-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, NjnNh2mV+OJvgt0HYX+MkkTnUIbxfhRIDIFmfk48VKcg4s/JNPSJSvosu4k5wmA9 BsMkJPgsHuw61lS9oRUcdQ== /in/edgar/work/20000703/0000889812-00-003036/0000889812-00-003036.txt : 20000920 0000889812-00-003036.hdr.sgml : 20000920 ACCESSION NUMBER: 0000889812-00-003036 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 20000401 FILED AS OF DATE: 20000630 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GRAND UNION CO /DE/ CENTRAL INDEX KEY: 0000316236 STANDARD INDUSTRIAL CLASSIFICATION: [5411 ] IRS NUMBER: 221518276 STATE OF INCORPORATION: DE FISCAL YEAR END: 0403 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-07824 FILM NUMBER: 666931 BUSINESS ADDRESS: STREET 1: 201 WILLOWBROOK BLVD CITY: WAYNE STATE: NJ ZIP: 07470-0966 BUSINESS PHONE: 2018906000 MAIL ADDRESS: STREET 1: 201 WILLOWBROOK BLVD CITY: WAYNE STATE: NJ ZIP: 07470 FORMER COMPANY: FORMER CONFORMED NAME: SUCCESSOR TO GRAND UNION CO/VA/ DATE OF NAME CHANGE: 19600201 10-K 1 0001.txt ANNUAL REPORT SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended April 1, 2000 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _____________ to _____________ Commission File Number 0-26602 THE GRAND UNION COMPANY (Exact name of registrant as specified in its charter)
Delaware 22-1518276 - ---------------------------------------------------------------------- -------------------------------------------------- (State or other jurisdiction of incorporation or (I.R.S. Employer Identification No.) - organization) 201 Willowbrook Boulevard, Wayne, New Jersey 07470-0966 - ---------------------------------------------------------------------- -------------------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (973) 890-6000 -------------------------------------------------- Securities registered pursuant to Section 12 (b) of the Act: Title of each class Name of each exchange on which registered - ---------------------------------------------------------------------- -------------------------------------------------- None - ---------------------------------------------------------------------- -------------------------------------------------- Securities registered pursuant to Section 12 (g) of the Act: Common Stock, Par Value $0.01 --------------------------------------------------
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 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 the 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. [ ] [Cover page 1 of 2] The aggregate market value of the voting stock held by nonaffiliates of the registrant as of June 26, 2000 approximately $16,871,000, based upon the closing sales price of the Common Stock on the NASDAQ National Market on such date. For the purpose of this calculation, all members of the Board of Directors are presumed to be affiliates. 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 ---------- ---------- As of June 26, 2000 there were issued and outstanding 29,992,098 shares, par value $0.01 per share, of the registrant's Common Stock. Documents Incorporated by Reference: The Proxy Statement for the 2000 Annual Meeting of Shareholders has been incorporated by reference partially in Part III hereof. [Cover page 2 of 2] THE GRAND UNION COMPANY FORM 10-K For the Year Ended April 1, 2000 Index
Page Part I Item 1. Business........................................................................................... 1 Item 2. Properties......................................................................................... 5 Item 3. Legal Proceedings.................................................................................. 6 Item 4. Submission of Matters to a Vote of Security Holders................................................ 7 Part II Item 5. Market for the Registrant's Common Stock and Related Stockholder Matters........................... 7 Item 6. Selected Consolidated Financial Data............................................................... 8 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.............. 8 Item 7A. Quantitative and Qualitative Disclosures About Market Risk......................................... 12 Item 8. Financial Statements and Supplementary Data........................................................ 13 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure............... 13 Part III Item 10. Directors and Executive Officers of the Registrant................................................. 13 Item 11. Executive Compensation............................................................................. 13 Item 12. Security Ownership of Certain Beneficial Owners and Management..................................... 13 Item 13. Certain Relationships and Related Transactions..................................................... 13 Part IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.................................... 14 Signatures...................................................................................................... 17
i Other than historical information, statements in this report may be deemed to be forward-looking statements within the meaning of the federal securities laws. Actual results and the timing of certain events could differ materially from those projected in the forward-looking statements due to a number of factors, including those set forth in this report. See "Special Note Concerning Forward-Looking Statements" in Part II of this report. PART I Item 1. Business General The Grand Union Company, a Delaware corporation ("Grand Union" or the "Company"), is engaged in the retail food business. Grand Union operated 216 stores in six northeastern states averaging approximately 20,050 selling square feet per store as of April 1, 2000. The selling square feet per store ranges from 1,850 to 47,703. As of June 26, 2000, the Company operates 206 stores in Connecticut, New Hampshire, New Jersey, New York, Pennsylvania and Vermont. On March 24, 2000, the NASDAQ Listing Qualifications Panel advised the Company its Common Stock no longer qualified for trading on the NASDAQ National Market and would be delisted. The Company has appealed the decision and is seeking to transfer the Common Stock to the NASDAQ SmallCap Market. In order to qualify for listing on the NASDAQ SmallCap Market, the Company must satisfy all listing criteria, including the $1 minimum bid price. The Company's appeal will be considered by NASDAQ on July 27, 2000. Until a final determination is made, the Company's Common Stock will remain on the NASDAQ National Market under the ticker symbol "GUCO" as it has been since October 1, 1998. Since 1997, Grand Union has attempted to stabilize and improve its operations in the critical areas of sales, margins, promotional income and expense levels. These initiatives included numerous position eliminations and a complete restaffing of senior management positions in 1997, 1998, and 2000, organizational restructuring measures and reconfiguration of the Company into three geographic operating areas. Grand Union is continuing its evaluation of all strategic initiatives, including the identification of additional areas for operating and administrative expense reduction, implementation of technological efficiency and the pursuit of new marketing and merchandising activities, all of which are designed to enhance the Company's image as a high-quality, value-driven operator in the northeastern retail food industry. Strategic Initiatives In recent years, results in the supermarket industry have been impacted by slow population growth, increasing competitive activity and changing consumer shopping and eating patterns. These factors, and others, are projected to lead to essentially flat real supermarket sales growth over the next several years. Grand Union is in the process of exploring various strategic alternatives to improve its financial performance, which may include asset sales, store closings or a sale of the Company. The Company has retained Merrill Lynch & Co. to provide investment banking advice and Alvarez & Marsal, Inc. to assist in the development of a strategic business plan. The business plan is anticipated to address all of the Company's operating locations and will assist in the creation of strategies to assess both long-term and short-term objectives and goals. The Company will continue to focus its operational efforts on identifying and understanding the ongoing changes in consumer trends, thereby allowing consumer preferences to be the drivers of change in Grand Union's offerings of services and products. The Company continues to develop and evaluate new retailing strategies that will respond to its customers' needs. On August 17, 1998 (the "Effective Date"), Grand Union consummated the 1998 Reorganization under Chapter 11 of the Bankruptcy Code (the "Reorganization") pursuant to the August 5, 1998 Confirmation Order of the United States Bankruptcy Court for the District of New Jersey. As a result of the 1998 Reorganization, the Company substantially improved its liquidity, significantly reduced its debt and interest expense, and entered into a $300 million credit agreement (see "The 1998 Reorganization" below). The substantial reduction of debt and the availability of new funds enabled Grand Union to reorganize and to commence a capital expenditure program intended to enhance its operations, profitability and competitiveness of the Company. In order to maximize liquidity, the Company has reduced its capital expenditure program. EACH OF THE FOREGOING STRATEGIC INITIATIVES ARE FORWARD-LOOKING AND INVOLVE RISKS AND UNCERTAINTIES. THERE CAN BE NO ASSURANCE THAT ANY OF THE STRATEGIC INITIATIVES WILL IMPROVE THE FINANCIAL PERFORMANCE OF THE COMPANY. 1 Store Formats and Locations; Competition Grand Union's store sizes and formats vary depending upon the demographics, competitive conditions and real estate availability in each location in which it operates. The Company's supermarkets offer a wide selection of national brand and private label grocery and general merchandise products as well as high-quality perishables and service departments. The majority of Grand Union's sales are generated from stores which include high-margin specialty and service departments. Selected locations feature in-store cafes and pharmacies. Liquor, beer and wine departments are included in many locations, subject to the limitations of state and local laws. Grand Union's supermarkets range in size from 7,300 to 69,000 gross square feet. Subsequent to April 1, 2000, the Company opened one and closed eleven stores. As of June 26, 2000, Grand Union operates 206 stores in six states, including 112 in New York, 33 in Vermont, 42 in New Jersey, 14 in Connecticut, 3 in New Hampshire and 2 in Pennsylvania. The food retailing business is highly competitive. Grand Union competes with numerous national, regional and local supermarket chains. Grand Union also competes with convenience stores, stores owned and operated or otherwise affiliated with large food wholesalers, unaffiliated independent food stores, warehouse/merchandise clubs, discount drugstore chains and discount general merchandise chains. Some of the Company's competitors have greater financial resources than Grand Union has and could use those resources to take steps which would adversely affect the Company's competitive position. In upstate New York, Grand Union generally operates in small cities and rural communities. The Company's main competitors are Price Chopper and Hannaford. Commercial development in areas north of Albany, New York is limited and constrained by zoning and environmental restrictions, particularly in areas regulated by the Adirondack Park Commission. In the more urban Albany area, Price Chopper and Hannaford have each opened a number of new stores in the last five years, which are generally larger than the Company's stores. In the Mid-Hudson Valley area of New York, the Company's principal competitors are Big V Supermarkets Inc. (a member of the Wakefern ("ShopRite") cooperative), Price Chopper, Hannaford and A&P. Continuing weak economic conditions in the Mid-Hudson Valley have constrained business in recent years. In addition, the Company's results in this region have been adversely affected by recent competitive store openings. In Vermont, Grand Union's principal competitors are Price Chopper and Hannaford. Based on its information, Grand Union maintains the largest market share in Vermont. Zoning and environmental regulations in the state restrict commercial development, including supermarkets which might be competitors of the Company. A number of the Company's stores in upstate New York and Vermont are in resort areas. These generally experience significant increases in sales in the summer months and in some cases during the winter ski season. The Company's stores in metropolitan New York, Connecticut and New Jersey serve densely populated communities with demographics particularly well suited for store formats emphasizing specialty departments. Accordingly, the sales mix in these stores includes a larger percentage of higher margin perishable items. In addition, the high population density as well as the geographic concentration of stores provide substantial economy of scale opportunities. Some of the Company's stores in these areas, as in upstate New York and Vermont, experience increased sales during the summer months. In New Jersey, the Company competes primarily against A&P, Pathmark, Edwards, ShopRite and various other supermarkets. In Westchester, Orange, Rockland, Dutchess and Putnam Counties in New York, the Company generally competes with A&P, Edwards and ShopRite. On Long Island, the Company's principal competitors include A&P, Waldbaums (division of A&P), Pathmark, ShopRite, King Kullen and Edwards. Grand Union's main competitors in Fairfield County, Connecticut include Stop & Shop and A&P. It has been publicly announced that the Edwards stores noted above converted to the Stop & Shop banner. Distribution and Supply The majority of Grand Union's merchandise is distributed to Grand Union stores by C&S Wholesale Grocers, Inc. ("C&S") pursuant to several supply and distribution agreements. Under the agreements, C&S supplies grocery products from its own warehouses, and health and beauty care and general merchandise products from Grand Union's Montgomery, New York warehouse. On September 24, 1999, the Company signed a term sheet (the "C&S Term Sheet") extending its primary supply agreement with C&S and modifying certain terms. The C&S Term Sheet provides for 2 substantial monetary penalties in the event the Company is sold or closes stores, and such closed or sold stores are not thereafter supplied by C&S. The expiration date of the agreement was extended until September 24, 2014, and the parties are drafting a final agreement. Grand Union also contracts with a third party for frozen food distribution, however, that agreement terminates by its terms in April 2001, and C&S will assume such work. Management believes that Grand Union's existing agreements with C&S enhance the Company's ability to offer consistently fresh and high-quality products to its customers at competitive prices. Grand Union operates a 20,000 square foot commissary located in Newburgh, New York, in which high quality cooked meat products, salads, salad ingredients and soups are prepared for sale in the delicatessen departments of the Company's stores. Selected Data The table below sets forth certain statistical information with respect to Grand Union retail stores for the past three years.
Fiscal Fiscal Fiscal 2000 1999 1998 ----------------- ----------------- ----------------- Number of stores (at end of year) 216 217 222 Total selling square feet at end of year (in thousands) 4,331 4,293 4,353 Average sales per selling square foot per week $ 9.79 $ 10.05 $ 10.07
Capital Investment The Company's capital spending since the 1998 Reorganization has been focused on renovating and upgrading existing Grand Union stores and opening new and replacement stores in existing marketing areas. Cash capital expenditures for the fiscal year ended April 1, 2000 ("Fiscal 2000"), 33 weeks ended April 3, 1999, the 20 weeks ended August 15, 1998, and the fiscal year ended March 28, 1998 ("Fiscal 1998") were approximately $66.3 million, $20.9 million, $3.4 million, and $39.7 million, respectively, excluding capital lease additions of $1.6 million, $7.6 million, $0, and $21.7 million, respectively. In order to maximize liquidity, the Company has reduced the capital expenditure program. See Item 6 for information concerning the methodology utilized to report the Company's operating results before and after the 1998 Reorganization. Information Technology Financial, purchasing and operating system requirements are supported through a central computer system located in Wayne, New Jersey. As of April 1, 2000, Grand Union utilized scanning systems in 188 stores (representing approximately 95% of total sales). Employees As of April 1, 2000, Grand Union had approximately 13,600 employees, of whom approximately 67% were employed on a part-time basis. Approximately 55% of Grand Union's employees are covered by 12 collective bargaining agreements with various local unions. In October 1999, the Company entered into a successor labor agreement with United Food and Commercial Workers Local 342-50 covering approximately 275 meat, seafood, deli and Taste Place employees in 15 of the Company's stores in Queens, Nassau and Suffolk counties in New York. That agreement expires in October 2003. In December 1999, the Company reached an agreement with Teamsters Local 445 for a successor collective bargaining agreement covering approximately 80 warehouse employees at the Company's Montgomery distribution warehouse. The Local 445 agreement expires December 7, 2002. The Company's other labor agreements expire between September 2000 and May 2003. As of April 1, 2000, all employees covered by collective bargaining agreements were employed at store locations and in the Company's Montgomery, New York warehouse. The Company believes that its relationship with employees is generally satisfactory. 3 Trade Names, Service Marks and Trademarks Grand Union owns and actively uses over 20 trade names, service marks and trademarks (collectively, "Marks"). Among these Marks are "Grand Union"(R), the symbol of a red dot, "Grand Classics"(R), "Big Gold Top"(R), "The Best Take Out Restaurant in Town"(R), "Grand Premium"(R), "Taste Place"(R), "Holland Hall"(R) and "Red Dot Special"(R), all of which are significant to the Company's business. The Company also has common law rights in, has filed for, or intends to file for various other Marks. Common Stock Trading On March 24, 2000, the NASDAQ Listing Qualifications Panel advised the Company its Common Stock no longer qualified for trading on the NASDAQ National Market and would be delisted. The Company has appealed the decision and is seeking to transfer the Common Stock to the NASDAQ SmallCap Market. In order to qualify for listing on the NASDAQ SmallCap Market, the Company must satisfy all listing criteria, including the $1 minimum bid price. The Company's appeal will be considered by NASDAQ on July 27, 2000. Until a final determination is made, the Company's Common Stock will remain on the NASDAQ National Market under the ticker symbol "GUCO" as it has been since October 1, 1998. Financial Information about Foreign and Domestic Operations and Export Sales Grand Union has no foreign operations or export sales. Recent History Change in Management and Board of Directors On December 17, 1999, the Board of Directors voted to expand the number of directors from eleven to fifteen and elected four new members: Neil A. Augustine, Michael Embler, Stephen M. Peck and Herbert E. Seif. On February 13, 2000, the Board of Directors removed J. Wayne Harris from his position as Chief Executive Officer, Chairman of the Board, and a Director of the Company. In addition, Jack W. Partridge, Jr., resigned from his position as Vice Chairman, Chief Administrative Officer and a Director of Grand Union on February 13, 2000. Messrs. Harris and Partridge have each executed a Settlement Agreement and General Release with the Company. On February 13, 2000, Gary M. Philbin was elected Chief Executive Officer to replace Mr. Harris, and Stephen M. Peck, a non-management director, became the Chairman of the Board, replacing Mr. Harris in that role. Mr. Philbin has served as a director and the Company's President and Chief Merchandising Officer since joining the Company in October 1997. The Company has recorded a charge to operations during the 12 weeks ended April 1, 2000 (the "Fiscal 2000 Fourth Quarter") related to these matters. The Company promoted its Executive Vice President and Chief Financial Officer ("CFO"), Jeffrey Freimark, to succeed Mr. Partridge as Chief Administrative Officer. Mr. Freimark, who will continue as CFO, was also elected to the Company's Board of Directors. Effective February 13, 2000, and in connection with the changes referenced above, the Board voted to reduce the number of directors from fifteen to fourteen. The 1998 Reorganization In February 1998, due to a lack of sufficient liquidity, increasing competition, consolidation, and falling margins, Grand Union determined that its financial resources would be insufficient to satisfy the interest payment due and payable on its then outstanding senior notes (the "Old Senior Notes"). As a result, Grand Union did not make its March 2, 1998 interest payment to holders of the Old Senior Notes. The failure to make such interest payment constituted a default under the indenture governing the Old Senior Notes and a cross-default under its then outstanding credit agreement (the "Old Credit Agreement"). Accordingly, the Company commenced negotiations with the secured banks under the Old Credit Agreement regarding obtaining necessary waivers to avoid the consequences of an event of default and to facilitate the negotiation of a consensual plan of reorganization with an unofficial committee of holders of the Old Senior Notes (the "Unofficial Noteholder Committee"). Negotiations between Grand Union and the Unofficial Noteholder Committee continued, and on March 30, 1998, the parties reached an agreement in principle on the terms of a restructuring to be effectuated pursuant 4 to a plan of reorganization (the "Plan of Reorganization") under chapter 11, Title 11 of the United States Code, as amended ("Chapter 11"). On May 14, 1998, Grand Union, the Unofficial Noteholder Committee and the holders of Grand Union's then outstanding preferred stock (the "Old Preferred Stock") reached an agreement in principle regarding the proposed treatment of the Old Preferred Stock. Pursuant to a Disclosure Statement, dated May 22, 1998 (the "Disclosure Statement"), Grand Union commenced a prepetition solicitation of votes by the holders of Old Senior Notes and Old Preferred Stock to accept or reject the Plan of Reorganization. That solicitation resulted in the acceptance of the Plan of Reorganization. On June 24, 1998, the Company filed a voluntary petition for relief (the "Filing") under Chapter 11 with the United States Bankruptcy Court for the District of New Jersey (the "Bankruptcy Court"). On the August 17, 1998 Effective Date, Grand Union consummated its Plan of Reorganization pursuant to the August 5, 1998 Confirmation Order of the Bankruptcy Court. Consummation of the Plan of Reorganization resulted in a capital restructuring of the Company, whereby approximately $600 million in debt under the Old Senior Notes was eliminated from the Company's balance sheet, reducing annual interest expense by approximately $72 million. Consummation of the Plan of Reorganization resulted in (i) the issuance of 30,000,000 shares of New Common Stock to the holders of the Company's Old Senior Notes; (ii) the issuance of New Series 1, Series 2 and Series 3 Warrants to the holders of the Company's Old Preferred Stock; (iii) the issuance of New Series 1 Warrants to holders of the Company's Old Common Stock; and (iv) cancellation of the Company's Old Senior Notes, Old Preferred Stock, Old Common Stock, Old Series 1 and Series 2 Warrants and Old Stock Options. As of October 1, 1998, the Company's new common stock began trading on the NASDAQ National Market under the ticker symbol GUCO. On the Effective Date and in connection with the consummation of the Plan of Reorganization, the Company entered into a $300 million credit agreement (the "Credit Agreement") with UBS AG, Stamford Branch and Lehman Commercial Paper Inc. ("LCPI") as agents for a syndicate of lenders. The Credit Agreement is secured by substantially all of the assets of the Company and its subsidiaries and is guaranteed by the Company's subsidiaries. Some of the proceeds of the Credit Agreement were used to pay off the Company's obligations under its debtor-in-possession credit agreement (the "DIP Facility"), which had provided the Company operating liquidity during the Chapter 11 case. During the Chapter 11 case, all trade claims were paid in the ordinary course. Item 2. Properties Grand Union conducts its operations primarily in leased stores and offices. The following table indicates the location and number of stores in operation as of April 1, 2000. Number of Locations Stores --------------------- ------------- New York 119 New Jersey 41 Vermont 37 Connecticut 14 New Hampshire 3 Pennsylvania 2 ------------- Total 216 ------------- Grand Union operates its stores under the name Grand Union, Grand Union Mega Store, Grand Union Fresh Market and Grand Union Hot Dot. As of April 1, 2000, Grand Union owned 13 and leased 203 of its operating store sites pursuant to commercial leases. Management believes no store lease is individually material to Grand Union. Most store leases contain several renewal options. Seventeen store leases do not contain renewal options and twelve will expire over the next five years and five thereafter. Management anticipates that it will be able to renegotiate favorable lease terms for most of these locations, if so desired. The Company does not intend to renew its leases on seven (7) stores operated pursuant to the FTC order discussed below in Item 3. Legal Proceedings. Grand Union currently operates one distribution center in Montgomery, New York, which is leased, and a commissary, which is housed in a building owned by the Company on a ground-leased site in Newburgh, New York. Grand Union's lease on its distribution center has 29 years remaining, including options. On May 20, 1998, the Company sold a 101,000 square foot warehouse in Waverly, New York, which had been vacant. In January 1999, the Company sold its assets and 5 discontinued operations at a printing shop it operated in Atlanta, Georgia. On March 31, 2000, the Company surrendered and terminated its lease agreement at a warehouse facility in Mt. Kisco, New York, which had been vacant. In March 2000, the Company has chosen not to renew an agreement with Penn Traffic Company for leasing nine New England stores that have operated under the Grand Union name for the past 10 years. As of June 26, 2000, the Company operated 206 stores in the same six (6) northeastern states. Item 3. Legal Proceedings Chapter 11 Proceedings. Reference is made to "Item 1 - Business - Recent History" for information regarding the Company's Chapter 11 proceedings. Environmental - Connecticut. Soil and ground water contamination has been detected at a shopping center owned by Grand Union, which is located in Connecticut. The Company believes such contamination was caused primarily by the use, storage, and/or improper disposal of solvents, in particular, perchloroethylene by dry cleaning operations previously conducted at this location and from off-site sources. The Company notified the Connecticut Department of Environmental Protection ("CTDEP") upon its initial discovery of contamination in 1992. At that time, the Company conducted a remedial investigation designed to identify the sources of such soil and ground-water contamination and delineate the extent of the contamination on-site and to assess potential off-site impacts. This investigation has confirmed that the source of the on-site contamination is, in part, an off-site shopping center and a gasoline station located nearby. The Company is proceeding with the investigation of the contamination and formulation of a remedial plan. The Company has entered into CTDEP's voluntary cleanup program. The Company's potential responsibility does not arise from any aspect of its operation of a supermarket at the shopping center, but from the actions of a former tenant. Any contamination migrating on-site from an off-site source is the responsibility of another party. The Company is assessing the feasibility of seeking reimbursement of past costs and clean-up costs from some or all of these other parties. The Company is unable to determine the amount of its potential liability arising from the on-site contamination, but does not believe, based upon the results of investigations made to date, that the amount of potential liability is likely to be materially adverse to the Company's financial condition. Management presently estimates, based upon investigations made by the Company's environmental consultant to date, that such liability should not exceed $750,000. Investigations are continuing, and there can be no assurance that the amount of such liability will not exceed $750,000. FTC Order. At the time of an acquisition of Grand Union in July 1989, Grand Union and P&C Foods, then a subsidiary and currently a division of Penn Traffic, operated stores in some of the same geographic areas in Vermont and upstate New York. In order to satisfy the concerns of federal antitrust authorities arising therefrom in connection with the acquisition, prior to consummation thereof, MTH Holdings, Inc. ("MTH Holdings"), which indirectly controlled Grand Union and Penn Traffic, an affiliate of Miller Tabak Hirsch & Co., a New York Limited Partnership, and Grand Union entered into an Agreement to Hold Separate with Salomon Inc. and the Federal Trade Commission ("FTC") and an Agreement Containing Consent Order (the "Order") with the FTC, which Order was subsequently modified on February 16, 1996 (collectively, the "FTC Agreements"). The FTC Agreements required the divestiture by MTH Holdings and/or Grand Union (including in each case their respective subsidiaries and affiliates) of sixteen stores located in Vermont and upstate New York. Such divestitures were completed on July 30, 1990. Thirteen of the sixteen stores divested were P&C Foods stores and three of the sixteen stores divested were Grand Union stores. In a related transaction, Grand Union and P&C Foods entered into an operating agreement (the "Operating Agreement"), pursuant to which Grand Union acquired the right to operate P&C Foods' thirteen remaining stores in New England under the Grand Union name until July 2000, for an average annual rent of approximately $10,700,000 with an option to extend the term of such operation for an additional five years. Grand Union paid P&C Foods $7,500,000 for an option, exercisable in July 1999, to purchase the stores at an amount defined in the Operating Agreement. As of April 1, 2000, Grand Union still operated nine (9) of these stores. However, the Company does not intend to renew the leases on those stores and has notified P&C that it will return the properties to P&C on or before July 30, 2000. 6 Other Proceedings. The Company is also subject to certain other legal proceedings and claims arising in connection with its business. It is management's opinion that the ultimate resolution of such legal proceedings and claims will not have a material adverse effect on the Company's consolidated results of operations or its financial position. Item 4. Submission of Matters to a Vote of Security Holders No matters were submitted to a vote of the Company's stockholders during the fourth quarter of Fiscal 2000. PART II Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters The Common Stock of the Company is traded on the NASDAQ National Market under the symbol "GUCO." At the close of business on June 26, 2000, there were 29,992,098 shares of Common Stock, $0.01 par value outstanding and entitled to vote. See "Common Stock Trading" in Item 1 of this report for information concerning the Company's Common Stock. As of June 26, 2000, there were approximately 3,300 stockholders of record of the Common Stock. The quarterly market value of the Company's stock is discussed in Note 18 to the Consolidated Financial Statements. No cash dividends were declared or paid during each of the three fiscal years ended April 1, 2000. Payment of dividends to holders of Common Stock is restricted by the Credit Facility. 7 Item 6. Selected Financial Data As discussed in Item 1, the Company, in connection with the 1998 Reorganization, emerged from its Chapter 11 proceedings on the Effective Date, August 17, 1998. For financial reporting purposes, the Company accounted for the consummation of the Plan of Reorganization effective August 15, 1998. In accordance with the American Institute of Certified Public Accountants Statement of Position 90-7, "Financial Reporting By Entities In Reorganization Under The Bankruptcy Code," the Company adopted Fresh-Start Reporting as of the Effective Date which has resulted in significant changes to the valuation of certain of the Company's assets and liabilities, and to its stockholders' equity. In connection with the adoption of Fresh-Start Reporting, a new entity has been deemed created for financial reporting purposes. The period prior to the Effective Date has been designated "Predecessor Company" and the period subsequent to the Effective Date has been designated "Successor Company." All information is derived from the consolidated financial statements of the Company. This information should be read in conjunction with the historical financial statements of the Company, including the notes thereto, included elsewhere herein. All dollars are in millions, except per share data.
Old Successor Company Predecessor Company Company ---------------------- ---------------------------------------------- ----------- 52 Weeks 33 Weeks 20 Weeks 52 Weeks 52 Weeks 41 Weeks 11 Weeks Ended Ended Ended Ended Ended Ended Ended April 1, April 3, August 15, March 28, March 29, March 30, June 17, 2000 1999 1998(**) 1998 1997 1996 1995(**) ---------- ---------- ---------- ---------- ---------- ----------- ----------- Statement of Operations Data: Sales $ 2,204.5 $ 1,417.3 $ 869.0 $ 2,266.8 $ 2,312.7 $ 1,819.9 $ 487.9 Gross profit 627.1 421.6 258.0 639.5 705.7 569.9 143.8 Operating and administrative expenses 553.3 349.8 221.7 574.8 586.2 454.6 117.8 Depreciation and amortization 68.9 39.5 22.1 93.0 82.2 58.9 16.9 Amortization of excess reorganization value 131.9 81.1 40.1 104.3 102.6 84.0 - Unusual items (***) 19.6 1.0 4.8 6.3 9.8 22.0 18.6 Interest expense, net 43.1 27.2 36.5 113.8 105.8 79.2 19.8 Loss before income taxes, extraordinary items and cumulative effect of accounting change (189.7) (76.9) (67.2) (252.6) (180.8) (128.8) (29.3) Income tax provision (benefit) 117.2 0.6 - 51.4 2.5 (18.9) - Extraordinary items - - 259.1 - - - 854.8 Cumulative effect of accounting change (***) 3.5 - - - - - - Net income (loss) (310.4) (77.5) 191.9 (304.0) (183.4) (109.9) 825.5 Net income (loss) applicable to common stock (310.4) (77.5) 189.6 (312.4) (185.4) - - Basic and diluted net (loss) per common share(*) (10.4) (2.6) - - - - - Deficiency in earnings available to cover fixed charges (189.7) (76.9) (67.2) (252.6) (180.8) (128.8) (29.3) Balance Sheet Data: Total assets 793.4 1,089.3 - 904.6 1,071.8 1,178.2 - Total debt and capital lease obligations 381.8 391.1 - 959.5 888.4 875.1 - Redeemable stock - - - 113.4 65.0 - - Nonredeemable stock and stockholders' equity (deficit) (2.8) 307.6 - (466.6) (153.2) 44.1 - Operating and Other Data: Capital expenditures $ 66.3 $ 20.9 $ 3.4 $ 39.7 $ 55.1 $ 43.0 $ 3.0 Number of stores at year end 216 217 N/A 222 226 229 N/A
(*) Basic and diluted net (loss) per share information is not meaningful for the period prior to the Effective Date due to the significant changes in the capital structure of the Company and cancellation of the Old Common Stock and Old Preferred Stock. (**) Balance sheet data is not applicable at this date. (***) See accompanying notes to consolidated financial statements. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations General As discussed in Note 3 to the accompanying Consolidated Financial Statements of Grand Union, the Company emerged from its Chapter 11 proceedings effective August 17, 1998. For financial reporting purposes, the Company accounted for the consummation of the Plan of Reorganization effective August 15, 1998. In accordance with the American Institute of Certified Public Accountants Statement of Position 90-7, "Financial Reporting By Entities in Reorganization Under The Bankruptcy Code", the Company adopted Fresh-Start Reporting as of the Effective Date which has resulted in significant changes to the valuation of certain of the Company's assets and liabilities and to its 8 stockholders' equity. In connection with the adoption of Fresh-Start Reporting, a new entity has been deemed created for financial reporting purposes. The period prior to the Effective Date has been designated "Predecessor Company" and the period subsequent to the Effective Date has been designated "Successor Company." For purposes of the discussion of Results of Operations and Liquidity and Capital Resources for the 53 weeks ended April 3, 1999, the results of the Predecessor Company and Successor Company have been combined. Results of Operations The following table sets forth certain statements of operations and other data (all dollars in millions).
52 Weeks Ended 53 Weeks Ended 52 Weeks Ended April 1, 2000 April 3, 1999 March 28, 1998 --------------- --------------- ---------------- Sales $ 2,204.5 $ 2,286.3 $ 2,266.8 Gross profit 627.1 679.6 639.5 Operating and administrative expenses 553.3 571.4 574.8 Depreciation and amortization 68.9 61.5 92.9 Amortization of excess reorganization value 131.9 121.2 104.3 Unusual items 19.6 5.8 6.3 Interest expense, net 43.1 63.7 113.8 Income tax provision 117.2 0.6 51.4 Net (loss) before extraordinary item and cumulative effect of accounting change (306.9) (144.6) (304.0) Extraordinary item - 259.0 - Net income (loss) before cumulative effect of accounting change (306.9) 114.4 (304.0) Cumulative effect of accounting change 3.5 - - Net income (loss) applicable to common stock (310.4) 112.1 (312.4) Sales percentage increase (decrease) (3.6%) 0.9% (2.0%) Gross profit as a percentage of sales 28.5% 29.7% 28.2% Operating and administrative expenses as a percentage 25.1% 25.0% 25.4% of sales Number of weeks 52 53 52
Sales for Fiscal 2000 decreased $81.8 million or 3.6% compared to Fiscal 1999. Same store sales, (adjusted to exclude the Easter Holiday effect), decreased 0.14% in Fiscal 2000 compared to Fiscal 1999. Due to the timing of the Easter holiday in Fiscal 2000, there was no Easter selling period in the current fiscal year while Fiscal 1999 included one. Same store sales results, as compared to the prior year, by quarter for Fiscal 2000, beginning with the first quarter, were 0.83%, (0.36)%, 0.41% and (1.73)%. The reduction in sales is primarily due to competitive activity and effects related to implementation of the Company's capital expenditure plan. These include delays in new store openings and sales disruptions in stores undergoing significant remodeling. In addition, the results in the fiscal 2000 fourth quarter were negatively impacted by the initial disruptive effects of the management changes and staff reductions that were made during that quarter. (See discussion in Item 1, Change in Management and Board of Directors.) During Fiscal 2000, the Company opened three new stores and seven replacement stores, and closed eleven stores, three of which reopened as replacement stores. The Company continues to invest in marketing and promotional programs to drive sales and compete effectively as competitors continue to open new locations and remodel stores at a more aggressive rate than the Company. Sales for Fiscal 1999 decreased $19.5 million or 0.9% compared to Fiscal 1998. Same store sales decreased 0.35% in Fiscal 1999 compared to Fiscal 1998. Same store sales results, as compared to the prior year, by quarter for Fiscal 1999, beginning with the first quarter, were (1.4)%, 0.6%, (0.9)% and 0.7% versus the prior year. During Fiscal 1999, the Company opened two replacement stores and closed eleven stores, four of which reopened as Hot Dot stores. Gross profit as a percentage of sales decreased to 28.5% in Fiscal 2000 compared to 29.7% in Fiscal 1999. This is primarily due to increased stock losses and continued competitive promotional activity. This mitigated the effect of the continued new marketing initiatives by the Company. Additionally, the Company adopted the Securities and Exchange Commission's Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements" ("SAB 101") effective April 4, 1999. The Fiscal 2000 results include a $7.6 million charge against gross profit as a result of the adoption of SAB 101. Gross profit as a percentage of sales improved to 29.7% in Fiscal 1999 compared to 28.2% in Fiscal 1998 as a result of increased allowance and promotional income. 9 Operating and administrative expenses as a percentage of sales were 25.1% during Fiscal 2000, compared to 25.0% during Fiscal 1999. The Company continues to emphasize and aggressively pursue cost reduction opportunities. Operating and administrative expense as a percentage of sales was 25.4% during Fiscal 1998. Depreciation and amortization expense of $68.9 million in Fiscal 2000 was $7.4 million higher than the prior year's $61.5 million. The increase resulted from the impact of the application of SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of" ("SFAS 121"), impairment losses on assets of $16.0 million and $7.8 million recorded in Fiscal 2000 and Fiscal 1999, respectively, and the increase in capital expenditures. The decrease in depreciation and amortization expense during Fiscal 1999 as compared to Fiscal 1998 was mainly caused by the application of SFAS No. 121, whereby $25.0 million of impairment losses were recorded to reduce the estimated fair value of certain store assets and the historical deferral of capital expenditures. Unusual items recorded in Fiscal 2000 consisted of a one-time charge of $19.6 million for senior restructuring, staff reductions and store closure costs. During Fiscal 1999, the Company recorded $5.8 million in unusual items which represented $9.6 million in connection with legal, advisory and bank fees associated with the Plan of Reorganization and $3.8 million as a net gain resulting from the elimination of debt premiums. Unusual items recorded in Fiscal 1998 consisted of $2.7 million in connection with professional fees associated with the Plan of Reorganization, a $3.0 million charge to supplement a reserve set at the end of Fiscal 1997 for the reorganization of the Company during Fiscal 1998 and additional charges of $0.7 million for legal costs to supplement a reserve created as a result of the Company's Chapter 11 filing in calendar year 1995. Interest expense was $43.1 million in Fiscal 2000 compared to $63.7 million in Fiscal 1999. The decrease primarily reflects the effect of the Company's reduced debt burden and a reduction in interest rates on the Term Loan and the Revolving Credit Facility. Interest expense was $113.8 million in Fiscal 1998. The income tax provision, representing federal and state income taxes, was $117.2 million in Fiscal 2000, compared to $0.6 million in Fiscal 1999 and $51.4 million in Fiscal 1998. The income tax provisions in both Fiscal 2000 and Fiscal 1998 are the result of establishing valuation allowances against the Company's net deferred tax assets. The effective tax rate varies from the statutory rate due to differences between income for financial reporting and tax reporting purposes, resulting primarily from the amortization of excess reorganization value and the increase in the valuation allowance. Extraordinary items of $259.1 million recorded in Fiscal 1999 consisted of a $260.8 million gain resulting from the discharge of debt in connection with the consummation of the 1998 Plan of Reorganization and a $1.7 million expense related to the write-off of deferred financing costs associated with a term loan that was refinanced by the DIP facility. The Company recognized no extraordinary gains or losses during Fiscal 2000 and Fiscal 1998. The Company adopted SAB 101 effective April 4, 1999. The effect on Fiscal 2000 has been included as a $7.6 million charge against gross profit. The effect on prior periods was to increase the net loss for Fiscal 2000 by $3.5 million, net of tax, recorded in the accompanying consolidated statement of operations as the cumulative effect of accounting change. Liquidity and Capital Resources On the August 17, 1998 Effective Date and in connection with the consummation of the Plan of Reorganization, the Company entered into the Credit Agreement. The Credit Agreement is comprised of: (i) a $230 million Term Loan and (ii) a $70 million Revolving Credit Facility. The Term Loan and Revolving Credit Facility will mature on August 17, 2003. The proceeds of the Credit Agreement were used to refinance the obligations under the DIP Facility and supplemental term loan claims under the credit agreement that was in existence before the Chapter 11 case. The excess was used for working capital and capital expenditures. Up to $50 million of the Revolving Credit Facility is available for the issuance of letters of credit. As of April 1, 2000, the Company had net borrowings of $4 million and an aggregate of $31 million of letters of credit issued and outstanding under the Revolving Credit Facility. Cash interest payments totaled approximately $42.0 million in Fiscal 2000 compared to $46.1 million in Fiscal 1999. Capital expenditures totaled approximately $66.3 million in Fiscal 2000 compared to $24.4 million in Fiscal 1999. 10 Significant expenditures and resources used to finance such expenditures for the three fiscal years ended April 1, 2000 are reflected in the following table (in millions):
52 Weeks 53 Weeks 52 Weeks Ended Ended Ended April 1, April 3, March 28, 2000 1999 1998 ---------------- ---------------- ---------------- Resources used: Debt and capital lease repayments $ 208.0 $ 314.4 $ 27.8 Capital expenditures 66.3 24.4 39.7 Financing fees - 7.9 9.8 Operating activities - - 36.1 ---------------- ---------------- ---------------- $ 274.3 $ 346.7 $ 113.4 ================ ================ ================ Financed by: Net proceeds from sale of preferred stock $ - $ - $ 40.0 Net proceeds from long-term debt - 230.0 78.0 Proceeds from Revolving Credit Facility 206.0 - - Proceeds from DIP Facility - 108.0 - Property disposals and sales 1.8 7.2 5.9 Operating activities 29.0 14.1 - ---------------- ---------------- ---------------- $ 236.8 $ 359.3 $ 123.9 ================ ================ ================
During the week of May 15, 2000, Standard and Poor's downgraded the Company's Credit Agreement rating from single-'B'-minus to triple-'C'. The rating action was prompted by lower-than-anticipated earnings before interest, taxes, depreciation and amortization ("EBITDA") in the 12 weeks ended April 1, 2000 ("Fiscal 2000 Fourth Quarter") and marginal liquidity due to reduced availability under the Company's bank facility. Credit Agreement Amendment The Company recently experienced a reduction in its anticipated operating results and, therefore, the Company's ability to achieve certain of its future financial covenants included in the Credit Agreement became questionable. As a result, the Company commenced negotiations with the lenders under the Credit Agreement and, effective June 30, 2000, executed the third amendment to the Credit Agreement (the "Third Amendment"), which, among other things, adjusted certain of the financial covenants and permits the Company to retain a greater portion of the proceeds of asset sales to a specified level. The Third Amendment also provides that the financial covenants, which have an EBITDA component, will be computed and measured based upon each of the Company's 13 fiscal reporting periods, whereas before they were computed and measured quarterly. This new requirement subjects the Company to increased risk that a short-term decline in operating performance could potentially trigger an event of default under the Credit Agreement resulting in the entire loan balance becoming due and payable, subject to the lenders' discretion and proper notification. The Company believes that the revised financial covenants are achievable for each period throughout the remainder of the year, although there can be no assurance that unanticipated adverse events will not occur. The Third Amendment also requires the Company to retain an investment banker for purposes of exploring all strategic alternatives and to retain a consulting company to assist in the preparation of a business plan. Future Outlook Fiscal 2000 was a transitional year for the Company. The fundamentals of the business are being addressed - sales, margin, expenses, assets and employees - in order to allow the Company to better serve its business strategy and drive costs out of the system. The management changes made in the fourth quarter signaled this change of direction. The Company closed eleven underperforming stores in June, eliminating the negative impact these stores had on results. Additionally, the decision was made not to renew the leases on seven additional stores based on the unfavorable economies of the lease renewal. The Company is focusing its merchandising, advertising and operating efforts primarily on the Grand Union banner. As such, the Hot Dot and Fresh Market store concepts that previously had separate advertisements will now be supported by a common Grand Union ad. The Company has invested significant capital in new stores and remodels. These locations have been merchandised to reinforce the strengths of what Grand Union customers like most about its stores - outstanding perishables, improved variety and specialty items throughout all departments. New features such as kid's stations, enhanced meals-to-go for easy meal solutions, and more health and natural foods are examples of the Company's continued efforts to meet the needs of today's consumer. The Company continues its efforts to convert working capital to cash. Aggressive, but realistic, programs are in place to reduce inventories and receivables. Total capital expenditures in Fiscal 2001 are expected to be approximately $35 million. The Company expects to finance such capital expenditures through cash generated from operations, selective asset sales and amounts available 11 under the Credit Agreement. The goal is to generate capital to reinvest in renovations and remodels as the Company continues to improve its infrastructure as well as invest in technology. The execution of the Third Amendment to the Credit Agreement is expected to provide the Company with sufficient liquidity throughout Fiscal 2001. This is predicated upon the Company's anticipated operating performance throughout the year and other factors including selected asset sales. Variances to anticipated operating performance levels could possibly have a negative effect on the Company's liquidity. The retention of Merrill Lynch & Co. and Alvarez & Marsal, Inc. will facilitate the development of a strategic business plan. The business plan may require the rationalization of assets and the Company's desired marketing areas going forward. Special Note Concerning Forward-Looking Statements Except for historical information, statements by the Company under the caption "Future Outlook" and elsewhere in this report may be considered "forward-looking statements" within the meaning of federal securities law. Such forward-looking statements are subject to risks, uncertainties and other factors that could cause actual results to differ materially from future results expressed or implied by such forward-looking statements. Potential risks and uncertainties include, but are not limited to, the competitive environment in which the Company operates, the ability of the Company to maintain and improve its gross sales and margins, the liquidity of the Company on a cash flow basis (including the Company's ability to comply with the financial covenants of its Credit Agreement and to fund the Company's capital expenditure program), the Company's ability to complete its capital expenditures on a timely basis, the success of operating initiatives, the viability of the Company's strategic plan, regional weather conditions, and the general economic conditions in the geographic areas in which the Company operates. Item 7A. Quantitative and Qualitative Disclosures About Market Risk Quantitative and Qualitative Disclosures about Market Risk represents the risk of loss that may impact the consolidated financial position, results of operations or cash flows of the Company due to adverse changes in financial rates. The Company is exposed to market risk in the area of interest rates. This exposure is directly related to its Term Loan and Revolving Credit borrowings under the Credit Agreement, due to their variable interest rate pricing. Accordingly, as of Fiscal 2000, a 1% change in interest rates would result in interest expense fluctuating approximately $3 million. 12 Item 8. Financial Statements and Supplementary Data The Financial Statements and Supplementary Data listed below are included in this report on the page indicated. Index to Financial Statements:
Document Page Reports of Independent Accountants F-1 Consolidated Statement of Operations for the 52 weeks ended April 1, 2000 and the 33 weeks ended April 3, 1999 (Successor Company) and the 20 weeks ended August 15, 1998 and the 52 weeks ended March 28, 1998 (Predecessor Company) F-3 Consolidated Balance Sheet at April 1, 2000 and April 3, 1999 F-4 Consolidated Statement of Cash Flows for the 52 weeks ended April 1, 2000 and the 33 weeks ended April 3, 1999 (Successor Company) and the 20 weeks ended August 15, 1998 and the 52 weeks ended March 28, 1998 (Predecessor Company) F-5 Consolidated Statement of Stockholders' Equity (Deficit) for the 52 weeks ended April 1, 2000 and the 33 weeks ended April 3, 1999 (Successor Company) and the 20 weeks ended August 15, 1998 and the 52 weeks ended March 28, 1998 (Predecessor Company) F-6 Notes to Consolidated Financial Statements F-7
All other schedules are omitted either because they are not applicable or the required information is disclosed in the consolidated financial statements or notes thereto. 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 Information required by Part III, Item 10, will be included in the Company's Proxy Statement relating to the Company's annual meeting of stockholders to be held on August 17, 2000, and is incorporated herein by reference. Item 11. Executive Compensation Information required by Part III, Item 11, will be included in the Company's Proxy Statement relating to the Company's annual meeting of stockholders to be held on August 17, 2000, and is incorporated herein by reference. Item 12. Security Ownership of Certain Beneficial Owners and Management Information required by Part III, Item 12, will be included in the Company's Proxy Statement relating to the Company's annual meeting of stockholders to be held on August 17, 2000, and is incorporated herein by reference. Item 13. Certain Relationships and Related Transactions Information required by Part III, Item 13, will be included in the Company's Proxy Statement relating to the Company's annual meeting of stockholders to be held on August 17, 2000, and is incorporated herein by reference. 13 PART IV Item 14. Exhibits, Financial Statement Schedules and Report on Form 8-K The following documents are filed as a part of this report: (a) Financial statements All financial statements as set forth under Item 8. (b) Reports on Form 8-K 1. Relating to changes in Management and Board of Directors - dated February 14, 2000. (c) Exhibits Exhibit Number Description of Document 2.1 Chapter 11 Plan of Reorganization filed with the United States Bankruptcy Court, District of New Jersey, on June 24, 1998, incorporated by reference to Exhibit 1 to Exhibit 2.1. to Grand Union's Current Report on Form 8-K filed May 28, 1998. 3.1 Certificate of Incorporation of Grand Union, as restated through September 10, 1998, incorporated by reference to Exhibit 3.1 to Grand Union's Quarterly Report on Form 10-Q for the period ended October 10, 1998 . 3.2 Amended and Restated By-Laws of The Grand Union Company, as amended and effective August 17, 1998, incorporated by reference to Exhibit 3.1 to Grand Union's Quarterly Report on Form 10-Q for the period ended July 18, 1998. 4.1 Form of Common Stock Certificate of Grand Union, incorporated by reference to Exhibit 4.1 to Grand Union's Quarterly Report on Form 10-Q for the period ended October 10, 1998. 4.2 Form of Warrant Agreement, dated August 17, 1998, between Grand Union and American Stock Transfer & Trust Company, as Warrant Agent, incorporated by reference to Exhibit A to Exhibit 1 to Exhibit 2.1 to Grand Union's Current Report on Form 8-K filed May 28, 1998. 4.3 Rights Agreement dated as of April 29, 1999 between Grand Union and American Stock Transfer & Trust Co., as Rights Agent, including the Form of Rights Certificate and Form of Certificate of Designations for Series A Junior Preferred Stock. 10.1 Agreement to Hold Separate dated July 17, 1989, by and among MTH Holdings Inc. ("MTH Holdings"), GU Acquisition Corporation ("GUAC"), Salomon Inc. and the Federal Trade Commission (the "FTC") entered into in the matter of MTH Holdings and GUAC before the FTC, incorporated by reference to Exhibit No. 10.5 to Grand Union's Registration Statement on Form S-1 (Registration No. 33-29707) (the "1989 Grand Union Registration Statement"). 10.2 Agreement containing Consent Order among MTH Holdings, GUAC and the FTC entered into in the matter of MTH Holdings and GUAC before the FTC, incorporated by reference to Exhibit No. 10.6 to the 1989 Grand Union Registration Statement. 14 Exhibit Number Description of Document 10.3 Credit Agreement, dated as of August 17, 1998, by and among the Company, the several lenders from time to time party, thereto Warburg Dillon Read, LLC, as Co-Advisor and Co-Arranger, UBS AG, Stamford Branch, as Syndication Agent, Lehman Brothers Inc., as Co-Advisor and Co-Arranger, and Lehman Commercial Paper Inc., as Administrative Agent and Collateral Agent, incorporated by reference to Exhibit 10.1 to Grand Union's Current Report on Form 8-K filed August 17, 1998. 10.4 Guarantee and Collateral Agreement dated as of August 17, 1998, by the Company and its subsidiaries for the benefit of Lehman Commercial Paper, Inc., as Collateral Agent, incorporated by reference to Exhibit 10.2 to Grand Union's Current Report on Form 8-K filed August 17, 1998. 10.5 Waiver and First Amendment to the Credit Agreement dated as of November 6, 1998, incorporated by reference to Exhibit 10.5 to Grand Union's Annual Report on Form 10-K for the fiscal year ended April 3, 1999. 10.6 Second Amendment to the Credit Agreement dated as of February 24, 1999, incorporated by reference to Exhibit 10.6 to Grand Union's Annual Report on Form 10-K for the fiscal year ended April 3, 1999. 10.7 Third Amendment to the Credit Agreement dated as of June 30, 2000. 10.8 Supply and Distribution Agreement between Grand Union and C&S Wholesale Grocers Inc., dated June 15, 1995, incorporated by reference to Exhibit 10.3 to Grand Union's Quarterly Report on Form 10-Q/A for the period ended January 6, 1996. 10.9 First Amendment to the Supply and Distribution Agreement between Grand Union and C&S Wholesale Grocers Inc., dated June 15, 1995, incorporated by reference to Exhibit 10.4 to Grand Union's Quarterly Report on Form 10-Q/A for the period ended January 6, 1996. 10.10 Supply and Distribution Agreement between Grand Union and C&S Wholesale Grocers Inc., dated January 2, 1996, incorporated by reference to Exhibit 10.5 to Grand Union's Quarterly Report on Form 10-Q/A for the period ended January 6, 1996. 10.11 Agreement with C&S Wholesaler Grocers Inc. dated January 21, 1996, incorporated by reference to Exhibit 10.28 to Grand Union's Annual Report on Form 10-K/A for the fiscal year ended March 29, 1997. 10.12 Term Sheet to Supply Agreement effective as of September 24, 1999 by and between Grand Union and C&S Wholesale Grocers, Inc. 10.13 Fourth Amendment and Restatement of The Grand Union Company Supplemental Retirement Program for Key Executives effective as of November 20, 1997, incorporated by reference to Exhibit 10.16 to Grand Union's Annual Report on Form 10-K for the fiscal year ended March 28, 1998. 10.14 The Grand Union Company Discretionary Severance Plan for Non-Union Associates effective April 14, 1998, incorporated by reference to Exhibit 10.17 to Grand Union's Annual Report on Form 10-K for the fiscal year ended March 28, 1998. 10.15 The Grand Union Company Severance Plan for Exempt Personnel effective April 14, 1998, incorporated by reference to Exhibit 10.18 to Grand Union's Annual Report on Form 10-K for the fiscal year ended March 28, 1998. 10.16 The Grand Union Company 1995 Equity Incentive Plan, as amended, incorporated by reference to Exhibit 6 to Grand Union's Disclosure Statement filed as Exhibit 2.1 to Grand Union's Form 8-K filed May 28, 1998. 10.17 The Grand Union Company 1995 Non-Employee Directors Stock Option Plan, as amended, December 9, 1999. 15 Exhibit Number Description of Document 10.18 Form of Indemnification Agreement between the Company and Jeffrey P. Freimark (dated March 3, 1997), Glenn J. Smith (dated August 7, 1997), Gary M. Philbin (dated October 3, 1997), Javier Ramirez, Vice President Tax and Assistant Secretary (dated October 30, 1997), Manny Moslemi (dated August 6, 1998), Martin Bernstein (dated August 17, 1998), Thomas Cochill (dated August 17, 1998), Joseph Colonnetta (dated August 17, 1998), Jacob Doft (dated August 17, 1998), David Green (dated August 17, 1998), Joseph Lash (dated August 17, 1998), Anthony Petrillo (dated August 17, 1998), Scott Tepper (dated August 17, 1998), Gary Duncan (dated January 11, 1999), Christopher McGarry, Assistant General Counsel and Assistant Secretary (dated November 16, 1999), Neil Augustine (dated December 21, 1999), Michael Embler (dated December 21, 1999), Stephen Peck (dated December 21, 1999) and Herbert Seif (dated December 21, 1999), incorporated by reference to exhibit 10.26 to Grand Union's Annual Report on Form 10-K for the fiscal year ended March 28, 1998. 10.19 Employment Agreement (effective February 13, 2000 and dated as of April 13, 2000) between Grand Union and Gary M. Philbin. 10.20 Employment Agreement (effective February 13, 2000 and dated as of April 13, 2000) between Grand Union and Jeffrey P. Freimark. 10.21 Employment Agreement (effective February 13, 2000 and dated as of April 13, 2000) between Grand Union and Manouchehr Moslemi. 10.22 Employment Agreement (effective February 13, 2000 and dated as of April 13, 2000) between Grand Union and Glenn J. Smith. 21.1 Subsidiaries of Grand Union, incorporated by reference to Exhibit 21.1 to Grand Union's Annual Report on Form 10-K for the fiscal year ended April 3, 1999. 27.1 Financial Data Schedule. 16 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. THE GRAND UNION COMPANY (Registrant) Date: June 30, 2000 /s/ Jeffrey P. Freimark --------------------------------------------- Jeffrey P. Freimark Executive Vice President, Chief Financial and Administrative Officer and Treasurer 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/ Gary M. Philbin Director, President and Chief Executive June 30, 2000 - ------------------------------ Officer (Principal Executive Officer) Gary M. Philbin /s/ Jeffrey P. Freimark Director, Executive Vice President, June 30, 2000 - ------------------------------ Chief Financial and Administrative Officer Jeffrey P. Freimark and Treasurer (Principal Financial and Accounting Officer) /s/ Stephen M. Peck Chairman, Board of Directors June 30, 2000 - ------------------------------ Stephen M. Peck /s/ Neil A. Augustine Director June 30, 2000 - ------------------------------ Neil A. Augustine /s/ Martin Bernstein Director June 30, 2000 - ------------------------------ Martin Bernstein /s/ Thomas R. Cochill Director June 30, 2000 - ------------------------------ Thomas R. Cochill /s/ Joseph Colonnetta Director June 30, 2000 - ------------------------------ Joseph Colonnetta /s/ Jacob W. Doft Director June 30, 2000 - ------------------------------ Jacob W. Doft /s/ Michael Embler Director June 30, 2000 - ------------------------------ Michael Embler /s/ David M. Green Director June 30, 2000 - ------------------------------ David M. Green /s/ Joseph V. Lash Director June 30, 2000 - ------------------------------ Joseph V. Lash /s/ Anthony Petrillo Director June 30, 2000 - ------------------------------ Anthony Petrillo /s/ Herbert E. Seif Director June 30, 2000 - ------------------------------ Herbert E. Seif /s/ Scott Tepper Director June 30, 2000 - ------------------------------ Scott Tepper
