation to which Lender is a party; or (f) which ceases to be confidential through no fault of Lender. 11.9. GOVERNING LAW. EXCEPT AS OTHERWISE EXPRESSLY PROVIDED IN ANY OF THE LOAN DOCUMENTS, IN ALL RESPECTS, INCLUDING ALL MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE, THE LOAN DOCUMENTS AND THE OBLIGATIONS SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF KANSAS APPLICABLE TO CONTRACTS MADE AND PERFORMED IN THAT STATE AND ANY APPLICABLE LAWS OF THE UNITED STATES OF - 37 - AMERICA. EACH BORROWER HEREBY CONSENTS AND AGREES THAT THE STATE OR FEDERAL COURTS LOCATED IN JOHNSON COUNTY, KANSAS SHALL HAVE EXCLUSIVE JURISDICTION TO HEAR AND DETERMINE ANY CLAIMS OR DISPUTES BETWEEN THE BORROWERS AND LENDER PERTAINING TO THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS OR TO ANY MATTER ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS, PROVIDED, THAT LENDER AND THE BORROWERS ACKNOWLEDGE THAT ANY APPEALS FROM THOSE COURTS MAY HAVE TO BE HEARD BY A COURT LOCATED OUTSIDE OF JOHNSON COUNTY, KANSAS AND, PROVIDED, FURTHER NOTHING IN THIS AGREEMENT SHALL BE DEEMED OR OPERATE TO PRECLUDE LENDER FROM BRINGING SUIT OR TAKING OTHER LEGAL ACTION IN ANY OTHER JURISDICTION TO REALIZE ON THE COLLATERAL OR ANY OTHER SECURITY FOR THE OBLIGATIONS, OR TO ENFORCE A JUDGMENT OR OTHER COURT ORDER IN FAVOR OF LENDER. EACH BORROWER EXPRESSLY SUBMITS AND CONSENTS IN ADVANCE TO SUCH JURISDICTION IN ANY ACTION OR SUIT COMMENCED IN ANY SUCH COURT, AND EACH BORROWER HEREBY WAIVES ANY OBJECTION WHICH SUCH BORROWER MAY HAVE BASED UPON LACK OF PERSONAL JURISDICTION, IMPROPER VENUE OR FORUM NON CONVENIENS AND HEREBY CONSENTS TO THE GRANTING OF SUCH LEGAL OR EQUITABLE RELIEF AS IS DEEMED APPROPRIATE BY SUCH COURT. EACH BORROWER HEREBY WAIVES PERSONAL SERVICE OF THE SUMMONS, COMPLAINT AND OTHER PROCESS ISSUED IN ANY SUCH ACTION OR SUIT AND AGREES THAT SERVICE OF SUCH SUMMONS, COMPLAINTS AND OTHER PROCESS MAY BE MADE BY REGISTERED OR CERTIFIED MAIL ADDRESSED TO SUCH BORROWER AT THE ADDRESS SET FORTH IN ANNEX C OF THIS AGREEMENT AND THAT SERVICE SO MADE SHALL BE DEEMED COMPLETED UPON THE EARLIER OF SUCH BORROWER'S ACTUAL RECEIPT THEREOF OR THREE (3) DAYS AFTER DEPOSIT IN THE U.S. MAILS, PROPER POSTAGE PREPAID. NOTWITHSTANDING ANYTHING HEREIN TO THE CONTRARY, UNTIL THE DATE OF CONSUMMATION OF THE FINAL ORDER APPROVING AN ACCEPTABLE PLAN OF REORGANIZATION, THE PARTIES AGREE THAT THE BANKRUPTCY COURT SHALL HAVE EXCLUSIVE JURISDICTION TO HEAR AND DETERMINE ANY CLAIMS OR DISPUTES PERTAINING TO THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS EXECUTED ON OR ABOUT THE DATE HEREOF. 11.10. Notices. Except as otherwise provided herein, whenever it is provided herein that any notice, demand, request, consent, approval, declaration or other communication shall or may be given to or served upon any of the parties by any other parties, or whenever any of the parties desires to give or serve upon any other parties any communication with respect to this Agreement, each such notice, demand, request, consent, approval, declaration or other communication shall be in writing and shall be deemed to have been validly served, given or delivered (a) upon the earlier of actual receipt and three (3) Business Days after deposit in the United States Mail, registered or certified mail, return receipt requested, with proper postage prepaid, (b) upon transmission, when sent by telecopy or other similar facsimile transmission (with - 38 - such telecopy or facsimile promptly confirmed by delivery of a copy by personal delivery or United States Mail as otherwise provided in this Section 11.10), (c) one (1) Business Day after deposit with a reputable overnight courier with all charges prepaid or (d) when delivered, if hand-delivered by messenger, all of which shall be addressed to the party to be notified and sent to the address or facsimile number indicated on Annex C or to such other address (or facsimile number) as may be substituted by notice given as herein provided. The giving of any notice required hereunder may be waived in writing by the party entitled to receive such notice. Failure or delay in delivering copies of any notice, demand, request, consent, approval, declaration or other communication to any Person (other than Borrower Representative or Lender) designated on Annex C to receive copies shall in no way adversely affect the effectiveness of such notice, demand, request, consent, approval, declaration or other communication. 11.11. Section Titles. The Section titles and Table of Contents contained in this Agreement are and shall be without substantive meaning or content of any kind whatsoever and are not a part of the agreement between the parties hereto. 11.12. Counterparts. This Agreement may be executed in any number of separate counterparts, each of which shall collectively and separately constitute one agreement. 11.13. WAIVER OF JURY TRIAL. BECAUSE DISPUTES ARISING IN CONNECTION WITH COMPLEX FINANCIAL TRANSACTIONS ARE MOST QUICKLY AND ECONOMICALLY RESOLVED BY AN EXPERIENCED AND EXPERT PERSON AND THE PARTIES WISH APPLICABLE STATE AND FEDERAL LAWS TO APPLY (RATHER THAN ARBITRATION RULES), THE PARTIES DESIRE THAT THEIR DISPUTES BE RESOLVED BY A JUDGE APPLYING SUCH APPLICABLE LAWS. THEREFORE, TO ACHIEVE THE BEST COMBINATION OF THE BENEFITS OF THE JUDICIAL SYSTEM AND OF ARBITRATION, THE PARTIES HERETO WAIVE ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, SUIT, OR PROCEEDING BROUGHT TO RESOLVE ANY DISPUTE, WHETHER SOUNDING IN CONTRACT, TORT OR OTHERWISE, AMONG LENDER AND ANY BORROWER ARISING OUT OF, CONNECTED WITH, RELATED TO, OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED AMONG THEM IN CONNECTION WITH, THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS OR THE TRANSACTIONS RELATED THERETO. 11.14. Press Releases. Each Borrower executing this Agreement agrees that neither it nor its Affiliates will in the future issue any press releases or other public disclosure using the name of AWG or its affiliates or referring to this Agreement, the other Loan Documents or the Related Transactions Documents without at least two (2) Business Days' prior notice to AWG and without the prior written consent of AWG unless (and only to the extent that) such Borrower or Affiliate is required to do so under law and then, in any event, such Borrower or Affiliate will consult with AWG before issuing such press release or other public disclosure. 11.15. Reinstatement. This Agreement shall remain in full force and effect and continue to be effective should any petition be filed by or against any Borrower for liquidation or reorganization, should any Borrower become insolvent or make an assignment for the benefit of - 39 - any creditor or creditors or should a receiver or trustee be appointed for all or any significant part of any Borrower's assets, and shall continue to be effective or to be reinstated, as the case may be, if at any time payment and performance of the Obligations, or any part thereof, is, pursuant to applicable law, rescinded or reduced in amount, or must otherwise be restored or returned by any obligee of the Obligations, whether as a "voidable preference," "fraudulent conveyance," or otherwise, all as though such payment or performance had not been made. In the event that any payment, or any part thereof, is rescinded, reduced, restored or returned, the Obligations shall be reinstated and deemed reduced only by such amount paid and not so rescinded, reduced, restored or returned. In the event a court of competent jurisdiction determines that the Restated Term Note is not a valid Post-Petition Obligation, the Existing Notes shall be reinstated as a valid Pre-Petition Obligation and all the Existing Loan Documents in effect on the Petition Date shall remain in full force and effect and shall secure such existing Obligations. 11.16. Advice of Counsel. Each of the parties represents to each other party hereto that it has discussed this Agreement and, specifically, the provisions of Sections 11.9 and 11.13, with its counsel. 11.17. No Strict Construction. The parties hereto have participated jointly in the negotiation and drafting of this Agreement. In the event an ambiguity or question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by the parties hereto and no presumption or burden of proof shall arise favoring or disfavoring any party by virtue of the authorship of any provisions of this Agreement. 11.18. Existing Loan Documents. Except to the extent otherwise amended by necessary implication or specifically amended by this Agreement and the other Loan Documents, the Existing Loan Documents are hereby ratified and re-affirmed by the parties hereto. Borrowers, Lender and all other Persons signatory hereto agree that the Existing Loan Documents shall remain in full force and effect and represent the obligations of the parties thereto according to their terms. 11.19. Release of Claims and Waiver. Borrowers hereby release, remise, acquit and forever discharge Lender and Lender's employees, agents, representatives, consultants, attorney, fiduciaries, servants, officers, directors, partners, predecessors, successors and assigns, subsidiary corporation, parent corporations, and related corporate divisions (collectively "Released Parties"), from any and all actions and causes of action, judgments, executions, suits, debts, claims, demands, liabilities, obligations, damages and expenses of every character, known or unknown, direct and/or indirect, fixed or contingent, at law or in equity, of whatsoever kind or nature, whether heretofore or hereafter arising, for or because of any matter or things done, omitted or suffered to be done by any of the Released Parties prior to and including the date of execution hereof, and in any way directly or indirectly arising out of or in any way connected to this Agreement, the other Loan Documents, including but not limited to any settlement negotiations (collectively the "Released Matters"). Borrowers acknowledge that the agreements in this paragraph are intended to be in full satisfaction of all or any alleged injuries or damages arising in connection with the Released Matters. Borrowers represent and warrant to lender that they have not purported to transfer, assign or otherwise convey any right, title or interest of Borrowers' in - 40 - any Released Matter to any other Person and that the foregoing constitutes a full and complete release of all Released Matters. 12. CROSS-GUARANTY 12.1. Cross-Guaranty. Each Borrower hereby agrees that such Borrower is jointly and severally liable for, and hereby absolutely and unconditionally guarantees to Lender and its successors and assigns, the full and prompt payment (whether at stated maturity, by acceleration or otherwise) and performance of, all Obligations owed or hereafter owing to Lender by each other Borrower. Each Borrower agrees that its guaranty obligation hereunder is a continuing guaranty of payment and performance and not of collection, that its obligations under this Section 12 shall not be discharged until payment and performance, in full, of the Obligations has occurred, and that its obligations under this Section 12 shall be absolute and unconditional, irrespective of, and unaffected by, (a) the genuineness, validity, regularity, enforceability or any future amendment of, or change in, this Agreement, any other Loan Document or any other agreement, document or instrument to which any Borrower is or may become a party; (b) the absence of any action to enforce this Agreement (including this Section 12) or any other Loan Document or the waiver or consent by Lender with respect to any of the provisions thereof; (c) the existence, value or condition of, or failure to perfect its Lien against, any security for the Obligations or any action, or the absence of any action, by Lender in respect thereof (including the release of any such security); (d) the insolvency of any Borrower; or (e) any other action or circumstances which might otherwise constitute a legal or equitable discharge or defense of a surety or guarantor, Each Borrower shall be regarded, and shall be in the same position, as principal debtor with respect to the Obligations guaranteed hereunder. 12.2. Waivers by Borrowers. Each Borrower expressly waives all rights it may have now or in the future under any statute, or at common law, or at law or in equity, or otherwise, to compel Lender to marshall assets or to proceed in respect of the Obligations guaranteed hereunder against any other Borrower, any other party or against any security for the payment and performance of the Obligations before proceeding against, or as a condition to proceeding against, such Borrower. Each Borrower and their Affiliates expressly waives all rights it may have now or in the future to surcharge pursuant to Section 506(c) of the Bankruptcy Code. It is agreed among each Borrower and Lender that the foregoing waivers are of the essence of the transaction contemplated by this Agreement and the other Loan Documents and that, but for the provisions of this Section 12 and such waivers, Lender would decline to enter into this Agreement. - 41 - 12.3. Benefit of Guaranty. Each Borrower agrees that the provisions of this Section 12 are for the benefit of Lender and its successors, transferees, endorsees and assigns, and nothing herein contained shall impair, as between any other Borrower and Lender, the obligations of such other Borrower under the Loan Documents. 12.4. Subordination of Subrogation, Etc. Notwithstanding anything to the contrary in this Agreement or in any other Loan Document, and except as set forth in Section 12.7, each Borrower hereby expressly and irrevocably subordinates to payment of the Obligations any and all rights at law or in equity to subrogation, reimbursement, exoneration, contribution, indemnification or set off and any and all defenses available to a surety, guarantor or accommodation co-obligor until the Obligations are indefeasibly paid in full in cash. Each Borrower acknowledges and agrees that this subordination is intended to benefit Lender and shall not limit or otherwise affect such Borrower's liability hereunder or the enforceability of this Section 12, and that Lender and its successors and assigns are intended third party beneficiaries of the waivers and agreements set forth in this Section 12.4. 12.5. Election of Remedies. If Lender may, under applicable law, proceed to realize its benefits under any of the Loan Documents giving Lender a Lien upon any Collateral, whether owned by any Borrower or by any other Person, either by judicial foreclosure or by non-judicial sale or enforcement, Lender may, at its sole option, determine which of its remedies or rights it may pursue without affecting any of its rights and remedies under this Section 12. If, in the exercise of any of its rights and remedies, Lender shall forfeit any of its rights or remedies, including its right to enter a deficiency judgment against any Borrower or any other Person, whether because of any applicable laws pertaining to "election of remedies" or the like, each Borrower hereby consents to such action by Lender and waives any claim based upon such action, even if such action by Lender shall result in a full or partial loss of any rights of subrogation which each Borrower might otherwise have had but for such action by Lender. Any election of remedies which results in the denial or impairment of the right of Lender to seek a deficiency judgment against any Borrower shall not impair any other Borrower's obligation to pay the full amount of the Obligations. In the event Lender shall bid at any foreclosure or trustee's sale or at any private sale permitted by law or the Loan Documents, Lender may bid all or less than the amount of the Obligations and the amount of such bid need not be paid by Lender but shall be credited against the Obligations. The amount of the successful bid at any such sale, whether Lender or any other party is the successful bidder, shall be conclusively deemed to be the fair market value of the Collateral and the difference between such bid amount and the remaining balance of the Obligations shall be conclusively deemed to be the amount of the Obligations guaranteed under this Section 12, notwithstanding that any present or future law or court decision or ruling may have the effect of reducing the amount of any deficiency claim to which Lender might otherwise be entitled but for such bidding at any such sale. 12.6. Limitation. Notwithstanding any provision herein contained to the contrary, each Borrower's liability under this Section 12 (which liability is in any event in addition to amounts for which such Borrower is primarily liable under Section 1) shall be limited to an amount not to exceed as of any date of determination the greater of: - 42 - (a) the net amount of all Term Loans advanced to any other Borrower under this Agreement and then re-loaned or otherwise transferred to, or for the benefit of, such Borrower; and (b) the amount which could be claimed by Lender from such Borrower under this Section 12 without rendering such claim voidable or avoidable under Section 548 of Chapter 11 of the Bankruptcy Code or under any applicable state Uniform Fraudulent Transfer Act, Uniform Fraudulent Conveyance Act or similar statute or common law after taking into account, among other things, such Borrower's right of contribution and indemnification from each other Borrower under Section 12.7. 12.7. Contribution with Respect to Guaranty Obligations. (a) To the extent that any Borrower shall make a payment under this Section 12 of all or any of the Obligations (other than Term Loans made to that Borrower for which it is primarily liable) (a "Guarantor Pavment") which, taking into account all other Guarantor Payments then previously or concurrently made by any other Borrower, exceeds the amount which such Borrower would otherwise have paid if each Borrower had paid the aggregate Obligations satisfied by such Guarantor Payment in the same proportion that such Borrower's "Allocable Amount" (as defined below) (as determined immediately prior to such Guarantor Payment) bore to the aggregate Allocable Amounts of each of the Borrowers as determined immediately prior to the making of such Guarantor Payment, then, following indefeasible payment in full in cash of the Obligations and termination of the Commitments, such Borrower shall be entitled to receive contribution and indemnification payments from, and be reimbursed by, each other Borrower for the amount of such excess, pro rata based upon their respective Allocable Amounts in effect immediately prior to such Guarantor Payment. (b) As of any date of determination, the "Allocable Amount" of any Borrower shall be equal to the maximum amount of the claim which could then be recovered from such Borrower under this Section 12 without rendering such claim voidable or avoidable under Section 548 of Chapter 11 of the Bankruptcy Code or under any applicable state Uniform Fraudulent Transfer Act, Uniform Fraudulent Conveyance Act or similar statute or common law. (c) This Section 12.7 is intended only to define the relative rights of Borrowers and nothing set forth in this Section 12.7 is intended to or shall impair the obligations of Borrowers, jointly and severally, to pay any amounts as and when the same shall become due and payable in accordance with the terms of this Agreement, including Section 12.1. Nothing contained in this Section 12.7 shall limit the liability of any Borrower to pay the Term Loans made directly or indirectly to that Borrower and accrued interest, Fees and expenses with respect thereto for which such Borrower shall be primarily liable. (d) The parties hereto acknowledge that the rights of contribution and indemnification hereunder shall constitute assets of the Borrower to which such contribution and indemnification is owing. - 43 - (e) The rights of the indemnifying Borrowers against other Borrowers under this Section 12.7 shall be exercisable upon the full and indefeasible payment of the Obligations and the termination of the Commitments. 12.8. Liability Cumulative. The liability of Borrowers under this Section 12 is in addition to and shall be cumulative with all liabilities of each Borrower to Lender under this Agreement and the other Loan Documents to which such Borrower is a party or in respect of any Obligations or obligation of the other Borrower, without any limitation as to amount, unless the instrument or agreement evidencing or creating such other liability specifically provides to the contrary. KANSAS DISCLOSURE 1) THIS IS THE FINAL EXPRESSION OF THE AGREEMENT BETWEEN BORROWERS AND LENDER, AND THIS AGREEMENT MAY NOT BE CONTRADICTED BY EVIDENCE OF ANY PRIOR ORAL AGREEMENT OR OF A CONTEMPORANEOUS ORAL AGREEMENT BETWEEN BORROWERS AND LENDER. 2) BORROWERS AND LENDER ACKNOWLEDGE THAT ALL NONSTANDARD TERMS OF THIS AGREEMENT AND ALL PRIOR ORAL AGREEMENTS AND CONTEMPORANEOUS ORAL AGREEMENTS BETWEEN THEM ARE SUFFICIENTLY SET FORTH HEREIN EXCEPT (IF NONE, WRITE "NONE"): NONE. BORROWERS AND LENDER FURTHER ACKNOWLEDGE THAT THE ABOVE SPACE IS SUFFICIENT FOR DISCLOSURE OF TERMS AND AGREEMENTS, IF ANY, NOT SET FORTH IN THIS AGREEMENT. 3) BORROWERS AND LENDER AFFIRM THAT NO UNWRITTEN ORAL AGREEMENT BETWEEN THEM EXISTS. Borrowers' initials: /s/ DC ----------------------- Lender's initials: /s/ GLP ----------------------- - 44 - IN WITNESS WHEREOF, this Agreement has been duly executed as of the date first written above. HOMELAND HOLDING CORPORATION, Debtor-in-Possession, a Delaware corporation, as Borrower By: /s/ DAVID B. CLARK --------------------------------- Name: David B. Clark ------------------------------- Title: President, CEO ------------------------------ HOMELAND STORES, INC., Debtor-in- Possession, a Delaware corporation, as Borrower By: /s/ DAVID B. CLARK --------------------------------- Name: David B. Clark ------------------------------- Title: President, CEO ------------------------------ ASSOCIATED WHOLESALE GROCERS, INC., a Missouri corporation, as Lender By: /s/ GARY L. PHILLIPS --------------------------------- Name: Gary L. Phillips ------------------------------- Title: President/CEO ------------------------------ - 45 - ANNEX A (RECITALS) TO CREDIT AGREEMENT DEFINITIONS Capitalized terms used in the Loan Documents shall have (unless otherwise provided elsewhere in the Loan Documents) the following respective meanings and all section references in the following definitions shall refer to Sections of the Agreement: "$16.5 Million Loan Commitment" shall mean the commitment of Lender to make the $16.5 Million Loan in the principal amount of $16,500,000. "$16.5 Million Payment Date" shall mean the earlier of (a) the Confirmation Date, (b) August 1, 2003, (c) the date in which the Term Loans become due and payable pursuant to Section 8.2(b), and (d) the date of indefeasible prepayment in full by Borrowers of the Term Loans. "$16.5 Million Term Loan" shall have the meaning assigned to it in Section 1.1 (a)(i). "$16.5 Million Term Note" shall have the meaning assigned to it in Section 1.1 (a)(i). "1995 Supply Agreement" shall mean that certain Supply Agreement dated April 21, 1995 between AWG and Homeland as amended pursuant to that certain First Amendment to Supply Agreement dated as of August 2, 1996, and that certain Second Amendment to Supply Agreement dated as of August 12, 1997 and as amended by the Agreement. "1999 Supply Agreements" shall mean those certain Supply Agreements between Borrowers and AWG dated as of April 23, 1999, November 2, 1999 and February 20, 2000. "Acceptable Plan of Reorganization" shall mean any Plan of Reorganization that has been acknowledged by Lender in writing as acceptable to it in its sole and absolute discretion. "Account Debtor" shall mean any Person who may become obligated to any Borrower under, with respect to, or on account of, an Account. "Accounts" shall mean all "accounts," as such term is defined in the Code, now owned or hereafter acquired by any Borrower and, in any event, including (a) all accounts receivable, other receivables, book debts and other forms of obligations (other than forms of obligations evidenced by Chattel Paper, Documents or Instruments) now owned or hereafter received or acquired by or belonging or owing to any Borrower, whether arising out of goods sold or services rendered by it or from any other transaction (including any such obligations which may be characterized as an account or contract right under the Code), (b) all of each Borrower's rights in, to and under all purchase orders or receipts now owned or hereafter acquired by it for goods or services, (c) all of each Borrower's rights to any goods represented by any of the foregoing (including unpaid sellers' rights of rescission, replevin, reclamation and stoppage in transit and rights to returned, reclaimed or repossessed goods), (d) all monies due or to become due to any Borrower, under all A-l purchase orders and contracts for the sale of goods or the performance of services or both by such Borrower or in connection with any other transaction (whether or not yet earned by performance on the part of such Borrower) now or hereafter in existence, including the right to receive the proceeds of said purchase orders and contracts, and (e) all collateral security and guarantees of any kind, now or hereafter in existence, given by any Person with respect to any of the foregoing. "Affiliate" shall mean, with respect to any Person, (a) each Person that, directly or indirectly, owns or controls, whether beneficially, or as a trustee, guardian or other fiduciary, five percent (5%) or more of the Stock having ordinary voting power in the election of directors of such Persons, (b) each Person that controls, is controlled by or is under common control with such Person, (c) each of such Person's officers, directors, joint venturers and partners and (d) in the case of Borrowers, the immediate family members, spouses and lineal descendants of individuals who are Affiliates of any Borrower. For the purposes of this definition, "control" of a Person shall mean the possession, directly or indirectly, of the power to direct or cause the direction of its management or policies, whether through the ownership of voting securities, by contract or otherwise; provided, however, that the term "Affiliate" shall specifically exclude Lender. "Agreement" shall mean this Credit Agreement by and among Borrowers and Lender. "Allocable Amount" shall have the meaning assigned to it in Section 12.7(b). "Amended and Restated Membership Agreement" shall have the meaning assigned to it in Annex B. "Amended and Restated Stock Power of Attorney" shall have the meaning assigned to it in Annex B. "Appendices" shall have the meaning assigned to it in the recitals to the Agreement. "AWG" shall mean Associated Wholesale Grocers, Inc. "Bankruptcy Cases" shall mean collectively Holding's case under Chapter 11 of the Bankruptcy Code known as Case No. 01-17869TS in the Bankruptcy Court and Homeland's case under Chapter 11 of the Bankruptcy Code known as Case No. 01-17870TS in the Bankruptcy court. "Bankruptcy Code" shall mean Title 11, United States Code. "Bankruptcy Court" shall mean the United States Bankruptcy Court for the Western District of Oklahoma. "Borrower Representative" shall mean Homeland in its capacity as Borrower Representative pursuant to the provisions of Section 1.2. A-2 "Borrowers" and "Borrower" shall have the respective meanings assigned thereto in the recitals to the Agreement. "Business Day" shall mean any day that is not a Saturday, a Sunday or a day on which banks are required or permitted to be closed in the State of Kansas. "Capital Expenditures" shall mean, with respect to any Person, all expenditures (by the expenditure of cash or the incurrence of Indebtedness) by such Person during any measuring period for any fixed assets or improvements or for replacements, substitutions or additions thereto, that have a useful life of more than one year and that are required to be capitalized under GAAP. "Capital Lease" shall mean, with respect to any Person, any lease of any property (whether real, personal or mixed) by such Person as lessee that, in accordance with GAAP, would be required to be classified and accounted for as a capital lease on a balance sheet of such Person. "Capital Lease Obligation" shall mean, with respect to any Capital Lease of any Person, the amount of the obligation of the lessee thereunder that, in accordance with GAAP, would appear on a balance sheet of such lessee in respect of such Capital Lease. "Change of Control" shall mean any event, transaction or occurrence as a result of which Holding shall cease to own and control all of the economic and voting rights associated with all of the outstanding capital Stock of Homeland. "Charges" shall mean all federal, state, county, city, municipal, local, foreign or other governmental taxes (including taxes owed to the PBGC at the time due and payable), levies, assessments, charges, liens, claims or encumbrances upon or relating to (a) the Collateral, (b) the Obligations, (c) the employees, payroll, income or gross receipts of any Borrower, (b) any Borrower's ownership or use of any properties or other assets, or (e) any other aspect of any Borrower's business. "Chattel Paper" shall mean any "chattel paper," as such term is defined in the Code, now owned or hereafter acquired by any Borrower, wherever located. "Closing Checklist" shall mean the schedule, including all appendices, exhibits or schedules thereto, listing certain documents and information to be delivered in connection with the Agreement, the other Loan Documents and the transactions contemplated thereunder, substantially in the form attached hereto as Annex B. "Closing Date" shall mean August 15, 2001. "Code" shall mean the Uniform Commercial Code as the same may, from time to time, be enacted and in effect in the State of Kansas; provided, however, in the event that, by reason of mandatory provisions of law, any or all of the attachment, perfection or priority of Lender's security interest in any Collateral is governed by the Uniform Commercial Code as enacted and in effect in a jurisdiction other than the State of Kansas, the term "Code" shall mean the Uniform Commercial Code as enacted and in effect in such other jurisdiction solely for purposes of the A-3 provisions hereof relating to such attachment, perfection or priority and for purposes of definitions related to such provisions. "Collateral" shall mean the property covered by the Security Agreement, the Mortgages and the other Collateral Documents and any other property, real or personal, tangible or intangible, now existing or hereafter acquired, that may at any time be or become subject to a security interest or Lien in favor of Lender to secure the Obligations. "Collateral Documents" shall mean the Security Agreement, the Pledge Agreements, the Mortgages, the Control Letters, the Patent Security Agreement, the Trademark Security Agreement, the Copyright Security Agreement and all similar agreements entered into guaranteeing payment of, or granting a Lien upon property as security for payment of, the Obligations. "Collection Account" shall mean that certain account of Lender as Lender shall specify from time to time. "Commitments" shall mean the aggregate of the $16.5 Million Term Loan Commitment, the Restated Term Loan Commitment and the Supply Term Loan Commitment, as such amounts may be reduced, amortized or otherwise adjusted according to the terms of this Agreement. "Confirmation Date" shall mean the date on which an order issued by the Bankruptcy Court confirming a Plan of Reorganization becomes a Final Order. "Contracts" shall mean all "contracts," as such term is defined in the Code, now owned or hereafter acquired by any Borrower, in any event, including all contracts, undertakings, or agreements (other than rights evidenced by Chattel Paper, Documents or Instruments) in or under which any Borrower may now or hereafter have any right, title or interest, including any agreement relating to the terms of payment or the terms of performance of any Account. "Control Letter" means a letter agreement between Lender and (i) the issuer of uncertificated securities with respect to uncertificated securities in the name of any Borrower, (ii) a securities intermediary with respect to securities, whether certificated or uncertificated, securities entitlements and other financial assets held in a securities account in the name of any Borrower, (iii) a futures commission merchant or clearing house with respect to commodity accounts and commodity contracts held by any Borrower, (iv) the holder of a Deposit Account of any Borrower, whereby, among other things, the issuer, securities intermediary, futures commission merchant or holder disclaims any security interest in the applicable financial assets, acknowledges the Lien of Lender on such financial assets, and agrees to follow the instructions or entitlement orders of Lender without further consent by the affected Borrower. "Copyright License" shall mean any and all rights now owned or hereafter acquired by any Borrower under any written agreement granting any right to use any Copyright or Copyright registration. "Copyright Security Agreements" shall mean the Copyright Security Agreements made in favor of Lender by each applicable Borrower. A-4 "Copyrights" shall mean all of the following now owned or hereafter acquired by any Borrower: (a) all copyrights and general intangibles of like nature (whether registered or unregistered), now owned or existing or hereafter adopted or acquired, all registrations and recordings thereof, and all applications in connection therewith, including all registrations, recordings and applications in the United States Copyright Office or in any similar office or agency of the United States, any state or territory thereof, or any other country or any political subdivision thereof, and (b) all reissues, extensions or renewals thereof. "Default" shall mean any event which, with the passage of time or notice or both, would, unless cured or waived, become an Event of Default. "Default Rate" shall have the meaning assigned to it in Section 1.5(d). "Deposit Accounts" shall mean all "deposit accounts" as such term is defined in the Code, now owned or hereafter acquired by any Borrower. "Disclosure Schedules" shall mean the Schedules prepared by Borrowers and denominated as Disclosure Schedules 1.4 through 6.7 in the Index to the Agreement. "Documents" shall mean any "documents," as such term is defined in the Code, now owned or hereafter acquired by any Borrower, wherever located. "Dollars" or "$" shall mean lawful currency of the United States of America. "Electronic Chattel Paper" shall mean all "electronic chattel paper" as such term is defined in the Code, now owned or hereafter acquired by any Borrower. "Environmental Laws" shall mean all applicable federal, state, local and foreign laws, statutes, ordinances, codes, rules, standards and regulations, now or hereafter in effect, and in each case as amended or supplemented from time to time, and any applicable judicial or administrative interpretation thereof, including any applicable judicial or administrative order, consent decree, order or judgment, imposing liability or standards of conduct for or relating to the regulation and protection of human health, safety, the environment and natural resources (including ambient air, surface water, groundwater, wetlands, land surface or subsurface strata, wildlife, aquatic species and vegetation). Environmental Laws include the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 (42 U.S.C. Sections 9601 et seq.) ("CERCLA"); the Hazardous Materials Transportation Authorization Act of 1994 (49 U.S.C. Sections 5101 et seq.); the Federal Insecticide, Fungicide, and Rodenticide Act (7 U.S.C. Sections 136 et seq.); the Solid Waste Disposal Act (42 U.S.C. Sections 6901 et seq.); the Toxic Substance Control Act (15 U.S.C. Sections 2601 et seq.); the Clean Air Act (42 U.S.C. Sections 7401 et seq.); the Federal Water Pollution Control Act (33 U.S.C. Sections 1251 et seq.); the Occupational Safety and Health Act (29 U.S.C. Sections 651 et seq.); and the Safe Drinking Water Act (42 U.S.C. Sections 300(f) et seq.), each as from time to time amended, and any and all regulations promulgated thereunder, and all analogous state, local and foreign counterparts or equivalents and any transfer of ownership notification or approval statutes. A-5 "Environmental Liabilities" shall mean, with respect to any Person, all liabilities, obligations, responsibilities, response, remedial and removal costs, investigation and feasibility study costs, capital costs, operation and maintenance costs, losses, damages, punitive damages, property damages, natural resource damages, consequential damages, treble damages, costs and expenses (including all fees, disbursements and expenses of counsel, experts and consultants), fines, penalties, sanctions and interest incurred as a result of or related to any claim, suit, action, investigation, proceeding or demand by any Person, whether based in contract, tort, implied or express warranty, strict liability, criminal or civil statute or common law, including any arising under or related to any Environmental Laws, Environmental Permits, or in connection with any Release or threatened Release or presence of a Hazardous Material whether on, at, in, under, from or about or in the vicinity of any real or personal property. "Environmental Permits" shall mean all permits, licenses, authorizations, certificates, approvals or registrations required by any Governmental Authority under any Environmental Laws. "Equipment" shall mean all "equipment," as such term is defined in the Code, now owned or hereafter acquired by any Borrower, wherever located and, in any event, including without limitation, all such Borrower's machinery and equipment, including store and warehouse equipment, coolers, conveyors, machine tools, data processing and computer equipment with software and peripheral equipment (other than software constituting part of the Accounts), and all engineering, processing and manufacturing equipment, office machinery, furniture, supplies, materials handling equipment, tools, attachments, accessories, automotive equipment, trailers, trucks, forklifts, molds, dies, stamps, motor vehicles, rolling stock and other equipment of every kind and nature, trade fixtures (whether affixed or not affixed to the real property) and fixtures not forming a part of real property, all whether now owned or hereafter acquired, and wherever situated, together with all additions and accessions thereto, replacements therefor, all parts therefor, all substitutes for any of the foregoing, fuel therefor, and all manuals, drawings, instructions, warranties and rights with respect thereto, and all products and proceeds thereof and condemnation awards and insurance proceeds with respect thereto. "ERISA" shall mean the Employee Retirement Income Security Act of 1974 (or any successor legislation thereto), as amended from time to time, and any regulations promulgated thereunder. "ERISA Affiliate" shall mean, with respect to any Borrower, any trade or business (whether or not incorporated) which, together with such Borrower, are treated as a single employer within the meaning of Sections 414(b), (c), (m) or (o) of the IRC. "ERISA Event" shall mean, with respect to any Borrower or any ERISA Affiliate, (a) any event described in Section 4043(c) of ERISA with respect to a Title IV Plan; (b) the withdrawal of any Borrower or ERISA Affiliate from a Title IV Plan subject to Section 4063 of ERISA during a plan year in which it was a substantial employer, as defined in Section 4001(a)(2) of ERISA; (c) the complete or partial withdrawal of any Borrower or any ERISA Affiliate from any Multiemployer Plan; (d) the filing of a notice of intent to terminate a Title IV Plan or the treatment of a plan amendment as a termination under Section 4041 of ERISA; (e) the institution A-6 of proceedings to terminate a Title IV Plan or Multiemployer Plan by the PBGC; (f) the failure by any Borrower or ERISA Affiliate to make when due required contributions to a Multiemployer Plan or Title IV Plan unless such failure is cured within 30 days; (g) any other event or condition which might reasonably be expected to constitute grounds under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Title IV Plan or Multiemployer Plan or for the imposition of liability under Section 4069 or 4212(c) of ERISA; (h) the termination of a Multiemployer Plan under Section 4041A of ERISA or the reorganization or insolvency of a Multiemployer Plan under Section 4241 of ERISA; (i) the loss of a Qualified Plan's qualification or tax exempt status; or (j) the termination of a Plan described in Section 4064 of ERISA. "ESOP" shall mean a Plan which is intended to satisfy the requirements of Section 4975(e)(7) of the IRC. "Event of Default" shall have the meaning assigned to it in Section 8.1. "Existing Loan Documents" shall mean the Existing Supply Protection Agreements, and all agreements, notes, collateral documents and other documents relating to, evidencing or securing one or more of Borrowers' obligations under the Existing Notes or the Supply Agreements. "Existing Notes" shall mean those certain promissory notes as follows: (i) Amended and Restated Promissory Note dated February 29, 2000 in the original principal amount of $6,162,011.63 made by Belton Food Center, Inc. in favor of AWG and assumed by Homeland pursuant to that certain Assignment, Assumption and Release Agreement dated February 29, 2000 between Belton Food Center, Inc., Ronald M. Bowes, Susan L. Bowers and Ronald M. Bowes, Trustee of Trust Created by Trust Indenture, dated January 7, 1997, with Ronald M. Bowes, as Settlor, Homeland and AWG. (ii) Amended and Restated Promissory Note dated November 2, 1999 in the original principal amount of $6,953,860.00 made by Brattain Foods, Inc. in favor of AWG and assumed by Homeland pursuant to that certain Assignment, Assumption and Release Agreement dated November 2, 1999 between Brattain Foods, Inc., Donald R. Brattain, Jane A. Brattain, BHC, LLC, Homeland and AWG. (iii) Amended and Restated Promissory Note dated March 26, 1999 in the original principal amount of $12,130,646.98 made by Horner Foods, Inc. in favor of AWG and assumed by Homeland pursuant to that certain Assignment, Assumption and Release Agreement dated April 23, 1999 between Horner Foods, Inc., Lester E. Horner, Leah M. Horner, Horner Family 199301 Trust dated January 29, 1993, Lester E. Horner Trust A-7 dated January 29, 1993 and Leah M. Horner Trust dated January 29, 1993, Homeland and AWG. "Existing Supply Protection Agreements" shall mean the 1995 Supply Agreement, the 1999 Supply Agreements, and each right of first refusal, use restriction and non-compete agreement that was executed in connection with one or more of the foregoing supply agreements. "Fair Salable Balance Sheet" shall mean a balance sheet of Borrowers prepared in accordance with Section 3.4(d). "Fees" shall have the meaning assigned to it in Section 1.9. "Final Order" shall mean a final, non-appealable order entered in the Bankruptcy Cases. "Financial Statements" shall mean the consolidated and consolidating income statements, statements of cash flows and balance sheets of Borrowers delivered in accordance with Section 3.4 of the Agreement. "First Day Interim Financing Order" shall mean the Interim Order of the Hon. J. TeSelle, United States Bankruptcy Court, Case Nos. 01-17869TS and 01-17870TS, to make available to Borrowers $3,100,000 in post-petition financing. "First Day Note" shall have the meaning set forth in Section G of the Recitals. "Fiscal Period" shall mean any of the four (4) week accounting periods of Borrowers. "Fiscal Year" shall mean any of the annual accounting periods of Borrowers ending on the Saturday closest to December 31 of each year. "Fixtures" shall mean any "fixtures" as such term is defined in the Code, now owned or hereafter acquired by any Borrower. "Fleet Loan" shall mean that certain debtor-in-possession revolving credit loan and term loan to be made by Fleet Retail Finance Inc. and Back Bay Capital Funding, LLC as lenders for the benefit of Borrowers. "GAAP" shall mean generally accepted accounting principles in the United States of America as in effect on the Closing Date, consistently applied. "General Intangibles" shall mean any "general intangibles," as such term is defined in the Code, now owned or hereafter acquired by any Borrower, and, in any event, including all right, title and interest which such Borrower may now or hereafter have in or under any Contract, all customer lists, Licenses, Copyrights, Trademarks, Patents, and all applications therefor and reissues, extensions or renewals thereof, rights in Intellectual Property, interests in partnerships, joint ventures and other business associations, licenses, permits, copyrights, trade secrets, proprietary or confidential information, inventions (whether or not patented or patentable), technical information, procedures, designs, knowledge, know-how, software, data bases, data, A-8 skill, expertise, experience, processes, models, drawings, materials and records, goodwill (including the goodwill associated with any Trademark or Trademark License), all rights and claims in or under insurance policies (including insurance for fire, damage, loss and casualty, whether covering personal property, real property, tangible rights or intangible rights, all liability, life, key man and business interruption insurance, and all unearned premiums), uncertificated securities, choses in action, deposit, checking and other bank accounts, rights to receive tax refunds and other payments, all payment intangibles, rights of indemnification, all books and records, correspondence, credit files, invoices and other papers, including without limitation all tapes, cards, computer runs and other papers and documents in the possession or under the control of such Borrower or any computer bureau or service company from time to time acting for such Borrower. "Governmental Authority" shall mean any nation or government, any state or other political subdivision thereof, and any agency, department or other entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government. "Guaranteed Indebtedness" shall mean, as to any Person, any obligation of such Person guaranteeing any indebtedness, lease, dividend, or other obligation ("primary obligations") of any other Person (the "primary obligor") in any manner, including any obligation or arrangement of such Person (a) to purchase or repurchase any such primary obligation, (b) to advance or supply funds (i) for the purchase or payment of any such primary obligation or (ii) to maintain working capital or equity capital of the primary obligor or otherwise to maintain the net worth or solvency or any balance sheet condition of the primary obligor, (c) to purchase property, securities or services primarily for the purpose of assuring the owner of any such primary obligation of the ability of the primary obligor to make payment of such primary obligation, or (d) to indemnify the owner of such primary obligation against loss in respect thereof. The amount of any Guaranteed Indebtedness at any time shall be deemed to be an amount equal to the lesser at such time of (x) the stated or determinable amount of the primary obligation in respect of which such Guaranteed Indebtedness is made and (y) the maximum amount for which such Person may be liable pursuant to the terms of the instrument embodying such Guaranteed Indebtedness; or, if not stated or determinable, the maximum reasonably anticipated liability (assuming full performance) in respect thereof. "Guarantor Payment" shall have the meaning assigned to it in Section 12.7(a). "Hazardous Material" shall mean any substance, material or waste which is regulated by or forms the basis of liability now or hereafter under, any Environmental Laws, including any material or substance which is (a) defined as a "solid waste," "hazardous waste," "hazardous material, " "hazardous substance," "extremely hazardous waste," "restricted hazardous waste," "pollutant, " "contaminant," "hazardous constituent," "special waste," "toxic substance" or other similar term or phrase under any Environmental Laws, (b) petroleum or any fraction or by-product thereof, asbestos, polychlorinated biphenyls (PCB's), or any radioactive substance. "Holding" shall mean Homeland Holding Corporation, Debtor-in- Possession, a Delaware corporation. A-9 "Homeland" shall mean Homeland Stores, Inc., Debtor-in-Possession, a Delaware corporation. "Indebtedness" of any Person shall mean without duplication (a) all indebtedness of such Person for borrowed money or for the deferred purchase price of property payment for which is deferred six (6) months or more, but excluding obligations to trade creditors incurred in the ordinary course of business that are not overdue by more than six (6) months unless being contested in good faith, (b) all reimbursement and other obligations with respect to letters of credit, bankers' acceptances and surety bonds, whether or not matured, (c) all obligations evidenced by notes, bonds, debentures or similar instruments, (d) all indebtedness created or arising under any conditional sale or other title retention agreement with respect to property acquired by such Person (even though the rights and remedies of the seller or lender under such agreement in the event of default are limited to repossession or sale of such property), (e) all Capital Lease Obligations and the present value (discounted at the Prime Rate as in effect on the Closing Date) of future rental payments under all synthetic leases, (f) all obligations of such Person under commodity purchase or option agreements or other commodity price hedging arrangements, in each case whether contingent or matured, (g) all obligations of such Person under any foreign exchange contract, currency swap agreement, interest rate swap, cap or collar agreement or other similar agreement or arrangement designed to alter the risks of that Person arising from fluctuations in currency values or interest rates, in each case whether contingent or matured, (h) all Indebtedness referred to above secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any Lien upon or in property or other assets (including accounts and contract rights) owned by such Person, even though such Person has not assumed or become liable for the payment of such Indebtedness, and (i) the Obligations. "Indemnified Liabilities" shall have the meaning assigned to it in Section 1.13. "Indemnified Person" shall have the meaning assigned to it in Section 1.13. "Instruments" shall mean any "instrument," as such term is defined in the Code, now owned or hereafter acquired by any Borrower, wherever located, and, in any event, including all certificated securities, all certificates of deposit, and all notes and other, without limitation, evidences of indebtedness, other than instruments that constitute, or are a part of a group of writings that constitute, Chattel Paper. "Intellectual Property" shall mean any and all Licenses, Patents, Copyrights, Trademarks, trade secrets and customer lists. "Intercreditor Agreement" shall mean that certain Intercreditor Agreement to be executed between Fleet Retail Finance Inc. and Lender setting forth, among other things, their relative priorities with respect to the Collateral, all in form and content acceptable to Lender in its sole discretion. "Interest Expense" shall mean, with respect to any Person for any fiscal period, interest expense (whether cash or non-cash) of such Person determined in accordance with GAAP for the A-10 relevant period ended on such date, including, in any event, interest expense with respect to any Funded Debt of such Person and interest expense for the relevant period that has been capitalized on the balance sheet of such Person. "Interest Payment Date" means the last Business Day of every week, provided that, in addition to the foregoing, each of (x) the date upon which all of the Commitments have been terminated and the Term Loans have been paid in full and (y) the $16.5 Million Payment Date and the Supply Term Maturity Date shall each be deemed to be an "Interest Payment Date" with respect to any interest which is then accrued under the Agreement. "Interim Financing Order" shall mean the Interim Order of the Hon. J. TeSelle, United States Bankruptcy Court, Case Nos. 01-17869TS and 01-17870TS, to make available to Borrowers certain post-petition financing arrangements pursuant to this Agreement. "Inventory" shall mean any "inventory," as such term is defined in the Code, now or hereafter owned or acquired by any Borrower, wherever located, and in any event including inventory, merchandise, goods and other personal property which are held by or on behalf of any Borrower for sale or lease. "Investment Property" shall have the meaning ascribed thereto in Section 9-102 of the Code, as amended from time to time, in those jurisdictions in which such definition has been adopted and shall include (i) all securities, whether certificated or uncertificated, including stocks, bonds, interests in limited liability companies, partnership interests, treasuries, certificates of deposit, and mutual fund shares; (ii) all securities entitlements of any Borrower, including the rights of any Borrower to any securities account and the financial assets held by a securities intermediary in such securities account and any free credit balance or other money owing by any securities intermediary with respect to that account; (iii) all securities accounts held by any Borrower; (iv) all commodity contracts held by any Borrower; and (v) all commodity accounts held by any Borrower. "IRC" shall mean the Internal Revenue Code of 1986, as amended, and any successor thereto. "Leases" shall mean the Internal Revenue Service, or any successor thereto. "Lease Expenses" shall mean, with respect to any Person for any fiscal period, the aggregate rental obligations of such Person determined in accordance with GAAP which are payable in respect of such period under leases of real and/or personal property (net of income from subleases thereof, but including taxes, insurance, maintenance and similar expenses which the lessee is obligated to pay under the terms of such leases), whether or not such obligations are reflected as liabilities or commitments on a consolidated balance sheet of such Person or in the notes thereto, excluding, however, any such obligations under Capital Leases. "Leases" shall have the meaning assigned to it in Section 3.6. "Lender" shall mean AWG. A-11 "Letter-of-Credit Rights" shall mean all "letter-of-credit rights" as such term is defined in the Code, now owned or hereafter acquired by any Borrower. "License" shall mean any Copyright License, Patent License, Trademark License or other license of rights or interests now held or hereafter acquired by any Borrower. "Lien" shall mean any mortgage or deed of trust, pledge, hypothecation, assignment, deposit arrangement, lien, charge, claim, security interest, easement or encumbrance, or preference, priority or other security agreement or preferential arrangement of any kind or nature whatsoever (including any lease or title retention agreement, any financing lease having substantially the same economic effect as any of the foregoing, and the filing of, or agreement to give, any financing statement perfecting a security interest under the Code or comparable law of any jurisdiction). "Litigation" shall have the meaning assigned to it in Section 3.13. "Loan" or "Loans" shall mean collectively or individually the $16.5 Million Term Loan, the Restated Term Loan and the Supply Term Loan. "Loan Account" shall have the meaning assigned to it in Section 1.12. "Loan Documents" shall mean the Agreement, the Notes, the Collateral Documents, the ROFR, the New Supply Agreement, the Use-Restriction Agreements and all other agreements, instruments, documents and certificates identified in the Closing Checklist executed and delivered to, or in favor of, Lender and including all other pledges, powers of attorney, consents, assignments, contracts, notices, and all other written matter whether heretofore, now or hereafter executed by or on behalf of any Borrower, or any employee of any Borrower, and delivered to Lender in connection with the Agreement or the transactions contemplated hereby. Any reference in the Agreement or any other Loan Document to a Loan Document shall include all appendices, exhibits or schedules thereto, and all amendments, restatements, supplements or other modifications thereto, and shall refer to such Agreement as the same may be in effect at any and all times such reference becomes operative. "Material Adverse Effect" shall mean a material adverse effect on (a) the business, assets, operations, prospects or financial or other condition of any Borrower, (b) any Borrower's ability to pay or perform under any of the Term Loans or any of the other Obligations, (c) the Collateral or Lender's Liens on the Collateral or the priority of such Liens, or (d) Lender's rights and remedies under the Agreement and the other Loan Documents. Without limiting the foregoing, any event or occurrence adverse to one or more Borrowers which results or could reasonably be expected to result in costs and/or liabilities and/or loss of revenues, individually or in the aggregate to any Borrower in any 30-day period in excess of $50,000 shall be deemed to have had Material Adverse Effect. "Maximum Lawful Rate" shall have the meaning assigned to it in Section 1.5(g) "Mortgaged Properties" shall have the meaning assigned to it in Annex B. A-12 "Mortgages" shall mean each of the mortgages, deeds of trust, leasehold mortgages, leasehold deeds of trust, collateral assignments of leases or other real estate security documents delivered by any Borrower to Lender with respect to the Mortgaged Properties, all in form and substance satisfactory to Lender. "Multiemployer Plan" shall mean a "multiemployer plan" as defined in Section 4001(a)(3) of ERISA, and to which any Borrower or ERISA Affiliate is making, is obligated to make, has made or been obligated to make, contributions on behalf of participants who are or were employed by any of them. "New Supply Agreement" shall mean that certain Supply Agreement between Borrowers and AWG dated as of the date hereof. "Non-Competition Agreement" shall mean that certain Non-Competition Agreement between Borrowers and AWG dated as of the date hereof. "Note" or "Notes" shall mean collectively or individually the Term Notes. "Obligations" shall mean all loans, advances, debts, liabilities and obligations, for the performance of covenants, tasks or duties or for payment of monetary amounts (whether or not such performance is then required or contingent, or such amounts are liquidated or determinable) owing by any Borrower to Lender, and all covenants and duties regarding such amounts, of any kind or nature, present or future, matured or unmatured, voluntary or involuntary, earned or unearned, monetary or non-monetary, joint or several or otherwise, whether or not evidenced by any note, agreement or other instrument, whether (a) arising under the Agreement or any of the other Loan Documents including without limitation, the Supply Agreements, the ROFR, the Non-Competition Agreement, and the Use Restriction Agreement or (b) arising under any other contract, lease or sublease, of every kind nature and description, present or future, however evidenced, created or incurred, whether primary or secondary, direct or indirect (by guaranty or otherwise), absolute or contingent, due or not due, now existing or hereafter arising and however acquired or extended, matured or unmatured, voluntary or involuntary, liquidated or unliquidated, determined or undetermined, earned or unearned, monetary or non-monetary, joint or several or otherwise, whether or not such notes, loans, advances, debts, liabilities, indebtedness, obligations, contracts, covenants and duties are of the same kind or quality or related to the same transactions or the same series of transactions, or under any open account arrangement between any Borrower, any affiliate of any Borrower and Lender and all costs and expenses, including but not limited to attorneys' fees incurred by Lender in preparing, reviewing securing, collecting (including but not limited to those arising in any bankruptcy proceeding), enforcing or compromising any of said notes, loans, advances, debts, liabilities, indebtedness, obligations, contracts, covenants and duties. This term includes all principal, interest (including all interest which accrues after the commencement of any case or proceeding in bankruptcy after the insolvency of, or for the reorganization of any Borrower, whether or not allowed in such proceeding), Fees, Charges, expenses, attorneys' fees and any other sum chargeable to any Borrower under the Agreement or any of the other Loan Documents. A-13 "Orderly Liquidation Value" shall mean the orderly liquidation value as determined by an appraiser acceptable to Lender in its sole discretion. "Patent License" shall mean rights under any written agreement now owned or hereafter acquired by any Borrower granting any right with respect to any invention on which a Patent is in existence. "Patent Security Agreements" shall mean the Patent Security Agreements made in favor of Lender by each applicable Borrower. "Patents" shall mean all of the following in which any Borrower now holds or hereafter acquires any interest: (a) all letters patent of the United States or any other country, all registrations and recordings thereof, and all applications for letters patent of the United States or any other country, including registrations, recordings and applications in the United States Patent and Trademark Office or in any similar office or agency of the United States, any State or Territory thereof, or any other country, and (b) all reissues, continuations, continuations-in-part or extensions thereof. "PBGC" shall mean the Pension Benefit Guaranty Corporation or any successor thereto. "Permitted Encumbrances" shall mean the following encumbrances: (a) Liens for taxes or assessments or other governmental Charges not yet due and payable; (b) pledges or deposits of money securing statutory obligations under workmen's compensation, unemployment insurance, social security or public liability laws or similar legislation (excluding Liens under ERISA); (c) pledges or deposits of money securing bids, tenders, contracts (other than contracts for the payment of money) or leases to which any Borrower is a party as lessee made in the ordinary course of business; (d) carriers', warehousemen's, suppliers' or other similar possessory liens arising in the ordinary course of business and securing liabilities in an outstanding aggregate amount not in excess of $50,000 at any time, so long as such Liens attach only to Inventory; (e) deposits securing, or in lieu of, surety, appeal or customs bonds in proceedings to which any Borrower is a party; (f) zoning restrictions, easements, licenses, or other restrictions on the use of any Real Estate or other minor irregularities in title (including leasehold title) thereto, so long as the same do not materially impair the use, value, or marketability of such Real Estate; (g) presently existing or hereinafter created Liens in favor of Lender; (h) Liens in favor of Fleet pursuant to the Fleet Loan and subject to the Intercreditor Agreement; and (i) Liens expressly permitted under clauses (b) and (c) of Section 6.7 of the Agreement. "Person" shall mean any individual, sole proprietorship, partnership, joint venture, trust, unincorporated organization, association, corporation, limited liability company, institution, public benefit corporation, other entity or government (whether federal, state, county, city, municipal, local, foreign, or otherwise, including any instrumentality, division, agency, body or department thereof). "Petition Date" shall mean August 1, 2001, the date on which the Borrowers filed voluntary petitions under Chapter 11 of the Bankruptcy Code. A-14 "Plan" shall mean, at any time, an employee benefit plan, as defined in Section 3(3) of ERISA, which any Borrower maintains, contributes to or has an obligation to contribute to on behalf of participants who are or were employed by any Borrower. "Plan of Reorganization" shall mean any plan of reorganization of Borrowers. "Pledge Agreement" shall have the meaning assigned to it in Annex B. "Post Petition" any date or period in time subsequent to the Petition Date. "Pre-Petition" any date or period in time prior to the Petition Date. "Prime Rate" shall mean that variable interest rate which is periodically determined, established and distributed by UMB Bank, N.A., Kansas City, Missouri (or any successor to such bank) as its "base lending rate" to its officers and employees for their guidance in making loans, whether or not otherwise published or announced, as the same may be adjusted from time to time. "Prior Indebtedness" shall mean that amount owed or owing Prior Lender immediately prior to Closing. "Prior Lender" shall mean the National Bank of Canada. "Proceeds" shall mean "proceeds," as such term is defined in the Code and, in any event, shall include (a) any and all proceeds of any insurance, indemnity, warranty or guaranty payable to any Borrower from time to time with respect to any of the Collateral, (b) any and all payments (in any form whatsoever) made or due and payable to any Borrower from time to time in connection with any requisition, confiscation, condemnation, seizure or forfeiture of all or any part of the Collateral by any Governmental Authority (or any Person acting under color of governmental authority), (c) any claim of any Borrower against third parties (i) for past, present or future infringement of any Patent or Patent License, or (ii) for past, present or future infringement or dilution of any Copyright, Copyright License, Trademark or Trademark License, or for injury to the goodwill associated with any Trademark or Trademark License, (d) any recoveries by any Borrower against third parties with respect to any litigation or dispute concerning any of the Collateral, and (e) any and all other amounts from time to time paid or payable under or in connection with any of the Collateral, upon disposition or otherwise. "Pro Forma" means the unaudited consolidated and consolidating balance sheet of Borrowers and their Subsidiaries as of June 16, 2001 after giving pro forma effect to the Related Transactions. "Projections" means Borrowers' forecasted consolidated and consolidating: (a) balance sheets; (b) profit and loss statements; (c) cash flow statements; and (d) capitalization statements, all prepared on a Subsidiary by Subsidiary or division by division basis, if applicable, and otherwise consistent with the historical Financial Statements of the Borrowers, together with appropriate supporting details and a statement of underlying assumptions. A-15 "Qualified Plan" shall mean a Plan which is intended to be tax-qualified under Section 401(a) of the IRC. "Real Estate" shall have the meaning assigned to it in Section 3.6. "Refinancing" shall mean the repayment in full by Borrowers of the Prior Indebtedness on the Closing Date. "Related Transactions" means the borrowing under the Term Loan on the Closing Date, the Refinancing, the consummation of the Fleet Loan, the payment of all fees, costs and expenses associated with all of the foregoing and the execution and delivery of all of the Related Transactions Documents. "Related Transactions Documents" shall mean the Loan Documents and documents evidencing or relating to the Fleet Loan. "Release" shall mean any release, threatened release, spill, emission, leaking, pumping, pouring, emitting, emptying, escape, injection, deposit, disposal, discharge, dispersal, dumping, leaching or migration of Hazardous Material in the indoor or outdoor environment, including the movement of Hazardous Material through or in the air, soil, surface water, ground water or property. "Released Matters" shall have the meaning assigned to it in Section 11.19. "Released Parties" shall have the meaning assigned to it in Section 11.19. "Replacement Assets" shall have the meaning assigned to it in Section 6.8. "Restated Term Loan" shall have the meaning assigned to it in Section 1.1(b)(i). "Restated Term Note" shall have the meaning assigned to it in Section 1.1(b)(i). "Restated Loan Commitment" shall mean the commitment of Lender to restate the Existing Notes with the Restated Term Loan in the aggregate principal amount, as of the Closing Date of $9,465,956.66. "Restated Term Maturity Date" shall mean the earlier of (a) February 24, 2007 or (b) the date on which the Term Loans become due and payable pursuant to Section 8.2(b) or (c) the date the Term Loans are indefeasibly paid in full. "Restricted Payment" shall mean (a) the declaration or payment of any dividend or the incurrence of any liability to make any other payment or distribution of cash or other property or assets in respect of a Person's Stock, (b) any payment on account of the purchase, redemption, defeasance, sinking fund or other retirement of a Person's Stock or any other payment or distribution made in respect thereof, either directly or indirectly, (c) any payment or prepayment of principal of, premium, if any, or interest, fees or other charges on or with respect to, and any redemption, purchase, retirement, defeasance, sinking fund or similar payment and any claim for A-16 rescission with respect to, any Subordinated Debt; (d) any payment made to redeem, purchase, repurchase or retire, or to obtain the surrender of, any outstanding warrants, options or other rights to acquire Stock of such Person now or hereafter outstanding; (e) any payment of a claim for the rescission of the purchase or sale of, or for material damages arising from the purchase or sale of, any shares of such Person's Stock or of a claim for reimbursement, indemnification or contribution arising out of or related to any such claim for damages or rescission; (f) any payment, loan, contribution, or other transfer of funds or other property to any Stockholder of such Person other than payment of compensation in the ordinary course of business to stockholders who are employees of such Person; and (g) any payment of management fees (or other fees of a similar nature) by such Person to any Stockholder of such Person or their Affiliates. "Retiree Welfare Plan" shall mean, at any time, a Plan that is a "welfare plan" as defined in Section 3(2) of ERISA, that provides for continuing coverage or benefits for any participant or any beneficiary of a participant after such participant's termination of employment, other than continuation coverage provided pursuant to Section 4980B of the IRC and at the sole expense of the participant or the beneficiary of the participant. "ROFR" shall mean that certain Right of First Refusal Agreement between Borrowers and AWG dated as of the date hereof. "Security Agreement" shall mean the Security Agreement of even date herewith entered into among Lender and each Borrower that is a signatory thereto. "Stock" shall mean all shares, options, warrants, general or limited partnership interests or other equivalents (regardless of how designated) of or in a corporation, partnership or equivalent entity whether voting or nonvoting, including common stock, preferred stock or any other "equity security" (as such term is defined in Rule 3a11-1 of the General Rules and Regulations promulgated by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended). "Subordinated Debt" shall mean any Indebtedness of any Borrower subordinated to the Obligations in a manner and form satisfactory to Lender in its sole discretion, as to right and time of payment and as to any other rights and remedies thereunder. "Subsidiary" shall mean, with respect to any Person, (a) any corporation of which an aggregate of more than fifty percent (50%) of the outstanding Stock having ordinary voting power to elect a majority of the board of directors of such corporation (irrespective of whether, at the time, Stock of any other class or classes of such corporation shall have or might have voting power by reason of the happening of any contingency) is at the time, directly or indirectly, owned legally or beneficially by such Person and/or one or more Subsidiaries of such Person, or with respect to which any such Person has the right to vote or designate the vote of fifty percent (50%) or more of such Stock whether by proxy, agreement, operation of law or otherwise, and (b) any partnership or limited liability company in which such Person and/or one or more Subsidiaries of such Person shall have an interest (whether in the form of voting or participation in profits or capital contribution) of more than fifty percent (50%) or of which any such Person is a general partner or may exercise the powers of a general partner. A-17 "Supply Agreements" shall mean collectively the 1995 Supply Agreement, the 1999 Supply Agreements and the New Supply Agreement. "Supply Loan Commitment" shall mean the commitment of Lender to make the Supply Term Loan in the principal amount of $3,100,000. "Supply Term Loan" shall have the meaning assigned to it in Section 1.1(c)(i). "Supply Term Maturity Date" shall mean the earlier of (a) May 30, 2002, (b) the date on which the Term Loans become due and payable pursuant to Section 8.2(b), (c) the date on which the 1995 Supply Agreement is terminated, superceded, rejected or otherwise ceases, for any reason, to be enforceable, in whole or in part, against Homeland, or (d) the date when the Term Loans are indefeasibly paid in full. "Supply Term Note" shall have the meaning assigned to it in Section 1.1(c)(i). "Taxes" shall mean taxes, levies, imposts, deductions, Charges or withholdings, and all liabilities with respect thereto, excluding taxes imposed on or measured by the net income of Lender by the jurisdictions under the laws of which Lender is organized or any political subdivision thereof. "Termination Date" shall mean the date on which the Term Loans have been indefeasibly repaid in full and all other Obligations under the Agreement and the other Loan Documents have been completely discharged, and none of Borrowers shall have any further right to borrow any monies under the Agreement. "Term Loan" or "Term Loans" shall mean collectively and individually the $16.5 Million Term Loan, the Restated Term Loan and the Supply Term Loan. "Term Notes" shall mean the $16.5 Million Term Note, the Restated Term Note and the Supply Term Note. "Title IV Plan" shall mean an employee pension benefit plan, as defined in Section 3(2) of ERISA (other than a Multiemployer Plan), which is covered by Title IV of ERISA, and which any Borrower or ERISA Affiliate maintains, contributes to or has an obligation to contribute to on behalf of participants who are or were employed by any of them. "Trademark License" shall mean rights under any written agreement now owned or hereafter acquired by any Borrower granting any right to use any Trademark. "Trademark Security Agreements" shall mean the Trademark Security Agreements made in favor of Lender by each applicable Borrower. "Trademarks" shall mean all of the following now owned or hereafter acquired by any Borrower: (a) all trademarks, trade names, corporate names, business names, trade styles, service marks, logos, other source or business identifiers, prints and labels on which any of the foregoing have appeared or appear, designs and general intangibles of like nature (whether registered or A-18 unregistered), now owned or existing or hereafter adopted or acquired, all registrations and recordings thereof, and all applications in connection therewith, including registrations, recordings and applications in the United States Patent and Trademark Office or in any similar office or agency of the United States, any state or territory thereof, or any other country or any political subdivision thereof; (b) all reissues, extensions or renewals thereof and (c) all goodwill associated with or symbolized by any of the foregoing. "Unfunded Pension Liability" shall mean, at any time, the aggregate amount, if any, of the sum of (a) the amount by which the present value of all accrued benefits under each Title IV Plan exceeds the fair market value of all assets of such Title IV Plan allocable to such benefits in accordance with Title IV of ERISA, all determined as of the most recent valuation date for each such Title IV Plan using the actuarial assumptions for funding purposes in effect under such Title IV Plan, and (b) for a period of five (5) years following a transaction which might reasonably be expected to be covered by Section 4069 of ERISA, the liabilities (whether or not accrued) that could be avoided by any Borrower or any ERISA Affiliate as a result of such transaction. "Use Restriction Agreements" shall mean those certain Use Restriction Agreements executed by Homeland for the benefit of AWG dated as of the date hereof. All other undefined terms contained in any of the Loan Documents shall, unless the context indicates otherwise, have the meanings provided for by the Code as in effect in the State of Kansas to the extent the same are used or defined therein. Unless otherwise specified, references in the Agreement or any of the Appendices to a Section, subsection or clause refer to such Section, subsection or clause as contained in the Agreement. The words "herein," "hereof" and "hereunder" and other words of similar import refer to the Agreement as a whole, including all Annexes, Exhibits and Schedules, as the same may from time to time be amended, restated, modified or supplemented, and not to any particular section, subsection or clause contained in the Agreement or any such Annex, Exhibit or Schedule. Wherever from the context it appears appropriate, each term stated in either the singular or plural shall include the singular and the plural, and pronouns stated in the masculine, feminine or neuter gender shall include the masculine, feminine and neuter genders. The words "including", "includes" and "include" shall be deemed to be followed by the words "without limitation"; references to Persons include their respective successors and assigns (to the extent and only to the extent permitted by the Loan Documents) or, in the case of governmental Persons, Persons succeeding to the relevant functions of such Persons; and all references to statutes and related regulations shall include any amendments of the same and any successor statutes and regulations. Whenever any provision in the Term Loan Document refers to the knowledge (or an analogous phrase) of any Borrower, such words are intended to signify that such Borrower has actual knowledge or awareness of a particular fact or circumstance or that such Borrower, if it had exercised reasonable diligence, would have known or been aware of such fact or circumstance. A-19 ANNEX B (SECTION 2.1(a)) TO CREDIT AGREEMENT SCHEDULE OF ADDITIONAL CLOSING DOCUMENTS In addition to, and not in limitation of, the conditions described in Section 2.1 of the Agreement, pursuant to Section 2.1(a), the following items must be received by Lender in form and substance satisfactory to Lender on or prior to the Closing Date (each capitalized term used but not otherwise defined herein shall have the meaning ascribed thereto in Annex A to the Agreement): A. Appendices. All Appendices to the Agreement, in form and substance satisfactory to Lender. B. Notes. Duly executed originals of the Term Notes dated the Closing Date. C. Security Agreement. Duly executed originals of the Security Agreement, dated the Closing Date, and all instruments, documents and agreements executed pursuant thereto, including executed powers of attorney by each Borrower in favor of Lender. D. Insurance. Satisfactory evidence that the insurance policies required by Section 5.4 are in full force and effect, together with appropriate evidence showing loss payable and/or additional insured clauses or endorsements, as requested by Lender, in favor of Lender. E. Security Interests and Code Filings. (a) Evidence satisfactory to Lender that Lender has a valid and perfected first priority security interest in the Collateral, including (i) such documents duly executed by each Borrower (including financing statements under the Code and other applicable documents under the laws of any jurisdiction with respect to the perfection of Liens) as Lender may request in order to perfect its security interests in the Collateral and (ii) copies of Code search reports listing all effective financing statements that name any Borrower as debtor, together with copies of such financing statements, none of which shall cover the Collateral, (all of which shall be terminated on the Closing Date). (b) Evidence satisfactory to Lender, including copies, of all UCC-1 and other financing statements filed in favor of any Borrower with respect to each location, if any, at which Inventory may be consigned. (c) Control Letters from (i) all issuers of uncertificated securities and financial assets held by each Borrower, (ii) all securities intermediaries with respect to all securities accounts and securities entitlements of each Borrower, (iii) all futures commission agents and clearing houses with respect to all commodities contracts and commodities accounts held by any Borrower, (iv) all holders of Deposit Accounts of any Borrower, and (v) all issuers of all letters of credit which give rise to any Letter-of-Credit Rights. B-1 F. Leases: Chattel Paper. All copies of all original leases and other Chattel Paper owned or held by any Borrower, including, without limitation, leases of Inventory consisting of machinery and Equipment, servicing agreements and contracts. G. Titles. Original titles to all motor vehicles and all other items of titled equipment or Inventory of Borrowers showing no prior lienholders and signed applications reflecting Lender's first priority lien. H. Payoff Letter; Termination Statements. Copies of a duly executed payoff letter, in form and substance satisfactory to Lender, by and between all parties to the Prior Indebtedness, documents evidencing repayment in full of the Prior Indebtedness, together with (a) UCC-3 or other appropriate termination statements, in form and substance satisfactory to Lender, manually signed by the Prior Lender releasing all liens, if any, of Prior Lender upon any of the personal property of each Borrower, and (b) termination of all blocked account agreements, bank agency agreements or other similar agreements or arrangements or arrangements in favor of Prior Lender or relating to the Prior Indebtedness, if any. I. Intellectual Property Security Agreements. Duly executed originals of Trademark Security Agreements, Copyright Security Agreements and Patent Security Agreements, each dated the Closing Date and signed by each Borrower which owns Trademarks, Copyrights and/or Patents, as applicable, all in form and substance satisfactory to Lender, together with all instruments, documents and agreements executed pursuant thereto. J. Letter of Direction. Duly executed originals of a letter of direction from Borrower Representative addressed to Lender with respect to the disbursement on the Closing Date of the proceeds of the Term Loan. K. Charter or Articles of Organization and Good Standing. For each Borrower, such Person's (a) charter or articles of organization and all amendments thereto, (b) good standing certificates (including verification of tax status) in its state of incorporation or organization, and (c) good standing certificates (including verification of tax status) and certificates of qualification to conduct business in each jurisdiction where its ownership or lease of property or the conduct of its business requires such qualification, each dated a recent date prior to the Closing Date and certified by the applicable Secretary of State or other authorized Governmental Authority. L. Bylaws, Operating Agreement and Resolutions. For each Borrower, (a) such Person's bylaws or operating agreement, together with all amendments thereto and (b) resolutions of such Person's Board of Directors or managers and stockholders or members, approving and authorizing the execution, delivery and performance of the Loan Documents to which such Person is a party and the transactions to be consummated in connection therewith, each certified as of the Closing Date by such Person's corporate secretary or an assistant secretary or other authorized Person as being in full force and effect without any modification or amendment. M. Incumbency Certificates. For each Borrower, signature and incumbency certificates of the officers or managers of each such Person executing any of the Loan B-2 Documents, certified as of the Closing Date by such Person's corporate secretary or an assistant secretary or other authorized person as being true, accurate, correct and complete. N. Opinions of Counsel. Duly executed originals of opinions of Crowe & Dunlevy, counsel for the Borrowers and each other Person executing or delivering a Pledge Agreement, together with any local counsel opinions requested by Lender, each in form and substance satisfactory to Lender and its counsel, dated the Closing Date, and each accompanied by a letter addressed to such counsel from the Borrowers, authorizing and directing such counsel to address its opinion to Lender and to include in such opinion an express statement to the effect that Lender is authorized to rely on such opinion. O. Pledge Agreements. Duly executed originals of each of the Pledge Agreements accompanied by (as applicable) (a) share certificates representing all of the outstanding Stock being pledged pursuant to such Pledge Agreement and stock powers for such share certificates executed in blank and (b) the original notes and all other instruments evidencing Indebtedness being pledged pursuant to such Pledge Agreement. P. Accountants' Letters. A letter from the Borrowers to their independent auditors authorizing the independent certified public accountants of the Borrowers to communicate with Lender in accordance with Section 4.2, and a letter from such auditors acknowledging Lender's reliance on the auditor's certification of past and future Financial Statements. Q. Officer's Certificate. Lender shall have received duly executed originals of a certificate of the Chief Executive Officer and Chief Financial Officer or other such officer or manager of each Borrower, dated the Closing Date, stating that, since December 31, 2000 (a) no event or condition has occurred or is existing which could reasonably be expected to have a Material Adverse Effect; (b) there has been no material adverse change in the industry in which any Borrower operates; (c) no Litigation has been commenced which, if successful, would have a Material Adverse Effect or could challenge any of the transactions contemplated by the Agreement and the other Loan Documents; (d) there have been no Restricted Payments made by any Borrower; and (e) there has been no material increase in liabilities, liquidated or contingent, and no material decrease in assets of any Borrower or any of its Subsidiaries. R. Waivers. Lender shall have received landlord waivers and consents, bailee letters and mortgagee agreements in form and substance satisfactory to Lender, in each case as required pursuant to Section 5.9. S. Mortgages. Mortgages covering all of the Real Estate (the "Mortgaged Properties") together with: (a) title insurance policies, current as-built surveys, zoning letters and certificates of occupancy, in each case satisfactory in form and substance to Lender, in its sole discretion; (b) evidence that counterparts of the Mortgages have been recorded in all places to the extent necessary or desirable, in the judgment of Lender, to create a valid and enforceable first priority lien (subject to Permitted Encumbrances) on each Mortgaged Property in favor of Lender (or in favor of such other trustee as may be required or desired under local law); and (c) an opinion of counsel in each state in which any Mortgaged Property is located in form and substance and from counsel satisfactory to Lender. B-3 T. Subordination and Intercreditor Agreements. Lender shall have received any and all subordination and/or intercreditor agreements, including the Intercreditor Agreement, all in form and substance reasonably satisfactory to Lender, in its sole discretion, as Lender shall have deemed necessary or appropriate with respect to any Indebtedness of any Borrower. U. Environmental Reports. Lender shall have received Phase I Environmental Site Assessment Reports, consistent with American Society for Testing and Materials (ASCM) Standard E 1527-94 and applicable state requirements, on all of the Real Estate, dated no more than 6 months prior to the Closing Date, prepared by environmental engineers satisfactory to Lender, all in form and substance satisfactory to Lender, in its sole discretion; and Lender shall have further received such environmental review and audit reports, including Phase II reports, with respect to the Real Estate of any Borrower as Lender shall have requested, and Lender shall be satisfied, in its sole discretion, with the contents of all such environmental reports. Lender shall have received letters executed by the environmental firms preparing such environmental reports, in form and substance satisfactory to Lender, authorizing Lender to rely on such reports. V. Audited Financials; Financial Condition. Lender shall have received Borrowers' final Financial Statements for their Fiscal Year ended December 31, 2000, audited by PriceWaterhouseCoopers, LLP. Each Borrower shall have provided Lender with its current operating statements, a consolidated and consolidating balance sheet and statement of cash flows, the Pro Forma, Projections, Fair Salable Balance Sheet and a Borrowing Base Certificate with respect to such Borrower certified by its Chief Financial Officer, in each case in form and substance satisfactory to Lender, and Lender shall be satisfied, in its sole discretion, with all of the foregoing. Lender shall have further received a certificate of the Chief Executive Officer and/or the Chief Financial Officer of each Borrower, based on such Pro Forma and Projections, to the effect that (a) such Borrower will be Solvent upon the consummation of the transactions contemplated herein; (b) the Pro Forma fairly presents the financial condition of such Borrower as of the date thereof after giving effect to the transactions contemplated by the Loan Documents; (c) the Projections are based upon estimates and assumptions stated therein, all of which such Borrower believes to be reasonable and fair in light of current conditions and current facts known to such Borrower and, as of the Closing Date, reflect such Borrower's good faith and reasonable estimates of its future financial performance and of the other information projected therein for the period set forth therein; (d) the Fair Salable Balance Sheet was prepared on the same basis as the Pro Forma, except that Borrowers' assets are set forth therein at their fair salable values on a going concern basis and the liabilities set forth therein include all contingent liabilities of Borrowers stated at the reasonably estimated present values thereof; and (e) containing such other statements with respect to the solvency of such Borrower and matters related thereto as Lender shall request. W. Acknowledgements of Third Parties. Acknowledgements from landlords, mortgagees and bailees in form and substance satisfactory to Lender in its sole discretion that such parties hold applicable Collateral for Lender. X. Amended and Restated Membership Agreement. Duly executed original of the Amended and Restated Membership Agreement between AWG and Homeland dated as of the date hereof. B-4 Y. Amended and Restated Stock Power of Attorney. Duly executed original of the Amended and Restated Stock Power of Attorney between AWG and Homeland dated as of the date hereof. Z. Supply Agreement. Lender shall have received the New Supply Agreement in form and substance satisfactory to Lender. AA. ROFR. Lender shall have received the ROFR in form and substance satisfactory to Lender. BB. Memorandum of Right of First Refusal and Supply Agreement. Memorandum of Right of First Refusal and Supply Agreement to be recorded. CC. Use Restriction Agreements. Lenders shall have received the Use Restriction Agreements in form and substance satisfactory to Lender. DD. Non-Competition Agreement. Lenders shall have received the Non-Competition Agreement in form and substance satisfactory to Lender. EE. Other Documents. Such other certificates, documents and agreements respecting any Borrower as Lender may, in its sole discretion, request. B-5 ANNEX C (SECTION 11.10) TO CREDIT AGREEMENT NOTICE ADDRESSES (A) If to Lender, at Associated Wholesale Grocers, Inc. 5000 Kansas Avenue P.O. Box 2932 Kansas City, Kansas 66110-2932 Attention: General Counsel Telecopier No.: (913) 288-1573 Telephone No.: (913) 288-1511 with copies to: Husch & Eppenberger, LLC 1200 Main Street, Suite 1700 Kansas City, Missouri 64105 Attention: Christopher J. Rockers, Esq. Telephone No.: (816) 421-4800 Telecopier No.: (816) 421-0596 (B) If to any Borrower, to Borrower Representative at Homeland Stores, Inc. 2601 NW Expressway, Suite 1100 E Oklahoma City, Oklahoma 73112 Attention: Wayne S. Peterson Telephone No.: (405) 879-6670 Telecopier No.: (405) 879-4614 With copies to: Crowe & Dunlevy 1800 Mid-America Tower 20 North Broadway Oklahoma City, Oklahoma 73102 Attention: Roger A. Stong, Esq. Telephone No.: (405) 239-6614 Telecopier No.: (405) 239-6651 EXHIBIT 1.1(b)(i) TO CREDIT AGREEMENT FORM OF $16.5 MILLION TERM NOTE August 15, 2001 Kansas City, Kansas $16,500,000 FOR VALUE RECEIVED, the undersigned, HOMELAND HOLDING CORPORATION, Chapter 11 debtor-in-possession, a Delaware corporation ("Holding") and HOMELAND STORES, INC., Chapter 11 debtor-in-possession, a Delaware corporation ("Homeland"); (Holding and Homeland are sometimes collectively referred to herein as "Borrowers"), HEREBY PROMISE TO PAY to the order of ASSOCIATED WHOLESALE GROCERS, INC., a Missouri corporation ("Lender") at the offices of Lender at 5000 Kansas Avenue, Kansas City, Kansas 66106, or at such other place as Lender may designate from time to time in writing, in lawful money of the United States of America and in immediately available funds, the amount of SIXTEEN MILLION FIVE HUNDRED THOUSAND DOLLARS AND NO CENTS ($16,500,000). All capitalized terms used but not otherwise defined herein have the meanings given to them in the "Credit Agreement" (as hereinafter defined) or in Annex A thereto. This $16.5 Million Term Note is that certain $16.5 Million Term Note issued pursuant to Section 1.1(a)(i) of that certain Credit Agreement dated as of August 15, 2001 by and among Borrowers, the other Persons named therein as Credit Parties and Lender (including all annexes, exhibits and schedules thereto and as from time to time amended, restated, supplemented or otherwise modified, the "Credit Agreement"), and is entitled to the benefit and security of the Credit Agreement, the Security Agreement and all of the other Loan Documents referred to therein. Reference is hereby made to the Credit Agreement for a statement of all of the terms and conditions under which the Loans evidenced hereby are made and are to be repaid. The principal balance of the $16.5 Million Term Loan, the rates of interest applicable thereto and the date and amount of each payment made on account of the principal thereof, shall be recorded by Lender on its books; provided that the failure of Lender to make any such recordation shall not affect the obligations of Borrowers to make a payment when due of any amount owing under the Credit Agreement or this $16.5 Million Term Note. The principal amount of the indebtedness evidenced hereby shall be payable in the amounts and on the dates specified in the Credit Agreement. Interest thereon shall be paid until such principal amount is paid in full at such interest rates and at such times, and pursuant to such calculations, as are specified in the Credit Agreement. The terms of the Credit Agreement are hereby incorporated herein by reference. If any payment on this $16.5 Million Term Note becomes due and payable on a day other than a Business Day, the maturity thereof shall be extended to the next succeeding Business Day and, with respect to payments of principal, interest thereon shall be payable at the then applicable rate during such extension. Upon and after the occurrence of any Event of Default, this $16.5 Million Term Note may, as provided in the Credit Agreement, and without demand, notice or legal process of any kind, be declared, and immediately shall become, due and payable. Time is of the essence of this $16.5 Million Term Note. Demand, presentment, protest and notice of nonpayment and protest are hereby waived by Borrowers. Except as provided in the Credit Agreement, this $16.5 Million Term Note may not be assigned by Lender to any Person. THIS $16.5 MILLION TERM NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF KANSAS APPLICABLE TO CONTRACTS MADE AND PERFORMED IN THAT STATE. HOMELAND HOLDING CORPORATION, Chapter 11 Debtor-in-Possession, a Delaware corporation By: ---------------------------------------- Name: -------------------------------------- Title: ------------------------------------- HOMELAND STORES, INC., Chapter 11 Debtor- in-Possession, a Delaware corporation By: ---------------------------------------- Name: -------------------------------------- Title: ------------------------------------- EXHIBIT 1.1(b)(i) TO CREDIT AGREEMENT FORM OF RESTATED TERM NOTE August 15, 2001 Kansas City, Kansas $9,465,956.66 FOR VALUE RECEIVED, the undersigned, HOMELAND HOLDING CORPORATION, Chapter 11 debtor-in-possession, a Delaware corporation ("Holding") and HOMELAND STORES, INC., Chapter 11 debtor-in-possession, a Delaware corporation ("Homeland"); (Holding and Homeland are sometimes collectively referred to herein as "Borrowers"), HEREBY PROMISE TO PAY to the order of ASSOCIATED WHOLESALE GROCERS, INC., a Missouri corporation ("Lender") at the offices of Lender at 5000 Kansas Avenue, Kansas City, Kansas 66106, or at such other place as Lender may designate from time to time in writing, in lawful money of the United States of America and in immediately available funds, the amount of NINE MILLION FOUR HUNDRED SIXTY-FIVE THOUSAND NINE HUNDRED FIFTY-SIX DOLLARS AND 66 CENTS ($9,465,956.66). All capitalized terms used but not otherwise defined herein have the meanings given to them in the "Credit Agreement" (as hereinafter defined) or in Annex A thereto. This Restated Term Note is that certain Restated Term Note issued pursuant to Section 1.1(b) of that certain Credit Agreement dated as of August 15, 2001 by and among Borrowers, the other Persons named therein as Credit Parties and Lender (including all annexes, exhibits and schedules thereto and as from time to time amended, restated, supplemented or otherwise modified, the "Credit Agreement"), and is entitled to the benefit and security of the Credit Agreement, the Security Agreement and all of the other Loan Documents referred to therein. Reference is hereby made to the Credit Agreement for a statement of all of the terms and conditions under which the Loans evidenced hereby are made and are to be repaid. The principal balance of the Restated Term Loan, the rates of interest applicable thereto and the date and amount of each payment made on account of the principal thereof, shall be recorded by Lender on its books; provided that the failure of Lender to make any such recordation shall not affect the obligations of Borrowers to make a payment when due of any amount owing under the Credit Agreement or this Restated Term Note. The principal amount of the indebtedness evidenced hereby shall be payable in the amounts and on the dates specified in the Credit Agreement. Interest thereon shall be paid until such principal amount is paid in full at such interest rates and at such times, and pursuant to such calculations, as are specified in the Credit Agreement. The terms of the Credit Agreement are hereby incorporated herein by reference. If any payment on this Restated Term Note becomes due and payable on a day other than a Business Day, the maturity thereof shall be extended to the next succeeding Business Day and, with respect to payments of principal, interest thereon shall be payable at the then applicable rate during such extension. Upon and after the occurrence of any Event of Default, this Restated Term Note may, as provided in the Credit Agreement, and without demand, notice or legal process of any kind, be declared, and immediately shall become, due and payable. Time is of the essence of this Restated Term Note. Demand, presentment, protest and notice of nonpayment and protest are hereby waived by Borrowers. Except as provided in the Credit Agreement, this Restated Term Note may not be assigned by Lender to any Person. THIS RESTATED TERM NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF KANSAS APPLICABLE TO CONTRACTS MADE AND PERFORMED IN THAT STATE. HOMELAND HOLDING CORPORATION, Chapter 11 Debtor-in-Possession, a Delaware corporation By: ---------------------------------------- Name: -------------------------------------- Title: ------------------------------------- HOMELAND STORES, INC., Chapter 11 Debtor-in-Possession, a Delaware corporation By: ---------------------------------------- Name: -------------------------------------- Title: ------------------------------------- EXHIBIT 1.1(b)(ii) TO CREDIT AGREEMENT HOMELAND LOAN AMORTIZATION COMBINED PAYMENTS FOR ALL THREE EXISTING NOTES ORIGINAL LOAN AMOUNTS - $4,640,000, $6,953,860 AND $4,200,000
