-----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, IyinXkvYCUtE1cu2j3KLR78RxtxmqVxbbWpIypAAcUYqIt4z9rw3LmgnFNzae3zY c527GlQAYh59WZy7bXU1gw== 0000889812-98-001614.txt : 19980629 0000889812-98-001614.hdr.sgml : 19980629 ACCESSION NUMBER: 0000889812-98-001614 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 19980328 FILED AS OF DATE: 19980626 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: GRAND UNION CO /DE/ CENTRAL INDEX KEY: 0000316236 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-GROCERY STORES [5411] IRS NUMBER: 221518276 STATE OF INCORPORATION: DE FISCAL YEAR END: 0328 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-07824 FILM NUMBER: 98655259 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 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 March 28, 1998 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 (I.R.S. Employer Identification No.) incorporation or 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 Common Stock, Par Value $0.01 pursuant to Section 12 (g) --------------------------------------------- of the Act: 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. [ ] The aggregate market value of the voting stock held by nonaffiliates of the registrant as of June 22, 1998 is approximately $1,621,443, based upon the average of the bid and asked prices of the Common Stock on such date on the Over-The-Counter market. For the purpose of this calculation, all members of the Board of Directors and all stockholders with sole or shared voting power over 10% or more of the Company's voting stock 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 24, 1998 there were issued and outstanding 10,202,018 shares, par value $0.01 per share, of the registrant's Common Stock. 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"), currently operates 222 retail food stores under the "Grand Union" name in six northeastern states. Through May 20, 1998, Grand Union's Common Stock was listed on the NASDAQ SmallCap Market under the symbol "GUCO." The Company's Common Stock is currently eligible for quotation on the Over-The-Counter Bulletin Board. On June 24, 1998, the Company filed a voluntary petition for relief under chapter 11, Title 11 of the United States Code, as amended, with the United States Bankruptcy Court for the District of New Jersey. (See "Chapter 11 Filing" below). As a result of the implementation of several key strategic initiatives, Grand Union has been able to stabilize its operations in the critical areas of sales, margins, promotional income and expense levels. These initiatives included a complete restaffing of senior management positions, organizational restructuring measures and reconfiguration of the company into three operating areas. Grand Union is continuing these strategic initiatives, identifying additional areas for administrative expense reduction and efficiency and pursuing new marketing and merchandising activities, all of which are designed to enhance its image as a high-quality, price-conscious operator in the northeastern retail food industry. Strategic Initiatives In recent years, results in the supermarket industry have suffered from slow population growth, increasing competitive activity, and changing consumer shopping and eating patterns. These factors are projected to keep real supermarket sales growth essentially flat over the next several years. Grand Union is in the process of implementing various strategies to meet its long-term goals for improving financial performance. Grand Union has determined a key strategy is to focus on the requirements and preferences of "Today's Customer". This strategy includes 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. In addition, Grand Union has determined that to maximize profitability, it should (i) expand its existing store base, including the development of new stores and the remodeling of existing units; (ii) implement a program for maximizing advertising and promotion allowance revenues from the Company's suppliers; and (iii) perform ongoing evaluation and, when appropriate, modify store locations that are not adequately contributing. Due to an historically overleveraged balance sheet, Grand Union has had insufficient resources to consistently fund capital expenditures adequately. The significant reduction in debt, and the attendant reduction in interest expense, to be effected by the proposed reorganization of the Company, together with the new proposed exit financing (see "Chapter 11 Filing" below), will provide Grand Union with substantially improved liquidity, $50 million of which will be available upon emergence. This substantial reduction of debt and the availability of new funds will enable Grand Union to execute a capital expenditure program that will enhance the operations, profitability and competitiveness of the Company. 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. Store Formats and Locations; Competition Grand Union's store sizes and formats vary depending upon the demographics and competitive conditions and real estate availability in each location in which it operates. Grand Union 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 1 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 law. Grand Union's supermarkets range in size from 7,000 to 64,000 square feet. Grand Union currently operates 222 stores in six states, including 123 in New York, 40 in Vermont, 41 in New Jersey, 13 in Connecticut, 3 in New Hampshire and 2 in Pennsylvania. On June 25, 1998, the Company re-opened its store in Bolton Landing, New York. 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 Grand Union's competitors have greater financial resources than Grand Union has and could use those resources to take steps which would adversely affect Grand Union's competitive position. In upstate New York, Grand Union generally operates in small cities and rural communities. The Company's main competitors are Golub Corporation ("Price Chopper") and Hannaford Brothers, Inc. ("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 The Great Atlantic & Pacific Tea Company, Inc. ("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 also been adversely affected by recent store openings by competitors. In Vermont, Grand Union's principal competitors are Price Chopper and Hannaford. Zoning and environmental regulations in the state restrict commercial development (including supermarkets which might be competitors of the Company). A number of 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 downstate 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. In New Jersey, the Company competes primarily against A&P, Pathmark Stores, Inc. ("Pathmark"), Ahold Supermarkets, Inc. ("Edwards" and "Stop and Shop"), ShopRite and various supermarkets supplied by the Twin County ("Foodtown") cooperative. 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, and King Kullen Grocery Co., Inc. Grand Union's main competitors in Fairfield County, Connecticut include Stop & Shop and A&P. 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 supply and distribution agreements. Under the agreements, C&S supplies 2 grocery products from its own warehouses, and health and beauty care and general merchandise products from Grand Union's Montgomery, New York warehouse. Grand Union also contracts with a third party for frozen food distribution. 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 favorable 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 Company's delicatessen departments. 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 1998 1997 1996 ---------- ---------- ---------- Number of stores (at end of year) 222 226 229 Total selling square feet at end of year (in thousands) 4,353 4,312 4,305 Average sales per selling square foot per week $10.07 $10.28 $10.28
Capital Investment The Company's capital spending is directed towards renovating and upgrading existing Grand Union stores and opening new and replacement stores in existing marketing areas. Cash capital expenditures for Fiscal 1998 and 1997 were approximately $40,000,000 and $55,000,000, respectively, excluding capital lease additions of $22,000,000 and $23,000,000, respectively. Management Information Systems Financial, purchasing and operating system requirements are supported through a central computer system located in Wayne, New Jersey. As of March 28, 1998, Grand Union utilized scanning systems in 188 stores (representing approximately 94% of total sales) and intends to continue investing in scanning and other store systems in the future where economically justified. See Item 7 for a discussion of Year 2000 compliance. Employees As of March 28, 1998, Grand Union had approximately 15,000 employees, of whom approximately 67% were employed on a part-time basis. Approximately 50% of Grand Union's employees are covered by 12 collective bargaining agreements with various local unions. On March 7, 1998, the Company entered into a new labor agreement with United Food and Commercial Workers Local 464A (formerly 489) covering approximately 161 clerks in 15 of the Company's stores in Westchester, Putnam and Dutchess counties in New York. That agreement expires in July 2002. Additionally, in April 1998 the Company reached an agreement with UFCW District Union Local One covering employees in the Elizabethtown and Port Henry, New York stores. The Local One agreements expire in September 2000. The Company's other labor agreements expire between December 1998 and October 2001. As of March 28, 1998, 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 its 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), "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 Formerly Traded on NASDAQ SmallCap Market On September 19, 1997, the NASDAQ Listing Qualifications Panel determined that Grand Union's Common Stock no longer qualified for trading on the NASDAQ National Market and would be transferred to the NASDAQ SmallCap Market. The transfer to the NASDAQ SmallCap Market was completed as of the close of business on October 21, 1997. By letter dated February 20, 1998, the NASDAQ Stock Market, Inc. notified Grand Union that it had failed to satisfy the requirements for continued listing on the NASDAQ SmallCap Market. Grand Union appealed the decision regarding continued listing to the NASDAQ Listing Qualifications Panel. In response to Grand Union's request for continued listing on the NASDAQ SmallCap Market, the NASDAQ Stock Market, Inc. conducted a hearing upon written submission on May 14, 1998 to consider Grand Union's request and determined that continued listing was not warranted. Accordingly, the Common Stock was delisted from the NASDAQ SmallCap Market effective as of the close of business on May 20, 1998. Since May 21, 1998, the Common Stock is eligible for quotation on the Over-The-Counter Bulletin Board. Financial Information about Foreign and Domestic Operations and Export Sales Grand Union has no foreign operations or export sales. Recent History Downgrading During the week of July 28, 1997, Moody's Investors Service Inc. downgraded Grand Union's Credit Agreement rating to B-3 from B-2 and lowered the rating on its Senior Notes to Caa3 from Caa1. The rating action was prompted by Grand Union's announcement that, due to the shortfall in its operating performance, it was in default of various financial covenants contained in the Credit Agreement. August 1997 Amendment of Credit Agreement and Prepetition Negotiations with Secured Banks In August 1997, an amendment to the Amended and Restated Credit Agreement (the "Credit Agreement"), among Grand Union, Bankers Trust Company, as Agent, and the lenders party thereto (the "Secured Banks"), dated as of June 15, 1995, as amended, was executed. As amended, the Credit Agreement is comprised of a term loan, a revolving credit facility and a supplemental term loan. The term loan is in the aggregate principal amount of $104,144,371. The revolving credit commitment is for $67,877,649, of which a maximum of $60,000,000 may be utilized in the form of letters of credit. The commitment matures on June 15, 2000. In each year, no more than $40,000,000 of the revolving credit facility may be outstanding in the form of borrowed money (excluding letter of credit utilization) for any 30-day period between July 15th and August 31st. As of June 26, 1998, an aggregate of $33,017,649 of letters of credit were issued and outstanding under the Credit Agreement. Grand Union incurs a commitment fee of 0.5% per annum on the average unused portion of the revolving credit facility. As part of the August 1997 amendment of the Credit Agreement, Grand Union obtained the supplemental term loan to enable it, among other things, to make its required September 1, 1997 interest payment on the Company's 12% Senior Notes due 2004 (the "Senior Notes"). The supplemental term loan facility is in an aggregate principal amount of $77,977,980, which matures on March 1, 2003. The supplemental term loan increased the total amount available under the Credit Agreement to $250 million. The supplemental term loan has no required amortization and may be prepaid without penalty on or after August 31, 1998. 4 The term loan and the revolving credit facility are secured by a lien and security interest in substantially all of the tangible and intangible assets of Grand Union, including the shares of its four subsidiaries and mortgages on a majority of the Company's leaseholds. The supplemental term loan is subordinate to the term loan and the revolving credit facility. It is secured by the same lien and security interest that secures the term loan and revolving credit facility but the rights of the lenders under the supplemental term loan in respect of such lien and security interest are subordinate to the rights of the lenders under the term loan and the revolving credit facility. The term loan and revolving credit facility of the Credit Agreement bear interest at the base rate (generally prime) plus 2% or the relevant one-, two-, three- or six-month Eurodollar rate plus 3.75% (including standard yield protection provisions). The supplemental term loan bears interest at 15% for the first year of the loan, increasing by .50% every six months thereafter, payable semiannually in arrears, plus additional interest accruing at 1% per annum payable only after the term loan and revolving credit facility have been paid in full and then only upon payment or prepayment of principal with respect to which such additional interest has accrued. The term loan requires quarterly principal payments of $13,018,046 from September 30, 2000 through June 15, 2002. The Credit Agreement contains certain restrictions and financial covenants relating to, among other things, minimum financial performance and limitations on the incurrence of additional indebtedness, asset sales, dividends, capital expenditures and prepayment of other indebtedness. Notwithstanding the increased commitment provided under the August 1997 amendment to the Credit Agreement, due to a continuing lack of sufficient liquidity, increasing competition and consolidation, and a shortfall in operating margins, Grand Union determined that its financial resources would be insufficient to satisfy the approximately $36 million interest payment due and payable on March 2, 1998 on the Senior Notes. Grand Union did not make the March 2, 1998 interest payment to holders of the Senior Notes. The failure to make such interest payment constituted a default under the Indenture governing the Senior Notes and a cross-default under the Credit Agreement. Accordingly, in February 1998, Grand Union commenced negotiations with the Secured Banks regarding obtaining necessary waivers to avoid the consequences of an event of default under the Credit Agreement and to facilitate the restructuring contemplated by the Company's proposed plan of reorganization (the "Plan of Reorganization"). Those negotiations resulted in an agreement by the Secured Banks to waive certain defaults under the Credit Agreement, subject to the terms and conditions of such waiver. The Company's filing for relief under chapter 11 of the Bankruptcy Code (see "Chapter 11 Filing" below") constituted a default under the Credit Agreement and, therefore, the Company is not permitted to make any further borrowings under the Credit Agreement. The Plan of Reorganization contemplates debtor-in-possession financing which, upon court approval, will allow the Company to refinance the term loan and the revolving credit facility under the Credit Agreement. In addition, upon consummation of the Plan of Reorganization, the Exit Facility (as defined below) will allow the Company to refinance the supplemental term loan on or after August 31, 1998. Prepetition Negotiations with the Unofficial Noteholder Committee The same industry and financial pressures that required Grand Union to commence negotiations with the Secured Banks also led the Company to commence negotiations regarding a restructuring of its obligations with the holders of the Senior Notes. In February and March 1998, eight institutions owning approximately 48% of the Senior Notes agreed to serve on an unofficial noteholder committee (the "Unofficial Noteholder Committee") and receive confidential, non-public information about Grand Union. Grand Union participated in extensive negotiations with the Unofficial Noteholder Committee regarding the terms of a proposed financial restructuring. During this time, Grand Union failed to make the approximately $36 million interest payment due and payable on the Senior Notes on March 2, 1998, which resulted in the occurrence of events of default under the Indenture governing the Senior Notes and the Credit Agreement. Nevertheless, 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 to a plan of reorganization under chapter 11 of the Bankruptcy Code. On May 14, 1998, Grand Union, the Unofficial Noteholder Committee and the holders of the Grand Union's preferred stock reached an agreement in principle regarding the proposed treatment of the preferred stock. Chapter 11 Filing 5 Pursuant to a Disclosure Statement, dated May 22, 1998 (the "Disclosure Statement"), Grand Union commenced a prepetition solicitation of votes by the holders of Senior Notes and preferred stock to accept or reject the Plan of Reorganization. The Plan of Reorganization generally provides that trade and business creditors will be unimpaired and will continue to be paid in the ordinary course of business, so long as shipments are made to the Company under terms at least equivalent to those in place prior to January 27, 1998. The Plan of Reorganization further provides that (i) the Company's Senior Notes will be cancelled and exchanged for all of the reorganized Company's common stock; (ii) the Company's existing common stock will be cancelled and exchanged for five-year warrants to purchase approximately 1.5% of the new common stock at an exercise price of $19.82 per share; (iii) the Company's preferred stock will be cancelled and exchanged for (a) five-year warrants to purchase approximately 10.5% of the new common stock at an exercise price of $19.82 per share, (b) five year warrants to purchase approximately 2.5% of the new common stock at an exercise price of $23.15 per share, and (c) four-year warrants to purchase approximately 1% of the new common stock at an exercise price of $12.32 per share; and (iv) the Company's outstanding warrants and stock options will be cancelled. At the conclusion of the solicitation period, which commenced on May 22, 1998 and ended on June 22, 1998, the Plan of Reorganization had been accepted by holders of approximately 99% of the Senior Notes in principal amount and approximately 92% in number of such holders that voted on the Plan of Reorganization and by all holders of the preferred stock that voted on the Plan of Reorganization. Holders of approximately 72% in principal amount of the outstanding Senior Notes voted to accept the Plan of Reorganization. Although Grand Union believes that the Plan of Reorganization will satisfy all requirements necessary for confirmation by the Court (as defined below), there can be no assurance that the Court will reach the same conclusion. Moreover, there can be no assurance that modifications of the Plan of Reorganization will not be required for confirmation or that such modifications would not necessitate the resolicitation of votes. On June 24, 1998, the Company filed a voluntary petition for relief (the "Filing") under chapter 11, Title 11 of the United States Code, as amended ("Chapter 11"), with the United States Bankruptcy Court for the District of New Jersey (the "Bankruptcy Court"). The Company is in possession of its property and is maintaining and operating its business as a debtor-in-possession pursuant to the provisions of Sections 1107 and 1108 of Chapter 11. In connection with the Filing, on June 24, 1998, the Company entered into a $172,022,020 firm underwritten revolving credit agreement (the "DIP Facility") with Swiss Bank Corporation ("SBC") and Lehman Commercial Paper Inc. ("LCPI"), as agents for a syndicate of lenders (together, the "DIP Lenders"). The DIP Facility consists of a revolving credit facility in an aggregate amount of $172,022,020, inclusive of a $50 million letter of credit facility. Loans under the DIP Facility will be guaranteed by each of the Company's subsidiaries. The DIP Facility will mature upon the earlier of (i) October 22, 1998, or (ii) the effective date of the Plan of Reorganization. The proceeds of the DIP Facility will be used (i) to finance the working capital needs of the Company and its subsidiaries in the ordinary course of business, (ii) to finance the payment of Chapter 11 expenses, (iii) for general corporate purposes and (iv) to refinance the revolving credit and term loans and to replace, backstop or cash collateralize letters of credit outstanding under the Credit Agreement. The DIP Facility also contains customary affirmative and negative covenants, including, without limitation, restrictions on indebtedness, liens, mergers, consolidations, liquidations, dissolutions, sales of assets and capital expenditures, and, effective 60 days after the Filing, maintenance of minimum EBITDA/interest and maximum debt/EBITDA ratios. The DIP Facility is secured by substantially all of the assets of Grand Union and its subsidiaries. The interest rate applicable to the DIP Facility will be equal to, at Grand Union's election, either (i) 1.5% above the higher of (A) Citibank's prime rate and (B) the federal funds rate plus 0.5%, or (ii) 2.5% above the rate for eurodollar deposits for one, two or three weeks or one month (as selected by Grand Union) in the interbank eurodollar market. Grand Union committed to pay an underwriting fee of $1,100,000 and is required to pay a $25,000 per month administrative fee. In addition, Grand Union will pay a commitment fee of 0.5% per annum on the average daily unused portion of the DIP Facility and a fronting fee of 0.125% on the aggregate undrawn face amount of outstanding letters of credit. The availability of the DIP Facility is conditioned, among other things, upon the entry of an order of the Bankruptcy Court approving the DIP Facility, which is anticipated to occur 15 days after the Filing. On the date the Plan of Reorganization is consummated (the "Consummation Date"), Grand Union will enter into a new credit facility (the "Exit Facility"). On April 23, 1998, Grand Union received a letter from SBC Warburg Dillon Read Inc., SBC, Lehman Brothers Inc. and LCPI, pursuant to which SBC and LCPI (collectively, the "Agent Banks") committed to provide financing to Grand Union in the aggregate principal amount of $300 million upon consummation of the Plan of Reorganization. 6 The Agent Banks, as agents for a syndicate of banks, financing institutions and other entities, including the Agent Banks (collectively, the "New Grand Union Lenders"), will provide Grand Union with the Exit Facility. The Exit Facility will be guaranteed by all of Grand Union's subsidiaries. The Exit Facility will be comprised of: (i) a $230 million term loan facility (the "Term Loan") and (ii) a $70 million revolving credit facility (the "Revolving Credit Facility"). The Term Loan and Revolving Credit Facility will mature on the fifth anniversary of the Consummation Date. The proceeds of the Exit Facility will be used to refinance the obligations under the DIP Facility and the Supplemental Term Loan claims under the 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 the Revolving Credit Facility will be available for the issuance of letters of credit. The Exit Facility will also contain customary affirmative, financial and negative covenants, including, without limitation, restrictions on liens, indebtedness and mergers or consolidations, required maintenance of a minimum ratio of EBITDA to interest and a maximum ratio of total indebtedness to EBITDA, and a limitation on the amount of capital expenditures. The Exit Facility will be secured by substantially all of the assets of Grand Union and its subsidiaries. The interest rate applicable to the Term Loan and the Revolving Credit Facility will be equal to, at Grand Union's election, either (i) 2% above the higher of (A) the SBC's prime rate and (B) .50% over the federal funds rate per annum (the "Base Rate"), or (ii) LIBOR plus 3%, in each case, subject to reduction based on certain performance criteria. Grand Union will pay a commitment fee calculated at the rate of .50% per annum on the average daily unused portion of the Revolving Credit Facility. In addition, Grand Union will pay certain fees, including but not limited to: (i) a fronting fee equal to .125% per annum of the aggregate undrawn face amount of outstanding letters of credit; (ii) an administration fee of $75,000 per annum; (iii) a facility fee; and (iv) a commitment fee of 0.5% on the amount of the commitment for the period from April 23, 1998 to the Consummation Date. The availability of the Exit Facility is conditioned, among other things, upon the Bankruptcy Court having entered an order confirming the Plan of Reorganization on or before August 31, 1998. The terms of the Exit Facility were the product of extensive negotiations and competitive bidding among Grand Union and the Agents Banks, which resulted in the commitment letter for such exit facility. The 1995 Restructuring On January 25, 1995, in connection with a capital restructuring plan reached with its bank lenders and with members of informal committees of certain holders of Grand Union notes, Grand Union filed a voluntary petition for relief under chapter 11 of the Bankruptcy Code in the bankruptcy court for the District of Delaware. The bankruptcy court confirmed on May 31, 1995 the Second Amended Chapter 11 Plan of The Grand Union Company, dated as of April 19, 1995, and Grand Union emerged from chapter 11 on June 15, 1995. Significant provisions of the 1995 restructuring plan included: 1. Treatment of Administrative Claims and General Unsecured Claims The 1995 restructuring plan provided for the payment in full of all allowed administrative claims and all allowed general unsecured and priority claims. 2. Bank Claims and Execution of Credit Agreement The 1995 restructuring plan provided for the payment in full of obligations under Grand Union's then existing bank credit agreement, including principal and accrued interest. Concurrently, Grand Union entered into the Credit Agreement, which provided for a five-year revolving credit facility of $100,000,000 and a seven-year term loan facility of $104,144,371, secured by a lien on substantially all of the assets of Grand Union and its subsidiaries. 3. Exchange of Senior Notes The 1995 restructuring plan cancelled Grand Union's obligations under its 11.375% Senior Notes due 1999 and 11.25% Senior Notes due 2000, representing an aggregate principal amount of $525,000,000 plus accrued interest, in exchange for 7 the issuance of $595,421,000 in aggregate principal amount of 12% Senior Notes due 2004 and cash payments of $54,922 for fractional interest. 4. Cancellation of Subordinated Notes and Issuance of Common Stock The 1995 restructuring plan also cancelled Grand Union's obligations under its 12.25% Senior Subordinated Notes due 2002, 12.25% Senior Subordinated Notes due 2002, Series A and 13% Senior Subordinated Notes due 1998, representing an aggregate principal amount of $566,150,000, in exchange for an aggregate of 10,000,000 shares of common stock. 5. Issuance of Warrants The 1995 restructuring plan also provided for the issuance of warrants to holders of 15% Senior Zero Coupon Notes due 2004 and 16.5% Senior Subordinated Zero Coupon Notes due 2007, which warrants expire June 15, 2000, to purchase an aggregate of 900,000 shares of common stock, pursuant to the terms of a settlement reached among Grand Union, its then indirect parent companies, the official committee of unsecured creditors of its then parent company, and certain holders of notes issued by the parent company. The warrants are comprised of 300,000 Series 1 Warrants to purchase shares of common stock at a purchase price of $30 per share and 600,000 Series 2 Warrants to purchase shares of common stock at a purchase price of $42 per share. 6. Cancellation of Remaining Long-Term Debt and Common Stock Interests The 1995 restructuring plan made no provision for the holders of the remaining long-term debt, redeemable preferred stock, common stock or warrants to purchase common stock of Grand Union's then direct parent. Item 2. Properties Grand Union conducts its operations primarily in leased stores and offices. The following table indicates the location and number of stores as of March 28, 1998. Number of Locations Stores --------- --------- New York 122 New Jersey 41 Vermont 41 Connecticut 13 New Hampshire 3 Pennsylvania 2 --- Total 222 As of March 28, 1998, Grand Union owned 14 and leased 208 of its store sites pursuant to commercial leases. Management believes no store lease is individually material to Grand Union. Most store leases contain several renewal options. Nineteen store leases do not contain renewal options and sixteen will expire over the next five years and three thereafter. Management anticipates that it will be able to renegotiate favorable lease terms for most of these locations, if so desired. 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 31 years remaining, including options. On May 20, 1998, the Company sold a 101,000 square foot warehouse in Waverly, New York, which was previously vacant. 8 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 is investigating whether such contamination was caused by improper disposal of perchloroethylene wastes by a dry cleaner previously operating at this location or by an off-site source. Grand Union has undertaken, under approval by the Connecticut Department of Environmental Protection, a proposal for a remedial investigation designed to identify the sources of such soil and ground-water contamination and to determine the length, depth and breadth of the contamination on and off-site. Sampling analyses for the ground water at the shopping center and for drinking water in private residences located in the immediately surrounding area confirm that the source of the on-site contamination, in part, is an off-site shopping center and a gasoline station located nearby. A Remedial Action and Investigation Report was submitted to the Connecticut Department of Environmental Protection on May 21, 1993. The Company has not yet received a response from the Connecticut Department of Environmental Protection, and is in the process of developing a revised remediation plan. 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 caused on-site by a source located off-site would be the responsibility of another party. The Company believes that the current intention of the Connecticut Department of Environmental Protection is to seek 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 $1,000,000. Investigations are continuing, and there can be no assurance that the amount of such liability will not exceed $1,000,000. 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 to purchase the stores at an amount defined in the Operating Agreement. Pursuant to the terms of the Operating Agreement, the 1992 Recapitalization triggered a $15,000,000 prepayment obligation to P&C Foods. The Operating Agreement was assumed during the 1995 Chapter 11 case and continues in effect. The FTC Agreements also provide, among other things, that MTH Holdings and Grand Union (including in each case their respective subsidiaries and affiliates) shall not acquire, for a period of ten years, any retail grocery stores in Vermont and certain specified counties in New York without the prior notification to, and concurrence of, the FTC. 9 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 securityholders during the fourth quarter of Fiscal 1998. PART II Item 5. Market for the Registrant's Common Equity and Related Stockholders' Matters The Common Stock of the Company is eligible for quotation on the Over-The-Counter Bulletin Board. At the close of business on June 24, 1998, there were 10,202,018 shares of Common Stock, $0.01 par value outstanding and entitled to vote. There were approximately 4,000 holders of record as of June 24, 1998. The quarterly market value of the Company's stock is discussed in Note 17 to the Consolidated Financial Statements. No cash dividends were declared or paid during each of the three fiscal years ended March 28, 1998. Payment of dividends to holders of Common Stock is restricted by the Credit Facility and by the terms of the Senior Notes and the preferred stock. Item 6. Selected Financial Data As discussed in Item 1, the Company emerged from its 1995 Chapter 11 proceedings effective June 15, 1995 (the "Effective Date"). For financial reporting purposes, the Company accounted for the consummation of the 1995 plan of reorganization effective June 17, 1995. 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 had applied 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 periods prior to the Effective Date have been designated "Predecessor Company" and the periods subsequent to the Effective Date have 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. The financial statements prior to the Effective Date reflect the accounts of MTH Holdings pushed down to the accounts of Grand Union. All dollars are in millions, except per share data. 10
Successor Company Predecessor Company ----------------------------------- -------------------------------- 52 Weeks 52 Weeks 41 Weeks 11 Weeks 52 Weeks 52 Weeks Ended Ended Ended Ended Ended Ended March 28, March 29, March 30, June 17, April 1, April 2, 1998 1997 1996 1995(**) 1995 1994 --------- --------- --------- --------- -------- -------- Statement of Operations Data: Sales $ 2,266.8 $ 2,312.7 $ 1,819.9 $ 487.9 $ 2,391.7 $ 2,477.3 Gross profit 639.5 705.7 569.9 143.8 708.3 731.7 Operating and administrative expenses 568.9 582.9 453.7 117.5 571.6 552.5 Depreciation and amortization 203.1 188.1 143.8 17.2 87.1 78.6 Unusual items 6.3 9.8 22.0 18.6 27.4 4.5 Interest expense, net 113.8 105.8 79.2 19.8 182.0 183.8 Loss before income taxes, extraordinary items and cumulative effect of accounting change (252.6) (180.8) (128.8) (29.3) (159.8) (87.6) Income tax (provision) benefit (51.4) (2.5) 18.9 - - - Extraordinary gain on debt discharge - - - 854.8 - - Cumulative effect of accounting change - - - - - 30.3 Net (loss) income (304.0) (183.4) (109.9) 825.5 (159.8) (118.0) Net (loss) applicable to common stock (312.4) (185.4) - - - - Net (loss) per common share (*) (31.1) (18.5) (11.0) - - - Deficiency in earnings available to cover fixed charges (252.6) (180.8) (128.8) (29.3) (159.8) (87.6) Balance Sheet Data: Total assets 892.2 1,071.8 1,178.2 - 1,394.8 1,394.2 Total debt and capital lease obligations 959.5 888.4 875.1 - 1,614.9 1,532.2 Redeemable stock 113.4 65.0 - - 174.2 154.7 Nonredeemable stock and stockholders' equity (466.6) (153.2) 44.1 - (824.3) (644.8) (deficit) Operating and Other Data: Capital expenditures $ 39.7 $ 55.1 $ 43.0 $ 3.0 $ 70.8 $ 86.2 Number of stores at year end 222 226 229 N/A 231 254
(*) Loss per share data is not meaningful for periods prior to the Effective Date due to the significant changes in the capital structure of the Company. (**) Balance sheet data is not applicable at this date. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations General As discussed in Item 1, the Company emerged from its 1995 Chapter 11 proceedings effective June 15, 1995 (the "Effective Date"). For financial reporting purposes, the Company accounted for the consummation of the 1995 plan of reorganization effective June 17, 1995. 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 had applied 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 had been deemed created for financial reporting purposes. The periods prior to the Effective Date have been designated "Predecessor Company" and the periods subsequent to the Effective Date have been designated "Successor Company." For purposes of the discussion of Results of Operations and Liquidity and Capital Resources, the results of the Predecessor Company and Successor Company for the 52 weeks ended March 30, 1996, have been combined. 11 Results of Operations The following table sets forth-certain statement of operations data reflecting the combination discussed above (all dollars in millions):
Fiscal Fiscal Fiscal 1998 1997 1996 ---------- ---------- ---------- Sales $ 2,266.8 $ 2,312.7 $ 2,307.8 Gross profit 639.5 705.7 713.7 Operating and administrative expenses 568.9 582.9 571.2 Depreciation and amortization 98.8 85.5 77.1 Amortization of excess reorganization value 104.3 102.6 84.0 Unusual items 6.3 9.8 40.6 Interest expense, net 113.8 105.8 99.0 Income tax (provision) benefit (51.4) (2.5) 18.9 Extraordinary gain on debt discharge - - 854.8 Net (loss) income (304.0) (183.4) 715.6 Net (loss) income applicable to common stock (312.4) (185.4) 715.6 Sales percentage increase (decrease) (2.0)% 0.2% (3.5)% Gross profit as a percentage of sales 28.2% 30.5% 30.9% Operating and administrative expenses as a percentage of sales 25.1% 25.2% 24.7%
The Company announced on January 27, 1998, that it had retained the firm of Salomon Smith Barney as financial advisor to evaluate various financial alternatives available, including a capital restructuring, which affected the Company's operations in several ways. The majority of the trade reacted favorably to the announcement. However, there were some significant exceptions, which negatively affected product availability, associated costs and promotional opportunities. Sales for Fiscal 1998 decreased $45.9 million or 2.0% compared to Fiscal 1997. The decrease for same store sales (sales of stores which were operated during the comparable periods of both fiscal years) in Fiscal 1998 was 0.9%. Competitors continued to open new locations and remodel stores at a more aggressive rate than the Company. Same store sales results, by quarter for Fiscal 1998, beginning with the first quarter, were (1.8)%, (1.6)%, 0.8% and (0.8)%. Same store sales comparisons were negatively influenced by the inclusion of two Easter periods in the prior fiscal year. Due to the timing of the Easter holiday in calendar 1998, there was no Easter selling period in the current fiscal year while Fiscal 1997 included two. Adjusting the prior year sales to exclude the Easter holiday effect, same store sales for Fiscal 1998 decreased approximately 0.04%. Same store sales for the Fiscal 1998 fourth quarter excluding Easter increased approximately 0.7%. The new management team and their marketing strategies favorably affected sales in the second half of Fiscal 1998 and to some extent mitigated competitor marketing programs. During Fiscal 1998 the Company opened two new stores, two replacement stores and closed eight stores. Sales for Fiscal 1997 increased $4.9 million or 0.2% compared to Fiscal 1996. Same store sales changes, by quarter for Fiscal 1997, beginning with the first quarter, were 1.0%, 2.0%, (0.8)% and (0.4)% versus the prior year. During Fiscal 1997, the Company opened one new store, two replacement stores, completed six major renovations, and closed four stores. Gross profit as a percentage of sales was 28.2% in Fiscal 1998 compared to 30.5% in Fiscal 1997. The decrease in gross profit is primarily attributable to a reduction in promotional income and instability in margin rates in the first half of the fiscal year. Margins stabilized in the second half primarily as a result of new management strategies partially mitigating the negative effects of the January 27, 1998 announcement. Gross profit as a percentage of sales was 30.5% in Fiscal 1997 compared to 30.9% in Fiscal 1996. 12 Operating and administrative expenses as a percentage of sales were 25.1% during Fiscal 1998, compared to 25.2% during Fiscal 1997. Operating and administrative expenses as a percentage of sales were 25.2% during Fiscal 1997, compared to 24.7% during Fiscal 1996. Depreciation and amortization of $98.8 million in Fiscal 1998 was $13.3 million higher than the prior year's $85.5 million. The increase was primarily due to the provisions of Financial Accounting Standards No. 121 ("FAS No. 121"), "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" netted against new and closed store activity. FAS No. 121 resulted in a review of the Company's operating assets for impairment at the individual store level using a future cash flow and market value approach. For those store level assets where the remaining net book value exceeded the sum of estimated future operating cash flows, an impairment loss of $25.0 million was recognized for the excess of net book value over estimated fair value. The increase in depreciation and amortization expense during Fiscal 1997 was largely attributable to the application of FAS No. 121, whereby $6.4 million of an impairment loss was recorded to reduce the estimated fair value of certain store assets. Unusual items recorded in Fiscal 1998 consisted of (a) $2.7 million in connection with legal, advisory and bank fees associated with the Plan of Reorganization, (b) a $3.0 million charge to supplement a reserve set at fiscal year end 1997 for the reorganization of the Company during Fiscal 1998 and (c) 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. Unusual items in Fiscal 1997 consisted of (a) a $7.8 million provision for restructuring which principally relates to severance costs in connection with a reduction of administrative overhead and (b) a $2.0 million adjustment of inventory valuation. Unusual items in Fiscal 1996 consisted of (a) a $2.5 million organizational restructuring provision, (b) a $15.0 million provision related to the closure of the Company's two New York metropolitan area warehouses, (c) a $4.5 million provision relating to a voluntary resignation program and (d) $18.6 million of restructuring charges incurred in connection with the 1995 Chapter 11 proceedings. Interest expense was $113.8 million in Fiscal 1998 compared to $105.8 million in the prior year. This expense includes the accrual for the March 2, 1998 interest payment on the Senior Notes that was not paid. The increase in interest expense in Fiscal 1998 compared to the prior year primarily resulted from the supplemental term loan facility negotiated in August 1997, as part of the Credit Agreement. The increase in interest expense in Fiscal 1997 compared to Fiscal 1996 is principally a result of higher capitalized lease costs and renegotiated debt related to the Company's emergence from bankruptcy. The income tax provision for Fiscal 1998 was $51.4 million compared to a provision of $2.5 million in Fiscal 1997. The income tax provision for Fiscal 1998 represents the establishment of a valuation allowance for the Company's remaining deferred tax asset relating to temporary differences. During Fiscal 1997, the Company recorded an income tax provision of $2.5 million. The Company wrote down $8.5 million of the previously recorded income tax benefits and recorded a valuation allowance for the balance of the previously recorded benefits relating to the use of operating loss carryforwards. Liquidity and Capital Resources Chapter 11 Filing Pursuant to the Disclosure Statement, Grand Union commenced a prepetition solicitation of votes by the holders of Senior Notes and preferred stock to accept or reject the Company's proposed Plan of Reorganization. The Plan of Reorganization generally provides that trade and business creditors will be unimpaired and will continue to be paid in the ordinary course of business, so long as shipments are made to the Company under terms at least equivalent to those in place prior to January 27, 1998. The Plan of Reorganization further provides that (i) the Company's Senior Notes will be cancelled and exchanged for all of the reorganized Company's common stock; (ii) the Company's existing common stock will be cancelled and exchanged for five-year warrants to purchase approximately 1.5% of new common stock at an exercise price of $19.82 per share; (iii) the Company's preferred stock will be cancelled and exchanged for (a) five-year warrants to purchase approximately 10.5% of the new common stock at an exercise price of $19.82 per share, (b) five-year warrants to purchase approximately 2.5% of the new common stock at an exercise price of $23.15 per share, and (c) four-year warrants to purchase approximately 1% of the new common stock at an exercise price of $12.32 per share; and (iv) the Company's warrants and stock options will be cancelled. At the conclusion of the solicitation period, which commenced on May 22, 1998 and ended on June 22, 1998, the Plan of Reorganization had been accepted by the requisite vote of the holders of the Senior Notes and by all holders of the preferred stock. Although Grand Union believes that the Plan of Reorganization will satisfy all 13 requirements necessary for confirmation by the Bankruptcy Court, there can be no assurance that the Court will reach the same conclusion. Moreover, there can be no assurance that modifications of the Plan of Reorganization will not be required for confirmation or that such modifications would not necessitate the resolicitation of votes. On June 24, 1998, the Company filed a voluntary petition for relief under chapter 11 with the Bankruptcy Court. As previously reported, in recent months, the Company had been experiencing liquidity problems and had been unable to borrow the funds necessary to pay the interest due on its Senior Notes and finance its working capital and other business needs. Since March 2, 1998, the Company has been in default of its obligations under the Senior Notes and operating with waivers of cross defaults under the Credit Agreement. As of June 24, 1998, the Company has approximately $22 million of borrowings and approximately $33 million of outstanding trade letters of credit. In addition, the Filing by the Company constitutes an automatic default under the Credit Agreement. In connection with the Filing, on June 24, 1998, the Company entered into a $172,022,020 revolving credit agreement (the "DIP Facility") with SBC and LCPI (together, the "DIP Lenders"). The DIP Facility consists of a revolving credit facility in an aggregate amount of $172,022,020, inclusive of a $50 million letter of credit facility. Loans under the DIP Facility will be guaranteed by each of the Company's subsidiaries. The DIP Facility will mature upon the earlier of (i) October 22, 1998 or (ii) the effective date of the Plan of Reorganization. The proceeds of the DIP Facility will be used (i) to finance the working capital needs of the Company and its subsidiaries in the ordinary course of business, (ii) to finance the payment of Chapter 11 expenses, (iii) for general corporate purposes and (iv) to refinance the revolving credit and term loans and to replace, backstop or cash collateralize letters of credit outstanding under the Company`s existing Credit Agreement. The DIP Facility is secured by substantially all of the assets of Grand Union and its subsidiaries. The interest rate applicable to the DIP Facility will be equal to, at Grand Union's election, either (i) 1.5% above the higher of (A) Citibank's prime rate and (B) the federal funds rate plus 0.50%, or (ii) 2.5% above the rate for eurodollar deposits for one, two or three weeks or one month (as selected by Grand Union) in the interbank eurodollar market. Grand Union will pay an underwriting fee of $1,100,000 and is required to pay a $25,000 per month administrative fee. In addition, Grand Union pays a commitment fee of 0.5% per annum on the average daily unused portion of the DIP Facility and a fronting fee of 0.125% on the aggregate undrawn face amount of outstanding letters of credit. The availability of the DIP Facility is conditioned, among other things, upon the entry of an order of the Bankruptcy Court approving the DIP Facility, which is anticipated to occur 15 days after the Filing. On the Consummation Date, Grand Union will enter into the Exit Facility. On April 23, 1998, Grand Union received a letter from SBC Warburg Dillon Read Inc., SBC, Lehman Brothers Inc. and LCPI, pursuant to which Swiss Bank Corporation and Lehman Commercial Paper Inc. (collectively, the "Agent Banks") committed to provide financing to Grand Union in the aggregate principal amount of $300 million upon consummation of the Plan of Reorganization. The Agent Banks, as agents for a syndicate of banks, financing institutions and other entities, including the Agent Banks (collectively, the "New Grand Union Lenders"), will provide Grand Union with the Exit Facility. The Exit Facility will be guaranteed by all of Grand Union's subsidiaries. The Exit Facility will be comprised of: (i) a $230 million term loan facility (the "Term Loan") and (ii) a $70 million revolving credit facility (the "Revolving Credit Facility"). The Term Loan and Revolving Credit Facility will mature on the fifth anniversary of the Consummation Date. The proceeds of the Exit Facility will be used to refinance the obligations under the DIP Facility and the Supplemental Term Loan claims under the existing 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 the Revolving Credit Facility will be available for the issuance of letters of credit. The Exit Facility will be secured by substantially all of the assets of the Company and its subsidiaries. The availability of the Exit Facility is conditioned, among other things, upon the Bankruptcy Court having entered an order confirming the Plan of Reorganization on or before August 31, 1998. As of March 28, 1998, the Company had $17 million of borrowings and approximately $44 million of letters of credit outstanding under its $68 million revolving credit facility. 14 Significant expenditures and resources used to finance such expenditures for the three fiscal years ended March 28, 1998 are reflected in the following table (in millions):
Fiscal Fiscal Fiscal 1998 1997 1996 ------ ------ ------ Resources used: Debt and capital lease repayments $ 27.8 $ 18.5 $ 102.0 Capital expenditures 39.7 55.1 43.7 Loan placement fees 9.8 - 3.1 Operating activities 36.1 - 49.4 ============= ============= ============= $ 113.4 $ 73.6 $ 198.2 ============= ============= ============= Financed by: Net proceeds from sale of Class A Preferred Stock $ 40.0 $ 51.0 $ - Net proceeds from long-term debt 78.0 9.0 - Proceeds from New Bank Facility - - 137.2 Property disposals 5.9 8.0 11.0 Operating activities - 0.4 - ------------- ------------- ------------- $ 123.9 $ 68.4 $ 148.2 ============= ============= =============
Year 2000 Compliance The Company is working to assure business continuity with respect to the issues which are anticipated to arise related to the calendar year 2000. The Company is aware of many of the types of problems that could occur as the millennium approaches and is assessing any exposure from a product, services and systems standpoint, and working with customers, suppliers and partners. The Company intends to address all Year 2000 issues as they are identified. The Company's goal is to achieve maximum compliance both internally and externally. As part of the Company's goal to achieve year 2000 compliance, it will seek "millennium certification" and/or representations and warranties from suppliers, vendors and business partners about their Year 2000 compliance. The Company's Year 2000 effort is being coordinated by a Year 2000 Steering Committee comprised of several officers of the Company. Within the Company, resources are being committed, and projects are being planned and undertaken as required with the goal of achieving Year 2000 compliance. Based on current information, costs of addressing potential problems are not expected to have a material adverse impact on the Company's financial position, results of operations or cash flows in future periods. However, if the Company, its customers or vendors are unable to resolve such processing issues in a timely manner, it could result in a material financial risk. Impact of New Accounting Standards In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income," ("SFAS No. 130") effective for fiscal years beginning after December 15, 1997. SFAS No. 130 requires the reporting and display of comprehensive income and its components in an entity's financial statements. In June 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standard No. 131, "Disclosures about Segments of an Enterprise and Related Information," (SFAS 131) effective for fiscal years beginning after December 15, 1997. SFAS 131 provides accounting guidance for reporting information about operating segments and requires both interim and annual segment reporting. In February 1998, the FASB issued Statement of Financial Accounting Standards No. 132, Employers' Disclosures about Pensions and Other Postretirement Benefits ("SFAS No. 132"), which will be effective for financial statements beginning after 15 December 15, 1997. SFAS No. 132 revises employers' disclosure about pension and other postretirement benefit plans. It does not change the measurement or recognition of those plans. These statements, which will be adopted by the Company in Fiscal 1999, affect financial statement presentation and disclosure but will not have an impact on the Company's consolidated financial position or results of operations. In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," ("SFAS No. 133") effective for fiscal quarters of fiscal years beginning after June 15, 1999. SFAS No. 133 requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. The Company currently does not have any derivative instruments and, therefore, does not expect the adoption of this SFAS to have an effect on the Company's financial position or results of operations. Future Outlook Upon the Consummation of the Plan of Reorganization, the Company will be in a position to aggressively pursue opportunities that it could not previously. Due to an historically overleveraged balance sheet, the Company has had insufficient resources to appropriately fund capital expenditures. The significant reduction in debt, and the attendant reduction in interest expense, to be effected by a reorganization of the Company, together with the execution of the Exit Facility, will provide the Company with substantially improved liquidity, $50 million of which will be available upon emergence. This substantial reduction of debt and the availability of new funds should enable the Company to execute a capital expenditure program that will enhance the operations, profitability and competitiveness of the Company. The marketing strategies of the new senior management team instituted in the second half of Fiscal 1998 will continue. The Company has determined that to maximize profitability, it should (i) expand its existing store base, including the development of new stores and the remodeling of existing units; (ii) implement a program for maximizing advertising and promotion allowance revenues from the company's suppliers; and (iii) perform ongoing evaluation and, when appropriate, close or modify store locations that are not adequately contributing. The Company remains committed to building its sales base in existing stores. An objective of reducing operating costs in both the stores and administration will continue in conjunction with the focus on improving store conditions and customer service. 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. Although Grand Union believes that the Consummation Date will occur within the next two months, there can be no assurance as to such timing or as to the Consummation of the Plan of Reorganization. Item 7A. Quantitative and Qualitative Disclosures About Market Risk Not applicable. 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 March 28, 1998 and March 29, 1997 and the 41 weeks ended March 30, 1996 (Successor Company) and the 11 weeks ended June 17, 1995 (Predecessor Company) F-3
16 Consolidated Balance Sheet at March 28, 1998 and March 29, 1997 F-4 Consolidated Statement of Cash Flows for the 52 weeks ended March 28, 1998 and March 29, 1997 and the 41 weeks ended March 30, 1996 (Successor Company) and the 11 weeks ended June 17, 1995 (Predecessor Company) F-5 Notes to Consolidated Financial Statements F-6 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 The names, ages and present principal occupations of the directors and executive officers of Grand Union as of June 26, 1998, are set forth below.
Name Age Position - ---- --- -------- J. Wayne Harris.................................. 59 Director, Chairman and Chief Executive Officer Jack W. Partridge, Jr............................ 53 Director, Vice Chairman and Chief Administrative Officer Gary M. Philbin.................................. 41 Director, President and Chief Merchandising Officer Jeffrey P. Freimark.............................. 43 Executive Vice President and Chief Financial Officer Raymond H. Ayers................................. 53 Corporate Vice President, Real Estate L. Andrew DePaolis............................... 55 Corporate Vice President, Advertising and Marketing Jasper S. Meadows................................ 47 Corporate Vice President, Grocery and General Merchandising Francis E. Nicastro.............................. 56 Corporate Vice President and Treasurer Glenn J. Smith................................... 34 Corporate Vice President, General Counsel and Assistant Secretary Donald C. Vaillancourt........................... 53 Corporate Vice President, Public Affairs Counsel and Secretary Jordan H. Krimstein.............................. 67 Director Mark H. Manski................................... 46 Director Martha A. Pritchard.............................. 42 Director
Mr. Harris has been a Director, Chairman and Chief Executive Officer of the Company since August 1, 1997. From September, 1992 until joining the Company, Mr. Harris served as: Senior Vice President, North East Operations, The Great Atlantic and Pacific Tea Company ("A&P"), a leading supermarket chain; Executive Vice President and Chief Operating Officer for A&P's US Operations; and, most recently, Chairman and Chief Executive Officer of A&P Canada, Ltd. Between 1986 and 1992, Mr. Harris was President of the Cincinnati/Dayton Division of The Kroger Company ("Kroger"), the largest food retailer in the United States. Mr. Partridge has been a Director of Grand Union since January 15, 1998 and was elected Vice Chairman and Chief Administrative Officer effective January 5, 1998. Mr. Partridge joined Grand Union after a 23-year career with Kroger, where he served as Group Vice President and a member of the company's Senior Management Committee. Mr. Philbin has been a Director of the Company since October 30, 1997, and was elected President and Chief Merchandising Officer of the Company on October 3, 1997. From June, 1996 until joining the Company, Mr. Philbin was Executive Vice President in charge of Merchandising and Operations for the Cub Food Store Division of SuperValu, Inc. Before joining Cub Foods, Mr. Philbin was Vice President of Merchandising with the Waldbaum's Division of A&P from July, 17 1993. Prior to his employment with Waldbaum's, Mr. Philbin served in merchandising and operations capacities with Kroger commencing in January 1990. Mr. Freimark has been the Company's Executive Vice President and Chief Financial Officer since March 3, 1997. From March 3, 1997, to January 5, 1998, Mr. Freimark also served as the Company's Chief Administrative Officer. Prior to joining the Company, Mr. Freimark served as Executive Vice President and Chief Financial Officer of Pueblo Xtra International, Inc., a leading supermarket chain in the Commonwealth of Puerto Rico and the Territory of the U.S. Virgin Islands, from 1992 and as Senior Vice President, Finance, Administration and Treasurer beginning in 1986. Prior to that he was Vice President-Finance and Corporate Secretary of Kings Super Markets, Inc., a New Jersey supermarket chain. Mr. Ayers has been the Corporate Vice President in charge of Real Estate since 1988. He has been with the Company for 30 years. Prior to his present position, Mr. Ayers served in several capacities in the Real Estate Department, starting in 1968, as a trainee. Mr. DePaolis has been the Corporate Vice President in charge of Advertising and Marketing since 1996. Mr. DePaolis served as Corporate Vice President of Advertising and Sales Promotion from 1990 until 1996 when he was appointed to his present position. Mr. DePaolis joined the Company in 1968, spending most of his time in the Advertising Department. Mr. Meadows has been Corporate Vice President in charge of Grocery and General Merchandise since May 1997. Preceding that Mr. Meadows served in various positions in the Company's Grocery and General Merchandise Department. He joined the Company in 1972 as a trainee in our stores. Mr. Nicastro has been Corporate Vice President and Treasurer of the Company since September 1989. Prior to that, he spent 20 years with the Singer Company, a manufacturing company, the last three of which were as Treasurer. Mr. Smith has been Corporate Vice President, General Counsel and Assistant Secretary since February 1998. Mr. Smith commenced his employment with Grand Union in August 1995 as Director of Labor Relations and Employment Practices. He was promoted to Vice President of Labor and Employment Counsel in May 1997 and to Vice President, General Counsel and Assistant Secretary in August 1997. Prior to joining Grand Union, Mr. Smith was an Associate with the law firm of Grotta, Glassman and Hoffman, P.A., in Roseland, New Jersey from September 1991 to August 1995. Mr. Vaillancourt has been Corporate Vice President, Public Affairs Counsel and Secretary since June, 1997. Prior to that he served in a number of capacities with the Company. Effective January 1985, Mr. Vaillancourt became Corporate Vice President, Corporate Communications and Consumer Affairs. Effective January 1980, he was appointed Vice President, Corporate Communications and Consumer Affairs. Effective October 1976, he became Director, Corporate Communications and Consumer Affairs. In December 1971, he was promoted to Assistant to the Director of Public Relations. Mr. Krimstein has been a Director since October 30, 1997. Mr. Krimstein currently serves as the National President of the School of the Art Institute of Chicago Alumni Association and is a member of the School's Board of Governors. In 1995, Mr. Krimstein retired from his position as Executive Vice President and Executive Creative Director for the Chicago office of Campbell, Mithun, Esty, Inc., a large advertising agency headquartered in Minneapolis, Minnesota. Mr. Krimstein was with Campbell, Mithun, Esty, Inc. for 38 years in a variety of positions. Mr. Manski has been a Director since October 30, 1997. Mr. Manski has been President and Founder of the RoundHill Group, Ltd., since 1994. The firm specializes in strategic, operational, management and financial advisory services to middle market companies. From 1993 to 1994, Mr. Manski was President and Chief Executive Officer of The Direct Marketing Group, Inc. ("DMG"), a large independent full service direct response marketing firm. From 1983 until joining DMG, Mr. Manski was with IBJ Schroder Bank & Trust Company, where he was a Senior Vice President and deputy head of the bank's Credit Division. Ms. Pritchard has been a Director since October 30, 1997. Ms. Pritchard is a Principal of Bick Capital Advisors, Inc., a financial advisory firm. From 1995 to 1997, Ms. Pritchard was a founding partner and Managing Director, Head of High Yield Bond Sales for Toronto Dominion Securities (USA), Inc., an investment banking firm. From 1991 to 1994, Ms. Pritchard was Vice President, High Yield Bond Sales with Salomon Brothers, Inc., an investment banking firm. Prior to that, Ms. Pritchard worked with Dillon, Read & Co., Inc., Salomon Brothers, Inc, and The Bank of New York. 18 Executive officers of the Company are appointed and serve at the discretion of the Board of Directors. Each director of the Company is elected for a period of one year and will serve until his or her successor is duly elected and qualified. On the Consummation Date, the Board of Directors of Grand Union shall consist of eleven members, eight of whom shall be selected by the Unofficial Noteholder Committee and three of whom shall be Messrs. Harris, Partridge, and Philbin, who shall serve as directors for the entire term of their employment agreements. Notwithstanding the foregoing, the Board of Directors may consist of fewer than eleven members so long as, unless the Unofficial Noteholder Committee agrees otherwise, the members of the Board of Directors who are not either Mr. Harris, Mr. Partridge or Mr. Philbin have at least five-sevenths (5/7ths) of the voting power on the Board of Directors. In addition, the following individuals served as directors or executive officers of the Company during Fiscal 1998:
Name Positions Served through - ---- --------- -------------- Roger E. Stangeland.............................. Director, Chairman Emeritus April 22, 1998 Chairman of the Board and Chief Executive Officer October 1, 1997 James J. Costello................................ Director April 22, 1998 Geoffrey T. Moore................................ Director April 22, 1998 Clifford A. Miller............................... Director April 22, 1998 J. Richard Stonesifer............................ Director April 22, 1998 Gilbert C. Vuolo................................. Senior Vice President, Human Resources and Labor March 3, 1998 Relations William E. Kinslow............................... Corporate Vice President, Management Information October 3, 1997 Systems William G. Kagler................................ Director August 26, 1997 Daniel E. Josephs................................ Director August 8, 1997 David Y. Ying.................................... Director July 28, 1997 John W. Schroeder................................ Vice President, General Counsel and Secretary May 15, 1997 Joseph J. McCaig................................. Director, President and Chief Executive Officer May 7, 1997
Item 11. Executive Compensation Executive Compensation The following table sets forth compensation paid or accrued by the Company during the three fiscal years ended March 28, 1998 ("Fiscal 1998"), March 29, 1997 ("Fiscal 1997") and March 30, 1996 ("Fiscal 1996"), to the Company's Chief Executive Officer, four other executive officers, and two other executive officers who separated from the Company during Fiscal 1998, one of whom served as the Company's Chief Executive Officer during Fiscal 1998 and another whose salary and bonus exceeded $100,000 for Fiscal 1998 (collectively, the "Named Executive Officers"), for services rendered to the Company and its subsidiaries in all capacities during such three fiscal year period: 19
Long Term Compensation Annual Compensation Awards ------------------------------ Securities Underlying All Other Name and Principal Position Year Salary($) Bonus ($)(1) Options/SARs(#) Compensation ($)(2) ---- --------- ------------ --------------- ------------------- J. Wayne Harris............ 1998 394,402 415,384 1,250,000 118,693 Chairman and Chief Executive Officer Gary M. Philbin............ 1998 168,347 168,269 450,000 27,685 President and Chief Merchandising Officer Jeffrey P. Freimark........ 1998 330,436 222,000 95,000 643,205 Executive Vice President and Chief Financial Officer Francis E. Nicastro........ 1998 173,100 29,760 6,500 6,752 Corporate Vice 1997 160,484 0 0 6,355 President and Treasurer 1996 149,858 36,838 5,800 4,411 Raymond H. Ayers......... 1998 157,242 32,788 15,000 6,460 Corporate Vice President Real Estate FORMER EXECUTIVES Joseph J. McCaig 1998 91,745 16,246 0 1,101,085 President and Chief 1997 538,462 39,939 0 13,221 Executive Officer 1996 454,310 90,000 47,800 181,786 Gilbert C. Vuolo............ 1998 182,308 0 0 204,858 Senior Vice President, 1997 188,715 0 0 4,920 Human Resources 1996 145,792 29,440 6,560 4,244
- ----------- The "Other Annual Compensation" column was omitted since the aggregate amount of perquisites and other personal benefits in respect of Fiscal 1998, Fiscal 1997, and Fiscal 1996 is less than the lower of $50,000 or 10% of the total annual salary and bonus reported for each of the Named Executive Officers and no other compensation of the type required to be described in the "Other Annual Compensation" column was paid in Fiscal 1998, Fiscal 1997, or Fiscal 1996. (1) Included in the "Bonus" column for Fiscal 1998 are amounts paid during the fiscal year ending April 3, 1999 for performance in Fiscal 1998. For Fiscal 1997 the amounts in the "Bonus" column represent payments made during Fiscal 1998 for performance in Fiscal 1997. All amounts included in the "Bonus" column for Fiscal 1996 are retention payments paid to the Named Executive Officers for their remaining in the Company's employ from the bankruptcy through the end of Fiscal 1996. (2) "All Other Compensation" includes the following: (i) contributions to the Company's Savings Plan under Section 401(k) made by the Company in Fiscal 1998 for each of the named executive officers as follows: Mr. McCaig - $331; Mr. Freimark - $625; Mr. Nicastro - $1,538; Mr. Ayers - $1,535 and Mr. Vuolo - $1,414. The amounts for Fiscal 1997 and Fiscal 1996, respectively, were as follows: Mr. McCaig - $1,875 and $1,414; Mr. Nicastro - $1,543 and $520; and Mr. 20 Vuolo - $1,598 and $1,516 and (ii) premium payments for life insurance made by the Company in Fiscal 1998 for each of the named officers were as follows: Mr. Harris - $10,887; Mr. McCaig - $754; Mr. Philbin - $2,818; Mr. Freimark - $3,708; Mr. Nicastro - $5,214; Mr. Ayers - $4,925 and Mr. Vuolo - $3,444. The amounts for Fiscal 1997 and Fiscal 1996, respectively, were as follows: Mr. McCaig - $11,346 and $10,843; Mr. Nicastro - $4,812 and $4,811; and Mr. Vuolo - $3,322 and $2,416. The Fiscal 1998 amounts for Messrs. Harris, Philbin and Freimark include payments for relocation costs incurred when joining the Company, in the following amounts: Mr. Harris - $107,806; Mr. Philbin - $24,867; and Mr. Freimark - $638,872. The Fiscal 1998 amounts for Mr. McCaig and Mr. Vuolo include payments connected with their separation from the Company, in the following amounts: Mr. McCaig - $1,100,000 and Mr. Vuolo - $200,000. The Fiscal 1996 amount for Mr. McCaig includes $169,217, which is the value of securities distributed from custodial accounts established pursuant to non-competition, and confidentiality agreements entered into by Mr. McCaig in August 1993. This amount was distributed as a result of the Company's filing for bankruptcy in 1995, and offset the Company's obligations to the executive under The Grand Union Company Supplemental Retirement Program for Key Executives. Harris Employment Agreement Mr. Harris, the Company's Chairman and Chief Executive Officer, is employed by the Company pursuant to a four-year employment agreement dated as of August 1, 1997 (the "Harris Employment Agreement"). Pursuant to the Harris Employment Agreement, Mr. Harris is entitled to receive (a) an annual salary of $600,000 (prorated during the first and last fiscal years during the term of the agreement); (b) bonus compensation determined in accordance with the Company's Bonus Plan (i) for the fiscal year ended March 28, 1998, up to a maximum bonus equal to 120% of his base salary paid for such period, and subject to a guaranteed minimum bonus for such period equal to 75% of the base salary actually paid to him during such period and (ii) during the remaining term of the Harris Employment Agreement, with a bonus of at least 100% of Mr. Harris's base salary, subject to achievement by the Company of performance targets determined by the Compensation Committee of the Company's Board of Directors; and (c) payment or reimbursement of the costs of maintaining a residence near the Company's principal executive offices (and/or relocation expenses if Mr. Harris relocates to a permanent residence near the Company's principal executive offices) and weekly travel between such residence and another residence maintained by Mr. Harris. In connection with the execution of the Harris Employment Agreement, Mr. Harris was also granted options under the Company's 1995 Equity Incentive Plan (the "EIP") to purchase an aggregate of 1,250,000 shares of the Company's common stock at the prices and on the terms described herein and in the EIP. Except as otherwise noted, all of the options are exercisable for ten years from the date of grant, unless earlier terminated. Such options become exercisable as follows: (i) options to purchase 500,000 shares at an exercise price equal to $1.375 (the closing price as reported by NASDAQ-National Market on August 1, 1997), which became exercisable immediately; (ii) options to purchase 100,000 shares at an exercise price equal to $1.375, which became exercisable immediately upon approval by stockholders of the Company of an amendment to the EIP; (iii) options to purchase 200,000 shares at an exercise price equal to $1.375, which shall become exercisable if and when the Company shall have earnings before interest, tax, depreciation and amortization expense ("EBITDA") of an aggregate of at least $147 million for any 13 continuous 4 week fiscal reporting periods commencing after August 1, 1997 and ending on or before the end of the Company's fiscal year ending in 2000; (iv) options to purchase 150,000 shares at an exercise price equal to $2.375, which become exercisable on and after August 1, 1998; (v) options to purchase 150,000 shares at an exercise price equal to $3.375, which become exercisable on and after August 1, 1999; and (vi) options to purchase 150,000 shares at an exercise price equal to $4.375, which become exercisable on and after August 1, 2000. Pursuant to the Harris Employment Agreement and if he completes his four year term thereunder, Mr. Harris will be credited with his years of service with the Company plus 7 additional years of service for purposes of the Company's Supplemental Retirement Plan for Key Executives. If Mr. Harris does not complete the term of the Harris Employment Agreement or if he works additional years after completing the term of the Harris Employment Agreement, he may be credited with a different number of years of additional service. Mr. Harris is also entitled to other employee benefits which the Company believes to be customary for executives in Mr. Harris's position, and he and the Company have agreed to rights of termination, payments and other benefits on termination under certain circumstances, confidentiality, and non-competition, in each case which the Company believes to be customary for agreements with executives in Mr. Harris's position. In connection with the Plan of Reorganization, Grand Union and Mr. Harris will execute an amendment to his employment agreement (the "Harris Amendment"), which will amend and restate Mr. Harris' employment agreement and will become effective as of the Consummation Date. Under the terms of the Harris Amendment, Mr. Harris will be employed by Grand 21 Union for a four-year term of employment beginning on the Consummation Date and will be entitled to receive (a) an annual salary of $600,000; (b) bonus compensation determined in accordance with the Company's Executive Annual Incentive Bonus Plan (the "EAIB Plan") up to a maximum bonus equal to 125% of his base salary paid for such period, subject to the achievement by Grand Union of specified EBITDA targets determined by the Compensation Committee; and (c) so long as Mr. Harris does not maintain a permanent residence within 100 miles of Grand Union's principal office, payment or reimbursement of the costs of maintaining a local residence near Grand Union's principal executive offices (subject to income tax gross-up procedures) and weekly travel between Grand Union's principal executive offices and the permanent residence maintained by Mr. Harris. Pursuant to the Harris Amendment, for purposes of Grand Union's Supplemental Retirement Plan for Key Executives, Mr. Harris will be credited with 7 additional years of service, plus one year for each year of service with Grand Union. In addition, Mr. Harris will be credited with a total of 15 years of service (inclusive of the aforementioned years of service) if Mr. Harris completes his full term of employment under the Harris Amendment. Mr. Harris will also be entitled to other employee benefits which Grand Union believes to be customary for executives in Mr. Harris's position. The Harris Amendment provides for rights of termination, payments and other benefits on termination under certain circumstances, confidentiality, and non-competition, in each case which Grand Union believes to be customary for agreements with executives in Mr. Harris's position. Partridge Employment Agreement Mr. Partridge, the Company's Vice Chairman and Chief Administrative Officer, is employed by the Company pursuant to a four-year employment agreement dated as of January 5, 1998 (the "Partridge Employment Agreement"). Pursuant to the Partridge Employment Agreement, Mr. Partridge is entitled to receive: (a) a one-time signing bonus of $75,000; (b) an annual salary of $350,000 per year, prorated based on the actual number of weeks worked during the fiscal years ending 1998 and 2002; (c) bonus compensation in an amount determined by the Company's Compensation Committee based on the achievement of specified EBITDA targets established by the Compensation Committee, subject to the following: (x) for the fiscal year ending March 28, 1998 and the first half of the fiscal year ending March 27, 1999, the minimum bonus payable for such period shall be 100% of Mr. Partridge's base salary paid for such period; and (y) for the second half of the fiscal year ending March 27, 1999, the maximum bonus payable shall be 125% of Mr. Partridge's base salary for the applicable period; and (d) payment or reimbursement of the reasonable costs of local accommodations for Mr. Partridge and appropriate travel expenses for Mr. Partridge between such accommodations and Wayne, New Jersey. In connection with the execution of the Partridge Employment Agreement, Mr. Partridge was also granted options to purchase up to 450,000 shares of the Company's common stock on the terms and subject to the conditions set forth below and in the EIP. Except as otherwise noted, all of the options are exercisable for ten years from the date of grant, unless earlier terminated. Such options become exercisable as follows: (i) options to purchase 175,000 shares at an exercise price equal to $2.0625 (the closing price as reported by NASDAQ SmallCap Market on the Effective Date), exercisable immediately; (ii) options to purchase 75,000 shares at an exercise price equal to $2.0625, which shall become exercisable if and when the Company shall have earnings before interest, tax, depreciation and amortization expense of an aggregate of at least $147 million for any 13 continuous 4 week fiscal reporting periods commencing on the Effective Date and ending on or before the end of the Company's fiscal year ending in 2000; (iii) options to purchase 100,000 shares at an exercise price equal to $3.0625, exercisable on or after January 5, 1999; and (iv) options to purchase 100,000 shares at an exercise price equal to $4.0625, exercisable on or after January 5, 2000. Pursuant to the Partridge Employment Agreement, Mr. Partridge will be credited with 7 additional years of service for purposes of the Company's Supplemental Retirement Plan for Key Executives if he completes his four year term under the Partridge Employment Agreement. In connection with the Plan of Reorganization, Grand Union and Mr. Partridge will execute an amendment to his employment agreement (the "Partridge Amendment"), which will amend and restate Mr. Partridge's employment agreement and will become effective as of the Consummation Date. Under the terms of the Partridge Amendment, Mr. Partridge will be employed by Grand Union for a four-year term of employment beginning on the Consummation Date and will earn cash compensation during the term of employment as follows: (a) base salary at an annual rate of $350,000; (b) bonus compensation determined in accordance with the EAIB Plan up to a maximum bonus equal to 125% of his base salary paid for such period, subject to the achievement by Grand Union of specified EBITDA targets determined by the Compensation Committee, with the exception that Mr. Partridge shall receive a guaranteed bonus payment equal to a minimum of 100% of 22 his base salary paid to him for the first half of fiscal year 1999; and (c) so long as Mr. Partridge does not maintain a permanent resident within 100 miles of Grand Union's principal office, payment or reimbursement of the cost of maintaining a local residence near Grand Union's principal executive office (subject to income tax gross-up procedures) and appropriate travel expenses for Mr. Partridge between Grand Union's principal executive offices and such permanent residence. Pursuant to the Partridge Amendment, for purposes of Grand Union's Supplemental Retirement Plan for Key Executives, Mr. Partridge will be credited with 7 additional years of service, plus one year for each year of service with Grand Union. The Partridge Amendment also contains provisions concerning other employee benefits, rights of termination, payments and other benefits on termination under certain circumstances, confidentiality, and non-competition, which Grand Union believes to be customary for agreements with executives in Mr. Partridge's position. Philbin Employment Agreement Mr. Philbin, the Company's President and Chief Merchandising Officer, is employed by the Company pursuant to a four-year employment agreement dated as of October 3, 1997 (the "Philbin Employment Agreement"). Pursuant to the Philbin Employment Agreement, Mr. Philbin is entitled to receive (a) an annual salary of $350,000 (prorated during the first and last fiscal years during the term of the agreement); (b) bonus compensation determined in accordance with the Company's Bonus Plan (i) for the fiscal year ended March 28, 1998 subject to a guaranteed minimum bonus for such period equal to 100% of the base salary actually paid to him during such period and (ii) during the remaining term of the Philbin Employment Agreement, with a bonus target of up to 100% of Mr. Philbin's base salary if the Company achieves the performance targets determined by the Compensation Committee of the Company's Board of Directors; and (c) payment or reimbursement of the costs of travel by Mr. Philbin and his immediate family between the New York/New Jersey metropolitan area and the Midwestern United States. In connection with the execution of the Philbin Employment Agreement, Mr. Philbin received an interest-free loan from the Company in the amount of $225,000, repayable upon the expiration or earlier termination of the Philbin Employment Agreement. In connection with the execution of the Philbin Employment Agreement, Mr. Philbin was also granted options under the EIP to purchase an aggregate of 450,000 shares of the Company's common stock at the prices and on the terms described herein and in the EIP. Except as otherwise noted, all of the options are exercisable for ten years from the date of grant, unless earlier terminated. Such options become exercisable as follows: (i) options to purchase 150,000 shares at an exercise price equal to $2.125 (the closing price as reported by NASDAQ-SmallCap Market on October 3, 1997), which became exercisable immediately; (ii) options to purchase 50,000 shares at an exercise price equal to $2.125, which shall become exercisable if and when the Company shall have EBITDA of an aggregate of at least $147 million for any 13 continuous 4 week fiscal reporting periods commencing after October 3, 1997 and ending or before the end of the Company's fiscal year ending in 2000; (iii) options to purchase 100,000 shares at an exercise price equal to $2.875, which become exercisable on and after October 3, 1998; (iv) options to purchase 75,000 shares at an exercise price equal to $3.625, which become exercisable on and after October 3, 1999; and (v) options to purchase 75,000 shares at an exercise price equal to $4.315, which become exercisable on and after October 3, 2000. Pursuant to the Philbin Employment Agreement, Mr. Philbin is entitled to be credited with 6 additional years of service for purposes of the Company's Supplemental Retirement Plan for Key Executives if he is employed by the Company on October 3, 2001, and is entitled to other employee benefits which the Company believes to be customary for executives in Mr. Philbin's position, and he and the Company have agreed to rights of termination, payments and other benefits on termination under certain circumstances, confidentiality, and non-competition, in each case which the Company believes to be customary for agreements with executives in Mr. Philbin's position. Pursuant to the Plan of Reorganization, Grand Union and Mr. Philbin will execute an amendment to his employment agreement (the "Philbin Amendment"), which will amend and restate Mr. Philbin's employment agreement and will become effective as of the Consummation Date. Under the terms of the Philbin Amendment, Mr. Philbin will be employed by Grand Union for a four-year term of employment beginning on the Consummation Date and will be entitled to receive an annual salary of $350,000; (b) bonus compensation determined in accordance with the EAIB Plan up to a maximum bonus equal to 125% of his base salary paid for such period, subject to the achievement by Grand Union of specified EBITDA targets determined by the Compensation Committee; and (c) payment or reimbursement of the costs of travel by Mr. Philbin and his immediate family between New York/New Jersey metropolitan area and the Midwestern United States. 23 Pursuant to the Philbin Amendment, for purposes of Grand Union's Supplemental Retirement Plan for Key Executives, Mr. Philbin will be credited with 6 additional years of service, plus one year for each year of service with Grand Union. The Philbin Amendment also contains provisions concerning other employee benefits, rights of termination, payments and other benefits on termination under certain circumstances, confidentiality, and non-competition, in each case which Grand Union believes to be customary for agreements with executives in Mr. Philbin's position. Employment Arrangements with Mr. Freimark Effective March 3, 1997, the Company hired Jeffrey P. Freimark to serve as the Company's Executive Vice President, Chief Financial and Administrative Officer. Pursuant to the terms of a letter dated January 29, 1997, the Company agreed to pay Mr. Freimark an initial annual base salary in the amount of $325,000, and a signing bonus in the amount of $150,000. In addition, Mr. Freimark was eligible to participate in the Company's annual incentive plan for management, with a maximum bonus of 48% of his base salary, based on achievement by the Company of certain financial and/or sales performance targets; provided, however, that for the fiscal year ending March 28, 1998, the Company guaranteed Mr. Freimark a minimum bonus payment of $25,000. Upon his hire, Mr. Freimark was also granted options to purchase 20,000 shares of the Company's Common Stock, vesting in equal increments over a four year period, all exercisable at a price of $3.688. Effective November 20, 1998, Mr. Freimark was granted a stock option (fully vested at the time of issuance) to purchase an additional 75,000 shares of the Company's Common Stock at an exercise price of $2.15625 per share. At the time of his hire, Mr. Freimark was also made eligible for other standard benefits provided to the Company's executive officers, including participation in the Company's Supplemental Retirement Plan for Key Executives. Mr. Freimark is currently Grand Union's Executive Vice President and Chief Financial Officer. In connection with the Plan of Reorganization, Grand Union and Mr. Freimark will execute an employment agreement (the "Freimark Employment Agreement") which will become effective on the Consummation Date. Under the terms of the Freimark Employment Agreement, Mr. Freimark will be employed by Grand Union for a four-year term of employment and will receive an annual base salary in the amount of $325,000. In addition, Mr. Freimark will participate in the EAIB Plan, with a maximum bonus of 100% of his base salary, based on achievement by Grand Union of certain specified EBITDA targets set by the Compensation Committee. Pursuant to the Freimark Employment Agreement and for purposes of Grand Union's Supplemental Retirement Plan for Key Executives, Mr. Freimark will be credited with 4 additional years of service, plus one year for each year of service with Grand Union. The Freimark Employment Agreement also contains provisions concerning other employee benefits, rights of termination, payments and other benefits on termination under certain circumstances, confidentiality, and non-competition, which Grand Union believes are customary for agreements with executives in Mr. Freimark's position. Management Stock Options In connection with the consummation of the Plan of Reorganization, all currently outstanding options will be cancelled and Messrs. Harris, Philbin, Partridge and Freimark (collectively, the "Senior Managers") will be granted options under the EIP to purchase an aggregate of 2,138,693 shares of Grand Union's common stock at the prices and on the terms described herein and in the EIP. Except as otherwise noted, all of the options are exercisable for four years from the Consummation Date, unless earlier terminated. The options will be granted to the Senior Managers in five tranches and exercisable as follows: (i) 306,122 options at an exercise price of $12.32 per share; (ii) 466,176 options exercisable when fiscal year end EBITDA is at least $125 million at an exercise price of $12.32 per share; (iii) 313,923 options exercisable when fiscal year end EBITDA is at least $135 million at an exercise price of $12.32 per share; (iv) 317,094 options exercisable when fiscal year end EBITDA is at least $145 million at an exercise price of $10.65 per share; and (v) 735,377 options exercisable when fiscal year end EBITDA is at least $155 million at an exercise price of $10.65 per share. With respect to each tranche, Messrs. Harris, Partridge, Philbin and Freimark will be entitled to 50%, 20%, 20% and 10%, respectively, of the options granted. The Compensation Committee will be required to certify in writing or in approved minutes of the Committee that the foregoing performance standards have been satisfied prior to the exercise of the respective option. The options granted to Senior Managers will vest ratably across each tranche as follows: (a) one-fifth on the Consummation Date; (b) one-fifth on each of the first three anniversaries of the Consummation Date; and (c) one-fifth on the ninetieth day immediately prior to the fourth anniversary of the Consummation Date. The vested options and shares received upon exercise of options ("Option Shares") will become transferable in tranches of 20%, 20%, 30% and 30% (expressed as a percentage of vested and unvested options) on each of the first four anniversaries, respectively, of the date of grant. Except as described in the preceding sentence and except for 24 transfers in connection with estate planning, the options and Option Shares will not be transferable during the term of a Senior Manager's employment. Aggregated Option/SAR Exercises in Last Fiscal Year and Fiscal Year-End Option/SAR Values
Name - ---- Number of Securities Value of Underlying Unexercised Unexercised In-the-Money Options/SARs at FY-End(#) Options/SARs at FY-End ($) ------------------------------- ------------------------------- Exercisable Unexercisable Exercisable Unexercisable ----------- ------------- ----------- ------------- J. Harris 600,000 650,000 0 0 G. Philbin 150,000 300,000 0 0 J. Freimark 80,000 15,000 0 0 R. Ayers 20,800 0 0 0 L. DePaolis 25,800 0 0 0 J. Meadows 27,200 0 0 0 F. Nicastro 12,600 0 0 0 G. Smith 15,000 0 0 0 D. Vaillancourt 20,800 0 0 0
In connection with the consummation of the Plan of Reorganization all currently outstanding options will be cancelled. Pension Plan Table The table below shows, on a combined basis for The Grand Union Company Employees' Retirement Plan (the "Retirement Plan"), and The Grand Union Company Supplemental Retirement Program for Key Executives (the "Supplemental Plan"), the estimated annual benefit payable upon retirement to specified compensation and years of service classifications of 5, 10 and 15 or more years of service. The credited years of service under these plans for Messrs. McCaig and Freimark are 23 and 0 years, respectively. Messrs. Harris, Partridge, and Philbin will be eligible to participate in the Retirement Plan effective January 1, 1999; they were participants in the Supplemental Plan immediately upon hire. Messrs. Ayers, Nicastro, and Vuolo are not entitled to any Supplemental Plan benefits. The current base compensation set forth in the "salary" column of the Summary Compensation Table does not differ substantially from covered compensation under these Plans. The retirement benefits shown are based upon retirement at age 62 and the payment of a single-life annuity to the employee. Years of Service ------------------------------------------ 5 10 15 or more ---------- ---------- ------------ $100,000....................... $ 21,667 $ 43,333 $ 65,000 150,000....................... 32,500 65,000 97,500 200,000....................... 43,333 86,667 130,000 250,000....................... 54,167 108,333 162,500 300,000....................... 65,000 130,000 195,000 350,000....................... 75,833 151,667 227,500 400,000....................... 86,667 173,333 260,000 450,000....................... 97,500 195,000 292,500 500,000....................... 108,333 216,667 325,000 550,000....................... 119,167 238,333 357,500 600,000....................... 130,000 260,000 390,000 650,000....................... 140,833 281,667 422,500 25 The estimated Retirement Benefits shown below are expressed in the form of an annuity commencing at age 65. Note that the actual Retirement Benefit that each participant eventually receives from the Retirement Plan may be lower upon application of the statutory benefit limitations under Section 415 of the Code. In addition, each participant may elect to receive his Retirement Benefit as early as age 55 (provided the participant has ten years of service) in an actuarially reduced amount, or under one of the optional forms of payment. Estimated Qualified Retirement Plan Age 65 Annual Accrued Benefit as of 3/28/98 ----------------------------- J. McCaig $56,000 F. Nicastro $16,700 R. Ayers $40,800 G. Vuolo $48,700 The benefits actually payable to an individual executive are reduced, in some cases substantially, through offsets for primary Social Security benefits and the actuarial equivalent of the value of securities received by those executives who received distributions in 1995 and 1994. Mr. McCaig received prior distributions totaling $208,535 during 1994 and 1995. The estimated social security and total offset amounts are $18,000 and $227,000, respectively. These amounts are expressed as a single life annuity payable beginning at age 62 based on the Supplement Plan's definition of actuarial equivalence and a 7% interest rate conversion assumption. The Grand Union Company Employees' Retirement Plan The Retirement Plan is a tax-qualified, noncontributory retirement plan, providing retirement benefits for the Company's eligible salaried and hourly non-union employees, union employees not covered by other pension plans, and all of its officers. Under the Retirement Plan, a participant's benefit is generally 1.5% of the average of his or her five consecutive years of highest annual compensation multiplied by years of service not in excess of 35 minus primary social security benefits. Benefits under the plan are paid under several alternatives, including monthly or lump sum payments at the employee's election. Benefits are normally payable at age 65; however, the plan provides for early retirement with reduced benefits commencing at age 55. The Code places certain limits on pension benefits which may be paid under plans qualified under the Code. Supplemental Retirement Plan For Key Executives The Supplemental Plan is a non-qualified pension plan pursuant to which certain key employees of the Company and its affiliates ("Participants") earn a supplemental pension in addition to the pension benefit to which they are entitled under the Retirement Plan. The pension benefit formula under the Supplemental Plan is expressed as an annual pension, payable monthly (i) if the Participant is not married on his retirement date, for the Participant's life, or (ii) if the Participant is married on his retirement date, the same amount as described in clause (i) for the duration of the Participant's life and thereafter 50% of such amount for the duration of the life of the Participant's surviving spouse. The amount of the annual pension payable upon retirement at age 62 or later is determined as the "target benefit" minus the "plan offsets". The "target benefit" is an annual pension equal to the product of 4-1/3% of the Participant's final year's base salary rate in effect immediately prior to his separation or as may be adjusted by the committee administering the Supplemental Plan in its sole discretion, multiplied by the Participant's number of years of actual or deemed credited service (in most cases, up to 15 years) under the Supplemental Plan. "Plan offsets" for Participants retiring at age 62 or later are equal to the sum of the Participant's (i) primary Social Security benefits payable at the later of age 62 or the Participant's actual retirement age, (ii) benefits under the Retirement Plan payable at the later of age 62 or the Participant's actual retirement age in the form of a single life annuity, and (iii) benefits, if any, payable from the qualified retirement plan(s) of the Participant's previous employer(s). Participants may also retire early (i) at or after attaining age 50 but prior to attaining age 55, with the consent of the Company (the consent 26 requirement is waived for a Participant who becomes disabled or is involuntarily terminated other than for cause), or (ii) at or after age 55, without any requirement for consent by the Company. For Participants who retire early, the "target benefit" is reduced by 5% per year for each year the Participant is under age 62. Supplemental Plan benefits are payable in an actuarially determined single sum no later than 30 days following the Participant's date of retirement or other termination of employment. In general, no Supplemental Plan benefits will be paid to a Participant whose employment with the Company terminates prior to the Participant's attaining age 50. In May 1995, the Supplemental Plan was modified to provide that (x) in the case of Mr. McCaig, the base salary would be deemed to be an amount not less than $500,000 and (y) notwithstanding the general requirement of the Supplemental Plan, benefits will not be paid to persons who retire prior to age 50, except persons who were participants in the Supplemental Plan prior to April 1, 1995, who will be eligible for early retirement without forfeiture of benefits under the Supplemental Plan from and after age 47 with Company consent. Pursuant to existing Harris Employment Agreement, the Partridge Employment Agreement and the Philbin Employment Agreement, as detailed above, Messrs. Harris, Partridge and Philbin were granted additional credited service under the terms of the Supplemental Plan. As further discussed above and in connection with the Plan of Reorganization, similar arrangements will exist under the Harris Amendment, the Partridge Amendment, the Philbin Amendment and the Freimark Employment Agreement. Compensation of Directors Each non-employee director receives an annual fee of $25,000 for serving on the Board, and meeting fees of $1,500 for each Board meeting attended in person, $750 for each committee meeting attended in person and each telephonic Board meeting attended, and $375 for each telephonic committee meeting attended. In addition, the Chairman of the Audit Committee and the Chairman of the Compensation Committee, receive $500 for each Committee meeting they attend in person as Chairman and $250 for each telephonic committee meeting they attend as Chairman. In March 1998, in connection with the negotiations of the Plan of Reorganization, the Board formed a Special Committee comprised of Directors Krimstein, Manski and Pritchard. Members of the Special Committee were compensated as follows: 1) $2,000 for any in-person meetings and 2) $1,000 for any day requiring a significant time commitment toward the restructuring. In connection with duties arising from membership on the Special Committee, Mr. Krimstein received aggregate consideration of $36,000, Mr. Manski received aggregate consideration of $37,000 and Ms. Pritchard received aggregate consideration of $33,000. Effective July 1, 1997, Directors were eligible to elect to receive all or part of their annual retainer and fees in common stock. No stock was delivered to a director. In January 1998, the Board returned to an all cash compensation method. Directors receive reimbursement of reasonable expenses incidental to attendance at meetings of the Board of Directors or its committees. Each non-employee director also receives an automatic initial grant of options to purchase 5,000 shares of common stock, and additional grants to purchase 1,500 shares with each re-election by stockholders. All options have a term of ten years and generally become exercisable (i) six months after the grant date as to one-third of the shares, (ii) 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 (iii) 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. All directors are reimbursed for expenses incurred on the Company's behalf. Indemnification Agreements The Company has entered into indemnification agreements with each of its directors and executive officers pursuant to which the Company has agreed to indemnify such persons to the fullest extent permitted by law against expenses, judgments, fines, penalties or amounts paid in settlement actually and reasonably incurred by such person in connection with legal proceedings in which the person was involved by reason of being a director or officer of the Company. Under current law, such indemnification generally is available if such person acted in good faith and in a manner he or she reasonably believed to be in the best interests of the Company and, with respect to criminal proceedings, had no reasonable cause to believe his or her conduct was unlawful. Under current law, such person is not indemnified in respect of matters as to which he or she has been adjudged liable to the Company unless a court determines that, under the circumstances, he or she is reasonably entitled to such indemnification. Comparable indemnification rights are also provided pursuant to the Company's Certificate of Incorporation. 27 Severance Plans On and effective April 14, 1998, the Board of Directors adopted (i) The Grand Union Company Discretionary Severance Plan for Non-Union Associates (the "Discretionary Severance Plan") and (ii) The Grand Union Company Severance Plan for Exempt Personnel (the "Exempt Severance Plan"). The Discretionary Severance Plan and the Exempt Severance Plan supercede any prior severance plan or policy which may have existed prior to April 14, 1998. Generally, the Discretionary Severance Plan applies to all non-union, non-salaried, hourly associates working in the Company's stores and non-union hourly personnel who work in the Company's offices. Under the Discretionary Severance Plan, eligible terminated associates of the Company are generally eligible to receive the equivalent of one week's regular pay for each two years of service to a maximum of 26 weeks of total severance benefits. However, the Plan Administrator retains the absolute right and discretion to determine whether an employee will be offered severance benefits and the terms and amount of the severance benefits to be paid, if any. Subject to all of the terms and conditions of the Exempt Severance Plan, all salaried personnel at the Company's headquarters and salaried store personnel who are actively employed and working may be eligible to receive a severance benefit under the Exempt Severance Plan. Severance benefits under the Exempt Severance Plan will generally be payable to eligible employees terminated due to a job elimination, a reduction in force for economic reasons, a decision to outsource work performed by Company employees to a third party service provider, or another Company initiated event (other than the sale of a major business unit of the Company). Under the Exempt Severance Plan, eligible employees will receive a lump sum severance benefit of one week's pay. Additionally the Exempt Severance Plan provides for a lump-sum severance payment equal to (i) in the case of salaried employees holding the office of Senior Vice President or above, 18 months' base salary less the one week base severance benefit; (ii) in the case of salaried employees holding the office of Corporate Vice President, 12 months' base salary less the one week base severance benefit; (iii) in the case of salaried employees holding the office of appointed vice president or director, 6 months' base salary less the one week base severance benefit; and (iv) in the case of all other salaried employees, one week's base salary for each year of service to the Company up to a maximum of 26 weeks less the one week base severance benefit. Any employee of the Company who has a separate written agreement with the Company, which provides for payment of severance benefits will receive no severance benefit under either the Discretionary Severance Plan or the Exempt Severance Plan. Each of the Senior Managers employment agreements (as will be amended pursuant to the Plan of Reorganization) contain provisions providing for termination payments that render them ineligible for severance benefits under the Discretionary Severance Plan and/or Exempt Severance Plan. Change-in-Control Provisions Under the Company's EIP and 1995 Non-Employee Directors' Stock Option Plan, certain provisions take effect on a change in control of the Company. Under both plans, on the twentieth (20th) trading day prior to the effective date of the change in control, all stock options not otherwise vested become fully vested, and any restrictions or other conditions applicable to restricted stock or other incentives awarded under the Employee Plan lapse or are deemed satisfied and such awards become fully vested and/or immediately payable. In addition, the value of any canceled award is paid out in cash unless the award holder receives either (i) the right to acquire the same basket of cash and securities available to holders of Common Stock, or (ii) if pooling of interests is a condition of the transaction, an equivalent right in a successor security which would enable the transaction to qualify for pooling of interests. Under both plans, a change in control is defined to include: (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 (as defined below); (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 of Directors or nomination for election by stockholders was approved by 66-2/3% 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 of Directors 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 determining whether a change in control has occurred, "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. Pursuant to the Plan of Reorganization, each Senior Manager's employment agreement (as amended) will provide that if reorganized Grand Union terminates a Senior Manager without "Cause," or if such Senior Manager resigns for "Good Reason" (each as defined in their employment agreements), within twelve months following a "Change of Control" (as defined 28 below), such Senior Manager shall be entitled to severance pay equal to the sum of (i) the product of (x) 2.99 times (y) 120% of such Senior Managers' base salary then in effect, plus (ii) such Senior Manager's accrued and unpaid bonus based on the ratable portion of EBITDA through the date of termination pursuant to such Senior Managers' existing employment contracts and the continuation of certain other benefits as set forth in the agreements. "Change of Control" shall mean, after the Consummation Date, the acquisition by any person or entity, directly or indirectly, of more than 50% of the common stock; provided, however, that no Change of Control shall occur by reason of the issuance of common stock to holders of the Senior Notes upon the Consummation Date. The employment agreements for the Senior Managers and the EIP shall continue to provide for certain termination obligations for certain events not covered under this change of control provision. Compensation Committee Interlocks And Insider Participation The Board of Directors maintains a compensation committee (the "Compensation Committee") consisting of three directors. The Compensation Committee currently consists of Ms. Pritchard and Messrs. Manski and Krimstein, with Mr. Manski acting as Chairman. From October 30, 1997 to April 22, 1998, the Compensation Committee consisted of Ms. Pritchard, Mr. Miller and Mr. Stonesifer, with Mr. Miller serving as Chairman. Messrs. Miller and Stonesifer served on the Compensation Committee from September 1996. Mr. Kagler served on the Compensation Committee from June 1995 until August 1997. No member of the Board participates in decisions regarding his own compensation as an executive officer of the Company. Section 16(a) Beneficial Ownership Reporting Compliance Section 16(a) of the Exchange Act requires the Company's directors and executive officers and persons who beneficially own more than 10% of a registered class of the Company's equity securities to file with the Securities and Exchange Commission initial reports of ownership and reports of changes in ownership of Common Stock and other equity securities of the Company on Forms 3, 4, and 5. Officers, directors and greater than 10% beneficial stockholders are required by rules promulgated by the Securities and Exchange Commission to furnish the Company with copies of all Section 16(a) reports they file. Based solely on its review of the copies of reporting forms furnished to the Company, or written representations of reporting persons, the Company believes that all filing requirements under Section 16(a) of the Exchange Act applicable to its directors, officers and any persons holding 10% or more of the Company's Common Stock with respect to the Company's fiscal year ended March 28, 1998, were satisfied, with the exception of the late Form 3 filings for Mr. Harris and Mr. Meadows. Item 12. Security Ownership of Certain Beneficial Owners and Management Security Ownership By Certain Beneficial Owners and Management Set forth below is certain information as of June 24, 1998 (except as otherwise indicated), regarding the beneficial ownership of the Company's preferred stock and common stock by (i) any person known by the Company to beneficially own more than 5% of any class of voting securities of the Company; (ii) each director; (iii) each of the Named Executive Officers (as defined below) identified in the Summary Compensation Table; and (iv) all directors and executive officers as a group. Included in the table are shares that the holder has the right to acquire within 60 days from the date above. Except as indicated otherwise, the Company believes, based on information furnished by such owners, that the beneficial owners of the Company's common stock and preferred stock listed below have sole investment and voting power with respect to such shares, subject to applicable community property laws. Unless otherwise indicated, the address for all natural persons listed in the table below is c/o The Grand Union Company, 201 Willowbrook Boulevard, Wayne, New Jersey 07470. Pursuant to the Plan of Reorganization all outstanding shares of the Company's preferred stock and common stock will be cancelled.