17 REPORT OF INDEPENDENT ACCOUNTANTS (Post-Emergence) UPDATE To the Stockholders and the Board of Directors of The Grand Union Company In our opinion, the accompanying consolidated balance sheet and the related consolidated statements of operations, cash flows and stockholders' equity (deficit) present fairly, in all material respects, the financial position of The Grand Union Company and its subsidiaries (the "Company") at April 1, 2000 and April 3, 1999, and the results of their operations and their cash flows for the 52 weeks ended April 1, 2000 and the 33 weeks ended April 3, 1999, in conformity with accounting principles generally accepted in the United States. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. As discussed in Note 6 to the consolidated financial statements, the Company changed its method of accounting for nonrefundable up-front fees to conform to the guidance in Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements." As discussed in Notes 3 and 4 to the consolidated financial statements, on June 24, 1998, the Company filed a voluntary petition for relief, under Chapter 11 of Title 11 of the United States Code ("Chapter 11"), with the United States Bankruptcy Court for the District of New Jersey. The Company's 1998 Plan of Reorganization, as amended, became effective on August 17, 1998 and the Company emerged from Chapter 11. In connection with its emergence from Chapter 11, the Company adopted Fresh-Start Reporting as of August 15, 1998. PricewaterhouseCoopers LLP Florham Park, New Jersey June 30, 2000 F-1 REPORT OF INDEPENDENT ACCOUNTANTS (Pre-Emergence) To the Stockholders and the Board of Directors of The Grand Union Company In our opinion, the accompanying consolidated statements of operations, cash flows and stockholders' equity (deficit) present fairly, in all material respects, the results of operations and cash flows of The Grand Union Company and its subsidiaries (the "Company") for the 20 weeks ended August 15, 1998 and 52 weeks ended March 28, 1998, in conformity with accounting principles generally accepted in the United States. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. As discussed in Notes 3 and 4 to the consolidated financial statements, on June 24, 1998, the Company filed a voluntary petition for relief, under Chapter 11 of Title 11 of the United States Code ("Chapter 11"), with the United States Bankruptcy Court for the District of New Jersey. The Company's 1998 Plan of Reorganization, as amended, became effective on August 17, 1998 and the Company emerged from Chapter 11. In connection with its emergence from Chapter 11, the Company adopted Fresh-Start Reporting as of August 15, 1998. PricewaterhouseCoopers LLP Florham Park, New Jersey May 17, 1999 F-2 THE GRAND UNION COMPANY CONSOLIDATED STATEMENT OF OPERATIONS (dollars in thousands, except per share data)
Successor Company Predecessor Company ---------------------------------- ---------------------------------- 52 Weeks 33 Weeks 20 Weeks 52 Weeks Ended Ended Ended Ended April 1, April 3, August 15, March 28, 2000 1999 1998 1998 ---------------------------------- ---------------------------------- Sales $ 2,204,512 $ 1,417,293 $ 868,962 $ 2,266,770 Cost of sales 1,577,405 995,724 610,930 1,627,233 ---------------------------------- ---------------------------------- Gross profit 627,107 421,569 258,032 639,537 Operating and administrative expenses 553,305 349,758 221,647 574,770 Depreciation and amortization 68,907 39,445 22,117 92,922 Amortization of excess reorganization value 131,851 81,146 40,128 104,332 Unusual items 19,604 988 4,789 6,333 Interest expense, net 43,125 27,148 36,509 113,770 ---------------------------------- ---------------------------------- (Loss) before income taxes, extraordinary item and cumulative effect of accounting change (189,685) (76,916) (67,158) (252,590) Income tax provision 117,180 567 - 51,393 ---------------------------------- ---------------------------------- Net (loss) before extraordinary item and cumulative effect of accounting change (306,865) (77,483) (67,158) (303,983) Extraordinary item - - 259,045 - ---------------------------------- ---------------------------------- Net income (loss) before cumulative effect of accounting change (306,865) (77,483) 191,887 (303,983) Cumulative effect of accounting change, net (Note 6) 3,525 - - - ---------------------------------- ---------------------------------- Net income (loss) (310,390) (77,483) 191,887 (303,983) Accrued dividends on preferred stock - - 2,305 8,431 ---------------------------------- ---------------------------------- Net income (loss) applicable to common stock $ (310,390) $ (77,483) $ 189,582 $ (312,414) ================================== ================================== Net (loss) before cumulative effect of accounting change per common share $ (10.23) $ (2.58) Cumulative effect of accounting change per common share (0.12) - ---------------------------------- Basic and diluted net (loss) per common share $ (10.35) $ (2.58) ================================== Weighted average number of shares outstanding 29,995,233 30,000,000 ==================================
See accompanying notes to consolidated financial statements. F-3 THE GRAND UNION COMPANY CONSOLIDATED BALANCE SHEET (dollars in thousands, except par value and share data)
April 1, April 3, 2000 1999 ------------------ ------------------ ASSETS Current assets: Cash and temporary investments $ 19,895 $ 57,414 Receivables, net 43,865 34,645 Inventories 145,293 152,217 Other current assets 12,907 7,644 ------------------ ------------------ Total current assets 221,960 251,920 Property, plant and equipment, net 324,719 327,881 Excess reorganization value, net 182,569 314,420 Beneficial leases, net 52,779 66,547 Deferred tax asset - 114,429 Other assets 11,407 14,053 ------------------ ------------------ Total assets $ 793,434 $ 1,089,250 ================== ================== LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) Current liabilities: Current portion of obligations under capital leases $ 4,544 $ 6,303 Accounts payable and accrued liabilities 195,261 171,999 ------------------ ------------------ Total current liabilities 199,805 178,302 Long-term debt 234,000 230,000 Obligations under capital leases 143,229 154,837 Adverse leases, net 69,155 74,322 Other noncurrent liabilities 150,018 144,172 ------------------ ------------------ Total liabilities 796,207 781,633 ------------------ ------------------ Commitments and contingencies (Notes 10, 11, & 12) Stockholders' equity (deficit): Common stock $.01 par value; 60,000,000 shares authorized, 29,992,098 and 30,000,000 shares issued and outstanding at April 1, 2000 and April 3, 1999, respectively 300 300 Preferred stock $1.00 par value; 10,000,000 shares authorized, no shares issued and outstanding at April 1, 2000 and April 3, 1999 - - Capital in excess of par value 384,800 384,800 Accumulated deficit (387,873) (77,483) ------------------ ------------------ Total stockholders' equity (deficit) (2,773) 307,617 ------------------ ------------------ Total liabilities and stockholders' equity (deficit) $ 793,434 $ 1,089,250 ================== ==================
See accompanying notes to consolidated financial statements. F-4 THE GRAND UNION COMPANY CONSOLIDATED STATEMENT OF CASH FLOWS (dollars in thousands)
Successor Company Predecessor Company --------------------------------- ------------------------------- 52 Weeks 33 Weeks 20 Weeks 52 Weeks Ended Ended Ended Ended April 1, April 3, August 15, March 28, 2000 1999 1998 1998 ---------------- ---------------- ------------------------------- OPERATING ACTIVITIES: Net income (loss) $ (310,390) $ (77,483) $ 191,887 $ (303,983) Adjustments to reconcile net income (loss) to net cash provided by (used for) operating activities before reorganization items paid: Depreciation and amortization 200,758 120,591 62,245 197,254 Unusual items 19,604 988 4,789 - Deferred taxes 114,429 567 - 51,393 Extraordinary item - - (259,045) - Cumulative effect of accounting change, net 3,525 - - - Pension and other non-cash items 10,496 6,466 3,957 5,850 Non-cash interest 1,073 972 626 907 Gain on sale of property (3,126) (1,889) - - Net changes in assets and liabilities: Receivables (9,220) (12,077) (1,506) 7,588 Inventories 3,649 (24,484) (5,579) 3,056 Other current assets (5,267) (2,023) (99) (461) Other assets 303 (86) 29 (1,878) Accounts payable and accrued liabilities 9,162 (751) 22,347 15,582 Other noncurrent liabilities (4,673) (5,708) (517) (7,749) ---------------- ---------------- ------------------------------- Net cash provided by (used for) operating activities before 30,323 5,083 19,134 (32,441) reorganization items paid Reorganization items paid (1,373) (988) (9,102) (3,681) ---------------- ---------------- ------------------------------- Net cash provided by (used for) operating activities 28,950 4,095 10,032 (36,122) ---------------- ---------------- ------------------------------- INVESTMENT ACTIVITIES: Capital expenditures (66,301) (20,943) (3,413) (39,727) Proceeds from sale of property 1,755 4,639 - - Disposals of property 84 2,519 49 5,897 ---------------- ---------------- ------------------------------- Net cash (used for) investment activities (64,462) (13,785) (3,364) (33,830) ---------------- ---------------- ------------------------------- FINANCING ACTIVITIES: Net proceeds from sale of preferred stock - - - 40,000 Net proceeds from sale of common stock - - - 258 Proceeds from new term loan - - 230,000 77,978 Proceeds from Revolving Credit Facility 206,000 - - - Proceeds from DIP facility - - 108,000 - Repayment of Revolving Credit Facility (202,000) - - - Repayment of DIP facility - - (108,000) - Financing fees - - (7,895) (9,842) Repayment of old bank debt - - (182,122) - Obligations under capital leases discharged (6,007) (4,198) (3,094) (8,770) Net repayment of long-term debt - - (17,000) (19,046) ---------------- ---------------- ------------------------------- Net cash provided by (used for) financing activities (2,007) (4,198) 19,889 80,578 ---------------- ---------------- ------------------------------- Net increase (decrease) in cash and temporary investments (37,519) (13,888) 26,557 10,626 Cash and temporary investments at beginning of period 57,414 71,302 44,745 34,119 ---------------- ---------------- ------------------------------- Cash and temporary investments at end of period $ 19,895 $ 57,414 $ 71,302 $ 44,745 ================ ================ =============================== Supplemental disclosure of cash flow information: Interest payments $ 41,987 $ 24,738 $ 21,358 $ 77,658 Capital lease obligations incurred 1,561 7,550 - 21,654 Accrued dividends - - 2,305 8,431 Taxes paid 4,880 6 13 193
See accompanying notes to consolidated financial statements. F-5 THE GRAND UNION COMPANY CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT) (amounts in thousands)
Stockholders' Equity (Deficit) ---------------------------------------------------------------------------- Redeem-able Redeem-able Accumu-lated Total Other Compre- Stock- Capital hensive Class A Class B in Excess Accumu- Income holders' Preferred Preferred Common Preferred of lated Equity Stock Stock Stock Stock Par Value (Deficit) (Loss) (Deficit) ------------ ------------------------------------- ------------------------------------- ------------ Predecessor Company Balance at March 29, 1997 $ 65,000 $ - $ 100 $ - $ 139,900 $ (293,210) $ - $ (153,210) Issuance of Common Stock - - 2 - 256 - - 258 Issuance of Class B Preferred Stock - 40,000 - - - - - - Accrued Class A Preferred Stock Dividends 5,685 - - - (5,685) - - (5,685) Accrued Class B Preferred Stock Dividends - 2,746 - - (2,746) - - (2,746) Additional minimum pension liability - - - - - (1,550) (1,550) Other - - - - 281 - - 281 Net loss for the 52 weeks ended March 28, 1998 - - - - - (303,983) - (303,983) ------------ ------------------------------------- ------------------------------------- ------------ Balance at March 28, 1998 $ 70,685 $ 42,746 $ 102 $ - $ 132,006 $ (597,193) $ (1,550) $ (466,635) Net income for the 20 weeks ended August 15, 1998 - - - - - 191,887 - 191,887 Extinguishment of Stockholders' Equity in connection with Reorganization (70,685) (42,746) (102) - (132,006) 405,306 1,550 274,748 ------------ ------------------------------------- ------------------------------------- ------------ Balance at August 15, 1998 $ - $ - $ - $ - $ - $ - $ - $ - ============ ===================================== ===================================== ============
Stockholders' Equity (Deficit) ---------------------------------------------------------------------------- Accumu- Total lated Other Stock- Common Stock Capital in Accumu- Compre- holders' ------------------------- Number Preferred Excess of lated hensive Equity Of Shares Amount Stock Par Value (Deficit) Income (Deficit) ------------------------------------- ------------------------------------- ------------ Successor Company Balance at August 15, 1998 - $ - $ - $ - $ - $ - $ - Issuance of Common Stock 30,000 300 - 384,800 - - 385,100 Net loss for the 33 weeks ended April 3, 1999 - - - - (77,483) - (77,483) ------------------------------------- ------------------------------------- ------------ Balance at April 3, 1999 30,000 $ 300 $ - $ 384,800 $ (77,483) $ - $ 307,617 Net loss for the 52 weeks ended April 1, 2000 - - - - (310,390) - (310,390) Unreturned Old Senior Notes (8) - - - - - - ------------------------------------- ------------------------------------- ------------ Balance at April 1, 2000 29,992 $ 300 $ - $ 384,800 $ (387,873) $ - $ (2,773) ===================================== ===================================== ============
See accompanying notes to consolidated financial statements. F-6 THE GRAND UNION COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 - Basis of Presentation and Summary of Significant Accounting Policies The Company is a regional food retailer, currently operating stores in six northeastern states. The Company has been publicly owned since June 15, 1995. Principles of Consolidation The consolidated financial statements include the accounts of the Company and its subsidiaries, all of which are wholly owned. Intercompany transactions and balances have been eliminated in consolidation. Fiscal Year The Company's fiscal year ends on the Saturday nearest the last day of March. The years ended April 1, 2000 ("Fiscal 2000") and March 28, 1998 ("Fiscal 1998") were each comprised of 52 weeks. The year ended April 3, 1999 ("Fiscal 1999") was comprised of 53 weeks. Fiscal 1999 includes the 20 weeks prior to August 17, 1998 ("the Effective Date") which have been designated "Predecessor Company" and the 33 weeks subsequent to the Effective Date which have been designated "Successor Company." Temporary Cash Investments The Company considers all liquid investments with original maturities of three months or less to be cash equivalents. Inventories Grocery and general merchandise inventories are all valued at the lower of LIFO cost or market. Approximately $145,293,000 of grocery, general merchandise and perishable inventories at April 1, 2000 and $137,217,000 of grocery and general merchandise inventories at April 3, 1999 were valued using the LIFO method. Replacement cost exceeded LIFO cost of these inventories by approximately $3,901,000 and $626,000 at April 1, 2000 and April 3, 1999, respectively. At April 3, 1999, perishable inventories were valued at the lower of average cost or market, which provided for the matching of costs and related revenues due to the rapid turnover of such inventories. Capitalization, Depreciation and Amortization Land, buildings, fixtures and equipment and leasehold improvements are recorded at cost. Estimated useful lives are generally as follows: buildings and improvements - 10 to 40 years; leasehold improvements - 10 to 20 years; equipment - 3 to 10 years and capitalized leases - 3 to 40 years. Properties held under capital leases are capitalized net of gains on sale-leaseback transactions and are amortized using the straight-line method over the life of the asset or the life of the lease, as appropriate. Excess Reorganization Value Excess Reorganization Value, established in connection with Fresh-Start Reporting, is being amortized on a straight-line basis over three years. Accumulated amortization was $212,997,000 and $81,146,000 at April 1, 2000 and April 3, 1999, respectively. Beneficial Leases Amortization of beneficial leases is computed using the straight-line basis over the lease life. At April 1, 2000 and April 3, 1999, accumulated amortization was $24,818,000 and $11,050,000, respectively. Deferred Financing Fees Financing fees are deferred and amortized over the term of the related loan. At April 1, 2000 and April 3, 1999, accumulated amortization was $2,551,000 and $972,000, respectively. F-7 Income Taxes Deferred income taxes are recognized for tax consequences of "temporary differences" by applying enacted statutory tax rates applicable to future years to the differences between the financial reporting and tax basis of existing assets and liabilities. Valuation allowances are recorded to the extent that it is more likely than not that future tax benefits will not be realized. Retirement Plans The Company maintains a noncontributory, trusteed pension plan covering eligible employees and a supplemental nonqualified, nontrusteed plan for certain executives. The Company's policy is to fund pension amounts, which satisfy the requirements of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"). The Company also maintains a savings plan for all non-union employees in which those eligible may contribute up to a total of 14% of their salary; the allowable percentage of pre- and post-tax contributions vary depending upon the earnings of a particular employee. The Company provides a match of 25% on the dollar up to the first 4% of employee contributions. Postretirement Benefits Other than Pensions The Company accrues the estimated cost of retiree benefit payments, other than pension, during the years each employee provides services. Stock-Based Compensation The Company accounts for stock-based compensation using the intrinsic value method of accounting prescribed by Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25") under which compensation cost is measured as the excess, if any, of the quoted market price of the Company's stock at the date of grant over the exercise price of the option granted. Compensation cost for stock options, if any, is recognized ratably over the vesting period. The Company provides additional pro forma disclosures as required under Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based Compensation" ("SFAS No. 123"). Self Insurance The Company self-insures workers' compensation, automobile liability, general liability and non-union employee medical costs to varying deductible limits, and with the exception of medical costs, carries third party insurance in excess of such limits. Reserves are provided for the estimated settlement value up to the deductible limit of all claims incurred during each policy year. At April 1, 2000 and April 3, 1999, the total self insurance reserve was $54,133,000 and $52,412,000, respectively, of which $41,047,000 and $44,005,000 is reflected in other noncurrent liabilities in the accompanying consolidated balance sheet. Adverse Leases Amortization of adverse leases is computed using the straight-line basis over the lease life. At April 1, 2000 and April 3, 1999, accumulated amortization was $8,355,000 and $3,188,000, respectively. Revenue Recognition Revenues from the sale of products are recognized at the point of sale to the Company's customers. Advertising Costs Advertising costs are expensed as incurred. Advertising expense for Fiscal 2000, the 33 weeks ended April 3, 1999, the 20 weeks ended August 15, 1998 and Fiscal 1998 were $24,555,000, $15,647,000, $10,834,000 and $33,216,000, respectively. Store Opening and Closing Costs Noncapital expenditures incurred in opening new stores or remodeling existing stores are expensed in the year in which they are incurred. When a store is closed, the remaining investment in land, buildings and equipment, net of expected recovery value, is expensed. For properties under operating lease agreements, the present value cost of any remaining liability under the lease, net of expected sublease recovery, is also expensed. F-8 Fair Value of Financial Instruments The carrying amount of the Company's cash and temporary investments, receivables, accounts payable and accrued liabilities approximates fair value. The fair value of the long-term debt is based on the quoted market prices, since such instruments are publicly traded. At April 1, 2000 and April 3, 1999, the approximate fair value of the long-term debt was $198,900,000 and $228,275,000, 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 the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues, costs and expenses during the reporting period. Actual results could differ from those estimates. Areas of significant estimates include self-insurance reserves, realization of deferred tax assets, retirement benefit reserves, recoverability of long-lived assets, restructuring and other reserves. Net Loss Per Share Net loss per share is computed in accordance with SFAS No. 128, "Earnings Per Share" ("SFAS No. 128"). This statement requires that entities present, on the face of the income statement for all periods presented, basic and diluted per share amounts. Basic earnings per share is computed using the weighted average number of common shares outstanding for the period. Diluted earnings per share considers the impact of any dilutive stock options or warrants outstanding (potential common shares). For the 52 weeks ended April 1, 2000 and the 33 weeks ended April 3, 1999, potentially dilutive shares totaling 5,810,241 and 8,021,120, respectively, have been excluded from the computation of the Company's diluted earnings per share because the effect would have been anti-dilutive. Net loss per share data is not meaningful for periods prior to August 15, 1998 due to the 1998 Reorganization. The Company adopted SFAS No. 128 in the third quarter of Fiscal 1998. Other Comprehensive Income Effective March 1, 1998 the Company adopted SFAS No. 130, "Reporting Comprehensive Income," ("SFAS No. 130"). SFAS No. 130 sets forth standards for the reporting of comprehensive income in the financial statements. Comprehensive income includes net earnings and other comprehensive income. Other comprehensive income includes revenues, expenses, gains and losses that have been excluded from net earnings and recorded directly in the stockholders' equity section of the balance sheet. Reclassifications Certain reclassifications have been made to the prior years' consolidated financial statements to conform to the Fiscal 2000 presentation. NOTE 2 - Restructuring Reserves During the 12 weeks ended April 1, 2000 (the "Fiscal 2000 Fourth Quarter"), the Company incurred one-time charges of $19.6 million for senior management restructuring, staff reductions and store closure costs.
Recognition of Severance and Store Closure Total Pension Benefits Costs ---------------------------------- ----------------- Severance costs $ 6,902 $ - $ 6,902 Pension gains (7,042) - (7,042) Writedown of assets - 4,814 4,814 Occupancy costs - 14,930 14,930 ---------------------------------- ----------------- Total $ (140) $ 19,744 $ 19,604 Cash expenditures (1,373) - (1,373) Writedown of assets - (4,314) (4,314) Reduction of pension liability 7,042 - 7,042 ---------------------------------- ----------------- Restructuring reserves at April 1, 2000 $ 5,529 $ 15,430 $ 20,959 ================================== =================
Severance costs consist of obligations to employees who were terminated or were notified of termination under a plan authorized by senior management. F-9 The restructuring charges also include the amounts to be paid under separation agreements for two former senior management members and the associated reduction in the qualified and supplemental retirement plans. Store closure costs relate to the cost of closing 19 stores. During the Fiscal 2000 Fourth Quarter the Company decided to close twelve poor performing stores and it chose not to renew an agreement with Penn Traffic Company for leasing seven other stores that have operated under the Grand Union name for the past ten years. These costs include non-cash asset writedowns, estimated occupancy expenses that will be paid on closed stores through 2019 and the estimated cost of refurbishing the Penn Traffic leased stores. NOTE 3 - 1998 Reorganization On August 17, 1998 (the "Effective Date"), the Company consummated the Plan of Reorganization pursuant to the August 5, 1998 Confirmation Order of the United States Bankruptcy Court for the District of New Jersey. Consummation of the Plan of Reorganization resulted in a capital restructuring of the Company, whereby approximately $600 million in then outstanding senior notes (the "Old Senior Notes") were eliminated from the Company's balance sheet, reducing annual interest expense by approximately $72 million. Consummation of the Plan of Reorganization resulted in (i) the issuance of 30,000,000 shares of common stock (the "New Common Stock") to the holders of the Company's Old Senior Notes; (ii) the issuance of Series 1, 2 and 3 warrants (the "New Series 1, Series 2 and Series 3 Warrants") to the holders of the Company's then outstanding preferred stock (the "Old Preferred Stock"); (iii) the issuance of New Series 1 Warrants to holders of the Company's then outstanding common stock (the "Old Common Stock"); and (iv) cancellation of the Company's Old Senior Notes, Old Preferred Stock, Old Common Stock, the then outstanding warrants (the "Old Series 1 and Series 2 Warrants") and the then outstanding stock options ("Old Stock Options"). On March 24, 2000, the NASDAQ Listing Qualifications Panel advised the Company its Common Stock no longer qualified for trading on the NASDAQ National Market and would be delisted. The Company has appealed the decision and is seeking to transfer the Common Stock to the NASDAQ SmallCap Market. Until a final determination is made, the Company's Common Stock will remain on the NASDAQ National Market under the ticker symbol "GUCO" as it has been since October 1, 1998. Pursuant to the Plan of Reorganization, the number of outstanding shares of New Common Stock was reduced to 29,992,389 as of August 17, 1999, because of unreturned Old Senior Notes. On the Effective Date and in connection with the consummation of the Plan of Reorganization, the Company entered into a $300 million credit agreement (the "Credit Agreement") with UBS AG, Stamford Branch and Lehman Commercial Paper Inc. ("LCPI") as agents for a syndicate of lenders, which is secured by substantially all of the assets of the Company and its subsidiaries and is guaranteed by the Company's subsidiaries. Some of the proceeds of the Credit Agreement were used to pay off the Company's obligations under its debtor-in-possession credit agreement (the "DIP Facility"), which had provided the Company operating liquidity during the Chapter 11 case. NOTE 4 - Fresh-Start Reporting Upon emergence from its Chapter 11 proceedings in connection with the 1998 Reorganization, the Company adopted fresh-start reporting in accordance with American Institute of Certified Public Accountants Statement of Position 90-7, "Financial Reporting By Entities in Reorganization Under The Bankruptcy Code" ("Fresh-Start Reporting"). In connection with the adoption of Fresh-Start Reporting, a new entity has been deemed created for financial reporting purposes. The period presented prior to the Effective Date has been designated "Predecessor Company" and the period subsequent to the Effective Date has been designated "Successor Company". For financial reporting purposes, the Company accounted for the consummation of the Plan of Reorganization effective August 15, 1998. In accordance with Fresh-Start Reporting, the Company valued its assets and liabilities at fair values and eliminated its accumulated deficit at the Effective Date. As of the Effective Date the reorganization value of the Company's common equity of approximately $385,100,000 was determined by the Company with the assistance of financial advisors in reliance upon various valuation methods, including discounted projected cash flows analyses, price/earnings ratios, and other applicable ratios and economic industry information relevant to the operations of the Company, and through negotiations with the various parties in interest. The total reorganization value as of the Effective Date was approximately $730,000,000, which was $395,566,000 in excess of the aggregate fair value of the Company's tangible and identified intangible assets. Such excess is classified as "Excess reorganization value, net" in the accompanying consolidated balance sheet and is being amortized on a straight-line basis over a three-year period. F-10 As a result of the consummation of the Plan of Reorganization, the Company recognized an extraordinary gain on debt discharge as follows (in thousands):
Elimination of Old Debt, deferred financing fees and accrued interest $ 645,884 Issuance of New Common Stock (385,100) ---------------- Extraordinary gain on debt discharge $ 260,784 ================
NOTE 5 - Unusual Items Unusual items included in the consolidated statement of operations consist of the following (in thousands):
Successor Company Predecessor Company ---------------------------------- --------------------------------- 52 Weeks 33 Weeks 20 Weeks 52 Weeks Ended Ended Ended Ended April 1, April 3, August 15, March 28, 2000 1999 1998 1998 ---------------------------------- --------------------------------- ---------------------------------- --------------------------------- Reserve for senior management restructuring, staff reductions $ 19,604 $ - $ - $ - and store closure costs 1998 reorganization items - 988 4,789 2,668 Charges relating to severance - - - 3,000 1995 reorganization items - - - 665 ---------------------------------- --------------------------------- ---------------------------------- --------------------------------- Total unusual items $ 19,604 $ 988 $ 4,789 $ 6,333 ================================== =================================
During the Fiscal 2000 Fourth Quarter, the Company incurred one-time charges of $19.6 million for senior management restructuring, staff reductions and store closure costs. This amount includes $4.8 million in store asset writedowns, $14.9 million of store occupancy costs, $6.9 million in severance charges and a $7.0 million credit for gains in pension benefit plans. The Company paid $1,373,000 in severance during the Fiscal 2000 Fourth Quarter. During the 33 weeks ended April 3, 1999 and the 20 weeks ended August 15, 1998, the Company recorded $988,000 and $8,602,000, respectively in connection with legal, advisory and bank fees associated with the Plan of Reorganization and $3,813,000 as a net gain during the 20 weeks ended August 15, 1998 resulting from the elimination of debt premiums. The Company recorded $2,668,000 of unusual charges during the fourth quarter of Fiscal 1998 in connection with professional fees associated with the planned prepackaged restructuring. Additionally, the Company recorded $3,665,000 of unusual charges during the third quarter of Fiscal 1998. This charge included a $3,000,000 supplement for a reserve set at fiscal year end 1997 for the reorganization of the Company during Fiscal 1998 and additional charges of $665,000 for legal costs to supplement a reserve created as a result of the Company's Chapter 11 filing in calendar year 1995. NOTE 6 - Accounting Change In December 1999, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements" ("SAB 101"). SAB 101 provides guidance on the recognition, presentation and disclosure of revenue in financial statements. The Company adopted SAB 101 effective April 4, 1999. The Fiscal 2000 results include a $7.6 million charge against cost of sales as a result of the adoption of SAB 101. The cumulative effect of the change, which relates to the Successor Company for the 33 weeks ended April 3, 1999, was to increase the net (loss) for Fiscal 2000 by $3,525,000, or $0.12 per share, net of a tax benefit of $2,449,000. The effect prior to this date has not been computed due to the Company's emergence from bankruptcy effective August 15, 1998. F-11 Pro forma amounts (unaudited), assuming the new accounting principle was applied during all periods presented, follow with comparisons to actual results.
Successor Company ---------------------------------- 52 Weeks 33 Weeks Ended Ended April 1, April 3, 2000 1999 ---------------------------------- Net Income (Loss) Before Cumulative Effect of Accounting Change: As reported $ (306,865) $ (77,483) Pro forma (306,865) (81,008) Net Income (Loss): As reported $ (310,390) $ (77,483) Pro forma (306,865) (81,008) Loss Per Share Before Cumulative Effect of Accounting Change: As reported $ (10.23) $ (2.58) Pro forma (10.23) (2.70) Basic & Diluted Net (Loss) Per Share: As reported $ (10.35) $ (2.58) Pro forma (10.23) (2.70)
NOTE 7 - Property, Plant and Equipment, Net Property, plant and equipment, at cost, consists of the following (in thousands):
April 1, April 3, 2000 1999 ---------------- ---------------- Property owned: Land $ 16,794 $ 16,841 Buildings 74,024 66,782 Fixtures and equipment 429,096 394,667 Leasehold improvements 179,413 166,444 ---------------- ---------------- 699,327 644,734 Less: accumulated depreciation and amortization 475,351 432,818 ---------------- ---------------- Property owned, net 223,976 211,916 ---------------- ---------------- Property held under capital leases: Land and buildings 147,782 163,968 Equipment 4,465 11,858 ---------------- ---------------- 152,247 175,826 Less: accumulated amortization 51,504 59,861 ---------------- ---------------- Property held under capital leases, net 100,743 115,965 ---------------- ---------------- Property, plant and equipment, net $ 324,719 $ 327,881 ================ ================
Depreciation and amortization of owned and leased property for Fiscal 2000, the 33 weeks ended April 3, 1999, the 20 weeks ended August 15, 1998 and Fiscal 1998 were $59,577,000, $32,685,000, $17,612,000 and $78,554,000, respectively. In accordance with SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," the Company records impairments of long-lived assets and certain identifiable intangibles when there is evidence that events or changes in circumstances have made recovery of an asset's carrying value unlikely. In accordance with this statement, the Company performed an evaluation of its assets for impairment considering the present value of estimated net future operating cash flows. This review resulted in the Company recording an impairment loss of $15,996,000, $7,752,000, $0 and $25,020,000 for Fiscal 2000, the 33 weeks ended April 3, 1999, the 20 weeks ended August 15, 1998 and Fiscal 1998, respectively, which was recorded through depreciation in order to write down certain impaired store assets. F-12 NOTE 8 - Receivables and Accounts Payable and Accrued Liabilities Receivables at April 1, 2000 and April 3, 1999 are net of allowances for doubtful accounts of $7,102,000 and $4,991,000, respectively. Accounts payable and accrued liabilities consist of the following (in thousands):
April 1, April 3, 2000 1999 ---------------- ---------------- Accounts payable $ 97,061 $ 77,542 Accrued liabilities: Payroll 22,123 27,246 Deferred income 16,529 6,954 Insurance 15,973 14,014 Restructuring 10,621 Other 32,954 46,243 ---------------- ---------------- Total accounts payable and accrued liabilities $ 195,261 $ 171,999 ================ ================
NOTE 9 - Income Taxes The components of the deferred income tax provision are as follows (in thousands):
Successor Company Predecessor Company ---------------------------------- --------------------------------- 52 Weeks 33 Weeks 20 Weeks 52 Weeks Ended Ended Ended Ended April 1, April 3, August 15, March 28, 2000 1999 1998 1998 ---------------- ----------------- ---------------- ----------------- Federal $ 99,773 $ 440 $ - $ 43,872 State 17,407 127 - 7,521 ---------------- ----------------- ---------------- ----------------- Income tax provision $ 117,180 $ 567 $ - $ 51,393 ================= ================ ================ ================
The reconciliation of the income tax (benefit) computed at the federal statutory rate to the reported income tax provision is as follows (in thousands):
Successor Company Predecessor Company ---------------------------------- --------------------------------- 52 Weeks 33 Weeks 20 Weeks 52 Weeks Ended Ended Ended Ended April 1, April 3, August 15, March 28, 2000 1999 1998 1998 ---------------- ----------------- ---------------- ---------------- (Benefit) computed at federal statutory tax rate $ (66,390) $ (26,920) $ (24,114) $ (88,407) (Increase) decrease in the benefit resulting from: Amortization of excess reorganization value 46,148 28,401 14,045 36,257 State and local taxes, net of federal income tax benefit and valuation allowance 17,407 83 (1,434) (9,039) Other 411 (997) 1,703 (2,005) Deferred tax asset valuation allowance (federal) 119,604 - 9,800 114,587 ---------------- ----------------- ---------------- ---------------- Income tax provision $ 117,180 $ 567 $ - $ 51,393 ================ ================= ================ ================
F-13 The components of the net deferred tax asset are as follows (in thousands):
April 1, April 3, 2000 1999 ---------------- ---------------- Deferred tax assets: Insurance reserve $ 23,516 $ 24,414 Pension 20,657 19,180 Postretirement benefit liability 19,114 18,063 Depreciable assets 37,282 33,375 Other miscellaneous reserves 41,039 27,289 Net operating loss carryforward 5,912 - ---------------- ---------------- Total deferred tax assets 147,520 122,321 ---------------- ---------------- Deferred tax liabilities: LIFO reserve 6,212 7,892 ---------------- ---------------- Total deferred tax liabilities 6,212 7,892 ---------------- ---------------- Net deferred tax asset before valuation allowance 141,308 114,429 Valuation allowance (141,308) - ---------------- ---------------- Net deferred tax asset $ - $ 114,429 ================ ================
The Company recorded a provision for income tax of $117,180,000 for Fiscal 2000 and $567,000 for the 33 weeks ended April 3, 1999, representing federal and state income taxes. The Company recorded no income tax benefit relating to net operating losses generated during Fiscal 2000, the 20 weeks ended August 15, 1998 and Fiscal 1998, as they were offset by valuation allowances. During the fourth quarter of Fiscal 2000, the Company determined that the likelihood of realizing its net deferred tax asset had significantly diminished as a result of long-term financial prospects. As a result, a valuation allowance was established to fully reserve for its entire net deferred tax asset. Similarly, during the fourth quarter of Fiscal 1998, the company established a valuation allowance for the portion of its deferred tax asset relating to temporary differences. As of April 1, 2000, the Company had a net operating loss carryforward of approximately $14,419,000, expiring in the year 2020. At the end of Fiscal 1999, all credit and operating loss carryforward balances were completely offset by the discharge of indebtedness income recorded in connection with the Plan of Reorganization. In addition, the tax basis of the Company's assets was reduced by $26,864,000, representing the Company's discharge of indebtedness income in excess of its operating loss and credit carryforwards as of April 3, 1999. NOTE 10 - Debt The components of the Company's debt are as follows (in thousands):
April 1, April 3, 2000 1999 ---------------- ---------------- Bank Credit Agreements: Term Loans $ 230,000 $ 230,000 Revolving Credit Facility 4,000 - ---------------- ---------------- 234,000 230,000 Less: current maturities of long-term debt - - ---------------- ---------------- Long-term debt $ 234,000 $ 230,000 ================ ================
In connection with the Chapter 11 filing in the 1998 Reorganization, the Company entered into the DIP Facility, a $172,022,020 revolving credit agreement with Swiss Bank Corporation ("SBC") and LCPI, as agents for a syndicate of lenders. The DIP Facility included a $50 million letter of credit sub-facility. The DIP facility matured on August 17, 1998, the consummation date of the Plan of Reorganization. On August 17, 1998, as a result of the consummation of the Plan of Reorganization, the Company entered into the Credit Agreement. The Credit Agreement is comprised of: (i) a $230 million term loan facility (the "Term Loan") and (ii) a $70 million revolving credit facility (the "Revolving Credit"). The Credit Agreement is secured by substantially all of the F-14 assets of Grand Union and its subsidiaries, and is guaranteed by its subsidiaries. The interest rate applicable to the Term Loan and Revolving Credit is equal to, at the Company's election, either (i) 2% above the highest of (A) Citibank's prime or base rate, (B) 0.50% over the Federal Funds Rate per annum and (C) 1% above the certificate of deposit rate, or (ii) LIBOR plus 3%, in each case, subject to reduction, based on certain performance criteria. At April 1, 2000, borrowings under the Credit Agreement were at a weighted average interest rate of 8.70%. The Term Loan and Revolving Credit will mature on August 17, 2003. The proceeds of the Credit Agreement have been used to refinance the obligations under the DIP Facility and supplemental term loan claims under the Old Credit Agreement, and the excess portion will be used for the working capital needs of Grand Union and its subsidiaries, including capital expenditures. Up to $50 million of Revolving Credit will be available for the issuance of letters of credit. As of April 1, 2000, an aggregate of $31 million of letters of credit were issued and outstanding under the Credit Agreement. Such letters of credit have been issued primarily in connection with the Company's self insurance for workers compensation, auto and general liability. The Company recently experienced a reduction in its anticipated operating results and, therefore, the Company's ability to achieve certain of its future financial covenants included in the Credit Agreement became questionable. As a result, the Company commenced negotiations with the lenders under the Credit Agreement and, effective June 30, 2000, executed the third amendment to the Credit Agreement (the "Third Amendment"), which, among other things, adjusted certain of the financial covenants and permits the Company to retain a greater portion of the proceeds of asset sales to a specified level. The Third Amendment also provides that the financial covenants, which have an EBITDA component, will be computed and measured based upon each of the Company's 13 fiscal reporting periods, whereas before they were computed and measured quarterly. This new requirement subjects the Company to increased risk that a short-term decline in operating performance could potentially trigger an event of default under the Credit Agreement resulting in the entire loan balance becoming due and payable, subject to the lenders' discretion and proper notification. The Company believes that the revised financial covenants are achievable for each period throughout the remainder of the year, although there can be no assurance that unanticipated adverse events will not occur. The Third Amendment also requires the Company to retain an investment banker for purposes of exploring all strategic alternatives and to retain a consulting company to assist in the preparation of a business plan. NOTE 11 - Property Leases The Company principally operates in leased stores and offices, in most cases holding renewal options with varying terms. Many of the leases contain clauses, which provide for increased rentals based upon increases in real estate taxes, lessors' operating expenses and increased sales levels. Future minimum payments under capital and non-cancelable operating leases, net of minimum sublease income, as of April 1, 2000 are as follows (in thousands):
Capital Operating ---------------- ---------------- Fiscal 2001 $ 23,561 $ 31,295 2002 22,623 26,291 2003 21,792 24,562 2004 21,796 21,720 2005 22,175 19,542 Later years 263,640 153,983 ---------------- ---------------- Total minimum lease payments 375,587 277,393 Less: sublease rental income (1,739) (15,086) ---------------- ---------------- Net minimum lease payments 373,848 $ 262,307 ================= Less: portion representing interest (227,814) ---------------- Present value of net minimum lease payments 146,034 Less: current portion of obligations under capital leases (4,544) ---------------- Noncurrent portion of obligations under capital leases (net of $ 141,490 sublease rental income) ================
Contingent rentals (received)/incurred on capital leases for Fiscal 2000, the 33 weeks ended April 3, 1999, the 20 weeks ended August 15, 1998, and Fiscal 1998 were $(1,000), $37,000, $24,000 and $81,000, respectively. The rental expense for all operating leases was $51,266,000, $30,397,000, $18,887,000 and $48,262,000 during Fiscal 2000, the 33 weeks ended April 3, 1999, the 20 weeks ended August 15, 1998 and Fiscal 1998, respectively. Contingent rental expense included in total rental expense was $2,196,000, $1,494,000, $981,000 and $2,538,000, during Fiscal 2000, the 33 weeks ended April 3, 1999, the 20 weeks ended August 15, 1998 and Fiscal 1998, respectively. F-15 NOTE 12 - Interest Expense, Net The components of interest expense, net are summarized as follows (in thousands):
Successor Company Predecessor Company --------------------------------- --------------------------------- 52 Weeks Ended 33 Weeks Ended 20 Weeks Ended 52 Weeks Ended April 1, April 3, August 15, March 28, 2000 1999 1998 1998 ---------------- ---------------- ---------------- ---------------- Term Loans $ 19,409 $ 12,315 $ 9,653 $ 16,813 Revolving Credit 696 111 579 2,203 12% Senior Notes, net of amortization of debt premium - - 16,882 70,817 Capital lease obligations 20,230 12,513 7,793 20,166 Banking and letter of credit fees 1,092 1,000 625 1,630 Deferred loan placement fees 1,579 972 821 1,540 Other 1,075 821 333 822 Interest income (956) (584) (177) (221) ---------------- ---------------- ---------------- ---------------- Total interest expense, net $ 43,125 $ 27,148 $ 36,509 $ 113,770 ================ ================= ================ ================
NOTE 13 - Pension Plans The components of the net periodic pension expense for the Company's defined benefit pension plans are as follows (in thousands):
Fiscal Fiscal Fiscal 2000 1999 1998 ----------------- ----------------- ---------------- Service cost - benefits earned during the period $ 6,971 $ 6,211 $ 4,492 Interest costs on projected benefit obligations 13,544 13,150 12,700 Expected return on plan assets (11,609) (12,610) (12,589) Net amortization and deferral (218) 340 171 ----------------- ----------------- ---------------- Net periodic pension expense $ 8,688 $ 7,091 $ 4,774 ================= ================= ================
The Company has not segregated the respective Successor and Predecessor Company pension expense for Fiscal 1999 because it is impractical to do so. The actuarial present value of benefit obligations and the funded status of the Company's pension plans are as follows (in thousands):
Fiscal Year 2000 Fiscal Year 1999 --------------------------------------------------------------------------------------- Qualified Supplemental Total Qualified Supplemental Total Retirement Retirement Plan Plan Plan Plan -------------- -------------- ------------- -------------- ------------- -------------- Change in benefits obligation Benefit obligation at beginning of year $ 213,626 $ 6,707 $ 220,333 $ 194,482 $ 7,789 $ 202,271 Service cost 5,805 1,166 6,971 5,794 417 6,211 Interest cost 13,175 369 13,544 12,634 516 13,150 Amendments - 222 222 - - - Settlement (gain) (17,103) (4,507) (21,610) - - - Curtailment loss - 2,384 2,384 - - - Actuarial (gain) loss (15,417) (1,395) (16,812) 16,222 (1,557) 14,665 Benefits paid (8,766) (467) (9,233) (15,506) (458) (15,964) -------------- -------------- ------------- -------------- ------------- -------------- Benefit obligations at end of year $ 191,320 $ 4,479 $ 195,799 $ 213,626 $ 6,707 $ 220,333 ============== ============== ============= ============== ============= ============== Change in plan assets Fair value of plan assets at beginning of year $ 186,697 $ - $ 186,697 $ 192,386 $ - $ 192,386 Actual return on plan assets 28,565 - 28,565 9,817 - 9,817 Employer contributions - 4,974 4,974 - 458 458 Settlement (gain) (17,103) (4,507) (21,610) - - - Benefits paid (8,766) (467) (9,233) (15,506) (458) (15,964) -------------- -------------- ------------- -------------- ------------- -------------- Fair value of plan assets at end of year $ 189,393 $ - $ 189,393 $ 186,697 $ - $ 186,697 ============== ============== ============= ============== ============= ============== Funded status $ (1,927) $ (4,479) $ (6,406) $ (26,929) $ (6,707) $ (33,636) Unrecognized net actuarial (gain) loss (37,003) (304) (37,307) (7,934) (1,834) (9,768) Unrecognized prior service cost - 222 222 - - - -------------- -------------- ------------- -------------- ------------- -------------- (Accrued) pension cost $ (38,930) $ (4,561) $ (43,491) $ (34,863) $ (8,541) $ (43,404) ============== ============== ============= ============== ============= ==============
F-16 The settlement and curtailment referred to above arose as a result of the senior management restructuring and staff reductions discussed in Note 2. Weighted average assumptions used in all Company sponsored plans were as follows:
Fiscal 2000 Fiscal 1999 ----------------------------- ---------------------------- Qualified Qualified Retirement Supplemental Retirement Supplemental Plan Plan Plan Plan -------------- -------------- ------------- -------------- Discount rate 7.00% 7.00% 6.25% 6.25% Rates of increase in future compensation 4.75% 4.75% 4.50% 4.50% Expected return on plan assets 7.25% N/A 8.25% N/A
NOTE 14 - Postretirement Health Care and Life Insurance Benefits The Company provides certain health care and life insurance benefits for substantially all of its full-time non-union employees and union employee groups. The Company's postretirement plans currently are not funded. The Company's union employee groups are participants in multi-employer plans, which require monthly contributions and which are not subject to the provisions of SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions." Net postretirement benefit cost consisted of the following (in thousands):
Fiscal Fiscal Fiscal 2000 1999 1998 ----------------- ----------------- ----------------- Service cost - benefits earned during the period $ 812 $ 854 $ 720 Interest cost on accumulated postretirement benefit obligation 2,998 2,883 2,690 Net amortization and deferral - 162 - ----------------- ---------------- ----------------- Net postretirement benefit expense $ 3,810 $ 3,899 $ 3,410 ================= ================ =================
The Company has not segregated the respective Successor and Predecessor Company postretirement benefit expense for Fiscal 1999 because it is impractical to do so. F-17 The unfunded accrued postretirement benefit cost consists of the following (in thousands):
April 1, April 3, 2000 1999 --------------------------------- Change in benefit obligation Benefit obligation at beginning of year $ 47,670 $ 44,642 Service cost 812 854 Interest cost 2,998 2,883 Plan participants' contributions 732 500 Actuarial (gain) loss (1,933) 1,499 Benefits paid (3,135) (2,708) ---------------- ---------------- Benefit obligations at end of year $ 47,144 $ 47,670 ================ ================ Change in plan assets Fair value of plan assets at beginning of year $ - $ - Actual return on plan assets - - Employer contributions 2,403 2,208 Plan participants' contributions 732 500 Benefits paid (3,135) (2,708) ---------------- ---------------- Fair value of plan assets at end of year $ - $ - ================ ================ Funded status $ (47,144) $ (47,670) Unrecognized actuarial loss 38 1,971 Unrecognized prior year service cost - - ---------------- ---------------- Accrued postretirement benefit cost $ (47,106) $ (45,699) ================ ================ Effect of a one-percentage-point increase in the assumed health care cost trend rates: 1.Change in service cost plus interest cost components $ 12 $ 13 2.Change in accumulated postretirement benefit obligation 165 202 Effect of a one-percentage-point decrease in the assumed health care cost trend rates: 1.Change in service cost plus interest cost components $ (11) $ (12) 2.Change in accumulated postretirement benefit obligation (158) (197) Weighted average assumptions at year end Discount rate 7.00% 6.25% Expected return on plan assets N/A N/A Gross health care cost trend rates* (a) Pre 65 initial/ultimate 8.00%/4.75% 9.00%/4.50% (b) Post 65 initial/ultimate 5.00%/4.75% 6.00%/4.50%
* Initial trend rate assumed for applicable year grading down 1.0% per year to ultimate rate. Trend rates do not affect liabilities for retirements occurring on or after January 1, 1994. The Company provides benefits for all future retirees based on a service related flat dollar premium allowance. Accordingly, the health care trend rate will not be a significant factor in determining Grand Union's liability for future retirees under its postretirement health care arrangements. NOTE 15 - Equity Compensation Plans The Company grants options for common stock under two plans - The Grand Union Company 1995 Equity Incentive Plan, as amended ("EIP") and The Grand Union Company 1995 Non-Employee Directors' Stock Option Plan, as amended ("NEDSOP"). In connection with the 1998 Reorganization, the EIP was amended to adjust: 1) the aggregate number of shares issuable from 6,000,000 shares to 3,250,000 shares of the Company's Common Stock; and 2) the aggregate number of shares that may be issued to any individual participant to 3,000,000 from 2,000,000. The NEDSOP was amended on December 9, 1999, to adjust: 1) the aggregate number of shares issuable from 100,000 shares to 250,000 F-18 shares, and 2) the initial and annual grants to directors. Both plans are administered by a committee of the Board of Directors. Options under the EIP and the NEDSOP generally vest over four and three years respectively, subject to the terms of individual grants. All grants outstanding become immediately exercisable upon certain changes of control of the Company. Options under both plans expire ten years from the grant date, unless otherwise provided in a particular grant. As a result of the 1998 Reorganization, all then existing options under both plans were cancelled effective August 17, 1998. The following tables summarize information about options outstanding for both stock option plans:
Successor Company -------------------------------------------------- 52 Weeks Ended 33 Weeks Ended April 1, 2000 April 3, 1999 ------------------------ ------------------------- Weighted Weighted Average Average Exercise Exercise EIP Shares Price Shares Price - --- ------------ ---------- ------------- ----------- - Outstanding at beginning of year 2,408,192 $ 11.583 - $ - Granted 612,500 11.377 2,408,192 11.583 Exercised - - - - Cancelled or expired (1,622,084) 11.542 - - ------------------------ ------------------------- Outstanding at end of year 1,398,608 $ 11.532 2,408,192 $ 11.583 ======================== ========================= Options exercisable at year-end 104,110 $ 12.279 61,225 $ 12.320 ======================== ========================= Available for issuance under the 1,851,392 841,808 plan Weighted average contractual life (years) 6.152 4.081 Range of exercise prices $4.690 $8.500 to $13.438 to $13.438 Predecessor Company -------------------------------------------------- 20 Weeks Ended 52 Weeks Ended August 15, 1998 March 28, 1998 ------------------------ ------------------------- Weighted Weighted Average Average Exercise Exercise EIP Shares Price Shares Price - --- ------------ ---------- ------------- ----------- Outstanding at beginning of year 4,232,781 $ 2.271 226,280 $ 6.365 Granted - - 4,133,800 2.146 Exercised - - (5,325) 1.844 Cancelled or expired (4,232,781) 2.271 (121,974) 5.658 ------------------------ ------------------------- Outstanding at end of year - $ - 4,232,781 $ 2.271 ======================== ========================= Options exercisable at year-end - $ - 2,983,981 $ 1.972 ======================== ========================= Available for issuance under the - 1,767,219 plan Weighted average contractual life (years) - 9.386 Range of exercise prices - $1.375 to $6.625
Successor Company -------------------------------------------------- 52 Weeks Ended 33 Weeks Ended April 1, 2000 April 3, 1999 ------------------------ ------------------------- Weighted Weighted Average Average Exercise Exercise NEDSOP Shares Price Shares Price - ------ ------------ ----------- ------------ ------------ Outstanding at beginning of year 40,000 $ 8.759 - $ - Granted (*) 50,500 10.322 40,000 8.759 Exercised - - - - Cancelled or expired - - - - ------------ ----------- ------------ ------------ Outstanding at end of year 90,500 $ 9.631 40,000 $ 8.759 ============ =========== ========================= Options exercisable at year-end 30,172 $ 9.193 13,328 $ 8.759 ============ =========== ========================= Available for issuance under the 159,500 60,000 plan Weighted average contractual life (years) 9.119 9.447 Range of exercise prices $8.759 $8.759 to $12.500 Predecessor Company -------------------------------------------------- 20 Weeks Ended 52 Weeks Ended August 15, 1998 March 28, 1998 ------------------------ ------------------------- Weighted Weighted Average Average Exercise Exercise NEDSOP Shares Price Shares Price - ------ ------------ ----------- ------------ ------------ Outstanding at beginning of year 68,500 $ 4.472 51,000 $ 5.941 Granted (*) - - 27,000 2.208 Exercised - - - - Cancelled or expired (68,500) 4.472 (9,500) 5.928 ------------ ----------- ------------ ------------ Outstanding at end of year - $ - 68,500 $ 4.472 ============ =========== ============ ============ Options exercisable at year-end - $ - 34,336 $ 5.907 ============ =========== ============ ============ Available for issuance under the - 31,500 plan Weighted average contractual life (years) - 7.577 Range of exercise prices - $2.156 to $6.125
(*) Subject to approval by the Stockholders of the December 9, 1999 amendments to the NEDSOP. The following table summarizes information about options outstanding for the EIP as of April 1, 2000:
Options Outstanding Options Exercisable ---------------------------------------------------- ---------------------------------- Weighted Average Weighted Weighted Options Remaining Average Options Average Range of Exercise Prices Outstanding Contractual Life Exercise Price Exercisable Exercise Price ------------------------ ----------------- ----------------- ---------------- ---------------- ----------------- $4.6875 50,000 9.953 $ 4.6875 - $ N/A 8.5000 to 10.6500 336,742 2.768 10.5426 3,750 8.5000 11.0000 to 12.3200 803,866 6.674 12.1247 36,735 12.3200 12.4375 to 13.4375 208,000 8.699 12.4880 63,625 12.4788 ----------------- ----------------- ---------------- ---------------- ----------------- $4.6875 to 13.4375 1,398,608 6.152 $ 11.5320 104,110 $ 12.2794 ================= ================
F-19 The options issued under these plans will expire if not exercised at specific dates ranging from August, 2002 to March, 2010 for the EIP and September , 2008 to December, 2009 for the NEDSOP. The Company follows Accounting Principles Board Opinion 25, "Accounting for Stock Issued to Employees," to account for its EIP and NEDSOP. No compensation cost is recognized because the option exercise price is equal to or greater than the market price of the underlying stock on the date of grant. An alternative method of accounting for stock options is SFAS No. 123. Under SFAS No. 123, employee stock options are valued at grant date using the Black-Scholes valuation model and compensation cost is recognized ratably over the vesting period. Had compensation cost for the Company's stock option and employee plans been determined based on the Black-Scholes value at the grant dates for awards as prescribed by SFAS No. 123, net income (loss) and basic and diluted net (loss) per common share would have been changed to the pro forma amounts indicated below:
Successor Company Predecessor Company ---------------------------------- --------------------------------- 52 Weeks Ended 33 Weeks Ended 20 Weeks Ended 52 Weeks Ended April 1, April 3, August 15, March 28, 2000 1999 1998 1998 ---------------- ----------------- ---------------- ---------------- Net income (loss) As reported $ (310,390) $ (77,483) $ 189,582 $ (312,414) Pro forma (310,896) (77,847) N/A N/A Basic and diluted net (loss) per common share (*) As reported (*) $ (10.35) $ (2.58) N/A N/A Pro forma (*) (10.36) (2.59) N/A N/A
(*) Basic and diluted net (loss) per common share is not meaningful for the period prior to the Effective Date due to the significant change in the capital structure of the Company. The Common Stock began trading on the NASDAQ National Market on October 1, 1998. The weighted average fair values at date of grant for the Company's options granted during Fiscal 2000 and Fiscal 1999 were $5.40 and $4.32, respectively. The fair values of options were estimated using the Black-Scholes model with the following weighted average assumptions:
Successor Company Predecessor Company ---------------------------------- --------------------------------- 52 Weeks 33 Weeks 20 Weeks Ended 52 Weeks Ended Ended Ended April 1, April 3, August 15, March 28, 2000 1999 1998 1998 ---------------- ----------------- ---------------- ---------------- Expected life (years) 4.6 4.4 N/A N/A Risk-free interest rate 5.12% 4.98% N/A N/A Volatility 51.72% 33.80% N/A N/A Dividend yield 0.00% 0.00% N/A N/A
NOTE 16 - Related Party Transactions In connection with a Stock Purchase Agreement, the Company entered into a management services agreement (the "Services Agreement") with Shamrock Capital Advisors, Inc. ("SCA"). The Company paid $39,000 and $552,000 for Fiscal 1999 and Fiscal 1998, respectively, under the Services Agreement. The Service Agreement expired by its terms in September 1999. No further payments will be made to SCA due to the Plan of Reorganization. An agreement was also made in connection with the sale of the Class A Convertible Preferred Stock with Roger E. Stangeland, Chairman of the Board, wherewith he personally purchased an additional 60,000 shares of the same preferred stock for an aggregate price of $3,000,000. NOTE 17 - Contingency Matters and Commitments The Company is subject to certain legal proceedings and claims arising in connection with its business. It is management's opinion that the ultimate resolution of such legal proceedings and claims will not have a material adverse effect on the Company's consolidated results of operations or its financial position. F-20 On September 24, 1999, the Company signed a term sheet (the "C&S Term Sheet") extending its primary supply agreement with C&S and modifying certain terms. The C&S Term Sheet provides for substantial monetary penalties in the event the Company is sold or closes stores, and such closed or sold stores are not thereafter supplied by C&S. The expiration date of the agreement was extended until September 24, 2014, and the parties are drafting a final agreement. Donald C. Vaillancourt, formerly corporate vice president, public affairs counsel and corporate secretary was arrested April 17, 2000 by the Federal Bureau of Investigation in connection with charges that Mr. Vaillancourt embezzled substantial sums of money while employed by the Company. Unrelated to and preceding the filing of charges against him, Mr. Vaillancourt was terminated by the Company in connection with a reduction-in-force on February 17, 2000. After conducting an internal investigation, Grand Union brought the matter to the attention of the FBI and the United States Attorney's Office in Newark, New Jersey. The Company has undertaken substantial efforts in uncovering the alleged unlawful acts and has fully cooperated with the authorities in the formal investigation, which has identified potential misdoings over at least the past 10 years. The Company will continue to examine materials and to fully cooperate with the federal authorities to determine the full scope of the alleged embezzlement. The Company has notified its insurance carrier and will seek to recover any embezzled funds expeditiously. F-21 NOTE 18 - Quarterly Financial Information (unaudited) (in thousands, except loss per share and market price)
1st 2nd 3rd 4th ----------------- ----------------- ----------------- ----------------- 16 Weeks 12 Weeks 12 Weeks 12 Weeks Ended Ended Ended Ended July 24, October 16, January 8, April 1, Fiscal 2000 (*): 1999 1999 2000 2000 - ------------ ----------------- ----------------- ----------------- ----------------- Sales $ 687,268 $ 512,348 $ 520,304 $ 484,592 Gross profit 203,272 155,783 146,496 121,556 Unusual items - - - - (Loss) before income taxes (39,621) (24,670) (41,426) (83,968) Net (loss) before cumulative effect of accounting change (41,292) (27,257) (38,426) (199,890) Net (loss) applicable to common stock (44,817) (27,257) (38,426) (199,890) Basic and diluted net (loss) per common share (1.49) (0.91) (1.28) (6.66) Market Price - high 11 1/2 14 13 1/16 10 Market Price - low 8 7/8 10 9/16 9 5/16 2 3/4
(*) Results have been restated to reflect the Company's adoption of SAB 101, effective April 4, 1999 (see Note 6).