DATE BEGINNING ENDING BILLED TO PRINCIPAL WEEKLY WEEKLY PRINCIPAL STATEMENT AMOUNT INTEREST PAYMENT AMOUNT - --------- --------- -------- ------- --------- 8/11/01 9,465,956.66 14,107.94 42,928.57 9,437,136.03 8/18/01 9,437,136.03 14,065.03 42,928.57 9,408,272.49 8/25/01 9,408,272.49 14,021.98 42,928.57 9,379,365.90 9/1/01 9,379,365.90 13,978.86 42,928.57 9,350,416.19 9/8/01 9,350,416.19 13,935.74 42,928.57 9,321,423.36 9/15/01 9,321,423.36 13,892.48 42,928.57 9,292,387.27 9/22/01 9,292,387.27 13,849.29 42,928.57 9,263,307.99 9/29/01 9,263,307.99 13,805.89 42,928.57 9,234,185.31 10/6/01 9,234,185.31 13,762.49 42,928.57 9,205,019.23 10/13/01 9,205,019.23 13,719.02 42,928.57 9,175,809.68 10/20/01 9,175,809.68 13,675.55 42,928.57 9,146,556.66 10/27/01 9,146,556.66 13,631.94 42,928.57 9,117,260.03 11/3/01 9,117,260.03 13,588.19 42,928.57 9,087,919.65 11/10/01 9,087,919.65 13,544.51 42,928.57 9,058,535.59 11/17/01 9,058,535.59 13,500.76 42,928.57 9,029,107.78 11/24/01 9,029,107.78 13,456.80 42,928.57 8,999,636.01 12/1/01 8,999,636.01 13,412.91 42,928.57 8,970,120.35 12/8/01 8,970,120.35 13,368.95 42,928.57 8,940,560.73 12/15/01 8,940,560.73 13,324.85 42,928.57 8,910,957.01 12/22/01 8,910,957.01 13,280.82 42,928.57 8,881,309.26 12/29/01 8,881,309.26 13,236.58 42,928.57 8,851,617.27 1/5/02 8,851,617.27 13,192.34 42,928.57 8,821,881.04 1/12/02 8,821,881.04 13,147.96 42,928.57 8,792,100.43 1/19/02 8,792,100.43 13,1O3.58 42,928.57 8,762,275.44 1/26/02 8,762,275.44 13,059.13 42,928.57 8,732,406.00 2/2/02 8,732,406.00 13,014.61 42,928.57 8,702,492.04 2/9/02 8,702,492.04 12,970.02 42,928.57 8,672,533.49 2/16/02 8,672,533.49 12,925.36 42,928.57 8,642,530.28 2/23/02 8,642,530.28 12,880.70 42,928.57 8,612,482.41 3/2/02 8,612,482.41 12,835.90 42,928.57 8,582,389.74
DATE BEGINNING ENDING BILLED TO PRINCIPAL WEEKLY WEEKLY PRINCIPAL STATEMENT AMOUNT INTEREST PAYMENT AMOUNT - --------- --------- -------- ------- --------- 3/9/02 8,582,389.74 12,791.03 42,928.57 8,552,252.20 3/16/02 8,552,252.20 12,746.16 42,928.57 8,522,069.79 3/23/02 8,522,069.79 12,701.22 42,928.57 8,491,842.44 3/30/02 8,491,842.44 12,656.14 42,928.57 8,461,570.01 4/6/02 8,461,570.01 12,610.99 42,928.57 8,431,252.43 4/13/02 8,431,252.43 12,565.84 42,928.57 8,400,889.70 4/20/02 8,400,889.70 12,520.55 42,928.57 8,370,481.68 4/27/02 8,370,481.68 12,475.19 42,928.57 8,340,028.30 5/4/02 8,340,028.30 12,429.90 42,928.57 8,309,529.63 5/11/02 8,309,529.63 12,384.40 42,928.57 8,278,985.46 5/18/02 8,278,985.46 12,338.90 42,928.57 8,248,395.79 5/25/02 8,248,395.79 12,293.26 42,928.57 8,217,760.48 6/1/02 8,217,760.48 12,247.62 42,928.57 8,187,079.53 6/8/02 8,187,079.53 12,201.91 42,928.57 8,156,352.87 6/15/02 8,156,352.87 12,156.13 42,928.57 8,125,580.43 6/22/02 8,125,580.43 12,110.28 42,928.57 8,094,762.14 6/29/02 8,094,762.14 12,064.29 42,928.57 8,063,897.86 7/6/02 8,063,897.86 12,018.30 42,928.57 8,032,987.59 7/13/02 8,032,987.59 11,972.24 42,928.57 8,002,031.26 7/20/02 8,002,031.26 11,926.04 42,928.57 7,971,028.73 7/27/02 7,971,028.73 11,879.84 42,928.57 7,939,980.00 8/3/02 7,939,980.00 11,833.64 42,928.57 7,908,885.07 8/10/02 7,908,885.07 11,787.23 42,928.57 7,877,743.73 8/17/02 7,877,743.73 11,740.82 42,928.57 7,846,555.98 8/24/02 7,846,555.98 11,694.41 42,928.57 7,815,321.82 8/31/02 7,815,321.82 11,647.79 42,928.57 7,784,041.04 9/7/02 7,784,041.04 11,601.17 42,928.57 7,752,713.64 9/14/02 7,752,713.64 11,554.55 42,928.57 7,721,339.62 9/21/02 7,721,339.62 11,507.79 42,928.57 7,689,918.84 9/28/02 7,689,918.84 11,460.89 42,928.57 7,658,451.16 10/5/02 7,658,451.16 11,413.99 42,928.57 7,626,936.58 10/12/02 7,626,936.58 11,367.02 42,928.57 7,595,375.03 10/19/02 7,595,375.03 11,319.98 42,928.57 7,563,766.44 10/26/02 7,563,766.44 11,272.94 42,928.57 7,532,110.81 11/2/02 7,532,110.81 11,225.76 42,928.57 7,500,408.00 11/9/02 7,500,408.00 11,178.51 42,928.57 7,468,657.94 11/16/02 7,468,657.94 11,131.19 42,928.57 7,436,860.56 11/23/02 7,436,860.56 11,083.73 42,928.57 7,405,015.72 11/30/02 7,405,015.72 11,036.34 42,928.57 7,373,123.49 12/7/02 7,373,123.49 10,988.81 42,928.57 7,341,183.73 12/14/02 7,341,183.73 10,941.14 42,928.57 7,309,196.30
DATE BEGINNING ENDING BILLED TO PRINCIPAL WEEKLY WEEKLY PRINCIPAL STATEMENT AMOUNT INTEREST PAYMENT AMOUNT - --------- --------- -------- ------- --------- 12/21/02 7,309,196.30 10,893.54 42,928.57 7,277,161.27 12/28/02 7,277,161.27 10,845.73 42,928.57 7,245,078.43 1/4/03 7,245,078.43 10,797.92 42,928.57 7,212,947.78 1/11/03 7,212,947.78 10,750.11 42,928.57 7,180,769.32 1/18/03 7,180,769.32 10,702.09 42,928.57 7,148,542.84 1/25/03 7,148,542.84 10,654.07 42,928.57 7,116,268.34 2/1/03 7,116,268.34 10,606.05 42,928.57 7,083,945.82 2/8/03 7,083,945.82 10,557.75 42,928.57 7,051,575.00 2/15/03 7,051,575.00 10,509.59 42,928.57 7,019,156.02 2/22/03 7,019,156.02 10,461.29 42,928.57 6,986,688.74 3/1/03 6,986,688.74 10,412.85 42,928.57 6,954,173.02 3/8/03 6,954,173.02 10,364.41 42,928.57 6,921,608.86 3/15/03 6,921,608.86 10,315.83 42,928.57 6,888,996.12 3/22/03 6,888,996.12 10,267.25 42,928.57 6,856,334.80 3/29/03 6,856,334.80 10,218.60 42,928.57 6,823,624.83 4/5/03 6,823,624.83 10,169.88 42,928.57 6,790,866.14 4/12/03 6,790,866.14 10,121.02 42,928.57 6,758,058.59 4/19/03 6,758,058.59 10,072.09 42,928.57 6,725,202.11 4/26/03 6,725,202.11 10,023.16 42,928.57 6,692,296.70 5/3/03 6,692,296.70 9,974.16 42,928.57 6,659,342.29 5/10/03 6,659,342.29 9,924.95 42,928.57 6,626,338.67 5/17/03 6,626,338.67 9,875.81 42,928.57 6,593,285.91 5/24/03 6,593,285.91 9,826.60 42,928.57 6,560,183.94 5/31/03 6,560,183.94 9,777.18 42,928.57 6,527,032.55 6/7/03 6,527,032.55 9,727.76 42,928.57 6,493,831.74 6/14/03 6,493,831.74 9,678.27 42,928.57 6,460,581.44 6/21/03 6,460,581.44 9,628.71 42,928.57 6,427,281.58 6/28/03 6,427,281.58 9,579.15 42,928.57 6,393,932.16 7/5/03 6,393,932.16 9,529.38 42,928.57 6,360,532.97 7/12/03 6,360,532.97 9,479.68 42,928.57 6,327,084.08 7/19/03 6,327,084.08 9,429.77 42,928.57 6,293,585.28 7/26/03 6,293,585.28 9,379.86 42,928.57 6,260,036.57 8/2/03 6,260,036.57 9,329.81 42,928.57 6,226,437.81 8/9/03 6,226,437.81 9,279.76 42,928.57 6,192,789.00 8/16/03 6,192,789.00 9,229.64 42,928.57 6,159,090.07 8/23/03 6,159,090.07 9,179.45 42,928.57 6,125,340.95 8/30/03 6,125,340.95 9,129.12 42,928.57 6,091,541.50 9/6/03 6,091,541.50 9,078.79 42,928.57 6,057,691.72 9/13/03 6,057,691.72 9,028.25 42,928.57 6,023,791.40 9/20/03 6,023,791.40 8,977.78 42,928.57 5,989,840.61 9/27/03 5,989,840.61 8,927.17 42,928.57 5,955,839.21
DATE BEGINNING ENDING BILLED TO PRINCIPAL WEEKLY WEEKLY PRINCIPAL STATEMENT AMOUNT INTEREST PAYMENT AMOUNT - --------- --------- -------- ------- --------- 10/4/03 5,955,839.21 8,876.49 42,928.57 5,921,787.13 10/11/03 5,921,787.13 8,825.74 42,928.57 5,887,684.30 10/18/03 5,887,684.30 8,774.99 42,928.57 5,853,530.72 10/25/03 5,853,530.72 8,724.03 42,928.57 5,819,326.18 11/1/03 5,819,326.18 8,673.07 42,928.57 5,785,070.68 11/8/03 5,785,070.68 8,622.04 42,928.57 5,750,764.15 11/15/03 5,750,764.15 8,570.87 42,928.57 5,716,406.45 11/22/03 5,716,406.45 8,519.63 42,928.57 5,681,997.51 11/29/03 5,681,997.51 8,468.39 42,928.57 5,647,537.33 12/6/03 5,647,537.33 8,417.01 42,928.57 5,613,025.77 12/13/03 5,613,025.77 8,365.56 42,928.57 5,578,462.76 12/20/03 5,578,462.76 8,314.11 42,928.57 5,543,848.30 12/27/03 5,543,848.30 8,262.45 42,928.57 5,509,182.18 1/3/04 5,509,182.18 8,210.79 42,928.57 5,474,464.40 1/10/04 5,474,464.40 8,159.06 42,928.57 5,439,694.89 1/17/04 5,439,694.89 8,107.26 42,928.57 5,404,873.58 1/24/04 5,404,873.58 8,055.32 42,928.57 5,370,000.33 1/31/04 5,370,000.33 8,003.31 42,928.57 5,335,075.07 2/7/04 5,335,075.07 7,951.30 42,928.57 5,300,097.80 2/14/04 5,300,097.80 7,899.15 42,928.57 5,265,068.38 2/21/04 5,265,068.38 7,847.00 42,928.57 5,229,986.81 2/28/04 5,229,986.81 7,794.64 42,928.57 5,194,852.88 3/6/04 5,194,852.88 7,742.35 42,928.57 5,159,666.66 3/13/04 5,159,666.66 7,689.85 42,928.57 5,124,427.94 3/20/04 5,124,427.94 7,637.42 42,928.57 5,089,136.79 3/27/04 5,089,136.79 7,584.71 42,928.57 5,053,792.93 4/3/04 5,053,792.93 7,532.07 42,928.57 5,018,396.43 4/10/04 5,018,396.43 7,479.36 42,928.57 4,982,947.22 4/17/04 4,982,947.22 7,426.51 42,928.57 4,947,445.16 4/24/04 4,947,445.16 7,373.66 42,928.57 4,911,890.25 5/1/04 4,911,890.25 7,320.60 42,928.57 4,876,282.28 5/8/04 4,876,282.28 7,267.54 42,928.57 4,840,621.25 5/15/04 4,840,621.25 7,214.41 42,928.57 4,804,907.09 5/22/04 4,804,907.09 7,161.14 42,928.57 4,769,139.66 5/29/04 4,769,139.66 7,107.87 42,928.57 4,733,318.96 6/5/04 4,733,318.96 7,054.46 42,928.57 4,697,444.85 6/12/04 4,697,444.85 7,000.98 42,928.57 4,661,517.26 6/19/04 4,661,517.26 6,947.50 42,928.57 4,625,536.19 6/26/04 4,625,536.19 6,893.81 42,928.57 4,589,501.43 7/3/04 4,589,501.43 6,840.12 42,928.57 4,553,412.98 7/10/04 4,553,412.98 6,786.36 42.928.57 4,517,270.77
DATE BEGINNING ENDING BILLED TO PRINCIPAL WEEKLY WEEKLY PRINCIPAL STATEMENT AMOUNT INTEREST PAYMENT AMOUNT - --------- --------- -------- ------- --------- 7/17/04 4,517,270.77 6,732.46 42,928.57 4,481,074.66 7/24/04 4,481,074.66 6,678.49 42,928.57 4,444,824.58 7/31/04 4,444,824.58 6,624.52 42,928.57 4,408,520.53 8/7/04 4,408,520.53 6,570.41 42,928.57 4,372,162.37 8/14/04 4,372,162.37 6,516.16 42,928.57 4,335,749.96 8/21/04 4,335,749.96 6,461.91 42,928.57 4,299,283.30 8/28/04 4,299,283.30 6,407.59 42,928.57 4,262,762.32 9/4/04 4,262,762.32 6,353.13 42,928.57 4,226,186.88 9/11/04 4,226,186.88 6,298.67 42,928.57 4,189,556.98 9/18/04 4,189,556.98 6,244.07 42,928.57 4,152,872.48 9/25/04 4,152,872.48 6,189.40 42,928.57 4,116,133.31 10/2/04 4,116,133.31 6,134.59 42,928.57 4,079,339.33 1O/9/04 4,079,339.33 6,079.78 42,928.57 4,042,490.54 10/16/04 4,042,490.54 6,024.83 42,928.57 4,005,586.80 10/23/04 4,005,586.80 5,969.88 42,928.57 3,968,628.11 10/30/04 3,968,628.11 5,914.79 42,928.57 3,931,614.33 11/6/04 3,931,614.33 5,859.63 42,928.57 3,894,545.39 11/13/04 3,894,545.39 5,804.40 42,928.57 3,857,421.22 11/20/04 3,857,421.22 5,749.10 42,928.57 3,820,241.75 11/27/04 3,820,241.75 5,693.59 42,928.57 3,783,006.77 12/4/04 3,783,006.77 5,638.15 42,928.57 3,745,716.35 12/11/04 3,745,716.35 5,582.57 42,928.57 3,708,370.35 12/18/04 3,708,370.35 5,526.92 42,928.57 3,670,968.70 12/25/04 3,670,968.70 5,471.20 42,928.57 3,633,511.33 1/1/05 3,633,511.33 5,415.34 42,928.57 3,595,998.10 1/8/05 3,595,998.10 5,359.41 42,928.57 3,558,428.94 1/15/05 3,558,428.94 5,303.48 42,928.57 3,520,803.85 1/22/05 3,520,803.85 5,247.41 42,928.57 3,483,122.69 1/29/05 3,483,122.69 5,191.20 42,928.57 3,445,385.32 2/5/05 3,445,385.32 5,134.99 42,928.57 3,407,591.74 2/12/05 3,407,591.74 5,078.64 42,928.57 3,369,741.81 2/19/05 3,369,741.81 5,022.22 42,928.57 3,331,835.46 2/26/05 3,331,835.46 4,965.73 42,928.57 3,293,872.62 3/5/05 3,293,872.62 4,909.10 42,928.57 3,255,853.15 3/12/05 3,255,853.15 4,852.47 42,928.57 3,217,777.05 3/19/05 3,217,777.05 4,795.70 42,928.57 3,179,644.18 3/26/05 3,179,644.18 4,738.86 42,928.57 3,141,454.47 4/2/05 3,141,454.47 4,681.95 42,928.57 3,103,207.85 4/9/05 3,103,207.85 4,624.97 42,928.57 3,064,904.25 4/16/05 3,064,904.25 4,567.92 42,928.57 3,026,543.60 4/23/05 3,026,543.60 4,510.73 42,928.57 2,988,125.76
DATE BEGINNING ENDING BILLED TO PRINCIPAL WEEKLY WEEKLY PRINCIPAL STATEMENT AMOUNT INTEREST PAYMENT AMOUNT - --------- --------- -------- ------- --------- 4/30/05 2,988,125.76 4,453.47 42,928.57 2,949,650.66 5/7/05 2,949,650.66 4,396.14 42,928.57 2,911,118.23 5/14/05 2,911,118.23 4,338.67 42,928.57 2,872,528.33 5/21/05 2,872,528.33 4,281.13 42,928.57 2,833,880.89 5/28/05 2,833,880.89 4,223.59 42,928.57 2,795,175.91 6/4/05 2,795,175.91 4,165.91 42,928.57 2,756,413.25 6/11/05 2,756,413.25 4,108.16 42,928.57 2,717,592.84 6/18/05 2,717,592.84 4,050.27 42,928.57 2,678,714.54 6/25/05 2,678,714.54 3,992.31 42,928.57 2,639,778.28 7/2/05 2,639,778.28 3,934.21 42,928.57' 2,600,783.92 7/9/05 2,600,783.92 3,876.11 42,928.57 2,561,731.46 7/16/05 2,561,731.46 3,818.01 42,928.57 2,522,620.90 7/23/05 2,522,620.90 3,759.63 42,928.57 2,483,451.96 7/30/05 2,483,451.96 3,701.32 42,928.57 2,444,224.71 8/6/05 2,444,224.71 3,642.87 42,928.57 2,404,939.01 8/13/05 2,404,939.01 3,584.28 42,928.57 2,365,594.72 8/20/05 2,365,594.72 3,525.62 42,928.57 2,326,191.77 8/27/05 2,326,191.77 3,466.89 42,928.57 2,286,730.09 9/3/05 2,286,730.09 3,408.16 42,928.57 2,247,209.68 9/10/05 2,247,209.68 3,349.22 42,928.57 2,207,630.33 9/17/05 2,207,630.33 3,290.21 42,928.57 2,167,991.97 9/24/05 2,167,991.97 3,231.13 42,928.57 2,128,294.53 10/1/05 2,128,294.53 3,171.98 42,928.57 2,088,537.94 10/8/05 2,088,537.94 3,112.69 42,928.57 2,048,722.06 10/15/05 2,048,722.06 3,053.40 42,928.57 2,008,846.89 10/22/05 2,008,846.89 2,993.97 42,928.57 1,968,912.29 10/29/05 1,968,912.29 2,934.47 42,928.57 1,928,918.19 11/5/05 1,928,918.19 2,874.76 42,928.57 1,888,864.38 11/12/05 1,888,864.38 2,815.12 42,928.57 1,848,750.93 11/19/05 1,848,750.93 2,755.27 42,928.57 1,808,577.63 11/26/05 1,808,577.63 2,695.49 42,928.57 1,768,344.55 12/3/05 1,768,344.55 2,635.50 42,928.57 1,728,051.48 12/10/05 1,728,051.48 2,575.44 42,928.57 1,687,698.35 12/17/05 1,687,698.35 2,515.31 42,928.57 1,647,285.09 12/24/05 1,647,285.09 2,455.04 42,928.57 1,606,811.56 12/31/05 1,606,811.56 2,394.77 42,928.57 1,566,277.76 1/7/06 1,566,277.76 2,334.36 42,928.57 1,525,683.55 1/14/06 1,525,683.55 2,273.81 42,928.57 1,485,028.79 1/21/06 1,485,028.79 2,213.26 42,928.57 1,444,313.48 1/28/06 1,444,313.48 2,152.64 42,928.57 1,403,537.55 2/4/06 1,403,537.55 2,091.74 42,928.57 1,362,700.72
DATE BEGINNING ENDING BILLED TO PRINCIPAL WEEKLY WEEKLY PRINCIPAL STATEMENT AMOUNT INTEREST PAYMENT AMOUNT - --------- --------- -------- ------- --------- 2/11/06 1,362,700.72 2,030.91 42,928.57 1,321,803.06 2/18/06 1,321,803.06 1,970.01 42,928.57 1,280,844.50 2/25/06 1,280,844.50 1,908.97 42,928.57 1,239,824.90 3/4/06 1,239,824.90 1,847.79 42,928.57 1,198,744.12 3/11/06 1,198,744.12 1,786.54 42,928.57 1,157,602.09 3/18/06 1,157,602.09 1,725.29 42,928.57 1,116,398.81 3/25/06 1,116,398.81 1,663.90 42,928.57 1,075,134.14 4/1/06 1,075,134.14 1,602.37 42,928.57 1,033,807.94 4/8/06 1,033,807.94 1,540.77 42,928.57 992,420.14 4/15/06 992,420.14 1,479.03 42,928.57 950,970.60 4/22/06 950,970.60 1,417.29 28,534.26 923,853.63 4/29/06 923,853.63 1,376.83 28,529.78 896,700.68 5/6/06 896,700.68 1,336.44 28,529.78 869,507.34 5/13/06 869,507.34 1,295.84 28,529.78 842,273.40 5/20/06 842,273.40 1,255.31 28,529.78 814,998.93 5/27/06 814,998.93 1,214.64 28,529.78 787,683.79 6/3/06 787,683.79 1,173.97 28,529.78 760,327.98 6/10/06 760,327.98 1,133.16 28,529.78 732,931.36 6/17/06 732,931.36 1,092.35 28,529.78 705,493.93 6/24/06 705,493.93 1,051.47 28,529.78 678,015.62 7/1/06 678,015.62 1,010.45 28,529.78 650,496.29 7/8/06 650,496.29 969.50 28,529.78 622,936.01 7/15/06 622,936.01 928.41 28,529.78 595,334.64 7/22/06 595,334.64 887.32 28,529.78 567,692.18 7/29/06 567,692.18 846.09 28,529.78 540,008.49 8/5/06 540,008.49 804.86 28,529.78 512,283.57 8/12/06 512,283.57 763.49 28,529.78 484,517.28 8/19/06 484,517.28 722.12 28,529.78 456,709.62 8/26/06 456,709.62 680.68 28,529.78 428,860.52 9/2/06 428,860.52 639.17 28,529.78 400,969.91 9/9/06 400,969.91 597.59 28,529.78 373,037.72 9/16/06 373,037.72 555.94 28,529.78 345,063.88 9/23/06 345,063.88 514.22 28,529.78 317,048.32 9/30/06 317,048.32 472.50 28,529.78 288,991.04 10/7/06 288,991.04 430.71 28,529.78 260,891.97 10/14/06 260,891.97 388.78 28,529.78 232,750.97 10/21/06 232,750.97 346.85 28,529.78 204,568.04 10/28/06 204,568.04 304.85 28,529.78 176,343.11 11/4/06 176,343.11 262.78 11,167.99 165,437.90 11/11/06 165,437.90 246.54 11,160.95 154,523.49 11/18/06 154,523.49 230.30 11,160.95 143,592.84
DATE BEGINNING ENDING BILLED TO PRINCIPAL WEEKLY WEEKLY PRINCIPAL STATEMENT AMOUNT INTEREST PAYMENT AMOUNT - --------- --------- -------- ------------- ----------- 11/25/06 143,592.84 213.99 11,160.95 132,645.88 12/2/06 132,645.88 197.68 11,160.95 121,682.61 12/9/06 121,682.61 181.37 11,160.95 110,703.03 12/16/06 110,703.03 164.99 11,160.95 99,707.07 12/23/06 99,707.07 148.61 11,160.95 88,694.73 12/30/06 88,694.73 132.16 11,160.95 77,665.94 1/6/07 77,665.94 115.78 11,160.95 66,620.77 1/13/07 66,620.77 99.26 11,160.95 55,559.08 1/20/07 55,559.08 82.81 11,160.95 44,480.94 1/27/07 44,480.94 66.29 11,160.95 33,386.28 2/3/07 33,386.28 49.77 11,160.95 22,275.10 2/10/07 22,275.10 33.18 11,160.95 11,147.33 2/17/07 11,147.33 16.59 11,160.95 2.97 2/24/07 2.97 -- 2.97 (0.00) 2,043,117.30 11,537,851.75 ============ =============
EXHIBIT 1.1(c)(i) TO CREDIT AGREEMENT FORM OF SUPPLY TERM NOTE August 15, 2001 Kansas City, Kansas $3,100,000 FOR VALUE RECEIVED, the undersigned, HOMELAND HOLDING CORPORATION, Chapter 11 debtor-in-possession, a Delaware corporation ("Holding") and HOMELAND STORES, INC., Chapter 11 debtor-in-possession, a Delaware corporation ("Homeland"); (Holding and Homeland are sometimes collectively referred to herein as "Borrowers"), HEREBY PROMISE TO PAY to the order of ASSOCIATED WHOLESALE GROCERS, INC., a Missouri corporation ("Lender") at the offices of Lender at 5000 Kansas Avenue, Kansas City, Kansas 66106, or at such other place as Lender may designate from time to time in writing, in lawful money of the United States of America and in immediately available funds, the amount of THREE MILLION ONE HUNDRED THOUSAND DOLLARS AND NO CENTS ($3,100,000). All capitalized terms used but not otherwise defined herein have the meanings given to them in the "Credit Agreement" (as hereinafter defined) or in Annex A thereto. This Supply Term Note is that certain Supply Term Note issued pursuant to Section 1.1(c)(i) of that certain Credit Agreement dated as of August 15, 2001 by and among Borrowers, the other Persons named therein as Credit Parties and Lender (including all annexes, exhibits and schedules thereto and as from time to time amended, restated, supplemented or otherwise modified, the "Credit Agreement"), and is entitled to the benefit and security of the Credit Agreement, the Security Agreement and all of the other Loan Documents referred to therein. Reference is hereby made to the Credit Agreement for a statement of all of the terms and conditions under which the Loans evidenced hereby are made and are to be repaid. The principal balance of the Supply Term Loan, the rates of interest applicable thereto and the date and amount of each payment made on account of the principal thereof, shall be recorded by Lender on its books; provided that the failure of Lender to make any such recordation shall not affect the obligations of Borrowers to make a payment when due of any amount owing under the Credit Agreement or this Supply Term Note. The principal amount of the indebtedness evidenced hereby shall be payable in the amounts and on the dates specified in the Credit Agreement. Interest thereon shall be paid until such principal amount is paid in full at such interest rates and at such times, and pursuant to such calculations, as are specified in the Credit Agreement. The terms of the Credit Agreement are hereby incorporated herein by reference. If any payment on this Supply Term Note becomes due and payable on a day other than a Business Day, the maturity thereof shall be extended to the next succeeding Business Day and, with respect to payments of principal, interest thereon shall be payable at the then applicable rate during such extension. Upon and after the occurrence of any Event of Default, this Supply Term Note may, as provided in the Credit Agreement, and without demand, notice or legal process of any kind, be declared, and immediately shall become, due and payable. Time is of the essence of this Supply Term Note. Demand, presentment, protest and notice of nonpayment and protest are hereby waived by Borrowers. Except as provided in the Credit Agreement, this Supply Term Note may not be assigned by Lender to any Person. THIS SUPPLY TERM NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF KANSAS APPLICABLE TO CONTRACTS MADE AND PERFORMED IN THAT STATE. This Supply Term Note amends, restates, supercedes and replaces that certain promissory note made by Borrowers to Lender on August 1, 2001 in the original principal amount of $3,100,000. HOMELAND HOLDING CORPORATION, Chapter 11 Debtor-in-Possession, a Delaware corporation By: ----------------------------------- Name: --------------------------------- Title: -------------------------------- HOMELAND STORES, INC., Chapter 11 Debtor-in-Possession, a Delaware corporation By: ----------------------------------- Name: --------------------------------- Title: -------------------------------- SCHEDULE 1.4 TO CREDIT AGREEMENT SOURCES AND USES; FUNDS FLOW MEMORANDUM Homeland Stores, Inc. Interim and DIP Financing Sources and Uses of Funds Interim Financing Sources: AWG -- Supply Agreement 3,100,000 ========== Uses: National Bank of Canada -- Revolver 2,650,000 National Bank of Canada -- Fee 150,000 Fleet Retail Finance / Back Bay -- Fee 300,000 ---------- Total Uses 3,100,000 ========== DIP Financing Sources: AWG -- Term Loan 16,500,000 Back Bay -- Term Loan 10,000,000 Fleet Retail Finance -- Revolver 7,685,182 ---------- Total Sources 34,185,182 ========== Uses: National Bank of Canada -- Revolver 25,991,606 National Bank of Canada -- Term Loan 7,028,450 National Bank of Canada - Interest 125,322 National Bank of Canada -- Fees 206,804 National Bank of Canada - Letter of Cr 30,000 Fleet Retail Finance / Back Bay -- Fee 303,000 AWG Holdback -- Fees 500,000 ---------- Total Uses 34,185,182 ==========
SCHEDULE 3.1 TO CREDIT AGREEMENT JURISDICTIONS OF INCORPORATION Each of Homeland Holding Corporation and Homeland Stores, Inc. is incorporated under the laws of the State of Delaware. SCHEDULE 3.2 TO CREDIT AGREEMENT EXECUTIVE OFFICES; FEIN; LEGAL NAMES The legal names of the Borrowers are "Homeland Holding Corporation" and "Homeland Stores, Inc." The chief and executive office and the principal place of business of each of the Borrowers is as follows: Oil Center, Suite 1100E 2601 Northwest Expressway Oklahoma City, Oklahoma 73112 The federal employer identification number and the state organizational number of Homeland Holding Corporation are 73-1311075 and 2142947, respectively. The federal employer identification number and the state organizational number of Homeland Stores, Inc. are 73-1310085 and 2137888, respectively. SCHEDULE 3.4(A) TO CREDIT AGREEMENT FINANCIAL STATEMENTS The audited financial statements of the Borrowers and their subsidiaries for the fiscal years ended January 2, 1999, and January 1,2000, are attached to this Schedule 3.4(a). See footnote 1 to such audited financial statements re consolidated and consolidating financial statements. The unaudited financial statements of the Borrowers and their subsidiaries for the two quarters ended June 16,2001, are attached to this Schedule 3.4(a). REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Stockholders of Homeland Holding Corporation In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations, stockholders' equity and cash flows present fairly, in all material respects, the financial position of Homeland Holding Corporation and its subsidiaries, (the "Company") at January 1, 2000 and January 2, 1999, and the results of their operations and their cash flows for the 52 weeks ended January 1, 2000, the 52 weeks ended January 2, 1999, and the 53 weeks ended January 3, 1998, in conformity with accounting principles generally accepted in the United States. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. PRICEWATERHOUSECOOPERS LLP February 29, 2000, except for Note 14, as to which the date is March 9, 2000 F-2 HOMELAND HOLDING CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In thousands, except share and per share amounts) ASSETS
January 1, January 2, 2000 1999 --------- --------- Current assets: Cash and cash equivalents $ 6,136 $ 7,856 Receivables, net of allowance for uncollectible accounts of $1,361 and $972 11,353 9,961 Inventories 52,663 46,280 Prepaid expenses and other current assets 2,176 2,527 -------- -------- Total current assets 72,328 66,624 Property, plant and equipment: Land and land improvements 9,046 9,346 Buildings 21,962 20,216 Fixtures and equipment 36,818 28,466 Leasehold improvements 20,446 17,488 Software 7,181 5,396 Leased assets under capital leases 8,737 9,053 Construction in progress 19 3,278 -------- -------- 104,209 93,243 Less, accumulated depreciation and amortization 30,728 20,832 -------- -------- Net property, plant and equipment 73,481 72,411 Reorganization value in excess of amounts allocable to identifiable assets, less accumulated amortization of $40,908 and $34,018 at January 1, 2000, and January 2, 1999, respectively -- 7,791 Other assets and deferred charges 22,045 12,378 -------- -------- Total assets $167,854 $159,204 ======== ========
Continued The accompanying notes are an integral part of these consolidated financial statements. F-3 HOMELAND HOLDING CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS, Continued (In thousands, except share and per share amounts) LIABILITIES AND STOCKHOLDERS' EQUITY
January 1, January 2, 2000 1999 --------- --------- Current liabilities: Accounts payable - trade $ 22,968 $ 20,267 Salaries and wages 3,168 2,827 Taxes 3,616 3,093 Accrued interest payable 2,671 2,622 Other current liabilities 6,992 8,548 Current portion of long-term debt 2,918 1,728 Current portion of obligations under capital leases 501 1,235 --------- --------- Total current liabilities 42,834 40,320 Long-term obligations: Long-term debt 94,668 83,852 Obligations under capital leases 1,197 1,700 Other noncurrent liabilities 1,501 1,464 --------- --------- Total long-term obligations 97,366 87,016 Commitments and contingencies -- -- Stockholders' equity: Common stock $0.01 par value, authorized - 7,500,OOO shares, issued 4,917,860 shares and 4,904,417 shares at January 1, 2000, and January 2, 1999, respectively 49 49 Additional paid-in capital 56,254 56,174 Accumulated deficit (28,649) (24,355) --------- --------- Total stockholders' equity 27,654 31,868 --------- --------- Total liabilities and stockholders' equity $ 167,854 $ 159,204 ========= =========
The accompanying notes are an integral part of these consolidated financial statements. F-4 HOMELAND HOLDING CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except share and per share amounts)
52 weeks 52 weeks 53 weeks ended ended ended January 1, January 2, January 3, 2000 1999 1998 ----------- ----------- ----------- Sales, net $ 559,554 $ 529,576 $ 527,993 Cost of sales 425,394 402,261 401,691 ----------- ----------- ----------- Gross profit 134,160 127,315 126,302 Selling and administrative expenses 120,594 114,335 112,590 Amortization of excess reorganization value 6,890 13,672 14,527 Asset Impairment 925 -- -- ----------- ----------- ----------- Operating profit (loss) 5,751 (692) (815) Gain (loss) on disposal of assets (15) 34 (117) Interest income 569 426 385 Interest expense (9,011) (8,484) (8,408) ----------- ----------- ----------- Loss before income taxes (2,706) (8,716) (8,955) Income tax provision (1,588) (1,875) (1,689) ----------- ----------- ----------- Net loss $ (4,294) $ (10,591) $ (10,644) =========== =========== =========== Basic and diluted earnings per share: Net loss per share $ (0.87) $ (2.18) $ (2.23) =========== =========== =========== Weighted average shares outstanding 4,911,958 4,857,130 4,782,938 =========== =========== ===========
The accompanying notes are an integral part of these consolidated financial statements. F-5 HOMELAND HOLDING CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (In thousands, except share and per share amounts)
Common Stock Additional Total ---------------------------- Paid-In Accumulated Stockholders' Shares Amount Capital Deficit Equity ------------ ------------ ------------ ------------ ------------ Balance, December 28, 1996 4,758,025 $ 48 $ 56,013 $ (3,120) $ 52,941 Net loss -- -- -- (10,644) (10,644) Issuance of common stock 62,612 -- 27 -- 27 ------------ ------------ ------------ ------------ ------------ Balance, January 3, 1998 4,820,637 48 56,040 (13,764) 42,324 Net loss -- -- -- (10,591) (10,591) Issuance of common stock 83,780 1 134 -- 135 ------------ ------------ ------------ ------------ ------------ Balance, January 2, 1999 4,904,417 49 56,174 (24,355) 31,868 Net Loss -- -- -- (4,294) (4,294) Issuance of common stock 13,443 -- 80 -- 80 ------------ ------------ ------------ ------------ ------------ Balance, January 1, 2000 4,917,860 $ 49 $ 56,254 $ (28,649) $ 27,654 ============ ============ ============ ============ ============
The accompanying notes are an integral part of these consolidated financial statements. F-6 HOMELAND HOLDING CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands, except share and per share amounts)
52 weeks 52 weeks 53 weeks ended ended ended January 1, January 2, January 3, 2000 1999 1998 ------------ ------------ ------------ Cash flows from operating activities: Net loss $ (4,294) $ (10,591) $ (10,644) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization 10,427 9,802 8,404 Amortization of beneficial interest in operating leases 121 121 121 Amortization of excess reorganization value 6,890 13,672 14,527 Amortization of goodwill 226 -- -- Amortization of financing costs 42 120 64 Loss (gain) on disposal of assets 15 (34) 117 Asset impairment 925 -- -- Deferred income taxes 1,451 1,699 1,589 Change in assets and liabilities: Increase in receivables (1,392) (648) (791) Increase in inventories (2,355) (334) (937) Decrease in prepaid expenses and other current assets 458 54 179 Increase in other assets and deferred charges (2,498) (2,487) (2,722) Increase in accounts payable - trade 2,701 1,326 1,525 Increase (decrease) in salaries and wages 293 319 (991) Increase (decrease) in taxes 426 (512) 702 Increase (decrease) in accrued interest payable 49 3 (70) Increase (decrease) in other current liabilities (1,813) (1,494) 1,572 Increase (decrease) in other non-current liabilities 69 (531) (283) ======== ========= ========= Net cash provided by operating activities 11,741 10,485 12,362 ======== ========= =========
Continued The accompanying notes are an integral part of these consolidated financial statements. F-7 HOMELAND HOLDING CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS, Continued (In thousands, except share and per share amounts)
52 weeks 52 weeks 53 weeks ended ended ended January 1, January 2, January 3, 2000 1999 1998 ------------ ------------ ------------ Cash flows from investing activities: Capital expenditures (8,980) (12,404) (14,021) Store acquisitions (2,374) -- -- Cash received from sale of assets 750 775 70 ------------ ------------ ------------ Net cash used in investing activities (10,604) (11,629) (13,951) ------------ ------------ ------------ Cash flows from financing activities: Payments under term loan (1,667) (1,667) (833) Borrowings under revolving credit loans 142,707 129,567 141,463 Payments under revolving credit loans (137,400) (122,340) (134,106) Principal payments under notes payable (46) (61) (61) Principal payments under AWG notes (5,294) -- -- Principal payments under capital lease obligations (1,237) (1,412) (1,615) Proceeds from issuance of common stock 80 135 27 ------------ ------------ ------------ Net cash provided by (used in) financing activities (2,857) 4,222 4,875 ------------ ------------ ------------ Net increase (decrease) in cash and cash equivalents (1,720) 3,078 3,286 Cash and cash equivalents at beginning of period 7,856 4,778 1,492 ------------ ------------ ------------ Cash and cash equivalents at end of period $ 6,136 $ 7,856 $ 4,778 ============ ============ ============ Supplemental information: Cash paid during the period for interest $ 8,993 $ 8,419 $ 8,414 ============ ============ ============ Cash paid during the period for income taxes $ 110 $ 100 $ 100 ============ ============ ============ Supplemental schedule of non-cash investing activities: Capital lease obligations assumed $ -- $ 453 $ 1,161 ============ ============ ============ Debt assumed in acquisitions $ 13,706 $ -- $ -- ============ ============ ============
The accompanying notes are an integral part of these consolidated financial statements. F-8 HOMELAND HOLDING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued (In thousands, except share and per share amounts) 1. Organization: Homeland Holding Corporation ("Holding"), a Delaware corporation, was incorporated on November 6, 1987, but had no operations prior to November 25, 1987. Effective November 25, 1987, Homeland Stores, Inc. ("Homeland"), a wholly-owned subsidiary of Holding, acquired substantially all of the net assets of the Oklahoma Division of Safeway Inc. Holding, its consolidated subsidiary, Homeland, Homeland's wholly-owned subsidiary, SLB Marketing, Inc., and SLB's wholly-owned subsidiary, JCH Beverage, Inc., are collectively referred to herein as the "Company." The Company is a leading supermarket chain in the Oklahoma, southern Kansas and Texas Panhandle region. The Company operates in four distinct market places: Oklahoma City, Oklahoma; Tulsa, Oklahoma; Amarillo, Texas; and certain rural areas of Oklahoma, Kansas and Texas. Holding has guaranteed substantially all of the debt issued by Homeland. Holding is a holding company with no significant operations other than its investment in Homeland. Separate financial statements of Homeland are not presented herein since they are identical to the consolidated financial statements of Holding in all respects except for stockholders' equity which is as follows:
January 1, January 2, 2000 1999 ------------ ------------ Homeland stockholder's equity: Common stock, $.01 par value, authorized, issued and outstanding 100 shares $ 1 $ 1 Additional paid-in capital 56,302 56,222 Accumulated deficit (28,649) (24,355) ------------ ------------ Total Homeland stockholder's equity $ 27,654 $ 31,868 ============ ============
2. Summary of Significant Accounting Policies: Fiscal year - The Company has adopted a fiscal year which ends on the Saturday nearest December 31. Basis of consolidation - The consolidated financial statements include the accounts of Homeland Holding Corporation and its wholly-owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. F-9 HOMELAND HOLDING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued (In thousands, except share and per share amounts) Revenue recognition - The Company recognizes revenue at the "point of sale," which occurs when groceries and related merchandise are sold to its customers. 2. Summary of Significant Accounting Policies, continued: Concentrations of credit and business risk - Financial instruments which potentially subject the Company to concentrations of credit risk consist principally of temporary cash investments and receivables. The Company places its temporary cash investments with high quality financial institutions. Concentrations of credit risk with respect to receivables are limited due to the diverse nature of those receivables, including a large number of retail customers within the region and receivables from vendors throughout the country. The Company purchases approximately 70% of its products from Associated Wholesale Grocers, Inc. ("AWG"). Although there are similar wholesalers that could supply the Company with merchandise, if AWG were to discontinue shipments, this could have a material adverse effect on the Company's financial condition. Inventories - Inventories are stated at the lower of cost or market, with cost being determined primarily using the gross margin method. Property, plant and equipment - In conjunction with the emergence from Chapter 11 proceedings in August, 1996, the Company implemented "fresh-start" reporting and, accordingly, all property, plant and equipment was restated to reflect reorganization value, which approximates fair value in continued use. Depreciation and amortization, including amortization of leased assets under capital leases, are computed on a straight-line basis over the lesser of the estimated useful life of the asset or the remaining term of the lease. Property, plant and equipment acquired subsequent to "fresh start" are stated at cost. Depreciation and amortization of newly acquired assets, for financial reporting purposes, are based on the following estimated lives:
Estimated lives --------------- Buildings 10-40 Fixtures and equipment 5-12.5 Leasehold improvements 15 Software 3-5
The costs of repairs and maintenance are expensed as incurred, and the costs of renewals and betterments are capitalized and depreciated at the appropriate rates. Upon sale or retirement, the cost and related accumulated depreciation are eliminated from the respective accounts and any resulting gain or loss is included in the results of operations for that period. F-10 HOMELAND HOLDING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued (In thousands, except share and per share amounts) 2. Summary of Significant Accounting Policies, continued: Reorganization value in excess of amounts allocable to identifiable assets - The Company's reorganization value in excess of amounts allocable to identifiable assets, established in accordance with "fresh start" reporting, had been amortized on a straight-line basis over three years and became fully amortized in the third quarter of 1999. Store Closings / Asset Impairment - Provision is made on a current basis for the write-down of identified owned-store closings to their net realizable value. For identified leased-store closings, leasehold improvements are written down to their net realizable value and a provision is made on a current basis if anticipated expenses are in excess of expected sublease rental income. The Company's long-lived assets, including goodwill, are reviewed for impairment and written down to fair value whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Other assets and deferred charges - Other assets and deferred charges consist primarily of patronage refund certificates issued by AWG (as part of its year-end distribution of income from AWG's cooperative operations), beneficial interests in operating leases, and goodwill acquired in the Company's 1999 acquisitions. The beneficial interest in operating leases is being amortized on a straight-line basis over the remaining terms of the leases, including all available renewal option periods, and the goodwill is being amortized over a 15 year period. The AWG patronage refund certificates bear annual interest of 6% and are redeemable for cash seven years from the date of issuance. The carrying value of certificates, including those earned not yet received, at January 1, 2000 and January 2, 1999 was $11,726 and $9,118, respectively. Earnings per share - The Company presents the two earnings per share ("EPS") amounts as required under Statement of Accounting Standard No. 128, Earnings Per Share ("SFAS 128"). Basic EPS is computed using the weighted average number of common shares outstanding. Diluted earnings per share is computed using the weighted average number of common shares outstanding and equivalent shares based on the assumed exercise of stock options and warrants (using the treasury method). Cash and cash equivalents - For purposes of the statements of cash flows, the Company considers all short-term investments with an original maturity of three months or less when purchased to be cash equivalents. Advertising costs - Costs of advertising are expensed as incurred. Gross advertising costs for 1999, 1998 and 1997, were $9,112, $8,349 and $7,906, respectively. F-11 HOMELAND HOLDING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued (In thousands, except share and per share amounts) 2. Summary of Significant Accounting Policies, continued: Income taxes - The Company provides for income taxes based on enacted tax laws and statutory tax rates at which items of income and expense are expected to be settled in the Company's income tax return. Certain items of revenue and expense are reported for Federal income tax purposes in different periods than for financial reporting purposes, thereby resulting in deferred income taxes. Deferred taxes also are recognized for operating losses that are available to offset future taxable income and tax credits that are available to offset future Federal income taxes. Valuation allowances are established when necessary to reduce deferred tax assets to the amounts expected to be realized. Self-insurance reserves - The Company is self-insured for property loss, general liability and automotive liability coverage subject to specific retention levels. Estimated costs of these self-insurance programs are accrued based on projected settlements for claims using actuarially determined loss development factors based on the Company's prior experience with similar claims. Any resulting adjustments to previously recorded reserves are reflected in current operating results. Pre-opening costs - Store pre-opening costs are charged to expense as incurred. Use of estimates - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenues and expenses during the reporting periods. The most significant assumptions and estimates relate to the reserve for self-insurance programs, the deferred income tax valuation allowance, the accumulated benefit obligation relating to the employee retirement plan and the allowance for bad debts. It is reasonably possible that the Company's estimates for such items could change in the near term. Comprehensive Income - There were no components of other comprehensive income during the three year period ended January 1, 2000. 3. Store Acquisitions: 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, $0.2 million for transaction costs, offset by $6.8 million in long-term debt assumed by the Company. F-12 HOMELAND HOLDING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued (In thousands, except share and per share amounts) 3. Store Acquisitions, continued: 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 inventory and the assets relating to the Pryor store. 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.l million which represents $6.0 million for fixtures and equipment and goodwill, plus $1.9 million for inventory, $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 will lease three of the stores from AWG and lease 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. The result of operations from these stores from the acquisition date through fiscal year-end are included in the fiscal 1999 Consolidated Statements of Operations. On January 18, 2000, the Company entered into an agreement in principle to acquire three Price Chopper Stores, in Oklahoma City, operated by Belton Food Center, Inc. ("BFC"). On February 29, 2000, the Company completed its acquisition of these three stores from BFC. 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, $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 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. The F-13 HOMELAND HOLDING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued (In thousands, except share and per share amounts) 3. Store Acquisitions, continued: 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. On February 18, 2000, the Company signed a letter of intent with Fleming Companies Inc. for the purchase of four Baker's Supermarkets, including one store which is under construction. Consummation of the transaction, which is expected during the second quarter of 2000, is subject to, among other things, the execution of a definitive purchase agreement, completion of due diligence, and certain customary closing conditions. The financing for this acquisition will be accomplished through the utilization of the Company's Revolving Facility. 4. Asset Impairment: During 1999, the Company made the decision to dispose of a previously closed store and related assets. The Company decided to sell these assets rather than continue the previous plan of leasing the assets. The carrying value of the assets held for sale was reduced to a value of $385, based on current estimates of selling value less costs to dispose. The resulting adjustment of $925 was recorded. Subsequent to year-end, the assets were sold for an amount which approximated the then carrying value. 5. Long-Term Debt: Long-term debt at year-end consists of:
January 1, January 2, 2000 1999 ------------ ------------ 10% Notes due 2003 (the "Notes") $ 60,000 $ 60,000 Term Loan 5,833 7,500 Revolving Credit Loans 23,194 17,887 AWG Loans 8,412 -- Note Payable 147 193 ------------ ------------ 97,586 85,580 Less current portion 2,918 1,728 ------------ ------------ Long-term debt due after one year $ 94,668 $ 83,852 ============ ============
F-14 HOMELAND HOLDING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued (In thousands, except share and per share amounts) 5. Long-Term Debt, continued: The Notes bear an interest rate of 10%, which is payable semi-annually each February 1 and August 1. The Notes are uncollateralized and will mature on August 1, 2003. The Indenture relating to the Notes has certain customary restrictions on consolidations and mergers, indebtedness, issuance of preferred stocks, asset sales and payment of dividends. The Loan Agreement, as amended, consists of a $37,000 revolving facility for working capital and letters of credit (the "Revolving Facility"), a $10,000 term loan (the "Term Loan") and an additional term loan of $5,000 for acquisitions ("Acquisition Term Loan"). The Revolving Facility permits the Company to borrow up to the lesser of $37,000 or the applicable borrowing base. As of January 1, 2000, there were no borrowings outstanding under the Acquisition Term Loan facility. The interest rate, payable quarterly, under the Loan Agreement is based on the Prime Rate, as defined, plus a percentage that 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 the London Interbank Offered Rate. At January 1, 2000, the interest rate on borrowings on the Revolving Facility was 8.73% (weighted average) and the Term Loan was 8.87%. The Revolving Facility provides for certain mandatory prepayments based on occurrence of certain defined and specified transactions. The Term Loan requires quarterly principal payments of $417 and will mature, along with the Revolving Facility, on August 2, 2002. The obligations of the Company under the Loan Agreement are collateralized by liens on, and a security interest in, substantially all of the assets of Homeland and are guaranteed by Holding. The Loan Agreement, among other things, requires a maintenance of EBITDA, consolidated fixed charge ratio, debt-to-EBITDA ratio, current ratio, excess cash flow paydown, each as defined, and limits the Company's capital expenditures, incurrence of additional debt, consolidation and mergers, acquisitions and payments of dividends. The obligations of the Company as it relates to AWG Loans are secured by liens on, and security interest in, the fixtures and equipment associated with the stores acquired in 1999, as referenced in Note 3. Each of the AWG Loans is a seven-year note, which is amortized weekly, and has interest rates associated with it equal to the prime rate plus 1%. At January 1, 2000, the interest rate was 9.50%. F-15 HOMELAND HOLDING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued (In thousands, except share and per share amounts) 5. Long-Term Debt, continued: At January 1, 2000, the aggregate annual debt maturities were as follows: 2000 $ 2,918 2001 2,907 2002 27,042 2003 61,420 2004 1,535 Thereafter 1,764 ------- $97,586 =======
The Company has outstanding at January 1, 2000, $912 in letters of credit which are not reflected in the accompanying financial statements. The letters of credit are issued under the credit agreements and the Company paid associated fees of $12, $43, and $146 in 1999, 1998 and 1997, respectively. 6. Stockholders' Equity: At January 1, 2000, the Company has warrants outstanding to purchase 263,158 shares of common stock. Each warrant entitles the holder to purchase one share of common stock at an exercise price of $11.85 at any time up to August 2, 200l. 7. Fair Value of Financial Instruments: The carrying amounts of cash and cash equivalents, receivables, AWG patronage refund certificates, accounts payable and accrued expenses and other liabilities are reasonable estimates of their fair values. Based on borrowing rates currently available to the Company for borrowings with similar terms and maturities, the Company believes the carrying amount of borrowings under the Loan Agreement and the AWG Loans approximate fair value. The fair value of publicly-traded debt is valued based on quoted market values. At January 1, 2000, the carrying amount and the fair value of the Notes were $60,000 and $48,330, respectively. F-16 HOMELAND HOLDING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued (In thousands, except share and per share amounts) 8. Income Taxes: The components of the income tax provision for 1999, 1998 and 1997 were as follows:
52 Weeks 52 Weeks 53 Weeks Ended Ended Ended January 1, 2000 January 2, 1999 January 3, 1998 --------------- --------------- --------------- Federal and State: Current - AMT $ (137) $ (176) $ (100) Deferred (1,451) (1,699) (1,589) ------------ ------------ ------------ Total income tax provision $ (1,588) $ (1,875) $ (1,689) ============ ============ ============
A reconciliation of the income tax benefit provision at the statutory Federal income tax rate to the Company's effective tax rate is as follows:
52 Weeks 52 Weeks 53 Weeks Ended Ended Ended January 1, 2000 January 2, 1999 January 3, 1998 --------------- --------------- --------------- Federal income tax benefit at statutory rate $ 947 $ 3,051 $ 3,134 Amortization of intangibles (2,412) (4,785) (5,084) Change in valuation allowance (123) (141) 261 ------------ ------------ ------------ Total income tax provision $ (1,588) $ (1,875) $ (1,689) ============ ============ ============
F-17 HOMELAND HOLDING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued (In thousands, except share and per share amounts) 8. Income Taxes, continued: The components of deferred tax assets and deferred tax liabilities are as follows:
January 1, January 2, 2000 1999 ------------- ------------- Current assets (liabilities): Allowance for uncollectible receivables $ 517 $ 340 Prepaid pension (224) (347) Other, net 22 19 ------------- ------------- Net current deferred tax assets 315 12 ------------- ------------- Noncurrent assets (liabilities): Property, plant and equipment 2,221 1,402 Employee compensation and benefits 285 262 Self-insurance reserves 606 574 Net operating loss carryforwards 11,210 12,668 AMT credit carryforwards 963 826 Capital leases (71) 5 Other, net 627 (177) ------------- ------------- Net noncurrent deferred tax assets 15,841 15,560 ------------- ------------- Total net deferred tax assets 16,156 15,572 Valuation allowance (16,156) (15,572) ------------- ------------- Net deferred tax assets $ -- $ -- ============= =============
Due to the uncertainty of realizing the future tax benefits, a full valuation allowance was deemed necessary to entirely offset the net deferred tax assets as of January 1, 2000, and January 2, 1999. If the Company's current trend toward profitability continues, then net deferred tax assets of up to $16.2 million could be recognized. At January 1, 2000, the Company had the following operating loss and tax credit carryforwards available for tax purposes: F-18 HOMELAND HOLDING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued (In thousands, except share and per share amounts) 8. Income Taxes, continued:
Expiration Amount Dates -------- ----------- Federal regular tax net operating loss carryforwards $ 29,499 2002-2010 Federal AMT credit carryforwards against regular tax $ 963 indefinite
The net operating loss carryforwards are subject to utilization limitations due to ownership changes. The net operating loss carryforwards may be utilized to offset future taxable income as follows: $5,147 in 2000, $3,251 in each of years 2001 through 2007 and $1,595 in 2008. Loss carryforwards not utilized in any year that they are available may be carried over and utilized in subsequent years, subject to their expiration provisions. In accordance with SOP 90-7, the tax benefit realized from utilizing the pre-reorganization net operating loss carryforwards is recorded first as a reduction of the reorganization value in excess of amounts allocable to identifiable assets, then as a reduction of noncurrent intangible assets existing at the reorganization date, and finally as an increase to stockholders' equity rather than realized as a benefit in the statement of operations. The Company recorded $1,451 and $1,699 of reductions to reorganization value and/or intangible assets in 1999 and 1998, respectively. 9. Incentive Compensation Plans: The Company has bonus arrangements for store management and other key management personnel. During 1999, 1998, and 1997, approximately $1,760, $1,480 and $981, respectively, were charged to costs and expenses for such bonuses. In December 1996, the Board of Directors of the Company adopted the Homeland Holding Corporation 1996 Stock Option Plan (the "Stock Option Plan"). In 1997, the Company established the 1997 Non-Employee Directors Stock Option Plan (the "Directors Stock Option Plan"). The Company applies APB Opinion No. 25, "Accounting for Stock Issued to Employees" and related Interpretations in accounting for these plans. SFAS No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123") was issued by the FASB in F-19 HOMELAND HOLDING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued (In thousands, except share and per share amounts) 9. Incentive Compensation Plans, continued: 1995 and, if fully adopted, changes the methods for recognition of expense on plans similar to the Company's Adoption of SFAS 123 is optional; however, pro forma disclosures as if the Company adopted the cost recognition requirements under SFAS 123 in 1999, 1998 and 1997 are presented below. The Stock Option Plan and the Directors Stock Option Plan, to be administered by the Board of Directors (the "Board"), or a committee of the Board (the "Committee"), provides for the granting of options to purchase up to an aggregate of 432,222 and 200,000 shares of Common Stock, respectively. Options granted under the plans must be "non-qualified options." The option price of each option is determined by the Board or the Committee and it must be not less than the fair market value at the date of grant. Unless the Board or the Committee otherwise determines, options must become exercisable ratably over a five-year period or immediately in the event of a "change of control" as defined in each of the plans. Each option must be evidenced by a written agreement and must expire and terminate on the earliest of: (a) ten years from the date the option is granted; (b) termination for cause; or (c) three months after termination for other than cause. Options granted under the Company's stock option plans have exercise prices ranging from $3.00 to $7.63 per share and have a weighted average remaining contractual life of 8.5 years. A summary of the status of the Company's outstanding stock options as of January 1, 2000, January 2, 1999, and January 3, 1998, and changes during the years ended on those dates is as follows:
1999 1998 1997 ---------------------- ----------------------- ------------------------ Wgtd. Avg. Wgtd.Avg. Wgtd. Avg. Shares Exer. Price Shares Exer. Price Shares Exer. Price --------- ----------- --------- ----------- --------- ------------ Outstanding as of beginning of year 429,000 $ 6.09 198,500 $ 7.48 197,500 $ 8.00 Granted 120,500 3.01 319,000 5.64 136,000 7.24 Exercised -- -- 13,200 6.50 -- -- Forfeited 7,500 7.63 75,300 7.80 135,000 8.00 --------- --------- --------- Outstanding at end of year 542,009 5.38 429,000 6.09 198,500 7.48 ========= ========= =========
F-20 HOMELAND HOLDING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued (In thousands, except share and per share amounts) 9. Incentive Compensation Plans, continued: Stock options outstanding and exercisable on January 1, 2000 are as follows:
Range of exercise Weighted average exercise Weighted average remaining prices per share Shares under option price per share contractual life in years ----------------- ------------------- ------------------------- -------------------------- Outstanding: $3.00 - $3.63 200,500 $ 3.22 9.1 4.75 - 7.63 341,500 6.65 8.1 ----------------- ------- ------ ---- $3.00 - $7.63 542,000 $ 5.38 8.5 ----------------- ------- ------ ---- Exercisable: $3.00 - $3.63 46,000 $ 3.19 -- 4.75 - 7.63 168,500 7.09 -- ----------------- ------- ------ ---- $3.00 - $7.63 214,500 $ 6.26 -- ----------------- ------- ------ ----
The weighted average fair value of options granted during 1999, 1998 and 1997 was $1.46, $2.83 and $3.53, respectively. No compensation was charged against income in 1999, 1998 and 1997. The fair value of the options granted was estimated on the date of grant using the Black-Scholes option-pricing model with the following assumptions used:
1999 1998 1997 ------- ------- ------- Expected dividend yield 0% 0% 0% Expected stock price volatility 40% 37% 39% Weighted average risk-free interest rate 5.8% 5.3% 6.4% Weighted average expected life of options 6 years 6 years 8 years
Had compensation cost of the Company's option plans been determined using the fair value at the grant date of awards consistent with the method of SFAS 123, the Company's net loss and F-21 HOMELAND HOLDING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued (In thousands, except share and per share amounts) 9. Incentive Compensation Plans, continued: net loss per common share for the Successor Company would have been reduced to the pro forma amounts indicated in the table below:
1999 1998 1997 -------- --------- --------- Net loss - as reported $ (4,294) $ (10,591) $ (10,644) Net loss - pro forma $ (4,466) $ (10,722) $ (10,846) Basic and diluted EPS - as reported $ (0.87) $ (2.18) $ (2.23) Basic and diluted EPS - pro forma $ (0.91) $ (2.21) $ (2.27)
No options or warrants outstanding at January 1, 2000, January 2, 1999, and January 3, 1998, were included in the computation of diluted earnings per share because the effect would be antidilutive to applicable periods. Pursuant to the terms of the Union Agreements, the Company established an employee stock bonus plan for the benefit of the unionized employees (the "Stock Bonus Plan"). The Stock Bonus Plan consists of three separate elements: (a) the issuance of 58,025 shares of Common Stock each plan year of the three year period ended July 31, 1999; (b) up to 58,025 shares of Common Stock may be purchased by the plan participants during each plan year of the three year period ending July 31, 2000 (the "Stock Purchase") and (c) the granting of 58,025 shares of Common Stock for each plan year of the three year period ended July 31, 1999 upon the Company's achievement of certain escalating EBITDA-based performance goals. The purchase price of the shares under the Stock Purchase element shall be equal to their appraised value or at fair value if the shares are readily tradable on a securities market. For each share of Common Stock purchased by a participant under the Stock Purchase element, the Company will match 33 1/3% of such purchase in the form of stock. The Stock Bonus Plan does not fall under the provisions of SFAS 123. 10. Retirement Plans: Effective January 1, 1988, the Company adopted a non-contributory, defined benefit retirement plan for all executive and administrative personnel. Benefits are based on length of service and career average pay with the Company. The Company's funding policy is to contribute an amount equal to or greater than the minimum funding requirement of the F-22 HOMELAND HOLDING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued (In thousands, except share and per share amounts) Employee Retirement Income Security Act of 1974, but not in excess of the maximum deductible limit. Plan assets were invested in mutual funds during 1999, 1998 and 1997. 10. Retirement Plans, continued: Information regarding the plan follows:
1999 1998 ------------ ------------ CHANGE IN BENEFIT OBLIGATION: Benefit obligation at beginning of year $ 11,432 $ 9,911 Service cost 562 514 Interest cost 792 725 Actuarial (gain) loss (1,980) 513 Benefits paid (278) (231) ------------ ------------ Benefit obligation at end of year $ 10,528 $ 11,432 ============ ============ CHANGE IN PLAN ASSETS: Fair value of plan assets at beginning of year $ 10,692 $ 9,673 Actual return on plan assets 820 1,075 Employer contribution -- 175 Benefits paid (278) (231) ------------ ------------ Fair value of plan assets at end of year $ 11,234 $ 10,692 ============ ============ RECONCILIATION OF FUNDED STATUS: Funded status $ 707 $ (739) Unrecognized net actuarial (gain) loss (66) 1,793 Unrecognized prior service cost (51) (62) ------------ ------------ Prepaid benefit cost $ 590 $ 992 ============ ============ WEIGHTED-AVERAGE ASSUMPTIONS AS OF END OF YEAR: Discount rate 7.75% 6.75% Expected return on plan assets 9.00% 9.00% Rate of compensation increase Before Age 35 5.50% 5.50% Ages 35 - 49 4.50% 4.50% After Age 49 3.50% 3.50% COMPONENTS OF NET PERIODIC PENSION COST: 1999 1998 1997 ------------ ------------ ------------ Service Cost $ 562 $ 514 $ 449 Interest Cost 792 725 630 Expected return on plan assets (953) (868) (748) Amortization of prior service cost (11) (11) (11) Recognized net actuarial loss 11 46 7 ------------ ------------ ------------ Net periodic pension cost $ 401 $ 406 $ 327 ============ ============ ============
F-23 HOMELAND HOLDING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued (In thousands, except share and per share amounts) 10. Retirement Plans, continued: The Company also contributes to various union-sponsored, multi-employer defined benefit plans in accordance with collective bargaining agreements. The Company could, under certain circumstances, be liable for the Company's unfunded vested benefits or other costs of these multi-employer plans. The allocation to participating employers of the actuarial present value of vested and nonvested accumulated benefits in multi-employer plans as well as net assets available for benefits is not available and, accordingly, is not presented. The costs of these plans for 1999, 1998, and 1997, were $1,271, $1,235 and $1,188, respectively. Effective January 1, 1988, the Company adopted a defined contribution plan covering substantially all non-union employees of the Company. Participants may contribute from 1% to 12% of their pre-tax compensation. The plan allows for a discretionary Company matching contribution formula based on the Company's operating results. The Company did not make any contributions to this plan in 1999, 1998 or 1997. 11. Leases: The Company leases 65 of its retail store locations under noncancellable agreements, which expire at various times between 2000 and 2030. These leases, which include both capital leases and operating leases, generally are subject to six five-year renewal options. Most leases also require the payment of taxes, insurance and maintenance costs and many of the leases covering retail store properties provide for additional contingent rentals based on sales in excess of certain stipulated amounts. Leased assets under capital leases consists of the following:
January 1, January 2, 2000 1999 ------------ ------------ Buildings $ 2,554 $ 2,706 Equipment 3,169 3,174 Beneficial interest in capital leases 3,014 3,173 ------------ ------------ 8,737 9,053 Less accumulated amortization 4,163 3,204 ------------ ------------ Net leased assets $ 4,574 $ 5,849 ============ ============
F-24 HOMELAND HOLDING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued (In thousands, except share and per share amounts) 11. Leases, continued: Future minimum lease payments under capital leases and noncancellable operating leases as of January 1, 2000, are as follows:
Capital Operating Fiscal Year Leases Leases ----------- ------------ ------------ 2000 $ 707 $ 8,164 2001 276 7,128 2002 182 5,687 2003 182 5,087 2004 182 4,475 Thereafter 1,107 21,385 ------------ ------------ Total minimum obligations 2,636 $ 51,926 ============ Less estimated interest 938 ------------ Present value of net minimum obligations 1,698 Less current portion 501 ------------ Long-term obligations under capital leases $ 1,197 ============
Rent expense for 1999, 1998 and 1997 is as follows:
1999 1998 1997 ------- ------- ------- Minimum rents $ 7,200 $ 6,680 $ 6,067 Contingent rents 86 115 105 ------- ------- ------- $ 7,286 $ 6,795 $ 6,172 ======= ======= =======
12. Commitments and Contingencies: In 1995, the Company and AWG entered into a seven-year supply agreement (the "Supply Agreement"), whereby the Company became a retail member of the AWG cooperative and AWG became the Company's primary supplier (see Note 2 - Concentrations of credit and business risk). The terms of the Supply Agreement allow the Company to purchase F-25 HOMELAND HOLDING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued (In thousands, except share and per share amounts) 12. Commitments and Contingencies, continued: products at the lowest prices and best terms available to AWG members and also entitle the Company to participate in its store cost savings programs and receive member rebates and refunds on purchases. In addition, the Supply Agreement includes certain Volume Protection Rights, as defined therein. The Company has entered into employment contracts with certain key executives providing for the payment of minimum salary and bonus amounts in addition to certain other benefits in the event of termination of the executives or change of control of the Company. The Company is party to various lawsuits arising from the 1996 Chapter 11 proceedings and also in the normal course of business. Management believes that the ultimate outcome of these matters will not have a material effect on the Company's consolidated financial position, results of operations and cash flows. 13. Fourth Quarter Items: In the fourth quarter of 1999, the Company received a return of net premiums totaling $1,332 related to the final settlement of pre-bankruptcy workers compensation claims. Also, the Company increased its reserves for doubtful accounts by approximately $600 related to the uncertainty of collection of accounts receivable from a vendor. Each of these amounts impacted selling and administrative expenses for the quarter. 14. Subsequent Event: On March 9, 2000, the Company received a letter from the U.S. Department of Labor alleging violations, applicable to a limited number of the Company's employees, of certain wage laws. The Company has engaged legal counsel and is currently investigating the allegations. At this time, it is not possible to reasonably estimate the amount, if any, of the financial impact. F-26 HOMELAND HOLDING CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In thousands, except share and per share amounts) ASSETS
(Unaudited) June 16, December 30, 2001 2000 ------------ ------------ Current assets: Cash and cash equivalents $ 7,742 $ 10,198 Receivables, net of allowance for uncollectible accounts of $273 and $331 9,980 14,079 Inventories 50,123 54,707 Prepaid expenses and other current assets 1,169 1,610 ------------ ------------ Total current assets 69,014 80,594 Property, plant and equipment: Land and land improvements 8,797 8,797 Buildings 21,716 21,691 Fixtures and equipment 43,519 43,305 Leasehold improvements 20,654 21,202 Software 7,574 7,760 Leased assets under capital leases 9,402 9,886 Construction in progress 337 165 ------------ ------------ 111,999 112,806 Less, accumulated depreciation and amortization 44,382 41,036 ------------ ------------ Net property, plant and equipment 67,617 71,770 Other assets and deferred charges 26,179 27,394 ------------ ------------ Total assets $ 162,810 $ 179,758 ============ ============
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 16, December 30, 2001 2000 ------------ ------------ Current liabilities: Accounts payable - trade 18,653 28,869 Salaries and wages 1,864 2,107 Taxes 4,632 3,606 Accrued interest payable 2,677 2,819 Other current liabilities 6,494 7,013 Long-term obligations in default classified as current 105,775 -- Current portion of long-term debt -- 3,860 Current portion of obligations under capital leases 564 564 ------------ ------------ Total current liabilities 140,659 48,838 Long-term obligations: Long-term debt -- 104,592 Obligations under capital leases 1,723 1,996 Other noncurrent liabilities 2,077 3,235 ------------ ------------ Total long-term obligations 3,800 109,823 Stockholders' equity: Common stock $0.01 par value, authorized - 7,500,000 shares, issued 4,925,871 shares at June 16, 2001, and December 30, 2000, respectively 49 49 Additional paid-in capital 56,274 56,274 Accumulated deficit (37,284) (34,538) Accumulated other comprehensive income (688) (688) ------------ ------------ Total stockholders' equity 18,351 21,097 ------------ ------------ Total liabilities and stockholders' equity $ 162,810 $ 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 ended 24 weeks ended June 16, June 17, June 16, June 17, 2001 2000 2001 2000 ----------- ----------- ----------- ----------- Sales, net $ 123,409 $ 142,620 $ 248,942 $ 279,227 Cost of sales 93,617 109,672 188,303 214,271 ----------- ----------- ----------- ----------- Gross profit 29,792 32,948 60,639 64,956 Selling and administrative expenses 28,719 30,556 57,045 59,753 Asset impairment 1,702 -- 1,702 -- ----------- ----------- ----------- ----------- Operating profit (629) 2,392 1,892 5,203 Loss on disposal of assets (15) (56) (14) (29) Interest income 197 172 399 344 Interest expense (2,421) (2,455) (5,023) (4,797) ----------- ----------- ----------- ----------- Income (loss) before income taxes (2,868) 53 (2,746) 721 Income tax provision -- (20) -- (274) ----------- ----------- ----------- ----------- Net income (loss) $ (2,868) $ 33 $ (2,746) $ 447 =========== =========== =========== =========== Net income (loss) per share: Basic $ (0.58) $ 0.01 $ (0.56) $ 0.09 =========== =========== =========== =========== Diluted $ (0.58) $ 0.01 $ (0.56) $ 0.09 =========== =========== =========== =========== Weighted average shares outstanding: Basic 4,925,871 4,922,163 4,925,871 4,920,760 =========== =========== =========== =========== Diluted 4,925,871 4,964,288 4,925,871 4,963,231 =========== =========== =========== ===========
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 16, June 17, June 16, June 17, 2001 2000 2001 2000 ------- ------- -------- ------- Cash flows from operating activities: Net income (loss) $(2,868) $ 33 $ (2,746) $ 447 Adjustments to reconcile net loss to net cash from operating activities: Depreciation and amortization 2,462 2,547 4,948 5,068 Amortization of beneficial interest in operating leases 27 28 55 56 Amortization of goodwill 146 192 321 318 Amortization of financing costs 39 14 55 27 Loss on disposal of assets 15 56 14 29 Asset impairment 1,702 -- 1,702 -- Deferred income taxes -- (10) -- 214 Change in assets and liabilities: (Increase) decrease in receivables (224) (375) 4,099 4,623 Decrease in inventories 196 837 4,584 1,037 (Increase) decrease in prepaid expenses and other current assets 937 987 441 267 Increase in other assets and deferred charges (575) (1,096) (1,103) (1,138) Increase (decrease) in accounts payable-trade (2,445) (2,684) (10,216) (5,812) Increase (decrease) in salaries and wages (52) 339 (243) (1,110) Increase in taxes 1,382 676 1,026 864 Increase (decrease)in accrued interest payable 1,566 1,369 (142) (171) Increase (decrease) in other current liabilities 164 617 (519) 642 Decrease in other noncurrent liabilities (183) (278) (1,152) (748) ------- ------- -------- ------- Total adjustments 5,157 3,219 3,870 4,166 ------- ------- -------- ------- Net cash provided by operating activities 2,289 3,252 1,124 4,613 ------- ------- -------- -------
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 16, June 17, June 16, June 17, 2001 2000 2001 2000 ---------- ---------- ---------- ---------- Cash flows from investing activities: Capital expenditures (464) (564) (652) (1,563) Store acquisitions -- (3,518) -- (3,663) Cash received from sale of assets 18 47 22 473 ---------- ---------- ---------- ---------- Net cash used in investing activities (446) (4,035) (630) (4,753) ---------- ---------- ---------- ---------- Cash flows from financing activities: Borrowings under term loan -- 5,000 -- 5,000 Payments under term loan (595) (417) (1,190) (829) Borrowings under revolving credit loans 20,809 32,836 50,856 77,916 Payments under revolving credit loans (20,680) (33,787) (51,686) (77,881) Payment on tax notes (13) (12) (26) (24) Principal payments under notes payable (325) (534) (631) (3,592) Principal payments under capital lease obligations (138) (109) (273) (247) ---------- ---------- ---------- ---------- Net cash provided by (used in) financing activities (942) 2,977 (2,950) 343 ---------- ---------- ---------- ---------- Net increase (decrease) in cash and cash equivalents 901 2,194 (2,456) 203 Cash and cash equivalents at beginning of period 6,841 8,246 10,198 10,237 ---------- ---------- ---------- ---------- Cash and cash equivalents at end of period $ 7,742 $ 10,440 $ 7,742 $ 10,440 ========== ========== ========== ========== Supplemental information: Cash paid during the period for interest $ 574 $ 979 $ 4,547 $ 4,655 ========== ========== ========== ========== 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. Subsequent Events On August 1, 2001, Holding and Homeland filed voluntary petitions under Chapter 11 of the United States Bankruptcy Code ("Bankruptcy Code") with the United States Bankruptcy Court for the Western District of Oklahoma ("Bankruptcy Court"). The cases filed by Holding and Homeland are in re Homeland Holding Corporation, Debtor, Case No. 01-17869TS, and in re Homeland Stores, Inc., Debtor, Case No. 01-17870TS, respectively. Holding and Homeland continue in possession of their properties and the management of their businesses as debtors-in-possession pursuant to Section 1107 and Section 1108 of the Bankruptcy Code. Holding and Homeland continue to be managed by their respective directors and officers, subject in each case to the supervision of the Bankruptcy Court. Under the Indenture dated as of August 2, 1996 ("Indenture"), Homeland was required to make an interest payment on its 10% Senior Subordinated Notes Due 2003 ("Notes") of $3.0 million on August 1, 2001. Homeland failed to make the required interest payment on August 1, 2001, which constitutes a default under the Indenture. As a result of the default under the Indenture and the subsequent cross-defaults under the Loan Agreement (as defined hereinafter) and other obligations, the corresponding balances have been classified as current liabilities. Additionally, the Company has recorded an asset impairment charge of $1.7 million related to the portion of goodwill which the Company believes will not be recoverable. Finally, on August 3, 2001, the Company's union employees, primarily represented by the United Food and Commercial Workers of North America, ratified a new three-year contract. 6 SCHEDULE 3.4(B) TO CREDIT AGREEMENT PRO FORMA The pro forma balance sheets of the Borrowers giving effect to the contemplated transactions are attached to this Schedule 3.4(b). Homeland Stores, Inc. Consolidated Balance Sheet (in 000's) As of June 16, 2001
(Unaudited) Pro Forma As of Related As of June 16, Transaction June 16, 2001 Adjustments 2001 ----------- ----------- --------- Current assets: Cash and cash equivalents 7,142 1,018(a) 8,760 Receivables 9,980 0 9,980 Inventories 50,123 0 50,123 Prepaid expenses 1,169 0 1,169 -------- ------- -------- Total Current Assets 69,014 1,018 70,032 Property, plant & equipment: Land and land improvements 8,797 0 8,797 Buildings 21,716 0 21,716 Fixtures and equipment 43,519 0 43,519 Lease hold improvements 20,654 0 20,654 Software 7,574 0 7,574 Leased assets under capital leases 9,402 0 9,402 Construction in progress 337 0 337 -------- ------- -------- Total property, plant & equipment 111,999 0 111,999 Less accumulated depreciation (44,382) 0 (44,382) -------- ------- -------- Net property, plant and equipment 67,617 0 67,617 Other Assets 26,179 0 26,179 -------- ------- -------- Total Assets 162,810 1,018 163,828 ======== ======= ======== Current liabilities: Trade payables 18,653 0 18,653 Salaries and wages 1,864 0 1,864 Taxes 4,632 0 4,632 Accrued interest payable 2,671 125(b) 2,802 Other current liabilities 6,494 2,779(c) 9,273 Long-term obligations in default 105,775 (45,704)(d) 60,071 Current portion of long-term debt 0 46,722(e) 46,722 Current portion of capital leases 564 0 564 -------- ------- -------- Total current liabilities 140,659 3,922 144,581 Long-term obligations: Long-term debt 0 0 0 Capital leases 1,723 0 1,723 Other noncurrent liabilities 2,077 0 2,077 -------- ------- -------- Total long-term obligations 3,800 0 3,800 Stockholders Equity: Common stock 49 0 49 Additional paid-in capital 56,274 0 56,274 Accumulated deficit (37,984) (2,904)(f) (40,188) -------- ------- -------- Accumulated other comprehensive income (688) 0 (688) Total stockholders equity 18,351 (2,904) 15,447 -------- ------- -------- Total liabilities and stockholders equity 162,810 1,018 163,828 ======== ======= ========
(a) Estimated increase in cash as a result of refinancing. (b) Interest payable to National Bank of Canada per payoff letter. (c) Estimated unpaid transaction fees as of 08/15/01. (d) Long-term debt as of 06/16/01 to be refinanced: NBC Revolver $ 28,415 NBC Term Loan 7,624 AWG Term Loans 9,665 -------- Total 245,704 (e) Refinanced long-term debt: AWG Term Loan $ 16,500 AWG Restated Loa 9,437 Supply Agreement 3,100 Fleet Revolver 7,685 Back Bay 10,000 -------- Total 546 722 (f) Impact of interest expense (b) and transaction fees (c). SCHEDULE 3.4(C) TO CREDIT AGREEMENT PROJECTIONS The projections of the Borrowers are attached to this Schedule 3.4(c). CHAPTER 11 MODEL CONFIDENTIAL - -------------------------------------------------------------------------------- TRANSACTION OVERVIEW - CHAPTER 11 FILING PAGE 1 (Dollars in Thousands)
TRANSACTION DESCRIPTION SOURCES USES Revolver (Tranche A) $ 15,312 Revolver (Tranche A) $ 30,975 Tranche B $ 10,000 Senior term debt $ 7,029 Subordinated debt $ 60,000 Subordinated debt $ 60,000 AWG Debt $ 9,361 AWG Debt $ 9,361 Capital Leases $ 2,195 Capital Leases $ 2,195 Critical Vendor Payment $ 0 Critical vendor payment $ 5,700 Tranche W 16,500 Advance on Supply Agreement 3,100 Transaction Expenses $ 1,208 -------- -------- Total $116,468 Total $116,468 ======== ========
DEBT TERMS Prime rate 6.75% Principal Amortization amort. Rate Term (yrs) Period (yrs) starts yr ------- ---------- ------------ --------- Revolver (Tranche A) 7.75% 2.0 -- -- Tranche B 13.50% 1.5 2 1 AWG Debt 7.75% 5 1 Tranche W 8.75% 1.5 7 1
Advance REAL ESTATE PORTION OF REVOLVER/TRANCHE B Assumption Amount rate Available ---------- ------ ------- --------- Real Estate FMV 100.0% $20,000 40.0% $ 8,000 Leaseholds-value appraised $ 9,300 30.0% $ 2,790 TRANCHE W COLLATERAL Store Equipment - Orderly liquidation value $ 5,000 85.0% $ 4,250
Advance Effective REVOLVER LINE Amount Eligible rate Rate Available -------- -------- -------- --------- --------- Inventory Grocery $ 28,630 57.1% 85.0% 48.5% $ 13,896 Beer & Wine $ 222 0.0% 85.0% 0.0% $ 0 Produce $ 798 0.0% 85.0% 0.0% $ 0 Meat $ 2,788 0.0% 85.0% 0.0% $ 0 Deli $ 598 0.0% 85.0% 0.0% $ 0 Bakery $ 533 0.0% 85.0% 0.0% $ 0 Pharmacy $ 6,049 57.1% 85.0% 48.5% $ 2,936 Health & Beauty $ 13,213 57.1% 85.0% 48.5% $ 6,413 Consignment $ (159) 0.0% 85.0% 0.0% $ 0 Reserve $ (312) 0.0% 85.0% 0.0% $ 0 -------- -------- -------- -------- -------- Total $ 52,360 44.4% $ 23,245 Receivables Store charges $ 710 0.0% 65.0% 0.0% $ 0 Pharmacy $ 1,839 90.0% 65.0% 58.5% $ 959 Coupons $ 622 90.0% 65.0% 58.5% $ 364 AWG $ 4,434 0.0% 65.0% 0.0% $ 0 Retail trade $ 3,727 0.0% 65.0% 0.0% $ 0 Rents $ 5 0.0% 65.0% 0.0% $ 0 Other $ 655 0.0% 65.0% 0.0% $ 0 Allow doubtful accounts $ (277) 0.0% 65.0% 0.0% $ 0 -------- -------- Total $ 11,515 $ 1,323 -------- -------- Total $107,593 22.8% $ 24,568 ======== ========
MCDONALD INVESTMENTS INC. RESTRUCTURING GROUP CHAPTER 11 MODEL CONFIDENTIAL - -------------------------------------------------------------------------------- TRANSACTION FEES PAGE 2 (Dollars in Thousands)
TRANSACTION FEES Amount Fee % Fee ------ ----- ------- Tranche A 1.0% of the commitment, payable in full at closing 25,000 1.0% 250 $3,000 payable monthly in advance for the term of the commitment 72 Tranche B 3.5% of the Tranche B Facility at closing, and 3% on the 1st anniversary d 10,000 3.5% 350 $1,500 payable monthly in advance for the term of the commitment 36 Tranche W 16,500 0 Advance on Supply Agreement 3,100 0 McDonald Investments 1.5% of senior debt 41,500 1.5% 623 4.0% of subordinated debt 10,000 4.0% 400 less monthly fees received to date (200) Legal and other 500 ------- Total $ 2,031 =======
MCDONALD INVESTMENTS INC. RESTRUCTURING GROUP CHAPTER 11 MODEL CONFIDENTIAL - -------------------------------------------------------------------------------- OPENING BALANCE SHEET - CHAPTER 11 FILING PAGE 3 (Dollars in Thousands)
Period 8 ch.11 At 2001 Adjustments Sub-total Transaction Adjustments closing -------- ----------- --------- ----------- ----------- --------- Current Assets Cash and marketable securities $ 6,000 0 $ 6,000 $ 1,208 $ (1,208) $ 6,000 Accounts receivable (net) 11,516 11,516 11,516 Inventories 52,360 52,360 52,360 Prepaid expenses and other current assets 1,183 1,183 1,183 -------- ------- --------- --------- --------- --------- Total current assets 71,059 0 71,059 1,208 (1,208) 71,059 Property, plant and equipment 111,384 111,384 111,384 Less accumulated depreciation 45,031 45,031 45,031 -------- ------- --------- --------- --------- --------- Net property, plant & equipment 66,353 0 66,353 0 0 66,353 Other Assets Other 17,629 17,629 17,629 Transaction Expense 0 0 1,208 1,208 Goodwill/Reorg value in excess 9,722 9,722 9,722 -------- ------- --------- --------- --------- --------- Total other 27,351 0 27,351 0 $ 1,208 28,559 -------- ------- --------- --------- --------- --------- Total Assets $164,763 $ 0 $ 164,763 $ 1,208 $ 0 $ 165,971 ======== ======= ========= ========= ========= ========= Current liabilities Accounts payable 17,819 (3,848) 13,972 (4,800) 9,172 Accrued liabilities 5,285 0 6,285 6,285 Accrued bond interest 2,977 (2,977) 0 0 Other current liabilities 6,625 (5,725) 900 (900) 0 -------- ------- --------- --------- --------- --------- Total current liabilities 33,707 (12,550) 21,157 (5,700) 0 15,457 Other liabilities Other 2,017 (2,017) 0 0 Deferred taxes 0 0 0 -------- ------- --------- --------- --------- --------- Total other liabilities 2,017 0 0 Senior Debt Revolver(Tranche A) 30,975 0 30,975 (15,663) 15,312 AWG Debt 9,361 9,361 0 9,361 Tranche W 0 0 16,500 16,500 Advance on Supply Agreement 0 0 3,100 3,100 Tranche B 7,029 7,029 2,971 10,000 -------- ------- --------- --------- --------- --------- Total senior debt 47,365 0 47,365 6,908 0 54,273 Liabilities Subject to Compromise Accounts payable 0 3,838 3,848 3,848 Accrued liabilities 0 2,977 2,977 2,977 Other liabilities 0 7,742 7,742 7,742 Subordinated debt 60,000 60,000 0 60,000 Rejected Lease liability and occupancy 0 0 0 0 Capital Leases 2,195 2,195 0 2,195 -------- ------- --------- --------- --------- --------- Total liabilities subject to compromise 62,195 14,567 76,762 0 0 76,762 Total senior debt and liabilities subject to compromise 109,560 14,567 124,126 6,908 0 131,034 Shareholders' equity Common stock 49 49 49 Additional paid-in capital 56,274 56,274 56,274 Retained income (deficit) (36,844) 0 (36,844) (36,844) -------- ------- --------- --------- --------- --------- Total Shareholders' equity 19,479 0 19,479 0 0 19,479 -------- ------- --------- --------- --------- --------- Total liabilities & net worth $164,763 $ 0 $ 164,763 $ 1,208 $ 0 $ 165,971 ======== ======= ========= ========= ========= =========
MCDONALD INVESTMENTS INC. RESTRUCTURING GROUP CHAPTER 11 MODEL CONFIDENTIAL - -------------------------------------------------------------------------------- TRANSACTION OVERVIEW - EMERGENCE FROM CHAPTER 11 PAGE 4 (Dollars in Thousands) TRANSACTION DESCRIPTION Sources Revolver $15,731 Senior term debt $12,000 New Note/Equity $36,983 AWG Debt $ 7,858 Capital Leases $ 1,353 New notes (trade) $11,275 Tranche W $ 0 ------- Total $85,000 =======
Uses Pay off/refinance: Revolver(Tranche A) $ 0 Tranche B $10,231 Subordinated Debt $36,983 AWG Debt $ 7,658 Capital Leases $ 1,353 Other liabilities subject to compromise $11,275 Tranche W $16,500 Sub-total $84,000 Transaction Expenses $ 1,000 ------- Total $85,000 =======
RECOVERY FOR LIABILITIES SUBJECT TO COMPROMISE Reorganization Value $85,000 Cash Payment 0 New Notes (trade) 11,275 New Notes (bondholders) 15,000 Capital leases reinstated 1,353 New Equity Value $21,983 ------- Total Recovery $49,611 Approximate Claims $80,487 % Recovery 61.6%
DEBT TERMS
Prime rate 6.75% Principal Amortization amort. Rate Term (yrs) Period (yrs) starts yr ----- ------------ ------------ ------------ Revolver 7.75% 2 -- -- Senior term debt 7.75% 2 7 1 New Notes 10.00% 5 7 5 Tranch W 8.75% 5 1 1 Capital Leases 7.25% 1 1 1 New Notes (trade) 10.00% 5 7 5 Cash balances earn 4.00%
Net GOB Advance Effective REVOLVER LINE Amount Value rate Rate Available ------------ ------------ ------------ ------------ ------------ Eligible Inventory Grocery $ 17,774 57.1% 85.0% 48.5% $ 8,827 Health & Beauty $ 8,203 57.1% 85.0% 48.5% $ 3,981 Pharmaceutical $ 3,756 57.1% 85.0% 48.5% $ 1,823 Eligible Receivables Coupons $ 420 90.0% 65.0% 58.5% $ 246 Pharmaceutical Receivables $ 1,107 90.0% 65.0% 58.5% $ 647 Retail Trade $ 2,516 90.0% 65.0% 58.5% $ 1,472 ------------ ------------ Total $ 35,508 47.3% $ 16,796 ============ ============
MCDONALD INVESTMENTS INC. RESTRUCTURING GROUP CHAPTER 11 MODEL CONFIDENTIAL - -------------------------------------------------------------------------------- OPENING BALANCE SHEET - EMERGENCE FROM CHAPTER 11 PAGE 5 (Dollars in Thousands)
Write- Period 6 Cash ch. 11 down/cash At 2002 payment Adjustments Sub-total at close Transaction Adjustments Equity closing --------- --------- ----------- --------- --------- ----------- ----------- --------- -------- Current Assets Cash and marketable securities $ 6,172 0 0 $ 6,712 $ 0 $ 1,000 $ (1,000) $ 0 $ 6,712 Accounts receivable (net) 8,836 8,836 8,836 Inventories 32,506 32,506 32,506 Prepaid expenses and other current assets 718 718 718 --------- --------- --------- --------- --------- --------- --------- --------- -------- Total current assets 48,772 0 0 48,772 0 1,000 (1,000) 0 48,772 Property plant and equipment 74,839 74,839 (10,569) 64,270 Less accumulated depreciation 36,422 36,422 36,422 --------- --------- --------- --------- --------- --------- --------- --------- -------- Net property, plant and equipment 38,417 0 38,417 (10,569) 0 0 0 27,848 Other Assets Other 17,629 17,629 0 17,629 Transaction Expense 911 911 1,000 1,911 Intercompany accounts 0 0 0 0 Investment-Parent Company 0 0 0 Goodwill/Reorg value in excess 9,722 (9,722) 0 0 --------- --------- --------- --------- --------- --------- --------- --------- -------- Total other 28,262 (9,722) 18,540 0 0 1,000 0 19,540 --------- --------- --------- --------- --------- --------- --------- --------- -------- Total Assets $ 115,452 $ (9,722) $ 105,730 $ (10,569) $ 1,000 $ 0 $ 0 $ 96,161 ========= ========= ========= ========= ========= ========= ========= ========= ======== Current liabilities Accounts payable 6,996 0 6,996 0 6,996 Accrued liabilities 4,165 0 4,165 4,165 Other current liabilities 0 0 0 0 --------- --------- --------- --------- --------- --------- --------- --------- -------- Total current liabilities 11,161 0 0 1,161 0 0 0 0 11,161 Other liabilities Other 0 0 0 Deferred taxes 0 0 0 --------- --------- --------- --------- --------- --------- --------- --------- -------- Total other liabilities 0 0 0 0 Senior Debt Revolver (Tranche A) 0 0 0 15,731 15,731 AWG Debt 7,658 0 7,658 0 7,658 Tranche W 16,500 0 0 16,500 (16,500) 0 0 Tranche B/New Senior term debt 10,231 10,231 1,769 12,000 --------- --------- --------- --------- --------- --------- --------- --------- -------- Total senior debt 34,389 0 0 34,389 0 1,000 0 0 35,389 Liabilities Subject to Compromise Accounts payable 3,848 (1,476) 2,372 0 0 Accrued liabilities 2,977 (1,142) 1,835 0 0 Other current liabilities 7,742 (2,970) 4,772 0 0 Subordinated debt 60,000 (23,017) 36,983 0 36,983 (21,983) 15,000 Rejected Lease liability and occupancy 3,725 (1,429) 2,296 0 0 New Notes (trade) 0 0 0 11,275 11,275 Capital Leases 2,195 (842) 1,353 0 1,353 --------- --------- --------- --------- --------- --------- --------- --------- -------- Total liabilities subject to compromise 80,487 0 (30,876) 49,611 0 0 48,258 (21,983) 27,628 Total senior debt and liabilities subject to compromise 114,876 0 (30,876) 84,000 0 1,000 48,258 (21,983) 63,017 Shareholders' equity Common stock 49 49 (49) 0 21,983 21,983 Additional paid-in capital 56,274 56,274 (56,274) 0 0 0 Retained income (deficit) (66,908) 21,154 (45,754) 45,754 0 0 0 --------- --------- --------- --------- --------- --------- --------- --------- -------- Total Shareholders' equity (10,585) 27,154 10,569 (10,569) 0 0 21,983 21,983 --------- --------- --------- --------- --------- --------- --------- --------- -------- Total liabilities & net worth $ 115,452 $ (9,722) $ 105,730 $ (10,569) $ 1,000 $ 48,258 $ 0 $ 96,161 ========= ========= ========= ========= ========= ========= ========= ========= ========
MCDONALD INVESTMENTS INC. RESTRUCTURING GROUP CHAPTER 11 MODEL CONFIDENTIAL - -------------------------------------------------------------------------------- INCOME STATEMENT PAGE 6 (Dollars in Thousands
Number of Stores 86 78 78 78 78 78 78 ------- ------- ------- ------- ------- ------- ------- Actual Period ------------------------------------------------------------------------------- 1 2 3 4 5 6 7 ------- ------- ------- ------- ------- ------- ------- Net sales $44,971 $40,439 $40,123 $41,909 $40,289 $41,211 $42,199 % increase NA (10.1)% (0.8)% 4.5% (3.9)% 2.3% 2.4% Cost of sales 34,344 30,455 29,887 31,968 30,329 31,320 31,828 ------- ------- ------- ------- ------- ------- ------- Gross profit 10,627 9,984 10,236 9,941 9,960 9,891 10,371 % of net sales 23.6% 24.7% 25.5% 23.7% 24.7% 24.0% 24.6% SG&A expense 8,606 8,438 8,593 8,795 8,579 8,687 8,994 ------- ------- ------- ------- ------- ------- ------- EBITDAR 2,021 1,546 1,643 1,146 1,381 1,204 1,377 % of net sales 4.5% 3.8% 4.1% 2.7% 3.4% 2.9% 3.3% Chapter 11 Reorganization Costs 0 0 0 0 0 0 100 Store closing costs 0 0 0 0 0 0 0 Union severance 0 0 0 0 0 0 0 Management severance 0 0 0 0 0 0 0 Officer retention plan 0 0 0 0 0 0 0 Depreciation 859 933 897 874 893 890 836 ------- ------- ------- ------- ------- ------- ------- Earnings before interest and taxes 1,162 613 746 272 488 314 441 % of net sales 2.5% 1.5% 1.9% 0.6% 1.2% 0.8% 1.0% Interest expense (income) Interest expense 861 862 859 833 796 792 590 Interest (income) (67) (69) (66) (66) (65) (66) (66) ------- ------- ------- ------- ------- ------- ------- Total interest expense (income) 814 793 793 767 731 726 524 Loss (gain) on disposal of assets (1) 1 (1) 10 5 0 5 ------- ------- ------- ------- ------- ------- ------- Earnings before taxes and amortization 349 (181) (46) (505) (248) (412) (88) % of net sales 0.8% (0.4)% (0.1)% (1.2)% (0.6)% (1.0)% (0.2)% Deferred transaction costs 0 0 0 0 0 0 0 ------- ------- ------- ------- ------- ------- ------- Earnings before taxes & extraordinary items 349 (181) (46) (505) (248) (412) (88) % of net sales 0.8% (0.4)% (0.1)% (1.2)% (0.6)% (1.0)% (0.2)% Income taxes 0 0 0 0 0 0 0 ------- ------- ------- ------- ------- ------- ------- Income before extraordinary items 349 (181) (46) (505) (248) (412) (88) % of net sales 0.8% (0.4)% (0.1)% (1.2)% (0.6)% (1.0)% (0.2)% Extraordinary Items 0 0 0 0 0 0 0 ------- ------- ------- ------- ------- ------- ------- Net income 349 (181) (46) (505) (248) (412) (88) ======= ======= ======= ======= ======= ======= ======= % of net sales 0.8% (0.4)% (0.1)% (1.2)% (0.6)% (1.0)% (0.2)% Number of Stores 78 74 70 70 70 70 ------- ------- ------- ------- ------- ------- Actual Period Projected ------------------------------------------------------------------- ----------- 8 9 10 11 12 13 Fiscal Year ------- ------- ------- ------- ------- ------- ----------- Net sales $39,699 $39,322 $36,992 $37,672 $39,409 $42,359 $526,594 % increase (5.9)% (1.0)% (5.9)% 1.8% 4.6% 7.5% Cost of sales 29,920 29,703 27,813 28,317 29,849 31,909 397,673 ------- ------- ------- ------- ------- ------- -------- Gross profit 9,779 9,619 9,179 9,355 9,550 10,449 128,952 % of net sales 24.6% 24.5% 24.8% 24.8% 24.3% 24.7% 24.5% SG&A expense 8,789 8,879 8,103 7,929 8,261 8,637 111,290 ------- ------- ------- ------- ------- ------- -------- EBITDAR 990 740 1,076 1,426 1,299 1,813 17,662 % of net sales 2.5% 1.9% 2.9% 3.8% 3.3% 4.3% 3.4% Chapter 11 Reorganization Costs 200 1,000 300 300 300 300 2,500 Store closing costs 0 200 200 0 0 0 400 Union severance 89 89 0 0 0 0 177 Management severance 127 127 0 0 0 0 255 Officer retention plan 0 0 0 0 0 0 0 Depreciation 828 794 763 762 760 765 10,854 ------- ------- ------- ------- ------- ------- -------- Earnings before interest and taxes (254) (1,470) (187) 364 239 748 3,476 % of net sales (0.6)% (3.7)% (0.5)% 1.0% 0.6% 1.8% 0.7% Interest expense (income) Interest expense 295 396 389 399 401 395 7,888 Interest (income) (65) (69) (63) (63) (63) (63) (854) ------- ------- ------- ------- ------- ------- -------- Total interest expense (income) 227 327 326 336 338 332 7,034 Loss (gain) on disposal of assets 5 5 5 5 5 5 49 ------- ------- ------- ------- ------- ------- -------- Earnings before taxes and amortization (486) (1,802) (518) 23 (104) 411 (3,607) % of net sales (1.2)% (4.6)% (1.4)% 0.1% (0.3)% 1.0% Deferred transaction costs 0 19 19 19 19 19 93 ------- ------- ------- ------- ------- ------- -------- Earnings before taxes & extraordinary items (486) (1,821) (537) 5 (123) 392 (3,700) % of net sales (1.2)% (1.6)% (1.5)% 0.0% (0.3)% 0.9% (0.7)% Income taxes 0 0 0 0 0 0 0 ------- ------- ------- ------- ------- ------- -------- Income before extraordinary items (486) (1,821) (537) 5 (123) 392 (3,700) % of net sales (1.2)% (4.6)% (1.5)% 0.0% (0.3)% 0.9% (0.7)% Extraordinary Items 0 0 0 0 0 0 0 ------- ------- ------- ------- ------- ------- -------- Net income (486) (1,821) (537) 5 (123) 392 (3,700) ======= ======= ======= ======= ======= ======= ======== % of net sales (1.2)% (4.6)% (1.5)% 0.0% (0.3)% 0.9% (0.7)%
MCDONALD INVESTMENTS INC. RESTRUCTURING GROUP CHAPTER 11 MODEL CONFIDENTIAL - ------------------------------------------------------------------------------- INCOME STATEMENT PAGE 7 (Dollars in Thousands)
Number of Stores 70 56 56 56 44 44 44 ------- ------- ------- ------- ------- ------- ------- Projected 2002 Period ------------------------------------------------------------------------------- 1 2 3 4 5 6 7 ------- ------- ------- ------- ------- ------- ------- Net sales $38,523 $31,488 $32,017 $33,270 $26,083 $26,802 $26,859 %increase (9.1)% (18.3)% 1.7% 3.9% (21.6)% 2.8% 0.2% Cost of sales 29,401 23,723 24,069 25,392 19,471 20,312 20,081 ------- ------- ------- ------- ------- ------- ------- Gross profit 9,122 7,765 7,948 7,877 6,611 6,490 6,778 % of net sales 23.7% 24.7% 24.8% 23.7% 25.3% 24.2% 25.2% SG&A expense 7,801 6,407 6,290 6,528 5,199 5,338 5,538 ------- ------- ------- ------- ------- ------- ------- EBITDAR 1,321 1,358 1,657 1,349 1,412 1,152 1,240 % of net sales 3.4% 4.3% 5.2% 4.1% 5.4% 4.3% 4.8% Chapter 11 Reorganization Costs 200 200 200 200 200 200 0 Store closing costs 0 0 0 300 0 0 0 Union severance 310 0 0 266 0 0 0 Management severance 446 0 0 382 0 0 0 Officer retention plan 0 0 0 2,215 0 0 0 Depreciation 828 726 708 716 578 598 555 ------- ------- ------- ------- ------- ------- ------- Earnings before interest and taxes (462) 432 750 (2,730) 634 354 684 % of net sales (1.2)% 1.4% 2.3% (8.2)% 2.4% 1.3% 2.5% Interest expense (income) Interest expense 383 344 323 339 329 264 886 Interest (income) (66) (68) (69) (63) (63) (63) (63) ------- ------- ------- ------- ------- ------- ------- Total interest expense (income) 317 276 254 276 266 201 823 Loss (gain) on disposal of assets 0 0 0 0 0 0 0 ------- ------- ------- ------- ------- ------- ------- Earnings before taxes & amortization (779) 156 496 (3,006) 368 153 (139) % of net sales (2.0)% 0.5% 1.5% (9.0)% 1.4% 0.6% (0.05)% Deferred transaction costs 34 34 34 34 34 34 34 ------- ------- ------- ------- ------- ------- ------- Earnings before taxes & extraordinary items (813) 122 462 (3,040) 334 119 (173) % of net sales (2.1)% 0.4% 1.4% (9.1)% 1.3% 0.4% (0.6)% Income taxes 0 0 0 0 0 0 0 ------- ------- ------- ------- ------- ------- ------- Income before extraordinary items (813) 122 462 (3,040) 334 119 (173) % of net sales (2.1)% 0.4% 1.4% (9.1)% 1.3% 0.4% (0.6)% Extraordinary items 0 0 0 0 0 0 0 ------- ------- ------- ------- ------- ------- ------- Net Income (813) 122 462 (3,040) 334 119 (173) ======= ======= ======= ======= ======= ======= ======= % of net sales (2.1)% 0.4% 1.4% (9.1)% 1.3% 0.4% (0.6)% Number of Stores 44 44 44 44 44 44 ------- ------- ------- ------- ------- ------- Projected 2002 Period Projected ------------------------------------------------------------------- ----------- 8 9 10 11 12 13 Fiscal Year ------- ------- ------- ------- ------- ------- ----------- Net sales $25,567 $26,414 $26,562 $26,337 $28,102 $30,261 $ 378,285 %increase (4.8)% 3.3% 0.6% (0.8)% 6.7% 7.7% Cost of sales 19,191 19,648 19,999 19,678 21,421 22,845 285,233 ------- ------- ------- ------- ------- ------- --------- Gross profit 6,376 6,765 6,563 6,659 6,681 7,416 93,051 % of net sales 24.9% 25.6% 24.7% 25.3% 23.8% 24.5% 24.6% SG&A expense 5,373 5,607 5,425 5,324 5,599 5,811 78,240 ------- ------- ------- ------- ------- ------- --------- EBITDAR 1,002 1,158 1,138 1,335 1,082 1,605 15,811 % of net sales 3.9% 4.4% 4.3% 5.1% 3.9% 5.3% 4.4% Chapter 11 Reorganization Costs 0 0 0 0 0 0 1,200 Store closing costs 0 0 0 0 0 0 300 Union severance 0 0 0 0 0 0 575 Management severance 0 0 0 0 0 0 828 Officer retention plan 0 0 0 0 0 0 2,215 Depreciation 547 549 551 550 555 563 8,026 ------- ------- ------- ------- ------- ------- --------- Earnings before interest and taxes 455 609 587 785 527 1,042 3,667 % of net sales 1.8% 2.3% 2.2% 3.0% 1.9% 3.4% 1.0% Interest expense (income) Interest expense 171 169 160 165 177 941 4,651 Interest (income) (63) (63) (63) (63) (63) (63) (833) ------- ------- ------- ------- ------- ------- --------- Total interest expense (income) 108 106 97 102 114 878 3,818 Loss (gain) on disposal of assets 0 0 0 0 0 0 0 ------- ------- ------- ------- ------- ------- --------- Earnings before taxes & amortization 347 503 490 683 413 164 (151) % of net sales 1.4% 1.9% 1.8% 2.6% 1.5% 0.5% Deferred transaction costs 34 34 34 34 34 34 442 ------- ------- ------- ------- ------- ------- --------- Earnings before taxes & extraordinary items 313 469 456 649 379 130 (592) % of net sales 1.2% 1.8% 1.7% 2.5% 1.3% 0.4% (0.2)% Income taxes 0 0 0 0 0 0 0 ------- ------- ------- ------- ------- ------- --------- Income before extraordinary items 313 469 456 649 379 130 (592) % of net sales 1.2% 1.8% 1.7% 2.5% 1.3% 0.4% (0.2)% Extraordinary items 0 0 0 0 0 0 0 ------- ------- ------- ------- ------- ------- --------- Net Income 313 469 456 649 379 130 (592) ======= ======= ======= ======= ======= ======= ========= % of net sales 1.2% 1.8% 1.7% 2.5% 1.3% 0.4% (0.2)%
