UNITED STATES
                    SECURITIES AND EXCHANGE COMMISSION
                          Washington, D.C.  20549

                                 FORM 10-K

(Mark One)

   X      Annual  report pursuant to Section 13 or 15(d) of the Securities
          Exchange Act of 1934 [No Fee Required]
          For the fiscal year ended December 28, 1996

                                  OR

          Transition report pursuant to Section 13 or 15(d) of the Securities
          Exchange Act of 1934 [No Fee Required]
          For  the  transition  period  from                  to  

Commission file number 33-48862

                        HOMELAND HOLDING CORPORATION
          (Exact name of registrant as specified in its charter)

                  Delaware                                   73-1311075
         (State or other jurisdiction of                 (I.R.S. Employer
         incorporation or organization)                  Identification No.)
                                

                          2601 N. W. Expressway
                      Oil Center - East, Suite 1100
                      Oklahoma City, Oklahoma  73112
           (Address of principal executive offices)  (Zip Code)

Registrant's telephone number, including area code: (405) 879-6600

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $ .01 per share.

      Indicate by check mark whether the registrant (1) has filed all reports 
 required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 
 1934 during the preceding 12 months (or for such shorter period that the 
 registrant was required to file such reports), and (2) has been subject  
 to such filing requirements for the past 90 days.  Yes   X      No

      Indicate by check mark if disclosure of delinquent filers pursuant to 
Item 405 of Regulation S-K is not contained herein, and will not be contained, 
to the best of registrant's knowledge, in definitive proxy or information 
statements incorporated by reference in Part III of this Form 10-K or any 
amendment to this Form 10-K. [  ]

      Indicate by check mark whether the registrant has filed all documents 
and reports required to be filed by Section 12, 13 or 15 (d) of the 
Securities Exchange Act of 1934 subsequent to the distribution of securities 
under a plan confirmed by a court.  Yes    X      No

      State the aggregate market value of the voting stock held by non-
affiliates of the registrant: There is no established public trading market  
for the common stock of Homeland Holding Corporation.

      Indicate the number of shares outstanding of each of the registrant's 
classes of common stock as of March 18, 1997:

                  Homeland Holding Corporation
                 Common Stock: 4,758,025 shares

     Documents incorporated by reference:  None.





                           HOMELAND HOLDING CORPORATION


                                  FORM 10-K
                  FOR THE FISCAL YEAR ENDED DECEMBER 28, 1996


                               TABLE OF CONTENTS

                                                                  Page

PART I

ITEM 1.      BUSINESS............................................   1


             General.............................................   1
             Background..........................................   1
             AWG Transaction.....................................   1
             Restructuring.......................................   2
             Business Strategy...................................   3
             Homeland Supermarkets...............................   4
             Merchandising Strategy and Pricing..................   6
             Customer Service....................................   6
             Advertising and Promotion...........................   6
             Products............................................   7
             Supply Arrangements.................................   7
             Employees and Labor Relations.......................   8
             Computer and Management Information                    
             Systems.............................................   9
             Competition.........................................   10
             Trademarks and Service Marks........................   10
             Regulatory Matters..................................   11

ITEM 2.      PROPERTIES..........................................   11

ITEM 3.      LEGAL PROCEEDINGS...................................   11

ITEM 4.      SUBMISSION OF MATTERS TO A VOTE 
             OF SECURITY HOLDERS.................................   12


PART II

ITEM 5.      MARKET FOR REGISTRANT'S COMMON EQUITY
             AND RELATED STOCKHOLDER MATTERS.....................   12

ITEM 6.      SELECTED CONSOLIDATED FINANCIAL DATA................   13





                                 i

                                                                  Page

ITEM 7.      MANAGEMENT'S DISCUSSION AND ANALYSIS
             OF FINANCIAL CONDITION AND RESULTS
             OF OPERATIONS.......................................   16

             Results of Operations...............................   16
             Liquidity and Capital Resources.....................   20
             Recently-Issued Accounting Standards................   24
             Inflation/Deflation.................................   24

ITEM 8.      FINANCIAL STATEMENTS AND 
             SUPPLEMENTARY DATA..................................   25

ITEM 9.      CHANGES IN AND DISAGREEMENTS WITH
             ACCOUNTANTS ON ACCOUNTING AND
             FINANCIAL DISCLOSURE................................   25

PART III

ITEM 10.     DIRECTORS AND EXECUTIVE OFFICERS
             OF THE REGISTRANT...................................   25

             Compliance with Section 16(a) of the Securities
             Exchange Act of 1934 (the "1934 Act")...............   28


ITEM 11.     EXECUTIVE COMPENSATION..............................   28

             Summary of Cash and Certain Other
              Compensation.......................................   28
             Compensation of Directors...........................   30
             Employment Agreements...............................   30
             Management Incentive Plan...........................   32
             Retirement Plan.....................................   32
             Management Stock Option Plan........................   33
             Compensation Committee Report.......................   33
             Compensation Committee Interlocks and
              Insider Participation..............................   33

ITEM 12.     SECURITY OWNERSHIP OF CERTAIN
             BENEFICIAL OWNERS AND MANAGEMENT....................   33

             
ITEM 13.     CERTAIN RELATIONSHIPS AND
              RELATED TRANSACTIONS...............................   36

PART IV

ITEM 14.     EXHIBITS, FINANCIAL STATEMENT
             SCHEDULES AND REPORTS ON FORM 8-K...................   38



                                 ii





                                                                  Page

                                                                  
SIGNATURES....................................................... II-1

INDEX TO FINANCIAL STATEMENTS AND EXHIBITS.......................  F-1

EXHIBIT INDEX....................................................  E-1









































                                iii


                      HOMELAND HOLDING CORPORATION

                             FORM 10-K
             FOR THE FISCAL YEAR ENDED DECEMBER 28, 1996



ITEM 1.    BUSINESS

General

           Homeland Holding Corporation ("Holding"), through its wholly-owned 
subsidiary, Homeland Stores, Inc. ("Homeland," and, together with Holding, 
the "Company"), is a leading supermarket chain in the Oklahoma, southern 
Kansas and Texas Panhandle region.  The Company operates in four distinct  
market places: Oklahoma City, Oklahoma; Tulsa, Oklahoma; Amarillo, Texas;  
and certain rural areas of Oklahoma, Kansas and Texas.  As of March 18, 1997,  
the Company operates 66 stores throughout these markets.

           The Company's executive offices are located at 2601 N.W. 
Expressway, Oklahoma City, Oklahoma 73112, and its telephone number is (405) 
879-6600.

Background

           Holding and Homeland were organized as Delaware corporations 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. ("Safeway").  The stores changed their name to "Homeland" in 
order to highlight the Company's regional identity.

AWG Transaction

           On April 21, 1995, the Company sold 29 of its stores and its 
warehouse and distribution center to Associated Wholesale Grocers, Inc.  
("AWG") pursuant to an Asset Purchase Agreement dated as of February 6, 1995 
(the "AWG Purchase Agreement"), for a cash purchase price of approximately 
$72.9 million, including inventory, and the assumption of certain liabilities 
by AWG.   At the closing, the Company and AWG also entered into a seven-year
supply agreement, whereby the Company became a retail member of the AWG 
cooperative and AWG became the Company's primary supplier.  The Company has 
purchased 15 shares of AWG Class A Common Stock, representing an equity 
position of 0.3%, in order to be a member of AWG. The transactions between 
the Company and AWG are referred to herein as the "AWG Transaction."


                                     1


           AWG is a buying cooperative which sells groceries on a wholesale  
basis to its retail member stores.  AWG has more than 800 member stores 
located in a ten-state region and is the nation's sixth largest grocery 
wholesaler, with approximately $3.1 billion in revenues in 1996.

           The AWG Transaction enabled the Company: (a) to reduce the 
Company's borrowed money indebtedness by approximately $37.2 million in the  
aggregate; (b) to have AWG assume, or provide certain undertakings with 
respect to, certain contracts and leases and certain pension liabilities of 
the Company; (c) to sell the Company's warehouse and distribution center,  
which eliminated the high fixed overhead costs associated with the operation  
of the warehouse and distribution center and thereby permitted the Company to 
close marginal and unprofitable stores; and (d) to obtain the benefits of 
becoming a member of the AWG cooperative, including increased purchases of  
private label products, special product purchases, dedicated support programs
and access to AWG's store systems and participation in the membership rebate 
and patronage programs.

Restructuring

           On May 13, 1996, Holding and Homeland filed voluntary petitions  
under Chapter 11 of the United States Bankruptcy Code with the United States 
Bankruptcy Court for the District of Delaware (the "Bankruptcy Court").   
Simultaneously with such filings, the Company submitted a "pre-arranged"   
plan of reorganization which sets forth the terms of the restructuring of
the Company (the "Restructuring").  The purpose of the Restructuring was to 
substantially reduce the Company's debt service obligations and labor costs 
and to create a capital and cost structure that would allow the Company to 
maintain and enhance the competitive position of its business and operations.
The Restructuring was negotiated with, and supported by, the lenders under 
the Company's then existing revolving credit facility, an ad hoc committee 
(the "Noteholders Committee") representing approximately 80% of the Company's 
outstanding Old Notes (as defined under "Management's Discussion and Analysis  
of Financial Conditions and Results of Operations -- Liquidity and Capital   
Resources") and the Company's labor unions.   The Bankruptcy Court confirmed 
the Company's First Amended Joint Plan of Reorganization, as modified (the 
"Plan of Reorganization") on July 19, 1996, and the Plan of Reorganization 
became effective on August 2, 1996 (the "Effective Date").

           Pursuant to the Restructuring, the $95 million of the Company's  
Old Notes (as defined hereinafter) plus accrued interest were cancelled, and 
the holders of the Old Notes received in the aggregate, $60 million face 
amount of newly-issued 10% Senior Subordinated Notes Due 2003 of the Company 
(the "New  Notes") and $1.5 million in cash.  In addition, the Noteholders  
and the Company's general unsecured creditors will receive approximately 60% 
and 35%, respectively, of the equity of reorganized Holding (assuming total  
unsecured claims of approximately $63 million, including Noteholder 

                                      2


unsecured claims).  Holding's existing equity holders will receive the 
remaining 5% of the new equity, together with five-year warrants to purchase 
an additional 5% of such equity.

           In connection with the Restructuring, the Company negotiated an 
agreement with its labor unions to modify certain elements of the Company's  
existing collective bargaining agreements.   These modifications include, 
among other things, wage and benefit modifications, the buyout of certain 
employees and the issuance to and purchase of new equity by a trust acting
on behalf of the unionized employees.  The modified collective bargaining  
agreements became effective on the Effective Date.  See "Business -- Employees 
and Labor Relations."

           On the Effective Date, the Company entered into a loan agreement  
(the "Loan Agreement") with National Bank of Canada ("NBC"), as agent and 
lender, and two other lenders, Heller Financial, Inc. and IBJ Schroder Bank 
and Trust Company, under which the lenders provided working capital and letter 
of credit facility and a term loan. The Loan Agreement permits the Company 
to borrow, under the working capital and letter of credit facility, up to 
the lesser of: (a) $27.5 million and (b) the applicable borrowing base.  
Funds borrowed under such facility are available for general corporate 
purposes of the Company.  The Loan Agreement also provides the Company a 
$10.0  million term loan, which has been used to fund certain obligations of  
the Company under the Plan of Reorganization, including an employee buyout  
offer and a health and welfare plan required by the modified collective 
bargaining agreements, professional fees and "cure amounts" relating to 
executory contracts, secured financing and unexpired leases. See "Management's 
Discussion and Analysis of Financial Condition and Results of Operations -- 
Liquidity and Capital Resources" for a description of the Loan Agreement.

Business Strategy

           The Company's general business strategy is to continue to build 
and improve on its current strengths which consist of: (a) high quality 
perishable departments; (b) effective merchandising of the "high-low" pricing 
approach; (c)  reputation of quality customer service; (d) excellent 
locations; and (e) the "Homeland Savings Card," a customer loyalty card  
program.  The Company is also able to effectively reach a large customer  
base with its weekly advertising inserts and radio and television media  
advertisement.  In addition, the Company is upgrading its stores by focusing 
its capital expenditures on projects that will improve the overall condition 
of the stores.

           Having been in its market for more than 65 years (through its  
predecessor Safeway), the Company enjoys a high recognition with its 
customers.  The Company continues to build this rapport with its customers by  
participating in local community events and offering the "Apples for 
Students" program, whereby schools can obtain computers and other educational
products by collecting Homeland receipts.  The Company is also a major 
sponsor of the Easter Seals program in its markets.

                                     3


           In line with the increasing customer demand for convenient  
"prepackaged" meals, the Company introduced its "Dinner in a Dash" program 
in early 1996.  This program provides customers the convenience of having
prepared meals that are ready to be cooked immediately.  The Company's deli  
and bakery departments also provide customers with the convenience of prepared 
meals, sandwiches, salads, hot foods and holiday dinner programs.

           As part of its strategic plan, the Company also implemented a 
program to close marginal and unprofitable stores.  The Company closed 14 
stores in 1995 and closed two additional stores in 1996.  The Company also 
sold its store in Ponca City, Oklahoma in April 1996.

           For additional information, see also "Management's Discussion  
and Analysis of Financial Condition and Results of Operations -- Liquidity 
and Capital Resources."

Homeland Supermarkets

           The Company's current network of stores features three basic store 
formats. Homeland's conventional stores are primarily in the 25,000 total 
square feet range 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.  Sales volumes of conventional stores  
range from $60,000 to $125,000 per week.  Homeland's superstores are in the  
35,000 total square feet range and offer, in addition to the traditional  
departments, two or more specialty departments.  Sales volumes of superstores 
range from $95,000 to $265,000  per week.   Homeland's  combo store format 
includes stores of approximately 45,000 total square feet and larger and was
designed to enable the Company to expand shelf space devoted to general  
merchandise.  Sales volumes of combo stores range from $140,000 to $315,000 
per week.  The Company's new stores and certain remodeled locations have 
incorporated Homeland's new, larger superstore and combo formats.

           Of the 66 stores operated by the Company at March 18, 1997, 10 are 
conventional stores, 45 are superstores and 11 are combo stores.


                                   4

          The chart below summarizes Homeland's store development over the 
last three fiscal years:

                                                     Fiscal Year Ended

                                             12/28/96    12/30/95    12/31/94
Average sales per store
  (in millions)...........................  $   7.9    $   7.9 (1)    $   7.1

Average total square feet
  per store...............................   37,295     38,204 (1)     34,700

Average sales per
  square foot.............................  $   212       $207 (1)       $205

Number of stores:
  Stores at start of period...............       68        111            112
  Stores remodled.........................        4          5             10
  New stores opened.......................        1          0              0
  Stores sold or closed...................        3         43              1
  Stores at end of period.................       66         68            111

Size of stores:
  Less than 25,000 sq. ft.................        7          8             24
  25,000 to 35,000 sq. ft.................       24         24             38
  35,000 sq. ft. or greater...............       35         36             49

Store formats:
  Conventional............................       10         11             29
  SuperStore..............................       45         44             65
  Combo...................................       11         13             17

(1) Reflects the operations of 68 stores in 1995.

           The Company's network of stores is managed by district managers on  
a geographical basis through four districts.  Each district manager oversees 
store operations for approximately 17 stores.  Store managers are responsible 
for determining staffing levels, managing store inventories (within the 
confines of certain parameters set by the Company's corporate headquarters)
and purchasing products.  Store managers have significant flexibility with 
respect to the quantities of items carried while the Company's corporate 
headquarters is directly responsible for merchandising, advertising, pricing  
and capital expenditure decisions.

                                    5


Merchandising Strategy and Pricing

           The Company's merchandising strategy emphasizes competitive pricing 
through a high-low pricing structure, as well as the Company's leadership in 
quality products and service, selection, convenient store locations, specialty 
departments and perishable products (i.e., meat, produce, bakery and seafood).
The Company's strategy is to price competitively with each conventional 
supermarket operator in each market area.  In areas with discount store 
competition, the Company attempts to be competitive on high-volume, price 
sensitive items.  The Company's in-store promotion strategy is to offer all 
display items at a lower price than the store's regular price and at or below  
the price offered by the store's competitors.   The Company also currently 
offers double coupons, with some limitations, in all areas in which it 
operates.

Customer Service

           The Company's stores provide a variety of customer services 
including, among other things, carry-out services, facsimile services, 
automated teller machines, pharmacies, video rentals, check cashing, money 
transfers and money orders.   The Company believes it is able to attract new 
customers and retain its existing customers because of its high level of 
customer service.

Advertising and Promotion

           All advertising and promotion decisions are made by the Company's  
corporate merchandising and advertising staff.  The Company's advertising 
strategy is designed to enhance its value-oriented merchandising concept and 
emphasize its reputation for fast, friendly service, variety and quality.  
Accordingly, the Company is focused on presenting itself as a competitively-
priced, promotions-oriented operator that offers value to its customers and 
an extensive selection of high quality merchandise in clean, attractive 
stores.  This strategy allows the Company to accomplish its marketing goals of 
attracting new customers and building loyalty with existing customers.  In  
May 1995, the Company introduced a new weekly advertising layout that improved
product presentation and enhanced price perception.  In addition, new signage  
was implemented in the stores calling attention to various in-store specials 
and creating a friendlier and more stimulating shopping experience.

           The Company currently utilizes a broad range of print and broadcast
 advertising in the markets it serves, including newspaper advertisements,  
advertising inserts and circulars, television and radio commercials and 
promotional campaigns that cover substantially all of the Company's markets.   
The Company receives cooperative and performance advertising reimbursements
from vendors which reduce its advertising costs.

           In September 1995, the Company introduced a customer loyalty card 
called the "Homeland Savings Card," in its Amarillo, Texas stores.  The  
Company believes that it is the 


                                     6


only supermarket chain that can capitalize on a customer loyalty card program 
because of the Company's advertising coverage and its leading market share.  
The Company introduced the "Homeland Savings Card" in its other stores in
August 1996.  As of year-end 1996, the Company had cardholders representing 
approximately 30% of the households in the market it serves.

Products

           The Company provides a wide selection of name-brand and private 
label products to its customers.  All stores carry a full line of meat, 
dairy, produce, frozen food, health and beauty aids and selected general 
merchandise.  As of the close of fiscal year 1996, approximately 85% of the 
Company's stores had service delicatessens and/or bakeries and approximately 
65% had in-store pharmacies.   In addition, some stores provide additional
specialty departments that offer ethnic food, fresh and frozen seafood, floral 
services and salad bars.

           The Company's private label name is "Pride of America."  The  
Company's private label program allows customers to purchase high quality 
products at lower than national brand retail prices.  The Company's private  
label products include over 400 items covering virtually every major category 
in the Company's stores, including dairy products, meat, frozen foods, canned 
fruits and vegetables, eggs, health and beauty care products and plastic wrap.

           As a result of the Company's supply relationship with AWG, the  
Company's stores also offer certain AWG private label goods, including Best 
Choicer and Always Saver.

           Private label products generally represent quality and value to  
customers and typically contribute to a higher gross profit margin than 
national brands.  The promotion of private label products is an integral part 
of the Company's merchandising philosophy of building customer loyalty as well 
as improving the Company's "pricing image."

Supply Arrangements

           The Company is a party to the supply agreement with AWG (the 
"Supply Agreement"), pursuant to which the Company became a member of the AWG  
cooperative and AWG became the Company's primary supplier. AWG currently 
supplies approximately 70% of the goods sold in the Company's stores.   See  
"Business -- AWG Transaction."

           Pursuant to the Supply Agreement, AWG is required to supply  
products to the Company at the lowest prices and on the best terms available 
to AWG's retail members.  In addition, the Company is: (a) eligible to 
participate in certain cost-savings programs available to AWG's other retail 
members; (b) is entitled to receive certain member rebates and refunds based 
on the dollar amount of the Company's purchases from AWG's distribution 
center; and (c) is to receive periodic cash payments from AWG, up to a maximum 
of approximately $1.3 


                                    7

million per fiscal quarter for the first two years of the Supply Agreement 
and then up to $1.2 million per fiscal quarter for the remaining term, based 
on the dollar amount of the Company's purchases from AWG's distribution 
centers during such fiscal quarter.

