EXHIBIT 10QQ
SOLICITATION STATEMENT
HOMELAND STORES, INC.
Solicitation of Consents to Proposed Amendments
of
Certain Provisions of the Indenture Governing
its
Series A Senior Secured Floating Rate Notes Due 1997,
Series C Senior Secured Fixed Rate Notes Due 1999
and
Series D Senior Secured Floating Rate Notes Due 1997
Homeland Stores, Inc. (the "Company"), a wholly-
owned subsidiary of Homeland Holding Corporation ("Holding"),
is soliciting (the "Solicitation") the consents (the
"Consents") of registered holders of its Series A Senior
Secured Floating Rate Notes Due 1997, Series C Senior Secured
Fixed Rate Notes Due 1999 and Series D Senior Secured
Floating Rate Notes Due 1997 (collectively, the "Notes") to
certain proposed amendments (the "Proposed Amendments") to
(i) the Indenture, dated as of March 4, 1992, as supplemented
(the "Indenture"), among the Company, Holding, as guarantor,
and United States Trust Company of New York, as trustee (the
"Trustee"), (ii) the Security Agreement, dated as of March 4,
1992 (the "Security Agreement"), between the Company and
United States Trust Company, as collateral trustee (the
"Collateral Trustee"), (iii) the Intercreditor Agreement,
dated as of March 4, 1992 (the "Intercreditor Agreement"),
between the Trustee and the agent under the Credit Agreement
(as defined below) and (iv) the Mortgage, Security Agreement
and Financing Statement, dated as of March 4, 1992 (the
"Mortgage"), between the Company and the Collateral Trustee.
As more fully described herein, the purposes of the
Solicitation and the Proposed Amendments are:
(i) to increase the interest rate on each series
of Notes by one-half of one percent (0.5%) per annum;
(ii) to amend, add and delete certain financial
covenants and related definitions under the Indenture
(including modifying the "Consolidated Fixed Charge
Coverage Ratio" covenant, adding a new "Debt-to-EBITDA
Ratio" covenant and a new "Capital Expenditures"
covenant and deleting the "Adjusted Consolidated Net
Worth" covenant), to reflect the Company's size,
operations and financial position following the AWG
Transaction (as described below);
(iii) to amend certain provisions of the Indenture
to permit the Company to incur certain liens and in-
debtedness and to make an investment in certain
membership stock and receive or earn patronage
certificates or other equity in connection with the
supply agreement (the "Supply Agreement") to be entered
into between the Company and Associated Wholesale
Grocers, Inc. ("AWG"), which agreement is a condition
to, and will become effective immediately following, the
Company's sale of certain assets to AWG (the "AWG Sale"
and, together with the Supply Agreement, the "AWG
Transaction");
(iv) to amend certain provisions of the Security
Agreement to provide that AWG will have a first lien on
certain collateral to be acquired by the Company in
connection with the Supply Agreement;
(v) to amend certain other provisions of the
Indenture to, among other things, limit the Company's
ability to incur certain future indebtedness and
guarantees, and to provide that a certain amount of net
proceeds from future asset sales must be applied to an
offer to redeem the Notes;
(vi) to make certain technical amendments to the
Intercreditor Agreement; and
(vii) to amend the Mortgage to provide that
defaults under, or modifications or terminations of, a
certain lease related to a store to be closed, will not
constitute a default or event of default under the
Mortgage.
The Company estimates that net proceeds from the
AWG Sale will be approximately $37.2 million, approximately
$24.8 million of which will be allocated to the Notes and
approximately $12.4 million of which will be allocated to
indebtedness under the Revolving Credit Agreement, dated as
of March 4, 1992, as amended (the "Credit Agreement"). The
Indenture requires the Company to apply the net proceeds
allocable to the Notes to an offer to redeem the Notes on a
pro rata basis. Under the terms of the Indenture, the
earliest date on which a redemption of the Notes could occur
would be September 1, 1995, assuming the AWG Sale occurs on
or about April 21, 1995 (its current scheduled closing date).
However, as described below under "AWG Sale -- Application of
AWG Sale Proceeds," the Company is offering registered
holders the option of having their Notes redeemed, on a pro
rata basis, on June 1, 1995. Registered Holders who vote
"FOR" the Proposed Amendments, or who are deemed to have
voted "FOR" the Proposed Amendments as discussed below under
"The Solicitation -- Consent Procedures," will be deemed to
have selected the June 1, 1995 redemption option, unless they
mark the "September 1, 1995 Redemption" box on the Consent
Letter included herewith.
Upon the effectiveness of the Proposed Amendments,
the Company will pay to each Registered Holder (as defined
below) of Notes as of the Record Date (as defined below)
whose duly executed Consent has been received and not revoked
prior to the Expiration Date (as defined below) a consent fee
(the "Consent Fee") in an amount equal to $5.00 for each
$1,000 principal amount of Notes in respect of which such
Consent has been delivered. See "The Solicitation -- Consent
Fee".
The Solicitation is being made upon the terms and
subject to the conditions set forth in this Solicitation
Statement and the accompanying Consent Letter. Adoption of
the Proposed Amendments requires the consent of the
Registered Holders (as defined below) of a majority in
aggregate principal amount of the Notes outstanding and not
owned by the Company or any of its affiliates (the "Requisite
Consents"). Receipt of the Requisite Consents is a condition
precedent to the AWG Transaction. For purposes of this
Solicitation Statement, the term "Registered Holders" refers
to any person in whose name Notes are registered in the
registry maintained with respect to the Notes as of 5:00
p.m., New York City time, on March 30, 1995 (the "Record
Date"). Only Registered Holders, or persons who hold valid
proxies from such Registered Holders, will be eligible to
consent to the Proposed Amendments.
If the Company receives the Requisite Consents,
then the Company, Holding and the Trustee will execute a
supplemental indenture (the "Supplemental Indenture")
effecting the Proposed Amendments and, upon satisfaction of
certain conditions precedent, the Proposed Amendments will be
binding upon each holder of the Notes, whether or not such
holder delivered its Consent.
This Solicitation Statement is being furnished on
or about April 4, 1995. Registered Holders will be entitled
to notice of, and to vote with respect to, the Proposed
Amendments. The Solicitation will expire at 5:00 p.m., New
York City time, on April 13, 1995, unless the Company, in its
sole discretion, extends the period during which the
Solicitation is open, which extension may be for a specified
period of time or on a daily basis (such date, as so
extended, the "Expiration Date"). Consents may be revoked
at any time up to, but will become irrevocable upon, the
later of (i) the Expiration Date and (ii) the receipt by the
Trustee from the Company of the officer's certificate
required to be delivered under the Indenture certifying that
the Requisite Consents have been received (the "Officer's
Certificate"). Properly completed and duly executed Consents
should be sent to Morrow & Co., Inc., as Information Agent,
at the address set forth on the back cover page hereof and on
the Consent Letter included herewith. Consents should not be
sent to the Company, Holding or the Trustee. In no event
should a holder tender or deliver Notes.
April 4, 1995
TABLE OF CONTENTS
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE 6
AVAILABLE INFORMATION 7
SUMMARY 8
BACKGROUND OF THE SOLICITATION 19
AWG TRANSACTION 23
PROPOSED AMENDMENTS 30
THE SOLICITATION 40
AMENDED CREDIT FACILITY 47
HISTORICAL AND PRO FORMA CAPITALIZATION 49
CERTAIN HISTORICAL, PRO FORMA AND PROJECTED
FINANCIAL DATA 50
CERTAIN FEDERAL INCOME TAX CONSEQUENCES 52
Annex A - Form of Supplemental Indenture A-1
Annex B - Certain Historical, Pro Forma and
Projected Financial Data B-1
Annex C - Form of Amendment to Security Agreement C-1
Annex D - Form of Amendment to Intercreditor
Agreement D-1
Annex E - Form of Amendment to Mortgage E-1
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
Holding owns all of the outstanding capital stock
of the Company. Holding has no other significant assets.
The following documents filed by Holding with the
Securities and Exchange Commission (the "Commission") (File
No. 33-48862) are hereby incorporated by reference:
(a) Annual Report on Form 10-K for the year ended
January 1, 1994;
(b) Form 10-K/A for the fiscal year ended January 1,
1994;
(c) Quarterly Reports on Form 10-Q for the quarters
ended March 26, June 18 and September 10, 1994;
(d) Form 10-Q/A for the quarter ended September 10,
1994; and
(e) Current Report on Form 8-K dated November 29,
1994.
All documents filed by Holding with the Commission
pursuant to Section 13(a), 13(c), 14 or 15(d) of the
Securities Exchange Act of 1934, as amended (the "Exchange
Act"), subsequent to the date of this Solicitation Statement
and prior to the termination thereof shall be deemed to be
incorporated by reference herein and to be a part hereof from
the date of filing of such documents. Any statement con-
tained herein or in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be
modified or superseded for purposes of this Solicitation
Statement to the extent that a statement contained herein or
in any other subsequently filed document which is or is
deemed to be incorporated by reference herein modifies or
supersedes such statement. Any such statement so modified or
superseded shall not be deemed, except as so modified or
superseded, to constitute a part of this Solicitation
Statement.
The Company will provide, without charge, to each
person, including any beneficial holder, to whom this
Solicitation Statement is delivered, upon the written or oral
request of any such person, a copy of any or all of the
documents relating to Holding that are incorporated herein by
reference (other than certain exhibits to such documents).
Such requests should be directed to Morrow & Co., Inc., 909
Third Avenue, New York, New York 10022 (telephone number
(800) 662-5200).
AVAILABLE INFORMATION
Holding is subject to the information and reporting
requirements of the Exchange Act, and in accordance therewith
files periodic reports and other information with the
Commission.
Such reports and other information filed by Holding
with the Commission may be inspected and copied at the public
reference facilities maintained by the Commission at Room
1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549, and at the regional offices of the Commission
located at Seven World Trade Center, New York, New York 10048
and Northwest Atrium Center, 500 West Madison Street,
Chicago, Illinois 60661-2551. Copies of such material can be
obtained from the Public Reference Section of the Commission,
450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates.
SUMMARY
The following is a summary of certain information
contained elsewhere in this Solicitation Statement and is
qualified in its entirety by the more detailed information
contained elsewhere in this Solicitation Statement or
incorporated herein by reference. Capitalized terms used
herein and not otherwise defined shall have the meanings
ascribed to them elsewhere in this Solicitation Statement.
The Company and Holding
The Company and Holding were organized in 1987 by a
group of investors led by Clayton, Dubilier & Rice, Inc.
("CD&R"), a private investment firm specializing in leveraged
acquisitions with the participation of management, for the
purpose of acquiring substantially all of the assets and
assuming specified liabilities of the Oklahoma division of
Safeway, Inc. (the "1987 Acquisition"). The acquired stores
changed their name to Homeland in order to highlight the
Company's regional identity. See "Background of the
Solicitation."
The Company is the leading supermarket chain in the
Oklahoma, southern Kansas and Texas Panhandle region. The
Company estimates that in 1994 it accounted for approximately
27% of total supermarket sales in its market region. The
Company believes that, following the AWG Sale, it will
continue to have the leading market share in its market
areas.
The Company competes with the traditional
supermarkets and discount stores in its region by providing
leadership in product quality, service, selection, and
convenience and through specialty departments that focus on
perishable products, including meat, produce, bakery and
seafood. Customer services include quick check out, pharmacy
services, video rental, check cashing, automated teller
banking services and full service banking in selected stores.
The Company is the only major unionized chain of supermarkets
in the State of Oklahoma, and as such has significantly
higher labor costs than its principal competitors. As a
result, the Company is the primary "high/low" merchandiser in
its market. This entails aggressive, regular promotions on
key items to encourage customer traffic, combined with non-
promotional items at higher than average prices.
The Company's business has been adversely affected
in recent years by the entry of new competition into the
Company's key markets, which has resulted in a decline in the
Company's comparable store sales. The Company was unable to
effectively respond to this increased competition because (i)
the high labor costs associated with the Company's unionized
workforce made it difficult for the Company to price its
goods competitively with competitors (none of which has a
unionized workforce), and (ii) the high fixed overhead costs
associated with its Warehouse operation made the closure of
marginal and unprofitable stores financially prohibitive.
See "Background of the Solicitation -- 1994 Business
Performance; Waivers."
The Company has developed a plan to improve its
financial position and to address the operating problems
discussed above. In December 1994, the Company hired James
A. Demme to be the Company's new President and Chief
Executive Officer. Mr. Demme has over 35 years of experience
in wholesale and retail food distribution, most recently as
Executive Vice President of Retail Operations for Scrivner,
Inc. Mr. Demme and his management team have developed and
have begun to implement a more effective strategy for
responding to competitive pressures in the marketplace. See
"Background of the Solicitation -- Strategic Plan."
The AWG Transaction is an important step in the
Company's effort to complete an operational restructuring
that should allow the Company to reduce its debt burden and
fixed operating costs and improve its financial performance.
AWG Transaction
AWG Sale. On February 6, 1995, the Company and AWG
entered into an asset purchase agreement (the "AWG Purchase
Agreement"), pursuant to which the Company has agreed to sell
29 of its stores (the "Purchased Stores") and its warehouse
(the "Warehouse") to AWG for a purchase price of $45.0
million, plus the value of the inventory at the Purchased
Stores and the Warehouse (estimated to be approximately $29.8
million) and certain prepaid expenses (estimated to be $0.1
million), subject to certain possible purchase price
adjustments. The AWG Sale is subject to the satisfaction of
certain conditions precedent, including, without limitation,
(i) the Company's receipt of the Requisite Consents and
(ii) the execution and delivery of the Supply Agreement
between the Company and AWG described below. The AWG Sale is
scheduled to close on April 21, 1995.
AWG is a buying cooperative which sells groceries
on a wholesale basis to its retail member stores. AWG has
716 member stores located in a nine-state region and is the
nation's fifth-largest wholesale distributor, with
approximately $2.6 billion in revenues in 1994.
Application of AWG Sale Proceeds. The Company
estimates that net proceeds from the AWG Sale will be
approximately $37.2 million, approximately $24.8 million of
which will be allocated to the Notes (the net proceeds from
the AWG Sale allocated to the Notes are herein referred to as
the "Note Net Proceeds") and approximately $12.4 million of
which will be allocated to indebtedness under the Credit
Agreement. The remaining proceeds from the AWG Sale will be
(i) used to pay certain costs, expenses and liabilities
required to be paid in connection with the AWG Sale or
(ii) deposited into escrow pending reinvestment by the
Company or application against a subsequent offer to redeem
the Notes. See "AWG Transaction -- Application of AWG Sale
Proceeds." Under the Indenture, the Company is required to
apply the net proceeds allocable to the Notes to an offer (an
"Asset Sale Offer") to redeem the Notes on a pro rata basis.
The Company is required to make an Asset Sale Offer
after the occurrence of an asset sale and giving notice to
the Trustee. The redemption date in respect of an Asset Sale
Offer must occur (i) on an "Interest Payment Date" as such
term is defined in the Series A Senior Secured Floating Rate
Notes Due 1997 (e.g., June 1, September 1, December 1 or
March 1) and (ii) no earlier than 75 days after the mailing
of an Asset Sale Offer. Accordingly, assuming the AWG Sale
occurs on or about April 21, 1995, the earliest date on which
a redemption of the Notes could occur would be September 1,
1995.
In order to eliminate the difference between (i)
the interest that would be payable on the portion of the
Notes to be redeemed during the period from June 1, 1995
through and including September 1, 1995 and (ii) the Com-
pany's investment return on the Note Net Proceeds during such
period, the Company is offering holders of the Notes the
option of having their Notes redeemed, on a pro rata basis,
on June 1, 1995. Registered Holders who vote "FOR" the
Proposed Amendments, or who are deemed to have voted "FOR"
the Proposed Amendments as discussed below under "The
Solicitation -- Consent Procedures," will be deemed to have
selected the June 1, 1995 redemption option, unless they mark
the "September 1, 1995 Redemption" box on the Consent Letter
included herewith. The June 1, 1995 redemption option is
subject to the AWG Sale occurring on or before May 1, 1995.
In the event that the AWG Sale occurs after May 1, 1995, the
Company will redeem the Notes in accordance with the terms of
the Indenture. See "AWG Transaction -- Application of AWG
Sale Proceeds."
The Company has agreed that the Asset Sale Offer
relating to the AWG Sale will be in an amount of not less
than $25 million. In the event that the Note Net Proceeds
are less than $25 million, the Company will fund the
shortfall from borrowings under its new or amended credit
facility (see "Amended Credit Facility" below). As discussed
above, the Company estimates that Note Net Proceeds will be
approximately $24.8 million, which will result in the Company
having to borrow approximately $0.2 million under such new or
amended credit facility.
Supply Agreement. Concurrently with the closing of
the AWG Sale, the Company and AWG will enter into the seven
year Supply Agreement, pursuant to which the Company will
become a retail member of the AWG cooperative and AWG will
become the Company's primary supplier. As a retail member of
the AWG cooperative, the Company will be required to purchase
15 shares of AWG Class A Stock (the "AWG Membership Stock")
for a purchase price equal to the actual book value of such
stock as of the closing date of the AWG Sale (the actual book
value of such stock as of March 30, 1995 was approximately
$17,500).
Pursuant to the Supply Agreement, AWG will supply
products to the Company at the lowest prices and on the best
terms available to AWG's retail members from time to time.
In addition, the Company will (i) be eligible to participate
in certain cost-savings programs available to AWG's other
retail members and (ii) be entitled to receive (a) certain
member rebates and refunds based on the dollar amount of the
Company's purchases from AWG's warehouse and (b) quarterly
cash payments from AWG, up to a maximum of approximately $1.3
million per fiscal quarter, based on the dollar amount of the
Company's purchases from AWG's warehouse during such fiscal
quarter (the "Quarterly Payments").
The Company will purchase goods from AWG on an open
account basis. AWG requires that each member's account be
secured by a letter of credit or certain other collateral, in
an amount based on such member's estimated average weekly
purchases through the AWG warehouse. The Company's open
account with AWG will be secured by a $10 million letter of
credit issued in favor of AWG by one of the banks under the
Company's new or amended credit facility, which letter of
credit amount may be increased or decreased from time to time
as described below under "AWG Transaction -- Supply
Agreement". In addition, the Company's obligations to AWG
will also be secured by a first lien on all "AWG Equity"
owned from time to time by the Company, which includes, among
other things, the AWG Membership Stock, the Company's right
to receive the Quarterly Payments and certain rebates,
refunds and other credits owed to the Company by AWG.