MCDONALD INVESTMENTS INC. RESTRUCTURING GROUP CHAPTER 11 MODEL CONFIDENTIAL - -------------------------------------------------------------------------------- INCOME STATEMENT PAGE 8 (Dollars in Thousands)
Number of Stores 44 44 44 44 44 --------- -------- -------- -------- -------- Year ended December 31, --------------------------------------------------------- 2002 pro-forma 2003 2004 2005 2006 --------- -------- -------- -------- -------- Net sales $350,000 $353,680 $361,276 $369,837 $387,978 % increase (6.5)% 2.1% 2.4% 4.9% Cost of sales 260,925 263,315 268,609 274,604 287,686 -------- -------- -------- -------- -------- Gross profit 89,075 90,365 92,667 95,233 100,292 % of net sales 25.5% 25.6% 25.7% 25.8% 25.9% SG&A expense 70,065 71,735 74,219 76,866 81,570 -------- -------- -------- -------- -------- EBITDAR 19,010 18,630 18,449 18,367 18,723 % of net sales 5.4% 5.3% 5.1% 5.0% 4.6% Chapter 11 Reorganization Costs 0 0 0 0 0 Store closing costs 0 0 0 0 0 Union severance 0 0 0 0 0 Management severance 0 0 0 0 0 Officer retention plan 0 0 0 0 0 Depreciation and amortization 7,380 7,458 7,618 7,798 8,181 -------- -------- -------- -------- -------- Earnings before interest and taxes 11,630 11,172 10,831 10,569 10,542 % of net sales 3.3% 3.2% 3.0% 2.9% 2.7% Interest expense (income) Interest expense 3,836 3,607 3,379 2,983 Interest (income) 0 0 0 0 -------- -------- -------- -------- Total interest expense (income) 3,836 3,607 3,379 2,983 Loss (gain) on disposal of assets 0 0 0 0 -------- -------- -------- -------- Earnings before taxes & amortization 7,336 7,224 7,190 7,559 % of net sales 2.1% 2.0% 1.9% 1.9% Deferred transaction costs 442 442 442 349 -------- -------- -------- -------- Earnings before taxes & extraordinary items 6,895 6,782 6,749 7,210 % of net sales 1.9% 1.9% 1.8% 1.9% Income taxes 2,758 2,713 2,699 2,884 -------- -------- -------- -------- Income before extraordinary items 4,137 4,069 4,049 4,326 % of net sales 1.2% 1.1% 1.1% 1.1% Extraordinary Items 0 0 0 0 -------- -------- -------- -------- Net Income 4,137 4,069 4,049 4,326 -------- -------- -------- -------- % of net sales 1.2% 1.1% 1.1% 1.1%
MCDONALD INVESTMENTS INC. RESTRUCTURING GROUP CHAPTER 11 MODEL CONFIDENTIAL - ------------------------------------------------------------------------------- BALANCE SHEET PAGE 9 (Dollars in Thousands)
Actual Projected Period Period --------- ---------------------- At Write-off 6 7 8 closing close of stores 9 --------- --------- --------- --------- --------------- --------- Current Assets Cash and marketable securities $ 7,742 $ 6,000 $ 8,000 $ 8,000 $ $ 8,000 Accounts receivable (net) 10,510 11,197 11,518 11,518 0 11,748 Inventories 60,123 50,936 62,360 52,360 (941) 47,657 Prepaid expenses and other current assets 1,159 1,210 1,183 1,183 1,195 --------- --------- --------- --------- --------- --------- Total current assets 69,544 69,343 71,059 71,059 (941) 68,800 Property, plant and equipment 110,984 111,184 111,384 111,384 (3,202) 108,282 Less accumulated depreciation 43,367 44,203 45,031 45,031 (475) 45,350 --------- --------- --------- --------- --------- --------- Net property, plant & equipment 57,517 56,941 56,353 66,353 (2,727) 52,932 Other Assets Other 17,829 17,829 17,629 17,929 17,829 Transaction Costs 0 0 0 1,208 1,189 Goodwill/Reorg value in excess 9,722 9,722 9,722 9,722 0 9,722 --------- --------- --------- --------- --------- --------- Total other 27,351 27,351 27,351 26,559 26,540 --------- --------- --------- --------- --------- --------- Total Assets $ 164,512 $ 163,875 $ 164,743 $ 185,971 $ (3,668) $ 168,272 ========= ========= ========= ========= ========= ========= Current liabilities Accounts payable 18,852 18,546 17,819 9,172 10,230 Accrued liabilities 6,496 6,821 6,285 6,285 6,285 Accrued bond interest 2,677 1,977 2,977 0 0 Other Current Liabilities 6,625 6,625 6,625 0 0 --------- --------- --------- --------- --------- --------- Total current liabilities 34,451 35,166 33,707 15,457 16,496 Other liabilities Other 2,017 2,017 2,017 0 0 --------- --------- --------- --------- --------- --------- Total other liabilities 2,017 2,017 2,017 0 0 Senior Debt Revolver (Tranche A) 28,415 27,725 30,975 15,312 12,527 AWG Debt 9,865 9,513 8,361 9,361 9,208 Tranche W 0 0 0 16,500 16,500 Advance on Supply Agreement 0 0 0 3,100 2,790 Tranche B 7,824 7,029 7,029 10,000 10,000 --------- --------- --------- --------- --------- --------- Total senior debt 45,704 44,287 47,365 54,273 51,025 Liabilities Subject to Compromise Accounts payable 0 0 0 3,848 3,848 Accrued liabilities 0 0 0 2,377 2,977 Other liabilities 0 0 0 7,742 7,742 Subordinated debt 50,000 50,000 50,000 50,000 50,000 Rejected Lease liability and occupancy 0 0 0 0 1,439 1,439 Capital Leases 2,287 2,240 2,195 2,195 2,195 --------- --------- --------- --------- --------- --------- Total liabilities subject to compromise 62,267 62,240 62,195 76,762 1,489 78,250 Total senior debt and liabilities subject to compromise 107,991 106,507 109,560 131,034 129,276 Shareholders' equity Common stock 48 49 49 49 49 Additional paid-in capital 56,274 56,274 56,274 56,274 56,274 Retained income (deficit) (36,270) (36,358) (38,844) (36,844) (5,157) (43,821) --------- --------- --------- --------- --------- --------- Total Shareholders' equity 20,053 19,965 19,479 19,479 (5,157) 12,502 --------- --------- --------- --------- --------- --------- Total liabilities & net worth $ 164,512 $ 183,875 $ 164,763 $ 165,971 $ (3,668) $ 158,272 ========= ========= ========= ========= ========= ========= Write-off closed stores 10 11 12 13 ------------- --------- --------- --------- --------- Current Assets Cash and marketable securities $ 8,000 $ 8,000 $ 8,000 $ 8,000 Accounts receivable (net) 0 11,571 12,152 12,954 13,964 Inventories (910) 46,273 49,408 50,103 50,143 Prepaid expenses and other current assets 1,090 1,067 1,112 1,162 --------- --------- --------- --------- --------- Total current assets (910) 64,935 68,287 70,169 71,270 Property, plant and equipment (5,324) 103,058 103,158 100,528 100,728 Less accumulated depreciation (1,686) 44,427 45,189 45,949 46,714 --------- --------- --------- --------- --------- Net property, plant & equipment (3,636) 68,637 57,989 54,579 54,014 Other Assets Other 17,629 17,629 17,629 17,629 Transaction Costs 1,171 1,152 1,134 1,115 Goodwill/Reorg value in excess 0 9,722 9,722 9,722 9,722 --------- --------- --------- --------- --------- Total other 28,522 26,503 28,485 28,488 --------- --------- --------- --------- --------- Total Assets $ (4,547) $ 162,087 $ 154,740 $ 153,233 $ 153,749 ========= ========= ========= ========= ========= Current liabilities Accounts payable 9,579 9,753 10,281 10,980 Accrued liabilities 5,832 5,685 5,188 6,584 Accrued bond interest 0 0 0 0 Other Current Liabilities 0 0 0 0 --------- --------- --------- --------- --------- Total current liabilities 15,411 15,638 16,469 17,574 Other liabilities Other 0 0 0 0 --------- --------- --------- --------- --------- Total other liabilities 0 0 0 0 Senior Debt Revolver (Tranche A) 12,950 15,811 14,037 13,498 AWG Debt 9,055 8,902 8,748 8,594 Tranche W 16,500 16,500 16,500 16,500 Advance on Supply Agreement 2,480 2,170 1,180 1,550 Tranche B 10,023 10,048 10,059 10,092 --------- --------- --------- --------- --------- Total senior debt 51,008 53,428 51,214 50,234 Liabilities Subject to Compromise Accounts payable 3,848 3,848 3,848 3,848 Accrued liabilities 2,977 2,977 2,977 2,977 Other liabilities 7,742 7,742 7,742 7,742 Subordinated debt 60,000 60,000 60,000 60,000 Rejected Lease liability and occupancy 459 1,948 1,948 1,948 1,948 Capital Leases 2,195 2,195 2,195 2,195 --------- --------- --------- --------- --------- Total liabilities subject to compromise 459 78,709 78,709 78,709 78,709 Total senior debt and liabilities subject to compromise 129,717 132,138 129,923 128,943 Shareholders' equity Common stock 49 49 49 49 Additional paid-in capital 56,274 56,274 56,274 56,274 Retained income (deficit) (5,007) (49,384) (49,359) (49,482) (49,090) --------- --------- --------- --------- --------- Total Shareholders' equity (5,007) 5,959 5,964 6,141 7,233 --------- --------- --------- --------- --------- Total liabilities & net worth $ (4,547) $ 152,087 $ 154,740 $ 153,233 $ 153,749 ========= ========= ========= ========= =========
MCDONALD INVESTMENTS INC. RESTRUCTURING GROUP CHAPTER 11 MODEL CONFIDENTIAL - -------------------------------------------------------------------------------- BALANCE SHEET PAGE 10 (Dollars in Thousands)
Projected 2002 Period ------------------------------------------------------------------------------------------- Stores Leases Sold/ 1 Sold 2 3 4 Rejected 5 6 -------- -------- -------- -------- -------- -------- -------- -------- Current Assets Cash and marketable securities $ 8,000 $ 6,000 $ 6,000 $ 6,000 $ 9,836 $ 6,712 Accounts receivable (net) 12,700 10,361 10,555 10,988 0 8,599 8,836 Inventories 44,202 (2,331) 36,938 40,524 39,988 (2,954) 28,770 32,506 Prepaid expenses and other current assets 1,050 552 946 878 700 718 -------- -------- -------- -------- -------- -------- -------- -------- Total current assets 65,952 (2,331) 54,181 57,926 57,835 (2,954) 47,908 48,772 Property, plant and equipment 100,928 (5,994) 89,161 88,361 59,561 (11,007) 74,539 74,839 Less accumulated depreciation 47,542 (2,883) 42,502 43,209 43,925 (6,169) 35,824 36,422 -------- -------- -------- -------- -------- -------- -------- -------- Net property, plant & equipment 53,386 (3,100) 48,858 48,152 45,835 (4,838) 38,815 38,417 Other Assets Other 17,629 17,629 17,629 17,629 17,629 17,629 Transaction Costs 1,081 1,047 1,013 979 945 911 Goodwill/Reorg value in excess 9,722 9,722 9,722 9,722 0 9,722 9,722 -------- -------- -------- -------- -------- -------- -------- -------- Total other 28,432 28,398 28,384 28,330 25,295 28,262 -------- -------- -------- -------- -------- -------- -------- -------- Total Assets $147,759 $ (5,432) $129,239 $132,442 $131,800 $ (7,792) $115,017 $115,452 ======== ======== ======== ======== ======== ======== ======== ======== Current liabilities Accounts payable 10,126 8,171 8,290 8,746 6,706 6,996 Accrued liabilities 6,041 4,892 4,830 5,183 4,006 4,165 Current position of long-term debt 0 0 0 0 0 0 Other Current Liabilities 0 0 0 0 0 0 -------- -------- -------- -------- -------- -------- -------- -------- Total current liabilities 16,167 13,063 13,220 13,929 10,712 11,161 Other liabilities Other 0 0 0 0 0 0 -------- -------- -------- -------- -------- -------- -------- -------- Total other liabilities 0 0 0 0 0 0 Senior Debt Revolver 10,179 504 3,532 5,664 0 0 AWG Debt 8,439 8,284 8,128 7,972 7,815 7,658 Tranche W 16,500 15,500 16,500 18,500 16,500 16,500 Advance on Supply Agreement 1,240 930 820 310 0 0 Tranche B/New Senior term debt 10,115 10,134 10,161 10,184 10,207 10,231 -------- -------- -------- -------- -------- -------- -------- -------- Total senior debt 46,473 35,354 38,941 40,630 34,522 34,389 Liabilities Subject to Compromise Accounts payable 3,848 3,848 3,848 3,848 3,848 3,848 Accrued liabilities 2,877 2,977 2,877 2,877 2,977 2,877 Other current liabilities 7,742 7,742 7,742 7,742 7,742 7,742 Subordinated debt 60,000 60,000 60,000 60,000 60,000 60,000 Rejected Lease liability and occupancy 1,948 1,948 1,948 1,948 1,776 3,725 3,725 New Notes (trade) 0 0 0 0 0 0 Capital Leases 2,195 2,195 2,195 2,195 2,195 2,195 -------- -------- -------- -------- -------- -------- -------- -------- Total liabilities subject to compromise 78,709 78,709 78,709 78,709 1,776 80,487 80,467 Total senior debt and liabilities subject to compromise 125,183 115,056 117,651 119,340 115,009 114,976 Shareholders' equity Common stock 49 49 49 49 49 49 Additional paid-in capital 56,274 56,274 56,274 56,274 56,274 56,274 Retained income (deficit) (48,904) (5,432) (55,213) (54,752) (57,791) (9,570) (87,027) (66,908) -------- -------- -------- -------- -------- -------- -------- -------- Total Shareholders' equity 5,419 1,110 1,571 (1,468) (9,570) (10,704) (10,585) -------- -------- -------- -------- -------- -------- -------- -------- Total liabilities & net worth $147,769 $129,239 $132,442 $131,800 $ (7,792) $115,017 $115,452 ======== ======== ======== ======== ======== ======== ======== ======== Projected 2002 Period -------------------------------------------------------------------------------------- At emergence 7 8 9 10 11 12 13 -------- -------- -------- -------- -------- -------- -------- -------- Current Assets Cash and marketable securities $ 6,712 $ 2,000 $ 2,000 $ 2,000 $ 2,000 $ 2,000 $ 2,000 $ 2,000 Accounts receivable (net) 8,836 8,855 8,429 8,708 8,757 9,662 9,264 9,976 Inventories 32,506 32,137 33,585 32,280 33,927 34,085 35,957 35,299 Prepaid expenses and other current assets 718 745 723 755 730 716 753 782 -------- -------- -------- -------- -------- -------- -------- -------- Total current assets 48,772 43,737 44,737 43,742 45,414 45,494 47,975 48,557 Property, plant and equipment 64,270 64,470 64,670 64,870 65,070 66,270 70,470 72,220 Less accumulated depreciation 36,422 36,977 37,525 38,074 38,825 39,175 39,730 40,293 -------- -------- -------- -------- -------- -------- -------- -------- Net property, plant & equipment 27,848 27,492 27,145 26,796 28,445 29,095 30,740 31,927 Other Assets Other 17,629 17,629 17,629 17,629 17,629 17,629 17,629 20,629 Transaction Costs 1,911 1,877 1,843 1,809 1,775 1,742 1,707 1,673 Goodwill/Reorg value in excess 0 0 0 0 0 0 0 0 -------- -------- -------- -------- -------- -------- -------- -------- Total other 19,540 19,505 19,473 19,438 19,405 19,371 19,337 22,303 -------- -------- -------- -------- -------- -------- -------- -------- Total Assets $ 96,161 $ 90,736 $ 91,354 $ 89,977 $ 91,263 $ 93,949 $ 98,051 $102,887 ======== ======== ======== ======== ======== ======== ======== ======== Current liabilities Accounts payable 6,996 8,608 8,225 8,421 10,000 9.839 10,711 13,054 Accrued liabilities 4,165 2,287 2,193 2,255 2,270 2,232 2,895 3,070 Current position of long-term debt 0 0 0 0 0 0 0 0 Other Current Liabilities 0 0 0 0 0 0 0 0 -------- -------- -------- -------- -------- -------- -------- -------- Total current liabilities 11,161 10,894 10,418 10,676 12,270 12,071 13,606 16,125 Other liabilities Other 0 0 0 0 0 0 0 0 -------- -------- -------- -------- -------- -------- -------- -------- Total other liabilities 0 0 0 0 0 0 0 0 Senior Debt Revolver 15,731 11,034 12,103 10,288 9,813 12,337 14,814 17,288 AWG Debt 7,658 7,540 7,422 7,304 7,186 7,068 6,950 6,832 Tranche W 0 0 0 0 0 0 0 0 Advance on Supply Agreement 0 0 0 0 0 0 0 0 Tranche B/New Senior term debt 12,000 11,868 11,736 11,604 11,472 11,340 11,208 11,076 -------- -------- -------- -------- -------- -------- -------- -------- Total senior debt 35,389 30,442 31,261 29,196 28,471 30,745 32,972 35,196 Liabilities Subject to Compromise Accounts payable 0 0 0 0 0 0 0 0 Accrued liabilities 0 0 0 0 0 0 0 0 Other current liabilities 0 0 0 0 0 0 0 0 Subordinated debt 15,000 15,000 15,000 15,000 15,000 15,000 15,000 15,000 Rejected Lease liability and occupancy 0 0 0 0 0 0 0 0 New Notes (trade) 11,275 11,275 11,275 11,275 11,275 11,275 11,275 11,275 Capital Leases 1,353 1,315 1,276 1,238 1,199 1,161 1,122 1,084 -------- -------- -------- -------- -------- -------- -------- -------- Total liabilities subject to compromise 27,628 27,589 27,551 27,513 27,474 27,436 27,397 27,359 Total senior debt and liabilities subject to compromise 53,017 58,031 58,812 56,708 55,945 58,180 60,369 62,555 Shareholders' equity Common stock 21,983 21,983 21,983 21,983 21,983 21,983 21,983 21,983 Additional paid-in capital 0 0 0 0 0 0 0 0 Retained income (deficit) 0 (173) 141 610 1,065 1,715 2,094 2,224 -------- -------- -------- -------- -------- -------- -------- -------- Total Shareholders' equity 21,983 21,811 22,124 22,593 23,048 23,698 24,077 24,207 -------- -------- -------- -------- -------- -------- -------- -------- Total liabilities & net worth $ 96,161 $ 90,736 $ 91,354 $ 89,977 $ 91,263 $ 93,949 $ 98,051 $102,887 ======== ======== ======== ======== ======== ======== ======== ========
MCDONALD INVESTMENTS INC. RESTRUCTURING GROUP CHAPTER 11 MODEL CONFIDENTIAL - -------------------------------------------------------------------------------- BALANCE SHEET PAGE 11 (Dollars in Thousands)
Year ended December 31, ----------------------------------------------------- 2002 2003 2004 2005 2006 -------- -------- -------- -------- -------- Current Assets Cash and marketable securities $ 2,000 $ 2,000 $ 2,000 $ 2,000 $ 2,000 Accounts receivable (net) 9,078 9,036 9,230 9,448 9,313 Inventories 35,098 34,723 35,421 38,212 37,927 Prepaid expenses and other current assets 782 743 768 795 144 -------- -------- -------- -------- -------- Total current assets 43,967 48,502 47,420 48,456 50,694 Property, plant and equipment 72,220 80,579 31,770 98,470 105,170 Less accumulated depreciation 40,283 47,750 56,369 83,184 71,347 -------- -------- -------- -------- -------- Net property, plant & equipment 31,627 32,819 38,402 38,303 33,423 Other Assets Other 20,829 18,426 18,629 17,626 16,829 Transaction Costs 1,673 1,232 780 349 0 Goodwill/Reorg value in excess 0 0 0 0 0 -------- -------- -------- -------- -------- Total other 22,303 20,961 19,419 17,978 18,429 -------- -------- -------- -------- -------- Total Assets $102,847 $100,182 $103,241 $101,738 $101,145 ======== ======== ======== ======== ======== Current liabilities Accounts payable 13,054 12,063 12,306 12,580 13,180 Accrued liabilities 2,070 3,222 3,298 3,380 3,551 Current portion of long-term debt 0 0 0 0 0 Other Current Liabilities 0 0 0 0 0 -------- -------- -------- -------- -------- Total current liabilities 14,125 15,286 15,602 15,980 16,730 Other liabilities Other 0 0 0 0 0 -------- -------- -------- -------- -------- Total other liabilities 0 0 0 0 0 Senior Debt Revolver 17,288 15,033 17,451 14,945 12,502 AWG Debt 6,832 5,300 3,758 2,236 704 Tranche W 0 0 0 0 0 Advance on Supply Agreement 0 0 0 0 0 Senior term debt 11,078 9,362 7,648 5,934 4,220 -------- -------- -------- -------- -------- Total senior debt 35,198 29,695 28,967 23,115 17,426 Liabilities Subject to Compromise Accounts payable 0 0 0 0 0 Accrued liabilities 0 0 0 0 0 Subordinated debt 15,000 15,000 15,000 15,000 15,000 Rejected Lease liability and occupancy 0 0 0 0 0 New Notes (trade) 11,275 11,275 11,275 11,275 11,275 Capital Losses 1,044 584 84 (74) (74) -------- -------- -------- -------- -------- Total liabilities subject to compromise 27,359 26,658 26,358 26,201 26,201 Total senior debt and liabilities subject to compromise 82,656 56,553 55,225 49,315 43,626 Shareholders equity 0 Common stock 21,983 21,983 21,983 21,983 21,983 Additional paid-in capital 0 0 0 0 0 Retained income (deficit) 2,224 6,361 10,430 14,480 18,606 -------- -------- -------- -------- -------- Total shareholders' equity 24,207 28,344 32,413 38,483 40,789 -------- -------- -------- -------- -------- Total liabilities & net worth $102,047 $100,182 $103,241 $101,738 $101,745 ======== ======== ======== ======== ========
MCDONALD INVESTMENTS INC. RESTRUCTURING GROUP CHAPTER 11 MODEL CONFIDENTIAL - -------------------------------------------------------------------------------- CASH FLOW STATEMENT PAGE 12 (Dollars in Thousands)
Projected Projected Period Post ch. 11 filing ------------------ --------------------------------------------------- 7 8 9 10 11 12 13 ------- ------- ------- ------- ------- ------- ------- Operating activities: Net income $ (88) $ (486) $(1,821) $ (537) $ 5 $ (123) $ 392 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and Amortization 838 828 794 763 762 760 765 Deferred financing costs 0 0 19 19 19 19 19 Decrease in other long term liabilities 0 0 0 0 0 0 0 Accounts receivable change (887) (319) (232) 177 (581) (802) (1,010) Inventory change (813) (1,424) 3,563 874 (2,755) (1,055) (40) Prepaid and other current asset changes (41) 28 (12) 104 23 (45) (51) Accounts payable change 303 (1,136) 1,059 (651) 173 528 710 Accrued liabilities change 132 (343) (21) (433) 53 303 396 Accrued interest change 300 0 0 0 0 0 0 Other current liabilities change 0 0 0 0 0 0 0 ------- ------- ------- ------- ------- ------- ------- Net cash provided (used) by oper. activities (58) (2,853) 3,348 117 (2,321) (415) 1,181 Investment activities: Asset dispositions 0 0 0 0 0 2,730 0 Asset dispositions (Depreciation) 0 0 0 0 0 0 0 Other 0 0 0 0 0 0 0 Capital expenditures (200) (200) (100) (100) (100) (100) (200) ------- ------- ------- ------- ------- ------- ------- Net cash provided (used) by inv. activities (200) (200) (100) (100) (100) 2,630 (200) Financial activities: Long-term debt (excluding revolver): Net Additions (reductions) (794) (197) (463) (440) (440) (441) (441) Sale (purchase) of common stock 0 0 0 0 0 0 0 Dividend payments to preferred stockholders 0 0 0 0 0 0 0 ------- ------- ------- ------- ------- ------- ------- Net cash provided (used) by fin. activities (794) (197) (463) (440) (440) (441) (441) ------- ------- ------- ------- ------- ------- ------- Net increase (decrease) in cash (1,052) (3,250) 2,785 (423) (2,861) 1,774 540 Beginning cash balance 7,742 6,000 6,000 6,000 6,000 6,000 6,000 ------- ------- ------- ------- ------- ------- ------- Net cash available for revolver 6,690 2,750 8,785 5,577 3,139 7,774 6,540 Beginning revolver balance 28,415 27,725 15,312 12,527 12,950 15,811 14,037 Revolver addition (payment) (690) 3,250 (2,785) 423 2,861 (1,774) (540) ------- ------- ------- ------- ------- ------- ------- Ending revolver balance 27,725 30,975 12,527 12,950 15,811 14,037 13,498 ------- ------- ------- ------- ------- ------- ------- Ending cash balance 6,000 6,000 6,000 6,000 6,000 6,000 6,000 ======= ======= ======= ======= ======= ======= =======
Projected Projected Period Post ch. 11 filing Effective --------------- ---------------------------------------------------------------------- Revolver availability Rate 6 7 8 at close 9 10 11 12 13 --------- ------ ------- ------- -------- ------- ------- ------- ------- ------- Inventory Grocery 48.5% 13,302 13,518 13,896 13,895 12,701 12,280 13,017 13,297 13,307 Health & Beauty 48.5% 6,139 6,238 6,413 6,413 5,861 5,667 6,007 6,136 6,141 Pharmaceutical 48.5% 2,611 2,856 2,936 12,936 2,664 2,595 2,750 2,810 2,812 Receivables Coupons 58.5% 378 387 364 384 361 339 345 361 388 Pharmaceutical 58.5% 995 1,019 959 959 950 893 910 952 1,023 AWG 0.0% 0 0 0 0 0 0 0 0 0 Real Estate 8,000 7,690 7,380 7,070 5,560 5,250 Leaseholds 2,790 2,447 2,269 2,166 2,063 1,980 Less: Professional fee carveout (500) (500) (500) (500) (500) (500) Total availability 23,625 24,019 24,568 34,858 32,193 30,924 31,766 30,679 30,382 Debt outstanding 28,415 27,725 30,975 25,312 22,527 22,973 25,857 24,106 23,590 ------- ------- ------- ------- ------- ------- ------- ------- ------- Excess availability (shortfall) $(4,790) $(3,706) $(6,407) $ 9,548 $ 9,666 $ 7,951 $ 5,909 $ 6,573 $ 6,792 ======= ======= ======= ======= ======= ======= ======= ======= =======
MCDONALD INVESTMENTS INC. RESTRUCTURING GROUP CHAPTER 11 MODEL CONFIDENTIAL - -------------------------------------------------------------------------------- CASH FLOW STATEMENT PAGE 13 (Dollars in Thousands)
Projected 2002 Period -------------------------------------------------------------------- 1 2 3 4 5 6 -------- -------- -------- -------- -------- -------- Operating activities: Net income $ (813) $ 122 $ 462 $ (3,040) $ 334 $ 119 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and Amortization 828 726 708 716 578 598 Deferred financing costs 34 34 34 34 34 34 Decrease in other long term liabilities 0 0 0 0 0 0 Accounts receivable change 1,264 2,319 (174) (413) 2,369 (237) Inventory change 3,942 6,932 (3,586) 536 8,265 (3,737) Prepaid and other current asset changes 112 188 16 (32) 179 (19) Accounts payable change (864) (1,956) 119 456 (2,039) 290 Accrued liabilities change (543) (1,148) 37 253 (1,177) 159 Accrued interest change 0 0 0 0 0 0 Other current liabilities change 0 0 0 0 0 0 -------- -------- -------- -------- -------- -------- Net cash provided (used) by oper. activities 3,960 7,217 (2,385) (1,489) 8,543 (2,793) Investment activities: Asset dispositions 0 5,984 0 0 4,115 0 Asset dispositions (Depreciation) 0 (2,883) 0 0 (2,512) 0 Other 0 0 0 0 0 0 Capital expenditures (200) (200) (200) (200) (200) (200) -------- -------- -------- -------- -------- -------- Net cash provided (used) by inv. activities (200) 2,900 (200) (200) 1,403 (200) Financing activities: Long-term debt (excluding revolver): Net Additions (reductions) (442) (442) (443) (443) (444) (133) Sale (purchase) of common stock 0 0 0 0 0 0 Dividend payments to preferred stockholders 0 0 0 0 0 0 -------- -------- -------- -------- -------- -------- Net cash provided (used) by fin. activities (442) (442) (443) (443) (444) (133) -------- -------- -------- -------- -------- -------- Net Increase (decrease) in cash 3,318 9,675 (3,028) (2,132) 9,502 (3,126) Beginning cash balance 6,000 6,000 6,000 6,000 6,000 9,838 -------- -------- -------- -------- -------- -------- Net cash available for revolver 9,318 15,675 2,972 3,868 15,502 6,712 Beginning revolver balance 13,498 10,179 504 3,532 5,664 0 Revolver addition (payment) (3,318) (9,675) 3,028 2,132 (5,664) 0 -------- -------- -------- -------- -------- -------- Ending revolver balance 10,179 504 3,532 5,664 0 0 -------- -------- -------- -------- -------- -------- Ending cash balance 6,000 6,000 6,000 6,000 9,838 6,712 ======== ======== ======== ======== ======== ======== Projected 2002 Period -------------------------------------------------------------------------------- 7 8 9 10 11 12 13 -------- -------- -------- -------- -------- -------- -------- Operating activities: Net income $ (173) $ 313 $ 469 $ 456 $ 649 $ 379 $ 130 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and Amortization 555 547 549 551 550 555 563 Deferred financing costs 34 34 34 34 34 34 34 Decrease in other long term liabilities 0 0 0 0 0 0 0 Accounts receivable change (19) 426 (279) (49) 74 (582) (712) Inventory change 369 (1,448) 1,305 (1,647) (158) (1,872) 58 Prepaid and other current asset changes (27) 22 (31) 25 14 (37) (29) Accounts payable change 1,610 (381) 196 1,579 (161) 872 2,344 Accrued liabilities change (1,677) (94) 62 15 (38) 683 175 Accrued interest change 0 0 0 0 0 0 0 Other current liabilities change 0 0 0 0 0 0 0 -------- -------- -------- -------- -------- -------- -------- Net cash provided (used) by oper. activities 474 (581) 2,304 963 965 12 2,564 Investment activities: Asset dispositions 0 0 0 0 0 0 0 Asset dispositions (Depreciation) 0 0 0 0 0 0 0 Other 0 0 0 0 0 0 (3,000) Capital expenditures (200) (200) (200) (200) (3,200) (2,200) (1,750) -------- -------- -------- -------- -------- -------- -------- Net cash provided (used) by inv. activities (200) (200) (200) (200) (3,200) (2,200) (4,750) Financing activities: Long-term debt (excluding revolver): Net Additions (reductions) (288) (288) (288) (288) (288) (288) (288) Sale (purchase) of common stock 0 0 0 0 0 0 0 Dividend payments to preferred stockholders 0 0 0 0 0 0 0 -------- -------- -------- -------- -------- -------- -------- Net cash provided (used) by fin. activities (288) (288) (288) (288) (288) (288) (288) -------- -------- -------- -------- -------- -------- -------- Net Increase (decrease) in cash (15) (1,069) 1,816 474 (2,523) (2,477) (2,475) Beginning cash balance 6,712 2,000 2,000 2,000 2,000 2,000 2,000 -------- -------- -------- -------- -------- -------- -------- Net cash available for revolver 6,697 931 3,816 2,474 (523) (477) (475) Beginning revolver balance 15,731 11,034 12,103 10,288 9,813 12,337 14,814 Revolver addition (payment) (4,697) 1,069 (1,816) (474) 2,523 2,477 2,475 -------- -------- -------- -------- -------- -------- -------- Ending revolver balance 11,034 12,103 10,288 9,813 12,337 14,814 17,288 -------- -------- -------- -------- -------- -------- -------- Ending cash balance 2,000 2,000 2,000 2,000 2,000 2,000 2,000 ======== ======== ======== ======== ======== ======== ========
Projected 2002 Period Effective -------------------------------------------------------------------- Revolver availability Rate 1 2 3 4 5 6 --------- -------- -------- -------- -------- -------- -------- Inventory Grocery 48.5% 12,261 9,803 10,755 10,612 7,635 8,627 Health & Beauty 48.5% 5,659 4,524 4,963 4,898 3,524 3,981 Pharmaceutical 48.5% 2,591 2,071 2,272 2,242 1,613 1,823 Receivables Coupons 58.5% 353 289 294 305 239 246 Pharmaceutical 58.5% 930 760 773 804 630 647 AWG 0.0% 0 0 0 0 0 0 Real Estate 4,940 4,630 4,320 4,010 3,700 3,390 Leaseholds 1,857 1,229 1,126 1,023 470 367 (500) (500) (500) (500) (500) (500) Total availability 28,091 22,807 24,003 23,394 17,311 18,581 Debt outstanding 20,294 10,642 13,693 15,848 10,207 10,231 -------- -------- -------- -------- -------- -------- Excess availability (shortfall) $ 7,797 $ 12,164 $ 10,310 $ 7,545 $ 7,104 $ 8,350 ======== ======== ======== ======== ======== ======== Projected 2002 Period -------------------------------------------------------------------------------- Revolver availability 7 8 9 10 11 12 13 -------- -------- -------- -------- -------- -------- -------- Inventory Grocery 8,529 8,913 8,567 9,004 9,046 9,542 9,527 Health & Beauty 3,936 4,113 3,953 4,155 4,175 4,404 4,397 Pharmaceutical 1,802 1,883 1,810 1,902 1,911 2,016 2,013 Receivables Coupons 246 234 242 244 242 258 278 Pharmaceutical 649 617 638 642 636 679 731 AWG 0 0 0 0 0 0 0 Real Estate Leaseholds Total availability 15,162 15,762 15,210 15,947 16,009 16,899 16,945 Debt outstanding 11,034 12,103 10,288 9,813 12,337 14,814 17,288 -------- -------- -------- -------- -------- -------- -------- Excess availability (shortfall) $ 4,128 $ 3,658 $ 4,923 $ 6,133 $ 3,672 $ 2,085 $ (343) ======== ======== ======== ======== ======== ======== ========
MCDONALD INVESTMENTS INC. RESTRUCTURING GROUP CHAPTER 11 MODEL CONFIDENTIAL - -------------------------------------------------------------------------------- CASH FLOW STATEMENT PAGE 14 (Dollars in Thousands)
Year ended December 31, -------------------------------------- 2003 2004 2005 2006 -------- -------- -------- -------- Operating activities: Net income $ 4,137 $ 4,069 $ 4,049 $ 4,326 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and Amortization 7,458 7,618 7,798 8,161 Deferred financing costs 442 442 442 349 Decrease in other long term liabilities 0 0 0 0 Accounts receivable change 940 (194) (219) (463) Inventory change 1,176 (698) (791) (1,725) Prepaid and other current asset changes 39 (26) (27) (49) Accounts payable change (991) 243 275 599 Accrued liabilities change 151 75 83 171 Accrued interest change 0 0 0 0 Other current liabilities change 0 0 0 0 -------- -------- -------- -------- Net cash provided (used) by oper. activities 13,352 11,528 11,610 11,389 Investment activities: Asset dispositions 0 0 0 0 Asset dispositions (Depreciation) 0 0 0 0 Other 1,000 1,000 1,000 1,000 Capital expenditures (8,350) (11,200) (6,700) (6,700) -------- -------- -------- -------- Net cash provided (used) by inv. activities (7,350) (10,200) (5,700) (5,700) Financing activities: Long-term debt (excluding revolver): Net Additions (reductions) (3,746) (3,746) (3,404) (3,246) Sale (purchase) of common stock 0 0 0 0 Dividend payments to preferred stockholders 0 0 0 0 -------- -------- -------- -------- Net cash provided (used) by fin. activities (3,746) (3,746) (3,404) (3,246) -------- -------- -------- -------- Net increase (decrease) in cash 2,256 (2,418) 2,506 2,443 Beginning cash balance 2,000 2,000 2,000 2,000 -------- -------- -------- -------- Net cash available for revolver 4,256 (418) 4,506 4,443 Beginning revolver balance 17,288 15,033 17,451 14,945 Revolver addition (payment) (2,256) 2,418 (2,506) (2,443) -------- -------- -------- -------- Ending revolver balance 15,033 17,451 14,945 12,502 -------- -------- -------- -------- Ending cash balance 2,000 2,000 2,000 2,000 ======== ======== ======== ========
Year ended December 31, Effective -------------------------------------- Rate 2003 2004 2005 2006 --------- -------- -------- -------- -------- Revolver availability Inventory Grocery 48.5% 9,215 9,400 9,610 10,068 Health & Beauty 48.5% 4,253 4,338 4,435 4,646 Pharmaceutical 48.5% 1,947 1,986 2,031 2,127 Receivables Coupons 58.5% 250 255 261 274 Pharmaceutical 58.5% 657 671 687 721 AWG 0.0% 0 0 0 0 Total availability 16,321 16,651 17,024 17,836 Debt outstanding 15,033 17,451 14,945 12,502 -------- ------- -------- -------- Excess availability (shortfall) $ 1,289 $ (800) $ 2,079 $ 5,334 ======== ======= ======== ========
MCDONALD INVESTMENTS INC. RESTRUCTURING GROUP CHAPTER 11 MODEL CONFIDENTIAL - -------------------------------------------------------------------------------- DEBT SERVICE PAGE 15 (Dollars in Thousands)
Projected Period -------- -------- -------- -------- -------- -------- -------- 7 8 9 10 11 12 13 -------- -------- -------- -------- -------- -------- -------- Projected debt service Revolver (Tranche A) Beginning balance $ 28,415 $ 27,725 $ 15,312 $ 12,527 $ 12,950 $ 15,811 $ 14,037 Additions/(Payments) (690) 3,250 (2,785) 423 2,861 (1,774) (540) Ending balance 27,725 30,975 12,527 12,950 15,611 14,037 13,498 ======== ======== ======== ======== ======== ======== ======== Interest payments $ 187 $ 175 $ 83 $ 76 $ 88 $ 89 $ 42 ======== ======== ======== ======== ======== ======== ======== Tranche B Beginning balance $ 7,824 $ 7,029 $ 10,000 $ 10,000 $ 10,023 $ 10,046 $ 10,069 Additions 0 0 0 23 23 23 23 Prepayments of principal due to sale of assets 0 0 0 0 0 0 0 Scheduled principal payments (595) 0 0 0 0 0 0 -------- -------- -------- -------- -------- -------- -------- Ending balance $ 7,029 $ 7,029 $ 10,000 $ 10,023 $ 10,046 $ 10,069 $ 10,092 ======== ======== ======== ======== ======== ======== ======== Interest payments $ 78 $ 73 $ 104 $ 104 $ 104 $ 104 $ 105 ======== ======== ======== ======== ======== ======== ======== PIK interest payments $ 0 $ 0 $ 23 $ 23 $ 23 $ 23 $ 23 ======== ======== ======== ======== ======== ======== ======== Subordinated debt Beginning balance $ 60,000 $ 60,000 $ 60,000 $ 60,000 $ 60,000 $ 60,000 $ 60,000 Additions 0 0 0 0 0 0 0 Prepayments of principal due to sale of assets 0 0 0 0 0 0 0 Scheduled principal payments 0 0 0 0 0 0 0 Ending balance $ 60,000 $ 60,000 $ 60,000 $ 60,000 $ 60,000 $ 60,000 $ 60,000 ======== ======== ======== ======== ======== ======== ======== Interest payments $ 300 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 ======== ======== ======== ======== ======== ======== ======== AWG Debt Beginning balance $ 9,665 $ 9,513 $ 9,361 $ 9,208 $ 9,055 $ 8,902 $ 8,748 Additions 0 0 0 0 0 0 0 Principal payments (152) (152) (153) (153) (153) (154) (154) -------- -------- -------- -------- -------- -------- -------- Ending balance $ 9,513 $ 9,361 $ 9,208 $ 9,055 $ 8,902 $ 8,748 $ 8,594 ======== ======== ======== ======== ======== ======== ======== Interest payments $ 28 $ 28 $ 27 $ 27 $ 27 $ 28 $ 28 ======== ======== ======== ======== ======== ======== ======== Interest accrued $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 ======== ======== ======== ======== ======== ======== ======== Tranche W Beginning balance $ 0 $ 0 $ 16,500 $ 16,500 $ 16,500 $ 16,500 $ 16,500 Additions 0 0 0 0 0 0 0 Prepayments of principal due to sale of assets 0 0 0 0 0 0 0 Scheduled principal payments 0 0 0 0 0 0 0 Ending balance $ 0 $ 0 $ 16,500 $ 16,500 $ 16,500 $ 16,500 $ 16,500 ======== ======== ======== ======== ======== ======== ======== Interest payments $ 0 $ 0 $ 111 $ 111 $ 111 $ 111 $ 111 ======== ======== ======== ======== ======== ======== ======== Advance on Supply Agreement Beginning balance $ 0 $ 0 $ 3,100 $ 2,790 $ 2,480 $ 2,170 $ 1,860 Additions 0 0 0 0 0 0 0 Prepayments of principal due to sale of assets 0 0 0 0 0 0 0 Scheduled principal payments 0 0 (310) (310) (310) (310) (310) Ending balance $ 0 $ 0 $ 2,790 $ 2,480 $ 2,170 $ 1,860 $ 1,550 ======== ======== ======== ======== ======== ======== ======== Interest payments $ 0 $ 0 $ 48 $ 48 $ 48 $ 48 $ 48 ======== ======== ======== ======== ======== ======== ======== Capital Leases Beginning balance $ 2,287 $ 2,240 $ 2,195 $ 2,195 $ 2,195 $ 2,195 $ 2,195 Additions 0 0 0 0 0 0 0 Principal payments (47) (45) 0 0 0 0 0 -------- -------- -------- -------- -------- -------- -------- Ending balance $ 2,240 $ 2,195 $ 2,195 $ 2,195 $ 2,195 $ 2,195 $ 2,195 ======== ======== ======== ======== ======== ======== ======== Interest payments $ 19 $ 19 $ 0 $ 0 $ 0 $ 0 $ 0 ======== ======== ======== ======== ======== ======== ======== Interest accrued $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 ======== ======== ======== ======== ======== ======== ======== Totals: Total ending debt balance 109,507 109,560 113,220 113,203 115,624 113,409 $112,429 Total principal additions 0 0 0 23 23 23 23 Total principal payments (794) (197) (463) (463) (463) (464) (464) Total interest expense 580 295 396 389 399 401 395
MCDONALD INVESTMENTS INC. RESTRUCTURING GROUP CHAPTER 11 MODEL CONFIDENTIAL - -------------------------------------------------------------------------------- DEBT SERVICE PAGE 16 (Dollars in Thousands)
Projected 2002 Period --------------------------------------------------------------------------------------- 1 2 3 4 5 6 7 --------- --------- --------- --------- --------- --------- --------- Projected debt service Revolver Beginning balance $ 13,496 $ 10,179 $ 504 $ 3,532 $ 5,664 $ 0 $ 0 Additions/(Payments) (3,318) (9,675) 3,024 2,132 (5,664) 0 11,034 Ending balance 10,179 504 3,532 5,564 0 0 11,034 ========= ========= ========= ========= ========= ========= ========= Interest payments $ 71 $ 32 $ 12 $ 27 $ 17 $ 0 $ 33 ========= ========= ========= ========= ========= ========= ========= Tranche B/New Senior term Beginning balance $ 10,092 $ 10,115 $ 10,138 $ 10,161 $ 10,184 $ 10,207 $ 12,000 Additions 23 23 23 23 23 24 0 Prepayments of principal due to sale of assets 0 0 0 0 0 0 0 Scheduled principal payments 0 0 0 0 0 0 (132) --------- --------- --------- --------- --------- --------- --------- Ending balance $ 10,115 $ 10,138 $ 10,161 $ 10,184 $ 10,207 $ 10,231 $ 11,868 ========= ========= ========= ========= ========= ========= ========= Interest payments $ 105 $ 105 $ 105 $ 105 $ 105 $ 105 $ 71 ========= ========= ========= ========= ========= ========= ========= PIK interest payments $ 23 $ 23 $ 23 $ 23 $ 24 $ 24 $ 0 ========= ========= ========= ========= ========= ========= ========= Subordinated debt Beginning balance $ 60,000 $ 60,000 $ 60,000 $ 60,000 $ 60,000 $ 60,000 $ 15,000 Additions 0 0 0 0 0 0 0 Prepayments of principal due to sale of assets 0 0 0 0 0 0 0 Scheduled principal payments 0 0 0 0 0 0 0 Ending balance $ 60,000 $ 60,000 $ 60,000 $ 60,000 $ 60,000 $ 60,000 $ 15,000 ========= ========= ========= ========= ========= ========= ========= Interest payments $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 750 ========= ========= ========= ========= ========= ========= ========= AWG Debt Beginning balance $ 8,594 $ 8,439 $ 8,284 $ 8,128 $ 7,972 $ 7,815 $ 7,658 Additions 0 0 0 0 0 0 0 Principal payments (155) (155) (156) (156) (157) (157) (118) --------- --------- --------- --------- --------- --------- --------- Ending balance $ 8,439 $ 8,284 $ 8,128 $ 7,972 $ 7,815 $ 7,658 $ 7,540 ========= ========= ========= ========= ========= ========= ========= Interest payments $ 25 $ 25 $ 24 $ 24 $ 23 $ 23 $ 25 ========= ========= ========= ========= ========= ========= ========= Interest accrued $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 ========= ========= ========= ========= ========= ========= ========= New Note (Trade) Beginning balance $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 11,275 Additions 0 0 0 0 0 0 0 Principal payments 0 0 0 0 0 0 0 --------- --------- --------- --------- --------- --------- --------- Ending balance $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 11,275 ========= ========= ========= ========= ========= ========= ========= Interest payments $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 43 ========= ========= ========= ========= ========= ========= ========= Interest accrued $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 ========= ========= ========= ========= ========= ========= ========= Tranche W Beginning balance $ 16,500 $ 16,500 $ 16,500 $ 16,500 $ 16,500 $ 16,500 $ 0 Additions 0 0 0 0 0 0 0 Prepayments of principal due to sale of assets 0 0 0 0 0 0 0 Scheduled principal payments 0 0 0 0 0 0 0 Ending balance $ 16,500 $ 16,500 $ 16,500 $ 16,500 $ 16,500 $ 16,500 $ 0 ========= ========= ========= ========= ========= ========= ========= Interest payments $ 111 $ 111 $ 111 $ 111 $ 111 $ 111 $ 0 ========= ========= ========= ========= ========= ========= ========= Advance on Supply Agreement Beginning balance $ 1,550 $ 1,240 $ 830 $ 620 $ 318 $ 0 $ 0 Additions 0 0 0 0 0 0 0 Prepayments of principal due to sale of assets 0 0 0 0 0 0 0 Scheduled principal payments (310) (310) (310) (310) (310) 0 0 Ending balance $ 1,240 $ 830 $ 620 $ 310 $ 0 $ 0 $ 0 ========= ========= ========= ========= ========= ========= ========= Interest payments $ 48 $ 48 $ 48 $ 48 $ 48 $ 0 $ 0 ========= ========= ========= ========= ========= ========= ========= Capital Leases Beginning balance $ 2,195 $ 2,195 $ 2,195 $ 2,195 $ 2,195 $ 2,195 $ 1,353 Additions 0 0 0 0 0 0 0 Principal payments 0 0 0 0 0 0 (38) --------- --------- --------- --------- --------- --------- --------- Ending balance $ 2,195 $ 2,195 $ 2,195 $ 2,195 $ 2,195 $ 2,195 $ 1,315 ========= ========= ========= ========= ========= ========= ========= Interest payments $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 7 ========= ========= ========= ========= ========= ========= ========= Interest accrued $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 ========= ========= ========= ========= ========= ========= ========= Totals: Total ending debt balance 108,668 $ 98,551 101,134 102,825 $ 96,717 $ 96,584 $ 48,756 Total principal additions 23 23 23 23 23 24 0 Total principal payments (485) (485) (466) (466) (467) (157) (288) Total interest expense 383 344 323 338 328 254 886 Projected 2002 Period -------------------------------------------------------------------------- 8 9 10 11 12 13 --------- --------- --------- --------- --------- --------- Projected debt service Revolver Beginning balance $ 11,034 $ 12,103 $ 10,288 $ 9,813 $ 12,337 $ 14,814 Additions/(Payments) 1,069 (1,818) (474) 2,523 2,477 2,475 Ending balance 12,103 10,288 9,813 12,337 14,814 17,288 ========= ========= ========= ========= ========= ========= Interest payments $ 69 $ 67 $ 60 $ 56 $ 41 $ 98 ========= ========= ========= ========= ========= ========= Tranche B/New Senior term Beginning balance $ 11,868 $ 11,736 $ 11,604 $ 11,472 $ 11,340 $ 11,208 Additions 0 0 0 0 0 0 Prepayments of principal due to sale of assets 0 0 0 0 0 0 Scheduled principal payments (132) (132) (132) (132) (132) (132) --------- --------- --------- --------- --------- --------- Ending balance $ 11,736 $ 11,604 $ 11,472 $ 11,340 $ 11,208 $ 11,076 ========= ========= ========= ========= ========= ========= Interest payments $ 70 $ 70 $ 69 $ 68 $ 67 $ 66 ========= ========= ========= ========= ========= ========= PIK interest payments $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 ========= ========= ========= ========= ========= ========= Subordinated debt Beginning balance $ 15,000 $ 15,000 $ 15,000 $ 15,000 $ 15,000 $ 15,000 Additions 0 0 0 0 0 0 Prepayments of principal due to sale of assets 0 0 0 0 0 0 Scheduled principal payments 0 0 0 0 0 0 Ending balance $ 15,000 $ 15,000 $ 15,000 $ 15,000 $ 15,000 $ 15,000 ========= ========= ========= ========= ========= ========= Interest payments $ 0 $ 0 $ 0 $ 0 $ 0 $ 750 ========= ========= ========= ========= ========= ========= AWG Debt Beginning balance $ 7,540 $ 7,422 $ 7,304 $ 7,186 $ 7,068 $ 8,950 Additions 0 0 0 0 0 0 Principal payments (118) (118) (118) (118) (118) (118) --------- --------- --------- --------- --------- --------- Ending balance $ 7,422 $ 7,304 7,186 $ 7,068 $ 6,950 $ 8,832 ========= ========= ========= ========= ========= ========= Interest payments $ 25 $ 25 $ 24 $ 24 $ 23 $ 23 ========= ========= ========= ========= ========= ========= Interest accrued $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 ========= ========= ========= ========= ========= ========= New Note (Trade) Beginning balance $ 11,275 $ 11,275 $ 11,275 $ 11,275 $ 11,275 $ 11,275 Additions 0 0 0 0 0 0 Principal payments 0 0 0 0 0 0 --------- --------- --------- --------- --------- --------- Ending balance $ 11,275 $ 11,275 $ 11,275 $ 11,275 $ 11,275 $ 11,275 ========= ========= ========= ========= ========= ========= Interest payments $ 43 $ 43 $ 43 $ 43 $ 43 $ 43 ========= ========= ========= ========= ========= ========= Interest accrued $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 ========= ========= ========= ========= ========= ========= Tranche W Beginning balance $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Additions 0 0 0 0 0 0 Prepayments of principal due to sale of assets 0 0 0 0 0 0 Scheduled principal payments 0 0 0 0 0 0 Ending balance $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 ========= ========= ========= ========= ========= ========= Interest payments $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 ========= ========= ========= ========= ========= ========= Advance on Supply Agreement Beginning balance $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Additions 0 0 0 0 0 0 Prepayments of principal due to sale of assets 0 0 0 0 0 0 Scheduled principal payments 0 0 0 0 0 0 Ending balance $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 ========= ========= ========= ========= ========= ========= Interest payments $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 ========= ========= ========= ========= ========= ========= Capital Leases Beginning balance $ 1,315 $ 1,276 $ 1,238 $ 1,199 $ 1,161 $ 1,122 Additions 0 0 0 0 0 0 Principal payments (38) (38) (38) (38) (39) (38) --------- --------- --------- --------- --------- --------- Ending balance $ 1,276 $ 1,238 $ 1,199 $ 1,161 $ 1,122 $ 1,084 ========= ========= ========= ========= ========= ========= Interest payments $ 7 $ 7 $ 7 $ 7 $ 8 $ 4 ========= ========= ========= ========= ========= ========= Interest accrued $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 ========= ========= ========= ========= ========= ========= Totals: Total ending debt balance $ 47,538 $ 45,433 $ 44,870 $ 46,905 $ 49,094 $ 51,280 Total principal additions 0 0 0 0 0 0 Total principal payments (288) (288) (288) (288) (288) (288) Total interest expense 171 169 180 185 177 941
MCDONALD INVESTMENTS INC. RESTRUCTURING GROUP CHAPTER 11 MODEL CONFIDENTIAL - -------------------------------------------------------------------------------- DEBT SERVICE PAGE 17 (Dollars in Thousands)
Year ended December 31, -------------------------------------------- 2003 2004 2005 2006 -------- -------- -------- -------- Projected Debt Service Revolver Beginning balance $ 17,268 $ 15,033 $ 17,451 $ 14,945 Additions/(Payments) (2,256) 2,418 (2,506) (2,443) Ending balance 15,033 17,451 14,945 12,502 -------- -------- -------- -------- Interest payments $ 1,252 $ 1,259 $ 1,255 $ 1,084 ======== ======== ======== ======== Senior term debt Beginning balance $ 11,076 $ 9,362 $ 7,545 $ 5,934 Additions 0 0 0 0 Prepayments of principal due to sale of assets 0 0 0 0 Scheduled principal payments (1,714) (1,714) (1,714) (1,714) -------- -------- -------- -------- Ending balance $ 9,352 $ 7,548 $ 5,934 $ 4,220 ======== ======== ======== ======== Interest payments $ 792 $ 659 $ 528 $ 303 ======== ======== ======== ======== Interest accrued $ 31 $ 26 $ 20 $ 15 ======== ======== ======== ======== Subordinated debt Beginning balance $ 15,000 $ 15,000 $ 15,000 $ 15,000 Additions 0 0 0 0 Prepayments of principal due to sale of assets 0 0 0 0 Scheduled principal payments 0 0 0 0 Ending balance $ 15,000 $ 15,000 $ 15,000 $ 15,000 ======== ======== ======== ======== Interest payments $ 1,500 $ 1,500 $ 1,500 $ 1,500 ======== ======== ======== ======== AWG Debt Beginning balance $ 8,832 $ 5,300 $ 3,768 $ 2,236 Additions 0 0 0 0 Principal payments (1,532) (1,532) (1,532) (1,532) -------- -------- -------- -------- Ending balance $ 5,300 $ 3,768 $ 2,236 $ 704 ======== ======== ======== ======== Interest payments $ 232 $ 185 $ 98 $ 31 ======== ======== ======== ======== Interest accrued $ 0 $ 0 $ 0 $ 0 ======== ======== ======== ======== New Note (Trade) Beginning balance $ 11,275 $ 11,275 $ 11,275 $ 11,275 Additions 0 0 0 0 Principal payments 0 0 0 0 -------- -------- -------- -------- Ending balance $ 11,275 $ 11,275 $ 11,275 $ 11,275 ======== ======== ======== ======== Interest payments $ 564 $ 564 $ 564 $ 564 ======== ======== ======== ======== Interest accrued $ 0 $ 0 $ 0 $ 0 ======== ======== ======== ======== Tranche W Beginning balance $ 0 $ 0 $ 0 $ 0 Additions 0 0 0 0 Prepayments of principal due to sale of assets 0 0 0 0 Scheduled principal payments 0 0 0 0 Ending balance $ 0 $ 0 $ 0 $ 0 ======== ======== ======== ======== Interest payments $ 0 $ 0 $ 0 $ 0 ======== ======== ======== ======== Advance on Supply Agreement Beginning balance $ 0 $ 0 $ 0 $ 0 Additions Prepayments of principal due to sale of assets 0 0 0 0 Scheduled principal payments 0 0 0 0 Ending balance $ 0 $ 0 $ 0 $ 0 ======== ======== ======== ======== Interest payments $ 0 $ 0 $ 0 $ 0 ======== ======== ======== ======== Capital Leases Beginning balance $ 1,094 $ 584 $ 84 $ (74) Additions 0 0 0 0 Principal payments (504) (500) (158) 0 -------- -------- -------- -------- Ending balance $ 584 $ 84 $ (74) $ (74) ======== ======== ======== ======== Interest payments $ 60 $ 24 $ 0 $ (5) ======== ======== ======== ======== Interest accrued $ 0 $ 0 $ 0 $ 0 ======== ======== ======== ========
TOTALS: Total ending debt balance $ 45,278 $ 43,950 $ 38,040 $ 32,352 Total principal additions 0 0 0 0 Total principal payments (3,746) (3,746) (3,404) (3,240) Total interest expense 3,850 3,807 3,379 2,983
MCDONALD INVESTMENTS INC. RESTRUCTURING GROUP CHAPTER 11 MODEL CONFIDENTIAL - -------------------------------------------------------------------------------- RATIO ANALYSIS AND ASSUMPTIONS PAGE 18
Projected Period ---------------------------- --------------------------------------- 5 6 7 8 9 10 11 12 13 --- --- --- ---- ---- ---- --- --- --- PROFIT PERFORMANCE RATIOS: Return on sales (Operating inc./Sales) 1.2% 0.8% 1.0% (0.6)% (3.7)% (0.5)% 1.0% 0.6% 1.8% Return on equity [Net inc./equity] NA (2.1)% (0.4)% (2.5)% (14.6)% (7.7)% 0.1% (1.8)% 5.4% Return on assets (EBIT/average assets) NA NA 0.3% (0.2)% (0.9)% (0.3)% 0.2% 0.2% 0.5% LEVERAGE RATIOS: Debt to equity ratio NA 5.4 x 5.3 x 5.6 x 10.3 x 18.6 x 19.0 x 19.0 x 17.8 x Debt to total capital NA 84.3% 84.2% 84.9% 91.2% 94.9% 95.0% 95.0% 94.7% EBIT/Interest NA 0.4 0.8 (1.1) (4.5) (0.8) 1.1 0.7 2.3 [EBIT+depreciation-cap x]/interest NA 1.9 2.8 3.4 (1.8) 2.1 3.6 3.3 5.2 WORKING CAPITAL: Days sales in accounts receivable 7 7 7 8 8 9 9 9 9 Days cost of sales in inventories 48 45 45 49 46 48 49 47 44 Days cost of sales in A/P 19 17 17 17 10 10 10 10 10 Days operating exp in accrued expenses 5 5 5 5 5 5 5 5 5 Days SG&A exp in prepaid expenses 6 4 4 4 4 4 4 4 4 LIQUIDITY RATIOS: Quick ratio NA x 0.5 x 0.5 x 0.5 x 1.1 x 1.1 x 1.2 x 1.2 x 1.1 x Current ratio NA x 2.0 x 2.0 x 2.1 x 4.0 x 4.2 x 4.4 x 4.3 x 4.1 x
MCDONALD INVESTMENTS INC. RESTRUCTURING GROUP CHAPTER 11 MODEL CONFIDENTIAL - -------------------------------------------------------------------------------- RATIO ANALYSIS AND ASSUMPTIONS PAGE 19
Projected 2002 Period ------------------------------------------------------------------------------- 1 2 3 4 5 6 7 8 9 ----- ----- ---- ----- ---- ---- ---- ---- --- PROFIT PERFORMANCE RATIOS: Return on sales (Operating inc./Sales) (1.2)% 1.4% 2.3% (8.2)% 2.4% 1.3% 2.5% 1.8% 2.3% Return on equity [Net inc./equity] (12.7)% (11.0)% 29.4% 207.0% (3.1)% (1.1)% (0.8)% (1.4)% 2.1% Return on assets (EBIT/average assets) (0.6)% 0.7% 0.5% (2.1)% 0.5% 0.7% 0.7% 0.5% 0.7% LEVERAGE RATIOS: Debt to equity ratio 19.5 x 103.7 x 74.9 x (81.3) x (10.7) x (10.9) x 2.7 x 2.7 x 2.5 x Debt to total capital 95.1% 99.0% 98.7% 101.2% 110.3% 110.1% 72.7% 72.7% 71.5% EBIT/Interest (1.5) 1.6 3.0 (9.9) 2.4 1.8 0.8 4.2 5.7 [EBIT+depreciation-cap x]/interest 1.8 4.9 6.5 (6.6) 5.3 5.7 1.7 11.1 12.8 WORKING CAPITAL: Days sales in accounts receivable 9 9 9 9 9 9 9 9 9 Days cost of sales in inventories 44 46 47 44 46 45 45 49 46 Days cost of sales in A/P 10 10 10 10 10 10 12 12 12 Days operating exp in accrued expenses 5 5 5 5 5 5 3 3 3 Days SG&A exp in prepaid expenses 4 4 4 4 4 4 4 4 4 LIQUIDITY RATIOS: Quick ratio 1.2 x 1.3 x 1.3 x 1.2 x 1.7 x 1.4 x 1.0 x 1.0 x 1.0 x Current ratio 4.1 x 4.1 x 4.4 x 4.2 x 4.5 x 4.4 x 4.0 x 4.3 x 4.1 x Projected 2002 Period -------------------------------- 10 11 12 13 ----- ----- ----- ----- PROFIT PERFORMANCE RATIOS: Return on sales (Operating inc./Sales) 2.2% 3.0% 1.9% 3.4% Return on equity [Net inc./equity] 2.0% 2.7% 1.6% 0.5% Return on assets (EBIT/average assets) 0.6% 0.9% 0.6% 1.1% LEVERAGE RATIOS: Debt to equity ratio 2.4 x 2.5 x 2.5 x 2.8 Debt to total capital 70.8% 71.1% 71.5% 72.1% EBIT/Interest 6.1 7.7 4.6 1.2 [EBIT+depreciation-cap x]/interest 13.8 44.5 28.8 3.8 WORKING CAPITAL: Days sales in accounts receivable 9 9 9 9 Days cost of sales in inventories 48 49 47 44 Days cost of sales in A/P 14 14 14 16 Days operating exp in accrued expenses 3 3 3 3 Days SG&A exp in prepaid expenses 4 4 4 4 LIQUIDITY RATIOS: Quick ratio 0.9 x 0.9 x 0.8 x 0.7 x Current ratio 3.7 x 3.8 x 3.5 x 3.0 x
MCDONALD INVESTMENTS INC. RESTRUCTURING GROUP CHAPTER 11 MODEL CONFIDENTIAL - ------------------------------------------------------------------------------ RATIO ANALYSIS AND ASSUMPTIONS PAGE 20
2003 2004 2005 2006 ---- ---- ---- ---- Profit performance ratios: Return on sales (Operating Inc./Sales) 3.2% 3.0% 2.9% 2.7% Return on equity (Net Inc./equity) 14.6% 12.6% 11.1% 10.6% Return on assets (EBIT/average assets) 11.0% 21.0% 10.5% 10.3% Leverage ratios: x Debt to equity ratio 2.0 1.7 1.4 1.1 Debt to total capital 66.6% 63.0% 57.5% 51.7% EBIT/Interest 2.9 3.0 3.1 3.5 [EBIT plus depreciation - cap x]/Interest 7.0 8.2 7.4 8.5 Working capital: Days sales in accounts receivable 9 9 9 9 Days cost of sales in inventories 48 48 48 48 Days cost of sales in A/P 17 17 17 17 Days operating exp in accrued expenses 4 4 4 4 Days SG&A exp in prepaid expenses 4 4 4 4 Liquidity ratios: x Quick ratio 0.7 0.7 0.7 0.7 x Current ratio 3.0 3.0 3.0 3.0
MCDONALD INVESTMENTS INC. RESTRUCTURING GROUP CHAPTER 11 MODEL CONFIDENTIAL - -------------------------------------------------------------------------------- STORE CLOSING AND LEASE SALE ASSUMPTIONS PAGE 21 (Dollars in Thousands)
2001 Stores Closed -------------------------------------------------------------------------------------- Period 9 Period 10 -------------------------------- ----------------------------------- 793 794 882 887 Total 545 550 574 883 Total ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- Inventory write-off % of period 3 Inventory 1.56% 1.50% 1.55% 1.54% 6% 0.93% 1.43% 1.79% 1.65% 6% Closing period Inventory 796 766 788 786 3.136 489 747 935 862 3.032 Write-off 30% 239 230 236 236 941 147 224 280 259 910 ----- ----- Fixed asset write-off % of period 3 PP&E 0.74% 0.84% 0.27% 1.04% 1.15% 0.77% 3.29% 1.00% % of period 3 Accum Depr 0.24% 0.27% 0.21% 0.36% 0.78% 0.91% 1.59% 0.46% Closing period PP&E 821 930 299 1,152 3,202 990 855 2,370 1,109 5,324 Closing period Accum Depr 106 118 92 159 475 352 412 717 206 1,686 Write-off 100% 821 930 299 1,152 3,202 990 855 2,370 1,109 5,324 ----- Write-off 100% 108 118 92 159 475 352 412 717 208 1,688 ----- ----- Cash Proceeds from sale of real estate 595 2,135 2,730 ----- Rejection damage claims Annual Rent 240 517 294 252 0 49 0 286 Annual Real Estate Taxes 26 41 15 23 10 13 30 15 Annual Personal Property Taxes 28 23 7 22 8 12 20 15 ----- ----- ----- ----- ----- ----- ----- ----- Total 294 581 316 297 19 74 50 316 12 months for rejection of lease 294 581 316 297 1,489 19 74 50 316 459 ----- ----- General closing costs 50 50 50 50 200 50 50 50 50 200 ----- ----- Union Severance 22 22 22 22 89 22 22 22 22 89 ----- ----- Management Severance 32 32 32 32 127 32 32 32 32 127 ----- ----- 2002 Period 4 Leases Sold --------------------------------------------- 26 528 529 561 582 587 Total ----- ----- ----- ----- ----- ----- ----- Inventory write-off % of period 3 Inventory 0.85% 1.28% 2.09% 1.90% 1.36% 1.71% 6% Closing period Inventory 339 511 834 760 542 684 3,669 Write-off 30% 102 153 250 228 163 205 1,101 ----- Fixed asset write-off % of period 3 PP&E 0.19% 0.11% 4.23% 1.04% 0.84% 1.28% % of period 3 Accum Depr 0.37% 0.20% 3.10% 1.88% 1.21% 1.57% Closing period PP&E 167 100 3,792 933 751 1,150 6,892 ----- Closing period Accum Depr 161 87 1,360 825 534 689 3,657 ----- Write-off 100% 167 100 3,792 933 751 1,150 6,892 ----- Write-off 100% 161 87 1,360 825 534 689 3,657 ----- General closing costs 50 50 50 50 50 50 300 ----- Union Severance 22 22 22 22 22 22 133 ----- Management Severance 32 32 32 32 32 32 191 ----- Sale proceeds Cash received for sale of lease Assumes that expenses incurred and cash proceeds net to 0
MCDONALD INVESTMENTS INC. RESTRUCTURING GROUP CHAPTER 11 MODEL CONFIDENTIAL - -------------------------------------------------------------------------------- STORE SALE ASSUMPTIONS PAGE 22
END OF 2002 PERIOD 1 (Dollars in Thousands) SELL STORE AS A GOING CONCERN ----------------------------------------------------------------------------------------------- 105 122 145 164 167 183 192 207 502 503 ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- Fixed asset value/sale price % of period 3 PP&E 2.48% 0.27% 1.10% 0.93% 1.28% 0.43% 0.38% 1.67% 0.84% 0.26% % of period 3 Accum Depr 1.00% 0.41% 1.23% 1.05% 1.47% 0.59% 0.62% 1.93% 0.77% 0.38% Closing period PP&E 2,506 268 1,106 934 1,291 439 379 1,683 649 257 Closing period Accum Depr 474 197 584 409 697 252 294 918 366 182 Book Value 2,033 71 521 434 594 157 85 765 283 76 % of book sale price 50% 1,016 36 261 217 297 79 43 383 142 38 PP&E write off 1,253 134 553 467 545 219 189 841 325 129 Accum Depr write off 237 99 292 250 349 141 147 459 183 91 Current asset value/sale price Accounts receivable Retained and collected by Homeland Inventory write-off % of period 3 inventory 1.69% 1.04% 1.06% 1.09% 1.40% 1.22% 1.45% 1.54% 1.17% 0.78% Closing period inventory 750 482 487 505 649 564 670 712 542 351 Write-off 30% 234 145 146 152 195 169 201 214 163 105 Union Severance 22 22 22 22 22 22 22 22 22 22 Management Severance 32 32 32 32 32 32 32 32 32 32 END OF 2002 PERIOD 1 SELL STORE AS A GOING CONCERN ----------------------------------- 549 553 578 795 TOTAL ----- ----- ----- ----- ------ Fixed asset value/sale price % of period 3 PP&E 0.55% 0.60% 0.93% 0.35% % of period 3 Accum Depr 0.64% 0.92% 1.00% 0.12% Closing period PP&E 558 608 936 354 11,967 Closing period Accum Depr 304 437 475 58 5,767 Book Value 252 171 461 297 6,201 % of book sale price 126 85 231 148 3,100 ------ PP&E write off 278 304 468 177 5,984 ------ Accum Depr write off 152 219 238 29 2,883 ------ Current asset value/sale price Accounts receivable Inventory write-off % of period 3 inventory 1.04% 1.11% 0.84% 1.40% Closing period inventory 483 511 388 646 Write-off 145 153 116 194 2,331 ------ Union Severance 22 22 22 22 310 ------ Management Severance 32 32 32 32 446 ------
END OF 2002 PERIOD 4 SELL STORE AND REJECT LEASE ------------------------------------------------------- 600 601 603 604 605 677 TOTAL ----- ----- ----- ----- ----- ----- ----- Fixed asset value/sale price % of period 3 PP&E 1.78% 1.87% 1.83% 0.84% 1.18% 1.69% % of period 3 Accum Depr 1.78% 3.20% 1.72% 1.43% 2.00% 1.31% Closing period PP&E 1,595 1,677 1,635 748 1,056 1,516 8,230 Closing period Accum Depr 781 1,404 755 627 880 576 5,024 Book Value 813 273 882 122 175 941 3,207 % of book sale price 50% 407 137 441 61 88 470 1,803 ----- PP&E write off 797 839 819 374 528 758 4,115 ----- Accum Depr write off 391 702 378 313 440 288 2,512 ----- Current asset value/sale price Accounts receivable Retained and collected by Homeland Inventory write-off % of period 3 inventory 1.97% 2.77% 2.25% 2.04% 2.59% 1.75% Closing period inventory 912 1,280 1,036 941 1,198 808 Write-off 30% 274 384 311 282 359 243 1,853 ----- Rejection damage claims Annual Rent 270 325 261 168 334 0 1,358 Annual Real Estate Taxes 38 66 47 31 35 33 248 Annual Personal Property Taxes 21 40 31 23 33 22 171 ----- ----- ----- ----- ----- ----- ----- Total 329 431 338 222 402 55 1,778 12 months for rejection of lease 329 431 338 222 402 55 1,778 -----
MCDONALD INVESTMENTS INC. RESTRUCTURING GROUP CHAPTER 11 MODEL CONFIDENTIAL - -------------------------------------------------------------------------------- TRANSACTION OVERVIEW - CHAPTER 11 FILING PAGE 23 (Dollars In Thousands) TRANSACTION DESCRIPTION - ----------------------- SOURCES Revolver (Tranche A) $ 15,312 Tranche B $ 10,000 Subordinated debt $ 60,000 AWG Debt $ 9,361 Capital Leases $ 2,195 Critical Vendor Payment $ 0 Trance W 16,500 Advance on Supply Agreement 3,100 Total -------- $116,468 ======== USES Revolver (Tranche A) $ 30,975 Senior term debt $ 7,029 Subordinated debt $ 60,000 AWG Debt $ 9,361 Capital Leases $ 2,195 Critical vendor payment 5,700 Transaction Expenses $ 1,208 -------- Total $116,468 ========
DEBT TERMS Prime rate 6.75%
Principal Amortization amort. Rate Term (yrs) Period (yrs) starts yr ---- ---------- ------------ --------- Revolver (Tranche A) 7.75% 2.0 -- -- Tranche B 13.50% 1.5 2 1 AWG Debt 7.75% 5 1 Tranche W 8.75% 1.5 7 1
REAL ESTATE PORTION OF REVOLVER/TRANCHE B
Advance Assumption Amount rate Available ---------- ------- ------- --------- Real Estate FMV 100.0% $20,000 40.0% $8,000 Leaseholds--value appraised $ 9,300 30.0% $2,790 TRANCHE W COLLATERAL Store Equipment - Orderly liquidation value $ 5,000 85.0% $4,250
Advance Effective REVOLVER LINE Amount Eligible rate rate Available -------- -------- ------- --------- --------- Inventory Grocery $ 28,630 57.1% 85.0% 48.5% $13,895 Beer & Wine $ 222 0.0% 85.0% 0.0% $ 0 Produce $ 798 0.0% 85.0% 0.0% $ 0 Meat $ 2,788 0.0% 85.0% 0.0% $ 0 Deli $ 598 0.0% 85.0% 0.0% $ 0 Bakery $ 533 0.0% 85.0% 0.0% $ 0 Pharmacy $ 6,049 57.1% 85.0% 48.5% $ 2,936 Health & Beauty $ 13,213 57.1% 85.0% 48.5% $ 6,413 Consignment $ (159) 0.0% 85.0% 0.0% $ 0 Reserve $ (312) 0.0% 85.0% 0.0% $ 0 -------- ----- ----- ----- ------- Total $ 52,360 44.4% $23,245 Receivables Store charges $ 710 0.0% 65.0% 0.0% $ 0 Pharmacy $ 1,639 90.0% 65.0% 58.5% $ 959 Coupons $ 622 90.0% 65.0% 58.5% $ 364 AWG $ 4,434 0.0% 65.0% 0.0% $ 0 Retail trade $ 3,727 0.0% 65.0% 0.0% $ 0 Rents $ 5 0.0% 65.0% 0.0% $ 0 Other $ 655 0.0% 65.0% 0.0% $ 0 Allow doubtful accounts $ (277) 0.0% 65.0% 0.0% $ 0 -------- ------- Total $ 11,516 $ 1,323 -------- ------- Total $107,693 22.8% $24,568 ======== =======
MCDONALD INVESTMENTS INC. RESTRUCTURING GROUP SCHEDULE 3.4(D) TO CREDIT AGREEMENT FAIR SALABLE BALANCE SHEET The Fair Sale Balance Sheet of the Borrowers is attached as Schedule 3.4(d). Homeland Stores, Inc. Pro Forma and Resalable Balance Sheets (in 00 Pro Forma As of June 16, 2001
Fair Resalable As of Resalable As of June 16, Value June 16, 2001 Adjustments 2001 ----------- ----------- --------- Current assets: Cash and cash equivalents 8,760 0 8,760 Receivables 9,980 0 9,980 Inventories 50,123 0 50,123 Prepaid expenses 1,169 0 1,169 ------- ------- ------- Total Current Assets 70,032 0 70,032 Property, plant & equipment: Land and land improvements 8,797 (1,586) (a) 7,211 Buildings 21,716 (3,584) (b) 18,132 Fixtures and equipment 43,519 0 43,519 Leasehold improvements 20,654 0 20,654 Software 7,574 0 7,574 Leased assets under capital leases 9,402 0 9,402 Construction in progress 337 0 337 ------- ------- ------- Total property, plant & equipment 111,999 (5,170) 106,829 Less accumulated depreciation (44,382) 0 (44,382) ------- ------- ------- Net property, plant and equipment 67,617 (5,170) 62,447 Other Assets 26,179 0 26,179 ------- ------- ------- Total Assets 163,828 (5,170) 158,658 ======= ======= ======= Current liabilities: Trade payables 18,653 0 18,653 Salaries and wages 1,864 0 1,864 Taxes 4,632 0 4,632 Accrued interest payable 2.802 0 2,802 Other current liabilities 9,273 0 9,273 Long-term obligations in default 60,071 0 60,071 Current portion of long-term debt 46,722 0 46,722 Current portion of capital leases 564 0 564 ------- ------- ------- Total current liabilities 144,581 0 144,581 Long-term obligations: Long-term debt 0 0 0 Capital leases 1,723 0 1,723 Other noncurrent liabilities 2,077 0 2,077 ------- ------- ------- Total long-term obligations 3,800 0 3,800 Stockholders Equity: Common stock 49 0 49 Additional paid-in capital 56,274 0 56,274 Accumulated deficit (40,188) (5,170) (45,358) Accumulated other comprehensive income (688) 0 (688) ------- ------- ------- Total stockholders equity 15,447 (5,170) 10,277 ------- ------- ------- Total liabilities and stockholders equity 163,828 (5,170) 158,658 ======= ======= =======
(a) Represents adjustments to undeveloped land parcels only, pursuant to the July 2001 appraisals performed by DJM. (b) Represents adjustments to the cost values of operating stores, pursuant to the July 2001 appraisals performed by DJM (appraisal value includes both land and building and no attempt was made to separate the two classifications.) SCHEDULE 3.6 TO CREDIT AGREEMENT REAL ESTATE AND LEASES SCHEDULE 3.6 TO CREDIT AGREEMENT REAL ESTATE AND LEASES
STORE NO. ADDRESS COUNTY COMMENTS - --------- ------- ------ -------- 1. 26 520 Minnesota Grady Leased Chickasha, OK 2. 101 1100 W. Main Cleveland Leased Norman, OK 3. 102 8922 S. Memorial Tulsa Owned Tulsa, OK 74133 4. 105 1315 N. Eastern Oklahoma Owned Moore, OK 73160 5. 107 NWC Coltrane & Danforth Oklahoma Owned/Undeveloped Land. Edmond, OK 6. 109 119th & South Western Cleveland Owned/Undeveloped Land. Oklahoma City, OK 7. 119 U.S. 82 & Hwy. 78 Fannin Owned/Undeveloped Land Bonham, TX 8. 122 6473 N. MacArthur Oklahoma Leased Oklahoma City, OK 9. 125 3828 W. Owen K. Gariott Garfield Part Owned/Part Leased. Enid, OK 73703 10. 127 759 Grand Avenue Grady Part Owned/Part Leased. Chickasha, OK 73018 11. 141 1402 N. Main St. Texas Leased Guymon, TX 12. 145 1800 Central Ford Leased Dodge City, KS 13. 146 1701 N. Milt Phillips Seminole Leased Seminole, OK 14. 148 1212 Choctaw Custer Leased Clinton, OK 15. 153 1108 N.W. 18th Oklahoma Leased Oklahoma City, OK 16. 154 2016 N.W. 39th St. Oklahoma Leased Oklahoma City, OK
STORE NO. ADDRESS COUNTY COMMENTS - --------- ------- ------ -------- 17. 161 510 N. Commerce Carter Leased Ardmore, OK 18. 163 4308 S.E. 44th Oklahoma Leased Oklahoma City, OK 19. 164 706 Flynn Woods Part Owned/Part Leased Alva, OK 73717 20. 167 1310 Oklahoma Ave. Woodward Leased Woodward, OK 21. 170 412 W. Third Beckham Part Owned/Part Leased Elk City, OK 22. 178 505 S. Chickasaw Garvin Leased Pauls Valley, OK 23. 181 12508 N. May Ave. Oklahoma Leased Oklahoma City, OK 24. 182 1401 Beech Ave. Stephens Part Owned/Part Leased Duncan, OK 25. 183 3020 N.W. 16th St. Oklahoma Leased Oklahoma City, OK 26. 188 220 E. Cleveland Logan Owned Guthrie, OK 73044 27. 192 415 S.W. 59th Oklahoma Leased Oklahoma City, OK 28. 193 301 N.W. 67th Street Comanche Owned Lawton, OK 73505 29. 195 4301 S. May Ave. Oklahoma Own Building/Land Leased Oklahoma City, OK 30. 196 2705 N. Harrison Pottawatomie Leased Shawnee, OK 31. 197 11241 W. Reno Canadian Leased Oklahoma City (Yukon), OK 32. 200 1724 W. Lindsey Rd. Cleveland Leased Norman, OK 33. 204 115 E. Highway 152 Canadian Leased Mustang, OK 34. 206 11120 N. Rockwell Oklahoma Owned Oklahoma City, OK 73132 35. 207 9320 N. Penn Oklahoma Leased Oklahoma City, OK 36. 208 2205 W. Edmond Road Oklahoma Owned Edmond, OK 73034
STORE NO. ADDRESS COUNTY COMMENTS - --------- ------- ------ -------- 37. 457 3948 S. Peoria Tulsa Leased Tulsa, OK 38. 495 310 W. Trudgeon Okmulgee Owned Henryetta, OK 74437 39. 502 2235 E. 61st St. Tulsa Leased Tulsa, OK 40. 503 1110 S. Denver Tulsa Leased Tulsa, OK 41. 515 915 S. Madison Washington Leased Bartlesville, OK 42. 528 12011 S. Memorial Tulsa Leased Bixby, OK 43. 529 3405 S. Georgia Randall Leased Amarillo, TX 44. 538 504 E. Graham Mayes Owned Pryor, OK 74361 45. 545 12572 E. 21st Street Tulsa Owned Tulsa, OK 74129 46. 549 400 Plaza Court Tulsa Leased Sand Springs, OK 47. 550 6402 E. Pine Tulsa Leased Tulsa, OK 48. 553 575 N. Gilcrease Museum Road Osage Leased (a/k/a 575 N. 26th W. Avenue] Tulsa, OK 49. 561 708 S. Aspen Tulsa Leased Broken Arrow, OK 50. 563 811 E. Frank Phillips Blvd. Washington Owned Bartlesville, OK 74003 51. 567 3139 S. Harvard Tulsa Leased Tulsa, OK 52. 573 19302 E. Admiral Blvd. Wagoner Leased Tulsa, OK 53. 574 2351 E. Kenosh Tulsa Owned Broken Arrow, OK 74012 54. 578 700 E. Cherokee Wagoner Leased Wagoner, OK 55. 582 230 W. 1st Moore Leased Dumas, TX 56. 587 101 W. 10th St. Hutchinson Leased Borger, TX
STORE NO. ADDRESS COUNTY COMMENTS - --------- ------- ------ -------- 57. 598 401 S. Western Potter Owned Store Closed - May Amarillo, TX 29, 1998 58. 600 7302 S.W. 34th Randall Leased Amarillo. TX 59. 601 4111 Plains Potter Leased Amarillo, TX 60. 603 3505 N.E. 24th Potter Leased Amarillo, TX 61. 604 202 N.23rd Randall Leased Canyon, TX 62. 605 535 N. 25 Mile Ave. Deaf Smith Leased Hereford, TX 63. 677 5811 S. Western Randall Owned f/k/a 599 Amarillo, TX 79109 64. 778 4001 S. 97 Highway Tulsa Leased Sand Springs, OK 65. 793 7001 Northwest Expressway Oklahoma Leased Oklahoma City, OK 66. 794 2121 N.W. 23rd Oklahoma Leased Oklahoma City, OK 67. 795 1202 N.W. 40th Comanche Leased Lawton, OK 68. 796 10700 S. Penn Cleveland Leased Oklahoma City, OK 69. 850 316 E. Main Osage Leased Pawhuska, OK 70. 851 702 Fir Street Noble Leased Perry, OK 71. 852 305 S. Broadway Pawnee Leased Cleveland, OK 72. 853 1629 S. Main Delaware Leased Jay, OK 73. 854 310 S. Main Kay Leased Blackwell, OK 74. 855 108 S. Division Okfuskee Leased Okemah, OK 75. 856 813 E. Cherokee Nowata Leased Nowata, OK 76. 857 102 Haskell Blvd. Muskogee Leased Haskell, OK
STORE NO. ADDRESS COUNTY COMMENTS - --------- ------- ------ -------- 76. 857 102 Haskell Blvd. Muskogee Leased Haskell, OK 77. 880 3115 W. Okmulgee St. Muskogee Leased Muskogee, OK 78. 881 1300 S. York Muskogee Leased Muskogee, OK 79. 882 800 E. Okmulgee Muskogee Leased Muskonee, OK 80. 883 6 East Shawnee Muskogee Leased Muskogee, OK 81. 886 24 S.E. 33rd Street Oklahoma Leased Edmond, OK 82. 887 2213 S.W. 74th Street Oklahoma Leased Oklahoma City, OK 83. 2601 Northwest Expressway Oklahoma Leased Suite 1100 East Oklahoma City, OK 84. 4901 N. Cooper Oklahoma Leased Oklahoma City, OK(1) 4701 N. Stiles Oklahoma Leased Oklahoma City, OK 3815 N. Santa Fe Oklahoma Leased Oklahoma City, OK(2)
- --------- (1) Expired and vacated on 9/4/01. (2) Warehouse/storage vacated on 9/30/01. SCHEDULE 3.7 TO CREDIT AGREEMENT LABOR MATTERS Homeland Stores, Inc. is a party to the following collective bargaining agreements: (1) the Agreement dated August 5, 1996, by and between Homeland Stores, Inc. and the United Food & Commercial Workers Union, as amended by the Memorandum of Understanding dated August 1, 200l; (2) the Articles of Agreement dated August 4, 1996, by and between the Bakery, Confectionary and Tobacco Workers International Union and Homeland Stores, Inc. and (3) the Contract dated in August, 1996, by and between Homeland Stores, Inc. and UFCW International Union Local No. 1000, UFCW District Local Two and Local 540, as amended by the Memorandum of Understanding dated August 1,2001. Homeland Holding Corporation is not a party to any collective bargaining agreement. SCHEDULE 3.8 TO CREDIT AGREEMENT VENTURES, SUBSIDIARIES AND AFFILIATES; OUTSTANDING STOCK Homeland Holding Corporation owns all of the issued and outstanding shares of capital stock of Homeland Stores, Inc.. Homeland Stores, Inc. owns all of the issued and outstanding shares of capital stock of SLB Marketing, Inc. Homeland Stores, Inc. also owns the shares of capital stock which are listed on the attachment to this Schedule 3.8. SLB Marketing, Inc. owns all of the issued and outstanding shares of capital stock of JCH Beverage, Inc. Homeland Holding Corporation, Homeland Stores, Inc., JCH Beverage, Inc. and SLB Marketing, Inc. are all Affiliates of each other. The following persons are the directors and the officers of Homeland Holding Corporation, each of whom may be deemed to be an Affiliate of Homeland Holding Corporation and Homeland Stores, Inc. John A. Shields Chairman of the Board David B. Clark President, Chief Executive Officer And Director Wayne S. Peterson Senior Vice President, Chief Financial Officer and Secretary Debbie S. Brown Vice President, Corporate Controller, Treasurer and Assistant Secretary Robert E. Burris Director Edward W. Krekeler, Jr. Director Laurie M. Shahon Director William B. Snow Director According to the most recent filings made by such persons with the Securities and Exchange Commission, the following persons own more than 5% of the issued and outstanding shares of Common Stock of Homeland Holding Corporation: (a) Fir Tree Partners and affiliates (371,195); (b) Ironwood Capital Management, LLC (424,700 shares) and (c) Soros Fund Management, LLC (640,541 shares). Homeland Holding Corporation and Homeland Stores, Inc. have also committed to issue a warrant to Associated Wholesale Grocers, Inc. in accordance with the Credit Agreement. The following persons are the directors and the officers of Homeland Stores, Inc., each of whom may be deemed to be an Affiliate of Homeland Holding Corporation and Homeland Stores, Inc. John A. Shields Chairman of the Board David B. Clark President, Chief Executive Officer And Director Wayne S. Peterson Senior Vice President, Chief Financial Officer and Secretary John C. Rocker Vice President -- Operations Steven M. Mason Vice President -- Marketing Debbie S. Brown Vice President, Corporate Controller, Treasurer and Assistant Secretary Prentess E. Alletag, Jr. Vice President -- Human Relations Robert E. Burris Director Edward W. Krekeler, Jr. Director Laurie M. Shahon Director William B. Snow Director HOMELAND STORES INC. INVESTMENTS-YEAR 2001 AS OF 12/29/01
Issue # Shares Value Total ----- -------- ----- ----- Farm Fresh Stock 1 10.00 10.00 AWG Capital Stock 04/21/95 15 1,165.00 17,475.00 Farm Fresh 1995 944 0.00 0.00 Farm Fresh 1996 1889 0.00 0.00 AWG Patronage Certificates 12/30/95 12875 643,129.61 AWG Patronage Certificates 12/30/95 23858 500,000.00 AWG Patronage Certificates 12/30/95 23859 500,000.00 1,643,129.61 AWG Patronage Certificates 12/28/96 24236 500,000.00 AWG Patronage Certificates 12/28/96 24237 500,000.00 AWG Patronage Certificates 12/28/96 24238 500,000.00 AWG Patronage Certificates 12/28/96 24239 500,000.00 AWG Patronage Certificates 12/28/96 24240 608,994.62 2,608,994.62 AWG Patronage Certificates 12/27/97 24617 500,000.00 AWG Patronage Certificates 12/27/97 24618 500,000.00 AWG Patronage Certificates 12/27/97 24619 500,000.00 AWG Patronage Certificates 12/27/97 24620 898,979.97 2,398,979.97 AWG Patronage Certificates 12/26/98 24971 500,000.00 AWG Patronage Certificates 12/26/98 24972 500,000.00 AWG Patronage Certificates 12/26/98 24973 500,000.00 AWG Patronage Certificates 12/26/98 24974 967,148.40 2,467,148.40 AWG Patronage Certificates 12/25/99 25333 500,000.00 AWG Patronage Certificates 12/25/99 25333 500,000.00 AWG Patronage Certificates 12/25/99 25334 500,000.00 AWG Patronage Certificates 12/25/99 25335 500,000.00 AWG Patronage Certificates 12/25/99 25336 607,405.43 2,607,405.43 AWG Patronage Certificates 12/30/00 25667 500,000.00 AWG Patronage Certificates 12/30/00 25668 500,000.00 AWG Patronage Certificates 12/30/00 25669 500,000.00 AWG Patronage Certificates 12/30/00 25670 655,542.92 2,155,542.92 Total 2001 13,898,685.95 =============
SCHEDULE 3.11 TO CREDIT AGREEMENT TAX MATTERS None. SCHEDULE 3.12 TO CREDIT AGREEMENT ERISA PLANS Bakers and Confectionary International Pension Fund(1) Homeland Stores, Inc. Employee Stock Ownership Plan(2) Homeland Stores, Inc. Employees' Retirement Plan(3) Homeland Stores, Inc. Medical/Dental Plan Homeland Stores, Inc. Profit Plus Plan Kansas City Area Retail Food Store Employees Pension Fund(4) United Food and Commercial Workers Mid-America Health and Welfare Plan(5) United Food and Commercial Workers Union and Employers Midwest Benefits Fund(6) United Food and Commercial Workers National Pension Plan(7) Union Food and Commercial Workers Union and Employers Pension Fund(8) - --------- (1) This Plan is a Multi-Employer Plan and Title IV Plan. (2) This Plan is an ESOP. (3) This Plan is a Title IV Plan. (4) This Plan is a Multi-Employer Plan and a Title IV Plan. (5) This Plan is a Multi-Employer Plan. (6) This Plan is a Multi-Employer Plan. (7) This Plan is a Multi-Employer Plan and a Title IV Plan. (8) This Plan is a Multi-Employer Plan and a Title IV Plan. SCHEDULE 3.13 TO CREDIT AGREEMENT LITIGATION The threatened and pending Litigation (other than the Bankruptcy Cases) is listed on the attachment to this Schedule 3.13. To: Wayne Peterson GL Litigation 8/13/01 David Clark From: Craig Nelson
Plaintiff Store# D/L Claim# Incurred Expenses ---------------------------------------- Legal Other Claim ------------------------ ------ -------- ------- ----------- ------------ --------- --------- 1 Rhodes Aja 598 11/27/96 H $ 7,500.00 $ 2,541.22 $ 658.55 $ -- =========== =========== ========= ========= 2 Babiak Mark 151 10/10/97 BVI8477 $ 11,500.00 $ 3,851.35 3 Cagle Bill 146 10/12/97 BVI8502 $ 30,000.00 $ 18,321.60 4 Ebert Lynn 574 10/9/97 $ -- $ -- 5 Hill Nancy 553 9/15/97 BPF5962 $ 9,500.00 $ 3,974.37 =========== =========== ========= ========= 7 Davis Alma 550 10/5/98 AXH8137 $ 7,500.00 $ 2,546.33 8 Dugger Tereasa 495 4/30/98 BKT4075 $ 9,500.00 $ 6,663.40 $1,574.40 9 Inbody Billie 578 5/16/98 BKT6110 $ 10,000.00 $ 933.51 10 Powell Mary Louise 208 1/21/98 BPF5968 $ 23,500.00 $ 9,090.39 11 Stafford Darlene 208 8/12/98 BHC7697 $ 10,000.00 $ 3,781.43 $ 50.00 12 Tatum Patricia 563 6/20/98 BHC0768 $ 9,000.00 $ 874.59 13 VanErmen Louis 174 8/7/98 BHC7161 $140,000.00 $ 22,486.92 $1,252.58 $ 100.000* =========== =========== ========= ========= 14 Bushnell Judy 163 4/6/99 12305 $ 5,500.00 $ 4,865.34 $ 275.00 15 Helm Margaretta 778 9/8/99 $ 3,500.00 $ -- 16 McClain Oma 154 10/9/99 $ 400.00 $ -- 17 Peoples Lucille 495 9/26/99 15573 $ 9,744.39 $ 1,744.39 $ -- 18 Ridener Pam 529 1/1/99 13472 $171,028.30 $ 17,076.19 $ -- =========== =========== ========= ========= 19 Hayes Diana 151 9/8/00 21401 $ 8,000.00 $ 1,186.44 20 Lee Michelle 207 7/5/00 21576 $ 6,500.00 $ 481.09 21 Thomas Kenya 207 10/27/00 $ 1,000.00 22 Truitt Robt & Nina 153 2/28/00 17960 $ 3,000.00 $ 2,565.00 =========== =========== ========= ========= TOTALS $476,672.69 $102,984.16 $3,151.98 =========== =========== ========= Plaintiff Total Paid Cause Trial ------------------------ ---------- ----- ----- 1 Rhodes Aja $ 3,199.77 S&F x ============ 2 Babiak Mark $ 3,851.35 Tripped/mat 3 Cagle Bill $ 18,321.60 S&F Def verdict 4 Ebert Lynn -- S&F 5 Hill Nancy $ 3,974.37 Held against will ============ 7 Davis Alma $ 2,546.33 Struck by cart x 8 Dugger Tereasa $ 8,237.80 S&F x 9 Inbody Billie $ 933.51 S&F x 10 Powell Mary Louise $ 9,090.39 Tripped/mat x 11 Stafford Darlene $ 3,831.43 Hit/piece of display 12 Tatum Patricia $ 874.59 S&F 13 VanErmen Louis $ 23,739.50 S&F On appeal ============ 14 Bushnell Judy $ 5,140.34 Tripped/curb x 15 Helm Margaretta $ -- S&F 16 McClain Oma $ -- Fell/sidewalk 17 Peoples Lucille $ 1,744.39 S&F/curb-rain x 18 Ridener Pam $ 17,076.19 Fell/hole-parking lot ============ 19 Hayes Diana $ 1,186.44 S&F 20 Lee Michelle $ 481.09 S&F 21 Thomas Kenya $ -- S&F/entrance-rain 22 Truitt Robt & Nina $ 2,565.60 Harassment ============ TOTALS $ 106,136.14 ============
*On appeal, not likely to be decided until 05-2002 Summary SCHEDULE 3.15 TO CREDIT AGREEMENT INTELLECTUAL PROPERTY The intellectual property of Homeland Stores, Inc. is listed on the attachment to this Schedule 3.15. Federal Registrations/Applications: 1. H (and design) (Reg.# 1,555,307) 042 - Grocery store services 2. HOMELAND (Reg.# 1,645,401) 029 - Eggs 3. HOMELAND (Reg.# 1,650,397) 042 - Retail grocery store services 4. A GOOD DEAL BETTER (Stylized) (Reg.# 1,820,865) 042 - Retail grocery store services 5. HOMELAND (Serial No. 78/066,230) 029 - Milk and milk products; namely cottage cheese and sour cream 6. HOMELAND (Serial No. 78/066,216) 030 - Ice Cream 7. HOMELAND (Serial No. 78/066,210) 032 - Orange Juice State Registrations: 8. "H" in a circle above rolling hills (Kansas Reg.# 011,295) 001 - Grocery store services 9. "H" in a circle above rolling hills (Oklahoma Reg.# 29808) 100 - Grocery store services 10. H (and design) (Texas Reg.# 49085) 042 - Grocery store services 11. HOMELAND (& DESIGN) (Kansas Reg.# 011,314) 001 - Grocery store services 12. HOMELAND (Oklahoma Reg.# 29807) 100 - Grocery store services 13. HOMELAND (Texas Reg.# 49194) 100 - Eggs 14. HOMELAND (Texas Reg.# 49195) 042 - Grocery store services SCHEDULE 3.17 TO CREDIT AGREEMENT HAZARDOUS MATERIALS None. SCHEDULE 3.18 TO CREDIT AGREEMENT INSURANCE The insurance maintained by Homeland Stores, Inc. is described and listed on the attachment to this Schedule 3.18. Homeland Holding Corporation does not maintain any insurance. MARSH USA INC. CERTIFICATE OF INSURANCE [ILLEGIBLE] MARSH USA INC. CERTIFICATE OF INSURANCE [ILLEGIBLE] SCHEDULE 3.19 TO CREDIT AGREEMENT DEPOSIT AND DISBURSEMENT ACCOUNTS The deposit and other accounts maintained by Homeland Stores, Inc. are listed on the attachment to this Schedule 3.19. Homeland Holding Corporation does not maintain any deposit or other accounts. CASH MANAGEMENT HOMELAND STORES, INC. BANK ACCOUNTS
STORE AREA AREA NO. BANK NAME ADDRESS TOWN ST ZIP CODE PHONE CODE FAX 26 First National Bank 302 Chickasha Chickasha OK 73023-1 405 224-2200 405 222-5053 101 Bank of America OK 1-100-03-02 211 N. Robinson Oklahoma City OK 73102 800 979-8260 800 973-2550 102 Bank of America OK 1-100-03-02 211 N. Robinson Oklahoma City OK 73102 800 979-8260 800 973-2550 105 Bank of America OK 1-100-03-02 211 N. Robinson Oklahoma City OK 73102 800 979-8260 800 973-2550 122 Bank of America OK 1-100-03-02 211 N. Robinson Oklahoma City OK 73102 800 979-8260 800 973-2550 125 Bank of Oklahoma P.O. Box 2300 Tulsa OK 74192 405 272-2089 405 272-2418 127 First National Bank 302 Chickasha Chickasha OK 73023-1 405 224-2200 405 222-5053 141 City National Bank P.O. Box 1228 Guymon OK 73942 580 338-6561 580 338-1525 145 Fidelity State Bank & Trust P.O. Box 1120 Dodge City KS 67801 316 227-8586 316 227-8024 146 Bancfirst Seminole OK 405 382-4647 405 148 First National Bank P.O. Box 9 Clinton OK 73601 580 323-2311 580 323-4327 153 Bank of America OK 1-100-03-02 211 N. Robinson Oklahoma City OK 73102 800 979-8260 800 973-2550 154 Bank of America OK 1-100-03-02 211 N. Robinson Oklahoma City OK 73102 800 979-8260 800 973-2550 161 Bancfirst P.O. Box 26788 Oklahoma City OK 73126-0 405 270-1039 405 218-4673 163 Bank of America OK 1-100-03-02 211 N. Robinson Oklahoma City OK 73102 800 979-8260 800 973-2550 164 Central National Bank P.O. Box 687 Alva OK 73717 580 327-1122 580 327-1101 167 The Stock Exchange Bank Box 1008 Woodward OK 73802 580 254-7917 580 254-7946 170 Legacy Bank P.O. Box 1199 Elk City OK 73648 580 225-7000 580 225-7369 178 First United Bank & Trust P.O. Box 600 Pauls Valley OK 73075-0 405 238-3341 405 238-3247 181 First Fidelity Bank 5101 N. Classen Blvd #500 Oklahoma City OK 73118 405 416-2631 405 416-2666 182 Bancfirst P.O. Box 26788 Oklahoma City OK 73126-0 405 270-1039 405 218-4673 183 Bank of America OK 1-100-03-02 211 N. Robinson Oklahoma City OK 73102 800 979-8260 800 973-2550 188 Bancfirst P.O. Box 26788 Oklahoma City OK 73126-0 405 270-1039 405 218-4673 192 Bank of America OK 1-100-03-02 211 N. Robinson Oklahoma City OK 73102 800 979-8260 800 973-2550 193 Bancfirst 15 NW 67th Lawton OK 73505 580 250-2015 580 250-2090 195 Bank of America OK 1-100-03-02 211 N. Robinson Oklahoma City OK 73102 800 979-8260 800 973-2550 196 Bancfirst P.O. Box 26788 Oklahoma City OK 73126 405 270-1039 405 218-4673 197 Canadian State Bank 120 S Mustang Rd Mustang OK 73069 405 324-9615 405 324-9285 200 First Fidelity Bank 5101 N. Classen Blvd #500 Oklahoma City OK 73118 405 416-2631 405 416-2666 204 All America Bank P.O. Box 300 Mustang OK 73064 405 376-2465 405 376-2265 206 Bank of America OK 1-100-03-02 211 N. Robinson Oklahoma City OK 73102 800 979-8260 800 973-2550 207 Bank of America OK 1-100-03-02 211 N. Robinson Oklahoma City OK 73102 800 979-8260 800 973-2550 208 First Fidelity Bank 5101 N. Classen Blvd #500 Oklahoma City OK 73118 405 416-2631 405 416-2666 457 Bank of America OK 1-100-03-02 211 N. Robinson Oklahoma City OK 73102 800 979-8260 800 973-2550 495 American Exchange Bank P.O. Box 818 Henryetta OK 74437 918 652-3321 918 652-7057 502 Bank of America OK 1-100-03-02 211 N. Robinson Oklahoma City OK 73102 800 979-8260 800 973-2550 503 Bank of America OK 1-100-03-02 211 N. Robinson Oklahoma City OK 73102 800 979-8260 800 973-2550 515 Weststar Bank 121 S. W. 4th Street Bartlesville OK 74003 918 337-3000 918 337-3400 528 Bank of America OK 1-100-03-02 211 N. Robinson Oklahoma City OK 73102 800 979-8260 800 973-2550 529 Amarillo National Bank P.O. Box 1611 Amarillo TX 79181 806 378-8000 806 378-8234 538 RCB Bank P.O. Drawer 8 Pryor OK 74361 918 825-4321 918 825-8888 545 Bank of America OK 1-100-03-02 211 N. Robinson Oklahoma City OK 73102 800 979-8260 800 973-2550 549 BancFirst 301 East 2nd Sand Springs OK 74063 918 241-5522 918 241-5555 550 Bank of America OK 1-100-03-02 211 N. Robinson Oklahoma City OK 73102 800 979-8260 800 973-2550 553 Bank of America OK 1-100-03-02 211 N. Robinson Oklahoma City OK 73102 800 979-8260 800 973-2550 561 Bank of America OK 1-100-03-02 211 N. Robinson Oklahoma City OK 73102 800 979-8260 800 973-2550 563 Weststar Bank 121 S. W. 4th Street Bartlesville OK 74003 918 337-3000 918 337-3400 567 Bank of America OK 1-100-03-02 211 N. Robinson Oklahoma City OK 73102 800 979-8260 800 973-2550 STORE NO. BANK NAME CONTACT NAME ACCOUNT NO. ABA NO. STORE NO. 26 First National Bank Michelle Hightower 334393 103100467 26 101 Bank of America Steve Sloan 73236 002862672182 103000017 101 102 Bank of America Steve Sloan 002862672302 103000017 102 105 Bank of America Steve Sloan 002862672195 103000017 105 122 Bank of America Steve Sloan 002862672386 103000017 122 125 Bank of Oklahoma Pat Heidelberg 208310865 103900036 125 127 First National Bank Michelle Hightower 234414 103100467 127 141 City National Bank Deborah Elliott 779255 103103244 141 145 Fidelity State Bank & Trust 127266 101101730 145 146 Bancfirst Dana Pickett 120088617 103003632 146 148 First National Bank Randy Craven 150932 103101822 148 153 Bank of America Steve Sloan 002862672218 103000017 153 154 Bank of America Steve Sloan 002862672221 103000017 154 161 Bancfirst Tony Mirrione 5300151199 103003632 161 163 Bank of America Steve Sloan 002862672108 103000017 163 164 Central National Bank Mike Fouts 4368148 103101291 164 167 The Stock Exchange Bank Elaine Dewald 0385224 103107444 167 170 Legacy Bank Connie Clements 800584 103103406 170 178 First United Bank & Trust Brenda Johnson 2340080 103101961 178 181 First Fidelity Bank Jan Karcher 1115801327 103002691 181 182 Bancfirst Tony Mirrione 5000027449 103003632 182 183 Bank of America Steve Sloan 002862672234 103000017 183 188 Bancfirst Tony Mirrione 150878288 103003632 188 192 Bank of America Steve Sloan 002862672250 103000017 192 193 Bancfirst Alice Watson 4005025536 103003632 193 195 Bank of America Steve Sloan 002862672124 103000017 195 196 Bancfirst Tony Mirrione 0400618651 103003632 196 197 Canadian State Bank Fran Smith 1034011319 103002617 197 200 First Fidelity Bank Jan Karcher 1132702616 103002691 200 204 All America Bank Bob 589622 103001456 204 206 Bank of America Steve Sloan 002862672140 103000017 206 207 Bank of America Steve Sloan 002862672153 103000017 207 208 First Fidelity Bank Jan Karcher 1142502735 103002691 208 457 Bank of America Steve Sloan 002862672315 103000017 457 495 American Exchange Bank Sharlee McCain 031364 103112248 495 502 Bank of America Steve Sloan 002862672328 103000017 502 503 Bank of America Steve Sloan 002862672331 103000017 503 515 Weststar Bank Kim Harris 171782 103100823 515 528 Bank of America Steve Sloan 002862672357 103000017 528 529 Amarillo National Bank Cory Ramsey 2232 111300958 529 538 RCB Bank 141893 103102643 538 545 Bank of America Steve Sloan 002862672344 103000017 545 549 BancFirst Darla Fleming 60053439 103003632 549 550 Bank of America Steve Sloan 002862672360 103000017 550 553 Bank of America Steve Sloan 002865971550 103000017 553 561 Bank of America Steve Sloan 002862672373 103000017 561 563 Weststar Bank Kim Addisson 206615 103100823 563 567 Bank of America Steve Sloan 002862672409 103000017 567
573 Bank of America OK 1-100-03-02 211 N. Robinson Oklahoma City OK 73102 800 979-8260 574 Bank of America OK 1-100-03-02 211 N. Robinson Oklahoma City OK 73102 800 979-8260 578 First Bank & Trust P.O. Box 427 Wagoner OK 74467 918 485-2173 582 Sun Bank P.O. Box 1117 Dumas TX 79029-1 806 935-7788 587 Amarillo National Bank - Borge P.O. Box 1611 Amarillo TX 79181 806 378-8000 600 Amarillo National Bank P.O. Box 1611 Amarillo TX 79181 806 378-8000 601 Amarillo National Bank P.O. Box 1611 Amarillo TX 79181 806 378-8000 603 Amarillo National Bank P.O. Box 1611 Amarillo TX 79181 806 378-8000 604 First State Bank P.O. Box 1 Canyon TX 79015-0 806 656-8322 605 First Bank Southwest P.O. Box 593 Hereford TX 79045-0 806 364-2435 677 Amarillo National Bank P.O. Box 1611 Amarillo TX 79181 806 378-8000 778 BancFirst 301 East 2nd Sand Springs OK 74063 918 241-5522 793 Bank of America OK 1-100-03-02 211 N. Robinson Oklahoma City OK 73102 800 979-8280 794 Bank of America OK 1-100-03-02 211 N. Robinson Oklahoma City OK 73102 800 979-8280 795 Bancfirst P.O. Box 26788 Oklahoma City OK 73126-0 405 270-1039 796 Bank of America OK 1-100-03-02 211 N. Robinson Oklahoma City OK 73102 800 979-8280 850 NBC Bank P.O. Box 27 Pawhuska OK 74056 918 287-4111 851 Exchange Bank & Trust P.O. Box 797 Perry OK 73077 580 336-5531 852 The Cleveland Bank P.O. Box 8 Cleveland OK 74020 918 358-2555 853 The Delaware Co. Bank Box 448 Jay OK 74346 918 253-4235 854 Central National Bank P.O. Box 31 Blackwell OK 74631 888 363-2265 855 Citizens State Bank P.O. Box 231 Okemah OK 74859 918 623-1551 856 Weststar Bank 108 N. Maple Nowata OK 74048-2 918 273-3442 857 The First Bank of Haskell P.O. Box 128 Haskell OK 74436 918 482-5261 880 Bank of America OK 1-100-03-02 211 N. Robinson Oklahoma City OK 73102 800 979-8260 881 Bank of America OK 1-100-03-02 211 N. Robinson Oklahoma City OK 73102 800 979-8260 882 Bank of America OK 1-100-03-02 211 N. Robinson Oklahoma City OK 73102 800 979-8260 883 Bank of America OK 1-100-03-02 211 N. Robinson Oklahoma City OK 73102 800 979-8260 886 Bank of America OK 1-100-03-02 211 N. Robinson Oklahoma City OK 73102 800 979-8260 887 Bank of America OK 1-100-03-02 211 N. Robinson Oklahoma City OK 73102 800 979-8260 COLL Amarillo National Bank P.O. Box 1611 Amarillo TX 79181 806 378-8000 COLL BancFirst P.O. Box 26788 Oklahoma City OK 73126-0 405 270-1039 COLL Bank of America OK 1-100-03-02 211 N. Robinson Oklahoma City OK 73102 800 979-8260 COLL Bank One P.O. Box 25848 OKC OK 73125 405 231-6974 COLL First Fidelity Bank 3535 N.W. 58th St., Ste. 104 Oklahoma City OK 73112 405 418-2222 DDA National Bank of Canada 2121 San Jacinto, Ste. 1850 Dallas TX 75211 214 671-1264 DISB Mellon Bank c/o NBC DISB National Bank of Canada 2121 San Jacinto, Ste. 1850 Dallas TX 75201 214 871-1264 JCH Amarillo National Bank P.O. Box 1611 Amarillo TX 79181 806 378-8000 UTUAL Bank of America OK 1-100-03-02 211 N. Robinson Oklahoma City OK 73102 800 979-8260 PAY CH Bank One P.O. Box 25848 Oklahoma City OK 73125 405 231-6974 PAYR C Bank of America OK 1-100-03-02 211 N. Robinson Oklahoma City OK 73102 800 979-8260 AYR DD Bank of America OK 1-100-03-02 211 N. Robinson Oklahoma City OK 73102 800 979-8260 SD Bank One P.O. Box 25848 Oklahoma City OK 73125 405 231-6974 LB Chk Amarillo National Bank P.O. Box 1611 Amarillo TX 79181 806 378-8000 LB TAX Amarillo National Bank P.O. Box 1611 Amarillo TX 79181 806 378-8000
573 Bank of America 800 973-2550 Steve Sloan 002862672412 103000017 573 574 Bank of America 800 973-2550 Steve Sloan 002862672425 103000017 574 578 First Bank & Trust 918 485-2270 14558 103101165 578 582 Sun Bank 806 935-8361 708879 111322729 582 587 Amarillo National Bank - Borge 806 378-8234 Cory Ramsey 10098760 111300958 587 600 Amarillo National Bank 806 378-8234 Cory Ramsey 2267 111300958 600 601 Amarillo National Bank 806 378-8234 Cory Ramsey 2275 111300958 601 603 Amarillo National Bank 806 378-8234 Cory Ramsey 2291 111300958 603 604 First State Bank 806 855-9830 Greg Houlete 25-197-5 111310870 604 605 First Bank Southwest 806 363-8046 300056499 111304828 605 677 Amarillo National Bank 806 378-8234 Cory Ramsey 43540 111300958 677 778 BancFirst 918 241-5555 Darla Fleming 60053421 103003632 778 793 Bank of America 800 973-2550 Steve Sloan 002865971327 103000017 793 794 Bank of America 800 973-2550 Steve Sloan 002865971330 103000017 794 795 Bancfirst 405 218-4673 Tony Mirrione 4005036244 103003632 795 796 Bank of America 800 973-2550 Steve Sloan 002867957297 103000017 796 850 NBC Bank 918 287-2906 Karla Dilbeck 0692-410 103112248 850 851 Exchange Bank & Trust 580 336-3297 Guyla Workman 2203183 103101628 851 852 The Cleveland Bank 918 358-5728 Susle, Lois 123579 103103309 852 853 The Delaware Co. Bank 918 253-8893 LeAnna Hasting 12633 103107897 853 854 Central National Bank 580 363-1621 Lou Ann Hutchins 10240505 103100195 854 855 Citizens State Bank 918 623-1177 Rhonda 850179 103103105 855 856 Weststar Bank 918 273-0059 Tammy Wilson 27625 103100823 856 857 The First Bank of Haskell 918 482-3817 Linda 4047684 103104201 857 880 Bank of America 800 973-2550 Steve Sloan 002863792074 103000017 880 881 Bank of America 800 973-2550 Steve Sloan 002863791868 103000017 881 882 Bank of America 800 973-2550 Steve Sloan 002863791936 103000017 882 883 Bank of America 800 973-2550 Steve Sloan 002863792016 103000017 883 886 Bank of America 800 973-2550 Steve Sloan 002865971055 103000017 886 887 Bank of America 800 973-2550 Steve Sloan 002865971068 103000017 887 COLL Amarillo National Bank 806 378-8234 Cory Ramsey 030066 111300958 COLL COLL BancFirst 405 218-4673 Tony Mirrione 400518732 103003632 COLL COLL Bank of America 800 973-2550 Steve Sloan 002862672399 103000017 COLL COLL Bank One 405 231-7102 Mark Demos 10356700 103000198 COLL COLL First Fidelity Bank 405 1122807292 103000648 COLL DDA National Bank of Canada 214 871-2015 Vicki Leon 604199-001 26005487 DDA DISB Mellon Bank 0297828 111300958 DISB DISB National Bank of Canada 214 871-2015 Vicki Leon 604173-001 26005487 DISB JCH Amarillo National Bank 806 378-8234 Cory Ramsey 74632 111300958 JCH UTUAL Bank of America 800 973-2550 Steve Sloan 070183449785 111322729 MUTUAL PAY CH Bank One 405 231-7102 Mark Demos 10244260 103000646 PAY CH PAYR C Bank of America 800 973-2550 Steve Sloan 2863789168 103000017 PAYR CH AYR DD Bank of America 800 973-2550 Steve Sloan 415200574918 103000017 PAYR DD SD Bank One 405 231-7102 Mark Demos 10301434 103000648 SD LB Chk Amarillo National Bank 806 378-8234 Cory Ramsey 046620 111300958 SLB CHK LB TAX Amarillo National Bank 806 378-8234 Cory Ramsey 059277 111300958 SLB TAX
SCHEDULE 3.20 TO CREDIT AGREEMENT GOVERNMENT CONTRACTS None. SCHEDULE 3.22 TO CREDIT AGREEMENT MATERIAL AGREEMENTS 1. Credit Agreement dated August 15, 2001, by and among Associated Wholesale Grocers, Inc., Homeland Holding Corporation and Homeland Stores, Inc. and related loan documents. 2. Indenture dated in August, 1996, by and among Fleet National Bank, Homeland Holding Corporation and Homeland Stores, Inc. 3. Loan and Security Agreement dated August 15, 2001, by and among Back Bay Capital Funding, LLC, Fleet Retail Finance and Homeland Stores, Inc. 4. Loan Agreement dated December 17, 1998, by and among Heller Financial, Inc., Homeland Holding Corporation, Homeland Stores, Inc., IBJ Schroder Business Credit Corporation and National Bank of Canada, as amended, and related loan documents. 5. Facility Standby Agreement dated as of August 25, 2000, by and between Fleming Stores, Inc. and Homeland Stores, Inc. 6. Supply Agreement dated April 21, 1995, by and between Associated Wholesale Grocers, Inc. and Homeland Stores, Inc. and related documents. 7. Supply Agreement dated April 23, 1999, by and between Associated Wholesale Grocers, Inc. and Homeland Stores, Inc. and related documents. 8. Supply Agreement dated November 2, 1999, by and between Associated Wholesale Grocers, Inc. and Homeland Stores, Inc. and related documents. 9. Supply Agreement dated February 29, 2000, by and between Associated Wholesale Grocers, Inc. and Homeland Stores, Inc. and related documents. 10. Supply Agreement dated August 15, 2001, by and between Associated Wholesale Grocers, Inc. and Homeland Stores, Inc. and related documents. 11. Loan documents relating to other indebtedness listed on Schedule 6.3. SCHEDULE 5.1 TO CREDIT AGREEMENT TRADE NAMES Homeland Stores, Inc. uses its corporate name "Homeland Stores, Inc.", as well as the trade name "Homeland Stores" and the trade name "Homeland" to transact business. Homeland Holding Corporation uses its corporate name "Homeland Holding Corporation" to transact business. SCHEDULE 6.3 TO CREDIT AGREEMENT INDEBTEDNESS The Prior Indebtedness of Homeland Holding Corporation and Homeland Stores, Inc. are listed on the attachment to this Schedule 6.3.