           The Company purchases 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 distribution center.  The Company's open account 
with AWG, as of March 18, 1997, is secured by a $5.7 million letter of credit
(the "AWG Letter of Credit") issued in favor of AWG by NBC.   In addition, 
the Company's obligations to AWG are secured by a first lien on all "AWG 
Equity" owned from time to time by the Company, which includes, among other 
things, AWG membership stock, the Company's right to receive monthly payments 
and certain other rebates, refunds and other credits owed to the Company by  
AWG (including patronage refund certificates, direct patronage or year-end 
patronage and concentrated purchase allowances).

           The amount of the AWG Letter of Credit may be decreased on a 
biannual basis upon the request of the Company based on the Company's 
then-current average weekly volume of purchases and 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 AWG 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 AWG  
Letter of Credit has been increased to make up for any such deficiency.

           The Supply Agreement with AWG contains certain "Volume Protection 
Rights," including: (a) the right of first offer (the "First Offer Rights")  
with respect to any proposed sales of stores supplied under the Supply  
Agreement (the "Supplied Stores") and a sale of more than 50% of the 
outstanding stock of Holding or Homeland to an entity primarily engaged in 
the retail or wholesale grocery business; (b) the Company's agreement not to
compete with AWG as a wholesaler of grocery products during the term of the 
Supply Agreement; and (c) the Company's agreement to dedicate the Supplied 
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 contained in the Supply Agreement are 
terminable with respect to a Supplied Store upon the occurrence of certain
events, including the Company's compliance with AWG's First Offer Rights  
with respect to any proposed sale of such store.  In addition, the Supply 
Agreement provides AWG with certain purchase rights in the event the Company 
closes 90% or more of the Supplied Stores.

Employees and Labor Relations

           At March 18, 1997, the Company had a total of 4,451 employees, of
whom 3,200, or approximately 71%, were employed on a part-time basis.  The
Company employs 

                                    8


4,345 in its supermarket operations.  The remaining employees are corporate 
and administrative personnel.

           The Company is the only unionized grocery chain in its market 
areas.  Approximately 93% of the Company's employees are union members,  
represented primarily by the United Food and Commercial Workers of North 
America ("UFCWNA").

           In March and April of 1996, prior to the Restructuring, the  
Company entered into new collective bargaining agreements with the UFCWNA and  
the local union chapter of the Bakery, Confectionery and Tobacco Workers 
International Union (collectively, the "Modified Union Agreements").

           The Modified Union Agreements have a term of five years commencing  
on the Effective Date.  The Modified Union Agreements consist of five basic  
elements: (a) wage rate and benefit contribution reductions and work rule 
changes; (b) the Employee Buyout Offer, pursuant to which the Company made up  
to $6.4 million available for the buyout of certain unionized employees; (c)  
the establishment of an employee stock option trust (acting on behalf of the  
Company's unionized employees), which will receive, or be entitled to 
purchase, up to 522,222 shares of New Common Stock, or 10% of the New Common 
Stock, pursuant to the terms of the Modified Union Agreements; (d) the 
UFCWNA's right to designate one member of the Boards of Directors of Homeland  
and Holding following the Restructuring; and (e) the elimination of certain  
"snap back" provisions, incentive plans and "maintenance of benefits" 
provisions.

           As of August 3, 1996, the consummation date of the Employee Buyout 
Offer, 833 of the Company's unionized employees had accepted the Employee 
Buyout Offer.   The Company paid approximately $6.0 million in the aggregate 
(which excludes the Company's portion of payroll taxes) with each employee
receiving an amount that ranged from $4,500 to $11,000 (depending on job 
classification, date of hire and full- or part-time status). The Employee 
Buyout Offer payment was funded through borrowings under the Loan Agreement.

           The Company estimates that the Modified Union Agreements will 
result in cost savings of approximately $10 million during the first full  
contract year following the Restructuring.   There can be no assurance,  
however, that such cost savings will actually be realized.   Additionally,  
cost savings will be offset in part by certain contractual wage and benefit 
increases plus the recent federally mandated minimum wage increases.

Computer and Management Information Systems

           During 1995, the Company installed new client/server systems in 
order to enhance its information management capabilities, improve its 
competitive position and enable the Company to terminate its outsourcing 
arrangement. The new systems include the following features: time and 
attendance, human resource, accounting and budget tracking, and scan 


                                     9
                                      

support and merchandising systems. The Company is currently in the process 
of installing a direct store delivery system and a check verification and
credit card system which is expected to be completed by the end of 1997.

           The Company has scanning checkout systems in all of its 66 stores.  
The Company will continue to invest and upgrade its scanning and point-of-sale 
systems to improve efficiency.  The Company utilizes the information collected 
through its scanner systems to track sales and to coordinate purchasing.  The 
Company also utilizes the information collected on the purchases made by its  
"Homeland Savings Card" holders to target its promotional activities on this 
market segment. (See "Business -- Advertising and Promotion.")

Competition

           The supermarket business is highly competitive, but very 
fragmented, and includes numerous independent operators.  The Company 
estimates that these operators represent a significant percentage of its 
markets.  The Company also competes with larger store chains such as 
Albertson's and Wal-Mart, which operate 22 stores and 9 stores, respectively, 
in the Company's market areas, "price impact" stores such as Crest, large
independent store groups such as IGA, regional chains such as United and 
discount warehouse stores.

           The Company is a leading supermarket chain in Oklahoma, southern  
Kansas and the Texas Panhandle region.  The Company attributes its leading 
market position to certain advantages it has over certain of its competitors 
including its high quality perishable departments, effective advertising,  
excellent store locations and a strong reputation within the communities in 
which the Company operates.

           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.   In 1994, 
there were 11 competitive openings in the Company's market areas including 8 
new Wal-Mart supercenters, 2 new Albertson's and 1 new Mega Market.  In  1995,
there were 8 additional competitive openings in the Company's market areas, 
including 3 new Albertson's and 1 new Wal-Mart.  In 1996, there were 6 
additional competitive openings in the Company's market area, including 1 new  
Albertson's.  Based on information publicly available, the Company expects 
that, between mid- to late-1997, Albertson's will open 1 new store and 
Wal-Mart will open 3 new stores.

Trademarks and Service Marks

           During the transition from "Safeway" to "Homeland," the Company  
was able to generate a substantial amount of familiarity with the "Homeland" 
name.  The Company continues to build and enhance this name recognition 
through promotional advertising campaigns.  The "Homeland" name is considered  
material to the Company's business and is registered for 

                                  10


use as a service mark and trademark.   The Company has received federal and 
certain state registrations of the "Homeland" mark as a service mark and a 
trademark for use on certain products.   The Company also received a federal 
registration of the service mark "A Good Deal Better" in early 1994.

Regulatory Matters

           Homeland is subject to regulation by a variety of local, state  
and federal governmental agencies, including the United States Department of  
Agriculture, state and federal pharmacy regulatory agencies and state and  
local alcoholic beverage and health regulatory agencies.   By virtue of this
regulation, Homeland is obligated to observe certain rules and regulations, 
the violation of which could result in suspension or revocation of various 
licenses or permits held by Homeland.   In addition, most of Homeland's  
licenses and permits require periodic renewals.  To date, Homeland has 
experienced no material difficulties in obtaining or renewing its licenses 
and permits.

ITEM 2.    PROPERTIES

           Of the 66 supermarkets operated by the Company, 13 are owned by  
Homeland and the balance are held under leases which expire at various times 
between 1997 and 2013. Most of the leases are subject up to six (6) five-year 
renewal options.  Out of 53 leased stores, only seven have terms (including 
option periods) of fewer than 20 years remaining.  Most of the leases require 
the payment of taxes, insurance and maintenance costs and many of the leases  
provide for additional contingent rentals based on sales in excess of certain 
stipulated amounts.  No individual store operated by Homeland is by itself 
material to the financial performance or condition of Homeland as a whole.   
The average rent per square foot under Homeland's existing leases is $3.07
(without regard to amortization of beneficial interest).

           Substantially all of the Company's properties are subject to  
mortgages securing the borrowings under the Loan Agreement (see "Management's 
Discussion and Analysis of Financial Conditions and Results of Operations -- 
Liquidity and Capital Resources").

ITEM 3.    LEGAL PROCEEDINGS

           The Company is a party to ordinary routine litigation incidental 
to its business.

           Homeland and Holding were debtors in cases styled In re Homeland 
Holding Corporation, Debtor, Case No. 96-748 (PJW), and In re Homeland Stores, 
Inc., Debtor, Case No. 96-747 (PJW), initiated with the Bankruptcy Court on 
May 13, 1996.  While the Plan of Reorganization was confirmed on July 19, 
1996, and became effective on August 2, 1996, the Company is still involved 
in the resolution of claims filed in these proceedings.

                                    11


ITEM 4.    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

           No matters were submitted by Holding to a vote of Holding's 
security holders during the quarter ended December 28, 1996.

                          PART II

ITEM 5.    MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
           STOCKHOLDERS MATTERS

           There is no established public trading market for the Common Stock,  
the only class of common equity of Holding currently issued and outstanding.   
Under the Plan of Reorganization, the Company has undertaken to use its best
efforts to secure the listing of the Common Stock on the NASDAQ National  
Market System (or, in the event the Company fails to meet the listing  
requirements of the NASDAQ National Market System, on such other exchange or 
system on which the Common Stock may be listed) as soon as practicable 
following the Effective Date.   The Company filed a listing application in
December 1996.  The application was denied in February 1997 and the Company  
has appealed the denial.  The Company anticipates that it will prevail in its 
appeal to be listed on NASDAQ National Market System.  However, if the appeal 
is denied, then the Company will apply for listing with NASDAQ SmallCap  
Market.  There can be no assurance, however, that the Common Stock will
ultimately be listed on the NASDAQ National Market System or any such other 
exchange or system.

           As of March 11, 1997, there are 420 stockholders of record.   As 
additional claims are resolved pursuant to the Plan of Reorganization, the  
Company expects that the number of stockholders will increase, assuming that 
there is no change in the number of current stockholders.

           No cash dividends were declared or paid during the last two years.  
Holding is restricted from paying dividends by the Loan Agreement and 
Indenture.  See "Management's Discussion and Analysis of Financial Condition 
and Results of Operations -- Liquidity and Capital Resources."


                                      12



ITEM 6.    SELECTED CONSOLIDATED FINANCIAL DATA

           The following table sets forth selected consolidated financial 
data of the Company which has been derived from financial statements of the 
Company for the 20 weeks ended December 28, 1996 (Successor Company), 32 
weeks ended August 10, 1996, the 52 weeks ended December 30, 1995, December 
31, 1994, January 1, 1994, and the 53 weeks ended January 2, 1993 
(Predecessor Company), respectively, which have been audited by Coopers &  
Lybrand L.L.P.  See "Notes to Selected Consolidated Financial Data" for 
additional information.

           As discussed in "Business  --  Restructuring," the Company emerged 
from Chapter 11 proceedings effective August 2, 1996.  For financial reporting 
purposes, the Company accounted for the consummation of the Restructuring 
effective as of August 10, 1996.  The Company has adopted "fresh-start"  
reporting pursuant to SOP No. 90-7.  The periods prior to the Restructuring
have been designated "Predecessor Company" and the period subsequent to the 
Restructuring has been designated "Successor Company."

           The selected consolidated financial data should be read in 
conjunction with the respective consolidated financial statements and notes  
thereto which are contained elsewhere herein.


                                     13



                          (In thousands, except per share amounts)

<TABLE>
<CAPTION>

                                                      Successor Company                   Predecessor  Company 
                                                      ----------------- ------------------------------------------------------------
                                                       20 weeks     32 weeks     52 weeks     52 weeks     52 weeks     53 weeks
                                                        ended        ended        ended        ended        ended        ended 
                                                       12/28/96     8/10/96      12/30/95     12/31/94     01/01/94     01/02/93

<S>                                                    <C>          <C>          <C>          <C>          <C>          <C>

Summary of Operations Date:

   Sales, net........................................  $204,026     $323,747     $630,275     $785,121     $810,967     $830,964

   Cost of Sales.....................................   154,099      244,423      479,119      588,405      603,220      609,906

   Gross profit......................................    49,927       79,324      151,156      196,716      207,747      221,058

   Selling and administrative........................    44,029       73,000      151,985      193,643      190,483      199,547

   Operational restructuring costs  (1)..............       -           -          12,639       23,205         -            -

   Amortization of excess reorganization value (2)...     5,819         -            -            -            -            -

   Operating profit (loss)...........................        79        6,324      (13,468)     (20,132)      17,264       21,511

   Gain on sale of plants............................       -           -            -            -          2,618          -

   Interest expense..................................    (3,199)      (5,639)     (15,992)     (18,067)    (18,928)      (24,346)

   Income (loss) before reorganization items, income
    taxes and extraordinary items....................    (3,120)         685      (29,460)     (38,199)        954        (2,835)

   Reorganization items(3)...........................       -         25,996         -            -           -             -

   Income taxes......................................       -           -            -          (2,446)      3,252          (982)

   Income (loss) before extraordinary items..........    (3,120)     (25,311)    (29,460)      (40,645)      4,206        (3,817)

   Extraordinary items  (4) (5) (6) (7)..............       -         63,118      (2,330)         -         (3,924)         (877)

   Net income (loss).................................    (3,120)      37,807     (31,790)      (40,645)        282        (4,694)

   Reduction in redemption value of
    redeemable common stock..........................       -           -            940         7,284        -             -

   Net income (loss) available to common
    stockholders.....................................   $(3,120)    $ 37,807    $(30,850)     $(33,361)   $    282      $ (4,694)

   Net income (loss) per common share (8)............   $  (.66)    $   1.16    $   (.93)     $   (.96)   $    .01      $   (.13)


Consolidated Balance Sheet Data:                        12/28/96     8/10/96    12/30/95      12/31/94    01/01/94      01/02/93

   Total assets......................................   $168,486    $129,679    $137,582      $239,134    $274,290      $305,644

   Long-term obligations, including current
     portion of long-term obligations................   $ 80,558    $124,411    $124,242      $176,731    $172,600      $198,380

    Redeemable common stock..........................   $    -      $     17    $     17      $  1,235    $  8,853      $  9,470

    Stockholders' equity (deficit)...................   $ 52,941    $(38,057)   $(28,106)     $  4,071    $ 36,860      $ 37,150

</TABLE>



                NOTES TO SELECTED CONSOLIDATED FINANCIAL DATA
                              (In thousands)


(1)  Operational restructuring costs during 1995 included the write-off of 
     software no longer utilized by the Company, the write-off of goodwill 
     in connection with the Restructuring and a termination charge resulting 
     from the cancellation of the Company's computer outsourcing agreement.   
     Operational restructuring costs during 1994 included the estimated 
     losses to be incurred on the AWG Transaction and associated expenses and 
     the estimated losses and expenses in connection with the anticipated 
     closing of 15 stores during 1995.

(2)  The Company's reorganization value in excess of amounts allocable to 
     identifiable assets, established in accordance with "fresh-start" 
     reporting, of $45,389 is being amortized on a straight-line basis over 
     three years.

(3)  As a result of the Company's Restructuring, the Company recorded certain  
     reorganization expenses separately in accordance to SOP 90-7.  
     Reorganization items for 1996 are made of: (a) $7,200 of allowed claims  
     in excess of liabilities; (b) $4,250 in professional fees; (c) $6,386 in
     employee buyout expenses; and (d) $8,160 in adjusting certain assets and 
     liabilities to estimated fair value.

(4)  Extraordinary items during 1996 are made up of obligations of the 
     Company that were discharged by the Bankruptcy Court pursuant to the 
     Company's Plan of Reorganization.

(5)  Extraordinary items during 1995 included the payment of $906 in premiums 
     and consent fees on the redemption of $15,600 of the Company's Old Notes 
     and $1,424 in unamortized financing costs related to the Old Notes so 
     redeemed as well as the replacement of the prior revolving credit 
     facility.

(6)  Extraordinary items during 1993 included the payment of approximately  
     $2,776 in premiums on the redemption of $47,750 in aggregate principal 
     amount of the Company's remaining 15-1/2% Subordinated Notes due 
     November 1, 1997 (the "Subordinated Notes") at a purchase price of 
     105.8% of the outstanding principal amount, and $1,148 in unamortized
     financing costs related to the Subordinated Notes so redeemed.

(7)  Extraordinary items during 1992 included the payment of approximately  
     $1,225 in premiums on the repurchase of $12,250 in aggregate principal 
     amount of the Company's Subordinated Notes at a purchase price of 110%  
     of the outstanding principal amount, $371 in unamortized financing
     costs related to the Subordinated Notes so purchased, and a credit  
     representing the discount of $500 on the Company's prepayment of $1,500 
     on the $5,000 note payable to Furrs, Inc. issued in connection with the 
     Company's acquisition of certain stores from Furrs, Inc. in September  
     1991.   The extraordinary items have been shown net of income taxes of
     $219.

(8)  Old Common Stock held by management investors are presented as 
     redeemable common stock and excluded from stockholder's equity since  
     the Company had agreed to repurchase such shares under certain defined 
     conditions, such as death, retirement or permanent disability.  In 
     addition, net income (loss) per common share reflects the accretion 
     in/reduction to redemption value as a reduction/increase in income 
     available to all common stockholders.


                                     15


ITEM 7.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
          CONDITION AND RESULTS OF OPERATIONS

Results of Operations

          General

               As discussed in Note 2 to the accompanying Consolidated 
Financial Statements of Holding and Subsidiary, the Company's Plan of 
Reorganization became effective on August 2, 1996.   For financial reporting 
purposes, the Company accounted for the consummation of the Restructuring 
effective as of August 10, 1996.   The Company has adopted "fresh-start"  
reporting pursuant to SOP No. 90-7. The periods prior to the Restructuring
have been designated "Predecessor Company"  and the period subsequent to the 
Restructuring has been designated "Successor Company."    For purposes of the  
discussion of Results of Operations and Liquidity and Capital Resources for 
the fifty-two weeks ended December 28, 1996, the results of the Predecessor 
Company and Successor Company have been combined.

               Because of the adjustments associated with the adoption of
"fresh-start" reporting pursuant to SOP No. 90-7, the periods prior to and
subsequent to the Effective Date for financial reporting purposes are not
necessarily comparable.  In addition, it is difficult to identify trends
between which are not necessarily comparable, particularly to the extent
prior trends have been affected by the Restructuring.

                                     16



               The table below sets forth selected items from the Company's  
consolidated income statement as a percentage of net sales for the periods 
indicated:

                                                           Fiscal Year

                                                    1996      1995      1994

Net Sales.....................................    100.00%    100.00%   100.00%
Cost of sales.................................     75.51      76.02     74.94
  Gross profit................................     24.49      23.98     25.06

Selling and administrative....................     22.17      24.11     24.67
Amortization of excess
 reorganization value.........................      1.10        -         -
Operational restructuring costs...............       -         2.01      2.96
Operating profit (loss).......................      1.22      (2.14)    (2.57)
Interest expense..............................     (1.67)     (2.53)    (2.30)

Income (loss) before reorganization
 items, income taxes and
 extraordinary items..........................     (0.45)     (4.67)    (4.87)
Reorganization items..........................     (4.93)       -         -
Income (loss) before income
 taxes and extraordinary items................     (5.38)     (4.67)    (4.87)
Income tax benefit (provision)................       -          -       ( .31)
Income (loss) before
 extraordinary  items.........................     (5.38)     (4.67)    (5.18)

Extraordinary items...........................     11.96      (0.37)      -

Net income (loss).............................      6.58      (5.04)    (5.18)



           Comparison of Fifty-Two Weeks Ended December 28, 1996 with 
Fifty-Two Weeks Ended December 30, 1995

           Net sales for 1996 amounted to $527.8 million, a decrease of 16.3% 
from the net sales of $630.3 million in 1995, which is attributable 
primarily to a decline in the number of stores operated by the Company.  The 
Company began 1996 with 68 stores.   In April 1996, it sold one store and  
closed two additional stores during the year. The Company opened one new 
store in December 1996 but its impact on net sales was negligible.

