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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended March 28, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________________ to ________________
Commission File Number 0-26602
THE GRAND UNION COMPANY
(Exact name of registrant as specified in its charter)
Delaware 22-1518276
- ---------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or Organization)
201 Willowbrook Boulevard, Wayne, New Jersey 07470-0966
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 973-890-6000
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Securities registered pursuant to Section 12 (b) of the Act:
Title of each class Name of each exchange on which registered
- ------------------------ ---------------------------------------------
None
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Securities registered Common Stock, Par Value $0.01
pursuant to Section 12 (g) ---------------------------------------------
of the Act:
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such requirements
for the past 90 days. Yes __X__ No ____ .
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
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The aggregate market value of the voting stock held by nonaffiliates of the
registrant as of June 22, 1998 is approximately $1,621,443, based upon the
average of the bid and asked prices of the Common Stock on such date on the
Over-The-Counter market. For the purpose of this calculation, all members of the
Board of Directors and all stockholders with sole or shared voting power over
10% or more of the Company's voting stock are presumed to be affiliates.
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes __X__ No ____ .
As of June 24, 1998 there were issued and outstanding 10,202,018 shares, par
value $0.01 per share, of the registrant's Common Stock.
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Other than historical information, statements in this report may be deemed
to be forward-looking statements within the meaning of the federal securities
laws. Actual results and the timing of certain events could differ materially
from those projected in the forward-looking statements due to a number of
factors, including those set forth in this report. See "Special Note Concerning
Forward-Looking Statements" in Part II of this report.
PART I
Item 1. Business
General
The Grand Union Company, a Delaware corporation ("Grand Union" or the
"Company"), currently operates 222 retail food stores under the "Grand Union"
name in six northeastern states. Through May 20, 1998, Grand Union's Common
Stock was listed on the NASDAQ SmallCap Market under the symbol "GUCO." The
Company's Common Stock is currently eligible for quotation on the
Over-The-Counter Bulletin Board. On June 24, 1998, the Company filed a voluntary
petition for relief under chapter 11, Title 11 of the United States Code, as
amended, with the United States Bankruptcy Court for the District of New Jersey.
(See "Chapter 11 Filing" below).
As a result of the implementation of several key strategic initiatives,
Grand Union has been able to stabilize its operations in the critical areas of
sales, margins, promotional income and expense levels. These initiatives
included a complete restaffing of senior management positions, organizational
restructuring measures and reconfiguration of the company into three operating
areas. Grand Union is continuing these strategic initiatives, identifying
additional areas for administrative expense reduction and efficiency and
pursuing new marketing and merchandising activities, all of which are designed
to enhance its image as a high-quality, price-conscious operator in the
northeastern retail food industry.
Strategic Initiatives
In recent years, results in the supermarket industry have suffered from
slow population growth, increasing competitive activity, and changing consumer
shopping and eating patterns. These factors are projected to keep real
supermarket sales growth essentially flat over the next several years.
Grand Union is in the process of implementing various strategies to meet
its long-term goals for improving financial performance. Grand Union has
determined a key strategy is to focus on the requirements and preferences of
"Today's Customer". This strategy includes identifying and understanding the
ongoing changes in consumer trends, thereby allowing consumer preferences to be
the drivers of change in Grand Union's offerings of services and products. In
addition, Grand Union has determined that to maximize profitability, it should
(i) expand its existing store base, including the development of new stores and
the remodeling of existing units; (ii) implement a program for maximizing
advertising and promotion allowance revenues from the Company's suppliers; and
(iii) perform ongoing evaluation and, when appropriate, modify store locations
that are not adequately contributing.
Due to an historically overleveraged balance sheet, Grand Union has had
insufficient resources to consistently fund capital expenditures adequately. The
significant reduction in debt, and the attendant reduction in interest expense,
to be effected by the proposed reorganization of the Company, together with the
new proposed exit financing (see "Chapter 11 Filing" below), will provide Grand
Union with substantially improved liquidity, $50 million of which will be
available upon emergence. This substantial reduction of debt and the
availability of new funds will enable Grand Union to execute a capital
expenditure program that will enhance the operations, profitability and
competitiveness of the Company.
EACH OF THE FOREGOING STRATEGIC INITIATIVES ARE FORWARD-LOOKING AND INVOLVE
RISKS AND UNCERTAINTIES. THERE CAN BE NO ASSURANCE THAT ANY OF THE STRATEGIC
INITIATIVES WILL IMPROVE THE FINANCIAL PERFORMANCE OF THE COMPANY.
Store Formats and Locations; Competition
Grand Union's store sizes and formats vary depending upon the demographics
and competitive conditions and real estate availability in each location in
which it operates. Grand Union supermarkets offer a wide selection of national
brand and private label grocery and general merchandise products as well as
high-quality perishables and service departments. The
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majority of Grand Union's sales are generated from stores which include
high-margin specialty and service departments. Selected locations feature
in-store cafes and pharmacies. Liquor, beer and wine departments are included in
many locations, subject to the limitations of state and local law. Grand Union's
supermarkets range in size from 7,000 to 64,000 square feet.
Grand Union currently operates 222 stores in six states, including 123 in
New York, 40 in Vermont, 41 in New Jersey, 13 in Connecticut, 3 in New Hampshire
and 2 in Pennsylvania. On June 25, 1998, the Company re-opened its store in
Bolton Landing, New York.
The food retailing business is highly competitive. Grand Union competes
with numerous national, regional and local supermarket chains. Grand Union also
competes with convenience stores, stores owned and operated or otherwise
affiliated with large food wholesalers, unaffiliated independent food stores,
warehouse/merchandise clubs, discount drugstore chains and discount general
merchandise chains. Some of Grand Union's competitors have greater financial
resources than Grand Union has and could use those resources to take steps which
would adversely affect Grand Union's competitive position.
In upstate New York, Grand Union generally operates in small cities and
rural communities. The Company's main competitors are Golub Corporation ("Price
Chopper") and Hannaford Brothers, Inc. ("Hannaford"). Commercial development in
areas north of Albany, New York is limited and constrained by zoning and
environmental restrictions, particularly in areas regulated by the Adirondack
Park Commission. In the more urban Albany area, Price Chopper and Hannaford have
each opened a number of new stores in the last five years, which are generally
larger than the Company's stores.
In the Mid-Hudson Valley area of New York, the Company's principal
competitors are Big V Supermarkets Inc. (a member of the Wakefern ("ShopRite")
cooperative), Price Chopper, Hannaford and The Great Atlantic & Pacific Tea
Company, Inc. ("A&P"). Continuing weak economic conditions in the Mid-Hudson
Valley have constrained business in recent years. In addition, the Company's
results in this region have also been adversely affected by recent store
openings by competitors.
In Vermont, Grand Union's principal competitors are Price Chopper and
Hannaford. Zoning and environmental regulations in the state restrict commercial
development (including supermarkets which might be competitors of the Company).
A number of stores in upstate New York and Vermont are in resort areas.
These generally experience significant increases in sales in the summer months
and in some cases during the winter ski season.
The Company's stores in downstate New York, Connecticut and New Jersey
serve densely populated communities with demographics particularly well suited
for store formats emphasizing specialty departments. Accordingly, the sales mix
in these stores includes a larger percentage of higher margin perishable items.
In addition, the high population density as well as the geographic concentration
of stores provide substantial economy of scale opportunities.
In New Jersey, the Company competes primarily against A&P, Pathmark Stores,
Inc. ("Pathmark"), Ahold Supermarkets, Inc. ("Edwards" and "Stop and Shop"),
ShopRite and various supermarkets supplied by the Twin County ("Foodtown")
cooperative.
In Westchester, Orange, Rockland, Dutchess and Putnam Counties in New York,
the Company generally competes with A&P, Edwards and ShopRite.
On Long Island, the Company's principal competitors include A&P, Waldbaums
(division of A&P), Pathmark, and King Kullen Grocery Co., Inc.
Grand Union's main competitors in Fairfield County, Connecticut include
Stop & Shop and A&P.
Distribution and Supply
The majority of Grand Union's merchandise is distributed to Grand Union
stores by C&S Wholesale Grocers, Inc. ("C&S") pursuant to supply and
distribution agreements. Under the agreements, C&S supplies
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grocery products from its own warehouses, and health and beauty care and general
merchandise products from Grand Union's Montgomery, New York warehouse. Grand
Union also contracts with a third party for frozen food distribution. Management
believes that Grand Union's existing agreements with C&S enhance the Company's
ability to offer consistently fresh and high-quality products to its customers
at favorable prices. Grand Union operates a 20,000 square foot commissary
located in Newburgh, New York, in which high quality cooked meat products,
salads, salad ingredients and soups are prepared for sale in the Company's
delicatessen departments.
Selected Data
The table below sets forth certain statistical information with respect to
Grand Union retail stores for the past three years.
<TABLE>
<CAPTION>
Fiscal Fiscal Fiscal
1998 1997 1996
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<S> <C> <C> <C>
Number of stores (at end of year) 222 226 229
Total selling square feet at end of year (in thousands) 4,353 4,312 4,305
Average sales per selling square foot per week $10.07 $10.28 $10.28
</TABLE>
Capital Investment
The Company's capital spending is directed towards renovating and upgrading
existing Grand Union stores and opening new and replacement stores in existing
marketing areas. Cash capital expenditures for Fiscal 1998 and 1997 were
approximately $40,000,000 and $55,000,000, respectively, excluding capital lease
additions of $22,000,000 and $23,000,000, respectively.
Management Information Systems
Financial, purchasing and operating system requirements are supported
through a central computer system located in Wayne, New Jersey. As of March 28,
1998, Grand Union utilized scanning systems in 188 stores (representing
approximately 94% of total sales) and intends to continue investing in scanning
and other store systems in the future where economically justified. See Item 7
for a discussion of Year 2000 compliance.
Employees
As of March 28, 1998, Grand Union had approximately 15,000 employees, of
whom approximately 67% were employed on a part-time basis. Approximately 50% of
Grand Union's employees are covered by 12 collective bargaining agreements with
various local unions.
On March 7, 1998, the Company entered into a new labor agreement with
United Food and Commercial Workers Local 464A (formerly 489) covering
approximately 161 clerks in 15 of the Company's stores in Westchester, Putnam
and Dutchess counties in New York. That agreement expires in July 2002.
Additionally, in April 1998 the Company reached an agreement with UFCW District
Union Local One covering employees in the Elizabethtown and Port Henry, New York
stores. The Local One agreements expire in September 2000. The Company's other
labor agreements expire between December 1998 and October 2001.
As of March 28, 1998, all employees covered by collective bargaining
agreements were employed at store locations and in the Company's Montgomery, New
York warehouse.
The Company believes that its relationship with its employees is generally
satisfactory.
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Trade Names, Service Marks and Trademarks
Grand Union owns and actively uses over 20 trade names, service marks and
trademarks (collectively, "Marks"). Among these Marks are "Grand Union"(R), the
symbol of a red dot, "Grand Classics"(R), "Big Gold Top"(R), "Holland Hall"(R),
and "Red Dot Special"(R), all of which are significant to the Company's
business. The Company also has common law rights in, has filed for, or intends
to file for various other Marks.
Common Stock Formerly Traded on NASDAQ SmallCap Market
On September 19, 1997, the NASDAQ Listing Qualifications Panel determined
that Grand Union's Common Stock no longer qualified for trading on the NASDAQ
National Market and would be transferred to the NASDAQ SmallCap Market. The
transfer to the NASDAQ SmallCap Market was completed as of the close of business
on October 21, 1997. By letter dated February 20, 1998, the NASDAQ Stock Market,
Inc. notified Grand Union that it had failed to satisfy the requirements for
continued listing on the NASDAQ SmallCap Market. Grand Union appealed the
decision regarding continued listing to the NASDAQ Listing Qualifications Panel.
In response to Grand Union's request for continued listing on the NASDAQ
SmallCap Market, the NASDAQ Stock Market, Inc. conducted a hearing upon written
submission on May 14, 1998 to consider Grand Union's request and determined that
continued listing was not warranted. Accordingly, the Common Stock was delisted
from the NASDAQ SmallCap Market effective as of the close of business on May 20,
1998. Since May 21, 1998, the Common Stock is eligible for quotation on the
Over-The-Counter Bulletin Board.
Financial Information about Foreign and Domestic Operations and Export Sales
Grand Union has no foreign operations or export sales.
Recent History
Downgrading
During the week of July 28, 1997, Moody's Investors Service Inc. downgraded
Grand Union's Credit Agreement rating to B-3 from B-2 and lowered the rating on
its Senior Notes to Caa3 from Caa1. The rating action was prompted by Grand
Union's announcement that, due to the shortfall in its operating performance, it
was in default of various financial covenants contained in the Credit Agreement.
August 1997 Amendment of Credit Agreement
and Prepetition Negotiations with Secured Banks
In August 1997, an amendment to the Amended and Restated Credit Agreement
(the "Credit Agreement"), among Grand Union, Bankers Trust Company, as Agent,
and the lenders party thereto (the "Secured Banks"), dated as of June 15, 1995,
as amended, was executed. As amended, the Credit Agreement is comprised of a
term loan, a revolving credit facility and a supplemental term loan. The term
loan is in the aggregate principal amount of $104,144,371.
The revolving credit commitment is for $67,877,649, of which a maximum of
$60,000,000 may be utilized in the form of letters of credit. The commitment
matures on June 15, 2000. In each year, no more than $40,000,000 of the
revolving credit facility may be outstanding in the form of borrowed money
(excluding letter of credit utilization) for any 30-day period between July 15th
and August 31st. As of June 26, 1998, an aggregate of $33,017,649 of letters of
credit were issued and outstanding under the Credit Agreement. Grand Union
incurs a commitment fee of 0.5% per annum on the average unused portion of the
revolving credit facility.
As part of the August 1997 amendment of the Credit Agreement, Grand Union
obtained the supplemental term loan to enable it, among other things, to make
its required September 1, 1997 interest payment on the Company's 12% Senior
Notes due 2004 (the "Senior Notes"). The supplemental term loan facility is in
an aggregate principal amount of $77,977,980, which matures on March 1, 2003.
The supplemental term loan increased the total amount available under the Credit
Agreement to $250 million. The supplemental term loan has no required
amortization and may be prepaid without penalty on or after August 31, 1998.
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The term loan and the revolving credit facility are secured by a lien and
security interest in substantially all of the tangible and intangible assets of
Grand Union, including the shares of its four subsidiaries and mortgages on a
majority of the Company's leaseholds. The supplemental term loan is subordinate
to the term loan and the revolving credit facility. It is secured by the same
lien and security interest that secures the term loan and revolving credit
facility but the rights of the lenders under the supplemental term loan in
respect of such lien and security interest are subordinate to the rights of the
lenders under the term loan and the revolving credit facility.
The term loan and revolving credit facility of the Credit Agreement bear
interest at the base rate (generally prime) plus 2% or the relevant one-, two-,
three- or six-month Eurodollar rate plus 3.75% (including standard yield
protection provisions). The supplemental term loan bears interest at 15% for the
first year of the loan, increasing by .50% every six months thereafter, payable
semiannually in arrears, plus additional interest accruing at 1% per annum
payable only after the term loan and revolving credit facility have been paid in
full and then only upon payment or prepayment of principal with respect to which
such additional interest has accrued. The term loan requires quarterly principal
payments of $13,018,046 from September 30, 2000 through June 15, 2002.
The Credit Agreement contains certain restrictions and financial covenants
relating to, among other things, minimum financial performance and limitations
on the incurrence of additional indebtedness, asset sales, dividends, capital
expenditures and prepayment of other indebtedness.
Notwithstanding the increased commitment provided under the August 1997
amendment to the Credit Agreement, due to a continuing lack of sufficient
liquidity, increasing competition and consolidation, and a shortfall in
operating margins, Grand Union determined that its financial resources would be
insufficient to satisfy the approximately $36 million interest payment due and
payable on March 2, 1998 on the Senior Notes. Grand Union did not make the March
2, 1998 interest payment to holders of the Senior Notes. The failure to make
such interest payment constituted a default under the Indenture governing the
Senior Notes and a cross-default under the Credit Agreement. Accordingly, in
February 1998, Grand Union commenced negotiations with the Secured Banks
regarding obtaining necessary waivers to avoid the consequences of an event of
default under the Credit Agreement and to facilitate the restructuring
contemplated by the Company's proposed plan of reorganization (the "Plan of
Reorganization"). Those negotiations resulted in an agreement by the Secured
Banks to waive certain defaults under the Credit Agreement, subject to the terms
and conditions of such waiver.
The Company's filing for relief under chapter 11 of the Bankruptcy Code
(see "Chapter 11 Filing" below") constituted a default under the Credit
Agreement and, therefore, the Company is not permitted to make any further
borrowings under the Credit Agreement. The Plan of Reorganization contemplates
debtor-in-possession financing which, upon court approval, will allow the
Company to refinance the term loan and the revolving credit facility under the
Credit Agreement. In addition, upon consummation of the Plan of Reorganization,
the Exit Facility (as defined below) will allow the Company to refinance the
supplemental term loan on or after August 31, 1998.
Prepetition Negotiations with the Unofficial Noteholder Committee
The same industry and financial pressures that required Grand Union to
commence negotiations with the Secured Banks also led the Company to commence
negotiations regarding a restructuring of its obligations with the holders of
the Senior Notes. In February and March 1998, eight institutions owning
approximately 48% of the Senior Notes agreed to serve on an unofficial
noteholder committee (the "Unofficial Noteholder Committee") and receive
confidential, non-public information about Grand Union.
Grand Union participated in extensive negotiations with the Unofficial
Noteholder Committee regarding the terms of a proposed financial restructuring.
During this time, Grand Union failed to make the approximately $36 million
interest payment due and payable on the Senior Notes on March 2, 1998, which
resulted in the occurrence of events of default under the Indenture governing
the Senior Notes and the Credit Agreement. Nevertheless, negotiations between
Grand Union and the Unofficial Noteholder Committee continued, and on March 30,
1998, the parties reached an agreement in principle on the terms of a
restructuring to be effectuated pursuant to a plan of reorganization under
chapter 11 of the Bankruptcy Code. On May 14, 1998, Grand Union, the Unofficial
Noteholder Committee and the holders of the Grand Union's preferred stock
reached an agreement in principle regarding the proposed treatment of the
preferred stock.
Chapter 11 Filing
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Pursuant to a Disclosure Statement, dated May 22, 1998 (the "Disclosure
Statement"), Grand Union commenced a prepetition solicitation of votes by the
holders of Senior Notes and preferred stock to accept or reject the Plan of
Reorganization. The Plan of Reorganization generally provides that trade and
business creditors will be unimpaired and will continue to be paid in the
ordinary course of business, so long as shipments are made to the Company under
terms at least equivalent to those in place prior to January 27, 1998. The Plan
of Reorganization further provides that (i) the Company's Senior Notes will be
cancelled and exchanged for all of the reorganized Company's common stock; (ii)
the Company's existing common stock will be cancelled and exchanged for
five-year warrants to purchase approximately 1.5% of the new common stock at an
exercise price of $19.82 per share; (iii) the Company's preferred stock will be
cancelled and exchanged for (a) five-year warrants to purchase approximately
10.5% of the new common stock at an exercise price of $19.82 per share, (b) five
year warrants to purchase approximately 2.5% of the new common stock at an
exercise price of $23.15 per share, and (c) four-year warrants to purchase
approximately 1% of the new common stock at an exercise price of $12.32 per
share; and (iv) the Company's outstanding warrants and stock options will be
cancelled. At the conclusion of the solicitation period, which commenced on May
22, 1998 and ended on June 22, 1998, the Plan of Reorganization had been
accepted by holders of approximately 99% of the Senior Notes in principal amount
and approximately 92% in number of such holders that voted on the Plan of
Reorganization and by all holders of the preferred stock that voted on the Plan
of Reorganization. Holders of approximately 72% in principal amount of the
outstanding Senior Notes voted to accept the Plan of Reorganization. Although
Grand Union believes that the Plan of Reorganization will satisfy all
requirements necessary for confirmation by the Court (as defined below), there
can be no assurance that the Court will reach the same conclusion. Moreover,
there can be no assurance that modifications of the Plan of Reorganization will
not be required for confirmation or that such modifications would not
necessitate the resolicitation of votes.
On June 24, 1998, the Company filed a voluntary petition for relief (the
"Filing") under chapter 11, Title 11 of the United States Code, as amended
("Chapter 11"), with the United States Bankruptcy Court for the District of New
Jersey (the "Bankruptcy Court"). The Company is in possession of its property
and is maintaining and operating its business as a debtor-in-possession pursuant
to the provisions of Sections 1107 and 1108 of Chapter 11.
In connection with the Filing, on June 24, 1998, the Company entered into a
$172,022,020 firm underwritten revolving credit agreement (the "DIP Facility")
with Swiss Bank Corporation ("SBC") and Lehman Commercial Paper Inc. ("LCPI"),
as agents for a syndicate of lenders (together, the "DIP Lenders"). The DIP
Facility consists of a revolving credit facility in an aggregate amount of
$172,022,020, inclusive of a $50 million letter of credit facility. Loans under
the DIP Facility will be guaranteed by each of the Company's subsidiaries. The
DIP Facility will mature upon the earlier of (i) October 22, 1998, or (ii) the
effective date of the Plan of Reorganization.
The proceeds of the DIP Facility will be used (i) to finance the working
capital needs of the Company and its subsidiaries in the ordinary course of
business, (ii) to finance the payment of Chapter 11 expenses, (iii) for general
corporate purposes and (iv) to refinance the revolving credit and term loans and
to replace, backstop or cash collateralize letters of credit outstanding under
the Credit Agreement. The DIP Facility also contains customary affirmative and
negative covenants, including, without limitation, restrictions on indebtedness,
liens, mergers, consolidations, liquidations, dissolutions, sales of assets and
capital expenditures, and, effective 60 days after the Filing, maintenance of
minimum EBITDA/interest and maximum debt/EBITDA ratios.
The DIP Facility is secured by substantially all of the assets of Grand
Union and its subsidiaries. The interest rate applicable to the DIP Facility
will be equal to, at Grand Union's election, either (i) 1.5% above the higher of
(A) Citibank's prime rate and (B) the federal funds rate plus 0.5%, or (ii) 2.5%
above the rate for eurodollar deposits for one, two or three weeks or one month
(as selected by Grand Union) in the interbank eurodollar market. Grand Union
committed to pay an underwriting fee of $1,100,000 and is required to pay a
$25,000 per month administrative fee. In addition, Grand Union will pay a
commitment fee of 0.5% per annum on the average daily unused portion of the DIP
Facility and a fronting fee of 0.125% on the aggregate undrawn face amount of
outstanding letters of credit. The availability of the DIP Facility is
conditioned, among other things, upon the entry of an order of the Bankruptcy
Court approving the DIP Facility, which is anticipated to occur 15 days after
the Filing.
On the date the Plan of Reorganization is consummated (the "Consummation
Date"), Grand Union will enter into a new credit facility (the "Exit Facility").
On April 23, 1998, Grand Union received a letter from SBC Warburg Dillon Read
Inc., SBC, Lehman Brothers Inc. and LCPI, pursuant to which SBC and LCPI
(collectively, the "Agent Banks") committed to provide financing to Grand Union
in the aggregate principal amount of $300 million upon consummation of the Plan
of Reorganization.
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The Agent Banks, as agents for a syndicate of banks, financing institutions and
other entities, including the Agent Banks (collectively, the "New Grand Union
Lenders"), will provide Grand Union with the Exit Facility. The Exit Facility
will be guaranteed by all of Grand Union's subsidiaries.
The Exit Facility will be comprised of: (i) a $230 million term loan
facility (the "Term Loan") and (ii) a $70 million revolving credit facility (the
"Revolving Credit Facility"). The Term Loan and Revolving Credit Facility will
mature on the fifth anniversary of the Consummation Date. The proceeds of the
Exit Facility will be used to refinance the obligations under the DIP Facility
and the Supplemental Term Loan claims under the Credit Agreement and the excess
portion will be used for the working capital needs of Grand Union and its
subsidiaries, including capital expenditures. Up to $50 million of the Revolving
Credit Facility will be available for the issuance of letters of credit. The
Exit Facility will also contain customary affirmative, financial and negative
covenants, including, without limitation, restrictions on liens, indebtedness
and mergers or consolidations, required maintenance of a minimum ratio of EBITDA
to interest and a maximum ratio of total indebtedness to EBITDA, and a
limitation on the amount of capital expenditures.
The Exit Facility will be secured by substantially all of the assets of
Grand Union and its subsidiaries. The interest rate applicable to the Term Loan
and the Revolving Credit Facility will be equal to, at Grand Union's election,
either (i) 2% above the higher of (A) the SBC's prime rate and (B) .50% over the
federal funds rate per annum (the "Base Rate"), or (ii) LIBOR plus 3%, in each
case, subject to reduction based on certain performance criteria. Grand Union
will pay a commitment fee calculated at the rate of .50% per annum on the
average daily unused portion of the Revolving Credit Facility. In addition,
Grand Union will pay certain fees, including but not limited to: (i) a fronting
fee equal to .125% per annum of the aggregate undrawn face amount of outstanding
letters of credit; (ii) an administration fee of $75,000 per annum; (iii) a
facility fee; and (iv) a commitment fee of 0.5% on the amount of the commitment
for the period from April 23, 1998 to the Consummation Date.
The availability of the Exit Facility is conditioned, among other things,
upon the Bankruptcy Court having entered an order confirming the Plan of
Reorganization on or before August 31, 1998. The terms of the Exit Facility were
the product of extensive negotiations and competitive bidding among Grand Union
and the Agents Banks, which resulted in the commitment letter for such exit
facility.
The 1995 Restructuring
On January 25, 1995, in connection with a capital restructuring plan
reached with its bank lenders and with members of informal committees of certain
holders of Grand Union notes, Grand Union filed a voluntary petition for relief
under chapter 11 of the Bankruptcy Code in the bankruptcy court for the District
of Delaware. The bankruptcy court confirmed on May 31, 1995 the Second Amended
Chapter 11 Plan of The Grand Union Company, dated as of April 19, 1995, and
Grand Union emerged from chapter 11 on June 15, 1995. Significant provisions of
the 1995 restructuring plan included:
1. Treatment of Administrative Claims
and General Unsecured Claims
The 1995 restructuring plan provided for the payment in full of all allowed
administrative claims and all allowed general unsecured and priority claims.
2. Bank Claims and Execution of Credit Agreement
The 1995 restructuring plan provided for the payment in full of obligations
under Grand Union's then existing bank credit agreement, including principal and
accrued interest. Concurrently, Grand Union entered into the Credit Agreement,
which provided for a five-year revolving credit facility of $100,000,000 and a
seven-year term loan facility of $104,144,371, secured by a lien on
substantially all of the assets of Grand Union and its subsidiaries.
3. Exchange of Senior Notes
The 1995 restructuring plan cancelled Grand Union's obligations under its
11.375% Senior Notes due 1999 and 11.25% Senior Notes due 2000, representing an
aggregate principal amount of $525,000,000 plus accrued interest, in exchange
for
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the issuance of $595,421,000 in aggregate principal amount of 12% Senior
Notes due 2004 and cash payments of $54,922 for fractional interest.
4. Cancellation of Subordinated Notes
and Issuance of Common Stock
The 1995 restructuring plan also cancelled Grand Union's obligations under
its 12.25% Senior Subordinated Notes due 2002, 12.25% Senior Subordinated Notes
due 2002, Series A and 13% Senior Subordinated Notes due 1998, representing an
aggregate principal amount of $566,150,000, in exchange for an aggregate of
10,000,000 shares of common stock.
5. Issuance of Warrants
The 1995 restructuring plan also provided for the issuance of warrants to
holders of 15% Senior Zero Coupon Notes due 2004 and 16.5% Senior Subordinated
Zero Coupon Notes due 2007, which warrants expire June 15, 2000, to purchase an
aggregate of 900,000 shares of common stock, pursuant to the terms of a
settlement reached among Grand Union, its then indirect parent companies, the
official committee of unsecured creditors of its then parent company, and
certain holders of notes issued by the parent company. The warrants are
comprised of 300,000 Series 1 Warrants to purchase shares of common stock at a
purchase price of $30 per share and 600,000 Series 2 Warrants to purchase shares
of common stock at a purchase price of $42 per share.
6. Cancellation of Remaining Long-Term
Debt and Common Stock Interests
The 1995 restructuring plan made no provision for the holders of the
remaining long-term debt, redeemable preferred stock, common stock or warrants
to purchase common stock of Grand Union's then direct parent.
Item 2. Properties
Grand Union conducts its operations primarily in leased stores and offices.
The following table indicates the location and number of stores as of March 28,
1998.
Number of
Locations Stores
--------- ---------
New York 122
New Jersey 41
Vermont 41
Connecticut 13
New Hampshire 3
Pennsylvania 2
---
Total 222
As of March 28, 1998, Grand Union owned 14 and leased 208 of its store
sites pursuant to commercial leases. Management believes no store lease is
individually material to Grand Union. Most store leases contain several renewal
options. Nineteen store leases do not contain renewal options and sixteen will
expire over the next five years and three thereafter. Management anticipates
that it will be able to renegotiate favorable lease terms for most of these
locations, if so desired.
Grand Union currently operates one distribution center in Montgomery, New
York, which is leased, and a commissary, which is housed in a building owned by
the Company on a ground-leased site in Newburgh, New York. Grand Union's lease
on its distribution center has 31 years remaining, including options. On May 20,
1998, the Company sold a 101,000 square foot warehouse in Waverly, New York,
which was previously vacant.
8
<PAGE>
Item 3. Legal Proceedings
Chapter 11 Proceedings. Reference is made to "Item 1 - Business - Recent
History" for information regarding the Company's Chapter 11 proceedings.
Environmental - Connecticut. Soil and ground water contamination has been
detected at a shopping center owned by Grand Union which is located in
Connecticut. The Company is investigating whether such contamination was caused
by improper disposal of perchloroethylene wastes by a dry cleaner previously
operating at this location or by an off-site source. Grand Union has undertaken,
under approval by the Connecticut Department of Environmental Protection, a
proposal for a remedial investigation designed to identify the sources of such
soil and ground-water contamination and to determine the length, depth and
breadth of the contamination on and off-site. Sampling analyses for the ground
water at the shopping center and for drinking water in private residences
located in the immediately surrounding area confirm that the source of the
on-site contamination, in part, is an off-site shopping center and a gasoline
station located nearby. A Remedial Action and Investigation Report was submitted
to the Connecticut Department of Environmental Protection on May 21, 1993. The
Company has not yet received a response from the Connecticut Department of
Environmental Protection, and is in the process of developing a revised
remediation plan.
The Company's potential responsibility does not arise from any aspect of
its operation of a supermarket at the shopping center but from the actions of a
former tenant. Any contamination caused on-site by a source located off-site
would be the responsibility of another party. The Company believes that the
current intention of the Connecticut Department of Environmental Protection is
to seek reimbursement of past costs and clean-up costs from some or all of these
other parties. The Company is unable to determine the amount of its potential
liability arising from the on-site contamination, but does not believe, based
upon the results of investigations made to date, that the amount of potential
liability is likely to be materially adverse to the Company's financial
condition. Management presently estimates, based upon investigations made by the
Company's environmental consultant to date, that such liability should not
exceed $1,000,000. Investigations are continuing, and there can be no assurance
that the amount of such liability will not exceed $1,000,000.
FTC Order. At the time of an acquisition of Grand Union in July 1989, Grand
Union and P&C Foods, then a subsidiary and currently a division of Penn Traffic,
operated stores in some of the same geographic areas in Vermont and upstate New
York. In order to satisfy the concerns of federal antitrust authorities arising
therefrom in connection with the acquisition, prior to consummation thereof MTH
Holdings, Inc. ("MTH Holdings"), which indirectly controlled Grand Union and
Penn Traffic, an affiliate of Miller Tabak Hirsch & Co., a New York Limited
Partnership, and Grand Union entered into an Agreement to Hold Separate with
Salomon Inc. and the Federal Trade Commission ("FTC") and an Agreement
Containing Consent Order (the "Order") with the FTC, which Order was
subsequently modified on February 16, 1996 (collectively, the "FTC Agreements").
The FTC Agreements required the divestiture by MTH Holdings and/or Grand
Union (including in each case their respective subsidiaries and affiliates) of
sixteen stores located in Vermont and upstate New York. Such divestitures were
completed on July 30, 1990. Thirteen of the sixteen stores divested were P&C
Foods stores and three of the sixteen stores divested were Grand Union stores.
In a related transaction, Grand Union and P&C Foods entered into an operating
agreement (the "Operating Agreement"), pursuant to which Grand Union acquired
the right to operate P&C Foods' thirteen remaining stores in New England under
the Grand Union name until July 2000, for an average annual rent of
approximately $10,700,000 with an option to extend the term of such operation
for an additional five years. Grand Union paid P&C Foods $7,500,000 for an
option to purchase the stores at an amount defined in the Operating Agreement.
Pursuant to the terms of the Operating Agreement, the 1992 Recapitalization
triggered a $15,000,000 prepayment obligation to P&C Foods. The Operating
Agreement was assumed during the 1995 Chapter 11 case and continues in effect.
The FTC Agreements also provide, among other things, that MTH Holdings and
Grand Union (including in each case their respective subsidiaries and
affiliates) shall not acquire, for a period of ten years, any retail grocery
stores in Vermont and certain specified counties in New York without the prior
notification to, and concurrence of, the FTC.
9
<PAGE>
Other Proceedings. The Company is also subject to certain other legal
proceedings and claims arising in connection with its business. It is
management's opinion that the ultimate resolution of such legal proceedings and
claims will not have a material adverse effect on the Company's consolidated
results of operations or its financial position.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of the Company's securityholders during
the fourth quarter of Fiscal 1998.
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholders'
Matters
The Common Stock of the Company is eligible for quotation on the
Over-The-Counter Bulletin Board. At the close of business on June 24, 1998,
there were 10,202,018 shares of Common Stock, $0.01 par value outstanding and
entitled to vote. There were approximately 4,000 holders of record as of June
24, 1998.
The quarterly market value of the Company's stock is discussed in Note 17
to the Consolidated Financial Statements.
No cash dividends were declared or paid during each of the three fiscal
years ended March 28, 1998. Payment of dividends to holders of Common Stock is
restricted by the Credit Facility and by the terms of the Senior Notes and the
preferred stock.