Predecessor Company Successor Company -------------------------------------------------------------------------------------- 1st 2nd 3rd 4th ----------------- ---------------------------------- ----------------- --------------- 16 Weeks 4 Weeks 8 Weeks 12 Weeks 13 Weeks Ended Ended Ended Ended Ended July 18, August 15, October 10, January 2, April 3, Fiscal 1999: 1998 1998 1998 1999 1999 - ------------ ----------------- ---------------------------------- ----------------- --------------- Sales $ 691,908 $ 177,054 $ 342,471 $ 527,666 $ 547,156 Gross profit 205,185 52,847 102,814 153,966 164,789 Unusual items 4,509 280 647 341 - (Loss) before income taxes and extraordinary item (58,865) (8,293) (19,600) (25,461) (31,855) Net income (loss) (60,604) 252,491 (19,424) (26,689) (31,370) Net income (loss) applicable to common stock (62,909) 252,491 (19,424) (26,689) (31,370) Basic and diluted net (loss) per common share (**) (0.65) (0.89) (1.05) Market Price - high (**) 9 1/2 13 14 Market Price - low (**) 7 1/2 7 1/2 11
(**) Basic and diluted net (loss) per common share and market price information is not meaningful for the period prior to the Effective Date due to the significant change in the Capital Structure of the Company. Common Stock of the Successor Company began trading on the NASDAQ National Market on October 1, 1998. On March 24, 2000, the NASDAQ Listing Qualifications Panel advised the Company its Common Stock no longer qualified for trading on the NASDAQ National Market and would be delisted. The Company has appealed the decision and is seeking to transfer the Common Stock to the NASDAQ SmallCap Market. In order to qualify for listing on the NASDAQ SmallCap Market, the Company must satisfy all listing criteria, including the $1 minimum bid price. The Company's appeal will be considered by NASDAQ on July 27, 2000. Until a final determination is made, the Company's Common Stock will remain on the NASDAQ National Market under the ticker symbol "GUCO" as it has been since October 1, 1998. F-22 EX-4.3 2 0002.txt AGREEMENT CORRECTED VERSION AGREEMENT Agreement, dated as of April 29, 1999, by and between The Grand Union Company, a Delaware corporation (the "Company"), and American Stock Transfer & Trust Co., a corporation organized under the laws of the State of New York (the "Rights Agent"). W I T N E S S E T H: - - - - - - - - - - WHEREAS, on April 29, 1999, the Board of Directors of the Company authorized the issuance of, and declared a dividend payable in, one right (a "Right") for each share of Common Stock, $0.01 par value per share, of the Company outstanding as of the close of business on May 10, 1999 (the "Record Date"), each such Right representing the right to purchase one one-thousandth of a share of Series A Junior Preferred Stock of the Company ("Preferred Stock") having the rights and preferences set forth in the form of Certificate of Designations attached hereto as Exhibit C authorized by the Board of Directors on April 29, 1999, upon the terms and subject to the conditions hereinafter set forth; and WHEREAS, the Board of Directors of the Company further authorized the issuance of one Right (subject to adjustment) with respect to each share of Common Stock which may be issued between the Record Date and the earlier to occur of the Distribution Date, the Expiration Date or the Final Expiration Date (as such terms are hereinafter defined); provided, however, that Rights may be issued with respect to shares of Common Stock that shall become outstanding after the Distribution Date and prior to the Expiration Date in accordance with Section 22. NOW, THEREFORE, in consideration of the premises and the mutual agreements herein set forth, the parties hereby agree as follows: Section 1. Certain Definitions. For purposes of this Agreement, the following terms shall have the meanings indicated: (a) "Acquiring Person" shall mean any Person (as such term is hereinafter defined) who or which, together with all Affiliates (as such term is hereinafter defined) and Associates (as such term is hereinafter defined) of such Person, shall be the Beneficial Owner (as such term is hereinafter defined) of 15% or more of the Voting Stock (as such term is hereinafter defined) of the Company then outstanding; provided, that, an Acquiring Person shall not include (i) an Exempt Person (as such term is hereinafter defined) or (ii) any Person who or which, together with all Affiliates and Associates of such Person, would be an Acquiring Person solely by reason of (A) being the Beneficial Owner of shares of Voting Stock of the Company, the Beneficial Ownership of which was acquired by such Person (together with all Affiliates and Associates of such Person) pursuant to any action or transaction or series of related actions or transactions approved by the Board of Directors before such Person (together with all Affiliates and Associates of such Person) otherwise became an Acquiring Person or (B) a reduction in the number of issued and outstanding shares of Voting Stock of the Company pursuant to a transaction or a series of related transactions approved by the Board of Directors of the Company; provided, further, that in the event such Person 2 described in this clause (ii) does not become an Acquiring Person by reason of subclause (A) or (B) of this clause (ii), such Person nonetheless shall become an Acquiring Person in the event such Person (together with all Affiliates and Associates of such Person) thereafter acquires Beneficial Ownership of an additional 1% of the Voting Stock of the Company, unless the acquisition of such additional Voting Stock would not result in such Person becoming an Acquiring Person by reason of subclause (A) or (B) of this clause (ii). Notwithstanding the foregoing, if the Board of Directors of the Company determines in good faith that a Person who would otherwise be an "Acquiring Person" as defined pursuant to the foregoing provisions of this paragraph (a) has become such inadvertently, and such Person divests as promptly as practicable (as determined in good faith by the Board of Directors) a sufficient number of shares of Common Stock so that such Person would no longer be an "Acquiring Person" as defined pursuant to the foregoing provisions of this paragraph (a), then such Person shall not be deemed an "Acquiring Person" for any purposes of this Agreement. (b) "Affiliate" shall have the meaning ascribed to such term in Rule 12b-2 of the General Rules and Regulations under the Securities Exchange Act of 1934, as amended ("Exchange Act"), as in effect on the date of this Agreement. (c) "Associate" of a Person shall mean (i) with respect to a corporation, any officer or director thereof or of any Subsidiary (as such 3 term is hereinafter defined) thereof, or any Beneficial Owner of 10% or more of any class of equity security thereof, (ii) with respect to an association, any officer or director thereof or of a Subsidiary thereof, (iii) with respect to a partnership, any general partner thereof or any limited partner thereof who is, directly or indirectly, the Beneficial Owner of a 10% ownership interest therein, (iv) with respect to a business trust, any officer or trustee thereof or of any Subsidiary thereof, (v) with respect to any other trust or an estate, any trustee, executor or similar fiduciary or any Person who has a 15% or greater interest as a beneficiary in the income from or principal of such trust or estate, (vi) with respect to a natural person, any relative or spouse of such person, or any relative of such spouse, who has the same home as such person, and (vii) any Affiliate of such Person. (d) A person shall be deemed the "Beneficial Owner" of, or to "Beneficially Own," any securities (and correlative terms shall have correlative meanings): (i) which such Person or any of such Person's Affiliates or Associates beneficially owns, directly or indirectly, for purposes of Section 13(d) of the Exchange Act and Regulations 13D and 13G thereunder (or any comparable or successor law or regulation), in each case as in effect on the date hereof; or (ii) which such Person or any of such Person's Affiliates or Associates has (A) the right to acquire (whether such right is 4 exercisable immediately or only after the passage of time or the fulfillment of a condition or both) pursuant to any agreement, arrangement or understanding, or upon the exercise of conversion rights, exchange rights, other rights (other than the Rights), warrants or options, or otherwise; provided, however, that a Person shall not be deemed the "Beneficial Owner" of, or to "Beneficially Own," securities tendered pursuant to a tender or exchange offer made by such Person or any of such Person's Affiliates or Associates until such ten dered securities are accepted for purchase or exchange or (B) the right to vote, alone or in concert with others, pursuant to any agreement, arrangement or understanding (whether or not in writing); provided, however, that a Person shall not be deemed the "Beneficial Owner" of, or to "Beneficially Own," any securities if the agreement, arrangement or understanding to vote such security (1) arises solely from a revocable proxy or consent given in response to a proxy or consent solicitation made pursuant to, and in accordance with, the applicable rules and regulations under the Exchange Act and (2) is not at the time reportable by such Person on a Schedule 13D or Schedule 13G report under the Exchange Act (or any comparable or successor report), other than by reference to a proxy or consent solicitation being conducted by such Person; or (iii) which are beneficially owned, directly or indirectly, by any other Person with which such Person or any of such Person's Affiliates or Associates has any agreement, arrangement or understanding (whether or not in writing) for the purpose of 5 acquiring, holding, voting (except as described in clause (B) of subparagraph (ii) of this paragraph (d)) or disposing of any securities of the Company; provided, however, that for purposes of determining Beneficial Ownership of securities under this Agreement, officers and directors of the Company solely by reason of their status as such shall not constitute a group (notwithstanding that they may be Associates of one another or may be deemed to constitute a group for purposes of Section 13(d) the Exchange Act) and shall not be deemed to own shares owned by another officer or director of the Company. Notwithstanding anything in this paragraph (d) to the contrary, a Person engaged in the business of underwriting securities shall not be deemed the "Beneficial Owner" of, or to "Beneficially Own," any securities acquired or otherwise beneficially owned in good faith in a firm commitment underwriting until the expiration of forty (40) days after the date of the sale of securities to the public pursuant to such firm commitment underwriting. (e) "Business Day" shall mean any day other than a Saturday, Sunday, or a day on which banking institutions in the State of New York are authorized or obligated by law or executive order to close. (f) "Close of Business" on any given date shall mean 5:00 P.M., New York City time, on such date; provided, however, that if such date is 6 not a Business Day it shall mean 5:00 P.M., New York City time, on the next succeeding Business Day. (g) "Common Stock" when used with reference to the Company shall collectively mean the Common Stock, $0.01 par value, of the Company. "Common Stock" when used with reference to any Person other than the Company which shall be organized in corporate form shall mean the capital stock or other equity security with the greatest per share voting power of such Person. "Common Stock" when used with reference to any Person other than the Company which shall not be organized in corporate form shall mean units of beneficial interest which shall represent the right to participate in profits, losses, deductions and credits of such Person and which shall be entitled to exercise the greatest voting power per unit of such Person. (h) "Distribution Date" shall have the meaning set forth in Section 3(b) hereof. (i) "Exchange Act" shall have the meaning set forth in Section 1(b) hereof. (j) "Exchange Consideration" shall have the meaning set forth in Section 27 hereof. (k) "Exempt Person" shall mean (i) the Company, (ii) any Subsidiary of the Company or (iii) any employee benefit plan or employee stock plan of the Company or any Subsidiary of the Company, or any trust 7 or other entity organized, appointed, established or holding Voting Stock for or pursuant to the terms of any such plan. (l) "Exercise Price" shall have the meaning set forth in Section 4 hereof. (m) "Expiration Date" shall have the meaning set forth in Section 7(a) hereof. (n) "Fair Market Value" of any property shall mean the fair market value of such property as determined in accordance with Section 11(b) hereof. (o) "Final Expiration Date" shall have the meaning set forth in Section 7(a) hereof. (p) "Person" shall mean any individual, firm, corporation or other entity. (q) "Principal Party" shall have the meaning set forth in Section 13(b) hereof. (r) "Redemption Price" shall have the meaning set forth in Section 23(a) hereof. (s) "Right Certificate" shall have the meaning set forth in Section 3(d) hereof. (t) "Spread" shall mean the excess of (1) the value of the shares of Preferred Stock issuable upon the exercise of a Right in accordance with Section 11(a)(ii) over (2) the Exercise Price in effect at the time of determination of the Spread. 8 (u) "Stock Acquisition Date" shall mean the first date on which there shall be a public announcement by the Company or an Acquiring Person that an Acquiring Person has become such (which, for purposes of this definition, shall include, without limitation, a report filed pursuant to Section 13(d) of the Exchange Act) or such earlier date as a majority of the Board of Directors of the Company shall become aware of the existence of an Acquiring Person. (v) "Subsidiary" of a Person shall mean any corporation or other entity of which securities or other ownership interests having voting power sufficient to elect a majority of the board of directors or other persons performing similar functions are beneficially owned, directly or indirectly, by such Person or by any corporation or other entity that is otherwise controlled by such Person. (w) "Summary of Rights" shall have the meaning set forth in Section 3(a) hereof. (x) "Trading Day" shall have the meaning set forth in Section 11(b) hereof. (y) "Transfer Tax" shall mean any tax or charge, including any documentary stamp tax, imposed or collected by any governmental or regulatory authority in respect of any transfer of any security, instrument or right, including the Rights, shares of the Common Stock and shares of the Preferred Stock. 9 (z) "Voting Stock" shall mean (i) the Common Stock of the Company and (ii) any other shares of capital stock of the Company entitled to vote generally in the election of directors or entitled to vote together with the Common Stock in respect of any merger, consolidation, sale of all or substantially all of the Company's assets, liquidation, dissolution or winding up. For purposes of this Agreement, a stated percentage of the Voting Stock shall mean a number of shares of the Voting Stock as shall equal in voting power that stated percentage of the total voting power of the then outstanding shares of Voting Stock in the election of a majority of the Board of Directors of the Company or in respect of any merger, consolidation, sale of all or substantially all of the Company's assets, liquidation, dissolution or winding up. Any determination required to be made by the Board of Directors of the Company for purposes of applying the definitions contained in this Section 1 shall be made by a majority of the Board of Directors in its good faith judgment, which determination shall be binding on the Rights Agent and the holders of the Rights. Section 2. Appointment of Rights Agent. The Company hereby appoints the Rights Agent to act as agent for the Company and the holders of the Rights (who, in accordance with Section 3 hereof, shall prior to the Distribution Date be the holders of Common Stock) in accordance with the terms and conditions hereof, and the Rights Agent hereby accepts such appointment. The Company may from time to time appoint such Co-Rights Agents as it may deem necessary or desirable. 10 Section 3. Issuance of Right Certificates. (a) On the Record Date (or as soon as practicable thereafter), the Company or the Rights Agent shall send a copy of a Summary of Rights, in substantially the form attached hereto as Exhibit A (the "Summary of Rights"), by first class mail, postage prepaid, to each record holder of the Common Stock as of the close of business on the Record Date, at the address of such holder shown on the records of the Company. (b) Until the close of business on the day which is the earlier of (i) the tenth day after the Stock Acquisition Date or (ii) the tenth Business Day (or such later date as may be determined by action of the Board of Directors prior to such time as any Person becomes an Acquiring Person) after the date of the commencement by any Person (other than an Exempt Person) of, or the first public announcement of the intent of any Person (other than an Exempt Person) to commence, a tender or exchange offer upon the successful consummation of which such Person would be the Beneficial Owner of 15% or more of the then outstanding shares of Voting Stock of the Company (including any such date which is after the date of this Agreement and prior to the issuance of the Rights; the earlier of such dates being herein referred to as the "Distribution Date"), (x) the Rights shall be evidenced by the certificates for Common Stock registered in the name of the holders of Common Stock (together with, in the case of certificates for Common Stock outstanding as of the Record Date, the Summary of Rights) and not by separate Right certificates and the record holders of such certificates for Common Stock shall be the record holders of the Rights represented thereby and (y) each Right shall be transferable only simultaneously and together with the transfer of a share of Common Stock (subject to adjustment as hereinafter provided). Until the Distribution Date (or, if 11 earlier, the Expiration Date or Final Expiration Date), the surrender for transfer of any certificate for Common Stock shall constitute the surrender for transfer of the Right or Rights associated with the Common Stock evidenced thereby, whether or not accompanied by a copy of the Summary of Rights. (c) Rights shall be issued in respect of all shares of Common Stock that become outstanding after the Record Date but prior to the earlier of the Distribution Date, the Expiration Date or the Final Expiration Date. Certificates for Common Stock (including, without limitation, certificates issued upon original issuance, disposition from the Company's treasury or transfer or exchange of Common Stock) issued after the Record Date but prior to the earliest of the Distribution Date, the Expiration Date, or the Final Expiration Date shall have impressed, printed, written or stamped thereon or otherwise affixed thereto the following legend: This certificate also evidences and entitles the holder hereof to the same number of Rights (subject to adjustment) as the number of shares of Common Stock represented by this certificate, such Rights being on the terms provided under the Rights Agreement between The Grand Union Company and American Stock Transfer & Trust Co. (the "Rights Agent"), dated as of April 29, 1999, as it may be amended from time to time (the "Agreement"), the terms of which are incorporated herein by reference and a copy of which is on file at the principal executive offices of The Grand Union Company. Under certain circumstances, as set forth in the Agreement, such Rights shall be evidenced by separate certificates and shall no longer be evidenced by this certificate. The Grand Union Company shall mail to the registered holder of this certificate a copy of the Agreement without charge within five (5) days after receipt of a written request therefor. As provided in Section 7(e) of the Agreement, Rights issued to or Beneficially Owned by Acquiring Persons or their Affiliates or Associates (as such terms are defined in the Agreement) or any subsequent holder of such Rights shall be null and void and may not be exercised by or transferred to any Person. With respect to such certificates containing the foregoing legend, until the Distribution Date the Rights associated with the Common Stock represented by such 12 certificates shall be evidenced by such certificates alone, and the surrender for transfer of any such certificate, except as otherwise provided herein, shall also constitute the transfer of the Rights associated with the Common Stock represented thereby. In the event that the Company purchases or otherwise acquires any Common Stock after the Record Date but prior to the Distribution Date, any Rights associated with such Common Stock shall be deemed canceled and retired so that the Company shall not be entitled to exercise any Rights associated with the Common Stock which are no longer outstanding. Notwithstanding this paragraph (c), the omission of a legend shall not affect the enforceability of any part of this Agreement or the rights of any holder of the Rights. (d) As soon as practicable after the Distribution Date, the Company will prepare and execute, the Rights Agent will countersign, and the Company will send or cause to be sent (and the Rights Agent will, if requested, send), by first class mail, postage prepaid, to each record holder of the Common Stock as of the close of business on the Distribution Date, as shown by the records of the Company, at the address of such holder shown on such records, a certificate in the form provided by Section 4 hereof (a "Right Certificate"), evidencing one Right (subject to adjustment as provided herein) for each share of Common Stock so held. As of and after the Distribution Date, the Rights shall be evidenced solely by Right Certificates and may be transferred by the transfer of the Right Certificate as permitted hereby, separately and apart from any transfer of one or more shares of Common Stock. Section 4. Form of Right Certificates. The Right Certificates (and the forms of election to purchase shares, certificate and assignment to be printed on the 13 reverse thereof), when, as and if issued, shall be substantially in the form set forth in Exhibit B hereto and may have such marks of identification or designation and such legends, summaries or endorsements printed thereon as may be required to comply with any law or with any rule or regulation made pursuant thereto or with any rule or regulation of any stock exchange on which the Common Stock or the Rights may from time to time be listed or as the Company may deem appropriate to conform to usage or otherwise and as are not inconsistent with the provisions of this Agreement. Subject to the provisions of Section 22 hereof, Right Certificates evidencing Rights whenever issued, (i) shall be dated as of the date of issuance of the Rights they represent and (ii) subject to adjustment from time to time as provided herein, on their face shall entitle the holders thereof to purchase such number of one one-thousandths of a share (including fractional shares which are integral multiples of one-thousandth of a share) of Preferred Stock as shall be set forth thereon at the price per one one-thousandth of a share of Preferred Stock payable upon exercise of a Right provided by Section 7(b) hereof, as the same may from time to time be adjusted as provided herein (the "Exercise Price"). Section 5. Countersignature and Registration. (a) Each Right Certificate shall be executed on behalf of the Company by its Chairman of the Board, President or any Vice President, either manually or by facsimile signature, and have affixed thereto the Company's seal or a facsimile thereof which shall be attested by the Secretary or an Assistant Secretary of the Company, either manually or by facsimile signature. Each Right Certificate shall be countersigned by the Rights Agent either manually or by facsimile signature and shall not be valid for any purpose unless so countersigned. In case any officer of the Company who shall have 14 signed any Right Certificate shall cease to be such officer of the Company before countersignature by the Rights Agent and issuance and delivery of the certificate by the Company, such Right Certificate, nevertheless, may be countersigned by the Rights Agent and issued and delivered with the same force and effect as though the person who signed such Right Certificates had not ceased to be such officer of the Company. Any Right Certificate may be signed on behalf of the Company by any person who, on the date of the execution of such Right Certificate, shall be a proper officer of the Company to sign such Right Certificate, although at the date of the execution of this Agreement any such person was not such an officer. (b) Following the Distribution Date, the Rights Agent will keep or cause to be kept, at its principal office or one or more offices designated as the appropriate place for surrender of Right Certificates upon exercise or transfer, and in such other locations as may be required by law, books for registration and transfer of the Right Certificates issued hereunder. Such books shall show the names and addresses of the respective holders of the Right Certificates, the number of Rights evidenced on its face by each of the Right Certificates and the date of each of the Right Certificates. Section 6. Transfer, Split Up, Combination and Exchange of Right Certificates; Mutilated, Destroyed, Lost or Stolen Right Certificates. (a) Subject to the provisions of Sections 7(e), 7(f) and 14 hereof, at any time after the Close of Business on the Distribution Date, and at or prior to the Close of Business on the earlier of the Expiration Date or the Final Expiration Date, any Right Certificate, may be (i) transferred or (ii) split up, combined or exchanged for one or more other Right Certificates, entitling the registered holder to purchase a like number of one 15 one-thousandths of a share of Preferred Stock as the Right Certificate or Rights Certificates surrendered then entitled such holder to purchase. Any registered holder desiring to transfer, split up, combine or exchange any Right Certificate shall surrender the Right Certificate at the office of the Rights Agent designated for the surrender of Right Certificates with the form of certificate and assignment on the reverse side thereof duly endorsed (or enclose with such Right Certificate a written instrument of transfer in form satisfactory to the Company and the Rights Agent), duly executed by the registered holder thereof or his attorney duly authorized in writing, and with such signature duly guaranteed. Any registered holder desiring to split up, combine or exchange any Right Certificate shall make such request in writing delivered to the Rights Agent, and shall surrender the Right Certificate to be split up, combined or exchanged at the office of the Rights Agent designated therefor. Thereupon, the Rights Agent shall countersign and deliver to the person entitled thereto a Right Certificate or Right Certificates, as the case may be, as so requested. The Company may require payment of a sum sufficient to cover any Transfer Tax that may be imposed in connection with any transfer, split up, combination or exchange of any Right Certificates. (b) Subject to the provisions of Sections 7(e), 7(f) and 14 hereof, at any time after the Distribution Date and prior to the Expiration Date, upon receipt by the Company and the Rights Agent of evidence reasonably satisfactory to them of the loss, theft, destruction or mutilation of a Right Certificate, and, in case of loss, theft or destruction, of indemnity or security reasonably satisfactory to them and, if requested by the Company, reimbursement to the Company and the Rights Agent of all reasonable expenses incidental thereto, or upon surrender to the Rights Agent and cancellation of the 16 Right Certificate if mutilated, the Company shall cause a new Right Certificate of like tenor to be issued and delivered to the registered owner in lieu of the Right Certificate so lost, stolen, destroyed or mutilated. Section 7. Exercise of Rights; Exercise Price; Expiration Date of Rights. (a) The Rights shall not be exercisable until, and shall become exercisable on, the Distribution Date (unless otherwise provided herein, including, without limitation, the restrictions on exercisability set forth in Sections 7(e) and 27(b) hereof). Except as otherwise provided herein, the Rights may be exercised, in whole or in part, at any time commencing with the Distribution Date upon surrender of the Right Certificate, with the form of election to purchase and certificate on the reverse side thereof duly executed (with signatures duly guaranteed), to the Rights Agent at the principal office of the Rights Agent in New York, New York, together with payment of the Exercise Price for each Right exercised, subject to adjustment as hereinafter provided, at or prior to the Close of Business on the earlier of (i) April 29, 2001 (the "Final Expiration Date") or (ii) the date on which the Rights are redeemed as provided in Section 23 hereof or the date on which the Rights are exchanged as provided in Section 27 hereof (such earlier date being herein referred to as the "Expiration Date"). (b) The Exercise Price shall initially be $35.00 for each one one-thousandth (1/1,000) of a share of Preferred Stock issued pursuant to the exercise of a Right. The Exercise Price and the number of one one-thousandths of a share of Preferred Stock or other securities or property to be acquired upon exercise of a Right shall be subject to adjustment from time to time as provided in Sections 11 and 13 hereof. The 17 Exercise Price shall be payable in lawful money of the United States of America, in accordance with paragraph (c) below. (c) Except as otherwise provided herein, upon receipt of a Right Certificate representing exercisable Rights with the form of election to purchase and certificate duly executed, accompanied by payment by certified check, cashier's check, bank draft or money order payable to the Company or the Rights Agent of the Exercise Price for the shares of Preferred Stock to be purchased and an amount equal to any applicable Transfer Tax required to be paid by the holder of the Right Certificate in accordance with Section 9(e) hereof, the Rights Agent shall thereupon promptly (i) requisition from any transfer agent of the Preferred Stock of the Company one or more certificates representing the number of shares of Preferred Stock to be so purchased, and the Company hereby authorizes and directs such transfer agent to comply with all such requests, (ii) as provided in Section 14(b), at the election of the Company, cause depositary receipts to be issued in lieu of fractional shares of Preferred Stock, (iii) if the election provided for in the immediately preceding clause (ii) has not been made, requisition from the Company the amount of cash to be paid in lieu of the issuance of fractional shares (other than fractions that are integral multiples of one one-thousandth of a share) in accordance with Section 14(b) hereof, (iv) after receipt of such Preferred Stock certificates and, if applicable, depositary receipts, cause the same to be delivered to or upon the order of the registered holder of such Right Certificate, registered in such name or names as may be designated by such holder and (v) when appropriate, after receipt, promptly deliver such cash to or upon the order of the registered holder of such Right Certificate; provided, however, that in the case of a purchase of securities, other 18 than Preferred Stock, pursuant to Section 13 hereof, the Rights Agent shall promptly take the appropriate actions corresponding in such case to that referred to in the foregoing clauses (i) through (v) of this Section 7(c). Notwithstanding the foregoing provisions of this Section 7(c), the Company may suspend the issuance of shares of Preferred Stock and other securities upon exercise of a Right for a reasonable period, not in excess of ninety (90) days, during which the Company seeks to register under the Securities Act of 1933, as amended (the "Act"), and any applicable securities law of any other jurisdiction, the shares of Preferred Stock or other securities to be issued pursuant to the Rights; provided, however, that nothing contained in this Section 7(c) shall relieve the Company of its obligations under Section 9(d) hereof. Upon any such suspension, the Company shall issue a public announcement stating that the exercisability of the Rights has been temporarily suspended, as well as a public announcement at such time as the suspension is no longer in effect. (d) In case the registered holder of any Right Certificate shall exercise less than all the Rights evidenced thereby, a new Right Certificate evidencing Rights equivalent to the Rights remaining unexercised shall be issued by the Rights Agent to the registered holder of such Right Certificate or his assign, subject to the provisions of Section 14(b) hereof. (e) Notwithstanding any provision of this Agreement to the contrary, from and after the time (the "invalidation time") when any Person first becomes an Acquiring Person, any Rights that are Beneficially Owned by (x) such Acquiring Person (or any Associate or Affiliate of such Acquiring Person), (y) a transferee of such Acquiring Person (or any such Associate or Affiliate) who becomes a transferee after the 19 invalidation time or (z) a transferee of such Acquiring Person (or any such Associate or Affiliate) who becomes a transferee prior to or concurrently with the invalidation time pursuant to either (I) a transfer from the Acquiring Person (or any such Associate or Affiliate) to holders of its equity securities or to any Person with whom it has any continuing agreement, arrangement or understanding regarding the transferred Rights or (II) a transfer which the Board of Directors has determined is part of a plan, arrangement or understanding which has the purpose or effect of avoiding the provisions of this Section 7(e), and subsequent transferees of such Persons referred to in clause (y) and (z) above, shall be null and void without any further action and any holder of such Rights shall thereafter have no rights whatsoever with respect to such Rights under any provision of this Agreement. The Company shall use all reasonable efforts to ensure that the provisions of this Section 7(e) are complied with, but shall have no liability to any holder of Right Certificates or any other Person as a result of its failure to make any determination with respect to an Acquiring Person or its Affiliates, Associates or transferees hereunder. No Right Certificate shall be issued pursuant to Section 3 hereof that represents Rights beneficially owned by an Acquiring Person or any Affiliate or Associate thereof whose Rights would be null and void pursuant to the provisions of this Section 7(e); no Right Certificate shall be issued at any time upon the transfer of any Rights to an Acquiring Person (or an Affiliate or Associate of such Acquiring Person) whose Rights would be null and void pursuant to the provisions of this Section 7(e) or any Associate or Affiliate thereof or to any nominee of such Acquiring Person, Associate or Affiliate; and any Right Certificate delivered to the Rights Agent for transfer to an 20 Acquiring Person (or an Associate or Affiliate of such Acquiring Person) whose Rights would be void pursuant to the provisions of this Section 7(e) shall be cancelled. (f) Notwithstanding anything in this Agreement to the contrary, neither the Rights Agent nor the Company shall be obligated to undertake any action with respect to a registered holder upon the occurrence of any purported exercise as set forth in this Section 7 unless such registered holder shall have (i) completed and signed the certificate following the form of election to purchase set forth on the reverse side of the Right Certificate surrendered for such exercise and (ii) provided such additional evidence of the identity of the Beneficial Owner (or former Beneficial Owner) or Affiliates or Associates thereof as the Company shall reasonably request. Section 8. Cancellation and Destruction of Right Certificates. All Right Certificates surrendered for the purpose of exercise, transfer, split up, combination or exchange shall, if surrendered to the Company or to any of its agents, be delivered to the Rights Agent for cancellation or in cancelled form, or, if surrendered to the Rights Agent, shall be cancelled by it, and no Right Certificates shall be issued in lieu thereof except as expressly permitted by any of the provisions of this Agreement. The Company shall deliver to the Rights Agent for cancellation and retirement, and the Rights Agent shall cancel and retire, any Right Certificate purchased or acquired by the Company otherwise than upon the exercise thereof. The Rights Agent shall deliver all cancelled Right Certificates to the Company, or shall, at the written request of the Company, destroy such cancelled Right Certificates, and in such case shall deliver a certificate of destruction thereof to the Company. 21 Section 9. Reservation and Availability of Shares of Preferred Stock. (a) The Company covenants and agrees that it will cause to be reserved and kept available out of its authorized and unissued shares of Preferred Stock or out of authorized and issued shares of Preferred Stock held in its treasury, such number of shares of Preferred Stock as will from time to time be sufficient to permit the exercise in full of all outstanding Rights. (b) The Company shall use its best efforts to cause, from and after such time as the Rights become exercisable, all shares of Preferred Stock issued or reserved for issuance in accordance with this Agreement to be listed, upon official notice of issuance, upon the principal national securities exchange, if any, upon which the Common Stock is listed or, if the principal market for the Common Stock is not on any national securities exchange, to be eligible for quotation in the National Association of Securities Dealers' Automated Quotation System or any successor thereto or other comparable quotation system. (c) The Company covenants and agrees that it will take all such action as may be necessary to insure that all shares of Preferred Stock delivered upon exercise of Rights shall, at the time of delivery of the certificates for such shares (subject to payment of the Exercise Price in respect thereof), be duly and validly authorized and issued and fully paid and nonassessable shares. (d) The Company shall use its best efforts to (i) file, as soon as practicable following the occurrence of the event described in Section 11(a)(ii), or as soon as is required by law following the Distribution Date, as the case may be, a registration 22 statement under the Act, with respect to the shares of Preferred Stock purchasable upon exercise of the Rights on an appropriate form, (ii) cause such registration statement to become effective as soon as practicable after such filing, and (iii) cause such registration statement to remain effective (with a prospectus at all times meeting the requirements of the Act) until the earlier of (a) the date as of which the Rights are no longer exercisable for Preferred Stock, and (b) the earlier of the Expiration Date and the Final Expiration Date. The Company may temporarily suspend, for a period of time not to exceed ninety (90) days, the issuance of shares of Preferred Stock upon exercise of a Right in order to prepare and file a registration statement under the Act and permit it to become effective. The Company will also take such action as may be appropriate under, or to ensure compliance with, the securities or "blue sky" laws of the various states in connection with the exercisability of the Rights. Notwithstanding any provision of this Agreement to the contrary, the Rights shall not be exercisable in any jurisdiction unless the requisite qualification in such jurisdiction shall have been obtained and until a registration statement under the Act (if required) shall have been declared effective. (e) The Company covenants and agrees that it will pay when due and payable any and all federal and state Transfer Taxes which may be payable in respect of the issuance or delivery of the Right Certificates or of any shares of Preferred Stock issued or delivered upon the exercise of Rights. The Company shall not, however, be required to pay any Transfer Tax which may be payable in respect of any transfer or delivery of a Right Certificate to a Person other than, or the issuance or delivery of certificates for Preferred Stock upon exercise of Rights in a name other than that of, the registered holder of the Right Certificate, and the Company shall not be required to issue 23 or deliver a Right Certificate or certificate for Preferred Stock to a Person other than such registered holder until any such Transfer Tax shall have been paid (any such Transfer Tax being payable by the holder of such Right Certificate at the time of surrender) or until it has been established to the Company's satisfaction that no such Transfer Tax is due. Section 10. Preferred Stock Record Date. Each Person in whose name any certificate for shares of Preferred Stock is issued upon the exercise of Rights shall for all purposes be deemed to have become the holder of record of the Preferred Stock represented thereby on, and such certificate shall be dated as of, the date upon which the Right Certificate evidencing such Rights was duly surrendered and payment of the Exercise Price (and any applicable Transfer Taxes) was made; provided, however, that, if the date of such surrender and payment is a date upon which the Preferred Stock transfer books of the Company are closed, such Person shall be deemed to have become the record holder of such shares on, and such certificate shall be dated as of, the next succeeding Business Day on which the Preferred Stock transfer books of the Company are open. Section 11. Adjustment of Exercise Price or Number of Shares. The Exercise Price and the number of shares of Preferred Stock which may be purchased upon exercise of a Right are subject to adjustment from time to time as provided in this Section 11. (a) (i) In the event the Company shall at any time after the date of this Agreement (A) declare or pay any dividend on Common Stock payable in shares of Common Stock, (B) subdivide or split the outstanding shares of Common Stock into a greater number of shares or (C) combine 24 or consolidate the outstanding shares of Common Stock into a smaller number of shares or effect a reverse split of the outstanding shares of Common Stock, then and in each such event the number of one one-thousandth of a share of Preferred Stock issuable upon the Exercise of a Right after the record date for such event (if one shall have been established or, if not, after the date of such event) shall be the number of one one-thousandth of a share of Preferred Stock issuable immediately prior to such event multiplied by a fraction, the numerator of which is the number of shares of Common Stock outstanding immediately prior to such event and the denominator of which is the number of shares of Common Stock outstanding immediately after such event and the Exercise Price to be in effect after the record date for such event (if one shall have been established or, if not, after the date of such event) shall be determined by multiplying the Exercise Price in effect immediately prior to such event by such fraction. If an event occurs which would require an adjustment under both this Section 11(a)(i) and Section 11(a)(ii) hereof, the adjustment provided for in this Section 11(a)(i) shall be in addition to, and shall be made prior to, any adjustment required pursuant to Section 11(a)(ii). (ii) Subject to Section 27 of this Agreement, in the event that any Person shall become an Acquiring Person, then, except as otherwise provided in this Section 11, each holder of a Right, except as provided in Section 7(e) hereof, shall thereafter have the right to receive upon exercise of such Right in accordance with the terms of this Agreement and payment 25 of the Exercise Price, such number of one one-thousandth of a share of Preferred Stock as shall equal the result obtained by (1) multiplying the then current Exercise Price by the number of one one-thousandth of a share of Preferred Stock for which a Right is then exercisable and dividing the product by (2) 50% of the Fair Market Value of one one-thousandth of a share of Preferred Stock (determined pursuant to Section 11(b) hereof) on the date of such occurrence. (iii) In the event that the Company does not have available sufficient authorized but unissued Preferred Stock to permit the exercise in full of the Rights in accordance with the foregoing subparagraph (ii), the Company shall take all such action as may be necessary to authorize and reserve for issuance such number of additional shares of Preferred Stock as may from time to time be required to be issued upon the exercise in full of all Rights from time to time outstanding and, if necessary, shall use its best efforts to obtain stockholder approval thereof. In lieu of issuing shares of Preferred Stock in accordance with the foregoing subparagraph (ii), the Company may, if the Board of Directors determines that such action is necessary or appropriate and not contrary to the interests of holders of Rights, elect to issue or pay, upon the exercise of the Rights, cash, property, shares of Preferred or Common Stock, or any combination thereof, having an aggregate Fair Market Value equal to the Fair Market Value of the shares of Preferred Stock which otherwise would have been issuable pursuant to Section 11(a)(ii), which Fair Market Value shall be 26 determined by an investment banking firm selected by the Board of Directors. For purposes of the preceding sentence, the Fair Market Value of the Preferred Stock shall be as determined pursuant to Section 11(b). Subject to Section 23 hereof, any such election by the Board of Directors of the Company must be made and publicly announced within thirty (30) days after the date on which the event described in Section 11(a)(ii) occurs. (b) For the purpose of this Agreement, the "Fair Market Value" of any share of Preferred Stock, Common Stock or any other stock or any Right or other security or any other property on any date shall be determined as provided in this Section 11(b). In the case of a publicly-traded stock or other security, the Fair Market Value on any date shall be deemed to be the average of the daily closing prices per share of such stock or per unit of such other security for the thirty (30) consecutive Trading Days (as such term is hereinafter defined) immediately prior to such date; provided, however, that in the event that the Fair Market Value per share of any share of Common Stock is determined during a period which includes any date that is within thirty (30) Trading Days after (i) the ex-dividend date for a dividend or distribution on such stock payable in shares of Common Stock or securities convertible into shares of Common Stock, or (ii) the effective date of any subdivision, split, combination, consolidation, reverse stock split or reclassification of such stock, then, and in each such case, the Fair Market Value shall be appropriately adjusted by the Board of Directors of the Company to take into account ex-dividend or post-effective date trading. The closing price for any day shall be the last sale price, regular way, or, in case no such sale takes place on such day, the average of 27 the closing bid and asked prices, regular way (in either case, as reported in the applicable transaction reporting system with respect to securities listed or admitted to trading on the Nasdaq National Market), or, if the securities are not listed or admitted to trading on the Nasdaq National Market, as reported in the applicable transaction reporting system with respect to securities listed on the principal national securities exchange or Nasdaq market on which such security is listed or admitted to trading; or, if not listed or admitted to trading on any national securities exchange or Nasdaq market, the last quoted price (or, if not so quoted, the average of the high bid and low asked prices) in the over-the-counter market, as reported by the National Association of Securities Dealers, Inc. Automated Quotation System ("NASDAQ") or such other system then in use; or, if no bids for such security are quoted by any such organization, the average of the closing bid and asked prices as furnished by a professional market maker making a market in such security selected by the Board of Directors of the Company. The term "Trading Day" shall mean a day on which the principal national securities exchange or Nasdaq market on which such security is listed or admitted to trading is open for the transaction of business or, if such security is not listed or admitted to trading on any national securities exchange or Nasdaq market, a Business Day. If a security is not publicly held or not so listed or traded, "Fair Market Value" shall mean the fair value per share of stock or per other unit of such other security, as determined by an independent investment banking firm experienced in the valuation of securities selected in good faith by the Board of Directors of the Company, or, if no such investment banking firm is, in the good faith judgment of the Board of Directors, available to make such determination, in good faith by the Board of Directors of the Company; provided, however, that for purposes of making the 28 adjustment provided for by Section 11(a)(ii) hereof, the Fair Market Value of a share of Preferred Stock shall not be less than 100% of the product of the Fair Market Value of a share of Common Stock multiplied by the higher of the then Dividend Multiple or Vote Multiple applicable to the Preferred Stock (as defined in the Certificate of Designations relating to the Preferred Stock) and shall not exceed 105% of the product of the then Fair Market Value of a share of Common Stock multiplied by the higher of the then Dividend Multiple or Vote Multiple applicable to the Preferred Stock. In the case of property other than securities, the "Fair Market Value" thereof shall be determined in good faith by the Board of Directors of the Company based upon such appraisals or valuation reports of such independent experts as the Board of Directors of the Company shall in good faith determine to be appropriate in accordance with good business practices and the interests of the holders of Rights. Any such determination of Fair Market Value shall be described in a statement filed with the Rights Agent and shall be binding upon the Rights Agent. (c) In case the Company shall fix a record date for the issuance of rights, options or warrants to all holders of Common Stock entitling them (for a period expiring within forty-five (45) calendar days after such record date) to subscribe for or purchase Common Stock or securities convertible into Common Stock at a price per share (or having a conversion price per share, if a security convertible into Common Stock) less than the then current per share Fair Market Value of the Common Stock on such record date, the Exercise Price to be in effect after such record date shall be determined by multiplying the Exercise Price in effect immediately prior to such record date by a fraction, the numerator of which shall be the number of shares of Common Stock outstanding on such record date plus the number of shares of Common Stock which the 29 aggregate offering price of the total number of shares of Common Stock so to be offered (and/or the aggregate initial conversion price of the convertible securities so to be offered) would purchase at such current Fair Market Value and the denominator of which shall be the number of shares of Common Stock outstanding on such record date plus the number of additional shares of Common Stock to be offered for subscription or purchase (or into which the convertible securities so to be offered are initially convertible). In case such subscription price may be paid in a consideration part or all of which shall be in a form other than cash, the value of such consideration shall be as determined in good faith by the Board of Directors of the Company, whose determination shall be described in a statement filed with the Rights Agent. Shares of Common Stock owned by or held for the account of the Company shall not be deemed outstanding for the purpose of any such computation. Such adjustment shall be made successively whenever such a record date is fixed and in the event that such rights, options or warrants are not so issued, the Exercise Price shall be adjusted to be the Exercise Price which would then be in effect if such record date had not been fixed. (d) In case the Company shall fix a record date for the making of a distribution to all holders of the Common Stock (including any such distribution made in connection with a consolidation or merger in which the Company is the continuing or surviving corporation) of evidences of indebtedness, cash (other than a regular quarterly cash dividend not in excess of 150% of the previous regular quarterly cash dividend out of the earnings or retained earnings of the Company), assets (other than a dividend payable in shares of Common Stock) or subscription rights or warrants (excluding those referred to in Section 11(c) hereof), the Exercise Price to be in effect after such record 30 date shall be determined by multiplying the Exercise Price in effect immediately prior to such record date by a fraction, the numerator of which shall be the Fair Market Value of the shares of Common Stock on such record date, less the fair market value (as determined in good faith by the Board of Directors of the Company, whose determination shall be described in a statement filed with the Rights Agent) of the portion of the assets or evidences of indebtedness so to be distributed or of such subscription rights or warrants applicable to one share of Common Stock and the denominator of which shall be such current Fair Market Value of the shares of Common Stock. Such adjustment shall be made successively whenever such a record date is fixed and in the event that such distribution is not so made, the Exercise Price shall again be adjusted to be the Exercise Price which would then be in effect if such record date had not been fixed. (e) Unless the Company shall have exercised its election as provided in Section 11(f), upon each adjustment of the Exercise Price as a result of the calculations made in Section (c) and (d), each Right outstanding immediately prior to the making of such adjustment shall thereafter evidence the right to purchase, at the adjusted Exercise Price, that number of one one-thousandths of a share of Preferred Stock obtained by (i) multiplying (x) the number of one one-thousandths of a share of Preferred Stock covered by a Right immediately prior to the adjustment pursuant to this Section 11(e) by (y) the Exercise Price in effect immediately prior to such adjustment of the Exercise Price and (ii) dividing the product so obtained by the Exercise Price in effect immediately after such adjustment of the Exercise Price. (f) The Company may elect on or after the date of any adjustment of the Exercise Price pursuant to Sections 11(c) and 11(d) to adjust the number of Rights in 31 substitution for any adjustment pursuant to Section 11(e) in the number of one one-thousandths of a share of Preferred Stock purchasable upon the exercise of a Right. Each of the Rights outstanding after such adjustment of the number of Rights shall be exercisable for the number of one one-thousandths of a share of Preferred Stock for which a Right was exercisable immediately prior to such adjustment. Each Right held of record prior to such adjustment of the number of Rights shall become that number of Rights obtained by dividing the Exercise Price in effect immediately prior to adjustment of the Exercise Price by the Exercise Price in effect immediately after adjustment of the Exercise Price. The Company shall make a public announcement of its election to adjust the number of Rights, indicating the record date for the adjustment, and, if known at the time, the amount of the adjustment to be made. This record date may be the date on which the Exercise Price is adjusted or any day thereafter, but, if the Right Certificates have been issued, shall be at least ten (10) days later than the date of the public announcement. If the Right Certificates have been issued, upon each adjustment of the number of Rights pursuant to this Section 11(e), the Company shall, as promptly as practicable, cause to be distributed to holders of record of Right Certificates on such record date Right Certificates evidencing, subject to Section 14 hereof, the additional Rights, if any, to which such holders shall be entitled as a result of such adjustment, or, at the option of the Company, shall cause to be distributed to such holders of record in substitution and replacement for the Right Certificates held by such holders prior to the date of adjustment, and upon surrender thereof, if required by the Company, new Right Certificates evidencing all the Rights to which such holders shall be entitled after such adjustment. Right Certificates so to be distributed shall be issued, executed and 32 countersigned in the manner provided for herein and shall be registered in the names of the holders of record of Right Certificates on the record date specified in the public announcement. (g) All calculations under this Section 11 shall be made to the nearest cent or to the nearest one one-thousandth of a share, as the case may be. (h) Irrespective of any adjustment or change in the Exercise Price or the number of shares of Preferred Stock issuable upon the exercise of the Rights, the Right Certificates theretofore and thereafter issued may continue to express the Exercise Price and the number of shares to be issued upon exercise of the Rights as in the initial Right Certificates issued hereunder but, nevertheless, shall represent the Rights as so adjusted. (i) Before taking any action that would cause an adjustment reducing the purchase price per whole share of Preferred Stock upon exercise of the Rights below the then par value, if any, of the shares of Preferred Stock, the Company shall use its best efforts to take any corporate action which may, in the opinion of its counsel, be necessary in order that the Company may validly and legally issue fully paid and non-assessable shares of such Preferred Stock at such adjusted purchase price per share. (j) Anything in this Section 11 to the contrary notwithstanding, in the event of any reclassification of stock of the Company or any recapitalization, reorganization or partial liquidation of the Company or similar transaction, the Company shall be entitled to make such further adjustments in the number of shares of Preferred Stock which may be acquired upon exercise of the Rights, and such adjustments in the Exercise Price therefor, in addition to those adjustments expressly required by the other paragraphs of this Section 11, as the Board of Directors of the Company shall determine 33 to be necessary or appropriate in order for the holders of the Rights in such event to be treated equitably and in accordance with the purpose and intent of this Agreement or in order that any such event shall not, but for such adjustment, in the opinion of counsel to the Company, result in the stockholders of the Company being subject to any United States federal income tax liability by reason thereof. (k) If as a result of an adjustment made pursuant to Section 11(a) hereof, the holder of any Right thereafter exercised shall become entitled to receive any shares of capital stock of the Company other than the Preferred Stock, thereafter the Exercise Price and the number of such other shares so receivable upon exercise of a Right shall be subject to adjustment from time to time in a manner and on terms as nearly equivalent as practicable to the provisions with respect to the Preferred Stock contained in Sections 11(a), 11(c), 11(e), 11(f) and 11(j) hereof, as applicable, and the provisions of Sections 7, 9, 10, 13 and 14 hereof with respect to the Preferred Stock shall apply on like terms to any such other shares. Section 12. Certification of Adjusted Exercise Price or Number of Shares. Whenever an adjustment is made as provided in Section 11, 13, 23 or 27, the Company shall (a) promptly prepare a certificate setting forth such adjustment, and a brief statement of the facts giving rise to such adjustment, (b) promptly file with the Rights Agent and with each transfer agent for the Preferred Stock a copy of such certificate and (c) mail a brief summary thereof to each holder of a Right Certificate in accordance with Section 25. Notwithstanding the foregoing sentence, the failure of the Company to make such certification or give such notice shall not affect the validity of or the force or effect of the requirement for such adjustment. Any adjustment to be made pursuant to Section 34 11, 13 or 23(c) of this Agreement shall be effective as of the date of the event giving rise to such adjustment. The Rights Agent shall be fully protected in relying on any such certificate and on any adjustment therein contained and shall not be deemed to have knowledge of any adjustment unless and until it shall have received such certificate. Section 13. Consolidation, Merger or Sale or Transfer