-----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, Vx+h/aarTUDCS26qGKwp1BQGRiIHIKJG4P84T5w9Oe6x45SjzEhEAro4Z6glqtuU d3+fA2p0gsSbO5puD0KoFQ== 0000889812-98-002100.txt : 19980901 0000889812-98-002100.hdr.sgml : 19980901 ACCESSION NUMBER: 0000889812-98-002100 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 19980718 FILED AS OF DATE: 19980831 SROS: NONE 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-Q SEC ACT: SEC FILE NUMBER: 001-07824 FILM NUMBER: 98701744 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-Q 1 QUARTERLY REPORT SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended July 18, 1998 [ ] 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) 973-890-6000 Registrant's telephone number, including area code 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 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 August 31, 1998, there were issued and outstanding 30,000,000 shares, par value $0.01 per share, of the Registrant's common stock. THE GRAND UNION COMPANY (DEBTOR-IN-POSSESSION) INDEX PART I - FINANCIAL INFORMATION (Unaudited) Item 1. Financial Statements.
Page No. Consolidated Statement of Operations - 16 weeks ended July 18, 1998 and July 19, 1997 3 Consolidated Balance Sheet - July 18, 1998 and March 28, 1998 4 Consolidated Statement of Cash Flows - 16 weeks ended July 18, 1998 and July 19, 1997 5 Notes to Consolidated Financial Statements 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. 9 PART II - OTHER INFORMATION Item 2. Change in Securities. 11 Item 4. Submission of Matters to a Vote of Security Holders. 11 Item 6. Exhibits and Reports on Form 8-K. 12
All items which are not applicable or to which the answer is negative have been omitted from this report. PART I - FINANCIAL INFORMATION Item 1. Financial Statements. THE GRAND UNION COMPANY (DEBTOR-IN-POSSESSION) CONSOLIDATED STATEMENT OF OPERATIONS (numbers in thousands, except per share data) (unaudited)
16 Weeks Ended ------------------------------------------ July 18, July 19, 1998 1997 ----------------- ----------------- Sales $ 691,908 $ 707,983 Cost of sales 486,723 518,514 ----------------- ----------------- Gross profit 205,185 189,469 Operating and administrative expenses 174,041 179,822 Depreciation and amortization 20,939 24,467 Amortization of excess reorganization value 32,102 32,102 Interest expense, net 32,459 32,320 Unusual items 4,509 - ----------------- ----------------- Net (loss) before extraordinary item (58,865) (79,242) Extraordinary item 1,739 - ----------------- ----------------- Net (loss) (60,604) (79,242) Accrued dividends on preferred stock 2,305 2,057 ----------------- ----------------- Net (loss) applicable to common stock $ (62,909) $ (81,299) ================= ================= Basic and diluted net (loss) per common share: (Loss) before extraordinary item $ (5.77) $ (7.92) Extraordinary item (0.17) - Preferred stock dividends per common share (0.23) (0.21) ================= ================= Net (loss) $ (6.17) $ (8.13) ================= ================= Weighted average number of shares outstanding 10,202 10,000 ================= =================
See accompanying notes to consolidated financial statements (unaudited). 3 THE GRAND UNION COMPANY (DEBTOR-IN-POSSESSION) CONSOLIDATED BALANCE SHEET (numbers in thousands, except par value and liquidation preference data) (unaudited)
July 18, March 28, 1998 1998 ------------------ ------------------ ASSETS Current assets: Cash and temporary investments $ 40,106 $ 44,745 Receivables 23,380 21,378 Inventories 133,225 128,370 Other current assets 15,463 14,787 ------------------ ------------------ Total current assets 212,174 209,280 Property, net 377,958 389,637 Excess reorganization value, net 198,632 230,734 Beneficial leases, net 36,527 39,531 Other assets 20,043 23,049 ------------------ ------------------ $ 845,334 $ 892,231 ================== ================== LIABILITIES AND STOCKHOLDERS' (DEFICIT) Current liabilities: Current maturities of long-term debt $ 185,978 $ 798,551 Current portion of obligations under capital leases 6,860 7,562 Accounts payable and accrued liabilities 161,998 189,439 ------------------ ------------------ Total current liabilities 354,836 995,552 Long-term debt - - Obligations under capital leases 151,543 153,425 Other noncurrent liabilities 98,814 96,458 Liabilities subject to compromise 653,949 - ------------------ ------------------ Total liabilities 1,259,142 1,245,435 ------------------ ------------------ Redeemable Class A Preferred Stock, subject to compromise, 72,121 70,685 $1.00 par value, 3,500,000 shares authorized, 1,300,566 shares issued and outstanding, liquidation preference $72,121,000 and $70,685,000 at July 18, 1998 and March 28, 1998, respectively ------------------ ------------------ Redeemable Class B Preferred Stock, subject to compromise, 43,615 42,746 $1.00 par value, 1,400,000 shares authorized, 800,000 shares issued and outstanding, liquidation preference $43,615,000 and $42,746,000 at July 18, 1998 and March 28, 1998, respectively ------------------ ------------------ Stockholders' (deficit): Common stock, $.01 par value; 60,000,000 shares authorized, 102 102 10,202,018 shares issued and outstanding 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 129,701 132,006 Accumulated deficit (657,797) (597,193) Accumulated other comprehensive income (loss) (1,550) (1,550) ------------------ ------------------ Total stockholders' (deficit) (529,544) (466,635) ================== ================== $ 845,334 $ 892,231 ================== ==================
4 See accompanying notes to consolidated financial statements (unaudited). THE GRAND UNION COMPANY (DEBTOR-IN-POSSESSION) CONSOLIDATED STATEMENT OF CASH FLOWS (numbers in thousands) (unaudited)
16 Weeks Ended -------------------------------------- July 18, July 19, 1998 1997 ------------------ ------------------ OPERATING ACTIVITIES: Net (loss) $ (60,604) $ (79,242) Adjustments to reconcile net (loss) to net cash provided by (used for) operating activities before reorganization items paid: Unusual item 4,509 - Extraordinary item 1,739 - Depreciation and amortization 53,041 56,569 Noncash interest 489 (58) Net changes in assets and liabilities: Receivables (2,002) 9,769 Inventories (4,855) (2,844) Other current assets (676) 2,296 Other assets (11) (1,090) Accounts payable and accrued liabilities 31,087 12,468 Other noncurrent liabilities (315) (3,588) ------------------ ------------------ Net cash provided by (used for) operating activities before reorganization items paid 22,402 (5,720) Reorganization items paid (8,822) (2,799) ------------------ ------------------ Net cash provided by (used for) operating activities 13,580 (8,519) ------------------ ------------------ INVESTMENT ACTIVITIES: Capital expenditures (2,611) (21,623) Disposals of property 45 42 ------------------ ------------------ Net cash (used for) investment activities (2,566) (21,581) ------------------ ------------------ FINANCING ACTIVITIES: Net proceeds from sale of preferred stock - 40,000 Proceeds from DIP facility 108,000 - Repayment of old bank debt (104,144) - Obligations under capital leases discharged (2,509) (2,900) Net repayment of credit facility (17,000) (8,046) ------------------ ------------------ Net cash provided by (used for) financing activities (15,653) 29,054 ------------------ ------------------ Net (decrease) in cash and temporary investments (4,639) (1,046) Cash and temporary investments at beginning of year 44,745 34,119 ------------------ ------------------ Cash and temporary investments at end of period $ 40,106 $ 33,073 ================== ================== Supplemental disclosure of cash flow information: Interest payments $ 11,894 $ 11,165 Capital lease obligations incurred - 7,157 Accrued dividends 2,305 2,057
See accompanying notes to consolidated financial statements (unaudited). 5 THE GRAND UNION COMPANY (DEBTOR-IN-POSSESSION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) NOTE 1 - Subsequent Events On August 17, 1998, The Grand Union Company (the "Company") consummated its plan of reorganization under Chapter 11 of the Bankruptcy Code (the "Plan of Reorganization") pursuant to the August 5, 1998 Confirmation Order of the United States Bankruptcy Court for the District of New Jersey. Consummation of the Plan of Reorganization has resulted in a capital restructuring of the Company, whereby approximately $600 million in Old Senior Notes has been eliminated from the Company's balance sheet, reducing annual interest expense by approximately $72 million. Consummation of the Plan of Reorganization has resulted in (i) the issuance of 30,000,000 shares of New Common Stock to the holders of the Company's Old Senior Notes; (ii) the issuance of New Series 1, Series 2 and Series 3 Warrants to the holders of the Company's Old Preferred Stock; (iii) the issuance of New Series 1 Warrants to holders of the Company's Old Common Stock; and (iv) cancellation of the Company's Old Senior Notes, Old Preferred Stock, Old Common Stock, Old Series 1 and Series 2 Warrants and Old Stock Options. As of August 28, 1998, the Company's New Common Stock is trading on the OTC market. The Company has a pending application for listing on the NASDAQ National Market. On August 17, 1998, in connection with the consummation of the Plan of Reorganization, the Company entered into a $300 million credit agreement (the "Credit Agreement") underwritten by UBS AG, Stamford Branch and Lehman Commercial Paper Inc. ("LCPI"), which is secured by substantially all of the assets of the Company and its subsidiaries and is guaranteed by the Company's subsidiaries. Some of the proceeds of the Credit Facility were used to pay off the Company's obligation under its debtor-in-possession credit agreement (the "DIP Facility"), which had provided the Company operating liquidity during the Chapter 11 case. Consummation of the Plan of Reorganization has resulted in the election of a new Board of Directors for the Company (the "Board"). Effective August 17, 1998, the Board is comprised of eleven members. The three management Directors are: J. Wayne Harris, Chairman and Chief Executive Officer; Jack W. Partridge Jr., Vice Chairman and Chief Administrative Officer, and Gary M. Philbin, President and Chief Merchandising Officer. The eight additional members of the Board are: Martin Bernstein, Thomas R. Cochill, Joseph Colonnetta, Jacob W. Doft, David M. Green, Joseph V. Lash, Anthony Petrillo and Scott Tepper. For more information about the Plan of Reorganization, reference is made to Exhibit 2.1 to Grand Union's report on Form 8-K dated August 19, 1998. For more information about the Credit Agreement, reference is made to Exhibit 10.6 hereto. For more information about members of the Board, reference is made to Exhibit 99.2 to Grand Union's report on Form 8-K dated August 19, 1998. Reference is also made to Part II of this report on Form 10-Q. NOTE 2 - Basis of Presentation The accompanying interim consolidated financial statements of the Company include the accounts of the Company and its subsidiaries, all of which are wholly owned. In the opinion of management, the consolidated financial statements include all adjustments, which consist only of normal recurring items, necessary for a fair presentation of operating results for the interim periods. These consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes contained in the Company's Annual Report on Form 10-K for the 52 weeks ended March 28, 1998 and the Form 8-K dated May 27, 1998 and to the Company's Disclosure Statement attached thereto as Exhibit 2.1. Operating results for the periods presented are not necessarily indicative of results for the full fiscal year. Certain reclassifications have been made to prior year amounts to conform to current period presentation. 6 NOTE 3 - Liabilities Subject to Compromise Liabilities subject to compromise refer to certain liabilities incurred prior to the commencement of the reorganization process. These liabilities consist of the face value of the Old Senior Notes and the associated accrued interest. These amounts represent management's best estimate of known or potential claims to be resolved in connection with the Chapter 11 filing. The Plan of Reorganization provides that each Old Senior Note claim shall receive, in full satisfaction of such allowed Old Senior Note claim, its ratable proportion of 30,000,000 shares of New Common Stock (representing 100% of the initial shares of such New Common Stock), subject to possible dilution from the New Warrants and management options. NOTE 4 - Preferred Stock Dividends The preferred stock dividends for the current period were accrued through June 23, 1998. Pursuant to the Plan of Reorganization, this amount of $2,305,000 will not be paid. For more information about the elimination of preferred stock, reference is made to Exhibit 4.1 to Grand Union's report on Form 8-K dated August 19, 1998. NOTE 5 - Unusual Items The Company recorded a charge to operations in the 16 weeks ended July 18, 1998 of $4,509,000. This charge was comprised of expenses related to the Plan of Reorganization net of a gain resulting from the elimination of debt premiums. NOTE 6 - Extraordinary Items The extraordinary item expense for the 16 weeks ended July 18, 1998 of $1,739,000 is related to the write-off of deferred financing costs associated with a term loan refinanced by the DIP Facility. NOTE 7 - Debt The components of the Company's debt, excluding liabilities subject to compromise, are as follows (in thousands):
July 18, March 28, 1998 1998 ------------------ ----------------- Bank Credit Agreements Term Loans $ 77,978 $ 182,122 Revolving Credit Facility - 17,000 DIP Facility 108,000 - 12% Senior Notes due September 1, 2004 (includes $4,008 of unamortized debt premium at March 28, 1998) - 599,429 ------------------ ----------------- 185,978 798,551 Less: current maturities of long-term debt 185,978 798,551 ================== ================= Long-term debt $ - $ - ================== =================
In connection with the Chapter 11 filing, the Company entered into the DIP Facility, a $172,022,020 firm underwritten revolving credit agreement with Swiss Bank Corporation ("SBC") and LCPI, as agents for a syndicate of lenders. The DIP Facility consisted of a revolving credit facility in an aggregate amount of $172,022,020, inclusive of a $50 million letter of credit sub-facility. The DIP facility matured on August 17, 1998, the consummation date of the Plan of Reorganization. The proceeds of the DIP Facility were 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 facility and term loan under the pre-Chapter 11 Credit Agreement (the "Old Credit Agreement") and to replace or backstop letters of credit outstanding under an existing credit agreement. The DIP Facility was secured by substantially all of the assets of Grand Union and its subsidiaries and was guaranteed by the Company's subsidiaries. At July 18, 1998, an aggregate of $33 million of letters of credit were issued and outstanding under the DIP facility. 7 On August 17, 1998, in connection with the consummation of the Plan of Reorganization, the Company entered into the Credit Agreement. The Credit Agreement is comprised of: (i) a $230 million term loan facility (the "Term Loan") and (ii) a $70 million revolving credit facility (the "Revolving Credit"). The Term Loan and Revolving Credit will mature on August 18, 2003. The proceeds of the Credit Agreement have been used to refinance the obligations under the DIP Facility and supplemental term loan claims under the 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 Revolving Credit will be available for the issuance of letters of credit. NOTE 8 - Net Loss Per Share The net loss per share is computed in accordance with SFAS No. 128, "Earnings Per Share." This statement requires that entities present, on the face of the income statement for all periods reflected, 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 is computed using the weighted average number of common shares outstanding for the period adjusted for dilutive potential common shares. There were 10,202,018 and 10,000,000 weighted average shares outstanding for both basic and diluted earnings per share for the 16 week period ended July 18, 1998 and the 16 week period ended July 19, 1997, respectively. All potential common shares were excluded from the computation of the Company's diluted earnings per share because the effect would have been anti-dilutive. 8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. Results of Operations The following table sets forth certain statements of operations and other data (all dollars in millions).
16 WEEKS ENDED ------------------------------------ July 18, July 19, 1998 1997 ----------------- ------------------ Sales $ 691.9 $ 708.0 Gross profit 205.2 189.5 Operating and administrative expenses 174.0 179.8 Depreciation and amortization 21.0 24.5 Amortization of excess reorganization value 32.1 32.1 Interest expense, net 32.5 32.3 Unusual item 4.5 - Net (loss) before extraordinary item (58.9) (79.2) Extraordinary item 1.7 - Net (loss) (60.6) (79.2) Net (loss) applicable to common stock (62.9) (81.3) Sales percentage (decrease) increase (2.3)% (2.6)% Gross profit as a percentage of sales 29.7% 26.8% Operating and administrative expenses as a percentage of sales 25.1% 25.4%
Sales for the 16 weeks ended July 18, 1998 (the "1999 first quarter") decreased $16.1 million, or 2.3%, compared to the 16 week period ended July 19, 1997 (the "1998 first quarter"). Comparable store sales, including replacement stores, decreased 1.4% during the 1999 first quarter as compared to the same period a year ago, primarily due to increased competition, adverse weather conditions during the middle of the quarter and the historical deferral of capital expenditures in existing stores. For the 1999 first quarter, the Company closed one store and opened one replacement location. For the 1998 first quarter, the Company opened two replacement stores and closed three units. Gross profit, as a percentage of sales, increased to 29.7% for the 1999 first quarter from 26.8% for the 1998 first quarter. This increase is primarily attributable to increased allowance and promotional income as well as new marketing programs instituted by the Company. Operating and administrative expenses, as a percentage of sales, decreased to 25.1% from 25.4% for the 1999 first quarter as compared to the 1998 first quarter as the Company continues to aggressively identify opportunities to reduce expenses in all areas of the business without affecting customer service. Depreciation and amortization decreased in the 1999 first quarter to $21.0 million compared to $24.5 million in the 1998 first quarter due primarily to assets which have fully depreciated and the historical deferral of capital expenditures. Interest expense increased to $32.5 million from $32.3 million. Interest expense of $16.9 million on the Old Senior Notes was accrued through June 23, 1998 and will not be paid as a result of the consummation of the Plan of Reorganization. The Company recorded no net income tax benefit or provision during both the 1999 first quarter and the 1998 first quarter. The tax benefit that related to the potential use of operating loss carryforwards was fully offset by a valuation allowance during the 1999 first quarter. 9 Liquidity and Capital Resources In connection with the Chapter 11 filing, the Company entered into the DIP Facility, a $172,022,020 firm underwritten revolving credit agreement with SBC and LCPI as agents for a syndicate of lenders. The DIP Facility included a $50 million letter of credit sub-facility. The DIP facility matured on August 17, 1998, the effective date of the Plan of Reorganization. The proceeds of the DIP Facility were 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 loan under the Old Credit Agreement and to replace or backstop letters of credit outstanding under the Old Credit Agreement. The DIP Facility was secured by substantially all of the assets of Grand Union and its subsidiaries and was guaranteed by the Company's subsidiaries. At July 18, 1998, an aggregate of $33 million of letters of credit were issued and outstanding under the DIP facility. On August 17, 1998, in connection with the consummation of the Plan of Reorganization, the Company entered into the Credit Agreement. The Credit Agreement is comprised of: (i) a $230 million Term Loan and (ii) a $70 million Revolving Credit Facility. The Term Loan and Revolving Credit Facility will mature on the August 18, 2003. The proceeds of the Credit Agreement have been used to refinance the obligations under the DIP Facility and supplemental term loan claims under the Old Credit Agreement. The excess will be used for working capital and capital expenditures. Up to $50 million of the Revolving Credit Facility will be available for the issuance of letters of credit. 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 entities with which the Company does business. 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 entities with which the Company does business 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, a material financial risk could result if the Company, its customers or its vendors are unable to resolve such processing issues in a timely manner. New Accounting Standards 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. For the Company, other comprehensive income includes only an additional minimum pension liability. The Company recorded no additional minimum pension liability for the 16 weeks ended July 18, 1998. 10 PART II - OTHER INFORMATION Item 2. Change in Securities. On August 17, 1998, the Company consummated its Plan of Reorganization. In connection with the Plan of Reorganization, the Company cancelled its Old Senior Notes, Old Preferred Stock, Old Common Stock, Old Series 1 and Series 2 Warrants and Old Stock Options. There are 60,000,000 shares of New Common Stock authorized under Grand Union's Certificate of Incorporation. Of such authorized shares, 30,000,000 shares, representing 100% of the issued and outstanding shares of New Common Stock, have been distributed to the holders of the Old Senior Notes. Reorganized Grand Union issued (i) Series 1 Warrants to purchase 4,324,015 shares of New Common Stock, representing approximately 12% of the shares of New Common Stock at a price equal to $19.82 per share; (ii) Series 2 Warrants to purchase 942,971 share of New Common Stock, representing approximately 2.5% of the shares of the New Common Stock, at a price equal to $23.15 per share and (iii) the Series 3 Warrants to purchase 306,122 shares of New Common Stock, representing approximately 1% of the shares of New Common Stock at a price equal to $12.32 per share. The Series 1 Warrants and the Series 2 Warrants will expire on August 17, 2003. The Series 3 Warrants will expire on August 17, 2002. The Company's new securities were issued pursuant to an exemption from registration under the Securities Act of 1933, as amended, pursuant to Section 1145 of the Bankruptcy Code. For further information concerning the issuance of the new securities, reference is made to Note 1 accompanying the financial statements. Item 4. Submission of Matters to a Vote of Security Holders. Pursuant to the Solicitation of Consents to the Plan of Reorganization and the Disclosure Statement relating thereto, the following matters were voted on: (a) By the Holders of Old Senior Notes: (1) The Plan of Reorganization was approved by $427,872,000 in dollar amount voting in favor and $1,926,000 in dollar amount voting against the Plan of Reorganization. The Plan of Reorganization was approved by 669 in number voting in favor and 52 in number voting against. (2) The Executive Annual Incentive Bonus Plan (the "EAIB Plan") in order to qualify certain incentive compensation under Section 162(m) of the Internal Revenue Code of 1986, as amended (the "Code"), and the regulations promulgated thereunder was approved, with $444,053,000 in dollar amount voting in favor and $4,838,000 in dollar amount voting against. (3) The amendments to the Company's 1995 Equity Incentive Plan (the "EIP") to set the number of shares issuable under the EIP at an aggregate of 3,250,000 and to set the number of shares and stock appreciation rights issuable under the EIP to any individual to an aggregate of 3,000,000 was approved, with $443,924,000 in dollar amount voting in favor and $4,913,000 in dollar amount voting against. (b) By the Old Preferred Stockholders: (1) The Plan of Reorganization was approved by 100% of the Preferred Stockholders. The Solicitation of Consents commenced May 22, 1998 and the voting period ended on June 22, 1998. For additional information about these matters, reference is made to Grand Union's report on Form 8-K dated May 27, 1998 and to the Company's Disclosure Statement attached thereto as Exhibit 2.1. 11 Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits Exhibit Number 3.1 Amended and Restated By-laws of The Grand Union Company, as amended, effective through August 17, 1998. 10.1 Form of Indemnification Agreement between the Company and 1) Manouchehr Moslemi (effective July 6, 1998 and dated August 13, 1998), 2) Martin Bernstein (effective August 17, 1998 and dated August 20, 1998), 3) Thomas R. Cochill (effective August 17, 1998 and dated August 20, 1998), 4) Joseph Colonnetta (effective August 17, 1998 and dated August 20, 1998), 5) Jacob W. Doft (effective August 17, 1998 and dated August 20, 1998), 6) David M. Green (effective August 17, 1998 and dated August 20, 1998), 7) Joseph V. Lash (effective August 17, 1998 and dated August 20, 1998), Anthony Petrillo (effective August 17, 1998 and dated August 20, 1998), and 9) Scott Tepper (effective August 17, 1998 and dated August 20, 1998). 10.2 Employment Agreement, (effective August 17, 1998 and dated August 13, 1998), between Grand Union and J. Wayne Harris. 10.3 Employment Agreement, (effective August 17, 1998 and dated August 13, 1998), between Grand Union and Jack W. Partridge, Jr. 10.4 Employment Agreement, (effective August 17, 1998 and dated August 13, 1998), between Grand Union and Gary M. Philbin. 10.5 Employment Agreement, (effective August 17, 1998 and dated August 13, 1998), between Grand Union and Jeffrey P. Freimark. 10.6 Credit Agreement, dated as of August 17, 1998, by and among the Company, the several lenders from time to time party thereto, Warburg Dillon Read LLC, as Co-Advisor and Co-Arranger, UBS AG, Stamford Branch, as Syndication Agent, Lehman Brothers Inc., as Co-Advisor and Co-Arranger, and Lehman Commercial Paper Inc., as Administrative Agent and Collateral Agent. 27.1 Financial Data Schedule (b) Reports on Form 8-K 1. Relating to the agreement on terms of a capital restructuring - dated March 31, 1998. 2. Relating to the commencement of the solicitation of votes on the Plan of Reorganization - dated May 27, 1998. 3. Relating to the confirmation of the Plan of Reorganization - dated August 5, 1998. 4. Relating to the consummation of the Plan of Reorganization - dated August 19, 1998. 12 SIGNATURES Pursuant to the requirements 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) /s/ Jeffrey P. Freimark ----------------------- Jeffrey P. Freimark, Executive Vice President Chief Financial Officer Date: August 31, 1998 EX-3.1 2 AMENDED AND RESTATED BY-LAWS Exhibit No. 3.1 THE GRAND UNION COMPANY BY-LAWS As amended (effective August 17, 1998) ARTICLE I. Stockholders Section I. The annual meeting of the stockholders of the corporation for the purpose of electing directors and for the transaction of such other business as may properly be brought before the meeting shall be held at such place, within or without the State of Delaware, and at such hour, as may be determined by the Board of Directors, on the first Thursday in September of each year, or on such other date as may be fixed by the Board of Directors. To be properly brought before the annual meeting, business must be either (a) specified in the notice of meeting (or any supplement thereto) given by or at the direction of the Board of Directors, (b) otherwise properly brought before the meeting by or at the direction of the Board of Directors, or (c) otherwise properly brought before the meeting by a stockholder. In addition to any other applicable requirements, for business to be properly brought before the annual meeting by a stockholder, the stockholder must have given timely notice thereof in writing to the Secretary of the Corporation. To be timely, a stockholder's notice must be delivered to or mailed and received at the principal executive offices of the Corporation, addressed to the attention of the Secretary of the Corporation, within the time specified in the federal proxy rules for timely submission of a stockholder proposal or, if not within such time, then not less than sixty days nor more than ninety days prior to the meeting; provided, however, that in the event that less than fifty days' notice or prior public disclosure of the date of the meeting is given or made to stockholders, notice by the stockholder to be timely must be so received by the earlier of (a) the close of business on the fifteenth day following the day on which such notice of the date of the annual meeting was mailed or such public disclosure was made, whichever first occurs, and (b) two days prior to the date of the meeting. A stockholder's notice to the Secretary shall set forth as to each matter the stockholder proposes to bring before the annual meeting (i) a brief description of the business desired to be brought before the annual meeting, (ii) the name and record address of the stockholder proposing such business, (iii) the class and number of shares of the Corporation which are beneficially owned by the stockholder, and (iv) any material interest of the stockholder in such business. Notwithstanding anything in these by-laws to the contrary, no business shall be conducted at the annual meeting except in accordance with the procedures set forth in this paragraph; provided, however, that nothing in this paragraph shall be deemed to preclude discussion by any stockholder of any business properly brought before the annual meeting. The Chairman of the Board of Directors shall, if the facts warrant, determine and declare to the meeting that business was not properly brought before the meeting in accordance with the provisions of this Section I, and if he should so determine, he shall so declare to the meeting and any such business not properly brought before the meeting shall not be transacted. Section II. Special meetings of the stockholders may be held upon call of the Board of Directors or of the Executive Committee or of the Chairman of the Board (and shall be called by the Chairman of the Board at the request in writing of stockholders owning a majority of the outstanding shares of the Corporation entitled to vote at the meeting) at such time and at such place within or without the State of Delaware, as may be fixed by the Board of Directors or by the Executive Committee or the Chairman of the Board or by the stockholders owning a majority of the outstanding stock of the Corporation entitled to vote, as the case may be, and as may be stated in the notice setting forth such call. Section III. Notice of the time and place of every meeting of stockholders shall be delivered personally or mailed at least ten days previous thereto to each stockholder of record entitled to vote at the meeting, who shall have furnished a written address to the Secretary of the Corporation for the purpose. Such further notice shall be given as may be required by law. Meetings may be held without notice if all stockholders entitled to vote at the meeting are present, or if notice is waived by those not present. Section IV. The holders of record of a majority of the issued and outstanding shares of the Corporation, which are entitled to vote at the meeting, shall, except as otherwise provided by law, constitute a quorum at all meetings of the stockholders. If there be no such quorum present in person or by proxy, the holders of a majority of such shares so present or represented may adjourn the meeting from time to time. Section V. Meetings of the stockholders shall be presided over by the Chairman of the Board or, if the Chairman is not present, by the Vice-Chairman, President or a Vice-President or, if no such officer is present, by a chairman to be chosen at the meeting. The Secretary of the Corporation, or in his absence, an Assistant Secretary shall act as secretary of the meeting, if present. Section VI. Each stockholder entitled to vote at any meeting shall have one vote in person or by proxy for each share of stock held by him which has voting power upon the matter in question at the time; but no proxy shall be voted after three years from its date, unless such proxy expressly provides for a longer period. Section VII. When a quorum is present at any meeting, a plurality of the votes properly cast for election to any office shall elect to such office and a majority of the votes properly cast upon any question other than election to an office shall decide the question, except when a larger vote is required by law, by the certificate of incorporation or by these by-laws. No ballot shall be required for any election unless requested by a stockholder present or represented at the meeting and entitled to vote in the election. In the event a ballot shall be required, the chairman of each meeting at which directors are to be elected shall appoint one inspector of election, unless a greater number is required by applicable law or unless such appointment shall be unanimously waived by those stockholders present or represented by proxy at the meeting and entitled to vote in the election of directors. No director, or candidate for the office of director, shall be 2 appointed as such inspector. The inspector shall first take and subscribe an oath or affirmation faithfully to execute the duties of inspector at such meeting with strict impartiality and according to the best of his ability, and shall take charge of the polls and after the balloting shall make a certificate of the result of the vote taken. Except where the stock transfer books of the Corporation shall have been closed or a date shall have been fixed as a record date for the determination of the stockholders entitled to vote, as hereinafter provided, no share of stock shall be voted at any election of directors which shall have been transferred on the books on the Corporation within twenty days next preceding such election. Section VIII. The Board of Directors may close the stock transfer books of the Corporation for a period not exceeding sixty days preceding the date of any meeting of stockholders or the date for payment of any dividend or the date for the allotment of rights or the date when any change or conversion or exchange of stock shall go into effect; or, in lieu of closing the stock transfer books, the Board of Directors may fix in advance a date, not exceeding sixty days preceding the date of any meeting of stockholders or the date for the payment of any dividend, or the date for allotment of rights, or the date when any change or conversion or exchange of stock shall go into effect, as a record date for the determination of the stockholders entitled to notice of, and to vote at, any such meeting, or entitled to receive payment of any such dividend, or to any such allotment of rights, or to exercise the rights in respect of any such change, conversion or exchange of stock, and in such case only such stockholders as shall be stockholders of record on the date so fixed shall be entitled to such notice of, and to vote at, such meeting, or to receive payment of such dividend, or to receive such allotment of rights, or to exercise such rights, as the case may be, notwithstanding any transfer of any stock on the books of the Corporation after any such record date as aforesaid. Section IX. Only persons who are nominated in accordance with the following procedures shall be eligible for election as directors. Nominations of persons for election to the Board of Directors at the annual meeting or by the written consent of the shareholders, by or at the direction of the Board of Directors, may be made by any Nominating Committee or person appointed by the Board of Directors; nominations may also be made by any shareholder of the Corporation entitled to vote for the election of directors at the meeting who complies with the notice procedures set forth in this Section IX. Such nominations, other than those made by or at the direction of the Board of Directors, shall be made pursuant to timely notice in writing to the Secretary of the Corporation. To be timely, a shareholder's notice shall be delivered to or mailed and received at the principal executive offices of the corporation addressed to the attention of the Secretary of the Corporation not less than sixty days prior to the meeting or the date the shareholders are first solicited for their consents as the case may be; provided, however, that, in the case of an annual meeting and in the event that less than fifty days' notice or prior public disclosure of the date of the meeting is given or made to shareholders, notice by the shareholder to be timely must be so received not later than the earlier of (a) the close of business on the fifteenth day following the day on which such notice of the date of the meeting was mailed or such public disclosure was made, whichever first occurs, or (b) two days prior to the date of the meeting. Such shareholder's notice to the Secretary shall set forth (a) as to each person whom the shareholder proposes to nominate for election or reelection as a director, (i) the name, 3 age, business address and residence address of the person, (ii) the principal occupation or employment of the person, (iii) the class and number of shares of capital stock of the Corporation which are beneficially owned by the person, (iv) a statement as to the person's citizenship, and (v) any other information relating to the person that is required to be disclosed in solicitations for proxies for election of directors pursuant to Section 14 of the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder, and (b) as to the shareholder giving the notice, (i) the name and record address of the shareholder and (ii) the class, series and number of shares of capital stock of the Corporation which are beneficially owned by the shareholder. The Corporation may require any proposed nominee to furnish such other information as may reasonably be required by the Corporation to determine the eligibility of such proposed nominee to serve as a director of the Corporation. No person shall be eligible as a director of the Corporation unless nominated in accordance with the procedures set forth herein. In connection with any annual meeting, the Chairman of the Board of Directors shall, if the facts warrant, determine and declare to the meeting that a nomination was not made in accordance with the foregoing procedure, and if he should so determine, he shall so declare to the meeting and the defective nomination shall be disregarded. ARTICLE II. Board of Directors Section I. The Board of Directors of the Corporation shall consist of such number of Directors as shall be determined from time to time by resolutions of the Board of Directors or by the stockholders. If not so determined, the number of directors shall be eleven (11) persons. Directors shall hold office until the annual meeting of the stockholders next ensuing after their election and until their respective successors are elected and shall qualify, or until their earlier death, resignation or removal. Newly created directorships resulting from any increase in the authorized number of Directors shall be filled in the same manner and with the same effect prescribed in Section 2 of this Article II with respect to vacancies. A majority of the Board of Directors shall constitute a quorum. Section II. Vacancies in the Board of Directors shall be filled by a majority of the remaining directors, though less than a quorum, and the directors so chosen shall hold office until the next annual election and until their successors shall be duly elected and qualified, unless sooner displaced pursuant to law. Section III. Meetings of the Board of Directors shall be held at such place within or without the State of Delaware as may from time to time be fixed by resolution of the Board or as may be specified in the call of any meeting. Regular meetings of the Board of Directors shall be held at such times as may from time to time be fixed by resolution of the Board; and special meetings may be held at any time upon the call of the Executive Committee or the Chairman of the Board, by oral, telegraphic or written notice, duly served on or sent or mailed to each director not less than two days before the meeting. A meeting of the Board may be held without notice immediately after the 4 annual meeting of stockholders at the same place at which such meeting is held. Notice need not be given of regular meetings of the Board held at times fixed by resolutions of the Board. Meetings may be held at any time without notice if all the directors are present or if those not present waive notice of the meeting in writing. Section IV. Except as may be otherwise provided by law, by the certificate of incorporation or by these by-laws, when a quorum is present at any meeting the vote of a majority of the directors present shall be the act of the Board of Directors. Section V. Any action required or permitted to be taken at any meeting of the Board of Directors or a committee thereof may be taken without a meeting if all the members of the Board or of such committee, as the case may be, consent thereto in writing, and such writing or writings are filed with the records of the meetings of the Board or of such committee. Such consent shall be treated for all purposes as the act of the Board or of such committee, as the case may be. Section VI. Members of the Board of directors, or any committee designated by such Board, may participate in a meeting of such Board or committee by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other or by any other means permitted by law. Such participation shall constitute presence in person at such meeting. Section VII. The Board of Directors may also, by resolution or resolutions, passed by a majority of the whole Board, designate one or more committees, each committee to consist of two or more of the directors of the Corporation, which, to the extent provided in said resolution or resolutions, shall have and may exercise the powers of the Board of Directors in the management of the business and affairs of the Corporation, and may have power to authorize the seal of the Corporation to be affixed to all papers which may require it. Such committee or committees shall have such name or names as may be determined from time to time by resolution adopted by the Board of Directors. A majority of the members of any such committee may determine its action and fix the time and place of its meetings unless the Board of Directors shall otherwise provide. The Board of Directors shall have power at any time to fill vacancies in, to change the membership of, or to dissolve any such committee. ARTICLE III. Officers Section I. The Board of Directors as soon as may be after the election held in each year shall choose a President of the Corporation, one or more Vice Presidents, a Secretary, Treasurer, such Assistant Secretaries, Assistant Treasurers and such other officers, agents, and employees as it may deem proper. Section II. The term of office of all officers shall be one year, or until their respective successors are chosen or until their earlier death, resignation or removal; any officer may be removed from office at any time by the affirmative vote of a majority of the members of the Board. 