           The Company's comparable store sales for the 65 stores in 
operation throughout 1996 increased by 0.3%.  This increase was due primarily 
to the introduction of the "Homeland Savings Card" in August 1996, and 
increased promotional activities.   See "Business -- Advertising and 
Promotion."

                                      17



           Gross profit as a percentage of sales for 1996 increased to 24.5% 
from 24.0% in 1995.  This improvement in gross profit is attributable to an 
improved purchasing environment resulting from the Company better adapting
to purchasing its merchandise from AWG, rather than operating on a  
self-supplied basis as it did prior to April 1995.  See "Business  -- AWG 
Transaction."  During 1995 (after the consummation of the AWG Transaction in 
April 1995), the Company experienced a number of difficulties associated with 
this conversion.  These difficulties were largely resolved in 1996 and the 
Company improved its purchasing skills.  The higher gross profit from the  
improved purchasing environment was partially offset by more promotional 
activities in the fourth quarter of 1996 with the introduction of the 
"Homeland Savings Card."

           Selling and administrative expenses as a percentage of sales  
decreased in 1996 to 22.2% of sales from 24.1% in 1995.  The percentage  
decline is due to cost controls, including reductions in corporate support 
functions and lower operating and occupancy costs commencing as of the 
Effective Date.  These lower costs include wage rate and benefit contribution  
reduction associated with the Modified Union Agreements, certain lease and
secured financing concessions, and the rejection of certain burdensome  
executory contracts. See "Business -- Restructuring".  Cost savings from the  
Modified Union Agreements were somewhat offset by increased costs associated 
with training new employees that were hired to replace the 19% of the work 
force that accepted the Employee Buyout Offer and an increase in the 
federally mandated minimum wage on October 1, 1996.  See "Business -- 
Employees and Labor Relations."

           Interest expense decreased from $16.0 million in 1995 to $8.8 
million in 1996. This decrease is primarily due to the non-accrual of 
interest on the Olds Notes during the bankruptcy proceedings and the 
restructuring of certain indebtedness of the Company, principally the Old 
Notes.  The decline in indebtedness associated with the restructuring of 
the Old Notes was offset, in part, by the term loan obtained by the Company 
under the Plan of Reorganization to fund certain costs associated with the
Restructuring.

           The Company recorded reorganization expenses of $26.0 million in 
1996.  The reorganization expenses consist primarily of professional fees and 
"fresh-start" reporting adjustments.  The excess reorganization value is 
being amortized over a three-year period and the amortized amount for 1996 
was $5.8  million, reflecting amortization commencing after the Effective 
Date.  The amortization of the excess reorganization value will have the 
effect of increasing the expenses of the Company and reducing the net income
of the Company during the next three years.

           The Company did not record any provision for income taxes for 
1996. Operating loss carryforwards of the Company have been partially reduced
by the debt discharged pursuant to the Plan of Reorganization.  At December 
28, 1996, the Company had tax net operating loss carryforwards of 
approximately $42.0 million. The utilization of the net operating loss 
carryforwards is limited to approximately $4.5 million in 1997 and $3.2 
million per year thereafter, due to the change of ownership in the Company 
that resulted from the Restructuring.


                                    18


                                      
           As of the Effective Date, pursuant to the terms of the Plan of 
Reorganization, certain debt of the Company, principally related to the Old 
Notes and the general unsecured claims, was discharged.  This resulted in a 
recognition of extraordinary gain amounting to $63.1 million.

           EBITDA (as defined hereinafter), before operational restructuring  
charges, amounted to $19.5 million or 3.69% of sales in 1996 versus $10.5 
million and 1.67% of sales in 1995.  The improvement in EBITDA is due 
primarily to factors reflected above including improved comparable store 
sales and decreases in selling and administrative expenses and interest
expense associated with the Restructuring.  The Company believes that EBITDA 
is a useful supplemental disclosure for the investment community.  EBITDA,
however, should not be construed as a substitute for earnings or cash flow
information required under generally accepted accounting principles.


           Comparison of Fifty-Two Weeks Ended December 30, 1995 with Fifty-
Two Weeks Ended December 31, 1994

           Net sales for 1995 declined to $630.3 million, a 19.7% decrease  
from net sales of $785.1 million in 1994.  The decrease in net sales was due 
primarily to the sale of 29 stores to AWG on April 21, 1995 and the closing 
of 14 underperforming stores over the course of 1995.  These stores were 
closed pursuant to the Company's plan to close certain marginal and  
underperforming stores.  Net sales were also impacted by increased 
competition in the Company's market area resulting from additional store
openings of Wal-Mart supercenter stores and Albertson's stores during 1994.  
There was one new Wal-Mart supercenter store and three Albertson's stores 
that opened in the Company's market area during 1995.

          The Company's comparable stores sales for the 68 stores in 
operation during all of 1995 increased by 0.2% compared to 1994,  due 
primarily to improved store conditions, a new advertising program and 
increased promotional pricing.

           Gross profit as a percentage of sales decreased to 24.0% in 1995 
compared to 25.1% in 1994. The continued erosion of the Company's gross 
margins was the result of a number of factors including: (a) the difficulties 
in transforming the Company from a self-supplier to a member of a purchasing 
cooperative; and (b) additional competitive openings (there were eight  
additional competitive openings in the Company's market areas in 1995) and
the aggressive pricing practices of certain competitors.

           Selling and administrative expenses as a percentage of sales 
decreased in 1995 to 24.1% from 24.7% in 1994.  The Company was able to 
implement personnel and other cost reductions at the corporate office as a 
result of the sale of 29 stores and its distribution center to AWG.  This 
included a reduction of head count by approximately 50% at the corporate 
office, lower travel, telephone, and service charges, computer expenses and  
other related administrative expenses.  The decrease was also due to an
additional workers' compensation accrual during 1994 that did not recur in 
1995.

                                  19


           
           Operational restructuring costs for 1995 amounted to $12.6  
million which included the write-off of computer software no longer being  
utilized by the Company, the write-off of goodwill in connection with the 
Restructuring and a termination fee associated with the cancellation of the 
Company's computer outsourcing agreement.

          Operating loss was $13.5 million in 1995 compared to an operating  
loss of $20.1 million in 1994.  The lower operating loss was due primarily to 
lower operational restructuring costs which declined from $23.2 million in 
1994 to $12.6 million in 1995.

           Interest expense for 1995 decreased to $16.0 million from $18.1 
million in 1994.  The lower interest expense was due primarily to the 
partial redemption of $25.0 million of the Old Notes on June 1, 1995.

          The Company did not record any provision for income taxes for 
1995.

          Extraordinary items for the year consist of the payment of $600,000  
in consent fees to the holders of the Old Notes (as defined in Liquidity 
and Capital Resources of this section), $306,000 in premiums on the 
redemption of $15.6 million of Series C Senior Secured Fixed Rate Notes (as 
defined in Liquidity and Capital Resources of this section) and $1.4 million 
in unamortized financing costs related to the redemption of $25.0 million 
of Old Notes and the replacement of the prior revolving credit agreement.

Liquidity and Capital Resources

          Debt.   The primary sources of liquidity for the Company's 
operations have been borrowings under credit facilities and internally  
generated funds.  In March 1992, the Company refinanced its indebtedness by 
entering into an Indenture, as amended and supplemented, with United States 
Trust Company of New York, as trustee, pursuant to which the Company had 
outstanding as of May 13, 1996, $59.4 million of Series C Senior Secured 
Fixed Rate Notes due 1999, $26.1 million of Series D Senior Secured Floating 
Rate Notes due 1997 and $9.5 million Series A Senior Secured Floating Rates 
Notes due 1997 (collectively, the "Old Notes").

          On April 21, 1995, the Company entered into a revolving credit  
agreement  (the "Prior Credit Agreement")  with NBC, as agent and as lender, 
and Heller Financial, Inc.  The Prior Credit Agreement permitted borrowings 
up to $25 million, subject to a borrowing base, for working capital needs 
including certain letters of credit.

          On May 13, 1996, the Company entered into an interim debtor-in-
possession lending facility ("DIP Facility"), with its existing bank group to 
provide up to $27 million of working capital financing.  The DIP Facility 
permitted the Company to borrow up to the lesser of $27 million or the 
borrowing base.  Interest on the borrowings under the DIP Facility was at a  
rate equal to the prime rate announced publicly by NBC from time to time in  
New York, New York plus two percent. The DIP Facility matured on the 
Effective Date.

                                    20



          On the Effective Date,  pursuant to the Plan of Reorganization,  
the Company entered into a Loan Agreement with NBC, as agent and lender, and  
two other lenders, Heller Financial, Inc. and IBJ Schroder Bank and Trust  
Company, under which those lenders provided a working capital and letter of
credit facility and a term loan.  The Loan Agreement permits the Company to 
borrow, under the working capital and letter of credit facility, up to the 
lesser of (a) $27.5 million or (b) the applicable borrowing base. Funds 
borrowed under such facility are available for general corporate purposes 
of the Company.

           The Loan Agreement also provided the Company a $10.0 million term  
loan (the "Term Loan"), which was used to fund certain obligations of the  
Company under the Plan of Reorganization, including the Employee Buyout Offer  
and a new health and welfare plan required by the Modified Union Agreements,  
professional fees and "cure amounts" which were required to be paid under the  
Plan of Reorganization in connection with executory contracts, secured 
financing and unexpired leases.

           The interest rate under the Loan Agreement is based on the prime 
rate publicly announced by National Bank of Canada from time to time in New 
York, New York plus a percentage which varies based on a number of factors, 
including (a) the amount which is part of the working capital and letter of 
credit facility and the amount which is part of the term loan, (b) the time 
period, (c) whether the Company elects to use a London Interbank Offered 
Rate, and (d) the earnings of the Company before interest, taxes, 
depreciation and amortization expenses.

           The indebtedness under the Loan Agreement will mature three years 
from the Effective Date on August 1, 1999.  The Term Loan, however, requires 
a principal paydown of approximately $0.4 million each quarter commencing on 
September 30, 1997.

           The obligations of the Company under the Loan Agreement are 
secured by liens on, and security interests in, substantially all of the 
assets of Homeland and are guaranteed by Holding, with a pledge of its 
Homeland stock to secure its obligation.   The collateral includes the assets 
which, prior to the Effective Date, secured the obligations of the Company to 
the holders of the Old Notes.

            The Loan Agreement includes certain customary restrictions on   
acquisitions, asset dispositions, capital expenditures, consolidations and   
mergers, distributions, divestitures, indebtedness, liens and security 
interests and transactions with affiliates.  The Loan Agreement also requires
the Company to comply with certain financial and other covenants.

            As of the Effective Date, the Company entered into an Indenture  
with Fleet National Bank, as trustee, under which the Company issued $60.0 
Million of Unsecured Subordinated Notes.  The New Notes will mature on August 
1, 2003.  Interest on the New Notes will accrue at the rate of 10% per annum  
and will be payable on February 1 and August 1 of each year.


                                    21


            The Indenture contains certain customary restrictions on 
acquisitions, asset sales, consolidations and mergers, distributions, 
indebtedness, transactions with affiliates and payment of dividends.
                                                                    

            Labor Savings.  An integral part of the Restructuring is the 
Company's negotiated deal with its labor unions to modify certain elements of 
the Company's existing collective bargaining agreements.   The Modified Union 
Agreements provided for, among other things, wage and benefit modifications, 
the Employee Buyout Offer and the issuance to and purchase of new equity by a  
trust acting on behalf of the unionized employees.  The Modified Union 
Agreements became effective on the Effective Date.

            The Company estimates that the Modified Union Agreements will  
result in cost savings of approximately $10 million during the first full  
contract year following the Restructuring.   There can be no assurance,  
however, that such cost savings will actually be realized.   In addition,  
cost savings in future contract years will be offset in part by contractual  
wage and benefit increases and also the recent federally mandated wage 
increases.

            Working   Capital  and  Capital  Expenditures.    The
Company's   primary  sources  of  capital  have  been   borrowing
availability  under the revolving credit facility and  cash  flow
from  operations, to the extent available.  The Company uses  the
available  capital resources for working capital  needs,  capital
expenditures and repayment of debt obligations.


                                    22



            The Company's EBITDA (earnings before interest, taxes, 
depreciation and amortization) before operational restructuring charges, as  
presented below, is the Company's measurement of internally-generated  
operating cash for working capital needs, capital expenditures and payment 
of debt obligations:


                                                  52 Weeks Ended
                                                   
                                   Dec. 28, 1996  Dec. 30, 1995  Dec. 31, 1994

Income before reorganization
 items, income taxes and
 extraordinary items                $  (2,435)      $(29,460)      $(38,199)

Interest expense                        8,838         15,992         18,067

Amortization of excess
 reorganization value                   5,819           -              -

Operational restructuring costs          -            12,639         23,205

Depreciation and amortization           7,243         11,373         17,716

EBITDA                              $  19,465       $ 10,544       $ 20,789

As a percentage of sales                 3.69%          1.67%          2.65%

As a multiple of interest expense        2.20x          0.66x          1.15x

            The Company experienced negative cash flow from operations (cash  
flow after working capital changes, interest expense and taxes) of $5.6 
million and $8.0 million for 1996 and 1995, respectively, as compared to 
positive cash flow of $0.3 million in 1994.   The negative cash flow in 1996  
resulted primarily from the one-time payment made for the Employee Buyout 
Offer and professional fees paid relating to the Restructuring and to a 
lesser degree, the increase in inventories and AWG patronage certificates.

            The Company's investing activities used net cash of $4.8 million  
and $4.0 million for 1996 and 1994, respectively, while it provided net cash  
of $65.1 million in 1995.  The substantial increase in cash provided in 
investing activities for 1995 was the result of the sale of the warehouse, 
29 stores and inventory to AWG.   The Company invested $6.5 million, $4.7
million and $5.4 million in capital expenditures for 1996, 1995 and 1994,  
respectively. The capital expenditures for 1996 were funded by the remaining 
escrow funds of $1.7 million that were deposited with United States Trust 
Company of New York, the Prior Credit Agreement, the DIP Facility and the 
Loan Agreement.


                                    23



            Financing activities of the Company provided net cash of $5.5 
million and $1.9 million in 1996 and 1994, respectively, and used net cash  
of $51.0 million in 1995.   The net cash provided in financing activities 
for 1996 was primarily the result of the borrowing under the Term Loan.

            The Company considers its capital expenditure program a critical  
and strategic part of the overall plan to support its market competitiveness.  
Cash capital expenditures for 1997 are expected to be at approximately $11.6  
million.   The Loan Agreement limits the Company's capital expenditures for 
1997 to $12.0 million in cash capital expenditures and $7.0 million for 
capital leases.  The 1997 capital expenditures is expected to be invested in 
remodel and upgrade of certain stores and improvement in its store and 
corporate information systems. The funds for the capital expenditures are  
expected to be obtained from the Company's operating activities and 
borrowings under the Loan Agreement.   As of March 18, 1997, the Company had 
$13.2 million of availability under the Loan Agreement.

            The Company's ability to meet its working capital needs, meet its  
debt and interest obligations and capital expenditure requirements is 
dependent on its future operating performance.   Management believes that the
Restructuring will have a favorable effect on the Company's future liquidity 
by: (a) reducing future interest cost; (b) reducing labor costs; (c) 
extending the maturities of the Company's long-term debt; and (d) permitting   
additional borrowings through the release of collateral under the Indenture 
relating to the Old Notes.  There can be no assurance that future operating  
performance will provide positive net cash or that the Restructuring will
ultimately be successful.  If the Company is not able to generate positive 
cash flow from its operations or if the Restructuring is not ultimately 
successful, management believes that this could have a material adverse 
effect on the Company's business and the continuing viability of the Company.

Recently-Issued Accounting Standards

            In February 1997, the Financial Accounting Standards Board issued  
Statement No. 128, "Earnings Per Share" and Statement No. 129, "Disclosure 
of Information About Capital Structure."    Statement No. 128 specifies the   
computation, presentation, and disclosure requirements for earnings per share.
Statement No. 129 consolidates existing requirements to disclose certain  
information about an entity's capital structure.   Both statements are 
effective for financial statements issued for periods ending after December 
15, 1997.  Based on the Company's present capital structure and common stock  
equivalents (stock options), the Company does not believe the implementation  
of these new standards will have an impact on its financial statements.

Inflation/Deflation

            Although the Company does not expect inflation or deflation to 
have a material impact in the future, there can be no assurance that the 
Company's business will not be affected by inflation or deflation in future 
periods.


                                    24



ITEM 8.   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

          The Company's consolidated financial statements and notes thereto 
are included in this report following the signature pages.

ITEM 9.   CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
          ACCOUNTING AND FINANCIAL DISCLOSURE

          None.

                                PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

          Set forth below are the names, ages, present positions and years  
of service (in the case of members of management) of the directors and 
management of Homeland:

                                                               Years with the
                                                               Company and/or
                            Age    Position                        Safeway

James A. Demme*             57     Chairman of the Board,             2
                                    President, Chief Executive
                                    Officer and Director
Larry W. Kordisch*          49     Executive Vice President  -        2
                                    Finance, Chief Financial
                                    Officer and Secretary
Steven M. Mason             42     Vice President - Marketing         26
Terry M. Marczewski*        42     Vice President and Controller      2
Prentess E. Alletag, Jr.    50     Vice President - Human             29
                                    Resources
Francis T. Wong*            37     Treasurer and Assistant            8
                                    Secretary
Robert E. (Gene) Burris     50     Director                           --
Edward B. Krekeler, Jr.     53     Director                           --
Laurie M. Shahon            45     Director                           --
John A. Shields             54     Director                           --
William B. Snow             65     Director                           --
David N. Weinstein          38     Director                           --



*    Holding's Board of Directors is identical to that of Homeland.   Mr.  
     Demme serves as Holding's Chairman of the Board, President and Chief 
     Executive Officer, Mr. Kordisch as Executive Vice President - Finance,  
     Chief Financial Officer and Secretary and Mr. Marczewski as Vice  
     President and Controller and Mr. Wong as Treasurer and Assistant
     Secretary.


                                    25



           James A. Demme was elected Chairman of the Board in September 1996.  
He became President, Chief Executive Officer and a director of the Company as 
of November 30, 1994.  From 1992 to 1994, Mr. Demme served as Executive Vice 
President of Retail Operations of Scrivner, Inc.   He was responsible for the
operations of its 170 retail stores which had a total volume exceeding $2  
billion.  From 1991 to 1992, Mr. Demme served as Senior Vice President of 
Marketing of Scrivner, Inc. where he was responsible for restructuring and 
refocusing the merchandising department to retail orientation.  From 1988 to 
1991, Mr. Demme was President and Chief Operating Officer of Shaws 
Supermarkets, which was the nation's fifteenth largest retail chain with 
sales of $1.7 billion.

           Larry W. Kordisch joined the Company in February 1995 and became 
Executive Vice President - Finance, Treasurer, Chief Financial Officer and 
Secretary as of May 1995.  Prior to joining Homeland, Mr. Kordisch served as 
Executive Vice President - Finance and Administration, Chief Financial 
Officer and member of the Board of Directors of Scrivner, Inc. and was 
responsible for the Finance, Accounting, Risk Management, Legal and 
Administrative functions.

           Steven M. Mason joined Safeway in 1970 and the Oklahoma Division 
in 1986.  At the time of the Acquisition, he was serving as Special Projects 
Coordinator for the Oklahoma Division.   In November 1987, he joined Homeland 
and in October 1988, he was appointed to the position of Vice President - 
Retail Operations.  In October 1993, Mr. Mason was appointed to the position 
of Vice President - Marketing.

           Terry  M. Marczewski joined the Company in April 1995 and became 
the Chief Accounting Officer, Assistant Treasurer and Assistant Secretary as 
of May 1995.  From July 1994 to April 1995, he was the controller at Fleming 
Companies, Inc.- Scrivner Group.   From 1990 to July 1994, Mr. Marczewski was  
the Vice President and Controller at Scrivner, Inc., the nation's third 
largest grocery wholesaler, prior to its acquisition by Fleming Companies, 
Inc. In December 1996, Mr. Marczewski was appointed to the position of Vice 
President and Controller.