Under the Supply Agreement, AWG will have certain
"Volume Protection Rights," including (i) the right of first
offer (the "First Offer Rights") with respect to (a) proposed
sales of stores to be owned or operated by the Company after
the closing of the Asset Sale (the "Retained Stores") and,
under certain circumstances, certain other stores which the
Company has closed, or expects to close, during 1995 and (b)
proposed transfers of more than 50% of the outstanding stock
of the Company or Holding to an entity primarily engaged in
the retail or wholesale grocery business, (ii) the Company's
agreement not to compete with AWG as a wholesaler of grocery
products during the term of the Supply Agreement and (iii)
the Company's agreement to dedicate the Retained Stores to
the exclusive use of a retail grocery facility owned by a
retail member of AWG (the "Use Restrictions"). The Company's
agreement not to compete and the Use Restrictions are
terminable with respect to a particular Retained Store upon
the occurrence of certain events, including the Company's
compliance with AWG's First Offer Rights with respect to
proposed sales of such store. In addition, the Supply Agree-
ment provides AWG with certain purchase rights in the event
the Company closes 90% or more of the Retained Stores. See
"AWG Transaction -- Supply Agreement."
The Company's purchase of the AWG Membership Stock
and receipt of other AWG Equity from time to time, AWG's
first lien on the AWG Equity owned by the Company, the
collateralized open account indebtedness of the Company to
AWG, the First Offer Rights and the Use Restrictions are or
may be prohibited by the terms of the Indenture and the
Security Agreement. Consequently, certain provisions of the
Indenture and the Security Agreement must be modified in
order for the Company to enter into the Supply Agreement and
to consummate the AWG Sale (the effectiveness of which is
conditioned on the execution and delivery of the Supply
Agreement). See "AWG Transaction -- Current Restrictions."
Purposes of AWG Transaction. The purposes of the
AWG Transaction are: (i) to reduce the Company's borrowed
money indebtedness in respect of the Notes and under the
Credit Agreement by $37.2 million in the aggregate; (ii) to
have AWG assume, or provide certain undertakings with respect
to, certain contracts and leases and certain pension
liabilities of the Company; (iii) to sell the Warehouse,
which will eliminate the high fixed overhead costs associated
with the operation of the Warehouse and thereby permit the
Company to close marginal and unprofitable stores; and (iv)
to obtain the benefits of becoming a member of the AWG
cooperative, including increased purchases of private label
products, special product purchases, dedicated support pro-
grams and access to AWG's store systems.
Proposed Amendments
The Proposed Amendments would (i) increase the
interest rate on each series of Notes by one-half of one
percent (0.50%) per annum and (ii) amend, add and delete
certain financial covenants and related definitions under the
Indenture (including modifying the "Consolidated Fixed Charge
Coverage Ratio" covenant, adding a new "Debt-to-EBITDA Ratio"
covenant and a new "Capital Expenditures" covenant and
deleting the "Adjusted Consolidated Net Worth" covenant), to
reflect the Company's size, operations and financial position
following the AWG Transaction.
The Proposed Amendments would also amend certain
provisions of the Indenture and the Security Agreement in
order to permit the Company to satisfy its obligations under
the Supply Agreement, including: (i) an amendment to the
investment covenant to permit the Company to purchase 15
shares of AWG Membership Stock and receive or earn other AWG
Equity from time to time; (ii) an amendment to the lien
covenant to permit the Company to (a) grant AWG a first lien
on all AWG Equity owned by the Company and (b) create, incur
and suffer to exist liens consisting of the Use Restrictions
and the First Offer Rights; (iii) an amendment to the debt
covenant to permit indebtedness in respect of obligations
owed to AWG by the Company under the Supply Agreement and
certain AWG membership documents; and (iv) an amendment to
the Security Agreement to permit AWG's first lien on the AWG
Equity owned by the Company.
The Proposed Amendments would also amend certain
provisions of the Indenture to (i) prohibit new loans and
guarantees in respect of certain stock purchases by officers
and employees of the Company (other than extensions,
replacements, refundings or refinancings of existing loans),
(ii) permit the repurchase of Holding common stock owned by
officers and employees of the Company at a cash purchase
price of $0.50 per share, the proceeds of which will be equal
to, and applied against, the outstanding principal amount of
loans incurred by such officers or employees in connection
with their purchase of such stock, provided that the
aggregate amount of such repurchases does not exceed $600,000
(net of amounts to be repaid in respect of loans from the
Company or Holding), (iii) reduce the maximum amount of the
CD&R management fee, (iv) limit the amount of indebtedness
that may be incurred under the Company's bank credit facility
to $25 million, (v) reduce the Company's general indebtedness
and lien baskets from $20 million to $1 million, (vi)
eliminate the Company's general investments basket, (vii)
permit the Company to make certain investments in capital
stock of retail purchasing cooperatives, (viii) provide that
a certain amount of net proceeds from future asset sales must
be applied to an offer to redeem the Notes, (ix) make certain
technical amendments to the affiliate transactions covenant,
the merger covenant and the Intercreditor Agreement and
(x) amend the Mortgage to provide that defaults under, or
modifications or terminations of, a certain lease relating to
a store to be closed, will not constitute a default or event
or default under the Mortgage. See "Proposed Amendments."
The Solicitation
The following is a summary of certain terms of the
Solicitation:
Record Date . . . . . . . .
5:00 p.m., New York City time, on March
30, 1995.
Expiration Date . . . . . .
The Expiration Date is 5:00 p.m., New
York City time, on Thursday, April 13,
1995, unless the Company, in its sole
discretion, extends the period during
which the Solicitation is open, in
which case the term "Expiration Date"
means the latest date and time to
which the Solicitation is so extended.
The Company reserves the right to
extend the Solicitation at any time
and from time to time (for a specified
period of time or on a daily basis) by
giving oral or written notice to the
Trustee no later than 9:00 a.m., New
York City time, on the business day
following any previously announced
Expiration Date. See "The
Solicitation -- Expiration Date."
Registered
Holders . . . . . . . . . .
The term "Registered Holder," when used
in this Solicitation Statement, means
any person in whose name a Note was
registered in the registry maintained
with respect to the Notes as of the
Record Date.
Requisite
Consents. . . . . . . . . .
Adoption of the Proposed Amendments
requires the receipt of the Requisite
Consents, consisting of valid Consents
(not properly revoked) from the
Registered Holders of a majority in
aggregate principal amount of the
Notes outstanding and not owned by the
Company or any of its affiliates. See
"The Solicitation -- Requisite
Consents."
Consent
Procedures. . . . . . . . .
Only those persons who are Registered
Holders as of the Record Date may
execute and deliver a Consent. A
beneficial owner of Notes who is not a
Registered Holder of such Notes (e.g.,
a beneficial holder whose Notes are
registered in the name of a nominee,
such as a brokerage firm) as of the
Record Date must (i) arrange for the
Registered Holder to execute a Consent
Letter and deliver it either to the
Information Agent on such beneficial
owner's behalf or to such beneficial
owner for forwarding to the
Information Agent by such beneficial
owner or (ii) obtain a duly executed
proxy from the Registered Holder
authorizing the beneficial owner to
execute and deliver a Consent Letter
with respect to the Notes on behalf of
such Registered Holder. A form of
proxy that may be used for such
purposes is included in the form of
Consent Letter. See "The Solicitation
-- Consent Procedures."
Consent Fee . .
Registered holders whose duly executed
Consents have been received and not
revoked prior to the Expiration Date
will be eligible to receive $5.00 in
cash for each $1,000 in principal
amount of Notes. Holders of Notes who
do not timely consent to the Proposed
Amendments will not be eligible to
receive Consent Payments even though
the Proposed Amendments, upon
satisfaction of certain conditions
precedent, will be binding on them.
Payment of the Consent Fee will be
made as promptly as practicable after
the effectiveness of the Proposed
Amendments. The Company's obligation
to pay the Consent Fee to consenting
holders is contingent upon the effec-
tiveness of the Proposed Amendments.
Revocation of
Consents . . . . . . . .
Prior to the later of (i) the Expiration
Date and (ii) the receipt by the
Trustee from the Company of the
Officer's Certificate, any Registered
Holder may revoke any Consent given as
to its Notes or any portion of such
Notes (in integral multiples of
$1,000). A Registered Holder desiring
to revoke a Consent must, prior to
such date, deliver to the Information
Agent at the address set forth on the
back cover page of this Solicitation
Statement and on the Consent Letter
included herewith, a written revoca-
tion of such Consent (which may be in
the form of a subsequent Consent
marked "AGAINST" the Proposed Amend-
ments) containing the name of such
Registered Holder, the serial number
of the Notes to which such revocation
relates, the principal amount of Notes
to which such revocation relates and
the signature of such Registered
Holder. See "The Solicitation --
Revocation of Consents."
Conditions of the
Solicitation . . . . . .
The Supplemental Indenture will be
executed by the Company, Holding and
the Trustee promptly after receipt by
the Company of the Requisite Consents
and following the occurrence of the
Expiration Date. The effectiveness of
the Supplemental Indenture (and the
Proposed Amendments set forth therein)
is subject to the satisfaction, on or
prior to June 1, 1995, of the
following conditions precedent: (i)
the receipt by the Company of the
Requisite Consents; (ii) the closing
of a new or amended credit facility,
providing for a revolving credit
commitment of not less than $25
million and borrowing base
requirements which are comparable to
those set forth in the Credit Agree-
ment (the "Amended Credit Facility");
(iii) the closing of the AWG Sale;
(iv) delivery of a notice of
redemption by the Company to the
Trustee, giving notice that, following
the AWG Sale, at least $25 million
will be applied against a pro rata
redemption of the Notes; (v) there
having been no amendments to the AWG
Purchase Agreement which materially
adversely affect the rights of the
holders of the Notes; (vi) the payment
of the reasonable fees and expenses of
counsel to the Unofficial Noteholders'
Committee; and (vii) the absence of
any law or regulation which would, and
the absence of any injunction or
action or other proceeding (pending or
threatened) which (in the case of any
action or proceeding, if adversely
determined) would, make unlawful or
invalid or enjoin the implementation
of the Proposed Amendments, the
entering into of the Supplemental
Indenture or the payment of the
Consent Fee or question the legality
or validity thereof. See "The
Solicitation -- Conditions of the
Solicitation."
Certain Federal
Income Tax
Consequences . . . . . .
For a discussion of certain federal
income tax considerations relating to
the Solicitation, see "Certain Federal
Income Tax Consequences".
Information Agent . . . . .
Morrow & Co., Inc. is serving as
Information Agent in connection with
the Solicitation. The Information
Agent will be responsible for
collecting Consents, answering
questions relating to consent
procedures and providing additional
information upon request (including
additional copies of this Solicitation
Statement, the Consent Letter and the
other materials included herewith).
Assistance; Additional
Materials . . . . . . . .
Questions relating to consent procedures
as well as requests for assistance or
additional information (including
additional copies of this Solicitation
Statement and the Consent Letter)
should be directed to the Information
Agent at the address listed on the
back cover of this Solicitation
Statement and on the Consent Letter
included herewith.
Questions regarding the terms and
conditions of the Solicitation should
be directed to Mark S. Sellers at the
Company, (405) 557-5861, or Douglas W.
Lehrman at Lazard Freres & Co., the
Company's financial advisor (the
"Financial Advisor"), at (212) 632-
6205.
BACKGROUND OF THE SOLICITATION
The 1987 Acquisition
The Company and Holding were organized in 1987 by a
group of investors led by CD&R, a private investment firm
specializing in leveraged acquisitions with the participation
of management, for the purpose of acquiring substantially all
of the assets and assuming specified liabilities of the
Oklahoma division of Safeway, Inc. The acquired stores
changed their name to Homeland in order to highlight the Com-
pany's regional identity. Prior to the 1987 Acquisition, the
Company and Holding did not have any significant assets or
liabilities or engage in any activities other than those
incident to the Acquisition. Holding owns all of the
outstanding capital stock of Homeland and has no other
significant assets.
1992 Refinancing
In March 1992, the Company refinanced its existing
indebtedness from the proceeds of certain securities issued
under the Indenture and borrowings under the Credit
Agreement. The securities issued under the Indenture
included (i) $45 million in aggregate principal amount of
Series A Senior Secured Floating Rate Notes Due 1997, bearing
interest at a floating rate of 3% over LIBOR (the "Series A
Notes") and (ii) $75 million in aggregate principal amount of
Series B Senior Secured Fixed Rate Notes Due 1999, bearing
interest at a fixed rate of 11-3/4% per annum (the "Series B
Notes" and together with the Series A Notes, the "Old
Notes"). In October and November 1992, the Company offered
to exchange (i) its newly-issued Series D Senior Secured
Floating Rate Notes Due 1997, bearing interest at a floating
rate of 3% over LIBOR (the "Series D Notes"), for an equal
principal amount of its outstanding Series A Notes and (ii)
its newly-issued Series C Senior Secured Fixed Rate Notes Due
1999, bearing interest at a fixed rate of 11-3/4% per annum
(the "Series C Notes" and, together with the Series D Notes,
the "Registered Notes"), for an equal principal amount of its
outstanding Series B Notes. As a result of the exchange
offer, $33 million of the Series A Notes were retired
(leaving $12 million of Series A Notes outstanding) and $75
million of the Series B Notes were retired (leaving no Series
B Notes outstanding). The terms of the Registered Notes are
substantially identical to the terms of the Old Notes for
which they were exchanged, except that the Registered Notes
were registered pursuant to the Securities Act of 1933, as
amended. The Company conducted the exchange offer in order
to satisfy its obligations under a certain registration
rights agreement with the holders of the Series A Notes and
Series B Notes.
As of March 30, 1995, $12 million of Series A
Notes, $75 million of Series C Notes and $33 million of
Series D Notes were outstanding. In addition, as of March
30, 1995, there was approximately $19.5 million of
indebtedness outstanding under the Credit Agreement,
excluding approximately $6.5 million of letters of credit
outstanding.
Business
The Company is the leading supermarket chain in the
Oklahoma, southern Kansas and Texas Panhandle region. The
Company estimates that in 1994 it accounted for approximately
27% of total supermarket sales in its market region. The
Company believes that, following the AWG Sale, it will
continue to have the leading market share in its market
areas.
The Company competes with the traditional
supermarkets and discount stores in its region by providing
leadership in product quality, service, selection, and
convenience and through specialty departments that focus on
perishable products, including meat, produce, bakery and
seafood. Customer services include quick check out, pharmacy
services, video rental, check cashing, automated teller
banking services and full service banking in selected stores.
The Company is the only major unionized chain of supermarkets
in the State of Oklahoma, and as such has significantly
higher labor costs than its principal competitors. As a
result, the Company is the primary "high/low" merchandiser in
its market.
The Company operates retail supermarkets in
Oklahoma, Southern Kansas and the Texas Panhandle region.
The Company's current network of stores features three basic
store formats: conventional stores, superstores and combo
stores. The Company's conventional stores range from 12,000
to 35,000 total square feet and carry the traditional mix of
grocery, meat, produce and variety products. These stores
contain more than 20,000 stock keeping units, including food
and general merchandise. The Company's superstores range in
size from 35,000 to 50,000 total square feet and offer, in
addition to the traditional departments, two or more
specialty departments. The Company's combo store format
includes stores larger than 50,000 total square feet and was
designed to enable the Company to expand shelf space devoted
to general merchandise. The Company's new stores and certain
remodeled locations have incorporated the new, larger
superstore and combo features. Of the 67 stores to be
retained and operated by the Company following the AWG Sale
(excluding 16 stores which the Company has closed in 1994 and
1995 or expects to close in 1995), 11 are conventional
stores, 43 are superstores and 13 are combo stores.
1994 Business Performance; Waivers
The Company's business has been adversely affected
in recent years by the entry of new competition into the
Company's key markets, which has resulted in a decline in the
Company's comparable store sales. For example, in 1994,
there were 14 competitive openings (the "1994 Competitive
Openings") in the Company's market areas (including 11 new
Wal-Mart supercenters, 2 new Albertsons and 1 new Mega
Market). The 1994 Competitive Openings directly affected 28
of the Company's stores, where average weekly sales decreased
by 10.9% as compared to 1993, including 19 of the 67 Retained
Stores, where average weekly sales decreased by 10.7% as
compared to 1993. By contrast, average weekly sales of the
remaining 48 Retained Stores increased in 1994 by 2.7% as
compared to 1993. The Company was unable to effectively
respond to the 1994 Competitive Openings because (i) the high
labor costs associated with the Company's unionized workforce
made it difficult for the Company to price its goods
competitively with competitors (none of which has a unionized
workforce), and (ii) the high fixed overhead costs associated
with its Warehouse operation made the closure of marginal and
unprofitable stores financially prohibitive. See "Certain
Historical, Pro Forma and Projected Financial Data" attached
hereto as Annex B.
In December 1994, the Company requested waivers
from the agent and the lenders under the Credit Agreement and
from the holders of the Notes with respect to certain finan-
cial covenants under the Credit Agreement and the Indenture,
including the "Adjusted Consolidated Net Worth" and the
"Consolidated Fixed Charge Coverage Ratio" covenants under
the Indenture and the "EBITDA," "Leverage Ratio," "Interest
Coverage Ratio" and "Net Worth" covenants under the Credit
Agreement. The Company was unable, or believed it might be
unable, to comply with these covenants because of the decline
in its financial performance described above. The agent and
the lenders under the Credit Agreement and the Trustee,
acting at the direction of a majority in principal amount of
Notes outstanding under the Indenture, waived compliance by
the Company with these financial covenants through June 30,
1995. These waivers are subject to earlier termination upon
the occurrence of certain events.
Strategic Plan
The Company has developed a plan to improve its
financial position and to address the operating problems
discussed above. First, in December 1994, the Company hired
James A. Demme to be the Company's new President and Chief
Executive Officer. Mr. Demme has over 35 years of experience
in wholesale and retail food distribution, most recently as
Executive Vice President of Retail Operations for Scrivner,
Inc. Mr. Demme and his management team have developed and
have begun to implement a more effective strategy for
responding to competitive pressures in the marketplace,
including (i) exploiting the advantages the Company has over
its competitors, such as convenience of store locations and
variety of offerings, (ii) increasing the offering of
competitively-priced, private label products, (iii) improving
advertising and merchandising and coordinating marketing
efforts, (iv) increasing sales of perishables and
(v) reducing overhead and other costs in conjunction with the
AWG Transaction.
Second, in November 1994, the Company and AWG
entered into a letter of intent regarding the AWG
Transaction, which was followed by the signing of the AWG
Purchase Agreement in February 1995. The AWG Sale is
scheduled to close on April 21, 1995, subject to the
satisfaction of certain closing conditions. The AWG Sale
will generate approximately $37.2 million of net proceeds,
which will be used to reduce the Company's existing
indebtedness in respect of the Notes and under the Credit
Agreement. In addition, pursuant to the terms of the AWG
Sale, AWG will assume, or provide certain undertakings with
respect to, certain contract and lease obligations and
pension liabilities of the Company. The AWG Transaction is
an important step in the Company's effort to complete an
operational restructuring that should allow the Company to
reduce its debt burden and fixed operating costs and improve
its financial performance. See "AWG Transaction -- AWG
Sale," -- Application of Proceeds" and " -- Purposes of AWG
Transaction."
Third, the Company's new management team has
developed a plan to close certain marginal and unprofitable
stores. Such a plan is now financially feasible because of
the upcoming sale of the Warehouse and the elimination of the
high fixed costs associated with the Warehouse operation.
The Company closed one store in 1994 and seven stores in
early 1995 and expects to close up to an additional eight
stores by the end of 1995.