Actual Estimated As of As of 07/14/01 08/11/01 -------------- -------------- Indebtedness: National Bank of Canada: Term Loan 7,028,449.67 7,028,449.67 Working Capital Facility 29,635,947.87 25,611,729.13 Letter of Credit -- Midwest Payment Systems 30,000.00 30,000.00 -------------- -------------- Total National Bank of Canada 36,694,397.54 32,670,178.80 Associated Wholesale Grocers, Inc. 9,552,161.65 9,437,136.03 Indenture 60,000,000.00 60,000,000.00 Capital Lease Obligations: Store #600 1,071,106.95 1,066,164.29 GE Capital -- Equipment 1,148,547.60 1,116,871.94 IBM -- Equipment 20,966.92 10,625.57 Mellon U.S. Leasing -- Equipment 0.00 0.00 -------------- -------------- Total Capital Lease Obligations 2,240,621.47 2,193,661.80 Notes Payable: Texas Comptroller 57,576.21 57,576.21 Internal Revenue Service 51,702.95 46,440.06 -------------- -------------- Total Notes Payable 109,279.16 104,016.27 -------------- -------------- Total Indebtedness 108,596,459.82 104,404,992.90 ============== ==============
Actual Estimated As of As of 07/14/01 08/11/01 -------------- -------------- Capital Lease Obligations: Store #600 1,071,106.95 1,066,164.29 GE Capital -- Equipment 1,148,547.60 1,116,871.94 IBM - Equipment 20,966.92 10,625.57 Mellon U.S. Leasing - Equipment 0.00 0.00 -------------- -------------- Total Capital Lease Obligations 2,240,621.47 2,193,661.80 ============== ==============
HOMELAND STORES, INC. GENERAL ELECTRIC CONSIGNMENT INVENTORY
STORE # CITY BALANCE STORE # CITY BALANCE ------- ---- ------- ------- ---- ------- 1 026 Chickasha 2,000 40 529 Amarillo 2,400 2 101 Norman 1,600 41 538 Pryor 2,400 3 102 Tulsa 3,200 42 545 Tulsa 3,200 4 105 Moore 2,400 43 549 Sand Springs 2,400 5 122 OKC 2,400 44 550 Tulsa 2,400 6 125 Enid 3,200 45 553 Tulsa 2,400 7 127 Chickasha 1,600 46 561 Broken Arrow 3,200 8 141 Guymon 1,200 47 563 Bartlesville 2,400 9 145 Dodge City 800 48 567 Tulsa 2,400 10 146 Seminole 2,400 49 573 Tulsa 2,400 11 148 Clinton 1,200 50 574 Broken Arrow 4,200 12 153 OKC 2,400 51 578 Wagoner 2,400 13 154 OKC 1,800 52 582 Dumas 2,400 14 161 Ardmore 2,400 53 587 Borger 1,800 15 163 OKC 2,400 54 600 Amarillo 2,400 16 164 Alva 2,400 55 601 Amarillo 3,000 17 167 Woodward 1,600 56 603 Amarillo 1,800 18 170 Elk City 2,400 57 604 Canyon 2,400 19 178 Pauls Valley 2,400 58 605 Hereford 2,400 20 181 OKC 1,600 59 677 Amarillo 2,400 21 182 Duncan 2,400 60 778 Sand Springs 2,400 22 183 OKC 2,400 61 793 Oklahoma City 0 23 188 Guthrie 1,600 62 794 Oklahoma City 0 24 192 OKC 2,400 63 795 Lawton 0 25 193 Lawton 1,800 64 796 Oklahoma City 1,600 26 195 OKC 2,400 65 850 Pawhuska 1,200 27 196 Shawnee 1,600 66 851 Perry 2,400 28 197 Yukon 1,600 67 852 Cleveland 1,600 29 200 Norman 1,800 68 853 Jay 2,400 30 204 Mustang 1,600 69 854 Blackwell 2,400 31 206 OKC 2,400 70 855 Okemah 1,800 32 207 OKC 2,800 71 856 Nowata 1,600 33 208 Edmond 2,400 72 857 Haskell 1,600 34 457 Tulsa 2,400 73 880 Muskogee 0 35 495 Henryetta 2,400 74 881 Muskogee 0 36 502 Tulsa 2,400 75 882 Muskogee 0 37 503 Tulsa 1,800 76 883 Muskogee 0 38 515 Bartlesville 2,000 77 886 Edmond 0 39 528 Bixby 2,400 78 887 Oklahoma City 0 --------- Grand Total 151,800 =========
SCHEDULE 6.4(A) TO CREDIT AGREEMENT AFFILIATE TRANSACTIONS None. SCHEDULE 6.4(C) TO CREDIT AGREEMENT COMPENSATION LEVELS
Count Name Annual Salary Job Title 1 Clark, David B $ 265,000 President/Chief Executive Officer 2 Peterson, Wayne S $ 157,500 Senior Vice President and CFO 3 Mason, Steven M $ 137,100 Vice President - Marketing 4 Rocker, John C $ 131,250 Vice President - Operations 5 Brown, Deborah A $ 90,000 Vice President - Corporate Controller 6 Adamson, Mary A $ 89,300 Director Grocery Merchandising 7 Osburn, Keith A $ 88,500 Director - Construction/Real Estate 8 Hines, Gerald L $ 86,700 Director/Pharmacy Operations 9 Alletag Jr, Prentess E $ 85,000 Vice President - Human Resources 10 Lamke, Verland E $ 82,750 Director Meat Merchandising ---------- $1,213,100 ==========
SCHEDULE 6.7 TO CREDIT AGREEMENT EXISTING LIENS Homeland Holding Corporation and Homeland Stores, Inc. have the following encumbrances and liens: 1. Liens and security interests of Associated Wholesale Grocers, Inc.; 2. Liens and security interests of Fleet Retail Finance Inc.; 3. Liens and security interests of National Bank of Canada; 4. Liens for taxes, assessments and governmental charges which are not yet due; 5. Security interests which relate to the capital leases which are listed on the attachment to this Schedule 6.7; 6. Security interest which relate to the consignment arrangements which are listed on the attachment to this Schedule 6.7; 7. Statutory landlord's liens on property located in the State of Texas; and 8. Zoning restrictions, easements, licenses, covenants, restrictions on the use of real property which do not materially impede the use of such property in the normal operations of Homeland Stores, Inc. EX-10.AAB 4 d91648ex10-aab.txt SUPPLY AGREEMENT DATED AUGUST 15, 2001 EXHIBIT 10aab SUPPLY AGREEMENT THIS SUPPLY AGREEMENT ("Agreement") is made and entered into as of the 15th day of August, 2001, by and between ASSOCIATED WHOLESALE GROCERS, INC., a Missouri corporation ("AWG") and HOMELAND STORES, INC., a Delaware corporation ("HOMELAND"), Chapter 11 debtor-in-possession. RECITALS: THE FOLLOWING RECITALS ARE A MATERIAL PART OF THIS AGREEMENT: A. AWG is a wholesaler of grocery and supermarket products operating in a cooperative manner. In entering into this Agreement, AWG is seeking to enhance the interests of its retail members. B. Homeland is a retail grocery store operator, and is currently a member of AWG. Homeland currently owns and operates Stores. As used in this Agreement, the term "STORES" shall mean those seventy-eight (78) stores set forth on EXHIBIT "A" attached hereto and incorporated herein by this reference, together with any and all additional, substitute, replacement or other retail grocery stores leased, operated or owned by Homeland at any time during the term of this Agreement. For purposes hereof, "RETAIL GROCERY STORE" shall mean all retail stores selling grocery items, including, without limitation, conventional stores, convenience stores or limited assortment stores. It is the express intent of the parties that at no time during the term of this Agreement shall there be any retail grocery store leased, operated or owned, directly or indirectly, by Homeland which is not to be included as a Store under this Agreement. C. Homeland and its parent, Homeland Holding Corporation ("HOLDING"), have filed petitions under Chapter 11 of the Bankruptcy Code ("BANKRUPTCY CASES"). D. AWG and Homeland entered into that certain Supply Agreement dated as of April 21, 1995, as amended pursuant to that certain First Amendment to Supply Agreement dated as of August 2, 1996 and that certain Second Amendment to Supply Agreement dated as of August 12, 1997 (as so amended, the "1995 SUPPLY AGREEMENT"). E. In connection with and as certain consideration for the sale to Homeland of nine (9) retail grocery stores by AWG, which were previously owned by Horner Foods Inc., AWG and Homeland entered into, among other things, that certain Supply Agreement dated as of April 23, 1999 (the "HORNER SUPPLY AGREEMENT"). F. In connection with and as certain consideration for the sale to Homeland of four (4) retail grocery stores previously owned by Brattain Foods, Inc., AWG and Homeland entered into, among other things, that certain Supply Agreement dated as of November 2, 1999 (the "BRATTAIN SUPPLY AGREEMENT"). G. In connection with and as certain consideration for the sale to Homeland of three (3) retail grocery stores previously owned by Belton Food Center, Inc., AWG and Homeland entered into that certain Supply Agreement dated as of February 29, 2000 (the "BELTON SUPPLY AGREEMENT; the 1995 Supply Agreement, the Horner Supply Agreement, the Brattain Supply Agreement and the Belton Supply Agreement are collectively referred to as the "EXISTING SUPPLY AGREEMENTS"). H. Homeland desires to continue to be supplied under the Existing Supply Agreements by AWG after the filing of the Bankruptcy Cases and will seek bankruptcy court approval to do so by way of first day orders in the Bankruptcy Cases. To the extent any of the Existing Supply Agreements are deemed an executory contract, Homeland intends to assume such Existing Supply Agreements by way of first day orders in the Bankruptcy Cases. In addition, Homeland and Holding have requested that AWG provide debtor-in-possession financing which the parties intend to have approved by way of first day orders in the Bankruptcy Cases. I. Upon the conclusion of the Bankruptcy Cases and after the expiration of the Existing Supply Agreements, Homeland intends that the Stores will continue to be supplied by AWG pursuant to the terms of this Agreement, J. AWG and Homeland have entered into certain loan documents dated of even date herewith including, without limitation, that certain Credit Agreement dated of even date herewith (collectively, the "LOAN DOCUMENTS") to provide certain debtor-in-possession financing to allow Homeland, to the extent possible, to continue to operate the Stores, the consummation of which is conditioned upon, among other things, the parties entering into this Agreement and this Agreement receiving Bankruptcy Court approval as part of the debtor-in-possession financing being provided by AWG pursuant to the Loan Documents. K. Homeland has advised AWG that Homeland intends to concentrate with AWG an agreed upon percentage of all of its ordering of inventory (including but not limited to all grocery, meat and produce products and all health and beauty products and general merchandise) and supplies (excluding pharmacy purchases) to be held for sale to the public at or to be used in connection with the Stores (hereinafter collectively referred to as the "PURCHASED GOODS"). 2 L. To provide assurances of its intentions to make such minimum purchases and to induce AWG to execute and perform under the Loan Documents, Homeland has agreed to enter into this Agreement. M. Homeland desires to provide adequate assurance to AWG that the Stores will continue to be supplied by AWG in the future by granting or taking subject to certain rights with respect to the Stores under (i) a Right of First Refusal Agreement between Homeland and AWG (the "RIGHT OF FIRST REFUSAL AGREEMENT") as set forth on EXHIBIT "B" attached hereto; (ii) a Non-Competition Agreement as set forth on EXHIBIT "C" attached hereto and (iii) Use Restrictions as set forth on EXHIBIT "D-l" and EXHIBIT "D-2" attached hereto (collectively referred to as "SUPPLY PROTECTION AGREEMENTS"), each entered into contemporaneously with this Agreement or as otherwise agreed pursuant to the Loan Documents. It is the parties intent that the implementation and operation of the Supply Protection Agreements will be independent of each other and will not be executory. N. AWG is unwilling to enter into the Credit Agreement and associated Loan Documents unless it receives the Supply Protection Agreements and adequate assurances that the Stores will be supplied by AWG during the pendency of the Bankruptcy Cases and will continue to be supplied by AWG pursuant to the terms of the Existing Supply Agreements and this Agreement after the conclusion of the Bankruptcy Cases. O. AWG is willing to supply to Homeland and the Stores the Purchased Goods based on the terms, conditions and financial assurances contained herein. P. The parties understand and acknowledge that in addition to the consideration set forth specifically herein, AWG will be required to make a substantial current and continuing commitment of its resources in reliance upon Homeland's commitment to purchase products and services as set forth herein, and that AWG and its retail members will not realize the full benefit of their anticipated bargain hereunder unless Homeland materially fulfills its obligations hereunder for the full term of this Agreement. NOW, THEREFORE, in consideration of the mutual covenants and premises contained herein and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereby agree as follows: TERMS OF AGREEMENT: 1. TERM. Except for the Stores on EXHIBIT "E", the term of this Agreement shall be for a period of ten (10) years commencing on August 1, 2001 ("COMMENCEMENT DATE") and ending on August 1, 2011. The Stores on EXHIBIT "E" shall be subject to a term of the longer of: (i) ten (10) years commencing on the Commencement Date and ending on 3 August 1, 2011, or (ii) the remaining term (as extended) of any lease or sublease between AWG and Homeland in connection with any of the Stores described on EXHIBIT "E". 2. SUPPLY. Subject to the terms and conditions of this Agreement and except as otherwise provided herein, the following obligations of the parties shall begin on the Commencement Date and shall continue for the full term hereof: (a) Products to be Supplied by AWG. AWG agrees to sell, supply and deliver or cause any of its affiliates to sell, supply and deliver Purchased Goods to the Stores. Subject to agreement by AWG as to reasonable minimum volume and slotting requirements for each category, AWG agrees to carry (or cause any of its affiliates to carry) in its or their warehouses and include in Purchased Goods any products requested by Homeland. (b) Products to be Purchased by Homeland. Except as provided in Section 2(e) hereof, Homeland agrees to operate the Stores as retail grocery stores or supermarkets for the entire term of this Agreement. Homeland agrees that with respect to all purchases of Purchased Goods for each Store and for all Stores in the aggregate, Homeland shall concentrate such purchases with AWG such that all purchases of Purchased Goods from AWG and/or its affiliates (valued at wholesale cost), measured quarterly, shall represent at least sixty-five percent (65%) of the value of all Purchased Goods (excluding pharmacy) purchased during the same time period by Homeland (using Homeland's applicable cost of goods sold for purposes of measurement) for each Store individually and for all Stores in the aggregate. (c) Cost of Goods. AWG and/or its affiliates will supply Purchased Goods to Homeland and Homeland shall pay for Purchased Goods at the lowest prices and best terms as are available to AWG's other retail members similarly situated from time to time (based on volumes and elections to participate in special programs). Homeland shall have available to it all cost saving mechanisms available to other AWG retail members, including AWG's Concentrated Purchase Allowance Program ("CPA"). Homeland acknowledges that AWG's prices of goods, terms and CPA (i) are affected by and/or are a direct function of the volume of purchases by Homeland and (ii) are amended periodically by AWG. (d) Certain Assurances to Homeland. Where applicable and as appropriate for Homeland's level of purchases from AWG, AWG agrees that: (i) AWG will pass through promotional and advertising allowances and rebates from manufacturers and vendors to Homeland on the same basis as any other similarly situated AWG member, (ii) Homeland will receive seasonal, special promotions and advertising programs on the best terms available to other AWG members similarly situated and (iii) AWG shall supply and offer to Homeland all advantages, 4 opportunities and services that AWG offers to other similarly situated retail members. AWG further agrees that: (i) Homeland will be given credit for unsalable products and pricing adjustments on the best terms available to other similarly situated AWG members or retailers, (ii) the quality of the Purchased Goods will be consistent with other wholesalers within Homeland's market area, which shall include the area in which the Stores are located, (iii) the activities of AWG will meet all applicable legal and regulatory requirements, (iv) AWG will provide to Homeland a service level commensurate with all other members similarly situated, (v) AWG will make timely deliveries, (vi) AWG will provide quality Purchased Goods within acceptable fresh code dating and in a clean and healthy manner and (vii) AWG shall provide to Homeland from time to time during the term of this Agreement, in the same manner as provided to AWG's other similarly situated retail members, information regarding the availability of all promotional and advertising allowances and rebates. (e) Until the Stores are closed or sold, Homeland intends to continue to own and/or operate such Stores as retail grocery stores. Subject to AWG's Supply Protection Agreements, Homeland has the right to decide whether or not to sell or close one or more of any of the Stores. Homeland has informed AWG and AWG hereby acknowledges that Homeland's current business plan includes the sale of the thirty-four (34) Stores described on EXHIBIT "F". 3. TERMS OF PAYMENT. Homeland acknowledges and agrees that the credit terms for the Stores will be as set forth on EXHIBIT "G" attached hereto and incorporated herein by this reference. 4. SECURITY FOR PERFORMANCE OF AGREEMENT. Contemporaneously with the execution of this Agreement or as soon thereafter as possible, Homeland shall deliver the following to AWG, which shall be security for all of Homeland's obligations under this Agreement, the Supply Protection Agreements, Homeland's open account arrangement with AWG and all of the other Obligations (as defined in Section 12(a)(viii)): (a) Membership Documents. Homeland and each subsidiary, to the extent any of them have not already done so, that now or hereafter operates a Store agrees to execute and deliver to AWG all member sign-up documents which AWG currently requires to be executed by retail members. (b) Security Agreement. Homeland shall execute and deliver to AWG a Security Agreement in the form of EXHIBIT "H" attached hereto (the "SECURITY AGREEMENT"), together with all UCC-1 financing statements relating thereto which AWG may require. 5 In addition, as further security for all of Homeland's obligations under this Agreement, the Supply Protection Agreements, Homeland's open account arrangement with AWG and all of the other Obligations: (i) Homeland shall and does hereby grant, bargain, sell, convey and mortgage to AWG a mortgage and security interest in all of Homeland's right, title, interest or estate now owned or hereafter acquired in or to (A) the Stores, or any part thereof, and their locations, (B) any entity which owns an interest or estate in any Store, (C) all associated rights in connection with the foregoing, (D) any new location to which any Store or its operations are moved, (E) any name under which any Store, or any part thereof, is operated; including, without limitation, any and all (a) ownership interest in the business owned or operated in, at or from any such location, (b) real estate owned or leased at or in connection with any such location, (c) furniture, fixtures and equipment or inventory used or located at or in connection with any such location, (d) coupon rights, (e) contract(s) or franchise(s) that are in any way used or associated with any Store or business owned or operated in, at or from any such location, or (f) other tangible or intangible assets of Homeland owned, located or used at or in connection with any such Store or business owned, operated in, at or from any such location and (ii) Homeland shall and does hereby pledge and deliver to AWG, all AWG equity ("AWG EQUITY") owned by Homeland. For purposes of this Agreement, AWG Equity shall be defined as all equity, deposits, credits, sums and indebtedness of any kind or description, whatsoever, at any time owed by AWG to Homeland or at any time standing in the name of or to the credit of Homeland on the books and/or records of AWG, including without limitation, Capital Stock, Members Deposit Certificates, Patronage Refund Certificates, Members Savings, Direct Patronage or Year-End Patronage. (iii) In the event Homeland undertakes future secured financing and upon request from Homeland to do so, AWG will consider subordinating its security interest with respect to the Supply Protection Agreements; provided (A) such subordination is upon terms and conditions acceptable to AWG, and (B) such subordination does not include collateral relating to AWG Equity or any then existing loans outstanding with AWG. Nothing contained in this Section 4 is intended to limit in any way the security interest or lien granted by Homeland pursuant to the Security Agreement. Homeland agrees to and shall execute such other and further documentation, including mortgages, deeds of trust, security agreements and 6 UCC-1 financing statements, and perform such further acts as AWG may from time to time request in connection with the foregoing. 5. RIGHT OF FIRST REFUSAL. Contemporaneously herewith, Homeland shall grant AWG a right of first refusal (the "RIGHT OF FIRST REFUSAL") to purchase the Stores pursuant to the terms and conditions of a Right of First Refusal Agreement in substantially the form attached hereto as EXHIBIT "B" and incorporated herein. 6. EXISTING SUPPLY AGREEMENTS AND THIS AGREEMENT. In connection with conflicts and controlling terms, conditions and provisions between the Existing Supply Agreements and this Agreement, the parties agree as follows: (a) The Stores shall be considered Supplied Stores for purposes of Section 3(b) under the 1995 Supply Agreement and the Quarterly Payments described therein for the term therein. The credit terms set forth in this Agreement shall supersede, replace and amend any and all credit terms provided in any of the Existing Supply Agreements. (b) Except as provided in Section 6(a) above, all terms, conditions and provisions relating to the Stores pursuant to this Agreement, the Supply Protection Agreements and/or the documents relating to this Agreement and/or the Supply Protection Agreements, shall be deemed to be in addition to, and not in lieu of, the terms, conditions and provisions of the Existing Supply Agreements and any supply protection agreements executed in connection therewith, including, without limitation, any right of first refusal agreement, use restriction or non-competition agreements (all such documents, together with the Existing Supply Agreements, being the "EXISTING SUPPLY PROTECTION AGREEMENTS"). Except as provided in Section 6(a) above, this Agreement does not amend or alter the terms, provisions or conditions of any of the Existing Supply Protection Agreements. Should there be any direct conflict between the terms of this Agreement and terms of any of the Existing Supply Agreements, then provided this Agreement is in effect, the terms, conditions and provisions of this Agreement shall control. (c) The parties agree that, except as specifically amended and modified herein pursuant to Section 6(a) hereof, all of the terms, conditions, provisions and covenants contained in the Existing Supply Protection Agreements remain unchanged and in full force and effect. 7. NON-COMPETITION AGREEMENT AND USE RESTRICTION. The parties agree as follows: (a) Homeland agrees to and shall execute a Non-Competition Agreement in the form of EXHIBIT "C" attached hereto and incorporated herein. 7 (b) Homeland acknowledges and agrees that the Stores are subject to Use Restrictions in the form of EXHIBIT "D-1" and EXHIBIT "D-2" attached hereto and incorporated herein and further agrees hereunder for the benefit of AWG that, to the extent of Homeland's interest therein, the real estate comprising the Stores and the improvements thereon (including any leasehold or subleasehold interests therein) shall be dedicated to the exclusive use of a retail grocery facility (including all activities which from time to time are commonly associated with the operation of a grocery facility) which is operated by a retail member of AWG, which utilizes AWG as its primary supplier of grocery products. Homeland acknowledges and agrees that (i) no other use shall be permitted without the prior written consent of AWG, and (ii) such Use Restrictions run with the land. (c) If Homeland shall breach the foregoing agreements in this Section 7 by way of its actions, omissions or operation of law, Homeland agrees that AWG will have no adequate remedy at law and that immediate injunctive relief will be appropriate. In addition, AWG shall be free to pursue any and all other remedies, including remedies at law, which may be available to such party. 8. REPRESENTATIONS AND WARRANTIES OF HOMELAND. In addition to any representations and warranties contained elsewhere in this Agreement, Homeland hereby makes the following representations and warranties to and for the benefit of AWG, its successors and permitted assigns, in connection with Homeland and/or the Stores, each of which warranties and representations (i) is material and being relied upon by AWG and (ii) is true in all respects as of the date hereof (or such other date as may be indicated). (a) Organization of Homeland. Homeland is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and has full corporate power and authority to own, lease and operate its business. Homeland is duly licensed and qualified to do business and is in good standing in the states where the Stores are located. (b) Authorization. Homeland has all necessary corporate power and authority and has taken all corporate action necessary to enter into this Agreement, to consummate the transactions contemplated hereby and to perform its obligations hereunder, including approval of its Board of Directors. This Agreement has been duly executed and delivered by Homeland and is a valid and binding obligation of Homeland. (c) Compliance with Law. Homeland has received no written notification alleging any existing material violation of and to the best of Homeland's knowledge; and except for material violations the consequences of which are stayed by the automatic stay due to the Bankruptcy Cases, Homeland is not in material violation 8 of any applicable statutes, rules, regulations, ordinances, codes, orders, licenses, permits or authorizations. (d) No Conflict or Violation. Neither the execution and delivery of this Agreement nor the consummation of the transactions contemplated hereby will result in (i) a violation of or a conflict with any provision of the Certificate of Incorporation or Bylaws of Homeland, (ii) except for material violations the consequences of which are stayed by the automatic stay due to the Bankruptcy Cases, a breach of, or a default under, any term or provision of any contract, agreement, lease, commitment, license, franchise, permit, authorization or concession to which Homeland is a party or an event which, with notice, lapse of time, or both, would result in any such breach or default, or (iii) except for material violations the consequences of which are stayed by the automatic stay due to the Bankruptcy Cases, a violation by Homeland of any statute, rule, regulation, ordinance, code, order, judgment, writ, injunction, decree or award, or an event which with notice, lapse of time, or both, would result in any such violation, which in cases (ii) and (iii) would have a material adverse effect on Homeland's ability to perform its obligations hereunder or consummate the transactions contemplated hereby. (e) Consents and Approvals. Except for any required bankruptcy court consent, no consent, approval or authorization of, or declaration, filing or registration with, any governmental or regulatory authority, any consenting party (including lessors) or any other person or entity is required to be made or obtained by Homeland in connection with the execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereby. (f) The Existing Supply Protection Agreements. Each of the Existing Supply Protection Agreements are in full force and effect, and Homeland represents, warrants and covenants to AWG that it has no defenses, causes of action, rights of set off or rights of recoupment with respect to its obligations under the Existing Supply Protection Agreements and that AWG, to date, has performed its obligations under the Existing Supply Protection Agreements and that at no time during the respective terms thereof has AWG been in default under any of the Existing Supply Protection Agreements. (g) Litigation and Proceedings. There are no material actions, suits or proceedings pending or, to the best knowledge of Homeland, threatened against Homeland, at law or in equity or before or by any governmental authority or instrumentality or before any arbitrator of any kind, which would have a material adverse effect on Homeland's ability to perform its obligations hereunder. To the best of Homeland's knowledge, Homeland is not in default with respect to any judgment, order, writ, injunction or decree of any court or governmental agency, and 9 there are no unsatisfied judgments against Homeland or its business or activities, in each case, which would materially adversely affect Homeland's ability to perform hereunder. To the best of Homeland's knowledge, there is not a reasonable likelihood of an adverse determination of any pending proceeding which would, individually or in the aggregate, have a material adverse effect on Homeland's ability to perform its obligations hereunder. (h) Continuity. All representations and warranties contained in this Agreement, as set forth in the foregoing subsections or otherwise, or in any documents to be delivered pursuant to this Agreement or otherwise required to be executed by Homeland pursuant hereto, shall be true and correct at the time made and shall survive the execution of this Agreement and the performance of the obligations contemplated hereby. 9. REPRESENTATIONS AND WARRANTIES OF AWG. In addition to any representations and warranties contained elsewhere in this Agreement, AWG hereby makes the following representations and warranties to and for the benefit of Homeland, its successors and assigns, in connection with AWG and/or the Stores, each of which warranties and representations (i) is material and being relied upon by Homeland and (ii) is true in all respects as of the date hereof (or such other date as may be indicated). (a) Organization of AWG. AWG is duly organized, validly existing and in good standing under the laws of the State of Missouri and is qualified to do business in the State of Oklahoma. (b) Authorization. AWG has all necessary corporate power and authority and has taken all corporate action necessary to enter into this Agreement, to consummate the transactions contemplated hereby and to perform its obligations hereunder. This Agreement has been duly executed and delivered by AWG and is a valid and binding obligation of AWG, enforceable against AWG in accordance with its terms. (c) No Conflict or Violation. Neither the execution and delivery of this Agreement nor the consummation of the transactions contemplated hereby will result in (i) a material violation of or a conflict with any provision of the Articles of Incorporation or Bylaws of AWG, (ii) a material breach of, or a default under, any term or provision of any contract, agreement, lease, commitment, license, franchise, permit, authorization or concession to which AWG is a party or an event which with notice, lapse of time, or both, would result in any such breach or default, or (iii) a material violation by AWG of any statute, rule, regulation, ordinance, code, order, judgment, writ, injunction, decree, or award, or an event which in the case of (i), (ii) or (iii) above, with notice, lapse of time, or both, would result in any such violation, 10 which breach, default or violation would have a materially adverse effect on AWG's ability to perform its obligations hereunder. (d) Compliance with Law. To the best of AWG's knowledge, AWG has received no written notification alleging any existing material violation of any applicable statutes, rules, regulations, ordinances, codes, orders, licenses, permits or authorizations which would have a materially adverse impact on either party's ability to perform its obligations hereunder. (e) Litigation, Proceedings and Applicable Law. To the best of AWG's knowledge, there are no material actions, suits or proceedings pending or, to the best knowledge of AWG, threatened against, or materially adversely affecting AWG's ability to perform its obligations hereunder, at law or in equity or before or by any governmental authority or instrumentality or before any arbitrator of any kind. To the best of AWG's knowledge, AWG is not in default with respect to any judgment, order, writ, injunction or decree of any court or governmental agency, and there are no unsatisfied judgments against AWG or its business or activities, in each case, which would have a material adverse effect on AWG's ability to perform hereunder. To the best of AWG's knowledge, there is not a reasonable likelihood of an adverse determination of any pending proceeding which would, individually or in the aggregate, have a material adverse effect on AWG's ability to perform its obligations hereunder. 10. COVENANTS OF HOMELAND. Homeland agrees as follows: (a) Homeland covenants to AWG that Homeland will use its best efforts to ensure that, in addition to being true in all respects as of the date hereof, the representations and warranties made by Homeland in Section 8 will also be true in all respects throughout the term of this Agreement. In the event of any event, occurrence or state of facts resulting in any of such representations or warranties not having been true when made or not being true as of any time during the term of this Agreement, which materially adversely affects Homeland's ability to perform its obligations hereunder, Homeland will notify AWG of such event, occurrence, or state of facts immediately upon Homeland's knowledge thereof. (b) Homeland covenants not to attempt to circumvent AWG's rights under this Agreement or the underlying documents relating to the Supply Protection Agreements by asserting any invalidity of this Agreement, the Supply Protection Agreements or the Existing Supply Protection Agreements. (c) Homeland covenants to provide copies to AWG of all of Homeland's and Homeland Holding Corporation's SEC filings and reports within ten (10) days after filing with or other delivery to the SEC. Homeland shall supply AWG with all 11 audited, consolidated financial statements of Homeland Holding Corporation (which includes Homeland Stores, Inc.) within one hundred twenty (120) days after the end of each fiscal year of Homeland and unaudited consolidated quarterly financial statements of Homeland Holding Corporation (which include Homeland Stores, Inc.) within forty-five (45) days after the end of each of the first three (3) fiscal quarters of Homeland. Homeland shall give AWG prompt notice of any change in Homeland's financial condition which would have a materially adverse effect on Homeland's ability to perform its obligations hereunder. 11. COVENANTS OF HOMELAND AND AWG. Homeland and AWG each covenant with the other as follows: (a) Consents and Best Efforts. As soon as practicable, AWG and Homeland, as applicable, will commence and diligently pursue all reasonable action required hereunder (i) to obtain all required documents, consents, approvals and agreements, (ii) to give all notices and make all filings with, any third parties as may be necessary to authorize, approve or permit full and complete compliance with the terms of the Agreement, (iii) to identify and/or obtain all collateral required hereunder and (iv) to cause all documentation contemplated hereunder to be executed and delivered. (b) Evidence of Insurance. During the term hereof, AWG shall provide Homeland with current evidence of all product liability and comprehensive insurance carried by AWG in connection with its wholesale operation under this Agreement. (c) Material Changes to Representations and Warranties. During the term hereof, each party hereby covenants that it will provide the other with written notice of any change to their respective representations and warranties contained herein which materially adversely affects either party's ability to perform its obligations hereunder. (d) Necessary Resources. AWG has and will have during the term of the Agreement the necessary resources, equipment and personnel to sell, supply and deliver the Purchased Goods to the Supplied Stores and to otherwise fulfill its obligations hereunder. 12. EVENTS OF DEFAULT. The following shall be events of default ("EVENTS OF DEFAULT"): (a) Homeland Defaults. The following shall be Events of Default by Homeland hereunder: 12 (i) Failure to Meet Credit Requirements. Homeland's failure to meet AWG's credit requirements as set forth on EXHIBIT "G" attached hereto and incorporated herein. (ii) Transfer of Security. Homeland's transfer or other failure to preserve any security pledged in connection with any Obligation, as defined herein, and set forth in this Agreement. (iii) Non-Payment/Failure to Perform. Homeland's failure to make any payment when due or breach, violation, or failure to perform any of the other agreements, terms, covenants, provisions or conditions contained herein in any material respect; it being understood that the events of default specified in this Section 10(a)(iii) are in addition to, but are not in limitation of, the other events of default specified in Section 12(a). (iv) Breach of Warranty or Representation. Any breach or failure to be true of any of the warranties or representations given by Homeland to AWG herein, which materially adversely affects Homeland's ability to perform its obligations hereunder. (v) Breach of Other Agreements. Breach, in any material respect, by Homeland of any other agreement entered into between Homeland and AWG, including but not limited to the underlying documents relating to the Supply Protection Agreements, or Existing Supply Protection Agreements, member sign-up documents or any loan, lease or sublease documents. (vi) Breach of the Use Restriction. Breach, in any material respect, by Homeland of the provisions of the Use Restrictions to which the Stores are subject. (vii) Bankruptcy Matters. If Homeland, except in connection with or pursuant to its Chapter 11 bankruptcy filing on or about the date hereof: (A) files a petition under the Federal Bankruptcy Code or any similar law, state or federal, whether now or hereafter existing; or (B) files any answer admitting insolvency or inability to pay its debts; or (C) is the subject of any petition of involuntary bankruptcy which is not dismissed within thirty (30) days after filing; or (D) becomes the subject of an order for relief against it in any bankruptcy proceeding; or (E) has a custodian or trustee or receiver appointed for it or has any court take jurisdiction of its property, or the major part thereof, in any involuntary proceeding for the purpose of reorganization, arrangement, dissolution or liquidation; or (F) makes an assignment for the benefit of creditors; or (G) admits in writing its inability to pay its debts generally as they become due; or (H) is generally not paying its debts as 13 they become due; or (I) consents to an appointment of a custodian, receiver or trustee of all its property, or the major part thereof. (viii) Default under any other Obligations. A default by Homeland of any other Obligations owed to AWG. As used in this Agreement, the term "OBLIGATIONS" shall collectively mean, include and refer to all present and future loans and advances made by AWG to Homeland, and all notes, debts, liabilities, indebtedness, obligations, covenants and duties of, or made or owed by Homeland, or any guarantor or surety of any of the same (collectively, "GUARANTORS") to AWG, including, without limitation, those under any agreement, contract, lease or sublease of any of the same, of every kind, nature and description, present or future, however evidenced, created or incurred, whether primary or secondary, direct or indirect (by guaranty or otherwise), absolute or contingent, due or not due, now existing or hereafter arising and however acquired or extended, matured or unmatured, voluntary or involuntary, liquidated or unliquidated, monetary or non-monetary, determined or undetermined, earned or unearned, joint or several or otherwise, whether or not such notes, loans, advances, debts, liabilities, indebtedness, obligations, contracts, covenants and duties are of the same kind or quality or relate to the same transactions or the same series of transactions, all sums payable by Homeland, any affiliate of Homeland or any Guarantor to AWG under this Agreement or any promissory note, loan agreement, security agreement or other loan document, contract, lease, sublease, or under any open account arrangement between Homeland, any affiliate of Homeland or any Guarantor and AWG and all costs and expenses, including but not limited to attorneys' fees incurred by AWG in preparing, reviewing, securing, collecting (including, but not limited to, those arising in any bankruptcy proceeding), enforcing or compromising any of said notes, loans, advances, debts, liabilities, indebtedness, obligations, contracts, covenants and duties. (b) AWG Defaults. The following shall be Events of Default by AWG: (i) Failure to Perform. AWG's breach, violation or failure to perform any of the terms, covenants or conditions contained herein in any material respect. (ii) Breach of Other Agreements. Breach, in any material respect, by AWG of any other agreement entered into between Homeland and AWG. (iii) Bankruptcy Matters. If AWG: (A) files a petition under the Federal Bankruptcy Code or any similar law, state or federal, whether now or hereafter existing; or (B) files any answer admitting insolvency or inability 14 to pay its debts; or (C) is the subject of any petition of involuntary bankruptcy which is not dismissed within thirty (30) days after filing; or (D) becomes the subject of an order for relief against it in any bankruptcy proceeding; or (E) has a custodian or trustee or receiver appointed for it or has any court take jurisdiction of its property, or the major part thereof, in any involuntary bankruptcy proceeding for the purpose of reorganization, arrangement, dissolution or liquidation; or (F) makes an assignment for the benefit of creditors; or (G) admits in writing its inability to pay its debts generally as they become due; or (H) is generally not paying its debts as they become due; or (I) consents to an appointment of a custodian, receiver or trustee of all its property, or the major part thereof. 13. CROSS-DEFAULT. Homeland hereby agrees that a default under this Agreement shall automatically constitute a default under each of the other Obligations, and conversely, the occurrence of a default or an Event of Default hereunder or under any of the other Obligations shall automatically constitute a default or an Event of Default under this Agreement. All of the collateral provided to AWG in connection with this Agreement (whether any of the collateral has previously been provided to AWG, is being provided to AWG in connection with this Agreement or is hereafter provided to AWG) shall secure repayment of all of the Obligations (including principal, interest, expenses, costs, charges and fees) so long as any portion of the Obligations remains outstanding and unpaid, notwithstanding any intervening payment of the portion of the Obligations originally secured by any particular part of the collateral. 14. REMEDIES. (a) General. Except for obligations to pay money which must be performed exactly when required without notice or cure, if any Event of Default shall remain uncured for ten (10) days after the defaulting party receives written notice thereof, the non-defaulting party may declare this Agreement to be in default. In such event, the non-defaulting party may terminate this Agreement and/or exercise all other remedies available to it at law or in equity, including but not limited to the rights set forth herein. AWG shall have the right to offset any monetary obligations of AWG to Homeland against amounts owed to AWG by Homeland. At any time that Homeland is in default hereunder, AWG shall be under no obligation to accept orders for or ship Purchased Goods. In the event of an Event of Default by Homeland or in the event this Agreement is terminated, then Homeland's membership in AWG may, at AWG's sole discretion, be terminated. (b) Change of Control. In the event of the transfer of more than twenty percent (20%) of the stock of Homeland or Homeland Holding Corporation to an entity primarily engaged (including through any subsidiary, affiliate or otherwise) in the retail or wholesale grocery business, AWG shall have the right, but not the 15 obligation, to terminate this Agreement and any one or more of the Existing Supply Protection Agreements. Nothing contained in this Section 14(b) is intended to, and shall not be interpreted to, limit in any way the 1995 Supply Agreement. (c) Liquidated Damages. In the event that Homeland (i) breaches its obligations hereunder to purchase Products from AWG or (ii) discontinues using AWG as its primary supplier as described herein, in either case, with respect to any Store, AWG shall be entitled to receive from Homeland, and Homeland agrees to pay to AWG, within ten (10) business days after such breach or discontinuation an amount equal to (A) the average monthly wholesale purchases for such Store or Stores for the twelve (12) periods immediately preceding the four (4) week period in which the breach or discontinuation occurred (or if such Store has been in operation for less than twelve (12) four (4) week periods then the average monthly wholesale purchases for such shorter period) multiplied by (B) the number of four (4) week periods including and following the four (4) week period in which such breach or discontinuation occurred through the remaining term during which this Agreement would have remained effective, multiplied by (C) three percent (3%). For purposes of calculating the amount of liquidated damages under the preceding sentence, the amount of the average four (4) week wholesale purchases shall also include the average four (4) week wholesale purchases for any additional and replacement retail grocery stores opened or acquired, during the twelve (12) four (4) week periods following such breach or discontinuation, by Homeland for the first twelve (12) four (4) week periods following the opening or acquisition of such retail grocery store. The portion of the liquidated damages payable hereunder and calculated on the basis of the preceding sentence shall be payable by Homeland to AWG on or before ten (10) business days following the first date on which such calculation can be made. The foregoing manner of calculating damages is agreed upon as a manner of calculating liquidated damages and not penalties. The parties hereto have agreed to the foregoing manner of calculating damages in an attempt to make a reasonable forecast of probable actual loss because of the difficulty of estimating with exactness the actual damages that will result. Subject to Homeland complying with the Supply Protection Agreements and Sections 6 and 7 of the Intercreditor Agreement (as defined in the Credit Agreement), as applicable, the closing or selling of a Store or Stores, regardless of whether the Store or Stores is listed on EXHIBIT "F", pursuant to Section 2(e) or a liquidation of Homeland in the Bankruptcy Cases shall not give rise to liquidated damages under this Section 14(c). 15. FORCE MAJEURE. In the event either party hereto shall be delayed or hindered in or prevented from the performance of any act required under this Agreement by reason of strikes, lockouts, labor troubles, inability to procure materials, failure of power, restrictive governmental laws or regulations (this does not include proceedings under any bankruptcy law), riots, insurrection, war or other reason of a like nature not the fault of the party 16 delayed in performing work or doing acts required under the terms of this Agreement, then, upon written notice of such force majeure event from the affected party to the other party, performance of such act shall be excused for the period of the delay, and the period for the performance of any such act shall be extended for a period equivalent to the period of such delay. The affected party shall resume performance as soon as practicable thereafter. The mere inability to pay monetary amounts hereunder (no matter how caused) shall not be considered force majeure event hereunder. 16. NO ASSUMPTION OF LIABILITIES. (a) By entering into this Agreement or performing any act or agreement hereunder, AWG does not assume or undertake any obligations or liabilities of Homeland and shall not be responsible for the payment of any liabilities or obligations of Homeland whatsoever, including, without limitation, the following: (i) Claims by Homeland's employees, former employees or others under any private or collective contract, agreement or the like or any state, Federal, local or other laws, statutes, executive order, regulations, ordinances, codes or the like including, but not limited to, claims in connection with employee wages, vacation pay, severance pay, holiday pay, sick leave pay, other union claims, detrimental reliance claims, implied contract claims, WARN notice claims, worker's compensation claims, ERISA claims, COBRA claims, civil rights laws claims, claims under the Fair Labor Standards Act or Labor Management Relations Act, Americans with Disabilities Act, employment discrimination claims of all types, claims regarding health and welfare benefits or premiums, claims regarding union collective bargaining agreements and/or supplemental agreements, sexual harassment claims, disability claims, Family and Medical Leave Act claims, pension fund liability (whether for current or unfunded accrued liabilities), claims or other problems arising under OSHA, claims in connection with environmental problems, claims arising out of Homeland's agreements with third parties or its affiliates or any other obligations of Homeland of any kind or character; (ii) Demands, causes of action, obligations or liabilities (including damages, costs and reasonable attorneys fees) from any claim of any third party arising out of Homeland's acts, omissions or agreements including, but not limited to, those types of claims set forth above in Section 16(a)(i). (b) Relationship. The relationship of AWG and Homeland under this Agreement is primarily that of wholesale supplier and retail customer and as otherwise specifically set forth herein and in the documents contemplated hereby. There is no agency relationship between Homeland and AWG; AWG is not a 17 successor or assign or alter ego to Homeland; Homeland and AWG are not involved in a joint venture or partnership. (c) By entering into this Agreement or performing any act or agreement hereunder, Homeland does not assume or undertake any obligations or liabilities of AWG, including, without limitation, the following: (i) Claims by AWG's employees, former employees or others under any private or collective contract, agreement or the like or any state, Federal, local or other laws, statutes, executive order, regulations, ordinances, codes or the like including, but not limited to, claims in connection with employee wages, vacation pay, severance pay, holiday pay, sick leave pay, other union claims, detrimental reliance claims, implied contract claims, WARN notice claims, worker's compensation claims, ERISA claims, COBRA claims, Civil Rights Laws claims, claims under the Fair Labor Standards Act or Labor Management Relations Act, Americans with Disabilities Act, employment discrimination claims of all types, claims regarding health and welfare benefits or premiums, claims regarding union collective bargaining agreements and/or supplemental agreements, sexual harassment claims, disability claims, Family and Medical Leave Act claims, pension fund liability (whether for current or unfunded accrued liabilities), claims or other problems arising under OSHA, claims in connection with environmental problems, claims arising out of AWG's agreements with third parties or its affiliates or any other obligations of AWG of any kind or character; and (ii) Demands, causes of action, obligations or liabilities (including damages, costs and reasonable attorneys fees) from any claim of any third party arising out of AWG's acts, omissions or agreements including, but not limited to, those types of claims set forth above in Section 16(c)(i). 17. GOVERNING LAW, VENUE. The laws of the State of Kansas shall govern the interpretation, validity, performance and enforcement of this Agreement. Any dispute or cause of action under this Agreement shall be resolved in a court of competent jurisdiction in Johnson County, Kansas; provided, however, any dispute or cause of action under this Agreement from the Commencement Date until a plan of reorganization is consummated shall be resolved in the court with jurisdiction over the Bankruptcy Cases. 18. COUNTERPARTS. This Agreement may be executed in one or more identical counterparts, each of which shall be deemed an original, but all of which taken together shall constitute one and the same instrument. 18 19. HEADINGS; CONSTRUCTION. The headings which have been used throughout this Agreement have been inserted for convenience of reference only and do not constitute matters to be construed in interpreting this Agreement. Words of any gender used in this Agreement shall be held and construed to include any other gender and words in the singular numbers shall be held to include the plural, and vice versa, unless the context requires otherwise. The words "herein," "hereof," "hereunder" and other similar compounds of the word "here" when used in this Agreement shall refer to the entire Agreement and not any particular provision or section. If the last day of any time period stated herein shall fall on a Saturday, Sunday or legal holiday, then the duration of such time period shall be shortened so that it shall end on the next preceding day which is not a Saturday, Sunday or legal holiday. 20. BINDING AGREEMENT; ASSIGNMENT. This Agreement shall be binding upon and inure to the benefit of the parties named herein and to the respective permitted successors. Except as provided herein, neither this Agreement nor the rights or obligations hereunder may be assigned or delegated by either party without the prior written consent of the other party. 21. RECITALS. The opening recitals are a material part of this Agreement and are incorporated herein by reference. 22. SEVERABILITY. In the event any of the provisions of this Agreement shall for any reason be held invalid, illegal or unenforceable in any respect, then, to the maximum extent permitted by law, such invalidity, illegality or unenforceability shall not affect any other provision hereof, and this Agreement shall be construed as if the invalid, illegal or unenforceable provision had never been contained herein. Furthermore, any such invalid, illegal or unenforceable provision shall be deemed amended to reflect, and enforced to carry out, to the greatest extent valid, legal, and enforceable, the intentions of the parties, as determined by the original language of such invalid, illegal or unenforceable provision. It is the intent of the parties that none of the provisions hereof is severable for any purpose (including bankruptcy) other than to avoid invalidity, illegality or unenforceability. For purposes hereof, the Supply Protection Agreements shall not be considered provisions hereof but shall be considered separate agreements delivered as part of the consideration for this Agreement. In addition, while the execution of this Agreement and the Supply Protection Agreements are conditions precedent to the execution and the performance by AWG under the Loan Documents, once executed, this Agreement and each of the Supply Protection Agreements are intended to be separate and independent agreements, severable from the Loan Documents and each of the other Supply Protection Agreements, and except as limited by the express terms thereof, shall survive any expiration, termination or rejection of any other document or agreement. 23. AMENDMENTS. This Agreement, together with all exhibits attached hereto, contains the entire agreement of the parties hereto with respect to the subject matter 19 hereof, and no representations, inducements, promises or agreements, oral or otherwise, between the parties not embodied herein shall be of any force or effect unless contained in a written amendment. Any amendment to this Agreement shall not be binding upon either of the parties hereto unless such amendment is in writing and executed by the authorized representatives of all the parties hereto. 24. NOTICES. All notices, requests, demands and other communications required or permitted hereunder shall be in writing and shall be deemed to have been duly given when presented personally or upon being deposited in a regularly maintained receptacle for United States postal service, postage prepaid, registered or certified, return receipt requested, or sent by a national overnight courier service, and addressed as set forth below or such other addresses as AWG or Homeland may from time to time designate by written notice to the others as required herein: If to Homeland: Homeland Stores, Inc. Oil Center East 2601 Northwest Expressway Oklahoma City, Oklahoma 73112 Attention: Mr. David B. Clark, President With copies to: Crowe & Dunlevy 1800 Mid-America Tower 20 North Broadway Oklahoma City, Oklahoma 73102 Attention: Roger A. Stong, Esq. If to AWG: Associated Wholesale Grocers, Inc. 5000 Kansas Avenue P. O. Box 2932 Kansas City, Kansas 66110-2932 Attention: General Counsel 25. WAIVER. No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provision hereof (whether or not similar), nor shall such waiver constitute a continuing waiver unless otherwise expressly provided. 26. INDEMNIFICATION. In addition to any specific indemnifications contained herein (and not in derogation thereof) the following indemnifications shall be applicable: (a) By Homeland. Homeland shall indemnify, save and hold harmless AWG, its affiliates and subsidiaries, and its and their respective officers, directors, shareholders, principals, attorneys, agents, affiliates, employees or other representatives, ("REPRESENTATIVES"), from and against any and all costs, losses 20 (including, without limitation, diminution in value), liabilities, damages, lawsuits, deficiencies, claims and expenses (whether or not arising out of third-party claims) including, without limitation, interest, penalties, reasonable attorneys' fees and all amounts paid in investigation, defense or settlement for any of the foregoing (herein, the "DAMAGES"), incurred in connection with or arising out of or resulting from (i) any breach of any covenant or warranty or the inaccuracy of any representation made by Homeland in or pursuant to this Agreement and the underlying documents of the Supply Protection Agreements, or (ii) any liability, obligation or commitment of any nature (absolute, accrued, contingent or otherwise) of Homeland which is due to or arises in connection with Homeland's acts or omissions prior to or after the date hereof. (b) By AWG. AWG shall indemnify and save and hold harmless Homeland, its affiliates and subsidiaries, and its and their respective Representatives from and against any and all Damages incurred in connection with or arising out of or resulting from (i) any breach of any covenant or warranty, or the inaccuracy of any representation made by AWG in or pursuant to this Agreement or (ii) any liability, obligation or commitment of any nature (absolute, accrued, contingent or otherwise) of AWG which is due to or arises in connection with AWG's acts or omissions prior to or after the date hereof. (c) Defense of Claims. If any lawsuit or enforcement action is filed against any party entitled to the benefit of indemnity under this Agreement, written notice thereof shall be given to the indemnifying party as promptly as practicable (and in any event within fifteen (15) days after the service of the citation or summons); provided, that the failure of any indemnified party to give timely notice shall not affect rights to indemnification hereunder except to the extent that the indemnifying party demonstrates actual damage caused by such failure. After such notice, if the indemnifying party shall acknowledge in writing to the indemnified party that the indemnifying party shall be obligated under the terms of its indemnity hereunder in connection with such lawsuit or action, then the indemnifying party shall be entitled, if it so elects, to take control of the defense and investigation of such lawsuit or action and to employ and engage attorneys of its own choice to handle and defend the same, at the indemnifying party's cost, risk and expense; and such indemnified party shall cooperate in all reasonable respects with the indemnifying party and such attorneys in the investigation, trial and defense of such lawsuit or action and any appeal arising therefrom; provided, however, that the indemnified party may, at its own cost, participate in the investigation, trial and defense of such lawsuit or action and any appeal arising therefrom. In the event the indemnifying party elects not to assume the defense or investigation of a lawsuit or an action, the indemnifying party shall not be obligated to pay the fees and expenses of more than one counsel or one firm of counsel for all parties indemnified by the indemnifying party in respect of such lawsuit or action, unless in the 21 reasonable judgment of the indemnifying party a conflict of interest may exist between such indemnified party and any other of such indemnified parties in respect of such lawsuit or action. Notwithstanding the foregoing, no party may settle any matter in a manner which would have an adverse effect on the other party without the affected party's prior written consent. No individual representative of any party shall be personally liable for any Damages under the provisions contained in this Section 26. Nothing herein shall relieve either party of any obligation to make any payment expressly required to be made by such party pursuant to this Agreement. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year last above written. [Corporate Seal] ASSOCIATED WHOLESALE GROCERS, INC., ATTEST: a Missouri corporation /s/ JOSEPH L. CAMPBELL By: /s/ GARY L. PHILLIPS - --------------------------------- ------------------------------- Joseph L. Campbell, II, Secretary Gary L. Phillips, President and Chief Executive Officer "AWG" [Corporate Seal] HOMELAND STORES, INC. ATTEST: a Delaware corporation /s/ WAYNE S. PETERSON By: /s/ DAVID B. CLARK - -------------------------------- ------------------------------- Wayne S. Peterson, Secretary David B. Clark, President and Chief Executive Officer "HOMELAND" 22 ACKNOWLEDGMENTS STATE OF KANSAS ) ) ss. COUNTY OF WYANDOTTE ) On this 14th day of August, 2001, before me appeared Gary L. Phillips and Joseph L. Campbell, II, to me personally known, who being by me duly sworn did say that they are the President/Chief Executive Officer and Secretary, respectively, of ASSOCIATED WHOLESALE GROCERS, INC., a Missouri corporation, and that said instrument was signed and sealed in behalf of said corporation by authority of its Board of Directors, and said officers acknowledged said instrument to be the free act and deed of said corporation. In Witness Whereof, I have hereunto set my hand and affixed my official seal the day and year last above written. /s/ ANYA R. BALLANCE ---------------------------------------- My appointment expires: Notary Public [NOTARY STAMP] STATE OF OKLAHOMA ) ) ss. COUNTY OF OKLAHOMA ) On this 15th day of August, 2001, before me appeared David B. Clark and Wayne S. Peterson, to me personally known, who being by me duly sworn did say. that they are the President/Chief Executive Officer and Secretary of HOMELAND STORES, INC., a Delaware corporation, and that said instrument was signed in behalf of said corporation, and said officers acknowledged said instrument to be the free act and deed of said corporation. In Witness Whereof, I have hereunto set my hand and affixed my official seal the day and year last above written. /s/ RHONDA L. RACE ---------------------------------------- My appointment expires: Notary Public 04-17-2004 - ------------------------ 23 EXHIBIT "A" STORES
HOMELAND STORE NO. ADDRESS CITY COUNTY STATE - --------- --------------------------- ------------- ---------- ----- 1. 26 520 Minnesota Chickasha Grady OK 2. 101 1100 W. Main Norman Cleveland OK 3. 102 8922 S. Memorial Tulsa Tulsa OK 4. 105 1315 N. Eastern Ave. Moore Cleveland OK 5. 122 6473 N. MacArthur Oklahoma City Oklahoma OK 6. 125 3828 W. Owen K. Garriott Enid Garfield OK 7. 127 759 Grand Avenue Chickasha Grady OK 8. 141 1402 N. Main St. Guymon Texas OK 9. 145 1800 Central Dodge City Ford KS 10. 146 1701 N. Milt Phillips Seminole Seminole OK 11. 148 1212 Choctaw Clinton Custer OK 12. 153 1108 N.W. 18th Oklahoma City Oklahoma OK 13. 154 2016 N.W. 39th St. Oklahoma City Oklahoma OK 14. 161 510 N. Commerce Ardmore Carter OK 15. 163 4308 S.E. 44th Oklahoma City Oklahoma OK 16. 164 706 Flynn Alva Woods OK 17. 167 1310 Oklahoma Ave. Woodward Woodward OK 18. 170 412 W. Third Elk City Beckham OK 19. 178 505 S. Chickasaw Pauls Valley Garvin OK 20. 181 12508 N. May Ave. Oklahoma City Oklahoma OK 21. 182 1401 Beech Ave. Duncan Stephens OK 22. 183 3020 N.W. 16th St. Oklahoma City Oklahoma OK 23. 188 220 E. Cleveland Guthrie Logan OK
HOMELAND STORE NO. ADDRESS CITY COUNTY STATE - --------- --------------------------- ------------- ---------- ----- 24. 192 415 S.W. 59th Oklahoma City Oklahoma OK 25. 193 301 N.W. 67th Lawton Comanche OK 26. 195 4301 S. May Ave. Oklahoma City Oklahoma OK 27. 196 2705 N. Harrison Shawnee Pottawatomie OK 28. 197 11241 W. Reno Yukon Canadian OK 29. 200 1724 W. Lindsey Rd. Norman Cleveland OK 30. 204 115 E. Hiway 152 Mustang Canadian OK 31. 206 11120 N. Rockwell Oklahoma City Oklahoma OK 32. 207 9320 N. Penn Oklahoma City Oklahoma OK 33. 208 2205 W. Edmond Rd. Edmond Oklahoma OK 34. 457 3948 S. Peoria Tulsa Tulsa OK 35. 495 310 W. Trudgeon Henryetta Okmulgee OK 36. 502 2235 E. 61st St. Tulsa Tulsa OK 37. 503 1110 S. Denver Tulsa Tulsa OK 38. 515 915 S. Madison Bartlesville Washington OK 39. 528 12011 S. Memorial Bixby Tulsa OK 40. 529 3405 S. Georgia Amarillo Randall TX 41. 538 504 E. Graham Pryor Mayes OK 42. 545 12572 East 21st St. Tulsa Tulsa OK 43. 549 400 Plaza Court Sand Springs Tulsa OK 44. 550 6402 E. Pine Tulsa Tulsa OK 45. 553 575 N. Gilcrease Museum Tulsa Osage OK Road [a/k/a 575 N. 26th W. Ave.] 46. 561 708 S. Aspen Broken Arrow Tulsa OK 47. 563 811 E. Frank Phillips Blvd. Bartlesville Washington OK 48. 567 3139 S. Harvard Tulsa Tulsa OK
HOMELAND STORE NO. ADDRESS CITY COUNTY STATE - --------- --------------------------- ------------- ---------- ----- 49. 573 19302 E. Admiral Blvd. Tulsa Wagoner OK 50. 574 2351 E. Kenosha Broken Arrow Tulsa OK 51. 578 700 E. Cherokee Wagoner Wagoner OK 52. 582 230 W. 1st Dumas Moore TX 53. 587 101 W. 10th St. Borger Hutchinson TX 54. 600 7302 S.W. 34th Amarillo Randall TX 55. 601 4111 Plains Amarillo Potter TX 56. 603 3505 N.E. 24th Amarillo Potter TX 57. 604 202 N. 23rd Canyon Randall TX 58. 605 535 N. 25 Mile Ave. Hereford Deaf Smith TX 59. 677 5811 S. Western Amarillo Randall TX 60. 778 4001 S. 97 Highway Sand Springs Tulsa OK 61. 793 7001 Northwest Expressway Oklahoma City Oklahoma OK 62. 794 2121 N.W. 23rd Oklahoma City Oklahoma OK 63. 795 1202 N.W. 40th Lawton Comanche OK 64. 796 10700 S. Penn Oklahoma City Cleveland OK 65. 850 316 E. Main Pawhuska Osage OK 66. 851 702 Fir Street Perry Noble OK 67. 852 305 S. Broadway Cleveland Pawnee OK 68. 853 1629 S. Main Jay Delaware OK 69. 854 310 S. Main Blackwell Kay OK 70. 855 108 S. Division Okemah Okfuskee OK 71. 856 813 E. Cherokee Nowata Nowata OK 72. 857 102 Haskell Blvd. Haskell Muskogee OK 73. 880 3115 W. Okmulgee St. Muskogee Muskogee OK 74. 881 1300 S. York Muskogee Muskogee OK
HOMELAND STORE NO. ADDRESS CITY COUNTY STATE - --------- --------------------------- ------------- ---------- ----- 75. 882 800 E. Okmulgee Muskogee Muskogee OK 76. 883 6 East Shawnee Muskogee Muskogee OK 77. 886 24 S.E. 33rd Street Edmond Oklahoma OK 78. 887 2213 S.W. 74th Street Oklahoma City Oklahoma OK
Plus any replacements and/or substitutions for any of the foregoing Stores. EXHIBIT "B" TO SUPPLY AGREEMENT RIGHT OF FIRST REFUSAL AGREEMENT (Homeland) THIS RIGHT OF FIRST REFUSAL AGREEMENT ("AGREEMENT") is made and entered into as of the 15th day of August, 2001, by and between ASSOCIATED WHOLESALE GROCERS, INC., a Missouri corporation ("AWG"), HOMELAND STORES, INC., a Delaware corporation ("HOMELAND"), Chapter 11 debtor-in-possession and HOMELAND HOLDING CORPORATION, a Delaware corporation ("HOLDING"), Chapter 11 debtor-in-possession (which jointly, severally and/or collectively along with those others defined in Section 2 below shall be referred to herein as the "OWNER" or "OWNERS"). RECITALS: THE FOLLOWING RECITALS ARE A MATERIAL PART OF THIS AGREEMENT: A. Unless otherwise defined in the text of this Agreement, capitalized terms shall have the meanings set forth in Section 2 of this Agreement. B. Homeland and Holding have filed petitions seeking relief under Chapter 11 of the Bankruptcy Code ("BANKRUPTCY CASES"). C. Prior to the filing of the Bankruptcy Cases, Homeland owned and operated seventy-eight (78) retail grocery stores. (The stores and all additional stores of any kind owned, leased, operated and/or hereinafter acquired by Homeland and/or Holding shall be referred to collectively herein as the "STORES". The Stores currently owned, leased and/or operated by Homeland are set forth on EXHIBIT "A" attached hereto and incorporated herein.). Upon the conclusion of the Bankruptcy Cases, Homeland intends to continue to operate certain of the Stores. D. AWG is a wholesaler of grocery and store products operating in a cooperative manner. By providing loans and other financial accommodations to its qualified retail members, the proceeds or benefits of which are used for business purposes including, but not limited to, the acquisition of facilities and/or merchandise, supplies, inventory, fixtures and/or equipment for such member's retail grocery stores, AWG seeks to maintain and increase its volume of wholesale sales, thereby enhancing the interests of all of its retail members. E. Homeland is and intends to remain a retail member of AWG. F. Homeland and Holding have made application with AWG for the extension or continuation of certain financial accommodations during the pendency of and after emergence from the Bankruptcy Cases (the "FINANCIAL ACCOMMODATIONS"). G. Due to (i) AWG's substantial investment in connection with the Financial Accommodations and the related transactions contemplated thereby and (ii) AWG's desire to enhance the interests of its retail membership by way of, among other things, receipt of assurances that products and goods to be purchased in connection with the operation of the Stores will continue to be made through the AWG warehouse, AWG is unwilling to extend the Financial Accommodations to Homeland and Holding unless it obtains adequate assurances that the Stores will be supplied by AWG during the pendency of the Bankruptcy Cases and will continue to be supplied by AWG after the conclusion of the Bankruptcy Cases. H. Homeland and Holding have advised AWG that Homeland intends to concentrate with AWG an agreed upon percentage of all of its ordering of inventory (including but not limited to all grocery, meat and produce products and all health and beauty products and general merchandise) and supplies (excluding pharmacy purchases) to be held for sale to the public at or to be used in connection with each of the Stores individually and all of the Stores in the aggregate. I. To provide assurances of its intentions to make such purchases and to induce AWG to extend the Financial Accommodations to Homeland and Holding, Homeland has agreed, among other things, to enter into that certain Supply Agreement ("SUPPLY AGREEMENT") concurrently with the execution of this Agreement. J. To further induce AWG to provide the Financial Accommodations, Homeland also desires to provide adequate assurance to AWG that the Stores will continue to be supplied by AWG in the future by granting or taking subject to certain rights with respect to the Stores under (i) the Supply Agreement, (ii) this Agreement; (iii) a Non-Competition Agreement and (iv) Use Restrictions (collectively "SUPPLY PROTECTION AGREEMENTS"), each entered into contemporaneously with this Agreement. The current delivery of the Supply Protection Agreements is intended to constitute contemporaneous consideration between the parties as an inducement in connection with their respective rights and obligations under this Agreement. It is the parties' intent that the implementation and operation of the Supply Protection Agreements will be independent and will not be executory. K. AWG is willing to extend the Financial Accommodations upon the terms agreed upon with Homeland and Holding provided Homeland and Holding will, among other things, grant AWG certain unconditional rights, including the Supply Protection Agreements, with respect to the Retailer Property, which rights shall remain in effect for the period of time specified in this Agreement or as described in the underlying documents. The execution of this Agreement and the rights granted by Homeland herein are conditions 2 precedent to the extension and/or continuation of the Financial Accommodations by AWG, in order to further enhance the interests of AWG's retail members by helping to ensure the maintenance of volume of wholesale sales. L. Owners will benefit, directly or indirectly, from the Financial Accommodations extended or continued by AWG to Homeland. M. Holding owns all of the capital stock of Homeland and is entering into this Agreement with respect to Holding's ownership and/or disposition of the capital stock of Homeland. TERMS OF AGREEMENT NOW, THEREFORE, in consideration of the foregoing recitals, which are hereby incorporated into the terms of this Agreement, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereby mutually agree as follows: 1. FINANCIAL ACCOMMODATIONS. AWG agrees to provide the Financial Accommodations agreed upon with by Homeland and Holding, and the same shall be effected upon the (i) approval of the Financial Accommodations and all associated documents, including this Agreement, by the court in the Bankruptcy Cases and such orders shall have become final and nonappealable and (ii) execution and delivery of this Agreement, one or more contracts, promissory notes, a loan agreement, a security agreement, UCC Financing Statements and/or such other documents or security evidencing, governing or securing Homeland's obligations to AWG, as may be required by AWG. The current grant of rights contained herein constitutes contemporaneous consideration among the parties as an inducement in connection with their respective rights and obligations in connection with the Financial Accommodations. This Agreement is intended to be an independent obligation of Homeland and Holding and is not intended to be executory in its implementation and operation. 2. DEFINITIONS. In addition to terms defined elsewhere in this Agreement, the following terms shall have the meanings assigned to them hereinbelow: (a) "AFFILIATE" of a Person shall mean any other Person (i) that directly or indirectly Controls, is Controlled by or is under common Control with, the Person or any of its subsidiaries, (ii) that directly or indirectly beneficially owns or holds 15% or more of any class of voting stock or other interest of the Person or any of its subsidiaries or (iii) 15% or more of the voting stock or other interest of which is directly or indirectly beneficially owned or held by the Person or any of its subsidiaries. As to any corporation, partnership or other entity, Affiliate also means its officers, directors and general partners. 3 (b) "APPRAISAL" shall mean a determination of value made at the request of either AWG or Transferor in accordance with the following procedures: (i) If either AWG or Transferor desires to request an Appraisal, then the party so requesting the Appraisal (the "requesting party") shall deliver Notice thereof to the other party (the "non-requesting party"), which Notice shall include the name and address of the qualified, independent appraiser selected by the requesting party. Within ten (10) business days after its receipt of such Notice, the non-requesting party shall designate a qualified, independent appraiser and shall notify the requesting party, in writing, of the name and address of such appraiser. If, after receipt of such Notice, the non-requesting party fails within ten (10) business days to appoint an appraiser, the appraiser who was appointed by the requesting party shall conduct the Appraisal. All appraisers shall be qualified in appraising property of the same or similar type as the Property being appraised. (ii) The appraisers shall determine the "fair market value" of the Property to be appraised as of the date of appointment of the last appraiser. As used herein, the term "fair market value" shall mean the price which a seller, willing but not obligated to sell, would accept for such Property, and which a buyer, willing but not obligated to buy, would pay therefor in an arm's length transaction. (iii) After reaching a decision, the appraisers shall given written Notice thereof to AWG and Transferor, which Notice shall state the fair market value of the appraised Property and shall be accompanied by a written report. The decision of the appraisers shall be binding on AWG and Transferor. (iv) In the event the appraisers are unable to reach a decision and their independent valuations differ by less than ten percent (10%), then the "fair market value" of the Property being appraised shall be the average of the two valuations. However, in the event the valuations differ by more than ten percent (10%), then the appraisers shall select a third independent appraiser who shall also make a determination regarding the fair market value of the Property being appraised. The valuations of the three appraisers shall then be averaged, and the average shall be deemed to be the fair market value of such Property; provided, however, if the valuation made by an appraiser deviates more than ten percent (10%) from the average of all such valuations, then the Property's fair market value shall be the average of the two closest valuations. 4 (v) The fair market value, as established by the Appraisal, shall be valid for a period of one hundred eighty (180) days after the date as of which the Appraisal was delivered to AWG and Transferor. (c) "CONTROL" shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract or otherwise. (d) "INVOLUNTARY TRANSFER" means any transfer, proceeding or action (other than to a Permitted Transferee) by or in which Homeland or any Owner shall be deprived or divested of any right, title or interest in or to all or any part of any of the Property including, without limitation, any seizure under levy or attachment or execution, any foreclosure upon such Property, any transfer in connection with bankruptcy (whether pursuant to the filing of a voluntary or an involuntary petition under the Bankruptcy Reform Act of 1978, as amended, or any modifications or revisions thereto) or other court proceeding to a debtor in possession, trustee in bankruptcy or receiver or other officer or agency, or any transfer to a state or to a public officer or agency pursuant to any statute pertaining to escheat or abandoned property. The term does not include the vesting of assets in Homeland or Holding pursuant to a consummated plan of reorganization. (e) "NOTICE" shall mean a written communication satisfying the requirements of Section 13(c). (f) "OBLIGATIONS" shall collectively mean, include and refer to all present and future loans and advances made by AWG to Homeland and/or Holding, and all notes, debts, liabilities, indebtedness, obligations, covenants and duties of, or made or owed by, Homeland, Holding or any guarantor or surety of any of the same (collectively, "GUARANTORS") to AWG, including, without limitation, those under any contract, lease or sublease, of every kind, nature and description, present or future, however evidenced, created or incurred, whether primary or secondary, direct or indirect (by guaranty or otherwise), absolute or contingent, due or not due, now existing or hereafter arising and however acquired or extended, matured or unmatured, voluntary or involuntary, liquidated or unliquidated, determined or undetermined, earned or unearned, joint or several or otherwise, whether or not such notes, loans, advances, debts, liabilities, indebtedness, obligations, contracts, covenants and duties are of the same kind or quality or relate to the same transactions or the same series of transactions, all sums payable by Homeland, Holding, any affiliate of Homeland, Holding or any Guarantor to AWG under this Agreement or any promissory note, loan agreement, security agreement or other loan document, contract, lease, sublease, or under any open account arrangement between Homeland, Holding, any affiliate of Homeland, Holding or any Guarantor and AWG and all costs and expenses, including but not limited to attorneys' fees incurred by AWG in preparing, reviewing, securing, collecting (including but not 5 limited to those arising in any bankruptcy proceeding), enforcing or compromising any of said notes, loans, advances, debts, liabilities, indebtedness, obligations, contracts, covenants and duties. (g) "OFFER" shall mean a bona fide written and signed offer from a proposed transferee containing the terms of a proposed Transfer of all or any portion of the Property. (h) "OWNER" shall mean a Person (i) holding an Ownership Interest in (A) Homeland, (B) an Affiliate of Homeland, (C) any other Person which can or does exert Control over Homeland or (D) the Property, direct or indirect and at any level or (ii) having any right (whether pursuant to an option, a lien, an assignment or under any other agreement, or by operation of law) in or to an Ownership Interest except for the liens and security interests of any third party lender approved in writing by AWG. This definition of Owner is intended to be broad enough to include interest holders at all levels of any form or type of multi-level ownership structure. (i) "OWNER PROPERTY" shall mean any Owner's right, title, interest or estate now owned or hereafter acquired in or to (i) any Ownership Interest, (ii) the above identified Stores, or any part thereof, (iii) any entity which owns an interest or estate in such Stores, or any part thereof (if other than Homeland), (iv) all associated rights in connection with any of the foregoing, (v) any new location to which any Store or its operations are moved, or (vi) any name under which any Store, or any part thereof, is operated. The foregoing shall include, without limitation, any and all (A) ownership interest in the business owned or operated in, at or from any such location; (B) real estate owned or leased at or in connection with any such location; (C) FF&E or inventory used or located at or in connection with any such location; (D) coupon rights; (E) contract(s) or franchise(s) that are in any way used or associated with any Store or business owned or operated in, at or from any such location; or (F) other tangible or intangible assets owned, located or used at or in connection with any such Store or business owned or operated in, at or from any such location. (j) "OWNERSHIP INTEREST" shall mean an ownership interest in (i) Homeland, whether held in the form of stock of any class or classes, or any other form of ownership, (ii) an Owner, whether held in the form of stock of any class or classes (if Owner is a corporation), a partnership interest (limited or general, if Owner is a partnership), a membership interest (if Owner is a limited liability company), or any other form of ownership, and/or (iii) all or any portion of the Property, whether in fee, a leasehold estate or otherwise and whether direct, indirect or beneficial. (k) "PERMITTED TRANSFER" means only a Transfer to which AWG has granted its prior written approval. 6 (l) "PERMITTED TRANSFEREE" means any Person to whom Property (including but not limited to any Ownership Interest) is transferred under a Permitted Transfer. (m) "PERSON" means any individual or group of individuals, corporation, general partnership, limited partnership, limited liability company, joint venture, trust, business trust, cooperative, association or any other legal entity. (n) "PROPERTY" shall collectively mean Retailer Property and Owner Property. (o) "RETAILER PROPERTY" shall mean Homeland's right, title, interest or estate now owned or hereafter acquired in or to (i) any Ownership Interest, (ii) any of the Stores or parts thereof, (iii) any entity which owns an interest or estate in any such Stores (if other than Homeland), (iv) all associated rights in connection with any of the foregoing, (v) any new location to which any such Store or its operations are moved, or (vi) any different name under which any such Store, or any part thereof, is operated. The foregoing shall include, without limitation, any and all (A) ownership interest in the business owned or operated in, at or from any such location; (B) real estate owned or leased at or in connection with any such location; (C) FF&E or inventory used or located at or in connection with any such location; (D) coupon rights; (E) contract(s) or franchise(s) that are in any way used or associated with any such Store or business owned or operated in, at or from any such location; or (F) other tangible or intangible assets of Homeland owned, located or used at or in connection with any such Store or business owned or operated in, at or from any such location. (P) "PURCHASE RIGHTS" means the Right of First Refusal granted herein. (q) "TRANSFER" means any sale, exchange, assignment, transfer, pledge, mortgage, hypothecation, gift, bequest, grant, redemption, encumbrance, dissolution, liquidation, stock transfer, merger, consolidation, transfer in connection with any kind of business combination or other disposition of any kind, whether voluntary, involuntary, by operation of law or otherwise, including any Involuntary Transfer. The foregoing is intended to encompass every mode, direct or indirect, absolute or conditional, voluntary or involuntary, of disposing or parting with property or an interest in property, including retention of title as a security interest and foreclosure of the right of redemption. (r) "TRANSFEROR" shall mean either Homeland or any Owner or Owners, with respect to the Transfer by Homeland or Owner(s) of all or any portion of the Property. 7 3. GRANT OF RIGHT OF FIRST REFUSAL. (a) In consideration of AWG's execution hereof, ten dollars and other valuable consideration, the adequacy and receipt of which are hereby acknowledged, Homeland does hereby grant to AWG the absolute right of first refusal and option (collectively "RIGHT OF FIRST REFUSAL") to purchase all of Homeland's interest(s) and/or estate(s) in the Retailer Property and all of Homeland's property utilized in connection with the Retailer Property, all whether now or hereafter owned or acquired. The Right of First Refusal granted herein shall remain in full force and effect for the term set forth in subparagraph 13(a) below. This grant of the Right of First Refusal constitutes a restrictive covenant against and/or in connection with the Retailer Property, and is intended to be an absolute and present conveyance of a property right which, to the extent allowed by applicable law, is appurtenant to and runs with the Retailer Property and, subject only to satisfaction in accordance with the terms hereof, shall survive any prepayment and/or other satisfaction or termination of the Financial Accommodations prior to the expiration or termination of this Agreement. (b) Homeland and Holding represent and warrant that the Property owned by them is and at the time of any Exercise Event shall be free and clear of all claims, liens (statutory or otherwise), pledges, licenses, equities, options, conditional sales contracts, assessments, levies, charges, easements, security interests, deeds of trust, mortgages, rights-of-way, covenants, conditions, reservations, exceptions, limitations, charges, restrictions, encumbrances or other right or rights of third parties of any nature whatsoever, except as specifically disclosed to AWG in writing concurrently herewith on attached EXHIBIT "B" and consented to by AWG (the "PERMITTED ENCUMBRANCES"), or except with respect to liens or encumbrances previously granted to AWG or granted to AWG concurrently herewith. Homeland further covenants and agrees that it shall not, without the prior written consent of AWG, create, incur, assume, or suffer to exist any claim, lien (statutory or otherwise), pledge, license, equity, option, conditional sales contract, assessment, levy, charge, easement, security interest, deed of trust, mortgage, right-of-way, covenant, condition, reservation, exception, limitation, charge, restriction, encumbrance or other right or rights of third parties of any nature whatsoever on the Retailer Property or Owner Property owned by Holding, or any part thereof, other than the Permitted Encumbrances. 4. EXERCISE EVENTS DEFINED. Except in the case of a Transfer to a Permitted Transferee, or as otherwise required or permitted by this Agreement, the Right of First Refusal shall be exercisable immediately, and continue to be exercisable thereafter, by AWG in connection with all or any part of the Retailer Property upon the occurrence of any one or more of the following (each an "EXERCISE EVENT"): (i) Homeland shall, at any time, attempt to Transfer or does Transfer any Property or any part(s) thereof or interest(s) or estate(s) therein, (ii) the Transfer or attempted Transfer by any Owner or Owners of any 8 of the Property (including but not limited to any Ownership Interest) through one or more Transfers to any Person (including any Affiliate(s) of such Person) where such Transfer or Transfers could result in the first to occur of (A) a change in Control of Homeland or (B) a Transfer of more than twenty percent (20%) of the Ownership Interests, (iii) one or more events have occurred which will, with the passage of time, result in a Transfer or attempted Transfer of the type set forth above, or (iv) there is an Event of Default under this Agreement. In addition, it shall be an Exercise Event in the event Homeland ceases to utilize AWG as its primary supplier (as such term is commonly used in the grocery industry and in which sixty-five percent (65%) of the value (measured at wholesale cost) of all inventory and supplies purchased by Homeland are purchased from AWG) for each and all of the "SUPPLIED STORES", as defined in that certain Supply Agreement between AWG and Homeland dated contemporaneously herewith ("SUPPLY AGREEMENT") upon the expiration of the Supply Agreement. Notwithstanding the foregoing, any Transfer required to be made in connection with any plan of reorganization approved by AWG and the court (by way of a final, non-appealable order) in connection with the Bankruptcy Cases, shall not be an Exercise Event. If any such Transfer is made without AWG's approval or waiver or rights hereunder, it shall be an Exercise Event, and AWG shall be entitled to damages if this Agreement is breached. 5. OCCURRENCE OF EXERCISE EVENT. Upon the occurrence of an Exercise Event, then: (a) Notice of Exercise Event. Homeland and/or Holding shall notify AWG in writing (which Notice shall specifically state that it is being given to advise AWG that the Right of First Refusal is exercisable) of the occurrence of any Exercise Event ("EXERCISE EVENT NOTICE"). (i) If the Exercise Event is a desire by Homeland and/or an Owner to sell all or part of the Property on the price, terms, provisions and conditions contained in a third-party offer, the Exercise Event Notice shall include a signed copy of the third-party proposal. In connection with proposals involving the Retailer Property, Homeland shall require any such third-party proposal to fully state (1) the name of the proposed purchaser, (2) the specific identity of the Property covered by the proposed offer and (3) the price, terms, provisions and conditions of such offer. (ii) If the Exercise Event is anything other than a desire by Homeland and/or an Owner to sell Property pursuant to a third-party offer, the Exercise Event Notice shall furnish AWG with as complete a description of the Exercise Event as possible including, where applicable, the price, terms, provisions and conditions associated with any such event. (b) Acceptance or Rejection After Notice. Once an Exercise Event Notice which complies with the requirements hereof has been received, AWG shall have 9 the longer of (i) thirty (30) days following the date of receipt of such Exercise Event Notice or (ii) the amount of time given any proposed transferee of Property to conduct due diligence, to exercise the Right of First Refusal as to all or part of the Retailer Property or otherwise reject same. The Right of First Refusal shall be exercised or rejected by way of a Notice to Homeland. (c) Acceptance or Rejection Absent Notice. In the event (i) an Exercise Event occurs which is unknown to Homeland and/or Holding or (ii) Homeland and/or Holding fails to give an Exercise Event Notice of a known Exercise Event, AWG shall have the longer of (i) thirty (30) days following the date upon which AWG's general counsel or other AWG staff attorney actually learns of the Exercise Event or (ii) the amount of time given any proposed transferee of Property to conduct due diligence, to exercise the Right of First Refusal as to all or part of the Retailer Property or otherwise reject same. The Right of First Refusal shall be exercised or rejected by way of a Notice to Homeland. 6. EXERCISE OF RIGHT OF FIRST REFUSAL. (a) Price, Terms, Provisions and Conditions. If the Transferor is solvent at the time the Right of First Refusal is exercised, the purchase price, terms, provisions, conditions and due diligence rights associated with the Retailer Property to be purchased by AWG shall be: (i) if applicable, the same price, terms, provisions, conditions and due diligence rights contained in the third-party offer the Transferor wishes to accept, or (ii) if there is no existing or applicable third-party offer for the Retailer Property to be purchased by AWG at the time AWG exercises the Right of First Refusal, then the price shall be the fair market value of the Retailer Property to be purchased by AWG at the time of the exercise of the Right of First Refusal and the remaining terms, provisions, conditions and due diligence rights shall be the same as in similar transactions of like size and complexity between similarly situated, commercially prudent transferors and transferees. If the Transferor is insolvent at the time the Right of First Refusal is exercised, (i) the purchase price for the Property to be purchased by AWG shall be the greater of: (A) if applicable, the same price contained in the third-party offer the Transferor wishes to and is able to accept for such Property or (B) the fair market value of the Retailer Property to be purchased by AWG at the time of the exercise of the Right of First Refusal and (ii) the remaining terms, provisions, conditions and due diligence rights shall be the same as in similar transactions of like size and complexity between similarly situated, commercially prudent transferors and transferees; provided, however, if applicable, the purchase price, terms, provisions, conditions and due diligence rights set forth above shall be modified to be identical to those approved by any court with jurisdiction over the matter. When necessary in connection with the foregoing, fair market value shall be determined by way of an Appraisal. 10 (b) Transferor's Duties Upon Exercise. In the event AWG exercises the Right of First Refusal at a time when the Transferor is solvent, the Transferor shall be required to perform all acts, satisfy all obligations and execute such instruments as may be required (i) pursuant to the terms of any applicable proposed or final agreement, as the case may be, between the Transferor and transferee (whether described in an Exercise Event Notice or not), (ii) in connection with similar transactions of like size and complexity between similarly situated, commercially prudent transferors and transferees and (iii) under the provisions of the laws of the state wherein the Retailer Property to be purchased by AWG is located, so that good and merchantable title may be conveyed to AWG. In the event AWG exercises the Right of First Refusal at a time when the Transferor is insolvent, the Transferor shall be required to perform only such acts and execute such necessary instruments as may be required (i) in connection with similar transactions of like size and complexity between similarly situated, commercially prudent transferors and transferees and (ii) under the provisions of the laws of the state wherein the Retailer Property to be purchased by AWG is located, so that good and merchantable title may be conveyed to AWG; provided, however, if applicable, such obligations shall be limited to the extent required to prevent this Agreement from being considered executory by any court with jurisdiction over the matter. (c) In all events, except as modified pursuant to the proviso in the second to last sentence of subparagraph 6(a) above, AWG and any party conducting an Appraisal pursuant hereto shall be provided access to all information necessary to allow a fully informed valuation of the Property to be Transferred and the consideration to be paid therefor. 7. REJECTION OF RIGHT OF FIRST REFUSAL. With respect to any Exercise Event, in the event AWG elects not to exercise its Right of First Refusal with respect to all or any part of such Retailer Property then, upon receipt of AWG's Notice of such election, Transferor shall be free to conclude and close the proposed Transfer of the Retailer Property so rejected (but not as to any Retailer Property with respect to which AWG exercises its Right of First Refusal) to the same purchaser or transferee identified in the Exercise Event Notice under and pursuant to the exact terms, without modification or amendment, as contained in the Exercise Event Notice received by AWG. Such Transfer of the rejected Retailer Property shall be deemed to be a Permitted Transfer and Transferor shall not be required to Transfer to AWG any of such rejected Retailer Property pursuant to the terms hereof at such time. Upon the consummation of any such Permitted Transfer, the rights granted to AWG in this Agreement shall terminate with respect to the Retailer Property so rejected by AWG. AWG's Right of First Refusal shall survive with respect to (i) any Retailer Property which is not Transferred pursuant to a Permitted Transfer and (ii) any Exercise Event caused by the Transfer of any Owner Property. In the event AWG notifies a Transferor that it has elected not to exercise its Right of First Refusal with respect to all or any portion of the Retailer Property identified in the Exercise Event Notice, and Transferor thereafter fails to close and conclude the sale or Transfer of such 11 Retailer Property identified in the Exercise Event Notice and rejected by AWG under the exact terms as contained in such Exercise Event Notice and to the same purchaser or transferee named in such Exercise Event Notice, then this Agreement shall continue in full force and effect with respect to (i) all Retailer Property identified therein and AWG shall continue to have its Right of First Refusal with respect to such Retailer Property and (ii) any Exercise Event caused by the Transfer of any Owner Property. 8. SALE CONFIRMATION. Transferor shall provide AWG with written confirmation of any Transfer of any of the Retailer Property with respect to which AWG is not the purchaser and AWG shall have the right to inspect Transferor's books and records in respect of any such Transfer at Transferor's headquarters (or wherever such books and records are maintained) during normal business hours. Transferor shall deliver copies of all closing documents in its possession or control to AWG within thirty (30) days of the consummation of any such Transfer. Homeland and Holding shall disclose their obligations hereunder to all other Owners and potential transferees and shall not enter into any agreement for the Transfer of any of the Property which would prohibit the disclosure to AWG of any of the terms of such proposed Transfer. 9. STORE CLOSING. In the event Homeland intends to close a Store and not operate a store at such location, then Homeland shall (a) give AWG thirty (30) days advance written Notice of Homeland's intent to close the Store, and (b) offer such Retailer Property for sale to AWG at the Option Purchase Price (as defined below). Homeland may close a Store provided it has first complied with (a) and (b) above. Nothing contained in this Section 9 shall be deemed or construed to limit or waive any other obligation of Homeland to AWG whether contained herein or otherwise. For purposes herein, Option Purchase Price shall mean the sum of (i) the fair market value of the furniture, fixtures and equipment and any real estate; (ii) the value of any inventory calculated at Homeland's net cost, and (iii) the fair market value attributed to any leasehold interest which Homeland intends to abandon. When necessary in connection with any of the foregoing, fair market value shall be determined by way of an Appraisal. The notice period set forth herein shall be adjusted as may be required to match the notice period required in connection with any agreement between AWG and any lender which has a Permitted Encumbrance on the Store in question. 10. LIMITATION ON PURCHASE RIGHTS. The Purchase Rights granted herein: (a) shall not apply to a Transfer of any Property to a Permitted Transferee; (b) shall remain in full force and effect for the full term set forth in Section 13(a) of this Agreement; and 12 (c) upon AWG's election to exercise same, may be assigned by AWG, in whole or in part, to any one or more of AWG's retail members; provided, however, that AWG may retain the right to consummate the Purchase Rights. 11. FURTHER ACTS. Each time AWG exercises its Purchase Rights hereunder, the Transferor(s), in addition to the acts provided for in this Agreement, upon request by AWG, shall perform or cause to be performed any and all such further acts as may be reasonably necessary and shall execute all necessary instruments as may be reasonably required to give effect to this Agreement and to consummate the transactions contemplated hereby, including but not limited to all such acts and instruments required under the provisions of the Bulk Sales law of the state in which the Property to be purchased by AWG is located, if any, so that good and marketable title shall be conveyed to AWG. 12. EVENT OF DEFAULT/REMEDIES. The occurrence of any of the following events shall constitute, and is hereby defined to be, an "EVENT OF DEFAULT", and, upon the occurrence of an Event of Default, Homeland and Holding shall be in default under this Agreement and under each of the Obligations: (a) Any failure in the payment or performance of any of the indebtedness, liabilities or Obligations owed to AWG hereunder, or otherwise, including but not limited to any promissory note(s) payable to AWG by Homeland or Holding or with respect to which Homeland or Holding is a guarantor, any indebtedness of Homeland, Holding or any Guarantor to AWG on open account or otherwise, or in the compliance with or the failure or neglect by Homeland, Holding or any Guarantor in the performance or observance of any obligation, covenant, agreement, term, condition or other provision or liability contained herein within the time limits set forth and in the manner required in this Agreement, or in any other instrument given by Homeland, Holding or any Guarantor to AWG as security for or relating to any of the Obligations. (b) Default under any of the other Obligations, including loan documents or other agreements evidencing or securing any of the Obligations. (c) A final determination by a court of competent jurisdiction that any warranty or representation made herein or in any loan document, the underlying documents in connection with the Supply Protection Agreements or under any other agreement evidencing or securing any of the Obligations was false when made or was or is subsequently breached. (d) Uninsured loss, theft, substantial damage, destruction or sale (other than the sale of inventory in the ordinary course of business) of any of the Retailer Property or the creation, attachment, making or occurrence of or realization upon an unpermitted security interest, lien, attachment, levy, seizure, garnishment, 13 distraint or other encumbrance or other process of, in, upon or against any of the Property. (e) Except for the Bankruptcy Cases, dissolution, termination of existence, insolvency of Homeland or Holding or the appointment of a receiver for any part of the Property, assignment for the benefit of any creditors of (i) Homeland, (ii) any Guarantor, (iii) Holding, or (iv) shareholders of Homeland, or commencement of any proceeding under any bankruptcy or insolvency law by or against Homeland, any Guarantor, Holding or any shareholder of Homeland. (f) The termination, for any reason, of Homeland's stock ownership or membership in AWG (g) Except as provided for in this Agreement, the creation, attachment, making or occurrence of or realization upon a security interest, lien, attachment, levy, seizure, garnishment, distraint or other encumbrance or other process of, in, upon or against the Property, or any part thereof, or any of Homeland's, Holding's or any Guarantor's assets, any ownership interest in Homeland (including but not limited to any Ownership Interest) or in any Guarantor, or the voluntary Transfer or Involuntary Transfer of any of Homeland's or any Guarantor's assets. (h) If, during the term hereof, Homeland or any Owner shall Transfer or attempt to Transfer any of the Property (including but not limited to any Ownership Interest) to any Person other than to a Permitted Transferee or as otherwise required or permitted by this Agreement. (i) There is a failure to otherwise perform or comply with the provisions of this Agreement. (j) Homeland or Holding enter into a supply agreement or similar arrangement with a competitor of AWG. (k) There is an attempted evasion of the terms of this Agreement. Upon the occurrence of an Event of Default by Homeland or Holding under this Agreement, AWG may, at its option: (i) proceed as if Homeland had advised AWG that Homeland intended to close the Stores, (ii) proceed as if an Exercise Event had occurred and/or (iii) pursue such other actions in equity or at law against Homeland and Holding as may be available to AWG, including but not limited to actions against Homeland and Holding for specific performance and/or damages. 14 13. MISCELLANEOUS. (a) TERM OF RIGHT OF FIRST REFUSAL. The Right of First Refusal granted herein shall remain in full force and effect for the longer of (i) ten (10) years from the date of this Agreement or (ii) the period equal to the entire term of the Financial Accommodations (as the same may be extended or modified from time to time); provided, however, that in connection with any Store listed on EXHIBIT "C" attached hereto and incorporated herein by this reference which is still leased by Homeland from AWG at the time that this Agreement would otherwise terminate, this Agreement shall be extended for the remaining term (as extended) of any such lease or sublease between Homeland and AWG. This Agreement shall remain in full force and effect as above detailed, unless terminated by a written agreement of the parties hereto or unless otherwise terminated as herein provided. (b) RIGHTS OF SUCCESSORS. This Agreement shall be binding upon and shall inure to the benefit of Homeland, Holding and AWG and their respective heirs, devisees, legatees, executors, administrators, personal or legal representatives, permitted successors and permitted assigns. (c) NOTICES. Any Notice, demand or other document which either party is required or may desire to give or deliver to, or make upon, the other party shall be in writing, and may be personally delivered, sent by an overnight delivery service (such as Federal Express) or given by registered or certified mail, return receipt requested, postage prepaid, addressed to the parties at their respective addresses set forth below, with copies to be sent to any additional person whose name and address has been supplied by one party to the other. Either party hereto may designate a different address for itself by Notice similarly given. If to Homeland: Homeland Stores, Inc. Oil Center East 2601 Northwest Expressway Oklahoma City, Oklahoma 73112 Attention: David B. Clark, President If to Owners: Homeland Holding Corporation Oil Center East 2601 Northwest Expressway Oklahoma City, Oklahoma 73112 Attention: David B. Clark, President If to AWG: Associated Wholesale Grocers, Inc. 5000 Kansas Avenue Kansas City, Kansas 66106 Attention: General Counsel 15 Notice shall be deemed served and received upon the date of mailing (in the case of Notices mailed by registered or certified mail) or upon delivery (in all other cases). A party's failure or refusal to accept service of a Notice shall constitute delivery of the Notice. (d) COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which shall be fully effective as an original and all of which when taken together shall constitute one and the same instrument. (e) SEVERABILITY. In the event any of the provisions of this Agreement shall for any reason be held invalid, illegal or unenforceable in any respect, then, to the maximum extent permitted by law, such invalidity, illegality or unenforceability shall not affect any other provision hereof, and this Agreement shall be construed as if the invalid, illegal or unenforceable provision had never been contained herein. Furthermore, any such invalid, illegal or unenforceable provision shall be deemed amended to reflect, and enforced to carry out, to the greatest extent valid, legal, and enforceable, the intentions of the parties, as determined by the original language of such invalid, illegal or unenforceable provision. It is the intent of the parties that none of the provisions hereof is severable for any purpose (including bankruptcy) other than to avoid invalidity, illegality or unenforceability. For purposes hereof, the Supply Protection Agreements shall not be considered provisions hereof but shall be considered separate agreements delivered as part of the consideration for this Agreement. In addition, while the execution of this Agreement and the Supply Protection Agreements are conditions precedent to the execution and the performance by AWG under the Financial Accommodations, once executed, this Agreement and each of the Supply Protection Agreements are intended to be separate and independent agreements, severable from the Financial Accommodations and each of the other Supply Protection Agreements, and except as limited by the express terms thereof, shall survive any expiration, termination or rejection of any other document or agreement. (f) HEADINGS AND CONSTRUCTION. Section headings herein contained are inserted only for convenience and are in no way to be construed as a part of this Agreement or as a limitation on the scope of the particular portions of this Agreement to which they refer. It is the intent of the parties that the provisions of this Agreement shall be construed in the manner which most favors AWG's acquisition of Property rather than acquisition of such Property by a third party. (g) ENTIRE AGREEMENT/NON-WAIVER. This Agreement shall not be amended or modified or any of the terms hereof waived except by a written instrument executed by AWG, Homeland and Holding. No waiver of any condition or covenant of this Agreement shall be deemed to imply or constitute a further waiver of the same or any other condition or covenant of this Agreement. (h) ATTORNEY'S FEES. In the event that either party hereto retains an attorney to conduct litigation arising as a result of any breach of this Agreement, 16 then, in addition to any damages or other relief which may be appropriate, the prevailing party shall be entitled to recover its reasonable attorneys' fees. (i) FURTHER ACTS. It is the intention of the parties that this Right of First Refusal shall encumber the Property until the provisions hereof have been satisfied in full. In order to more fully give notice of and/or perfect this Right of First Refusal, Homeland and Holding shall execute such memoranda in recordable form, place such restrictive legends in organizational documents and any documents indicating ownership and perform such other acts as may be necessary to accomplish the foregoing or as reasonably requested by AWG. (j) GOVERNING LAW/VENUE. This Agreement shall be governed by, and construed under, the internal laws of the State of Kansas, without regard to principles of conflicts of law, as the same may from time to time be in effect, except to the extent that the creation, validity, perfection or enforcement of any liens or security interests securing the Obligations are governed by the laws of another jurisdiction. Venue of any action or proceeding to enforce, or arising out of, this Agreement shall be in a State or Federal Court of appropriate jurisdiction located in or having jurisdiction over Johnson County, Kansas, except that a lien enforcement action, an action to appoint a receiver, or any other action by AWG pursuant to this Agreement shall be brought in or transferred to such venue as AWG may elect from time to time in its sole and absolute discretion. AWG and Homeland each waives any objection to the jurisdiction of, or venue in, any such court and to the service of process issued by such court. Homeland, to the extent permitted by law, waives personal service of process and agrees that a summons and complaint commencing an action or proceeding in any such court shall be properly served and shall confer personal jurisdiction if served by registered or certified mail to Homeland, or as otherwise provided by the laws of Kansas or the United States. Homeland waives any right to claim that any such court is an inconvenient forum or to raise "lack of sufficient contacts" in opposition to the choice of law or venue in this Section 13(j) or to assert any similar defense. Notwithstanding anything herein to the contrary, until the consummation of a plan of reorganization, the parties agree that the United States Bankruptcy Court for the Western District of Oklahoma shall have exclusive jurisdiction to hear and determine claims in connection with or arising out of this Agreement. (k) SECURITY FOR PERFORMANCE. The Right of First Refusal granted to AWG hereunder shall be secured by a lien on all of the Retailer Property, and Homeland does hereby grant, bargain, sell, convey and mortgage to AWG a mortgage and security interest in all of the Retailer Property. Homeland agrees to and shall execute such other and further documents, including UCC-1 financing statements, and perform such further acts as AWG may request in connection with the foregoing. (l) TIME FOR PERFORMANCE. Time is of the essence in performance of the parties respective obligations herein contained. 17 IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by their respective duly authorized undersigned officers effective as of the day and year first above written. [Corporate Seal] ASSOCIATED WHOLESALE GROCERS, INC., ATTEST: a Missouri corporation By: - ---------------------------------- ---------------------------------- Joseph L. Campbell, II, Secretary Gary L. Phillips, President and Chief Executive Officer "AWG" [Corporate Seal] HOMELAND STORES, INC. ATTEST: a Delaware corporation By: - ---------------------------------- ---------------------------------- Wayne S. Peterson, Secretary David B. Clark, President and Chief Executive Officer "HOMELAND" [Corporate Seal] HOMELAND HOLDING CORPORATION, ATTEST: a Delaware corporation By: - ---------------------------------- ---------------------------------- Wayne S. Peterson, Secretary David B. Clark, President and Chief Executive Officer "HOLDING" 18 ACKNOWLEDGMENTS STATE OF KANSAS ) ) ss. COUNTY OF WYANDOTTE ) On this _____ day of August, 2001, before me, appeared Gary L. Phillips and Joseph L. Campbell, II, to me personally known, who, being by me duly sworn, did say that they are the President/Chief Executive Officer and Secretary of ASSOCIATED WHOLESALE GROCERS, INC., a Missouri corporation, and that the seal affixed to the foregoing instrument is the corporate seal of said corporation and that said instrument was signed and sealed on behalf of said corporation by authority of its Board of Directors, and said officers acknowledged said instrument to be the free act and deed of said corporation. In Witness Whereof, I have hereunto set my hand and affixed my official seal the day and year first above written. ---------------------------------------- My appointment expires: Notary Public - ----------------------- STATE OF OKLAHOMA ) ) ss. COUNTY OF OKLAHOMA ) On this _____ day of August, 2001, before me appeared David B. Clark and Wayne S. Peterson, to me personally known, who being by me duly sworn, did say that they are the President/Chief Executive Officer and Secretary of HOMELAND STORES, INC., a Delaware corporation, and that the seal affixed to the foregoing instrument is the corporate seal of said corporation and that said instrument was signed and sealed on behalf of said corporation by authority of its Board of Directors, and said officers acknowledged said instrument to be the free act and deed of said corporation. In Witness Whereof, I have hereunto set my hand and affixed my official seal on the day and year last written above. ---------------------------------------- My appointment expires: Notary Public - ----------------------- 19 STATE OF OKLAHOMA ) ) ss. COUNTY OF OKLAHOMA ) On this ____ day of August, 2001, before me appeared David B. Clark and Wayne S. Peterson, to me personally known, who being by me duly sworn, did say that they are the President/Chief Executive Officer and Secretary of HOMELAND HOLDING CORPORATION, a Delaware corporation, and that the seal affixed to the foregoing instrument is the corporate seal of said corporation and that said instrument was signed and sealed on behalf of said corporation by authority of its Board of Directors, and said officers acknowledged said instrument to be the free act and deed of said corporation. In Witness Whereof, I have hereunto set my hand and affixed my official seal on the day and year last written above. ---------------------------------------- My appointment expires: Notary Public - ----------------------- 20 EXHIBIT "A" STORES
HOMELAND STORE NO. ADDRESS CITY COUNTY STATE - --------- --------------------------- ------------- ---------- ----- 1. 26 520 Minnesota Chickasha Grady OK 2. 101 1100 W. Main Norman Cleveland OK 3. 102 8922 S. Memorial Tulsa Tulsa OK 4. 105 1315 N. Eastern Ave. Moore Cleveland OK 5. 122 6473 N. MacArthur Oklahoma City Oklahoma OK 6. 125 3828 W. Owen K. Garriott Enid Garfield OK 7. 127 759 Grand Avenue Chickasha Grady OK 8. 141 1402 N. Main St. Guymon Texas OK 9. 145 1800 Central Dodge City Ford OK 10. 146 1701 N. Milt Phillips Seminole Seminole OK 11. 148 1212 Choctaw Clinton Custer OK 12. 153 1108 N.W. 18th Oklahoma City Oklahoma OK 13. 154 2016 N.W. 39th St. Oklahoma City Oklahoma OK 14. 161 510 N. Commerce Ardmore Carter OK 15. 163 4308 S.E. 44th Oklahoma City Oklahoma OK 16. 164 706 Flynn Alva Woods OK 17. 167 1310 Oklahoma Ave. Woodward Woodward OK 18. 170 412 W. Third Elk City Beckham OK 19. 178 505 S. Chickasaw Pauls Valley Garvin OK 20. 181 12508 N. May Ave. Oklahoma City Oklahoma OK 21. 182 1401 Beech Ave. Duncan Stephens OK
21
HOMELAND STORE NO. ADDRESS CITY COUNTY STATE - --------- --------------------------- ------------- ---------- ----- 22. 183 3020 N.W. 16th St. Oklahoma City Oklahoma OK 23. 188 220 E. Cleveland Guthrie Logan OK 24. 192 415 S.W. 59th Oklahoma City Oklahoma OK 25. 193 301 N.W. 67th Lawton Comanche OK 26. 195 4301 S. May Ave. Oklahoma City Oklahoma OK 27. 196 2705 N. Harrison Shawnee Pottawatomie OK 28. 197 11241 W. Reno Yukon Canadian OK 29. 200 1724 W. Lindsey Rd. Norman Cleveland OK 30. 204 115 E. Hiway 152 Mustang Canadian OK 31. 206 11120 N. Rockwell Oklahoma City Oklahoma OK 32. 207 9320 N. Penn Oklahoma City Oklahoma OK 33. 208 2205 W. Edmond Rd. Edmond Oklahoma OK 34. 457 3948 S. Peoria Tulsa Tulsa OK 35. 495 310 W. Trudgeon Henryetta Okmulgee OK 36. 502 2235 E. 61st St. Tulsa Tulsa OK 37. 503 1110 S. Denver Tulsa Tulsa OK 38. 515 915 S. Madison Bartlesville Washington OK 39. 528 12011 S. Memorial Bixby Tulsa OK 40. 529 3405 S. Georgia Amarillo Randall TX 41. 538 504 E. Graham Pryor Mayes OK 42. 545 12572 East 21st St. Tulsa Tulsa OK 43. 549 400 Plaza Court Sand Springs Tulsa OK 44. 550 6402 E. Pine Tulsa Tulsa OK 45. 553 575 N. Gilcrease Museum Tulsa Osage OK Road [a/k/a 575 N. 26th W. Ave.]