of Assets or Earning Power. (a) In the event that, at any time after the time that any Person becomes an Acquiring Person, (x) the Company shall, directly or indirectly, consolidate with, or merge with and into, any other Person or Persons (other than an Exempt Person) and the Company shall not be the surviving or continuing corporation of such consolidation or merger, or (y) any Person or Persons (other than an Exempt Person) shall, directly or indirectly, consolidate with, or merge with and into, the Company, and the Company shall be the continuing or surviving corporation of such consolidation or merger and, in connection with such consolidation or merger, all or part of the outstanding shares of Common Stock shall be changed into or exchanged for stock or other securities of any other Person (other than an Exempt Person) or of the Company or cash or any other property, or (z) the Company or one or more of its Subsidiaries shall, directly or indirectly, sell or otherwise transfer to any other Person, in one or more transactions, assets or earning power aggregating more than 50% of the assets or earning power of the Company and its Subsidiaries (taken as a whole), then, on the first occurrence of any such event, proper provision shall be made so that (i) each holder of record of a Right, except as provided in Section 7(e) hereof, shall thereafter have the right to receive, upon the exercise thereof at a price equal to the then current Exercise Price multiplied by the 35 number of one one-thousandths of a share of Preferred Stock for which a Right is then exercisable, in accordance with the terms of this Agreement and in lieu of shares of Preferred Stock, such number of shares of validly issued, fully paid, non-assessable and freely tradeable Common Stock of the Principal Party (as defined herein), not subject to any liens, encumbrances, rights of first refusal or other adverse claims, as shall equal the result obtained by (1) multiplying the then current Exercise Price by the number of one one-thousandths of a share of Preferred Stock for which a Right is then exercisable and dividing that product by (2) 50% of the then per share Fair Market Value of the Common Stock of the Principal Party on the date of the consummation, merger, sale or transfer; provided, however, that the Exercise Price (as adjusted) and the number of shares of Common Stock of such Principal Party so receivable upon exercise of a Right shall be subject to further adjustment as appropriate in accordance with Section 11 hereof to reflect any events occurring in respect of the Common Stock of such Principal Party after the occurrence of such consolidation, merger, sale or transfer; (ii) such Principal Party shall thereafter be liable for, and shall assume, by virtue of such consolidation, merger, sale or transfer, all the obligations and duties of the Company pursuant to this Agreement; (iii) the term "Company" for all purposes of this Agreement shall thereafter be deemed to refer to such Principal Party; (iv) such Principal Party shall take such steps (including, but not limited to, the reservation of a sufficient number of shares of its Common Stock in accordance with the provisions of Section 9 hereof applicable to the reservation of Preferred Stock) in connection with such consummation as may be necessary to assure that the provisions hereof shall thereafter be applicable, as nearly as reasonably may be, in relation to its shares of Common Stock thereafter deliverable upon 36 the exercise of the Rights; provided, however, that, upon the subsequent occurrence of any merger, consolidation, sale of all or substantially all of the assets, recapitalization, reclassification of shares, reorganization or other extraordinary transaction in respect of such Principal Party, each holder of a Right shall thereupon be entitled to receive, upon exercise of a Right and payment of the Exercise Price, such cash, shares, rights, warrants and other property which such holder would have been entitled to receive had it, at the time of such transaction, owned the shares of Common Stock of the Principal Party purchasable upon the exercise of a Right, and such Principal Party shall take such steps (including, but not limited to, reservation of shares of stock) as may be necessary to permit the subsequent exercise of the Rights in accordance with the terms hereof for such cash, shares, rights, warrants and other property and (v) the provisions of Section 11(a)(ii) hereof shall be of no effect following the occurrence of any event described in clause (x), (y) or (z) above of this Section 13(a). (b) "Principal Party" shall mean (i) in the case of any transaction described in (x) or (y) of the first sentence of Section 13(a) hereof: (A) the Person that is the issuer of the securities into which shares of Common Stock of the Company are changed or otherwise exchanged or converted in such merger or consolidation, or, if there is more than one such issuer, the issuer of the Common Stock of which has the greatest market value or (B) if no securities are so issued, (x) the Person that is the other party to the merger or consolidation and that survives such merger or consolidation, or, if there is more than one such Person, the Person the Common Stock of which has the greatest market value or (y) if the Person that is the other party to the merger or consolidation does not survive the merger or 37 consolidation, the Person that does survive the merger or consolidation (including the Company if it survives); and (ii) in the case of any transaction described in (z) of the first sentence in Section 13(a), the Person that is the party receiving the greatest portion of the assets or earning power transferred pursuant to such transaction or transactions, or, if each Person that is a party to such transaction or transactions receives the same portion of the assets or earning power so transferred or if the Person receiving the greatest portion of the assets or earning power cannot be determined, whichever of such Persons as is the issuer of Common Stock having the greatest market value of shares outstanding; provided, however, that in any such case, if the Common Stock of such Person is not at such time and has not been continuously over the preceding 12-month period registered under Section 12 of the Exchange Act, then (i) if such Person is a direct or indirect Subsidiary of another Person the Common Stock of which is and has been so registered, the term "Principal Party" shall refer to such other Person, or (2) if such Person is a Subsidiary, directly or indirectly, of more than one Person, the Common Stocks of all of which are and have been so registered, the term "Principal Party" shall refer to whichever of such Persons is the issuer of the Common Stock having the greatest market value of shares outstanding, or (3) if such Person is owned, directly or indirectly, by a joint venture formed by two or more Persons that are not owned, directly or indirectly, by the same Person, the rules set forth in clauses (1) and (2) above shall apply to each of the owners having an interest in the venture as if the Person owned by the joint venture was a Subsidiary of both or all of such joint venturers, and the Principal Party in each such case 38 shall bear the obligations set forth in this Section 13 in the same ratio as its interest in such Person bears to the total of such interests. (c) The Company shall not consummate any consolidation, merger or sale or transfer of assets or earning power referred to in Section 13(a) unless the Principal Party shall have a sufficient number of authorized shares of its Common Stock that have not been issued or reserved for issuance to permit exercise in full of all Rights in accordance with this Section 13 and unless prior thereto the Company and the Principal Party involved therein shall have executed and delivered to the Rights Agent an agreement confirming that the Principal Party shall, upon consummation of such consolidation, merger or sale or transfer of assets or earning power, assume this Agreement in accordance with Section 13(a) hereof and that all rights of first refusal or preemptive rights in respect of the issuance of shares of Common Stock of the Principal Party upon exercise of outstanding Rights have been waived and that such transaction shall not result in a default by the Principal Party under this Agreement, and further providing that, as soon as practicable after the date of any consolidation, merger or sale or transfer of assets or earning power referred to in Section 13(a) hereof, the Principal Party will: (i) prepare and file a registration statement under the Act with respect to the Rights and the securities purchasable upon exercise of the Rights on an appropriate form, use its best efforts to cause such registration statement to become effective as soon as practicable after such filing and use its best efforts to cause such registration statement to remain effective (with a prospectus at all times meeting the requirements of the 39 Act) until the date of expiration of the Rights, and similarly comply with applicable state securities laws; (ii) use its best efforts to list (or continue the listing of) the Rights and the securities purchasable upon exercise of the Rights on a national securities exchange or to meet the eligibility requirements for quotation on NASDAQ; (iii) deliver to holders of the Rights historical financial statements for the Principal Party which comply in all respects with the requirements for registration on Form 10 (or any successor form) under the Exchange Act. In the event that any of the transactions described in Section 13(a) hereof shall occur at any time after the occurrence of a transaction described in Section 11(a)(ii) hereof, the Rights which have not theretofore been exercised shall, subject to the provisions of Section 7(e) hereof, thereafter be exercisable in the manner described in Section 13(a); and (iv) obtain waivers of any rights of first refusal or preemptive rights in respect of the Common Stock of the Principal Party subject to purchase upon exercise of outstanding Rights. (d) In case the Principal Party which is to be a party to a transaction referred to in this Section 13 has a provision in any of its authorized securities or in its Certificate of Incorporation or By-laws or other instrument governing its corporate affairs, which provision would have the effect of (i) causing such Principal Party to issue, in connection with, or as a consequence of, the consummation of a transaction referred to 40 in this Section 13, shares of Common Stock of such Principal Party at less than the then Fair Market Value per share (determined pursuant to Section 11(b) hereof) or securities exercisable for, or convertible into, Common Stock of such Principal Party at less than such then Fair Market Value (other than to holders of Rights pursuant to this Section 13) or (ii) providing for any special tax or similar payment in connection with the issuance to any holder of a Right of Common Stock of such Principal Party pursuant to the provisions of this Section 13, then, in such event, the Company shall not consummate any such transaction unless prior thereto the Company and such Principal Party shall have executed and delivered to the Rights Agent a supplemental agreement providing that the provision in question of such Principal Party shall have been canceled, waived or amended, or that the authorized securities shall be redeemed, so that the applicable provision will have no effect in connection with, or as a consequence of, the consummation of the proposed transaction. (e) The Company covenants and agrees that it shall not, at any time after any Person becomes an Acquiring Person, enter into any transaction of the type described in clauses (x) through (z) of Section 13(a) hereof if (i) at the time of or immediately after such consolidation, merger, sale, transfer or other transaction there are any rights, warrants or other instruments or securities outstanding or agreements in effect which would substantially diminish or otherwise eliminate the benefits intended to be afforded by the Rights, (ii) prior to, simultaneously with or immediately after such consolidation, merger, sale, transfer or other transaction, the stockholders of the Person who constitutes, or would constitute, the Principal Party for purposes of Section 13(a) hereof shall have received a distribution of Rights previously owned by such Person or any of its Affiliates 41 or Associates or (iii) the form or nature of organization of the Principal Party would preclude or limit the exercisability of the Rights. Section 14. Fractional Rights and Fractional Shares. (a) The Company shall not be required to issue fractions of Rights or to distribute Right Certificates which evidence fractional Rights (i.e., Rights to acquire less than one one-thousandth of a share of Preferred Stock), unless such fractional Rights result from a transaction referred to in Section 11(a)(i) hereof. If the Company shall determine not to issue such fractional Rights, then, in lieu of such fractional Rights, there shall be paid to the holders of record of the Right Certificates with regard to which such fractional Rights would otherwise be issuable, an amount in cash equal to the same fraction of the Fair Market Value of a whole Right. (b) The Company shall not be required to issue fractions of shares of Preferred Stock (other than fractions that are integral multiples of one one-thousandth of a share) upon exercise of the Rights or to distribute certificates which evidence fractional shares (other than fractions that are integral multiples of one one-thousandth of a share). In lieu of issuing fractions of shares of Preferred Stock, the Company may, at its election, issue depositary receipts evidencing fractions of shares pursuant to an appropriate agreement between the Company and a depositary selected by it, provided, that such agreement shall provide that the holders of such depositary receipts shall have all of the rights, privileges and preferences to which they would be entitled as owners of the Preferred Stock. With respect to fractional shares that are not integral multiples of one one-thousandth of a share, if the Company does not issue such fractional shares or depositary receipts in lieu thereof, there shall be paid to the holders of record of Right 42 Certificates at the time such Right Certificates are exercised as herein provided an amount in cash equal to the same fraction of the Fair Market Value of a share of Preferred Stock. (c) The holder of a Right by the acceptance of a Right expressly waives his right to receive any fractional Right or any fractional shares of Preferred Stock (other than fractions which are integral multiples of one one-thousandth of a share) upon exercise of a Right. Section 15. Rights of Action. All rights of action in respect of this Agreement, except the rights of action given to the Rights Agent in Section 18 hereof, are vested in the respective registered holders of the Right Certificates (and, prior to the Distribution Date, the holders of record of the Common Stock); and any holder of record of any Right Certificate (or, prior to the Distribution Date, of the Common Stock), without the consent of the Rights Agent or of the holder of any other Right Certificate (or, prior to the Distribution Date, of the Common Stock), may, in his own behalf and for his own benefit, enforce, and may institute and maintain any suit, action or proceeding against the Company to enforce, or otherwise act in respect of, his right to exercise the Rights evidenced by such Right Certificate in the manner provided in such Right Certificate and in this Agreement. Without limiting the foregoing or any remedies available to the holders of Rights, it is specifically acknowledged that the holders of Rights would not have an adequate remedy at law for any breach of this Agreement and will be entitled to specific performance of the obligations under, and injunctive relief against actual or threatened violations of, the obligations of any Person subject to this Agreement. 43 Section 16. Agreement of Right Holders. Each holder of a Right, by accepting the same, consents and agrees with the Company and the Rights Agent and with every other holder of a Right that: (a) prior to the Distribution Date, the Rights shall be evidenced by the certificates for Common Stock registered in the name of the holders of Common Stock (together, as applicable, with the Summary of Rights), which certificates for Common Stock shall also constitute certificates for Rights, and not by separate Right Certificates, and each Right shall be transferable only simultaneously and together with the transfer of shares of Common Stock; (b) after the Distribution Date, the Right Certificates are transferable only on the registry books of the Rights Agent if surrendered at the office of the Rights Agent designated for such purpose, duly endorsed or accompanied by a proper instrument of transfer; and (c) the Company and the Rights Agent may deem and treat the Person in whose name the Right Certificate (or, prior to the Distribution Date, the associated Common Stock certificate) is registered as the absolute owner thereof and of the Rights evidenced thereby (notwithstanding any notations of ownership or writing on the Right Certificates or the associated Common Stock certificate made by anyone other than the Company or the Rights Agent) for all purposes whatsoever, and neither the Company nor the Rights Agent shall be affected by any notice to the contrary. Section 17. Right Certificate Holder Not Deemed a Stockholder. No holder, as such, of any Right Certificate shall be entitled to vote, receive dividends or be 44 deemed for any purpose the holder of Preferred Stock or any other securities which may at any time be issuable on the exercise of the Rights represented thereby, nor shall anything contained herein or in any Right Certificate be construed to confer upon the holder of any Right Certificate, as such, any of the rights of a stockholder of the Company or any right to vote for the election of directors or upon any matter submitted to stockholders at any meeting thereof, or to give or withhold consent to any corporate action, or to receive notice of meetings or other actions affecting stockholders (except as provided in Section 24 hereof), or to receive dividends or subscription rights, or otherwise, until the Right or Rights evidenced by such Right Certificate shall have been exercised in accordance with the provisions hereof. Section 18. Concerning the Rights Agent. (a) The Company agrees to pay to the Rights Agent reasonable compensation for all services rendered by it hereunder and, from time to time, on demand of the Rights Agent, its reasonable expenses and counsel fees and other disbursements incurred in the administration and execution of this Agreement and the exercise and performance of its duties hereunder. The Company also agrees to indemnify the Rights Agent for, and to hold it harmless against, any loss, liability, or expense, incurred without negligence, bad faith or willful misconduct on the part of the Rights Agent, for anything done or omitted to be done by the Rights Agent in connection with the acceptance and administration of this Agreement, including the cost and expenses of defending against any claim of liability relating to the Rights or this Agreement. (b) The Rights Agent shall be protected against, and shall incur no liability for or in respect of, any action taken, suffered or omitted by it in connection with 45 its administration of this Agreement in reliance upon any Right Certificate or certificate for Preferred Stock or for other securities of the Company, instrument of assignment or transfer, power of attorney, endorsement, affidavit, letter, notice, direction, consent, certificate, statement or other paper or document believed by it to be genuine and to be signed, executed and, where necessary, verified or acknowledged, by the proper person or persons. Section 19. Merger or Consolidation of, or Change in Name of, the Rights Agent. (a) Any corporation into which the Rights Agent or any successor Rights Agent may be merged or with which it may be consolidated, or any corporation resulting from any merger or consolidation to which the Rights Agent or any successor Rights Agent shall be a party, or any corporation succeeding to the corporate trust or stock transfer business of the Rights Agent or any successor Rights Agent, shall be the successor to the Rights Agent under this Agreement without the execution or filing of any paper or any further act on the part of any of the parties hereto, provided that such corporation would be eligible for appointment as a successor Rights Agent under the provisions of Section 21 hereof. In case at the time such successor Rights Agent shall succeed to the agency created by this Agreement any of the Rights Certificates shall have been countersigned but not delivered, any such successor Rights Agent may adopt the countersignature of the predecessor Rights Agent and deliver such Right Certificates so countersigned; and in case at that time any of the Right Certificates shall not have been countersigned, any successor Rights Agent may countersign such Right Certificates either in the name of the predecessor Rights Agent or in the name of the successor Rights 46 Agent; and in all such cases such Right Certificates shall have the full force provided in the Right Certificates and in this Agreement. (b) In case at any time the name of the Rights Agent shall be changed and at such time any of the Right Certificates shall have been countersigned but not delivered, the Rights Agent may adopt the countersignature under its prior name and deliver Right Certificates so countersigned; in case at that time any of the Right Certificates shall not have been countersigned, the Rights Agent may countersign such Right Certificates either in its prior name or in its changed name; in all such cases such Right Certificates shall have the full force provided in the Right Certificates and in this Agreement. Section 20. Duties of Rights Agent. The Rights Agent undertakes the duties and obligations imposed by this Agreement upon the following terms and conditions, by all of which the Company and the holders of Right Certificates by their acceptance thereof shall be bound: (a) The Rights Agent may consult with legal counsel (who may be legal counsel for the Company), and the opinion of such counsel shall be full and complete authorization and protection to the Rights Agent as to any action taken or omitted by it in good faith and in accordance with such opinion. (b) Whenever in the performance of its duties under this Agreement the Rights Agent shall deem it necessary or desirable that any fact or matter be proved or established by the Company prior to taking or suffering any action hereunder, such fact or matter (unless other evidence in respect thereof be herein specifically prescribed) may be deemed to be conclusively proved and established by a certificate signed by the Chairman of the Board, the President or any Vice President and by the Treasurer or the 47 Secretary or an Assistant Secretary of the Company and delivered to the Rights Agent. Any such certificate shall be full authorization to the Rights Agent for any action taken or suffered in good faith by it under the provisions of this Agreement in reliance upon such certificate. (c) The Rights Agent shall be liable hereunder only for its own negligence, bad faith or willful misconduct. Anything to the contrary notwithstanding, in no event shall the Rights Agent be liable for special, indirect, consequential or incidental loss or damage of any kind whatsoever (including but not limited to lost profits), even if the Rights Agent has been advised of the likelihood of such loss or damage. (d) The Rights Agent shall not be liable for or by reason of any of the statements of fact or recitals contained in this Agreement or in the Right Certificates (except its countersignature thereof) or be required to verify the same, but all such statements and recitals are and shall be deemed to have been made by the Company only. (e) The Rights Agent shall not be under any responsibility in respect of the validity of this Agreement or the execution and delivery hereof (except the due execution hereof by the Rights Agent) or in respect of the validity or execution of any Right Certificate (except its countersignature thereof); nor shall it be responsible for any breach by the Company of any covenant or condition contained in this Agreement or in any Right Certificate; nor shall it be responsible for any adjustment required under the provisions of Section 11 or 13 hereof or responsible for the manner, method or amount of any such adjustment or the ascertaining of the existence of facts that would require any such adjustment (except with respect to the exercise of Rights evidenced by Right Certificates after receipt of a certificate describing any such adjustment); nor shall it by 48 any act hereunder be deemed to make any representation or warranty as to the authorization or reservation of any shares of Preferred Stock to be issued pursuant to this Agreement or any Right Certificate or as to whether any shares of Preferred Stock will, when issued, be validly authorized and issued, fully paid and nonassessable. (f) The Company agrees that it will perform, execute, acknowledge and deliver or cause to be performed, executed, acknowledged and delivered all such further and other acts, instruments and assurances as may reasonably be required by the Rights Agent for the carrying out or performing by the Rights Agent of the provisions of the Agreement. (g) The Rights Agent is hereby authorized and directed to accept instructions with respect to the performance of its duties hereunder from the Chairman of the Board, the President or any Vice President or the Treasurer or the Secretary of the Company, and to apply to such officers for advice or instructions in connection with its duties, and it shall not be liable for any action taken or suffered to be taken by it in good faith in accordance with instructions of any such officer or for any delay in acting while waiting for those instructions. Any application by the Rights Agent for written instructions from the Company may, at the option of the Rights Agent, set forth in writing any action proposed to be taken or omitted by the Rights Agent under this Agreement and the date on and/or after which such action shall be taken or such omission shall be effective. The Rights Agent shall not be liable for any action taken by, or omission of, the Rights Agent in accordance with a proposal included in any such application on or after the date specified in such application (which date shall not be less than five Business Days after the date any officer of the Company actually receives such 49 application unless any such officer shall have consented in writing to an earlier date) unless, prior to taking any such action (or the effective date in the case of an omission), the Rights Agent shall have received written instructions in response to such application specifying the action to be taken or omitted. (h) The Rights Agent and any shareholder, director, officer or employee of the Rights Agent may buy, sell or deal in any of the Rights or other securities of the Company or become pecuniarily interested in any transaction in which the Company may be interested, or contract with or lend money to the Company or otherwise act as fully and freely as though it were not the Rights Agent under this Agreement. Nothing herein shall preclude the Rights Agent from acting in any other capacity for the Company or for any other legal entity. (i) The Rights Agent may execute and exercise any of the rights or powers hereby vested in it or perform any duty hereunder either itself or by or through its attorneys or agents, and the Rights Agent shall not be answerable or accountable for any act, default, neglect or misconduct of any such attorneys or agents or for any loss to the Company resulting from any such act, default, neglect or misconduct, provided reasonable care was exercised in the selection and continued employment thereof. (j) If, with respect to any Rights Certificate surrendered to the Rights Agent for exercise or transfer, the certificate contained in the form of assignment or the form of election to purchase set forth on the reverse thereof, as the case may be, has not been completed to certify the holder is not an Acquiring Person (or an Affiliate or Associate thereof), the Rights Agent shall not take any further action with respect to such requested exercise or transfer without first consulting with the Company. 50 Section 21. Change of Rights Agent. The Rights Agent or any successor Rights Agent may resign and be discharged from its duties under this Agreement upon thirty (30) days' notice in writing mailed to the Company and to each transfer agent of the Common Stock and the Preferred Stock by registered or certified mail. The Company may remove the Rights Agent or any successor Rights Agent (with or without cause) upon thirty (30) days' notice in writing, mailed to the Rights Agent or successor Rights Agent, as the case may be, and to each transfer agent of the Common Stock and the Preferred Stock by registered or certified mail. If the Rights Agent shall resign or be removed or shall otherwise become incapable of acting, the Company shall appoint a successor to the Rights Agent. Notwithstanding the foregoing provisions of this Section 21, in no event shall the resignation or removal of a Rights Agent be effective until a successor Rights Agent shall have been appointed and have accepted such appointment. If the Company shall fail to make such appointment within a period of thirty (30) days after such removal or after it has been notified in writing of such resignation or incapacity by the resigning or incapacitated Rights Agent or by the holder of a Right Certificate (who shall, with such notice, submit his Right Certificate for inspection by the Company), then the incumbent Rights Agent or the holder of record of any Right Certificate may apply to any court of competent jurisdiction for the appointment of a new Rights Agent. Any successor Rights Agent, whether appointed by the Company or by such a court, shall be (a) a corporation organized and doing business under the laws of the United States or of any state thereof, in good standing, which is authorized under such laws to exercise corporate trust or stock transfer powers and is subject to supervision or examination in the conduct of its corporate trust or stock transfer business by federal or 51 state authorities and which has at the time of its appointment as Rights Agent a combined capital and surplus of at least $5,000,000 or (b) an Affiliate controlled by a corporation described in clause (a) of this sentence. After appointment, the successor Rights Agent shall be vested with the same powers, rights, duties and responsibilities as if it had been originally named as Rights Agent without further act or deed, but the predecessor Rights Agent shall deliver and transfer to the successor Rights Agent any property at the time held by it hereunder, and execute and deliver any further assurance, conveyance, act or deed necessary for the purpose. Not later than the effective date of any such appointment, the Company shall file notice thereof in writing with the predecessor Rights Agent and each transfer agent of the Common Stock and Preferred Stock, and mail a notice thereof in writing to the registered holders of the Right Certificates. Failure to give any notice provided for in this Section 21, however, or any defect therein, shall not affect the legality or validity of the resignation or removal of the Rights Agent or the appointment of the successor Rights Agent, as the case may be. Notwithstanding the foregoing provisions, in the event of resignation, removal or incapacity of the Rights Agent, the Company shall have the authority to act as the Rights Agent until a successor Rights Agent shall have assumed the duties of the Rights Agent hereunder. Section 22. Issuance of New Right Certificates. Notwithstanding any of the provisions of this Agreement or of the Rights to the contrary, the Company may, at its option, issue new Right Certificates evidencing Rights in such form as may be approved by its Board of Directors to reflect any adjustment or change in the Exercise Price per share and the number or kind or class of shares of stock or other securities or property purchasable under the Right Certificates made in accordance with the provisions of this 52 Agreement. In addition, in connection with the issuance or sale of Voting Stock following the Distribution Date and prior to the Expiration Date, the Company may with respect to shares of Voting Stock so issued or sold pursuant to (i) the exercise of stock options, (ii) under any employee plan or arrangement, (iii) upon the exercise, conversion or exchange of securities, notes or debentures issued by the Company or (iv) a contractual obligation of the Company, in each case existing prior to the Distribution Date, issue Rights Certificates representing the appropriate number of Rights in connection with such issuance or sale. Section 23. Redemption. (a) The Company may, at its option, but only by the vote of a majority of the Board of Directors, redeem all but not less than all of the then outstanding Rights, at any time prior to the Stock Acquisition Date at a redemption price of $.001 per Right, subject to adjustments as provided in subsection (c) below (the "Redemption Price"). (b) Without any further action and without any notice, the right to exercise the Rights will terminate effective at the time so designated by action of the Board of Directors ordering the redemption of the Rights and the only right thereafter of the holders of Rights shall be to receive the Redemption Price. Within ten (10) days after the effective time of the action of the Board of Directors ordering the redemption of the Rights, the Company shall give notice of such redemption to the holders of the then outstanding Rights by mailing such notice to all such holders at their last addresses as they appear upon the registry books of the Rights Agent or, prior to the Distribution Date, on the registry books of the transfer agent for the Common Stock. Any notice which is mailed in the manner herein provided shall be deemed given, whether or not the holder 53 receives the notice. Each notice of redemption will state the method by which the payment of the Redemption Price will be made. At the option of the Board of Directors, the Redemption Price may be paid in cash to each Rights holder or by the issuance of shares (and, at the Company's election pursuant to Section 14(b) hereof, cash or depositary receipts in lieu of fractions of shares other than fractions which are integral multiples of one one-thousandth of a share) of Preferred Stock or Common Stock having a Fair Market Value equal to such cash payment. (c) In the event the Company shall at any time after the date of this Agreement (A) pay any dividend on Common Stock in shares of Common Stock, (B) subdivide or split the outstanding shares of Common Stock into a greater number of shares or (C) combine or consolidate the outstanding shares of Common Stock into a smaller number of shares or effect a reverse split of the outstanding shares of Common Stock, then, and in each such event, the Redemption Price shall be appropriately adjusted to reflect the foregoing. Section 24. Notice of Proposed Actions. (a) In case the Company, after the Distribution Date, shall propose (i) to effect any of the transactions referred to in Section 11(a)(i) or to pay any dividend to the holders of record of its shares of Common Stock payable in shares of capital stock of any class or to make any other distribution to the holders of record of its Common Stock (other than a regular periodic cash dividend at a rate not in excess of 150% of the rate of the last cash dividend theretofore paid), or (ii) to offer to the holders of record of its Common Stock options, warrants, or other rights to subscribe for or to purchase shares of Common Stock (including any security convertible into or exchangeable for Common 54 Stock) or shares of stock of any class or any other securities, options, warrants, convertible or exchangeable securities or other rights, or (iii) to effect any reclassification of its Preferred Stock or Common Stock or any recapitalization or reorganization of the Company, or (iv) to effect any consolidation or merger with or into, or to effect any sale or other transfer (or to permit one or more of its Subsidiaries to effect any sale or other transfer), in one or more transactions, of more than 50% of the assets or earning power of the Company and its Subsidiaries (taken as a whole) to, any other Person or Persons, or (v) to effect the liquidation, dissolution or winding up of the Company, then, in each such case, the Company shall give to each holder of record of a Right Certificate, in accordance with Section 25, notice of such proposed action, which shall specify the record date for the purposes of such transaction referred to in Section 11(a)(i) or such dividend or distribution, or the date on which such reclassification, recapitalization, reorganization, consolidation, merger, sale or transfer of assets, liquidation, dissolution, or winding up is to take place and the record date for determining participation therein by the holders of record of Common Stock or Preferred Stock, if any such date is to be fixed, and such notice shall be so given in the case of any action covered by clause (i) or (ii) above at least ten (10) days prior to the record date for determining holders of record of the Preferred Stock for purposes of such action, and in the case of any such other action, at least ten (10) days prior to the date of the taking of such proposed action or the date of participation therein by the holders of record of Common Stock or Preferred Stock, whichever shall be the earlier. The failure to give notice required by this Section 24 or any defect therein shall not affect the legality or validity of the action taken by the Company or the vote upon any such action. 55 (b) In case the event referred to in Section 11(a)(ii) shall occur, then the Company shall as soon as practicable thereafter, in accordance with Section 25 hereof, give to each holder of a Right notice of the occurrence of such event, which notice shall describe the event and the consequences of the event to holders of Rights under Section 11(a)(ii) hereof. Section 25. Notices. Notices or demands authorized by this Agreement to be given or made by the Rights Agent or by the holder of record of any Right Certificate or Right to or on the Company shall be sufficiently given or made if sent by first-class mail, postage prepaid, addressed (until another address is filed in writing with the Rights Agent) as follows: The Grand Union Company 201 Willowbrook Boulevard Wayne, New Jersey 07470 Attn: General Counsel Subject to the provisions of Section 21, any notice or demand authorized by this Agreement to be given or made by the Company or by the holder of record of any Right Certificate or Right to or on the Rights Agent shall be sufficiently given or made if sent by first-class mail, postage prepaid, addressed (until another address is filed in writing with the Company) as follows: American Stock Transfer & Trust Company 99 Wall Street New York, NY 10005 Attn: Vice President, Administration Notices or demands authorized by this Agreement to be given or made by the Company or the Rights Agent to the holder of record of any Right Certificate or Right shall be 56 sufficiently given or made if sent by first-class mail, postage prepaid, addressed to such holder at the address of such holder as shown on the registry books of the Company. Section 26. Supplements and Amendments. For as long as the Rights are then redeemable and except as provided in the last sentence of this Section 26, the Company may in its sole and absolute discretion, and the Rights Agent shall if the Company so directs, supplement or amend any provision of this Agreement without the approval of any holders of the Rights. At any time when the Rights are not then redeemable and except as provided in the last sentence of this Section 26, the Company may, and the Rights Agent shall if the Company so directs, supplement or amend this Agreement without the approval of any holders of Right Certificates (i) to cure any ambiguity, (ii) to correct or supplement any provision contained herein which may be defective or inconsistent with any other provisions herein or (iii) to change or supplement the provisions hereunder in any manner which the Company may deem necessary or desirable, provided, that no such supplement or amendment pursuant to this clause (iii) shall materially adversely affect the interest of the holders of Right Certificates. Upon the delivery of a certificate from an appropriate officer of the Company which states that the proposed supplement or amendment is in compliance with the terms of this Section 26, the Rights Agent shall execute such supplement or amendment. Notwithstanding anything contained in this Agreement to the contrary, no supplement or amendment shall be made which changes the Redemption Price. Section 27. Exchange. (a) The Board of Directors of the Company may, at its option, at any time after any Person becomes an Acquiring Person, exchange all or part of the then outstanding and exercisable Rights (which shall not include Rights that 57 have become null and void pursuant to the provisions of Section 7(e) hereof) by exchanging for each such Right a number of shares of Common Stock having an aggregate Fair Market Value on the date such Person becomes an Acquiring Person equal to the Spread, appropriately adjusted to reflect any stock split, stock dividend or similar transaction occurring after the date such Person becomes an Acquiring Person (such amount per Right being hereinafter referred to as the "Exchange Consideration"). Notwithstanding the foregoing, the Board of Directors shall not be empowered to effect such exchange at any time after any Person (other than an Exempt Person), together with all Affiliates and Associates of such Person, becomes the Beneficial Owner of 50% or more of the Voting Stock then outstanding. From and after the occurrence of an event specified in Section 13(a) hereof, any Rights that theretofore have not been exchanged pursuant to this Section 27(a) shall thereafter be exercisable only in accordance with Section 13 and may not be exchanged pursuant to this Section 27(a). (b) Immediately upon the action of the Board of Directors of the Company ordering the exchange of any Rights pursuant to paragraph (a) of this Section 27 and without any further action and without any notice, the right to exercise such Rights shall terminate and the only right thereafter of a holder of such Rights shall be to receive the Exchange Consideration. The Company shall promptly give public notice of any such exchange; provided, however, that the failure to give, or any defect in, such notice shall not affect the validity of such exchange. The Company promptly shall mail a notice of any such exchange to all of the holders of such Rights at their last addresses as they appear upon the registry books of the Rights Agent. Any notice which is mailed in the manner herein provided shall be deemed given, whether or not the holder receives the 58 notice. Each such notice of exchange will state the method by which the exchange of the shares of Common Stock for Rights will be effected and, in the event of any partial exchange, the number of Rights which will be exchanged. Any partial exchange shall be effected pro rata based on the number of Rights (other than Rights which have become null and void pursuant to the provisions of Section 7(e) hereof) held by each holder of Rights. (c) In the event that there shall not be sufficient shares of Common Stock issued but not outstanding or authorized but unissued to permit any exchange of Rights as contemplated in accordance with this Section 27, the Company shall substitute to the extent of such insufficiency, for each share of Common Stock that would otherwise be issuable upon exchange of a Right, a number of shares of Preferred Stock or fractions thereof having an aggregate Fair Market Value equal to the Fair Market Value of one share of Common Stock as of the date any Person becomes an Acquiring Person. (d) The Company shall not be required to issue fractions of shares of Common Stock or to distribute certificates which evidence fractional shares. In lieu of such fractional shares, the Company shall pay to the registered holders of the Right Certificates with regard to which such fractional shares of Common Stock would otherwise be issuable an amount in cash equal to the same fraction of the current market value of a whole share of Common Stock. For the purposes of this paragraph (d), the current market value of a whole share of Common Stock shall be the closing price of a share of Common Stock for the Trading Day immediately prior to the date of exchange pursuant to this Section 27. 59 Section 28. Successors. All of the covenants and provisions of this Agreement by or for the benefit of the Company or the Rights Agent shall bind and inure to the benefit of their respective successors and assigns hereunder. Section 29. Benefits of this Agreement. Nothing in this Agreement shall be construed to give to any person or corporation other than the Company, the Rights Agent and the registered holders of the Right Certificates (and, prior to the Distribution Date, the holders of Common Stock in their capacity as holders of the Rights) any legal or equitable right, remedy or claim under this Agreement; but this Agreement shall be for the sole and exclusive benefit of the Company, the Rights Agent and the holders of record of the Right Certificates (and, prior to the Distribution Date, the holders of Common Stock in their capacity as holders of the Rights). Section 30. Delaware Contract. This Agreement and each Right Certificate issued hereunder shall be deemed to be a contract made under the laws of the State of Delaware and for all purposes shall be governed by and construed and enforced in accordance with the laws of such state applicable to contracts to be made and performed entirely within such state. Section 31. Counterparts. This Agreement may be executed in any number of counterparts and each of such counterparts shall for all purposes be deemed to be an original, and all such counterparts shall together constitute but one and the same instrument. Section 32. Descriptive Headings. Descriptive headings of the several Sections of this Agreement are inserted for convenience only and shall not control or affect the meaning or construction of any of the provisions hereof. 60 Section 33. Severability. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction or other authority to be invalid, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions of this Agreement shall remain in full force and effect and shall in no way be affected, impaired or invalidated. Section 34. Determinations and Actions by the Board of Directors. The Board of Directors of the Company shall have the exclusive power and authority to administer this Agreement and to exercise the rights and powers specifically granted to the Board of Directors of the Company or to the Company, or as may be necessary or advisable in the administration of this Agreement, including, without limitation, the right and power to (i) interpret the provisions of this Agreement and (ii) make all determinations deemed necessary or advisable for the administration of this Agreement (including, without limitation, a determination to redeem or not redeem the Rights or to amend this Agreement). All such actions, calculations, interpretations and determinations (including for purposes of clause (y) below, all omissions with respect to the foregoing) that are done or made by the Board of Directors of the Company in good faith, shall (x) be final, conclusive and binding on the Company, the Rights Agent, the holders of the Rights, as such, and all other parties, and (y) not subject the Board of Directors to any liability to the holders of the Rights. 61 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed, all as of the day and year first above written. THE GRAND UNION COMPANY By /s/ Jeffrey P. Freimark --------------------------- Name: Jeffrey P. Freimark Title: Executive Vice President & Chief Financial Officer AMERICAN STOCK TRANSFER & TRUST COMPANY By /s/ Herbert J. Lemmer -------------------------- Name: Herbert J. Lemmer Title: Vice President 62 CORRECTED VERSION ================================================================================ AGREEMENT by and between THE GRAND UNION COMPANY and AMERICAN STOCK TRANSFER & TRUST CO., as Rights Agent --------------- Dated as of April 29, 1999 ================================================================================ TABLE OF CONTENTS Section Page - ------- ---- Section 1. Certain Definitions..............................................2 Section 2. Appointment of Rights Agent.....................................10 Section 3. Issuance of Right Certificates..................................11 Section 4. Form of Right Certificates......................................13 Section 5. Countersignature and Registration...............................14 Section 6. Transfer, Split Up, Combination and Exchange of Right Certificates; Mutilated, Destroyed, Lost or Stolen Right Certificates....................................................15 Section 7. Exercise of Rights; Exercise Price; Expiration Date of Rights..........................................................17 Section 8. Cancellation and Destruction of Right Certificates..............21 Section 9. Reservation and Availability of Shares of Preferred Stock.......22 Section 10. Preferred Stock Record Date....................................24 Section 11. Adjustment of Exercise Price or Number of Shares...............24 Section 12. Certification of Adjusted Exercise Price or Number of Shares.........................................................34 Section 13. Consolidation, Merger or Sale or Transfer of Assets or Earning Power..................................................35 Section 14. Fractional Rights and Fractional Shares........................42 Section 15. Rights of Action...............................................43 Section 16. Agreement of Right Holders.....................................44 Section 17. Right Certificate Holder Not Deemed a Stockholder..............44 Section 18. Concerning the Rights Agent....................................45 Section 19. Merger or Consolidation of, or Change in Name of, the Rights Agent...................................................46 Section 20. Duties of Rights Agent.........................................47 Section 21. Change of Rights Agent.........................................51 Section 22. Issuance of New Right Certificates.............................52 Section 23. Redemption.....................................................53 Section 24. Notice of Proposed Actions.....................................54 Section 25. Notices........................................................56 Section 26. Supplements and Amendments.....................................57 Section 27. Exchange.......................................................57 Section 28. Successors.....................................................60 Section 29. Benefits of this Agreement.....................................60 Section 30. Delaware Contract..............................................60 Section 31. Counterparts...................................................60 Section 32. Descriptive Headings...........................................60 Section 33. Severability...................................................61 Section 34. Determinations and Actions by the Board of Directors...........61 i Exhibit A -- Summary of Rights Exhibit B -- Form of Right Certificate Exhibit C -- Form of Certificate of Designations of Series A Junior Preferred Stock ii EXHIBIT A AS PROVIDED IN THE RIGHTS AGREEMENT (AS REFERRED TO BELOW), RIGHTS ISSUED TO OR BENEFICIALLY OWNED BY ACQUIRING PERSONS OR THEIR AFFILIATES OR ASSOCIATES (AS SUCH TERMS ARE DEFINED IN THE RIGHTS AGREEMENT) OR ANY SUBSEQUENT HOLDER OF SUCH RIGHTS SHALL BE NULL AND VOID AND MAY NOT BE EXERCISED OR TRANSFERRED TO ANY PERSON THE GRAND UNION COMPANY SUMMARY OF RIGHTS TO PURCHASE SERIES A JUNIOR PREFERRED STOCK On April 29, 1999, the Board of Directors of The Grand Union Company (the "Company") declared a dividend distribution of one Preferred Stock Purchase Right for each outstanding share of Common Stock, par value $.01 per share (the "Common Stock"), of the Company. The distribution is payable as of May 10, 1999 to stockholders of record on that date. Each Right entitles the registered holder to purchase from the Company one-thousandth (1/1,000) of a share of preferred stock of the Company, designated as Series A Junior Preferred Stock (the "Preferred Stock") at a price of $35.00 per one-thousandth (1/1,000) of a share ("Exercise Price"). The description and terms of the Rights are set forth in a Rights Agreement (the "Rights Agreement") between the Company and American Stock Transfer & Trust Co., as Rights Agent (the "Rights Agent"). As discussed below, initially the Rights will not be exercisable, certificates will not be sent to stockholders and the Rights automatically will trade with the Common Stock. The Rights, unless earlier redeemed by the Board of Directors, become exercisable upon the close of business on the day (the "Distribution Date") which is the earlier of (i) the tenth day following a public announcement that a person or group of affiliated or associated persons, with certain exceptions set forth below, has acquired beneficial ownership of 15% or more of the outstanding voting stock of the Company (an "Acquiring Person") and (ii) the tenth business day (or such later date as may be determined by the Board of Directors prior to such time as any person or group of affiliated or associated persons becomes an Acquiring Person) after the date of the commencement or announcement of a person's or group's intention to commence a tender or exchange offer the consummation of which would result in the ownership of 15% or more of the Company's outstanding voting stock (even if no shares are actually purchased pursuant to such offer); prior thereto, the Rights would not be exercisable, would not be represented by a separate certificate, and would not be transferable apart from the Company's Common Stock, but will instead be evidenced, with respect to any of the Common Stock certificates outstanding as of May 10, 1999, by such Common Stock certificate with a copy of this Summary of Rights attached thereto. An Acquiring Person does not include (A) the Company, (B) any subsidiary of the Company, (C) any employee benefit plan or employee stock plan of the Company or of any subsidiary of the Company, or any trust or other entity organized, appointed, established or holding voting stock for or pursuant to the terms of any such plan or (D) any person or group of affiliated or associated persons whose ownership of 15% or more of the shares of voting stock of the Company then outstanding results solely from (i) any action or transaction or transactions approved by the Board of Directors before such person or group became an Acquiring Person or (ii) a reduction in the number of issued and outstanding shares of voting stock of the Company pursuant to a transaction or transactions approved by the Board of Directors (provided that any person or group that does not become an Acquiring Person by reason of clause (i) or (ii) above shall become an Acquiring Person upon acquisition of an additional 1% of the Company's voting stock unless such acquisition of additional voting stock will not result in such person or group becoming an Acquiring Person by reason of such clause (i) or (ii)). Until the Distribution Date (or earlier redemption, exchange or expiration of the Rights), new Common Stock certificates issued after May 10, 1999 will contain a legend incorporating the Rights Agreement by reference. Until the Distribution Date (or earlier redemption, exchange or expiration of the Rights), the surrender for transfer of any of the Common Stock certificates outstanding as of May 10, 1999, with or without a copy of this Summary of Rights attached thereto, will also constitute the transfer of the Rights associated with the Common Stock represented by such certificate. As soon as practicable following the Distribution Date, separate certificates evidencing the Rights ("Right Certificates") will be mailed to holders of record of the Common Stock as of the close of business on the Distribution Date and such separate certificates alone will evidence the Rights from and after the Distribution Date. The Rights are not exercisable until the Distribution Date. The Rights will expire at the close of business on April 29, 2001, unless earlier redeemed or exchanged by the Company as described below. The Preferred Stock is nonredeemable and, unless otherwise provided in connection with the creation of a subsequent series of preferred stock, subordinate to any other series of the Company's preferred stock. The Preferred Stock may not be issued except upon exercise of Rights. Each share of Preferred Stock will be entitled to receive when, as and if declared, a quarterly dividend in an amount equal to the greater of $0.001 per share or 1,000 times the cash dividends declared on the Company's Common Stock. In addition, the holders of the Preferred Stock are entitled to receive 1,000 times any non-cash dividends (other than dividends payable in equity securities) declared on the Common Stock, in like kind. In the event of the liquidation of the Company, the holders of Preferred Stock will be entitled to receive, for each share of Preferred Stock, a payment in an amount equal to the greater of $0.001 or 1,000 times the payment made per share of Common Stock. Each share of Preferred Stock will have 1,000 votes, voting together with the Common Stock. In the event of any merger, consolidation or other transaction in which Common Stock is exchanged, each share of Preferred Stock will be entitled to receive 1,000 times the amount received per share of Common Stock. The 2 rights of Preferred Stock as to dividends, liquidation and voting are protected by anti-dilution provisions. The number of shares of Preferred Stock issuable upon exercise of the Rights and Exercise Price of the Rights are subject to certain adjustments from time to time in the event of a stock dividend on, or a subdivision or combination of, the Common Stock. The Exercise Price for the Rights also is subject to adjustment in the event of extraordinary distributions of cash or other property to holders of Common Stock. Unless the Rights are earlier redeemed or exchanged, in the event that, after the time that a Person becomes an Acquiring Person, the Company were to be acquired in a merger or other business combination (in which any shares of Common Stock are changed into or exchanged for other securities or assets) or more than 50% of the assets or earning power of the Company and its subsidiaries (taken as a whole) were to be sold or transferred in one or a series of related transactions, the Rights Agreement provides that proper provision will be made so that each holder of record of a Right will from and after such date have the right to receive, upon payment of the Exercise Price, that number of shares of common stock of the acquiring company having a market value at the time of such transaction equal to two times the Exercise Price. In addition, unless the Rights are earlier redeemed or exchanged, in the event that a person or group becomes an Acquiring Person, the Rights Agreement provides that proper provisions will be made so that each holder of record of a Right, other than the Acquiring Person (whose Rights will thereupon become null and void), will thereafter have the right to receive, upon payment of the Exercise Price, that number of shares of the Preferred Stock having a market value at the time of the transaction equal to two times the Exercise Price (such market value to be determined with reference to the market value of the Company's Common Stock as provided in the Rights Agreement). At any time after any person or group becomes an Acquiring Person and prior to the acquisition by such person or group of 50% or more of the outstanding voting stock, the Board of Directors of the Company may exchange the Rights (other than Rights owned by such person or group which will have become void), in whole or in part, for that number of shares of the Company's Common Stock having a fair market value on the first date such person or group became an Acquiring Person equal to the excess of (i) the value of the shares of Preferred Stock issuable upon the exercise of the Rights in the event of such acquisition over (ii) the exercise price of the Rights, in each case as adjusted. Fractions of shares of Preferred Stock (other than fractions which are integral multiples of one-thousandth of a share) may, at the election of the Company, be evidenced by depositary receipts. The Company may also issue cash in lieu of fractional shares which are not integral multiples of one-thousandth of a share. At any time prior to the time there has been a public announcement that a person has become an Acquiring Person, the Company may redeem the Rights in whole, but not in part, at a price of $.001 per Right (the "Redemption Price"). Immediately upon 3 the effective time of the action of the Board of Directors of the Company authorizing redemption of the Rights, the right to exercise the Rights will terminate and the only right of the holders of Rights will be to receive the Redemption Price. For as long as the Rights are then redeemable, the Company may, except with respect to the Redemption Price, amend the Rights in any manner, including an amendment to extend the time period in which the Rights may be redeemed. At any time when the Rights are not then redeemable, the Company may amend the Rights in any manner that does not materially adversely affect the interests of holders of the Rights as such. Until a Right is exercised, the holder, as such, will have no rights as a stockholder of the Company, including, without limitation, the right to vote or to receive dividends. A copy of the Rights Agreement has been filed with the Securities and Exchange Commission as an Exhibit to a Current Report on Form 8-K dated April 29, 1999. A copy of the Rights Agreement is available free of charge from the Company. This summary description of the Rights does not purport to be complete and is qualified in its entirety by reference to the Rights Agreement which is incorporated in this summary description herein by reference. 