Name of Beneficial Owner Amount and ------------------------ Nature of Beneficial Percent Ownership(1) of Class(1) ------------ ----------- Preferred Stock A
29
Name of Beneficial Owner Amount and ------------------------ Nature of Beneficial Percent Ownership(1) of Class(1) ------------ ----------- Trefoil Capital Investors II, L.P. ..................... 620,212 (2)(3) 47.69% GE Investment Private Placement Partners II, A Limited Partnership............................... 620,212 (3)(4) 47.69% The Stangeland Family Limited Partnership........... 60,142 (5) 4.62% Preferred Stock B Trefoil Capital Investors II, L.P. ..................... 400,000 (2)(3) 50.00% GE Investment Private Placement Partners II, A Limited Partnership............................... 400,000 (3)(4) 50.00% Common Stock Trefoil Capital Investors II, L.P. ..................... 17,610,674 (2)(3) 38.77% GE Investment Private Placement Partners II, A Limited Partnership............................... 17,610,674 (3)(4) 38.77% Donaldson, Lufkin & Jenrette Securities Corporation..... 1,039,177 (6) 10.19% Jordan H. Krimstein..................................... 2,166 (7) * Mark H. Manski.......................................... 2,166 (7) * Martha A. Pritchard..................................... 2,166 (7) * J. Wayne Harris......................................... 650,000 (8) 6.02% Jack W. Partridge....................................... 185,000 (8) 1.78% Gary M. Philbin......................................... 158,000 (8) 1.53% Jeffrey P. Freimark..................................... 80,000 (8) * Francis E. Nicastro..................................... 12,300 (8) * Ray Ayers............................................... 20,800 (8) * All Directors and Executive Officers as a group (13 persons)...................................... 1,201,398 (9) 10.60%
- ----------- * Less than 1%. (1) Beneficial ownership is determined pursuant to Rule 13d-3 under the Securities Exchange Act of 1934, as amended (the "Exchange Act") as applied by Item 403 of Regulation S-K. Pursuant to these rules, percentage ownership is calculated by including in the numerator and the denominator for a beneficial owner shares which such owner has the right to acquire within 60 days. (2) The general partners of Trefoil Capital Investors II, L.P. ("Trefoil") are Trefoil Investors II, Inc., a Delaware corporation ("Trefoil II"), and Sigma Hedge Partners, G.P., a Delaware partnership ("Sigma"). Trefoil II is the managing general partner of Trefoil. The general partners of Sigma are Delta PT Investors Corporation, a Delaware corporation ("Delta"), and Epsilon Equities, Inc., a Delaware corporation ("Epsilon"), each of which is wholly owned by the General Electric Pension Trust, a New York common law trust ("GEPT"). The principal executive offices of Trefoil and Trefoil II are located at 4444 Lakeside Drive, Burbank, California 91505. The principal executive offices of Sigma, Delta, Epsilon and GEPT are located at 3003 Summer Street, P.O. 7900, Stamford, Connecticut 06904. Sigma, Delta, Epsilon and the Trustees of GEPT each holds shared dispositive power over the shares of Preferred Stock held by Trefoil and the shares of Common Stock into which such shares of Preferred Stock are convertible. Trefoil II holds sole voting power, and Sigma, Delta, Epsilon and GEPT hold no voting power, with respect to the shares of Preferred Stock held by Trefoil and the shares of Common Stock into which such shares of Preferred Stock are convertible. (3) Trefoil and GE Investment Private Placement Partners II, A Limited Partnership, a Delaware limited partnership ("GEI" and, collectively with Trefoil, the "Investors") may be deemed to beneficially own all of the shares of Preferred Stock held by the Investors due to a Stockholders Agreement between the Investors pursuant to which the Investors have 30 each agreed to certain joint action relating to voting and disposition of the Preferred Stock and the Common Stock issuable on conversion of the Preferred Stock. Each share of Preferred Stock A is convertible into 6.8966 shares of Common Stock, and each share of Preferred Stock B is convertible into 20.8333 shares of Common Stock. (4) GE Investment Management Incorporated, a Delaware corporation ("GEIM") serves as the managing general partner of GEI. GEIM is a wholly owned subsidiary of General Electric Company and a registered investment advisor. The principal executive offices of GEI, GEIM and General Electric Company are located at 3003 Summer Street, P.O. Box 7900, Stamford, Connecticut 06904. GEIM is the managing general partner of GEI and holds sole voting power and sole dispositive power with respect to such shares. (5) The Roger and Lilah Stangeland Living Trust (the "Trust") serves as general partner for The Stangeland Family Limited Partnership, a limited partnership for the benefit of Roger and Lilah Stangeland (the "Stangeland Partnership"). Mr. Stangeland and his wife serve as co-trustees of the Trust. Pursuant to a stockholder agreement among the Company, the Investors and the Stangeland Partnership, the Stangeland Partnership has granted to the Investors certain take-along rights, and the Investors have granted to the Stangeland Partnership certain tag-along rights, with respect to such shares. Solely to the extent any of such take-along or tag-along rights may be exercised, the Stangeland Partnership and the Investors share dispositive power with respect to such shares. Mr. Stangeland shares with his wife voting and dispositive power with respect to all shares held by the Stangeland Partnership. (6) Such information is as of June 10, 1998 and is based upon the information provided in the Schedule 13G filed by AXA Assurances I.A.R.D. Mutuelle, AXA Assurances Vie Mutuelle, Alpha Assurances Vie Mutuelle, AXA Courtage Assurance Mutuelle (collectively, the "Mutuelle AXA"), AXA-UAP and The Equitable Companies Incorporated. Mutelle AXA, as a group, beneficially owns a majority interest in AXA-UAP, which beneficially owns a majority interest in The Equitable Companies, which is a parent holding company with respect to the holdings of Donaldson, Lufkin & Jenrette Securities Corporation, which has sole voting and dispositive power over the shares of common stock. Such holdings consist of 1,038,127 shares of common stock and warrants exercisable for 1,050 shares of common stock. (7) Represents shares subject to acquisition pursuant to options exercisable under the 1995 Non-Employee Directors' Stock Option Plan. (8) Represents shares subject to acquisition pursuant to options exercisable under the EIP, except for 50,000 shares of Common Stock owned directly by Mr. Harris, 10,000 shares of Common Stock owned directly by Mr. Partridge, and 8,000 shares of Common Stock owned directly by Mr. Philbin. (9) Includes 1,127,200 shares subject to acquisition pursuant to options exercisable under the EIP and 6,498 shares subject to acquisition pursuant to options exercisable under the 1995 Non-Employee Directors' Stock Option Plan. Item 13. Certain Relationships and Related Transactions Pre-Bankruptcy Relationships and Transactions On January 25, 1995, the Company filed a petition under Chapter 11 of the federal bankruptcy laws. The Company emerged from bankruptcy on June 15, 1995, the effective date of the bankruptcy court's approval of the Company's reorganization plan. Prior to June 15, 1995, the Company was a wholly owned subsidiary of Grand Union Capital Corporation ("Capital"), which in turn was a wholly owned subsidiary of Grand Union Holdings Corporation ("Holdings"). Holdings was controlled by Miller Tabak Hirsch & Co. ("MTH") and its affiliates, which also control Penn Traffic. The following applies to relationships that existed prior to June 15, 1995. Mr. Gary D. Hirsch served as Chairman and a Director of the Company and also as Chairman and a Director of Penn Traffic. Mr. Martin A. Fox served as a Director, Vice President and Assistant Secretary of the Company and Vice Chairman-Finance and Assistant Secretary of Penn Traffic. Messrs. Hirsch and Fox received compensation from MTH, of which Mr. Hirsch is a general partner of the managing partner, and Mr. Fox is Executive Vice President. Messrs. Hirsch and Fox did not receive salaries from Penn Traffic and did not participate in cash bonus plans of Penn Traffic, and received no compensation in their capacities as executive officers or directors of the Company. 31 Mr. McCaig served as a director of the Company from June 15, 1995 until May 7, 1997. Until May 31, 1995, Mr. McCaig was a member of the Board of Directors of Penn Traffic, for which he received compensation of $10,000 per annum and $1,000 per Board of Directors meeting attended. Mr. McCaig became a Director of Holdings in July 1989 and a Director of Capital in July 1992. He became President of Holdings and Capital in May 1993. Mr. McCaig served as a Director of Penn Traffic from September 1992 until May 1995. Mr. Hirsch is no longer a director of the Company. While he was a director, he was an indirect beneficiary of the following transactions. Prior to June 15, 1995, MTH was engaged as financial advisor to Penn Traffic and as a financial advisor to the Company, in the latter case pursuant to an agreement (the "MTH Agreement"), under which MTH was to have provided certain financial consulting and business management services to the Company through July 1997. In accordance with the Company's post-bankruptcy Reorganization Plan, the MTH Agreement was terminated on June 15, 1995 and the Company executed a settlement agreement (the "MTH Settlement Agreement"). The MTH Settlement Agreement provides for the termination of the MTH Agreement, payment by the Company of accrued and unpaid fees under the MTH Agreement through June 15, 1995, and for the indemnification of MTH and certain entities related to MTH (the "MTH Entities") from certain claims and liabilities, subject to the terms and limitations set forth in the MTH Settlement Agreement. The Company deposited $3.0 million relating to the indemnification in escrow on June 15, 1995. During Fiscal 1996, the Company paid $315,000 to MTH, pursuant to the MTH Agreement. On July 30, 1990, P&C Foods, which is indirectly controlled by MTH, and the Company entered into an Operating Agreement pursuant to which the Company acquired the right to operate 13 P&C Foods' stores in New England under the Grand Union name until July 2000. Pursuant to the Operating Agreement, the Company agreed to pay P&C Foods a minimum annual fee which will average $10.7 million per year during the ten-year lease term. Pursuant to the terms of the Operating Agreement, a $15 million prepayment of the annual fee was made to P&C Foods in connection with the recapitalization of the Company in 1992. The Operating Agreement was assumed during the Chapter 11 bankruptcy case and will continue on its current terms. From September 1993 until September 1995, the Company participated in a program to consolidate the purchasing, storage and distribution of health and beauty care and general merchandise product with Penn Traffic. During Fiscal 1996, the Company purchased from Penn Traffic's inventory of health and beauty care and general merchandise products at cost approximately $30.1 million for store operations and approximately $12.8 million at the termination of the agreement. Post-Bankruptcy Relationships. Mr. Ying, a director of the Company from June 15, 1995 until July 28, 1997, was a managing director of Donaldson Lufkin & Jenrette Securities Corporation ("DLJ") from January 1993 to June 1997. During Fiscal 1995 and Fiscal 1996, DLJ acted as financial advisor to the Informal Committee of certain holders of Subordinated Notes in connection with the restructuring of the Company and received compensation from the Company of $1,278,000 for such services. Near the end of Fiscal 1996, the Company entered into an agreement with DLJ to provide investment banking services and advice to the Company. During the term of DLJ's engagement, it had the exclusive right to act as sole managing underwriter, exclusive placement agent, sole dealer manager or exclusive solicitation agent with respect to any public offering of the Company's securities, any private offering of any of the Company's debt securities, or any exchange offer or refinancing transaction relating to the Company's Senior Notes or other securities of the Company. The agreement also contains various other provisions, including an obligation by DLJ to keep confidential certain information provided to it by the Company, and an obligation by the Company to indemnify and hold harmless DLJ, its parent and its affiliates, and the directors, officers, agents, and employees of DLJ, its parent and its affiliates ("Indemnified Persons"), from and against various potential losses and liabilities arising out of or in connection with misstatements or omissions in disclosure documents or in connection with advice or services rendered by an Indemnified Person. In Fiscal 1997, the Company entered into the Stock Purchase Agreement (referred to below) in connection with which DLJ rendered various services pursuant to the agreement, including a Fairness opinion. In connection with the agreement DLJ received aggregate payments of $4,838,000, reflecting a Transaction Fee of $3,753,000, a Fairness Fee of $1,000,000 (for a fairness opinion), and reimbursement of expenses in the amount of $85,000. DLJ received an additional fee of $250,000 for services rendered in connection with solicitation of consents and waivers from the holders of the Company's Senior Notes. In May 1997, the Company entered into an agreement with DLJ to advise a Committee of Independent Directors (the "Committee") with advice in respect to the restructuring of obligations under the Stock Purchase Agreement. As compensation for the services provided to the Committee, the Company paid DLJ $500,000 in connection with a fairness opinion with respect to the transactions contemplated by the Acceleration and Exchange Agreement described under "1996 Preferred Stock Purchase" below. 32 Mr. Moore, a director of the Company from September 17, 1996 to April 22, 1998, is a managing director and executive officer of Shamrock Capital Advisors, Inc. ("SCA"). Pursuant to a three-year management services agreement (the "Services Agreement") dated July 30, 1996 between the Company and SCA, SCA shall consult with and provide advice to the officers and management employees of the Company concerning matters (i) relating to the Company's financial policies and the development and implementation of the Company's business plans and (ii) generally arising out of the business affairs of the Company. The Services Agreement expires by its terms in September 1999. SCA's compensation for such management and consulting services under the Services Agreement was $300,000 in the fiscal year ending in 1997 and will be $400,000 for the fiscal year ending in 1998. No further payments will be made to SCA due to the restructuring The Company also reimburses SCA for its reasonable out-of-pocket costs and expenses incurred in connection with the performance of its services under the Services Agreement. The Company has agreed to indemnify SCA against all claims, liabilities, expenses, losses or damages (or actions in respect thereof) related to or arising out of actions taken (or omitted to be taken) by SCA pursuant to the terms of the Services Agreement; provided that such liabilities did not result primarily from actions taken, or omitted to be taken, by SCA in bad faith or due to SCA's gross negligence or officers and any persons holding 10% or more of the Company's Common Stock with respect to the Company's fiscal year ended March 30, 1996, were satisfied. 1996 Issuance of Old Preferred Stock Interests In a series of related transactions commencing on July 30, 1996, Trefoil Capital Investors II, L.P. and GE Investment Private Placement Partners II, A Limited Partnership (the "Purchasers") acquired beneficial ownership of an aggregate of approximately 70.77% of Grand Union's outstanding voting stock. On July 30, 1996, Grand Union entered into a definitive agreement (the "Stock Purchase Agreement") to sell $100 million of Class A Convertible Preferred Stock ("Class A Preferred") to the Purchasers. Each share of the Class A Preferred was to be convertible at the option of the holder, at any time, into 6.8966 shares of common stock. Pursuant to the Stock Purchase Agreement, the Purchasers agreed to purchase, and Grand Union agreed to sell, an aggregate of 2,000,000 shares of Class A Preferred at a purchase price of $50 per share (the "Stated Value") in stages through February 25, 1998. On September 17, 1996, the first stage of the transaction was closed, and the Purchasers acquired 800,000 shares of Class A Preferred for an aggregate purchase price of $40 million. At a subsequent closing held on February 25, 1997, the Purchasers purchased an additional 400,000 shares of Class A Preferred for an aggregate purchase price of $20 million. Additional subsequent closings were scheduled for August 26, 1997 and February 25, 1998 (the "Subsequent Closings"). If the Subsequent Closings had occurred, the Purchasers would have been required to purchase an additional 800,000 shares of Class A Preferred for an aggregate purchase price of $40 million. Pursuant to an Acceleration and Exchange Agreement (the "Acceleration Agreement"), dated June 12, 1997, between Grand Union and the Purchasers, at the request of Grand Union, the Purchasers agreed to accelerate to June 12, 1997 (the "Accelerated Closing") the sale and purchase of the 800,000 shares of Class A Preferred (the "Accelerated Shares"), which was to have occurred at the Subsequent Closings, and to exchange (the "Exchange") the Accelerated Shares for 800,000 shares of Class B Convertible Preferred Stock ("Class B Preferred"). At the Accelerated Closing, Grand Union received the $40 million purchase price for the sale of the Accelerated Shares. Immediately following the Accelerated Closing, the Purchasers completed the Exchange pursuant to which they received an aggregate of 800,000 shares of Class B Preferred, in consideration for their surrender of the Accelerated Shares. Until February 20, 1998, each share of Class B Preferred was convertible at the option of the holder, at any time, into 20.8333 shares of common stock. Pursuant to the Acceleration Agreement, effective February 20, 1998, this conversion ratio was reset such that each share of Class B Preferred is convertible into 33.3333 shares of common stock. On March 20, 1997, Grand Union consummated the sale to The Roger Stangeland Family Limited Partnership (the "Stangeland Partnership") of 60,000 shares of Class A Preferred at a purchase price of $50 per share (the "Stangeland Shares"), pursuant to the terms of a Stock Purchase Agreement, dated February 25, 1997, as amended by Amendment No. 1 thereto dated as of March 20, 1997 (as so amended, the "Stangeland Stock Purchase Agreement"), between Grand Union and Mr. Stangeland, a director of the Company from June 15, 1995 to April 22, 1998. Pursuant to a Stockholder Agreement dated February 25, 1997 (the "Stangeland Stockholder Agreement"), among the Purchasers, Mr. Stangeland and Grand Union, Mr. Stangeland has granted the Purchasers certain take-along rights, the Purchasers have granted Mr. Stangeland certain tag-along rights, and the Purchasers and Grand Union have granted Mr. Stangeland certain registration rights related to the Stangeland Shares and any shares of Class A Preferred, and common stock, if any, paid as dividends with respect to the Class A Preferred (collectively, "Securities"). Pursuant to an Addendum, dated as of March 20, 1997, to the Stangeland Stockholder Agreement, the Stangeland Partnership has succeeded to all of the rights, and has assumed all of the obligations, of Mr. Stangeland pursuant to the Stangeland Stockholder Agreement. The Purchasers disclaim any and all 33 ownership of the Stangeland Shares or any additional Securities acquired by the Stangeland Partnership in respect of the Stangeland Shares. As of June 24, 1998, there were a total of 1,300,566 outstanding shares of Class A Preferred, which were convertible into an aggregate of 8,969,483 shares of common stock, and a total of 800,000 outstanding shares of Class B Preferred, which were convertible into an aggregate of 26,666,640 shares of common stock. Together, the aggregate shares of Class A Preferred and Class B Preferred account for approximately 77.74% of Grand Union's outstanding voting stock. On September 30, 1996, December 31, 1996 and March 31, 1997, Grand Union paid dividends on the Class A Preferred through the issuance of a total of 40,566 shares of Class A Preferred, with an aggregate Stated Value of $2,028,300. Grand Union elected to suspend the declaration of the dividends payable June 30, 1997, September 30, 1997, December 31, 1997 and March 31, 1998. The dividends on the Class A Preferred and the Class B Preferred and the accrued and unpaid dividends through March 31, 1998 have been accounted for by a charge against "Capital in Excess of Par Value" and a corresponding increase in the carrying amounts of the Class A Preferred and Class B Preferred. The Class A Preferred and Class B Preferred have a liquidation preference over the common stock equal to the Stated Value of the outstanding shares of the preferred stock plus all accrued and unpaid dividends. PART IV Item 14. Exhibits, Financial Statement Schedules and Report on Form 8-K [to be updated] The following documents are filed as a part of this report: (a) Financial statements All financial statements as set forth under Item 8. (b) Report on Form 8-K 1. Relating to the hiring of Jack W. Partridge, Jr. - filed on January 27, 1998. 2. Relating to the agreement on terms of a capital restructuring - filed on March 31, 1998. 3. Relating to the commencement of the solicitation of votes on the Plan of Reorganization - filed on May 28, 1998. (c) Exhibits Exhibit Number Description of Document - ------- ----------------------- 2.1 Second Amended Chapter 11 Plan of Reorganization of The Grand Union Company ("Grand Union"), filed with the United States Bankruptcy Court, District of Delaware, on April 19, 1995, incorporated by reference to Exhibit T3E1 to Grand Union's Form T-3 dated May 8, 1995. 2.2 Findings of Fact, Conclusions of Law and Order Confirming the Second Amended Plan of Reorganization proposed by Grand Union, dated May 31, 1995, incorporated by reference to Exhibit 2.2 to Grand Union's Annual Report on Form 10-K for the fiscal year ended April 1, 1995 ("Fiscal 1995"). 2.3 Minute Order Clarifying Findings of Fact, Conclusions of Law and Order Confirming Second Amended Plan of Reorganization proposed by Grand Union, dated June 14, 1995, incorporated by reference to Exhibit 2.3 to Grand Union's Annual Report on Form 10-K for Fiscal 1995. 2.4 Chapter 11 Plan of Reorganization filed with the United States Bankruptcy Court, District of New Jersey, on 34 Exhibit Number Description of Document - ------- ----------------------- 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 amended through January 6, 1997, incorporated by reference to Exhibit 3.1 to Grand Union's Annual Report on Form 10-K for Fiscal 1997. 3.2 Certificate of Designation of Class A Convertible Preferred Stock, incorporated by reference to Exhibit 10.4 to Grand Union's Quarterly Report on Form 10-Q for the period ended October 12, 1996. 3.3 Certificate of Designation of Class B Convertible Preferred Stock, dated as of June 11, 1997, incorporated by reference to Exhibit 3.1 to Grand Union's Annual Report on Form 10-K for Fiscal 1997. 3.4 By-laws of The Grand Union Company, as amended through January 15, 1998, incorporated by reference to Exhibit 3.1 to Grand Union's Quarterly Report on Form 10-Q for the period ended January 3, 1998. 4.1 Form of Common Stock Certificate of Grand Union, incorporated by reference to Exhibit 4.1 to Grand Union's Annual Report on Form 10-K for Fiscal 1995. 4.2 Warrant Agreement dated as of June 15, 1995, between Grand Union and American Stock Transfer & Trust Company, as Warrant Agent for 300,000 Series 1 Warrants and 600,000 Series 2 Warrants, incorporated by reference to Exhibit 4.5 to Grand Union's Annual Report on Form 10-K for Fiscal 1995. 4.3 Registration Rights Agreement dated as of June 15, 1995, among Grand Union and Each of the Persons Named in Schedule A thereto for the Common Stock, incorporated by reference to Exhibit 4.6 to Grand Union's Annual Report on Form 10-K for Fiscal 1995. 4.4 Registration Rights Agreement dated as of June 15, 1995, by and among Grand Union and the Holders Named therein for the Registrable Notes, incorporated by reference to Exhibit 4.7 to Grand Union's Annual Report on Form 10-K for Fiscal 1995. 4.5 Indenture dated as of June 15, 1995, between Grand Union, as Issuer, and IBJ Schroeder Bank & Trust Company, as Trustee for the 12% Senior Notes due September 1, 2004, including form of the 12% Senior Notes due 2004, incorporated by reference to Exhibit 4.2 to Grand Union's Annual Report on Form 10-K for Fiscal 1995. 4.6 First Supplement Indenture, dated September 9, 1996, to the Indenture dated as of June 15, 1995, between Grand Union, as Issuer, and IBJ Schroeder Bank & Trust Company, as Trustee for the 12% Senior Notes due September 1, 2004, incorporated by reference to Exhibit 10.3 to Grand Union's Quarterly Report on Form 10-Q for the period ended October 12, 1996. 4.7 Form of Warrant Agreement, to be executed on the Consummation Date, 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. 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 35 Exhibit Number Description of Document - ------- ----------------------- MTH Holdings and GUAC before the FTC, incorporated by reference to Exhibit No. 10.6 to the 1989 Grand Union Registration Statement. 10.3 Amended and Restated Borrower Pledge Agreement dated as of June 15, 1995, made by Grand Union to Bankers Trust Company ("Bankers Trust"), as Collateral Agent incorporated by reference to Exhibit 10.10 to Grand Union's Annual Report on Form 10-K for Fiscal 1995. 10.4 Amended and Restated Borrower Security Agreement dated as of June 15, 1995, between Grand Union and Bankers Trust, as Collateral Agent (included in Exhibit 4.4), incorporated by reference to Exhibit 10.11 to Grand Union's Annual Report on Form 10-K for Fiscal 1995. 10.5 Subsidiary Security Agreement dated as of June 15, 1995, among the corporations listed on Schedule 1 thereto and Bankers Trust, as Collateral Agent, incorporated by reference to Exhibit 10.12 to Grand Union's Annual Report on Form 10-K for Fiscal 1995. 10.6 Subsidiary Guaranty dated as of June 15, 1995, made by each of the corporations from time to time listed on Annex A attached thereto in favor of the Banks and the Agent from time to time party to the Credit Agreement, incorporated by reference to Exhibit 10.13 to Grand Union's Annual Report on Form 10-K for Fiscal 1995. 10.7 Form of Indenture of Open-End Mortgage, Deed of Trust, Deed to Secure Debt, Security Agreement, Assignment of Leases, Rents and Profits, Financing Statement and Fixture Filing, dated as of June 15, 1995, made by Grand Union to Bankers Trust, as Collateral Agent, incorporated by reference to Exhibit 10.14 to Grand Union's Annual Report on Form 10-K for Fiscal 1995. 10.8 Tenth Amendment to the Amended and Restated Credit Agreement dated as of June 15, 1995, (the "Credit Agreement"), which amends and restates the Credit Agreement as of August 31, 1997 among Grand Union, the lending institutions listed from time to time on Schedule 1 thereto, and Bankers Trust, as Agent, including Exhibits A-1, A-2 and A-3, and various Schedules thereto, incorporated by reference to Grand Union's Current Report on Form 8-K filed on September 3, 1997. 10.9 Eleventh Amendment to the Credit Agreement dated as of August 29, 1997, incorporated by reference to Exhibit 10.1 of Grand Union's Quarterly Report on Form 10-K for the period ended January 3, 1998. 10.10 Twelfth Amendment to the Credit Agreement dated as of January 9, 1998, incorporated by reference to Exhibit 10.2 of Grand Union's Quarterly Report on Form 10-K for the period ended January 3, 1998. 10.11 Thirteenth Amendment to the Credit Agreement dated April 17, 1998. 10.12 Supply and Distribution Agreement between Grand Union and C&S Wholesalers, 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. 10.13 First Amendment to the Supply and Distribution Agreement between Grand Union and C&S Wholesalers, 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. 10.14 Supply and Distribution Agreement between Grand Union and C&S Wholesalers, 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. 36 Exhibit Number Description of Document - ------- ----------------------- 10.15 Agreement with C&S Wholesalers Inc. dated January 21, 1996, incorporated by reference to Exhibit 10.28 to Grand Union's Annual Report on Form 10-K/A for Fiscal 1997. 10.16 Fourth Amendment and Restatement of The Grand Union Company Supplemental Retirement Program for Key Executives effective as of November 20, 1997. 10.17 The Grand Union Company Discretionary Severance Plan for Non-Union Associates effective April 14, 1998. 10.18 The Grand Union Company Severance Plan for Exempt Personnel effective April 14, 1998. 10.19 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. 10.20 The Grand Union Company 1995 Non-Employee Directors Stock Option Plan, incorporated by reference to Exhibit 10.2 to Grand Union's Quarterly Report on Form 10-Q for the period ended January 6, 1996. 10.21 First Amendment to the 1995 Non-Employee Directors' Stock Option Plan of Grand Union, incorporated by reference to Exhibit 10.6 to Grand Union's Quarterly Report on Form 10-Q for the period ended July 20, 1996. 10.22 Non-competition Agreement between Grand Union and Darrell W. Stine, incorporated by reference to Exhibit 10.26 of Grand Union's Annual Report on Form 10-K for Fiscal 1996. 10.23 Non-competition Agreement between Grand Union and Gilbert C. Vuolo, incorporated by reference to Exhibit 10.27 of Grand Union's Annual Report on Form 10-K for the Fiscal 1996. 10.24 Form of Indemnification Agreement between the Company and R. Stangeland, D. Josephs, W. Kagler, D. McClure, Jr., D. Ying, J. McCaig, W. Louttit, K. Baum, D. Stine, G. Vuolo and J. Schroeder, incorporated by reference to Exhibit 10.7 to Grand Union's Quarterly Report on Form 10-Q for the period ended July 20, 1996. 10.25 Form of Indemnification Agreement between Grand Union and J. Costello, C. Miller, G. Moore and J.R. Stonesifer, incorporated by reference to Exhibit 10.1 to Grand Union's Quarterly Report on Form 10-Q for the period ended October 12, 1996. 10.26 Form of Indemnification Agreement between the Company and J. Freimark (dated March 3, 1997), D. Vaillancourt (dated June 5, 1997), G. Smith (dated August 7, 1997), J. Harris (dated August 11, 1997), G. Philbin (dated October 3, 1997), Javier Ramirez, Vice President Tax and Assistant Secretary (dated October 30, 1997), J. Krimstein (dated October 30, 1997), M. Manski (dated October 30, 1997), M. Pritchard (dated October 30, 1997) and J. Partridge (dated January 5, 1998). 10.27 Stock Purchase Agreement dated July 30, 1996, among Grand Union, Trefoil Capital Investors II, L.P. and GE Investment Private Placement Partners II, A Limited Partnership, incorporated by reference to Exhibit 10.1 to Grand Union's report filed on Form 8-K dated July 30, 1996. 10.28 Amendment No. 1 to the Stock Purchase Agreement dated July 30, 1996, among Grand Union, Trefoil Capital Investors II, L.P., and GE Investment Private Placement Partners II, a Limited Partnership, incorporated by reference to Exhibit 10.50 to Grand Union's Annual Report on Form 10-K for Fiscal 1997. 10.29 Management Agreement between Grand Union and Shamrock Capital Advisors, Inc., dated July 30, 1996, incorporated by reference to Exhibit 10.7 to Grand Union's Quarterly Report on Form 10-Q for the period ended October 12, 1996. 37 Exhibit Number Description of Document - ------- ----------------------- 10.30 Stock Purchase Agreement by and between Grand Union and Roger Stangeland, dated as of February 25, 1997, incorporated by reference to Exhibit 10.52 to Grand Union's Annual Report on Form 10-K for Fiscal 1997. 10.31 Amendment No. 1, dated March 20, 1997, to the Stock Purchase Agreement between Grand Union and Roger Stangeland, dated as of February 25, 1997, incorporated by reference to Exhibit 10.53 to Grand Union's Annual Report on Form 10-K for Fiscal 1997. 38 Exhibit Number Description of Document - ------- ----------------------- 10.32 Stockholder Agreement between Trefoil Capital Investors II, L.P., a Delaware limited partnership, GE Investment Private Placement Partners II, A Limited Partnership, a Delaware limited partnership, Roger Stangeland, an individual, and Grand Union, incorporated by reference to Exhibit 10.55 to Grand Union's Annual Report on Form 10-K for Fiscal 1997. 10.33 Addendum to Stockholder Agreement among Trefoil Capital Investors II, L.P., a Delaware limited partnership, GE Investment Private Placement Partners II, A Limited Partnership, a Delaware limited partnership, Roger Stangeland, an individual, and The Grand Union Company, a Delaware corporation, incorporated by reference to Exhibit 10.56 to Grand Union's Annual Report on Form 10-K for Fiscal 1997. 10.34 Acceleration and Exchange Agreement, dated as of June 5, 1997, by and among The Grand Union Company, Trefoil Capital Investors II, L.P., a Delaware limited partnership, and GE Investments Private Placement Partners II, A Limited Partnership, a Delaware limited partnership, including Exhibits thereto, incorporated by reference to Exhibit 10.57 to Grand Union's Annual Report on Form 10-K for Fiscal 1997. 10.35 Amendment No. 1, dated as of June 5, 1997, to the Registration Rights Agreement dated as of July 30, 1996, by and among The Grand Union Company, Trefoil Capital Investors II, L.P., a Delaware limited partnership, and GE Investments Private Placement Partners II, A Limited Partnership, a Delaware limited partnership, incorporated by reference to Exhibit 10.58 to Grand Union's Annual Report on Form 10-K for Fiscal 1997. 10.36 Employment Agreement, dated as of August 1, 1997, between Grand Union and J. Wayne Harris, incorporated by reference to Exhibit 99.1 Grand Union's Current Report on Form 8-K filed on August 1, 1997. 10.37 Employment Agreement, dated as of October 3, 1997, between Grand Union and Gary M. Philbin, incorporated by reference to Exhibit 99.1 Grand Union's Current Report on Form 8-K filed on October 29, 1997. 10.38 Employment Agreement, dated as of January 5, 1998, between Grand Union and Jack W. Partridge, incorporated by reference to Exhibit 99.1 Grand Union's Current Report on Form 8-K filed on January 28, 1998. 10.39 Exit Facility Commitment Letter, dated April 23, 1998, among Grand Union and Swiss Bank Corporation, SBC Warburg Dillon Read Inc., Lehman Commercial Paper Inc. and Lehman Brothers Inc. 10.40 Revolving Credit Agreement, dated as of June 24, 1998, by and among Grand Union and Swiss Bank Corporation, SBC Warburg Dillon Read Inc., Lehman Commercial Paper Inc. and Lehman Brothers Inc. 10.41 Guarantee and Collateral Agreement, dated as of June 24, 1998, by the Company's subsidiaries for the benefit of Lehman Commercial Parer Inc. as Administrative Agent. 21.1 Subsidiaries of Grand Union. 27.1 Financial Data Schedule. 39 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 26, 1998 /s/ Jeffrey P. Freimark ---------------------------------------------------- Jeffrey P. Freimark Executive Vice President and Chief Financial Officer 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/ J. Wayne Harris Director, Chairman, and Chief June 26, 1998 - ---------------------------------------------- Executive Officer J. Wayne Harris (Principal Executive Officer) /s/ Jack W. Partridge, Jr. Director, Vice Chairman and June 26, 1998 - ---------------------------------------------- Chief Administrative Officer Jack W. Partridge, Jr. /s/ Gary M. Philbin Director, President and Chief June 26, 1998 - ---------------------------------------------- Merchandising Officer Gary M. Philbin /s/ Jordan H. Krimstein Director June 26, 1998 - ---------------------------------------------- Jordan H. Krimstein /s/ Mark H. Manski Director June 26, 1998 - ---------------------------------------------- Mark H. Manski /s/ Martha A. Pritchard Director June 26, 1998 - ---------------------------------------------- Martha A. Pritchard /s/ Jeffrey P. Freimark Executive Vice President and June 26, 1998 - ---------------------------------------------- Chief Financial Officer Jeffrey P. Freimark (Principal Financial Officer and Principal Accounting Officer)
REPORT OF INDEPENDENT ACCOUNTANTS (Post-Emergence) To the Shareholders 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 and cash flows present fairly, in all material respects, the financial position of The Grand Union Company and its subsidiaries (the "Company") at March 28, 1998 and March 29, 1997 and the results of their operations and their cash flows for the 52 weeks ended March 28, 1998 and March 29, 1997 in conformity with generally accepted accounting principles. 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 generally accepted auditing standards 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. The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 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. As such, there is substantial doubt about the Company's ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. As discussed in Note 3 to the consolidated financial statements, on May 31, 1995, the United States Bankruptcy Court for the District of Delaware confirmed the Company's 1995 Plan of Reorganization, as amended (the "1995 Plan"). Confirmation of the Plan resulted in the discharge of all claims against the Company that arose before January 25, 1995 and terminated all rights and interests of equity shareholders as provided for in the 1995 Plan. The 1995 Plan became effective on June 15, 1995 and the Company emerged from Chapter 11. In connection with its emergence from Chapter 11, the Company adopted Fresh-Start Reporting as of June 18, 1995. PRICE WATERHOUSE LLP Florham Park, New Jersey June 24, 1998 F-1 REPORT OF INDEPENDENT ACCOUNTANTS (Pre-Emergence) To the Shareholders and the Board of Directors of The Grand Union Company In our opinion, the accompanying consolidated statements of operations and cash flows 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 11 weeks ended June 17, 1995, in conformity with generally accepted accounting principles. 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 generally accepted auditing standards which require that we plan and perform an 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 3 to the consolidated financial statements, on January 25, 1995, the Company filed a voluntary petition for relief under Chapter 11 of Title 11 of the United States Code ("Chapter 11") in the United States Bankruptcy Court for the District of Delaware. The Company's 1995 Plan of Reorganization, as amended, became effective on June 15, 1995 and the Company emerged from Chapter 11. In connection with its emergence from Chapter 11, the Company adopted Fresh-Start Reporting as of June 18, 1995. PRICE WATERHOUSE LLP New York, New York May 17, 1996 F-2 THE GRAND UNION COMPANY CONSOLIDATED STATEMENT OF OPERATIONS (dollars in thousands, except per share data)
Successor Predecessor Company Company --------------------------------------------------------------------- 52 Weeks 52 Weeks 41 Weeks 11 Weeks Ended Ended Ended Ended March 28, March 29, March 30, June 17, 1998 1997 1996 1995 --------------- --------------- -------------- -------------- Sales $ 2,266,770 $ 2,312,673 $ 1,819,928 $ 487,882 Cost of sales (1,627,233) (1,606,926) (1,250,072) (344,041) --------------- --------------- -------------- -------------- Gross profit 639,537 705,747 569,856 143,841 Operating and administrative expenses (568,903) (582,889) (453,620) ( 117,544) Depreciation and amortization (98,789) (85,459) (59,840) (17,215) Amortization of excess reorganization value (104,332) (102,607) (83,985) - Unusual items (6,333) (9,800) (22,000) (18,627) Interest expense, net (113,770) (105,823) (79,194) (19,791) --------------- --------------- -------------- -------------- (Loss) before income taxes and extraordinary gain on debt discharge (252,590) (180,831) (128,783) (29,336) Income tax (provision) benefit (51,393) (2,523) 18,927 - --------------- --------------- -------------- -------------- (Loss) before extraordinary gain on debt discharge (303,983) (183,354) (109,856) (29,336) Extraordinary gain on debt discharge - - - 854,785 --------------- --------------- -------------- -------------- Net (loss) income (303,983) (183,354) (109,856) 825,449 Accrued dividends on preferred stock (8,431) (2,000) - - --------------- --------------- -------------- -------------- Net (loss) income applicable to common stock $ (312,414) $ (185,354) $ (109,856) $ 825,449 =============== =============== ============== ============== Basic and diluted net (loss) per share $ (31.12) $ (18.54) $ (10.99) =============== =============== ============== Weighted average number of shares outstanding 10,039 10,000 10,000 =============== =============== ==============
See accompanying notes to consolidated financial statements. F-3 THE GRAND UNION COMPANY CONSOLIDATED BALANCE SHEET (dollars in thousands, except par value and liquidation preference data)
March 28, March 29, 1998 1997 ----------------- ----------------- ASSETS Current assets: Cash and temporary investments $ 44,745 $ 34,119 Receivables 21,378 28,966 Inventories 128,370 131,409 Other current assets 14,787 14,326 ----------------- ----------------- Total current assets 209,280 208,820 Property, net 389,637 411,911 Excess reorganization value, net 230,734 335,065 Beneficial leases, net 39,531 52,266 Deferred tax asset - 51,393 Other assets 23,049 12,375 ----------------- ----------------- $ 892,231 $ 1,071,830 ================= ================= LIABILITIES AND STOCKHOLDERS' (DEFICIT) Current liabilities: Current maturities of long-term debt $ 798,551 $ 46 Current portion of obligations under capital leases 7,562 8,045 Accounts payable and accrued liabilities 189,439 175,540 ----------------- ----------------- Total current liabilities 995,552 183,631 Long-term debt - 740,207 Obligations under capital leases 153,425 140,058 Other noncurrent liabilities 96,458 96,144 ----------------- ----------------- Total liabilities 1,245,435 1,160,040 ----------------- ----------------- Redeemable Class A Preferred Stock, $1.00 par value, 3,500,000 shares authorized, 1,300,566 shares issued and outstanding, liquidation preference $70,685,000 and $65,000,000, respectively 70,685 65,000 ----------------- ----------------- Redeemable Class B Preferred Stock, $1.00 par value, 1,400,000 shares authorized, 800,000 shares issued and outstanding, liquidation preference $42,746,000 42,746 - ----------------- ----------------- Stockholders' (deficit): Common stock, $.01 par value; 60,000,000 shares authorized, 10,202,018 and 10,000,000 shares issued and outstanding at March 28, 1998 and March 29, 1997, respectively 102 100 Preferred stock, $1.00 par value; 10,000,000 shares authorized, less amount authorized as Class A and Class B preferred stock, no shares issued and outstanding - - Capital in excess of par value 132,006 139,900 Accumulated deficit (598,743) (293,210) ----------------- ----------------- Total stockholders' (deficit) (466,635) (153,210) ----------------- ----------------- $ 892,231 $ 1,071,830 ================= =================
See accompanying notes to consolidated financial statements. F-4 THE GRAND UNION COMPANY CONSOLIDATED STATEMENT OF CASH FLOWS (dollars in thousands)
Successor Predecessor Company Company ------------------------------------------------------------------ 52 Weeks 52 Weeks 41 Weeks 11 Weeks Ended Ended Ended Ended March 28, March 29, March 30, June 17, 1998 1997 1996 1995 --------------- ---------------- --------------- ----------------- OPERATING ACTIVITIES: Net (loss) income $ (303,983) $ (183,354) $ (109,856) $ 825,449 Adjustments to reconcile net (loss) income to net cash provided by (used for) operating activities before reorganization items paid: Extraordinary gain on debt discharge - - - (854,785) Depreciation and amortization 203,121 188,066 143,825 17,215 Deferred taxes 51,393 2,523 (18,927) - Noncash interest 907 (188) 14,552 1,126 Net changes in assets and liabilities: Receivables 7,588 2,973 (12,652) 1,769 Inventories 3,039 2,097 50,372 12,946 Other current assets (461) (617) 123 2,776 Accounts payable and accrued liabilities 15,582 (2,783) (59,509) (34,928) Other (9,627) (2,867) (7,733) 4,493 --------------- ---------------- --------------- ----------------- Net cash provided by (used for) operating activities before reorganization items paid (32,441) 5,850 195 (23,939) Reorganization items paid (3,681) (5,484) (20,729) (4,913) --------------- ---------------- --------------- ----------------- Net cash provided by (used for) operating activities (36,122) 366 (20,534) (28,852) --------------- ---------------- --------------- ----------------- INVESTMENT ACTIVITIES: Capital expenditures (39,727) (55,147) (40,402) (3,301) Disposals of property 5,897 8,011 5,555 5,452 --------------- ---------------- --------------- ----------------- Net cash provided by (used for) investment activities (33,830) (47,136) (34,847) 2,151 --------------- ---------------- --------------- ----------------- FINANCING ACTIVITIES: Net proceeds from sale of preferred stock 40,000 51,000 - - Net proceeds from sale of common stock 258 - - - Proceeds from new bank debt - - - 104,144 Payment of old bank debt - - - (93,144) Net proceeds from long-term debt 77,978 9,000 33,089 - Loan placement fees (9,842) - - (3,125) Obligations under capital leases discharged (8,770) (10,543) (6,126) (1,707) Net repayment of long-term debt (19,046) (7,993) (808) (239) --------------- ---------------- --------------- ----------------- Net cash provided by financing activities 80,578 41,464 26,155 5,929 --------------- ---------------- --------------- ----------------- Net increase (decrease) in cash and temporary investments 10,626 (5,306) (29,226) (20,772) Cash and temporary investments at beginning of period 34,119 39,425 68,651 89,423 --------------- ---------------- --------------- ----------------- Cash and temporary investments at end of period $ 44,745 $ 34,119 $ 39,425 $ 68,651 =============== ================ =============== ================= Supplemental disclosure of cash flow information: Interest payments $ 77,658 $ 105,045 $ 57,565 $ 9,515 Capital lease obligations incurred 21,654 23,452 8,529 20,072 Accrued dividends 8,431 2,000 - - Decrease in common stock par value - 9,900 - -
See accompanying notes to consolidated financial statements. F-5 THE GRAND UNION COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 - Management Plans and Subsequent Events On January 27, 1998 The Grand Union Company, a Delaware corporation ("Grand Union" or the "Company"), announced that it had retained the firm of Salomon Smith Barney as a financial advisor to evaluate various financial alternatives, including a capital restructuring. In February 1998, the Company commenced negotiations with the Secured Banks regarding obtaining necessary waivers to avoid the consequences of an event of default under the Credit Agreement and to facilitate the restructuring contemplated by the Company's proposed plan of reorganization (the "Plan of Reorganization"). Those negotiations resulted in an agreement by the Secured Banks to waive certain defaults under the Credit Agreement, subject to the terms and conditions of such waiver. The same industry and financial pressures that required Grand Union to commence negotiations with the Secured Banks also led the Company to commence negotiations regarding a restructuring of its obligations with the holders of the Senior Notes. In February and March 1998, eight institutions owning approximately 48% of the Senior Notes agreed to serve on an unofficial noteholder committee (the "Unofficial Noteholder Committee") and receive confidential, non-public information about Grand Union. Grand Union participated in extensive negotiations with the Unofficial Noteholder Committee regarding the terms of a proposed financial restructuring. During this time, Grand Union failed to make the approximately $36 million interest payment due and payable on the Senior Notes on March 2, 1998, which resulted in the occurrence of events of default under the Indenture governing the Senior Notes and the Credit Agreement. Nevertheless, 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 to a plan of reorganization under chapter 11 of the Bankruptcy Code. On May 13, 1998, Grand Union, the Unofficial Noteholder Committee and the holders of the Grand Union's preferred stock reached an agreement in principle regarding the proposed treatment of the 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 Senior Notes and preferred stock to accept or reject the Plan of Reorganization. The Plan of Reorganization generally provides that trade and business creditors will be unimpaired and will continue to be paid in the ordinary course of business, so long as shipments are made to the Company under terms at least equivalent to those in place prior to January 27, 1998. The Plan of Reorganization further provides that (i) the Company's Senior Notes will be cancelled and exchanged for all of the reorganized Company's common stock; (ii) the Company's existing common stock will be cancelled and exchanged for five-year warrants to purchase approximately 1.5% of the new common stock at an exercise price of $19.82 per share; (iii) the Company's preferred stock will be cancelled and exchanged for (a) five-year warrants to purchase approximately 10.5% of the new common stock at an exercise price of $19.82 per share, (b) five-year warrants to purchase approximately 2.5% of the new common stock at an exercise price of $23.15 per share, and (c) four-year warrants to purchase approximately 1% of the new common stock at an exercise price of $12.32 per share; and (iv) the Company's outstanding warrants and stock options will be cancelled. At the conclusion of the solicitation period, which commenced on May 22, 1998 and ended on June 22, 1998, the Plan of Reorganization had been accepted by holders of approximately 99% of the Senior Notes in principal amount and approximately 92% in number of such holders that voted on the Plan of Reorganization and by all holders of the preferred stock that voted on the Plan of Reorganization. Holders of approximately 72% in principal amount of the outstanding Senior Notes voted to accept the Plan of Reorganization. Although Grand Union believes that the Plan of Reorganization will satisfy all requirements necessary for confirmation by the Bankruptcy Court (as defined below), there can be no assurance that the Bankruptcy Court will reach the same conclusion. Moreover, there can be no assurance that modifications of the Plan of Reorganization will not be required for confirmation or that such modifications would not necessitate the resolicitation of votes. On June 24, 1998, the Company filed a voluntary petition for relief (the "Filing") under chapter 11, Title 11 of the United States Code, as amended ("Chapter 11"), with the United States Bankruptcy Court for the District of New Jersey (the "Bankruptcy Court"). The Company is in possession of its property and is maintaining and operating its business as a debtor-in-possession pursuant to the provisions of Sections 1107 and 1108 of Chapter 11. F-6 As previously reported, in recent months, the Company had been experiencing liquidity problems and had been unable to borrow the funds necessary to pay the interest due on its Senior Notes and finance its working capital and other business needs. Since March 2, 1998, the Company has been in default of its obligations under the Senior Notes and operating with waivers of cross defaults under the Credit Agreement. As of June 24, 1998 the Company had $22 million of borrowings and approximately $33 million of letters of credit outstanding under its $100 million revolving credit facility. In addition, the Filing by the Company constitutes an automatic default under the Credit Agreement. In connection with the Filing, on June 24, 1998, the Company entered into a $172,022,020 firm underwritten revolving credit agreement (the "DIP Facility") with Swiss Bank Corporation ("SBC") and Lehman Commercial Paper Inc. ("LCPI"), as agents for a syndicate of lenders (together, the "DIP Lenders"). The DIP Facility consists of a revolving credit facility in an aggregate amount of $172,022,020, inclusive of a $50 million letter of credit facility. Loans under the DIP Facility will be guaranteed by each of the Company's subsidiaries. The DIP Facility will mature upon the earlier of (i) October 22, 1998, or (ii) the effective date of the Plan of Reorganization. The proceeds of the DIP Facility will be used (i) to finance the working capital needs of the Company and its subsidiaries in the ordinary course of business, (ii) to finance the payment of Chapter 11 expenses, (iii) for general corporate purposes and (iv) to refinance the revolving credit and term loans and to replace, backstop or cash collateralize letters of credit outstanding under the Credit Agreement. The DIP Facility is secured by substantially all of the assets of Grand Union and its subsidiaries. The interest rate applicable to the DIP Facility will be equal to, at Grand Union's election, either (i) 1.5% above the higher of (A) Citibank's prime rate and (B) the federal funds rate plus 0.5%, or (ii) 2.5% above the rate for eurodollar deposits for one, two or three weeks or one month (as selected by Grand Union) in the interbank eurodollar market. Grand Union committed to pay an underwriting fee of $1,100,000 and is required to pay a $25,000 per month administrative fee. In addition, Grand Union will pay a commitment fee of 0.5% per annum on the average daily unused portion of the DIP Facility and a fronting fee of 0.125% on the aggregate undrawn face amount of outstanding letters of credit. The availability of the DIP Facility is conditioned, among other things, upon the entry of an order of the Bankruptcy Court approving the DIP Facility, which is anticipated to occur 15 days after the Filing. On the date the Plan of Reorganization is consummated (the "Consummation Date"), Grand Union will enter into a new credit facility (the "Exit Facility"). On April 23, 1998, Grand Union received a letter from SBC Warburg Dillon Read Inc., SBC, Lehman Brothers Inc. and LCPI, pursuant to which SBC and LCPI (collectively, the "Agent Banks") committed to provide financing to Grand Union in the aggregate principal amount of $300 million upon consummation of the Plan of Reorganization. The Agent Banks, as agents for a syndicate of banks, financing institutions and other entities, including the Agent Banks (collectively, the "New Grand Union Lenders"), will provide Grand Union with the Exit Facility. The Exit Facility will be guaranteed by all of Grand Union's subsidiaries. The Exit Facility will be comprised of: (i) a $230 million term loan facility (the "Term Loan") and (ii) a $70 million revolving credit facility (the "Revolving Credit Facility"). The Term Loan and Revolving Credit Facility will mature on the fifth anniversary of the Consummation Date. The proceeds of the Exit Facility will be used to refinance the obligations under the DIP Facility and the Supplemental Term Loan claims under the Credit Agreement and the excess portion will be used for the working capital needs of the Company and its subsidiaries, including capital expenditures. Up to $50 million of the Revolving Credit Facility will be available for the issuance of letters of credit. The Exit Facility will be secured by substantially all of the assets of the Company and its subsidiaries. The availability of the Exit Facility is conditioned, among other things, upon the Bankruptcy Court having entered an order confirming the Plan of Reorganization on or before August 31, 1998. NOTE 2 - Basis of Presentation and Summary of Significant Accounting Policies The Company is a regional food retailer, which currently operates stores in six northeastern states. The Company has been publicly owned since June 15, 1995. Prior to June 15, 1995, Grand Union Capital Corporation ("Capital"), a wholly owned subsidiary of Grand Union Holdings Corporation ("Holdings") owned all of Grand Union's Common Stock. F-7 Basis of Presentation As of the Company's emergence from Chapter 11 ("Chapter 11") of Title 11 of the United States Code (the "Code") on June 15, 1995 (the "Effective Date", see Note 3) 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 periods subsequent to the Effective Date have been designated "Successor Company". 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 March 28, 1998 ("Fiscal 1998"), March 29, 1997 ("Fiscal 1997"), and March 30, 1996 ("Fiscal 1996") were each comprised of 52 weeks. Fiscal 1996 includes the 11 weeks prior to the Effective Date which have been designated "Predecessor Company" and the 41 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 last-in, first-out ("LIFO") cost or market. At March 28, 1998 and March 29, 1997 approximately $112,411,000 and $111,923,000, respectively, of grocery and general merchandise inventories were valued using the LIFO method. Replacement cost exceeded LIFO cost of these inventories by approximately $3,783,000 and $3,800,000 at March 28, 1998 and March 29, 1997, respectively. Perishable inventories are valued at the lower of average cost or market, which adequately provides for the matching of costs and related revenues due to the rapid turnover of such inventories. Property and Depreciation Land, buildings, fixtures and equipment and leasehold improvements are recorded at cost and include interest on the funds borrowed to finance construction. Depreciation and amortization of buildings, fixtures and equipment and leasehold improvements is computed using the straight-line method over estimated useful lives ranging from three to forty 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 five years. Accumulated amortization was $290,925,000 and $186,592,000 at March 28, 1998 and March 29, 1997, respectively. Beneficial Leases Amortization of beneficial leases is computed using the straight-line basis over the lease life. At March 28, 1998 and March 29, 1997, accumulated amortization was $40,159,000 and $27,682,000, respectively. Amortization of Debt Premium The Company amortizes premiums in connection with the issuance of long-term debt over the life of the respective issue. F-8 Deferred Financing Fees Financing fees are deferred and amortized over the expected life of the related loan. At March 28, 1998 and March 29, 1997, accumulated amortization was $2,342,000 and $802,000, respectively. Income Taxes Deferred income taxes are recognized for tax consequences of "temporary differences" by applying enacted statutory tax rates, applicable to future years, to differences between the financial reporting and the 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 saving plan in which eligible employees 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 Pension 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 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." 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. Advertising Costs Advertising costs are expensed as incurred. Advertising expense for Fiscal 1998, Fiscal 1997, the 41 weeks ended March 30, 1996, and the 11 weeks ended June 17, 1995 was $33,216,000, $37,481,000, $28,084,000, and $7,383,000, respectively. Store Closure Expense Estimated net costs of holding and disposing of closed stores are provided as of the later of the date the decision is made to close the store or the date such costs are reasonably estimable. Pre-opening Costs Store pre-opening costs are charged to expense as incurred. F-9 Fair Value of Financial Instruments The carrying amount of cash, temporary cash investments, receivables, accounts payable, accrued liabilities and debt, other than the Senior Notes, approximates fair value. The fair value of the Senior Notes, based upon published trading values, is $311,107,000 and $592,444,000 at March 28,1998 and March 29, 1997, 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"), which is effective for interim and year end periods ending after December 15, 1997. 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 Fiscal 1998, Fiscal 1997, and the 41 weeks ended March 30, 1996, potentially dilutive shares totaling 29,554,440, 10,126,763, and 235,680 have been excluded from the computation of the Company's diluted earnings per share because the effect would have been anti-dilutive. The Company adopted SFAS No. 128 in the third quarter of Fiscal 1998. Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of In March 1995, the Financial Accounting Standards Board ("FASB") issued SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of", ("SFAS No. 121"), which establishes accounting standards for the impairment of long-lived assets, certain identifiable intangibles, and goodwill related to those assets to be held and used and for long-lived assets and certain identifiable intangibles to be disposed of. The Company adopted SFAS No. 121 as of the Effective Date. Reclassifications Certain reclassifications have been made to the prior years' consolidated financial statements to conform to the Fiscal 1998 presentation. New Accounting Standards Not Yet Adopted In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income," ("SFAS No. 130") effective for fiscal years beginning after December 15, 1997. SFAS No. 130 requires the reporting and display of comprehensive income and its components in an entity's financial statements. In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information," ("SFAS No. 131") effective for fiscal years beginning after December 15, 1997. SFAS No. 131 provides accounting guidance for reporting information about operating segments and requires both interim and annual segment reporting. In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures about Pensions and Other Postretirement Benefits" ("SFAS No. 132"), which will be effective for financial statements beginning after December 15, 1997. SFAS No. 132 revises employers' disclosure about pension and other postretirement benefit plans. It does not change the measurement or recognition of those plans. These statements, which will be adopted by the Company in Fiscal 1999, affect financial statement presentation and disclosure but will not have an impact on the Company's consolidated financial position or results of operations. F-10 In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," ("SFAS No. 133") effective for fiscal quarters of fiscal years beginning after June 15, 1999. SFAS No. 133 requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. The Company currently does not have any derivative instruments and, therefore, does not expect the adoption of this SFAS to have an effect on the Company's financial position or results of operations. NOTE 3 -1995 Reorganization On November 29, 1994, the Company announced that it was not likely to be able to fund cash interest payments due in early calendar 1995, and that it intended to develop a capital restructuring plan. Beginning on January 16, 1995, the Company did not make interest payments required under its outstanding debt obligations. On January 24, 1995, the Company announced that it had reached an agreement in principle with its bank lenders and with members of informal committees of certain holders of its 11.375% Senior Notes due 1999 (the "11.375% Senior Notes") and 11.25% Senior Notes due 2000 (the "11.25% Senior Notes" and, collectively with the 11.375% Senior Notes, the "Old Senior Notes") and certain holders of its 12.25% Senior Subordinated Notes due 2002 (the "12.25% Subordinated Notes"), 12.25% Senior Subordinated Notes due 2002, Series A (the "Series A 12.25% Subordinated Notes") and 13% Senior Subordinated Notes due 1998 (the "13% Subordinated Notes" and, collectively with the 12.25% Subordinated Notes and the Series A 12.25% Subordinated Notes, the "Subordinated Notes") on the terms of a capital restructuring. 1995 Chapter 11 Bankruptcy Filings - On January 25, 1995 (the "Filing Date"), as part of the implementation of such agreement, the Company filed a voluntary petition for relief under chapter 11 ("Chapter 11") of Title 11 of the United States Code (the "Code") in the United States Bankruptcy Court for the District of Delaware (the "Bankruptcy Court"). From the Filing Date through the Effective Date, the Company operated as a debtor-in-possession under Chapter 11 of the Code and was subject to the supervision of the Bankruptcy Court in accordance with the Code. During this period, the Company's business was operated under a series of "first day orders", which, among other things, permitted it to retain certain financial and legal advisors and which authorized payment of certain pre-petition employee costs, including worker's compensation benefits, and pre-petition trade claims, subject to the satisfaction of various requirements. On January 30, 1995, the Company (as debtor and as debtor-in-possession) entered into a credit agreement (the "DIP Facility") with the banks party thereto providing for borrowings of up to $150 million on a revolving credit basis. On February 16, 1995, final approval of the DIP Facility was granted and the Bankruptcy Court also issued a Final Cash Collateral Order which allowed the Company to use cash collateral to pay operating expenses in the ordinary course of business. The DIP Facility provided for a commitment fee equal to .5% of the average unused portion. There were no borrowings made under the DIP Facility during the Chapter 11 proceedings and it was terminated on the Effective Date. On February 16, 1995, Capital consented to the entry of an order for relief in respect of an involuntary Chapter 11 petition filed in the Bankruptcy Court on February 6, 1995 by entities purporting to be holders of Capital's 15% Senior Zero Coupon Notes due 2004 (the "Capital Senior Zero Notes") and 16.5% Senior Subordinated Zero Coupon Notes due 2007 (the "Capital Subordinated Zero Notes" and, collectively with the Capital Senior Zero Notes, the "Capital Notes"). On February 16, 1995, Holdings, of which Capital was a wholly owned subsidiary, filed a voluntary Chapter 11 petition in the Bankruptcy Court. 1995 Plan of Reorganization - The Bankruptcy Court confirmed the Second Amended Chapter 11 Plan of The Grand Union Company, dated as of April 19, 1995, (as confirmed, the "Plan"), on May 31, 1995 (the "Confirmation Date"), and the Company emerged from Chapter 11 on the Effective Date. On the Effective Date, Grand Union adopted a restated certificate of incorporation (the "New Certificate"), the principal effects of which were: (i) to authorize 30,000,000 shares of new common stock (the "Common Stock") (of which 10,000,000 shares were issued under the Plan) and (ii) to prohibit the issuance of non-voting equity securities. The Plan provided for full payment of all allowed administrative expenses and all allowed general unsecured and priority claims. On the Effective Date, obligations relating to the Company's existing bank credit agreement (the "Old Bank Credit Agreement") were paid in full and the Company entered into an Amended and Restated Credit Agreement (the "Bank Facility") with its bank lending group which provides for a five-year revolving credit facility of $100,000,000 (the "Revolving Credit Facility") and a seven-year term loan facility of $104,144,371 (the "Term Loan"). The Bank Facility is secured by a lien on substantially all of the assets of the Company and its subsidiaries. As of the Effective Date, the Old Senior Notes, which had an aggregate principal amount of $525,000,000 plus accrued interest, were deemed cancelled and each holder of Old Senior Notes became entitled to receive its pro rata share of the Company's new 12% Senior Notes due 2004 (the "Senior Notes") having an aggregate principal amount of $595,475,922 issued pursuant to the Plan. Subsequent to the Effective Date, the Company issued $595,421,000 aggregate principal amount of Senior Notes and made cash payments of $54,922 for fractional amounts to the holders of the Old Senior Notes. The Senior Notes began to accrue interest beginning on September 1, 1995. Accordingly, the Senior Notes have been discounted at 12% for the period from June 15, 1995 to September 1, 1995 and imputed interest was charged at 12% during F-11 that period. In addition, the difference between such discounted value and the fair value of the Senior Notes at the Effective Date was recorded as a debt premium totaling $5,779,000 which is being amortized over the life of the Senior Notes. As of the Effective Date, the Subordinated Notes, which had an aggregate principal amount of $566,150,000, and the old capital stock of Grand Union were deemed cancelled and each holder of Subordinated Notes became entitled to receive its pro rata share of an aggregate of 10,000,000 shares of Common Stock issued pursuant to the Plan. The Plan also provided for the issuance of warrants to purchase an aggregate of 900,000 shares of Common Stock to holders of several other series of long-term debt of its then parent company (the "Capital Notes") pursuant of the terms of a settlement reached among the Company, its then direct and indirect parent companies, the Official Committee of Unsecured Creditors of its then parent company and certain holders of the Capital Notes. Such warrants are comprised of 300,000 Series 1 Warrants to purchase shares of Common Stock at a purchase price of $30 per share and of 600,000 Series 2 Warrants to purchase shares of Common Stock at a purchase price of $42 per share. The warrants expire on June 15, 2000. The Plan made no provision for the holders of the remaining long-term debt, Redeemable Preferred Stock, common shares or warrants to purchase common shares of the Company's then indirect parent. Holdings and Capital were dissolved on March 28, 1996 and March 27, 1996, respectively. Interest expense was not accrued on the Subordinated Notes, Capital Notes, and Holdings Junior Notes subsequent to the Filing Date. Accordingly, interest expense for the 11 weeks ended June 17, 1995 and the 52 weeks ended April 1, 1995 excludes contractual interest expense of $23,569,000 and $21,269,000, respectively. For financial reporting purposes, the Company accounted for the consummation of the Plan effective June 17, 1995. In accordance with Fresh-Start Reporting, the Company valued its assets and liabilities at fair values and eliminated its retained earnings at the Effective Date. The reorganization value of the Company was determined utilizing several methods which yielded similar results including (a) the trading value of the Company's Common Stock for a representative number of days subsequent to the Effective Date and the fair value of the Company's obligations as of the Effective Date, (b) discounted cash flows and (c) a multiple of adjusted trailing year operating cash flow. The total reorganization value as of the Effective Date was determined to be $1,334,000,000 which was $521,657,000 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. F-12 The components of reorganization items included as unusual items in the consolidated statement of operations are as follows (in thousands):
11 Weeks Ended June 17, 1995 -------- Fresh-Start Reporting: Establish excess reorganization value $ 521,657 Eliminate existing goodwill (540,434) Revalue beneficial leases 40,633 Establish deferred tax asset 35,414 Revalue pension assets and liabilities and postretirement obligations (23,653) Record lease rejection liability (19,734) Provide for warehouse closing (10,450) Eliminate LIFO inventory reserve 7,757 Provide for other reorganization liabilities (5,400) Record liability for fair value of interest rate protection agreement (3,500) Other (1,905) --------- Total Fresh-Start Reporting 385 Professional fees incurred in connection with the reorganization (20,000) Interest earned on accumulated cash resulting from the Chapter 11 proceedings 988 ---------- Total reorganization items $ (18,627) =========
At June 17, 1995, as a result of the debt restructuring, the Company recorded an extraordinary gain on debt discharge as follows (in thousands): Elimination of Old Debt, deferred financing fees and accrued interest discharged $ 1,589,506 Issuance of Senior Notes (580,721) Issuance of Common Stock (154,000) ------------------- Extraordinary gain on debt discharge $ 854,785 ===================
NOTE 4 - Unusual items Unusual items included in the consolidated statements of operations consist of the following (in thousands):
Successor Predecessor Company Company ----------------------------------------------------------- ---------------- 52 Weeks 52 Weeks 41 Weeks 11 Weeks Ended Ended Ended Ended March 28, March 29, March 30, June 17, 1998 1997 1996 1995 ---------------- ------------------ ---------------- ---------------- Charges relating to severance $ 3,000 $ 7,800 $ - $ - Inventory valuation reserve - 2,000 - - Provision for warehouse closures - - 15,000 - Charges relating to voluntary resignation programs - - 4,500 - Provision for reorganizational restructuring - - 2,500 - 1998 reorganization items 2,668 - - - 1995 reorganization items 665 - - 18,627 ---------------- ------------------ ---------------- ---------------- Total unusual items $ 6,333 $ 9,800 $ 22,000 $ 18,627 ================ ================== ================ ================
F-13 The Company recorded $2,668,000 of unusual charges during the fourth quarter of Fiscal 1998 in connection with legal, advisory and bank 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. During the fourth quarter of Fiscal 1997, the Company recorded $9,800,000 of unusual charges including $7,800,000 of severance and $2,000,000 of an inventory valuation reserve. In Fiscal 1996, the Company entered into several supply agreements with C&S Wholesale Grocers, Inc. ("C&S"), pursuant to which C&S stocks and distributes to all Grand Union stores substantially all of the merchandise formerly owned and warehoused by Grand Union. Under the agreements, C&S stocks and supplies grocery and perishable products from its own warehouses and stocks and supplies health and beauty care and general merchandise products from the Company's Montgomery, New York warehouse. Accordingly, the Company recorded a provision relating to the closure of two metropolitan New York warehouses consisting principally of the cash costs of severance, pension withdrawal liability, security and other expenses directly related to the closing of the warehouses. Substantially all of the net costs of closing these facilities were paid prior to March 30, 1996. During the 41 weeks ended March 30, 1996, the Company made cash payments of $4,500,000 relating to voluntary resignation incentive programs under which certain classes of store employees accepted monetary incentives to voluntarily resign from their positions. The provision for organizational restructuring of $2,500,000 is principally comprised of the cash cost of severance, all of which was paid at March 29, 1997, and future lease payments. NOTE 5 - Property Property, at cost, consists of the following (in thousands):
March 28, March 29, 1998 1997 --------------- ---------------- Property owned: Land $ 18,055 $ 19,196 Buildings 66,162 60,422 Fixtures and equipment 185,470 168,053 Leasehold improvements 132,382 126,002 --------------- ---------------- 402,069 373,673 Less: accumulated depreciation and amortization 124,709 81,098 --------------- ---------------- Property owned, net 277,360 292,575 --------------- ---------------- Property held under capital leases: Land and buildings 131,094 112,056 Equipment 15,552 18,081 --------------- ---------------- 146,646 130,137 Less: accumulated amortization 34,369 10,801 --------------- ---------------- Property held under capital leases, net 112,277 119,336 --------------- ---------------- Property $ 389,637 $ 411,911 =============== ================
Depreciation and amortization of owned and leased property for Fiscal 1998, Fiscal 1997, the 41 weeks ended March 30, 1996, and the 11 weeks ended June 17, 1995 was $78,554,000, $64,256,000, $42,706,000, and $11,246,000, respectively. As discussed in Note 2, the Company adopted SFAS No. 121 as of the Effective Date. This statement requires companies to record impairments of long-lived assets, certain identifiable intangibles, and associated goodwill 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. The result of such a review resulted in an impairment loss of $25,020,000 and F-14 $6,362,000 for March 28, 1998 and March 29, 1997, respectively, which was recorded through depreciation in order to write down certain impaired store assets. NOTE 6 - Receivables and Accounts Payable and Accrued Liabilities Receivables at March 28, 1998 and March 29, 1997 are net of allowances for doubtful accounts of $5,542,000 and $4,530,000, respectively. Accounts payable and accrued liabilities consist of the following (in thousands):
March 28, March 29, 1998 1997 ---------------- ---------------- Accounts payable $ 73,135 $ 100,789 Accrued liabilities: Payroll 22,513 20,285 Interest 44,832 9,405 Insurance 15,076 16,070 Other 33,883 28,991 ---------------- ---------------- Total accounts payable and accrued liabilities $189,439 $175,540 ================ ================
NOTE 7 - Income Taxes The components of the deferred income tax (provision) benefit are as follows (in thousands):
Successor Predecessor Company Company -------------------------------------------------------- ------------------ 52 Weeks 52 Weeks 41 Weeks 11 Weeks Ended Ended Ended Ended March 28, March 29, March 30, June 17, 1998 1997 1996 1995 -------------- --------------- -------------- ----------------- Federal $ (43,872) $ (2,154) $ 16,157 $ - State (7,521) (369) 2,770 - -------------- --------------- ---------------- ------------------ Income tax (provision) benefit $ (51,393) $ (2,523) $ 18,927 $ - ============== =============== ================= ==================
F-15 The reconciliation of the income tax (provision) benefit computed at the federal statutory rate to the reported income tax (provision) benefit is as follows (in thousands):
Successor Predecessor Company Company ------------------------------------------------ --------------- 52 Weeks 52 Weeks 41 Weeks 11 Weeks Ended Ended Ended Ended March 28, March 29, March 30, June 17, 1998 1997 1996 1995 ------------- -------------- ------------- --------------- Benefit computed at federal statutory tax rate $ 88,407 $ 63,291 $ 45,074 $ 10,268 Increase (decrease) in the benefit resulting from: Amortization of excess reorganization value (36,257) (35,429) (28,992) - Amortization of goodwill - - - (6,295) State and local taxes, net of federal tax benefit 9,039 5,242 2,770 - Deferred tax asset valuation allowance (114,587) (29,841) - (3,948) Write-down of unrealizable deferred tax asset - (8,500) - - Other 2,005 2,714 75 (25) ------------- -------------- ------------- --------------- Income tax (provision) benefit $ (51,393) $ (2,523) $ 18,927 $ - ============= ============== ============= ===============
The components of the net deferred tax asset are as follows (in thousands):
March 28, March 29, 1998 1997 ---------- ----------- Deferred tax assets: Non-cash interest $ 1,922 $ 2,111 Insurance reserve 18,922 19,597 Pension 6,784 5,419 Postretirement benefit liability 14,887 14,671 Depreciable assets 8,459 - Other miscellaneous reserves 21,088 23,505 Net operating loss carryforward 77,052 29,841 --------- --------- Total deferred tax assets 149,114 95,144 --------- --------- Deferred tax liabilities: Depreciable assets - 9,299 Other 4,686 4,611 --------- --------- Total deferred tax liabilities 4,686 13,910 --------- --------- Net deferred tax asset before valuation allowance 144,428 81,234 Valuation allowance (144,428) (29,841) --------- --------- Net deferred tax asset $ - $ 51,393 ========= =========
The Company recorded no income tax benefit relating to net operating losses generated during Fiscal 1998, as they were offset by a valuation allowance. Due to the circumstances described in Note 1, management determined that it was more likely than not that the remaining deferred tax asset would not be realized. As such, during the fourth quarter of Fiscal 1998, the Company established a valuation allowance for its remaining deferred tax asset relating to temporary differences. During the fourth quarter of Fiscal 1997, the Company determined that the likelihood of realizing its entire deferred tax asset had diminished as a result of the application of Internal Revenue Code Section 382 as well as other long-term financial prospects. Section 382, which was triggered by the sale of Class A Preferred Stock, limits the amount of future annual net operating loss carryforwards which may be utilized subsequent to a change in control. Consequently, during the fourth quarter of Fiscal 1997, the Company wrote off $8,500,000 of its deferred tax asset that related to net operating loss carryforwards expected to expire due to Section 382 limitations and established a valuation allowance to fully reserve for the portion of its deferred tax asset related to its remaining net operating loss carryforwards. F-16 As of March 28, 1998, the Company had net operating loss carryforwards of approximately $190,345,000 for tax purposes, expiring in the year 2011. Due to Section 382, there will be a limitation on the amount of annual net operating loss carryforwards, which can be utilized. Under existing income tax laws, the Company is not required to include in its taxable income any cancellation of debt income as a result of the debt forgiven pursuant to the Plan. Accordingly, no income taxes were provided on the extraordinary gain on debt discharge in the statement of operations for the 11 weeks ended June 17, 1995. There are no remaining operating loss or credit carryforwards of the Predecessor Company and there was no change in the tax basis of the Company's assets as of the Effective Date. NOTE 8 - Debt The components of the Company's debt are as follows (in thousands):
March 28, March 29, 1998 1997 --------------- --------------- Equipment mortgage notes $ - $ 46 Bank Credit Agreements: Term Loans 182,122 104,144 Revolving Credit Facility 17,000 36,000 12% Senior Notes due September 1, 2004 (includes $4,008 and $4,642 of unamortized debt premium at March 28, 1998 and March 29, 1997) 599,429 600,063 --------------- --------------- 798,551 740,253 Less: current maturities of long-term debt 798,551 46 -------------- --------------- Long-term debt $ - $ 740,207 =============== ===============