Item 6. Selected Financial Data
As discussed in Item 1, the Company emerged from its 1995 Chapter 11
proceedings effective June 15, 1995 (the "Effective Date"). For financial
reporting purposes, the Company accounted for the consummation of the 1995 plan
of reorganization effective June 17, 1995. In accordance with the American
Institute of Certified Public Accountants Statement of Position 90-7, "Financial
Reporting By Entities In Reorganization Under The Bankruptcy Code," the Company
had applied Fresh-Start Reporting as of the Effective Date which has resulted in
significant changes to the valuation of certain of the Company's assets and
liabilities, and to its stockholders' equity. In connection with the adoption of
Fresh-Start Reporting, a new entity has been deemed created for financial
reporting purposes. The periods prior to the Effective Date have been designated
"Predecessor Company" and the periods subsequent to the Effective Date have been
designated "Successor Company." All information is derived from the consolidated
financial statements of the Company. This information should be read in
conjunction with the historical financial statements of the Company, including
the notes thereto, included elsewhere herein. The financial statements prior to
the Effective Date reflect the accounts of MTH Holdings pushed down to the
accounts of Grand Union. All dollars are in millions, except per share data.
10
<PAGE>
<TABLE>
<CAPTION>
Successor Company Predecessor Company
----------------------------------- --------------------------------
52 Weeks 52 Weeks 41 Weeks 11 Weeks 52 Weeks 52 Weeks
Ended Ended Ended Ended Ended Ended
March 28, March 29, March 30, June 17, April 1, April 2,
1998 1997 1996 1995(**) 1995 1994
--------- --------- --------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Statement of Operations Data:
Sales $ 2,266.8 $ 2,312.7 $ 1,819.9 $ 487.9 $ 2,391.7 $ 2,477.3
Gross profit 639.5 705.7 569.9 143.8 708.3 731.7
Operating and administrative expenses 568.9 582.9 453.7 117.5 571.6 552.5
Depreciation and amortization 203.1 188.1 143.8 17.2 87.1 78.6
Unusual items 6.3 9.8 22.0 18.6 27.4 4.5
Interest expense, net 113.8 105.8 79.2 19.8 182.0 183.8
Loss before income taxes, extraordinary items
and cumulative effect of accounting change (252.6) (180.8) (128.8) (29.3) (159.8) (87.6)
Income tax (provision) benefit (51.4) (2.5) 18.9 - - -
Extraordinary gain on debt discharge - - - 854.8 - -
Cumulative effect of accounting change - - - - - 30.3
Net (loss) income (304.0) (183.4) (109.9) 825.5 (159.8) (118.0)
Net (loss) applicable to common stock (312.4) (185.4) - - - -
Net (loss) per common share (*) (31.1) (18.5) (11.0) - - -
Deficiency in earnings available to
cover fixed charges (252.6) (180.8) (128.8) (29.3) (159.8) (87.6)
Balance Sheet Data:
Total assets 892.2 1,071.8 1,178.2 - 1,394.8 1,394.2
Total debt and capital lease obligations 959.5 888.4 875.1 - 1,614.9 1,532.2
Redeemable stock 113.4 65.0 - - 174.2 154.7
Nonredeemable stock and stockholders' equity (466.6) (153.2) 44.1 - (824.3) (644.8)
(deficit)
Operating and Other Data:
Capital expenditures $ 39.7 $ 55.1 $ 43.0 $ 3.0 $ 70.8 $ 86.2
Number of stores at year end 222 226 229 N/A 231 254
</TABLE>
(*) Loss per share data is not meaningful for periods prior to the Effective
Date due to the significant changes in the capital structure of the
Company.
(**) Balance sheet data is not applicable at this date.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
General
As discussed in Item 1, the Company emerged from its 1995 Chapter 11
proceedings effective June 15, 1995 (the "Effective Date"). For financial
reporting purposes, the Company accounted for the consummation of the 1995 plan
of reorganization effective June 17, 1995. In accordance with the American
Institute of Certified Public Accountants Statement of Position 90-7, "Financial
Reporting By Entities In Reorganization Under The Bankruptcy Code," the Company
had applied Fresh-Start Reporting as of the Effective Date which has resulted in
significant changes to the valuation of certain of the Company's assets and
liabilities, and to its stockholders' equity. In connection with the adoption of
Fresh-Start Reporting, a new entity had been deemed created for financial
reporting purposes. The periods prior to the Effective Date have been designated
"Predecessor Company" and the periods subsequent to the Effective Date have been
designated "Successor Company." For purposes of the discussion of Results of
Operations and Liquidity and Capital Resources, the results of the Predecessor
Company and Successor Company for the 52 weeks ended March 30, 1996, have been
combined.
11
<PAGE>
Results of Operations
The following table sets forth-certain statement of operations data
reflecting the combination discussed above (all dollars in millions):
<TABLE>
<CAPTION>
Fiscal Fiscal Fiscal
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Sales $ 2,266.8 $ 2,312.7 $ 2,307.8
Gross profit 639.5 705.7 713.7
Operating and administrative expenses 568.9 582.9 571.2
Depreciation and amortization 98.8 85.5 77.1
Amortization of excess reorganization value 104.3 102.6 84.0
Unusual items 6.3 9.8 40.6
Interest expense, net 113.8 105.8 99.0
Income tax (provision) benefit (51.4) (2.5) 18.9
Extraordinary gain on debt discharge - - 854.8
Net (loss) income (304.0) (183.4) 715.6
Net (loss) income applicable to common stock (312.4) (185.4) 715.6
Sales percentage increase (decrease) (2.0)% 0.2% (3.5)%
Gross profit as a percentage of sales 28.2% 30.5% 30.9%
Operating and administrative expenses as a percentage of sales 25.1% 25.2% 24.7%
</TABLE>
The Company announced on January 27, 1998, that it had retained the firm of
Salomon Smith Barney as financial advisor to evaluate various financial
alternatives available, including a capital restructuring, which affected the
Company's operations in several ways. The majority of the trade reacted
favorably to the announcement. However, there were some significant exceptions,
which negatively affected product availability, associated costs and promotional
opportunities.
Sales for Fiscal 1998 decreased $45.9 million or 2.0% compared to Fiscal
1997. The decrease for same store sales (sales of stores which were operated
during the comparable periods of both fiscal years) in Fiscal 1998 was 0.9%.
Competitors continued to open new locations and remodel stores at a more
aggressive rate than the Company. Same store sales results, by quarter for
Fiscal 1998, beginning with the first quarter, were (1.8)%, (1.6)%, 0.8% and
(0.8)%. Same store sales comparisons were negatively influenced by the inclusion
of two Easter periods in the prior fiscal year. Due to the timing of the Easter
holiday in calendar 1998, there was no Easter selling period in the current
fiscal year while Fiscal 1997 included two. Adjusting the prior year sales to
exclude the Easter holiday effect, same store sales for Fiscal 1998 decreased
approximately 0.04%. Same store sales for the Fiscal 1998 fourth quarter
excluding Easter increased approximately 0.7%. The new management team and their
marketing strategies favorably affected sales in the second half of Fiscal 1998
and to some extent mitigated competitor marketing programs. During Fiscal 1998
the Company opened two new stores, two replacement stores and closed eight
stores. Sales for Fiscal 1997 increased $4.9 million or 0.2% compared to Fiscal
1996. Same store sales changes, by quarter for Fiscal 1997, beginning with the
first quarter, were 1.0%, 2.0%, (0.8)% and (0.4)% versus the prior year. During
Fiscal 1997, the Company opened one new store, two replacement stores, completed
six major renovations, and closed four stores.
Gross profit as a percentage of sales was 28.2% in Fiscal 1998 compared to
30.5% in Fiscal 1997. The decrease in gross profit is primarily attributable to
a reduction in promotional income and instability in margin rates in the first
half of the fiscal year. Margins stabilized in the second half primarily as a
result of new management strategies partially mitigating the negative effects of
the January 27, 1998 announcement. Gross profit as a percentage of sales was
30.5% in Fiscal 1997 compared to 30.9% in Fiscal 1996.
12
<PAGE>
Operating and administrative expenses as a percentage of sales were 25.1%
during Fiscal 1998, compared to 25.2% during Fiscal 1997. Operating and
administrative expenses as a percentage of sales were 25.2% during Fiscal 1997,
compared to 24.7% during Fiscal 1996.
Depreciation and amortization of $98.8 million in Fiscal 1998 was $13.3
million higher than the prior year's $85.5 million. The increase was primarily
due to the provisions of Financial Accounting Standards No. 121 ("FAS No. 121"),
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of" netted against new and closed store activity. FAS No. 121
resulted in a review of the Company's operating assets for impairment at the
individual store level using a future cash flow and market value approach. For
those store level assets where the remaining net book value exceeded the sum of
estimated future operating cash flows, an impairment loss of $25.0 million was
recognized for the excess of net book value over estimated fair value. The
increase in depreciation and amortization expense during Fiscal 1997 was largely
attributable to the application of FAS No. 121, whereby $6.4 million of an
impairment loss was recorded to reduce the estimated fair value of certain store
assets.
Unusual items recorded in Fiscal 1998 consisted of (a) $2.7 million in
connection with legal, advisory and bank fees associated with the Plan of
Reorganization, (b) a $3.0 million charge to supplement a reserve set at fiscal
year end 1997 for the reorganization of the Company during Fiscal 1998 and (c)
additional charges of $665,000 for legal costs to supplement a reserve created
as a result of the Company's Chapter 11 filing in calendar year 1995. Unusual
items in Fiscal 1997 consisted of (a) a $7.8 million provision for restructuring
which principally relates to severance costs in connection with a reduction of
administrative overhead and (b) a $2.0 million adjustment of inventory
valuation. Unusual items in Fiscal 1996 consisted of (a) a $2.5 million
organizational restructuring provision, (b) a $15.0 million provision related to
the closure of the Company's two New York metropolitan area warehouses, (c) a
$4.5 million provision relating to a voluntary resignation program and (d) $18.6
million of restructuring charges incurred in connection with the 1995 Chapter 11
proceedings.
Interest expense was $113.8 million in Fiscal 1998 compared to $105.8
million in the prior year. This expense includes the accrual for the March 2,
1998 interest payment on the Senior Notes that was not paid. The increase in
interest expense in Fiscal 1998 compared to the prior year primarily resulted
from the supplemental term loan facility negotiated in August 1997, as part of
the Credit Agreement. The increase in interest expense in Fiscal 1997 compared
to Fiscal 1996 is principally a result of higher capitalized lease costs and
renegotiated debt related to the Company's emergence from bankruptcy.
The income tax provision for Fiscal 1998 was $51.4 million compared to a
provision of $2.5 million in Fiscal 1997. The income tax provision for Fiscal
1998 represents the establishment of a valuation allowance for the Company's
remaining deferred tax asset relating to temporary differences. During Fiscal
1997, the Company recorded an income tax provision of $2.5 million. The Company
wrote down $8.5 million of the previously recorded income tax benefits and
recorded a valuation allowance for the balance of the previously recorded
benefits relating to the use of operating loss carryforwards.
Liquidity and Capital Resources
Chapter 11 Filing
Pursuant to the Disclosure Statement, Grand Union commenced a
prepetition solicitation of votes by the holders of Senior Notes and preferred
stock to accept or reject the Company's proposed Plan of Reorganization. The
Plan of Reorganization generally provides that trade and business creditors will
be unimpaired and will continue to be paid in the ordinary course of business,
so long as shipments are made to the Company under terms at least equivalent to
those in place prior to January 27, 1998. The Plan of Reorganization further
provides that (i) the Company's Senior Notes will be cancelled and exchanged for
all of the reorganized Company's common stock; (ii) the Company's existing
common stock will be cancelled and exchanged for five-year warrants to purchase
approximately 1.5% of new common stock at an exercise price of $19.82 per share;
(iii) the Company's preferred stock will be cancelled and exchanged for (a)
five-year warrants to purchase approximately 10.5% of the new common stock at an
exercise price of $19.82 per share, (b) five-year warrants to purchase
approximately 2.5% of the new common stock at an exercise price of $23.15 per
share, and (c) four-year warrants to purchase approximately 1% of the new common
stock at an exercise price of $12.32 per share; and (iv) the Company's warrants
and stock options will be cancelled. At the conclusion of the solicitation
period, which commenced on May 22, 1998 and ended on June 22, 1998, the Plan of
Reorganization had been accepted by the requisite vote of the holders of the
Senior Notes and by all holders of the preferred stock. Although Grand Union
believes that the Plan of Reorganization will satisfy all
13
<PAGE>
requirements necessary for confirmation by the Bankruptcy Court, there can be no
assurance that the Court will reach the same conclusion. Moreover, there can be
no assurance that modifications of the Plan of Reorganization will not be
required for confirmation or that such modifications would not necessitate the
resolicitation of votes. On June 24, 1998, the Company filed a voluntary
petition for relief under chapter 11 with the Bankruptcy Court.
As previously reported, in recent months, the Company had been experiencing
liquidity problems and had been unable to borrow the funds necessary to pay the
interest due on its Senior Notes and finance its working capital and other
business needs.
Since March 2, 1998, the Company has been in default of its obligations
under the Senior Notes and operating with waivers of cross defaults under the
Credit Agreement. As of June 24, 1998, the Company has approximately $22
million of borrowings and approximately $33 million of outstanding trade
letters of credit. In addition, the Filing by the Company constitutes an
automatic default under the Credit Agreement.
In connection with the Filing, on June 24, 1998, the Company entered into a
$172,022,020 revolving credit agreement (the "DIP Facility") with SBC and LCPI
(together, the "DIP Lenders"). The DIP Facility consists of a revolving credit
facility in an aggregate amount of $172,022,020, inclusive of a $50 million
letter of credit facility. Loans under the DIP Facility will be guaranteed by
each of the Company's subsidiaries. The DIP Facility will mature upon the
earlier of (i) October 22, 1998 or (ii) the effective date of the Plan of
Reorganization.
The proceeds of the DIP Facility will be used (i) to finance the
working capital needs of the Company and its subsidiaries in the ordinary course
of business, (ii) to finance the payment of Chapter 11 expenses, (iii) for
general corporate purposes and (iv) to refinance the revolving credit and term
loans and to replace, backstop or cash collateralize letters of credit
outstanding under the Company`s existing Credit Agreement.
The DIP Facility is secured by substantially all of the assets of Grand
Union and its subsidiaries. The interest rate applicable to the DIP Facility
will be equal to, at Grand Union's election, either (i) 1.5% above the higher of
(A) Citibank's prime rate and (B) the federal funds rate plus 0.50%, or (ii)
2.5% above the rate for eurodollar deposits for one, two or three weeks or one
month (as selected by Grand Union) in the interbank eurodollar market. Grand
Union will pay an underwriting fee of $1,100,000 and is required to pay a
$25,000 per month administrative fee. In addition, Grand Union pays a commitment
fee of 0.5% per annum on the average daily unused portion of the DIP Facility
and a fronting fee of 0.125% on the aggregate undrawn face amount of outstanding
letters of credit. The availability of the DIP Facility is conditioned, among
other things, upon the entry of an order of the Bankruptcy Court approving the
DIP Facility, which is anticipated to occur 15 days after the Filing.
On the Consummation Date, Grand Union will enter into the Exit Facility. On
April 23, 1998, Grand Union received a letter from SBC Warburg Dillon Read Inc.,
SBC, Lehman Brothers Inc. and LCPI, pursuant to which Swiss Bank Corporation and
Lehman Commercial Paper Inc. (collectively, the "Agent Banks") committed to
provide financing to Grand Union in the aggregate principal amount of $300
million upon consummation of the Plan of Reorganization. The Agent Banks, as
agents for a syndicate of banks, financing institutions and other entities,
including the Agent Banks (collectively, the "New Grand Union Lenders"), will
provide Grand Union with the Exit Facility. The Exit Facility will be guaranteed
by all of Grand Union's subsidiaries.
The Exit Facility will be comprised of: (i) a $230 million term loan
facility (the "Term Loan") and (ii) a $70 million revolving credit facility (the
"Revolving Credit Facility"). The Term Loan and Revolving Credit Facility will
mature on the fifth anniversary of the Consummation Date. The proceeds of the
Exit Facility will be used to refinance the obligations under the DIP Facility
and the Supplemental Term Loan claims under the existing Credit Agreement and
the excess portion will be used for the working capital needs of Grand Union and
its subsidiaries, including capital expenditures. Up to $50 million of the
Revolving Credit Facility will be available for the issuance of letters of
credit. The Exit Facility will be secured by substantially all of the assets of
the Company and its subsidiaries. The availability of the Exit Facility is
conditioned, among other things, upon the Bankruptcy Court having entered an
order confirming the Plan of Reorganization on or before August 31, 1998.
As of March 28, 1998, the Company had $17 million of borrowings and
approximately $44 million of letters of credit outstanding under its $68
million revolving credit facility.
14
<PAGE>
Significant expenditures and resources used to finance such
expenditures for the three fiscal years ended March 28, 1998 are reflected in
the following table (in millions):
<TABLE>
<CAPTION>
Fiscal Fiscal Fiscal
1998 1997 1996
------ ------ ------
<S> <C> <C> <C>
Resources used:
Debt and capital lease repayments $ 27.8 $ 18.5 $ 102.0
Capital expenditures 39.7 55.1 43.7
Loan placement fees 9.8 - 3.1
Operating activities 36.1 - 49.4
============= ============= =============
$ 113.4 $ 73.6 $ 198.2
============= ============= =============
Financed by:
Net proceeds from sale of Class A Preferred Stock $ 40.0 $ 51.0 $ -
Net proceeds from long-term debt 78.0 9.0 -
Proceeds from New Bank Facility - - 137.2
Property disposals 5.9 8.0 11.0
Operating activities - 0.4 -
------------- ------------- -------------
$ 123.9 $ 68.4 $ 148.2
============= ============= =============
</TABLE>
Year 2000 Compliance
The Company is working to assure business continuity with respect to the
issues which are anticipated to arise related to the calendar year 2000. The
Company is aware of many of the types of problems that could occur as the
millennium approaches and is assessing any exposure from a product, services and
systems standpoint, and working with customers, suppliers and partners. The
Company intends to address all Year 2000 issues as they are identified. The
Company's goal is to achieve maximum compliance both internally and externally.
As part of the Company's goal to achieve year 2000 compliance, it will seek
"millennium certification" and/or representations and warranties from suppliers,
vendors and business partners about their Year 2000 compliance. The Company's
Year 2000 effort is being coordinated by a Year 2000 Steering Committee
comprised of several officers of the Company. Within the Company, resources are
being committed, and projects are being planned and undertaken as required with
the goal of achieving Year 2000 compliance. Based on current information, costs
of addressing potential problems are not expected to have a material adverse
impact on the Company's financial position, results of operations or cash flows
in future periods. However, if the Company, its customers or vendors are unable
to resolve such processing issues in a timely manner, it could result in a
material financial risk.
Impact of New Accounting Standards
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income," ("SFAS No. 130") effective for fiscal years beginning after December
15, 1997. SFAS No. 130 requires the reporting and display of comprehensive
income and its components in an entity's financial statements.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 131, "Disclosures about Segments of an
Enterprise and Related Information," (SFAS 131) effective for fiscal years
beginning after December 15, 1997. SFAS 131 provides accounting guidance for
reporting information about operating segments and requires both interim and
annual segment reporting.
In February 1998, the FASB issued Statement of Financial Accounting
Standards No. 132, Employers' Disclosures about Pensions and Other
Postretirement Benefits ("SFAS No. 132"), which will be effective for financial
statements beginning after
15
<PAGE>
December 15, 1997. SFAS No. 132 revises employers' disclosure about pension and
other postretirement benefit plans. It does not change the measurement or
recognition of those plans.
These statements, which will be adopted by the Company in Fiscal 1999,
affect financial statement presentation and disclosure but will not have an
impact on the Company's consolidated financial position or results of
operations.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," ("SFAS No. 133") effective for fiscal
quarters of fiscal years beginning after June 15, 1999. SFAS No. 133 requires
that an entity recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair value.
The Company currently does not have any derivative instruments and, therefore,
does not expect the adoption of this SFAS to have an effect on the Company's
financial position or results of operations.
Future Outlook
Upon the Consummation of the Plan of Reorganization, the Company will be in
a position to aggressively pursue opportunities that it could not previously.
Due to an historically overleveraged balance sheet, the Company has had
insufficient resources to appropriately fund capital expenditures. The
significant reduction in debt, and the attendant reduction in interest expense,
to be effected by a reorganization of the Company, together with the execution
of the Exit Facility, will provide the Company with substantially improved
liquidity, $50 million of which will be available upon emergence. This
substantial reduction of debt and the availability of new funds should enable
the Company to execute a capital expenditure program that will enhance the
operations, profitability and competitiveness of the Company. The marketing
strategies of the new senior management team instituted in the second half of
Fiscal 1998 will continue. The Company has determined that to maximize
profitability, it should (i) expand its existing store base, including the
development of new stores and the remodeling of existing units; (ii) implement a
program for maximizing advertising and promotion allowance revenues from the
company's suppliers; and (iii) perform ongoing evaluation and, when appropriate,
close or modify store locations that are not adequately contributing. The
Company remains committed to building its sales base in existing stores. An
objective of reducing operating costs in both the stores and administration will
continue in conjunction with the focus on improving store conditions and
customer service.
Special Note Concerning Forward-Looking Statements
Except for historical information, statements by the Company under the
caption "Future Outlook" and elsewhere in this report may be considered
"forward-looking statements" within the meaning of federal securities law. Such
forward-looking statements are subject to risks, uncertainties and other factors
that could cause actual results to differ materially from future results
expressed or implied by such forward-looking statements. Potential risks and
uncertainties include, but are not limited to, the competitive environment in
which the Company operates, the ability of the Company to maintain and improve
its gross sales and margins, the liquidity of the Company on a cash flow basis
(including the Company's ability to comply with the financial covenants of its
credit agreement and to fund the Company's capital expenditure program), the
Company's ability to complete its capital expenditures on a timely basis, the
success of operating initiatives, the viability of the Company's strategic plan,
regional weather conditions, and the general economic conditions in the
geographic areas in which the Company operates. Although Grand Union believes
that the Consummation Date will occur within the next two months, there can be
no assurance as to such timing or as to the Consummation of the Plan of
Reorganization.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Not applicable.
Item 8. Financial Statements and Supplementary Data
The Financial Statements and Supplementary Data listed below are included
in this report on the page indicated.
Index to Financial Statements:
<TABLE>
Document Page
<S> <C>
Reports of Independent Accountants F-1
Consolidated Statement of Operations for the 52 weeks ended March 28, 1998 and
March 29, 1997 and the 41 weeks ended March 30, 1996 (Successor Company)
and the 11 weeks ended June 17, 1995 (Predecessor Company) F-3
</TABLE>
16
<PAGE>
<TABLE>
<S> <C>
Consolidated Balance Sheet at March 28, 1998 and March 29, 1997 F-4
Consolidated Statement of Cash Flows for the 52 weeks ended March 28, 1998 and
March 29, 1997 and the 41 weeks ended March 30, 1996 (Successor Company)
and the 11 weeks ended June 17, 1995 (Predecessor Company) F-5
Notes to Consolidated Financial Statements F-6
All other schedules are omitted either because they are not applicable or
the required information is disclosed in the consolidated financial statements
or notes thereto.
</TABLE>
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
PART III
Item 10. Directors and Executive Officers of the Registrant
The names, ages and present principal occupations of the directors and
executive officers of Grand Union as of June 26, 1998, are set forth below.
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
J. Wayne Harris.................................. 59 Director, Chairman and Chief Executive Officer
Jack W. Partridge, Jr............................ 53 Director, Vice Chairman and Chief Administrative Officer
Gary M. Philbin.................................. 41 Director, President and Chief Merchandising Officer
Jeffrey P. Freimark.............................. 43 Executive Vice President and Chief Financial Officer
Raymond H. Ayers................................. 53 Corporate Vice President, Real Estate
L. Andrew DePaolis............................... 55 Corporate Vice President, Advertising and Marketing
Jasper S. Meadows................................ 47 Corporate Vice President, Grocery and General Merchandising
Francis E. Nicastro.............................. 56 Corporate Vice President and Treasurer
Glenn J. Smith................................... 34 Corporate Vice President, General Counsel and Assistant Secretary
Donald C. Vaillancourt........................... 53 Corporate Vice President, Public Affairs Counsel and Secretary
Jordan H. Krimstein.............................. 67 Director
Mark H. Manski................................... 46 Director
Martha A. Pritchard.............................. 42 Director
</TABLE>
Mr. Harris has been a Director, Chairman and Chief Executive Officer of the
Company since August 1, 1997. From September, 1992 until joining the Company,
Mr. Harris served as: Senior Vice President, North East Operations, The Great
Atlantic and Pacific Tea Company ("A&P"), a leading supermarket chain; Executive
Vice President and Chief Operating Officer for A&P's US Operations; and, most
recently, Chairman and Chief Executive Officer of A&P Canada, Ltd. Between 1986
and 1992, Mr. Harris was President of the Cincinnati/Dayton Division of The
Kroger Company ("Kroger"), the largest food retailer in the United States.
Mr. Partridge has been a Director of Grand Union since January 15, 1998 and
was elected Vice Chairman and Chief Administrative Officer effective January 5,
1998. Mr. Partridge joined Grand Union after a 23-year career with Kroger, where
he served as Group Vice President and a member of the company's Senior
Management Committee.
Mr. Philbin has been a Director of the Company since October 30, 1997, and
was elected President and Chief Merchandising Officer of the Company on October
3, 1997. From June, 1996 until joining the Company, Mr. Philbin was Executive
Vice President in charge of Merchandising and Operations for the Cub Food Store
Division of SuperValu, Inc. Before joining Cub Foods, Mr. Philbin was Vice
President of Merchandising with the Waldbaum's Division of A&P from July,
17
<PAGE>
1993. Prior to his employment with Waldbaum's, Mr. Philbin served in
merchandising and operations capacities with Kroger commencing in January 1990.
Mr. Freimark has been the Company's Executive Vice President and Chief
Financial Officer since March 3, 1997. From March 3, 1997, to January 5, 1998,
Mr. Freimark also served as the Company's Chief Administrative Officer. Prior to
joining the Company, Mr. Freimark served as Executive Vice President and Chief
Financial Officer of Pueblo Xtra International, Inc., a leading supermarket
chain in the Commonwealth of Puerto Rico and the Territory of the U.S. Virgin
Islands, from 1992 and as Senior Vice President, Finance, Administration and
Treasurer beginning in 1986. Prior to that he was Vice President-Finance and
Corporate Secretary of Kings Super Markets, Inc., a New Jersey supermarket
chain.
Mr. Ayers has been the Corporate Vice President in charge of Real Estate
since 1988. He has been with the Company for 30 years. Prior to his present
position, Mr. Ayers served in several capacities in the Real Estate Department,
starting in 1968, as a trainee.
Mr. DePaolis has been the Corporate Vice President in charge of Advertising
and Marketing since 1996. Mr. DePaolis served as Corporate Vice President of
Advertising and Sales Promotion from 1990 until 1996 when he was appointed to
his present position. Mr. DePaolis joined the Company in 1968, spending most of
his time in the Advertising Department.
Mr. Meadows has been Corporate Vice President in charge of Grocery and
General Merchandise since May 1997. Preceding that Mr. Meadows served in various
positions in the Company's Grocery and General Merchandise Department. He joined
the Company in 1972 as a trainee in our stores.
Mr. Nicastro has been Corporate Vice President and Treasurer of the Company
since September 1989. Prior to that, he spent 20 years with the Singer Company,
a manufacturing company, the last three of which were as Treasurer.
Mr. Smith has been Corporate Vice President, General Counsel and Assistant
Secretary since February 1998. Mr. Smith commenced his employment with Grand
Union in August 1995 as Director of Labor Relations and Employment Practices. He
was promoted to Vice President of Labor and Employment Counsel in May 1997 and
to Vice President, General Counsel and Assistant Secretary in August 1997. Prior
to joining Grand Union, Mr. Smith was an Associate with the law firm of Grotta,
Glassman and Hoffman, P.A., in Roseland, New Jersey from September 1991 to
August 1995.
Mr. Vaillancourt has been Corporate Vice President, Public Affairs Counsel
and Secretary since June, 1997. Prior to that he served in a number of
capacities with the Company. Effective January 1985, Mr. Vaillancourt became
Corporate Vice President, Corporate Communications and Consumer Affairs.
Effective January 1980, he was appointed Vice President, Corporate
Communications and Consumer Affairs. Effective October 1976, he became Director,
Corporate Communications and Consumer Affairs. In December 1971, he was promoted
to Assistant to the Director of Public Relations.
Mr. Krimstein has been a Director since October 30, 1997. Mr. Krimstein
currently serves as the National President of the School of the Art Institute of
Chicago Alumni Association and is a member of the School's Board of Governors.
In 1995, Mr. Krimstein retired from his position as Executive Vice President and
Executive Creative Director for the Chicago office of Campbell, Mithun, Esty,
Inc., a large advertising agency headquartered in Minneapolis, Minnesota. Mr.
Krimstein was with Campbell, Mithun, Esty, Inc. for 38 years in a variety of
positions.
Mr. Manski has been a Director since October 30, 1997. Mr. Manski has been
President and Founder of the RoundHill Group, Ltd., since 1994. The firm
specializes in strategic, operational, management and financial advisory
services to middle market companies. From 1993 to 1994, Mr. Manski was President
and Chief Executive Officer of The Direct Marketing Group, Inc. ("DMG"), a large
independent full service direct response marketing firm. From 1983 until joining
DMG, Mr. Manski was with IBJ Schroder Bank & Trust Company, where he was a
Senior Vice President and deputy head of the bank's Credit Division.
Ms. Pritchard has been a Director since October 30, 1997. Ms. Pritchard is
a Principal of Bick Capital Advisors, Inc., a financial advisory firm. From 1995
to 1997, Ms. Pritchard was a founding partner and Managing Director, Head of
High Yield Bond Sales for Toronto Dominion Securities (USA), Inc., an investment
banking firm. From 1991 to 1994, Ms. Pritchard was Vice President, High Yield
Bond Sales with Salomon Brothers, Inc., an investment banking firm. Prior to
that, Ms. Pritchard worked with Dillon, Read & Co., Inc., Salomon Brothers, Inc,
and The Bank of New York.
18
<PAGE>
Executive officers of the Company are appointed and serve at the discretion
of the Board of Directors. Each director of the Company is elected for a period
of one year and will serve until his or her successor is duly elected and
qualified. On the Consummation Date, the Board of Directors of Grand Union shall
consist of eleven members, eight of whom shall be selected by the Unofficial
Noteholder Committee and three of whom shall be Messrs. Harris, Partridge, and
Philbin, who shall serve as directors for the entire term of their employment
agreements. Notwithstanding the foregoing, the Board of Directors may consist of
fewer than eleven members so long as, unless the Unofficial Noteholder Committee
agrees otherwise, the members of the Board of Directors who are not either Mr.
Harris, Mr. Partridge or Mr. Philbin have at least five-sevenths (5/7ths) of the
voting power on the Board of Directors.
In addition, the following individuals served as directors or executive
officers of the Company during Fiscal 1998:
<TABLE>
<CAPTION>
Name Positions Served through
- ---- --------- --------------
<S> <C> <C>
Roger E. Stangeland.............................. Director, Chairman Emeritus April 22, 1998
Chairman of the Board and Chief Executive Officer October 1, 1997
James J. Costello................................ Director April 22, 1998
Geoffrey T. Moore................................ Director April 22, 1998
Clifford A. Miller............................... Director April 22, 1998
J. Richard Stonesifer............................ Director April 22, 1998
Gilbert C. Vuolo................................. Senior Vice President, Human Resources and Labor March 3, 1998
Relations
William E. Kinslow............................... Corporate Vice President, Management Information October 3, 1997
Systems
William G. Kagler................................ Director August 26, 1997
Daniel E. Josephs................................ Director August 8, 1997
David Y. Ying.................................... Director July 28, 1997
John W. Schroeder................................ Vice President, General Counsel and Secretary May 15, 1997
Joseph J. McCaig................................. Director, President and Chief Executive Officer May 7, 1997
</TABLE>
Item 11. Executive Compensation
Executive Compensation
The following table sets forth compensation paid or accrued by the Company
during the three fiscal years ended March 28, 1998 ("Fiscal 1998"), March 29,
1997 ("Fiscal 1997") and March 30, 1996 ("Fiscal 1996"), to the Company's Chief
Executive Officer, four other executive officers, and two other executive
officers who separated from the Company during Fiscal 1998, one of whom served
as the Company's Chief Executive Officer during Fiscal 1998 and another whose
salary and bonus exceeded $100,000 for Fiscal 1998 (collectively, the "Named
Executive Officers"), for services rendered to the Company and its subsidiaries
in all capacities during such three fiscal year period:
19
<PAGE>
<TABLE>
<CAPTION>
Long Term
Compensation
Annual Compensation Awards
------------------------------ Securities
Underlying All Other
Name and Principal Position Year Salary($) Bonus ($)(1) Options/SARs(#) Compensation ($)(2)
---- --------- ------------ --------------- -------------------
<S> <C> <C> <C> <C> <C>
J. Wayne Harris............ 1998 394,402 415,384 1,250,000 118,693
Chairman and Chief
Executive Officer
Gary M. Philbin............ 1998 168,347 168,269 450,000 27,685
President and Chief
Merchandising Officer
Jeffrey P. Freimark........ 1998 330,436 222,000 95,000 643,205
Executive Vice
President and Chief
Financial Officer
Francis E. Nicastro........ 1998 173,100 29,760 6,500 6,752
Corporate Vice 1997 160,484 0 0 6,355
President and Treasurer 1996 149,858 36,838 5,800 4,411
Raymond H. Ayers......... 1998 157,242 32,788 15,000 6,460
Corporate Vice
President Real Estate
FORMER EXECUTIVES
Joseph J. McCaig 1998 91,745 16,246 0 1,101,085
President and Chief 1997 538,462 39,939 0 13,221
Executive Officer 1996 454,310 90,000 47,800 181,786
Gilbert C. Vuolo............ 1998 182,308 0 0 204,858
Senior Vice President, 1997 188,715 0 0 4,920
Human Resources 1996 145,792 29,440 6,560 4,244
</TABLE>
- -----------
The "Other Annual Compensation" column was omitted since the aggregate amount of
perquisites and other personal benefits in respect of Fiscal 1998, Fiscal 1997,
and Fiscal 1996 is less than the lower of $50,000 or 10% of the total annual
salary and bonus reported for each of the Named Executive Officers and no other
compensation of the type required to be described in the "Other Annual
Compensation" column was paid in Fiscal 1998, Fiscal 1997, or Fiscal 1996.