5 Section III. Subject to such limitations as the Board of Directors, or the Executive Committee may from time to time prescribe, the officers of the Corporation shall each have such powers and duties as generally pertain to their respective offices, as well as such powers and duties as from time to time may be conferred by the Board of Directors or by the Executive Committee. ARTICLE IV. Certificates of Stock Section I. The interest of each stockholder of the Corporation shall be evidenced by a certificate or certificates for shares of stock in such form as the Board of Directors may from time to time prescribe. The shares in the stock of the Corporation shall be transferable on the books of the Corporation by the holder thereof in person or by his attorney, upon surrender for cancellation of a certificate or certificates for the same number of shares, with an assignment and power of transfer endorsed thereon or attached thereto, duly executed, and with such proof of the authenticity of the signature as the Corporation or its agents may reasonably require. Section II. The certificates of stock shall be signed by the Chairman of the Board or the President or a Vice President and by the Secretary or the Treasurer or an Assistant Secretary or an Assistant Treasurer, shall be sealed with the seal of the Corporation (or shall bear a facsimile of such seal), and shall be countersigned and registered in such manner, if any, as the Board of Directors may by resolution prescribe. Section III. Certificates for shares of Stock in the Corporation may be issued in lieu of certificates alleged to have been lost, stolen, destroyed or mutilated, upon the receipt of (1) such evidence of loss, theft, destruction or mutilation, and (2) a bond of indemnity in such amount, upon such terms and with such surety, if any, as the Board of Directors may require in each specific case or in accordance with general resolutions. ARTICLE V. Corporate Books The books of the Corporation, except the original or duplicate stock ledger, may be kept outside of the State of Delaware, at the office of the Corporation in Wayne, New Jersey or at such other place or places as the Board of Directors may from time to time determine. ARTICLE VI. Checks, Notes, Etc. All checks and drafts on the Corporation's bank accounts and all bills of exchange and promissory notes, and all acceptances, obligations and instruments for 6 the payment of money, shall be signed by such officer or officers or agent or agents as shall be thereunto authorized from time to time by the Board of Directors. ARTICLE VII. Fiscal Year The fiscal year of the Corporation shall end on the Saturday nearest the thirty-first day of March in each year. ARTICLE VIII. Corporate Seal The corporate seal shall have inscribed thereon the name of the Corporation and the words "Incorporated Delaware 1928." In lieu of the corporate seal, when so authorized by the Board of Directors or a duly empowered committee thereof, a facsimile thereof may be impressed or affixed or reproduced. ARTICLE IX. Offices The Corporation and the stockholders and the directors may have offices outside of the State of Delaware at such places as shall be determined from time to time by the Board of Directors. ARTICLE X. Amendments The by-laws of the Corporation, regardless of whether made by the stockholders or by the Board of Directors, may be amended, added to, rescinded or repealed at any meeting of the Board of Directors or of the stockholders, provided notice of the proposed change is given in the notice of the meeting. No change of the time or place for the annual meeting of the stockholders for the election of directors shall be made except in accordance with the laws of the State of Delaware. 7 EX-10.1 3 FORM OF INDEMNIFICATION AGREEMENT Exhibit No. 10.1 INDEMNIFICATION AGREEMENT This Agreement, made and entered into this _______ of _______, 19____ ("Agreement"), by and between The Grand Union Company, a Delaware corporation ("Company"), and ________________________ ("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 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 and, if requested by Indemnitee, shall (within seven (7) business days of such request) advance 3 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. (b) Upon written request by Indemnitee for indemnification pursuant to the 4 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 appointment as Independent Counsel of a person selected by the Court or by such other person as 5 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 materially misleading, in connection with the request for indemnification, or (ii) a prohibition of 6 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. (a) In the event that (i) a determination is made pursuant to Section 8 of this 7 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 prorated. The Company shall indemnify Indemnitee against any and all Expenses and, if 8 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 execution of such documents as are necessary to enable the Company to bring suit or enforce 9 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. (d) "Effective Date" means __________________. 11 (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. (b) This Agreement constitutes the entire agreement between the parties 12 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 indemnifiable event under this Agreement, in such proportion as is deemed fair and reasonable in 13 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: Title: ATTEST: INDEMNITEE By: - ------------------------------------- ---------------------------------- Name: Name: Title: 14 ORIGINAL ___ OF 2 Address: 15 EX-10.2 4 EMPLOYMENT AGREEMENT BETWEEN GRAND UNION AND J. WAYNE HARRIS Exhibit No. 10.2 EMPLOYMENT AGREEMENT AGREEMENT made as of this 13th day of August, 1998, by and between The Grand Union Company, a Delaware corporation (the "Company"), and J. Wayne Harris (the "Employee"). WHEREAS, the Company desires to retain the exclusive services of Employee and Employee desires to be employed by the Company for the term of this Agreement; NOW, THEREFORE, in consideration of the premises and of the mutual covenants contained herein, the parties hereto agree as follows: 1. Duties. (a) The Employee shall serve as Chairman of the Board of Directors and Chief Executive Officer of the Company or such other position as may be agreed between the Employee and the Company, and shall perform such duties, services and responsibilities as are consistent with such positions, including the general management and supervision of the business and personnel of the Company and its subsidiaries. The Employee's duties, services and responsibilities will be performed under the overall supervision of and consistent with the policies of the Board of Directors of the Company (the "Board of Directors"). If, during the term of this Agreement, Employee's employment with the Company is terminated for any reason, Employee will also cease to be, and shall resign as, a Director of the Company. (b) During the Employment Term (as hereinafter defined), the Employee shall devote his full business time, attention and skill to the performance of his duties, services and responsibilities, and will use his best efforts to promote the interests of the Company. The Employee will not, without the prior written approval of the Board of Directors, engage in any other business activity which would interfere with the performance of his duties, services and responsibilities hereunder or which is in violation of policies established from time to time by the Company. The foregoing shall not be construed to prohibit (i) the Employee's service as a member of the board of directors or as an officer of any non-profit trade association or civic, educational or charitable organization, or (ii) subject to the following proviso and the provisions of Section 8(b), the Employee from making personal investments of a passive nature; provided that such service or investments by the Employee do not materially interfere with the performance by the Employee of his duties, services and responsibilities hereunder. (c) During the Employment Term, the Employee shall be based at the Company's principal executive offices in Wayne, New Jersey, which executive offices may be relocated within a 100-mile radius of the Company's existing executive offices (such 100 mile radius of Wayne, New Jersey, constituting the "Principal Office City"), except for reasonably required travel in the performance of his duties, services and responsibilities hereunder. 2. Term. This Agreement and the term of employment of the Employee hereunder shall commence as of the Consummation Date (as such term is defined in the Company's Disclosure Statement dated May 22, 1998 (the "Disclosure Statement")) and shall continue in full force and effect until the fourth anniversary of the Consummation Date (the "Employment Term"), unless earlier terminated or extended as provided herein. Until such time as this Agreement commences, Employee's Employment Agreement dated August 1, 1997, shall remain in full force and effect, after which time the August 1, 1997 Agreement shall terminate. 3. Compensation. (a) In consideration of the performance by the Employee of the Employee's obligations during the Employment Term (including any services as an officer, director, employee, member of any committee of the Company or any of its subsidiaries, or otherwise), the Company will, during the Employment Term, pay the Employee a salary (the "Salary") at an annual rate of $600,000. (b) During the term of this Agreement, Employee shall be eligible to receive bonus compensation at the end of each fiscal year of the Company in an amount to be determined by the Compensation Committee (as hereinafter defined) of the Board of Directors. The bonus compensation payable to Employee for each fiscal year during the Employment Term shall be based on percentage and performance targets determined by the Compensation Committee of the Board of Directors to provide for bonus compensation of up to 125% of the Salary for a fiscal year in which the Company achieves the designated performance targets. Such bonus compensation shall be prorated (based on the number of weeks worked by Employee during the fiscal year in question) for the fiscal year ending in March 2003. The amount of bonus compensation in any year shall be determined pursuant to the Company's Executive Annual Incentive Bonus Plan (the "Bonus Plan"), which was approved on June 22, 1998, by the holders of the Company's Old Senior Notes, as defined in and pursuant to the Disclosure Statement, and is based on the achievement of performance targets in such fiscal years, which performance targets shall be established by the Compensation Committee of the Board of Directors pursuant to the Bonus Plan. (c) The Salary shall be payable in accordance with the normal payroll practices of the Company then in effect. The Salary, and all bonuses or other forms of compensation paid to the Employee hereunder, shall be subject to all applicable taxes required to be withheld by the Company pursuant to federal, state or local law. The Employee shall be solely responsible for income taxes imposed on the Employee by reasons of any cash or non-cash compensation and benefits provided hereunder, unless otherwise so indicated. (d) Employee shall be eligible to participate in the Company's Supplemental Retirement Plan for Key Executives (the "Plan"). Upon Employee's retirement from the Company on or after the fourth anniversary of the Consummation Date, for purposes 2 of calculation of the "target benefit" under the Plan, Employee shall be credited with fifteen (15) years of service with the Company. If the Employee's employment with the Company terminates pursuant to Section 6(a)(vi) or Section 6(a)(vii)(x) of this Agreement prior to the fourth anniversary of the Consummation Date, for purposes of calculation of the "target benefit" under the Plan, Employee shall be credited with a number of years of service equal to the sum of (a) the actual number of years of employment of the Employee with the Company and (b) seven (7) years of service. If the Employee terminates his employment with the Company other than for Good Reason under this Agreement prior to the fourth anniversary of the Consummation Date, for purposes of the "target benefit" under the Plan, Employee shall be credited with a number of years of service equal to the actual years of employment of the Employee with the Company. (e) The Employee shall be eligible to participate in any employee benefit or perquisite plans (including any life insurance plan) then in effect for Senior Managers (as such term is defined in the Company's Disclosure Statement) to the extent the Employee meets the eligibility requirements for any such plan. (f) The Employee shall be eligible for four weeks vacation (in addition to the usual holidays) during each year during which the Employee serves hereunder. Such vacation shall be taken at such time or times as may be agreed between the Employee and the Company. Vacation not taken during any year during the Employment Term will not be carried forward. (g) If (i) the Employee is absent from work for more than 180 calendar days in any twelve-month period by reason of illness or incapacity (whether physical or otherwise) or (ii) the Company reasonably determines that the Employee is unable to perform his duties, services and responsibilities hereunder by reason of illness or incapacity (whether physical or otherwise) for more than 180 calendar days in any twelve-month period during the Employment Term ("Disability"), the Company shall not be obligated to pay the Employee any compensation (Salary or bonus) for any period in excess of such 180 days; furthermore, any such payments during such 180-day period shall be reduced by any amount the Employee is entitled to receive as a result of such disability under any plan provided through the Company or under state or federal law. 4. Stock Option. (a) Pursuant to the Company's 1995 Equity Incentive Plan (the "EIP") and by resolution of the Compensation Committee of the Board of Directors on May 14, 1998, and effective as of the Consummation Date, the Company hereby grants Employee options (the "Options") to purchase shares of Common Stock pursuant to subparagraph (b) of this paragraph 4. 3 (b) In connection with the Consummation of the Plan of Reorganization as defined in the Disclosure Statement and subject to: (1) the approval of the EIP by the holders of the Company's Old Senior Notes as described in the Disclosure Statement, which approval was obtained on June 22, 1998; and (2) confirmation of the stock option grant in a letter from the Company's General Counsel in the form attached hereto as Exhibit A; Messrs. Harris, Philbin, Partridge and Freimark, as "Senior Managers", will be granted Options on the Consummation Date under the EIP to purchase an aggregate of 2,138,692 shares of Grand Union's New 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 the Options are earlier terminated. The Options will be granted to the Senior Managers in five tranches and exercisable as follows: (i) 306,122 Options exercisable on the Consummation Date at an exercise price of $12.32 per share; (ii) 466,176 Options exercisable when fiscal year end earnings before interest, taxes, depreciation, and amortization without regard to any extraordinary gains or losses ("EBITDA") as determined in accordance with generally accepted accounting principles 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, without the issuance of fractional shares. Based upon the Company's audited financial statements, 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 Options. Subject to the provisions of paragraphs (c), (d) and (e) of this Section 4, 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 Consummation Date. Except as described in the preceding sentence and except for transfers in connection with estate planning, the Options and Option Shares will not be transferable during the term of a Senior Manager's employment. (c) Treatment of Options Upon Termination Within Twelve Months Following A Change of Control. For purposes of this Agreement, a "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 of the Company; provided, however, that no Change of Control shall occur by reason of the issuance of Common Stock to holders of the Old Senior Notes on the Consummation Date pursuant to the Plan of Reorganization. If the Employee's employment with the Company terminates pursuant to Section 6(a)(vi) or Section 6(a)(vii)(x) hereof within 12 months following a Change of Control, Options (subject to the 4 limitations of the following sentence) shall immediately become vested and exercisable by Employee (or Employee's executor or administrator or the person or persons to whom the Options are transferred by will or the applicable laws of descent and distribution) at any time up to and including thirty days after the effective date of such termination of employment after which all Options shall terminate. Subject to the preceding sentence, Options shall vest and become exercisable based upon the Enterprise Value (as hereinafter defined) of the Company at the time of the Change of Control pursuant to the following schedule: 1) if the Enterprise Value is less than $812.5 million, only the Options from tranche 1 shall be vested and exercisable; 2) if the Enterprise Value is equal to or greater than $812.5 million, but less than $877.5 million, only the Options from tranches 1 and 2 shall be vested and exercisable; 3) if the Enterprise Value is equal to or greater than $877.5 million, but less than $942.5 million, only the Options from tranches 1, 2 and 3 shall be vested and exercisable; 4) if the Enterprise Value is equal to or greater than $942.5 million, but less than $1,007.5 million, only the Options from tranches 1, 2, 3 and 4 shall be vested and exercisable; 5) if the Enterprise Value is equal to or greater than $1,007.5 million, all Options shall be vested and exercisable; and 6) all Options which are not vested and exercisable in accordance with foregoing (1) - (5) shall terminate and become null and void as of the effective date of such termination. For purposes hereof, "Enterprise Value" shall mean the value of the outstanding Common Stock of the Company on the date of the Change of Control based upon the price per share paid in the Change of Control transaction plus the dollar value of outstanding net debt ($355,400,000) at the Effective Date. (d) Treatment of Options Upon Termination Other Than Within Twelve Months Following A Change of Control. If the Employee's employment with the Company terminates pursuant to Section 6(a)(i), 6(a)(ii), or 6(a)(v) hereof, or Section 6(a)(vi) or Section 6(a)(vii)(x) hereof not within 12 months following a Change of Control, all Options (subject to the limitations of the following sentence) shall immediately vest to the Employee (or Employee's executor or administrator or the person or persons to whom the Options are transferred by will or the applicable laws of descent and distribution) and shall remain exercisable by Employee through and until the fourth anniversary of the Consummation Date, such exercisability subject to the EBITDA hurdles set forth in paragraph (b) of this Section 4. (e) If the employment of Employee with the Company shall terminate for any reason other than as specifically provided in paragraphs (c) and (d) of this Section 4, including, without limitation, termination by the Company for "Cause" or termination by the Employee for any reason other than Good Reason, all vested Options shall remain exercisable by Employee through and until the fourth anniversary of the Consummation Date, such exercisability subject to the EBITDA hurdles set forth in paragraph (b) of this Section 4 and all unvested Options shall terminate and become null and void, as of the effective date of such termination. 5. Relocation and Relocation Expenses. Without limiting the Employee's responsibilities under Section 1, Employee may reside at Employee's principal residence (Employee's Principal Residence") throughout the duration of the Employment Term, which 5 Employee's Principal Residence may be outside the Principal Office City. During such time as Employee resides at Employee's Principal Residence and such residence is not in the Principal Office City: (i) Employee may commute between the Employee's Principal Residence and the Principal Office City; provided, however, that if by August 1, 1999, Employee relocates his residence to the Principal Office City, Employee shall be eligible for the full benefits available under the Company's Executive Relocation Program; and (ii) the Company agrees to pay, or reimburse, Employee for the reasonable costs of an apartment or condominium in the Principal Office City to serve as local accommodations for Employee and for appropriate travel expenses between the Employee's Principal Residence and the Principal Office City, upon submission by Employee to the Chief Financial Officer (or his designee or designees) of vouchers or expenses statements satisfactorily evidencing such expenses. The reimbursement of expenses under this sub-paragraph shall be taxable income to Employee and shall be subject to appropriate gross-up procedures in order to make Employee whole for such expenses. 6. Termination. (a) Except as otherwise provided in this Agreement, the employment of Employee hereunder and the Employment Term shall terminate upon the earliest to occur of the dates specified below: (i) the close of business on the date of expiration of the Employment Term; (ii) the close of business on the date of the Employee's death; (iii) the close of business on an early termination date mutually agreed to in writing by the Company and the Employee; (iv) the close of business on the day on which the Company shall have delivered to the Employee a written notice of the Company's election to terminate his employment for "Cause" (as defined in Section 6(c) hereof); (v) the close of business on the day on which the Company shall have delivered to the Employee a written notice of the Company's election to terminate his employment because of Disability; (vi) the close of business on the day following the date on which the Board of Directors shall have adopted a resolution terminating the employment of the Employee hereunder and such termination is not for death, Cause or Disability; or 6 (vii) the close of business on the date which is five business days after the date on which the Employee delivers to the Company a written notice of the Employee's election to terminate his employment hereunder (x) for "Good Reason" (as defined in Section 6(d) hereof) or (y) for any other reason. (b) Any purported termination by the Company or by the Employee pursuant to Section 6(a) (iv)-(vii) hereof shall be communicated by written "Notice of Termination" to the other party. For purposes of this Agreement, a "Notice of Termination" shall mean a written notice which indicates the specific termination provision in this Agreement relied upon and which sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Employee's employment under the provision so indicated. For purposes of this Agreement, no such purported termination shall be effective without delivery of such Notice of Termination. (c) For purposes of this Agreement, termination of employment for "Cause" shall mean termination based on (i) the Employee's material breach of this Agreement, or (ii) any other conduct by the Employee constituting valid cause for termination under the laws of the State of New Jersey. (d) For purposes of this Agreement, the term "Good Reason" shall mean any material breach by the Company of this Agreement; provided, however, that Employee first delivers written notice thereof to the General Counsel of the Company and the Company shall have failed to cure such breach within thirty (30) days after receipt of such written notice. (e) In the event of termination of this Agreement, for whatever reason, the Employee agrees to cooperate with the Company and to be reasonably available to the Company with respect to continuing and/or future matters arising out of the Employee's employment or any other relationship with the Company, whether such matters are business-related, legal or otherwise. The Company agrees to reimburse the Employee for the Employee's reasonable travel expenses incurred in complying with the terms of this paragraph upon delivery by the Employee to the Company of valid receipts for such expenses. The provisions of this paragraph shall survive termination of this Agreement. 7. Termination Payments (a) Upon Termination Within Twelve Months of a Change of Control. If, within 12 months following a "Change of Control," the Employee's employment with the Company terminates for whatever reason, the Company will pay the Employee any portion of the Salary accrued hereunder on or prior to the date of such termination, but not paid. If, within 12 months following a "Change of Control," the Employee's employment with the Company terminates pursuant to Section 6(a)(vi) or Section 6(a)(vii)(x) hereof, the Company will pay the Employee any portion of Employee's bonus compensation pursuant to Section 3(b) hereof 7 which has accrued hereunder on or prior to the date of termination but has not been paid (the "Prorata Bonus"). The Prorata Bonus shall be calculated by: (i) annualizing the Company's performance through the date of termination for the fiscal year in question; (ii) determining the bonus compensation due to the Employee pursuant to Section 3(b) hereof on the basis of the Company's annualized results for the fiscal year in question; and (iii) prorating the bonus compensation based on the number of weeks worked by the Employee during the fiscal year in question. Except for purposes of this Section 7, the Employee's bonus compensation pursuant to Section 3(b) for any fiscal year shall not be deemed to have been accrued prior to the completion of the fiscal year in question. If, within 12 months following a "Change of Control," the Employee's employment with the Company terminates pursuant to Section 6(a)(vi) or Section 6(a)(vii)(x) hereof, the Company will, within 30 days of such termination, pay the Employee lump sum severance pay in an amount equal to the product of (x) 2.99 times (y) 120% of such Employee's base salary then in effect. (b) Upon Termination Not Within Twelve Months of a Change of Control. If the Employee's employment with the Company terminates for whatever reason where paragraph 7(a) does not apply, the Company will pay the Employee any portion of the Salary accrued hereunder on or prior to the date of termination but not paid. If the Employee's employment with the Company terminates pursuant to Section 6(a)(vi) or Section 6(a)(vii)(x) hereof, but not within twelve months of a Change of Control, the Company will pay the Employee his Prorata Bonus as calculated in the manner described in paragraph 7(a). Except for purposes of this Section 7, the Employee's bonus compensation pursuant to Section 3(b) for any fiscal year shall not be deemed to have been accrued prior to the completion of the fiscal year in question. If the Employee's employment with the Company terminates pursuant to Section 6(a)(vi) or Section 6(a)(vii)(x) hereof, the Company will continue to pay the Employee an amount equal to the Employee's Salary (at the salary rate in effect on the date of termination of the Employee's employment hereunder) until the fourth anniversary of the Consummation Date. (c) The foregoing payments upon termination shall constitute the exclusive payments due the Employee upon termination under this Agreement, but shall have no effect on any benefits which may be due the Employee under any plan of the Company which provides benefits after termination of employment. 8. Employee Covenants. (a) Unauthorized Disclosure. The Employee agrees and understands that in the Employee's position with the Company, the Employee will be exposed to and receive information relating to the confidential affairs of the Company, including but not limited to technical information, business and marketing plans, strategies, customer information, other information concerning the Company's products, promotions, development, financing, expansion plans, business policies and practices, and other forms of information considered by the Company to be confidential and in the nature of trade secrets. Except to the extent that the 8 proper performance of the Employee's duties, services and responsibilities hereunder may require disclosure, and except as such information (i) was known to the Employee prior to his employment by the Company or (ii) was or becomes generally available to the public other than as a result of a disclosure by the Employee in violation of the provisions of this Section 8(a), the Employee agrees that during the Employment Term and thereafter the Employee will keep such information confidential and not disclose such information, either directly or indirectly, to any third person or entity without the prior written consent of the Company. This confidentiality covenant has no temporal, geographical or territorial restriction. Upon termination of the Employee's employment under this Agreement, the Employee will promptly supply to the Company all property, keys, notes, memoranda, writings, lists, files, reports, customer lists, correspondence, tapes, disks, cards, surveys, maps, logs, machines, technical data or any other tangible product or document which has been produced by, received by or otherwise submitted to the Employee during or prior to the Employment Term. (b) Non-competition. By and in consideration of the Company's entering into this Agreement and the Salary and benefits to be provided by the Company hereunder, and further in consideration of the Employee's exposure to the proprietary information of the Company, the Employee agrees that, subject to the provisions of the last two sentences of Section 1(b), the Employee will not, during the Employment Term, directly or indirectly own, manage, operate, join, control, be employed by, or participate in the ownership, management, operation or control of or be connected in any manner, including but not limited to holding the positions of shareholder, director, officer, consultant, independent contractor, employee, partner, or investor, with any Competing Enterprise. For purposes of this paragraph, the term "Competing Enterprise" shall mean any person, corporation, partnership or other entity operating one or more supermarkets within a ten (10) mile radius of any Company store if the aggregate of such Company stores (x) represent ten percent (10%) or more of the total number of Company stores operating at the date of termination (or other applicable date invoking the application of this non-compete clause) or (y) account for ten percent (10%) or more of the annual sales volume of the Company for the fiscal year immediately preceding the year of termination (or other applicable date invoking application of this non-compete clause). For this purpose, (1) "supermarket" means any store which is part of a supermarket or combination store chain or is a warehouse club selling grocery and perishable items to the public and (2) any entity operating supermarkets includes any wholesaler to independently-owned supermarkets operating under the same tradename. The prohibition of this clause (b) shall not be deemed to prevent Employee from owning 1% or less of any class of equity securities of an entity that has a class of equity securities registered under Section 12 of the Securities Exchange Act of 1934, as amended. Notwithstanding anything to the contrary in this Section 8(b), the non-competition clause contained in this Section 8(b) shall immediately terminate on the effective date of termination of the Employee's employment with the Company unless such termination is by the Company for Cause or is by the Employee without Good Reason, in which case the non-competition clause contained in this Section 8(b) shall remain in full force and effect until the fourth anniversary of the Consummation Date. 9 (c) Non-solicitation. During the Employment Term and for a period of two years thereafter, the Employee shall not interfere with the Company's relationship with, or endeavor to entice away from the Company, any person who at any time during the Employment Term was an employee of the Company. (d) Transactions Offered to the Corporation; Proprietary Materials. During the term of his employment hereunder, Employee agrees to bring to the attention of the Board of Directors or the Chief Financial Officer, all proposals, business opportunities or investments of whatever nature, in areas in which the Company and/or any of its subsidiary companies is active or may be interested in becoming active, which are created or devised by Employee or come to the attention of Employee and which might reasonably be expected to be of interest to the Company and/or any its subsidiary companies. Without limiting the generality of the foregoing, Employee acknowledges and agrees that memoranda, notes, records and other documents made or compiled by Employee or made available to Employee during the term of this Agreement concerning the business and/or activities of the Company and/or any of its subsidiary companies shall be the Company's property and shall be delivered by Employee to the Chief Financial Officer upon termination of this Agreement or at any other time at the request of the Board of Directors. (e) Remedies. The Employee agrees that any breach of the terms of this Section 8 would result in irreparable injury and damage to the Company for which the Company would have no adequate remedy at law; the Employee therefore also agrees that in the event of said breach or any threat of breach, the Company shall be entitled to an immediate injunction and restraining order to prevent such breach and/or threatened breach and/or continued breach by the Employee and/or any and all persons and/or entities acting for and/or with the Employee, without having to prove damages, in addition to any other remedies to which the Company may be entitled at law or in equity. The terms of this paragraph shall not prevent the Company from pursuing any other available remedies for any breach or threatened breach hereof, including but not limited to the recovery of damages from the Employee. The provisions of subsections (a), (b), (c), (d) and (e) of this Section 8 shall survive any termination of this Agreement and the Employment Term. The existence of any claim or cause of action by the Employee against the Company, whether predicated on this Agreement or otherwise, shall not constitute a defense to the enforcement by the Company of the covenants and agreements of this Section 8. 9. Notices. Any notice or other communication required or permitted hereunder shall be in writing and shall be deemed to have been given (i) if personally delivered, when so delivered, or (ii) if mailed, three (3) business days after having been placed in the United States mail, registered or certified, postage prepaid, return receipt requested, addressed to the party to whom it is directed at the address set forth below: 10 If to the Company: The Grand Union Company 201 Willowbrook Boulevard Wayne, New Jersey 07470 Attention: one copy to the Chief Financial Officer and one copy to the General Counsel If to the Employee: J. Wayne Harris The Grand Union Company 201 Willowbrook Boulevard Wayne, New Jersey 07470 With a copy to Employee's local address as reflected in the Company's records or to such other address as to which notice is given pursuant hereto. 10. Binding Effect/Assignment. This Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective heirs, executors, personal representatives, estates, successors (including, without limitation, by way of merger) and assigns. Notwithstanding the provisions of the immediately preceding sentence, the Employee shall not assign all or any portion of this Agreement without the prior written consent of the Company. 