-----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, Q7DRdpQnMvmuHWsoO91Bchctezdwz534ggh1s1EwfNq2cbzqyB09AmBzsARzO6tK GSSVYdJch1/E/o2dk800ZA== 0000912057-96-013253.txt : 19960629 0000912057-96-013253.hdr.sgml : 19960629 ACCESSION NUMBER: 0000912057-96-013253 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 14 CONFORMED PERIOD OF REPORT: 19960330 FILED AS OF DATE: 19960627 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: GRAND UNION CO /DE/ CENTRAL INDEX KEY: 0000316236 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-GROCERY STORES [5411] IRS NUMBER: 251518276 STATE OF INCORPORATION: DE FISCAL YEAR END: 0325 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 001-07824 FILM NUMBER: 96586688 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-K405 1 FORM 10-K405 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended March 30, 1996 --------------- Commission File Number 0-26602 -------- THE GRAND UNION COMPANY ----------------------- (Exact name of registrant as specified in its charter) Delaware 22-1518276 - ------------------------------------- ------------------------------------ (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 201 Willowbrook Boulevard, Wayne, New Jersey 07470-0966 - -------------------------------------------- -------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code 201-890-6000 ------------ Securities registered pursuant to Section 12 (b) of the Act: TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED ------------------- ---------------------------------------- Common Stock, Par Value $1.00 National Market System of NASD - ----------------------------- --------------------------------------- Securities registered pursuant to Section 12 (g) of the Act: None ------------ Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such requirements for the past 90 days. Yes X No ------ ------- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] The aggregate market value of the voting stock held by nonaffiliates of the registrant as of June 19, 1996 is $40,226,000. For the purpose of this calculation, all members of the Board of Directors and all stockholders with sole or shared voting power over 10% or more of the Company's common stock are presumed to be affiliates. Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15 (d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes X No ---- ---- As of June 19, 1996 there were issued and outstanding 10,000,000 shares, par value $1.00 per share, of the Registrant's Common Stock. Documents Incorporated by Reference: None 1 THE GRAND UNION COMPANY PART I ITEM 1. BUSINESS GENERAL The Grand Union Company, a Delaware corporation ("Grand Union" or the "Company"), currently operates 229 retail food stores under the "Grand Union" name in six northeastern states. Through June 15, 1995, Grand Union's common stock was wholly owned by Grand Union Capital Corporation ("Capital"), a wholly-owned subsidiary of Grand Union Holdings Corporation ("Holdings"). On November 29, 1994, Grand Union announced that it intended to develop a capital restructuring plan with certain of its lenders. On January 25, 1995, the Company filed a voluntary petition for relief under chapter 11 ("Chapter 11") of Title 11 of the United States Code (the "Code") in the United States Bankruptcy Court for the District of Delaware (the "Bankruptcy Court"). The Bankruptcy Court confirmed the Second Amended Chapter 11 Plan of The Grand Union Company, dated as of April 19, 1995 (as confirmed, the "Plan"), on May 31, 1995, and the Company emerged from Chapter 11 on June 15, 1995 (the "Effective Date")(See "Item 1 - Business - Recent History" and "Item 3 - Legal Proceedings"). Grand Union's common stock is now listed on the NASDAQ Stock Market under the symbol GUCO. Upon confirmation of the Plan, a new Board of Directors was elected (See "Item 10 - Directors and Executive Officers of the Registrant"). 2 BUSINESS STRATEGY During the past year, the Company has developed a strategic operating plan which incorporates a number of initiatives which it believes will build on its current strengths and respond to challenges. The significant elements of these initiatives, many of which have been introduced during the 52 weeks ended March 30, 1996 ("Fiscal 1996") include the following: PRICE IMAGE. Grand Union is taking steps to enhance its price image. The Company's "More Lower Prices" campaign, in which the Company matches the shelf prices of the perceived low price leader in each of its markets, was introduced in May 1995 in certain of the Company's markets and was extended to all areas by May 1996. Newspaper, television and radio advertising has been used to support this initiative. Additionally, the Company has remained competitive with its competition on weekly promotional features. During Fiscal 1996, the Company increased its selection of private label items, which are comparable in quality to national brands but offered at lower prices. SUPERIOR PRODUCE DEPARTMENTS. Grand Union is building on its already high quality produce departments by further emphasizing convenience items such as salad bars, melon bars, platters and fruit baskets. Quality of produce is emphasized through offering locally grown products and fresh juice and by focusing customers' attention on Grand Union's unique five point inspection program. The Company also offers a full assortment of organically grown produce, which is of increasing importance to a segment of the Company's customers. Produce is displayed and advertised within the store to communicate the quality and extent of the produce selection. BEST TAKE-OUT RESTAURANT IN TOWN. The Company believes there is an increasing demand for convenience oriented products. To capitalize on its slogan as 'The Best Take-Out Restaurant in Town' and its already well-developed food preparation skills, the Company is expanding areas such as self-service meals, hot foods, soups and sandwiches, platters in various departments, holiday dinner programs, oven ready meats and seafood and fried fish. LABOR EFFECTIVENESS. The Company is addressing store labor levels in view of the increased preparation time necessary to carry out the objectives discussed above in its service departments. Additionally, the Company believes there are increased sales opportunities available by maintaining an in-stock position at all times, providing a clean and safe shopping environment and providing quick, convenient service in each department and at the front end. CATEGORY MANAGEMENT. Strategies are being designed by product category to continually define the appropriate mix of superior products, exceptional values, routine needs and convenience items which will maximize sales and profits. LOW COST OPERATOR. The Company intends to seek opportunities to reduce operating costs consistent with its overall objective of providing a high level of customer service. During Fiscal 1996, the Company took several steps to fulfill this objective. The Company re-evaluated the method in which it distributed product to its stores, resulting in a decision to close its warehouses and enter into agreements with a wholesaler, thereby lowering the Company's distribution costs (See "Item 1-Business-Distribution and Supply and Management Information Systems"). During Fiscal 1996, the Company completed store voluntary resignation incentive programs which resulted in a reduction of the Company's average hourly pay. In March 1996, the Company completed an organizational restructuring which will enable it to more effectively manage its business at a reduced cost. PROTOTYPE STORE FORMAT. Grand Union has developed a prototype for existing stores called MASTERS (Maximize All Space, Totally Expand the Right Stuff) which is designed to significantly increase the number and variety of product offerings. Two stores have been renovated using this format during Fiscal 1996. STORE FORMATS Grand Union's store sizes and formats vary depending upon the demographics and competitive conditions in each location, as well as the availability of real estate. Grand Union supermarkets offer a wide selection of national brand and private label grocery and general merchandise products as well as high-quality perishables and service departments. The majority of the Company's sales are generated from stores which also contain a number of high margin specialty and service areas for such goods as imported and domestic produce, salads, hot and cold prepared foods, seafood and fresh-baked goods. Select stores feature in- store kitchens and pharmacies. Liquor, beer and wine departments are included in many locations, subject to the limitations of state and local law. Grand Union's supermarkets range in size from 14,000 to 64,000 square feet and newly constructed stores are typically in excess of 40,000 square feet. 3 SELECTED DATA The table below sets forth certain statistical information with respect to Grand Union retail stores for the periods indicated. Fiscal Fiscal Fiscal 1996 1995 1994 ------ ------ ------ Number of stores (at end of period) 229 231 254 Total selling square feet at end of period (in thousands) 4,305 4,276 4,532 Average sales per selling square foot per week $10.28 $10.29 $10.76 SUMMARY OF OPERATIONS Grand Union currently operates 229 stores including 84 stores in northeastern New York, 40 stores in Vermont, 43 stores in central and northern New Jersey, 28 stores in Westchester, Orange, Rockland, Dutchess and Putnam Counties of New York, 14 stores on Long Island, New York, and 12 stores in Fairfield County, Connecticut. The Company also has a limited presence in New Hampshire (3 stores), New York City (3 stores) and Pennsylvania (2 stores). In upstate New York, Grand Union generally operates in small cities and rural communities. Commercial development in upstate New York has been and continues to be constrained by zoning and environmental restrictions, particularly in areas regulated by the Adirondack Park Commission. In the more urban Albany, New York metropolitan area, Grand Union's competitors, including Golub Corporation ("Price Chopper") and Hannaford Brothers, Inc. ("Hannaford"), have opened a number of new stores in the last five years. Such newly opened stores are generally larger and more modern than the Company's stores in the relevant markets. During the 52 weeks ended April 1, 1995 ("Fiscal 1995"), the Company closed 7 stores in the Albany area. In the Mid-Hudson Valley area of New York, the Company's principal competitors are Big V Supermarkets Inc. (a member of the Wakefern ("ShopRite") cooperative), Price Chopper, Hannaford and The Great Atlantic & Pacific Tea Company, Inc. ("A&P"). Weak economic conditions in the Mid-Hudson Valley area have been accompanied by a number of competitive openings in recent years. In Vermont, Grand Union's principal competitors are Price Chopper, Hannaford and A&P. The competitive environment in Vermont evolves very slowly due to zoning and environmental regulations in the state which restrict commercial development (including supermarkets). A number of stores in the Adirondack and Vermont areas are in resort areas and generally experience significant increases in sales in the summer months and in some cases during the winter ski season. 4 In New Jersey, the Company competes primarily against Pathmark Stores, Inc. ("Pathmark"), A&P, Edwards Supermarkets, Inc. ("Edwards"), ShopRite and various supermarkets supplied by the Twin County ("Foodtown") cooperative. In Westchester, Orange, Rockland, Dutchess and Putnam Counties in New York, the Company generally competes with A&P, Edwards and ShopRite. On Long Island, the Company's principal competitors are A&P/Waldbaums, Pathmark, King Kullen Grocery Co., Inc. and the Stop & Shop Company ("Stop & Shop"). Grand Union's main competitors in Fairfield County, Connecticut are Stop & Shop and A&P. These stores serve densely populated communities with demographics particularly well-suited for store formats emphasizing specialty departments. Accordingly, the sales mix in these stores includes a larger percentage of higher margin perishable department items. In addition, the high population density as well as the geographic concentration of stores provide substantial opportunities to achieve additional economies of scale, particularly in advertising. CAPITAL INVESTMENT The Company's capital spending is primarily directed towards renovating and upgrading the existing Grand Union store base and opening new and replacement stores in existing marketing areas. Capital expenditures, including capitalized leases other than real estate leases, for Fiscal 1996 and Fiscal 1995 were approximately $46,000,000 and $71,000,000, respectively. During the most recent fiscal year, the Company implemented on a test basis its MASTERS program, designed to enhance the sales potential of the Company's existing stores, through targeted capital expenditures, enhanced displays, and an increase in the number and variety of product offerings and customer services. DISTRIBUTION AND SUPPLY AND MANAGEMENT INFORMATION SYSTEMS DISTRIBUTION AND SUPPLY. On June 15, 1995, January 2, 1996 and January 21, 1996, the Company entered into supply and distribution agreements with C&S Wholesale Grocers, Inc. ("C&S"), under which C&S stocks and distributes to all Grand Union stores substantially all of the merchandise formerly owned and warehoused by Grand Union. Under two of the agreements, C&S stocks and supplies grocery and perishable products from its own warehouses. Under the most recent agreement, C&S stocks and supplies health and beauty care and general merchandise products from the Company's Montgomery, New York warehouse. As in prior years, Grand Union also utilizes a frozen food distribution facility operated by a third party. Management believes that the agreements with C&S enhance the Company's ability to offer consistently fresh and high quality products to its customers at a reduced distribution cost. From September 1993 until September 1995, Grand Union and the Penn Traffic Company ("Penn Traffic")were parties to a combined purchasing and distribution agreement relating to general merchandise and health and beauty care products. In September 1995, upon termination of the agreement, Grand Union purchased from Penn Traffic $12,821,000 of merchandise which had been owned by Penn Traffic under the joint buying arrangement. In February 1996, in connection with the agreement discussed above, C&S purchased $10,000,000 of general merchandise and health and beauty care products stored at the Company's Montgomery, New York warehouse. Prior to the commencement of distribution by C&S, the Company operated five distribution centers, aggregating approximately 2.1 million square feet. Grand Union also leased space in three additional storage facilities and, from time to time, utilized limited space in several other facilities. Prior to the agreements with C&S, products sold, including private label products, were purchased through a large group of unaffiliated suppliers. MANAGEMENT INFORMATION SYSTEMS. Financial, purchasing and operating system requirements are supported through a central computer system located in Wayne, New Jersey. Grand Union currently utilizes scanning systems in 183 stores (representing approximately 91% of total sales) and intends to continue to invest in scanning and other store systems in the future where such systems are economically justified. COMMISSARY. Grand Union operates a 20,000 square foot commissary located in Newburgh, New York, in which high quality cooked meat products, salads, salad ingredients and soups are prepared for sale in the Company's delicatessen departments. EMPLOYEES As of March 30, 1996, Grand Union had approximately 15,000 employees, of whom approximately 66% were employed on a part-time basis. Approximately 45% of Grand Union's employees are covered by collective bargaining 5 agreements negotiated with 10 local unions. As of March 30, 1996, substantially all of the employees covered by these collective bargaining agreements are employed at store locations. The Company, as a result of a major organizational change, closed its Northern Region office located in Colonie, New York in March, 1996. As a result, a number of employees were relocated to the Corporate offices and approximately 50 employees were terminated. The Company provided for severance payments based on the employee's position with the Company and length of service. Approximately 238 and 206 warehouse employees and transportation workers, respectively, represented by the International Brotherhood of Teamsters were terminated in connection with the closing of the Carlstadt, New Jersey and Mt. Kisco, New York warehouses on or about March 1, 1996 and approximately 188 employees represented by the Independent Warehouse Employees Association and 148 employees represented by the Independent Transportation Workers Association were terminated in connection with the closing of the Waterford, New York warehouse on or around July 31, 1995. The Company reached a settlement with the unions which provided for additional severance payments for members in consideration of the resolution of various legal claims asserted by the collective bargaining units. The Company entered into a new labor agreement on June 7, 1995 with United Food and Commercial Workers, Local 1262 ("Local 1262"). The agreement, which expires March 13, 1999, covers approximately 1,900 clerks working in 33 Grand Union stores located in New York City, Long Island and Westchester, Putnam and Dutchess Counties in New York. The Company also entered into a new labor agreement with Teamsters Local #445 on November 27, 1995 which expires on December 4, 1999, covering approximately 120 warehouse employees at the Company's Montgomery, New York distribution center. The Company also negotiated a labor agreement with UFCW Local #342-50 in November 1995 which expires on October 23, 1999 and covers approximately 300 non-managerial, meat department employees in the Company's Long Island, New York stores. The Company's other labor agreements have expiration dates ranging from March 1997 through March 1999. The Company believes that its relationship with its employees is generally satisfactory. TRADE NAMES, SERVICE MARKS AND TRADEMARKS Grand Union owns and actively uses over 20 trade names, service marks and trademarks (collectively, "Marks"). Among these Marks are the name "Grand Union"-Registered Trademark-, the symbol of a red dot, both of which are material to the Company's business, and the words "Grand Premium"-Registered Trademark-, "Grand Classics" -Registered Trademark-, "Big Gold Top"-Registered Trademark-, "Holland Hall"-Registered Trademark-, and "Red Dot Special"-Registered Trademark-, all of which are significant to the Company's business. The Company also has common law rights in, has filed for, or intends to file for various other Marks. COMPETITION The food retailing business is highly competitive. The Company competes with numerous national, regional and local supermarket chains. The Company also competes with convenience stores, stores owned and operated or otherwise affiliated with large food wholesalers, unaffiliated independent food stores, warehouse/merchandise clubs, discount drugstore chains and discount general merchandise chains. Some of the Company's competitors have greater financial resources than the Company and could use those resources to take steps which would adversely affect the Company's competitive position. (See also "Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations".) RECENT HISTORY CHAPTER 11 REORGANIZATION On November 29, 1994, Grand Union announced that it intended to develop a capital restructuring plan with certain of its lenders. On January 25, 1995, in connection with an agreement reached with its bank lenders and with members of informal committees of certain holders of Grand Union notes, the Company filed a voluntary petition for relief under Chapter 11 of the Code in Bankruptcy Court. The Bankruptcy Court confirmed the Second Amended Chapter 11 Plan of The Grand Union Company, dated as of April 19, 1995, on May 31, 1995, and the Company emerged from Chapter 11 on June 15, 1995. Significant provisions of the Plan included: 1. Payment in full of all allowed administrative claims and all allowed general unsecured and priority claims. 2. Payment in full of obligations under the Company's existing bank credit agreement (the "Bank Credit Agreement"), including principal and accrued interest. Concurrently, the Company entered into an Amended and Restated Credit Agreement (the "New Bank Facility"), providing for a five-year revolving credit facility of $100,000,000 and a seven-year term loan facility of $104,144,371, secured by a lien on substantially all of the assets of Grand Union and its subsidiaries. 3. Cancellation of obligations under the Company's 11.375% Senior Notes due 1999 and 11.25% Senior Notes due 2000 (collectively, the "Senior Notes"), which had an aggregate principal amount of $525,000,000 plus accrued interest, in exchange for the issuance of $595,421,000 aggregate principal amount of new 12% senior notes due 2004 and cash payments of $54,922 for fractional amounts to the holders of the Senior Notes. 4. Cancellation of obligations under the Company's 12.25% Senior Subordinated Notes due 2002, 12.25% Senior Subordinated Notes due 2002, Series A and 13% Senior Subordinated Notes due 1998 (collectively, the "Subordinated Notes"), which had an aggregate principal amount of $566,150,000, in exchange for issuance to each holder of Subordinated Notes its pro rata share of an aggregate of 10,000,000 shares of new common stock (the "New Common Stock"). 5. Issuance of warrants, which expire June 15, 2000, to purchase an aggregate of 900,000 shares of New Common Stock to holders of 15% Senior Zero Coupon Notes due 2004 and 16.5% Senior Subordinated Zero Coupon Notes due 2007 (collectively, the "Capital Notes") pursuant to the terms of a settlement reached among the Company, its then indirect parent companies, the Official Committee of Unsecured Creditors of its then parent company and certain holders of Capital Notes. The warrants are comprised of 300,000 Series 1 Warrants to purchase shares of New Common Stock at a purchase price of $30 per share and 600,000 Series 2 Warrants to purchase shares of New Common Stock at a purchase price of $42 per share. The Plan made no provision for the holders of the remaining long-term debt, redeemable preferred stock, common stock or warrants to purchase common shares of the Company's then indirect parent. OCTOBER 1993 ACQUISITION On October 18, 1993, the Company acquired five supermarket locations on Long Island for cash consideration of $18,300,000, of which $6,000,000 was allocated to property, equipment and leasehold improvements, $10,100,000 was allocated to goodwill and $2,200,000 was for store inventory. The acquisition was financed through the application of a 6 portion of the proceeds of the sale to institutional investors of $50,000,000 principal amount of Series A 12.25% Subordinated Notes. SALE OF THE SOUTHERN REGION On March 29, 1993, Grand Union sold 48 of its 51 Southern Region stores to A&P. The three remaining Southern Region stores were closed and subleased. Grand Union received net cash proceeds of approximately $25,000,000 and was relieved of approximately $4,500,000 of capital lease obligations. THE 1992 RECAPITALIZATION On July 22, 1992, Holdings, Capital and Grand Union completed a recapitalization (the "1992 Recapitalization"). In connection with the 1992 Recapitalization, Holdings, through Capital and Grand Union, entered into the Bank Credit Agreement providing for a $210,000,000 term loan facility (the "Term Loan") and a $100,000,000 revolving credit facility (the "Revolving Credit Facility"), issued $350,000,000 principal amount of Grand Union 11.25% Senior Notes and $500,000,000 principal amount of Grand Union 12.25% Subordinated Notes, and sold $343,000,000 principal amount of Capital Senior Zero Notes and $745,000,000 principal amount of Capital Subordinated Zero Notes, together with warrants to purchase at a nominal price approximately 19.9% of the common stock of Holdings on a fully diluted basis, for aggregate gross proceeds of approximately $200,000,000. The 1992 Recapitalization also included the sale to institutional investors of approximately 28.4% of the common stock of Holdings on a fully diluted basis for approximately $25,000,000. The proceeds were used to retire substantially all of the debt of Holdings, GU Acquisition Corporation ("GUAC"), a wholly owned subsidiary of Holdings, and Grand Union as well as to repurchase the shares and option to purchase shares owned by Salomon Brothers Holding Company Inc., certain warrants held by the parties to the term loan and revolving credit facility existing prior to the 1992 Recapitalization and approximately 3.4% of the common stock of Holdings held by Grand Union management. At the time of the 1992 Recapitalization, GUAC and its wholly owned subsidiary, Cavenham Holdings Inc., the former parent of Grand Union, were merged into Grand Union and Grand Union became a wholly owned subsidiary of Capital. On January 28, 1993, Grand Union sold $175,000,000 principal amount of 11.375% Senior Notes in a private placement. Net proceeds of the sale of the 11.375% Senior Notes were used to repay $142,000,000 of indebtedness under the Term Loan and the remainder was used to repay indebtedness under the Revolving Credit Facility. An additional $20,856,000 of the Term Loan was repaid from the proceeds of the sale of the Southern Region on March 29, 1993. All of such repaid indebtedness under the Term Loan and under the Revolving Credit Facility had been incurred in connection with the 1992 Recapitalization. FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND EXPORT SALES Grand Union has no significant foreign operations or export sales. ITEM 2. PROPERTIES Grand Union conducts its operations primarily in leased stores and offices. The following table indicates the location and number of stores as of March 30, 1996. Number of Locations Stores --------- ------ New York 129 New Jersey 43 Vermont 40 Connecticut 12 New Hampshire 3 Pennsylvania 2 --- Total 229 --- --- As of March 30, 1996, Grand Union owns 13 and leases 216 of its store sites pursuant to commercial leases. Management believes that none of such leases is individually material to Grand Union. Most of these leases contain several renewal options. Nine store leases which do not contain renewal options will expire over the next five years and management anticipates that it will be able to renegotiate favorable lease terms for most of these locations, if so desired. 7 Grand Union currently operates one distribution center in Montgomery, New York which is leased and a commissary, which is housed in a building owned by Grand Union on a ground-leased site in Newburgh, New York. Grand Union owns a 66,160 square foot site which was part of its Carlstadt, New Jersey Grocery Distribution Center and a 101,000 square foot facility in Waverly, New York. Grand Union's lease on its distribution center has 33 years remaining, including options. See Note 10 to the Consolidated Financial Statements, Property Leases, for information on leases and annual rents. ITEM 3. LEGAL PROCEEDINGS CHAPTER 11 PROCEEDINGS. Reference is made to "Item 1. Business - Recent History" for information regarding the Company's Chapter 11 proceedings. One proceeding challenging the order confirming the Plan is pending. The Company does not believe that this proceeding will result in any modification or revocation of the order. ENVIRONMENTAL - CONNECTICUT. Soil and ground-water contamination has been detected at a shopping center owned by Grand Union which is located in Connecticut. The Company is investigating whether such contamination was caused by improper disposal of perchloroethylene wastes by a dry cleaner previously operating at this location or by an off-site source. Grand Union has undertaken, under approval by the Connecticut Department of Environmental Protection, a proposal for a remedial investigation designed to identify the sources of such soil and ground-water contamination and to determine the length, depth and breadth of the contamination on and off-site. Sampling analyses for the ground-water at the shopping center and for drinking water in private residences located in the immediately surrounding area confirm that the source of the on-site contamination, in part, is an off-site shopping center and a gasoline station located nearby. A Remedial Action and Investigation Report was submitted to the Connecticut Department of Environmental Protection on May 21, 1993. The Company is awaiting a response from the Connecticut Department of Environmental Protection. The Company's potential responsibility does not arise from any aspect of its operation of a supermarket at the shopping center but from the actions of a former tenant. Any contamination caused on-site by a source located off-site would be the responsibility of another party. The Company believes that the current intention of the Connecticut Department of Environmental Protection is to seek reimbursement of past costs and clean-up costs from some or all of these other parties. The Company is unable to determine the amount of its potential liability arising from the on-site contamination, but does not believe, based upon the results of investigations made to date, that the amount of potential liability is likely to be materially adverse to the Company's financial condition. Management presently estimates, based upon investigations made by the Company's environmental consultant to date, that such liability should not exceed $2,000,000. Investigations are continuing, and there can be no assurance that the amount of such liability will not exceed $2,000,000. ENVIRONMENTAL - NEW YORK. In 1991, Grand Union's landlord brought an action against Grand Union, two other tenants at the Apple Valley Shopping Center in LaGrange, New York, and a supplier of hazardous substances to one of the tenants, seeking approximately $1,600,000 in response costs within the meaning of the Comprehensive Environmental Response Compensation and Liability Act ("CERCLA") and consequential damages (pursuant to the court's supplemental jurisdiction). The plaintiff claims that Grand Union and other tenants discharged hazardous substances from their premises which caused the plaintiff to incur response costs. The gravamen of the plaintiff's claim is that Grand Union placed household cleaning products containing volatile organic substances in a compactor situated at the rear of its premises and that such substances were released into the environment. Grand Union believes that the evidence will not support the allegation and is vigorously defending the matter. In connection with the Company's Chapter 11 proceedings, the plaintiff filed a proof of claim in the amount of $4,389,518. The U.S. Environmental Protection Agency carried out a removal action at this site and recently notified the Company that it was a potentially responsible party within the meaning of Section 107(a) of CERCLA. The Company is unable to determine the amount of its potential liability arising from this matter, but does not believe that the amount of potential liability is likely to be materially adverse to the Company's financial condition. FTC ORDER. At the time of the acquisition of Grand Union by Holdings in July 1989, Grand Union and P&C Foods, then a subsidiary and currently a division of Penn Traffic, operated stores in some of the same geographic areas in Vermont and upstate New York. In order to satisfy the concerns of federal antitrust authorities arising therefrom in connection with the acquisition of Grand Union by Holdings, prior to consummation thereof MTH Holdings, Inc. ("MTH Holdings"), which indirectly controlled Grand Union and Penn Traffic, an affiliate of Miller Tabak Hirsch + Co., a New York Limited Partnership, and GUAC entered into an Agreement to Hold Separate with Salomon Inc. and the Federal Trade Commission ("FTC") and an Agreement Containing Consent Order (the "Order") with the FTC, which Order was subsequently modified on February 16, 1996 (collectively, the "FTC Agreements"). 8 The FTC Agreements required the divestiture by MTH Holdings and/or Grand Union (including in each case their respective subsidiaries and affiliates) of sixteen stores located in Vermont and upstate New York. Such divestitures were completed on July 30, 1990. Thirteen of the sixteen stores divested were P&C Foods stores and three of the sixteen stores divested were Grand Union stores. In a related transaction, Grand Union and P&C Foods entered into an operating agreement (the "Operating Agreement"), pursuant to which Grand Union acquired the right to operate P&C Foods' thirteen remaining stores in New England under the Grand Union name until July 2000, for an average annual rent of approximately $10,700,000 with an option to extend the term of such operation for an additional five years. Grand Union paid P&C Foods $7,500,000 for an option to purchase the stores at an amount defined in the Operating Agreement. Pursuant to the terms of the Operating Agreement, the 1992 Recapitalization triggered a $15,000,000 prepayment obligation to P&C Foods. The Operating Agreement was assumed during the Chapter 11 case and will continue on its then current terms. The FTC Agreements also provide, among other things, that MTH Holdings and Grand Union (including in each case their respective subsidiaries and affiliates) shall not acquire, for a period of ten years, any retail grocery stores in Vermont and certain specified counties in New York without the prior notification to the FTC. As required by the FTC Agreements, following commencement of the Chapter 11 proceedings, Grand Union notified the FTC that a change of control of the Company would occur upon completion of the reorganization. The Agreement to Hold Separate was, by its terms, applicable only until certain stores identified therein could be divested. All required divestitures have occurred and, as of the Effective Date, there is no longer any control affiliation between Penn Traffic and Grand Union, which may in the future be direct competitors in certain market areas. The consummation of the Plan did not result in any change in the applicability of the FTC Agreements. OTHER PROCEEDINGS. The Company is also subject to certain other legal proceedings and claims arising in connection with its business. It is management's opinion that the ultimate resolution of such claims will not have a material adverse effect on the Company's consolidated results of operations or its financial position. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDERS MATTERS The New Common Stock of the Company is listed on the NASDAQ Stock Market under the symbol GUCO. At the close of business on March 30, 1996, there were 10,000,000 shares of New Common Stock, $1.00 par value outstanding and entitled to vote. There are approximately 2,600 holders of record as of June 19, 1996. The quarterly market value of the Company's stock is discussed in Note 17 to the Consolidated Financial Statements. No cash dividends were declared or paid during each of the three fiscal years ended March 30, 1996. Payment of dividends to holders of New Common Stock is restricted by Grand Union's New Bank Facility and by the terms of the New Senior Notes. 9 ITEM 6. SELECTED FINANCIAL DATA As discussed in Item 1, the Company emerged from its Chapter 11 proceedings effective June 15, 1995 (the "Effective Date"). For financial reporting purposes, the Company accounted for the consummation of the Plan effective June 17, 1995. In accordance with the American Institute of Certified Public Accountants Statement of Position 90-7, "Financial Reporting By Entities In Reorganization Under The Bankruptcy Code", the Company has applied Fresh-Start Reporting as of the Effective Date which has resulted in significant changes to the valuation of certain of the Company's assets and liabilities, and to its stockholders' equity. In connection with the adoption of Fresh-Start Reporting, a new entity has been deemed created for financial reporting purposes. The periods prior to the Effective Date have been designated "Predecessor Company" and the period subsequent to the Effective Date has been designated "Successor Company". All information is derived from the consolidated financial statements of the Company. This information should be read in conjunction with the historical financial statements of the Company, including the notes thereto, included elsewhere herein. The financial statements prior to the Effective Date reflect the accounts of Holdings pushed down to the accounts of Grand Union. All dollars are in millions, except per share data.