Fourth, in connection with the AWG Sale, the
Company will become a member of the AWG cooperative. The
Company believes that its membership in the AWG cooperative
will benefit the Company in a number of ways, including: (i)
the Company will be able to increase its purchases of private
label lines, which will allow it to improve mix and gross
profits; (ii) as AWG's largest customer, the Company may
receive special product purchases and may participate in
dedicated support programs; and (iii) the Company will have
access to AWG's store systems, which will allow the Company
to manage its business strategically on a store-by-store and
regional basis. In addition, the Company will also receive
the benefit of membership rebate and patronage programs
available to all AWG members as well as the Quarterly
Payments. See "AWG Transaction -- Supply Agreement."
First Quarter 1995 Sales Performance
The Company estimates that (i) average weekly sales
for the fiscal quarter ended March 25, 1995 for all stores
were approximately $135,362 per store, a decrease of
approximately $2,698 per store, or 1.9%, compared to the
fiscal quarter ended March 26, 1994, (ii) average weekly
sales for the fiscal quarter ended March 25, 1995 for the 19
Retained Stores affected by the 1994 Competitive Openings
were approximately $168,309 per store, a decrease of
approximately $22,055 per store, or 11.6%, compared to the
fiscal quarter ended March 26, 1994 and (iii) average weekly
sales for the remaining 48 Retained Stores for the fiscal
quarter ended March 25, 1995 were approximately $147,409 per
store, an increase of approximately $6,074 per store, or
4.3%, compared to the fiscal quarter ended March 26, 1994.
The Company's estimated sales performance for the first
quarter of 1995 exceeds the Company's projected performance
for such period under its 1995 business plan.
AWG TRANSACTION
AWG Sale
On February 6, 1995, the Company and AWG entered
into the AWG Purchase Agreement, pursuant to which Homeland
has agreed to sell the Purchased Stores and the Warehouse to
AWG for a purchase price of $45 million, plus the value of
the inventory at the Purchased Stores and the Warehouse
(estimated to be approximately $29.8 million) and certain
prepaid expenses (estimated to be $0.1 million), subject to
certain possible purchase price adjustments. The AWG
Purchase Agreement also requires AWG to assume, or provide
certain undertakings with respect to, certain contract and
lease obligations and pension liabilities of the Company.
The AWG Sale is subject to the satisfaction of certain
conditions precedent, including, without limitation (i) the
Company's receipt of the Requisite Consents, (ii) the closing
of the Amended Credit Facility and (iii) the execution and
delivery of the Supply Agreement. The AWG Sale is scheduled
to close on April 21, 1995.
AWG is a buying cooperative which sells groceries
on a wholesale basis to its retail member stores. AWG has
716 member stores located in a nine-state region and is the
nation's fifth-largest wholesale distributor, with
approximately $2.6 billion in revenues in 1994.
Application of AWG Sale Proceeds
The Company estimates that gross proceeds from the
AWG Sale will be approximately $75 million. See " -- AWG
Sale". The Indenture provides that, in the case of asset
sales involving assets consisting of collateral under the
Indenture ("Note Collateral") and assets which are not Note
Collateral (for example, assets which secure indebtedness
under the Credit Agreement), asset sale proceeds may be
allocated by the Company to assets which are not Note
Collateral based on the good faith determination of the
Company's board of directors. The Company's board of
directors has determined that $45 million of the estimated
gross proceeds from the AWG Sale will be allocated to assets
consisting of Note Collateral and approximately $30 million
of such proceeds will be allocated to assets consisting of
collateral under the Credit Agreement ("Bank Collateral").
In accordance with the terms of the Indenture, (i)
$0.5 million of the estimated gross proceeds allocable to the
Note Collateral will be used to pay certain accrued expenses,
(ii) $14.7 million of such proceeds will be used to pay
certain contingent liabilities (including liabilities under
service and equipment contracts, union personnel costs,
equipment leases and certain transaction costs) and (iii) $5
million of such proceeds will be deposited into escrow by the
Company, resulting in Note Net Proceeds of approximately
$24.8 million. Under the Indenture, the $5 million to be
deposited into escrow must either (i) be reinvested, or
committed to be reinvested, by the Company in certain
collateral or (ii) be applied against an offer to redeem the
Notes, in either case within 180 days following the AWG Sale.
The net proceeds allocable to Bank Collateral will be ap-
proximately $12.4 million and will be used to repay an equal
amount of indebtedness under the Credit Agreement.
Under the Indenture, the Company is required to
apply the Note Net Proceeds to an offer (an "Asset Sale
Offer") to redeem the Notes on a pro rata basis. The Company
is required to make an Asset Sale Offer after the occurrence
of an asset sale and after giving notice to the Trustee. The
redemption date in respect of an Asset Sale Offer must occur
(i) on an "Interest Payment Date" as defined in the Series A
Senior Secured Floating Rate Notes Due 1997 (e.g., June 1,
September 1, December 1 or March 1) and (ii) no earlier than
75 days after the mailing of an Asset Sale Offer.
Accordingly, assuming the AWG Sale occurs on or about April
21, 1995, the earliest date on which a redemption of the
Notes could occur would be September 1, 1995.
In order to eliminate the difference between (i)
the interest that would be payable on the portion of the
Notes to be redeemed during the period from June 1, 1995
through and including September 1, 1995 and (ii) the invest-
ment return on the Note Net Proceeds during such period, the
Company is offering holders of the Notes the option of having
their Notes redeemed, on a pro rata basis, on June 1, 1995.
Registered Holders who vote "FOR" the Proposed Amendments, or
who are deemed to have voted "FOR" the Proposed Amendments as
discussed below under "The Solicitation -- Consent
Procedures," will be deemed to have selected the June 1, 1995
redemption option, unless they mark the "September 1, 1995
Redemption" box on the Consent Letter included herewith. The
June 1, 1995 redemption option is subject to the AWG Sale
occurring on or before May 1, 1995. In the event that the
AWG Sale occurs after May 1, 1995, the Company will redeem
the Notes in accordance with the terms of the Indenture.
By offering holders the option of having their
Notes redeemed on June 1, 1995, the Company is not hereby
making an Asset Sale Offer or delivering a notice of
redemption with respect to the Notes. Such an offer or
notice will only be made following the consummation of the
AWG Sale.
The Company has agreed that the Asset Sale Offer
relating to the AWG Sale will be in an amount of not less
than $25 million. In the event that the Note Net Proceeds
are less than $25 million, the Company will fund the
shortfall from borrowings under the Amended Credit Facility.
As discussed above, the Company estimates that Note Net
Proceeds will be approximately $24.8 million, which will
result in the Company having to borrow approximately $0.2
million under the Amended Credit Facility.
The following table sets forth the estimated
sources of the AWG Sale proceeds and the estimated
application of such proceeds:
(Dollars in thousands)
Proceeds Proceeds
Allocable Allocable
to Note to Bank
Collateral Collateral Total
Sources of Proceeds
Sale of Warehouse/Related Inventory $15,000 $21,340 $36,340
Sale of Purchased Assets 30,000 8,419 38,419
Prepaid Expenses 0 155 155
------- ------- -------
Total $45,000 $29,914 $74,914
======= ======= =======
Uses of Proceeds
Repayment of Trade Payables $ 0 $14,905 $14,905
Repayment of Accrued Expenses 452 31 483
Contingent Liabilities
Assurance Plan 4,245 0 4,245
Service and Equipment Contracts 387 0 387
Union Personnel Cost 1,379 0 1,379
Equipment Leases 3,764 0 3,764
Transaction Costs (1) 4,941 2,576 7,517
Escrow Deposit (2) 5,000 0 5,000
------- ------- -------
Total $20,168 $17,512 $37,680
======= ======= =======
Net Proceeds Available to Redeem
Notes/Repay Bank Debt $24,832 $12,402 $37,234
<FN>
____________________
(1) This amount includes a prepayment premium of approximately $0.3 million relating to the
redemption of the Series C Notes, the payment of an aggregate of $0.6 million in estimated
Consent Fees (assuming each holder of the Notes consents to the Proposed Amendments) and
certain other one-time transaction costs.
(2) This amount will be deducted from the gross proceeds allocated to the Note Collateral. The
Company expects to reinvest this amount, or commit to reinvest this amount, in capital
expenditures within 180 days following the closing date of the AWG sale. Any portion of this
amount not so reinvested will be applied against a pro rata redemption of the Notes.
</FN>
Supply Agreement
Immediately prior to the closing of the AWG Sale,
the Company and AWG will enter into the Supply Agreement
pursuant to which the Company will become a retail member of
the AWG cooperative and AWG will become the Company's primary
supplier. The Supply Agreement will have a term of seven
years and will commence immediately following the closing of
the AWG Sale. As a retail member of the AWG cooperative, the
Company will be required to purchase 15 shares of AWG
Membership Stock for a purchase price equal to the actual
book value of such stock as of the closing date of the AWG
Sale (the actual book value of such stock as of March 30,
1995 was approximately $17,500).
AWG will supply products to the Company at the
lowest prices and on best terms as are available to AWG's
other retail members from time to time. In addition, the
Company will (i) be eligible to participate in certain cost-
savings programs available to AWG retail members, such as
AWG's concentrated purchase allowance program and (ii) be
entitled to receive (a) certain member rebates and refunds
based on the dollar amount of the Company's purchases from
AWG's warehouse and (b) the Quarterly Payments.
The Company will purchase goods from AWG on an open
account basis. AWG requires that each member's account be
secured by a letter of credit or certain other collateral, in
an amount based on such member's estimated weekly purchases
through the AWG warehouse. The Company's open account with
AWG will be secured by a $10 million letter of credit issued
in favor of AWG by one of the banks party to the Credit
Agreement (the "Letter of Credit"). In addition, the Com-
pany's obligations to AWG will also be secured by a first
lien on all "AWG Equity" owned from time to time by the
Company, which includes, among other things, the AWG
Membership Stock, the Company's right to receive Quarterly
Payments and certain other rebates, refunds and other credits
owed to the Company by AWG (including members deposit
certificates, patronage refund certificates, members savings,
direct patronage or year-end patronage and concentrated
purchase allowances). The Company will be permitted to grant
junior liens on any AWG Equity it owns (including to the
Trustee, acting on behalf of holders of the Notes), so long
as any such junior lienholder acknowledges AWG's rights as
senior lienholder. The Proposed AWG Amendments contemplate
that the Trustee will have a second lien on such collateral.
The amount of the Letter of Credit may be decreased
on a biannual basis upon the request of the Company (i) based
on the Company's then-current average weekly volume of
purchases and (ii) by an amount equal to the face amount of
the Company's issued and outstanding AWG patronage refund
certificates. In the event that the Company's open account
with AWG exceeds the amount of the Letter of Credit plus any
other AWG Equity held as collateral for the Company's open
account, AWG is not required to accept orders from, or
deliver goods to, the Company until the amount of the Letter
of Credit has been increased to make up for any such
deficiency.
Under the Supply Agreement, AWG will have certain
"Volume Protection Rights," including (i) First Offer Rights
with respect to (a) proposed sales of Retained Stores and (b)
proposed transfers of greater than 50% of the outstanding
stock of the Company or Holding to an entity primarily
engaged in the retail or wholesale grocery business, (ii) the
Company's agreement not to compete with AWG as a wholesaler
of grocery products during the term of the Supply Agreement
and (iii) the Use Restrictions, consisting of the Company's
agreement to dedicate the Retained Stores to the exclusive
use of a retail grocery facility which is owned by a retail
member of AWG.
AWG will not have "Volume Protection Rights" with
respect to ten stores designated to be closed by the Company
in 1995 (the "Excluded Stores"). The Company is prohibited,
however, from selling an Excluded Store to a third party for
retail grocery store use unless the Company designates such
store to be a "Retained Store" and complies with AWG's First
Offer Rights. By a separate side letter entered into by the
Company and AWG in February 1995, the Company granted AWG
certain purchase rights with respect to an additional five
stores that were closed by the Company in early 1995.
The First Offer Rights and Use Restrictions will be
memorialized in documents which will be recorded in the real
property records where the Retained Stores are located. Such
recorded documents will be automatically released upon the
recordation of a sworn affidavit by the President of the
Company stating that certain events have occurred, including,
without limitation, (i) the Company has complied with AWG's
First Offer Rights with respect to the Retained Store covered
by the document to be released or (ii) a prior lienholder
(including the Trustee acting on behalf of the holders of the
Notes) has taken title to a particular property by means of a
foreclosure or a deed in lieu of foreclosure.
The Supply Agreement provides that, in the event
that the Company closes 90% or more of the Retained Stores,
AWG will have the right to purchase all (but not less than
all) of such stores for a purchase price equal to the sum of
the outstanding tax and lease obligations with respect to
such stores plus the fair market value of such stores. "Fair
market value" will include the fair market value of all
equipment, inventory and interests in real property
associated with such stores and will be determined by a
nationally recognized appraisal firm, selected by the Company
and reasonably acceptable to AWG.
Purposes of AWG Transaction
The purposes of the AWG Transaction are: (i) to
reduce the Company's borrowed money indebtedness in respect
of the Notes and under the Credit Agreement by approximately
$37.2 million in the aggregate; (ii) to have AWG assume, or
provide certain undertakings with respect to, certain
contracts and leases and certain pension liabilities of the
Company; (iii) to sell the Warehouse, which will eliminate
the high fixed overhead costs associated with the Warehouse
operation and thereby permit the Company to close marginal
and unprofitable stores; and (iv) to obtain the benefits of
becoming a member of the AWG cooperative, including increased
purchases of private label products, special product pur-
chases, dedicated support programs and access to AWG's store
systems.
Current Restrictions
The Indenture and the Security Agreement would
prohibit the implementation of certain provisions of the
Supply Agreement, including the Company's purchase of the AWG
Membership Stock and receipt of other AWG Equity from time to
time, AWG's lien on the AWG Equity owned by the Company, the
collateralized open account indebtedness of the Company to
AWG, the First Offer Rights and the Use Restrictions. Unless
the Indenture and the Security Agreement are amended to
permit these provisions, the Company will be unable to enter
into the Supply Agreement or consummate the AWG Sale (the
effectiveness of which is conditioned on the execution and
delivery of the Supply Agreement).
PROPOSED AMENDMENTS
The following description of the Proposed
Amendments does not purport to be complete and is subject to,
and qualified in its entirety by, reference to the provisions
of the Supplemental Indenture, the form of which is attached
hereto as Annex A.
Increase in Interest Rate
Increase in Interest Rate. The Company proposes to
amend the Indenture to increase the interest rate on each
series of Notes by one-half of one percent (0.50%) per annum.
As a result, the Series C Notes will bear interest at a rate
of 12-1/4% per annum, as opposed to 11-3/4% per annum, and
the Series A Notes and Series D Notes will bear interest at
3-1/2% over the Applicable LIBOR Rate (or 9-3/4% based on the
current Applicable LIBOR Rate), as opposed to 3% over the
Applicable LIBOR Rate (or 9-1/4% based on the current
Applicable LIBOR Rate).
Proposed Financial Covenant Amendments
Amendment of "Consolidated Fixed Charge Coverage
Ratio" Covenant. The Company proposes to amend Section 4.21
of the Indenture to read in its entirety as follows:
"The Company shall not permit its Consolidated
Fixed Charge Coverage Ratio for the four fiscal quarter
period ending on each date set forth below to be less
than the amount set forth opposite such date:
Date Ratio
9/9/95 1.00:1
12/30/95 1.00:1
3/23/96 1.10:1
6/15/96 1.10:1
9/7/96 1.10:1
12/28/96 1.10:1
3/22/97 1.25:1
6/14/97 1.30:1
9/6/97 1.30:1
1/3/98 1.35:1
3/28/98 1.35:1
6/20/98 1.35:1
9/12/98 1.35:1
1/2/99 1.50:1
and each fiscal
quarter end thereafter."
Addition of "Debt-to-EBITDA Ratio" Covenant. The
Company proposes to add a new Section 4.27 to the Indenture,
which will read in its entirety as follows:
"The Company shall not permit its Debt-to-EBITDA
Ratio for the four fiscal quarter period ending on each
date set forth below to be greater than the amount set
forth opposite such date:
Date Ratio
9/9/95 6.60:1
12/30/95 6.60:1
3/23/96 6.60:1
6/15/96 6.25:1
9/7/96 6.00:1
12/28/96 5.50:1
3/22/97 5.35:1
6/14/97 5.00:1
9/6/97 5.00:1
1/3/98 5.00:1
3/28/98 5.00:1
6/20/98 5.00:1
9/12/98 5.00:1
1/2/99 4.50:1
and each fiscal
quarter end thereafter."
Additional Capital Expenditures Covenant. The
Company proposes to add a new Section 4.28 to the Indenture,
which will read in its entirety as follows:
"The Company shall not suffer or permit Capital
Expenditures of the Company and its Subsidiaries to
exceed, in any fiscal year, the amount set forth below
opposite such fiscal year:
Period Amount
1995 $6,000,000
1996 $6,000,000
1997 $6,000,000
1998 $6,000,000
; provided that the Company may make up to $4,000,000 in
additional Capital Expenditures for Major Remodels (i)
during the four-quarter period beginning on the day
following the first fiscal quarter in which the
Company's Consolidated Fixed Charge Coverage Ratio is
1.30:1 or greater (the "First Qualifying Period") and
(ii) during the four-quarter period beginning on the day
following the first fiscal quarter in which the
Company's Consolidated Fixed Charge Coverage Ratio is
1.50:1 or greater (the "Second Qualifying Period"),
which fiscal quarter must be at least four quarters
after the fiscal quarter referred to in clause (i) of
this proviso; provided further that the Company may make
additional Capital Expenditures in any period in an
amount equal to the amount of Capital Expenditures
permitted during any prior period and not made; provided
further that no portion of the amount permitted to be
used for Capital Expenditures during the First
Qualifying Period or the Second Qualifying Period may be
used for Capital Expenditures in any subsequent period
unless (i) as of the last day of the First Qualifying
Period or the Second Qualifying Period, as the case may
be, the Company's Consolidated Fixed Charge Coverage
Ratio is at least 1.30:1 or 1.50:1, respectively, or
(ii) on or prior to the last day of the First Qualifying
Period or the Second Qualifying Period, as the case may
be, the Company has entered into commitments to use any
such portion for Capital Expenditures."
Amendment to, and Addition of, Certain Definitions.
In connection with the above-described amendment to the
"Consolidated Fixed Charge Ratio" covenant and the addition
of the "Debt-to-EBITDA Ratio" and the "Capital Expenditures"
covenants, the following definitions will be amended in, or
added to, Section 1.01 of the Indenture, to read in their
entirety as follows:
"Capital Expenditures" means, for any period, the
capital expenditures made by the Company and its
Subsidiaries during such period (including capital
expenditures funded from Note Net Proceeds which are
reinvested in accordance with Section 4.10) less (x)
capital expenditures, in an amount not exceeding
$6,500,000 in the aggregate, relating to (1) assets to
be purchased by the Company, and thereafter sold to AWG,
in connection with the AWG Purchase Agreement and (2)
assets to be purchased by the Company in connection with
stores closed or to be closed and (y) capital
expenditures in respect of capital leases entered into
in 1994 in an amount equal to $1,500,000.