(1) Included in the "Bonus" column for Fiscal 1998 are amounts paid during
the fiscal year ending April 3, 1999 for performance in Fiscal 1998. For
Fiscal 1997 the amounts in the "Bonus" column represent payments made
during Fiscal 1998 for performance in Fiscal 1997. All amounts included
in the "Bonus" column for Fiscal 1996 are retention payments paid to the
Named Executive Officers for their remaining in the Company's employ from
the bankruptcy through the end of Fiscal 1996.
(2) "All Other Compensation" includes the following: (i) contributions to the
Company's Savings Plan under Section 401(k) made by the Company in Fiscal
1998 for each of the named executive officers as follows: Mr. McCaig -
$331; Mr. Freimark - $625; Mr. Nicastro - $1,538; Mr. Ayers - $1,535 and
Mr. Vuolo - $1,414. The amounts for Fiscal 1997 and Fiscal 1996,
respectively, were as follows: Mr. McCaig - $1,875 and $1,414; Mr.
Nicastro - $1,543 and $520; and Mr.
20
<PAGE>
Vuolo - $1,598 and $1,516 and (ii) premium payments for life insurance
made by the Company in Fiscal 1998 for each of the named officers were as
follows: Mr. Harris - $10,887; Mr. McCaig - $754; Mr. Philbin - $2,818;
Mr. Freimark - $3,708; Mr. Nicastro - $5,214; Mr. Ayers - $4,925 and Mr.
Vuolo - $3,444. The amounts for Fiscal 1997 and Fiscal 1996,
respectively, were as follows: Mr. McCaig - $11,346 and $10,843; Mr.
Nicastro - $4,812 and $4,811; and Mr. Vuolo - $3,322 and $2,416. The
Fiscal 1998 amounts for Messrs. Harris, Philbin and Freimark include
payments for relocation costs incurred when joining the Company, in the
following amounts: Mr. Harris - $107,806; Mr. Philbin - $24,867; and Mr.
Freimark - $638,872. The Fiscal 1998 amounts for Mr. McCaig and Mr. Vuolo
include payments connected with their separation from the Company, in the
following amounts: Mr. McCaig - $1,100,000 and Mr. Vuolo - $200,000. The
Fiscal 1996 amount for Mr. McCaig includes $169,217, which is the value
of securities distributed from custodial accounts established pursuant to
non-competition, and confidentiality agreements entered into by Mr.
McCaig in August 1993. This amount was distributed as a result of the
Company's filing for bankruptcy in 1995, and offset the Company's
obligations to the executive under The Grand Union Company Supplemental
Retirement Program for Key Executives.
Harris Employment Agreement
Mr. Harris, the Company's Chairman and Chief Executive Officer, is employed
by the Company pursuant to a four-year employment agreement dated as of August
1, 1997 (the "Harris Employment Agreement"). Pursuant to the Harris Employment
Agreement, Mr. Harris is entitled to receive (a) an annual salary of $600,000
(prorated during the first and last fiscal years during the term of the
agreement); (b) bonus compensation determined in accordance with the Company's
Bonus Plan (i) for the fiscal year ended March 28, 1998, up to a maximum bonus
equal to 120% of his base salary paid for such period, and subject to a
guaranteed minimum bonus for such period equal to 75% of the base salary
actually paid to him during such period and (ii) during the remaining term of
the Harris Employment Agreement, with a bonus of at least 100% of Mr. Harris's
base salary, subject to achievement by the Company of performance targets
determined by the Compensation Committee of the Company's Board of Directors;
and (c) payment or reimbursement of the costs of maintaining a residence near
the Company's principal executive offices (and/or relocation expenses if Mr.
Harris relocates to a permanent residence near the Company's principal executive
offices) and weekly travel between such residence and another residence
maintained by Mr. Harris.
In connection with the execution of the Harris Employment Agreement, Mr.
Harris was also granted options under the Company's 1995 Equity Incentive Plan
(the "EIP") to purchase an aggregate of 1,250,000 shares of the Company's common
stock at the prices and on the terms described herein and in the EIP. Except as
otherwise noted, all of the options are exercisable for ten years from the date
of grant, unless earlier terminated. Such options become exercisable as follows:
(i) options to purchase 500,000 shares at an exercise price equal to $1.375 (the
closing price as reported by NASDAQ-National Market on August 1, 1997), which
became exercisable immediately; (ii) options to purchase 100,000 shares at an
exercise price equal to $1.375, which became exercisable immediately upon
approval by stockholders of the Company of an amendment to the EIP; (iii)
options to purchase 200,000 shares at an exercise price equal to $1.375, which
shall become exercisable if and when the Company shall have earnings before
interest, tax, depreciation and amortization expense ("EBITDA") of an aggregate
of at least $147 million for any 13 continuous 4 week fiscal reporting periods
commencing after August 1, 1997 and ending on or before the end of the Company's
fiscal year ending in 2000; (iv) options to purchase 150,000 shares at an
exercise price equal to $2.375, which become exercisable on and after August 1,
1998; (v) options to purchase 150,000 shares at an exercise price equal to
$3.375, which become exercisable on and after August 1, 1999; and (vi) options
to purchase 150,000 shares at an exercise price equal to $4.375, which become
exercisable on and after August 1, 2000.
Pursuant to the Harris Employment Agreement and if he completes his four
year term thereunder, Mr. Harris will be credited with his years of service with
the Company plus 7 additional years of service for purposes of the Company's
Supplemental Retirement Plan for Key Executives. If Mr. Harris does not complete
the term of the Harris Employment Agreement or if he works additional years
after completing the term of the Harris Employment Agreement, he may be credited
with a different number of years of additional service. Mr. Harris is also
entitled to other employee benefits which the Company believes to be customary
for executives in Mr. Harris's position, and he and the Company have agreed to
rights of termination, payments and other benefits on termination under certain
circumstances, confidentiality, and non-competition, in each case which the
Company believes to be customary for agreements with executives in Mr. Harris's
position.
In connection with the Plan of Reorganization, Grand Union and Mr. Harris
will execute an amendment to his employment agreement (the "Harris Amendment"),
which will amend and restate Mr. Harris' employment agreement and will become
effective as of the Consummation Date. Under the terms of the Harris Amendment,
Mr. Harris will be employed by Grand
21
<PAGE>
Union for a four-year term of employment beginning on the Consummation Date and
will be entitled to receive (a) an annual salary of $600,000; (b) bonus
compensation determined in accordance with the Company's Executive Annual
Incentive Bonus Plan (the "EAIB Plan") up to a maximum bonus equal to 125% of
his base salary paid for such period, subject to the achievement by Grand Union
of specified EBITDA targets determined by the Compensation Committee; and (c) so
long as Mr. Harris does not maintain a permanent residence within 100 miles of
Grand Union's principal office, payment or reimbursement of the costs of
maintaining a local residence near Grand Union's principal executive offices
(subject to income tax gross-up procedures) and weekly travel between Grand
Union's principal executive offices and the permanent residence maintained by
Mr. Harris.
Pursuant to the Harris Amendment, for purposes of Grand Union's
Supplemental Retirement Plan for Key Executives, Mr. Harris will be credited
with 7 additional years of service, plus one year for each year of service with
Grand Union. In addition, Mr. Harris will be credited with a total of 15 years
of service (inclusive of the aforementioned years of service) if Mr. Harris
completes his full term of employment under the Harris Amendment. Mr. Harris
will also be entitled to other employee benefits which Grand Union believes to
be customary for executives in Mr. Harris's position. The Harris Amendment
provides for rights of termination, payments and other benefits on termination
under certain circumstances, confidentiality, and non-competition, in each case
which Grand Union believes to be customary for agreements with executives in Mr.
Harris's position.
Partridge Employment Agreement
Mr. Partridge, the Company's Vice Chairman and Chief Administrative
Officer, is employed by the Company pursuant to a four-year employment agreement
dated as of January 5, 1998 (the "Partridge Employment Agreement"). Pursuant to
the Partridge Employment Agreement, Mr. Partridge is entitled to receive: (a) a
one-time signing bonus of $75,000; (b) an annual salary of $350,000 per year,
prorated based on the actual number of weeks worked during the fiscal years
ending 1998 and 2002; (c) bonus compensation in an amount determined by the
Company's Compensation Committee based on the achievement of specified EBITDA
targets established by the Compensation Committee, subject to the following: (x)
for the fiscal year ending March 28, 1998 and the first half of the fiscal year
ending March 27, 1999, the minimum bonus payable for such period shall be 100%
of Mr. Partridge's base salary paid for such period; and (y) for the second half
of the fiscal year ending March 27, 1999, the maximum bonus payable shall be
125% of Mr. Partridge's base salary for the applicable period; and (d) payment
or reimbursement of the reasonable costs of local accommodations for Mr.
Partridge and appropriate travel expenses for Mr. Partridge between such
accommodations and Wayne, New Jersey.
In connection with the execution of the Partridge Employment Agreement, Mr.
Partridge was also granted options to purchase up to 450,000 shares of the
Company's common stock on the terms and subject to the conditions set forth
below and in the EIP. Except as otherwise noted, all of the options are
exercisable for ten years from the date of grant, unless earlier terminated.
Such options become exercisable as follows: (i) options to purchase 175,000
shares at an exercise price equal to $2.0625 (the closing price as reported by
NASDAQ SmallCap Market on the Effective Date), exercisable immediately; (ii)
options to purchase 75,000 shares at an exercise price equal to $2.0625, which
shall become exercisable if and when the Company shall have earnings before
interest, tax, depreciation and amortization expense of an aggregate of at least
$147 million for any 13 continuous 4 week fiscal reporting periods commencing on
the Effective Date and ending on or before the end of the Company's fiscal year
ending in 2000; (iii) options to purchase 100,000 shares at an exercise price
equal to $3.0625, exercisable on or after January 5, 1999; and (iv) options to
purchase 100,000 shares at an exercise price equal to $4.0625, exercisable on or
after January 5, 2000.
Pursuant to the Partridge Employment Agreement, Mr. Partridge will be
credited with 7 additional years of service for purposes of the Company's
Supplemental Retirement Plan for Key Executives if he completes his four year
term under the Partridge Employment Agreement.
In connection with the Plan of Reorganization, Grand Union and Mr.
Partridge will execute an amendment to his employment agreement (the "Partridge
Amendment"), which will amend and restate Mr. Partridge's employment agreement
and will become effective as of the Consummation Date. Under the terms of the
Partridge Amendment, Mr. Partridge will be employed by Grand Union for a
four-year term of employment beginning on the Consummation Date and will earn
cash compensation during the term of employment as follows: (a) base salary at
an annual rate of $350,000; (b) bonus compensation determined in accordance with
the EAIB Plan up to a maximum bonus equal to 125% of his base salary paid for
such period, subject to the achievement by Grand Union of specified EBITDA
targets determined by the Compensation Committee, with the exception that Mr.
Partridge shall receive a guaranteed bonus payment equal to a minimum of 100% of
22
<PAGE>
his base salary paid to him for the first half of fiscal year 1999; and (c) so
long as Mr. Partridge does not maintain a permanent resident within 100 miles of
Grand Union's principal office, payment or reimbursement of the cost of
maintaining a local residence near Grand Union's principal executive office
(subject to income tax gross-up procedures) and appropriate travel expenses for
Mr. Partridge between Grand Union's principal executive offices and such
permanent residence.
Pursuant to the Partridge Amendment, for purposes of Grand Union's
Supplemental Retirement Plan for Key Executives, Mr. Partridge will be credited
with 7 additional years of service, plus one year for each year of service with
Grand Union. The Partridge Amendment also contains provisions concerning other
employee benefits, rights of termination, payments and other benefits on
termination under certain circumstances, confidentiality, and non-competition,
which Grand Union believes to be customary for agreements with executives in Mr.
Partridge's position.
Philbin Employment Agreement
Mr. Philbin, the Company's President and Chief Merchandising Officer, is
employed by the Company pursuant to a four-year employment agreement dated as of
October 3, 1997 (the "Philbin Employment Agreement"). Pursuant to the Philbin
Employment Agreement, Mr. Philbin is entitled to receive (a) an annual salary of
$350,000 (prorated during the first and last fiscal years during the term of the
agreement); (b) bonus compensation determined in accordance with the Company's
Bonus Plan (i) for the fiscal year ended March 28, 1998 subject to a guaranteed
minimum bonus for such period equal to 100% of the base salary actually paid to
him during such period and (ii) during the remaining term of the Philbin
Employment Agreement, with a bonus target of up to 100% of Mr. Philbin's base
salary if the Company achieves the performance targets determined by the
Compensation Committee of the Company's Board of Directors; and (c) payment or
reimbursement of the costs of travel by Mr. Philbin and his immediate family
between the New York/New Jersey metropolitan area and the Midwestern United
States. In connection with the execution of the Philbin Employment Agreement,
Mr. Philbin received an interest-free loan from the Company in the amount of
$225,000, repayable upon the expiration or earlier termination of the Philbin
Employment Agreement.
In connection with the execution of the Philbin Employment Agreement, Mr.
Philbin was also granted options under the EIP to purchase an aggregate of
450,000 shares of the Company's common stock at the prices and on the terms
described herein and in the EIP. Except as otherwise noted, all of the options
are exercisable for ten years from the date of grant, unless earlier terminated.
Such options become exercisable as follows: (i) options to purchase 150,000
shares at an exercise price equal to $2.125 (the closing price as reported by
NASDAQ-SmallCap Market on October 3, 1997), which became exercisable
immediately; (ii) options to purchase 50,000 shares at an exercise price equal
to $2.125, which shall become exercisable if and when the Company shall have
EBITDA of an aggregate of at least $147 million for any 13 continuous 4 week
fiscal reporting periods commencing after October 3, 1997 and ending or before
the end of the Company's fiscal year ending in 2000; (iii) options to purchase
100,000 shares at an exercise price equal to $2.875, which become exercisable on
and after October 3, 1998; (iv) options to purchase 75,000 shares at an exercise
price equal to $3.625, which become exercisable on and after October 3, 1999;
and (v) options to purchase 75,000 shares at an exercise price equal to $4.315,
which become exercisable on and after October 3, 2000.
Pursuant to the Philbin Employment Agreement, Mr. Philbin is entitled to be
credited with 6 additional years of service for purposes of the Company's
Supplemental Retirement Plan for Key Executives if he is employed by the Company
on October 3, 2001, and is entitled to other employee benefits which the Company
believes to be customary for executives in Mr. Philbin's position, and he and
the Company have agreed to rights of termination, payments and other benefits on
termination under certain circumstances, confidentiality, and non-competition,
in each case which the Company believes to be customary for agreements with
executives in Mr. Philbin's position.
Pursuant to the Plan of Reorganization, Grand Union and Mr. Philbin will
execute an amendment to his employment agreement (the "Philbin Amendment"),
which will amend and restate Mr. Philbin's employment agreement and will become
effective as of the Consummation Date. Under the terms of the Philbin Amendment,
Mr. Philbin will be employed by Grand Union for a four-year term of employment
beginning on the Consummation Date and will be entitled to receive an annual
salary of $350,000; (b) bonus compensation determined in accordance with the
EAIB Plan up to a maximum bonus equal to 125% of his base salary paid for such
period, subject to the achievement by Grand Union of specified EBITDA targets
determined by the Compensation Committee; and (c) payment or reimbursement of
the costs of travel by Mr. Philbin and his immediate family between New York/New
Jersey metropolitan area and the Midwestern United States.
23
<PAGE>
Pursuant to the Philbin Amendment, for purposes of Grand Union's
Supplemental Retirement Plan for Key Executives, Mr. Philbin will be credited
with 6 additional years of service, plus one year for each year of service with
Grand Union. The Philbin Amendment also contains provisions concerning other
employee benefits, rights of termination, payments and other benefits on
termination under certain circumstances, confidentiality, and non-competition,
in each case which Grand Union believes to be customary for agreements with
executives in Mr. Philbin's position.
Employment Arrangements with Mr. Freimark
Effective March 3, 1997, the Company hired Jeffrey P. Freimark to serve as
the Company's Executive Vice President, Chief Financial and Administrative
Officer. Pursuant to the terms of a letter dated January 29, 1997, the Company
agreed to pay Mr. Freimark an initial annual base salary in the amount of
$325,000, and a signing bonus in the amount of $150,000. In addition, Mr.
Freimark was eligible to participate in the Company's annual incentive plan for
management, with a maximum bonus of 48% of his base salary, based on achievement
by the Company of certain financial and/or sales performance targets; provided,
however, that for the fiscal year ending March 28, 1998, the Company guaranteed
Mr. Freimark a minimum bonus payment of $25,000. Upon his hire, Mr. Freimark was
also granted options to purchase 20,000 shares of the Company's Common Stock,
vesting in equal increments over a four year period, all exercisable at a price
of $3.688. Effective November 20, 1998, Mr. Freimark was granted a stock option
(fully vested at the time of issuance) to purchase an additional 75,000 shares
of the Company's Common Stock at an exercise price of $2.15625 per share. At the
time of his hire, Mr. Freimark was also made eligible for other standard
benefits provided to the Company's executive officers, including participation
in the Company's Supplemental Retirement Plan for Key Executives.
Mr. Freimark is currently Grand Union's Executive Vice President and Chief
Financial Officer. In connection with the Plan of Reorganization, Grand Union
and Mr. Freimark will execute an employment agreement (the "Freimark Employment
Agreement") which will become effective on the Consummation Date. Under the
terms of the Freimark Employment Agreement, Mr. Freimark will be employed by
Grand Union for a four-year term of employment and will receive an annual base
salary in the amount of $325,000. In addition, Mr. Freimark will participate in
the EAIB Plan, with a maximum bonus of 100% of his base salary, based on
achievement by Grand Union of certain specified EBITDA targets set by the
Compensation Committee.
Pursuant to the Freimark Employment Agreement and for purposes of Grand
Union's Supplemental Retirement Plan for Key Executives, Mr. Freimark will be
credited with 4 additional years of service, plus one year for each year of
service with Grand Union. The Freimark Employment Agreement also contains
provisions concerning other employee benefits, rights of termination, payments
and other benefits on termination under certain circumstances, confidentiality,
and non-competition, which Grand Union believes are customary for agreements
with executives in Mr. Freimark's position.
Management Stock Options
In connection with the consummation of the Plan of Reorganization, all
currently outstanding options will be cancelled and Messrs. Harris, Philbin,
Partridge and Freimark (collectively, the "Senior Managers") will be granted
options under the EIP to purchase an aggregate of 2,138,693 shares of Grand
Union's common stock at the prices and on the terms described herein and in the
EIP. Except as otherwise noted, all of the options are exercisable for four
years from the Consummation Date, unless earlier terminated. The options will be
granted to the Senior Managers in five tranches and exercisable as follows: (i)
306,122 options at an exercise price of $12.32 per share; (ii) 466,176 options
exercisable when fiscal year end EBITDA is at least $125 million at an exercise
price of $12.32 per share; (iii) 313,923 options exercisable when fiscal year
end EBITDA is at least $135 million at an exercise price of $12.32 per share;
(iv) 317,094 options exercisable when fiscal year end EBITDA is at least $145
million at an exercise price of $10.65 per share; and (v) 735,377 options
exercisable when fiscal year end EBITDA is at least $155 million at an exercise
price of $10.65 per share. With respect to each tranche, Messrs. Harris,
Partridge, Philbin and Freimark will be entitled to 50%, 20%, 20% and 10%,
respectively, of the options granted. The Compensation Committee will be
required to certify in writing or in approved minutes of the Committee that the
foregoing performance standards have been satisfied prior to the exercise of the
respective option. The options granted to Senior Managers will vest ratably
across each tranche as follows: (a) one-fifth on the Consummation Date; (b)
one-fifth on each of the first three anniversaries of the Consummation Date; and
(c) one-fifth on the ninetieth day immediately prior to the fourth anniversary
of the Consummation Date. The vested options and shares received upon exercise
of options ("Option Shares") will become transferable in tranches of 20%, 20%,
30% and 30% (expressed as a percentage of vested and unvested options) on each
of the first four anniversaries, respectively, of the date of grant. Except as
described in the preceding sentence and except for
24
<PAGE>
transfers in connection with estate planning, the options and Option Shares will
not be transferable during the term of a Senior Manager's employment.
Aggregated Option/SAR Exercises in Last Fiscal Year
and Fiscal Year-End Option/SAR Values
<TABLE>
<CAPTION>
Name
- ---- Number of Securities Value of
Underlying Unexercised Unexercised In-the-Money
Options/SARs at FY-End(#) Options/SARs at FY-End ($)
------------------------------- -------------------------------
Exercisable Unexercisable Exercisable Unexercisable
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
J. Harris 600,000 650,000 0 0
G. Philbin 150,000 300,000 0 0
J. Freimark 80,000 15,000 0 0
R. Ayers 20,800 0 0 0
L. DePaolis 25,800 0 0 0
J. Meadows 27,200 0 0 0
F. Nicastro 12,600 0 0 0
G. Smith 15,000 0 0 0
D. Vaillancourt 20,800 0 0 0
</TABLE>
In connection with the consummation of the Plan of Reorganization all
currently outstanding options will be cancelled.
Pension Plan Table
The table below shows, on a combined basis for The Grand Union Company
Employees' Retirement Plan (the "Retirement Plan"), and The Grand Union Company
Supplemental Retirement Program for Key Executives (the "Supplemental Plan"),
the estimated annual benefit payable upon retirement to specified compensation
and years of service classifications of 5, 10 and 15 or more years of service.
The credited years of service under these plans for Messrs. McCaig and Freimark
are 23 and 0 years, respectively. Messrs. Harris, Partridge, and Philbin will be
eligible to participate in the Retirement Plan effective January 1, 1999; they
were participants in the Supplemental Plan immediately upon hire. Messrs. Ayers,
Nicastro, and Vuolo are not entitled to any Supplemental Plan benefits. The
current base compensation set forth in the "salary" column of the Summary
Compensation Table does not differ substantially from covered compensation under
these Plans. The retirement benefits shown are based upon retirement at age 62
and the payment of a single-life annuity to the employee.
Years of Service
------------------------------------------
5 10 15 or more
---------- ---------- ------------
$100,000....................... $ 21,667 $ 43,333 $ 65,000
150,000....................... 32,500 65,000 97,500
200,000....................... 43,333 86,667 130,000
250,000....................... 54,167 108,333 162,500
300,000....................... 65,000 130,000 195,000
350,000....................... 75,833 151,667 227,500
400,000....................... 86,667 173,333 260,000
450,000....................... 97,500 195,000 292,500
500,000....................... 108,333 216,667 325,000
550,000....................... 119,167 238,333 357,500
600,000....................... 130,000 260,000 390,000
650,000....................... 140,833 281,667 422,500
25
<PAGE>
The estimated Retirement Benefits shown below are expressed in the form of an
annuity commencing at age 65. Note that the actual Retirement Benefit that each
participant eventually receives from the Retirement Plan may be lower upon
application of the statutory benefit limitations under Section 415 of the Code.
In addition, each participant may elect to receive his Retirement Benefit as
early as age 55 (provided the participant has ten years of service) in an
actuarially reduced amount, or under one of the optional forms of payment.
Estimated
Qualified Retirement Plan
Age 65 Annual
Accrued Benefit as of 3/28/98
-----------------------------
J. McCaig $56,000
F. Nicastro $16,700
R. Ayers $40,800
G. Vuolo $48,700
The benefits actually payable to an individual executive are reduced, in some
cases substantially, through offsets for primary Social Security benefits and
the actuarial equivalent of the value of securities received by those executives
who received distributions in 1995 and 1994. Mr. McCaig received prior
distributions totaling $208,535 during 1994 and 1995. The estimated social
security and total offset amounts are $18,000 and $227,000, respectively. These
amounts are expressed as a single life annuity payable beginning at age 62 based
on the Supplement Plan's definition of actuarial equivalence and a 7% interest
rate conversion assumption.
The Grand Union Company Employees' Retirement Plan
The Retirement Plan is a tax-qualified, noncontributory retirement plan,
providing retirement benefits for the Company's eligible salaried and hourly
non-union employees, union employees not covered by other pension plans, and all
of its officers. Under the Retirement Plan, a participant's benefit is generally
1.5% of the average of his or her five consecutive years of highest annual
compensation multiplied by years of service not in excess of 35 minus primary
social security benefits. Benefits under the plan are paid under several
alternatives, including monthly or lump sum payments at the employee's election.
Benefits are normally payable at age 65; however, the plan provides for early
retirement with reduced benefits commencing at age 55. The Code places certain
limits on pension benefits which may be paid under plans qualified under the
Code.
Supplemental Retirement Plan For Key Executives
The Supplemental Plan is a non-qualified pension plan pursuant to which
certain key employees of the Company and its affiliates ("Participants") earn a
supplemental pension in addition to the pension benefit to which they are
entitled under the Retirement Plan. The pension benefit formula under the
Supplemental Plan is expressed as an annual pension, payable monthly (i) if the
Participant is not married on his retirement date, for the Participant's life,
or (ii) if the Participant is married on his retirement date, the same amount as
described in clause (i) for the duration of the Participant's life and
thereafter 50% of such amount for the duration of the life of the Participant's
surviving spouse. The amount of the annual pension payable upon retirement at
age 62 or later is determined as the "target benefit" minus the "plan offsets".
The "target benefit" is an annual pension equal to the product of 4-1/3% of the
Participant's final year's base salary rate in effect immediately prior to his
separation or as may be adjusted by the committee administering the Supplemental
Plan in its sole discretion, multiplied by the Participant's number of years of
actual or deemed credited service (in most cases, up to 15 years) under the
Supplemental Plan. "Plan offsets" for Participants retiring at age 62 or later
are equal to the sum of the Participant's (i) primary Social Security benefits
payable at the later of age 62 or the Participant's actual retirement age, (ii)
benefits under the Retirement Plan payable at the later of age 62 or the
Participant's actual retirement age in the form of a single life annuity, and
(iii) benefits, if any, payable from the qualified retirement plan(s) of the
Participant's previous employer(s). Participants may also retire early (i) at or
after attaining age 50 but prior to attaining age 55, with the consent of the
Company (the consent
26
<PAGE>
requirement is waived for a Participant who becomes disabled or is involuntarily
terminated other than for cause), or (ii) at or after age 55, without any
requirement for consent by the Company. For Participants who retire early, the
"target benefit" is reduced by 5% per year for each year the Participant is
under age 62. Supplemental Plan benefits are payable in an actuarially
determined single sum no later than 30 days following the Participant's date of
retirement or other termination of employment. In general, no Supplemental Plan
benefits will be paid to a Participant whose employment with the Company
terminates prior to the Participant's attaining age 50. In May 1995, the
Supplemental Plan was modified to provide that (x) in the case of Mr. McCaig,
the base salary would be deemed to be an amount not less than $500,000 and (y)
notwithstanding the general requirement of the Supplemental Plan, benefits will
not be paid to persons who retire prior to age 50, except persons who were
participants in the Supplemental Plan prior to April 1, 1995, who will be
eligible for early retirement without forfeiture of benefits under the
Supplemental Plan from and after age 47 with Company consent. Pursuant to
existing Harris Employment Agreement, the Partridge Employment Agreement and the
Philbin Employment Agreement, as detailed above, Messrs. Harris, Partridge and
Philbin were granted additional credited service under the terms of the
Supplemental Plan. As further discussed above and in connection with the Plan of
Reorganization, similar arrangements will exist under the Harris Amendment, the
Partridge Amendment, the Philbin Amendment and the Freimark Employment
Agreement.
Compensation of Directors
Each non-employee director receives an annual fee of $25,000 for serving on
the Board, and meeting fees of $1,500 for each Board meeting attended in person,
$750 for each committee meeting attended in person and each telephonic Board
meeting attended, and $375 for each telephonic committee meeting attended. In
addition, the Chairman of the Audit Committee and the Chairman of the
Compensation Committee, receive $500 for each Committee meeting they attend in
person as Chairman and $250 for each telephonic committee meeting they attend as
Chairman. In March 1998, in connection with the negotiations of the Plan of
Reorganization, the Board formed a Special Committee comprised of Directors
Krimstein, Manski and Pritchard. Members of the Special Committee were
compensated as follows: 1) $2,000 for any in-person meetings and 2) $1,000 for
any day requiring a significant time commitment toward the restructuring. In
connection with duties arising from membership on the Special Committee, Mr.
Krimstein received aggregate consideration of $36,000, Mr. Manski received
aggregate consideration of $37,000 and Ms. Pritchard received aggregate
consideration of $33,000. Effective July 1, 1997, Directors were eligible to
elect to receive all or part of their annual retainer and fees in common stock.
No stock was delivered to a director. In January 1998, the Board returned to an
all cash compensation method. Directors receive reimbursement of reasonable
expenses incidental to attendance at meetings of the Board of Directors or its
committees.
Each non-employee director also receives an automatic initial grant of
options to purchase 5,000 shares of common stock, and additional grants to
purchase 1,500 shares with each re-election by stockholders. All options have a
term of ten years and generally become exercisable (i) six months after the
grant date as to one-third of the shares, (ii) on the earlier of the first
anniversary of the grant date or the annual meeting of stockholders closest
thereto as to the second third of the shares and as to one share of any
remainder, and (iii) on the earlier of the second anniversary of the grant date
or the annual meeting of stockholders closest thereto as to the last third of
the shares and the second share of any two-share remainder. All directors are
reimbursed for expenses incurred on the Company's behalf.
Indemnification Agreements
The Company has entered into indemnification agreements with each of its
directors and executive officers pursuant to which the Company has agreed to
indemnify such persons to the fullest extent permitted by law against expenses,
judgments, fines, penalties or amounts paid in settlement actually and
reasonably incurred by such person in connection with legal proceedings in which
the person was involved by reason of being a director or officer of the Company.
Under current law, such indemnification generally is available if such person
acted in good faith and in a manner he or she reasonably believed to be in the
best interests of the Company and, with respect to criminal proceedings, had no
reasonable cause to believe his or her conduct was unlawful. Under current law,
such person is not indemnified in respect of matters as to which he or she has
been adjudged liable to the Company unless a court determines that, under the
circumstances, he or she is reasonably entitled to such indemnification.
Comparable indemnification rights are also provided pursuant to the Company's
Certificate of Incorporation.
27
<PAGE>
Severance Plans
On and effective April 14, 1998, the Board of Directors adopted (i) The
Grand Union Company Discretionary Severance Plan for Non-Union Associates (the
"Discretionary Severance Plan") and (ii) The Grand Union Company Severance Plan
for Exempt Personnel (the "Exempt Severance Plan"). The Discretionary Severance
Plan and the Exempt Severance Plan supercede any prior severance plan or policy
which may have existed prior to April 14, 1998. Generally, the Discretionary
Severance Plan applies to all non-union, non-salaried, hourly associates working
in the Company's stores and non-union hourly personnel who work in the Company's
offices. Under the Discretionary Severance Plan, eligible terminated associates
of the Company are generally eligible to receive the equivalent of one week's
regular pay for each two years of service to a maximum of 26 weeks of total
severance benefits. However, the Plan Administrator retains the absolute right
and discretion to determine whether an employee will be offered severance
benefits and the terms and amount of the severance benefits to be paid, if any.
Subject to all of the terms and conditions of the Exempt Severance Plan, all
salaried personnel at the Company's headquarters and salaried store personnel
who are actively employed and working may be eligible to receive a severance
benefit under the Exempt Severance Plan. Severance benefits under the Exempt
Severance Plan will generally be payable to eligible employees terminated due to
a job elimination, a reduction in force for economic reasons, a decision to
outsource work performed by Company employees to a third party service provider,
or another Company initiated event (other than the sale of a major business unit
of the Company). Under the Exempt Severance Plan, eligible employees will
receive a lump sum severance benefit of one week's pay. Additionally the Exempt
Severance Plan provides for a lump-sum severance payment equal to (i) in the
case of salaried employees holding the office of Senior Vice President or above,
18 months' base salary less the one week base severance benefit; (ii) in the
case of salaried employees holding the office of Corporate Vice President, 12
months' base salary less the one week base severance benefit; (iii) in the case
of salaried employees holding the office of appointed vice president or
director, 6 months' base salary less the one week base severance benefit; and
(iv) in the case of all other salaried employees, one week's base salary for
each year of service to the Company up to a maximum of 26 weeks less the one
week base severance benefit. Any employee of the Company who has a separate
written agreement with the Company, which provides for payment of severance
benefits will receive no severance benefit under either the Discretionary
Severance Plan or the Exempt Severance Plan. Each of the Senior Managers
employment agreements (as will be amended pursuant to the Plan of
Reorganization) contain provisions providing for termination payments that
render them ineligible for severance benefits under the Discretionary Severance
Plan and/or Exempt Severance Plan.
Change-in-Control Provisions
Under the Company's EIP and 1995 Non-Employee Directors' Stock Option Plan,
certain provisions take effect on a change in control of the Company. Under both
plans, on the twentieth (20th) trading day prior to the effective date of the
change in control, all stock options not otherwise vested become fully vested,
and any restrictions or other conditions applicable to restricted stock or other
incentives awarded under the Employee Plan lapse or are deemed satisfied and
such awards become fully vested and/or immediately payable. In addition, the
value of any canceled award is paid out in cash unless the award holder receives
either (i) the right to acquire the same basket of cash and securities available
to holders of Common Stock, or (ii) if pooling of interests is a condition of
the transaction, an equivalent right in a successor security which would enable
the transaction to qualify for pooling of interests. Under both plans, a change
in control is defined to include: (1) any person, entity or Group (persons or
entities acting together) is or becomes the beneficial owner of more than 50% of
the Voting Stock of the Company (as defined below); (2) a consolidation, merger
or sale of substantially all of the assets of the Company, with the effect that
any person, entity or Group becomes the beneficial owner of more than 50% of the
Voting Stock of the Company or the Company is not the surviving entity; (3)
during any consecutive two-year period commencing July 1, 1996, individuals who
constituted the Board of Directors at the beginning of such period, together
with any new directors whose election by the Board of Directors or nomination
for election by stockholders was approved by 66-2/3% of the directors who were
in office at the beginning of the period or whose election or nomination was so
approved, cease to constitute a majority of the Board of Directors then in
office; or (4) any order, judgment or decree of dissolution or split-up of the
Company, and such order remains undischarged or unstayed for a period in excess
of 60 days. For purposes of determining whether a change in control has
occurred, "more than 50% of the Voting Stock" means more than 50% of one or more
classes of stock pursuant to which the holders have the general power to vote
for the election of members of the Board of Directors, and the aggregate of such
classes for which the person, entity or Group holds more than 50% has the power
to elect more than 50% of the members of the Board of Directors.