In August 1997, Grand Union executed an amendment to the Amended and Restated Credit Agreement (the "Credit Agreement"), among Grand Union, Bankers Trust Company, as Agent, and the lenders party thereto (the "Secured Banks"), dated as of June 15, 1995, as amended. As amended, the Credit Agreement is comprised of a term loan, a revolving credit facility and a supplemental term loan. The term loan is in the aggregate principal amount of $104,144,371. The revolving credit commitment is for $67,878,000, of which a maximum of $60,000,000 may be utilized in the form of letters of credit. The commitment expires June 15, 2000. In each year, no more than $40,000,000 of the revolving credit facility may be outstanding in the form of borrowed money (excluding letter of credit utilization) for any 30-day period between July 15th and August 31st. As of March 28, 1998, an aggregate of $43,528,000 of letters of credit were issued and outstanding under the Credit Agreement. Grand Union incurs a commitment fee of 0.5% per annum on the average unused portion of the revolving credit facility. As part of the August 1997 amendment of the Credit Agreement, Grand Union obtained the supplemental term loan to enable it, among other things, to make its required September 1, 1997 interest payment on the Company's 12% Senior Notes due 2004 (the "Senior Notes"). The supplemental term loan facility is in an aggregate principal amount of $77,977,980, which matures on March 1, 2003. The supplemental term loan increased the total amount available under the Credit Agreement to $250 million. The supplemental term loan has no required amortization and may be prepaid without penalty on or after August 31, 1998. The term loan and the revolving credit facility are secured by a lien and security interest in all of the tangible and intangible assets of Grand Union, including the shares of its four subsidiaries and mortgages on specified leaseholds. The supplemental term loan is subordinate to the term loan and the revolving credit facility. It is secured by the same lien and security interest that secures the term loan and revolving credit facility but the rights of the lenders under the supplemental term loan in respect of such lien and security interest are subordinate to the rights of the lenders under the term loan and the revolving credit facility. The term loan and revolving credit facility of the Credit Agreement bear interest at the base rate (generally prime) plus 2% or the relevant one-, two-, three-, or six-month Eurodollar rate plus 3.75% (including standard yield protection provisions). The supplemental term loan bears interest at 15% for the first year of the loan, increasing by .50% every six months thereafter, payable semiannually in arrears, plus additional interest accruing at 1% per annum payable only after the term loan and revolving credit facility have been paid in full and then only upon payment or prepayment of principal with respect to F-17 which such additional interest has accrued. The term loan requires quarterly principal payments of $13,018,000 from September 30, 2000 through June 15, 2002. The Credit Agreement contains certain restrictions and financial covenants relating to, among other things, minimum financial performance and limitations on the incurrence of additional indebtedness, asset sales, dividends, capital expenditures, and prepayment of other indebtedness. Notwithstanding the increased commitment provided under the August 1997 amendment to the Credit Agreement, due to a continuing lack of sufficient liquidity, increasing competition and consolidation, and falling margins, Grand Union determined that its financial resources would be insufficient to satisfy the approximately $36 million interest payment due and payable on March 2, 1998 on the Senior Notes. Grand Union did not make the March 2, 1998 interest payment to holders of the Senior Notes. The failure to make such interest payment constituted a default under the Indenture governing the Senior Notes and a cross-default under the Credit Agreement. Accordingly, in February 1998, Grand Union commenced negotiations with the Secured Banks regarding obtaining necessary waivers to avoid the consequences of an event of default under the Credit Agreement and to facilitate the restructuring contemplated by the Company's proposed plan of reorganization (the "Plan of Reorganization") (see Note 1). Those negotiations resulted in an agreement by the Secured Banks to waive certain defaults under the Credit Agreement, subject to the terms and conditions of such waiver. At March 28, 1998, borrowings under the Revolving Credit Facility and Term Loans were at weighted interest rates of 10.50% and 9.44%, respectively. At March 29, 1997, borrowings under the Revolving Credit Facility and Term Loan were at weighted interest rates of 8.77% and 9.11%, respectively. For the 11 weeks ended June 17, 1995, pursuant to the 1995 Plan, on the Effective Date, the Old Senior Notes were deemed cancelled and each holder became entitled to receive its pro rata share of the Successor Company's Senior Notes having an aggregate principal amount of $595,421,000. Interest on the Senior Notes was payable semi-annually each March 1 and September 1. NOTE 9 - Issuance of Preferred Stock In a series of related transactions commencing on July 30, 1996, Trefoil Capital Investors II, L.P. and GE Investment Private Placement Partners II, A Limited Partnership (the "Purchasers") acquired beneficial ownership of an aggregate of approximately 70.77% of Grand Union's outstanding voting stock. On July 30, 1996, Grand Union entered into a definitive agreement (the "Stock Purchase Agreement") to sell $100 million of Class A Convertible Preferred Stock ("Class A Preferred") to the Purchasers. Each share of the Class A Preferred was to be convertible at the option of the holder, at any time, into 6.8966 shares of common stock. Pursuant to the Stock Purchase Agreement, the Purchasers agreed to purchase, and Grand Union agreed to sell, an aggregate of 2,000,000 shares of Class A Preferred at a purchase price of $50 per share (the "Stated Value") in stages through February 25, 1998. On September 17, 1996, the first stage of the transaction was closed, and the Purchasers acquired 800,000 shares of Class A Preferred for an aggregate purchase price of $40 million. At a subsequent closing held on February 25, 1997, the Purchasers purchased an additional 400,000 shares of Class A Preferred for an aggregate purchase price of $20 million. Additional subsequent closings were scheduled for August 26, 1997 and February 25, 1998 (the "Subsequent Closings"). If the Subsequent Closings had occurred, the Purchasers would have been required to purchase an additional 800,000 shares of Class A Preferred for an aggregate purchase price of $40 million. Pursuant to an Acceleration and Exchange Agreement (the "Acceleration Agreement"), dated June 12, 1997, between Grand Union and the Purchasers, at the request of Grand Union, the Purchasers agreed to accelerate to June 12, 1997 (the "Accelerated Closing") the sale and purchase of the 800,000 shares of Class A Preferred (the "Accelerated Shares"), which was to have occurred at the Subsequent Closings, and to exchange (the "Exchange") the Accelerated Shares for 800,000 shares of Class B Convertible Preferred Stock ("Class B Preferred"). At the Accelerated Closing, Grand Union received the $40 million purchase price for the sale of the Accelerated Shares. Immediately following the Accelerated Closing, the Purchasers completed the Exchange pursuant to which they received an aggregate of 800,000 shares of Class B Preferred, in consideration for their surrender of the Accelerated Shares. Until February 20, 1998, each share of Class B Preferred was convertible at the option of the holder, at any time, into 20.8333 shares of common stock. Pursuant to the Acceleration Agreement, effective February 20, 1998, this conversion ratio was reset such that each share of Class B Preferred is convertible into 33.3333 shares of common stock. On March 20, 1997, Grand Union consummated the sale to The Roger Stangeland Family Limited Partnership (the "Stangeland Partnership") of 60,000 shares of Class A Preferred at a purchase price of $50 per share (the "Stangeland Shares"), pursuant to the terms of a Stock Purchase Agreement, dated February 25, 1997, as amended by Amendment No. F-18 1 thereto dated as of March 20, 1997 (as so amended, the "Stangeland Stock Purchase Agreement"), between Grand Union and Mr. Stangeland, a director of the Company from June 15, 1995 to April 22, 1998. Pursuant to a Stockholder Agreement dated February 25, 1997 (the "Stangeland Stockholder Agreement"), among the Purchasers, Mr. Stangeland and Grand Union, Mr. Stangeland has granted the Purchasers certain take-along rights, the Purchasers have granted Mr. Stangeland certain tag-along rights, and the Purchasers and Grand Union have granted Mr. Stangeland certain registration rights related to the Stangeland Shares and any shares of Class A Preferred, and common stock, if any, paid as dividends with respect to the Class A Preferred (collectively, "Securities"). Pursuant to an Addendum, dated as of March 20, 1997, to the Stangeland Stockholder Agreement, the Stangeland Partnership has succeeded to all of the rights, and has assumed all of the obligations, of Mr. Stangeland pursuant to the Stangeland Stockholder Agreement. The Purchasers disclaim any and all ownership of the Stangeland Shares or any additional Securities acquired by the Stangeland Partnership in respect of the Stangeland Shares. As of June 24, 1998, there were a total of 1,300,566 outstanding shares of Class A Preferred, which were convertible into an aggregate of 8,969,483 shares of common stock, and a total of 800,000 outstanding shares of Class B Preferred, which were convertible into an aggregate of 26,666,640 shares of common stock. Together, the aggregate shares of Class A Preferred and Class B Preferred account for approximately 77.74% of Grand Union's outstanding voting stock. On September 30, 1996, December 31, 1996 and March 31, 1997, Grand Union paid dividends on the Class A Preferred through the issuance of a total of 40,566 shares of Class A Preferred, with an aggregate Stated Value of $2,028,300. Grand Union elected to suspend the declaration of the dividends payable June 30, 1997, September 30, 1997, December 31, 1997 and March 31, 1998. The dividends on the Class A Preferred and the Class B Preferred and the accrued and unpaid dividends through March 31, 1998 have been accounted for by a charge against "Capital in Excess of Par Value" and a corresponding increase in the carrying amounts of the Class A Preferred and Class B Preferred. The Class A Preferred and Class B Preferred have a liquidation preference over the common stock equal to the Stated Value of the outstanding shares of the preferred stock plus all accrued and unpaid dividends. NOTE 10 - Property Leases The Company operates principally in leased stores and offices, and in most cases holds renewal options with varying terms. Many of the leases contain clauses, which provide for increased rentals based upon increases in real estate taxes and lessors' operating expenses. Future minimum payments under capital and non-cancelable operating leases, net of minimum sublease income, as of March 28, 1998 are as follows (in thousands):
Capital Operating ---------------- -------------- Fiscal 1999 $ 27,784 $ 32,977 2000 25,788 32,867 2001 23,672 26,217 2002 22,550 22,288 2003 23,816 20,605 Later years 295,727 131,676 --------------- -------------- Total minimum lease payments 419,337 266,630 Less: estimated executory costs included in total minimum lease payments (169) - Less: sublease rental income (2,961) (18,290) --------------- -------------- Net minimum lease payments 416,207 $ 248,340 ============== Less: portion representing interest 258,181 --------------- Present value of net minimum lease payments 158,026 Less: current portion of obligations under capital leases 7,562 --------------- Non-current portion of obligations under capital leases (net of sublease rental income) $ 150,464 ===============
Contingent rentals incurred on capital leases for Fiscal 1998, Fiscal 1997, the 41 weeks ended March 30, 1996, and the 11 weeks ended June 17, 1995 were $81,000, $106,000, $130,000, and $39,000, respectively. F-19 The rental expense for all operating leases was $48,262,000, $45,847,000, $33,923,000, and $8,696,000 during Fiscal 1998, Fiscal 1997, the 41 weeks ended March 30, 1996, and the 11 weeks ended June 17, 1995, respectively. Contingent rental expense included in total rental expense was $2,538,000, $2,870,000, $2,127,000, and $638,000 during Fiscal 1998, Fiscal 1997, the 41 weeks ended March 30, 1996, and the 11 weeks ended June 17, 1995, respectively. NOTE 11 - Stockholders' (Deficit) and Redeemable Old Common and Preferred Stock Changes in Stockholders' (Deficit) and Redeemable Old Common Stock were as follows (in thousands):
Redeemable Old Capital in Common Old Common Common Excess of Stock Stock (a) Stock Par Value (Deficit) ------------- ----------------- -------------- ------------- -------------- Predecessor Company Balance at April 1, 1995 $ - $ 9,407 $ 1 $ - $ (824,184) Net income for the 11 weeks ended June 17, 1995 - - - - 825,449 Extinguishment of stockholders' equity in connection with bankruptcy - (9,407) (1) (1,265) ------------- ----------------- -------------- ------------- -------------- Balance at June 17, 1995 $ $ - $ - $ - $ - ============= ================= ============== ============= ==============
(a) The Redeemable Old Common Stock represents shares of Holdings held by management investors, which were redeemable under certain limited circumstances at the option of the holder. F-20
Stockholders' (Deficit) Equity -------------------------------------------- Redeemable Redeemable Class A Class B Capital in Preferred Preferred Common Preferred Excess of Stock Stock Stock Stock Par Value (Deficit) ----------------- ----------------- ------------ ------------- ------------- -------------- Successor Company Balance at June 17, 1995 $ - $ - $ - $ - $ - $ - Issuance of Common Stock - - 10,000 - 144,000 - Net loss for the 41 weeks ended March 30, 1996 - - - - - (109,856) ----------------- ----------------- ------------ ------------- ------------- -------------- Balance at March 30, 1996 - - 10,000 - 144,000 (109,856) Preferred stock issuance charges - - - - (12,000) - Decrease in Common Stock par value - - (9,900) - 9,900 - Issuance of Class A Preferred Stock 63,000 - - - - - Accrued preferred stock dividends 2,000 - - - (2,000) - Net loss for Fiscal 1997 - - - - - (183,354) ----------------- ----------------- ------------ ------------- ------------- -------------- Balance at March 29, 1997 65,000 - 100 - 139,900 (293,210) Issuance of Common Stock - - 2 - 256 - Issuance of Class B Preferred Stock - 40,000 - - - - Accrued Class A preferred stock dividends 5,685 - - - (5,685) - Accrued Class B preferred stock dividends - 2,746 - - (2,746) - Additional minimum pension liability - - - - - (1,550) Other - - - - 281 - Net loss for Fiscal 1998 - - - - - (303,983) ----------------- ----------------- ------------ ------------- ------------- -------------- Balance at March 28, 1998 $ 70,685 $ 42,746 $ 102 $ - $ 132,006 $ (598,743) ================= ================= ============ ============= ============= ==============
The Company's Certificate of Incorporation and Bylaws were restated as of the Effective Date and subsequently amended. The Certificate of Incorporation as amended authorizes the issuance of 60,000,000 shares of Common Stock and 10,000,000 shares of preferred stock. On November 7, 1996, the Company's shareholders approved a decrease in the par value of Common Stock from $1.00 to $0.01 per share. Under the 1995 Plan of Reorganization, on the Effective Date, the Old Common Stock was cancelled and, as described in Note 3, holders of the Subordinated Notes became entitled to receive their pro rata share of 10,000,000 shares of Common Stock. In addition, on the Effective Date, holders of Capital Senior Zero Notes and Capital Subordinated Zero Notes who executed releases became entitled to receive an aggregate of Series 1 Warrants to purchase 300,000 shares of Common Stock at an exercise price of $30 per share and Series 2 Warrants to purchase 600,000 shares of Common Stock at an exercise price of $42 per share. Both the Series 1 Warrants and the Series 2 Warrants will expire five years after the Effective Date. As of March 28, 1998, no warrants have been exercised. The Common Stock and all other equity securities issued under the Certificate as amended are voting securities (although the voting rights of any new preferred stock issued will differ from those of Common Stock) and do not have any preemptive rights to subscribe for additional shares. F-21 Changes in Redeemable Old Preferred Stock of the Predecessor Company were as follows (in thousands):
Series Series Series Total A B C -------------- ------------- -------------- ---------------- Balance at April 1, 1995 $ 69,182 $ 9,010 $ 86,600 $ 164,792 Extinguishment of Predecessor Company Stock in connection with bankruptcy (69,182) (9,010) (86,600) (164,792) -------------- ------------- -------------- ---------------- Balance at June 17, 1995 $ - $ - $ - $ - ============== ============= ============== ================
The Series A cumulative exchangeable redeemable preferred stock ("Series A old preferred stock") had a $.01 par value, 500,000 shares authorized, and 351,745 shares issued and outstanding. The Series B cumulative redeemable convertible preferred stock ("Series B old preferred stock") had a $.01 par value, 500,000 shares authorized, and 78,256 shares issued and outstanding. The Series C cumulative redeemable convertible preferred stock ("Series C old preferred stock") had a $.01 par value, 500,000 shares authorized, and 440,771 shares issued and outstanding. NOTE 12 - Pension Plans The components of net periodic pension expense for the Company's defined benefit pension plans are as follows (in thousands):
Fiscal Fiscal Fiscal 1998 1997 1996 ---------------- ------------- --------------- Service cost - benefits earned during the period $ 4,492 $ 4,351 $ 4,317 Interest costs on projected benefit obligations 12,700 12,700 12,523 Return on plan assets (41,802) (16,993) (32,921) Net amortization and deferral 29,384 3,690 17,877 ---------------- ------------- --------------- Net periodic pension expense $ 4,774 $ 3,748 $ 1,796 ================ ============= ===============
The Company has not segregated the respective Successor and Predecessor Company pension expense for Fiscal 1996 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):
Qualified Nonqualified ---------------------- ---------------------- March 28, March 29, March 28, March 29, 1998 1997 1998 1997 --------- --------- --------- --------- Actuarial present value of benefit obligations: Vested benefits $(165,814) $(159,438) $ (7,264) $ (4,715) Nonvested benefits (4,176) (4,038) (165) -- --------- --------- --------- --------- Total benefits $(169,990) $(163,476) $ (7,429) $ (4,715) ========= ========= ========= ========= Projected benefit obligations $(194,482) $(186,207) $ (7,789) $ (5,364) Plan assets, primarily stocks and bonds, at fair value 192,386 169,707 -- -- --------- --------- --------- --------- Funded (unfunded) status (2,096) (16,500) (7,789) (5,364) Unrecognized net (gain) loss (9,946) 8,674 1,910 2,073 Unrecognized prior service cost -- -- 2,925 (20) Adjustment required to recognize minimum liability -- -- (4,475) (1,404) --------- --------- --------- --------- Accrued pension liability $ (12,042) $ (7,826) $ (7,429) $ (4,715) ========= ========= ========= =========
F-22 Significant actuarial assumptions used in all Company sponsored plans were as follows:
Fiscal Fiscal Fiscal 1998 1997 1996 ----------------- ----------------- ----------------- Discount rates 6.75% 7.25% 7.25% Rates of increase in future compensation 4.50% 4.50% 3.50% Long-term rate of return on plan assets 8.25% 8.75% 9.75%
NOTE 13 - 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 1998 1997 1996 --------------- --------------- --------------- Service cost - benefits earned during the period $ 720 $ 728 $ 591 Interest cost on accumulated postretirement benefit obligation 2,690 2,668 2,594 --------------- --------------- --------------- Net postretirement benefit expense $ 3,410 $ 3,396 $ 3,185 =============== =============== ===============
The Company has not segregated the respective Successor and Predecessor Company postretirement benefit expense for Fiscal 1996 because it is impractical to do so. The unfunded accrued postretirement benefit cost consists of the following (in thousands):
March 28, March 29, 1998 1997 --------- ---------- Accumulated postretirement benefit obligation: Retirees $(23,939) $(20,660) Fully eligible active plan participants (2,919) (2,482) Other active plan participants (17,785) (15,189) -------- -------- Total (44,643) (38,331) Unrecognized net loss 7,851 2,521 -------- -------- Accrued postretirement benefit cost $(36,792) $(35,810) ======== ========
The assumed health care cost trend rate used in measuring the accumulated postretirement obligation as of March 28, 1998 and March 29, 1997 was 10.0% and 11.0%, respectively, for associates pre-age 65 and 7.0% and 8.0%, respectively, for associates post-age 65, decreasing each successive year by 1% until the respective trend rates reach 4.50% and 4.75%, respectively, after which the trend rate remains constant. An increase of 1% in the assumed health care cost trend rate for the current year would increase the accumulated postretirement benefit obligation by approximately $226,000 and the annual service cost plus interest cost component by approximately $15,000. 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. The assumed discount rate used in determining the accumulated postretirement benefit obligation for Fiscal 1998 and Fiscal 1997 was 6.75% and 7.25%, respectively. F-23 NOTE 14 - Equity Compensation Plans The Company grants options for common stock under two plans, The Grand Union Company 1995 Equity Incentive Plan ("Employees' Plan") and The Grand Union Company 1995 Non-Employee Directors' Stock Option Plan ("Directors' Plan"). During Fiscal 1998, the Employees' Plan was amended to increase the aggregate number of shares issuable from 900,000 shares to 6,000,000 shares of the Company's Common Stock. The Directors' Plan, which provides for the issuance of options to purchase up to 100,000 shares of the Company's Common Stock, remained unchanged. Both Plans are administered by a committee of the Board of Directors. Options under both plans expire ten years from the grant date. The following tables summarize information about options outstanding for both stock option plans:
---------------------------------------------------------------------------------------- Fiscal 1998 Fiscal 1997 Fiscal 1996 ------------------------------ ------------------------------ ------------------------ Weighted Weighted Weighted Average Average Average Exercise Exercise Exercise Employees' Plan Shares Price Shares Price Shares Price --------------- ------ -------- ------ -------- ------ -------- Outstanding at beginning of year 226,280 $6.365 210,680 $6.625 - $ - Granted 4,133,800 2.146 20,000 3.688 210,680 6.625 Exercised (5,325) 1.844 - - - - Cancelled or expired (121,974) 5.658 (4,400) 6.625 - - ---------- ------- -------- ------- ------- ------- Outstanding at end of year 4,232,781 $2.271 226,280 $6.365 210,680 $6.625 ========== ======= ======== ======= ------- ------- Options exercisable at year-end 2,983,981 $1.972 206,280 $6.625 210,680 $6.625 ========== ======= ======== ======= ======= ======= Available for issuance under the plan 1,767,219 673,720 689,320 Weighted average contractual life (years) 9.386 6.348 6.872 Range of exercise prices $1.375 to $6.625 $3.688 to $6,625 $6.625 ---------------------------------------------------------------------------------------- Fiscal 1998 Fiscal 1997 Fiscal 1996 ------------------------------ ------------------------------ ------------------------ Weighted Weighted Weighted Average Average Average Exercise Exercise Exercise Directors' Plan Shares Price Shares Price Shares Price --------------- ------ -------- ------ -------- ------ -------- Outstanding at beginning of year 51,000 $5.941 25,000 $5.750 - - Granted 27,000 2.208 26,000 6.125 25,000 5.750 Exercised - - - - - - Cancelled or expired (9,500) 5.928 - - - - ---------- ------ -------- ------ ------- ----- Outstanding at end of year 68,500 $4.472 51,000 $5.941 25,000 $5.750 ========== ====== ======== ====== ======= ====== Options exercisable at year-end 34,336 $5.907 51,000 $6.625 25,000 $5.750 ========== ====== ======== ====== ======= ====== Available for issuance under the plan 31,500 49,000 75,000 Weighted average contractual life 7.577 8.365 8.061 (years) Range of exercise prices $2.156 to $6.125 $5.750 to $6.125 $5.750
These options will expire if not exercised at specific dates ranging from April 1, 1998 to January 5, 2008 for the Employee Plan and July 28, 1998 to December 5, 2011 for the Directors' Plan. However, see Note 1 regarding Management's plans and subsequent events. F-24 The Company adopted the disclosure only option under SFAS No. 123, (see Note 1) as of March 29, 1997. If the accounting provisions of SFAS No. 123 had been adopted as of the beginning of Fiscal 1997, the effect on Fiscal 1998 and Fiscal 1997 net loss would not have been material. NOTE 15 - Related Party Transactions In connection with the Stock Purchase Agreement, the Company paid transaction fees to Shamrock Capital Advisors, Inc. (SCA), the investment managers for Trefoil Capital Advisors II, L.P., and GE Investment Management Corporation of $2,000,000 each, and the Company paid Donaldson, Lufkin and Jenrette ("DLJ"), a managing director of which serves on the Company's board of directors, approximately $5,200,000 for advisory services, fairness opinion, and other miscellaneous expenses. Also in connection with the Stock Purchase Agreement, the Company entered into a management services agreement (the "Services Agreement") with SCA. The Company paid $552,000 and $300,000 for Fiscal 1998 and Fiscal 1997, respectively, under the Services Agreement. The Service Agreement expires 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. DLJ provided the Company with consulting services in connection with the bankruptcy. DLJ was paid $1,278,000 in Fiscal 1996 for services in connection with the bankruptcy proceedings. Prior to the Effective Date, the Company was party to a financial advisory agreement with MTH (the "MTH Agreement"), pursuant to which MTH, which indirectly controlled the Company and Penn Traffic Company ("Penn Traffic"), was to have provided certain financial consulting and business management services to the Company through July 1997. In accordance with the Plan, the MTH Agreement was terminated on the Effective Date and Grand Union executed a settlement agreement (the "MTH Settlement Agreement"), which provides for the termination of the MTH Agreement, payment by Grand Union of accrued and unpaid fees under the MTH Agreement through the Effective Date and for the indemnification of MTH and certain entities related to MTH from certain claims and liabilities, subject to the terms and limitations set forth in the MTH Settlement Agreement. The Company deposited $3,000,000 relating to the indemnification in escrow on the Effective Date. During the 11 weeks ended June 17, 1995 and Fiscal 1995, the Company paid $315,000 and $750,000, respectively, to MTH, pursuant to the MTH Agreement. From September 1993 until September 1995, Grand Union and Penn Traffic were parties to a combined purchasing and distribution agreement relating to general merchandise and health and beauty care products. In September 1995, Grand Union purchased from Penn Traffic approximately $12,821,000 of merchandise, which had been owned by Penn Traffic under the joint buying arrangement. NOTE 16- 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-25 NOTE 17 - Quarterly Financial Information (Unaudited) (in thousands, except loss per share and market price)
--------------------------------------------------------------------- 1st (a) 2nd 3rd 4th --------------- -- --------------- --------------- --- -------------- Fiscal 1998: Sales $ 707,983 $ 518,910 $ 534,320 $ 505,556 Gross profit 189,469 148,664 156,205 145,199 Unusual items - - (3,665) (2,668) (Loss) before income taxes (79,242) (56,926) (45,828) (70,594) Net (loss) (79,242) (56,926) (45,828) (121,987) Net (loss) applicable to common stock (81,299) (59,000) (47,924) (124,192) Net (loss) per common share (8.13) (5.90) (4.79) (12.22) Market Price -high 3 9/16 3 1/8 2 31/32 2 1/4 Market Price -low 1 7/16 1 1/8 1 23/32 1 1st (a) 2nd 3rd 4th --------------- -- --------------- --------------- --- -------------- Fiscal 1997: Sales $ 726,823 $ 533,412 $ 537,151 $ 515,287 Gross profit 221,899 162,158 164,335 157,355 Unusual items - - - (9,800) (Loss) before income taxes (48,251) (37,635) (38,364) (56,581) Net (loss) (43,812) (30,653) (31,677) (77,212) Net (loss) applicable to common stock (43,812) (30,896) (32,465) (78,181) Net (loss) per common share (4.38) (3.09) (3.25) (7.82) Market Price -high 7 9/16 6 7/8 7 3/16 5 3/16 Market Price -low 5 7/8 5 4 1/12 3
(a) Represents 16 weeks, all other quarters are 12 weeks. F-26 EXHIBIT INDEX Exhibit Number Description of Document - ------- ----------------------- 2.1 Second Amended Chapter 11 Plan of Reorganization of The Grand Union Company ("Grand Union"), filed with the United States Bankruptcy Court, District of Delaware, on April 19, 1995, incorporated by reference to Exhibit T3E1 to Grand Union's Form T-3 dated May 8, 1995. 2.2 Findings of Fact, Conclusions of Law and Order Confirming the Second Amended Plan of Reorganization proposed by Grand Union, dated May 31, 1995, incorporated by reference to Exhibit 2.2 to Grand Union's Annual Report on Form 10-K for the fiscal year ended April 1, 1995 ("Fiscal 1995"). 2.3 Minute Order Clarifying Findings of Fact, Conclusions of Law and Order Confirming Second Amended Plan of Reorganization proposed by Grand Union, dated June 14, 1995, incorporated by reference to Exhibit 2.3 to Grand Union's Annual Report on Form 10-K for Fiscal 1995. 2.4 Chapter 11 Plan of Reorganization filed with the United States Bankruptcy Court, District of New Jersey, on Exhibit Number Description of Document - ------- ----------------------- 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 amended through January 6, 1997, incorporated by reference to Exhibit 3.1 to Grand Union's Annual Report on Form 10-K for Fiscal 1997. 3.2 Certificate of Designation of Class A Convertible Preferred Stock, incorporated by reference to Exhibit 10.4 to Grand Union's Quarterly Report on Form 10-Q for the period ended October 12, 1996. 3.3 Certificate of Designation of Class B Convertible Preferred Stock, dated as of June 11, 1997, incorporated by reference to Exhibit 3.1 to Grand Union's Annual Report on Form 10-K for Fiscal 1997. 3.4 By-laws of The Grand Union Company, as amended through January 15, 1998, incorporated by reference to Exhibit 3.1 to Grand Union's Quarterly Report on Form 10-Q for the period ended January 3, 1998. 4.1 Form of Common Stock Certificate of Grand Union, incorporated by reference to Exhibit 4.1 to Grand Union's Annual Report on Form 10-K for Fiscal 1995. 4.2 Warrant Agreement dated as of June 15, 1995, between Grand Union and American Stock Transfer & Trust Company, as Warrant Agent for 300,000 Series 1 Warrants and 600,000 Series 2 Warrants, incorporated by reference to Exhibit 4.5 to Grand Union's Annual Report on Form 10-K for Fiscal 1995. 4.3 Registration Rights Agreement dated as of June 15, 1995, among Grand Union and Each of the Persons Named in Schedule A thereto for the Common Stock, incorporated by reference to Exhibit 4.6 to Grand Union's Annual Report on Form 10-K for Fiscal 1995. 4.4 Registration Rights Agreement dated as of June 15, 1995, by and among Grand Union and the Holders Named therein for the Registrable Notes, incorporated by reference to Exhibit 4.7 to Grand Union's Annual Report on Form 10-K for Fiscal 1995. 4.5 Indenture dated as of June 15, 1995, between Grand Union, as Issuer, and IBJ Schroeder Bank & Trust Company, as Trustee for the 12% Senior Notes due September 1, 2004, including form of the 12% Senior Notes due 2004, incorporated by reference to Exhibit 4.2 to Grand Union's Annual Report on Form 10-K for Fiscal 1995. 4.6 First Supplement Indenture, dated September 9, 1996, to the Indenture dated as of June 15, 1995, between Grand Union, as Issuer, and IBJ Schroeder Bank & Trust Company, as Trustee for the 12% Senior Notes due September 1, 2004, incorporated by reference to Exhibit 10.3 to Grand Union's Quarterly Report on Form 10-Q for the period ended October 12, 1996. 4.7 Form of Warrant Agreement, to be executed on the Consummation Date, 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. 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 Exhibit Number Description of Document - ------- ----------------------- MTH Holdings and GUAC before the FTC, incorporated by reference to Exhibit No. 10.6 to the 1989 Grand Union Registration Statement. 10.3 Amended and Restated Borrower Pledge Agreement dated as of June 15, 1995, made by Grand Union to Bankers Trust Company ("Bankers Trust"), as Collateral Agent incorporated by reference to Exhibit 10.10 to Grand Union's Annual Report on Form 10-K for Fiscal 1995. 10.4 Amended and Restated Borrower Security Agreement dated as of June 15, 1995, between Grand Union and Bankers Trust, as Collateral Agent (included in Exhibit 4.4), incorporated by reference to Exhibit 10.11 to Grand Union's Annual Report on Form 10-K for Fiscal 1995. 10.5 Subsidiary Security Agreement dated as of June 15, 1995, among the corporations listed on Schedule 1 thereto and Bankers Trust, as Collateral Agent, incorporated by reference to Exhibit 10.12 to Grand Union's Annual Report on Form 10-K for Fiscal 1995. 10.6 Subsidiary Guaranty dated as of June 15, 1995, made by each of the corporations from time to time listed on Annex A attached thereto in favor of the Banks and the Agent from time to time party to the Credit Agreement, incorporated by reference to Exhibit 10.13 to Grand Union's Annual Report on Form 10-K for Fiscal 1995. 10.7 Form of Indenture of Open-End Mortgage, Deed of Trust, Deed to Secure Debt, Security Agreement, Assignment of Leases, Rents and Profits, Financing Statement and Fixture Filing, dated as of June 15, 1995, made by Grand Union to Bankers Trust, as Collateral Agent, incorporated by reference to Exhibit 10.14 to Grand Union's Annual Report on Form 10-K for Fiscal 1995. 10.8 Tenth Amendment to the Amended and Restated Credit Agreement dated as of June 15, 1995, (the "Credit Agreement"), which amends and restates the Credit Agreement as of August 31, 1997 among Grand Union, the lending institutions listed from time to time on Schedule 1 thereto, and Bankers Trust, as Agent, including Exhibits A-1, A-2 and A-3, and various Schedules thereto, incorporated by reference to Grand Union's Current Report on Form 8-K filed on September 3, 1997. 10.9 Eleventh Amendment to the Credit Agreement dated as of August 29, 1997, incorporated by reference to Exhibit 10.1 of Grand Union's Quarterly Report on Form 10-K for the period ended January 3, 1998. 10.10 Twelfth Amendment to the Credit Agreement dated as of January 9, 1998, incorporated by reference to Exhibit 10.2 of Grand Union's Quarterly Report on Form 10-K for the period ended January 3, 1998. 10.11 Thirteenth Amendment to the Credit Agreement dated April 17, 1998. 10.12 Supply and Distribution Agreement between Grand Union and C&S Wholesalers, 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. 10.13 First Amendment to the Supply and Distribution Agreement between Grand Union and C&S Wholesalers, 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. 10.14 Supply and Distribution Agreement between Grand Union and C&S Wholesalers, 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. Exhibit Number Description of Document - ------- ----------------------- 10.15 Agreement with C&S Wholesalers Inc. dated January 21, 1996, incorporated by reference to Exhibit 10.28 to Grand Union's Annual Report on Form 10-K/A for Fiscal 1997. 10.16 Fourth Amendment and Restatement of The Grand Union Company Supplemental Retirement Program for Key Executives effective as of November 20, 1997. 10.17 The Grand Union Company Discretionary Severance Plan for Non-Union Associates effective April 14, 1998. 10.18 The Grand Union Company Severance Plan for Exempt Personnel effective April 14, 1998. 10.19 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. 10.20 The Grand Union Company 1995 Non-Employee Directors Stock Option Plan, incorporated by reference to Exhibit 10.2 to Grand Union's Quarterly Report on Form 10-Q for the period ended January 6, 1996. 10.21 First Amendment to the 1995 Non-Employee Directors' Stock Option Plan of Grand Union, incorporated by reference to Exhibit 10.6 to Grand Union's Quarterly Report on Form 10-Q for the period ended July 20, 1996. 10.22 Non-competition Agreement between Grand Union and Darrell W. Stine, incorporated by reference to Exhibit 10.26 of Grand Union's Annual Report on Form 10-K for Fiscal 1996. 10.23 Non-competition Agreement between Grand Union and Gilbert C. Vuolo, incorporated by reference to Exhibit 10.27 of Grand Union's Annual Report on Form 10-K for the Fiscal 1996. 10.24 Form of Indemnification Agreement between the Company and R. Stangeland, D. Josephs, W. Kagler, D. McClure, Jr., D. Ying, J. McCaig, W. Louttit, K. Baum, D. Stine, G. Vuolo and J. Schroeder, incorporated by reference to Exhibit 10.7 to Grand Union's Quarterly Report on Form 10-Q for the period ended July 20, 1996. 10.25 Form of Indemnification Agreement between Grand Union and J. Costello, C. Miller, G. Moore and J.R. Stonesifer, incorporated by reference to Exhibit 10.1 to Grand Union's Quarterly Report on Form 10-Q for the period ended October 12, 1996. 10.26 Form of Indemnification Agreement between the Company and J. Freimark (dated March 3, 1997), D. Vaillancourt (dated June 5, 1997), G. Smith (dated August 7, 1997), J. Harris (dated August 11, 1997), G. Philbin (dated October 3, 1997), Javier Ramirez, Vice President Tax and Assistant Secretary (dated October 30, 1997), J. Krimstein (dated October 30, 1997), M. Manski (dated October 30, 1997), M. Pritchard (dated October 30, 1997) and J. Partridge (dated January 5, 1998). 10.27 Stock Purchase Agreement dated July 30, 1996, among Grand Union, Trefoil Capital Investors II, L.P. and GE Investment Private Placement Partners II, A Limited Partnership, incorporated by reference to Exhibit 10.1 to Grand Union's report filed on Form 8-K dated July 30, 1996. 10.28 Amendment No. 1 to the Stock Purchase Agreement dated July 30, 1996, among Grand Union, Trefoil Capital Investors II, L.P., and GE Investment Private Placement Partners II, a Limited Partnership, incorporated by reference to Exhibit 10.50 to Grand Union's Annual Report on Form 10-K for Fiscal 1997. 10.29 Management Agreement between Grand Union and Shamrock Capital Advisors, Inc., dated July 30, 1996, incorporated by reference to Exhibit 10.7 to Grand Union's Quarterly Report on Form 10-Q for the period ended October 12, 1996. Exhibit Number Description of Document - ------- ----------------------- 10.30 Stock Purchase Agreement by and between Grand Union and Roger Stangeland, dated as of February 25, 1997, incorporated by reference to Exhibit 10.52 to Grand Union's Annual Report on Form 10-K for Fiscal 1997. 10.31 Amendment No. 1, dated March 20, 1997, to the Stock Purchase Agreement between Grand Union and Roger Stangeland, dated as of February 25, 1997, incorporated by reference to Exhibit 10.53 to Grand Union's Annual Report on Form 10-K for Fiscal 1997. Exhibit Number Description of Document - ------- ----------------------- 10.32 Stockholder Agreement between Trefoil Capital Investors II, L.P., a Delaware limited partnership, GE Investment Private Placement Partners II, A Limited Partnership, a Delaware limited partnership, Roger Stangeland, an individual, and Grand Union, incorporated by reference to Exhibit 10.55 to Grand Union's Annual Report on Form 10-K for Fiscal 1997. 10.33 Addendum to Stockholder Agreement among Trefoil Capital Investors II, L.P., a Delaware limited partnership, GE Investment Private Placement Partners II, A Limited Partnership, a Delaware limited partnership, Roger Stangeland, an individual, and The Grand Union Company, a Delaware corporation, incorporated by reference to Exhibit 10.56 to Grand Union's Annual Report on Form 10-K for Fiscal 1997. 10.34 Acceleration and Exchange Agreement, dated as of June 5, 1997, by and among The Grand Union Company, Trefoil Capital Investors II, L.P., a Delaware limited partnership, and GE Investments Private Placement Partners II, A Limited Partnership, a Delaware limited partnership, including Exhibits thereto, incorporated by reference to Exhibit 10.57 to Grand Union's Annual Report on Form 10-K for Fiscal 1997. 10.35 Amendment No. 1, dated as of June 5, 1997, to the Registration Rights Agreement dated as of July 30, 1996, by and among The Grand Union Company, Trefoil Capital Investors II, L.P., a Delaware limited partnership, and GE Investments Private Placement Partners II, A Limited Partnership, a Delaware limited partnership, incorporated by reference to Exhibit 10.58 to Grand Union's Annual Report on Form 10-K for Fiscal 1997. 10.36 Employment Agreement, dated as of August 1, 1997, between Grand Union and J. Wayne Harris, incorporated by reference to Exhibit 99.1 Grand Union's Current Report on Form 8-K filed on August 1, 1997. 10.37 Employment Agreement, dated as of October 3, 1997, between Grand Union and Gary M. Philbin, incorporated by reference to Exhibit 99.1 Grand Union's Current Report on Form 8-K filed on October 29, 1997. 10.38 Employment Agreement, dated as of January 5, 1998, between Grand Union and Jack W. Partridge, incorporated by reference to Exhibit 99.1 Grand Union's Current Report on Form 8-K filed on January 28, 1998. 10.39 Exit Facility Commitment Letter, dated April 23, 1998, among Grand Union and Swiss Bank Corporation, SBC Warburg Dillon Read Inc., Lehman Commercial Paper Inc. and Lehman Brothers Inc. 10.40 Revolving Credit Agreement, dated as of June 24, 1998, by and among Grand Union and Swiss Bank Corporation, SBC Warburg Dillon Read Inc., Lehman Commercial Paper Inc. and Lehman Brothers Inc. 21.1 Subsidiaries of Grand Union. 27.1 Financial Data Schedule. EX-10.11 2 MODIFICATION NO. 2 TO WAIVER DATED FEB. 25, 1998 EXHIBIT 10.11 MODIFICATION NO. 2 TO WAIVER DATED FEBRUARY 25, 1998 TO THE AMENDED AND RESTATED CREDIT AGREEMENT AND THIRTEENTH AMENDMENT TO THE AMENDED AND RESTATED CREDIT AGREEMENT This MODIFICATION NO. 2 AND THIRTEENTH AMENDMENT dated as of April 16, 1998 (this "Modification and Amendment") to (1) the Waiver dated as of February 25, 1998 (as modified by the Modification No. 1 thereto dated as of March 30, 1998, the "February 25th Waiver"), among THE GRAND UNION COMPANY, a Delaware corporation (the "Borrower"), the institutions party thereto as lenders and BANKERS TRUST COMPANY, as agent (the "Agent"), and (2) the AMENDED AND RESTATED CREDIT AGREEMENT dated as of June 15, 1995 (as modified by, or the terms thereof waived by various waivers and ten amendments as set forth in the composite Credit Agreement appended to and incorporated in the Waiver and Tenth Amendment thereto dated as of August 29, 1997, and as modified by or the terms thereof waived by the Eleventh Amendment thereto dated as of August 29, 1997, the Waiver and Consent thereto dated as of October 26, 1997, the Waiver and Consent thereto dated as of November 14, 1997, the Twelfth Amendment thereto dated as of January 9, 1998, and the February 25th Waiver, the "Credit Agreement"), among the Borrower, the institutions from time to time party thereto as lenders and the Agent, is being entered into by and among the Borrower, the Agent and the undersigned lending institutions party to the Credit Agreement (the "Banks"). Capitalized terms used herein and not defined herein shall have the respective meanings set forth for such terms in the Credit Agreement. W I T N E S S E T H : WHEREAS, the Borrower has requested that the Banks, pursuant to Section 12.12 of the Credit Agreement, modify certain provisions of the February 25th Waiver and the Credit Agreement to (1) allow the Borrower to renew and replace certain unsecured Indebtedness with respect to reimbursement and other monetary obligations of the Borrower under certain surety, performance and bid bonds, and (2) allow the Borrower to utilize the availability created under the Credit Agreement through the replacement of a certain Letter of Credit issued to the State of New York with respect to workmen's compensation obligations for a Letter of Credit issued to a bonding company in a lower amount with respect to such obligations; WHEREAS, subject to and upon the terms and conditions hereinafter set forth and in the Credit Agreement and the February 25th Waiver, the Banks party hereto are agreeable to the foregoing; Now, THEREFORE, the parties hereto hereby agree as follows: Section 1. Modifications. (a) Clause (v) of Section 1 of the February 25th Waiver is hereby replaced with the following: "(v) Unless otherwise agreed to in writing by the Required Banks, the Total Unutilized Revolving Commitment shall not be less than the sum of (a) $7,000,000, plus (b) the aggregate amount of any increase in the Total Unutilized Revolving Commitment on and after February 25, 1997 resulting from the reduction of any Letter of Credit or the cancellation, expiration or substitution of any Letter of Credit which is not immediately renewed or replaced in favor of the same beneficiary (but excluding the $10,500,000 increase in Total Unutilized Revolving Commitment resulting from the one time replacement of an existing Letter of Credit in the amount of $28,000,000 issued in favor of the State of New York in connection with workmen's compensation obligations for a $17,500,000 Letter of Credit issued in favor of a bonding company with respect to those same obligations).;" (b) Clause (xi) of Section 1 of the February 25th Waiver is hereby replaced with the following: "(xi) The level of usual and ordinary course trade credit (including, without limitation, credit limits, pricing, cash discounts, timing of payments, allowances, rebates, coupon reconciliation, normal product mix and availability and other applicable terms and programs in effect between a vendor and the Borrower on a historical basis) provided by vendors to the Borrower or its affiliates shall not be materially reduced (as determined in the sole opinion of the Agent and the Required Banks) from such usual and ordinary course trade credit which existed during the Borrower's period 12 fiscal month period ended February 28, 1998; and" Section 2. Amendment. (a) Section 8.3(c) of the Credit Agreement is hereby amended by inserting immediately after the phrase "Existing Indebtedness" the following: CONFIDENTIAL 3 EXECUTION COPY "and any renewal or replacement of Existing Indebtedness of the type described in clause (viii) of the definition of "Indebtedness" in the ordinary course of business and in amounts not to exceed that which is renewed or replaced" (b) Section 8.3 of the Credit Agreement is hereby amended by (i) deleting the word "and" at the end of clause (g) thereof, and (ii) inserting the following immediately before the period at the end of clause (h) thereof: "; and (i) Indebtedness resulting from unsecured reimbursement obligations of the Borrower with respect to a performance bond issued in connection with workmen's compensation obligations in the State of New York in an amount not to exceed $35,000,000." Section 3. Representations and Warranties. The Borrower hereby represents and warrants to the Agent and each Bank that: (a) assuming the effectiveness of the February 25th Waiver, no Default or Event of Default under the Credit Agreement has occurred and is continuing on and as of the date hereof; and (b) the representations and warranties of the Borrower and the other Credit Parties contained in the Credit Agreement and the other Credit Documents are true and correct in all material respects on and as of the date hereof as if made on and as of the date hereof other than as referred to herein, except to the extent such representations and warranties expressly relate to a different specific date. Section 4. Effectiveness. This Modification and Amendment shall become effective, as of April 16, 1998, when the Agent shall have executed and delivered a counterpart of this Modification and Amendment and received duly executed counterparts of this Modification and Amendment from the Borrower, each Subsidiary of the Borrower that is a party to any Credit Document and as many of the Banks as shall be necessary to comprise the "Required Banks". The aforesaid execution and delivery may be effected by delivery and receipt by facsimile transmission. Section 5. Status of Credit Documents. (i) This Modification and Amendment is limited solely for the purposes and to the extent expressly set forth herein, and (i) the terms, provisions and conditions of the Credit Documents, including, without limitation, the February 25th Waiver and the Credit Agreement, (ii) the CONFIDENTIAL 3 EXECUTION COPY terms and provisions of the Further Assurances Agreement dated as of June 15, 1995, as modified in writing prior to the date hereof, between the Borrower and the Agent, and (iii) the Liens granted under the Credit Documents shall continue in full force and effect and are hereby ratified and confirmed in all respects. (ii) No waiver of any terms or provisions of the Credit Agreement or the waiver granted hereunder shall relieve the Borrower from complying with such terms and provisions other than as waived hereby or from complying with any other term or provision of the Credit Agreement or the February 25th Waiver. Section 6. Counterparts. This Modification and Amendment may be executed and delivered in any number of counterparts and by the different parties hereto on separate counterparts, each of which when so executed and delivered shall be an original, but all of which shall together constitute one and the same instrument. A complete set of counterparts shall be lodged with the Borrower and the Agent. Section 7. Governing Law. THIS MODIFICATION AND AMENDMENT SHALL BE CONSTRUED IN ACCORDANCE WITH, AND SHALL BE GOVERNED BY, THE LAWS OF THE STATE OF NEW YORK. IN WITNESS WHEREOF, the parties hereto have caused their respective duly authorized officers to execute and deliver this Modification No. 2 and Thirteenth Amendment as of the date first above written. THE GRAND UNION COMPANY By:________________________ Name: Francis E. Nicastro Title: Vice President and Treasurer BANKERS TRUST COMPANY, Individually and as Agent By:________________________ Name: Allan M. Stewart Title: Managing Director CONFIDENTIAL 4 EXECUTION COPY AG CAPITAL FUNDING PARTNERS L.P. By Angelo Gordon & Company Its Authorized Agent By:________________________ Name: Title: FLEET CAPITAL CORPORATION By:________________________ Name: Title: GOLDMAN SACHS CREDIT PARTNERS LP By:________________________ Name: Title: HELLER FINANCIAL, INC. By:________________________ Name: Title: CONFIDENTIAL 5 EXECUTION COPY HOUR L.L.C. By: Sunrise Partners, L.L.C. Its Authorized Agent By:________________________ Name: Title: LEHMAN COMMERCIAL PAPER INC. By:________________________ Name: Title: PPM AMERICA SPECIAL INVESTMENTS CBO II, L.P. By: PPM America, Inc., Its Authorized Agent By:________________________ Name: Title: QUANTUM PARTNERS LDC By:________________________ Name: Title: CONFIDENTIAL 6 EXECUTION COPY SWISS BANK CORPORATION, LONDON BRANCH By:________________________ Name: Title: WAYLAND INVESTMENT FUND LLC By: CFSC Wayland Advisors, Inc. Its Manager By:________________________ Name: Title: CONFIDENTIAL 7 EXECUTION COPY The foregoing Modification No. 2 and Thirteenth Amendment is hereby consented and agreed to, and the Liens and guaranties under the Credit Documents are hereby confirmed, by: MERCHANDISING SERVICES, INC. GRAND UNION STORES, INC. OF VERMONT GRAND UNION STORES OF NEW HAMPSHIRE, INC. SPECIALTY MERCHANDISING SERVICES, INC. By:_________________________________ Name: Francis E. Nicastro Title: Vice President and Treasurer of each of the above listed entities EX-10.16 3 FOURTH AMENDMENT AND RESTATEMENT OF THE GRAND UNION COMPANY SUPPLEMENTAL RETIREMENT PROGRAM EXHIBIT 10.16 FOURTH AMENDMENT AND RESTATEMENT OF THE GRAND UNION COMPANY SUPPLEMENTAL RETIREMENT PROGRAM FOR KEY EXECUTIVES I. PURPOSE: The purpose of The Grand Union Company Supplemental Retirement Program for Key Executives (the "Plan") is to advance the interests of The Grand Union Company (and its subsidiaries) (the "Company") by encouraging and enabling the Company to attract, motivate and retain key executives and, at the same time, recognize the executive's contribution to the Company's success and years of loyal service. II. EFFECTIVE DATE; DEFINITIONS: The effective date of this Fourth Amendment and Restatement of the Plan is November 20, 1997. The Plan, as herein written, applies to persons who are employed by the Company or become employed by the Company on or after such effective date and who have previously been designated as participants or who are hereafter designated as participants in accordance with Section III hereof. As of November 20, 1997, the only participants are the individuals named on Exhibit D. The rights and obligations with respect to each person who retired, died, or whose employment terminated, or who otherwise ceased participation in the Plan, prior to November 20, 1997 shall be determined under the terms and provisions of the Plan as in effect on the date of such retirement, death, termination of employment or cessation of participation. Except as otherwise expressly provided herein, or as otherwise required by the context, all words and phrases used herein which are defined in The Grand Union Company Employees' Retirement Plan (the "Qualified Plan") shall have the same meaning as in the Qualified Plan. III. ADMINISTRATION AND ELIGIBILITY: The Plan shall be administered by the Compensation Committee (the "Committee") of the Board of Directors of the Company. The key executives who are or will be participants shall be selected from time to time by the Committee and shall receive benefits in accordance with the provisions of this Plan. The Committee has the power and discretion to interpret the Plan and any agreement evidencing benefits granted hereunder and to make all other determinations in connection with the administration of the Plan, all of which shall be final and conclusive. IV. CREDITED SERVICE: Credited Service shall have the same meaning as in the Qualified Plan, except that a participant shall also receive credit for (i) service with The Grand Union Company and (ii) service with another company within the Corporate Group prior to the time such company became a member of such Group. Notwithstanding anything herein to the contrary, the Committee may, in its sole discretion and on a case-by-case basis, increase a participant's number of years of Credited Service used to determine the benefits hereunder in excess of such participant's actual years of Credited Service. V. PAYMENT: Benefits pursuant to the terms of this Plan shall be paid directly from the general assets of the Company. All such benefits shall be paid in a single sum no later than 30 days following a participant's date of retirement or other termination of employment. VI. RETIREMENT ELIGIBILITY: A. Retirement At or After Age 62. 1. Although "normal" retirement under the Qualified Plan is age 65, under this Plan, a participant may retire as early as age 62 without penalty. 2. A participant who retires under the Plan at age 62 or later shall be paid a single sum in cash which is equal to the "actuarial present value" (as defined in paragraph A.6 below) of the pension determined under paragraph A.3 below reduced by all amounts previously paid to the participant under the Plan including, but not limited to, any payment shown on Exhibit D plus interest on such previous payment amount from the date of such previous payment to the date of such retirement at the interest discount rate set forth in Exhibit A in effect at the time of 2 such payment or in the case of a payment amount shown on Exhibit D, the interest rate shown on Exhibit D for such payment amount (in the aggregate as to each participant, "the Prior Payment"). An additional single sum payment may be made to such participant following his retirement, as provided in paragraph A.7 below. 3. The annual amount of pension payable upon retirement at age 62 or later is determined as the "Target Benefit" minus the "Plan Offsets". Such pension is deemed to be payable monthly and is based on a life annuity form of payment for participants who are not married on the date of their retirement and on a joint and survivor annuity form of payment for participants who are married on such date, which annuity is payable in full (i.e., without actuarial reduction) to the participant during his life, and, following his death, at the rate of fifty percent (50%) to the spouse to whom the participant is married on the date of his retirement, for the remainder of her lifetime. 4. The "Target Benefit" is an annual pension, payable monthly, equal to 65% of the Final Year's Base Salary for a participant who has 15 or more years of Credited Service. For participants with less than 15 years of Credited Service, the target benefit is 4-1/3% of the Final Year's Base Salary multiplied by years of Credited Service. Notwithstanding anything herein to the contrary, the Committee may, in its sole discretion and on a case-by-case basis, determine a participant's target benefit based on 4-1/3% of the Final Year's Base Salary multiplied by his actual or deemed number of years of Credited Service in accordance with Section IV above (even if such years of Credited Service exceed 15). For purposes of this Plan, the term "Final Year's Base Salary" shall mean (i) except as provided in (ii) below, the annualized rate of base salary being paid to the participant immediately prior to his death or retirement or in the case of a participant who is disabled within the meaning of the long term disability income plan sponsored by the 3 Company under which he is covered, the annualized rate of base salary being paid to such disabled participant immediately prior to the onset of his disability or (ii) in the case of Joseph J. McCaig, Final Year's Base Salary shall be the greater of Final Year's Base Salary as determined under (i) above or $500,000, or(iii) an amount, determined by the Committee in its sole discretion and on a case-by-case basis, which exceeds the amount determined under (i) above.. 5. "Plan Offsets" upon retirement at age 62 or later are equal to the sum of (i) the annual primary Social Security benefits payable at age 62 (or at later retirement) to the participant (the actual amount as provided by the participant to the Company or as determined on an assumed basis by the Company), (ii) the benefits payable at age 62 (or at later retirement) from the Qualified Plan (expressed as an annual straight life annuity), and (iii) the benefits payable from the qualified retirement plans of previous employers (including, without limitation, Colonial Stores Incorporated and J. Weingarten Incorporated) and from the Colonial Stores Supplemental Plan (in each case expressed as an annual straight life annuity). In the case of a participant who is potentially eligible for an increase in the annual benefit payable under the Qualified Plan after retirement as a result of cost of living adjustments, made in accordance with Section 415(d) of the Internal Revenue Code of 1986, as amended (the "Code"), to the maximum annual benefit limitation under Section 415(b) of the Code, the amount of "Plan Offsets" shall be increased to reflect the expected increase in annual benefit payable under the Qualified Plan. The assumption(s) as to cost of living increases to the maximum annual benefit limitation under Section 415(b) of the Code for the purpose of determining the amount of "Plan Offsets" attributable to benefits payable under the Qualified Plan in each year of expected payment following retirement are set forth in Exhibit A. A demonstration of the methodology to be used in calculating a 4 participant's retirement benefit and the actuarial present value thereof under this Section VI.A is attached hereto as Exhibit B, but in the event of any discrepancy between the figures or computations set forth in Exhibit B and the terms of the Plan, the terms of the Plan shall control. 6. (i) The actuarial present value of a participant's benefit under the Plan is the sum of the present values of the amount of pension determined under paragraph A.3 above (expressed as a monthly benefit) for each year included in the period measured, in the case of an unmarried participant, by the participant's life expectancy only, and, in the case of a participant who is married as of the date of his retirement, by the joint life expectancy of the participant and his spouse, as of such date. (ii) The present value, as of the single sum payment date, of an unmarried participant's benefit for any year included in the period described in paragraph A.6(i) above, is equal to the amount determined under paragraph A.3 to be payable for such year on a monthly basis, multiplied by a present value factor. The present value factor is based on the participant's age at the single sum payment date, the interest discount rate set forth in Exhibit A attached hereto and the 1983 Individual Annuity Mortality Table. (iii) The present value, as of the single sum payment date, of a married participant's benefit for any year included in the period described in paragraph A.6(i) above, is equal to the sum of (a) the amount determined as if he were unmarried, as described in paragraph A.6(ii) above, and (b) fifty percent (50%) of the amount determined under paragraph A.3, representing a survivor's benefit payable on a monthly basis to the participant's surviving spouse for such year, multiplied by a present value factor. The present value factor is based on the participant's and spouse's ages at the single sum payment date, the interest discount rate set forth in Exhibit A and the 1983 Individual Annuity Mortality Table. 5 Where the participant's spouse is more than ten (10) years younger than the participant, the present value of the participant's benefit attributable to the survivor element of the joint and survivor annuity will be computed by reducing the amount of benefit to be continued to the spouse after the participant's death by 2% for each year by which the difference in the participant's and the spouse's age exceeds ten (10). The reduction for any such partial year shall be determined by interpolating for the number of months between the percentage reduction applicable to the last full year of the age differential in excess of ten (10) years and the next full year of such differential. 7. In the event that legislation is enacted following a participant's retirement and receipt of the actuarial present value of his pension hereunder that has the effect of eliminating, reducing or suspending cost of living adjustments to the maximum annual benefit limitation under Section 415(b) of the Code or of reducing such limitation, then within thirty (30) days of the effective date of such legislation, the participant (or his estate) shall be entitled to receive an additional single sum payment in cash equal to the present value of the amount by which his Qualified Plan benefit is assumed to increase in each year of expected payment following such effective date, to reflect cost of living adjustments to the maximum annual benefit limitation under Section 415(b) of the Code. B. Early Retirement. 1. (i) A participant between the ages of 50 (age 47 for any person who became a participant prior to April 1, 1995) and 55 may, with the Company's consent, retire and receive a single sum pension benefit under this Plan; provided, however, that such consent shall not be required of a participant who (a) is covered under a Company-sponsored long term disability income plan and is disabled or awaiting certification of disability status under the terms of such plan, (b) is involuntarily 6 terminated other than for proper cause (as defined in Section VII(d) below) or (c) has a termination of employment on account of a Constructive Termination. A participant between the ages of 55 and 62 may retire at any time and receive a single sum pension benefit under this Plan. (ii) A participant who is involuntarily terminated (other than for proper cause as defined in Section VII(d) below) or has a termination of employment on account of a Constructive Termination following a Change in Control shall be deemed to have been retired by the Company for purposes of this Plan and shall receive a single sum pension benefit regardless of his then attained age. For purposes of paragraph B.1 above, Constructive Termination shall mean after November 20, 1997 (i) with respect to a participant holding the position of Chief Executive Officer, President, Chief Operating Officer or Chief Financial Officer, either an involuntary reduction in base salary that exceeds 5% in any year, or an involuntary removal from sole possession of said position, or (ii) with respect to any other participant, either an involuntary reduction in base salary that exceeds 10% in any year, or an involuntary reduction in grade level of more than two grades in any year or (iii) any involuntary transfer that would require relocation outside of the current operating area of Grand Union and for purposes of paragraph B.1(ii) above, Change in Control shall mean a Change of Control as defined in the Indenture between the Company as issuer and IBJ Schroeder Bank & Trust Company as Trustee for the issuance of up to $595,475,922 of 12% Senior Notes due September 1, 2004 as dated as of June 15, 1995. 2. A participant who retires early under paragraph B.1 above shall be paid a single sum in cash which is equal to the "actuarial present value" (as defined in paragraph B.6 below) of the monthly equivalent of the pension determined under paragraph B.3 below reduced by such participant's Prior Payment, if any. An additional single sum payment 7 may be made to such participant following his retirement, as provided in paragraph B.7 below. 3. The annual amount of pension payable upon early retirement is determined as the "Target Benefit" (determined under paragraph B.4 below) minus the "Plan Offsets" (set forth in paragraph B.5 below). 4. The "Target Benefit" (as defined in paragraph A.4 above) shall be reduced 5% per year for each year that the date of commencement of benefits precedes age 62. To illustrate, a participant retiring at age 58 will receive 80% of the "Target Benefit". 5. "Plan Offsets" upon early retirement are equal to the sum of: (a) The assumed annual primary Social Security benefit that would be payable to the participant at age 65, determined by assuming continued employment with the Company to age 65 at the salary level in effect at retirement, which benefit is then reduced by 6-2/3% per year for each of the first three years that the commencement date of the benefits under this Plan precedes age 65 and 5% per year for each year in excess of three years; and (b) Benefits payable from the Qualified Plan, assuming the earliest commencement and payment of benefits under the straight life annuity form. In the case of a participant who is potentially eligible for an increase in the annual benefit payable under the Qualified Plan after retirement as a result of cost of living adjustments made in accordance with Section 415(d) of the Code to the maximum annual benefit limitation under Section 415(b) of the Code, the amount of "Plan Offsets" shall be increased to reflect the expected increase in annual benefit payable under the Qualified Plan (the assumption(s) as to cost of living increases to the maximum annual benefit 8 limitation under Section 415(b) of the Code for the purpose of determining the amount of "Plan Offsets" attributable to benefits payable under the Qualified Plan in each year of expected payment following retirement are set forth in Exhibit A); and (c) The benefits payable from qualified retirement plans of previous employers (including, without limitation, Colonial Stores Incorporated and J. Weingarten Incorporated) and from the Colonial Stores Supplemental Plan, all of which shall be ascertained in the same manner, wherever possible, as the Qualified Plan benefits. 6. The actuarial present value of a participant's benefit payable under the Plan in the event of early retirement shall be determined in the same manner as is described in paragraph A.6 above, but with reference to the amount of pension determined under "paragraph B.3" substituted for any references to paragraph A.3 contained therein. A demonstration of the methodology to be used in calculating a participant's retirement benefit and the actuarial present value thereof under this Section VI.B is attached hereto as Exhibit B, but in the event of any discrepancy between the figures or computations set forth in Exhibit B and the terms of the Plan, the terms of the Plan shall control. 7. In the event that legislation is enacted following a participant's early retirement and receipt of the actuarial present value of his pension hereunder that has the effect of eliminating, reducing or suspending cost of living adjustments to the maximum annual benefit limitation under Section 415(b) of the Code or of reducing such limitation, then the participant (or his estate) shall be entitled to receive an additional single sum payment determined in the manner and payable at the time described in paragraph A.7 above. VII. LOSS OF BENEFITS: 9 Benefits will not be paid under this Plan in the following circumstances: (a) Except as otherwise provided in paragraph B.1 of Section VI, termination of a participant's employment prior to age 50; (b) Except as otherwise provided in paragraph B.1 of Section VI, termination of a participant's employment between the ages of 50 and 55 without the Company's consent; (c) Except as otherwise provided in Section VIII(b), death of a participant prior to retirement; (d) Disqualification for proper cause. For this purpose, proper cause shall mean a refusal to perform one's duties, proven dishonesty or the commission of an act or acts constituting a felony, or other willful misconduct inimical to the best interests of the Company. For purposes of this Plan, a participant who becomes disabled shall not be considered to have terminated his employment with the Company during the qualifying period set forth in a Company-sponsored long term disability income plan under which he is covered and throughout the period during which disability benefits are paid to him from such plan until he gives notice to the Company of his election to retire under the terms of this Plan. VIII. MISCELLANEOUS: (a) Nonalienability. No benefit payable at any time hereunder shall be subject in any manner to alienation, sale, transfer, assignment, pledge, attachment or other legal process, or encumbrance of any kind. Any attempt to alienate, sell, transfer, assign, pledge or otherwise encumber any such benefit, whether currently or hereafter payable, shall be void. Except as otherwise specifically provided by law, no such benefit shall, in any manner, be liable for or subject to the debts or liabilities of any participant or any other person entitled to such benefits. (b) Payment on Death. In the event a participant should die after termination of employment but prior to payment of a benefit to which he has become entitled under the Plan, such benefit shall be paid to the participant's estate. In 10 addition, if the participant should die while employed but after the effective date of any reduction or discontinuance by the Company of the level of life insurance coverage applicable to the participant, based on his Final Year's Base Salary in effect immediately prior to his death and the table set forth in Exhibit C attached hereto, then that portion of the actuarial present value of the pension he has accrued under the Plan, which shall be determined as if he had retired on the day immediately preceding his date of death, as does not exceed the amount by which the level of such participant's Company-provided life insurance has been reduced or discontinued, shall be paid to the participant's estate. For purposes of the preceding sentence, any participant who dies prior to attaining age 55 shall be deemed eligible to retire early under Section VI.B. (c) No Rights to Employment. This Plan shall not be construed as providing any participant with the right to be retained in the Company's employ or to receive any benefit not specifically provided hereunder. (d) Amendment and Termination. The Company shall have the right, at any time and from time to time, to amend in whole or in part, or to terminate any of the provisions of this Plan, and such amendment or termination shall be binding upon all participants and parties in interest; provided that no such amendment or termination shall impair any rights which have accrued hereunder. For example, if this Plan is terminated, a participant who has reached age 50 (age 47 for a person who became a participant prior to April 1, 1995) on or prior to the date of such termination shall be entitled to receive a single sum payment upon his retirement, equal to the actuarial present value of his pension, determined in accordance with the provisions of Section VI.A.6 or VI.B.6, whichever is applicable, and based upon a "Target Benefit" calculated with reference to his Final Year's Base Salary, and, where applicable, Credited Service on the date of such termination, reduced by his Prior Payment, if any. If this Plan (as herein amended and restated effective June 15, 1995) is further amended, a participant who has reached age 50 (age 47 for a person who became a participant prior to April 1, 1995) on or prior 11 to the effective date of such amendment shall be entitled to receive a benefit upon his retirement, in accordance with the terms of the Plan, as amended; provided, however, that in no event shall any such amendment impair the right of any such participant to receive a single sum payment upon his retirement, equal to the actuarial present value of his pension, determined under the provisions of Section VI.A.6 and VI.B.6, whichever is applicable, as in effect on the day immediately preceding the effective date of such amendment, which pension shall be based on a "Target Benefit" that is not less than the "Target Benefit" calculated in accordance with the provisions of Section VI.A.4 or VI.B.4, whichever is applicable, as in effect on such date, with reference to the participant's Final Year's Base Salary, and, where applicable, Credited Service on such date, and an amount of "Plan Offsets" that is not greater than the amount of "Plan Offsets" calculated in accordance with the provisions of Section VI.A.5 or VI.B.5, whichever is applicable, as in effect on such date, reduced by his Prior Payment, if any, calculated in accordance with the provisions of Section VI A.2 or VI B.2, whichever is applicable, as in effect on such date. The types of Plan amendments to which this paragraph (d) applies include, but are not limited to, amendments which (i) cease or reduce the rate of benefit accrual, (ii) change any of the actuarial assumptions specified in the Plan resulting in a reduction in the actuarial present value of participants' accrued benefits, (iii) eliminate the single sum method of payment, or (iv) change the requirements for benefit eligibility to the detriment of any participant. The preceding provisions of this paragraph (d) shall be applicable to all participants, regardless of their attained age, in the event the Plan is amended or terminated following a Change in Control (as defined in Section VI.B.1.). (e) Governing Law. This Plan shall be governed by and construed in accordance with the laws of the State of New Jersey. (f) Successors and Assigns. This Plan and all of the provisions hereof shall be binding upon the Company and its successors and assigns. 