22
HOMELAND STORE NO. ADDRESS CITY COUNTY STATE - --------- --------------------------- ------------- ---------- ----- 46. 561 708 S. Aspen Broken Arrow Tulsa OK 47. 563 811 E. Frank Phillips Blvd. Bartlesville Washington OK 48. 567 3139 S. Harvard Tulsa Tulsa OK 49. 573 19302 E. Admiral Blvd. Tulsa Wagoner OK 50. 574 2351 E. Kenosha Broken Arrow Tulsa OK 51. 578 700 E. Cherokee Wagoner Wagoner OK 52. 582 230 W. 1st Dumas Moore TX 53. 587 101 W. 10th St. Borger Hutchinson TX 54. 600 7302 S.W. 34th Amarillo Randall TX 55. 601 4111 Plains Amarillo Potter TX 56. 603 3505 N.E. 24th Amarillo Potter TX 57. 604 202 N. 23rd Canyon Randall TX 58. 605 535 N. 25 Mile Ave. Hereford Deaf Smith TX 59. 677 5811 S. Western Amarillo Randall TX 60. 778 4001 S. 97 Highway Sand Springs Tulsa OK 61. 793 7001 Northwest Expressway Oklahoma City Oklahoma OK 62. 794 2121 N.W. 23rd Oklahoma City Oklahoma OK 63. 795 1202 N.W. 40th Lawton Comanche OK 64. 796 10700 S. Penn Oklahoma City Cleveland OK 65. 850 316 E. Main Pawhuska Osage OK 66. 851 702 Fir Street Perry Noble OK 67. 852 305 S. Broadway Cleveland Pawnee OK 68. 853 1629 S. Main Jay Delaware OK 69. 854 310 S. Main Blackwell Kay OK 70. 855 108 S. Division Okemah Okfuskee OK
23
HOMELAND STORE NO. ADDRESS CITY COUNTY STATE - --------- --------------------------- ------------- ---------- ----- 71. 856 813 E. Cherokee Nowata Nowata OK 72. 857 102 Haskell Blvd. Haskell Muskogee OK 73. 880 3115 W. Okmulgee St. Muskogee Muskogee OK 74. 881 1300 S. York Muskogee Muskogee OK 75. 882 800 E. Okmulgee Muskogee Muskogee OK 76. 883 6 East Shawnee Muskogee Muskogee OK 77. 886 24 S.E. 33rd Street Edmond Oklahoma OK 78. 887 2213 S.W. 74th Street Oklahoma City Oklahoma OK
Plus any replacements and/or substitutions for any of the foregoing Stores. 24 EXHIBIT "B" [List of Permitted Encumbrances] Security interests of AWG and any third party lender approved in writing by AWG. 25 EXHIBIT "C" STORES AWG ON LEASE
HOMELAND STORE NO. ADDRESS CITY COUNTY STATE - --------- --------------------------- ------------- ---------- ----- 1. 850 316 E. Main Pawhuska Osage OK 2. 851 702 Fir Street Perry Noble OK 3. 852 305 S. Broadway Cleveland Pawnee OK 4. 853 1629 S. Main Jay Delaware OK 5. 854 310 S. Main Blackwell Kay OK 6. 855 108 S. Division Okemah Okfuskee OK 7. 856 813 E. Cherokee Nowata Nowata OK 8. 857 102 Haskell Blvd. Haskell Muskogee OK 9. 880 3115 W. Okmulgee St. Muskogee Muskogee OK 10. 882 800 E. Okmulgee Muskogee Muskogee OK 11. 883 6 East Shawnee Muskogee Muskogee OK 12. 886 24 S.E. 33rd Street Edmond Oklahoma OK 13. 887 2213 S.W. 74th Street Oklahoma City Oklahoma OK
26 EXHIBIT "C" TO SUPPLY AGREEMENT AGREEMENT NON-COMPETITION AGREEMENT THIS NON-COMPETITION AGREEMENT (the "AGREEMENT") is made and entered into as of the 15th day of August, 2001 by and among HOMELAND STORES, INC., a Delaware corporation, Chapter 11 debtor-in-possession ("HOMELAND"), HOMELAND HOLDING CORPORATION, a Delaware corporation, Chapter 11 debtor-in-possession ("HOLDING") and ASSOCIATED WHOLESALE GROCERS, INC., a Missouri corporation ("AWG"). RECITALS: THE FOLLOWING RECITALS ARE A MATERIAL PART OF THIS AGREEMENT: A. AWG is a wholesaler of grocery and supermarket products operating in a cooperative manner. In entering into this Agreement, AWG is seeking to enhance the interests of its retail members. B. Homeland is a retail grocery store operator, and is currently a member of AWG. Homeland currently owns and operates the Stores. As used in this Agreement, the term "STORES" shall mean those seventy-eight (78) stores set forth on EXHIBIT "A" attached hereto and incorporated herein by this reference, together with any and all additional, substitute, replacement or other retail grocery stores leased, operated or owned by Homeland at any time during the term of this Agreement. For purposes hereof, "RETAIL GROCERY STORE" shall mean all retail stores selling grocery items, including, without limitation, conventional stores, convenience stores or limited assortment stores. It is the express intent of the parties that at no time during the term of this Agreement shall there be any retail grocery store leased, operated or owned, directly or indirectly, by Homeland which is not to be included as a Store under this Agreement. C. Contemporaneously herewith Homeland and its parent, Holding, have filed petitions under Chapter 11 of the Bankruptcy Code ("BANKRUPTCY CASES"). D. AWG and Homeland entered into that certain Supply Agreement dated as of April 21, 1995, as amended pursuant to that certain First Amendment to Supply Agreement dated as of August 2, 1996 and that certain Second Amendment to Supply Agreement dated as of August 12, 1997 (as so amended, the "1995 SUPPLY AGREEMENT"). E. In connection with and as certain consideration for the sale to Homeland of nine (9) retail grocery stores by AWG, which were previously owned by Horner Foods Inc., AWG and Homeland entered into, among other things, that certain Supply Agreement dated as of April 23, 1999 (the "HORNER SUPPLY AGREEMENT"). F. In connection with and as certain consideration for the sale to Homeland of four (4) retail grocery stores previously owned by Brattain Foods, Inc., AWG and Homeland entered into, among other things, that certain Supply Agreement dated as of November 2, 1999 (the "BRATTAIN SUPPLY AGREEMENT"). G. In connection with and as certain consideration for the sale to Homeland of three (3) retail grocery stores previously owned by Belton Food Center, Inc., AWG and Homeland entered into that certain Supply Agreement dated as of February 29, 2000 (the "BELTON SUPPLY AGREEMENT; the 1995 Supply Agreement, the Horner Supply Agreement, the Brattain Supply Agreement and the Belton Supply Agreement are collectively referred to as the "EXISTING SUPPLY AGREEMENTS"). H. Homeland intends to assume the Existing Supply Agreements by way of first day orders in the Bankruptcy Cases. In addition, Homeland and Holding (i) intend to enter into a new supply agreement covering all of the Stores ("NEW SUPPLY AGREEMENT") and (ii) have requested that AWG provide debtor-in-possession financing, all of which the parties intend to have approved by way of first day orders in the Bankruptcy Cases. I. Upon the conclusion of the Bankruptcy Cases and after the expiration of the Existing Supply Agreements, Homeland intends that the Stores will continue to be supplied by AWG pursuant to the terms of the New Supply Agreement. J. AWG and Homeland have entered into certain loan documents dated of even date herewith including without limitation, that certain Credit Agreement dated of even date herewith (collectively, the "LOAN DOCUMENTS") to provide certain debtor-in-possession financing to allow Homeland, to the extent possible, to continue to operate the Stores, the consummation of which is conditioned upon, among other things, the parties entering into this Agreement and this Agreement receiving Bankruptcy Court approval as part of the debtor-in-possession financing being provided by AWG pursuant to the Loan Documents. K. Homeland has advised AWG that Homeland intends to concentrate with AWG an agreed upon percentage of all of its ordering of products and goods (excluding pharmacy purchases) to be held for sale to the public at or to be used in connection with the Stores. L. To provide assurances of their intentions to take no actions which would frustrate such minimum purchases and to induce AWG to execute and perform under the Loan Documents, Homeland and Holding have agreed to enter into this Agreement. M. Homeland and Holding desire to provide adequate assurance to AWG that the Stores will continue to be supplied by AWG in the future by granting or taking subject to certain rights with respect to the Stores under (i) a Right of First Refusal Agreement between Homeland and AWG (the "RIGHT OF FIRST REFUSAL AGREEMENT"); (ii) this 2 Agreement; and (iii) certain Use Restrictions (collectively "SUPPLY PROTECTION AGREEMENTS"), each entered into contemporaneously with this Agreement or as otherwise agreed pursuant to the Loan Documents. It is the parties' intent that the implementation and operation of the Supply Protection Agreements will be independent of each other and will not be executory. N. AWG is unwilling to enter into the Credit Agreement and associated Loan Documents unless it receives the Supply Protection Agreements and adequate assurances that the Stores will be supplied by AWG during the pendency of the Bankruptcy Cases and will continue to be supplied by AWG pursuant to the terms of the Existing Supply Agreements and/or the New Supply Agreement after the conclusion of the Bankruptcy Cases. O. AWG is willing to supply to Homeland and the Stores, AWG's full line of available products and services based on the terms, conditions and financial assurances contained herein. P. The parties understand and acknowledge that in addition to the consideration set forth specifically herein, AWG will be required to make a substantial current and continuing commitment of its resources in reliance upon Homeland's commitment to purchase products and services as set forth in the Existing Supply Agreements and New Supply Agreement, and that AWG and its retail members will not realize the full benefit of their anticipated bargain hereunder unless Homeland and Holding materially fulfill their obligations hereunder for the full term of this Agreement. AGREEMENT NOW, THEREFORE, in consideration of the foregoing premises, the following mutual promises, and other good and valuable consideration, the parties agree as follows: 1. TERM AND TERMINATION. The term of this Agreement shall commence upon the execution hereof and shall continue until it shall expire at the end of ten (10) years or is terminated earlier by mutual agreement of the parties. 2. GEOGRAPHICAL AREA. The area in which Homeland and Holding shall be prohibited from competing with AWG's Business pursuant to the terms of this Agreement shall be the States of Arkansas, Oklahoma, Missouri, Texas and Kansas (the "GEOGRAPHICAL AREA"). 3 3. OBLIGATIONS OF HOMELAND. (a) Non-Competition. Homeland and Holding will not (and shall not allow any person or entity controlled or under common control of Homeland or Holding to), at any time prior to the termination or expiration of this Agreement, directly or indirectly, as owner, shareholder, director, officer, partner, consultant, employee, co-venturer or otherwise, own, manage, operate, control, be employed by, participate in, or be connected in any manner with the ownership, management, operation, or control of any business that engages in business similar to AWG's Business, within the Geographical Area. (b) Non-Competition with Wholesaler. Homeland and Holding will not during the term of this Agreement compete directly or indirectly with AWG as a wholesaler of grocery products, including Available Products (as defined in the New Supply Agreement), in the Geographical Area. A sale of any of the Stores to a competitor of AWG in a manner which is not consistent with the terms and provisions of the New Supply Agreement and the underlying Supply Protection Agreements set forth in the New Supply Agreement shall (i) be a violation of this Agreement and (ii) deemed to be competing with AWG. If Homeland is in compliance with the Right of First Refusal Agreement in connection with any Transfer (as defined therein), such Transfer shall not be deemed to be a violation of this Agreement. (c) Acts of Parent or other Affiliates. If Homeland, Holding or any other affiliate engages in any of the activities prohibited under this Agreement, Homeland and Holding shall be deemed to be (i) in violation of this Agreement and (ii) competing with AWG. 4. RELIEF IN THE EVENT OF BREACH. The parties to this Agreement hereby agree and stipulate that the restrictions contained in this Agreement are reasonable and necessary in order to protect AWG's legitimate business interests. If Homeland or Holding shall breach the foregoing agreement, Homeland and Holding agree that AWG will have no adequate remedy at law and that immediate ex parte injunctive relief will be appropriate. In the event that a court of competent jurisdiction refuses to grant AWG injunctive relief, AWG shall be free to pursue any and all remedies, including remedies at law, which may be available to AWG. In the event that AWG is required to pursue legal remedies and is found to be entitled to damages, any such damages may be set off against any amounts owed by AWG to Homeland and/or Holding. 5. MISCELLANEOUS PROVISIONS. (a) Modification of Agreement. No waiver or modification of this Agreement or of any covenant, condition, or limitation herein contained shall be 4 valid unless in writing and duly executed by the party to be charged therewith, and no evidence of any waiver or modification shall be offered or received in evidence of any proceeding, arbitration, or litigation between the parties hereto arising out of or affecting this Agreement, or the rights or obligations of the parties hereunder, unless such waiver or modification is in writing, duly executed as aforesaid, and the parties further agree that the provisions of this Agreement may not be waived except as herein set forth. (b) Burden and Benefit. This Agreement shall be binding upon, and shall inure to the benefit of AWG, Homeland and their respective successors and assigns: (c) Assignment. Homeland and Holding shall not be entitled to assign their rights and obligations under this Agreement. AWG may assign its rights and obligations under this Agreement to any individual or entity which acquires all or part of AWG's Business in the Geographical Area. (d) Severability. In the event any of the provisions of this Agreement shall for any reason be held invalid, illegal or unenforceable in any respect, then, to the maximum extent permitted by law, such invalidity, illegality or unenforceability shall not affect any other provision hereof, and this Agreement shall be construed as if the invalid, illegal or unenforceable provision had never been contained herein. Furthermore, any such invalid, illegal or unenforceable provision shall be deemed amended to reflect, and enforced to carry out, to the greatest extent valid, legal, and enforceable, the intentions of the parties, as determined by the original language of such invalid, illegal or unenforceable provision. It is the intent of the parties that none of the provisions hereof is severable for any purpose (including bankruptcy) other than to avoid invalidity, illegality or unenforceability. For purposes hereof, the New Supply Agreement and other Supply Protection Agreements and transactions contemplated thereby shall not be considered provisions hereof but shall be considered separate agreements delivered as part of the consideration for the loan evidenced by the Loan Documents. In addition, while the execution of this Agreement, the New Supply Agreement and the other Supply Protection Agreements are conditions precedent to the execution and the performance by AWG under the Loan Documents, once executed, this Agreement, the New Supply Agreement and each of the other Supply Protection Agreements are intended to be separate and independent agreements, severable from the Loan Documents, the New Supply Agreement and each of the other Supply Protection Agreements and except as limited by the express terms thereof, shall survive any expiration, termination or rejection of any other document or agreement. (e) Notices. Any notice required to be given hereunder shall be sufficient if in writing, and hand delivered, delivered by way of a recognized national 5 overnight delivery service or sent by certified or registered mail, return receipt requested, first-class postage prepaid, to the parties' last known addresses. (f) Governing Law. It is understood and agreed that the construction and interpretation of this Agreement shall at all times and in all respects be governed by the laws of the State of Kansas, without considering its law or rules related to choice of law. Any dispute or cause of action under this Agreement shall be resolved by a court of competent jurisdiction in Johnson County, Kansas. (g) Counterparts: Facsimile Execution. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument. Facsimile execution of this Agreement shall be valid and binding for all purposes. (h) Time of Essence. Time is of the essence in connection with the performance of the duties of the parties hereto. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as follows: HOMELAND STORES, INC. a Delaware corporation By: --------------------------------- David B. Clark, President and Chief Executive Officer "HOMELAND" HOMELAND HOLDING CORPORATION, a Delaware corporation By: --------------------------------- David B. Clark, President and Chief Executive Officer "HOLDING" 6 ASSOCIATED WHOLESALE GROCERS, INC., a Missouri corporation By: --------------------------------- Gary L. Phillips, President and Chief Executive Officer "AWG" 7 EXHIBIT "A" STORES
HOMELAND STORE NO. ADDRESS CITY COUNTY STATE - --------- --------------------------- ------------- ---------- ----- 1. 26 520 Minnesota Chickasha Grady OK 2. 101 1100 W. Main Norman Cleveland OK 3. 102 8922 S. Memorial Tulsa Tulsa OK 4. 105 1315 N. Eastern Ave. Moore Cleveland OK 5. 122 6473 N. MacArthur Oklahoma City Oklahoma OK 6. 125 3828 W. Owen K. Garriott Enid Garfield OK 7. 127 759 Grand Avenue Chickasha Grady OK 8. 141 1402 N. Main St. Guymon Texas OK 9. 145 1800 Central Dodge City Ford KS 10. 146 1701 N. Milt Phillips Seminole Seminole OK 11. 148 1212 Choctaw Clinton Custer OK 12. 153 1108 N.W. 18th Oklahoma City Oklahoma OK 13. 154 2016 N.W. 39th St. Oklahoma City Oklahoma OK 14. 161 510 N. Commerce Ardmore Carter OK 15. 163 4308 S.E. 44th Oklahoma City Oklahoma OK 16. 164 706 Flynn Alva Woods OK 17. 167 1310 Oklahoma Ave. Woodward Woodward OK 18. 170 412 W. Third Elk City Beckham OK 19. 178 505 S. Chickasaw Pauls Valley Garvin OK 20. 181 12508 N. May Ave. Oklahoma City Oklahoma OK 21. 182 1401 Beech Ave. Duncan Stephens OK 22. 183 3020 N.W. 16th St. Oklahoma City Oklahoma OK
8
HOMELAND STORE NO. ADDRESS CITY COUNTY STATE - --------- --------------------------- ------------- ---------- ----- 23. 188 220 E. Cleveland Guthrie Logan OK 24. 192 415 S.W. 59th Oklahoma City Oklahoma OK 25. 193 301 N.W. 67th Lawton Comanche OK 26. 195 4301 S. May Ave. Oklahoma City Oklahoma OK 27. 196 2705 N. Harrison Shawnee Pottawatomie OK 28. 197 11241 W. Reno Yukon Canadian OK 29. 200 1724 W. Lindsey Rd. Norman Cleveland OK 30. 204 115 E. Hiway 152 Mustang Canadian OK 31. 206 11120 N. Rockwell Oklahoma City Oklahoma OK 32. 207 9320 N. Penn Oklahoma City Oklahoma OK 33. 208 2205 W. Edmond Rd. Edmond Oklahoma OK 34. 457 3948 S. Peoria Tulsa Tulsa OK 35. 495 310 W. Trudgeon Henryetta Okmulgee OK 36. 502 2235 E. 61st St: Tulsa Tulsa OK 37. 503 1110 S. Denver Tulsa Tulsa OK 38. 515 915 S. Madison Bartlesville Washington OK 39. 528 12011 S. Memorial Bixby Tulsa OK 40. 529 3405 S. Georgia Amarillo Randall TX 41. 538 504 E. Graham Pryor Mayes OK 42. 545 12572 East 21st St. Tulsa Tulsa OK 43. 549 400 Plaza Court Sand Springs Tulsa OK 44. 550 6402 E. Pine Tulsa Tulsa OK 45. 553 575 N. Gilcrease Museum Tulsa Osage OK Road [a/k/a 575 N. 26th W. Ave.] 46. 561 708 S. Aspen Broken Arrow Tulsa OK
9
HOMELAND STORE NO. ADDRESS CITY COUNTY STATE - --------- --------------------------- ------------- ---------- ----- 47. 563 811 E. Frank Phillips Blvd. Bartlesville Washington OK 48. 567 3139 S. Harvard Tulsa Tulsa OK 49. 573 19302 E. Admiral Blvd. Tulsa Wagoner OK 50. 574 2351 E. Kenosha Broken Arrow Tulsa OK 51. 578 700 E. Cherokee Wagoner Wagoner OK 52. 582 230 W. 1st Dumas Moore TX 53. 587 101 W. 10th St. Borger Hutchinson TX 54. 600 7302 S.W. 34th Amarillo Randall TX 55. 601 4111 Plains Amarillo Potter TX 56. 603 3505 N.E. 24th Amarillo Potter TX 57. 604 202 N. 23rd Canyon Randall TX 58. 605 535 N. 25 Mile Ave. Hereford Deaf Smith TX 59. 677 5811 S. Western Amarillo Randall TX 60. 778 4001 S. 97 Highway Sand Springs Tulsa OK 61. 793 7001 Northwest Expressway Oklahoma City Oklahoma OK 62. 794 2121 N.W. 23rd Oklahoma City Oklahoma OK 63. 795 1202 N.W. 40th Lawton Comanche OK 64. 796 10700 S. Penn Oklahoma City Cleveland OK 65. 850 316 E. Main Pawhuska Osage OK 66. 851 702 Fir Street Perry Noble OK 67. 852 305 S. Broadway Cleveland Pawnee OK 68. 853 1629 S. Main Jay Delaware OK 69. 854 310 S. Main Blackwell Kay OK 70. 855 108 S. Division Okemah Okfuskee OK 71. 856 813 E. Cherokee Nowata Nowata OK
10
HOMELAND STORE NO. ADDRESS CITY COUNTY STATE - --------- --------------------------- ------------- ---------- ----- 72. 857 102 Haskell Blvd. Haskell Muskogee OK 73. 880 3115 W. Okmulgee St. Muskogee Muskogee OK 74. 881 1300 S. York Muskogee Muskogee OK 75. 882 800 E. Okmulgee Muskogee Muskogee OK 76. 883 6 East Shawnee Muskogee Muskogee OK 77. 886 24 S.E. 33rd Street Edmond Oklahoma OK 78. 887 2213 S.W. 74th Street Oklahoma City Oklahoma OK
11 EXHIBIT "D-1" TO SUPPLY AGREEMENT USE RESTRICTION (Lease) THIS USE RESTRICTION ("USE RESTRICTION") is executed as of the 15th day of August, 2001, by and between HOMELAND STORES, INC., a Delaware corporation, Chapter 11 debtor-in-possession ("Grantor") for the benefit of ASSOCIATED WHOLESALE GROCERS, INC., a Missouri corporation ("AWG"). WITNESSETH Pursuant to the terms of certain agreements between AWG and Grantor dated of even date herewith, including without limitation (i) that certain Credit Agreement ("CREDIT AGREEMENT") dated August 15, 2001 and (ii) that certain Supply Agreement ("SUPPLY AGREEMENT") dated August 15, 2001 (collectively, the "AGREEMENTS") which provide for certain debtor-in-possession financing and a supply of inventory which will allow Grantor, to the extent possible, to continue to operate its business, Grantor hereby declares that, as to Grantor's leasehold interest under a lease of such premises (the "LEASE"), the following described premises ("PROPERTY") situated at ______________________ in the City of _____________, County of _____________, State of ____________, to wit: See EXHIBIT "A" attached hereto shall be dedicated to the exclusive use of a grocery store owned or operated by a retail member of AWG which utilizes AWG as its supplier of Available Products (as defined in the Supply Agreement) such that the value of all Available Products purchased from AWG (valued at wholesale cost), measured quarterly, equals or exceeds sixty-five percent (65%) of all inventory and supplies (except pharmacy products) purchased for such store. Such restriction shall run with the leasehold interest created by the Lease whether such interest continues to be held by Grantor or is held by a successor-in-interest. In the event the Lease expires or the Lease is terminated, the Use Restriction created hereby shall be released and of no further force and effect. Record notice of such expiration may be given by AWG or the owner of the Property by filing a sworn affidavit stating that the Lease has expired. Contemporaneously with the recordation of any such affidavit, the party filing same shall give Grantor, AWG and/or the owner of the Property written notice of such recordation. The Use Restriction created hereby shall be released and of no further force and effect upon the recordation of a sworn affidavit by the President of Grantor stating that AWG's purchase rights have been complied with as set forth in that certain Right of First Refusal Agreement ("ROFR") between AWG and Grantor of even date herewith with respect to the Property covered hereby. Contemporaneously with the recordation of any such affidavit, Grantor shall give AWG written notice of such recordation. Reference is hereby expressly made to the above described ROFR for the full particulars of AWG's purchase rights, the same as though all the terms, agreements, conditions and covenants contained therein were set forth in full in this Use Restriction. A fully executed copy of the ROFR is available for inspection by those parties that may be entitled thereto at the offices of Grantor at: Oil Center East, 2601 Northwest Expressway, Oklahoma City, Oklahoma 73112 and the principal office of AWG at 5000 Kansas Avenue, Kansas City, Kansas 66106. This Use Restriction is solely for the benefit of, and can only be enforced by, AWG and it does not confer third party beneficiary rights on any party. This Use Restriction is not intended to and shall in no way encumber the fee interest in the Property. The obligations of Grantor and the Use Restrictions which encumber the leasehold interest created by the Lease are separate and independent from each other and the obligations of Grantor under the Credit Agreement, Supply Agreement and all agreements and/or documents contemplated thereby, and except as limited by the terms thereof, shall survive any expiration, termination or rejection of any other document or agreement. Executed as of the day and year first above written. HOMELAND STORES, INC. a Delaware corporation By: ------------------------------------ David B. Clark, President and Chief Executive Officer "GRANTOR" ASSOCIATED WHOLESALE GROCERS, INC., a Missouri corporation By: ------------------------------------ Gary L. Phillips, President and Chief Executive Officer "AWG" 2 ACKNOWLEDGMENTS STATE OF KANSAS ) ) ss. COUNTY OF WYANDOTTE ) Before me, a Notary Public in and for said county and state, on this _____ day of August, 2001, personally appeared Gary L. Phillips, to me known to be the identical person who subscribed the name of the maker thereof to the foregoing instrument as the President and Chief Executive Officer of ASSOCIATED WHOLESALE GROCERS, INC., a Missouri corporation, and acknowledged to me that he executed the same as his free and voluntary act and deed, and as the free and voluntary act and deed of Associated Wholesale Grocers, Inc., for the uses and purposes therein set forth. ---------------------------------------- My Appointment Expires: Notary Public - ------------------------ STATE OF OKLAHOMA ) ) ss. COUNTY OF OKLAHOMA ) Before me, a Notary Public in and for said county and state, on this _____ day of August, 2001, personally appeared David B. Clark, to me known to be the identical person who subscribed the name of the maker thereof to the foregoing instrument as the President and Chief Executive Officer of HOMELAND STORES, INC., a Delaware corporation, and acknowledged to me that he executed the same as his free and voluntary act and deed, and as the free and voluntary act and deed of Homeland Stores, Inc., for the uses and purposes therein set forth. IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official seal the day and year last above written. ---------------------------------------- My Appointment Expires: Notary Public - ------------------------ 3 EXHIBIT "D-2" TO SUPPLY AGREEMENT USE RESTRICTION (Fee) THIS USE RESTRICTION ("USE RESTRICTION") is executed as of the 15th day of August, 2001, by and between HOMELAND STORES, INC., a Delaware corporation, Chapter 11 debtor-in-possession ("GRANTOR") for the benefit of ASSOCIATED WHOLESALE GROCERS, INC., a Missouri corporation ("AWG"). WITNESSETH Pursuant to the terms of certain agreements between AWG and Grantor dated of even date herewith, including without limitation (i) that certain Credit Agreement ("CREDIT AGREEMENT") dated August 15, 2001 and (ii) that certain Supply Agreement ("SUPPLY AGREEMENT") dated August 15, 2001 (collectively, the "AGREEMENTS") which provide for certain debtor-in-possession financing and a supply of inventory which will allow Grantor, to the extent possible, to continue to operate its business, Grantor hereby declares that the following described premises ("PROPERTY") situated at ___________________ in the City of ___________, County of ____________, State of ____________, to wit: See EXHIBIT "A" attached hereto shall be dedicated to the exclusive use of a grocery store owned or operated by a retail member of AWG which utilizes AWG as its supplier of Available Products (as defined in the Supply Agreement) such that the value of all Available Products purchased from AWG (valued at wholesale cost), measured quarterly, equals or exceeds sixty-five percent (65%) of all inventory and supplies (except pharmacy products) purchased for such store. Such restriction shall run with the Property whether such Property continues to be owned by Grantor or is owned by a successor-in-interest. Except as provided in the following paragraph, the Use Restriction created hereby shall be in effect until released by AWG. Record notice of such expiration may be given by AWG by filing a sworn affidavit stating that this Use Restriction has been terminated. Contemporaneously with the recordation of any such affidavit, AWG shall give Grantor (or Grantor's successor-in-interest), written notice of such recordation. The Use Restriction created hereby shall be released and of no further force and effect upon the recordation of a sworn affidavit by the President of Grantor stating that AWG's purchase rights have been complied with as set forth in that certain Right of First Refusal Agreement ("ROFR") between AWG and Grantor of even date herewith with respect to the Property covered hereby. Contemporaneously with the recordation of any such affidavit, Grantor shall give AWG written notice of such recordation. Reference is hereby expressly made to the above described ROFR for the full particulars of AWG's purchase rights, the same as though all the terms, agreements, conditions and covenants contained therein were set forth in full in this Use Restriction. A fully executed copy of the ROFR is available for inspection by those parties that may be entitled thereto at the offices of Grantor at: Oil Center East, 2601 Northwest Expressway, Oklahoma City, Oklahoma 73112 and the principal office of AWG at 5000 Kansas Avenue, Kansas City, Kansas 66106. This Use Restriction is solely for the benefit of, and can only be enforced by, AWG and it does not confer third party beneficiary rights on any party. The obligations of Grantor and the Use Restrictions which encumber the Property are separate and independent from each other and the obligations of Grantor under the Credit Agreement, Supply Agreement and all agreements and/or documents contemplated thereby, and except as limited by the terms thereof, shall survive any expiration, termination or rejection of any other document or agreement. Executed as of the day and year first above written HOMELAND STORES, INC. a Delaware corporation By: -------------------------------- David B. Clark, President and Chief Executive Officer "GRANTOR" ASSOCIATED WHOLESALE GROCERS, INC., a Missouri corporation By: -------------------------------- Gary L. Phillips, President and Chief Executive Officer "AWG" 2 ACKNOWLEDGMENTS STATE OF KANSAS ) ) ss. COUNTY OF WYANDOTTE ) Before me, a Notary Public in and for said county and state, on this ______ day of August, 2001, personally appeared Gary L. Phillips, to me known to be the identical person who subscribed the name of the maker thereof to the foregoing instrument as the President and Chief Executive Officer of ASSOCIATED WHOLESALE GROCERS, INC., a Missouri corporation, and acknowledged to me that he executed the same as his free and voluntary act and deed, and as the free and voluntary act and deed of Associated Wholesale Grocers, Inc., for the uses and purposes therein set forth. ---------------------------------------- My Appointment Expires: Notary Public - ------------------------ STATE OF OKLAHOMA ) ) ss. COUNTY OF OKLAHOMA ) Before me, a Notary Public in and for said county and state, on this ______ day of August, 2001, personally appeared David B. Clark, to me known to be the identical person who subscribed the name of the maker thereof to the foregoing instrument as the President and Chief Executive Officer of HOMELAND STORES, INC., a Delaware corporation, and acknowledged to me that he executed the same as his free and voluntary act and deed, and as the free and voluntary act and deed of Homeland Stores, Inc., for the uses and purposes therein set forth. IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official seal the day and year last above written. ---------------------------------------- My Appointment Expires: Notary Public - ------------------------ 3 EXHIBIT "E" STORES AWG ON LEASE
HOMELAND STORE NO. ADDRESS CITY COUNTY STATE - --------- --------------------------- ------------- ---------- ----- 1. 850 316 E. Main Pawhuska Osage OK 2. 851 702 Fir Street Perry Noble OK 3. 852 305 S. Broadway Cleveland Pawnee OK 4. 853 1629 S. Main Jay Delaware OK 5. 854 310 S. Main Blackwell Kay OK 6. 855 108 S. Division Okemah Okfuskee OK 7. 856 813 E. Cherokee Nowata Nowata OK 8. 857 102 Haskell Blvd. Haskell Muskogee OK 9. 880 3115 W. Okmulgee St. Muskogee Muskogee OK 10. 882 800 E. Okmulgee Muskogee Muskogee OK 11. 883 6 East Shawnee Muskogee Muskogee OK 12. 886 24 S.E. 33rd Street Edmond Oklahoma OK 13. 887 2213 S.W. 74th Street Oklahoma City Oklahoma OK
EXHIBIT "F" CLOSE/SELL STORE LIST
HOMELAND STORE NO. ADDRESS CITY COUNTY STATE - --------- --------------------------- ------------- ---------- ----- 1. 882 800 E. Okmulgee Muskogee Muskogee OK 2. 793 7001 Northwest Expressway Oklahoma City Oklahoma OK 3. 794 2121 N.W. 23rd Oklahoma City Oklahoma OK 4. 887 2213 S.W. 74th Street Oklahoma City Oklahoma OK 5. 883 6 East Shawnee Muskogee Muskogee OK 6. 545 12572 East 21st St. Tulsa Tulsa OK 7. 550 6402 E. Pine Tulsa Tulsa OK 8. 574 2351 E. Kenosha Broken Arrow Tulsa OK 9. 164 706 Flynn Alva Woods OK 10. 578 700 E. Cherokee Wagoner Wagoner OK 11. 795 1202 N.W. 40th Lawton Comanche OK 12. 167 1310 Oklahoma Ave. Woodward Woodward OK 13. 207 9320 N. Penn Oklahoma City Oklahoma OK 14. 105 1315 N. Eastern Ave. Moore Cleveland OK 15. 122 6473 N. MacArthur Oklahoma City Oklahoma OK 16. 192 415 S.W. 59th Oklahoma City Oklahoma OK 17. 183 3020 N.W. 16th St. Oklahoma City Oklahoma OK 18. 502 2235 E. 61st St. Tulsa Tulsa OK 19. 503 1110 S. Denver Tulsa Tulsa OK 20. 553 575 N. Gilcrease Museum Tulsa Osage OK Road [a/k/a 575 N. 26th W. Ave.] 21. 549 400 Plaza Court Sand Springs Tulsa OK 22. 145 1800 Central Dodge City Ford KS
HOMELAND STORE NO. ADDRESS CITY COUNTY STATE - --------- --------------------------- ------------- ---------- ----- 23. 600 7302 SW. 34th Amarillo Randall TX 24. 601 4111 Plains Amarillo Potter TX 25. 603 3505 N.E. 24th Amarillo Potter TX 26. 604 202 N. 23rd Canyon Randall TX 27. 605 535 N. 25 Mile Ave. Hereford Deaf Smith TX 28. 677 5811 S. Western Amarillo Randall TX 29. 26 520 Minnesota Chickasha Grady OK 30. 528 12011 S. Memorial Bixby Tulsa OK 31. 582 230 W. 1st Dumas Moore TX 32. 587 101 W. 10th St. Borger Hutchinson TX 33. 529 3405 S. Georgia Amarillo Randall TX 34. 561 708 S. Aspen Broken Arrow Tulsa OK
EXHIBIT "G" CREDIT TERMS Homeland shall pay for the Purchased Goods on the following terms: A statement for the Purchased Goods in connection with the Stores will be prepared by AWG on the last business day of each week ("FRIDAY STATEMENT"). For purposes herein, the last business day of each week shall be Friday, unless Friday is a holiday in which case the last business day shall be Thursday. Payment shall be due from Homeland to AWG as follows by bank wire transfer: (a) by 12:00 p.m. on the following Monday in the amount of $1,000,000 for each $1,000,000 or part thereof which is necessary to reduce the Statement Balance Credit to be equal to or less than $5,500,000, with a minimum required payment of $1,000,000 (by way of example, should a given Friday Statement show a Statement Balance Credit of $6,750,000, a payment in the amount of $2,000,000 would be required); (b) by 12:00 p.m. on the following Tuesday in an amount, if any, which is necessary to reduce the full remaining balance of the Friday Statement to $1,000,000; and (c) by 12:00 p.m. on the following Wednesday in the amount of $1,000,000 or the then remaining balance of the Friday Statement, whichever is less. In the event any given Monday or Tuesday payment due date is a holiday, the applicable payment shall be due on the next preceding business day; provided however, a Monday holiday will not affect or delay the applicable Tuesday and Wednesday payment due date unless the applicable Tuesday and/or Wednesday is also a holiday. Any other products, goods or services charged to Homeland's open account other than Purchased Goods shall also be paid according to the terms of Statement Balance Credit described above. EXHIBIT "H" TO SUPPLY AGREEMENT SECURITY AGREEMENT SECURITY AGREEMENT, dated as of August 15, 2001, among HOMELAND HOLDING CORPORATION, Chapter 11 debtor-in-possession, a Delaware corporation ("Holding"), HOMELAND STORES, INC., Chapter 11 debtor-in-possession, a Delaware corporation ("Homeland"); (Holding and Homeland are sometimes collectively referred to herein as "Grantors" and individually as a "Grantor"), and ASSOCIATED WHOLESALE GROCERS, INC., a Missouri corporation ("Lender" or "AWG"). The following Recitals are a material part of this Security Agreement: A. AWG is a wholesaler of grocery and supermarket products operating in a cooperative manner. B. Homeland, a wholly-owned subsidiary of Holding, is a retail grocery operator of 78 grocery stores. C. Pursuant to the Existing Supply Protection Agreements, AWG is Homeland's primary supplier of grocery and supermarket products. D. Homeland and Holding, as of August 1, 2001, have filed for bankruptcy in the Bankruptcy Court pursuant to the Bankruptcy Code. E. Homeland and Holding desire for AWG to continue to supply grocery and supermarket products to Homeland as Homeland's primary supplier during the pendency of the Bankruptcy Cases and after confirmation of an Acceptable Plan of Reorganization. F. Grantors, in an effort to continue operations during the pendency of the Bankruptcy Cases, desire that Lender extend debtor-in-possession financing, pursuant to that certain Credit Agreement dated as of the date hereof by and among Grantors and Lender (including all annexes, exhibits and schedules thereto, as from time to time amended, restated, supplemented or otherwise modified, the "Credit Agreement"), consisting of term credit facilities to Grantors of up to Twenty Nine Million Sixty Five Thousand Nine Hundred Fifty Six and 60/100 Dollars ($29,065,956.60) in the aggregate for the purpose of refinancing certain senior creditor secured indebtedness of Grantors and to provide (a) working capital financing for Grantors and (b) funds for other general corporate purposes of Grantors; and for these purposes, Lender is willing to make certain debtor-in-possession loans and other extensions of credit to Grantors of up to such amount upon the terms and conditions set forth herein; G. The above-referenced term credit facilities will have three (3) components, consisting of the following: (i) a $16,500,000 loan; (ii) an approximate $9,400,000 loan (to consolidate certain existing indebtedness of Homeland to AWG under the Existing Notes); and (iii) a $3,100,000 restated loan (which loan relates to the restatement of the First Day Note); and H. AWG is unwilling to enter into the Credit Agreement and provide the financing contemplated thereunder unless Grantors execute and deliver to AWG, among other things, this Security Agreement and the other Loan Documents; and that such agreements are each approved by the Bankruptcy. NOW, THEREFORE, in consideration of the premises and mutual covenants herein contained and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 1. DEFINED TERMS. All capitalized terms used but not otherwise defined herein have the meanings given to them in the Credit Agreement or in Annex A thereto. All other undefined terms contained in this Security Agreement, unless the context indicates otherwise, have the meanings provided for by the Code to the extent the same are used or defined therein. 2. GRANT OF LIEN. (a) To secure the prompt and complete payment, performance and observance of all of the Obligations (specifically including, without limitation, each Grantor's Obligations arising under the cross-guaranty provisions of Section 12 of the Credit Agreement), each Grantor hereby grants, assigns, conveys, mortgages, pledges, hypothecates and transfers to Lender, a Lien upon all of its right, title and interest in, to and under the following property, whether now owned by or owing to, or hereafter acquired by or arising in favor of such Grantor (including under any trade names, styles or derivations thereof), and whether owned or consigned by or to, or leased from or to, such Grantor, and regardless of where located (all of which being hereinafter collectively referred to as the "Collateral"): (i) all Accounts; (ii) all Chattel Paper; (iii) all Contracts; (iv) all Deposit Accounts; (v) all Documents; (vi) all Electronic Chattel Paper; (vii) all Equipment; (viii) all Fixtures; (ix) all General Intangibles; 2 (x) all goods; (xi) all Instruments; (xii) all Inventory; (xiii) all Investment Property; (xiv) all Letter-of-Credit Rights; (xv) all money, cash or cash equivalents of any Grantor; and (xvi) the following specifically listed commercial tort claims: None. (xvii) any and all causes of action pursuant to Sections 542, 543, 544, 545, 547, 548 or 553 of the Bankruptcy Code and the proceeds therefrom; (xviii) without limiting the generality of the foregoing all leasehold improvements, leasehold interests and rents owned by either Grantor and located at or used in connection with or relating to the businesses at the locations set forth on Schedule VI-A attached hereto and incorporated herein by this reference; whether or not specifically assigned to Lender and whether now owned or existing or hereafter acquired or arising and wherever located and whether held for resale or used in business or purchased with proceeds of the Loans or ever located at, or ever purchased with revenues from, the grocery stores identified on Schedule VI-B, together with all additions, accessories, attachments and accessions thereto and all substitutions and replacements therefor, and all proceeds (including insurance proceeds) from the sale or other disposition thereof and all proceeds thereof; (xix) all equity, deposits, credits, sums and indebtedness of any kind or description, whatsoever, at any time owed by Lender to either Grantor or at any time standing in the name of or to the credit of either Grantor on the books and/or records of Lender, including without limitation, capital stock, members deposit certificates, patronage refund certificates, members savings, direct patronage or year-end patronage; and (xx) to the extent not otherwise included, all Proceeds and products of the foregoing and all accessions to, substitutions and replacements for, and rents and profits of, each of the foregoing. (b) In addition, to secure the prompt and complete payment, performance and observance of the Obligations and in order to induce Lender as aforesaid, each Grantor hereby grants to Lender, a right of setoff against the property of such Grantor held by Lender, consisting of property described above in Section 2(a) now or hereafter in the possession or custody of or in 3 transit to Lender, for any purpose, including safekeeping, collection or pledge, for the account of such Grantor, or as to which such Grantor may have any right or power. 3. LENDER'S RIGHTS: LIMITATIONS ON LENDER'S OBLIGATIONS. (a) It is expressly agreed by Grantors that, anything herein to the contrary notwithstanding, each Grantor shall remain liable under each of its Contracts and each of its Licenses to observe and perform all the conditions and obligations to be observed and performed by it thereunder. Lender shall have no obligation or liability under any Contract or License by reason of or arising out of this Security Agreement or the granting herein of a Lien thereon or the receipt by Lender of any payment relating to any Contract or License pursuant hereto. Lender shall not be required or obligated in any manner to perform or fulfill any of the obligations of any Grantor under or pursuant to any Contract or License, or to make any payment, or to make any inquiry as to the nature or the sufficiency of any payment received by it or the sufficiency of any performance by any party under any Contract or License, or to present or file any claims, or to take any action to collect or enforce any performance or the payment of any amounts which may have been assigned to it or to which it may be entitled at any time or times. (b) Lender may at any time after a Default or Event of Default shall have occurred and be continuing, without prior notice to any Grantor, notify Account Debtors, parties to the Contracts and obligors in respect of Instruments and Chattel Paper, that the Accounts and the right, title and interest of any Grantor in and under such Contracts, Instruments and Chattel Paper have been assigned to Lender, and that payments shall be made directly to Lender. Upon the request of Lender, each Grantor shall so notify Account Debtors, parties to Contracts and obligors in respect of Instruments and Chattel Paper. (c) Lender may at any time in Lender's own name or in the name of any Grantor communicate with Account Debtors, parties to Contracts, obligors in respect of Instruments and obligors in respect of Chattel Paper to verify with such Persons, to Lender's satisfaction, the existence, amount and terms of any such Accounts, Contracts, Instruments or Chattel Paper. If a Default or Event of Default shall have occurred and be continuing, each Grantor, at its own expense, shall cause the independent certified public accountants then engaged by such Grantor to prepare and deliver to Lender at any time and from time to time promptly upon Lender's request the following reports with respect to each Grantor: (i) a reconciliation of all Accounts; (ii) an aging of all Accounts; (iii) trial balances; and (iv) a test verification of such Accounts as Lender may request. Each Grantor, at its own expense, shall deliver to Lender the results of each physical verification, if any, which such Grantor may in its discretion have made, or caused any other Person to have made on its behalf, of all or any portion of its Inventory. 4. REPRESENTATIONS AND WARRANTIES. Each Grantor represents and warrants that: (a) Each Grantor is the sole owner of each item of the Collateral upon which it purports to grant a Lien hereunder, and has good and marketable title thereto free and clear of any and all Liens other than Permitted Encumbrances. 4 (b) No effective security agreement, financing statement, equivalent security or Lien instrument or continuation statement covering all or any part of the Collateral is on file or of record in any public office, except such as may have been filed (i) by any Grantor in favor of Lender pursuant to the Existing Loan Documents, this Security Agreement or the other Loan Documents, and (ii) in connection with any other Permitted Encumbrances. (c) This Security Agreement is effective to create a valid and continuing Lien on and, upon the entry by the Bankruptcy Court of an Interim Financing Order, a perfected Lien in favor of Lender, on the Collateral subject to the Intercreditor Agreement. Such Lien is prior to all other Liens, except Permitted Encumbrances that would be prior to Liens in favor of Lender as a matter of law, and is enforceable as such as against any and all creditors of and purchasers from any Grantor (other than purchasers of Inventory in the ordinary course of business). All action by any Grantor necessary or desirable to protect and perfect such Lien on each item of the Collateral has been duly taken. (d) Schedule II hereto lists all Instruments and Chattel Paper of each Grantor. All action by any Grantor necessary or desirable to protect and perfect the Lien of Lender on each item set forth on Schedule II (including the delivery of all originals thereof to Lender and the legending of all Chattel Paper as required by Section 5(b) hereof) has been duly taken. The Lien of Lender, on the Collateral listed on Schedule II hereto is prior to all other Liens, except Permitted Encumbrances that would be prior to the Liens in favor of Lender as a matter of law, and is enforceable as such against any and all creditors of and purchasers from any Grantor. (e) Each Grantor's exact legal name and state of organization are set forth in Schedule III-A and Schedule III-B, respectively, hereto. Grantors shall only change the foregoing in accordance with the provisions of the Credit Agreement. (f) Each Grantor's chief executive office, principal place of business, corporate offices, all warehouses and premises where Collateral is stored or located, and the locations of all of its books and records concerning the Collateral are set forth on Schedule IV-A and Schedule IV-B, respectively, hereto. Grantors shall only change the foregoing in accordance with the provisions of the Credit Agreement. (g) With respect to the Accounts (i) they represent bona fide sales of Inventory or rendering of services to Account Debtors in the ordinary course of each Grantor's business and are not evidenced by a judgment, Instrument or Chattel Paper; (ii) there are no setoffs, claims or disputes existing or asserted with respect thereto and no Grantor has made any agreement with any Account Debtor for any extension of time for the payment thereof, any compromise or settlement for less than the full amount thereof, any release of any Account Debtor from liability therefor, or any deduction therefrom except a discount or allowance allowed by such Grantor in the ordinary course of its business for prompt payment and disclosed to Lender; (iii) to each Grantor's knowledge, there are no facts, events or occurrences which in any way impair the validity or enforceability thereof or could reasonably be expected to reduce the amount payable thereunder as shown on any Grantor's books and records and any invoices, statements and Collateral Reports delivered to Lender with respect thereto; (iv) no Grantor has received any 5 notice of proceedings or actions which are threatened or pending against any Account Debtor which might result in any adverse change in such Account Debtor's financial condition; and (v) no Grantor has knowledge that any Account Debtor is unable generally to pay its debts as they become due. Further with respect to the Accounts (x) the amounts shown on all invoices and statements which may be delivered to Lender with respect thereto are actually and absolutely owing to such Grantor as indicated thereon and are not in any way contingent; and (y) to each Grantor's knowledge, all Account Debtors have the capacity to contract. (h) With respect to any Inventory (i) such Inventory is located at one of the applicable Grantor's locations set forth on Schedule IV-A or Schedule IV-B hereto, as applicable, (ii) no Inventory is now, or shall at any time or times hereafter be stored at any other location without Lender's prior written consent, and if Lender gives such consent, each applicable Grantor will concurrently therewith obtain, to the extent required by the Credit Agreement, bailee, landlord and mortgagee agreements acknowledging that the bailee, landlord or mortgagee is holding the Inventory for Lender, (iii) the applicable Grantor has good, indefeasible and merchantable title to such Inventory and such Inventory is not subject to any Lien or security interest or document whatsoever except for the Lien granted to Lender, and (iv) except for Permitted Encumbrances, such Inventory is not subject to any licensing, patent, royalty, trademark, trade name or copyright agreements with any third parties which would require any consent of any third party upon sale or disposition of that Inventory or the payment of any monies to any third party as a precondition of such sale or other disposition, and (v) the completion of manufacture, sale or other disposition of such Inventory by Lender following an Event of Default shall not require the consent of any Person and shall not constitute a breach or default under any contract or agreement to which any Grantor is a party or to which such property is subject. (i) Grantor will obtain bailee, landlord and mortgagee agreements with respect to all Collateral held by such third parties acknowledging that such third party is holding the Collateral for Lender. (j) No Grantor has any interest in, or title to, any Patent, Trademark or Copyright except as set forth in Schedule V hereto. This Security Agreement is effective to create a valid and continuing Lien on and, upon filing of the Copyright Security Agreements with the United States Copyright Office and filing of the Patent Security Agreements and the Trademark Security Agreements with the United States Patent and Trademark Office, perfected Liens in favor of Lender on each Grantor's Patents, Trademarks and Copyrights and such perfected Liens are enforceable as such as against any and all creditors of and purchasers from any Grantor. Upon filing of the Copyright Security Agreements with the United States Copyright Office and filing of the Patent Security Agreements and the Trademark Security Agreements with the United States Patent and Trademark Office and the filing of appropriate financing statements listed on Schedule I hereto, all action necessary or desirable to protect and perfect Lender's Lien on each Grantor's Patents, Trademarks or Copyrights shall have been duly taken. (k) Grantors will cooperate with Lender in obtaining control with respect to Collateral consisting of Deposit Accounts, Investment Property, Letter-of-Credit Rights and 6 Electronic Chattel Paper. Such cooperation shall include, without limitation, providing Lender with executed Control Letters as Lender deems reasonably necessary. (l) To the extent Grantors use the proceeds of the Loans to purchase Collateral, Grantors' repayment of the Loans shall apply on a "first in, first out" basis so that the portion of the Loans used to purchase a particular item of Collateral shall be paid in the chronological order that Grantors purchased the Collateral. 5. COVENANTS. Each Grantor covenants and agrees with Lender, that from and after the date of this Security Agreement and until the Termination Date: (a) Further Assurances: Pledge of Instruments. At any time and from time to time, upon the written request of Lender and at the sole expense of Grantors, each Grantor shall promptly and duly execute and deliver any and all such further instruments and documents and take such further actions as Lender may deem desirable to obtain the full benefits of this Security Agreement and of the rights and powers herein granted, including (i) using its best efforts to secure all consents and approvals necessary or appropriate for the assignment to or for the benefit of Lender of any License or Contract held by such Grantor or in which such Grantor has any rights not heretofore assigned, (ii) filing any financing or continuation statements under the Code with respect to the Liens granted hereunder or under any other Loan Document, (iii) transferring Collateral to Lender's possession if such Collateral consists of Chattel Paper, Instruments, Investment Property or if a Lien on such Collateral can be perfected only by possession, or if requested by Lender, (iv) obtaining, or using its best efforts to obtain, waivers of Liens, if any exist, from landlords and mortgagees in accordance with the Credit Agreement, and (v) confer control to Lender with respect to Collateral consisting of Deposit Accounts, Investment Property, Letter-of-Credit Rights or Electronic Chattel Paper. Each Grantor also hereby authorizes Lender to file any such financing or continuation statements without the signature of such Grantor to the extent permitted by applicable law, including financing statements with "all assets" or other such descriptions of Collateral. If any amount payable under or in connection with any of the Collateral is or shall become evidenced by any Instrument, such Instrument, other than checks and notes received in the ordinary course of business, shall be duly endorsed in a manner satisfactory to Lender immediately upon such Grantor's receipt thereof. (b) Maintenance of Records. Grantors shall keep and maintain, at their own cost and expense, satisfactory and complete records of the Collateral, including a record of any and all payments received and any and all credits granted with respect to the Collateral and all other dealings with the Collateral. Grantors shall mark their books and records pertaining to the Collateral to evidence this Security Agreement and the Liens granted hereby. All Chattel Paper shall be marked with the following legend: "This writing and the obligations evidenced or secured hereby are subject to the security interest of Associated Wholesale Grocers, Inc. as Lender." All Electronic Chattel Paper shall be marked with an identifying reference in form satisfactory to Lender. 7 (c) Covenants Regarding Patent, Trademark and Copyright Collateral. (i) Grantors shall notify Lender immediately if they know or have reason to know that any application or registration relating to any Patent, Trademark or Copyright (now or hereafter existing) may become abandoned or dedicated, or of any adverse determination or development (including the institution of, or any such determination or development in, any proceeding in the United States Patent and Trademark Office, the United States Copyright Office or any court) regarding any Grantor's ownership of any Patent, Trademark or Copyright, its right to register the same, or to keep and maintain the same. (ii) In no event shall any Grantor, either itself or through any agent, employee, licensee or designee, file an application for the registration of any Patent, Trademark or Copyright with the United States Patent and Trademark Office, the United States Copyright Office or any similar office or agency without giving Lender prior written notice thereof, and, upon request of Lender, Grantor shall execute and deliver any and all Patent Security Agreements, Copyright Security Agreements or Trademark Security Agreements as Lender may request to evidence Lender's Lien on such Patent, Trademark or Copyright, and the General Intangibles of such Grantor relating thereto or represented thereby. (iii) Grantors shall take all actions necessary or requested by Lender to maintain and pursue each application, to obtain the relevant registration and to maintain the registration of each of the Patents, Trademarks and Copyrights (now or hereafter existing), including the filing of applications for renewal, affidavits of use, affidavits of noncontestability and opposition and interference and cancellation proceedings, unless the applicable Grantor shall determine that such Patent, Trademark or Copyright is not material to the conduct of its business. (iv) In the event that any of the Patent, Trademark or Copyright Collateral is infringed upon, or misappropriated or diluted by a third party, such Grantor shall notify Lender promptly after such Grantor learns thereof Such Grantor shall, unless such Grantor shall reasonably determine that such Patent, Trademark or Copyright Collateral is in no way material to the conduct of its business or operations, promptly sue for infringement, misappropriation or dilution and to recover any and all damages for such infringement, misappropriation or dilution, and shall take such other actions as Lender shall deem appropriate under the circumstances to protect such Patent, Trademark or Copyright Collateral. (d) Indemnification. In any suit, proceeding or action brought by Lender relating to any Account, Chattel Paper, Contract, Document, Electronic Chattel Paper, General Intangible or Instrument for any sum owing thereunder or to enforce any provision of any Account, Chattel Paper, Contract, Deposit Account, Document, Electronic Chattel Paper, General Intangible or Instrument, each Grantor will save, indemnify and keep Lender harmless from and against all 8 expense (including reasonable attorneys' fees and expenses), loss or damage suffered by reason of any defense, setoff, counterclaim, recoupment or reduction of liability whatsoever of the obligor thereunder, arising out of a breach by any Grantor of any obligation thereunder or arising out of any other agreement, indebtedness or liability at any time owing to, or in favor of, such obligor or its successors from such Grantor, except in the case of Lender, to the extent such expense, loss, or damage is attributable solely to the gross negligence or willful misconduct of Lender as finally determined by a court of competent jurisdiction. All such obligations of Grantors shall be and remain enforceable against and only against Grantors and shall not be enforceable against Lender. (e) Compliance with Terms of Accounts, etc. In all material respects, each Grantor will perform and comply with all obligations in respect of its Accounts, Chattel Paper, Contracts and Licenses and all other agreements to which it is a party or by which it is bound relating to the Collateral. (f) Limitation on Liens on Collateral. No Grantor will create, permit or suffer to exist, and each Grantor will defend the Collateral against, and take such other action as is necessary to remove, any Lien on the Collateral except Permitted Encumbrances, and will defend the right, title and interest of Lender in and to any of such Grantor's rights under the Collateral against the claims and demands of all Persons whomsoever. (g) Limitations on Disposition. No Grantor will, and Lender does not authorize any Grantor to, sell, lease, transfer or otherwise dispose of any of the Collateral, or attempt or contract to do so except as permitted by the Credit Agreement. (h) Further Identification of Collateral. Grantors will, if so requested by Lender, furnish to Lender, as often as Lender requests, statements and schedules further identifying and describing the Collateral and such other reports in connection with the Collateral as Lender may reasonably request, all in such detail as Lender may specify. (i) Notices. Grantors will advise Lender promptly, in reasonable detail, (i) of any Lien (other than Permitted Encumbrances) or claim made or asserted against any of the Collateral, and (ii) of the occurrence of any other event which would have a material adverse effect on the aggregate value of the Collateral or on the Liens created hereunder or under any other Loan Document. 6. LENDER'S APPOINTMENT AS ATTORNEY-IN-FACT. On the Closing Date each Grantor shall execute and deliver to Lender a power of attorney (the "Power of Attorney") substantially in the form attached hereto as Exhibit "A". The power of attorney granted pursuant to the Power of Attorney is a power coupled with an interest and shall be irrevocable until the Termination Date. The powers conferred on Lender under the Power of Attorney are solely to protect Lender's interests in the Collateral and shall not impose any duty upon Lender to exercise any such powers. Lender agrees that (a) it shall not exercise any power or authority granted under the Power of Attorney unless an Event of Default 9 has occurred and is continuing, and (b) Lender shall account for any moneys received by Lender in respect of any foreclosure on or disposition of Collateral pursuant to the Power of Attorney provided that Lender shall not have any duty as to any Collateral, and Lender shall be accountable only for amounts that it actually receives as a result of the exercise of such powers. NONE OF LENDER OR ITS RESPECTIVE AFFILIATES, OFFICERS, DIRECTORS, EMPLOYEES, AGENTS OR REPRESENTATIVES SHALL BE RESPONSIBLE TO ANY GRANTOR FOR ANY ACT OR FAILURE TO ACT UNDER ANY POWER OF ATTORNEY OR OTHERWISE, EXCEPT IN RESPECT OF DAMAGES ATTRIBUTABLE SOLELY TO THEIR OWN GROSS NEGLIGENCE OR WILLFUL MISCONDUCT AS FINALLY DETERMINED BY A COURT OF COMPETENT JURISDICTION, NOR FOR ANY PUNITIVE, EXEMPLARY, INDIRECT OR CONSEQUENTIAL DAMAGES. 7. REMEDIES: RIGHTS UPON DEFAULT. (a) In addition to all other rights and remedies granted to it under this Security Agreement, the Credit Agreement, the other Loan Documents and under any other instrument or agreement securing, evidencing or relating to any of the Obligations, if any Event of Default shall have occurred and be continuing, Lender may exercise all rights and remedies of a secured party under the Code. Without limiting the generality of the foregoing, each Grantor expressly agrees that in any such event Lender, without demand of performance or other demand, advertisement or notice of any kind (except the notice specified below of time and place of public or private sale) to or upon such Grantor or any other Person (all and each of which demands, advertisements and notices are hereby expressly waived to the maximum extent permitted by the Code and other applicable law), may forthwith enter upon the premises of such Grantor where any Collateral is located through self-help, without judicial process, without first obtaining a final judgment or giving such Grantor or any other Person notice and opportunity for a hearing on Lender's claim or action and may collect, receive, assemble, process, appropriate and realize upon the Collateral, or any part thereof, and may forthwith sell, lease, assign, give an option or options to purchase, or sell or otherwise dispose of and deliver said Collateral (or contract to do so), or any part thereof, in one or more parcels at a public or private sale or sales, at any exchange at such prices as it may deem acceptable, for cash or on credit or for future delivery without assumption of any credit risk. Lender shall have the right upon any such public sale or sales and, to the extent permitted by law, upon any such private sale or sales, to purchase for the benefit of Lender, the whole or any part of said Collateral so sold, free of any right or equity of redemption, which equity of redemption each Grantor hereby releases. Such sales may be adjourned and continued from time to time with or without notice. Lender shall have the right to conduct such sales on any Grantor's premises or elsewhere and shall have the right to use any Grantor's premises without charge for such time or times as Lender deems necessary or advisable. Each Grantor further agrees, at Lender's request, to assemble the Collateral and make it available to Lender at places which Lender shall select, whether at such Grantor's premises or elsewhere. Until Lender is able to effect a sale, lease, or other disposition of Collateral, Lender shall have the right to hold or use Collateral, or any part thereof, to the extent that it deems appropriate for the purpose of preserving Collateral or its value or for any other purpose deemed appropriate by Lender. Lender shall have no obligation to any Grantor to 10 maintain or preserve the rights of such Grantor as against third parties with respect to Collateral while Collateral is in the possession of Lender. Lender may, if it so elects, seek ex parte the appointment of a receiver or keeper, to take possession of Collateral and to enforce any of Lender's remedies with respect to such appointment without prior notice or hearing as to such appointment. Lender shall apply the net proceeds of any such collection, recovery, receipt, appropriation, realization or sale to the Obligations as provided in the Credit Agreement, and only after so paying over such net proceeds, and after the payment by Lender of any other amount required by any provision of law, need Lender account for the surplus, if any, to any Grantor. To the maximum extent permitted by applicable law, each Grantor waives all claims, damages, and demands against Lender arising out of the repossession, retention or sale of the Collateral except such as arise solely out of the gross negligence or willful misconduct of Lender as finally determined by a court of competent jurisdiction. Each Grantor agrees that ten (10) days prior notice by Lender of the time and place of any public sale or of the time after which a private sale may take place is reasonable notification of such matters. Grantors shall remain liable for any deficiency if the proceeds of any sale or disposition of the Collateral are insufficient to pay all Obligations, including any attorneys' fees and other expenses incurred by Lender to collect such deficiency. (b) Except as otherwise specifically provided herein, each Grantor hereby waives presentment, demand, protest or any notice (to the maximum extent permitted by applicable law) of any kind in connection with this Security Agreement or any Collateral. 8. GRANT OF LICENSE TO USE INTELLECTUAL PROPERTY COLLATERAL. For the purpose of enabling Lender to exercise rights and remedies under Section 7 hereof (including, without limiting the terms of Section 7 hereof, in order to take possession of, hold, preserve, process, assemble, prepare for sale, market for sale, sell or otherwise dispose of Collateral) at such time as Lender shall be lawfully entitled to exercise such rights and remedies, each Grantor hereby grants to Lender an irrevocable, non-exclusive license (exercisable without payment of royalty or other compensation to such Grantor) to use, license or sublicense any Intellectual Property now owned or hereafter acquired by such Grantor, and wherever the same may be located, and including in such license access to all media in which any of the licensed items may be recorded or stored and to all computer software and programs used for the compilation or printout thereof. 9. LIMITATION ON LENDER'S DUTY IN RESPECT OF COLLATERAL. Lender shall use reasonable care with respect to the Collateral in its possession or under its control. Lender shall not have any other duty as to any Collateral in its possession or control or in the possession or control of any agent or nominee of Lender, or any income thereon or as to the preservation of rights against prior parties or any other rights pertaining thereto. 10. REINSTATEMENT. This Security Agreement shall remain in full force and effect and continue to be effective should any petition be filed by or against any Grantor for liquidation or reorganization, should any Grantor become insolvent or make an assignment for the benefit of any creditor or creditors or should a receiver or trustee be appointed for all or any significant part of any Grantor's assets, and shall continue to be effective or be reinstated, as the case may be, if at any time payment and performance of the Obligations, or any part thereof, is, pursuant to 11 applicable law, rescinded or reduced in amount, or must otherwise be restored or returned by any obligee of the Obligations, whether as a "voidable preference," "fraudulent conveyance," or otherwise, all as though such payment or performance had not been made. In the event that any payment, or any part thereof, is rescinded, reduced, restored or returned, the Obligations shall be reinstated and deemed reduced only by such amount paid and not so rescinded, reduced, restored or returned. 11. NOTICES. Except as otherwise provided herein, whenever it is provided herein that any notice, demand, request, consent, approval, declaration or other communication shall or may be given to or served upon any of the parties by any other party, or whenever any of the parties desires to give and serve upon any other party any communication with respect to this Security Agreement, each such notice, demand, request, consent, approval, declaration or other communication shall be in writing and shall be given in the manner, and deemed received, as provided for in the Credit Agreement. 12. SEVERABILITY. Whenever possible, each provision of this Security Agreement shall be interpreted in a manner as to be effective and valid under applicable law, but if any provision of this Security Agreement shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity without invalidating the remainder of such provision or the remaining provisions of this Security Agreement. This Security Agreement is to be read, construed and applied together with the Credit Agreement and the other Loan Documents which, taken together, set forth the complete understanding and agreement of Lender and Grantors with respect to the matters referred to herein and therein. 13. NO WAIVER; CUMULATIVE REMEDIES. Lender shall not by any act, delay, omission or otherwise be deemed to have waived any of its rights or remedies hereunder, and no waiver shall be valid unless in writing, signed by Lender and then only to the extent therein set forth. A waiver by Lender of any right or remedy hereunder on any one occasion shall not be construed as a bar to any right or remedy which Lender would otherwise have had on any future occasion. No failure to exercise nor any delay in exercising on the part of Lender, any right, power or privilege hereunder, shall operate as a waiver thereof, nor shall any single or partial exercise of any right, power or privilege hereunder preclude any other or future exercise thereof or the exercise of any other right, power or privilege. The rights and remedies hereunder provided are cumulative and may be exercised singly or concurrently, and are not exclusive of any rights and remedies provided by law. None of the terms or provisions of this Security Agreement may be waived, altered, modified or amended except by an instrument in writing, duly executed by Lender and Grantors. 14. LIMITATION BY LAW. All rights, remedies and powers provided in this Security Agreement may be exercised only to the extent that the exercise thereof does not violate any applicable provision of law, and all the provisions of this Security Agreement are intended to be subject to all applicable mandatory provisions of law that may be controlling and to be limited to the extent necessary so that they shall not render this Security Agreement invalid, unenforceable, in whole or in part, or not entitled to be recorded, registered or filed under the provisions of any applicable law. 12 15. TERMINATION OF THIS SECURITY AGREEMENT. Subject to Section 10 hereof, this Security Agreement shall terminate upon the Termination Date. 16. SUCCESSORS AND ASSIGNS. This Security Agreement and all obligations of Grantors hereunder shall be binding upon the successors and assigns of each Grantor (including any debtor-in-possession on behalf of such Grantor) and shall, together with the rights and remedies of Lender hereunder, inure to the benefit of Lender all future holders of any instrument evidencing any of the Obligations and their respective successors and assigns. No sales of participations, other sales, assignments, transfers or other dispositions of any agreement governing or instrument evidencing the Obligations or any portion thereof or interest therein shall in any manner affect the Lien granted to Lender hereunder. No Grantor may assign, sell, hypothecate or otherwise transfer any interest in or obligation under this Security Agreement. 17. COUNTERPARTS. This Security Agreement may be executed in any number of separate counterparts, each of which shall collectively and separately constitute one agreement. 18. GOVERNING LAW. EXCEPT AS OTHERWISE EXPRESSLY PROVIDED IN ANY OF THE LOAN DOCUMENTS, IN ALL RESPECTS, INCLUDING ALL MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE, THIS SECURITY AGREEMENT AND THE OBLIGATIONS ARISING HEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF KANSAS APPLICABLE TO CONTRACTS MADE AND PERFORMED IN THAT STATE, AND ANY APPLICABLE LAWS OF THE UNITED STATES OF AMERICA. EACH GRANTOR HEREBY CONSENTS AND AGREES THAT THE STATE OR FEDERAL COURTS LOCATED IN JOHNSON COUNTY, KANSAS SHALL HAVE EXCLUSIVE JURISDICTION TO HEAR AND DETERMINE ANY CLAIMS OR DISPUTES BETWEEN GRANTORS AND LENDER PERTAINING TO THIS SECURITY AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS OR TO ANY MATTER ARISING OUT OF OR RELATING TO THIS SECURITY AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS, PROVIDED, THAT LENDER AND GRANTORS ACKNOWLEDGE THAT ANY APPEALS FROM THOSE COURTS MAY HAVE TO BE HEARD BY A COURT LOCATED OUTSIDE OF JOHNSON COUNTY, KANSAS, AND, PROVIDED, FURTHER, NOTHING IN THIS AGREEMENT SHALL BE DEEMED OR OPERATE TO PRECLUDE LENDER FROM BRINGING SUIT OR TAKING OTHER LEGAL ACTION IN ANY OTHER JURISDICTION TO REALIZE ON THE COLLATERAL OR ANY OTHER SECURITY FOR THE OBLIGATIONS, OR TO ENFORCE A JUDGMENT OR OTHER COURT ORDER IN FAVOR OF LENDER. EACH GRANTOR EXPRESSLY SUBMITS AND CONSENTS IN ADVANCE TO SUCH JURISDICTION IN ANY ACTION OR SUIT COMMENCED IN ANY SUCH COURT, AND EACH GRANTOR HEREBY WAIVES ANY OBJECTION WHICH IT MAY HAVE BASED UPON LACK OF PERSONAL JURISDICTION, IMPROPER VENUE OR FORUM NON CONVENIENS AND HEREBY CONSENTS TO THE GRANTING OF SUCH LEGAL OR EQUITABLE RELIEF AS IS DEEMED APPROPRIATE BY SUCH COURT. EACH GRANTOR HEREBY WAIVES PERSONAL SERVICE OF THE SUMMONS, COMPLAINT AND OTHER PROCESS ISSUED IN ANY SUCH ACTION OR SUIT AND AGREES THAT SERVICE OF SUCH SUMMONS, COMPLAINTS AND OTHER PROCESS MAY BE MADE BY REGISTERED OR CERTIFIED MAIL ADDRESSED TO 13 SUCH GRANTOR AT THE ADDRESS SET FORTH ON ANNEX C TO THE CREDIT AGREEMENT AND THAT SERVICE SO MADE SHALL BE DEEMED COMPLETED UPON THE EARLIER OF ACTUAL RECEIPT THEREOF OR THREE (3) DAYS AFTER DEPOSIT IN THE U.S. MAILS, PROPER POSTAGE PREPAID. NOTWITHSTANDING ANYTHING HEREIN TO THE CONTRARY, UNTIL THE DATE OF THE CONSUMMATION OF THE FINAL ORDER APPROVING AN ACCEPTABLE PLAN OF REORGANIZATION, THE PARTIES AGREE THAT THE BANKRUPTCY COURT SHALL HAVE EXCLUSIVE JURISDICTION TO HEAR AND DETERMINE ANY CLAIMS OR DISPUTES PERTAINING TO THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS EXECUTED ON OR ABOUT THE DATE HEREOF. 19. WAIVER OF JURY TRIAL. BECAUSE DISPUTES ARISING IN CONNECTION WITH COMPLEX FINANCIAL TRANSACTIONS ARE MOST QUICKLY AND ECONOMICALLY RESOLVED BY AN EXPERIENCED AND EXPERT PERSON AND THE PARTIES WISH APPLICABLE STATE AND FEDERAL LAWS TO APPLY (RATHER THAN ARBITRATION RULES), THE PARTIES DESIRE THAT DISPUTES ARISING HEREUNDER OR RELATING HERETO BE RESOLVED BY A JUDGE APPLYING SUCH APPLICABLE LAWS. THEREFORE, TO ACHIEVE THE BEST COMBINATION OF THE BENEFITS OF THE JUDICIAL SYSTEM AND OF ARBITRATION, THE PARTIES HERETO WAIVE ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, SUIT OR PROCEEDING BROUGHT TO RESOLVE ANY DISPUTE, WHETHER SOUNDING IN CONTRACT, TORT, OR OTHERWISE, AMONG LENDER AND GRANTORS ARISING OUT OF, CONNECTED WITH, RELATED TO, OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED IN CONNECTION WITH, THIS SECURITY AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS OR THE TRANSACTIONS RELATED HERETO OR THERETO. 20. SECTION TITLES. The Section titles contained in this Security Agreement are and shall be without substantive meaning or content of any kind whatsoever and are not a part of the agreement between the parties hereto. 21. NO STRICT CONSTRUCTION. The parties hereto have participated jointly in the negotiation and drafting of this Security Agreement. In the event an ambiguity or question of intent or interpretation arises, this Security Agreement shall be construed as if drafted jointly by the parties hereto and no presumption or burden of proof shall arise favoring or disfavoring any party by virtue of the authorship of any provisions of this Security Agreement. 22. ADVICE OF COUNSEL. Each of the parties represents to each other party hereto that it has discussed this Security Agreement and, specifically, the provisions of Section 18 and Section 19, with its counsel. 23. BENEFIT OF LENDER. All Liens granted or contemplated hereby shall be for the benefit of Lender, and all proceeds or payments realized from Collateral in accordance herewith shall be applied to the Obligations in accordance with the terms of the Credit Agreement. 14 IN WITNESS WHEREOF, each of the parties hereto has caused this Security Agreement to be executed and delivered by its duly authorized officer as of the date first set forth above. HOLDINGS HOMELAND HOLDING CORPORATION, Debtor-in-Possession, a Delaware corporation By: --------------------------------- Name: ------------------------------- Title: ------------------------------ HOMELAND HOMELAND STORES, INC., Debtor-in- Possession, a Delaware corporation By: --------------------------------- Name: ------------------------------- Title: ------------------------------ LENDER ASSOCIATED WHOLESALE GROCERS, INC., a Missouri corporation By: --------------------------------- Name: ------------------------------- Title: ------------------------------ 15 SCHEDULE I TO SECURITY AGREEMENT FILING JURISDICTIONS 1. UCC-1 Financing Statement to be filed with the Delaware Secretary of State listing Associated Wholesale Grocers, Inc. as Secured Party and Homeland Holding Corporation as Debtor. 2. UCC-1 Financing Statement to be filed with the Delaware Secretary of State listing Associated Wholesale Grocers, Inc. as Secured Party and Homeland Stores, Inc. as Debtor. 3. Two (2) Fixture Financing Statements naming Homeland Holding Corporation and Homeland Stores, Inc. as Debtors and Associated Wholesale Grocers, Inc. as Secured Party in each of the following counties: Ford County, Kansas Canadian County, Oklahoma Deaf Smith, Texas Okmulgee County, Oklahoma Hutchinson County, Texas Washington County, Oklahoma Moore County, Texas Mayes County, Oklahoma Potter County, Texas Osage County, Oklahoma Randall County, Texas Wagoner County, Oklahoma Grady County, Oklahoma Noble County, Oklahoma Cleveland County, Oklahoma Pawnee County, Oklahoma Tulsa County, Oklahoma Delaware County, Oklahoma Oklahoma County, Oklahoma Kay County, Oklahoma Garfield County, Oklahoma Carter County, Oklahoma Texas County, Oklahoma Woods County, Oklahoma Seminole County, Oklahoma Woodward County, Oklahoma Custer County, Oklahoma Beckham County, Oklahoma Stephens County, Oklahoma Garvin County, Oklahoma Logan County, Oklahoma Okfuskee County, Oklahoma Comanche County, Oklahoma Nowata County, Oklahoma Pottawatomie County, Oklahoma Muskogee County, Oklahoma SCHEDULE II TO SECURITY AGREEMENT INSTRUMENTS AND CHATTEL PAPER [TO BE COMPLETED BY GRANTORS] SCHEDULE III-A TO SECURITY AGREEMENT SCHEDULE OF LEGAL NAME, STATE OF ORGANIZATION, OFFICES OF HOLDINGS, I. Exact Legal Name: Homeland Holding Corporation II. State of Organization: Delaware SCHEDULE III-B TO SECURITY AGREEMENT SCHEDULE OF LEGAL NAME AND STATE OF ORGANIZATION OF STORES I. Exact Legal Name: Homeland Stores, Inc. II. State of Organization: Delaware SCHEDULE IV-A TO SECURITY AGREEMENT SCHEDULE OF OFFICES, LOCATIONS OF COLLATERAL AND RECORDS CONCERNING HOLDINGS' COLLATERAL I. Chief Executive Office and principal place of business of Holding: II. 2601 NW Expressway, Suite 1100 East Oklahoma City, Oklahoma 73112 III. Corporate Offices of Holding: Same as I above. IV. Warehouses: None. V. Other Premises at which Collateral is Stored or Located: None. VI. Locations of Records Concerning Collateral: Same as I above. SCHEDULE IV-B TO SECURITY AGREEMENT SCHEDULE OF OFFICES, LOCATIONS OF COLLATERAL AND RECORDS CONCERNING STORES COLLATERAL I. Chief Executive Office and principal place of business of Homeland: 2601 NW Expressway, Suite 1100 East Oklahoma City, Oklahoma 73112 II. Corporate Offices of Homeland: Same as I above. III. Warehouses: None. IV. Other Premises at which Collateral is Stored or Located: See attached. V. Locations of Records Concerning Collateral: Same as I above. OTHER PREMISES AT WHICH COLLATERAL IS STORED OR LOCATED
STORE NO. ADDRESS COUNTY - ------------ ------------------------ ------------ 1. 26 520 Minnesota Grady Chickasha, OK 2. 101 1100 W. Main Cleveland Norman, OK 3. 102 8922 S. Memorial Tulsa Tulsa, OK 74133 4. 105 1315 N. Eastern Oklahoma Moore, OK 73160 5. 107 NWC Coltrane & Danforth Oklahoma Edmond, OK 6. 109 119th & South Western Cleveland Oklahoma City, OK 7. 119 U.S. 82 & Hwy. 78 Fannin Bonham, TX 8. 122 6473 N. MacArthur Oklahoma Oklahoma City, OK 9. 125 3828 W. Owen K. Garriott Garfield Enid, OK 73703 10. 127 759 Grand Avenue Grady Chickasha, OK 73018 11. 141 1402 N. Main St. Texas Guymon, TX 12. 145 1800 Central Ford Dodge City, KS 13. 146 1701 N. Milt Phillips Seminole Seminole, OK 14. 148 1212 Choctaw Custer Clinton, OK 15. 153 1108 N.W. 18th Oklahoma Oklahoma City, OK 16. 154 2016 N.W. 39th St. Oklahoma Oklahoma City, OK
STORE NO. ADDRESS COUNTY - ------------ ------------------------ ------------ 17. 161 510 N. Commerce Carter Ardmore, OK 18. 163 4308 S.E. 44th Oklahoma Oklahoma City, OK 19. 164 706 Flynn Woods Alva, OK 73717 20. 167 1310 Oklahoma Ave. Woodward Woodward, OK 21. 170 412 W. Third Beckham Elk City, OK 22. 178 505 S. Chickasaw Garvin Pauls Valley, OK 23. 181 12508 N. May Ave. Oklahoma Oklahoma City, OK 24. 182 1401 Beech Ave. Stephens Duncan, OK 25. 183 3020 N.W. 16th St. Oklahoma Oklahoma City, OK 26. 188 220 E. Cleveland Logan Guthrie, OK 73044 27. 192 415 S.W. 59th Oklahoma Oklahoma City, OK 28. 193 301 N. W. 67th Street Comanche Lawton, OK 73505 29. 195 4301 S. May Ave. Oklahoma Oklahoma City, OK 30. 196 2705 N. Harrison Pottawatomie Shawnee, OK 31. 197 11241 W. Reno Canadian Oklahoma City (Yukon), OK 32. 200 1724 W. Lindsey Rd. Cleveland Norman, OK 33. 204 115 E. Highway 152 Canadian Mustang, OK
STORE NO. ADDRESS COUNTY - ----------- -------------------------- --------- 34. 206 11120 N. Rockwell Oklahoma Oklahoma City, OK 73132 35. 207 9320 N. Penn Oklahoma Oklahoma City, OK 36. 208 2205 W. Edmond Road Oklahoma Edmond, OK 73034 37. 457 3948 S. Peoria Tulsa Tulsa, OK 38. 495 310 W. Trudgeon Okmulgee Henryetta, OK 74437 39. 502 2235 E. 61st St. Tulsa Tulsa, OK 4O. 503 1110 S. Denver Tulsa Tulsa, OK 41. 515 915 S. Madison Washington Bartlesville, OK 42. 528 12011 S. Memorial Tulsa Bixby, OK 43. 529 3405 S. Georgia Randall Amarillo, TX 44. 538 504 E. Graham Mayes Pryor, OK 74361 45. 545 12572 E. 21st Street Tulsa Tulsa, OK 74129 46. 549 400 Plaza Court Tulsa Sand Springs, OK 47. 550 6402 E. Pine Tulsa Tulsa, OK 48. 553 575 N. Gilcrease Museum Road Osage [a/k/a 575 N. 26th W. Avenue] Tulsa, OK 49. 561 708 S. Aspen Tulsa Broken Arrow, OK
STORE NO. ADDRESS COUNTY - ------------ --------------------------- ---------- 50. 563 811 E. Frank Phillips Blvd. Washington Bartlesville, OK 74003 51. 567 3139 S. Harvard Tulsa Tulsa, OK 52. 573 19302 E. Admiral Blvd. Wagoner Tulsa, OK 53. 574 2351 E. Kenosh Tulsa Broken Arrow, OK 74012 54. 578 700 E. Cherokee Wagoner Wagoner, OK 55. 582 230 W. 1st Moore Dumas, TX 56. 587 101 W. 10th St. Hutchinson Borger, TX 57. 598 401 S. Western Potter Amarillo, TX 58. 600 7302 S.W. 34th Randall Amarillo, TX 59. 601 4111 Plains Potter Amarillo, TX 60. 603 3505 N.E. 24th Potter Amarillo, TX 61. 604 202 N. 23rd Randall Canyon, TX 62. 605 535 N. 25 Mile Ave. Deaf Smith Hereford, TX 63. 677 5811 S. Western Randall f/k/a Amarillo, TX 79109 599 64. 778 4001 S. 97 Highway Tulsa Sand Springs, OK 65. 793 7001 Northwest Expressway Oklahoma Oklahoma City, OK
STORE NO. ADDRESS COUNTY - ----------- --------------------- ----------- 66. 794 2121 N.W. 23rd Oklahoma Oklahoma City, OK 67. 795 1202 N.W. 40th Comanche Lawton, OK 68. 796 10700 S. Penn Cleveland Oklahoma City, OK 69. 850 316 E. Main Osage Pawhuska, OK 70. 851 702 Fir Street Noble Perry, OK 71. 852 305 S. Broadway Pawnee Cleveland, OK 72. 853 1629 S. Main Delaware Jay, OK 73. 854 310 S. Main Kay Blackwell, OK 74. 855 108 S. Division Okfuskee Okemah, OK 75. 856 813 E. Cherokee Nowata Nowata, OK 76. 857 102 Haskell Blvd. Muskogee Haskell, OK 77. 880 3115 W. Okmulgee St. Muskogee Muskogee, OK 78. 881 1300 S. York Muskogee Muskogee, OK 79. 882 800 E. Okmulgee Muskogee Muskogee, OK 80. 883 6 East Shawnee Muskogee Muskogee, OK 81. 886 24 S.E. 33rd Street Oklahoma Edmond, OK 82. 887 2213 S.W. 74th Street Oklahoma Oklahoma City, OK
STORE NO. ADDRESS COUNTY - --------------- ------------------------- --------- 83. Office 2601 Northwest Expressway Oklahoma Suite 1100 East Oklahoma City, OK 84. 4901 N. Cooper Oklahoma Oklahoma City, OK
SCHEDULE V TO SECURITY AGREEMENT PATENTS, TRADEMARKS AND COPYRIGHTS [TO BE COMPLETED BY GRANTORS] SCHEDULE VI-A TO SECURITY AGREEMENT LEASEHOLD LOCATIONS
STORE NO. ADDRESS COUNTY COMMENTS - --------- ---------------- ----------- --------------------- 1. 26 (520 Minnesota) Grady Leased Chickasha, OK 2. 101 1100 W. Main Cleveland Leased Norman. OK 3. 122 6473 N. MacArthur Oklahoma Leased Oklahoma City, OK 4. 125 3828 W. Owen K. Garriott Garfield Part Leased/Part Owned Enid. OK 5. 127 759 Grand Avenue Grady Part Leased/Part Owned Chickasha. OK 6. 141 1402 N. Main St. Texas Leased Guymon, TX 7. 145 1800 Central Ford Leased Dodge City, KS 8. 146 1701 N. Milt Phillips Seminole Leased Seminole, OK 9. 148 1212 Choctaw Custer Leased Clinton, OK 10. 153 1108 N.W. 18th Oklahoma Leased Oklahoma City, OK 11. 154 2016 N.W. 39th St. Oklahoma Leased Oklahoma City, OK 12. 161 510 N. Commerce Carter Leased Ardmore, OK 13. 163 4308 S.E. 44th Oklahoma Leased Oklahoma City, OK
STORE NO. ADDRESS COUNTY COMMENTS - --------- ---------------- ----------- --------------------- 14. 164 706 Flynn Woods Part Leased/Part Owned Alva, OK 15. 167 1310 Oklahoma Ave. Woodward Leased Woodward, OK 16. 170 412 W. Third Beckham Part Leased/Part Owned Elk City, OK 17. 178 505 S. Chickasaw Garvin Leased Pauls Valley, OK 18. 181 12508 N. May Ave. Oklahoma Leased Oklahoma City, OK 19. 182 1401 Beech Ave. Stephens Part Leased/Part Owned Duncan, OK 20. 183 3020 N.W. 16th St. Oklahoma Leased Oklahoma City, OK 21. 192 415 S.W. 59th Oklahoma Leased Oklahoma City, OK 22. 195 4301 S. May Ave. Oklahoma Own building/Leased land Oklahoma City, OK 23. 196 2705 N. Harrison Pottawatomie Leased Shawnee, OK 24. 197 11241 W. Reno Canadian Leased Oklahoma City (Yukon), OK 25. 200 1724 W. Lindsey Rd. Cleveland Leased Norman, OK 26. 204 115 E. Hiway 152 Canadian Leased Mustang, OK 27. 207 9320 N. Penn Oklahoma Leased Oklahoma City, OK 28. 457 3948 S. Peoria Tulsa Leased Tulsa, OK 29. 502 2235 E. 61st St. Tulsa Leased Tulsa, OK 30. 503 1110 S. Denver Tulsa Leased Tulsa, OK
STORE NO. ADDRESS COUNTY COMMENTS - --------- ---------------- ----------- --------------------- 31. 515 915 S. Madison Washington Leased Bartlesville, OK 32. 528 12011 S. Memorial Tulsa Leased Bixby, OK 33. 529 3405 S. Georgia Randall Leased Amarillo, TX 34. 549 400 Plaza Court Tulsa Leased Sand Springs, OK 35. 550 6402 E. Pine Tulsa Leased Tulsa, OK 36. 553 575 N. Gilcrease Museum Road Osage Leased Tulsa, OK 37. 561 708 S. Aspen Tulsa Leased Broken Arrow, OK 38. 567 3139 S. Harvard Tulsa Leased Tulsa, OK 39. 573 19302 E. Admiral Blvd. Wagoner Leased Tulsa, OK 40. 578 700 E. Cherokee Wagoner Leased Wagoner, OK 41. 582 230 W. 1st Moore Leased Dumas, TX 42. 587 101 W. 10th St. Hutchinson Leased Borger, TX 43. 600 7302 S.W. 34th Randall Leased Amarillo, TX 44. 601 4111 Plains Potter Leased Amarillo, TX 45. 603 3505 N.E. 24th Potter Leased Amarillo, TX 46. 604 202 N. 23rd Randall Leased Canyon, TX 47. 605 535 N. 25 Mile Ave. Deaf Smith Leased Hereford, TX
STORE NO. ADDRESS COUNTY COMMENTS - --------- ---------------- ----------- --------------------- 48. 778 4001 S. 97 Highway Tulsa Leased Sand Springs, OK 49. 793 7001 Northwest Expressway Oklahoma Leased Oklahoma City, OK 50. 794 2121 N.W. 23rd Oklahoma Leased Oklahoma City, OK 51. 795 1202 N.W. 40th Comanche Leased Lawton, OK 52. 796 10700 S. Penn Cleveland Leased Oklahoma City, OK 53. 850 316 E. Main Osage Leased Pawhuska, OK 54. 851 702 Fir Street Noble Leased Perry, OK 55. 852 305 S. Broadway Pawnee Leased Cleveland, OK 56. 853 1629 S. Main Delaware Leased Jay, OK 57. 854 310 S. Main Kay Leased Blackwell, OK 58. 855 108 S. Division Okfuskee Leased Okemah, OK 59. 856 813 E. Cherokee Nowata Leased Nowata, OK 60. 857 102 Haskell Blvd. Muskogee Leased Haskell, OK 61. 880 3115 W. Okmulgee St. Muskogee Leased Muskogee, OK 62. 881 1300 S. York Muskogee Leased Muskogee, OK 63. 882 800 E. Okmulgee Muskogee Leased Muskogee, OK 64. 883 6 East Shawnee Muskogee Leased Muskogee, OK
STORE NO. ADDRESS COUNTY COMMENTS - --------- ---------------- ----------- --------- 65. 886 24 S.E. 33rd Street Oklahoma Leased Edmond, OK 66. 887 2213 S.W. 74th Street Oklahoma Leased Oklahoma City, OK 67. Office 2601 Northwest Expressway Oklahoma Leased Suite 1100 East Oklahoma City, OK 68. 4901 N. Cooper Oklahoma Leased Oklahoma City, OK
SCHEDULE IV-B TO SECURITY AGREEMENT GROCERY STORES
STORE NO. ADDRESS COUNTY COMMENTS - --------- ---------------- ----------- --------------------- 1. 26 520 Minnesota Grady Leased Chickasha, OK 2. 101 1100 W. Main Cleveland Leased Norman, OK 3. 102 8922 S. Memorial Tulsa Owned Store Tulsa, OK 4. 105 13 15 N. Eastern Ave. Cleveland Owned Store Moore, OK 5. 122 6473 N. MacArthur Oklahoma Leased Oklahoma City, OK 6. 125 3828 W. Owen K. Garriott Garfield Part Leased/Part Owned Enid, OK 7. 127 759 Grand Avenue Grady Part Leased/Part Owned Chickasha, OK 8. 141 1402 N. Main St. Texas Leased Guymon, TX 9. 145 1800 Central Ford Leased Dodge City, KS 10. 146 1701 N. Milt Phillips Seminole Leased Seminole, OK 11. 148 1212 Choctaw Custer Leased Clinton, OK 12. 153 1108 N.W. 18th Oklahoma Leased Oklahoma City, OK 13. 154 2016 N.W. 39th St. Oklahoma Leased Oklahoma City, OK
STORE NO. ADDRESS COUNTY COMMENTS - --------- ---------------- ----------- --------------------- 14. 161 510 N. Commerce Carter Leased Ardmore, OK 15. 163 4308 S.E. 44th Oklahoma Leased Oklahoma City, OK 16. 164 706 Flynn Woods Part Leased/Part Owned Alva, OK 17. 167 1310 Oklahoma Ave. Woodward Leased Woodward, OK 18. 170 412 W. Third Beckham Part Leased/Part Owned Elk City, OK 19. 178 505 S. Chickasaw Garvin Leased Pauls Valley, OK 20. 181 12508 N. May Ave. Oklahoma Leased Oklahoma City, OK 21. 182 1401 Beech Ave. Stephens Part Leased/Part Owned Duncan, OK 22. 183 3020 N.W. 16th St. Oklahoma Leased Oklahoma City, OK 23. 188 220 E. Cleveland Logan Owned Store Guthrie, OK 24. 192 415 S.W. 59th Oklahoma Leased Oklahoma City, OK 25. 193 301 N.W. 67th Comanche Owned Store Lawton, OK 26. 195 4301 S. May Ave. Oklahoma Own building/Land Leased Oklahoma City, OK 27. 196 2705 N. Harrison Pottawatomie Leased Shawnee, OK 28. 197 11241 W. Reno Canadian Leased Oklahoma City (Yukon), OK 29. 200 1724 W. Lindsey Rd. Cleveland Leased Norman, OK
STORE NO. ADDRESS COUNTY COMMENTS - --------- ---------------- ----------- --------------------- 30. 204 115 E. Hiway 152 Canadian Leased Mustang, OK 31. 206 11120 N. Rockwell Oklahoma Owned Store Oklahoma City, OK 32. 207 9320 N. Penn Oklahoma Leased Oklahoma City, OK 33. 208 2205 W. Edmond Rd. Oklahoma Owned Store Edmond, OK 34. 457 3948 S. Peoria Tulsa Leased Tulsa, OK 35. 495 310 W. Trudgeon Okmulgee Owned Store Henryetta, OK 36. 502 2235 E. 61st St. Tulsa Leased Tulsa, OK 37. 503 1110 S. Denver Tulsa Leased Tulsa, OK 38. 515 915 S. Madison Washington Leased Bartlesville, OK 39. 528 12011 S. Memorial Tulsa Leased Bixby, OK 40. 529 3405 S. Georgia Randall Leased Amarillo, TX 41. 538 504 E. Graham Mayes Owned Store Pryor, OK 42. 545 12572 East 21st St. Tulsa Owned Store Tulsa, OK 43. 549 400 Plaza Court Tulsa Leased Sand Springs, OK 44. 550 6402 E. Pine Tulsa Leased Tulsa, OK 45. 553 575 N. Gilcrease Museum Osage Leased Road Tulsa, OK
STORE NO. ADDRESS COUNTY COMMENTS - --------- ---------------- ----------- --------------------- 46. 561 708 S. Aspen Tulsa Leased Broken Arrow, OK 47. 563 811 E. Frank Phillips Blvd. Washington Owned Store Bartlesville, OK 48. 567 3139 S. Harvard Tulsa Leased Tulsa, OK 49. 573 19302 E. Admiral Blvd. Wagoner Leased Tulsa, OK 50. 574 2351 E. Kenosha Tulsa Owned Store Broken Arrow, OK 51. 578 700 E. Cherokee Wagoner Leased Wagoner, OK 52. 582 230 W. 1st Moore Leased Dumas, TX 53. 587 101 W. 10th St. Hutchinson Leased Borger, TX 54. 598 401 S. Western Patternson Owned Store Closed - May Amarillo, TX 29, 1998. 55. 600 7302 S.W. 34th Randall Leased Amarillo, TX 56. 601 4111 Plains Potter Leased Amarillo, TX 57. 603 3505 N.E. 24th Potter Leased Amarillo, TX 58. 604 202 N. 23rd Randall Leased Canyon, TX 59. 605 535 N. 25 Mile Ave. Deaf Smith Leased Hereford, TX 60. 677 5811 S. Western Randall Owned Store Amarillo, TX 61. 778 4001 S. 97 Highway Tulsa Leased Sand Springs, OK
STORE NO. ADDRESS COUNTY COMMENTS - --------- ---------------- ----------- -------------------- 62. 793 7001 Northwest Oklahoma Leased Expressway Oklahoma City, OK 63. 794 2121 N.W. 23rd Oklahoma Leased Oklahoma City, OK 64. 795 1202 N.W. 40th Comanche Leased Lawton, OK 65. 796 10700 S. Penn Cleveland Leased Oklahoma City, OK 66. 850 316 E. Main Osage Leased Pawhuska, OK 67. 851 702 Fir Street Noble Leased Perry, OK 68. 852 305 S. Broadway Pawnee Leased Cleveland, OK 69. 853 1629 S. Main Delaware Leased Jay, OK 70. 854 310 S. Main Kay Leased Blackwell, OK 71. 855 108 S. Division Okfuskee Leased Okemah, OK 72. 856 813 E. Cherokee Nowata Leased Nowata, OK 73. 857 102 Haskell Blvd. Muskogee Leased Haskell, OK 74. 880 3115 W. Okmulgee St. Muskogee Leased Muskogee, OK 75. 881 1300 S. York Muskogee Leased Muskogee, OK 76. 882 800 E. Okmulgee Muskogee Leased Muskogee, OK 77. 883 6 East Shawnee Muskogee Leased Muskogee, OK
STORE NO. ADDRESS COUNTY COMMENTS - --------- ---------------- ----------- --------------------- 78. 886 24 S.E. 33rd Street Oklahoma Leased Edmond, OK 79. 887 2213 S.W. 74th Street Oklahoma Leased Oklahoma City, OK
EXHIBIT A TO SECURITY AGREEMENT POWER OF ATTORNEY This Power of Attorney is executed and delivered by ______________, a Delaware corporation ("Grantor") to Associated Wholesale Grocers, Inc., a Missouri corporation (hereinafter referred to as "Attorney"), as Lender under a Credit Agreement and a Security Agreement, both dated as of _________, ___ 2001, and other related documents (the "Loan Documents"). No person to whom this Power of Attorney is presented, as authority for Attorney to take any action or actions contemplated hereby, shall be required to inquire into or seek confirmation from Grantor as to the authority of Attorney to take any action described below, or as to the existence of or fulfillment of any condition to this Power of Attorney, which is intended to grant to Attorney unconditionally the authority to take and perform the actions contemplated herein, and Grantor irrevocable waives any right to commence any suit or action, in law or equity, against any person or entity which acts in reliance upon or acknowledges the authority granted under this Power of Attorney. The power of attorney granted hereby is coupled with an interest, and may not be revoked or canceled by Grantor without Attorney's written consent. Grantor hereby irrevocably constitutes and appoints Attorney (and all officers, employees or agents designated by Attorney), with full power of substitution, as Grantor's true and lawful attorney-in-fact with full irrevocable power and authority in the place and stead of Grantor and in the name of Grantor or in its own name, from time to time in Attorney's discretion, to take any and all appropriate action and to execute and deliver any and all documents and instruments which may be necessary or desirable to accomplish the purposes of the Loan Documents and, without limiting the generality of the foregoing, Grantor hereby grants to Attorney the power and right, on behalf of Grantor, without notice to or assent by Grantor, and at any time, to do the following: (a) change the mailing address of Grantor, open a post office box on behalf of Grantor, open mail for Grantor, and ask, demand, collect, give acquittances and receipts for, take possession of, endorse any invoices, freight or express bills, bills of lading, storage or warehouse receipts, drafts against debtors, assignments, verifications, and notices in connection with any property of Grantor; (b) effect any repairs to any asset of Grantor, or continue or obtain any insurance and pay all or any part of the premiums therefor and costs thereof, and make, settle and adjust all claims under such policies of insurance, and make all determinations and decisions with respect to such policies; (c) pay or discharge any taxes, liens, security interests, or other encumbrances levied or placed on or threatened against Grantor or its property; (d) defend any suit, action or proceeding brought against Grantor if Grantor does not defend such suit, action or proceeding or if Attorney believes that Grantor is not pursuing such defense in a manner that will maximize the recovery to Attorney, and settle, compromise or adjust any suit, action, or proceeding described above and, in connection therewith, give such discharges or releases as Attorney may deem appropriate; (e) file or prosecute any claim, litigation, suit or proceeding in any court of competent jurisdiction or before any arbitrator, or take any other action otherwise deemed appropriate by Attorney for the purpose of collecting any and all such moneys due to Grantor whenever payable and to enforce any other right in respect of Grantor's property; (f) cause the certified public accountants then engaged by Grantor to prepare and deliver to Attorney at any time and from time to time, promptly upon Attorney's request, the following reports: (1) a reconciliation of all accounts, (2) an aging of all accounts, (3) trial balances, (4) test verifications of such accounts as Attorney may request, and (5) the results of each physical verification of inventory; (g) communicate in its own name with any party to any Contract (as defined in the Loan Documents) with regard to the assignment of the right, title and interest of such Grantor in and under the Contracts and other matters relating thereto; and (h) execute, in connection with any sale provided for in any Loan Document, any endorsements, assignments or other instruments of conveyance or transfer with respect to the Collateral (as defined in the Loan Documents) and to otherwise direct such sale or resale, all as though Attorney were the absolute owner of the property of Grantor for all purposes, and to do, at Attorney's option and Grantor's expense, at any time or from time to time, all acts and other things that Attorney reasonably deems necessary to perfect, preserve, or realize upon Grantor's property or assets and Attorney's Liens thereon, all as fully and effectively as Grantor might do. Grantor hereby ratifies, to the extent permitted by law, all that said Attorney shall lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, this Power of Attorney is executed by Grantor, and Grantor has caused its seal to be affixed pursuant to the authority of its board of directors this ____________ day of ______________, 20____. ATTEST: By: (SEAL) --------------------------------- Title: ------------------------------------ EX-10.AAC 5 d91648ex10-aac.txt CREDIT AGREEMENT DATED AUGUST 15, 2001 EXHIBIT 10aac ================================================= LOAN AND SECURITY AGREEMENT ================================================= FLEET RETAIL FINANCE INC. ADMINISTRATIVE AGENT COLLATERAL AGENT ================================================= FLEET RETAIL FINANCE INC. THE REVOLVING CREDIT LENDER ================================================= BACK BAY CAPITAL FUNDING LLC THE TERM LENDER HOMELAND STORES, INC. THE BORROWER ================================================= DEBTOR IN POSSESSION August 15, 2001 -1- TABLE OF CONTENTS ARTICLE 1 - DEFINITIONS: ARTICLE 2 - THE REVOLVING CREDIT: 2-1. Establishment of Revolving Credit ........................................... 46 2-2. Advances in Excess of Borrowing Base (OverLoans) ............................ 47 2-3. Risks of Value of Collateral ................................................ 47 2-4. Commitment to Make Revolving Credit Loans and Support Letters of Credit ..... 47 2-5. Revolving Credit Loan Requests .............................................. 47 2-6. Suspension of Revolving Credit .............................................. 49 2-7. Making of Revolving Credit Loans ............................................ 50 2-8. The Loan Account ............................................................ 50 2-9. The Revolving Credit Notes .................................................. 52 2-10. Payment of The Loan Account ................................................. 52 2-11. Interest on Revolving Credit Loans .......................................... 53 2-12. Revolving Credit Commitment Fee ............................................. 54 2-13. Unused Line Fee; Facility Fee ............................................... 54 2-14. Early Termination Fee ....................................................... 54 2-15. Concerning Fees ............................................................. 55 2-16. Agents' and Lenders' Discretion ............................................. 55 2-17. Procedures For Issuance of L/C's ............................................ 56 2-18. Fees For L/C's .............................................................. 57 2-19. Concerning L/C's ............................................................ 59 2-20. Changed Circumstances ....................................................... 60 ARTICLE 3 - THE TERM LOAN: 3-1. Commitment To Make Term Loan ................................................ 61 3-2. The Term Note ............................................................... 62 3-3. Payment of Principal of the Term Loan ....................................... 62 3-4. Interest On The Term Loan ................................................... 63 3-5. TERM LOAN COMMITMENT; FEE TERM LOAN FACILITY FEE ............................ 64 3-6. Payments On Account of Term Loan ............................................ 64 ARTICLE 4 - CONDITIONS PRECEDENT: 4-1. Corporate Due Diligence ..................................................... 65 4-2. Opinion ..................................................................... 65 4-3. Additional Documents ........................................................ 65 4-4. Officers' Certificates ...................................................... 66 4-5. Borrowing Order ............................................................. 66 4-6. Representations and Warranties .............................................. 66
-2- 4-7. All Fees and Expenses Paid .................................................. 67 4-8. ADDITIONAL ADVANCES BY AWG .................................................. 67 4-9. Completion of Due Diligence ................................................. 67 4-10. CONSENTS .................................................................... 67 4-11. Litigation .................................................................. 67 4-12. Accuracy of Financial Information ........................................... 67 4-13. Absence of Liens ............................................................ 68 4-14. No Default .................................................................. 68 4-15. No Adverse Change ........................................................... 68 4-16. Change in Policies .......................................................... 68 4-17. Benefit of Conditions Precedent ............................................. 68 ARTICLE 5 - GENERAL REPRESENTATIONS, COVENANTS AND WARRANTIES: 5-1. Payment and Performance of Liabilities ...................................... 69 5-2. Due Organization. Authorization. No Conflicts ............................... 69 5-3. Trade Names ................................................................. 70 5-4. Infrastructure .............................................................. 70 5-5. Locations ................................................................... 71 5-6. Encumbrances ................................................................ 72 5-7. Indebtedness ................................................................ 72 5-8. Insurance ................................................................... 73 5-9. Licenses .................................................................... 74 5-10. Leases ...................................................................... 74 5-11. Requirements of Law ......................................................... 74 5-12. Labor Relations ............................................................. 74 5-13. Maintain Properties ......................................................... 75 5-14. Taxes ....................................................................... 76 5-15. No Margin Stock ............................................................. 77 5-16. ERISA ....................................................................... 77 5-17. Hazardous Materials ......................................................... 78 5-18. Litigation .................................................................. 78 5-19. Dividends. Investments. Corporate Action .................................... 78 5-20. Loans ....................................................................... 79 5-21. Protection of Assets ........................................................ 80 5-22. Line of Business ............................................................ 80 5-23. Affiliate Transactions ...................................................... 80 5-24. Further Assurances .......................................................... 80 5-25. Adequacy of Disclosure ...................................................... 81 5-26. No Restrictions on Liabilities .............................................. 82 5-27. AWG Indebtedness ............................................................ 82 5-28. BANKRUPTCY PROTECTIONS ...................................................... 84 5-29. AWG DOCUMENTS ............................................................... 84 5-30. RESTRUCTURING CONSULTANT .................................................... 85 5-31. Other Covenants ............................................................. 85
-3- ARTICLE 6 FINANCIAL REPORTING AND PERFORMANCE COVENANTS: 6-1. Maintain Records ............................................................ 85 6-2. Access to Records ........................................................... 86 6-3. Immediate Notice to Administrative Agent .................................... 86 6-4. Borrowing Base Certificate .................................................. 89 6-5. Weekly Reports .............................................................. 89 6-6. Monthly Reports ............................................................. 89 6-7. Quarterly Reports ........................................................... 90 6-8. Annual Reports .............................................................. 91 6-9. Officers' Certificates ...................................................... 92 6-10. Inventories, Appraisals, and Audits ......................................... 92 6-11. Additional Financial Information ............................................ 93 ARTICLE 7 - USE OF COLLATERAL: 7-1. Use of Inventory Collateral ................................................. 94 7-2. Inventory Quality ........................................................... 95 7-3. Adjustments and Allowances .................................................. 95 7-4. Validity of Accounts ........................................................ 95 7-5. Notification to Account Debtors ............................................. 96 ARTICLE 8 - CASH MANAGEMENT. PAYMENT OF LIABILITIES: 8-1. Depository Accounts ......................................................... 96 8-2. Credit Card Receipts ........................................................ 97 8-3. The Concentration, Blocked, and Operating Accounts .......................... 97 8-4. Proceeds and Collections .................................................... 98 8-5. Payment of Liabilities ...................................................... 99 8-6. The Operating Account ....................................................... 100 ARTICLE 9 - GRANT OF SECURITY INTEREST: 9-1. Grant of Security Interest .................................................. 100 9-2. Real estate and leasehold interests ......................................... 101 9-3. Extent and Duration of Security Interest .................................... 102 ARTICLE 10 - ADMINISTRATIVE AGENT AS BORROWER'S ATTORNEY-IN-FACT: 10-1. Appointment as Attorney-In-Fact ............................................. 102 10-2. No Obligation to Act ........................................................ 103 ARTICLE 11 - EVENTS OF DEFAULT: 11-1. Failure to Pay the Revolving Credit or the Term Loan ........................ 104 11-2. Failure To Make Other Payments .............................................. 104 11-3. Failure to Perform Covenant or Liability (No Grace Period) .................. 104
-4- 11-4. Failure to Perform Covenant or Liability (Grace Period) ..................... 104 11-5. Misrepresentation ........................................................... 104 11-6. Other Debt. Breach of Lease ................................................. 104 11-7. Default Under Other Agreements .............................................. 105 11-8. Uninsured Casualty Loss ..................................................... 105 11-9. Attachment. Judgment. Restraint of Business ................................. 105 11-10. Default by Guarantor ........................................................ 105 11-11. Indictment - Forfeiture ..................................................... 105 11-12. Termination of Guaranty ..................................................... 106 11-13. Challenge to Loan Documents ................................................. 106 11-15. Change in Control ........................................................... 106 11-16. Change in Borrowing Order ................................................... 106 11-17. Appointment of Trustee or Examiner .......................................... 106 11-18. Conversion of Case .......................................................... 106 11-19. Relief From Stay ............................................................ 106 11-20. Termination of Business ..................................................... 107 11-21. CERTAIN APPLICATIONS ........................................................ 107 11-22. PAYMENT OF PRE-PETITION INDEBTEDNESS ........................................ 107 11-23. ADEQUATE PROTECTION ORDERS .................................................. 107 11-24. MATERIAL ADVERSE ACTIONS .................................................... 107 11-25. Restructuring Consultant .................................................... 108 11-26. Default Under AWG Documents ................................................. 108 ARTICLE 12 - RIGHTS AND REMEDIES UPON DEFAULT: 12-1. Acceleration ................................................................ 108 12-2. Rights of Enforcement ....................................................... 108 12-3. Sale of Collateral .......................................................... 109 12-4. Occupation of Business Location ............................................. 110 12-5. Grant of Nonexclusive License ............................................... 111 12-6. Assembly of Collateral ...................................................... 111 12-7. Rights and Remedies ......................................................... 111 ARTICLE 13 - DISTRIBUTIONS: 13-1. Ordinary Course Distributions: Revolving Credit ............................. 112 13-2. Ordinary Course Distributions: Term Loan .................................... 112 ARTICLE 14 - ACCELERATION AND LIQUIDATION: 14-1. Acceleration Notices ........................................................ 112 14-2. Mandatory Acceleration Right of The Term Lender: ............................ 113 14-3. Acceleration ................................................................ 113 14-4. Initiation of Liquidation ................................................... 114 14-5. Collateral Agent's Conduct of Liquidation ................................... 114 14-6. Distribution of Liquidation Proceeds: ....................................... 115
-5- 14-7. Relative Priorities To Proceeds of Liquidation .............................. 115 ARTICLE 15 - THE AGENTS: 15-1. Appointment of The Agent .................................................... 116 15-2. Responsibilities of Agents .................................................. 116 15-3. Concerning Distributions By the Agents ...................................... 118 15-4. Dispute Resolution: ......................................................... 118 15-5. Distributions of Notices and of Documents ................................... 119 15-6. Confidential Information .................................................... 119 15-7. Reliance by Agents .......................................................... 120 15-8. Non-Reliance on Agents and Other Lenders .................................... 120 15-9. Indemnification ............................................................. 121 ARTICLE 16 - ACTION BY AGENTS - CONSENTS - AMENDMENTS - WAIVERS: 16-1. Administration of Credit Facilities ......................................... 121 16-2. Action Requiring Certain Consent ............................................ 121 16-3. Actions Requiring Agents' Consent ........................................... 122 16-4. Miscellaneous Actions ....................................................... 123 16-5. Actions Requiring Borrower's Consent ........................................ 123 ARTICLE 17 - NOTICES: 17-1. Notice Addresses ............................................................ 123 17-2. Notice Given ................................................................ 124 17-3. Wire Instructions. Notice Given ............................................. 125 ARTICLE 18 - TERM: 18-1. Termination of Revolving Credit ............................................. 125 18-2. Actions On Termination ...................................................... 125 ARTICLE 19 - GENERAL: 19-1. Protection of Collateral .................................................... 126 19-2. Publicity ................................................................... 127 19-3. Successors and Assigns ...................................................... 127 19-4. Severability ................................................................ 127 19-5. Amendments. Course of Dealing ............................................... 127 19-6. Power of Attorney ........................................................... 128 19-7. Application of Proceeds .................................................... 128 19-8. Increased Costs ............................................................. 128 19-9. Costs and Expenses of the Agents ............................................ 129 19-10. Copies and Facsimiles ....................................................... 130 19-11. Massachusetts Law ........................................................... 130 19-12. Indemnification ............................................................. 130