11. Entire Agreement. This Agreement sets forth the entire understanding of the parties hereto with respect to the subject matter hereof and supersedes, as of the Consummation Date, all prior agreements, written or oral, between them as to such subject matter, including that certain Employment Agreement between Employee and the Company dated August 1, 1997. This Agreement may not be amended, nor may any provision hereof be modified or waived, except by an instrument in writing duly signed by the party to be charged. 12. Severability. If any provision of this Agreement, or any application thereof to any circumstances, is invalid, in whole or in part, such provision or application shall to that extent be severable and shall not affect other provisions or applications of this Agreement. 13. Governing Law. This Agreement shall be governed by and construed in accordance with the internal laws of the State of New Jersey, without reference to the principles of conflict of laws. 14. Modifications and Waivers. No provisions of this Agreement may be modified, altered or amended except by an instrument in writing executed by the parties hereto. 11 No waiver by either party hereto of any breach by the other party hereto of any provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions at the time or at any prior or subsequent time. 15. Headings. The headings contained herein are solely for the purposes of reference, are not part of this Agreement and shall not in any way affect the meaning or interpretation of this Agreement. 16. Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed to be an original but all of which together shall constitute one and the same instrument. IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by authority of its Board of Directors, and the Employee has hereunto set his hand, as of the day and year first above written. THE GRAND UNION COMPANY By: /s/ Glenn J. Smith ------------------------------------ Name: Glenn J. Smith Title: Corporate Vice President and General Counsel /s/ J. Wayne Harris ------------------------------------ J. Wayne Harris (Employee) 12 EXHIBIT A August 13, 1998 J. Wayne Harris Chairman and Chief Executive Officer The Grand Union Company 201 Willowbrook Boulevard Wayne, New Jersey 07470 Re: Stock Option Grant Dear Mr. Harris: This is to confirm the stock option grant made to you by action of the Compensation Committee of the Board of Directors on May 14, 1998, pursuant to the Plan of Reorganization as detailed in the Company's Disclosure Statement dated May 22, 1998 and as a part of your Employment Agreement dated August 13, 1998. In this regard, effective August 17, 1998 (the "Consummation Date"), you have been granted 1,069,346 Non-Qualified Stock Options (NQSO) giving you the right to purchase a total of 1,069,346 Option Shares of Grand Union Common Stock (i.e., one share of Common Stock per Option). The particular terms governing your Option Grant as set forth in the Employment Agreement are confirmed below. Additionally, attached hereto is a copy of the 1995 Equity Incentive Plan ("EIP"), as modified and amended, which covers the standard terms and conditions of Option Grants to our Company's associates. Any terms set forth below which differ from or modify the terms contained in the EIP shall take precedence over the terms of the EIP. o Exercise Dates and Exercise Prices - Your Options are exercisable pursuant to the following schedule: 1. 153,061 Options exercisable on the Consummation Date at an exercise price of $12.32 per Option; 2. 233,088 Options exercisable upon the Company's attainment of EBITDA of an aggregate of at least $125 million for any fiscal year at an exercise price of $12.32 per Option; 3. 156,962 Options exercisable upon the Company's attainment of EBITDA of an aggregate of at least $135 million for any fiscal year at an exercise price of $12.32 per Option; 4. 158,547 Options exercisable upon the Company's attainment of EBITDA of an aggregate of at least $145 million for any fiscal year at an exercise price of $10.65 per Option; and 13 5. 367,688 Options exercisable upon the Company's attainment of EBITDA of an aggregate of at least $155 million for any fiscal year at an exercise price of $10.65 per Option. o Vesting, Forfeiture and Transferabililty 1. Options under this NQSO will vest ratably across each of the five exercise tranches listed above, as follows: a. one-fifth on the Consummation Date; b. one-fifth on the first three anniversaries of the Consummation Date; and c. one-fifth on the ninetieth day immediately preceding the fourth anniversary of the Consummation Date. 2. Forfeiture of Options under this NQSO shall be governed by paragraph 4 of the Employment Agreement. 3. Vested Options and Option Shares under this NQSO will become transferable as set forth below: a. Prior to the first anniversary of the Consummation Date - 0 Options and Option Shares; b. On and after the first anniversary of the Consummation Date - 213,869 Options and Option Shares; c. On and after the second anniversary of the Consummation Date - 213,869 additional Options and Option Shares; d. On and after the third anniversary of the Consummation Date - 320,804 additional Options and Option Shares; and e. On and after the fourth anniversary of the Consummation Date - 320,804 additional Options and Option Shares. 4. Except as set forth in paragraph 3 above, and except for agreed-upon family estate planning transfers, Options and Option Shares under this NQSO will not be transferred prior to the fourth anniversary of the Consummation Date. Thereafter, vested Options and Option Shares will be freely transferable, subject to applicable securities laws. o Duration of Options - The latest date on which your Options may be exercised is the fourth anniversary of the Consummation Date. o Events Affecting Your Options - Sections 4(c), 4(d) and 4(e) of the Employment Agreement explains the status of your Options in the event of your termination of employment. 14 Please acknowledge your receipt and acceptance of your Stock Option Grant by signing in the space provided below and returning the document to me. Very truly yours, /s/ Glenn J. Smith, Esq. ------------------------------------ Glenn J. Smith, Esq. Corporate Vice President and General Counsel Acknowledged and Accepted - ------------------------- 15 EX-10.3 5 EMPLOYMENT AGREEMENT BETWEEN GRAND UNION AND JACK W. PARTRIDGE, JR. Exhibit No. 10.3 EMPLOYMENT AGREEMENT AGREEMENT made as of this 13th day of August, 1998, by and between The Grand Union Company, a Delaware corporation (the "Company"), and Jack W. Partridge, Jr. (the "Employee"). WHEREAS, the Company desires to retain the exclusive services of Employee and Employee desires to be employed by the Company for the term of this Agreement; NOW, THEREFORE, in consideration of the premises and of the mutual covenants contained herein, the parties hereto agree as follows: 1. Duties. (a) The Employee shall serve as Vice-Chairman of the Board of Directors and Chief Administrative Officer of the Company or such other position as may be agreed between the Employee and the Company, and shall perform such duties, services and responsibilities as are consistent with such positions, including the general management and supervision of the business and personnel of the Company and its subsidiaries. The Employee's duties, services and responsibilities will be performed under the overall supervision of the Chairman of the Board and Chief Executive Officer of the Company and consistent with the policies of the Board of Directors of the Company (the "Board of Directors"). If, during the term of this Agreement, Employee's employment with the Company is terminated for any reason, Employee will also cease to be, and shall resign as, a Director of the Company. (b) During the Employment Term (as hereinafter defined), the Employee shall devote his full business time, attention and skill to the performance of his duties, services and responsibilities, and will use his best efforts to promote the interests of the Company. The Employee will not, without the prior written approval of the Board of Directors, engage in any other business activity which would interfere with the performance of his duties, services and responsibilities hereunder or which is in violation of policies established from time to time by the Company. The foregoing shall not be construed to prohibit (i) the Employee's service as a member of the board of directors or as an officer of any non-profit trade association or civic, educational or charitable organization, or (ii) subject to the following proviso and the provisions of Section 8(b), the Employee from making personal investments of a passive nature; provided that such service or investments by the Employee do not materially interfere with the performance by the Employee of his duties, services and responsibilities hereunder. (c) During the Employment Term, the Employee shall be based at the Company's principal executive offices in Wayne, New Jersey, which executive offices may be relocated within a 100-mile radius of the Company's existing executive offices (such 100 mile radius of Wayne, New Jersey, constituting the "Principal Office City"), except for reasonably required travel in the performance of his duties, services and responsibilities hereunder. 2. Term. This Agreement and the term of employment of the Employee hereunder shall commence as of the Consummation Date (as such term is defined in the Company's Disclosure Statement dated May 22, 1998 (the "Disclosure Statement")) and shall continue in full force and effect until the fourth anniversary of the Consummation Date (the "Employment Term"), unless earlier terminated or extended as provided herein. Until such time as this Agreement commences, Employee's Employment Agreement dated January 5, 1998, shall remain in full force and effect, after which time the January 5, 1998 Agreement shall terminate. 3. Compensation. (a) In consideration of the performance by the Employee of the Employee's obligations during the Employment Term (including any services as an officer, director, employee, member of any committee of the Company or any of its subsidiaries, or otherwise), the Company will, during the Employment Term, pay the Employee a salary (the "Salary") at an annual rate of $350,000. (b) During the term of this Agreement, Employee shall be eligible to receive bonus compensation at the end of each fiscal year of the Company in an amount to be determined by the Compensation Committee (as hereinafter defined) of the Board of Directors. The bonus compensation payable to Employee for each fiscal year during the Employment Term shall be based on percentage and performance targets determined by the Compensation Committee of the Board of Directors to provide for bonus compensation of up to 125% of the Salary for a fiscal year in which the Company achieves the designated performance targets; provided, however, that bonus compensation paid to the Employee in respect of the first half of the fiscal year ending March 27, 1999 shall be at least 100% of the Salary paid to Employee for such period (the "100% Guarantee"). Such bonus compensation, including the 100% Guarantee, shall be prorated (based on the number of weeks worked by Employee during the fiscal year in question) for each of (1) the first half of the fiscal year ending March 27, 1999, and (2) the fiscal year ending in March 2003. The amount of bonus compensation in any year shall be determined pursuant to the Company's Executive Annual Incentive Bonus Plan (the "Bonus Plan"), which was approved on June 22, 1998, by the holders of the Company's Old Senior Notes, as defined in and pursuant to the Disclosure Statement, and is based on the achievement of performance targets in such fiscal years, which performance targets shall be established by the Compensation Committee of the Board of Directors pursuant to the Bonus Plan. (c) The Salary shall be payable in accordance with the normal payroll practices of the Company then in effect. The Salary, and all bonuses or other forms of compensation paid to the Employee hereunder, shall be subject to all applicable taxes required to be withheld by the Company pursuant to federal, state or local law. The Employee shall be 2 solely responsible for income taxes imposed on the Employee by reasons of any cash or non-cash compensation and benefits provided hereunder, unless otherwise so indicated. (d) Employee shall be eligible to participate in the Company's Supplemental Retirement Plan for Key Executives (the "Plan"). Upon Employee's retirement from the Company on or after the fourth anniversary of the Consummation Date, for purposes of calculation of the "target benefit" under the Plan, Employee shall be credited with his actual years of service with the Company, plus seven (7) additional years of service under the Plan if Employee retires on or after the fourth anniversary of the Consummation Date. If the Employee's employment with the Company terminates pursuant to Section 6(a)(vi) or Section 6(a)(vii)(x) of this Agreement prior to the fourth anniversary of the Consummation Date, for purposes of calculation of the "target benefit" under the Plan, Employee shall be credited with a number of years of service equal to the sum of (a) the actual number of years of employment of the Employee with the Company and (b) seven (7) years of service. If the Employee terminates his employment with the Company other than for Good Reason under this Agreement prior to the fourth anniversary of the Consummation Date, for purposes of the "target benefit" under the Plan, Employee shall be credited with a number of years of service equal to the actual years of employment of the Employee with the Company. (e) The Employee shall be eligible to participate in any employee benefit or perquisite plans (including any life insurance plan) then in effect for Senior Managers (as such term is defined in the Company's Disclosure Statement) to the extent the Employee meets the eligibility requirements for any such plan. (f) The Employee shall be eligible for four weeks vacation (in addition to the usual holidays) during each year during which the Employee serves hereunder. Such vacation shall be taken at such time or times as may be agreed between the Employee and the Company. Vacation not taken during any year during the Employment Term will not be carried forward. (g) If (i) the Employee is absent from work for more than 180 calendar days in any twelve-month period by reason of illness or incapacity (whether physical or otherwise) or (ii) the Company reasonably determines that the Employee is unable to perform his duties, services and responsibilities hereunder by reason of illness or incapacity (whether physical or otherwise) for more than 180 calendar days in any twelve-month period during the Employment Term ("Disability"), the Company shall not be obligated to pay the Employee any compensation (Salary or bonus) for any period in excess of such 180 days; furthermore, any such payments during such 180-day period shall be reduced by any amount the Employee is entitled to receive as a result of such disability under any plan provided through the Company or under state or federal law. 3 4. Stock Option. (a) Pursuant to the Company's 1995 Equity Incentive Plan (the "EIP") and by resolution of the Compensation Committee of the Board of Directors on May 14, 1998, and effective as of the Consummation Date, the Company hereby grants Employee options (the "Options") to purchase shares of Common Stock pursuant to subparagraph (b) of this paragraph 4. (b) In connection with the Consummation of the Plan of Reorganization as defined in the Disclosure Statement and subject to: (1) the approval of the EIP by the holders of the Company's Old Senior Notes as described in the Disclosure Statement, which approval was obtained on June 22, 1998; and (2) confirmation of the stock option grant in a letter from the Company's General Counsel in the form attached hereto as Exhibit A; Messrs. Harris, Philbin, Partridge and Freimark, as "Senior Managers", will be granted Options on the Consummation Date under the EIP to purchase an aggregate of 2,138,692 shares of Grand Union's New 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 the Options are earlier terminated. The Options will be granted to the Senior Managers in five tranches and exercisable as follows: (i) 306,122 Options exercisable on the Consummation Date at an exercise price of $12.32 per share; (ii) 466,176 Options exercisable when fiscal year end earnings before interest, taxes, depreciation, and amortization without regard to any extraordinary gains or losses ("EBITDA") as determined in accordance with generally accepted accounting principles 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, without the issuance of fractional shares. Based upon the Company's audited financial statements, 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 Options. Subject to the provisions of paragraphs (c), (d) and (e) of this Section 4, 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 Consummation Date. Except as described in the preceding sentence and except for transfers in connection with estate planning, the Options and Option Shares will not be transferable during the term of a Senior Manager's employment. 4 (c) Treatment of Options Upon Termination Within Twelve Months Following A Change of Control. For purposes of this Agreement, a "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 of the Company; provided, however, that no Change of Control shall occur by reason of the issuance of Common Stock to holders of the Old Senior Notes on the Consummation Date pursuant to the Plan of Reorganization. If the Employee's employment with the Company terminates pursuant to Section 6(a)(vi) or Section 6(a)(vii)(x) hereof within 12 months following a Change of Control, Options (subject to the limitations of the following sentence) shall immediately become vested and exercisable by Employee (or Employee's executor or administrator or the person or persons to whom the Options are transferred by will or the applicable laws of descent and distribution) at any time up to and including thirty days after the effective date of such termination of employment after which all Options shall terminate. Subject to the preceding sentence, Options shall vest and become exercisable based upon the Enterprise Value (as hereinafter defined) of the Company at the time of the Change of Control pursuant to the following schedule: 1) if the Enterprise Value is less than $812.5 million, only the Options from tranche 1 shall be vested and exercisable; 2) if the Enterprise Value is equal to or greater than $812.5 million, but less than $877.5 million, only the Options from tranches 1 and 2 shall be vested and exercisable; 3) if the Enterprise Value is equal to or greater than $877.5 million, but less than $942.5 million, only the Options from tranches 1, 2 and 3 shall be vested and exercisable; 4) if the Enterprise Value is equal to or greater than $942.5 million, but less than $1,007.5 million, only the Options from tranches 1, 2, 3 and 4 shall be vested and exercisable; 5) if the Enterprise Value is equal to or greater than $1,007.5 million, all Options shall be vested and exercisable; and 6) all Options which are not vested and exercisable in accordance with foregoing (1) - (5) shall terminate and become null and void as of the effective date of such termination. For purposes hereof, "Enterprise Value" shall mean the value of the outstanding Common Stock of the Company on the date of the Change of Control based upon the price per share paid in the Change of Control transaction plus the dollar value of outstanding net debt ($355,400,000) at the Effective Date. (d) Treatment of Options Upon Termination Other Than Within Twelve Months Following A Change of Control. If the Employee's employment with the Company terminates pursuant to Section 6(a)(i), 6(a)(ii), or 6(a)(v) hereof, or Section 6(a)(vi) or Section 6(a)(vii)(x) hereof not within 12 months following a Change of Control, all Options (subject to the limitations of the following sentence) shall immediately vest to the Employee (or Employee's executor or administrator or the person or persons to whom the Options are transferred by will or the applicable laws of descent and distribution) and shall remain exercisable by Employee through and until the fourth anniversary of the Consummation Date, such exercisability subject to the EBITDA hurdles set forth in paragraph (b) of this Section 4. (e) If the employment of Employee with the Company shall terminate for any reason other than as specifically provided in paragraphs (c) and (d) of this Section 4, including, without limitation, termination by the Company for "Cause" or termination by the Employee for any reason other than Good Reason, all vested Options shall remain exercisable 5 by Employee through and until the fourth anniversary of the Consummation Date, such exercisability subject to the EBITDA hurdles set forth in paragraph (b) of this Section 4 and all unvested Options shall terminate and become null and void, as of the effective date of such termination. 5. Relocation and Relocation Expenses. Without limiting the Employee's responsibilities under Section 1, Employee may reside at Employee's principal residence (Employee's Principal Residence") throughout the duration of the Employment Term, which Employee's Principal Residence may be outside the Principal Office City. During such time as Employee resides at Employee's Principal Residence and such residence is not in the Principal Office City: (i) Employee may commute between the Employee's Principal Residence and the Principal Office City; provided, however, that if by January 5, 2000, Employee relocates his residence to the Principal Office City, Employee shall be eligible for the full benefits available under the Company's Executive Relocation Program; and (ii) the Company agrees to pay, or reimburse, Employee for the reasonable costs of an apartment or condominium in the Principal Office City to serve as local accommodations for Employee and for appropriate travel expenses between the Employee's Principal Residence and the Principal Office City, upon submission by Employee to the Chief Executive Officer (or his designee or designees) of vouchers or expenses statements satisfactorily evidencing such expenses. The reimbursement of expenses under this sub-paragraph shall be taxable income to Employee and shall be subject to appropriate gross-up procedures in order to make Employee whole for such expenses. 6. Termination. (a) Except as otherwise provided in this Agreement, the employment of Employee hereunder and the Employment Term shall terminate upon the earliest to occur of the dates specified below: (i) the close of business on the date of expiration of the Employment Term; (ii) the close of business on the date of the Employee's death; (iii) the close of business on an early termination date mutually agreed to in writing by the Company and the Employee; (iv) the close of business on the day on which the Company shall have delivered to the Employee a written notice of the Company's election to terminate his employment for "Cause" (as defined in Section 6(c) hereof); 6 (v) the close of business on the day on which the Company shall have delivered to the Employee a written notice of the Company's election to terminate his employment because of Disability; (vi) the close of business on the day following the date on which the Board of Directors shall have adopted a resolution terminating the employment of the Employee hereunder and such termination is not for death, Cause or Disability; or (vii) the close of business on the date which is five business days after the date on which the Employee delivers to the Company a written notice of the Employee's election to terminate his employment hereunder (x) for "Good Reason" (as defined in Section 6(d) hereof) or (y) for any other reason. (b) Any purported termination by the Company or by the Employee pursuant to Section 6(a) (iv)-(vii) hereof shall be communicated by written "Notice of Termination" to the other party. For purposes of this Agreement, a "Notice of Termination" shall mean a written notice which indicates the specific termination provision in this Agreement relied upon and which sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Employee's employment under the provision so indicated. For purposes of this Agreement, no such purported termination shall be effective without delivery of such Notice of Termination. (c) For purposes of this Agreement, termination of employment for "Cause" shall mean termination based on (i) the Employee's material breach of this Agreement, or (ii) any other conduct by the Employee constituting valid cause for termination under the laws of the State of New Jersey. (d) For purposes of this Agreement, the term "Good Reason" shall mean any material breach by the Company of this Agreement; provided, however, that Employee first delivers written notice thereof to the General Counsel of the Company and the Company shall have failed to cure such breach within thirty (30) days after receipt of such written notice. (e) In the event of termination of this Agreement, for whatever reason, the Employee agrees to cooperate with the Company and to be reasonably available to the Company with respect to continuing and/or future matters arising out of the Employee's employment or any other relationship with the Company, whether such matters are business-related, legal or otherwise. The Company agrees to reimburse the Employee for the Employee's reasonable travel expenses incurred in complying with the terms of this paragraph upon delivery by the Employee to the Company of valid receipts for such expenses. The provisions of this paragraph shall survive termination of this Agreement. 7. Termination Payments 7 (a) Upon Termination Within Twelve Months of a Change of Control. If, within 12 months following a "Change of Control," the Employee's employment with the Company terminates for whatever reason, the Company will pay the Employee any portion of the Salary accrued hereunder on or prior to the date of such termination, but not paid. If, within 12 months following a "Change of Control," the Employee's employment with the Company terminates pursuant to Section 6(a)(vi) or Section 6(a)(vii)(x) hereof, the Company will pay the Employee any portion of Employee's bonus compensation pursuant to Section 3(b) hereof which has accrued hereunder on or prior to the date of termination but has not been paid (the "Prorata Bonus"). The Prorata Bonus shall be calculated by: (i) annualizing the Company's performance through the date of termination for the fiscal year in question; (ii) determining the bonus compensation due to the Employee pursuant to Section 3(b) hereof on the basis of the Company's annualized results for the fiscal year in question; and (iii) prorating the bonus compensation based on the number of weeks worked by the Employee during the fiscal year in question. Except for purposes of this Section 7, the Employee's bonus compensation pursuant to Section 3(b) for any fiscal year shall not be deemed to have been accrued prior to the completion of the fiscal year in question. If, within 12 months following a "Change of Control," the Employee's employment with the Company terminates pursuant to Section 6(a)(vi) or Section 6(a)(vii)(x) hereof, the Company will, within 30 days of such termination, pay the Employee lump sum severance pay in an amount equal to the product of (x) 2.99 times (y) 120% of such Employee's base salary then in effect. (b) Upon Termination Not Within Twelve Months of a Change of Control. If the Employee's employment with the Company terminates for whatever reason where paragraph 7(a) does not apply, the Company will pay the Employee any portion of the Salary accrued hereunder on or prior to the date of termination but not paid. If the Employee's employment with the Company terminates pursuant to Section 6(a)(vi) or Section 6(a)(vii)(x) hereof, but not within twelve months of a Change of Control, the Company will pay the Employee his Prorata Bonus as calculated in the manner described in paragraph 7(a). Except for purposes of this Section 7, the Employee's bonus compensation pursuant to Section 3(b) for any fiscal year shall not be deemed to have been accrued prior to the completion of the fiscal year in question. If the Employee's employment with the Company terminates pursuant to Section 6(a)(vi) or Section 6(a)(vii)(x) hereof, the Company will continue to pay the Employee an amount equal to the Employee's Salary (at the salary rate in effect on the date of termination of the Employee's employment hereunder) until the fourth anniversary of the Consummation Date. (c) The foregoing payments upon termination shall constitute the exclusive payments due the Employee upon termination under this Agreement, but shall have no effect on any benefits which may be due the Employee under any plan of the Company which provides benefits after termination of employment. 8. Employee Covenants. 8 (a) Unauthorized Disclosure. The Employee agrees and understands that in the Employee's position with the Company, the Employee will be exposed to and receive information relating to the confidential affairs of the Company, including but not limited to technical information, business and marketing plans, strategies, customer information, other information concerning the Company's products, promotions, development, financing, expansion plans, business policies and practices, and other forms of information considered by the Company to be confidential and in the nature of trade secrets. Except to the extent that the proper performance of the Employee's duties, services and responsibilities hereunder may require disclosure, and except as such information (i) was known to the Employee prior to his employment by the Company or (ii) was or becomes generally available to the public other than as a result of a disclosure by the Employee in violation of the provisions of this Section 8(a), the Employee agrees that during the Employment Term and thereafter the Employee will keep such information confidential and not disclose such information, either directly or indirectly, to any third person or entity without the prior written consent of the Company. This confidentiality covenant has no temporal, geographical or territorial restriction. Upon termination of the Employee's employment under this Agreement, the Employee will promptly supply to the Company all property, keys, notes, memoranda, writings, lists, files, reports, customer lists, correspondence, tapes, disks, cards, surveys, maps, logs, machines, technical data or any other tangible product or document which has been produced by, received by or otherwise submitted to the Employee during or prior to the Employment Term. (b) Non-competition. By and in consideration of the Company's entering into this Agreement and the Salary and benefits to be provided by the Company hereunder, and further in consideration of the Employee's exposure to the proprietary information of the Company, the Employee agrees that, subject to the provisions of the last two sentences of Section 1(b), the Employee will not, during the Employment Term, directly or indirectly own, manage, operate, join, control, be employed by, or participate in the ownership, management, operation or control of or be connected in any manner, including but not limited to holding the positions of shareholder, director, officer, consultant, independent contractor, employee, partner, or investor, with any Competing Enterprise. For purposes of this paragraph, the term "Competing Enterprise" shall mean any person, corporation, partnership or other entity operating one or more supermarkets within a ten (10) mile radius of any Company store if the aggregate of such Company stores (x) represent ten percent (10%) or more of the total number of Company stores operating at the date of termination (or other applicable date invoking the application of this non-compete clause) or (y) account for ten percent (10%) or more of the annual sales volume of the Company for the fiscal year immediately preceding the year of termination (or other applicable date invoking application of this non-compete clause). For this purpose, (1) "supermarket" means any store which is part of a supermarket or combination store chain or is a warehouse club selling grocery and perishable items to the public and (2) any entity operating supermarkets includes any wholesaler to independently-owned supermarkets operating under the same tradename. The prohibition of this clause (b) shall not be deemed to prevent Employee from owning 1% or less of any class of equity securities of an entity that has 9 a class of equity securities registered under Section 12 of the Securities Exchange Act of 1934, as amended. Notwithstanding anything to the contrary in this Section 8(b), the non-competition clause contained in this Section 8(b) shall immediately terminate on the effective date of termination of the Employee's employment with the Company unless such termination is by the Company for Cause or is by the Employee without Good Reason, in which case the non-competition clause contained in this Section 8(b) shall remain in full force and effect until the fourth anniversary of the Consummation Date. (c) Non-solicitation. During the Employment Term and for a period of two years thereafter, the Employee shall not interfere with the Company's relationship with, or endeavor to entice away from the Company, any person who at any time during the Employment Term was an employee of the Company. (d) Transactions Offered to the Corporation; Proprietary Materials. During the term of his employment hereunder, Employee agrees to bring to the attention of the Board of Directors or the Chief Financial Officer, all proposals, business opportunities or investments of whatever nature, in areas in which the Company and/or any of its subsidiary companies is active or may be interested in becoming active, which are created or devised by Employee or come to the attention of Employee and which might reasonably be expected to be of interest to the Company and/or any its subsidiary companies. Without limiting the generality of the foregoing, Employee acknowledges and agrees that memoranda, notes, records and other documents made or compiled by Employee or made available to Employee during the term of this Agreement concerning the business and/or activities of the Company and/or any of its subsidiary companies shall be the Company's property and shall be delivered by Employee to the Chief Financial Officer upon termination of this Agreement or at any other time at the request of the Board of Directors. (e) Remedies. The Employee agrees that any breach of the terms of this Section 8 would result in irreparable injury and damage to the Company for which the Company would have no adequate remedy at law; the Employee therefore also agrees that in the event of said breach or any threat of breach, the Company shall be entitled to an immediate injunction and restraining order to prevent such breach and/or threatened breach and/or continued breach by the Employee and/or any and all persons and/or entities acting for and/or with the Employee, without having to prove damages, in addition to any other remedies to which the Company may be entitled at law or in equity. The terms of this paragraph shall not prevent the Company from pursuing any other available remedies for any breach or threatened breach hereof, including but not limited to the recovery of damages from the Employee. The provisions of subsections (a), (b), (c), (d) and (e) of this Section 8 shall survive any termination of this Agreement and the Employment Term. The existence of any claim or cause of action by the Employee against the Company, whether predicated on this Agreement or otherwise, shall not constitute a defense to the enforcement by the Company of the covenants and agreements of this Section 8. 10 9. Notices. Any notice or other communication required or permitted hereunder shall be in writing and shall be deemed to have been given (i) if personally delivered, when so delivered, or (ii) if mailed, three (3) business days after having been placed in the United States mail, registered or certified, postage prepaid, return receipt requested, addressed to the party to whom it is directed at the address set forth below: If to the Company: The Grand Union Company 201 Willowbrook Boulevard Wayne, New Jersey 07470 Attention: one copy to the Chief Financial Officer and one copy to the General Counsel If to the Employee: Jack W. Partridge, Jr. The Grand Union Company 201 Willowbrook Boulevard Wayne, New Jersey 07470 With a copy to Employee's local address as reflected in the Company's records or to such other address as to which notice is given pursuant hereto. 10. Binding Effect/Assignment. This Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective heirs, executors, personal representatives, estates, successors (including, without limitation, by way of merger) and assigns. Notwithstanding the provisions of the immediately preceding sentence, the Employee shall not assign all or any portion of this Agreement without the prior written consent of the Company. 11. Entire Agreement. This Agreement sets forth the entire understanding of the parties hereto with respect to the subject matter hereof and supersedes, as of the Consummation Date, all prior agreements, written or oral, between them as to such subject matter, including that certain Employment Agreement between Employee and the Company dated January 5, 1998. This Agreement may not be amended, nor may any provision hereof be modified or waived, except by an instrument in writing duly signed by the party to be charged. 12. Severability. If any provision of this Agreement, or any application thereof to any circumstances, is invalid, in whole or in part, such provision or application shall 11 to that extent be severable and shall not affect other provisions or applications of this Agreement. 13. Governing Law. This Agreement shall be governed by and construed in accordance with the internal laws of the State of New Jersey, without reference to the principles of conflict of laws. 14. Modifications and Waivers. No provisions of this Agreement may be modified, altered or amended except by an instrument in writing executed by the parties hereto. No waiver by either party hereto of any breach by the other party hereto of any provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions at the time or at any prior or subsequent time. 15. Headings. The headings contained herein are solely for the purposes of reference, are not part of this Agreement and shall not in any way affect the meaning or interpretation of this Agreement. 16. Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed to be an original but all of which together shall constitute one and the same instrument. IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by authority of its Board of Directors, and the Employee has hereunto set his hand, as of the day and year first above written. THE GRAND UNION COMPANY By: /s/ J. Wayne Harris --------------------------------------- Name: J. Wayne Harris Title: Chairman of the Board and Chief Executive Officer /s/ Jack W. Partridge, Jr. --------------------------------------- Jack W. Partridge, Jr. (Employee) 12 EXHIBIT A August 13, 1998 Jack W. Partridge, Jr. Vice Chairman and Chief Administrative Officer The Grand Union Company 201 Willowbrook Boulevard Wayne, New Jersey 07470 Re: Stock Option Grant Dear Mr. Partridge: This is to confirm the stock option grant made to you by action of the Compensation Committee of the Board of Directors on May 14, 1998, pursuant to the Plan of Reorganization as detailed in the Company's Disclosure Statement dated May 22, 1998 and as a part of your Employment Agreement dated August 13, 1998. In this regard, effective August 17, 1998 (the "Consummation Date"), you have been granted 427,738 Non-Qualified Stock Options (NQSO) giving you the right to purchase a total of 427,738 Option Shares of Grand Union Common Stock (i.e., one share of Common Stock per Option). The particular terms governing your Option Grant as set forth in the Employment Agreement are confirmed below. Additionally, attached hereto is a copy of the 1995 Equity Incentive Plan ("EIP"), as modified and amended, which covers the standard terms and conditions of Option Grants to our Company's associates. Any terms set forth below which differ from or modify the terms contained in the EIP shall take precedence over the terms of the EIP. o Exercise Dates and Exercise Prices - Your Options are exercisable pursuant to the following schedule: 1. 