12 IX. EXECUTION: The undersigned, being a duly authorized officer of the Company, has hereby executed this Fourth Amendment and Restatement of the Plan below as evidence of its adoption by the Company as of the 20th day of November, 1997. By:_________________________ Title:______________________ 13 EXHIBIT A Interest Discount Rates and Assumptions Used in the Calculation of Actuarial Present Value (a) Interest Discount Rate - The average yield, rounded to the nearest 0.25%, on long-term (over 10 years) United States Treasury notes and bonds during the 12-month period ending two months preceding the month in which a participant receives, or is scheduled to receive his or her single sum benefit payment; provided, however, that to the extent, but only to the extent and only so long as, Treasury Regulations prohibit, as a requirement of qualification under Section 401(a) of the Code, the use by the Qualified Plan of an interest rate higher than the interest rate in effect on the first day of the Plan Year of the Qualified Plan specified by Section 417(e)(3)(B) of the Code and Treasury Regulations thereunder, the interest rate shall not be higher than said required rate. (b) Assumption as to Cost of Living Increases to Annual Benefit Limitation under Section 415(b) of the Code - The average of the cost of living increases to the annual benefit limitation under Section 415(b) of the Code (determined without regard to Section 415(d)(4) as added by the Retirement Protection Act of 1994) for the two (2) consecutive years immediately preceding the year of retirement, unless the cost of living increase for the year of retirement is known when a single sum payment is due under the Plan, in which event, the average of such increases for the year of retirement and the immediately preceding year shall be used. In calculating the cost of living increase for the period from 1994 to 1995, the change of the measurement period to a nine month period, as added by the Retirement Protection Act of 1994, shall be disregarded. EX-10.17 4 THE GRAND UNION COMPANY DISCRETIONARY SEVERANCE PLAN EXHIBIT 10.17 THE GRAND UNION COMPANY DISCRETIONARY SEVERANCE PLAN FOR NON-UNION ASSOCIATES AND SUMMARY PLAN DESCRIPTION Effective April 14, 1998 (1) GENERAL. The legal name, address and federal employer identification number of the Company are: The Grand Union Company EIN: 22-1518276 201 Willowbrook Blvd. Wayne, NJ 07470 The Company has established a discretionary severance plan (the "Plan") for all non-exempt, non-union, non-salaried, hourly associates working in the Company's stores and hourly personnel who work in the Company's offices. If after reading this Plan and Summary Plan Description you have any questions, please present them to the Plan Administrator identified in Section (4). (2) IDENTIFICATION OF PLAN. The Plan is known as The Grand Union Company Discretionary Severance Plan for Non-Union Associates. The Company has assigned 529 as the plan identification number. (3) TYPE OF PLAN. The Plan is commonly known as an employee welfare benefit plan, which provides, in the discretion and sole determination of the Plan Administrator, certain severance benefits ("Severance Benefits"). The Plan may provide you with discretionary Severance Benefits if your employment with the Company terminates for any reason specified in Section (6), "Terminations Which May Give Rise to Severance Benefits", unless you are subject to Section (7), "Terminations Which Do Not Give Rise to Severance Benefits". Section (8), "Payment of Severance Benefits", explains how Severance Benefits are calculated and paid. However, even if employment terminates for a reason specified in Section (6), "Terminations Which May Give Rise to Severance Benefits," payment of Severance Benefits is nevertheless completely discretionary in each case and it is an express term and condition of the Plan that the Plan Administrator reserves the absolute right in its sole discretion to determine whether or not Severance Benefits will be paid in any instance, and in what amount. -1- As you may know, a governmental agency known as the Pension Benefit Guaranty Corporation ("PBGC") insures certain benefits payable under plans which provide for fixed and determinable retirement benefits. Since the Plan is not a retirement plan, the PBGC does not include this Plan within its insurance program. (4) PLAN ADMINISTRATOR. The Plan Administrator is the entity that is responsible for administering the Plan. The Company's Vice President of Associate Relations, or such person who is designated as his/her successor, is the Plan Administrator. You may contact the Plan Administrator at the Company's address. The Plan Administrator is responsible for providing you and other participants with information regarding your rights, obligations and benefits under the Plan. The Plan Administrator also has the primary authority for filing the various reports, forms and returns with the Department of Labor and the Internal Revenue Service. The Plan Administrator has responsibility for making all discretionary determinations under the Plan, for interpreting and construing the terms of the Plan, and for determining Severance Benefits payable thereunder. Any interpretation or determination made by the Plan Administrator pursuant to its discretionary authority shall be given full force and effect, unless it can be shown that the interpretation or determination was arbitrary and capricious. The Plan Administrator is designated as agent for service of legal process and the address where a processor may serve legal process upon the Plan is: The Grand Union Company Severance Plan Administrator Personnel Benefits Department 201 Willowbrook Blvd. Wayne, NJ 07470 Severance Benefits, when determined by the Plan Administrator to be payable, are paid from the general assets of the Company. There is no separate trust fund from which Severance Benefits are provided. All records of the Plan shall be kept on the basis of the Plan Year, which corresponds with the Company's fiscal year that typically ends on the fourth Saturday in March. (5) ELIGIBILITY TO PARTICIPATE. Subject to all of the terms and conditions of the Plan (including without limitation the condition that eligibility for Severance Benefits in each case is subject to the determination of the Plan Administrator in its sole and absolute discretion), each non-exempt, non-union, nonsalaried, hourly associate of the Company, including hourly personnel working in the Company's offices -2- who is actively employed and working, may be eligible to receive a Severance Benefit under the Plan (hereinafter "Participants"). -3- (6) TERMINATIONS WHICH MAY GIVE RISE TO SEVERANCE BENEFITS. Unless you are subject to Section (7), you may be entitled to receive Severance Benefits if: (a) if you are a full time non-exempt, non-union, non-salaried, hourly associate, and you are terminated in connection with a store closing or, you are terminated in connection with a job elimination, a reduction in force for economic reasons, a decision to outsource work performed by Company employees to a third-party service provider, or lack of work, and (b) you work up to and including your last scheduled day of employment as determined by the Company, and (c) the Plan Administrator determines in its discretion that you are eligible to receive Severance Benefits under the Plan. As explained in Section (8) below, receipt of Severance Benefits under this Plan is further contingent upon your first executing an Agreement and Release of any claims you have or may have against the Company as of the date you accept Severance Benefits. (7) TERMINATIONS WHICH DO NOT GIVE RISE TO SEVERANCE BENEFITS. You are not entitled to receive Severance Benefits if your employment is terminated on account of death, disability, retirement, voluntary termination or termination for cause, as determined by the Plan Administrator in its sole and absolute discretion. In addition, even if your employment is terminated in connection with a job elimination, a reduction in force for economic reasons or lack of work or store closing as described in Section (6), you are not eligible to receive a Severance Benefit if you decline any offer of transfer to another position or location, or your employment is terminated in connection with the sale of a store or of a major business unit of the Company and you are offered a position with the purchaser. Finally, you are not entitled to receive Severance Benefits under this Plan if you are entitled to receive Severance Benefits under the Grand Union Company Severance Plan for Exempt Personnel or pursuant to a separate written agreement. (8) PAYMENT OF SEVERANCE BENEFITS. Upon executing an Agreement and Release, which releases the Company from any and all claims you have or may have against the Company or any of its officers, directors or employees as of the date you accept Severance Benefits, you may receive Severance Benefits. The Plan Administrator will determine the amount, if any, of Severance Benefits to be paid in all instances. Severance Benefits will not be paid without prior approval in each instance of the pyramid head of the Human Resources Department. -4- Any employee of the Company who has a separate written agreement with the Company which provides for the payment of severance benefits is not eligible to receive Severance Benefits under this Plan. Hourly associates shall generally receive the equivalent of one week's regular pay for each two years of service to a maximum of 26 weeks of Severance Benefits, as well as a payment equal to the number of whole months employed since the preceding June 1 divided by the twelve times the number of vacation days to which the employee would be entitled on the following June 1. NOTWITHSTANDING THE ABOVE GUIDELINES, THE PLAN ADMINISTRATOR IN ALL CASES RETAINS THE ABSOLUTE RIGHT AND DISCRETION TO DETERMINE WHETHER AN EMPLOYEE WILL BE OFFERED SEVERANCE BENEFITS AND THE TERMS AND AMOUNT OF THE SEVERANCE BENEFITS, IF ANY. THE PLAN ADMINISTRATOR MAY, IN SOME OR ALL INSTANCES, IMPOSE OTHER LIMITATIONS UPON RECEIPT OF A SEVERANCE BENEFIT HEREUNDER. THIS IS AN EXPRESS TERM AND CONDITION OF THE PLAN. (9) DISQUALIFICATION OF PARTICIPANT STATUS/LOSS OF BENEFITS. There are no specific Plan provisions which provide for a disqualification of your status as a Participant under the Plan or for denial or loss of Plan benefits. If you terminate employment for any reason specified in Section (7), however, you will not be eligible to receive a Severance Benefit. In addition, if you are eligible to receive a Severance Benefit, and the Plan Administrator is unable to locate you at your last address of record with the Company during the ten day period following termination, you may lose eligibility for Severance Benefits under the Plan. Therefore, it is your obligation under the Plan to keep the Company apprised of your mailing address following termination of your employment. Further, the fact that the Company has established this Plan does not confer any right to the payment of Severance Benefits under any circumstance, nor any right to continued employment with the Company, nor does it impose on the Company any obligation to change its policies regarding termination of employment. (10) AMENDMENT AND TERMINATION. The Company reserves the complete and absolute right to terminate, suspend or modify the Plan in whole or in part at any time without notice. No benefits are vested or accrued in connection with the Plan at any time. (11) COMPANY ACTION. Any actions to be taken by the Company under the Plan will be taken by the Company's duly authorized officers. In addition, pursuant to Section 405(c) of the Employee Retirement Income -5- Security Act of 1974, as amended, the Company may designate any person or persons to carry out any or all of its fiduciary responsibilities under the Plan. (12) CLAIMS PROCEDURE. You need not file a formal claim with the Plan Administrator in order to receive Severance Benefits under the Plan. When an event occurs which may make you eligible to receive a distribution under the Plan, the Plan Administrator will notify you regarding the distribution of your Severance Benefits. If you disagree with the Plan Administrator's determination of the amount of Severance Benefits under the Plan or with respect to any other decision the Plan Administrator may make regarding your interest in the Plan, the Plan contains an appeal procedure which you must follow. In brief, if the Plan Administrator denies Severance Benefits to you, the Plan Administrator will give you adequate notice in writing setting forth the reason or reasons for the denial and referring you to the pertinent provisions of the Plan supporting the Plan Administrator's decision. If you disagree with the Plan Administrator, you, or a duly authorized representative, must appeal the adverse determination in writing to the Plan Administrator within 75 days after receipt of the notice of denial of Severance Benefits. If you fail to appeal a denial within the 75-day period, the Plan Administrator's determination will be final and binding. If you appeal to the Plan Administrator, you or your duly authorized representative must submit the issues and comments you feel are pertinent to permit the Plan Administrator to re-examine all facts and make a final determination with respect to the denial. The Plan Administrator, in most cases, will make a decision within 60 days of a request on appeal unless special circumstances would make the rendering of a decision within the 60-day period not feasible. In any event, the Plan Administrator must render a decision within 120 days after its receipt of a request for review and must notify you of the extension within 60 days of receipt of the request for review. In the event no decision is rendered within that time period, the appeal is considered denied. (13) PARTICIPANT'S RIGHTS UNDER ERISA. As a Participant in this Plan, you are entitled to certain rights and protections under the Employee Retirement Income Security Act of 1974 ("ERISA"). ERISA provides that all Plan Participants shall be entitled to: a) Examine, without charge, at the Plan Administrator's office and at other specified locations, all Plan documents; and b) Obtain copies of all Plan documents and other Plan information upon written request to the Plan Administrator. The Plan Administrator may make a reasonable charge for the copies. In addition to creating rights for Plan Participants, ERISA imposes duties upon the people who are responsible for the operation of an employee benefit plan. The people who operate this Plan, -6- called "fiduciaries" of the Plan, have a duty to do so prudently and in the interests of you and other Plan Participants. No one, including the Company or any other person, may terminate you or otherwise discriminate against you in any way to prevent you from obtaining a Severance Benefit or from exercising your rights under ERISA. If your claim for a Severance Benefit is denied in whole or in part, you must receive a written explanation of the reason for the denial. You have the right to have the Plan review and reconsider your claim. Under ERISA, there are steps you can take to enforce the above rights. For instance, if you request materials from the Plan and do not receive the material within 30 days, you may file suit in federal court. In such a case, the court may require the Plan Administrator to provide the materials and pay you up to $100 a day until you receive the materials, unless the materials were not sent because of reasons beyond the control of the Plan Administrator. If you have a claim for Severance Benefits which is denied or ignored, in whole or in part, you may file suit in a state or federal court. If it should happen that you are discriminated against for asserting your rights, you may seek assistance from the U.S. Department of Labor, or you may file suit in a federal court. The court will decide who should pay court costs and legal fees. If you are successful, the court may order the person you have sued to pay these costs and fees. If you lose, the court may order you to pay these costs and fees; for example, if it finds your claim is frivolous. If you have any questions about the Plan, you should contact the Plan Administrator. If you have any questions about this statement or about your rights under ERISA, you should contact the nearest area office of the U.S. Labor-Management Services Administration, U.S. Department of Labor. (14) FEDERAL AND STATE INCOME TAXATION OF SEVERANCE BENEFITS PAID. In the event that you do receive Severance Benefits under the Plan, those Severance Benefits will be subject to automatic withholding of applicable federal and state taxes. You must report as income the Plan distributions you receive. We emphasize that you should consult your own tax advisor with respect to the proper method of reporting any distribution you receive from the Plan. -7- EX-10.18 5 THE GRAND UNION SEVERANCE PLAN FOR EXEMPT PERSONNEL EXHIBIT 10.18 THE GRAND UNION COMPANY SEVERANCE PLAN FOR EXEMPT PERSONNEL AND SUMMARY PLAN DESCRIPTION Effective April 14, 1998 (1) GENERAL. The legal name, address and federal employer identification number of the Company are: The Grand Union Company EIN: 22-1518276 201 Willowbrook Blvd. Wayne, NJ 07470 The Company has established a severance plan (the "Plan") for all of the Company's salaried personnel at its headquarters and salaried store management personnel. If after reading this Plan and Summary Plan Description you have any questions, please present them to the Plan Administrator identified in Section (4). (2) IDENTIFICATION OF PLAN. The Plan is known as The Grand Union Company Severance Plan for Exempt Personnel. The Company has assigned 530 as the plan identification number. (3) TYPE OF PLAN. The Plan is commonly known as an employee welfare benefit plan, which provides, in the discretion and sole determination of the Plan Administrator, certain severance benefits ("Severance Benefits"). The Plan may provide you with Severance Benefits if your employment with the Company terminates for any reason specified in Section (6), "Terminations Which May Give Rise to Severance Benefits", unless you are subject to Section (7), "Terminations Which Do Not Give Rise to Severance Benefits". Section (8), "Payment of Severance Benefits", explains how Severance Benefits are calculated and paid. Section (9) "Disqualification of Participant Status/Loss of Benefits" explains when Severance Benefits will not be paid and how Severance Benefits can be lost. The Severance Benefit is paid by the Company and does not require participant contributions to the Plan. As you may know, a governmental agency known as the Pension Benefit Guaranty Corporation ("PBGC") insures certain benefits payable under plans which provide for fixed and determinable -1- retirement benefits. Since the Plan is not a retirement plan, the PBGC does not include this Plan within its insurance program. -2- (4) PLAN ADMINISTRATOR. The Plan Administrator is the entity that is responsible for administering the Plan. The Company's Vice President of Associate Relations, or such person who is designated as his/her successor, is the Plan Administrator. You may contact the Plan Administrator at the Company's address. The Plan Administrator is responsible for providing you and other participants with information regarding your rights, obligations and benefits under the Plan. The Plan Administrator also has the primary authority for filing the various reports, forms and returns with the Department of Labor and the Internal Revenue Service. The Plan Administrator shall have discretionary authority to determine eligibility for Severance Benefits and to construe the terms of the Plan, as indicated. Any interpretation or determination made by the Plan Administrator pursuant to its discretionary authority shall be given full force and effect, unless it can be shown that the interpretation or determination was arbitrary and capricious. The Plan Administrator is designated as agent for service of legal process and the address where a processor may serve legal process upon the Plan is: The Grand Union Company Severance Plan Administrator Personnel Benefits Department 201 Willowbrook Blvd. Wayne, NJ 07470 Severance Benefits are paid from the general assets of the Company. There is no separate trust fund from which Severance Benefits are provided. All records of the Plan shall be kept on the basis of the Plan Year, which shall correspond with the Company's fiscal year that typically ends on the fourth Saturday in March. (5) ELIGIBILITY TO PARTICIPATE. Subject to all of the terms and conditions of the Plan (including without limitation the condition that eligibility for Severance Benefits in each case is subject to the determination of the Plan Administrator in its sole and absolute discretion), all salaried personnel at the Company's headquarters and salaried store management personnel who are actively employed and working may be eligible to receive a Severance Benefit under the Plan (hereinafter "Participants"). -3- (6) TERMINATIONS WHICH MAY GIVE RISE TO SEVERANCE BENEFITS. Unless you are subject to Section (7), you may be entitled to receive Severance Benefits if: (a) you are terminated by the Company due to a job elimination, a reduction in force for economic reasons, a decision to outsource work performed by Company employees to a third-party service provider, or another Company-initiated event (other than the sale of a major business unit of the Company); and (b) you work up to and including your last scheduled day of employment as determined by the Company, and (c) the Plan Administrator determines that you are eligible to receive Severance Benefits under the Plan. As explained in Section (8) below, receipt of Severance Benefits in excess of the base Severance Benefit under this Plan is further contingent upon your first executing an Agreement and Release of any claims you have or may have against the Company as of the date you accept Severance Benefits. (7) TERMINATIONS WHICH DO NOT GIVE RISE TO SEVERANCE BENEFITS. You are not entitled to receive Severance Benefits if your employment is terminated on account of death, disability, retirement, voluntary termination, proven dishonesty, theft of Company assets, or violation of Company business standards, as determined by the Plan Administrator in its sole and absolute discretion. In addition, if your employment is terminated in connection with the sale of a major business unit of the Company, you will not be eligible to receive a Severance Benefit under this Plan. You also are not eligible to receive Severance Benefits under this Plan if you are eligible to receive Severance Benefits under the Grand Union Company Severance Plan for Non-Union Associates, or if you are eligible to receive severance benefits under a separate written agreement. (8) PAYMENT OF SEVERANCE BENEFITS. All Participants eligible to receive payment of Severance Benefits shall receive a base Severance Benefit equal to one week's salary. Severance Benefits in excess of one week's salary shall be contingent upon execution of an Agreement and Release, which releases the Company from any and all claims a Participant has or may have against the Company or any of its officers, directors or employees as of the date of acceptance of Severance Benefits. If such an Agreement and Release is executed, additional Severance Benefits shall be payable on the basis of a combination of length of service and position level at the time of termination, as shown in the following schedule: -4- Position Severance Payment - -------- ----------------- Senior Vice-President or above 18 months' salary Corporate Vice-President 1 year's salary Appointed Vice-President 6 months' salary Director 6 months' salary All other Exempt Personnel 1 week's pay per year of service, to a maximum of 26 weeks Severance Benefits payable under the preceding schedule shall be inclusive of the base Severance Benefit payable to all Participants. Severance Benefits will be distributed in one lump sum payment, from which applicable federal and state taxes will be withheld. In addition to the Severance Benefits set forth in the preceding schedule, the following Severance Benefits will also be provided upon execution of an Agreement and Release which releases the Company from all claims a Participant has or may have against the Company or any of its officers, directors or employees: (a) a payment equal to the number of whole months employed since the preceding June 1 divided by twelve times the number of vacation days to which the employee would be entitled on the following June 1; and (b) the opportunity to purchase your Company car at the lease buyout price, if a Company car has been provided to you as part of your compensation and that car was leased by the Company for your use. The preceding levels of Severance Benefits may be modified by individual employment agreements made on or after the time of hire. All such agreements must be in writing and must have the final approval of the Chief Executive Officer of the Company or the Board of Directors. Any employee of the Company who has a separate written agreement with the Company which provides for the payment of severance benefits will receive no Severance Benefits under this Plan. Notwithstanding anything in this Section (8) to the contrary, in the event you are terminated by the Company in connection with a decision to outsource work performed by Company employees to a third-party service provider, the Plan Administrator shall have complete and sole discretion to determine whether, and to what extent, Severance Benefits will be payable to you under this Plan. (9) DISQUALIFICATION OF PARTICIPANT STATUS/LOSS OF BENEFITS. There are no specific Plan provisions which provide for a disqualification of your status as a Participant under the Plan or for denial or loss of Plan benefits. If you terminate employment for any reason specified in Section (7), however, you will not receive a Severance Benefit. In -5- addition, if you are eligible to receive a Severance Benefit, and the Plan Administrator is unable to locate you at your last address of record with the Company during the ten day period following employment termination, you may lose eligibility for Severance Benefits under the Plan. Therefore, it is your obligation under the Plan to keep the Company apprised of your mailing address following termination of your employment. Further, the fact that the Company has established this Plan does not confer any right to the payment of Severance Benefits under any circumstance, nor any right to continued employment with the Company, nor does it impose on the Company any obligation to change its policies regarding termination of employment. (10) AMENDMENT AND TERMINATION. The Company reserves the complete and absolute right to terminate, suspend or modify the Plan in whole or in part at any time without notice. No benefits are vested or accrued in connection with the Plan at any time. (11) COMPANY ACTION. Any actions to be taken by the Company under the Plan will be taken by the Company's duly authorized officers. In addition, pursuant to Section 405(c) of the Employee Retirement Income Security Act of 1974, as amended, the Company may designate any person or persons to carry out any or all of its fiduciary responsibilities under the Plan. (12) CLAIMS PROCEDURE. You need not file a formal claim with the Plan Administrator in order to receive Severance Benefits under the Plan. When an event occurs which may make you eligible to receive a distribution under the Plan, the Plan Administrator will notify you regarding the distribution of your Severance Benefits. If you disagree with the Plan Administrator's determination of the amount of Severance Benefits under the Plan or with respect to any other decision the Plan Administrator may make regarding your interest in the Plan, the Plan contains an appeal procedure which you must follow. In brief, if the Plan Administrator denies Severance Benefits to you, the Plan Administrator will give you adequate notice in writing setting forth the reason or reasons for the denial and referring you to the pertinent provisions of the Plan supporting the Plan Administrator's decision. If you disagree with the Plan Administrator, you, or a duly authorized representative, must appeal the adverse determination in writing to the Plan Administrator within 75 days after receipt of the notice of denial of Severance Benefits. If you fail to appeal a denial within the 75-day period, the Plan Administrator's determination will be final and binding. If you appeal to the Plan Administrator, you or your duly authorized representative must submit the issues and comments you feel are pertinent to permit the Plan Administrator to re-examine all facts and make a final determination with respect to the denial. The Plan Administrator, in most cases, will make a decision within 60 days of a request on -6- appeal unless special circumstances would make the rendering of a decision within the 60-day period not feasible. In any event, the Plan Administrator must render a decision within 120 days after its receipt of a request for review and must notify you of the extension within 60 days of receipt of the request for review. In the event no decision is rendered within that time period, the appeal is considered denied. (13) PARTICIPANT'S RIGHTS UNDER ERISA. As a Participant in this Plan, you are entitled to certain rights and protections under the Employee Retirement Income Security Act of 1974 ("ERISA"). ERISA provides that all Plan Participants shall be entitled to: a) Examine, without charge, at the Plan Administrator's office and at other specified locations, all Plan documents; and b) Obtain copies of all Plan documents and other Plan information upon written request to the Plan Administrator. The Plan Administrator may make a reasonable charge for the copies. In addition to creating rights for Plan Participants, ERISA imposes duties upon the people who are responsible for the operation of an employee benefit plan. The people who operate this Plan, called "fiduciaries" of the Plan, have a duty to do so prudently and in the interests of you and other Plan Participants. No one, including the Company or any other person, may terminate you or otherwise discriminate against you in any way to prevent you from obtaining a Severance Benefit or from exercising your rights under ERISA. If your claim for a Severance Benefit is denied in whole or in part, you must receive a written explanation of the reason for the denial. You have the right to have the Plan review and reconsider your claim. Under ERISA, there are steps you can take to enforce the above rights. For instance, if you request materials from the Plan and do not receive the material within 30 days, you may file suit in federal court. In such a case, the court may require the Plan Administrator to provide the materials and pay you up to $100 a day until you receive the materials, unless the materials were not sent because of reasons beyond the control of the Plan Administrator. If you have a claim for Severance Benefits which is denied or ignored, in whole or in part, you may file suit in a state or federal court. If it should happen that you are discriminated against for asserting your rights, you may seek assistance from the U.S. Department of Labor, or you may file suit in a federal court. The court will decide who should pay court costs and legal fees. If you are successful, the court may order the person you have sued to pay these costs and fees. If you lose, the court may order you to pay these costs and fees; for example, if it finds your claim is frivolous. If you have any questions about this Plan, you should contact the Plan Administrator. If you have any questions about this statement or about your rights under ERISA, you should contact the nearest area office of the U.S. Labor-Management Services Administration, U.S. Department of Labor. -7- (14) FEDERAL AND STATE INCOME TAXATION OF SEVERANCE BENEFITS PAID. In the event that you do receive Severance Benefits under the Plan, those Severance Benefits will be subject to automatic withholding of applicable federal and state taxes. You must report as income the Plan distributions you receive. We emphasize that you should consult your own tax advisor with respect to the proper method of reporting any distribution you receive from the Plan. -8- EX-10.26 6 INDEMNIFICATION AGREEMENT EXHIBIT 10.26 INDEMNIFICATION AGREEMENT This Agreement, made and entered into effective this 3rd day of March, 1997 ("Agreement"), by and between The Grand Union Company, a Delaware corporation ("Company"), and Jeffrey P. Freimark ("Indemnitee"): WHEREAS, highly competent persons have become more reluctant to serve publicly-held corporations as directors or in other capacities unless they are provided with adequate protection through insurance and adequate indemnification against inordinate risks of claims and actions against them arising out of their service to and activities on behalf of the corporation; and WHEREAS, the Board of Directors of the Company (the "Board") has determined that, in order to attract and retain qualified individuals, the Company will attempt to maintain on an ongoing basis, at its sole expense, liability insurance to protect persons serving the Company and its subsidiaries from certain liabilities. Although the furnishing of such insurance has been a customary and widespread practice among United States-based corporations and other business enterprises, the Company believes that, given current market conditions and trends, such insurance may be available to it in the future only at higher premiums and with more exclusions. At the same time, directors, officers, and other persons in service to corporations or business enterprises are being increasingly subjected to expensive and time-consuming litigation relating to, among other things, matters that traditionally would have been brought only against the Company or business enterprise itself; and WHEREAS, the uncertainties relating to such insurance and to indemnification have increased the difficulty of attracting and retaining such persons; and WHEREAS, the Board has determined that the increased difficulty in attracting and retaining such persons is detrimental to the best interests of the Company's stockholders and that the Company should act to assure such persons that there will be increased certainty of such protection in the future; and WHEREAS, it is reasonable, prudent and necessary for the Company contractually to obligate itself to indemnify such persons to the fullest extent permitted by applicable law so that they will serve or continue to serve the Company free from undue concern that they will not be so indemnified; and WHEREAS, this Agreement is a supplement to and in furtherance of the By-laws of the Company and any resolutions adopted pursuant thereto, and shall not be deemed a substitute therefore, nor to diminish or abrogate any rights of Indemnitee thereunder; and WHEREAS, the By-laws and the Delaware director indemnification statute each is nonexclusive, and therefore contemplates that contracts may be entered into with respect to indemnification of directors, officers and employees; and WHEREAS, it is reasonable, prudent and necessary for the Company contractually to obligate itself to indemnify, and to advance expenses on behalf of, such persons to the fullest extent permitted by applicable law so that they will serve or continue to serve the Company free from undue concern that they will not be so indemnified; and WHEREAS, Indemnitee is willing to serve, continue to serve and to take on additional service for or on behalf of the Company on the condition that he be so indemnified; NOW, THEREFORE, in consideration of the premises and the covenants contained herein, the Company and Indemnitee do hereby covenant and agree as follows: Section 1. Services by Indemnitee. Indemnitee agrees to serve as a director and/or officer of the Company. Indemnitee may at any time and for any reason resign from such position (subject to any other contractual obligation or any obligation imposed by operation of law), in which event the Company shall have no obligation under this Agreement to continue Indemnitee in such position. This Agreement shall not be deemed an employment contract between the Company (or any of its subsidiaries) and Indemnitee. Indemnitee specifically acknowledges that Indemnitee's employment with the Company (or any of its subsidiaries), if any, is at will, and the Indemnitee may be discharged at any time for any reason, with or without cause, except as may be otherwise provided in any written employment contract between Indemnitee and the Company (or any of its subsidiaries), other applicable formal severance policies duly adopted by the Board, or, with respect to service as a director or officer of the Company, by the Company's Certificate of Incorporation, By-laws, and the General Corporation Law of the State of Delaware. The foregoing notwithstanding, this Agreement shall continue in force after Indemnitee has ceased to serve as a director and/or officer of the Company. Section 2. Indemnification - General. The Company shall indemnify, and advance Expenses (as hereinafter defined) to, Indemnitee (a) as provided in this Agreement and (b) (subject to the provisions of this Agreement) to the fullest extent permitted by applicable law in effect on the date hereof and as amended from time to time. The rights of Indemnitee provided under the preceding sentence shall include, but shall not be limited to, the rights set forth in the other Sections of this Agreement. Section 3. Proceedings Other Than Proceedings by or in the Right of the Company. Indemnitee shall be entitled to the rights of indemnification provided in this Section 3 if, by reason of his Corporate Status (as hereinafter defined), he is, or is threatened to be made, a party to or a participant in any threatened, pending or completed Proceeding (as hereinafter defined), other than a Proceeding by or in the right of the Company. Pursuant to this Section 3, Indemnitee shall be indemnified against all Expenses, judgments, penalties, fines and amounts paid in settlement (including all interest, assessments and other charges paid or payable in -2- connection with or in respect of such Expenses, judgments, penalties, fines and amounts paid in settlement) actually and reasonably incurred by him or on his behalf in connection with such Proceeding or any claim, issue or matter therein, if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Company and, with respect to any criminal Proceeding, had no reasonable cause to believe his conduct was unlawful. Section 4. Proceedings by or in the Right of the Company. Indemnitee shall be entitled to the rights of indemnification provided in this Section 4 if, by reason of his Corporate Status, he is, or is threatened to be made, a party to or a participant in any threatened, pending or completed Proceeding brought by or in the right of the Company to procure a judgment in its favor. Pursuant to this Section, Indemnitee shall be indemnified against all Expenses (including all interest, assessments and other charges paid or payable in connection with or in respect of such Expenses) actually and reasonably incurred by him or on his behalf in connection with such Proceeding if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Company; provided, however, that, if applicable law so provides, no indemnification against such Expenses shall be made in respect of any claim, issue or matter in such Proceeding as to which Indemnitee shall have been adjudged to be liable to the Company unless and to the extent that the Court of Chancery of the State of Delaware, or the court in which such Proceeding shall have been brought or is pending, shall determine that such indemnification may be made. Section 5. Partial Indemnification. Notwithstanding any other provision of this Agreement, to the extent that Indemnitee is, by reason of his Corporate Status, a party to (or a participant in) and is successful, on the merits or otherwise, in defense of any Proceeding, he shall be indemnified against all Expenses actually and reasonably incurred by him or on his behalf in connection therewith. If Indemnitee is not wholly successful in defense of such Proceeding but is successful, on the merits or otherwise, as to one or more but less than all claims, issues or matters in such Proceeding, the Company shall indemnify Indemnitee against all Expenses actually and reasonably incurred by him or on his behalf in connection with each successfully resolved claim, issue or matter. For purposes of this Section and without limitation, the termination of any claim, issue or matter in such a Proceeding by dismissal, with or without prejudice, shall be deemed to be a successful result as to such claim, issue or matter. If Indemnitee is entitled under any provision of this agreement to indemnification by the Company for some or a portion of the Expenses, judgments, penalties, fines and amounts paid in settlement (including all interest, assessments and other charges paid or payable in connection with or in respect of such Expenses, judgments, penalties, fines and amounts paid in settlement) actually and reasonably incurred by him or on his behalf in connection with such Proceeding or any claim, issue or matter therein, but not, however, for the total amount thereof, the Company shall nevertheless indemnify Indemnitee for the portion to which the Indemnitee is entitled. Section 6. Indemnification for Additional Expenses. (a) The Company shall indemnify Indemnitee against any and all Expenses -3- and, if requested by Indemnitee, shall (within seven (7) business days of such request) advance such Expenses to Indemnitee, which are incurred by Indemnitee in connection with any action brought by Indemnitee for (i) indemnification or advance payment of Expenses by the Company under this Agreement or any other agreement or by-law of the Company now or hereafter in effect; or (ii) recovery under any directors' and officers' liability insurance policies maintained by the Company, regardless of whether Indemnitee ultimately is determined to be entitled to such indemnification, advance expense payment or insurance recovery, as the case may be. (b) Notwithstanding any other provision of this Agreement, to the extent that Indemnitee is, by reason of his Corporate Status, a witness in any Proceeding to which Indemnitee is not a party, he shall be indemnified against all Expenses actually and reasonably incurred by him or on his behalf in connection therewith. Section 7. Advancement of Expenses. The Company shall advance all reasonable Expenses incurred by or on behalf of Indemnitee in connection with any Proceeding within seven (7) days after the receipt by the Company of a statement or statements from Indemnitee requesting such advance or advances from time to time, whether prior to or after final disposition of such Proceeding. Such statement or statements shall reasonably evidence the Expenses incurred by Indemnitee and shall include or be preceded or accompanied by an undertaking by or on behalf of Indemnitee to repay any Expenses advanced if it shall ultimately be determined that Indemnitee is not entitled to be indemnified against such Expenses. Notwithstanding the foregoing, the obligation of the Company to advance Expenses pursuant to this Section 7 shall be subject to the condition that, if, when and to the extent that the Company determines that Indemnitee would not be permitted to be indemnified under applicable law, the Company shall be entitled to be reimbursed, within thirty (30) days of such determination, by Indemnitee (who hereby agrees to reimburse the Company) for all such amounts theretofore paid; provided, however, that if Indemnitee has commenced or thereafter commences legal proceedings in a court of competent jurisdiction to secure a determination that Indemnitee should be indemnified under applicable law, any determination made by the Company that Indemnitee would not be permitted to be indemnified under applicable law shall not be binding and Indemnitee shall not be required to reimburse the Company for any advance of Expenses until a final judicial determination is made with respect thereto (as to which all rights of appeal therefrom have been exhausted or lapsed). Section 8. Procedure for Determination of Entitlement to Indemnification. (a) To obtain indemnification under this Agreement, Indemnitee shall submit to the Company a written request, including therein or therewith such documentation and information as is reasonably available to Indemnitee and is reasonably necessary to determine whether and to what extent Indemnitee is entitled to indemnification. The Secretary of the Company shall, promptly upon receipt of such a request for indemnification, advise the Board in writing that Indemnitee has requested indemnification. -4- (b) Upon written request by Indemnitee for indemnification pursuant to the first sentence of Section 8(a) hereof, a determination, if required by applicable law, with respect to Indemnitee's entitlement thereto shall be made in the specific case: (i) if a Change in Control (as hereinafter defined) shall have occurred, by Independent Counsel (as hereinafter defined) in a written opinion to the Board of Directors, a copy of which shall be delivered to Indemnitee; or (ii) if a Change of Control shall not have occurred, (A) by a majority vote of the Disinterested Directors (as hereinafter defined), even though less than a quorum of the Board, or (B) if there are no such Disinterested Directors or, if such Disinterested Directors so direct, by Independent Counsel in a written opinion to the Board, a copy of which shall be delivered to Indemnitee or (C) if so directed by the Board, by the stockholders of the Company; and, if it is so determined that Indemnitee is entitled to indemnification, payment to Indemnitee shall be made within seven (7) days after such determination. Indemnitee shall cooperate with the person, persons or entity making such determination with respect to Indemnitee's entitlement to indemnification, including providing to such person, persons or entity upon reasonable advance request any documentation or information which is not privileged or otherwise protected from disclosure and which is reasonably available to Indemnitee and reasonably necessary to such determination. Any costs or expenses (including attorneys' fees and disbursements) incurred by Indemnitee in so cooperating with the person, persons or entity making such determination shall be borne by the Company (irrespective of the determination as to Indemnitee's entitlement to indemnification) and the Company hereby indemnifies and agrees to hold Indemnitee harmless therefrom. (c) In the event the determination of entitlement to indemnification is to be made by Independent Counsel pursuant to Section 8(b) hereof, the Independent Counsel shall be selected as provided in this Section 8(c). If a Change of Control shall not have occurred, the Independent Counsel shall be selected by the Board of Directors, and the Company shall give written notice to Indemnitee advising him of the identity of the Independent Counsel so selected. If a Change of Control shall have occurred, the Independent Counsel shall be selected by Indemnitee (unless Indemnitee shall request that such selection be made by the Board of Directors, in which event the preceding sentence shall apply), and Indemnitee shall give written notice to the Company advising it of the identity of the Independent Counsel so selected. In either event, Indemnitee or the Company, as the case may be, may, within 10 days after such written notice of selection shall have been given, deliver to the Company or to Indemnitee, as the case may be, a written objection to such selection; provided, however, that such objection may be asserted only on the ground that the Independent Counsel so selected does not meet the requirements of "Independent Counsel" as defined in Section 17 of this Agreement, and the objection shall set forth with particularity the factual basis of such assertion. If such written objection is so made and substantiated, the Independent Counsel so selected may not serve as Independent Counsel unless and until such objection is withdrawn or a court has determined that such objection is without merit. If, within 20 days after submission by Indemnitee of a written request for indemnification pursuant to Section 8(a) hereof, no Independent Counsel shall have been selected and not objected to, either the Company or Indemnitee may petition the Court of Chancery of the State of Delaware for resolution of any objection which shall have been made by the Company or Indemnitee to the other's selection of Independent Counsel and/or for the -5- appointment as Independent Counsel of a person selected by the Court or by such other person as the Court shall designate, and the person with respect to whom all objections are so resolved or the person so appointed shall act as Independent Counsel under Section 8(b) hereof. The Company shall pay any and all reasonable fees and expenses of Independent Counsel incurred by such Independent Counsel in connection with acting pursuant to Section 8(b) hereof, and the Company shall pay all reasonable fees and expenses incident to the procedures of this Section 8(c), regardless of the manner in which such Independent Counsel was selected or appointed. Upon the due commencement of any judicial proceeding or arbitration pursuant to Section 10(a)(iii) of this Agreement, Independent Counsel shall be discharged and relieved of any further responsibility in such capacity (subject to the applicable standards of professional conduct then prevailing). (d) The Company shall not be required to obtain the consent of the Indemnitee to the settlement of any Proceeding which the Company has undertaken to defend if the Company assumes full and sole responsibility for such settlement and the settlement grants the Indemnitee a complete and unqualified release in respect of the potential liability. The Company shall not be liable for any amount paid by the Indemnitee in settlement of any Proceeding that is not defended by the Company, unless the Company has consented to such settlement, which consent shall not be unreasonably withheld. Section 9. Presumptions and Effect of Certain Proceedings. (a) In making a determination with respect to entitlement to indemnification or the advancement of expenses hereunder, the person or persons or entity making such determination shall presume that Indemnitee is entitled to indemnification or advancement of expenses under this Agreement if Indemnitee has submitted a request for indemnification or the advancement of expenses in accordance with Section 8(a) of this Agreement, and the Company shall have the burden of proof to overcome that presumption in connection with the making by any person, persons or entity of any determination contrary to that presumption. Neither the failure of the Company (including its board of directors or independent legal counsel) to have made a determination prior to the commencement of any action pursuant to this Agreement that indemnification is proper in the circumstances because Indemnitee has met the applicable standard of conduct, nor an actual determination by the Company (including its board of directors or independent legal counsel) that Indemnitee has not met such applicable standard of conduct, shall be a defense to the action or create a presumption that Indemnitee has not met the applicable standard of conduct. (b) If the person, persons or entity empowered or selected under Section 8 of this Agreement to determine whether Indemnitee is entitled to indemnification shall not have made a determination within sixty (60) days after receipt by the Company of the request therefor, the requisite determination of entitlement to indemnification shall be deemed to have been made and Indemnitee shall be entitled to such indemnification, absent (i) a misstatement by Indemnitee of a material fact, or an omission of a material fact necessary to make Indemnitee's statement not -6- materially misleading, in connection with the request for indemnification, or (ii) a prohibition of such indemnification under applicable law; provided, however, that such 60-day period may be extended for a reasonable time, not to exceed an additional thirty (30) days, if the person, persons or entity making the determination with respect to entitlement to indemnification in good faith requires such additional time for the obtaining or evaluating of documentation and/or information relating thereto; and provided, further, that the foregoing provisions of this Section 9(b) shall not apply (i) if the determination of entitlement to indemnification is to be made by the stockholders pursuant to Section 8(b) of this Agreement and if (A) within fifteen (15) days after receipt by the Company of the request for such determination the Board of Directors has resolved to submit such determination to the stockholders for their consideration at an annual meeting thereof to be held within seventy-five (75) days after such receipt and such determination is made thereat, or (B) a special meeting of stockholders is called within fifteen (15) days after such receipt for the purpose of making such determination, such meeting is held for such purpose within sixty (60) days after having been so called and such determination is made thereat, or (ii) if the determination of entitlement to indemnification is to be made by Independent Counsel pursuant to Section 8(b) of this Agreement. (c) The termination of any Proceeding or of any claim, issue or matter therein, by judgment, order, settlement or conviction, or upon a plea of nolo contendere or its equivalent, shall not (except as otherwise expressly provided in this Agreement) of itself adversely affect the right of Indemnitee to indemnification or create a presumption that Indemnitee did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the Company or, with respect to any criminal Proceeding, that Indemnitee had reasonable cause to believe that his conduct was unlawful. (d) Reliance as Safe Harbor. For purposes of any determination of Good Faith, Indemnitee shall be deemed to have acted in Good Faith if Indemnitee's action is based on the records or books of account of the Company or relevant enterprise, including financial statements, or on information supplied to Indemnitee by the officers of the Company or relevant enterprise in the course of their duties, or on the advice of legal counsel for the Company or relevant enterprise or on information or records given to reports made to the Company or relevant enterprise by an independent certified public accountant or by an appraiser or other expert selected with reasonable care by the Company or relevant enterprise. The provisions of this Section 9(d) shall not be deemed to be exclusive or to limit in any way the other circumstances in which the Indemnitee may be deemed to have met the applicable standard of conduct set forth in this Agreement. (e) Actions of Others. The knowledge and/or actions, or failure to act, of any director, officer, agent or employee of the Company or relevant enterprise shall not be imputed to Indemnitee for purposes of determining the right to indemnification under this Agreement. Section 10. Remedies of Indemnitee. -7- (a) In the event that (i) a determination is made pursuant to Section 8 of this Agreement that Indemnitee is not entitled to indemnification under this Agreement, (ii) advancement of Expenses is not timely made pursuant to Section 7 of this Agreement, (iii) no determination of entitlement to indemnification shall have been made pursuant to Section 8(b) of this Agreement within 90 days after receipt by the Company of the request for indemnification, (iv) payment of indemnification is not made pursuant to Section 5 or 6 of this Agreement within ten (10) days after receipt by the Company of a written request therefor, or (v) payment of indemnification is not made within ten (10) days after a determination has been made that Indemnitee is entitled to indemnification, Indemnitee shall be entitled to an adjudication by the Court of Chancery of the State of Delaware of his entitlement to such indemnification or advancement of Expenses. Alternatively, Indemnitee, at his option, may seek an award in arbitration to be conducted by a single arbitrator pursuant to the Commercial Arbitration Rules of the American Arbitration Association. Indemnitee shall commence such proceeding seeking an adjudication or an award in arbitration within 180 days following the date on which Indemnitee first has the right to commence such proceeding pursuant to this Section 10(a); provided, however, that the foregoing clause shall not apply in respect of a proceeding brought by Indemnitee to enforce his rights under Section 5 of this Agreement. (b) In the event that a determination shall have been made pursuant to Section 8(b) of this Agreement that Indemnitee is not entitled to indemnification, any judicial proceeding or arbitration commenced pursuant to this Section 10 shall be conducted in all respects as a de novo trial, or arbitration, on the merits and Indemnitee shall not be prejudiced by reason of that adverse determination. If a Change of Control shall have occurred, in any judicial proceeding or arbitration commenced pursuant to this Section 10, the Company shall have the burden of proving that Indemnitee is not entitled to indemnification or advancement of Expenses, as the case may be. (c) If a determination shall have been made pursuant to Section 8(b) of this Agreement that Indemnitee is entitled to indemnification, the Company shall be bound by such determination in any judicial proceeding or arbitration commenced pursuant to this Section 10, absent (i) a misstatement by Indemnitee of a material fact, or an omission of a material fact necessary to make Indemnitee's statement not materially misleading in connection with the request for indemnification, or (ii) a prohibition of such indemnification under applicable law. (d) In the event that Indemnitee, pursuant to this Section 10, seeks a judicial adjudication of or an award in arbitration to enforce his rights under, or to recover damages for breach of, this Agreement, Indemnitee shall be entitled to recover from the Company, and shall be indemnified by the Company against, any and all expenses (of the types described in the definition of Expenses in Section 17 of this Agreement) actually and reasonably incurred by him in such judicial adjudication or arbitration, but only if he prevails therein. If it shall be determined in said judicial adjudication or arbitration that Indemnitee is entitled to receive part but not all of the indemnification or advancement of expenses sought, the expenses incurred by Indemnitee in connection with such judicial adjudication or arbitration shall be appropriately -8- prorated. The Company shall indemnify Indemnitee against any and all Expenses and, if requested by Indemnitee, shall (within ten (10) days after receipt by the Company of a written request therefor) advance such expenses to Indemnitee, which are incurred by Indemnitee in connection with any action brought by Indemnitee for indemnification or advance of Expenses from the Company under this Agreement or under any directors' or officers' liability insurance policies maintained by the Company, regardless of whether Indemnitee ultimately is determined to be entitled to such indemnification, advancement of Expenses or insurance recovery, as the case may be. (e) The Company shall be precluded from asserting in any judicial proceeding or arbitration commenced pursuant to this Section 10 that the procedures and presumptions of this Agreement are not valid, binding and enforceable and shall stipulate in any such court or before any such arbitrator that the Company is bound by all the provisions of this Agreement. Section 11. Non-Exclusivity; Survival of Rights; Insurance; Subrogation. (a) The rights of indemnification and to receive advancement of Expenses as provided by this Agreement shall not be deemed exclusive of any other rights to which Indemnitee may at any time be entitled under applicable law, the Certificate of Incorporation, the By-Laws, any agreement, a vote of stockholders or a resolution of directors, or otherwise. No amendment, alteration or repeal of this Agreement or of any provision hereof shall limit or restrict any right of Indemnitee under this Agreement in respect of any action taken or omitted by such Indemnitee in his Corporate Status prior to such amendment, alteration or repeal. To the extent that a change in the General Corporation Law of the State of Delaware, whether by statute or judicial decision, permits greater indemnification or advancement of Expenses than would be afforded currently under the Company's By-Laws and this Agreement, it is the intent of the parties hereto that Indemnitee shall enjoy by this Agreement the greater benefits so afforded by such change. No right or remedy herein conferred is intended to be exclusive of any other right or remedy, and every other right and remedy shall be cumulative and in addition to every other right and remedy given hereunder or now or hereafter existing at law or in equity or otherwise. The assertion or employment of any right or remedy hereunder, or otherwise, shall not prevent the concurrent assertion or employment of any other right or remedy. (b) To the extent that the Company maintains an insurance policy or policies providing liability insurance for directors, officers, employees or agents of the Company or of any other corporation, partnership, joint venture, trust, employee benefit plan or other enterprise which such person serves at the request of the Company, Indemnitee shall be covered by such policy or policies in accordance with its or their terms to the maximum extent of the coverage available for any such director, officer, employee or agent under such policy or policies. (c) In the event of any payment under this Agreement, the Company shall be subrogated to the extent of such payment to all of the rights of recovery of Indemnitee, who shall execute all papers required and take all action necessary to secure such rights, including -9- execution of such documents as are necessary to enable the Company to bring suit or enforce such rights. (d) The Company shall not be liable under this Agreement to make any payment of amounts otherwise indemnifiable hereunder if and to the extent that Indemnitee has otherwise actually received such payment under any insurance policy, contract, agreement or otherwise. (e) The Company's obligation to indemnify or advance expenses hereunder to Indemnitee who is or was serving at the request of the Company as a director, officer, employee or agent of any other corporation, partnership, joint venture, trust, employee benefit plan or other enterprise shall be reduced by any amount Indemnitee has actually received as indemnification or advancement of expenses from such other corporation, partnership, joint venture, trust, employee benefit plan or other enterprise. Section 12. Duration of Agreement. This Agreement shall continue until and terminate upon the later of: (a) 10 years after the date that Indemnitee shall have ceased to serve as a director and/or officer of the Company (or of any other corporation, partnership, joint venture, trust, employee benefit plan or other enterprise which Indemnitee served at the request of the Company); or (b) the final termination of any Proceeding then pending in respect of which Indemnitee is granted rights of indemnification or advancement of expenses hereunder and of any proceeding commenced by Indemnitee pursuant to Section 10 of this Agreement relating thereto. This Agreement shall be binding upon the Company and its successors and assigns and shall inure to the benefit of Indemnitee and his heirs, executors and administrators. Section 13. Severability. If any provision or provisions of this Agreement shall be held to be invalid, illegal or unenforceable for any reason whatsoever: (a) the validity, legality and enforceability of the remaining provisions of this Agreement (including without limitation, each portion of any Section of this Agreement containing any such provision held to be invalid, illegal or unenforceable, that is not itself invalid, illegal or unenforceable) shall not in any way be affected or impaired thereby; (b) such provision or provisions shall be deemed reformed to the extent necessary to conform to applicable law and to give the maximum effect to the intent of the parties hereto; and (c) to the fullest extent possible, the provisions of this Agreement (including, without limitation, each portion of any Section of this Agreement containing any such provision held to be invalid, illegal or unenforceable, that is not itself invalid, illegal or unenforceable) shall be construed so as to give effect to the intent manifested thereby. Section 14. Exception to Right of Indemnification or Advancement of Expenses. Except as provided in Section 6(a) of this Agreement, Indemnitee shall not be entitled to indemnification or advancement of Expenses under this Agreement with respect to any Proceeding brought by Indemnitee (other than a Proceeding by Indemnitee to enforce his rights under this Agreement), or any claim therein prior to a Change in Control, unless the bringing of such Proceeding or making of such claim shall have been approved by the Board of Directors. -10- Section 15. Identical Counterparts. This Agreement may be executed in one or more counterparts, each of which shall for all purposes be deemed to be an original but all of which together shall constitute one and the same Agreement. Only one such counterpart signed by the party against whom enforceability is sought needs to be produced to evidence the existence of this Agreement. Section 16. Headings. The headings of the paragraphs of this Agreement are inserted for convenience only and shall not be deemed to constitute part of this Agreement or to affect the construction thereof. Section 17. Definitions. For purposes of this Agreement: (a) "Change in Control" means a change in control of the Company occurring after the Effective Date of a nature that would be required to be reported in response to Item 6(e) of Schedule 14A of Regulation 14A (or in response to any similar item on any similar schedule or form) promulgated under the Securities Exchange Act of 1934 (the "Act"), whether or not the Company is then subject to such reporting requirement; provided, however, that, without limitation, such a Change in Control shall be deemed to have occurred if after the Effective Date (i) any "person" (as such term is used in Sections 13(d) and 14(d) of the Act) is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Act), directly or indirectly, of securities of the Company representing 20% or more of the combined voting power of the Company's then outstanding securities without the prior approval of at least two-thirds of the members of the Board in office immediately prior to such person attaining such percentage interest; (ii) there occurs a proxy contest, or the Company is a party to a merger, consolidation, sale of assets, plan of liquidation or other reorganization not approved by at least two-thirds of the members of the Board then in office, as a consequence of which members of the Board in office immediately prior to such transaction or event constitute less than a majority of the Board thereafter; or (iii) during any period of two consecutive years, other than as a result of an event described in clause (a)(ii) of this Section 17, individuals who at the beginning of such period constituted the Board (including for this purpose any new director whose election or nomination for election by the Company's stockholders was approved by a vote of at least two-thirds of the directors then still in office who were directors at the beginning of such period) cease for any reason to constitute at least a majority of the Board. (b) "Corporate Status" describes the status of a person who is or was a director, officer, employee, fiduciary or agent of the Company or of any other corporation, partnership, joint venture, trust, employee benefit plan or other enterprise which such person is or was serving at the request of the Company. (c) "Disinterested Director" means a director of the company who is not and was not a party to the Proceeding in respect of which indemnification is sought by Indemnitee. -11- (d) "Effective Date" means March 3, 1997. (e) "Expenses" shall include all reasonable attorneys' fees, retainers, court costs, transcript costs, fees of experts, witness fees, travel expenses, duplicating costs, printing and binding costs, telephone charges, postage, delivery service fees, and all other disbursements or expenses of the types customarily incurred in connection with prosecuting, defending, preparing to prosecute or defend, investigating, being or preparing to be a witness, in, or otherwise participating in, a Proceeding. (f) "Independent Counsel" means a law firm, or a member of a law firm, that is experienced in matters of corporation law and neither presently is, nor in the past five years has been, retained to represent: (i) the Company or Indemnitee in any matter material to either such party, or (ii) any other party to the Proceeding giving rise to a claim for indemnification hereunder. Notwithstanding the foregoing, the term "Independent Counsel" shall not include any person who, under the applicable standards of professional conduct then prevailing, would have a conflict of interest in representing either the Company or Indemnitee in an action to determine Indemnitee's rights under this Agreement. The Company agrees to pay the reasonable fees of the Independent Counsel referred to above and to fully indemnify such counsel against any and all Expenses, claims, liabilities and damages arising out of or relating to this Agreement or its engagement pursuant hereto. (g) "Proceeding" includes any threatened, pending or completed action, suit, arbitration, alternate dispute resolution mechanism, investigation, inquiry, administrative hearing or any other actual, threatened or completed proceeding, whether brought by or in the right of the Corporation or otherwise and whether civil, criminal, administrative or investigative, in which Indemnitee was, is, may be or will be involved as a party or otherwise, by reason of the fact that Indemnitee is or was a director or officer of the Company, by reason of any action taken by him or of any inaction on his part while acting as director or officer of the Company, or by reason of the fact that he is or was serving at the request of the Company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise; in each case whether or not he is acting or serving in any such capacity at the time any liability or expense is incurred for which indemnification or advancement of expenses can be provided under this Agreement; except one (i) initiated by an Indemnitee pursuant to Section 10 of this Agreement to enforce his right under this Agreement or (ii) pending on or before the Effective Date. Section 18. Enforcement. (a) The Company expressly confirms and agrees that it has entered into this Agreement and assumed the obligations imposed on it hereby in order to induce Indemnitee to serve as a director and/or officer of the Company, and the Company acknowledges that Indemnitee is relying upon this Agreement in serving as a director and/or officer of the Company. -12- (b) This Agreement constitutes the entire agreement between the parties hereto with respect to the subject matter hereof and supersedes all prior agreements and understandings, oral, written and implied, between the parties hereto with respect to the subject matter hereof. Section 19. Modification and Waiver. No supplement, modification or amendment of this Agreement shall be binding unless executed in writing by both of the parties hereto. No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provisions hereof (whether or not similar) nor shall such waiver constitute a continuing waiver. Section 20. Notice by Indemnitee. Indemnitee agrees promptly to notify the Company in writing upon being served with any summons, citation, subpoena, complaint, indictment, information or other document relating to any Proceeding or matter which may be subject to indemnification or advancement of Expenses covered hereunder. The failure of Indemnitee to so notify the Company shall not relieve the Company of any obligation which it may have to the Indemnitee under this Agreement or otherwise. Section 21. Notices. All notices, requests, demands or other communications hereunder shall be in writing and shall be deemed to have been duly given if (i) delivered by hand and receipted for by the party to whom said notice or other communication shall have been direct, or (ii) mailed by certified or registered mail with postage prepaid, on the third business day after the date on which it is so mailed: (a) If to Indemnitee to: Address set forth below Indemnitee's signature. (b) If to the Company to: The Grand Union Company Attn: General Counsel 201 Willowbrook Blvd., 9th Floor Wayne, New Jersey 07470-0966 or to such other address as may have been furnished to Indemnitee by the Company or to the Company by Indemnitee, as the case may be. Section 22. Contribution. To the fullest extent permissible under applicable law, if the indemnification provided for in this Agreement is unavailable to Indemnitee for any reason whatsoever, the Company, in lieu of indemnifying Indemnitee, shall contribute to the amount incurred by Indemnitee, whether for judgments, fines, penalties, excise taxes, amounts paid or to be paid in settlement and/or for Expenses, in connection with any claim relating to an -13- indemnifiable event under this Agreement, in such proportion as is deemed fair and reasonable in light of all of the circumstances of such Proceeding in order to reflect (i) the relative benefits received by the Company and Indemnitee as a result of the event(s) and/or transaction(s) giving cause to such Proceeding; and/or (ii) the relative fault of the Company (and its directors, officers, employees and agents) and Indemnitee in connection with such event(s) and/or transaction(s). Section 23. Governing Law; Submission to Jurisdiction; Appointment of Agent for Service of Process. This Agreement and the legal relations among the parties shall be governed by, and construed and enforced in accordance with, the laws of the State of Delaware, without regard to its conflict of laws rules. Except with respect to any arbitration commenced by Indemnitee pursuant to Section 10(a) of this Agreement, the Company and Indemnitee hereby irrevocably and unconditionally (i) agree that any action or proceeding arising out of or in connection with this Agreement shall be brought only in the Chancery Court of the State of Delaware (the "Delaware Court"), and not in any other state or federal court in the United States of America or any court in any other country, (ii) consent to submit to the exclusive jurisdiction of the Delaware Court for purposes of any action or proceeding arising out of or in connection with this Agreement, (iii) appoint, to the extent such party is not a resident of the State of Delaware, irrevocably RL&F Service Corp., One Rodney Square, 10th Floor, 10th and King Streets, Wilmington, Delaware 19801 as its agent in the State of Delaware for acceptance of legal process in connection with any such action or proceeding against such party with the same legal force and validity as if served upon such party personally within the State of Delaware, (iv) waive any objection to the laying of venue of any such action or proceeding in the Delaware Court, and (v) waive, and agree not to plead or to make, any claim that any such action or proceeding brought in the Delaware Court has been brought in an improper or otherwise inconvenient forum. Section 24. Miscellaneous. Use of the masculine pronoun shall be deemed to include usage of the feminine pronoun where appropriate. IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the day and year first above written. ATTEST: THE GRAND UNION COMPANY By: - ----------------------------------- ----------------------------------- Name: Name: Joseph J. McCaig Title: Chief Executive Officer ATTEST: INDEMNITEE By: - ----------------------------------- ----------------------------------- -14- Name: Jeffrey P. Freimark -15- EX-10.39 7 COMMITMENT LETTER EXHIBIT 10.39 CONFIDENTIAL SBC WARBURG DILLON LEHMAN BROTHERS INC. READ INC. SWISS BANK CORPORATION LEHMAN COMMERCIAL PAPER INC. THE GRAND UNION COMPANY $300,000,000 SENIOR SECURED CREDIT FACILITY Commitment Letter April 23, 1998 The Grand Union Company 201 Willowbrook Boulevard Wayne, New Jersey 07470 Attention: Mr. Jeffrey P. Freimark Ladies and Gentlemen: You have advised (a) Swiss Bank Corporation ("SBC") and SBC Warburg Dillon Read Inc. ("SBCWDR") and (b) Lehman Commercial Paper Inc. ("LCPI") and Lehman Brothers Inc. ("LBI") that The Grand Union Company, a Delaware corporation (the "Company"), intends to (i) solicit consents to a prepackaged plan of reorganization pursuant to Section 3(a)(9) of the Securities Act of 1933, as amended, and immediately thereafter file a voluntary petition under Chapter 11 of the United States Bankruptcy Code (the "Code") in the United States Bankruptcy Court for either the Southern District of New York or the District of Delaware or the District of New Jersey (the "Bankruptcy Court") and (ii) in connection therewith, upon consummation (the "Reorganization") of the Borrower's prepackaged plan of reorganization (the "Plan"), which shall be in form and substance reasonably satisfactory to SBCWDR, SBC, LBI and LCPI, refinance the Company's existing $250,000,000 senior secured credit facility, as such facility may be rolled up into a post-petition financing pursuant to Section 364 of the Bankruptcy Code. In that connection, you have requested that SBCWDR and LBI agree to structure, arrange and syndicate senior secured credit facilities in an aggregate amount of up to $300,000,000 (the "Financing"), and that SBC and LCPI commit to provide the entire principal amount of the Financing Facilities. It is proposed that the Financing be provided in two tranches, comprising (i) a 5-year term loan tranche in an aggregate amount of up to $230 million (the "Term Facility") and (ii) a 5-year revolving credit facility in an aggregate amount of up to $70 million (the "Revolving Facility", and together with the Term Facility, the "Facility"). SBCWDR, SBC, LBI and LCPI hereby acknowledge that the Agreement in Principle entered into March 30, 1998 (the "Agreement in Principle") by and between the Company and the Unofficial Steering Committee (the "Steering Committee") for certain holders of the Company's 12% Senior Notes due 2004, to the extent it pertains to the Plan, is acceptable. SBCWDR and LBI are pleased to advise you that they are willing to act as exclusive advisors and arrangers for the Facility. Furthermore, SBC and LCPI are pleased to advise you of their several but not joint commitment (the "Commitment") to provide up to an aggregate of $300 million of the Facility ($150 million of which shall be provided by SBC and $150 million of which shall be provided by LCPI) upon the terms and subject to the conditions set forth or referred to in this commitment letter and in the Term Sheet attached hereto as Exhibit A (the "Term Sheet", and such commitment letter with the Term Sheet, the "Commitment Letter"). It is agreed that (i) SBCWDR and LBI will act as the sole and exclusive advisors and arrangers, (ii) SBC will act as the sole and exclusive syndication agent and (iii) LCPI will act as the sole and exclusive administrative agent, for the Facility, and each will, in such capacities, perform the duties and exercise the authority customarily performed and exercised by it in such roles. You agree that no other agents, co-agents or arrangers will be appointed, no other titles will be awarded and no compensation (other than that expressly contemplated by the Term Sheet, this Commitment Letter and the Fee Letter referred to below) will be paid in connection with the Facility unless you and we shall so agree. We intend to syndicate the Facility to a group of financial institutions (together with SBC and LCPI, the "Lenders") acceptable to SBC, LCPI and the Company (such approval of the Company not to be unreasonably withheld). SBC and LCPI intend to commence syndication efforts promptly upon the execution of this Commitment Letter, and you agree actively to assist SBC and LCPI in completing a syndication reasonably satisfactory to them. Such assistance shall include (a) your using commercially reasonable efforts to ensure that the syndication efforts benefit materially from your existing lending relationships, (b) direct contact between senior management and advisors of the Company and the proposed Lenders, (c) assistance in the preparation of a Confidential Information Memorandum and other marketing materials to be used in connection with the syndication and (d) the hosting, with SBC and LCPI, of 2 one or more meetings of prospective Lenders. You also agree that, at your expense, you will work with SBCWDR, SBC, LBI and LCPI to procure a rating for the Facility by Moody's Investors Service, Inc. and Standard & Poor's Ratings Group. SBCWDR and LBI will manage all aspects of the syndication, including decisions as to the selection of institutions to be approached and when they will be approached, when their commitments will be accepted, which institutions will participate, the allocations of the commitments among the Lenders and the amount and distribution of fees among the Lenders. To assist SBCWDR and LBI in their syndication efforts, you agree promptly to prepare and provide to SBCWDR, SBC, LBI and LCPI all information with respect to the Company and its subsidiaries, the Reorganization and the other transactions contemplated hereby, including all financial information and projections (the "Projections"), as we may reasonably request in connection with the arrangement and syndication of the Facility. It shall be a condition to the Commitment hereunder and SBCWDR's and LBI's agreement to perform the services described herein that (a) all written information other than the Projections (the "Information") that has been or will be made available to SBCWDR, SBC, LBI or LCPI by the Company or any of its representatives is or will be, when furnished, complete and correct in all material respects and does not or will not, when furnished, contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements contained therein not materially misleading in light of the circumstances under which such statements are made and (b) the Projections that have been or will be made available to SBCWDR, SBC, LBI or LCPI by the Company or any of its representatives have been or will be prepared in good faith based upon reasonable assumptions. You understand that in arranging and syndicating the Facility we may use and rely on the Information and Projections without responsibility for independent verification thereof. As consideration for the Commitment and SBCWDR's and LBI's agreement to perform the services described herein, the Company agrees to pay the nonrefundable fees set forth in the Term Sheet and the Fee Letter dated the date hereof and delivered herewith (the "Fee Letter"). The Commitment hereunder and SBCWDR's and LBI's agreement to perform the services described herein are further subject to the following, in addition to the conditions set forth in the Term Sheet: (a) there shall not have occurred any material adverse condition or material adverse change in the business, assets, liabilities, operations, condition (financial or otherwise) or prospects of the Company and its subsidiaries (such elements collectively, the "Assets, Business and Condition" of the Company), taken as a whole, (b) the absence of any material disruption of capital or other domestic markets that has or is reasonably likely to have a material adverse effect on the ability of SBC, 3 SBCWDR, LCPI and LBI to syndicate the Facility to other Lenders, (c) SBC and LCPI shall have completed (and shall satisfied with the scope and results of) its diligence investigation of environmental matters of the Company and its subsidiaries, (d) the entry by the Bankruptcy Court of a final order in form and substance reasonably satisfactory to SBCWDR, SBC, LBI and LCPI confirming the Plan in accordance with Section 1129 of the Code, and (e) negotiation of legal documentation (including opinions of counsel) reasonably satisfactory to SBCWDR, SBC, LBI and LCPI and their counsel not later than June 30, 1998 and execution and delivery of legal documentation (including opinions of counsel) reasonably satisfactory to SBCWDR, SBC, LBI and LCPI and their counsel not later than August 31, 1998. The terms and conditions of the Commitment hereunder and of the Facility are not limited to those set forth herein and in the Term Sheet. Those matters that are not covered by the provisions hereof and of the Term Sheet are subject to the approval and agreement of SBCWDR, SBC, LBI and LCPI and the Company. You agree, in consideration of the engagement hereunder, that you (the "Indemnifying Party"), shall indemnify and hold harmless SBCWDR, SBC, LBI and LCPI and the other "Indemnified Parties" referred to on Schedule 1 hereto, to the extent set forth therein, which provisions are incorporated by reference herein and constitute a part hereof. In addition, you hereby agree to reimburse SBCWDR, SBC, LBI and LCPI promptly upon request for all reasonable out-of-pocket costs and expenses (including, without limitation, fees, disbursements and other charges of legal counsel) incurred by SBCWDR, SBC, LBI or LCPI and their affiliates in connection with the preparation of this Commitment Letter or any of the transactions contemplated hereby, whether or not such transactions are consummated. You agree that you will not disclose this Commitment Letter, the contents hereof, the advice (written or oral) rendered by SBCWDR, SBC, LBI or LCPI pursuant hereto, or any other activities of SBCWDR, SBC, LBI or LCPI pursuant hereto to any person without the prior written approval of SBCWDR, SBC, LBI and LCPI, except that you may disclose this Commitment Letter and the contents hereof, subject (in the case of persons in (i) and (ii) to advising the recipient of the confidential nature of this Commitment Letter and the contents hereof, (i) to your directors, officers, employees, attorneys and advisors on a confidential and need-to-know basis, (ii) to your creditors and equity claimants and their advisors on a confidential and need-to-know basis in connection with the Reorganization, (iii) to the Bankruptcy Court and (iv) as required by applicable law or compulsory legal process or in the prosecution of any proceeding initiated by you. You acknowledge that SBCWDR, SBC, LBI and LCPI and their 4 affiliates may be providing debt financing, equity capital or other services (including financial advisory services) to other companies in respect of which you may have conflicting interests regarding the transactions described herein and otherwise. The provisions contained in this paragraph and the immediately foregoing three paragraphs shall remain in full force and effect notwithstanding the termination of this Commitment Letter. You also acknowledge that neither SBCWDR, SBC, LBI nor LCPI has any obligation to use in connection with the transactions contemplated by this Commitment Letter, or to furnish to you, confidential information obtained by SBCWDR, SBC, LBI or LCPI from other companies. The Company irrevocably and unconditionally submits to the exclusive jurisdiction of any state or federal court sitting in the City of New York over any suit, action or proceeding arising out of or relating to this Commitment Letter. Service of any process, summons, notice or document by registered mail addressed to the Company shall be effective service of process against you for any suit, action or proceeding brought in any such court. The Company irrevocably and unconditionally waives any objection to the laying of venue of any such suit, action or proceeding brought in any such court and any claim that any such suit, action or proceeding brought in any such court has been brought in an inconvenient forum. A final judgment in any such suit, action or proceeding brought in any such court may be enforced in any other courts to whose jurisdiction the Company is or may be subject, by suit upon judgment. This Commitment Letter contains the entire agreement between the parties relating to the subject matter hereof and supersedes all oral statements and prior writings with respect thereto. This Commitment Letter is solely for the benefit of the parties hereto and no other person (except for Indemnified Persons, to the extent set forth on Schedule 1 hereto) shall acquire or have any rights under or by virtue of this Commitment Letter. This Commitment Letter may not be assigned by the Company without the prior written consent of SBC, SBCWDR, LBI and LCPI (and any purported assignment without such consent shall be null and void). Upon any termination of this Commitment Letter, the obligations of the parties hereunder shall terminate, except that no such termination will affect SBC's, SBCWDR's, LBI's or LCPI's rights hereunder to receive fees accrued, reimbursement of expenses, or rights (including those of any Indemnified Person) to indemnification and contribution. This Commitment Letter may be executed in counterparts, each of which will be deemed an original, but all of which taken together will constitute one and the same instrument. This Commitment Letter shall be governed by and construed in accordance with the laws of the State of New York. 5 THE COMPANY AND EACH OF SBC, SBCWDR, LBI AND LCPI IRREVOCABLY AGREES TO WAIVE TRIAL BY JURY IN ANY ACTION, PROCEEDING, CLAIM OR COUNTERCLAIM (WHETHER BASED ON CONTRACT, TORT OR OTHERWISE) RELATING TO OR ARISING OUT OF THIS COMMITMENT LETTER OR THE PERFORMANCE OF SERVICES HEREUNDER. 6 If the foregoing correctly sets forth our understanding, please indicate your acceptance of the terms hereof by signing three copies of this Commitment Letter in the appropriate space below, retaining one copy for your files and returning one copy to each of SBCWDR, SBC, LBI and LCPI on or before 5:00 P.M. (New York City time) on April 24, 1998, whereupon this Commitment Letter will become a binding agreement between us. Very truly yours, SBC WARBURG DILLON READ INC. By: -------------------------------- Title: By: -------------------------------- Title: SWISS BANK CORPORATION, STAMFORD BRANCH By: -------------------------------- Title: By: -------------------------------- Title: LEHMAN COMMERCIAL PAPER INC. By: -------------------------------- Title: Authorized Signatory LEHMAN BROTHERS INC. By: -------------------------------- Title: Authorized Signatory 7 Accepted and agreed to as of the date first written above by: THE GRAND UNION COMPANY By: --------------------- Name: Title: 8 SCHEDULE 1 The Grand Union Company (the "Indemnifying Party"), as contemplated by the commitment letter to which this Schedule 1 is attached (the "Letter"), agrees to indemnify and hold harmless each of SBC Warburg Dillon Read Inc. ("SBCWDR"), Swiss Bank Corporation ("SBC"), Lehman Brothers Inc. ("LBI") and Lehman Commercial Paper Inc. ("LCPI") and their respective affiliates, and the respective directors, officers, agents, advisors and employees of each of the foregoing and each other entity or person, if any, controlling SBCWDR, SBC, LBI or LCPI or any of their affiliates (each of the foregoing entities or persons being referred to as an "Indemnified Party") from and against any claims, actions, proceedings, demands, judgments, assessments, losses, damages, liabilities and expenses, including fees and expenses, arising out of or in connection with (a) the services rendered by any Indemnified Party to the Indemnifying Party, (b) the transactions contemplated by the Letter and (c) the Facility and any other financings, or any use made or proposed to be made with the proceeds thereof, and each Indemnified Party shall have no liability for any losses, claims, damages or liabilities (or actions in respect thereof) relating to or arising out of any of the events or activities specified in clauses (a) through (c) above. The Indemnifying Party will reimburse each Indemnified Party on a current basis for all expenses (including, without limitation, fees and disbursements of counsel ) incurred by such Indemnified Party in connection with investigating, preparing or defending any such claim, action or proceeding, whether or not in connection with pending or threatened litigation to which an Indemnified Party or the Indemnifying Party or any of its securityholders is a party, in each case, as such expenses are incurred or paid. The foregoing indemnification and reimbursement will be effective whether or not such claim, action, proceeding or demand is brought by the Indemnifying Party, the shareholders or creditors of the Indemnifying Party, or an Indemnified Party or an Indemnified Party is otherwise a party thereto and whether or not the Financing is consummated. The Indemnifying Party will not, however, be responsible for any such claims, losses, damages, liabilities or expenses of an Indemnified Party that are finally judicially determined to have resulted primarily from actions taken or omitted to be taken by such Indemnified Party in bad faith or from such Indemnified Party's gross negligence or wilful misconduct. The Indemnifying Party will not settle any claim, action or proceeding in respect of which indemnity may be sought hereunder if SBCWDR, SBC, LBI or LCPI is an actual or potential party to such claim, action or proceeding, without SBCWDR's, SBC's, LBI's and LCPI's written consent, which shall not be unreasonably withheld. If the indemnification provided for in the first paragraph of this Schedule 1 is judicially determined to be unavailable to an Indemnified Party (other than in accordance with the terms hereof), the Indemnifying Party shall contribute to the claims, losses, damages, liabilities and expenses referred to herein that are paid or payable by such Indemnified Party in such proportion as is appropriate to reflect (i) the relative benefits to the Indemnifying Party and its shareholders, on the one hand, and to SBCWDR, SBC, LBI and LCPI, on the other hand, of the transactions contemplated by the Letter or (ii) if the allocation provided by clause (i) is not permitted by applicable law, not only such relative benefits but also the relative fault of the Indemnifying Party, on the one hand, and SBCWDR, SBC, LBI and LCPI, on the other hand, as well as any other relevant equitable considerations; provided that in no event shall the Indemnifying Party contribute less than the amount necessary to assure that all Indemnified Parties, in the aggregate, are not liable for claims, losses, damages, liabilities and expenses in excess of the amount of fees actually received by SBCWDR, SBC, LBI and LCPI pursuant to the Letter. For purposes of this paragraph, the relative benefits to the Indemnifying Party and its shareholders, on the one hand, and to SBCWDR, SBC, LBI and LCPI, on the other hand, of the transactions contemplated by the Letter shall be deemed to be in the same proportion as (a) the total value to be paid or received by the Indemnifying Party or the Indemnifying Party's shareholders, as the case may be, in the transactions contemplated by the Letter, whether or not any such transactions are consummated bears to (b) the fees paid or to be paid to SBCWDR, SBC, LBI and LCPI under the Letter. The provisions contained in this Schedule 1 shall remain operative and in full force and effect regardless of the expiration or any termination of the Letter. 2 EXHIBIT A BANK FACILITY SUMMARY OF TERMS AND CONDITIONS Borrower: The Grand Union Company (the "Company"). Guarantors: Each of the Company's direct and indirect subsidiaries. Facility Amounts and Maturities: Term Loan: $230,000,000 five-year term loan (the "Term Loans" and the "Term Facility"). The Term Facility commitment will expire at the close of business on the day of the closing hereunder (the "Closing Date"). Revolver: $70,000,000 five-year revolving credit facility, including a $10,000,000 swing line facility (the "Revolving Loans" and the "Revolving Facility" and, together with the Term Loans and the Term Facility, the "Loans" and the "Facility"). The Revolving Facility will also be available for the issuance of letters of credit ("Letters of Credit") in an aggregate amount at any time of up to $50,000,000. Purpose: Proceeds will be used (i) in the case of the Term Loans and a portion of the amounts under the Revolving Facility, to refinance existing indebtedness and other obligations of the Company and its subsidiaries in accordance with, and to pay fees and expenses in connection with, the Plan of Reorganization confirmed in connection with the Company's voluntary filing under Chapter 11 of the U.S. Bankruptcy Code, which Plan of Reorganization shall be in form and substance reasonably satisfactory to the Agents (the "Reorganization" and the "Plan of Reorganization") and (ii) in the case of the remainder of the Revolving Facility, for general corporate purposes, including working capital and the issuance of letters of credit. Administrative Agent: Lehman Commercial Paper Inc. ("LCPI" or the "Administrative Agent"). Syndication Agent: Swiss Bank Corporation, Stamford Branch ("SBC" or the "Syndication Agent"; together with the Administrative Agent, the "Agents").