Successor Company Predecessor Company ------------------------------------------------------------------------------- 41 Weeks 11 Weeks 52 Weeks 52 Weeks 53 Weeks 52 Weeks Ended Ended Ended Ended Ended Ended March 30, June 17, April 1, April 2, April 3, March 28, 1996 1995 1995 1994 1993 1992 ---- ---- ---- ---- ---- ---- STATEMENT OF OPERATIONS: Sales $ 1,819.9 $ 487.9 $ 2,391.7 $ 2,477.3 $ 2,834.0 $ 2,968.5 Gross profit 569.9 143.8 708.3 731.7 822.3 820.5 Operating and administrative expenses 453.7 117.5 571.6 552.5 627.0 622.3 Depreciation and amortization 143.8 17.2 87.1 78.6 80.6 78.7 Unusual items 22.0 18.6 27.4 4.5 201.5 -- Interest expense 79.2 19.8 182.0 183.8 174.5 172.0 Loss before income taxes, extraordinary items and cumulative effect of accounting change 128.8 29.3 159.8 87.6 261.2 52.5 Income tax (benefit) provision (18.9) -- -- -- 4.5 12.5 Extraordinary items -- 854.8 -- -- (47.7) -- Cumulative effect of accounting change -- -- -- 30.3 -- -- Net income (loss) (109.9) 825.5 (159.8) (118.0) (313.4) (65.1) Net loss per share (7) 10.99 -- -- -- -- -- Ratio of earnings to fixed charges (1) -- -- -- -- -- -- Deficiency in earnings available to cover fixed charges 128.8 29.3 159.8 87.6 261.2 52.5 BALANCE SHEET DATA: Total assets $ 1,178.2 (6) $ 1,394.8 $ 1,394.2 $ 1,418.2 $ 1,536.8 Total debt and capital lease obligations (2) 875.1 (6) 1,614.9 1,532.2 1,402.5 1,251.1 Redeemable stock (2) -- (6) 174.2 154.7 139.8 128.9 Nonredeemable stock and stockholders' equity (deficit) 44.1 (6) (824.3) (644.8) (510.3) (190.8) OPERATING AND OTHER DATA: EBITDA (3) $ 94.2 $ 7.7 $ 109.3 $ 144.4 $ (53.9) $ 198.2 Adjusted EBITDA (4) 117.7 26.6 135.6 180.1 196.7 196.3 EBITDA as a percentage of sales 5.2% 1.6% 4.6% 5.8% (1.9)% 6.7% Adjusted EBITDA as a percentage of sales 6.5% 5.5% 5.7% 7.3% 6.9 % 6.6% Capital expenditures (5) $ 43.0 $ 3.0 $ 70.8 $ 86.2 $ 66.2 $ 34.6 LIFO provision (credit) 1.5 .3 (1.1) 0.9 1.4 (1.9) Number of stores at year end 229 N/A 231 254 250 304
10 (1) The ratio of earnings to fixed charges is computed by dividing (i) earnings before income taxes, extraordinary items, the cumulative effect of accounting change and fixed charges by (ii) fixed charges. Fixed charges consist of total interest expense plus the estimated interest component of operating leases. No ratio is indicated where the ratio is less than one. (2) Amounts as of April 1, 1995 are classified in the Consolidated Balance Sheet as Liabilities Subject to Compromise. (3) Earnings before interest expense, depreciation, amortization and income taxes. (4) Earnings before interest expense, depreciation, amortization, LIFO provision, unusual items, extraordinary items, cumulative effect of accounting change and income taxes. (5) Includes capitalized leases other than real estate capitalized leases. (6) Balance sheet data is not applicable at this date. (7) Loss per share data is not meaningful for periods prior to the Effective Date due to the significant changes in the capital structure of the Company. 11 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL: As discussed in Item 1, the Company emerged from its Chapter 11 proceedings effective June 15, 1995 (the "Effective Date"). For financial reporting purposes, the Company accounted for the consummation of the Plan effective June 17, 1995. In accordance with the American Institute of Certified Public Accountants Statement of Position 90-7, "Financial Reporting By Entities In Reorganization Under The Bankruptcy Code", the Company has applied Fresh-Start Reporting as of the Effective Date which has resulted in significant changes to the valuation of certain of the Company's assets and liabilities, and to its stockholders' equity. In connection with the adoption of Fresh-Start Reporting, a new entity has been deemed created for financial reporting purposes. The periods prior to the Effective Date have been designated "Predecessor Company" and the period subsequent to the Effective Date has been designated "Successor Company". For purposes of the discussion of Results of Operations for the 52 weeks ended March 30, 1996, and Liquidity and Capital Resources, the results of the Predecessor Company and Successor Company have been combined. RESULTS OF OPERATIONS The following table sets forth certain statement of operations data reflecting the combination discussed above (all dollars in millions): Fiscal Fiscal Fiscal 1996 1995 1994 ---- ---- ---- Sales $ 2,307.8 $ 2,391.7 $ 2,477.3 Gross profit 713.7 708.3 731.7 Operating and administrative expenses 571.2 571.6 552.5 Depreciation and amortization 77.1 87.1 78.6 Amortization of excess reorganization value 84.0 -- -- Unusual items 40.6 27.4 4.5 Interest expense 99.0 182.0 183.8 Income tax benefit 18.9 -- -- Extraordinary credit 854.8 -- -- Cumulative effect of accounting change -- -- 30.3 Net income (loss) 715.6 (159.8) (118.0) EBITDA 101.9 109.3 144.4 Adjusted EBITDA 144.3 135.6 180.1 LIFO provision (income) 1.8 (1.1) 0.9 Sales percentage increase (decrease) (a) (3.5)% (3.5)% (3.3)% Gross profit as a percentage of sales 30.9 29.6 29.5 Operating and administrative expenses as a percentage of sales 24.7 23.9 22.3 EBITDA as a percentage of sales 4.4 4.6 5.8 Adjusted EBITDA as a percentage of sales 6.3 5.7 7.3 (a) Fiscal 1994 decrease excludes the Southern Region (12.6% decrease including the Southern Region). Sales for Fiscal 1996 decreased $83.9 million or 3.5% compared to Fiscal 1995. The sales decline in Fiscal 1996 was a result of the sale or closure of 24 stores during Fiscal 1995 which were not replaced and from same store sales decreases, partially offset by sales of incremental new stores. Same store sales (sales of stores which were operated during the comparable periods of both fiscal years including stores replaced during the year) declined .9% for the year. Same store sales changes, by quarter for Fiscal 1996, beginning with the first quarter, were 0.1%, (2.8)%, (1.3)% and 0.4%. Same store sales comparisons were negatively influenced by the Company's strong promotional programs during the second and third quarters of Fiscal 1995, and the effects of closing two distribution centers servicing its metropolitan New York area stores. Same store sales were positively influenced by the positive impact of the "More Lower Prices" price repositioning program implemented in most of the Company's stores during the year, by additional marketing and store service programs introduced in the second quarter of this year in the metropolitan Albany, New York and Bergen County, New Jersey areas and by the severe snowstorms which struck the New York metropolitan area in late December and early January. During Fiscal 1996, the Company opened two incremental new stores and two replacement stores and completed three enlargements and four major renovations. 12 Sales for Fiscal 1995 decreased $85.6 million or 3.5% as compared to Fiscal 1994. The sales decrease in Fiscal 1995 resulted from the sale or closure of 24 stores which were not replaced, 20 of which were sold or closed in the third and fourth quarters of the year in connection with the Company's restructuring, partially offset by sales from incremental new stores. Same store sales declined 4.8% in Fiscal 1995. Same store sales decreases resulted from the effect of competitive openings in Fiscal 1995 and Fiscal 1994, weak economic conditions, particularly in upstate New York and Vermont, an increased emphasis on value-oriented products and the effect of publicity surrounding the Company's Chapter 11 proceedings (see "Liquidity and Capital Resources"). Sales declines were partially offset by the effect of replacement stores, enlargements and renovations in Fiscal 1995 and Fiscal 1994. Sales comparisons were also affected by the exclusion from Fiscal 1995 (and inclusion in Fiscal 1994) of the holiday shopping period preceding Easter and the effect of a 22 day work stoppage during Fiscal 1994 discussed below. During Fiscal 1995, the Company opened one incremental new store and four replacement stores, enlarged or renovated eight stores and closed or sold 28 stores (including replaced stores). Gross profit, as a percentage of sales, was 30.9% in Fiscal 1996, compared to 29.6% in Fiscal 1995. Gross profit percentages in Fiscal 1996 were impacted favorably by the savings generated by closing three distribution centers and entering into agreements with C&S Wholesale Grocers, Inc. ("C&S") to supply product to Grand Union's stores, and the restoration this year of vendor promotional allowances and other vendor support which were not available to the Company during the bankruptcy proceedings in Fiscal 1995. Gross margin was negatively affected by the "More Lower Prices" price repositioning program implemented in most of the Company's stores during Fiscal 1996. Gross profit, as a percentage of sales, was 29.6% in Fiscal 1995 compared to 29.5% in Fiscal 1994. The relatively flat level of gross profit, as a percentage of sales, reflects higher grocery margins and promotional allowance income in the first half of the year and income resulting from a liquidation of LIFO inventories, offset by the effects of promotional pricing programs begun during the second quarter in certain areas and by the effects of significantly reduced income from promotional allowances and forward buy inventory purchases, both directly related to the Company's announcement that it would seek a capital restructuring. Operating and administrative expenses, as a percentage of sales, were 24.7% during Fiscal 1996, compared to 23.9% during Fiscal 1995. Store labor increased, as a percentage of sales, as a result of the Company's metropolitan Albany, New York and Bergen County, New Jersey marketing and customer service programs, offset by the benefits of the Company's special voluntary resignation incentive programs completed during the second quarter. Advertising costs increased in Fiscal 1996 in connection with the "More Lower Prices" price repositioning program and the Albany and Bergen County marketing and customer service programs. Occupancy costs increased, as a percentage of sales, principally as a result of decreased sales in Fiscal 1996. Included in operating and administrative expenses were gains from the sale of stores totaling $5.4 million in Fiscal 1996 and $2.5 million in Fiscal 1995. Operating and administrative expenses, as a percentage of sales, were 23.9% in Fiscal 1995, compared to 22.3% in Fiscal 1994. The increase resulted primarily from increases, as a percentage of sales, in store labor and fringe costs and utilities expense, principally relating to the sales decline, and from increased insurance expense. The decrease in depreciation and amortization expense during Fiscal 1996 principally resulted from the absence of amortization of goodwill after the Effective Date. The increase in depreciation and amortization in Fiscal 1995 compared to Fiscal 1994 was attributable to the Company's higher level of capital expenditures in Fiscal 1995 and Fiscal 1994 as compared to prior years. In accordance with Fresh-Start Reporting, the Company valued its assets and liabilities at fair market values and eliminated its retained earnings at the Effective Date. The total reorganization value as of the Effective Date was determined to be $1,334.0 million which was $521.7 million in excess of the aggregated fair value of the Company's tangible and identified intangible assets. Such excess is being amortized on a straight-line basis over a five-year period. See Note 1 of the consolidated financial statements for a more comprehensive discussion. Unusual items in Fiscal 1996 consisted of (a) a $2.5 million organizational restructuring provision, (b) a $15.0 million provision related to the closure of the Company's two New York metropolitan area warehouses, (c) a $4.5 million provision relating to voluntary resignation incentive programs and (d) $18.6 million of restructuring charges, incurred in connection with the Chapter 11 proceedings. Unusual items in Fiscal 1995 consisted of (a) a store closure provision which totaled $16.9 million offset by $4.0 million of proceeds from the termination of a warehouse sublease, (b) a charge of $3.7 million for an early retirement program offered to certain employees and (c) $10.8 million of restructuring charges incurred in 13 connection with the Chapter 11 proceedings. The Fiscal 1994 unusual items related to charges for an early retirement program. Interest expense was substantially less in Fiscal 1996 compared to Fiscal 1995 as a result of the decreased level of debt of the Successor Company. As a result of the Chapter 11 proceedings, the Company did not accrue interest expense on its Subordinated Notes or on the debt of its then parent companies subsequent to January 25, 1995. The Company recorded an income tax benefit of $18.9 million during Fiscal 1996 consisting of federal and state income taxes. Operating loss and credit carryforwards of the Predecessor Company have been offset by taxable gains realized on the debt discharged in connection with the Plan. There are no remaining operating loss or credit carryforwards of the Predecessor Company and there was no change in the tax basis of the Company's assets as of the Effective Date. No income taxes were provided in either Fiscal 1995 or Fiscal 1994. During Fiscal 1996, in connection with the Company's emergence from Chapter 11, the Company recorded an extraordinary gain on debt discharge of $854.8 million. The Company believes that both EBITDA and Adjusted EBITDA, which are disclosed in the above table, are useful supplemental disclosures for the investment community. However, EBITDA and Adjusted EBITDA should not be construed as substitutes for earnings or cash flow data required by generally accepted accounting principles. EBITDA is defined as earnings before income taxes, interest expense, extraordinary gain on debt discharge, cumulative effect of an accounting change, depreciation and amortization. Adjusted EBITDA is defined as EBITDA before LIFO provision and unusual items. LIQUIDITY AND CAPITAL RESOURCES The Company continues to be highly leveraged. Interest payments during Fiscal 1996 totaled approximately $67 million (approximately $100 million on an annualized basis). Capital expenditures, including capitalized leases other than real estate leases, totaled approximately $46 million in Fiscal 1996 and are expected to total $40-$50 million in Fiscal 1997. Capital expenditures during Fiscal 1996 related to new, enlarged or remodeled stores, store systems and maintenance capital. Fiscal 1997 capital expenditures will also principally be dedicated to new and replacement stores, remodels, store systems and maintenance capital. Bankruptcy related obligations, principally lease rejection liabilities, totaling $7 million (included in accounts payable and accrued liabilities at March 30, 1996) are expected to be paid during the next fiscal year. There are no significant scheduled debt principal repayments prior to June, 2000. The Company plans to finance its working capital, interest expense and capital expenditure requirements from operations, from its Amended and Restated Credit Agreement (the "New Bank Facility"), and, to a limited extent, from equipment leases or purchase money mortgages. The Company's ability to fund the payment of interest and other obligations when due is dependent on cash generated from its operations, net of cash capital expenditures. The Company's ability to complete its planned capital expenditure program is dependent on its operating performance. During Fiscal 1996, the Company implemented certain price repositioning, marketing and customer service programs. The Company intends to extend these programs to additional stores in Fiscal 1997. Although these programs tend to adversely affect gross profit and operating expenses in periods in which they are made, and there is no assurance that such programs will lead to improved sales and profits over the long term, Grand Union believes that they are necessary in order to improve future sales and profits. During Fiscal 1996, the Company obtained from its banks a waiver and amendment to the New Bank Facility. The waiver and amendment relieves the Company from the agreement's EBITDA requirements to the extent of (a) $15 million in charges relating to the closure of warehouse operations and (b) a $2.5 million organizational restructuring provision. The waiver and amendment also provides relief from other technical requirements related to the two most recent C&S agreements. As of March 30, 1996, the Company is in compliance with the covenants of its debt instruments, as amended. As of March 30, 1996, the Company had $33.0 million of borrowings and approximately $43.9 million of letters of credit outstanding under its $100 million revolving credit facility. During the fourth quarter of Fiscal 1996, the Company entered into an agreement with an investment banking financial advisor to assist the Company in actively seeking additional sources of capital to fund an expanded capital expenditure program. There is no assurance that the Company will secure additional capital. Significant expenditures and resources used to finance such expenditures for the three fiscal years ended March 30, 1996 are reflected in the following table (in millions):
Fiscal Fiscal Fiscal 1996 1995 1994 ------- ------- -------- Resources used: Debt and capital lease repayments $ 102.0 $ 11.3 $ 8.7 Capital expenditures 43.7 63.0 81.0 Loan placement fees 3.1 -- 1.8 Other -- -- .2 ------- ------- -------- $ 148.8 $ 74.3 $ 91.7 ------- ------- -------- ------- ------- -------- Financed by: Proceeds from New Bank Facility $ 137.2 $ -- $ -- Property disposals 11.0 2.1 .6 Operating activities, including cash and temporary investments 0.6 43.2 13.4 Debt incurred -- 29.0 77.7 ------- ------- -------- $ 148.8 $ 74.3 $ 91.7 ------- ------- -------- ------- ------- --------
During Fiscal 1996, funds for debt and capital lease repayments (primarily the repayment of obligations outstanding under the Old Bank Credit Agreement), capital expenditures and loan placement fees were principally obtained from cash provided by the New Bank Facility ($104.1 million from a seven-year term loan facility and $33 million from a $100 million five-year revolving credit facility). During Fiscal 1995 and Fiscal 1994, cash requirements were principally obtained from borrowings and from cash provided by operating activities. Borrowings included $29 million in Fiscal 1995 and $25 million in Fiscal 1994 under the Revolving Credit Facility. Additionally, Fiscal 1994 borrowings included proceeds from the sale of $50 million principal amount of Series A 12.25% Subordinated Notes. Debt repayments for Fiscal 1995 and Fiscal 1994 consisted of scheduled repayments of capital leases and various mortgages. 14 From September 1993 until September 1995, Grand Union and the Penn Traffic Company ("Penn Traffic") were parties to a combined purchasing and distribution agreement relating to general merchandise and health and beauty care products. In September 1995, Grand Union purchased from Penn Traffic approximately $12.8 million of merchandise which had been owned by Penn Traffic under the joint buying arrangement. In February 1996, C&S purchased $10.0 million of general merchandise and beauty care products stored at the Company's Montgomery, New York warehouse. On June 15, 1995, January 2, 1996 and January 21, 1996, the Company entered into supply agreements with C&S, under which C&S will stock and distribute to all Grand Union stores substantially all of the merchandise formerly owned and warehoused by Grand Union. Under two of the agreements, C&S will stock and supply grocery and perishable products from its own warehouses. Under the most recent agreement, C&S will stock and supply health and beauty care and general merchandise products from the Company's Montgomery, New York warehouse. As a result of the three agreements with C&S, the Company's liquidity has increased by approximately $5 to $10 million. On November 29, 1994, Grand Union announced that it intended to develop a capital restructuring plan with certain of its lenders. On January 25, 1995, in connection with an agreement reached with its bank lenders and with members of informal committees of certain holders of Grand Union notes, the Company filed a voluntary petition for relief under chapter 11 ("Chapter 11") of Title 11 of the United States Code in the United States Bankruptcy Court for the District of Delaware (the "Bankruptcy Court"). The Bankruptcy Court confirmed the Second Amended Chapter 11 Plan of The Grand Union Company, dated as of April 19, 1995, on May 31, 1995, and the Company emerged from Chapter 11 on June 15, 1995. Significant provisions of the Plan included: 1. Payment in full of all allowed administrative claims and all allowed general unsecured and priority claims. 2. Payment in full of obligations under the Company's existing bank credit agreement, including principal and accrued interest. Concurrently, the Company entered into the New Bank Facility. 3. Cancellation of obligations under the Company's 11.375% Senior Notes due 1999 and 11.25% Senior Notes due 2000 (collectively, the "Senior Notes"), which had an aggregate principal amount of $525,000,000 plus accrued interest, in exchange for the issuance of $595,421,000 aggregate principal amount of new 12% senior notes due 2004 and cash payments of $54,922 for fractional amounts to the holders of the Senior Notes. 4. Cancellation of obligations under the Company's 12.25% Senior Subordinated Notes due 2002, 12.25% Senior Subordinated Notes due 2002, Series A and 13% Senior Subordinated Notes due 1998 (collectively, the "Subordinated Notes"), which had an aggregate principal amount of $566,150,000, in exchange for issuance to each holder of Subordinated Notes its pro rata share of an aggregate of 10,000,000 shares of new common stock (the "New Common Stock"). 5. Issuance of warrants, which expire June 15, 2000, to purchase an aggregate of 900,000 shares of New Common Stock to holders of 15% Senior Zero Coupon Notes due 2004 and 16.5% Senior Subordinated Zero Coupon Notes due 2007 (collectively, the "Capital Notes") pursuant to the terms of a settlement reached among the Company, its then indirect parent companies, the Official Committee of Unsecured Creditors of its then parent company and certain holders of Capital Notes. The warrants are comprised of 300,000 Series 1 Warrants to purchase shares of New Common Stock at a purchase price of $30 per share and 600,000 Series 2 Warrants to purchase shares of New Common Stock at a purchase price of $42 per share. The Plan made no provision for the holders of the remaining long-term debt, redeemable preferred stock, common stock or warrants to purchase common shares of the Company's then indirect parent. 15 IMPACT OF NEW ACCOUNTING STANDARDS In November 1995, the Financial Accounting Standards Board issued Statement No. 123, "Accounting for Stock Based Compensation" ("SFAS No. 123"), which establishes accounting standards for stock based employee compensation plans. SFAS No. 123 specifies a fair value based method of accounting for stock based compensation plans and encourages (but does not require) entities to adopt that method in place of the provisions of APB Opinion 25, "Accounting for Stock Issued to Employees". The Company has not yet determined which method of accounting will be used or what impact the adoption of the accounting requirements of SFAS No. 123 might have on the Company's results of operations. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS: Reports of Independent Accountants F-1 Consolidated Statement of Operations for the 41 weeks ended March 30, 1996 (Successor Company), the 11 weeks ended June 17, 1995, the 52 weeks ended April 1, 1995 and the 52 weeks ended April 2, 1994 (Predecessor Company) F-3 Consolidated Balance Sheet at March 30, 1996 (Successor Company) and April 1, 1995 (Predecessor Company) F-4 Consolidated Statement of Cash Flows for the 41 weeks ended March 30, 1996 (Successor Company), the 11 weeks ended June 17, 1995, the 52 weeks ended April 1, 1995 and the 52 weeks ended April 2, 1994 (Predecessor Company) F-5 Notes to Consolidated Financial Statements F-6
All other schedules are omitted because they are not applicable or the required information is shown in the consolidated financial statements or notes thereto. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None 16 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The names, ages and present principal occupations of the directors and executive officers of Grand Union as of June 1, 1996, are as set forth below. Name Age Positions ---- --- --------- Roger E. Stangeland 66 Director and Chairman Joseph J. McCaig 51 Director, President and Chief Executive Officer William A. Louttit 49 Director, Executive Vice President and Chief Operating Officer Darrell W. Stine 58 Executive Vice President - Operations Kenneth R. Baum 48 Senior Vice President, Chief Financial Officer and Secretary Gilbert C. Vuolo 52 Senior Vice President, Human Resources and Labor Relations Daniel E. Josephs 64 Director William G. Kagler 64 Director Douglas T. McClure, Jr. 43 Director David Y. Ying 41 Director MR. STANGELAND has been Chairman of the Board and a Director of Grand Union since June 15, 1995. Mr. Stangeland is a Director and Chairman Emeritus of The Vons Companies, Inc. ("Vons"), a large Southern California based grocery retailer. From 1985 until his retirement on May 3, 1995, he was Chairman of the Board of Vons. Mr. Stangeland is the immediate Past Chairman of the Board of the Food Marketing Institute, a national supermarket trade organization, and continues as a Director of that organization. He is also a Director of Quality Drug Corporation, a retail drug company. MR. McCAIG became President and Chief Executive Officer of Grand Union in July 1989. He served as President and Chief Operating Officer from 1981 until July 1989 and has been a Director of Grand Union since 1981. Mr. McCaig has been with the Company for 35 years. MR. LOUTTIT has been Executive Vice President and Chief Operating Officer of Grand Union since July 1989. He served as Executive Vice President in charge of Merchandising from 1984 until July 1989 and has been a Director of Grand Union since 1981. Mr. Louttit has been with the Company for 31 years. MR. STINE was appointed Executive Vice President of Grand Union in July 1994. He served as Senior Vice President with responsibility for the Company's New York Region from 1988 until July 1994. Mr. Stine has been with the Company for 42 years. MR. BAUM was appointed Senior Vice President, Chief Financial Officer and Secretary of Grand Union in July 1994. Mr. Baum served as Vice President and Controller from 1983 until July 1994 and as a Director of Grand Union from July 1994 until June 15, 1995. Mr. Baum has been with the Company for 14 years. MR. VUOLO was appointed Senior Vice President, Human Resources and Labor Relations, effective April 1, 1996. Prior to that, he served as Vice President, Human Resources and Labor Relations from 1989 to 1994. Mr. Vuolo has been with the Company for 34 years. MR. JOSEPHS is currently a self-employed consultant and has been a Director since June 15, 1995. Mr. Josephs served as Director, President and Chief Operating Officer of Dominick's Finer Foods, a supermarket chain based in the Chicago area, from 1985 until March 1995. Mr. Josephs is also a director of Great Lakes Real Estate Investment Trust, which acquires and manages small suburban office buildings. MR. KAGLER has been a Director since June 15, 1995. Mr. Kagler served Skyline Chili, Inc. as Chairman of the Executive Committee of the Board from November 1994 until November 1995, as Chairman of the Board and Chief Executive Officer from November 1993 until November 1994, and as President and Chief Executive Officer from November 1991 until November 1993. Prior thereto, he served as President of The Kroger Co., a Cincinnati based food retailer. He holds Directorships of The Fifth Third Bank, a bank, Union Central Life Insurance Co., an insurance company, and The Ryland Group Inc., a home builder and mortgage insurance firm. MR. McCLURE has been a Director since June 15, 1995. Mr. McClure is a managing director of the Private Merchant Banking Company, a position he has held since February 1996. From April 1992 until February 1994, he was a managing director of New Street Capital Corp., a merchant banking firm. From 1987 to April 1992, he was a managing director with the investment firm of Drexel Burnham Lambert. Mr. McClure is a Director of AMPEX Corporation, a manufacturer and distributor of recording products and systems, and of WestPoint Stevens Inc., a textile manufacturer. 17 MR. YING has been a Director since June 15, 1995. Mr. Ying has been a managing director at Donaldson, Lufkin & Jenrette Securities Corporation since January 1993, and is the head of the firm's Restructuring Group. From January 1990 to January 1993, Mr. Ying was a managing director with the investment firm of Smith Barney. Executive officers of Grand Union are appointed and serve at the discretion of the Board of Directors. Each director of Grand Union is elected for a period of one year and will serve until his successor is duly elected and qualified. Prior to June 15, 1995, the Board of Directors of Grand Union consisted of Messrs. McCaig, Louttit, Baum, Gary D. Hirsch (Chairman) and Martin A. Fox. On January 25, 1995, the Company filed a voluntary petition for relief under Chapter 11 of the federal bankruptcy laws. Messrs. McCaig, Louttit and Baum were also executive officers of the Company within two years prior to the date of such filing. Mr. McCaig was also a director of Grand Union Capital Corporation and Grand Union Holdings Corporation, both of which became subject to Chapter 11 proceedings on February 16, 1995. The current directors of Grand Union were selected by certain members of the Official Committee of Unsecured Creditors which was appointed by the United States Trustee for the District of Delaware, pursuant to the Chapter 11 proceedings discussed above. COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934 Section 16(a) of the Exchange Act requires the Company's directors and executive officers and persons who own beneficially more than 10% of a registered class of the Company's equity securities to file with the Securities and Exchange Commission initial reports of ownership and reports of changes in ownership of Common Stock and other equity securities of the Company. Officers, directors and greater than 10% beneficial stockholders are required by regulations promulgated by the Securities and Exchange Commission to furnish the Company with copies of all Section 16(a) reports they file. Based solely on its review of the copies of reporting forms furnished to the Company, or written representations that no annual Form 5 reports were required, the Company believes that all filing requirements under Section 16(a) of the Securities Exchange Act of 1934 applicable to its directors, officers and any persons holding 10% or more of the Company's Common Stock with respect to the Company's fiscal year ended March 30, 1996, were satisfied. 18 ITEM 11. EXECUTIVE COMPENSATION EXECUTIVE COMPENSATION The following table sets forth compensation paid or accrued by the Company to the Company's Chief Executive Officer, and the four other executive officers whose salary and bonus exceeded $100,000 for the fiscal year ended March 30, 1996 (collectively, the "Named Executive Officers"), for services rendered to the Company and its subsidiaries in all capacities during the three fiscal years ended March 30, 1996:
SUMMARY COMPENSATION TABLE LONG TERM COMPENSATION AWARDS SECURITIES ALL OTHER NAME AND ANNUAL COMPENSATION UNDERLYING COMPENSATION PRINCIPAL POSITION YEAR SALARY($) BONUS($)(1) OPTIONS/SARS (#) ($)(2) ------------------ ---- --------- ----------- ---------------- -------- Joseph J. McCaig 1996 454,310 90,000 47,800 181,786 President and Chief 1995 502,165 22,493 -- 980,968 Executive Officer 1994 523,712 123,479 -- 30,109 William A. Louttit 1996 354,019 71,540 28,000 82,742 Executive Vice President 1995 335,669 15,037 -- 437,355 and Chief Operating Officer 1994 349,731 66,392 -- 14,038 Darrell W. Stine 1996 281,142 56,780 19,000 40,070 Executive Vice President - 1995 257,077 18,000 -- 621,911 Operations 1994 251,134 17,446 -- 14,535 Kenneth R. Baum 1996 203,654 42,000 11,720 9,392 Senior Vice President, 1995 152,769 7,154 -- 31,691 Chief Financial Officer 1994 143,715 20,603 -- 4,739 and Secretary Gilbert C. Vuolo 1996 145,792 29,440 6,560 4,244 Senior Vice President, Human 1995 132,885 6,231 -- 4,450 Resources and Labor Relations 1994 121,399 23,906 -- 3,553
_______________ The "Other Annual Compensation" column was omitted since the aggregate amount of perquisites and other personal benefits in respect of Fiscal 1996, Fiscal 1995 and Fiscal 1994 is less than the lower of $50,000 or 10% of the total annual salary and bonus reported for each of the named executive officers and no other compensation of the type required to be described in the "Other Annual Compensation" column was paid in Fiscal 1996, Fiscal 1995 or Fiscal 1994. (1) Included in the bonus column for Fiscal 1994 are amounts paid during Fiscal 1995 for performance in Fiscal 1994, and included in the bonus column for Fiscal 1995 are amounts paid during Fiscal 1996 for performance in Fiscal 1995. All amounts included in the bonus column for Fiscal 1996 are retention payments paid for remaining in the Company's employ through the bankruptcy and the end of the current fiscal year. (2) "All Other Compensation" includes the following: (i) contributions to the Company's Savings Plan under Section 401(k) made by the Company in Fiscal 1996, Fiscal 1995 and Fiscal 1994, respectively, for each of the named executive officers as follows: Mr. McCaig - $1,414, $1,455, and $2,964; Mr. Louttit - $1,526, $765, and $2,331; Mr. Stine - $1,563, $1,547, and $2,313; Mr. Baum - $1,546, $1,525, and $1,650; and Mr. Vuolo - $1,516, $1,526, and $1,439; and (ii) premium payments for life insurance made by the Company in Fiscal 1996, Fiscal 1995 and Fiscal 1994, respectively, for each of the named executive officers as follows: Mr. McCaig - $10,843, $31,090, and $27,145; Mr. Louttit - $4,795, $10,013, and $11,707; Mr. Stine - $7,795, $13,522, and $12,222; Mr. Baum - $2,741, $3,302, and $3,089; and Mr. Vuolo - $2,416, $2,612, and $1,802. The Fiscal 1996 and Fiscal 1995 amounts for Messrs. McCaig, Louttit, Stine and Baum also include the value of securities distributed from custodial accounts established pursuant to non-competition and confidentiality agreements entered into by Messrs. McCaig, Louttit, Stine and Baum in August 1993. Such amounts were distributed as a result of the Company's filing for bankruptcy in 1995, and offset the Company's obligations to such executives under Grand Union's Supplemental Retirement Program for Key Executives. Such distributions 19 were made in Fiscal 1996 and Fiscal 1995, respectively, in the following amounts: Mr. McCaig - $169,217 and $948,423; Mr. Louttit - $76,109 and $426,577; Mr. Stine - $30,401 and $606,842; and Mr. Baum - $4,793 and $26,864. OPTION/SAR GRANTS IN LAST FISCAL YEAR
Potential Realizable Value at Assumed Annual Rates of Stock Price Appreciation for Individual Grants Option Term - --------------------------------------------------------------------------------------------------------- (a) (b) (c) (d) (e) (f) (g) Number of % of Total Securities Options/SARs Exercise Underlying Granted to Price or Options/SARs Employees in Base Price Expiration Name Granted Fiscal Year ($/Sh) Date 5%($) 10%($) - ----------- ------------- ------------- ---------- ----------- ------- ------ J. McCaig 47,800 22.69% 6.625 Dec 11, 2005 119,155 504,698 W. Louttit 28,000 13.29% 6.625 Dec 11, 2005 116,660 295,639 D. Stine 19,000 9.02% 6.625 Dec 11, 2005 79,162 200,612 K. Baum 11,720 5.56% 6.625 Dec 11, 2005 48,831 123,746 G. Vuolo 6,560 3.11% 6.625 Dec 11, 2005 27,332 69,264 Aggregate Increase for All Stockholders 41,664,269 105,585,438