Pursuant to the Plan of Reorganization, each Senior Manager's employment
agreement (as amended) will provide that if reorganized Grand Union terminates a
Senior Manager without "Cause," or if such Senior Manager resigns for "Good
Reason" (each as defined in their employment agreements), within twelve months
following a "Change of Control" (as defined
28
<PAGE>
below), such Senior Manager shall be entitled to severance pay equal to the sum
of (i) the product of (x) 2.99 times (y) 120% of such Senior Managers' base
salary then in effect, plus (ii) such Senior Manager's accrued and unpaid bonus
based on the ratable portion of EBITDA through the date of termination pursuant
to such Senior Managers' existing employment contracts and the continuation of
certain other benefits as set forth in the agreements. "Change of Control" shall
mean, after the Consummation Date, the acquisition by any person or entity,
directly or indirectly, of more than 50% of the common stock; provided, however,
that no Change of Control shall occur by reason of the issuance of common stock
to holders of the Senior Notes upon the Consummation Date. The employment
agreements for the Senior Managers and the EIP shall continue to provide for
certain termination obligations for certain events not covered under this change
of control provision.
Compensation Committee Interlocks And Insider Participation
The Board of Directors maintains a compensation committee (the
"Compensation Committee") consisting of three directors. The Compensation
Committee currently consists of Ms. Pritchard and Messrs. Manski and Krimstein,
with Mr. Manski acting as Chairman. From October 30, 1997 to April 22, 1998, the
Compensation Committee consisted of Ms. Pritchard, Mr. Miller and Mr.
Stonesifer, with Mr. Miller serving as Chairman. Messrs. Miller and Stonesifer
served on the Compensation Committee from September 1996. Mr. Kagler served on
the Compensation Committee from June 1995 until August 1997.
No member of the Board participates in decisions regarding his own
compensation as an executive officer of the Company.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires the Company's directors and
executive officers and persons who beneficially own more than 10% of a
registered class of the Company's equity securities to file with the Securities
and Exchange Commission initial reports of ownership and reports of changes in
ownership of Common Stock and other equity securities of the Company on Forms 3,
4, and 5. Officers, directors and greater than 10% beneficial stockholders are
required by rules promulgated by the Securities and Exchange Commission to
furnish the Company with copies of all Section 16(a) reports they file. Based
solely on its review of the copies of reporting forms furnished to the Company,
or written representations of reporting persons, the Company believes that all
filing requirements under Section 16(a) of the Exchange Act applicable to its
directors, officers and any persons holding 10% or more of the Company's Common
Stock with respect to the Company's fiscal year ended March 28, 1998, were
satisfied, with the exception of the late Form 3 filings for Mr. Harris and Mr.
Meadows.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Security Ownership By Certain Beneficial Owners and Management
Set forth below is certain information as of June 24, 1998 (except as
otherwise indicated), regarding the beneficial ownership of the Company's
preferred stock and common stock by (i) any person known by the Company to
beneficially own more than 5% of any class of voting securities of the Company;
(ii) each director; (iii) each of the Named Executive Officers (as defined
below) identified in the Summary Compensation Table; and (iv) all directors and
executive officers as a group. Included in the table are shares that the holder
has the right to acquire within 60 days from the date above. Except as indicated
otherwise, the Company believes, based on information furnished by such owners,
that the beneficial owners of the Company's common stock and preferred stock
listed below have sole investment and voting power with respect to such shares,
subject to applicable community property laws. Unless otherwise indicated, the
address for all natural persons listed in the table below is c/o The Grand Union
Company, 201 Willowbrook Boulevard, Wayne, New Jersey 07470. Pursuant to the
Plan of Reorganization all outstanding shares of the Company's preferred stock
and common stock will be cancelled.
<TABLE>
<CAPTION>
Name of Beneficial Owner Amount and
------------------------ Nature of
Beneficial Percent
Ownership(1) of Class(1)
------------ -----------
<S> <C> <C>
Preferred Stock A
</TABLE>
29
<PAGE>
<TABLE>
<CAPTION>
Name of Beneficial Owner Amount and
------------------------ Nature of
Beneficial Percent
Ownership(1) of Class(1)
------------ -----------
<S> <C> <C>
Trefoil Capital Investors II, L.P. ..................... 620,212 (2)(3) 47.69%
GE Investment Private Placement Partners II,
A Limited Partnership............................... 620,212 (3)(4) 47.69%
The Stangeland Family Limited Partnership........... 60,142 (5) 4.62%
Preferred Stock B
Trefoil Capital Investors II, L.P. ..................... 400,000 (2)(3) 50.00%
GE Investment Private Placement Partners II,
A Limited Partnership............................... 400,000 (3)(4) 50.00%
Common Stock
Trefoil Capital Investors II, L.P. ..................... 17,610,674 (2)(3) 38.77%
GE Investment Private Placement Partners II,
A Limited Partnership............................... 17,610,674 (3)(4) 38.77%
Donaldson, Lufkin & Jenrette Securities Corporation..... 1,039,177 (6) 10.19%
Jordan H. Krimstein..................................... 2,166 (7) *
Mark H. Manski.......................................... 2,166 (7) *
Martha A. Pritchard..................................... 2,166 (7) *
J. Wayne Harris......................................... 650,000 (8) 6.02%
Jack W. Partridge....................................... 185,000 (8) 1.78%
Gary M. Philbin......................................... 158,000 (8) 1.53%
Jeffrey P. Freimark..................................... 80,000 (8) *
Francis E. Nicastro..................................... 12,300 (8) *
Ray Ayers............................................... 20,800 (8) *
All Directors and Executive Officers as a
group (13 persons)...................................... 1,201,398 (9) 10.60%
</TABLE>
- -----------
* Less than 1%.
(1) Beneficial ownership is determined pursuant to Rule 13d-3 under the
Securities Exchange Act of 1934, as amended (the "Exchange Act") as
applied by Item 403 of Regulation S-K. Pursuant to these rules,
percentage ownership is calculated by including in the numerator and the
denominator for a beneficial owner shares which such owner has the right
to acquire within 60 days.
(2) The general partners of Trefoil Capital Investors II, L.P. ("Trefoil")
are Trefoil Investors II, Inc., a Delaware corporation ("Trefoil II"),
and Sigma Hedge Partners, G.P., a Delaware partnership ("Sigma"). Trefoil
II is the managing general partner of Trefoil. The general partners of
Sigma are Delta PT Investors Corporation, a Delaware corporation
("Delta"), and Epsilon Equities, Inc., a Delaware corporation
("Epsilon"), each of which is wholly owned by the General Electric
Pension Trust, a New York common law trust ("GEPT"). The principal
executive offices of Trefoil and Trefoil II are located at 4444 Lakeside
Drive, Burbank, California 91505. The principal executive offices of
Sigma, Delta, Epsilon and GEPT are located at 3003 Summer Street, P.O.
7900, Stamford, Connecticut 06904. Sigma, Delta, Epsilon and the Trustees
of GEPT each holds shared dispositive power over the shares of Preferred
Stock held by Trefoil and the shares of Common Stock into which such
shares of Preferred Stock are convertible. Trefoil II holds sole voting
power, and Sigma, Delta, Epsilon and GEPT hold no voting power, with
respect to the shares of Preferred Stock held by Trefoil and the shares
of Common Stock into which such shares of Preferred Stock are
convertible.
(3) Trefoil and GE Investment Private Placement Partners II, A Limited
Partnership, a Delaware limited partnership ("GEI" and, collectively with
Trefoil, the "Investors") may be deemed to beneficially own all of the
shares of Preferred Stock held by the Investors due to a Stockholders
Agreement between the Investors pursuant to which the Investors have
30
<PAGE>
each agreed to certain joint action relating to voting and disposition of
the Preferred Stock and the Common Stock issuable on conversion of the
Preferred Stock. Each share of Preferred Stock A is convertible into
6.8966 shares of Common Stock, and each share of Preferred Stock B is
convertible into 20.8333 shares of Common Stock.
(4) GE Investment Management Incorporated, a Delaware corporation ("GEIM")
serves as the managing general partner of GEI. GEIM is a wholly owned
subsidiary of General Electric Company and a registered investment
advisor. The principal executive offices of GEI, GEIM and General
Electric Company are located at 3003 Summer Street, P.O. Box 7900,
Stamford, Connecticut 06904. GEIM is the managing general partner of GEI
and holds sole voting power and sole dispositive power with respect to
such shares.
(5) The Roger and Lilah Stangeland Living Trust (the "Trust") serves as
general partner for The Stangeland Family Limited Partnership, a limited
partnership for the benefit of Roger and Lilah Stangeland (the
"Stangeland Partnership"). Mr. Stangeland and his wife serve as
co-trustees of the Trust. Pursuant to a stockholder agreement among the
Company, the Investors and the Stangeland Partnership, the Stangeland
Partnership has granted to the Investors certain take-along rights, and
the Investors have granted to the Stangeland Partnership certain
tag-along rights, with respect to such shares. Solely to the extent any
of such take-along or tag-along rights may be exercised, the Stangeland
Partnership and the Investors share dispositive power with respect to
such shares. Mr. Stangeland shares with his wife voting and dispositive
power with respect to all shares held by the Stangeland Partnership.
(6) Such information is as of June 10, 1998 and is based upon the information
provided in the Schedule 13G filed by AXA Assurances I.A.R.D. Mutuelle,
AXA Assurances Vie Mutuelle, Alpha Assurances Vie Mutuelle, AXA Courtage
Assurance Mutuelle (collectively, the "Mutuelle AXA"), AXA-UAP and The
Equitable Companies Incorporated. Mutelle AXA, as a group, beneficially
owns a majority interest in AXA-UAP, which beneficially owns a majority
interest in The Equitable Companies, which is a parent holding company
with respect to the holdings of Donaldson, Lufkin & Jenrette Securities
Corporation, which has sole voting and dispositive power over the shares
of common stock. Such holdings consist of 1,038,127 shares of common
stock and warrants exercisable for 1,050 shares of common stock.
(7) Represents shares subject to acquisition pursuant to options exercisable
under the 1995 Non-Employee Directors' Stock Option Plan.
(8) Represents shares subject to acquisition pursuant to options exercisable
under the EIP, except for 50,000 shares of Common Stock owned directly by
Mr. Harris, 10,000 shares of Common Stock owned directly by Mr.
Partridge, and 8,000 shares of Common Stock owned directly by Mr.
Philbin.
(9) Includes 1,127,200 shares subject to acquisition pursuant to options
exercisable under the EIP and 6,498 shares subject to acquisition
pursuant to options exercisable under the 1995 Non-Employee Directors'
Stock Option Plan.
Item 13. Certain Relationships and Related Transactions
Pre-Bankruptcy Relationships and Transactions
On January 25, 1995, the Company filed a petition under Chapter 11 of the
federal bankruptcy laws. The Company emerged from bankruptcy on June 15, 1995,
the effective date of the bankruptcy court's approval of the Company's
reorganization plan. Prior to June 15, 1995, the Company was a wholly owned
subsidiary of Grand Union Capital Corporation ("Capital"), which in turn was a
wholly owned subsidiary of Grand Union Holdings Corporation ("Holdings").
Holdings was controlled by Miller Tabak Hirsch & Co. ("MTH") and its affiliates,
which also control Penn Traffic.
The following applies to relationships that existed prior to June 15, 1995.
Mr. Gary D. Hirsch served as Chairman and a Director of the Company and also as
Chairman and a Director of Penn Traffic. Mr. Martin A. Fox served as a Director,
Vice President and Assistant Secretary of the Company and Vice Chairman-Finance
and Assistant Secretary of Penn Traffic. Messrs. Hirsch and Fox received
compensation from MTH, of which Mr. Hirsch is a general partner of the managing
partner, and Mr. Fox is Executive Vice President. Messrs. Hirsch and Fox did not
receive salaries from Penn Traffic and did not participate in cash bonus plans
of Penn Traffic, and received no compensation in their capacities as executive
officers or directors of the Company.
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Mr. McCaig served as a director of the Company from June 15, 1995 until May
7, 1997. Until May 31, 1995, Mr. McCaig was a member of the Board of Directors
of Penn Traffic, for which he received compensation of $10,000 per annum and
$1,000 per Board of Directors meeting attended. Mr. McCaig became a Director of
Holdings in July 1989 and a Director of Capital in July 1992. He became
President of Holdings and Capital in May 1993. Mr. McCaig served as a Director
of Penn Traffic from September 1992 until May 1995.
Mr. Hirsch is no longer a director of the Company. While he was a director,
he was an indirect beneficiary of the following transactions. Prior to June 15,
1995, MTH was engaged as financial advisor to Penn Traffic and as a financial
advisor to the Company, in the latter case pursuant to an agreement (the "MTH
Agreement"), under which MTH was to have provided certain financial consulting
and business management services to the Company through July 1997. In accordance
with the Company's post-bankruptcy Reorganization Plan, the MTH Agreement was
terminated on June 15, 1995 and the Company executed a settlement agreement (the
"MTH Settlement Agreement"). The MTH Settlement Agreement provides for the
termination of the MTH Agreement, payment by the Company of accrued and unpaid
fees under the MTH Agreement through June 15, 1995, and for the indemnification
of MTH and certain entities related to MTH (the "MTH Entities") from certain
claims and liabilities, subject to the terms and limitations set forth in the
MTH Settlement Agreement. The Company deposited $3.0 million relating to the
indemnification in escrow on June 15, 1995. During Fiscal 1996, the Company paid
$315,000 to MTH, pursuant to the MTH Agreement. On July 30, 1990, P&C Foods,
which is indirectly controlled by MTH, and the Company entered into an Operating
Agreement pursuant to which the Company acquired the right to operate 13 P&C
Foods' stores in New England under the Grand Union name until July 2000.
Pursuant to the Operating Agreement, the Company agreed to pay P&C Foods a
minimum annual fee which will average $10.7 million per year during the ten-year
lease term. Pursuant to the terms of the Operating Agreement, a $15 million
prepayment of the annual fee was made to P&C Foods in connection with the
recapitalization of the Company in 1992. The Operating Agreement was assumed
during the Chapter 11 bankruptcy case and will continue on its current terms.
From September 1993 until September 1995, the Company participated in a program
to consolidate the purchasing, storage and distribution of health and beauty
care and general merchandise product with Penn Traffic. During Fiscal 1996, the
Company purchased from Penn Traffic's inventory of health and beauty care and
general merchandise products at cost approximately $30.1 million for store
operations and approximately $12.8 million at the termination of the agreement.
Post-Bankruptcy Relationships.
Mr. Ying, a director of the Company from June 15, 1995 until July 28, 1997,
was a managing director of Donaldson Lufkin & Jenrette Securities Corporation
("DLJ") from January 1993 to June 1997. During Fiscal 1995 and Fiscal 1996, DLJ
acted as financial advisor to the Informal Committee of certain holders of
Subordinated Notes in connection with the restructuring of the Company and
received compensation from the Company of $1,278,000 for such services.
Near the end of Fiscal 1996, the Company entered into an agreement with DLJ
to provide investment banking services and advice to the Company. During the
term of DLJ's engagement, it had the exclusive right to act as sole managing
underwriter, exclusive placement agent, sole dealer manager or exclusive
solicitation agent with respect to any public offering of the Company's
securities, any private offering of any of the Company's debt securities, or any
exchange offer or refinancing transaction relating to the Company's Senior Notes
or other securities of the Company. The agreement also contains various other
provisions, including an obligation by DLJ to keep confidential certain
information provided to it by the Company, and an obligation by the Company to
indemnify and hold harmless DLJ, its parent and its affiliates, and the
directors, officers, agents, and employees of DLJ, its parent and its affiliates
("Indemnified Persons"), from and against various potential losses and
liabilities arising out of or in connection with misstatements or omissions in
disclosure documents or in connection with advice or services rendered by an
Indemnified Person. In Fiscal 1997, the Company entered into the Stock Purchase
Agreement (referred to below) in connection with which DLJ rendered various
services pursuant to the agreement, including a Fairness opinion. In connection
with the agreement DLJ received aggregate payments of $4,838,000, reflecting a
Transaction Fee of $3,753,000, a Fairness Fee of $1,000,000 (for a fairness
opinion), and reimbursement of expenses in the amount of $85,000. DLJ received
an additional fee of $250,000 for services rendered in connection with
solicitation of consents and waivers from the holders of the Company's Senior
Notes.
In May 1997, the Company entered into an agreement with DLJ to advise a
Committee of Independent Directors (the "Committee") with advice in respect to
the restructuring of obligations under the Stock Purchase Agreement. As
compensation for the services provided to the Committee, the Company paid DLJ
$500,000 in connection with a fairness opinion with respect to the transactions
contemplated by the Acceleration and Exchange Agreement described under "1996
Preferred Stock Purchase" below.
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Mr. Moore, a director of the Company from September 17, 1996 to April 22,
1998, is a managing director and executive officer of Shamrock Capital Advisors,
Inc. ("SCA"). Pursuant to a three-year management services agreement (the
"Services Agreement") dated July 30, 1996 between the Company and SCA, SCA shall
consult with and provide advice to the officers and management employees of the
Company concerning matters (i) relating to the Company's financial policies and
the development and implementation of the Company's business plans and (ii)
generally arising out of the business affairs of the Company. The Services
Agreement expires by its terms in September 1999. SCA's compensation for such
management and consulting services under the Services Agreement was $300,000 in
the fiscal year ending in 1997 and will be $400,000 for the fiscal year ending
in 1998. No further payments will be made to SCA due to the restructuring The
Company also reimburses SCA for its reasonable out-of-pocket costs and expenses
incurred in connection with the performance of its services under the Services
Agreement. The Company has agreed to indemnify SCA against all claims,
liabilities, expenses, losses or damages (or actions in respect thereof) related
to or arising out of actions taken (or omitted to be taken) by SCA pursuant to
the terms of the Services Agreement; provided that such liabilities did not
result primarily from actions taken, or omitted to be taken, by SCA in bad faith
or due to SCA's gross negligence or officers and any persons holding 10% or more
of the Company's Common Stock with respect to the Company's fiscal year ended
March 30, 1996, were satisfied.
1996 Issuance of Old Preferred Stock Interests
In a series of related transactions commencing on July 30, 1996, Trefoil
Capital Investors II, L.P. and GE Investment Private Placement Partners II, A
Limited Partnership (the "Purchasers") acquired beneficial ownership of an
aggregate of approximately 70.77% of Grand Union's outstanding voting stock. On
July 30, 1996, Grand Union entered into a definitive agreement (the "Stock
Purchase Agreement") to sell $100 million of Class A Convertible Preferred Stock
("Class A Preferred") to the Purchasers. Each share of the Class A Preferred was
to be convertible at the option of the holder, at any time, into 6.8966 shares
of common stock. Pursuant to the Stock Purchase Agreement, the Purchasers agreed
to purchase, and Grand Union agreed to sell, an aggregate of 2,000,000 shares of
Class A Preferred at a purchase price of $50 per share (the "Stated Value") in
stages through February 25, 1998. On September 17, 1996, the first stage of the
transaction was closed, and the Purchasers acquired 800,000 shares of Class A
Preferred for an aggregate purchase price of $40 million.
At a subsequent closing held on February 25, 1997, the Purchasers purchased
an additional 400,000 shares of Class A Preferred for an aggregate purchase
price of $20 million. Additional subsequent closings were scheduled for August
26, 1997 and February 25, 1998 (the "Subsequent Closings"). If the Subsequent
Closings had occurred, the Purchasers would have been required to purchase an
additional 800,000 shares of Class A Preferred for an aggregate purchase price
of $40 million.
Pursuant to an Acceleration and Exchange Agreement (the "Acceleration
Agreement"), dated June 12, 1997, between Grand Union and the Purchasers, at the
request of Grand Union, the Purchasers agreed to accelerate to June 12, 1997
(the "Accelerated Closing") the sale and purchase of the 800,000 shares of Class
A Preferred (the "Accelerated Shares"), which was to have occurred at the
Subsequent Closings, and to exchange (the "Exchange") the Accelerated Shares for
800,000 shares of Class B Convertible Preferred Stock ("Class B Preferred"). At
the Accelerated Closing, Grand Union received the $40 million purchase price for
the sale of the Accelerated Shares. Immediately following the Accelerated
Closing, the Purchasers completed the Exchange pursuant to which they received
an aggregate of 800,000 shares of Class B Preferred, in consideration for their
surrender of the Accelerated Shares. Until February 20, 1998, each share of
Class B Preferred was convertible at the option of the holder, at any time, into
20.8333 shares of common stock. Pursuant to the Acceleration Agreement,
effective February 20, 1998, this conversion ratio was reset such that each
share of Class B Preferred is convertible into 33.3333 shares of common stock.
On March 20, 1997, Grand Union consummated the sale to The Roger Stangeland
Family Limited Partnership (the "Stangeland Partnership") of 60,000 shares of
Class A Preferred at a purchase price of $50 per share (the "Stangeland
Shares"), pursuant to the terms of a Stock Purchase Agreement, dated February
25, 1997, as amended by Amendment No. 1 thereto dated as of March 20, 1997 (as
so amended, the "Stangeland Stock Purchase Agreement"), between Grand Union and
Mr. Stangeland, a director of the Company from June 15, 1995 to April 22, 1998.
Pursuant to a Stockholder Agreement dated February 25, 1997 (the "Stangeland
Stockholder Agreement"), among the Purchasers, Mr. Stangeland and Grand Union,
Mr. Stangeland has granted the Purchasers certain take-along rights, the
Purchasers have granted Mr. Stangeland certain tag-along rights, and the
Purchasers and Grand Union have granted Mr. Stangeland certain registration
rights related to the Stangeland Shares and any shares of Class A Preferred, and
common stock, if any, paid as dividends with respect to the Class A Preferred
(collectively, "Securities"). Pursuant to an Addendum, dated as of March 20,
1997, to the Stangeland Stockholder Agreement, the Stangeland Partnership has
succeeded to all of the rights, and has assumed all of the obligations, of Mr.
Stangeland pursuant to the Stangeland Stockholder Agreement. The Purchasers
disclaim any and all
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ownership of the Stangeland Shares or any additional Securities acquired by the
Stangeland Partnership in respect of the Stangeland Shares.
As of June 24, 1998, there were a total of 1,300,566 outstanding shares of
Class A Preferred, which were convertible into an aggregate of 8,969,483 shares
of common stock, and a total of 800,000 outstanding shares of Class B Preferred,
which were convertible into an aggregate of 26,666,640 shares of common stock.
Together, the aggregate shares of Class A Preferred and Class B Preferred
account for approximately 77.74% of Grand Union's outstanding voting stock.
On September 30, 1996, December 31, 1996 and March 31, 1997, Grand Union
paid dividends on the Class A Preferred through the issuance of a total of
40,566 shares of Class A Preferred, with an aggregate Stated Value of
$2,028,300. Grand Union elected to suspend the declaration of the dividends
payable June 30, 1997, September 30, 1997, December 31, 1997 and March 31, 1998.
The dividends on the Class A Preferred and the Class B Preferred and the accrued
and unpaid dividends through March 31, 1998 have been accounted for by a charge
against "Capital in Excess of Par Value" and a corresponding increase in the
carrying amounts of the Class A Preferred and Class B Preferred. The Class A
Preferred and Class B Preferred have a liquidation preference over the common
stock equal to the Stated Value of the outstanding shares of the preferred stock
plus all accrued and unpaid dividends.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Report on Form 8-K
[to be updated]
The following documents are filed as a part of this report:
(a) Financial statements
All financial statements as set forth under Item 8.
(b) Report on Form 8-K
1. Relating to the hiring of Jack W. Partridge, Jr. - filed on
January 27, 1998.
2. Relating to the agreement on terms of a capital restructuring - filed on
March 31, 1998.
3. Relating to the commencement of the solicitation of votes on the Plan of
Reorganization - filed on May 28, 1998.
(c) Exhibits
Exhibit
Number Description of Document
- ------- -----------------------
2.1 Second Amended Chapter 11 Plan of Reorganization of The Grand Union
Company ("Grand Union"), filed with the United States Bankruptcy
Court, District of Delaware, on April 19, 1995, incorporated by
reference to Exhibit T3E1 to Grand Union's Form T-3 dated May 8,
1995.
2.2 Findings of Fact, Conclusions of Law and Order Confirming the
Second Amended Plan of Reorganization proposed by Grand Union,
dated May 31, 1995, incorporated by reference to Exhibit 2.2 to
Grand Union's Annual Report on Form 10-K for the fiscal year ended
April 1, 1995 ("Fiscal 1995").
2.3 Minute Order Clarifying Findings of Fact, Conclusions of Law and
Order Confirming Second Amended Plan of Reorganization proposed by
Grand Union, dated June 14, 1995, incorporated by reference to
Exhibit 2.3 to Grand Union's Annual Report on Form 10-K for Fiscal
1995.
2.4 Chapter 11 Plan of Reorganization filed with the United States
Bankruptcy Court, District of New Jersey, on
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Exhibit
Number Description of Document
- ------- -----------------------
June 24, 1998, incorporated by reference to Exhibit 1 to Exhibit
2.1. to Grand Union's Current Report on Form 8-K filed May 28,
1998.
3.1 Certificate of Incorporation of Grand Union, as amended through
January 6, 1997, incorporated by reference to Exhibit 3.1 to Grand
Union's Annual Report on Form 10-K for Fiscal 1997.
3.2 Certificate of Designation of Class A Convertible Preferred Stock,
incorporated by reference to Exhibit 10.4 to Grand Union's
Quarterly Report on Form 10-Q for the period ended October 12,
1996.
3.3 Certificate of Designation of Class B Convertible Preferred Stock,
dated as of June 11, 1997, incorporated by reference to Exhibit
3.1 to Grand Union's Annual Report on Form 10-K for Fiscal 1997.
3.4 By-laws of The Grand Union Company, as amended through January
15, 1998, incorporated by reference to Exhibit 3.1 to Grand
Union's Quarterly Report on Form 10-Q for the period ended January
3, 1998.
4.1 Form of Common Stock Certificate of Grand Union, incorporated by
reference to Exhibit 4.1 to Grand Union's Annual Report on Form
10-K for Fiscal 1995.
4.2 Warrant Agreement dated as of June 15, 1995, between Grand Union
and American Stock Transfer & Trust Company, as Warrant Agent for
300,000 Series 1 Warrants and 600,000 Series 2 Warrants,
incorporated by reference to Exhibit 4.5 to Grand Union's Annual
Report on Form 10-K for Fiscal 1995.
4.3 Registration Rights Agreement dated as of June 15, 1995, among
Grand Union and Each of the Persons Named in Schedule A thereto
for the Common Stock, incorporated by reference to Exhibit 4.6 to
Grand Union's Annual Report on Form 10-K for Fiscal 1995.
4.4 Registration Rights Agreement dated as of June 15, 1995, by and
among Grand Union and the Holders Named therein for the
Registrable Notes, incorporated by reference to Exhibit 4.7 to
Grand Union's Annual Report on Form 10-K for Fiscal 1995.
4.5 Indenture dated as of June 15, 1995, between Grand Union, as
Issuer, and IBJ Schroeder Bank & Trust Company, as Trustee for the
12% Senior Notes due September 1, 2004, including form of the 12%
Senior Notes due 2004, incorporated by reference to Exhibit 4.2 to
Grand Union's Annual Report on Form 10-K for Fiscal 1995.
4.6 First Supplement Indenture, dated September 9, 1996, to the
Indenture dated as of June 15, 1995, between Grand Union, as
Issuer, and IBJ Schroeder Bank & Trust Company, as Trustee for the
12% Senior Notes due September 1, 2004, incorporated by reference
to Exhibit 10.3 to Grand Union's Quarterly Report on Form 10-Q for
the period ended October 12, 1996.
4.7 Form of Warrant Agreement, to be executed on the Consummation
Date, between Grand Union and American Stock Transfer & Trust
Company, as Warrant Agent, incorporated by reference to Exhibit A
to Exhibit 1 to Exhibit 2.1. to Grand Union's Current Report on
Form 8-K filed May 28, 1998.
10.1 Agreement to Hold Separate dated July 17, 1989, by and among MTH
Holdings Inc. ("MTH Holdings"), GU Acquisition Corporation
("GUAC"), Salomon Inc. and the Federal Trade Commission (the "FTC")
entered into in the matter of MTH Holdings and GUAC before the FTC,
incorporated by reference to Exhibit No. 10.5 to Grand Union's
Registration Statement on Form S-1 (Registration No. 33-29707) (the
"1989 Grand Union Registration Statement").
10.2 Agreement containing Consent Order among MTH Holdings, GUAC and the
FTC entered into in the matter of
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Exhibit
Number Description of Document
- ------- -----------------------
MTH Holdings and GUAC before the FTC, incorporated by reference to
Exhibit No. 10.6 to the 1989 Grand Union Registration Statement.
10.3 Amended and Restated Borrower Pledge Agreement dated as of June 15,
1995, made by Grand Union to Bankers Trust Company ("Bankers
Trust"), as Collateral Agent incorporated by reference to Exhibit
10.10 to Grand Union's Annual Report on Form 10-K for Fiscal 1995.
10.4 Amended and Restated Borrower Security Agreement dated as of June
15, 1995, between Grand Union and Bankers Trust, as Collateral
Agent (included in Exhibit 4.4), incorporated by reference to
Exhibit 10.11 to Grand Union's Annual Report on Form 10-K for
Fiscal 1995.
10.5 Subsidiary Security Agreement dated as of June 15, 1995, among the
corporations listed on Schedule 1 thereto and Bankers Trust, as
Collateral Agent, incorporated by reference to Exhibit 10.12 to
Grand Union's Annual Report on Form 10-K for Fiscal 1995.
10.6 Subsidiary Guaranty dated as of June 15, 1995, made by each of the
corporations from time to time listed on Annex A attached thereto
in favor of the Banks and the Agent from time to time party to the
Credit Agreement, incorporated by reference to Exhibit 10.13 to
Grand Union's Annual Report on Form 10-K for Fiscal 1995.
10.7 Form of Indenture of Open-End Mortgage, Deed of Trust, Deed to
Secure Debt, Security Agreement, Assignment of Leases, Rents and
Profits, Financing Statement and Fixture Filing, dated as of June
15, 1995, made by Grand Union to Bankers Trust, as Collateral
Agent, incorporated by reference to Exhibit 10.14 to Grand Union's
Annual Report on Form 10-K for Fiscal 1995.
10.8 Tenth Amendment to the Amended and Restated Credit Agreement dated
as of June 15, 1995, (the "Credit Agreement"), which amends and
restates the Credit Agreement as of August 31, 1997 among Grand
Union, the lending institutions listed from time to time on
Schedule 1 thereto, and Bankers Trust, as Agent, including Exhibits
A-1, A-2 and A-3, and various Schedules thereto, incorporated by
reference to Grand Union's Current Report on Form 8-K filed on
September 3, 1997.
10.9 Eleventh Amendment to the Credit Agreement dated as of August
29, 1997, incorporated by reference to Exhibit 10.1 of Grand
Union's Quarterly Report on Form 10-K for the period ended January
3, 1998.
10.10 Twelfth Amendment to the Credit Agreement dated as of January 9,
1998, incorporated by reference to Exhibit 10.2 of Grand Union's
Quarterly Report on Form 10-K for the period ended January 3, 1998.
10.11 Thirteenth Amendment to the Credit Agreement dated April 17, 1998.
10.12 Supply and Distribution Agreement between Grand Union and C&S
Wholesalers, dated June 15, 1995, incorporated by reference to
Exhibit 10.3 to Grand Union's Quarterly Report on Form 10-Q/A for
the period ended January 6, 1996.
10.13 First Amendment to the Supply and Distribution Agreement between
Grand Union and C&S Wholesalers, dated June 15, 1995, incorporated
by reference to Exhibit 10.4 to Grand Union's Quarterly Report on
Form 10-Q/A for the period ended January 6, 1996.
10.14 Supply and Distribution Agreement between Grand Union and C&S
Wholesalers, dated January 2, 1996, incorporated by reference to
Exhibit 10.5 to Grand Union's Quarterly Report on Form 10-Q/A for
the period ended January 6, 1996.
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<PAGE>
Exhibit
Number Description of Document
- ------- -----------------------
10.15 Agreement with C&S Wholesalers Inc. dated January 21, 1996,
incorporated by reference to Exhibit 10.28 to Grand Union's Annual
Report on Form 10-K/A for Fiscal 1997.
10.16 Fourth Amendment and Restatement of The Grand Union Company
Supplemental Retirement Program for Key Executives effective as of
November 20, 1997.
10.17 The Grand Union Company Discretionary Severance Plan for Non-Union
Associates effective April 14, 1998.
10.18 The Grand Union Company Severance Plan for Exempt Personnel
effective April 14, 1998.
10.19 The Grand Union Company 1995 Equity Incentive Plan, as amended,
incorporated by reference to Exhibit 6 to Grand Union's Disclosure
Statement filed as Exhibit 2.1 to Grand Union's Form 8-K filed May
28, 1998.
10.20 The Grand Union Company 1995 Non-Employee Directors Stock Option
Plan, incorporated by reference to Exhibit 10.2 to Grand Union's
Quarterly Report on Form 10-Q for the period ended January 6, 1996.
10.21 First Amendment to the 1995 Non-Employee Directors' Stock Option
Plan of Grand Union, incorporated by reference to Exhibit 10.6 to
Grand Union's Quarterly Report on Form 10-Q for the period ended
July 20, 1996.
10.22 Non-competition Agreement between Grand Union and Darrell W. Stine,
incorporated by reference to Exhibit 10.26 of Grand Union's Annual
Report on Form 10-K for Fiscal 1996.
10.23 Non-competition Agreement between Grand Union and Gilbert C. Vuolo,
incorporated by reference to Exhibit 10.27 of Grand Union's Annual
Report on Form 10-K for the Fiscal 1996.
10.24 Form of Indemnification Agreement between the Company and R.
Stangeland, D. Josephs, W. Kagler, D. McClure, Jr., D. Ying, J.
McCaig, W. Louttit, K. Baum, D. Stine, G. Vuolo and J. Schroeder,
incorporated by reference to Exhibit 10.7 to Grand Union's
Quarterly Report on Form 10-Q for the period ended July 20, 1996.
10.25 Form of Indemnification Agreement between Grand Union and
J. Costello, C. Miller, G. Moore and J.R. Stonesifer, incorporated
by reference to Exhibit 10.1 to Grand Union's Quarterly Report on
Form 10-Q for the period ended October 12, 1996.
10.26 Form of Indemnification Agreement between the Company and J.
Freimark (dated March 3, 1997), D. Vaillancourt (dated June 5,
1997), G. Smith (dated August 7, 1997), J. Harris (dated August 11,
1997), G. Philbin (dated October 3, 1997), Javier Ramirez, Vice
President Tax and Assistant Secretary (dated October 30, 1997), J.
Krimstein (dated October 30, 1997), M. Manski (dated October 30,
1997), M. Pritchard (dated October 30, 1997) and J. Partridge
(dated January 5, 1998).
10.27 Stock Purchase Agreement dated July 30, 1996, among Grand Union,
Trefoil Capital Investors II, L.P. and GE Investment Private
Placement Partners II, A Limited Partnership, incorporated by
reference to Exhibit 10.1 to Grand Union's report filed on Form 8-K
dated July 30, 1996.
10.28 Amendment No. 1 to the Stock Purchase Agreement dated July 30,
1996, among Grand Union, Trefoil Capital Investors II, L.P., and GE
Investment Private Placement Partners II, a Limited Partnership,
incorporated by reference to Exhibit 10.50 to Grand Union's Annual
Report on Form 10-K for Fiscal 1997.
10.29 Management Agreement between Grand Union and Shamrock Capital
Advisors, Inc., dated July 30, 1996, incorporated by reference to
Exhibit 10.7 to Grand Union's Quarterly Report on Form 10-Q for the
period ended October 12, 1996.
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Exhibit
Number Description of Document
- ------- -----------------------
10.30 Stock Purchase Agreement by and between Grand Union and Roger
Stangeland, dated as of February 25, 1997, incorporated by
reference to Exhibit 10.52 to Grand Union's Annual Report on Form
10-K for Fiscal 1997.
10.31 Amendment No. 1, dated March 20, 1997, to the Stock Purchase
Agreement between Grand Union and Roger Stangeland, dated as of
February 25, 1997, incorporated by reference to Exhibit 10.53 to
Grand Union's Annual Report on Form 10-K for Fiscal 1997.
38
<PAGE>
Exhibit
Number Description of Document
- ------- -----------------------
10.32 Stockholder Agreement between Trefoil Capital Investors II, L.P., a
Delaware limited partnership, GE Investment Private Placement
Partners II, A Limited Partnership, a Delaware limited partnership,
Roger Stangeland, an individual, and Grand Union, incorporated by
reference to Exhibit 10.55 to Grand Union's Annual Report on Form
10-K for Fiscal 1997.
10.33 Addendum to Stockholder Agreement among Trefoil Capital Investors
II, L.P., a Delaware limited partnership, GE Investment Private
Placement Partners II, A Limited Partnership, a Delaware limited
partnership, Roger Stangeland, an individual, and The Grand Union
Company, a Delaware corporation, incorporated by reference to
Exhibit 10.56 to Grand Union's Annual Report on Form 10-K for
Fiscal 1997.
10.34 Acceleration and Exchange Agreement, dated as of June 5, 1997, by
and among The Grand Union Company, Trefoil Capital Investors II,
L.P., a Delaware limited partnership, and GE Investments Private
Placement Partners II, A Limited Partnership, a Delaware limited
partnership, including Exhibits thereto, incorporated by reference
to Exhibit 10.57 to Grand Union's Annual Report on Form 10-K for
Fiscal 1997.
10.35 Amendment No. 1, dated as of June 5, 1997, to the Registration
Rights Agreement dated as of July 30, 1996, by and among The Grand
Union Company, Trefoil Capital Investors II, L.P., a Delaware
limited partnership, and GE Investments Private Placement Partners
II, A Limited Partnership, a Delaware limited partnership,
incorporated by reference to Exhibit 10.58 to Grand Union's Annual
Report on Form 10-K for Fiscal 1997.
10.36 Employment Agreement, dated as of August 1, 1997, between Grand
Union and J. Wayne Harris, incorporated by reference to Exhibit
99.1 Grand Union's Current Report on Form 8-K filed on August 1,
1997.
10.37 Employment Agreement, dated as of October 3, 1997, between Grand
Union and Gary M. Philbin, incorporated by reference to Exhibit
99.1 Grand Union's Current Report on Form 8-K filed on October 29,
1997.
10.38 Employment Agreement, dated as of January 5, 1998, between Grand
Union and Jack W. Partridge, incorporated by reference to Exhibit
99.1 Grand Union's Current Report on Form 8-K filed on January 28,
1998.
10.39 Exit Facility Commitment Letter, dated April 23, 1998, among Grand
Union and Swiss Bank Corporation, SBC Warburg Dillon Read Inc.,
Lehman Commercial Paper Inc. and Lehman Brothers Inc.
10.40 Revolving Credit Agreement, dated as of June 24, 1998, by and
among Grand Union and Swiss Bank Corporation, SBC Warburg Dillon
Read Inc., Lehman Commercial Paper Inc. and Lehman Brothers Inc.
10.41 Guarantee and Collateral Agreement, dated as of June 24, 1998, by
the Company's subsidiaries for the benefit of Lehman Commercial
Parer Inc. as Administrative Agent.
21.1 Subsidiaries of Grand Union.
27.1 Financial Data Schedule.
39
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
THE GRAND UNION COMPANY
(Registrant)
Date: June 26, 1998 /s/ Jeffrey P. Freimark
----------------------------------------------------
Jeffrey P. Freimark
Executive Vice President and Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
/s/ J. Wayne Harris Director, Chairman, and Chief June 26, 1998
- ---------------------------------------------- Executive Officer
J. Wayne Harris (Principal Executive Officer)
/s/ Jack W. Partridge, Jr. Director, Vice Chairman and June 26, 1998
- ---------------------------------------------- Chief Administrative Officer
Jack W. Partridge, Jr.
/s/ Gary M. Philbin Director, President and Chief June 26, 1998
- ---------------------------------------------- Merchandising Officer
Gary M. Philbin
/s/ Jordan H. Krimstein Director June 26, 1998
- ----------------------------------------------
Jordan H. Krimstein
/s/ Mark H. Manski Director June 26, 1998
- ----------------------------------------------
Mark H. Manski
/s/ Martha A. Pritchard Director June 26, 1998
- ----------------------------------------------
Martha A. Pritchard
/s/ Jeffrey P. Freimark Executive Vice President and June 26, 1998
- ---------------------------------------------- Chief Financial Officer
Jeffrey P. Freimark (Principal Financial Officer and
Principal Accounting Officer)
</TABLE>
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
(Post-Emergence)
To the Shareholders and the Board of Directors of
The Grand Union Company
In our opinion, the accompanying consolidated balance sheet and the
related consolidated statements of operations and cash flows present
fairly, in all material respects, the financial position of The Grand
Union Company and its subsidiaries (the "Company") at March 28, 1998 and
March 29, 1997 and the results of their operations and their cash flows
for the 52 weeks ended March 28, 1998 and March 29, 1997 in conformity
with generally accepted accounting principles. These financial statements
are the responsibility of the Company's management; our responsibility is
to express an opinion on these financial statements based on our audits.
We conducted our audits of these statements in accordance with generally
accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting
principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for the opinion expressed above.
The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As discussed
in Note 1 to the consolidated financial statements, on June 24, 1998 the
Company filed a voluntary petition for relief, under Chapter 11 of Title
11 of the United States Code ("Chapter 11"), with the United States
Bankruptcy Court for the District of New Jersey. As such, there is
substantial doubt about the Company's ability to continue as a going
concern. Management's plans in regard to these matters are also described
in Note 1. The consolidated financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
As discussed in Note 3 to the consolidated financial statements, on
May 31, 1995, the United States Bankruptcy Court for the District of
Delaware confirmed the Company's 1995 Plan of Reorganization, as amended
(the "1995 Plan"). Confirmation of the Plan resulted in the discharge of
all claims against the Company that arose before January 25, 1995 and
terminated all rights and interests of equity shareholders as provided for
in the 1995 Plan. The 1995 Plan became effective on June 15, 1995 and the
Company emerged from Chapter 11. In connection with its emergence from
Chapter 11, the Company adopted Fresh-Start Reporting as of June 18, 1995.
PRICE WATERHOUSE LLP
Florham Park, New Jersey
June 24, 1998
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
(Pre-Emergence)
To the Shareholders and the Board of Directors of
The Grand Union Company
In our opinion, the accompanying consolidated statements of
operations and cash flows present fairly, in all material respects, the
results of operations and cash flows of The Grand Union Company and its
subsidiaries (the "Company") for the 11 weeks ended June 17, 1995, in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements
based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which require that
we plan and perform an audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting
principles used and significant estimates made by management and
evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for the opinion expressed above.
As discussed in Note 3 to the consolidated financial statements, on
January 25, 1995, the Company filed a voluntary petition for relief under
Chapter 11 of Title 11 of the United States Code ("Chapter 11") in the
United States Bankruptcy Court for the District of Delaware. The
Company's 1995 Plan of Reorganization, as amended, became effective on June
15, 1995 and the Company emerged from Chapter 11. In connection with its
emergence from Chapter 11, the Company adopted Fresh-Start Reporting as
of June 18, 1995.
PRICE WATERHOUSE LLP
New York, New York
May 17, 1996
F-2
<PAGE>
THE GRAND UNION COMPANY
CONSOLIDATED STATEMENT OF OPERATIONS
(dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Successor Predecessor
Company Company
---------------------------------------------------------------------
52 Weeks 52 Weeks 41 Weeks 11 Weeks
Ended Ended Ended Ended
March 28, March 29, March 30, June 17,
1998 1997 1996 1995
--------------- --------------- -------------- --------------
<S> <C> <C> <C> <C>
Sales $ 2,266,770 $ 2,312,673 $ 1,819,928 $ 487,882
Cost of sales (1,627,233) (1,606,926) (1,250,072) (344,041)
--------------- --------------- -------------- --------------
Gross profit 639,537 705,747 569,856 143,841
Operating and administrative expenses (568,903) (582,889) (453,620) ( 117,544)
Depreciation and amortization (98,789) (85,459) (59,840) (17,215)
Amortization of excess reorganization value (104,332) (102,607) (83,985) -
Unusual items (6,333) (9,800) (22,000) (18,627)
Interest expense, net (113,770) (105,823) (79,194) (19,791)
--------------- --------------- -------------- --------------
(Loss) before income taxes and extraordinary
gain on debt discharge (252,590) (180,831) (128,783) (29,336)
Income tax (provision) benefit (51,393) (2,523) 18,927 -
--------------- --------------- -------------- --------------
(Loss) before extraordinary gain on debt
discharge (303,983) (183,354) (109,856) (29,336)
Extraordinary gain on debt discharge - - - 854,785
--------------- --------------- -------------- --------------
Net (loss) income (303,983) (183,354) (109,856) 825,449
Accrued dividends on preferred stock (8,431) (2,000) - -
--------------- --------------- -------------- --------------
Net (loss) income applicable to common stock $ (312,414) $ (185,354) $ (109,856) $ 825,449
=============== =============== ============== ==============
Basic and diluted net (loss) per share $ (31.12) $ (18.54) $ (10.99)
=============== =============== ==============
Weighted average number of shares
outstanding 10,039 10,000 10,000
=============== =============== ==============
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
THE GRAND UNION COMPANY
CONSOLIDATED BALANCE SHEET
(dollars in thousands, except par value and liquidation preference data)
<TABLE>
<CAPTION>
March 28, March 29,
1998 1997
----------------- -----------------
<S> <C> <C>
ASSETS
Current assets:
Cash and temporary investments $ 44,745 $ 34,119
Receivables 21,378 28,966
Inventories 128,370 131,409
Other current assets 14,787 14,326
----------------- -----------------
Total current assets 209,280 208,820
Property, net 389,637 411,911
Excess reorganization value, net 230,734 335,065
Beneficial leases, net 39,531 52,266
Deferred tax asset - 51,393
Other assets 23,049 12,375
----------------- -----------------
$ 892,231 $ 1,071,830
================= =================
LIABILITIES AND STOCKHOLDERS' (DEFICIT)
Current liabilities:
Current maturities of long-term debt $ 798,551 $ 46
Current portion of obligations under capital leases 7,562 8,045
Accounts payable and accrued liabilities 189,439 175,540
----------------- -----------------
Total current liabilities 995,552 183,631
Long-term debt - 740,207
Obligations under capital leases 153,425 140,058
Other noncurrent liabilities 96,458 96,144
----------------- -----------------
Total liabilities 1,245,435 1,160,040
----------------- -----------------
Redeemable Class A Preferred Stock, $1.00 par value, 3,500,000 shares
authorized, 1,300,566 shares issued and outstanding, liquidation
preference $70,685,000 and $65,000,000, respectively 70,685 65,000
----------------- -----------------
Redeemable Class B Preferred Stock, $1.00 par value, 1,400,000 shares
authorized, 800,000 shares issued and outstanding, liquidation
preference $42,746,000 42,746 -
----------------- -----------------
Stockholders' (deficit):
Common stock, $.01 par value; 60,000,000 shares
authorized, 10,202,018 and 10,000,000 shares issued and
outstanding at March 28, 1998 and March 29, 1997, respectively 102 100
Preferred stock, $1.00 par value; 10,000,000 shares
authorized, less amount authorized as Class A and Class
B preferred stock, no shares issued and outstanding - -
Capital in excess of par value 132,006 139,900
Accumulated deficit (598,743) (293,210)
----------------- -----------------
Total stockholders' (deficit) (466,635) (153,210)
----------------- -----------------
$ 892,231 $ 1,071,830
================= =================
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
THE GRAND UNION COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS
(dollars in thousands)
<TABLE>
<CAPTION>
Successor Predecessor
Company Company
------------------------------------------------------------------
52 Weeks 52 Weeks 41 Weeks 11 Weeks
Ended Ended Ended Ended
March 28, March 29, March 30, June 17,
1998 1997 1996 1995
--------------- ---------------- --------------- -----------------
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net (loss) income $ (303,983) $ (183,354) $ (109,856) $ 825,449
Adjustments to reconcile net (loss) income to
net cash provided by (used for) operating
activities before reorganization items paid:
Extraordinary gain on debt discharge - - - (854,785)
Depreciation and amortization 203,121 188,066 143,825 17,215
Deferred taxes 51,393 2,523 (18,927) -
Noncash interest 907 (188) 14,552 1,126
Net changes in assets and liabilities:
Receivables 7,588 2,973 (12,652) 1,769
Inventories 3,039 2,097 50,372 12,946
Other current assets (461) (617) 123 2,776
Accounts payable and accrued liabilities 15,582 (2,783) (59,509) (34,928)
Other (9,627) (2,867) (7,733) 4,493
--------------- ---------------- --------------- -----------------
Net cash provided by (used for) operating
activities before reorganization items paid (32,441) 5,850 195 (23,939)
Reorganization items paid (3,681) (5,484) (20,729) (4,913)
--------------- ---------------- --------------- -----------------
Net cash provided by (used for) operating activities (36,122) 366 (20,534) (28,852)
--------------- ---------------- --------------- -----------------
INVESTMENT ACTIVITIES:
Capital expenditures (39,727) (55,147) (40,402) (3,301)
Disposals of property 5,897 8,011 5,555 5,452
--------------- ---------------- --------------- -----------------
Net cash provided by (used for) investment activities (33,830) (47,136) (34,847) 2,151
--------------- ---------------- --------------- -----------------
FINANCING ACTIVITIES:
Net proceeds from sale of preferred stock 40,000 51,000 - -
Net proceeds from sale of common stock 258 - - -
Proceeds from new bank debt - - - 104,144
Payment of old bank debt - - - (93,144)
Net proceeds from long-term debt 77,978 9,000 33,089 -
Loan placement fees (9,842) - - (3,125)
Obligations under capital leases discharged (8,770) (10,543) (6,126) (1,707)
Net repayment of long-term debt (19,046) (7,993) (808) (239)
--------------- ---------------- --------------- -----------------
Net cash provided by financing activities 80,578 41,464 26,155 5,929
--------------- ---------------- --------------- -----------------
Net increase (decrease) in cash and temporary investments 10,626 (5,306) (29,226) (20,772)
Cash and temporary investments at beginning of period 34,119 39,425 68,651 89,423
--------------- ---------------- --------------- -----------------
Cash and temporary investments at end of period $ 44,745 $ 34,119 $ 39,425 $ 68,651
=============== ================ =============== =================
Supplemental disclosure of cash flow information:
Interest payments $ 77,658 $ 105,045 $ 57,565 $ 9,515
Capital lease obligations incurred 21,654 23,452 8,529 20,072
Accrued dividends 8,431 2,000 - -
Decrease in common stock par value - 9,900 - -
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
THE GRAND UNION COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - Management Plans and Subsequent Events
On January 27, 1998 The Grand Union Company, a Delaware corporation
("Grand Union" or the "Company"), announced that it had retained the firm
of Salomon Smith Barney as a financial advisor to evaluate various
financial alternatives, including a capital restructuring. In February
1998, the Company commenced negotiations with the Secured Banks regarding
obtaining necessary waivers to avoid the consequences of an event of
default under the Credit Agreement and to facilitate the restructuring
contemplated by the Company's proposed plan of reorganization (the "Plan
of Reorganization"). Those negotiations resulted in an agreement by the
Secured Banks to waive certain defaults under the Credit Agreement,
subject to the terms and conditions of such waiver.
The same industry and financial pressures that required Grand Union
to commence negotiations with the Secured Banks also led the Company to
commence negotiations regarding a restructuring of its obligations with
the holders of the Senior Notes. In February and March 1998, eight
institutions owning approximately 48% of the Senior Notes agreed to serve
on an unofficial noteholder committee (the "Unofficial Noteholder
Committee") and receive confidential, non-public information about Grand
Union.
Grand Union participated in extensive negotiations with the
Unofficial Noteholder Committee regarding the terms of a proposed
financial restructuring. During this time, Grand Union failed to make the
approximately $36 million interest payment due and payable on the Senior
Notes on March 2, 1998, which resulted in the occurrence of events of
default under the Indenture governing the Senior Notes and the Credit
Agreement. Nevertheless, negotiations between Grand Union and the
Unofficial Noteholder Committee continued, and on March 30, 1998, the
parties reached an agreement in principle on the terms of a restructuring
to be effectuated pursuant to a plan of reorganization under chapter 11
of the Bankruptcy Code. On May 13, 1998, Grand Union, the Unofficial
Noteholder Committee and the holders of the Grand Union's preferred stock
reached an agreement in principle regarding the proposed treatment of the
preferred stock.
Pursuant to a Disclosure Statement, dated May 22, 1998 (the
"Disclosure Statement"), Grand Union commenced a prepetition solicitation
of votes by the holders of Senior Notes and preferred stock to accept or
reject the Plan of Reorganization. The Plan of Reorganization generally
provides that trade and business creditors will be unimpaired and will
continue to be paid in the ordinary course of business, so long as
shipments are made to the Company under terms at least equivalent to
those in place prior to January 27, 1998. The Plan of Reorganization
further provides that (i) the Company's Senior Notes will be cancelled
and exchanged for all of the reorganized Company's common stock; (ii) the
Company's existing common stock will be cancelled and exchanged for
five-year warrants to purchase approximately 1.5% of the new common stock
at an exercise price of $19.82 per share; (iii) the Company's preferred
stock will be cancelled and exchanged for (a) five-year warrants to
purchase approximately 10.5% of the new common stock at an exercise price
of $19.82 per share, (b) five-year warrants to purchase approximately
2.5% of the new common stock at an exercise price of $23.15 per share,
and (c) four-year warrants to purchase approximately 1% of the new common
stock at an exercise price of $12.32 per share; and (iv) the Company's
outstanding warrants and stock options will be cancelled. At the
conclusion of the solicitation period, which commenced on May 22, 1998
and ended on June 22, 1998, the Plan of Reorganization had been accepted
by holders of approximately 99% of the Senior Notes in principal amount
and approximately 92% in number of such holders that voted on the Plan of
Reorganization and by all holders of the preferred stock that voted on
the Plan of Reorganization. Holders of approximately 72% in principal
amount of the outstanding Senior Notes voted to accept the Plan of
Reorganization. Although Grand Union believes that the Plan of
Reorganization will satisfy all requirements necessary for confirmation
by the Bankruptcy Court (as defined below), there can be no assurance
that the Bankruptcy Court will reach the same conclusion. Moreover, there
can be no assurance that modifications of the Plan of Reorganization will
not be required for confirmation or that such modifications would not
necessitate the resolicitation of votes.
On June 24, 1998, the Company filed a voluntary petition for relief
(the "Filing") under chapter 11, Title 11 of the United States Code, as
amended ("Chapter 11"), with the United States Bankruptcy Court for the
District of New Jersey (the "Bankruptcy Court"). The Company is in
possession of its property and is maintaining and operating its business
as a debtor-in-possession pursuant to the provisions of Sections 1107 and
1108 of Chapter 11.
F-6
<PAGE>
As previously reported, in recent months, the Company had been
experiencing liquidity problems and had been unable to borrow the funds
necessary to pay the interest due on its Senior Notes and finance its
working capital and other business needs.
Since March 2, 1998, the Company has been in default of its
obligations under the Senior Notes and operating with waivers of cross
defaults under the Credit Agreement. As of June 24, 1998 the Company had
$22 million of borrowings and approximately $33 million of letters of
credit outstanding under its $100 million revolving credit facility. In
addition, the Filing by the Company constitutes an automatic default
under the Credit Agreement.
In connection with the Filing, on June 24, 1998, the Company entered
into a $172,022,020 firm underwritten revolving credit agreement (the
"DIP Facility") with Swiss Bank Corporation ("SBC") and Lehman Commercial
Paper Inc. ("LCPI"), as agents for a syndicate of lenders (together, the
"DIP Lenders"). The DIP Facility consists of a revolving credit facility
in an aggregate amount of $172,022,020, inclusive of a $50 million letter
of credit facility. Loans under the DIP Facility will be guaranteed by
each of the Company's subsidiaries. The DIP Facility will mature upon the
earlier of (i) October 22, 1998, or (ii) the effective date of the Plan
of Reorganization.
The proceeds of the DIP Facility will be used (i) to finance the
working capital needs of the Company and its subsidiaries in the ordinary
course of business, (ii) to finance the payment of Chapter 11 expenses,
(iii) for general corporate purposes and (iv) to refinance the revolving
credit and term loans and to replace, backstop or cash collateralize
letters of credit outstanding under the Credit Agreement.
The DIP Facility is secured by substantially all of the assets of
Grand Union and its subsidiaries. The interest rate applicable to the DIP
Facility will be equal to, at Grand Union's election, either (i) 1.5%
above the higher of (A) Citibank's prime rate and (B) the federal funds
rate plus 0.5%, or (ii) 2.5% above the rate for eurodollar deposits for
one, two or three weeks or one month (as selected by Grand Union) in the
interbank eurodollar market. Grand Union committed to pay an underwriting
fee of $1,100,000 and is required to pay a $25,000 per month
administrative fee. In addition, Grand Union will pay a commitment fee of
0.5% per annum on the average daily unused portion of the DIP Facility
and a fronting fee of 0.125% on the aggregate undrawn face amount of
outstanding letters of credit. The availability of the DIP Facility is
conditioned, among other things, upon the entry of an order of the
Bankruptcy Court approving the DIP Facility, which is anticipated to
occur 15 days after the Filing.
On the date the Plan of Reorganization is consummated (the
"Consummation Date"), Grand Union will enter into a new credit facility
(the "Exit Facility"). On April 23, 1998, Grand Union received a letter
from SBC Warburg Dillon Read Inc., SBC, Lehman Brothers Inc. and LCPI,
pursuant to which SBC and LCPI (collectively, the "Agent Banks")
committed to provide financing to Grand Union in the aggregate principal
amount of $300 million upon consummation of the Plan of Reorganization.
The Agent Banks, as agents for a syndicate of banks, financing
institutions and other entities, including the Agent Banks (collectively,
the "New Grand Union Lenders"), will provide Grand Union with the Exit
Facility. The Exit Facility will be guaranteed by all of Grand Union's
subsidiaries.
The Exit Facility will be comprised of: (i) a $230 million term loan
facility (the "Term Loan") and (ii) a $70 million revolving credit
facility (the "Revolving Credit Facility"). The Term Loan and Revolving
Credit Facility will mature on the fifth anniversary of the Consummation
Date. The proceeds of the Exit Facility will be used to refinance the
obligations under the DIP Facility and the Supplemental Term Loan claims
under the Credit Agreement and the excess portion will be used for the
working capital needs of the Company and its subsidiaries, including
capital expenditures. Up to $50 million of the Revolving Credit Facility
will be available for the issuance of letters of credit. The Exit
Facility will be secured by substantially all of the assets of the
Company and its subsidiaries. The availability of the Exit Facility is
conditioned, among other things, upon the Bankruptcy Court having entered
an order confirming the Plan of Reorganization on or before August 31,
1998.
NOTE 2 - Basis of Presentation and Summary of Significant Accounting
Policies
The Company is a regional food retailer, which currently operates
stores in six northeastern states. The Company has been publicly owned
since June 15, 1995. Prior to June 15, 1995, Grand Union Capital
Corporation ("Capital"), a wholly owned subsidiary of Grand Union
Holdings Corporation ("Holdings") owned all of Grand Union's Common
Stock.
F-7
<PAGE>
Basis of Presentation
As of the Company's emergence from Chapter 11 ("Chapter 11") of Title
11 of the United States Code (the "Code") on June 15, 1995 (the
"Effective Date", see Note 3) the Company adopted fresh-start reporting
in accordance with American Institute of Certified Public Accountants
Statement of Position 90-7, "Financial Reporting By Entities in
Reorganization Under The Bankruptcy Code" ("Fresh-Start Reporting"). In
connection with the adoption of Fresh-Start Reporting, a new entity has
been deemed created for financial reporting purposes. The period
presented prior to the Effective Date has been designated "Predecessor
Company" and the periods subsequent to the Effective Date have been
designated "Successor Company".
Principles of Consolidation
The consolidated financial statements include the accounts of the
Company and its subsidiaries, all of which are wholly owned. Intercompany
transactions and balances have been eliminated in consolidation.
Fiscal Year
The Company's fiscal year ends on the Saturday nearest the last day
of March. The years ended March 28, 1998 ("Fiscal 1998"), March 29, 1997
("Fiscal 1997"), and March 30, 1996 ("Fiscal 1996") were each comprised
of 52 weeks. Fiscal 1996 includes the 11 weeks prior to the Effective
Date which have been designated "Predecessor Company" and the 41 weeks
subsequent to the Effective Date which have been designated "Successor
Company".
Temporary Cash Investments
The Company considers all liquid investments with original maturities
of three months or less to be cash equivalents.
Inventories
Grocery and general merchandise inventories are all valued at the
lower of last-in, first-out ("LIFO") cost or market. At March 28, 1998
and March 29, 1997 approximately $112,411,000 and $111,923,000,
respectively, of grocery and general merchandise inventories were valued
using the LIFO method. Replacement cost exceeded LIFO cost of these
inventories by approximately $3,783,000 and $3,800,000 at March 28, 1998
and March 29, 1997, respectively. Perishable inventories are valued at
the lower of average cost or market, which adequately provides for the
matching of costs and related revenues due to the rapid turnover of such
inventories.
Property and Depreciation
Land, buildings, fixtures and equipment and leasehold improvements
are recorded at cost and include interest on the funds borrowed to
finance construction. Depreciation and amortization of buildings,
fixtures and equipment and leasehold improvements is computed using the
straight-line method over estimated useful lives ranging from three to
forty years. Properties held under capital leases are capitalized net of
gains on sale-leaseback transactions and are amortized using the
straight-line method over the life of the asset or the life of the lease,
as appropriate.
Excess Reorganization Value
Excess Reorganization Value, established in connection with
Fresh-Start Reporting, is being amortized on a straight-line basis over
five years. Accumulated amortization was $290,925,000 and $186,592,000 at
March 28, 1998 and March 29, 1997, respectively.
Beneficial Leases
Amortization of beneficial leases is computed using the straight-line
basis over the lease life. At March 28, 1998 and March 29, 1997,
accumulated amortization was $40,159,000 and $27,682,000, respectively.
Amortization of Debt Premium
The Company amortizes premiums in connection with the issuance of
long-term debt over the life of the respective issue.
F-8
<PAGE>
Deferred Financing Fees
Financing fees are deferred and amortized over the expected life of
the related loan. At March 28, 1998 and March 29, 1997, accumulated
amortization was $2,342,000 and $802,000, respectively.
Income Taxes
Deferred income taxes are recognized for tax consequences of
"temporary differences" by applying enacted statutory tax rates,
applicable to future years, to differences between the financial
reporting and the tax basis of existing assets and liabilities. Valuation
allowances are recorded to the extent that it is more likely than not
that future tax benefits will not be realized.
Retirement Plans
The Company maintains a noncontributory, trusteed pension plan
covering eligible employees and a supplemental nonqualified, nontrusteed
plan for certain executives. The Company's policy is to fund pension
amounts, which satisfy the requirements of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"). The Company also maintains a
saving plan in which eligible employees may contribute up to a total of
14% of their salary; the allowable percentage of pre- and post-tax
contributions vary depending upon the earnings of a particular employee.
The Company provides a match of 25% on the dollar up to the first 4% of
employee contributions.
Postretirement Benefits other than Pension
The Company accrues the estimated cost of retiree benefit payments,
other than pension, during the years each employee provides services.
Stock-Based Compensation
The Company accounts for stock-based compensation using the intrinsic
value method under which compensation cost is measured as the excess, if
any, of the quoted market price of the Company's stock at the date of
grant over the exercise price of the option granted. Compensation cost
for stock options, if any, is recognized ratably over the vesting period.
The Company provides additional pro forma disclosures as required under
Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting
for Stock-Based Compensation."
Self Insurance
The Company self-insures workers' compensation, automobile liability,
general liability and non-union employee medical costs to varying
deductible limits, and with the exception of medical costs, carries third
party insurance in excess of such limits. Reserves are provided for the
estimated settlement value up to the deductible limit of all claims
incurred during each policy year.
Advertising Costs
Advertising costs are expensed as incurred. Advertising expense for
Fiscal 1998, Fiscal 1997, the 41 weeks ended March 30, 1996, and the 11
weeks ended June 17, 1995 was $33,216,000, $37,481,000, $28,084,000, and
$7,383,000, respectively.
Store Closure Expense
Estimated net costs of holding and disposing of closed stores are
provided as of the later of the date the decision is made to close the
store or the date such costs are reasonably estimable.
Pre-opening Costs
Store pre-opening costs are charged to expense as incurred.
F-9
<PAGE>
Fair Value of Financial Instruments
The carrying amount of cash, temporary cash investments, receivables,
accounts payable, accrued liabilities and debt, other than the Senior
Notes, approximates fair value. The fair value of the Senior Notes, based
upon published trading values, is $311,107,000 and $592,444,000 at March
28,1998 and March 29, 1997, respectively.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and the disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues, costs and
expenses during the reporting period. Actual results could differ from
those estimates. Areas of significant estimates include self-insurance
reserves, realization of deferred tax assets, retirement benefit
reserves, recoverability of long-lived assets, restructuring and other
reserves.
Net Loss Per Share
Net loss per share is computed in accordance with SFAS No. 128,
"Earnings Per Share" ("SFAS No. 128"), which is effective for interim and
year end periods ending after December 15, 1997. This statement requires
that entities present, on the face of the income statement for all
periods presented, basic and diluted per share amounts. Basic earnings
per share is computed using the weighted average number of common shares
outstanding for the period. Diluted earnings per share considers the
impact of any dilutive stock options or warrants outstanding (potential
common shares). For Fiscal 1998, Fiscal 1997, and the 41 weeks ended
March 30, 1996, potentially dilutive shares totaling 29,554,440,
10,126,763, and 235,680 have been excluded from the computation of the
Company's diluted earnings per share because the effect would have been
anti-dilutive. The Company adopted SFAS No. 128 in the third quarter of
Fiscal 1998.
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of
In March 1995, the Financial Accounting Standards Board ("FASB")
issued SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to Be Disposed Of", ("SFAS No. 121"), which
establishes accounting standards for the impairment of long-lived assets,
certain identifiable intangibles, and goodwill related to those assets to
be held and used and for long-lived assets and certain identifiable
intangibles to be disposed of. The Company adopted SFAS No. 121 as of the
Effective Date.
Reclassifications
Certain reclassifications have been made to the prior years'
consolidated financial statements to conform to the Fiscal 1998
presentation.
New Accounting Standards Not Yet Adopted
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income," ("SFAS No. 130") effective for fiscal years beginning after
December 15, 1997. SFAS No. 130 requires the reporting and display of
comprehensive income and its components in an entity's financial
statements.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information," ("SFAS No. 131")
effective for fiscal years beginning after December 15, 1997. SFAS No.
131 provides accounting guidance for reporting information about
operating segments and requires both interim and annual segment reporting.
In February 1998, the FASB issued SFAS No. 132, "Employers'
Disclosures about Pensions and Other Postretirement Benefits" ("SFAS No.
132"), which will be effective for financial statements beginning after
December 15, 1997. SFAS No. 132 revises employers' disclosure about
pension and other postretirement benefit plans. It does not change the
measurement or recognition of those plans.
These statements, which will be adopted by the Company in Fiscal 1999,
affect financial statement presentation and disclosure but will not have an
impact on the Company's consolidated financial position or results of
operations.
F-10
<PAGE>
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," ("SFAS No. 133") effective for fiscal
quarters of fiscal years beginning after June 15, 1999. SFAS No. 133
requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those
instruments at fair value. The Company currently does not have any
derivative instruments and, therefore, does not expect the adoption of this
SFAS to have an effect on the Company's financial position or results of
operations.
NOTE 3 -1995 Reorganization
On November 29, 1994, the Company announced that it was not likely to
be able to fund cash interest payments due in early calendar 1995, and
that it intended to develop a capital restructuring plan. Beginning on
January 16, 1995, the Company did not make interest payments required
under its outstanding debt obligations.
On January 24, 1995, the Company announced that it had reached an
agreement in principle with its bank lenders and with members of informal
committees of certain holders of its 11.375% Senior Notes due 1999 (the
"11.375% Senior Notes") and 11.25% Senior Notes due 2000 (the "11.25%
Senior Notes" and, collectively with the 11.375% Senior Notes, the "Old
Senior Notes") and certain holders of its 12.25% Senior Subordinated
Notes due 2002 (the "12.25% Subordinated Notes"), 12.25% Senior
Subordinated Notes due 2002, Series A (the "Series A 12.25% Subordinated
Notes") and 13% Senior Subordinated Notes due 1998 (the "13% Subordinated
Notes" and, collectively with the 12.25% Subordinated Notes and the
Series A 12.25% Subordinated Notes, the "Subordinated Notes") on the
terms of a capital restructuring.
1995 Chapter 11 Bankruptcy Filings - On January 25, 1995 (the "Filing
Date"), as part of the implementation of such agreement, the Company
filed a voluntary petition for relief under chapter 11 ("Chapter 11") of
Title 11 of the United States Code (the "Code") in the United States
Bankruptcy Court for the District of Delaware (the "Bankruptcy Court").
From the Filing Date through the Effective Date, the Company operated as
a debtor-in-possession under Chapter 11 of the Code and was subject to
the supervision of the Bankruptcy Court in accordance with the Code.
During this period, the Company's business was operated under a series of
"first day orders", which, among other things, permitted it to retain
certain financial and legal advisors and which authorized payment of
certain pre-petition employee costs, including worker's compensation
benefits, and pre-petition trade claims, subject to the satisfaction of
various requirements.
On January 30, 1995, the Company (as debtor and as
debtor-in-possession) entered into a credit agreement (the "DIP
Facility") with the banks party thereto providing for borrowings of up to
$150 million on a revolving credit basis. On February 16, 1995, final
approval of the DIP Facility was granted and the Bankruptcy Court also
issued a Final Cash Collateral Order which allowed the Company to use
cash collateral to pay operating expenses in the ordinary course of
business. The DIP Facility provided for a commitment fee equal to .5% of
the average unused portion. There were no borrowings made under the DIP
Facility during the Chapter 11 proceedings and it was terminated on the
Effective Date.
On February 16, 1995, Capital consented to the entry of an order for
relief in respect of an involuntary Chapter 11 petition filed in the
Bankruptcy Court on February 6, 1995 by entities purporting to be holders
of Capital's 15% Senior Zero Coupon Notes due 2004 (the "Capital Senior
Zero Notes") and 16.5% Senior Subordinated Zero Coupon Notes due 2007
(the "Capital Subordinated Zero Notes" and, collectively with the Capital
Senior Zero Notes, the "Capital Notes"). On February 16, 1995, Holdings,
of which Capital was a wholly owned subsidiary, filed a voluntary Chapter
11 petition in the Bankruptcy Court.
1995 Plan of Reorganization - The Bankruptcy Court confirmed the Second
Amended Chapter 11 Plan of The Grand Union Company, dated as of April 19,
1995, (as confirmed, the "Plan"), on May 31, 1995 (the "Confirmation
Date"), and the Company emerged from Chapter 11 on the Effective Date.
On the Effective Date, Grand Union adopted a restated certificate of
incorporation (the "New Certificate"), the principal effects of which
were: (i) to authorize 30,000,000 shares of new common stock (the "Common
Stock") (of which 10,000,000 shares were issued under the Plan) and (ii)
to prohibit the issuance of non-voting equity securities. The Plan
provided for full payment of all allowed administrative expenses and all
allowed general unsecured and priority claims. On the Effective Date,
obligations relating to the Company's existing bank credit agreement (the
"Old Bank Credit Agreement") were paid in full and the Company entered
into an Amended and Restated Credit Agreement (the "Bank Facility") with
its bank lending group which provides for a five-year revolving credit
facility of $100,000,000 (the "Revolving Credit Facility") and a
seven-year term loan facility of $104,144,371 (the "Term Loan"). The Bank
Facility is secured by a lien on substantially all of the assets of the
Company and its subsidiaries.
As of the Effective Date, the Old Senior Notes, which had an
aggregate principal amount of $525,000,000 plus accrued interest, were
deemed cancelled and each holder of Old Senior Notes became entitled to
receive its pro rata share of the Company's new 12% Senior Notes due 2004
(the "Senior Notes") having an aggregate principal amount of $595,475,922
issued pursuant to the Plan. Subsequent to the Effective Date, the
Company issued $595,421,000 aggregate principal amount of Senior Notes
and made cash payments of $54,922 for fractional amounts to the holders
of the Old Senior Notes. The Senior Notes began to accrue interest
beginning on September 1, 1995. Accordingly, the Senior Notes have been
discounted at 12% for the period from June 15, 1995 to September 1, 1995
and imputed interest was charged at 12% during
F-11
<PAGE>
that period. In addition, the difference between such discounted value
and the fair value of the Senior Notes at the Effective Date was recorded
as a debt premium totaling $5,779,000 which is being amortized over the
life of the Senior Notes.
As of the Effective Date, the Subordinated Notes, which had an
aggregate principal amount of $566,150,000, and the old capital stock of
Grand Union were deemed cancelled and each holder of Subordinated Notes
became entitled to receive its pro rata share of an aggregate of
10,000,000 shares of Common Stock issued pursuant to the Plan.
The Plan also provided for the issuance of warrants to purchase an
aggregate of 900,000 shares of Common Stock to holders of several other
series of long-term debt of its then parent company (the "Capital Notes")
pursuant of the terms of a settlement reached among the Company, its then
direct and indirect parent companies, the Official Committee of Unsecured
Creditors of its then parent company and certain holders of the Capital
Notes. Such warrants are comprised of 300,000 Series 1 Warrants to
purchase shares of Common Stock at a purchase price of $30 per share and
of 600,000 Series 2 Warrants to purchase shares of Common Stock at a
purchase price of $42 per share. The warrants expire on June 15, 2000.
The Plan made no provision for the holders of the remaining long-term
debt, Redeemable Preferred Stock, common shares or warrants to purchase
common shares of the Company's then indirect parent. Holdings and Capital
were dissolved on March 28, 1996 and March 27, 1996, respectively.
Interest expense was not accrued on the Subordinated Notes, Capital
Notes, and Holdings Junior Notes subsequent to the Filing Date.
Accordingly, interest expense for the 11 weeks ended June 17, 1995 and
the 52 weeks ended April 1, 1995 excludes contractual interest expense of
$23,569,000 and $21,269,000, respectively.
For financial reporting purposes, the Company accounted for the
consummation of the Plan effective June 17, 1995. In accordance with
Fresh-Start Reporting, the Company valued its assets and liabilities at
fair values and eliminated its retained earnings at the Effective Date.
The reorganization value of the Company was determined utilizing several
methods which yielded similar results including (a) the trading value of
the Company's Common Stock for a representative number of days subsequent
to the Effective Date and the fair value of the Company's obligations as
of the Effective Date, (b) discounted cash flows and (c) a multiple of
adjusted trailing year operating cash flow. The total reorganization
value as of the Effective Date was determined to be $1,334,000,000 which
was $521,657,000 in excess of the aggregate fair value of the Company's
tangible and identified intangible assets. Such excess is classified as
"Excess reorganization value, net" in the accompanying consolidated
balance sheet.
F-12
<PAGE>
The components of reorganization items included as unusual items in
the consolidated statement of operations are as follows (in thousands):
<TABLE>
<CAPTION>
11 Weeks
Ended
June 17,
1995
--------
<S> <C>
Fresh-Start Reporting:
Establish excess reorganization value $ 521,657
Eliminate existing goodwill (540,434)
Revalue beneficial leases 40,633
Establish deferred tax asset 35,414
Revalue pension assets and liabilities and postretirement obligations (23,653)
Record lease rejection liability (19,734)
Provide for warehouse closing (10,450)
Eliminate LIFO inventory reserve 7,757
Provide for other reorganization liabilities (5,400)
Record liability for fair value of interest rate protection agreement (3,500)
Other (1,905)
---------
Total Fresh-Start Reporting 385
Professional fees incurred in connection with the reorganization (20,000)
Interest earned on accumulated cash resulting from the
Chapter 11 proceedings 988
----------
Total reorganization items $ (18,627)
=========
</TABLE>
At June 17, 1995, as a result of the debt restructuring, the Company
recorded an extraordinary gain on debt discharge as follows (in
thousands):
<TABLE>
<S> <C>
Elimination of Old Debt, deferred financing fees and accrued interest discharged $ 1,589,506
Issuance of Senior Notes (580,721)
Issuance of Common Stock (154,000)
-------------------
Extraordinary gain on debt discharge $ 854,785
===================
</TABLE>
NOTE 4 - Unusual items
Unusual items included in the consolidated statements of operations
consist of the following (in thousands):
<TABLE>
<CAPTION>
Successor Predecessor
Company Company
----------------------------------------------------------- ----------------
52 Weeks 52 Weeks 41 Weeks 11 Weeks
Ended Ended Ended Ended
March 28, March 29, March 30, June 17,
1998 1997 1996 1995
---------------- ------------------ ---------------- ----------------
<S> <C> <C> <C> <C>
Charges relating to severance $ 3,000 $ 7,800 $ - $ -
Inventory valuation reserve - 2,000 - -
Provision for warehouse closures - - 15,000 -
Charges relating to voluntary
resignation programs - - 4,500 -
Provision for reorganizational
restructuring - - 2,500 -
1998 reorganization items 2,668 - - -
1995 reorganization items 665 - - 18,627
---------------- ------------------ ---------------- ----------------
Total unusual items $ 6,333 $ 9,800 $ 22,000 $ 18,627
================ ================== ================ ================
</TABLE>
F-13
<PAGE>
The Company recorded $2,668,000 of unusual charges during the fourth
quarter of Fiscal 1998 in connection with legal, advisory and bank fees
associated with the planned prepackaged restructuring. Additionally, the
Company recorded $3,665,000 of unusual charges during the third quarter
of Fiscal 1998. This charge included a $3,000,000 supplement for a
reserve set at fiscal year end 1997 for the reorganization of the Company
during Fiscal 1998 and additional charges of $665,000 for legal costs to
supplement a reserve created as a result of the Company's Chapter 11
filing in calendar year 1995.
During the fourth quarter of Fiscal 1997, the Company recorded
$9,800,000 of unusual charges including $7,800,000 of severance and
$2,000,000 of an inventory valuation reserve.
In Fiscal 1996, the Company entered into several supply agreements
with C&S Wholesale Grocers, Inc. ("C&S"), pursuant to which C&S stocks
and distributes to all Grand Union stores substantially all of the
merchandise formerly owned and warehoused by Grand Union. Under the
agreements, C&S stocks and supplies grocery and perishable products from
its own warehouses and stocks and supplies health and beauty care and
general merchandise products from the Company's Montgomery, New York
warehouse. Accordingly, the Company recorded a provision relating to the
closure of two metropolitan New York warehouses consisting principally of
the cash costs of severance, pension withdrawal liability, security and
other expenses directly related to the closing of the warehouses.
Substantially all of the net costs of closing these facilities were paid
prior to March 30, 1996.
During the 41 weeks ended March 30, 1996, the Company made cash
payments of $4,500,000 relating to voluntary resignation incentive
programs under which certain classes of store employees accepted monetary
incentives to voluntarily resign from their positions.
The provision for organizational restructuring of $2,500,000 is
principally comprised of the cash cost of severance, all of which was
paid at March 29, 1997, and future lease payments.
NOTE 5 - Property
Property, at cost, consists of the following (in thousands):
<TABLE>
<CAPTION>
March 28, March 29,
1998 1997
--------------- ----------------
<S> <C> <C>
Property owned:
Land $ 18,055 $ 19,196
Buildings 66,162 60,422
Fixtures and equipment 185,470 168,053
Leasehold improvements 132,382 126,002
--------------- ----------------
402,069 373,673
Less: accumulated depreciation and amortization 124,709 81,098
--------------- ----------------
Property owned, net 277,360 292,575
--------------- ----------------
Property held under capital leases:
Land and buildings 131,094 112,056
Equipment 15,552 18,081
--------------- ----------------
146,646 130,137
Less: accumulated amortization 34,369 10,801
--------------- ----------------
Property held under capital leases, net 112,277 119,336
--------------- ----------------
Property $ 389,637 $ 411,911
=============== ================
</TABLE>
Depreciation and amortization of owned and leased property for Fiscal
1998, Fiscal 1997, the 41 weeks ended March 30, 1996, and the 11 weeks
ended June 17, 1995 was $78,554,000, $64,256,000, $42,706,000, and
$11,246,000, respectively.
As discussed in Note 2, the Company adopted SFAS No. 121 as of the
Effective Date. This statement requires companies to record impairments
of long-lived assets, certain identifiable intangibles, and associated
goodwill when there is evidence that events or changes in circumstances
have made recovery of an asset's carrying value unlikely. In accordance
with this statement, the Company performed an evaluation of its assets
for impairment considering the present value of estimated net future
operating cash flows. The result of such a review resulted in an
impairment loss of $25,020,000 and
F-14
<PAGE>
$6,362,000 for March 28, 1998 and March 29, 1997, respectively, which was
recorded through depreciation in order to write down certain impaired
store assets.
NOTE 6 - Receivables and Accounts Payable and Accrued Liabilities
Receivables at March 28, 1998 and March 29, 1997 are net of
allowances for doubtful accounts of $5,542,000 and $4,530,000,
respectively.
Accounts payable and accrued liabilities consist of the following (in
thousands):
<TABLE>
<CAPTION>
March 28, March 29,
1998 1997
---------------- ----------------
<S> <C> <C>
Accounts payable $ 73,135 $ 100,789
Accrued liabilities:
Payroll 22,513 20,285
Interest 44,832 9,405
Insurance 15,076 16,070
Other 33,883 28,991
---------------- ----------------
Total accounts payable and
accrued liabilities $189,439 $175,540
================ ================
</TABLE>
NOTE 7 - Income Taxes
The components of the deferred income tax (provision) benefit are as
follows (in thousands):
<TABLE>
<CAPTION>
Successor Predecessor
Company Company
-------------------------------------------------------- ------------------
52 Weeks 52 Weeks 41 Weeks 11 Weeks
Ended Ended Ended Ended
March 28, March 29, March 30, June 17,
1998 1997 1996 1995
-------------- --------------- -------------- -----------------
<S> <C> <C> <C> <C>
Federal $ (43,872) $ (2,154) $ 16,157 $ -
State (7,521) (369) 2,770 -
-------------- --------------- ---------------- ------------------
Income tax (provision) benefit $ (51,393) $ (2,523) $ 18,927 $ -
============== =============== ================= ==================
</TABLE>
F-15
<PAGE>
The reconciliation of the income tax (provision) benefit computed at
the federal statutory rate to the reported income tax (provision) benefit
is as follows (in thousands):
<TABLE>
<CAPTION>
Successor Predecessor
Company Company
------------------------------------------------ ---------------
52 Weeks 52 Weeks 41 Weeks 11 Weeks
Ended Ended Ended Ended
March 28, March 29, March 30, June 17,
1998 1997 1996 1995
------------- -------------- ------------- ---------------
<S> <C> <C> <C> <C>
Benefit computed at federal statutory tax rate $ 88,407 $ 63,291 $ 45,074 $ 10,268
Increase (decrease) in the benefit resulting from:
Amortization of excess reorganization value (36,257) (35,429) (28,992) -
Amortization of goodwill - - - (6,295)
State and local taxes, net of federal tax benefit 9,039 5,242 2,770 -
Deferred tax asset valuation allowance (114,587) (29,841) - (3,948)
Write-down of unrealizable deferred tax asset - (8,500) - -
Other 2,005 2,714 75 (25)
------------- -------------- ------------- ---------------
Income tax (provision) benefit $ (51,393) $ (2,523) $ 18,927 $ -
============= ============== ============= ===============
</TABLE>
The components of the net deferred tax asset are as follows (in
thousands):
<TABLE>
<CAPTION>
March 28, March 29,
1998 1997
---------- -----------
<S> <C> <C>
Deferred tax assets:
Non-cash interest $ 1,922 $ 2,111
Insurance reserve 18,922 19,597
Pension 6,784 5,419
Postretirement benefit liability 14,887 14,671
Depreciable assets 8,459 -
Other miscellaneous reserves 21,088 23,505
Net operating loss carryforward 77,052 29,841
--------- ---------
Total deferred tax assets 149,114 95,144
--------- ---------
Deferred tax liabilities:
Depreciable assets - 9,299
Other 4,686 4,611
--------- ---------
Total deferred tax liabilities 4,686 13,910
--------- ---------
Net deferred tax asset before valuation allowance 144,428 81,234
Valuation allowance (144,428) (29,841)
--------- ---------
Net deferred tax asset $ - $ 51,393
========= =========
</TABLE>
The Company recorded no income tax benefit relating to net operating
losses generated during Fiscal 1998, as they were offset by a valuation
allowance. Due to the circumstances described in Note 1, management
determined that it was more likely than not that the remaining deferred
tax asset would not be realized. As such, during the fourth quarter of
Fiscal 1998, the Company established a valuation allowance for its
remaining deferred tax asset relating to temporary differences.
During the fourth quarter of Fiscal 1997, the Company determined that
the likelihood of realizing its entire deferred tax asset had diminished
as a result of the application of Internal Revenue Code Section 382 as
well as other long-term financial prospects. Section 382, which was
triggered by the sale of Class A Preferred Stock, limits the amount of
future annual net operating loss carryforwards which may be utilized
subsequent to a change in control. Consequently, during the fourth
quarter of Fiscal 1997, the Company wrote off $8,500,000 of its deferred
tax asset that related to net operating loss carryforwards expected to
expire due to Section 382 limitations and established a valuation
allowance to fully reserve for the portion of its deferred tax asset
related to its remaining net operating loss carryforwards.
F-16
<PAGE>
As of March 28, 1998, the Company had net operating loss
carryforwards of approximately $190,345,000 for tax purposes, expiring in
the year 2011. Due to Section 382, there will be a limitation on the
amount of annual net operating loss carryforwards, which can be utilized.
Under existing income tax laws, the Company is not required to
include in its taxable income any cancellation of debt income as a result
of the debt forgiven pursuant to the Plan. Accordingly, no income taxes
were provided on the extraordinary gain on debt discharge in the
statement of operations for the 11 weeks ended June 17, 1995. There are
no remaining operating loss or credit carryforwards of the Predecessor
Company and there was no change in the tax basis of the Company's assets
as of the Effective Date.
NOTE 8 - Debt
The components of the Company's debt are as follows (in thousands):
<TABLE>
<CAPTION>
March 28, March 29,
1998 1997
--------------- ---------------
<S> <C> <C>
Equipment mortgage notes $ - $ 46
Bank Credit Agreements:
Term Loans 182,122 104,144
Revolving Credit Facility 17,000 36,000
12% Senior Notes due September 1, 2004
(includes $4,008 and $4,642 of
unamortized debt premium at March 28, 1998
and March 29, 1997) 599,429 600,063
--------------- ---------------
798,551 740,253
Less: current maturities of long-term debt 798,551 46
-------------- ---------------
Long-term debt $ - $ 740,207
=============== ===============
</TABLE>
In August 1997, Grand Union executed an amendment to the Amended and
Restated Credit Agreement (the "Credit Agreement"), among Grand Union,
Bankers Trust Company, as Agent, and the lenders party thereto (the
"Secured Banks"), dated as of June 15, 1995, as amended. As amended, the
Credit Agreement is comprised of a term loan, a revolving credit facility
and a supplemental term loan. The term loan is in the aggregate principal
amount of $104,144,371.
The revolving credit commitment is for $67,878,000, of which a
maximum of $60,000,000 may be utilized in the form of letters of credit.
The commitment expires June 15, 2000. In each year, no more than
$40,000,000 of the revolving credit facility may be outstanding in the
form of borrowed money (excluding letter of credit utilization) for any
30-day period between July 15th and August 31st. As of March 28, 1998, an
aggregate of $43,528,000 of letters of credit were issued and outstanding
under the Credit Agreement. Grand Union incurs a commitment fee of 0.5%
per annum on the average unused portion of the revolving credit facility.
As part of the August 1997 amendment of the Credit Agreement, Grand
Union obtained the supplemental term loan to enable it, among other
things, to make its required September 1, 1997 interest payment on the
Company's 12% Senior Notes due 2004 (the "Senior Notes"). The
supplemental term loan facility is in an aggregate principal amount of
$77,977,980, which matures on March 1, 2003. The supplemental term loan
increased the total amount available under the Credit Agreement to $250
million. The supplemental term loan has no required amortization and may
be prepaid without penalty on or after August 31, 1998.
The term loan and the revolving credit facility are secured by a lien
and security interest in all of the tangible and intangible assets of
Grand Union, including the shares of its four subsidiaries and mortgages
on specified leaseholds. The supplemental term loan is subordinate to the
term loan and the revolving credit facility. It is secured by the same
lien and security interest that secures the term loan and revolving
credit facility but the rights of the lenders under the supplemental term
loan in respect of such lien and security interest are subordinate to the
rights of the lenders under the term loan and the revolving credit
facility.
The term loan and revolving credit facility of the Credit Agreement
bear interest at the base rate (generally prime) plus 2% or the relevant
one-, two-, three-, or six-month Eurodollar rate plus 3.75% (including
standard yield protection provisions). The supplemental term loan bears
interest at 15% for the first year of the loan, increasing by .50% every
six months thereafter, payable semiannually in arrears, plus additional
interest accruing at 1% per annum payable only after the term loan and
revolving credit facility have been paid in full and then only upon
payment or prepayment of principal with respect to
F-17
<PAGE>
which such additional interest has accrued. The term loan requires
quarterly principal payments of $13,018,000 from September 30, 2000
through June 15, 2002.
The Credit Agreement contains certain restrictions and financial
covenants relating to, among other things, minimum financial performance
and limitations on the incurrence of additional indebtedness, asset
sales, dividends, capital expenditures, and prepayment of other
indebtedness.
Notwithstanding the increased commitment provided under the August
1997 amendment to the Credit Agreement, due to a continuing lack of
sufficient liquidity, increasing competition and consolidation, and
falling margins, Grand Union determined that its financial resources
would be insufficient to satisfy the approximately $36 million interest
payment due and payable on March 2, 1998 on the Senior Notes. Grand Union
did not make the March 2, 1998 interest payment to holders of the Senior
Notes. The failure to make such interest payment constituted a default
under the Indenture governing the Senior Notes and a cross-default under
the Credit Agreement. Accordingly, in February 1998, Grand Union
commenced negotiations with the Secured Banks regarding obtaining
necessary waivers to avoid the consequences of an event of default under
the Credit Agreement and to facilitate the restructuring contemplated by
the Company's proposed plan of reorganization (the "Plan of
Reorganization") (see Note 1). Those negotiations resulted in an
agreement by the Secured Banks to waive certain defaults under the Credit
Agreement, subject to the terms and conditions of such waiver.
At March 28, 1998, borrowings under the Revolving Credit Facility and
Term Loans were at weighted interest rates of 10.50% and 9.44%,
respectively. At March 29, 1997, borrowings under the Revolving Credit
Facility and Term Loan were at weighted interest rates of 8.77% and
9.11%, respectively.
For the 11 weeks ended June 17, 1995, pursuant to the 1995 Plan, on the
Effective Date, the Old Senior Notes were deemed cancelled and each holder
became entitled to receive its pro rata share of the Successor Company's
Senior Notes having an aggregate principal amount of $595,421,000.
Interest on the Senior Notes was payable semi-annually each March 1 and
September 1.
NOTE 9 - Issuance of Preferred Stock
In a series of related transactions commencing on July 30, 1996,
Trefoil Capital Investors II, L.P. and GE Investment Private Placement
Partners II, A Limited Partnership (the "Purchasers") acquired beneficial
ownership of an aggregate of approximately 70.77% of Grand Union's
outstanding voting stock. On July 30, 1996, Grand Union entered into a
definitive agreement (the "Stock Purchase Agreement") to sell $100
million of Class A Convertible Preferred Stock ("Class A Preferred") to
the Purchasers. Each share of the Class A Preferred was to be convertible
at the option of the holder, at any time, into 6.8966 shares of common
stock. Pursuant to the Stock Purchase Agreement, the Purchasers agreed to
purchase, and Grand Union agreed to sell, an aggregate of 2,000,000
shares of Class A Preferred at a purchase price of $50 per share (the
"Stated Value") in stages through February 25, 1998. On September 17,
1996, the first stage of the transaction was closed, and the Purchasers
acquired 800,000 shares of Class A Preferred for an aggregate purchase
price of $40 million.
At a subsequent closing held on February 25, 1997, the Purchasers
purchased an additional 400,000 shares of Class A Preferred for an
aggregate purchase price of $20 million. Additional subsequent closings
were scheduled for August 26, 1997 and February 25, 1998 (the "Subsequent
Closings"). If the Subsequent Closings had occurred, the Purchasers would
have been required to purchase an additional 800,000 shares of Class A
Preferred for an aggregate purchase price of $40 million.
Pursuant to an Acceleration and Exchange Agreement (the "Acceleration
Agreement"), dated June 12, 1997, between Grand Union and the Purchasers,
at the request of Grand Union, the Purchasers agreed to accelerate to
June 12, 1997 (the "Accelerated Closing") the sale and purchase of the
800,000 shares of Class A Preferred (the "Accelerated Shares"), which was
to have occurred at the Subsequent Closings, and to exchange (the
"Exchange") the Accelerated Shares for 800,000 shares of Class B
Convertible Preferred Stock ("Class B Preferred"). At the Accelerated
Closing, Grand Union received the $40 million purchase price for the sale
of the Accelerated Shares. Immediately following the Accelerated Closing,
the Purchasers completed the Exchange pursuant to which they received an
aggregate of 800,000 shares of Class B Preferred, in consideration for
their surrender of the Accelerated Shares. Until February 20, 1998, each
share of Class B Preferred was convertible at the option of the holder,
at any time, into 20.8333 shares of common stock. Pursuant to the
Acceleration Agreement, effective February 20, 1998, this conversion
ratio was reset such that each share of Class B Preferred is convertible
into 33.3333 shares of common stock.
On March 20, 1997, Grand Union consummated the sale to The Roger
Stangeland Family Limited Partnership (the "Stangeland Partnership") of
60,000 shares of Class A Preferred at a purchase price of $50 per share
(the "Stangeland Shares"), pursuant to the terms of a Stock Purchase
Agreement, dated February 25, 1997, as amended by Amendment No.
F-18
<PAGE>
1 thereto dated as of March 20, 1997 (as so amended, the "Stangeland
Stock Purchase Agreement"), between Grand Union and Mr. Stangeland, a
director of the Company from June 15, 1995 to April 22, 1998. Pursuant to
a Stockholder Agreement dated February 25, 1997 (the "Stangeland
Stockholder Agreement"), among the Purchasers, Mr. Stangeland and Grand
Union, Mr. Stangeland has granted the Purchasers certain take-along
rights, the Purchasers have granted Mr. Stangeland certain tag-along
rights, and the Purchasers and Grand Union have granted Mr. Stangeland
certain registration rights related to the Stangeland Shares and any
shares of Class A Preferred, and common stock, if any, paid as dividends
with respect to the Class A Preferred (collectively, "Securities").
Pursuant to an Addendum, dated as of March 20, 1997, to the Stangeland
Stockholder Agreement, the Stangeland Partnership has succeeded to all of
the rights, and has assumed all of the obligations, of Mr. Stangeland
pursuant to the Stangeland Stockholder Agreement. The Purchasers disclaim
any and all ownership of the Stangeland Shares or any additional
Securities acquired by the Stangeland Partnership in respect of the
Stangeland Shares.
As of June 24, 1998, there were a total of 1,300,566 outstanding
shares of Class A Preferred, which were convertible into an aggregate of
8,969,483 shares of common stock, and a total of 800,000 outstanding
shares of Class B Preferred, which were convertible into an aggregate of
26,666,640 shares of common stock. Together, the aggregate shares of
Class A Preferred and Class B Preferred account for approximately 77.74%
of Grand Union's outstanding voting stock.
On September 30, 1996, December 31, 1996 and March 31, 1997, Grand
Union paid dividends on the Class A Preferred through the issuance of a
total of 40,566 shares of Class A Preferred, with an aggregate Stated
Value of $2,028,300. Grand Union elected to suspend the declaration of
the dividends payable June 30, 1997, September 30, 1997, December 31,
1997 and March 31, 1998. The dividends on the Class A Preferred and the
Class B Preferred and the accrued and unpaid dividends through March 31,
1998 have been accounted for by a charge against "Capital in Excess of
Par Value" and a corresponding increase in the carrying amounts of the
Class A Preferred and Class B Preferred. The Class A Preferred and Class
B Preferred have a liquidation preference over the common stock equal to
the Stated Value of the outstanding shares of the preferred stock plus
all accrued and unpaid dividends.
NOTE 10 - Property Leases
The Company operates principally in leased stores and offices, and in
most cases holds renewal options with varying terms. Many of the leases
contain clauses, which provide for increased rentals based upon increases
in real estate taxes and lessors' operating expenses.
Future minimum payments under capital and non-cancelable operating
leases, net of minimum sublease income, as of March 28, 1998 are as
follows (in thousands):
<TABLE>
<CAPTION>
Capital Operating
---------------- --------------
<S> <C> <C>
Fiscal
1999 $ 27,784 $ 32,977
2000 25,788 32,867
2001 23,672 26,217
2002 22,550 22,288
2003 23,816 20,605
Later years 295,727 131,676
--------------- --------------
Total minimum lease payments 419,337 266,630
Less: estimated executory costs included in
total minimum lease payments (169) -
Less: sublease rental income (2,961) (18,290)
--------------- --------------
Net minimum lease payments 416,207 $ 248,340
==============
Less: portion representing interest 258,181
---------------
Present value of net minimum lease payments 158,026
Less: current portion of obligations under capital leases 7,562
---------------
Non-current portion of obligations under capital leases
(net of sublease rental income) $ 150,464
===============
</TABLE>
Contingent rentals incurred on capital leases for Fiscal 1998, Fiscal
1997, the 41 weeks ended March 30, 1996, and the 11 weeks ended June 17,
1995 were $81,000, $106,000, $130,000, and $39,000, respectively.
F-19
<PAGE>
The rental expense for all operating leases was $48,262,000,
$45,847,000, $33,923,000, and $8,696,000 during Fiscal 1998, Fiscal 1997,
the 41 weeks ended March 30, 1996, and the 11 weeks ended June 17, 1995,
respectively. Contingent rental expense included in total rental expense
was $2,538,000, $2,870,000, $2,127,000, and $638,000 during Fiscal 1998,
Fiscal 1997, the 41 weeks ended March 30, 1996, and the 11 weeks ended
June 17, 1995, respectively.
NOTE 11 - Stockholders' (Deficit) and Redeemable Old Common and Preferred
Stock
Changes in Stockholders' (Deficit) and Redeemable Old Common Stock
were as follows (in thousands):
<TABLE>
<CAPTION>
Redeemable Old Capital in
Common Old Common Common Excess of
Stock Stock (a) Stock Par Value (Deficit)
------------- ----------------- -------------- ------------- --------------
<S> <C> <C> <C> <C> <C>
Predecessor Company
Balance at April 1, 1995 $ - $ 9,407 $ 1 $ - $ (824,184)
Net income for the 11 weeks ended
June 17, 1995 - - - - 825,449
Extinguishment of stockholders'
equity in connection with bankruptcy - (9,407) (1) (1,265)
------------- ----------------- -------------- ------------- --------------
Balance at June 17, 1995 $ $ - $ - $ - $ -
============= ================= ============== ============= ==============
</TABLE>
(a) The Redeemable Old Common Stock represents shares of Holdings held by
management investors, which were redeemable under certain limited
circumstances at the option of the holder.
F-20
<PAGE>
<TABLE>
<CAPTION>
Stockholders' (Deficit) Equity
--------------------------------------------
Redeemable Redeemable
Class A Class B Capital in
Preferred Preferred Common Preferred Excess of
Stock Stock Stock Stock Par Value (Deficit)
----------------- ----------------- ------------ ------------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Successor Company
Balance at June 17, 1995 $ - $ - $ - $ - $ - $ -
Issuance of Common Stock - - 10,000 - 144,000 -
Net loss for the 41 weeks
ended March 30, 1996 - - - - - (109,856)
----------------- ----------------- ------------ ------------- ------------- --------------
Balance at March 30, 1996 - - 10,000 - 144,000 (109,856)
Preferred stock issuance
charges - - - - (12,000)
-
Decrease in Common Stock par
value - - (9,900) - 9,900
-
Issuance of Class A Preferred
Stock 63,000 - - - - -
Accrued preferred stock
dividends 2,000 - - - (2,000) -
Net loss for Fiscal 1997 - - - - - (183,354)
----------------- ----------------- ------------ ------------- ------------- --------------
Balance at March 29, 1997 65,000 - 100 - 139,900 (293,210)
Issuance of Common Stock - - 2 - 256 -
Issuance of Class B
Preferred Stock - 40,000 - - - -
Accrued Class A preferred
stock dividends 5,685 - - - (5,685) -
Accrued Class B preferred
stock dividends - 2,746 - - (2,746) -
Additional minimum pension
liability - - - - - (1,550)
Other - - - - 281 -
Net loss for Fiscal 1998 - - - - - (303,983)
----------------- ----------------- ------------ ------------- ------------- --------------
Balance at March 28, 1998 $ 70,685 $ 42,746 $ 102 $ - $ 132,006 $ (598,743)
================= ================= ============ ============= ============= ==============
</TABLE>
The Company's Certificate of Incorporation and Bylaws were restated
as of the Effective Date and subsequently amended. The Certificate of
Incorporation as amended authorizes the issuance of 60,000,000 shares of
Common Stock and 10,000,000 shares of preferred stock. On November 7,
1996, the Company's shareholders approved a decrease in the par value of
Common Stock from $1.00 to $0.01 per share.
Under the 1995 Plan of Reorganization, on the Effective Date, the Old
Common Stock was cancelled and, as described in Note 3, holders of the
Subordinated Notes became entitled to receive their pro rata share of
10,000,000 shares of Common Stock. In addition, on the Effective Date,
holders of Capital Senior Zero Notes and Capital Subordinated Zero Notes
who executed releases became entitled to receive an aggregate of Series 1
Warrants to purchase 300,000 shares of Common Stock at an exercise price
of $30 per share and Series 2 Warrants to purchase 600,000 shares of
Common Stock at an exercise price of $42 per share. Both the Series 1
Warrants and the Series 2 Warrants will expire five years after the
Effective Date. As of March 28, 1998, no warrants have been exercised.
The Common Stock and all other equity securities issued under the
Certificate as amended are voting securities (although the voting rights
of any new preferred stock issued will differ from those of Common Stock)
and do not have any preemptive rights to subscribe for additional shares.
F-21
<PAGE>
Changes in Redeemable Old Preferred Stock of the Predecessor Company
were as follows (in thousands):
<TABLE>
<CAPTION>
Series Series Series Total
A B C
-------------- ------------- -------------- ----------------
<S> <C> <C> <C> <C>
Balance at April 1, 1995 $ 69,182 $ 9,010 $ 86,600 $ 164,792
Extinguishment of Predecessor Company
Stock in connection with bankruptcy (69,182) (9,010) (86,600) (164,792)
-------------- ------------- -------------- ----------------
Balance at June 17, 1995 $ - $ - $ - $ -
============== ============= ============== ================
</TABLE>
The Series A cumulative exchangeable redeemable preferred stock
("Series A old preferred stock") had a $.01 par value, 500,000 shares
authorized, and 351,745 shares issued and outstanding. The Series B
cumulative redeemable convertible preferred stock ("Series B old
preferred stock") had a $.01 par value, 500,000 shares authorized, and
78,256 shares issued and outstanding. The Series C cumulative redeemable
convertible preferred stock ("Series C old preferred stock") had a $.01
par value, 500,000 shares authorized, and 440,771 shares issued and
outstanding.
NOTE 12 - Pension Plans
The components of net periodic pension expense for the Company's
defined benefit pension plans are as follows (in thousands):
<TABLE>
<CAPTION>
Fiscal Fiscal Fiscal
1998 1997 1996
---------------- ------------- ---------------
<S> <C> <C> <C>
Service cost - benefits earned during the period $ 4,492 $ 4,351 $ 4,317
Interest costs on projected benefit obligations 12,700 12,700 12,523
Return on plan assets (41,802) (16,993) (32,921)
Net amortization and deferral 29,384 3,690 17,877
---------------- ------------- ---------------
Net periodic pension expense $ 4,774 $ 3,748 $ 1,796
================ ============= ===============
</TABLE>
The Company has not segregated the respective Successor and
Predecessor Company pension expense for Fiscal 1996 because it is
impractical to do so.
The actuarial present value of benefit obligations and the funded
status of the Company's pension plans are as follows (in thousands):
<TABLE>
<CAPTION>
Qualified Nonqualified
---------------------- ----------------------
March 28, March 29, March 28, March 29,
1998 1997 1998 1997
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Actuarial present value of benefit
obligations:
Vested benefits $(165,814) $(159,438) $ (7,264) $ (4,715)
Nonvested benefits (4,176) (4,038) (165) --
--------- --------- --------- ---------
Total benefits $(169,990) $(163,476) $ (7,429) $ (4,715)
========= ========= ========= =========
Projected benefit obligations $(194,482) $(186,207) $ (7,789) $ (5,364)
Plan assets, primarily stocks and bonds,
at fair value 192,386 169,707 -- --
--------- --------- --------- ---------
Funded (unfunded) status (2,096) (16,500) (7,789) (5,364)
Unrecognized net (gain) loss (9,946) 8,674 1,910 2,073
Unrecognized prior service cost -- -- 2,925 (20)
Adjustment required to recognize minimum liability -- -- (4,475) (1,404)
--------- --------- --------- ---------
Accrued pension liability $ (12,042) $ (7,826) $ (7,429) $ (4,715)
========= ========= ========= =========
</TABLE>
F-22
<PAGE>
Significant actuarial assumptions used in all Company sponsored plans
were as follows:
<TABLE>
<CAPTION>
Fiscal Fiscal Fiscal
1998 1997 1996
----------------- ----------------- -----------------
<S> <C> <C> <C>
Discount rates 6.75% 7.25% 7.25%
Rates of increase in future compensation 4.50% 4.50% 3.50%
Long-term rate of return on plan assets 8.25% 8.75% 9.75%
</TABLE>
NOTE 13 - Postretirement Health Care and Life Insurance Benefits
The Company provides certain health care and life insurance benefits
for substantially all of its full-time non-union employees and union
employee groups. The Company's postretirement plans currently are not
funded. The Company's union employee groups are participants in
multi-employer plans, which require monthly contributions and which are
not subject to the provisions of SFAS No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions".
Net postretirement benefit cost consisted of the following (in
thousands):
<TABLE>
<CAPTION>
Fiscal Fiscal Fiscal
1998 1997 1996
--------------- --------------- ---------------
<S> <C> <C> <C>
Service cost - benefits earned during the period $ 720 $ 728 $ 591
Interest cost on accumulated postretirement benefit
obligation 2,690 2,668 2,594
--------------- --------------- ---------------
Net postretirement benefit expense $ 3,410 $ 3,396 $ 3,185
=============== =============== ===============
</TABLE>
The Company has not segregated the respective Successor and
Predecessor Company postretirement benefit expense for Fiscal 1996
because it is impractical to do so.
The unfunded accrued postretirement benefit cost consists of the
following (in thousands):
<PAGE>
<TABLE>
<CAPTION>
March 28, March 29,
1998 1997
--------- ----------
<S> <C> <C>
Accumulated postretirement benefit
obligation:
Retirees $(23,939) $(20,660)
Fully eligible active plan participants (2,919) (2,482)
Other active plan participants (17,785) (15,189)
-------- --------
Total (44,643) (38,331)
Unrecognized net loss 7,851 2,521
-------- --------
Accrued postretirement benefit cost $(36,792) $(35,810)
======== ========
</TABLE>
The assumed health care cost trend rate used in measuring the
accumulated postretirement obligation as of March 28, 1998 and March 29,
1997 was 10.0% and 11.0%, respectively, for associates pre-age 65 and
7.0% and 8.0%, respectively, for associates post-age 65, decreasing each
successive year by 1% until the respective trend rates reach 4.50% and
4.75%, respectively, after which the trend rate remains constant. An
increase of 1% in the assumed health care cost trend rate for the current
year would increase the accumulated postretirement benefit obligation by
approximately $226,000 and the annual service cost plus interest cost
component by approximately $15,000.
The Company provides benefits for all future retirees based on a
service related flat dollar premium allowance. Accordingly, the health
care trend rate will not be a significant factor in determining Grand
Union's liability for future retirees under its postretirement health
care arrangements. The assumed discount rate used in determining the
accumulated postretirement benefit obligation for Fiscal 1998 and Fiscal
1997 was 6.75% and 7.25%, respectively.
F-23
<PAGE>
NOTE 14 - Equity Compensation Plans
The Company grants options for common stock under two plans, The
Grand Union Company 1995 Equity Incentive Plan ("Employees' Plan") and
The Grand Union Company 1995 Non-Employee Directors' Stock Option Plan
("Directors' Plan"). During Fiscal 1998, the Employees' Plan was amended
to increase the aggregate number of shares issuable from 900,000 shares
to 6,000,000 shares of the Company's Common Stock. The Directors' Plan,
which provides for the issuance of options to purchase up to 100,000
shares of the Company's Common Stock, remained unchanged. Both Plans are
administered by a committee of the Board of Directors. Options under both
plans expire ten years from the grant date.
The following tables summarize information about options outstanding
for both stock option plans:
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------
Fiscal 1998 Fiscal 1997 Fiscal 1996
------------------------------ ------------------------------ ------------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Employees' Plan Shares Price Shares Price Shares Price
--------------- ------ -------- ------ -------- ------ --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at
beginning of year 226,280 $6.365 210,680 $6.625 - $ -
Granted 4,133,800 2.146 20,000 3.688 210,680 6.625
Exercised (5,325) 1.844 - - - -
Cancelled or expired (121,974) 5.658 (4,400) 6.625 - -
---------- ------- -------- ------- ------- -------
Outstanding at
end of year 4,232,781 $2.271 226,280 $6.365 210,680 $6.625
========== ======= ======== ======= ------- -------
Options exercisable
at year-end 2,983,981 $1.972 206,280 $6.625 210,680 $6.625
========== ======= ======== ======= ======= =======
Available for issuance under the
plan 1,767,219 673,720 689,320
Weighted average contractual life
(years) 9.386 6.348 6.872
Range of exercise prices $1.375 to $6.625 $3.688 to $6,625 $6.625
<CAPTION>
----------------------------------------------------------------------------------------
Fiscal 1998 Fiscal 1997 Fiscal 1996
------------------------------ ------------------------------ ------------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Directors' Plan Shares Price Shares Price Shares Price
--------------- ------ -------- ------ -------- ------ --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at
beginning of year 51,000 $5.941 25,000 $5.750 - -
Granted 27,000 2.208 26,000 6.125 25,000 5.750
Exercised - - - - - -
Cancelled or expired (9,500) 5.928 - - - -
---------- ------ -------- ------ ------- -----
Outstanding at
end of year 68,500 $4.472 51,000 $5.941 25,000 $5.750
========== ====== ======== ====== ======= ======
Options exercisable
at year-end 34,336 $5.907 51,000 $6.625 25,000 $5.750
========== ====== ======== ====== ======= ======
Available for issuance under the
plan 31,500 49,000 75,000
Weighted average contractual life 7.577 8.365 8.061
(years)
Range of exercise prices $2.156 to $6.125 $5.750 to $6.125 $5.750
</TABLE>
These options will expire if not exercised at specific dates ranging
from April 1, 1998 to January 5, 2008 for the Employee Plan and July 28,
1998 to December 5, 2011 for the Directors' Plan. However, see Note 1
regarding Management's plans and subsequent events.
F-24
<PAGE>
The Company adopted the disclosure only option under SFAS No. 123,
(see Note 1) as of March 29, 1997. If the accounting provisions of SFAS
No. 123 had been adopted as of the beginning of Fiscal 1997, the effect
on Fiscal 1998 and Fiscal 1997 net loss would not have been material.
NOTE 15 - Related Party Transactions
In connection with the Stock Purchase Agreement, the Company paid
transaction fees to Shamrock Capital Advisors, Inc. (SCA), the investment
managers for Trefoil Capital Advisors II, L.P., and GE Investment
Management Corporation of $2,000,000 each, and the Company paid
Donaldson, Lufkin and Jenrette ("DLJ"), a managing director of which
serves on the Company's board of directors, approximately $5,200,000 for
advisory services, fairness opinion, and other miscellaneous expenses.
Also in connection with the Stock Purchase Agreement, the Company
entered into a management services agreement (the "Services Agreement")
with SCA. The Company paid $552,000 and $300,000 for Fiscal 1998 and
Fiscal 1997, respectively, under the Services Agreement. The Service
Agreement expires by its terms in September 1999. No further payments
will be made to SCA due to the Plan of Reorganization.
An agreement was also made in connection with the sale of the Class A
Convertible Preferred Stock with Roger E. Stangeland, Chairman of the
Board, wherewith he personally purchased an additional 60,000 shares of
the same preferred stock for an aggregate price of $3,000,000.
DLJ provided the Company with consulting services in connection with
the bankruptcy. DLJ was paid $1,278,000 in Fiscal 1996 for services in
connection with the bankruptcy proceedings.
Prior to the Effective Date, the Company was party to a financial
advisory agreement with MTH (the "MTH Agreement"), pursuant to which MTH,
which indirectly controlled the Company and Penn Traffic Company ("Penn
Traffic"), was to have provided certain financial consulting and business
management services to the Company through July 1997. In accordance with
the Plan, the MTH Agreement was terminated on the Effective Date and
Grand Union executed a settlement agreement (the "MTH Settlement
Agreement"), which provides for the termination of the MTH Agreement,
payment by Grand Union of accrued and unpaid fees under the MTH Agreement
through the Effective Date and for the indemnification of MTH and certain
entities related to MTH from certain claims and liabilities, subject to
the terms and limitations set forth in the MTH Settlement Agreement. The
Company deposited $3,000,000 relating to the indemnification in escrow on
the Effective Date. During the 11 weeks ended June 17, 1995 and Fiscal
1995, the Company paid $315,000 and $750,000, respectively, to MTH,
pursuant to the MTH Agreement.
From September 1993 until September 1995, Grand Union and Penn
Traffic were parties to a combined purchasing and distribution agreement
relating to general merchandise and health and beauty care products. In
September 1995, Grand Union purchased from Penn Traffic approximately
$12,821,000 of merchandise, which had been owned by Penn Traffic under
the joint buying arrangement.
NOTE 16- Contingency Matters and Commitments
The Company is subject to certain legal proceedings and claims
arising in connection with its business. It is management's opinion that
the ultimate resolution of such legal proceedings and claims will not
have a material adverse effect on the Company's consolidated results of
operations or its financial position.
F-25
<PAGE>
NOTE 17 - Quarterly Financial Information (Unaudited) (in thousands,
except loss per share and market price)
<TABLE>
<CAPTION>
---------------------------------------------------------------------
1st (a) 2nd 3rd 4th
--------------- -- --------------- --------------- --- --------------
<S> <C> <C> <C> <C>
Fiscal 1998:
Sales $ 707,983 $ 518,910 $ 534,320 $ 505,556
Gross profit 189,469 148,664 156,205 145,199
Unusual items - - (3,665) (2,668)
(Loss) before income taxes (79,242) (56,926) (45,828) (70,594)
Net (loss) (79,242) (56,926) (45,828) (121,987)
Net (loss) applicable to common stock (81,299) (59,000) (47,924) (124,192)
Net (loss) per common share (8.13) (5.90) (4.79) (12.22)
Market Price -high 3 9/16 3 1/8 2 31/32 2 1/4
Market Price -low 1 7/16 1 1/8 1 23/32 1
<CAPTION>
1st (a) 2nd 3rd 4th
--------------- -- --------------- --------------- --- --------------
<S> <C> <C> <C> <C>
Fiscal 1997:
Sales $ 726,823 $ 533,412 $ 537,151 $ 515,287
Gross profit 221,899 162,158 164,335 157,355
Unusual items - - - (9,800)
(Loss) before income taxes (48,251) (37,635) (38,364) (56,581)
Net (loss) (43,812) (30,653) (31,677) (77,212)
Net (loss) applicable to common stock (43,812) (30,896) (32,465) (78,181)
Net (loss) per common share (4.38) (3.09) (3.25) (7.82)
Market Price -high 7 9/16 6 7/8 7 3/16 5 3/16
Market Price -low 5 7/8 5 4 1/12 3
</TABLE>
(a) Represents 16 weeks, all other quarters are 12 weeks.
F-26
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description of Document
- ------- -----------------------
2.1 Second Amended Chapter 11 Plan of Reorganization of The Grand Union
Company ("Grand Union"), filed with the United States Bankruptcy
Court, District of Delaware, on April 19, 1995, incorporated by
reference to Exhibit T3E1 to Grand Union's Form T-3 dated May 8,
1995.
2.2 Findings of Fact, Conclusions of Law and Order Confirming the
Second Amended Plan of Reorganization proposed by Grand Union,
dated May 31, 1995, incorporated by reference to Exhibit 2.2 to
Grand Union's Annual Report on Form 10-K for the fiscal year ended
April 1, 1995 ("Fiscal 1995").
2.3 Minute Order Clarifying Findings of Fact, Conclusions of Law and
Order Confirming Second Amended Plan of Reorganization proposed by
Grand Union, dated June 14, 1995, incorporated by reference to
Exhibit 2.3 to Grand Union's Annual Report on Form 10-K for Fiscal
1995.
2.4 Chapter 11 Plan of Reorganization filed with the United States
Bankruptcy Court, District of New Jersey, on
<PAGE>
Exhibit
Number Description of Document
- ------- -----------------------
June 24, 1998, incorporated by reference to Exhibit 1 to Exhibit
2.1. to Grand Union's Current Report on Form 8-K filed May 28,
1998.
3.1 Certificate of Incorporation of Grand Union, as amended through
January 6, 1997, incorporated by reference to Exhibit 3.1 to Grand
Union's Annual Report on Form 10-K for Fiscal 1997.
3.2 Certificate of Designation of Class A Convertible Preferred Stock,
incorporated by reference to Exhibit 10.4 to Grand Union's
Quarterly Report on Form 10-Q for the period ended October 12,
1996.
3.3 Certificate of Designation of Class B Convertible Preferred Stock,
dated as of June 11, 1997, incorporated by reference to Exhibit
3.1 to Grand Union's Annual Report on Form 10-K for Fiscal 1997.
3.4 By-laws of The Grand Union Company, as amended through January
15, 1998, incorporated by reference to Exhibit 3.1 to Grand
Union's Quarterly Report on Form 10-Q for the period ended January
3, 1998.
4.1 Form of Common Stock Certificate of Grand Union, incorporated by
reference to Exhibit 4.1 to Grand Union's Annual Report on Form
10-K for Fiscal 1995.
4.2 Warrant Agreement dated as of June 15, 1995, between Grand Union
and American Stock Transfer & Trust Company, as Warrant Agent for
300,000 Series 1 Warrants and 600,000 Series 2 Warrants,
incorporated by reference to Exhibit 4.5 to Grand Union's Annual
Report on Form 10-K for Fiscal 1995.
4.3 Registration Rights Agreement dated as of June 15, 1995, among
Grand Union and Each of the Persons Named in Schedule A thereto
for the Common Stock, incorporated by reference to Exhibit 4.6 to
Grand Union's Annual Report on Form 10-K for Fiscal 1995.
4.4 Registration Rights Agreement dated as of June 15, 1995, by and
among Grand Union and the Holders Named therein for the
Registrable Notes, incorporated by reference to Exhibit 4.7 to
Grand Union's Annual Report on Form 10-K for Fiscal 1995.
4.5 Indenture dated as of June 15, 1995, between Grand Union, as
Issuer, and IBJ Schroeder Bank & Trust Company, as Trustee for the
12% Senior Notes due September 1, 2004, including form of the 12%
Senior Notes due 2004, incorporated by reference to Exhibit 4.2 to
Grand Union's Annual Report on Form 10-K for Fiscal 1995.
4.6 First Supplement Indenture, dated September 9, 1996, to the
Indenture dated as of June 15, 1995, between Grand Union, as
Issuer, and IBJ Schroeder Bank & Trust Company, as Trustee for the
12% Senior Notes due September 1, 2004, incorporated by reference
to Exhibit 10.3 to Grand Union's Quarterly Report on Form 10-Q for
the period ended October 12, 1996.
4.7 Form of Warrant Agreement, to be executed on the Consummation
Date, between Grand Union and American Stock Transfer & Trust
Company, as Warrant Agent, incorporated by reference to Exhibit A
to Exhibit 1 to Exhibit 2.1. to Grand Union's Current Report on
Form 8-K filed May 28, 1998.
10.1 Agreement to Hold Separate dated July 17, 1989, by and among MTH
Holdings Inc. ("MTH Holdings"), GU Acquisition Corporation
("GUAC"), Salomon Inc. and the Federal Trade Commission (the "FTC")
entered into in the matter of MTH Holdings and GUAC before the FTC,
incorporated by reference to Exhibit No. 10.5 to Grand Union's
Registration Statement on Form S-1 (Registration No. 33-29707) (the
"1989 Grand Union Registration Statement").
10.2 Agreement containing Consent Order among MTH Holdings, GUAC and the
FTC entered into in the matter of
<PAGE>
Exhibit
Number Description of Document
- ------- -----------------------
MTH Holdings and GUAC before the FTC, incorporated by reference to
Exhibit No. 10.6 to the 1989 Grand Union Registration Statement.
10.3 Amended and Restated Borrower Pledge Agreement dated as of June 15,
1995, made by Grand Union to Bankers Trust Company ("Bankers
Trust"), as Collateral Agent incorporated by reference to Exhibit
10.10 to Grand Union's Annual Report on Form 10-K for Fiscal 1995.
10.4 Amended and Restated Borrower Security Agreement dated as of June
15, 1995, between Grand Union and Bankers Trust, as Collateral
Agent (included in Exhibit 4.4), incorporated by reference to
Exhibit 10.11 to Grand Union's Annual Report on Form 10-K for
Fiscal 1995.
10.5 Subsidiary Security Agreement dated as of June 15, 1995, among the
corporations listed on Schedule 1 thereto and Bankers Trust, as
Collateral Agent, incorporated by reference to Exhibit 10.12 to
Grand Union's Annual Report on Form 10-K for Fiscal 1995.
10.6 Subsidiary Guaranty dated as of June 15, 1995, made by each of the
corporations from time to time listed on Annex A attached thereto
in favor of the Banks and the Agent from time to time party to the
Credit Agreement, incorporated by reference to Exhibit 10.13 to
Grand Union's Annual Report on Form 10-K for Fiscal 1995.
10.7 Form of Indenture of Open-End Mortgage, Deed of Trust, Deed to
Secure Debt, Security Agreement, Assignment of Leases, Rents and
Profits, Financing Statement and Fixture Filing, dated as of June
15, 1995, made by Grand Union to Bankers Trust, as Collateral
Agent, incorporated by reference to Exhibit 10.14 to Grand Union's
Annual Report on Form 10-K for Fiscal 1995.
10.8 Tenth Amendment to the Amended and Restated Credit Agreement dated
as of June 15, 1995, (the "Credit Agreement"), which amends and
restates the Credit Agreement as of August 31, 1997 among Grand
Union, the lending institutions listed from time to time on
Schedule 1 thereto, and Bankers Trust, as Agent, including Exhibits
A-1, A-2 and A-3, and various Schedules thereto, incorporated by
reference to Grand Union's Current Report on Form 8-K filed on
September 3, 1997.
10.9 Eleventh Amendment to the Credit Agreement dated as of August
29, 1997, incorporated by reference to Exhibit 10.1 of Grand
Union's Quarterly Report on Form 10-K for the period ended January
3, 1998.
10.10 Twelfth Amendment to the Credit Agreement dated as of January 9,
1998, incorporated by reference to Exhibit 10.2 of Grand Union's
Quarterly Report on Form 10-K for the period ended January 3, 1998.
10.11 Thirteenth Amendment to the Credit Agreement dated April 17, 1998.
10.12 Supply and Distribution Agreement between Grand Union and C&S
Wholesalers, dated June 15, 1995, incorporated by reference to
Exhibit 10.3 to Grand Union's Quarterly Report on Form 10-Q/A for
the period ended January 6, 1996.
10.13 First Amendment to the Supply and Distribution Agreement between
Grand Union and C&S Wholesalers, dated June 15, 1995, incorporated
by reference to Exhibit 10.4 to Grand Union's Quarterly Report on
Form 10-Q/A for the period ended January 6, 1996.
10.14 Supply and Distribution Agreement between Grand Union and C&S
Wholesalers, dated January 2, 1996, incorporated by reference to
Exhibit 10.5 to Grand Union's Quarterly Report on Form 10-Q/A for
the period ended January 6, 1996.
<PAGE>
Exhibit
Number Description of Document
- ------- -----------------------
10.15 Agreement with C&S Wholesalers Inc. dated January 21, 1996,
incorporated by reference to Exhibit 10.28 to Grand Union's Annual
Report on Form 10-K/A for Fiscal 1997.
10.16 Fourth Amendment and Restatement of The Grand Union Company
Supplemental Retirement Program for Key Executives effective as of
November 20, 1997.
10.17 The Grand Union Company Discretionary Severance Plan for Non-Union
Associates effective April 14, 1998.
10.18 The Grand Union Company Severance Plan for Exempt Personnel
effective April 14, 1998.
10.19 The Grand Union Company 1995 Equity Incentive Plan, as amended,
incorporated by reference to Exhibit 6 to Grand Union's Disclosure
Statement filed as Exhibit 2.1 to Grand Union's Form 8-K filed May
28, 1998.
10.20 The Grand Union Company 1995 Non-Employee Directors Stock Option
Plan, incorporated by reference to Exhibit 10.2 to Grand Union's
Quarterly Report on Form 10-Q for the period ended January 6, 1996.
10.21 First Amendment to the 1995 Non-Employee Directors' Stock Option
Plan of Grand Union, incorporated by reference to Exhibit 10.6 to
Grand Union's Quarterly Report on Form 10-Q for the period ended
July 20, 1996.
10.22 Non-competition Agreement between Grand Union and Darrell W. Stine,
incorporated by reference to Exhibit 10.26 of Grand Union's Annual
Report on Form 10-K for Fiscal 1996.
10.23 Non-competition Agreement between Grand Union and Gilbert C. Vuolo,
incorporated by reference to Exhibit 10.27 of Grand Union's Annual
Report on Form 10-K for the Fiscal 1996.
10.24 Form of Indemnification Agreement between the Company and R.
Stangeland, D. Josephs, W. Kagler, D. McClure, Jr., D. Ying, J.
McCaig, W. Louttit, K. Baum, D. Stine, G. Vuolo and J. Schroeder,
incorporated by reference to Exhibit 10.7 to Grand Union's
Quarterly Report on Form 10-Q for the period ended July 20, 1996.
10.25 Form of Indemnification Agreement between Grand Union and
J. Costello, C. Miller, G. Moore and J.R. Stonesifer, incorporated
by reference to Exhibit 10.1 to Grand Union's Quarterly Report on
Form 10-Q for the period ended October 12, 1996.
10.26 Form of Indemnification Agreement between the Company and J.
Freimark (dated March 3, 1997), D. Vaillancourt (dated June 5,
1997), G. Smith (dated August 7, 1997), J. Harris (dated August 11,
1997), G. Philbin (dated October 3, 1997), Javier Ramirez, Vice
President Tax and Assistant Secretary (dated October 30, 1997), J.
Krimstein (dated October 30, 1997), M. Manski (dated October 30,
1997), M. Pritchard (dated October 30, 1997) and J. Partridge
(dated January 5, 1998).
10.27 Stock Purchase Agreement dated July 30, 1996, among Grand Union,
Trefoil Capital Investors II, L.P. and GE Investment Private
Placement Partners II, A Limited Partnership, incorporated by
reference to Exhibit 10.1 to Grand Union's report filed on Form 8-K
dated July 30, 1996.
10.28 Amendment No. 1 to the Stock Purchase Agreement dated July 30,
1996, among Grand Union, Trefoil Capital Investors II, L.P., and GE
Investment Private Placement Partners II, a Limited Partnership,
incorporated by reference to Exhibit 10.50 to Grand Union's Annual
Report on Form 10-K for Fiscal 1997.
10.29 Management Agreement between Grand Union and Shamrock Capital
Advisors, Inc., dated July 30, 1996, incorporated by reference to
Exhibit 10.7 to Grand Union's Quarterly Report on Form 10-Q for the
period ended October 12, 1996.
<PAGE>
Exhibit
Number Description of Document
- ------- -----------------------
10.30 Stock Purchase Agreement by and between Grand Union and Roger
Stangeland, dated as of February 25, 1997, incorporated by
reference to Exhibit 10.52 to Grand Union's Annual Report on Form
10-K for Fiscal 1997.
10.31 Amendment No. 1, dated March 20, 1997, to the Stock Purchase
Agreement between Grand Union and Roger Stangeland, dated as of
February 25, 1997, incorporated by reference to Exhibit 10.53 to
Grand Union's Annual Report on Form 10-K for Fiscal 1997.
<PAGE>
Exhibit
Number Description of Document
- ------- -----------------------
10.32 Stockholder Agreement between Trefoil Capital Investors II, L.P., a
Delaware limited partnership, GE Investment Private Placement
Partners II, A Limited Partnership, a Delaware limited partnership,
Roger Stangeland, an individual, and Grand Union, incorporated by
reference to Exhibit 10.55 to Grand Union's Annual Report on Form
10-K for Fiscal 1997.
10.33 Addendum to Stockholder Agreement among Trefoil Capital Investors
II, L.P., a Delaware limited partnership, GE Investment Private
Placement Partners II, A Limited Partnership, a Delaware limited
partnership, Roger Stangeland, an individual, and The Grand Union
Company, a Delaware corporation, incorporated by reference to
Exhibit 10.56 to Grand Union's Annual Report on Form 10-K for
Fiscal 1997.
10.34 Acceleration and Exchange Agreement, dated as of June 5, 1997, by
and among The Grand Union Company, Trefoil Capital Investors II,
L.P., a Delaware limited partnership, and GE Investments Private
Placement Partners II, A Limited Partnership, a Delaware limited
partnership, including Exhibits thereto, incorporated by reference
to Exhibit 10.57 to Grand Union's Annual Report on Form 10-K for
Fiscal 1997.
10.35 Amendment No. 1, dated as of June 5, 1997, to the Registration
Rights Agreement dated as of July 30, 1996, by and among The Grand
Union Company, Trefoil Capital Investors II, L.P., a Delaware
limited partnership, and GE Investments Private Placement Partners
II, A Limited Partnership, a Delaware limited partnership,
incorporated by reference to Exhibit 10.58 to Grand Union's Annual
Report on Form 10-K for Fiscal 1997.
10.36 Employment Agreement, dated as of August 1, 1997, between Grand
Union and J. Wayne Harris, incorporated by reference to Exhibit
99.1 Grand Union's Current Report on Form 8-K filed on August 1,
1997.
10.37 Employment Agreement, dated as of October 3, 1997, between Grand
Union and Gary M. Philbin, incorporated by reference to Exhibit
99.1 Grand Union's Current Report on Form 8-K filed on October 29,
1997.
10.38 Employment Agreement, dated as of January 5, 1998, between Grand
Union and Jack W. Partridge, incorporated by reference to Exhibit
99.1 Grand Union's Current Report on Form 8-K filed on January 28,
1998.
10.39 Exit Facility Commitment Letter, dated April 23, 1998, among Grand
Union and Swiss Bank Corporation, SBC Warburg Dillon Read Inc.,
Lehman Commercial Paper Inc. and Lehman Brothers Inc.
10.40 Revolving Credit Agreement, dated as of June 24, 1998, by and
among Grand Union and Swiss Bank Corporation, SBC Warburg Dillon
Read Inc., Lehman Commercial Paper Inc. and Lehman Brothers Inc.
21.1 Subsidiaries of Grand Union.
27.1 Financial Data Schedule.
<PAGE>
EXHIBIT 10.11
MODIFICATION NO. 2 TO WAIVER DATED FEBRUARY 25, 1998
TO THE AMENDED AND RESTATED CREDIT AGREEMENT
AND
THIRTEENTH AMENDMENT
TO THE AMENDED AND RESTATED CREDIT AGREEMENT
This MODIFICATION NO. 2 AND THIRTEENTH AMENDMENT dated as of
April 16, 1998 (this "Modification and Amendment") to (1) the Waiver dated as
of February 25, 1998 (as modified by the Modification No. 1 thereto dated as
of March 30, 1998, the "February 25th Waiver"), among THE GRAND UNION COMPANY,
a Delaware corporation (the "Borrower"), the institutions party thereto as
lenders and BANKERS TRUST COMPANY, as agent (the "Agent"), and (2) the AMENDED
AND RESTATED CREDIT AGREEMENT dated as of June 15, 1995 (as modified by, or
the terms thereof waived by various waivers and ten amendments as set forth in
the composite Credit Agreement appended to and incorporated in the Waiver and
Tenth Amendment thereto dated as of August 29, 1997, and as modified by or the
terms thereof waived by the Eleventh Amendment thereto dated as of August 29,
1997, the Waiver and Consent thereto dated as of October 26, 1997, the Waiver
and Consent thereto dated as of November 14, 1997, the Twelfth Amendment
thereto dated as of January 9, 1998, and the February 25th Waiver, the "Credit
Agreement"), among the Borrower, the institutions from time to time party
thereto as lenders and the Agent, is being entered into by and among the
Borrower, the Agent and the undersigned lending institutions party to the
Credit Agreement (the "Banks"). Capitalized terms used herein and not defined
herein shall have the respective meanings set forth for such terms in the
Credit Agreement.
W I T N E S S E T H :
WHEREAS, the Borrower has requested that the Banks, pursuant
to Section 12.12 of the Credit Agreement, modify certain provisions of the
February 25th Waiver and the Credit Agreement to (1) allow the Borrower to
renew and replace certain unsecured Indebtedness with respect to reimbursement
and other monetary obligations of the Borrower under certain surety,
performance and bid bonds, and (2) allow the Borrower to utilize the
availability created under the Credit Agreement through the replacement of a
certain Letter of Credit issued to the State of New York with respect to
workmen's compensation obligations for a Letter of Credit issued to a bonding
company in a lower amount with respect to such obligations;
<PAGE>
WHEREAS, subject to and upon the terms and conditions
hereinafter set forth and in the Credit Agreement and the February 25th
Waiver, the Banks party hereto are agreeable to the foregoing;
Now, THEREFORE, the parties hereto hereby agree as follows:
Section 1. Modifications. (a) Clause (v) of Section 1 of the
February 25th Waiver is hereby replaced with the following:
"(v) Unless otherwise agreed to in writing
by the Required Banks, the Total Unutilized Revolving
Commitment shall not be less than the sum of (a) $7,000,000,
plus (b) the aggregate amount of any increase in the Total
Unutilized Revolving Commitment on and after February 25,
1997 resulting from the reduction of any Letter of Credit or
the cancellation, expiration or substitution of any Letter
of Credit which is not immediately renewed or replaced in
favor of the same beneficiary (but excluding the $10,500,000
increase in Total Unutilized Revolving Commitment resulting
from the one time replacement of an existing Letter of
Credit in the amount of $28,000,000 issued in favor of the
State of New York in connection with workmen's compensation
obligations for a $17,500,000 Letter of Credit issued in
favor of a bonding company with respect to those same
obligations).;"
(b) Clause (xi) of Section 1 of the February 25th Waiver is
hereby replaced with the following:
"(xi) The level of usual and ordinary
course trade credit (including, without limitation, credit
limits, pricing, cash discounts, timing of payments,
allowances, rebates, coupon reconciliation, normal product
mix and availability and other applicable terms and programs
in effect between a vendor and the Borrower on a historical
basis) provided by vendors to the Borrower or its affiliates
shall not be materially reduced (as determined in the sole
opinion of the Agent and the Required Banks) from such usual
and ordinary course trade credit which existed during the
Borrower's period 12 fiscal month period ended February 28,
1998; and"
Section 2. Amendment. (a) Section 8.3(c) of the Credit
Agreement is hereby amended by inserting immediately after the phrase "Existing
Indebtedness" the following:
CONFIDENTIAL 3 EXECUTION COPY
<PAGE>
"and any renewal or replacement of Existing Indebtedness of
the type described in clause (viii) of the definition of
"Indebtedness" in the ordinary course of business and in
amounts not to exceed that which is renewed or replaced"
(b) Section 8.3 of the Credit Agreement is hereby amended by
(i) deleting the word "and" at the end of clause (g) thereof, and (ii)
inserting the following immediately before the period at the end of clause (h)
thereof:
"; and
(i) Indebtedness resulting from unsecured
reimbursement obligations of the Borrower with respect to a
performance bond issued in connection with workmen's
compensation obligations in the State of New York in an
amount not to exceed $35,000,000."