1 Collateral Agent: An entity to be selected by the Agents (subject to the consent of the Company, which consent will not be unreasonably withheld) in the syndication process (the "Collateral Agent"). Advisors and Arrangers: SBC Warburg Dillon Read Inc. ("SBCWDR") and Lehman Brothers Inc. ("LBI"). LC Issuing Bank: To be determined. Swing Line Lender: To be determined. Lenders: A group of financial institutions acceptable to SBCWDR, SBC, LBI and LCPI and the Company (such approval of the Company not to be unreasonably withheld). Initial Commitment: $300,000,000 (one-half of such amount shall be provided initially by SBC and one-half of such amount shall be provided initially by LCPI). Security: The Company's obligations under the Facility will be secured by perfected liens on all assets of the Company, with exceptions to be negotiated and a best efforts undertaking by the Company to perfect such liens, including, but not limited to, receivables, inventory, equipment, real estate, leases, licenses, patents, brand names, trademarks, contracts, securities and stock of subsidiaries. The Guarantees described below will be secured by perfected liens on all assets of the respective Guarantors referred to below. Guarantees: Each of the Company's present and future subsidiaries (collectively, the "Guarantors") will guarantee the Company's obligations under the Facility, up to the maximum amount possible without violating applicable fraudulent conveyance laws. Borrowing Options: LIBOR and Base Rate. LIBOR will be automatically adjusted for reserves, Regulation D charges and other regulatory requirements. Base Rate means the higher of (i) SBC's prime rate and (ii) 0.50% per annum over the federal funds rate. For a period of 90 days after closing, and thereafter at any time a default exists, only the Base Rate option will be available. Loans under the Swing Facility will be made on the basis of the Base Rate.
2 Interest Rates: Margins over adjusted LIBOR (the "LIBOR Margin") and margins over Base Rate (the "Base Rate Margin") will be as follows during the following periods (in each case expressed in basis points per annum): First 12 Months After the Closing Date: LIBOR Margin: 300.0 Base Rate Margin: 200.0 After the First 12 Months:
Total Debt to Libor Base Rate EBITDA Margin Margin ------------- ------ --------- (greater than)3.75x 300.0 200.0 (less than)3.75x and (greater than)3.25x 275.0 175.0 (less than)3.25x 250.0 150.0
"Total Debt" and "EBITDA" are used as defined in Appendix A hereto, and the ratio of Total Debt to EBITDA shall be determined on the basis of the four fiscal quarters then most recently ended at any time of determination. Interest in respect of Base Rate loans shall be payable quarterly in arrears on the last business day of each quarter. Interest in respect of LIBOR loans shall be payable in arrears at the end of the applicable interest period and every three months in the case of interest periods in excess of three months. Interest will also be payable at the time of conversion or repayment of any loans and at maturity. All interest and fee calculations with respect to LIBOR loans shall be based on a 360-day year and actual days elapsed. All interest and fee calculations with respect to Base Rate loans shall be based on a 365/366-day year and actual days elapsed. During the continuance of any Event of Default (as described below), including upon any default in the payment of principal or interest, all loans under the Facility shall bear interest at a rate per annum equal to the greater of (i) the rate which is 2% in excess of the rate otherwise applicable to Base Rate loans from time to time and (ii) the rate which is 2% in excess of the rate then borne by such borrowings. Such interest shall be payable on demand.
3 Interest Periods: LIBOR Loans - 1, 2, 3 or 6 months. Commitment Fees: 0.50% per annum, payable quarterly in arrears on the unused portion of the Revolver commitments, such fees to accrue from the date on which a credit agreement (the "Credit Agreement") evidencing the Facility is signed. Letter of Credit Commissions: For all Lenders, a commission equal to the applicable margin from time to time for LIBOR loans under the Revolver. For the LC Issuing Bank, a fronting fee of 0.125% per annum and its other standard and customary processing charges. Such commission and fronting fee shall be payable quarterly in arrears, based on the aggregate undrawn amount of all letters of credit outstanding from time to time under the Revolving Facility. Mandatory Prepayments: The following amounts will be applied to reduce the Facility: 1. 100% of the net proceeds from the issuance of indebtedness by the Company and its subsidiaries; 2. 50% of the net proceeds from the issuance of equity by the Company. 3. 100% of the net proceeds from asset sales (including proceeds of casualty insurance, condemnation awards or other recoveries to the extent such proceeds or other recoveries are not reinvested by the Company in assets similar to those that were the subject of such proceeds or other recoveries within 365 days after the receipt thereof) by the Company and its subsidiaries (with exceptions to be negotiated, including an exception for net proceeds of asset sales of up to $5,000,000 in any fiscal year, which proceeds are reinvested by the Company in capital assets for use in the Company's business within 365 days after such disposition). 4. 75% of Excess Cash Flow (as defined in Appendix A) for any fiscal year, reducing to 50% if the ratio of Total Debt to EBITDA (determined as provided above) is less than
4 3.25x for such fiscal year. Prepayments under this section shall be applied, first, to prepay the Term Loans proportionately among the Lenders (except that any Term Loan Lender may refuse any such prepayment, and such amount shall be allocated pro rata to the other Term Loan Lenders) and, second, to reduce the Revolving Facility commitment (and to repay Revolver loans and/or cash collateralize outstanding Letters of Credit in an amount equal to the excess of such exposure over the Revolving Facility commitment as reduced). Prepayments under clauses 1, 2 and 3 shall be subject to the prepayment premium referred to below under "Prepayment Premium". Voluntary Prepayments: Permitted at any time with one business day's notice for Base Rate loans and three business days' notice for LIBOR loans. The Company will compensate the Lenders for any break-funding losses if it prepays LIBOR loans at any time other than the end of an Interest Period, and shall pay any applicable prepayment premium referred to below under "Prepayment Premium". Prepayments under this section shall be applied to prepay the Term Loans or Revolving Loans (as applicable) of the Lenders pro rata to their outstanding Loans of such tranche, except that any Term Loan Lender may refuse any such prepayment, and such amount shall be allocated pro rata to the other Term Loan Lenders. Prepayment Premium: Voluntary prepayments and contingent mandatory prepayments (other than such prepayments required out of excess cash flow) shall be subject to a prepayment premium in the following amounts and the following times: Month 1-12 (after the Closing Date): 102% Month 13-18: 101% Month 19 and thereafter: 100% (no premium) Conditions to Initial Funding: The obligation of the Lenders to make their initial loans under the Facility will be subject to the reasonable satisfaction of conditions precedent for leveraged financings generally and for this transaction in particular, including but not limited to the following (in addition to the "Conditions to each Borrowing" set forth below):
5 1. The entry of a final order of the Bankruptcy Court confirming the Plan of Reorganization in accordance with Section 1129 of the Bankruptcy Code, which order shall be in full force and effect and shall not have been stayed, reversed, vacated or otherwise modified, not later than August 31, 1998, all on such terms and conditions as may be reasonably satisfactory to the Lenders. 2. The outstanding debt of the Company and its subsidiaries, except as specified in schedules to be negotiated, shall be retired, and all liens securing the same shall be discharged, and the Agents shall have received evidence reasonably satisfactory to them of the foregoing. 3. The Lenders shall have completed (and shall be satisfied with the scope and results of) its diligence investigation of environmental matters of the Company and its subsidiaries. 4. Receipt by the Lenders of a pro forma balance sheet and income statement of the Company giving effect to the Reorganization, the loans under the Facility and all related transactions, which pro forma financial statements shall be reasonably satisfactory to the Lenders and demonstrate that the covenants described herein are satisfied at the Closing Date. 5. Satisfactory completion prior to August 31, 1998, of the Credit Agreement and all other documentation relating to the Facility in form and substance reasonably satisfactory to the Lenders, including receipt by the Lenders of reasonably satisfactory opinions of counsel to the Company as to the transactions contemplated thereby, together with customary closing documentation. 6. Creation and perfection of security arrangements to the satisfaction of the Lenders, to include title insurance with all appropriate endorsements (in the case of any real property mortgages) and opinions of counsel for the Company and local counsel, all in form and substance reasonably satisfactory to the Lenders. 7. Receipt of all necessary governmental, shareholder
6 and third party consents and approvals necessary or reasonably desirable in connection with the Reorganization, the Facility and the related transactions contemplated hereby. 8. Absence of any pending or threatened litigation or proceeding against the Company or any of its subsidiaries which (i) seeks to enjoin or challenge the Facility or (ii) could reasonably be expected in the Lenders' judgment to have a material adverse effect on the condition (financial or otherwise), business, results of operations, properties or liabilities of the Company and its subsidiaries, considered as a whole after giving effect to the Reorganization. 9. The Lenders shall have received evidence of insurance maintained by the Company and its subsidiaries reasonably satisfactory to the Lenders. 10. The Lenders shall have received, to the extent they shall request the same, environmental reports with respect to such properties, all reasonably satisfactory in scope, form and substance to the Lenders. 11. All agreements relating to, and the corporate and capital structure of, the Company and the Guarantors and all organizational documents of such entities shall be reasonably satisfactory to the Lenders. 12. All costs, fees, expenses (including, without limitation, legal fees and expenses, title premiums, survey charges and recording taxes and fees) and other compensation contemplated hereby payable to the Agents and the Lenders shall have been paid. Conditions to Each Borrowing: Customary in facilities of this nature, including but not limited to: 1. Absence of Default. 2. Accuracy of representations and warranties in all material respects. Representations and Warranties: Customary in facilities of this nature, with respect to the Company and its subsidiaries, including but not limited to (and with materiality exceptions where appropriate):
7 1. Corporate existence. 2. Corporate and governmental authorizations; no contravention; binding and enforceable agreements. 3. Financial information. 4. No material adverse change. 5. Environmental matters. 6. Compliance with laws, including ERISA and environmental laws. 7. No material litigation. 8. Existence, incorporation, etc., of subsidiaries. 9. Payment of taxes and other material obligations. 10. Full disclosure (including accuracy of information in Plan of Reorganization and disclosure statement related thereto). 11. Customary representations with respect to the collateral securing the Facility and the Guarantees and the creation, perfection and first priority of the Lenders' security interests therein. Covenants: Customary in facilities of this nature with respect to the Company and its subsidiaries, including, but not limited to, the following: 1. Furnishing of information. 2. Maintenance of property; insurance coverage. 3. Compliance with laws; conduct of business. 4. Use of proceeds. 5. Restriction on liens, with exceptions to be agreed, including a provision permitting up to $4,000,000 aggregate outstanding amount of deposits or bonds pledged to utility companies. 6. Financial covenants as provided in Appendix A hereto. 7. No restricted stock payments by the Company and its subsidiaries (including retirements, acquisitions and other payments in respect of capital stock of the Company) and no loans or other advances to, or guarantees of the obligations of, affiliates of the Company. 8. No equity or debt investments (including by way of advances) in any person after the Closing Date, except (i) investments in subsidiary Guarantors, (ii) temporary cash investments and (iii) Permitted Investments (as defined in Appendix A). No material acquisitions. 9. Limitations on debt, with exceptions to be agreed (including $10,000,000 of unsecured debt incurred
8 within 6 months after the Closing Date). 10. No mergers or consolidations by the Company, and limits on sale of the assets (except inventory sold in the ordinary course of business) of the Company and its subsidiaries, including sale-leaseback transactions, with exceptions to be negotiated (including those described herein), including provisions permitting sale-leasebacks of (i) 3 identified stores and (ii) stores acquired after the Closing Date and transferred pursuant to a sale-leaseback transaction within 270 days after the acquisition date. 11. No transactions with affiliates (defined to exclude subsidiary Guarantors) on terms less favorable to the Company or any subsidiary Guarantor than would be reasonably expected to be obtainable in a transaction with a non-affiliate, with exceptions to be negotiated. 12. No significant changes in the nature of the business of the Company and its subsidiaries, taken as a whole. 13. Guarantees and other contingent obligations not to exceed amounts to be negotiated. 14. No termination of material licenses and material contracts. 15. The Company will enter into and maintain, with one or more of the Lenders, interest rate swaps, caps or other appropriate hedging arrangements to convert to fixed rate or otherwise limit, in a manner reasonably satisfactory to the Lenders, its floating interest rate risk on at least 50% of its outstanding Term Loans under the Facility for a period of at least three years. 16. The Company will cause any person becoming a subsidiary after the date of the credit agreement to become a Guarantor, and will cause all assets of such a subsidiary, together with all other assets of the Company and its subsidiaries acquired subsequent to the date of the credit agreement, to be pledged to the Lenders. 17. Limitation on restrictions on subsidiaries. Events of Default: Customary in credit agreements of this nature to include, but not be limited to: 1. Failure to pay (i) when due any principal or (ii) within 3 days after the date when due, interest or other amounts.
9 2. Violation of covenants, with grace periods where appropriate. 3. Representations or warranties false in any material respect when made. 4. Cross-default to other debt of the Company and its subsidiaries which is triggered by an event which permits or, with the giving of notice or lapse of time (or both), would permit the holders to accelerate such debt. 5. Judgment defaults in excess of an amount to be negotiated. 6. Change of ownership or control. 7. Loss of lien perfection or priority. 8. Other usual defaults, including without limitation, insolvency, bankruptcy and ERISA. Required Lenders: Lenders holding at least 51% of the aggregate amount of the outstanding loans, Letter of Credit exposure and undrawn commitments; provided that (i) 100% of the Lenders will be required to change pricing or commitment levels and (ii) 100% of the Lenders will be required to release all or substantially all the collateral. Increased Costs/Change of Circumstances: The Credit Agreement will contain customary provisions protecting the Lenders in the event of unavailability of funding, illegality, increased costs, capital adequacy and funding losses. Assignments and Participations: With the consent of the Administrative Agent (which shall not be unreasonably withheld) and, in the case of the Revolving Facility, the LC Issuing Bank, each Lender will be able to assign any one of, or any combination of, the following: (i) all or a pro rata portion of its outstanding Term Loans or (ii) all or a pro rata portion of its outstanding Revolving Loans, Letter of Credit exposure and Revolving Commitment; provided that the aggregate amount assigned is at least $2,000,000. No assignee Lender shall receive greater payments from the Company in respect of withholding taxes then the relevant assignor Lender unless such assignment was with the prior written consent of the Company. Each assigning Lender must pay to the Administrative Agent an administration fee of $3,500 per assignment. No restrictions on participations. Indemnification: The Company will indemnify each Lender and the
10 Agents against all losses, liabilities, claims, damages or expenses relating to their loans, the Facility and the Company's use of the loan proceeds or the commitments, including but not limited to attorneys' fees and settlement costs, except for losses, liabilities, claims, damages or expenses caused by such indemnitee's gross negligence or willful misconduct. Governing Law and Forum: State of New York. Expenses: The Company will pay (i) all reasonable legal and other out-of-pocket expenses of the Agents, including the fees and expenses of Simpson Thacher & Bartlett, special counsel to the Agents, and (ii) all reasonable fees and expenses of consultants and other experts consulted by the Agents or the Required Lenders in connection with the Facility.
11 APPENDIX A TO TERM SHEET CERTAIN FINANCIAL COVENANTS AND DEFINITIONS References to "FQ" below refer to the first, second, third or fourth (as indicated) fiscal quarter of the Company's fiscal year, which, in the case of the Company's 1998 fiscal year, ends on or about March 28, 1998. The reference to "1999 FQ1", e.g., means the fiscal quarter of the Company ending on or about June 30, 1998. 1. Ratio of Minimum EBITDA to Interest Quarter Ratio ------- ----- 1999 FQ3 1.60x 1999 FQ4 1.65x 2000 FQ1 1.75x 2000 FQ2 1.80x 2000 FQ3 1.90x 2000 FQ4 1.90x 2001 FQ1 1.90x 2001 FQ2 1.95x 2001 FQ3 2.00x 2001 FQ4 2.00x 2002 FQ1 2.10x 2002 FQ2 2.20x 2002 FQ3 2.25x 2002 FQ4 2.30x 2003 FQ1 and thereafter 2.40x All determinations of this covenant shall be made on a rolling four quarter basis, except that during the first year after the Closing Date, determinations shall be made on the basis on the period elapsed from the Closing Date. 2. Ratio of Maximum Total Debt to EBITDA Quarter Ratio ------- ----- 2000 FQ2 4.60x 2000 FQ3 4.50x 2000 FQ4 4.50x 1 2001 FQ1 4.45x 2001 FQ2 4.30x 2001 FQ3 4.15x 2001 FQ4 4.00x 2002 FQ1 4.00x 2002 FQ2 4.00x 2002 FQ3 and thereafter 3.75x All determinations of this covenant shall be made using Total Debt as of any date of determination measured against EBITDA for the 12 months preceding such date of determination. This covenant shall not be tested until September, 1999 (which is expected to be the first fiscal quarter in which the Company reflects a full year of results after the Closing Date), and until such date, shall be replaced with a covenant restricting Total Debt to an amount not in excess of $450 million at any time. 3. Maximum Capital Expenditures Test Period: 12 Months Ending Amount ---------------- ------ March 31, 1999 $60.0 million March 31, 2000 $80.0 million March 31, 2001 $52.5 million March 31, 2002 $55.0 million March 31, 2003 $57.5 million In addition, (i) the Company may carry forward the amount by which Capital Expenditures permitted for such Test Period pursuant to the above table exceeds the amount of Capital Expenditures actually made during such Test Period, but not in excess of 25% of such amount set forth in such table and (ii) from and after the date on which a portion of Excess Cash Flow is required to be used to prepay the Loans pursuant to the Credit Agreement, the Company may make additional Capital Expenditures during the remainder of such fiscal year equal to the amount of Excess Cash Flow not required to be so used. 2 4. Definition of Certain Additional Financial Terms As used in this Term Sheet: "Consolidated Capital Expenditures" means, for any period, the additions to property, plant and equipment and other capital expenditures of the Company and its Consolidated Subsidiaries for such period, as the same are or would be set forth in a consolidated statement of cash flows of the Company and its Consolidated Subsidiaries for such period. "Consolidated Interest Expense" means, for any period, the interest expense of the Company and its Consolidated Subsidiaries for such period, determined on a consolidated basis. "Consolidated Net Income" means, for any period, the net income of the Company and its Consolidated Subsidiaries for such period, determined on a consolidated basis and adjusted to exclude the effect of any extraordinary or other non-recurring gain (but not loss). "EBITDA" means, for any period, Consolidated Net Income for such period (as more fully defined in definitive documentation) plus, without duplication and to the extent reflected as a charge in the statement of such Consolidated Net Income for such period, the sum of (a) income tax expense, (b) interest expense, amortization or writeoff of debt discount and debt issuance costs and commissions, discounts and other fees and charges associated with Total Debt (c) depreciation and amortization expense, (d) amortization of intangibles (including, but not limited to, goodwill) and organization costs, (e) any extraordinary, unusual or non-recurring expenses or losses (including, whether or not otherwise includable as a separate item in the statement of such Consolidated Net Income for such period, losses on sales of assets outside the ordinary course of business) and (f) any other non-cash charges, and minus, to the extent included in the statement of such Consolidated Net Income for such period, the sum of (a) interest income, (b) any extraordinary, unusual or non-recurring income or gains (including, whether or not otherwise includable as a separate item in the statement of such Consolidated Net Income for such period, gains on the sales of assets outside the ordinary course of business; it being understood that the foregoing excludes up to $3,000,000 per fiscal year derived from recurring asset sales) and (c) any other non-cash income, all as determined on a consolidated basis. "Excess Cash Flow" means, for any period, an amount equal to (i) EBITDA for such period minus (ii) all cash payments of income taxes by the Company and its Consolidated Subsidiaries during such period, minus (iii) Consolidated Capital Expenditures for such period, to the extent that 3 such Consolidated Capital Expenditures are permitted by the Credit Agreement and are not financed during such period (and will not be financed in any future period) with the proceeds of debt of the Company permitted by the Credit Agreement plus (or minus) (iv) any net cash extraordinary gains (or extraordinary cash losses) for such period of the Company and its Consolidated Subsidiaries plus (or minus) (v) any decrease (or increase) in consolidated net working investment of the Company and its Consolidated Subsidiaries (excluding indebtedness and cash and cash equivalents) at the last day of such period, when compared with such consolidated net working investment at the first day of such period, plus (vi) any interest income of the Company and its Consolidated Subsidiaries for such period, minus (vii) the sum for such period of (x) total debt service (exclusive of amortization of debt discount or premium) for such period, (y) all optional payments of the Loans during such period pursuant to the terms of the Credit Agreement. "Permitted Investments" means, at any time with respect to the Company and its Subsidiaries, (i) advances or loans to contractors in connection with the construction of new stores of the Company in an aggregate principal amount at any time outstanding not exceeding $10,000,000, (ii) Investments acquired in the form of consideration received pursuant to an asset sale consummated in accordance with the terms of the Credit Agreement, provided that the amount (x) of such Investments acquired pursuant to any asset sale (including a series of related transactions) does not exceed $500,000 and (y) of all such Investments under this clause (ii) outstanding at any time does not exceed $5,000,000, (iii) Investments acquired as part of the settlement of litigation or claims, or in satisfaction of claims made pursuant to a reorganization, bankruptcy or liquidation of an corporation or other entity, or as a good faith settlement of indebtedness owed by a corporation or other entity to the Company or any of its Subsidiaries and (iv) Investments not permitted pursuant to the foregoing clauses of this definition with an aggregate book value (in each determined at the time when made) for all such Investments not in excess of $1,000,000. "Total Debt" means, at any date, all Debt of the Company and its Consolidated Subsidiaries, determined on a consolidated basis, including without limitation all obligations under capital leases but excluding undrawn letters of credit. 4 EX-10.40 8 REVOLVING CREDIT AGREEMENT =============================================================================== EXHIBIT 10.40 $172,022,020 REVOLVING CREDIT AGREEMENT among THE GRAND UNION COMPANY, a Debtor-in-Possession, as Borrower, The Several Lenders from Time to Time Parties Hereto, SBC WARBURG DILLON READ INC., as Co-Advisor and Co-Arranger SWISS BANK CORPORATION, as Syndication Agent LEHMAN BROTHERS INC., as Co-Advisor and Co-Arranger and LEHMAN COMMERCIAL PAPER INC., as Administrative Agent Dated as of June 24, 1998 =============================================================================== TABLE OF CONTENTS -----------------
Page ---- SECTION 1. DEFINITIONS........................................................................................ 3 1.1 Defined Terms..................................................................................... 3 1.2 Other Definitional Provisions..................................................................... 20 SECTION 2. AMOUNT AND TERMS OF REVOLVING CREDIT COMMITMENTS................................................... 21 2.1 Revolving Credit Commitments...................................................................... 21 2.2 Procedure for Revolving Credit Borrowing.......................................................... 21 2.3 Swing Line Commitment............................................................................. 22 2.4 Procedure for Swing Line Borrowing; Refunding of Swing Line Loans................................. 22 2.5 Repayment of Loans; Evidence of Debt.............................................................. 24 2.6 Revolving Credit Commitment Fees, etc. ........................................................... 25 2.7 Termination or Reduction of Revolving Credit Commitments.......................................... 25 2.8 Optional Prepayments.............................................................................. 25 2.9 Mandatory Prepayments and Revolving Credit Commitment Reductions.................................. 25 2.10 Conversion and Continuation Options.............................................................. 26 2.11 Minimum Amounts and Maximum Number of Eurodollar Tranches........................................ 26 2.12 Interest Rates and Payment Dates................................................................. 27 2.13 Computation of Interest and Fees................................................................. 27 2.14 Inability to Determine Interest Rate............................................................. 28 2.15 Pro Rata Treatment and Payments.................................................................. 28 2.16 Requirements of Law.............................................................................. 29 2.17 Taxes............................................................................................ 31 2.18 Indemnity........................................................................................ 33 2.19 Illegality....................................................................................... 33 2.20 Change of Lending Office......................................................................... 33 SECTION 3. LETTERS OF CREDIT.................................................................................. 34 3.1 L/C Commitment.................................................................................... 34 3.2 Procedure for Issuance of Letter of Credit........................................................ 34 3.3 Fees and Other Charges............................................................................ 35 3.4 L/C Participations................................................................................ 35 3.5 Reimbursement Obligation of the Borrower.......................................................... 36 3.6 Obligations Absolute.............................................................................. 36 3.7 Letter of Credit Payments......................................................................... 37 3.8 Applications...................................................................................... 37 SECTION 4. PRIORITY AND LIENS................................................................................. 37 4.1 Priority and Liens................................................................................ 37 4.2 Security Interest in L/C Cash Collateral Account.................................................. 38 4.3 Payment of Obligations............................................................................ 38 4.4 No Discharge; Survival of Claims.................................................................. 39 SECTION 5. REPRESENTATIONS AND WARRANTIES..................................................................... 39 5.1 Financial Condition............................................................................... 39
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Page ---- 5.2 No Change......................................................................................... 40 5.3 Corporate Existence; Compliance with Law.......................................................... 40 5.4 Corporate Power; Authorization; Enforceable Obligations........................................... 40 5.5 No Legal Bar...................................................................................... 40 5.6 No Material Litigation............................................................................ 41 5.7 No Default........................................................................................ 41 5.8 Ownership of Property; Liens...................................................................... 41 5.9 Intellectual Property............................................................................. 41 5.10 Taxes............................................................................................ 41 5.11 Federal Regulations.............................................................................. 41 5.12 Labor Matters.................................................................................... 41 5.13 ERISA............................................................................................ 42 5.14 Investment Company Act; Other Regulations........................................................ 42 5.15 Subsidiaries..................................................................................... 42 5.16 Use of Proceeds.................................................................................. 42 5.17 Environmental Matters............................................................................ 43 5.18 Accuracy of Information, etc..................................................................... 44 5.19 Security Documents............................................................................... 44 SECTION 6. CONDITIONS PRECEDENT............................................................................... 45 6.1 Conditions to Initial Extension of Credit......................................................... 45 6.2 Conditions to Each Extension of Credit............................................................ 46 SECTION 7. AFFIRMATIVE COVENANTS.............................................................................. 47 7.1 Financial Statements.............................................................................. 47 7.2 Certificates; Other Information................................................................... 48 7.3 Payment of Obligations............................................................................ 49 7.4 Conduct of Business and Maintenance of Existence, etc. ........................................... 49 7.5 Maintenance of Property; Insurance................................................................ 49 7.6 Inspection of Property; Books and Records; Discussions; Collateral Audit.......................... 50 7.7 Notices........................................................................................... 50 7.8 Environmental Laws................................................................................ 51 7.9 Further Assurances................................................................................ 51 SECTION 8. NEGATIVE COVENANTS................................................................................. 51 8.1 Financial Condition Covenants..................................................................... 51 8.2 Limitation on Indebtedness........................................................................ 52 8.3 Limitation on Liens............................................................................... 52 8.4 Limitation on Fundamental Changes................................................................. 53 8.5 Limitation on Disposition of Property............................................................. 53 8.6 Limitation on Restricted Payments................................................................. 54 8.7 Limitation on Capital Expenditures................................................................ 54 8.8 Limitation on Investments......................................................................... 54 8.9 Limitation on Transactions with Affiliates........................................................ 55 8.10 Limitation on Sales and Leasebacks............................................................... 55 8.11 Limitation on Changes in Fiscal Periods.......................................................... 55 8.12 Limitation on Negative Pledge Clauses............................................................ 55 8.13 Limitation on Restrictions on Subsidiary Distributions........................................... 55 8.14 Limitation on Lines of Business.................................................................. 56 8.15 Chapter 11 Claims; Payment of Pre-Petition Date Claims........................................... 56
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Page ---- SECTION 9. EVENTS OF DEFAULT.................................................................................. 56 SECTION 10. THE AGENTS......................................................................................... 59 10.1 Appointment...................................................................................... 59 10.2 Delegation of Duties............................................................................. 59 10.3 Exculpatory Provisions........................................................................... 59 10.4 Reliance by Administrative Agent................................................................. 60 10.5 Notice of Default................................................................................ 60 10.6 Non-Reliance on Agents and Other Lenders......................................................... 60 10.7 Indemnification.................................................................................. 61 10.8 Agent in Its Individual Capacity................................................................. 61 10.9 Successor Administrative Agent................................................................... 61 10.10 Authorization to Release Liens.................................................................. 62 10.11 The Arranger.................................................................................... 62 SECTION 11. REMEDIES; APPLICATION OF PROCEEDS.................................................................. 62 11.1 Remedies; Obtaining the Collateral Upon Default.................................................. 62 11.2 Remedies; Disposition of the Collateral.......................................................... 63 11.3 Application of Proceeds.......................................................................... 64 11.4 WAIVER OF CLAIMS................................................................................. 65 11.5 Remedies Cumulative.............................................................................. 65 11.6 Discontinuance of Proceedings.................................................................... 65 SECTION 12. MISCELLANEOUS...................................................................................... 66 12.1 Amendments and Waivers........................................................................... 66 12.2 Notices.......................................................................................... 67 12.3 No Waiver; Cumulative Remedies................................................................... 68 12.4 Survival of Representations and Warranties....................................................... 68 12.5 Payment of Expenses.............................................................................. 68 12.6 Successors and Assigns; Participations and Assignments........................................... 69 12.7 Adjustments; Set-off............................................................................. 71 12.8 Counterparts..................................................................................... 72 12.9 Severability..................................................................................... 72 12.10 Integration..................................................................................... 72 12.11 GOVERNING LAW................................................................................... 72 12.12 Submission To Jurisdiction; Waivers............................................................. 73 12.13 Acknowledgements................................................................................ 73 12.14 Absence of Prejudice with Respect to Matters Before the Bankruptcy Court........................ 74 12.15 Confidentiality................................................................................. 74 12.16 WAIVERS OF JURY TRIAL........................................................................... 74
-iii- Page ---- SCHEDULES: 1.1 Commitments 5.16 Subsidiaries 8.2(c) Existing Indebtedness 8.3(f) Existing Liens 8.8(h) Existing Investments EXHIBITS: A Form of Guarantee and Collateral Agreement B Form of Final Order C Form of Compliance Certificate D Form of Closing Certificate E Form of Assignment and Acceptance F Form of Legal Opinion of Weil, Gotshal & Manges LLP G-1 Form of Revolving Credit Note G-2 Form of Swing Line Note H Form of Exemption Certificate I Form of Budget -iv- REVOLVING CREDIT AGREEMENT, dated as of June 24, 1998, among THE GRAND UNION COMPANY, a Delaware corporation (the "Borrower"), a debtor-in-possession in a case pending under Chapter 11 of the Bankruptcy Code, the several banks and other financial institutions or entities from time to time parties to this Agreement (the "Lenders"), SBC WARBURG DILLON READ INC., as co-advisor and co-arranger, SWISS BANK CORPORATION, STAMFORD BRANCH, as syndication agent (in such capacity, the "Syndication Agent"), LEHMAN BROTHERS INC., as co-advisor and co-arranger (together with SBC Warburg Dillon Read Inc. in their capacities as co-advisors and co-arrangers, the "Arrangers"), and LEHMAN COMMERCIAL PAPER INC., as administrative agent (in such capacity, the "Administrative Agent"). W I T N E S S E T H: -------------------- WHEREAS, on June 24, 1998 (the "Petition Date"), the Borrower filed a voluntary petition under Section 301 of the Bankruptcy Code with the United States Bankruptcy Court for the District of New Jersey (the "Bankruptcy Court") initiating its Chapter 11 case (the "Case") and has continued in the possession of its assets and in the management of its business pursuant to Sections 1107 and 1108 of the Bankruptcy Code; WHEREAS, on the Petition Date, following a prepetition solicitation of votes for the acceptance or rejection of the Borrower's plan of reorganization (the "Plan of Reorganization") pursuant to Section 1126 of the Bankruptcy Code, the Borrower filed with the Bankruptcy Court the Plan of Reorganization, together with a certification of its balloting agent certifying that the Plan of Reorganization had been accepted by the requisite number and amount of claims and amount of interests pursuant to Section 1126 of the Bankruptcy Code; WHEREAS, the Borrower requested that the Lenders make available a revolving credit and letter of credit facility in an aggregate principal amount not to exceed $172,022,020, under which all of the Borrower's obligations are guaranteed by the Subsidiary Guarantors, and the proceeds of which will be used (i) to finance the working capital needs of the Borrower and the Subsidiary Guarantors in the ordinary course of business, (ii) for payment of Chapter 11 expenses, including professional fees, (iii) for general corporate purposes, and (iv) to refinance the revolving credit and term loans, and to cash collateralize letters of credit outstanding under the Prepetition Credit Agreement, in all cases subject to the terms of this Agreement, the Final Order and the Budget; WHEREAS, to provide security for the repayment of the Revolving Credit Loans, the reimbursement of any draft drawn under the Letters of Credit and the payment of the other Obligations of the Borrower hereunder and under the other Loan Documents, the Borrower shall provide to the Agents and the Lenders, pursuant to this Agreement and the Final Order, the following (each as more fully described herein): (a) with respect to the Obligations of the Borrower hereunder, an allowed administrative expense claim in the Case pursuant to Section 364(c)(1) of the Bankruptcy 2 Code having priority over all administrative expenses of the kind specified in Sections 503(b) and 507(b) of the Bankruptcy Code; (b) a perfected first priority Lien, pursuant to Section 364(c)(2) of the Bankruptcy Code, upon all unencumbered property of the Borrower and all cash and cash equivalents in the L/C Cash Collateral Account; (c) a perfected second priority Lien, pursuant to Section 364(c)(3) of the Bankruptcy Code, upon all property of the Borrower (other than property subject to Liens securing the Prepetition Supplemental Term Loans) that is subject to Permitted Liens, including valid and perfected Liens in existence on the Petition Date, junior to such Permitted Liens and other valid and perfected Liens (except as otherwise provided in Section 4.1(c) and the Final Order); and (d) a perfected first priority priming Lien, pursuant to Section 364(d)(1) of the Bankruptcy Code, upon all property of the Borrower (including, without limitation, accounts receivable, chattel paper, contracts, documents, equipment, general intangibles, instruments, inventory, trademarks and trademark licenses and real property) that is subject to the Liens securing the Prepetition Supplemental Term Loans and any Liens granted after the Petition Date to provide adequate protection in respect of the Prepetition Supplemental Term Loans, which Lien in favor of the Administrative Agent and the Lenders shall be senior in all respects to all of the Liens securing the Prepetition Supplemental Term Loans and to any Liens granted after the Petition Date to provide adequate protection in respect thereof; WHEREAS, all of the claims and the Liens granted hereunder and pursuant to the Final Order in the Case to the Agents and the Lenders shall be subject to the Carve-Out and the Permitted Liens, in each case to the extent provided in Section 4.1 and the Final Order; WHEREAS, to provide guarantees for the repayment of the Revolving Credit Loans, the reimbursement of any draft drawn under the Letters of Credit and the payment of the other Obligations of the Borrower hereunder and under the other Loan Documents, the Subsidiary Guarantors shall provide to the Agents and the Lenders (a) a guarantee of the due and punctual payment and performance of the Obligations of the Borrower hereunder and under the Revolving Credit Notes and (b) a perfected first priority Lien upon all personal property of the Subsidiary Guarantors; and WHEREAS, the Lenders are willing to make such credit facility available upon and subject to the terms and conditions hereinafter set forth; NOW, THEREFORE, in consideration of the premises and the agreements hereinafter set forth, the parties hereto hereby agree as follows: SECTION 1. DEFINITIONS 1.1 Defined Terms. As used in this Agreement, the terms listed in this Section 1.1 shall have the respective meanings set forth in this Section 1.1. 3 "Accounts": as to any Person, all rights to receive payment for goods sold or leased by such Person or for services rendered in the ordinary course of business of such Person to the extent not evidenced by an instrument or chattel paper, together with all interest, finance charges and other amounts payable by an account debtor in respect thereof. "Affiliate": as to any Person, any other Person which, directly or indirectly, is in control of, is controlled by, or is under common control with, such Person. For purposes of this definition, "control" of a Person means the power, directly or indirectly, either to (a) vote 10% or more of the securities having ordinary voting power for the election of directors (or persons performing similar functions) of such Person or (b) direct or cause the direction of the management and policies of such Person, whether by contract or otherwise. "Agents": the collective reference to the Syndication Agent and the Administrative Agent. "Aggregate Exposure": with respect to any Lender at any time, an amount equal to (a) until the Closing Date, the aggregate amount of such Lender's Revolving Credit Commitments at such time and (b) thereafter, the aggregate amount of such Lender's Revolving Credit Commitment then in effect or, if the Revolving Credit Commitments have been terminated, the amount of such Lender's Revolving Extensions of Credit then outstanding. "Aggregate Exposure Percentage" with respect to any Lender at any time, the ratio (expressed as a percentage) of such Lender's Aggregate Exposure at such time to the Aggregate Exposure of all Lenders at such time. "Agreement": this Revolving Credit Agreement, as amended, supplemented or otherwise modified from time to time. "Application": an application, in such form as the Issuing Lender may specify from time to time, requesting the Issuing Lender to open a Letter of Credit. "Assignee": as defined in Section 12.6(c). "Assignor": as defined in Section 12.6(c). "Available Revolving Credit Commitment": as to any Lender at any time, an amount equal to the excess, if any, of (a) such Lender's Revolving Credit Commitment then in effect over (b) such Lender's Revolving Extensions of Credit then outstanding; provided, that in calculating any Lender's Revolving Extensions of Credit for the purpose of determining such Lender's Available Revolving Credit Commitment pursuant to Section 2.6(a), the aggregate principal amount of Swing Line Loans then outstanding shall be deemed to be zero. "Bankruptcy Code": The Bankruptcy Reform Act of 1978, as heretofore and 4 hereafter amended, and codified as 11 U.S.C. ??101 et seq. "Bankruptcy Court": as defined in the Recitals. "Base Rate": for any day, a rate per annum (rounded upwards, if necessary, to the next 1/16 of 1%) equal to the greatest of (a) the Prime Rate in effect on such day, (b) the Base CD Rate in effect on such day plus 1% and (c) the Federal Funds Effective Rate in effect on such day plus 1/2 of 1%. For purposes hereof: "Prime Rate" shall mean the rate of interest per annum publicly announced from time to time by Citibank N.A. as its prime or base rate in effect at its principal office in New York City (the Prime Rate not being intended to be the lowest rate of interest charged by Citibank N.A. in connection with extensions of credit to debtors); "Base CD Rate" shall mean the sum of (a) the product of (i) the Three-Month Secondary CD Rate and (ii) a fraction, the numerator of which is one and the denominator of which is one minus the C/D Reserve Percentage and (b) the C/D Assessment Rate; and "Three-Month Secondary CD Rate" shall mean, for any day, the secondary market rate for three-month certificates of deposit reported as being in effect on such day (or, if such day shall not be a Business Day, the next preceding Business Day) by the Board through the public information telephone line of the Federal Reserve Bank of New York (which rate will, under the current practices of the Board, be published in Federal Reserve Statistical Release H.15(519) during the week following such day), or, if such rate shall not be so reported on such day or such next preceding Business Day, the average of the secondary market quotations for three-month certificates of deposit of major money center banks in New York City received at approximately 10:00 A.M., New York City time, on such day (or, if such day shall not be a Business Day, on the next preceding Business Day) by Citibank N.A. from three New York City negotiable certificate of deposit dealers of recognized standing selected by it. Any change in the Base Rate due to a change in the Prime Rate, the Three-Month Secondary CD Rate or the Federal Funds Effective Rate shall be effective as of the opening of business on the effective day of such change in the Prime Rate, the Three-Month Secondary CD Rate or the Federal Funds Effective Rate, respectively. "Base Rate Loans": Loans the rate of interest applicable to which is based upon the Base Rate. "Benefitted Lender": as defined in Section 12.7. "Board": the Board of Governors of the Federal Reserve System of the United States (or any successor). "Borrowing Date": any Business Day specified by the Borrower as a date on which the Borrower requests the relevant Lenders to make Loans hereunder. "Budget": the monthly budget of the Borrower in the form of Exhibit I. "Business": as defined in Section 5.17(b) "Business Day": (i) for all purposes other than as covered by clause (ii) below, a day other than a Saturday, Sunday or other day on which commercial banks in New York 5 City are authorized or required by law to close and (ii) with respect to all notices and determinations in connection with, and payments of principal and interest on, Eurodollar Loans, any day which is a Business Day described in clause (i) and which is also a day for trading by and between banks in Dollar deposits in the interbank eurodollar market. "Capital Expenditures": for any period, with respect to any Person, the aggregate of all expenditures by such Person and its Subsidiaries for the acquisition or leasing (pursuant to a capital lease) of fixed or capital assets or additions to equipment (including replacements, capitalized repairs and improvements during such period) which should be capitalized under GAAP on a consolidated balance sheet of such Person and its Subsidiaries. "Capital Lease Obligations": as to any Person, the obligations of such Person to pay rent or other amounts under any lease of (or other arrangement conveying the right to use) real or personal property, or a combination thereof, which obligations are required to be classified and accounted for as capital leases on a balance sheet of such Person under GAAP, and, for the purposes of this Agreement, the amount of such obligations at any time shall be the capitalized amount thereof at such time determined in accordance with GAAP. "Capital Stock": any and all shares, interests, participations or other equivalents (however designated) of capital stock of a corporation, any and all equivalent ownership interests in a Person (other than a corporation) and any and all warrants, rights or options to purchase any of the foregoing. "Carve-Out": as defined in Section 4.1. "Case": as defined in the Recitals. "Cash Collateral": the meaning set forth in Section 363(a) of the Bankruptcy Code. "Cash Equivalents": (a) marketable direct obligations issued by, or unconditionally guaranteed by, the United States Government or issued by any agency thereof and backed by the full faith and credit of the United States, in each case maturing within one year from the date of acquisition; (b) certificates of deposit, time deposits, eurodollar time deposits or overnight bank deposits having maturities of one year or less from the date of acquisition issued by any Lender or by any commercial bank organized under the laws of the United States of America or any state thereof having combined capital and surplus of not less than $500,000,000; (c) commercial paper of an issuer rated at least A-2 by Standard & Poor's Ratings Services ("S&P") or P-2 by Moody's Investors Service, Inc. ("Moody's"), or carrying an equivalent rating by a nationally recognized rating agency, if both of the two named rating agencies cease publishing ratings of commercial paper issuers generally, and maturing within six months from the date of acquisition; (d) repurchase obligations of any Lender or of any commercial bank satisfying the requirements of clause (b) of this definition, having a term of not more than 30 days with respect to securities issued or fully guaranteed or insured by the United States government; (e) securities with maturities of one year or less from the date of 6 acquisition issued or fully guaranteed by any state, commonwealth or territory of the United States, by any political subdivision or taxing authority of any such state, commonwealth or territory or by any foreign government, the securities of which state, commonwealth, territory, political subdivision, taxing authority or foreign government (as the case may be) are rated at least A by S&P or A by Moody's; (f) securities with maturities of six months or less from the date of acquisition backed by standby letters of credit issued by any Lender or any commercial bank satisfying the requirements of clause (b) of this definition; or (g) shares of money market mutual or similar funds which invest exclusively in assets satisfying the requirements of clauses (a) through (f) of this definition. "C/D Assessment Rate": for any day as applied to any Base Rate Loan, the annual assessment rate in effect on such day which is payable by a member of the Bank Insurance Fund maintained by the Federal Deposit Insurance Corporation (the "FDIC") classified as well-capitalized and within supervisory subgroup "B" (or a comparable successor assessment risk classification) within the meaning of 12 C.F.R. ? 327.4 (or any successor provision) to the FDIC (or any successor) for the FDIC's (or such successor's) insuring time deposits at offices of such institution in the United States. "C/D Reserve Percentage": for any day as applied to any Base Rate Loan, that percentage (expressed as a decimal) which is in effect on such day, as prescribed by the Board, for determining the maximum reserve requirement for a Depositary Institution (as defined in Regulation D of the Board as in effect from time to time) in respect of new non-personal time deposits in Dollars having a maturity of 30 days or more. "Closing Date": the date on which the conditions precedent set forth in Section 6.1 shall have been satisfied. "Code": the Internal Revenue Code of 1986, as amended from time to time. "Collateral": all Property of the Loan Parties, now owned or hereafter acquired, upon which a Lien is purported to be created by the Final Order or any Security Document. "Commonly Controlled Entity": an entity, whether or not incorporated, which is under common control with the Borrower within the meaning of Section 4001 of ERISA or is part of a group which includes the Borrower and which is treated as a single employer under Section 414 of the Code. "Compliance Certificate": a certificate duly executed by a Responsible Officer substantially in the form of Exhibit C. "Confidential Information Memorandum": the Confidential Information Memorandum dated June 1998 and furnished to the Lenders. "Confirmation Order": an order of the Bankruptcy Court confirming a Plan of Reorganization in the Case. 7 "Consolidated Current Assets": at any date, all amounts (other than cash and Cash Equivalents) which would, in conformity with GAAP, be set forth opposite the caption "total current assets" (or any like caption) on a consolidated balance sheet of the Borrower and its Subsidiaries at such date. "Consolidated Current Liabilities": at any date, all amounts which would, in conformity with GAAP, be set forth opposite the caption "total current liabilities" (or any like caption) on a consolidated balance sheet of the Borrower and its Subsidiaries at such date, but excluding (a) the current portion of any Funded Debt of the Borrower and its Subsidiaries and (b) without duplication of clause (a) above, all Indebtedness consisting of Revolving Credit Loans or Swing Line Loans to the extent otherwise included therein. "Consolidated EBITDA": for any period, Consolidated Net Income for such period plus, without duplication and to the extent reflected as a charge in the statement of such Consolidated Net Income for such period, the sum of (a) income tax expense, (b) interest expense, amortization or writeoff of debt discount and debt issuance costs and commissions, discounts and other fees and charges associated with Indebtedness (including the Loans), (c) depreciation and amortization expense, (d) amortization of intangibles (including, but not limited to, goodwill) and organization costs, (e) any extraordinary, unusual or non-recurring expenses or losses (including, whether or not otherwise includable as a separate item in the statement of such Consolidated Net Income for such period, losses on sales of assets outside of the ordinary course of business), (f) Chapter 11 expenses or administrative costs reflecting Chapter 11 expenses and (g) any other non-cash charges, and minus, to the extent included in the statement of such Consolidated Net Income for such period, the sum of (a) interest income, (b) any extraordinary, unusual or non-recurring income or gains (including, whether or not otherwise includable as a separate item in the statement of such Consolidated Net Income for such period, gains on the sales of assets outside of the ordinary course of business; it being understood that the foregoing excludes up to $3,000,000 per fiscal year derived from recurring asset sales) and (c) any other non-cash income, all as determined on a consolidated basis. "Consolidated Interest Coverage Ratio": for any period, the ratio of (a) Consolidated EBITDA for such period to (b) Consolidated Interest Expense for such period. "Consolidated Interest Expense": for any period, total interest expense (including that attributable to Capital Lease Obligations but excluding amortization of deferred financing costs) of the Borrower and its Subsidiaries for such period with respect to all outstanding Indebtedness of the Borrower and its Subsidiaries (including, without limitation, all commissions, discounts and other fees and charges owed with respect to letters of credit and bankers' acceptance financing and net costs under Hedge Agreements in respect of interest rates to the extent such net costs are allocable to such period in accordance with GAAP). "Consolidated Leverage Ratio": as at the last day of any period of four consecutive fiscal quarters, the ratio of (a) Consolidated Total Debt on such day to (b) Consolidated EBITDA for such period; provided that for purposes of calculating 8 Consolidated EBITDA of the Borrower and its Subsidiaries for any period, the Consolidated EBITDA of any Person acquired by the Borrower or its Subsidiaries during such period shall be included on a pro forma basis for such period (assuming the consummation of such acquisition and the incurrence or assumption of any Indebtedness in connection therewith occurred on the first day of such period) if the consolidated balance sheet of such acquired Person and its consolidated Subsidiaries as at the end of the period preceding the acquisition of such Person and the related consolidated statements of income and stockholders' equity and of cash flows for the period in respect of which Consolidated EBITDA is to be calculated (i) have been previously provided to the Agents and the Lenders and (ii) either (A) have been reported on without a qualification arising out of the scope of the audit by independent certified public accountants of nationally recognized standing or (B) have been found reasonably acceptable by the Agents. "Consolidated Net Income": for any period, the consolidated net income (or loss) of the Borrower and its Subsidiaries, determined on a consolidated basis in accordance with GAAP; provided that there shall be excluded (a) the income (or deficit) of any Person accrued prior to the date it becomes a Subsidiary of the Borrower or is merged into or consolidated with the Borrower or any of its Subsidiaries, (b) the income (or deficit) of any Person (other than a Subsidiary of the Borrower) in which the Borrower or any of its Subsidiaries has an ownership interest, except to the extent that any such income is actually received by the Borrower or such Subsidiary in the form of dividends or similar distributions and (c) the undistributed earnings of any Subsidiary of the Borrower to the extent that the declaration or payment of dividends or similar distributions by such Subsidiary is not at the time permitted by the terms of any Contractual Obligation (other than under any Loan Document) or Requirement of Law applicable to such Subsidiary. "Consolidated Net Working Capital": at any date, the excess of Consolidated Current Assets on such date over Consolidated Current Liabilities on such date. "Consolidated Total Debt": at any date, the aggregate principal amount of all Funded Debt of the Borrower and its Subsidiaries at such date, determined on a consolidated basis in accordance with GAAP. "Contractual Obligation": as to any Person, any provision of any security issued by such Person or of any agreement, instrument or other undertaking to which such Person is a party or by which it or any of its Property is bound. "Default": any of the events specified in Section 9, whether or not any requirement for the giving of notice, the lapse of time, or both, has been satisfied. "Disposition": with respect to any Property, any sale, lease, sale and leaseback, assignment, conveyance, transfer or other disposition thereof; the terms "Dispose" and "Disposed of" shall have correlative meanings. "Dollars" and "$": dollars in lawful currency of the United States of America. 9 "Domestic Subsidiary": any Subsidiary of the Borrower organized under the laws of any jurisdiction within the United States of America. "Environmental Laws": any and all foreign, Federal, state, local or municipal laws, rules, orders, regulations, statutes, ordinances, codes, decrees, requirements of any Governmental Authority or other Requirements of Law (including common law) regulating, relating to or imposing liability or standards of conduct concerning protection of human health or the environment, as now or may at any time hereafter be in effect. "ERISA": the Employee Retirement Income Security Act of 1974, as amended from time to time. "Eurocurrency Reserve Requirements": for any day as applied to a Eurodollar Loan, the aggregate (without duplication) of the maximum rates (expressed as a decimal fraction) of reserve requirements in effect on such day (including, without limitation, basic, supplemental, marginal and emergency reserves under any regulations of the Board or other Governmental Authority having jurisdiction with respect thereto) dealing with reserve requirements prescribed for eurocurrency funding (currently referred to as "Eurocurrency Liabilities" in Regulation D of the Board) maintained by a member bank of the Federal Reserve System. "Eurodollar Base Rate": with respect to each day during each Interest Period pertaining to a Eurodollar Loan, the rate per annum determined on the basis of the rate for deposits in Dollars for a period equal to such Interest Period commencing on the first day of such Interest Period appearing on Page 3750 of the Dow Jones Markets screen as of 11:00 A.M., London time, two Business Days prior to the beginning of such Interest Period. In the event that such rate does not appear on Page 3750 of the Dow Jones Markets screen (or otherwise on such screen), the "Eurodollar Base Rate" for purposes of this definition shall be determined by reference to such other comparable publicly available service for displaying eurodollar rates as may be selected by the Administrative Agent or, in the absence of such availability, by reference to the rate at which the Administrative Agent is offered Dollar deposits at or about 11:00 A.M., New York City time, two Business Days prior to the beginning of such Interest Period in the interbank eurodollar market where its eurodollar and foreign currency and exchange operations are then being conducted for delivery on the first day of such Interest Period for the number of days comprised therein. "Eurodollar Loans": Loans the rate of interest applicable to which is based upon the Eurodollar Rate. "Eurodollar Rate": with respect to each day during each Interest Period pertaining to a Eurodollar Loan, a rate per annum determined for such day in accordance with the following formula (rounded upward to the nearest 1/100th of 1%): Eurodollar Base Rate ---------------------------------- 1.00 - Eurocurrency Reserve Requirements "Eurodollar Tranche": the collective reference to Eurodollar Loans the then 10 current Interest Periods with respect to all of which begin on the same date and end on the same later date (whether or not such Loans shall originally have been made on the same day). "Event of Default": any of the events specified in Section 9, provided that any requirement for the giving of notice, the lapse of time, or both, has been satisfied. "Excluded Foreign Subsidiaries": any Foreign Subsidiary in respect of which either (i) the pledge of all of the Capital Stock of such Subsidiary as Collateral or (ii) the guaranteeing by such Subsidiary of the Obligations, would, in the good faith judgment of the Borrower, result in adverse tax consequences to the Borrower. "Federal Funds Effective Rate": for any day, the weighted average of the rates on overnight federal funds transactions with members of the Federal Reserve System arranged by federal funds brokers, as published on the next succeeding Business Day by the Federal Reserve Bank of New York, or, if such rate is not so published for any day which is a Business Day, the average of the quotations for the day of such transactions received by Citibank N.A. from three federal funds brokers of recognized standing selected by it. "Final Order": an order of the Bankruptcy Court entered in the Case after a final hearing under Bankruptcy Rule 4001(c)(2) granting final approval of this Agreement and the other Loan Documents and granting the Liens and Super-Priority Claims in favor of the Administrative Agent for the benefit of the Agents and the Lenders, substantially in the form of Exhibit B, and otherwise in form and substance reasonably satisfactory to the Agents. "Foreign Subsidiary": any Subsidiary of the Borrower that is not a Domestic Subsidiary. "Funded Debt": as to any Person, all Indebtedness of such Person that matures more than one year from the date of its creation or matures within one year from such date but is renewable or extendible, at the option of such Person, to a date more than one year from such date or arises under a revolving credit or similar agreement that obligates the lender or lenders to extend credit during a period of more than one year from such date, including, without limitation, all current maturities and current sinking fund payments in respect of such Indebtedness whether or not required to be paid within one year from the date of its creation and, in the case of the Borrower, Indebtedness in respect of the Loans. "Funding Office": the office specified from time to time by the Administrative Agent as its funding office by notice to the Borrower and the Lenders. "GAAP": generally accepted accounting principles in the United States of America as in effect from time to time, except that for purposes of Section 8.1, GAAP shall be determined on the basis of such principles in effect on the date hereof and consistent with those used in the preparation of the most recent audited financial statements delivered pursuant to Section 5.1(b). In the event that any "Accounting 11 Change" (as defined below) shall occur and such change results in a change in the method of calculation of financial covenants, standards or terms in this Agreement, then the Borrower and the Agents agree to enter into negotiations in order to amend such provisions of this Agreement so as to equitably reflect such Accounting Changes with the desired result that the criteria for evaluating the Borrower's financial condition shall be the same after such Accounting Changes as if such Accounting Changes had not been made. Until such time as such an amendment shall have been executed and delivered by the Borrower, the Agents and the Required Lenders, all financial covenants, standards and terms in this Agreement shall continue to be calculated or construed as if such Accounting Changes had not occurred. "Accounting Changes" refers to changes in accounting principles required by the promulgation of any rule, regulation, pronouncement or opinion by the Financial Accounting Standards Board of the American Institute of Certified Public Accountants or, if applicable, the Securities and Exchange Commission (or successors thereto or agencies with similar functions). "Governmental Authority": any nation or government, any state or other political subdivision thereof and any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government (including, without limitation, the National Association of Insurance Commissioners). "Guarantee and Collateral Agreement": the Guarantee and Collateral Agreement to be executed and delivered by each Subsidiary Guarantor, substantially in the form of Exhibit A, as the same may be amended, supplemented or otherwise modified from time to time. "Guarantee Obligation": as to any Person (the "guaranteeing person"), any obligation of (a) the guaranteeing person or (b) another Person (including, without limitation, any bank under any letter of credit) to induce the creation of which the guaranteeing person has issued a reimbursement, counterindemnity or similar obligation, in either case guaranteeing or in effect guaranteeing any Indebtedness, leases, dividends or other obligations (the "primary obligations") of any other third Person (the "primary obligor") in any manner, whether directly or indirectly, including, without limitation, any obligation of the guaranteeing person, whether or not contingent, (i) to purchase any such primary obligation or any Property constituting direct or indirect security therefor, (ii) to advance or supply funds (1) for the purchase or payment of any such primary obligation or (2) to maintain working capital or equity capital of the primary obligor or otherwise to maintain the net worth or solvency of the primary obligor, (iii) to purchase Property, securities or services primarily for the purpose of assuring the owner of any such primary obligation of the ability of the primary obligor to make payment of such primary obligation or (iv) otherwise to assure or hold harmless the owner of any such primary obligation against loss in respect thereof; provided, however, that the term Guarantee Obligation shall not include endorsements of instruments for deposit or collection in the ordinary course of business. The amount of any Guarantee Obligation of any guaranteeing person shall be deemed to be the lower of (a) an amount equal to the stated or determinable amount of the primary obligation in respect of which such Guarantee Obligation is made and (b) the maximum amount for which such guaranteeing person may be liable pursuant to the terms of the instrument embodying such Guarantee Obligation, unless such primary obligation and the maximum amount for which such 12 guaranteeing person may be liable are not stated or determinable, in which case the amount of such Guarantee Obligation shall be such guaranteeing person's maximum reasonably anticipated liability in respect thereof as determined by the Borrower in good faith. "Hedge Agreements": all interest rate swaps, caps or collar agreements or similar arrangements entered into by the Borrower providing for protection against fluctuations in interest rates or currency exchange rates or the exchange of nominal interest obligations, either generally or under specific contingencies. "Indebtedness": of any Person at any date, without duplication, (a) all indebtedness of such Person for borrowed money, (b) all obligations of such Person for the deferred purchase price of Property or services (other than current trade payables incurred in the ordinary course of such Person's business), (c) all obligations of such Person evidenced by notes, bonds, debentures or other similar instruments, (d) all indebtedness created or arising under any conditional sale or other title retention agreement with respect to Property acquired by such Person (even though the rights and remedies of the seller or lender under such agreement in the event of default are limited to repossession or sale of such Property), (e) all Capital Lease Obligations of such Person, (f) all obligations of such Person, contingent or otherwise, as an account party under acceptance, letter of credit or similar facilities, (g) all obligations of such Person, contingent or otherwise, to purchase, redeem, retire or otherwise acquire for value any Capital Stock of such Person, (h) all Guarantee Obligations of such Person in respect of obligations of the kind referred to in clauses (a) through (g) above; (i) all obligations of the kind referred to in clauses (a) through (h) above secured by (or for which the holder of such obligation has an existing right, contingent or otherwise, to be secured by) any Lien on Property (including, without limitation, accounts and contract rights) owned by such Person, whether or not such Person has assumed or become liable for the payment of such obligation, (j) for the purposes of Section 8(e) only, all obligations of such Person in respect of Hedge Agreements and (k) the liquidation value of any mandatorily redeemable preferred Capital Stock of such Person or its Subsidiaries held by any Person other than such Person and its Wholly Owned Subsidiaries. "Indemnified Liabilities": as defined in Section 12.5. "Indemnitee": as defined in Section 12.5. "Insolvency": with respect to any Multiemployer Plan, the condition that such Plan is insolvent within the meaning of Section 4245 of ERISA. "Insolvent": pertaining to a condition of Insolvency. "Intellectual Property": the collective reference to all rights, priorities and privileges relating to intellectual property, whether arising under United States, multinational or foreign laws or otherwise, including, without limitation, copyrights, copyright licenses, patents, patent licenses, trademarks, trademark licenses, technology, know-how and processes, and all rights to sue at law or in equity for any infringement or other impairment thereof, including the right to receive all proceeds and damages 13 therefrom. "Interest Payment Date": (a) as to any Base Rate Loan, the last day of each 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 (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. "Interest Period": as to any Eurodollar Loan, (a) initially, the period commencing on the borrowing or conversion date, as the case may be, with respect to such Eurodollar Loan and ending one week, two weeks, three weeks or one month thereafter, as selected by the Borrower in its notice of borrowing or notice of conversion, as the case may be, given with respect thereto; and (b) thereafter, each period commencing on the last day of the next preceding Interest Period applicable to such Eurodollar Loan and ending one week, two weeks, three weeks or one month thereafter, as selected by the Borrower by irrevocable notice to the Administrative Agent not less than three Business Days prior to the last day of the then current Interest Period with respect thereto; provided that, all of the foregoing provisions relating to Interest Periods are subject to the following: (i) if any Interest Period would otherwise end on a day that is not a Business Day, such Interest Period shall be extended to the next succeeding Business Day unless the result of such extension would be to carry such Interest Period into another calendar month in which event such Interest Period shall end on the immediately preceding Business Day; (ii) any Interest Period that would otherwise extend beyond the Termination Date shall end on the Termination Date or such due date, as applicable; (iii) any Interest Period that begins on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall end on the last Business Day of a calendar month; and (iv) the Borrower shall select Interest Periods so as not to require a payment or prepayment of any Eurodollar Loan during an Interest Period for such Loan. "Investments": as defined in Section 8.8. "Issuing Lender": Swiss Bank Corporation, in its capacity as issuer of any Letter of Credit. "L/C Cash Collateral Account": the account established by the Borrower under the sole and exclusive control of the Administrative Agent maintained at the office of the Administrative Agent designated as "The Grand Union Company, Debtor-in-Possession L/C Cash Collateral Account" or other similar title which shall be used solely for the purposes set forth in Sections 3.1(b) and 4.2. 14 "L/C Commitment": $50,000,000. "L/C Fee Payment Date": the last day of each month to occur while Letters of Credit are outstanding and the Termination Date. "L/C Obligations": at any time, an amount equal to the sum of (a) the aggregate then undrawn and unexpired amount of the then outstanding Letters of Credit and (b) the aggregate amount of drawings under Letters of Credit which have not then been reimbursed pursuant to Section 3.5. "L/C Participants": the collective reference to all the Lenders other than the Issuing Lender. "Letters of Credit": as defined in Section 3.1(a). "Lien": any mortgage, pledge, hypothecation, assignment, deposit arrangement, encumbrance, lien (statutory or other), charge or other security interest or any preference, priority or other security agreement or preferential arrangement of any kind or nature whatsoever (including, without limitation, any conditional sale or other title retention agreement and any capital lease having substantially the same economic effect as any of the foregoing). "Loan": any loan made by any Lender pursuant to this Agreement. "Loan Documents": this Agreement, the Security Documents and the Notes. "Loan Parties": the Borrower and each Subsidiary Guarantor. "Material Adverse Effect": a material adverse effect on (a) the business, assets, property, condition (financial or otherwise) of the Borrower and its Subsidiaries taken as a whole or (b) the validity or enforceability of this Agreement or any of the other Loan Documents or the rights or remedies of the Agents or the Lenders hereunder or thereunder, in each case, other than such effects as result solely from the commencement of the Case. "Material Environmental Amount": an amount payable by the Borrower and/or its Subsidiaries in excess of $5,000,000 for remedial costs, compliance costs, compensatory damages, punitive damages, fines, penalties or any combination thereof. "Materials of Environmental Concern": any gasoline or petroleum (including crude oil or any fraction thereof) or petroleum products or any hazardous or toxic substances, materials or wastes, defined or regulated as such in or under any Environmental Law, including, without limitation, asbestos, polychlorinated biphenyls and urea-formaldehyde insulation. "Maturity Date": October 22, 1998. 15 "Multiemployer Plan": a Plan which is a multiemployer plan as defined in Section 4001(a)(3) of ERISA. "New Lending Office": as defined in Section 2.17(d). "Non-Excluded Taxes": as defined in Section 2.17(a). "Non-U.S. Lender": as defined in Section 2.17(d). "Notes": the collective reference to any promissory note evidencing Loans. "Obligations": the unpaid principal of and interest on (including, without limitation, interest accruing after the maturity of the Loans and Reimbursement Obligations and interest accruing after the filing of any petition in bankruptcy, or the commencement of any insolvency, reorganization or like proceeding, relating to the Borrower, whether or not a claim for post-filing or post-petition interest is allowed in such proceeding) the Loans and all other obligations and liabilities of the Borrower to the Agents or to any Lender (or, in the case of Hedge Agreements, any affiliate of any Lender), whether direct or indirect, absolute or contingent, due or to become due, or now existing or hereafter incurred, which may arise under, out of, or in connection with, this Agreement, any other Loan Document, the Letters of Credit, any Hedge Agreement entered into with any Lender or any affiliate of any Lender or any other document made, delivered or given in connection herewith or therewith, whether on account of principal, interest, reimbursement obligations, fees, indemnities, costs, expenses (including, without limitation, all fees, charges and disbursements of counsel to the Agents or to any Lender that are required to be paid by the Borrower pursuant hereto) or otherwise. "Other Taxes": any and all present or future stamp or documentary taxes or any other excise or property taxes, charges or similar levies arising from any payment made hereunder or from the execution, delivery or enforcement of, or otherwise with respect to, this Agreement or any other Loan Document. "Participant": as defined in Section 12.6(b). "Payment Office": the office specified from time to time by the Administrative Agent as its payment office by notice to the Borrower and the Lenders. "PBGC": the Pension Benefit Guaranty Corporation established pursuant to Subtitle A of Title IV of ERISA (or any successor). "Permitted Liens": Liens permitted to exist under Section 8.3. "Person": an individual, partnership, corporation, limited liability company, business trust, joint stock company, trust, unincorporated association, joint venture, Governmental Authority or other entity of whatever nature. "Petition Date": as defined in the Recitals. 16 "Plan": at a particular time, any employee benefit plan which is covered by ERISA and in respect of which the Borrower or a Commonly Controlled Entity is (or, if such plan were terminated at such time, would under Section 4069 of ERISA be deemed to be) an "employer" as defined in Section 3(5) of ERISA. "Plan of Reorganization": as defined in the Recitals. "Prepetition Agent": Bankers Trust Company in its capacity as agent for the Prepetition Lenders under the Prepetition Credit Agreement. "Prepetition Credit Agreement": the Amended and Restated Credit Agreement, dated as of June 15, 1995, among the Borrower, the Prepetition Lenders, and the Prepetition Agent, as amended, supplemented or otherwise modified prior to the Petition Date. "Prepetition Collateral": all Property securing the Prepetition Obligations. "Prepetition Lenders": collectively, the several banks, financial institutions and other entities from time to time parties to the Prepetition Credit Agreement. "Prepetition Obligations": the aggregate outstanding principal amount of the loans and other financial accommodations made (including letters of credit outstanding as of the Petition Date) under or pursuant to the Prepetition Credit Agreement, and all accrued but unpaid interest and fees, costs and other charges payable to the Prepetition Agent or the Prepetition Lenders under or pursuant to the Prepetition Credit Agreement. "Prepetition Supplemental Term Loans": Supplemental Term Loans, as defined in the Prepetition Credit Agreement. "Pro Forma Balance Sheet": as defined in Section 5.1(a). "Projections": as defined in Section 7.2(c). "Properties": as defined in Section 5.17(a). "Property": any right or interest in or to property of any kind whatsoever, whether real, personal or mixed and whether tangible or intangible, including, without limitation, Capital Stock. "Refunded Swing Line Loans": as defined in Section 2.4(b). "Refunding Date": as defined in Section 2.4(c). "Register": as defined in Section 12.6(d). "Regulation U": Regulation U of the Board as in effect from time to time. "Reimbursement Obligation": the obligation of the Borrower to reimburse the 17 Issuing Lender pursuant to Section 3.5 for amounts drawn under Letters of Credit. "Reorganization": with respect to any Multiemployer Plan, the condition that such plan is in reorganization within the meaning of Section 4241 of ERISA. "Reportable Event": any of the events set forth in Section 4043(b) of ERISA, other than those events as to which the thirty day notice period is waived under subsections .27, .28, .29, .30, .31, .32, .34 or .35 of PBGC Reg. ss. 4043. "Required Lenders": at any time, the holders of more than 50% of (a) until the Closing Date, the Revolving Credit Commitments and (b) thereafter, the Total Revolving Credit Commitments then in effect or, if the Revolving Credit Commitments have been terminated, the Total Revolving Extensions of Credit then outstanding. "Requirement of Law": as to any Person, the Certificate of Incorporation and By-Laws or other organizational or governing documents of such Person, and any law, treaty, rule or regulation or determination of an arbitrator or a court or other Governmental Authority, in each case applicable to or binding upon such Person or any of its Property or to which such Person or any of its Property is subject. "Responsible Officer": the chief executive officer, president, chief administrative officer or chief financial officer of the Borrower, but in any event, with respect to financial matters, the chief financial officer, the treasurer and controller of the Borrower. "Restricted Payments": as defined in Section 8.6. "Revolving Credit Commitment": as to any Lender, the obligation of such Lender to make Revolving Credit Loans and participate in Swing Line Loans and Letters of Credit, in an aggregate principal and/or face amount not to exceed the amount set forth under the heading "Revolving Credit Commitment" opposite such Lender's name on Schedule 1.1, as the same may be changed from time to time pursuant to the terms hereof. The original amount of the Total Revolving Credit Commitments is $172,022,020. "Revolving Credit Commitment Fee Rate": 1/2 of 1% per annum. "Revolving Credit Commitment Period": the period from and including the Closing Date to the Termination Date. "Revolving Credit Loans": as defined in Section 2.1. "Revolving Credit Percentage": as to any Lender at any time, the percentage which such Lender's Revolving Credit Commitment then constitutes of the Total Revolving Credit Commitments (or, at any time after the Revolving Credit Commitments shall have expired or terminated, the percentage which the aggregate principal amount of such Lender's Revolving Credit Loans then outstanding constitutes of the aggregate principal amount of the Revolving Credit Loans then outstanding). "Revolving Extensions of Credit": as to any Lender at any time, an amount equal 18 to the sum of (a) the aggregate principal amount of all Revolving Credit Loans made by such Lender then outstanding, (b) such Lender's Revolving Credit Percentage of the L/C Obligations then outstanding and (c) such Lender's Revolving Credit Percentage of the aggregate principal amount of Swing Line Loans then outstanding. "Security Documents": the collective reference to the Guarantee and Collateral Agreement, this Agreement and all other security documents hereafter delivered to the Administrative Agent granting a Lien on any Property of any Person to secure the obligations and liabilities of any Loan Party under any Loan Document. "Single Employer Plan": any Plan which is covered by Title IV of ERISA, but which is not a Multiemployer Plan. "Steering Committee": the unofficial committee of holders of the Debtor's 12% Senior Notes due September 1, 2004. "Subsidiary": as to any Person, a corporation, partnership, limited liability company or other entity of which shares of stock or other ownership interests having ordinary voting power (other than stock or such other ownership interests having such power only by reason of the happening of a contingency) to elect a majority of the board of directors or other managers of such corporation, partnership or other entity are at the time owned, or the management of which is otherwise controlled, directly or indirectly through one or more intermediaries, or both, by such Person. Unless otherwise qualified, all references to a "Subsidiary" or to "Subsidiaries" in this Agreement shall refer to a Subsidiary or Subsidiaries of the Borrower. "Subsidiary Guarantor": each Subsidiary of the Borrower other than any Excluded Foreign Subsidiary. "Super-Priority Claim": a claim against the Borrower and in the Case which is an administrative expense claim having priority over any or all administrative expenses of the kind specified in Sections 503(b) or 507(b) of the Bankruptcy Code. "Swing Line Commitment": the obligation of the Swing Line Lender to make Swing Line Loans pursuant to Section 2.3 in an aggregate principal amount at any one time outstanding not to exceed $10,000,000. "Swing Line Lender": Lehman Commercial Paper Inc., in its capacity as the lender of Swing Line Loans. "Swing Line Loans": as defined in Section 2.3. "Swing Line Participation Amount": as defined in Section 2.4. "Termination Date": the earliest to occur of (i) the Maturity Date, (ii) the effective date of a Plan of Reorganization confirmed by the Bankruptcy Court pursuant to the Confirmation Order, or (iii) the termination of the Total Revolving Credit Commitment in accordance with the terms hereof. 19 "Total Revolving Credit Commitments": at any time, the aggregate amount of the Revolving Credit Commitments then in effect. "Total Revolving Extensions of Credit": at any time, the aggregate amount of the Revolving Extensions of Credit of the Lenders outstanding at such time. "Transferee": as defined in Section 12.15. "Type": as to any Loan, its nature as a Base Rate Loan or a Eurodollar Loan. "Uniform Customs": the Uniform Customs and Practice for Documentary Credits (1993 Revision), International Chamber of Commerce Publication No. 500, as the same may be amended from time to time. "Wholly Owned Subsidiary": as to any Person, any other Person all of the Capital Stock of which (other than directors' qualifying shares required by law) is owned by such Person directly and/or through other Wholly Owned Subsidiaries. "Wholly Owned Subsidiary Guarantor": any Subsidiary Guarantor that is a Wholly Owned Subsidiary of the Borrower. 