61,225 Options exercisable on the Consummation Date at an exercise price of $12.32 per Option; 2. 93,235 Options exercisable upon the Company's attainment of EBITDA of an aggregate of at least $125 million for any fiscal year at an exercise price of $12.32 per Option; 3. 62,784 Options exercisable upon the Company's attainment of EBITDA of an aggregate of at least $135 million for any fiscal year at an exercise price of $12.32 per Option; 4. 63,419 Options exercisable upon the Company's attainment of EBITDA of an aggregate of at least $145 million for any fiscal year at an exercise price of $10.65 per Option; and 13 5. 147,075 Options exercisable upon the Company's attainment of EBITDA of an aggregate of at least $155 million for any fiscal year at an exercise price of $10.65 per Option. o Vesting, Forfeiture and Transferabililty 1. Options under this NQSO will vest ratably across each of the five exercise tranches listed above, as follows: a. one-fifth on the Consummation Date; b. one-fifth on the first three anniversaries of the Consummation Date; and c. one-fifth on the ninetieth day immediately preceding the fourth anniversary of the Consummation Date. 2. Forfeiture of Options under this NQSO shall be governed by paragraph 4 of the Employment Agreement. 3. Vested Options and Option Shares under this NQSO will become transferable as set forth below: a. Prior to the first anniversary of the Consummation Date - 0 Options and Option Shares; b. On and after the first anniversary of the Consummation Date - 85,548 Options and Option Shares; c. On and after the second anniversary of the Consummation Date - 85,547 additional Options and Option Shares; d. On and after the third anniversary of the Consummation Date - 128,322 additional Options and Option Shares; and e. On and after the fourth anniversary of the Consummation Date - 128,321 additional Options and Option Shares. 4. Except as set forth in paragraph 3 above, and except for agreed-upon family estate planning transfers, Options and Option Shares under this NQSO will not be transferred prior to the fourth anniversary of the Consummation Date. Thereafter, vested Options and Option Shares will be freely transferable, subject to applicable securities laws. o Duration of Options - The latest date on which your Options may be exercised is the fourth anniversary of the Consummation Date. o Events Affecting Your Options - Sections 4(c), 4(d) and 4(e) of the Employment Agreement explains the status of your Options in the event of your termination of employment. 14 Please acknowledge your receipt and acceptance of your Stock Option Grant by signing in the space provided below and returning the document to me. Very truly yours, /s/ Glenn J. Smith, Esq. -------------------------------- Glenn J. Smith, Esq. Corporate Vice President and General Counsel Acknowledged and Accepted - ------------------------- 15 EX-10.4 6 EMPLOYMENT AGREEMENT BETWEEN GRAND UNION AND GARY M. PHILBIN Exhibit No. 10.4 EMPLOYMENT AGREEMENT AGREEMENT made as of this 13th day of August, 1998, by and between The Grand Union Company, a Delaware corporation (the "Company"), and Gary M. Philbin (the "Employee"). WHEREAS, the Company desires to retain the exclusive services of Employee and Employee desires to be employed by the Company for the term of this Agreement; NOW, THEREFORE, in consideration of the premises and of the mutual covenants contained herein, the parties hereto agree as follows: 1. Duties. (a) The Employee shall serve as a Director, President and Chief Merchandising Officer of the Company or such other position as may be agreed between the Employee and the Company, and shall perform such duties, services and responsibilities as are consistent with such positions, including the general management and supervision of the business and personnel of the Company and its subsidiaries. The Employee's duties, services and responsibilities will be performed under the overall supervision of the Chairman of the Board and Chief Executive Officer of the Company and consistent with the policies of the Board of Directors of the Company (the "Board of Directors"). If, during the term of this Agreement, Employee's employment with the Company is terminated for any reason, Employee will also cease to be, and shall resign as, a Director of the Company. (b) During the Employment Term (as hereinafter defined), the Employee shall devote his full business time, attention and skill to the performance of his duties, services and responsibilities, and will use his best efforts to promote the interests of the Company. The Employee will not, without the prior written approval of the Board of Directors, engage in any other business activity which would interfere with the performance of his duties, services and responsibilities hereunder or which is in violation of policies established from time to time by the Company. The foregoing shall not be construed to prohibit (i) the Employee's service as a member of the board of directors or as an officer of any non-profit trade association or civic, educational or charitable organization, or (ii) subject to the following proviso and the provisions of Section 8(b), the Employee from making personal investments of a passive nature; provided that such service or investments by the Employee do not materially interfere with the performance by the Employee of his duties, services and responsibilities hereunder. (c) During the Employment Term, the Employee shall be based at the Company's principal executive offices in Wayne, New Jersey, which executive offices may be relocated within a 100-mile radius of the Company's existing executive offices (such 100 mile radius of Wayne, New Jersey, constituting the "Principal Office City"), except for reasonably required travel in the performance of his duties, services and responsibilities hereunder. 2. Term. This Agreement and the term of employment of the Employee hereunder shall commence as of the Consummation Date (as such term is defined in the Company's Disclosure Statement dated May 22, 1998 (the "Disclosure Statement")) and shall continue in full force and effect until the fourth anniversary of the Consummation Date (the "Employment Term"), unless earlier terminated or extended as provided herein. Until such time as this Agreement commences, Employee's Employment Agreement dated October 3, 1997, shall remain in full force and effect, after which time the October 3, 1997 Agreement shall terminate. 3. Compensation. (a) In consideration of the performance by the Employee of the Employee's obligations during the Employment Term (including any services as an officer, director, employee, member of any committee of the Company or any of its subsidiaries, or otherwise), the Company will, during the Employment Term, pay the Employee a salary (the "Salary") at an annual rate of $350,000. (b) During the term of this Agreement, Employee shall be eligible to receive bonus compensation at the end of each fiscal year of the Company in an amount to be determined by the Compensation Committee (as hereinafter defined) of the Board of Directors. The bonus compensation payable to Employee for each fiscal year during the Employment Term shall be based on percentage and performance targets determined by the Compensation Committee of the Board of Directors to provide for bonus compensation of up to 125% of the Salary for a fiscal year in which the Company achieves the designated performance targets. Such bonus compensation shall be prorated (based on the number of weeks worked by Employee during the fiscal year in question) for the fiscal year ending in March 2003. The amount of bonus compensation in any year shall be determined pursuant to the Company's Executive Annual Incentive Bonus Plan (the "Bonus Plan"), which was approved on June 22, 1998, by the holders of the Company's Old Senior Notes, as defined in and pursuant to the Disclosure Statement, and is based on the achievement of performance targets in such fiscal years, which performance targets shall be established by the Compensation Committee of the Board of Directors pursuant to the Bonus Plan. (c) The Salary shall be payable in accordance with the normal payroll practices of the Company then in effect. The Salary, and all bonuses or other forms of compensation paid to the Employee hereunder, shall be subject to all applicable taxes required to be withheld by the Company pursuant to federal, state or local law. The Employee shall be solely responsible for income taxes imposed on the Employee by reasons of any cash or non-cash compensation and benefits provided hereunder, unless otherwise so indicated. (d) Employee shall be eligible to participate in the Company's Supplemental Retirement Plan for Key Executives (the "Plan"). Upon Employee's retirement 2 from the Company on or after the fourth anniversary of the Consummation Date, for purposes of calculation of the "target benefit" under the Plan, Employee shall be credited with his actual years of service with the Company, plus six (6) additional years of service under the Plan if Employee retires on or after the fourth anniversary of the Consummation Date. If the Employee's employment with the Company terminates pursuant to Section 6(a)(vi) or Section 6(a)(vii)(x) of this Agreement prior to the fourth anniversary of the Consummation Date, for purposes of calculation of the "target benefit" under the Plan, Employee shall be credited with a number of years of service equal to the sum of (a) the actual number of years of employment of the Employee with the Company and (b) six (6) years of service. If the Employee terminates his employment with the Company other than for Good Reason under this Agreement prior to the fourth anniversary of the Consummation Date, for purposes of the "target benefit" under the Plan, Employee shall be credited with a number of years of service equal to the actual years of employment of the Employee with the Company. (e) The Employee shall be eligible to participate in any employee benefit or perquisite plans (including any life insurance plan) then in effect for Senior Managers (as such term is defined in the Company's Disclosure Statement) to the extent the Employee meets the eligibility requirements for any such plan. (f) The Employee shall be eligible for four weeks vacation (in addition to the usual holidays) during each year during which the Employee serves hereunder. Such vacation shall be taken at such time or times as may be agreed between the Employee and the Company. Vacation not taken during any year during the Employment Term will not be carried forward. (g) If (i) the Employee is absent from work for more than 180 calendar days in any twelve-month period by reason of illness or incapacity (whether physical or otherwise) or (ii) the Company reasonably determines that the Employee is unable to perform his duties, services and responsibilities hereunder by reason of illness or incapacity (whether physical or otherwise) for more than 180 calendar days in any twelve-month period during the Employment Term ("Disability"), the Company shall not be obligated to pay the Employee any compensation (Salary or bonus) for any period in excess of such 180 days; furthermore, any such payments during such 180-day period shall be reduced by any amount the Employee is entitled to receive as a result of such disability under any plan provided through the Company or under state or federal law. 4. Stock Option. (a) Pursuant to the Company's 1995 Equity Incentive Plan (the "EIP") and by resolution of the Compensation Committee of the Board of Directors on May 14, 1998, and effective as of the Consummation Date, the Company hereby grants Employee options (the "Options") to purchase shares of Common Stock pursuant to subparagraph (b) of this paragraph 4. 3 (b) In connection with the Consummation of the Plan of Reorganization as defined in the Disclosure Statement and subject to: (1) the approval of the EIP by the holders of the Company's Old Senior Notes as described in the Disclosure Statement, which approval was obtained on June 22, 1998; and (2) confirmation of the stock option grant in a letter from the Company's General Counsel in the form attached hereto as Exhibit A; Messrs. Harris, Philbin, Partridge and Freimark, as "Senior Managers", will be granted Options on the Consummation Date under the EIP to purchase an aggregate of 2,138,692 shares of Grand Union's New 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 the Options are earlier terminated. The Options will be granted to the Senior Managers in five tranches and exercisable as follows: (i) 306,122 Options exercisable on the Consummation Date at an exercise price of $12.32 per share; (ii) 466,176 Options exercisable when fiscal year end earnings before interest, taxes, depreciation, and amortization without regard to any extraordinary gains or losses ("EBITDA") as determined in accordance with generally accepted accounting principles 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, without the issuance of fractional shares. Based upon the Company's audited financial statements, 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 Options. Subject to the provisions of paragraphs (c), (d) and (e) of this Section 4, 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 Consummation Date. Except as described in the preceding sentence and except for transfers in connection with estate planning, the Options and Option Shares will not be transferable during the term of a Senior Manager's employment. (c) Treatment of Options Upon Termination Within Twelve Months Following A Change of Control. For purposes of this Agreement, a "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 of the Company; provided, however, that no Change of Control shall occur by reason of the issuance of Common Stock to holders of the Old Senior Notes on the Consummation Date pursuant to the Plan of Reorganization. If the Employee's employment with the Company terminates pursuant to Section 6(a)(vi) or Section 4 6(a)(vii)(x) hereof within 12 months following a Change of Control, Options (subject to the limitations of the following sentence) shall immediately become vested and exercisable by Employee (or Employee's executor or administrator or the person or persons to whom the Options are transferred by will or the applicable laws of descent and distribution) at any time up to and including thirty days after the effective date of such termination of employment after which all Options shall terminate. Subject to the preceding sentence, Options shall vest and become exercisable based upon the Enterprise Value (as hereinafter defined) of the Company at the time of the Change of Control pursuant to the following schedule: 1) if the Enterprise Value is less than $812.5 million, only the Options from tranche 1 shall be vested and exercisable; 2) if the Enterprise Value is equal to or greater than $812.5 million, but less than $877.5 million, only the Options from tranches 1 and 2 shall be vested and exercisable; 3) if the Enterprise Value is equal to or greater than $877.5 million, but less than $942.5 million, only the Options from tranches 1, 2 and 3 shall be vested and exercisable; 4) if the Enterprise Value is equal to or greater than $942.5 million, but less than $1,007.5 million, only the Options from tranches 1, 2, 3 and 4 shall be vested and exercisable; 5) if the Enterprise Value is equal to or greater than $1,007.5 million, all Options shall be vested and exercisable; and 6) all Options which are not vested and exercisable in accordance with foregoing (1) - (5) shall terminate and become null and void as of the effective date of such termination. For purposes hereof, "Enterprise Value" shall mean the value of the outstanding Common Stock of the Company on the date of the Change of Control based upon the price per share paid in the Change of Control transaction plus the dollar value of outstanding net debt ($355,400,000) at the Effective Date. (d) Treatment of Options Upon Termination Other Than Within Twelve Months Following A Change of Control. If the Employee's employment with the Company terminates pursuant to Section 6(a)(i), 6(a)(ii), or 6(a)(v) hereof, or Section 6(a)(vi) or Section 6(a)(vii)(x) hereof not within 12 months following a Change of Control, all Options (subject to the limitations of the following sentence) shall immediately vest to the Employee (or Employee's executor or administrator or the person or persons to whom the Options are transferred by will or the applicable laws of descent and distribution) and shall remain exercisable by Employee through and until the fourth anniversary of the Consummation Date, such exercisability subject to the EBITDA hurdles set forth in paragraph (b) of this Section 4. (e) If the employment of Employee with the Company shall terminate for any reason other than as specifically provided in paragraphs (c) and (d) of this Section 4, including, without limitation, termination by the Company for "Cause" or termination by the Employee for any reason other than Good Reason, all vested Options shall remain exercisable by Employee through and until the fourth anniversary of the Consummation Date, such exercisability subject to the EBITDA hurdles set forth in paragraph (b) of this Section 4 and all unvested Options shall terminate and become null and void, as of the effective date of such termination. 5 5. Relocation and Relocation Expenses. (a) The Employee agrees that, during the Employment Term, he shall maintain, at his own cost and expense, his principal residence within a 100-mile radius of Wayne, New Jersey. Employee shall continue to be eligible for the full benefits available, if any, under the Company's Executive Relocation Program. (b) During the Employment Term, the Employee shall be entitled to reimbursement from the Company for reasonable and necessary travel and related expenses between the mid-western United States and Wayne, New Jersey, incurred by the Employee and/or Employee's immediate family, upon presentation to the Company of valid receipts evidencing such expenses, including round trip air fare for the Employee and his immediate family between the New York/New Jersey metropolitan area and the mid-western United States. The reimbursement of expenses under this sub-paragraph shall be taxable income to Employee and shall be subject to appropriate gross-up procedures in order to make Employee whole for such expenses. 6. Termination. (a) Except as otherwise provided in this Agreement, the employment of Employee hereunder and the Employment Term shall terminate upon the earliest to occur of the dates specified below: (i) the close of business on the date of expiration of the Employment Term; (ii) the close of business on the date of the Employee's death; (iii) the close of business on an early termination date mutually agreed to in writing by the Company and the Employee; (iv) the close of business on the day on which the Company shall have delivered to the Employee a written notice of the Company's election to terminate his employment for "Cause" (as defined in Section 6(c) hereof); (v) the close of business on the day on which the Company shall have delivered to the Employee a written notice of the Company's election to terminate his employment because of Disability; (vi) the close of business on the day following the date on which the Board of Directors shall have adopted a resolution terminating the employment of the Employee hereunder and such termination is not for death, Cause or Disability; or 6 (vii) the close of business on the date which is five business days after the date on which the Employee delivers to the Company a written notice of the Employee's election to terminate his employment hereunder (x) for "Good Reason" (as defined in Section 6(d) hereof) or (y) for any other reason. (b) Any purported termination by the Company or by the Employee pursuant to Section 6(a) (iv)-(vii) hereof shall be communicated by written "Notice of Termination" to the other party. For purposes of this Agreement, a "Notice of Termination" shall mean a written notice which indicates the specific termination provision in this Agreement relied upon and which sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Employee's employment under the provision so indicated. For purposes of this Agreement, no such purported termination shall be effective without delivery of such Notice of Termination. (c) For purposes of this Agreement, termination of employment for "Cause" shall mean termination based on (i) the Employee's material breach of this Agreement, or (ii) any other conduct by the Employee constituting valid cause for termination under the laws of the State of New Jersey. (d) For purposes of this Agreement, the term "Good Reason" shall mean any material breach by the Company of this Agreement; provided, however, that Employee first delivers written notice thereof to the General Counsel of the Company and the Company shall have failed to cure such breach within thirty (30) days after receipt of such written notice. (e) In the event of termination of this Agreement, for whatever reason, the Employee agrees to cooperate with the Company and to be reasonably available to the Company with respect to continuing and/or future matters arising out of the Employee's employment or any other relationship with the Company, whether such matters are business-related, legal or otherwise. The Company agrees to reimburse the Employee for the Employee's reasonable travel expenses incurred in complying with the terms of this paragraph upon delivery by the Employee to the Company of valid receipts for such expenses. The provisions of this paragraph shall survive termination of this Agreement. 7. Termination Payments (a) Upon Termination Within Twelve Months of a Change of Control. If, within 12 months following a "Change of Control," the Employee's employment with the Company terminates for whatever reason, the Company will pay the Employee any portion of the Salary accrued hereunder on or prior to the date of such termination, but not paid. If, within 12 months following a "Change of Control," the Employee's employment with the Company terminates pursuant to Section 6(a)(vi) or Section 6(a)(vii)(x) hereof, the Company will pay the Employee any portion of Employee's bonus compensation pursuant to Section 3(b) hereof 7 which has accrued hereunder on or prior to the date of termination but has not been paid (the "Prorata Bonus"). The Prorata Bonus shall be calculated by: (i) annualizing the Company's performance through the date of termination for the fiscal year in question; (ii) determining the bonus compensation due to the Employee pursuant to Section 3(b) hereof on the basis of the Company's annualized results for the fiscal year in question; and (iii) prorating the bonus compensation based on the number of weeks worked by the Employee during the fiscal year in question. Except for purposes of this Section 7, the Employee's bonus compensation pursuant to Section 3(b) for any fiscal year shall not be deemed to have been accrued prior to the completion of the fiscal year in question. If, within 12 months following a "Change of Control," the Employee's employment with the Company terminates pursuant to Section 6(a)(vi) or Section 6(a)(vii)(x) hereof, the Company will, within 30 days of such termination, pay the Employee lump sum severance pay in an amount equal to the product of (x) 2.99 times (y) 120% of such Employee's base salary then in effect. (b) Upon Termination Not Within Twelve Months of a Change of Control. If the Employee's employment with the Company terminates for whatever reason where paragraph 7(a) does not apply, the Company will pay the Employee any portion of the Salary accrued hereunder on or prior to the date of termination but not paid. If the Employee's employment with the Company terminates pursuant to Section 6(a)(vi) or Section 6(a)(vii)(x) hereof, but not within twelve months of a Change of Control, the Company will pay the Employee his Prorata Bonus as calculated in the manner described in paragraph 7(a). Except for purposes of this Section 7, the Employee's bonus compensation pursuant to Section 3(b) for any fiscal year shall not be deemed to have been accrued prior to the completion of the fiscal year in question. If the Employee's employment with the Company terminates pursuant to Section 6(a)(vi) or Section 6(a)(vii)(x) hereof, the Company will continue to pay the Employee an amount equal to the Employee's Salary (at the salary rate in effect on the date of termination of the Employee's employment hereunder) until the fourth anniversary of the Consummation Date. (c) The foregoing payments upon termination shall constitute the exclusive payments due the Employee upon termination under this Agreement, but shall have no effect on any benefits which may be due the Employee under any plan of the Company which provides benefits after termination of employment. 8. Employee Covenants. (a) Unauthorized Disclosure. The Employee agrees and understands that in the Employee's position with the Company, the Employee will be exposed to and receive information relating to the confidential affairs of the Company, including but not limited to technical information, business and marketing plans, strategies, customer information, other information concerning the Company's products, promotions, development, financing, expansion plans, business policies and practices, and other forms of information considered by the Company to be confidential and in the nature of trade secrets. Except to the extent that the 8 proper performance of the Employee's duties, services and responsibilities hereunder may require disclosure, and except as such information (i) was known to the Employee prior to his employment by the Company or (ii) was or becomes generally available to the public other than as a result of a disclosure by the Employee in violation of the provisions of this Section 8(a), the Employee agrees that during the Employment Term and thereafter the Employee will keep such information confidential and not disclose such information, either directly or indirectly, to any third person or entity without the prior written consent of the Company. This confidentiality covenant has no temporal, geographical or territorial restriction. Upon termination of the Employee's employment under this Agreement, the Employee will promptly supply to the Company all property, keys, notes, memoranda, writings, lists, files, reports, customer lists, correspondence, tapes, disks, cards, surveys, maps, logs, machines, technical data or any other tangible product or document which has been produced by, received by or otherwise submitted to the Employee during or prior to the Employment Term. (b) Non-competition. By and in consideration of the Company's entering into this Agreement and the Salary and benefits to be provided by the Company hereunder, and further in consideration of the Employee's exposure to the proprietary information of the Company, the Employee agrees that, subject to the provisions of the last two sentences of Section 1(b), the Employee will not, during the Employment Term, directly or indirectly own, manage, operate, join, control, be employed by, or participate in the ownership, management, operation or control of or be connected in any manner, including but not limited to holding the positions of shareholder, director, officer, consultant, independent contractor, employee, partner, or investor, with any Competing Enterprise. For purposes of this paragraph, the term "Competing Enterprise" shall mean any person, corporation, partnership or other entity operating one or more supermarkets within a ten (10) mile radius of any Company store if the aggregate of such Company stores (x) represent ten percent (10%) or more of the total number of Company stores operating at the date of termination (or other applicable date invoking the application of this non-compete clause) or (y) account for ten percent (10%) or more of the annual sales volume of the Company for the fiscal year immediately preceding the year of termination (or other applicable date invoking application of this non-compete clause). For this purpose, (1) "supermarket" means any store which is part of a supermarket or combination store chain or is a warehouse club selling grocery and perishable items to the public and (2) any entity operating supermarkets includes any wholesaler to independently-owned supermarkets operating under the same tradename. The prohibition of this clause (b) shall not be deemed to prevent Employee from owning 1% or less of any class of equity securities of an entity that has a class of equity securities registered under Section 12 of the Securities Exchange Act of 1934, as amended. Notwithstanding anything to the contrary in this Section 8(b), the non-competition clause contained in this Section 8(b) shall immediately terminate on the effective date of termination of the Employee's employment with the Company unless such termination is by the Company for Cause or is by the Employee without Good Reason, in which case the non-competition clause contained in this Section 8(b) shall remain in full force and effect until the fourth anniversary of the Consummation Date. 9 (c) Non-solicitation. During the Employment Term and for a period of two years thereafter, the Employee shall not interfere with the Company's relationship with, or endeavor to entice away from the Company, any person who at any time during the Employment Term was an employee of the Company. (d) Transactions Offered to the Corporation; Proprietary Materials. During the term of his employment hereunder, Employee agrees to bring to the attention of the Board of Directors or the Chief Financial Officer, all proposals, business opportunities or investments of whatever nature, in areas in which the Company and/or any of its subsidiary companies is active or may be interested in becoming active, which are created or devised by Employee or come to the attention of Employee and which might reasonably be expected to be of interest to the Company and/or any its subsidiary companies. Without limiting the generality of the foregoing, Employee acknowledges and agrees that memoranda, notes, records and other documents made or compiled by Employee or made available to Employee during the term of this Agreement concerning the business and/or activities of the Company and/or any of its subsidiary companies shall be the Company's property and shall be delivered by Employee to the Chief Financial Officer upon termination of this Agreement or at any other time at the request of the Board of Directors. (e) Remedies. The Employee agrees that any breach of the terms of this Section 8 would result in irreparable injury and damage to the Company for which the Company would have no adequate remedy at law; the Employee therefore also agrees that in the event of said breach or any threat of breach, the Company shall be entitled to an immediate injunction and restraining order to prevent such breach and/or threatened breach and/or continued breach by the Employee and/or any and all persons and/or entities acting for and/or with the Employee, without having to prove damages, in addition to any other remedies to which the Company may be entitled at law or in equity. The terms of this paragraph shall not prevent the Company from pursuing any other available remedies for any breach or threatened breach hereof, including but not limited to the recovery of damages from the Employee. The provisions of subsections (a), (b), (c), (d) and (e) of this Section 8 shall survive any termination of this Agreement and the Employment Term. The existence of any claim or cause of action by the Employee against the Company, whether predicated on this Agreement or otherwise, shall not constitute a defense to the enforcement by the Company of the covenants and agreements of this Section 8. 9. Notices. Any notice or other communication required or permitted hereunder shall be in writing and shall be deemed to have been given (i) if personally delivered, when so delivered, or (ii) if mailed, three (3) business days after having been placed in the United States mail, registered or certified, postage prepaid, return receipt requested, addressed to the party to whom it is directed at the address set forth below: 10 If to the Company: The Grand Union Company 201 Willowbrook Boulevard Wayne, New Jersey 07470 Attention: one copy to the Chief Financial Officer and one copy to the General Counsel If to the Employee: Gary M. Philbin The Grand Union Company 201 Willowbrook Boulevard Wayne, New Jersey 07470 with a copy to Employee's local address as reflected in the Company's records or to such other address as to which notice is given pursuant hereto. 10. Binding Effect/Assignment. This Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective heirs, executors, personal representatives, estates, successors (including, without limitation, by way of merger) and assigns. Notwithstanding the provisions of the immediately preceding sentence, the Employee shall not assign all or any portion of this Agreement without the prior written consent of the Company. 11. Entire Agreement. With the exception of the promissory note executed by the parties on October 3, 1997, this Agreement sets forth the entire understanding of the parties hereto with respect to the subject matter hereof and supersedes, as of the Consummation Date, all prior agreements, written or oral, between them as to such subject matter, including that certain Employment Agreement between Employee and the Company dated October 3, 1997. The aforementioned promissory note of October 3, 1997, remains in full force and effect. This Agreement may not be amended, nor may any provision hereof be modified or waived, except by an instrument in writing duly signed by the party to be charged. 12. Severability. If any provision of this Agreement, or any application thereof to any circumstances, is invalid, in whole or in part, such provision or application shall to that extent be severable and shall not affect other provisions or applications of this Agreement. 13. Governing Law. This Agreement shall be governed by and construed in accordance with the internal laws of the State of New Jersey, without reference to the principles of conflict of laws. 11 14. Modifications and Waivers. No provisions of this Agreement may be modified, altered or amended except by an instrument in writing executed by the parties hereto. No waiver by either party hereto of any breach by the other party hereto of any provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions at the time or at any prior or subsequent time. 15. Headings. The headings contained herein are solely for the purposes of reference, are not part of this Agreement and shall not in any way affect the meaning or interpretation of this Agreement. 16. Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed to be an original but all of which together shall constitute one and the same instrument. IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by authority of its Board of Directors, and the Employee has hereunto set his hand, as of the day and year first above written. THE GRAND UNION COMPANY By: /s/ J. Wayne Harris --------------------------------------- Name: J. Wayne Harris Title: Chairman of the Board and Chief Executive Officer /s/ Gary M. Philbin --------------------------------------- Gary M. Philbin (Employee) 12 EXHIBIT A August 13, 1998 Gary M. Philbin President and Chief Merchandising Officer The Grand Union Company 201 Willowbrook Boulevard Wayne, New Jersey 07470 Re: Stock Option Grant Dear Mr. Philbin: This is to confirm the stock option grant made to you by action of the Compensation Committee of the Board of Directors on May 14, 1998, pursuant to the Plan of Reorganization as detailed in the Company's Disclosure Statement dated May 22, 1998 and as a part of your Employment Agreement dated August 13, 1998. In this regard, effective August 17, 1998 (the "Consummation Date"), you have been granted 427,738 Non-Qualified Stock Options (NQSO) giving you the right to purchase a total of 427,738 Option Shares of Grand Union Common Stock (i.e., one share of Common Stock per Option). The particular terms governing your Option Grant as set forth in the Employment Agreement are confirmed below. Additionally, attached hereto is a copy of the 1995 Equity Incentive Plan ("EIP"), as modified and amended, which covers the standard terms and conditions of Option Grants to our Company's associates. Any terms set forth below which differ from or modify the terms contained in the EIP shall take precedence over the terms of the EIP. o Exercise Dates and Exercise Prices - Your Options are exercisable pursuant to the following schedule: 1. 61,224 Options exercisable on the Consummation Date at an exercise price of $12.32 per Option; 2. 93,235 Options exercisable upon the Company's attainment of EBITDA of an aggregate of at least $125 million for any fiscal year at an exercise price of $12.32 per Option; 3. 62,785 Options exercisable upon the Company's attainment of EBITDA of an aggregate of at least $135 million for any fiscal year at an exercise price of $12.32 per Option; 4. 63,419 Options exercisable upon the Company's attainment of EBITDA of an aggregate of at least $145 million for any fiscal year at an exercise price of $10.65 per Option; and 13 5. 147,075 Options exercisable upon the Company's attainment of EBITDA of an aggregate of at least $155 million for any fiscal year at an exercise price of $10.65 per Option. o Vesting, Forfeiture and Transferabililty 1. Options under this NQSO will vest ratably across each of the five exercise tranches listed above, as follows: a. one-fifth on the Consummation Date; b. one-fifth on the first three anniversaries of the Consummation Date; and c. one-fifth on the ninetieth day immediately preceding the fourth anniversary of the Consummation Date. 2. Forfeiture of Options under this NQSO shall be governed by paragraph 4 of the Employment Agreement. 3. Vested Options and Option Shares under this NQSO will become transferable as set forth below: a. Prior to the first anniversary of the Consummation Date - 0 Options and Option Shares; b. On and after the first anniversary of the Consummation Date - 85,548 Options and Option Shares; c. On and after the second anniversary of the Consummation Date - 85,547 additional Options and Option Shares; d. On and after the third anniversary of the Consummation Date - 128,322 additional Options and Option Shares; and e. On and after the fourth anniversary of the Consummation Date - 128,321 additional Options and Option Shares. 4. Except as set forth in paragraph 3 above, and except for agreed-upon family estate planning transfers, Options and Option Shares under this NQSO will not be transferred prior to the fourth anniversary of the Consummation Date. Thereafter, vested Options and Option Shares will be freely transferable, subject to applicable securities laws. o Duration of Options - The latest date on which your Options may be exercised is the fourth anniversary of the Consummation Date. o Events Affecting Your Options - Sections 4(c), 4(d) and 4(e) of the Employment Agreement explains the status of your Options in the event of your termination of employment. 