"Consolidated Fixed Charge Coverage Ratio" means,
with respect to any period for which it is to be
determined, the ratio obtained by dividing (i) the
aggregate amount of EBITDA of the Company and its
Subsidiaries on a consolidated basis for such period,
less (x) in the case of periods ending on each of
September 30, 1995 and December 30, 1995, Net Capital
Expenditures for such period, (y) in the case of periods
ending on each of March 23, 1996, June 15, 1996 and
September 7, 1996, the greater of (1) the Minimum Amount
for such period and (2) Net Capital Expenditures for
such period and (z) in the case of periods ending on and
after December 28, 1996, the greater of (1) $3,000,000
and (2) Net Capital Expenditures for such period, by
(ii) the Consolidated Interest Expense for such period.
"Conversion Expenses" means expenses in respect of
(i) the conversion of the Company from an entity which
buys inventory directly from manufacturers to one that
buys inventory from a wholesaler and (ii) the closure of
stores.
"Debt-to-EBITDA Ratio" means, for any period, the
ratio obtained by dividing (i) the Indebtedness of the
Company and its Subsidiaries on a consolidated basis as
of the last day of such period, by (ii) the aggregate
amount of EBITDA of the Company and its Subsidiaries on
a consolidated basis for such period.
"EBITDA" of any Person for any period means the sum
of (i) the net income (or net loss) from operations of
such Person and its Subsidiaries on a consolidated basis
(determined in accordance with generally accepted
accounting principles) for such period, without giving
effect to any extraordinary or unusual gains (losses) or
gains (losses) from the sale of assets (other than the
sale of Inventory in the ordinary course of business),
plus (ii) to the extent that any of the items referred
to in any of clauses (A) through (C) below were deducted
in calculating such net income: (A) Interest Expense of
such Person and its Subsidiaries for such period; (B)
income tax expense of such Person and its Subsidiaries
with respect to their operations for such period; and
(C) the amount of all non-cash charges (including,
without limitation, depreciation and amortization) of
such Person and its Subsidiaries for such period;
provided, however, that in calculating EBITDA of the
Company and its Subsidiaries (i) any non-cash reserve
taken in 1994 in respect of workers compensation in an
amount not exceeding $5,000,000 and (ii) Conversion
Expenses in an amount not exceeding in the aggregate
$3,000,000, consisting of up to $2,800,000 in such
expenses during 1995 and up to $400,000 in such expenses
during 1996, shall be added back to net income (or net
loss) from operations to the extent deducted in
calculating such net income (or net loss).
"Major Remodel" means capital expenditures made in
respect of one of the Company's stores in an amount
exceeding, or expected to exceed, $400,000.
"Minimum Amount" means, for the four fiscal quarter
period ending on each date set forth below, the amount
specified opposite such date:
Date Amount
3/23/96 $ 750,000
6/15/96 $1,500,000
9/07/96 $2,250,000
"Net Capital Expenditures" means, for any period,
the capital expenditures made by the Company and its
Subsidiaries during such period less (x) net cash
proceeds from the sale of assets which are reinvested
pursuant to the Indenture during such period, (y)
capital expenditures, in an amount not exceeding
$6,500,000 in the aggregate, relating to (1) assets to
be purchased by the Company, and thereafter sold to AWG,
in connection with the AWG Purchase Agreement and (2)
assets to be purchased by the Company in connection with
stores closed or to be closed and (z) capital
expenditures in respect of capital leases entered into
in 1994 in an amount equal to $1,500,000.
Deletion of "Adjusted Consolidated Net Worth"
Covenant. Section 4.16 of the Indenture, which required
the Company to maintain its Adjusted Consolidated Net
Worth at certain levels at the end of certain periods,
will be deleted.
Proposed AWG Amendments
Amendment to Investment Covenant. The Company
proposes to amend Section 4.11 of the Indenture by adding the
following additional permitted exception to the investment
prohibition set forth therein: "Investments consisting of
(i) the purchase by the Company of 15 shares of AWG
Membership Stock and (ii) AWG members deposit certificates,
patronage refund certificates or similar types of AWG Equity
received or earned by the Company from time to time based on
the Company's gross purchases from AWG pursuant to the Supply
Agreement or in lieu of receiving cash rebates or refunds
from AWG."
Amendment to Lien Covenant. The Company proposes
to amend Section 4.13 of the Indenture by adding the
following exceptions to the lien prohibition set forth
therein: (i) "Liens on AWG Equity owned or hereafter
acquired by the Company to secure the Company's obligations
to AWG under the Supply Agreement and the Membership Sign-Up
Documents"; (ii) "Liens consisting of the Use Restrictions";
and (iii) "Liens consisting of the First Offer Rights."
Amendment to Debt Covenant. The Company proposes
to amend Section 4.09 of the Indenture by adding the
following exception to the debt prohibition set forth
therein: "Indebtedness in respect of the obligations owed to
AWG by the Company under the Supply Agreement and the
Membership Sign-Up Documents."
Addition of Certain Definitions. In connection
with the above-described amendments to the investment, lien
and debt covenants, the Company proposes to add the following
additional definitions to Section 1.01 of the Indenture: (i)
"AWG" means Associated Wholesale Grocers, Inc., a Missouri
corporation; (ii) "AWG Equity" means all equity, deposits,
credits, sums and indebtedness of any kind or description,
whatsoever, at any time owed by AWG to the Company or at any
time standing in the name of or to the credit of the Company
on the books and/or records of AWG, including, without
limitation, AWG Membership Stock, members deposit
certificates, patronage refund certificates, members savings,
direct patronage or year-end patronage, concentrated purchase
allowance, quarterly payments and any other amounts due from
AWG to the Company under the Supply Agreement; (iii) "AWG
Membership Stock" means the Class A Common Stock, par value
$100 per share, of AWG; (iv) "First Offer Rights" mean (a)
AWG's right of first offer with respect to the stores owned
or operated by the Company listed on Exhibit B to the Supply
Agreement, as such agreement may be amended from time to time
and (b) any public recordation of such first offer rights,
provided that any such public recordation shall be terminable
from time to time as set forth in Section 7(f) of the Supply
Agreement; (v) "Membership Sign-Up Documents" means (a) the
Application for Membership by Homeland Stores, Inc., between
the Company and AWG and (b) the Stock Power of Attorney
granted to AWG by the Company with respect to the AWG
Membership Stock owned by the Company; (vi) "Supply
Agreement" means the Supply Agreement, dated as of closing
date of the AWG Sale, between the Company and AWG; and
(vii) "Use Restrictions" means (a) the Company's agreement
under Section 8(b) of the Supply Agreement to dedicate (to
the extent of its interest therein (including leasehold
interests)) certain real property and the improvements
thereon to the exclusive use of a retail grocery facility
(including all activities which from time to time are
commonly associated with the operation of a grocery facility)
which is owned by a retail member of AWG and (b) any public
recordations of such agreement, provided that any such public
recordation shall be terminable from time to time as set
forth in Section 8(b) of the Supply Agreement.
Amendment to Security Agreement. The Company
proposes to amend Section 2(b) of the Security Agreement by
adding the following proviso to the end thereof: "provided,
however, that the Collateral Trustee's security interest in
Collateral consisting of AWG Equity shall be subordinate and
junior to AWG's first priority security interest in the AWG
Equity under the Supply Agreement and the Membership Sign-Up
Documents." In addition, the Company proposes to amend
Section 3(c) of the Security Agreement by adding the
following proviso: "provided, however, that the security
interest granted hereby in Collateral consisting of AWG
Equity shall be valid, enforceable and perfected and prior to
all other security interest in such Collateral other than the
security interest in favor of AWG under the Supply Agreement
and the Membership Sign-up Documents." A copy of the form of
the amendment to the Security Agreement is attached hereto as
Annex C.
Other Amendments
Amendment of Definition of "Permitted
Transactions". The Company proposes to amend the definition
of "Permitted Transactions" to (i) prohibit distributions in
respect of loans or advances to officers, directors and
employees of the Company in connection with certain purchases
of Holding stock by such parties, to the extent that such
loans or advance are made or incurred after March 30, 1995
(other than extensions, renewals, replacements, refundings or
refinancing of loans made or incurred on or prior to March
30, 1995), (ii) prohibit guarantees of indebtedness of
officers, directors and employees of the Company in
connection with such stock purchases, to the extent such
guarantees are incurred after March 30, 1995 (other than
extensions, renewals, replacements, refundings or
refinancings of such loans), (iii) reduce the maximum amount
that may be paid to CD&R in respect of management consulting,
monitoring and advisory services (excluding expenses), from
$750,000 per year to $150,000 per year and (iv) permit
distributions to Holding in connection with repurchases by
Holding of shares of its common stock owned by officers and
employees of the Company, at a cash purchase price of $0.50
per share, the proceeds of which will be equal to, and
applied against, the outstanding principal amount of loans
incurred by such officers or employees in connection with
their purchase of such stock, provided that the aggregate
amount of such repurchases does not exceed $600,000 (net of
amounts to be repaid in respect of loans from the Company or
Holding).
Amendment to Debt Covenant. The Company proposes
to further amend Section 4.09 of the Indenture to (i) reduce
the aggregate principal amount of indebtedness that the
Company may incur under its bank credit facility to $25 mil-
lion, (ii) prohibit the Company from incurring guarantees of
indebtedness of officers, directors and employees of the
Company in connection with certain purchases of Holding stock
by such parties, to the extent such guarantees are incurred
after March 30, 1995 and (iii) reduce the amount of the
Company's additional indebtedness basket from $20 million to
$1 million.
Amendment to Asset Sale Covenant. The Company
proposes to amend Section 4.10 of the Indenture to provide
that (i)(a) the Company may, within 180 days of the closing
date of the AWG Sale, reinvest, or commit to reinvest, up to
$5 million of the Note Net Proceeds from the AWG Sale in Note
Collateral consisting of capital expenditures and (b) the
remaining Note Net Proceeds from the AWG Sale, plus any Note
Net Proceeds which were committed to be reinvested under
clause (a) above but are not subsequently reinvested, shall
be applied by the Company to an offer to redeem the Notes in
accordance with Article 3 of the Indenture, (ii) following
the date on which the Company and its restricted subsidiaries
have received Post-AWG Note Net Proceeds in an amount equal
to $2,000,000, the Company shall make an offer to redeem
$2,000,000 in aggregate principal amount of Notes in
accordance with Article 3 of the Indenture, (iii) following
the date on which the Company and its restricted subsidiaries
have received Post-AWG Note Net Proceeds in an amount equal
to the sum (the "Aggregate Special Redemption Amount") of (a)
$3,800,000 plus (b) the excess (if any) of $25,500,000 over
the aggregate principal amount of Notes redeemed by the
Company in connection with the AWG Sale, the Company shall
make an offer to redeem the Notes in an amount equal to the
excess of the Aggregate Special Redemption Amount over
$2,000,000 in accordance with Article 3 of the Indenture and
(iv) all Post-AWG Note Net Proceeds received by the Company
and its restricted subsidiaries in excess of the Aggregate
Special Redemption Amount shall be either (a) applied by the
Company to an offer to redeem the Notes in accordance with
Article 3 of the Indenture or (2) reinvested, or committed to
be reinvested, within 180 days of the closing date of the
Asset Sale relating to such proceeds, in Note Collateral
consisting of capital expenditures, or if such proceeds that
were committed to be reinvested are not subsequently
reinvested, such proceeds shall be applied by the Company to
an offer to redeem the Notes in accordance with Article 3 of
the Indenture (provided that the Company will not be
obligated to make an offer pursuant to this clause (iv) until
such time as the excess of the Post-AWG Note Net Proceeds not
reinvested, or committed to be reinvested, in accordance with
this section, over the Aggregate Special Redemption Amount
aggregates at least $1,000,000). "Post-AWG Note Net
Proceeds" means all Note Net Proceeds received by the Company
or its restricted subsidiaries from Asset Sales occurring
after the closing date of the AWG Sale.
Amendment to Affiliate Transactions Covenant. The
Company proposes to amend Section 4.12 of the Indenture to
provide that the Company's board of directors must determine
in good faith whether a transaction between the Company or
one of its restricted subsidiaries, on the one hand, and an
affiliate, on the other, is at least as favorable to the
terms that the Company or such restricted subsidiary could
obtain in a comparable arms' length transaction with an
unrelated person.
Amendment to Investment Covenant. The Company
proposes to further amend Section 4.11 of the Indenture to
(i) eliminate the Company's general investments basket and
(ii) permit the Company to (a) purchase capital stock, in an
aggregate amount not exceeding $25,000, of retail purchasing
cooperatives (including, without limitation, Farm Fresh,
Inc., an Oklahoma retail dairy cooperative ("Farm Fresh")) in
connection with becoming a member of such cooperatives and
(b) receive or earn additional capital stock of such
cooperatives, in an aggregate amount not exceeding $600,000
in the case of Farm Fresh and $150,000 in the case of all
other cooperatives, based on the Company's gross purchases
from such cooperatives or in lieu of receiving cash rebates
or refunds from such cooperatives, provided that, in each
case, such stock is purchased, received or earned in
connection with a supply agreement or arrangement between the
Company and such cooperative which is on terms at least as
favorable to the Company as the terms that could be obtained
by the Company in a comparable transaction made on an arms'
length basis with another cooperative, wholesaler or
supplier.
Amendment to Lien Covenant. The Company proposes
to further amend Section 4.13 of the Indenture to reduce the
Company's general lien basket from $20 million to $1 million.
Amendment to Merger Covenant. The Company proposes
to amend Section 5.01 of the Indenture to provide that (i) it
will be a condition to any merger or consolidation involving
the Company, or sale of substantially all of the Company's
asset, that the perfection and priority of the Trustee's
security interest in, and liens on, the Note Collateral be
unimpaired and in full force and effect and (ii) that the
officers' certificate to be delivered in connection with any
such transaction will be delivered to the Trustee and each
holder at least ten days prior to the consummation of the
proposed transaction.
Amendment to Intercreditor Agreement. The Company
proposes to amend Section 2(b) of the Intercreditor Agreement
to clarify an ambiguity relating to the treatment of joint
collateral. A copy of the form of such amendment is attached
hereto as Annex D.
Amendment to Affirmative Covenant Relating to
Delivery of Certificates. The Company proposes to amend
Section 4.05 of the Indenture to add the following new clause
(i): "Within 60 days after the end of each fiscal quarter of
the Company and within 120 days after the end of each fiscal
year of the Company an Officers' Certificate, conforming to
the requirements set forth in Sections 12.04 and 12.05
hereof, stating that Conversion Expenses included in the
Company's calculation of EBITDA for the previous fiscal
quarter were consistent with the definition of the Conversion
Expenses set forth in Section 1.01 of the Indenture and such
Conversion Expenses were determined in accordance with
generally accepted accounting principles."
Amendment to Mortgage. The Company proposes to
amend Section 15 of the Mortgage to provide that defaults
under, or modifications or terminations of, a certain lease
(and agreements relating thereto) of a store to be closed,
will not constitute a default or event of default under the
Mortgage. A copy of the form of such amendment is attached
hereto as Annex E.
THE SOLICITATION
General
The Company is soliciting Consents from Registered
Holders of Notes as of the Record Date, upon the terms and
subject to the conditions set forth in this Solicitation
Statement and in the Consent Letter included herewith, to the
Proposed Amendments to the Indenture. Promptly after receipt
of the Requisite Consents and following the occurrence of the
Expiration Date, the Company, Holding and the Trustee will
execute the Supplemental Indenture, the effectiveness of
which will be subject to the satisfaction of certain
conditions (see -- "Conditions to Solicitation" below).
After the effective time (the "Effective Time") of the
Supplemental Indenture, all then current holders of the
Notes, including non-consenting holders, and all subsequent
holders of the Notes will be bound by the Proposed
Amendments. If the Solicitation is terminated for any reason
prior to the Effective Time, the Consents will be voided, no
Consent Fee payments will be made and the Proposed Amendments
will not be effected.
The Consents are being solicited by the Company.
THE COMPANY'S BOARD OF DIRECTORS RECOMMENDS THAT HOLDERS OF
THE NOTES CONSENT TO THE PROPOSED AMENDMENTS. All costs of
the Solicitation, including payment of the Consent Fee, will
be paid by the Company. In addition to the use of the mail,
Consents may be solicited by officers and other employees of
the Company without additional remuneration, in person or by
telephone, telegraph or facsimile transmission.
Record Date
The Record Date for the Solicitation is 5:00 p.m.,
New York City time, on March 30, 1995.
Expiration Date
The term "Expiration Date" means 5:00 p.m., New
York City time, on April 13, 1995, unless the Company, in its
sole discretion, extends the period during which the
Solicitation is open, in which event the term "Expiration
Date" means the latest time date and time to which the
Solicitation is so extended. The Company reserves the right
to extend the Solicitation at any time and from time to time
by giving oral or written notice to the Trustee no later than
9:00 a.m., New York City time, on the next business day after
the previously announced Expiration Date. Any such extension
will be followed as promptly as practicable by notice thereof
by press release or other public announcement (or by written
notice to the Registered Holders of the Notes). Such
announcement or notice may state that the Company is
extending the Solicitation for a specified period of time or
on a daily basis.
The Company expressly reserves the right for any
reason (i) to terminate the Solicitation at any time prior to
the execution of the Supplemental Indenture, (ii) not to
extend the Solicitation beyond the Expiration Date, whether
or not the Requisite Consents have been received by such date
and (iii) to amend, at any time or from time to time, the
terms of the Solicitation. Any such action by the Company
will be followed as promptly as practicable by notice thereof
by press release or other public announcement (or by written
notice to the Registered Holders). Notwithstanding the
foregoing, the Company will not reduce the Consent Fee or
otherwise amend the terms of the Solicitation in a manner
which materially adversely affects the rights of the holders
of the Notes without providing at least five business days'
notice thereof by press release or other public announcement
(or by written notice to the Registered Holders).
Requisite Consents
Adoption of the Proposed Amendments requires the
receipt of the Requisite Consents, consisting of valid
Consents (not properly revoked) from the Registered Holders
of a majority in aggregate principal amount of the Notes
outstanding and not owned by the Company or any of its
affiliates. As of the date of this Solicitation Statement,
$120 million of Notes were outstanding (including $12 million
of Series A Notes, $75 million of Series C Notes and $33
million of Series D Notes), none of which were owned by the
Company or any of its affiliates.
The failure of a Registered Holder to deliver a
Consent (including any failures resulting form broker non-
votes) will have the same effect as if such Registered Holder
had voted "Against" the Proposed Amendments.
Consent Payments
In the event the Proposed Amendments become
effective, the Company will pay a Consent Fee to each
Registered Holder whose duly executed Consent has been
received and not revoked prior to the Expiration Date, in an
amount equal to $5.00 in cash for each $1,000 in principal
amount of Notes in respect to which such Consent has been
delivered. No accrued interest will be paid on the Consent
Fee.