-6- 19-13. Rules of Construction ....................................................... 131 19-14. Intent ...................................................................... 133 19-15. Participations: ............................................................. 133 19-16. Right of Set-Off ............................................................ 133 19-17. Pledges To Federal Reserve Banks: ........................................... 134 19-18. Maximum Interest Rate ....................................................... 134 19-19. Waivers ..................................................................... 134
-7- EXHIBITS 1-1 AWG Documents 1-2 Revolving Credit Dollar Commitments 2-9 Revolving Credit Note 2-11 Pricing Grid 3-2 Term Note 4-3 Additional Documents 5-2 Corporate Information 5-3 Trade Names 5-5 Locations, Leases, and Landlords 5-6(a) Encumbrances 5-6(b) Consigned Inventory 5-7 Indebtedness 5-8 Insurance Policies 5-10 Capital Leases 5-12 Collective Bargaining Agreements 5-16 Multi-Employer Plans 5-18 Litigation 5-19 Existing Investments 6-4 Borrowing Base Certificate 8-1 DDA's. 8-2 Credit Card Arrangements
-8- ================================================================================ LOAN AND SECURITY AGREEMENT FLEET RETAIL FINANCE INC. ADMINISTRATIVE AND COLLATERAL AGENT ================================================================================ August 15, 2001 THIS AGREEMENT is made amongst Fleet Retail Finance Inc. (in such capacity, the "ADMINISTRATIVE AGENT"), a Delaware corporation with offices at 40 Broad Street, Boston, Massachusetts 02109, as Administrative Agent for the ratable benefit of the (i) the Collateral Agent, (ii) the Revolving Credit Lender and (iii) the Term Lender; and Fleet Retail Finance Inc. (in such capacity, the "COLLATERAL AGENT"), a Delaware corporation with offices at 40 Broad Street, Boston, Massachusetts 02109, as Collateral Agent for the ratable benefit of the Administrative Agent, the Revolving Credit Lender, and the Term Lender; and Fleet Retail Finance Inc., a Delaware corporation with offices at 40 Broad Street, Boston, Massachusetts 02109, as Revolving Credit Lender; and Back Bay Capital Funding LLC, a Delaware Limited Liability Company with offices at 40 Broad Street, Boston, Massachusetts 02109, as Term Lender and Homeland Stores, Inc. (the "BORROWER"), a Delaware corporation with its principal executive offices at 2601 NW Expressway, Suite 1100E, Oklahoma City, Oklahoma 73112 in consideration of the mutual covenants contained herein and benefits to be derived herefrom, -9- WITNESSETH: ARTICLE 1 - DEFINITIONS: As used herein, the following terms have the following meanings or are defined in the section of this Agreement so indicated: "ACCELERATION": The making of a demand or declaration that any indebtedness, not otherwise due and payable, is due and payable. Derivations of the word "Acceleration" (such as "Accelerate") are used with like meaning in this Agreement. "ACCELERATION NOTICE": Written notice as follows: (a) From the Administrative Agent to the Collateral Agent and the Lenders, as provided in Section 14-1(a). (b) From the Revolving Credit Lender to the Administrative Agent, as provided in Section 14-(b). (c) From the Term Lender to the Administrative Agent, as provided in Section 14-(c). "ACCOUNT DEBTOR": Has the meaning given that term in the UCC. "ACCOUNTS" and "ACCOUNTS RECEIVABLE" include, without limitation, "accounts" as defined in the UCC, and also all: present and future rights of payment for goods sold or leased or for services rendered, which are not evidenced by instruments or chattel paper, and whether or not earned by performance, including, without limitation, accounts, accounts receivable, receivables, and rights to payment for: property that has been or is to be sold, leased, licensed, assigned, or otherwise disposed of; services rendered or to be rendered; a policy of insurance issued or to be issued; a secondary obligation incurred or to be incurred; energy provided or to be provided; for the use or hire of a vessel; arising out of the use of a credit or charge card or information contained on or used with that card; winnings in a lottery or other game of chance; and Health-Care-Insurance receivables; and -10- also all Inventory which gave rise thereto, and all rights associated with such Inventory, including the right of stoppage in transit; all reclaimed, returned, rejected or repossessed Inventory (if any) the sale of which gave rise to any Account. "ACH": Automated clearing house. "ADMINISTRATIVE AGENT": Defined in the Preamble. "AFFILIATE": The following (but specifically excluding AWG as of the date of this Agreement based upon AWG's current relationship with the Borrower and the Guarantors): (a) With respect to any two Persons, a relationship in which (i) one holds, directly or indirectly, not less than ten percent (10%) of the capital stock, beneficial interests, partnership interests, or other equity interests of the other; or (ii) one has, directly or indirectly, the right, under ordinary circumstances, to vote for the election of a majority of the directors (or other body or Person who has those powers customarily vested in a board of directors of a corporation); or (iii) not less than ten percent (10%) of their respective ownership is directly or indirectly held by the same third Person; or (iv) one Person otherwise, directly or indirectly, controls, is controlled by or is under common control with the other Person. "Control" of a Person means the power, directly or indirectly, (A) to vote 10% or more of the securities (on a fully diluted basis) or other equity or membership interests having ordinary voting power for the election of directors, managing members or general partners (as applicable) or (B) to direct or cause the direction of the management and policies of such Person. (b) Any Person which: is a parent, brother-sister, subsidiary, or affiliate, of the Borrower; could have such enterprise's tax returns or financial statements consolidated with the Borrower's; could be a member of the same controlled group of corporations (within the meaning of Section 1563(a)(1), (2) and (3) of the Internal Revenue Code of 1986, as amended from time to time) of -11- which the Borrower is a member; or controls or is controlled by the Borrower. "AGENT": When not preceded by "Administrative" or "Collateral", the term "Agent" refers collectively and individually to the Administrative Agent and the Collateral Agent. "AGENT'S RIGHTS AND REMEDIES": Is defined in Section 12-7. "AMORTIZATION AMOUNT": As to any Eligible Fee Real Estate and any Eligible Leaseholds, an amount equal to 1/24 of the FLV thereof multiplied by, as of the time of calculation, the number of months which have elapsed since the Closing Date. "APPLICABLE LAW": As to any Person: (i) All statutes, rules, regulations, orders, or other requirements having the force of law and (ii) all court orders and injunctions, arbitrator's decisions, and/or similar rulings, in each instance ((i) and (ii)) of or by any federal, state, municipal, and other governmental authority, or court, tribunal, panel, or other body which has or claims jurisdiction over such Person, or any property of such Person, or of any other Person for whose conduct such Person would be responsible. "APPRAISED INVENTORY LIQUIDATION VALUE": The product of (a) the Cost of Eligible Inventory (net of Inventory Reserves) multiplied by (b) that percentage, determined from the then most recent appraisal of the Borrower's Inventory undertaken at the request of the Administrative Agent, to reflect the appraiser's estimate of the net recovery on the Borrower's Inventory in the event of an in-store liquidation of that Inventory. "APPRAISED INVENTORY PERCENTAGE": 85%. "ASSETS": means and refers to all real and personal property owned by the -12- Borrower, the Parent or any direct or indirect subsidiary of the Parent or the Borrower, including, without limitation, the Borrower's accounts, inventory, equipment, general intangibles, payment intangibles, leasehold interests, real estate, and investment property. "AVAILABILITY": The result of the following (a) The lesser of (i) The sum of (A) the Revolving Credit Ceiling, plus (B) the then outstanding principal balance of the Term Loan or (ii) The Borrowing Base Minus (b) The aggregate unpaid balance of the Loan Account. Minus (c) The aggregate undrawn Stated Amount of all then outstanding L/C's. Minus (d) The aggregate of the Availability Reserves. Minus (e) The aggregate unpaid balance of the Term Loan. Minus (f) The Carve Out. Minus (g) The Excess Availability Amount. "AVAILABILITY BREACH": Availability is less than zero. "AVAILABILITY RESERVES": Such reserves as the Administrative Agent from time to time determines in the Administrative Agent's discretion as being appropriate to reflect events, conditions, or risks that in the Administrative Agent's -13- determination affect the Collateral Agent's ability to realize upon the Collateral. Without limiting the generality of the foregoing, Availability Reserves may include (but are not limited to) reserves based on the following: (i) Rent. (ii) Customer Credit Liabilities. (iii) Taxes and other governmental charges, including, ad valorem, personal property, and other taxes which might have priority over the Collateral Interests of the Collateral Agent in the Collateral. (iv) L/C Landing Costs. (v) Payables which are subject to the Perishable Agricultural Commodities Act, the Packers and Stockyard Act, and other similar statutes. (vi) all then past due obligations of the Borrower arising subsequent to the commencement of the Proceedings, including accounts payable which are beyond customary trade terms "AVERAGE AVAILABILITY": The average amount of Availability at the close of each day of the period in respect of which Average Availability is being determined. "AWG": Associated Wholesale Grocers, Inc., a Missouri corporation. "AWG CREDIT AGREEMENT" is described on EXHIBIT 1-1, annexed hereto. "AWG DIP AGREEMENTS" means the AWG Credit Agreement, AWG Post-Petition Supply Agreement, and certain other loan documents which have been approved by the Bankruptcy Court in the Proceedings. "AWG DOCUMENT(S)" means individually and collectively, the AWG Credit Agreement, the AWG DIP Agreements, the AWG Leases, the AWG Supply Protection Agreements, the AWG Pre-Petition Agreements, the AWG Pre-Petition Supply Agreements and the DIP Supply Agreements and all instruments, documents and agreements executed in connection with any -14- of the foregoing "AWG LEASES" are described on EXHIBIT 1-1, annexed hereto. "AWG NON-COMPETITION AGREEMENT" means those Non-Competition Agreements among the Borrower, the Parent and AWG described on EXHIBIT 1-1, annexed hereto. "AWG POST-PETITION LOAN": is described on EXHIBIT 1-1, annexed hereto. "AWG POST-PETITION SUPPLY AGREEMENT": is described on EXHIBIT 1-1, annexed hereto. "AWG PRE-PETITION AGREEMENTS": are described on EXHIBIT 1-1, annexed hereto. "AWG PRE-PETITION LOAN": is described on EXHIBIT 1-1, annexed hereto. "AWG PRE-PETITION SUPPLY AGREEMENTS": are described on EXHIBIT 1-1, annexed hereto. "AWG ROFR" means those Right of First Refusal Agreements among the Borrower, the Parent and AWG described on EXHIBIT 1-1, annexed hereto. "AWG SUPPLY PROTECTION AGREEMENTS" means, collectively, the AWG Non- Competition Agreements, the AWG Use Restrictions, the AWG ROFR, and any other of the AWG Documents which (a) grant AWG or its affiliates a right of first refusal on any sale of Assets, (b) place any limitations on the use of any assets whether owned by the Borrower or a third party, or (c) which restrict the Borrower's right to sell or otherwise transfer any Assets. "AWG USE RESTRICTION" means those Use Restrictions (Fee) and Use Restrictions (Lease) between the Borrower and AWG described on EXHIBIT 1-1, annexed hereto. -15- "BANKRUPTCY BREACH": Any of the following: (a) Any breach of Section 5-28; (b) The occurrence of any Event of Default described in any of Sections 11-16 through and including 11-23. "BANKRUPTCY CODE": Title 11, U.S.C., as amended from time to time. "BANKRUPTCY RECOVERIES": Any claim or recovery realized by the Borrower or which the Borrower may be entitled to assert by reason of any avoidance or other power vested in or on behalf of the Borrower or the estate of the Borrower under the Bankruptcy Code, based upon powers provided for in Chapter 5 thereof. "BASE": The Base Rate announced from time to time by Fleet National Bank (or any successor in interest to Fleet National Bank). In the event that said bank (or any such successor) ceases to announce such a rate, "Base" shall refer to that rate or index announced or published from time to time as the Administrative Agent, in good faith, designates as the functional equivalent to said Base Rate. Any change in "Base" shall be effective, for purposes of the calculation of interest due hereunder, when such change is made effective generally by the bank on whose rate or index "Base" is being set. "BASE MARGIN LOAN": Each Revolving Credit Loan while bearing interest at the Base Margin Rate. "BASE MARGIN RATE": As provided in the Pricing Grid (EXHIBIT 2-11). "BLOCKED ACCOUNT": Any DDA into which the contents of any other DDA is transferred. "BLOCKED ACCOUNT AGREEMENT": An Agreement, in form satisfactory to the Administrative Agent, which Agreement recognizes the Collateral Agent's Collateral Interest in the contents of the DDA which is the subject of such Agreement and agrees that such contents shall be transferred only to the -16- Concentration Account or as otherwise instructed by an Agent. "BORROWER": Is defined in the Preamble. "BORROWING BASE": The aggregate of the following: (a) The face amount of Eligible Receivables (net of Receivables Reserves) multiplied by the Receivables Advance Rate. Plus (b) The lesser of (i) the Cost of Eligible Inventory (net of Inventory Reserves) multiplied by the Inventory Advance Rate or (ii) the Appraised Inventory Percentage of the Appraised Inventory Liquidation Value. Plus (c) The (i) Real Estate Advance Rate multiplied by the difference between (A) the FLV of Eligible Fee Real Estate, minus (B) the Amortization Amount, and (ii) minus Realty Reserves. Plus (d) The (i) Leasehold Advance Rate multiplied by the difference between (A) the FLV of Eligible Leaseholds, minus (B) the Amortization Amount, and (ii) minus Realty Reserves. provided that the amounts available to be borrowed and calculated under clauses (d) and (e) of this definition shall not exceed at any time the following percentages of the aggregate Borrowing Base for the following periods, which maximum percentages may be reduced at any time upon the request of the Borrower, but may not be subsequently increased:
MAXIMUM PERCENTAGE OF PERIOD BORROWING BASE - ----------------------- --------------------- Closing Date through 35% December 31, 2001 January 1, 2002 through 30% March 31, 2002
-17-
MAXIMUM PERCENTAGE OF PERIOD BORROWING BASE - ----------------------- --------------------- April 1, 2002 through June 25% 30, 2002 July 1, 2002 through 20% September 30, 2002 October 1, 2002 through 15% December 31, 2002 January 1, 2003 through 10% March 31, 2003 April 1, 2003 though June 30, 5% 2003 July 1, 2003 and thereafter 0%
"BORROWING BASE CERTIFICATE": Is defined in Section 6-4. "BORROWING ORDER": An order, in form satisfactory to the Administrative Agent and the Lenders entered in the Proceedings, which order authorizes the creation of the credit facilities contemplated by this Agreement, as such Order may from time to time be amended with the written consent of the Administrative Agent and the Lenders. "BUSINESS DAY": Any day other than (a) a Saturday or Sunday; (b) any day on which banks in Boston, Massachusetts or in Oklahoma City, Oklahoma, generally are not open to the general public for the purpose of conducting commercial banking business; or (c) a day on which the principal office of the Administrative Agent is not open to the general public to conduct business. "BUSINESS PLAN": The projections prepared by and for the Parent and its Subsidiaries (including the Borrower) received by the Lenders and dated July 23, 2001. "CAPITAL EXPENDITURES": The expenditure of funds or the incurrence of liabilities -18- which may be capitalized in accordance with GAAP. "CAPITAL LEASE": Any lease which may be capitalized in accordance with GAAP. "CARVE OUT": As defined in the Borrowing Order. "CHANGE IN CONTROL": The occurrence of any of the following: (a) The acquisition, by any group of persons (within the meaning of the Securities Exchange Act of 1934, as amended) or by any Person, of beneficial ownership (within the meaning of Rule 13d-3 of the Securities and Exchange Commission) of 20% or more of the issued and outstanding capital stock of the Parent having the right, under ordinary circumstances, to vote for the election of directors of the Parent. (b) More than half of the persons who were directors of the Parent on the first day of any period consisting of twelve (12) consecutive calendar months (the first of which twelve (12) month periods commencing with the first day of the month during which this Agreement was executed), cease, for any reason other than death or disability, to be directors of the Parent. (c) The failure of the Parent to own 100% of the issued and outstanding capital stock of the Borrower. "CHATTEL PAPER": Has the meaning given that term in the UCC. "CLOSING DATE": The date upon which all conditions precedent to the effectiveness of this Agreement have been satisfied and the initial Revolving Credit Loans and Term Loan are to be made hereunder. "COLLATERAL": Is defined in Section 9-1. "COLLATERAL AGENT": Is defined in the Preamble. -19- "COLLATERAL INTEREST": Any interest in property to secure an obligation, including, without limitation, a security interest, mortgage, and deed of trust. "CONCENTRATION ACCOUNT": Is defined in Section 8-3. "COST" The lower of (a) or (b), where: (a) is the calculated cost of purchases, based upon the Borrower's accounting practices, known to the Administrative Agent, which practices are in effect on the date on which this Agreement was executed as such calculated cost is determined from: invoices received by the Borrower; the Borrower's purchase journal; or the Borrower's stock ledger; or the Borrower's general ledger. (b) is the cost equivalent of the lowest ticketed or promoted price at which the subject Inventory is offered to the public, after all mark-downs (whether or not such price is then reflected on the Borrower's accounting system), which cost equivalent is determined in accordance with the retail method of accounting, reflecting the Borrower's historic business practices. "Cost" does not include inventory capitalization costs or other non-purchase price charges (such as freight) used in the Borrower's calculation of cost of goods sold. "COSTS OF COLLECTION": Includes, without limitation, all reasonable attorneys' fees and reasonable out-of-pocket expenses incurred by any Agent's or either Initial Lender's attorneys, and all reasonable out-of-pocket costs incurred by any Agent or either Initial Lender in the administration of the Liabilities and/or the Loan Documents, including, without limitation, reasonable costs and expenses associated with travel on behalf of any Agent or either Initial Lender, where such costs and expenses are directly or indirectly related to or in respect of any Agent's or either Initial Lender's: administration and management of the Liabilities; negotiation, documentation, and amendment of any Loan Document; or efforts to preserve, protect, collect, or enforce the Collateral, the Liabilities, -20- and/or the Agents' Rights and Remedies and/or any of the rights and remedies of any Agent or either Initial Lender against or in respect of any guarantor or other person liable in respect of the Liabilities (whether or not suit is instituted in connection with such efforts). The Costs of Collection are Liabilities, and at the Administrative Agent's option may bear interest at the highest rate applicable to Base Margin Loans, plus, three (3%) percent. "CURRENT PAY INTEREST": Is defined in Section 3-4(a)(i). "CUSTOMER CREDIT LIABILITY": Gift certificates, customer deposits, merchandise credits, layaway obligations, frequent shopping programs, and similar liabilities of the Borrower to its retail customers and prospective customers. "DDA": Any checking or other demand daily depository account maintained by the Borrower other than any Exempt DDA. "DEFAULT": Any occurrence, circumstance, or state of facts with respect to the Borrower which (a) is an Event of Default; or (b) would become an Event of Default if any requisite notice were given and/or any requisite period of time were to run and such occurrence, circumstance, or state of facts were not absolutely cured within any applicable grace period. "DEPOSIT ACCOUNT": Has the meaning given that term in the UCC and also includes all demand, time, savings, passbook, or similar accounts maintained with a bank. "DOCUMENTS": Has the meaning given that term in the UCC "DOCUMENTS OF TITLE": Has the meaning given that term in the UCC. "EBITDAR": The Net Income of the Parent and its Subsidiaries (including the Borrower) (exclusive of all amounts in respect of any extraordinary, unusual or -21- non-recurring gains or losses), before interest, taxes, depreciation, amortization, restructuring expenses directly related to the Proceedings, and non-cash expenses and reserves related directly to asset divestitures, each as determined in accordance with GAAP. "ELIGIBLE COUPON RECEIVABLES": Accounts due from third party clearing houses to reimburse the Borrower for honoring promotional coupons to the extent that there are no offset rights with respect to such amounts. "ELIGIBLE CREDIT CARD RECEIVABLES": Any Accounts not older than four (4) Business Days on a non-recourse basis from major credit card processors (which, if due on account of a private label credit card program, are deemed in the discretion of the Administrative Agent to be eligible). "ELIGIBLE FEE REAL ESTATE": Any Real Estate which otherwise constitutes Eligible Real Estate as to which (a) either (i) the Borrower owns fee title, or (ii) the Borrower is ground lessee under a ground lease the terms and conditions of which are satisfactory to the Collateral Agent in its reasonable discretion; and (b) within thirty (30) days after the entry of the Interim Borrowing Order (or, if earlier, upon the request of the Collateral Agent after the occurrence of a Default), the Borrower has executed and delivered to the Collateral Agent such mortgages and other documents as the Collateral Agent may request (it being understood that during such thirty (30) day period, any Real Estate which otherwise has satisfied the other conditions in this definition shall be deemed Eligible Fee Real Estate); and (c) the Borrower shall have delivered to the Collateral Agent title insurance, environmental studies, appraisals, and other real estate items, as required by, and satisfactory to, the Collateral Agent, including, but not limited to, those items required by -22- FIRREA. "ELIGIBLE INVENTORY": Such of the Borrower's Inventory, at such locations, and of such types, character, qualities and quantities, as the Administrative Agent from time to time determines to be acceptable for borrowing, as to which Inventory, the Collateral Agent has a perfected security interest which is prior and superior to all security interests, claims, and Encumbrances. "ELIGIBLE LEASEHOLD REAL ESTATE": Any Real Estate which is leased to the Borrower (other than under ground leases), which otherwise constitutes Eligible Real Estate and as to which the Borrower has executed and delivered to the Collateral Agent such mortgages and other documents as the Collateral Agent may request, and shall have delivered to the Collateral Agent title insurance, environmental studies, appraisals, and other real estate items, as required by the Collateral Agent, in its sole discretion, including, but not limited to, those items required by FIRREA. "ELIGIBLE REAL ESTATE": Collectively, Eligible Fee Real Estate and Eligible Leasehold Real Estate which satisfies each of the following conditions: (a) the Collateral Agent has a perfected first-priority lien in such properties for the benefit of the Lenders; and (b) each of such properties have been appraised by a third party appraiser acceptable to the Collateral Agent; and (c) the Real Estate is used by the Borrower for offices, as a distribution center, or for the conduct of a retail store business, provided however, no Real Estate which was previously used by the Borrower for the operation of a retail store or offices which is no longer in operation and is "dark" shall be eligible for borrowing unless such Real Estate is actively being marketed for sale in a commercially reasonable manner -23- and has been so marketed for no more than six months; and (d) as to any particular property, as to which the mortgagor is in compliance with the representations, warranties and covenants set forth in the Mortgage relating to such property, unless the Administrative Agent, in its discretion, otherwise determines to waive this requirement in the determination of Eligible Real Estate. "ELIGIBLE RECEIVABLES": Such of the Borrower's Accounts as arise in the ordinary course of the Borrower's business, consisting only of Eligible Credit Card Receivables, Eligible Coupon Receivables, and Eligible Rx Receivables) which Accounts have been determined by the Administrative Agent to be satisfactory and have been earned by performance and are owed to the Borrower by such of the Borrower's trade customers as the Administrative Agent determines to be satisfactory, in the Administrative Agent's sole discretion in each instance. "ELIGIBLE RX RECEIVABLES": Accounts due from third party insurance companies to the Borrower on account of the filling of pre-authorized prescriptions (i.e. adjudicated amounts). "EMPLOYEE BENEFIT PLAN": As defined in ERISA. "ENCUMBRANCE": Each of the following: (a) A Collateral Interest or agreement to create or grant a Collateral Interest; the interest of a lessor under a Capital Lease; conditional sale or other title retention agreement; sale of accounts receivable or chattel paper; or other arrangement pursuant to which any Person is entitled to any preference or priority with respect to the property or assets of another Person or the income or profits of such other Person; each of the foregoing whether consensual or non-consensual and whether arising by way of agreement, operation of law, legal process or otherwise. (b) The filing of any financing statement under the UCC or -24- comparable law of any jurisdiction. (c) Any other security interest, mortgage, pledge, hypothecation, assignment, deposit, arrangement, encumbrance, lieu (statutory or otherwise), charge against or interest in property, or any other priority or preferential arrangement of any kind or nature whatsoever, to secure payment of a debt or performance of an obligation. "END DATE": The date upon which both (a) all Liabilities have been paid in full and (b) all obligations of any Lender to make loans and advances and to provide other financial accommodations to the Borrower hereunder shall have been irrevocably terminated. "ENVIRONMENTAL LAWS": All of the following: (a) Any Applicable Law which regulates or relates to, or imposes any standard of conduct or liability on account of or in respect to environmental protection matters, including, without limitation, Hazardous Materials, as are now or hereafter in effect. (b) The common law relating to damage to Persons or property from Hazardous Materials. "EQUIPMENT": Includes, without limitation, "equipment" as defined in the UCC, and also all furniture, store fixtures, motor vehicles, rolling stock, machinery, office equipment, plant equipment, tools, dies, molds, and other goods, property, and assets which are used and/or were purchased for use in the operation or furtherance of the Borrower's business, and any and all accessions or additions thereto, and substitutions therefor. "ERISA": The Employee Retirement Income Security Act of 1974, as amended. "ERISA AFFILIATE": Any Person which is under common control with the Borrower within the meaning of Section 4001 of ERISA or is part of a group which includes -25- the Borrower and which would be treated as a single employer under Section 414 of the Internal Revenue Code of 1986, as amended. "EURODOLLAR BUSINESS DAY": Any day which is both a Business Day and a day on which the principal market in Eurodollars in which Fleet National Bank participates is open for dealings in United States Dollar deposits. "EURODOLLAR LOAN": Any Revolving Credit Loan which bears interest at a Eurodollar Rate. "EURODOLLAR MARGIN": As provided in the Pricing Grid (EXHIBIT 2-11). "EURODOLLAR OFFER RATE": That rate of interest (rounded upwards, if necessary, to the next 1/100 of 1%) determined by the Administrative Agent to be the highest prevailing rate per annum at which deposits on U.S. Dollars are offered to Fleet National Bank, by first-class banks in the Eurodollar market in which Fleet National Bank participates at or about 10:00AM (Boston Time) two (2) Eurodollar Business Days before the first day of the Interest Period for the subject Eurodollar Loan, for a deposit approximately in the amount of the subject loan for a period of time approximately equal to such Interest Period. "EURODOLLAR RATE": That per annum rate which is the aggregate of the Eurodollar Offer Rate plus the Eurodollar Margin except that, in the event that the Administrative Agent determines that the Revolving Credit Lender may be subject to the Reserve Percentage, the "Eurodollar Rate" shall mean, with respect to any Eurodollar Loans then outstanding (from the date on which that Reserve Percentage first became applicable to such loans), and with respect to all Eurodollar Loans thereafter made, an interest rate per annum equal the sum of (a) plus (b), where: (a) is the decimal equivalent of the following fraction: Eurodollar Offer Rate --------------------- 1 minus Reserve Percentage -26- (b) is the applicable Eurodollar Margin. "EVENTS OF DEFAULT": Is defined in Article 11. An "Event of Default" shall be deemed to have occurred and to be continuing unless and until that Event of Default has been duly waived by the requisite Lenders or by the Administrative Agent as applicable. "EXCESS AVAILABILITY AMOUNT": The greater of (i) $3,500,000, or (ii) fifteen percent (15%) of the Borrowing Base (without regard to the deduction of the Excess Availability Amount) as of each date of calculation. "EXEMPT DDA": A depository account maintained by the Borrower, the only contents of which may be transfers from the Operating Account and actually used solely (i) for petty cash purposes; or (ii) for payroll. "FACILITY FEE": Is defined in Section 2-13(b). "FARM PRODUCTS": Has the meaning given that term in the UCC. "FLV": As to any Eligible Real Estate, the forced liquidation value of such Eligible Real Estate determined in accordance with an independent appraisal acceptable to the Administrative Agent, which appraisal shall assume, among other things, a marketing time of not greater than six (6) months. In making such determination, the Administrative Agent may only rely on the most recent appraisal acceptable to the Administrative Agent, or in its discretion, may undertake an additional appraisal in accordance with Section 6-10, below. "FINAL BORROWING ORDER": A Borrowing Order entered in the Proceedings after notice and a final hearing pursuant to Rule 4001(c) of the Federal Rules of Bankruptcy Procedure. -27- "FIRREA": The Financial Institutions Reform, Recovery and Enforcement Act of 1989, as amended, and the rules and regulations adopted pursuant thereto "FISCAL": When followed by "month" or "quarter", the relevant fiscal period based on the Borrower's fiscal year and accounting conventions (e.g. reference to "Fiscal 2003" is to the fiscal month of the Borrowers's fiscal year ending in 2003). When followed by reference to a specific year, the fiscal year which ends in a month of the year to which reference is being made (e.g. if the Borrower's fiscal year ends in January 2003 reference to that year would be to the Borrower's "Fiscal 2003"). "FIXTURES": Has the meaning given that term in the UCC. "FRFI": Fleet Retail Finance Inc. "GAAP": Principles which are consistent with those promulgated or adopted by the Financial Accounting Standards Board and its predecessors (or successors) in effect and applicable to that accounting period in respect of which reference to GAAP is being made, provided, however, in the event of a Material Accounting Change, then unless otherwise specifically agreed to by the Administrative Agent, (a) the Borrower's compliance with the financial performance covenants imposed pursuant to Section 6-12 shall be determined as if such Material Accounting Change had not taken place and (b) the Borrower shall include, with its monthly, quarterly, and annual financial statements a schedule, certified by the Borrower's chief financial officer, on which the effect of such Material Accounting Change on that statement shall be described. "GENERAL INTANGIBLES": Includes, without limitation, "general intangibles" as defined in the UCC; and also all: rights to payment for credit extended; deposits; amounts due to the Borrower; credit memoranda in favor of the Borrower; warranty claims; tax refunds and abatements; insurance refunds and premium -28- rebates; all means and vehicles of investment or hedging, including, without limitation, options, warrants, and futures contracts; records; customer lists; telephone numbers; goodwill; causes of action; judgments; payments under any settlement or other agreement; literary rights; rights to performance; royalties; license and/or franchise fees; rights of admission; licenses; franchises; license agreements, including all rights of the Borrower to enforce same; permits, certificates of convenience and necessity, and similar rights granted by any governmental authority; patents, patent applications, patents pending, and other intellectual property; internet addresses and domain names; developmental ideas and concepts; proprietary processes; blueprints, drawings, designs, diagrams, plans, reports, and charts; catalogs; manuals; technical data; computer software programs (including the source and object codes therefor), computer records, computer software, rights of access to computer record service bureaus, service bureau computer contracts, and computer data; tapes, disks, semi-conductors chips and printouts; trade secrets rights, copyrights, mask work rights and interests, and derivative works and interests; user, technical reference, and other manuals and materials; trade names, trademarks, service marks, and all goodwill relating thereto; applications for registration of the foregoing; and all other general intangible property of the Borrower in the nature of intellectual property; proposals; cost estimates, and reproductions on paper, or otherwise, of any and all concepts or ideas, and any matter related to, or connected with, the design, development, manufacture, sale, marketing, leasing, or use of any or all property produced, sold, or leased, by the Borrower or credit extended or services performed, by the Borrower, whether intended for an individual customer or the general business of the Borrower, or used or useful in connection with research by the Borrower. "GOODS": Has the meaning given that term in the UCC, and also includes all things movable when a security interest therein attaches and also all computer programs embedded in goods and any supporting information provided in connection with a transaction relating to the program if (i) the program is -29- associated with the goods in such manner that it customarily is considered part of the goods or (ii) by becoming the owner of the goods, a Person acquires a right to use the program in connection with the goods. "GROSS MARGIN": With respect to the subject accounting period for which being calculated, the decimal equivalent of the following (determined in accordance with the retail method of accounting): Sales (Minus) Cost of Goods Sold -------------------------------- Sales "GUARANTORS": The Parent and each Subsidiary of the Parent (other than the Borrower). "GUARANTOR AGREEMENT": Each instrument and document executed by each Guarantor of the Liabilities to evidence or secure the Guarantors' guaranty thereof. "GUARANTOR DEFAULT": Default or breach or the occurrence of any event of default under any Guarantor Agreement. "HAZARDOUS MATERIALS": Any (a) substance which is defined or regulated as a hazardous material in or under any Environmental Law and (b) oil in any physical state. "HEALTH-CARE-INSURANCE-RECEIVABLE": Has the meaning given that term in UCC and also refers to any interest in or claim under a policy of insurance which is a right to payment of a monetary obligation for healthcare goods or services provided. "INDEBTEDNESS": All indebtedness and obligations of or assumed by any Person on account of or in respect to any of the following: (a) In respect of money borrowed (including any indebtedness which is non-recourse to the credit of such Person but which is secured by an -30- Encumbrance on any asset of such Person) whether or not evidenced by a promissory note, bond, debenture or other written obligation to pay money. (b) In connection with any letter of credit or acceptance transaction (including, without limitation, the face amount of all letters of credit and acceptances issued for the account of such Person or reimbursement on account of which such Person would be obligated). (c) In connection with the sale or discount of accounts receivable or chattel paper of such Person. (d) On account of deposits or advances. (e) As lessee under Capital Leases. (f) In connection with any sale and leaseback transaction. "Indebtedness" also includes: (x) Indebtedness of others secured by an Encumbrance on any asset of such Person, whether or not such Indebtedness is assumed by such Person. (y) Any guaranty, endorsement, suretyship or other undertaking pursuant to which that Person may be liable on account of any obligation of any third party. (z) The Indebtedness of a partnership or joint venture for which such Person is liable as a general partner or joint venturer. "INDEMNIFIED PERSON": Is defined in Section 19-12. "INITIAL LENDERS": Fleet Retail Finance Inc. and Back Bay Capital Funding LLC "INSTRUMENTS": Has the meaning given that term in the UCC. "INTERCREDITOR AGREEMENT": An Intercreditor Agreement between the Agents and AWG in such form, and containing such provisions as may be required by the Agent and the Lenders. -31- "INTEREST PAYMENT DATE": With reference to: Each Eurodollar Loan: The last day of the Interest Period relating thereto; the Termination Date; and the End Date. Each Base Margin Loan: The first day of each month; the Termination Date; and the End Date. "INTEREST PERIOD": The following: (a) With respect to each Eurodollar Loan: Subject to Subsection (c), below, the period commencing on the date of the making or continuation of, or conversion to, the subject Eurodollar Loan and ending one, two, or three months thereafter, as the Borrower may elect by notice (pursuant to Section 2-5) to the Administrative Agent (b) With respect to each Base Margin Loan: Subject to Subsection (c), below, the period commencing on the date of the making or continuation of or conversion to such Base Margin Loan and ending on that date (i) as of which the subject Base Margin Loan is converted to a Eurodollar Loan, as the Borrower may elect by notice (pursuant to Section 2-5) to the Administrative Agent, or (ii) on which the subject Base Margin Loan is paid by the Borrower. (c) The setting of Interest Periods is in all instances subject to the following: (i) Any Interest Period for a Base Margin Loan which would otherwise end on a day which is not a Business Day shall be extended to the next succeeding Business Day. (ii) Any Interest Period for a Eurodollar Loan which would otherwise end on a day that is not a Business Day shall be extended to the next succeeding Business Day, unless that succeeding Business Day is in the next calendar month, in which event such Interest Period shall end on the last Business Day of the month during which the Interest Period ends. (iii) Subject to Subsection (iv), below, any Interest Period applicable to a Eurodollar Loan, which Interest Period begins on a day for -32- which there is no numerically corresponding day in the calendar month during which such Interest Period ends, shall end on the last Business Day of the month during which that Interest Period ends. (iv) Any Interest Period which would otherwise end after the Termination Date shall end on the Termination Date. (v) The number of Interest Periods in effect at any one time is subject to Section 2-11(d) hereof. "INTERIM BORROWING ORDER": A Borrowing Order entered in the Proceedings prior to notice and a final hearing pursuant to Rule 4001(c) of the Federal Rules of Bankruptcy Procedure. "INVENTORY": Includes, without limitation, "inventory" as defined in the UCC and also all: (a) Goods which are leased by a Person as lessor; are held by a Person for sale or lease or to be furnished under a contract of service; are furnished by a Person under a contract of service; or consist of raw materials, work in process, or materials used or consumed in a business; (b) Goods of said description in transit; (c) Goods of said description which are returned, repossessed and rejected; (d) packaging, advertising, and shipping materials related to any of the foregoing; (e) all names, marks, and General Intangibles affixed or to be affixed or associated thereto; and (f) Documents and Documents of Title which represent any of the foregoing. "INVENTORY ADVANCE RATE": 47.4%. "INVENTORY RESERVES": Such Reserves as may be established from time to time by the Administrative Agent in the Administrative Agent's discretion with respect to the determination of the saleability, at retail, of the Eligible Inventory or which reflect such other factors as affect the market value of the Eligible Inventory. Without limiting the generality of the foregoing, Inventory Reserves may include (but are not limited to) reserves based on the following: -33- (i) Obsolescence (based upon Inventory on hand beyond a given number of days). (ii) Seasonality. (iii) Shrinkage. (iv) Imbalance. (v) Change in Inventory character. (vi) Change in Inventory composition (vii) Change in Inventory mix. (viii) Markdowns (both permanent and point of sale) (ix) Retail markons and markups inconsistent with prior period practice and performance; industry standards; current business plans; or advertising calendar and planned advertising events. "INVESTMENT PROPERTY": Has the meaning given that term in the UCC. "ISSUER": The issuer of any L/C. "L/C": Any letter of credit, the issuance of which is procured by the Administrative Agent for the account of the Borrower and any acceptance made on account of such letter of credit. "L/C LANDING COSTS": To the extent not included in the Stated Amount of an L/C, customs, duty, freight, and other out-of-pocket costs and expenses which will be expended to "land" the Inventory, the purchase of which is supported by such L/C. "LEASE": Any lease or other agreement, no matter how styled or structured, pursuant to which the Borrower is entitled to the use or occupancy of any space. "LEASEHOLD ADVANCE RATE": Thirty percent (30%). -34- "LEASEHOLD INTEREST": Any interest of the Borrower as lessee under any Lease. "LENDER(S)": Collectively and each individually, the Revolving Credit Lender and the Term Lender. "LETTER-OF-CREDIT RIGHT": Has the meaning given that term in UCC and also refers to any right to payment or performance under an L/C, whether or not the beneficiary has demanded or is at the time entitled to demand payment or performance. "LIABILITIES": Includes, without limitation, the following: (a) All and each of the following, whether now existing or hereafter arising under this Agreement or under any of the other Loan Documents: (i) Any and all direct and indirect liabilities, debts, and obligations of the Borrower to the Agent or any Lender, each of every kind, nature, and description. (ii) Each obligation to repay any loan, advance, indebtedness, note, obligation, overdraft, or amount now or hereafter owing by the Borrower to the Agent or any Lender (including all future advances whether or not made pursuant to a commitment by the Agent or any Lender), whether or not any of such are liquidated, unliquidated, primary, secondary, secured, unsecured, direct, indirect, absolute, contingent, or of any other type, nature, or description, or by reason of any cause of action which the Agent or any Lender may hold against the Borrower. (iii) All notes and other obligations of the Borrower now or hereafter assigned to or held by the Agent or any Lender, each of every kind, nature, and description. (iv) All interest, fees, and charges and other amounts which may be charged by the Agent or any Lender to the Borrower and/or which may be due from the Borrower to the Agent or any Lender from time to time. (v) All costs and expenses incurred or paid by the Agent or any -35- Lender in respect of any agreement between the Borrower and the Agent or any Lender or instrument furnished by the Borrower to the Agent or any Lender (including, without limitation, Costs of Collection, attorneys' reasonable fees, and all court and litigation costs and expenses). (vi) Any and all covenants of the Borrower to or with the Agent or any Lender and any and all obligations of the Borrower to act or to refrain from acting in accordance with any agreement between the Borrower and the Agent or any Lender or instrument furnished by the Borrower to the Agent or any Lender. (vii) Each of the foregoing as if each reference to the "the Agent or any Lender" were to each Affiliate of the Administrative Agent. (b) Any and all direct or indirect liabilities, debts, and obligations of the Borrower to the Agent or any Affiliate of the Agent, each of every kind, nature, and description owing on account of any service or accommodation provided to, or for the account of the Borrower pursuant to this or any other Loan Document, including cash management services and the issuances of L/C's. "LIQUIDATION": The exercise, by the Collateral Agent, of those rights accorded to the Collateral Agent under the Loan Documents as a creditor of the Borrower following and on account of the occurrence of an Event of Default looking towards the realization on the Collateral. Derivations of the word "Liquidation" (such as "Liquidate") are used with like meaning in this Agreement. "LOAN(S)": Collectively and each individually, the Revolving Credit Loans and the Term Loan. "LOAN ACCOUNT": Is defined in Section 2-8. "LOAN COMMITMENT": With respect to the Revolving Credit Lender, the Revolving Credit Lender's Revolving Credit Dollar Commitment. With respect to the Term Lender, the then unpaid principal balance of the Term Loan. -36- "LOAN DOCUMENTS": This Agreement and each other instrument or document from time to time executed and/or delivered in connection with the arrangements contemplated hereby or in connection with any transaction with the Administrative Agent or the Collateral Agent or any Affiliate of the Administrative Agent or the Collateral Agent, including, without limitation, any transaction which arises out of any cash management, depository, investment, letter of credit, interest rate protection, or equipment leasing services provided by the Administrative Agent or the Collateral Agent or any Affiliate of the Administrative Agent or the Collateral Agent, as each may be amended, supplemented, and restated or otherwise modified from time to time. "MATERIAL ACCOUNTING CHANGE": Any change in GAAP applicable to accounting periods subsequent to the Borrower's fiscal year most recently completed prior to the execution of this Agreement, which change has a material effect on the Borrower's financial condition or operating results, as reflected on financial statements and reports prepared by or for the Borrower, when compared with such condition or results as if such change had not taken place or where preparation of the Borrower's statements and reports in compliance with such change results in the breach of a financial performance covenant imposed pursuant to Section 6-12 where such a breach would not have occurred if such change had not taken place or visa versa. "MATURITY DATE": September 15, 2001, unless the Final Borrowing Order is entered by that date (which order shall not then have been stayed, modified, appealed, reversed, or otherwise affected), and if the Final Borrowing Order is so entered, the "Maturity Date" shall mean August 1, 2003. "NATIONAL BANK OF CANADA DEBT": The amount of indebtedness owed to National Bank of Canada, as agent for a syndicate of lenders. "NET INCOME": means, for any period, the aggregate of all amounts which would be -37- included as net income or loss on the consolidated financial statements of the Parent and its Subsidiaries for such period, all as determined in accordance with GAAP. "NOMINEE": A business entity (such as a corporation or limited partnership) formed by the Collateral Agent to own or manage any Post Foreclosure Asset. "OPERATING ACCOUNT": Is defined in Section 8-3. "OVERLOAN": A loan, advance, or providing of credit support (such as the issuance of any L/C) to the extent that, immediately after its having been made, Availability is less than zero. "PARENT": Homeland Holding Corporation, a Delaware corporation. "PARTICIPANT": Is defined in Section 19-15, hereof. "PAYMENT INTANGIBLE": As defined in the UCC and also any general intangible under which the Account Debtor's primary obligation is a monetary obligation. "PERMITTED ENCUMBRANCES": the following: (a) Encumbrances in favor of the Collateral Agent. (b) Those Encumbrances (if any) listed on EXHIBIT 5-6(a), annexed hereto. "PERMITTED INDEBTEDNESS": The following: (a) Any Indebtedness on account of the Revolving Credit. (b) Any Indebtedness on account of the Term Loan. (c) The Indebtedness (if any) listed on EXHIBIT 5-7, annexed hereto. (d) Indebtedness on account of Equipment acquired in compliance with the requirements of Section 5-6(c), the incurrence of which would not otherwise be prohibited by this Agreement. -38- (e) Indebtedness to AWG with respect to the AWG Pre-Petition Loan, the AWG Post-Petition Loan, the AWG Pre-Petition Supply Agreement and the AWG Post-Petition Supply Agreement. "PERSON": Any natural person, and any corporation, limited liability company, trust, partnership, joint venture, or other enterprise or entity. "PIK INTEREST": Defined in Section 3-4(a)(ii). "PLAN": A plan of reorganization pursuant to Chapter 11 of the Bankruptcy Code. "POST FORECLOSURE ASSET": All or any part of the Collateral, ownership of which is acquired by the Collateral Agent or a Nominee on account of the "bidding in" at a disposition as part of a Liquidation or by reason of a "deed in lieu" type of transaction. "PRICING GRID": Annexed hereto as EXHIBIT 2-11. "PROCEEDS": Includes, without limitation, "Proceeds" as defined in the UCC and each type of property described in Section 9-1 hereof. "PROCEEDINGS": The case, pursuant to Chapter 11 of the Bankruptcy Code, to be initiated by the Borrower in the United States Bankruptcy Court for the Western District of Oklahoma. "REAL ESTATE": The land, together with the buildings, structures, parking areas, and other improvements thereon, now or hereafter owned or leased by the Borrower, including all easements, rights-of-way, and similar rights relating thereto and all leases, tenancies, and occupancies thereof. "REAL ESTATE ADVANCE RATE": Forty percent (40%). -39- "REALTY RESERVES": Such reserves as the Administrative Agent from time to time determines in the Administrative Agent's discretion as being appropriate to reflect the impediments to the Agents' ability to realize upon any Eligible Real Estate. Without limiting the generality of the foregoing, Realty Reserves may include (but are not limited to) reserves for (i) environmental remediation, (ii) municipal taxes and assessments, (iii) repairs, (iv) remediation of title defects, and (v) with respect to Eligible Leaseholds amounts which are due to landlords for pre-petition and post-petition rent through the date of determination. "RECEIPTS": All cash, cash equivalents, money, checks, credit card slips, receipts and other Proceeds from any sale of the Collateral. "RECEIVABLES ADVANCE RATE": 65% "RECEIVABLES COLLATERAL": That portion of the Collateral which consists of Accounts, Accounts Receivable, General Intangibles, Chattel Paper, Instruments, Documents of Title, Documents, Investment Property, Payment Intangibles, Letter-of-Credit Rights, Health-Care-Insurance-Receivables, bankers' acceptances, and all other rights to payment. "RECEIVABLES RESERVES": Such Reserves as may be established from time to time by the Administrative Agent in the Administrative Agent's discretion with respect to the determination of the collectability in the ordinary course and of the creditworthiness of the relevant Account Debtor. Without limiting the generality of the foregoing, Receivables Reserves may include (but are not limited to) reserves based on the following: (a) The aggregate of all accounts receivables which are more than 30 days past invoice. (b) The aggregate of all accounts receivable owed by any Account Debtor 20% or more of whose accounts are described in Subsection (a), above. (c) That portion of Eligible Receivables owed by any Account Debtor -40- which exceed 25% of all Eligible Receivables. (d) The aggregate of all accounts receivable which arise out of the sale by the Borrower of goods consigned or delivered to the Borrower or to the Account Debtor on sale or return terms (whether or not compliance has been made with the applicable provisions of Article 2 of the Uniform Commercial Code). (e) The aggregate of all accounts receivable which arise out of any sale made on a basis other than upon terms usual to the business of the Borrower. (f) The aggregate of all accounts receivable which arise out of any sale made on a "bill and hold," dating, or delayed shipping basis. (g) The aggregate of all accounts receivable which are owed by any Account Debtor whose principal place of business is not within the continental United States or the District of Columbia. (h) The aggregate of all accounts receivable which are owed by any Affiliate. (i) The aggregate of all accounts receivable to the extent that the Account Debtor holds or is entitled to any claim, counterclaim, set off, or chargeback as determined by the Administrative Agent in its discretion. (j) The aggregate of all accounts receivable which are evidenced by a promissory note or other documentation evidencing modified payment terms. (k) The aggregate of all accounts receivable which are owed by any person employed by, or a salesperson of, the Borrower. "REQUIREMENTS OF LAW": As to any Person: (a) Applicable Law. (b) That Person's organizational documents. (c) That Person's by-laws and/or other instruments which deal with corporate or similar governance, as applicable. (d) Without limiting the generality of the foregoing, "Requirement of Law" includes all requirements of the Bankruptcy Code; all rules adopted -41- pursuant to the Bankruptcy Code or otherwise and applicable to the Borrower and/or the Proceedings; the Borrowing Order; and all other orders or rulings formally or informally entered in the Proceedings or in any action or proceeding which relates thereto. "RESERVE PERCENTAGE": The decimal equivalent of that rate applicable to Fleet National Bank under regulations issued from time to time by the Board of Governors of the Federal Reserve System for determining the maximum reserve requirement of Fleet National Bank with respect to "Eurocurrency liabilities" as defined in such regulations. The Reserve Percentage applicable to a particular Eurodollar Loan shall be based upon that in effect during the subject Interest Period, with changes in the Reserve Percentage which take effect during such Interest Period to take effect (and to consequently change any interest rate determined with reference to the Reserve Percentage) if and when such change is applicable to such loans. "RESERVES": The following: Receivables Reserves, Realty Reserves, Availability Reserves and Inventory Reserves. "RESTRUCTURING CONSULTANT": A consultant with a nationally recognized practice in addressing issues related to the restructuring of companies which are debtors in cases pursuant to Chapter 11 of the Bankruptcy Code. "REVOLVING CREDIT": Is defined in Section 2-1. "REVOLVING CREDIT CEILING": $25,000,000.00. "REVOLVING CREDIT COMMITMENT FEE": Is defined in Section 2-12. "REVOLVING CREDIT DOLLAR COMMITMENT": As set forth on EXHIBIT 1-2, annexed hereto (as such amounts may change in accordance with the provisions of this -42- Agreement). "REVOLVING CREDIT EARLY TERMINATION FEE": Is defined in Section 2-14. "REVOLVING CREDIT FEES": The Unused Line Fee, Revolving Credit Commitment Fee, Facility Fee, Revolving Credit Early Termination Fee, fees for L/C's which are specifically for the account of the Revolving Credit Lender and all other fees (such as a fee (if any) on account of the execution of an amendment of a Loan Document) payable by the Borrower in respect of the Revolving Credit other than any amount payable to an Agent as reimbursement for any cost or expense incurred by that Agent on account of the discharge of that Agent's duties under the Loan Documents. "REVOLVING CREDIT LENDER": FRFI and any other Person who becomes a "Revolving Credit Lender" pursuant to this Agreement. "REVOLVING CREDIT LOANS": Loans made under the Revolving Credit, except that where the term "Revolving Credit Loan" is used with reference to available interest rates applicable to the loans under the Revolving Credit, it refers to so much of the unpaid principal balance of the Loan Account as bears the same rate of interest for the same Interest Period. (See Section 2-11). "REVOLVING CREDIT NOTE": Is defined in Section 2-9. "SEC": The Securities and Exchange Commission. "STATED AMOUNT": The maximum amount for which an L/C may be honored. "STANDSTILL PERIOD": A period consisting of 15 consecutive days, initiated by written notice by the Term Lender to the Administrative Agent in accordance with Section 14-2(a). -43- "SUBSIDIARY": with respect to any Person (the "parent") at any date, any corporation, limited liability company, partnership, association or other entity the accounts of which would be consolidated with those of the parent in the parent's consolidated financial statements if such financial statements were prepared in accordance with GAAP as of such date, as well as any other corporation, limited liability company, partnership, association or other entity (a) of which securities or other ownership interests representing more than 50% of the equity or more than 50% of the ordinary voting power or, in the case of a partnership, more than 50% of the general partnership interests are, as of such date, owned, controlled or held, or (b) that is, as of such date, otherwise controlled, by the parent or one or more subsidiaries of the parent. "SUPPORTING OBLIGATION": Has the meaning given that term in the UCC and also refers to a Letter-of-Credit Right or secondary obligation which supports the payment or performance of an Account, Chattel Paper, a Document, a General Intangible, an Instrument, or Investment Property. "TERM LENDER": Is defined in the Preamble. "TERM LOAN": Is defined in Section 3-1. "TERM LOAN ACTION EVENT": The occurrence of any of the following: an Availability Breach; a Term Loan Payment Breach; or a Bankruptcy Breach. "TERM LOAN COMMITMENT FEE": Is defined in Section 3-5. "TERM LOAN EARLY TERMINATION FEE": Is defined in Section 3-3(c) "TERM LOAN FACILITY FEE": Is defined in Section 3-5(b). "TERM LOAN FEES": The Term Loan Commitment Fee, the Term Loan Facility Fee, the -44- Term Loan Early Termination Fee, and all other fees (such as a fee (if any) on account of the execution of an amendment of any Loan Document) payable by the Borrower in respect of the Term Loan other than any amount payable to an Agent as reimbursement for any cost or expense incurred by that Agent on account of the discharge of that Agent's duties under the Loan Documents. "TERM LOAN INTEREST PAYMENT DATE": Defined in Section 3-4(a)(i). "TERM LOAN INTEREST RATE": Defined in Section 3-4(a). "TERM LOAN OBLIGATIONS": The aggregate of the Borrower's Liabilities of any character to the Term Lender under the Loan Documents. "TERM LOAN PAYMENT BREACH": The failure by the Borrower to have made any payment on account of the Borrower's Liabilities to the Term Lender under the Loan Documents prior to expiry of any grace period applicable to such payment. "TERM NOTE": Defined in Section 3-2. "TERMINATION DATE": The earliest of (a) the Maturity Date; or (b) the Administrative Agent's notice to the Borrower setting the Termination Date on account of the occurrence of any Event of Default; (c) the date of substantial consummation (as defined in Section 1101 of the Bankruptcy Code) of any Plan in the Proceedings that has been confirmed pursuant to any Order of the Bankruptcy Court in the Proceedings; or (d) that date, ninety (90) days irrevocable written notice of which is provided by the Borrower to the Administrative Agent. "UCC": The Uniform Commercial Code as in effect from time to time in Massachusetts. "UNUSED LINE FEE": Is defined in Section 2-13. -45- "YIELD REVENUE": All amounts which are (or would be) payable on account of the Term Loan Facility Fee, and the Term Loan Interest Rate (as if all interest were paid in cash on the relevant Term Loan Interest Payment Date) with respect to the Term Loan from the Closing Date through the first anniversary of the Closing Date. ARTICLE 2 - THE REVOLVING CREDIT: 2-1. ESTABLISHMENT OF REVOLVING CREDIT (a) The Revolving Credit Lender hereby establishes a revolving line of credit (the "REVOLVING CREDIT") in the Borrower's favor pursuant to which the Revolving Credit Lender, subject to, and in accordance with, this Agreement, acting through the Administrative Agent, shall make loans and advances and otherwise provide financial accommodations to and for the account of the Borrower as provided herein. (b) Loans, advances, and financial accommodations under the Revolving Credit shall be made with reference to the Borrowing Base and shall be subject to Availability. The Borrowing Base and Availability shall be determined by the Administrative Agent by reference to Borrowing Base Certificates furnished as provided in Section 6-4, below, and shall be subject to the following: (i) Such determination shall take into account such Reserves as the Administrative Agent may determine as being applicable thereto. (ii) The Cost of Eligible Inventory will be determined in a manner consistent with current tracking practices. (c) The proceeds of borrowings under the Revolving Credit shall be used solely in accordance with the Business Plan to refinance the National Bank of Canada Debt, to pay certain other pre-petition indebtedness approved by the Bankruptcy Court in the Proceedings, for the Borrower's working capital and Capital Expenditures, all solely to the extent permitted by this Agreement. No proceeds of a borrowing under the Revolving Credit may be used, nor shall any be requested, with a view towards the accumulation of any general fund or funded reserve of the Borrower other than in the ordinary course of the Borrower's business and consistent with the provisions of this Agreement. -46- 2-2. ADVANCES IN EXCESS OF BORROWING BASE (OVERLOANS). (a) The Revolving Credit Lender has no obligation to make any loan or advance, or otherwise to provide any credit to or for the benefit of the Borrower where the result of such loan, advance, or credit is an OverLoan. (b) The Revolving Credit Lender's providing of an OverLoan on any one occasion does not affect the obligations of the Borrower hereunder (including the Borrower's obligation to immediately repay any amount which otherwise constitutes an OverLoan) nor obligate the Revolving Credit Lender to do so on any other occasion. 2-3. RISKS OF VALUE OF COLLATERAL. The Administrative Agent's reference to a given asset in connection with the making of loans, credits, and advances and the providing of financial accommodations under the Revolving Credit and/or the monitoring of compliance with the provisions hereof shall not be deemed a determination by the Administrative Agent or the Revolving Credit Lender relative to the actual value of the asset in question. All risks concerning the value of the Collateral are and remain upon the Borrower. All Collateral secures the prompt, punctual, and faithful performance of the Liabilities whether or not relied upon by the Administrative Agent in connection with the making of loans, credits, and advances and the providing of financial accommodations under the Revolving Credit. 2-4. COMMITMENT TO MAKE REVOLVING CREDIT LOANS AND SUPPORT LETTERS OF CREDIT. Subject to the provisions of this Agreement, the Revolving Credit Lender shall make a loan or advance under the Revolving Credit and the Administrative Agent shall endeavor to have an L/C issued for the account of the Borrower, in each instance if duly and timely requested by the Borrower as provided herein provided that: (a) No OverLoan is then outstanding and none will result therefrom. (b) No Default then exists or will arise therefrom. 2-5. REVOLVING CREDIT LOAN REQUESTS. (a) Requests for loans and advances under the Revolving Credit or for the continuance or conversion of an interest rate applicable to a Revolving Credit Loan may be requested by the Borrower in such manner as may from time to time be acceptable to the -47- Administrative Agent. (b) Subject to the provisions of this Agreement, the Borrower may request a Revolving Credit Loan and elect an interest rate and Interest Period to be applicable to that Revolving Credit Loan by giving notice to the Administrative Agent by no later than the following: (i) If such Revolving Credit Loan is to be or is to be converted to a Base Margin Loan: By 12:30PM on the Business Day on which the subject Revolving Credit Loan is to be made or is to be so converted. Base Margin Loans requested by the Borrower, other than those resulting from the conversion of a Eurodollar Loan, shall not be less than $10,000.00. (ii) If such Revolving Credit Loan is to be, or is to be continued as, or converted to, a Eurodollar Loan: By 2:00PM three (3) Eurodollar Business Days before the commencement of any new Interest Period or the end of the then applicable Interest Period. Eurodollar Loans and conversions to Eurodollar Loans shall each be not less than $1,000,000.00 and in increments of $500,000.00 in excess of such minimum. (iii) Any Eurodollar Loan which matures while a Default exists shall be converted, at the option of the Administrative Agent, to a Base Margin Loan notwithstanding any notice from the Borrower that such Loan is to be continued as a Eurodollar Loan. (c) Any request for a Revolving Credit Loan or for the continuance or conversion of an interest rate applicable to a Revolving Credit Loan which is made after the applicable deadline therefor, as set forth above, shall be deemed to have been made at the opening of business on the then next Business Day or Eurodollar Business Day, as applicable. (d) If, during each of the fifteen (15) days immediately preceding the day on which a loan request is made there has been no unpaid principal balance in the Loan Account on account of loans and advances under the Revolving Credit, the loan so requested shall be made (subject to all other provisions of this Agreement) no later than the second Business Day after (and not counting) the day on which the loan otherwise would have been made as provided above. (e) The Borrower may request that the Administrative Agent cause the issuance by the Issuer of L/C's for the account of the Borrower as provided in Section 2-17. -48- (f) The Administrative Agent may rely on any request for a loan or advance, or other financial accommodation under the Revolving Credit which the Administrative Agent, in good faith, believes to have been made by a Person duly authorized to act on behalf of the Borrower, including, without limitation, the Chief Executive Officer, Chief Financial Officer, and the Controller, and may decline to make any such requested loan or advance, or issuance, or to provide any such financial accommodation pending the Administrative Agent's being furnished with such documentation concerning that Person's authority to act as may be satisfactory to the Administrative Agent. (g) A request by the Borrower for loan or advance, or other financial accommodation under the Revolving Credit shall be irrevocable and shall constitute certification by the Borrower that as of the date of such request, each of the following is true and correct: (i) There has been no material adverse change in the Borrower's financial condition from the most recent financial information furnished Administrative Agent or any Lender pursuant to this Agreement. (ii) Unless otherwise provided for by the Borrower, all or a portion of any loan or advance so requested will be set aside by the Borrower to cover the Borrower's obligations for sales tax on account of sales since the then most recent borrowing pursuant to the Revolving Credit. (iii) Each representation which is made herein or in any of the Loan Documents is then true and complete as of and as if made on the date of such request. (iv) Unless accompanied by a written Certificate of the Borrower's President or its Chief Financial Officer describing (in reasonable detail) the facts and circumstances thereof and the steps (if any) being taken to remedy such condition, that no Default exists. 2-6. SUSPENSION OF REVOLVING CREDIT. If, at any time or from time to time, a Default exists: (a) The Administrative Agent may suspend the Revolving Credit immediately, in which event, neither the Administrative Agent nor the Revolving Credit Lender shall be obligated, during such suspension, to make any loans or advance, or to provide any financial accommodation hereunder or to seek the issuance of any L/C -49- (b) The Administrative Agent may suspend the right of the Borrower to request any Eurodollar Loan or to convert any Base Margin Loan to a Eurodollar Loan. 2-7. MAKING OF REVOLVING CREDIT LOANS. (a) A loan or advance under the Revolving Credit shall be made by the transfer of the proceeds of such loan or advance to the Operating Account or as otherwise instructed by the Borrower. (b) A loan or advance shall be deemed to have been made under the Revolving Credit (and the Borrower shall be indebted to the Administrative Agent and the Revolving Credit Lender for the amount thereof immediately) at the following: (i) The Administrative Agent's initiation of the transfer of the proceeds of such loan or advance in accordance with the Borrower's instructions (if such loan or advance is of funds requested by the Borrower). (ii) The charging of the amount of such loan to the Loan Account (in all other circumstances). (c) There shall not be any recourse to or liability of the Administrative Agent, on account of: (i) Any delay in the making of any loan or advance requested under the Revolving Credit. (ii) Any delay by any bank or other depository institution in treating the proceeds of any such loan or advance as collected funds. (iii) Any delay in the receipt, and/or any loss, of funds which constitute a loan or advance under the Revolving Credit, the wire transfer of which was properly initiated by the Administrative Agent in accordance with wire instructions provided to the Administrative Agent by the Borrower. 2-8. THE LOAN ACCOUNT. (a) An account ("LOAN ACCOUNT") shall be opened on the books of the Administrative Agent in which a record shall be kept of all loans and advances made under the Revolving Credit. (b) The Administrative Agent shall also keep a record (either in the Loan -50- Account or elsewhere, as the Administrative Agent may from time to time elect) of all interest, fees, service charges, costs, expenses, and other debits owed to the Administrative Agent and each Lender on account of the Liabilities and of all credits against such amounts so owed. (c) All credits against the Liabilities shall be conditional upon final payment to the Administrative Agent for the account of each Lender of the items giving rise to such credits. The amount of any item credited against the Liabilities which is charged back against the Administrative Agent or any Lender or is disgorged for any reason or is not so paid shall be a Liability and shall be added to the Loan Account, whether or not the item so charged back or not so paid is returned. (d) Except as otherwise provided herein, all fees, service charges, costs, and expenses for which the Borrower is obligated hereunder are payable on demand. In the determination of Availability, the Administrative Agent may deem fees, service charges, accrued interest, and other payments which will be due and payable between the date of such determination and the first day of the then next succeeding month as having been advanced under the Revolving Credit whether or not such amounts are then due and payable. (e) The Administrative Agent, without the request of the Borrower, may advance under the Revolving Credit any interest, fee, service charge, or other payment to which any Agent or any Lender is entitled from the Borrower pursuant hereto and may charge the same to the Loan Account notwithstanding that an OverLoan may result thereby. Such action on the part of the Administrative Agent shall not constitute a waiver of the Administrative Agent's rights and the Borrower's obligations under Section 2-10(b). Any amount which is added to the principal balance of the Loan Account as provided in this Section 2-8(e) shall bear interest at the interest rate then and thereafter applicable to Base Margin Loans. (f) Any statement rendered by the Administrative Agent or any Lender to the Borrower concerning the Liabilities shall be considered correct and accepted by the Borrower and shall be conclusively binding upon the Borrower unless the Borrower provides the Administrative Agent with written objection thereto within twenty (20) days from the mailing of such statement, which written objection shall indicate, with particularity, the reason for such objection. The Loan Account and the Administrative Agent's books and records concerning the loan arrangement contemplated herein and the Liabilities shall be prima facie evidence and proof of the items described therein. -51- 2-9. THE REVOLVING CREDIT NOTES. The Borrower's obligation to repay loans and advances under the Revolving Credit, with interest as provided herein, shall be evidenced by a Note (a "REVOLVING CREDIT NOTE") in the form of EXHIBIT 2-9, annexed hereto, executed by the Borrower, payable to the Revolving Credit Lender. Neither the original nor a copy of the Revolving Credit Note shall be required, however, to establish or prove any Liability. In the event that the Revolving Credit Note is ever lost, mutilated, or destroyed, the Borrower shall execute a replacement thereof and deliver such replacement to the Administrative Agent. 2-10. PAYMENT OF THE LOAN ACCOUNT. (a) The Borrower may repay all or any portion of the principal balance of the Loan Account from time to time until the Termination Date. (b) The Borrower, without notice or demand from the Administrative Agent or the Revolving Credit Lender, shall pay the Administrative Agent that amount, from time to time, which is necessary so that there is no OverLoan outstanding. (c) The Borrower shall repay the then entire unpaid balance of the Loan Account and all other Liabilities on the Termination Date. (d) The Administrative Agent shall endeavor to cause the application of payments (if any), pursuant to Sections 2-10(a) and 2-10(b) against Eurodollar Loans then outstanding in such manner as results in the least cost to the Borrower, but shall not have any affirmative obligation to do so nor liability on account of the Administrative Agent's failure to have done so. In no event shall action or inaction taken by the Administrative Agent excuse the Borrower from any indemnification obligation under Section 2-10(e). (e) The Borrower shall indemnify the Administrative Agent and the Revolving Credit Lender and hold the Administrative Agent and the Revolving Credit Lender harmless from and against any loss, cost or expense (including loss of anticipated profits and amounts payable by the Administrative Agent or the Revolving Credit Lender on account of "breakage fees" (so-called)) which the Administrative Agent or the Revolving Credit Lender may sustain or incur (including, without limitation, by virtue of acceleration after the occurrence of any Event of Default) as a consequence of the following: (i) Default by the Borrower in payment of the principal amount of or any interest on any Eurodollar Loan as and when due and payable, including any such -52- loss or expense arising from interest or fees payable by the Revolving Credit Lender in order to maintain its Eurodollar Loans. (ii) Default by the Borrower in making a borrowing or conversion after the Borrower has given (or is deemed to have given) a request for a Revolving Credit Loan or a request to convert a Revolving Credit Loan from one applicable interest rate to another. (iii) The making of any payment on a Eurodollar Loan or the making of any conversion of any such Loan to a Base Margin Loan on a day that is not the last day of the applicable Interest Period with respect thereto. 2-11. INTEREST ON REVOLVING CREDIT LOANS. (a) Each Revolving Credit Loan shall bear interest at the Base Margin Rate unless timely notice is given (as provided in Section 2-5) that the subject Revolving Credit Loan (or a portion thereof) is, or is to be converted to, a Eurodollar Loan. (b) Each Revolving Credit Loan which consists of a Eurodollar Loan shall bear interest at the applicable Eurodollar Rate. (c) Subject to, and in accordance with, the provisions of this Agreement, the Borrower may cause all or a part of the unpaid principal balance of the Loan Account to bear interest at the Base Margin Rate or the Eurodollar Rate as specified from time to time by the Borrower by notice to the Administrative Agent. For ease of reference and administration, each part of the Loan Account which bears interest at the same rate interest and for the same Interest Period is referred to herein as if it were a separate "Revolving Credit Loan". (d) The Borrower shall not select, renew, or convert any interest rate for a Revolving Credit Loan such that, in addition to interest at the Base Margin Rate, there are more than four (4) Eurodollar Rates applicable to the Revolving Credit Loans at any one time. (e) The Borrower shall pay accrued and unpaid interest on each Revolving Credit Loan in arrears as follows: (i) On the applicable Interest Payment Date for that Revolving Credit Loan. (ii) On the Termination Date and on the End Date. (iii) Following the occurrence of any Event of Default, with such -53- frequency as may be determined by the Administrative Agent. (f) Following the occurrence of any Event of Default (and whether or not the Administrative Agent exercises the Administrative Agent's rights on account thereof), all Revolving Credit Loans shall bear interest, at the option of the Administrative Agent at rate which is the aggregate of the highest rate applicable to Base Margin Loans plus three percent (3%) per annum. 2-12. REVOLVING CREDIT COMMITMENT FEE. In consideration of the commitment to make loans and advances to the Borrower under the Revolving Credit, and to maintain sufficient funds available for such purpose, there has been earned and the Borrower shall pay the "REVOLVING CREDIT COMMITMENT FEE" (so referred to herein) of $250,000,00. The Revolving Credit Commitment Fee shall be paid in full on the Closing Date. 2-13. UNUSED LINE FEE; FACILITY FEE. (a) In addition to any other fee to be paid by the Borrower on account of the Revolving Credit, the Borrower shall pay the Administrative Agent the "UNUSED LINE FEE" (so referred to herein) of 0.375% per annum of the average difference, during the month just ended (or relevant period with respect to the payment being made on the Termination Date) between the Revolving Credit Ceiling and the aggregate of the unpaid principal balance of the Loan Account and the undrawn Stated Amount of L/C's outstanding during the relevant period. The Unused Line Fee shall be paid in arrears, on the first day of each month after the Closing Date and on the Termination Date. (b) In addition to any other fee to be paid by the Borrower on account of the Revolving Credit, the Borrower shall pay the Administrative Agent the "FACILITY FEE" (so referred to herein) of $3,000 for each month or portion of a month after the Closing Date. The Facility Fee shall be paid in advance, on the Closing Date, on first day of each month after the Closing Date and on the Termination Date. 2-14. EARLY TERMINATION FEE. -54- (a) In the event that the Termination Date occurs prior to the Maturity Date for any reason (other than the Borrower's refinancing the Liabilities with FRFI or any of its Affiliates), the Borrower shall pay to the Administrative Agent, for the benefit of the Revolving Credit Lender, the "REVOLVING CREDIT EARLY TERMINATION FEE" (so referred to herein) in respect of amounts which are or become payable by reason thereof equal to (i) one percent (1%) of the Revolving Credit Dollar Commitment is the Termination Date occurs prior to the first anniversary of the Closing Date, and (ii) one-half of one percent (0.50%) of the Revolving Credit Dollar Commitment if the Termination Date occurs on or subsequent to the first anniversary of the Closing Date. (b) All parties to this Agreement agree and acknowledge that the Revolving Credit Lender will have suffered damages on account of the early termination of the Revolving Credit and that, in view of the difficulty in ascertaining the amount of such damages, that the Early Termination Fee constitutes reasonable compensation and liquidated damages to compensate the Revolving Credit Lender on account thereof. 2-15. CONCERNING FEES. The Borrower shall not be entitled to any credit, rebate or repayment of any fee earned by any Agent or any Lender pursuant to this Agreement or any Loan Document notwithstanding any termination of this Agreement or suspension or termination of the Administrative Agent's or the Lender's obligation to make loans and advances hereunder. 2-16. AGENTS' AND LENDERS' DISCRETION. (a) Each reference in the Loan Documents to the exercise of discretion or the like by any Agent or any Lender shall be to such Person's exercise of its judgment, in good faith (which shall be presumed), based upon such Person's consideration of any such factors as that Agent or that Lender, taking into account information of which that Person then has actual knowledge, believes: (i) Will or reasonably could be expected to affect the value of the Collateral, the enforceability of the Collateral Agent's Collateral Interests therein, or the amount which the Collateral Agent would likely realize therefrom (taking into account delays which may possibly be encountered in the Collateral Agent's realizing upon the -55- Collateral and likely Costs of Collection). (ii) Indicates that any report or financial information delivered to any Agent or any Lender by or on behalf of the Borrower is incomplete, inaccurate, or misleading in any material manner or was not prepared in accordance with the requirements of this Agreement. (iii) Suggests that a Default exists. (b) In the exercise of such judgement, each Agent or each Lender also may take into account any of the following factors: (i) Those included in, or tested by, the definitions of "Eligible Accounts," "Eligible Inventory" and "Cost". (ii) The current financial and business climate of the industry in which the Borrower competes (having regard for the Borrower's position in that industry). (iii) General macroeconomic conditions which have a material effect on the Borrower's cost structure. (iv) Material changes in or to the mix of the Borrower's Inventory. (v) Seasonality with respect to the Borrower's Inventory and patterns of retail sales. (vi) Such other factors as each Agent and each Lender reasonably determines as having a material bearing on credit risks associated with the providing of loans and financial accommodations to the Borrower. (c) The burden of establishing the failure of any Agent or any Lender to have acted in a reasonable manner in such Person's exercise of such discretion shall be the Borrower's and may be made only by clear and convincing evidence. 2-17. PROCEDURES FOR ISSUANCE OF L/C's. (a) The Borrower may request that the Administrative Agent cause the issuance by the Issuer of L/C's for the account of the Borrower. Each such request shall be in such manner as may from time to time be acceptable to the Administrative Agent. (b) The Administrative Agent will endeavor to cause the issuance of any L/C so requested by the Borrower, provided that, at the time that the request is made, the Revolving Credit has not been suspended as provided in Section 2-6 and if so issued: -56- (i) Absent the consent of the Administrative Agent, the aggregate Stated Amount of all L/C's then outstanding, does not exceed Two Million Dollars ($2,000,000). (ii) The expiry of the L/C is not later than the earlier of thirty (30) days prior to the Maturity Date or the following: (A) Standby's: One (1) year from initial issuance. (B) Documentary's: Sixty (60) days from issuance. (iii) If the expiry of an L/C is later than the Maturity Date, it is 103% cash collateralized at its issuance. (iv) An OverLoan will not result from the issuance of the subject L/C. (c) The Borrower shall execute such documentation to apply for and support the issuance of an L/C as may be required by the Issuer. (d) There shall not be any recourse to, nor liability of, any Agent or the Revolving Credit Lender on account of (i) Any delay or refusal by an Issuer to issue an L/C; (ii) Any action or inaction of an Issuer on account of or in respect to, any L/C. (e) The Borrower shall reimburse the Issuer for the amount of any honoring of a drawing under an L/C on the same day on which such honoring takes place. The Administrative Agent, without the request of the Borrower, may advance under the Revolving Credit (and charge to the Loan Account) the amount of any honoring of any L/C and other amount for which the Borrower, the Issuer, or the Revolving Credit Lender becomes obligated on account of, or in respect to, any L/C. Such advance shall be made whether or not a Default exists or such advance would result in an OverLoan. Such action shall not constitute a waiver of the Administrative Agent's rights under Section 2-10(b) hereof. 2-18. FEES FOR L/C's (a) The Borrower shall pay to the Administrative Agent a fee, on account of L/C's, the issuance of which had been procured by the Administrative Agent, monthly in advance, and on the Termination Date and on the End Date, L/C fees in an amount equal to the following percentages of the weighted average Stated Amount of all L/C's outstanding during -57- the period in respect of which such fee is being paid: Standby L/Cs: At the applicable Eurodollar Margin as set forth in the Pricing Grid at the time of calculation. Documentary L/Cs: One half of one percent (0.50%) less than the applicable Eurodollar Margin as set forth in the Pricing Grid at the time of calculation. provided that, following the occurrence of any Event of Default (and whether or not the Administrative Agent exercises the Administrative Agent's rights on account thereof), such fees shall be increased by three percent (3%) per annum. (b) In addition to the fee to be paid as provided in Subsection 2-18(a), above, the Borrower shall pay to the Administrative Agent (or to the Issuer, if so requested by Administrative Agent), on demand, all issuance, processing, negotiation, amendment, and administrative fees and other amounts charged by the Issuer on account of, or in respect to, any L/C. (c) If any change in Applicable Law shall either: (i) impose, modify or deem applicable any reserve, special deposit or similar requirements against letters of credit heretofore or hereafter issued by any Issuer or with respect to which the Revolving Credit Lender or any Issuer has an obligation to lend to fund drawings under any L/C; or (ii) impose on any Issuer any other condition or requirements relating to any such letters of credit; and the result of any event referred to in Section 2-18(c)(i) or 2-18(c)(ii), above, shall be to increase the cost to the Revolving Credit Lender or to any Issuer of issuing or maintaining any L/C (which increase in cost shall be the result of such Issuer's reasonable allocation among that Revolving Credit Lender's or Issuer's letter of credit customers of the aggregate of such cost increases resulting from such events), then, upon demand by the Administrative Agent and delivery by the Administrative Agent to the Borrower of a certificate of an officer of the Revolving Credit Lender or the subject Issuer describing such change in law, executive order, regulation, directive, or interpretation thereof, its effect on such Revolving Credit Lender or such Issuer, and the basis for determining such increased costs and their allocation, the Borrower shall immediately pay to the Administrative Agent, from time to time as specified by the -58- Administrative Agent, such amounts as shall be sufficient to compensate the Revolving Credit Lender or the subject Issuer for such increased cost. The Revolving Credit Lender's or any Issuer's determination of costs incurred under Section 2-18(c)(i) or 2-18(c)(ii), above, and the allocation, if any, of such costs among the Borrower and other letter of credit customers of the Revolving Credit Lender or such Issuer, if done in good faith and made on an equitable basis and in accordance with such officer's certificate, shall be conclusive and binding on the Borrower. The Administrative Agent shall use its best efforts to minimize such costs and expenses associated with the issuance of any L/C's. 2-19. CONCERNING L/C'S. (a) None of the Issuer, the Issuer's correspondents, the Revolving Credit Lender, any Agent, or any advising, negotiating, or paying bank with respect to any L/C shall be responsible in any way for: (i) The performance by any beneficiary under any L/C of that beneficiary's obligations to the Borrower. (ii) The form, sufficiency, correctness, genuineness, authority of any person signing; falsification; or the legal effect of; any documents called for under any L/C if (with respect to the foregoing) such documents on their face appear to be in order. (b) The Issuer may honor, as complying with the terms of any L/C and of any drawing thereunder, any drafts or other documents otherwise in order, but signed or issued by an administrator, executor, conservator, trustee in bankruptcy, debtor in possession, assignee for the benefit of creditors, liquidator, receiver, or other legal representative of the party authorized under such L/C to draw or issue such drafts or other documents. (c) Unless otherwise agreed to, in the particular instance, the Borrower hereby authorizes any Issuer to: (i) Select an advising bank, if any. (ii) Select a paying bank, if any. (iii) Select a negotiating bank. (d) All directions, correspondence, and funds transfers relating to any L/C are at the risk of the Borrower. The Issuer shall have discharged the Issuer's obligations under any L/C which, or the drawing under which, includes payment instructions, by the initiation of -59- the method of payment called for in, and in accordance with, such instructions (or by any other commercially reasonable and comparable method). No Agent, Revolving Credit Lender, or Issuer shall have any responsibility for any inaccuracy, interruption, error, or delay in transmission or delivery by post, telegraph or cable, or for any inaccuracy of translation. (e) Each Agent's, the Revolving Credit Lender's and the Issuer's rights, powers, privileges and immunities specified in or arising under this Agreement are in addition to any heretofore or at any time hereafter otherwise created or arising, whether by statute or rule of law or contract. (f) Except to the extent otherwise expressly provided hereunder or agreed to in writing by the Issuer and the Borrower, documentary L/C's will be governed by the Uniform Customs and Practice for Documentary Credits, International Chamber of Commerce, Publication No. 500, and standby L/C's will be governed by International Standby Practices ISP98 (adopted by the International Chamber of Commerce on April 6, 1998) and any respective subsequent revisions thereof. (g) The obligations of the Borrower under this Agreement with respect to L/C's are absolute, unconditional, and irrevocable and shall be performed strictly in accordance with the terms hereof under all circumstances, whatsoever including, without limitation, the following: (i) Any lack of validity or enforceability or restriction, restraint, or stay in the enforcement of this Agreement, any L/C, or any other agreement or instrument relating thereto. (ii) The Borrower's consent to any amendment or waiver of, or consent to the departure from, any L/C. (iii) The existence of any claim, set-off, defense, or other right which the Borrower may have at any time against the beneficiary of any L/C. (iv) Any good faith honoring of a drawing under any L/C, which drawing possibly could have been dishonored based upon a strict construction of the terms of the L/C. 2-20. CHANGED CIRCUMSTANCES. (a) The Administrative Agent may advise the Borrower that the -60- Administrative Agent has made the good faith determination (which determination shall be final and conclusive) of any of the following: (i) Adequate and fair means do not exist for ascertaining the rate for Eurodollar Loans. (ii) The continuation of or conversion of the Revolving Credit Loan to a Eurodollar Loan has been made impracticable or unlawful by the occurrence of a contingency that materially and adversely affects the applicable market or the compliance by the Administrative Agent or the Revolving Credit Lender in good faith with any Applicable Law. (iii) The indices on which the interest rates for Eurodollar Loans are based shall no longer represent the effective cost to the Agent or the Revolving Credit Lender for U.S. dollar deposits in the interbank market for deposits in which it regularly participates. (b) In the event that the Administrative Agent advises the Borrower of an occurrence described in Section 2-20(a), then, until the Administrative Agent notifies the Borrower that the circumstances giving rise to such notice no longer apply: (i) The obligation of the Agent or the Revolving Credit Lender to make loans of the type affected by such changed circumstances or to permit the Borrower to select the affected interest rate as otherwise applicable to any Revolving Credit Loans shall be suspended. (ii) Any notice which the Borrower had given the Administrative Agent with respect to any Eurodollar Loan, the time for action with respect to which has not occurred prior to the Administrative Agent's having given notice pursuant to Section 2-20(a), shall be deemed at the option of the Administrative Agent to not having been given. ARTICLE 3 - THE TERM LOAN: 3-1. COMMITMENT TO MAKE TERM LOAN. (a) Subject to satisfaction of the Conditions Precedent (Article 4) by the date of this Agreement, the Borrower shall borrow from the Term Lender and the Term Lender shall lend to the Borrower the sum of Ten Million Dollars ($10,000,000) (the "TERM LOAN"), repayable with interest as provided herein. -61- (b) The proceeds of the Term Loan shall be used solely toward the refinancing of the National Bank of Canada Debt. (c) No proceeds of the Term Loan may be used, nor shall any be requested, with a view towards the accumulation of any general fund or funded reserve of the Borrower other than in the ordinary course of the Borrower's business and consistent with the provisions of this Agreement. 3-2. THE TERM NOTE. The obligation to repay the Term Loan, with interest as provided herein, shall be evidenced by a Note (the "TERM NOTE") in the form of EXHIBIT 3-2, annexed hereto, executed by the Borrower. Neither the original nor a copy of the Term shall be required, however, to establish or prove any Liability. In the event that the Term Note is ever lost, mutilated, or destroyed, the Borrower shall execute a replacement thereof and deliver such replacement to the Administrative Agent. 3-3. PAYMENT OF PRINCIPAL OF THE TERM LOAN. (a) Except as provided in Section 3-3(e), the Borrower may not repay all or any portion of the principal balance of the Term Loan prior to the earliest of (i) the date of repayment in full of all Liabilities under the Revolving Credit and the termination of any obligation, under the Revolving Credit, of the Administrative Agent and of the Revolving Credit Lender to make any loans or to provide any financial accommodations pursuant to this Agreement, (ii) the Maturity Date, or (iii) Acceleration. (b) After the date of repayment in full of all Liabilities under the Revolving Credit, and after all L/C's have been cash collateralized, prepayments shall be immediately made towards the unpaid principal balance of the Term Loan in the amount which is necessary so that there is no OverLoan outstanding. (c) The Borrower shall pay the Administrative Agent, for the account of the Term Lender, the "TERM LOAN EARLY TERMINATION FEE" (so referred to herein) equal to the greater of (x) the result of (A) the aggregate Yield Revenue accruing (or which would have accrued) on the Term Loan during the first twelve months after the Term Loan is made minus (B) the aggregate Yield Revenue actually received by the Term Lender prior to the date of payment, or (y) one and one half percent (1.5%) of the principal balance of the Term Loan which is so paid prior the Maturity Date, provided that no Term Loan Early Termination Fee -62- shall be due and payable in the event of a prepayment in connection with a refinancing of the Term Loan agented or provided by Back Bay Capital Funding LLC, it being understood that Back Bay Capital Funding LLC, has not agreed to provide or to entertain a request to provide any such refinancing. (d) All parties to this Agreement agree and acknowledge that the Term Lender will have suffered damages on account of the early payment of the Term Loan and that, in view of the difficulty in ascertaining the amount of such damages, that the Term Loan Early Termination Fee constitutes reasonable compensation and liquidated damages to compensate the Term Lender on account thereof. (e) The Borrower shall repay the then entire unpaid balance of the Term Loan and all accrued and unpaid interest thereon on the Termination Date. 3-4. INTEREST ON THE TERM LOAN. (a) Subject to Sections 3-4(c) and 3-4(b), the unpaid principal balance of the Term Loan shall bear interest, until repaid, fixed at 16.5% per annum (the "TERM LOAN INTEREST RATE"), payable as follows: (i) Accrued interest on the unpaid principal balance of the Term Loan equal to 13.5% per annum ("CURRENT PAY INTEREST") shall be payable monthly in arrears, on the first Business Day of each month (the "TERM LOAN INTEREST PAYMENT DATE"), and on the Maturity Date. (ii) Subject to Section 3-4(a)(ii)(C), accrued interest on the unpaid principal balance of the Term Loan in excess of Current Pay Interest (which excess is referred to herein as "PIK INTEREST") shall be payable as follows: (A) The Borrower shall have the option, exercisable by irrevocable written notice by the Borrower to the Administrative Agent made at least five (5) Business Days prior to relevant Term Loan Interest Payment Date, to pay all or any part of such PIK Interest by adding the same to the principal balance of the Term Note on that Term Loan Interest Payment Date. (B) PIK Interest as to which the option provided in Section 3-4(a)(ii)(A) is not exercised shall be paid on the then next Term Loan Interest Payment Date. (C) At the direction of the Term Lender, following the -63- occurrence of any Default, the option provided in Section 3-4(a)(ii)(A) shall terminate and accrued interest to which such option otherwise could have been exercised shall be paid on each Term Loan Interest Payment Date. (b) In the event of the increase of any interest rate which is or which may be applicable to the unpaid principal balance of the Revolving Credit, the Term Loan Interest Rate shall be increased by a like amount (e.g. if the Base Margin Rate is increased by one-quarter of one percent per annum or the Eurodollar Margin is increased by 25 basis points, the Term Loan Interest Rate shall likewise be increased by one-quarter of one percent per annum) and such increase shall be treated as an increase to Current Pay Interest. (c) Following the occurrence of any Event of Default (and whether or not any remedies have been exercised in connection therewith), at the direction of the Term Lender, interest shall accrue and shall be payable on the unpaid principal balance of the Term Loan at the aggregate of the Term Loan Interest Rate then in effect plus three percent (3%) per annum. 3-5. TERM LOAN COMMITMENT; FEE TERM LOAN FACILITY FEE. (a) As compensation for the Term Lender's having committed to make the Term Loan, the Borrower shall pay to the Term Lender the Term Loan Commitment Fee of $650,000.00, payable by the Borrower in two installments as follows: (i) the sum of $350,000 shall be paid on the Closing Date, and (ii) the sum of $300,000.00 shall be paid on the first anniversary of the Closing Date if the Term Loan has not been previously paid in full. (b) In addition to any other fee to be paid by the Borrower on account of the Term Loan, the Borrower shall pay the Administrative Agent the "TERM LOAN FACILITY FEE" (so referred to herein) of $1,500 for each month or portion of a month after the Closing Date. The Term Loan Facility Fee shall be paid in advance, on the Closing Date, on first day of each month after the Closing Date and on the Termination Date. 3-6. PAYMENTS ON ACCOUNT OF TERM LOAN. The Borrower authorizes the Administrative Agent to determine and to pay over directly to the Term Loan Lender any and all amounts due and payable from time to time under or on account of the Term Loan as advances under the Revolving Credit it being understood, however, that the authorization of the Administrative Agent provided in this Section 3-6 shall not excuse the Borrower from fulfilling its obligations to the Term Lender on account of the Term Loan nor place any obligation on the -64- Administrative Agent to do so. The Administrative Agent shall provide prompt advice to the Borrower of any amount which is so paid over by the Administrative Agent to the Term Lender pursuant to this Section 3-6. ARTICLE 4 - CONDITIONS PRECEDENT: As a condition to the effectiveness of this Agreement, the establishment of the Revolving Credit, and the making of the first loan under the Revolving Credit, and the making of the Term Loan, each of the documents respectively described in Sections 4-1 through and including 4-4, (each in form and substance satisfactory to the Administrative Agent and the Lenders) shall have been delivered to the Administrative Agent and the Lenders, and the conditions respectively described in Sections 4-6 through and including 4-7, shall have been satisfied: 4-1. CORPORATE DUE DILIGENCE. (a) A Certificate of corporate good standing issued by the Secretary of State of Delaware (or the applicable state of incorporation) for the Borrower and each Guarantor. (b) Certificates of due qualification, in good standing, issued by the Secretary(ies) of State of each State in which the nature the Borrower's and Guarantors' business conducted or assets owned could require such qualification. (c) A Certificate the Borrower's and each Guarantor's Secretary of the due adoption, continued effectiveness, and setting forth the texts of, each corporate resolution adopted in connection with the establishment of the loan arrangement contemplated by the Loan Documents and attesting to the true signatures of each Person authorized as a signatory to any of the Loan Documents. 4-2. OPINION. An opinion of counsel to the Borrower and Guarantors in form and substance satisfactory to the Administrative Agent. 4-3. ADDITIONAL DOCUMENTS. Such additional instruments and documents as the Administrative Agent, the Lenders, or their counsel reasonably may require or request including, without limitation, the following: -65- (a) The Intercreditor Agreement duly executed by AWG. (b) Guaranties from each of the Guarantors together with such other Guarantor Agreements as may be reasonably required by the Administrative Agent to grant and perfect a first priority security interest in each of their respective assets. (c) The instruments, documents and agreements set forth on EXHIBIT 4-3 hereto. 4-4. OFFICERS' CERTIFICATES. Certificates executed by the President and the Chief Financial Officer of the Borrower which state that (a) Such officer, acting on behalf of the Borrower, has reviewed each of the Loan Documents and has had the benefit of independent counsel (Attorneys Crowe & Dunlevy) of the Borrower's selection in connection with the review and negotiation of the Loan Documents. In particular, and without limiting the generality of such review, the following provisions of the Loan Documents have been brought to the attention of the undersigned by such counsel: (i) The waiver of the right to a trial by jury in connection with controversies arising out of the loan arrangement contemplated by the Loan Documents. (ii) The designation of, and submission to the exclusive jurisdiction and venue of, certain courts. (iii) Various other waivers and indemnifications included therein. (iv) The circumstances under which the Liabilities could be accelerated and the grace periods available with respect to certain Defaults. (b) The representations and warranties made by the Borrower to the Agents and the Lenders in the Loan Documents are true and complete as of the date of such Certificate, and that no Default has occurred. 4-5. BORROWING ORDER. There shall have been entered in the Proceedings the Interim Borrowing Order (in form satisfactory to the Administrative Agent and the Lenders), which order shall not have been stayed, modified, appealed, reversed, or otherwise affected. 4-6. REPRESENTATIONS AND WARRANTIES. Each of the representations made -66- by or on behalf of the Borrower and the Guarantors in this Agreement or in any of the other Loan Documents or in any other report, statement, document, or paper provided by or on behalf of the Borrower or the Guarantors shall be true and complete as of the date as of which such representation or warranty was made. 4-7. ALL FEES AND EXPENSES PAID. All fees due at or immediately after the first funding under the Revolving Credit and the Term Loan and all costs and expenses incurred by the Administrative Agent, the Collateral Agent, and the Term Lender in connection with the establishment of the credit facility contemplated hereby (including the fees and expenses of counsel to the Administrative Agent, the Collateral Agent, the Term Lender, and counsel to the Term Lender) shall have been paid in full. 4-8. ADDITIONAL ADVANCES BY AWG. AWG shall have obtained an order of the Bankruptcy Court in the Proceedings and shall have provided additional financing to the Borrower and the Borrower shall have received net proceeds from such financing in the principal sum of at least $19,600,000, all on terms and conditions satisfactory to the Lenders. 4-9. COMPLETION OF DUE DILIGENCE. The Lenders shall have completed such due diligence as they deem necessary, including, without limitation, commercial finance examinations, appraisals and environmental site assessments, the results of which shall be satisfactory to the Lenders and their counsel. 4-10. CONSENTS. All necessary consents and approvals to the transactions contemplated hereby shall have been obtained and shall be satisfactory to the Lenders. 4-11. LITIGATION. There shall not be pending any litigation or other proceeding, the result of which could reasonably be expected to have a material adverse effect on the Borrower's or Guarantors' condition (financial or otherwise), operations, business, income, assets or prospects or ability to perform their obligations hereunder and under the other Loan Documents. 4-12. ACCURACY OF FINANCIAL INFORMATION. The Lenders shall be satisfied that any -67- financial statements delivered to them fairly present the business and financial condition of the Parent and its Subsidiaries. 4-13. ABSENCE OF LIENS. The Collateral Agent shall have received results of searches or other evidence satisfactory to the Collateral Agent and the Lenders (in each case dated as of a date satisfactory to the Collateral Agent) indicating the absence of liens on the assets of the Borrower and Guarantors, except for which termination statements and releases satisfactory to the Collateral Agent and the Lenders are either being tendered concurrently with such extension of credit or arrangements for such delivery have been agreed upon to the satisfaction of the Collateral Agent and the Lenders. 4-14. NO DEFAULT. No Default shall then exist. 4-15. NO ADVERSE CHANGE. Other than by virtue of the commencement of the Proceedings, no event shall have occurred or failed to occur, which occurrence or failure is or could have a materially adverse effect upon the Borrower's or Guarantors' condition (financial or otherwise), operations, business, income, assets or prospects when compared with the Business Plan. 4-16. CHANGE IN POLICIES. No material changes in governmental regulations or policies affecting the Borrower, the Guarantors, the Agent, or any Lender involved in this transaction shall have occurred prior to the Closing Date. 4-17. BENEFIT OF CONDITIONS PRECEDENT. The conditions set forth in this Article 4 are for the sole benefit of each Agent and each Lender and may be waived by the Administrative Agent in whole or in part without prejudice to any Agent or any Lender. No document shall be deemed delivered to the Administrative Agent, the Collateral Agent, the Term Lender or the Revolving Credit Lender until received and accepted by the Administrative Agent at its offices in Boston, Massachusetts. Under no circumstances shall this Agreement take effect until executed and accepted by the Administrative Agent at said offices. -68- ARTICLE 5 - GENERAL REPRESENTATIONS, COVENANTS AND WARRANTIES: To induce each Lender to establish the credit facility contemplated herein and to induce the Revolving Credit Lenders to provide loans and advances under the Revolving Credit (each of which loans shall be deemed to have been made in reliance thereupon) and to induce the Term Lender to make the Term Loan, the Borrower, in addition to all other representations, warranties, and covenants made by the Borrower in any other Loan Document, makes those representations, warranties, and covenants included in this Agreement. 5-1. PAYMENT AND PERFORMANCE OF LIABILITIES. The Borrower shall pay each payment Liability when due (or when demanded, if payable on demand) and shall promptly, punctually, and faithfully perform each other Liability. 5-2. DUE ORGANIZATION. AUTHORIZATION. No CONFLICTS. (a) The Borrower presently is and shall hereafter remain in good standing as a Delaware corporation and is and shall hereafter remain duly qualified and in good standing in every other State in which, by reason of the nature or location of the Borrower's assets or operation of the Borrower's business, such qualification may be necessary, except where the failure to so qualify would have no more than a de minimis adverse effect on the business or a assets of the Borrower. (b) The Borrower's organizational identification number assigned to it by the State of Delaware is listed on EXHIBIT 5-2, annexed hereto. (c) The Borrower shall not change its State of organization; any organizational identification number assigned to the Borrower by that State; or the Borrower's federal taxpayer identification number. (d) Each Affiliate and Subsidiary is listed on EXHIBIT 5-2. The Borrower shall provide the Administrative Agent with prior written notice of any entity's becoming or ceasing to be an Affiliate. (e) The Borrower has all requisite power and authority to execute and deliver all Loan Documents to which the Borrower is a party and has and will hereafter retain all requisite power to perform all Liabilities. (f) The execution and delivery by the Borrower of each Loan Document to -69- which it is a party; the Borrower's consummation of the transactions contemplated by such Loan Documents (including, without limitation, the creation of Collateral Interests by the Borrower to secure the Liabilities); the Borrower's performance under those of the Loan Documents to which it is a party; the borrowings hereunder; and the use of the proceeds thereof: (i) Have been duly authorized by all necessary action. (ii) Do not, and will not, contravene in any material respect any provision of any Requirement of Law or obligation of the Borrower. (iii) Will not result in the creation or imposition of, or the obligation to create or impose, any Encumbrance upon any assets of the Borrower pursuant to any Requirement of Law or obligation, except pursuant to the Loan Documents. (g) The Loan Documents have been duly executed and delivered by the Borrower and, upon entry of a Borrowing Order, are the legal, valid and binding obligations of the Borrower, enforceable against the Borrower in accordance with their respective terms. 5-3. TRADE NAMES. (a) EXHIBIT 5-3, annexed hereto, is a listing of: (i) All names under which the Borrower ever conducted its business. (ii) All Persons with whom the Borrower ever consolidated or merged, or from whom the Borrower ever acquired in a single transaction or in a series of related transactions substantially all of such Person's assets. (b) The Borrower will provide the Administrative Agent with not less than twenty-one (21) days prior written notice (with reasonable particularity) of any change to the Borrower's name from that under which the Borrower is conducting its business at the execution of this Agreement and will not effect such change unless the Borrower is then in compliance with all provisions of this Agreement. 5-4. INFRASTRUCTURE. (a) The Borrower has, and shall cause its Subsidiaries, to maintain a sufficient infrastructure to conduct its business as presently conducted and as contemplated to be conducted following its execution of this Agreement. (b) The Borrower owns and possesses, or has the right to use (and will -70- hereafter own, possess, or have such right to use) all patents, industrial designs, trademarks, trade names, trade styles, brand names, service marks, logos, copyrights, trade secrets, know-how, confidential information, and other intellectual or proprietary property of any third Person necessary for the Borrower's conduct of the Borrower's business. (c) The conduct by the Borrower of the Borrower's business does not presently infringe (nor will the Borrower conduct its business in the future so as to infringe) the patents, industrial designs, trademarks, trade names, trade styles, brand names, service marks, logos, copyrights, trade secrets, know-how, confidential information, or other intellectual or proprietary property of any third Person. 5-5. LOCATIONS. (a) The Collateral, and the books, records, and papers of Borrower pertaining thereto, are kept and maintained solely at the following locations: (i) The Borrower's chief executive offices which are at 2601 NW Expressway, Suite 1100E, Oklahoma City, Oklahoma 73112. (ii) Those locations which are listed on EXHIBIT 5-5, annexed hereto, which EXHIBIT includes, with respect to each such location, the name and address of the landlord on the Lease which covers such location (or an indication that the Borrower owns the subject location) and of all service bureaus with which any such records are maintained and the names and addresses of each of then Borrower's landlords. (b) The Borrower shall not remove any of the Collateral from said chief executive office or those locations listed on EXHIBIT 5-5 except for the following purposes: (i) To accomplish sales of Inventory in the ordinary course of business. (ii) To move Inventory from one such location to another such location. (iii) To utilize such of the Collateral as is removed from such locations in the ordinary course of business (such as motor vehicles). (c) The Borrower will not: (i) Execute, alter, modify, amend or reject any Lease without the Lenders' prior consent. (ii) Commit to, or open or close any location at which the Borrower -71- maintains, offers for sales, or stores any of the Collateral, provided, that the Borrower shall be permitted to close up to 38 stores over the term of this Agreement, such closures to occur at all times at an arm's length basis and any liquidation pursuant to such closures to be on terms satisfactory to the Administrative Agent and the Lenders. (d) Except as otherwise disclosed pursuant to, or permitted by, this Section 5-5, no tangible personal property of the Borrower is in the care or custody of any third party or stored or entrusted with a bailee or other third party and none shall hereafter be placed under such care, custody, storage, or entrustment. 