           Prentess E. Alletag, Jr. joined the Oklahoma Division in October 
1969, where, at the time of the Acquisition, he was serving as Human Resources  
and Public  Affairs  Manager.   In November 1987, Mr. Alletag joined Homeland 
as Vice President - Human Resources.

           Francis T. Wong joined the Company in July 1989.  In December 1996,  
Mr. Wong was appointed to the position of Treasurer and Assistant Secretary.  
Prior to this appointment, Mr. Wong served as Director of Finance, Assistant 
Secretary and Assistant Treasurer of the Company.

           Robert E. (Gene) Burris became a director of the Company on August  
2, 1996.  Since 1988, Mr. Burris has been President of the UFCW Local No. 
1000, which represents approximately 65% of the Company's unionized employees.  
Pursuant to the Modified Union Agreements, the UFCW has the right to 
designate one member of the

                                     26



Boards of Directors of Holding and Homeland.  Mr. Burris is the designee of 
the UFCW. Since February 1995, Mr. Burris has been the Chief Executive 
Officer and owner of G&E Railroad, a retail store.
                                    
            Edward B. Krekeler, Jr. became a director of the Company on  
August 2, 1996.  Since 1994, he has been owner of Krekeler Enterprises, Ltd.,  
a corporate financial consulting firm.   From 1984 to 1994, he served in 
various positions as an officer of Washington Square Capital, Inc., including  
Vice-President,  Special Investments, Vice-President, Administration, Private  
Placements, Vice-President, Portfolio Manager, Private Placements, and Chief 
Investment Analyst.  From 1970 to 1984, Mr. Krekeler was Director, Fixed 
Income Investments, of The Ohio National Life Insurance Company, Inc. He was  
Chairman of the Board of Directors of Convenient Food Marts, Inc. from 1990  
to 1994.

            Laurie M. Shahon became a director of the Company on August 2, 
1996. Ms. Shahon has been President of Wilton Capital Group, a private direct 
investment firm since January 1994.   Ms. Shahon previously served as Vice 
Chairman and Chief Operating Officer of Color Tile, Inc. in 1989.  From 1988  
to 1993, she served as Managing Director of `21' International Holdings, Inc.,
a private holding company.  From 1980 to 1988, she was Vice President of 
Salomon Brothers, Inc., where she was founder and head of the retailing and 
consumer products group.  From 1976 to 1980,  Ms. Shahon was an Associate 
with Morgan Stanley & Co., Incorporated.  Ms. Shahon is a director of Arbor 
Drugs, Inc., One Price Clothing Stores, Inc. and Ames Department Stores, Inc.

            John A. Shields became a director of the Company in May 1993.   
Mr. Shields has been the Chairman and Chief Executive Officer of Delray Farms 
Fresh Markets, a retail perishables specialty chain, since January 1994. From 
1983 to 1993, he served as President, Chief Executive Officer, Chief 
Operating Officer and a member of the Board of Directors of First National 
Supermarkets. Mr. Shields is a director of D.I.Y. Home Warehouse, Inc., 
Delray Farms, Inc., Wild Oats Markets, Inc. and Shore Bank, Inc.

            William B. Snow became a director of the Company on August 2,  
1996. Mr. Snow has served as Vice Chairman of Movie Gallery, Inc., the second 
largest video specialty retailer in the United States, since 1994.  From 1985 
to 1994, he was Executive Vice President and a director of Consolidated 
Stores Corporation.  From 1980 to 1985, Mr. Snow was Chairman, President and  
Chief Executive Officer of Amerimark, Inc., a diversified supermarket retailer  
and institutional food service distributor.  From 1974 to 1980, he was 
President of Continental Foodservice, Inc.  From 1966 to 1974, Mr. Snow was 
Senior Vice President of Hartmarx, Inc.    Mr. Snow is a director of Movie 
Gallery, Inc. and Action Industries, Inc.

            David N. Weinstein became a director of the Company on August 2,  
1996. He is the Managing Director of the High Yield Capital Markets group at 
BancBoston Securities, Inc.  From 1993 to March 1996, he served as Managing 
Director and High Yield Capital Market Specialist of Chase Securities, Inc.  
From 1990 to 1993, Mr. Weinstein was head of the Capital Markets group in the
High Yield Department of 

                                    27



Lehman Brothers and later was a director in the High Yield/Private Financing 
Group of Smith Barney Shearson.  Mr. Weinstein is also a director of Ithaca 
Industries, Inc.

Compliance with Section 16 (a) of the Securities Exchange Act of 1934 (the 
"1934 Act")

            Section 16 (a) of the 1934 Act requires directors, executive  
officers and persons who are the beneficial owners of more than 10% of any 
class of any equity security of the Company to file reports with the 
Securities and Exchange Commission (the "SEC").   Each of the directors and 
executive officers of the Company were required to file a Form with the SEC 
no later than the date on which the Registration Statement on Form 10 with
respect to the Common Stock became effective (December 6, 1996). The directors 
and executive officers filed their respective Forms in December 1996  (after 
December 6, 1996) and January 1997.  Accordingly, such Forms were filed 
untimely.  This was the sole occasion on which the directors and the 
executive officers made untimely filings in 1996.  Based solely on the 
Company's review of reporting forms provided by the directors and executive
officers of the Company, no Form 5 reports were required.

ITEM 11.    EXECUTIVE COMPENSATION

Summary of Cash and Certain Other Compensation

            The following table provides certain summary information 
concerning compensation paid or accrued by the Company to, or on behalf of, 
the Company's Chief Executive Officer, each of the four other most highly 
compensated executive officers of the Company (hereinafter referred to as  
the "Named Executive  Officers") for the fiscal years ended December 28, 1996, 
December 30, 1995, and December 31, 1994:


                                   28



<TABLE>
<CAPTION>

                              SUMMARY COMPENSATION TABLE

                                Annual Compensation

Name and                                                  Long-Term
Principal                                                Compensation       All Other
Position                       Year   Salary   Bonus     Option Awards   Compensation (3)           
<S>                            <C>   <C>       <C>         <C>             <C>

James A. Demme(1)(2)           1996  $200,000  $200,000    135,000         $  4,675
Chairman, President            1995   200,000   100,000       -               4,396
and Chief Executive            1994    11,538      -          -                -
Officer

Larry W. Kordisch(2)(4)        1996  $150,000  $150,000     62,500         $  1,539
Executive Vice                 1995   126,923   100,000       -               3,907
Pres. Finance, 
Chief Financial Officer
and Secretary

Steven M. Mason(2)             1996  $130,500  $130,500       -            $  2,620
Vice President -               1995   130,500    19,575       -               6,414
Marketing                      1994   130,500   110,925       -               8,963

Terry M. Marczewski(2)(5)      1996  $ 90,000  $ 45,000       -            $     86
Vice President -               1995    69,326    20,000       -                  43
Controller

Alfred F. Fideline, Sr.(2)(6)  1996  $ 80,000  $ 40,000       -            $    270
Former Vice President -        1995  $ 80,000  $ 12,000       -                 247
Retail Operations              1994  $ 78,462  $ 53,074       -                 370

</TABLE>

(1)  Mr. Demme joined the Company as President, Chief Executive Officer and a 
     director as of November 30, 1994.

(2)  Personal benefits provided to the Named Executive Officer under various 
     Company programs do not exceed 10% of total annual salary and bonus 
     reported for the Named Executive Officer.

(3)  The Company provides reimbursement for medical benefit insurance premiums  
     for certain of the Named Executive Officers.  These persons obtain 
     individual private medical benefit insurance policies with benefits 
     substantially equivalent to the medical benefits currently provided  
     under the Company's group plan.  The Company also provides for life  
     insurance premiums for executive officers, including certain Named  
     Executive Officers and one other executive officer, who obtain private 
     term life insurance policies with benefits of $500,000 per person.  
     Amounts paid during 1996 are as follows: James A. Demme, $3,325; Larry  
     W. Kordisch, $1,191; and Steven M. Mason, $2,445.

 (4) Mr. Kordisch joined the Company in February 1995 and was appointed  
     Executive Vice President-Finance, Chief Financial Officer, Treasurer and 
     Secretary of the Company as of May 5, 1995.

(5)  Mr. Marczewski joined the Company in April 1995 and was appointed the 
     Chief Accounting Officer and Controller of the Company as of May 5, 1995.
     
(6)  Mr. Fideline was Vice President - Retail Operations until his resignation 
     in January 1997.

                                   29




The following table sets forth certain information with respect to grants of 
options to the Named Executive Officers during 1996:

                         Option Grants in Last Fiscal Year
<TABLE>
<CAPTION>

                                                                              Potential Realized Value at
                                                                                Assumed Rates of Stock
                                                                                   Appreciation for
                   Individual Grants                                                 Option Terms
_____________________________________________________________________________      ___________________
                    Number of
                    Securities           % of Total
                    Underlying         Options Granted
                    Options             to Employees      Exercise    Expiration
Name                 Granted            in Fiscal Year    Price          Date          5%          10%
<S>                  <C>                  <C>             <C>        <C>            <C>       <C>

James A. Demme       135,000 (1)           60.3%          $8.00      Dec. 26, 2006  $679,206  $1,721,242

Larry W. Kordisch     62,500 (1)           39.7%          $8.00      Dec. 26, 2006  $314,447  $  796,871
  
  (1)   The options are exercisable immediately upon issuance. None of these 
options have been exercised.

</TABLE>


Compensation of Directors

           Directors who are not employees of the Company or otherwise  
affiliated with the Company (presently consisting of Ms. Shahon and Messrs.  
Burris, Krekeler, Shields, Snow and Weinstein) are paid annual retainers of 
$15,000 and meeting fees of $1,000 for each meeting of the board or any 
committee attended in person and $250 for each meeting attended by telephone.   
Mr. Shields previously served as a consultant to the Company at the request 
of CD&R.  During 1995, Mr. Shields received $166,662 from CD&R for consulting 
fees for services provided to the Company.

Employment Agreements

           In November 1994, the Company entered into an employment agreement 
with James A. Demme, the Company's President and Chief Executive Officer, for  
an indefinite term.  The agreement provides a base annual salary of not less 
than $200,000 subject to increase from time to time at the discretion of the
Board of Directors.   The agreement entitles Mr. Demme to participate in the 
Company's Management Incentive Plan with a maximum annual bonus equal to 100% 
of base salary.  The agreement also provides for awards under a long term 
incentive compensation plan which is to be established by the Company and  
authorizes reimbursement for certain business-related expenses.    The 
agreement was amended in April 1996, to provide that, if the agreement is 
terminated by the Company for other than cause or disability prior to 
December 31, 1997, or is terminated by Mr. Demme following a change of 
control or a trigger event (as defined),  Mr. Demme is entitled to receive 
(a) payment, which would not be subject to any offset as a result of his 
receiving compensation from other employment, equal to two years' salary,
plus a pro rata amount of the incentive compensation for the portion of the  
incentive year that precedes the date of termination, and (b) continuation of 
welfare benefit arrangements for a period of two years after the date of 
termination.   The Restructuring is a 


                                       30



trigger event under the agreement only if Mr. Demme terminates his employment 
for good reason (as defined) or if, following the Effective Date, a 
subsequent trigger event occurs, such as a change of control or sale of 
assets.

           On September 26, 1995, the Company entered an employment agreement  
with Larry W. Kordisch, the Company's Executive Vice President-Finance and 
Chief Financial Officer.   The agreement provides for a base annual salary of 
not less than $150,000, subject to increase from time to time at the 
discretion of the Board of Directors.  Mr. Kordisch is also entitled to 
participate in the Management Incentive Plan based upon the attainment of 
performance objectives as the Board of Directors shall determine from time to 
time.  The agreement was amended in April 1996, to provide that, if the 
agreement is terminated by the Company for other than cause or disability 
prior to December 31, 1997, or is terminated by Mr. Kordisch following a 
change of control or a trigger event (as defined), Mr. Kordisch is entitled 
to  receive (a) payment, which would not be subject to any offset as a result 
of his receiving compensation from other employment, equal to two years'  
salary, plus a pro rata amount of the incentive compensation for the portion 
of the incentive year that precedes the date of termination, and (b) 
continuation of welfare benefit arrangements for a period of two years after 
the date of termination.    The Restructuring is a trigger event under the
agreement only if Mr. Kordisch terminates his employment for good reason  
(as defined) or if, following the Effective Date, a subsequent trigger event 
occurs, such as a change of control or sale of assets.

           On September 26, 1995, the Company entered into an employment  
agreement with Terry M. Marczewski, the Company's Controller and Chief 
Accounting Officer.  The agreement, which is for an indefinite term, provides 
for a base annual salary of $90,000, subject to increase from time to time at 
the discretion of the Board of Directors.  Mr. Marczewski is also entitled to
participate in the Management Incentive Plan based upon the attainment of 
performance objectives as the Board shall determine from time to time.  The 
agreement was amended in April 1996, to provide that, in the event his 
employment is terminated prior to December 31, 1997 for any reason other than 
cause or disability, the Company will pay Mr. Marczewski his annual salary  
for a period of one year after the termination date or until December 31,  
1997, whichever is longer, plus a pro rata amount of the incentive 
compensation for the portion of the incentive year that precedes the date of 
terminations.

           In April 1996, the Company entered into employment agreements with  
Steve Mason, the Company's Vice President of Marketing.   The agreement, 
which is for an indefinite term, provides a base annual salary of $130,500 
for Mr. Mason, subject to increase from time to time at the discretion of the 
Board of Directors.   In the event his employment is terminated prior to 
December 31, 1997 for any reason other than cause or disability, the Company 
will pay Mr. Mason his annual salary for a period of one year after the 
termination date or until December 31, 1997, whichever is longer, plus a 
pro rata amount of the incentive compensation for the portion of the 
incentive year that precedes the date of termination.

           On January 8, 1997, the Company entered into a settlement 
agreement (the "Settlement Agreement") with Alfred F. Fideline, Sr., the  
Company's former Vice President - Retail Operations, in connection with his 
termination of employment with the Company. Pursuant to the terms of the 
Settlement Agreement, the Company agreed to provide Mr. 

                                     31



Fideline with the following: (a) medical and dental benefits through December 
31, 1997; (b) payment of his base salary through January 2, 1998; and (c) 
conveyance of the Company car.

Management Incentive Plan

           Homeland maintains a Management Incentive Plan to provide  
incentive bonuses for members of its management and key employees.  Bonuses 
are determined according to a formula based on both corporate, store and  
individual performance and accomplishments or other achievements and are paid  
only if minimum performance and/or accomplishment targets are reached. 
Minimum bonuses range from 0 to 50% of salary for officers (as set forth in 
the plan), including the Chief Executive Officer.  Maximum bonus payouts 
range from 100% to 200% of salary for officers and up to 200% of salary for  
the Chief Executive Officer.   Performance levels must significantly exceed  
target levels before the maximum bonuses will be paid.  Under limited 
circumstances, individual bonus amounts can exceed these levels if approved  
by the Compensation Committee of the Board.  Incentive bonuses paid to 
managers and supervisors vary according to their reporting and responsibility  
levels.   The plan is administered by a committee consisting, unless otherwise
determined by the Board of Directors, of members of the Board who are 
ineligible to participate in the plan.  Incentive bonuses earned for certain 
highly compensated executive officers under the plan for performance during 
fiscal year 1996 are included in the Summary Compensation Table.

Retirement Plan

           Homeland maintains a retirement plan in which all non-union    
employees, including members of management, participate.  Under the plan, 
employees who retire at or after age 65 and after completing five years of  
vesting service (defined as calendar years in which employees complete at  
least 1,000 hours of service) will be entitled to retirement benefits equal  
to 1.50% of career average annual compensation (including basic, overtime and 
incentive compensation) plus .50% of career average annual compensation in 
excess of the social security covered compensation, such sum multiplied by  
years of benefit service (not to exceed 35 years).  Service with Safeway 
prior to the Acquisition is credited for vesting purposes under the plan. 
Retirement benefits will also be payable upon early retirement beginning at  
age 55, at rates actuarially reduced from those payable at normal retirement. 
Benefits are paid in annuity form over the life of the employee or the joint 
lives of the employee and his or her spouse or other beneficiary.

           Under the retirement plan, estimated annual benefits payable to  
the named executive officers of Homeland upon retirement at age 65, assuming 
no changes in covered compensation or the social security wage base, would be 
as follows: James A. Demme, $28,503; Larry W. Kordisch, $47,417; Steven  M.  
Mason, $85,134; and Terry M. Marczewski, $67,591.


                                    32



Management Stock Option Plan

           In December 1996, the Board of Directors of the Company, pursuant  
to the Plan of Reorganization,  adopted the Homeland Holding Corporation 1996 
Stock Option Plan (the `Stock Option Plan").  The Stock Option Plan, to be 
administered by the Board of Directors ("Board"), or a committee of the Board  
(the "Committee"), provides for the granting of options to purchase up to an 
aggregate of up to 263,158 shares of Common Stock. Options granted under the  
Stock Option Plan shall be "non-qualified options."  The option price of each 
option must not be less than the fair market value as determined by the Board  
or the Committee.    Unless the Board or the Committee otherwise determines, 
options shall become exercisable ratably over a five-year period or 
immediately in the event of a "change of control" as defined in the Stock 
Option Plan.   Each option must be evidenced by a written agreement and must 
expire and terminate on the earliest of (a) ten years from the date the 
option is granted (b) termination for cause and (c) three months after 
termination for other than cause.

Compensation Committee Report

           The Company's Compensation and Benefits Committee was formed in 
September 1996 at the first meeting of the newly installed Board of 
Directors.  See "Directors and Executive Officers of the Registrant".   
The duties of the Compensation and Benefits Committee will include the 
review and recommendation of salary, other compensation arrangements for  
the officers, management incentive and stock option plans, including the 1996
Management Incentive Plan and the Stock Option Plan.

           No member of the Compensation Committee is a current or former 
officer or employee of the Company.

Compensation Committee Interlocks and Insider Participation

           Ms. Shahon and Messrs. Snow and Shields serve on the Company's  
Compensation and Benefits Committee of the Board of Directors.  During 1995, 
Mr. Shields received $166,662 from CD&R for consulting fees for services 
provided to the Company.

ITEM 12.   SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
           MANAGEMENT

           Under the Company's Plan of Reorganization, each holder of a 
general unsecured claim against the Company, including $40.1 million of 
general unsecured claims in respect of the Old  Notes,  will receive its 
ratable share of 4,450,000 shares of Common Stock, based on the amount of 
such holder's claim relative to all general unsecured claims.  As of March 
18, 1997, the final amount of the general unsecured claims has not been 
determined.

                                   33



           Under the Plan of Reorganization, the Company has reserved for 
the account of each creditor holding a disputed general unsecured claim the 
Common Stock that would otherwise be distributable to such creditor on the 
Effective Date if such disputed claim were allowed by the Bankruptcy Court.   
If a disputed claim is disallowed in whole or in part,  the Company will  
distribute the Common Stock held in reserve ratably to holders of general 
unsecured claims allowed by the Bankruptcy Court.  Such distribution will be 
made on June 30 and December 31 of each following year until the earlier of 
(a) the date on which all disputed claims have been resolved or (b) less than  
5,000 shares of Common Stock are on deposit in the disputed claims reserve.  
If any time after the Effective Date, the number of shares of Common Stock in 
the disputed claims reserve is less than 5,000, the remaining shares of 
Common Stock held in such reserve will, at the Company's option, be 
cancelled or treated as treasury shares.

           The Company estimates that total general unsecured claims will be  
approximately $63.1 million, consisting of approximately $40.1 million in  
general unsecured claims in respect of the Old Notes and approximately $23.0 
million of other general unsecured claims.  Based on such estimate (a) 
holders of the Old Notes will receive (in the  aggregate) approximately 
2,827,922 shares of Common Stock representing approximately 60.2% of the  
Common Stock to be outstanding upon consummation of the Restructuring and (b)  
holders of the other general unsecured claims will receive (in the aggregate) 
approximately 1,622,029 shares of Common Stock representing approximately 
34.5% of the Common Stock to be outstanding upon consummation of the 
Restructuring.