Any Registered Holders whose properly executed
Consents have been received prior to the Expiration Date will
be eligible to receive a Consent Fee. Holders of Notes who
do not timely consent to the Proposed Amendments will not be
eligible to receive a Consent Fee even though the Proposed
Amendments, if approved through the receipt of the Requisite
Consents, will be binding on them.
The Company's obligation to pay the Consent Fee is
contingent upon the effectiveness of the Proposed Amendments.
Consent Fee payments will be made as soon as practicable
after the effectiveness of the Proposed Amendments by check
mailed to the respective addresses of the holders of Notes
entitled to receive Consent Payments as such addresses appear
on the record books of the Trustee as of the Record Date.
Consent Procedures
This Solicitation Statement is being sent to all
Registered Holders. Only those persons who are Registered
Holders of the Notes as of the Record Date may execute and
deliver a Consent. A beneficial owner of Notes who is not a
Registered Holder of such Notes as of the Record Date (e.g.,
a beneficial holder whose Notes are registered in the name of
a nominee, such as a brokerage firm) must (i) arrange for the
Registered Holder to execute a Consent Letter and deliver it
either to the Information Agent on such beneficial owner's
behalf or to such beneficial owner for forwarding to the
Information Agent by such beneficial owner or (ii) obtain a
duly executed proxy from the Registered Holder authorizing
the beneficial holder to execute and deliver to the
Information Agent a Consent Letter with respect to the Notes
on behalf of such Registered Holder. A form of proxy that
may be used for such purposes is included in the form of
Consent Letter.
Giving a Consent will not affect a Registered
Holder's right to sell or transfer the Notes or to receive
the Consent Fee payment if such Registered Holder has not
revoked its Consent prior to the Expiration Date and the
Proposed Amendments become effective. All Consents received
(and not properly revoked) prior to the Expiration Date will
be effective notwithstanding a record transfer of such Notes
subsequent to the Record Date, unless the Registered Holder
of such Notes as of the Record Date revokes such Consent
prior to the Expiration Date by the following the procedures
set forth below under " -- Revocation of Consents."
HOLDERS OF NOTES AS OF THE RECORD DATE WHO WISH TO
CONSENT SHOULD MAIL, HAND DELIVER, SEND BY OVERNIGHT COURIER
OR FACSIMILE (CONFIRMED BY PHYSICAL DELIVERY) THEIR PROPERLY
COMPLETED AND EXECUTED CONSENTS TO THE INFORMATION AGENT AT
THE ADDRESS SET FORTH ON THE BACK COVER PAGE HEREOF AND ON
THE CONSENT LETTER INCLUDED HEREWITH IN ACCORDANCE WITH THE
INSTRUCTIONS SET FORTH HEREIN AND THEREIN. CONSENTS SHOULD
BE DELIVERED TO THE INFORMATION AGENT, NOT TO THE COMPANY,
HOLDING OR THE TRUSTEE. HOWEVER, THE COMPANY RESERVES THE
RIGHT TO ACCEPT ANY CONSENT RECEIVED BY THE COMPANY, HOLDING
OR THE TRUSTEE.
IN NO EVENT SHOULD REGISTERED HOLDERS TENDER OR
DELIVER NOTES.
All Consents that are properly completed, signed
and delivered to the Information Agent, and not properly
revoked, prior to the Expiration Date, will be given effect
in accordance with the specifications thereof. Holders who
desire to consent to the Proposed Amendments should mark the
"For" box on, and complete, sign and date the Consent Letter
included herewith and mail, deliver, send by overnight
courier or facsimile (confirmed by physical delivery) the
signed Consent Letter to the Information Agent at the address
listed on the back cover page of this Solicitation Statement
and on the Consent Letter included herewith, all in
accordance with the instructions contained herein and
therein. If neither the "FOR" nor "AGAINST" box on the
Consent Letter is marked, but the Consent Letter is otherwise
properly completed and signed, the Registered Holder will be
deemed to have consented to the Proposed Amendments.
Registered Holders who vote "FOR" the Proposed
Amendments, or who are deemed to have voted "FOR" the
Proposed Amendments as described in the preceding paragraph,
will be deemed to have selected the June 1, 1995 redemption
option, unless they mark the "September 1, 1995 Redemption"
box on the Consent Letter included herewith. See "AWG
Transaction -- Application of AWG Sale Proceeds."
Consents by Registered Holder(s) of Notes must be
executed in exactly the same manner as such Registered
Holder(s) name(s) appear(s) on the Notes. If Notes to which
a Consent relates are held of record by two or more joint
holders, all such holders must sign the Consent. If a
Consent is signed by a trustee, partner, executor,
administrator, guardian, attorney-in-fact, officer of a
corporation or other person acting in a fiduciary or
representative capacity, such person must so indicate when
signing and must submit with the Consent Letter appropriate
evidence of authority to execute the Consent. In addition,
if a Consent relates to less than the total principal amount
of Notes registered in the name of such Registered Holder,
the Registered Holder must list the serial numbers and
principal amount of Notes registered in the name of such
holder to which the Consent relates. If Notes are
registered in different names, separate Consents must be
executed covering each form of registration. If a Consent is
executed by a person other than the Registered Holder, then
it must be accompanied by the proxy in the form included with
Consent Letter, duly executed by the Registered Holder.
The registered ownership of a Note shall be proved
by the Trustee, as registrar of the Notes. All questions as
to the validity, form and eligibility (including time of
receipt) regarding the Consent procedures and payment of the
Consent Fee will be determined by the Company, which
determination will be conclusive and binding subject to such
final review as may be prescribed by the Trustee concerning
proof of execution and ownership. The Company reserves the
absolute right to reject any or all Consents that are not in
proper form or the acceptance of which could reasonably be
expected to be, in the opinion of the Company or its counsel,
unlawful. The Company also reserves the right, subject to
such final review as the Trustee may prescribe for proof of
execution and ownership, to waive any defects or
irregularities or conditions of delivery as to particular
Consents. Unless waived, any defects or irregularities in
connection with the deliveries of Consents must be cured
within such time as the Company determines. None of the Com-
pany, Holding, any of their affiliates, the Trustee, the
Information Agent or any other person shall be under any duty
to give notification of any such defects, irregularities or
waiver, nor shall any of them incur any liability for failure
to give such notification. Deliveries of Consents will not
be deemed to have been made until such irregularities or
defects have been cured or waived. The Company's inter-
pretation of the terms and conditions of this Solicitation
shall be binding.
Revocation of Consents
Each properly completed and executed Consent will
be counted, notwithstanding any transfer of the Notes to
which such Consent relates, unless the procedure for revoking
Consents described below has been followed. The purchaser of
a Note with respect to which a Consent has been delivered by
the Registered Holder thereof will be bound by such Consent.
Prior to the later of (i) the Expiration Date and
(ii) receipt by the Trustee from the Company of the Officer's
Certificate, any Registered Holder of the Notes may revoke
any Consent given by it with respect to such Notes or any
portion of such Notes (in integral multiples of $1,000). A
Registered Holder desiring to revoke a Consent must, prior to
such date, deliver to the Information Agent at the address
set forth on the back cover page of this Solicitation
Statement and on the Consent Letter included herewith, a
written revocation of such Consent (which may be in the form
of a subsequent Consent marked "AGAINST" the Proposed Amend-
ments) containing the name of such Registered Holder, the
serial numbers of the Notes to which such revocation relates,
the principal amount of Notes to which such revocation
relates and the signature of such Registered Holder.
The revocation must be executed by such Registered
Holder in the same manner as the Registered Holder's name
appears on the Consent to which the revocation relates. If a
revocation is signed by a trustee, partner, executor,
administrator, guardian, attorney-in-fact, officer of a
corporation or other person acting in a fiduciary of
representative capacity, such person must so indicate when
signing and must submit with the revocation appropriate
evidence of authority to execute the revocation. A
revocation of the Consent shall be effective only as to Notes
listed on the revocation and only if such revocation complies
with the provisions of this Solicitation Statement. Only a
Registered Holder is entitled to revoke a Consent previously
given by it. A beneficial owner of the Notes who is not the
Registered Holder of such Notes must (i) arrange with the
Registered Holder to execute and deliver either to the
Information Agent on such beneficial owner's behalf, or to
such beneficial owner for forwarding to the Information Agent
by such beneficial owner, a revocation of any Consent already
given with respect to such Notes or (ii) obtain a duly
executed proxy from the Registered Holder authorizing such
beneficial holder to act on behalf of the Registered Holder
as to such Consent.
A revocation of a Consent may only be rescinded by
the execution and delivery of a new Consent. A Registered
Holder who has delivered a revocation may thereafter deliver
a new Consent by following the procedures described herein.
The Company reserves the right to contest the
validity of any revocation and all questions as to the
validity (including time of receipt) of any revocation will
be determined by the Company in its sole discretion, which
determination will be conclusive and binding subject only to
such final review as may be prescribed by the Trustee
concerning proof of execution and ownership. None of the
Company, Holding, any of their affiliates, the Trustee, the
Information Agent or any other person will be under any duty
to give notification of any defects or irregularities with
respect to any revocation not shall any of them incur any
liability for failure to give such notification. Deliveries
of revocations will not be deemed to have been made until
such defects or irregularities have been cured or waived.
Conditions of the Solicitation
The Supplemental Indenture will be executed by the
Company, Holding and the Trustee promptly after receipt by
the Company of the Requisite Consents and following the
occurrence of the Expiration Date. The effectiveness of the
Supplemental Indenture (and the Proposed Amendments set forth
therein) is subject to the satisfaction, on or prior to June
1, 1995, of the following conditions precedent: (i) the
receipt of the Requisite Consents; (ii) the closing of the
Amended Credit Facility, providing for a revolving credit
commitment of not less than $25 million and borrowing base
requirements which are comparable to those set forth in the
Credit Agreement; (iii) the closing of the AWG Sale; (iv)
delivery of a notice of redemption by the Company to the
Trustee, giving notice that, following the AWG Sale, at least
$25 million will be applied against a pro rata redemption of
the Notes; (v) there having been no amendments to the AWG
Purchase Agreement which materially adversely affect the
rights of the holders of the Notes; (vi) the payment of the
reasonable fees and expenses of counsel to the Unofficial
Noteholders' Committee; and (vii) the absence of any law or
regulation which would, and the absence of any injunction or
action or other proceeding (pending or threatened) which (in
the case or any action or proceeding, if adversely
determined) would, make unlawful or invalid or enjoin the
implementation of the Proposed Amendments, the entering into
of the Supplemental Indenture, the payment of the Consent Fee
or question the legality or validity thereof. The Solicita-
tion may be abandoned by the Company at any time prior to the
execution of the Supplemental Indenture, for any reason, in
which case all Consents will be voided and no Consent Fee
will be paid.
Information Agent
The Company has retained Morrow & Co., Inc. as
Information Agent in connection with the Solicitation. The
Information Agent will be responsible for collecting
Consents, answering questions relating to consent procedures
and providing additional information upon request (including
additional copies of this Solicitation Statement, the Consent
Letter and the other materials included herewith). The
Information Agent will receive a customary fee for such
services.
Financial Advisor
The Company has retained Lazard Freres & Co. as
Financial Advisor in connection with the AWG Sale, the
Proposed Amendments and the Amended Credit Facility. The
Financial Advisor was retained to assist the Company in
identifying potential purchasers of certain Company stores
and assist the Company in formulating and negotiating the
terms of the Proposed Amendments and the Amended Credit
Facility.
Assistance; Additional Information
Questions relating to consent procedures as well as
requests for additional information (including additional
copies of this Solicitation Statement and the Consent Letter)
should be directed to the Information Agent at the address
listed on the back cover page of this Solicitation Statement
and on the Consent Letter included herewith. Questions
regarding the terms and conditions of the Solicitation should
be directed to Mark S. Sellers at the Company, (405)-557-
5861, or Douglas W. Lehrman at the Financial Advisor, (212)
632-6205.
AMENDED CREDIT FACILITY
It is a condition precedent to the effectiveness of
the Proposed Amendments that, on or before June 1, 1995, the
Company enter into the Amended Credit Facility, providing for
a revolving credit commitment of not less than $25 million
and borrowing base requirements which are comparable to those
set forth in the Credit Agreement. In addition, the Amended
Credit Facility will (i) have a term of not less than 18
months, (ii) be subject to certain customary conditions
precedent, (iii) provide for certain customary affirmative
and negative covenants (which covenants will permit, among
other things, the Company's purchase of the AWG Membership
Stock and receipt of other AWG Equity from time to time,
AWG's lien on the AWG Equity owned by the Company, the
collateralized open account indebtedness of the Company to
AWG, the First Offer Rights and the Use Restrictions), and
(iv) be secured by a first lien on the Company's current
assets (which assets currently secure the Company's
obligations under the Credit Agreement).
HISTORICAL AND PRO FORMA CAPITALIZATION
The following unaudited table sets forth the
capitalization of the Company as of December 31, 1994 as
adjusted to give pro forma effect to the AWG Transaction and
the related repayment of indebtedness, as if they had
occurred on such date. The table should be read in
conjunction with "Certain Historical, Pro Forma and Projected
Financial Data," attached hereto as Annex B.
December 31, 1994
Actual Pro Forma
(unaudited in thousands)
Short-Term Debt:
Current Portion of Long-Term Debt $ 2,250(1) $ 750
Current Portion of Capital Leases 7,828 3,221
--------- ---------
Total Short-Term Debt 10,078 3,971
--------- --------
Long-Term Debt:
Revolving Credit Facility 25,000(2) 11,398(3)
Senior Secured Floating Rate Notes 45,000 35,625(4)
Senior Secured Fixed Rate Notes 75,000 59,375(4)
Capital Leases 11,472 11,472
--------- --------
Total Long-Term Debt 156,472 117,870
--------- --------
Total Equity 3,507 3,507
--------- -------
Total Capitalization $170,057 $125,348
========= ========
<FN>
________________
(1) Includes Furr's Note of $0.75 million, which was repaid on
March 1, 1995, and $1.5 million in borrowings under the
Credit Agreement.
(2) Excludes approximately $6.5 million of letters of credit.
(3) Excludes approximately $16.5 million of letters of credit
which is expected to be reduced by $3 million by May 31,
1995.
(4) Assumes pro rata redemption of Series A Notes, Series C Notes
and Series D Notes.
</FN>
On the closing date of the AWG Sale, the Company
estimates that it will have approximately $17.5 million
outstanding under the Credit Agreement and expects that
approximately $15.1 million of net proceeds from the AWG Sale
(of which approximately $2.7 million represents reimbursement
of previously paid transaction expenses) will be used to pay
down amounts outstanding under the Credit Agreement on such
date. In addition, as a result of the timing of payments to
the Company's vendors from net proceeds of the AWG Sale, the
Company will, on the closing date of the AWG Sale, repay any
remaining outstanding amounts under the Credit Agreement.
The Company expects to have approximately $11 million in cash
on the day following the closing date of the AWG Sale. The
Company will use this cash plus approximately $4 million of
borrowings under the Amended Credit Facility to pay
approximately $15 million of trade payables in connection
with the AWG Sale. See "Certain Historical, Pro Forma and
Projected Financial Data -- Unaudited and Projected Balance
Sheets," attached hereto as Annex B.
CERTAIN HISTORICAL, PRO FORMA AND PROJECTED
FINANCIAL DATA
Annex B attached hereto sets forth certain
historical, pro forma and projected financial data of the
Company which was prepared by the Company's management and
has not been examined by the Company's independent public
accountants. The information includes (i) certain unaudited
financial information of the Company for the fiscal year
ending December 31, 1994, (ii) certain projected financial
information of the Company for the fiscal year ending
December 30, 1995 and certain financial projected information
for such period as adjusted to give pro forma effect to the
AWG Transaction, the related repayment of indebtedness and
the closure of the 16 stores closed or to be closed in 1994
and 1995, as if they had occurred on January 1, 1995 and
(iii) certain projected financial information of the Company
for the fiscal year ending December 28, 1996. The informa-
tion contained in Annex B should be read in conjunction with
the Company's historical audited financial statements, which
are publicly available as described above under "Available
Information."
The Company as a matter of course does not prepare
projected financial information as to future revenues or
earnings that is publicly disclosed. Accordingly, the
projections set forth in Annex B were not prepared with a
view toward compliance with published guidelines of the
Commission or the American Institute of Certified Public
Accountants regarding forward-looking information or
generally accepted accounting principles.
The projections included in Annex B necessarily
make a variety of assumptions described below, all of which
are difficult to predict and many of which are beyond the
control of the Company and may not have been, or may no
longer be, accurate. Additionally, such projections were
prepared in February 1995 and, except as described below,
have not been revised to reflect, among other things, actual
financial results of the Company to date, revised prospects
for the Company's businesses, changes in general business and
economic conditions or any other transactions or events that
have occurred or that may occur and that were not anticipated
at the time such projections were prepared. The projections
included in Annex B are not necessarily indicative of current
values or future performance, which may be significantly more
favorable or less favorable than as set forth below, and
should not be regarded as representations that they will be
achieved. There can be no assurance that the results of
operations reflected in any of the projections will be
realized or that actual results will not be significantly
higher or lower than these projected.
The Company's independent accountants have not
examined, reviewed or compiled any of the historical, pro
forma and projected financial information contained in Annex
B or expressed any conclusion or provided any other form of
assurance with respect to such information and accordingly
assume no responsibility for such information.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following summary of the material federal
income tax consequences of the transactions contemplated by
the Solicitation is for general information only. It is
based upon the currently-existing provisions of the Internal
Revenue Code of 1986, as amended (the "Code"), the applicable
Treasury Regulations promulgated and proposed thereunder,
judicial authority and administrative rulings and practice,
all of which are subject to change, possibly on a retroactive
basis. This discussion does not purport to address all
aspects of federal income taxation that may be relevant to
particular holders in light of their individual circumstances
or to certain types of holders subject to special treatment
under the Code (for example, insurance companies, tax-exempt
organizations, financial institutions, dealers in securities,
foreign corporations and nonresident alien individuals), nor
does it discuss any aspect of state, local or foreign
taxation or estate and gift tax considerations. This
discussion assumes that the Notes are held as capital assets
(as defined in the Code) by the holder thereof.
This summary is based in part on certain proposed
regulations addressing the treatment of modifications of debt
instruments (the "Proposed Regulations"). The Proposed
Regulations by their terms would become effective for modi-
fications of debt instruments issued after the Proposed
Regulations are released in final form; accordingly, by their
terms they will not apply to the Solicitation, although they
are indicative of the position of the Internal Revenue
Service ("IRS") with regard to their subject matter. Prior
to their issuance in temporary or final form, the Proposed
Regulations have no binding effect and may be withdrawn or
revised at any time on a retroactive basis, which could
change the consequences described below. Further, no ruling
has been requested from the IRS regarding the tax
consequences of the Proposed Amendments, the increase in the
interest rates on the Notes or the payment of the Consent Fee
with respect to any series of Notes, or any other aspect of
the transactions contemplated by the Solicitation.