5-6. ENCUMBRANCES. (a) The Borrower is, and shall hereafter remain, and shall cause its Subsidiaries to remain, the owner of the Collateral free and clear of all Encumbrances other than any Permitted Encumbrance. (b) Except as disclosed on EXHIBIT 5-6(b), annexed hereto, the Borrower does not and shall not, have, possession of any property on consignment to the Borrower. (c) The Borrower shall not acquire or obtain the right to use any Equipment, the acquisition or right to use of which Equipment is otherwise permitted by this Agreement, in which Equipment any third party has an interest, except for: (i) Equipment which is merely incidental to the conduct of the Borrower's business. (ii) Equipment, the acquisition or right to use of which has been consented to by the Administrative Agent, which consent may be conditioned upon the Administrative Agent's receipt of such agreement with the third party which has an interest in such Equipment as is satisfactory to the Administrative Agent. (d) The Borrower shall not consent to or suffer the entry of an order in the Proceedings which authorizes the return of any of the Borrower's property pursuant to Section 546(g)(*) of the Bankruptcy Code. 5-7. INDEBTEDNESS. The Borrower does not and shall not hereafter have, and shall cause its Subsidiaries not to have, any Indebtedness other than any Permitted Indebtedness. -72- 5-8. INSURANCE. (a) EXHIBIT 5-8, annexed hereto, is a schedule of all insurance policies owned by the Borrower or under which the Borrower is the named insured. Each of such policies is in full force and effect. Neither the issuer of any such policy nor the Borrower is in default or violation of any such policy. (b) The Borrower shall have and maintain at all times insurance covering such risks, in such amounts, containing such terms, in such form, for such periods, and written by such companies as may be satisfactory to the Administrative Agent. (c) All insurance carried by the Borrower shall provide for a minimum of sixty (60) days' prior written notice of cancellation to the Administrative Agent and all such insurance which covers the Collateral shall (i) Include an endorsement in favor of the Administrative Agent, naming the Administrative Agent as loss payee and additional insured, which endorsement shall provide that the insurance, to the extent of the Administrative Agent's interest therein, shall not be impaired or invalidated, in whole or in part, by reason of any act or neglect of the Borrower or by the failure of the Borrower to comply with any warranty or condition of the policy. (ii) Not include an endorsement in favor of any other Person, except for AWG and any lessors or other parties with insurable interests included in endorsements in the ordinary course of business. (d) The coverage reflected on EXHIBIT 5-8 presently satisfies the foregoing requirements, it being recognized by the Borrower, however, that such requirements may change hereafter to reflect changing circumstances. (e) The Borrower shall furnish the Administrative Agent from time to time with certificates or other evidence satisfactory to the Administrative Agent regarding compliance by the Borrower with the foregoing requirements. (f) The Borrower hereby appoints the Administrative Agent as its attorney-in-fact to do any acts deemed necessary by the Administrative Agent in the event of the failure by the Borrower to maintain insurance as required herein, including, obtaining such insurance at the sole expense of the Borrower, provided, however, the Administrative Agent's obtaining of such insurance shall not constitute a cure or waiver of any Default occasioned by the Borrower's failure to have maintained such insurance. -73- 5-9. LICENSES. Each license, distributorship, franchise, and similar agreement issued to, or to which the Borrower is a party is in full force and effect except where enforcement thereof against the Borrower is stayed by the commencement of, and during the pendency of, the Proceedings. No party to any such license or agreement is in default or violation thereof. The Borrower has not received any notice or threat of cancellation of any such license or agreement. 5-10. LEASES. EXHIBIT 5-10, annexed hereto, is a schedule of all presently effective Capital Leases. (EXHIBIT 5-5 includes a list of all other presently effective Leases). Each of such Leases and Capital Leases is in full force and effect. No party to any such Lease or Capital Lease is in default or violation of any such Lease or Capital Lease except on account of defaults, the enforcement of which is stayed under Applicable Law during the pendency of the Proceedings. The Borrower has not received any notice or threat of cancellation of any such Lease or Capital Lease. The Borrower hereby authorizes the Administrative Agent at any time and from time to time to contact any of the Borrower's landlords in order to confirm the Borrower's continued compliance with the terms and conditions of the Lease(s) between the Borrower and that landlord and to discuss such issues, concerning the Borrower's occupancy under such Lease(s), as the Administrative Agent may determine. 5-11. REQUIREMENTS OF LAW. The Borrower is in compliance with, and shall hereafter comply with and use its assets in compliance with, all Requirements of Law except where the failure of such compliance (a) will not have more than a de minimis adverse effect on the Borrower's business or assets or (b) is not required under Applicable Law during the pendency of the Proceedings. The Borrower has not received any notice of any violation of any Requirement of Law (other than of a violation which has no more than a de minimis adverse effect on the Borrower's business or assets), which violation has not been cured or otherwise remedied. 5-12. LABOR RELATIONS. (a) Except as disclosed on EXHIBIT 5-12, annexed hereto, the Borrower has not been and is not presently a party to any collective bargaining or other labor contract. (b) There is not presently pending and, to the Borrower's knowledge, there is -74- not threatened any of the following: (i) Any strike, slowdown, picketing, work stoppage, or employee grievance process. (ii) Any proceeding against or affecting the Borrower relating to the alleged violation of any Applicable Law pertaining to labor relations or before National Labor Relations Board, the Equal Employment Opportunity Commission, or any comparable governmental body, organizational activity, or other labor or employment dispute against or affecting the Borrower, which, if determined adversely to the Borrower could have more than a de minimis adverse effect on the Borrower. (iii) Any lockout of any employees by the Borrower (and no such action is contemplated by the Borrower). (iv) Any application for the certification of a collective bargaining agent. (c) No event has occurred or circumstance exists which could provide the basis for any work stoppage or other labor dispute. (d) The Borrower: (i) Has complied in all material respects with all Applicable Law relating to employment, equal employment opportunity, nondiscrimination, immigration, wages, hours, benefits, collective bargaining, the payment of social security and similar taxes, occupational safety and health, and plant closing. (ii) Is not liable for the payment of more than a de minimius amount of compensation, damages, taxes, fines, penalties, or other amounts, however designated, for the Borrower's failure to comply with any Applicable Law referenced in Section 5-12(d)(i). 5-13. MAINTAIN PROPERTIES. The Borrower shall: (a) Keep the Collateral in good order and repair (ordinary reasonable wear and tear and insured casualty excepted). (b) Not suffer or cause the waste or destruction of any material part of the Collateral. (c) Not use any of the Collateral in violation of any policy of insurance thereon. -75- (d) Subject to Section 5.5(c)(ii), not sell, lease, or otherwise dispose of any of the Collateral, other than the following: (i) The sale of Inventory in compliance with this Agreement. (ii) The disposal of Equipment which is obsolete, worn out, or damaged beyond repair, which Equipment is replaced to the extent necessary to preserve or improve the operating efficiency of the Borrower. (iii) The turning over to the Administrative Agent of all Receipts as provided herein. 5-14. TAXES. (a) Except for any failure to comply with any of the following, which failure would not result in more than a de minimis adverse effect to the Borrower, the Borrower, in compliance with all Applicable Law, has properly filed the Borrower's tax returns due to be filed up to the date of this Agreement. All federal and state taxes and other amounts in the nature of taxes for which the Borrower is liable or obligated are presently due and payable without penalty; or have been paid or settled; or, to the extent unpaid as of the date of commencement of the Proceedings, will be paid in accordance with Applicable Law and the Borrower's plan or reorganization in the Proceedings. (b) The Borrower shall: pay, as they become due and payable, all taxes and unemployment contributions and other charges of any kind or nature levied, assessed or claimed against the Borrower or the Collateral by any Person whose claim could result in an Encumbrance upon any asset of the Borrower or by any governmental authority, except to the extent that the Borrower is not required, under Applicable Law, to pay such taxes and other charges during the pendency of the Proceedings; properly exercise any trust responsibilities imposed upon the Borrower by reason of withholding from employees' pay or by reason of any Borrower's receipt of sales tax or other funds for the account of any third party; timely make all contributions and other payments as may be required pursuant to any Employee Benefit Plan now or hereafter established by the Borrower; and timely file all tax and other returns and other reports with each governmental authority to whom the Borrower is obligated to so file except where failure to file would not have a material adverse effect provided however, nothing included in this Section shall prevent the Borrower from contesting, in good faith and by appropriate proceedings, any tax liability claimed against the Borrower not to exceed -76- $100,000.00, but only provided that and so long as no tax lien is filed with respect thereto. (c) At its option, the Administrative Agent may pay any tax, charge levied, assessed, or claimed upon the Borrower or the Collateral by any Person or governmental authority, and make any payments on account of the Borrower's Employee Benefit Plan as the Administrative Agent, in the Administrative Agents discretion, may deem necessary or desirable, to protect the Agents' Rights and Remedies. 5-15. NO MARGIN STOCK. The Borrower is not engaged in the business of extending credit for the purpose of purchasing or carrying any margin stock (within the meaning of Regulations U and X of the Board of Governors of the Federal Reserve System of the United States). No part of the proceeds of any borrowing hereunder will be used at any time to purchase or carry any such margin stock or to extend credit to others for the purpose of purchasing or carrying any such margin stock. 5-16. ERISA. (a) Except for any failure to comply with any of the following, which failure would not result in more than a de minimis adverse effect to the Borrower, neither the Borrower nor any ERISA Affiliate has ever: (i) Violated or failed to be in full compliance with the Borrower's Employee Benefit Plan. (ii) Failed timely to file all reports and filings required by ERISA to be filed by the Borrower. (iii) Engaged in any nonexempt "prohibited transactions" or "reportable events" (respectively as described in ERISA). (iv) Engaged in, or committed, any act such that a tax or penalty reasonably could be imposed upon the Borrower on account thereof pursuant to ERISA. (v) Accumulate any material cumulative funding deficiency within the meaning of ERISA. (vi) Terminated any Employee Benefit Plan such that a lien could be asserted against any assets of the Borrower on account thereof pursuant to ERISA. (vii) Except as disclosed on EXHIBIT 5-16, annexed hereto, been a member of, contributed to, or have any obligation under any Employee Benefit Plan -77- which is a multiemployer plan within the meaning of Section 4001(a) of ERISA. (b) Neither the Borrower nor any ERISA Affiliate shall ever engage in any action of the type described in Section 5-16(a). 5-17. HAZARDOUS MATERIALS. (a) The Borrower has never: (i) been legally responsible for any release or threat of release of any Hazardous Material or (ii) received notification of the incurrence of any expense in connection with the assessment, containment, or removal of any Hazardous Material for which the Borrower would be responsible. (b) The Borrower shall: (i) dispose of any Hazardous Material only in compliance with all Environmental Laws and (ii) have possession of any Hazardous Material only in the ordinary course of the Borrower's business and in compliance with all Environmental Laws. (c) All facilities and properties leased by the Borrower or any of its Subsidiaries have been and continue to be owned, leased and operated in compliance with applicable Environmental Laws. (d) There have been no releases of Hazardous Materials at, on or under any property previously owned or leased by the Borrower or any of its Subsidiaries. (e) No conditions exist at, on or under any property now or previously owned or leased by the Borrower or any of its Subsidiaries which could reasonably be expected to give rise to liability under any applicable Environmental Law. 5-18. LITIGATION. Except as described in EXHIBIT 5-18, annexed hereto, there is not presently pending or to the best knowledge of the Borrower threatened by or against the Borrower any suit, action, proceeding, or investigation which, if determined adversely to the Borrower, would have more than a de minimis adverse effect upon the Borrower's financial condition or ability to conduct its business as such business is presently conducted or is contemplated to be conducted in the foreseeable future and is not stayed by the commencement of, and during the pendency of, the Proceedings. 5-19. DIVIDENDS. INVESTMENTS. CORPORATE ACTION. The Borrower shall not and shall cause its Subsidiaries not to: -78- (a) Pay any cash dividend or make any other distribution in respect of any class of the Borrower's or any Subsidiary's capital stock. (b) Make any payment on account of any Indebtedness other than (i) payment of the Liabilities, (ii) payments to AWG permitted pursuant to Section 5-27 hereof, (iii) payments of pre-petition claims authorized by orders entered in the Bankruptcy Court in the Proceedings, to which order the Lenders have consented. (c) Own, redeem, retire, purchase, or acquire, as applicable, any of the Borrower's, the Parent's, any Subsidiary's, or any Person's capital stock. (d) Invest in or purchase any stock or securities or rights to purchase any such stock or securities, of any Person other than existing investments described on EXHIBIT 5-19 hereto. (e) Merge or consolidate or be merged or consolidated with or into any other corporation or other entity. (f) Consolidate any of the Borrower's or any Subsidiary's operations with those of any other Person. (g) Organize or create any Affiliate or any Subsidiary not listed on Exhibit 5-2. (h) Subordinate any debts or obligations owed to the Borrower by any third party to any other debts owed by such third party to any other Person. (i) Acquire any assets other than in the ordinary course and conduct of the Borrower's business as conducted at the execution of this Agreement. 5-20. LOANS. The Borrower shall not make any loans or advances to, nor acquire the Indebtedness of, any Person, provided, however, the foregoing does not prohibit any of the following: (a) Advance payments made to the Borrower's suppliers (other than AWG) in the ordinary course, not to exceed $50,000.00 to any one supplier, or $500,000.000 to all suppliers in the aggregate at any one time outstanding. (b) Advances to the Borrower's officers, employees, and salespersons with respect to reasonable expenses to be incurred by such officers, employees, and salespersons for the benefit of the Borrower not to exceed $250,000.00 in the aggregate at any one time outstanding, which expenses are properly substantiated by the person seeking such advance -79- and properly reimbursable by the Borrower. 5-21. PROTECTION OF ASSETS. The Administrative Agent, in the Administrative Agent's sole discretion, and from time to time, may discharge any tax or Encumbrance on any of the Collateral, or take any other action which the Administrative Agent may deem necessary or desirable to repair, insure, maintain, preserve, collect, or realize upon any of the Collateral. The Administrative Agent shall not have any obligation to undertake any of the foregoing and shall have no liability on account of any action so undertaken except where there is a specific finding in a final non-appealable judgment in a judicial proceeding (in which the Administrative Agent has had an opportunity to be heard), from which finding no further appeal is available, that the Administrative Agent had acted in actual bad faith or in a grossly negligent manner. The Borrower shall pay to the Administrative Agent, on demand, or the Administrative Agent, in its discretion, may add to the Loan Account, all amounts paid or incurred by the Administrative Agent pursuant to this Section 5-21. 5-22. LINE OF BUSINESS. The Borrower shall not engage in any business other than the business in which it is currently engaged or a business incidental thereto (the conduct of which reasonably related business is reflected in the Business Plan). 5-23. AFFILIATE TRANSACTIONS. The Borrower shall not make any payment, nor give any value to any Affiliate except for goods and services actually purchased by the Borrower from, or sold by the Borrower to, such Affiliate for a price and on terms which shall (a) be competitive and fully deductible as an "ordinary and necessary business expense" and/or fully depreciable under the Internal Revenue Code of 1986 and the Treasury Regulations, each as amended; and (b) be no less favorable to the Borrower than those which would have been charged and imposed in an arms length transaction. 5-24. FURTHER ASSURANCES. (a) The Borrower is not the owner of, nor has it any interest in, any property or asset which, immediately upon the satisfaction of the conditions precedent to the effectiveness of the credit facility contemplated hereby (Article 4) will not be subject to a -80- perfected Collateral Interest in favor of the Collateral Agent (subject only to Permitted Encumbrances having priority over the Collateral Interest of the Collateral Agent) to secure the Liabilities. (b) The Borrower will not hereafter acquire any asset or any interest in property which is not, immediately upon such acquisition, subject to such a perfected Collateral Interest in favor of the Collateral Agent to secure the Liabilities (subject only to Permitted Encumbrances having priority over the Collateral Interest of the Collateral Agent). (c) The Borrower shall execute and deliver to the Administrative Agent such instruments, documents, and papers, and shall do all such things from time to time hereafter as the Administrative Agent may request, to carry into effect the provisions and intent of this Agreement; to protect and perfect the Collateral Agent's Collateral Interests in the Collateral; and to comply with all applicable statutes and laws, and facilitate the collection of the Receivables Collateral. The Borrower shall execute all such instruments as may be required by the Administrative Agent with respect to the recordation and/or perfection of the Collateral Interests created or contemplated herein. (d) The Borrower hereby designates the Collateral Agent as and for the Borrower's true and lawful attorney, with full power of substitution, to sign and file any financing statements in order to perfect or protect the Collateral Agent's Collateral Interests in the Collateral. (e) This Agreement constitutes an authenticated record which authorizes the Collateral Agent to file such financing statements as the Collateral Agent determines as appropriate to perfect or protect the Collateral Interests created by this Agreement. (f) A carbon, photographic, or other reproduction of this Agreement or of any financing statement or other instrument executed pursuant to this Section 5-24 shall be sufficient for filing to perfect the security interests granted herein. 5-25. ADEQUACY OF DISCLOSURE. (a) All financial statements furnished to each Agent and each Lender by the Borrower have been prepared in accordance with GAAP consistently applied and present fairly the condition of the Borrower at the date(s) thereof and the results of operations and cash flows for the period(s) covered (provided however, that unaudited financial statements are subject to normal year end adjustments and to the absence of footnotes). There has been no change in -81- the financial condition, results of operations, or cash flows of the Borrower since the date(s) of such financial statements, other than the commencement of the Proceedings and changes in the ordinary course of business, which changes have not been materially adverse to the Borrower's or Guarantors' operations, business, income, assets or property or ability to perform their obligations hereunder and under the other Loan Documents, either singularly or in the aggregate. (b) The Borrower does not have any contingent obligations or obligation under any Lease or Capital Lease which is not noted in the Borrower's financial statements furnished to each Agent and each Lender prior to the execution of this Agreement. (c) No document, instrument, agreement, or paper now or hereafter given to any Agent or to any Lender by or on behalf of the Borrower or any Guarantor of the Liabilities in connection with the execution of this Agreement by each Agent and each Lender contains or will contain any untrue statement of a material fact or omits or will omit to state a material fact necessary in order to make the statements therein not misleading. There is no fact known to the Borrower which has, or which, in the foreseeable future could have, a material adverse effect on the financial condition of the Borrower or any such Guarantor which has not been disclosed in writing to each Agent and each Lender. 5-26. NO RESTRICTIONS ON LIABILITIES. The Borrower shall not enter into or directly or indirectly become subject to any agreement which prohibits or restricts, in any manner, the Borrower's: (a) Creation of, and granting of Collateral Interests in favor of the Collateral Agent. (b) Incurrence of Liabilities. 5-27. AWG INDEBTEDNESS. (a) Borrower and the Guarantors will not make or agree to pay or make, directly or indirectly, any payment or other distribution (whether in cash securities or other property) of or in respect of principal of or interest on any Indebtedness due or to become due to AWG, or any payment or other distribution (whether in cash, securities or other property), including any sinking fund or similar deposit, on account of the purchase, redemption, retirement, acquisition, cancellation or termination of any Indebtedness due or to become due -82- to AWG, except: (i) as long as no Default then exists or would arise therefrom, payment of regularly scheduled interest and principal payments as and when due in respect of AWG Pre-Petition Loans in an amount not to exceed $43,000.00 per week; (ii) as long as no Default then exists or would arise therefrom, payment of regularly scheduled interest payments as and when due in respect of AWG Post-Petition Loans at a rate not to exceed the Base Rate plus two percent (2%) per annum. (iii) non-cash payments on account of the AWG Post-Petition Supply Agreements. (iv) payments for goods purchased by the Borrower under the AWG Post-Petition Supply Agreement and the AWG Pre-Petition Supply Agreements in the ordinary course. (v) payments of principal on account of the AWG Post-Petition Loans, as long as each of the following conditions are satisfied as of the time of each payment: (A) no Default then exists or would arise therefrom; and (B) The Lenders shall have received the audited financial statements for the fiscal year of the Parent and its Subsidiaries for the fiscal year most recently ended and the quarter most recently ended; and (C) The Parent and its Subsidiaries have achieved EBITDAR of at least $15,000,000 for the year most recently ended and the quarter most recently ended on a trailing four quarters basis; and (E) the amounts available to be borrowed and calculated under clauses (d) and (e) of the definition of Borrowing Base shall not then exceed 15% of the aggregate Borrowing Base; and (F) Availability shall have been at least $6,000,000 at all times for the ninety (90) consecutive days prior to the date of repayment to AWG and pro forma Availability for the twelve months following such repayment shall be at least $4,000,000 at all times. provided that any such payments may be made only one time during each of the following periods: -83-
Period ------------------------- May 1,2002 through May 30, 2002 August 1, 2002 through August 30,2002 November 1, 2002 through November 30,2002 May 1, 2003 through May 30,2003
5-28. BANKRUPTCY PROTECTIONS. The Borrower and Guarantors will not seek, consent, suffer to exist any of the following: (a) Any modification, stay, vacation or amendment to the Borrowing Orders to which the Administrative Agent and the Lenders have not consented. (b) A priority claim for administrative expense or unsecured claim against the Borrower or any Guarantor (now existing or hereafter arising of any kind or nature whatsoever, including, without limitation, any administrative expense of the kind specified in Section 105, 326, 330, 331, 503(a), 503(b), 506(c), 507(a), 507(b), 546(c), 546(d) or 1114 of the Bankruptcy Code) equal or superior to the priority claim of the Agent and the Lenders in respect of the Liabilities, except with respect to the Carve Out. (c) Any Encumbrance on any Collateral, having a priority equal or superior to the Encumbrances of the Agent and the Lenders. 5-29. AWG DOCUMENTS. The Borrower shall not modify or amend any provisions of the AWG Documents without the prior written consent of the Agent. The Borrower shall not amend, consent to, or file a motion seeking the amendment of any orders entered in the Proceedings relating to the AWG Documents and any adequate protection granted with respect thereto, or relating to the Loan Documents as defined in the Intercreditor Agreement) without the prior written consent of the Lenders and the Agent. The Borrower shall not amend or consent to the amendment of any overleases entered into between AWG and any landlord, in connection with any premises at which the Borrower is a subtenant. The Borrower shall furnish -84- the Administrative Agent with copies of all notices of default which it receives from AWG under the AWG Documents and any notices of default received by AWG under such overleases, copies of which have been furnished by AWG to the Borrower. Such notices shall be furnished by the Borrower to the Administrative Agent immediately upon receipt by the Borrower. 5-30. RESTRUCTURING CONSULTANT. The Borrower: (a) Shall engage a Restructuring Consultant acceptable to the Lenders within twenty days after the Closing Date and furnish the Lenders with a copy of the engagement letter, the terms and conditions of which shall be satisfactory to the Lenders. (b) Shall provide reasonable access for the Administrative Agent and the Lenders from time to time with such Restructuring Consultant to discuss such matters concerning the Borrower as they reasonably may determine. (c) Shall not dismiss such Restructuring Consultant except with the consent of the Administrative Agent and the Lenders. 5-31. OTHER COVENANTS. The Borrower shall not indirectly do or cause to be done any act which, if done directly by the Borrower, would breach any covenant contained in this Agreement. ARTICLE 6 FINANCIAL REPORTING AND PERFORMANCE COVENANTS: 6-1. MAINTAIN RECORDS. The Borrower shall: (a) At all times, keep proper books of account, in which full, true, and accurate entries shall be made of all of the Borrower's financial transactions, all in accordance with GAAP applied consistently with prior periods to fairly reflect the financial condition of the Borrower at the close of, and its results of operations for, the periods in question. (b) Timely provide the Lenders with those financial reports, statements, and schedules required by this Article 6 or otherwise, each of which reports, statements and schedules shall be prepared, to the extent applicable, in accordance with GAAP applied consistently with prior periods to fairly reflect the financial condition of the Parent, the Borrower, and the Guarantors at the close of, and the results of operations for, the period(s) covered therein. -85- (c) At all times, keep accurate current records of the Collateral. (d) At all times, retain independent certified public accountants who are reasonably satisfactory to the Administrative Agent and instruct such accountants to fully cooperate with, and be available to, the Administrative Agent to discuss the Borrower's financial performance, financial condition, operating results, controls, and such other matters, within the scope of the retention of such accountants, as may be raised by the Administrative Agent. (e) Not change the Borrower's fiscal year. 6-2. ACCESS TO RECORDS. (a) The Borrower shall accord the Administrative Agent with access from time to time as the Administrative Agent may require to all properties owned by or over which the Borrower has control. The Administrative Agent shall have the right, and the Borrower will permit the Administrative Agent from time to time as Administrative Agent may request, to examine, inspect, copy, and make extracts from any and all of the Borrower's books, records, electronically stored data, papers, and files. The Borrower shall make all of the Borrower's copying facilities available to the Administrative Agent. (b) The Borrower hereby authorizes the Administrative Agent to: (i) Inspect, copy, duplicate, review, cause to be reduced to hard copy, run off, draw off, and otherwise use any and all computer or electronically stored information or data which relates to the Borrower, or any service bureau, contractor, accountant, or other person, and directs any such service bureau, contractor, accountant, or other person fully to cooperate with the Administrative Agent with respect thereto. (ii) Verify at any time the Collateral or any portion thereof, including verification with Account Debtors, and/or with the Borrower's computer billing companies, collection agencies, and accountants and to sign the name of the Borrower on any notice to the Borrower's Account Debtors or verification of the Collateral. (c) The Administrative Agent from time to time may designate one or more representatives to exercise the Administrative Agent's rights under this Section 6-2 as fully as if the Administrative Agent were doing so. 6-3. IMMEDIATE NOTICE TO ADMINISTRATIVE AGENT. -86- (a) The Borrower shall provide the Administrative Agent with written notice promptly upon the occurrence of any of the following events, which written notice shall be with reasonable particularity as to the facts and circumstances in respect of which such notice is being given: (i) Any change in the Borrower's President, chief executive officer, chief operating officer, and chief financial officer (without regard to the title(s) actually given to the Persons discharging the duties customarily discharged by officers with those titles). (ii) Any ceasing of the Borrower's making of post-petition payments, in the ordinary course, to any of its creditors (other than its ceasing of making of such payments on account of a de minimis dispute). (iii) Any failure by the Borrower to pay post-petition rent at any of the Borrower's locations, which failure continues for more than three (3) days following the last day on which such rent was payable (except for lease payments due August 1, 2001 only, which failure continues for more than 15 days after the due date) without more than a de minimis adverse effect to the Borrower. (iv) Any material adverse change in the Borrower's or Guarantors' condition (financial or otherwise), operations, business, income, assets or prospects or ability to perform their obligations hereunder and under the other Loan Documents. (v) The occurrence of any Default. (vi) Any intention on the part of the Borrower to discharge the Borrower's present independent accountants or any withdrawal or resignation by such independent accountants from their acting in such capacity (as to which, see Subsection 6-1(d)). (vii) Any litigation which, if determined adversely to the Borrower, might have a material adverse effect on the financial condition of the Borrower except to the extent such litigation is stayed by the commencement of, and during the pendency of, the Proceedings. (viii) Any of the following with respect to the Restructuring Consultant retained by the Borrower: (A) Intention on the part of the Borrower to alter or amend its retention letter with such Restructuring Consultants. -87- (B) Any course of conduct or dealings which constitutes a change, initiated by either the Borrower or such consultants, to their working relationship as contemplated by the engagement of such consultants by the Borrower. (C) The filing of any pleading in the Proceedings which seeks to disqualify such Restructuring Consultant. (D) The entry of an order in the Proceedings which disqualifies such Restructuring Consultant. (b) The Borrower shall: (i) Provide the Administrative Agent, when so distributed, with copies of any materials distributed to the shareholders of the Borrower (qua such shareholders). (ii) Add the Administrative Agent as an addressee on all mailing lists maintained by or for the Borrower. (iii) At the request of the Administrative Agent, from time to time, provide the Administrative Agent with copies of all advertising (including copies of all print advertising and duplicate tapes of all video and radio advertising). (iv) Provide the Administrative Agent, when received by the Borrower, with a copy of any management letter or similar communications from any accountant of the Borrower. (v) Provide the Administrative Agent and the Administrative Agent's counsel with copies, when so filed or submitted, of any pleadings filed in the Proceedings by or on behalf of the Borrower or the submission by or on behalf of the Borrower of any report and financial statement to any of: the Bankruptcy Court in which the Proceedings are pending; the office of the United States Trustee; or any committee appointed in the Proceedings. (vi) Provide the Administrative Agent with copies of all filings, by the Parent, with the Securities and Exchange Commission, when so filed by the Parent. (vii) Provide the Administrative Agent with written notice of any intended bulk sale, liquidation, or other disposition of assets of the Borrower at least ten (10) Business Days prior to the consummation of such sale or disposition, or commencement of such liquidation and a detailed summary of the net proceeds -88- expected to be received therefrom. Such notice shall be in addition to any notices which may be required to be furnished the Administrative Agent and the Lenders under the Bankruptcy Code in connection with any hearings in the Proceedings to approve any such sale, liquidation or disposition. 6-4. BORROWING BASE CERTIFICATE. The Borrower shall provide the Administrative Agent by 12:30p.m., daily, with a Borrowing Base Certificate (in the form of EXHIBIT 6-4 annexed hereto, as such form may be revised from time to time by the Administrative Agent), with Inventory to be rolled forward weekly. Such Certificate may be sent to the Administrative Agent by facsimile transmission, provided that the original thereof is forwarded to the Administrative Agent on the date of such transmission. 6-5. WEEKLY REPORTS. Weekly, on Friday of each week (as of the then immediately preceding Saturday) the Borrower shall provide the Administrative Agent with a sales audit report and a flash collateral report (each in such form as may be specified from time to time by the Administrative Agent). Such report may be sent to the Administrative Agent by facsimile transmission, provided that the original thereof is forwarded to the Administrative Agent on the date of such transmission. 6-6. MONTHLY REPORTS. (a) For each fiscal month end, the Borrower shall provide the Lender with original counterparts of the following (each in such form as the Lender from time to time may specify): Within thirty (30) days of the end of the previous fiscal month end: (i) A schedule of purchases from the Borrower's ten largest vendors (in terms of year to date purchases), which schedule shall be in such form as may be satisfactory to the Lender and shall include year to date cumulative purchases and an aging of payables to each such vendor. (ii) A summary aging of the Borrower's and its Subsidiaries' accounts payable. (iii) A store activity report. (iv) The officer's compliance certificate described in Section 6-9. -89- (v) An internally prepared consolidated (and, if requested by any Lender, consolidating) financial statements of the Borrower's and its Subsidiaries' financial condition and the results of its operations for, the period ending with the end of the subject month, reflecting both the month ended and fiscal year to date results, which financial statement shall include, at a minimum, a balance sheet, income statement, cash flow and comparison of same store sales for the corresponding month of, and corresponding portion of the fiscal year to, the then immediately previous year, as well as to the Borrower's business plan, on both a month ended and fiscal year to date basis. (vi) A roll forward of the Borrower's Inventory based upon completion of physical inventories, or an applied gross margin utilizing sales and purchases information (the "APPLIED GROSS MARGIN METHOD"). The Inventory must be rolled forward at least three (3) times during each fiscal year based upon physical inventories. In any event, Inventory may not be rolled forward utilizing the Applied Gross Margin Method for more than three (3) consecutive months. (vii) In any month in which a physical inventory has been undertaken, a summary of the physical inventory results. (viii) A summary of Inventory levels by department. (ix) Inventory general ledger and sub ledger reports by department. (x) Accounts receivable general ledger and sub ledger reports by account type. (xi) Store level income statements for the end of the subject month reflecting both the month end and year to date. (xii) Lease status report containing such information as may be requested by the Administrative Agent, including, without limitation, a statement indicating dates of rental payments on all Leasehold Interests and any notices of default received by the Borrower or sent by the Borrower thereunder. (b) For purposes of Section 6-6(a), above, the first "previous month" in respect of which the items required by that Section shall be provided shall be July 14, 2001. 6-7. QUARTERLY REPORTS. Quarterly, within forty-five (45) days following the end of each of the Borrower's fiscal quarters, the Borrower shall provide to the Lenders the following: -90- (a) An original counterpart of a management prepared financial statement of the Borrower for the period from the beginning of the Borrower's then current fiscal year through the end of the subject quarter, with comparative information for the same period of the previous fiscal year, which statement shall include, at a minimum, a balance sheet, income statement (on a store specific and on a "consolidated" basis), statement of changes in shareholders' equity, and cash flows and comparisons for the corresponding quarter of the then immediately previous year, as well as to the Business Plan. (b) The officer's compliance certificate described in Section 6-9 6-8. ANNUAL REPORTS. (a) Annually, within ninety (90) days following the end of the Borrower's fiscal year, the Borrower shall furnish to the Lenders the following: (i) An original signed counterpart of the Borrower's annual financial statement, which statement shall have been prepared by, and bear the unqualified opinion of, the Borrower's independent certified public accountants (i.e. said statement shall be "certified" by such accountants) and shall include, at a minimum (with comparative information for the then prior fiscal year) a balance sheet, income statement, statement of changes in shareholders' equity, and cash flows. (ii) The officer's compliance certificate described in Section 6-9. (b) No later than the earlier of fifteen (15) days prior to the end of each of the Borrower's fiscal years or the date on which such accountants commence their work on the preparation of the Borrower's annual financial statement, the Borrower shall give written notice to such accountants (with a copy of such notice, when sent, to the Administrative Agent) that: (i) Such annual financial statement will be delivered by the Borrower to the Administrative Agent (for subsequent distribution to each Lender). (ii) It is the primary intention of the Borrower, in its engagement of such accountants, to satisfy the financial reporting requirements set forth in this Article 6. (iii) The Borrower has been advised that the Administrative Agent and each Lender). will rely thereon with respect to the administration of, and transactions under, the credit facility contemplated by this Agreement. -91- (c) Each annual statement shall be accompanied by such accountant's Certificate indicating that, in conducting the audit for such annual statement, nothing came to the attention of such accountants to believe that a Default exists (or that, if a Default exists, the facts and circumstances thereof). 6-9. OFFICERS' CERTIFICATES. The Borrower shall cause either the Borrower's President or its Chief Financial Officer, in each instance, to provide such Person's Certificate with those monthly financial statements to be provided within thirty (30) days of the end of each month and with those to be provided quarterly and annual statements to be furnished pursuant to this Agreement, which Certificate shall: (a) Indicate that the subject statement was prepared in accordance with GAAP consistently applied and presents fairly the financial condition of the Borrower at the close of, and the results of the Borrower's operations and cash flows for, the period(s) covered, subject, however to the following: (i) Usual year end adjustments (this exception shall not be included in the Certificate which accompanies such annual statement). (ii) Material Accounting Changes (in which event, such Certificate shall include a schedule (in reasonable detail) of the effect of each such Material Accounting Change) not previously specifically taken into account in the determination of the financial performance covenant imposed pursuant to Section 6-12. (b) Indicate either that (i) no Default then exists, or (ii) if such an event has occurred, its nature (in reasonable detail) and the steps (if any) being taken or contemplated by the Borrower to be taken on account thereof. (c) Include calculations concerning the Borrower's compliance (or failure to comply) at the date of the subject statement with each of the financial performance covenants included in Section 6-12 hereof. 6-10. INVENTORIES, APPRAISALS, AND AUDITS. (a) The Administrative Agent, at the expense of the Borrower, may participate in and/or observe each physical count and/or inventory of so much of the Collateral as consists of Inventory which is undertaken on behalf of the Borrower. (b) The Borrower, at its own expense, shall cause not less than four (4) -92- physical inventories to be undertaken in each twelve (12) month period during which this Agreement is in effect (the spacing of the scheduling of which inventories shall be subject to the Administrative Agent's discretion) conducted by such inventory takers as are satisfactory to the Administrative Agent and following such methodology as may be satisfactory to the Administrative Agent. (i) The Borrower shall provide the Administrative Agent with a copy of the preliminary results of each such inventory (as well as of any other physical inventory undertaken by the Borrower) within ten (10) days following the completion of such inventory. (ii) The Borrower, within thirty (30) days following the completion of such inventory, shall provide the Administrative Agent with a reconciliation of the results of each such inventory (as well as of any other physical inventory undertaken by the Borrower) and shall post such results to the Borrower's stock ledger and, as applicable to the Borrower's other financial books and records. (iii) The Administrative Agent, in its sole discretion, if a Default exists, may cause such additional inventories to be taken as the Administrative Agent determines (each, at the expense of the Borrower). (c) The Administrative Agent contemplates conducting four (4) appraisals of the Collateral constituting Inventory and one (1) appraisal for Collateral constituting Leasehold Interests and Real Estate, (in each event, at the Borrower's expense) during any twelve (12) month period during which this Agreement is in effect, but in its discretion, may undertake additional such appraisals (likewise at the Borrower's expense) during such period. Such appraisals shall be conducted by such appraisers as are satisfactory to the Administrative Agent. (d) The Administrative Agent contemplates conducting four (4) commercial finance field examinations (in each event, at the Borrower's expense) of the Borrower's books and records during any twelve (12) month period during which this Agreement is in effect, but in its discretion, may undertake additional such audits (likewise at the Borrower's expense) during such period. 6-11. ADDITIONAL FINANCIAL INFORMATION. (a) In addition to all other information required to be provided pursuant to this -93- Article 6, the Borrower promptly shall provide the Administrative Agent (and any Guarantor of the Liabilities), with such other and additional information concerning the Borrower, the Collateral, the operation of the Borrower's business, and the Borrower's financial condition, including original counterparts of financial reports and statements, as the Administrative Agent may from time to time request from the Borrower. (b) The Borrower may provide the Administrative Agent, from time to time hereafter, with updated forecasts of the Borrower's anticipated performance and operating results. (c) In all events, the Borrower, no sooner than ninety (90) nor later than sixty (60) days prior to the end of each of the Borrower's fiscal years, shall provide the Administrative Agent with an updated and extended forecast which shall go out at least through the end of the then next fiscal year and shall include an income statement, balance sheet, and statement of cash flow, by month, each prepared in conformity with GAAP and consistent with the Borrower's then current practices. (d) The Borrower recognizes that all appraisals, inventories, analysis, financial information, and other materials which the Administrative Agent may obtain, develop, or receive with respect to the Borrower are confidential to the Administrative Agent and that, except as otherwise provided herein, the Borrower is not entitled to receipt of any of such appraisals, inventories, analysis, financial information, and other materials, nor copies or extracts thereof or therefrom. ARTICLE 7 - USE OF COLLATERAL: 7-1. USE OF INVENTORY COLLATERAL. (a) The Borrower shall not engage in any of the following with respect to its Inventory: (i) Any sale other than for fair consideration and on an arms length basis in the conduct of the Borrower's business in the ordinary course. (ii) Sales or other dispositions to creditors. (iii) Sales or other dispositions in bulk. (iv) Sales of any Collateral in breach of any provision of this Agreement. -94- (b) No sale of Inventory shall be on consignment, approval, or under any other circumstances such that, with the exception of the Borrower's customary return policy applicable to the return of inventory purchased by the Borrower's retail customers in the ordinary course, such Inventory may be returned to the Borrower without the consent of the Administrative Agent. (c) The Borrower shall not consent to, nor suffer, the return of any item of Collateral pursuant to Section 546(g)(*) of the Bankruptcy Code. 7-2. INVENTORY QUALITY. All Inventory now owned or hereafter acquired by the Borrower is and will be of good and merchantable quality and free from defects (other than defects within customary trade tolerances). 7-3. ADJUSTMENTS AND ALLOWANCES. The Borrower may grant such allowances or other adjustments to the Borrower's Account Debtors (exclusive of extending the time for payment of any Account or Account Receivable, which shall not be done without first obtaining the Administrative Agent's prior written consent in each instance) as the Borrower may reasonably deem to accord with sound business practice, provided, however, the authority granted the Borrower pursuant to this Section 7-3 may be limited or terminated by the Administrative Agent at any time in the Administrative Agent's discretion. 7-4. VALIDITY OF ACCOUNTS. (a) The amount of each Account shown on the books, records, and invoices of the Borrower represented as owing by each Account Debtor is and will be the correct amount actually owing by such Account Debtor and shall have been fully earned by performance by the Borrower. (b) The Administrative Agent from time to time may verify the Receivables Collateral directly with the Borrower's Account Debtors, such verification to be undertaken in keeping with commercially reasonable commercial lending standards. (c) The Borrower has no knowledge of any impairment of the validity or collectibility of any of the Accounts. The Borrower shall notify the Administrative Agent of any such impairment immediately after the Borrower becomes aware of any such impairment. (d) The Borrower shall not post any bond to secure the Borrower's -95- performance under any agreement to which the Borrower is a party nor cause any surety, guarantor, or other third party obligee to become liable to perform any obligation of the Borrower (other than to the Administrative Agent) in the event of the Borrower's failure so to perform. 7-5. NOTIFICATION TO ACCOUNT DEBTORS. The Administrative Agent shall have the right (whether or not an Event of Default has occurred) to notify any of the Borrower's Account Debtors to make payment directly to the Administrative Agent and to collect all amounts due on account of the Collateral. ARTICLE 8 - CASH MANAGEMENT. PAYMENT OF LIABILITIES: 8-1. DEPOSITORY ACCOUNTS. (a) Annexed hereto as EXHIBIT 8-1 is a listing of all present DDA's, which listing includes, with respect to each depository of the following: (i) the name and address of that depository; (ii) the account number(s) of the account(s) maintained with such depository; and (iii) a contact person at such depository. (b) The Borrower shall deliver the following to the Administrative Agent, as a condition to the effectiveness of this Agreement: (i) Notification, executed on behalf of the Borrower, to each depository institution with which any DDA is maintained (other than any Exempt DDA and the Blocked Account), in form satisfactory to the Administrative Agent of the Collateral Agent's interest in such DDA. (ii) A Blocked Account Agreement with any depository institution at which either of the following conditions applies: (A) Both any DDA (other than the Operating Account) and the Operating Account is maintained. (B) A Blocked Account is maintained. (c) The Borrower will not establish any DDA hereafter (other than an Exempt DDA) unless, contemporaneous with such establishment, the Borrower delivers the following to the Administrative Agent: (i) Notification to the depository at which such DDA is established if -96- the same would have been required pursuant to Section 8-1(b)(ii)(A) if the subject DDA were open at the execution of this Agreement. (ii) A Blocked Account Agreement executed on behalf of the depository at which such DDA is established if the same would have been required pursuant to Section 8-1 (b)(ii)(B) if the subject DDA were open at the execution of this Agreement. 8-2. CREDIT CARD RECEIPTS. (a) Annexed hereto as EXHIBIT 8-2, is a Schedule which describes all arrangements to which the Borrower is a party with respect to the payment to the Borrower of the proceeds of credit card charges for sales by the Borrower. (b) The Borrower shall deliver to the Administrative Agent, as a condition to the effectiveness of this Agreement, notification, executed on behalf of the Borrower, to each of the Borrower's credit card clearinghouses and processors of notice (in form satisfactory to the Administrative Agent), which notice provides that payment of all credit card charges submitted by the Borrower to that clearinghouse or other processor and any other amount payable to the Borrower by such clearinghouse or other processor shall be directed to the Concentration Account or as otherwise designated from time to time by the Administrative Agent. The Borrower shall not change such direction or designation except upon and with the prior written consent of the Administrative Agent. 8-3. THE CONCENTRATION, BLOCKED, AND OPERATING ACCOUNTS. (a) The following checking accounts have been or will be established (and are so referred to herein): (i) The "CONCENTRATION ACCOUNT" (so referred to herein): Established by the Administrative Agent with Fleet National Bank. (ii) The "BLOCKED ACCOUNT" (so referred to herein): Established by the Borrower with Bank of America. (iii) The "OPERATING ACCOUNT" (so referred to herein): Established by the Borrower with Fleet National Bank. (b) The contents of each DDA and of the Blocked Account constitutes Collateral and Proceeds of Collateral. The contents of the Concentration Account constitutes -97- the Administrative Agent's property. (c) The Borrower shall pay all fees and charges of, and maintain such impressed balances as may be required by the depository in which any account is opened as required hereby (even if such account is opened by and/or is the property of the Administrative Agent). 8-4. PROCEEDS AND COLLECTIONS. (a) All Receipts and all cash proceeds of any sale or other disposition of any of the Borrower's assets: (i) Constitute Collateral and proceeds of Collateral. (ii) Shall be held in trust by the Borrower for the Administrative Agent. (iii) Shall not be commingled with any of the Borrower's other funds. (iv) Shall be deposited and/or transferred only to the Blocked Account or the Concentration Account. (b) The Borrower shall cause the ACH or wire transfer to the Blocked or the Concentration Account, not less frequently than daily (and whether or not there is then an outstanding balance in the Loan Account) of the following: (i) The then contents of each DDA (other than any Exempt DDA), each such transfer to be net of any minimum balance, not to exceed $5,000.00, as may be required to be maintained in the subject DDA by the bank at which such DDA is maintained. (ii) The proceeds of all credit card charges not otherwise provided for pursuant hereto. Telephone advice (confirmed by written notice) shall be provided to the Administrative Agent on each Business Day on which any such transfer is made. (c) Whether or not any Liabilities are then outstanding, the Borrower shall cause the ACH or wire transfer to the Concentration Account, no less frequently than daily, of then entire ledger balance of the Blocked Account, net of such minimum balance, not to exceed $5,000.00, as may be required to be maintained in the Blocked Account by the depository which the Blocked Account is maintained. (d) In the event that, notwithstanding the provisions of this Section 8-4, the Borrower receives or otherwise has dominion and control of any Receipts, or any proceeds or -98- collections of any Collateral, such Receipts, proceeds, and collections shall be held in trust by the Borrower for the Administrative Agent and shall not be commingled with any of the Borrower's other funds or deposited in any account of the Borrower other than as instructed by the Administrative Agent. 8-5. PAYMENT OF LIABILITIES. (a) On each Business Day, the Administrative Agent shall apply the then collected balance of the Concentration Account (net of fees charged, and of such impressed balances as may be required by the bank at which the Concentration Account is maintained) towards the unpaid balance of the Loan Account and all other Liabilities other than principal and interest on the Term Loan, provided, however, for purposes of the calculation of interest on the unpaid principal balance of the Loan Account, such payment shall be deemed to have been made one (1) Business Day after such transfer. (b) The following rules shall apply to deposits and payments under and pursuant to this Section 8-5: (i) Funds shall be deemed to have been deposited to the Concentration Account on the Business Day on which deposited, provided that notice of such deposit is available to the Administrative Agent by 2:00PM on that Business Day. (ii) Funds paid to the Administrative Agent, other than by deposit to the Concentration Account, shall be deemed to have been received on the Business Day when they are good and collected funds, provided that notice of such payment is available to the Administrative Agent by 2:00PM on that Business Day. (iii) If notice of a deposit to the Concentration Account (Section 8-5(b)(i)) or payment (Section 8-5(b)(ii)) is not available to the Administrative Agent until after 2:00PM on a Business Day, such deposit or payment shall be deemed to have been made at 9:00AM on the then next Business Day. (iv) All deposits to the Concentration Account and other payments to the Administrative Agent are subject to clearance and collection. (c) The Administrative Agent shall transfer to the Operating Account any surplus in the Concentration Account remaining after the application towards the Liabilities -99- referred to in Section 8-5(a), above (less those amount which are to be netted out, as provided therein) provided, however, in the event that (i) A Default then exists; and (ii) either (A) one or more L/C's are then outstanding; or (B) there is any amount unpaid on account of the Term Loan, then the Administrative Agent may establish a funded reserve of up to 110% of the aggregate of (x) the Stated Amounts of such L/C's plus (y) amounts unpaid on account of the Term Loan. Such funded reserve shall either be (i) returned to the Borrower provided that no Default exists, or (ii) applied towards the Liabilities following Acceleration. 8-6. THE OPERATING ACCOUNT. Except as otherwise specifically provided in, or permitted by, this Agreement, all checks shall be drawn by the Borrower upon, and other disbursements shall be made by the Borrower solely from, the Operating Account. ARTICLE 9 - GRANT OF SECURITY INTEREST: 9-1. GRANT OF SECURITY INTEREST. To secure the Borrower's prompt, punctual, and faithful performance of all and each of the Liabilities, the Borrower hereby grants to the Collateral Agent, for the ratable benefit of the Lenders, a continuing security interest in and to, and assigns to the Collateral Agent, for the ratable benefit of the Lenders, the following, and each item thereof, whether now owned or now due, or in which the Borrower has an interest (and without regard to whether acquired prior or subsequent to the initiation of the Proceedings), or hereafter acquired, arising, or to become due, or in which the Borrower obtains an interest, and all products, Proceeds, substitutions, and accessions of or to any of the following (all of which, together with any other property in which the Collateral Agent may in the future be granted a security interest, is referred to herein as the "COLLATERAL"): (a) All Accounts and accounts receivable. (b) All Inventory. (c) All General Intangibles. (d) All Equipment. (e) All Goods. -100- (f) All Farm Products. (g) All Fixtures. (h) All Chattel Paper. (i) All Health-Care-Insurance Receivables. (j) All Letter-of-Credit Rights. (k) All Payment Intangibles. (l) All Supporting Obligations. (m) All books, records, and information relating to the Collateral and/or to the operation of the Borrower's business, and all rights of access to such books, records, and information, and all property in which such books, records, and information are stored, recorded, and maintained. (n) All Leasehold Interests. (o) All Investment Property, Instruments, Documents, Deposit Accounts, money, policies and certificates of insurance, deposits, impressed accounts, compensating balances, cash, or other property. (p) All insurance proceeds, refunds, and premium rebates, including, without limitation, proceeds of fire and credit insurance, whether any of such proceeds, refunds, and premium rebates arise out of any of the foregoing. (9-1(a) through 9-1(o)) or otherwise. (q) All liens, guaranties, rights, remedies, and privileges pertaining to any of the foregoing (9-1(a) through 9-1(p)), including the right of stoppage in transit. (r) All Bankruptcy Recoveries. (s) Any and all other assets of the Borrower not included in any of the foregoing sections. 9-2. REAL ESTATE AND LEASEHOLD INTERESTS. The Borrowing Order shall provide, amongst other things, for a grant of mortgage and security interests to the Collateral Agent in all of the Borrower's Real Estate and Leasehold Interests. All such Real Estate and Leasehold Interests shall be included in the definition of "Collateral" under this Agreement. The Borrower shall execute and deliver to the Collateral Agent such mortgages, deeds of trust, and assignment of leases as the Collateral Agent may request in connection therewith. -101- 9-3. EXTENT AND DURATION OF SECURITY INTEREST. (a) The security interest created and granted herein is in addition to, and supplemental of, any security interest previously granted by the Borrower to the Collateral Agent and shall continue in full force and effect applicable to all Liabilities until both (a) all Liabilities have been paid and/or satisfied in full in cash and (b) the security interest created herein is specifically terminated in writing by a duly authorized officer of the Collateral Agent. The security interest created and granted herein shall continue to be effective or be reinstated, as the case may be, if at any time payment, or any part thereof, of any Liability is rescinded or must otherwise be restored by any Lender. (b) It is intended that the Collateral Interests created herein extend to and cover all assets of the Borrower. ARTICLE 10 - ADMINISTRATIVE AGENT As BORROWER'S ATTORNEY-IN-FACT: 10-1. APPOINTMENT AS ATTORNEY-IN-FACT. The Borrower hereby irrevocably constitutes and appoints the Collateral Agent as the (acting through any of its officers) Borrower's true and lawful attorney, with full power of substitution, following the occurrence of a Default, to convert the Collateral into cash at the sole risk, cost, and expense of the Borrower, but for the sole benefit of the Agents and the Lenders. The rights and powers granted the Collateral Agent by this appointment include but are not limited to the right and power to: (a) Prosecute, defend, compromise, or release any action relating to the Collateral. (b) Sign change of address forms to change the address to which the Borrower's mail is to be sent to such address as the Collateral Agent shall designate; receive and open the Borrower's mail; remove any Receivables Collateral and Proceeds of Collateral therefrom and turn over the balance of such mail either to the Borrower or to any trustee in bankruptcy or receiver of the Borrower, or other legal representative of the Borrower whom the Collateral Agent determines to be the appropriate person to whom to so turn over such mail. (c) Endorse the name of the Borrower in favor of the Collateral Agent upon any and all checks, drafts, notes, acceptances, or other items or instruments; sign and endorse the name of the Borrower on, and receive as secured party, any of the Collateral, any invoices, -102- schedules of Collateral, freight or express receipts, or bills of lading, storage receipts, warehouse receipts, or other documents of title respectively relating to the Collateral. (d) Sign the name of the Borrower on any notice to the Borrower's Account Debtors or verification of the Receivables Collateral; sign the Borrower's name on any Proof of Claim in Bankruptcy against Account Debtors, and on notices of lien, claims of mechanic's liens, or assignments or releases of mechanic's liens securing the Accounts. (e) Take all such action as may be necessary to obtain the payment of any letter of credit and/or banker's acceptance of which the Borrower is a beneficiary. (f) Repair, manufacture, assemble, complete, package, deliver, alter or supply goods, if any, necessary to fulfill in whole or in part the purchase order of any customer of the Borrower. (g) Use, license or transfer any or all General Intangibles of the Borrower. 10-2. NO OBLIGATION TO ACT. The Collateral Agent shall not be obligated to do any of the acts or to exercise any of the powers authorized by Section 10-1 herein, but if the Collateral Agent elects to do any such act or to exercise any of such powers, it shall not be accountable for more than it actually receives as a result of such exercise of power, and shall not be responsible to the Borrower for any act or omission to act except for any act or omission to act as to which there is a final non-appealable determination made in a judicial proceeding (in which proceeding the Collateral Agent has had an opportunity to be heard) which determination includes a specific finding that the subject act or omission to act had been grossly negligent or in actual bad faith. ARTICLE 11 - EVENTS OF DEFAULT: The occurrence of any event described in this Article 11 respectively shall constitute an "EVENT OF DEFAULT" herein. The occurrence of any Event of Default shall also constitute, without notice or demand, a default under all other agreements between any Agent and any Lender and the Borrower and instruments and papers heretofore, now, or hereafter given any Agent and any Lender by the Borrower. -103- 11-1. FAILURE TO PAY THE REVOLVING CREDIT OR THE TERM LOAN. The failure by the Borrower to pay when due any principal of, interest on, or fees in respect of, the Revolving Credit or the Term Loan. 11-2. FAILURE To MAKE OTHER PAYMENTS. The failure by the Borrower to pay when due (or upon demand, if payable on demand) any payment Liability other than any payment liability on account of the principal of, or interest on, or fees in respect of, the Revolving Credit or the Term Loan. 11-3. FAILURE TO PERFORM COVENANT OR LIABILITY (No GRACE PERIOD). The failure by the Borrower to promptly, punctually, faithfully and timely perform, discharge, or comply with any covenant or Liability included in any of the following provisions hereof:
Section Relates to: ------- ----------- 5-6 Encumbrances 5-7 Indebtedness 5-8 Insurance 5-14 Pay taxes 5-19 Dividends. Investments. Other Corporate Actions 5-23 Affiliate Transactions 5-28 Bankruptcy Protections Article 6 Reporting Requirements (other than those required under Sections 6-6, 6-7, and 6-8) Article 8 Cash Management
11-4. FAILURE TO PERFORM COVENANT OR LIABILITY (GRACE PERIOD). The failure by the, Borrower, within ten (10) days following the earlier of the Borrower's knowledge of a breach of any covenant or Liability not described in any of Sections 11-1, 11-2, or 11-3 or of its receipt of written notice from the Administrative Agent of the breach of any of any of such covenants or Liabilities. 11-5. MISREPRESENTATION. The determination by the Administrative Agent that any representation or warranty at any time made by the Borrower to any Agent or any Lender was not true or complete in all material respects when given. 11-6. OTHER DEBT. BREACH OF LEASE. The occurrence of any event such that any indebtedness of the Borrower to any creditor incurred subsequent to the commencement of the -104- Proceedings, other than to the Agent or any Lender, could be or is in fact accelerated, or, without the consent of the Borrower, any Lease could be terminated (whether or not the subject creditor or lessor takes any action on account of such occurrence). 11-7. DEFAULT UNDER OTHER AGREEMENTS. The occurrence of any breach of any covenant or Liability imposed by, or of any default under, any agreement (including any Loan Document) between any Agent or any Lender and the Borrower or instrument given by the Borrower to any Agent or any Lender and the expiry, without cure, of any applicable grace period (notwithstanding that subject Agent or Lender may not have exercised all or any of its rights on account of such breach or default). 11-8. UNINSURED CASUALTY LOSS. The occurrence of any uninsured loss, theft, damage, or destruction of or to any material portion of the Collateral. 11-9. ATTACHMENT. JUDGMENT. RESTRAINT OF BUSINESS. (a) The service of process upon any Agent or any Lender or any Participant seeking to attach, by trustee, mesne, or other process, any funds of the Borrower on deposit with, or assets of the Borrower in the possession of, that Agent or that Lender or such Participant. (b) The entry of any judgment against the Borrower, which judgment is not satisfied (if a money judgment) or appealed from (with execution or similar process stayed) within fifteen (15) days of its entry but only if and to the extent that the enforcement of such judgments are not stayed in the Proceedings. (c) The entry of any order or the imposition of any other process having the force of law, the effect of which is to restrain in any material way the conduct by the Borrower of its business in the ordinary course. 11-10. DEFAULT BY GUARANTOR. The occurrence of any Guarantor Default. 11-11. INDICTMENT - FORFEITURE. The indictment of, or institution of any legal process or proceeding against, the Borrower, under any Applicable Law where the relief, penalties, or remedies sought or available include the forfeiture of any property of the Borrower and/or the -105- imposition of any stay or other order, the effect of which could be to restrain in any material way the conduct by the Borrower of its business in the ordinary course. 11-12. TERMINATION OF GUARANTY. The termination or attempted termination of any guaranty by any Guarantor of the Liabilities. 11-13. CHALLENGE TO LOAN DOCUMENTS. (a) Any challenge by or on behalf of the Borrower or any Guarantor of the Liabilities to the validity of any Loan Document or the applicability or enforceability of any Loan Document strictly in accordance with the subject Loan Document's terms or which seeks to void, avoid, limit, or otherwise adversely affect any security interest created by or in any Loan Document or any payment made pursuant thereto. 11-14. Any determination by any court or any other judicial or government authority that any Loan Document is not enforceable strictly in accordance with the subject Loan Document's terms or which voids, avoids, limits, or otherwise adversely affects any security interest created by any Loan Document or any payment made pursuant thereto. 11-15. CHANGE IN CONTROL. Any Change in Control. 11-16. CHANGE IN BORROWING ORDER. The entry of an order in the Proceedings, which order constitutes the stay, modification, appeal, or reversal of any Borrowing Order or which otherwise affects the effectiveness of any Borrowing Order. 11-17. APPOINTMENT OF TRUSTEE OR EXAMINER. The appointment in the Proceedings of a trustee or of any examiner having expanded powers to operate all or any part of the Borrower's business. 11-18. CONVERSION OF CASE. The conversion of the Proceedings to a case under Chapter 7 of the Bankruptcy Code. 11-19. RELIEF FROM STAY. The entry of any order which provides relief from the -106- automatic stay otherwise imposed pursuant to Section 362 of the Bankruptcy Code, which order permits any creditor, other than the Collateral Agent, to realize upon, or to exercise any right or remedy with respect to, any asset of the Borrower or to terminate any license, franchise, or similar agreement, where such termination could have a material adverse effect on the Borrower's financial condition or ability to conduct its business in the ordinary course. 11-20 TERMINATION OF BUSINESS. Unless subject to the prior written consent of the Agent, the determination of the Borrower, whether by vote of the Borrower's board of directors or otherwise to: suspend the operation of the Borrower's business in the ordinary course, liquidate all or a material portion of the Borrower's assets or stores, or employ an agent or other third party to conduct any so-called store closing, store liquidation or "Going-Out-Of-Business" sales; or the filing of a motion or other application in the Proceedings seeking authority to do any of the foregoing. 11-21 CERTAIN APPLICATIONS. An application shall be filed by the Borrower for the approval of any other super-priority claim in the Proceedings which is pari passu with or senior to the claims of the Agents and the Lenders against the Borrower or there shall arise any such super-priority claim. 11-22 PAYMENT OF PRE-PETITION INDEBTEDNESS. The Borrower shall pay or discharge any pre-petition Indebtedness except as expressly permitted hereunder. 11-23 ADEQUATE PROTECTION ORDERS. Any adequate protection is granted by the Borrower or is ordered by the Bankruptcy Court in the Proceedings in favor of any of the Borrower's pre-petition creditors without the consent of the Lenders, or any such adequate protection is modified or expanded without the consent of the Lenders. 11-24 MATERIAL ADVERSE ACTIONS. The filing, by the Borrower, of a motion in the Proceedings to take any action or actions which are materially adverse to the Lenders or their rights and remedies hereunder or under the other Loan Documents or the Lenders' interest in any Collateral. -107- 11-25 RESTRUCTURING CONSULTANT. The failure of the Borrower to engage a Restructuring Consultant in accordance with the terms hereof, time being of the essence, or after the engagement of such Restructuring Consultant, the resignation, dismissal, or disqualification of the Restructuring Consultant. 11-26 DEFAULT UNDER AWG DOCUMENTS. The occurrence of any default or event of default under the AWG Documents or in respect of any other obligation for the payment of money due AWG, or any other occurrence such that (a) any obligations of the Borrower to AWG Documents, could be or are in fact accelerated, or (b) AWG could terminate any lease or sublease, or exercise any rights under its Supply Protection Agreements (whether or not AWG takes any action on account of such occurrence). ARTICLE 12 - RIGHTS AND REMEDIES UPON DEFAULT: 12-1 Acceleration. Upon the occurrence of any Event of Default, subject to the provisions of the Borrowing Order, the Administrative Agent may (and on the issuance of Acceleration Notice(s) requisite to the causing of Acceleration, the Administrative Agent shall), declare all Indebtedness of the Borrower to the Lenders to be immediately due and payable and may exercise all of the Administrative Agent's Rights and Remedies (and the Collateral Agent may likewise exercise all of its rights and remedies upon default) as the Administrative Agent from time to time thereafter determines as appropriate. 12-2. RIGHTS OF ENFORCEMENT. Subject to the provisions of the Borrowing Order, the Collateral Agent shall have all of the rights and remedies of a secured party upon default under the UCC, in addition to which the Collateral Agent shall have all and each of the following rights and remedies: (a) To give notice to any bank at which any DDA or Blocked Account is maintained and in which Proceeds of Collateral are deposited, to turn over such Proceeds directly to the Collateral Agent. (b) To give notice to any of the Borrower's customs brokers to follow the instructions of the Collateral Agent as provided in any written agreement or undertaking of such broker in favor of the Collateral Agent. -108- (c) To collect the Receivables Collateral with or without the taking of possession of any of the Collateral. (d) To take possession of all or any portion of the Collateral. (e) To sell, lease, or otherwise dispose of any or all of the Collateral, in its then condition or following such preparation or processing as the Collateral Agent deems advisable and with or without the taking of possession of any of the Collateral. (f) To conduct one or more going out of business sales which include the sale or other disposition of the Collateral. (g) To apply the Receivables Collateral or the Proceeds of the Collateral towards (but not necessarily in complete satisfaction of) the Liabilities. (h) To exercise all or any of the rights, remedies, powers, privileges, and discretions under all or any of the Loan Documents and under Applicable Law. 12-3. SALE OF COLLATERAL. (a) Any sale or other disposition of the Collateral may be at public or private sale upon such terms and in such manner as the Collateral Agent deems advisable, having due regard to compliance with any statute or regulation which might affect, limit, or apply to the Collateral Agent's disposition of the Collateral. (b) The Collateral Agent, in the exercise of the Collateral Agent's rights and remedies upon default, may conduct (or may require the Borrower to conduct) one or more going out of business sales, in the Collateral Agent's own right or by one or more agents and contractors. Such sale(s) may be conducted upon any premises owned, leased, or occupied by the Borrower. The Collateral Agent and any such agent or contractor, in conjunction with any such sale, may augment the Inventory with other goods (all of which other goods shall remain the sole property of the Collateral Agent or such agent or contractor). Any amounts realized from the sale of such goods which constitute augmentations to the Inventory (net of an allocable share of the costs and expenses incurred in their disposition) shall be the sole property of the Collateral Agent or such agent or contractor and neither the Borrower nor any Person claiming under or in right of the Borrower shall have any interest therein. (c) In the exercise of the Collateral Agent's rights and remedies upon default, (i) the Collateral Agent may by written notice to the Borrower require the Borrower to file a motion seeking to retain one or more agents to sell, lease, or otherwise dispose of the -109- Collateral on terms reasonably acceptable to the Collateral Agent. The Borrower shall file such motion within ten (10) Business Days of the Collateral Agent's request and shall diligently prosecute such motion. If the Borrower fails to so file the motion, the Collateral Agent may, file and prosecute such a motion in the name of the Borrower; and/or (b) the Collateral Agent may by written notice to the Borrower require the Borrower to file a motion or motions seeking to sell, assume, assign, or otherwise dispose of any or all real estate (including, without limitation, Leasehold Interests) of the Borrower pursuant to Sections 363 and 365 of the Bankruptcy Code, on terms reasonably acceptable to the Collateral Agent. The Borrower shall file such motion or motions within ten (10) Business Days of the Collateral Agent's request and shall diligently prosecute such motion(s). If the Borrower fails to so file such motion(s), the Collateral Agent may, file and prosecute such motion(s) in the name of the Borrower. (d) Unless the Collateral is perishable or threatens to decline speedily in value, or is of a type customarily sold on a recognized market (in which event the Collateral Agent shall provide the Borrower such notice as may be practicable under the circumstances), the Collateral Agent shall give the Borrower at least ten (10) days prior written notice of the date, time, and place of any proposed public sale, and of the date after which any private sale or other disposition of the Collateral may be made. The Borrower agrees that such written notice shall satisfy all requirements for notice to the Borrower which are imposed under the UCC or other applicable law with respect to the exercise of the Collateral Agent's rights and remedies upon default. (e) The Collateral Agent, the Administrative Agent, and any Lender may purchase the Collateral, or any portion of it at any sale held under this Article. (f) If any of the Collateral is sold, leased, or otherwise disposed of by the Collateral Agent on credit, the Liabilities shall not be deemed to have been reduced as a result thereof unless and until payment is finally received thereon by the Collateral Agent. (g) The Collateral Agent shall turn over to the Administrative Agent the proceeds of the exercise by the Collateral Agent of its rights and remedies under this Article 12. The Administrative Agent shall apply the proceeds of the Collateral Agent's exercise of its rights and remedies upon default pursuant to this Article 12 in accordance with Sections 14-5 and 14-6. 12-4. OCCUPATION OF BUSINESS LOCATION. In connection with the Collateral -110- Agent's exercise of the Collateral Agent's rights under this Article 12, the Collateral Agent may enter upon, occupy, and use any premises owned or occupied by the Borrower, and may exclude the Borrower from such premises or portion thereof as may have been so entered upon, occupied, or used by the Collateral Agent. The Collateral Agent shall not be required to remove any of the Collateral from any such premises upon the Collateral Agent's taking possession thereof, and may render any Collateral unusable to the Borrower. In no event shall the Collateral Agent be liable to the Borrower for use or occupancy by the Collateral Agent of any premises pursuant to this Article 12, nor for any charge (such as wages for the Borrower's employees and utilities) incurred in connection with the Collateral Agent's exercise of the Collateral Agent's Rights and Remedies. 12-5. GRANT OF NONEXCLUSIVE LICENSE. The Borrower hereby grants to the Collateral Agent a royalty free nonexclusive irrevocable license to use, apply, and affix any trademark, trade name, logo, or the like in which the Borrower now or hereafter has rights, such license being with respect to the Collateral Agent's exercise of the rights hereunder including, without limitation, in connection with any completion of the manufacture of Inventory or sale or other disposition of Inventory. 12-6. ASSEMBLY OF COLLATERAL. The Collateral Agent may require the Borrower to assemble the Collateral and make it available to the Collateral Agent at the Borrower's sole risk and expense at a place or places which are reasonably convenient to both the Collateral Agent and the Borrower. 12-7. RIGHTS AND REMEDIES. The rights, remedies, powers, privileges, and discretions of the Administrative Agent hereunder (herein, the AGENTS' RIGHTS AND REMEDIES") shall be cumulative and not exclusive of any rights or remedies which it would otherwise have. No delay or omission by an Agent in exercising or enforcing any of the Agents' Rights and Remedies shall operate as, or constitute, a waiver thereof. No waiver by an Agent of any Default or Event of Default or of any default under any other agreement shall operate as a waiver of any other default hereunder or under any other agreement. No single or partial exercise of any of the Agents' Rights or Remedies, and no express or implied agreement or transaction of whatever nature entered into between any Agent and any person, at any time, -111- shall preclude the other or further exercise of the Agents' Rights and Remedies. No waiver by any Agent of any of the Agents' Rights and Remedies on any one occasion shall be deemed a waiver on any subsequent occasion, nor shall it be deemed a continuing waiver. The Agents' Rights and Remedies may be exercised at such time or times and in such order of preference as the Agents may determine. The Agents' Rights and Remedies may be exercised without resort or regard to any other source of satisfaction of the Liabilities. ARTICLE 13 - DISTRIBUTIONS: 13-1. ORDINARY COURSE DISTRIBUTIONS: REVOLVING CREDIT. (This Section 13-7 applies unless the provisions of Section 14-5 (which relates to distributions in the event of a Liquidation) becomes operative). The Administrative Agent shall distribute to the Revolving Credit Lender, payments of principal, interest, and Revolving Credit Fees on the Revolving Credit Loans when actually received and collected by the Administrative Agent. 13-2. ORDINARY COURSE DISTRIBUTIONS: TERM LOAN (This Section 13-2 applies unless the provisions of Section 14-5 (which relates to distributions in the event of a Liquidation) becomes operative). The Administrative Agent shall distribute to the Term Lender payments on account of principal of, and interest on, the Term Loan and Term Loan Fees as received and collected by the Administrative Agent from the Borrower in accordance with the provisions of this Agreement or as made available by the Administrative Agent as the proceeds of advances under the Revolving Credit. ARTICLE 14 - ACCELERATION AND LIQUIDATION: 14-1. ACCELERATION NOTICES (a) The Administrative Agent may give the Collateral Agent and Lenders an Acceleration Notice at any time following the occurrence of an Event of Default. (b) The Revolving Credit Lender may give the Administrative Agent an Acceleration Notice at any time following the occurrence of an Event of Default. (c) The Term Lender may give the Administrative Agent an Acceleration -112- Notice at any time following the occurrence of an Event of Default which occurs after the Revolving Credit Loans have been paid in full, all L/C's have been cash collateralized, and there is no obligation on the Revolving Credit Lenders to make any further loans or to provide any further financial accommodation under the Revolving Credit. 14-2. MANDATORY ACCELERATION RIGHT OF THE TERM LENDER: (a) The Term Lender may initiate a Standstill Period by written notice to the Administrative Agent at any time after the occurrence of any Term Loan Action Event and may so initiate a Standstill Period, on account of a separate Term Loan Action Event during the pendency of another Standstill Period which has been initiated by it. (b) Upon the expiry of a Standstill Period initiated by reason of a Bankruptcy Breach, the Term Lender may give the Administrative Agent and the Collateral Agent an Acceleration Notice unless acceleration has been stayed by judicial or statutory process other than the automatic stay imposed at the initiation of the Proceedings. (c) Upon the expiry of a Standstill Period the Term Lender may give the Administrative Agent and the Collateral Agent an Acceleration Notice, provided, that, the Term Loan Lender shall rescind such Acceleration Notice in the event either 14-2(c)(i) or 14-2(c)ii) is applicable: (i) Acceleration has been stayed by judicial or statutory process other than the automatic stay imposed at the initiation of the Proceedings. (ii) As applicable: (A) If the relevant Term Loan Action Event is an Availability Breach: On any three consecutive Business Days during the relevant Standstill Period, no Availability Breach exists or occurs. (B) If the relevant Term Loan Action Event is a Term Loan Payment Breach: All payments which are due or overdue on account of the Term Loan (other than those which would be due only if the Term Loan were accelerated) are paid prior to the expiry of the relevant Standstill Period. 14-3. ACCELERATION Unless stayed by judicial or statutory process, the Administrative Agent shall Accelerate the Liabilities on account of the Revolving Credit and the Term Loan within a commercially reasonable time following: -113- (a) The Administrative Agent's giving of an Acceleration Notice to the Collateral Agent and the Revolving Credit Lenders as provided in Section 14-1(a). (b) The Administrative Agent's receipt of an Acceleration Notice from the Revolving Credit Lender, in compliance with Section 14-1(b). (c) The Administrative Agent's receipt of an Acceleration Notice from the Term Loan Lender in compliance with Section 14-1(c). 14-4. INITIATION OF LIQUIDATION Unless stayed by judicial or statutory process, a Liquidation shall be initiated by the Collateral Agent within a commercially reasonable time following Acceleration of Liabilities on account of the Revolving Credit and the Term Loan. 14-5. COLLATERAL AGENT'S CONDUCT OF LIQUIDATION (a) Any Liquidation shall be conducted by the Collateral Agent, with the advice and assistance of the Administrative Agent and the Lenders. (b) The Collateral Agent may establish one or more Nominees to "bid in" or otherwise acquire ownership to any Post Foreclosure Asset. (c) The Collateral Agent shall manage the Nominee and manage and dispose of any Post Foreclosure Assets with a view towards the realization of the economic benefits of the ownership of the Post Foreclosure Assets and in such regard, the Collateral Agent and/or the Nominee may operate, repair, manage, maintain, develop, and dispose of any Post Foreclosure Asset in such manner as the Collateral Agent determines as appropriate under the circumstances. (d) Each Agent may decline to undertake or to continue taking a course of action or to execute an action plan (whether proposed by an Agent or a Lender) unless indemnified to that Agent's satisfaction by the Lenders against any and all liability and expense which may be incurred by that Agent by reason of taking or continuing to take that course of action or action plan. (e) The Administrative Agent and each Lender shall execute all such instruments and documents not inconsistent with the provisions of this Agreement as the Administrative Agent and/or the Nominee reasonably may request with respect to the creation and governance of any Nominee, the conduct of the Liquidation, and the management and disposition of any Post Foreclosure Asset. -114- 14-6. DISTRIBUTION OF LIQUIDATION PROCEEDS: (a) The Collateral Agent may establish one or more reasonably funded reserve accounts into which proceeds of the conduct of any Liquidation may be deposited in anticipation of future expenses which may be incurred by any Agent in the exercise of rights as a secured creditor of the Borrower and prior claims which the Agents anticipate may need to be paid. (b) The Collateral Agent shall distribute the proceeds of any Liquidation to the Administrative Agent. (c) The Administrative Agent shall distribute the net proceeds of Liquidation, as distributed to the Administrative Agent by the Collateral Agent pursuant to Section 14-5(b), in accordance with the relative priorities set forth in Section 14-6. (d) Each Lender, on the written request of the Administrative Agent and/or any Nominee, not more frequently than once each month, shall reimburse the Agents and/or any Nominee, pro-rata, for any cost or expense reasonably incurred by the Agents and/or the Nominee in the conduct of a Liquidation, which amount is not covered out of current proceeds of the Liquidation, which reimbursement shall be paid over to and distributed by the Administrative Agent. 14-7. RELATIVE PRIORITIES TO PROCEEDS OF LIQUIDATION (a) All distributions of proceeds of a Liquidation shall be net of payment over to the Agents as reimbursement for all reasonable third party costs and expenses incurred by the Agents and to any funded reserve established pursuant to Section 14-5(a). (b) The proceeds of a Liquidation, net of those amounts described in Section (a) above, shall be applied to the Liabilities as follows: (i) first, to the Revolving Credit Lenders to cash collateralize any outstanding L/C's hereunder, to pay outstanding principal and interest under the Revolving Credit, the Unused Line Fee, any cash management fees and the fees payable on the account of the L/C's hereunder; (ii) second, to the Term Lender to pay outstanding principal and interest under the Term Loan; (iii) third, to the Revolving Credit Lenders, to pay the Revolving Credit Early Termination Fee; -115- (iv) fourth, to the Term Lender, to pay the Term Loan Early Termination Fee; (v) fifth, to the Revolving Credit Lenders, to pay all other outstanding Liabilities due and payable to the Revolving Credit Lenders; (vi) sixth, to the Term Lender, to pay all other outstanding Liabilities due and payable to the Term Lender; and (vii) seventh, to pay all other outstanding Liabilities. ARTICLE 15 - THE AGENTS: 15-1. APPOINTMENT OF THE AGENT (a) Each Lender appoints and designates Fleet Retail Finance Inc. as the "Administrative Agent" hereunder and under the Loan Documents. (b) Each Lender appoints and designates Fleet Retail Finance Inc. as the "Collateral Agent" hereunder and under the Loan Documents. (c) Each Lender authorizes each Agent: (i) To execute those of the Loan Documents and all other instruments relating thereto to which that Agent is a party. (ii) To take such action on behalf of the Lenders and to exercise all such powers as are expressly delegated to that Agent hereunder and in the Loan Documents and all related documents, together with such other powers as are reasonably incident thereto. 15-2. RESPONSIBILITIES OF AGENTS (a) The Administrative Agent shall have principal responsibilities for and primary authority for the administration of the credit facility contemplated by the Loan Agreement and for all matters for which the Collateral Agent is not responsible. In all instances where the allocation of responsibility and authority, as between the Collateral Agent and the Administrative Agent is in doubt, the Administrative Agent shall be vested with such responsibility and authority. (b) The Collateral Agent shall have principal responsibilities for and primary authority for the conduct of the Liquidation and the distribution of the proceeds of such Liquidation. -116- (c) Neither Agent shall have any duties or responsibilities to, or any fiduciary relationship with, any Lender except for those expressly set forth in this Agreement. (d) Neither Agent nor any of its Affiliates shall be responsible to any Lender for any of the following: (i) Any recitals, statements, representations or warranties made by the Borrower or any other Person. (ii) Any appraisals or other assessments of the assets of the Borrower or of any other Person responsible for or on account of the Liabilities. (iii) The value, validity, effectiveness, genuineness, enforceability, or sufficiency of the Loan Agreement, the Loan Documents or any other document referred to or provided for therein. (iv) Any failure by the Borrower or any other Person (other than the subject Agent) to perform its obligations under the Loan Documents. (e) Each Agent may employ attorneys, accountants, and other professionals and agents and attorneys-in-fact and shall not be responsible for the negligence or misconduct of any such attorneys, accountants, and other professionals or agents or attorneys-in-fact selected by the subject Agent with reasonable care. No such attorney, accountant, other professional, agent, or attorney-in-fact shall be responsible for any action taken or omitted to be taken by any other such Person. (f) Neither Agent, nor any of its directors, officers, or employees shall be responsible for any action taken or omitted to be taken or omitted to be taken by any other of them in connection herewith in reliance upon advice of their respective counsel nor, in any other event except for any action taken or omitted to be taken as to which a final judicial determination has been or is made (in a proceeding in which such Person has had an opportunity to be heard) that such Person had acted in a grossly negligent manner, in actual bad faith, or in willful misconduct. (g) Neither Agent shall have any responsibility in any event for more funds than that Agent actually receives and collects. (h) The Agents, in their separate capacities as Lenders, shall have the same rights and powers hereunder as any other Lender. -117- 15-3. CONCERNING DISTRIBUTIONS BY THE AGENTS (a) Each Agent, in that Agent's reasonable discretion based upon that Agent's determination of the likelihood that additional payments will be received, expenses incurred, and/or claims made by third parties to all or a portion of such proceeds, may delay the distribution of any payment received on account of the Liabilities. (b) Each Agent may disburse funds prior to determining that the sums which that Agent expects to receive have been finally and unconditionally paid to that Agent. If and to the extent that Agent does disburse funds and it later becomes apparent that the Agent did not then receive a payment in an amount equal to the sum paid out, then any Lender to whom the Agent made the funds available, on demand from the Agent, shall refund to the Administrative Agent the sum paid to that person. (c) If, in the reasonable opinion of an Agent, the distribution of any amount received by that Agent might involve that Agent in liability, or might be prohibited hereby, or might be questioned by any Person, then that Agent may refrain from making distribution until that Agent's right to make distribution has been adjudicated by a court of competent jurisdiction. (d) The proceeds of any Lender's exercise of any right of, or in the nature of, set-off shall be deemed, First, to the extent that a Lender is entitled to any distribution hereunder, to constitute such distribution and Second, shall be shared with the other Lenders as if distributed pursuant to (and shall be deemed as distributions under) Section 14-6. (e) Each Lender recognizes that the crediting of the Borrower with the "proceeds" of any transaction in which a Post Foreclosure Asset is acquired is a non-cash transaction and that, in consequence, no distribution of such "proceeds" will be made by the Administrative Agent to any Lender. (f) In the event that (x) a court of competent jurisdiction shall adjudge that any amount received and distributed by the Administrative Agent is to be repaid or disgorged or (y) those Lenders adversely affected thereby determine to effect such repayment or disgorgement, then each Lender to which any such distribution shall have been made shall repay, to the Agent which had made such distribution, that Lender's pro-rata share of the amount so adjudged or determined to be repaid or disgorged. 15-4. DISPUTE RESOLUTION: Any dispute among the Lenders and/or any Agent -118- concerning the interpretation, administration, or enforcement of the financing arrangements contemplated by this or any other Loan Document or the interpretation or administration of this or any other Loan Document which cannot be resolved amicably shall be resolved in the United States Bankruptcy Court for the Western District of Oklahoma, to the jurisdiction of which courts each Lender hereto hereby submits. 15-5. DISTRIBUTIONS OF NOTICES AND OF DOCUMENTS The Administrative Agent will forward to each Lender, promptly after the Administrative Agent's receipt thereof, a copy of each notice or other document furnished to the Administrative Agent pursuant to this Agreement, including monthly, quarterly, and annual financial statements received from the Borrower pursuant to Article 6 of this Agreement, other than any of the following: (a) Routine communications associated with requests for Revolving Credit Loans and/or the issuance of L/C's. (b) Routine or nonmaterial communications. (c) Any notice or document required by any of the Loan Documents to be furnished to the Lenders by the Borrower. (d) Any notice or document of which the Administrative Agent has knowledge that such notice or document had been forwarded to the Lenders other than by the Administrative Agent. 15-6. CONFIDENTIAL INFORMATION (a) Each Lender will maintain, as confidential, all of the following: (i) Proprietary approaches, techniques, and methods of analysis which are applied by the Administrative Agent in the administration of the credit facility contemplated by this Agreement. (ii) Proprietary forms and formats utilized by the Administrative Agent in providing reports to the Lenders pursuant hereto, which forms or formats are not of general currency. (b) Nothing included herein shall prohibit the disclosure of any such information as may be required to be provided by judicial process or by regulatory authorities having jurisdiction over any party to this Agreement. -119- 15-7. RELIANCE BY AGENTS Each Agent shall be entitled to rely upon any certificate, notice or other document (including any cable, telegram, telex, or facsimile) reasonably believed by that Agent to be genuine and correct and to have been signed or sent by or on behalf of the proper person or persons, and upon advice and statements of attorneys, accountants and other experts selected by that Agent. As to any matters not expressly provided for in this Agreement, any Loan Document, or in any other document referred to therein, that Agent shall in all events be fully protected in acting, or in refraining from acting, in accordance with the consent of the Lenders. 15-8. NON-RELIANCE ON AGENTS AND OTHER LENDERS (a) Each Lender represents to all other Lenders and to the Agents that such Lender: (i) Independently and without reliance on any representation or act by any Agent or by any other Lender, and based on such documents and information as that Lender has deemed appropriate, has made such Lender's own appraisal of the financial condition and affairs of the Borrower and decision to enter into this Agreement. (ii) Has relied upon that Lender's review of the Loan Documents by that Lender and by counsel to that Lender as that Lender deemed appropriate under the circumstances. (b) Each Lender agrees that such Lender, independently and without reliance upon any Agent or any other Lender, and based upon such documents and information as such Lender shall deem appropriate at the time, will continue to make such Lender's own appraisals of the financial condition and affairs of the Borrower when determining whether to take or not to take any discretionary action under this Agreement. (c) Neither Agent in the discharge of that Agent's duties hereunder, shall be required to make inquiry of, or to inspect the properties or books of, any Person. (d) Except for notices, reports, and other documents and information expressly required to be furnished to the Lenders by the Administrative Agent hereunder (as to which, see Section 15-5), the Agents shall not have any affirmative duty or responsibility to provide any Lender with any credit or other information concerning any Person, which information may come into the possession of Agents or any Affiliate of an Agent. (e) Each Lender, at such Lender's request, shall have reasonable access to -120- all nonprivileged documents in the possession of the Agents, which documents relate to the Agents' performance of their duties hereunder. 15-9. INDEMNIFICATION Without limiting the liabilities of the Borrower under any this or any of the other Loan Documents, each Lender shall indemnify each Agent, pro-rata, for any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever (including attorneys' reasonable fees and expenses and other out-of-pocket expenditures) which may at any time be imposed on, incurred by, or asserted against that Agent and in any way relating to or arising out of this Agreement or any other Loan Document or any documents contemplated by or referred to therein or the transactions contemplated thereby or the enforcement of any of terms hereof or thereof or of any such other documents, provided, however, no Lender shall be liable for any of the foregoing to the extent that any of the foregoing arises from any action taken or omitted to be taken by the subject Agent as to which a final judicial determination has been or is made (in a proceeding in which the subject Agent has had an opportunity to be heard) that the subject Agent had acted in a grossly negligent manner, in actual bad faith, or in willful misconduct. ARTICLE 16 - ACTION BY AGENTS - CONSENTS - AMENDMENTS - WAIVERS: 16-1. ADMINISTRATION OF CREDIT FACILITIES (a) Except as otherwise specifically provided in this Agreement, each Agent may take any action with respect to the credit facility contemplated by the Loan Documents as that Agent determines to be appropriate within their respective areas of responsibility and authority, as set forth in Sections 15-2(b) and 15-2(a), provided, however, neither Agent is under any affirmative obligation to take any action which it is not required by this Agreement or the Loan Documents specifically to so take. (b) Except as specifically provided in the Sections 16-2 and 16-3 of this Agreement, whenever a Loan Document or this Agreement provides that action may be taken or omitted to be taken in an Agents' discretion, that Agent shall have the sole right to take, or refrain from taking, such action without, and notwithstanding, any vote of the Lender: 16-2. ACTION REQUIRING CERTAIN CONSENT The consent or direction of all of the Lenders is required for any amendment or waiver of any provision of this Agreement, the other -121- Loan Documents and the Intercreditor Agreement, including, without limitation, the following: (a) Any forgiveness of all or any portion of any payment Liability. (b) Any decrease in any interest rate or fee payable under any of the Loan Documents. (c) Any waiver, amendment, or modification which has the effect of increasing any Revolving Credit Dollar Commitment. (d) Extending the Maturity Date. (e) Modifying any payment dates with respect to any principal, interest, or fees on either of the Loans. (f) Any release of a material portion of the Collateral. (g) Any amendment of the Definitions of "Borrowing Base", "Receivables Reserve", "Realty Reserve", "Inventory Reserve", or "Availability" or of any Definition of any component thereof, such that more credit would be available to the Borrower, based on the same assets, as would have been available to the Borrower immediately prior to such amendment, it being understood, however, that: (i) The foregoing shall not limit the adjustment by the Administrative Agent of any Reserve in the Administrative Agent's administration of the Revolving Credit as otherwise permitted by this Agreement. (ii) The foregoing shall not prevent the Administrative Agent, in its administration of the Revolving Credit, from restoring any component of Borrowing Base which had been lowered by the Administrative Agent back to the value of such component, as stated in this Agreement or to an intermediate value. (h) Any release of any Person obligated on account of the Liabilities (including the Guarantors). (i) Any amendment of this Article 16. 16-3. ACTIONS REQUIRING AGENTS' CONSENT (a) No action, amendment, or waiver of compliance with, any provision of the Loan Documents or of this Agreement which affects an Agent in its capacity as an Agent may be undertaken without the written consent of the Agents. (b) No action referenced herein which affects the rights, duties, obligations, or liabilities of an Agent shall be effective without the written consent of the Agents. -122- 16-4. MISCELLANEOUS ACTIONS (a) Notwithstanding any other provision of this Agreement, no single Lender independently may exercise any right of action or enforcement against or with respect to the Borrower. (b) Each Agent shall be fully justified in failing or refusing to take action under this Agreement or any Loan Document on behalf of any Lender unless that Agent shall first (i) receive such clear, unambiguous, written instructions as that Agent deems appropriate; and (ii) be indemnified to that Agent's satisfaction by the Lenders against any and all liability and expense which may be incurred by that Agent by reason of taking or continuing to take any such action, unless such action had been grossly negligent, in willful misconduct, or in bad faith. (c) Each Agent may establish reasonable procedures for the providing of direction and instructions from the Lenders to that Agent, including its reliance on multiple counterparts, facsimile transmissions, and time limits within which such direction and instructions must be received in order to be included in a determination of whether the requisite Lenders have provided their direction, consent, or instructions. 16-5. ACTIONS REQUIRING BORROWER'S CONSENT The Borrower's consent is required for any amendment of this Agreement, except that each of the following Articles of this Agreement may be amended without the consent of the Borrower:
Article Title of Article ------- ---------------- 14 Acceleration and Liquidation 15 The Agents 16 Action By Agents - Consents - Amendments - Waivers