           In addition, under the Plan of Reorganization, all of the 
Company's issued and outstanding Class A Common Stock, par value $.01 per 
share (the "Old Common Stock"), will be exchanged for (a) an aggregate of 
250,000 shares of Common Stock, representing approximately 5.3% of the Common  
Stock to be outstanding, and (b) warrants to purchase (in the aggregate) up
to 263,158 shares of Common Stock (the "New  Warrants") at an exercise price  
of $11.85 per share.  Each holder of the Old Common Stock will receive 
7.73 shares of Common Stock and 8.14 New Warrants for each 1,000 shares of 
Old Common Stock held by such holder.


                                   34



           Set forth below is certain information as of March 18, 1997,  
regarding the  beneficial ownership of Holding's Common Stock by: (a) any  
person or group known to have beneficial ownership of more than 5% of the 
Common Stock of Holding; (b) each of the Named Executive Officers; (c) each  
director; (d) other officers of the Company and (e) all directors, Named 
Executive Officers and officers as a group:


                                                   Shares
                                                 Beneficially      Percent of
     Name of Beneficial Owner                       Owned            Class
     Credit Suisse First Boston, Inc. (1)          246,460            5.2%
     11 Madison Avenue
     New York, NY 10010

     James A. Demme (2)                            135,000            2.8%
     Larry W. Kordisch (2)                          62,500            1.3%
     Steve  M. Mason (3)                               665              *
     Terry M. Marczewski                              -                 -
     Prentess E. Alletag                              -                 -
     Francis T. Wong                                  -                 -
     Robert E. (Gene) Burris                          -                 -
     Edward B. Krekeler, Jr.                          -                 -
     Laurie M. Shahon                                 -                 -
     John A. Shields                                  -                 -
     William B. Snow                                  -                 -
     David N. Weinstein                               -                 -

     Officers and directors as a
       group (12 persons)                          198,165            4.0%
     ______________________
     *  Less than 1%

     (1)  Credit Suisse First Boston, Inc. is the parent corporation of 
          Credit Suisse First Boston Corporation, a registered broker-dealer, 
          which owns these shares of Common Stock of record.  Credit Suisse  
          Group, the ultimate parent corporation of Credit Suisse First 
          Boston Corporation, disclaims ownership of these shares of Common 
          Stock.  
     (2)  Messrs. Demme and Kordisch were awarded stock options pursuant to 
          the Stock Option Plan in December 1996 amounting to 135,000 and  
          62,500 shares, respectively.  Their options are exercisable
          immediately upon issuance and will expire December 26, 2006.
     (3)  Mr. Mason is the beneficial owner of 324 shares of Common Stock and 
          341 New Warrants.


                                       35



ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

          Prior to the Effective Date, the Company's largest stockholders  
were Clayton & Dubilier Private Equity Fund III Limited Partnership ("C&D 
Fund III") which owned approximately 35.9% of the Old Common Stock, and 
Clayton Dubilier Private Equity Fund IV Limited Partnership ("C&D Fund IV") 
which owned approximately 40.4% of the Old Common Stock.  After consummation
of the Restructuring, C&D Fund III and C&D Fund IV owned less than 5% of the 
outstanding Common Stock.  The Company believes that C&D Fund III and C&D 
Fund IV sold all of their Common Stock prior to year-end 1996.

          C&D Fund III and C&D Fund IV are private investment funds managed 
by CD&R.  Amounts contributed to C&D Fund III and C&D Fund IV by the limited 
partners thereof are invested at the discretion of the general partner in the 
equity of corporations organized for the purpose of carrying out leveraged 
acquisitions involving the participation of management, or, in the case of 
C&D Fund IV, in corporations where the infusion of capital coupled with the  
provision of managerial assistance by CD&R can be expected to generate 
returns on investments comparable to returns historically achieved in 
leveraged buy-out transactions.   The general partner of C&D Fund III is 
Clayton & Dubilier Associates III Limited Partnership, a Connecticut limited  
partnership ("Associates  III").   The general partner of C&D Fund IV is
Clayton & Dubilier Associates IV Limited Partnership, a Connecticut limited 
partnership ("Associates IV").   B. Charles Ames, a principal of CD&R, a 
holder of an economic interest in Associates III and a general partner of  
Associates IV, also served as Chairman of the Board of the Company until the
Effective Date.  Andrall E. Pearson, a principal of CD&R and a former 
director of the Company, is a general partner of Associates IV.  Michael G. 
Babiarz, a former director of the Company, is a professional employee of 
CD&R. Hubbard C. Howe, a principal of CD&R and a former director of the  
Company, is a general partner of Associates IV.

          Through 1995, CD&R received an annual fee for management and  
financial consulting services provided to the Company and reimbursement of 
certain expenses.  The consulting fees paid to CD&R were $125,000 in 1995, 
$150,000 in 1994 and $200,000 in 1993.  CD&R agreed to forgo the consulting 
fee after October 1995, in view of the Company's financial position and in
order to facilitate the proposed Restructuring.   To further assist the 
Company, CD&R paid Donaldson,  Lufkin and Jenrette, an investment 
banking firm, approximately $250,000 in 1995 and $500,000 plus expenses in 
1996 for consulting services relating to the Restructuring.

          CD&R, C&D Fund III and the Company entered into an Indemnification 
Agreement on August 14, 1990, pursuant to which the Company agreed to 
indemnify CD&R, C&D Fund III, Associates III and their respective directors,  
officers, partners, employees, agents and controlling persons against certain
liabilities arising under the federal securities laws and certain other 
claims and liabilities.

          CD&R, C&D Fund III, C&D Fund IV and the Company entered into a 
separate Indemnification Agreement, dated as of March 4, 1992, pursuant to  
which the Company agreed, subject to any applicable restrictions in the 
Indenture relating to the Old 

                                    36



Notes, the Prior Credit Agreement, the Subordinated Note Indenture, the 
1987 Registration and Participation Agreement, and the 1990 Registration 
and Participation Agreement, to indemnify CD&R, C&D Fund III, C&D Fund IV, 
Associates III, Associates IV and their respective directors, officers, 
partners, employees, agents and controlling persons against certain 
liabilities arising under the federal securities laws and certain other 
claims and liabilities.

          Mr. Gene Burris, a director of the Company, is President of UFCW 
Local No. 1000, which represents approximately 65% of the Company's unionized  
employees.  Pursuant to the Modified Union Agreements, the UFCW has the right  
to designate one member of the Board of Directors of Holding and Homeland.
Mr. Burris is the designee of the UFCW.

          Ms. Shahon and Messrs. Krekeler, Snow and Weinstein were nominated 
by the Noteholders' Committee to serve as directors of the Company.





                                    37


                                     PART IV

ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
          FORM 8-K

    The following documents are filed as part of this Report:

         (a)   Financial Statements and Exhibits.

               1.  Financial Statements. The Company's financial statements 
                   are included in this report following the signature pages.   
                   See Index to Financial Statements and Financial Statement
                   Schedules on page F-1.

               2.  Exhibits.   See attached Exhibit Index on page E-1.

         (b)   Reports on Form 8-K.  The following report on Form 8-K was  
               filed during the last quarter of the period covered by this 
               report:

               Date Filed           Description

               September 20, 1996   Confirmation of the Plan of Reorganization






                                     38


                                      SIGNATURES
                                
                                
           Pursuant to the requirements of Section 13 or 15(d) of the 
Securities Exchange Act of 1934, the registrant has duly caused this report 
to be signed on its behalf by the undersigned, thereunto duly authorized.

                                               HOMELAND HOLDING CORPORATION
                                                                 
                                                                 
Date:   March 28, 1997                         By: /s/   James A. Demme
                                                   James A. Demme, Chairman


           Pursuant to the requirements of the Securities Exchange Act of 
1934, this report has been signed below by the following persons on behalf 
of the registrant and in the capacities and on the dates indicated.


      Signature                   Title                            Date


 /s/  James A. Demme        Chairman of the Board            March 28, 1997
James A. Demme              President, Chief Executive
                            Officer and Director
                            (Principal Executive Officer)


 /s/  Larry W. Kordisch     Executive Vice President/        March 28, 1997
Larry W. Kordisch           Finance, C.F.O. and Secretary
                            (Principal Financial Officer)


 /s/  Terry M. Marczewski   Vice President, Controller       March 28, 1997
Terry M. Marczewski         (Principal Accounting Officer)




                                      II-1



                                





Signature                            Title                         Date




                                     Director                 March 28, 1997
Robert E. (Gene) Burris             


 /s/  Edward B. Krekeler, Jr.        Director                 March 28, 1997
Edward B. Krekeler, Jr.



                                     Director                 March 28, 1997
Laurie M. Shahon



 /s/ John A. Shields                 Director                 March 28, 1997
John A. Shields



                                     Director                 March 28, 1997
William B. Snow


 /s/  David N. Weinstein             Director                 March 28, 1997
David N. Weinstein



                                      II-2




                   INDEX TO FINANCIAL STATEMENTS

                   HOMELAND HOLDING CORPORATION
                 Consolidated Financial Statements





Report of Independent Accountants                                    F-2

Consolidated Balance Sheets as of December 28, 1996
  (Successor Company), and December 30, 1995
  (Predecessor Company)                                              F-3

Consolidated Statements of Operations
  for the 20 weeks ended December 28, 1996
  (Successor Company), 32 weeks ended
  August 10, 1996, and 52 weeks ended December 30,
  1995, and December 31, 1994 (Predecessor Company)                  F-5

Consolidated Statements of Stockholders' Equity (Deficit)
  for the 20 weeks ended December 28, 1996
  (Successor Company), 32 weeks ended August 10,
  1996 and 52 weeks ended December 30, 1995,
  and December 31, 1994 (Predecessor Company)                        F-6

Consolidated Statements of Cash Flows for the 20 weeks
  ended December 28, 1996 (Successor Company),
  32 weeks ended August 10, 1996, and 52 weeks
  ended December 30, 1995, and December 31, 1994
  (Predecessor Company)                                              F-7

Notes to Consolidated Financial Statements                           F-9




                                  F-1


                                   
                   REPORT OF INDEPENDENT ACCOUNTANTS
                                   
                                   
                                   
To the Board of Directors and Stockholders of
Homeland Holding Corporation

We have audited the accompanying consolidated financial statements of Homeland
Holding Corporation and Subsidiary listed in the index on page F-1 of this
Form 10-K.  These financial statements are the responsibility of the Company's
management.  Our responsibility is to express an opinion on these financial
statements based on our audits.

We conducted our audits in accordance with generally accepted auditing 
standards.  Those standards require that we plan and perform the audit to  
obtain reasonable assurance about whether the financial statements are free 
of material misstatement.  An audit includes examining, on a test basis,  
evidence supporting the amounts and disclosures in the financial statements.  
An audit also includes assessing the accounting principles used and 
significant estimates made by management, as well as evaluating the overall 
financial statement presentation.  We believe that our audits provide a 
reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly,  
in all material respects, the consolidated financial position of Homeland 
Holding Corporation and Subsidiary as of December 28, 1996, and December 30, 
1995, and the consolidated results of their operations and their cash flows 
for the 20 weeks ended December 28, 1996, the 32 weeks ended August 10, 1996, 
and the 52 weeks ended December 30, 1995, and December 31, 1994, in conformity 
with generally accepted accounting principles.
                                   
                                   

                                   
                                               
                                                COOPERS & LYBRAND, L.L.P.
Oklahoma City, Oklahoma
March 24, 1997




                                  F-2

                                   


              HOMELAND HOLDING CORPORATION AND SUBSIDIARY
                                   
                      CONSOLIDATED BALANCE SHEETS
                                   
          (In thousands, except share and per share amounts)
                                   
                                ASSETS

<TABLE>                                   
<CAPTION>                                   
                                                Successor Company  Predecessor Company
                                                  December 28,         December 30,
                                                      1996                1995       
                                                      
<S>                                                 <C>                 <C>

Current assets:
  Cash and cash equivalents (Notes 4 and 6)         $    1,492          $   6,357
  Receivables, net of allowance for uncollectible
    accounts of $1,587 and $2,661                        8,522              8,051
  Inventories                                           45,009             42,830
  Prepaid expenses and other current assets              2,760              2,052

       Total current assets                             57,783             59,290

Property, plant and equipment:
  Land and land improvements                             8,731              9,919
  Buildings                                             18,124             22,101
  Fixtures and equipment                                15,078             44,616
  Leasehold improvements                                11,374             23,629
  Software                                               2,930              1,991
  Leased assets under capital leases (Note 10)           7,569             29,062
  Construction in progress                               2,675              4,201

                                                        66,481            135,519
Less, accumulated depreciation
  and amortization                                       3,012             63,827

Net property, plant and equipment                       63,469             71,692

Reorganization value in excess of amounts
  allocable to identifiable assets, less
  accumulated amortization of $5,819 at
  December 28, 1996                                     39,570               -

Other assets and deferred charges                        7,664              6,600

      Total assets                                  $  168,486          $ 137,582

                                                             Continued
                                   
</TABLE>
                                   
                                   
                                   

                                   
                                   
                                   
              The accompanying notes are an integral part
              of these consolidated financial statements.

                                  F-3


                                   
                                   
              HOMELAND HOLDING CORPORATION AND SUBSIDIARY
                                   
                CONSOLIDATED BALANCE SHEETS, Continued
                                   
          (In thousands, except share and per share amounts)
                                   
            LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
                                   

<TABLE>
<CAPTION>

                                                Successor Company  Predecessor Company
                                                  December 28,         December 30,
                                                     1996                 1995

<S>                                                     <C>            <C>
                                                      
Current liabilities:
  Accounts payable - trade                              $  17,416      $  17,732
  Salaries and wages                                        3,499          1,609
  Taxes                                                     2,903          4,876
  Accrued interest payable                                  2,689          2,891
  Other current liabilities                                 8,470         14,321
  Current portion of long-term debt(Notes 5 and 6)            894           -
  Long-term debt in default classified as current
    (Notes 5 and 6)                                      -               100,467
  Current portion of obligations under capital
    leases (Note 10)                                        1,343          2,746
  Current portion of restructuring reserve (Note 13)         -             3,062

       Total current liabilities                           37,214        147,704

Long-term obligations:
  Long-term debt (Notes 5 and 6)                           72,724           -
  Obligations under capital leases (Note 10)                3,005          9,026
  Other noncurrent liabilities                              2,602          6,133
  Noncurrent restructuring reserve (Note 13)                 -             2,808

       Total long-term obligations                         78,331         17,967

Commitments and contingencies (Notes 9, 10 and 12)           -              -    

Redeemable common stock, Class A, $.01 par value,
  1,720,718 shares at December 30, 1995, at
  redemption value (Note 4)                                  -                17

Stockholders' equity (deficit):
  Old common stock (Note 2):
    Class A, $0.01 par value, authorized - 40,500,000
    shares, issued 33,748,482 shares at
    December 30,1995, outstanding - 30,878,989 shares        -               337
  New common stock (Note 2):
    Class A, $0.01 par value, authorized - 7,500,000
    shares, issued 4,758,025 shares at
    December 28, 1996                                          48           -
  Additional paid-in capital                               56,013         55,886
  Accumulated deficit                                      (3,120)       (80,188)
  Minimum pension liability adjustment (Note 9)              -            (1,327)
  Treasury stock, 2,869,493 shares at December 30,
    1995, at cost                                            -            (2,814)

   Total stockholders' equity (deficit)                    52,941        (28,106)
                                   
   Total liabilities and stockholders' equity (deficit) $ 168,486      $ 137,582
                                   
                                   
</TABLE>

                                   
              The accompanying notes are an integral part
              of these consolidated financial statements.
                                   
                                  F-4
                                        

                                        

                    HOMELAND HOLDING CORPORATION AND SUBSIDIARY

                      CONSOLIDATED STATEMENTS OF OPERATIONS

                 (In thousands, except share and per share amounts)

<TABLE>
<CAPTION>

                                                Successor Company          Predecessor Company
                                                  
                                                    20 weeks       32 weeks        52 weeks       52 weeks
                                                     ended          ended           ended          ended
                                                  December 28,    August 10,     December 30,   December 31,
                                                      1996           1996           1995           1994

<S>                                               <C>             <C>            <C>            <C>


Sales, net                                        $  204,026      $  323,747     $  630,275     $  785,121 

Cost of sales                                        154,099         244,423        479,119        588,405

  Gross profit                                        49,927          79,324        151,156        196,716

Selling and administrative expenses                   44,029          73,000        151,985        193,643
Operational restructuring costs                         -               -            12,639         23,205
Amortization of excess reorganization
  value                                                5,819            -              -              -

  Operating profit (loss)                                 79           6,324        (13,468)       (20,132)

Interest expense                                      (3,199)         (5,639)       (15,992)       (18,067)

Income (loss) before reorganization items,
  income taxes and extraordinary items                (3,120)            685        (29,460)       (38,199)

Reorganization items:
  Allowed claims in excess of liabilities               -              7,200           -              -
  Professional fees                                     -              4,250           -              -
  Employee buyout expense                               -              6,386           -              -
  Adjustments of accounts to estimated
    fair value                                          -              8,160           -              -
                                                        -             25,996           -              -

Income tax provision (Note 7)                           -               -              -            (2,446)
  Income (loss) before extraordinary items            (3,120)        (25,311)       (29,460)       (40,645)

Extraordinary items - debt discharge (Note 3)           -             63,118           -              -
Extraordinary items - other                             -               -            (2,330)          -

Net income (loss)                                     (3,120)         37,807        (31,790)       (40,645)   

Reduction in redemption value -
  redeemable common stock                               -               -               940          7,284

Net income (loss) available to
  common stockholders                             $   (3,120)     $   37,807     $  (30,850)    $  (33,361)

Income (loss) before extraordinary
  items per common share                          $     (.66)     $     (.78)    $     (.86)    $     (.96)

Extraordinary items per common share                     -              1.94           (.07)           -

Net income (loss) per common share                $     (.66)     $     1.16     $     (.93)    $     (.96)

Weighted average shares outstanding                4,758,025      32,599,707     33,223,675     34,752,527


</TABLE>



                   The accompanying notes are an integral part
                    of these consolidated financial statements

                                  F-5



                        
                   HOMELAND HOLDING CORPORATION AND SUBSIDIARY
                                        
            CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY (DEFICIT)
                                        
               (In thousands, except share and per share amounts)
                                        

<TABLE>
<CAPTION>

                                                                                                      Minimum
                                         Common Stock                    Additional                   Pension      
                                      Successor   Predecessor              Paid-in    Accumulated    Liability      
                                      Shares       Shares       Amount    Capital      (Deficit)     Adjustment      
<S>                                 <C>        <C>             <C>         <C>       <C>              <C>

Balance,  January  1,  1994              -      31,498,989     $    315    $46,358   $   (7,753)      $     (572)     

Purchase  of treasury  stock             -         106,000            1        254         -                -         

Adjustment to eliminate
  minimum pension liability              -            -            -          -            -                 572      

Redeemable common stock
  reduction  in  redemption  value       -            -            -         7,284         -                -         

Net loss                                 -            -            -          -         (40,645)            -         

Balance, December 31, 1994               -      31,604,989          316     53,896      (48,398)            -         

Purchase of treasury stock               -       2,143,493           21      1,050         -                -       

Adjustment to recognize
  minimum pension liability              -            -            -          -            -              (1,327)   

Redeemable common stock
  reduction in redemption value          -            -            -           940         -                -       

Net loss                                 -            -            -          -         (31,790)            -       

Balance, December 30, 1995               -      33,748,482          337     55,886      (80,188)          (1,327)   

Net income                               -            -            -          -          37,807             -       

Eliminate predecessor equity             -     (33,748,482)        (337)   (55,886)      (2,637)            -      

Issuance of successor's
  common stock                      4,758,025         -              48     56,013         -                -      

Adjustment to eliminate
  minimum pension liability              -            -            -          -            -               1,327   

Record excess of
  reorganization value                   -            -            -          -          45,018             -        

Balance, August 10, 1996            4,758,025         -              48     56,013         -                -        

Net loss                                 -            -            -          -          (3,120)            -        

Balance, December 28, 1996          4,758,025         -        $     48    $56,013   $   (3,120)      $     -      

                                   
</TABLE>


Continued


                   The accompanying notes are an integral part
                    of these consolidated financial statements

                                  F-6


                   HOMELAND HOLDING CORPORATION & SUBSIDIARY

            CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY (DEFICIT)

               (In thousands, except per share and per share amounts)



<TABLE>
<CAPTION>


                                                                 Total
                                        Treasury Stock       Stockholders'
                                       Shares    Amount     Equity (Deficit)
<S>                                  <C>         <C>         <C>

Balance, January 1, 1994                620,000  $(1,488)    $   36,860

Purchase of treasury stock              106,000     (255)          -

Adjustment to eliminate
  minimum liability                        -        -               572

Redeemable common stock
  reduction in redemption value            -        -             7,284

Net Loss                                   -        -           (40,645)

Balance, December 31, 1994              726,000   (1,743)         4,071

Purchase of Treasury Stock            2,143,493   (1,071)          -

Adjustment to recognize
  minimum liability                        -        -            (1,327)

Redeemable common stock
  reduction in redemption value            _        _               940

Net loss                                   -        -           (31,790)

Balance, December 30, 1995            2,869,493   (2,814)       (28,106)

Net income                                 -        -            37,807

Eliminate predecessor equity         (2,869,493)   2,814        (56,046)

Issuance of successor's
  common stock                             -        -            56,061

Adjustment to eliminate
  minimum pension liability                -        -             1,327

Record excess of
  reorganization value                     -        -            45,018

Balance, August 10, 1996                   -        -            56,061

Net Loss                                   -        -            (3,120)

Balance, December 28, 1996           $     -     $  -        $   52,941



</TABLE>


                   The accompanying notes are an integral part
                    of these consolidated financial statements

                                  F-6
                                   


                                   
              HOMELAND HOLDING CORPORATION AND SUBSIDIARY
                                   
                 CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   
          (In thousands, except share and per share amounts)
                                   
<TABLE>
<CAPTION>
                                   
                                           Successor Company            Predecessor Company

                                               20 weeks         32 weeks       52 weeks        52 weeks
                                                ended           ended           ended           ended
                                              December 28,      August 10,    December 30,    December 31,
                                                 1996            1996           1995            1994   
<S>                                           <C>              <C>            <C>            <C>

Cash flows from operating activities:
  Net income (loss)                           $   (3,120)      $  37,807      $ (31,790)     $ (40,645)
  Adjustments to reconcile net
   income (loss) to net cash
   provided by operating activities:
    Depreciation and amortization                  2,954           4,163         11,192         17,458
    Amortization of beneficial interest
       in operating leases                            51              75            181            258
    Amortization of excess reorganization
       value                                       5,819            -              -              -
    Amortization of financing costs                   24             359          1,019          1,443
    Write-off of financing costs on
       long-term debt retired                       -               -             1,424           -
    Reorganization items                            -             15,360           -              -
    Extraordinary gain on debt discharged           -            (63,118)          -              -
    Loss on disposal of assets                        90            (114)         8,349            384
    Gain on sale of stores                          -               -           (15,795)          -
    Impairment of assets                            -               -             2,360         14,325
    Deferred income taxes                           -               -              -             3,997
    Provision for losses on accounts
       receivable                                   -               -             1,750          1,213
    Provision for write down of
       inventories                                  -               -               847           -
    Change in assets and liabilities:
      (Increase) decrease in receivables            (439)            (32)         3,227          2,301
      (increase) decease in receivable
         for taxes                                  -               -             2,270         (2,270)
      (Increase) decrease in inventories          (6,225)          3,754         18,297          2,097
      (Increase) decrease in prepaid ex-                             
         penses and other current assets             531             (83)         5,542         (2,687)
      (Increase) decrease in other
         assets and deferred charges              (3,110)           (649)        (1,215)           103
      Increase (decrease) in accounts
         payable - trade                           2,460             298        (12,587)           832
      Increase (decrease) in salaries
         and wages                                   846             105           (316)          (821)
      Increase (decrease) in taxes                (2,198)            226         (1,616)         1,768
      Increase (decrease) in accrued
         interest payable                          2,672           3,823           (422)           (53)
      Increase (decrease) in other current
         liabilities                              (1,181)         (2,656)        (3,264)           (34)
      Increase (decrease) in restructuring
         reserve                                    -             (1,396)         1,356          5,005
      Increase (decrease) in other non-
         current liabilities                         122            (886)         1,157         (4,417)

      Net cash provided by (used in)
         operating activities                       (704)         (2,964)        (8,034)           257


</TABLE>


Continued



              The accompanying notes are an integral part
              of these consolidated financial statements.

                                  F-7




              HOMELAND HOLDING CORPORATION AND SUBSIDIARY
                                   
           CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
                                   
          (In thousands, except share and per share amounts)
                                   
<TABLE>
<CAPTION>

                                   
                                           Successor Company            Predecessor Company

                                               20 weeks         32 weeks       52 weeks        52 weeks
                                                ended             ended          ended          ended
                                              December 28,      August 10,    December 30,    December 31,
                                                1996              1996            1995           1994   
<S>                                           <C>               <C>           <C>             <C>

Cash flows from investing activities:
  Capital expenditures                           (5,085)         (1,860)         (4,681)        (5,386)
  Purchase of assets under capital leases          -               -             (3,966)          -
  Cash received from sale of assets                   5           1,738          73,721          1,363

       Net cash provided by (used in)
        investing activities                     (5,080)           (122)         65,074         (4,023)

Cash flows from financing activities:
  Borrowings under term loan                       -             10,000            -              -
  Payments under senior secured floating
    rate notes                                     -               -             (9,375)          -
  Payments under senior secured fixed
    rate notes                                     -               -            (15,625)          -
  Borrowings under revolving credit loans        42,349          74,250         104,087         66,000
  Payments under revolving credit loans         (39,080)        (79,718)       (123,620)       (56,000)
  Net payments under swing loans                   -               -             (1,500)        (3,500)
  Principal payments under notes payable           -               -               (750)        (1,000)
  Principal payments under capital
    lease obligations                              (700)         (1,596)         (3,166)        (3,334)
  Payment of secured debt obligation               -             (1,500)           -              -
  Payments to acquire treasury stock               -               -             (1,073)          (255)

     Net cash provided by (used in)
         financing activities                     2,569           1,436         (51,022)         1,911

Net increase (decrease) in cash and
  cash equivalents                               (3,215)         (1,650)          6,018         (1,855)

Cash and cash equivalents at beginning
  of period                                       4,707           6,357             339          2,194

Cash and cash equivalents at end of
  period                                      $   1,492         $ 4,707       $   6,357       $    339

Supplemental information:
  Cash paid during the period for interest    $     524         $ 1,566       $  13,439       $ 16,642

  Cash paid during the period for
   income taxes                               $    -            $  -          $    -          $    236

Supplemental schedule of noncash
   investing activities:
  Capital lease obligations assumed           $    -            $  -          $    -          $  1,493



</TABLE>



              The accompanying notes are an integral part
              of these consolidated financial statements.
                                   
                                       F-8


                     HOMELAND HOLDING CORPORATION AND SUBSIDIARY

                     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                 (In thousands, except share and per share amounts)


1.     Organization:

       Homeland Holding Corporation ("Holding"), a Delaware corporation, was 
       incorporated on November 6, 1987, but had no operations prior to 
       November 25, 1987. Effective November 25, 1987, Homeland Stores, Inc. 
       ("Homeland"), a wholly-owned subsidiary of Holding, acquired 
       substantially all of the net assets of the Oklahoma Division of Safeway
       Inc.  Holding and its consolidated subsidiary, Homeland, are 
       collectively referred to herein as the "Company."

       Holding has guaranteed substantially all of the debt issued by 
       Homeland.  Holding is a holding company with no significant operations 
       other than its investment in Homeland.  Separate financial statements 
       of Homeland are not presented herein since they are identical to the
       consolidated financial statements of Holding in all respects except for 
       stockholder's equity of the Predecessor Company (which is equivalent to 
       the aggregate of total stockholders' equity and redeemable common 
       stock of Holding) which is as follows:


                                      Successor Company     Predecessor Company

                                          December 28,            December 30,
                                              1996                    1995      
                                   
      Homeland stockholder's equity:
        Common stock, $.01 par value,
         authorized, issued and
         outstanding 100 shares                     1                       1
        Additional paid-in capital             56,060                  53,435
        Accumulated deficit                    (3,120)                (80,198)
        Minimum pension liability adjustment     -                     (1,327)
         Total Homeland stockholder's 
         equity (deficit)                   $  52,941              $  (28,089)

2.   Reorganization:

       On May 13, 1996, the Company filed Chapter 11 petitions with the United 
       States Bankruptcy Court for the District of Delaware (the "Bankruptcy 
       Court").  Simultaneous with the filing of such petitions, the Company 
       filed a plan of reorganization and a disclosure statement, which set 
       forth the terms of the Company's restructuring (the "Restructuring").   
       On June 13, 1996, the Company filed a first amended plan of 
       reorganization and disclosure statement.  The Company's


                                       F-9

                     HOMELAND HOLDING COMPANY AND SUBSIDIARY

                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued

                 (In thousands, except share and per share amounts)



2.   Reorganization, continued:

       first amended plan of reorganization, as modified (the "Plan"), was 
       confirmed by the Bankruptcy Court on July 19, 1996 and became effective 
       on August 2, 1996 (the "Effective Date").

       On the Effective Date, each of Holding and Homeland adopted amended and 
       restated certificates of incorporation, the principal effects of which 
       are: (a) eliminate the old common stock (the "Old Common Stock") and 
       old class B common stock of Holding, (b) authorize 7,500,000 shares of 
       new common stock of Holding (the "New Common Stock") and (c) include 
       a provision to prohibit the issuance of non-voting securities as and to 
       the extent required by Section 1123 (a) (6) of the Bankruptcy Code for 
       both Homeland and Holding.

       As of the Effective Date, the outstanding $59,375 of Series C Senior 
       Secured Fixed Rate Notes due 1999, $26,126 of Series D Senior Secured 
       Floating Rate Notes due 1997 and $9,499 of Series A Senior Secured 
       Floating Rate Notes due 1997, (collectively, the "Old Notes"), 
       ($95,000 in aggregate face amount plus accrued interest), were 
       cancelled and such holders received (in the aggregate) $60,000 face 
       amount of newly-issued 10% Senior Subordinated Notes due 2003 (the
       "New  Notes"), $1,500 in cash and approximately 60% of the New Common 
       Stock.  The New Notes are unsecured and bear interest at 10% per annum 
       and mature in 2003.

       As of the Effective Date, all of the outstanding Old Common Stock of 
       Holding was canceled and the holders received their ratable share of 
       (a) 250,000 shares of New Common Stock and (b) warrants to purchase up 
       to 263,158 shares of New Common Stock at an exercise price of $11.85.
       Each Warrant entitles the holder to purchase one share of New Common 
       Stock at any time up to August 2, 2001.  Holders of general unsecured 
       claims (including certain trade creditors for unpaid prepetition trade 
       claims and the allowed unsecured noteholders' claims) are entitled to
       receive their ratable share of 4,450,000 shares of New Common Stock.

       As of the Effective Date, the Company entered into a new Loan Agreement 
       (as defined hereinafter) consisting of a revolving credit facility of 
       up to $27,500  (subject to a borrowing base requirement) and a term 
       loan facility of $10,000.  The Loan Agreement is collateralized by a 
       security interest in, and liens on, substantially all of the Company's 
       assets and is guaranteed by Holding.


                                       F-10


                     HOMELAND HOLDING CORPORATION AND SUBSIDIARY

                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued

                 (In thousands, except share and per share amounts)



2.   Reorganization, continued:

       On the Effective Date, the modified union agreements negotiated with 
       the Company's labor unions (the "Modified Union Agreements") became 
       effective.  The Modified Union Agreements, which are effective for a 
       term of five years, consist of five basic elements: (a) wage rate and 
       benefit contribution reductions and work rule changes, (b) an employee 
       buyout offer, (c) the establishment of an employee stock bonus plan 
       which will entitle plan participants to receive/purchase up to 522,222 
       shares of New Common Stock, (d) the right to designate one member of 
       the Board of Directors and (e) the elimination of certain wage 
       reinstatement provisions, incentive plans and "maintenance of 
       benefits."

3.   Basis of Presentation:

       The Company's Restructuring was accounted for in accordance with the 
       American Institute of Certified Public Accountants Statement of 
       Position No. 90-7,  "Financial Reporting by Entities in Reorganization 
       under the Bankruptcy Code" ("SOP No. 90-7").  The accounting under SOP 
       No. 90-7 resulted in "fresh-start" reporting for the Company in which
       a new entity was created for financial reporting purposes.  The Company 
       applied the provisions of SOP No. 90-7 as the holders of the Old Common 
       Stock received less than 50% of the New Common Stock and the 
       reorganized value of the assets of the reorganized Company is less than 
       the total of all post-petition liabilities and allowed claims.

       For financial reporting purposes, the Company accounted for the 
       consummation of the Restructuring effective August 10, 1996, which is 
       the Company's normal four week period ending date.  The periods prior 
       to the Effective Date have been designated "Predecessor Company"  and 
       the period subsequent to the Effective Date has been designated
       "Successor Company."  As a result of the adoption of the "fresh-start"  
       reporting, the Company's financial statements are not comparable to the 
       Company's financial statements of prior periods.

       In accordance with SOP No. 90-7, the Company valued its assets and 
       liabilities at their estimated fair value and eliminated its 
       accumulated deficits on the Effective Date.  The total reorganization 
       value of the reorganized Company was determined by analyzing market 
       cash flow multiples as applied to the Company's projected annual cash 
       flows as well as comparing the reorganization value to a discounted
       projected cash flow calculation. Based on analyses prepared by the 
       Company's financial advisor and the financial advisor to the ad hoc 
       committee of noteholders, the total reorganization value was agreed to 
       by the parties and confirmed by the
    

                                       F-11


                     HOMELAND HOLDING CORPORATION AND SUBSIDIARY

                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued

                 (In thousands, except share and per share amounts)

                                       
3.   Basis of Presentation, continued:

       Bankruptcy Court.  The total reorganization value as of the Effective 
       Date was estimated to be $167.4 million, which was $45.4 million in 
       excess of the Company's tangible and identifiable assets.  The excess 
       of the reorganization value over the value of the identifiable assets 
       is reported as "Reorganization value in excess of amounts allocable to
       identifiable assets" and is being amortized on a straight-line basis 
       over a three year period.

       The components of reorganization items and gain recognized on debt 
       discharged resulting from the Restructuring are as follows (in 
       thousands):

       (i)  Reorganization items:

              Fresh-start reporting
                Allowed claims in excess of recorded
                 liabilities                                   $  7,200
              Revaluation of property, plant and
                 equipment, net                                   4,004
              Other adjustments to estimated fair value           4,156
                    Total fresh-start                            15,360
              Employee buyout expense                             6,386
              Professional fees incurred with
                the Restructuring                                 4,250

                      Total reorganization items               $ 25,996


       (ii) Gain on debt discharged:

              Elimination of Old Notes and accrued interest    $101,697
              Elimination of other liabilities                   22,921
              Cash payment to holders of Old Notes               (1,500)
              Issuance of New Notes                             (60,000)

                      Gain on debt discharged                  $ 63,118



                                       F-12


                     HOMELAND HOLDING CORPORATION AND SUBSIDIARY

                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Contined

                 (In thousands, except share and per share amounts)



4.     Summary of Significant Accounting Policies:

       Fiscal year - The Company has adopted a fiscal year which ends on the 
       Saturday nearest December 31.  Fiscal 1996 includes the 32 weeks prior 
       to the Effective Date which has been designated "Predecessor Company" 
       and the 20 weeks subsequent to the Effective Date which has been 
       designated "Successor Company."

       Basis of consolidation - The consolidated financial statements include 
       the accounts of Homeland Holding Corporation and its wholly owned 
       subsidiary.  All significant intercompany balances and transactions 
       have been eliminated in consolidation.

       Revenue recognition - The Company recognizes revenue at the "point of 
       sale," which occurs when groceries and related merchandise are sold to 
       its customers.
     
       Concentrations of credit and business risk - Financial instruments 
       which potentially subject the Company to concentrations of credit risk 
       consist principally of temporary cash investments and receivables. The 
       Company places its temporary cash investments with high quality 
       financial institutions.  Concentrations of credit risk with respect to 
       receivables are limited due to the diverse nature of those receivables, 
       including a large number of retail customers within the region and 
       receivables from vendors throughout the country. The Company purchases 
       approximately 70% of its products from Associated Wholesale Grocers, 
       Inc.  ("AWG"). Although there are similar wholesalers that could
       supply the Company with merchandise, if AWG were to discontinue 
       shipments, this could have a material adverse effect on the Company's 
       financial condition.

       Restricted Cash - As of December 30, 1995, the Company had $2,529 
       deposited in escrow accounts at United States Trust Company of New 
       York.  The deposited funds were distributed in their entirety to 
       holders of the Old Notes and the Company in 1996 pursuant to the Plan.
       
       Inventories - Inventories are stated at the lower of cost or market, 
       with cost being determined primarily using the gross margin method.

                               
                                       F-13
                                  

                     HOMELAND HOLDING CORPORATION AND SUBSIDIARY

                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Contined

                 (In thousands, except share and per share amounts)
                                                                   


4.     Summary of Significant Accounting Policies, continued:

       Property, plant and equipment - Property, plant and equipment are 
       stated at cost.  As discussed in Note 3, in conjunction with the 
       emergence from Chapter 11 proceedings, the Company implemented 
       "fresh-start" reporting and, accordingly, all property, plant and 
       equipment was restated to reflect reorganization value, which 
       approximates fair value in continued use.  Depreciation and 
       amortization, including amortization of leased assets under capital 
       leases, are computed on a straight-line basis over the lesser of the 
       estimated useful life of the  asset or the remaining term of the lease.  
       Depreciation and amortization of newly acquired assets, for financial 
       reporting purposes are based on the following estimated lives:

                                                     Estimated lives
            Buildings                                     10 - 40
            Fixtures and equipment                         5 - 12.5
            Leasehold improvements                           15
            Software                                       3 - 5

       The costs of repairs and maintenance are expensed as incurred, and the 
       costs of renewals and betterments are capitalized and depreciated at 
       the appropriate rates.  Upon sale or retirement, the cost and related 
       accumulated depreciation are eliminated from the respective accounts 
       and any resulting gain or loss is included in the results of operations 
       for that period.  In the fourth quarter of 1995, approximately  $7.9 
       million of capitalized software costs, net of accumulated depreciation, 
       were charged to operational  restructuring costs as a result of 
       management's decision to replace such software.

       Reorganization value in excess of amounts allocable to identifiable 
       assets - The Company's reorganization value in excess of amounts 
       allocable to identifiable assets, established in accordance with 
       "fresh start" reporting (see Note  3), is being amortized on a 
       straight-line basis over three years.


                                       F-14


                     HOMELAND HOLDING CORPORATION AND SUBSIDIARY

                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Contined

                 (In thousands, except share and per share amounts)


                                                                   
4.     Summary of Significant Accounting Policies, continued:

       Other assets and deferred charges - Other assets and deferred charges 
       consist primarily of patronage refund certificates issued by AWG as 
       part of its year-end distribution of income from AWG's cooperative 
       operations and beneficial interests in operating leases amortized on a
       straight-line basis over the remaining terms of the leases, including 
       all available renewal option periods.  The AWG patronage refund 
       certificates bear annual interest of 6% and are redeemable for cash 
       seven years from the date of issuance.

       Net loss per common share - Net loss per common share is computed based 
       on the weighted average number of shares, including shares of 
       redeemable common stock, outstanding during each period.  Net loss is 
       increased by the reduction in redemption value to determine the net 
       loss available to common stockholders.  Net loss per common share data 
       is not meaningful  for periods prior to the Effective Date due to the 
       significant change in the Company's capital structure.

       Cash and cash equivalents - For purposes of the statements of cash 
       flows, the Company considers all short-term investments with an 
       original maturity of three months or less when purchased to be cash 
       equivalents.

       Capitalized interest - The Company capitalizes interest as a part of 
       the cost of acquiring and constructing certain assets.  No interest 
       cost was capitalized in 1996 and  1995.  Interest costs of $35 were 
       capitalized in 1994.

       Advertising costs - Costs of advertising are expensed as incurred.  
       Gross advertising costs for 1996, 1995 and 1994, were $8,453, $10,700 
       and $13,615, respectively.

       Use of estimates - The preparation of financial statements in 
       conformity with generally accepted accounting principles requires 
       management to make estimates and assumptions that affect the reported 
       amounts of assets and liabilities and disclosure of contingent assets 
       and liabilities at the dates of the financial statements and the 
       reported amounts of revenues and expenses during the reporting periods.  
       The most significant assumptions and estimates relate to the reserve 
       for self-insurance programs, the deferred income tax valuation 
       allowance, the accumulated benefit obligation relating to the employee 
       retirement plan and the allowance for bad debts.  Actual results could 
       differ from those estimates.



                                       F-15

                     HOMELAND HOLDING CORPORATION AND SUBSIDIARY

                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued

                 (In thousands, except share and per share amounts)


                                                                   
4.     Summary of Significant Accounting Policies, continued:

       Income taxes - The Company provides for income taxes based on enacted 
       tax laws and statutory tax rates at which items of income and expense 
       are expected to be settled in the Company's income tax return.  
       Certain items of revenue and expense are reported for Federal income 
       tax purposes in different periods than for financial reporting 
       purposes, thereby resulting in deferred income taxes.  Deferred taxes
       also are recognized for operating losses that are available to offset 
       future taxable income and tax credits that are available to offset 
       future Federal income taxes.  Valuation allowances are established 
       when necessary to reduce deferred tax assets to the amounts expected 
       to be realized.

       Self-insurance reserves - The Company is self-insured for property 
       loss, general liability and automotive liability coverage and was 
       self-insured for workers' compensation coverage until June 30, 1994, 
       subject to specific retention levels.  Estimated costs of these 
       self-insurance programs are accrued at their present value based on 
       projected settlements for claims using actuarially determined loss
       development factors based on the Company's prior history with similar 
       claims.  Any resulting adjustments to previously recorded reserves are 
       reflected in current operating results.  Accordingly, the insurance 
       reserve was increased by $5,700 in 1994.  There were no increases in
       insurance reserves for 1995.  As a result of the Company's filing of 
       Chapter 11 petitions with the Bankruptcy Court on May 13, 1996, all 
       outstanding claims under the self-insured programs, as of that date, 
       will be settled under the terms of the Plan.

       Pre-opening Costs - Store pre-opening costs are charged to expense as 
       incurred.
     
       Impact of new financial accounting pronouncements - In February 1997, 
       the Financial Accounting Standards Board issued Statement No. 128, 
       "Earnings Per Share" and Statement No. 129, "Disclosure of Information 
       About Capital Structure."  Statement No. 128 specifies the computation,
       presentation, and disclosure requirements for earnings per share.  
       Statement No. 129 consolidates existing requirements to disclose 
       certain information about an entity's capital structure.  Both 
       statements are effective for financial statements issued for periods 
       ending after December 15, 1997.  Based on the Company's present 
       capital structure and common stock equivalents (stock options), the 
       Company does not believe the implementation of these new 
       standards will have an impact on its financial statements.
     


                                       F-16

                     HOMELAND HOLDING CORPORATION AND SUBSIDIARY

                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Contined

                 (In thousands, except share and per share amounts)



5.     Current and Long-Term Debt:

       Long-term debt at year-end consists of:
     
                                        Successor Company   Predecessor Company
                                          December 28,         December 30,
                                             1996                  1995     
     
         Senior Subordinated Notes         $  60,000            $     -
         Term Loan                            10,000                  -
         Revolving Credit Loans                3,269                 5,467
         Note Payable                            349                  -
         Senior Notes Series A,
           settled pursuant to the Plan         -                    9,499
         Senior Notes Series D,
           settled pursuant to the Plan         -                   26,126
         Senior Notes Series C,         
           settled pursuant to the Plan         -                   59,375
     
                                              73,618               100,467
         Less current portion                    894                  -
         Less long-term debt in default
         classified as current                  -                  100,467
     
         Long-term debt due after one year $  72,724            $     -  
     
       Prior to the Effective Date, the Company had outstanding amounts of 
       $9,499 Series A Senior Secured Floating Rate Notes due 1997, $26,126 
       Series D Senior Secured Floating Rate Notes due 1997, and $59,375 
       Series C Senior Secured Fixed Rate Notes due 1999 that were issued 
       pursuant to an Indenture with United States Trust Company of New York, 
       as amended and supplemented, dated as of March 1992.  As of the
       Effective Date, the Old Notes were cancelled in exchange for $60,000 
       New Notes, $1,500 cash and approximately 60% of the New Common Stock 
       (see Note 2).
     
       The New Notes bear an interest rate of 10%, which is payable 
       semi-annually each February 1 and August 1, commencing February 1, 
       1997.  The New Notes are unsecured and will mature on August 1, 2003.  
       The Indenture relating to the New Notes has certain customary 
       restrictions on consolidations and mergers, indebtedness, issuance of 
       preferred stocks, asset sales and payment of dividends.
     
     
     
                                       F-17

                     HOMELAND HOLDING CORPORATION AND SUBSIDIARY

                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued

                 (In thousands, except share and per share amounts)



5.     Current and Long-Term Debt, continued:
     
       On May 13, 1996, the Company entered into an interim debtor-in
       -possession revolving credit agreement with its bank group (the "DIP 
       Facility"). The DIP Facility provided the Company up to $27,000 in the 
       form of a revolving credit facility for the Company's working capital 
       and general corporate needs during the bankruptcy proceedings.  The DIP 
       Facility was secured by first liens on certain of the assets of the 
       Company.  Interest on borrowings under the DIP Facility was at a rate
       equal to the Prime Rate, as defined, plus two percent.  The DIP 
       Facility matured on the Effective Date.
     
       On the Effective Date, the Company entered into a new bank credit 
       agreement with a group of lenders (the "Loan Agreement").  The Loan 
       Agreement consists of a $27,500 revolving facility for working capital 
       and letters of credit (the "Revolving Facility") and a $10,000 term 
       loan (the "Term Loan").  The Revolving Facility permits the Company to
       borrow up to the lesser of $27,500 or the applicable borrowing base.
     
       The interest rate, payable quarterly, under the Loan Agreement is based 
       on the Prime Rate, as defined, plus a percentage that varies based on 
       a number of factors, including (a) whether it is the Revolving Facility 
       or the Term Loan, (b) the time period, (c) whether the Company elects 
       to use London Interbank Offered Rate and (d) the earnings of the 
       Company before interest, taxes, depreciation and amortization expenses.
       At December 28, 1996, the interest rate on borrowings on the Revolving 
       Facility was 9.00% and the Term Loan was 8.75%.
     
       The Revolving Facility provides for certain mandatory prepayments based 
       on occurrence of certain defined and specified transactions.  The Term 
       Loan requires quarterly principal payments of $417 commencing on 
       September 30, 1997.  The Loan Agreement will mature on August 1, 1999.
       
       The obligations of the Company under the Loan Agreement are 
       collateralized by liens on, and security interest in, substantially 
       all of the assets of Homeland and are guaranteed by Holding. The Loan 
       Agreement, among other things, requires a maintenance of EBITDA, 
       consolidated fixed charge ratio, Debt-to-EBITDA ratio, current ratio, 
       excess cash flow paydown, each as defined, and limits the Company's 
       capital expenditures, incurrence of additional debt, consolidation
       and mergers, acquisitions and payments of dividends.
     
       In connection with the early redemption of a portion of the Old Notes 
       on April 21, 1995, the Company incurred an extraordinary loss of 
       $2,330.  The loss was comprised of premium and consent fees paid and 
       the write-off of unamortized financing costs.
     

                                       F-18

                     HOMELAND HOLDING CORPORATION AND SUBSIDIARY

                 NOTES TO CONSOLIDATED FINANCIAL STATMENTS, Contined

                 (In thousands, except share and per share amounts)



5.     Current and Long-Term Debt, continued:
     
       At December 28, 1996, the aggregate annual debt maturities
       were as follows:
     
               1997                             $      894
               1998                                  1,729
               1999                                 10,828
               2000                                     61
               2001                                     61
               Thereafter                           60,045
                                                $   73,618

6.     Fair Value of Financial Instruments:

       The estimated fair value of financial instruments has been determined 
       by the Company using available market information and appropriate 
       valuation methodologies.   However, considerable judgment is 
       necessarily required in interpreting market data to develop the 
       estimates of fair value.  Accordingly, the estimates presented herein 
       are not necessarily indicative of the amounts that the Company could 
       realize in a current market exchange.  The use of different market 
       assumptions and/or estimation methodologies may have a material effect 
       on the estimated fair value amounts.  The carrying amount and fair 
       value of financial instruments as of December 28, 1996, and December 
       30, 1995, are as follows:

                                      Successor Company     Predecessor Company
                                         December 28,          December 30,
                                             1996                 1995         
                                        Carrying   Fair      Carrying  Fair
                                         Amount    Value      Amount   Value
       Assets:
         Cash and Cash                                                   
         Equivalents                  $   1,492   $  1,492  $  6,357  $ 6,357
       Liabilities:
         Current and Long-Term
            Obligations in default
             classified as current    $       -   $   -     $100,467  $56,411
         Current and Long-Term Deb    $  73,618   $ 68,818      -        -

       Cash and cash equivalents - The carrying amount of this item is a 
       reasonable estimate of its fair value due to its short-term nature.


                                       F-19
                                   

                     HOMELAND HOLDING CORPORATION AND SUBSIDIARY

                 NOTES TO CONSOLIDATED FINANCIAL STATMENTS, Continued

                 (In thousands, except share and per share amounts)
                                                                   


6.     Fair Value of Financial Instruments, continued:

       Current and long-term obligations in default classified as current; 
       current and long-term debt - The fair value of publicly traded debt 
       is valued based on quoted market values.  Based on borrowing rates 
       currently available to the Company for bank borrowings with similar 
       terms and maturities, the Company believes the carrying amount of 
       borrowings under the Loan Agreement approximates fair value.
       
7.     Income Taxes:

       The components of the income tax benefit (provision) for the 20 weeks 
       ended December 28, 1996, 32 weeks ended August 10, 1996, and fiscal 
       years 1995 and 1994 were as follows:

                                Successor Company      Predecessor Company    
                                   20 Weeks      32 Weeks
                                    Ended         Ended 
                                  12/28/96       08/10/96       1995      1994

       Federal:
        Current - AMT           $       -        $   -      $   -     $   1,551
        Deferred                        -            -          -        (3,997)
       Total income tax benefit
         (provision)            $       -        $   -      $   -     $  (2,466)


                                       F-20

                     HOMELAND HOLDING CORPORATION AND SUBSIDIARY

                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued

                 (In thousands, except share and per share amounts)



7.     Income Taxes, continued:

       A reconciliation of the income tax benefit (provision) at the statutory 
       Federal income tax rate to the Company's effective tax rate is as 
       follows:

                                 Successor Company  Predecessor Company         
                                   20 Weeks        32 Weeks
                                    Ended            Ended   
                                   12/28/96        08/10/96     1995     1994   

     Federal income tax at
      statutory rate              $  1,092        $(13,232)  $ 11,127 $  13,370 
     Benefit of non-taxable 
      foregiveness of debt             945          14,720       -         -
     Non-deductible
      reorganization expenses         -             (1,488)      -         -
     Amortization of intangibles    (2,037)           -          -         -
     AMT loss carryback               -               -          -        1,551
     Limitation of benefit
      of deferred tax assets          -               -       (10,074)  (16,075)
     Other - net                      -               -       ( 1,053)   (1,292)
      Total income tax benefit
       (provision)                $   -           $   -      $   -     $ (2,446)


       During the year ended December 30, 1995, the Company received an income 
       tax refund amounting to $1,339, due to the recognition of a tax benefit 
       from its year ended December 31, 1994 for a net alternative minimum tax 
       operating loss that was carried back to prior tax years.


                                       F-21

                     HOMELAND HOLDING CORPORATION AND SUBSIDIARY

                NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued

                (In thousands, except share and per share amounts)



7.     Income Taxes, continued:

       The components of deferred tax assets and deferred tax liabilities are 
       as follows:

                                          Successor Company  Predecessor Company
                                             December 28,       December 30,
                                                1996                1995      
       Current assets (liabilities):
         Allowance for uncollectible         
           receivables                       $     555           $   1,090
         Operational restructuring reserve        -                  1,282
         Prepaid pension                          (507)               (423)
         Other, net                                 12                 829

           Net current deferred tax assets          60               2,778

       Noncurrent assets (liabilities):
         Property, plant and equipment             170                 251
         Targeted job credit carryforward          815                 815
         Employee compensation and benefits        929                -
         Self-insurance reserves                   522               2,150
         Operational restructuring reserve        -                    969
         Net operating loss carryforwards       14,704              17,001
         AMT credit carryforwards                  630                 630
         Capital leases                            159               1,111
         Other, net                                742                 444
           Net noncurrent deferred tax
            assets                              18,671              23,371
                
         Total net deferred 
          assets                                18,731              26,149
         Valuation allowance                   (18,731)            (26,149)

         Net deferred tax assets             $    -              $    -     


       Due to the uncertainty of realizing the future tax benefits, the full 
       valuation allowance was established to entirely offset the net deferred 
       tax assets as of December 28, 1996.  At December 28, 1996, the Company 
       had the following operating loss and tax credit carryforwards available 
       for tax purposes:


                                       F-22

                     HOMELAND HOLDING CORPORATION AND SUBSIDIARY

                NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued

                (In thousands, except share and per share amounts)


7.     Income Taxes, continued:

                                                         Expiration
                                          Amount           Dates   

       Federal regular tax net
        operating loss carryforwards       $42,011          2002-2010
       Federal AMT credit carryforwards
        against regular tax                   $630          indefinite
       Federal tax credit carryforwards
        (Targeted Jobs Credit)                $815          2003-2009

       The net operating loss carryforwards are subject to utilization 
       limitations due to ownership changes.  The net operating loss 
       carryforwards may be utilized to offset future taxable income as 
       follows:  $4,501 in 1997, $3,251 in each of years 1988 through 2008
       and $1,749 in 2009.  Loss carryforwards not utilized in any year that
       they are available may be carried over and utilized in subsequent
       years, subject to their expiration provisions.

       In accordance with SOP 90-7, the tax benefit realized from utilizing
       the pre-reorganization net operating loss carryforwards will be
       recorded as a reduction of the reorganization value in excess of 
       amounts allocable to identifiable assets rather than be realized as a
       benefit on the statement of operations.
                                              
8.     Incentive Compensation Plans:

       The Company has bonus arrangements for store management and other key 
       management personnel.  During 1996, 1995, and 1994, approximately 
       $2,273, $934, and $1,939, respectively, were charged to costs and 
       expenses for such bonuses.

       In December 1996, the Board of Directors of the Company, pursuant to 
       the Plan, adopted the Homeland Holding Corporation 1996 Stock Option 
       Plan (the "Stock Option Plan").  The Company applies APB Opinion No. 
       25, "Accounting for Stock Issued to Employees" and related 
       Interpretations in accounting for this plan.  SFAS No. 123, 
       "Accounting for Stock-Based Compensation" ("SFAS") was issued by the 
       FASB in 1995 and, if fully adopted, changes the methods for recognition 
       of cost on plans similar to the Company's.   Adoption of SFAS 123 is 
       optional; however, pro forma disclosures as if the Company adopted the 
       cost recognition requirements under SFAS 123 in 1996 are presented 
       below.
       

                                       F-23

                     HOMELAND HOLDING CORPORATION AND SUBSIDIARY

                NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued

                (In thousands, except share and per share amounts)


8.     Incentive Compensation Plans, continued
       
       The Stock Option Plan, to be administered by the Board of Directors
       (the "Board"), or a committee of the Board (the "Committee"), provides
       for the granting of options to purchase up to an aggregate of 263,158
       shares of New Common Stock.  Options granted under the Stock Option 
       Plan must be "non-qualified  options."  The option price of each option
       is determined by the Board or the Committee and it must be not less 
       than the fair market value at the date of grant.  Unless the Board or 
       the Committee otherwise determines, options must become exercisable 
       ratably over a five-year period or immediately in the event of a 
       "change of control" as defined in the Stock Option Plan.  Each option 
       must be evidenced by a written agreement and must expire and terminate 
       on the earliest of: (a) ten years from the date the option is granted 
       (b) termination for cause; or (c) three months after termination for 
       other than cause.
     
       Options  granted under the Stock Option Plan as of December
       28,1996, are as follows:
     
     
                                                            Weighted Average
                                            Shares            Exercise Price
         Options granted                    197,500                $8.00
         Options exercised                     -                     -
         Options expired/terminated            -                     -  
         Outstanding options, end of year   197,500                $8.00
      
         Options exercisable at year-end    197,500                $8.00


       As of December 28, 1996, the stock options outstanding under the Stock 
       Option Plan have a weighted average remaining contractual life of 10 
       years. The weighted average fair value of options granted during 1996 
       was $4.02.  No compensation was charged against income in 1996.
     
       The fair value of the options granted during 1996 was estimated on the 
       date of the grant using the Black-Scholes option-pricing model with 
       the following assumptions used: (a) dividend yield of 0%; (b) expected 
       volatility of 30%; (c) a risk-free interest rate of 6.4%; and (d) 
       expected life of 8 years for the options granted.
     
       Had compensation cost of the Company's Stock Option Plan been 
       determined using the fair value at the grant date of awards consistent 
       with the method of SFAS 123,  the Company's net loss and net loss per 
       common share for the Successor Company would have been $(3,914) and 
       $(.82), respectively.
     

                                       F-24

                     HOMELAND HOLDING CORPORATION AND SUBSIDIARY

                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued

                 (In thousands, except share and per share amounts)


8.     Incentive Compensation Plans, continued:

       Pursuant to the terms of the Modified Union Agreements, the Company 
       established an employee stock bonus plan for the benefit of the 
       unionized employees (the "Stock Bonus Plan").  The Stock Bonus Plan 
       consists of three separate elements: (a) the issuance of 58,025 shares 
       of New Common Stock each year for three years; (b) up to 58,025 shares 
       of the New Common Stock may be purchased by the plan participants on
       each of the first, second and third anniversaries of the Modified Union 
       Agreements (the "Stock Purchase") and (c) the granting of 58,025 shares 
       of New Common Stock for each of the first, second and third 
       anniversaries of the Modified Union Agreements upon the Company's 
       achievement of certain escalating EBITDA-based performance goals (see 
       Note 2).  The purchase price of the shares under the Stock Purchase 
       element shall be equal to the appraised value or at fair value if the 
       shares are readily tradable on a securities market.  For each share of 
       New Common Stock purchased by a  participant under the Stock Purchase 
       element, the Company will match 33 1/3% of such purchase in the form 
       of stock.  The Stock Bonus Plan does not fall under the provisions of 
       SFAS 123.
     
9.     Retirement Plans:

       Effective January  1, 1988, the Company adopted a non-contributory, 
       defined benefit retirement plan for all executive and administrative 
       personnel.  Benefits are based on length of service and career average 
       pay with the Company.  The Company's funding policy is to contribute 
       an amount equal to or greater than the minimum funding requirement of 
       the Employee Retirement Income Security Act of 1974, but not in excess 
       of the maximum deductible limit.  Plan assets were held in investment 
       mutual funds during 1996 and 1995.

       Net pension cost consists of the following:


                                          1996         1995          1994  

       Service cost                    $   503      $   517       $   709
       Interest cost                       574          465           366
       Loss (return) on assets            (918)      (1,140)           63
       Net amortization and deferral       345          690          (419)
       Curtailment charge                 -             (37)         -  

         Net periodic pension cost     $   504      $   495       $   719


                                       F-25

                     HOMELAND HOLDING CORPORATION AND SUBSIDIARY

                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued

                 (In thousands, except share and per share amounts)



9.     Retirement Plans, continued:


       The funded status of the plan and the amounts recognized in the 
       Company's balance sheet at December 28, 1996, and December 30, 1995, 
       consist of the following:


    
                                       Successor Company    Predecessor Company

                                              1996                    1995      

       Actuarial present value of benefit
        obligations:
         Vested benefits                   $  (7,066)             $  (6,928)
         Non-vested benefits                    (152)                   (88)
            Accumulated benefit
             obligations                   $  (7,218)             $  (7,016)

       Projected benefit obligations       $  (7,694)             $  (7,693)
       Plan assets at fair value               8,436                  6,902
       Excess (deficiency) of plan assets
        versus projected benefit
        obligations                              742                   (791)
       Unrecognized prior service cost           (84)                   (95)
       Unrecognized net loss from past
        experience different from that
        assumed and changes in actuarial
        assumptions                              867                  2,096
       Adjustment to recognize minimum
        liability                               -                    (1,327)
       Net pension asset (liability)
        recognized in statement of                                   
        financial position                 $   1,525              $    (117)


                                       F-26

                     HOMELAND HOLDING CORPORATION AND SUBSIDIARY

                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued

                 (In thousands, except share and per share amounts)



9.     Retirement Plans, continued:

       Actuarial assumptions used to determine year-end plan status were as 
       follows:

                                                       1996           1995      

       Assumed rate for determination of net
        periodic pension cost                          7.25%          9.0%

       Assumed discount rate to determine
        the year-end plan disclosures                  7.75%          7.25%

       Assumed long-term rate of return
        on plan assets                                 9.0%           9.0%

       Assumed range of rates of future
        compensation increases
        (graded by age) for net
        periodic pension cost                      3.5% to 5.5%   5.0% to 7.0%

       Assumed range of rates of future
        compensation increases
        (graded by age) for year-end
        plan disclosures                           3.5% to 5.5%   3.5% to 5.5%

       The prior service cost is being amortized on a straight line basis over 
       approximately 13 years.

       As a result of the sale of the Company's  warehouse and distribution 
       center and 29 stores to AWG, as well as the closure of 14  under-
       performing stores during 1995,  a significant number of employees were 
       terminated that participated in the Company's non-contributory defined
       benefit retirement plan.  The effect of the curtailment resulting from 
       the terminations of such employees was not material to the Statement 
       of Operations for the year ended December 30, 1995.
       
       The Company also contributes to various union-sponsored, multi-employer 
       defined benefit plans in accordance with the collective bargaining 
       agreements. The Company could, under certain circumstances, be liable 
       for the Company's unfunded vested benefits or other costs of these 
       multi-employer plans.  The allocation to participating employers of 
       the actuarial present 
       

                                       F-27
       
                     HOMELAND HOLDING CORPORATION AND SUBSIDIARY

                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Contined

                 (In thousands, except share and per share amounts)

       
9.     Retirement Plans, continued:       

       value of vested and nonvested accumulated benefits in multi-employer 
       plans as well as net assets available for benefits is not available 
       and, accordingly, is not presented.  The costs of these plans for 1996, 
       1995, and 1994 were $1,412, $2,110, and $3,309, respectively.

       Effective January 1, 1988, the Company adopted a defined contribution 
       plan covering substantially all non-union employees of the Company.  
       Prior to 1994, the Company contributed a matching 50% for each one 
       dollar the participants contribute in pre-tax matched contributions.
       Participants may contribute from 1% to 6% of their pre-tax compensation 
       which was matched by the Company. Participants may make additional 
       contributions of 1% to 6% of their pre-tax compensation, but such 
       contributions were not matched by the Company.  Effective January 2, 
       1994, the plan was amended to allow a discretionary matching 
       contribution formula based on the Company's operating results.  The
       Company did not make any contributions to this plan in 1996, 1995 
       or 1994.

10.    Leases:

       The Company leases 53 of its retail store locations under 
       noncancellable agreements, which expire at various times between 1997 
       and 2013.  These leases, which include both capital leases and 
       operating leases, generally are subject to six five-year renewal 
       options.  Most leases also require the payment of taxes, insurance and 
       maintenance costs and many of the leases covering retail store 
       properties provide for additional contingent rentals based on sales 
       in excess of certain stipulated amounts.
       
       Leased assets under capital leases consists of the following:


                                      Successor Company     Predecessor Company
                                      
                                        December 28,            December 31,
                                          1996                      1995    

       Buildings                       $   2,738                 $ 16,670
       Equipment                           1,658                    7,014
       Beneficial interest
        in capital leases                  3,173                    5,378

                                           7,569                   29,062
       Accumulated amortization              546                   17,851

       Net leased assets               $   7,023                 $ 11,211


                                       F-28

                     HOMELAND HOLDING CORPORATION AND SUBSIDIARY

                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued

                 (In thousands, except share and per share amounts)


10.    Leases, continued:

       Future minimum lease payments under capital leases and noncancellable 
       operating leases as of December 28, 1996, are as follows:


                                                    Capital    Operating
       Fiscal Year                                   Leases      Leases  

       1997                                         $  1,814    $  6,089
       1998                                            1,306       5,719
       1999                                            1,001       5,194
       2000                                              248       4,644
       2001                                              182       3,198
       Thereafter                                      1,652      18,013
       Total minimum obligations                       6,703    $ 42,857

       Less estimated interest                         1,855
       Present value of net minimum
        obligations                                    4,348
       Less current portion                            1,343
       Long-term obligations under
        capital leases                               $ 3,005


                                       F-29


                     HOMELAND HOLDING CORPORATION AND SUBSIDIARY

                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued

                 (In thousands, except share and per share amounts)



10.    Leases, continued:

       Rent expenses for 1996, 1995 and 1994 are as follows:


                                               1996      1995       1994

       Minimum rents                     $    6,039    $10,264    $12,560
       Contingent  rents                        105        107        178

                                         $    6,144    $10,371    $12,738

11.    Related Party Transactions:

       Clayton, Dubilier & Rice, Inc. ("CDR"), a private investment firm of 
       which four directors of the Predecessor Company are employees, 
       received $125 in 1995 and $150 in 1994, for financial advisory and 
       consulting services.   As of the Effective Date, CDR, through C&D Fund 
       III and C&D Fund IV, received its ratable share of the 250,000 shares 
       of New Common Stock, and the 263,518 warrants (see Note 2) for
       their 76.3% majority holding in the Old Common Stock of Holding.

       The Company made loans during 1995 to certain members of management 
       and key employees for principal payments on their loans made in 
       connection with their purchase of Old Common Stock.  The interest on 
       the loans was at the Company's prime lending rate plus 1%.  Loans 
       outstanding at December 30, 1995, totaled $82.

12.    Commitments and Contingencies:

       On April 21, 1995, the Company and AWG entered into a seven-year supply 
       agreement (the "Supply Agreement"), whereby the Company became a retail 
       member of the AWG cooperative and AWG became the Company's primary 
       supplier (see  Note 4 - Concentration of credit and business risk).   
       The terms of the Supply Agreement allow the Company to purchase 
       products at the lowest prices and best terms available to AWG members
       and also entitle the Company to participate in its store cost savings 
       programs and receive member rebates and refunds on purchases.  
       
       The Company has entered into employment contracts with certain key 
       executives providing for the payment of minimum salary and bonus 
       amounts in addition to certain other benefits in the event of 
       termination of the executives or change of control of the Company.


                                       F-30


                     HOMELAND HOLDING CORPORATION AND SUBSIDIARY

                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued

                 (In thousands, except share and per share amounts)


12.    Commitments and Contingencies, continued:

       The Company is also a party to various lawsuits arising from the 
       Restructuring and also in the normal course of business.  Management 
       believes that the ultimate outcome of these matters will not have a 
       material effect on the Company's consolidated financial position, 
       results of operations and cash flows.

       The Company has outstanding at December 28, 1996, $8,357 in letters of 
       credit which are not reflected in the accompanying financial 
       statements.  The letters of credit are issued under the credit 
       agreements and the Company paid associated fees of $259 and $335 in 
       1996 and 1995, respectively.

13.    Operational Restructuring:
       
       In December 1994, the Board of Directors approved a strategic plan for
       the Company.  Pursuant to the plan, the Company sold 29 of its stores
       and its warehouse and distribution center to AWG on April 21, 1995,
       and closed sixteen under-performing stores in 1995 and 1996.  The
       charges recognized in 1994 and 1995 were $23,205 and $12,639, 
       respectively.  The major components of the 1994 charges were expenses
       associated with the closed stores, severance and transaction costs
       associated with the AWG transaction and legal and consulting expenses.
       The 1995 charges consist principally of the write-off of 
       capitalized software costs, write-off of the unamortized balance of the
       excess purchase price over fair value of net assets acquired, the 
       expense associated with the termination of an EDP outsourcing 
       agreement, and expenses associated with closed stores.

       At August 10, 1996, the carrying amount of reserve relating to the
       operational restructuring was $3,424.  As a result of the 
       Restructuring, certain obligations relating to the closed stores were
       discharged under the terms of the Plan.  The reserve relating to the
       operational restructuring at December 28, 1996, amounts to $1,063
       and it is included in other current and other non-current liabilities
       of the Consolidated Balance Sheet.


                                       F-31

                                           


                               EXHIBIT INDEX


     Exhibit No.    Description

          2a        Disclosure Statement for Joint Plan of Reorganization 
                    of Homeland Stores, Inc. and Homeland Holding Corporation 
                    dated as of May 13,1996, (Incorporated by reference to 
                    Exhibit 2a  to Form 8-K dated May 31, 1996)

          2b        First Amended Joint Plan of Reorganization, as modified, 
                    of Homeland Holding Corporation ("Holding") and Homeland 
                    Stores, Inc. ("Homeland"), dated July 19, 1996 
                    (Incorporated by reference to Exhibit 2b to Form 10-Q for 
                    the quarterly period ended June 15,1996).

          3a        Restated Certificate of Incorporation of Holding, dated 
                    August 2, 1996.

          3b        By-laws of Holding, as amended and restated on 
                    November 14, 1989 and further amended on September 23, 
                    1992. (Incorporated by reference to Exhibit 3b to 
                    Form 10-Q for quarterly period ended June 19, 1993)

          3c        Restated Certificate of Incorporation of Homeland, dated 
                    August 2, 1996.

          3d        By-laws of Homeland, as amended and restated on November
                    14, 1989, and further amended on September 23, 1992.
                    (Incorporated by reference to Exhibit 3d to Form 10-Q for
                    quarterly period ended June 19, 1993)

          4a        Indenture, dated as of August 2, 1996, among Homeland, 
                    Fleet National Bank, as Trustee, and Holding, as 
                    Guarantor.  (Incorporated by reference to Exhibit T3C
                    to Form T-3 of Homeland, SEC File No. 22-22239)

          4b        Warrant Agreement, dated as of August 2, 1996, between 
                    Holding and Liberty Bank and Trust Company of Oklahoma 
                    City, N.A., as Warrant Agent.  (Incorporated by reference 
                    to Exhibit 4h to Amendment No. 1 to Form 10)

          4c        Equity Registration Rights Agreement, dated as of 
                    August 2, 1996, by Holding for the benefit of holders 
                    of Old Common Stock.  (Incorporated by reference to 
                    Exhibit 4i to Amendment No. 1 to Form 10)

          4d        Noteholder Registration Rights Agreement, dated as of 
                    August 2, 1996, by Holding for the benefit of holders 
                    of Old Notes.  (Incorporated by reference to Exhibit 4j 
                    to Amendment No. 1 to Form 10)

          10a 1     Homeland Profit Plus Plan, effective as of January 1, 
                    1988.  (Incorporated by reference to Exhibit 10q to 
                    Form S-1 Registration Statement, Registration 
                    No. 33-22829)

          10a.1 1   Homeland Profit Plus Plan, effective as of January 1, 
                    1989  (Incorporated by reference to Exhibit 10q.1 to 
                    Form 10-K for the fiscal year ended December 29, 1990)


                                       E-1



     Exhibit No.    Description

          10b       Homeland Profit Plus Trust, dated March 8, 1988, between 
                    Homeland and the individuals named therein, as Trustees.  
                    (Incorporated by reference to Exhibit 10r to Form S-1 
                    Registration Statement, Registration No. 33-22829)

          10c       Homeland Profit Plus Trust, dated January 1, 1989, 
                    between Homeland and Bank of Oklahoma, N.A., as Trustee  
                    (Incorporated by reference to Exhibit 10r.1 to Form 10-K 
                    for the fiscal year ended December 29, 1990)

          10d.1 1   1994 Homeland Management Incentive Plan.  (Incorporated 
                    by reference to Exhibit 10.s6 to Form 10-K for fiscal 
                    year ended December 31, 1994)

          10d.2 1   1995 Homeland Management Incentive Plan.  (Incorporated 
                    by reference to Exhibit 10s.7 to Form 10-K for fiscal 
                    year ended December 30, 1995)

          10d.3*1   1996 Homeland Management Incentive Plan

          10e 1     Form of Homeland Employees' Retirement Plan, effective 
                    as of January 1, 1988. (Incorporated by reference to 
                    Exhibit 10t to Form S-1 Registration Statement, 
                    Registration No. 33-22829)

          10e.1 1   Amendment No. 1 to Homeland Employees' Retirement Plan  
                    effective January 1, 1989.  (Incorporated herein by 
                    reference to Form 10-K for fiscal year ended 
                    December 30, 1989)

          10e.2 1   Amendment No. 2 to Homeland Employees' Retirement Plan 
                    effective January 1, 1989.  (Incorporated herein by 
                    reference to Form 10-K for fiscal year ended 
                    December 30, 1989)

          10e.3 1   Third Amendment to Homeland Employees' Retirement Plan 
                    effective as of January 1, 1988.  (Incorporated herein 
                    by reference to Exhibit 10t.3 to Form 10-K for fiscal
                    year ended December 29, 1990)

          10e.4 1   Fourth Amendment to Homeland Employees' Retirement Plan 
                    effective as of January 1, 1989.  (Incorporated herein 
                    by reference to Exhibit 10t.4 to Form 10-K for the fiscal 
                    year ended December 28, 1991)

          10e.5 1   Fifth Amendment to Homeland Employees' Retirement Plan 
                    effective as of January 1, 1989 (Incorporated herein by 
                    reference to Form 10-Q for the quarterly period ended 
                    September 9, 1995)

          10f 1     Executive Officers Medical/Life Insurance Benefit Plan
                    effective as of December 9, 1993.  (Incorporated by 
                    reference to Exhibit 10kk to Form 10-K for the fiscal 
                    year ended January 1, 1994)

          10g 1     Employment Agreement, dated as of August 11, 1994, 
                    between Homeland and Steve Mason.  (Incorporated by 
                    reference to Exhibit 10nn to Form 10-Q for the quarterly 
                    period ended September 10, 1994)

          10h 1     Employment Agreement, dated as of August 11, 1994, 
                    between Homeland and Al Fideline.  (Incorporated by 
                    reference to Exhibit 10oo to Form 10-Q for the quarterly 
                    period ended September 10, 1994)


                                       E-2



     Exhibit No.    Description

          10i.1     Asset Purchase Agreement, dated as of February 6, 1995,
                    between Homeland and Associated Wholesale Grocers, Inc.
                    (Incorporated by reference to Exhibit 10pp.1 to Form 10-K 
                    for fiscal year ended December 30, 1995)

          10j 1     Employment Agreement, dated as of November 22, 1994, 
                    between Homeland and James A. Demme.  (Incorporated by 
                    reference to Exhibit 10rr to Form 10-K for fiscal year 
                    ended December 30, 1995)

          10j.11    Amendment to Employment Agreement between Homeland and 
                    James A. Demme, dated as of April 29, 1996.  (Incorporated 
                    by reference to Exhibit 10rr.1 to Form 10-K for fiscal 
                    year ended December 30, 1995)

          10k       Amended and Restated Revolving Credit Agreement, dated 
                    as of April 21, 1995, among Homeland, Holding, National 
                    Bank of Canada, as Agent and lender, Heller Financial, Inc. 
                    and any other lenders thereafter parties thereto.  
                    (Incorporated by reference to Exhibit 10uu to Form 8-K 
                    dated March 14, 1996)

          10k.1     Waiver Agreement, dated as of December 29, 1995, among 
                    Homeland, Holding, National Bank of Canada and Heller 
                    Financial, Inc. (Incorporated by reference to Exhibit 
                    10uu.1 to Form 8-K dated March 14, 1996)

          10k.2     Second Waiver Agreement, dated as of March 1, 1996, among 
                    Homeland, Holding, National Bank of Canada and Heller 
                    Financial, Inc. (Incorporated by reference to Exhibit 
                    10uu.2 to Form 8-K dated March 14, 1996)

          10k.3     Ratification and Amendment Agreement to the $27,000,000 
                    Amended and Restated Revolving Credit Agreement, dated 
                    as of May 10, 1996, among Homeland, Holding, National 
                    Bank of Canada, as Agent and lender, Heller Financial, Inc. 
                    and any other lenders thereafter parties thereto. 
                    (Incorporated by reference to Exhibit 10uu.3 to Form 10-Q 
                    for quarterly period ended March 23, 1996)

          10l 1     Employment Agreement dated as of July 10, 1995 and as 
                    amended September 26, 1995, between Homeland and Larry 
                    W. Kordisch. (Incorporated by reference to Exhibit 10pp 
                    to Form 10-K dated September 9, 1995)

          10l.11    Amendment to Employment Agreement between Homeland and 
                    Larry W. Kordisch, dated as of April 29, 1996.  
                    (Incorporated by reference to Exhibit 10vv.1 to Form 10-K 
                    for fiscal year ended December 30, 1995)

          10m 1     Employment Agreement dated as of April 29, 1996, between 
                    Homeland and Terry M. Marczewski. (Incorporated by 
                    reference to Exhibit 10ww.1 to Form 10-K for fiscal year 
                    ended December 30, 1995)

          10n 1     Employment Agreement, dated as of April 29, 1996, between 
                    Homeland and Steve M. Mason. (Incorporated by reference 
                    to Exhibit 10yy to Form 10-K for fiscal year ended 
                    December 30, 1995)


                                       E-3


     Exhibit No.    Description

          10o 1     Employment Agreement, dated as of April 29, 1996, between 
                    Homeland and Alfred Fideline. (Incorporated by reference 
                    to Exhibit 10zz to Form 10-K for fiscal year ended 
                    December 30, 1995)

          10p       Indenture, dated as of August 2, 1996, among Homeland, 
                    Fleet National Bank, as Trustee, and Holding, as Guarantor.
                    (Incorporated by reference to Exhibit 10aaa to Form 8-K 
                    dated September 30, 1996)

          10q       Loan Agreement, dated as of August 2, 1996, among IBJ 
                    Schroder Bank & Trust Company, Heller Financial, Inc., 
                    National Bank of Canada, Homeland and Holding.

          10r       Subsidiaries.  (Incorporated by reference to Exhibit 22 
                    to Form S-1 Registration Statement, Registration 
                    No. 33-22829)

          10s*1     Employee Stock Bonus Plan for union employees effective 
                    as of August 2, 1996

          10t.*1    Management Stock Option Plan effective as of December 
                    11, 1996
          
          23*       Consent of Coopers & Lybrand, L.L.P.

          27*       Financial Data Schedule.

          99a       Press Release issue by Homeland Stores, Inc. on March 1, 
                    1996.  (Incorporated by reference to Exhibit 99e to 
                    Form 8-K dated March 14, 1996)

          99b       Press Release issued by Homeland Stores, Inc. on March 27, 
                    1996.  (Incorporated by reference to Exhibit 99f to 
                    Form 10-K for fiscal year ended December 30, 1995)

          99c       Press Release issued by Homeland Stores, Inc. on July 19, 
                    1996.  (Incorporated by reference to Exhibit 99h to 
                    Form 10-Q for quarterly period ended June 15, 1996)

          99d*      Press Release issued by Homeland Stores, Inc. on 
                    February 7, 1997


                                       E-4