Consequences of the Solicitation
The increase in the interest rate on the Notes and
the payment of the Consent Fee to a holder would generally
result in a constructive taxable exchange for federal income
tax purposes of the holder's Notes for deemed new Notes (the
"New Notes").
Because the transactions contemplated by the
Solicitation would constitute a constructive taxable exchange
of Notes for New Notes for federal income tax purposes, a
holder would recognize gain or loss at the time of such
exchange in an amount equal to the difference between the
"issue price" of the New Notes (plus the amount of the
Consent Fee, if such amount is treated as additional
consideration for the Notes, as discussed below) and such
holder's adjusted tax basis in the Notes treated as exchanged
therefor. Subject to the market discount rules, such gain or
loss would be capital gain or loss and would be long-term
capital gain or loss if the holder's holding period for the
Notes exceeded one year. A holder's initial tax basis in the
New Notes would be their "issue price," and a holder's
holding period for the New Notes would begin on the day after
the deemed exchange. If the Notes or the New Notes are
traded on an established market (within the meaning of
applicable Treasury Regulations), the "issue price" of a New
Note will be equal to the fair market value of the New Note
as of the date of the constructive exchange. If the
immediately preceding sentence does not apply, the "issue
price" of a New Note will be equal to its stated principal
amount. If the issue price of a New Note is less than the
stated redemption price at maturity of the New Note, under
the original issue discount rules set forth in the Code and
applicable Treasury Regulations, a holder could be required
to include an amount in gross income for federal income tax
purposes in advance of the receipt of cash in respect
thereof.
If the Notes or the New Notes are traded on an
established market, and if the fair market value of the New
Notes as of the date of the constructive exchange is less
than their stated principal amount, the Company will
recognize cancellation of indebtedness income for federal
income tax proposes equal to the difference.
The Company does not believe that the Notes are
traded on an established market. The Company cannot predict
whether the New Notes will be traded on an established
market.
Consequences of Receipt of Consent Fee
There is no clear authority concerning the federal
income tax consequences of the receipt of the Consent Fee.
The Company intends to treat the Consent Fee for federal
income tax purposes as a fee paid to holders that grant
Consents pursuant to the Solicitation. Accordingly, the
Company generally would be required to provide information
statements to consenting holders and to the IRS reporting the
payment of the Consent Fee. If such treatment is respected,
a holder would recognize ordinary income when the Consent Fee
is received or accrued, in accordance with its method of
accounting. Alternative federal income tax treatments of the
Consent Fee payments may be applicable. Because, as
discussed above, holders would be treated as exchanging their
Notes for New Notes for federal income tax purposes, the Con-
sent Fee payments could be treated as additional
consideration received in such exchange, in which case such
payments would be taken into account in determining the
amount of gain or loss on the exchange (see "Consequences of
the Solicitation" above).
Backup Withholding
Holders other than certain exempt recipients (such
as corporations) may be subject to backup withholding at the
rate of 31% with respect to the Consent Fee payments received
by a holder pursuant to the Solicitation unless the holder
complies with certain certification and identification
requirements. Accordingly, to prevent backup withholding,
each holder of Notes who consents to the Proposed Amendments
must either (i) complete the Substitute Form W-9, certifying
(under penalties of perjury) that the taxpayer identification
number (which, in the case of a holder of Notes who is an
individual, is such holder's social security number and, for
any other holder, is its taxpayer identification number)
provided is correct (or that such holder is awaiting
assignment of a taxpayer identification number) and that
either (a) the holder has not been notified by the IRS that
such holder is subject to backup withholding as a result of a
failure to report interest or dividends or (b) the IRS has
notified the holder that such holder is no longer subject to
backup withholding or (ii) provide an adequate basis for an
exemption from backup withholding. If backup withholding
results in an overpayment of taxes, a refund or credit may be
obtained, provided the required information is furnished to
the IRS.
Withholding for Non-U.S. Holders
Although it is not entirely clear that such tax is
applicable to the Consent Fee payments, U.S. federal
withholding tax will be withheld from Consent Fee payments
paid to a holder that is a non-United States person (within
the meaning of the Code) at a 30% rate unless (i) such non-
United States person is engaged in the conduct of a trade or
business in the United States to which the receipt of the
Consent Fee payments is effectively connected and provides a
properly executed IRS Form 4224 or (ii) an income tax treaty
between the United States and the country of residence of the
non-United States person eliminates or reduces the
withholding on income such as the Consent Fee payments, and
such non-United States person provides a properly executed
IRS Form 1001.
A holder who is a non-United States person
generally will not be subject to United States federal income
tax (and generally no tax will be withheld) with respect to
gain realized on the constructive exchange of Notes for New
Notes, unless (i) the gain is effectively connected with a
United States trade or business conducted by the non-United
States holder, or (ii) the non-United States holder is an
individual who is present in the United States for a period
of periods aggregating 183 or more days in the taxable year
of the deemed exchange and certain other conditions are met.
THE FOREGOING SUMMARY IS INCLUDED HEREIN FOR GEN-
ERAL INFORMATION ONLY. HOLDERS OF NOTES SHOULD CONSULT WITH
THEIR OWN TAX ADVISORS AS TO THE SPECIFIC CONSEQUENCES TO
THEM OF THE SOLICITATION, INCLUDING THE APPLICABILITY OF
STATE, LOCAL AND FOREIGN INCOME AND OTHER TAX LAWS.
HOMELAND STORES, INC.
Solicitation of Consents to Proposed Amendments
of
Certain Provisions of the Indenture Governing
its
Series A Senior Secured Floating Rate Notes Due 1997,
Series C Senior Secured Fixed Rate Notes Due 1999
and
Series D Senior Secured Floating Rate Notes Due 1997
Deliveries of Consents should be made to the
Information Agent at the address or facsimile number set
forth below (facsimile transmissions should be confirmed by
physical delivery):
Morrow & Co., Inc.
By Mail:
Morrow & Co., Inc.
909 Third Avenue
New York, NY 10022
By Facsimile:
(212) 754-8300
Confirmation only:
(800) 662-5200
By Hand:
Morrow & Co., Inc.
909 Third Avenue
New York, NY 10022
Annex A
Form of Supplemental Indenture
SECOND SUPPLEMENT TO INDENTURE
among
HOMELAND STORES, INC.,
HOMELAND HOLDING CORPORATION
and
UNITED STATES TRUST COMPANY OF NEW YORK,
as Trustee
Dated as of April , 1995
TABLE OF CONTENTS
Page
ARTICLE I
RELATIONS TO INDENTURE; EFFECTIVE DATE 2
Section 1.01. Integration 2
Section 1.02. Capitalized Terms 2
Section 1.03. Conditions to Effectiveness 2
ARTICLE II
AMENDMENTS TO ARTICLE I OF INDENTURE 3
Section 2.01. Amendments of Existing Definitions 3
Section 2.02. Addition of New Definitions 4
Section 2.03. Deletion of Certain Definition 8
ARTICLE III
AMENDMENTS TO ARTICLE IV OF INDENTURE 8
Section 3.01. Amendment to Section 4.05 of the
Indenture 8
Section 3.02. Amendment to Section 4.09 of the
Indenture 8
Section 3.03. Amendment to Section 4.10 of the
Indenture 9
Section 3.04. Amendment to Section 4.11 of the
Indenture 11
Section 3.05. Amendment to Section 4.12 of the
Indenture 12
Section 3.06. Amendment to Section 4.13 of the
Indenture 12
Section 3.07. Amendment to Section 4.16 of the
Indenture 13
Section 3.08. Amendment to Section 4.21 of the
Indenture 13
Section 3.09. Addition of Section 4.27 to the
Indenture 13
Section 3.10. Addition of Section 4.28 to the
Indenture 14
ARTICLE IV
AMENDMENTS TO ARTICLE V OF INDENTURE 15
Section 4.01. Amendment of Section 5.01 of the
Indenture 15
ARTICLE V
AMENDMENTS TO FORMS OF SECURITIES 16
Section 5.01. Amendment to Exhibit B 16
Section 5.02. Amendment to Exhibit M 16
Section 5.03. Amendment to Exhibit N 16
Section 5.04. Deemed Amendments 16
ARTICLE VI
AMENDMENTS TO CERTAIN RELATED DOCUMENTS 16
Section 6.01. Amendment to Company Security
Agreement 16
Section 6.02. Amendment to Mortgage 16
Section 6.03. Amendment to Intercreditor
Agreement 17
ARTICLE VII
CONSENT FEE 17
Section 7.01. Payment of Consent Fee 17
ARTICLE VIII
MISCELLANEOUS 17
Section 8.01 Ratification 17
Section 8.02. Governing Law 17
Section 8.03. Counterparts 17
Section 8.04. Headings 18
SECOND SUPPLEMENT TO INDENTURE, dated as of April
__, 1995, among HOMELAND STORES, INC., a Delaware
corporation (the "Company"), HOMELAND HOLDING CORPORATION, a
Delaware corporation (the "Guarantor") and UNITED STATES
TRUST COMPANY OF NEW YORK, a New York banking association,
as Trustee (the "Trustee").
RECITALS
WHEREAS, the Company, the Guarantor and the
Trustee have heretofore entered into an Indenture (the
"Indenture"), dated as of March 4, 1992, as supplemented by
the First Supplement to Indenture, dated as of June 17,
1992, providing for the issuance of up to $45 million
aggregate principal amount of Series A Senior Secured
Floating Rate Notes Due 1997 ("Series A Notes") and $75
million aggregate principal amount of Series B Senior
Secured Fixed Rate Notes Due 1999 ("Series B Notes");
WHEREAS, the Company has heretofore conducted an
exchange offer, pursuant to which it exchanged (i) $33
million of Series A Notes for an equal principal amount of
its Series D Notes Senior Secured Floating Rate Notes Due
1997 (leaving $12 million of Series A Notes outstanding) and
(ii) $75 million of Series B Notes for an equal principal
amount of its Series C Senior Secured Fixed Rate Notes Due
1999 (leaving no Series B Notes outstanding);
WHEREAS, Section 9.02 of the Indenture provides,
among other things, that the Company and the Trustee may
from time to time enter into indentures supplemental thereto
with the consent of the Securityholders of at least a
majority in principal amount of the Securities then
outstanding (other than Securities owned by the Company or
any of its affiliates) for the purposes of amending certain
provisions of the Indenture;
WHEREAS, the Company wishes to supplement the
Indenture by deleting, modifying or adding certain
provisions thereto or thereof;
WHEREAS, Securityholders of at least a majority in
principal amount of the Securities then outstanding (other
than Securities owned by the Company or any of its
affiliates) have consented to the amendments to the
Indenture set forth herein;
WHEREAS, pursuant to Section 9.02 of the
Indenture, the Company has furnished the Trustee with an
Officers' Certificate certifying that the aforesaid consent
of the Securityholders has been obtained; and
WHEREAS, all things necessary to make this
Supplemental Indenture a valid agreement of the Company and
the Trustee, and a valid amendment of and supplement to the
Indenture, have been done.
NOW, THEREFORE, in consideration of the premises,
the Company and the Guarantor agree with the Trustee as
follows:
ARTICLE I
RELATIONS TO INDENTURE
Section 1.01. Integration. This Second
Supplement to Indenture constitutes an integral part of the
Indenture.
Section 1.02. Capitalized Terms. Capitalized
terms used herein without definition shall have the meanings
specified in the Indenture.
Section 1.03. Conditions to Effectiveness. This
Second Supplement to Indenture shall become effective on the
first date (the "Effective Date"), on or prior to June 1,
1995, on which all of the following conditions shall have
been satisfied: (i) the Trustee shall have received
executed counterparts of this Second Supplement to
Indenture, signed by each of the Company and Holding, and
the Trustee shall have executed this Second Supplement to
Indenture; (ii) the Trustee shall have received the
Officers' Certificate required to be delivered pursuant to
Section 9.02 of the Indenture; (ii) the Trustee shall have
received an Officers' Certificate certifying that the
conditions identified in the Company's Solicitation
Statement, dated April 4, 1995 (the "Solicitation
Statement"), under "The Solicitation -- Conditions of the
Solicitation," have been satisfied; and (iv) the Trustee
shall have received any other Officers' Certificates or
Opinions of Counsel as the Trustee may reasonably request.
ARTICLE II
AMENDMENTS TO ARTICLE I OF INDENTURE
Section 2.01. Amendments of Existing Definitions.
Section 1.01 of the Indenture is amended as follows:
(a) The definition of "Capital Expenditures" is
amended to read in its entirety as follows:
"Capital Expenditures" means, for any period,
the capital expenditures made by the Company and
its Subsidiaries during such period (including
capital expenditures funded from Note Net Proceeds
which are reinvested in accordance with
Section 4.10) less (i) all capital expenditures,
in an amount not exceeding $6,500,000 in the
aggregate, relating to (a) assets to be purchased
by the Company, and thereafter sold to AWG, in
connection with the AWG Purchase Agreement and
(b) assets to be purchased in connection with
stores closed or to be closed and (ii) capital
expenditures in respect of capital leases entered
into in 1994 in an amount equal to $1,500,000."
(b) The definition of "Consolidated Fixed Charge
Coverage Ratio" is amended to read in its entirety as
follows:
"Consolidated Fixed Charge Coverage Ratio"
means, with respect to any period for which it is
to be determined, the ratio obtained by dividing
(i) the aggregate amount of EBITDA of the Company
and its Subsidiaries on a consolidated basis for
such period, less (a) in the case of periods
ending on each of September 30, 1995 and December
30, 1995, Net Capital Expenditures for such
period, (b) in the case of periods ending on each
of March 23, 1996, June 15, 1996 and September 7,
1996, the greater of (x) the Minimum Amount for
such period and (y) Net Capital Expenditures for
such period and (c) in the case of periods ending
on and after December 28, 1996, the greater of
(x) $3,000,000 and (y) Net Capital Expenditures
for such period, by (ii) the Consolidated Interest
Expense for such period.
(c) The definition of "Permitted Transactions" is
amended in the manner set forth below.
(i) Subclause (B)(3) of clause (i) of the
definition of "Permitted Transactions" is amended to read in
its entirety as follows:
"(3) loans or advances incurred prior to the
Reference Date and maturing in a period of one
year of less, to officers, directors or employees
to make principal payments of up to $50,000 at any
time that are due under the indebtedness of such
officer, director or employee in connection with
the Management Subscription Agreements or Stock
Subscription Agreements, and any extension,
renewal, replacement, refunding or refinancing of
such loans or advances, or"
(ii) Clause (ii) of the definition of "Permitted
Transactions" is amended to read in its entirety as follows:
"(ii) guarantees incurred prior to the
Reference Date of Indebtedness of officers,
employees and directors in connection with the
Management Subscription Agreements or Stock
Subscription Agreements and payments in discharge
of such guarantees, and any extension, renewal,
replacement, refunding or refinancing of such
loans or advances;"
(iii) Clause (iii) of the definition of
"Permitted Transactions" is amended by deleting the figure
"$750,000" after the phrase "not to exceed" in the third
line thereof and inserting in lieu thereof "$150,000".
(iv) The definition of "Permitted Transactions"
is further amended by adding the following new subclause
"(D)" at the end of clause (i) thereof:
"(D) to repurchase shares of its common stock
owned by officers and employees of the Company at
a cash purchase price of $0.50 per share, provided
that such repurchases shall not exceed $600,000 in
the aggregate (net of amounts to be repaid in
respect of loans from the Company or Holding);"
Section 2.02. Addition of New Definitions.
Section 1.01 of the Indenture is amended to insert, in the
appropriate alphabetical sequence, the following
definitions:
(a) "AWG" means Associated Wholesale Grocers,
Inc., a Missouri corporation.
(b) "AWG Equity" means all equity, deposits,
credits, sums and indebtedness of any kind or
description whatsoever, at any time owed by AWG to the
Company or at any time standing in the name of or to
the credit of the Company on the books and/or records
of AWG, including, without limitation, AWG Membership
Stock, members deposit certificates, patronage refund
certificates, members savings, direct patronage or
year-end patronage, concentrated purchase allowance,
quarterly payments and any other amounts due from AWG
to the Company under the Supply Agreement.
(c) "AWG Membership Stock" means the Class A
Common Stock, par value $100 per share, of AWG.
(d) "AWG Purchase Agreement" means the Asset
Purchase Agreement, dated as of February 6, 1995,
between the Company and AWG.
(e) "AWG Sale" means the sale of certain assets
of the Company pursuant to the AWG Purchase Agreement.
(f) "Conversion Expenses" means expenses in
respect of (i) the conversion of the Company from an
entity which buys inventory directly from manufacturers
to one that buys inventory from a wholesaler and
(ii) the closure of stores.
(g) "Debt-to-EBITDA Ratio" means, for any period,
the ratio obtained by dividing (i) the Indebtedness of
the Company and its Subsidiaries on a consolidated
basis as of the last day of such period, by (ii) the
aggregate amount of EBITDA of the Company and its
Subsidiaries on a consolidated basis for such period.
(h) "EBITDA" of any Person for any period means
the sum of (i) the net income (or net loss) from
operations of such Person and its Subsidiaries on a
consolidated basis (determined in accordance with
generally accepted accounting principles) for such
period, without giving effect to any extraordinary or
unusual gains (losses) or gains (losses) from the sale
of assets (other than the sale of Inventory in the
ordinary course of business), plus (ii) to the extent
that any of the items referred to in any of clauses (a)
through (c) below were deducted in calculating such net
income: (a) Consolidated Interest Expense of such
Person for such period; (b) income tax expense of such
Person and its Subsidiaries with respect to their
operations for such period; and (c) the amount of all
non-cash charges (including, without limitation,
depreciation and amortization) of such Person and its
Subsidiaries for such period; provided, however, that
in calculating EBITDA of the Company and its
Subsidiaries (x) the non-cash reserve taken in fiscal
1994 in respect of workers compensation in an amount
not exceeding $5,000,000 and (y) Conversion Expenses in
an amount not exceeding in the aggregate $3,000,000,
consisting of up to $2,800,000 in such expenses during
1995 and up to $400,000 in such expenses in 1996, shall
be added back to net income (or net loss) from
operations to the extent deducted in calculating such
net income (or net loss).
(i) "First Offer Rights" mean (i) AWG's right of
first offer with respect to the stores owned or
operated by the Company listed on Exhibit B of the
Supply Agreement, as such agreement may be amended from
time to time and (ii) any public recordation of such
first offer rights, provided that any such public
recordation shall be terminable from time to time as
set forth in Section 7(f) of the Supply Agreement.
(j) "Major Remodel" means capital expenditures
made in respect of one of the Company's stores in an
amount exceeding, or expected to exceed, $400,000.