ARTICLE 17 - NOTICES: 17-1. NOTICE ADDRESSES. All notices, demands, and other communications made in respect of any Loan Document (other than a request for a loan or advance or other financial accommodation under the Revolving Credit) shall be made to the following addresses, each of which may be changed upon seven (7) days written notice to all others given by certified mail, return receipt requested: -123- If to either Agent: Fleet Retail Finance Inc. 40 Broad Street Boston, Massachusetts 02109 Attention : Sally Sheehan Fax : (617) 434-4339 With a copy to: Riemer & Braunstein LLP Three Center Plaza Boston, Massachusetts 02108 Attention : David S. Berman, Esquire Fax : 617 880 3456 If to the Borrower: Homeland Stores, Inc. 2601 NW Expressway, Suite 1100E Oklahoma City, Oklahoma 73112 Attention : David Clark Fax : 405 879-4614 With a copy to: Crowe & Dunlevy 1800 Mid-America Tower 20 North Broadway Oklahoma City, Oklahoma 73102 Attention : Roger A. Stong, Esquire Fax: : (405) 239-6651 17-2. NOTICE GIVEN. (a) Except as otherwise specifically provided herein, notices shall be deemed made and correspondence received, as follows (all times being local to the place of delivery or receipt): (i) By mail: the sooner of when actually received or three (3) days following deposit in the United States mail, postage prepaid. (ii) By recognized overnight express delivery: the Business Day following the day when sent. (iii) By Hand: If delivered on a Business Day after 9:00 AM and no later than three (3) hours prior to the close of customary business hours of the recipient, -124- when delivered. Otherwise, at the opening of the then next Business Day. (iv) By Facsimile transmission (which must include a header on which the party sending such transmission is indicated): If sent on a Business Day after 9:00 AM and no later than three (3) hours prior to the close of customary business hours of the recipient, one (1) hour after being sent. Otherwise, at the opening of the then next Business Day. (b) Rejection or refusal to accept delivery and inability to deliver because of a changed address or Facsimile Number for which no due notice was given shall each be deemed receipt of the notice sent. 17-3. WIRE INSTRUCTIONS. NOTICE GIVEN. Subject to change in the same manner that a notice address may be changed (as to which, see Section 17-1), wire transfers to the Administrative Agent shall be made in accordance with the following wire instructions: Fleet Retail Finance Inc. ABA Number : 011000390 Account Name : Fleet Retail Finance Inc. Account Number : 530-39952 Reference : Homeland Stores, Inc. ARTICLE 18 - TERM: 18-1. TERMINATION OF REVOLVING CREDIT. The Revolving Credit shall remain in effect (subject to suspension as provided in Section 2-6 hereof) until the Termination Date. 18-2. ACTIONS ON TERMINATION. (a) On the Termination Date, the Borrower shall pay the Administrative Agent (whether or not then due), in immediately available funds, all then Liabilities including, without limitation: the following: (i) The entire balance of the Loan Account (including the unpaid principal balance of the Revolving Credit Loans). (ii) Any then remaining installments of the Revolving Credit Commitment Fee. (iii) Any payments due on account of the indemnification obligations included in Section 2-10(e). -125- (iv) Any accrued and unpaid Unused Line Fee and Facility Fees. (v) Any applicable Revolving Credit Early Termination Fee. (vi) All unpaid principal and accrued and unpaid interest (including all accrued and unpaid Current Pay Interest and all accrued and unpaid PIK Interest) on the Term Loan. (vii) Any then remaining installments of the Term Loan Commitment Fee and the Term Loan Facility Fee. (viii) Any Term Loan Early Termination Fee. (ix) All unreimbursed costs and expenses of each Agent and the Lenders. (x) All other Liabilities. (b) On the Termination Date, the Borrower shall also shall make such arrangements concerning any L/C's then outstanding as are reasonably satisfactory to the Administrative Agent. (c) Until such payment (Section 18-2(a)) and arrangements concerning L/C's (Section 18-2(b)), all provisions of this Agreement, other than those included in Article 1, 2 which place any obligation on the Administrative Agent or the Revolving Credit Lender to make any loans or advances or to provide any financial accommodations to the Borrower and those included in Article 3 which place any obligation on the Term Lender to make any loan or advance or to provide any financial accommodation to the Borrower shall remain in full force and effect until all Liabilities shall have been paid in full. (d) The release by the Collateral Agent of the Collateral Interests granted the Collateral Agent by the Borrower hereunder may be upon such conditions and indemnifications as the Administrative Agent may require. ARTICLE 19 - GENERAL: 19-1. PROTECTION OF COLLATERAL. No Agent has any duty as to the collection or protection of the Collateral beyond the safe custody of such of the Collateral as may come into the possession of that Agent. -126- 19-2. PUBLICITY. The Agents (or either of them) and the Term Lender respectively may issue a "tombstone" notice of the establishment of the credit facility contemplated by this Agreement and may make reference to the Borrower (and may utilize any logo or other distinctive symbol associated with the Borrower) in connection with any advertising, promotion, or marketing (including reference in any "case study" of the creditor facility contemplated hereby) undertaken by the Agents (or either of them) and/or the Term Lender. 19-3. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon the Borrower and the Borrower's representatives, successors, and assigns and shall enure to the benefit of each Agent and each Lender and their respective successors and assigns, provided, however, no trustee or other fiduciary appointed with respect to the Borrower shall have any rights hereunder. In the event that any Agent or any Lender assigns or transfers its rights under this Agreement, the assignee shall thereupon succeed to and become vested with all rights, powers, privileges, and duties of such assignor hereunder and such assignor shall thereupon be discharged and relieved from its duties and obligations hereunder. 19-4 SEVERABILITY. Any determination that any provision of this Agreement or any application thereof is invalid, illegal, or unenforceable in any respect in any instance shall not affect the validity, legality, or enforceability of such provision in any other instance, or the validity, legality, or enforceability of any other provision of this Agreement. 19-5. AMENDMENTS. COURSE OF DEALING. (a) This Agreement and the other Loan Documents incorporate all discussions and negotiations between the Borrower and each Agent and each Lender, either express or implied, concerning the matters included herein and in such other instruments, any custom, usage, or course of dealings to the contrary notwithstanding. No such discussions, negotiations, custom, usage, or course of dealings shall limit, modify, or otherwise affect the provisions thereof. No failure by any Agent or any Lender to give notice to the Borrower of the Borrower's having failed to observe and comply with any warranty or covenant included in any Loan Document shall constitute a waiver of such warranty or covenant or the amendment of the subject Loan Document. No change made by the Administrative Agent to the manner by which Borrowing Base is determined shall obligate the Administrative Agent to continue to determine Borrowing Base in that manner. -127- (b) The Borrower may undertake any action otherwise prohibited hereby, and may omit to take any action otherwise required hereby, upon and with the express prior written consent of the Administrative Agent. Subject to Article 16, no consent, modification, amendment, or waiver of any provision of any Loan Document shall be effective unless executed in writing by or on behalf of the party to be charged with such modification, amendment, or waiver (and if such party is the Administrative Agent then by a duly authorized officer thereof). Any modification, amendment, or waiver provided by the Administrative Agent shall be in reliance upon all representations and warranties theretofore made to the Administrative Agent by or on behalf of the Borrower (and any guarantor, endorser, or surety of the Liabilities) and consequently may be rescinded in the event that any of such representations or warranties was not true and complete in all material respects when given. 19-6. POWER OF ATTORNEY. In connection with all powers of attorney included in this Agreement, the Borrower hereby grants unto the Administrative Agent (acting through any of its officers) full power to do any and all things necessary or appropriate in connection with the exercise of such powers as fully and effectually as the Borrower might or could do, hereby ratifying all that said attorney shall do or cause to be done by virtue of this Agreement. No power of attorney set forth in this Agreement shall be affected by any disability or incapacity suffered by the Borrower and each shall survive the same. All powers conferred upon the Administrative Agent or the Collateral Agent by this Agreement, being coupled with an interest, shall be irrevocable until this Agreement is terminated by a written instrument executed by a duly authorized officer of the Administrative Agent. 19-7. APPLICATION OF PROCEEDS. The proceeds of any collection, sale, or disposition of the Collateral, or of any other payments received hereunder, shall be applied towards the Liabilities in such order and manner as the Administrative Agent determines in its sole discretion, consistent, however, with Sections 14-5 and 14-6 and any other applicable provisions of this Agreement. The Borrower shall remain liable for any deficiency remaining following such application. 19-8. INCREASED COSTS. If, as a result of any Requirement of Law, or of the -128- interpretation or application thereof by any court or by any governmental or other authority or entity charged with the administration thereof, whether or not having the force of law, which: (a) subjects any Lender to any taxes or changes the basis of taxation, or increases any existing taxes, on payments of principal, interest or other amounts payable by the Borrower to the Administrative Agent or any Lender under this Agreement (except for taxes on the Administrative Agent or any Lender based on net income or capital imposed by the jurisdiction in which the principal or lending offices of the Administrative Agent or that Lender are located); (b) imposes, modifies or deems applicable any reserve, cash margin, special deposit or similar requirements against assets held by, or deposits in or for the account of or loans by or any other acquisition of funds by the relevant funding office of any Lender; (c) imposes on any Lender any other condition with respect to any Loan Document; or (d) imposes on any Lender a requirement to maintain or allocate capital in relation to the Liabilities; and the result of any of the foregoing, in such Lender's reasonable opinion, is to increase the cost to that Lender of making or maintaining any loan, advance or financial accommodation or to reduce the income receivable by that Lender in respect of any loan, advance or financial accommodation by an amount which that Lender deems to be material, then upon written notice from the Administrative Agent, from time to time, to the Borrower (such notice to set out in reasonable detail the facts giving rise to and a summary calculation of such increased cost or reduced income), the Borrower shall forthwith pay to the Administrative Agent, for the benefit of the subject Lender, upon receipt of such notice, that amount which shall compensate the subject Lender for such additional cost or reduction in income. 19-9. COSTS AND EXPENSES OF THE AGENTS. (a) The Borrower shall pay from time to time on demand all Costs of Collection and all reasonable costs, expenses, and disbursements (including attorneys' reasonable fees and expenses) which are incurred by each Agent and each Initial Lender in connection with the preparation, negotiation, execution, and delivery of this Agreement and of any other Loan Documents, and all other reasonable costs, expenses, and disbursements -129- which may be incurred in connection with or in respect to the credit facility contemplated hereby or which otherwise are incurred with respect to the Liabilities. (b) The Borrower shall pay from time to time on demand all reasonable costs and expenses (including attorneys' reasonable fees and expenses) incurred, following the occurrence of any Default, by the Lenders or in connection with the negotiation or structuring of any "work-out" (whether or not consummated). (c) The Borrower authorizes the Administrative Agent to pay all such fees and expenses and in the Administrative Agent's discretion, to add such fees and expenses to the Loan Account. (d) The undertaking on the part of the Borrower in this Section 19-9 shall survive payment of the Liabilities and/or any termination, release, or discharge executed by any Agent in favor of the Borrower, other than a termination, release, or discharge which makes specific reference to this Section 19-9. 19-10. COPIES AND FACSIMILES. Each Loan Document and all documents and papers which relates thereto which have been or may be hereinafter furnished any Agent or any Lender may be reproduced by any Lender or by any Agent by any photographic, microfilm, xerographic, digital imaging, or other process, and such Person making such reproduction may destroy any document so reproduced. Any such reproduction shall be admissible in evidence as the original itself in any judicial or administrative proceeding (whether or not the original is in existence and whether or not such reproduction was made in the regular course of business). Any facsimile which bears proof of transmission shall be binding on the party which or on whose behalf such transmission was initiated and likewise shall be so admissible in evidence as if the original of such facsimile had been delivered to the party which or on whose behalf such transmission was received. 19-11. MASSACHUSETTS LAW. This Agreement and all rights and obligations hereunder, including matters of construction, validity, and performance, shall be governed by the law of The Commonwealth of Massachusetts. 19-12. INDEMNIFICATION. The Borrower shall indemnify, defend, and hold each Agent and each Lender and any Participant and any of their respective employees, officers, or -130- agents (each, an "INDEMNIFIED PERSON") harmless of and from any claim brought or threatened against any Indemnified Person by the Borrower, any guarantor or endorser of the Liabilities, or any other Person (as well as from reasonable attorneys' fees, expenses, and disbursements in connection therewith) on account of the relationship of the Borrower or of any other guarantor or endorser of the Liabilities, including all costs, expenses, liabilities, and damages as may be suffered by any Indemnified Person in connection with (x) the Collateral; (y) the occurrence of any Default or Event of Default; or (z) the exercise of any rights or remedies under any of the Loan Documents (each of claims which may be defended, compromised, settled, or pursued by the Indemnified Person with counsel of the Lender's selection, but at the expense of the Borrower) other than any claim as to which a final determination is made in a final non- appealable judgment in a judicial proceeding (in which the Administrative Agent and any other Indemnified Person has had an opportunity to be heard), which determination includes a specific finding that the Indemnified Person seeking indemnification had acted in a grossly negligent manner or in actual bad faith. This indemnification shall survive payment of the Liabilities and/or any termination, release, or discharge executed by the Administrative Agent in favor of the Borrower, other than a termination, release, or discharge duly executed on behalf of the Administrative Agent which makes specific reference to this Section 19-12. 19-13. RULES OF CONSTRUCTION. The following rules of construction shall be applied in the interpretation, construction, and enforcement of this Agreement and of the other Loan Documents: (a) Unless otherwise specifically provided for herein, interest and any fee or charge which is stated as a per annum percentage shall be calculated based on a 360 day year and actual days elapsed. (b) Words in the singular include the plural and words in the plural include the singular. (c) Cross references to Sections in this Agreement begin with the Article in which that Section appears, followed by a colon, and then the Section to which reference is made. (For example, a reference to "Section 5:5-6" is to Section 5-6, which appears in Article 5 of this Agreement). (d) Titles, headings (indicated by being underlined or shown in SMALL CAPITALS) and any Table of Contents are solely for convenience of reference; do not constitute -131- a part of the instrument in which included; and do not affect such instrument's meaning, construction, or effect. (e) The words "includes" and "including" are not limiting. (f) Text which follows the words "including, without limitation" (or similar words) is illustrative and not limitational. (g) Text which is shown in italics (except for parenthesized italicized text), shown in BOLD, shown IN ALL CAPITAL LETTERS, or in any combination of the foregoing, shall be deemed to be conspicuous. (h) The words "may not" are prohibitive and not permissive. (i) Any reference to a Person's "knowledge" (or words of similar import) are to such Person's knowledge assuming that such Person has undertaken reasonable and diligent investigation with respect to the subject of such "knowledge" (whether or not such investigation has actually been undertaken). (j) Terms which are defined in one section of any Loan Document are used with such definition throughout the instrument in which so defined. (k) The symbol "$" refers to United States Dollars. (l) Unless limited by reference to a particular Section or provision, any reference to "herein", "hereof", or "within" is to the entire Loan Document in which such reference is made. (m) References to "this Agreement" or to any other Loan Document is to the subject instrument as amended to the date on which application of such reference is being made. (n) Except as otherwise specifically provided, all references to time are to Boston time. (o) In the determination of any notice, grace, or other period of time prescribed or allowed hereunder: (i) Unless otherwise provided (I) the day of the act, event, or default from which the designated period of time begins to run shall not be included and the last day of the period so computed shall be included unless such last day is not a Business Day, in which event the last day of the relevant period shall be the then next Business Day and (II) the period so computed shall end at 5:00 PM on the relevant Business Day. (ii) The word "from" means "from and including". -132- (iii) The words "to" and "until" each mean "to, but excluding". (iv) The word "through" means "to and including". (p) The Loan Documents shall be construed and interpreted in a harmonious manner and in keeping with the intentions set forth in Section 19-14 hereof, provided, however, in the event of any inconsistency between the provisions of this Agreement and any other Loan Document, the provisions of this Agreement shall govern and control. 19-14. INTENT. It is intended that: (a) This Agreement take effect as a sealed instrument. (b) The scope of all Collateral Interests created by the Borrower to secure the Liabilities be broadly construed in favor of the Administrative Agent and that they cover all assets of the Borrower. (c) All Collateral Interests created in favor of the Collateral Agent at any time and from time to time secure all Liabilities, whether now existing or contemplated or hereafter arising. (d) All reasonable costs, expenses, and disbursements incurred by any Agent and, to the extent provide in Section 19-9 each Lender, in connection with such Person's relationship(s) with the Borrower shall be borne by the Borrower. (e) Unless otherwise explicitly provided herein, the Administrative Agent's consent to any action of the Borrower which is prohibited unless such consent is given may be given or refused by the Administrative Agent in its sole discretion and without reference to Section 2-16 hereof. 19-15. PARTICIPATIONS: Each Lender may sell participations to one or more financial institutions (each, a "PARTICIPANT") in that Lender's interests herein provided that no such participation shall include any provision which accords that Participant with any rights, vis a vis any Agent, with respect to any requirement herein for approval by a requisite number or proportion of the Lenders. No such sale of a participation shall relieve a Lender from that Lender's obligations hereunder nor obligate any Agent to any Person other than a Lender. 19-16. RIGHT OF SET-OFF. Any and all deposits or other sums at any time credited by or due to the Borrower from any Agent or any Lender or any Participant or from any Affiliate of -133- any of the foregoing, and any cash, securities, instruments or other property of the Borrower in the possession of any of the foregoing, whether for safekeeping or otherwise (regardless of the reason such Person had received the same) shall at all times constitute security for all Liabilities and for any and all obligations of the Borrower to each Agent and such Lender or any Participant or such Affiliate and may be applied or set off against the Liabilities and against such obligations at any time, whether or not such are then due and whether or not other collateral is then available to any Agent or that Lender. 19-17. PLEDGES TO FEDERAL RESERVE BANKS: Nothing included in this Agreement shall prevent or limit any Lender, to the extent that such Lender is subject to any of the twelve Federal Reserve Banks organized under Section 4 of the Federal Reserve Act (12 U.S.C. Section 341) from pledging all or any portion of that Lender's interest and rights under this Agreement, provided, however, neither such pledge nor the enforcement thereof shall release the pledging Lender from any of its obligations hereunder or under any of the Loan Documents. 19-18. MAXIMUM INTEREST RATE. Regardless of any provision of any Loan Document, neither any Agent nor any Lender shall be entitled to contract for, charge, receive, collect, or apply as interest on any Liability, any amount in excess of the maximum rate imposed by Applicable Law. Any payment which is made which, if treated as interest on a Liability would result in such interest's exceeding such maximum rate shall be held, to the extent of such excess, as additional collateral for the Liabilities as if such excess were "Collateral." 19-19. WAIVERS. (a) The Borrower (and all Guarantors, endorsers, and sureties of the Liabilities) make each of the waivers included in Section 19-19(b), below, knowingly, voluntarily, and intentionally, and understands that each Agent and each Lender, in establishing the facilities contemplated hereby and in providing loans and other financial accommodations to or for the account of the Borrower as provided herein, whether not or in the future, is relying on such waivers. (b) THE BORROWER, AND EACH SUCH GUARANTOR, ENDORSER, AND SURETY RESPECTIVELY WAIVES THE FOLLOWING: -134- (i) Except as otherwise specifically required hereby, notice of non-payment, demand, presentment, protest and all forms of demand and notice, both with respect to the Liabilities and the Collateral. (ii) Except as otherwise specifically required hereby, the right to notice and/or hearing prior to an Agent's exercising of that Agent's rights upon default. (iii) THE RIGHT TO A JURY IN ANY TRIAL OF ANY CASE OR CONTROVERSY IN WHICH ANY AGENT OR ANY LENDER IS OR BECOMES A PARTY (WHETHER SUCH CASE OR CONTROVERSY IS INITIATED BY OR AGAINST ANY AGENT OR ANY LENDER OR IN WHICH ANY AGENT OR ANY LENDER IS JOINED AS A PARTY LITIGANT), WHICH CASE OR CONTROVERSY ARISES OUT OF OR IS IN RESPECT OF, ANY RELATIONSHIP AMONGST OR BETWEEN THE BORROWER OR ANY OTHER PERSON AND THE AGENT AND EACH LENDER LIKEWISE WAIVES THE RIGHT TO A JURY IN ANY TRIAL OF ANY SUCH CASE OR CONTROVERSY). (iv) The benefits or availability of any stay, limitation, hindrance, delay, or restriction (including, without limitation, any automatic stay which otherwise might be imposed pursuant to Section 362 of the Bankruptcy Code) with respect to any action which any Agent may or may become entitled to take hereunder. (v) Any defense, counterclaim, set-off, recoupment, or other basis on which the amount of any Liability, as stated on the books and records of the Administrative Agent, could be reduced or claimed to be paid otherwise than in accordance with the tenor of and written terms of such Liability. (vi) Any claim to consequential, special, or punitive damages. -135- HOMELAND STORES, INC. (" BORROWER") By ----------------------------------------- Print Name: ----------------------------------------- Title: ----------------------------------------- FLEET RETAIL FINANCE INC. ("ADMINISTRATIVE AGENT AND COLLATERAL AGENT") By ----------------------------------------- Print Name: ----------------------------------------- Title: ----------------------------------------- FLEET RETAIL FINANCE INC. ("REVOLVING CREDIT LENDER") By ----------------------------------------- Print Name: ----------------------------------------- Title: ----------------------------------------- BACK BAY CAPITAL FUNDING LLC ("TERM LENDER") By ----------------------------------------- Print Name: ----------------------------------------- Title: ----------------------------------------- -136- EXHIBIT 1-1 AWG DOCUMENTS EXHIBIT "A" TO INTERCREDITOR AGREEMENT 1995 SUPPLY PROTECTION DOCUMENTS 1. Supply Agreement, dated April 21, 1995 - Associated Wholesale Grocers, Inc., a Missouri corporation (AWG) - Homeland Stores, Inc., a Delaware corporation (Homeland) 2. First Amendment to Supply Agreement, dated August 2, 1996 - Associated Wholesale Grocers, Inc., a Missouri corporation (AWG) - Homeland Stores, Inc., a Delaware corporation (Homeland) 3. Second Amendment to Supply Agreement, dated August 12, 1997 - Associated Wholesale Grocers, Inc., a Missouri corporation (AWG) - Homeland Stores, Inc., a Delaware corporation (Homeland) 4. Use Restriction, dated April 21, 1995 [covering various locations] - Homeland Stores, Inc., a Delaware corporation (Homeland) - Associated Wholesale Grocers, Inc., a Missouri corporation (AWG) 5. Memorandum of Purchase Rights, dated April 21, 1995 [covering various locations] - Homeland Stores, Inc., a Delaware corporation (Homeland) - Associated Wholesale Grocers, Inc., a Missouri corporation (AWG) 6. Application for Membership by Homeland Stores, Inc., dated April 21, 1995 - Homeland Stores, Inc., a Delaware corporation (Homeland) - Associated Wholesale Grocers, Inc., a Missouri corporation (AWG) 7. Stock Power of Attorney - Associated Wholesale Grocers, Inc. - Homeland Stores, Inc., a Delaware corporation (Homeland) 1999 SUPPLY PROTECTION DOCUMENTS AND $12,130,646.98 LOAN DATED MARCH 26, 1999 1. Supply Agreement, dated April 23, 1999 - Associated Wholesale Grocers, Inc., a Missouri corporation (AWG) - Homeland Stores, Inc., a Delaware corporation (Homeland) 2. Memorandum of Supply Agreement and Non-Competition Agreement dated April 23,1999 - Associated Wholesale Grocers, Inc., a Missouri corporation (AWG) - Homeland Stores, Inc., Inc., a Delaware corporation (Homeland) 3. First Amendment to Memorandum of Supply Agreement and Non-Competition Agreement dated September 16, 1999 - Associated Wholesale Grocers, Inc., a Missouri corporation (AWG) - Homeland Stores, Inc., Inc., a Delaware corporation (Homeland) 4. Right of First Refusal Agreement, dated April 23, 1999 - Associated Wholesale Grocers, Inc., a Missouri corporation (AWG) - Homeland Stores, Inc., a Delaware corporation (Homeland) - Homeland Holding Corporation, a Delaware corporation (Holding) 5. Memorandum of Right of First Refusal, dated April 23, 1999 - Associated Wholesale Grocers, Inc., a Missouri corporation (AWG) - Homeland Stores, Inc., a Delaware corporation (Homeland) - Homeland Holding Corporation, a Delaware corporation (Holding) 6. First Amendment to Memorandum of Right of First Refusal Agreement, dated September 16, 1999 - Associated Wholesale Grocers, Inc., a Missouri corporation (AWG) - Homeland Stores, Inc., a Delaware corporation (Homeland) - Homeland Holding Corporation, a Delaware corporation (Holding) 7. Non-Competition Agreement, dated April 23, 1999 - Associated Wholesale Grocers, Inc., a Missouri corporation (AWG) - Homeland Stores, Inc., a Delaware corporation (Homeland) 8. Amended and Restated Promissory Note in the original principal amount of $2,112,000, dated March 26, 1999 - Horner Foods Inc., an Oklahoma corporation (Maker) - Associated Wholesale Grocers, Inc., a Missouri corporation (Lender) 9. Amended and Restated Promissory Note in the original principal amount of $4,640,000, dated March 26, 1999 - Horner Foods Inc., an Oklahoma corporation (Maker) - Associated Wholesale Grocers, Inc., a Missouri corporation (Lender) 10. Promissory Note in the original principal amount of $5,378,646.98, dated March 26, 1999 - Horner Foods Inc., an Oklahoma corporation (Maker) - Associated Wholesale Grocers, Inc., a Missouri corporation (Lender) 2 11. Amended and Restated Loan Agreement, dated March 26, 1999 - Associated Wholesale Grocers, Inc., a Missouri corporation (Lender) - Horner Foods Inc., an Oklahoma corporation (Debtor) - Lester E. Homer, Leah M. Homer, Homer Family 1993-I Trust dated January 29, 1993, Lester E. Horner Trust dated January 29, 1993 and Leah M. Horner Trust dated January 29, 1993 (Guarantors) 12. Amended and Restated Security Agreement, dated March 26, 1999 - Horner Foods Inc., an Oklahoma corporation (Debtor) - Associated Wholesale Grocers, Inc., a Missouri corporation (Secured Party) 13. Amended and Restated Pledge Agreement, dated March 26, 1999 - Associated Wholesale Grocers, Inc., a Missouri corporation (Lender) - Horner Foods Inc., an Oklahoma corporation (Pledgor) 14. UCC-1 Financing Statements - Homeland Stores, Inc. (Debtor) - Associated Wholesale Grocers, Inc. (Secured Party) 15. UCC-1 Financing Statements (Partial Releases) - Homeland Stores, Inc. (Debtor) - Associated Wholesale Grocers, Inc. (Secured Party) 16. Amended and Restated Store Location Certification, dated March 26, 1999 - Horner Foods Inc., an Oklahoma corporation (Debtor) 17. Mortgage, Security Agreement and Assignment of Rents and Leases, dated March 26, 1999 - Horner Foods, Inc., an Oklahoma corporation (Grantor) - Associated Wholesale Grocers, Inc. (Lender) 18. Release of Mortgage, dated September 16, 1999 (releases Pryor, Oklahoma location from Mortgage, Security Agreement and Assignment of Rents and Leases, dated March 26, 1999) - Associated Wholesale Grocers, Inc., a Missouri corporation 19. First Modification of Loan Documents, dated March 26, 1999 - Associated Wholesale Grocers, Inc., a Missouri corporation (AWG) - Horner Foods Inc., an Oklahoma corporation (Borrower) - Lester E. Homer, Leah M. Homer, Horner Family 1993-I Trust dated January 29, 1993, Lester E. Horner Trust dated January 29, 1993 and Leah M. Horner Trust dated January 29, 1993 (Guarantors) 3 20. Assignment, Assumption and Release Agreement, dated April 23, 1999 - Horner Foods Inc., an Oklahoma corporation (Borrower) - Lester E. Homer, Leah M. Homer, Homer Family 1993-I Trust dated January 29, 1993, Lester E. Homer Trust dated January 29, 1993 and Leah M. Horner Trust dated January 29, 1993 (Original Guarantors) - Homeland Stores, Inc., a Delaware corporation (Homeland) - Associated Wholesale Grocers, Inc., a Missouri corporation (AWG) 21. Assignment and Assumption Agreement and First Modification of Mortgage, dated April 23, 1999 - Horner Foods Inc., an Oklahoma corporation (Assignor) - Homeland Stores, Inc., a Delaware corporation (Assignee) - Associated Wholesale Grocers, Inc., a Missouri corporation (Lender) 22. Second Modification of Loan Documents, dated April 23, 1999 - Associated Wholesale Grocers, Inc., a Missouri corporation (AWG) - Homeland Stores, Inc., a Delaware corporation (Borrower) 23. Consent to Release Inventory and execute Sublandlord's Agreement from Associated Wholesale Grocers, Inc., dated April 23, 1999 24. Sublandlord's Agreement 25. Subordination of Security Interests, dated April 23, 1999 - National Bank of Canada, a Canadian chartered bank, individually and as agent - IBJ Whitehall Business Credit Corporation and Heller Financial, Inc. (Creditors) - Associated Wholesale Grocers, Inc., a Missouri corporation (AWG) 26. UCC-3 Subordinations - Homeland Stores, Inc. (Debtor) - National Bank of Canada, as Agent (Secured Party) 27. Consent, dated April 23, 1999 - Homeland Stores, Inc., a Delaware corporation (Borrower) - Homeland Holding Corporation, a Delaware corporation (Parent) - IBJ Whitehall Business Credit Corporation, formerly IBJ Schroder Business Credit Corporation, the assignee of IBJ Schroder Bank & Trust Company (IBJ) - Heller Financial, Inc. (Heller) - National Bank of Canada, a Canadian chartered bank (NBC) 4 28. Agreement Regarding Post-Closing Matters, dated April 23, 1999 - Homeland Stores, Inc., a Delaware corporation (Borrower) - Homeland Holding Corporation, a Delaware corporation (Parent) - National Bank of Canada (NBC) - Heller Financial, Inc. (Heller) - IBJ Whitehall Business Credit Corporation formerly IBJ Schroder Business Credit Corporation (IBJ) 29. Corporate Loan Resolution, dated April 23, 1999 - Homeland Holding Corporation - Homeland Stores, Inc. 30. Corporation Certificate of Incumbency, dated March 23, 1999 - Homeland Stores, Inc., a Delaware corporation 31. Certificate of Incumbency, dated April 23, 1999 - Homeland Holding Corporation - Homeland Stores, Inc. 1999 SUPPLY PROTECTION DOCUMENTS AND $6,953,860 LOAN DATED NOVEMBER 2, 1999 1. Supply Agreement, dated November 2, 1999 - Associated Wholesale Grocers, Inc., a Missouri corporation (AWG) - Homeland Stores, Inc., an Oklahoma corporation (Homeland) 2. Memorandum of Supply Agreement and Non-Competition Agreement, dated November 2, 1999 - Associated Wholesale Grocers, Inc., a Missouri corporation (AWG) - Homeland Stores, Inc., an Oklahoma corporation (Homeland) 3. Right of First Refusal Agreement, dated November 2, 1999 - Associated Wholesale Grocers, Inc., a Missouri corporation (AWG) - Homeland Stores, Inc., an Oklahoma corporation (Homeland) - Homeland Holding Corporation, a Delaware corporation (Holding) 4. Memorandum of Right of First Refusal, dated November 2, 1999 - Associated Wholesale Grocers, Inc., a Missouri corporation (AWG) - Homeland Stores, Inc., an Oklahoma corporation (Homeland) - Homeland Holding Corporation, a Delaware corporation (Holding) 5 5. Non-Competition Agreement, dated November 2, 1999 - Associated Wholesale Grocers, Inc., a Missouri corporation (AWG) - Homeland Stores, Inc., a Delaware corporation (Homeland) 6. Use Restriction, dated November 2, 1999 [I300 S. York, Muskogee, Oklahoma] - Homeland Stores, Inc., a Delaware corporation (Homeland) - Associated Wholesale Grocers, Inc., a Missouri corporation (AWG) 7. Amended and Restated Promissory Note in the original principal amount of $6,953,860, dated November 2, 1999 - Brattain Foods, Inc., an Oklahoma corporation (Maker) - Associated Wholesale Grocers, Inc., a Missouri corporation (Lender) 8. Amended and Restated Loan Agreement, dated November 2, 1999 - Associated Wholesale Grocers, Inc., a Missouri corporation (Lender) - Brattain Foods Inc., an Oklahoma corporation (Debtor) - BHC, LLC, a Minnesota limited liability company and the successor-in-interest by merger to Brattain Holding Company, a Minnesota corporation, Donald R. Brattain and Jane A. Brattain (Guarantors) 9. Amended and Restated Security Agreement, dated November 2, 1999 - Brattain Foods, Inc., an Oklahoma corporation (Debtor) - Associated Wholesale Grocers, Inc., a Missouri corporation (Secured Party) 10. Amended and Restated Pledge Agreement, dated November 2, 1999 - Brattain Foods, Inc., an Oklahoma corporation (Debtor) - Associated Wholesale Grocers, Inc., a Missouri corporation (Pledgor) 11. Assignment, Assumption and Release Agreement, dated November 2, 1999 - Brattain Foods Inc., an Oklahoma corporation (Brattain) - BHC, LLC, a Minnesota limited liability company and the successor-in-interest by merger to Brattain Holding Company, a Minnesota corporation, Donald R. Brattain and Jane A. Brattain (Original Guarantors) - Homeland Stores, Inc., an Oklahoma corporation (Homeland) - Associated Wholesale Grocers, Inc., a Missouri corporation (AWG) 12. First Modification of Loan Documents, dated November 2, 1999 - Associated Wholesale Grocers, Inc., a Missouri corporation (AWG) - Homeland Stores, Inc., an Oklahoma corporation (Borrower) 13. UCC-1 Financing Statements - Homeland Stores, Inc. (Debtor) - Associated Wholesale Grocers, Inc. (Secured Party) 6 14. Amended and Restated Store Location Certification, dated November 2, 1999 - Brattain Foods, Inc., an Oklahoma corporation (Debtor) 15. Assignment of Lessee's Interest in Lease, dated November 2, 1999 - Associated Wholesale Grocers, Inc., a Missouri corporation (Assignor) - Homeland Stores, Inc., an Oklahoma corporation (Assignee) (1300 S. York, Muskogee, Oklahoma) 16. Agreement of Landlord, dated November 2, 1999 - Johnson Enterprises Holding Company, an Oklahoma corporation (Landlord) - Associated Wholesale Grocers, Inc., a Missouri corporation (AWG) (1300 S. York, Muskogee, Oklahoma) 17. Letter to National Bank of Canada from Associated Wholesale Grocers, Inc., dated November 2, 1999 regarding Release of Security Interest and Sublandlord's Agreement 18. Subordination of Security Interest, dated November 2, 1999 - National Bank of Canada, a Canadian chartered bank, individually and as agent - IBJ Whitehall Business Credit Corporation and Heller Financial, Inc. (Creditors) - Associated Wholesale Grocers, Inc., a Missouri corporation (AWG) 19. UCC-3 Subordinations - Homeland Stores, Inc. (Debtor) - National Bank of Canada, as Agent (Secured Party) 20. Consent, dated November 2, 1999 - Homeland Stores, Inc., a Delaware corporation (Borrower) - Homeland Holding Corporation, a Delaware corporation (Parent) - IBJ Whitehall Business Credit Corporation, formerly IBJ Schroder Business Credit Corporation, the assignee of IBJ Schroder Bank & Trust Company (IBJ) - Heller Financial, Inc. (Heller) - National Bank of Canada, a Canadian chartered bank (NBC) 21. Sublandlord's Agreement - Associated Wholesale Grocers, Inc., a Missouri corporation (Sublandlord) - Homeland Stores, Inc., a Delaware corporation (Borrower) - National Bank of Canada, a Canadian chartered bank, individually and as agent, IBJ Whitehall Business Credit Corporation and Heller Financial, Inc. (Lenders) 7 22. Secretary's Certificate, dated November 2, 1999 - Homeland Holding Corporation (Holding) - Homeland Stores, Inc. (Homeland) 23. Certificate of Incumbency, dated November 2, 1999 - Homeland Stores, Inc., a Delaware corporation (Homeland) - Homeland Holding Corporation, a Delaware corporation (Holding) 2000 SUPPLY PROTECTION DOCUMENTS AND $6,162,011.63 LOAN DATED FEBRUARY 29, 2000 1. Supply Agreement, dated February 29, 2000 - Associated Wholesale Grocers, Inc., a Missouri corporation (AWG) - Homeland Stores, Inc., a Delaware corporation (Homeland) 2. Memorandum of Supply Agreement and Non-Competition Agreement, dated February 29, 2000 - Associated Wholesale Grocers, Inc., a Missouri corporation (AWG) - Homeland Stores, Inc., a Delaware corporation (Homeland) 3. Right of First Refusal Agreement, dated February 29, 2000 - Associated Wholesale Grocers, Inc., a Missouri corporation (AWG) - Homeland Stores, Inc., a Delaware corporation (Homeland) - Homeland Holding Corporation, a Delaware corporation (Holding) 4. Memorandum of Right of First Refusal, dated February 29, 2000 - Associated Wholesale Grocers, Inc., a Missouri corporation (AWG) - Homeland Stores, Inc., a Delaware corporation (Homeland) - Homeland Holding Corporation, a Delaware corporation (Holding) 5. Non-Competition Agreement, dated February 29, 2000 - Associated Wholesale Grocers, Inc., a Missouri corporation (AWG) - Homeland Stores, Inc., a Delaware corporation (Homeland) 6. Amended and Restated Promissory Note in the original principal amount of $1,962,011.63 dated February 29, 2000 - Belton Food Center, Inc., a Missouri corporation (Maker) - Associated Wholesale Grocers, Inc., a Missouri corporation (Lender) 7. Amended and Restated Promissory Note in the original principal amount of $4,200,000, dated February 29, 2000 - Belton Food Center, Inc., a Missouri corporation (Maker) - Associated Wholesale Grocers, Inc., a Missouri corporation (Lender) 8 8. Amended and Restated Loan Agreement, dated February 29, 2000 - Associated Wholesale Grocers, Inc., a Missouri corporation (Lender) - Belton Food Center, Inc., a Missouri corporation (Debtor) - Ronald M. Bowes, Susan L. Bowes and Ronald M. Bowes, Trustee of Trust A Created by Trust Indenture dated January 7, 1997, with Ronald M. Bowes, as Settlor (Guarantors) 9. Amended and Restated Security Agreement, dated February 29, 2000 - Belton Food Center, Inc., a Missouri corporation (Debtor) - Associated Wholesale Grocers, Inc., a Missouri corporation (Secured Party) 10. Amended and Restated Pledge Agreement, dated February 29, 2000 - Belton Food Center, Inc., a Missouri corporation (Debtor) - Associated Wholesale Grocers, Inc., a Missouri corporation (Pledgor) 11. Amended and Restated Store Location Certification, dated February 29, 2000 - Belton Food Center, Inc., a Missouri corporation (Debtor) 12. Assignment, Assumption and Release Agreement, dated February 29, 2000 - Belton Food Center, Inc., a Missouri corporation (Belton) - Ronald M. Bowes, Susan L. Bowes and Ronald M. Bowes, Trustee of Trust A Created by Trust Indenture dated January 7, 1997, with Ronald M. Bowes, as Settlor (Original Guarantors) - Homeland Stores, Inc., a Delaware corporation (Homeland) - Associated Wholesale Grocers, Inc., a Missouri corporation (AWG) 13. First Modification of Loan Documents, dated February 29, 2000 - Associated Wholesale Grocers, Inc., a Missouri corporation (AWG) - Homeland Stores, Inc., a Delaware corporation (Borrower) 14. UCC-1 Financing Statements - Homeland Stores, Inc., a Delaware corporation (Debtor) - Associated Wholesale Grocers, Inc., a Missouri corporation (Secured Party) 15. Secretary's Certificate, dated February 29, 2000 - Homeland Holding Corporation (Holding) - Homeland Stores, Inc. (Homeland) 16. Certificate of Incumbency, dated February 29, 2000 - Homeland Stores, Inc., a Delaware corporation (Homeland) - Homeland Holding Corporation, a Delaware corporation (Holding) 17. Opinion Letter from Crowe & Dunlevy, dated February 29, 2000 9 18. Letter to National Bank of Canada, as Agent from Associated Wholesale Grocers. Inc., dated February 29, 1999 [sic] regarding Release of Security Interest and Sublandlord's Agreement 19. Subordination of Security Interest, dated February 29, 2000 - National Bank of Canada, a Canadian chattered bank, individually and as agent - IBJ Whitehall Business Credit Corporation and Heller Financial, Inc. (Creditors) - Associated Wholesale Grocers, Inc., a Missouri corporation (AWG) 20. UCC3 Subordinations - Homeland Stores, Inc. (Debtor) - National Bank of Canada, as agent for the National Bank of Canada and - Heller Financial, Inc. (Secured Party) 21. Fifth Amendment to Loan Agreement, dated February 29, 2000 - Homeland Stores, Inc., a Delaware corporation (Borrower) - Homeland Holding Corporation, a Delaware corporation (Parent) - SLB Marketing, Inc., a Texas corporation (SLB) - JCH Beverage, Inc., a Texas corporation (JCH) - IBJ Whitehall Business Credit Corporation formerly IBJ Schroder Business Credit Corporation, the assignee of IBJ Schroder Bank & Trust Company (IBJ) - Heller Financial, Inc. (Heller) - National Bank of Canada (NBC) 22. Sublandlord's Agreement, dated March 7, 2000 - Associated Wholesale Grocers, Inc., a Missouri corporation (Sublandlord) - Homeland Stores, Inc., a Delaware corporation (Borrower) - National Bank of Canada, a Canadian chartered bank, individually and as agent, IBJ Whitehall Business Credit Corporation and Heller Financial, Inc. (Lenders) 10 AWG PRE-PETITION LEASES 800 E. Okmulgee, Muskogee, Oklahoma 1. Sublease dated November 2, 1999 [800 E. Okmulgee, Muskogee, Oklahoma] - Associated Wholesale Grocers, Inc. (Sublandlord) - Homeland Stores, Inc., a Delaware corporation (Subtenant) 2. Memorandum of Sublease dated November 2, 1999 - Associated Wholesale Grocers, Inc. (Sublandlord) - Homeland Stores, Inc., a Delaware corporation (Subtenant) 310 S. Main, Blackwell, Oklahoma 3. Sublease, dated April 23, 1999 - Associated Wholesale Grocers, Inc., a Missouri corporation (Sublandlord) - Homeland Stores, Inc., a Delaware corporation (Subtenant) 4. Memorandum of Sublease, dated April 23, 1999 - Homeland Stores, Inc., a Delaware corporation - Associated Wholesale Grocers, Inc., a Missouri corporation 305 S. Broadway, Cleveland, Oklahoma 5. Sublease, dated April 23, 1999 - Associated Wholesale Grocers, Inc., a Missouri corporation (Sublandlord) - Homeland Stores, Inc., a Delaware corporation (Subtenant) 6. Memorandum of Sublease, dated April 23, 1999 - Homeland Stores, Inc., a Delaware corporation - Associated Wholesale Grocers, Inc., a Missouri corporation 11 24 S.E. 33rd Street, Edmond, Oklahoma 7. Sublease, dated February 29, 2000 - Associated Wholesale Grocers, Inc., a Missouri corporation (Sublandlord) - Homeland Stores, Inc., a Delaware corporation (Subtenant) 8. Memorandum of Sublease, dated February 29, 2000, - Homeland Stores, Inc., a Delaware corporation (Homeland) - Associated Wholesale Grocers, Inc., a Missouri corporation (AWG) 102 Haskell Boulevard, Haskell, Oklahoma 74436 9. Sublease dated April 23, 1999 - Associated Wholesale Grocers, Inc., a Missouri corporation (Sublandlord) - Homeland Stores, Inc., an Oklahoma corporation (Subtenant) 10. Memorandum of Sublease dated April 23, 1999 - Associated Wholesale Grocers, Inc., a Missouri corporation (Sublandlord) - Homeland Stores, Inc., an Oklahoma corporation (Subtenant) Highway 59, Jay, Oklahoma 11. Sublease dated April 23, 1999 - Associated Wholesale Grocers, Inc., a Missouri corporation (Sublandlord) - Homeland Stores, Inc., an Oklahoma corporation (Subtenant) 12. Memorandum of Sublease dated April 23, 1999 - Associated Wholesale Grocers, Inc., a Missouri corporation (Sublandlord) - Homeland Stores, Inc., an Oklahoma corporation (Subtenant) 6 E. Shawnee, Muskogee, Oklahoma 13. Sublease, dated effective as of November 2, 1999 - Associated Wholesale Grocers, Inc., a Missouri corporation (Sublandlord) - Homeland Stores, Inc., a Delaware corporation (Subtenant) 14. Memorandum of Sublease, dated November 2, 1999 - Homeland Stores, Inc., a Delaware corporation - Associated Wholesale Grocers, Inc., a Missouri corporation 12 3115 W. Okmulgee, Muskogee, Oklahoma 15. Sublease dated November 2, 1999 - Associated Wholesale Grocers, Inc. (Sublandlord) - Homeland Stores, Inc., a Delaware corporation (Subtenant) 16. Memorandum of Sublease dated November 2, 1999 - Associated Wholesale Grocers, Inc. (Sublandlord) - Homeland Stores, Inc., a Delaware corporation (Subtenant) 813 E. Cherokee, Nowata, Oklahoma 17. Sublease dated April 23, 1999 - Associated Wholesale Grocers, Inc., a Missouri corporation (Sublandlord) - Homeland Stores, Inc., an Oklahoma corporation (Subtenant) 18. Memorandum of Sublease dated April 23, 1999 - Associated Wholesale Grocers, Inc., a Missouri corporation (Sublandlord) - Homeland Stores, Inc., an Oklahoma corporation (Subtenant) 108 S. Division, Okemah, Oklahoma 19. Sublease, dated April 23, 1999 - Associated Wholesale Grocers, Inc., a Missouri corporation (Sublandlord) - Homeland Stores, Inc., a Delaware corporation (Subtenant) 20. Memorandum of Sublease, dated April 23, 1999 - Homeland Stores, Inc., a Delaware corporation - Associated Wholesale Grocers, Inc., a Missouri corporation 2213 S.W. 74th Street, Oklahoma City, Oklahoma 21. Sublease, dated February 29, 2000 - Associated Wholesale Grocers, Inc., a Missouri corporation (Sublandlord) - Homeland Stores, Inc., a Delaware corporation (Subtenant) 22. Memorandum of Sublease, dated February 29, 2000, - Homeland Stores, Inc., a Delaware corporation (Homeland) - Associated Wholesale Grocers, Inc., a Missouri corporation (AWG) 13 316 E. Main, Pawhuska, Oklahoma 23. Sublease, dated April 23, 1999 - Associated Wholesale Grocers, Inc., a Missouri corporation (Sublandlord) - Homeland Stores, Inc., a Delaware corporation (Subtenant) 24. Memorandum of Sublease, dated April 23, 1999 - Homeland Stores, Inc., a Delaware corporation - Associated Wholesale Grocers, Inc., a Missouri corporation 702 Fir Street, Perry, Oklahoma 25. Sublease dated April 23, 1999 - Associated Wholesale Grocers, Inc., a Missouri corporation (Sublandlord) - Homeland Stores, Inc., an Oklahoma corporation (Subtenant) 26. Memorandum of Sublease dated April 23, 1999 - Associated Wholesale Grocers, Inc., a Missouri corporation (Sublandlord) - Homeland Stores, Inc., an Oklahoma corporation (Subtenant) 14 EXHIBIT "B" TO INTERCREDITOR AGREEMENT MARCH 26, 1999 LOAN 1. All of the merchandise, supplies, goods, documents, instruments, general intangibles, chattel paper, accounts, contract rights, furniture, furnishings, fixtures, machinery, equipment (whether or not affixed to realty), leasehold improvements, leasehold interests and rents owned by Debtor, and located at the following locations: (a) 813 E. Cherokee, Nowata, Nowata County, Oklahoma 74048; (b) 305 S. Broadway, Cleveland, Pawnee County, Oklahoma 74020; (c) 316 E. Main, Pawhuska, Osage County, Oklahoma 74056; (d) 310 S. Main, Blackwell, Kay County, Oklahoma 74631; (e) 702 Fir Street, Perry, Noble County, Oklahoma 73077; (f) 108 S. Division Street, Okemah, Okfuskee County, Oklahoma 74859; (g) Highway 59, Jay, Delaware County, Oklahoma 74346; and (h) 102 Haskell Blvd., Haskell, Muskogee County, Oklahoma 74436; whether or not specifically assigned to Secured Party and whether now owned or existing or hereafter acquired or arising and whether held for resale or used in business or purchased with loan proceeds or ever located at, or ever purchased with revenues from, the grocery stores identified in (a) through (h) above, together with all additions, accessories, attachments and accessions thereto and all substitutions and replacements therefor, and all proceeds (including insurance proceeds) from the sale or other disposition thereof and all products thereof. 2. All equity, deposits, credits, sums and indebtedness of any kind or description, whatsoever, at any time owed by Secured Party to Debtor or at any time standing in the name of or to the credit of Debtor on the books and/or records of Secured Party, including, without limitation, Capital Stock, Members Deposit Certificates, Patronage Refund Certificates, Members Savings, Direct Patronage or Year-End Patronage. 3. A right of first refusal to purchase Debtor's grocery stores at the following locations: (a) 813 E. Cherokee, Nowata, Nowata County, Oklahoma 74048; (b) 305 S. Broadway, Cleveland, Pawnee County, Oklahoma 74020; (c) 316 E. Main, Pawhuska, Osage County, Oklahoma 74056; (s) 310 S. Main, Blackwell, Kay County, Oklahoma 74631; (e) 702 Fir Street, Perry, Noble County, Oklahoma 73077; (f) 108 S. Division Street, Okemah, Okfuskee County, Oklahoma 74859; (g) Highway 59, Jay, Delaware County, Oklahoma 74346; and (h) 102 Haskell Blvd., Haskell, Muskogee County, Oklahoma 74436. NOVEMBER 2, 1999 LOAN 1. All of the merchandise, supplies, goods, documents, instruments, general intangibles, chattel paper, accounts, contract rights, furniture, furnishings, fixtures, machinery, equipment (whether or not affixed to realty), leasehold improvements, leasehold interests and rents owned by Debtor and located at (i) 800 E. Okmulgee, Muskogee, Muskogee County, Oklahoma 74401; (ii) 3115 W. Okmulgee, Muskogee, Muskogee County, Oklahoma 74401; (iii) 6 E. Shawnee, Muskogee, Muskogee County, Oklahoma 74403; and (iv) 1300 S. York, Muskogee, Muskogee County, Oklahoma 74403; whether or not specifically assigned to Secured Party and whether now owned or existing or hereafter acquired or arising and wherever located and whether held for resale or used in business or purchased with loan proceeds or ever located at, or ever purchased with revenues from, the grocery stores identified in this Paragraph 1, together with all additions, accessories, attachments and accessions thereto and all substitutions and replacements therefor, and all proceeds (including insurance proceeds) from the sale or other disposition thereof and all products thereof. 2. All equity, deposits, credits, sums and indebtedness of any kind or description, whatsoever, at any time owed by Secured Party to Debtor or at any time standing in the name of or to the credit of Debtor on the books and/or records of Secured Party, including, without limitation, Capital Stock, Members Deposit Certificates, Patronage Refund Certificates, Members Savings, Direct Patronage or Year-End Patronage. 3. A right of first refusal to purchase, and a supply agreement relating to, the grocery stores owned and/or operated by Debtor and located at (i) 800 E. Okmulgee, Muskogee, Muskogee County, Oklahoma 74401; (ii) 3115 W. Okmulgee, Muskogee, Muskogee County, Oklahoma 74407; (iii) 6 E. Shawnee, Muskogee, Muskogee County, Oklahoma 74403; and (iv) 1300 S. York, Muskogee, Muskogee County, Oklahoma 74403; plus any replacements and/or substitutions for such stores, each for a term equal to the longer of (i) ten (10) years from the date of the loan, (ii) the term (as extended) of any lease or sublease between Secured Party and Debtor relating to any such location or (iii) the period equal to the entire term of the loan. 2 4. All of Debtor's right, title and interest in and to that certain Shopping Center Lease Agreement dated February 1, 1986, as amended by that certain Addendum to Shopping Center Lease Agreement dated March 19, 1996, between Johnson Enterprises Holding Company, an Oklahoma corporation and the successor-in-interest to Johnson Investments, Ltd., as lessor or landlord, and Debtor, as successor-in-interest to Johnson Foods, Inc., as lessee or tenant, of the premises located at 1300 S. York, Muskogee, Muskogee County, Oklahoma 74403. FEBRUARY 29, 2000 LOAN 1. All of the goods, documents, instruments, general intangibles, chattel paper, accounts, contract rights, furniture, furnishings, fixtures, machinery, equipment (whether or not a fixed to realty), leasehold improvements, leasehold interests and rents owned by Debtor and located at (i) 24 S.E. 33rd Street, Edmond, Oklahoma County, Oklahoma 73013 and (ii) 2213 S.W. 74th Street, Oklahoma City, Oklahoma County, Oklahoma 73159; whether or not specifically assigned to Secured Party and whether now owned or existing or hereafter acquired or arising and wherever located and whether held for resale or used in business or purchased with loan proceeds or ever located at, or ever purchased with revenues from, the grocery stores identified in this Paragraph 1, together with all additions, accessories, attachments and accessions thereto and all substitutions and replacements therefor, and all proceeds (including insurance proceeds) from the sale or other disposition thereof and all products thereof. 2. All equity, deposits, credits, sums and indebtedness of any kind or description, whatsoever, at any time owed by Secured Party to Debtor or at any time standing in the name of or to the credit of Debtor on the books and/or records of Secured Party, including, without limitation, Capital Stock, Members Deposit Certificates, Patronage Refund Certificates, Members Savings, Direct Patronage or Year-End Patronage. 3. A right of first refusal to purchase, and a supply agreement relating to, the grocery stores owned and/or operated by Debtor and located at (i) 24 S.E. 33rd Street, Edmond, Oklahoma County, Oklahoma 73013 and (ii) 2213 S.W. 74th Street, Oklahoma City, Oklahoma County, Oklahoma 73159, plus any replacements and/or substitutions for such stores identified in subsections (i) or (iii), each for a term equal to the longer of (i) ten (10) years from the date of the loan, (ii) the term (as extended) of any lease or sublease between Secured Party and Debtor relating to any such location or (iii) the period equal to the entire term of the loan. 3 EXHIBIT "C" TO INTERCREDITOR AGREEMENT 1995 SUPPLY PROTECTION DOCUMENTS 1. Supply Agreement, dated April 21, 1995 - Associated Wholesale Grocers, Inc., a Missouri corporation (AWG) - Homeland Stores, Inc., a Delaware corporation (Homeland) 2. First Amendment to Supply Agreement, dated August 2, 1996 - Associated Wholesale Grocers, Inc., a Missouri corporation (AWG) - Homeland Stores, Inc., a Delaware corporation (Homeland) 3. Second Amendment to Supply Agreement, dated August 12, 1997 - Associated Wholesale Grocers, Inc., a Missouri corporation (AWG) - Homeland Stores, Inc., a Delaware corporation (Homeland) 4. Use Restriction, dated April 21, 1995 [covering various locations] - Homeland Stores, Inc., a Delaware corporation (Homeland) - Associated Wholesale Grocers, Inc., a Missouri corporation (AWG) 5. Memorandum of Purchase Rights, dated April 21, 1995 [covering various locations] - Homeland Stores, Inc., a Delaware corporation (Homeland) - Associated Wholesale Grocers, Inc., a Missouri corporation (AWG) 1999 SUPPLY PROTECTION DOCUMENTS AND $12,130,646.98 LOAN DATED MARCH 26, 1999 1. Supply Agreement, dated April 23, 1999 - Associated Wholesale Grocers, Inc., a Missouri corporation (AWG) - Homeland Stores, Inc., a Delaware corporation (Homeland) 2. Memorandum of Supply Agreement and Non-Competition Agreement dated April 23, 1999 - Associated Wholesale Grocers, Inc., a Missouri corporation (AWG) - Homeland Stores, Inc., Inc., a Delaware corporation (Homeland) 3. First Amendment to Memorandum of Supply Agreement and Non-Competition Agreement dated September 16, 1999 - Associated Wholesale Grocers, Inc., a Missouri corporation (AWG) - Homeland Stores, Inc., Inc., a Delaware corporation (Homeland) 4. Right of First Refusal Agreement, dated April 23, 1999 - Associated Wholesale Grocers, Inc., a Missouri corporation (AWG) - Homeland Stores, Inc., a Delaware corporation (Homeland) - Homeland Holding Corporation, a Delaware corporation (Holding) 5. Memorandum of Right of First Refusal, dated April 23, 1999 - Associated Wholesale Grocers, Inc., a Missouri corporation (AWG) - Homeland Stores, Inc., a Delaware corporation (Homeland) - Homeland Holding Corporation, a Delaware corporation (Holding) 6. First Amendment to Memorandum of Right of First Refusal Agreement, dated September 16, 1999 - Associated Wholesale Grocers, Inc., a Missouri corporation (AWG) - Homeland Stores, Inc., a Delaware corporation (Homeland) - Homeland Holding Corporation, a Delaware corporation (Holding) 7. Non-Competition Agreement, dated April 23, 1999 - Associated Wholesale Grocers, Inc., a Missouri corporation (AWG) - Homeland Stores, Inc., a Delaware corporation (Homeland) 1999 SUPPLY PROTECTION DOCUMENTS AND $6,953,860 LOAN DATED NOVEMBER 2, 1999 1. Supply Agreement, dated November 2, 1999 - Associated Wholesale Grocers, Inc., a Missouri corporation (AWG) - Homeland Stores, Inc., an Oklahoma corporation (Homeland) 2. Memorandum of Supply Agreement and Non-Competition Agreement, dated November 2, 1999 - Associated Wholesale Grocers, Inc., a Missouri corporation (AWG) - Homeland Stores, Inc., an Oklahoma corporation (Homeland) 3. Right of First Refusal Agreement, dated November 2, 1999 - Associated Wholesale Grocers, Inc., a Missouri corporation (AWG) - Homeland Stores, Inc., an Oklahoma corporation (Homeland) - Homeland Holding Corporation, a Delaware corporation (Holding) 4. Memorandum of Right of First Refusal, dated November 2, 1999 - Associated Wholesale Grocers, Inc., a Missouri corporation (AWG) - Homeland Stores, Inc., an Oklahoma corporation (Homeland) - Homeland Holding Corporation, a Delaware corporation (Holding) 2 5. Non-Competition Agreement, dated November 2, 1999 - Associated Wholesale Grocers, Inc., a Missouri corporation (AWG) - Homeland Stores, Inc., a Delaware corporation (Homeland) 6. Use Restriction, dated November 2, 1999 [1300 S. York, Muskogee, Oklahoma] - Homeland Stores, Inc., a Delaware corporation (Homeland) - Associated Wholesale Grocers, Inc., a Missouri corporation (AWG) 2000 SUPPLY PROTECTION DOCUMENTS AND $6,162,011.63 LOAN DATED FEBRUARY 29, 2000 1. Supply Agreement, dated February 29, 2000 - Associated Wholesale Grocers, Inc., a Missouri corporation (AWG) - Homeland Stores, Inc., a Delaware corporation (Homeland) 2. Memorandum of Supply Agreement and Non-Competition Agreement, dated February 29, 2000 - Associated Wholesale Grocers, Inc., a Missouri corporation (AWG) - Homeland Stores, Inc., a Delaware corporation (Homeland) 3. Right of First Refusal Agreement, dated February 29, 2000 - Associated Wholesale Grocers, Inc., a Missouri corporation (AWG) - Homeland Stores, Inc., a Delaware corporation (Homeland) - Homeland Holding Corporation, a Delaware corporation (Holding) 4. Memorandum of Right of First Refusal, dated February 29, 2000 - Associated Wholesale Grocers, Inc., a Missouri corporation (AWG) - Homeland Stores, Inc., a Delaware corporation (Homeland) - Homeland Holding Corporation, a Delaware corporation (Holding) 5. Non-Competition Agreement, dated February 29, 2000 - Associated Wholesale Grocers, Inc., a Missouri corporation (AWG) - Homeland Stores, Inc., a Delaware corporation (Homeland) 3 EXHIBIT "D" TO INTERCREDITOR AGREEMENT AWG PRE-PETITION LEASES 800 E. Okmulgee, Muskogee, Oklahoma 1. Sublease dated November 2, 1999 [800 E. Okmulgee, Muskogee, Oklahoma] - Associated Wholesale Grocers, Inc. (Sublandlord) - Homeland Stores, Inc., a Delaware corporation (Subtenant) 2. Memorandum of Sublease dated November 2, 1999 - Associated Wholesale Grocers, Inc. (Sublandlord) - Homeland Stores, Inc., a Delaware corporation (Subtenant) 310 S. Main, Blackwell, Oklahoma 3. Sublease, dated April 23, 1999 - Associated Wholesale Grocers, Inc., a Missouri corporation (Sublandlord) - Homeland Stores, Inc., a Delaware corporation (Subtenant) 4. Memorandum of Sublease, dated April 23, 1999 - Homeland Stores, Inc., a Delaware corporation - Associated Wholesale Grocers, Inc., a Missouri corporation 305 S. Broadway, Cleveland, Oklahoma 5. Sublease, dated April 23, 1999 - Associated Wholesale Grocers, Inc., a Missouri corporation (Sublandlord) - Homeland Stores, Inc., a Delaware corporation (Subtenant) 6. Memorandum of Sublease, dated April 23, 1999 - Homeland Stores, Inc., a Delaware corporation - Associated Wholesale Grocers, Inc., a Missouri corporation 24 S.E. 33rd Street, Edmond, Oklahoma 7. Sublease, dated February 29, 2000 - Associated Wholesale Grocers, Inc., a Missouri corporation (Sublandlord) - Homeland Stores, Inc., a Delaware corporation (Subtenant) 8. Memorandum of Sublease, dated February 29, 2000, - Homeland Stores, Inc., a Delaware corporation (Homeland) - Associated Wholesale Grocers, Inc., a Missouri corporation (AWG) 102 Haskell Boulevard, Haskell, Oklahoma 74436 9. Sublease dated April 23, 1999 - Associated Wholesale Grocers, Inc., a Missouri corporation (Sublandlord) - Homeland Stores, Inc., an Oklahoma corporation (Subtenant) 10. Memorandum of Sublease dated April 23, 1999 - Associated Wholesale Grocers, Inc., a Missouri corporation (Sublandlord) - Homeland Stores, Inc., an Oklahoma corporation (Subtenant) Highway 59, Jay, Oklahoma 11. Sublease dated April 23, 1999 - Associated Wholesale Grocers, Inc., a Missouri corporation (Sublandlord) - Homeland Stores, Inc., an Oklahoma corporation (Subtenant) 12. Memorandum of Sublease dated April 23, 1999 - Associated Wholesale Grocers, Inc., a Missouri corporation (Sublandlord) - Homeland Stores, Inc., an Oklahoma corporation (Subtenant) 6 E. Shawnee, Muskogee, Oklahoma 13. Sublease, dated effective as of November 2, 1999 - Associated Wholesale Grocers, Inc., a Missouri corporation (Sublandlord) - Homeland Stores, Inc., a Delaware corporation (Subtenant) 14. Memorandum of Sublease, dated November 2, 1999 - Homeland Stores, Inc., a Delaware corporation - Associated Wholesale Grocers, Inc., a Missouri corporation 2 3115 W. Okmulgee, Muskogee, Oklahoma 15. Sublease dated November 2, 1999 - Associated Wholesale Grocers, Inc. (Sublandlord) - Homeland Stores, Inc., a Delaware corporation (Subtenant) 16. Memorandum of Sublease dated November 2, 1999 - Associated Wholesale Grocers, Inc. (Sublandlord) - Homeland Stores, Inc., a Delaware corporation (Subtenant) 813 E. Cherokee, Nowata, Oklahoma 17. Sublease dated April 23, 1999 - Associated Wholesale Grocers, Inc., a Missouri corporation (Sublandlord) - Homeland Stores, Inc., an Oklahoma corporation (Subtenant) 18. Memorandum of Sublease dated April 23, 1999 - Associated Wholesale Grocers, Inc., a Missouri corporation (Sublandlord) - Homeland Stores, Inc., an Oklahoma corporation (Subtenant) 108 S. Division, Okemah, Oklahoma 19. Sublease, dated April 23, 1999 - Associated Wholesale Grocers, Inc., a Missouri corporation (Sublandlord) - Homeland Stores, Inc., a Delaware corporation (Subtenant) 20. Memorandum of Sublease, dated April 23, 1999 - Homeland Stores, Inc., a Delaware corporation - Associated Wholesale Grocers, Inc., a Missouri corporation 2213 S.W. 74th Street, Oklahoma City, Oklahoma 21. Sublease, dated February 29, 2000 - Associated Wholesale Grocers, Inc., a Missouri corporation (Sublandlord) - Homeland Stores, Inc., a Delaware corporation (Subtenant) 22. Memorandum of Sublease, dated February 29, 2000, - Homeland Stores, Inc., a Delaware corporation (Homeland) - Associated Wholesale Grocers, Inc., a Missouri corporation (AWG) 3 316 E. Main, Pawhuska, Oklahoma 23. Sublease, dated April 23, 1999 - Associated Wholesale Grocers, Inc., a Missouri corporation (Sublandlord) - Homeland Stores, Inc., a Delaware corporation (Subtenant) 24. Memorandum of Sublease, dated April 23, 1999 - Homeland Stores, Inc., a Delaware corporation - Associated Wholesale Grocers, Inc., a Missouri corporation 702 Fir Street, Perry, Oklahoma 25. Sublease dated April 23, 1999 - Associated Wholesale Grocers, Inc., a Missouri corporation (Sublandlord) - Homeland Stores, Inc., an Oklahoma corporation (Subtenant) 26. Memorandum of Sublease dated April 23,1999 - Associated Wholesale Grocers, Inc., a Missouri corporation (Sublandlord) - Homeland Stores, Inc., an Oklahoma corporation (Subtenant) 4 EXHIBIT "E" TO INTERCREDITOR AGREEMENT 1. Non-Competition Agreement, dated August 15, 2001 - Homeland Stores, Inc., a Delaware corporation (Homeland) - Homeland Holding Corporation, a Delaware corporation (Holding) - Associated Wholesale Grocers, Inc., a Missouri corporation (AWG) 2. Non-Competition Agreement, dated February 29, 2000 - Associated Wholesale Grocers, Inc., a Missouri corporation (AWG) - Homeland Stores, Inc., a Delaware corporation (Homeland) 3. Non-Competition Agreement, dated November 2, 1999 - Associated Wholesale Grocers, Inc., a Missouri corporation (AWG) - Homeland Stores, Inc., a Delaware corporation (Homeland) 4. Non-Competition Agreement, dated April 23, 1999 - Associated Wholesale Grocers, Inc., a Missouri corporation (AWG) - Homeland Stores, Inc., a Delaware corporation (Homeland) EXHIBIT "F" TO INTERCREDITOR AGREEMENT The following property, whether now owned by or owing to, or hereafter acquired by or arising in favor of Borrower or Parent (including under any trade names, styles or derivations thereof), and whether owned or consigned by or to, or leased from or to, Borrower or Parent, and regardless of where located: 1. All equipment, as such term is defined in the Uniform Commercial Code (the "CODE"), now owned or hereafter acquired by any Borrower, wherever located and, in any event, including without limitation, all such Borrower's machinery and equipment, including store and warehouse equipment, coolers, conveyors, machine tools, data processing and computer equipment with software and peripheral equipment, and all engineering, processing and manufacturing equipment, office machinery, furniture, supplies, materials handling equipment, tools, attachments, accessories, automotive equipment, trailers, trucks, forklifts, molds, dies, stamps, motor vehicles, rolling stock and other equipment of every kind and nature, trade fixtures (whether affixed or not affixed to the real property) and fixtures not forming a part of real property, all whether now owned or hereafter acquired, and wherever situated, together with all additions and accessions thereto, replacements therefor, all parts therefor, all substitutes for any of the foregoing, fuel therefor, and all manuals, drawings, instructions, warranties and rights with respect thereto, and all products and proceeds thereof and condemnation awards and insurance proceeds with respect thereto. 2. All fixtures as such term is defined in the Code, now owned or hereafter acquired by either Borrower or Parent 3. Any and all causes of action pursuant to Sections 542, 543, 544, 545, 547, 548 or 553 of the Bankruptcy Code and the proceeds therefrom. 4. All equity, deposits, credits, sums and indebtedness of any kind or description, whatsoever, at any time owed by AWG to either Borrower or Parent or at any time standing in the name of or to the credit of either AWG on the books and/or records of Borrower or Parent, including without limitation, capital stock, members deposit certificates, patronage refund certificates, members savings, direct patronage or year-end patronage. 5. To the extent not otherwise included, all Proceeds and products of the foregoing and all accessions to, substitutions and replacements for, and rents and profits of, each of the foregoing. "Proceeds" shall mean "proceeds," as such term is defined in the Code and, in any event, shall include (a) any and all proceeds of any insurance, indemnity, warranty or guaranty payable to Borrower or Parent from time to time with respect to any of the foregoing, (b) any and all payments (in any form whatsoever) made or due and payable to any Borrower from time to time in connection with any requisition, confiscation, condemnation, seizure or forfeiture of all or any part of the foregoing by any governmental authority (or any person acting under color of governmental authority), (c) any claim of Borrower or Parent against third parties (i) for past, present or future infringement of any patent or patent license, or (ii) for past, present or future infringement or dilution of any copyright, copyright license, trademark or trademark license, or for injury to the goodwill associated with any trademark or trademark license, (d) any recoveries by Borrower or Parent against third parties with respect to any litigation or dispute concerning any of the foregoing, and (e) any and all other amounts from time to time paid or payable under or in connection with any of the foregoing, upon disposition or otherwise. 2 EXHIBIT "G" TO INTERCREDITOR AGREEMENT 1. Right of First Refusal Agreement, dated August 15, 2001 - Homeland Stores, Inc., a Delaware corporation (Homeland) - Homeland Holding Corporation, a Delaware corporation (Holding) - Associated Wholesale Grocers, Inc., a Missouri corporation (AWG) 2. Right of First Refusal Agreement, dated February 29, 2000 - Associated Wholesale Grocers, Inc., a Missouri corporation (AWG) - Homeland Stores, Inc., a Delaware corporation (Homeland) - Homeland Holding Corporation, a Delaware corporation (Holding) 3. Right of First Refusal Agreement, dated November 2, 1999 - Associated Wholesale Grocers, Inc., a Missouri corporation (AWG) - Homeland Stores, Inc., an Oklahoma corporation (Homeland) - Homeland Holding Corporation, a Delaware corporation (Holding) 4. Right of First Refusal Agreement, dated April 23, 1999 - Associated Wholesale Grocers, Inc., a Missouri corporation (AWG) - Homeland Stores, Inc., a Delaware corporation (Homeland) - Homeland Holding Corporation, a Delaware corporation (Holding) EXHIBIT "H" TO INTERCREDITOR AGREEMENT 1. Use Restriction, dated August 15, 2001 [covering various locations] - Homeland Stores, Inc., a Delaware corporation (Homeland) - Associated Wholesale Grocers, Inc., a Missouri corporation (AWG) 2. Use Restriction, dated November 2, 1999 [1300 S. York, Muskogee, Oklahoma] - Homeland Stores, Inc., a Delaware corporation (Homeland) - Associated Wholesale Grocers, Inc., a Missouri corporation (AWG) 3. Use Restriction, dated April 21, 1995 [covering various locations] - Homeland Stores, Inc., a Delaware corporation (Homeland) - Associated Wholesale Grocers, Inc., a Missouri corporation (AWG) EXHIBIT 1-2 REVOLVING CREDIT LENDER'S DOLLAR COMMITMENT
REVOLVING CREDIT REVOLVING CREDIT DOLLAR PERCENTAGE REVOLVING CREDIT LENDER COMMITMENT COMMITMENT - ----------------------- ---------------- ---------------- Fleet Retail Finance Inc. $25,000,000.00 100%
EXHIBIT 2:2-24 EXHIBIT 2-9 ================================================================================ REVOLVING CREDIT NOTE FLEET RETAIL FINANCE INC. AGENT ================================================================================ Boston, Massachusetts August 15,2001 FOR VALUE RECEIVED, the undersigned, Homeland Stores, Inc., a Delaware corporation with its principal executive offices at 2601 NW Expressway, Suite 1100E, Oklahoma City, Oklahoma 73112 (the "BORROWER") promises to pay to the order of Fleet Retail Finance Inc., a Delaware corporation with offices at 40 Broad Street, Boston, Massachusetts 02109 (with any subsequent holder, a "REVOLVING CREDIT LENDER") that amount which the Revolving Credit Lender has advanced towards the aggregate unpaid principal balance of loans and advances made to or for the account of the Borrower pursuant to the Revolving Credit established pursuant to the Loan and Security Agreement of even date (as such may be amended hereafter, the "LOAN AGREEMENT") between (among others) Fleet Retail Finance Inc., a Delaware corporation with its offices at 40 Broad Street Boston, Massachusetts 02109 (in such capacity, the "AGENT"), as agent for the ratable benefit of (among others) the "Revolving Credit Lender", on the one hand, and the Borrower, on the other, with interest at the rate and payable in the manner stated therein. This is a "Revolving Credit Note" to which reference is made in the Loan Agreement and is subject to all terms and provisions thereof. The principal of, and interest on, this Revolving Credit Note shall be payable as provided in the Loan Agreement and shall be subject to acceleration as provided therein. Terms used herein which are defined in the Loan Agreement are used as so defined. The Agents books and records concerning loans and advances pursuant to the Revolving Credit, the accrual of interest thereon, and the repayment of such loans and advances, shall be prima facie evidence of the indebtedness hereunder. The Borrower shall be bound by and obligated on account of any increase or decrease in the amount of the holder's Revolving Credit Dollar Commitment notwithstanding that such increase or decrease may not be reflected on this Revolving Credit Note. No delay or omission by the Agent or the Revolving Credit Lender in exercising or enforcing any of the Agent's or the Revolving Credit Lender's powers, rights, privileges, remedies, or discretions hereunder shall operate as a waiver thereof on that occasion nor on any other occasion. No waiver of -1- any default hereunder shall operate as a waiver of any other default hereunder, nor as a continuing waiver. The Borrower, and each endorser and guarantor of this Revolving Credit Note, respectively waives presentment, demand, notice, and protest, and also waives any delay on the part of the holder hereof. Each assents to any extension or other indulgence (including, without limitation, the release or substitution of Collateral) permitted by the Agent with respect to this Revolving Credit Note and/or any Collateral or any extension or other indulgence with respect to any other liability or any collateral given to secure any other liability of the Borrower or any other person obligated on account of this Revolving Credit Note. This Revolving Credit Note shall be binding upon the Borrower, and each endorser and guarantor hereof, and upon their respective heirs, successors, assigns, and representatives, and shall inure to the benefit of the any Revolving Credit Lender and its successors, endorsees, and assigns. The liabilities of the Borrower, and of any endorser or guarantor of this Revolving Credit Note, are joint and several, provided, however, the release by the Agent or the Revolving Credit Lender of any one or more such person, endorser or guarantor shall not release any other person obligated on account of this Revolving Credit Note. Each reference in this Revolving Credit Note to the Borrower, any endorser, and any guarantor, is to such person individually and also to all such persons jointly. No person obligated on account of this Revolving Credit Note may seek contribution from any other person also obligated unless and until all liabilities, obligations and indebtedness to the Lender of the person from whom contribution is sought have been satisfied in full. This Revolving Credit Note is delivered at the offices of the Agent in Boston, Massachusetts, shall be governed by the laws of The Commonwealth of Massachusetts, and shall take effect as a sealed instrument. The Borrower makes the following waiver knowingly, voluntarily, and intentionally, and understands that the Agent and the Revolving Credit Lender in the establishment and maintenance of their respective relationship with the Borrower contemplated by this Revolving Credit Note, is relying thereon. THE BORROWER, TO THE EXTENT ENTITLED THERETO, WAIVES ANY PRESENT OR FUTURE RIGHT OF THE BORROWER, OR OF ANY GUARANTOR OR ENDORSER OF THE BORROWER OR OF ANY OTHER PERSON LIABLE TO THE LENDER ON ACCOUNT OF OR IN RESPECT TO THE LIABILITIES, TO A TRIAL BY JURY IN ANY CASE OR CONTROVERSY IN WHICH ANY AGENT AND/OR ANY LENDER IS OR BECOMES A PARTY (WHETHER SUCH CASE OR -2- CONTROVERSY IS INITIATED BY OR AGAINST ANY AGENT AND/OR ANY LENDER OR IN WHICH ANY AGENT AND/OR ANY LENDER IS JOINED AS A PARTY LITIGANT), WHICH CASE OR CONTROVERSY ARISES OUT OF, OR IS IN RESPECT TO, ANY RELATIONSHIP AMONGST OR BETWEEN THE BORROWER, ANY SUCH PERSON, AND ANY AGENT AND/OR ANY LENDER. HOMELAND STORES, INC. The ("BORROWER") By: -------------------------------- -3- EXHIBIT 2-11 PRICING GRID The "Applicable Margin" shall mean initially, the rates for Base Margin Loans and Eurodollar Loans, set forth in Level 2, below:
Level Performance Criteria Base Margin Loans Eurodollar Loans - ----- -------------------- ----------------- ---------------- 1 Excess Availability 0% 2.00% greater than or equal to $15,000,000 2 Excess Availability 0.25% 2.25% greater than or equal to $10,000,000 but less than $15,000,000 3 Excess Availability 0.50% 2.50% less than $10,000,000
The Applicable Margin will remain at Level 3 through January 31, 2002. In no event shall the Applicable Margin be set at Level 1 or Level 2 from the Closing Date through January 31, 2002 (even if the Excess Availability requirements for Level 1 or Level 2 have been met). Commencing February 1, 2002, the Applicable Margin shall be adjusted quarterly as of the first day of each February. May, August, and November, based upon the average Excess Availability for the immediately preceding three month period. Upon the occurrence of an Event of Default, the Applicable Margin shall be immediately increased to the percentages set forth in Level 3 (even if the Excess Availability requirements for another Level have been met) and interest shall be determined in the manner set forth in Section 2.11(f). EXHIBIT 3-2 ================================================================================ TERM NOTE FLEET RETAIL FINANCE INC. AGENT ================================================================================ Boston, Massachusetts August 15, 2001 FOR VALUE RECEIVED, the undersigned, Homeland Stores, Inc., a Delaware corporation with its principal executive offices at 2601 NW Expressway, Suite 1100E, Oklahoma City, Oklahoma 73112 (the "BORROWER") promises to pay to the order of Back Bay Capital Funding LLC, a Delaware limited liability company with offices at 40 Broad Street, Boston, Massachusetts 02109 (with any subsequent holder, the "TERM LENDER") the principal sum of TEN MILLION DOLLARS $10,000,000 or such greater or lesser amount as may then be owed on account of the "Term Loan" as provided in the Loan and Security Agreement of even date (as such may be amended hereafter, the "LOAN AGREEMENT") between (among others) Fleet Retail Finance Inc., a Delaware corporation with its offices at 40 Broad Street Boston, Massachusetts 02109 (in such capacity, the "AGENT"), as agent for the ratable benefit of (among others) the Term lender, on the one hand and the Borrower, on the other. This is the "Term Note" to which reference is made in the Loan Agreement and is subject to all terms and provisions thereof. The principal of this Note shall bear interest at the rate(s) and such interest and the principal of this Note shall be payable in the times and in the manner provided in the Loan Agreement. This Note shall likewise be subject to acceleration as provided therein. Terms used herein which are defined in the Loan Agreement are used as so defined. The Agent's books and records concerning loans and advances pursuant to the Revolving Credit, the accrual of interest thereon, and the repayment of such loans and advances, shall be prima facie evidence of the indebtedness hereunder. No delay or omission by the Agent in its exercising or enforcing any of its powers, rights, privileges, remedies, or discretions hereunder shall operate as a waiver thereof on that occasion nor on -1- any other occasion. No waiver of any default hereunder shall operate as a waiver of any other default hereunder, nor as a continuing waiver. The Borrower, and each endorser and guarantor of this Note, respectively waives presentment, demand, notice, and protest, and also waives any delay on the part of the holder hereof. Each assents to any extension or other indulgence (including, without limitation, the release or substitution of collateral) permitted by the Agent with respect to this Note and/or any collateral given to secure this Note or any extension or other indulgence with respect to any other liability or any collateral given to secure any other liability of the Borrower or any other person obligated on account of this Note. This Note shall be binding upon the Borrower, and each endorser and guarantor hereof, and upon their respective heirs, successors, assigns, and representatives, and shall Inure to the benefit of the Lender and its successors, endorsees, and assigns. The liabilities of the Borrower, and of any endorser or guarantor of this Note, are joint and several, provided, however, the release of any one or more such person, endorser or guarantor shall not release any other person obligated on account of this Note. Each reference in this Note to the Borrower, any endorser, and any guarantor, is to such person individually and also to all such persons jointly. No person obligated on account of this Note may seek contribution from any other person also obligated unless and until all liabilities, obligations and indebtedness to the Term Lender of the person from whom contribution is sought have been satisfied in full. This Note is delivered at the offices of the Agent in Boston, Massachusetts, shall be governed by the laws of The Commonwealth of Massachusetts, and shall take effect as a sealed instrument. -2- The Borrower makes the following waiver knowingly, voluntarily, and intentionally, and understands that the Agent and the Term Lender respectively are relying thereon. THE BORROWER, TO THE EXTENT ENTITLED THERETO, WAIVES ANY PRESENT OR FUTURE RIGHT OF THE BORROWER, OR OF ANY GUARANTOR OR ENDORSER OF THE BORROWER OR OF ANY OTHER PERSON LIABLE TO THE LENDER ON ACCOUNT OF OR IN RESPECT TO THE LIABILITIES, TO A TRIAL BY JURY IN ANY CASE OR CONTROVERSY IN WHICH ANY AGENT AND/OR THE TERM LENDER IS OR BECOMES A PARTY (WHETHER SUCH CASE OR CONTROVERSY IS INITIATED BY OR AGAINST ANY AGENT AND/OR THE TERM LENDER OR IN WHICH ANY AGENT AND/OR THE TERM LENDER IS JOINED AS A PARTY LITIGANT), WHICH CASE OR CONTROVERSY ARISES OUT OF, OR IS IN RESPECT TO, ANY RELATIONSHIP AMONGST OR BETWEEN THE BORROWER, ANY SUCH PERSON, AND ANY AGENT AND/OR THE TERM LENDER. HOMELAND STORES, INC. The ("BORROWER") By: ---------------------------------- -3- EXHIBIT 4-3 ADDITIONAL DOCUMENTS 1) Security Agreement from each of the Guarantors 2) Trademark Security Agreement from the Borrower 3) Pledge Agreements from the Borrower, the Parent, and JCH Beverage, Inc. 4) Blocked Account Agreement 5) Credit Card Notifications 6) DDA Notifications 7) Mortgages/Deeds of Trust on all real estate owned by the Borrower Exhibit 5-2 (Corporate Information) Homeland Stores, Inc. Organizational No.: 2137888 Affiliates and Subsidiaries of Homeland Stores, Inc.: Homeland Holding Corporation JCH Beverage, Inc. SLB Marketing, Inc. Exhibit 5-3 (Trade Names) Trade Names of Homeland Stores, Inc.: Homeland Homeland Stores Person from whom Homeland Stores, Inc. has acquired all of the assets of such Person. Brattain Foods, Inc. Exhibit 5-5 (Locations) As of 5/23/01 (78 stores) HOMELAND STORES LIST
DISTRICT 1 - DAVID BROTHERS - (405) 879-6634 JANICE SMITH (405) 879-6632 (16 STORES) - ----------------------------------------------------------------------------------------------------------- STORE PHONE ADDRESS TOWN/CITY ZIP MANAGER - ----- ----- ------- --------- --- ------- 122 405 721-5967 6473 N. Macarthur OKC 73122 Brent Smith 125 580 234-2922 3828 W. Owen K Garriot Enid 73703 Shawn Humpert 153 405 524-4221 1108 NW 18th OKC 73106 Rick Williams 154 405 528-8121 2016 NW 39th OKC 73118 Becky Schwab 181 405 751-4426 12508 N. May OKC 73120 Tim Massey 188 405 282-0530 220 E Cleveland Guthrie 73044 Jane Garrard 195 405 685-7451 4301 S. May OKC 73119 Ward Walker 197 405 324-2205 11241 West Reno Yukon 73099 Barry Webster 204 405 376-4231 115 E. Hwy. 152 Mustang 73064 Dell Ray Thomas 205 405 722-7982 11120 N Rockwell OKC 73162 Janice Dombos 207 405 840-3468 9320 N Penn OKC 73120 Loren Harris 208 405 340-4181 2205 W Edmond Rd Edmund 73003 Joe Fischer 793 405 722-7770 7001 NW Expressway OKC 73132 Carl Brown 794 405 526-6342 2121 NW 23rd OKC 73107 Rodney Moham 851 580 336-5316 702 Fir Perry 73077 Tracey Sanders 888 405 330-7200 24 E. 33rd Edmond 73013 Tommie Wright DISTRICT 2 - WAYNE MCCORMICK - (405) 879-8636 JANICE SMITH (405) 879-6632 (17 STORES) - ----------------------------------------------------------------------------------------------------------- STORE PHONE ADDRESS TOWN/CITY ZIP MANAGER - ----- ----- ------- --------- --- ------- 26 405 224-2662 520 Minnesota Chickasha 73018 Lewis Lacer 101 405 364-9244 1100 W Main Norman 73069 Val Schlueter 105 405 794-4978 1315 N Eastern Ave Moore 73160 Larry Harris 127 405 224-2538 759 W Grand Ave Chickasha 73018 Graylen Pierce 146 405 382-5135 1701 N Milt Phillip Seminole 74868 Jon Mackey 161 580 223-1055 510 N Commerce Ardmore 73401 Clint Chadwick 163 405 670-3858 4308 SE 44th OKC 73135 David Hardy 178 405 238-7550 505 S Chickasaw Pauls Valley 73075 Tim Bickell 182 580 255-1048 1401 Beech Ave Duncan 73533 Robert Lash 183 405 946-9539 3020 NW 18th OKC 73107 Tom McAnulty 192 405 632-9731 415 SW 59th OKC 73109 Steve Bute 193 580 536-6062 301 NW 67th Lawton 73505 Kenny Wing 196 405 275-1898 2705 N. Harrison Shawnee 74801 Dennis Kluding 200 405 321-7048 1724 W Lindsey Rd Norman 73069 Bob Myers 795 580 248-5335 1202 NW 40th Lawton 73505 Kevin Ezell 796 405 378-3900 10700 S. Penn OKC 73170 Larry Morris 887 405 682-3800 2213 SW 74th OKC 73159 Mark Titsworth DISTRICT 3 - JACK VANDERSLICE - (806) 359-8521 EMMA ORTIZ (806) 359-8521 (15 STORES) - ----------------------------------------------------------------------------------------------------------- STORE PHONE ADDRESS TOWN/CITY ZIP MANAGER - ----- ----- ------- --------- --- ------- 141 580 338-8216 1402 N Main Guymon 73942 Larry Buehler 145 620 225-2981 1800 Central Dodge City, KS 67801 George Hobbs 148 580 323-0135 1212 Choctaw Clinton 73601 Steve Toelie 164 580 327-4087 706 Flynn Alva 73717 Randy Hamilton 167 580 256-3143 1310 Oklahoma Ave Woodward 73801 Chris Mathes 170 580 225-0322 412 W Third Elk City 73644 Byron Schreck 529 806 352-5114 3405 S Georgia Amarillo, TX 79109 Raymond Gaitan 582 806 935-6895 230 W First Dumas, TX 79029 Jeremy Gosnell 587 806 273-3151 101 W 10th Borger, TX 79007 Roxann Deskin 600 806 358-6400 7302 SW 34th Amarillo, TX 79121 Ray Hensley 601 806 354-0235 4111 Plains Amarillo, TX 79106 Rex Hensley 603 806 383-5601 3505 NE 24 Amarillo, TX 79107 Dennis Cowan 604 806 655-1038 202 N 23rd Canyon, TX 79015 Scott Clark 605 806 364-2995 535 N 25 Mile Ave Hereford, TX 79045 Richard Selmon 677 806 358-7696 5811 S Western Amarillo, TX 79110 Mark Condrem DISTRICT 4 - GEORGE HULSEY - (918) 585-3893 SHARON SULLIVAN (918) 585-3893 (13 STORES) - ----------------------------------------------------------------------------------------------------------- STORE PHONE ADDRESS TOWN/CITY ZIP MANAGER - ----- ----- ------- --------- --- ------- 503 918 582-1488 1110 S Denver Tulsa 74119 Dennis Poston 515 918 333-4310 915 S. Madison Bartlesville 74003 Jason Leonard 528 918 369-5558 12011 S Memorial Bixby 74008 Richard Ferrania 545 918 437-2587 12572 E 21st St. Tulsa 74129 Jerry Hunt 563 918 336-5732 811 E Frank Phillps Blv. Bartlesville 74003 Larry McPhillps 578 918 485-5316 700 E Cherokee Wagoner 74467 Steve Maxwell 850 918 287-4455 316 E Main Pawhuska 74056 Derrick Potter 852 918 358-3742 305 S. Broadway Cleveland 74020 David Ellis 853 918 253-4449 1629 S. Main Jay 74346 Jeff Peterson 854 580 363-3294 310 S. Main Blackwell 74631 Gary McMartin 855 918 623-2171 106. S. Division Okemah 74859 Larry Bower 856 918 273-2926 813 E Cherokee Nowata 74048 Patti Helf 857 918 482-3218 PO Box 1467 Haskell 74436 Aaron Dipboya
As of 5/25/01 (78 stores) HOMELAND STORES LIST
DISTRICT 5 - FRED LARKIN (918) 585-3894 SHARON SULLIVAN (918) 585-3892 (17 STORES) - ----------------------------------------------------------------------------------------------------------------------- STORE PHONE ADDRESS TOWN/CITY ZIP MANAGER - ----- ----- ------- --------- --- ------- 102 918 252-3617 8922 S Memorial Tulsa 74133 Mel Hayes 457 918 743-1435 3948 S Peoria Tulsa 74105 Dayle O'Dell 495 918 652-8753 310 W Trudgeon Henryetta 74437 Devin Chancey 502 918 743-5609 2235 E 61st. St. Tulsa 74105 Walter Meisenheimer 538 918 825-5795 504 E Graham Pryor 74361 Tom Egbert 549 918 245-7414 400 Plaza Court Sand Spgs 74063 Frank Paschal 550 918 836-4519 6402 E Pine Tulsa 74115 Gerry Riley 553 918 583-1686 575 N Gilcrease Msm R Tulsa 74127 561 918 258-4222 708 S Aspen Broken Arrow 74012 567 918 744-4414 3139 S Harvard Tulsa 74135 J.W. Ray 573 918 266-5735 19302 E Admiral Blvd Tulsa 74015 Steve Fideline 574 918 355-2289 2351 E Kenosha Broken Arrow 74012 Paul Horner 778 918 241-3748 4001 S 97th Highway Sand Spgs. 74063 Chuck Jefferson 880 918 687-6151 3115 West Okmulgee Muskogee 74401 John Knecht 881 918 683-2854 1300 York Muskogee 74403 Lee Smith 882 918 682-2111 800 East Okmulgee Muskogee 74403 Jim Rouse 883 918 682-2813 6 East Shawnee Muskogee 74403 Teddisu Spriggs
REPORT BY: OKC DISTRICT OFFICE storelist.xls HOMELAND STORES, INC. LANDLORD LISTING AS OF 7/31/01
FREQUENCY CAP/OP STR # LANDLORD/PAYEE - --------- ------ ----- -------------- MONTHLY O 26 SWIG INVESTMENT COMPANY MILLS BUILDING 220 MONTGOMERY ST., 20TH FLR. SAN FRANCISCO, CA 94104 MONTHLY O 101 BANCFIRST ATTN: NOTE WINDOW P.O. BOX 988 NORMAN, OK 73070 MONTHLY O 101 STERR'S FOODS, INC. 1320 BROOKSIDE DRIVE NORMAN, OK 73072 MONTHLY O 122 SAUL HOLDINGS L.P. P.O. BOX 64288 BALTIMORE, MD 21264-4288 MONTHLY O 125 UNITED STATES BEEF CORPORATION ATTN: JOAN WOOD 4923 E. 49TH ST. TULSA, OK 74135 MONTHLY O 127 GRANDVIEW, LTD. CARL POJEZNY 5900 MOSTELLER DRIVE, SUITE 1700 OKLAHOMA CITY, OK 73112 MONTHLY O 141 A&D PROPERTIES, L.L.C. 1406 N. MAIN P.O. BOX 1185 GUYMON, OK 73942 QUARTERLY O 145 ROBERT WEIGEL AND JOANN WEIGEL C/O REALTY TRUST GROUP 2300 S. 48TH, SUITE 1 LINCOLN, NE 68506 MONTHLY O 146 BROADLAND PROPERTIES ATTN: DON BROADLAND 3535 E. 66TH ST. TULSA, OK 74138 MONTHLY O 148 SUSAN SANDELMAN, TRUSTEE JASAN TRUST C/O. KIN PROPERTIES 77 TARRYTOWN ROAD, SUITE 100 WHITE PLAINS, NY 10607-1620 SEMI-ANNUAL O 151 CRAWFORD D. BENNETT BOATMEN'S ACCOUNT 2061283 P.O. BOX 25189 OKLAHOMA CITY, OK 73125 MONTHLY O 151 HARRISON LEVY, JR. C/O HARRISON LEVY CO. 5715 N. WESTERN OKLAHOMA CITY, OK 73118 SEMI-ANNUAL O 153 WARREN BRADLEY F/A/O CUSHMAN FAMILY TRUST ACCT #010-1-141976 MONTHLY O 154 JO ANN SAVAGE C.P.H MAX HEDGES P.O. BOX 1010 BETHANY, OK 73008 MONTHLY O 161 JOYCE ASSOCIATES - JEFFREY SANDELMAN C/O KIN PROPERTIES 77 TARRYTOWN RD., SUITE 100 WHITE PLANS, NY 10607 MONTHLY O 161 LINDA SIMMONS JOHNSTONE 625 ROCKFORD ROAD ARDMORE, OK 73401 MONTHLY O 161 SUSAN SIMMONS 2112 E. 23RD ST. TULSA, OK 74114-2906 MONTHLY O 163 C.B.B. MANAGEMENT CORP., AS AGENT LOCATION #1.0715 708 THIRD AVENUE, 28TH FLOOR NEW YORK, NY 10017 MONTHLY O 164 PROPERTY DEVELOPMENT ASSOCIATES BANK OF AMERICA
HOMELAND STORES, INC. LANDLORD LISTING AS OF 7/31/01
FREQUENCY CAP/OP STR # LANDLORD/PAYEE - --------- ------ ----- -------------- SAFEWAY FILE 30062 - FACILITY NO. 89-5279-01-01 POST OFFICE BOX 60000 MONTHLY O 167 SOONER-SAFE ASSOCIATES C/O. FIRST OXFORD CORPORATION 3528 K STREET NW WASHINGTON, D.C. 20007 QUARTERLY O 169 LIONEL H. UHLMANN OR ANN W. HULMANN ATT: MARGARET GEORGIAS 13245 RIVERSIDE DR., SUITE 500 SHERMAN OAKS, CA 91423 MONTHLY O 170 CENTER CORPORATION C/O HELMERICH & PAYNE 1579 E. 21ST ST. TULSA, OK 74114-2906 SEMI-ANNUAL O 174 PROPERTY DEV ASSOC ACCT 52800101 BANK OF AMERICA/SAFEWAY FILE NO. 30062 P.O. BOX 60000 SAN FRANCISCO, CA 94160-0001 MONTHLY O 178 NATIONAL REALTY DEVELOPMENT CORP. 3528 K STREET, N.W. WASHINGTON, D.C. 20007 MONTHLY O 181 BONIUK INTERESTS, LTD. 1111 HERMANN DRIVE, SUITE 29E HOUSTON, TX 77004 MONTHLY O 182 SWIG INVESTMENT COMPANY MILLS BUILDING 220 MONTGOMERY ST., 20TH FLR. SAN FRANCISCO, CA 94014 MONTHLY O 183 PROPERTY DEV ASSOC ACCT 52800101 BANK OF AMERICA/SAFEWAY FILE NO. 30062 P.O. BOX 60000 SAN FRANCISCO, CA 94160-0001 MONTHLY O 192 SUNWAY ASSOCIATES LTD. PARTNERSHIP P.O. BOX 642704 PITTSBURGH, PA 15264-2704 MONTHLY O 195 BILLY E. ROWLAND & PATSY A. ROWLAND 3129 SW 44TH OKLAHOMA CITY, OK 73109 MONTHLY O 195 GENE A. ROWLAND & EVELYN B. ROWLAND 3109 SW 44TH OKLAHOMA CITY, OK 73109 MONTHLY O 196 SHAWNEE AFFILIATES LTD. PARTNERSHIP ATTN: TOM FREEMAN 6010 N. VILLA OKLAHOMA CITY, OK 73112-7195 SEMI-ANNUAL O 197 FOOD LION, INC. ATTN: REAL ESTATE DEPT. P.O. BOX 75607 CHARLOTTE, NC 28275 SEMI-ANNUAL O 200 HOLLYWOOD CORPORATION ATTN: LYNN D. FOREMAN 210 PARK AVENUE, SUITE 1000 OKLAHOMA CITY, OK 73102 MONTHLY O 204 MALEASE 15 SAFE CORP C/O LAWRENCE KADISH REAL ESTATE 135 JERICHO TURNPIKE WESTBURY, NY 11568 MONTHLY O 204 N B D BANK N.A. J. MICHAEL BANAS, CORP. TRUST ADM. 611 WOODWARD AVE. DETROIT, MI 48226 MONTHLY O 206 WARWICK CROSSING, L.L.C. P.O. BOX 270248 OKLAHOMA CITY, OK 73137-0248 MONTHLY O 207 MVP LIMITED PARTNERSHIP ATTN: EVE PATTERSON, PROPERTY MGR. 210 PARK AVENUE, SUITE 1000 OKLAHOMA CITY, OK 73102 MONTHLY 207 CASADY MERCHANT'S ASSOCIATION P.O. BOX 221095
HOMELAND STORES, INC. LANDLORD LISTING AS OF 7/31/01
FREQUENCY CAP/OP STR # LANDLORD/PAYEE - --------- ------ ----- -------------- OKLAHOMA CITY, OK 73156 MONTHLY O 457 RGF-41 NANCY FELDMAN, C/O R.G. FELDMAN SUITE 100 PARK CENTRE, 526 S. MAIN TULSA, OK 74103-4409 MONTHLY O 502 FARHA REALTY TRUST P.O. BOX 1080 BRISTOW, OK 74010 MONTHLY O 503 TWENTY FIRST PROPERTIES, INC. 2121 S. COLUMBIA AVE. - SUITE 650 TULSA, OK 74114-3505 MONTHLY O 505 FARHA REALTY TRUST P.O. BOX 1090 BRISTOW, OK 74010 MONTHLY O 515 FARHA REALTY TRUST P.O. BOX 1080 BRISTOW, OK 74010 O 528 TC-94 LIMITED PARTNERSHIP 3314 E. 51ST., SUITE 200A TULSA, OK 74135 MONTHLY O 529 AMARILLO HOMEWAY REALTY COMPANY ATTN; ANDREW SHAPIRO 222 GRAND AVENUE ENGLEWOOD, NJ 07631 MONTHLY O 549 SAND SPRINGS ASSOCIATES C/O DIVERSIFIED INVESTMENTS ASSOCIATES 15 WEST AYLESBURY ROAD - SUITE 700 TIMONIUM, MD 21093 SEMI-ANNUAL O 549 SAN SPRINGS PLAZA, INC. C/O BAUER & ASSOCIATES REALTORS 4821 S. SHERIDAN - SUITE 201 TULSA, OK 74145 MONTHLY O 550 JOHN J. AND MARIE RYAN C/O FIRST HAWAIIAN BANK TRUST DIV. P.O. BOX 3200 HONOLULU, HI 96847 MONTHLY O 553 PAC TRUST UNIT 72 ATTN; ACCTG/TENANT N. 3 PTR5303 HOMELAND P.O. BOX 25008 OKLAHOMA CITY, OK 73125 MONTHLY O 561 POCO REALTY DEVELOPMENT CORPORATION P.O. BOX 796 MIDDLEBURG, VA 20118-0796 SEMI-ANNUAL O 564 NEBF INVESTMENTS ATTN; ELMA GROSS 1125 15TH STREET, NW, SUITE 401 WASHINGTON D.C. 20005 SEMI-ANNUAL O 567 RANCH ACRES ASSOCIATES C/O SC MANAGEMENT CO. P.O. BOX 1207 SAN BRUNO, CA 940 QUARTERLY O 573 MALEASE 15 SAFE CORP C/O LAWRENCE KADISH REAL ESTATE 135 JERICHO TURNPIKE WESTBURY, NY 11568 MONTHLY O 573 N B D BANK N.A. J. MICHAEL BANAS, CORP. TRUST ADM. 611 WOODWARD AVE. DETROIT, MI 48225 MONTHLY O 578 FRANK AND DENA BATES, TRUSTEES OF THE BATES FAMILY TRUST 10836 MARIETTA AVENUE CULVER CITY, CA 90232 MONTHLY O 582 VILLA MERCADO PARTNERSHIP ATTN: JOHN NOTESTINE P.O. BOX 9565 AMARILLO, TX 79105 MONTHLY O 587 EBL&S PROPERTY MANAGEMENT P.O. BOX 57192 PHILADELPHIA, PA 19111-7192
HOMELAND STORES, INC. LANDLORD LISTING AS OF 7/31/01
FREQUENCY CAP/OP STR # LANDLORD/PAYEE - --------- ------ ----- -------------- MONTHLY O 590 D.J. INVESTMENTS P.O. BOX 69 BERGENFIELD, NJ 07621 MONTHLY C/O 600 PILCHERS PROPERTY L.P. 7001 PRESTON ROAD, SUITE 200 LB16 DALLAS TX 75205 MONTHLY O 601 601 BLDG. RENT PAID BY WIRE TRANSFER PARKING LOT LEASE: OMNI CAPITAL CORP. ATTN: W.C. CROUCH MONTHLY 601 ITSM CORPORATION C/O BAYERISCHE HYPO UND VEREINSBANK AG NEW YORK BRANCH - 150 E. 42ND STREET NEW YORK, NY 10017-4579 MONTHLY O 603 STANDARD LIFE & ACCIDENT INS. CO. LOAN NOS. 2211 AND 2217 P.O. BOX 9008 GALVESTON, TX 775 MONTHLY O 604 DEUTSCHE BANK - ATTN: STEFAN KRUGER 280 PARK AVENUE - 6E MAIL STOP NYC 03-0604 NEW YORK, NY 10017 MONTHLY 605 AMERICAN BANK ABA #114903284 FOR CREDIT TO: ROSCHE ONE INTERESTS, L.P. MONTHLY O 778 KLINGHORN, DRIVE, HOUGH & COMPANY LOAN NUMBER 2127 P.O. BOX 4346, DEPT. 476 HOUSTON, TX 77210-4346 MONTHLY O 778 SPRING VILLAGE SHOPPING CENTER (CAM PAYMENT ONLY) MONTHLY O 793 FLEMING COMPANIES, INC. ATTN: LENORE T. GRAHAM, ESQUIRE 6301 WATERFORD BOULEVARD, P.O. BOX 26647 OKLAHOMA CITY, OK 73126 MONTHLY O 794 FLEMING COMPANIES, INC. ATTN: LENORE T. GRAHAM, ESQUIRE 6301 WATERFORD BOULEVARD, P.O. BOX 26647 OKLAHOMA CITY, OK 73126 MONTHLY O 795 FLEMING COMPANIES, INC. ATTN: LENORE T. GRAHAM, ESQUIRE 6301 WATERFORD BOULEVARD, P.O. BOX 26647 OKLAHOMA CITY, OK 73126 ANNUAL O 796 FLEMING COMPANIES, INC. ATTN: LENORE T. GRAHAM, ESQUIRE 6301 WATERFORD BOULEVARD, P.O. BOX 26647 OKLAHOMA CITY, OK 73126 MONTHLY O 850 ASSOCIATED WHOLESALE GROCERS P.O. BOX 2932 KANSAS CITY, KS 66110-2932 DO NOT PAY - BILLED DIRECT FROM AWG MONTHLY O 851 ASSOCIATED WHOLESALE GROCERS P.O. BOX 2932 KANSAS CITY, KS 66110-2932 DO NOT PAY - BILLED DIRECT FROM AWG MONTHLY O 852 ASSOCIATED WHOLESALE GROCERS P.O. BOX 2932 KANSAS CITY, KS 66110-2932 DO NOT PAY - BILLED DIRECT FROM AWG MONTHLY O 853 ASSOCIATED WHOLESALE GROCERS P.O. BOX 2932 KANSAS CITY, KS 66110-2932 DO NOT PAY - BILLED DIRECT FROM AWG MONTHLY O 854 ASSOCIATED WHOLESALE GROCERS P.O. BOX 2932 KANSAS CITY, KS 66110-2932 DO NOT PAY - BILLED DIRECT FROM AWG MONTHLY O 855 ASSOCIATED WHOLESALE GROCERS P.O. BOX 2932 KANSAS CITY, KS 66110-2932
HOMELAND STORES, INC. LANDLORD LISTING AS OF 7/31/01
FREQUENCY CAP/OP STR # LANDLORD/PAYEE - --------- ------ ----- -------------- DO NOT PAY - BILLED DIRECT FROM AWG MONTHLY O 856 ASSOCIATED WHOLESALE GROCERS P.O. BOX 2932 KANSAS CITY, KS 66110-2932 DO NOT PAY - BILLED DIRECT FROM AWG MONTHLY O 857 ASSOCIATED WHOLESALE GROCERS P.O. BOX 2932 KANSAS CITY, KS 66110-2932 DO NOT PAY - BILLED DIRECT FROM AWG MONTHLY O 880 ASSOCIATED WHOLESALE GROCERS P.O. BOX 2932 KANSAS CITY, KS 66110-2932 DO NOT PAY - BILLED DIRECT FROM AWG MONTHLY O 881 JOHNSON ENTERPRISES HOLDING COMPANY 1310 SOUTH YORK MUSKOGEE, OK 74403 ANNUAL O 882 ASSOCIATED WHOLESALE GROCERS P.O. BOX 2932 KANSAS CITY, KS 66110-2932 DO NOT PAY - BILLED DIRECT FROM AWG MONTHLY O 883 ASSOCIATED WHOLESALE GROCERS P.O. BOX 2932 KANSAS CITY, KS 66110-2932 DO NOT PAY - BILLED DIRECT FROM AWG MONTHLY O 883 ZIMMERMAN REALTY 1943 UNIVERSITY AVENUE ST. PAUL, MN 55104 MONTHLY O 886 ASSOCIATED WHOLESALE GROCERS P.O. BOX 2932 KANSAS CITY, KS 66110-2932 DO NOT PAY - BILLED DIRECT FROM AWG MONTHLY O 887 ASSOCIATED WHOLESALE GROCERS P.O. BOX 2932 KANSAS CITY, KS 66110-2932 DO NOT PAY - BILLED DIRECT FROM AWG MONTHLY O 6970 JUDITH L. TRAUB, EXECUTRIX ESTATE OF LOLA L. LAWRENCE, DECEASED 5112 N. MILITARY OKLAHOMA CITY, OK 73118 MONTHLY O 7000 KAISER-FRANCIS OIL COMPANY 2601 NW EXPRESSWAY - SUITE 205 WEST OKLAHOMA CITY, OK 73112 MONTHLY O 7006 COMMERCIAL WAREHOUSE CO. 3815 NORTH SANTA FE OKLAHOMA CITY OK 73118
Exhibit 5-6(a) (Encumbrances) Liens and security interests of Associated Wholesale Grocers, Inc. Liens and security interests of National Bank of Canada(1) Liens for taxes, assessments and governmental charges not yet due Security Interests relating to capital leases on Exhibit 5-10 Security Interests relating to consigned inventory on Exhibit 5-6(a) Statutory landlord's liens on property located in Texas Zoning restrictions, easements, licenses, covenants, restrictions on the use of real property which do not materially impede the use of property in the normal operations of Homeland Stores, Inc. - ---------- (1) To be paid off at closing. Section 5-6(b) (Consignments) HOMELAND STORES, INC. GENERAL ELECTRIC CONSIGNMENT INVENTORY
STORE # CITY BALANCE STORE # CITY BALANCE ------- ---- ------- ------- ---- ------- 1 026 Chickasha 2,000 40 529 Amarillo 2,400 2 101 Norman 1,600 41 538 Pryor 2,400 3 102 Tulsa 3,200 42 545 Tulsa 3,200 4 105 Moore 2,400 43 549 Sand Springs 2,400 5 122 OKC 2,400 44 550 Tulsa 2,400 6 125 Enid 3,200 45 553 Tulsa 2,400 7 127 Chickasha 1,600 46 561 Broken Arrow 3,200 8 141 Guymon 1,200 47 563 Bartlesville 2,400 9 145 Dodge City 800 48 567 Tulsa 2,400 10 146 Seminole 2,400 49 573 Tulsa 2,400 11 148 Clinton 1,200 50 574 Broken Arrow 4,200 12 153 OKC 2,400 51 578 Wagoner 2,400 13 154 OKC 1,800 52 582 Dumas 2,400 14 161 Ardmore 2,400 53 587 Borger 1,800 15 163 OKC 2,400 54 600 Amarillo 2,400 16 164 Alva 2,400 55 601 Amarillo 3,000 17 167 Woodward 1,800 56 603 Amarillo 1,800 18 170 Elk City 2,400 57 604 Canyon 2,400 19 178 Pauls Valley 2,400 58 605 Hereford 2,400 20 181 OKC 1,600 59 677 Amarillo 2,400 21 182 Duncan 2,400 60 778 Sand Springs 2,400 22 183 OKC 2,400 61 793 Oklahoma City 0 23 188 Guthrie 1,600 62 794 Oklahoma City 0 24 192 OKC 2,400 63 795 Lawton 0 25 193 Lawton 1,800 64 796 Oklahoma City 1,600 26 195 OKC 2,400 65 850 Pawhuska 1,200 27 196 Shawnee 1,600 66 851 Perry 2,400 28 197 Yukon 1,600 67 852 Cleveland 1,600 29 200 Norman 1,800 68 853 Jay 2,400 30 204 Mustang 1,600 69 854 Blackwell 2,400 31 206 OKC 2,400 70 855 Okemah 1,800 32 207 OKC 2,800 71 856 Nowata 1,600 33 208 Edmond 2,400 72 857 Haskell 1,600 34 457 Tulsa 2,400 73 880 Muskogee 0 35 495 Henryetta 2,400 74 881 Muskogee 0 36 502 Tulsa 2,400 75 882 Muskogee 0 37 503 Tulsa 1,800 76 883 Muskogee 0 38 515 Bartlesville 2,000 77 886 Edmond 0 39 528 Bixby 2,400 78 887 Oklahoma City 0 ------- Grand Total 151,800 =======
Exhibit 5-7 (Indebtedness) Indebtedness to Associated Wholesale Grocers, Inc. Other indebtedness listed on the attachment.
Actual Estimated As of As of 07/14/01 08/11/01 -------------- -------------- Indebtedness: National Bank of Canada: Term Loan 7,028,449.67 7,028,449.67 Working Capital Facility 29,635,947.87 25,611,729.13 Letter of Credit -- Midwest Payment Systems 30,000.00 30,000.00 -------------- -------------- Total National Bank of Canada 36,694,397.54 32,670,178.80 Associated Wholesale Grocers, Inc. 9,552,161.65 9,437,136.03 Indenture 60,000,000.00 60,000,000.00 Capital Lease Obligations: Store #600 1,071,106.95 1,066,164.29 GE Capital -- Equipment 1,148,547.60 1,116,871.94 IBM -- Equipment 20,966.92 10,625.57 Mellon U.S. Leasing -- Equipment 0.00 0.00 -------------- -------------- Total Capital Lease Obligations 2,240,621.47 2,193,661.80 Notes Payable: Texas Comptroller 57,576.21 57,576.21 Internal Revenue Service 51,702.95 46,440.06 -------------- -------------- Total Notes Payable 109,279.16 104,016.27 -------------- -------------- Total Indebtedness 108,596,459.82 104,404,992.90 ============== ==============
Exhibit 5-8 (Insurance) CERTIFICATE OF INSURANCE [ILLEGIBLE] CERTIFICATE OF INSURANCE [ILLEGIBLE] Exhibit 5-10 (Capital Leases)
Actual Estimated As of As of 07/14/01 08/11/01 ------------ ------------ Capital Lease Obligations: Store #600 1,071,106.95 1,066,164.29 GE Capital -- Equipment 1,148,547.60 1,116,871.94 IBM -- Equipment 20,966.92 10,625.57 Mellon U.S. Leasing -- Equipment 0.00 0.00 ------------ ------------ Total Capital Lease Obligations 2,240,621.47 2,193,661.80 ============ ============
Exhibit 5-12 (Collective Bargaining Agreements) Agreement dated August 5, 1996, between United Food & Commercial Workers Union and Homeland Stores, Inc., as amended by the Memorandum of Undertaking dated August 1, 2001. Contract dated in August, 1996, by and between Homeland Stores, Inc. and UFCW International Union Local No. 1000, UFCW District Union Local Two and Local 540, as amended by the Memorandum of Agreement dated August 1, 2001. Articles of Agreement dated August 4, 1996, by and between Homeland Stores, Inc. and Bakery, Confectionary and Tobacco Workers International Union. Exhibit 5-16 (Multi-Employer Plans) Prior Multi-Employer Plans: United Food & Commercial Workers National Pension Fund Kansas City Area Retail Food Store Employees Pension Fund Bakers and Confectionary International Pension Fund United Food & Commercial Workers Union & Employees Pension Fund United Food & Commercial Workers Union Locals 76, 340, 540 Meat - Oklahoma Group Insurance Administrators United Food & Commercial Workers Unions & Employers Midwest Health Benefits Fund Local 322 United Healthcare Inc. Local 322 South Central United Food & Commercial Workers Health & Welfare Fund (Locals 76 and 100) Exhibit 5-18 (Litigation) To: Wayne Peterson GL Litigation 8/13/01 David Clark From: Craig Nelson
Plaintiff Store # D/L Claim# Incurred Expenses Total Paid --------- ------- --- ------ -------- -------- ---------- Legal Other Claim ----- ----- ----- 1 Rhodes Aja 598 11/27/96 H $ 7,500.00 $ 2,541.22 $ 658.55 $ $ 3,199.77 ========================================================================================================================== 2 Babiak Mark 151 10/10/97 BV18477 $ 11,500.00 $ 3,851.35 $ 3,851.35 3 Cagle Bill 146 10/12/97 BV18502 $ 30,000.00 $ 18,321.60 $ 18,321.60 4 Ebert Lynn 574 10/9/97 $ -- $ -- $ -- 5 Hill Nancy 553 9/15/97 BPF5962 $ 9,500.00 $ 3,974.37 $ 3,974.37 ========================================================================================================================== 7 Davis Alma 550 10/5/98 AXH8137 $ 7,500.00 $ 2,546.33 $ 2,546.33 8 Dugger Tereasa 495 4/30/98 BKT4075 $ 9,500.00 $ 6,663.40 $1,574.40 $ 8,237.80 9 Inbody Billie 578 5/16/98 BKT6110 $ 10,000.00 $ 933.51 $ 933.51 10 Powell Mary Louise 208 1/21/98 BPF5968 $ 23,500.00 $ 9,090.39 $ 9,090.39 11 Stafford Darlene 208 8/12/98 BHC7697 $ 10,000.00 $ 3,781.43 $ 50.00 $ 3,831.43 12 Tatum Patricia 563 6/20/98 BHC0768 $ 9,000.00 $ 874.59 $ 874.59 13 VanErmen Louis 174 8/7/98 BHC7161 $140,000.00 $ 22,486.92 $1,252.58 $100,000* $ 23,739.50 ========================================================================================================================== 14 Bushnell Judy 163 4/6/99 12305 $ 5,500.00 $ 4,865.34 $ 275.00 $ 5,140.34 15 Helm Margaretta 778 9/8/99 $ 3,500.00 $ $ -- 16 McClain Oma 154 10/9/99 $ 400.00 $ $ -- 17 Peoples Lucille 495 9/26/99 15573 $ 9,744.39 $ 1,744.39 $ $ 1,744.39 18 Ridener Pam 529 1/1/99 13472 $171,028.30 $ 17,076.19 $ $ 17,076.19 ========================================================================================================================== 19 Hayes Diana 151 9/8/00 21401 $ 8,000.00 $ 1,186.44 $ 1,186.44 20 Lee Michelle 207 7/5/00 21576 $ 6,500.00 $ 481.09 $ 481.09 21 Thomas Kenya 207 10/27/00 $ 1,000.00 $ $ -- 22 Truitt Robt & Nina 153 2/28/00 17960 $ 3,000.00 $ 2,565.60 $ 2,565.60 ========================================================================================================================== $ -- TOTALS $476,672.69 $102,984.16 $3,151.98 $106,136.14 ====================================== =========== Plaintiff Cause Trial --------- ----- ----- 1 Rhodes Aja S&F x ======================================================================== 2 Babiak Mark Tripped/mat 3 Cagle Bill S&F Def verdict 4 Ebert Lynn S&F 5 Hill Nancy Held against will ======================================================================== 7 Davis Alma Struck by cart x 8 Dugger Tereasa S&F x 9 Inbody Billie S&F x 10 Powell Mary Louise Tripped/mat x 11 Stafford Darlene Hit/piece of display 12 Tatum Patricia S&F 13 VanErmen Louis S&F On appeal ======================================================================== 14 Bushnell Judy Tripped/curb x 15 Helm Margaretta S&F 16 McClain Oma Fell/sidewalk 17 Peoples Lucille S&F/curb-rain x 18 Ridener Pam Fell/hole-parking lot ======================================================================== 19 Hayes Diana S&F 20 Lee Michelle S&F 21 Thomas Kenya S&F/entrance-rain 22 Truitt Robt & Nina Harrassment ======================================================================== TOTALS
*On appeal, not likely to be decided until 05-2002 Summary Exhibit 5-19 (Investments) Shares of Common Stock of JCH Beverage, Inc. Shares of Common Stock of SLB Beverage, Inc. Other investments listed on the attachment. HOMELAND STORES INC. INVESTMENTS-YEAR 2001 AS OF 12/29/01
Issue # Shares Value Total ----- -------- ----- ----- Farm Fresh Stock 1 10.00 10.00 AWG Capital Stock 04/21/95 15 1,165.00 17,475.00 Farm Fresh 1995 944 0.00 0.00 Farm Fresh 1996 1889 0.00 0.00 AWG Patronage Certificates 12/30/95 12875 643,129.61 AWG Patronage Certificates 12/30/95 23858 500,000.00 AWG Patronage Certificates 12/30/95 23859 500,000.00 1,643,129.61 AWG Patronage Certificates 12/28/96 24236 500,000.00 AWG Patronage Certificates 12/28/96 24237 500,000.00 AWG Patronage Certificates 12/28/96 24238 500,000.00 AWG Patronage Certificates 12/28/96 24239 500,000.00 AWG Patronage Certificates 12/28/96 24240 608,994.62 2,608,994.62 AWG Patronage Certificates 12/27/97 24617 500,000.00 AWG Patronage Certificates 12/27/97 24618 500,000.00 AWG Patronage Certificates 12/27/97 24619 500,000.00 AWG Patronage Certificates 12/27/97 24620 898,979.97 2,398,979.97 AWG Patronage Certificates 12/26/98 24971 500,000.00 AWG Patronage Certificates 12/26/98 24972 500,000.00 AWG Patronage Certificates 12/26/98 24973 500,000.00 AWG Patronage Certificates 12/26/98 24974 967,148.40 2,467,148.40 AWG Patronage Certificates 12/25/99 25333 500,000.00 AWG Patronage Certificates 12/25/99 25333 500,000.00 AWG Patronage Certificates 12/25/99 25334 500,000.00 AWG Patronage Certificates 12/25/99 25335 500,000.00 AWG Patronage Certificates 12/25/99 25336 607,405.43 2,607,405.43 AWG Patronage Certificates 12/30/00 25667 500,000.00 AWG Patronage Certificates 12/30/00 25668 500,000.00 AWG Patronage Certificates 12/30/00 25669 500,000.00 AWG Patronage Certificates 12/30/00 25670 655,542.92 2,155,542.92 Total 2001 13,898,685.95 =============
Homeland Holding Corporation ("The Borrower") REVOLVING LINE OF CREDIT AVAILABILITY AT COST Fax To: Carrie Smith (817) 434-4310 Certificate No. 1
Total Beginning Inventory at Cost as of 7/28/01 --------- ADD Receiving/Purchases MEMO Retail Sales --------- LESS Cost of Goods Sold Transfers Prior Period Adjustments Ending Inventory at Cost as of: 8/4/01 --------- LESS Beer & Wine LESS Produce LESS Meat LESS Deli LESS Bakery LESS Consigned Inventory LESS Unsaleable Inventory Returned PRC LESS Shrink Reserve 2% of Eligible Inventory Eligible Inventory (A) --------- Advance Rate:(B) Inventory Availability (A x B) (C) --------- Eligible Third Party Receivables & Coupons (D) --------- Advance Rate:(E) Third Party Receivables & Coupons Availability (D x E) (F) --------- Real Estate (G) --------- Real Estate Advance Rate:(H) Real Estate Borrowing Base (G x H) --------- Less Amortization Real Estate Availability (I) --------- Eligible Leasehold Value (J) --------- A/R Advance Rate:(K) Leasehold Value Borrowing Base (J x K) --------- Less Amortization Leasehold Availability (L) --------- Total Inventory, A/R and Real Estate, Leasehold Borrowing Base (C + F + I + L) --------- LESS Professional Fee Carveout LESS PACA Reserve Subtotal Fleet Retail Finance Borrowing Base --------- LESS Availability Covenant (greater of $3.5MM or 15% of Subtotal FRF Borrowing Base) LESS Back Bay Term Total Fleet Retail Finance Borrowing Base --------- ====================================================================================================================================
AVAILABILITY CALCULATION Prior Day's Beginning Principal Balance --------- ADD Prior Days Advance ADD Fees Charged Today LESS Prior Day's Paydown Prior Day's Ending Principal Balance --------- ADD Est. Accrued Interest Month to Date Total Loan Balance Prior to request --------- Net Availability prior to today's request --------- Advance Request ---------
The undersigned represents and warrants that (a) the information set forth above has been prepared in accordance with the requirements of the Loan and Security Agreement (the "Loan Agreement") between the Borrower and FRF Inc.; (b) no "Default" (as defined in the Loan Agreement) is presently in existence; and (c) if on any day that an advance is made hereunder, any sales tax owned by the Borrowers is due and payable and remains unpaid, then some or all of such advance shall be applied to cover the Borrowers' payment of such sales tax. Authorized Signer ------------------------------------------------ Exhibit 8-1 (DDA's) CASH MANAGEMENT HOMELAND STORES, INC. BANK ACCOUNTS
STORE AREA AREA NO. BANK NAME ADDRESS TOWN ST ZIP CODE PHONE CODE FAX - ----- --------- ------- ---- -- --- ---- ----- ---- --- 26 First National Bank 302 Chickasha Chickasha OK 73023-1 405 224-2200 405 222-5053 101 Bank of America OK 1-100-03-02 211 N. Robinson Oklahoma City OK 73102 800 979-8260 800 973-2550 102 Bank of America OK 1-100-03-02 211 N. Robinson Oklahoma City OK 73102 800 979-8260 800 973-2550 105 Bank of America OK 1-100-03-02 211 N. Robinson Oklahoma City OK 73102 800 979-8260 800 973-2550 122 Bank of America OK 1-100-03-02 211 N. Robinson Oklahoma City OK 73102 800 979-8260 800 973-2550 125 Bank of Oklahoma P.O. Box 2300 Tulsa OK 74192 405 272-2089 405 272-2418 127 First National Bank 302 Chickasha Chickasha OK 73023-1 405 224-2200 405 222-5053 141 City National Bank P.O. Box 1228 Guymon OK 73942 580 338-6561 580 338-1525 145 Fidelity State Bank & Trust P.O. Box 1120 Dodge City KS 67801 316 227-8586 316 227-8024 146 Bancfirst Seminole OK 405 382-4647 405 148 First National Bank P.O. Box 9 Clinton OK 73601 580 323-2311 580 323-4327 153 Bank of America OK 1-100-03-02 211 N. Robinson Oklahoma City OK 73102 800 979-8260 800 973-2550 154 Bank of America OK 1-100-03-02 211 N. Robinson Oklahoma City OK 73102 800 979-8260 800 973-2550 161 Bancfirst P.O. Box 26788 Oklahoma City OK 73126-0 405 270-1039 405 218-4673 163 Bank of America OK 1-100-03-02 211 N. Robinson Oklahoma City OK 73102 800 979-8260 800 973-2550 164 Central National Bank P.O. Box 687 Alva OK 73717 580 327-1122 580 327-1101 167 The Stock Exchange Bank Box 1008 Woodward OK 73802 580 254-7917 580 254-7946 170 Legacy Bank P.O. Box 1199 Elk City OK 73648 580 225-7000 580 225-7369 178 First United Bank & Trust P.O. Box 600 Pauls Valley OK 73075-0 405 238-3341 405 238-3247 181 First Fidelity Bank 5101 N. Classen Blvd #500 Oklahoma City OK 73118 405 416-2631 405 416-2666 182 Bancfirst P.O. Box 26788 Oklahoma City OK 73126-0 405 270-1039 405 218-4673 183 Bank of America OK 1-100-03-02 211 N. Robinson Oklahoma City OK 73102 800 979-8260 800 973-2550 188 Bancfirst P.O. Box 26788 Oklahoma City OK 73126-0 405 270-1039 405 218-4673 192 Bank of America OK 1-100-03-02 211 N. Robinson Oklahoma City OK 73102 800 979-8260 800 973-2550 193 Bancfirst 15 NW 67th Lawton OK 73505 580 250-2015 580 250-2090 195 Bank of America OK 1-100-03-02 211 N. Robinson Oklahoma City OK 73102 800 979-8260 800 973-2550 196 Bancfirst P.O. Box 26788 Oklahoma City OK 73126 405 270-1039 405 218-4673 197 Canadian State Bank 120 S Mustang Rd Mustang OK 73069 405 324-9615 405 324-9285 200 First Fidelity Bank 5101 N. Classen Blvd #500 Oklahoma City OK 73118 405 416-2631 405 416-2666 204 All America Bank P.O. Box 300 Mustang OK 73064 405 376-2465 405 376-2265 206 Bank of America OK 1-100-03-02 211 N. Robinson Oklahoma City OK 73102 800 979-8260 800 973-2550 207 Bank of America OK 1-100-03-02 211 N. Robinson Oklahoma City OK 73102 800 979-8260 800 973-2550 208 First Fidelity Bank 5101 N. Classen Blvd #500 Oklahoma City OK 73118 405 416-2631 405 416-2666 457 Bank of America OK 1-100-03-02 211 N. Robinson Oklahoma City OK 73102 800 979-8260 800 973-2550 495 American Exchange Bank P.O. Box 818 Henryetta OK 74437 918 652-3321 918 652-7057 502 Bank of America OK 1-100-03-02 211 N. Robinson Oklahoma City OK 73102 800 979-8260 800 973-2550 503 Bank of America OK 1-100-03-02 211 N. Robinson Oklahoma City OK 73102 800 979-8260 800 973-2550 515 Weststar Bank 121 S. W. 4th Street Bartlesville OK 74003 918 337-3000 918 337-3400 528 Bank of America OK 1-100-03-02 211 N. Robinson Oklahoma City OK 73102 800 979-8260 800 973-2550 529 Amarillo National Bank P.O. Box 1611 Amarillo TX 79181 806 378-8000 806 378-8234 538 RCB Bank P.O. Drawer 8 Pryor OK 74361 918 825-4321 918 825-8888 545 Bank of America OK 1-100-03-02 211 N. Robinson Oklahoma City OK 73102 800 979-8260 800 973-2550 549 BancFirst 301 East 2nd Sand Springs OK 74063 918 241-5522 918 241-5555 550 Bank of America OK 1-100-03-02 211 N. Robinson Oklahoma City OK 73102 800 979-8260 800 973-2550 553 Bank of America OK 1-100-03-02 211 N. Robinson Oklahoma City OK 73102 800 979-8260 800 973-2550 561 Bank of America OK 1-100-03-02 211 N. Robinson Oklahoma City OK 73102 800 979-8260 800 973-2550 563 Weststar Bank 121 S. W. 4th Street Bartlesville OK 74003 918 337-3000 918 337-3400 567 Bank of America OK 1-100-03-02 211 N. Robinson Oklahoma City OK 73102 800 979-8260 800 973-2550 STORE CONTACT ACCOUNT ABA STORE NO. BANK NAME NAME NO. NO. NO. - ----- --------- ------- ------- --- ----- 26 First National Bank Michelle Hightower 334393 103100467 26 101 Bank of America Steve Sloan 73236 002862672182 103000017 101 102 Bank of America Steve Sloan 002862672302 103000017 102 105 Bank of America Steve Sloan 002862672195 103000017 105 122 Bank of America Steve Sloan 002862672386 103000017 122 125 Bank of Oklahoma Pat Heidelberg 208310865 103900036 125 127 First National Bank Michelle Hightower 234414 103100467 127 141 City National Bank Deborah Elliott 779255 103103244 141 145 Fidelity State Bank & Trust 127266 101101730 145 146 Bancfirst Dana Pickett 120088617 103003632 146 148 First National Bank Randy Craven 150932 103101822 148 153 Bank of America Steve Sloan 002862672218 103000017 153 154 Bank of America Steve Sloan 002862672221 103000017 154 161 Bancfirst Tony Mirrlone 5300151199 103003632 161 163 Bank of America Steve Sloan 002862672108 103000017 163 164 Central National Bank Mike Fouts 4368148 103101291 164 167 The Stock Exchange Bank Elaine Dewald 0385224 103107444 167 170 Legacy Bank Connie Clements 800584 103103406 170 178 First United Bank & Trust Brenda Johnson 2340080 103101961 178 181 First Fidelity Bank Jan Karcher 1115801327 103002691 181 182 Bancfirst Tony Mirrlone 5000027449 103003632 182 183 Bank of America Steve Sloan 002862672234 103000017 183 188 Bancfirst Tony Mirrlone 150878288 103003632 188 192 Bank of America Steve Sloan 002862672250 103000017 192 193 Bancfirst Alice Watson 4005025536 103003632 193 195 Bank of America Steve Sloan 002862672124 103000017 195 196 Bancfirst Tony Mirrlone 0400518651 103003632 196 197 Canadian State Bank Fran Smith 1034011319 103002617 197 200 First Fidelity Bank Jan Karcher 1132702616 103002691 200 204 All America Bank Bob 589622 103001456 204 206 Bank of America Steve Sloan 002862672140 103000017 206 207 Bank of America Steve Sloan 002862672153 103000017 207 208 First Fidelity Bank Jan Karcher 1142502735 103002691 208 457 Bank of America Steve Sloan 002862672315 103000017 457 495 American Exchange Bank Sharlee McClain 031364 103112248 495 502 Bank of America Steve Sloan 002862672328 103000017 502 503 Bank of America Steve Sloan 002862672331 103000017 503 515 Weststar Bank Kim Harris 171782 103100823 515 528 Bank of America Steve Sloan 002862672357 103000017 528 529 Amarillo National Bank Cory Ramsey 2232 111300958 529 538 RCB Bank 141893 103102643 538 545 Bank of America Steve Sloan 002862672344 103000017 545 549 BancFirst Darla Fleming 60053439 103003632 549 550 Bank of America Steve Sloan 002862672360 103000017 550 553 Bank of America Steve Sloan 002865971550 103000017 553 561 Bank of America Steve Sloan 002862672373 103000017 561 563 Weststar Bank Kim Addisson 206615 103100823 563 567 Bank of America Steve Sloan 002862672409 103000017 567
573 Bank of America OK 1-100-03-02 211 N. Robinson Oklahoma City OK 73102 800 979-8260 574 Bank of America OK 1-100-03-02 211 N. Robinson Oklahoma City OK 73102 800 979-8260 578 First Bank & Trust P.O. Box 427 Wagoner OK 74467 918 485-2173 582 Sun Bank P.O. Box 1117 Dumas TX 79029-1 806 935-7788 587 Amarillo National Bank - Borge P.O. Box 1611 Amarillo TX 79181 806 378-8000 600 Amarillo National Bank P.O. Box 1611 Amarillo TX 79181 806 378-8000 601 Amarillo National Bank P.O. Box 1611 Amarillo TX 79181 806 378-8000 603 Amarillo National Bank P.O. Box 1611 Amarillo TX 79181 806 378-8000 604 First State Bank P.O. Box 1 Canyon TX 79015-0 806 656-6322 605 First Bank Southwest P.O. Box 593 Hereford TX 79045-0 806 364-2435 677 Amarillo National Bank P.O. Box 1611 Amarillo TX 79181 806 378-8000 778 BancFirst 301 East 2nd Sand Springs OK 74063 918 241-5522 793 Bank of America OK 1-100-03-02 211 N. Robinson Oklahoma City OK 73102 800 979-8260 794 Bank of America OK 1-100-03-02 211 N. Robinson Oklahoma City OK 73102 800 979-8260 795 BancFirst P.O. Box 26788 Oklahoma City OK 73126-0 405 270-1039 796 Bank of America OK 1-100-03-02 211 N. Robinson Oklahoma City OK 73102 800 979-8260 850 NBC Bank P.O. Box 27 Pawhuska OK 74056 918 287-4111 851 Exchange Bank & Trust P.O. Box 797 Perry OK 73077 580 336-5531 852 The Cleveland Bank P.O. Box 8 Cleveland OK 74020 918 358-2555 853 The Delaware Co. Bank Box 448 Jay OK 74346 918 253-4235 854 Central National Bank P.O. Box 31 Blackwell OK 74631 888 363-2265 855 Citizens State Bank P.O. Box 231 Okemah OK 74859 918 623-1551 856 Weststar Bank 108 N. Maple Nowata OK 74048-2 918 273-3442 857 The First Bank of Haskell P.O. Box 128 Haskell OK 74436 918 482-5261 880 Bank of America OK 1-100-03-02 211 N. Robinson Oklahoma City OK 73102 800 979-8260 881 Bank of America OK 1-100-03-02 211 N. Robinson Oklahoma City OK 73102 800 979-8260 882 Bank of America OK 1-100-03-02 211 N. Robinson Oklahoma City OK 73102 800 979-8260 883 Bank of America OK 1-100-03-02 211 N. Robinson Oklahoma City OK 73102 800 979-8260 886 Bank of America OK 1-100-03-02 211 N. Robinson Oklahoma City OK 73102 800 979-8260 887 Bank of America OK 1-100-03-02 211 N. Robinson Oklahoma City OK 73102 800 979-8260 COLL Amarillo National Bank P.O. Box 1611 Amarillo TX 79181 806 378-8000 COLL BancFirst P.O. Box 26788 Oklahoma City OK 73126-0 405 270-1039 COLL Bank of America OK 1-100-03-02 211 N. Robinson Oklahoma City OK 73102 800 979-8260 COLL Bank One P.O. Box 25848 OKC OK 73125 405 231-6974 COLL First Fidelity Bank 3535 N.W. 58th St., Ste. 104 Oklahoma City OK 73122 405 416-2222 DDA National Bank of Canada 2121 San Jacinto, Ste. 1850 Dallas TX 75201 214 871-1264 DISB Melton Bank c/o NBC DISB National Bank of Canada 2121 San Jacinto, Ste. 1850 Dallas TX 75201 214 871-1264 JCH Amarillo National Bank P.O. Box 1611 Amarillo TX 79181 806 378-8000 UTUAL Bank of America OK 1-100-03-02 211 N. Robinson Oklahoma City OK 73102 800 979-8260 PAYCH Bank One P.O. Box 25848 Oklahoma City OK 73125 405 231-6974 PAR C Bank of America OK 1-100-03-02 211 N. Robinson Oklahoma City OK 73102 800 979-8260 AYR DD Bank of America OK 1-100-03-02 211 N. Robinson Oklahoma City OK 73102 800 979-8260 SD Bank One P.O. Box 25848 Oklahoma City OK 73125 405 231-6974 LB Cch Amarillo National Bank P.O. Box 1611 Amarillo TX 79181 806 378-8000 LB TAX Amarillo National Bank P.O. Box 1611 Amarillo TX 79181 806 378-8000
573 Bank of America 800 973-2550 Steve Sloan 002862672412 103000017 573 574 Bank of America 800 973-2550 Steve Sloan 002862672425 103000017 574 578 First Bank & Trust 918 485-2270 14556 103101165 578 582 Sun Bank 806 935-8361 708879 111322729 582 587 Amarillo National Bank - Borge 806 378-8234 Cory Ramsey 10098760 111300958 587 600 Amarillo National Bank 806 378-8234 Cory Ramsey 2267 111300958 600 601 Amarillo National Bank 806 378-8234 Cory Ramsey 2275 111300958 601 603 Amarillo National Bank 806 378-8234 Cory Ramsey 2291 111300958 603 604 First State Bank 806 655-9830 Greg Houlete 25-197-5 111310870 604 605 First Bank Southwest 806 363-8046 300056499 111304828 605 677 Amarillo National Bank 806 378-8234 Cory Ramsey 43540 111300958 677 778 BancFirst 918 241-5555 Darla Fleming 60053421 103003632 778 793 Bank of America 800 973-2550 Steve Sloan 002865971327 103000017 793 794 Bank of America 800 973-2550 Steve Sloan 002865971330 103000017 794 795 BancFirst 405 218-4673 Tony Mirrione 4005036244 103003632 795 796 Bank of America 800 973-2550 Steve Sloan 002867957297 103000017 796 850 NBC Bank 918 287-2906 Karla Dilbeck 0692-410 103112248 850 851 Exchange Bank & Trust 580 336-3297 Guyla Workman 2203183 103101628 851 852 The Cleveland Bank 918 358-5728 Susie, Lois 123579 103103309 852 853 The Delaware Co. Bank 918 253-8893 LeAnna Hasting 12633 103107897 853 854 Central National Bank 580 363-1621 Lou Ann Hutchins 10240505 103100195 854 855 Citizens State Bank 918 623-1177 Rhonda 850179 103103105 855 856 Weststar Bank 918 273-0059 Tammy Wilson 27625 103100823 856 857 The First Bank of Haskell 918 482-3817 Linda 4047684 103104201 857 880 Bank of America 800 973-2550 Steve Sloan 002863792074 103000017 880 881 Bank of America 800 973-2550 Steve Sloan 002863791868 103000017 881 882 Bank of America 800 973-2550 Steve Sloan 002863791936 103000017 882 883 Bank of America 800 973-2550 Steve Sloan 002863792016 103000017 883 886 Bank of America 800 973-2550 Steve Sloan 002865971055 103000017 886 887 Bank of America 800 973-2550 Steve Sloan 002865971068 103000017 887 COLL Amarillo National Bank 806 378-8234 Cory Ramsey 030068 111300958 COLL COLL BancFirst 405 218-4673 Tony Mirrione 400518732 103003632 COLL COLL Bank of America 800 973-2550 Steve Sloan 002862672399 103000017 COLL COLL Bank One 405 231-7102 Mark Demos 10356700 103000198 COLL COLL First Fidelity Bank 405 1122807292 103000648 COLL DDA National Bank of Canada 214 871-2015 Vicki Leon 604199-001 26005487 DDA DISB Melton Bank 0297828 111300958 DISB DISB National Bank of Canada 214 871-2015 Vicki Leon 604173-001 26005487 DISB JCH Amarillo National Bank 806 378-8234 Cory Ramsey 74632 111300958 JCH UTUAL Bank of America 800 973-2550 Steve Sloan 070183449785 111322729 MUTUAL PAYCH Bank One 405 231-7102 Mark Demos 10244260 103000648 PAY CH PAR C Bank of America 800 973-2550 Steve Sloan 2863789168 103000017 PAYR CH AYR DD Bank of America 800 973-2550 Steve Sloan 415200574918 103000017 PAYR DD SD Bank One 405 231-7102 Mark Demos 10301434 103000648 SD LB Chk Amarillo National Bank 806 378-8234 Cory Ramsey 046620 111300958 SLB CHK LB TAX Amarillo National Bank 806 378-8234 Cory Ramsey 059277 111300958 SLB TAX
2 Exhibit 8-2 (Credit Card Assignments) Agreement for American Express Card Acceptance/Supermarket dated February 19, 1999, by and between American Express Travel Related Services Company and Homeland Stores, Inc., as amended. Bank and Merchant Agreement dated October 28, 1999, by and among Fifth Third Bank, Midwest Payment Systems, Inc. and Homeland Stores, Inc., as amended. Merchant Services Agreement dated October 4, 1990, by and between Discover Card Services, Inc. and Homeland Stores, Inc., as amended. -----END PRIVACY-ENHANCED MESSAGE-----