1.2 Other Definitional Provisions. (a) Unless otherwise specified therein, all terms defined in this Agreement shall have the defined meanings when used in the other Loan Documents or any certificate or other document made or delivered pursuant hereto or thereto. (b) As used herein and in the other Loan Documents, and any certificate or other document made or delivered pursuant hereto or thereto, accounting terms relating to the Borrower and its Subsidiaries not defined in Section 1.1 and accounting terms partly defined in Section 1.1, to the extent not defined, shall have the respective meanings given to them under GAAP. (c) The words "hereof", "herein" and "hereunder" and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement, and Section, Schedule and Exhibit references are to this Agreement unless otherwise specified. (d) The meanings given to terms defined herein shall be equally applicable to both the singular and plural forms of such terms. SECTION 2. AMOUNT AND TERMS OF REVOLVING CREDIT COMMITMENTS 2.1 Revolving Credit Commitments. (a) Subject to the terms and conditions hereof, each Lender severally agrees to make revolving credit loans ("Revolving Credit Loans") to the Borrower from time to time during the Revolving Credit Commitment Period in an aggregate principal amount at any one time outstanding which, when added to such Lender's Revolving Credit Percentage of the sum of (i) the L/C Obligations then outstanding and (ii) the 20 aggregate principal amount of the Swing Line Loans then outstanding, does not exceed the amount of such Lender's Revolving Credit Commitment then in effect. During the Revolving Credit Commitment Period the Borrower may use the Revolving Credit Commitments by borrowing, prepaying the Revolving Credit Loans in whole or in part, and reborrowing, all in accordance with the terms and conditions hereof. The Revolving Credit Loans may from time to time be Eurodollar Loans or Base Rate Loans, as determined by the Borrower and notified to the Administrative Agent in accordance with Sections 2.2 and 2.10, provided that no Revolving Credit Loan shall be made as a Eurodollar Loan after the day that is one week prior to the Termination Date. (b) The Borrower shall repay all outstanding Revolving Credit Loans on the Termination Date. 2.2 Procedure for Revolving Credit Borrowing. The Borrower may borrow under the Revolving Credit Commitments during the Revolving Credit Commitment Period on any Business Day, provided that the Borrower shall give the Administrative Agent irrevocable notice (which notice must be received by the Administrative Agent prior to 12:00 Noon, New York City time, (a) three Business Days prior to the requested Borrowing Date, in the case of Eurodollar Loans, or (b) one Business Day prior to the requested Borrowing Date, in the case of Base Rate Loans), specifying (i) the amount and Type of Revolving Credit Loans to be borrowed, (ii) the requested Borrowing Date and (iii) in the case of Eurodollar Loans, the respective amounts of each such Type of Loan and the respective lengths of the initial Interest Period therefor. Each borrowing under the Revolving Credit Commitments shall be in an amount equal to (x) in the case of Base Rate Loans, $1,000,000 or a whole multiple thereof (or, if the then aggregate Available Revolving Credit Commitments are less than $1,000,000, such lesser amount) and (y) in the case of Eurodollar Loans, $5,000,000 or a whole multiple of $1,000,000 in excess thereof; provided, that the Swing Line Lender may request, on behalf of the Borrower, borrowings under the Revolving Credit Commitments which are Base Rate Loans in other amounts pursuant to Section 2.4. Upon receipt of any such notice from the Borrower, the Administrative Agent shall promptly notify each Lender thereof. Each Lender will make the amount of its pro rata share of each borrowing available to the Administrative Agent for the account of the Borrower at the Funding Office prior to 12:00 Noon, New York City time, on the Borrowing Date requested by the Borrower in funds immediately available to the Administrative Agent. Such borrowing will then be made available to the Borrower by the Administrative Agent crediting the account of the Borrower on the books of the Funding Office with the aggregate of the amounts made available to the Administrative Agent by the Lenders and in like funds as received by the Administrative Agent. 2.3 Swing Line Commitment. (a) Subject to the terms and conditions hereof, the Swing Line Lender agrees to make a portion of the credit otherwise available to the Borrower under the Revolving Credit Commitments from time to time during the Revolving Credit Commitment Period by making swing line loans ("Swing Line Loans") to the Borrower; provided that (i) the aggregate principal amount of Swing Line Loans outstanding at any time shall not exceed the Swing Line Commitment then in effect (notwithstanding that the Swing Line Loans outstanding at any time, when aggregated with the Swing Line Lender's other outstanding Revolving Credit Loans hereunder, may exceed the Swing Line Commitment then in effect) and (ii) the Borrower shall not request, and the Swing Line Lender shall not make, any Swing Line Loan if, after giving effect to the making of such Swing Line Loan, the aggregate amount of the 21 Available Revolving Credit Commitments would be less than zero. During the Revolving Credit Commitment Period, the Borrower may use the Swing Line Commitment by borrowing, repaying and reborrowing, all in accordance with the terms and conditions hereof. Swing Line Loans shall be Base Rate Loans only. (b) The Borrower shall repay all outstanding Swing Line Loans on the Termination Date. 2.4 Procedure for Swing Line Borrowing; Refunding of Swing Line Loans. (a) Whenever the Borrower desires that the Swing Line Lender make Swing Line Loans it shall give the Swing Line Lender irrevocable telephonic notice confirmed promptly in writing (which telephonic notice must be received by the Swing Line Lender not later than 1:00 P.M., New York City time, on the proposed Borrowing Date), specifying (i) the amount to be borrowed and (ii) the requested Borrowing Date (which shall be a Business Day during the Revolving Credit Commitment Period). Each borrowing under the Swing Line Commitment shall be in an amount equal to $500,000 or a whole multiple of $100,000 in excess thereof. Not later than 3:00 P.M., New York City time, on the Borrowing Date specified in a notice in respect of Swing Line Loans, the Swing Line Lender shall make available to the Administrative Agent at the Funding Office an amount in immediately available funds equal to the amount of the Swing Line Loan to be made by the Swing Line Lender. The Administrative Agent shall make the proceeds of such Swing Line Loan available to the Borrower on such Borrowing Date by depositing such proceeds in the account of the Borrower with the Administrative Agent on such Borrowing Date in immediately available funds. (b) The Swing Line Lender, at any time and from time to time in its sole and absolute discretion may, on behalf of the Borrower (which hereby irrevocably directs the Swing Line Lender to act on its behalf), on one Business Day's notice given by the Swing Line Lender no later than 12:00 Noon, New York City time, request each Lender to make, and each Lender hereby agrees to make, a Revolving Credit Loan, in an amount equal to such Lender's Revolving Credit Percentage of the aggregate amount of the Swing Line Loans (the "Refunded Swing Line Loans") outstanding on the date of such notice, to repay the Swing Line Lender. Each Lender shall make the amount of such Revolving Credit Loan available to the Administrative Agent at the Funding Office in immediately available funds, not later than 10:00 A.M., New York City time, one Business Day after the date of such notice. The proceeds of such Revolving Credit Loans shall be immediately made available by the Administrative Agent to the Swing Line Lender for application by the Swing Line Lender to the repayment of the Refunded Swing Line Loans. The Borrower irrevocably authorizes the Swing Line Lender to charge the Borrower's accounts with the Administrative Agent (up to the amount available in each such account) in order to immediately pay the amount of such Refunded Swing Line Loans to the extent amounts received from the Lenders are not sufficient to repay in full such Refunded Swing Line Loans. (c) If prior to the time a Revolving Credit Loan would have otherwise been made pursuant to Section 2.4(b), if for any reason, as determined by the Swing Line Lender in its sole discretion, Revolving Credit Loans may not be made as contemplated by Section 2.4(b), each Lender shall, on the date such Revolving Credit Loan was to have been made pursuant to the notice referred to in Section 2.4(b) (the "Refunding Date"), purchase for cash an undivided participating interest in the then outstanding Swing Line Loans by paying to the Swing Line Lender an amount (the "Swing Line Participation Amount") equal to (i) such Lender's Revolving 22 Credit Percentage times (ii) the sum of the aggregate principal amount of Swing Line Loans then outstanding which were to have been repaid with such Revolving Credit Loans. (d) Whenever, at any time after the Swing Line Lender has received from any Lender such Lender's Swing Line Participation Amount, the Swing Line Lender receives any payment on account of the Swing Line Loans, the Swing Line Lender will distribute to such Lender its Swing Line Participation Amount (appropriately adjusted, in the case of interest payments, to reflect the period of time during which such Lender's participating interest was outstanding and funded and, in the case of principal and interest payments, to reflect such Lender's pro rata portion of such payment if such payment is not sufficient to pay the principal of and interest on all Swing Line Loans then due); provided, however, that in the event that such payment received by the Swing Line Lender is required to be returned, such Lender will return to the Swing Line Lender any portion thereof previously distributed to it by the Swing Line Lender. (e) Each Lender's obligation to make the Loans referred to in Section 2.4(b) and to purchase participating interests pursuant to Section 2.4(c) shall be absolute and unconditional and shall not be affected by any circumstance, including, without limitation, (i) any setoff, counterclaim, recoupment, defense or other right which such Lender or the Borrower may have against the Swing Line Lender, the Borrower or any other Person for any reason whatsoever; (ii) the occurrence or continuance of a Default or an Event of Default or the failure to satisfy any of the other conditions specified in Section 6; (iii) any adverse change in the condition (financial or otherwise) of the Borrower; (iv) any breach of this Agreement or any other Loan Document by the Borrower, any other Loan Party or any other Lender; or (v) any other circumstance, happening or event whatsoever, whether or not similar to any of the foregoing. 2.5 Repayment of Loans; Evidence of Debt. (a) The Borrower hereby unconditionally promises to pay to the Administrative Agent for the account of the appropriate Lender, (i) the then unpaid principal amount of each Revolving Credit Loan of such Lender on the Termination Date (or such earlier date on which the Loans become due and payable pursuant to Section 9) and (ii) the then unpaid principal amount of each Swing Line Loan of such Swing Line Lender on the Termination Date (or such earlier date on which the Loans become due and payable pursuant to Section 9). The Borrower hereby further agrees to pay interest on the unpaid principal amount of the Loans from time to time outstanding from the date hereof until payment in full thereof at the rates per annum, and on the dates, set forth in Section 2.12. (b) Each Lender shall maintain in accordance with its usual practice an account or accounts evidencing indebtedness of the Borrower to such Lender resulting from each Loan of such Lender from time to time, including the amounts of principal and interest payable and paid to such Lender from time to time under this Agreement. (c) The Administrative Agent, on behalf of the Borrower, shall maintain the Register pursuant to Section 12.6(e), and a subaccount therein for each Lender, in which shall be recorded (i) the amount of each Loan made hereunder and any Note evidencing such Loan, the Type thereof and each Interest Period applicable thereto, (ii) the amount of any principal or interest due and payable or to become due and payable from the Borrower to each Lender hereunder and (iii) both the amount of any sum received by the Administrative Agent hereunder from the Borrower and each Lender's share thereof. 23 (d) The entries made in the Register and the accounts of each Lender maintained pursuant to Section 2.5(b) shall, to the extent permitted by applicable law, be prima facie evidence of the existence and amounts of the obligations of the Borrower therein recorded; provided, however, that the failure of any Lender or the Administrative Agent to maintain the Register or any such account, or any error therein, shall not in any manner affect the obligation of the Borrower to repay (with applicable interest) the Loans made to such Borrower by such Lender in accordance with the terms of this Agreement. (e) The Borrower agrees that, upon the request to the Administrative Agent by any Lender, the Borrower will execute and deliver to such Lender a promissory note of the Borrower evidencing any Revolving Credit Loans or Swing Line Loans, as the case may be, of such Lender, substantially in the forms of Exhibit G-1 or G-2, respectively, with appropriate insertions as to date and principal amount. 2.6 Revolving Credit Commitment Fees, etc. (a) The Borrower agrees to pay to the Administrative Agent for the account of each Lender a commitment fee for the Revolving Credit Commitment Period, computed at the Revolving Credit Commitment Fee Rate on the average daily amount of the Available Revolving Credit Commitment of such Lender during the period for which payment is made, payable monthly in arrears on the last day of each month and on the Termination Date. (b) The Borrower agrees to pay to the Agents the fees in the amounts and on the dates from time to time agreed to in writing by the Borrower and the Agents. 2.7 Termination or Reduction of Revolving Credit Commitments. The Borrower shall have the right, upon not less than three Business Days' notice to the Administrative Agent, to terminate the Revolving Credit Commitments or, from time to time, to reduce the amount of the Revolving Credit Commitments; provided that no such termination or reduction of Revolving Credit Commitments shall be permitted if, after giving effect thereto and to any prepayments of the Revolving Credit Loans and Swing Line Loans made on the effective date thereof, the Total Revolving Extensions of Credit would exceed the Total Revolving Credit Commitments. Any such reduction shall be in an amount equal to $1,000,000, or a whole multiple thereof, and shall reduce permanently the Revolving Credit Commitments then in effect. 2.8 Optional Prepayments. The Borrower may at any time and from time to time prepay the Loans, in whole or in part, upon irrevocable notice delivered to the Administrative Agent at least three Business Days prior thereto in the case of Eurodollar Loans and at least one Business Day prior thereto in the case of Base Rate Loans, which notice shall specify the date and amount of prepayment and whether the prepayment is of Eurodollar Loans or Base Rate Loans; provided, that if a Eurodollar Loan is prepaid on any day other than the last day of the Interest Period applicable thereto, the Borrower shall also pay any amounts owing pursuant to Section 2.18. Upon receipt of any such notice the Administrative Agent shall promptly notify each relevant Lender thereof. If any such notice is given, the amount specified in such notice shall be due and payable on the date specified therein, together with (except in the case of Revolving Credit Loans which are Base Rate Loans and Swing Line Loans) accrued interest to such date on the amount prepaid. Partial prepayments of Revolving Credit Loans shall be in an aggregate principal amount of $1,000,000 or a whole multiple thereof. Partial prepayments of Swing Line Loans shall be in an aggregate principal amount of $100,000 or a whole multiple 24 thereof. 2.9 Mandatory Prepayments and Revolving Credit Commitment Reductions. (a) If, at any time during the Revolving Credit Commitment Period, the Total Revolving Extensions of Credit exceed the amount of the Total Revolving Credit Commitments, the Borrower shall, without notice of demand, immediately prepay the Revolving Credit Loans and/or Swing Line Loans in an aggregate principal amount equal to such excess, together with interest accrued to the date of such payment or prepayment. (b) Any reduction of the Revolving Credit Commitments shall be accompanied by prepayment of the Revolving Credit Loans and/or Swing Line Loans to the extent, if any, that the Total Revolving Extensions of Credit exceed the amount of the Total Revolving Credit Commitments as so reduced, provided that if the aggregate principal amount of Revolving Credit Loans and Swing Line Loans then outstanding is less than the amount of such excess (because L/C Obligations constitute a portion thereof), the Borrower shall, to the extent of the balance of such excess, replace outstanding Letters of Credit and/or deposit an amount in cash equal to 105% of the amount of such excess in the L/C Cash Collateral Account. The application of any prepayment pursuant to this Section 2.9 shall be made first to Base Rate Loans and second to Eurodollar Loans. Each prepayment of the Loans under this Section 2.9 (except in the case of Revolving Credit Loans that are Base Rate Loans and Swing Line Loans) shall be accompanied by accrued interest to the date of such prepayment on the amount prepaid. 2.10 Conversion and Continuation Options. (a) The Borrower may elect from time to time to convert Eurodollar Loans to Base Rate Loans by giving the Administrative Agent at least two Business Days' prior irrevocable notice of such election, provided that any such conversion of Eurodollar Loans may only be made on the last day of an Interest Period with respect thereto. The Borrower may elect from time to time to convert Base Rate Loans to Eurodollar Loans by giving the Administrative Agent at least three Business Days' prior irrevocable notice of such election (which notice shall specify the length of the initial Interest Period therefor), provided that no Base Rate Loan may be converted into a Eurodollar Loan (i) when any Event of Default has occurred and is continuing and the Administrative Agent or the Required Lenders have determined in its or their sole discretion not to permit such conversions or (ii) after the date that is one week prior to the Termination Date. Upon receipt of any such notice the Administrative Agent shall promptly notify each relevant Lender thereof. (b) Any Eurodollar Loan may be continued as such upon the expiration of the then current Interest Period with respect thereto by the Borrower giving irrevocable notice to the Administrative Agent, in accordance with the applicable provisions of the term "Interest Period" set forth in Section 1.1, of the length of the next Interest Period to be applicable to such Loans, provided that no Eurodollar Loan may be continued as such (i) when any Event of Default has occurred and is continuing and the Administrative Agent has or the Required Lenders have determined in its or their sole discretion not to permit such continuations or (ii) after the date that is one week prior to the Termination Date, and provided, further, that if the Borrower shall fail to give any required notice as described above in this paragraph or if such continuation is not permitted pursuant to the preceding proviso such Loans shall be automatically converted to Base Rate Loans on the last day of such then expiring Interest Period. Upon receipt of any such notice the Administrative Agent shall promptly notify each relevant Lender thereof. 25 2.11 Minimum Amounts and Maximum Number of Eurodollar Tranches. Notwithstanding anything to the contrary in this Agreement, all borrowings, conversions, continuations and optional prepayments of Eurodollar Loans hereunder and all selections of Interest Periods hereunder shall be in such amounts and be made pursuant to such elections so that, (a) after giving effect thereto, the aggregate principal amount of the Eurodollar Loans comprising each Eurodollar Tranche shall be equal to $5,000,000 or a whole multiple of $1,000,000 in excess thereof and (b) no more than ten Eurodollar Tranches shall be outstanding at any one time. 2.12 Interest Rates and Payment Dates. (a) Each Eurodollar Loan shall bear interest for each day during each Interest Period with respect thereto at a rate per annum equal to the Eurodollar Rate determined for such day plus 2.50%. (b) Each Base Rate Loan shall bear interest at a rate per annum equal to the Base Rate plus 1.50%. (c) (i) If all or a portion of the principal amount of any Loan or Reimbursement Obligation shall not be paid when due (whether at the stated maturity, by acceleration or otherwise), all outstanding Loans and Reimbursement Obligations (whether or not overdue) shall bear interest at a rate per annum which is equal to (x) in the case of the Loans, the rate that would otherwise be applicable thereto pursuant to the foregoing provisions of this Section 2.12 plus 2%, or (y) in the case of Reimbursement Obligations, the rate applicable to Base Rate Loans plus 2%, and (ii) if all or a portion of any interest payable on any Loan or Reimbursement Obligation or any commitment fee or other amount payable hereunder shall not be paid when due (whether at the stated maturity, by acceleration or otherwise), such overdue amount shall bear interest at a rate per annum equal to the rate then applicable to Base Rate Loans plus 2%, in each case, with respect to clauses (i) and (ii) above, from the date of such non-payment until such amount is paid in full (as well after as before judgment). (d) Interest shall be payable in arrears on each Interest Payment Date, provided that interest accruing pursuant to paragraph (c) of this Section 2.12 shall be payable from time to time on demand. 2.13 Computation of Interest and Fees. (a) Interest, fees and commissions payable pursuant hereto shall be calculated on the basis of a 360-day year for the actual days elapsed, except that, with respect to Base Rate Loans the rate of interest on which is calculated on the basis of the Prime Rate, the interest thereon shall be calculated on the basis of a 365- (or 366-, as the case may be) day year for the actual days elapsed. The Administrative Agent shall as soon as practicable notify the Borrower and the relevant Lenders of each determination of a Eurodollar Rate. Any change in the interest rate on a Loan resulting from a change in the Base Rate or the Eurocurrency Reserve Requirements shall become effective as of the opening of business on the day on which such change becomes effective. The Administrative Agent shall as soon as practicable notify the Borrower and the relevant Lenders of the effective date and the amount of each such change in interest rate. (b) Each determination of an interest rate by the Administrative Agent pursuant to any provision of this Agreement shall be conclusive and binding on the Borrower and the Lenders in the absence of manifest error. The Administrative Agent shall, at the request of the 26 Borrower, deliver to the Borrower a statement showing the quotations used by the Administrative Agent in determining any interest rate pursuant to Section 2.12(a). 2.14 Inability to Determine Interest Rate. If prior to the first day of any Interest Period: (a) the Administrative Agent shall have determined (which determination shall be conclusive and binding upon the Borrower) that, by reason of circumstances affecting the relevant market, adequate and reasonable means do not exist for ascertaining the Eurodollar Rate for such Interest Period, or (b) the Administrative Agent shall have received notice from the Required Lenders that the Eurodollar Rate determined or to be determined for such Interest Period will not adequately and fairly reflect the cost to such Lenders (as conclusively certified by such Lenders) of making or maintaining their affected Loans during such Interest Period, the Administrative Agent shall give telecopy or telephonic notice thereof to the Borrower and the relevant Lenders as soon as practicable thereafter. If such notice is given (x) any Eurodollar Loans requested to be made on the first day of such Interest Period shall be made as Base Rate Loans, (y) any Loans that were to have been converted on the first day of such Interest Period to Eurodollar Loans shall be continued as Base Rate Loans and (z) any outstanding Eurodollar Loans shall be converted, on the first day of such Interest Period, to Base Rate Loans. Until such notice has been withdrawn by the Administrative Agent, no further Eurodollar Loans shall be made or continued as such, nor shall the Borrower have the right to convert Loans to Eurodollar Loans. 2.15 Pro Rata Treatment and Payments. (a) Each borrowing by the Borrower from the Lenders hereunder, each payment by the Borrower on account of any commitment fee and any reduction of the Revolving Credit Commitments of the Lenders shall be made pro rata according to the Revolving Credit Percentages of the relevant Lenders. Each payment (other than prepayments) in respect of principal or interest in respect of the Loans, each payment in respect of fees payable hereunder, and each payment in respect of Reimbursement Obligations, shall be applied to the amounts of such obligations owing to the Lenders pro rata according to the respective amounts then due and owing to the Lenders. (b) Each payment (including each prepayment) by the Borrower on account of principal of and interest on the Revolving Credit Loans shall be made pro rata according to the respective outstanding principal amounts of the Revolving Credit Loans then held by the Lenders. (c) All payments (including prepayments) to be made by the Borrower hereunder, whether on account of principal, interest, fees or otherwise, shall be made without setoff or counterclaim and shall be made prior to 12:00 Noon, New York City time, on the due date thereof to the Administrative Agent, for the account of the Lenders, at the Payment Office, in Dollars and in immediately available funds. The Administrative Agent shall distribute such payments to the Lenders promptly upon receipt in like funds as received. If any payment hereunder (other than payments on the Eurodollar Loans) becomes due and payable on a day other than a Business Day, such payment shall be extended to the next succeeding Business Day. 27 If any payment on a Eurodollar Loan becomes due and payable on a day other than a Business Day, the maturity thereof shall be extended to the next succeeding Business Day unless the result of such extension would be to extend such payment into another calendar month, in which event such payment shall be made on the immediately preceding Business Day. In the case of any extension of any payment of principal pursuant to the preceding two sentences, interest thereon shall be payable at the then applicable rate during such extension. (d) Unless the Administrative Agent shall have been notified in writing by any Lender prior to a borrowing that such Lender will not make the amount that would constitute its share of such borrowing available to the Administrative Agent, the Administrative Agent may assume that such Lender is making such amount available to the Administrative Agent, and the Administrative Agent may, in reliance upon such assumption, make available to the Borrower a corresponding amount. If such amount is not made available to the Administrative Agent by the required time on the Borrowing Date therefor, such Lender shall pay to the Administrative Agent, on demand, such amount with interest thereon at a rate equal to the daily average Federal Funds Effective Rate for the period until such Lender makes such amount immediately available to the Administrative Agent. A certificate of the Administrative Agent submitted to any Lender with respect to any amounts owing under this paragraph shall be conclusive in the absence of manifest error. If such Lender's share of such borrowing is not made available to the Administrative Agent by such Lender within three Business Days of such Borrowing Date, the Administrative Agent shall also be entitled to recover such amount with interest thereon at the rate per annum applicable to Base Rate Loans under the relevant Facility, on demand, from the Borrower. (e) Unless the Administrative Agent shall have been notified in writing by the Borrower prior to the date of any payment being made hereunder that the Borrower will not make such payment to the Administrative Agent, the Administrative Agent may assume that the Borrower is making such payment, and the Administrative Agent may, but shall not be required to, in reliance upon such assumption, make available to the Lenders their respective pro rata shares of a corresponding amount. If such payment is not made to the Administrative Agent by the Borrower within three Business Days of such required date, the Administrative Agent shall be entitled to recover, on demand, from each Lender to which any amount which was made available pursuant to the preceding sentence, such amount with interest thereon at the rate per annum equal to the daily average Federal Funds Effective Rate. Nothing herein shall be deemed to limit the rights of the Administrative Agent or any Lender against the Borrower. 2.16 Requirements of Law. (a) If the adoption of or any change in any Requirement of Law or in the interpretation or application thereof or compliance by any Lender with any request or directive (whether or not having the force of law) from any central bank or other Governmental Authority made subsequent to the date hereof: (i) shall subject any Lender to any tax of any kind whatsoever with respect to this Agreement, any Letter of Credit, any Application or any Eurodollar Loan made by it, or change the basis of taxation of payments to such Lender in respect thereof (except for Non-Excluded Taxes covered by Section 2.17 and changes in the rate of taxes based on or measured by net income and franchise taxes imposed in lieu thereof of such Lender); (ii) shall impose, modify or hold applicable any reserve, special deposit, 28 compulsory loan or similar requirement against assets held by, deposits or other liabilities in or for the account of, advances, loans or other extensions of credit by, or any other acquisition of funds by, any office of such Lender which is not otherwise included in the determination of the Eurodollar Rate hereunder; or (iii) shall impose on such Lender any other condition; and the result of any of the foregoing is to increase the cost to such Lender, by an amount which such Lender deems to be material, of making, converting into, continuing or maintaining Eurodollar Loans or issuing or participating in Letters of Credit, or to reduce any amount receivable hereunder in respect thereof, then, in any such case, the Borrower shall promptly pay such Lender, upon its demand, any additional amounts necessary to compensate such Lender for such increased cost or reduced amount receivable. If any Lender becomes entitled to claim any additional amounts pursuant to this Section 2.16, it shall promptly notify the Borrower (with a copy to the Administrative Agent) of the event by reason of which it has become so entitled. (b) If any Lender shall have determined that the adoption of or any change in any Requirement of Law regarding capital adequacy or in the interpretation or application thereof or compliance by such Lender or any corporation controlling such Lender with any request or directive regarding capital adequacy (whether or not having the force of law) from any Governmental Authority made subsequent to the date hereof shall have the effect of reducing the rate of return on such Lender's or such corporation's capital as a consequence of its obligations hereunder or under or in respect of any Letter of Credit to a level below that which such Lender or such corporation could have achieved but for such adoption, change or compliance (taking into consideration such Lender's or such corporation's policies with respect to capital adequacy) by an amount deemed by such Lender to be material, then from time to time, after submission by such Lender to the Borrower (with a copy to the Administrative Agent) of a written request therefor, the Borrower shall pay to such Lender such additional amount or amounts as will compensate such Lender for such reduction. (c) A certificate as to any additional amounts payable pursuant to this Section 2.16 submitted by any Lender to the Borrower (with a copy to the Administrative Agent) shall be conclusive in the absence of manifest error. The obligations of the Borrower pursuant to this Section 2.16 shall survive the termination of this Agreement and the payment of the Loans and all other amounts payable hereunder. 2.17 Taxes. (a) All payments made by the Borrower under this Agreement shall be made free and clear of, and without deduction or withholding for or on account of, any present or future income, stamp or other taxes, levies, imposts, duties, charges, fees, deductions or withholdings, now or hereafter imposed, levied, collected, withheld or assessed by any Governmental Authority, excluding taxes based on or measured by net income and franchise taxes (imposed in lieu thereof) imposed on any Agent or any Lender as a result of a present or former connection between such Agent or such Lender and the jurisdiction of the Governmental Authority imposing such tax or any political subdivision or taxing authority thereof or therein (other than any such connection arising solely from such Agent or such Lender having executed, delivered or performed its obligations or received a payment under, or enforced, this Agreement or any other Loan Document). If any such non-excluded taxes, levies, imposts, duties, charges, fees, deductions or withholdings ("Non-Excluded Taxes") are required to be withheld from any 29 amounts payable to any Agent or any Lender hereunder, the amounts so payable to such Agent or such Lender shall be increased to the extent necessary to yield to such Agent or such Lender (after payment of all Non-Excluded Taxes) interest or any such other amounts payable hereunder at the rates or in the amounts specified in this Agreement, provided, however, that the Borrower shall not be required to increase any such amounts payable to any Lender with respect to any Non-Excluded Taxes (i) that are attributable to such Lender's failure to comply with the requirements of paragraph (d) or paragraph (e) of this Section 2.17 or (ii) to the extent that the obligation to withhold amounts with respect to United States federal withholding tax existed on the date such Lender became a party to this Agreement (or, in the case of a Participant, on the date such Participant became a Participant hereunder) or, with respect to payments to a New Lending Office, the date such Lender designated such New Lending Office with respect to a Loan, except to the extent that such Lender's assignor (if any) was entitled, at the time of assignment or such Lender was entitled at the time the New Lending Office was designated, to receive additional amounts from the Borrower with respect to such Non-Excluded Taxes pursuant to this Section 2.17(a). (b) In addition, the Borrower shall pay any Other Taxes to the relevant Governmental Authority in accordance with applicable law. (c) Whenever any Non-Excluded Taxes or Other Taxes are payable by the Borrower, as promptly as possible thereafter the Borrower shall send to the Administrative Agent for the account of the relevant Agent or Lender, as the case may be, a certified copy of an original official receipt received by the Borrower showing payment thereof. If the Borrower fails to pay any Non-Excluded Taxes or Other Taxes when due to the appropriate taxing authority or fails to remit to the Agents the required receipts or other required documentary evidence, the Borrower shall indemnify the Administrative Agent and the Lenders for any incremental taxes, interest or penalties that may become payable by any Agent or any Lender as a result of any such failure. The agreements in this Section 2.17 shall survive the termination of this Agreement and the payment of the Loans and all other amounts payable hereunder. 30 (d) Each Lender (or Transferee) that is not a United States person as defined in Section 7701(a)(30) of the Code (a "Non-U.S. Lender") shall deliver to the Borrower and the Administrative Agent (or, in the case of a Participant, to the Lender from which the related participation shall have been purchased) (x) two copies of either U.S. Internal Revenue Service Form 1001 or Form 4224, or, in the case of a Non-U.S. Lender claiming exemption from U.S. federal withholding tax under Section 871(h) or 881(c) of the Code with respect to payments of "portfolio interest" a statement substantially in the form of Exhibit H and a Form W-8, or any subsequent versions thereof or successors thereto properly completed and duly executed by such Non-U.S. Lender claiming complete exemption from, or a reduced rate of, U.S. federal withholding tax on all payments by the Borrower under this Agreement and the other Loan Documents and (y) any other related documents reasonably requested by the Borrower. Such forms shall be delivered by each Non-U.S. Lender on or before the date it becomes a party to this Agreement (or, in the case of any Participant, on or before the date such Participant purchases the related participation) and on or before the date, if any, such Non-U.S. Lender changes its applicable lending office by designating a different lending office (a "New Lending Office"). In addition, each Non-U.S. Lender shall deliver such forms promptly upon the obsolescence or invalidity of any form previously delivered by such Non-U.S. Lender. Each Non-U.S. Lender shall promptly notify the Borrower at any time it determines that it is no longer in a position to provide any previously delivered certificate to the Borrower (or any other form of certification adopted by the U.S. taxing authorities for such purpose). Notwithstanding any other provision of this paragraph, a Non-U.S. Lender shall not be required to deliver any form pursuant to this paragraph that such Non-U.S. Lender is not legally able to deliver. (e) A Lender that is entitled to an exemption from or reduction of non-U.S. withholding tax under the law of the jurisdiction in which the Borrower is located, or any treaty to which such jurisdiction is a party, with respect to payments under this Agreement shall deliver to the Borrower (with a copy to the Administrative Agent), at the time or times prescribed by applicable law or reasonably requested by the Borrower, such properly completed and executed documentation prescribed by applicable law as will permit such payments to be made without withholding or at a reduced rate, provided that such Lender is legally entitled to complete, execute and deliver such documentation and in such Lender's reasonable judgment such completion, execution or submission would not materially prejudice the legal position of such Lender. (f) If any Agent or any Lender determines that it has received a refund in respect of any Non-Excluded Taxes or Other Taxes as to which indemnification has been paid by the Borrower pursuant to Section 2.20, it shall promptly remit such refund (including any interest) to the Borrower, net of all out-of-pocket expenses of such Agent or such Lender; provided, however, that the Borrower, upon the request of such Agent or such Lender, agrees promptly to return such refund (plus any interest) to such party in the event such party is required to repay such refund to the relevant taxing authority requiring prepayment or such refund. Such Agent or Lender shall provide the Borrower with a copy of any notice or assessment from the relevant taxing authority (deleting any confidential information contained therein) requiring repayment of such refund. 2.18 Indemnity. The Borrower agrees to indemnify each Lender and to hold each Lender harmless from any loss or expense which such Lender may sustain or incur as a consequence of (a) default by the Borrower in making a borrowing of, conversion into or 31 continuation of Eurodollar Loans after the Borrower has given a notice requesting the same in accordance with the provisions of this Agreement, (b) default by the Borrower in making any prepayment after the Borrower has given a notice thereof in accordance with the provisions of this Agreement or (c) the making of a prepayment of Eurodollar Loans on a day which is not the last day of an Interest Period with respect thereto. Such indemnification may include an amount equal to the excess, if any, of (i) the amount of interest which would have accrued on the amount so prepaid, or not so borrowed, converted or continued, for the period from the date of such prepayment or of such failure to borrow, convert or continue to the last day of such Interest Period (or, in the case of a failure to borrow, convert or continue, the Interest Period that would have commenced on the date of such failure) in each case at the applicable rate of interest for such Loans provided for herein over (ii) the amount of interest (as reasonably determined by such Lender) which would have accrued to such Lender on such amount by placing such amount on deposit for a comparable period with leading banks in the interbank eurodollar market. A certificate as to any amounts payable pursuant to this Section 2.18 submitted to the Borrower by any Lender shall be conclusive in the absence of manifest error. This covenant shall survive the termination of this Agreement and the payment of the Loans and all other amounts payable hereunder. 2.19 Illegality. Notwithstanding any other provision herein, if the adoption of or any change in any Requirement of Law or in the interpretation or application thereof shall make it unlawful for any Lender to make or maintain Eurodollar Loans as contemplated by this Agreement, (a) the commitment of such Lender hereunder to make Eurodollar Loans, continue Eurodollar Loans as such and convert Base Rate Loans to Eurodollar Loans shall forthwith be cancelled and (b) such Lender's Loans then outstanding as Eurodollar Loans, if any, shall be converted automatically to Base Rate Loans on the respective last days of the then current Interest Periods with respect to such Loans or within such earlier period as required by law. If any such conversion of a Eurodollar Loan occurs on a day which is not the last day of the then current Interest Period with respect thereto, the Borrower shall pay to such Lender such amounts, if any, as may be required pursuant to Section 2.18. 2.20 Change of Lending Office. Each Lender agrees that, upon the occurrence of any event giving rise to the operation of Section 2.16 or 2.17(a) with respect to such Lender, it will, if requested by the Borrower, use reasonable efforts (subject to overall policy considerations of such Lender) to designate another lending office for any Loans affected by such event with the object of avoiding the consequences of such event; provided, that such designation is made on terms that, in the good faith judgment of such Lender, cause such Lender and its lending office(s) to suffer no economic, legal or regulatory disadvantage, and provided, further, that nothing in this Section 2.20 shall affect or postpone any of the obligations of any Borrower or the rights of any Lender pursuant to Section 2.16 or 2.17(a). 32 SECTION 3. LETTERS OF CREDIT 3.1 L/C Commitment. (a) Subject to the terms and conditions hereof, the Issuing Lender, in reliance on the agreements of the other Lenders set forth in Section 3.4(a), agrees to issue letters of credit ("Letters of Credit") for the account of the Borrower on any Business Day during the Revolving Credit Commitment Period in such form as may be approved from time to time by the Issuing Lender; provided that the Issuing Lender shall have no obligation to issue any Letter of Credit if, after giving effect to such issuance, (i) the L/C Obligations would exceed the L/C Commitment or (ii) the aggregate amount of the Available Revolving Credit Commitments would be less than zero. (b) Each Letter of Credit shall be denominated in Dollars and expire no later than the first anniversary of the date of issuance of such Letter of Credit (subject to certain extension provisions acceptable to the Administrative Agent and the Issuing Lender; it being understood that provisions which provide for the automatic extensions of up to one year unless the Issuing Lender has given a termination notice at least 30 to 60 days prior to the date of such automatic extension shall be permitted), provided, that if the Termination Date occurs prior to the expiration of any Letter of Credit, the Borrower shall, on or prior to the Termination Date, (i) cause all such Letters of Credit to be returned to the Issuing Bank undrawn and marked "cancelled" or (ii) to the extent that the Borrower is unable to replace and return any such Letter of Credit, deposit cash in the L/C Cash Collateral Account in an amount equal to 105% of the face amount of all such Letters of Credit, as collateral security for the Borrower's reimbursement obligations in connection therewith, such cash to be remitted to the Borrower upon the expiration, cancellation or other termination or satisfaction of the Borrower's reimbursement obligations in respect of all such Letters of Credit and all other Obligations then outstanding under this Agreement. Each Letter of Credit that remains outstanding as of the date of a refinancing of the Lenders' Revolving Credit Commitments under this Agreement pursuant to an exit facility agented by the Agents as contemplated under the Plan of Reorganization shall be rolled into, and deemed to be, letters of credit outstanding under such facility. (c) Each Letter of Credit shall be subject to the Uniform Customs and, to the extent not inconsistent therewith, the laws of the State of New York. (d) The Issuing Lender shall not at any time be obligated to issue any Letter of Credit hereunder if such issuance would conflict with, or cause the Issuing Lender or any L/C Participant to exceed any limits imposed by, any applicable Requirement of Law. 3.2 Procedure for Issuance of Letter of Credit. The Borrower may from time to time request that the Issuing Lender issue a Letter of Credit by delivering to the Issuing Lender at its address for notices specified herein an Application therefor, completed to the satisfaction of the Issuing Lender, and such other certificates, documents and other papers and information as the Issuing Lender may request. Upon receipt of any Application, the Issuing Lender will process such Application and the certificates, documents and other papers and information delivered to it in connection therewith in accordance with its customary procedures and shall promptly issue the Letter of Credit requested thereby (but in no event shall the Issuing Lender be required to issue any Letter of Credit earlier than three Business Days but no later than five Business Days after its receipt of the Application therefor and all such other certificates, documents and other papers and information relating thereto) by issuing the original of such 33 Letter of Credit to the beneficiary thereof or as otherwise may be agreed to by the Issuing Lender and the Borrower. The Issuing Lender shall furnish a copy of such Letter of Credit to the Borrower promptly following the issuance thereof. The Issuing Lender shall promptly furnish to the Administrative Agent, which shall in turn promptly furnish to the Lenders, notice of the issuance of each Letter of Credit (including the amount thereof). 3.3 Fees and Other Charges. (a) The Borrower shall pay a fee on the daily average undrawn amount of all outstanding Letters of Credit at a per annum rate equal to 2.50% shared ratably among the Lenders and payable monthly in arrears on each L/C Fee Payment Date after the issuance date. In addition, the Borrower shall pay to the Issuing Lender for its own account a fronting fee of 1/8 of 1% per annum, payable monthly in arrears on each L/C Fee Payment Date after the issuance date. (b) In addition to the foregoing fees, the Borrower shall pay or reimburse the Issuing Lender for such normal and customary costs and expenses as are incurred or charged by the Issuing Lender in issuing, negotiating, effecting payment under, amending or otherwise administering any Letter of Credit. 3.4 L/C Participations. (a) The Issuing Lender irrevocably agrees to grant and hereby grants to each L/C Participant, and, to induce the Issuing Lender to issue Letters of Credit hereunder, each L/C Participant irrevocably agrees to accept and purchase and hereby accepts and purchases from the Issuing Lender, on the terms and conditions hereinafter stated, for such L/C Participant's own account and risk an undivided interest equal to such L/C Participant's Revolving Credit Percentage in the Issuing Lender's obligations and rights under each Letter of Credit issued hereunder and the amount of each draft paid by the Issuing Lender thereunder. Each L/C Participant unconditionally and irrevocably agrees with the Issuing Lender that, if a draft is paid under any Letter of Credit for which the Issuing Lender is not reimbursed in full by the Borrower in accordance with the terms of this Agreement, such L/C Participant shall pay to the Issuing Lender upon demand at the Issuing Lender's address for notices specified herein an amount equal to such L/C Participant's Revolving Credit Percentage of the amount of such draft, or any part thereof, which is not so reimbursed. (b) If any amount required to be paid by any L/C Participant to the Issuing Lender pursuant to Section 3.4(a) in respect of any unreimbursed portion of any payment made by the Issuing Lender under any Letter of Credit is paid to the Issuing Lender within three Business Days after the date such payment is due, such L/C Participant shall pay to the Issuing Lender on demand an amount equal to the product of (i) such amount, times (ii) the daily average Federal Funds Effective Rate during the period from and including the date such payment is required to the date on which such payment is immediately available to the Issuing Lender, times (iii) a fraction the numerator of which is the number of days that elapse during such period and the denominator of which is 360. If any such amount required to be paid by any L/C Participant pursuant to Section 3.4(a) is not made available to the Issuing Lender by such L/C Participant within three Business Days after the date such payment is due, the Issuing Lender shall be entitled to recover from such L/C Participant, on demand, such amount with interest thereon calculated from such due date at the rate per annum equal to the rate then applicable to Base Rate Loans plus 1.50%. A certificate of the Issuing Lender submitted to any L/C Participant with respect to any amounts owing under this Section 3.4 shall be conclusive in the absence of manifest error. 34 (c) Whenever, at any time after the Issuing Lender has made payment under any Letter of Credit and has received from any L/C Participant its pro rata share of such payment in accordance with Section 3.4(a), the Issuing Lender receives any payment related to such Letter of Credit (whether directly from the Borrower or otherwise, including proceeds of collateral applied thereto by the Issuing Lender), or any payment of interest on account thereof, the Issuing Lender will distribute to such L/C Participant its pro rata share thereof; provided, however, that in the event that any such payment received by the Issuing Lender shall be required to be returned by the Issuing Lender, such L/C Participant shall return to the Issuing Lender the portion thereof previously distributed by the Issuing Lender to it. 3.5 Reimbursement Obligation of the Borrower. The Borrower agrees to reimburse the Issuing Lender on each date on which the Issuing Lender notifies the Borrower of the date and amount of a draft presented under any Letter of Credit and paid by the Issuing Lender for the amount of (a) such draft so paid and (b) any taxes, fees, charges or other costs or expenses incurred by the Issuing Lender in connection with such payment. Each such payment shall be made to the Issuing Lender at its address for notices specified herein in lawful money of the United States of America and in immediately available funds. Interest shall be payable on any and all amounts remaining unpaid by the Borrower under this Section 3.5 from the date such amounts become payable (whether at stated maturity, by acceleration or otherwise) until payment in full at the rate set forth in (i) until the second Business Day following the date of the applicable drawing, Section 2.12(b) and (ii) thereafter, Section 2.12(c). Each drawing under any Letter of Credit shall constitute a request by the Borrower to the Administrative Agent for a borrowing pursuant to Section 2.2 of Base Rate Loans (or, at the option of the Administrative Agent and the Swing Line Lender in their sole discretion, a borrowing pursuant to Section 2.4 of Swing Line Loans) in the amount of such drawing. The Borrowing Date with respect to such borrowing shall be the date of such drawing. 3.6 Obligations Absolute. The Borrower's obligations under this Section 3 shall be absolute and unconditional under any and all circumstances and irrespective of any setoff, counterclaim or defense to payment which the Borrower may have or have had against the Issuing Lender, any beneficiary of a Letter of Credit or any other Person. The Borrower also agrees with the Issuing Lender that the Issuing Lender shall not be responsible for, and the Borrower's Reimbursement Obligations under Section 3.5 shall not be affected by, among other things, the validity or genuineness of documents or of any endorsements thereon, even though such documents shall in fact prove to be invalid, fraudulent or forged, or any dispute between or among the Borrower and any beneficiary of any Letter of Credit or any other party to which such Letter of Credit may be transferred or any claims whatsoever of the Borrower against any beneficiary of such Letter of Credit or any such transferee. The Issuing Lender shall not be liable for any error, omission, interruption or delay in transmission, dispatch or delivery of any message or advice, however transmitted, in connection with any Letter of Credit, except for errors or omissions found by a final and nonappealable decision of a court of competent jurisdiction to have resulted from the gross negligence or willful misconduct of the Issuing Lender. The Borrower agrees that any action taken or omitted by the Issuing Lender under or in connection with any Letter of Credit or the related drafts or documents, if done in the absence of gross negligence or willful misconduct and in accordance with the standards of care specified in the Uniform Commercial Code of the State of New York, shall be binding on the Borrower and shall not result in any liability of the Issuing Lender to the Borrower. 35 3.7 Letter of Credit Payments. If any draft shall be presented for payment under any Letter of Credit, the Issuing Lender shall promptly notify the Borrower of the date and amount thereof. The responsibility of the Issuing Lender to the Borrower in connection with any draft presented for payment under any Letter of Credit shall, in addition to any payment obligation expressly provided for in such Letter of Credit, be limited to determining that the documents (including each draft) delivered under such Letter of Credit in connection with such presentment are substantially in conformity with such Letter of Credit. 3.8 Applications. To the extent that any provision of any Application related to any Letter of Credit is inconsistent with the provisions of this Section 3, the provisions of this Section 3 shall apply. 36 SECTION 4. PRIORITY AND LIENS 4.1 Priority and Liens. (a) The Borrower hereby covenants, represents and warrants that, upon entry of the Final Order, the Obligations of the Borrower hereunder and under the other Loan Documents, (i) pursuant to Section 364(c)(1) of the Bankruptcy Code, shall at all times constitute allowed Super-Priority Claims, (ii) pursuant to Section 364(c)(2) of the Bankruptcy Code, shall at all times be secured by a perfected first priority Lien on all Collateral, including without limitation, all cash maintained in the L/C Cash Collateral Account and any direct investments of the funds contained therein, that is otherwise not encumbered by a valid and perfected Lien as of the Petition Date, (iii) pursuant to Section 364(c)(3) of the Bankruptcy Code, shall be secured by a perfected second priority Lien upon all Collateral (other than the Prepetition Collateral securing the Prepetition Supplemental Term Loans, as to which the Lien in favor of the Agents and the Lenders will be as described in clause (iv) of this sentence) that is subject to a Permitted Lien, including, without limitation, valid and perfected Liens in existence on the Petition Date or valid Liens perfected (but not granted) thereafter to the extent such post-Petition Date perfection in respect of a pre-Petition Date claim is expressly permitted under the Bankruptcy Code, junior to such Permitted Liens, provided that the Liens granted in favor of the Agents and the Lenders shall be senior to any Permitted Lien which is expressly stated herein to be junior to the Liens in favor of the Agents and the Lenders, and (iv) pursuant to Section 364(d)(1) of the Bankruptcy Code, shall be secured by a perfected first priority, senior priming Lien on all of the Prepetition Collateral securing the Prepetition Supplemental Term Loans and any Property of the Debtors on which a Lien is granted after the Petition Date to provide adequate protection in respect of the Prepetition Obligations, subject and subordinate in each case with respect to subclauses (i) through (iv) above, only to (x) following the occurrence and during the continuance of a Default or an Event of Default, the payment (as the same may be due and payable) of professional fees and disbursements allowed pursuant to Sections 105, 327, 328, 330, 503(b) or 1103(a) of the Bankruptcy Code and incurred by the professionals retained by the Borrower, the Steering Committee and any statutory committee of unsecured creditors appointed in the Case in an aggregate amount not to exceed $1,000,000 (in addition to compensation previously accrued (to the extent it is ultimately allowed by the Bankruptcy Court) whether or not paid) and (y) the payment of unpaid fees pursuant to 28 U.S.C. ? 1930 and any fees payable to the Clerk of the Bankruptcy Court (collectively, the "Carve-Out"), provided, further, that following the Termination Date amounts in the L/C Cash Collateral Account shall not be subject to the Carve-Out. The Lenders agree that so long as no Default or Event of Default shall have occurred and be continuing, the Borrower shall be permitted to pay compensation and reimbursement of expenses allowed and payable under Sections 330 and 331 of the Bankruptcy Code, or as otherwise required to be paid by the Plan of Reorganization, as the same may be payable, and the amounts so paid shall not reduce the Carve-Out. (b) As to all Collateral, including without limitation, all real property the title to which is held by the Borrower or the possession of which is held by the Borrower pursuant to leasehold interests, the Borrower hereby assigns and conveys as security, grants a security interest in, hypothecates, mortgages, pledges and sets over unto the Administrative Agent all of the right, title and interest of the Borrower in all of such Collateral, including without limitation, all owned real property and in all such leasehold interests, together in each case with all of the right, title and interest of the Borrower in and to all buildings, improvements, and fixtures related thereto, any lease or sublease thereof, all general intangibles relating thereto and all proceeds thereof. The Borrower acknowledges that, pursuant to the Final Order, the Liens granted in favor 37 of the Administrative Agent (on behalf of the Agents and the Lenders) in all of the Collateral shall be perfected without the recordation of any Uniform Commercial Code financing statements, notices of Lien or other instruments of mortgage or assignment. The Borrower further agrees that if requested by the Agents, the Borrower shall enter into separate security agreements, pledge agreements and fee and leasehold mortgages with respect to such Collateral on terms reasonably satisfactory to the Administrative Agent. 4.2 Security Interest in L/C Cash Collateral Account. Pursuant to Section 364(c)(2) of the Bankruptcy Code, the Borrower hereby assigns and pledges to the Administrative Agent (for the benefit of the Agents and the Lenders), and hereby grants to the Administrative Agent (for the benefit of the Agents and the Lenders) a first priority security interest, senior to all other Liens, if any, in all of the Borrower's right, title and interest in and to the L/C Cash Collateral Account and any direct investment of the funds contained therein. 4.3 Payment of Obligations. Upon the maturity (whether by acceleration or otherwise) of any of the Obligations under this Agreement or any of the other Loan Documents, the Lenders shall be entitled to immediate payment of such Obligations without further application to or order of the Bankruptcy Court. 4.4 No Discharge; Survival of Claims. The Borrower agrees that to the extent its Obligations hereunder are not satisfied in full, (i) its Obligations arising hereunder shall not be discharged by the entry of a Confirmation Order (and the Borrower pursuant to Section 1141(d)(4) of the Bankruptcy Code hereby waives any such discharge) and (ii) the Super-Priority Claim granted to the Administrative Agent and the Lenders pursuant to the Final Order and described in Section 4.1 and the Liens granted to the Administrative Agent pursuant to the Final Order and described in Section 4.1 shall not be affected in any manner by the entry of a Confirmation Order. SECTION 5. REPRESENTATIONS AND WARRANTIES To induce the Agents and the Lenders to enter into this Agreement and to make the Loans and issue or participate in the Letters of Credit, the Borrower represents and warrants to each Agent and each Lender that: 5.1 Financial Condition. (a) The unaudited pro forma consolidated balance sheet of the Borrower and its consolidated Subsidiaries as at August 15, 1998 (including the notes thereto) (the "Pro Forma Balance Sheet"), copies of which have heretofore been furnished to each Lender, has been prepared giving effect (as if such events had occurred on such date) to (i) the Loans to be made on the Closing Date and the use of proceeds thereof and (ii) the payment of fees and expenses in connection with the foregoing. The Pro Forma Balance Sheet has been prepared based on the best information available to the Borrower as of the date of delivery thereof, and presents fairly on a pro forma basis the estimated financial position of Borrower and its consolidated Subsidiaries as at August 15, 1998, assuming that the events specified in the preceding sentence had actually occurred at such date. (b) The audited consolidated balance sheets of the Borrower and its Subsidiaries as at March 28, 1998, March 29, 1997 and March 30, 1996, and the related consolidated 38 statements of income and of cash flows for the fiscal years ended on such dates, reported on by and accompanied by a report from Price Waterhouse LLP, present fairly the consolidated financial condition of the Borrower as at such date, and the consolidated results of its operations and its consolidated cash flows for the respective fiscal years then ended. All such financial statements, including the related schedules and notes thereto, have been prepared in accordance with GAAP applied consistently throughout the periods involved (except as approved by the aforementioned firm of accountants and disclosed therein). The Borrower and its Subsidiaries do not have any material Guarantee Obligations, contingent liabilities and liabilities for taxes, or any long-term leases or unusual forward or long-term commitments, including, without limitation, any interest rate or foreign currency swap or exchange transaction or other obligation in respect of derivatives, which are not reflected in the most recent financial statements referred to in this paragraph. During the period from March 28, 1998 to and including the date hereof there has been no Disposition by the Borrower of any material part of its business or Property. 5.2 No Change. Since March 28, 1998 there has been no development or event which has had or could reasonably be expected to have a Material Adverse Effect, other than (a) those which customarily occur as a result of events leading up to and following the commencement of a proceeding under Chapter 11 of the Bankruptcy Code, and (b) the commencement of the Case. 5.3 Corporate Existence; Compliance with Law. Each of the Borrower and its Subsidiaries (a) is duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization, (b) has the corporate power and authority, and the legal right, to own and operate its Property, to lease the Property it operates as lessee and to conduct the business in which it is currently engaged, (c) is duly qualified as a foreign corporation and in good standing under the laws of each jurisdiction where its ownership, lease or operation of Property or the conduct of its business requires such qualification and (d) is in compliance with all Requirements of Law except to the extent that the failure to comply therewith could not, in the aggregate, reasonably be expected to have a Material Adverse Effect. 39 5.4 Corporate Power; Authorization; Enforceable Obligations. Upon entry by the Bankruptcy Court of the Final Order, each Loan Party shall have the corporate power and authority, and the legal right, to make, deliver and perform the Loan Documents to which it is a party and, in the case of the Borrower, to borrow hereunder. Each Loan Party has taken all necessary corporate action to authorize the execution, delivery and performance of the Loan Documents to which it is a party and, in the case of the Borrower, to authorize the borrowings on the terms and conditions of this Agreement and the Final Order. No consent or authorization of, filing with, notice to or other act by or in respect of, any Governmental Authority (other than entry of the Final Order) or any other Person is required in connection with the transactions and the borrowings hereunder or with the execution, delivery, performance, validity or enforceability of this Agreement or any of the Loan Documents, except the filings referred to in Section 5.19. Each Loan Document has been duly executed and delivered on behalf of each Loan Party thereto. This Agreement constitutes, and each other Loan Document upon execution will constitute, a legal, valid and binding obligation of each Loan Party thereto, enforceable against each such Loan Party in accordance with its terms and the Final Order, except, with respect to the Subsidiary Guarantors, as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditors' rights generally and by equitable principles (whether enforcement is sought by proceedings in equity or at law). 5.5 No Legal Bar. The execution, delivery and performance of this Agreement and the other Loan Documents, the issuance of Letters of Credit, the borrowings hereunder and the use of the proceeds thereof will not violate any Requirement of Law or any Contractual Obligation of the Borrower (to the extent such Contractual Obligation has been entered into after the Petition Date) or any of its Subsidiaries and will not result in, or require, the creation or imposition of any Lien on any of their respective properties or revenues pursuant to any Requirement of Law or any such Contractual Obligation (other than the Liens created by the Security Documents and the Final Order). No Requirement of Law or Contractual Obligation applicable to the Borrower or any of its Subsidiaries could reasonably be expected to have a Material Adverse Effect. 5.6 No Material Litigation. Except with respect to the Case, no litigation, investigation or proceeding of or before any arbitrator or Governmental Authority is pending or, to the knowledge of the Borrower, threatened by or against the Borrower or any of its Subsidiaries or against any of their respective properties or revenues (a) with respect to any of the Loan Documents or any of the transactions contemplated hereby or thereby, or (b) which could reasonably be expected to have a Material Adverse Effect. 5.7 No Default. Except as may result from the commencement of the Case and except for existing defaults under the Prepetition Credit Agreement (without regard to waivers thereof) and the Borrower's outstanding 12% Senior Notes, neither the Borrower nor any of its Subsidiaries is in default under or with respect to any of its Contractual Obligations in any respect which could reasonably be expected to have a Material Adverse Effect. No Default or Event of Default has occurred and is continuing. 5.8 Ownership of Property; Liens. Each of the Borrower and its Subsidiaries has title in fee simple to, or a valid leasehold interest in, all its real property, and good title to, or a valid leasehold interest in, all its other Property, and none of such Property is subject to any Lien 40 except Permitted Liens. 5.9 Intellectual Property. The Borrower and each of its Subsidiaries owns, or is licensed to use, all Intellectual Property necessary for the conduct of its business as currently conducted. No material claim has been asserted and is pending by any Person challenging or questioning the use of any Intellectual Property or the validity or effectiveness of any Intellectual Property, nor does the Borrower know of any valid basis for any such claim. The use of Intellectual Property by the Borrower and its Subsidiaries does not infringe on the rights of any Person in any material respect. 5.10 Taxes. Each of the Borrower and each of its Subsidiaries has filed or caused to be filed all Federal, state and other material tax returns which are required to be filed and has paid all taxes shown to be due and payable on said returns or on any assessments made against it or any of its Property and all other material taxes, fees or other charges imposed on it by any Governmental Authority (other than any the amount or validity of which are currently being contested in good faith by appropriate proceedings and with respect to which reserves in conformity with GAAP have been provided on the books of the Borrower or its Subsidiaries, as the case may be. 5.11 Federal Regulations. No part of the proceeds of any Loans will be used for "purchasing" or "carrying" any "margin stock" within the respective meanings of each of the quoted terms under Regulation U as now and from time to time hereafter in effect or for any purpose which violates the provisions of the Regulations of the Board. If requested by any Lender or the Administrative Agent, the Borrower will furnish to the Administrative Agent and each Lender a statement to the foregoing effect in conformity with the requirements of FR Form G-3 or FR Form U-1 referred to in Regulation U. 5.12 Labor Matters. There are no strikes or other labor disputes against the Borrower or any of its Subsidiaries pending or, to the knowledge of the Borrower, threatened that (individually or in the aggregate) could reasonably be expected to have a Material Adverse Effect. Hours worked by and payment made to employees of the Borrower and its Subsidiaries have not been in violation of the Fair Labor Standards Act or any other applicable Requirement of Law dealing with such matters that (individually or in the aggregate) could reasonably be expected to have a Material Adverse Effect. All payments due from the Borrower or any of its Subsidiaries on account of employee health and welfare insurance that (individually or in the aggregate) could reasonably be expected to have a Material Adverse Effect if not paid have been paid or accrued as a liability on the books of the Borrower or the relevant Subsidiary. 5.13 ERISA. Except for the commencement of the Case and the voluntary petition filed by the Borrower in the Bankruptcy Court for the District of Delaware in 1995, neither a Reportable Event nor an "accumulated funding deficiency" (within the meaning of Section 412 of the Code or Section 302 of ERISA) has occurred during the five-year period prior to the date on which this representation is made or deemed made with respect to any Plan, and each Plan has complied in all material respects with the applicable provisions of ERISA and the Code. No termination of a Single Employer Plan has occurred, and no Lien in favor of the PBGC or a Plan has arisen, during such five-year period. The present value of all accrued benefits under each Single Employer Plan (based on those assumptions used to fund such Plans) did not, as of the last annual valuation date prior to the date on which this representation is made 41 or deemed made, exceed the value of the assets of such Plan allocable to such accrued benefits by a material amount. Neither the Borrower nor any Commonly Controlled Entity has had a complete or partial withdrawal from any Multiemployer Plan which has resulted or could reasonably be expected to result in a material liability under ERISA, and neither the Borrower nor any Commonly Controlled Entity would become subject to any material liability under ERISA if the Borrower or any such Commonly Controlled Entity were to withdraw completely from all Multiemployer Plans as of the valuation date most closely preceding the date on which this representation is made or deemed made. To the knowledge of the Borrower, no such Multiemployer Plan is in Reorganization or Insolvent. 5.14 Investment Company Act; Other Regulations. No Loan Party is an "investment company", or a company "controlled" by an "investment company", within the meaning of the Investment Company Act of 1940, as amended. No Loan Party is subject to regulation under any Requirement of Law (other than Regulation X of the Board) which limits its ability to incur Indebtedness. 5.15 Subsidiaries. The Subsidiaries listed on Schedule 5.16 constitute all the Subsidiaries of the Borrower at the date hereof. 5.16 Use of Proceeds. The proceeds of the Revolving Credit Loans and the Swing Line Loans, and the Letters of Credit, shall be used (i) to finance the working capital needs of the Borrower and the Subsidiary Guarantors in the ordinary course of business, (ii) for payment of Chapter 11 expenses, including professional fees, (iii) for general corporate purposes, and (iv) to refinance the revolving credit and term loans, and to cash collateralize, replace or backstop letters of credit outstanding, under the Borrower's Prepetition Credit Agreement, in all cases subject to the terms of this Agreement, the Final Order and the Budget. 5.17 Environmental Matters. (a) The facilities and properties owned, leased or operated by the Borrower or any of its Subsidiaries (the "Properties") do not contain, and have not previously contained, any Materials of Environmental Concern in amounts or concentrations or under circumstances which (i) constitute or constituted a violation of, or (ii) could give rise to liability under, any Environmental Law, except in either case insofar as such violation or liability, or any aggregation thereof, could not reasonably be expected to result in the payment of a Material Environmental Amount. (b) The Properties and all operations at the Properties are in material compliance, and have in the last five years been in material compliance, with all applicable Environmental Laws, and there is no contamination at, under or about the Properties or violation of any Environmental Law with respect to the Properties or the business operated by the Borrower or any of its Subsidiaries (the "Business") which could materially interfere with the continued operation of the Properties taken as a whole or materially impair the fair saleable value of the Properties taken as a whole. Neither the Borrower nor any of its Subsidiaries has assumed any liability of any other Person under Environmental Laws. (c) Neither the Borrower nor any of its Subsidiaries has received or is aware of any notice of violation, alleged violation, non-compliance, liability or potential liability 42 regarding environmental matters or compliance with Environmental Laws with regard to any of the Properties or the Business, nor does the Borrower have knowledge or reason to believe that any such notice will be received or is being threatened, except insofar as such notice or threatened notice, or any aggregation thereof, does not involve a matter or matters that could reasonably be expected to result in the payment of a Material Environmental Amount. (d) Materials of Environmental Concern have not been transported or disposed of from the Properties in violation of, or in a manner or to a location which could give rise to liability under, any Environmental Law, nor have any Materials of Environmental Concern been generated, treated, stored or disposed of at, on or under any of the Properties in violation of, or in a manner that could give rise to liability under, any applicable Environmental Law, except insofar as any such violation or liability referred to in this paragraph, or any aggregation thereof, could not reasonably be expected to result in the payment of a Material Environmental Amount. (e) No judicial proceeding or governmental or administrative action is pending or, to the knowledge of the Borrower, threatened, under any Environmental Law to which the Borrower or any Subsidiary is or will be named as a party with respect to the Properties or the Business, nor are there any consent decrees or other decrees, consent orders, administrative orders or other orders, or other administrative or judicial requirements outstanding under any Environmental Law with respect to the Properties or the Business, except insofar as such proceeding, action, decree, order or other requirement, or any aggregation thereof, could not reasonably be expected to result in the payment of a Material Environmental Amount. (f) There has been no release or threat of release of Materials of Environmental Concern at or from the Properties, or arising from or related to the operations of the Borrower or any Subsidiary in connection with the Properties or otherwise in connection with the Business, in violation of or in amounts or in a manner that could give rise to liability under Environmental Laws, except insofar as any such violation or liability referred to in this paragraph, or any aggregation thereof, could not reasonably be expected to result in the payment of a Material Environmental Amount. 43 5.18 Accuracy of Information, etc. No statement or information contained in this Agreement, any other Loan Document, the Plan of Reorganization and the disclosure statement related thereto, the Confidential Information Memorandum or any other document, certificate or statement furnished to the Arrangers, the Agents, the Lenders, the Bankruptcy Court or any of them, by or on behalf of any Loan Party for use in connection with the transactions contemplated by this Agreement or the other Loan Documents, contained as of the date such statement, information, document or certificate was so furnished (or, in the case of the Confidential Information Memorandum, as of the date of this Agreement), any untrue statement of a material fact or omitted to state a material fact necessary in order to make the statements contained herein or therein not misleading in light of the circumstances under which such statements are made. The projections and pro forma financial information contained in the materials referenced above are based upon good faith estimates and assumptions believed by management of the Borrower to be reasonable at the time made, it being recognized by the Lenders that such financial information as it relates to future events is not to be viewed as fact and that actual results during the period or periods covered by such financial information may differ from the projected results set forth therein by a material amount. There is no fact known to any Loan Party that could reasonably be expected to have a Material Adverse Effect that has not been expressly disclosed herein, in the other Loan Documents, in the Confidential Information Memorandum or in any other documents, certificates and statements furnished to the Arrangers, the Agents, the Lenders or the Bankruptcy Court for use in connection with the transactions contemplated hereby and by the other Loan Documents. 5.19 Security Documents. The Guarantee and Collateral Agreement is effective to create in favor of the Administrative Agent, for the benefit of the Lenders, a legal, valid and enforceable security interest in all right, title and interest of the Subsidiary Guarantors in the Collateral described therein and proceeds thereof. In the case of the Collateral (other than Pledged Stock) described in the Guarantee and Collateral Agreement, when financing statements in appropriate form are filed in the offices specified on Schedule 2 of the Guarantee and Collateral Agreement, the Guarantee and Collateral Agreement shall constitute, as security for the Obligations (as defined in the Guarantee and Collateral Agreement), a fully perfected Lien on, and security interest in, all right, title and interest of the Subsidiary Guarantors in such Collateral and the proceeds thereof, as set forth in Section 4.3 of the Guarantee and Collateral Agreement. SECTION 6. CONDITIONS PRECEDENT 6.1 Conditions to Initial Extension of Credit. The agreement of each Lender to make the initial extension of credit requested to be made by it is subject to the satisfaction, prior to or concurrently with the making of such extension of credit on the Closing Date, of the following conditions precedent: (a) Loan Documents. The Administrative Agent shall have received (i) this Agreement, executed and delivered by a duly authorized officer of the Borrower, (ii) the Guarantee and Collateral Agreement, executed and delivered by a duly authorized officer of each Subsidiary Guarantor, and (iii) for the account of each relevant Lender, Notes conforming to the requirements hereof and executed and delivered by a duly authorized officer of the Borrower. 44 (b) Final Order. The Administrative Agent shall have received a copy of the Final Order approving the Loan Documents and granting the Super-Priority Claim status and Liens described in Section 4.1 and finding that the Lenders are extending credit to the Borrower in good faith within the meaning of Section 364(e) of the Bankruptcy Code, which Final Order (i) shall be in form and substance reasonably satisfactory to the Agents, (ii) shall have been entered upon an application of the Borrower reasonably satisfactory in form and substance to the Agents, (iii) shall be in full force and effect and (iv) shall not have been stayed, reversed, vacated, rescinded, modified or amended in any respect. (c) First Day Orders. All orders submitted to the Bankruptcy Court on or about the Petition Date shall be in form and substance reasonably satisfactory to the Agents. (d) Pro Forma Balance Sheet; Financial Statements. The Lenders shall have received (i) the Pro Forma Balance Sheet and (ii) the audited consolidated financial statements of the Borrower for the 1998 fiscal year. (e) Related Agreements. The Administrative Agent shall have received (in a form reasonably satisfactory to the Agents), with a copy for each Lender, true and correct copies, certified as to authenticity by the Borrower, of such documents or instruments as may be reasonably requested by the Agents, including, without limitation, a copy of any other debt instrument, security agreement or other material contract to which the Loan Parties may be a party. (f) Fees. The Lenders, the Arrangers and the Agents shall have received all fees required to be paid, and all expenses for which invoices have been presented, on or before the Closing Date. All such amounts will be paid with proceeds of Loans made on the Closing Date and will be reflected in the funding instructions given by the Borrower to the Administrative Agent on or before the Closing Date. (g) Budget. The Agents and the Lenders shall have received the initial Budget for the first fiscal period (or portion thereof) of the Case and a budget covering the period from the Petition Date through the Maturity Date and other cash flow and financial projections that itemize on a weekly basis all revenues projected to be received and all material expenditures proposed to be made prior to the Maturity Date, in form and substance reasonably satisfactory to the Agents. (h) Lien Searches. The Administrative Agent shall have received the results of a recent lien search in each of the jurisdictions where assets of the Loan Parties are located, and such search shall reveal no liens on any of the assets of the Borrower or its Subsidiaries except for (i) Permitted Liens, and (ii) such liens as may be reasonably satisfactory to the Agents. (i) Certification. The Administrative Agent shall have received a certification from the Borrower's balloting agent evidencing the receipt of the requisite acceptances from each class of creditors and interest holders entitled to vote on the Plan of Reorganization in accordance with Section 1126 of the Bankruptcy Code. 45 (j) Closing Certificate. The Administrative Agent shall have received, with a counterpart for each Lender, a certificate of each Loan Party, dated the Closing Date, substantially in the form of Exhibit D, with appropriate insertions and attachments. (k) Legal Opinions. The Administrative Agent shall have received the executed legal opinion of Weil, Gotshal & Manges LLP, counsel to the Borrower and its Subsidiaries, substantially in the form of Exhibit F. Such legal opinion shall cover such other matters incident to the transactions contemplated by this Agreement as the Agents may reasonably require. (l) Filings, Registrations and Recordings. Each document (including, without limitation, any Uniform Commercial Code financing statement) required by the Security Documents or under law or reasonably requested by the Administrative Agent to be filed, registered or recorded in order to create in favor of the Administrative Agent, for the benefit of the Agents and the Lenders, a perfected Lien on the Collateral described therein, prior and superior in right to any other Person (other than Permitted Liens), shall be in proper form for filing, registration or recordation. (m) Insurance. The Administrative Agent shall have received insurance certificates satisfying the requirements of Section 7.5. 6.2 Conditions to Each Extension of Credit. The agreement of each Lender to make any extension of credit requested to be made by it on any date (including, without limitation, its initial extension of credit) is subject to the satisfaction of the following conditions precedent: (a) Representations and Warranties. Each of the representations and warranties made by any Loan Party in or pursuant to the Loan Documents shall be true and correct in all material respects on and as of such date as if made on and as of such date. (b) No Default. No Default or Event of Default shall have occurred and be continuing on such date or after giving effect to the extensions of credit requested to be made on such date. (c) Bankruptcy Court Approval. The Final Order shall be in full force and effect and shall not have been stayed, reversed, vacated, rescinded, modified or amended in any respect. Each borrowing by and issuance of a Letter of Credit on behalf of the Borrower hereunder shall constitute a representation and warranty by the Borrower as of the date of such extension of credit that the conditions contained in this Section 6.2 have been satisfied. 46 SECTION 7. AFFIRMATIVE COVENANTS The Borrower hereby agrees that, so long as the Revolving Credit Commitments remain in effect, any Letter of Credit remains outstanding or any Loan or other amount is owing to any Lender or any Agent hereunder, the Borrower shall and shall cause each of its Subsidiaries to: 7.1 Financial Statements. Furnish to each Agent and each Lender: (a) as soon as available, but in any event within 90 days after the end of each fiscal year of the Borrower, a copy of the audited consolidated balance sheet of the Borrower and its consolidated Subsidiaries as at the end of such year and the related audited consolidated statements of income and of cash flows for such year, setting forth in each case in comparative form the figures for the previous year, reported without a "going concern" or like qualification or exception (other than with respect to the Case) by Price Waterhouse LLP or other independent certified public accountants of nationally recognized standing; and (b) as soon as available, but in any event not later than 45 days after the end of each of the first three quarterly periods of each fiscal year of the Borrower, the unaudited consolidated balance sheet of the Borrower and its consolidated Subsidiaries as at the end of such quarter and the related unaudited consolidated statements of income and of cash flows for such quarter and the portion of the fiscal year through the end of such quarter, setting forth in each case in comparative form the figures for the previous year, certified by a Responsible Officer as being fairly stated in all material respects (subject to normal year-end audit adjustments); and (c) as soon as available, but in any event not later than 45 days after the end of each month occurring during each fiscal year of the Borrower (other than the third, sixth, ninth and twelfth such month), the unaudited consolidated balance sheets of the Borrower and its Subsidiaries as at the end of such month and the related unaudited consolidated statements of income and of cash flows for such month and the portion of the fiscal year through the end of such month, setting forth in each case in comparative form the figures for the previous year, certified by a Responsible Officer as being fairly stated in all material respects (subject to normal year end audit adjustments); all such financial statements shall be complete and correct in all material respects and shall be prepared in reasonable detail and in accordance with GAAP applied consistently throughout the periods reflected therein and with prior periods (except as approved by such accountants or officer, as the case may be, and disclosed therein). 7.2 Certificates; Other Information. Furnish to each Agent and each Lender, or, in the case of clause (i), to the relevant Lender: (a) concurrently with the delivery of the financial statements referred to in Section 7.1(a), a certificate of the independent certified public accountants reporting on such financial statements stating that in making the examination necessary therefor no 47 knowledge was obtained of any Default or Event of Default, except as specified in such certificate; (b) concurrently with the delivery of any financial statements pursuant to Section 7.1, (i) 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 (ii) in the case of quarterly or annual financial statements, (x) 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 fiscal quarter or fiscal year of the Borrower, as the case may be, and (y) to the extent not previously disclosed to the Administrative Agent, a listing of any county or state within the United States where any Guarantor Subsidiary 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 (y) (or, in the case of the first such list so delivered, since the Closing Date); (c) no later than five days before the end of each fiscal period following the Closing Date, the Budget for the succeeding fiscal period in the form of Exhibit I or otherwise in a format reasonably satisfactory to the Agents; (d) no later than 20 days after the first day of each fiscal period following the Closing Date, a variance report for the preceding fiscal period in a form reasonably satisfactory to the Agents; (e) on a weekly basis, reports in a form reasonably satisfactory to the Agents detailing the Borrower's compliance with the then current Budget and status of the Collateral; (f) to counsel to the Agents, promptly after the same is available, copies of all pleadings, motions, applications, judicial information, financial information or other documents filed on or on behalf of the Borrower with the Bankruptcy Court or the United States Trustee in the Case, or distributed by or on behalf of the Borrower to any official committee appointed in the Case; (g) within five days after the same are sent, copies of all financial statements and reports which the Borrower sends to the holders of any class of its debt securities or public equity securities and, within five days after the same are filed, copies of all financial statements and reports which the Borrower may make to, or file with, the Securities and Exchange Commission or any successor or analogous Governmental Authority; and (h) promptly, such additional financial and other information as any Lender may from time to time reasonably request. 48 7.3 Payment of Obligations. Except in accordance with the Bankruptcy Code or by an applicable order of the Bankruptcy Court, pay, discharge or otherwise satisfy at or before maturity or before they become delinquent, as the case may be, all its material obligations of whatever nature that constitute administrative expenses under Section 503(b) of the Bankruptcy Code in the Case, except, so long as no material Property or assets (other than money for such obligation and the interest or penalty accruing thereon) of the Borrower or any of its Subsidiaries is in danger of being lost or forfeited as a result thereof, no such obligation need be paid if the amount or validity thereof is currently being contested in good faith by appropriate proceedings and reserves in conformity with GAAP with respect thereto have been provided on the books of the Borrower or its Subsidiaries, as the case may be. 7.4 Conduct of Business and Maintenance of Existence, etc. (_) (a) (i) Preserve, renew and keep in full force and effect its corporate existence and (ii) take all reasonable action to maintain all rights, privileges and franchises necessary or desirable in the normal conduct of its business, except, in each case, as otherwise permitted by Section 8.4 and except, in the case of clause (ii) above, to the extent that failure to do so could not reasonably be expected to have a Material Adverse Effect; and (_) (b) subject to the effect of the Case, comply with all Contractual Obligations (unless otherwise not required as a result of the Case) and Requirements of Law except to the extent that failure to comply therewith could not, in the aggregate, reasonably be expected to have a Material Adverse Effect. 