4 EXHIBIT B [Form of Right Certificate] Certificate No. W- ______ Rights NOT EXERCISABLE AFTER APRIL 29, 2001 OR EARLIER IF EXCHANGED OR REDEEMED. THE RIGHTS ARE SUBJECT TO REDEMPTION, AT THE OPTION OF THE COMPANY AND UNDER CERTAIN OTHER CIRCUMSTANCES, AT $.001 PER RIGHT (SUBJECT TO ADJUSTMENT), ON THE TERMS SET FORTH OR REFERRED TO IN THE RIGHTS AGREEMENT. AS PROVIDED IN THE RIGHTS AGREEMENT (AS REFERRED TO BELOW), RIGHTS ISSUED TO OR BENEFICIALLY OWNED BY ACQUIRING PERSONS OR THEIR AFFILIATES OR ASSOCIATES (AS SUCH TERMS ARE DEFINED IN THE RIGHTS AGREEMENT) OR ANY SUBSEQUENT HOLDER OF SUCH RIGHTS SHALL BE NULL AND VOID AND MAY NOT BE EXERCISED OR TRANSFERRED TO ANY PERSON. Right Certificate This certifies that , or registered assigns, is the registered owner of the number of Rights set forth above, each of which entitles the owner thereof, subject to the terms, provisions and conditions of the Rights Agreement dated as of April 29, 1999 (the "Rights Agreement") between The Grand Union Company, a Delaware corporation (the "Company"), and American Stock Transfer & Trust Co., a banking corporation organized under the laws of the State of New York (the "Rights Agent"), to purchase from the Company at any time after the Distribution Date (as such term is defined in the Rights Agreement) and prior to 5:00 P.M. (New York time) on April 29, 2001 at the office of the Rights Agent designated in the Rights Agreement for such purpose, or its successor as Rights Agent, in New York, New York, one one-thousandth (1/1,000) of a fully paid nonassessable share of Series A Junior Preferred Stock (the "Preferred Stock") of the Company at a purchase price of $35.00, as the same may from time to time be adjusted in accordance with the Rights Agreement (the "Exercise Price"), upon presentation and surrender of this Right Certificate with the Form of Election to Purchase attached hereto duly executed. As provided in the Rights Agreement, the Exercise Price and the number of shares of Preferred Stock which may be purchased upon the exercise of the Rights evidenced by this Right Certificate are subject to modification and adjustment upon the happening of certain events and, upon the happening of certain events, securities other than shares of Preferred Stock, or other property, may be acquired upon exercise of the Rights evidenced by this Right Certificate, as provided in the Rights Agreement. This Right Certificate is subject to all of the terms, provisions and conditions of the Rights Agreement, which terms, provisions and conditions are incorporated herein by reference and made a part hereof and to which Rights Agreement reference is hereby made for a full description of the rights, limitations of rights, obligations, duties and immunities of the Rights Agent, the Company and the holders of record of Right Certificates. Copies of the Rights Agreement are on file at the principal executive office of the Company. This Right Certificate, with or without other Right Certificates, upon surrender at the office of the Rights Agent designated in the Rights Agreement for such purpose, may be exchanged for another Right Certificate or Right Certificates of like tenor and date evidencing Rights entitling the holder of record to purchase a like aggregate number of shares of Preferred Stock as the Rights evidenced by the Right Certificate or Right Certificates surrendered shall have entitled such holder to purchase. If this Right Certificate shall be exercised in part, the holder shall be entitled to receive 2 upon surrender hereof, another Right Certificate or Right Certificates for the number of whole Rights not exercised. Subject to the provisions of the Rights Agreement, the Rights evidenced by this Certificate may be redeemed by the Company at its option or under certain other circumstances at a redemption price of $.001 per Right. No fractional shares of Preferred Stock (other than fractions which are integral multiples of one one-thousandth (1/1,000) of a share) are required to be issued upon the exercise of any Right or Rights evidenced hereby, and in lieu thereof the Company may cause depositary receipts to be issued and/or a cash payment may be made, as provided in the Rights Agreement. No holder of this Right Certificate, as such, shall be entitled to vote or receive dividends or be deemed for any purpose the holder of Preferred Stock or of any other securities of the Company which may at any time be issuable on the exercise hereof, nor shall anything contained in the Rights Agreement or herein be construed to confer upon the holder hereof, as such, any of the rights of a stockholder of the Company or any right to vote for the election of directors or upon any matter submitted to stockholders at meeting thereof, or to give or withhold consent to any corporate action or to receive notice of meetings or other actions affecting stockholders (except as provided in the Rights Agreement), or to receive dividends or subscription rights, or otherwise, until the Right or Rights evidenced by this Right Certificate shall have been exercised as provided in the Rights Agreement. This Right Certificate shall not be valid or obligatory for any purpose until it shall have been countersigned by the Rights Agent. 3 WITNESS the facsimile signature of the proper officers of the Company and its corporate seal. Dated as of _____________, _____. ATTEST: By - ------------------------ ------------------------ Secretary Title: Countersigned: [Rights Agent] By ---------------------- Authorized Signature 4 [Form of Reverse Side of Right Certificate] FORM OF ASSIGNMENT (To be executed by the registered holder if such holder desires to transfer the Right Certificates.) FOR VALUE RECEIVED _____________________________________________________________ hereby sells, assigns and transfers unto _______________________________________ ________________________________________________________________________________ (Please print name and address of transferee) ________________________________________________________________________________ Rights evidenced by this Right Certificate, together with all right, title and interest therein, and does hereby irrevocably constitute and appoint ________________ Attorney to transfer the within Right Certificate on the books of the within-named Company, with full power of substitution. Dated: ________________, _____ ------------------------- Signature Signature Guaranteed: 5 Certificate The undersigned hereby certifies by checking the appropriate boxes that: (1) this Right Certificate [ ] is [ ] is not being sold, assigned or transferred by or on behalf of a Person who is or was an Acquiring Person or an Associate or an Affiliate thereof (as such terms are defined in the Rights Agreement); and (2) after due inquiry and to the best knowledge of the undersigned, it [ ] did [ ] did not acquire the Rights evidenced by this Right Certificate from any Person who is, was or subsequently became an Acquiring Person or an Affiliate or Associate thereof (as such terms are defined in the Rights Agreement). Dated: ____________, _____ __________________________ Signature NOTICE The signature to the foregoing Assignment and Certificate must correspond to the name as written upon the face of this Right Certificate in every particular, without alteration or enlargement or any change whatsoever. 6 FORM OF ELECTION TO PURCHASE (To be executed if registered holder desires to exercise the Right Certificate.) TO _____________________: The undersigned hereby irrevocably elects to exercise _________________ Rights represented by this Right Certificate to purchase the shares of Preferred Stock issuable upon the exercise of such Rights and requests that certificates for such share(s) be issued in the following name: Please insert social security or other identifying number: __________________________________________________ ________________________________________________________________________________ (Please print name and address) ________________________________________________________________________________ If such number of Rights shall not be all the Rights evidenced by this Right Certificate, a new Right Certificate for the balance remaining of such Rights shall be registered in the name of and delivered to: 7 Please insert social security or other identifying number: __________________________________________________ ________________________________________________________________________________ (Please print name and address) ________________________________________________________________________________ Dated: _____________, _____ -------------------------------- Signature (Signature must conform in all respects to name of holder as specified on the face of this Right Certificate) Signature Guaranteed: 8 EXHIBIT C FORM OF CERTIFICATE OF DESIGNATIONS OF SERIES A JUNIOR PREFERRED STOCK OF THE GRAND UNION COMPANY Pursuant to Section 151 of the Delaware General Corporation Law I, Jeffrey P. Freimark, the Executive Vice President and Chief Financial Officer of The Grand Union Company, a corporation organized and existing under the Delaware General Corporation Law (the "Company"), in accordance with the provisions of Section 151 of such law, DO HEREBY CERTIFY that pursuant to the authority conferred upon the Board of Directors by the Restated Certificate of Incorporation of the Company, the Board of Directors on April 29, 1999 adopted the following resolution which creates a series of shares of Preferred Stock designated as Series A Junior Preferred Stock, as follows: RESOLVED, that pursuant to Section 151(g) of the Delaware General Corporation Law and the authority vested in the Board of Directors of the Company in accordance with the provisions of ARTICLE FOURTH of the Restated Certificate of Incorporation of the Company, a series of Preferred Stock of the Company be, and hereby is, created, and the powers, designations, preferences and relative, participating, optional or other special rights of the shares of such series, and the qualifications, limitations or restrictions thereof, be, and hereby are, as follows: Section 1. Designation and Amount. The shares of such series shall be designated as "Series A Junior Preferred Stock" (the "Series A Preferred Stock") and the number of shares constituting such series shall be 50,000. Section 2. Dividends and Distributions. (A) Subject to the provisions for adjustment hereinafter set forth, and subject to the rights of the holders of any shares of any series of Preferred Stock ranking prior and superior to the Series A Preferred Stock with respect to dividends, the holders of shares of Series A Pre ferred Stock shall be entitled to receive, when, as and if declared by the Board of Directors out of funds legally available for the purpose, (i) cash dividends in an amount per share (rounded to the nearest cent) equal to 1,000 times the aggregate per share amount of all cash dividends declared or paid on the Common Stock, $0.01 par value per share, of the Company (the "Common Stock") and (ii) a preferential cash dividend (the "Preferential Dividends"), if any, in preference to the holders of Common Stock, on the first day of each fiscal quarter of the Company (each a "Quarterly Dividend Payment Date"), commencing on the first Quarterly Dividend Payment Date after the first issuance of a share or fraction of a share of Series A Preferred Stock, payable in an amount (except in the case of the first Quarterly Dividend Payment if the date of the first issuance of Series A Preferred Stock is a date other than a Quarterly Dividend Payment date, in which case such payment shall be a prorated amount of such amount) equal to $0.001 per share of Series A Preferred Stock less the per share amount of all cash dividends declared on the Series A Preferred Stock pursuant to clause (i) of this sentence since the immediately preceding Quarterly Dividend Payment Date or, with respect to the first 2 Quarterly Dividend Payment Date, since the first issuance of any share or fraction of a share of Series A Preferred Stock. In the event the Company shall, at any time after the issuance of any share or fraction of a share of Series A Preferred Stock, make any distribution on the shares of Common Stock of the Company, whether by way of a dividend or a reclassification of stock, a recapitalization, reorganization or partial liquidation of the Company or otherwise, which is payable in cash or any debt security, debt instrument, real or personal property or any other property (other than cash dividends subject to the immediately preceding sentence, a distribution of shares of Common Stock or other capital stock of the Company or a distribution of rights or warrants to acquire any such share, including any debt security convertible into or exchangeable for any such share, at a price less than the Fair Market Value (as hereinafter defined) of such share), then, and in each such event, the Company shall simultaneously pay on each then outstanding share of Series A Preferred Stock of the Company a distribution, in like kind, of 1,000 times such distribution paid on a share of Common Stock (subject to the provisions for adjustment hereinafter set forth). The dividends and distributions on the Series A Preferred Stock to which holders thereof are entitled pursuant to clause (i) of the first sentence of this paragraph and pursuant to the second sentence of this paragraph are hereinafter referred to as "Dividends" and the multiple of such cash and non-cash dividends on the Common Stock applicable to the determination of the Dividends, which shall be 1,000 initially but shall be adjusted from time to time as hereinafter provided, is hereinafter referred to as the "Dividend Multiple". In the event the Company shall at any time after May 10, 1999 declare or pay any dividend or make any distribution on Common Stock payable in shares of Common Stock, or effect a 3 subdivision or split or a combination, consolidation or reverse split of the outstanding shares of Common Stock into a greater or lesser number of shares of Common Stock, then in each such case the Dividend Multiple thereafter applicable to the determination of the amount of Dividends which holders of shares of Series A Preferred Stock shall be entitled to receive shall be the Dividend Multiple applicable immediately prior to such event multiplied by a fraction the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. (B) The Company shall declare each Dividend at the same time it declares any cash or non-cash dividend or distribution on the Common Stock in respect of which a Dividend is required to be paid. No cash or non-cash dividend or distribution on the Common Stock in respect of which a Dividend is required to be paid shall be paid or set aside for payment on the Common Stock unless a Dividend in respect of such dividend or distribution on the Common Stock shall be simultaneously paid, or set aside for payment, on the Series A Preferred Stock. (C) Preferential Dividends shall begin to accrue on outstanding shares of Series A Preferred Stock from the Quarterly Dividend Payment Date next preceding the date of issuance of any shares of Series A Preferred Stock. Accrued but unpaid Preferential Dividends shall cumulate but shall not bear interest. Preferential Dividends paid on the shares of Series A Preferred Stock in an amount less than the total amount of such dividends at the time accrued and payable on such shares shall be allocated pro rata on a share-by-share basis among all such shares at the time outstanding. 4 Section 3. Voting Rights. The holders of shares of Series A Preferred Stock shall have the following voting rights: (A) Subject to the provisions for adjustment hereinafter set forth, each share of Series A Preferred Stock shall entitle the holder thereof to 1,000 votes on all matters submitted to a vote of the holders of the Common Stock. The number of votes which a holder of Series A Preferred Stock is entitled to cast, as the same may be adjusted from time to time as hereinafter provided, is hereinafter referred to as the "Vote Multiple". In the event the Company shall at any time after May 10, 1999 declare or pay any dividend on Common Stock payable in shares of Common Stock, or effect a subdivision or split or a combination, consolidation or reverse split of the outstanding shares of Common Stock into a greater or lesser number of shares of Common Stock, then in each such case the Vote Multiple thereafter applicable to the determination of the number of votes per share to which holders of shares of Series A Preferred Stock shall be entitled after such event shall be the Vote Multiple immediately prior to such event multiplied by a fraction the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. (B) Except as otherwise provided herein, in the Restated Certificate of Incorporation or by law, the holders of shares of Series A Preferred Stock and the holders of shares of Common Stock shall vote together as one class on all matters submitted to a vote of stockholders of the Company. 5 (C) In the event that the Preferential Dividends accrued on the Series A Preferred Stock for four or more quarterly dividend periods, whether consecutive or not, shall not have been declared and paid or irrevocably set aside for payment, the holders of record of Preferred Stock of the Company of all series (including the Series A Preferred Stock), other than any series in respect of which such right is expressly withheld by the Restated Certificate of Incorporation or the authorizing resolutions included in any Certificate of Designations therefor, shall have the right, at the next meeting of stockholders called for the election of directors, to elect two members to the Board of Directors, which directors shall be in addition to the number required prior to such event, to serve until the next Annual Meeting and until their successors are elected and qualified or their earlier resignation, removal or incapacity or until such earlier time as all accrued and unpaid Preferential Dividends upon the outstanding shares of Series A Preferred Stock shall have been paid (or irrevocably set aside for payment) in full. The holders of shares of Series A Preferred Stock shall continue to have the right to elect directors as provided by the immediately preceding sentence until all accrued and unpaid Preferential Dividends upon the outstanding shares of Series A Preferred Stock shall have been paid (or set aside for payment) in full. Such directors may be removed and replaced by such stockholders, and vacancies in such directorships may be filled only by such stockholders (or by the remaining director elected by such stockholders, if there be one) in the manner permitted by law; provided, however, that any such action by stockholders shall be taken at a meeting of stockholders and shall not be taken by written consent thereto. (D) Except as otherwise required by the Restated Certificate of Incorporation or by law or set forth herein, holders of Series A Preferred Stock shall have 6 no other special voting rights and their consent shall not be required (except to the extent they are entitled to vote with holders of Common Stock as set forth herein) for the taking of any corporate action. Section 4. Certain Restrictions. (A) Whenever Preferential Dividends or Dividends are in arrears or the Company shall be in default of payment thereof, thereafter and until all accrued and unpaid Preferential Dividends and Dividends, whether or not declared, on shares of Series A Preferred Stock outstanding shall have been paid or set irrevocably aside for payment in full, and in addition to any and all other rights which any holder of shares of Series A Preferred Stock may have in such circumstances, the Company shall not: (i) declare or pay dividends on, make any other distributions on, or redeem or purchase or otherwise acquire for consideration, any shares of stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series A Preferred Stock; (ii) declare or pay dividends on or make any other distributions on any shares of stock ranking on a parity as to dividends with the Series A Preferred Stock, unless dividends are paid ratably on the Series A Preferred Stock and all such parity stock on which dividends are payable or in arrears in proportion to the total amounts to which the holders of all such shares are then entitled if the full dividends accrued thereon were to be paid; (iii) except as permitted by subparagraph (iv) of this paragraph 4(A), redeem or purchase or otherwise acquire for consideration shares of any stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) 7 with the Series A Preferred Stock, provided that the Company may at any time redeem, purchase or otherwise acquire shares of any such parity stock in exchange for shares of any stock of the Company ranking junior (both as to dividends and upon liquidation, dissolution or winding up) to the Series A Preferred Stock; or (iv) purchase or otherwise acquire for consideration any shares of Series A Preferred Stock, or any shares of stock ranking on a parity with the Series A Preferred Stock (either as to dividends or upon liquidation, dissolution or winding up), except in accordance with a purchase offer made to all holders of such shares upon such terms as the Board of Directors, after consideration of the respective annual dividend rates and other relative rights and preferences of the respective series and classes, shall determine in good faith will result in fair and equitable treatment among the respective series or classes. (B) The Company shall not permit any Subsidiary (as hereinafter defined) of the Company to purchase or otherwise acquire for consideration any shares of stock of the Company unless the Company could, under paragraph (A) of this Section 4, purchase or otherwise acquire such shares at such time and in such manner. A "Subsidiary" of the Company shall mean any corporation or other entity of which securities or other ownership interests having ordinary voting power sufficient to elect a majority of the board of directors of such corporation or other entity or other persons performing similar functions are beneficially owned, directly or indirectly, by the Company or by any corporation or other entity that is otherwise controlled by the Company. 8 (C) The Company shall not issue any shares of Series A Preferred Stock except upon exercise of Rights issued pursuant to that certain Rights Agreement dated as of April 29, 1999 between the Company and American Stock Transfer & Trust Co., as Rights Agent, as it may be amended from time to time, a copy of which is on file with the Secretary of the Company at its principal executive office and shall be made available to stockholders of record without charge upon written request therefor addressed to said Secretary. Notwithstanding the foregoing sentence, nothing contained in the provisions hereof shall prohibit or restrict the Company from issuing for any purpose any series of Preferred Stock with rights and privileges similar to, different from, or greater than, those of the Series A Preferred Stock. Section 5. Reacquired Shares. Any shares of Series A Preferred Stock purchased or otherwise acquired by the Company in any manner whatsoever shall be retired and cancelled promptly after the acquisition thereof. All such shares upon their retirement and cancellation shall become authorized but unissued shares of Preferred Stock, without designation as to series, and such shares may be reissued as part of a new series of Preferred Stock to be created by resolution or resolutions of the Board of Directors. Section 6. Liquidation, Dissolution or Winding Up. Upon any voluntary or involuntary liquidation, dissolution or winding up of the Company, no distribution shall be made (i) to the holders of shares of stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series A Preferred Stock unless the holders of shares of Series A Preferred Stock shall have received for each share of Series A Preferred Stock, subject to adjustment as hereinafter provided, (A) $35.00 plus an 9 amount equal to accrued and unpaid dividends and distributions thereon, whether or not declared, to the date of such payment or, (B) if greater than the amount specified in clause (i)(A) of this sentence, an amount equal to 1,000 times the aggregate amount to be distributed per share to holders of Common Stock, as the same may be adjusted as hereinafter provided and (ii) to the holders of stock ranking on a parity upon liquidation, dissolution or winding up with the Series A Preferred Stock, unless simultaneously therewith distributions are made ratably on the Series A Preferred Stock and all other shares of such parity stock in proportion to the total amounts to which the holders of shares of Series A Preferred Stock are entitled under clause (i)(A) of this sentence and to which the holders of such parity shares are entitled, in each case upon such liquidation, dissolution or winding up. The amount to which holders of Series A Preferred Stock may be entitled upon liquidation, dissolution or winding up of the Company pursuant to clause (i)(B) of the foregoing sentence is hereinafter referred to as the "Participating Liquidation Amount" and the multiple of the amount to be distributed to holders of shares of Common Stock upon the liquidation, dissolution or winding up of the Company applicable pursuant to said clause to the determination of the Participating Liquidation Amount, as said multiple may be adjusted from time to time as hereinafter provided, is hereinafter referred to as the "Liquidation Multiple". In the event the Company shall at any time after May 10, 1999 declare or pay any dividend on Common Stock payable in shares of Common Stock, or effect a subdivision or split or a combination, consolidation or reverse split of the outstanding shares of Common Stock into a greater or lesser number of shares of Common Stock, then, in each such case, the Liquidation Multiple thereafter applicable to the determination of the Participating Liquidation Amount to 10 which holders of Series A Preferred Stock shall be entitled after such event shall be the Liquidation Multiple applicable immediately prior to such event multiplied by a fraction the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. Section 7. Certain Reclassifications and Other Events. (A) In the event that holders of shares of Common Stock of the Company receive after May 10, 1999 in respect of their shares of Common Stock any share of capital stock of the Company (other than any share of Common Stock of the Company), whether by way of reclassification, recapitalization, reorganization, dividend or other distribution or otherwise (a "Transaction"), then, and in each such event, the dividend rights, voting rights and rights upon the liquidation, dissolution or winding up of the Company of the shares of Series A Preferred Stock shall be adjusted so that after such event the holders of Series A Preferred Stock shall be entitled, in respect of each share of Series A Preferred Stock held, in addition to such rights in respect thereof to which such holder was entitled immediately prior to such adjustment, to (i) such additional dividends as equal the Dividend Multiple in effect immediately prior to such Transaction multiplied by the additional dividends which the holder of a share of Common Stock shall be entitled to receive by virtue of the receipt in the Transaction of such capital stock, (ii) such additional voting rights as equal the Vote Multiple in effect immediately prior to such Transaction multiplied by the additional voting rights which the holder of a share of Common Stock shall be entitled to receive by virtue of the receipt in the Transaction of such capital stock and (iii) such additional distributions upon liquidation, dissolution or 11 winding up of the Company as equal the Liquidation Multiple in effect immediately prior to such Transaction multiplied by the additional amount which the holder of a share of Common Stock shall be entitled to receive upon liquidation, dissolution or winding up of the Company by virtue of the receipt in the Transaction of such capital stock, as the case may be, all as provided by the terms of such capital stock. (B) In the event that holders of shares of Common Stock of the Company receive after May 10, 1999 in respect of their shares of Common Stock any right or warrant to purchase Common Stock (including as such a right, for all purposes of this paragraph, any security convertible into or exchangeable for Common Stock) at a purchase price per share less than the Fair Market Value of a share of Common Stock on the date of issuance of such right or warrant, then and in each such event the dividend rights, voting rights and rights upon the liquidation, dissolution or winding up of the Company of the shares of Series A Preferred Stock shall each be adjusted so that after such event the Dividend Multiple, the Vote Multiple and the Liquidation Multiple shall each be the product of the Dividend Multiple, the Vote Multiple and the Liquidation Multiple, as the case may be, in effect immediately prior to such event multiplied by a fraction the numerator of which shall be the number of shares of Common Stock outstanding immediately before such issuance of rights or warrants plus the maximum number of shares of Common Stock which could be acquired upon exercise in full of all such rights or warrants and the denominator of which shall be the number of shares of Common Stock outstanding immediately before such issuance of rights or warrants plus the number of shares of Common Stock which could be purchased, at the Fair Market 12 Value of the Common Stock at the time of such issuance, by the maximum aggregate consideration payable upon exercise in full of all such rights or warrants. (C) In the event that holders of shares of Common Stock of the Company receive after May 10, 1999 in respect of their shares of Common Stock any right or warrant to purchase capital stock of the Company (other than shares of Common Stock), including as such a right, for all purposes of this paragraph, any security convertible into or exchangeable for capital stock of the Company (other than Common Stock), at a purchase price per share less than the Fair Market Value of such shares of capital stock on the date of issuance of such right or warrant, then and in each such event the dividend rights, voting rights and rights upon liquidation, dissolution or winding up of the Company of the shares of Series A Preferred Stock shall each be adjusted so that after such event each holder of a share of Series A Preferred Stock shall be entitled, in respect of each share of Series A Preferred Stock held, in addition to such rights in respect thereof to which such holder was entitled immediately prior to such event, to receive (i) such additional dividends as equal the Dividend Multiple in effect immediately prior to such event multiplied, first, by the additional dividends to which the holder of a share of Common Stock shall be entitled upon exercise of such right or warrant by virtue of the capital stock which could be acquired upon such exercise and multiplied again by the Discount Fraction (as hereinafter defined) and (ii) such additional voting rights as equal the Vote Multiple in effect immediately prior to such event multiplied, first, by the additional voting rights to which the holder of a share of Common Stock shall be entitled upon exercise of such right or warrant by virtue of the capital stock which could be acquired upon such exercise and multiplied again by the Discount Fraction and (iii) such 13 additional distributions upon liquidation, dissolution or winding up of the Company as equal the Liquidation Multiple in effect immediately prior to such event multiplied, first, by the additional amount which the holder of a share of Common Stock shall be entitled to receive upon liquidation, dissolution or winding up of the Company upon exercise of such right or warrant by virtue of the capital stock which could be acquired upon such exercise and multiplied again by the Discount Fraction. For purposes of this paragraph, the "Discount Fraction" shall be a fraction the numerator of which shall be the difference between the Fair Market Value of a share of the capital stock subject to a right or warrant distributed to holders of shares of Common Stock of the Company as contemplated by this paragraph immediately after the distribution thereof and the purchase price per share for such share of capital stock pursuant to such right or warrant and the denominator of which shall be the Fair Market Value of a share of such capital stock immediately after the distribution of such right or warrant. (D) For purposes of this Certificate of Designations, the "Fair Market Value" of a share of capital stock of the Company (including a share of Common Stock) on any date shall be deemed to be the average of the daily closing price per share thereof over the 30 consecutive Trading Days (as such term is hereinafter defined) immediately prior to such date; provided, however, that, in the event that such Fair Market Value of any such share of capital stock is determined during a period which includes any date that is within 30 Trading Days after (i) the ex-dividend date for a dividend or distribution on stock payable in shares of such stock or securities convertible into shares of such stock, or (ii) the effective date of any subdivision, split, combination, consolidation, reverse stock split or reclassification of such stock, then, and in each such case, the Fair Market 14 Value shall be appropriately adjusted by the Board of Directors of the Company to take into account ex-dividend or post-effective date trading. The closing price for any day shall be the last sale price, regular way, or, in case, no such sale takes place on such day, the average of the closing bid and asked prices, regular way (in either case, as reported in the applicable transaction reporting system with respect to securities listed or admitted to trading on the Nasdaq National Market), or, if the shares are not listed or admitted to trading on the Nasdaq National Market, as reported in the applicable transaction reporting system with respect to securities listed on the principal national securities exchange or Nasdaq market on which the shares are listed or admitted to trading or, if the shares are not listed or admitted to trading on any national securities exchange or Nasdaq market, the last quoted price or, if not so quoted, the average of the high bid and low asked prices in the over-the-counter market, as reported by the National Association of Securities Dealers, Inc. Automated Quotation System ("NASDAQ") or such other system then in use, or if on any such date the shares are not quoted by any such organization, the average of the closing bid and asked prices as furnished by a professional market maker making a market in the shares selected by the Board of Directors of the Company. The term "Trading Day" shall mean a day on which the principal national securities exchange or Nasdaq market on which the shares are listed or admitted to trading is open for the transaction of business or, if the shares are not listed or admitted to trading on any national securities exchange or Nasdaq market, on which the Nasdaq National Market or such other national securities exchange as may be selected by the Board of Directors of the Company is open. If the shares are not publicly held or not so listed or traded on any day within the period of 30 Trading Days applicable to the determination of Fair Market 15 Value thereof as aforesaid, "Fair Market Value" shall mean the fair market value thereof per share as determined in good faith by the Board of Directors of the Company. In either case referred to in the foregoing sentence, the determination of Fair Market Value shall be described in a statement filed with the Secretary of the Company. Section 8. Consolidation, Merger, etc. In case the Company shall enter into any consolidation, merger, combination or other transaction in which the shares of Common Stock are exchanged for or changed into other stock or securities, cash and/or any other property, then in any such case each outstanding share of Series A Preferred Stock shall at the same time be similarly exchanged for or changed into the aggregate amount of stock, securities, cash and/or other property (payable in like kind), as the case may be, for which or into which each share of Common Stock is changed or exchanged multiplied by the highest of the Vote Multiple, the Dividend Multiple or the Liquidation Multiple in effect immediately prior to such event. Section 9. Effective Time of Adjustments. (A) Adjustments to the Series A Preferred Stock required by the provisions hereof shall be effective as of the time at which the event requiring such adjustments occurs. (B) The Company shall give prompt written notice to each holder of a share of Series A Preferred Stock of the effect of any adjustment to the voting rights, dividend rights or rights upon liquidation, dissolution or winding up of the Company of such shares required by the provisions hereof. Notwithstanding the foregoing sentence, the failure of the Company to give such notice shall not affect the validity of or the force or effect of or the requirement for such adjustment. 16 Section 10. No Redemption. The shares of Series A Preferred Stock shall not be redeemable at the option of the Company or any holder thereof. Notwithstanding the foregoing sentence of this Section, the Company may acquire shares of Series A Preferred Stock in any other manner permitted by law, the provisions hereof and the Amended and Restated Certificate of Incorporation of the Company. Section 11. Ranking. Unless otherwise provided in the Restated Certificate of Incorporation of the Company or a Certificate of Designations relating to a subsequent series of preferred stock of the Company, the Series A Preferred Stock shall rank junior to all other series of the Company's Preferred Stock as to the payment of dividends and the distribution of assets on liquidation, dissolution or winding up and senior to the Common Stock. Section 12. Amendment. The provisions hereof and the Restated Certificate of Incorporation of the Company shall not be amended in any manner which would adversely affect the rights, privileges or powers of the Series A Preferred Stock without, in addition to any other vote of stockholders required by law, the affirmative vote of the holders of two-thirds or more of the outstanding shares of Series A Preferred Stock, voting together as a single class. 17 IN WITNESS WHEREOF, I have executed and subscribed this Certificate of Designations and do affirm the foregoing as true under the penalties of perjury this 29th day of April, 1999. ------------------------- Name: Jeffrey P. Freimark Title: Executive Vice President and Chief Financial Officer ATTEST: - ----------------------------- Name: Donald C. Vaillancourt Title: Corporate Secretary 18 EX-10.7 3 0003.txt WAIVER, THIRD AMENDMENT AND AGREEMENT WAIVER, THIRD AMENDMENT AND AGREEMENT WAIVER, THIRD AMENDMENT AND AGREEMENT, dated as of June 30, 2000 (this "Third Amendment"), under the Credit Agreement, dated as of August 17, 1998 (as heretofore amended, supplemented or otherwise modified, the "Credit Agreement"), among The Grand Union Company (the "Company"), Warburg Dillon Read LLC, UBS AG, Stamford Branch, Lehman Brothers Inc. and Lehman Commercial Paper Inc. (collectively, the "Agents") and each of the financial institutions from time to time party thereto (the "Lenders"). WITNESSETH: WHEREAS, the Company, the Lenders and the Agents are parties to the Credit Agreement; WHEREAS, the Company has requested that the Lenders amend certain provisions of the Credit Agreement and waive compliance with certain provisions of the Credit Agreement as set forth below; WHEREAS, the Lenders are willing to agree to such requests, but only upon the terms and conditions of this Third Amendment; NOW THEREFORE, in consideration of the premises and for other good and valuable consideration the receipt of which is hereby acknowledged, the Company, the Lenders and the Agents hereby agree as follows: 1. Defined Terms. Capitalized terms not otherwise defined herein shall have the respective meanings set forth in the Credit Agreement. 2. Amendment of Section 1.1 (Definitions). (a) Section 1.1 of the Credit Agreement is hereby amended by deleting in their entirety the definitions of "Adjustment Date", "Applicable Margin", "Asset Sale", "ECF Percentage", "Interest Payment Date", "Material Environmental Amount" and "Pricing Grid" and inserting into said Section the following new definitions in their proper alphabetical order: "Applicable Margin": for (a) Base Rate Loans, 2.00%, and (b) Eurodollar Loans, 4.00%. "Asset Sale": any Disposition of Property or series of related Dispositions of Property (excluding any such Disposition permitted by clause (b), (c) or (d) of Section 7.5) which yields gross proceeds to the Borrower or any of its Subsidiaries (valued at the initial principal amount thereof in the case of non-cash proceeds consisting of notes or other debt securities and valued at fair market value in the case of other non-cash proceeds) in excess of $50,000. "ECF Percentage": 100%. "Interest Payment Date": (a) as to any Base Rate Loan, the last day of each calendar month to occur while such Loan is outstanding and the final maturity date of such Loan, (b) as to any Eurodollar Loan the last day of such Interest Period and if any such Eurodollar Loan has an 2 Interest Period longer than one month, each day which is one month after the first day of such Interest Period and (c) as to any Loan (other than any Revolving Credit Loan that is a Base Rate Loan and any Swing Line Loan), the date of any repayment or prepayment made in respect thereof. "Material Environmental Amount": an amount payable by the Borrower and/or its Subsidiaries for investigative and remedial costs, compliance costs, compensatory damages, natural resource damages, punitive damages, fines, penalties or any combination thereof which, in the aggregate, exceed $2,000,000. "Projections": the projected consolidated income statements, balance sheets and statements of cash flows contained in the Borrower's Fiscal 2001Actual/Budget Liquidity Projection dated June 23, 2000. "Third Amendment Effective Date": has the meaning assigned thereto in the Waiver, Third Amendment and Agreement, dated as of June 30, 2000, to this Agreement.". (b) Section 1.1 of the Credit Agreement is hereby amended by inserting the phrase "or prospects" after the phrase "(financial or otherwise)" where such phrase appears in the definition of "Material Adverse Effect". (c) Section 1.1 of the Credit Agreement is hereby amended by inserting the phrase "; provided that Consolidated Interest Expense shall be calculated without regard to Indebtedness permitted under Section 7.2(c) with respect to store equipment leased from NCR Corp." at the end of the definition of "Consolidated Interest Expense". (d) Section 1.1 of the Credit Agreement is hereby further by inserting the phrase "; provided that Consolidated Total Debt shall be calculated without regard to Indebtedness permitted under Section 7.2(c) with respect to store equipment leased from NCR Corp." at the end of the definition of "Consolidated Total Debt". 3. Amendment of Section 2.12 (Mandatory Prepayments and Commitment Reductions). (a) Section 2.12(a) of the Credit Agreement is hereby amended by deleting the percentage "50%" where it appears therein and inserting in lieu thereof the percentage "100%". (b) Section 2.12(b) of the Credit Agreement is hereby amended by deleting such Section in its entirety and substituting in lieu thereof the following new Section 2.12(b): "(b) Unless the Required Prepayment Lenders shall otherwise agree, if on any date the Borrower or any of its Subsidiaries shall receive Net Cash Proceeds from any Asset Sale or Recovery Event (including for purposes hereof, any amounts relating to reimbursement of Capital Expenditures relating to store no. 3572 located in Toms River, New Jersey) then 100% of such Net Cash Proceeds shall be applied on the next Business Day toward the prepayment of the Loans and the reduction of the Revolving Credit Commitments as set forth in Section 2.12(e); provided that so long as no Default or Event of Default has occurred and is continuing the Borrower shall be entitled to retain the first $5,900,000 in the aggregate of Net Cash 3 Proceeds received with respect to Asset Sales made or the above-referenced reimbursement received on or after the Third Amendment Effective Date but before March 30, 2001; provided, further, that so long as no Default or Event of Default has occurred and is continuing the Borrower shall be required to apply, in accordance with Section 2.12(e), only 50% of the aggregate Net Cash Proceeds in excess of $5,900,000 but less than $10,900,000 received with respect to Asset Sales made or the above-referenced reimbursement received on or after the Third Amendment Effective Date but before March 30, 2001; provided, further, that notwithstanding the foregoing, so long as no Default or Event of Default has occurred and is continuing, (i) the aggregate Net Cash Proceeds received with respect to Recovery Events up to (A) $100,000 per Recovery Event and (B) $1,000,000 in the aggregate for all Recovery Events in any fiscal year may be excluded from the foregoing requirement pursuant to a Reinvestment Notice in such fiscal year of the Borrower and (ii) on each Reinvestment Prepayment Date, an amount equal to the Reinvestment Prepayment Amount with respect to the relevant Reinvestment Event shall be applied toward the prepayment of the Term Loans and the reduction of the Revolving Credit Commitments as set forth in Section 2.12(e).". (c) Section 2.12(c) of the Credit Agreement is hereby amended by deleting the term "2.12(c)" where it appears therein and inserting in lieu thereof the term "2.12(e)". (d) Section 2.12(e) of the Credit Agreement is hereby amended by deleting the first two sentences of such Section in their entirety and inserting in lieu thereof the following: "Amounts to be applied in connection with prepayments and Commitments reductions made pursuant to this Section 2.12 (other than Section 2.12(d)) shall be applied pro rata to the prepayment of the Term Loans and to the prepayment of the Revolving Credit Loans and the permanent reduction of the Revolving Credit Commitments; provided that amounts that would otherwise be applied as a prepayment of the Revolving Credit Loans shall be applied first to the prepayment of any outstanding Swing Line Loans; provided, further, that if the amount by which the Revolving Credit Commitments is to be reduced exceeds the aggregate principal amount of Revolving Credit Loans and Swing Line Loans then outstanding (because there are outstanding L/C Obligations), the Borrower shall, to the extent of such excess, replace outstanding Letters of Credit and/or deposit an amount in cash in a cash collateral account established with the Administrative Agent for the benefit of the Issuing Lender and the L/C Participants on terms and conditions satisfactory to the Administrative Agent (it being understood that this provision is not intended to increase or reduce the Available Revolving Credit Commitments, if any, in existence at the time of any such prepayment and Commitment reduction required hereby).". 4. Amendment of Section 4.2 (No Change). Section 4.2 of the Credit Agreement is hereby amended by deleting such Section in its entirety and inserting in lieu thereof the following new Section 4.2: "4.2 No Change. Since the Third Amendment Effective Date there has been no development or event which has had or could reasonably be expected to have a Material Adverse Effect.". 4 5. Amendment of Section 4.8 (Ownership of Property; Liens). Section 4.8 of the Credit Agreement is hereby amended by deleting such Section in its entirety and inserting in lieu thereof the following new Section 4.8: "4.8 [Intentionally Omitted]". 6. Amendment of Section 6.1 (Financial Statements). Section 6.1(c) of the Credit Agreement is hereby amended by deleting the number "45" where it appears in the first line thereof and replacing it with the number "30". 7. Amendment of Section 6.2 (Certificates; Other Information). (a) Section 6.2(b) of the Credit Agreement is hereby amended by deleting such Section in its entirety and inserting in lieu thereof the following new Section 6.2(b): "(b) concurrently with the delivery of any financial statements pursuant to Section 6.1, (i) (x) a certificate of a Responsible Officer stating that, to the best of each such Responsible Officer's knowledge, each Loan Party during such period has observed or performed all of its covenants and other agreements, and satisfied every condition, contained in this Agreement and the other Loan Documents to which it is a party to be observed, performed or satisfied by it, and that such Responsible Officer has obtained no knowledge of any Default or Event of Default except as specified in such certificate and (y) a Compliance Certificate containing all information necessary for determining compliance by the Borrower and its Subsidiaries with the provisions of this Agreement referred to therein as of the last day of the applicable fiscal period, fiscal quarter or fiscal year of the Borrower, as the case may be, and (ii) in the case of quarterly or annual financial statements, to the extent not previously disclosed to the Administrative Agent, a listing of any county or state within the United States where any Loan Party keeps inventory or equipment and of any Intellectual Property acquired by any Loan Party since the date of the most recent list delivered pursuant to this clause (ii) (or, in the case of the first such list so delivered, since the Closing Date);". (b) Section 6.2 of the Credit Agreement is further amended by (i) deleting the word "and" where it appears at the end of clause (e) of such Section, (ii) deleting the "." at the end of clause (f) of such Section and inserting in lieu thereof a ";" and (iii) inserting the following new clauses (g) and (h) at the end of such Section: "(g) on the Friday of every calendar week, commencing with the second Friday to occur after the Third Amendment Effective Date, before 5:00 p.m., New York City time, an updated treasury forecast, in form and substance reasonably satisfactory to the Administrative Agent, including the cash flows, cash balances and borrowing availability of the Borrower and its Subsidiaries for the period of 4 consecutive calendar weeks beginning in the week in which such Friday occurs, together with a comparison of the actual cash flows and cash balances of the Borrower and its Subsidiaries for the immediately preceding week to the most recently forecasted cash flows of the Borrower and its Subsidiaries for such week as set forth in the most recently delivered treasury forecast, with an explanation of any significant variances; and 5 (h) on the Friday of every calendar week, commencing with the first Friday to occur after the Third Amendment Effective Date, before 5:00 p.m., New York City time, (i) a report, in form and substance reasonably acceptable to the Administrative Agent, of the sales of the Borrower and its Subsidiaries for the preceding calendar week and for the portion of the fiscal quarter through the end of such calendar week together with (A) a comparison of sales for the corresponding calendar week and portion of the corresponding fiscal quarter of the previous fiscal year and (B) a comparison of sales set forth in or underlying the Projections for such calendar week and the portion of the fiscal quarter through the end of such calendar week; and (ii) a weekly report (A) prepared by, and with respect to service level percentages for orders and deliveries from, C&S Wholesale Grocers, Inc., (B) of customer counts and (C) of average order size.". 8. Amendment of Section 6.7 (Notices). Section 6.7(c) of the Credit Agreement is hereby amended by deleting in its entirety the amount "$500,000" and inserting in lieu thereof the amount "$250,000". 9. Amendment of Section 6.10 (Additional Collateral, etc.). (a) Section 6.10(b) of the Credit Agreement is hereby amended by inserting a "(A)" immediately after "(b)" and by deleting in its entirety the amount "$500,000" and inserting in lieu thereof the amount "$50,000". (b) Section 6.10 of the Credit Agreement is hereby further amended by inserting the following new paragraph (b)(B) immediately after paragraph (b) of such Section: "(b)(B) With respect to any leasehold interest in any real property having a value (together with improvements thereon) of at least $50,000 acquired after the Third Amendment Effective Date by the Borrower or any of its Subsidiaries, use its best efforts to promptly (i) execute and deliver a first priority Mortgage in favor of the Administrative Agent, for the benefit of the Agents and Lenders, covering such leasehold interest, together with true, correct and complete copies of all documents creating or otherwise relating to such leasehold interest (including without limitation evidence that such leasehold interest is of record in the appropriate jurisdiction), (ii) if requested by the Administrative Agent, provide the Lenders with (x) title and extended coverage insurance covering such leasehold interest conforming to the requirements of Section 5.1(o)(iii) and (y) any consents or estoppels reasonably deemed necessary or advisable by the Administrative Agent in connection with such Mortgage, each of the foregoing in form and substance reasonably satisfactory to the Administrative Agent and (iii) if requested by the Administrative Agent, deliver to the Administrative Agent legal opinions relating to the matters described above, which opinions shall be in form and substance, and from counsel, reasonably satisfactory to the Administrative Agent; provided that the Borrower shall execute and deliver and provide, as applicable, to the Administrative Agent the items described in clauses (i) through (iii) above with respect to the leasehold interests in real property owned by the Borrower or any Subsidiary located in Wayne, New Jersey or Randolph, New Jersey within 10 Business Days following the Third Amendment Effective Date.". 10. Amendment of Section 7.1 (Financial Condition Covenants). (a) Section 7.1(a) of the Credit Agreement is hereby amended by deleting it in its entirety and inserting in lieu thereof the following new Section 7.1(a): 6 "(a) Consolidated Leverage Ratio. (i) Permit the Consolidated Leverage Ratio as at the last day of any period of 13 consecutive fiscal periods of the Borrower ending with any fiscal period set forth below to exceed the ratio set forth below opposite such fiscal period: Fiscal Period Consolidated Leverage Ratio -------------- --------------------------- July 22, 2000 6.68 August 19, 2000 6.72 September 16, 2000 6.79 October 14, 2000 7.00 November 11, 2000 7.56 December 9, 2000 7.85 January 6, 2001 6.94 February 3, 2001 6.57 March 3, 2001 6.73 March 31, 2001 6.62 (ii) Permit the Consolidated Leverage Ratio as at the last day of any period of four consecutive fiscal quarters of the Borrower ending with any quarter set forth below to exceed the ratio set forth below opposite such fiscal quarter: Fiscal Quarter Consolidated Leverage Ratio -------------- --------------------------- July 21, 2001 4.00 October 13, 2001 4.00 January 5, 2002 3.75 March 30, 2002 3.75 July 20, 2002 3.75 October 12, 2002 3.75 January 4, 2003 3.75 March 29, 2003 3.75 July 19, 2003 3.75 (b) Section 7.1(b) of the Credit Agreement is hereby amended by deleting it in its entirety and inserting in lieu thereof the following new Section 7.1(b): "(b) Consolidated Interest Coverage Ratio. (i) Permit the Consolidated Interest Coverage Ratio as at the last day of any period of thirteen consecutive fiscal periods of the Borrower ending with any fiscal period set forth below to be less than the ratio set forth below opposite such fiscal period: Fiscal Period Consolidated Interest Coverage Ratio ------------- ------------------------------------ July 22, 2000 1.47 August 19, 2000 1.45 September 16, 2000 1.41 October 14, 2000 1.32 7 November 11, 2000 1.23 December 9, 2000 1.17 January 6, 2001 1.26 February 3, 2001 1.32 March 3, 2001 1.29 March 31, 2001 1.28 (ii) Permit the Consolidated Interest Coverage Ratio as at the last day of any period of four consecutive fiscal quarters of the Borrower ending with any quarter set forth below to be less than the ratio set forth below opposite such fiscal quarter: Fiscal Quarter Consolidated Interest Coverage Ratio -------------- ------------------------------------ July 21, 2001 2.10 October 13, 2001 2.20 January 5, 2002 2.25 March 30, 2002 2.30 July 20, 2002 2.40 October 12, 2002 2.40 January 4, 2003 2.40 March 29, 2003 2.40 July 19, 2003 2.40 (c) Section 7.1 of the Credit Agreement is further amended by adding the following new Section 7.1(c) to the end of such Section: "(c) Minimum Consolidated EBITDA. Permit Consolidated EBITDA as at the last day of any period of thirteen consecutive fiscal periods of the Borrower ending with any fiscal period set forth below to be less than the amount set forth below opposite such fiscal period: Fiscal Period Minimum Consolidated EBITDA ------------- ---------------------------- July 22, 2000 64,953,000 August 19, 2000 64,740,000 September 16, 2000 64,106,000 October 14, 2000 60,908,000 November 11, 2000 57,829,000 December 9, 2000 55,677,000 January 6, 2001 60,753,000 February 3, 2001 64,203,000 March 3, 2001 63,487,000 March 31, 2001 64,147,000 11. Amendment of Section 7.2 (Limitation on Indebtedness). Section 7.2(c) of the Credit Agreement is hereby amended by (a) inserting the phrase "first incurred prior to the Third Amendment Effective 8 Date or incurred thereafter with respect to the purchase of store equipment from NCR Corp. in an aggregate amount not to exceed $15,000,000." immediately after the word "Liens" in the second line of such Section and (b) deleting the remainder of such Section. 12. Amendment of Section 7.5 (Limitation on Disposition of Property). Section 7.5 of the Credit Agreement is hereby amended by deleting clause (e) in its entirety and inserting in lieu thereof the following new clause (e): "(e) the Disposition of assets (including, without limitation, the surrender or termination of leases or the non-exercise of lease extensions but excluding the surrender or termination of leases resulting in any non-cash gain) having a fair market value not to exceed $15,000,000 in the aggregate for any fiscal year of the Borrower;". 13. Amendment of Section 7.7 (Limitation on Capital Expenditures). Section 7.7 of the Credit Agreement is hereby amended by deleting such Section in its entirety and inserting in lieu thereof the following new Section 7.7: "7.7 Limitation on Capital Expenditures. Make or commit to make any Capital Expenditure, except (a) Capital Expenditures of the Borrower and its Subsidiaries in the ordinary course of business not exceeding for any fiscal year of the Borrower set forth below the amount set forth below opposite such fiscal year: Fiscal Year Amount ----------- ------- 2000 $80,000,000 2001 34,650,000 2002 10,000,000; provided, that Capital Expenditures for fiscal year 2001 shall be measured without giving effect to any non-cash Capital Expenditures relating to the store no. 3572 located in Toms River, New Jersey resulting from the reclassification of the reimbursement amounts owing to the Borrower relating to capital improvements for such store as a "Capital Expenditure; (b) Capital Expenditures made with the proceeds of any Reinvestment Deferred Amount and (c) Capital Expenditures with respect to Indebtedness permitted under Section 7.2(c) in respect of store equipment leased from NCR Corp.". 14. Amendment of Section 7.8 (Limitation on Investments). (a) Section 7.8(d) is hereby amended by deleting the amount "$500,000" and inserting in lieu thereof the amount "$225,000". (b) Section 7.8(i) is hereby amended by deleting the phrase "not exceeding $10,000,000 at any one time outstanding;" and inserting in lieu thereof the phrase "first incurred prior to the Third Amendment Effective Date or incurred thereafter in an amount not to exceed (i) with respect to store no. 2482 located in Albany, New York, $1,150,000 and (ii) with respect to store no. 3142 located in Randolph, New Jersey, $2,900,000;". 