14 Please acknowledge your receipt and acceptance of your Stock Option Grant by signing in the space provided below and returning the document to me. Very truly yours, /s/ Glenn J. Smith, Esq. ---------------------------------- Glenn J. Smith, Esq. Corporate Vice President and General Counsel Acknowledged and Accepted - ------------------------- 15 EX-10.5 7 EMPLOYMENT AGREEMENT BETWEEN GRAND UNION AND JEFFREY P. FREIMARK Exhibit No. 10.5 EMPLOYMENT AGREEMENT AGREEMENT made as of this 13th day of August, 1998, by and between The Grand Union Company, a Delaware corporation (the "Company"), and Jeffrey P. Freimark (the "Employee"). WHEREAS, the Company desires to retain the exclusive services of Employee and Employee desires to be employed by the Company for the term of this Agreement; NOW, THEREFORE, in consideration of the premises and of the mutual covenants contained herein, the parties hereto agree as follows: 1. Duties. (a) The Employee shall serve as a Executive Vice President and Chief Financial Officer of the Company or such other position as may be agreed between the Employee and the Company, and shall perform such duties, services and responsibilities as are consistent with such positions, including the general management and supervision of the business and personnel of the Company and its subsidiaries. The Employee's duties, services and responsibilities will be performed under the overall supervision of the Chairman of the Board and Chief Executive Officer of the Company and consistent with the policies of the Board of Directors of the Company (the "Board of Directors"). (b) During the Employment Term (as hereinafter defined), the Employee shall devote his full business time, attention and skill to the performance of his duties, services and responsibilities, and will use his best efforts to promote the interests of the Company. The Employee will not, without the prior written approval of the Board of Directors, engage in any other business activity which would interfere with the performance of his duties, services and responsibilities hereunder or which is in violation of policies established from time to time by the Company. The foregoing shall not be construed to prohibit (i) the Employee's service as a member of the board of directors or as an officer of any non-profit trade association or civic, educational or charitable organization, or (ii) subject to the following proviso and the provisions of Section 8(b), the Employee from making personal investments of a passive nature; provided that such service or investments by the Employee do not materially interfere with the performance by the Employee of his duties, services and responsibilities hereunder. (c) During the Employment Term, the Employee shall be based at the Company's principal executive offices in Wayne, New Jersey, which executive offices may be relocated within a 100-mile radius of the Company's existing executive offices (such 100 mile radius of Wayne, New Jersey, constituting the "Principal Office City"), except for reasonably required travel in the performance of his duties, services and responsibilities hereunder. 2. Term. This Agreement and the term of employment of the Employee hereunder shall commence as of the Consummation Date (as such term is defined in the Company's Disclosure Statement dated May 22, 1998 (the "Disclosure Statement")) and shall continue in full force and effect until the fourth anniversary of the Consummation Date (the "Employment Term"), unless earlier terminated or extended as provided herein. Until such time as this Agreement commences, Employee shall be employed pursuant to the terms of his employment offer dated January 29, 1997, after which time the January 29, 1997 offer letter shall terminate. 3. Compensation. (a) In consideration of the performance by the Employee of the Employee's obligations during the Employment Term (including any services as an officer, director, employee, member of any committee of the Company or any of its subsidiaries, or otherwise), the Company will, during the Employment Term, pay the Employee a salary (the "Salary") at an annual rate of $325,000. (b) During the term of this Agreement, Employee shall be eligible to receive bonus compensation at the end of each fiscal year of the Company in an amount to be determined by the Compensation Committee (as hereinafter defined) of the Board of Directors. The bonus compensation payable to Employee for each fiscal year during the Employment Term shall be based on percentage and performance targets determined by the Compensation Committee of the Board of Directors to provide for bonus compensation of up to 100% of the Salary for a fiscal year in which the Company achieves the designated performance targets. Such bonus compensation shall be prorated (based on the number of weeks worked by Employee during the fiscal year in question) for the fiscal year ending in March 2003. The amount of bonus compensation in any year shall be determined pursuant to the Company's Executive Annual Incentive Bonus Plan (the "Bonus Plan"), which was approved on June 22, 1998, by the holders of the Company's Old Senior Notes, as defined in and pursuant to the Disclosure Statement, and is based on the achievement of performance targets in such fiscal years, which performance targets shall be established by the Compensation Committee of the Board of Directors pursuant to the Bonus Plan. (c) The Salary shall be payable in accordance with the normal payroll practices of the Company then in effect. The Salary, and all bonuses or other forms of compensation paid to the Employee hereunder, shall be subject to all applicable taxes required to be withheld by the Company pursuant to federal, state or local law. The Employee shall be solely responsible for income taxes imposed on the Employee by reasons of any cash or non-cash compensation and benefits provided hereunder, unless otherwise so indicated. (d) Employee shall be eligible to participate in the Company's Supplemental Retirement Plan for Key Executives (the "Plan"). Upon Employee's retirement from the Company on or after the fourth anniversary of the Consummation Date, for purposes 2 of calculation of the "target benefit" under the Plan, Employee shall be credited with his actual years of service with the Company, plus four (4) additional years of service under the Plan if Employee retires on or after the fourth anniversary of the Consummation Date. If the Employee's employment with the Company terminates pursuant to Section 6(a)(vi) or Section 6(a)(vii)(x) of this Agreement prior to the fourth anniversary of the Consummation Date, for purposes of calculation of the "target benefit" under the Plan, Employee shall be credited with a number of years of service equal to the sum of (a) the actual number of years of employment of the Employee with the Company and (b) four (4) years of service. If the Employee terminates his employment with the Company other than for Good Reason under this Agreement prior to the fourth anniversary of the Consummation Date, for purposes of the "target benefit" under the Plan, Employee shall be credited with a number of years of service equal to the actual years of employment of the Employee with the Company. (e) The Employee shall be eligible to participate in any employee benefit or perquisite plans (including any life insurance plan) then in effect for Senior Managers (as such term is defined in the Company's Disclosure Statement) to the extent the Employee meets the eligibility requirements for any such plan. (f) The Employee shall be eligible for four weeks vacation (in addition to the usual holidays) during each year during which the Employee serves hereunder. Such vacation shall be taken at such time or times as may be agreed between the Employee and the Company. Vacation not taken during any year during the Employment Term will not be carried forward. (g) If (i) the Employee is absent from work for more than 180 calendar days in any twelve-month period by reason of illness or incapacity (whether physical or otherwise) or (ii) the Company reasonably determines that the Employee is unable to perform his duties, services and responsibilities hereunder by reason of illness or incapacity (whether physical or otherwise) for more than 180 calendar days in any twelve-month period during the Employment Term ("Disability"), the Company shall not be obligated to pay the Employee any compensation (Salary or bonus) for any period in excess of such 180 days; furthermore, any such payments during such 180-day period shall be reduced by any amount the Employee is entitled to receive as a result of such disability under any plan provided through the Company or under state or federal law. 4. Stock Option. (a) Pursuant to the Company's 1995 Equity Incentive Plan (the "EIP") and by resolution of the Compensation Committee of the Board of Directors on May 14, 1998, and effective as of the Consummation Date, the Company hereby grants Employee options (the "Options") to purchase shares of Common Stock pursuant to subparagraph (b) of this paragraph 4. 3 (b) In connection with the Consummation of the Plan of Reorganization as defined in the Disclosure Statement and subject to: (1) the approval of the EIP by the holders of the Company's Old Senior Notes as described in the Disclosure Statement, which approval was obtained on June 22, 1998; and (2) confirmation of the stock option grant in a letter from the Company's General Counsel in the form attached hereto as Exhibit A; Messrs. Harris, Philbin, Partridge and Freimark, as "Senior Managers", will be granted Options on the Consummation Date under the EIP to purchase an aggregate of 2,138,692 shares of Grand Union's New 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 the Options are earlier terminated. The Options will be granted to the Senior Managers in five tranches and exercisable as follows: (i) 306,122 Options exercisable on the Consummation Date at an exercise price of $12.32 per share; (ii) 466,176 Options exercisable when fiscal year end earnings before interest, taxes, depreciation, and amortization without regard to any extraordinary gains or losses ("EBITDA") as determined in accordance with generally accepted accounting principles 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, without the issuance of fractional shares. Based upon the Company's audited financial statements, 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 Options. Subject to the provisions of paragraphs (c), (d) and (e) of this Section 4, 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 Consummation Date. Except as described in the preceding sentence and except for transfers in connection with estate planning, the Options and Option Shares will not be transferable during the term of a Senior Manager's employment. (c) Treatment of Options Upon Termination Within Twelve Months Following A Change of Control. For purposes of this Agreement, a "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 of the Company; provided, however, that no Change of Control shall occur by reason of the issuance of Common Stock to holders of the Old Senior Notes on the Consummation Date pursuant to the Plan of Reorganization. If the Employee's employment with the Company terminates pursuant to Section 6(a)(vi) or Section 6(a)(vii)(x) hereof within 12 months following a Change of Control, Options (subject to the 4 limitations of the following sentence) shall immediately become vested and exercisable by Employee (or Employee's executor or administrator or the person or persons to whom the Options are transferred by will or the applicable laws of descent and distribution) at any time up to and including thirty days after the effective date of such termination of employment after which all Options shall terminate. Subject to the preceding sentence, Options shall vest and become exercisable based upon the Enterprise Value (as hereinafter defined) of the Company at the time of the Change of Control pursuant to the following schedule: 1) if the Enterprise Value is less than $812.5 million, only the Options from tranche 1 shall be vested and exercisable; 2) if the Enterprise Value is equal to or greater than $812.5 million, but less than $877.5 million, only the Options from tranches 1 and 2 shall be vested and exercisable; 3) if the Enterprise Value is equal to or greater than $877.5 million, but less than $942.5 million, only the Options from tranches 1, 2 and 3 shall be vested and exercisable; 4) if the Enterprise Value is equal to or greater than $942.5 million, but less than $1,007.5 million, only the Options from tranches 1, 2, 3 and 4 shall be vested and exercisable; 5) if the Enterprise Value is equal to or greater than $1,007.5 million, all Options shall be vested and exercisable; and 6) all Options which are not vested and exercisable in accordance with foregoing (1) - (5) shall terminate and become null and void as of the effective date of such termination. For purposes hereof, "Enterprise Value" shall mean the value of the outstanding Common Stock of the Company on the date of the Change of Control based upon the price per share paid in the Change of Control transaction plus the dollar value of outstanding net debt ($355,400,000) at the Effective Date. (d) Treatment of Options Upon Termination Other Than Within Twelve Months Following A Change of Control. If the Employee's employment with the Company terminates pursuant to Section 6(a)(i), 6(a)(ii), or 6(a)(v) hereof, or Section 6(a)(vi) or Section 6(a)(vii)(x) hereof not within 12 months following a Change of Control, all Options (subject to the limitations of the following sentence) shall immediately vest to the Employee (or Employee's executor or administrator or the person or persons to whom the Options are transferred by will or the applicable laws of descent and distribution) and shall remain exercisable by Employee through and until the fourth anniversary of the Consummation Date, such exercisability subject to the EBITDA hurdles set forth in paragraph (b) of this Section 4. (e) If the employment of Employee with the Company shall terminate for any reason other than as specifically provided in paragraphs (c) and (d) of this Section 4, including, without limitation, termination by the Company for "Cause" or termination by the Employee for any reason other than Good Reason, all vested Options shall remain exercisable by Employee through and until the fourth anniversary of the Consummation Date, such exercisability subject to the EBITDA hurdles set forth in paragraph (b) of this Section 4 and all unvested Options shall terminate and become null and void, as of the effective date of such termination. 5. Relocation and Relocation Expenses. 5 The Employee agrees that, during the Employment Term, he shall maintain, at his own cost and expense, his principal residence within a 100-mile radius of Wayne, New Jersey. Employee shall continue to be eligible for the full benefits available, if any, under the Company's Executive Relocation Program. The reimbursement of expenses under this sub-paragraph shall be taxable income to Employee and shall be subject to appropriate gross-up procedures in order to make Employee whole for such expenses. 6. Termination. (a) Except as otherwise provided in this Agreement, the employment of Employee hereunder and the Employment Term shall terminate upon the earliest to occur of the dates specified below: (i) the close of business on the date of expiration of the Employment Term; (ii) the close of business on the date of the Employee's death; (iii) the close of business on an early termination date mutually agreed to in writing by the Company and the Employee; (iv) the close of business on the day on which the Company shall have delivered to the Employee a written notice of the Company's election to terminate his employment for "Cause" (as defined in Section 6(c) hereof); (v) the close of business on the day on which the Company shall have delivered to the Employee a written notice of the Company's election to terminate his employment because of Disability; (vi) the close of business on the day following the date on which the Board of Directors shall have adopted a resolution terminating the employment of the Employee hereunder and such termination is not for death, Cause or Disability; or (vii) the close of business on the date which is five business days after the date on which the Employee delivers to the Company a written notice of the Employee's election to terminate his employment hereunder (x) for "Good Reason" (as defined in Section 6(d) hereof) or (y) for any other reason. (b) Any purported termination by the Company or by the Employee pursuant to Section 6(a) (iv)-(vii) hereof shall be communicated by written "Notice of Termination" to the other party. For purposes of this Agreement, a "Notice of Termination" shall mean a written notice which indicates the specific termination provision in this Agreement relied upon and which sets forth in reasonable detail the facts and circumstances claimed to 6 provide a basis for termination of the Employee's employment under the provision so indicated. For purposes of this Agreement, no such purported termination shall be effective without delivery of such Notice of Termination. (c) For purposes of this Agreement, termination of employment for "Cause" shall mean termination based on (i) the Employee's material breach of this Agreement, or (ii) any other conduct by the Employee constituting valid cause for termination under the laws of the State of New Jersey. (d) For purposes of this Agreement, the term "Good Reason" shall mean any material breach by the Company of this Agreement; provided, however, that Employee first delivers written notice thereof to the General Counsel of the Company and the Company shall have failed to cure such breach within thirty (30) days after receipt of such written notice. (e) In the event of termination of this Agreement, for whatever reason, the Employee agrees to cooperate with the Company and to be reasonably available to the Company with respect to continuing and/or future matters arising out of the Employee's employment or any other relationship with the Company, whether such matters are business-related, legal or otherwise. The Company agrees to reimburse the Employee for the Employee's reasonable travel expenses incurred in complying with the terms of this paragraph upon delivery by the Employee to the Company of valid receipts for such expenses. The provisions of this paragraph shall survive termination of this Agreement. 7. Termination Payments (a) Upon Termination Within Twelve Months of a Change of Control. If, within 12 months following a "Change of Control," the Employee's employment with the Company terminates for whatever reason, the Company will pay the Employee any portion of the Salary accrued hereunder on or prior to the date of such termination, but not paid. If, within 12 months following a "Change of Control," the Employee's employment with the Company terminates pursuant to Section 6(a)(vi) or Section 6(a)(vii)(x) hereof, the Company will pay the Employee any portion of Employee's bonus compensation pursuant to Section 3(b) hereof which has accrued hereunder on or prior to the date of termination but has not been paid (the "Prorata Bonus"). The Prorata Bonus shall be calculated by: (i) annualizing the Company's performance through the date of termination for the fiscal year in question; (ii) determining the bonus compensation due to the Employee pursuant to Section 3(b) hereof on the basis of the Company's annualized results for the fiscal year in question; and (iii) prorating the bonus compensation based on the number of weeks worked by the Employee during the fiscal year in question. Except for purposes of this Section 7, the Employee's bonus compensation pursuant to Section 3(b) for any fiscal year shall not be deemed to have been accrued prior to the completion of the fiscal year in question. If, within 12 months following a "Change of Control," the Employee's employment with the Company terminates pursuant to Section 6(a)(vi) or Section 6(a)(vii)(x) hereof, the Company will, within 30 days of such termination, 7 pay the Employee lump sum severance pay in an amount equal to the product of (x) 2.99 times (y) 120% of such Employee's base salary then in effect. (b) Upon Termination Not Within Twelve Months of a Change of Control. If the Employee's employment with the Company terminates for whatever reason where paragraph 7(a) does not apply, the Company will pay the Employee any portion of the Salary accrued hereunder on or prior to the date of termination but not paid. If the Employee's employment with the Company terminates pursuant to Section 6(a)(vi) or Section 6(a)(vii)(x) hereof, but not within twelve months of a Change of Control, the Company will pay the Employee his Prorata Bonus as calculated in the manner described in paragraph 7(a). Except for purposes of this Section 7, the Employee's bonus compensation pursuant to Section 3(b) for any fiscal year shall not be deemed to have been accrued prior to the completion of the fiscal year in question. If the Employee's employment with the Company terminates pursuant to Section 6(a)(vi) or Section 6(a)(vii)(x) hereof, the Company will continue to pay the Employee an amount equal to the Employee's Salary (at the salary rate in effect on the date of termination of the Employee's employment hereunder) until the fourth anniversary of the Consummation Date. (c) The foregoing payments upon termination shall constitute the exclusive payments due the Employee upon termination under this Agreement, but shall have no effect on any benefits which may be due the Employee under any plan of the Company which provides benefits after termination of employment. 8. Employee Covenants. (a) Unauthorized Disclosure. The Employee agrees and understands that in the Employee's position with the Company, the Employee will be exposed to and receive information relating to the confidential affairs of the Company, including but not limited to technical information, business and marketing plans, strategies, customer information, other information concerning the Company's products, promotions, development, financing, expansion plans, business policies and practices, and other forms of information considered by the Company to be confidential and in the nature of trade secrets. Except to the extent that the proper performance of the Employee's duties, services and responsibilities hereunder may require disclosure, and except as such information (i) was known to the Employee prior to his employment by the Company or (ii) was or becomes generally available to the public other than as a result of a disclosure by the Employee in violation of the provisions of this Section 8(a), the Employee agrees that during the Employment Term and thereafter the Employee will keep such information confidential and not disclose such information, either directly or indirectly, to any third person or entity without the prior written consent of the Company. This confidentiality covenant has no temporal, geographical or territorial restriction. Upon termination of the Employee's employment under this Agreement, the Employee will promptly supply to the Company all property, keys, notes, memoranda, writings, lists, files, reports, customer lists, correspondence, tapes, disks, cards, surveys, maps, logs, machines, technical 8 data or any other tangible product or document which has been produced by, received by or otherwise submitted to the Employee during or prior to the Employment Term. (b) Non-competition. By and in consideration of the Company's entering into this Agreement and the Salary and benefits to be provided by the Company hereunder, and further in consideration of the Employee's exposure to the proprietary information of the Company, the Employee agrees that, subject to the provisions of the last two sentences of Section 1(b), the Employee will not, during the Employment Term, directly or indirectly own, manage, operate, join, control, be employed by, or participate in the ownership, management, operation or control of or be connected in any manner, including but not limited to holding the positions of shareholder, director, officer, consultant, independent contractor, employee, partner, or investor, with any Competing Enterprise. For purposes of this paragraph, the term "Competing Enterprise" shall mean any person, corporation, partnership or other entity operating one or more supermarkets within a ten (10) mile radius of any Company store if the aggregate of such Company stores (x) represent ten percent (10%) or more of the total number of Company stores operating at the date of termination (or other applicable date invoking the application of this non-compete clause) or (y) account for ten percent (10%) or more of the annual sales volume of the Company for the fiscal year immediately preceding the year of termination (or other applicable date invoking application of this non-compete clause). For this purpose, (1) "supermarket" means any store which is part of a supermarket or combination store chain or is a warehouse club selling grocery and perishable items to the public and (2) any entity operating supermarkets includes any wholesaler to independently-owned supermarkets operating under the same tradename. The prohibition of this clause (b) shall not be deemed to prevent Employee from owning 1% or less of any class of equity securities of an entity that has a class of equity securities registered under Section 12 of the Securities Exchange Act of 1934, as amended. Notwithstanding anything to the contrary in this Section 8(b), the non-competition clause contained in this Section 8(b) shall immediately terminate on the effective date of termination of the Employee's employment with the Company unless such termination is by the Company for Cause or is by the Employee without Good Reason, in which case the non-competition clause contained in this Section 8(b) shall remain in full force and effect until the fourth anniversary of the Consummation Date. (c) Non-solicitation. During the Employment Term and for a period of two years thereafter, the Employee shall not interfere with the Company's relationship with, or endeavor to entice away from the Company, any person who at any time during the Employment Term was an employee of the Company. (d) Transactions Offered to the Corporation; Proprietary Materials. During the term of his employment hereunder, Employee agrees to bring to the attention of the Board of Directors or the Chief Executive Officer, all proposals, business opportunities or investments of whatever nature, in areas in which the Company and/or any of its subsidiary companies is active or may be interested in becoming active, which are created or devised by Employee or come to the attention of Employee and which might reasonably be expected to be 9 of interest to the Company and/or any its subsidiary companies. Without limiting the generality of the foregoing, Employee acknowledges and agrees that memoranda, notes, records and other documents made or compiled by Employee or made available to Employee during the term of this Agreement concerning the business and/or activities of the Company and/or any of its subsidiary companies shall be the Company's property and shall be delivered by Employee to the Chief Executive Officer upon termination of this Agreement or at any other time at the request of the Board of Directors. (e) Remedies. The Employee agrees that any breach of the terms of this Section 8 would result in irreparable injury and damage to the Company for which the Company would have no adequate remedy at law; the Employee therefore also agrees that in the event of said breach or any threat of breach, the Company shall be entitled to an immediate injunction and restraining order to prevent such breach and/or threatened breach and/or continued breach by the Employee and/or any and all persons and/or entities acting for and/or with the Employee, without having to prove damages, in addition to any other remedies to which the Company may be entitled at law or in equity. The terms of this paragraph shall not prevent the Company from pursuing any other available remedies for any breach or threatened breach hereof, including but not limited to the recovery of damages from the Employee. The provisions of subsections (a), (b), (c), (d) and (e) of this Section 8 shall survive any termination of this Agreement and the Employment Term. The existence of any claim or cause of action by the Employee against the Company, whether predicated on this Agreement or otherwise, shall not constitute a defense to the enforcement by the Company of the covenants and agreements of this Section 8. 9. Notices. Any notice or other communication required or permitted hereunder shall be in writing and shall be deemed to have been given (i) if personally delivered, when so delivered, or (ii) if mailed, three (3) business days after having been placed in the United States mail, registered or certified, postage prepaid, return receipt requested, addressed to the party to whom it is directed at the address set forth below: If to the Company: The Grand Union Company 201 Willowbrook Boulevard Wayne, New Jersey 07470 Attention: one copy to the Chief Executive Officer and one copy to the General Counsel If to the Employee: Jeffrey P. Freimark The Grand Union Company 10 201 Willowbrook Boulevard Wayne, New Jersey 07470 With a copy to Employee's local address as reflected in the Company's records or to such other address as to which notice is given pursuant hereto. 10. Binding Effect/Assignment. This Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective heirs, executors, personal representatives, estates, successors (including, without limitation, by way of merger) and assigns. Notwithstanding the provisions of the immediately preceding sentence, the Employee shall not assign all or any portion of this Agreement without the prior written consent of the Company. 11. Entire Agreement. This Agreement sets forth the entire understanding of the parties hereto with respect to the subject matter hereof and supersedes, as of the Consummation Date, all prior agreements, written or oral, between them as to such subject matter, including that certain employment offer letter dated January 29, 1997. This Agreement may not be amended, nor may any provision hereof be modified or waived, except by an instrument in writing duly signed by the party to be charged. 12. Severability. If any provision of this Agreement, or any application thereof to any circumstances, is invalid, in whole or in part, such provision or application shall to that extent be severable and shall not affect other provisions or applications of this Agreement. 13. Governing Law. This Agreement shall be governed by and construed in accordance with the internal laws of the State of New Jersey, without reference to the principles of conflict of laws. 14. Modifications and Waivers. No provisions of this Agreement may be modified, altered or amended except by an instrument in writing executed by the parties hereto. No waiver by either party hereto of any breach by the other party hereto of any provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions at the time or at any prior or subsequent time. 15. Headings. The headings contained herein are solely for the purposes of reference, are not part of this Agreement and shall not in any way affect the meaning or interpretation of this Agreement. 16. Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed to be an original but all of which together shall constitute one and the same instrument. 11 IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by authority of its Board of Directors, and the Employee has hereunto set his hand, as of the day and year first above written. THE GRAND UNION COMPANY By: /s/ J. Wayne Harris -------------------------------------- Name: J. Wayne Harris Title: Chairman of the Board and Chief Executive Officer /s/ Jeffrey P. Freimark -------------------------------------- Jeffrey P. Freimark (Employee) 12 EXHIBIT A August 13, 1998 Jeffrey P. Freimark Executive Vice President and Chief Financial Officer The Grand Union Company 201 Willowbrook Boulevard Wayne, New Jersey 07470 Re: Stock Option Grant Dear Mr. Freimark: This is to confirm the stock option grant made to you by action of the Compensation Committee of the Board of Directors on May 14, 1998, pursuant to the Plan of Reorganization as detailed in the Company's Disclosure Statement dated May 22, 1998 and as a part of your Employment Agreement dated August 13, 1998. In this regard, effective August 17, 1998 (the "Consummation Date"), you have been granted 213,870 Non-Qualified Stock Options (NQSO) giving you the right to purchase a total of 213,870 Option Shares of Grand Union Common Stock (i.e., one share of Common Stock per Option). The particular terms governing your Option Grant as set forth in the Employment Agreement are confirmed below. Additionally, attached hereto is a copy of the 1995 Equity Incentive Plan ("EIP"), as modified and amended, which covers the standard terms and conditions of Option Grants to our Company's associates. Any terms set forth below which differ from or modify the terms contained in the EIP shall take precedence over the terms of the EIP. o Exercise Dates and Exercise Prices - Your Options are exercisable pursuant to the following schedule: 1. 30,612 Options exercisable on the Consummation Date at an exercise price of $12.32 per Option; 2. 46,618 Options exercisable upon the Company's attainment of EBITDA of an aggregate of at least $125 million for any fiscal year at an exercise price of $12.32 per Option; 3. 31,392 Options exercisable upon the Company's attainment of EBITDA of an aggregate of at least $135 million for any fiscal year at an exercise price of $12.32 per Option; 4. 31,709 Options exercisable upon the Company's attainment of EBITDA of an aggregate of at least $145 million for any fiscal year at an exercise price of $10.65 per Option; and 13 5. 73,539 Options exercisable upon the Company's attainment of EBITDA of an aggregate of at least $155 million for any fiscal year at an exercise price of $10.65 per Option. o Vesting, Forfeiture and Transferabililty 1. Options under this NQSO will vest ratably across each of the five exercise tranches listed above, as follows: a. one-fifth on the Consummation Date; b. one-fifth on the first three anniversaries of the Consummation Date; and c. one-fifth on the ninetieth day immediately preceding the fourth anniversary of the Consummation Date. 2. Forfeiture of Options under this NQSO shall be governed by paragraph 4 of the Employment Agreement. 3. Vested Options and Option Shares under this NQSO will become transferable as set forth below: a. Prior to the first anniversary of the Consummation Date - 0 Options and Option Shares; b. On and after the first anniversary of the Consummation Date - 42,774 Options and Option Shares; c. On and after the second anniversary of the Consummation Date - 42,774 additional Options and Option Shares; d. On and after the third anniversary of the Consummation Date - 64,161 additional Options and Option Shares; and e. On and after the fourth anniversary of the Consummation Date - 64,161 additional Options and Option Shares. 4. Except as set forth in paragraph 3 above, and except for agreed-upon family estate planning transfers, Options and Option Shares under this NQSO will not be transferred prior to the fourth anniversary of the Consummation Date. Thereafter, vested Options and Option Shares will be freely transferable, subject to applicable securities laws. o Duration of Options - The latest date on which your Options may be exercised is the fourth anniversary of the Consummation Date. o Events Affecting Your Options - Sections 4(c), 4(d) and 4(e) of the Employment Agreement explains the status of your Options in the event of your termination of employment. 14 Please acknowledge your receipt and acceptance of your Stock Option Grant by signing in the space provided below and returning the document to me. Very truly yours, /s/ Glenn J. Smith, Esq. -------------------------------- Glenn J. Smith, Esq. Corporate Vice President and General Counsel Acknowledged and Accepted - ------------------------- 15 EX-10.6 8 CREDIT AGREEMENT =============================================================================== $300,000,000 CREDIT AGREEMENT among THE GRAND UNION COMPANY, as Borrower, The Several Lenders from Time to Time Parties Hereto, WARBURG DILLON READ LLC, as Co-Advisor and Co-Arranger UBS AG, STAMFORD BRANCH, as Syndication Agent LEHMAN BROTHERS INC., as Co-Advisor and Co-Arranger LEHMAN COMMERCIAL PAPER INC., as Administrative Agent and LEHMAN COMMERCIAL PAPER INC., as Collateral Agent Dated as of August 17, 1998 =============================================================================== TABLE OF CONTENTS
Page SECTION 1. DEFINITIONS................................................................... 2 1.1 Defined Terms............................................................... 2 1.2 Other Definitional Provisions............................................... 23 SECTION 2. AMOUNT AND TERMS OF COMMITMENTS............................................... 23 2.1 Term Loan Commitments....................................................... 23 2.2 Procedure for Term Loan Borrowing........................................... 23 2.3 Repayment of Term Loans..................................................... 24 2.4 Revolving Credit Commitments................................................ 24 2.5 Procedure for Revolving Credit Borrowing.................................... 24 2.6 Swing Line Commitment....................................................... 25 2.7 Procedure for Swing Line Borrowing; Refunding of Swing Line Loans........... 25 2.8 Repayment of Loans; Evidence of Debt........................................ 27 2.9 Commitment Fees, etc. ...................................................... 28 2.10 Termination or Reduction of Revolving Credit Commitments................... 28 2.11 Optional Prepayments....................................................... 28 2.12 Mandatory Prepayments and Commitment Reductions............................ 29 2.13 Conversion and Continuation Options........................................ 30 2.14 Minimum Amounts and Maximum Number of Eurodollar Tranches.................. 31 2.15 Interest Rates and Payment Dates........................................... 31 2.16 Computation of Interest and Fees........................................... 32 2.17 Inability to Determine Interest Rate....................................... 32 2.18 Pro Rata Treatment and Payments............................................ 33 2.19 Requirements of Law........................................................ 35 2.20 Taxes .................................................................... 36 2.21 Indemnity.................................................................. 38 2.22 Illegality................................................................. 38 2.23 Change of Lending Office................................................... 39 SECTION 3. LETTERS OF CREDIT............................................................. 39 3.1 L/C Commitment.............................................................. 39 3.2 Procedure for Issuance of Letter of Credit.................................. 39 3.3 Fees and Other Charges...................................................... 40 3.4 L/C Participations.......................................................... 40 3.5 Reimbursement Obligation of the Borrower.................................... 41 3.6 Obligations Absolute........................................................ 41 3.7 Letter of Credit Payments................................................... 42 3.8 Applications................................................................ 42 SECTION 4. REPRESENTATIONS AND WARRANTIES................................................ 42 4.1 Financial Condition......................................................... 42 4.2 No Change................................................................... 43 4.3 Corporate Existence; Compliance with Law.................................... 43 4.4 Corporate Power; Authorization; Enforceable Obligations..................... 43
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Page 4.5 No Legal Bar................................................................. 43 4.6 No Material Litigation....................................................... 44 4.7 No Default................................................................... 44 4.8 Ownership of Property; Liens................................................. 44 4.9 Intellectual Property........................................................ 44 4.10 Taxes ..................................................................... 44 4.11 Federal Regulations......................................................... 45 4.12 Labor Matters............................................................... 45 4.13 ERISA ..................................................................... 45 4.14 Investment Company Act; Other Regulations................................... 45 4.15 Subsidiaries................................................................ 46 4.16 Use of Proceeds............................................................. 46 4.17 Environmental Matters....................................................... 46 4.18 Accuracy of Information, etc................................................ 47 4.19 Security Documents.......................................................... 47 4.20 Solvency.................................................................... 48 4.21 Regulation H................................................................ 48 SECTION 5. CONDITIONS PRECEDENT........................................................... 48 5.1 Conditions to Initial Extension of Credit.................................... 48 5.2 Conditions to Each Extension of Credit....................................... 52 SECTION 6. AFFIRMATIVE COVENANTS.......................................................... 53 6.1 Financial Statements......................................................... 53 6.2 Certificates; Other Information.............................................. 54 6.3 Payment of Obligations....................................................... 55 6.4 Conduct of Business and Maintenance of Existence, etc. ...................... 55 6.5 Maintenance of Property; Insurance........................................... 55 6.6 Inspection of Property; Books and Records; Discussions; Collateral Audit..... 55 6.7 Notices ..................................................................... 56 6.8 Environmental Laws........................................................... 56 6.9 Interest Rate Protection..................................................... 57 6.10 Additional Collateral, etc.................................................. 57 6.11 Further Assurances.......................................................... 58 6.12 Survey, etc................................................................. 59 SECTION 7. NEGATIVE COVENANTS............................................................. 60 7.1 Financial Condition Covenants................................................ 61 7.2 Limitation on Indebtedness................................................... 62 7.3 Limitation on Liens.......................................................... 62 7.4 Limitation on Fundamental Changes............................................ 64 7.5 Limitation on Disposition of Property........................................ 64 7.6 Limitation on Restricted Payments............................................ 64 7.7 Limitation on Capital Expenditures........................................... 65 7.8 Limitation on Investments.................................................... 65 7.9 Limitation on Optional Payments and Modifications of Debt Instruments, etc... 66 7.10 Limitation on Transactions with Affiliates.................................. 66 7.11 Limitation on Sales and Leasebacks.......................................... 67 7.12 Limitation on Changes in Fiscal Periods..................................... 67 7.13 Limitation on Negative Pledge Clauses....................................... 67
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Page 7.14 Limitation on Restrictions on Subsidiary Distributions...................... 67 7.15 Limitation on Lines of Business............................................. 68 SECTION 8. EVENTS OF DEFAULT.............................................................. 68 SECTION 9. THE AGENTS..................................................................... 71 9.1 Appointment.................................................................. 71 9.2 Delegation of Duties......................................................... 71 9.3 Exculpatory Provisions....................................................... 71 9.4 Reliance by Administrative Agent............................................. 72 9.5 Notice of Default............................................................ 72 9.6 Non-Reliance on Agents and Other Lenders..................................... 73 9.7 Indemnification.............................................................. 73 9.8 Agent in Its Individual Capacity............................................. 73 9.9 Successor Administrative Agent............................................... 74 9.10 Authorization to Release Liens.............................................. 74 9.11 The Arranger................................................................ 74 SECTION 10. MISCELLANEOUS................................................................. 74 10.1 Amendments and Waivers...................................................... 74 10.2 Notices..................................................................... 75 10.3 No Waiver; Cumulative Remedies.............................................. 76 10.4 Survival of Representations and Warranties.................................. 77 10.5 Payment of Expenses......................................................... 77 10.6 Successors and Assigns; Participations and Assignments...................... 78 10.7 Adjustments; Set-off........................................................ 80 10.8 Counterparts................................................................ 80 10.9 Severability................................................................ 81 10.10 Integration................................................................ 81 10.11 GOVERNING LAW.............................................................. 81 10.12 Submission To Jurisdiction; Waivers........................................ 81 10.13 Acknowledgements........................................................... 82 10.14 Confidentiality............................................................ 82 10.15 WAIVERS OF JURY TRIAL...................................................... 82 10.16 Delivery of Lender Addenda................................................. 82
-iii- ANNEX: A Pricing Grid SCHEDULES: 1.1 Mortgaged Property 4.15 Subsidiaries 4.19(b) Mortgage Filing Jurisdictions 7.2(d) Existing Indebtedness 7.3(f) Existing Liens 7.8(h) Existing Investments EXHIBITS: A Form of Guarantee and Collateral Agreement B Form of Compliance Certificate C Form of Closing Certificate D Form of Mortgage E Form of Assignment and Acceptance F-1 Form of Legal Opinion of Weil, Gotshal & Manges LLP F-2 Form of Local Counsel Opinion G-1 Form of Term Note G-2 Form of Revolving Credit Note G-3 Form of Swing Line Note H Form of Prepayment Option Notice I Form of Exemption Certificate J Form of Lender Addendum -iv- CREDIT AGREEMENT, dated as of August 17, 1998, among THE GRAND UNION COMPANY, a Delaware corporation (the "Borrower"), the several banks and other financial institutions or entities from time to time parties to this Agreement (the "Lenders"), WARBURG DILLON READ LLC, as co-advisor and co-arranger, UBS AG, STAMFORD BRANCH, as syndication agent (in such capacity, the "Syndication Agent"), LEHMAN BROTHERS INC., as co-advisor and co-arranger (together with Warburg Dillon Read LLC in their capacities as co-advisors and co-arrangers, the "Arrangers"), LEHMAN COMMERCIAL PAPER INC., as administrative agent (in such capacity, the "Administrative Agent"), and LEHMAN COMMERCIAL PAPER INC., as collateral agent (in such capacity, the "Collateral 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"); WHEREAS, on the Petition Date, following a prepetition solicitation of votes for the acceptance or rejection of the Borrower's plan of reorganization dated May 22, 1998 (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 Preferred Stock interests pursuant to Section 1126 of the Bankruptcy Code; WHEREAS, the Borrower requested that the Lenders make available a term loan and revolving credit and letter of credit facility in an aggregate principal amount not to exceed $300,000,000, under which all of the Borrower's obligations are guaranteed by the Subsidiary Guarantors, and the proceeds of which will be used (a) to refinance revolving credit loans, and to replace or cash collateralize letters of credit outstanding under the Borrower's $172,022,020 secured debtor-in-possession credit facility (the "DIP Credit Facility"), (b) to refinance the Supplemental Term Loans under the Prepetition Credit Facility, (c) to pay fees and expenses in connection with the Plan of Reorganization as confirmed by the Bankruptcy Court, (d) to finance the working capital needs of the Borrower and the Subsidiary Guarantors in the ordinary course of business and (e) for general corporate purposes, including, without limitation, capital expenditures; and WHEREAS, the Lenders are willing to make such credit facilities 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: 2 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. "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. "Adjustment Date": as defined in the Pricing Grid. "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, the Administrative Agent and the Collateral 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 Commitments at such time and (b) thereafter, the sum of (i) the aggregate then unpaid principal amount of such Lender's Term Loans and (ii) the 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 Credit Agreement, as amended, supplemented or otherwise modified from time to time. "Applicable Margin": (a) during the period from and including the Closing Date to the first Adjustment Date occurring on or after the first anniversary of the Closing Date, (i) 2% per annum with respect to Base Rate Loans and (ii) 3% per annum with respect to Eurodollar Loans and (b) on and after the first Adjustment Date, the Applicable Margin determined pursuant to the Pricing Grid. 3 "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. "Asset Sale": any Disposition of Property or series of related Dispositions of Property (excluding any such Disposition permitted by clause (b), (c) or (d) of Section 7.5) which yields gross proceeds to the Borrower or any of its Subsidiaries (valued at the initial principal amount thereof in the case of non-cash proceeds consisting of notes or other debt securities and valued at fair market value in the case of other non-cash proceeds) in excess of $100,000. "Assignee": as defined in Section 10.6(c). "Assignor": as defined in Section 10.6(c). "Available Revolving Credit Commitment": as to any Revolving Credit 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 2.9(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 hereafter amended, and codified as 11 U.S.C. ss.ss.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 4 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 10.7. "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. "Business": as defined in Section 4.17. "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 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. 5 "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. "Case": as defined in the Recitals. "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 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. ss. 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 6 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 5.1 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 any Security Document. "Commitment": as to any Lender, the sum of the Term Loan Commitment and the Revolving Credit Commitment of such Lender. "Commitment Fee Rate": 1/2 of 1% per annum. "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 B. "Confidential Information Memorandum": the Confidential Information Memorandum dated July, 1998 and furnished to the Lenders. "Confirmation Order": an order of the Bankruptcy Court confirming the Plan of Reorganization in the Case. "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) 7 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 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 Administrative Agent 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 8 public accountants of nationally recognized standing or (B) have been found reasonably acceptable by the Administrative Agent. "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 8, 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, 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. "Domestic Subsidiary": any Subsidiary of the Borrower organized under the laws of any jurisdiction within the United States of America. "ECF Percentage": 75%; provided, that, with respect to each fiscal year of the Borrower (commencing with the fiscal year in which Closing Date occurs), the ECF Percentage shall be reduced to 50% if the Consolidated Leverage Ratio on the last day of such fiscal year is less than 3.25 to 1.0. 9 "Environmental Laws": any and all laws, rules, orders, regulations, statutes, ordinances, guidelines, codes, decrees, or other legally enforceable requirement (including, without limitation, common law) of the United States or any other nation, or any state, local, municipal or other governmental authority, regulating, relating to or imposing liability or standards of conduct concerning protection of the environment or of human health, or employee health and safety, as has been, is now, or may at any time hereafter be, in effect. "Environmental Permits": any and all permits, licenses, approvals, registrations, notifications, exemptions and any other authorization required under any Environmental Law. "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. 10 "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 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 8, provided that any requirement for the giving of notice, the lapse of time, or both, has been satisfied. "Excess Cash Flow": for any fiscal year of the Borrower, the excess, if any, of (a) the sum, without duplication, of (i) Consolidated Net Income for such fiscal year, (ii) an amount equal to the amount of all non-cash charges (including depreciation and amortization) deducted in arriving at such Consolidated Net Income, (iii) decreases in Consolidated Net Working Capital for such fiscal year, (iv) an amount equal to the aggregate net non-cash loss on the Disposition of Property by the Borrower and its Subsidiaries during such fiscal year (other than sales of inventory in the ordinary course of business), to the extent deducted in arriving at such Consolidated Net Income and (v) the net increase during such fiscal year (if any) in deferred tax accounts of the Borrower over (b) the sum, without duplication, of (i) an amount equal to the amount of all non-cash credits included in arriving at such Consolidated Net Income, (ii) the aggregate amount actually paid by the Borrower and its Subsidiaries in cash during such fiscal year on account of Capital Expenditures and any such expenditures permitted to be carried over pursuant to Section 7.7 (excluding (A) the principal amount of Indebtedness incurred in connection with such expenditures, (B) any such expenditures financed with the proceeds of any Reinvestment Deferred Amount and (C) any such expenditures permitted to be carried over from the prior fiscal year pursuant to Section 7.7), (iii) the aggregate amount of all prepayments of Revolving Credit Loans and Swing Line Loans during such fiscal year to the extent accompanying permanent optional reductions of the Revolving Credit Commitments and all optional prepayments of the Term Loans during such fiscal year, (iv) the aggregate amount of all regularly scheduled principal payments of Funded Debt (including, without limitation, the Term Loans) of the Borrower and its Subsidiaries made during such fiscal year (other than in respect of any revolving credit facility to the extent there is not an equivalent permanent reduction in commitments thereunder), (v) increases in Consolidated Net Working Capital for such fiscal year, (vi) an amount equal to the sum of (A) the aggregate net non-cash gain on the Disposition of Property and (B) the aggregate net cash gain on the first $5 million of proceeds on the Disposition of Property, by the Borrower and its Subsidiaries during such fiscal year (other than sales of inventory in the ordinary course of business), to the extent included in arriving at such Consolidated Net Income, (vii) the net decrease during such fiscal year (if 11 any) in deferred tax accounts of the Borrower, and (viii) cash disbursements made in respect of liabilities to the extent reserved against on the financial statements of the Borrower and its Subsidiaries as of the Closing Date and not otherwise deducted in determining Consolidated Net Income. "Excess Cash Flow Application Date": as defined in Section 2.12(c). "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. "Facility": each of (a) the Term Loan Commitments and the Term Loans made thereunder (the "Term Loan Facility") and (b) the Revolving Credit Commitments and the extensions of credit made thereunder (the "Revolving Credit Facility"). "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. "Fee Properties": the collective reference to the real properties owned in fee by the respective Loan Parties described on Part I of Schedule 1.1, including all buildings, improvements, structures and fixtures now or subsequently located thereon. "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. 12 "GAAP": generally accepted accounting principles in the United States of America as in effect from time to time, except that for purposes of Section 7.1, 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 4.1(b). In the event that any "Accounting 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 Administrative Agent 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 Administrative Agent 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 the Borrower and 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 13 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 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 10.5. "Indemnitee": as defined in Section 10.5. 14 "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 therefrom. "Interest Payment Date": (a) as to any Base Rate Loan, the last day of each March, June, September and December to occur while such Loan is outstanding and the final maturity date of such Loan, (b) as to any Eurodollar Loan having an Interest Period of three months or less, the last day of such Interest Period, (c) as to any Eurodollar Loan having an Interest Period longer than three months, each day which is three months, or a whole multiple thereof, after the first day of such Interest Period and the last day of such Interest Period and (d) 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, two, three or six months 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, two, three or six months 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 scheduled Revolving Credit Termination Date or beyond the date final payment is due on the Term Loans shall end on the Revolving Credit Termination Date or such due date, as applicable; 15 (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. "Inventory": all inventory of the Borrower and its Subsidiaries as defined and classified by the Borrower and the Subsidiary Guarantors on a basis consistent with the Borrower's and Subsidiary Guarantors' current and historical accounting practices, excluding perishables. "Investments": as defined in Section 7.8. "Issuing Lender": UBS AG, Stamford Branch, in its capacity as issuer of any Letter of Credit. "L/C Commitment": $50,000,000. "L/C Fee Payment Date": the last day of each March, June, September and December and the last day of the Revolving Credit Commitment Period. "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 Revolving Credit Lenders other than the Issuing Lender. "Leased Properties": the collective reference to the real properties leased by the respective Loan Parties described on Part II of Schedule 1.1, including all buildings, improvements, structures and fixtures now or subsequently located thereon and owned or leased by the respective Loan Parties. "Lender Addendum": with respect to any initial Lender, a Lender Addendum, substantially in the form of Exhibit J, to be executed and delivered by such Lender on the Closing Date as provided in Section 10.16. "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, 16 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 of the Borrower which is a party to a Loan Document. "Majority Facility Lenders": with respect to any Facility, the holders of more than 50% of the aggregate unpaid principal amount of the Term Loans or the Total Revolving Extensions of Credit, as the case may be, outstanding under such Facility (or, in the case of the Revolving Credit Facility, prior to any termination of the Revolving Credit Commitments, the holders of more than 50% of the Total Revolving Credit Commitments). "Majority Revolving Credit Facility Lenders": the Majority Facility Lenders in respect of the Revolving Credit Facility. "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. "Material Environmental Amount": an amount payable by the Borrower and/or its Subsidiaries for investigative and remedial costs, compliance costs, compensatory damages, natural resource damages, punitive damages, fines, penalties or any combination thereof which, in the aggregate, exceed $5,000,000. "Materials of Environmental Concern": any gasoline or petroleum (including crude oil or any fraction thereof) or petroleum products, polychlorinated biphenyls, urea-formaldehyde insulation, asbestos, pollutants, contaminants, radioactivity, and any other substances or forces of any kind, whether or not any such substance or force is defined as hazardous or toxic under any Environmental Law, that is regulated pursuant to or could give rise to liability under any Environmental Law. "Mortgaged Properties": the collective reference to each of the Fee Properties and the Leased Properties. "Mortgages": the collective reference to each of the mortgages, deeds of trust and deeds to secure debt encumbering each of the Mortgaged Properties to be executed and 17 delivered by the respective Loan Parties in favor of, or for the benefit of, the Administrative Agent for the benefit of the Lenders, substantially in the form of Exhibit D (with such changes thereto as shall be advisable under the law of the jurisdiction in which such mortgage, deed to secure debt or deed of trust is to be recorded), as the same may be amended, supplemented or otherwise modified from time to time. "Multiemployer Plan": a Plan which is a multiemployer plan as defined in Section 4001(a)(3) of ERISA. "Net Cash Proceeds": (a) in connection with any Asset Sale or any Recovery Event, the proceeds thereof in the form of cash and Cash Equivalents (including any such proceeds received by way of deferred payment of principal pursuant to a note or installment receivable or purchase price adjustment receivable or otherwise, but only as and when received) of such Asset Sale or Recovery Event, net of attorneys' fees, accountants' fees, investment banking fees, amounts required to be applied to the repayment of Indebtedness secured by a Lien expressly permitted hereunder on any asset which is the subject of such Asset Sale or Recovery Event and other customary fees and expenses actually incurred in connection therewith and net of taxes paid or reasonably estimated to be payable as a result thereof (after taking into account any available tax credits or deductions and any tax sharing arrangements) and (b) in connection with any issuance or sale of equity securities or debt securities or instruments or the incurrence of loans, the cash proceeds received from such issuance or incurrence, net of attorneys' fees, investment banking fees, accountants' fees, underwriting discounts and commissions and other customary fees and expenses actually incurred in connection therewith. "New Lending Office": as defined in Section 2.17(d). "Non-Excluded Taxes": as defined in Section 2.20(a). "Non-U.S. Lender": as defined in Section 2.20(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 Administrative Agent 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 18 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 Administrative Agent 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 10.6(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 7.3. "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. "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 Credit Facility": the prepetition $250,000,000 senior secured credit facility agented by Bankers Trust Company. "Pricing Grid": the pricing grid attached hereto as Annex A. "Pro Forma Balance Sheet": as defined in Section 4.1(a). "Projections": as defined in Section 6.2(c). 19 "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. "Recovery Event": any settlement of or payment in respect of any property or casualty insurance claim or any condemnation proceeding relating to any asset of the Borrower or any of its Subsidiaries. "Refunded Swing Line Loans": as defined in Section 2.7. "Refunding Date": as defined in Section 2.7. "Register": as defined in Section 10.6(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 Issuing Lender pursuant to Section 3.5 for amounts drawn under Letters of Credit. "Reinvestment Deferred Amount": with respect to any Reinvestment Event, the aggregate Net Cash Proceeds received by the Borrower or any of its Subsidiaries in connection therewith which are not applied to prepay the Term Loans or reduce the Revolving Credit Commitments pursuant to Section 2.12(b) as a result of the delivery of a Reinvestment Notice. "Reinvestment Event": any Asset Sale or Recovery Event in respect of which the Borrower has delivered a Reinvestment Notice. "Reinvestment Notice": a written notice executed by a Responsible Officer stating that no Event of Default has occurred and is continuing and that the Borrower (directly or indirectly through a Subsidiary) intends and expects to use all or a specified portion of the Net Cash Proceeds of an Asset Sale or Recovery Event to acquire assets useful in its business. "Reinvestment Prepayment Amount": with respect to any Reinvestment Event, the Reinvestment Deferred Amount relating thereto less any amount expended prior to the relevant Reinvestment Prepayment Date to acquire assets useful in the Borrower's business. "Reinvestment Prepayment Date": with respect to any Reinvestment Event, the earlier of (a) the date occurring one year after such Reinvestment Event and (b) the date on which the Borrower shall have determined not to, or shall have otherwise ceased to, acquire assets useful in the Borrower's business with all or any portion of the relevant Reinvestment Deferred Amount. 20 "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 Commitments and (b) thereafter, the sum of (i) the aggregate unpaid principal amount of the Term Loans then outstanding and (ii) 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. "Required Prepayment Lenders": the Majority Facility Lenders in respect of each Facility. "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 7.6. "Revolving Credit Commitment": as to any Lender, the obligation of such Lender, if any, 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 to the Letter Addendum delivered by such Lender, or, as the case may be, in the Assignment and Acceptance pursuant to which such Lender became a party hereto, 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 $70,000,000. "Revolving Credit Commitment Period": the period from and including the Closing Date to the Revolving Credit Termination Date. "Revolving Credit Lender": each Lender which has a Revolving Credit Commitment or which is the holder of Revolving Credit Loans. "Revolving Credit Loans": as defined in Section 2.4. 21 "Revolving Credit Percentage": as to any Revolving Credit 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 Credit Termination Date": August 17, 2003. "Revolving Extensions of Credit": as to any Revolving Credit Lender at any time, an amount equal 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, the Mortgages 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. "Solvent": when used with respect to any Person, means that, as of any date of determination, (a) the amount of the "present fair saleable value" of the assets of such Person will, as of such date, exceed the amount of all "liabilities of such Person, contingent or otherwise", as of such date, as such quoted terms are determined in accordance with applicable federal and state laws governing determinations of the insolvency of debtors, (b) the present fair saleable value of the assets of such Person will, as of such date, be greater than the amount that will be required to pay the liability of such Person on its debts as such debts become absolute and matured, (c) such Person will not have, as of such date, an unreasonably small amount of capital with which to conduct its business, and (d) such Person will be able to pay its debts as they mature. For purposes of this definition, (i) "debt" means liability on a "claim", and (ii) "claim" means any (x) right to payment, whether or not such a right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured or unsecured or (y) right to an equitable remedy for breach of performance if such breach gives rise to a right to payment, whether or not such right to an equitable remedy is reduced to judgment, fixed, contingent, matured or unmatured, disputed, undisputed, secured or unsecured. "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 22 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. "Swing Line Commitment": the obligation of the Swing Line Lender to make Swing Line Loans pursuant to Section 2.6 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 2.6. "Swing Line Participation Amount": as defined in Section 2.7. "Term Loans": as defined in Section 2.1. "Term Loan Commitment": as to any Term Loan Lender, the obligation of such Lender, if any, to make a Term Loan to the Borrower hereunder in a principal amount not to exceed the amount set forth under the heading "Term Loan Commitment" opposite such Lender's name on Schedule 1 to the Letter Addendum delivered by such Lender, or, as the case may be, in the Assignment and Acceptance pursuant to which such Lender became a party hereto, as the same may be changed from time to time pursuant to the terms hereof. The original aggregate amount of the Term Loan Commitments is $230,000,000. "Term Loan Lender": each Lender which has a Term Loan Commitment or which is the holder of a Term Loan. "Term Loan Percentage": as to any Lender at any time, the percentage which such Lender's Term Loan Commitment then constitutes of the aggregate Term Loan Commitments (or, at any time after the Closing Date, the percentage which the aggregate principal amount of such Lender's Term Loans then outstanding constitutes of the aggregate principal amount of the Term Loans then outstanding). "Total Revolving Credit Commitments": at any time, the aggregate amount of the Revolving Credit Commitments then in effect. 23 "Total Revolving Extensions of Credit": at any time, the aggregate amount of the Revolving Extensions of Credit of the Revolving Credit Lenders outstanding at such time. "Transferee": as defined in Section 10.15. "Type": as to any Loan, its nature as a Base Rate Loan or a Eurodollar Loan. "Underlying Lease": as defined in Section 4.8. "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 COMMITMENTS 2.1 Term Loan Commitments. (a) Subject to the terms and conditions hereof, each Term Loan Lender severally agrees to make a term loan (a "Term Loan") to the Borrower on the Closing Date in an amount not to exceed the amount of the Term Loan Commitment of 24 such Lender. The Term 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 2.13. 2.2 Procedure for Term Loan Borrowing. The Borrower shall give the Administrative Agent irrevocable notice (which notice must be received by the Administrative Agent prior to 10:00 A.M., New York City time, one Business Day prior to the anticipated Closing Date) requesting that the Term Loan Lenders make the Term Loans on the Closing Date and specifying the amount to be borrowed. The Term Loans made on the Closing Date shall initially be Base Rate Loans, and no Term Loan may be converted into or continued as a Eurodollar Loan prior to the date which is 90 days after the Closing Date, or, if earlier, the date on which the Syndication Agent completes the syndication of the Facilities and the entities selected in such syndication process become parties to this Agreement. Upon receipt of such notice the Administrative Agent shall promptly notify each Term Loan Lender thereof. Not later than 12:00 Noon, New York City time, on the Closing Date, each Term Loan Lender shall make available to the Administrative Agent at the Funding Office an amount in immediately available funds equal to the Term Loan to be made by such Lender. The Administrative Agent shall credit to the account of the Borrower on the books of the Funding Office the aggregate of the amounts made available to the Administrative Agent by the Term Loan Lenders in immediately available funds. 2.3 Repayment of Term Loans. The Term Loan of each Lender shall mature and be payable in one payment on August 17, 2003. 2.4 Revolving Credit Commitments. (a) Subject to the terms and conditions hereof, each Revolving Credit 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 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 2.5 and 2.13, provided that no Revolving Credit Loan shall be made as a Eurodollar Loan after the day that is one month prior to the Revolving Credit Termination Date. (b) The Borrower shall repay all outstanding Revolving Credit Loans on the Revolving Credit Termination Date. 2.5 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 25 (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. Any Revolving Credit Loans made on the Closing Date shall initially be Base Rate Loans, and no Revolving Credit Loan may be made as, converted into or continued as a Eurodollar Loan prior to the date which is 90 days after the Closing Date, or, if earlier, the date on which the Syndication Agent completes the syndication of the Facilities and the entities selected in such syndication process become parties to this Agreement. 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 2.7. Upon receipt of any such notice from the Borrower, the Administrative Agent shall promptly notify each Revolving Credit Lender thereof. Each Revolving Credit 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 Revolving Credit Lenders and in like funds as received by the Administrative Agent. 2.6 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 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 Revolving Credit Termination Date. 26 2.7 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 Revolving Credit Lender to make, and each Revolving Credit Lender hereby agrees to make, a Revolving Credit Loan, in an amount equal to such Revolving Credit 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 Revolving Credit 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 Revolving Credit 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 2.7(b), one of the events described in Section 8(f) shall have occurred and be continuing with respect to the Borrower or if for any other reason, as determined by the Swing Line Lender in its sole discretion, Revolving Credit Loans may not be made as contemplated by Section 2.7(b), each Revolving Credit Lender shall, on the date such Revolving Credit Loan was to have been made pursuant to the notice referred to in Section 2.7(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 Revolving Credit Lender's Revolving Credit Percentage times (ii) the sum of the 27 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 Revolving Credit 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 Revolving Credit Lender will return to the Swing Line Lender any portion thereof previously distributed to it by the Swing Line Lender. (e) Each Revolving Credit Lender's obligation to make the Loans referred to in Section 2.7(b) and to purchase participating interests pursuant to Section 2.7(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 Revolving Credit 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 5; (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 Revolving Credit Lender; or (v) any other circumstance, happening or event whatsoever, whether or not similar to any of the foregoing. 2.8 Repayment of Loans; Evidence of Debt. (a) The Borrower hereby unconditionally promises to pay to the Administrative Agent for the account of the appropriate Revolving Credit Lender or Term Loan Lender, as the case may be, (i) the then unpaid principal amount of each Revolving Credit Loan of such Revolving Credit Lender on the Revolving Credit Termination Date (or such earlier date on which the Loans become due and payable pursuant to Section 8), (ii) the then unpaid principal amount of each Swing Line Loan of such Swing Line Lender on the Revolving Credit Termination Date (or such earlier date on which the Loans become due and payable pursuant to Section 8) and (iii) the principal amount of each Term Loan of such Term Loan Lender as set forth in Section 2.3 (or on such earlier date on which the Loans become due and payable pursuant to Section 8). 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 2.15. (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. 28 (c) The Administrative Agent, on behalf of the Borrower, shall maintain the Register pursuant to Section 10.6(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. (d) The entries made in the Register and the accounts of each Lender maintained pursuant to Section 2.8(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 Term Loans, Revolving Credit Loans or Swing Line Loans, as the case may be, of such Lender, substantially in the forms of Exhibit G-1, G-2 or G-3, respectively, with appropriate insertions as to date and principal amount. 2.9 Commitment Fees, etc. (a) The Borrower agrees to pay to the Administrative Agent for the account of each Revolving Credit Lender a commitment fee for the period from and including the Closing Date to the last day of the Revolving Credit Commitment Period, computed at the 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 quarterly in arrears on the last day of each March, June, September and December and on the Revolving Credit Termination Date, commencing on the first of such dates to occur after the Closing Date. (b) The Borrower agrees to pay to the Agents the fees in the amounts and on the dates agreed to in writing by the Borrower and the Agents. 2.10 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. 29 2.11 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 2.21; and provided, further that Swing Line Loans may be prepaid on the same day as such notice. 