7.5 Maintenance of Property; Insurance. (a) Keep all Property useful and necessary in its business in good working order and condition, ordinary wear and tear excepted and (b) maintain with financially sound and reputable insurance companies insurance on all its Property in at least such amounts and against at least such risks (but including in any event public liability, product liability and business interruption) as are usually insured against in the same general area by companies engaged in the same or a similar business. 7.6 Inspection of Property; Books and Records; Discussions; Collateral Audit. (a) Keep proper books of records and account in which full, true and correct entries in conformity with GAAP and all Requirements of Law shall be made of all dealings and transactions in relation to its business and activities, (b) permit representatives of any Lender to visit and inspect any of its properties and examine and make abstracts from any of its books and records at any reasonable time and as often as may reasonably be desired and to discuss the business, operations, properties and financial and other condition of the Borrower and its Subsidiaries with officers and employees of the Borrower and its Subsidiaries and with its independent certified public accountants and (c) permit employees, representatives and/or agents of the Lenders, from time to time at the Administrative Agent's reasonable request, during normal business hours, to enter into the premises of the Borrower and its Subsidiaries to conduct an audit of the Collateral, the reasonable cost and expense of which shall be borne by the Borrower. 7.7 Notices. Promptly give notice to the Administrative Agent and each Lender of: (a) the occurrence of any Default or Event of Default; (b) any (i) default or event of default under any Contractual Obligation of the 49 Borrower (to the extent such Contractual Obligation has been entered into after the Petition Date) or any of its Subsidiaries or (ii) litigation, investigation or proceeding which may exist at any time between the Borrower or any of its Subsidiaries and any Governmental Authority, which in either case, if not cured or if adversely determined, as the case may be, could reasonably be expected to have a Material Adverse Effect; (c) except for the Case, any litigation or proceeding affecting the Borrower or any of its Subsidiaries in which the amount involved is $500,000 or more and not covered by insurance or in which injunctive or similar relief is sought; (d) the following events, as soon as possible and in any event within 30 days after the Borrower knows or has reason to know thereof: (i) the occurrence of any Reportable Event with respect to any Plan, a failure to make any required contribution to a Plan, the creation of any Lien in favor of the PBGC or a Plan or any withdrawal from, or the termination, Reorganization or Insolvency of, any Multiemployer Plan or (ii) the institution of proceedings or the taking of any other action by the PBGC or the Borrower or any Commonly Controlled Entity or any Multiemployer Plan with respect to the withdrawal from, or the termination, Reorganization or Insolvency of, any Plan; and (e) any development or event which has had or could reasonably be expected to have a Material Adverse Effect, other than changes which result solely from the Case. Each notice pursuant to this Section 7.7 shall be accompanied by a statement of a Responsible Officer setting forth details of the occurrence referred to therein and stating what action the Borrower or the relevant Subsidiary proposes to take with respect thereto. 7.8 Environmental Laws. (a) Comply in all material respects with, and ensure compliance in all material respects by all tenants and subtenants, if any, with, all applicable Environmental Laws, and obtain and comply in all material respects with and maintain, and ensure that all tenants and subtenants obtain and comply in all material respects with and maintain, any and all licenses, approvals, notifications, registrations or permits required by applicable Environmental Laws. (b) Conduct and complete all investigations, studies, sampling and testing, and all remedial, removal and other actions required under Environmental Laws and promptly comply in all material respects with all lawful orders and directives of all Governmental Authorities regarding Environmental Laws. 7.9 Further Assurances. From time to time execute and deliver, or cause to be executed and delivered, such additional instruments, certificates or documents, and take all such actions, as the Administrative Agent may reasonably request, for the purposes of implementing or effectuating the provisions of this Agreement, the other Loan Documents and the Final Order, or of more fully perfecting or renewing the rights of the Administrative Agent and the Lenders with respect to the Collateral (or with respect to any additions thereto or replacements or proceeds thereof or with respect to any other property or assets hereafter acquired by the Borrower which may be deemed to be part of the Collateral) pursuant hereto or thereto. Upon the exercise by the Administrative Agent or any Lender of any power, right, privilege or remedy pursuant to this Agreement, the other Loan Documents or the Final Order which requires any 50 consent, approval, recording, qualification or authorization of any Governmental Authority, the Borrower will execute and deliver, or will cause the execution and delivery of, all applications, certifications, instruments and other documents and papers that the Administrative Agent or such Lender may be required to obtain from the Borrower or any of its Subsidiaries for such governmental consent, approval, recording, qualification or authorization. SECTION 8. NEGATIVE COVENANTS The Borrower hereby agrees that, so long as the Revolving Credit Commitments remain in effect, any Letter of Credit remains outstanding or any Loan or other amount is owing to any Lender or any Agent hereunder, the Borrower shall not, and shall not permit any of its Subsidiaries to, directly or indirectly: 8.1 Financial Condition Covenants. If the Plan of Reorganization shall not have been consummated on or before August 31, 1998, permit the Consolidated Leverage Ratio to exceed, and the Consolidated Interest Coverage Ratio to be less than, certain ratios to be agreed upon by the Agents and the Borrower; it being understood that (i) such ratios shall be set at approximately 80% of the Borrower's "T-2 Business Plan" and shall be measured on a monthly basis, and (ii) such ratios shall utilize the defined terms relative to such ratios as contained in Section 1. 8.2 Limitation on Indebtedness. Create, incur, assume or suffer to exist any Indebtedness, except: (a) Indebtedness of any Loan Party pursuant to any Loan Document; (b) Indebtedness of the Borrower to any Subsidiary and of any Wholly Owned Subsidiary Guarantor to the Borrower or any other Subsidiary; provided that any such Indebtedness shall be evidenced by a promissory note which shall be pledged collaterally to the Administrative Agent; (c) Indebtedness outstanding on the date hereof and listed on Schedule 8.2(c), but excluding the refinancing of any such Indebtedness; and (d) Capital Lease Obligations with respect to vehicles and office equipment leased in the ordinary course of the Borrower's business. 8.3 Limitation on Liens. Create, incur, assume or suffer to exist any Lien upon any of its Property, whether now owned or hereafter acquired, except for: (a) Liens for taxes not yet due or which are being contested in good faith by appropriate proceedings, provided that adequate reserves with respect thereto are maintained on the books of the Borrower or its Subsidiaries, as the case may be, in conformity with GAAP; (b) carriers', warehousemen's, mechanics', materialmen's, repairmen's or other like Liens arising in the ordinary course of business which are not overdue for a period of 51 more than 30 days or which are being contested in good faith by appropriate proceedings; (c) pledges or deposits in connection with workers' compensation, unemployment insurance and other social security legislation; (d) deposits to secure the performance of bids, trade contracts (other than for borrowed money), leases, statutory obligations, surety and appeal bonds, performance bonds and other obligations of a like nature incurred in the ordinary course of business; (e) easements, rights-of-way, restrictions and other similar encumbrances incurred in the ordinary course of business which, in the aggregate, are not substantial in amount and which do not in any case materially detract from the value of the Property subject thereto or materially interfere with the ordinary conduct of the business of the Borrower or any of its Subsidiaries; (f) Liens in existence on the date hereof listed on Schedule 8.3(f), securing Indebtedness permitted by Section 8.2(c), provided that no such Lien is spread to cover any additional Property after the Closing Date and that the amount of Indebtedness secured thereby is not increased; (g) Liens created pursuant to the Loan Documents and the Final Order, replacement Liens granted to the holders of Supplemental Term Loans pursuant to the Cash Collateral Order, existing Liens granted to such holders, and existing and replacement Liens granted to the other holders of the Prepetition Obligations under the Cash Collateral Order; (h) any interest or title of a lessor under any lease entered into by the Borrower or any other Subsidiary in the ordinary course of its business and covering only the assets so leased; and (i) with the consent of the Administrative Agent, Liens in respect of deposits with utilities in the ordinary course of business; provided, however, that (i) the Borrower shall use its best efforts not to make any such deposits with utilities, (ii) the Borrower shall use its best efforts to terminate all such deposit arrangements and (iii) the aggregate amount of such deposits at any time shall not exceed $4,000,000. 8.4 Limitation on Fundamental Changes. Enter into any merger, consolidation or amalgamation, or liquidate, wind up or dissolve itself (or suffer any liquidation or dissolution), or Dispose of all or substantially all of its Property or business, except that: (a) any Subsidiary of the Borrower may be merged or consolidated with or into the Borrower (provided that the Borrower shall be the continuing or surviving corporation) or with or into any Subsidiary Guarantor (provided that the Subsidiary Guarantor shall be the continuing or surviving corporation); and (b) any Subsidiary of the Borrower may Dispose of any or all of its assets (upon voluntary liquidation or otherwise) to the Borrower or any Subsidiary Guarantor. 52 8.5 Limitation on Disposition of Property. Dispose of any of its Property (including, without limitation, receivables and leasehold interests), whether now owned or hereafter acquired, or, in the case of any Subsidiary, issue or sell any shares of such Subsidiary's Capital Stock to any Person, except: (a) the Disposition of obsolete or worn out property in the ordinary course of business; (b) the sale of inventory in the ordinary course of business; (c) Dispositions permitted by Section 8.4(b); and (d) the sale or issuance of any Subsidiary's Capital Stock to the Borrower or any Subsidiary Guarantor. 8.6 Limitation on Restricted Payments. Declare or pay any dividend (other than dividends payable solely in common stock of the Person making such dividend) on, or make any payment on account of, or set apart assets for a sinking or other analogous fund for, the purchase, redemption, defeasance, retirement or other acquisition of, any Capital Stock of the Borrower or any Subsidiary, whether now or hereafter outstanding, or make any other distribution in respect thereof, either directly or indirectly, whether in cash or property or in obligations of the Borrower or any Subsidiary (collectively, "Restricted Payments"), except that any Subsidiary may make Restricted Payments to the Borrower or any Subsidiary Guarantor. 8.7 Limitation on Capital Expenditures. Make or commit to make any Capital Expenditure except as otherwise set forth in the Budget. 8.8 Limitation on Investments. Make any advance, loan, extension of credit (by way of guaranty or otherwise) or capital contribution to, or purchase any Capital Stock, bonds, notes, debentures or other debt securities of, or any assets constituting an ongoing business from, or make any other investment in, any other Person (all of the foregoing, "Investments"), except: (a) extensions of trade credit in the ordinary course of business; (b) investments in Cash Equivalents; (c) Investments arising in connection with the incurrence of Indebtedness permitted by Section 8.2(b); (d) loans and advances to employees of the Borrower or any Subsidiaries of the Borrower in the ordinary course of business (including, without limitation, for travel, entertainment and relocation expenses) in an aggregate amount for the Borrower and Subsidiaries of the Borrower not to exceed $500,000 at any one time outstanding; (e) Investments pursuant to the Loan Documents and the Final Order; (f) Investments (other than those relating to the incurrence of Indebtedness permitted by Section 8.8(c)) by the Borrower or any of its Subsidiaries in the Borrower or 53 any Person that, prior to such investment, is a Subsidiary Guarantor; (g) Investments in existence on the date hereof listed on Schedule 8.8(h); (h) debt or equity securities received in connection with the bankruptcy or reorganization of suppliers and/or customers and in settlement of delinquent obligations of, and other disputes with, customers and/or suppliers in the ordinary course of business; and (i) additional Investments of a nature not contemplated pursuant to the foregoing clauses (a) through (i); provided that all Investments pursuant to this clause (l) shall not exceed $1,000,000 at any one time. 8.9 Limitation on Transactions with Affiliates. Enter into any transaction, including, without limitation, any purchase, sale, lease or exchange of Property, the rendering of any service or the payment of any management, advisory or similar fees, with any Affiliate (other than the Borrower or any Subsidiary Guarantor) unless such transaction is (a) otherwise permitted under this Agreement, (b) in the ordinary course of business of the Borrower or such Subsidiary, as the case may be, and (c) upon fair and reasonable terms no less favorable to the Borrower or such Subsidiary, as the case may be, than it would obtain in a comparable arm's length transaction with a Person which is not an Affiliate. 8.10 Limitation on Sales and Leasebacks. Enter into any arrangement with any Person providing for the leasing by the Borrower or any Subsidiary of real or personal property which has been or is to be sold or transferred by the Borrower or such Subsidiary to such Person or to any other Person to whom funds have been or are to be advanced by such Person on the security of such property or rental obligations of the Borrower or such Subsidiary. 8.11 Limitation on Changes in Fiscal Periods. Permit the fiscal year of the Borrower to end on a day other than the Saturday closest to the last day in March or change the Borrower's method of determining fiscal periods. 8.12 Limitation on Negative Pledge Clauses. Enter into or suffer to exist or become effective any agreement which prohibits or limits the ability of the Borrower or any of its Subsidiaries to create, incur, assume or suffer to exist any Lien upon any of its Property or revenues, whether now owned or hereafter acquired, to secure the Obligations or, in the case of any guarantor, its obligations under the Guarantee and Collateral Agreement, other than (a) this Agreement and the other Loan Documents, (b) any agreements governing any purchase money Liens or Capital Lease Obligations otherwise permitted hereby (in which case, any prohibition or limitation shall only be effective against the assets financed thereby) and (c) the Prepetition Credit Agreement. 8.13 Limitation on Restrictions on Subsidiary Distributions. Enter into or suffer to exist or become effective any consensual encumbrance or restriction on the ability of any Subsidiary to (a) make Restricted Payments in respect of any Capital Stock of such Subsidiary held by, or pay any Indebtedness owed to, the Borrower or any other Subsidiary, (b) make Investments in the Borrower or any other Subsidiary or (c) transfer any of its assets to the Borrower or any other Subsidiary, except for such encumbrances or restrictions existing under or 54 by reason of (i) any restrictions existing under the Loan Documents, (ii) any restrictions with respect to a Subsidiary imposed pursuant to an agreement which has been entered into in connection with the Disposition of all or substantially all of the Capital Stock or assets of such Subsidiary and (iii) any restrictions existing under the Prepetition Credit Agreement. 8.14 Limitation on Lines of Business. Enter into any business, either directly or through any Subsidiary, except for those businesses in which the Borrower and its Subsidiaries are engaged on the date of this Agreement or which are reasonably related thereto. 8.15 Chapter 11 Claims; Payment of Pre-Petition Date Claims. (a) Except for the Carve-Out, incur, create, assume, suffer to exist or permit any other Super-Priority Claim or Lien which is pari passu with or senior to the claims of (i) the Agents and the Lenders granted pursuant to this Agreement and the Final Order or (ii) other than for claims referenced in clause (a), the Prepetition Agent and the Prepetition Lenders granted pursuant to Section 4.1 and the Final Order. (b) Make any payments of Indebtedness relating to pre-Petition Date obligations other than (i) as permitted under the Final Order, (ii) as permitted by the Bankruptcy Court, including pre-petition wages and benefits and other employee-related claims, (iii) to refinance the Borrower's Prepetition Obligations under the Prepetition Credit Agreement (except with respect to Prepetition Supplemental Term Loans), and (iv) as otherwise permitted under this Agreement. SECTION 9. EVENTS OF DEFAULT If any of the following events shall occur and be continuing: (a) The Borrower shall fail to pay any principal of any Loan or Reimbursement Obligation when due in accordance with the terms hereof; or the Borrower shall fail to pay any interest on any Loan or Reimbursement Obligation, or any other amount payable hereunder or under any other Loan Document, within five days after any such interest or other amount becomes due in accordance with the terms hereof; or (b) Any representation or warranty made or deemed made by any Loan Party in any Loan Document or which is contained in any certificate, document or financial or other statement furnished by it at any time under or in connection with this Agreement or any such other Loan Document shall prove to have been inaccurate in any material respect on or as of the date made or deemed made; or (c) Any Loan Party shall default in the observance or performance of any agreement contained in Section 7.4(a) (with respect to the Borrower only), Section 7.7(a) or Section 8; or (d) Any Loan Party shall default in the observance or performance of any other agreement contained in this Agreement or any other Loan Document (other than as provided in paragraphs (a) through (c) of this Section 9), and such default shall continue unremedied for a period of 30 days; or 55 (e) (i) The Case shall be dismissed or converted to a case under Chapter 7 of the Bankruptcy Code or (ii) an order of the Bankruptcy Court shall be entered in the Case appointing a trustee under Chapter 11 of the Bankruptcy Code; or (f) (i) Unless all the Lenders otherwise agree, except for the Carve-Out, an order of the Bankruptcy Court shall be entered granting another Super-Priority Claim or Lien pari passu with or senior to that granted (x) to the Administrative Agent and the Lenders pursuant to this Agreement and the Final Order, or (y) to the Prepetition Lenders pursuant to the Final Order (other than pursuant to clause (x) above), (ii) an order of a court of competent jurisdiction shall be entered staying, reversing, vacating or otherwise modifying the Final Order without the Agents' and the Required Lenders' consent, (iii) the Prepetition Supplemental Term Loan holders' Cash Collateral shall be used in a manner inconsistent with the Final Order, or (iv) an order of a court of competent jurisdiction shall be entered terminating the use of the Prepetition Supplemental Term Loan holders' Cash Collateral; or (g) An order of the Bankruptcy Court shall be entered in the Case appointing an examiner having enlarged powers (beyond those set forth under Sections 1106(a)(3) and (4) of the Bankruptcy Code) under Section 1106(b) of the Bankruptcy Code; or (h) The entry of an order granting relief from the automatic stay so as to allow a third party to proceed against any asset or assets of the Borrower or any Guarantor which have a value in excess of $500,000 in the aggregate; or (i) The filing of any pleading by the Borrower or any of its Subsidiaries seeking, or otherwise consenting to, any of the matters set forth in paragraphs (e) through (h); or (j) The Borrower or any of its Subsidiaries files any pleading seeking, or otherwise consenting to, (i) the invalidation, subordination or other challenging of the Liens granted to secure the Obligations or (ii) any relief under Section 506(c) of the Bankruptcy Code with respect to any Property which secures the Prepetition Obligations; or (k) (i) Any Person shall engage in any "prohibited transaction" (as defined in Section 406 of ERISA or Section 4975 of the Code) involving any Plan, (ii) any "accumulated funding deficiency" (as defined in Section 302 of ERISA), whether or not waived, shall exist with respect to any Plan or any Lien in favor of the PBGC or a Plan shall arise on the assets of the Borrower or any Commonly Controlled Entity, (iii) a Reportable Event shall occur with respect to, or proceedings shall commence to have a trustee appointed, or a trustee shall be appointed, to administer or to terminate, any Single Employer Plan, which Reportable Event or commencement of proceedings or appointment of a trustee is, in the reasonable opinion of the Required Lenders, likely to result in the termination of such Plan for purposes of Title IV of ERISA, (iv) any Single Employer Plan shall terminate for purposes of Title IV of ERISA, (v) the Borrower or any Commonly Controlled Entity shall, or in the reasonable opinion of the Required Lenders is likely to, incur any liability in connection with a withdrawal from, or the Insolvency or Reorganization of, a Multiemployer Plan or (vi) any other event or condition shall occur or exist with respect to a Plan; and in each case in clauses (i) 56 through (vi) above, such event or condition, together with all other such events or conditions, if any, could, in the sole judgment of the Required Lenders, reasonably be expected to have a Material Adverse Effect; or (l) One or more judgments or decrees shall be entered against the Borrower or any of its Subsidiaries involving in the aggregate a liability (not paid or fully covered by insurance as to which the relevant insurance company has acknowledged coverage) of $5,000,000 or more, and all such judgments or decrees shall not have been vacated, discharged, stayed or bonded pending appeal within 30 days from the entry thereof; or (m) Any of the Security Documents shall cease, for any reason, to be in full force and effect, or any Loan Party or any Affiliate of any Loan Party shall so assert, or any Lien created by any of the Security Documents shall cease to be enforceable and of the same effect and priority purported to be created thereby; or (n) The guarantee contained in Section 2 of the Guarantee and Collateral Agreement shall cease, for any reason, to be in full force and effect or any Loan Party or any Affiliate of any Loan Party shall so assert; then, and in every such event and at any time thereafter during the continuance of such event, and without further order of or application to the Bankruptcy Court, the Agents may, and, at the request of the Required Lenders, the Agents shall, by notice to the Borrower (with a copy to counsel for any statutory committee of unsecured creditors appointed in the Case, counsel for the Steering Committee and to the United States Trustee), take one or more of the following actions, at the same or different times (provided, that with respect to clause (iv) below and the enforcement of Liens or other remedies with respect to the Collateral under clause (v) below, the Agents shall provide the Borrower (with a copy to counsel for any statutory committee of unsecured creditors appointed in the Case, counsel for the Steering Committee and to the United States Trustee) with five Business Days' written notice prior to taking the action contemplated thereby): (i) terminate forthwith the Revolving Credit Commitments; (ii) declare the Revolving Credit Loans then outstanding to be forthwith due and payable, whereupon the principal of the Revolving Credit Loans, any Letter of Credit outstandings constituting then drawn and unreimbursed Letters of Credit, together with accrued interest thereon and any unpaid accrued fees and all other Obligations of the Borrower accrued hereunder and under any other Loan Document, shall become forthwith due and payable, without presentment, demand, protest or any other notice of any kind, all of which are hereby expressly waived by the Borrower, anything contained herein or in any other Loan Document to the contrary notwithstanding; (iii) require the Borrower upon demand to forthwith deposit in the L/C Cash Collateral Account cash in an amount equal to 105% of the face amount of each outstanding and undrawn Letter of Credit and, to the extent the Borrower shall fail to furnish such funds as demanded by the Agents, the Administrative Agent shall be authorized to debit the accounts of the Borrower maintained with the Administrative Agent in such amount for the deposit of such amounts in the L/C Cash Collateral Account; (iv) set-off amounts in the L/C Cash Collateral Account or any other accounts of the Borrower and apply such amounts to the Obligations of the Borrower hereunder and under the other Loan Documents; and (v) exercise any and all remedies under this Agreement, the Final Order, and applicable law available to the Agents and the Lenders. After all such Letters of Credit shall have expired or been fully drawn upon, all Reimbursement Obligations shall have been satisfied and all other obligations of the Borrower hereunder and 57 under the other Loan Documents shall have been paid in full, the balance, if any, in such L/C Cash Collateral Account shall be returned to the Borrower (or such other Person as may be lawfully entitled thereto). SECTION 10. THE AGENTS 10.1 Appointment. Each Lender hereby irrevocably designates and appoints the Agents as the agents of such Lender under this Agreement and the other Loan Documents, and each such Lender irrevocably authorizes each Agent, in such capacity, to take such action on its behalf under the provisions of this Agreement and the other Loan Documents and to exercise such powers and perform such duties as are expressly delegated to the such Agent by the terms of this Agreement and the other Loan Documents, together with such other powers as are reasonably incidental thereto. Notwithstanding any provision to the contrary elsewhere in this Agreement, no Agent shall have any duties or responsibilities, except those expressly set forth herein, or any fiduciary relationship with any Lender, and no implied covenants, functions, responsibilities, duties, obligations or liabilities shall be read into this Agreement or any other Loan Document or otherwise exist against any Agent. 10.2 Delegation of Duties. Each Agent may execute any of its duties under this Agreement and the other Loan Documents by or through agents or attorneys-in-fact and shall be entitled to advice of counsel concerning all matters pertaining to such duties. No Agent shall be responsible for the negligence or misconduct of any agents or attorneys in-fact selected by it with reasonable care. 10.3 Exculpatory Provisions. Neither any Agent nor any of their respective officers, directors, employees, agents, attorneys-in-fact or affiliates shall be (i) liable for any action lawfully taken or omitted to be taken by it or such Person under or in connection with this Agreement or any other Loan Document (except to the extent that any of the foregoing are found by a final and nonappealable decision of a court of competent jurisdiction to have resulted from its or such Person's own gross negligence or willful misconduct) or (ii) responsible in any manner to any of the Lenders for any recitals, statements, representations or warranties made by any Loan Party or any officer thereof contained in this Agreement or any other Loan Document or in any certificate, report, statement or other document referred to or provided for in, or received by the Agents under or in connection with, this Agreement or any other Loan Document or for the value, validity, effectiveness, genuineness, enforceability or sufficiency of this Agreement or any other Loan Document or for any failure of any Loan Party a party thereto to perform its obligations hereunder or thereunder. The Agents shall not be under any obligation to any Lender to ascertain or to inquire as to the observance or performance of any of the agreements contained in, or conditions of, this Agreement or any other Loan Document, or to inspect the properties, books or records of any Loan Party. 58 10.4 Reliance by Administrative Agent. Each Agent shall be entitled to rely, and shall be fully protected in relying, upon any instrument, writing, resolution, notice, consent, certificate, affidavit, letter, telecopy, telex or teletype message, statement, order or other document or conversation believed by it to be genuine and correct and to have been signed, sent or made by the proper Person or Persons and upon advice and statements of legal counsel (including, without limitation, counsel to the Loan Parties), independent accountants and other experts selected by the Administrative Agent. The Agents may deem and treat the payee of any Note as the owner thereof for all purposes unless a written notice of assignment, negotiation or transfer thereof shall have been filed with the Administrative Agent. Each Agent shall be fully justified in failing or refusing to take any action under this Agreement or any other Loan Document unless it shall first receive such advice or concurrence of the Required Lenders (or, if so specified by this Agreement, all Lenders) as it deems appropriate or it shall first be indemnified to its satisfaction by the Lenders against any and all liability and expense which may be incurred by it by reason of taking or continuing to take any such action. Each Agent shall in all cases be fully protected in acting, or in refraining from acting, under this Agreement and the other Loan Documents in accordance with a request of the Required Lenders (or, if so specified by this Agreement, all Lenders), and such request and any action taken or failure to act pursuant thereto shall be binding upon all the Lenders and all future holders of the Loans. 10.5 Notice of Default. No Agent shall be deemed to have knowledge or notice of the occurrence of any Default or Event of Default hereunder unless such Agent has received notice from a Lender or the Borrower referring to this Agreement, describing such Default or Event of Default and stating that such notice is a "notice of default". In the event that the Administrative Agent receives such a notice, the Administrative Agent shall give notice thereof to the Lenders. The Administrative Agent shall take such action with respect to such Default or Event of Default as shall be reasonably directed by the Required Lenders (or, if so specified by this Agreement, all Lenders); provided that unless and until the Administrative Agent shall have received such directions, the Administrative Agent may (but shall not be obligated to) take such action, or refrain from taking such action, with respect to such Default or Event of Default as it shall deem advisable in the best interests of the Lenders. 10.6 Non-Reliance on Agents and Other Lenders. Each Lender expressly acknowledges that neither the Agents nor any of their respective officers, directors, employees, agents, attorneys-in-fact or affiliates have made any representations or warranties to it and that no act by any Agent hereinafter taken, including any review of the affairs of a Loan Party or any affiliate of a Loan Party, shall be deemed to constitute any representation or warranty by any Agent to any Lender. Each Lender represents to the Agents that it has, independently and without reliance upon any Agent or any other Lender, and based on such documents and information as it has deemed appropriate, made its own appraisal of and investigation into the business, operations, property, financial and other condition and creditworthiness of the Loan Parties and their affiliates and made its own decision to make its Loans hereunder and enter into this Agreement. Each Lender also represents that it will, independently and without reliance upon any Agent or any other Lender, and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit analysis, appraisals and decisions in taking or not taking action under this Agreement and the other Loan Documents, and to make such investigation as it deems necessary to inform itself as to the business, operations, property, financial and other condition and creditworthiness of the Loan Parties and their affiliates. Except for notices, reports and other documents expressly required to be furnished to the Lenders by the 59 Administrative Agent hereunder, no Agent shall have any duty or responsibility to provide any Lender with any credit or other information concerning the business, operations, property, condition (financial or otherwise), prospects or creditworthiness of any Loan Party or any affiliate of a Loan Party which may come into the possession of such Agent or any of its officers, directors, employees, agents, attorneys-in-fact or affiliates. 10.7 Indemnification. The Lenders agree to indemnify each Agent in its capacity as such (to the extent not reimbursed by the Borrower and without limiting the obligation of the Borrower to do so), ratably according to their respective Aggregate Exposure Percentages in effect on the date on which indemnification is sought under this Section 10.7 (or, if indemnification is sought after the date upon which the Revolving Credit Commitments shall have terminated and the Loans shall have been paid in full, ratably in accordance with such Aggregate Exposure Percentages immediately prior to such date), from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind whatsoever which may at any time (including, without limitation, at any time following the payment of the Loans) be imposed on, incurred by or asserted against such Agent in any way relating to or arising out of, the Revolving Credit Commitments, this Agreement, any of the other Loan Documents or any documents contemplated by or referred to herein or therein or the transactions contemplated hereby or thereby or any action taken or omitted by such Agent under or in connection with any of the foregoing; provided that no Lender shall be liable for the payment of any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements which are found by a final and nonappealable decision of a court of competent jurisdiction to have resulted from such Agent's gross negligence or willful misconduct. The agreements in this Section 10.7 shall survive the payment of the Loans and all other amounts payable hereunder. 10.8 Agent in Its Individual Capacity. Each Agent and its affiliates may make loans to, accept deposits from and generally engage in any kind of business with any Loan Party as though such Agent was not an Agent. With respect to its Loans made or renewed by it and with respect to any Letter of Credit issued or participated in by it, each Agent shall have the same rights and powers under this Agreement and the other Loan Documents as any Lender and may exercise the same as though it were not an Agent, and the terms "Lender" and "Lenders" shall include each Agent in its individual capacity. 10.9 Successor Administrative Agent. The Administrative Agent may resign as Administrative Agent upon 10 days' notice to the Lenders and the Borrower. If the Administrative Agent shall resign as Administrative Agent under this Agreement and the other Loan Documents, then the Required Lenders shall appoint from among the Lenders a successor agent for the Lenders, which successor agent shall (unless an Event of Default under Section 9(a) with respect to the Borrower shall have occurred and be continuing) be subject to approval by the Borrower (which approval shall not be unreasonably withheld or delayed), whereupon such successor agent shall succeed to the rights, powers and duties of the Administrative Agent, and the term "Administrative Agent" shall mean such successor agent effective upon such appointment and approval, and the former Administrative Agent's rights, powers and duties as Administrative Agent shall be terminated, without any other or further act or deed on the part of such former Administrative Agent or any of the parties to this Agreement or any holders of the Loans. If no successor agent has accepted appointment as Administrative Agent by the date that is 10 days following a retiring Administrative Agent's notice of resignation, the retiring 60 Administrative Agent's resignation shall nevertheless thereupon become effective, and the Lenders shall assume and perform all of the duties of the Administrative Agent hereunder until such time, if any, as the Required Lenders appoint a successor agent as provided for above. The Syndication Agent may, at any time, by notice to the Lenders and the Administrative Agent, resign as Syndication Agent hereunder, whereupon the duties, rights, obligations and responsibilities hereunder shall automatically be assumed by, and inure to the benefit of, the Administrative Agent, without any further act by the Syndication Agent, the Administrative Agent or any Lender. After any retiring Agent's resignation as Agent, the provisions of this Section 10 shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Agent under this Agreement and the other Loan Documents. 10.10 Authorization to Release Liens. The Administrative Agent is hereby irrevocably authorized by each of the Lenders to release any Lien covering any Property of the Borrower or any of its Subsidiaries that is the subject of a Disposition which is permitted by this Agreement or which has been consented to in accordance with Section 12.1. 10.11 The Arrangers. The Arrangers, in their capacity as such, shall have no duties or responsibilities, and shall incur no liability, under this Agreement and the other Loan Documents. SECTION 11. REMEDIES; APPLICATION OF PROCEEDS 11.1 Remedies; Obtaining the Collateral Upon Default. Upon the occurrence and during the continuance of an Event of Default, to the extent any such action is not inconsistent with the Final Order and Section 9, the Agents, in addition to any rights now or hereafter existing under applicable law, and without application to or order of the Bankruptcy Court, shall have all rights as a secured creditor under the Uniform Commercial Code in all relevant jurisdictions and may: (a) personally, or by agents or attorneys, immediately retake possession of the Collateral or any part thereof, from the Borrower or any other Person who then has possession of any part thereof with or without notice or process of law (but subject to any Requirements of Law), and for that purpose may enter upon the Borrower's premises where any of the Collateral is located and remove the same and use in connection with such removal any and all services, supplies, aids and other facilities of the Borrower; (b) instruct the obligor or obligors on any agreements, instrument or other obligation constituting the Collateral to make any payment required by the terms of such instrument or agreement directly to the L/C Cash Collateral Account; (c) withdraw all monies, securities and instruments in the L/C Cash Collateral Account for application to the Obligations; (d) sell, assign or otherwise liquidate, or direct the Borrower to sell, assign or otherwise liquidate, any or all of the Collateral or any part thereof, and take possession of the proceeds of any such sale or liquidation; (e) take possession of the Collateral or any part thereof, by directing the 61 Borrower in writing to deliver the same to the Agents at any place or places designated by the Agents, in which event the Borrower shall at its own expense: (i) forthwith cause the same to be moved to the place or places so designated by the Agents and there delivered to the Agents, (ii) store and keep any Collateral so delivered to the Agents at such place or places pending further action by the Agents as provided in Section 10.2, and (iii) while the Collateral shall be so stored and kept, provide such guards and maintenance services as shall be necessary to protect the same and to preserve and maintain them in good condition; it being understood that the Borrower's obligation so to deliver the Collateral is of the essence of this Agreement and that, accordingly, upon application to the Bankruptcy Court, the Agents shall be entitled to a decree requiring specific performance by the Borrower of such obligation. 11.2 Remedies; Disposition of the Collateral. Upon the occurrence and during the continuance of an Event of Default, and to the extent not inconsistent with the Final Order and Section 9, without application to or order of the Bankruptcy Court, any Collateral repossessed by the Agents under or pursuant to Section 11.1 or the Final Order or otherwise, and any other Collateral whether or not so repossessed by the Agents, may be sold, assigned, leased or otherwise disposed of under one or more contracts or as an entirety, and without the necessity of gathering at the place of sale the property to be sold, and in general in such manner, at such time or times, at such place or places and on such terms as the Agents may, in compliance with any Requirements of Law, determine to be commercially reasonable. Any of the Collateral may be sold, leased or otherwise disposed of, in the condition in which the same existed when taken by the Agents or after any overhaul or repair which the Agents shall determine to be commercially reasonable. Any such disposition which shall be a private sale or other private proceeding permitted by applicable Requirements of Law shall be made upon not less than 10 days' written notice to the Borrower specifying the time at which such disposition is to be made and the intended sale price or other consideration therefor, and shall be subject, for the 10 days after the giving of such notice, to the right of the Borrower or any nominee of the Borrower to acquire the Collateral involved at a price or for such other consideration at least equal to the intended sale price or other consideration so specified. Any such disposition which shall be a public sale permitted by applicable Requirements of Law shall be made upon not less than 10 days' written notice to the Borrower specifying the time and place of such sale and, in the absence of applicable Requirement of Law, shall be by public auction (which may, at the Agents' option, be subject to reserve), after publication of notice of such auction not less than 10 days prior thereto in two newspapers in general circulation in New York City and Wayne, New Jersey. Subject to Section 11.4, to the extent permitted by any such Requirement of Law, the Agents on behalf of the Lenders may bid for and become the purchaser of the Collateral or any item thereof, offered for sale in accordance with this subsection 11.2 without accountability to the Borrower or the Prepetition Lenders (except to the extent of surplus money received). If, under mandatory Requirements of Law, the Agents shall be required to make disposition of the Collateral within a period of time which does not permit the giving of notice to the Borrower as hereinabove specified, the Agents need give the Borrower only such notice of disposition as shall be 62 reasonably practicable. 11.3 Application of Proceeds. (a) Notwithstanding anything to the contrary contained in this Agreement or any other Loan Document, (i) if the Agents take action under clause (i) or (ii) of Section 9 upon the occurrence and during the continuance of an Event of Default, any payment by the Borrower on account of principal of and interest on the Loans and any proceeds arising out of any realization (including after foreclosure) upon the Collateral shall be applied, subject to the Carve-Out, as follows: first, to the payment in full of all costs and expenses (including without limitation, reasonable attorneys' fees and disbursements) paid or incurred by the Agents or any of the Lenders in connection with any such realization upon the Collateral, second, as a permanent reduction of the Revolving Credit Commitments, pro rata to the payment in full of the Revolving Credit Loans (including any accrued and unpaid interest thereon, and any fees and other Obligations in respect thereof), third, as a permanent reduction of the Revolving Credit Commitments, to the payment in full of the Swing Line Loans (including any accrued and unpaid interest thereon, and any fees and other Obligations in respect thereof), fourth, as a permanent reduction of the Revolving Credit Commitments, to the payment in full of Letter of Credit outstandings constituting unreimbursed drawings under any Letter of Credit, fifth, as a permanent reduction of the Revolving Credit Commitments, to cash collateralize Letters of Credit in an amount equal to 105% of the aggregate amount of all Letter of Credit outstandings constituting undrawn Letters of Credit in the manner set forth in Section 3.1(b), and sixth, to the payment in full of the Prepetition Obligations, and (ii) any payments or distributions of any kind or character, whether in cash, property or securities, made by the Borrower or otherwise in a manner inconsistent with clause (i) of this Section 11.3(a) shall be held in trust and paid over or delivered to the Administrative Agent so that the priorities and requirements set forth in such clause (i) are satisfied. (b) It is understood that the Borrower shall remain liable to the extent of any deficiency between the amount of the proceeds of the Collateral and the amount of the Obligations. 11.4 WAIVER OF CLAIMS. EXCEPT AS OTHERWISE PROVIDED IN THIS AGREEMENT, THE BORROWER HEREBY WAIVES, TO THE EXTENT PERMITTED BY APPLICABLE LAW, NOTICE AND JUDICIAL HEARING IN CONNECTION WITH THE AGENTS' TAKING POSSESSION OR THE AGENTS' DISPOSITION OF ANY OF THE COLLATERAL, INCLUDING, WITHOUT LIMITATION, ANY AND ALL PRIOR NOTICE AND HEARING FOR ANY PREJUDGMENT REMEDY OR REMEDIES AND ANY SUCH RIGHT WHICH THE BORROWER WOULD OTHERWISE HAVE UNDER ANY REQUIREMENT OF LAW AND THE BORROWER HEREBY FURTHER WAIVES, TO THE EXTENT PERMITTED BY LAW: (a) all damages occasioned by such taking of possession except any damages which are the direct result of the Agent's or any Lender's gross negligence or wilful misconduct; (b) all other requirement to the time, place and terms of sale or other requirements with respect to the enforcement of the Agent's rights hereunder; and (c) all rights of redemption, appraisement, valuation, stay, extension or 63 moratorium now or hereafter in force under any applicable law in order to prevent or delay the enforcement of this Agreement or the absolute sale of the Collateral or any portion thereof, and the Borrower, for itself and all who may claim under it, insofar as it now or hereafter lawfully may, hereby waives the benefit of all such laws. 11.5 Remedies Cumulative. Each and every right, power and remedy hereby specifically given to the Agents shall be in addition to every other right, power and remedy specifically given under this Agreement, the Final Order or the other Loan Documents or now or hereafter existing at law or in equity, or by statute and each and every right, power and remedy whether specifically herein given or otherwise existing may be exercised from time to time or simultaneously and as often and in such order as may be deemed expedient by the Agents. All such rights, powers and remedies shall be cumulative and the exercise or the beginning of exercise of one shall not be deemed a waiver of the right to exercise of any other or others. No delay or omission of the Agents in the exercise of any such right, power or remedy and no renewal or extension of any of the Obligations shall impair any such right, power or remedy or shall be construed to be a waiver of any Default or Event of Default or an acquiescence therein. In the event that the Agents shall bring any suit to enforce any of their rights hereunder and shall be entitled to judgment, then in such suit the Agents may recover reasonable expenses, including attorney's fees, and the amounts thereof shall be included in such judgment. 11.6 Discontinuance of Proceedings. In case the Agents shall have instituted any proceeding to enforce any right, power or remedy under this Agreement by foreclosure, sale, entry or otherwise, and such proceeding shall have been discontinued or abandoned for any reason or shall have been determined adversely to the Agents, then and in every such case the Borrower, the Agents and each holder of any of the Obligations shall be restored to their former positions and rights hereunder with respect to the Collateral subject to the security interest created under this Agreement, and all rights, remedies and powers of the Agents and the Lenders shall continue as if no such proceeding had been instituted. SECTION 12. MISCELLANEOUS 12.1 Amendments and Waivers. Neither this Agreement, any other Loan Document, nor any terms hereof or thereof may be amended, supplemented or modified except in accordance with the provisions of this Section 12.1. The Required Lenders and each Loan Party to the relevant Loan Document may, or (with the written consent of the Required Lenders) the Agents and each Loan Party to the relevant Loan Document may, from time to time, (a) enter into written amendments, supplements or modifications hereto and to the other Loan Documents for the purpose of adding any provisions to this Agreement or the other Loan Documents or changing in any manner the rights of the Lenders or of the Loan Parties hereunder or thereunder or (b) waive, on such terms and conditions as the Required Lenders, or the Agents, as the case may be, may specify in such instrument, any of the requirements of this Agreement or the other Loan Documents or any Default or Event of Default and its consequences; provided, however, that no such waiver and no such amendment, supplement or modification shall (i) forgive the principal amount or extend the final scheduled date of maturity of any Loan, reduce the stated rate of any interest or fee payable hereunder or extend the scheduled date of any payment thereof, or increase the amount or extend the expiration date of any Revolving Credit Commitment or modify the Super-Priority Claim status of any Lender, in each case without the consent of each 64 Lender directly affected thereby; (ii) amend, modify or waive any provision of this Section 12.1 or reduce any percentage specified in the definition of Required Lenders, consent to the assignment or transfer by the Borrower of any of its rights and obligations under this Agreement and the other Loan Documents, release all or substantially all of the Collateral or release all or substantially all of the Subsidiary Guarantors from their obligations under the Guarantee and Collateral Agreement, in each case without the consent of all Lenders; (iii) amend, modify or waive any condition precedent to any extension of credit under the Revolving Credit Facility set forth in Section 6.2 (including, without limitation, in connection with any waiver of an existing Default or Event of Default) without the consent of the Required Lenders; (iv) amend, modify or waive any provision of Section 10 without the consent of the Agents; (v) amend, modify or waive any provision of Section 2.3 or 2.4 without the written consent of the Swing Line Lender; (vi) amend, modify or waive any provision of Section 2.15 without the consent of each Lender directly affected thereby; or (vii) amend, modify or waive any provision of Section 3 without the consent of the Issuing Lender. Any such waiver and any such amendment, supplement or modification shall apply equally to each of the Lenders and shall be binding upon the Loan Parties, the Lenders, the Agents and all future holders of the Loans. In the case of any waiver, the Loan Parties, the Lenders and the Agents shall be restored to their former position and rights hereunder and under the other Loan Documents, and any Default or Event of Default waived shall be deemed to be cured and not continuing; but no such waiver shall extend to any subsequent or other Default or Event of Default, or impair any right consequent thereon. Any such waiver, amendment, supplement or modification shall be effected by a written instrument signed by the parties required to sign pursuant to the foregoing provisions of this Section 12.1; provided, that delivery of an executed signature page of any such instrument by facsimile transmission shall be effective as delivery of a manually executed counterpart thereof. 12.2 Notices. All notices, requests and demands to or upon the respective parties hereto to be effective shall be in writing (including by telecopy), and, unless otherwise expressly provided herein, shall be deemed to have been duly given or made when delivered, or three Business Days after being deposited in the mail, postage prepaid, or, in the case of telecopy notice, when received, addressed (a) in the case of the Borrower, the Syndication Agent and the Administrative Agent, as follows and (b) in the case of the Lenders, as set forth on Schedule 1.1 or, in the case of a Lender which becomes a party to this Agreement pursuant to an Assignment and Acceptance, in such Assignment and Acceptance or (c) in the case of any party, to such other address as such party may hereafter notify to the other parties hereto: The Borrower: The Grand Union Company 201 Willowbrook Boulevard Wayne, New Jersey 07470-0466 Attention: Chief Financial Officer Telecopy: (973) 890-6551 Telephone: (973) 890-6340 with a copy to: Weil, Gotshal & Manges LLP 767 Fifth Avenue New York, New York 10153 Attention: Ted S. Waksman, Esq. Telecopy: (212) 310-8007 Telephone: (212) 310-8000 65 The Administrative Agent: Lehman Commercial Paper Inc. 3 World Financial Center New York, New York 10285 Attention: Michelle Swanson Telecopy: (212) 528-0819 Telephone: (212) 526-0330 with a copy to: Simpson Thacher & Bartlett 425 Lexington Avenue New York, New York 10017 Attention: Brian Trust, Esq. Telecopy: (212) 455-2502 Telephone: (212) 455-2000 The Syndication Agent: Swiss Bank Corporation 677 Washington Blvd. Stamford, Conn. 06912 Attention: Denise Clerkin Telecopy: (203) 719-4176 Telephone: (203) 719-3146 with a copy to: Simpson Thacher & Bartlett 425 Lexington Avenue New York, New York 10017 Attention: Brian Trust, Esq. Telecopy: (212) 455-2502 Telephone: (212) 455-2000 provided that any notice, request or demand to or upon the either Agent or any Lender shall not be effective until received. 12.3 No Waiver; Cumulative Remedies. No failure to exercise and no delay in exercising, on the part of the Agents or any Lender, any right, remedy, power or privilege hereunder under the other Loan Documents or the Final Order shall operate as a waiver thereof; nor shall any single or partial exercise of any right, remedy, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege. The rights, remedies, powers and privileges herein provided are cumulative and not exclusive of any rights, remedies, powers and privileges provided by law. 12.4 Survival of Representations and Warranties. All representations and warranties made hereunder, in the other Loan Documents and in any document, certificate or statement delivered pursuant hereto or in connection herewith shall survive the execution and delivery of this Agreement and the making of the Loans and other extensions of credit hereunder. 12.5 Payment of Expenses. The Borrower agrees (a) to pay or reimburse the Agents for all their reasonable out-of-pocket costs and expenses incurred in connection with the development, preparation and execution of, and any amendment, supplement or modification to, 66 this Agreement and the other Loan Documents and any other documents prepared in connection herewith or therewith, and the consummation and administration of the transactions contemplated hereby and thereby, including, without limitation, the reasonable fees and disbursements of counsel to the Agents, (b) to pay or reimburse each Lender and the Agents for all their costs and expenses incurred in connection with the enforcement or preservation of any rights under this Agreement, the other Loan Documents and any such other documents, including, without limitation, the fees and disbursements of counsel (including the allocated fees and expenses of in-house counsel), consultants and other experts to each Lender and of counsel to the Agents (including the on-going monitoring by the Agents of the Case, including attendance by the Agents and the Agents' counsel at hearings or other proceedings and the on-going review of documents filed with the Bankruptcy Court), (c) to pay, indemnify, and hold each Lender and the Agents harmless from, any and all recording and filing fees and any and all liabilities with respect to, or resulting from any delay in paying, stamp, excise and other taxes, if any, which may be payable or determined to be payable in connection with the execution and delivery of, or consummation or administration of any of the transactions contemplated by, or any amendment, supplement or modification of, or any waiver or consent under or in respect of, this Agreement, the other Loan Documents and any such other documents, and (d) to pay, indemnify, and hold each Lender and the Agents and their respective officers, directors, employees, affiliates, agents and controlling persons (each, an "Indemnitee") harmless from and against any and all other liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever with respect to the execution, delivery, enforcement, performance and administration of this Agreement, the other Loan Documents and any such other documents, including, without limitation, any of the foregoing relating to the use of proceeds of the Loans or the violation of, noncompliance with or liability under, any Environmental Law applicable to the operations of the Borrower any of its Subsidiaries or any of the Properties (all the foregoing in this clause (d), collectively, the "Indemnified Liabilities"), provided, that the Borrower shall have no obligation hereunder to any Indemnitee with respect to Indemnified Liabilities to the extent such Indemnified Liabilities are found by a final and nonappealable decision of a court of competent jurisdiction to have resulted from the gross negligence or willful misconduct of such Indemnitee. Without limiting the foregoing, and to the extent permitted by applicable law, the Borrower agrees not to assert and to cause its Subsidiaries not to assert, and hereby waives and agrees to cause its Subsidiaries so to waive, all rights for contribution or any other rights of recovery with respect to all claims, demands, penalties, fines, liabilities, settlements, damages, costs and expenses of whatever kind or nature, under or related to Environmental Laws, that any of them might have by statute or otherwise against any indemnitee. The agreements in this Section 12.5 shall survive repayment of the Loans and all other amounts payable hereunder. 12.6 Successors and Assigns; Participations and Assignments. (a) This Agreement shall be binding upon and inure to the benefit of the Borrower, the Lenders, the Agents, all future holders of the Loans and their respective successors and assigns, except that the Borrower may not assign or transfer any of its rights or obligations under this Agreement without the prior written consent of the Agents and each Lender. (b) Any Lender may, without the consent of the Borrower, in accordance with applicable law, at any time sell to one or more banks, financial institutions or other entities (each, a "Participant") participating interests in any Loan owing to such Lender, any Revolving Credit Commitment of such Lender or any other interest of such Lender hereunder and under the other 67 Loan Documents. In the event of any such sale by a Lender of a participating interest to a Participant, such Lender's obligations under this Agreement to the other parties to this Agreement shall remain unchanged, such Lender shall remain solely responsible for the performance thereof, such Lender shall remain the holder of any such Loan for all purposes under this Agreement and the other Loan Documents, and the Borrower and the Agents shall continue to deal solely and directly with such Lender in connection with such Lender's rights and obligations under this Agreement and the other Loan Documents. In no event shall any Participant under any such participation have any right to approve any amendment or waiver of any provision of any Loan Document, or any consent to any departure by any Loan Party therefrom, except to the extent that such amendment, waiver or consent would reduce the principal of, or interest on, the Loans or any fees payable hereunder, or postpone the date of the final maturity of the Loans, in each case to the extent subject to such participation. The Borrower agrees that if amounts outstanding under this Agreement and the Loans are due or unpaid, or shall have been declared or shall have become due and payable upon the occurrence of an Event of Default, each Participant shall, to the maximum extent permitted by applicable law, be deemed to have the right of setoff in respect of its participating interest in amounts owing under this Agreement to the same extent as if the amount of its participating interest were owing directly to it as a Lender under this Agreement, provided that, in purchasing such participating interest, such Participant shall be deemed to have agreed to share with the Lenders the proceeds thereof as provided in Section 12.7(a) as fully as if it were a Lender hereunder. The Borrower also agrees that each Participant shall be entitled to the benefits of Sections 2.16, 2.17 and 2.18 with respect to its participation in the Revolving Credit Commitments and the Loans outstanding from time to time as if it was a Lender; provided, that no Participant shall be entitled to receive any greater amount pursuant to any such Section than the transferor Lender would have been entitled to receive in respect of the amount of the participation transferred by such transferor Lender to such Participant had no such transfer occurred. (c) Any Lender (an "Assignor") may, in accordance with applicable law, at any time and from time to time assign to any Lender or any Affiliate thereof or, with the consent of the Borrower, the Agents and the Issuing Lender, which, in each case, shall not be unreasonably withheld or delayed, to a bank, financial institution or other entity (an "Assignee") all or any part of its rights and obligations under this Agreement pursuant to an Assignment and Acceptance, substantially in the form of Exhibit E, executed by such Assignee and such Assignor and delivered to the Administrative Agent for its acceptance and recording in the Register; provided that no such assignment to an Assignee shall be in an aggregate principal amount of less than $2,000,000 (other than in the case of an assignment of all of a Lender's interests under this Agreement). Upon such execution, delivery, acceptance and recording, from and after the effective date determined pursuant to such Assignment and Acceptance, (x) the Assignee thereunder shall be a party hereto and, to the extent provided in such Assignment and Acceptance, have the rights and obligations of a Lender hereunder with a Revolving Credit Commitment and/or Loans as set forth therein, and (y) the Assignor thereunder shall, to the extent provided in such Assignment and Acceptance, be released from its obligations under this Agreement (and, in the case of an Assignment and Acceptance covering all of an Assignor's rights and obligations under this Agreement, such Assignor shall cease to be a party hereto). Notwithstanding any provision of this Section 12.6, the consent of the Borrower shall not be required for any assignment which occurs at any time when any Event of Default shall have occurred and be continuing. 68 (d) The Administrative Agent shall maintain at its address referred to in Section 12.2 a copy of each Assignment and Acceptance delivered to it and a register (the "Register") for the recordation of the names and addresses of the Lenders and the Revolving Credit Commitment of, and principal amount of the Loans owing to, each Lender from time to time. The entries in the Register shall be conclusive, in the absence of manifest error, and the Borrower, the Agents and the Lenders shall treat each Person whose name is recorded in the Register as the owner of the Loans and any Notes evidencing such Loans recorded therein for all purposes of this Agreement. Any assignment of any Loan, whether or not evidenced by a Note, shall be effective only upon appropriate entries with respect thereto being made in the Register (and each Note shall expressly so provide). Any assignment or transfer of all or part of a Loan evidenced by a Note shall be registered on the Register only upon surrender for registration of assignment or transfer of the Note evidencing such Loan, accompanied by a duly executed Assignment and Acceptance; thereupon one or more new Notes in the same aggregate principal amount shall be issued to the designated Assignee, and the old Notes shall be returned by the Administrative Agent to the Borrower marked "cancelled". The Register shall be available for inspection by the Borrower or any Lender at any reasonable time and from time to time upon reasonable prior notice. (e) Upon its receipt of an Assignment and Acceptance executed by an Assignor and an Assignee (and, in any case where the consent of any other Person is required by Section 12.6(c), by each such other Person) together with payment to the Administrative Agent of a registration and processing fee of $3,500 (except that no such registration and processing fee shall be payable (y) in connection with an assignment involving Lehman Commercial Paper Inc. or Swiss Bank Corporation or (z) in the case of an Assignee which is already a Lender or is an affiliate of a Lender or a Person under common management with a Lender), the Administrative Agent shall (i) promptly accept such Assignment and Acceptance and (ii) on the effective date determined pursuant thereto record the information contained therein in the Register and give notice of such acceptance and recordation to the Lenders and the Borrower. On or prior to such effective date, the Borrower, at its own expense, upon request, shall execute and deliver to the Administrative Agent (in exchange for the Note of the assigning Lender) a new Note to the order of such Assignee in an amount equal to the Revolving Credit Commitment assumed or acquired by it pursuant to such Assignment and Acceptance and, if the Assignor has retained a Revolving Credit Commitment, upon request, a new Note to the order of the Assignor in an amount equal to the Revolving Credit Commitment retained by it hereunder. Such new Note or Notes shall be dated the Closing Date and shall otherwise be in the form of the Note or Notes replaced thereby. (f) For avoidance of doubt, the parties to this Agreement acknowledge that the provisions of this Section 12.6 concerning assignments of Loans and Notes relate only to absolute assignments and that such provisions do not prohibit assignments creating security interests, including, without limitation, any pledge or assignment by a Lender of any Loan or Note to any Federal Reserve Bank in accordance with applicable law. 12.7 Adjustments; Set-off. (a) Except to the extent that this Agreement provides for payments to be allocated to a particular Lender, if any Lender (a "Benefitted Lender") shall at any time receive any payment of all or part of the Obligations owing to it, or receive any collateral in respect thereof (whether voluntarily or involuntarily, by set-off, or otherwise), in a greater proportion than any such payment to or collateral received by any other Lender, if any, in respect of such other Lender's Obligations, such Benefitted Lender shall purchase for cash from 69 the other Lenders a participating interest in such portion of each such other Lender's Obligations, or shall provide such other Lenders with the benefits of any such collateral, as shall be necessary to cause such Benefitted Lender to share the excess payment or benefits of such collateral ratably with each of the Lenders; provided, however, that if all or any portion of such excess payment or benefits is thereafter recovered from such Benefitted Lender, such purchase shall be rescinded, and the purchase price and benefits returned, to the extent of such recovery, but without interest. (b) Subject to (i) the Carve-Out and (ii) the giving of the notice as described in Section 9, notwithstanding the provisions of Section 362 of the Bankruptcy Code and any other rights and remedies of the Lenders provided by law, each Lender shall have the right, without prior notice to the Borrower, any such notice being expressly waived by the Borrower to the extent permitted by applicable law, upon any amount becoming due and payable by the Borrower hereunder (whether at the stated maturity, by acceleration or otherwise), to set off and appropriate and apply against such amount any and all deposits (general or special, time or demand, provisional or final), in any currency, and any other credits, indebtedness or claims, in any currency, in each case whether direct or indirect, absolute or contingent, matured or unmatured, at any time held or owing by such Lender or any branch or agency thereof to or for the credit or the account of the Borrower, as the case may be. Each Lender agrees promptly to notify the Borrower and the Administrative Agent after any such setoff and application made by such Lender, provided that the failure to give such notice shall not affect the validity of such setoff and application. 12.8 Counterparts. This Agreement may be executed by one or more of the parties to this Agreement on any number of separate counterparts, and all of said counterparts taken together shall be deemed to constitute one and the same instrument. Delivery of an executed signature page of this Agreement by facsimile transmission shall be effective as delivery of a manually executed counterpart hereof. A set of the copies of this Agreement signed by all the parties shall be lodged with the Borrower and the Administrative Agent. 12.9 Severability. Any provision of this Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. 12.10 Integration. This Agreement and the other Loan Documents represent the agreement of the Borrower, the Administrative Agent and the Lenders with respect to the subject matter hereof, and there are no promises, undertakings, representations or warranties by the Administrative Agent or any Lender relative to subject matter hereof not expressly set forth or referred to herein or in the other Loan Documents. 12.11 GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES UNDER THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK AND, TO THE EXTENT APPLICABLE, THE BANKRUPTCY CODE. 12.12 Submission To Jurisdiction; Waivers. The Borrower hereby irrevocably 70 and unconditionally: (a) submits for itself and its Property in any legal action or proceeding relating to this Agreement and the other Loan Documents to which it is a party, or for recognition and enforcement of any judgment in respect thereof, to the non-exclusive general jurisdiction of the Bankruptcy Court and, if the Bankruptcy Court does not have (or abstains from) jurisdiction, to the non-exclusive general jurisdiction of the courts of the State of New York, the courts of the United States of America for the Southern District of New York, and appellate courts from any thereof; (b) consents that any such action or proceeding may be brought in such courts and waives any objection that it may now or hereafter have to the venue of any such action or proceeding in any such court or that such action or proceeding was brought in an inconvenient court and agrees not to plead or claim the same; (c) agrees that service of process in any such action or proceeding may be effected by mailing a copy thereof by registered or certified mail (or any substantially similar form of mail), postage prepaid, to the Borrower, as the case may be at its address set forth in Section 12.2 or at such other address of which the Administrative Agents shall have been notified pursuant thereto; (d) agrees that nothing herein shall affect the right to effect service of process in any other manner permitted by law or shall limit the right to sue in any other jurisdiction; and (e) waives, to the maximum extent not prohibited by law, any right it may have to claim or recover in any legal action or proceeding referred to in this Section 12.12 any special, exemplary, punitive or consequential damages. 12.13 Acknowledgements. The Borrower hereby acknowledges that: (a) it has been advised by counsel in the negotiation, execution and delivery of this Agreement and the other Loan Documents; (b) neither the Agents nor any Lender has any fiduciary relationship with or duty to the Borrower arising out of or in connection with this Agreement or any of the other Loan Documents, and the relationship between the Agents and Lenders, on one hand, and the Borrower, on the other hand, in connection herewith or therewith is solely that of debtor and creditor; and (c) no joint venture is created hereby or by the other Loan Documents or otherwise exists by virtue of the transactions contemplated hereby among the Lenders or among the Borrower and the Lenders. 12.14 Absence of Prejudice with Respect to Matters Before the Bankruptcy Court. The Borrower acknowledges that the Bankruptcy Code and Bankruptcy Rules require it to seek Bankruptcy Court authorization for certain matters that may also be addressed in this Agreement. The Borrower will not mention in any pleading or argument before the Bankruptcy 71 Court in support of, or in any way relating to, a position that Bankruptcy Court authorization should be granted on the ground that such authorization is permitted by this Agreement (unless a Person opposing any such pleading or argument relies on this Agreement to assert or question the propriety of such). 12.15 Confidentiality. Each of the Agents and the Lenders agrees to keep confidential all non-public information provided to it by any Loan Party pursuant to this Agreement that is designated by such Loan Party as confidential; provided that nothing herein shall prevent any Agent or any Lender from disclosing any such information (a) to any other Agent, any other Lender or any affiliate of any Lender, (b) to any Participant or Assignee (each, a "Transferee") or prospective Transferee which agrees to comply with the provisions of this Section 12.15, (c) any of its employees, directors, agents, attorneys, accountants and other professional advisors, (d) upon the request or demand of any Governmental Authority having jurisdiction over it, (e) in response to any order of any court or other Governmental Authority or as may otherwise be required pursuant to any Requirement of Law, (f) if requested or required to do so in connection with any litigation or similar proceeding, (g) which has been publicly disclosed other than in breach of this Section 12.15, (h) to the National Association of Insurance Commissioners or any similar organization or any nationally recognized rating agency that requires access to information about a Lender's investment portfolio in connection with ratings issued with respect to such Lender or (i) in connection with the exercise of any remedy hereunder or under any other Loan Document. 12.16 WAIVERS OF JURY TRIAL. THE BORROWER, THE AGENTS AND THE LENDERS HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVE TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT AND FOR ANY COUNTERCLAIM THEREIN. 72 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered by their proper and duly authorized officers as of the day and year first above written. THE GRAND UNION COMPANY By: ---------------------------------- Name: Title: LEHMAN BROTHERS INC., as Co-Arranger By: ---------------------------------- Name: Title: LEHMAN COMMERCIAL PAPER INC., as Administrative Agent and as a Lender By: ---------------------------------- Name: Title: SBC WARBURG DILLON READ INC., as Co-Arranger By: ---------------------------------- Name: Title: SWISS BANK CORPORATION, STAMFORD BRANCH, as Syndication Agent and as a Lender By: ---------------------------------- Name: Title: 73 SWISS BANK CORPORATION, STAMFORD BRANCH, as Syndication Agent and as a Lender By: ---------------------------------- Name: Title: EXHIBIT 10.41 GUARANTEE AND COLLATERAL AGREEMENT made by GRAND UNION STORES, INC. OF VERMONT GRAND UNION STORES OF NEW HAMPSHIRE, INC., MERCHANDISING SERVICES, INC., and SPECIALTY MERCHANDISING SERVICES, INC. in favor of LEHMAN COMMERCIAL PAPER INC., as Administrative Agent Dated as of June 24, 1998 TABLE OF CONTENTS
Page ---- SECTION 1. DEFINED TERMS.......................................................... 1 1.1 Definitions.......................................................... 1 1.2 Other Definitional Provisions........................................ 5 SECTION 2. GUARANTEE.............................................................. 5 2.1 Guarantee............................................................ 5 2.2 Right of Contribution................................................ 6 2.3 No Subrogation....................................................... 6 2.4 Amendments, etc. with respect to the Borrower Obligations............ 7 2.5 Guarantee Absolute and Unconditional................................. 7 2.6 Reinstatement........................................................ 8 2.7 Payments............................................................. 8 SECTION 3. GRANT OF SECURITY INTEREST............................................. 8 3.1 Collateral........................................................... 8 3.2 Grant of Security Interest........................................... 9 SECTION 4. REPRESENTATIONS AND WARRANTIES......................................... 9 4.1 Representations in Credit Agreement.................................. 9 4.2 Title; No Other Liens................................................ 10 4.3 Perfected Liens...................................................... 10 4.4 Chief Executive Office............................................... 10 4.5 Inventory and Equipment.............................................. 10 4.6 Farm Products........................................................ 10 4.7 Receivables.......................................................... 10 4.8 Contracts............................................................ 11 4.9 Intellectual Property................................................ 11 SECTION 5. COVENANTS.............................................................. 12 5.1 Covenants in Credit Agreement....................................... 12 5.2 Delivery of Instruments and Chattel Paper........................... 12 5.3 Maintenance of Insurance............................................ 12 5.4 Payment of Obligations.............................................. 13 5.5 Maintenance of Perfected Security Interest; Further Documentation... 13 5.6 Changes in Locations, Name, etc..................................... 13 5.7 Notices............................................................. 14 5.8 Pledged Securities.................................................. 14 5.9 Receivables......................................................... 15 5.10 Contracts........................................................... 15
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Page ---- 5.11 Intellectual Property............................................... 15 5.12 Vehicles............................................................ 17 SECTION 6. REMEDIAL PROVISIONS.................................................... 17 6.1 Certain Matters Relating to Receivables.............................. 17 6.2 Communications with Obligors; Guarantors Remain Liable............... 18 6.3 Pledged Stock........................................................ 18 6.4 Proceeds to be Turned Over To Administrative Agent................... 19 6.5 Application of Proceeds.............................................. 20 6.6 Code and Other Remedies.............................................. 20 6.7 Registration Rights.................................................. 21 6.8 Waiver; Deficiency................................................... 22 SECTION 7. THE ADMINISTRATIVE AGENT............................................... 22 7.1 Administrative Agent's Appointment as Attorney-in-Fact, etc.......... 22 7.2 Duty of Administrative Agent......................................... 24 7.3 Execution of Financing Statements.................................... 24 7.4 Authority of Administrative Agent.................................... 24 SECTION 8. MISCELLANEOUS.......................................................... 25 8.1 Amendments in Writing............................................... 25 8.2 Notices............................................................. 25 8.3 No Waiver by Course of Conduct; Cumulative Remedies................. 25 8.4 Enforcement Expenses; Indemnification............................... 25 8.5 Successors and Assigns.............................................. 26 8.6 Set-Off............................................................. 26 8.7 Counterparts........................................................ 26 8.8 Severability........................................................ 26 8.9 Section Headings.................................................... 27 8.10 Integration......................................................... 27 8.11 GOVERNING LAW....................................................... 27 8.12 Submission To Jurisdiction; Waivers................................. 27 8.13 Acknowledgements.................................................... 28 8.14 Additional Guarantors............................................... 28 8.15 Releases............................................................ 28 8.16 WAIVERS OF JURY TRIAL............................................... 29
ii GUARANTEE AND COLLATERAL AGREEMENT GUARANTEE AND COLLATERAL AGREEMENT, dated as of June 24, 1998, made by each of the signatories hereto (together with any other entity that may become a party hereto as provided herein, the "Guarantors"), in favor of Lehman Commercial Paper Inc., as administrative agent (in such capacity, the "Administrative Agent") for the banks and other financial institutions (the "Lenders") from time to time parties to the Revolving Credit Agreement, dated as of June 24, 1998 (as amended, supplemented or otherwise modified from time to time, the "Credit Agreement"), among The Grand Union Company (the "Borrower"), the Lenders, SBC Warburg Dillon Read Inc., as co-advisor and co-arranger, Swiss Bank Corporation, Stamford Branch, as Syndication Agent, Lehman Brothers Inc., as co-advisor and co-arranger, and the Administrative Agent. W I T N E S S E T H: WHEREAS, pursuant to the Credit Agreement, the Lenders have severally agreed to make extensions of credit to the Borrower upon the terms and subject to the conditions set forth therein; WHEREAS, the Borrower is a member of an affiliated group of companies that includes each Guarantor; WHEREAS, the proceeds of the extensions of credit under the Credit Agreement will be used in part to enable the Borrower to make valuable transfers to one or more of the Guarantors in connection with the operation of their respective businesses; WHEREAS, the Borrower and the Guarantors are engaged in related businesses, and each Guarantor will derive substantial direct and indirect benefit from the making of the extensions of credit under the Credit Agreement; and WHEREAS, it is a condition precedent to the obligation of the Lenders to make their respective extensions of credit to the Borrower under the Credit Agreement that the Guarantors shall have executed and delivered this Agreement to the Administrative Agent for the ratable benefit of the Lenders; NOW, THEREFORE, in consideration of the premises and to induce the Agents and the Lenders to enter into the Credit Agreement and to induce the Lenders to make their respective extensions of credit to the Borrower thereunder, each Guarantor hereby agrees with the Administrative Agent, for the ratable benefit of the Agents and the Lenders, as follows: SECTION 1. DEFINED TERMS 1.1 Definitions. (a) Unless otherwise defined herein, terms defined in the Credit Agreement and used herein shall have the meanings given to them in the Credit Agreement, and the following terms which are defined in the Uniform Commercial Code in effect in the State of New York on the date hereof are used herein as so defined: Accounts, Chattel Paper, 2 Documents, Equipment, Farm Products, Instruments, Inventory and Investment Property. (b) The following terms shall have the following meanings: "Agreement": this Guarantee and Collateral Agreement, as the same may be amended, supplemented or otherwise modified from time to time. "Borrower Obligations": the collective reference to the unpaid principal of and interest on the Loans and Reimbursement Obligations and all other obligations and liabilities of the Borrower (including, without limitation, interest accruing at the then applicable rate provided in the Credit Agreement after the maturity of the Loans and Reimbursement Obligations to the Agents or any Lender (or, in the case of any Hedge Agreement, any Affiliate of any Lender), whether direct or indirect, absolute or contingent, due or to become due, or now existing or hereafter incurred, which may arise under, out of, or in connection with, the Credit Agreement, this Agreement, the other Loan Documents, any Letter of Credit or any Hedge Agreement entered into by the Borrower with any Lender (or any Affiliate of any Lender) or any other document made, delivered or given in connection therewith, in each case whether on account of principal, interest, reimbursement obligations, fees, indemnities, costs, expenses or otherwise (including, without limitation, all fees and disbursements of counsel to the Agents or to the Lenders that are required to be paid by the Borrower pursuant to the terms of any of the foregoing agreements). "Collateral": as defined in Section 3. "Collateral Account": any collateral account established by the Administrative Agent as provided in Section 6.1 or 6.4. "Contracts": the contracts and agreements in effect as of the date hereof, as the same may be amended, supplemented or otherwise modified from time to time, including, without limitation, (i) all rights of any Guarantor to receive moneys due and to become due to it thereunder or in connection therewith, (ii) all rights of any Guarantor to damages arising thereunder and (iii) all rights of any Guarantor to perform and to exercise all remedies thereunder. "Copyrights": (i) all copyrights arising under the laws of the United States, any other country or any political subdivision thereof, whether registered or unregistered and whether published or unpublished, all registrations and recordings thereof, and all applications in connection therewith, including, without limitation, all registrations, recordings and applications in the United States Copyright Office, and (ii) the right to obtain all renewals thereof. "Copyright Licenses": any written agreement naming any Guarantor as licensor or licensee granting any right under any Copyright, including, without limitation, the grant of rights to manufacture, distribute, exploit and sell materials derived from any Copyright. "General Intangibles": all "general intangibles" as such term is defined in Section 9-106 of the Uniform Commercial Code in effect in the State of New York on the date hereof and, in any event, including, without limitation, with respect to any Guarantor, all contracts, agreements, instruments and indentures in any form, and portions thereof, to which such Guarantor is a party or under which such Guarantor has any right, title or interest or to which such Guarantor or any property of such Guarantor is subject, as the same may from time to time be amended, supplemented or otherwise modified, including, without limitation, (i) all rights of such Guarantor to receive moneys due and to become due to it thereunder or in connection therewith, (ii) all rights of such Guarantor to damages arising thereunder and (iii) all rights of such Guarantor to perform and to exercise all remedies thereunder, in each case to the extent the grant by such Guarantor of a security interest pursuant to this Agreement in its right, title and interest in such contract, agreement, instrument or indenture is not prohibited by such contract, agreement, instrument or indenture without the consent of any other party thereto, would not give any other party to such contract, agreement, instrument or indenture the right to terminate its obligations thereunder, or is permitted with consent if all necessary consents to such grant of a security interest have been obtained from the other parties thereto (it being understood that the foregoing shall not be deemed to obligate such Guarantor to obtain such consents); provided, that the foregoing limitation shall not affect, limit, restrict or impair the grant by such Guarantor of a security interest pursuant to this Agreement in any Receivable or any money or other amounts due or to become due under any such contract, agreement, instrument or indenture. "Guarantor Obligations": with respect to any Guarantor, all obligations and liabilities of such Guarantor which may arise under or in connection with this Agreement (including, without limitation, Section 2) or any other Loan Document to which such Guarantor is a party, in each case whether on account of guarantee obligations, reimbursement obligations, fees, indemnities, costs, expenses or otherwise (including, without limitation, all fees and disbursements of counsel to the Agents or to the Lenders that are required to be paid by such Guarantor pursuant to the terms of this Agreement or any other Loan Document). "Intellectual Property": the collective reference to all rights, priorities and privileges relating to intellectual property, whether arising under United States, multinational or foreign laws or otherwise, including, without limitation, the Copyrights, the Copyright Licenses, the Patents, the Patent Licenses, the Trademarks and the Trademark Licenses, and all rights to sue at law or in equity for any infringement or other impairment thereof, including the right to receive all proceeds and damages therefrom. "Issuers": the collective reference to each issuer of a Pledged Security. "New York UCC": the Uniform Commercial Code as from time to time in effect in the State of New York. "Obligations": (i) in the case of the Borrower, the Borrower Obligations, and (ii) in the case of each Guarantor, its Guarantor Obligations. "Patents": (i) all letters patent of the United States, any other country or any political subdivision thereof, all reissues and extensions thereof and all goodwill 3 associated therewith, (ii) all applications for letters patent of the United States or any other country and all divisions, continuations and continuations-in-part thereof, and (iii) all rights to obtain any reissues or extensions of the foregoing. "Patent License": all agreements, whether written or oral, providing for the grant by or to any Guarantor of any right to manufacture, use or sell any invention covered in whole or in part by a Patent. "Pledged Notes": all promissory notes issued to or held by any Guarantor (other than promissory notes issued in connection with extensions of trade credit by any Guarantor in the ordinary course of business) while this Agreement is in effect. "Pledged Securities": the collective reference to the Pledged Notes and the Pledged Stock. "Pledged Stock": shares, stock certificates, options or rights of any nature whatsoever in respect of the Capital Stock of any Person that may be issued or granted to, or held by, any Guarantor while this Agreement is in effect. "Proceeds": all "proceeds" as such term is defined in Section 9-306(1) of the Uniform Commercial Code in effect in the State of New York on the date hereof and, in any event, shall include, without limitation, all dividends or other income from the Pledged Securities, collections thereon or distributions or payments with respect thereto. "Receivable": any right to payment for goods sold or leased or for services rendered, whether or not such right is evidenced by an Instrument or Chattel Paper and whether or not it has been earned by performance (including, without limitation, any Account). "Securities Act": the Securities Act of 1933, as amended. "Trademarks": (i) all trademarks, trade names, corporate names, company names, business names, fictitious business names, trade styles, service marks, logos and other source or business identifiers, and all goodwill associated therewith, now existing or hereafter adopted or acquired, all registrations and recordings thereof, and all applications in connection therewith, whether in the United States Patent and Trademark Office or in any similar office or agency of the United States, any State thereof or any other country or any political subdivision thereof, or otherwise, and all common-law rights related thereto, and (ii) the right to obtain all renewals thereof. "Trademark License": any agreement, whether written or oral, providing for the grant by or to any Guarantor of any right to use any Trademark. "Vehicles": all cars, trucks, trailers, construction and earth moving equipment and other vehicles covered by a certificate of title law of any state and all tires and other appurtenances to any of the foregoing. 1.2 Other Definitional Provisions. (a) The words "hereof," "herein", "hereto" 5 and "hereunder" and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement, and Section and Schedule references are to this Agreement unless otherwise specified. (b) The meanings given to terms defined herein shall be equally applicable to both the singular and plural forms of such terms. (c) Where the context requires, terms relating to the Collateral or any part thereof, when used in relation to a Guarantor, shall refer to such Guarantor's Collateral or the relevant part thereof. SECTION 2. GUARANTEE 2.1 Guarantee. (a) Each of the Guarantors hereby, jointly and severally, unconditionally and irrevocably, guarantees to the Administrative Agent, for the ratable benefit of the Agents and the Lenders and their respective successors, indorsees, transferees and assigns, the prompt and complete payment and performance by the Borrower when due (whether at the stated maturity, by acceleration or otherwise) of the Borrower Obligations. (b) Anything herein or in any other Loan Document to the contrary notwithstanding, the maximum liability of each Guarantor hereunder and under the other Loan Documents shall in no event exceed the amount which can be guaranteed by such Guarantor under applicable federal and state laws relating to the insolvency of debtors (after giving effect to the right of contribution established in Section 2.2). (c) Each Guarantor agrees that the Borrower Obligations may at any time and from time to time exceed the amount of the liability of such Guarantor hereunder without impairing the guarantee contained in this Section 2 or affecting the rights and remedies of either Agent or any Lender hereunder. (d) The guarantee contained in this Section 2 shall remain in full force and effect until all the Borrower Obligations and the obligations of each Guarantor under the guarantee contained in this Section 2 shall have been satisfied by payment in full, no Letter of Credit shall be outstanding and the Commitments shall be terminated, notwithstanding that from time to time during the term of the Credit Agreement the Borrower may be free from any Borrower Obligations. (e) No payment made by the Borrower, any of the Guarantors, any other guarantor or any other Person or received or collected by either Agent or any Lender from the Borrower, any of the Guarantors, any other guarantor or any other Person by virtue of any action or proceeding or any set-off or appropriation or application at any time or from time to time in reduction of or in payment of the Borrower Obligations shall be deemed to modify, reduce, release or otherwise affect the liability of any Guarantor hereunder which shall, notwithstanding any such payment (other than any payment made by such Guarantor in respect of the Borrower Obligations or any payment received or collected from such Guarantor in respect of the Borrower Obligations), remain liable for the Borrower Obligations up to the maximum liability of such Guarantor hereunder until the Borrower Obligations are paid in full, no Letter of Credit shall be outstanding and the Commitments are terminated. 2.2 Right of Contribution. Each Guarantor hereby agrees that to the extent that a Guarantor shall have paid more than its proportionate share of any payment made hereunder, such Guarantor shall be entitled to seek and receive contribution from and against any other Guarantor hereunder which has not paid its proportionate share of such payment. Each Guarantor's right of contribution shall be subject to the terms and conditions of Section 2.3. The provisions of this Section 2.2 shall in no respect limit the obligations and liabilities of any Guarantor to the Agents and the Lenders, and each Guarantor shall remain liable to the Agents and the Lenders for the full amount guaranteed by such Guarantor hereunder. 2.3 No Subrogation. Notwithstanding any payment made by any Guarantor hereunder or any set-off or application of funds of any Guarantor by either Agent or any Lender, no Guarantor shall be entitled to be subrogated to any of the rights of either Agent or any Lender against the Borrower or any other Guarantor or any collateral security or guarantee or right of offset held by either Agent or any Lender for the payment of the Borrower Obligations, nor shall any Guarantor seek or be entitled to seek any contribution or reimbursement from the Borrower or any other Guarantor in respect of payments made by such Guarantor hereunder, until all amounts owing to the Agents and the Lenders by the Borrower on account of the Borrower Obligations are paid in full, no Letter of Credit shall be outstanding and the Commitments are terminated. If any amount shall be paid to any Guarantor on account of such subrogation rights at any time when all of the Borrower Obligations shall not have been paid in full, such amount shall be held by such Guarantor in trust for the Agents and the Lenders, segregated from other funds of such Guarantor, and shall, forthwith upon receipt by such Guarantor, be turned over to the Administrative Agent in the exact form received by such Guarantor (duly indorsed by such Guarantor to the Administrative Agent, if required), to be applied against the Borrower Obligations, whether matured or unmatured, in such order as the Administrative Agent may determine. 2.4 Amendments, etc. with respect to the Borrower Obligations. Each Guarantor shall remain obligated hereunder notwithstanding that, without any reservation of rights against any Guarantor and without notice to or further assent by any Guarantor, any demand for payment of any of the Borrower Obligations made by either Agent or any Lender may be rescinded by any such Agent or Lender and any of the Borrower Obligations continued, and the Borrower Obligations, or the liability of any other Person upon or for any part thereof, or any collateral security or guarantee therefor or right of offset with respect thereto, may, from time to time, in whole or in part, be renewed, extended, amended, modified, accelerated, compromised, waived, surrendered or released by either Agent or any Lender, and the Credit Agreement and the other Loan Documents and any other documents executed and delivered in connection therewith may be amended, modified, supplemented or terminated, in whole or in part, as the Agents (or the requisite Lenders, as the case may be) may deem advisable from time to time, and any collateral security, guarantee or right of offset at any time held by any Agent or any Lender for the payment of the Borrower Obligations may be sold, exchanged, waived, surrendered or released. Neither any Agent nor any Lender shall have any obligation to protect, secure, perfect or insure any Lien at any time held by it as security for the Borrower Obligations or for the guarantee contained in this Section 2 or any property subject thereto. 2.5 Guarantee Absolute and Unconditional. Each Guarantor waives any and all 7 notice of the creation, renewal, extension or accrual of any of the Borrower Obligations and notice of or proof of reliance by either Agent or any Lender upon the guarantee contained in this Section 2 or acceptance of the guarantee contained in this Section 2; the Borrower Obligations, and any of them, shall conclusively be deemed to have been created, contracted or incurred, or renewed, extended, amended or waived, in reliance upon the guarantee contained in this Section 2; and all dealings between the Borrower and any of the Guarantors, on the one hand, and the Agents and the Lenders, on the other hand, likewise shall be conclusively presumed to have been had or consummated in reliance upon the guarantee contained in this Section 2. Each Guarantor waives diligence, presentment, protest, demand for payment and notice of default or nonpayment to or upon the Borrower or any of the Guarantors with respect to the Borrower Obligations. Each Guarantor understands and agrees that the guarantee contained in this Section 2 shall be construed as a continuing, absolute and unconditional guarantee of payment without regard to (a) the validity or enforceability of the Credit Agreement or any other Loan Document, any of the Borrower Obligations or any other collateral security therefor or guarantee or right of offset with respect thereto at any time or from time to time held by either Agent or any Lender, (b) any defense, set-off or counterclaim (other than a defense of payment or performance) which may at any time be available to or be asserted by the Borrower or any other Person against either Agent or any Lender, or (c) any other circumstance whatsoever (with or without notice to or knowledge of the Borrower or such Guarantor) which constitutes, or might be construed to constitute, an equitable or legal discharge of the Borrower for the Borrower Obligations, or of such Guarantor under the guarantee contained in this Section 2, in bankruptcy or in any other instance. When making any demand hereunder or otherwise pursuing its rights and remedies hereunder against any Guarantor, either Agent or any Lender may, but shall be under no obligation to, make a similar demand on or otherwise pursue such rights and remedies as it may have against the Borrower, any other Guarantor or any other Person or against any collateral security or guarantee for the Borrower Obligations or any right of offset with respect thereto, and any failure by the Agents or any Lender to make any such demand, to pursue such other rights or remedies or to collect any payments from the Borrower, any other Guarantor or any other Person or to realize upon any such collateral security or guarantee or to exercise any such right of offset, or any release of the Borrower, any other Guarantor or any other Person or any such collateral security, guarantee or right of offset, shall not relieve any Guarantor of any obligation or liability hereunder, and shall not impair or affect the rights and remedies, whether express, implied or available as a matter of law, of either Agent or any Lender against any Guarantor. For the purposes hereof "demand" shall include the commencement and continuance of any legal proceedings. 2.6 Reinstatement. The guarantee contained in this Section 2 shall continue to be effective, or be reinstated, as the case may be, if at any time payment, or any part thereof, of any of the Borrower Obligations is rescinded or must otherwise be restored or returned by either Agent or any Lender upon the insolvency, bankruptcy, dissolution, liquidation or reorganization of any Guarantor, or upon or as a result of the appointment of a receiver, intervenor or conservator of, or trustee or similar officer for, any Guarantor or any substantial part of its property, or otherwise, all as though such payments had not been made. 2.7 Payments. Each Guarantor hereby guarantees that payments hereunder will be paid to the Administrative Agent without set-off or counterclaim in Dollars at the office of the Administrative Agent located at the Payment Office specified in the Credit Agreement. 8 SECTION 3. GRANT OF SECURITY INTEREST 3.1 Collateral. For the purposes of this Agreement, all of the following property now owned or at any time hereafter acquired by a Guarantor or in which a Guarantor now has or at any time in the future may acquire any right, title or interest is collectively referred the "Collateral": (a) all Accounts; (b) all Chattel Paper; (c) all Contracts; (d) all Documents; (e) all Equipment; (f) all General Intangibles; (g) all Instruments; (h) all Intellectual Property; (i) all Inventory; (j) all Pledged Securities; (k) all Vehicles; (l) all Investment Property; (m) all deposit accounts and other bank accounts; (n) all books and records pertaining to the Collateral; and (o) to the extent not otherwise included, all Proceeds and products of any and all of the foregoing and all collateral security and guarantees given by any Person with respect to any of the foregoing. 3.2 Grant of Security Interest. As collateral security for the prompt and complete payment and performance when due (whether at stated maturity, by acceleration or otherwise) of such Guarantor's Obligations, each Guarantor hereby assigns and transfers to the Administrative Agent, and grants to the Administrative Agent for the ratable benefit of the Agents and, effective upon the initial Extension of Credit pursuant to the Credit Agreement, the Lenders, a security interest in all of its Collateral. 9 SECTION 4. REPRESENTATIONS AND WARRANTIES To induce the Agents and the Lenders to enter into the Credit Agreement and to induce the Lenders to make their respective extensions of credit to the Borrower thereunder, each Guarantor hereby represents and warrants to the Agents and each Lender that: 4.1 Representations in Credit Agreement. In the case of each Guarantor, the representations and warranties set forth in Section 5 of the Credit Agreement as they relate to such Guarantor or to the Loan Documents to which such Guarantor is a party, each of which is hereby incorporated herein by reference, are true and correct, and the Agents and each Lender shall be entitled to rely on each of them as if they were fully set forth herein, provided that each reference in each such representation and warranty to the Borrower's knowledge shall, for the purposes of this Section 5.1, be deemed to be a reference to such Guarantor's knowledge. 4.2 Title; No Other Liens. Except for the security interests granted to the Administrative Agent for the ratable benefit of the Agents and the Lenders pursuant to this Agreement and the other Liens permitted to exist on the Collateral by the Credit Agreement, such Guarantor owns each item of the Collateral free and clear of any and all Liens or claims of others. No financing statement or other public notice with respect to all or any part of the Collateral is on file or of record in any public office, except such as have been filed in favor of the Administrative Agent, for the ratable benefit of the Agents and the Lenders, pursuant to this Agreement or as are permitted by the Credit Agreement. 4.3 Perfected Liens. (a) The security interests granted pursuant to this Agreement upon completion of the filings and other actions specified on Schedule 2 (which, in the case of all filings and other documents referred to on said Schedule, have been delivered to the Administrative Agent in completed and duly executed form) will constitute valid perfected security interests in the Collateral in favor of the Administrative Agent, for the ratable benefit of the Agents and the Lenders, having the priority ascribed to such security interests in Section 3. (b) The security interests granted pursuant to this Agreement upon completion of the filings specified on Schedule 2 (which, in the case of all filings and other documents referred to on said Schedule, have been delivered to the Administrative Agent in completed and duly executed form) are prior to all other Liens on the Collateral in existence on the date of the initial Extension of Credit pursuant to the Credit Agreement except for (i) Liens described in Schedule 5, and (ii) unrecorded Liens permitted by the Credit Agreement which have priority over the Liens on the Collateral by operation of law. 4.4 Chief Executive Office. On the date hereof, such Guarantor's jurisdiction of organization and the location of such Guarantor's chief executive office or sole place of business are specified on Schedule 3. 4.5 Inventory and Equipment. On the date hereof, such Guarantor's Inventory and the Equipment (other than mobile goods) are kept at the locations listed on Schedule 4. 4.6 Farm Products. None of the Collateral constitutes, or is the Proceeds of, Farm Products. 10 4.7 Receivables. (a) No amount payable to such Guarantor under or in connection with any Receivable is evidenced by any Instrument or Chattel Paper which has not been delivered to the Administrative Agent. (b) None of the obligors on any Receivables is a Governmental Authority. (c) The amounts represented by such Guarantor to the Lenders from time to time as owing to such Guarantor in respect of the Receivables will at such times be accurate. 4.8 Contracts. (a) No consent of any party (other than such Guarantor) to any Contract is required, or purports to be required, in connection with the execution, delivery and performance of this Agreement. (b) Each Contract is in full force and effect and constitutes a valid and legally enforceable obligation of the Guarantor party thereto, subject to the effects of bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and other similar laws relating to or affecting creditors' rights generally, general equitable principles (whether considered in a proceeding in equity or at law) and an implied covenant of good faith and fair dealing. (c) No consent or authorization of, filing with or other act by or in respect of any Governmental Authority is required in connection with the execution, delivery, performance, validity or enforceability of any of the Contracts by any Guarantor party thereto other than those which have been duly obtained, made or performed, are in full force and effect and do not subject the scope of any such Contract to any material adverse limitation, either specific or general in nature. (d) Neither such Guarantor nor (to the best of such Guarantor's knowledge) any of the other parties to the Contracts is in default in the performance or observance of any of the terms thereof in any manner that, in the aggregate, could reasonably be expected to have a Material Adverse Effect. (e) The right, title and interest of such Guarantor in, to and under the Contracts are not subject to any defenses, offsets, counterclaims or claims that, in the aggregate, could reasonably be expected to have a Material Adverse Effect. (f) No amount payable to such Guarantor under or in connection with any Contract is evidenced by any Instrument or Chattel Paper which has not been delivered to the Administrative Agent. (g) None of the parties to any Contract is a Governmental Authority. 4.9 Intellectual Property. (a) On the date hereof, all material Intellectual Property is valid, subsisting, unexpired and enforceable, has not been abandoned and does not infringe the intellectual property rights of any other Person. (b) On the date hereof, none of the Intellectual Property is the subject of any licensing or franchise agreement pursuant to which such Guarantor is the licensor or franchisor which could reasonably be expected to have a Material Adverse Effect. 11 (c) No holding, decision or judgment has been rendered by any Governmental Authority which would limit, cancel or question the validity of, or such Guarantor's rights in, any Intellectual Property in any respect that could reasonably be expected to have a Material Adverse Effect. (d) No action or proceeding is pending, or, to the knowledge of such Guarantor, threatened, on the date hereof (i) seeking to limit, cancel or question the validity of any Intellectual Property or such Guarantor's ownership interest therein, or (ii) which, if adversely determined, would have a material adverse effect on the value of any Intellectual Property. SECTION 5. COVENANTS Each Guarantor covenants and agrees with the Agents and the Lenders that, from and after the date of this Agreement until the Obligations shall have been paid in full, no Letter of Credit shall be outstanding and the Commitments shall have terminated: 5.1 Covenants in Credit Agreement. In the case of each Guarantor, such Guarantor shall take, or shall refrain from taking, as the case may be, each action that is necessary to be taken or not taken, as the case may be, so that no Default or Event of Default is caused by the failure to take such action or to refrain from taking such action by such Guarantor. 5.2 Delivery of Instruments and Chattel Paper. If any amount payable under or in connection with any of the Collateral shall be or become evidenced by any Instrument or Chattel Paper, such Instrument or Chattel Paper shall be immediately delivered to the Administrative Agent, duly indorsed in a manner satisfactory to the Administrative Agent, to be held as Collateral pursuant to this Agreement. 5.3 Maintenance of Insurance. (a) Such Guarantor will maintain, with financially sound and reputable companies, insurance policies (i) insuring the Inventory, Equipment and Vehicles against loss by fire, explosion, theft and such other casualties as may be reasonably satisfactory to the Administrative Agent and (ii) to the extent requested by the Administrative Agent, insuring such Guarantor, the Agents and the Lenders against liability for personal injury and property damage relating to such Inventory, Equipment and Vehicles, such policies to be in such form and amounts and having such coverage as may be reasonably satisfactory to the Administrative Agent and the Lenders. (b) All such insurance shall (i) provide that no cancellation, material reduction in amount or material change in coverage thereof shall be effective until at least 30 days after receipt by the Administrative Agent of written notice thereof, (ii) name the Administrative Agent as insured party or loss payee, (iii) if reasonably requested by the Administrative Agent, include a breach of warranty clause and (iv) be reasonably satisfactory in all other respects to the Administrative Agent. (c) The Borrower shall deliver to the Administrative Agent a report of a reputable insurance broker with respect to such insurance substantially concurrently with the delivery by the Borrower to the Administrative Agent of its audited financial statements for each fiscal year 12 and such supplemental reports with respect thereto as the Administrative Agent may from time to time reasonably request. 5.4 Payment of Obligations. Such Guarantor will pay and discharge or otherwise satisfy at or before maturity or before they become delinquent, as the case may be, all taxes, assessments and governmental charges or levies imposed upon the Collateral or in respect of income or profits therefrom, as well as all claims of any kind (including, without limitation, claims for labor, materials and supplies) against or with respect to the Collateral, except that no such charge need be paid if the amount or validity thereof is currently being contested in good faith by appropriate proceedings, reserves in conformity with GAAP with respect thereto have been provided on the books of such Guarantor and such proceedings could not reasonably be expected to result in the sale, forfeiture or loss of any material portion of the Collateral or any interest therein. 5.5 Maintenance of Perfected Security Interest; Further Documentation. (a) Such Guarantor shall maintain the security interests created by this Agreement as a perfected security interests having at least the priorities described in Section 4.3 and shall defend such security interests against the claims and demands of all Persons whomsoever. (b) Such Guarantor will furnish to the Administrative Agent from time to time statements and schedules further identifying and describing the Collateral and such other reports in connection with the Collateral as the Administrative Agent may reasonably request, all in reasonable detail. (c) At any time and from time to time, upon the written request of the Administrative Agent, and at the sole expense of such Guarantor, such Guarantor will promptly and duly execute and deliver, and have recorded, such further instruments and documents and take such further actions as the Administrative Agent may reasonably request for the purpose of obtaining or preserving the full benefits of this Agreement and of the rights and powers herein granted, including, without limitation, the filing of any financing or continuation statements under the Uniform Commercial Code (or other similar laws) in effect in any jurisdiction with respect to the security interests created hereby. 5.6 Changes in Locations, Name, etc. Such Guarantor will not, except upon 15 days' prior written notice to the Administrative Agent and delivery to the Administrative Agent of (a) all additional executed financing statements and other documents reasonably requested by the Administrative Agent to maintain the validity, perfection and priority of the security interests provided for herein and (b) if applicable, a written supplement to Schedule 4 showing any additional location at which Inventory or Equipment shall be kept: (i) permit any of the Inventory or Equipment to be kept at a location other than those listed on Schedule 4; (ii) change the location of its chief executive office or sole place of business from that referred to in Section 4.4; or (iii) change its name, identity or corporate structure to such an extent that any financing statement filed by the Administrative Agent in connection with this Agreement 13 would become misleading. 5.7 Notices. Such Guarantor will advise the Agents and the Lenders promptly, in reasonable detail, of: (a) any Lien (other than security interests created hereby or Liens permitted under the Credit Agreement) on any of the Collateral which would adversely affect the ability of the Administrative Agent to exercise any of its remedies hereunder; and (b) of the occurrence of any other event which could reasonably be expected to have a material adverse effect on the aggregate value of the Collateral or on the security interests created hereby. 5.8 Pledged Securities. (a) If such Guarantor shall become entitled to receive or shall receive any stock certificate (including, without limitation, any certificate representing a stock dividend or a distribution in connection with any reclassification, increase or reduction of capital or any certificate issued in connection with any reorganization), option or rights in respect of the Capital Stock of any Issuer, whether in addition to, in substitution of, as a conversion of, or in exchange for, any shares of the Pledged Stock, or otherwise in respect thereof, such Guarantor shall accept the same as the agent of the Agents and the Lenders, hold the same in trust for the Agents and the Lenders and deliver the same forthwith to the Administrative Agent in the exact form received, duly indorsed by such Guarantor to the Administrative Agent, if required, together with an undated stock power covering such certificate duly executed in blank by such Guarantor and with, if the Administrative Agent so requests, signature guaranteed, to be held by the Administrative Agent, subject to the terms hereof, as additional collateral security for the Obligations. Any sums paid upon or in respect of the Pledged Securities upon the liquidation or dissolution of any Issuer shall be paid over to the Administrative Agent to be held by it hereunder as additional collateral security for the Obligations, and in case any distribution of capital shall be made on or in respect of the Pledged Securities or any property shall be distributed upon or with respect to the Pledged Securities pursuant to the recapitalization or reclassification of the capital of any Issuer or pursuant to the reorganization thereof, the property so distributed shall, unless otherwise subject to a perfected security interest in favor of the Administrative Agent, be delivered to the Administrative Agent to be held by it hereunder as additional collateral security for the Obligations. If any sums of money or property so paid or distributed in respect of the Pledged Securities shall be received by such Guarantor, such Guarantor shall, until such money or property is paid or delivered to the Administrative Agent, hold such money or property in trust for the Agents and the Lenders, segregated from other funds of such Guarantor, as additional collateral security for the Obligations. (b) Without the prior written consent of the Administrative Agent, such Guarantor will not (i) vote to enable, or take any other action to permit, any Issuer to issue any stock or other equity securities of any nature or to issue any other securities convertible into or granting the right to purchase or exchange for any stock or other equity securities of any nature of any Issuer, (ii) sell, assign, transfer, exchange, or otherwise dispose of, or grant any option with respect to, the Pledged Securities or Proceeds thereof (except pursuant to a transaction expressly permitted by the Credit Agreement), (iii) create, incur or permit to exist any Lien or option in favor of, or any claim of any Person with respect to, any of the Pledged Securities or Proceeds thereof, or any interest therein, except for the security interests created by this 14 Agreement or (iv) enter into any agreement or undertaking restricting the right or ability of such Guarantor or the Administrative Agent to sell, assign or transfer any of the Pledged Securities or Proceeds thereof. (c) In the case of each Guarantor which is an Issuer, such Issuer agrees that (i) it will be bound by the terms of this Agreement relating to the Pledged Securities issued by it and will comply with such terms insofar as such terms are applicable to it, (ii) it will notify the Administrative Agent promptly in writing of the occurrence of any of the events described in Section 5.8(a) with respect to the Pledged Securities issued by it and (iii) the terms of Sections 6.3(c) and 6.7 shall apply to it, mutatis mutandis, with respect to all actions that may be required of it pursuant to Section 6.3(c) or 6.7 with respect to the Pledged Securities issued by it. 5.9 Receivables. (a) Other than in the ordinary course of business consistent with its past practice, such Guarantor will not (i) grant any extension of the time of payment of any Receivable, (ii) compromise or settle any Receivable for less than the full amount thereof, (iii) release, wholly or partially, any Person liable for the payment of any Receivable, (iv) allow any credit or discount whatsoever on any Receivable or (v) amend, supplement or modify any Receivable in any manner that could adversely affect the value thereof. (b) Such Guarantor will deliver to the Administrative Agent a copy of each material demand, notice or document received by it that questions or calls into doubt the validity or enforceability of more than 5% of the aggregate amount of the then outstanding Receivables. 5.10 Contracts. (a) Such Guarantor will perform and comply in all material respects with all its obligations under the Contracts. (b) Such Guarantor will not amend, modify, terminate or waive any provision of any Contract in any manner which could reasonably be expected to materially adversely affect the value of such Contract as Collateral. (c) Such Guarantor will exercise promptly and diligently each and every material right which it may have under each Contract (other than any right of termination). (d) Such Guarantor will deliver to the Administrative Agent a copy of each material demand, notice or document received by it relating in any way to any Contract that questions the validity or enforceability of such Contract. 5.11 Intellectual Property. (a) Such Guarantor (either itself or through licensees) will (i) continue to use each material Trademark on each and every trademark class of goods applicable to its current line as reflected in its current catalogs, brochures and price lists in order to maintain such Trademark in full force free from any claim of abandonment for non-use, (ii) maintain as in the past the quality of products and services offered under such Trademark, (iii) use such Trademark with the appropriate notice of registration and all other notices and legends required by applicable Requirements of Law, (iv) not adopt or use any mark which is confusingly similar or a colorable imitation of such Trademark unless the Administrative Agent, for the ratable benefit of the Agents and the Lenders, shall obtain a perfected security interest in such mark pursuant to this Agreement, and (v) not (and not permit any licensee or sublicensee thereof to) do any act or knowingly omit to do any act whereby such Trademark may become invalidated 15 or impaired in any way. (b) Such Guarantor (either itself or through licensees) will not do any act, or omit to do any act, whereby any material Patent may become forfeited, abandoned or dedicated to the public. (c) Such Guarantor (either itself or through licensees) (i) will employ each material Copyright and (ii) will not (and will not permit any licensee or sublicensee thereof to) do any act or knowingly omit to do any act whereby any material portion of the Copyrights may become invalidated or otherwise impaired. Such Guarantor will not (either itself or through licensees) do any act whereby any material portion of the Copyrights may fall into the public domain. (d) Such Guarantor (either itself or through licensees) will not do any act that knowingly uses any material Intellectual Property to infringe the intellectual property rights of any other Person. (e) Such Guarantor will notify the Agents and the Lenders immediately if it knows, or has reason to know, that any application or registration relating to any material Intellectual Property may become forfeited, abandoned or dedicated to the public, or of any adverse determination or development (including, without limitation, the institution of, or any such determination or development in, any proceeding in the United States Patent and Trademark Office, the United States Copyright Office or any court or tribunal in any country) regarding such Guarantor's ownership of, or the validity of, any material Intellectual Property or such Guarantor's right to register the same or to own and maintain the same. (f) Whenever such Guarantor, either by itself or through any agent, employee, licensee or designee, shall file an application for the registration of any Intellectual Property with the United States Patent and Trademark Office, the United States Copyright Office or any similar office or agency in any other country or any political subdivision thereof, such Guarantor shall report such filing to the Administrative Agent within five Business Days after the last day of the fiscal quarter in which such filing occurs. Upon request of the Administrative Agent, such Guarantor shall execute and deliver, and have recorded, any and all agreements, instruments, documents, and papers as the Administrative Agent may request to evidence the Agents' and the Lenders' security interest in any Copyright, Patent or Trademark and the goodwill and general intangibles of such Guarantor relating thereto or represented thereby. (g) Such Guarantor will take all reasonable and necessary steps, including, without limitation, in any proceeding before the United States Patent and Trademark Office, the United States Copyright Office or any similar office or agency in any other country or any political subdivision thereof, to maintain and pursue each application (and to obtain the relevant registration) and to maintain each registration of the material Intellectual Property, including, without limitation, filing of applications for renewal, affidavits of use and affidavits of incontestability. (h) In the event that any material Intellectual Property is infringed, misappropriated or diluted by a third party, such Guarantor shall (i) take such actions as such Guarantor shall reasonably deem appropriate under the circumstances to protect such Intellectual 16 Property and (ii) if such Intellectual Property is of material economic value, promptly notify the Administrative Agent after it learns thereof and sue for infringement, misappropriation or dilution, to seek injunctive relief where appropriate and to recover any and all damages for such infringement, misappropriation or dilution. 5.12 Vehicles. (a) No Vehicle shall be removed from the state which has issued the certificate of title/ownership therefor for a period in excess of four months. (b) Within 30 days after the date hereof, and, with respect to any Vehicles acquired by such Guarantor subsequent to the date hereof, within 30 days after the date of acquisition thereof, all applications for certificates of title/ownership indicating the Administrative Agent's first priority security interest in the Vehicle covered by such certificate, and any other necessary documentation, shall be filed in each office in each jurisdiction which the Administrative Agent shall deem advisable to perfect its security interests in the Vehicles. SECTION 6. REMEDIAL PROVISIONS 6.1 Certain Matters Relating to Receivables. (a) The Administrative Agent shall have the right to make test verifications of the Receivables in any manner and through any medium that it reasonably considers advisable, and each Guarantor shall furnish all such assistance and information as the Administrative Agent may require in connection with such test verifications. At any time and from time to time, upon the Administrative Agent's request and at the expense of the relevant Guarantor, such Guarantor shall cause independent public accountants or others satisfactory to the Administrative Agent to furnish to the Administrative Agent reports showing reconciliations, aging and test verifications of, and trial balances for, the Receivables. (b) The Administrative Agent hereby authorizes each Guarantor to collect such Guarantor's Receivables, subject to the Administrative Agent's direction and control, and the Administrative Agent may curtail or terminate said authority at any time after the occurrence and during the continuance of an Event of Default. If required by the Administrative Agent at any time after the occurrence and during the continuance of an Event of Default, any payments of Receivables, when collected by any Guarantor, (i) shall be forthwith (and, in any event, within two Business Days) deposited by such Guarantor in the exact form received, duly indorsed by such Guarantor to the Administrative Agent if required, in a Collateral Account maintained under the sole dominion and control of the Administrative Agent, subject to withdrawal by the Administrative Agent for the account of the Agents and the Lenders only as provided in Section 6.5, and (ii) until so turned over, shall be held by such Guarantor in trust for the Agents and the Lenders, segregated from other funds of such Guarantor. Each such deposit of Proceeds of Receivables shall be accompanied by a report identifying in reasonable detail the nature and source of the payments included in the deposit. (c) At the Administrative Agent's request, each Guarantor shall deliver to the Administrative Agent all original and other documents evidencing, and relating to, the agreements and transactions which gave rise to the Receivables, including, without limitation, all original orders, invoices and shipping receipts. 17 6.2 Communications with Obligors; Guarantors Remain Liable. (a) The Administrative Agent in its own name or in the name of others may at any time communicate with obligors under the Receivables and parties to the Contracts to verify with them to the Administrative Agent's satisfaction the existence, amount and terms of any Receivables or Contracts. (b) Upon the request of the Administrative Agent at any time after the occurrence and during the continuance of an Event of Default, each Guarantor shall notify obligors on the Receivables and parties to the Contracts that the Receivables and the Contracts have been assigned to the Administrative Agent for the ratable benefit of the Agents and the Lenders and that payments in respect thereof shall be made directly to the Administrative Agent. (c) Anything herein to the contrary notwithstanding, each Guarantor shall remain liable under each of the Receivables and Contracts to observe and perform all the conditions and obligations to be observed and performed by it thereunder, all in accordance with the terms of any agreement giving rise thereto. Neither the Agents nor any Lender shall have any obligation or liability under any Receivable (or any agreement giving rise thereto) or Contract by reason of or arising out of this Agreement or the receipt by either Agent or any Lender of any payment relating thereto, nor shall either Agent or any Lender be obligated in any manner to perform any of the obligations of any Guarantor under or pursuant to any Receivable (or any agreement giving rise thereto) or Contract, to make any payment, to make any inquiry as to the nature or the sufficiency of any payment received by it or as to the sufficiency of any performance by any party thereunder, to present or file any claim, to take any action to enforce any performance or to collect the payment of any amounts which may have been assigned to it or to which it may be entitled at any time or times. 6.3 Pledged Stock. (a) Unless an Event of Default shall have occurred and be continuing and the Administrative Agent shall have given notice to the relevant Guarantor of the Administrative Agent's intent to exercise its corresponding rights pursuant to Section 6.3(b), each Guarantor shall be permitted to receive all cash dividends paid in respect of the Pledged Stock and all payments made in respect of the Pledged Notes, in each case paid in the normal course of business of the relevant Issuer and consistent with past practice, to the extent permitted in the Credit Agreement, and to exercise all voting and corporate rights with respect to the Pledged Securities; provided, however, that no vote shall be cast or corporate right exercised or other action taken which, in the Administrative Agent's reasonable judgment, would impair the Collateral or which would be inconsistent with or result in any violation of any provision of the Credit Agreement, this Agreement or any other Loan Document. (b) If an Event of Default shall occur and be continuing and the Administrative Agent shall give notice of its intent to exercise such rights to the relevant Guarantor or Guarantors, (i) the Administrative Agent shall have the right to receive any and all cash dividends, payments or other Proceeds paid in respect of the Pledged Securities and make application thereof to the Obligations in the order set forth in Section 6.5, and (ii) any or all of the Pledged Securities shall be registered in the name of the Administrative Agent or its nominee, and the Administrative Agent or its nominee may thereafter exercise (x) all voting, corporate and other rights pertaining to such Pledged Securities at any meeting of shareholders of the relevant Issuer or Issuers or otherwise and (y) any and all rights of conversion, exchange and subscription and any other rights, privileges or options pertaining to such Pledged Securities as if 18 it were the absolute owner thereof (including, without limitation, the right to exchange at its discretion any and all of the Pledged Securities upon the merger, consolidation, reorganization, recapitalization or other fundamental change in the corporate structure of any Issuer, or upon the exercise by any Guarantor or the Administrative Agent of any right, privilege or option pertaining to such Pledged Securities, and in connection therewith, the right to deposit and deliver any and all of the Pledged Securities with any committee, depositary, transfer agent, registrar or other designated agency upon such terms and conditions as the Administrative Agent may determine), all without liability except to account for property actually received by it, but the Administrative Agent shall have no duty to any Guarantor to exercise any such right, privilege or option and shall not be responsible for any failure to do so or delay in so doing. (c) Each Guarantor hereby authorizes and instructs each Issuer of any Pledged Securities pledged by such Guarantor hereunder to (i) comply with any instruction received by it from the Administrative Agent in writing that (x) states that an Event of Default has occurred and is continuing and (y) is otherwise in accordance with the terms of this Agreement, without any other or further instructions from such Guarantor, and each Guarantor agrees that each Issuer shall be fully protected in so complying, and (ii) unless otherwise expressly permitted hereby, pay any dividends or other payments with respect to the Pledged Securities directly to the Administrative Agent. 6.4 Proceeds to be Turned Over To Administrative Agent. In addition to the rights of the Administrative Agent and the Lenders specified in Section 6.1 with respect to payments of Receivables, if an Event of Default shall occur and be continuing, all Proceeds received by any Guarantor consisting of cash, checks and other near-cash items shall be held by such Guarantor in trust for the Agents and the Lenders, segregated from other funds of such Guarantor, and shall, forthwith upon receipt by such Guarantor, be turned over to the Administrative Agent in the exact form received by such Guarantor (duly indorsed by such Guarantor to the Administrative Agent, if required). All Proceeds received by the Administrative Agent hereunder shall be held by the Administrative Agent in a Collateral Account maintained under its sole dominion and control. All Proceeds while held by the Administrative Agent in a Collateral Account (or by such Guarantor in trust for the Agents and the Lenders) shall continue to be held as collateral security for all the Obligations and shall not constitute payment thereof until applied as provided in Section 6.5. 6.5 Application of Proceeds. At such intervals as may be agreed upon by the Borrower and the Administrative Agent, or, if an Event of Default shall have occurred and be continuing, at any time at the Administrative Agent's election, the Administrative Agent may apply all or any part of Proceeds constituting Collateral, whether or not held in any Collateral Account, and any proceeds of the guarantee set forth in Section 2, in payment of the Obligations in the following order: First, to pay incurred and unpaid fees and expenses of the Agents under the Loan Documents; Second, to the Administrative Agent, for application by it towards payment of amounts then due and owing and remaining unpaid in respect of the Obligations, pro rata among the Lenders according to the amounts of such obligations then due and owing and remaining unpaid to the Lenders; and 19 Third, any balance of such Proceeds remaining after the Obligations shall have been paid in full, no Letters of Credit shall be outstanding (or such Letters of Credit shall be cash collaterized or secured by a backstop letter of credit as provided in the Credit Agreement) and the Commitments shall have terminated shall be paid over to the Borrower or to whomsoever may be lawfully entitled to receive the same. 6.6 Code and Other Remedies. If an Event of Default shall occur and be continuing, the Administrative Agent, on behalf of the Agents and the Lenders, may exercise, in addition to all other rights and remedies granted to them in this Agreement and in any other instrument or agreement securing, evidencing or relating to the Obligations, all rights and remedies of a secured party under the New York UCC or any other applicable law. Without limiting the generality of the foregoing, the Administrative Agent, without demand of performance or other demand, presentment, protest, advertisement or notice of any kind (except any notice required by law referred to below) to or upon any Guarantor or any other Person (all and each of which demands, defenses, advertisements and notices are hereby waived), may in such circumstances forthwith collect, receive, appropriate and realize upon the Collateral, or any part thereof, and/or may forthwith sell, lease, assign, give option or options to purchase, or otherwise dispose of and deliver the Collateral or any part thereof (or contract to do any of the foregoing), in one or more parcels at public or private sale or sales, at any exchange, broker's board or office of either Agent or any Lender or elsewhere upon such terms and conditions as it may deem advisable and at such prices as it may deem best, for cash or on credit or for future delivery without assumption of any credit risk. Either Agent or any Lender shall have the right upon any such public sale or sales, and, to the extent permitted by law, upon any such private sale or sales, to purchase the whole or any part of the Collateral so sold, free of any right or equity of redemption in any Guarantor, which right or equity is hereby waived and released. Each Guarantor further agrees, at the Administrative Agent's request, to assemble the Collateral and make it available to the Administrative Agent at places which the Administrative Agent shall reasonably select, whether at such Guarantor's premises or elsewhere. The Administrative Agent shall apply the net proceeds of any action taken by it pursuant to this Section 6.6, after deducting all reasonable costs and expenses of every kind incurred in connection therewith or incidental to the care or safekeeping of any of the Collateral or in any way relating to the Collateral or the rights of the Agents and the Lenders hereunder, including, without limitation, reasonable attorneys' fees and disbursements, to the payment in whole or in part of the Obligations, in such order as Section 6.5 shall proscribe, and only after such application and after the payment by the Administrative Agent of any other amount required by any provision of law, including, without limitation, Section 9-504(1)(c) of the New York UCC, need the Administrative Agent account for the surplus, if any, to any Guarantor. To the extent permitted by applicable law, each Guarantor waives all claims, damages and demands it may acquire against either Agent or any Lender arising out of the exercise by them of any rights hereunder. If any notice of a proposed sale or other disposition of Collateral shall be required by law, such notice shall be deemed reasonable and proper if given at least 10 days before such sale or other disposition. 6.7 Registration Rights. (a) If the Administrative Agent shall determine to exercise its right to sell any or all of the Pledged Stock pursuant to Section 6.6, and if in the opinion of the Administrative Agent it is necessary or advisable to have the Pledged Stock, or that portion thereof to be sold, registered under the provisions of the Securities Act, the relevant Guarantor will cause the Issuer thereof to (i) execute and deliver, and cause the directors and 20 officers of such Issuer to execute and deliver, all such instruments and documents, and do or cause to be done all such other acts as may be, in the opinion of the Administrative Agent, necessary or advisable to register the Pledged Stock, or that portion thereof to be sold, under the provisions of the Securities Act, (ii) use its best efforts to cause the registration statement relating thereto to become effective and to remain effective for a period of one year from the date of the first public offering of the Pledged Stock, or that portion thereof to be sold, and (iii) make all amendments thereto and/or to the related prospectus which, in the opinion of the Administrative Agent, are necessary or advisable, all in conformity with the requirements of the Securities Act and the rules and regulations of the Securities and Exchange Commission applicable thereto. Each Guarantor agrees to cause such Issuer to comply with the provisions of the securities or "Blue Sky" laws of any and all jurisdictions which the Administrative Agent shall designate and to make available to its security holders, as soon as practicable, an earnings statement (which need not be audited) which will satisfy the provisions of Section 11(a) of the Securities Act. (b) Each Guarantor recognizes that the Administrative Agent may be unable to effect a public sale of any or all the Pledged Stock, by reason of certain prohibitions contained in the Securities Act and applicable state securities laws or otherwise, and may be compelled to resort to one or more private sales thereof to a restricted group of purchasers which will be obliged to agree, among other things, to acquire such securities for their own account for investment and not with a view to the distribution or resale thereof. Each Guarantor acknowledges and agrees that any such private sale may result in prices and other terms less favorable than if such sale were a public sale and, notwithstanding such circumstances, agrees that any such private sale shall be deemed to have been made in a commercially reasonable manner. The Administrative Agent shall be under no obligation to delay a sale of any of the Pledged Stock for the period of time necessary to permit the Issuer thereof to register such securities for public sale under the Securities Act, or under applicable state securities laws, even if such Issuer would agree to do so. (c) Each Guarantor agrees to use its best efforts to do or cause to be done all such other acts as may be necessary to make such sale or sales of all or any portion of the Pledged Stock pursuant to this Section 6.7 valid and binding and in compliance with any and all other applicable Requirements of Law. Each Guarantor further agrees that a breach of any of the covenants contained in this Section 6.7 will cause irreparable injury to the Agents and the Lenders, that the Agents and the Lenders have no adequate remedy at law in respect of such breach and, as a consequence, that each and every covenant contained in this Section 6.7 shall be specifically enforceable against such Guarantor, and such Guarantor hereby waives and agrees not to assert any defenses against an action for specific performance of such covenants except for a defense that no Event of Default has occurred under the Credit Agreement. 6.8 Waiver; Deficiency. Each Guarantor waives and agrees not to assert any rights or privileges which it may acquire under Section 9-112 of the New York UCC. Each Guarantor shall remain liable for any deficiency if the proceeds of any sale or other disposition of the Collateral are insufficient to pay its Obligations and the fees and disbursements of any attorneys employed by the Agents or any Lender to collect such deficiency. SECTION 7. THE ADMINISTRATIVE AGENT 21 7.1 Administrative Agent's Appointment as Attorney-in-Fact, etc. (a) Each Guarantor hereby irrevocably constitutes and appoints the Administrative Agent and any officer or agent thereof, with full power of substitution, as its true and lawful attorney-in-fact with full irrevocable power and authority in the place and stead of such Guarantor and in the name of such Guarantor or in its own name, for the purpose of carrying out the terms of this Agreement, to take any and all appropriate action and to execute any and all documents and instruments which may be necessary or desirable to accomplish the purposes of this Agreement, and, without limiting the generality of the foregoing, each Guarantor hereby gives the Administrative Agent the power and right, on behalf of such Guarantor, without notice to or assent by such Guarantor, to do any or all of the following: (i) in the name of such Guarantor or its own name, or otherwise, take possession of and indorse and collect any checks, drafts, notes, acceptances or other instruments for the payment of moneys due under any Receivable or Contract or with respect to any other Collateral and file any claim or take any other action or proceeding in any court of law or equity or otherwise deemed appropriate by the Administrative Agent for the purpose of collecting any and all such moneys due under any Receivable or Contract or with respect to any other Collateral whenever payable; (ii) in the case of any Intellectual Property, execute and deliver, and have recorded, any and all agreements, instruments, documents and papers as the Administrative Agent may request to evidence the Agents' and the Lenders' security interest in such Intellectual Property and the goodwill and general intangibles of such Guarantor relating thereto or represented thereby; (iii) pay or discharge taxes and Liens levied or placed on or threatened against the Collateral, effect any repairs or any insurance called for by the terms of this Agreement and pay all or any part of the premiums therefor and the costs thereof; (iv) execute, in connection with any sale provided for in Section 6.6 or 6.7, any indorsements, assignments or other instruments of conveyance or transfer with respect to the Collateral; and (v) (1) direct any party liable for any payment under any of the Collateral to make payment of any and all moneys due or to become due thereunder directly to the Administrative Agent or as the Administrative Agent shall direct; (2) ask or demand for, collect, and receive payment of and receipt for, any and all moneys, claims and other amounts due or to become due at any time in respect of or arising out of any Collateral; (3) sign and indorse any invoices, freight or express bills, bills of lading, storage or warehouse receipts, drafts against debtors, assignments, verifications, notices and other documents in connection with any of the Collateral; (4) commence and prosecute any suits, actions or proceedings at law or in equity in any court of competent jurisdiction to collect the Collateral or any portion thereof and to enforce any other right in respect of any Collateral; (5) defend any suit, action or proceeding brought against such Guarantor with respect to any Collateral; (6) settle, compromise or adjust any such suit, action or proceeding and, in connection therewith, give such discharges or releases as the Administrative Agent may deem appropriate; (7) assign any Copyright, Patent or Trademark (along with the goodwill of the business to which any such Copyright, Patent 22 or Trademark pertains), throughout the world for such term or terms, on such conditions, and in such manner, as the Administrative Agent shall in its sole discretion determine; and (8) generally, sell, transfer, pledge and make any agreement with respect to or otherwise deal with any of the Collateral as fully and completely as though the Administrative Agent were the absolute owner thereof for all purposes, and do, at the Administrative Agent's option and such Guarantor's expense, at any time, or from time to time, all acts and things which the Administrative Agent deems necessary to protect, preserve or realize upon the Collateral and the Administrative Agent's and the Lenders' security interests therein and to effect the intent of this Agreement, all as fully and effectively as such Guarantor might do. Anything in this Section 7.1(a) to the contrary notwithstanding, the Administrative Agent agrees that it will not exercise any rights under the power of attorney provided for in this Section 7.1(a) unless an Event of Default shall have occurred and be continuing. (b) If any Guarantor fails to perform or comply with any of its agreements contained herein, the Administrative Agent, at its option, but without any obligation so to do, may perform or comply, or otherwise cause performance or compliance, with such agreement. (c) The expenses of the Administrative Agent incurred in connection with actions undertaken as provided in this Section 7.1, together with interest thereon at a rate per annum equal to the rate per annum at which interest would then be payable on past due Revolving Credit Loans that are Base Rate Loans under the Credit Agreement, from the date of payment by the Administrative Agent to the date reimbursed by the relevant Guarantor, shall be payable by such Guarantor to the Administrative Agent on demand. (d) Each Guarantor hereby ratifies all that said attorneys shall lawfully do or cause to be done by virtue hereof. All powers, authorizations and agencies contained in this Agreement are coupled with an interest and are irrevocable until this Agreement is terminated and the security interests created hereby are released. 7.2 Duty of Administrative Agent. The Administrative Agent's sole duty with respect to the custody, safekeeping and physical preservation of the Collateral in its possession, under Section 9-207 of the New York UCC or otherwise, shall be to deal with it in the same manner as the Administrative Agent deals with similar property for its own account. Neither the Agents, any Lender nor any of their respective officers, directors, employees or agents shall be liable for failure to demand, collect or realize upon any of the Collateral or for any delay in doing so or shall be under any obligation to sell or otherwise dispose of any Collateral upon the request of any Guarantor or any other Person or to take any other action whatsoever with regard to the Collateral or any part thereof. The powers conferred on the Agents and the Lenders hereunder are solely to protect the Agents' and the Lenders' interests in the Collateral and shall not impose any duty upon either Agent or any Lender to exercise any such powers. The Agents and the Lenders shall be accountable only for amounts that they actually receive as a result of the exercise of such powers, and neither they nor any of their officers, directors, employees or agents shall be responsible to any Guarantor for any act or failure to act hereunder, except for their own gross negligence or willful misconduct. 7.3 Execution of Financing Statements. Pursuant to Section 9-402 of the New 23 York UCC and any other applicable law, each Guarantor authorizes the Administrative Agent to file or record financing statements and other filing or recording documents or instruments with respect to the Collateral without the signature of such Guarantor in such form and in such offices as the Administrative Agent reasonably determines appropriate to perfect the security interests of the Administrative Agent under this Agreement. A photographic or other reproduction of this Agreement shall be sufficient as a financing statement or other filing or recording document or instrument for filing or recording in any jurisdiction. 7.4 Authority of Administrative Agent. Each Guarantor acknowledges that the rights and responsibilities of the Administrative Agent under this Agreement with respect to any action taken by the Administrative Agent or the exercise or non-exercise by the Administrative Agent of any option, voting right, request, judgment or other right or remedy provided for herein or resulting or arising out of this Agreement shall, as between the Administrative Agent and the Lenders, be governed by the Credit Agreement and by such other agreements with respect thereto as may exist from time to time among them, but, as between the Administrative Agent and the Guarantors, the Administrative Agent shall be conclusively presumed to be acting as agent for the Agents and the Lenders with full and valid authority so to act or refrain from acting, and no Guarantor shall be under any obligation, or entitlement, to make any inquiry respecting such authority. SECTION 8. MISCELLANEOUS 8.1 Amendments in Writing. None of the terms or provisions of this Agreement may be waived, amended, supplemented or otherwise modified except in accordance with Section 12.1 of the Credit Agreement. 8.2 Notices. All notices, requests and demands to or upon the Administrative Agent or any Guarantor hereunder shall be effected in the manner provided for in Section 12.2 of the Credit Agreement; provided that any such notice, request or demand to or upon any Guarantor shall be addressed to such Guarantor at its notice address set forth on Schedule 1. 8.3 No Waiver by Course of Conduct; Cumulative Remedies. Neither the Agents nor any Lender shall by any act (except by a written instrument pursuant to Section 8.1), delay, indulgence, omission or otherwise be deemed to have waived any right or remedy hereunder or to have acquiesced in any Default or Event of Default. No failure to exercise, nor any delay in exercising, on the part of either Agent or any Lender, any right, power or privilege hereunder shall operate as a waiver thereof. No single or partial exercise of any right, power or privilege hereunder shall preclude any other or further exercise thereof or the exercise of any other right, power or privilege. A waiver by either Agent or any Lender of any right or remedy hereunder on any one occasion shall not be construed as a bar to any right or remedy which such Agent or such Lender would otherwise have on any future occasion. The rights and remedies herein provided are cumulative, may be exercised singly or concurrently and are not exclusive of any other rights or remedies provided by law. 8.4 Enforcement Expenses; Indemnification. (a) Each Guarantor agrees to pay or reimburse each Lender and Agent for all its costs and expenses incurred in collecting against such Guarantor under the guarantee contained in Section 2 or otherwise enforcing or preserving any rights under this Agreement and the other Loan Documents to which such Guarantor is a 24 party, including, without limitation, the reasonable fees and disbursements of counsel (including the allocated reasonable fees and expenses of in-house counsel) to each Lender and of counsel to the Agents. (b) Each Guarantor agrees to pay, and to save the Agents and the Lenders harmless from, any and all liabilities with respect to, or resulting from any delay in paying, any and all stamp, excise, sales or other taxes which may be payable or determined to be payable with respect to any of the Collateral or in connection with any of the transactions contemplated by this Agreement. (c) Each Guarantor agrees to pay, and to save the Agents and the Lenders harmless from, any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever with respect to the execution, delivery, enforcement, performance and administration of this Agreement to the extent the Borrower would be required to do so pursuant to Section 12.5 of the Credit Agreement. (d) The agreements in this Section 8.4 shall survive repayment of the Obligations and all other amounts payable under the Credit Agreement and the other Loan Documents. 8.5 Successors and Assigns. This Agreement shall be binding upon the successors and assigns of each Guarantor and shall inure to the benefit of the Agents and the Lenders and their successors and assigns; provided that no Guarantor may assign, transfer or delegate any of its rights or obligations under this Agreement without the prior written consent of the Administrative Agent. 8.6 Set-Off. Each Guarantor hereby irrevocably authorizes the Agents and each Lender at any time and from time to time, without notice to such Guarantor or any other Guarantor, any such notice being expressly waived by each Guarantor, to set-off and appropriate and apply any and all deposits (general or special, time or demand, provisional or final), in any currency, and any other credits, indebtedness or claims, in any currency, in each case whether direct or indirect, absolute or contingent, matured or unmatured, at any time held or owing by such Agent or such Lender to or for the credit or the account of such Guarantor, or any part thereof in such amounts as such Agent or such Lender may elect, against and on account of the obligations and liabilities of such Guarantor to such Agent or such Lender hereunder and claims of every nature and description of such Agent or such Lender against such Guarantor, in any currency, whether arising hereunder, under the Credit Agreement, any other Loan Document or otherwise, as such Agent or such Lender may elect, whether or not either Agent or any Lender has made any demand for payment and although such obligations, liabilities and claims may be contingent or unmatured. The Agents and each Lender shall notify such Guarantor promptly of any such set-off and the application made by such Agent or such Lender of the proceeds thereof, provided that the failure to give such notice shall not affect the validity of such set-off and application. The rights of the Agents and each Lender under this Section 8.6 are in addition to other rights and remedies (including, without limitation, other rights of set-off) which such Agent or such Lender may have. 8.7 Counterparts. This Agreement may be executed by one or more of the parties to this Agreement on any number of separate counterparts (including by telecopy), and all of said 25 counterparts taken together shall be deemed to constitute one and the same instrument. 8.8 Severability. Any provision of this Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. 8.9 Section Headings. The Section headings used in this Agreement are for convenience of reference only and are not to affect the construction hereof or be taken into consideration in the interpretation hereof. 8.10 Integration. This Agreement and the other Loan Documents represent the agreement of the Guarantors, the Agents and the Lenders with respect to the subject matter hereof and thereof, and there are no promises, undertakings, representations or warranties by either Agent or any Lender relative to subject matter hereof and thereof not expressly set forth or referred to herein or in the other Loan Documents. 8.11 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK. 8.12 Submission To Jurisdiction; Waivers. Each Guarantor hereby irrevocably and unconditionally: (a) submits for itself and its property in any legal action or proceeding relating to this Agreement and the other Loan Documents to which it is a party, or for recognition and enforcement of any judgment in respect thereof, to the non-exclusive general jurisdiction of the Bankruptcy Court and, if the Bankruptcy Court does not have (or abstains from) jurisdiction, to the non-exclusive general jurisdiction of the Courts of the State of New York, the courts of the United States of America for the Southern District of New York, and appellate courts from any thereof; (b) consents that any such action or proceeding may be brought in such courts and waives any objection that it may now or hereafter have to the venue of any such action or proceeding in any such court or that such action or proceeding was brought in an inconvenient court and agrees not to plead or claim the same; (c) agrees that service of process in any such action or proceeding may be effected by mailing a copy thereof by registered or certified mail (or any substantially similar form of mail), postage prepaid, to such Guarantor at its address referred to in Section 8.2 or at such other address of which the Administrative Agent shall have been notified pursuant thereto; (d) agrees that nothing herein shall affect the right to effect service of process in any other manner permitted by law or shall limit the right to sue in any other jurisdiction; and 26 (e) waives, to the maximum extent not prohibited by law, any right it may have to claim or recover in any legal action or proceeding referred to in this Section any special, exemplary, punitive or consequential damages. 8.13 Acknowledgements. Each Guarantor hereby acknowledges that: (a) it has been advised by counsel in the negotiation, execution and delivery of this Agreement and the other Loan Documents to which it is a party; (b) neither the Administrative Agent nor any Lender has any fiduciary relationship with or duty to any Guarantor arising out of or in connection with this Agreement or any of the other Loan Documents, and the relationship between the Guarantors, on the one hand, and the Administrative Agent and Lenders, on the other hand, in connection herewith or therewith is solely that of debtor and creditor; and (c) no joint venture is created hereby or by the other Loan Documents or otherwise exists by virtue of the transactions contemplated hereby among the Lenders or among the Guarantors and the Lenders. 8.14 Additional Guarantors. Each Subsidiary of the Borrower that is required to become a party to this Agreement pursuant to the Credit Agreement shall become a Guarantor for all purposes of this Agreement upon execution and delivery by such Subsidiary of an Assumption Agreement in the form of Annex 1 hereto. 8.15 Releases. (a) At such time as the Loans, the Reimbursement Obligations and the other Obligations shall have been paid in full, the Commitments have been terminated and no Letters of Credit shall be outstanding, cash collateralized or backstopped, the Collateral shall be released from the Liens created hereby, and this Agreement and all obligations (other than those expressly stated to survive such termination) of the Administrative Agent and each Guarantor hereunder shall terminate, all without delivery of any instrument or performance of any act by any party, and all rights to the Collateral shall revert to the Guarantors. At the request and sole expense of any Guarantor following any such termination, the Administrative Agent shall deliver to such Guarantor any Collateral held by the Administrative Agent hereunder, and execute and deliver to such Guarantor such documents as such Guarantor shall reasonably request to evidence such termination. (b) If any of the Collateral shall be sold, transferred or otherwise disposed of by any Guarantor in a transaction permitted by the Credit Agreement, then the Administrative Agent, at the request and sole expense of such Guarantor, shall execute and deliver to such Guarantor all releases or other documents reasonably necessary or desirable for the release of the Liens created hereby on such Collateral. At the request and sole expense of the Borrower, a Guarantor shall be released from its obligations hereunder in the event that all the Capital Stock of such Guarantor shall be sold, transferred or otherwise disposed of in a transaction permitted by the Credit Agreement; provided that the Borrower shall have delivered to the Administrative Agent, at least ten Business Days prior to the date of the proposed release, a written request for release identifying the relevant Guarantor and the terms of the sale or other disposition in reasonable detail, including the price thereof and any expenses in connection therewith, together with a certification by the Borrower stating that such transaction is in compliance with the Credit 27 Agreement and the other Loan Documents. 8.16 WAIVERS OF JURY TRIAL. THE AGENTS, THE LENDERS AND EACH GUARANTOR HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT AND FOR ANY COUNTERCLAIM THEREIN. 28 IN WITNESS WHEREOF, each of the undersigned has caused this Guarantee and Collateral Agreement to be duly executed and delivered as of the date first above written. GRAND UNION STORES, INC. OF VERMONT By: ---------------------- Name: Title: GRAND UNION STORES OF NEW HAMPSHIRE, INC. By: --------------------- Name: Title: MERCHANDISING SERVICES, INC. By: --------------------- Name: Title: SPECIALTY MERCHANDISING SERVICES, INC. By: --------------------- Name: Title: Annex 1 to Guarantee and Collateral Agreement ASSUMPTION AGREEMENT, dated as of _______________, 1998, made by ___________________________, a ______________ corporation (the "Additional Guarantor"), in favor of Lehman Commercial Paper Inc., as administrative agent (in such capacity, the "Administrative Agent") for the banks and other financial institutions (the "Lenders") from time to time parties to the Revolving Credit Agreement, dated as of June 24, 1998 (as amended, supplemented or otherwise modified from time to time, the "Credit Agreement"), among The Grand Union Company (the "Borrower"), the Lenders, SBC Warburg Dillon Read Inc., as co-advisor and co-arranger, Swiss Bank Corporation, Stamford Branch, as Syndication Agent, Lehman Brothers Inc., as co-advisor and co-arranger, and the Administrative Agent. All capitalized terms not defined herein shall have the meaning ascribed to them in such Credit Agreement. W I T N E S S E T H : WHEREAS, The Borrower, the Lenders, the Agent and the Arrangers have entered into the Credit Agreement; WHEREAS, in connection with the Credit Agreement, the Borrower and certain of its Affiliates (other than the Additional Guarantor) have entered into the Guarantee and Collateral Agreement, dated as of June 24, 1998 (as amended, supplemented or otherwise modified from time to time, the "Guarantee and Collateral Agreement") in favor of the Administrative Agent for the benefit of the Agents and the Lenders; WHEREAS, the Credit Agreement requires the Additional Guarantor to become a party to the Guarantee and Collateral Agreement; and WHEREAS, the Additional Guarantor has agreed to execute and deliver this Assumption Agreement in order to become a party to the Guarantee and Collateral Agreement; NOW, THEREFORE, IT IS AGREED: 1. Guarantee and Collateral Agreement. By executing and delivering this Assumption Agreement, the Additional Guarantor, as provided in Section 8.15 of the Guarantee and Collateral Agreement, hereby becomes a party to the Guarantee and Collateral Agreement as a Guarantor thereunder with the same force and effect as if originally named therein as a Guarantor and, without limiting the generality of the foregoing, hereby expressly assumes all obligations and liabilities of a Guarantor thereunder. The information set forth in Annex 1-A hereto is hereby added to the information set forth in Schedules 2 through 9 to the Guarantee and Collateral Agreement. The Additional Guarantor hereby represents and warrants that each of the representations and warranties contained in Section 4 of the Guarantee and Collateral Agreement 2 applicable to it is true and correct on and as the date hereof (after giving effect to this Assumption Agreement) as if made on and as of such date. 2. GOVERNING LAW. THIS ASSUMPTION AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK. IN WITNESS WHEREOF, the undersigned has caused this Assumption Agreement to be duly executed and delivered as of the date first above written. [ADDITIONAL GUARANTOR] By: -------------------- Name: Title: EXHIBIT G-1 FORM OF REVOLVING CREDIT NOTE THIS NOTE AND THE OBLIGATIONS REPRESENTED HEREBY MAY NOT BE TRANSFERRED EXCEPT IN COMPLIANCE WITH THE TERMS AND PROVISIONS OF THE REVOLVING CREDIT AGREEMENT REFERRED TO BELOW. TRANSFERS OF THIS NOTE AND THE OBLIGATIONS REPRESENTED HEREBY MUST BE RECORDED IN THE REGISTER MAINTAINED BY THE ADMINISTRATIVE AGENT PURSUANT TO THE TERMS OF SUCH CREDIT AGREEMENT. New York, New York $________________ ___________, 1998 FOR VALUE RECEIVED, the undersigned, The Grand Union Company, a Delaware corporation (the "Borrower"), hereby unconditionally promises to pay to __________________ (the "Lender") or its registered assigns at the Payment Office specified in the Credit Agreement (as hereinafter defined) in lawful money of the United States and in immediately available funds, the principal amount of (a) ___________________________ ($____________), or, if less, (b) the unpaid principal amount of the Revolving Credit Loan made by the Lender pursuant to Section 2.1 of the Credit Agreement. The principal amount shall be paid in the amounts and on the dates specified in Section 2.5 of the Credit Agreement. The Borrower further agrees to pay interest in like money at such office on the unpaid principal amount hereof from time to time outstanding at the rates and on the dates specified in Section 2.12 of the Credit Agreement. The holder of this Note is authorized to endorse on the schedules annexed hereto and made a part hereof or on a continuation thereof which shall be attached hereto and made a part hereof the date, Type and amount of each Revolving Credit Loan made pursuant to the Credit Agreement and the date and amount of each payment or prepayment of principal thereof, each continuation thereof, each conversion of all or a portion thereof to another Type and, in the case of Eurodollar Loans, the length of each Interest Period with respect thereto. Each such endorsement shall constitute prima facie evidence of the accuracy of the information endorsed. The failure to make any such endorsement or any error in any such endorsement shall not affect the obligations of the Borrower in respect of any Revolving Credit Loan. This Note (a) is one of the Revolving Credit Notes referred to in the Revolving Credit Agreement dated as of June 24, 1998 (as amended, supplemented or modified from time to time, the "Credit Agreement"), among The Grand Union Company (the "Borrower"), the financial institutions from time to time party thereto as lenders (the "Lenders"), SBC Warburg Dillon Read Inc., as co-advisor and co-arranger, Swiss Bank Corporation, Stamford Branch, as Syndication Agent, Lehman Brothers Inc., as co-advisor and co-arranger, and Lehman Commercial Paper Inc., as Administrative Agent, (b) is subject to the provisions of the Credit Agreement and (c) is subject to optional and mandatory prepayment in whole or in part as provided in the Credit Agreement. This Note is secured and guaranteed as provided in the Loan Documents. Reference is hereby made to the Loan Documents for a description of the properties and assets in which a security interest has been granted, the nature and extent of the security and 2 the guarantees, the terms and conditions upon which the security interests and each guarantee were granted and the rights of the holder of this Note in respect thereof. Upon the occurrence of any one or more of the Events of Default, all principal and all accrued interest then remaining unpaid on this Note shall become, or may be declared to be, immediately due and payable, all as provided in the Credit Agreement. All parties now and hereafter liable with respect to this Note, whether maker, principal, surety, guarantor, endorser or otherwise, hereby waive presentment, demand, protest and all other notices of any kind. Unless otherwise defined herein, terms defined in the Credit Agreement and used herein shall have the meanings given to them in the Credit Agreement. NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED HEREIN OR IN THE CREDIT AGREEMENT, THIS NOTE MAY NOT BE TRANSFERRED EXCEPT PURSUANT TO AND IN ACCORDANCE WITH THE REGISTRATION AND OTHER PROVISIONS OF SECTION 12.6 OF THE CREDIT AGREEMENT. THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK. THE GRAND UNION COMPANY By: ----------------------------------- Name: Title: Schedule A to Revolving Credit Note LOANS, CONVERSIONS AND REPAYMENTS OF BASE RATE LOANS
Amount of Amount Principal of Amount of Base Rate Unpaid Principal Amount of Base Converted to Base Rate Loans Converted to Balance of Base Date Rate Loans Base Rate Loans Loans Repaid Eurodollar Loans Rate Loans Notation Made By - -------------- ------------------- ---------------------- --------------- -------------------- ----------------- ------------------ - -------------- ------------------- ---------------------- --------------- -------------------- ----------------- ------------------ - -------------- ------------------- ---------------------- --------------- -------------------- ----------------- ------------------ - -------------- ------------------- ---------------------- --------------- -------------------- ----------------- ------------------ - -------------- ------------------- ---------------------- --------------- -------------------- ----------------- ------------------ - -------------- ------------------- ---------------------- --------------- -------------------- ----------------- ------------------ - -------------- ------------------- ---------------------- --------------- -------------------- ----------------- ------------------ - -------------- ------------------- ---------------------- --------------- -------------------- ----------------- ------------------ - -------------- ------------------- ---------------------- --------------- -------------------- ----------------- ------------------ - -------------- ------------------- ---------------------- --------------- -------------------- ----------------- ------------------ - -------------- ------------------- ---------------------- --------------- -------------------- ----------------- ------------------ - -------------- ------------------- ---------------------- --------------- -------------------- ----------------- ------------------ ============== =================== ====================== =============== ==================== ================= ------------------
Schedule B to Revolving Credit Note LOANS, CONTINUATIONS, CONVERSIONS AND REPAYMENTS OF EURODOLLAR LOANS
Unpaid Interest Period Amount of Amount of Principal Amount and Europdollar Principal of Eurodollar Loans Balance of Amount of Converted to Rate with Eurodollar Loans Converted to Eurodollar Notation Date Eurodollar Loans Eurodollar Loans Respect Thereto Repaid Base Rate Loans Loans Made By - -------- ------------------ -------------------- ------------------ ------------------ ----------------- ------------- ------------ - -------- ------------------ -------------------- ------------------ ------------------ ----------------- ------------- ------------ - -------- ------------------ -------------------- ------------------ ------------------ ----------------- ------------- ------------ - -------- ------------------ -------------------- ------------------ ------------------ ----------------- ------------- ------------ - -------- ------------------ -------------------- ------------------ ------------------ ----------------- ------------- ------------ - -------- ------------------ -------------------- ------------------ ------------------ ----------------- ------------- ------------ - -------- ------------------ -------------------- ------------------ ------------------ ----------------- ------------- ------------ - -------- ------------------ -------------------- ------------------ ------------------ ----------------- ------------- ------------ - -------- ------------------ -------------------- ------------------ ------------------ ----------------- ------------- ------------ - -------- ------------------ -------------------- ------------------ ------------------ ----------------- ------------- ------------ - -------- ------------------ -------------------- ------------------ ------------------ ----------------- ------------- ------------ - -------- ------------------ -------------------- ------------------ ------------------ ----------------- ------------- ------------ ======== ================== ==================== ================== ================== ================= ============= ------------
EXHIBIT G-2 FORM OF SWING LINE NOTE THIS NOTE AND THE OBLIGATIONS REPRESENTED HEREBY MAY NOT BE TRANSFERRED EXCEPT IN COMPLIANCE WITH THE TERMS AND PROVISIONS OF THE REVOLVING CREDIT AGREEMENT REFERRED TO BELOW. TRANSFERS OF THIS NOTE AND THE OBLIGATIONS REPRESENTED HEREBY MUST BE RECORDED IN THE REGISTER MAINTAINED BY THE ADMINISTRATIVE AGENT PURSUANT TO THE TERMS OF SUCH CREDIT AGREEMENT. $10,000,000 New York, New York __________, 1998 FOR VALUE RECEIVED, the undersigned, The Grand Union Company, a Delaware corporation (the "Borrower"), hereby unconditionally promises to pay to Lehman Commercial Paper Inc. (the "Swing Line Lender") or its registered assigns at the Payment Office specified in the Credit Agreement (as hereinafter defined) in lawful money of the United States and in immediately available funds, the principal amount of (a) TEN MILLION DOLLARS ($10,000,000), or, if less, (b) the unpaid principal amounts of all Swing Line Loans made by the Swing Line Lenders pursuant to Section 2.3 of the Credit Agreement. The principal amount shall be paid in the amounts and on the dates specified in Section 2.5 of the Credit Agreement. The Borrower further agrees to pay interest in like money at such office on the unpaid principal amount hereof from time to time outstanding at the rates and on the dates specified in Section 2.12 of the Credit Agreement. The holder of this Note is authorized to endorse on the schedules annexed hereto and made a part hereof or on a continuation thereof which shall be attached hereto and made a part hereof the date and amount of each Swing Line Loan made pursuant to the Credit Agreement and the date and amount of each payment or prepayment of principal thereof. Each such endorsement shall constitute prima facie evidence of the accuracy of the information endorsed. The failure to make any such endorsement or any error in any such endorsement shall not affect the obligations of the Borrower in respect of any Swing Line Loan. This Note (a) is one of the Swing Line Notes referred to in the Credit Agreement dated as of June 24, 1998 (as amended, supplemented or modified from time to time, the "Credit Agreement"), among The Grand Union Company (the "Borrower"), the financial institutions from time to time party thereto as lenders (the "Lenders"), SBC Warburg Dillon Read Inc., as co-advisor and co-arranger, Swiss Bank Corporation, Stamford Branch, as Syndication Agent, Lehman Brothers Inc., as co-advisor and co-arranger, and Lehman Commercial Paper Inc., as Administrative Agent, (b) is subject to the provisions of the Credit Agreement and (c) is subject to optional and mandatory prepayment in whole or in part as provided in the Credit Agreement. This Note is secured and guaranteed as provided in the Loan Documents. Reference is hereby made to the Loan Documents for a description of the properties and assets in which a security interest has been granted, the nature and extent of the security and the guarantees, the terms and conditions upon which the security interests and each guarantee were granted and the rights of the holder of this Note in respect thereof. Upon the occurrence of any one or more of the Events of Default, all principal and all 2 accrued interest then remaining unpaid on this Note shall become, or may be declared to be, immediately due and payable, all as provided in the Credit Agreement. All parties now and hereafter liable with respect to this Note, whether maker, principal, surety, guarantor, endorser or otherwise, hereby waive presentment, demand, protest and all other notices of any kind. Unless otherwise defined herein, terms defined in the Credit Agreement and used herein shall have the meanings given to them in the Credit Agreement. NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED HEREIN OR IN THE CREDIT AGREEMENT, THIS NOTE MAY NOT BE TRANSFERRED EXCEPT PURSUANT TO AND IN ACCORDANCE WITH THE REGISTRATION AND OTHER PROVISIONS OF SECTION 12.6 OF THE CREDIT AGREEMENT. THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK. THE GRAND UNION COMPANY By: ---------------------------------- Name: Title: Schedule A to Swing Line Note LOANS AND REPAYMENTS OF SWING LINE LOANS
Amount of Amount of Principal of Swing Unpaid Principal Balance of Date Swing Line Loans Line Loans Repaid Swing Line Loans Notation Made By - ------- -------------------------- ------------------------------- ------------------------------- ------------------- - ------- -------------------------- ------------------------------- ------------------------------- ------------------- - ------- -------------------------- ------------------------------- ------------------------------- ------------------- - ------- -------------------------- ------------------------------- ------------------------------- ------------------- - ------- -------------------------- ------------------------------- ------------------------------- ------------------- - ------- -------------------------- ------------------------------- ------------------------------- ------------------- - ------- -------------------------- ------------------------------- ------------------------------- ------------------- - ------- -------------------------- ------------------------------- ------------------------------- ------------------- - ------- -------------------------- ------------------------------- ------------------------------- ------------------- - ------- -------------------------- ------------------------------- ------------------------------- ------------------- - ------- -------------------------- ------------------------------- ------------------------------- ------------------- - ------- -------------------------- ------------------------------- ------------------------------- ------------------- ======= ========================== =============================== =============================== ===================
EX-21.1 9 SUBSIDIARY LISTING EXHIBIT NO. 21.1 The Grand Union Company Subsidiary Listing Name State of Incorporation - ---- ---------------------- Grand Union Stores of New Hampshire, Inc. New Hampshire Grand Union Stores, Inc., of Vermont Vermont Merchandising Services, Inc. Georgia Specialty Merchandising Services, Inc. Delaware EX-27.1 10 FINANCIAL DATA SCHEDULE
5 This schedule contains summary financial information extracted from the consolidated financial statements for the year ended March 28, 1998, and is qualified in its entirety by reference to such financial statements. YEAR MAR-28-1998 MAR-28-1998 44,745 0 21,378 0 128,370 209,280 869,684 480,047 892,231 798,551 0 102 0 0 (466,635) 892,231 2,266,770 2,266,770 1,627,233 1,627,233 778,357 0 113,770 (252,590) 51,393 (303,983) 0 0 0 (303,983) (31.12) 0
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