(k) "Membership Sign-Up Documents" means (i) the
Application for Membership by Homeland Stores, Inc.,
between the Company and AWG and (ii) the Stock Power of
Attorney granted to AWG by the Company with respect to
the AWG Membership Stock owned by the Company;
(l) "Minimum Amount" means, for the fiscal
quarter period ending on each of the dates set forth
below, the amount specified opposite such date:
Date Amount
3/23/96 $ 750,000
6/15/96 $1,500,000
9/07/96 $2,250,000
(m) "Net Capital Expenditures" means, for any
period, the capital expenditures made by the Company
and its Subsidiaries in such period less (i) net cash
proceeds from the sale of assets which are reinvested
pursuant to the Indenture during such period,
(ii) capital expenditures, in an amount not exceeding
$6,500,000 in the aggregate, relating to (a) assets to
be purchased by the Company, and thereafter sold to
AWG, in connection with the AWG Purchase Agreement and
(b) assets to be purchased by the Company in connection
with stores closed or to be closed and (iii) capital
expenditures in respect of capital leases entered into
in 1994 in an amount equal to $1,500,000.
(n) "Post-AWG Note Net Proceeds" means all Note
Net Proceeds received by the Company or its Restricted
Subsidiaries from Asset Sales occurring after the
closing date of AWG Sale.
(o) "Reference Date" means March 30, 1995.
(p) "Supply Agreement" means the Supply
Agreement, dated as of closing date of the AWG Sale,
between the Company and AWG.
(q) "Use Restrictions" means (i) the Company's
agreement under Section 8(b) of the Supply Agreement to
dedicate (to the extent of its interest therein
(including leasehold interests)) certain real property
and the improvements thereon to the exclusive use of a
retail grocery facility (including all activities which
from time to time are commonly associated with the
operation of a grocery facility) which is owned by a
retail member of AWG and (ii) any public recordation of
such agreement, provided that any such public
recordation shall be terminable from time to time as
set forth in Section 8(b) of the Supply Agreement.
Section 2.03. Deletion of Certain Definition.
Section 1.01 of the Indenture is amended by deleting the
definition of "Cash Flow" in its entirety.
ARTICLE III
AMENDMENTS TO ARTICLE IV OF INDENTURE
Section 3.01. Amendment to Section 4.05 of the
Indenture. Section 4.05 of the Indenture is amended by
adding the following new subsection (i):
"(i) Within 60 days after the end of each
fiscal quarter of the Company and within 120 days
after the end of each fiscal year of the Company
an Officers' Certificate, conforming to the
requirements set forth in Sections 12.04 and 12.05
hereof, stating that Conversion Expenses included
in the Company's calculation of EBITDA for the
previous fiscal quarter were consistent with the
definition of the Conversion Expenses set forth in
Section 1.01 of the Indenture and such Conversion
Expenses were determined in accordance with
generally accepted accounting principles."
Section 3.02. Amendment to Section 4.09 of the
Indenture. Section 4.09 of the Indenture is amended in the
manner set forth below.
(a) Clause (i) of subsection (c) of the Section
4.09 is amended to delete the figure "50,000,000" contained
therein and inserting in lieu thereof $"25,000,000".
(b) Clause (ii) of subsection (c) of Section 4.09
is amended to read in its entirety as follows:
"(ii) The Company may guarantee the principal
amount of borrowings by officers, employees and
directors in connection with the Management
Subscription Agreements and Stock Subscription
Agreements, provided that any such guarantee was
incurred prior to the Reference Date."
(c) Clause (i)(A) of subsection (d) of
Section 4.09 is amended to delete the figure "$50,000,000"
and inserting in lieu thereof "$25,000,000."
(d) Section 4.09 is further amended by adding the
following new subsection (f):
"(f) Notwithstanding anything to the
contrary in this Section 4.09, the Company may
incur Indebtedness in respect of the obligations
owed to AWG under the Supply Agreement and the
Membership Sign-Up Documents."
Section 3.03. Amendment to Section 4.10 of the
Indenture. Section 4.10 of the Indenture is amended in the
manner set forth below.
(a) Clause (ii) of subsection (a) of Section 4.10
is amended to read in its entirety as follows:
"The Company and any Restricted Subsidiaries
of the Company may consummate an Asset Sale for
cash consideration at not less than the fair
market value thereof (as determined in good faith
by the Company's Board of Directors), provided
that (A) (1) the Company may, within 180 days of
the closing date of the AWG Sale, reinvest, or
commit to reinvest, up to $5 million of the Note
Net Proceeds from the AWG Sale in Collateral
consisting of capital expenditures and (2) the
remaining Note Net Proceeds from the AWG Sale,
plus any Note Net Proceeds which were committed to
be reinvested under clause (1) above but which are
not subsequently reinvested, shall be applied by
the Company to an offer to redeem the Notes in
accordance with Article 3 hereof, (B) following
the date on which the Company and its Restricted
Subsidiaries have received Post-AWG Note Net
Proceeds in an amount equal to $2,000,000, the
Company shall make an offer to redeem $2,000,000
in aggregate principal amount of Notes in
accordance with Article 3 hereof, (C) following
the date on which the Company and its Restricted
Subsidiaries have received Post-AWG Note Net
Proceeds in an amount equal to the sum (the
"Aggregate Special Redemption Amount") of (1)
$3,800,000 plus (2) the excess (if any) of
$25,500,000 over the aggregate principal amount of
Notes redeemed by the Company in connection with
the AWG Sale, the Company shall make an offer to
redeem the Notes in an amount equal to the excess
of the Aggregate Special Redemption Amount over
$2,000,000 in accordance with Article 3 hereof and
(D) all Post-AWG Note Net Proceeds received by the
Company and its Restricted Subsidiaries in excess
of the Aggregate Special Redemption Amount shall
be either (1) applied by the Company to an offer
to redeem the Notes in accordance with Article 3
hereof or (2) reinvested, or committed to be
reinvested, within 180 days of the closing date of
the Asset Sale relating to such proceeds, in
Collateral consisting of capital expenditures, or
if such proceeds that were committed to be
reinvested are not subsequently reinvested, such
proceeds shall be applied by the Company to an
offer to redeem the Notes in accordance with
Article 3 hereof (provided that the Company will
not be obligated to make an offer pursuant to this
clause (D) until such time as the excess of the
Post-AWG Note Net Proceeds not invested, or
committed to be reinvested, in accordance with
this Section 4.10, over the Aggregate Special
Redemption Amount aggregates at least
$1,000,000)."
(b) Clause (v) of subsection (a) of Section 4.10
is amended to read in its entirety as follows:
"(v) the Company and any Restricted
Subsidiary of the Company may make sales of real
property (including leasehold interests therein
and fixtures related thereto) which in the good
faith opinion of the Company's Board of Directors
are immaterial to the business or operations of
the Company and its Subsidiaries in the aggregate,
provided that any such sale resulting in Net
Proceeds of $500,000 or more shall be required to
be applied in accordance with the provisions of
the preceding clauses (a)(ii)(B), (C) and (D).
(c) Clause (vi) of subsection (a) of Section 4.10
is amended to read in its entirety as follows:
"(vi) The Company and any Restricted
Subsidiary of the Company may make sales of assets
and/or property in order to comply with any
applicable law, provided that any such sale
resulting in Net Proceeds of $500,000 or more
shall be required to be applied in accordance with
the provisions of the preceding clauses
(a)(ii)(B), (C) and (D).
(d) Subsection (b) of Section 4.10 is hereby
amended by deleting the phrase "clauses (a)(ii)(x) and
(a)(ii)(y)" contained therein and inserting in lieu thereof
the phrase "clauses (a)(ii)(B), (C) and (D)".
Section 3.04. Amendment to Section 4.11 of the
Indenture. Section 4.11 of the Indenture is amended in the
manner set forth below.
(a) Subsection (c) of Section 4.11 is amended by
deleting the text contained in such subsection and inserting
in lieu thereof the words "[Intentionally Omitted]".
(b) Subsection (g) of Section 4.11 is amended by
deleting the word "and" after the phrase "Section 4.10
hereof;".
(c) Section 4.11 is further amended by adding the
following new subsection (i):
"(i) investments consisting of (a) the
purchase by the Company of 15 shares of AWG
Membership Stock and (b) AWG members deposit
certificates, patronage refund certificates or
similar types of AWG Equity received or earned by
the Company from time to time based on the
Company's gross purchases from AWG pursuant to the
Supply Agreement or in lieu of receiving cash
rebates or refunds from AWG; and"
(d) Section 4.11 is further amended by adding the
following new subsection (j):
"(j) investments consisting of (i) purchases
of capital stock, in an aggregate amount not
exceeding $25,000, of retail purchasing
cooperatives (including, without limitation, Farm
Fresh, Inc., an Oklahoma retail dairy cooperative
("Farm Fresh")) in connection with becoming a
member of such cooperatives and (ii) additional
capital stock of such cooperatives which is
received or earned by the Company, in an aggregate
amount not exceeding $600,000 in the case of Farm
Fresh and $150,000 in the case of all other
cooperatives, based on the Company's gross
purchases from such cooperatives or in lieu of
receiving cash rebates or refunds from such
cooperatives, provided that, in each case, such
stock is purchased, received or earned in
connection with a supply agreement or arrangement
between the Company and such cooperative which is
on terms at least as favorable to the Company as
the terms that could be obtained by the Company in
a comparable transaction made on an arms' length
basis with another cooperative, wholesaler or
supplier."
Section 3.05. Amendment to Section 4.12 of the
Indenture. Section 4.12 is amended by amending subsection
(a) thereof to read in its entirety as follows:
"(a) transactions the terms of which are, in
the good faith determination of the Board of
Directors, at least as favorable as the terms that
could be obtained by the Company or such
Restricted Subsidiary, as the case may be, in a
comparable transaction made on an arms' length
basis by the Company or such Restricted Subsidiary
with an unrelated Person;"
Section 3.06. Amendment to Section 4.13 of the
Indenture. Section 4.13 of the Indenture is amended in the
manner set forth below.
(a) Subsection (h) of Section 4.13 is amended by
deleting the figure "$20,000,000" and inserting in lieu
thereof "$1,000,000".
(b) Section 4.13 is further amended by deleting
subsection (i) thereof and inserting in lieu thereof the
following new subsections (i), (j), (k) and (l):
"(i) Liens on AWG Equity owned or hereafter
acquired by the Company to secure the Company's
obligations to AWG under the Supply Agreement and
the Membership Sign-Up Documents; (j) Liens
consisting of the Use Restrictions; (k) Liens
consisting of the First Offer Rights; and (l) any
extension, renewal, or replacement (or successive
extensions, renewals or replacements), in whole or
in part, of Liens permitted pursuant to
subsections (a) through (k) above".
Section 3.07. Amendment to Section 4.16 of the
Indenture. Section 4.16 of the Indenture is amended by
deleting the text contained in such section and inserting in
lieu thereof the words "[Intentionally Omitted]."
Section 3.08. Amendment to Section 4.21 of the
Indenture. Section 4.21 of the Indenture is amended to read
in its entirety as follows:
"Section 4.21. Maintenance of Consolidated Fixed
Charge Coverage Ratio.
The Company shall not permit its Consolidated
Fixed Charge Coverage Ratio for the four fiscal
quarter period ending on each date set forth below
to be less than the amount set forth opposite such
date:
Date Ratio
9/9/95 1.00:1
12/30/95 1.00:1
3/23/96 1.10:1
6/15/96 1.10:1
9/7/96 1.10:1
12/28/96 1.10:1
3/22/97 1.25:1
6/14/97 1.30:1
9/6/97 1:30:1
1/3/98 1:35:1
3/28/98 1:35:1
6/20/98 1:35:1
9/12/98 1:35:1
1/2/99 1:50:1
and each fiscal
quarter end
thereafter"
Section 3.09. Addition of Section 4.27 to the
Indenture. Article IV of the Indenture amended by adding
the following new Section 4.27:
"Section 4.27. Maintenance of Debt-to-EBITDA
Ratio.
The Company shall not permit its Debt-to-
EBITDA Ratio for the four fiscal quarter period
ending on each date set forth below to be greater
than the amount set forth opposite such date:
Date Ratio
9/9/95 6.60:1
12/30/95 6.60:1
3/23/96 6.60:1
6/15/96 6.25:1
9/7/96 6.00:1
12/28/96 5.50:1
3/22/97 5.35:1
6/14/97 5.00:1
9/6/97 5:00:1
1/3/98 5:00:1
3/28/98 5:00:1
6/20/98 5:00:1
9/12/98 5:00:1
1/2/99 4:50:1
and each fiscal
quarter end
thereafter"
Section 3.10. Addition of Section 4.28 to the
Indenture. Article IV of the Indenture is amended by adding
the following new Section 4.28:
"Section 4.28. Capital Expenditures.
The Company shall not suffer or permit
Capital Expenditures of the Company and its
Subsidiaries to exceed, in any fiscal year, the
amount set forth below opposite such fiscal year:
Period Amount
1995 $6,000,000
1996 $6,000,000
1997 $6,000,000
1998 $6,000,000
; provided that the Company may make up to
$4,000,000 in additional Capital Expenditures for
Major Remodels (i) during the four-quarter period
beginning on the day following the first fiscal
quarter in which the Company's Consolidated Fixed
Charge Coverage Ratio is 1.30:1 or greater (the
"First Qualifying Period") and (ii) during the
four-quarter period beginning on the day following
the first fiscal quarter in which the Company's
Consolidated Fixed Charge Coverage Ratio is 1.50:1
or greater (the "Second Qualifying Period") (which
fiscal quarter must be at least four quarters
after the fiscal quarter referred to in clause (i)
of this proviso); provided, further, that the
Company may make additional Capital Expenditures
in any period in any amount equal to the amount of
Capital Expenditures permitted during any prior
period and not made; provided further that no
portion of the amount permitted to be used for
Capital Expenditures during the First Qualifying
Period or the Second Qualifying Period may be used
for Capital Expenditures in any subsequent period
unless (i) as of the last day of the First
Qualifying Period or the Second Qualifying Period,
as the case may be, the Company's Consolidated
Fixed Charge Coverage Ratio is at least 1.30:1 or
1.50:1, respectively, or (ii) on or prior to the
last day of the First Qualifying Period or the
Second Qualifying Period, as the case may be, the
Company has entered into commitments to use any
such portion for Capital Expenditures."
ARTICLE IV
AMENDMENTS TO ARTICLE V OF INDENTURE
Section 4.01. Amendment of Section 5.01 of the
Indenture. Section 5.01 is amended as follows:
(a) Subsection (2) of Section 5.01 is amended to
add the following words after the phrase "under the Purchase
Agreement" in the last line thereof:
"and the perfection and priority of the security
interest in and Liens on the Collateral are
maintained unimpaired and in full force and
effect;"
(b) The second full paragraph of subsection (5)
of Section 5.01 is amended by inserting the words "at least
ten (10) days" after the phrase "each Securityholder" in the
first line thereof.
ARTICLE V
AMENDMENTS TO FORMS OF SECURITIES
Section 5.01. Amendment to Exhibit B. The
definition of "Applicable LIBOR Rate" in the fourth
paragraph of Section 1 of Exhibit B is amended by deleting
the phrase "300 basis points" contained therein and
inserting in lieu thereof the phrase "350 basis points".
Section 5.02. Amendment to Exhibit M. The first
paragraph of Section 1 of Exhibit M is amended by deleting
the phrase "at a rate per annum equal to 11-3/4%" contained
therein and inserting in lieu thereof the phrase "at a rate
per annum equal to 12-1/4%".
Section 5.03. Amendment to Exhibit N. The
definition of "Applicable LIBOR Rate" in the fourth
paragraph of Section 1 of Exhibit N is amended by deleting
the phrase "300 basis points" contained therein and
inserting in lieu thereof the phrase "350 basis points".
Section 5.04. Deemed Amendments. Each
outstanding Security issued prior to the Effective Date
shall be deemed to be amended, as of the Effective Date, to
reflect the amendments relating to such Security set forth
in this Second Supplement to Indenture.
ARTICLE VI
AMENDMENTS TO CERTAIN RELATED DOCUMENTS
Section 6.01. Amendment to Company Security
Agreement. On the Effective Date, the Trustee is authorized
to execute and deliver Amendment No. 1 to the Company
Security Agreement, in the form attached hereto as Annex A
(the "Amended Security Agreement"). As of the Effective
Date, Exhibit E to the Indenture shall be deemed to be
amended to reflect the amendments set forth in Amended
Security Agreement.
Section 6.02. Amendment to Mortgage. On the
Effective Date, the Trustee is authorized to execute and
deliver Amendment No. 1 to the Mortgage, in the form
attached hereto as Annex B (the "Amended Mortgage"). As of
the Effective Date, Exhibit G to the Indenture shall be
deemed to be amended to reflect the amendments set forth in
the Amended Mortgage.
Section 6.03. Amendment to Intercreditor
Agreement. On the Effective Date, the Trustee is authorized
to execute and deliver Amendment No. 1 to the Intercreditor
Agreement, in the form attached hereto as Annex C (the
"Amended Intercreditor Agreement"). As of the Effective
Date, Exhibit L to the Indenture shall be deemed to be
amended to reflect the amendments set forth in the Amended
Intercreditor Agreement.
ARTICLE VII
CONSENT FEE
Section 7.01. Payment of Consent Fee. As
promptly as practicable after the Effective Date, the
Company shall pay to each Securityholder who, prior to the
expiration date set forth in the Solicitation Statement,
delivered (and did not revoke) a consent in respect of the
amendments set forth in this Second Supplement to Indenture,
a consent fee in an amount equal to $5.00 for each $1,000
principal amount of Notes in respect of which such consent
has been delivered.
ARTICLE VIII
MISCELLANEOUS
Section 8.01 Ratification. The Indenture, as
supplemented and amended by this Second Supplement to
Indenture is in all respects hereby adopted, ratified and
confirmed.
Section 8.02. Governing Law. This Second
Supplement to Indenture shall be governed by and construed
in accordance with the laws of the State of New York.
Section 8.03. Counterparts. This Second
Supplement to Indenture may be executed in any number of
counterparts, each of which so executed shall be an
original, but such counterparts shall together constitute
but one and the same instrument.
Section 8.04. Headings. The article and section
headings of this Second Supplement to Indenture are for
convenience only and shall not affect the construction
hereof.
IN WITNESS WHEREOF, the parties hereto have
executed this Second Supplement to Indenture as of the date
first above written.
HOMELAND STORES, INC.,
as Issuer
By:
UNITED STATES TRUST COMPANY OF
NEW YORK, as Trustee
By:
HOMELAND HOLDING CORPORATION,
as Guarantor
By:
Annex B
Certain Historical, Pro Forma and Projected Financial Data
Annex B below sets forth certain historical, pro forma and projected financial data of the Company which
was prepared by the Company's management and has not been examined by the Company's independent public accountants.
The information includes (i) certain unaudited financial information of the Company for the fiscal year ending December 31,
1994, (ii) certain projected financial information of the Company for the fiscal year ending December 30, 1995 and certain
financial projected information for such period as adjusted to give pro forma effect to the AWG Transaction, the related
repayment of indebtedness and the closure of the 16 stores closed or to be closed in 1994 and 1995, as if they had occurred
on January 1, 1995 and (iii) certain projected financial information of the Company for the fiscal year ending December 28,
1996. The information contained in Annex B below should be read in conjunction with the Company's historical audited
financial statements, which are publicly available as described in the Solicitation Statement under "Available Information."