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 Term Loans and 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 thereof. Prepayments of the Term Loans shall, subject to the right of each Term Loan Lender to decline all or any portion of any optional prepayment applicable thereto pursuant to Section 2.18(d), be in the amounts set forth below during the periods set forth below: Prepayment Amount (expressed as a % of Period Principal Amount) - ------ ---------------------- August 17, 1998 to August 17, 1999 102% August 18, 1999 to February 18, 2000 101% February 19, 2000 and Thereafter 100% 2.12 Mandatory Prepayments and Commitment Reductions. (a) Unless the Required Prepayment Lenders shall otherwise agree, if any Capital Stock shall be issued, or Indebtedness incurred, by the Borrower or any of its Subsidiaries (excluding any Indebtedness incurred in accordance with Section 7.2 and excluding Capital Lease Obligations), an amount equal to 50% of the Net Cash Proceeds thereof, in the case of any Capital Stock issued, and an amount equal to 100% of the Net Cash Proceeds thereof, in the case of any Indebtedness incurred, shall be applied on the date of such issuance or incurrence toward the prepayment of the Term Loans and the reduction of the Revolving Credit Commitments as set forth in Section 2.12(e). (b) Unless the Required Prepayment Lenders shall otherwise agree, if on any date the Borrower or any of its Subsidiaries shall receive Net Cash Proceeds from any Asset Sale or Recovery Event then, unless a Reinvestment Notice shall be delivered in respect thereof as set forth in clause (ii) below, such Net Cash Proceeds shall be applied on the next Business Day toward the prepayment of the Term Loans and the reduction of the Revolving Credit Commitments as set forth in Section 2.12(d); provided, that, notwithstanding the foregoing, (i) the aggregate Net Cash Proceeds of (A) Asset Sales up to $5,000,000 in any fiscal year of the 30 Borrower and (B) Recovery Events may be excluded from the foregoing requirement pursuant to a Reinvestment Notice in any fiscal year of the Borrower and (ii) on each Reinvestment Prepayment Date, an amount equal to the Reinvestment Prepayment Amount with respect to the relevant Reinvestment Event shall be applied toward the prepayment of the Term Loans and the reduction of the Revolving Credit Commitments as set forth in Section 2.12(e). (c) Unless the Required Prepayment Lenders shall otherwise agree, if, for any fiscal year of the Borrower commencing with the fiscal year ending March 27, 1999, there shall be Excess Cash Flow, the Borrower shall, on the relevant Excess Cash Flow Application Date, apply the ECF Percentage of such Excess Cash Flow toward the prepayment of the Term Loans and the reduction of the Revolving Credit Commitments as set forth in Section 2.12(c). Each such prepayment and commitment reduction shall be made on a date (an "Excess Cash Flow Application Date") no later than five days after the earlier of (i) the date on which the financial statements of the Borrower referred to in Section 6.1(a), for the fiscal year with respect to which such prepayment is made, are required to be delivered to the Lenders and (ii) the date such financial statements are actually delivered. (d) 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. (e) Amounts to be applied in connection with prepayments and Commitment reductions made pursuant to this Section 2.12 shall be applied, first, to the prepayment of the Term Loans and, second, to reduce permanently the Revolving Credit Commitments. Any such 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 in a cash collateral account established with the Administrative Agent for the benefit of the Lenders on terms and conditions satisfactory to the Administrative Agent. The application of any prepayment pursuant to this Section 2.12 shall be made first to Base Rate Loans and second to Eurodollar Loans. Each prepayment of the Loans under this Section 2.12 (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. Prepayments of the Term Loans (except with respect to prepayments pursuant to Section 2.12 (c)) shall, subject to the right of each Term Loan Lender to decline all or any portion of any mandatory prepayment applicable thereto pursuant to Section 2.18(d), be in the amounts set forth below during the periods set forth below: 31 Prepayment Amount (expressed as a % of Period Principal Amount) - ------ -------------------- August 17, 1998 to August 17, 1999 102% August 18, 1999 to February 18, 2000 101% February 19, 2000 and Thereafter 100% 2.13 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 under a particular Facility may be converted into a Eurodollar Loan (i) when any Event of Default has occurred and is continuing and the Administrative Agent or the Majority Facility Lenders in respect of such Facility have determined in its or their sole discretion not to permit such conversions or (ii) after the date that is one month prior to the final scheduled termination or maturity date of such Facility. 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 under a particular Facility may be continued as such (i) when any Event of Default has occurred and is continuing and the Administrative Agent has or the Majority Facility Lenders in respect of such Facility have determined in its or their sole discretion not to permit such continuations or (ii) after the date that is one month prior to the final scheduled termination or maturity date of such Facility, 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. 2.14 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 32 $1,000,000 in excess thereof and (b) no more than ten Eurodollar Tranches shall be outstanding at any one time. 2.15 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 the Applicable Margin. (b) Each Base Rate Loan shall bear interest at a rate per annum equal to the Base Rate plus the Applicable Margin. (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 2.15 plus 2%, or (y) in the case of Reimbursement Obligations, the rate applicable to Base Rate Loans under the Revolving Credit Facility 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 under the relevant Facility plus 2% (or, in the case of any such other amounts that do not relate to a particular Facility, the rate then applicable to Base Rate Loans under the Revolving Credit Facility 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 2.15 shall be payable from time to time on demand. 2.16 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 with respect to Eurodollar Loans and on the basis of a 365- (or 366-, as the case may be) day year for the actual days elapsed with respect to Base Rate Loans. 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 Borrower, deliver to the Borrower a statement showing the quotations used by the Administrative Agent in determining any interest rate pursuant to Section 2.15(a). 33 2.17 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 Majority Facility Lenders in respect of the relevant Facility 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 under the relevant Facility requested to be made on the first day of such Interest Period shall be made as Base Rate Loans, (y) any Loans under the relevant Facility 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 under the relevant Facility 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 under the relevant Facility shall be made or continued as such, nor shall the Borrower have the right to convert Loans under the relevant Facility to Eurodollar Loans. 2.18 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 Commitments of the Lenders shall be made pro rata according to the respective Term Loan Percentages or Revolving Credit Percentages, as the case may be, 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 Term Loans shall be made pro rata according to the respective outstanding principal amounts of the Term Loans then held by the Term Loan Lenders (except as otherwise provided in Section 2.18(d)). Amounts prepaid on account of the Term Loans may not be reborrowed. (c) 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 Revolving Credit Lenders. 34 (d) Notwithstanding anything to the contrary in Sections 2.11, 2.12 or 2.18, each Term Loan Lender may, at its option, decline all or any portion of any partial prepayment applicable to the Term Loans of such Lender; accordingly, with respect to the amount of any prepayment described in Section 2.11 or 2.12 that is allocated to Term Loans (such amounts, the "Prepayment Amount"), the Borrower will, in the case of any prepayment required to be made pursuant to Section 2.11 or 2.12, in lieu of applying such amount to the prepayment of Term Loans, on the date specified in Section 2.11 or 2.12 for such prepayment, give the Administrative Agent telephonic notice (promptly confirmed in writing) requesting that the Administrative Agent prepare and provide to each Term Loan Lender a notice (each, a "Prepayment Option Notice") as described below. As promptly as practicable after receiving such notice from the Borrower, the Administrative Agent will send to each Term Loan Lender a Prepayment Option Notice, which shall be in the form of Exhibit H, and shall include an offer by the Borrower to prepay on the date (each a "Prepayment Date") that is 10 Business Days after the date of the Prepayment Option Notice, the relevant Term Loans of such Lender by an amount equal to the portion of the Prepayment Amount indicated in such Lender's Prepayment Option Notice as being applicable to such Lender's Term Loans and such further amount, if any, as may be available to additionally prepay such Lender's Term Loans from the portion of the Prepayment Amount not accepted by the Accepting Lenders. On the Prepayment Date, (i) the Borrower shall pay to the Administrative Agent the aggregate amount necessary to prepay that portion of the outstanding relevant Term Loans in respect of which Lenders have accepted prepayment as described above (such Lenders, the "Accepting Lenders"), and such amount shall be applied to reduce the Prepayment Amounts with respect to each Accepting Lender, (ii) the Borrower shall pay to the Administrative Agent an amount equal to the portion of the Prepayment Amount not accepted by the Accepting Lenders (excluding such amount required to be prepaid pursuant to Section 2.12(c)), and such amount shall be applied, first, to prepay the Term Loans of each Accepting Lender, pro rata, agreeing to accept prepayment of such additional amount as described above and, second, to the permanent reduction of the Revolving Credit Commitments, and (iii) the Borrower shall be entitled to retain the remaining portion of the Prepayment Amount not accepted by the Accepting Lenders. (e) 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 1:00 p.m., 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. 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. 35 (f) 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. (g) 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. 2.19 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 2.20 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, 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 36 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 2.19, 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 2.19 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 2.19 shall survive the termination of this Agreement and the payment of the Loans and all other amounts payable hereunder. 2.20 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, 37 fees, deductions or withholdings ("Non-Excluded Taxes") or Other Taxes are required to be withheld from any 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 and Other 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 2.20 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 2.20(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 2.20 shall survive the termination of this Agreement and the payment of the Loans and all other amounts payable hereunder. (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 I 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 38 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. 2.21 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 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 (excluding, however, the Applicable Margin included therein, if 39 any) 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 2.21 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. 2.22 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 2.21. 2.23 Change of Lending Office. Each Lender agrees that, upon the occurrence of any event giving rise to the operation of Section 2.19 or 2.20(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 2.23 shall affect or postpone any of the obligations of any Borrower or the rights of any Lender pursuant to Section 2.19 or 2.20(a). 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 Revolving Credit 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. Each Letter of Credit shall (i) be denominated in Dollars and (ii) expire no later than the earlier of (x) the first anniversary of its date of issuance and (y) the date which is three Business Days prior to the Revolving Credit Termination Date, provided that any Letter of Credit with a one-year term may provide for the renewal thereof for additional one-year periods (which shall in no event extend beyond the date referred to in clause (y) above). 40 (b) 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. (c) 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 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 the Applicable Margin then in effect with respect to Eurodollar Loans under the Revolving Credit Facility shared ratably among the Revolving Credit Lenders and payable quarterly 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 quarterly 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 41 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 applicable to Base Rate Loans under the Revolving Credit Facility. 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. (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 3.4 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 2.15(b) and (ii) thereafter, Section 2.15(c). Each drawing under any Letter of Credit shall (unless an event of the type described in clause (i) or (ii) of Section 8(f) 42 shall have occurred and be continuing with respect to the Borrower, in which case the procedures specified in Section 3.4 for funding by L/C Participants shall apply) constitute a request by the Borrower to the Administrative Agent for a borrowing pursuant to Section 2.5 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 2.7 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. 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. 43 SECTION 4. 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: 4.1 Financial Condition. (a) The 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 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 and its Subsidiaries 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. 4.2 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 the commencement of the Case. 4.3 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 44 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. 4.4 Corporate Power; Authorization; Enforceable Obligations. Each Loan Party has 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. No consent or authorization of, filing with, notice to or other act by or in respect of, any Governmental Authority 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 4.19. 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, except 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). 4.5 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 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). 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. 4.6 No Material Litigation. 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. 4.7 No Default. 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. 4.8 Ownership of Property; Liens. Each of the Borrower and its Subsidiaries has title in fee simple to, or a 45 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 except Permitted Liens. The Fee Properties as listed on Part I of Schedule 1.1 constitute all the real properties owned in fee by the respective Loan Parties set forth therein, the Leased Properties as listed on Part II of Schedule 1.1 constitute all of the real properties leased by the respective Loan Parties set forth therein which may be made subject to a recorded Lien either (a) without violating the terms of the applicable Underlying Lease or (b) with the consent of the landlord thereunder, and each lease agreement under which an interest in a Leased Property is held (as amended, an "Underlying Lease") is in full force and effect. 4.9 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. 4.10 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). 4.11 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. 4.12 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. 46 4.13 ERISA. Except for the voluntary petition filed by the Borrower under Chapter 11 of the Bankruptcy Code in the Bankruptcy Court for the District of Delaware in 1995 and except for the commencement of the Case, 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 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. 4.14 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. 4.15 Subsidiaries. The Subsidiaries listed on Schedule 4.15 constitute all the Subsidiaries of the Borrower at the date hereof. 4.16 Use of Proceeds. The proceeds of the Loans shall be used (a) to refinance the DIP Credit Facility, (b) to pay fees and expenses in connection with the Plan of Reorganization as confirmed by the Bankruptcy Court, (c) to finance the working capital needs of the Borrower and the Subsidiary Guarantors in the ordinary course of business, (d) to refinance the Supplemental Term Loans under the Prepetition Credit Facility, and (e) for general corporate purposes, including, without limitation, capital expenditures. 4.17 Environmental Matters. Other than exceptions to any of the following that could not, individually or in the aggregate, reasonably be expected to give rise to a Material Adverse Effect or result in the payment of a Material Environmental Amount: (a) Each of the Borrower and its Subsidiaries: (i) is, and within the period of all applicable statutes of limitation have been, in compliance with all applicable Environmental Laws; (ii) holds all Environmental Permits (each of which is in full force and effect) required for any of its current or intended operations or required of it with respect to any property owned, leased, or otherwise operated by it; (iii) is, and within the period of all applicable statutes of 47 limitation has been, in compliance with all of its Environmental Permits; and (iv) reasonably believes that: each of its Environmental Permits will be timely renewed and complied with, without material expense; any additional Environmental Permits that may be required of any of it will be timely obtained and complied with, without material expense; and compliance with any Environmental Law that is or is expected to become applicable to it will be timely attained and maintained, without material expense. (b) Materials of Environmental Concern are not present at, on, under, in, or about any real property now or formerly owned and, to the knowledge of the Borrower, are not present at, on, under, in, or about any property now or formerly leased or operated, by the Borrower or any of its Subsidiaries or at any other location (including, without limitation, any location to which Materials of Environmental Concern have been sent for re-use or recycling or for treatment, storage, or disposal) which could reasonably be expected to (i) give rise to liability of the Borrower or any of its Subsidiaries under any applicable Environmental Law or otherwise result in costs to the Borrower or any of its Subsidiaries, or (ii) interfere with the Borrower's or any of its Subsidiaries' continued operations, or (iii) impair the fair saleable value of any real property owned or leased by the Borrower or any of its Subsidiaries. (c) There is no judicial, administrative, or arbitral proceeding (including any notice of violation or alleged violation) under or relating to any Environmental Law to which the Borrower or any of its Subsidiaries is, or to the knowledge of the Borrower will be, named as a party that is pending or, to the knowledge of the Borrower, threatened. (d) Neither the Borrower nor any of its Subsidiaries has received any written request for information, or been notified that it is a potentially responsible party under or relating to the federal Comprehensive Environmental Response, Compensation, and Liability Act or any similar Environmental Law, or with respect to any Materials of Environmental Concern. (e) Neither the Borrower nor any of its Subsidiaries has entered into or agreed to any consent decree, order, or settlement or other agreement, nor is subject to any judgment, decree, or order or other agreement, in any judicial, administrative, arbitral, or other forum, relating to compliance with or liability under any Environmental Law. (f) Neither the Borrower nor any of its Subsidiaries has assumed or retained, by contract or operation of law, any liabilities of any kind, fixed or contingent, known or unknown, under any Environmental Law or with respect to any Material of Environmental Concern. (g) For the purpose of Section 8 of this Agreement, each of the foregoing representations and warranties contained in this Section 4.17 that are qualified in any way by the knowledge of the Borrower shall be deemed not to be so qualified. 4.18 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 or any of them, by or on behalf of 48 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 or the Lenders for use in connection with the transactions contemplated hereby and by the other Loan Documents. 4.19 Security Documents. (a) The Guarantee and Collateral Agreement is effective to create in favor of the Administrative Agent, for the benefit of the Agents and the Lenders, a legal, valid and enforceable security interest in the Collateral described therein and proceeds thereof. In the case of the Pledged Stock described in the Guarantee and Collateral Agreement, when stock certificates representing such Pledged Stock are delivered to the Administrative Agent, and in the case of the other Collateral described in the Guarantee and Collateral Agreement, when financing statements in appropriate form are filed in the offices specified on Schedule 3 of the Guarantee and Collateral Agreement, the Guarantee and Collateral Agreement shall constitute a fully perfected Lien on, and security interest in, all right, title and interest of the Loan Parties in such Collateral and the proceeds thereof, as security for the Obligations (as defined in the Guarantee and Collateral Agreement), in each case prior and superior in right to any other Person (except as otherwise set forth herein). (b) Each of the Mortgages is effective to create in favor of the Administrative Agent, for the benefit of the Agents and the Lenders, a legal, valid and enforceable Lien on the Mortgaged Properties described therein and proceeds thereof, and when the Mortgages are filed in the offices specified on Schedule 4.19(b), each such Mortgage shall constitute a fully perfected Lien on, and security interest in, all right, title and interest of the Loan Parties in the Mortgaged Properties and the proceeds thereof, as security for the Obligations (as defined in the relevant Mortgage), in each case prior and superior in right to any other Person (except as otherwise set forth in any such Mortgage). 4.20 Solvency. Each Loan Party is, and after giving effect to the transaction contemplated hereby and the incurrence of all Indebtedness and obligations being incurred in connection herewith and therewith will be and will continue to be, Solvent. 4.21 Regulation H. No Mortgage encumbers improved real property which is located in an area that has been identified by the Secretary of Housing and Urban Development 49 as an area having special flood hazards and in which flood insurance has been made available under the National Flood Insurance Act of 1968. SECTION 5. CONDITIONS PRECEDENT 5.1 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 the Borrower and each Subsidiary Guarantor, (iii) a Mortgage covering each of the Mortgaged Properties, executed and delivered by a duly authorized officer of each party thereto, and (iv) 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. 50 (b) Confirmation of Plan of Reorganization. The Bankruptcy Court shall have entered on or before August 31, 1998 a final order in form and substance reasonably satisfactory to the Agents confirming in accordance with Section 1129 of the Bankruptcy Code the Plan of Reorganization, which order shall be in full force and effect and shall not have been stayed, reversed, vacated or otherwise modified. (c) Pro Forma Balance Sheet; Financial Statements. The Lenders shall have received (i) the Pro Forma Balance Sheet, (ii) the audited consolidated financial statements of the Borrower for the 1998 fiscal year and (iii) reasonably satisfactory unaudited interim consolidated financial statements of the Borrower for each fiscal month and quarterly period ended subsequent to the date of the latest applicable financial statements delivered pursuant to clause (ii) of this paragraph as to which such financial statements are available, and such financial statements shall not, in the reasonable judgment of the Lenders, reflect any material adverse change in the consolidated financial condition of the Borrower, from that reflected in the financial statements or projections contained in the Confidential Information Memorandum. (d) Approvals. All governmental, shareholder and third party approvals (including landlords' and other consents) necessary in connection with the continuing operations of the Borrower and its Subsidiaries and the transactions contemplated hereby shall have been obtained and be in full force and effect, and all applicable waiting periods shall have expired without any action being taken or threatened by any competent authority which would restrain, prevent or otherwise impose adverse conditions on the transaction or the financing contemplated hereby. (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 each Underlying Lease and such other 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 (including, without limitation, legal fees and expenses, title premiums, survey charges and recording taxes and fees) 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) Business Plan. The Lenders shall have received a business plan for fiscal years 1999-2003 and a written analysis of the business and prospects of the Borrower and its Subsidiaries for the period from the Closing Date through March 31, 2003. 51 (h) Termination of Prepetition Credit Facility. The Administrative Agent shall have received evidence satisfactory to the Administrative Agent and Syndication Agent that the Prepetition Credit Facility shall be simultaneously terminated, all amounts thereunder shall be simultaneously paid in full and arrangements satisfactory the Syndication Agent and the Administrative agent shall have been made for the termination or assignment in favor of the Collateral Agent, as the case may be, of Liens and security interests granted in connection therewith. (i) 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, (ii) liens to be discharged or assigned to the Collateral Agent on or prior to the Closing Date pursuant to documentation reasonably satisfactory to the Agents or (iii) liens which in the aggregate are reasonably determined by the Agents to be immaterial. (j) Environmental Assessment. The Administrative Agent shall have received an environmental assessment with respect to the Borrower and its Subsidiaries specified by the Administrative Agent. (k) 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 C, with appropriate insertions and attachments. (l) Legal Opinions. The Administrative Agent shall have received the following executed legal opinions: (i) the legal opinion of Weil, Gotshal & Manges LLP, counsel to the Borrower and its Subsidiaries, substantially in the form of Exhibit F-1; and (ii) the legal opinion of local counsel in each of New Jersey, Vermont, Connecticut, New Hampshire, Pennsylvania, Tennessee and Georgia and of such other special and local counsel as may be required by the Administrative Agent, substantially in the form of Exhibit F-2. Each such legal opinion shall cover such other matters incident to the transactions contemplated by this Agreement as the Administrative Agent may reasonably require. (m) Pledged Stock; Stock Power; Pledged Notes. The Administrative Agent shall have received (i) the certificates representing the shares of Capital Stock pledged pursuant to the Guarantee and Collateral Agreement, together with an undated stock power for each such certificate executed in blank by a duly authorized officer of the pledgor thereof and (ii) each promissory note pledged to the Administrative Agent pursuant to the Guarantee and Collateral Agreement endorsed (without recourse) in blank 52 (or accompanied by an executed transfer form in blank satisfactory to the Syndication Agent) by the pledgor thereof. (n) 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. (o) Title Insurance; Flood Insurance. (i) If requested by the Administrative Agent, the Administrative Agent shall have received, and the title insurance companies issuing the policies referred to in clause (ii) below (collectively, the "Title Insurance Company") shall have received, maps or plats of an as-built survey of the sites of the Fee Properties certified to the Administrative Agent and the Title Insurance Company in a manner satisfactory to them, dated a date satisfactory to the Administrative Agent and the Title Insurance Company by an independent professional licensed land surveyor satisfactory to the Administrative Agent and the Title Insurance Company, which maps or plats and the surveys on which they are based shall be made in accordance with the Minimum Standard Detail Requirements for Land Title Surveys jointly established and adopted by the American Land Title Association and the American Congress on Surveying and Mapping in 1992, and, without limiting the generality of the foregoing, there shall be surveyed and shown on such maps, plats or surveys the following: (A) the locations on such sites of all the buildings, structures and other improvements and the established building setback lines; (B) the lines of streets abutting the sites and width thereof; (C) all access and other easements appurtenant to the sites; (D) all roadways, paths, driveways, easements, encroachments and overhanging projections and similar encumbrances affecting the site, whether recorded, apparent from a physical inspection of the sites or otherwise known to the surveyor; (E) any encroachments on any adjoining property by the building structures and improvements on the sites; (F) if the site is described as being on a filed map, a legend relating the survey to said map; and (G) the flood zone designations, if any, in which the Fee Properties are located. (ii) The Administrative Agent shall have received in respect of each Mortgaged Property a mortgagee's title insurance policy (or policies) or marked up unconditional binder for such insurance. Each such policy shall (A) be in an amount satisfactory to the Administrative Agent; (B) be issued at ordinary rates; (C) insure that the Mortgage insured thereby creates a valid first Lien on such Mortgaged Property free and clear of all defects and encumbrances, except as disclosed therein; (D) name the Administrative Agent for the benefit of the Lenders as the insured thereunder; (E) be in the form of ALTA Loan Policy - 1970 (Amended 10/17/70 and 10/17/84) (or equivalent policies); (F) contain such endorsements and affirmative coverage as the Administrative Agent may reasonably request and (G) be issued by title companies satisfactory to the Administrative Agent (including any such title companies acting as co-insurers or reinsurers, at the 53 option of the Administrative Agent). The Administrative Agent shall have received evidence satisfactory to it that all premiums in respect of each such policy, all charges for mortgage recording tax, and all related expenses, if any, have been paid. (iii) If requested by the Administrative Agent, the Administrative Agent shall have received (A) a policy of flood insurance which (1) covers any parcel of improved real property which is encumbered by any Mortgage (2) is written in an amount not less than the outstanding principal amount of the indebtedness secured by such Mortgage which is reasonably allocable to such real property or the maximum limit of coverage made available with respect to the particular type of property under the National Flood Insurance Act of 1968, whichever is less, and (3) has a term ending not later than the maturity of the Indebtedness secured by such Mortgage and (B) confirmation that the Borrower has received the notice required pursuant to Section 208(e)(3) of Regulation H of the Board. (iv) The Administrative Agent shall have received a copy of all recorded documents referred to, or listed as exceptions to title in, the title policy or policies referred to in clause (ii) above and a copy of all other material documents affecting the Mortgaged Properties. (p) Insurance. The Administrative Agent shall have received insurance certificates satisfying the requirements of Section 5.3 of the Guarantee and Collateral Agreement and of Section 5 of each Mortgage. (q) Estoppel Certificate. The Administrative Agent shall have received, with a copy for each Lender, a certificate in form and substance satisfactory to Agent and its counsel from the landlord under each Underlying Lease with respect to each Leased Property consenting to the Mortgage encumbering such Leased Property and certifying (i) that the Loan Party who is the tenant under the Underlying Lease is not in default in the performance of any of its obligations under such Underlying Lease and (ii) to such other matters as may be requested by the Administrative Agent. 5.2 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. 54 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 5.2 have been satisfied. SECTION 6. AFFIRMATIVE COVENANTS The Borrower hereby agrees that, so long as the 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: 6.1 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 on without a "going concern" or like qualification or exception, or qualification arising out of the scope of the audit, by Price Waterhouse LLP or other independent certified public accountants of nationally recognized standing; (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). 55 6.2 Certificates; Other Information. Furnish to each Agent and each Lender, or, in the case of clause (g), to the relevant Lender: (a) concurrently with the delivery of the financial statements referred to in Section 6.1(a), a certificate of the independent certified public accountants reporting on such financial statements stating that in making the examination necessary therefor no 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 6.1, (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 Loan Party keeps inventory or equipment and of any Intellectual Property acquired by any Loan Party since the date of the most recent list delivered pursuant to this clause (y) (or, in the case of the first such list so delivered, since the Closing Date); (c) as soon as available, and in any event no later than 45 days after the end of each fiscal year of the Borrower, a detailed consolidated budget for the following fiscal year (including a projected consolidated balance sheet of the Borrower and its Subsidiaries as of the end of the following fiscal year, and the related consolidated statements of projected cash flow, projected changes in financial position and projected income), and, as soon as available, significant revisions, if any, of such budget and projections with respect to such fiscal year (collectively, the "Projections"), which Projections shall in each case be accompanied by a certificate of a Responsible Officer stating that such Projections are based on reasonable estimates, information and assumptions and that such Responsible Officer has no reason to believe that such Projections are incorrect or misleading in any material respect; (d) within 45 days after the end of each fiscal quarter of the Borrower, a narrative discussion and analysis of the financial condition and results of operations of the Borrower and its Subsidiaries for such fiscal quarter and for the period from the beginning of the then current fiscal year to the end of such fiscal quarter, as compared to the portion of the Projections covering such periods and to the comparable periods of the previous year; 56 (e) 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 (f) promptly, such additional financial and other information as any Lender may from time to time reasonably request. 6.3 Payment of Obligations. 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, except where 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. 6.4 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 7.4 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) comply with all Contractual Obligations 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. 6.5 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. 6.6 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 a firm satisfactory to the Administrative Agent (it being understood that Arthur Anderson & Co. shall be deemed to be satisfactory) to perform, at the expense of the Borrower, an annual independent audit with respect to Accounts and Inventory of the Borrower and its Subsidiaries as may be directed by the Administrative Agent; provided that the Lenders shall have the right, to the extent the Administrative Agent 57 determines, in its reasonable judgment, that it is necessary to have such an audit performed more frequently than once a year, to have such an audit so performed, at the expense of the Borrower. 6.7 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 Borrower 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) 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. Each notice pursuant to this Section 6.7 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. 6.8 Environmental Laws. (a) (i) Comply in all material respects with all Environmental Laws applicable to it, and obtain, comply in all material respects with and maintain any and all Environmental Permits necessary for its operations as conducted and as planned; and (ii) ensure that all of its tenants, subtenants, contractors, subcontractors, and invitees comply in all material respects with all Environmental Laws, and obtain, comply with and maintain any and all Environmental Permits, applicable to any of them insofar as any failure to so comply, obtain or maintain reasonably could be expected to adversely affect the Borrower. (b) Prior to acquiring any ownership or leasehold interest in real property, either directly or indirectly (including without limitation a stock purchase) the Borrower shall evaluate, based on the property's current and prior use, whether such property could reasonably result in a 58 potential liability under any Environmental Law. Where such evaluation indicates the possibility of such a potential liability, the Borrower shall take all measures to satisfy itself reasonably that such property's potential liability under any Environmental Law, when added to all other such liabilities of the Borrower and its Subsidiaries at all properties of which the Borrower is aware at which the Borrower or any Subsidiary may have liability under any Environmental Law (whether or not the Borrower or any Subsidiary has or formerly had any ownership or leasehold interest in such property either directly or indirectly), shall not exceed a Material Environmental Amount; and, if the Borrower cannot be so reasonably satisfied, it shall not acquire such interest. 