9 (c) Section 7.8(j) is hereby amended by inserting after the word "Agreement" in the second line of such Section the phrase "that were first made prior to the Third Amendment Effective Date". (d) Section 7.8(l) is hereby amended by deleting the phrase "shall not exceed $1,000,000 at any time" from the proviso to such Section and inserting in lieu thereof the phrase "were first incurred prior to the Third Amendment Effective Date or incurred thereafter in an aggregate amount not to exceed $250,000". 15. Amendment of Section 7.11 (Limitation on Sales and Leasebacks). Section 7.11 is hereby amended by inserting a "." after the word "Subsidiary" where it appears in the sixth line thereof and by deleting the remainder of such Section in its entirety. 16. Amendment of Section 7 (Negative Covenants). Section 7 of the Credit Agreement is hereby amended by adding the following new Sections 7.16 and 7.17 to the end thereof: "7.16 Delivery of Business Plan. Fail to use its best efforts to deliver, and to deliver, to the Administrative Agent and each Lender as soon as available and in any event by no later than (a) September 1, 2000, a business plan for the balance of fiscal year 2001 and for fiscal year 2002 for the Borrower and its Subsidiaries, reasonably satisfactory in form and substance to the Administrative Agent and the Required Lenders, detailing, among other things, the financial and operating performance for the Borrower and its Subsidiaries as of the end of each fiscal month during the period covered thereby, including projected balance sheets and related consolidated statements of income and cash flows as at the end of each fiscal month for such period and (b) October 1, 2000, a report, reasonably satisfactory in form and substance to the Administrative Agent and the Required Lenders, detailing (i) the rationalization and reduction of the store portfolio and capital expenditures of the Borrower and its Subsidiaries, including itemized plans to dispose of and/or discontinue operations at underperforming stores and (ii) the Borrower's strategy to reduce the Obligations (it being understood that the determinations of whether such business plan and report, respectively, are reasonably satisfactory in form and substance to the Administrative Agent and the Required Lenders shall be undertaken by such parties within a reasonable period of time following the respective dates of delivery therefor and pending such determinations shall be deemed to be satisfactory). 7.17 Retention of Advisors. Fail to retain by no later than July 7, 2000, and thereafter to continue the retention of (i) an investment banker of national renown with expertise in the supermarket industry that is reasonably acceptable to the Administrative Agent and the Required Lenders and (ii) a firm or individual specializing in providing financial consulting and advisory services, that is reasonably acceptable to the Administrative Agent and the Required Lenders, to assist the Borrower with, among other things, the preparation and implementation of the business plan referred to in Section 7.16 and other reports and information that the Borrower is obligated to deliver under the Credit Agreement and the other Loan Documents." 17. Amendment of Section 8 (Events of Default). Sections 8(e) and 8(h) of the Credit Agreement are hereby amended by deleting the amount "$5,000,000" where it appears in each such Section and inserting in lieu thereof the amount "$1,000,000". 10 18. Waivers. Subject to the terms and conditions hereof, the Lenders hereby waive all Defaults, if any, or Events of Default, if any, arising with respect to the Borrower's failure to comply with Section 6.12 of the Credit Agreement; provided that the Borrower shall continue to use its best efforts to obtain and deliver all of the instruments, agreements and documents described in such Section 6.12 in order to permit the Properties of the Borrower and the Subsidiary Guarantors not currently subject to a Mortgage to be encumbered by a Mortgage in favor of the Collateral Agent and the issuance and delivery to the Collateral Agent of all outstanding title insurance policies meeting all of the requirements of Section 5.1(o)(ii). 19. Additional Agreements. (a) In addition to its obligations under Section 10.5 of the Credit Agreement and similar provisions under the other Loan Documents (which obligations the Borrower hereby acknowledges and confirms), the Borrower agrees (a) to pay all reasonable out-of-pocket costs and expenses of the Administrative Agent incurred in connection with (i) the negotiation, preparation, execution and delivery of this Third Amendment and (ii) from and after the Third Amendment Effective Date, the consideration, analysis, review, negotiation, preparation, execution and delivery of any business plans or restructuring proposals with respect to the obligations of the Borrower, including, without limitation, the reasonable fees and expenses of counsel and financial or other advisors retained by the Administrative Agent. (b) Unless the Required Lenders otherwise agree, notwithstanding anything to the contrary contained in the Credit Agreement, the Borrower shall not have the right to, and shall not, at any time after the Third Amendment Effective Date, (i) request the conversion of Revolving Credit Loans into or the continuation or making of Revolving Credit Loans as Eurodollar Loans or (ii) request the conversion or continuation of Term Loans as Eurodollar Loans with Interest Periods exceeding one month. (c) The Borrower hereby agrees to reasonably assist and cooperate with representatives of the consulting firm of Policano & Manzo, LLC (or such other consulting firm as may be retained by the Administrative Agent or its counsel from time to time), acting on behalf of the Administrative Agent, in their reasonable review of the financial statements and other reports of the Borrower and its Subsidiaries required to be delivered to the Administrative Agent and the Lenders pursuant to the Credit Agreement and the other Loan Documents, and in their performance of such other tasks as directed by the Administrative Agent or its counsel, including, without limitation, to provide access to, and to make available members of senior management to discuss, all aspects of the operations, financial information and books and records of the Borrower and its Subsidiaries. 20. Amendment Fees. (a) The Borrower agrees to pay each Lender that executes the Third Amendment on or before June 30, 2000, a fee in an amount equal to .375% of the sum of the aggregate principal amount of the Term Loans outstanding and the Revolving Credit Commitments of such Lender as of the Third Amendment Effective Date, which fee shall be payable in immediately available funds by the Borrower to the Administrative Agent, for the account of each such Lender, as follows: (i) an amount equal to one-half of such fee shall be paid as a condition to the effectiveness of this Third Amendment and (ii) the balance of such fee shall be paid on or prior to November 11, 2000. (b) The Borrower agrees that upon the occurrence of the Third Amendment Effective Date, each Lender shall have earned a deferred amendment fee in an amount equal to 2% of the sum of the aggregate principal amount of the Term Loans and the Revolving Credit Commitments of such Lender as of the Third Amendment Effective Date, which fee shall be payable in immediately available funds by the Borrower to the Administrative Agent, for the account of each such Lender, on the earlier to occur of (i) July 1, 2001 and (ii) the date on which 11 the Loans and other Obligations become due and payable in accordance with Section 8 of the Credit Agreement, provided that the fee of each such Lender shall be reduced to $0 and forgiven if (a) the business plan and report referred to in Section 7.16 of the Credit Agreement have been determined to be reasonably satisfactory to the Administrative Agent and the Required Lenders and the Borrower has substantially initiated the implementation of such business plan and report by December 31, 2000 or (b) the Obligations shall have been paid in full in cash and the Revolving Credit Commitments shall have been terminated on or prior to July 1, 2001. 21. Representations and Warranties; No Default. After giving effect to this Third Amendment, the Borrower hereby represents and warrants that all of the representations and warranties contained in the Credit Agreement are true and correct in all material respects as of the date hereof (unless stated to relate to a specific earlier date, in which case, such representations and warranties shall be true and correct in all material respects as of such earlier date) and that no Default or Event of Default has occurred and is continuing. 22. Conditions to Effectiveness of this Third Amendment. This Third Amendment shall become effective on the date (the "Third Amendment Effective Date") upon which the following conditions shall have been satisfied: (a) the Administrative Agent shall have received counterparts hereof duly executed by the Required Lenders, the Required Prepayment Lenders and the Borrower and an acknowledgment and consent hereto duly executed by all of the Subsidiary Guarantors; (b) the Administrative Agent shall have received the portion of the fees described in Section 20(a) hereof and all other fees that are due and payable on the Third Amendment Effective Date; and (c) the payment by the Borrower of the costs and expenses of the Administrative Agent owing under Section 10.5 of the Credit Agreement and Section 19(a) hereof for which invoices have been submitted. 23. Miscellaneous. (a) Except as expressly set forth in this Third Amendment, the Credit Agreement is and shall continue to be in full force and effect in accordance with its terms, and this Third Amendment shall not constitute the Lenders' consent or indicate their willingness to consent to any other amendment, modification or waiver of the Credit Agreement or the other Loan Documents. (b) This Third Amendment may be executed by the parties hereto on one or more counterparts, and all of such counterparts shall be deemed to constitute one and the same instrument. This Third Amendment may be delivered by facsimile transmission of the relevant signature pages hereof. (c) This Third Amendment shall be governed by, and construed and interpreted in accordance with, the laws of the State of New York. IN WITNESS WHEREOF, the parties hereto have caused this Third Amendment to be executed and delivered by their duly authorized officers as of the date first above written. THE GRAND UNION COMPANY By: --------------------------- Name: Title: UBS AG, STAMFORD BRANCH By: --------------------------- Name: Title: By: --------------------------- Name: Title: LEHMAN COMMERCIAL PAPER INC. By: --------------------------- Name: Title: SYNDICATED LOAN FUNDING TRUST By: Lehman Commercial Paper Inc., not in its individual capacity but solely as Asset Manager By: --------------------------- Name: Title: FIRST UNION NATIONAL BANK By: --------------------------- Name: Title: TORONTO DOMINION BANK By: --------------------------- Name: Title: KZH CNC LLC By: --------------------------- Name: Title: KZH HIGHLAND-2 LLC By: --------------------------- Name: Title: KZH SHOSHONE LLC By: --------------------------- Name: Title: MERRILL LYNCH PRIME RATE PORTFOLIO, by MERRILL LYNCH ASSET MANAGEMENT, L.P., as investment advisor By: --------------------------- Name: Title: DEBT STRATEGIES FUND II, INC. By: --------------------------- Name: Title: MERRILL LYNCH SENIOR FLOATING RATE FUND, INC. By: --------------------------- Name: Title: MERRILL LYNCH INCOME STRATEGIES FUND, INC. By: --------------------------- Name: Title: MERRILL LYNCH SENIOR FLOATING RATE FUND II By: --------------------------- Name: Title: SENIOR HIGH INCOME PORTFOLIO By: --------------------------- Name: Title: QUANTUM PARTNERS LDC By: --------------------------- Name: Title: QUOTA FUND N.V. By: --------------------------- Name: Title: ML CLO XX PILGRIM AMERICA (CAYMAN) LTD. (as assignee) by PILGRIM INVESTMENTS, INC., as its Investment Manager By: --------------------------- Name: Title: PILGRIM AMERICA HIGH INCOME INVESTMENTS, LTD. (as assignee) by PILGRIM INVESTMENTS, INC., as its Investment Manager By: --------------------------- Name: Title: PILGRIM CLO 1999-1 LTD. by PILGRIM INVESTMENTS, INC., as its Investment Manager By: --------------------------- Name: Title: PILGRIM PRIME RATE TRUST by PILGRIM INVESTMENTS, INC., as its Investment Manager By: --------------------------- Name: Title: CITIBANK, N.A. By: --------------------------- Name: Title: ELC (CAYMAN) LTD. CDO SERIES 1999-1 By: --------------------------- Name: Title: ELC (CAYMAN) LTD. By: --------------------------- Name: Title: ELC (CAYMAN) LTD. 1999-II By: --------------------------- Name: Title: BANKERS TRUST By: --------------------------- Name: Title: ML CBO IV (CAYMAN) LTD. by HIGHLAND CAPITAL MANAGEMENT, L.P. as Collateral Manager By: --------------------------- Name: Title: WINGED FOOT FUNDING TRUST as Lender By: --------------------------- Name: Title: Each of the undersigned hereby consents to the foregoing Third Amendment and hereby confirms, reaffirms and restates that its obligations under or in respect of the Credit Agreement and the documents related thereto to which it is a party are and shall remain in full force and effect after giving effect to the foregoing Third Amendment. GRAND UNION STORES, INC. OF VERMONT By: --------------------------- Name: Title: GRAND UNION STORES OF NEW HAMPSHIRE, INC. By: ---------------------------- Name: Title: SPECIALTY MERCHANDISING SERVICES, INC. By: ----------------------------- Name: Title: EX-10.12 4 0004.txt TERM SHEET TO SUPPLY AGREEMENT Amended and Restated Term Sheet: Supply Agreement, dated as of September 24, 1999 1. Term 15 years from Effective Date (September 24, 1999). 2. Merchandise Substantially all requirements (not less than 95%) for grocery, bakery, candy, store supplies and all Perishables. Perishables means items in the following categories: meat (other than frozen), deli, seafood (other than frozen), produce, dairy and floral. Substantially all requirements (not less than 95%) for frozen (mainline), frozen bakery, ice cream, frozen meat, frozen seafood and ice for the Northern division, * GU is not required to purchase from C&S, (i) products that, as of the date hereof, are supplied by direct store delivery vendors other than C&S ; provided, that if C&S elects to warehouse any such item, GU will support C&S and will purchase its requirements of such item from C&S, provided that the C&S pricing on such item is cost-competitive, and (ii) the following promotional items that are delivered direct from the manufacturer to the store: paper, modular displays, powdered drinks, water, detergents and, as agreed to, seasonal items. Notwithstanding any other provision to the contrary, if GU is not purchasing the Minimum Purchases from C&S, then GU shall purchase all (as opposed to substantially all) of its requirements from C&S of the products carried by C&S, and GU shall not seek to cross-dock product carried by C&S. Furthermore, absent a service level deficiency, GU will not purchase from a secondary supplier product carried by C&S. 3. Base Price * 4. Other Pricing Provisions * 5. Quality control. C&S will not substitute any item without GU's prior authorization * 6. Payments. a. General. * b. Produce. * c. [Terms of seasonal distributions to come] October 15, 1999 *Material omitted and filed separately with the SEC pursuant to a request for Confidential Treatment. d. New Stores. * e. Time is of the essence. If GU fails to make any payment when due under the Agreement, C&S shall both give notice to GU of such failure to receive payment and shall have the right to stop shipping product under this Agreement. If all payments due and owing are not received within 72 hours from receipt by GU of such notice, C&S shall have the right to terminate this Agreement. Notwithstanding the foregoing, GU shall have the right to dispute price, quantities and whether such amount is due and owing, and GU will notify C&S promptly if it believes there is an error. The parties agree to use their best efforts to resolve such dispute within 2 weeks after delivery of such notice. f. Notice. The supply agreement shall require any notice to be provided to the President, Chief Financial Officer and General Counsel of the party receiving the notice. g. Letter of Credit. * 7. Review Rights. The parties agree to work to develop a weekly price file reconciliation process as follows. C&S will transmit to GU all cost information on a weekly basis three weeks prior to billing. GU will match the C&S cost file to GU's cost file and transmit an exception report back to C&S the next day. The parties will then meet to resolve any cost discrepancies prior to billing. GU may also review C&S's Base Price information on a quarterly basis, commencing such review within 180 days following the end of the applicable Contract Quarter and completing such review within 210 days of the end of the Contract Quarter under review. Any review shall be conducted by individuals knowledgeable regarding industry standards and customs, and such persons shall keep all such information strictly confidential. Within 30 days of the end of the GU's review, C&S will reimburse GU for any actual findings that C&S over-billed GU (including any upcharges or other fees under the supply agreement related to such over-billed amount), and correspondingly GU will pay C&S for any actual findings that C&S under-billed GU (including any upcharges or other fees under the supply agreement related to such under-billed amount). It is the intent of the parties that the weekly data transmittal and GU's review of such information shall be the primary mechanism to ensure pricing accuracy. 8. Standard Credit. * The parties have established an overage/shortage program with respect to all Merchandise categories, attached hereto (the "Standard Credit Policy"). The Standard Credit Policy also provides for store delivery documentation and remedy procedures in the event of a "missing pallet." Product shortages that exceed the standard credit program cap will be investigated to determine the whereabouts of the product. A 2 October 15, 1999 *Material omitted and filed separately with the SEC pursuant to a request for Confidential Treatment. Credit will not be issued under the following circumstances: a. the product is located at the store, b. the product is located at another site and reshipped, c. the load has been audited, witnessed and verified as complete without error, d. the delivery receipt and load documentation indicate that the product was received at the store. If a store disagrees with the outcome of the investigation, it may immediately appeal its claim through GU's operations liaison, who in turn may contact the C&S customer service manager (Janet Gauthier). The parties will work to provide further information and reach an agreeable solution within 5 working days. If an agreement cannot be reached, the GU Vice President of Operations may contact the C&S Vice President of Sales (Marilyn Tillinghast) for final resolution. Through this process, the parties will resolve any and all disputes involving amounts in excess of the standard credit within fourteen days of one party notifying the other that a dispute exists. Both parties shall authorize and empower their respective designees to resolve such disputes. 9. Delivery Schedule. * a. Delivery Requirements. * b. Delivery Service Level. "Delivery Service Level" means a percentage reflecting the ratio of (i) the number of orders delivered on-time by C&S to GU in any week per the Delivery Schedule, to (ii) the total number of orders scheduled for delivery by C&S to GU during such week, per the Delivery Schedule. Delivery Service Level percentages will not be adversely affected by any event of force majeure or any nonperformance or error by GU including, without limitation, delivery delays caused by GU. For example, if a truck arrives at a store but no receiving crew is present, then C&S will not be responsible for the delay delivering at subsequent stops due to such GU mistake. C&S will provide GU a weekly Delivery Service Level Reconciliation Report showing the times of all deliveries during such week. c. Delivery Service Level Deficiency. If, for any reason other than a breach, nonperformance or error by GU or an event of force majeure, C&S fails to achieve a * Delivery Service Level (the "Targeted Service Level") for any * during the Term (the "Measurement Period") and GU gives notice of such alleged delivery service level deficiency to C&S, then such failure shall constitute a "Delivery Service Level Deficiency". In the event of a Delivery Service Level Deficiency, C&S shall use its reasonable best efforts to immediately restore the Delivery Service Level to at least * . 3 October 15, 1999 *Material omitted and filed separately with the SEC pursuant to a request for Confidential Treatment. d. Cure of Delivery Schedule Breach. If, during the week following the occurrence of a Delivery Service Level Deficiency (the "Delivery Penalty Week"), the Delivery Service Level is restored to at least * then the Delivery Service Level Deficiency shall be cured and a new Measurement Period shall begin. e. Delivery Service Level Deficiency Penalty. If C&S fails to restore the Delivery Service Level to * during the Delivery Penalty Week, then C&S will rebate to GU the load fees and stop charges with respect to those deliveries that were not timely delivered during such week and each subsequent week until the Delivery Service Level is restored to *. f. Delivery Service Level Termination. If the Delivery Service Level is below * for * , and prior to the end of the * , GU has provided C&S with notice that it intends to terminate the agreement, and prior to the end of * , C&S has not restored the Delivery Service Level to at least * , then GU may terminate the agreement within seven days following the end of * . 10. Service Level. a. Service Level Reporting. C&S will electronically transmit to GU a daily Service Level Reconciliation Report showing, * . b. Service Level. "Service Level" means a percentage reflecting (i) the number of cases shipped divided by (ii) the number of cases ordered, less unauthorized, discontinued, over-pulled, and manufacturers' out-of-stock cases. The term "manufacturer's out-of-stock cases" refers to commodity shortages and cases that are unavailable from the manufacturer or cut by the manufacturer; provided, that C&S placed orders for such cases within the normal lead time. The Service Level will not be adversely affected by any nonperformance or error by GU, including without limitation errors in booking advertising and feature items (including sales levels of feature items in excess of projections made by GU and adjustments to pre-orders where applicable), GU's directions with respect to items procured by GU, or any event of force majeure. C&S will use its commercially reasonable best efforts to achieve a Service Level of * . c. Service Level Deficiency. If, for any reason other than a breach, nonperformance or error by GU or an event of force majeure, C&S fails to maintain a * Service Level (the "Targeted Service Level") for * during the Term (the "Measurement Period") and GU gives notice of such alleged service level deficiency to C&S, then such failure shall constitute a Service Level Deficiency. In the event of a Service 4 October 15, 1999 *Material omitted and filed separately with the SEC pursuant to a request for Confidential Treatment. Level Deficiency, C&S shall use its reasonable best efforts to immediately restore the Targeted Service Level * . d. Cure of Delivery Schedule Breach. If, during the week following the occurrence of a Service Level Deficiency (the "Service Penalty Week"), the Service Level is restored to at least * , then the Service Level Deficiency shall be cured and a new Measurement Period shall begin. e. Service Level Deficiency Penalty/Third Party Sourcing. If C&S fails to restore the Targeted Service Level during the Service Penalty Week, then GU will be entitled to either (i) the Penalty Payment during such week and each subsequent week until the the Targeted Service Level is restored ("Penalty Period") or (ii) * . The Penalty Payment shall be equal to: (i) the difference between * and the average actual service level percentage during the Penalty Period, multiplied by (ii) the number of cases delivered during the Penalty Period, multiplied by (iii) * . The Penalty Payment shall be paid within 15 days of the end of the Contract Quarter in which the Penalty Period occurs. * f. Service Level Termination. If the Service Level is below * for * in a Contract Year, and prior to the end * , GU has provided C&S with notice that it intends to terminate the agreement, and prior to the end * , C&S has not restored the Targeted Service Level to at least * , then GU may terminate the agreement within seven days following the end * . Furthermore, if (a) there have * in a Contract Year, (b) during such deficiencies the Service Level was below * , and (c) within seven days following the * , GU has provided C&S with notice that it intends to terminate the agreement, then GU may terminate the agreement within seven days following the end * . g. Example of Penalty Payment. If a Penalty Period lasted for one week, the average actual service level during such Penalty Period was * , the number of cases delivered during such Penalty Period was * . 11. Fees. Upcharges are on Base Price and exclusive of ripening fees. Merchandise shall be placed in a category classification according to C&S's historical practices, subject to a list of grand-fathered items, if any, attached to the supply agreement). The following fees shall apply: Grocery, supplies, candy (full case) * Delivery Fee - first stop * - each additional * 5 October 15, 1999 *Material omitted and filed separately with the SEC pursuant to a request for Confidential Treatment. Perishables Meat and deli * Produce * Dairy upcharge * Delivery Fee All Perishables delivered on same truck - first stop * - each additional * Banana ripening * Stone Fruit ripening * Frozen and ice cream * * Delivery - first stop * - each additional * Label Charge * Restocking Fee (charged on Base Price) * Special Deliveries * (extra delivery on already scheduled run) ASAP deliveries * (additional run; cost adjustable for additional fuel/cost) Trailer rental (pick-up and delivery involves a mileage charge of $1.20/mile, based upon current trip rates and fuel costs; trailer rental is subject to increase for increases in third party rental charges) dry * refrigerated * turkey (extended use with maintenance) * 12. Full truckload fee. [Deleted] 13. Bales/totes/cross-dock/reclamation pick-up. * . To assist C&S in managing its own inventory and the Service Level requirements herein, GU shall inform C&S of when GU has purchased/received Merchandise into Montgomery and GU's intended distribution of such product. 7 October 15, 1999 *Material omitted and filed separately with the SEC pursuant to a request for Confidential Treatment. 14. Frozen Holiday Turkeys/Shrimp. With respect to holiday turkeys and shrimp (including to the extent that GU wishes C&S to handle frozen holiday turkeys or shrimp for the Southern and Eastern divisions prior to such goods becoming Merchandise hereunder), * . 15. Forward Buy Reserve. C&S will handle forward buy * 7 October 15, 1999 *Material omitted and filed separately with the SEC pursuant to a request for Confidential Treatment. 16. Marketing Funds. a. Amount: * . b. Schedule: Payments within 14 days of the following dates * 17. Suspension of Marketing Funds, New Store Advertising Credits and Construction Credits. C&S shall suspend the payment of any Marketing Funds, New Store Advertising Credits and Construction Credits otherwise due and payable to GU upon: a. an Event of Insolvency with respect to GU; provided, that this paragraph 17(a) will not apply, if GU is a debtor under Chapter 11 of the Bankruptcy Code and GU has assumed the supply agreement as part of the bankruptcy case; b. a default under the supply agreement; or c. material default under material credit agreement, indenture or other debt instrument unless such default is waived by all of the appropriate lenders and such waiver is not conditioned or temporary. Upon such suspension, C&S shall give notice of and the reason for such suspension. If GU cures such defect, then it shall give notice to C&S of such cure, and C&S shall pay such suspended payment within three business days of receipt of such notice. 18. * 19. Volume Incentive. * 20. Reduced Volume Surcharge. * 21. Lost Future Volume Surcharge. If GU's future purchases from C&S are reduced because C&S has terminated the agreement for cause, then upon such termination, GU shall immediately pay to C&S the amount set forth across from the Contract Year in which C&S terminated the Agreement: * 22. Reclamation. * GU will participate in C&S' reclamation program for all Merchandise other than produce, floral, meat, seafood and private label. This product will be scanned at C&S' reclamation center within seven days after the product is picked up from Grand Union Stores, and Grand Union will receive credit, on a bi-weekly basis, for * 23. Third Party Deductions. a. General. From time to time, GU may ask C&S to act as its agent to deduct amounts that are due from manufacturers to GU. C&S has the right, in its discretion, to refuse to honor any third party deduction request that GU may 8 October 15, 1999 *Material omitted and filed separately with the SEC pursuant to a request for Confidential Treatment. make. If C&S makes a deduction on GU's behalf and the manufacturer disputes the deduction made by C&S, GU agrees to indemnify and defend C&S against and hold C&S harmless from any claim by the manufacturer related to such deduction. If C&S repays any deduction that C&S makes on GU's behalf, GU will, upon notice from C&S, repay such amount to C&S. GU will insure that supply of Merchandise from manufacturers to C&S is not adversely affected by any third party deductions that C&S may take on GU's behalf. Service Level shall not be adversely affected by an interruption in the supply of Merchandise from a manufacturer to C&S if the interruption is caused by the refusal of the manufacturer to ship product to C&S and such refusal is attributable to a disputed deduction that C&S has taken on GU's behalf. C&S will add to each deduction from a vendor a fee of no less than * to process the deduction made by C&S on GU's behalf; provided, that with respect to private label vendors, C&S will only add a fee of * . Each Friday, C&S will reimburse GU for all deductions collected during the preceding seven day period, less C&S' fee. b. Perishable Accruals. * c. Direct Booking Errors. * 24. Termination by C&S. C&S may terminate this Agreement for cause. Cause shall be a. nonpayment of amounts owed hereunder uncured for 72 hours following receipt by GU of written notice; b. other material breach uncured after 90 days following receipt by GU of written notice; c. Event of Insolvency; but no termination if GU otherwise compliant; and d. GU purchases (Base Price) less than * from C&S in any Contract Year. 25. Termination by GU. GU may terminate this Agreement for cause. Cause shall be: a. nonpayment of amounts owed hereunder uncured for 72 hours following receipt by C&S of written notice; b. material breach uncured after 90 days following receipt by C&S of written notice; c. Event of Insolvency; but no termination if C&S otherwise compliant; and d. As set forth in Sections 9 or 10. 26. Termination Fees. a. If C&S terminates for cause, GU shall immediately pay a termination fee to C&S of * . b. If GU terminates for cause, C&S shall immediately pay a termination fee to GU of * . 9 October 15, 1999 *Material omitted and filed separately with the SEC pursuant to a request for Confidential Treatment. 27. Transfer of Assets. a. Notice. GU will provide C&S with written notice of any GU plan to sell, transfer, assign or otherwise convey ownership (a "Sale") in one or more store. Such notice shall be given at the earliest practicable time and shall state, among other things, the name of the proposed purchaser, the location of the store to be sold, the approximate timetable for consummating the Sale and the purchaser's plans for supplying the store in the aftermath of the Sale, if such plan is known to GU. Such notice shall be given, at the latest, thirty (30) days in advance of the date scheduled for the proposed Sale; provided that such notice shall be given at least six months in advance if the Sale involves five stores or more. b. Prorated Sale Fee and Repayment of New Store Advertising Credits and Construction Credits. * 28. Disclosure. Each party shall inform the other party (i) of any and all defaults occurring under either a material Credit Agreement or any other material lending agreement, and (ii) if remaining amounts of credit available to under its lines of credit falls * or (iii) if the party has been purchased by a competitor of the other party. In addition, for so long as a party is a public reporting entity, then such party shall provide the other with its respective 10-Q's and 10-Ks (complete copies with any and all exhibits) upon the filing of such documents with the SEC. If a party is not a public reporting entity, then such party shall provide the other party its respective quarterly financials (income statement, balance sheet and cash flow statement) within 45 days of the end of the first three fiscal quarters and within 60 days of the end of the respective fiscal year. 29. Termination of Prior Agreements. Upon execution of the new supply agreement, the Northern Agreement and New York Agreement will terminate with no liability by either party to the other (including for any audits of prior years under such agreements or for forward buy reserve storage charges), except * . 30. Binding Effect. Binding upon and inure to the benefit of GU and C&S and their respective successors and assigns. 10 October 15, 1999 *Material omitted and filed separately with the SEC pursuant to a request for Confidential Treatment. The parties acknowledge and agree that this Term Sheet confirms their agreement as to the material terms of the supply relationship between the parties going forward. The parties agree that they shall move expeditiously to memorialize the agreed upon terms contained herein in a more formal supply agreement within thirty days of the date hereof. AGREED TO AND ACCEPTED THE GRAND UNION COMPANY C&S WHOLESALE GROCERS, INC. /x/ Gary M. Philbin /x/ Ronald J. Wright - ------------------------------------- ------------------------------------ Gary Philbin Ronald J. Wright President President 11 October 15, 1999 *Material omitted and filed separately with the SEC pursuant to a request for Confidential Treatment. EX-10.17 5 0005.txt 1995 NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN The Grand Union Company 1995 Non-Employee Directors' Stock Option Plan AMENDED AND RESTATED DECEMBER 9, 1999 1. Purpose. The purpose of this 1995 Non-Employee Directors' Stock Option Plan (the "Plan") is to advance the interests of The Grand Union Company (the "Company") by enhancing the ability of the Company to attract and retain non-employee directors who are in a position to make significant contributions to the success of the Company and to reward directors for such contributions through ownership of shares of the Company's Common Stock (the "Stock"). 2. Administration. The Plan shall be administered by a committee (the "Committee") of the Board of Directors (the "Board") of the Company designated by the Board for that purpose. Unless and until a Committee is appointed, the Plan shall be administered by the entire Board, and references in the Plan to the "Committee" shall be deemed references to the Board. The Committee shall have authority, not inconsistent with the express provisions of the Plan (a) to issue options granted in accordance with the formula set forth in this Plan to Eligible Directors as defined below; (b) to prescribe the form or forms of instruments evidencing awards and any other instruments required under the Plan and to change such forms from time to time; (c) to adopt, amend and rescind rules and regulations for the administration of the Plan; and (d) to interpret the Plan and to decide any questions and settle all controversies and disputes that may arise in connection with the Plan. Such determinations of the Committee shall be conclusive and shall bind all parties. 3. Eligibility of Directors for Stock Options. Directors eligible to receive options under the Plan ("Eligible Directors") shall be those directors, who are not, at the time they become an Eligible Director, employees of the Company or of any subsidiary of the Company and (i) who are directors on the Effective Date of this Plan (which shall be the eligibility date for such directors) or (ii) who are first elected a director of the Company after the Effective Date of this Plan (which election date shall be the eligibility date for any such director). 4. Grant of Options; Exercise Price. Each individual who is an Eligible Director shall, on his or her eligibility date as determined under Section 3, automatically be granted an option ("Option") to purchase 10,000 shares of Stock of the Company (subject to adjustment as provided in Sections 5 and 10) at an exercise price equal to the Fair Market Value of the Stock on the effective date of grant. Thereafter, on each date that an Eligible Director is elected to a new one-year term of office, such Eligible Director shall automatically be granted an Option to purchase 5,000 shares of Stock of the Company (subject to adjustment as provided in Sections 5 and 10) at an exercise price equal to the Fair Market Value of the Stock on the effective date of grant. All options shall expire ten years after the effective date of grant. 5. Number of Shares. The number of shares of Stock of the Company which may be issued upon the exercise of Options granted under the Plan, including shares forfeited pursuant to Section 7, shall not exceed 250,000 in the aggregate, subject to increase under Section 10, which increases and appropriate adjustments as a result thereof shall be made by the Committee, whose determination shall be binding on all persons. 6. Stock to be Delivered. Shares of Stock to be delivered pursuant to an Option granted under this Plan may constitute an original issue of authorized Stock or may consist of previously issued Stock acquired by the Company, as shall be determined by the Board. The Board and the proper officers of the Company shall take any appropriate action required for such delivery. No fractional shares shall be delivered under the Plan. The Company will not be obligated to deliver any shares of Stock pursuant to the Plan (a) until all conditions of the Option have been satisfied, (b) until, in the opinion of the Company's counsel, all applicable federal and state laws and regulation have been complied with, (c) if the outstanding Stock is at the time listed on the New York Stock Exchange or any other stock exchange, until the shares to be delivered have been listed or authorized to be listed on the New York Stock Exchange or such other exchange upon official notice of notice of issuance, and (d) until all other legal matters in connection with the issuance and delivery of such shares have been approved by the Company's counsel. If the sale of Stock has not been registered under the Securities Act of 1933, as amended, the Company may require, as a condition to exercise of the Options, such representations or agreements as counsel for the Company may consider appropriate to avoid violation of such Act and may require that the certificates evidencing such Stock bear an appropriate legend restricting transfer. If an Option is exercised by the Eligible Director's legal representative, the Company will be under no obligation to deliver Stock pursuant to such exercise until the Company is satisfied as to the authority of such representative. 7. Exercisability; Exercise; Payment of Exercise Price. All Options granted under the Plan prior to July 1, 1996, shall, subject to initial stockholder approval of the Plan, become exercisable immediately as to one-third of the shares, on the first anniversary of the grant date as to the second third of the shares and as to one share of any remainder, and on the second anniversary of the grant date as to the last third of the shares and the second share of any two-share remainder. All Options granted under the Plan on or after July 1, 1996, shall, subject to initial stockholder approval of the Plan, become exercisable six months after the grant date as to one-third of the shares, on the earlier of the first anniversary of the grant date or the annual meeting of stockholders closest thereto as to the second third of the shares and as to one share of any remainder, and on the earlier of the second anniversary of the grant date or the annual meeting of stockholders closest thereto as to the last third of the shares and the second share of any two-share remainder. Any exercise of an Option must be in writing, signed by the proper person and delivered or mailed to the Company, accompanied by (1) any documents required by the Committee and (2) payment in full as provided below for the number of shares for which the Option is exercised. 2 The exercise price of Stock purchased on exercise of an Option must be paid for as follows: (1) in cash or by check (acceptable to the Company in accordance with guidelines established for this purpose), bank draft or money order payable to the order of the Company or (2) through the delivery of shares of Stock which have been outstanding and held by the Option holder for at least six months and which have a Fair Market Value on the last business day preceding the date of exercise equal to the exercise price, or (3) by delivery of a two year-term promissory note of the Eligible Director to the Company, bearing interest on amounts outstanding at a rate equal to the prime rate as published in The Wall Street Journal on the effective date of grant plus 2%, or (4) by delivery of an unconditional and irrevocable undertaking by a broker to deliver promptly to the Company sufficient funds to pay the exercise price, or (5) by any combination of the permissible forms of payment. To the extent shares of Stock covered under an Option are not delivered because the Option lapses or is terminated, such forfeited shares may be regranted in another Option within the limits set forth in Section 5. 8. Termination of Options. a. Death or Disability. If an Eligible Director ceases to be a director by reason of death or total and permanent disability (as determined by the Committee), the following will apply: All Options held by the Eligible Director that are not exercisable on the thirtieth day after termination of the Eligible Director's status as a director will terminate as of such date. All Options that are exercisable as of said thirtieth day will continue to be exercisable until the earlier of (1) the first anniversary of the date on which the Eligible Director's status as a director ended or (2) the date on which the Option would have terminated had the Eligible Director remained a director. If the Eligible Director has died or is totally or permanently disabled, the Option may be exercised within such limits by the Eligible Director's legal representative. b. Other Termination. If an Eligible Director's service with the Company terminates for any reason other than death or incapacity as provided above, all Options held by the director that are not then exercisable shall terminate. Options that are exercisable on the date of such termination (other than termination upon a removal for cause, in which event all Options shall immediately terminate) shall continue to be exercisable until the earlier of (1) one year thereafter or (2) the date on which the Option would have terminated had the director remained an Eligible Director, and after completion of that period, such Options shall terminate to the extent not previously exercised, expired or terminated. c. Certain Corporate Transactions. In the event of a Change of Control of the Company, each outstanding Option not otherwise exercisable shall become immediately exercisable in full on the twentieth (20th) trading day prior to the effective date of the Change of Control. Subject to the last paragraph of this section, the Company shall pay to those Option holders whose Options have been terminated, an amount equal to the Option Value, such payment to be made by cash or certified check within 30 days after the Change in Control. The Option Value shall be determined as the difference between the exercise price of the Option and the Market Price times the number of shares 3 covered by the Option. The Market Price shall be determined as the average of the Fair Market Value, as determined under section 11, for the period of twenty (20) trading days ending on the effective date of the Change of Control. "Change of Control" means any of the following: (1) any person, entity or Group (persons or entities acting together) is or becomes the beneficial owner of more than 50% of the Voting Stock of the Company; (2) a consolidation, merger, or sale of substantially all of the assets of the Company, with the effect that any person, entity or Group becomes the beneficial owner of more than 50% of the Voting Stock of the Company or the Company is not the surviving entity; (3) during any consecutive two-year period commencing July 1, 1996, individuals who constituted the Board of Directors at the beginning of such period, together with any new directors whose election by the Board or nomination for election by stockholders was approved by 2/3 of the directors who were in office at the beginning of the period or whose election or nomination was so approved, cease to constitute a majority of the Board then in office; or (4) any order, judgment or decree of dissolution or split-up of the Company, and such order remains undischarged or unstayed for a period in excess of 60 days. For purposes of this provision, "more than 50% of the Voting Stock" means more than 50% of one or more classes of stock pursuant to which the holders have the general power to vote for the election of members of the Board of Directors, and the aggregate of such classes for which the person, entity or Group holds more than 50% has the power to elect more than 50% of the members of the Board of Directors. Notwithstanding the foregoing, the termination of Options and the payment of Option Values described in the first paragraph of this section shall not apply with respect to any transaction in which the Option Holder receives either (i) a replacement option allowing the Option Holder to receive, on the same terms as in the original Option, the greatest amount of securities, cash or other property to which such holder would have been entitled as a holder of Common Stock upon consummation of the transaction if such holder had exercised the rights represented by the Option held by such holder immediately prior to the transaction, or (ii) if pooling of interests is a condition of the transaction, a replacement equity interest which enables the transaction to qualify for pooling of interests. 9. General Provisions a. Documentation of Options. Options will be evidenced by written instruments prescribed by the Committee from time to time. Such instruments may be in the form of agreements, to be executed by both an Eligible Director and the Company, or certificates, letters or similar instruments, which need not be executed by an Eligible Director but acceptance of which will evidence agreement to the terms thereof. b. Rights as a Stockholder. An option holder shall not have the rights of a stockholder with respect to Options under the Plan except as to Stock actually received by him or her under the Plan. c. Tax Withholding. The Eligible Director or other appropriate person shall remit to the Company an amount sufficient to satisfy the withholding requirements, or make other arrangements satisfactory to the Committee with regard to such 4 requirements, prior to the delivery of any Stock. If and to the extent that such withholding is required, the Committee may permit the Eligible Director such other person to elect at such time and in such manner as the Committee provides to have the Company hold back from the shares to be delivered, or to deliver to the Company, Stock having a value calculated to satisfy the withholding requirement. d. Nontransferability of Options. No Option may be transferred other than by will or by the laws of descent and distribution, and during a director's lifetime an Option may be exercised only by the director (or, in the event of the director's incapacity, the person or persons legally appointed to act on the director's behalf). 10. Adjustments in the Event of Certain Transactions. a. In the event of a stock dividend, stock split or combination of shares, recapitalization or other change in the Company's capitalization, or other distribution to common stockholders other than normal cash dividends, the Committee will make any appropriate adjustments to the maximum number of shares that may be delivered under the Plan under Section 5 above. b. In any event referred to in paragraph (a), the Committee will also make any appropriate adjustments to the number and kind of shares of stock or securities subject to Options then outstanding or subsequently granted, exercise prices relating to Options and any other provision of Options affected by such change. The Committee may also make such adjustments to take into account material changes in law or in accounting practices or principles, mergers, consolidations, acquisitions, dispositions or similar corporate transactions, or any other event, if it is determined by the Committee that adjustments are appropriate to avoid distortion in the operation of the Plan. 11. Fair Market Value. For purposes of the Plan, Fair Market Value of a share of Stock on any date will be the last sale price as reported by the principal exchange on which the Stock is traded or by the National Association of Securities Dealers, Inc. Automated Quotations System or such other similar system then in use, on that date; or, if on any such a date such Stock is not quoted by any such organization, the average of the closing bid and asked prices with respect to such Stock, as furnished by a professional market maker making a market in such Stock selected by the Committee; or if such prices are not available, the fair market value of such Stock as of such date as determined in good faith by the Committee. 12. Effective Date and Term. This Plan, having been approved by the Board of Directors on December 12, 1995, shall become, in accordance with the term of the approving vote of the Board, effective on December 12, 1995 (the "Effective Date"), subject to approval of this Plan by vote of a majority of the shareholders of the Company present and eligible to vote on the question at an annual or special meeting of stockholders held not later than December 12, 1996. Options may be granted under the Plan prior to the date of stockholder approval, and options so granted shall be effective on the effective date of grant subject to stockholder approval of the Plan as provided in this Section. No Options may be awarded under this Plan after December 12, 2005, but the Plan shall continue thereafter while previously awarded Options remain subject to the Plan. 5 13. Effect of Termination, and Amendment. Neither adoption of the Plan nor the grant of Options to an Eligible Director shall confer upon any person any right to continued status as a director with the Company or any subsidiary or affect in any way the right of the Company or subsidiary to terminate a director relationship at any time or shall affect the Company's right to grant to such director options or other stock awards that are not subject to the Plan, to issue to such director stock as a bonus or otherwise, or to adopt other plans or arrangements under which stock may be issued to directors. The Committee may at any time terminate the Plan as to any further grants of Options. The Committee may at any time or times amend the Plan for any purpose which may at the time be permitted by law, but in no event (except to comply with the provisions of the Internal Revenue Code, the Employee Retirement Income Security Act or the rules thereunder) more than once in any six-month period. 6 EX-10.19 6 0006.txt EMPLOYMENT AGREEMENT BETWEEN GRAND UNION AND GARY M. PHILBIN. EMPLOYMENT AGREEMENT AGREEMENT made as of this 13th day of April, 2000 and effective as of the 14th day of February, 2000, by and between The Grand Union Company, a Delaware corporation (the "Company"), and Gary M. Philbin (the "Executive"). WHEREAS, the Company desires to retain the exclusive services of Executive and Executive desires to be employed by the Company for the term of this Agreement; NOW, THEREFORE, in consideration of the promises and of the mutual covenants contained herein, the parties hereto agree as follows: 1. Duties. (a) The Executive shall serve as a Director, President and Chief Executive Officer of the Company or such other position as may be agreed between the Executive and the Company, and shall perform such duties, services and responsibilities as are consistent with such positions, including the general management and supervision of the business and personnel of the Company and its subsidiaries. The duties, services and responsibilities will be performed under the overall supervision of the Chairman of the Board of the Company, consistent with the policies of the Board of Directors of the Company (the "Board of Directors"). If, during the term of this Agreement, Executive's employment with the Company is terminated for any reason, Executive will also cease to be, and shall resign as, a Director of the Company. (b) During the Employment Term (as hereinafter defined), the Executive shall devote his full business time, attention and skill to the performance of his duties, services and responsibilities, and will use his best efforts to promote the interests of the Company. The Executive will not, without the prior written approval of the Board of Directors, engage in any other business activity which would interfere with the performance of his duties, services and responsibilities hereunder or which is in violation of policies established from time to time by the Company. The foregoing shall not be construed to prohibit (i) the Executive's service as a member of the board of directors or as an officer of any non-profit trade association or civic, educational or charitable organization, or (ii) subject to the following proviso and the provisions of Section 8(b), the Executive from making personal investments of a passive nature; provided that such service or investments by the Executive do not materially interfere with the performance by the Executive of his duties, services and responsibilities hereunder. (c) During the Employment Term, the Executive shall be based at the Company's principal executive offices in Wayne, New Jersey, which executive offices may be relocated within a 100-mile radius of the Company's existing executive offices (such 100 mile radius of Wayne, New Jersey, constituting the "Principal Office City"), except for reasonably required travel in the performance of his duties, services and responsibilities hereunder. 1 2. Term. This Agreement and the term of employment of the Executive hereunder shall commence as of February 14, 2000 ("Effective Date") and shall continue in full force and effect until the fourth anniversary of the Effective Date (the "Employment Term"), unless earlier terminated or extended as provided herein. 3. Compensation. (a) In consideration of the performance by the Executive of the Executive's obligations during the Employment Term (including any services as an officer, director, employee, member of any committee of the Company or any of its subsidiaries, or otherwise), the Company will, during the Employment Term, pay the Executive a salary (the "Salary") at no less than an annual rate of $425,000. The Salary shall be reviewed annually and may be increased at the discretion of the Compensation Committee of the Board of Directors. (b) During the term of this Agreement, Executive shall be eligible to receive bonus compensation at the end of each fiscal year of the Company in an amount to be determined by the Compensation Committee of the Board of Directors. The Bonus Plan (as hereinafter defined) shall provide for bonus compensation of up to 125% of the Salary for each fiscal year in which the Company achieves the designated performance targets. Such bonus compensation shall be prorated (based on the number of weeks elapsed during the fiscal year in question) for the fiscal year ending in March 2004. The amount of bonus compensation in any year shall be determined pursuant to the Company's Executive Annual Incentive Bonus Plan (the "Bonus Plan") and shall be calculated based on achievement against performance targets in such fiscal years, which performance targets shall be established by the Compensation Committee of the Board of Directors pursuant to the Bonus Plan. (c) The Salary shall be payable in accordance with the normal payroll practices of the Company then in effect. The Salary, and all bonuses or other forms of compensation paid to the Executive hereunder, shall be subject to all applicable taxes and withholdings required to be withheld by the Company pursuant to federal, state or local law. The Executive shall be solely responsible for income taxes imposed on the Executive by reasons of any cash or non-cash compensation and benefits provided hereunder, unless otherwise so indicated. (d) Executive shall be eligible to participate in the Company's Supplemental Retirement Plan for Key Executives (the "Plan"). Upon Executive's retirement from the Company on or after the fourth anniversary of the Effective Date, for purposes of calculation of the "target benefit" under the Plan, Executive shall be credited with his actual years of service with the Company, plus six (6) additional years of service under the Plan if Executive retires on or after the fourth anniversary of the Effective Date. If the Executive's employment with the Company terminates pursuant to Section 6(a)(vi) or Section 6(a)(vii)(x) of this Agreement prior to the fourth anniversary of the Effective Date, for purposes of calculation of the "target benefit" under the Plan, Executive shall be credited with a number of years of service equal to the sum of (a) the actual number of years of employment of the Executive with the Company and (b) six (6) years of service. If the Executive terminates his 2 employment with the Company other than for Good Reason under this Agreement prior to the fourth anniversary of the Effective Date, for purposes of the "target benefit" under the Plan, Executive shall be credited with a number of years of service equal to the actual years of employment of the Executive with the Company. (e) The Executive shall be eligible to participate in any employee benefit or other plans (including any life insurance plans) or perquisites in effect for other senior managers at his level as of February 13, 2000 to the extent the Executive meets the eligibility requirements for any such benefit plan or perquisite. (f) The Executive shall be eligible for four weeks vacation (in addition to the usual holidays) during each year during which the Executive serves hereunder. Vacation not taken during any year during the Employment Term may be carried forward with the written permission of the Chairman of the Board. (g) If (i) the Executive is absent from work for more than 180 consecutive calendar days in any twelve-month period by reason of illness or incapacity (whether physical or otherwise) or (ii) the Company reasonably determines that the Executive has been unable to perform his duties, services and responsibilities hereunder by reason of illness or incapacity (whether physical or otherwise) for more than 180 calendar days in any twelve-month period during the Employment Term ("Disability"), the Company shall not be obligated to pay the Executive any compensation (Salary or bonus) for any period in excess of such 180 days and until Executive returns to his duties on a regular full time basis; furthermore, any such payments during such 180-day period shall be reduced by any amount the Executive is entitled to receive as a result of such disability under any plan provided through the Company or under state or federal law. (h) Signing Bonus. Executive shall receive a signing bonus (the "Signing Bonus") in an amount equal to $30,285, less all applicable taxes and withholdings, payable on the Effective Date. 4. Stock Option. (a) Pursuant to the Company's 1995 Equity Incentive Plan (the "EIP") and subject to confirmation of the stock option grant in a letter from the Company's General Counsel in the form attached hereto as Exhibit A, effective as of the date approved by the Compensation Committee of the Board of Directors (the "Grant Date"), the Company hereby grants Executive options (the "Options") to purchase 850,000 shares of Grand Union Common Stock issued according to the following exercise prices and vesting schedule: Vesting - 25% on the Grant Date, 25% on February 14, 2001, 25% on February 14, 2002, and 25% on February 14, 2003; Exercise Price - 20% at $4.65, 30% at $5.72, 30% at $7.72, and 20% at $9.72. Options granted pursuant to this paragraph, which have not been exercised, will expire on May 14, 2004. The vested Options and shares received upon exercise of Options ("Option Shares") will become transferable in tranches of 20%, 20%, 30% and 30% (expressed as a percentage of the total of vested and unvested Options) on each of the first four anniversaries, 3 respectively, of the Effective Date. Except as described in the preceding sentence, and except for transfers in connection with estate planning, the Options and Option Shares will not be transferable during the term of Executive's employment. (b) All existing stock option grants to Executive made prior to the Effective Date shall be canceled. (c) Treatment of Options Upon A Change of Control or Upon Termination Within 180 Days Preceding a Change of Control . For purposes of this Agreement, a "Change of Control" shall mean, after the Effective Date, the acquisition by any person or entity, directly or indirectly, of more than 50% of the Common Stock of the Company. If (x) a Change of Control occurs or (y) Executive's employment terminates within 180 days preceding a Change of Control by Executive for "Good Reason" or by the Company without "Cause," then the Options shall vest and become exercisable on the date of the Change of Control and transferable by Executive (or Executive's executor or administrator or the person or persons to whom the Options are transferred by will or the applicable laws of descent and distribution) at any time after the Change of Control up to and including ninety (90) days after the effective date of such Change of Control, after which all unexercised Options shall terminate. (d) Treatment of Options Upon Termination Not Within 180 Days Preceding a Change of Control. If the employment of Executive with the Company shall terminate for any reason other than as specifically provided in paragraph (c) of this Section 4, including, without limitation, termination by the Company for "Cause" or termination by the Executive for any reason other than Good Reason, all vested Options shall remain exercisable by Executive through and until May 14, 2004 and all unvested Options shall terminate and become null and void, as of the effective date of such termination, except in such case as provided in paragraph (c) of this Section 4 in the event of a subsequent Change of Control within 180 days. 5. Relocation and Relocation Expenses. (a) The Executive agrees that, during the Employment Term, he shall maintain, at his own cost and expense, his principal residence within a 100-mile radius of Wayne, New Jersey. Executive shall continue to be eligible for the full benefits available, if any, under the Company's Executive Relocation Program. (b) During the Employment Term, the Executive shall be entitled to reimbursement from the Company for reasonable and necessary travel and related expenses between the mid-western United States and Wayne, New Jersey, incurred by the Executive and/or Executive's immediate family, upon presentation to the Company of valid receipts evidencing such expenses, including round trip air fare for the Executive and his immediate family between the New York/New Jersey metropolitan area and the mid-western United States. The reimbursement of expenses under this sub-paragraph shall be taxable income to Executive 4 and shall be subject to appropriate gross-up procedures in order to make Executive whole for such expenses. 