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.