6.9 Interest Rate Protection. In the case of the Borrower, within 90 days after the Closing Date, enter into Hedge Agreements to the extent necessary to provide that at least 50% of the aggregate principal amount of the Term Loans is subject to interest rate protection for a period of not less than three years, which Hedge Agreements shall have terms and conditions reasonably satisfactory to the Administrative Agent. 6.10 Additional Collateral, etc. (a) With respect to any Property acquired after the Closing Date by the Borrower or any of its Subsidiaries (other than (x) any Property described in paragraph (b), (c) or (d) below and (y) any Property subject to a Permitted Lien) as to which the Administrative Agent, for the benefit of the Lenders, does not have a perfected Lien, promptly (i) execute and deliver to the Administrative Agent such amendments to the Guarantee and Collateral Agreement or such other documents as the Administrative Agent deems necessary or advisable to grant to the Administrative Agent, for the benefit of the Lenders, a security interest in such Property and (ii) take all actions necessary or advisable to grant to the Administrative Agent, for the benefit of the Lenders, a perfected first priority security interest in such Property, including without limitation, the filing of Uniform Commercial Code financing statements in such jurisdictions as may be required by the Guarantee and Collateral Agreement or by law or as may be requested by the Administrative Agent. (b) With respect to any fee interest in any real property having a value (together with improvements thereof) of at least $500,000 acquired after the Closing Date by the Borrower or any of its Subsidiaries (other than any such real property subject to a Permitted Lien), promptly (i) execute and deliver a first priority Mortgage in favor of the Administrative Agent, for the benefit of the Agents and Lenders, covering such real property, (ii) if requested by the Administrative Agent, provide the Lenders with (x) title and extended coverage insurance covering such real property in an amount at least equal to the purchase price of such real estate (or such other amount as shall be reasonably specified by the Administrative Agent) as well as a current ALTA survey thereof, together with a surveyor's certificate and (y) any consents or estoppels reasonably deemed necessary or advisable by the Administrative Agent in connection with such mortgage or deed of trust, each of the foregoing in form and substance reasonably satisfactory to the Administrative Agent and (iii) if requested by the Administrative Agent, deliver to the Administrative Agent legal opinions relating to the matters described above, which opinions shall be in form and substance, and from counsel, reasonably satisfactory to the Administrative Agent. 59 (c) With respect to any new Subsidiary (other than an Excluded Foreign Subsidiary) created or acquired after the Closing Date (which, for the purposes of this paragraph, shall include any existing Subsidiary that ceases to be an Excluded Foreign Subsidiary), by the Borrower or any of its Subsidiaries, promptly (i) execute and deliver to the Administrative Agent such amendments to the Guarantee and Collateral Agreement as the Administrative Agent deems necessary or advisable to grant to the Administrative Agent, for the benefit of the Lenders, a perfected first priority security interest in the Capital Stock of such new Subsidiary which is owned by the Borrower or any of its Subsidiaries, (ii) deliver to the Administrative Agent the certificates representing such Capital Stock, together with undated stock powers, in blank, executed and delivered by a duly authorized officer of the Borrower or such Subsidiary, as the case may be, (iii) cause such new Subsidiary (A) to become a party to the Guarantee and Collateral Agreement and (B) to take such actions necessary or advisable to grant to the Administrative Agent for the benefit of the Lenders a perfected first priority security interest in the Collateral described in the Guarantee and Collateral Agreement with respect to such new Subsidiary, including, without limitation, the filing of Uniform Commercial Code financing statements in such jurisdictions as may be required by the Guarantee and Collateral Agreement or by law or as may be requested by the Administrative Agent, and (iv) if requested by the Administrative Agent, deliver to the Administrative Agent legal opinions relating to the matters described above, which opinions shall be in form and substance, and from counsel, reasonably satisfactory to the Administrative Agent. (d) With respect to any new Excluded Foreign Subsidiary created or acquired after the Closing Date by the Borrower or any of its Subsidiaries, promptly (i) execute and deliver to the Administrative Agent such amendments to the Guarantee and Collateral Agreement as the Administrative Agent deems necessary or advisable in order to grant to the Administrative Agent, for the benefit of the Lenders, a perfected first priority security interest in the Capital Stock of such new Subsidiary which is owned by the Borrower or any of its Subsidiaries (provided that in no event shall more than 65% of the total outstanding Capital Stock of any such new Subsidiary be required to be so pledged), (ii) deliver to the Administrative Agent the certificates representing such Capital Stock, together with undated stock powers, in blank, executed and delivered by a duly authorized officer of the Borrower or such Subsidiary, as the case may be, and take such other action as may be necessary or, in the opinion of the Administrative Agent, desirable to perfect the Lien of the Administrative Agent thereon, and (iii) if requested by the Administrative Agent, deliver to the Administrative Agent legal opinions relating to the matters described above, which opinions shall be in form and substance, and from counsel, reasonably satisfactory to the Administrative Agent. 6.11 Further Assurances. In the case of the Borrower, 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 and the other Loan Documents, 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 60 thereto. Upon the exercise by the Administrative Agent or any Lender of any power, right, privilege or remedy pursuant to this Agreement or the other Loan Documents which requires any 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. 6.12 Survey, etc. (a) To the extent not delivered by the Closing Date, Borrower shall, within 45 days of the Closing Date, deliver to the Administrative Agent and the Title Insurance Company surveys of the Fee Properties meeting the requirements of Section 5.1(o)(i) such that the Title Company will omit corresponding survey exceptions on the relevant title insurance policies issued pursuant to Section 5.1(o)(ii) or to be issued pursuant to Section 6.12(d) and will issue those endorsements to such title insurance policies (such as survey and access) that cannot be issued without such surveys. (b) To the extent not delivered by the Closing Date, Borrower shall use best efforts to obtain estoppel certificates meeting the requirements of Section 5.1(q) in respect of each Underlying Lease by December 1, 1998. On the first Business Day of each calendar month commencing October 1, 1998 and ending on December 1, 1998, Borrower shall (i) deliver to the Administrative Agent and the Title Company all such estoppel certificates received by Borrower to such date, (ii) deliver to the Administrative Agent (A) a Mortgage covering each Leased Property to which such estoppel certificate relates, executed by a duly authorized officer of Borrower and (B) a mortgagee's title insurance policy in respect of each such corresponding Leased Property meeting all of the requirements of Section 5.1(o)(ii), dated a date satisfactory to the Administrative Agent, together with all recorded documents referred to, or listed as exceptions to title in, the title policy or policies referred to in clause (B) above and a copy of all other material documents affecting each such Leased Property. (c) With respect to Leased Properties with respect to which the corresponding Underlying Lease is not of record (pursuant to a recorded memorandum thereof or as may otherwise be required in accordance with applicable law of such state), Borrower shall use best efforts to cause such Underlying Lease to be of record. Promptly after such Underlying Lease shall be of record, Borrower shall deliver to the Administrative Agent (i) a Mortgage covering each such corresponding Mortgaged Property, executed by a duly authorized officer of Borrower and (ii) a mortgagee's title insurance policy in respect of each such corresponding Mortgaged Property meeting all of the requirements of Section 5.1(o)(ii), dated a date satisfactory to the Administrative Agent, together with all recorded documents referred to, or listed as exceptions to title in, the title policy or policies referred to in clause (B) above and a copy of all other material documents affecting each such Mortgaged Property. (d) For each Mortgaged Property set forth on Schedule 6.12(d), Borrower shall, within 45 days of the Closing Date, deliver to the Administrative Agent (i) a Mortgage covering each such Leased Property, executed by a duly authorized officer of Borrower, (ii) a mortgagee's title insurance policy in respect of each such corresponding Leased Property meeting 61 all of the requirements of Section 5.1(o)(ii), dated a date satisfactory to the Administrative Agent, together with all recorded documents referred to, or listed as exceptions to title in, the title policy or policies referred to in clause (B) above and a copy of all other material documents affecting each such Mortgaged Property, and (iii) the legal opinion of local counsel in each of Tennessee, Georgia and Texas in substantially in the form of Exhibit F-2. SECTION 7. NEGATIVE COVENANTS The Borrower hereby agrees that, so long as the 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: 7.1 Financial Condition Covenants. (a) Consolidated Leverage Ratio. Permit the Consolidated Leverage Ratio as at the last day of any period of four consecutive fiscal quarters of the Borrower (or, if less, the number of full fiscal quarters subsequent to the Closing Date) ending with any fiscal quarter set forth below to exceed the ratio set forth below opposite such fiscal quarter: Consolidated Fiscal Quarter Leverage Ratio - -------------- -------------- October 16, 1999 4.60 January 8, 2000 4.50 April 1, 2000 4.50 July 22, 2000 4.45 October 14, 2000 4.30 January 6, 2001 4.15 March 31, 2001 4.00 July 21, 2001 4.00 October 13, 2001 4.00 January 5, 2002 3.75 March 30, 2002 3.75 July 20, 2002 3.75 October 12, 2002 3.75 January 4, 2003 3.75 March 29, 2003 3.75 July 19, 2003 3.75 (b) Consolidated Interest Coverage Ratio. Permit the Consolidated Interest Coverage Ratio for any period of four consecutive fiscal quarters of the Borrower (or, if less, the 62 number of full fiscal quarters subsequent to the Closing Date) ending with any fiscal quarter set forth below to be less than the ratio set forth below opposite such fiscal quarter: Consolidated Interest Fiscal Quarter Coverage Ratio - -------------- --------------------- January 2, 1999 1.60 April 3, 1999 1.65 July 24, 1999 1.75 October 16, 1999 1.80 January 8, 2000 1.90 April 1, 2000 1.90 July 22, 2000 1.90 October 14, 2000 1.95 January 6, 2001 2.00 March 31, 2001 2.00 July 21, 2001 2.10 October 13, 2001 2.20 January 5, 2002 2.25 March 30, 2002 2.30 July 20, 2002 2.40 October 12, 2002 2.40 January 4, 2003 2.40 March 29, 2003 2.40 July 19, 2003 2.40 7.2 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; (c) Indebtedness (including, without limitation, Capital Lease Obligations other than as set forth in Section 7.2(f)) secured by Permitted Liens in an aggregate principal amount not to exceed $15,000,000 at any one time outstanding; (d) Indebtedness outstanding on the date hereof and listed on Schedule 7.2(d) and any refinancings, refundings, renewals or extensions thereof (without any increase in the principal amount thereof or any shortening of the maturity of any principal amount thereof); 63 (e) Guarantee Obligations made in the ordinary course of business by the Borrower or any of its Subsidiaries of obligations of the Borrower or any Subsidiary Guarantor; (f) Capital Lease Obligations with respect to vehicles, new stores and office equipment leased in the ordinary course of the Borrower's business; and (g) Letters of credit outstanding under the Prepetition Credit Facility. 7.3 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 more than 30 days or which are being contested in good faith by appropriate proceedings; (c) pledges or deposits in connection with workers' compensation, insurance and 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 and letters of credit outstanding under the Prepetition Credit Facility; (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 7.3(f), securing Indebtedness permitted by Section 7.2(d), 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 securing Indebtedness of the Borrower or any other Subsidiary incurred pursuant to Section 7.2(c) to finance the acquisition of fixed or capital assets, provided that (i) such Liens shall be created substantially simultaneously with the acquisition of such fixed or capital assets, (ii) such Liens do not at any time encumber any Property 64 other than the Property financed by such Indebtedness and (iii) the amount of Indebtedness secured thereby is not increased; (h) Liens created pursuant to the Security Documents; (i) 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 (j) 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. 7.4 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. 7.5 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 Sections 7.4(b) or 7.11; (d) the sale or issuance of any Subsidiary's Capital Stock to the Borrower or any Subsidiary Guarantor; (e) the Disposition of other assets (including, without limitation, the surrender or termination of leases or the non-exercise of lease extensions) having a fair market value not to exceed $5,000,000 in the aggregate for any fiscal year of the Borrower; and 65 (f) any Asset Sale (subject to the limitation contained in Section 7.5(e)) or Recovery Event, provided, that the requirements of Section 2.12(b) are complied with in connection therewith. 7.6 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. 7.7 Limitation on Capital Expenditures. Make or commit to make any Capital Expenditure, except (a) Capital Expenditures of the Borrower and its Subsidiaries in the ordinary course of business not exceeding for any fiscal year of the Borrower set forth below the amount set forth below opposite such fiscal year Fiscal Year Amount ----------- ------ 1999 $60,000,000 2000 80,000,000 2001 52,500,000 2002 55,000,000 2003 57,500,000 ; provided, that (i) any such amount referred to above, if not so expended in the fiscal year for which it is permitted, may be carried over for expenditure in the next succeeding fiscal year but such amount shall not exceed 25% of the amount for such fiscal year set forth above, (ii) to the extent the Borrower retains Excess Cash Flow in any fiscal year pursuant to this Agreement, the amount referred to above for the fiscal year following the fiscal year in which the Borrower retains Excess Cash Flow shall be increased by the amount of Excess Cash Flow so retained by the Borrower and (iii) Capital Expenditures made pursuant to this clause (a) during any fiscal year shall be deemed made, first, in respect of amounts permitted for such fiscal year as provided above and, second, in respect of amounts carried over from the prior fiscal year pursuant to subclause (i) above, (b) Capital Expenditures made with the proceeds of any Reinvestment Deferred Amount and (c) Capital Expenditures with respect to Capital Lease Obligations with respect to vehicles, new stores and office equipment leased in the ordinary course of the Borrower's business. 7.8 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; 66 (b) investments in Cash Equivalents; (c) Investments arising in connection with the incurrence of Indebtedness permitted by Section 7.2(b) and (e) ; (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) the transaction contemplated pursuant to the Plan of Reorganization; (f) Investments in assets useful in the Borrower's business made by the Borrower or any of its Subsidiaries with the proceeds of any Reinvestment Deferred Amount; (g) Investments (other than those relating to the incurrence of Indebtedness permitted by Section 7.8(c)) by the Borrower or any of its Subsidiaries in the Borrower or any Person that, prior to such investment, is a Subsidiary Guarantor; (h) Investments in existence on the date hereof listed on Schedule 7.8(h); (i) loans and advances to developers in connection with the construction of new store locations not exceeding $10,000,000 at any one time outstanding; provided that such advances are evidenced by promissory notes in favor if the Borrower and such notes are pledged to the Collateral Agent for the ratable benefit of the Lenders pursuant to the Security Documents; (j) notes payable from purchasers of stores to the extent permitted pursuant to this Agreement, so long as (i) the amount of any such note with respect to any store shall note exceed $500,000, (ii) the aggregate amounts of all such notes shall not exceed $5,000,000 and (iii) all such notes are pledged to the Collateral Agent for the ratable benefit of the Lenders pursuant to the Security Documents; and (k) debt or equity securities received in connection with the bankruptcy or reorganization of suppliers and/or customers and in settlement if delinquent obligations of, and other disputes with, customers and/or suppliers in the ordinary course of business; and (l) additional Investments of a nature not contemplated pursuant to the foregoing clauses (a) through (k); provided that all Investments pursuant to this clause (l) shall not exceed $1,000,000 at any one time. 7.9 Limitation on Optional Payments and Modifications of Debt Instruments, etc. (a) Amend, modify or otherwise change, or consent or agree to any amendment, modification, waiver or other change to, any of the terms of any Indebtedness (other than 67 Indebtedness pursuant to this Agreement) (other than any such amendment, modification, waiver or other change which (i) would extend the maturity or reduce the amount of any payment of principal thereof, reduce the rate or extend the date for payment of interest thereon or relax any covenant or other restriction applicable to the Borrower or any of its Subsidiaries and (ii) does not involve the payment of a consent fee in excess of 1% of the amount of Indebtedness affected), or (b) amend its certificate of incorporation in any manner determined by the Administrative Agent to be adverse to the Lenders. 7.10 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. 7.11 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, except any sale by the Borrower or any of its Subsidiaries of (x) the Borrower's stores located at New Fairfield, Connecticut; Corinth, New York; Vestal, New York; Vestal Plaza, New York; and Manchester Center, Vermont, (y) a store or facility, and in each case related land, to the extent acquired or constructed after the Closing Date or (z) equipment acquired or constructed after the Closing Date, in each case within 270 days of such acquisition or the substantial completion of such construction, which is then leased back to the respective seller (pursuant to, in the case of any such equipment, a capital lease); provided that the proceeds of the respective sale shall be entirely cash and shall not be less than 95% of the fair market value of the respective asset being sold (as determined by the Borrower in good faith), and the respective lease shall provide for substantially equal annual payments (except that a balloon payment shall be permitted at the end of the lease term) (i) based upon an amortization schedule of at least 15 years and with a minimum term of at least 15 years or at least 5 years in the case of personal property, provided that such a transaction shall be permitted only if the anticipated lease payments are such that, when aggregated with the existing lease obligations of the Borrower and its Subsidiaries, are not projected to cause a violation of any other provision of this Agreement. 7.12 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. 7.13 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 68 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 and (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). 7.14 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 by reason of (i) any restrictions existing under the Loan Documents and (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. 7.15 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. SECTION 8. 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 three 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) (i) Any Loan Party shall default in the observance or performance of any agreement contained Section 6.4(a)(i) and (ii) (with respect to the Borrower only), Section 6.7(a) or Section 7 of this Agreement, or Section 5.5(a), Section 5.6, Section 5.7, Section 5.8(a), Section 5.8(b), Section 5.9(a) or Section 5.10(b) of the Guarantee and Collateral Agreement or (ii) an "Event of Default" under and as defined in any Mortgage shall have occurred and be continuing; or 69 (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 8), and such default shall continue unremedied for a period of 30 days; or (e) The Borrower or any of its Subsidiaries shall (i) default in making any payment of any principal of any Indebtedness (including, without limitation, any Guarantee Obligation, but excluding the Loans) on the scheduled or original due date with respect thereto; or (ii) default in making any payment of any interest on any such Indebtedness beyond the period of grace, if any, provided in the instrument or agreement under which such Indebtedness was created; or (iii) default in the observance or performance of any other agreement or condition relating to any such Indebtedness or contained in any instrument or agreement evidencing, securing or relating thereto, or any other event shall occur or condition exist, the effect of which default or other event or condition is to cause, or to permit the holder or beneficiary of such Indebtedness (or a trustee or agent on behalf of such holder or beneficiary) to cause, with the giving of notice if required, such Indebtedness to become due prior to its stated maturity or (in the case of any such Indebtedness constituting a Guarantee Obligation) to become payable; provided, that a default, event or condition described in clause (i), (ii) or (iii) of this paragraph (e) shall not at any time constitute an Event of Default unless, at such time, one or more defaults, events or conditions of the type described in clauses (i), (ii) and (iii) of this paragraph (e) shall have occurred and be continuing with respect to Indebtedness the outstanding principal amount of which exceeds in the aggregate $5,000,000; or (f) (i) The Borrower or any of its Subsidiaries shall commence any case, proceeding or other action (A) under any existing or future law of any jurisdiction, domestic or foreign, relating to bankruptcy, insolvency, reorganization or relief of debtors, seeking to have an order for relief entered with respect to it, or seeking to adjudicate it a bankrupt or insolvent, or seeking reorganization, arrangement, adjustment, winding-up, liquidation, dissolution, composition or other relief with respect to it or its debts, or (B) seeking appointment of a receiver, trustee, custodian, conservator or other similar official for it or for all or any substantial part of its assets, or the Borrower or any of its Subsidiaries shall make a general assignment for the benefit of its creditors; or (ii) there shall be commenced against the Borrower or any of its Subsidiaries any case, proceeding or other action of a nature referred to in clause (i) above which (A) results in the entry of an order for relief or any such adjudication or appointment or (B) remains undismissed, undischarged or unbonded for a period of 60 days; or (iii) there shall be commenced against the Borrower or any of its Subsidiaries any case, proceeding or other action seeking issuance of a warrant of attachment, execution, distraint or similar process against all or any substantial part of its assets which results in the entry of an order for any such relief which shall not have been vacated, discharged, or stayed or bonded pending appeal within 60 days from the entry thereof; or (iv) the Borrower or any of its Subsidiaries shall take any action in furtherance of, or indicating its consent to, approval of, or acquiescence in, any of the acts set forth in clause (i), (ii), or (iii) above; or (v) the 70 Borrower or any of its Subsidiaries shall generally not, or shall be unable to, or shall admit in writing its inability to, pay its debts as they become due; or (g) (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) 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 (h) 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 (i) 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 (j) 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; or (k) Any "person" or "group" (as such terms are used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")), shall become, or obtain rights (whether by means or warrants, options or otherwise) to become, the "beneficial owner" (as defined in Rules 13(d)-3 and 13(d)-5 under the Exchange Act), directly or indirectly, of more than 50% of the outstanding common stock of the Borrower; 71 then, and in any such event, (A) if such event is an Event of Default specified in clause (i) or (ii) of paragraph (f) above with respect to the Borrower, automatically the Commitments shall immediately terminate and the Loans hereunder (with accrued interest thereon) and all other amounts owing under this Agreement and the other Loan Documents (including, without limitation, all amounts of L/C Obligations, whether or not the beneficiaries of the then outstanding Letters of Credit shall have presented the documents required thereunder) shall immediately become due and payable, and (B) if such event is any other Event of Default, either or both of the following actions may be taken: (i) with the consent of the Majority Revolving Credit Facility Lenders, the Administrative Agent may, or upon the request of the Majority Revolving Credit Facility Lenders, the Administrative Agent shall, by notice to the Borrower declare the Revolving Credit Commitments to be terminated forthwith, whereupon the Revolving Credit Commitments shall immediately terminate; and (ii) with the consent of the Required Lenders, the Administrative Agent may, or upon the request of the Required Lenders, the Administrative Agent shall, by notice to the Borrower, declare the Loans hereunder (with accrued interest thereon) and all other amounts owing under this Agreement and the other Loan Documents (including, without limitation, all amounts of L/C Obligations, whether or not the beneficiaries of the then outstanding Letters of Credit shall have presented the documents required thereunder) to be due and payable forthwith, whereupon the same shall immediately become due and payable. With respect to all Letters of Credit with respect to which presentment for honor shall not have occurred at the time of an acceleration pursuant to this paragraph, the Borrower shall at such time deposit in a cash collateral account opened by the Administrative Agent an amount equal to the aggregate then undrawn and unexpired amount of such Letters of Credit. Amounts held in such cash collateral account shall be applied by the Administrative Agent to the payment of drafts drawn under such Letters of Credit, and the unused portion thereof after all such Letters of Credit shall have expired or been fully drawn upon, if any, shall be applied to repay other obligations of the Borrower hereunder and under the other Loan Documents. 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 under the other Loan Documents shall have been paid in full, the balance, if any, in such cash collateral account shall be returned to the Borrower (or such other Person as may be lawfully entitled thereto). SECTION 9. THE AGENTS 9.1 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, 72 responsibilities, duties, obligations or liabilities shall be read into this Agreement or any other Loan Document or otherwise exist against any Agent. 9.2 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. 9.3 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. 9.4 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. 73 9.5 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. 9.6 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 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. 9.7 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 9.6 (or, if indemnification is sought after the date upon which the 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 74 relating to or arising out of, the 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 9.7 shall survive the payment of the Loans and all other amounts payable hereunder. 9.8 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. 9.9 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 8(a) or Section 8(f) 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 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 9 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. 9.10 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 75 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 10.1. 9.11 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 10. MISCELLANEOUS 10.1 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 10.1. 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 Commitment of any Lender, in each case without the consent of each Lender directly affected thereby; (ii) amend, modify or waive any provision of this Section 10.1 or reduce any percentage specified in the definition of Required Lenders or Required Prepayment 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 5.2 (including, without limitation, in connection with any waiver of an existing Default or Event of Default) without the consent of the Majority Revolving Credit Facility Lenders; (iv) reduce the percentage specified in the definition of Majority Facility Lenders with respect to any Facility without the written consent of all Lenders under such Facility; (v) amend, modify or waive any provision of Section 9 without the consent of the Agents; (vi) amend, modify or waive any provision of Section 2.6 or 2.7 without the written consent of the Swing Line Lender; (vii) amend, modify or waive any provision of Section 2.18 without the consent of each Lender directly affected thereby; or (viii) 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 Administrative Agent and all future holders of the Loans. In the case of any waiver, the Loan Parties, the Lenders and the Administrative Agent shall be restored to their 76 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 10.1; 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. 10.2 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 to the Letter Addendum to which such Lender is a party 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 The Administrative Agent: Lehman Commercial Paper Inc. 3 World Financial Center New York, New York 10285 Attention: Michael O'Brien Telecopy: (212) 528-0819 Telephone: (212) 526-0437 77 The Syndication Agent: UBS AG, Stamford Branch 677 Washington Blvd. Stamford, Conn. 06912 Attention: Denise Clerkin Telecopy: (203) 719-4176 Telephone: (203) 719-3146 provided that any notice, request or demand to or upon the either Agent or any Lender shall not be effective until received. 10.3 No Waiver; Cumulative Remedies. No failure to exercise and no delay in exercising, on the part of the either Agent or any Lender, any right, remedy, power or privilege hereunder or under the other Loan Documents 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. 10.4 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. 10.5 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, 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 its 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, (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 78 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 10.5 shall survive repayment of the Loans and all other amounts payable hereunder. 10.6 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 Commitment of such Lender or any other interest of such Lender hereunder and under the other 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 10.7(a) as fully as if 79 it were a Lender hereunder. The Borrower also agrees that each Participant shall be entitled to the benefits of Sections 2.19, 2.20 and 2.21 with respect to its participation in the 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, with respect to Revolving Credit Loans, 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). Any such assignment need not be ratable as among the Facilities. 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 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 10.6, 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. (d) The Administrative Agent shall maintain at its address referred to in Section 10.2 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 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. 80 (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 10.6(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 Revolving Credit Note and/or applicable Term Notes, as the case may be, of the assigning Lender) a new Revolving Credit Note and/or applicable Term Notes, as the case may be, to the order of such Assignee in an amount equal to the Revolving Credit Commitment and/or applicable Term Loans, as the case may be, assumed or acquired by it pursuant to such Assignment and Acceptance and, if the Assignor has retained a Revolving Credit Commitment and/or Term Loans, as the case may be, upon request, a new Revolving Credit Note and/or Term Notes, as the case may be, to the order of the Assignor in an amount equal to the Revolving Credit Commitment and/or applicable Term Loans, as the case may be, 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 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. 10.7 Adjustments; Set-off. (a) Except to the extent that this Agreement provides for payments to be allocated to a particular Lender or to the Lenders under a particular Facility, 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, pursuant to events or proceedings of the nature referred to in Section 8(f), 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 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) In addition to any 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 81 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. 10.8 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. 10.9 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. 10.10 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. 10.11 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. 10.12 Submission To Jurisdiction; Waivers. The Borrower 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 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; 82 (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 10.2 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 (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 10.12 any special, exemplary, punitive or consequential damages. 10.13 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 Administrative Agent 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 Administrative Agent 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. 10.14 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 10.14, (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 83 disclosed other than in breach of this Section 10.14, (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. 10.15 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. 10.16 Delivery of Lender Addenda. Each initial Lender shall become a party to this Agreement by delivering to the Administrative Agent and the Syndication Agent a Letter Addendum duly executed by such Lender, the Borrower and each Agent. 84 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: /s/ Francis E. Nicastro ----------------------------------- Name: Francis E. Nicastro Title: Vice President and Treasurer LEHMAN BROTHERS INC., as Co-Arranger By: /s/ William Gallagher ----------------------------------- Name: William Gallagher Title: LEHMAN COMMERCIAL PAPER INC., as Administrative Agent and as a Lender By: /s/ William Gallagher ----------------------------------- Name: William Gallagher Title: LEHMAN COMMERCIAL PAPER INC., as Collateral Agent By: /s/ William Gallagher ----------------------------------- Name: William Gallagher Title: 85 WARBURG DILLON READ LLC, as Co-Arranger By: /s/ Michael R. Grayer ----------------------------------- Name: Michael R. Grayer Title: Managing Director Leveraged Finance By: /s/ David W. Barth ----------------------------------- Name: David W. Barth Title: Associate Director Leveraged Finance UBS AG, STAMFORD BRANCH, as Syndication Agent and as a Lender By: /s/ Michael R. Grayer ----------------------------------- Name: Michael R. Grayer Title: Managing Director Leveraged Finance By: /s/ Thomas R. Salzano ----------------------------------- Name: Thomas R. Salzano Title: Associate Director Annex A PRICING GRID FOR REVOLVING CREDIT LOANS, SWING LINE LOANS AND TERM LOANS ============================================================================= Consolidated Applicable Margin Applicable Margin for Leverage Ratio for Eurodollar Loans Base Rate Loans - ----------------------------------------------------------------------------- [greater than] 3.75X 3.00% 2.00% - ----------------------------------------------------------------------------- [greater than] 3.25X 2.75% 1.75% - ----------------------------------------------------------------------------- [less than] 3.25X 2.50% 1.50% ============================================================================= Changes in the Applicable Margin with respect to Loans resulting from changes in the Consolidated Leverage Ratio shall become effective on the date (the "Adjustment Date") on which financial statements are delivered to the Lenders pursuant to Section 6.1 (but in any event not later than the 45th day after the end of each of the first three quarterly periods of each fiscal year or the 90th day after the end of each fiscal year, as the case may be) and shall remain in effect until the next change to be effected pursuant to this paragraph. If any financial statements referred to above are not delivered within the time periods specified above, then, until such financial statements are delivered, the Consolidated Leverage Ratio as at the end of the fiscal period that would have been covered thereby shall for the purposes of this definition be deemed to be greater than 3.75 to 1. In addition, at all times while an Event of Default shall have occurred and be continuing, the Consolidated Leverage Ratio shall for the purposes of this definition be deemed to be greater than 3.75 to 1. Each determination of the Consolidated Leverage Ratio pursuant to this definition shall be made with respect to the period of four consecutive fiscal quarters of the Borrower ending at the end of the period covered by the relevant financial statements. EX-27 9 FINANCIAL DATA SCHEDULE
5 This schedule contains summary financial information extracted from the consolidated financial statements and is qualified in its entirety by reference to such financial statements. 1000 OTHER APR-03-1999 JUL-18-1998 40,106 0 23,280 0 133,225 212,174 935,395 520,910 845,334 354,836 0 0 0 102 (529,646) 845,334 691,908 691,908 486,723 486,723 231,591 0 32,459 (58,865) 0 (58,865) 0 (1,739) 0 (60,604) (6.17) 0
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