6. Termination. (a) Except as otherwise provided in this Agreement, the employment of Executive hereunder and the Employment Term shall terminate upon the earliest to occur of the dates specified below: (i) the close of business on the date of expiration of the Employment Term; (ii) the close of business on the date of the Executive's death; (iii) the close of business on an early termination date mutually agreed to in writing by the Company and the Executive; (iv) the close of business on the day on which the Company shall have delivered to the Executive a written notice of the Company's election to terminate his employment for "Cause" (as defined in Section 6(c) hereof); (v) the close of business on the day on which the Company shall have delivered to the Executive a written notice of the Company's election to terminate his employment because of Disability; (vi) the close of business on the day following the date on which the Board of Directors shall have adopted a resolution terminating the employment of the Executive hereunder and such termination is not for death, Cause or Disability; or (vii) the close of business on the date which is five business days after the date on which the Executive delivers to the Company a written notice of the Executive's election to terminate his employment hereunder (x) for "Good Reason" (as defined in Section 6(d) hereof) or (y) for any other reason. (b) Any purported termination by the Company or by the Executive pursuant to Section 6(a) (iv)-(vii) hereof shall be communicated by written "Notice of Termination" to the other party. For purposes of this Agreement, a "Notice of Termination" shall mean a written notice which indicates the specific termination provision in this Agreement relied upon and which sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated. For purposes of this Agreement, no such purported termination shall be effective without delivery of such Notice of Termination. 5 (c) For purposes of this Agreement, termination of Executive for "Cause" shall mean termination based on (i) the Executive's material breach of this Agreement; (ii) willful misconduct or gross negligence by Executive with regard to the Company or its business, assets or employees; (iii) the refusal of Executive to follow the proper direction of the Chairman of the Board or the Board of Directors; (iv) substantial and continuing refusal by the Executive to attempt to perform the duties required of him hereunder (other than any such failure resulting from incapacity due to physical or mental illness); (v) the Executive being convicted of a felony or pleading nolo contendere to a felony (other than a felony involving a motor vehicle); (vi) the breach by Executive of any fiduciary duty owed by Executive to the Company; or (vii) Executive's dishonesty, misappropriation or fraud with regard to the Company (other than good faith expense account disputes). (d) For purposes of this Agreement, the term "Good Reason" shall mean any material breach by the Company of this Agreement; provided, however, that Executive first delivers written notice thereof to the Board of Directors of the Company with a copy to the General Counsel of the Company and the Company shall have failed to cure such breach within thirty (30) days after receipt of such written notice. (e) In the event of termination of this Agreement, for whatever reason, the Executive agrees to cooperate with the Company and to be reasonably available to the Company with respect to continuing and/or future matters arising out of the Executive's employment or any other relationship with the Company, whether such matters are business-related, legal or otherwise. The Company agrees to reimburse the Executive for the Executive's reasonable expenses incurred in complying with the terms of this paragraph upon delivery by the Executive to the Company of valid receipts for such expenses. The provisions of this paragraph shall survive termination of this Agreement. 7. Termination Payments (a) Upon Termination Within Twelve Months of a Change of Control. If, within 12 months following a "Change of Control," the Executive's employment with the Company terminates for whatever reason, the Company will pay the Executive any portion of the Salary accrued hereunder on or prior to the date of such termination, but not paid. If, within 12 months following a "Change of Control," the Executive's employment with the Company terminates pursuant to Section 6(a)(vi) or Section 6(a)(vii)(x) hereof, the Company will pay the Executive any portion of Executive's bonus compensation pursuant to Section 3(b) hereof which has accrued hereunder on or prior to the date of termination but has not been paid (the "Prorata Bonus"). The Prorata Bonus shall be calculated by: (i) annualizing the Company's performance through the date of termination for the fiscal year in question; (ii) determining the bonus compensation due to the Executive pursuant to Section 3(b) hereof on the basis of the Company's annualized results for the fiscal year in question; and (iii) prorating the bonus compensation based on the portion of the fiscal year elapsed at the date of termination. Except for purposes of this Section 7, the Executive's bonus compensation pursuant to Section 3(b) for any fiscal year shall not be deemed to have been accrued prior to the completion of the fiscal 6 year in question. If, within 12 months following a "Change of Control," the Executive's employment with the Company terminates pursuant to Section 6(a)(vi) or Section 6(a)(vii)(x) hereof, the Company will, within 30 days of such termination, pay the Executive lump sum severance pay in an amount equal to $1,255,800, less all applicable taxes and withholdings. (b) Upon Termination Not Within Twelve Months of a Change of Control. If the Executive's employment with the Company terminates for whatever reason where paragraph 7(a) does not apply, the Company will pay the Executive any portion of the Salary accrued hereunder on or prior to the date of termination but not paid. If the Executive's employment with the Company terminates pursuant to Section 6(a)(vi) or Section 6(a)(vii)(x) hereof, but not within twelve months of a Change of Control, the Company will pay the Executive his Prorata Bonus as calculated in the manner described in paragraph 7(a). Except for purposes of this Section 7, the Executive's bonus compensation pursuant to Section 3(b) for any fiscal year shall not be deemed to have been accrued prior to the completion of the fiscal year in question. If the Executive's employment with the Company terminates pursuant to Section 6(a)(vi) or Section 6(a)(vii)(x) hereof, but not within twelve months of a Change of Control, the Company will, within 30 days of such termination, pay the Executive lump sum severance pay in an amount equal to two and one-half (2.5) times the Executive's annual Salary (at the Salary rate in effect on the date of termination of the Executive's employment hereunder), less all applicable taxes and withholdings. (c) The foregoing payments (except for accrued but unused vacation pay) upon termination shall constitute the exclusive payments due the Executive upon termination under this Agreement, but shall have no effect on any benefits which may be due the Executive under any plan of the Company which provides benefits after termination of employment, except that the Executive shall not be eligible for benefits under The Grand Union Company Severance Plan for Exempt Personnel. 8. Executive Covenants. (a) Unauthorized Disclosure. The Executive agrees and understands that in the Executive's position with the Company, the Executive will be exposed to and receive information relating to the confidential affairs of the Company, including but not limited to technical information, business and marketing plans, strategies, customer information, other information concerning the Company's products, promotions, development, financing, expansion plans, business policies and practices, and other forms of information considered by the Company to be confidential and in the nature of trade secrets. Except to the extent that the proper performance of the Executive's duties, services and responsibilities hereunder may require disclosure, and except as such information (i) was known to the Executive prior to his employment by the Company or (ii) was or becomes generally available to the public other than as a result of a disclosure by the Executive in violation of the provisions of this Section 8(a), the Executive agrees that during the Employment Term and thereafter the Executive will keep such information confidential and not disclose such information, either directly or indirectly, to any third person or entity without the prior written consent of the Company. This confidentiality covenant has no temporal, geographical or territorial restriction. Upon 7 termination of the Executive's employment under this Agreement, the Executive will promptly supply to the Company all property, keys, notes, memoranda, writings, lists, files, reports, customer lists, correspondence, tapes, disks, cards, surveys, maps, logs, machines, technical data or any other tangible product or document which has been produced by, received by or otherwise submitted to the Executive during or prior to the Employment Term. (b) Non-competition. By and in consideration of the Company's entering into this Agreement and the Salary and benefits to be provided by the Company hereunder, and further in consideration of the Executive's exposure to the proprietary information of the Company, the Executive agrees that, subject to the provisions of the last two sentences of Section 1(b), the Executive will not, during the Employment Term, directly or indirectly own, manage, operate, join, control, be employed by, or participate in the ownership, management, operation or control of or be connected in any manner, including but not limited to holding the positions of shareholder, director, officer, consultant, independent contractor, employee, partner, or investor, with any Competing Enterprise. For purposes of this paragraph, the term "Competing Enterprise" shall mean any person, corporation, partnership or other entity operating one or more supermarkets within a ten (10) mile radius of any Company store if the aggregate of such Company stores (x) represent ten percent (10%) or more of the total number of Company stores operating at the date of termination (or other applicable date invoking the application of this non-compete clause) or (y) account for ten percent (10%) or more of the annual sales volume of the Company for the fiscal year immediately preceding the year of termination (or other applicable date invoking application of this non-compete clause). For this purpose, (1) "supermarket" means any store which is part of a supermarket or combination store chain or is a warehouse club selling grocery and perishable items to the public and (2) any entity operating supermarkets includes any wholesaler to independently-owned supermarkets operating under the same trade name. The prohibition of this clause (b) shall not be deemed to prevent Executive from owning 1% or less of any class of equity securities of an entity that has a class of equity securities registered under Section 12 of the Securities Exchange Act of 1934, as amended. Notwithstanding anything to the contrary in this Section 8(b), the non-competition clause contained in this Section 8(b) shall immediately terminate on the effective date of termination of the Executive's employment with the Company unless such termination is by the Company for Cause or is by the Executive without Good Reason, in which case the non-competition clause contained in this Section 8(b) shall remain in full force and effect until the fourth anniversary of the Effective Date. (c) Non-solicitation. During the Employment Term and for a period of two years thereafter, the Executive shall not interfere with the Company's relationship with, or endeavor to entice away from the Company, any person who at any time during the Employment Term was an employee of the Company. (d) Transactions Offered to the Corporation; Proprietary Materials. During the term of his employment hereunder, Executive agrees to bring to the attention of the Board of Directors or the Chief Financial Officer, all proposals, business opportunities or investments of whatever nature, in areas in which the Company and/or any of its subsidiary companies is active or may be interested in becoming active, which are created or devised by 8 Executive or come to the attention of Executive and which might reasonably be expected to be of interest to the Company and/or any its subsidiary companies. Without limiting the generality of the foregoing, Executive acknowledges and agrees that memoranda, notes, records and other documents made or compiled by Executive or made available to Executive during the term of this Agreement concerning the business and/or activities of the Company and/or any of its subsidiary companies shall be the Company's property and shall be delivered by Executive to the Chief Financial Officer upon termination of this Agreement or at any other time at the request of the Board of Directors. (e) Remedies. The Executive agrees that any breach of the terms of this Section 8 would result in irreparable injury and damage to the Company for which the Company would have no adequate remedy at law; the Executive therefore also agrees that in the event of said breach or any threat of breach, the Company shall be entitled to an immediate injunction and restraining order to prevent such breach and/or threatened breach and/or continued breach by the Executive and/or any and all persons and/or entities acting for and/or with the Executive, without having to prove damages, in addition to any other remedies to which the Company may be entitled at law or in equity. The terms of this paragraph shall not prevent the Company from pursuing any other available remedies for any breach or threatened breach hereof, including but not limited to the recovery of damages from the Executive. The provisions of subsections (a), (b), (c), (d) and (e) of this Section 8 shall survive any termination of this Agreement and the Employment Term. The existence of any claim or cause of action by the Executive against the Company, whether predicated on this Agreement or otherwise, shall not constitute a defense to the enforcement by the Company of the covenants and agreements of this Section 8. 9. Notices. Any notice or other communication required or permitted hereunder shall be in writing and shall be deemed to have been given (i) if personally delivered, when so delivered, or (ii) if mailed, three (3) business days after having been placed in the United States mail, registered or certified, postage prepaid, return receipt requested, addressed to the party to whom it is directed at the address set forth below: If to the Company: The Grand Union Company 201 Willowbrook Boulevard Wayne, New Jersey 07470 Attention: one copy to the Chief Financial Officer and one copy to the General Counsel one copy to the Chairman of the Board of Directors 9 If to the Executive: Gary M. Philbin (at his local address as reflected in the Company's records) or to such other address as to which notice is given pursuant hereto. 10. Binding Effect/Assignment. This Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective heirs, executors, personal representatives, estates, successors (including, without limitation, by way of merger or change of control) and assigns. Notwithstanding the provisions of the immediately preceding sentence, the Executive shall not assign all or any portion of this Agreement without the prior written consent of the Company. 11. Entire Agreement. With the exception of the promissory note executed by the parties on October 3, 1997, this Agreement sets forth the entire understanding of the parties hereto with respect to the subject matter hereof and supersedes, as of the Effective Date, all prior agreements, written or oral, between them as to such subject matter, including that certain Employment Agreement between Executive and the Company dated August 13, 1998. The aforementioned promissory note of October 3, 1997, shall be extended until February 14, 2004, and shall be forgiven upon the earlier to occur of (x) a Change of Control, (y) Executive's termination for any reason other than Cause before November 1, 2000, or (z) upon Executive's completion of the term of this Agreement through the fourth anniversary of the Effective Date. This Agreement may not be amended, nor may any provision hereof be modified or waived, except by an instrument in writing duly signed by the party to be charged. 12. Severability. If any provision of this Agreement, or any application thereof to any circumstances, is invalid, in whole or in part, such provision or application shall to that extent be severable and shall not affect other provisions or applications of this Agreement. 13. Governing Law. This Agreement shall be governed by and construed in accordance with the internal laws of the State of New Jersey, without reference to the principles of conflict of laws. 14. Modifications and Waivers. No provisions of this Agreement may be modified, altered or amended except by an instrument in writing executed by the parties hereto. No waiver by either party hereto of any breach by the other party hereto of any provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions at the time or at any prior or subsequent time. 15. Headings. The headings contained herein are solely for the purposes of reference, are not part of this Agreement and shall not in any way affect the meaning or interpretation of this Agreement. 10 16. Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed to be an original but all of which together shall constitute one and the same instrument. IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by authority of its Board of Directors, and the Executive has hereunto set his hand, as of the day and year first above written. THE GRAND UNION COMPANY By: ----------------------------------------- Glenn J. Smith Senior Vice President, General Counsel and Corporate Secretary as authorized by the Board of Directors By: ----------------------------------------- Gary M. Philbin Original ____ of 2 11 EXHIBIT A April 13, 2000 Gary M. Philbin President and Chief Executive Officer The Grand Union Company 201 Willowbrook Boulevard Wayne, New Jersey 07470 Re: Stock Option Grant Dear Mr. Philbin: This is to confirm the stock option grant made to you by action of the Compensation Committee of the Board of Directors on April 13, 2000, and as a part of your Employment Agreement effective as of February 14, 2000 (the "Effective Date"). In this regard, effective April 13, 2000 (the "Grant Date"), you have been granted 850,000 Non-Qualified Stock Options (NQSO) giving you the right to purchase a total of 850,000 Option Shares of Grand Union Common Stock (i.e., one share of Common Stock per Option). The particular terms governing your Option Grant as set forth in the Employment Agreement are confirmed below. Additionally, attached hereto is a copy of the 1995 Equity Incentive Plan ("EIP"), as modified and amended, which covers the standard terms and conditions of Option Grants to our Company's associates. Any terms set forth below, which differ from or modify the terms contained in the EIP shall take precedence over the terms of the EIP. Exercise Prices - Your Options are exercisable pursuant to the following schedule: 1. 170,000 Options (20% of the total granted) are exercisable at an exercise price of $4.65 per Option; 2. 255,000 Options (30% of the total granted) are exercisable at an exercise price of $5.72 per Option; 3. 255,000 Options (30% of the total granted) are exercisable at an exercise price of $7.72 per Option; and 4. 170,000 Options (20% of the total granted) are exercisable at an exercise price of $9.72 per Option; 12 Vesting, Forfeiture and Transferability 1. Options under this NQSO will vest ratably across each of the four exercise tranches listed above, as follows: a. one-fourth on the Grant Date, and b. one-fourth each on February 14, 2001, February 14, 2002 and February 14, 2003. 2. Forfeiture of Options under this NQSO shall be governed by paragraph 4 of the Employment Agreement. 3. Vested Options and Option Shares under this NQSO will become transferable as set forth below: a. Prior to the first anniversary of the Effective Date - 0 Options and Option Shares; b. On and after the first anniversary of the Effective Date - 170,000 Options and Option Shares; c. On and after the second anniversary of the Effective Date - 170,000 additional Options and Option Shares; d. On and after the third anniversary of the Effective Date - 255,000 additional Options and Option Shares; and e. On and after the fourth anniversary of the Effective Date - 255,000 additional Options and Option Shares. 4. Except as set forth in paragraph 3 above, and except for agreed-upon family estate planning transfers, Options and Option Shares under this NQSO will not be transferred prior to the fourth anniversary of the Effective Date. Thereafter, vested Options and Option Shares will be freely transferable, subject to applicable securities laws. Duration of Options - The latest date on which your Options may be exercised is May 14, 2004. Events Affecting Your Options - Sections 4(c) and 4(d) of the Employment Agreement explain the status of your Options in the event of your termination of employment. 13 Please acknowledge your receipt and acceptance of your Stock Option Grant by signing in the space provided below and returning the document to me. Very truly yours, Glenn J. Smith, Esq. Senior Vice President General Counsel and Corporate Secretary Acknowledged and Accepted - --------------------------- 14 EX-10.20 7 0007.txt EMPLOYMENT AGREEMENT BETWEEN GRAND UNION AND JEFFREY P. FREIMARK EMPLOYMENT AGREEMENT AGREEMENT made as of this 13th day of April, 2000 and effective as of the 14th day of February, 2000, by and between The Grand Union Company, a Delaware corporation (the "Company"), and Jeffrey P. Freimark (the "Executive"). WHEREAS, the Company desires to retain the exclusive services of Executive and Executive desires to be employed by the Company for the term of this Agreement; NOW, THEREFORE, in consideration of the promises and of the mutual covenants contained herein, the parties hereto agree as follows: 1. Duties. (a) The Executive shall serve as a Director, Executive Vice President, Chief Financial and Administrative Officer and Treasurer of the Company or such other position as may be agreed between the Executive and the Company, and shall perform such duties, services and responsibilities as are consistent with such positions, including the general management and supervision of the business and personnel of the Company and its subsidiaries. The duties, services and responsibilities will be performed under the overall supervision of the Chairman of the Board and the Chief Executive Officer of the Company, consistent with the policies of the Board of Directors of the Company (the "Board of Directors"). If, during the term of this Agreement, Executive's employment with the Company is terminated for any reason, Executive will also cease to be, and shall resign as, a Director of the Company. (b) During the Employment Term (as hereinafter defined), the Executive shall devote his full business time, attention and skill to the performance of his duties, services and responsibilities, and will use his best efforts to promote the interests of the Company. The Executive will not, without the prior written approval of the Board of Directors, engage in any other business activity which would interfere with the performance of his duties, services and responsibilities hereunder or which is in violation of policies established from time to time by the Company. The foregoing shall not be construed to prohibit (i) the Executive's service as a member of the board of directors or as an officer of any non-profit trade association or civic, educational or charitable organization, or (ii) subject to the following proviso and the provisions of Section 8(b), the Executive from making personal investments of a passive nature; provided that such service or investments by the Executive do not materially interfere with the performance by the Executive of his duties, services and responsibilities hereunder. (c) During the Employment Term, the Executive shall be based at the Company's principal executive offices in Wayne, New Jersey, which executive offices may be relocated within a 100-mile radius of the Company's existing executive offices (such 100 mile radius of Wayne, New Jersey, constituting the "Principal Office City"), except for reasonably required travel in the performance of his duties, services and responsibilities hereunder. 1 2. Term. This Agreement and the term of employment of the Executive hereunder shall commence as of February 14, 2000 ("Effective Date") and shall continue in full force and effect until the fourth anniversary of the Effective Date (the "Employment Term"), unless earlier terminated or extended as provided herein. 3. Compensation. (a) In consideration of the performance by the Executive of the Executive's obligations during the Employment Term (including any services as an officer, director, employee, member of any committee of the Company or any of its subsidiaries, or otherwise), the Company will, during the Employment Term, pay the Executive a salary (the "Salary") at no less than an annual rate of $375,000. The Salary shall be reviewed annually and may be increased at the discretion of the Compensation Committee of the Board of Directors. (b) During the term of this Agreement, Executive shall be eligible to receive bonus compensation at the end of each fiscal year of the Company in an amount to be determined by the Compensation Committee of the Board of Directors. The Bonus Plan (as hereinafter defined) shall provide for bonus compensation of up to 125% of the Salary for each fiscal year in which the Company achieves the designated performance targets. Such bonus compensation shall be prorated (based on the number of weeks elapsed during the fiscal year in question) for the fiscal year ending in March 2004. The amount of bonus compensation in any year shall be determined pursuant to the Company's Executive Annual Incentive Bonus Plan (the "Bonus Plan") and shall be calculated based on achievement against performance targets in such fiscal years, which performance targets shall be established by the Compensation Committee of the Board of Directors pursuant to the Bonus Plan. (c) The Salary shall be payable in accordance with the normal payroll practices of the Company then in effect. The Salary, and all bonuses or other forms of compensation paid to the Executive hereunder, shall be subject to all applicable taxes and withholdings required to be withheld by the Company pursuant to federal, state or local law. The Executive shall be solely responsible for income taxes imposed on the Executive by reasons of any cash or non-cash compensation and benefits provided hereunder, unless otherwise so indicated. (d) Executive shall be eligible to participate in the Company's Supplemental Retirement Plan for Key Executives (the "Plan"). Upon Executive's retirement from the Company on or after the fourth anniversary of the Effective Date, for purposes of calculation of the "target benefit" under the Plan, Executive shall be credited with his actual years of service with the Company, plus four (4) additional years of service under the Plan if Executive retires on or after the fourth anniversary of the Effective Date. If the Executive's employment with the Company terminates pursuant to Section 6(a)(vi) or Section 6(a)(vii)(x) of this Agreement prior to the fourth anniversary of the Effective Date, for purposes of calculation of the "target benefit" under the Plan, Executive shall be credited with a number of years of service equal to the sum of (a) the actual number of years of employment of the Executive with the Company and (b) four (4) years of service. If the Executive terminates his 2 employment with the Company other than for Good Reason under this Agreement prior to the fourth anniversary of the Effective Date, for purposes of the "target benefit" under the Plan, Executive shall be credited with a number of years of service equal to the actual years of employment of the Executive with the Company. (e) The Executive shall be eligible to participate in any employee benefit or other plans (including any life insurance plans) or perquisites in effect for other senior managers at his level as of February 13, 2000 to the extent the Executive meets the eligibility requirements for any such benefit plan or perquisite. (f) The Executive shall be eligible for four weeks vacation (in addition to the usual holidays) during each year during which the Executive serves hereunder. Vacation not taken during any year during the Employment Term may be carried forward with the written permission of the Chairman of the Board. (g) If (i) the Executive is absent from work for more than 180 consecutive calendar days in any twelve-month period by reason of illness or incapacity (whether physical or otherwise) or (ii) the Company reasonably determines that the Executive has been unable to perform his duties, services and responsibilities hereunder by reason of illness or incapacity (whether physical or otherwise) for more than 180 calendar days in any twelve-month period during the Employment Term ("Disability"), the Company shall not be obligated to pay the Executive any compensation (Salary or bonus) for any period in excess of such 180 days and until Executive returns to his duties on a regular full time basis; furthermore, any such payments during such 180-day period shall be reduced by any amount the Executive is entitled to receive as a result of such disability under any plan provided through the Company or under state or federal law. 4. Stock Option. (a) Pursuant to the Company's 1995 Equity Incentive Plan (the "EIP") and subject to confirmation of the stock option grant in a letter from the Company's General Counsel in the form attached hereto as Exhibit A, effective as of the date approved by the Compensation Committee of the Board of Directors (the "Grant Date"), the Company hereby grants Executive options (the "Options") to purchase 475,000 shares of Grand Union Common Stock issued according to the following exercise prices and vesting schedule: Vesting - 25% on the Grant Date, 25% on February 14, 2001, 25% on February 14, 2002, and 25% on February 14, 2003; Exercise Price - 20% at $4.65, 30% at $5.72, 30% at $7.72, and 20% at $9.72. Options granted pursuant to this paragraph, which have not been exercised, will expire on May 14, 2004. The vested Options and shares received upon exercise of Options ("Option Shares") will become transferable in tranches of 20%, 20%, 30% and 30% (expressed as a percentage of the total of vested and unvested Options) on each of the first four anniversaries, respectively, of the Effective Date. Except as described in the preceding sentence, and except for transfers in connection with estate planning, the Options and Option Shares will not be transferable during the term of Executive's employment. 3 (b) All existing stock option grants to Executive made prior to the Effective Date shall be canceled. (c) Treatment of Options Upon A Change of Control or Upon Termination Within 180 Days Preceding a Change of Control . For purposes of this Agreement, a "Change of Control" shall mean, after the Effective Date, the acquisition by any person or entity, directly or indirectly, of more than 50% of the Common Stock of the Company. If (x) a Change of Control occurs or (y) Executive's employment terminates within 180 days preceding a Change of Control by Executive for "Good Reason" or by the Company without "Cause," then the Options shall vest and become exercisable on the date of the Change of Control and transferable by Executive (or Executive's executor or administrator or the person or persons to whom the Options are transferred by will or the applicable laws of descent and distribution) at any time after the Change of Control up to and including ninety (90) days after the effective date of such Change of Control, after which all unexercised Options shall terminate. (d) Treatment of Options Upon Termination Not Within 180 Days Preceding a Change of Control. If the employment of Executive with the Company shall terminate for any reason other than as specifically provided in paragraph (c) of this Section 4, including, without limitation, termination by the Company for "Cause" or termination by the Executive for any reason other than Good Reason, all vested Options shall remain exercisable by Executive through and until May 14, 2004 and all unvested Options shall terminate and become null and void, as of the effective date of such termination, except in such case as provided in paragraph (c) of this Section 4 in the event of a subsequent Change of Control within 180 days. 5. Relocation and Relocation Expenses. The Executive agrees that, during the Employment Term, he shall maintain, at his own cost and expense, his principal residence within a 100-mile radius of Wayne, New Jersey. Executive shall continue to be eligible for the full benefits available, if any, under the Company's Executive Relocation Program. The reimbursement of expenses under this sub-paragraph shall be taxable income to Executive and shall be subject to appropriate gross-up procedures in order to make Executive whole for such expenses. 6. Termination. (a) Except as otherwise provided in this Agreement, the employment of Executive hereunder and the Employment Term shall terminate upon the earliest to occur of the dates specified below: (i) the close of business on the date of expiration of the Employment Term; 4 (ii) the close of business on the date of the Executive's death; (iii) the close of business on an early termination date mutually agreed to in writing by the Company and the Executive; (iv) the close of business on the day on which the Company shall have delivered to the Executive a written notice of the Company's election to terminate his employment for "Cause" (as defined in Section 6(c) hereof); (v) the close of business on the day on which the Company shall have delivered to the Executive a written notice of the Company's election to terminate his employment because of Disability; (vi) the close of business on the day following the date on which the Board of Directors shall have adopted a resolution terminating the employment of the Executive hereunder and such termination is not for death, Cause or Disability; or (vii) the close of business on the date which is five business days after the date on which the Executive delivers to the Company a written notice of the Executive's election to terminate his employment hereunder (x) for "Good Reason" (as defined in Section 6(d) hereof) or (y) for any other reason. (b) Any purported termination by the Company or by the Executive pursuant to Section 6(a) (iv)-(vii) hereof shall be communicated by written "Notice of Termination" to the other party. For purposes of this Agreement, a "Notice of Termination" shall mean a written notice which indicates the specific termination provision in this Agreement relied upon and which sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated. For purposes of this Agreement, no such purported termination shall be effective without delivery of such Notice of Termination. (c) For purposes of this Agreement, termination of Executive for "Cause" shall mean termination based on (i) the Executive's material breach of this Agreement; (ii) willful misconduct or gross negligence by Executive with regard to the Company or its business, assets or employees; (iii) the refusal of Executive to follow the proper direction of the Chairman of the Board or the Board of Directors; (iv) substantial and continuing refusal by the Executive to attempt to perform the duties required of him hereunder (other than any such failure resulting from incapacity due to physical or mental illness); (v) the Executive being convicted of a felony or pleading nolo contendere to a felony (other than a felony involving a motor vehicle); (vi) the breach by Executive of any fiduciary duty owed by Executive to the Company; or (vii) Executive's dishonesty, misappropriation or fraud with regard to the Company (other than good faith expense account disputes). 5 (d) For purposes of this Agreement, the term "Good Reason" shall mean any material breach by the Company of this Agreement; provided, however, that Executive first delivers written notice thereof to the Board of Directors of the Company with a copy to the General Counsel of the Company and the Company shall have failed to cure such breach within thirty (30) days after receipt of such written notice. (e) In the event of termination of this Agreement, for whatever reason, the Executive agrees to cooperate with the Company and to be reasonably available to the Company with respect to continuing and/or future matters arising out of the Executive's employment or any other relationship with the Company, whether such matters are business-related, legal or otherwise. The Company agrees to reimburse the Executive for the Executive's reasonable expenses incurred in complying with the terms of this paragraph upon delivery by the Executive to the Company of valid receipts for such expenses. The provisions of this paragraph shall survive termination of this Agreement. 7. Termination Payments (a) Upon Termination Within Twelve Months of a Change of Control. If, within 12 months following a "Change of Control," the Executive's employment with the Company terminates for whatever reason, the Company will pay the Executive any portion of the Salary accrued hereunder on or prior to the date of such termination, but not paid. If, within 12 months following a "Change of Control," the Executive's employment with the Company terminates pursuant to Section 6(a)(vi) or Section 6(a)(vii)(x) hereof, the Company will pay the Executive any portion of Executive's bonus compensation pursuant to Section 3(b) hereof which has accrued hereunder on or prior to the date of termination but has not been paid (the "Prorata Bonus"). The Prorata Bonus shall be calculated by: (i) annualizing the Company's performance through the date of termination for the fiscal year in question; (ii) determining the bonus compensation due to the Executive pursuant to Section 3(b) hereof on the basis of the Company's annualized results for the fiscal year in question; and (iii) prorating the bonus compensation based on the portion of the fiscal year elapsed at the date of termination. Except for purposes of this Section 7, the Executive's bonus compensation pursuant to Section 3(b) for any fiscal year shall not be deemed to have been accrued prior to the completion of the fiscal year in question. If, within 12 months following a "Change of Control," the Executive's employment with the Company terminates pursuant to Section 6(a)(vi) or Section 6(a)(vii)(x) hereof, the Company will, within 30 days of such termination, pay the Executive lump sum severance pay in an amount equal to $1,160,000, less all applicable taxes and withholdings. (b) Upon Termination Not Within Twelve Months of a Change of Control. If the Executive's employment with the Company terminates for whatever reason where paragraph 7(a) does not apply, the Company will pay the Executive any portion of the Salary accrued hereunder on or prior to the date of termination but not paid. If the Executive's employment with the Company terminates pursuant to Section 6(a)(vi) or Section 6(a)(vii)(x) hereof, but not within twelve months of a Change of Control, the Company will pay the Executive his Prorata Bonus as calculated in the manner described in paragraph 7(a). Except 6 for purposes of this Section 7, the Executive's bonus compensation pursuant to Section 3(b) for any fiscal year shall not be deemed to have been accrued prior to the completion of the fiscal year in question. If the Executive's employment with the Company terminates pursuant to Section 6(a)(vi) or Section 6(a)(vii)(x) hereof, but not within twelve months of a Change of Control, the Company will, within 30 days of such termination, pay the Executive lump sum severance pay in an amount equal to two and one-half (2.5) times the Executive's annual Salary (at the Salary rate in effect on the date of termination of the Executive's employment hereunder), less all applicable taxes and withholdings. (c) The foregoing payments (except for accrued but unused vacation pay) upon termination shall constitute the exclusive payments due the Executive upon termination under this Agreement, but shall have no effect on any benefits which may be due the Executive under any plan of the Company which provides benefits after termination of employment, except that the Executive shall not be eligible for benefits under The Grand Union Company Severance Plan for Exempt Personnel. 8. Executive Covenants. (a) Unauthorized Disclosure. The Executive agrees and understands that in the Executive's position with the Company, the Executive will be exposed to and receive information relating to the confidential affairs of the Company, including but not limited to technical information, business and marketing plans, strategies, customer information, other information concerning the Company's products, promotions, development, financing, expansion plans, business policies and practices, and other forms of information considered by the Company to be confidential and in the nature of trade secrets. Except to the extent that the proper performance of the Executive's duties, services and responsibilities hereunder may require disclosure, and except as such information (i) was known to the Executive prior to his employment by the Company or (ii) was or becomes generally available to the public other than as a result of a disclosure by the Executive in violation of the provisions of this Section 8(a), the Executive agrees that during the Employment Term and thereafter the Executive will keep such information confidential and not disclose such information, either directly or indirectly, to any third person or entity without the prior written consent of the Company. This confidentiality covenant has no temporal, geographical or territorial restriction. Upon termination of the Executive's employment under this Agreement, the Executive will promptly supply to the Company all property, keys, notes, memoranda, writings, lists, files, reports, customer lists, correspondence, tapes, disks, cards, surveys, maps, logs, machines, technical data or any other tangible product or document which has been produced by, received by or otherwise submitted to the Executive during or prior to the Employment Term. (b) Non-competition. By and in consideration of the Company's entering into this Agreement and the Salary and benefits to be provided by the Company hereunder, and further in consideration of the Executive's exposure to the proprietary information of the Company, the Executive agrees that, subject to the provisions of the last two sentences of Section 1(b), the Executive will not, during the Employment Term, directly or indirectly own, manage, operate, join, control, be employed by, or participate in the ownership, management, 7 operation or control of or be connected in any manner, including but not limited to holding the positions of shareholder, director, officer, consultant, independent contractor, employee, partner, or investor, with any Competing Enterprise. For purposes of this paragraph, the term "Competing Enterprise" shall mean any person, corporation, partnership or other entity operating one or more supermarkets within a ten (10) mile radius of any Company store if the aggregate of such Company stores (x) represent ten percent (10%) or more of the total number of Company stores operating at the date of termination (or other applicable date invoking the application of this non-compete clause) or (y) account for ten percent (10%) or more of the annual sales volume of the Company for the fiscal year immediately preceding the year of termination (or other applicable date invoking application of this non-compete clause). For this purpose, (1) "supermarket" means any store which is part of a supermarket or combination store chain or is a warehouse club selling grocery and perishable items to the public and (2) any entity operating supermarkets includes any wholesaler to independently-owned supermarkets operating under the same trade name. The prohibition of this clause (b) shall not be deemed to prevent Executive from owning 1% or less of any class of equity securities of an entity that has a class of equity securities registered under Section 12 of the Securities Exchange Act of 1934, as amended. Notwithstanding anything to the contrary in this Section 8(b), the non-competition clause contained in this Section 8(b) shall immediately terminate on the effective date of termination of the Executive's employment with the Company unless such termination is by the Company for Cause or is by the Executive without Good Reason, in which case the non-competition clause contained in this Section 8(b) shall remain in full force and effect until the fourth anniversary of the Effective Date. (c) Non-solicitation. During the Employment Term and for a period of two years thereafter, the Executive shall not interfere with the Company's relationship with, or endeavor to entice away from the Company, any person who at any time during the Employment Term was an employee of the Company. (d) Transactions Offered to the Corporation; Proprietary Materials. During the term of his employment hereunder, Executive agrees to bring to the attention of the Board of Directors or the Chief Executive Officer, all proposals, business opportunities or investments of whatever nature, in areas in which the Company and/or any of its subsidiary companies is active or may be interested in becoming active, which are created or devised by Executive or come to the attention of Executive and which might reasonably be expected to be of interest to the Company and/or any its subsidiary companies. Without limiting the generality of the foregoing, Executive acknowledges and agrees that memoranda, notes, records and other documents made or compiled by Executive or made available to Executive during the term of this Agreement concerning the business and/or activities of the Company and/or any of its subsidiary companies shall be the Company's property and shall be delivered by Executive to the Chief Executive Officer upon termination of this Agreement or at any other time at the request of the Board of Directors. (e) Remedies. The Executive agrees that any breach of the terms of this Section 8 would result in irreparable injury and damage to the Company for which the Company would have no adequate remedy at law; the Executive therefore also agrees that in the 8 event of said breach or any threat of breach, the Company shall be entitled to an immediate injunction and restraining order to prevent such breach and/or threatened breach and/or continued breach by the Executive and/or any and all persons and/or entities acting for and/or with the Executive, without having to prove damages, in addition to any other remedies to which the Company may be entitled at law or in equity. The terms of this paragraph shall not prevent the Company from pursuing any other available remedies for any breach or threatened breach hereof, including but not limited to the recovery of damages from the Executive. The provisions of subsections (a), (b), (c), (d) and (e) of this Section 8 shall survive any termination of this Agreement and the Employment Term. The existence of any claim or cause of action by the Executive against the Company, whether predicated on this Agreement or otherwise, shall not constitute a defense to the enforcement by the Company of the covenants and agreements of this Section 8. 9. Notices. Any notice or other communication required or permitted hereunder shall be in writing and shall be deemed to have been given (i) if personally delivered, when so delivered, or (ii) if mailed, three (3) business days after having been placed in the United States mail, registered or certified, postage prepaid, return receipt requested, addressed to the party to whom it is directed at the address set forth below: If to the Company: The Grand Union Company 201 Willowbrook Boulevard Wayne, New Jersey 07470 Attention: one copy to the Chief Executive Officer and one copy to the General Counsel one copy to the Chairman of the Board of Directors If to the Executive: Jeffrey P. Freimark (at his local address as reflected in the Company's records) or to such other address as to which notice is given pursuant hereto. 10. Binding Effect/Assignment. This Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective heirs, executors, personal representatives, estates, successors (including, without limitation, by way of merger or change of control) and assigns. Notwithstanding the provisions of the immediately preceding sentence, the Executive shall not assign all or any portion of this Agreement without the prior written consent of the Company. 11. Entire Agreement. This Agreement sets forth the entire understanding of the parties hereto with respect to the subject matter hereof and supersedes, as of the Effective Date, 9 all prior agreements, written or oral, between them as to such subject matter, including that certain Employment Agreement between Executive and the Company dated August 13, 1998. This Agreement may not be amended, nor may any provision hereof be modified or waived, except by an instrument in writing duly signed by the party to be charged. 12. Severability. If any provision of this Agreement, or any application thereof to any circumstances, is invalid, in whole or in part, such provision or application shall to that extent be severable and shall not affect other provisions or applications of this Agreement. 13. Governing Law. This Agreement shall be governed by and construed in accordance with the internal laws of the State of New Jersey, without reference to the principles of conflict of laws. 14. Modifications and Waivers. No provisions of this Agreement may be modified, altered or amended except by an instrument in writing executed by the parties hereto. No waiver by either party hereto of any breach by the other party hereto of any provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions at the time or at any prior or subsequent time. 15. Headings. The headings contained herein are solely for the purposes of reference, are not part of this Agreement and shall not in any way affect the meaning or interpretation of this Agreement. 16. Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed to be an original but all of which together shall constitute one and the same instrument. IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by authority of its Board of Directors, and the Executive has hereunto set his hand, as of the day and year first above written. THE GRAND UNION COMPANY By: ----------------------------------------- Glenn J. Smith Senior Vice President, General Counsel and Corporate Secretary as authorized by the Board of Directors By: ----------------------------------------- Jeffrey P. Freimark Original ____ of 2 10 EXHIBIT A April 13, 2000 Jeffrey P. Freimark Executive Vice President, Chief Financial and Administrative Officer and Treasurer The Grand Union Company 201 Willowbrook Boulevard Wayne, New Jersey 07470 Re: Stock Option Grant Dear Mr. Freimark: This is to confirm the stock option grant made to you by action of the Compensation Committee of the Board of Directors on April 13, 2000, and as a part of your Employment Agreement effective as of February 14, 2000 (the "Effective Date"). In this regard, effective April 13, 2000 (the "Grant Date"), you have been granted 475,000 Non-Qualified Stock Options (NQSO) giving you the right to purchase a total of 475,000 Option Shares of Grand Union Common Stock (i.e., one share of Common Stock per Option). The particular terms governing your Option Grant as set forth in the Employment Agreement are confirmed below. Additionally, attached hereto is a copy of the 1995 Equity Incentive Plan ("EIP"), as modified and amended, which covers the standard terms and conditions of Option Grants to our Company's associates. Any terms set forth below, which differ from or modify the terms contained in the EIP shall take precedence over the terms of the EIP. Exercise Prices - Your Options are exercisable pursuant to the following schedule: 1. 95,000 Options (20% of the total granted) are exercisable at an exercise price of $4.65 per Option; 2. 142,500 Options (30% of the total granted) are exercisable at an exercise price of $5.72 per Option; 3. 142,500 Options (30% of the total granted) are exercisable at an exercise price of $7.72 per Option; and 4. 95,000 Options (20% of the total granted) are exercisable at an exercise price of $9.72 per Option; 11 Vesting, Forfeiture and Transferability 1. Options under this NQSO will vest ratably across each of the four exercise tranches listed above, as follows: a. one-fourth on the Grant Date, and b. one-fourth each on February 14, 2001, February 14, 2002 and February 14, 2003. 2. Forfeiture of Options under this NQSO shall be governed by paragraph 4 of the Employment Agreement. 3. Vested Options and Option Shares under this NQSO will become transferable as set forth below: a. Prior to the first anniversary of the Effective Date - 0 Options and Option Shares; b. On and after the first anniversary of the Effective Date - 95,000 Options and Option Shares; c. On and after the second anniversary of the Effective Date - 95,000 additional Options and Option Shares; d. On and after the third anniversary of the Effective Date - 142,500 additional Options and Option Shares; and e. On and after the fourth anniversary of the Effective Date - 142,500 additional Options and Option Shares. 4. Except as set forth in paragraph 3 above, and except for agreed-upon family estate planning transfers, Options and Option Shares under this NQSO will not be transferred prior to the fourth anniversary of the Effective Date. Thereafter, vested Options and Option Shares will be freely transferable, subject to applicable securities laws. Duration of Options - The latest date on which your Options may be exercised is May 14, 2004. Events Affecting Your Options - Sections 4(c) and 4(d) of the Employment Agreement explain the status of your Options in the event of your termination of employment. 12 Please acknowledge your receipt and acceptance of your Stock Option Grant by signing in the space provided below and returning the document to me. Very truly yours, Glenn J. Smith, Esq. Senior Vice President General Counsel and Corporate Secretary Acknowledged and Accepted - --------------------------- 13 EX-10.21 8 0008.txt EMPLOYMENT AGREEMENT BETWEEN GRAND UNION AND MANOUCHEHR MOSLEMI EMPLOYMENT AGREEMENT AGREEMENT made as of this 13th day of April, 2000 and effective as of the 14th day of February, 2000, by and between The Grand Union Company, a Delaware corporation (the "Company"), and Manouchehr Moslemi (the "Executive"). WHEREAS, the Company desires to retain the exclusive services of Executive and Executive desires to be employed by the Company for the term of this Agreement; NOW, THEREFORE, in consideration of the promises and of the mutual covenants contained herein, the parties hereto agree as follows: 1. Duties. (a) The Executive shall serve as Senior Vice President, Chief Information Officer of the Company or such other position as may be agreed between the Executive and the Company, and shall perform such duties, services and responsibilities as are consistent with such positions, including the general management and supervision of the business and personnel of the Company and its subsidiaries. The duties, services and responsibilities will be performed under the overall supervision of the Executive Vice President, Chief Financial and Administrative Officer of the Company, consistent with the policies of the Board of Directors of the Company (the "Board of Directors"). (b) During the Employment Term (as hereinafter defined), the Executive shall devote his full business time, attention and skill to the performance of his duties, services and responsibilities, and will use his best efforts to promote the interests of the Company. The Executive will not, without the prior written approval of the Board of Directors, engage in any other business activity which would interfere with the performance of his duties, services and responsibilities hereunder or which is in violation of policies established from time to time by the Company. The foregoing shall not be construed to prohibit (i) the Executive's service as a member of the board of directors or as an officer of any non-profit trade association or civic, educational or charitable organization, or (ii) subject to the following proviso and the provisions of Section 8(b), the Executive from making personal investments of a passive nature; provided that such service or investments by the Executive do not materially interfere with the performance by the Executive of his duties, services and responsibilities hereunder. (c) During the Employment Term, the Executive shall be based at the Company's principal executive offices in Wayne, New Jersey, which executive offices may be relocated within a 100-mile radius of the Company's existing executive offices (such 100 mile radius of Wayne, New Jersey, constituting the "Principal Office City"), except for reasonably required travel in the performance of his duties, services and responsibilities hereunder. 2. Term. This Agreement and the term of employment of the Executive hereunder shall commence as of February 14, 2000 ("Effective Date") and shall continue in full force and 1 effect until the fourth anniversary of the Effective Date (the "Employment Term"), unless earlier terminated or extended as provided herein. 