(Dollars in Thousands)
1995
1994 % of 1995 % of Pro % of 1996 % of
Unaudited Sales Projected Sales Forma(9) Sales Projected Sales
Sales (% Comp. Store Sales) $785,121 -2.6% $630,807 -1.1% $531,915 0.0% $537,733 1.1%
Gross Profit before Earned
Consideration 197,333 25.1% 155,297 24.6% 131,383 24.7% 133,895 24.9%
Earned Consideration (1) 0 0.0% 3,672 0.6% 5,300 1.0% 5,300 1.0%
-------- -------- -------- --------
Gross Profit after Earned
Consideration 197,333 25.1% 158,969 25.2% 136,683 25.7% 139,195 25.9%
Direct Expenses 100,284 12.8% 82,555 13.1% 70,213 13.2% 70,783 13.2%
Indirect Expenses 62,011 7.9% 45,028 7.1% 37,234 7.0% 37,104 6.9%
Advertising 4,723 0.6% 3,891 0.6% 3,191 0.6% 3,449 0.6%
Administrative 26,392 3.4% 20,702 3.3% 15,221 2.9% 14,933 2.8%
-------- -------- -------- --------
Total S, G & A 193,410 24.6% 152,176 24.1% 125,859 23.7% 126,269 23.5%
EBIT 3,923(8) 0.5% 6,793 1.1% 10,824 2.0% 12,926 2.4%
EBITDA 32,416 4.1% 19,430 3.1% 21,553 4.1% 23,997 4.5%
Conversion Expense (2) 0 0.0% 2,672 0.4% 0 0.0% 328 0.1%
EBIT after Conversion 3,923 0.5% 4,121 0.7% 10,824 2.0% 12,598 2.3%
EBITDA after Conversion 32,416 4.1% 19,430 3.1% 21,553 4.1% 23,997 4.5%
Interest Expense 18,067 2.3% 16,160 2.6% 14,136 2.7% 14,113 2.6%
Net Cash Interest Expense 16,158 2.1% 15,014 2.4% 13,122 2.5% 13,099 2.4%
Capital Expenditures (3) 6,879 6,000 6,000 6,000
Total Debt (4) 173,000 123,713 123,713 118,643
EBITDA-to-Net Cash Interest Expense 2.01 1.29 1.64 1.83
EBITDA - Net Capital Expenditures (5) 28,393 18,430 20,553 17,997
Consolidated Fixed Charge
Coverage Ratio (6) 1.76 1.23 1.57 1.37
Debt-to-EBITDA Ratio (7) 5.34 6.37 5.74 4.94
<FN>
__________________
(1) Under the Supply Agreement, the Company will be entitled to receive
quarterly cash payments from AWG, up to a maximum of approximately
$1.3 million per fiscal quarter, based on the dollar amount of the
Company's purchases from AWG's warehouse during such fiscal quarter.
(2) Conversion expenses relate to one-time expenses with respect to the
conversion to AWG systems, closure of stores and relocation of key
personnel.
(3) Includes $5,000,000 of capital expenditures to be made in 1995 which
will be funded from the proceeds of the AWG Sale.
(4) Includes letters of credit and capital lease obligations.
(5) See "Proposed Amendments -- Proposed Financial Covenant Amendments --
Amendments to, and Additions of, Certain Definitions" in the
Solicitation Statement for the definitions of EBITDA and Net Capital
Expenditures.
(6) See "Proposed Amendments -- Proposed Financial Covenant Amendments --
Amendments to, and Additions of, Certain Definitions" in the
Solicitation Statement for the definition of Consolidated Fixed Charge
Coverage Ratio.
(7) See "Proposed Amendments -- Proposed Financial Covenant Amendments --
Amendments to, and Additions of, Certain Definitions" in the
Solicitation Statement for the definition of Debt-to-EBITDA Ratio.
(8) Excludes approximately $24.4 million in restructuring charges.
(9) As adjusted to give pro forma effect to the AWG Transaction, the
related repayment of indebtedness and the closure of the 16 stores
closed or to be closed in 1994 and 1995, as if they had occurred on
January 1, 1995.
</FN>
Annex B
Certain Historical, Pro Forma and Projected Financial Data
Unaudited and Projected Balance Sheets
Projected
Projected Day After
Unaudited Day Before AWG Sale AWG Sale Projected Projected
12/31/94 4/21/95 4/22/95 12/30/95 12/28/96
ASSETS
Cash $ 339 $ 258 $ 10,845 (1) $ 137 $ 149
Restricted cash - capital escrow deposit 0 0 5,000 0 0
Receivables 8,860 6,521 6,521 9,060 8,476
Inventories 94,330 78,686 43,156 38,944 36,413
Prepaids 8,424 6,225 5,080 5,836 36,413
-------- -------- -------- -------- --------
Total current assets 111,953 91,690 70,602 53,977 50,874
-------- -------- -------- -------- --------
PP&E 207,389 207,983 149,943 144,481 138,683
Accumulated depreciation and
amortization (82,603) (87,168) (59,987) (62,497) (67,031)
Notes receivable from AWG 0 0 0 1,635 4,086
Intangible assets 14,786 13,692 8,903 7,956 6,407
-------- -------- -------- -------- --------
Total assets $251,525 $226,197 $169,461 $145,552 $133,019
======== ======== ======== ======== ========
LIABILITIES AND EQUITY
Accounts payable $ 32,426 $ 30,636 $ 30,636 $ 18,548 $ 17,330
Other current payables 20,333 15,463 15,463 12,767 11,215
Accrual for transaction costs 23,041 21,196 12,029 9,823 0
Current portion of long term debt 2,250 0 0 0 0
Current obligations under capital leases 7,828 6,857 1,789 1,941 1,941
-------- -------- -------- -------- --------
Total current liabilities 85,878 74,152 59,917 43,079 30,486
-------- -------- -------- -------- --------
Revolver 25,000 17,500 0 (1) 3,250 5,500
Senior Notes 120,000 120,000 95,000 95,000 91,200
Other noncurrent liabilities 5,668 4,895 4,895 3,008 1,891
Long-term obligations under capital leases11,472 11,453 11,453 10,022 8,137
-------- -------- -------- -------- --------
Long-term liabilities 162,140 153,848 111,348 111,280 106,728
Equity 3,507 (1,804) (1,804) (8,807) (4,195)
-------- -------- -------- -------- --------
Total liabilities and equity $251,525 $226,197 $169,461 $145,552 $133,019
======== ======== ======== ======== ========
<FN>
________________________
(1) Does not give effect to approximately $15 million of trade payables to be paid
pursuant to the AWG Sale. See the Sources and Uses table under "AWG Transaction --
Application of AWG Sale Proceeds" in the Solicitation Statement. Does give effect
to the payout of approximately $1.5 million of operating leases relating to closed
stores.
On the closing date of the AWG Sale, the Company estimates that it will have
approximately $17.5 million outstanding under the Credit Agreement and expects that
approximately $15.1 million of net proceeds from the AWG Sale (of which approximately $2.7
million represents reimbursement of previously paid transaction expenses) will be used to
pay down amounts outstanding under the Credit Agreement on such date. In addition, as a
result of the timing of payments to the Company's vendors from net proceeds of the AWG
Sale, the Company will, on the closing date of the AWG Sale, repay any remaining
outstanding amounts under the Credit Agreement. The Company expects to have approximately
$11 million in cash on the day following the closing date of the AWG Sale. The Company
will use this cash plus approximately $4 million of borrowings under the Amended Credit
Facility to pay approximately $15 million of trade payables in connection with the AWG
Sale.
</FN>
Annex C
Form of Amendment to Company Security Agreement
AMENDMENT NO. 1 TO THE COMPANY SECURITY AGREEMENT
AMENDMENT NO. 1, dated as of April , 1995, to
the Company Security Agreement, dated as of March 4, 1992
(the "Security Agreement"), between Homeland Stores, Inc., a
Delaware corporation (the "Company"), and United States
Trust Company of New York, a New York banking corporation,
as collateral trustee (the "Collateral Trustee") for the
holders of the Senior Secured Notes (as hereinafter defined)
(the "Securityholders"). Capitalized terms used herein and
not otherwise defined herein shall have the meaning given to
such terms in the Indenture.
RECITALS
WHEREAS, the Company, Homeland Holding Corporation
("Holding"), and the Collateral Trustee have heretofore
entered into an Indenture, dated as of March 4, 1992, as
supplemented by First Supplement to Indenture, dated as of
June 17, 1992 (the "Indenture"), providing for the issuance
of up to $120,000,000 in aggregate principal amount of the
Company's senior secured notes (together with any securities
issued in replacement thereof or in exchange or substitution
thereof, the "Senior Secured Notes");
WHEREAS, pursuant to the terms of the Indenture,
to secure the payment and performance by the Company of the
Obligations, the Company and the Collateral Trustee have
heretofore entered into the Security Agreement, whereby the
Company has granted to the Collateral Trustee for the
ratable benefit of the Securityholders a security interest
in and to the Collateral; and
WHEREAS, Securityholders of at least a majority in
principal amount of the Senior Secured Notes then
outstanding (other than Senior Secured Notes owned by the
Company or any of its affiliates) have consented to the
amendments to the Security Agreement set forth herein.
NOW, THEREFORE, in consideration of the foregoing
and for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the Company and
the Collateral Trustee (for the ratable benefit of the
Securityholders) agree as follows:
Section 1. Amendment to Section 2(b) of the
Security Agreement. Section 2(b) of the Security Agreement
is amended by adding the following proviso at the end
thereof:
"; provided, however, that the Collateral
Trustee's security interest in Collateral
consisting of AWG Equity shall be subordinate
and junior to AWG's first priority security
interest in the AWG Equity under the Supply
Agreement and the Membership Sign-Up
Documents."
Section 2. Amendment to Section 3(c) of the
Security Agreement. Section 3(c) of the Security Agreement
is amended to read in its entirety as follows:
"The Company is (or, to the extent that this
Security Agreement states that the Collateral
is to be acquired after the date hereof, will
be) the sole owner of the Collateral; the
security interest created hereby in
Collateral is a valid, enforceable, perfected
and first priority security interest in the
Collateral securing the payment of the
Obligations (provided, however, that the
security interest granted hereby in
Collateral consisting of AWG Equity shall be
valid, enforceable and perfected and prior to
all other security interests in such
Collateral other than the security interest
in favor of AWG under the Supply Agreement
and the Membership Sign-Up Documents) and
there are no other security interests in,
Liens on, adverse claims of title to, or any
other interests whatsoever in, the Collateral
or any portion thereof except (i) Liens
permitted to be incurred pursuant to Section
4.13 of the Senior Secured Note Indenture
("Authorized Liens") and (ii) to the extent
that proceeds from certain sales of assets
may be applied to certain other indebtedness
of the Company as provided in Section 4.10 of
the Senior Secured Note Indenture; and no
financing statement, notice of Lien,
assignment or collateral assignment, mortgage
or deed of trust covering the Collateral or
any portion thereof ("Lien Notice") exists or
is on file in any public office, except with
respect to Authorized Liens;"
Section 3. Ratification. The Security Agreement,
as amended by this Amendment No. 1 is hereby in all respects
ratified and confirmed.
Section 4. Governing Law. This Amendment No. 1
shall be governed by, and construed in accordance with, the
laws of the State of New York, without regard to conflicts
of laws principles.
Section 5. Counterparts. This Amendment No. 1
may be executed in any number of counterparts, each of which
shall, when executed, be deemed to be an original and all of
which shall be deemed to be one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have
executed this Amendment No. 1 as of the date first above
written.
HOMELAND STORES, INC., a Delaware
corporation
By:
Name:
Title:
UNITED STATES TRUST COMPANY OF NEW
YORK, as Trustee under the
Indenture
By:
Name:
Title:
Annex D
Form of Amendment to Intercreditor Agreement
AMENDMENT NO. 1 TO THE INTERCREDITOR AGREEMENT
AMENDMENT NO. 1, dated as of April , 1995, to
the Intercreditor Agreement, dated as of March 4, 1992 (the
"Intercreditor Agreement"), among ____________, as Credit
Agreement Agent under the Current Credit Agreement, United
States Trust Company of New York, as Trustee under the
Senior Note Indenture ("U.S. Trust") and such other persons
as may become parties to the Intercreditor Agreement as
provided therein. All capitalized terms used herein and not
otherwise defined herein shall have the meaning given to
such terms in the Intercreditor Agreement.
RECITALS
WHEREAS, Homeland Stores, Inc., a Delaware
corporation (the "Company"), Union Bank of Switzerland, New
York Branch ("UBS"), and certain lenders and financial
institutions have heretofore entered into the Current Credit
Agreement pursuant to which the Company has granted a
security interest in certain assets of the Company;
[WHEREAS, the Current Credit Agreement has been
amended and restated, pursuant to which, among other things,
__________ has replaced UBS as Credit Agreement Agent;]
WHEREAS, the Company, Homeland Holding
Corporation, a Delaware corporation ("Holding"), and the
Trustee have heretofore entered into the Senior Note
Indenture and a related security agreement pursuant to which
the Company and Holding have granted security interests in
certain of their respective assets;
WHEREAS, holders of majority in principal amount
of the securities issued pursuant to the Senior Note
Indenture then outstanding (other than such securities owned
by the Company or any of its affiliates) have consented to
the amendments to the Intercreditor Agreement set forth
herein; and
WHEREAS, pursuant to Section 7 of the
Intercreditor Agreement, the Parties wish to enter into this
Amendment No. 1 in order to effect certain amendments to the
Intercreditor Agreement.
NOW, THEREFORE, in consideration of the foregoing
and for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the Parties
agree as follows:
Section 1. Amendment to Section 2(b) of the
Intercreditor Agreement. Section 2(b) of the Intercreditor
Agreement is amended to read in its entirety as follows:
"(b) Notwithstanding any other provision of
any Security Document, until the Senior Note
Indenture has been discharged or satisfied, any
and all amounts actually received by the Credit
Agreement Agent or lender under any Credit
Agreement (i) in connection with the enforcement
of any Security Document relating to Joint
Collateral or (ii) in connection with a
distribution in a bankruptcy, insolvency or
similar proceeding, constituting the proceeds of
any collection, sale or other disposition thereof,
shall be transmitted by such Party to the Trustee
for the benefit of the holders of the Senior
Notes."
Section 2. Ratification. The Intercreditor
Agreement, as amended by this Amendment No. 1, is hereby in
all respects ratified and confirmed.
Section 3. Governing Law. This Amendment No. 1
shall be governed by, and construed in accordance with, the
laws of the State of New York, without regard to conflicts
of laws principles.
Section 4. Trust Indenture Act. To the extent
applicable, if any provision of this Amendment No. 1 limits,
qualifies or conflicts with the duties imposed by the
Trustee by the Trust Indenture Act of 1939, as amended (the
"TIA"), the TIA shall control. Any action required to be
taken in order to comply with the TIA shall be taken by the
Trustee.
Section 5. Counterparts. This Amendment No. 1
may be executed in any number of counterparts, each of which
shall, when executed, be deemed to be an original and all of
which shall be deemed to be one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have
executed this Amendment No. 1 as of the date first above
written.
_________________________, as Agent
under the Current Credit
Agreement
By:
Name:
Title:
UNITED STATES TRUST COMPANY OF
NEW YORK, as Trustee under the
Senior Note Indenture
By:
Name:
Title:
Annex E
Form of Amendment to Mortgage
AMENDMENT NO. 1 TO THE MORTGAGE,
SECURITY AGREEMENT AND FINANCIAL STATEMENT
AMENDMENT NO. 1, dated as of April , 1995, to
the Mortgage, Security Agreement and Financing Statement,
dated as of March 4, 1992 (the "Mortgage"), from Homeland
Stores, Inc., a Delaware corporation (the "Mortgagor"), to
United States Trust Company of New York, a New York banking
corporation, as collateral trustee (the "Collateral Trust-
ee") for the ratable benefit of the holders of the Senior
Secured Notes (as hereinafter defined) (the "Noteholders").
Capitalized terms used herein and not otherwise defined
herein shall have the meaning given to such terms in the
Mortgage.
RECITALS
WHEREAS, Mortgagor is the owner of a fee estate in
all buildings, structures and improvements (the
"Improvements") and the real property underlying and
adjacent to said Improvements described on Schedule A with
respect to those properties set forth on Schedule 1 and
Mortgagor is the owner of a leasehold estate in all
Improvements located on the land described in Schedule A
(and the holder of a leasehold estate in and to all or a
portion of the underlying land) with respect to those
properties set forth on Schedule 2;
WHEREAS, Mortgagor, Homeland Holding Corporation
("Holding"), and the Collateral Trustee have heretofore
entered into an Indenture, dated as of March 4, 1992, as
supplemented (the "Indenture"), providing for the issuance
of up to $120,000,000 in aggregate principal amount of the
Company's senior secured notes (together with any securities
issued in replacement thereof or in exchange or substitution
thereof, the "Senior Secured Notes");
WHEREAS, pursuant to the terms of the Indenture,
to secure the payment and performance by the Company of the
Obligations, the Company and the Collateral Trustee have
heretofore entered into the Mortgage, whereby the Company
has granted to the Collateral Trustee for the ratable bene-
fit of the Noteholders a security interest in the Mortgaged
Property; and
WHEREAS, Noteholders of at least a majority in
principal amount of the Senior Secured Notes then outstand-
ing (other than Senior Secured Notes owned by the Company or
any of its affiliates) have consented to the amendments to
the Mortgage set forth herein.
[Additional recitals regarding the original
recordation of the Mortgage will be added to the extent
necessary.]
NOW, THEREFORE, in consideration of the foregoing
and for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the Company and
the Collateral Trustee (for the ratable benefit of the
Noteholders) agree as follows:
Section 1. Amendment to Section 15 of the Mort-
gage. Section 15 of the Mortgage is amended by adding the
following new subsection (h) at the end thereof:
"(h) Notwithstanding anything in this Mortgage to
the contrary (including, without limitation, Sections
3(a), 4, 15(b)(2) and 15(b)(5) hereof), no default
under, modification or termination of, or any action or
inaction with regard to, the Lease Contract, dated July
19, 1991, as supplemented, between Mortgagor and
Weingarten/Oklahoma, Inc. (including any agreement
relating thereto), relating to Homeland Store No. 106 -
Max Saver Foods, Reno and Air Depot, Midwest City,
Oklahoma, shall constitute a default or event of de-
fault hereunder".
Section 3. Ratification. The Mortgage, as amend-
ed by this Amendment No. 1, is hereby in all respects rat-
ified and confirmed.
Section 4. Governing Law. This Amendment No. 1
shall be governed by, and construed in accordance with, the
laws of the State of New York, without regard to conflicts
of laws principles.
Section 5. Counterparts. This Amendment No. 1
may be executed in any number of counterparts, each of which
shall, when executed, be deemed to be an original and all of
which shall be deemed to be one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have ex-
ecuted this Amendment No. 1 as of the date first above writ-
ten.
HOMELAND STORES, INC.
By:
Name:
Title:
ATTEST:
By:________________
Name:
Title: