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HARRY'S REFINANCES, READIES EXPANSION

ATLANTA -- Harry's Farmers Market here has laid the groundwork for its expansion program.The company said last week it completed a financial restructuring that will allow it to proceed with plans for two megastores and test its Harry's In a Hurry convenience-store concept at Wal-Mart stores.Harry's had put an indefinite hold on all expansion plans early last year after operational problems associated

ATLANTA -- Harry's Farmers Market here has laid the groundwork for its expansion program.

The company said last week it completed a financial restructuring that will allow it to proceed with plans for two megastores and test its Harry's In a Hurry convenience-store concept at Wal-Mart stores.

Harry's had put an indefinite hold on all expansion plans early last year after operational problems associated with the startup of expanded backstage facilities resulted in an earnings loss of $4.83 million for the year ended Feb. 2.

The restructuring, which was disclosed last week, includes $11 million in new equity financing and more than $35 million in new bank credit facilities, including a $9 million line of working capital.

The company said it would use funds from the restructuring to accomplish the following:

To proceed with plans to open Harry's In a Hurry convenience stores at between two and four Wal-Marts by late August. Their specific locations have not yet been determined, a company spokesman told SN.

To complete construction in Southlake, Ga., an Atlanta suburb, of a 175,000-square-foot megastore by May and to repay

certain obligations previously incurred at that location.

Construction at the Southlake site had been suspended last January. The store, which will use 110,000 square feet of selling space in a 175,000-square-foot building, is expected to open in May, the spokesman said.

To open a fifth megastore, most likely in Nashville, Tenn. -- an 80,000-square-foot store with approximately 69,000 to 72,000 square feet of selling space that could open in November at the earliest and in May, 1996, at the latest, the spokesman told SN.

The restructuring includes a tentative agreement with an Alabama-based developer for the sale of a 17-acre tract in Nashville and the possible leaseback of a portion of the property to construct the store there. Harry's officials said they believe the contract with the developer will be closed by March 31, "[though] there can be no assurance that such a transaction will be accomplished."

Harry's, founded in 1988, operates three megastores and two freestanding Harry's In a Hurry convenience stores here specializing in perishable food products, as well as complementary specialty and gourmet nonperishables.

Sales for the fiscal year ending in February are expected to be about $140 million, up 20% over the $116.7 million reported a year ago. The company also expects to report an earnings loss greater than last year's $4.8 million, the spokesman told SN.

As Harry's expanded the size of its bakery, prepared foods and produce facilities, operating problems resulting from under-utilization led to cash flow problems, leading the company to postpone the opening of a fourth megastore in Southlake "contingent on securing funding from our existing commercial lenders," Harry Blazer, president and chief executive officer, said at the time.

The company also postponed plans to open a fifth megastore (and its first location outside Atlanta) in Nashville, as well as plans to open additional Harry's In a Hurry specialty convenience stores.

Under the financial restructuring, investors have purchased $11 million in new equity in the form of 1.2 million shares of a new class of redeemable convertible preferred stock, with a stated value of $9 per share and a mandatory redemption date of Dec. 1, 1999.

Each preferred share is convertible into one share of Class A common stock at the option of the holder any time prior to the mandatory redemption date.

Investors also received transferable warrants, which expire in December 2001, to purchase an aggregate of 412,500 shares of Class A common stock priced at $10 per share, and other transferable warrants, with an identical expiration date, to purchase an additional 61,111 shares of common stock for a nominal purchase price. These warrants, which cannot be exercised until June 15, 1998, are subject to repurchase by the company for a nominal purchase price prior to the exercise date, based on the company's financial performance.

The restructured bank credit transaction consists of a $26.7 million term loan facility and a $9 million working capital line of credit with a maturity date of Oct. 1, 1998.

The new facilities replaced $20.1 million in revolving notes payable Oct. 31, 1995; an $8.75 million term note payable in January 1997; and a $4.85 million working capital line of credit payable Jan. 15, 1995.

In connection with the restructuring, the company issued warrants to the banks to purchase an aggregate of 240,000 shares of common stock at $10 per share, exercisable to December 2000.