3. Compensation. (a) In consideration of the performance by the Executive of the Executive's obligations during the Employment Term (including any services as an officer, director, employee, member of any committee of the Company or any of its subsidiaries, or otherwise), the Company will, during the Employment Term, pay the Executive a salary (the "Salary") at no less than an annual rate of $225,000. The Salary shall be reviewed annually and may be increased at the discretion of the Compensation Committee of the Board of Directors. (b) During the term of this Agreement, Executive shall be eligible to receive bonus compensation at the end of each fiscal year of the Company in an amount to be determined by the Compensation Committee of the Board of Directors. The Bonus Plan (as hereinafter defined) shall provide for bonus compensation of up to 75% of the Salary for each fiscal year in which the Company achieves the designated performance targets. Such bonus compensation shall be prorated (based on the number of weeks elapsed during the fiscal year in question) for the fiscal year ending in March 2004. The amount of bonus compensation in any year shall be determined pursuant to the Company's Executive Annual Incentive Bonus Plan (the "Bonus Plan") and shall be calculated based on achievement against performance targets in such fiscal years, which performance targets shall be established by the Compensation Committee of the Board of Directors pursuant to the Bonus Plan. (c) The Salary shall be payable in accordance with the normal payroll practices of the Company then in effect. The Salary, and all bonuses or other forms of compensation paid to the Executive hereunder, shall be subject to all applicable taxes and withholdings required to be withheld by the Company pursuant to federal, state or local law. The Executive shall be solely responsible for income taxes imposed on the Executive by reasons of any cash or non-cash compensation and benefits provided hereunder, unless otherwise so indicated. (d) Executive shall be eligible to participate in the Company's Supplemental Retirement Plan for Key Executives (the "Plan"). (e) The Executive shall be eligible to participate in any employee benefit or other plans (including any life insurance plans) or perquisites in effect for other senior managers at his level as of February 13, 2000 to the extent the Executive meets the eligibility requirements for any such benefit plan or perquisite. (f) The Executive shall be eligible for four weeks vacation (in addition to the usual holidays) during each year during which the Executive serves hereunder. Vacation not taken during any year during the Employment Term may be carried forward with the written permission of the Chairman of the Board. 2 (g) If (i) the Executive is absent from work for more than 180 consecutive calendar days in any twelve-month period by reason of illness or incapacity (whether physical or otherwise) or (ii) the Company reasonably determines that the Executive has been unable to perform his duties, services and responsibilities hereunder by reason of illness or incapacity (whether physical or otherwise) for more than 180 calendar days in any twelve-month period during the Employment Term ("Disability"), the Company shall not be obligated to pay the Executive any compensation (Salary or bonus) for any period in excess of such 180 days and until Executive returns to his duties on a regular full time basis; furthermore, any such payments during such 180-day period shall be reduced by any amount the Executive is entitled to receive as a result of such disability under any plan provided through the Company or under state or federal law. 4. Stock Option. (a) Pursuant to the Company's 1995 Equity Incentive Plan (the "EIP") and subject to confirmation of the stock option grant in a letter from the Company's General Counsel in the form attached hereto as Exhibit A, effective as of the date approved by the Compensation Committee of the Board of Directors (the "Grant Date")], the Company hereby grants Executive options (the "Options") to purchase 125,000 shares of Grand Union Common Stock issued according to the following exercise prices and vesting schedule: Vesting - 25% on the Grant Date, 25% on February 14, 2001, 25% on February 14, 2002, and 25% on February 14, 2003; Exercise Price - 20% at $4.65, 30% at $5.72, 30% at $7.72, and 20% at $9.72. Options granted pursuant to this paragraph, which have not been exercised, will expire on May 14, 2004. The vested Options and shares received upon exercise of Options ("Option Shares") will become transferable in tranches of 20%, 20%, 30% and 30% (expressed as a percentage of the total of vested and unvested Options) on each of the first four anniversaries, respectively, of the Effective Date. Except as described in the preceding sentence, and except for transfers in connection with estate planning, the Options and Option Shares will not be transferable during the term of Executive's employment. (b) All existing stock option grants to Executive made prior to the Effective Date shall be canceled. (c) Treatment of Options Upon A Change of Control or Upon Termination Within 180 Days Preceding a Change of Control . For purposes of this Agreement, a "Change of Control" shall mean, after the Effective Date, the acquisition by any person or entity, directly or indirectly, of more than 50% of the Common Stock of the Company. If (x) a Change of Control occurs or (y) Executive's employment terminates within 180 days preceding a Change of Control by Executive for "Good Reason" or by the Company without "Cause," then the Options shall vest and become exercisable on the date of the Change of Control and transferable by Executive (or Executive's executor or administrator or the person or persons to whom the Options are transferred by will or the applicable laws of descent and distribution) at any time after the Change of Control up to and including ninety (90) days after the effective date of such Change of Control, after which all unexercised Options shall terminate. 3 (d) Treatment of Options Upon Termination Not Within 180 Days Preceding a Change of Control. If the employment of Executive with the Company shall terminate for any reason other than as specifically provided in paragraph (c) of this Section 4, including, without limitation, termination by the Company for "Cause" or termination by the Executive for any reason other than Good Reason, all vested Options shall remain exercisable by Executive through and until May 14, 2004 and all unvested Options shall terminate and become null and void, as of the effective date of such termination, except in such case as provided in paragraph (c) of this Section 4 in the event of a subsequent Change of Control within 180 days. 5. Relocation and Relocation Expenses. (a) Without limiting the Executive's responsibilities under Section 1, Executive, throughout the duration of the Employment Term, may choose not to relocate his principal residence (Executive's Principal Residence") to the Principal Office City. During such time as Executive does not relocate from Executive's Principal Residence: (i) Executive will be reimbursed for reasonable living expenses for a local rental residence in the Principal Office City; provided, however, that if by February 14, 2002, Executive relocates his residence to the Principal Office City, Executive shall be eligible for the full benefits available under the Company's Executive Relocation Program; and (ii) the Company agrees to reimburse Executive for reasonable appropriate travel expenses between the Executive's Principal Residence and the Principal Office City, upon submission by Executive to the Chief Financial Officer (or his designee or designees) of vouchers or expenses statements satisfactorily evidencing such expenses. The reimbursement of expenses under this sub-paragraph shall be taxable income to Executive and shall be subject to appropriate gross-up procedures in order to make Executive whole for such expenses. 6. Termination. (a) Except as otherwise provided in this Agreement, the employment of Executive hereunder and the Employment Term shall terminate upon the earliest to occur of the dates specified below: (i) the close of business on the date of expiration of the Employment Term; (ii) the close of business on the date of the Executive's death; (iii) the close of business on an early termination date mutually agreed to in writing by the Company and the Executive; 4 (iv) the close of business on the day on which the Company shall have delivered to the Executive a written notice of the Company's election to terminate his employment for "Cause" (as defined in Section 6(c) hereof); (v) the close of business on the day on which the Company shall have delivered to the Executive a written notice of the Company's election to terminate his employment because of Disability; (vi) the close of business on the day following the date on which the Board of Directors shall have adopted a resolution terminating the employment of the Executive hereunder and such termination is not for death, Cause or Disability; or (vii) the close of business on the date which is five business days after the date on which the Executive delivers to the Company a written notice of the Executive's election to terminate his employment hereunder (x) for "Good Reason" (as defined in Section 6(d) hereof) or (y) for any other reason. (b) Any purported termination by the Company or by the Executive pursuant to Section 6(a) (iv)-(vii) hereof shall be communicated by written "Notice of Termination" to the other party. For purposes of this Agreement, a "Notice of Termination" shall mean a written notice which indicates the specific termination provision in this Agreement relied upon and which sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated. For purposes of this Agreement, no such purported termination shall be effective without delivery of such Notice of Termination. (c) For purposes of this Agreement, termination of Executive for "Cause" shall mean termination based on (i) the Executive's material breach of this Agreement; (ii) willful misconduct or gross negligence by Executive with regard to the Company or its business, assets or employees; (iii) the refusal of Executive to follow the proper direction of the Chairman of the Board or the Board of Directors; (iv) substantial and continuing refusal by the Executive to attempt to perform the duties required of him hereunder (other than any such failure resulting from incapacity due to physical or mental illness); (v) the Executive being convicted of a felony or pleading nolo contendere to a felony (other than a felony involving a motor vehicle); (vi) the breach by Executive of any fiduciary duty owed by Executive to the Company; or (vii) Executive's dishonesty, misappropriation or fraud with regard to the Company (other than good faith expense account disputes). (d) For purposes of this Agreement, the term "Good Reason" shall mean any material breach by the Company of this Agreement; provided, however, that Executive first delivers written notice thereof to the Board of Directors of the Company with a copy to the 5 General Counsel of the Company and the Company shall have failed to cure such breach within thirty (30) days after receipt of such written notice. (e) In the event of termination of this Agreement, for whatever reason, the Executive agrees to cooperate with the Company and to be reasonably available to the Company with respect to continuing and/or future matters arising out of the Executive's employment or any other relationship with the Company, whether such matters are business-related, legal or otherwise. The Company agrees to reimburse the Executive for the Executive's reasonable expenses incurred in complying with the terms of this paragraph upon delivery by the Executive to the Company of valid receipts for such expenses. The provisions of this paragraph shall survive termination of this Agreement. 7. Termination Payments (a) Upon Termination Within Twelve Months of a Change of Control. If, within 12 months following a "Change of Control," the Executive's employment with the Company terminates for whatever reason, the Company will pay the Executive any portion of the Salary accrued hereunder on or prior to the date of such termination, but not paid. If, within 12 months following a "Change of Control," the Executive's employment with the Company terminates pursuant to Section 6(a)(vi) or Section 6(a)(vii)(x) hereof, the Company will pay the Executive any portion of Executive's bonus compensation pursuant to Section 3(b) hereof which has accrued hereunder on or prior to the date of termination but has not been paid (the "Prorata Bonus"). The Prorata Bonus shall be calculated by: (i) annualizing the Company's performance through the date of termination for the fiscal year in question; (ii) determining the bonus compensation due to the Executive pursuant to Section 3(b) hereof on the basis of the Company's annualized results for the fiscal year in question; and (iii) prorating the bonus compensation based on the portion of the fiscal year elapsed at the date of termination. Except for purposes of this Section 7, the Executive's bonus compensation pursuant to Section 3(b) for any fiscal year shall not be deemed to have been accrued prior to the completion of the fiscal year in question. If, within 12 months following a "Change of Control," the Executive's employment with the Company terminates pursuant to Section 6(a)(vi) or Section 6(a)(vii)(x) hereof, the Company will, within 30 days of such termination, pay the Executive lump sum severance pay in an amount equal to two (2) times the Executive's annual Salary (at the Salary rate in effect on the of termination of the Executive's employment hereunder), less all applicable taxes and withholdings. (b) Upon Termination Not Within Twelve Months of a Change of Control. If the Executive's employment with the Company terminates for whatever reason where paragraph 7(a) does not apply, the Company will pay the Executive any portion of the Salary accrued hereunder on or prior to the date of termination but not paid. If the Executive's employment with the Company terminates pursuant to Section 6(a)(vi) or Section 6(a)(vii)(x) hereof, but not within twelve months of a Change of Control, the Company will pay the Executive his Prorata Bonus as calculated in the manner described in paragraph 7(a). Except for purposes of this Section 7, the Executive's bonus compensation pursuant to Section 3(b) for any fiscal year shall not be deemed to have been accrued prior to the completion of the fiscal 6 year in question. If the Executive's employment with the Company terminates pursuant to Section 6(a)(vi) or Section 6(a)(vii)(x) hereof, but not within twelve months of a Change of Control, the Company will, within 30 days of such termination, pay the Executive lump sum severance pay in an amount equal to one and three-fourths (1.75) times the Executive's annual Salary (at the salary rate in effect on the date of termination of the Executive's employment hereunder), less all applicable taxes and withholdings. (c) The foregoing payments (except for accrued but unused vacation pay) upon termination shall constitute the exclusive payments due the Executive upon termination under this Agreement, but shall have no effect on any benefits which may be due the Executive under any plan of the Company which provides benefits after termination of employment, except that the Executive shall not be eligible for benefits under The Grand Union Company Severance Plan for Exempt Personnel. 8. Executive Covenants. (a) Unauthorized Disclosure. The Executive agrees and understands that in the Executive's position with the Company, the Executive will be exposed to and receive information relating to the confidential affairs of the Company, including but not limited to technical information, business and marketing plans, strategies, customer information, other information concerning the Company's products, promotions, development, financing, expansion plans, business policies and practices, and other forms of information considered by the Company to be confidential and in the nature of trade secrets. Except to the extent that the proper performance of the Executive's duties, services and responsibilities hereunder may require disclosure, and except as such information (i) was known to the Executive prior to his employment by the Company or (ii) was or becomes generally available to the public other than as a result of a disclosure by the Executive in violation of the provisions of this Section 8(a), the Executive agrees that during the Employment Term and thereafter the Executive will keep such information confidential and not disclose such information, either directly or indirectly, to any third person or entity without the prior written consent of the Company. This confidentiality covenant has no temporal, geographical or territorial restriction. Upon termination of the Executive's employment under this Agreement, the Executive will promptly supply to the Company all property, keys, notes, memoranda, writings, lists, files, reports, customer lists, correspondence, tapes, disks, cards, surveys, maps, logs, machines, technical data or any other tangible product or document which has been produced by, received by or otherwise submitted to the Executive during or prior to the Employment Term. (b) Non-competition. By and in consideration of the Company's entering into this Agreement and the Salary and benefits to be provided by the Company hereunder, and further in consideration of the Executive's exposure to the proprietary information of the Company, the Executive agrees that, subject to the provisions of the last two sentences of Section 1(b), the Executive will not, during the Employment Term, directly or indirectly own, manage, operate, join, control, be employed by, or participate in the ownership, management, operation or control of or be connected in any manner, including but not limited to holding the positions of shareholder, director, officer, consultant, independent contractor, employee, 7 partner, or investor, with any Competing Enterprise. For purposes of this paragraph, the term "Competing Enterprise" shall mean any person, corporation, partnership or other entity operating one or more supermarkets within a ten (10) mile radius of any Company store if the aggregate of such Company stores (x) represent ten percent (10%) or more of the total number of Company stores operating at the date of termination (or other applicable date invoking the application of this non-compete clause) or (y) account for ten percent (10%) or more of the annual sales volume of the Company for the fiscal year immediately preceding the year of termination (or other applicable date invoking application of this non-compete clause). For this purpose, (1) "supermarket" means any store which is part of a supermarket or combination store chain or is a warehouse club selling grocery and perishable items to the public and (2) any entity operating supermarkets includes any wholesaler to independently-owned supermarkets operating under the same trade name. The prohibition of this clause (b) shall not be deemed to prevent Executive from owning 1% or less of any class of equity securities of an entity that has a class of equity securities registered under Section 12 of the Securities Exchange Act of 1934, as amended. Notwithstanding anything to the contrary in this Section 8(b), the non-competition clause contained in this Section 8(b) shall immediately terminate on the effective date of termination of the Executive's employment with the Company unless such termination is by the Company for Cause or is by the Executive without Good Reason, in which case the non-competition clause contained in this Section 8(b) shall remain in full force and effect until the fourth anniversary of the Effective Date. (c) Non-solicitation. During the Employment Term and for a period of two years thereafter, the Executive shall not interfere with the Company's relationship with, or endeavor to entice away from the Company, any person who at any time during the Employment Term was an employee of the Company. (d) Transactions Offered to the Corporation; Proprietary Materials. During the term of his employment hereunder, Executive agrees to bring to the attention of the Board of Directors or the Chief Executive Officer, all proposals, business opportunities or investments of whatever nature, in areas in which the Company and/or any of its subsidiary companies is active or may be interested in becoming active, which are created or devised by Executive or come to the attention of Executive and which might reasonably be expected to be of interest to the Company and/or any its subsidiary companies. Without limiting the generality of the foregoing, Executive acknowledges and agrees that memoranda, notes, records and other documents made or compiled by Executive or made available to Executive during the term of this Agreement concerning the business and/or activities of the Company and/or any of its subsidiary companies shall be the Company's property and shall be delivered by Executive to the Chief Executive Officer upon termination of this Agreement or at any other time at the request of the Board of Directors. (e) Remedies. The Executive agrees that any breach of the terms of this Section 8 would result in irreparable injury and damage to the Company for which the Company would have no adequate remedy at law; the Executive therefore also agrees that in the event of said breach or any threat of breach, the Company shall be entitled to an immediate injunction and restraining order to prevent such breach and/or threatened breach and/or 8 continued breach by the Executive and/or any and all persons and/or entities acting for and/or with the Executive, without having to prove damages, in addition to any other remedies to which the Company may be entitled at law or in equity. The terms of this paragraph shall not prevent the Company from pursuing any other available remedies for any breach or threatened breach hereof, including but not limited to the recovery of damages from the Executive. The provisions of subsections (a), (b), (c), (d) and (e) of this Section 8 shall survive any termination of this Agreement and the Employment Term. The existence of any claim or cause of action by the Executive against the Company, whether predicated on this Agreement or otherwise, shall not constitute a defense to the enforcement by the Company of the covenants and agreements of this Section 8. 9. Notices. Any notice or other communication required or permitted hereunder shall be in writing and shall be deemed to have been given (i) if personally delivered, when so delivered, or (ii) if mailed, three (3) business days after having been placed in the United States mail, registered or certified, postage prepaid, return receipt requested, addressed to the party to whom it is directed at the address set forth below: If to the Company: The Grand Union Company 201 Willowbrook Boulevard Wayne, New Jersey 07470 Attention: one copy to the Chief Executive Officer and one copy to the General Counsel one copy to the Chairman of the Board of Directors If to the Executive: Manouchehr Moslemi (at his local address as reflected in the Company's records) or to such other address as to which notice is given pursuant hereto. 10. Binding Effect/Assignment. This Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective heirs, executors, personal representatives, estates, successors (including, without limitation, by way of merger or change of control) and assigns. Notwithstanding the provisions of the immediately preceding sentence, the Executive shall not assign all or any portion of this Agreement without the prior written consent of the Company. 11. Entire Agreement. This Agreement sets forth the entire understanding of the parties hereto with respect to the subject matter hereof and supersedes, as of the Effective Date, all prior agreements, written or oral, between them as to such subject matter, including that certain employment letter between Executive and the Company dated June 17, 1998. This 9 Agreement may not be amended, nor may any provision hereof be modified or waived, except by an instrument in writing duly signed by the party to be charged. 12. Severability. If any provision of this Agreement, or any application thereof to any circumstances, is invalid, in whole or in part, such provision or application shall to that extent be severable and shall not affect other provisions or applications of this Agreement. 13. Governing Law. This Agreement shall be governed by and construed in accordance with the internal laws of the State of New Jersey, without reference to the principles of conflict of laws. 14. Modifications and Waivers. No provisions of this Agreement may be modified, altered or amended except by an instrument in writing executed by the parties hereto. No waiver by either party hereto of any breach by the other party hereto of any provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions at the time or at any prior or subsequent time. 15. Headings. The headings contained herein are solely for the purposes of reference, are not part of this Agreement and shall not in any way affect the meaning or interpretation of this Agreement. 16. Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed to be an original but all of which together shall constitute one and the same instrument. IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by authority of its Board of Directors, and the Executive has hereunto set his hand, as of the day and year first above written. THE GRAND UNION COMPANY By: ----------------------------------------- Glenn J. Smith Senior Vice President, General Counsel and Corporate Secretary as authorized by the Board of Directors By: ----------------------------------------- Manouchehr Moslemi Original ____ of 2 10 EXHIBIT A April 13, 2000 Manouchehr Moslemi Senior Vice President, Chief Information Officer The Grand Union Company 201 Willowbrook Boulevard Wayne, New Jersey 07470 Re: Stock Option Grant Dear Mr. Moslemi: This is to confirm the stock option grant made to you by action of the Compensation Committee of the Board of Directors on April 13, 2000, and as a part of your Employment Agreement effective as of February 14, 2000 (the "Effective Date"). In this regard, effective April 13, 2000 (the "Grant Date"), you have been granted 125,000 Non-Qualified Stock Options (NQSO) giving you the right to purchase a total of 125,000 Option Shares of Grand Union Common Stock (i.e., one share of Common Stock per Option). The particular terms governing your Option Grant as set forth in the Employment Agreement are confirmed below. Additionally, attached hereto is a copy of the 1995 Equity Incentive Plan ("EIP"), as modified and amended, which covers the standard terms and conditions of Option Grants to our Company's associates. Any terms set forth below, which differ from or modify the terms contained in the EIP shall take precedence over the terms of the EIP. Exercise Prices - Your Options are exercisable pursuant to the following schedule: 1. 25,000 Options (20% of the total granted) are exercisable at an exercise price of $4.65 per Option; 2. 37,500 Options (30% of the total granted) are exercisable at an exercise price of $5.72 per Option; 3. 37,500 Options (30% of the total granted) are exercisable at an exercise price of $7.72 per Option; and 4. 25,000 Options (20% of the total granted) are exercisable at an exercise price of $9.72 per Option; 11 Vesting, Forfeiture and Transferability 1. Options under this NQSO will vest ratably across each of the four exercise tranches listed above, as follows: a. one-fourth on the Grant Date, and b. one-fourth each on February 14, 2001, February 14, 2002 and February 14, 2003. 2. Forfeiture of Options under this NQSO shall be governed by paragraph 4 of the Employment Agreement. 3. Vested Options and Option Shares under this NQSO will become transferable as set forth below: a. Prior to the first anniversary of the Effective Date - 0 Options and Option Shares; b. On and after the first anniversary of the Effective Date - 25,000 Options and Option Shares; c. On and after the second anniversary of the Effective Date - 25,000 additional Options and Option Shares; d. On and after the third anniversary of the Effective Date - 37,500 additional Options and Option Shares; and e. On and after the fourth anniversary of the Effective Date - 37,500 additional Options and Option Shares. 4. Except as set forth in paragraph 3 above, and except for agreed-upon family estate planning transfers, Options and Option Shares under this NQSO will not be transferred prior to the fourth anniversary of the Effective Date. Thereafter, vested Options and Option Shares will be freely transferable, subject to applicable securities laws. Duration of Options - The latest date on which your Options may be exercised is May 14, 2004. Events Affecting Your Options - Sections 4(c) and 4(d) of the Employment Agreement explain the status of your Options in the event of your termination of employment. 12 Please acknowledge your receipt and acceptance of your Stock Option Grant by signing in the space provided below and returning the document to me. Very truly yours, Glenn J. Smith, Esq. Senior Vice President General Counsel and Corporate Secretary Acknowledged and Accepted - --------------------------- 13 EX-10.22 9 0009.txt EMPLOYMENT AGREEMENT BETWEEN GRAND UNION AND GLENN J. SMITH EMPLOYMENT AGREEMENT AGREEMENT made as of this 13th day of April, 2000 and effective as of the 14th day of February, 2000, by and between The Grand Union Company, a Delaware corporation (the "Company"), and Glenn J. Smith (the "Executive"). WHEREAS, the Company desires to retain the exclusive services of Executive and Executive desires to be employed by the Company for the term of this Agreement; NOW, THEREFORE, in consideration of the promises and of the mutual covenants contained herein, the parties hereto agree as follows: 1. Duties. (a) The Executive shall serve as Senior Vice President, General Counsel and Corporate Secretary of the Company or such other position as may be agreed between the Executive and the Company, and shall perform such duties, services and responsibilities as are consistent with such positions, including the general management and supervision of the business and personnel of the Company and its subsidiaries. The duties, services and responsibilities will be performed under the overall supervision of the Chairman of the Board and the Chief Executive Officer of the Company, consistent with the policies of the Board of Directors of the Company (the "Board of Directors"). (b) During the Employment Term (as hereinafter defined), the Executive shall devote his full business time, attention and skill to the performance of his duties, services and responsibilities, and will use his best efforts to promote the interests of the Company. The Executive will not, without the prior written approval of the Board of Directors, engage in any other business activity which would interfere with the performance of his duties, services and responsibilities hereunder or which is in violation of policies established from time to time by the Company. The foregoing shall not be construed to prohibit (i) the Executive's service as a member of the board of directors or as an officer of any non-profit trade association or civic, educational or charitable organization, or (ii) subject to the following proviso and the provisions of Section 8(b), the Executive from making personal investments of a passive nature; provided that such service or investments by the Executive do not materially interfere with the performance by the Executive of his duties, services and responsibilities hereunder. (c) During the Employment Term, the Executive shall be based at the Company's principal executive offices in Wayne, New Jersey, which executive offices may be relocated within a 100-mile radius of the Company's existing executive offices (such 100 mile radius of Wayne, New Jersey, constituting the "Principal Office City"), except for reasonably required travel in the performance of his duties, services and responsibilities hereunder. 2. Term. This Agreement and the term of employment of the Executive hereunder shall commence as of February 14, 2000 ("Effective Date") and shall continue in full force and 1 effect until the fourth anniversary of the Effective Date (the "Employment Term"), unless earlier terminated or extended as provided herein. 3. Compensation. (a) In consideration of the performance by the Executive of the Executive's obligations during the Employment Term (including any services as an officer, director, employee, member of any committee of the Company or any of its subsidiaries, or otherwise), the Company will, during the Employment Term, pay the Executive a salary (the "Salary") at no less than an annual rate of $225,000. The Salary shall be reviewed annually and may be increased at the discretion of the Compensation Committee of the Board of Directors. (b) During the term of this Agreement, Executive shall be eligible to receive bonus compensation at the end of each fiscal year of the Company in an amount to be determined by the Compensation Committee of the Board of Directors. The Bonus Plan (as hereinafter defined) shall provide for bonus compensation of up to 75% of the Salary for each fiscal year in which the Company achieves the designated performance targets. Such bonus compensation shall be prorated (based on the number of weeks elapsed during the fiscal year in question) for the fiscal year ending in March 2004. The amount of bonus compensation in any year shall be determined pursuant to the Company's Executive Annual Incentive Bonus Plan (the "Bonus Plan") and shall be calculated based on achievement against performance targets in such fiscal years, which performance targets shall be established by the Compensation Committee of the Board of Directors pursuant to the Bonus Plan. (c) The Salary shall be payable in accordance with the normal payroll practices of the Company then in effect. The Salary, and all bonuses or other forms of compensation paid to the Executive hereunder, shall be subject to all applicable taxes and withholdings required to be withheld by the Company pursuant to federal, state or local law. The Executive shall be solely responsible for income taxes imposed on the Executive by reasons of any cash or non-cash compensation and benefits provided hereunder, unless otherwise so indicated. (d) Executive shall be eligible to participate in the Company's Supplemental Retirement Plan for Key Executives (the "Plan"). (e) The Executive shall be eligible to participate in any employee benefit or other plans (including any life insurance plans) or perquisites in effect for other senior managers at his level as of February 13, 2000 to the extent the Executive meets the eligibility requirements for any such benefit plan or perquisite. (f) The Executive shall be eligible for four weeks vacation (in addition to the usual holidays) during each year during which the Executive serves hereunder. Vacation not taken during any year during the Employment Term may be carried forward with the written permission of the Chairman of the Board. 2 (g) If (i) the Executive is absent from work for more than 180 consecutive calendar days in any twelve-month period by reason of illness or incapacity (whether physical or otherwise) or (ii) the Company reasonably determines that the Executive has been unable to perform his duties, services and responsibilities hereunder by reason of illness or incapacity (whether physical or otherwise) for more than 180 calendar days in any twelve-month period during the Employment Term ("Disability"), the Company shall not be obligated to pay the Executive any compensation (Salary or bonus) for any period in excess of such 180 days and until Executive returns to his duties on a regular full time basis; furthermore, any such payments during such 180-day period shall be reduced by any amount the Executive is entitled to receive as a result of such disability under any plan provided through the Company or under state or federal law. 4. Stock Option. (a) Pursuant to the Company's 1995 Equity Incentive Plan (the "EIP") and subject to confirmation of the stock option grant in a letter from the Company's Chief Executive Officer in the form attached hereto as Exhibit A, effective as of the date approved by the Compensation Committee of the Board of Directors (the "Grant Date"), the Company hereby grants Executive options (the "Options") to purchase 125,000 shares of Grand Union Common Stock issued according to the following exercise prices and vesting schedule: Vesting - 25% on the Grant Date, 25% on February 14, 2001, 25% on February 14, 2002, and 25% on February 14, 2003; Exercise Price - 20% at $4.65, 30% at $5.72, 30% at $7.72, and 20% at $9.72. Options granted pursuant to this paragraph, which have not been exercised, will expire on May 14, 2004. The vested Options and shares received upon exercise of Options ("Option Shares") will become transferable in tranches of 20%, 20%, 30% and 30% (expressed as a percentage of the total of vested and unvested Options) on each of the first four anniversaries, respectively, of the Effective Date. Except as described in the preceding sentence, and except for transfers in connection with estate planning, the Options and Option Shares will not be transferable during the term of Executive's employment. (b) All existing stock option grants to Executive made prior to the Effective Date shall be canceled. (c) Treatment of Options Upon A Change of Control or Upon Termination Within 180 Days Preceding a Change of Control . For purposes of this Agreement, a "Change of Control" shall mean, after the Effective Date, the acquisition by any person or entity, directly or indirectly, of more than 50% of the Common Stock of the Company. If (x) a Change of Control occurs or (y) Executive's employment terminates within 180 days preceding a Change of Control by Executive for "Good Reason" or by the Company without "Cause," then the Options shall vest and become exercisable on the date of the Change of Control and transferable by Executive (or Executive's executor or administrator or the person or persons to whom the Options are transferred by will or the applicable laws of descent and distribution) at any time after the Change of Control up to and including ninety (90) days after the effective date of such Change of Control, after which all unexercised Options shall terminate 3 (d) Treatment of Options Upon Termination Not Within 180 Days Preceding a Change of Control If the employment of Executive with the Company shall terminate for any reason other than as specifically provided in paragraph (c) of this Section 4, including, without limitation, termination by the Company for "Cause" or termination by the Executive for any reason other than Good Reason, all vested Options shall remain exercisable by Executive through and until May 14, 2004 and all unvested Options shall terminate and become null and void, as of the effective date of such termination, except in such case as provided in paragraph (c) of this Section 4 in the event of a subsequent Change of Control within 180 days. 5. Relocation and Relocation Expenses. The Executive agrees that, during the Employment Term, he shall maintain, at his own cost and expense, his principal residence within a 100-mile radius of Wayne, New Jersey. Executive shall continue to be eligible for the full benefits available, if any, under the Company's Executive Relocation Program. The reimbursement of expenses under this sub-paragraph shall be taxable income to Executive and shall be subject to appropriate gross-up procedures in order to make Executive whole for such expenses. 6. Termination. (a) Except as otherwise provided in this Agreement, the employment of Executive hereunder and the Employment Term shall terminate upon the earliest to occur of the dates specified below: (i) the close of business on the date of expiration of the Employment Term; (ii) the close of business on the date of the Executive's death; (iii) the close of business on an early termination date mutually agreed to in writing by the Company and the Executive; (iv) the close of business on the day on which the Company shall have delivered to the Executive a written notice of the Company's election to terminate his employment for "Cause" (as defined in Section 6(c) hereof); (v) the close of business on the day on which the Company shall have delivered to the Executive a written notice of the Company's election to terminate his employment because of Disability; 4 (vi) the close of business on the day following the date on which the Board of Directors shall have adopted a resolution terminating the employment of the Executive hereunder and such termination is not for death, Cause or Disability; or (vii) the close of business on the date which is five business days after the date on which the Executive delivers to the Company a written notice of the Executive's election to terminate his employment hereunder (x) for "Good Reason" (as defined in Section 6(d) hereof) or (y) for any other reason. (b) Any purported termination by the Company or by the Executive pursuant to Section 6(a) (iv)-(vii) hereof shall be communicated by written "Notice of Termination" to the other party. For purposes of this Agreement, a "Notice of Termination" shall mean a written notice which indicates the specific termination provision in this Agreement relied upon and which sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated. For purposes of this Agreement, no such purported termination shall be effective without delivery of such Notice of Termination. (c) For purposes of this Agreement, termination of Executive for "Cause" shall mean termination based on (i) the Executive's material breach of this Agreement; (ii) willful misconduct or gross negligence by Executive with regard to the Company or its business, assets or employees; (iii) the refusal of Executive to follow the proper direction of the Chairman of the Board or the Board of Directors; (iv) substantial and continuing refusal by the Executive to attempt to perform the duties required of him hereunder (other than any such failure resulting from incapacity due to physical or mental illness); (v) the Executive being convicted of a felony or pleading nolo contendere to a felony (other than a felony involving a motor vehicle); (vi) the breach by Executive of any fiduciary duty owed by Executive to the Company; or (vii) Executive's dishonesty, misappropriation or fraud with regard to the Company (other than good faith expense account disputes). (d) For purposes of this Agreement, the term "Good Reason" shall mean any material breach by the Company of this Agreement; provided, however, that Executive first delivers written notice thereof to the Board of Directors of the Company with a copy to the Chief Executive Officer of the Company and the Company shall have failed to cure such breach within thirty (30) days after receipt of such written notice. (e) In the event of termination of this Agreement, for whatever reason, the Executive agrees to cooperate with the Company and to be reasonably available to the Company with respect to continuing and/or future matters arising out of the Executive's employment or any other relationship with the Company, whether such matters are business-related, legal or otherwise. The Company agrees to reimburse the Executive for the Executive's reasonable expenses incurred in complying with the terms of this paragraph upon delivery by the Executive 5 to the Company of valid receipts for such expenses. The provisions of this paragraph shall survive termination of this Agreement. 7. Termination Payments (a) Upon Termination Within Twelve Months of a Change of Control. If, within 12 months following a "Change of Control," the Executive's employment with the Company terminates for whatever reason, the Company will pay the Executive any portion of the Salary accrued hereunder on or prior to the date of such termination, but not paid. If, within 12 months following a "Change of Control," the Executive's employment with the Company terminates pursuant to Section 6(a)(vi) or Section 6(a)(vii)(x) hereof, the Company will pay the Executive any portion of Executive's bonus compensation pursuant to Section 3(b) hereof which has accrued hereunder on or prior to the date of termination but has not been paid (the "Prorata Bonus"). The Prorata Bonus shall be calculated by: (i) annualizing the Company's performance through the date of termination for the fiscal year in question; (ii) determining the bonus compensation due to the Executive pursuant to Section 3(b) hereof on the basis of the Company's annualized results for the fiscal year in question; and (iii) prorating the bonus compensation based on the portion of the fiscal year elapsed at the date of termination. Except for purposes of this Section 7, the Executive's bonus compensation pursuant to Section 3(b) for any fiscal year shall not be deemed to have been accrued prior to the completion of the fiscal year in question. If, within 12 months following a "Change of Control," the Executive's employment with the Company terminates pursuant to Section 6(a)(vi) or Section 6(a)(vii)(x) hereof, the Company will, within 30 days of such termination, pay the Executive lump sum severance pay in an amount equal to two (2) times the Executive's annual Salary (at the Salary rate in effect on the date of termination of the Executive's employment hereunder), less all applicable taxes and withholdings. (b) Upon Termination Not Within Twelve Months of a Change of Control. If the Executive's employment with the Company terminates for whatever reason where paragraph 7(a) does not apply, the Company will pay the Executive any portion of the Salary accrued hereunder on or prior to the date of termination but not paid. If the Executive's employment with the Company terminates pursuant to Section 6(a)(vi) or Section 6(a)(vii)(x) hereof, but not within twelve months of a Change of Control, the Company will pay the Executive his Prorata Bonus as calculated in the manner described in paragraph 7(a). Except for purposes of this Section 7, the Executive's bonus compensation pursuant to Section 3(b) for any fiscal year shall not be deemed to have been accrued prior to the completion of the fiscal year in question. If the Executive's employment with the Company terminates pursuant to Section 6(a)(vi) or Section 6(a)(vii)(x) hereof, but not within twelve months of a Change of Control, the Company will, within 30 days of such termination, pay the Executive lump sum severance pay in an amount equal to one and three-fourths (1.75) times the Executive's annual Salary (at the Salary rate in effect on the date of termination of the Executive's employment hereunder), less all applicable taxes and withholdings. (c) In the event the employment of Executive is terminated for any reason set forth in paragraph (a) or (b) of this Section 7, Executive shall be paid an additional 6 lump sum equal to the then current lease buyout price (including taxes) of Executive's Company leased automobile. Thereupon, Executive shall directly purchase said vehicle from the leasing company that leases said vehicle to the Company. (d) The foregoing payments (except for accrued but unused vacation pay) upon termination shall constitute the exclusive payments due the Executive upon termination under this Agreement, but shall have no effect on any benefits which may be due the Executive under any plan of the Company which provides benefits after termination of employment, except that the Executive shall not be eligible for benefits under The Grand Union Company Severance Plan for Exempt Personnel. 8. Executive Covenants. (a) Unauthorized Disclosure. The Executive agrees and understands that in the Executive's position with the Company, the Executive will be exposed to and receive information relating to the confidential affairs of the Company, including but not limited to technical information, business and marketing plans, strategies, customer information, other information concerning the Company's products, promotions, development, financing, expansion plans, business policies and practices, and other forms of information considered by the Company to be confidential and in the nature of trade secrets. Except to the extent that the proper performance of the Executive's duties, services and responsibilities hereunder may require disclosure, and except as such information (i) was known to the Executive prior to his employment by the Company or (ii) was or becomes generally available to the public other than as a result of a disclosure by the Executive in violation of the provisions of this Section 8(a), the Executive agrees that during the Employment Term and thereafter the Executive will keep such information confidential and not disclose such information, either directly or indirectly, to any third person or entity without the prior written consent of the Company. This confidentiality covenant has no temporal, geographical or territorial restriction. Upon termination of the Executive's employment under this Agreement, the Executive will promptly supply to the Company all property, keys, notes, memoranda, writings, lists, files, reports, customer lists, correspondence, tapes, disks, cards, surveys, maps, logs, machines, technical data or any other tangible product or document which has been produced by, received by or otherwise submitted to the Executive during or prior to the Employment Term. (b) Non-competition. By and in consideration of the Company's entering into this Agreement and the Salary and benefits to be provided by the Company hereunder, and further in consideration of the Executive's exposure to the proprietary information of the Company, the Executive agrees that, subject to the provisions of the last two sentences of Section 1(b), the Executive will not, during the Employment Term, directly or indirectly own, manage, operate, join, control, be employed by, or participate in the ownership, management, operation or control of or be connected in any manner, including but not limited to holding the positions of shareholder, director, officer, consultant, independent contractor, employee, partner, or investor, with any Competing Enterprise. For purposes of this paragraph, the term "Competing Enterprise" shall mean any person, corporation, partnership or other entity operating one or more supermarkets within a ten (10) mile radius of any Company store if the 7 aggregate of such Company stores (x) represent ten percent (10%) or more of the total number of Company stores operating at the date of termination (or other applicable date invoking the application of this non-compete clause) or (y) account for ten percent (10%) or more of the annual sales volume of the Company for the fiscal year immediately preceding the year of termination (or other applicable date invoking application of this non-compete clause). For this purpose, (1) "supermarket" means any store which is part of a supermarket or combination store chain or is a warehouse club selling grocery and perishable items to the public and (2) any entity operating supermarkets includes any wholesaler to independently-owned supermarkets operating under the same trade name. The prohibition of this clause (b) shall not be deemed to prevent Executive from owning 1% or less of any class of equity securities of an entity that has a class of equity securities registered under Section 12 of the Securities Exchange Act of 1934, as amended. Notwithstanding anything to the contrary in this Section 8(b), the non-competition clause contained in this Section 8(b) shall immediately terminate on the effective date of termination of the Executive's employment with the Company unless such termination is by the Company for Cause or is by the Executive without Good Reason, in which case the non-competition clause contained in this Section 8(b) shall remain in full force and effect until the fourth anniversary of the Effective Date. (c) Non-solicitation. During the Employment Term and for a period of two years thereafter, the Executive shall not interfere with the Company's relationship with, or endeavor to entice away from the Company, any person who at any time during the Employment Term was an employee of the Company. (d) Transactions Offered to the Corporation; Proprietary Materials. During the term of his employment hereunder, Executive agrees to bring to the attention of the Board of Directors or the Chief Executive Officer, all proposals, business opportunities or investments of whatever nature, in areas in which the Company and/or any of its subsidiary companies is active or may be interested in becoming active, which are created or devised by Executive or come to the attention of Executive and which might reasonably be expected to be of interest to the Company and/or any its subsidiary companies. Without limiting the generality of the foregoing, Executive acknowledges and agrees that memoranda, notes, records and other documents made or compiled by Executive or made available to Executive during the term of this Agreement concerning the business and/or activities of the Company and/or any of its subsidiary companies shall be the Company's property and shall be delivered by Executive to the Chief Executive Officer upon termination of this Agreement or at any other time at the request of the Board of Directors. (e) Remedies. The Executive agrees that any breach of the terms of this Section 8 would result in irreparable injury and damage to the Company for which the Company would have no adequate remedy at law; the Executive therefore also agrees that in the event of said breach or any threat of breach, the Company shall be entitled to an immediate injunction and restraining order to prevent such breach and/or threatened breach and/or continued breach by the Executive and/or any and all persons and/or entities acting for and/or with the Executive, without having to prove damages, in addition to any other remedies to which the Company may be entitled at law or in equity. The terms of this paragraph shall not 8 prevent the Company from pursuing any other available remedies for any breach or threatened breach hereof, including but not limited to the recovery of damages from the Executive. The provisions of subsections (a), (b), (c), (d) and (e) of this Section 8 shall survive any termination of this Agreement and the Employment Term. The existence of any claim or cause of action by the Executive against the Company, whether predicated on this Agreement or otherwise, shall not constitute a defense to the enforcement by the Company of the covenants and agreements of this Section 8. 9. Notices. Any notice or other communication required or permitted hereunder shall be in writing and shall be deemed to have been given (i) if personally delivered, when so delivered, or (ii) if mailed, three (3) business days after having been placed in the United States mail, registered or certified, postage prepaid, return receipt requested, addressed to the party to whom it is directed at the address set forth below: If to the Company: The Grand Union Company 201 Willowbrook Boulevard Wayne, New Jersey 07470 Attention: one copy to the Chief Executive Officer and one copy to the Chief Financial Officer one copy to the Chairman of the Board of Directors If to the Executive: Glenn J. Smith (at his local address as reflected in the Company's records) or to such other address as to which notice is given pursuant hereto. 10. Binding Effect/Assignment. This Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective heirs, executors, personal representatives, estates, successors (including, without limitation, by way of merger or change of control) and assigns. Notwithstanding the provisions of the immediately preceding sentence, the Executive shall not assign all or any portion of this Agreement without the prior written consent of the Company. 11. Entire Agreement. This Agreement sets forth the entire understanding of the parties hereto with respect to the subject matter hereof and supersedes, as of the Effective Date, all prior agreements, written or oral, between them as to such subject matter. This Agreement may not be amended, nor may any provision hereof be modified or waived, except by an instrument in writing duly signed by the party to be charged. 9 12. Severability. If any provision of this Agreement, or any application thereof to any circumstances, is invalid, in whole or in part, such provision or application shall to that extent be severable and shall not affect other provisions or applications of this Agreement. 13. Governing Law. This Agreement shall be governed by and construed in accordance with the internal laws of the State of New Jersey, without reference to the principles of conflict of laws. 14. Modifications and Waivers. No provisions of this Agreement may be modified, altered or amended except by an instrument in writing executed by the parties hereto. No waiver by either party hereto of any breach by the other party hereto of any provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions at the time or at any prior or subsequent time. 15. Headings. The headings contained herein are solely for the purposes of reference, are not part of this Agreement and shall not in any way affect the meaning or interpretation of this Agreement. 16. Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed to be an original but all of which together shall constitute one and the same instrument. IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by authority of its Board of Directors, and the Executive has hereunto set his hand, as of the day and year first above written. THE GRAND UNION COMPANY By: ----------------------------------------- Gary M. Philbin President and Chief Executive Officer as authorized by the Board of Directors By: ----------------------------------------- Glenn J. Smith Original ____ of 2 10 EXHIBIT A April 13, 2000 Glenn J. Smith Senior Vice President, General Counsel and Corporate Secretary The Grand Union Company 201 Willowbrook Boulevard Wayne, New Jersey 07470 Re: Stock Option Grant Dear Mr. Smith: This is to confirm the stock option grant made to you by action of the Compensation Committee of the Board of Directors on April 13, 2000, and as a part of your Employment Agreement effective as of February 14, 2000 (the "Effective Date"). In this regard, effective April 13, 2000 (the "Grant Date"), you have been granted 125,000 Non-Qualified Stock Options (NQSO) giving you the right to purchase a total of 125,000 Option Shares of Grand Union Common Stock (i.e., one share of Common Stock per Option). The particular terms governing your Option Grant as set forth in the Employment Agreement are confirmed below. Additionally, attached hereto is a copy of the 1995 Equity Incentive Plan ("EIP"), as modified and amended, which covers the standard terms and conditions of Option Grants to our Company's associates. Any terms set forth below, which differ from or modify the terms contained in the EIP shall take precedence over the terms of the EIP. Exercise Prices - Your Options are exercisable pursuant to the following schedule: 1. 25,000 Options (20% of the total granted) are exercisable at an exercise price of $4.65 per Option; 2. 37,500 Options (30% of the total granted) are exercisable at an exercise price of $5.72 per Option; 3. 37,500 Options (30% of the total granted) are exercisable at an exercise price of $7.72 per Option; and 4. 25,000 Options (20% of the total granted) are exercisable at an exercise price of $9.72 per Option; 11 Vesting, Forfeiture and Transferability 1. Options under this NQSO will vest ratably across each of the four exercise tranches listed above, as follows: a. one-fourth on the Grant Date, and b. one-fourth each on February 14, 2001, February 14, 2002 and February 14, 2003. 2. Forfeiture of Options under this NQSO shall be governed by paragraph 4 of the Employment Agreement. 3. Vested Options and Option Shares under this NQSO will become transferable as set forth below: a. Prior to the first anniversary of the Effective Date - 0 Options and Option Shares; b. On and after the first anniversary of the Effective Date - 25,000 Options and Option Shares; c. On and after the second anniversary of the Effective Date - 25,000 additional Options and Option Shares; d. On and after the third anniversary of the Effective Date - 37,500 additional Options and Option Shares; and e. On and after the fourth anniversary of the Effective Date - 37,500 additional Options and Option Shares. 4. Except as set forth in paragraph 3 above, and except for agreed-upon family estate planning transfers, Options and Option Shares under this NQSO will not be transferred prior to the fourth anniversary of the Effective Date. Thereafter, vested Options and Option Shares will be freely transferable, subject to applicable securities laws. Duration of Options - The latest date on which your Options may be exercised is May 14, 2004. Events Affecting Your Options - Sections 4(c) and 4(d) of the Employment Agreement explain the status of your Options in the event of your termination of employment. 12 Please acknowledge your receipt and acceptance of your Stock Option Grant by signing in the space provided below and returning the document to me. Very truly yours, Gary M. Philbin President and Chief Executive Officer Acknowledged and Accepted - --------------------------- 13 EX-27 10 0010.txt FINANCIAL DATA SCHEDULE
5 This schedule contains summary financial information extracted from the consolidated financial statements and is qualified in its entirety by reference to such financial statements. 1-MO APR-01-2000 APR-01-2000 19,895 0 43,865 0 145,293 221,960 851,574 526,855 793,434 199,805 0 0 0 300 (2,773) 793,434 2,204,512 2,204,512 1,577,405 1,577,405 773,667 0 43,125 (189,685) 117,180 (306,865) 0 0 3,525 (310,390) (10.35) (10.35)
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