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION/SAR VALUES Number of Securities Value of Underlying Unexercised Unexercised In-the-Money Options/SARs at FY-End (#) Options/SARs at FY-End ($) Name Exercisable Unexercisable Exercisable Unexercisable - ---- ----------- ------------- ----------- ------------- J. McCaig 0 47,800 -- $ 0 W. Louttit 0 28,000 -- 0 D. Stine 0 19,000 -- 0 K. Baum 0 11,720 -- 0 G. Vuolo 0 6,560 -- 0 PENSION PLAN TABLE The table below shows, on a combined basis for the Grand Union Company Employees' Retirement Plan (the "Retirement Plan"), and The Grand Union Company Supplemental Retirement Program for Key Executives (the "Supplemental Plan"), the estimated annual benefit payable upon retirement to specified compensation and years of service classifications of 5, 10 and 15 or more years of service. The credited years of service under these Plans for Messrs. McCaig, Louttit, Stine, Baum and Vuolo are 22 years, 20 years, 28 years, 13 years and 22 years, respectively. The current base compensation set forth in "salary" column of the Summary Compensation Table does not differ substantially from covered compensation under these Plans. The retirement benefits shown are based upon retirement at age 62 and the payment of a single-life annuity to the employee. 20 Years of Service Final Average ------------------------------------------- Compensation 5 10 15 or more - ------------------ ---------- ---------- ----------- $100,000 $21,667 $43,333 $65,000 150,000 32,500 65,000 97,500 200,000 43,333 86,667 130,000 250,000 54,167 108,333 162,500 300,000 65,000 130,000 195,000 350,000 75,833 151,667 227,500 400,000 86,667 173,333 260,000 450,000 97,500 195,000 292,500 500,000 108,333 216,667 325,000 550,000 119,167 238,333 357,500 600,000 130,000 260,000 390,000 The benefits actually payable to an individual executive are reduced, in some cases substantially, through offsets for primary Social Security benefits and the actuarial equivalent of the value of securities received by those executives who received distributions from custodial accounts in 1995 and 1994. Below, for each named executive, is the total estimated offset amount in each case determined as a single life annuity payable beginning at age 62. Estimated Annual Payment Offset Amounts Prior Social Total Distributions Security Offset ------------- -------- -------- J. McCaig $209,000 $17,000 $226,000 W. Louttit 105,000 18,000 123,000 D. Stine 77,000 14,000 91,000 K. Baum 7,000 19,000 26,000 G. Vuolo -- 17,000 17,000 THE GRAND UNION COMPANY EMPLOYEES' RETIREMENT PLAN The Retirement Plan is a tax-qualified, noncontributory retirement plan, providing retirement benefits for its eligible salaried and hourly non-union employees, union employees not covered by other pension plans, and all of its officers. Under the Retirement Plan, a participant's benefit is generally 1.5% of the average of his five consecutive years of highest compensation multiplied by years of service not in excess of 35 minus primary social security benefits. Benefits under the plan are paid under several alternatives, including monthly or lump sum payments at the employee's election. Benefits are normally payable at age 65, however, the plan provides for early retirement with reduced benefits commencing at age 55. The Internal Revenue Code places certain limits on pension benefits which may be paid under plans qualified under the Internal Revenue Code. SUPPLEMENTAL RETIREMENT PLAN FOR KEY EXECUTIVES The Supplemental Plan is a non-qualified pension plan pursuant to which certain key employees of Grand Union and its affiliates ("Participants"), including Messrs. McCaig, Louttit, Stine, Baum and Vuolo, earn a supplemental pension in addition to the pension benefit to which they are entitled under the Retirement Plan. The pension benefit under the Supplemental Plan is calculated as an annual pension, payable monthly (i) if the Participant is not married on his retirement date, for the Participant's life, or (ii) if the Participant is married on his retirement date, the same amount as described in clause (i) for the duration of the Participant's life and thereafter 50% of such amount for the duration of the life of the Participant's surviving spouse. The amount of the annual pension payable upon retirement at age 62 or later is determined as the "target benefit" minus the "plan offsets". The "target benefit" is an annual pension equal to 21 the product of 4-1/3% of the Participant's final year's base salary rate in effect immediately prior to his separation, multiplied by the Participant's number of years of credited service (up to 15 years) under the Supplemental Plan. "Plan offsets" for Participants retiring at age 62 or later are equal to the sum of the Participant's (i) primary Social Security benefits payable at the later of age 62 or the Participant's actual retirement age, (ii) benefits under the Retirement Plan payable at the later of age 62 or the Participant's actual retirement age in the form of a single life annuity, and (iii) benefits, if any, payable from the qualified retirement plan(s) of the Participant's previous employer(s). Participants may also retire early (i) at or after attaining age 50 but prior to attaining age 55, with the consent of Grand Union (the consent requirement is waived for a Participant who becomes disabled or is involuntarily terminated other than for cause), or (ii) at or after age 55, without any requirement for consent by Grand Union. For Participants who retire early, the "target benefit" is reduced by 5% per year for each year the Participant is under age 62. Supplemental Plan benefits are payable in an actuarially determined single sum no later than 30 days following the Participant's date of retirement or other termination of employment. In general, no Supplemental Plan benefits will be paid to a Participant whose employment with Grand Union terminates prior to the Participant's attaining age 50. In May 1995, the Bankruptcy Court approved a modification to the Supplemental Plan which provides that (x) in the case of Joseph J. McCaig, final year's base salary shall be deemed to be an amount not less than $500,000 and (y) notwithstanding the general requirement of the Supplemental Plan, benefits will not be paid to persons who retire prior to age 50, persons who were Participants in the Supplemental Plan prior to April 1, 1995 will be eligible for early retirement without forfeiture of benefits under the Supplemental Plan from and after age 47. In August 1993, in consideration of non-competition and confidentiality agreements entered into by certain executives of Grand Union, including Messrs. McCaig, Louttit, Stine and Baum, Grand Union agreed to transfer to a custodial account to be held by an independent custodian securities having a specified value intended to approximate the benefits payable to the specified executives under the Supplemental Plan (plus a reserve for claims and expenses of the custodian). Such securities were to have been transferred to the custodian over a four-year period. Pursuant to the terms of the agreements, the executives for whose benefit securities had been transferred to the custodian were entitled to receive a distribution of such securities upon Grand Union's filing of the Chapter 11 petition in January 1995. Accordingly, in February and September of 1995, securities having an aggregate value of approximately $1,855,576 (representing securities on deposit with the custodian as of the Filing Date plus interest thereon) were distributed to the executives entitled thereto. In addition, under a separate agreement entered into in 1994, Mr. Stine received a payment of $433,650, representing an advanced payment of a portion of the benefits to which he would be entitled had he retired under the SERP. The value of the securities so distributed to each executive reduced the future amounts payable to such executive pursuant to the Supplemental Plan. Upon distribution of the securities to the executives for whose benefit they were held, the custodial accounts were terminated. COMPENSATION OF DIRECTORS Effective from June 15, 1995, each non-employee director other than Mr. Stangeland receives an annual fee of $25,000 for serving on the Board, and meeting fees of $1,500 for each Board meeting attended in person, $750 for each committee meeting attended in person and each telephonic Board meeting attended, and $375 for each telephonic committee meeting attended. In addition, the Chairman of the Audit Committee, Mr. Ying, and the Chairman of the Compensation Committee, Mr. Kagler, receive $500 for each Committee meeting they attend in person as Chairman and $250 for each telephonic committee meeting they attend as Chairman. Prior to June 15, 1995, the directors of Grand Union were not compensated for their services as such. Directors receive reimbursement of reasonable expenses incidental to attendance at meetings of the Board of Directors. Effective from January 1, 1996, Mr. Stangeland receives an annual retainer of $100,000 for serving as Chairman of the Board. In addition, Mr. Stangeland receives a $4,000 daily fee for days spent at the Company and when undertaking substantial travel on the Company's behalf. Mr. Stangeland absorbs incidental expenses incurred when working on the Company's behalf from his office in California. Mr. Stangeland was paid $204,000 in daily fees with respect to services performed during Fiscal 1996. Mr. Josephs and Mr. Kagler receive a $2,000 daily fee for activity on the Company's behalf which requires substantial travel. Mr. Josephs and Mr. Kagler received $11,000 and $9,000, respectively, with respect to services performed during Fiscal 1996. Each non-employee director also receives an automatic initial grant of options to purchase 5,000 shares of Common Stock, and additional grants to purchase 1,500 shares with each re-election by stockholders. All directors are reimbursed for expenses incurred on the Company's behalf. SEVERANCE POLICY In May 1995, Grand Union adopted a severance policy, which was approved by the Bankruptcy Court, with respect to its salaried employees whereby a salaried employee who is involuntarily terminated without cause or who is constructively terminated (which is defined to mean an involuntary transfer that would require relocation outside the Company's current operating area or (x) 22 with respect to persons holding the position of chief executive officer, chief operating officer or chief financial officer, either removal from such position, or a reduction in salary of 5% or more in any year and (y) with respect to any other salaried employee, either a reduction in salary of 10% or more in any year or a reduction in grade level of more than two grades in any year) is entitled to receive a lump-sum severance payment equal to (i) in the case of salaried employees holding the office of President, Executive Vice President or Senior Vice President, 18 months' base salary; (ii) in the case of salaried employees holding the office of Corporate Vice President, 12 months' base salary; (iii) in the case of salaried employees holding the office of appointed vice president or director, 6 months' base salary; and (iv) in the case of all other salaried employees, one week's base salary for each year of service to the Company up to a maximum of 26 weeks. CHANGE-IN-CONTROL PROVISIONS Under the Company's 1995 Equity Incentive Plan and 1995 Non-Employee Directors Stock Option Plan, certain provisions take effect on a change-in-control of the Company. Under both plans, on the twentieth (20th) trading day prior to the effective date of the change in control all stock options not otherwise vested become fully vested, and any restrictions or other conditions applicable to restricted stock or other incentives awarded under the 1995 Equity Incentive Plan lapse or are deemed satisfied and such awards become fully vested and/or immediately payable. In addition, the value of any canceled award is paid out in cash unless the award holder receives either (i) the right to acquire the same basket of cash and securities available to holders of common stock, or (ii) if pooling of interests is a condition of the transaction, an equivalent right in a successor security which would enable the transaction to qualify for pooling of interests. Under both plans, a change-in-control is defined to include: (1) any person, entity or Group (persons or entities acting together) is or becomes the beneficial owner of more than 50% of the Voting Stock of the Company; (2) a consolidation, merger, or sale of substantially all of the assets of the Company, with the effect that any person, entity or Group becomes the beneficial owner of more than 50% of the Voting Stock of the Company or the Company is not the surviving entity; (3) during any consecutive two-year period commencing July 1, 1996, individuals who constituted the Board of Directors at the beginning of such period, together with any new directors whose election by the Board or nomination for election by stockholders was approved by 2/3 of the directors who were in office at the beginning of the period or whose election or nomination was so approved, cease to constitute a majority of the Board then in office; or (4) any order, judgment or decree of dissolution or split-up of the Company, and such order remains undischarged or unstayed for a period in excess of 60 days. For purposes of determining whether a change in control has occurred, "more than 50% of the Voting Stock" means more than 50% of one or more classes of stock pursuant to which the holders have the general power to vote for the election of members of the Board of Directors, and the aggregate of such classes for which the person, entity or Group holds more than 50% has the power to elect more than 50% of the members of the Board of Directors. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION The Board of Directors maintains a personnel and compensation committee (the "Compensation Committee") consisting of three directors. Since June 15, 1995, the members of the Compensation Committee have been Messrs. Kagler, Stangeland and Josephs, with Mr. Kagler acting as Chairman. No member of the Board participates in decisions regarding his own compensation as an executive officer of Grand Union. 23 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL OWNERS Set forth below is certain information as of June 10, 1996, regarding the beneficial ownership of the Company's Common Stock by (i) any person known by the Company to beneficially own more than 5% of the Common Stock of the Company; (ii) each director and nominee for director supported by the Board of Directors; (iii) each of the Named Executive Officers identified in the Summary Compensation Table; and (iv) all directors and executive officers as a group. Except as otherwise indicated, the Company believes, based on information furnished by such owners, that the beneficial owners of the Company's Common Stock listed below have sole investment and voting power with respect to such shares, subject to applicable community property laws. Ownership information is based on information furnished by the respective individuals.
FIVE PERCENT STOCKHOLDERS, NOMINEES FOR DIRECTOR, AMOUNT AND EXECUTIVE OFFICERS NAMED IN SUMMARY NATURE OF COMPENSATION TABLE, AND DIRECTORS BENEFICIAL PERCENT AND EXECUTIVE OFFICERS AS A GROUP OWNERSHIP OF CLASS ---------------------------------- --------- -------- Putnam Investments, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,243,830 (1)(2) 32.44% One Post Office Square Boston, MA 02109 Putnam Investment Management . . . . . . . . . . . . . . . . . . . . . . . . . 3,125,089 (1)(3) 31.25% One Post Office Square Boston, MA 02109 Putnam High Yield Trust (Equity Convertible) . . . . . . . . . . . . . . . . . 1,688,770 (1)(4) 16.89% One Post Office Square Boston, MA 02109 Putnam Diversified Income Trust (High Yield) . . . . . . . . . . . . . . . . . 539,505 (1)(5) 5.40% One Post Office Square Boston, MA 02109 Kemper Financial Services, Inc.. . . . . . . . . . . . . . . . . . . . . . . . 1,172,683 (6) 11.73% 120 South LaSalle Street Chicago, Il 60603 Roger E. Stangeland. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,000 * Joseph J. McCaig . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,000 * William A. Louttit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,000 * Daniel E. Josephs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0 * William G. Kagler. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 500 * Douglas T. McClure, Jr.. . . . . . . . . . . . . . . . . . . . . . . . . . . . 0 * David Y. Ying. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0 * Darrell W. Stine . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,000 * Kenneth R. Baum. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0 * Gilbert C. Vuolo . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0 * All Directors and Executive Officers as a group (10 persons) . . . . . . . . . 31,500 *
_______________ *Less than 1%. (1) Putnam Investments, Inc. wholly owns two registered investment advisers: Putnam Investment Management, Inc. and The Putnam Advisory Company, Inc. Shares of Common Stock beneficially held by Putnam Investments, Inc. are as a result of the holdings of various investment funds and other institutional investors for which Putnam Investment Management, Inc., The Putnam Advisory Company or affiliated entities act as investment advisers. These shares of Common Stock include the shares held by Putnam High Yield Trust and Putnam Diversified Income Fund, whose holdings are also separately reported in the table. See Notes (4) and (5). 24 (2) Includes 3,243,830 shares held with shared dispositive power, and no shares held with shared voting power, sole dispositive power or sole voting power. (3) Includes 3,125,089 shares held with shared dispositive power, and no shares held with shared voting power, sole dispositive power or sole voting power. (4) Includes 1,688,770 shares held with shared dispositive power and shared voting power, and no shares held with sole dispositive power or sole voting power. These shares of Common Stock are also beneficially owned by Putnam Investment Management. See Note (1) above. (5) Includes 539,505 shares held with shared dispositive power and shared voting power, and no shares held with sole voting power, or sole dispositive power. All of the shares held by Putnam Diversified Income Fund are also beneficially owned by Putnam Investment Management. See Note (1) above. (6) Includes 1,172,683 shares with shared voting power and shared dispositive power, and no shares with sole dispositive power or sole voting power. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS PRE-BANKRUPTCY RELATIONSHIPS AND TRANSACTIONS. On January 25, 1995, the Company filed a petition under Chapter 11 of the federal bankruptcy laws. The Company emerged from bankruptcy on June 15, 1995, the effective date of the bankruptcy court's approval of the Company's reorganization plan. Prior to June 15, 1995, the Company was a wholly owned subsidiary of Grand Union Capital Corporation ("Capital"), which in turn was a wholly owned subsidiary of Grand Union Holdings Corporation ("Holdings"). Holdings was controlled by Miller Tabak Hirsch & Co. ("MTH") and its affiliates, which also control Penn Traffic. The following applies to relationships which existed prior to June 15, 1995. Mr. Gary D. Hirsch served as Chairman and a Director of Grand Union and also as Chairman and a Director of Penn Traffic. Mr. Martin A. Fox served as a Director, Vice President and Assistant Secretary of Grand Union and Vice Chairman - Finance and Assistant Secretary of Penn Traffic. Messrs. Hirsch and Fox received compensation from MTH, of which Mr. Hirsch is a general partner of the managing partner, and Mr. Fox is Executive Vice President. Messrs. Hirsch and Fox did not receive salaries from Penn Traffic and did not participate in cash bonus plans of Penn Traffic, and received no compensation in their capacities as executive officers or directors of Grand Union. Until May 31, 1995, Mr. McCaig was a member of the Board of Directors of Penn Traffic, for which he received compensation of $10,000 per annum and $1,000 per Board of Directors meeting attended. Mr. McCaig became a Director of Holdings in July 1989 and a Director of Capital in July 1992. He became President of Holdings and Capital in May 1993. Mr. McCaig served as a Director of Penn Traffic from September 1992 until May 1995. Mr. Hirsch is no longer a director of the Company. While he was a director, he was an indirect beneficiary of the following transactions. Prior to June 15, 1995, MTH was engaged as financial advisor to Penn Traffic and as a financial advisor to the Company, in the latter case pursuant to an agreement (the "MTH Agreement"), under which MTH was to have provided certain financial consulting and business management services to the Company through July 1997. In accordance with the Company's post-bankruptcy Reorganization Plan, the MTH Agreement was terminated on June 15, 1995 and Grand Union executed a settlement agreement (the "MTH Settlement Agreement"). The MTH Settlement Agreement provides for the termination of the MTH Agreement, payment by Grand Union of accrued and unpaid fees under the MTH Agreement through June 15, 1995, and for the indemnification of MTH and certain entities related to MTH (the "MTH Entities") from certain claims and liabilities, subject to the terms and limitations set forth in the MTH Settlement Agreement. The Company deposited $3.0 million relating to the indemnification in escrow on June 15, 1995. During Fiscal 1996, the Company paid $315,000 to MTH, pursuant to the MTH Agreement. On July 30, 1990, P&C Foods, which is indirectly controlled by MTH, and Grand Union entered into an Operating Agreement pursuant to which Grand Union acquired the right to operate 13 P&C Foods' stores in New England under the Grand Union name until July 2000. Pursuant to the Operating Agreement, Grand Union agreed to pay P&C Foods a minimum annual fee which will average $10.7 million per year during the ten-year lease term. Pursuant to the terms of the Operating Agreement, a $15 million prepayment of the annual fee was made to P&C Foods in connection with the recapitalization of the Company in 1992. The Operating Agreement was assumed during the Chapter 11 bankruptcy case and will continue on its current terms. From September 1993 until September 1995, Grand Union participated in a program to consolidate the purchasing, storage and distribution of health and beauty care and general merchandise product with Penn Traffic. During Fiscal 1996, Grand Union 25 purchased from Penn Traffic's inventory of health and beauty care and general merchandise products at cost approximately $30.1 million for store operations and approximately $12.8 million at the termination of the agreement. POST-BANKRUPTCY RELATIONSHIPS. Mr. Ying, a director of the Company since June 15, 1995, has been a managing director of Donaldson Lufkin & Jenrette Securities Corporation ("DLJ") since January 1993. During Fiscal 1995 and Fiscal 1996, DLJ acted as financial advisor to the Informal Committee of certain holders of Subordinated Notes in connection with the restructuring of Grand Union and received compensation of approximately $1.3 million from the Company for such services. Near the end of Fiscal 1996, the Company entered into an agreement with DLJ to provide investment banking services and advice to the Company. During the term of DLJ's engagement, it has the exclusive right to act as sole managing underwriter, exclusive placement agent, sole dealer manager or exclusive solicitation agent with respect to any public offering of the Company's securities, any private offering of any of the Company's debt securities, or any exchange offer or refinancing transaction relating to the Company's Senior Notes or other securities of the Company. Under the agreement, DLJ receives a retainer fee of $200,000, a Transaction Fee, and, if a fairness opinion is requested, a Fairness Fee. In the case of a private placement, the Transaction Fee is 5% of the gross proceeds of the private placement, offset by the retainer fee, and the Fairness Fee is 1.5% of the gross proceeds of the private placement. In the case of a divestiture, the Transaction Fee is a percentage of the aggregate consideration, based on a sliding scale, from 2% of a $50 million consideration to 0.9% if the aggregate consideration is $450 million or more. The Fairness Fee in a divestiture is the greater of $350,000 or 25% of the Transaction Fee. In the case of a sale of 36% to 100% of the business, securities or assets of the Company, the Transaction Fee varies ratably from 0.4% of the aggregate consideration to 0.6% of the aggregate consideration, offset by the retainer fee and the Fairness Fee. In the case of a sale, the Fairness Fee is $1 million. The agreement also contains various other provisions, including an obligation by DLJ to keep confidential certain information provided to it by the Company, and an obligation by the Company to indemnify and hold harmless DLJ, its parent and its affiliates, and the directors, officers, agents and employees of DLJ, its parent and its affiliates ("Indemnified Persons"), from and against various potential losses and liabilities arising out of or in connection with misstatements or omissions in disclosure documents or in connection with advice or services rendered by an Indemnified Person. 26 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORT ON FORM 8-K THE FOLLOWING DOCUMENTS ARE FILED AS A PART OF THIS REPORT: (a) FINANCIAL STATEMENTS All financial statements as set forth under Item 8. (b) REPORT ON FORM 8-K None. (c) EXHIBITS Exhibit Number Description of Document - ------ ----------------------- 2.1 Second Amended Chapter 11 Plan of Reorganization of The Grand Union Company ("Grand Union"), filed with the United States Bankruptcy Court, District of Delaware, on April 19, 1995, incorporated by reference to Exhibit T3E1 to Grand Union's Form T-3 dated May 8, 1995. 2.2 Findings of Fact, Conclusions of Law and Order Confirming the Second Amended Plan of Reorganization proposed by Grand Union, dated May 31, 1995, incorporated by reference to Exhibit 2.2 to Grand Union's Annual Report on Form 10-K for the fiscal year ended April 1, 1995 ("Fiscal 1995"). 2.3 Minute Order Clarifying Findings of Fact, Conclusions of Law and Order Confirming Second Amended Plan of Reorganization proposed by Grand Union, dated June 14, 1995, incorporated by reference to Exhibit 2.3 to Grand Union's Annual Report on Form 10-K for Fiscal 1995. 3.1 Restated Certificate of Incorporation of Grand Union, incorporated by reference to Exhibit 3.1 to Grand Union's Annual Report on Form 10-K for Fiscal 1995. 3.2 By-laws of the Grand Union Company, as restated through March 30, 1996. 4.1 Form of New Common Stock Certificate of Grand Union, incorporated by reference to Exhibit 4.1 to Grand Union's Annual Report on Form 10-K for Fiscal 1995. 4.2 Indenture dated as of June 15, 1995, between Grand Union, as Issuer and IBJ Schroder Bank & Trust Company, as Trustee for the 12% Senior Notes due September 1, 2004, including form of the 12% Senior Note due 2004, incorporated by reference to Exhibit 4.2 to Grand Union's Annual Report on Form 10-K for Fiscal 1995. 4.3 Amended and Restated Borrower Pledge Agreement dated as of June 15, 1995, made by Grand Union to Bankers Trust Company ("Bankers Trust"), as Collateral Agent, incorporated by reference to Exhibit 4.3 to Grand Union's Annual Report on Form 10-K for Fiscal 1995. 4.4 Amended and Restated Borrower Security Agreement dated as of June 15, 1995, between Grand Union and Bankers Trust, as Collateral Agent, incorporated by reference to Exhibit 4.4 to Grand Union's Annual Report on Form 10-K for Fiscal 1995. 4.5 Warrant Agreement dated as of June 15, 1995, between Grand Union and American Stock Transfer & Trust Company, as Warrant Agent for 300,000 Series 1 Warrants and 600,000 Series 2 Warrants, incorporated by reference to Exhibit 4.5 to Grand Union's Annual Report on Form 10-K for Fiscal 1995. 27 Exhibit Number Description of Document - ------ ----------------------- 4.6 Registration Rights Agreement dated as of June 15, 1995, among Grand Union and Each of the Persons Named in Schedule A thereto for the New Common Stock, incorporated by reference to Exhibit 4.6 to Grand Union's Annual Report on Form 10-K for Fiscal 1995. 4.7 Registration Rights Agreement dated as of June 15, 1995, by and among Grand Union and The Holders Named therein for the Registrable Notes, incorporated by reference to Exhibit 4.7 to Grand Union's Annual Report on Form 10-K for Fiscal 1995. 10.1 Agreement to Hold Separate dated July 17, 1989, by and among MTH Holdings Inc. ("MTH Holdings"), GU Acquisition Corporation ("GUAC"), Salomon Inc. and the Federal Trade Commission (the "FTC") entered into in the matter of MTH Holdings and GUAC before the FTC, incorporated by reference to Exhibit No. 10.5 to Grand Union's Registration Statement on Form S-1 (Registration No. 33-29707) (the "1989 Grand Union Registration Statement"). 10.2 Agreement containing Consent Order among MTH Holdings, GUAC and the FTC entered into in the matter of MTH Holdings and GUAC before the FTC, incorporated by reference to Exhibit No. 10.6 to the 1989 Grand Union Registration Statement. 10.3 Asset Purchase Agreement, dated as of January 25, 1990, by and between Grand Union and Price Chopper Operating Co. of Vermont, Inc., incorporated by reference to Exhibit No. 10.15 to Holdings Registration Statement on Form S-1 (Registration No. 33-32879). 10.4 Asset Purchase Agreement, dated as of February 9, 1990, by and between Grand Union and Price Chopper Operating Co., Inc., incorporated by reference to Exhibit No. 10.49 to GUAC's Registration Statement on Form S-1 (Registration No. 33-22398). 10.5 Agreement and Master Sublease dated as of July 30, 1990, by and between Grand Union and P&C Food Markets, Inc. ("P&C Foods"), incorporated by reference to Exhibit No. 10.18 to Holdings' Report on Form 10-Q dated July 21, 1990 (Commission File No. 33-29707). 10.6 Asset Purchase Agreement dated as of February 4, 1993, between The Great Atlantic & Pacific Tea Company, Inc. and Grand Union, incorporated by reference to Exhibit No. 2.1 to Grand Union's Report on Form 8-K dated February 4, 1993. 10.7 Asset Purchase Agreement dated as of September 20, 1993 among Foodarama Supermarkets, Inc., ShopRite of Malverne, Inc. and Grand Union, incorporated by reference to Exhibit No. 10.19 to Grand Union's Registration Statement on Form S-1 (Registration No. 33-70956). 10.8* Third Amendment and Restatement of The Grand Union Company Supplemental Retirement Program for Key Executives effective as of June 15, 1995. 10.9 Amended and Restated Credit Agreement dated as of June 15, 1995, among Grand Union, the lending institutions listed from time to time on Schedule 1 thereto, and Bankers Trust, as Agent, including Exhibits A- 1, A-2 and A-3, and various Schedules thereto, incorporated by reference to Exhibit 10.9 to Grand Union's Annual Report on Form 10-K for Fiscal 1995. 10.10 Amended and Restated Borrower Pledge Agreement dated as of June 15, 1995, made by Grand Union to Bankers Trust, as Collateral Agent (included in Exhibit 4.3) , incorporated by reference to Exhibit 10.10 to Grand Union's Annual Report on Form 10-K for Fiscal 1995. 10.11 Amended and Restated Borrower Security Agreement dated as of June 15, 1995, between Grand Union and Bankers Trust, as Collateral Agent (included in Exhibit 4.4), incorporated by reference to Exhibit 10.11 to Grand Union's Annual Report on Form 10-K for Fiscal 1995. 28 Exhibit Number Description of Document - ------ ----------------------- 10.12 Subsidiary Security Agreement dated as of June 15, 1995, among the corporations listed on Schedule 1 thereto and Bankers Trust, as Collateral Agent, incorporated by reference to Exhibit 10.12 to Grand Union's Annual Report on Form 10-K for Fiscal 1995. 10.13 Subsidiary Guaranty dated as of June 15, 1995, made by each of the corporations from time to time listed on Annex A attached thereto in favor of the Banks and the Agent from time to time party to the Credit Agreement, incorporated by reference to Exhibit 10.13 to Grand Union's Annual Report on Form 10-K for Fiscal 1995. 10.14 Form of Indenture of Open-End Mortgage, Deed of Trust, Deed to Secure Debt, Security Agreement, Assignment of Leases, Rents and Profits, Financing Statement and Fixture Filing, dated as of June 15, 1995, made by Grand Union to Bankers Trust, as Collateral Agent, incorporated by reference to Exhibit 10.14 to Grand Union's Annual Report on Form 10-K for Fiscal 1995. 10.15 Letter dated June 15, 1995, containing MTH Settlement Agreement between Miller Tabak Hirsch + Co. ("MTH") and Grand Union in connection with (i) the termination of the Agreement, dated July 22, 1992, between MTH and Grand Union, and (ii) the Second Amended Plan of Reorganization, dated April 19, 1995, of Grand Union, incorporated by reference to Exhibit 10.15 to Grand Union's Annual Report on Form 10-K for Fiscal 1995. 10.16 Agreement dated as of April, 1995, among Grand Union, Grand Union Capital Corporation ("Capital"), Holdings, the Official Committee of Unsecured Creditors of Capital and certain holders of Zero Coupon Notes issued by Capital and guaranteed by Holdings named therein, incorporated by reference to Exhibit 10.16 to Grand Union's Annual Report on Form 10-K for Fiscal 1995. 10.17 Waiver dated June 14, 1995, with respect to the Second Amended Chapter 11 Plan of Grand Union, among Grand Union, Bankers Trust, the Official Committee of Unsecured Creditors of Grand Union and the Informal Committee of Senior Noteholders, incorporated by reference to Exhibit 10.17 to Grand Union's Annual Report on Form 10-K for Fiscal 1995. 10.18* The Grand Union Company 1995 Equity Incentive Plan, incorporated by reference to Exhibit 10.1 to Grand Union's Quarterly report on Form 10-Q for the 40 weeks ended January 6, 1996 ("Third Quarter of Fiscal 1996"). 10.19* The Grand Union Company 1995 Non-Employee Director's Stock Option Plan, incorporated by reference to Exhibit 10.2 to Grand Union's Quarterly report on Form 10-Q for the Third Quarter of Fiscal 1996. 10.20** Supply and Distribution Agreement between The Grand Union Company and C&S Wholesalers, dated June 15, 1995, incorporated by reference to Exhibit 10.3 to Grand Union's Quarterly report on Form 10-QA for the Third Quarter of Fiscal 1996. 10.21** First Amendment to the Supply and Distribution Agreement between The Grand Union Company and C&S Wholesalers, dated June 15, 1995, incorporated by reference to Exhibit 10.4 to Grand Union's Quarterly report on Form 10-QA for the Third Quarter of Fiscal 1996. 10.22** Supply and Distribution Agreement between The Grand Union Company and C&S Wholesalers, dated January 2, 1996, incorporated by reference to Exhibit 10.5 to Grand Union's Quarterly report on Form 10-QA for the Third Quarter of Fiscal 1996. 29 Exhibit Number Description of Document - ------ ----------------------- 10.23 Non-competition Agreement between The Grand Union Company and Joseph J. McCaig. 10.24 Non-competition Agreement between The Grand Union Company and William A. Louttit. 10.25 Non-competition Agreement between The Grand Union Company and Kenneth R. Baum, Jr. 10.26 Non-competition Agreement between The Grand Union Company and Darrell W. Stine. 10.27 Non-competition Agreement between The Grand Union Company and Gilbert C. Vuolo. 10.28 Investment Banking Agreement between The Grand Union Company and Donaldson, Lufkin & Jenrette. 10.29 Waiver and First Amendment to the Amended and Restated Credit Agreement dated February 16, 1996. 10.30 Agreement between The Grand Union Company and Darrell W. Stine related to SERP obligations. 21.1 Subsidiaries of Grand Union. 24.1 Power of Attorney. 27.1 Financial Data Schedule. * Compensatory plan or arrangement ** Confidential treatment requested 30 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. THE GRAND UNION COMPANY (Registrant) /s/ Kenneth R. Baum -------------------------- Date June 27, 1996 Kenneth R. Baum Senior Vice President, Chief Financial Officer and Secretary (Principal Financial Officer and Principal Accounting Officer) Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. SIGNATURE TITLE DATE /s/ Roger E. Stangeland * Director and Chairman June 27, 1996 - -------------------------- Roger E. Stangeland /s/ Joseph J. McCaig * Director, President and Chief June 27, 1996 - -------------------------- Executive Officer (Principal Joseph J. McCaig Executive Officer) /s/ William A. Louttit * Director, Executive Vice June 27, 1996 - -------------------------- President and Chief William A. Louttit Operating Officer /s/ Daniel E. Josephs * Director June 27, 1996 - -------------------------- Daniel E. Josephs /s/ William G. Kagler * Director June 27, 1996 - -------------------------- William G. Kagler /s/ Douglas T. McClure, Jr * Director June 27, 1996 - -------------------------- Douglas T. McClure, Jr /s/ David Y. Ying * Director June 27, 1996 - -------------------------- David Y. Ying /s/ Kenneth R. Baum Senior Vice President, Chief June 27, 1996 - -------------------------- Financial Officer and Secretary Kenneth R. Baum (Principal Financial Officer and Principal Accounting Officer) * By:/s/ Kenneth R. Baum - --------------------------- Kenneth R. Baum, Attorney-in-Fact 31 REPORT OF INDEPENDENT ACCOUNTANTS (Post-Emergence) To the Shareholders and the Board of Directors of The Grand Union Company In our opinion, the accompanying consolidated balance sheet and the related consolidated statements of operations and cash flows present fairly, in all material respects, the financial position of The Grand Union Company and its subsidiaries (the "Company") at March 30, 1996 and the results of their operations and their cash flows for the 41 weeks then ended, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit of these statements in accordance with generally accepted auditing standards which require that we plan and perform an audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management and evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for the opinion expressed above. As discussed in Note 1 to the consolidated financial statements, on May 31, 1995, the United States Bankruptcy Court for the District of Delaware confirmed the Company's Plan of Reorganization, as amended (the "Plan"). Confirmation of the Plan resulted in the discharge of all claims against the Company that arose before January 25, 1995 and terminated all rights and interests of equity shareholders as provided for in the Plan. The Plan became effective on June 15, 1995 and the Company emerged from bankruptcy. In connection with its emergence from bankruptcy, the Company adopted Fresh-Start Reporting as of June 18, 1995. PRICE WATERHOUSE LLP New York, New York May 17, 1996 F-1 REPORT OF INDEPENDENT ACCOUNTANTS (Pre-Emergence) To the Shareholders and the Board of Directors of The Grand Union Company In our opinion, the accompanying consolidated balance sheet and the related consolidated statements of operations and cash flows present fairly, in all material respects, the financial position of The Grand Union Company and its subsidiaries (the "Company") at April 1, 1995 and the results of their operations and their cash flows for the 11 weeks ended June 17, 1995 and for each of the two years in the period ended April 1, 1995, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which require that we plan and perform an audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. As discussed in Note 1 to the consolidated financial statements, on January 25, 1995, the Company filed a voluntary petition for relief under chapter 11 of Title 11 of the United States Code in the United States Bankruptcy Court for the District of Delaware. The Company's Plan of Reorganization, as amended, became effective on June 15, 1995 and the Company emerged from bankruptcy. In connection with its emergence from bankruptcy, the Company adopted Fresh-Start Reporting as of June 18, 1995. As discussed in Note 2 to the consolidated financial statements, the Company adopted Statement of Financial Accounting Standards No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions", effective April 4, 1993. PRICE WATERHOUSE LLP New York, New York May 17, 1996 F-2 THE GRAND UNION COMPANY CONSOLIDATED STATEMENT OF OPERATIONS (all dollars in thousands, except per share data)
Successor Company Predecessor Company ---------------------------------------------------------- 41 Weeks 11 Weeks 52 Weeks 52 Weeks Ended Ended Ended Ended March 30, June 17, April 1, April 2, 1996 1995 1995 1994 ------------ ---------- ----------- ----------- Sales $ 1,819,928 $ 487,882 $ 2,391,696 $ 2,477,339 Cost of sales (1,250,072) (344,041) (1,683,355) (1,745,606) ------------ --------- ---------- ----------- Gross profit 569,856 143,841 708,341 731,733 Operating and administrative expenses (453,620) (117,544) (571,640) (552,536) Depreciation and amortization (59,840) (17,215) (87,098) (78,577) Amortization of excess reorganization value (83,985) -- -- -- Unusual items (22,000) (18,627) (27,417) (4,468) Interest expense, net (contractual interest totaled $43,360 and $203,285 for the 11 weeks ended June 17, 1995 and the 52 weeks ended April 1, 1995, respectively- See Note 1) (79,194) (19,791) (182,016) (183,797) ------------ --------- ----------- ---------- Loss before income taxes, extraordinary gain and cumulative effect of accounting change (128,783) (29,336) (159,830) (87,645) Income tax benefit 18,927 -- -- -- ------------ --------- ----------- --------- Loss before extraordinary gain and cumulative effect of accounting change (109,856) (29,336) (159,830) (87,645) Extraordinary gain on debt discharge -- 854,785 -- -- ------------ --------- ----------- --------- (Loss) income before cumulative effect of accounting change (109,856) 825,449 (159,830) (87,645) Cumulative effect of accounting change -- -- -- (30,308) ------------ --------- ----------- --------- Net (loss) income (109,856) 825,449 (159,830) (117,953) Accrued dividends on old preferred stock -- -- (19,480) (16,011) ------------ --------- ----------- ----------- Net (loss) income applicable to common stock $ (109,856) $ 825,449 $ (179,310) $ (133,964) ------------ --------- ----------- ----------- ------------ --------- ----------- ----------- Net (loss) per common share $ (10.99) ------------ ------------
See accompanying notes to consolidated financial statements. F-3 THE GRAND UNION COMPANY CONSOLIDATED BALANCE SHEET (all dollars in thousands, except par value)
Successor Predecessor Company Company ------------ ------------ March 30, April 1, 1996 1995 ------------ ------------ ASSETS Current assets: Cash and temporary investments $ 39,425 $ 89,423 Receivables 20,948 18,592 Inventories 133,506 189,467 Other current assets 13,709 16,787 ----------- ----------- Total current assets 207,588 314,269 Property, net 405,579 426,962 Excess reorganization value, net 437,672 -- Goodwill, net -- 545,451 Beneficial leases, net 68,147 27,218 Deferred tax asset 53,916 -- Other assets 12,304 80,856 ----------- ----------- $ 1,185,206 $ 1,394,756 ----------- ----------- ----------- ----------- LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) Current liabilities: Current maturities of long-term debt $ 1,813 $ -- Current portion of obligations under capital leases 7,080 -- Accounts payable and accrued liabilities 170,010 174,126 ----------- ----------- Total current liabilities 178,903 174,126 ----------- ----------- Long-term debt 738,067 -- ----------- ----------- Obligations under capital leases 128,114 -- ----------- ----------- Other noncurrent liabilities 95,978 53,072 ----------- ----------- Liabilities subject to compromise -- 1,817,698 ----------- ----------- Commitments and contingencies -- -- ----------- ------------ Redeemable stock subject to compromise: Old common stock -- 9,407 Old preferred stock -- 164,792 ------------ ------------- Total redeemable stock -- 174,199 ------------ ------------- Stockholders' equity (deficit): New Common Stock, $1.00 par value; 30,000,000 shares authorized, 10,000,000 shares issued and outstanding 10,000 -- New Preferred Stock, $1.00 par value; 10,000,000 shares authorized, no shares issued and outstanding -- -- Old common stock -- 1 Old treasury stock -- (156) Capital in excess of par value 144,000 -- Accumulated deficit (109,856) (824,184) ------------ ------------ Total stockholders' equity (deficit) 44,144 (824,339) ------------ ------------ $ 1,185,206 $ 1,394,756 ------------ ------------ ------------ ------------
See accompanying notes to consolidated financial statements. F-4 THE GRAND UNION COMPANY CONSOLIDATED STATEMENT OF CASH FLOWS (all dollars in thousands)
Successor Company Predecessor Company ---------------- ---------------------------------------- 41 Weeks 11 Weeks 52 Weeks 52 Weeks Ended Ended Ended Ended March 30, June 17, April 1, April 2, 1996 1995 1995 1994 ------------ ------------ ----------- ---------- OPERATING ACTIVITIES: Net (loss) income $ (109,856) $ 825,449 $ (159,830) $ (117,953) Adjustments to reconcile net (loss) income to net cash (used for) provided by operating activities before reorganization items paid: Extraordinary gain on debt discharge -- (854,785) -- -- Cumulative effect of accounting change -- -- -- 30,308 Depreciation and amortization 143,825 17,215 87,098 78,577 LIFO charge (income) 1,500 300 (1,100) 900 Deferred taxes (18,927) -- -- -- Charges relating to pension settlement and early retirement programs -- -- 3,747 4,468 Noncash interest 14,552 1,126 38,418 40,185 Net changes in assets and liabilities: Receivables (12,652) 1,769 18,480 (12,505) Inventories 48,872 12,646 17,696 28,259 Other current assets 123 2,776 657 (1,303) Accounts payable and accrued liabilities (59,509) (34,928) 86,550 (44,807) Other (7,733) 4,493 7,330 (18,039) ------------ ----------- ------------ ------------ Net cash provided by (used for) operating activities before reorganization items paid 195 (23,939) 99,046 (11,910) Reorganization items paid (20,729) (4,913) (10,770) -- ------------ ----------- ------------ ------------ Net cash (used for) provided by operating activities (20,534) (28,852) 88,276 (11,910) ------------ ---------- ------------ ------------ INVESTMENT ACTIVITIES: Capital expenditures (40,402) (3,301) (62,973) (81,029) Disposals of property 5,555 5,452 2,128 584 ------------ ----------- ------------ ------------ Net cash (used for) provided by investment activities (34,847) 2,151 (60,845) (80,445) ------------ ----------- ------------ ------------ FINANCING ACTIVITIES: Proceeds from New Bank agreement -- 104,144 -- -- Payment of Old Bank debt -- (93,144) -- -- Net proceeds from long-term debt 33,089 -- 29,000 77,661 Obligations under capital leases discharged (6,126) (1,707) (10,339) (8,218) Loan placement fees -- (3,125) -- (1,775) Retirement of long-term debt (808) (239) (963) (514) Purchase of redeemable Class A common stock -- -- -- (156) ------------ ----------- ------------ ------------ Net cash provided by financing activities 26,155 5,929 17,698 66,998 ------------ ----------- ------------ ------------ (Decrease) increase in cash and temporary investments (29,226) (20,772) 45,129 (25,357) Cash and temporary investments at beginning of period 68,651 89,423 44,294 69,651 ------------ ----------- ------------ ------------ Cash and temporary investments at end of period $ 39,425 $ 68,651 $ 89,423 $ 44,294 ------------ ----------- ------------ ------------ ------------ ----------- ------------ ------------ Supplemental disclosure of cash flow information: Interest payments $ 57,565 $ 9,515 $ 89,985 $ 142,501 Capital lease obligations incurred 8,529 20,072 31,686 24,522 Accrued dividends on old preferred stock -- -- 19,480 16,011 Issuance of Junior Notes -- -- -- 939
See accompanying notes to consolidated financial statements. F-5 THE GRAND UNION COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 - ORGANIZATION AND BASIS OF PRESENTATION Grand Union, a Delaware corporation, ("Grand Union" or the "Company") is a regional food retailer which currently operates 229 stores in six northeastern states. Since June 15, 1995, the Company has been publicly owned and is traded on the NASDAQ Stock Market. Through June 15, 1995, Grand Union was wholly owned by Grand Union Capital Corporation ("Capital"), a wholly owned subsidiary of Grand Union Holdings Corporation ("Holdings"). On November 29, 1994, Grand Union announced that it was not likely to be able to fund cash interest payments due in early calendar 1995, and that it intended to develop a capital restructuring plan. Beginning on January 16, 1995, Grand Union did not make interest payments required under its outstanding debt obligations. On January 24, 1995, Grand Union announced that it had reached an agreement in principle with Grand Union's bank lenders and with members of informal committees of certain holders of Grand Union's 11.375% Senior Notes due 1999 (the "11.375% Senior Notes") and 11.25% Senior Notes due 2000 (the "11.25% Senior Notes" and, collectively with the 11.375% Senior Notes, the "Senior Notes") and certain holders of Grand Union's 12.25% Senior Subordinated Notes due 2002 (the "12.25% Subordinated Notes"), 12.25% Senior Subordinated Notes due 2002, Series A (the "Series A 12.25% Subordinated Notes") and 13% Senior Subordinated Notes due 1998 (the "13% Subordinated Notes" and, collectively with the 12.25% Subordinated Notes and the Series A 12.25% Subordinated Notes, the "Subordinated Notes") on the terms of a capital restructuring. CHAPTER 11 BANKRUPTCY FILINGS - On January 25, 1995 (the "Filing Date"), as part of the implementation of such agreement, Grand Union filed a voluntary petition for relief under chapter 11 ("Chapter 11") of Title 11 of the United States Code (the "Code") in the United States Bankruptcy Court for the District of Delaware (the "Bankruptcy Court"). From the Filing Date through June 15, 1995 (the "Effective Date", as defined below), Grand Union operated as a debtor- in-possession under Chapter 11 of the Code and was subject to the supervision of the Bankruptcy Court in accordance with the Code. During this period, Grand Union's business was operated under a series of "first day orders", which, among other things, permitted it to retain certain financial and legal advisors and which authorized payment of certain pre-petition employee costs, including worker's compensation benefits, and pre-petition trade claims, subject to the satisfaction of various requirements. On January 30, 1995, Grand Union (as debtor and as debtor-in-possession) entered into a credit agreement (the "DIP Facility") with the banks party thereto providing for borrowings of up to $150 million on a revolving credit basis. On February 16, 1995, final approval of the DIP Facility was granted and the Bankruptcy Court also issued a Final Cash Collateral Order which allowed Grand Union to use cash collateral to pay operating expenses in the ordinary course of business. The DIP Facility provided for a commitment fee equal to .5% of the average unused portion. There were no borrowings made under the DIP Facility during the Chapter 11 proceedings and it was terminated on the Effective Date. On February 16, 1995, Capital consented to the entry of an order for relief in respect of an involuntary Chapter 11 petition filed in the Bankruptcy Court on February 6, 1995 by entities purporting to be holders of Capital's 15% Senior Zero Coupon Notes due 2004 (the "Capital Senior Zero Notes") and 16.5% Senior Subordinated Zero Coupon Notes due 2007 (the "Capital Subordinated Zero Notes" and, collectively with the Capital Senior Zero Notes, the "Capital Notes"). On February 16, 1995, Holdings, of which Capital was a wholly owned subsidiary, filed a voluntary Chapter 11 petition in the Bankruptcy Court. PLAN OF REORGANIZATION - The Bankruptcy Court confirmed the Second Amended Chapter 11 Plan of The Grand Union Company, dated as of April 19, 1995, (as confirmed, the "Plan"), on May 31, 1995 (the "Confirmation Date"), and the Company emerged from Chapter 11 on June 15, 1995 (the "Effective Date"). One proceeding challenging the order confirming the Plan is pending. The Company does not believe that this proceeding will result in any modification or revocation of the order. On the Effective Date, Grand Union adopted a restated certificate of incorporation (the "New Certificate"), the principal effects of which were: (i) to authorize 30,000,000 shares of new common stock (the "New Common Stock") (of which 10,000,000 shares were issued under the Plan) and (ii) to prohibit the issuance of non-voting equity securities. The Plan provided for full payment of all allowed administrative expenses and all allowed general unsecured and priority claims. On the Effective Date, obligations relating to the Company's existing bank credit agreement (the "Bank Credit Agreement") were paid in full and the Company entered into an Amended and Restated Credit Agreement (the "New Bank Facility") with its bank lending group which provides for a five-year revolving credit facility of $100,000,000 (the "New Revolving Credit Facility") and F-6 a seven-year term loan facility of $104,144,371 (the "New Term Loan"). The New Bank Facility is secured by a lien on substantially all of the assets of Grand Union and its subsidiaries. As of the Effective Date, the Senior Notes, which had an aggregate principal amount of $525,000,000 plus accrued interest, were deemed cancelled and each holder of Senior Notes became entitled to receive its pro rata share of Grand Union's new 12% Senior Notes due 2004 (the "New Senior Notes") having an aggregate principal amount of $595,475,922 issued pursuant to the Plan. Subsequent to the Effective Date, the Company issued $595,421,000 aggregate principal amount of New Senior Notes and made cash payments of $54,922 for fractional amounts to the holders of the Senior Notes. The New Senior Notes began to accrue interest beginning on September 1, 1995. Accordingly, the New Senior Notes have been discounted at 12% for the period from June 15, 1995 to September 1, 1995 and imputed interest was charged at 12% during that period. In addition, the difference between such discounted value and the fair value of the New Senior Notes at the Effective Date was recorded as a debt premium totaling $5,779,000 which is being amortized over the life of the New Senior Notes. As of the Effective Date, the Subordinated Notes, which had an aggregate principal amount of $566,150,000, and the old capital stock of Grand Union were deemed cancelled and each holder of Subordinated Notes became entitled to receive its pro rata share of an aggregate of 10,000,000 shares of New Common Stock issued pursuant to the Plan. The Plan also provided for the issuance of warrants to purchase an aggregate of 900,000 shares of New Common Stock to holders of several other series of long-term debt of its then parent company (the "Capital Notes") pursuant to the terms of a settlement reached among the Company, its then direct and indirect parent companies, the Official Committee of Unsecured Creditors of its then parent company and certain holders of the Capital Notes. Such warrants are comprised of 300,000 Series 1 Warrants to purchase shares of New Common Stock at a purchase price of $30 per share and of 600,000 Series 2 Warrants to purchase shares of New Common Stock at a purchase price of $42 per share. The warrants expire on June 15, 2000. The Plan made no provision for the holders of the remaining long-term debt, Redeemable Preferred Stock, common shares or warrants to purchase common shares of the Company's then indirect parent. Holdings and Capital were dissolved on March 28, 1996 and March 27, 1996, respectively. Interest expense was not accrued on the Subordinated Notes, Capital Notes, and Holdings Junior Notes subsequent to the Filing Date. Accordingly, interest expense for the 11 weeks ended June 17, 1995 and 52 weeks ended April 1, 1995 excludes contractual interest expense of $23,569,000 and $21,269,000, respectively. BASIS OF PRESENTATION - As of the Effective Date, the Company adopted fresh- start reporting in accordance with American Institute of Certified Public Accountants Statement of Position 90-7, "Financial Reporting By Entities in Reorganization Under The Bankruptcy Code" ("Fresh-Start Reporting"). In connection with the adoption of Fresh-Start Reporting, a new entity has been deemed created for financial reporting purposes. The periods presented prior to the Effective Date have been designated "Predecessor Company" and the period subsequent to the Effective Date has been designated "Successor Company". Fresh- Start Reporting requires a segregation of liabilities subject to compromise by the Bankruptcy Court as of the Filing Date and identification of all transactions and events that are directly associated with the reorganization of the Company. The most significant difference between the current year and prior year presentation is the reclassification of substantially all of the outstanding debt and other liabilities as of April 1, 1995, to "Liabilities Subject to Compromise". See Note 3 for a detailed description of liabilities subject to compromise. For financial reporting purposes, the Company accounted for the consummation of the Plan effective June 17, 1995. In accordance with Fresh-Start Reporting, the Company valued its assets and liabilities at fair values and eliminated its retained earnings at the Effective Date. The reorganization value of the Company was determined utilizing several methods which yielded similar results including (a) the trading value of the Company's New Common Stock for a representative number of days subsequent to the Effective Date and the fair value of the Company's obligations as of the Effective Date, (b) discounted cash flows and (c) a multiple of adjusted trailing year operating cash flow. The total reorganization value as of the Effective Date was determined to be $1,334,000,000 which was $521,657,000 in excess of the aggregate fair value of the Company's tangible and identified intangible assets. Such excess, is classified as "Excess reorganization value, net" in the accompanying March 30, 1996 consolidated balance sheet. F-7 The components of reorganization items included as unusual items in the consolidated statement of operations are as follows (in thousands):
11 Weeks 52 Weeks Ended Ended June 17, April 1, 1995 1995 --------- --------- Fresh-Start Reporting: Establish excess reorganization value $ 521,657 $ - Eliminate existing goodwill (540,434) - Revalue beneficial leases 40,633 - Establish deferred tax asset 35,414 - Revalue pension assets and liabilities and postretirement obligations (23,653) - Record lease rejection liability (19,734) - Provide for warehouse closing (10,450) - Eliminate LIFO inventory reserve 7,757 - Provide for other reorganization liabilities (5,400) - Record liability for fair value of interest rate protection agreement (3,500) - Other (1,905) - ---------- --------- Total Fresh-Start Reporting 385 - Professional fees incurred in connection with the reorganization (20,000) (5,704) Interest earned on accumulated cash resulting from the Chapter 11 proceedings 988 173 Debtor-in-possession financing fees - (3,740) Other - (1,499) ---------- --------- Total reorganization items $ (18,627) $(10,770) ---------- --------- ---------- ---------
At June 17, 1995, as a result of the debt restructuring, the Company recorded an extraordinary gain on debt discharge as follows (in thousands):
Elimination of Old Debt, deferred financing fees and accrued interest discharged $1,589,506 Issuance of New Senior Notes (580,721) Issuance of New Common Stock (154,000) ----------- Extraordinary gain on debt discharge $ 854,785 ----------- -----------
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION. The consolidated financial statements include the accounts of Grand Union and its subsidiaries, all of which are wholly owned. Intercompany transactions and balances have been eliminated. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect (a) the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and (b) the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Areas of significant estimates include self insurance reserves, realization of deferred tax assets and retirement benefit reserves. FISCAL YEAR. The Company's fiscal year ends on the Saturday nearest the last day of March. The years ended March 30, 1996 ("Fiscal 1996"), April 1, 1995 ("Fiscal 1995") and April 2, 1994 ("Fiscal 1994") were each comprised of 52 weeks. Fiscal 1996 includes the 11 weeks prior to the Effective Date which have been designated "Predecessor Company" and the 41 weeks subsequent to the Effective Date which have been designated "Successor Company". TEMPORARY CASH INVESTMENTS. Temporary cash investments consist of short-term investments in highly liquid securities and cash equivalents, with initial maturities of three months or less. F-8 INVENTORY VALUATION. Grocery and general merchandise inventories are valued at the lower of last-in, first-out ("LIFO") cost or market. At March 30, 1996 and April 1, 1995, approximately $111,327,000 and $158,755,000, respectively, of grocery and general merchandise inventories were valued using the LIFO method. Replacement cost exceeded LIFO cost of these inventories by approximately $1,500,000 and $7,457,000 at March 30, 1996 and April 1, 1995, respectively. During Fiscal 1995, inventory levels were reduced resulting in a liquidation of LIFO inventories that had been carried at a value lower than current cost. Net loss was decreased by approximately $1,628,000 as a result of the liquidation. Perishable inventories are valued at the lower of average cost or market, which adequately provides for the matching of costs and related revenues due to the rapid turnover of such inventories. As of the Effective Date, the Company eliminated its LIFO reserve in conjunction with the implementation of Fresh-Start Reporting (See Note 1). PROPERTY. Land, buildings, fixtures and equipment and leasehold improvements are recorded at cost and include interest on the funds borrowed to finance construction. Depreciation and amortization of buildings, fixtures and equipment and leasehold improvements is computed using the straight-line method over estimated useful lives ranging from three to forty years. Properties held under capital leases are capitalized net of gains on sale leaseback transactions and are amortized using the straight-line method over the life of each lease. EXCESS REORGANIZATION VALUE AND GOODWILL. Goodwill was amortized using the straight-line method over a 40 year life. At April 1, 1995, accumulated amortization was $91,604,000. In accordance with Fresh-Start Reporting, the remaining value of goodwill was eliminated as of the Effective Date (See Note 1). Excess Reorganization Value, established in connection with Fresh-Start Reporting, is being amortized on a straight-line basis over five years. Accumulated amortization was $83,985,000 at March 30, 1996. BENEFICIAL LEASES. Amortization of beneficial leases is computed using the straight-line method over the lease life. As of the Effective Date, the Company revalued its beneficial lease assets in conjunction with the implementation of Fresh-Start Reporting (See Note 1). At March 30, 1996 and April 1, 1995, accumulated amortization was $14,275,000 and $33,426,000, respectively. DEFERRED FINANCING FEES. Financing fees are deferred and amortized over the expected life of the related loan. In connection with the implementation of Fresh-Start Reporting, the deferred financing fees asset related to discharged debt was eliminated as of the Effective Date (See Note 1) and a new asset was recorded relating to the New Bank Facility. At March 30, 1996 and April 1, 1995, deferred financing fees of $3,125,000 and $44,069,000 and accumulated amortization thereon of $356,000 and $13,712,000, respectively, are included in other assets in the accompanying consolidated balance sheet. INCOME TAXES. Deferred income taxes are recorded to reflect the tax consequences on future years of temporary differences between the tax basis of assets and liabilities and their financial reporting amounts at each year end. PENSION PLANS. The Company maintains a noncontributory, trusteed pension plan covering eligible employees and a supplemental nonqualified, nontrusteed plan for certain executives. The Company's policy is to fund pension amounts which satisfy the requirements of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"). In conjunction with the implementation of Fresh-Start Reporting, as of the Effective Date, the Company revalued its pension asset to its fair value. POSTRETIREMENT BENEFITS OTHER THAN PENSION. The Company accrues the estimated cost of retiree benefit payments, other than pension, during the years each employee provides services. Effective April 4, 1993, the Company adopted FAS No. 106, which requires the Company to accrue the estimated cost of retiree benefit payments during the years each employee provides services. The Company recognized the cumulative effect of this obligation, which increased the Company's net loss by $30,308,000, as of April 4, 1993. F-9 SELF INSURANCE. The Company self insures workers' compensation, automobile liability, general liability and non-union employee medical costs up to varying deductible limits and carries third party insurance in excess of such limits. Reserves are provided for the estimated whole dollar settlement value up to the deductible limits of all claims incurred during each policy year. ADVERTISING COSTS. Advertising costs are expensed as incurred. Advertising expense for the 41 weeks ended March 30, 1996, 11 weeks ended June 17, 1995, Fiscal 1995 and Fiscal 1994 was $28,084,000, $7,383,000, $31,691,000 and $32,887,000. STORE CLOSURE EXPENSE. Estimated whole dollar net costs of holding and disposing of closed stores are provided as of the later of the date the decision is made to close the store or the date such costs are reasonably estimable. PRE-OPENING COSTS. Store pre-opening costs are charged to expense as incurred. FAIR VALUE OF FINANCIAL INSTRUMENTS. The carrying amount of cash, temporary cash investments, receivables, accounts payable and accrued liabilities approximates fair value. The fair value of the Company's debt at March 30, 1996 is discussed in Note 9. At April 1, 1995, outstanding pre-petition accounts payable, accrued liabilities, long-term debt and redeemable preferred stock are classified as Liabilities Subject to Compromise. The fair value of these liabilities is based on the provisions of the Plan, as discussed in Note 1. The fair value of interest rate swap agreements is the amount at which such agreements could be settled, based on estimates from counterparties. NET LOSS PER SHARE. Net loss per share for the 41 weeks ended March 30, 1996 has been calculated on the basis of 10,000,000 shares outstanding. Warrants were excluded from the calculation because their inclusion would be anti-dilutive. Net loss per common share data is not meaningful for periods prior to the Effective Date due to the significant change in the capital structure of the Company. IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-TERM ASSETS TO BE DISPOSED OF. In March 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 121 Accounting for the Impairment of Long-Lived Assets and for Long-Term Assets to be Disposed of ("SFAS No. 121"), which establishes accounting standards for the impairment of long-lived assets, certain identifiable intangibles, and goodwill related to those assets to be held and used and for long-lived assets and certain identifiable intangibles to be disposed of. The Company adopted SFAS No. 121 as of the Effective Date. RECLASSIFICATIONS. Certain amounts have been reclassified in the prior year financial statements to conform to current year presentation. F-10 NOTE 3 - LIABILITIES SUBJECT TO COMPROMISE Certain obligations of the Company which were in existence as of the Filing Date were not paid while the Company operated as a debtor-in-possession. The Company's estimate of these claims is reflected in the accompanying Fiscal 1995 balance sheet as "Liabilities Subject to Compromise" as follows (in thousands): Debt (a) GRAND UNION Equipment Mortgage Notes $ 2,997 Bank Credit Agreement 93,144 11.25% Senior Notes 350,000 11.375% Senior Notes 175,000 12.25% Senior Subordinated Notes 500,000 12.25% Senior Subordinated Notes, Series A 50,000 13% Senior Subordinated Notes 16,150 CAPITAL 15% Senior Zero Coupon Notes 170,239 16.5% Senior Subordinated Zero Coupon Notes 100,965 HOLDINGS 12% Junior Subordinated Notes 7,862 ---------- Total debt 1,466,357 Accounts payable (b) 62,006 Accrued liabilities 20,583 Interest payable 68,060 Obligations under capital leases 148,586 Other noncurrent liabilities 52,106 ---------- Total Liabilities Subject to Compromise $1,817,698 ---------- ---------- (a) See Note 9 for additional information on debt securities. (b) Accounts payable at April 1, 1995 are net of payments made on certain pre-petition liabilities in accordance with first-day orders obtained from the Bankruptcy Court. NOTE 4 - UNUSUAL ITEMS Unusual items included in the consolidated statement of operations consist of the following (in thousands):
Successor Company Predecessor Company -------- ----------------------------------------- 41 Weeks 11 Weeks 52 Weeks 52 Weeks Ended Ended Ended Ended March 30, June 17, April 1, April 2, 1996 1995 1995 1994 -------- ------- -------- --------- Provision for organizational restructuring $ 2,500 $ -- $ -- $ -- Provision for warehouse closures 15,000 -- -- -- Charges relating to voluntary resignation incentive programs 4,500 -- -- Reorganization items (See Note 1) -- 18,627 10,770 -- Provision for store closures -- -- 12,900 -- Charges relating to pension settlement and early retirement programs (See Note 12) -- -- 3,747 4,468 -------- ------- -------- --------- $22,000 $18,627 $ 27,417 $ 4,468 -------- ------- -------- --------- -------- ------- -------- ---------
The provision for organizational restructuring is principally comprised of the cash cost of severance and future lease payments, approximately one-half of which has been paid by March 30, 1996. F-11 On June 15, 1995, January 2, 1996 and January 21, 1996, the Company entered into supply agreements with C&S Wholesale Grocers, Inc. ("C&S"), under which C&S will stock and distribute to all Grand Union stores substantially all of the merchandise formerly owned and warehoused by Grand Union. Under two of the agreements, C&S will stock and supply grocery and perishable products from its own warehouses. Under the most recent agreement, C&S will stock and supply health and beauty care and general merchandise products from the Company's Montgomery, New York warehouse. Accordingly, the Company recorded a provision relating to the closure of two metropolitan New York warehouses consisting principally of cash costs of severance, pension withdrawal liability, security and other expenses directly related to the closing of the warehouses. Substantially all of the net costs of closing these facilities were paid prior to March 30, 1996. During the 41 weeks ended March 30, 1996, the Company made cash payments of $4,500,000 relating to voluntary resignation incentive programs under which certain classes of store employees accepted monetary incentives to voluntarily resign from their positions. During Fiscal 1995, the Company established a provision for store closings, net of a non-recurring item. The provision included a charge of $16,900,000 ($8,200,000 of which required cash outlays) relating to the closure of sixteen stores principally consisting of store closing costs, estimated carrying costs through expected dates of disposition and the remaining net book value of store fixed assets. Additionally, the Company realized $4,000,000 of proceeds from the termination of a warehouse sublease. All stores were closed prior to April 1, 1995. Substantially all of the costs of closing these facilities were paid as of March 30, 1996. NOTE 5 - ACQUISITION OF LONG ISLAND STORES On October 18, 1993, the Company acquired five supermarket locations on Long Island for cash consideration of $18,300,000, of which $6,000,000 was allocated to property, equipment and leasehold improvements, $10,100,000 was allocated to goodwill and $2,200,000 for store inventory. The acquisition was financed through the application of a portion of the proceeds of the sale to institutional investors of $50,000,000 principal amount of Series A 12.25% Subordinated Notes. NOTE 6 - PROPERTY Property, at cost, consists of the following (in thousands): Successor Predecessor Company Company ------------ ----------- March 30, April 1, 1996 1995 ------------ ----------- Property owned: Land $ 18,776 $ 18,815 Buildings 57,309 68,427 Fixtures and equipment 144,268 254,615 Leasehold improvements 107,220 147,050 ------------ ----------- 327,573 488,907 Less: accumulated depreciation and amortization 32,493 183,968 ------------ ----------- Property owned, net 295,080 304,939 ------------ ----------- Property held under capital leases: Land and buildings 97,801 123,030 Equipment 18,184 22,911 ------------ ----------- 115,985 145,941 Less: accumulated amortization 5,486 23,918 ------------ ----------- Property held under capital leases, net 110,499 122,023 ------------ ----------- Property $ 405,579 $ 426,962 ------------ ----------- ------------ ----------- Depreciation and amortization of owned and leased property for the 41 weeks ended March 30, 1996, the 11 weeks ended June 17, 1995, Fiscal 1995 and Fiscal 1994 was $42,706,000, $11,246,000, $57,089,000, and $52,760,000, respectively. F-12 NOTE 7 - RECEIVABLES AND ACCOUNTS PAYABLE AND ACCRUED LIABILITIES Receivables at March 30, 1996 and April 1, 1995 are net of allowances for doubtful accounts of $1,146,000 and $998,000, respectively. Accounts payable and accrued liabilities consist of the following (in thousands): Successor Predecessor Company Company ------------ ----------- March 30, April 1, 1996 1995 ------------ ----------- Accounts and drafts payable $ 86,638 $112,647 Accrued liabilities: Payroll 18,179 19,741 Interest 8,740 12,977 Self insurance 12,098 6,207 Other 44,355 22,554 ------------ ----------- $ 170,010 $174,126 ------------ ----------- ------------ ----------- NOTE 8 - INCOME TAXES The components of the income tax benefit are as follows (in thousands):
Successor Company Predecessor Company -------- ----------------------------------------- 41 Weeks 11 Weeks 52 Weeks 52 Weeks Ended Ended Ended Ended March 30, June 17, April 1, April 2, 1996 1995 1995 1994 -------- ------- -------- --------- Current tax benefit: Federal $ -- $ -- $ -- $ -- State -- -- -- -- --------- -------- --------- ---------- -- -- -- -- --------- -------- --------- ---------- Deferred tax benefit: Federal 16,157 -- -- -- State 2,770 -- -- -- --------- -------- --------- ---------- Total Deferred 18,927 -- -- -- --------- -------- --------- ---------- Income tax benefit $ 18,927 $ -- $ -- $ -- --------- -------- --------- ---------- --------- -------- --------- ----------
F-13 The reconciliation of the income tax benefit computed at the federal statutory rate to the reported income tax benefit is as follows (in thousands):
Successor Company Predecessor Company -------- ----------------------------------------- 41 Weeks 11 Weeks 52 Weeks 52 Weeks Ended Ended Ended Ended March 30, June 17, April 1, April 2, 1996 1995 1995 1994 -------- --------- ----------- ---------- Benefit computed at federal statutory tax rate $ 45,074 $ 10,268 $ 55,941 $ 41,284 Increase (decrease) in the benefit resulting from: Amortization of excess reorganization value (28,992) -- -- -- Amortization of goodwill -- (6,295) (5,379) (5,486) State and local taxes, net of federal tax benefit 2,770 -- -- -- Effect of change in rate on temporary differences -- -- -- 3,099 Deferred tax asset valuation allowance -- (3,948) (51,014) (37,912) Other 75 (25) 452 (985) -------- ---------- ----------- ---------- Income tax benefit $ 18,927 $ -- $ -- $ -- -------- ---------- ----------- ---------- -------- ---------- ----------- ----------
The components of the net deferred tax asset are as follows (in thousands): Successor Predecessor Company Company ------------ ----------- March 30, April 1, 1996 1995 ------------ ----------- Deferred tax assets Non-cash interest $ 5,727 $31,354 Insurance reserve 19,300 15,470 Pension 4,077 7,273 Post retirement benefit liability 14,676 11,870 Other miscellaneous reserves 25,477 26,213 Net operating loss carryforward 15,246 132,253 ------- -------- Total deferred tax assets 84,503 224,433 ------- -------- Deferred tax liabilities Depreciable assets 26,016 18,227 Other 4,571 -- ------- -------- Total deferred tax liabilities 30,587 18,227 ------- -------- Net deferred tax asset before valuation allowance 53,916 206,206 Valuation allowance -- (206,206) ------- -------- Deferred tax asset $53,916 $ -- ------- -------- ------- -------- Under existing income tax laws, the Company is not required to include in its taxable income any cancellation of debt income as a result of the debt forgiven pursuant to the Plan. Accordingly, no income taxes have been provided on the extraordinary gain on debt discharge in the statement of operations for the 11 weeks ended June 17, 1995. There are no remaining operating loss or credit carryforwards of the Predecessor Company and there was no change in the tax basis of the Company's assets as of the Effective Date. As of March 30, 1996, the Company had a net operating loss carryforward of approximately $37,000,000 for tax purposes, expiring in the year 2011. F-14 NOTE 9 - DEBT As previously discussed, long-term debt as of April 1, 1995 was classified in the consolidated balance sheet as Liabilities Subject to Compromise. Comparative amounts, had the April 1, 1995 amounts not been reclassified, are as follows (in thousands):
Successor Predecessor Company Company ------------ ----------- March 30, April 1, 1996 1995 ------------ ----------- GRAND UNION: Equipment mortgage notes $ 2,039 $ 2,997 Bank Credit Agreements Term Loan 104,144 39,144 Revolving Credit Facility 33,000 54,000 New 12% Senior Notes due September 1, 2004 (includes $5,276 of unamortized debt premium) 600,697 -- 11.25% Senior Notes, settled pursuant to the Plan -- 350,000 11.375% Senior Notes, settled pursuant to the Plan -- 175,000 12.25% Senior Subordinated Notes, settled pursuant to the Plan -- 500,000 12.25% Senior Subordinated Notes, Series A, settled pursuant to the Plan -- 50,000 13% Senior Subordinated Notes, settled pursuant to the Plan -- 16,150 CAPITAL: 15% Senior Zero Coupon Notes, settled pursuant to the Plan -- 170,239 16.50% Senior Subordinated Zero Coupon Notes, settled pursuant to the Plan -- 100,965 HOLDINGS: 12% Junior Subordinated Notes, settled pursuant to the Plan -- 7,862 ------------ ----------- 739,880 1,466,357 Less: current maturities of long-term debt 1,813 1,010 ------------ ----------- Long-term debt $ 738,067 $1,465,347 ------------ ----------- ------------ -----------
On the Effective Date, obligations relating to the Predecessor Company's Bank Credit Agreement were paid in full and the Company entered into the New Bank Facility with a group of lenders. The New Bank Facility consists of the New Revolving Credit Facility which expires June 15, 2000 and provides for borrowings or issued letters of credit aggregating $100,000,000 and the New Term Loan totaling $104,144,371. The New Bank Facility is secured by substantially all of the assets of the Company and its subsidiaries, whether in existence at the Effective Date or acquired thereafter, excluding those assets permitted to be financed by third parties. Outstanding borrowings bear interest at a rate equal to the applicable margin (1.5% and 2% for the New Revolving Credit Facility and New Term Loan, respectively) plus the higher of (a) the prime rate, as defined, (b) the adjusted certificate of deposit rate, as defined, plus 0.5% or (c) the federal funds rate, as defined, plus 0.25%. Alternatively, the Company may borrow, at its option, at the LIBOR rate, as defined, plus the applicable margin (3.0% and 3.5% for the New Revolving Credit Facility and Term Loan, respectively). At March 30, 1996, borrowings under the New Revolving Credit Facility and the New Term Loan were at weighted interest rates of 9.75% and 9.08%, respectively. The New Term Loan requires quarterly principal payments of $13,018,000 from September 30, 2000 through June 15, 2002. The New Bank Facility provides for mandatory prepayments based on the occurrence of certain specified transactions. As of March 30, 1996, the Company had issued $43,945,000 of letters of credit. The New Bank Facility contains certain restrictions and financial covenants relating to, among other things, minimum financial performance and limitations on the incurrence of additional indebtedness, asset sales, dividends, capital expenditures, prepayment of other indebtedness and restrictions on issuance of subsidiary stock. On February 16, 1996, the Company sought and obtained from its banks a waiver and amendment to its New Bank Facility which relieves the Company from the agreement's EBITDA requirements to the extent of (a) $15,000,000 in charges related to the closure of warehouse operations and (b) $2,500,000 in charges relating to organizational restructuring. The waiver and amendment also provide relief from other technical requirements related to two of the C&S agreements (see Note 4). The Company was in compliance with the terms and restrictive covenants of the New Bank Facility, as amended, as of March 30, 1996. The Predecessor Company entered into a debtor-in-possession revolving credit agreement on January 30, 1995 (the "DIP Facility") with the banks party thereto. This agreement amended the bank credit agreement in effect prior to execution of the New Bank Facility. Under the DIP Facility, the Predecessor Company was allowed to borrow up to $150,000,000 in the form of a revolving credit facility for its working capital and general corporate requirements during the bankruptcy proceedings. The F-15 DIP Facility provided for a commitment fee equal to 0.5% of the average unused portion and was secured by first priority liens on all the assets and capital stock of the Company which secured the Bank Credit Agreement. The Predecessor Company had no borrowings under the DIP Facility during the Chapter 11 proceedings and the DIP Facility terminated on the Effective Date. The Term Loan and Revolving Credit Facility prior to the DIP Facility provided for interest at either a floating rate of 2% and 1.5%, respectively, per annum above the prime rate, as defined, or 3.5% and 3%, respectively, per annum above the LIBOR rate, as defined, at the option of the Predecessor Company. As of April 1, 1995, borrowings under the Term Loan and Revolving Credit Facility were at weighted interest rates of 13.0% and 12.5% (each including a 2% penalty), respectively. The Predecessor Company was charged commitment fees of 0.5% per annum on the average unused portion of the Revolving Credit Facility. Pursuant to the Plan, on the Effective Date, the Senior Notes were deemed cancelled and each holder of Senior Notes became entitled to receive its pro rata share of the Successor Company's New Senior Notes having an aggregate principal amount of $595,475,922. Interest on the New Senior Notes is payable semi-annually each March 1 and September 1, commencing March 1, 1996. As discussed in Note 1, on the Effective Date, the Subordinated Notes were deemed cancelled and each holder of Subordinated Notes became entitled to receive its pro rata share of 10,000,000 shares of New Common Stock. As discussed in Note 1, on the Effective Date, Capital's equity interest in Grand Union was cancelled without receipt by Capital of any consideration for such equity and, under certain conditions, holders of the Capital Notes became entitled to receive their pro rata share of 300,000 Series 1 Warrants to purchase shares of New Common Stock at a purchase price of $30 and 600,000 Series 2 Warrants to purchase shares of New Common Stock at a purchase price of $42 per share. The warrants, none of which were exercised as of March 30, 1996, expire on June 15, 2000. The Plan made no provisions for Holding's Junior Notes. As discussed in Note 1, effective January 25, 1995, as a result of the Chapter 11 filing, the Company discontinued accruing interest on the Subordinated Notes, the Capital Notes and the Holdings Junior Notes. The New Bank Facility is recorded at carrying value, which approximates fair value as of March 30, 1996. The fair value of the New Senior Notes, based upon published trading values, is $519,505,000 at March 30, 1996. The fair value of all debt instruments as of April 1, 1995 was based on the provisions of the Plan, as discussed in Note 1. Grand Union was party to an interest rate swap agreement which expired February 9, 1996, entered into in connection with the Bank Credit Agreement. Under the terms of the agreement, which continued under the New Bank Facility, Grand Union received a fixed rate of 4.53% on $150,000,000 of debt and paid a floating rate based on three month LIBOR, as determined in three month intervals. The floating rate at April 1, 1995 was 6.25%. The net amount received or paid was included in net interest expense and was not material to interest expense in any period presented. At April 1, 1995, the estimated fair value of the interest rate swap agreement was a liability of approximately $2,158,000 which was not recorded on the books of the Company. Maturities of long term debt during each of the next five fiscal years are approximately $1,813,000, $109,000, $92,000, $25,000 and $39,054,000, respectively. NOTE 10 - PROPERTY LEASES The Company operates principally in leased stores and offices, and in most cases holds renewal options with varying terms. Many of the leases contain clauses which provide for increased rentals based upon increases in real estate taxes and lessors' operating expenses. F-16 Future minimum payments under capital and non-cancelable operating leases, net of minimum sublease income, as of March 30, 1996 are as follows (in thousands):
Capital Operating ------- --------- Fiscal 1997 $ 24,463 $ 30,318 1998 22,819 29,745 1999 20,802 27,958 2000 19,490 26,167 2001 18,177 19,743 Later years 248,070 144,719 --------- -------- Total minimum lease payments 353,821 278,650 Less: estimated executory costs included in total minimum lease payments 371 -- Less: sublease rental income -- 1,628 --------- -------- Net minimum lease payments 353,450 $277,022 -------- -------- Less: portion representing interest 218,256 --------- Present value of net minimum lease payments 135,194 Less: current portion of obligations under capital leases 7,080 -------- Non-current portion of obligations under capital leases $128,114 -------- --------
The minimum lease payments shown above do not include future minimum sublease rental income of $2,054,000 under non-cancelable subleases or payments for contingent rentals under certain store leases on the basis of sales in excess of stipulated amounts. Contingent rentals incurred on capital leases for the 41 weeks ended March 30, 1996, the 11 weeks ended June 17, 1995, Fiscal 1995 and Fiscal 1994 were $130,000, $39,000, $253,000 and $313,000, respectively. The rental expense for all operating leases was $33,923,000, $8,696,000, $31,900,000 and $30,170,000 during the 41 weeks ended March 30, 1996, the 11 weeks ended June 17, 1995, Fiscal 1995 and Fiscal 1994, respectively. Contingent rental expense included in total rental expense was $2,127,000, $638,000, $3,114,000 and $3,658,000 during the 41 weeks ended March 30, 1996, the 11 weeks ended June 17, 1995, Fiscal 1995 and Fiscal 1994, respectively. F-17 NOTE 11 - STOCKHOLDERS' EQUITY (DEFICIT) AND REDEEMABLE OLD COMMON AND PREFERRED STOCK Changes in Stockholders' Equity (Deficit) and Redeemable Old Common Stock were as follows (in thousands):
New Redeemabable Old Capital in Common Old Common Common Excess of Equity Stock Stock (a) Stock Par Value (Deficit) ------ ------------ ------ ---------- --------- Predecessor Company - ------------------- Balance at April 3, 1993 $ -- $ 9,547 $ 1 $ -- $(510,344) Net loss -- -- -- -- (117,953) Accrued preferred stock dividends of Predecessor Company -- -- -- -- (16,011) Pension adjustment -- -- -- -- (456) Reclassification of redeemable stock of Predecessor Company (b) -- (140) -- -- 140 Payments of notes receivable from former management investors of Predecessor Company (b) -- -- -- -- 7 ------- ------- ---- -------- --------- Balance at April 2, 1994 -- 9,407 1 -- (644,617) Net loss -- -- -- -- (159,830) Accrued preferred stock dividends of Predecessor Company -- -- -- -- (19,480) Pension adjustment -- -- -- -- (257) ------- ------- ---- -------- --------- Balance at April 1, 1995 -- 9,407 1 -- (824,184) Net income for the 11 weeks ended June 17, 1995 -- -- -- -- 825,449 Extinguishment of stockholders' equity in connection with bankruptcy -- (9,407) (1) -- (1,265) ------- ------- ---- -------- --------- Balance at June 17, 1995 $ -- $ -- $ -- $ -- $ -- ------- ------- ---- -------- --------- ------- ------- ---- -------- --------- Successor Company - ----------------- Balance at June 17, 1995 $ -- $ -- $ -- $ -- $ -- Issuance of New Common Stock 10,000 -- -- 144,000 -- Net loss for the 41 weeks ended March 30, 1996 -- -- -- -- (109,856) ------- ------- ---- -------- --------- Balance at March 30, 1996 $10,000 $ -- $ -- $144,000 $(109,856) ------- ------- ---- -------- --------- ------- ------- ---- -------- ---------
(a) The Redeemable Old Common Stock represents shares of Holdings held by management investors, which were redeemable under certain limited circumstances at the option of the holder. (b) Grand Union purchased 164 shares of common stock of Holdings from former management investors for $156,000 (of which $140,000 was carried as Redeemable Common Stock) and in related transactions was repaid $7,000 to fully satisfy notes receivable from these management investors. The Company's Certificate of Incorporation and Bylaws were restated as of the Effective Date. The New Certificate authorizes 40,000,000 shares of stock, of which 30,000,000 shares will be reserved for issuance as New Common Stock and 10,000,000 shares will be reserved for issuance as new preferred stock. Under the Plan, on the Effective Date, the Old Common Stock was cancelled and, as described in Note 1, holders of the Subordinated Notes became entitled to receive their pro rata share of 10,000,000 shares of New Common Stock. In addition, on the Effective Date, holders of Capital Senior Zero Notes and Capital Subordinated Zero Notes who executed releases became entitled to receive an aggregate of Series 1 Warrants to purchase 300,000 shares of New Common Stock at an exercise price of $30 per share and Series 2 Warrants to purchase 600,000 shares of New Common Stock at an exercise price of $42 per share. Both the Series 1 Warrants and the Series 2 Warrants will expire five years after the Effective Date. The New Common Stock and all other equity securities issued under the New Certificate will be voting securities (although the voting rights of any new preferred stock issued will differ from those of New Common Stock) and will not have any preemptive rights to subscribe for additional shares. The New Common Stock is not subject to conversion or redemption and when issued will be fully paid and non-assessable. F-18 Changes in Redeemable Old Preferred Stock of the Predecessor Company were as follows (in thousands): Series A Series B Series C Total -------- -------- -------- ----- Balance at April 3, 1993 $ 54,333 $ 7,914 $ 67,993 $ 130,240 Accrued preferred stock dividends 6,697 936 8,378 16,011 Preferred stock dividends -- (939) -- (939) ------- ------ ------- -------- Balance at April 2, 1994 61,030 7,911 76,371 145,312 Accrued preferred stock dividends 8,152 1,099 10,229 19,480 ------- ------ ------- -------- Balance at April 1, 1995 69,182 9,010 86,600 164,792 Extinguishment of Predecessor Company Stock in connection with bankruptcy (69,182) (9,010) (86,600) (164,792) ------- ------ ------- -------- Balance at June 17, 1995 $ -- $ -- $ -- $ -- ------- ------ ------- -------- ------- ------ ------- -------- The Series A cumulative exchangeable redeemable preferred stock ("Series A old preferred stock") had a $.01 par value; 500,000 shares authorized; and 351,745 shares issued and outstanding. The Series B cumulative redeemable convertible preferred stock ("Series B old preferred stock") had a $.01 par value; 500,000 shares authorized; and 78,256 shares issued and outstanding. The Series C cumulative redeemable convertible preferred stock ("Series C old preferred stock") had a $.01 par value; 500,000 shares authorized; and 440,771 shares issued and outstanding. The Series A, Series B and Series C old preferred stock each carried dividend rates of 12% per annum. At the discretion of Holdings, cash dividends were payable on the Series A, Series B and Series C old preferred stock semi-annually each March 1, and September 1; however, no cash dividends could be declared or paid on the Series A, Series B or Series C old preferred stock while the Bank Credit Agreement was outstanding. Such declaration or payment would have violated the terms of indebtedness incurred to refinance the 13% Subordinated Notes or the Bank Credit Agreement. If cash dividends were prohibited, dividends on the Series B old preferred stock were payable in Holdings Junior Notes annually each March 1. Series B old preferred stock, and accrued and unpaid dividends thereon, could have been converted at any time, at the holder's option, into shares of Series C old preferred stock. Series C old preferred stock, and accrued and unpaid dividends thereon, could have been converted at any time, at the holder's option, into shares of Series B old preferred stock; or the Series C old preferred shares could have been converted at any time, at the holder's option, into the same number of shares of Series B old preferred stock and the accrued and unpaid dividends on such stock into a principal amount of Holdings Junior Notes. Redeemable Old Preferred Stock of the Predecessor Company had no voting rights except as required by law and except that holders of each series had a class vote as to any matter which would change the preferences, rights or powers of such series and the vote of all series of preferred stock, voting together, was required to issue any prior ranking preferred stock. Through July 23, 1994, dividends accrued on the old preferred stock at a rate of 12% per annum, reflecting management's estimate that the old preferred stock would be redeemed prior to the July 14, 1996 dividend step-up date. As of July 24, 1994, the Company changed its estimate of the date on which the old preferred stock was expected to be redeemed from on or before the date of the dividend step-up to an indeterminate date. Accordingly, from July 24, 1994 through the Filing Date, the Company accrued dividends recognizing a yield to redemption rate of 18.2% per annum for the Series A old preferred stock, 19.3% for the Series B old preferred stock and 18.3% for the Series C old preferred stock. Accrued undeclared dividends were recorded as an increase of stockholders' deficit and as an increase in the respective preferred stock carrying value. The Redeemable Stock of Holdings has been classified as Redeemable Stock Subject to Compromise in the accompanying April 1,1995 consolidated balance sheet. The Plan made no provision for the holders of the Redeemable Preferred Stock. Accordingly, as of the Filing Date, dividends were no longer accrued on the preferred stock. The fair value of Redeemable Old Preferred Stock as of April 1, 1995 was based on the provisions of the Plan as discussed in Note 1. NOTE 12 - PENSION PLANS The Company has not segregated the respective Successor and Predecessor Company pension expense for Fiscal 1996 because it is impractical to do so. F-19 The components of net periodic pension expense for the Company's defined benefit pension plans are as follows (in thousands): Fiscal Fiscal Fiscal 1996 1995 1994 ------ ------ ------ Service cost - benefits earned during the period $ 4,317 $ 4,715 $ 5,212 Interest costs on projected benefit obligations 12,523 13,706 13,742 Return on plan assets (32,921) (12,179) (9,068) Net amortization and deferral 17,877 (4,042) (7,610) Charges relating to pension settlement and early retirement programs -- 3,747 4,468 -------- -------- ------- Net periodic pension expense $ 1,796 $ 5,947 $ 6,744 -------- -------- ------- -------- -------- ------- During Fiscal 1995 and Fiscal 1994 the Company incurred charges totaling $3,747,000 and $4,468,000, respectively, relating to pension settlements, under both its qualified and nonqualified pension plans, principally as a result of early retirement programs offered to certain employees. The actuarial present value of benefit obligations and the funded status of the Company's pension plans are as follows (in thousands):
Qualified Unqualified -------------------------- -------------------------- Successor Predecessor Successor Predecessor Company Company Company Company ---------- ---------- ----------- ----------- March 30, April 1, March 30, April 1, 1996 1995 1996 1995 ---------- ---------- ----------- ----------- Actuarial present value of benefit obligations: Vested benefits $ 146,821 $ 142,272 $ 3,968 $ 4,161 Nonvested benefits 3,948 4,383 -- -- ---------- ---------- --------- --------- Total benefits $ 150,769 $ 146,655 $ 3,968 $ 4,161 ---------- ---------- --------- --------- ---------- ---------- --------- --------- Projected benefit obligations $ (167,010) $ (164,037) $ (4,618) $ (5,076) Plan assets, primarily stocks and bonds, at fair value 170,684 161,201 -- -- ---------- ---------- --------- --------- Funded (unfunded) status 3,674 (2,836) (4,618) (5,076) Unrecognized net loss (8,259) 20,401 1,364 1,545 Unrecognized prior service cost -- 1,480 (25) (28) Adjustment required to recognize minimum liability -- -- (689) (602) ---------- ---------- --------- --------- Pension (liability) asset $ (4,585) $ 19,045 $ (3,968) $ (4,161) ---------- ---------- --------- --------- ---------- ---------- --------- ---------
The pension liability as of March 30, 1996 is carried in other noncurrent liabilities in the accompanying consolidated balance sheet. The pension asset and liability at April 1, 1995 are included in Other Assets and Liabilities Subject to Compromise, respectively. Significant actuarial assumptions used in all Company sponsored plans were as follows: Fiscal Fiscal Fiscal 1996 1995 1994 ----------- ----------- ---------- Discount rates 8.0% 7.5% 7.0% - 8.0% Rates of increase in future compensation 4.0% - 5.0% 3.5% - 3.9% 3.9% - 4.3% Long-term rate of return on plan assets 9.75% 9.5% 9.5% F-20 NOTE 13 - POSTRETIREMENT HEALTH CARE AND LIFE INSURANCE BENEFITS The Company provides certain health care and life insurance benefits for substantially all of its full-time non-union employees and union employee groups. The Company's postretirement plans currently are not funded. The Company's union employee groups are participants in multi-employer plans which require monthly contributions and which are not subject to the provisions of Statement of Financial Accounting Standards No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions" ("FAS No. 106"). The Company has not segregated the respective Successor and Predecessor Company postretirement benefit expense for Fiscal 1996 because it is impractical to do so. The unfunded accumulated postretirement benefit obligation consists of the following (in thousands): Successor Predecessor Company Company ---------- ----------- March 30, April 1, 1996 1995 ---------- ----------- Retirees $17,761 $16,062 Fully eligible active plan participants 2,613 2,924 Other active plan participants 16,194 16,131 Unrecognized net loss -- (1,226) ---------- ----------- $36,568 $33,891 ---------- ----------- ---------- ----------- Net postretirement benefit cost consisted of the following (in thousands): Fiscal Fiscal Fiscal 1996 1995 1994 --------- --------- --------- Service cost - benefits earned during the period $ 591 $ 695 $ 728 Interest cost on accumulated postretirement benefit obligation 2,594 2,604 2,571 --------- --------- --------- $ 3,185 $ 3,299 $ 3,299 --------- --------- --------- --------- --------- --------- The assumed health care trend cost rate used in measuring the accumulated postretirement obligation as of March 30, 1996 and April 1, 1995 was 12.0% and 13.0%, respectively, for associates pre-age 65 and 9.0% and 10.0% for associates post-age 65 for March 30, 1996 and April 1, 1995, respectively, decreasing each successive year by 1% until the respective trend rates reach 5.5% after which the trend rate remains constant. An increase of 1% in the assumed health care cost trend rate for the current year would increase the accumulated postretirement benefit obligation by approximately $800,000 and the annual net postretirement health care cost by approximately $60,000. Prior to January 1, 1994, Grand Union provided medical benefits which were, in part, dependent upon the health care cost rate. Effective January 1, 1994, Grand Union modified its postretirement health care benefits to provide benefits for all future retirees based on a service related flat dollar premium allowance. Accordingly, the health care trend rate will not be a significant factor in determining Grand Union's liability for future retirees under its postretirement health care arrangements. The modification to the plan did not have a material effect on the accumulated postretirement benefit obligation. The assumed discount rate used in determining the accumulated postretirement benefit obligation was 7.25%, 8.0% and 7.5% for Fiscal 1996, Fiscal 1995 and Fiscal 1994, respectively, and the interest cost component of the net periodic cost was 8.0%, 7.5% and 8.0% for Fiscal 1996, Fiscal 1995 and Fiscal 1994, respectively. NOTE 14 - EQUITY COMPENSATION PLANS During the 41 weeks ended March 30, 1996, the Board of Directors of the Company adopted The Grand Union Company 1995 Equity Incentive Plan ("Employees' Plan"), which provides for issuance of options to purchase up to 950,000 shares of the Company's common stock, and The Grand Union Company 1995 Non-Employee Directors' Stock Option Plan ("Directors' Plan"), which provides for the issuance of options to purchase up to 50,000 shares of the Company's common stock. Both Plans are subject to stockholder approval and will be administered by a committee of the Board of Directors. Options were granted to purchase 210,680 shares under the Employees' Plan, at an exercise price of $6.625 per share, and 25,000 shares under the Directors' Plan, at an exercise price of $5.75 per share. The exercise prices were at fair market F-21 value on the respective grant dates. All options expire in December, 2005, and no options may be exercised prior to approval by the Shareholders. NOTE 15 - RELATED PARTY TRANSACTIONS Donaldson, Lufkin and Jenrette ("DLJ"), a managing director of which serves on the board of directors of the Company, provided the Company with consulting services in connection with the bankruptcy. DLJ was paid $1,278,000 in Fiscal 1996 for services in connection with the bankruptcy proceedings. Additionally, the Company entered into an agreement with DLJ in February, 1996 to act as exclusive financial advisor to the Company for the purpose of identifying alternative sources of new capital. The agreement provided for a $200,000 retainer fee. Prior to the Effective Date, the Company was party to a financial advisory agreement with MTH (the "MTH Agreement"), pursuant to which MTH, which indirectly controlled the Company and Penn Traffic Company ("Penn Traffic"), was to have provided certain financial consulting and business management services to the Company through July 1997. In accordance with the Plan, the MTH Agreement was terminated on the Effective Date and Grand Union executed a settlement agreement (the "MTH Settlement Agreement"), which provides for the termination of the MTH Agreement, payment by Grand Union of accrued and unpaid fees under the MTH Agreement through the Effective Date and for the indemnification of MTH and certain entities related to MTH from certain claims and liabilities, subject to the terms and limitations set forth in the MTH Settlement Agreement. The Company deposited $3,000,000 relating to the indemnification in escrow on the Effective Date. During the 11 weeks ended June 17, 1995, Fiscal 1995, and Fiscal 1994, the Company paid $315,000, $750,000 and $900,000, respectively, to MTH, pursuant to the MTH Agreement. From September 1993 until September 1995, Grand Union and Penn Traffic were parties to a combined purchasing and distribution agreement relating to general merchandise and health and beauty care products. In September 1995, Grand Union purchased from Penn Traffic approximately $12,821,000 of merchandise which had been owned by Penn Traffic under the joint buying arrangement. NOTE 16- CONTINGENCY MATTERS AND COMMITMENTS The Company is subject to certain legal proceedings and claims arising in connection with its business. It is management's opinion that the ultimate resolution of such legal proceedings and claims will not have a material adverse effect on the Company's consolidated results of operations or its financial position. NOTE 17 - QUARTERLY FINANCIAL INFORMATION (UNAUDITED) (IN THOUSANDS, EXCEPT LOSS PER SHARE AND MARKET PRICE)
PREDECESSOR Fiscal 1996 COMPANY SUCCESSOR COMPANY - ----------- ------------- ----------------------------------------------- 1st (a) 2nd 3rd 4th ----------------------- ----------- ---------- ----------- 11 Weeks 5 Weeks Ended Ended June 17, July 22, 1995 1995 ----------- ----------- Sales $ 487,882 $ 232,663 $ 523,711 $ 543,617 $519,937 Gross profit 143,841 73,080 162,637 166,863 167,276 Unusual items (18,627) - (4,500) (15,000) (2,500) Loss before income taxes and extraordinary gain on debt discharge (29,336) (9,023) (35,947) (48,834) (34,979) Extraordinary gain on debt discharge 854,785 - - - - Net income (loss) 825,449 (9,523) (30,075) (40,994) (29,264) Net loss per share - (0.95) (3.01) (4.10) (2.93) Market Price Range-high - - 15 1/8 12 1/4 8 9/16 Market Price Range-low - - 10 4 7/8 5 13/16
F-22
PREDECESSOR COMPANY ------------------------------------------------- Fiscal 1995: 1st (a) 2nd 3rd 4th - ------------ ---------- ---------- ---------- ---------- Sales $747,692 $556,663 $563,281 $524,060 Gross profit 230,816 170,896 154,467 152,162 Unusual items - - (12,512) (14,905) Net loss (24,982) (29,465) (59,518) (45,865) Accrued preferred stock dividends (5,293) (6,411) (6,469) (1,307) Net loss applicable to common stock (30,275) (35,876) (65,987) (47,172)
(a) Represents 16 weeks, all other quarters are 12 weeks. Loss per common share data is not meaningful for the period prior to the effective date due to the significant change in the capital structure of the Company. F-23 EX-3.2 2 EXHIBIT 3.2 Exhibit 3.2 THE GRAND UNION COMPANY BY-LAWS AS AMENDED THROUGH APRIL 3, 1996 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. 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 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 two inspectors of election, 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 appointed as such inspector. The inspectors 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 their 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. ARTICLE II. BOARD OF DIRECTORS SECTION I. The Board of Directors of the Corporation shall consist of not less than three nor more than twelve persons, who shall hold office until the annual meeting of the 2 stockholders next ensuing after their election and until their respective successors are elected and shall qualify and shall initially consist of seven directors. Within the limits above specified, the number of directors shall be determined by resolutions of the Board of Directors or by the stockholders at an annual meeting. 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 maybe 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 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 maybe. 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 3 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; but any officer may be removed from office at any time by the affirmative vote of a majority of the members of the Board. 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 accord 4 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 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 5 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. 6 EX-10.8 3 EXHIBIT 10.8 Exhibit 10.8 THIRD AMENDMENT AND RESTATEMENT OF THE GRAND UNION COMPANY SUPPLEMENTAL RETIREMENT PROGRAM FOR KEY EXECUTIVES I. PURPOSE: The purpose of The Grand Union Company Supplemental Retirement Program for Key Executives (the "Plan") is to advance the interests of The Grand Union Company (and its subsidiaries) (the "Company") by encouraging and enabling the Company to attract, motivate and retain key executives and, at the same time, recognize the executive's contribution to the Company's success and years of loyal service. II. EFFECTIVE DATE; DEFINITIONS: The effective date of this Third Amendment and Restatement of the Plan is June 15, 1995. The Plan, as herein written, applies to persons who are employed by the Company or become employed by the Company on or after such effective date and who have previously been designated as participants or who are hereafter designated as participants in accordance with Section III hereof. As of June 15, 1995, the only participants are the individuals named on Exhibit D. The rights and obligations with respect to each person who retired, died, or whose employment terminated, or who otherwise ceased participation in the Plan, prior to June 15, 1995 shall be determined under the terms and provisions of the Plan as in effect on the date of such retirement, death, termination of employment or cessation of participation. Except as otherwise expressly provided herein, or as otherwise required by the context, all words and phrases used herein which are defined in The Grand Union Company Employees' Retirement Plan (the "Qualified Plan") shall have the same meaning as in the Qualified Plan. III. ADMINISTRATION AND ELIGIBILITY: The Plan shall be administered by the Compensation Committee (the "Committee") of the Board of Directors of the Company. The key executives who are or will be participants shall be selected from time to time by the Committee and shall receive benefits in accordance with the provisions of this Plan. The Committee has the power and discretion to interpret the Plan and any agreement evidencing benefits granted hereunder and to make all other determinations in connection with the administration of the Plan, all of which shall be final and conclusive. IV. CREDITED SERVICE: Credited Service shall have the same meaning as in the Qualified Plan, except that a participant shall also receive credit for (i) service with The Grand Union Company and (ii) service with another company within the Corporate Group prior to the time such company became a member of such Group. V. PAYMENT: Benefits pursuant to the terms of this Plan shall be paid directly from the general assets of the Company. All such benefits shall be paid in a single sum no later than 30 days following a participant's date of retirement or other termination of employment. VI. RETIREMENT ELIGIBILITY: A. RETIREMENT AT OR AFTER AGE 62. 1. Although "normal" retirement under the Qualified Plan is age 65, under this Plan, a participant may retire as early as age 62 without penalty. 2. A participant who retires under the Plan at age 62 or later shall be paid a single sum in cash which is equal to the "actuarial present value" (as defined in paragraph A.6 below) of the pension determined under paragraph A.3 below reduced by all amounts previously paid to the participant under the Plan including, but not limited to, any payment shown on Exhibit D plus interest on 2 such previous payment amount from the date of such previous payment to the date of such retirement at the interest discount rate set forth in Exhibit A in effect at the time of such payment or in the case of a payment amount shown on Exhibit D, the interest rate shown on Exhibit D for such payment amount (in the aggregate as to each participant, "the Prior Payment"). An additional single sum payment may be made to such participant following his retirement, as provided in paragraph A.7 below. 3. The annual amount of pension payable upon retirement at age 62 or later is determined as the "Target Benefit" minus the "Plan Offsets". Such pension is deemed to be payable monthly and is based on a life annuity form of payment for participants who are not married on the date of their retirement and on a joint and survivor annuity form of payment for participants who are married on such date, which annuity is payable in full (i.e., without actuarial reduction) to the participant during his life, and, following his death, at the rate of fifty percent (50%) to the spouse to whom the participant is married on the date of his retirement, for the remainder of her lifetime. 4. The "Target Benefit" is an annual pension, payable monthly, equal to 65% of the Final Year's Base Salary for a participant who has 15 or more years of Credited Service. For participants with less than 15 years of Credited Service, the target benefit is 4-1/3% of the Final Year's Base Salary multiplied by years of Credited Service. For purposes of this Plan, the term "Final Year's Base Salary" shall mean (i) except as provided in (ii) below, the annualized rate of base salary being paid to the participant immediately prior to his death or retirement or in the case of a participant who is disabled within the 3 meaning of the long term disability income plan sponsored by the Company under which he is covered, the annualized rate of base salary being paid to such disabled participant immediately prior to the onset of his disability or (ii) in the case of Joseph J. McCaig, Final Year's Base Salary shall be the greater of Final Year's Base Salary as determined under (i) above or $500,000. 5. "Plan Offsets" upon retirement at age 62 or later are equal to the sum of (i) the annual primary Social Security benefits payable at age 62 (or at later retirement) to the participant (the actual amount as provided by the participant to the Company or as determined on an assumed basis by the Company), (ii) the benefits payable at age 62 (or at later retirement) from the Qualified Plan (expressed as an annual straight life annuity), and (iii) the benefits payable from the qualified retirement plans of previous employers (including, without limitation, Colonial Stores Incorporated and J. Weingarten Incorporated) and from the Colonial Stores Supplemental Plan (in each case expressed as an annual straight life annuity). In the case of a participant who is potentially eligible for an increase in the annual benefit payable under the Qualified Plan after retirement as a result of cost of living adjustments, made in accordance with Section 415(d) of the Internal Revenue Code of 1986, as amended (the "Code"), to the maximum annual benefit limitation under Section 415(b) of the Code, the amount of "Plan Offsets" shall be increased to reflect the expected increase in annual benefit payable under the Qualified Plan. The assumption(s) as to cost of living increases to the maximum annual benefit limitation under Section 415(b) of the Code for the purpose of determining the amount of "Plan Offsets" attributable to benefits payable under the Qualified Plan in each 4 year of expected payment following retirement are set forth in Exhibit A. A demonstration of the methodology to be used in calculating a participant's retirement benefit and the actuarial present value thereof under this Section VI.A is attached hereto as Exhibit B, but in the event of any discrepancy between the figures or computations set forth in Exhibit B and the terms of the Plan, the terms of the Plan shall control. 6. (i) The actuarial present value of a participant's benefit under the Plan is the sum of the present values of the amount of pension determined under paragraph A.3 above (expressed as a monthly benefit) for each year included in the period measured, in the case of an unmarried participant, by the participant's life expectancy only, and, in the case of a participant who is married as of the date of his retirement, by the joint life expectancy of the participant and his spouse, as of such date. (ii) The present value, as of the single sum payment date, of an unmarried participant's benefit for any year included in the period described in paragraph A.6(i) above, is equal to the amount determined under paragraph A.3 to be payable for such year on a monthly basis, multiplied by a present value factor. The present value factor is based on the participant's age at the single sum payment date, the interest discount rate set forth in Exhibit A attached hereto and the 1983 Individual Annuity Mortality Table. (iii) The present value, as of the single sum payment date, of a married participant's benefit for any year included in the period described in paragraph A.6(i) above, is equal to the sum of (a) the amount determined as if he were unmarried, as described in paragraph A.6(ii) above, 5 and (b) fifty percent (50%) of the amount determined under paragraph A.3, representing a survivor's benefit payable on a monthly basis to the participant's surviving spouse for such year, multiplied by a present value factor. The present value factor is based on the participant's and spouse's ages at the single sum payment date, the interest discount rate set forth in Exhibit A and the 1983 Individual Annuity Mortality Table. Where the participant's spouse is more than ten (10) years younger than the participant, the present value of the participant's benefit attributable to the survivor element of the joint and survivor annuity will be computed by reducing the amount of benefit to be continued to the spouse after the participant's death by 2% for each year by which the difference in the participant's and the spouse's age exceeds ten (10). The reduction for any such partial year shall be determined by interpolating for the number of months between the percentage reduction applicable to the last full year of the age differential in excess of ten (10) years and the next full year of such differential. 7. In the event that legislation is enacted following a participant's retirement and receipt of the actuarial present value of his pension hereunder that has the effect of eliminating, reducing or suspending cost of living adjustments to the maximum annual benefit limitation under Section 415(b) of the Code or of reducing such limitation, then within thirty (30) days of the effective date of such legislation, the participant (or his estate) shall be entitled to receive an additional single sum payment in cash equal to the present value of the amount by which his Qualified Plan benefit is assumed to increase in each year of expected payment following such effective date, to reflect cost of living adjustments to the maximum annual benefit 6 limitation under Section 415(b) of the Code. B. EARLY RETIREMENT. 1. (i) A participant between the ages of 50 (age 47 for any person who became a participant prior to April 1, 1995) and 55 may, with the Company's consent, retire and receive a single sum pension benefit under this Plan; provided, however, that such consent shall not be required of a participant who (a) is covered under a Company-sponsored long term disability income plan and is disabled or awaiting certification of disability status under the terms of such plan, (b) is involuntarily terminated other than for proper cause (as defined in Section VII(d) below) or (c) has a termination of employment on account of a Constructive Termination. A participant between the ages of 55 and 62 may retire at any time and receive a single sum pension benefit under this Plan. (ii) A participant who is involuntarily terminated (other than for proper cause as defined in Section VII(d) below) or has a termination of employment on account of a Constructive Termination following a Change in Control shall be deemed to have been retired by the Company for purposes of this Plan and shall receive a single sum pension benefit regardless of his then attained age. For purposes of paragraph B.1 above, Constructive Termination shall mean after June 15, 1995 (i) with respect to a participant holding the position of Chief Executive Officer, Chief Operating Officer or Chief Financial Officer, either an involuntary reduction in base salary that exceeds 5% in any year, or an 7 involuntary removal from sole possession of said position, or (ii) with respect to any other participant, either an involuntary reduction in base salary that exceeds 10% in any year, or an involuntary reduction in grade level of more than two grades in any year or (iii) any involuntary transfer that would require relocation outside of the current operating area of Grand Union and for purposes of paragraph B.1(ii) above, Change in Control shall mean a Change of Control as defined in the Indenture between the Company as issuer and IBJ Schroeder Bank & Trust Company as Trustee for the issuance of up to $595,475,922 of 12% Senior Notes due September 1, 2004 as dated as of June 15, 1995. 2. A participant who retires early under paragraph B.1 above shall be paid a single sum in cash which is equal to the "actuarial present value" (as defined in paragraph B.6 below) of the monthly equivalent of the pension determined under paragraph B.3 below reduced by such participant's Prior Payment, if any. An additional single sum payment may be made to such participant following his retirement, as provided in paragraph B.7 below. 3. The annual amount of pension payable upon early retirement is determined as the "Target Benefit" (determined under paragraph B.4 below) minus the "Plan Offsets" (set forth in paragraph B.5 below). 4. The "Target Benefit" (as defined in paragraph A.4 above) shall be reduced 5% per year for each year that the date of commencement of benefits precedes age 62. To illustrate, a participant retiring at age 58 will receive 80% of the "Target Benefit". 5. "Plan Offsets" upon early retirement are equal to the sum of: 8 (a) The assumed annual primary Social Security benefit that would be payable to the participant at age 65, determined by assuming continued employment with the Company to age 65 at the salary level in effect at retirement, which benefit is then reduced by 6-2/3% per year for each of the first three years that the commencement date of the benefits under this Plan precedes age 65 and 5% per year for each year in excess of three years; and (b) Benefits payable from the Qualified Plan, assuming the earliest commencement and payment of benefits under the straight life annuity form. In the case of a participant who is potentially eligible for an increase in the annual benefit payable under the Qualified Plan after retirement as a result of cost of living adjustments made in accordance with Section 415(d) of the Code to the maximum annual benefit limitation under Section 415(b) of the Code, the amount of "Plan Offsets" shall be increased to reflect the expected increase in annual benefit payable under the Qualified Plan (the assumption(s) as to cost of living increases to the maximum annual benefit limitation under Section 415(b) of the Code for the purpose of determining the amount of "Plan Offsets" attributable to benefits payable under the Qualified Plan in each year of expected payment following retirement are set forth in Exhibit A); and (c) The benefits payable from qualified retirement plans of previous employers (including, without limitation, Colonial Stores Incorporated and J. Weingarten Incorporated) and from the Colonial Stores Supplemental Plan, all 9 of which shall be ascertained in the same manner, wherever possible, as the Qualified Plan benefits. 6. The actuarial present value of a participant's benefit payable under the Plan in the event of early retirement shall be determined in the same manner as is described in paragraph A.6 above, but with reference to the amount of pension determined under "paragraph B.3" substituted for any references to paragraph A.3 contained therein. A demonstration of the methodology to be used in calculating a participant's retirement benefit and the actuarial present value thereof under this Section VI.B is attached hereto as Exhibit B, but in the event of any discrepancy between the figures or computations set forth in Exhibit B and the terms of the Plan, the terms of the Plan shall control. 7. In the event that legislation is enacted following a participant's early retirement and receipt of the actuarial present value of his pension hereunder that has the effect of eliminating, reducing or suspending cost of living adjustments to the maximum annual benefit limitation under Section 415(b) of the Code or of reducing such limitation, then the participant (or his estate) shall be entitled to receive an additional single sum payment determined in the manner and payable at the time described in paragraph A.7 above. VII. LOSS OF BENEFITS: Benefits will not be paid under this Plan in the following circumstances: (a) Except as otherwise provided in paragraph B.1 of Section VI, termination of a participant's employment prior to age 50; (b) Except as otherwise provided in paragraph B.1 of Section VI, termination of a participant's 10 employment between the ages of 50 and 55 without the Company's consent; (c) Except as otherwise provided in Section VIII(b), death of a participant prior to retirement; (d) Disqualification for proper cause. For this purpose, proper cause shall mean a refusal to perform one's duties, proven dishonesty or the commission of an act or acts constituting a felony, or other willful misconduct inimical to the best interests of the Company. For purposes of this Plan, a participant who becomes disabled shall not be considered to have terminated his employment with the Company during the qualifying period set forth in a Company-sponsored long term disability income plan under which he is covered and throughout the period during which disability benefits are paid to him from such plan until he gives notice to the Company of his election to retire under the terms of this Plan. 11 VIII. MISCELLANEOUS: (a) NONALIENABILITY. No benefit payable at any time hereunder shall be subject in any manner to alienation, sale, transfer, assignment, pledge, attachment or other legal process, or encumbrance of any kind. Any attempt to alienate, sell, transfer, assign, pledge or otherwise encumber any such benefit, whether currently or hereafter payable, shall be void. Except as otherwise specifically provided by law, no such benefit shall, in any manner, be liable for or subject to the debts or liabilities of any participant or any other person entitled to such benefits. (b) PAYMENT ON DEATH. In the event a participant should die after termination of employment but prior to payment of a benefit to which he has become entitled under the Plan, such benefit shall be paid to the participant's estate. In addition, if the participant should die while employed but after the effective date of any reduction or discontinuance by the Company of the level of life insurance coverage applicable to the participant, based on his Final Year's Base Salary in effect immediately prior to his death and the table set forth in Exhibit C attached hereto, then that portion of the actuarial present value of the pension he has accrued under the Plan, which shall be determined as if he had retired on the day immediately preceding his date of death, as does not exceed the amount by which the level of such participant's Company-provided life insurance has been reduced or discontinued, shall be paid to the participant's estate. For purposes of the preceding sentence, any participant who dies prior to attaining age 55 shall be deemed eligible to retire early under Section VI.B. (c) NO RIGHTS TO EMPLOYMENT. This Plan shall not be construed as providing any participant with the right to be retained in the Company's employ or to receive any benefit not specifically provided hereunder. 12 (d) AMENDMENT AND TERMINATION. The Company shall have the right, at any time and from time to time, to amend in whole or in part, or to terminate any of the provisions of this Plan, and such amendment or termination shall be binding upon all participants and parties in interest; provided that no such amendment or termination shall impair any rights which have accrued hereunder. For example, if this Plan is terminated, a participant who has reached age 50 (age 47 for a person who became a participant prior to April 1, 1995) on or prior to the date of such termination shall be entitled to receive a single sum payment upon his retirement, equal to the actuarial present value of his pension, determined in accordance with the provisions of Section VI.A.6 or VI.B.6, whichever is applicable, and based upon a "Target Benefit" calculated with reference to his Final Year's Base Salary, and, where applicable, Credited Service on the date of such termination, reduced by his Prior Payment, if any. If this Plan (as herein amended and restated effective June 15, 1995) is further amended, a participant who has reached age 50 (age 47 for a person who became a participant prior to April 1, 1995) on or prior to the effective date of such amendment shall be entitled to receive a benefit upon his retirement, in accordance with the terms of the Plan, as amended; provided, however, that in no event shall any such amendment impair the right of any such participant to receive a single sum payment upon his retirement, equal to the actuarial present value of his pension, determined under the provisions of Section VI.A.6 and VI.B.6, whichever is applicable, as in effect on the day immediately preceding the effective date of such amendment, which pension shall be based on a "Target Benefit" that is not less than the "Target Benefit" calculated in accordance with the provisions of Section VI.A.4 or VI.B.4, whichever is applicable, as in effect on such date, with reference to the participant's Final Year's Base Salary, and, where applicable, Credited Service on such date, and an amount of "Plan Offsets" that is not 13 greater than the amount of "Plan Offsets" calculated in accordance with the provisions of Section VI.A.5 or VI.B.5, whichever is applicable, as in effect on such date, reduced by his Prior Payment, if any, calculated in accordance with the provisions of Section VI A.2 or VI B.2, whichever is applicable, as in effect on such date. The types of Plan amendments to which this paragraph (d) applies include, but are not limited to, amendments which (i) cease or reduce the rate of benefit accrual, (ii) change any of the actuarial assumptions specified in the Plan resulting in a reduction in the actuarial present value of participants' accrued benefits, (iii) eliminate the single sum method of payment, or (iv) change the requirements for benefit eligibility to the detriment of any participant. The preceding provisions of this paragraph (d) shall be applicable to all participants, regardless of their attained age, in the event the Plan is amended or terminated following a Change in Control (as defined in Section VI.B.1.). (e) GOVERNING LAW. This Plan shall be governed by and construed in accordance with the laws of the State of New Jersey. (f) SUCCESSORS AND ASSIGNS. This Plan and all of the provisions hereof shall be binding upon the Company and its successors and assigns. IX. EXECUTION: The undersigned, being a duly authorized officer of the Company, has hereby executed this Third Amendment and Restatement of the Plan below as evidence of its adoption by the Company as of the 15th day of June, 1995. By: /S/ Gilbert Vuolo ---------------------------------- Title: Vice President, Human Resources and Labor Relations 14 EXHIBIT A Interest Discount Rates and Assumptions Used in the Calculation of Actuarial Present Value (a) INTEREST DISCOUNT RATE - The average yield, rounded to the nearest 0.25%, on long-term (over 10 years) United States Treasury notes and bonds during the 12-month period ending two months preceding the month in which a participant receives, or is scheduled to receive his or her single sum benefit payment; provided, however, that to the extent, but only to the extent and only so long as, Treasury Regulations prohibit, as a requirement of qualification under Section 401(a) of the Code, the use by the Qualified Plan of an interest rate higher than the interest rate in effect on the first day of the Plan Year of the Qualified Plan specified by Section 417(e)(3)(B) of the Code and Treasury Regulations thereunder, the interest rate shall not be higher than said required rate. (b) ASSUMPTION AS TO COST OF LIVING INCREASES TO ANNUAL BENEFIT LIMITATION UNDER SECTION 415(b) OF THE CODE - The average of the cost of living increases to the annual benefit limitation under Section 415(b) of the Code (determined without regard to Section 415(d)(4) as added by the Retirement Protection Act of 1994) for the two (2) consecutive years immediately preceding the year of retirement, unless the cost of living increase for the year of retirement is known when a single sum payment is due under the Plan, in which event, the average of such increases for the year of retirement and the immediately preceding year shall be used. In calculating the cost of living increase for the period from 1994 to 1995, the change of the measurement period to a nine month period, as added by the Retirement Protection Act of 1994, shall be disregarded. EXHIBIT C Life Insurance Benefit Levels FINAL YEAR'S BASE SALARY RANGE LIFE INSURANCE BENEFIT ----------------- ---------------------- $ 70,000 - 99,999 $400,000 $100,000 - 129,999 500,000 $130,000 - 174,999 700,000 $175,000 - 209,999 900,000 $210,000 - 274,999 1,050,000 $275,000 - 349,999 1,300,000 $350,000 - 474,999 1,600,000 $475,000 - 599,999 2,200,000 $600,000 - 699,999 2,600,000 $700,000 and above 3,000,000 EXHIBIT D NAME DATE OF PAYMENT AMOUNT INTEREST RATE - ----- --------------- ------ ------------- Joseph J. McCaig February 23, 1995 $ 948,423.12 6% Joseph J. McCaig August 24, 1995 169,216.70 6% William A. Louttit February 23, 1995 426,577.14 6% William A. Louttit August 24, 1995 76,109.47 6% Kenneth R. Baum February 23, 1995 26,864.16 6% Kenneth R. Baum August 24, 1995 4,793.07 6% Darrell W. Stine November 28, 1994 388,500.00 6% Darrell W. Stine February 23, 1995 173,191.58 6% Darrell W. Stine August 24, 1995 30,400.67 6% EX-10.23 4 EXHIBIT 10.23 Exhibit 10.23 Agreement AGREEMENT made and entered into as of the 15th day of June, 1995 by and between THE GRAND UNION COMPANY, a Delaware corporation having its principal executive offices at 201 Willowbrook Boulevard, Wayne, New Jersey 07470 ("Grand Union") and Joseph J. McCaig, an individual residing at ______________________ ________________ ("Executive"). WHEREAS, Executive is a key employee of Grand Union, and WHEREAS, Executive and Grand Union have previously entered into a Non-Competition and Confidentiality Agreement dated August 25, 1993 (the "Prior Agreement"), and WHEREAS, in view of the bankruptcy filing by Grand Union and the changes in the terms and conditions of Executive's employment as a result of such filing, and in order to protect and maintain Grand Union's legitimate business interests, the parties deem it desirable to amend and restate the Prior Agreement in accordance with the terms and conditions set forth below. NOW, THEREFORE, in consideration of the foregoing and the mutual covenants contained herein, Executive and Grand Union agree as follows: 1. The Prior Agreement is hereby superseded in its entirety by this Agreement. 2. During the term of Executive's employment with Grand Union and, if such employment is voluntarily terminated by Executive (other than on account of a Constructive Termination), for a period of two (2) years after the date of such termination, Executive shall not directly or indirectly own, invest in (other than a less-than-1% interest of), act as a principal or partner of, operate, and/or be employed by or otherwise perform services for any entity operating one or more supermarkets within a ten (10) mile radius of any Grand Union store if the aggregate of such Grand Union stores (x) represent ten percent (10%) or more of the total number of Grand Union stores operating at the date of such termination or (y) account for ten percent (10%) or more of the annual sales volume of Grand Union for the fiscal year immediately preceding the year of such termination. For this purpose, (a) "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, (b) an entity operating supermarkets includes any wholesaler to independently-owned supermarkets operating under the same tradename, and (c) "Constructive Termination" means (i) either an involuntary reduction in base salary that exceeds 5% in any year, or an involuntary removal from sole possession of the position of President and Chief Executive Officer, or (ii) any involuntary transfer that would require relocation outside of the current operating area of Grand Union. 3. The terms and provisions of this Agreement shall be binding upon and shall inure to the benefit of Grand Union and its successors and assigns and to Executive and his heirs, executors, legal representatives and beneficiaries. 4. This Agreement shall not be construed as providing Executive with the right to be retained in Grand Union's employ and shall not otherwise affect Grand Union's right to terminate Executive's employment. 5. This Agreement may be amended, superseded or cancelled, or any of the terms or provisions hereof may be waived, only by a written instrument specifically stating that it amends, supersedes or cancels this Agreement, or waives the terms thereof, executed by Executive and Grand Union. 6. This Agreement shall be governed by and construed in accordance with the laws of the State of New Jersey applicable to agreements to be performed wholly therein, without regard to the choice of law principles thereof. The parties have specifically directed their attention to the laws of the State of New Jersey and recognize that this Agreement by its 2 terms has applicability outside the State of New Jersey. In the event that this Agreement is sought to be enforced in any jurisdiction other than the State of New Jersey, the parties intend that the courts of such jurisdiction apply New Jersey law except that, with respect to the provisions of Section 2, the parties intend that either the law of the State of New Jersey or the law of the jurisdiction in which such provisions are sought to be enforced, whichever shall be more favorable to the enforcement of such provisions, shall be applied. 7. Executive acknowledges that he has read and fully understands this Agreement and enters into this Agreement voluntarily and with the benefit of advice of counsel. 8. This instrument contains the entire agreement of the parties with respect to the subject matter hereof and supersedes any and all prior agreements, writings and negotiations among the parties with respect thereto. This Agreement may be signed in two or more counterparts, each of which shall constitute an original and all of which taken together shall constitute one and the same instrument. IN WITNESS WHEREOF, Grand Union and Executive have executed this Agreement to be effective on the date first written above. THE GRAND UNION COMPANY By: /s/ Gilbert Vuolo ------------------------------ Attest: /s/ John W. Schroeder - ----------------------- /s/ Joseph J. McCaig ------------------------------ Joseph J. McCaig, Executive 3 Attest: /s/ Dianna Passaro - ------------------------- 4 EX-10.24 5 EXHIBIT 10.24 Exhibit 10.24 Agreement AGREEMENT made and entered into as of the 15th day of June, 1995 by and between THE GRAND UNION COMPANY, a Delaware corporation having its principal executive offices at 201 Willowbrook Boulevard, Wayne, New Jersey 07470 ("Grand Union") and William A. Louttit, an individual residing at _____________________ __________________ ("Executive"). WHEREAS, Executive is a key employee of Grand Union, and WHEREAS, Executive and Grand Union have previously entered into a Non-Competition and Confidentiality Agreement dated August 25, 1993 (the "Prior Agreement"), and WHEREAS, in view of the bankruptcy filing by Grand Union and the changes in the terms and conditions of Executive's employment as a result of such filing, and in order to protect and maintain Grand Union's legitimate business interests, the parties deem it desirable to amend and restate the Prior Agreement in accordance with the terms and conditions set forth below. NOW, THEREFORE, in consideration of the foregoing and the mutual covenants contained herein, Executive and Grand Union agree as follows: 1. The Prior Agreement is hereby superseded in its entirety by this Agreement. 2. During the term of Executive's employment with Grand Union and, if such employment is voluntarily terminated by Executive (other than on account of a Constructive Termination), for a period of two (2) years after the date of such termination, Executive shall not directly or indirectly own, invest in (other than a less-than-1% interest of), act as a principal or partner of, operate, and/or be employed by or otherwise perform services for any entity operating one or more supermarkets within a ten (10) mile radius of any Grand Union store if the aggregate of such Grand Union stores (x) represent ten percent (10%) or more of the total number of Grand Union stores operating at the date of such termination or (y) account for ten percent (10%) or more of the annual sales volume of Grand Union for the fiscal year immediately preceding the year of such termination. For this purpose, (a) "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, (b) an entity operating supermarkets includes any wholesaler to independently-owned supermarkets operating under the same tradename, and (c) "Constructive Termination" means (i) either an involuntary reduction in base salary that exceeds 5% in any year, or an involuntary removal from sole possession of the position of Executive Vice President and Chief Operating Officer, or (ii) any involuntary transfer that would require relocation outside of the current operating area of Grand Union. 3. The terms and provisions of this Agreement shall be binding upon and shall inure to the benefit of Grand Union and its successors and assigns and to Executive and his heirs, executors, legal representatives and beneficiaries. 4. This Agreement shall not be construed as providing Executive with the right to be retained in Grand Union's employ and shall not otherwise affect Grand Union's right to terminate Executive's employment. 5. This Agreement may be amended, superseded or cancelled, or any of the terms or provisions hereof may be waived, only by a written instrument specifically stating that it amends, supersedes or cancels this Agreement, or waives the terms thereof, executed by Executive and Grand Union. 6. This Agreement shall be governed by and construed in accordance with the laws of the State of New Jersey applicable to agreements to be performed wholly therein, without regard to the choice of law principles thereof. The parties have specifically directed their attention to the laws of the State of New Jersey and recognize that this Agreement by its terms has applicability outside the State of New 2 Jersey. In the event that this Agreement is sought to be enforced in any jurisdiction other than the State of New Jersey, the parties intend that the courts of such jurisdiction apply New Jersey law except that, with respect to the provisions of Section 2, the parties intend that either the law of the State of New Jersey or the law of the jurisdiction in which such provisions are sought to be enforced, whichever shall be more favorable to the enforcement of such provisions, shall be applied. 7. Executive acknowledges that he has read and fully understands this Agreement and enters into this Agreement voluntarily and with the benefit of advice of counsel. 8. This instrument contains the entire agreement of the parties with respect to the subject matter hereof and supersedes any and all prior agreements, writings and negotiations among the parties with respect thereto. This Agreement may be signed in two or more counterparts, each of which shall constitute an original and all of which taken together shall constitute one and the same instrument. IN WITNESS WHEREOF, Grand Union and Executive have executed this Agreement to be effective on the date first written above. THE GRAND UNION COMPANY By: /s/ Gilbert Vuolo ------------------------------- Attest: /s/ John W. Schroeder - ------------------------ /s/ William A. Louttit -------------------------------- William A. Louttit, Executive Attest: 3 /s/ Judy Barbarino - ------------------------- 4 EX-10.25 6 EXHIBIT 10.25 Exhibit 10.25 Agreement AGREEMENT made and entered into as of the 15th day of June, 1995 by and between THE GRAND UNION COMPANY, a Delaware corporation having its principal executive offices at 201 Willowbrook Boulevard, Wayne, New Jersey 07470 ("Grand Union") and Kenneth R. Baum, an individual residing at _________________________ ("Executive"). WHEREAS, Executive is a key employee of Grand Union, and WHEREAS, Executive and Grand Union have previously entered into a Non- Competition and Confidentiality Agreement dated August 25, 1993 (the "Prior Agreement"), and WHEREAS, in view of the bankruptcy filing by Grand Union and the changes in the terms and conditions of Executive's employment as a result of such filing, and in order to protect and maintain Grand Union's legitimate business interests, the parties deem it desirable to amend and restate the Prior Agreement in accordance with the terms and conditions set forth below. NOW, THEREFORE, in consideration of the foregoing and the mutual covenants contained herein, Executive and Grand Union agree as follows: 1. The Prior Agreement is hereby superseded in its entirety by this Agreement. 2. During the term of Executive's employment with Grand Union and, if such employment is voluntarily terminated by Executive (other than on account of a Constructive Termination), for a period of two (2) years after the date of such termination, Executive shall not directly or indirectly own, invest in (other than a less-than-1% interest of), act as a principal or partner of, operate, and/or be employed by or otherwise perform services for any entity operating one or more supermarkets within a ten (10) mile radius of any Grand Union store if the aggregate of such Grand Union stores (x) represent ten percent (10%) or more of the total number of Grand Union stores operating at the date of such termination or (y) account for ten percent (10%) or more of the annual sales volume of Grand Union for the fiscal year immediately preceding the year of such termination. For this purpose, (a) "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, (b) an entity operating supermarkets includes any wholesaler to independently-owned supermarkets operating under the same tradename, and (c) "Constructive Termination" means (i) either an involuntary reduction in base salary that exceeds 5% in any year, or an involuntary removal from sole possession of the position of Senior Vice President and Chief Financial Officer, or (ii) any involuntary transfer that would require relocation outside of the current operating area of Grand Union. 3. The terms and provisions of this Agreement shall be binding upon and shall inure to the benefit of Grand Union and its successors and assigns and to Executive and his heirs, executors, legal representatives and beneficiaries. 4. This Agreement shall not be construed as providing Executive with the right to be retained in Grand Union's employ and shall not otherwise affect Grand Union's right to terminate Executive's employment. 5. This Agreement may be amended, superseded or cancelled, or any of the terms or provisions hereof may be waived, only by a written instrument specifically stating that it amends, supersedes or cancels this Agreement, or waives the terms thereof, executed by Executive and Grand Union. 6. This Agreement shall be governed by and construed in accordance with the laws of the State of New Jersey applicable to agreements to be performed wholly therein, without regard to the choice of law principles thereof. The parties have specifically directed their attention to the laws of the State of New Jersey and recognize that this Agreement by its terms has applicability outside the State of New 2 Jersey. In the event that this Agreement is sought to be enforced in any jurisdiction other than the State of New Jersey, the parties intend that the courts of such jurisdiction apply New Jersey law except that, with respect to the provisions of Section 2, the parties intend that either the law of the State of New Jersey or the law of the jurisdiction in which such provisions are sought to be enforced, whichever shall be more favorable to the enforcement of such provisions, shall be applied. 7. Executive acknowledges that he has read and fully understands this Agreement and enters into this Agreement voluntarily and with the benefit of advice of counsel. 8. This instrument contains the entire agreement of the parties with respect to the subject matter hereof and supersedes any and all prior agreements, writings and negotiations among the parties with respect thereto. This Agreement may be signed in two or more counterparts, each of which shall constitute an original and all of which taken together shall constitute one and the same instrument. IN WITNESS WHEREOF, Grand Union and Executive have executed this Agreement to be effective on the date first written above. THE GRAND UNION COMPANY By: /s/ Gilbert Vuolo ------------------------------- Attest: /s/ John W. Schroeder - ---------------------- /s/ Kenneth R. Baum ------------------------------- Kenneth R. Baum, Executive Attest: 3 /s/ John W. Schroeder - ----------------------- 4 EX-10.26 7 EXHIBIT 10.26 Exhibit 10.26 Agreement AGREEMENT made and entered into as of the 15th day of June, 1995 by and between THE GRAND UNION COMPANY, a Delaware corporation having its principal executive offices at 201 Willowbrook Boulevard, Wayne, New Jersey 07470 ("Grand Union") and Darrell W. Stine, an individual residing at _______________________ ________________ ("Executive"). WHEREAS, Executive is a key employee of Grand Union, and WHEREAS, Executive and Grand Union have previously entered into a Non- Competition and Confidentiality Agreement dated August 25, 1993 (the "Prior Agreement"), and WHEREAS, in view of the bankruptcy filing by Grand Union and the changes in the terms and conditions of Executive's employment as a result of such filing, and in order to protect and maintain Grand Union's legitimate business interests, the parties deem it desirable to amend and restate the Prior Agreement in accordance with the terms and conditions set forth below. NOW, THEREFORE, in consideration of the foregoing and the mutual covenants contained herein, Executive and Grand Union agree as follows: 1. The Prior Agreement is hereby superseded in its entirety by this Agreement. 2. During the term of Executive's employment with Grand Union and, if such employment is voluntarily terminated by Executive (other than on account of a Constructive Termination), for a period of two (2) years after the date of such termination, Executive shall not directly or indirectly own, invest in (other than a less-than-1% interest of), act as a principal or partner of, operate, and/or be employed by or otherwise perform services for any entity operating one or more supermarkets within a ten (10) mile radius of any Grand Union store if the aggregate of such Grand Union stores (x) represent ten percent (10%) or more of the total number of Grand Union stores operating at the date of such termination or (y) account for ten percent (10%) or more of the annual sales volume of Grand Union for the fiscal year immediately preceding the year of such termination. For this purpose, (a) "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, (b) an entity operating supermarkets includes any wholesaler to independently-owned supermarkets operating under the same tradename, and (c) "Constructive Termination" means (i) either an involuntary reduction in base salary that exceeds 10% in any year, or an involuntary reduction in grade level of more than two grades in any year, or (ii) an involuntary transfer that would require relocation outside of the current operating area of Grand Union. 3. The terms and provisions of this Agreement shall be binding upon and shall inure to the benefit of Grand Union and its successors and assigns and to Executive and his heirs, executors, legal representatives and beneficiaries. 4. This Agreement shall not be construed as providing Executive with the right to be retained in Grand Union's employ and shall not otherwise affect Grand Union's right to terminate Executive's employment. 5. This Agreement may be amended, superseded or cancelled, or any of the terms or provisions hereof may be waived, only by a written instrument specifically stating that it amends, supersedes or cancels this Agreement, or waives the terms thereof, executed by Executive and Grand Union. 6. This Agreement shall be governed by and construed in accordance with the laws of the State of New Jersey applicable to agreements to be performed wholly therein, without regard to the choice of law principles thereof. The parties have specifically directed their attention to the laws of the State of New Jersey and recognize that this Agreement by its terms has applicability outside the State of New Jersey. In the event that this Agreement is sought to 2 be enforced in any jurisdiction other than the State of New Jersey, the parties intend that the courts of such jurisdiction apply New Jersey law except that, with respect to the provisions of Section 2, the parties intend that either the law of the State of New Jersey or the law of the jurisdiction in which such provisions are sought to be enforced, whichever shall be more favorable to the enforcement of such provisions, shall be applied. 7. Executive acknowledges that he has read and fully understands this Agreement and enters into this Agreement voluntarily and with the benefit of advice of counsel. 8. This instrument contains the entire agreement of the parties with respect to the subject matter hereof and supersedes any and all prior agreements, writings and negotiations among the parties with respect thereto. This Agreement may be signed in two or more counterparts, each of which shall constitute an original and all of which taken together shall constitute one and the same instrument. IN WITNESS WHEREOF, Grand Union and Executive have executed this Agreement to be effective on the date first written above. THE GRAND UNION COMPANY By: /s/ Gilbert Vuolo ------------------------------- Attest: /s/ John W. Schroeder - ------------------------- /s/ Darrel W. Stine ------------------------------ Darrell W. Stine, Executive Attest: 3 /s/ John W. Schroeder - ------------------------- 4 EX-10.27 8 EXHIBIT 10.27 Exhibit 10.27 Agreement AGREEMENT made and entered into as of the 1st day of April, 1996 by and between THE GRAND UNION COMPANY, a Delaware corporation having its principal executive offices at 201 Willowbrook Boulevard, Wayne, New Jersey 07470 ("Grand Union") and Gilbert C. Vuolo, an individual residing at ______________________ ______________________ ("Executive"). In consideration of the mutual covenants contained herein, Executive and Grand Union agree as follows: 1. During the term of Executive's employment with Grand Union and, if such employment is voluntarily terminated by Executive (other than on account of a Constructive Termination), for a period of two (2) years after the date of such termination, Executive shall not directly or indirectly own, invest in (other than a less-than-1% interest of), act as a principal or partner of, operate, and/or be employed by or otherwise perform services for any entity operating one or more supermarkets within a ten (10) mile radius of any Grand Union store if the aggregate of such Grand Union stores (x) represent ten percent (10%) or more of the total number of Grand Union stores operating at the date of such termination or (y) account for ten percent (10%) or more of the annual sales volume of Grand Union for the fiscal year immediately preceding the year of such termination. For this purpose, (a) "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, (b) an entity operating supermarkets includes any wholesaler to independently-owned supermarkets operating under the same tradename, and (c) "Constructive Termination" means (i) either an involuntary reduction in base salary that exceeds 5% in any year, or an involuntary removal from possession of the position of Senior Vice President, or (ii) any involuntary transfer that would require relocation outside of the current operating area of Grand Union. 2. The terms and provisions of this Agreement shall be binding upon and shall inure to the benefit of Grand Union and its successors and assigns and to Executive and his heirs, executors, legal representatives and beneficiaries. 3. This Agreement shall not be construed as providing Executive with the right to be retained in Grand Union's employ and shall not otherwise affect Grand Union's right to terminate Executive's employment. 4. This Agreement may be amended, superseded or cancelled, or any of the terms or provisions hereof may be waived, only by a written instrument specifically stating that it amends, supersedes or cancels this Agreement, or waives the terms thereof, executed by Executive and Grand Union. 5. This Agreement shall be governed by and construed in accordance with the laws of the State of New Jersey applicable to agreements to be performed wholly therein, without regard to the choice of law principles thereof. The parties have specifically directed their attention to the laws of the State of New Jersey and recognize that this Agreement by its terms has applicability outside the State of New Jersey. In the event that this Agreement is sought to be enforced in any jurisdiction other than the State of New Jersey, the parties intend that the courts of such jurisdiction apply New Jersey law except that, with respect to the provisions of Section 2, the parties intend that either the law of the State of New Jersey or the law of the jurisdiction in which such provisions are sought to be enforced, whichever shall be more favorable to the enforcement of such provisions, shall be applied. 6. Executive acknowledges that he has read and fully understands this Agreement and enters into this Agreement voluntarily and with the benefit 2 of advice of counsel. 7. This instrument contains the entire agreement of the parties with respect to the subject matter hereof and supersedes any and all prior agreements, writings and negotiations among the parties with respect thereto. This Agreement may be signed in two or more counterparts, each of which shall constitute an original and all of which taken together shall constitute one and the same instrument. IN WITNESS WHEREOF, Grand Union and Executive have executed this Agreement to be effective on the date first written above. THE GRAND UNION COMPANY By: /s/ Joseph J. McCaig --------------------------------- Attest: /s/ John W. Schroeder - ------------------------------------- /s/ Gilbert C. Vuolo --------------------------------- Executive Attest: /s/ John W. Schroeder - ------------------------------------- 3 EX-10.28 9 EX-10.28 Exhibit 10.28 ------------- January 17, 1996 PRIVATE AND CONFIDENTIAL - ------------------------- The Grand Union Company 201 Willowbrook Boulevard Wayne, NJ 97470-6799 Attention: Joseph J. McCaig, Chief Executive Officer Gentlemen: This letter agreement (the "Agreement") confirms our understanding that The Grand Union Company (which together with its subsidiaries is hereinafter referred to as the "Company") has engaged Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ") to act as its exclusive investment banking financial advisor, commencing upon your acceptance of this Agreement, with respect to the review and analysis of financial and structural alternatives available to the Company with a view to meeting the Company's long term strategic objectives. As discussed, we propose to undertake certain services on your behalf including to the extent requested by you: (i) assisting you in analyzing the Company's operations and its historical performance; (ii) assisting you in analyzing the Company's future prospects; (iii) assisting you in preparing an analysis of strategic and financing alternatives for the Company; (iv) presenting the analysis of strategic and financing alternatives to the Board of Directors of the Company (the "Board"), and (v) assisting you in implementing any such strategic or financing alternative adopted by the Board. During the term of DLJ's engagement hereunder, DLJ shall have the exclusive right (but not the obligation) to act as sole managing underwriter, exclusive placement agent, sole dealer manager or exclusive solicitation agent, as the case may be, with respect to any registered public offering of any of the Company's securities, any private offering of any of the Company's debt securities pursuant to an exemption from registration under the Securities Act of 1933 (as amended), or any exchange offer or refinancing transaction relating to the Company's 12% Senior Notes or any other securities of the Company, in each case in connection with any strategic or financial alternative adopted by the Board of Directors. In any of the events described above, except where otherwise provided for in the Agreement, the Company and DLJ will enter into a customary underwriting agreement or engagement letter, as applicable, containing customary terms and conditions, and in form and substance, reasonably acceptable to DLJ and its counsel and you and your counsel. During the term of DLJ's engagement hereunder, in the event the Company decides to explore a private placement of equity securities (a "Private Placement"), a divestiture of assets or a line of business of the Company (a "Divestiture") or a sale, merger, consolidation or any other business combination, in one or a series of transactions involving all or a significant portion of the The Grand Union Company January 17, 1996 Page 2 business or securities of the Company other than a Divestiture (a "Sale") (each, a "Transaction"), we propose to undertake certain services on your behalf including to the extent requested by you: (i) assisting you in preparing an offering memorandum describing the Company, its operations, its historical performance and its future prospects; (ii) identifying and contacting selected qualified investors or acquirors acceptable to you; (iii) arranging for potential investors or acquirors to conduct business investigations; (iv) negotiating the financial aspects of any proposed Transaction under your guidance including negotiating with the creditors of the Company with respect to the application of the proceeds raised in a Transaction; (v) assisting the Company in evaluating any proposed Transaction, including assisting the Company in analyzing a potential investor or acquiror and its operations, historical performance, future prospects and securities; and (vi) delivering an opinion to the Board of Directors of the Company, if requested, as to the fairness from a financial point of view of the consideration to be received by the Company's stockholders in any proposed Transaction. In no event shall an underwritten public offering of the Company's securities or any other transaction covered by the immediately preceding paragraph be considered a Transaction. As compensation for the services to be provided by DLJ hereunder, the Company agrees (i) to pay to DLJ (a) a retainer fee of $200,000 ("the Retainer"), payable promptly upon execution of this Agreement, (b) additional cash compensation (the "Transaction Fee") as set forth below, (c) additional cash compensation (the "Fairness Fee") as set forth below at the time that the Board of Directors of the Company requests delivery and DLJ delivers the opinion referred to in clause (vi) of the preceding paragraph and (ii) upon request by DLJ from time to time, to reimburse DLJ promptly for all reasonable out-of-pocket expenses (including the reasonable fees and expenses of counsel) incurred by DLJ in connection with its engagement hereunder, which the Company shall have the right to audit and request documentation for, whether or not a Transaction is consummated. As DLJ will be acting on your behalf, the Company agrees to the indemnification and other obligations set forth in Schedule I attached hereto, which Schedule is an integral part hereof. As compensation for the services to be provided by DLJ hereunder in the case of a Private Placement, the Company agrees to pay DLJ a Transaction Fee equal to five percent (5.0%) of the gross proceeds of such Private Placement which shall be earned upon the consummation of the Private Placement, and shall be paid at closing of the proposed financing. The Fairness Fee, if a fairness opinion is requested, for such a Private Placement shall be equal to an additional one and one half percent (1.5%) of the gross proceeds of such Private Placement. In the case of a Private Placement, the Retainer shall be credited against the Transaction Fee. The Grand Union Company January 17, 1996 Page 3 As compensation for the services to be provided by DLJ hereunder in the case of a Divestiture, the Company agrees to pay DLJ a Transaction Fee in an amount equal to the schedule as set forth below: AGGREGATE CONSIDERATION TRANSACTION FEE ($ IN MILLIONS) ($ IN MILLIONS) ----------------------- ---------------- $50 $1.00 100 1.25 150 1.80 200 2.30 250 2.75 300 3.15 350 3.50 400 3.80 450 4.05 For a Divestiture in which the Aggregate Consideration is between any two categories the Transaction Fee shall be calculated by the linear interpolation between the respective Transaction Fees. If a fairness opinion is requested in the case of a Divestiture, the Fairness Fee shall be equal to the greater of 25% of the Transaction Fee and $350,000. In the case of a Divestiture, the Retainer Fee and the Fairness Fee shall be credited against the Transaction Fee. The Transaction Fee shall be due and payable promptly upon the consummation of a Divestiture. For the purpose of this Agreement, a Divestiture shall be deemed to have been consummated upon closing. In the case of a Sale the Transaction Fee shall be equal to (x) in the case of a Transaction involving 100% of the business, securities or assets of the Company, six tenths of one percent (0.6%) of the Aggregate Consideration, or (y) in the case of a Transaction involving 36% or more, but less than 100%, of the business, securities or assets of the Company, 2/3 of the amount referred to in clause (x), plus an amount ratably increasing from 0 to 1/3 of the fee in clause (x) in direct proportion to the percentage of the business or securities or assets involved in the Transaction increasing from 36% to 100%(1). "Aggregate Consideration" means all cash and non-cash consideration received by the Company and/or its shareholders, stock option holders and warrant holders, plus the amount of any debt assumed (including capitalized leases but excluding any outstanding letters of credit) or if not assumed repaid, by the purchaser in connection with the Transaction, including, in the case of a sale or other disposition by the Company of assets, the net value of any assets not sold by the Company. In each of cases (x) and (y) the Retainer Fee and the Fairness Fee shall be credited against the Transaction Fee. If a fairness opinion is requested, the Fairness Fee in the case of a Sale shall be equal to $1,000,000. Any sale of equity securities to an investor or acquiror which results in the investor or acquiror holding greater than 36% of the pro forma outstanding stock of the Company shall be considered a Sale. - --------------------------- 1) For example, in the case of a Sale involving 60% of the business, securities or assets of the Company, the Transaction Fee would be an amount equal to: [(2/3) * (6/10) + (1/3) * (6/10) * ((.60 - .36) / (1.00 - .36))]% * Aggregate Consideration. The Grand Union Company January 17, 1996 Page 4 The Transaction Fee shall be payable in cash promptly upon consummation of a Sale. For purposes of this Agreement, a Sale shall be deemed to have been consummated upon the earliest of any of the following events to occur: (a) the acquisition or purchase of equity securities equal to at least 36% of the equity securities of the Company outstanding pro forma for such acquisition or purchase (if the Company or DLJ have been requested to assist in such acquisition or purchase); (b) a merger or consolidation of the Company with another person; or (c) in the case of any other Sale, the consummation thereof. In the event that the consideration received in a Transaction is paid in whole or in part in the form of securities or other assets, the value of such securities or other assets, for purposes of calculating our additional compensation, shall be the fair market value thereof, as the parties hereto shall mutually agree, on the day prior to the consummation of the Transaction; provided, that if such consideration includes securities with an existing public trading market, the value thereof shall be determined by the average of the last sales price for such securities on the last five trading days thereof prior to such consummation. In the event that all or some portion of the consideration is related to the future earnings or operations of the Company, the portion of DLJ's compensation relating thereto shall be calculated and shall be paid at the time the Transaction is consummated (as determined by the preceding paragraph) based upon the estimated net present value thereof which DLJ and the Company will in good faith mutually agree upon. The Company shall make available to DLJ all financial and other information concerning its business and operations which DLJ reasonably requests as well as any other information relating to any Transaction prepared by the Company or any of its other advisors. In performing its services hereunder (including, without limitation, in giving an opinion of the type referred to in the fourth paragraph hereof), DLJ shall be entitled to rely without investigation upon all information that is available from public sources as well as all other information supplied to it by the Company or its counsel or independent accountants and shall not in any respect be responsible for the accuracy or completeness of, or have any obligation to verify, the same or to conduct any appraisal of assets, it being understood that the Company shall approve the form and content of any offering memorandum or other presentation materials prior to their distribution. To the extent consistent with legal requirements, all information given to DLJ by the Company, unless publicly available or otherwise available to DLJ without restriction or breach of any confidentiality agreement, will be held by DLJ in confidence and will not be disclosed to anyone other than DLJ's agents and advisors without the Company's prior approval or used for any purpose other than those referred to in this Agreement. Any opinion requested by the Company and any advice, written or oral, provided by DLJ pursuant to this Agreement will be treated by the Company as confidential, will be solely for the information and assistance of the Company in connection with its consideration of a transaction of the type referred to in the fourth paragraph of this Agreement and will not be used, circulated, quoted or otherwise referred to for any other purpose, nor will it be filed with, included in or referred to in whole or in part in any registration statement, proxy statement or any other document, except in each case with our prior written consent, which consent shall not be unreasonably withheld or delayed, or except as otherwise required by law. We understand that our opinion may be reproduced in full in any proxy statement mailed to shareholders of the Company, and we agree to provide our written consent to such use, provided that we are afforded a reasonable opportunity to The Grand Union Company January 17, 1996 Page 5 review and comment on those portions of any such proxy statement that include or refer to our opinion or otherwise refer to DLJ. In order to coordinate our efforts with respect to a possible Transaction satisfactory to the Company, during the period of our engagement hereunder neither the Company nor any representative thereof (other than DLJ) will, without DLJ's consent, initiate discussions regarding a Transaction except through DLJ. In the event the Company or its management receives an inquiry regarding a Transaction, it will promptly advise DLJ of such inquiry in order that we may evaluate such prospective purchaser and its interest and assist the Company in any resulting negotiations. This Agreement may be terminated by either the Company or DLJ upon receipt of written notice to that effect by the other party. Upon any termination of this Agreement, DLJ will be entitled to prompt payment of all fees accrued prior to such termination and reimbursement of all out-of-pocket expenses as described above. The indemnity and other provisions contained in Schedule I will remain operative and in full force and effect regardless of any termination of this Agreement. In addition, if at any time prior to 12 months after the termination of this Agreement without the payment of a Transaction Fee on a Sale, a Transaction is consummated, or if at any time prior to 18 months after the termination of this Agreement, a Transaction is consummated with any party contacted regarding a transaction during the period of our engagement, DLJ will be entitled to payment in full of the Transaction Fee. In connection with a Transaction referred to in the preceding sentence DLJ, shall, if requested by the Company, provide the opinion referred to in clause (vi) of the fourth paragraph hereof in connection with such Transaction; provided that the Company allows DLJ a reasonable amount of time within which to update its analysis supporting such opinion and providing that the Company reimburses DLJ for any additional out-of-pocket expenses incurred by DLJ in rendering such opinion. Upon the Company's request during the term of this Agreement and promptly following any termination of this Agreement, DLJ will provide the Company with written notice of the parties contacted by DLJ regarding a Transaction during the period of our engagement. It is understood that if the Company completes a transaction in lieu of any Transaction for which DLJ is entitled to compensation pursuant to this Agreement, DLJ and the Company will in good faith mutually agree upon acceptable compensation for DLJ taking into account, among other things, the results obtained and the custom and practice of investment bankers acting in similar transactions. The Company further agrees that it will not enter into any transaction referred to in either of the two preceding paragraphs unless, prior to or simultaneously with such transaction, adequate provision is made with respect to the payment of compensation to DLJ as contemplated by such paragraphs. Please note that DLJ is a full service securities firm engaged in securities trading and brokerage activities, as well as providing investment banking and financial advisory services. In the ordinary course of our trading and brokerage activities, DLJ or its affiliates may at any time hold long or short positions, and may trade or otherwise effect transactions, for our own account or on the accounts of customers, in debt or equity securities of the Company or other entities that may be The Grand Union Company January 17, 1996 Page 6 involved in the Transaction. We recognize our responsibility for compliance with Federal laws in connection with any such activities. The Company acknowledges and agrees that DLJ has been retained solely to provide the advice or services set forth in this Agreement. DLJ shall act as an independent contractor, and any duties of DLJ arising out of its engagement hereunder shall be owed solely to the Company. This Agreement shall be binding upon and inure to the benefit of the Company, DLJ, each Indemnified Person (as defined in Schedule I hereto) and their respective successors and assigns. This Agreement shall be governed by, and construed and enforced in accordance with, the laws of the State of New York. The Company and DLJ each irrevocably and unconditionally submits to the exclusive jurisdiction of any State or Federal court sitting in New York City over any suit, action or proceeding arising out of or relating to this letter (including Schedule I hereto). The Company and DLJ each hereby agrees that service of any process, summons, notice or document by U.S. registered mail addressed to the Company shall be effective service of process for any action, suit or proceeding brought in any such court. The Company and DLJ each irrevocably and unconditionally waives any objection to the laying of venue of any such suit, action or proceeding brought in any such court and any claim that any such suit, action or proceeding brought in such a court has been brought in an inconvenient forum. The Company and DLJ each agrees that a final judgment in any such suit, action or proceeding brought in any such court shall be conclusive and binding upon it and may be enforced in any other courts to whose jurisdiction it is or may be subject, by suit upon such judgment. If any term, provision, covenant or restriction contained in this Agreement, including Schedule I, is held by a court of competent jurisdiction or other authority to be invalid, void, unenforceable or against its regulatory policy, the remainder of the terms, provisions, covenants and restrictions contained in this Agreement shall remain in full force and effect and shall in no way be affected, impaired or invalidated. After reviewing this Agreement, please confirm that the foregoing is in accordance with your understanding by signing and returning to me the duplicate of this letter attached hereto, whereupon it shall be our binding Agreement. Very truly yours, DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION By: /s/ Martin C. Murrer ------------------------- Martin C. Murrer Senior Vice President Accepted and agreed to this 26 day of February, 1996 THE GRAND UNION COMPANY By: /s/ Joseph J. McCaig ----------------------- Joseph J. McCaig Chief Executive Officer SCHEDULE I This Schedule I is a part of and is incorporated into that certain letter agreement (together, the "Agreement"), dated January 17, 1996 by and between The Grand Union Company (which together with its subsidiaries and affiliates is hereinafter referred to as the "Company") and Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ"). The Company agrees to indemnify and hold harmless DLJ, its affiliates and its parent and its affiliates, and the respective directors, officers, agents and employees of DLJ, its affiliates and its parent and its affiliates (DLJ and each such entity or person, an "Indemnified Person") from and against any losses, claims, damages, judgments, assessments, costs and other liabilities (collectively "Liabilities"), and will reimburse each Indemnified Person for all fees and expenses (including the reasonable fees and expenses of counsel) (collectively, "Expenses") as they are incurred in investigating, preparing, pursuing or defending any claim, action, proceeding or investigation, whether or not in connection with pending or threatened litigation or arbitration and whether or not any Indemnified Person is a party (collectively, "Actions"), (i) caused by, or arising out of or in connection with, any untrue statement or alleged untrue statement of a material fact contained in the exclusive sale memorandum or offering memorandum and in the proxy statement, if any, provided to the Company's shareholders, (including any amendments thereof and supplements thereto, collectively, the "Disclosure Documents") or by any omission or alleged omission to state therein a material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading (other than untrue statements or alleged untrue statements in, or omissions or alleged omissions from, information relating to an Indemnified Person furnished in writing by or on behalf of such Indemnified Person expressly for use in the Disclosure Documents) or (ii) otherwise arising out of or in connection with advice or services rendered or to be rendered by any Indemnified Person pursuant to this Agreement, the transactions contemplated hereby or any Indemnified Person's actions or inactions in connection with any such advice, services or transactions; provided that, in the case of clause (ii) only, the Company will not be responsible for any Liabilities or Expenses of any Indemnified Person that are determined by a judgment of a court of competent jurisdiction which is no longer subject to appeal or further review to have resulted solely from any Indemnified Person's gross negligence or willful misconduct in connection with any of the advice, actions, inactions or services referred to above. The Company also agrees to reimburse each Indemnified Person for all Expenses as they are incurred in connection with enforcing such Indemnified Person's rights under this Agreement (including, without limitation, its rights under this Schedule I). In the event that it is determined in accordance with the foregoing sentence that an Indemnified Person is not entitled to indemnity hereunder, DLJ shall promptly reimburse or shall cause such Indemnified Person to reimburse the Company for all amounts paid to or on behalf of any Indemnified Person under this Schedule I. Upon receipt by an Indemnified Person of actual notice of an Action against such Indemnified Person with respect to which indemnity may be sought under this Agreement, such Indemnified Person shall promptly notify the Company in writing; provided that failure so to notify the Company shall not relieve the Company from any liability which the Company may have on account of this indemnity or otherwise, except to the extent the Company shall have been prejudiced by such failure. The Company shall have the right to assume the defense of any such Action including the employment of counsel reasonably satisfactory to DLJ. Any Indemnified Person shall have the right to employ separate counsel in any such Action and participate in the defense thereof, but the fees and expenses of such counsel shall be at the expense of such Indemnified Person, unless: (i) the Company has failed promptly to assume the defense and employ counsel or (ii) the named parties to any such Action (including any impleaded parties) include such Indemnified Person and the Company, and such Indemnified Person shall have been advised by counsel that there may be one or more legal defenses available to it which are different from or in addition to those available to the Company; provided that the Company shall not in such event be responsible hereunder for the fees and expenses of more than one firm of separate counsel in connection with any Action in the same jurisdiction, in addition to any local counsel. The Company shall not be liable for any settlement of any Action effected without its written consent (which shall not be unreasonably withheld). In addition, the Company will not, without prior written consent of DLJ, settle, compromise or consent to the entry of any judgment in or otherwise seek to terminate any pending or threatened Action in respect of which indemnification or contribution may be sought hereunder (whether or not any Indemnified Person is a party thereto) unless such settlement, compromise, consent or termination includes an unconditional release of each Indemnified Person from all Liabilities arising out of such Action. In the event that the foregoing indemnity is unavailable to an Indemnified Person other than due to the gross negligence or willful misconduct of any Indemnified Person, the Company shall contribute to the Liabilities and Expenses paid or payable by such Indemnified Person in such proportion as is appropriate to reflect (i) the relative benefits to the Company and its shareholders, on the one hand, and to DLJ, on the other hand, of the matters contemplated by this Agreement or (ii) if the allocation provided by the immediately preceding clause is not permitted by the applicable law, not only such relative benefits but also the relative fault of the Company, on the one hand, and DLJ, on the other hand, in connection with the matters as to which such Liabilities or Expenses relate, as well as any other relevant equitable considerations; provided that in no event shall the Company contribute less than the amount necessary to ensure that all Indemnified Persons, in the aggregate, are not liable for any Liabilities and Expenses in excess of the amount of fees actually received by DLJ pursuant to this Agreement. For purposes of this paragraph, the relative benefits to the Company and its shareholders, on the one hand, and to DLJ, on the other hand, of the matters contemplated by this Agreement shall be deemed to be in the same proportion as (a) the total value paid or contemplated to be paid or received or contemplated to be received by the Company or the Company's shareholders, as the case may be, in the transaction or transactions that are within the scope of this Agreement, whether or not any such transaction is consummated, bears to (b) the fees paid to DLJ under this Agreement. The Company also agrees that no Indemnified Person shall have any liability (whether direct or indirect, in contract or tort or otherwise) to the Company for or in connection with advice or services rendered or to be rendered by any Indemnified Person pursuant to this Agreement, the transactions contemplated hereby or any Indemnified Person's actions or inactions in connection with any such advice, services or transactions except for Liabilities (and related Expenses) of the Company that are determined by a judgment of a court of competent jurisdiction which is no longer subject to appeal or further review to have resulted solely from (i) any Indemnified Person's gross negligence or willful misconduct in connection with any such advice, actions, inactions or services, or (ii) the material breach by DLJ of an express provision of this Agreement which was not cured by DLJ within ten business days of DLJ having received written notice of such breach from the Company. The reimbursement, indemnity and contribution obligations of the Company set forth herein shall apply to any modification of this Agreement and shall remain in full force and effect regardless of any termination of, or the completion of any Indemnified Person's services under or in connection with, this Agreement. EX-10.29 10 EXHIBIT 10.29 Exhibit 10.29 WAIVER AND FIRST AMENDMENT TO THE AMENDED AND RESTATED CREDIT AGREEMENT WAIVER AND FIRST AMENDMENT dated as of February 16, 1996 (this "Agreement") to the AMENDED AND RESTATED CREDIT AGREEMENT dated as of June 15, 1995 (the "Credit Agreement"), each among THE GRAND UNION COMPANY, a Delaware corporation (the "Borrower"), the institutions from time to time party thereto as lenders (the "Banks") and BANKERS TRUST COMPANY, as agent (the "Agent"). Capitalized terms used herein and not defined herein shall have the respective meanings set forth for such terms in the Credit Agreement. W I T N E S S E T H : WHEREAS, in connection with the transfer to C&S Wholesale Grocers, Inc. ("C&S") of the supply and distribution operations for the Borrower's New York Region (the "NY Region S&D Conversion"), the Borrower anticipates incurring certain costs and expenses related to the ceasing of operations at its Mount Kisco and Carlstadt facilities (the "New York Warehouses") in an aggregate amount not to exceed $15,000,000; WHEREAS, the Borrower anticipates recoveries from the sale of the Carlstadt facility and equipment sold in connection with the ceasing of operations at the New York Warehouses in an amount of approximately $2,500,000; WHEREAS, in conjunction with the NY Region S&D Conversion the Borrower has eliminated its regional office structure and, in connection with such centralization, desires to make certain staff reductions that would involve the incurrence by the Borrower of certain related costs and expenses in an aggregate amount not to exceed $2,500,000; WHEREAS, the Borrower has requested that (a) for purposes of determining the Borrower's compliance with the financial covenants under the Credit Agreement, the costs and expenses described above be added-back to EBIT in calculating the Borrower's EBITDA for any relevant period, and (b) the Banks consent to certain other actions the Borrower desires to take in connection with the NY Region S&D Conversion and the transfer to C&S of the supply and distribution operations in respect of inventory handled at the Borrower's Montgomery facility (the "Montgomery Warehouse"); and WHEREAS, subject to and upon the terms and conditions hereinafter set forth, the Banks party hereto are willing to agree to the foregoing; NOW, THEREFORE, the parties hereto hereby agree as follows: Section 1. AMENDMENTS. The Credit Agreement is hereby amended as follows: (a) Section 7.1(f) of the Credit Agreement is amended by inserting the following at the end of such Section: "In addition, promptly, and in any event within three Business Days after an officer of the Borrower or any of its Subsidiaries obtains knowledge there of, (i) notice of the occurrence of any default or event of termination under any now or hereafter existing agreement between the Borrower, on the one hand, and C&S Wholesale Grocers, Inc. (or its successors and assigns), on the other hand, and (ii) copies of each such agreement entered into after the date hereof and each amendment or other modification to each such now or hereafter existing agreement." (b) The following is hereby inserted after Section 8.15 of the Credit Agreement as a new Section: "8.16 AMENDMENTS, ETC. TO CERTAIN MATERIAL AGREEMENTS. The Borrower will not 2 terminate or, without the prior written consent of the Agent, directly or indirectly amend or modify in any material adverse respect (including, without limitation, in any manner that would have an adverse effect on any Credit Party's ability to perform its obligations hereunder or under any other Credit Document) any now or hereafter existing agreements between the Borrower and C&S Wholesale Grocers, Inc., including without limitation, (a) the Supply and Distribution Agreement dated as of June 15, 1995, as amended by the First Amendment thereto dated as of January 2, 1996 and the Second Amendment thereto dated as of February 16, 1996, (b) the Supply and Distribution Agreement dated as of January 2, 1996, as amended by the First Amendment thereto dated as of February 16, 1996, and (c) the Supply and Operating Agreement dated as of January 21, 1996." (c) The definition of the term "EBITDA" in Section 10 of the Credit Agreement is amended by inserting the following at the end of such definition: "; and PROVIDED FURTHER that, for purposes of calculating EBITDA for any period, the following shall be added back to EBIT for such period to the extent deducted, in accordance with the definition of EBIT contained herein, from Consolidated Net Income for such period in determining such EBIT: (a) costs and expenses in an aggregate amount not to exceed $15,000,000 incurred by the Borrower in the third and fourth fiscal quarters of its fiscal year ending in March, 1996 relating to the ceasing of operations at its Mount Kisco and Carlstadt facilities, and (b)costs and expenses in an aggregate amount not to exceed $2,500,000 incurred by the Borrower in the fourth quarter of its fiscal year ending in March, 1996 in connection with the central ization of its regional operations; and PROVIDED FURTHER that, for purposes of calculating EBITDA for any period, EBIT shall be calculated, notwithstanding anything to the contrary contained 3 in the definition of EBIT contained herein, without giving effect to any gains from the sale of the Carlstadt facility and equipment sold in connection with the ceasing of operations at such facilities". Section 2. WAIVERS. (a) Any violation of Section 8.1 ("Consolidation, Merger, Sale or Purchase of Assets, etc.") of the Credit Agreement that is caused solely by the sale, in and of itself, by the Borrower to C&S of forward buy and reserve inventory of the Borrower located at the New York Warehouses on the date hereof (a "Conversion-Related Sale") is hereby waived; PROVIDED that (i) the aggregate cost of the inventory so sold to C&S does not exceed $12,700,000, (ii) all inventory so sold to C&S is sold pursuant to one or more transaction for cash, payable no later than March 1, 1996, in an amount that is at least equal to 98% of the Borrower's actual cost for such inventory, (iii) such sales occur no later than March 1, 1996, and (iv) any inventory so sold to C&S was located at the New York Warehouses on January 2, 1996. In addition, any violation of Section 8.2 ("Liens") that is caused solely by any Conversion-Related Sale meeting the requirements of clauses (i) through (iv) of the proviso to the foregoing sentence being subject to an obligation or agreement on the part of the Borrower to repurchase from C&S any of the inventory so sold to C&S within 120 days of the sale of such inventory to C&S is hereby waived so long as the aggregate amount paid (and required to be paid) for each and any item of such inventory that is repurchased by the Borrower does not exceed the amount of cash paid to the Borrower by C&S in respect of such item (after giving effect to any discounts extended to C&S with respect thereto). (b) Any violation of Section 9.2 ("Liens") of the Credit Agreement caused solely by the filing, in and of itself, by the Borrower in favor of C&S of precautionary Uniform Commercial Code financing statements with the Secretary of State of the State of New York and the County Clerk of Orange County, New York that 4 are satisfactory in form and substance to the Agent in its sole discretion is hereby waived; provided that such financing statements relate solely to inventory of a type listed on Schedule I to Exhibit A hereto. (c) Each Bank party hereto concurs with the making by the Agent in favor of C&S of acknowledgements and agreements in form and substance substantially similar to those set forth in Exhibit A hereto and such other acknowledgements and agreements in respect of inventory of a type listed on Schedule I to such Exhibit A and located from time to time at the Montgomery facility that, in the Agent's good faith belief, are not adverse to the Banks in any material respect. Section 3. REPRESENTATIONS AND WARRANTIES. The Borrower hereby represents and warrants to the Agent and each Bank that: (a) no Default or Event of Default has occurred and is continuing on and as of the date hereof, and, after giving effect hereto, no Default or Event of Default will occur at any time as a result of the execution, delivery or performance by the Borrower of any of its obligations, covenants and agreements under any of its existing contracts and agreements with C&S; and (b) the representations and warranties of the Borrower and the other Credit Parties contained in the Credit Agreement and the other Credit Documents are true and correct on and as of the date hereof as if made on and as of the date hereof, except to the extent such representations and warranties expressly relate to a different specific date. Section 4. EFFECTIVENESS. This Agreement shall become effective when the Agent shall have executed and delivered a counterpart of this Agreement and received duly executed counterparts of this Agreement from the Borrower, each Subsidiary of the Borrower that is a party to any Credit Document and as 5 many of the Banks as shall be necessary to comprise the "Required Banks". Section 5. STATUS OF CREDIT DOCUMENTS. This Agreement is limited solely for the purposes and to the extent expressly set forth herein, and, except as express ly modified hereby, the terms, provisions and conditions of the Credit Documents and the Liens granted thereunder shall continue in full force and effect and are hereby ratified and confirmed in all respects. Section 6. COUNTERPARTS. This Agreement may be executed and delivered in any number of counterparts and by the different parties hereto on separate counter parts, each of which when so executed and delivered shall be an original, but all of which shall together constitute one and the same instrument. A complete set of counterparts shall be lodged with the Borrower and the Agent. Section 7. GOVERNING LAW. THIS MODIFICATION SHALL BE CONSTRUED IN ACCORDANCE WITH, AND SHALL BE GOVERNED BY, THE LAWS OF THE STATE OF NEW YORK (WITHOUT GIVING EFFECT TO THE CONFLICT OF LAW PRINCIPLES THEREOF). 6 IN WITNESS WHEREOF, the parties hereto have caused their respective duly authorized officers to execute and deliver this Waiver and First Amendment to the Amended and Restated Credit Agreement as of the date first above written. THE GRAND UNION COMPANY By: /s/ Frank Nicastro ------------------------- Name: Frank Nicastro Title: Vice President and Treasurer BANKERS TRUST COMPANY, Individually and as Agent By: /s/ Michael R. Shruga ------------------------- Name: Michael R. Shruga Title: Managing Director BANKAMERICA BUSINESS CREDIT, INC. By: /s/ Patrick J. Wilson ------------------------- Name: Patrick J. Wilson Title: V.P. BANK POLSKA KASA OPIEKI, SA By: /s/ William A. Shea ------------------------- Name: William A. Shea Title: Vice President Senior Lending Officer 7 CITIBANK, N.A. By: /s/ Hans L. Christensen ------------------------- Name: Hans L. Christensen Title: Vice President COMPAGNIE FINANCIORE DE CIC ET DE L'UNION EUROPIENNE By: /s/ Sean Mounier ------------------------- Name: Sean Mounier Title: First Vice President By: /s/ Brian O'Leary ------------------------- Name: Brian O'Leary Title: Vice President THE FIRST NATIONAL BANK OF BOSTON By: /s/ Gretchen Bergstressa ------------------------- Name: Gretchen Bergstressa Title: V.P. HELLER FINANCIAL, INC. By: /s/ T. Bukowski ------------------------- Name: T. Bukowski Title: V.P. MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED 8 By: /s/ Victor Ichosia ----------------------------- Name: Victor Ichosia Title: Managing Director NATIONSBANK N.A. (CAROLINAS) By: ------------------------------ Name: Title: NATWEST BANK N.A. By: /s/ George Triebenbacher ------------------------------ Name: George Triebenbacher Title: V.P. QUANTUM PARTNERS LDC By: ------------------------------- Name: Title: SENIOR DEBT PORTFOLIO By: Boston Management and Research, as Investment Advisor By: /s/ Jeffrey S. Garner ------------------------------- Name: Jeffrey S. Garner Title: Vice President 9 TRANSAMERICA BUSINESS CREDIT CORPORATION By: /s/ Michael Burns ------------------------------- Name: Title: 10 VAN KAMPEN MERRITT PRIME RATE INCOME TRUST By: /s/ Jeffrey W. Maillet ------------------------- Name: Jeffrey W. Maillet Title: Sr. Vice Pres. & Portfolio Mgr. 11 The foregoing Modification No. 1 to the Amended and Restated Credit Agreement is hereby consented and agreed to, and the Liens and guaranties under the Credit Documents are hereby confirmed, by: MERCHANDISING SERVICES, INC. GRAND UNION STORES, INC. OF VERMONT GRAND UNION STORES OF NEW HAMPSHIRE, INC. By: /s/ Frank Nicastro ------------------------- Name: Frank Nicastro Title: V.P. & Treasurer of each of the above listed entities 12 Exhibit A to WAIVER & FIRST AMENDMENT Form of C&S CONSENT AND AGREEMENT 13 EX-10.30 11 EXHIBIT 10.30 EXHIBIT 10.30 AGREEMENT made as of this 28th day of November, 1994, by and between THE GRAND UNION COMPANY, a Delaware corporation having its principal executive offices at 201 Willowbrook Boulevard, Wayne, New Jersey 07470 ("Grand Union"), and DARRELL W. STINE, an individual residing at_____________________ ("Executive"). WHEREAS, Executive is a participant in the Second Amendment and Restatement of The Grand Union Company Supplemental Retirement Program for Key Executives, as in effect on the date hereof (the "SERP"), and Executive is currently eligible to retire from Grand Union and to receive a benefit pursuant to the SERP; and WHEREAS, Executive is a valuable employee of Grand Union, and Grand Union is desirous of continuing to have available to it the continued services of Executive on a full-time basis, at least for an additional eighteen months; and WHEREAS, Executive and Grand Union entered into an agreement, dated as of August 25, 1993, and denominated the "Non-Competition and Confidentiality Agreement" (the "Prior Agreement"); and WHEREAS, Grand Union is willing to make a partial payment to Executive at this time of his accrued benefit under the SERP and, in addition, to compensate Executive for the earlier payment of income and employment taxes on that payment in exchange for Executive's agreement to continue working for Grand Union at least for an additional eighteen months. NOW, THEREFORE, in consideration of the foregoing and the mutual covenants contained herein, Executive and Grand Union agree as follows: 1. PAYMENT TO EXECUTIVE. Upon execution of this Agreement, Grand Union shall pay to Executive the sum of four hundred thirty-three thousand six hundred and fifty dollars ($433,650), representing (a) an advance payment of a portion of the benefits to which the Executive would be entitled under the SERP had Executive retired of three hundred and eighty-eight thousand five hundred dollars ($388,500) (the "SERP Payment") and (b) a payment to compensate the Executive for the earlier payment of income and employment taxes on the SERP Payment of forty-five thousand one hundred and fifty dollars ($45,150) (the "Tax Payment"). 2. CONTINUED SERVICE BY EXECUTIVE. In consideration for the receipt of the SERP Payment and the Tax Payment, Executive agrees to remain in the full-time employ of Grand Union, and to make his services available to Grand Union on essentially a full-time basis until May 31, 1996 (absences for illnesses, holidays and vacations excluded), unless Executive shall be precluded therefrom by reason of his total disability. Notwithstanding the foregoing, Executive shall be permitted to terminate his employment with Grand Union in the event that, without his consent, Grand Union shall (1) materially diminish his duties, responsibilities or position or assign to Executive duties or responsibilities materially inconsistent with his position or (ii) reduce his rate of compensation or materially reduce the benefits to which he is currently entitled under all of the fringe benefit plans of Grand Union or (iii) relocate its principal executive offices more than 75 miles from Wayne, New Jersey. Executive agrees that neither a change in the ownership or control of Grand Union nor any financial restructuring, including the bankruptcy or insolvency of Grand Union, by itself, shall give Executive any right to terminate his employment with Grand Union. 3. AFFECT ON SERP BENEFITS. The Executive agrees that notwithstanding any provision to the contrary in the SERP or any other agreement with Grand Union to which the Executive is a party, Grand Union's obligation to make any payment under the SERP to Executive, or in the event of his death to his estate, shall be reduced and offset by an amount equal to the SERP Payment plus an amount equal to interest from the date of payment of the SERP Payment until the date any amount would first be payable to Executive (or in the event of his death, to his beneficiary) under the SERP upon his termination of employment at the interest rate provided in the SERP for the calculation of his lump sum benefit upon his termination of employment. 4. PRIOR AGREEMENT MATTERS. Executive (a) acknowledges, ratifies and confirms the Executive's obligations under the Prior Agreement, (b) waives any claim that a Funding Event, as defined in the Prior Agreement, may occur by reason of any amendment to the SERP, either express or implied, to reduce the benefits payable thereunder to Executive in an amount equal to the SERP Payment, and (c) acknowledges and agrees that Grand Union's obligations to make any payments under the Prior Agreement or to transfer any Securities to the Custodial Account (as both such terms are defined in the Prior Agreement) shall be reduced and offset by the SERP Payment. Furthermore, Executive consents and agrees that the Full Funding Value of Account, as set forth on Appendix A to the Prior Agreement, shall be reduced by the SERP Payment, and Executive agrees to execute an amendment to the Prior Agreement to effectuate the foregoing. 5. MISCELLANEOUS. (a) This Agreement shall not be construed as providing Executive (i) with any right to be retained in Grand Union's employ for any period, (ii) as obligating Grand Union to continue Executive's employment or (iii) to restrict the right of Grand Union to terminate Executive's employ, either with or without cause. (b) This Agreement shall be governed by and construed in accordance with the laws of the State of New Jersey. (c) Any amendment of this Agreement shall be in writing and signed by the parties hereto. (d) This Agreement contains the entire agreement of the parties with respect to the subject matter hereof and supersedes any and all prior agreements, understandings and negotiations with respect thereto. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written. THE GRAND UNION COMPANY by: /s/ Floyd Hall -------------------------- Title: Chief Executive Officer ------------------------- Attest: /s/ James Herlihy - ----------------------------- DARRELL W. STINE /s/ Darrell W. Stine -------------------------------- Attest: /s/ Gilbert Vuolo - ----------------------------- SERP Payment: $388,500.00 Tax Payment: (a) Calculation of Taxes on SERP Payment Federal income tax (net of benefit of State tax deduction) $147,692.00 State Income Tax $ 27,195.00 Medicare tax $ 5,633.25 ----------- Total $180,520.25 (b) Calculation of time value of tax payment 3 years and 1 month at 7.5% interest rate, compounded annually $ 45,141.11 ASSUMPTIONS: Estimated benefit amount is $570,500 and estimated value of Custodial Account is $182,000, both at January 1, 1995, based upon Kwasha Lipton calculations in an October 14, 1994, memorandum to Gil Vuolo. EX-21. 12 EXHIBIT 21.1 Exhibit 21.1 THE GRAND UNION COMPANY SUBSIDIARY LISTING Grand Union Stores of New Hampshire, Inc. Grand Union Stores of Vermont Merchandising Services, Inc. Speciality Merchandising Services, Inc. EX-24. 13 EXHIBIT 24.1 EXHIBIT 24.1 THE GRAND UNION COMPANY POWER OF ATTORNEY Each of the undersigned directors and officers of The Grand Union Company hereby constitutes and appoints Joseph J. McCaig and Kenneth R. Baum, and each of them, with full authority to act alone, as his true and lawful attorney-in-fact and agent, with full powers of substitution to do any and all acts and things in his name and behalf in his capacity as director and officer and to execute any and all instruments for him and in his name in the capacity indicated below, which said attorney-in-fact and agent may deem necessary or advisable to enable said corporation to comply with the Securities Exchange Act of 1934, as amended, and any rules, regulations and requirements of the Securities and Exchange Commission, in connection with The Grand Union Company's Annual Report on Form 10-K, for the period ended March 30, 1995, including specifically but without limitation, power and authority to sign for each in his name in his capacity as members of the board of directors,and to sign any and all amendments hereto, and each does hereby ratify and confirm all that said attorney-in-fact and agent may lawfully do or cause to be done by virtue hereof. SIGNATURE TITLE DATE /s/ Roger E. Stangeland Director and Chairman June 13, 1996 - ---------------------------- Roger E. Stangeland /s/ Joseph J. McCaig Director, President and Chief June 13, 1996 - ---------------------------- Executive Officer (Principal Joseph J. McCaig Executive Officer) /s/ William A. Louttit Director, Executive Vice June 13, 1996 - ---------------------------- President and Chief William A. Louttit Operating Officer /s/ Daniel E. Josephs Director June 13, 1996 - ---------------------------- Daniel E. Josephs /s/ William G. Kagler Director June 13, 1996 - ---------------------------- William G. Kagler /s/ Douglas T. McClure, Jr. Director June 13, 1996 - ----------------------------- Douglas T. McClure, Jr. /s/ David Y. Ying Director June 13, 1996 - ----------------------------- David Y. Ying /s/ Kenneth R. Baum Senior Vice President, June 13, 1996 - ----------------------------- Chief Financial Officer Kenneth R. Baum and Secretary (Principal Financial Officer and Principal Accounting Officer) EX-27.1 14 EXHIBIT 27.1
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE COMPANY'S CONSOLIDATED FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 YEAR MAR-30-1996 APR-02-1995 MAR-30-1996 39,425 0 20,948 0 133,506 207,588 443,558 37,979 1,185,206 178,903 595,421 0 0 10,000 34,144 1,185,206 2,307,810 0 1,594,113 1,594,113 772,831 0 98,985 (158,119) 18,927 (139,192) 0 854,785 0 715,593 (10.99) 0 All amounts except earnings per share include the 41 weeks ended March 30, 1996 and the 11 weeks ended June 17, 1995. Earnings per share data is for the 41 weeks ended march 30, 1996 because earnings per share data is not meaningful for periods prior to the effective data due to the significant changes in the capital structure of the Company.
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