Section 3. Representations and Warranties. The Borrower hereby
represents and warrants to the Agent and each Bank that:
(a) assuming the effectiveness of the February 25th Waiver,
no Default or Event of Default under the Credit Agreement has occurred and is
continuing on and as of the date hereof; and
(b) the representations and warranties of the Borrower and
the other Credit Parties contained in the Credit Agreement and the other
Credit Documents are true and correct in all material respects on and as of
the date hereof as if made on and as of the date hereof other than as referred
to herein, except to the extent such representations and warranties expressly
relate to a different specific date.
Section 4. Effectiveness. This Modification and Amendment
shall become effective, as of April 16, 1998, when the Agent shall have
executed and delivered a counterpart of this Modification and Amendment and
received duly executed counterparts of this Modification and Amendment from
the Borrower, each Subsidiary of the Borrower that is a party to any Credit
Document and as many of the Banks as shall be necessary to comprise the
"Required Banks". The aforesaid execution and delivery may be effected by
delivery and receipt by facsimile transmission.
Section 5. Status of Credit Documents. (i) This Modification
and Amendment is limited solely for the purposes and to the extent expressly
set forth herein, and (i) the terms, provisions and conditions of the Credit
Documents, including, without limitation, the February 25th Waiver and the
Credit Agreement, (ii) the
CONFIDENTIAL 3 EXECUTION COPY
<PAGE>
terms and provisions of the Further Assurances Agreement dated as of June 15,
1995, as modified in writing prior to the date hereof, between the Borrower
and the Agent, and (iii) the Liens granted under the Credit Documents shall
continue in full force and effect and are hereby ratified and confirmed in all
respects.
(ii) No waiver of any terms or provisions of the Credit
Agreement or the waiver granted hereunder shall relieve the Borrower from
complying with such terms and provisions other than as waived hereby or from
complying with any other term or provision of the Credit Agreement or the
February 25th Waiver.
Section 6. Counterparts. This Modification and Amendment may
be executed and delivered in any number of counterparts and by the different
parties hereto on separate counterparts, each of which when so executed and
delivered shall be an original, but all of which shall together constitute one
and the same instrument. A complete set of counterparts shall be lodged with
the Borrower and the Agent.
Section 7. Governing Law. THIS MODIFICATION AND AMENDMENT
SHALL BE CONSTRUED IN ACCORDANCE WITH, AND SHALL BE GOVERNED BY, THE LAWS OF THE
STATE OF NEW YORK.
IN WITNESS WHEREOF, the parties hereto have caused their
respective duly authorized officers to execute and deliver this Modification
No. 2 and Thirteenth Amendment as of the date first above written.
THE GRAND UNION COMPANY
By:________________________
Name: Francis E. Nicastro
Title: Vice President and
Treasurer
BANKERS TRUST COMPANY,
Individually and as Agent
By:________________________
Name: Allan M. Stewart
Title: Managing Director
CONFIDENTIAL 4 EXECUTION COPY
<PAGE>
AG CAPITAL FUNDING PARTNERS L.P.
By Angelo Gordon & Company
Its Authorized Agent
By:________________________
Name:
Title:
FLEET CAPITAL CORPORATION
By:________________________
Name:
Title:
GOLDMAN SACHS CREDIT PARTNERS LP
By:________________________
Name:
Title:
HELLER FINANCIAL, INC.
By:________________________
Name:
Title:
CONFIDENTIAL 5 EXECUTION COPY
<PAGE>
HOUR L.L.C.
By: Sunrise Partners, L.L.C.
Its Authorized Agent
By:________________________
Name:
Title:
LEHMAN COMMERCIAL PAPER INC.
By:________________________
Name:
Title:
PPM AMERICA SPECIAL INVESTMENTS
CBO II, L.P.
By: PPM America, Inc.,
Its Authorized Agent
By:________________________
Name:
Title:
QUANTUM PARTNERS LDC
By:________________________
Name:
Title:
CONFIDENTIAL 6 EXECUTION COPY
<PAGE>
SWISS BANK CORPORATION,
LONDON BRANCH
By:________________________
Name:
Title:
WAYLAND INVESTMENT FUND LLC
By: CFSC Wayland Advisors, Inc.
Its Manager
By:________________________
Name:
Title:
CONFIDENTIAL 7 EXECUTION COPY
<PAGE>
The foregoing Modification No. 2 and Thirteenth Amendment is
hereby consented and agreed to, and the Liens and guaranties under the Credit
Documents are hereby confirmed, by:
MERCHANDISING SERVICES, INC.
GRAND UNION STORES, INC. OF VERMONT
GRAND UNION STORES OF NEW HAMPSHIRE, INC.
SPECIALTY MERCHANDISING SERVICES, INC.
By:_________________________________
Name: Francis E. Nicastro
Title: Vice President and Treasurer
of each of the above listed entities
<PAGE>
EXHIBIT 10.16
FOURTH AMENDMENT AND RESTATEMENT
OF THE GRAND UNION COMPANY
SUPPLEMENTAL RETIREMENT PROGRAM
FOR KEY EXECUTIVES
I. PURPOSE:
The purpose of The Grand Union Company Supplemental Retirement
Program for Key Executives (the "Plan") is to advance the interests
of The Grand Union Company (and its subsidiaries) (the "Company") by
encouraging and enabling the Company to attract, motivate and retain
key executives and, at the same time, recognize the executive's
contribution to the Company's success and years of loyal service.
II. EFFECTIVE DATE; DEFINITIONS:
The effective date of this Fourth Amendment and Restatement of the
Plan is November 20, 1997. The Plan, as herein written, applies to
persons who are employed by the Company or become employed by the
Company on or after such effective date and who have previously been
designated as participants or who are hereafter designated as
participants in accordance with Section III hereof. As of November
20, 1997, the only participants are the individuals named on Exhibit
D. The rights and obligations with respect to each person who
retired, died, or whose employment terminated, or who otherwise
ceased participation in the Plan, prior to November 20, 1997 shall be
determined under the terms and provisions of the Plan as in effect on
the date of such retirement, death, termination of employment or
cessation of participation.
Except as otherwise expressly provided herein, or as otherwise
required by the context, all words and phrases used herein which are
defined in The Grand Union Company Employees' Retirement Plan (the
"Qualified Plan") shall have the same meaning as in the Qualified
Plan.
III. ADMINISTRATION AND ELIGIBILITY:
The Plan shall be administered by the Compensation Committee (the
"Committee") of the Board of Directors of the Company. The key
executives who are or will be participants shall be selected from
time to time by the Committee and shall receive benefits in
accordance with the provisions of this Plan.
<PAGE>
The Committee has the power and discretion to interpret the Plan and
any agreement evidencing benefits granted hereunder and to make all
other determinations in connection with the administration of the
Plan, all of which shall be final and conclusive.
IV. CREDITED SERVICE:
Credited Service shall have the same meaning as in the Qualified
Plan, except that a participant shall also receive credit for
(i) service with The Grand Union Company and (ii) service with
another company within the Corporate Group prior to the time
such company became a member of such Group. Notwithstanding
anything herein to the contrary, the Committee may, in its sole
discretion and on a case-by-case basis, increase a participant's
number of years of Credited Service used to determine the
benefits hereunder in excess of such participant's actual years
of Credited Service.
V. PAYMENT:
Benefits pursuant to the terms of this Plan shall be paid directly
from the general assets of the Company. All such benefits shall be
paid in a single sum no later than 30 days following a participant's
date of retirement or other termination of employment.
VI. RETIREMENT ELIGIBILITY:
A. Retirement At or After Age 62.
1. Although "normal" retirement under the Qualified Plan
is age 65, under this Plan, a participant may retire
as early as age 62 without penalty.
2. A participant who retires under the Plan at age 62 or
later shall be paid a single sum in cash which is
equal to the "actuarial present value" (as defined in
paragraph A.6 below) of the pension determined under
paragraph A.3 below reduced by all amounts previously
paid to the participant under the Plan including, but
not limited to, any payment shown on Exhibit D plus
interest on such previous payment amount from the
date of such previous payment to the date of such
retirement at the interest discount rate set forth in
Exhibit A in effect at the time of
2
<PAGE>
such payment or in the case of a payment amount shown
on Exhibit D, the interest rate shown on Exhibit D
for such payment amount (in the aggregate as to each
participant, "the Prior Payment"). An additional
single sum payment may be made to such participant
following his retirement, as provided in paragraph
A.7 below.
3. The annual amount of pension payable upon retirement
at age 62 or later is determined as the "Target
Benefit" minus the "Plan Offsets". Such pension is
deemed to be payable monthly and is based on a life
annuity form of payment for participants who are not
married on the date of their retirement and on a
joint and survivor annuity form of payment for
participants who are married on such date, which
annuity is payable in full (i.e., without actuarial
reduction) to the participant during his life, and,
following his death, at the rate of fifty percent
(50%) to the spouse to whom the participant is
married on the date of his retirement, for the
remainder of her lifetime.
4. The "Target Benefit" is an annual pension,
payable monthly, equal to 65% of the Final
Year's Base Salary for a participant who has
15 or more years of Credited Service. For
participants with less than 15 years of
Credited Service, the target benefit is 4-1/3%
of the Final Year's Base Salary multiplied by
years of Credited Service. Notwithstanding
anything herein to the contrary, the Committee
may, in its sole discretion and on a
case-by-case basis, determine a participant's
target benefit based on 4-1/3% of the Final
Year's Base Salary multiplied by his actual or
deemed number of years of Credited Service in
accordance with Section IV above (even if such
years of Credited Service exceed 15). For
purposes of this Plan, the term "Final Year's
Base Salary" shall mean (i) except as provided
in (ii) below, the annualized rate of base
salary being paid to the participant
immediately prior to his death or retirement
or in the case of a participant who is
disabled within the meaning of the long term
disability income plan sponsored by the
3
<PAGE>
Company under which he is covered, the
annualized rate of base salary being paid to
such disabled participant immediately prior to
the onset of his disability or (ii) in the
case of Joseph J. McCaig, Final Year's Base
Salary shall be the greater of Final Year's
Base Salary as determined under (i) above or
$500,000, or(iii) an amount, determined by the
Committee in its sole discretion and on a
case-by-case basis, which exceeds the amount
determined under (i) above..
5. "Plan Offsets" upon retirement at age 62 or
later are equal to the sum of (i) the annual
primary Social Security benefits payable at
age 62 (or at later retirement) to the
participant (the actual amount as provided by
the participant to the Company or as
determined on an assumed basis by the
Company), (ii) the benefits payable at age 62
(or at later retirement) from the Qualified
Plan (expressed as an annual straight life
annuity), and (iii) the benefits payable from
the qualified retirement plans of previous
employers (including, without limitation,
Colonial Stores Incorporated and J. Weingarten
Incorporated) and from the Colonial Stores
Supplemental Plan (in each case expressed as
an annual straight life annuity). In the case
of a participant who is potentially eligible
for an increase in the annual benefit payable
under the Qualified Plan after retirement as a
result of cost of living adjustments, made in
accordance with Section 415(d) of the Internal
Revenue Code of 1986, as amended (the "Code"),
to the maximum annual benefit limitation under
Section 415(b) of the Code, the amount of
"Plan Offsets" shall be increased to reflect
the expected increase in annual benefit
payable under the Qualified Plan. The
assumption(s) as to cost of living increases
to the maximum annual benefit limitation under
Section 415(b) of the Code for the purpose of
determining the amount of "Plan Offsets"
attributable to benefits payable under the
Qualified Plan in each year of expected
payment following retirement are set forth in
Exhibit A. A demonstration of the methodology
to be used in calculating a
4
<PAGE>
participant's retirement benefit and the actuarial
present value thereof under this Section VI.A is
attached hereto as Exhibit B, but in the event
of any discrepancy between the figures or
computations set forth in Exhibit B and the
terms of the Plan, the terms of the Plan shall
control.
6. (i) The actuarial present value of a participant's
benefit under the Plan is the sum of the present
values of the amount of pension determined under
paragraph A.3 above (expressed as a monthly benefit)
for each year included in the period measured, in the
case of an unmarried participant, by the
participant's life expectancy only, and, in the case
of a participant who is married as of the date of his
retirement, by the joint life expectancy of the
participant and his spouse, as of such date.
(ii) The present value, as of the single sum
payment date, of an unmarried participant's
benefit for any year included in the period
described in paragraph A.6(i) above, is equal
to the amount determined under paragraph A.3
to be payable for such year on a monthly
basis, multiplied by a present value factor.
The present value factor is based on the
participant's age at the single sum payment
date, the interest discount rate set forth in
Exhibit A attached hereto and the 1983
Individual Annuity Mortality Table.
(iii) The present value, as of the single sum
payment date, of a married participant's
benefit for any year included in the period
described in paragraph A.6(i) above, is equal
to the sum of (a) the amount determined as if
he were unmarried, as described in paragraph
A.6(ii) above, and (b) fifty percent (50%) of
the amount determined under paragraph A.3,
representing a survivor's benefit payable on a
monthly basis to the participant's surviving
spouse for such year, multiplied by a present
value factor. The present value factor is
based on the participant's and spouse's ages
at the single sum payment date, the interest
discount rate set forth in Exhibit A and the
1983 Individual Annuity Mortality Table.
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<PAGE>
Where the participant's spouse is more than ten
(10) years younger than the participant, the
present value of the participant's benefit
attributable to the survivor element of the
joint and survivor annuity will be computed by
reducing the amount of benefit to be continued
to the spouse after the participant's death by
2% for each year by which the difference in
the participant's and the spouse's age exceeds
ten (10). The reduction for any such partial
year shall be determined by interpolating for
the number of months between the percentage
reduction applicable to the last full year of
the age differential in excess of ten (10)
years and the next full year of such
differential.
7. In the event that legislation is enacted following a
participant's retirement and receipt of the
actuarial present value of his pension hereunder
that has the effect of eliminating, reducing or
suspending cost of living adjustments to the
maximum annual benefit limitation under Section
415(b) of the Code or of reducing such limitation,
then within thirty (30) days of the effective date
of such legislation, the participant (or his
estate) shall be entitled to receive an additional
single sum payment in cash equal to the present
value of the amount by which his Qualified Plan
benefit is assumed to increase in each year of
expected payment following such effective date, to
reflect cost of living adjustments to the maximum
annual benefit limitation under Section 415(b) of
the Code.
B. Early Retirement.
1. (i) A participant between the ages of 50 (age 47
for any person who became a participant
prior to April 1, 1995) and 55 may, with
the Company's consent, retire and receive
a single sum pension benefit under this
Plan; provided, however, that such consent
shall not be required of a participant who
(a) is covered under a Company-sponsored
long term disability income plan and is
disabled or awaiting certification of
disability status under the terms of such
plan, (b) is involuntarily
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<PAGE>
terminated other than for proper cause (as
defined in Section VII(d) below) or (c)
has a termination of employment on account
of a Constructive Termination. A
participant between the ages of 55 and 62
may retire at any time and receive a
single sum pension benefit under this
Plan.
(ii) A participant who is involuntarily
terminated (other than for proper cause as
defined in Section VII(d) below) or has a
termination of employment on account of a
Constructive Termination following a
Change in Control shall be deemed to have
been retired by the Company for purposes
of this Plan and shall receive a single
sum pension benefit regardless of his then
attained age.
For purposes of paragraph B.1 above, Constructive
Termination shall mean after November 20, 1997 (i) with
respect to a participant holding the position of Chief
Executive Officer, President, Chief Operating Officer
or Chief Financial Officer, either an involuntary
reduction in base salary that exceeds 5% in any year,
or an involuntary removal from sole possession of said
position, or (ii) with respect to any other
participant, either an involuntary reduction in base
salary that exceeds 10% in any year, or an involuntary
reduction in grade level of more than two grades in any
year or (iii) any involuntary transfer that would
require relocation outside of the current operating
area of Grand Union and for purposes of paragraph
B.1(ii) above, Change in Control shall mean a Change of
Control as defined in the Indenture between the Company
as issuer and IBJ Schroeder Bank & Trust Company as
Trustee for the issuance of up to $595,475,922 of 12%
Senior Notes due September 1, 2004 as dated as of June
15, 1995.
2. A participant who retires early under paragraph B.1
above shall be paid a single sum in cash which is
equal to the "actuarial present value" (as defined
in paragraph B.6 below) of the monthly equivalent
of the pension determined under paragraph B.3 below
reduced by such participant's Prior Payment, if
any. An additional single sum payment
7
<PAGE>
may be made to such participant following his
retirement, as provided in paragraph B.7 below.
3. The annual amount of pension payable upon early
retirement is determined as the "Target Benefit"
(determined under paragraph B.4 below) minus the
"Plan Offsets" (set forth in paragraph B.5 below).
4. The "Target Benefit" (as defined in paragraph A.4
above) shall be reduced 5% per year for each year
that the date of commencement of benefits precedes
age 62. To illustrate, a participant retiring at
age 58 will receive 80% of the "Target Benefit".
5. "Plan Offsets" upon early retirement are equal to
the sum of:
(a) The assumed annual primary Social Security
benefit that would be payable to the
participant at age 65, determined by
assuming continued employment with the
Company to age 65 at the salary level in
effect at retirement, which benefit is
then reduced by 6-2/3% per year for each
of the first three years that the
commencement date of the benefits under
this Plan precedes age 65 and 5% per year
for each year in excess of three years;
and
(b) Benefits payable from the Qualified
Plan, assuming the earliest
commencement and payment of benefits
under the straight life annuity form.
In the case of a participant who is
potentially eligible for an increase
in the annual benefit payable under
the Qualified Plan after retirement
as a result of cost of living
adjustments made in accordance with
Section 415(d) of the Code to the
maximum annual benefit limitation
under Section 415(b) of the Code, the
amount of "Plan Offsets" shall be
increased to reflect the expected
increase in annual benefit payable
under the Qualified Plan (the
assumption(s) as to cost of living
increases to the maximum annual
benefit
8
<PAGE>
limitation under Section 415(b) of the
Code for the purpose of determining the
amount of "Plan Offsets" attributable to
benefits payable under the Qualified Plan
in each year of expected payment following
retirement are set forth in Exhibit A);
and
(c) The benefits payable from qualified
retirement plans of previous employers
(including, without limitation, Colonial
Stores Incorporated and J. Weingarten
Incorporated) and from the Colonial Stores
Supplemental Plan, all of which shall be
ascertained in the same manner, wherever
possible, as the Qualified Plan benefits.
6. The actuarial present value of a participant's
benefit payable under the Plan in the event of
early retirement shall be determined in the same
manner as is described in paragraph A.6 above, but
with reference to the amount of pension determined
under "paragraph B.3" substituted for any
references to paragraph A.3 contained therein. A
demonstration of the methodology to be used in
calculating a participant's retirement benefit and
the actuarial present value thereof under this
Section VI.B is attached hereto as Exhibit B, but
in the event of any discrepancy between the figures
or computations set forth in Exhibit B and the
terms of the Plan, the terms of the Plan shall
control.
7. In the event that legislation is enacted following a
participant's early retirement and receipt of the
actuarial present value of his pension hereunder
that has the effect of eliminating, reducing or
suspending cost of living adjustments to the
maximum annual benefit limitation under Section
415(b) of the Code or of reducing such limitation,
then the participant (or his estate) shall be
entitled to receive an additional single sum
payment determined in the manner and payable at the
time described in paragraph A.7 above.
VII. LOSS OF BENEFITS:
9
<PAGE>
Benefits will not be paid under this Plan in the following
circumstances:
(a) Except as otherwise provided in paragraph B.1 of Section VI,
termination of a participant's employment prior to age 50;
(b) Except as otherwise provided in paragraph B.1 of Section VI,
termination of a participant's employment between the ages of
50 and 55 without the Company's consent;
(c) Except as otherwise provided in Section VIII(b), death of a
participant prior to retirement;
(d) Disqualification for proper cause. For this purpose, proper
cause shall mean a refusal to perform one's duties, proven
dishonesty or the commission of an act or acts constituting a
felony, or other willful misconduct inimical to the best
interests of the Company.
For purposes of this Plan, a participant who becomes disabled shall
not be considered to have terminated his employment with the Company
during the qualifying period set forth in a Company-sponsored long
term disability income plan under which he is covered and throughout
the period during which disability benefits are paid to him from such
plan until he gives notice to the Company of his election to retire
under the terms of this Plan.
VIII. MISCELLANEOUS:
(a) Nonalienability. No benefit payable at any time hereunder
shall be subject in any manner to alienation, sale, transfer,
assignment, pledge, attachment or other legal process, or
encumbrance of any kind. Any attempt to alienate, sell,
transfer, assign, pledge or otherwise encumber any such
benefit, whether currently or hereafter payable, shall be
void. Except as otherwise specifically provided by law, no
such benefit shall, in any manner, be liable for or subject to
the debts or liabilities of any participant or any other
person entitled to such benefits.
(b) Payment on Death. In the event a participant should die
after termination of employment but prior to payment of
a benefit to which he has become entitled under the
Plan, such benefit shall be paid to the participant's
estate. In
10
<PAGE>
addition, if the participant should die while employed but
after the effective date of any reduction or discontinuance
by the Company of the level of life insurance coverage
applicable to the participant, based on his Final Year's
Base Salary in effect immediately prior to his death and the
table set forth in Exhibit C attached hereto, then that
portion of the actuarial present value of the pension he has
accrued under the Plan, which shall be determined as if he
had retired on the day immediately preceding his date of
death, as does not exceed the amount by which the level of
such participant's Company-provided life insurance has been
reduced or discontinued, shall be paid to the participant's
estate. For purposes of the preceding sentence, any
participant who dies prior to attaining age 55 shall be
deemed eligible to retire early under Section VI.B.
(c) No Rights to Employment. This Plan shall not be construed as
providing any participant with the right to be retained in
the Company's employ or to receive any benefit not
specifically provided hereunder.
(d) Amendment and Termination. The Company shall have the
right, at any time and from time to time, to amend in whole
or in part, or to terminate any of the provisions of this
Plan, and such amendment or termination shall be binding
upon all participants and parties in interest; provided that
no such amendment or termination shall impair any rights
which have accrued hereunder. For example, if this Plan is
terminated, a participant who has reached age 50 (age 47 for
a person who became a participant prior to April 1, 1995) on
or prior to the date of such termination shall be entitled
to receive a single sum payment upon his retirement, equal
to the actuarial present value of his pension, determined in
accordance with the provisions of Section VI.A.6 or VI.B.6,
whichever is applicable, and based upon a "Target Benefit"
calculated with reference to his Final Year's Base Salary,
and, where applicable, Credited Service on the date of such
termination, reduced by his Prior Payment, if any. If this
Plan (as herein amended and restated effective June 15,
1995) is further amended, a participant who has reached age
50 (age 47 for a person who became a participant prior to
April 1, 1995) on or prior
11
<PAGE>
to the effective date of such amendment shall be entitled to
receive a benefit upon his retirement, in accordance with
the terms of the Plan, as amended; provided, however, that
in no event shall any such amendment impair the right of any
such participant to receive a single sum payment upon his
retirement, equal to the actuarial present value of his
pension, determined under the provisions of Section VI.A.6
and VI.B.6, whichever is applicable, as in effect on the day
immediately preceding the effective date of such amendment,
which pension shall be based on a "Target Benefit" that is
not less than the "Target Benefit" calculated in accordance
with the provisions of Section VI.A.4 or VI.B.4, whichever
is applicable, as in effect on such date, with reference to
the participant's Final Year's Base Salary, and, where
applicable, Credited Service on such date, and an amount of
"Plan Offsets" that is not greater than the amount of "Plan
Offsets" calculated in accordance with the provisions of
Section VI.A.5 or VI.B.5, whichever is applicable, as in
effect on such date, reduced by his Prior Payment, if any,
calculated in accordance with the provisions of Section VI
A.2 or VI B.2, whichever is applicable, as in effect on such
date. The types of Plan amendments to which this paragraph
(d) applies include, but are not limited to, amendments
which (i) cease or reduce the rate of benefit accrual, (ii)
change any of the actuarial assumptions specified in the
Plan resulting in a reduction in the actuarial present value
of participants' accrued benefits, (iii) eliminate the
single sum method of payment, or (iv) change the
requirements for benefit eligibility to the detriment of any
participant. The preceding provisions of this paragraph (d)
shall be applicable to all participants, regardless of their
attained age, in the event the Plan is amended or terminated
following a Change in Control (as defined in Section
VI.B.1.).
(e) Governing Law. This Plan shall be governed by and construed
in accordance with the laws of the State of New Jersey.
(f) Successors and Assigns. This Plan and all of the provisions
hereof shall be binding upon the Company and its successors
and assigns.
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<PAGE>
IX. EXECUTION:
The undersigned, being a duly authorized officer of the
Company, has hereby executed this Fourth Amendment and Restatement of the
Plan below as evidence of its adoption by the Company as of the 20th day
of November, 1997.
By:_________________________
Title:______________________
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<PAGE>
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.
<PAGE>
EXHIBIT 10.17
THE GRAND UNION COMPANY DISCRETIONARY SEVERANCE PLAN
FOR NON-UNION ASSOCIATES
AND
SUMMARY PLAN DESCRIPTION
Effective April 14, 1998
(1) GENERAL.
The legal name, address and federal employer identification number of the
Company are:
The Grand Union Company EIN: 22-1518276
201 Willowbrook Blvd.
Wayne, NJ 07470
The Company has established a discretionary severance plan (the "Plan") for
all non-exempt, non-union, non-salaried, hourly associates working in the
Company's stores and hourly personnel who work in the Company's offices. If
after reading this Plan and Summary Plan Description you have any questions,
please present them to the Plan Administrator identified in Section (4).
(2) IDENTIFICATION OF PLAN.
The Plan is known as The Grand Union Company Discretionary Severance Plan for
Non-Union Associates. The Company has assigned 529 as the plan identification
number.
(3) TYPE OF PLAN.
The Plan is commonly known as an employee welfare benefit plan, which
provides, in the discretion and sole determination of the Plan Administrator,
certain severance benefits ("Severance Benefits"). The Plan may provide you
with discretionary Severance Benefits if your employment with the Company
terminates for any reason specified in Section (6), "Terminations Which May
Give Rise to Severance Benefits", unless you are subject to Section (7),
"Terminations Which Do Not Give Rise to Severance Benefits". Section (8),
"Payment of Severance Benefits", explains how Severance Benefits are
calculated and paid. However, even if employment terminates for a reason
specified in Section (6), "Terminations Which May Give Rise to Severance
Benefits," payment of Severance Benefits is nevertheless completely
discretionary in each case and it is an express term and condition of the Plan
that the Plan Administrator reserves the absolute right in its sole discretion
to determine whether or not Severance Benefits will be paid in any instance,
and in what amount.
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<PAGE>
As you may know, a governmental agency known as the Pension Benefit Guaranty
Corporation ("PBGC") insures certain benefits payable under plans which
provide for fixed and determinable retirement benefits. Since the Plan is not
a retirement plan, the PBGC does not include this Plan within its insurance
program.
(4) PLAN ADMINISTRATOR.
The Plan Administrator is the entity that is responsible for administering the
Plan. The Company's Vice President of Associate Relations, or such person who
is designated as his/her successor, is the Plan Administrator. You may contact
the Plan Administrator at the Company's address. The Plan Administrator is
responsible for providing you and other participants with information
regarding your rights, obligations and benefits under the Plan. The Plan
Administrator also has the primary authority for filing the various reports,
forms and returns with the Department of Labor and the Internal Revenue
Service.
The Plan Administrator has responsibility for making all discretionary
determinations under the Plan, for interpreting and construing the terms of
the Plan, and for determining Severance Benefits payable thereunder. Any
interpretation or determination made by the Plan Administrator pursuant to its
discretionary authority shall be given full force and effect, unless it can be
shown that the interpretation or determination was arbitrary and capricious.
The Plan Administrator is designated as agent for service of legal process and
the address where a processor may serve legal process upon the Plan is:
The Grand Union Company
Severance Plan Administrator
Personnel Benefits Department
201 Willowbrook Blvd.
Wayne, NJ 07470
Severance Benefits, when determined by the Plan Administrator to be payable,
are paid from the general assets of the Company. There is no separate trust
fund from which Severance Benefits are provided. All records of the Plan shall
be kept on the basis of the Plan Year, which corresponds with the Company's
fiscal year that typically ends on the fourth Saturday in March.
(5) ELIGIBILITY TO PARTICIPATE.
Subject to all of the terms and conditions of the Plan (including without
limitation the condition that eligibility for Severance Benefits in each case
is subject to the determination of the Plan Administrator in its sole and
absolute discretion), each non-exempt, non-union, nonsalaried, hourly
associate of the Company, including hourly personnel working in the Company's
offices
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<PAGE>
who is actively employed and working, may be eligible to receive a Severance
Benefit under the Plan (hereinafter "Participants").
-3-
<PAGE>
(6) TERMINATIONS WHICH MAY GIVE RISE TO SEVERANCE BENEFITS.
Unless you are subject to Section (7), you may be entitled to receive
Severance Benefits if:
(a) if you are a full time non-exempt, non-union, non-salaried, hourly
associate, and you are terminated in connection with a store closing
or, you are terminated in connection with a job elimination, a
reduction in force for economic reasons, a decision to outsource work
performed by Company employees to a third-party service provider, or
lack of work, and
(b) you work up to and including your last scheduled day of employment
as determined by the Company, and
(c) the Plan Administrator determines in its discretion that you are
eligible to receive Severance Benefits under the Plan.
As explained in Section (8) below, receipt of Severance Benefits under this
Plan is further contingent upon your first executing an Agreement and Release
of any claims you have or may have against the Company as of the date you
accept Severance Benefits.
(7) TERMINATIONS WHICH DO NOT GIVE RISE TO SEVERANCE BENEFITS.
You are not entitled to receive Severance Benefits if your employment is
terminated on account of death, disability, retirement, voluntary termination
or termination for cause, as determined by the Plan Administrator in its sole
and absolute discretion. In addition, even if your employment is terminated in
connection with a job elimination, a reduction in force for economic reasons
or lack of work or store closing as described in Section (6), you are not
eligible to receive a Severance Benefit if you decline any offer of transfer
to another position or location, or your employment is terminated in
connection with the sale of a store or of a major business unit of the Company
and you are offered a position with the purchaser. Finally, you are not
entitled to receive Severance Benefits under this Plan if you are entitled to
receive Severance Benefits under the Grand Union Company Severance Plan for
Exempt Personnel or pursuant to a separate written agreement.
(8) PAYMENT OF SEVERANCE BENEFITS.
Upon executing an Agreement and Release, which releases the Company from any
and all claims you have or may have against the Company or any of its
officers, directors or employees as of the date you accept Severance Benefits,
you may receive Severance Benefits. The Plan Administrator will determine the
amount, if any, of Severance Benefits to be paid in all instances. Severance
Benefits will not be paid without prior approval in each instance of the
pyramid head of the Human Resources Department.
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<PAGE>
Any employee of the Company who has a separate written agreement with the
Company which provides for the payment of severance benefits is not eligible
to receive Severance Benefits under this Plan.
Hourly associates shall generally receive the equivalent of one week's regular
pay for each two years of service to a maximum of 26 weeks of Severance
Benefits, as well as a payment equal to the number of whole months employed
since the preceding June 1 divided by the twelve times the number of vacation
days to which the employee would be entitled on the following June 1.
NOTWITHSTANDING THE ABOVE GUIDELINES, THE PLAN ADMINISTRATOR IN ALL CASES
RETAINS THE ABSOLUTE RIGHT AND DISCRETION TO DETERMINE WHETHER AN EMPLOYEE
WILL BE OFFERED SEVERANCE BENEFITS AND THE TERMS AND AMOUNT OF THE SEVERANCE
BENEFITS, IF ANY. THE PLAN ADMINISTRATOR MAY, IN SOME OR ALL INSTANCES, IMPOSE
OTHER LIMITATIONS UPON RECEIPT OF A SEVERANCE BENEFIT HEREUNDER. THIS IS AN
EXPRESS TERM AND CONDITION OF THE PLAN.
(9) DISQUALIFICATION OF PARTICIPANT STATUS/LOSS OF BENEFITS.
There are no specific Plan provisions which provide for a disqualification of
your status as a Participant under the Plan or for denial or loss of Plan
benefits. If you terminate employment for any reason specified in Section (7),
however, you will not be eligible to receive a Severance Benefit. In addition,
if you are eligible to receive a Severance Benefit, and the Plan Administrator
is unable to locate you at your last address of record with the Company during
the ten day period following termination, you may lose eligibility for
Severance Benefits under the Plan. Therefore, it is your obligation under the
Plan to keep the Company apprised of your mailing address following
termination of your employment. Further, the fact that the Company has
established this Plan does not confer any right to the payment of Severance
Benefits under any circumstance, nor any right to continued employment with
the Company, nor does it impose on the Company any obligation to change its
policies regarding termination of employment.
(10) AMENDMENT AND TERMINATION.
The Company reserves the complete and absolute right to terminate, suspend or
modify the Plan in whole or in part at any time without notice. No benefits
are vested or accrued in connection with the Plan at any time.
(11) COMPANY ACTION.
Any actions to be taken by the Company under the Plan will be taken by the
Company's duly authorized officers. In addition, pursuant to Section 405(c) of
the Employee Retirement Income
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<PAGE>
Security Act of 1974, as amended, the Company may designate any person or
persons to carry out any or all of its fiduciary responsibilities under the
Plan.
(12) CLAIMS PROCEDURE.
You need not file a formal claim with the Plan Administrator in order to
receive Severance Benefits under the Plan. When an event occurs which may make
you eligible to receive a distribution under the Plan, the Plan Administrator
will notify you regarding the distribution of your Severance Benefits. If you
disagree with the Plan Administrator's determination of the amount of
Severance Benefits under the Plan or with respect to any other decision the
Plan Administrator may make regarding your interest in the Plan, the Plan
contains an appeal procedure which you must follow. In brief, if the Plan
Administrator denies Severance Benefits to you, the Plan Administrator will
give you adequate notice in writing setting forth the reason or reasons for
the denial and referring you to the pertinent provisions of the Plan
supporting the Plan Administrator's decision. If you disagree with the Plan
Administrator, you, or a duly authorized representative, must appeal the
adverse determination in writing to the Plan Administrator within 75 days
after receipt of the notice of denial of Severance Benefits. If you fail to
appeal a denial within the 75-day period, the Plan Administrator's
determination will be final and binding. If you appeal to the Plan
Administrator, you or your duly authorized representative must submit the
issues and comments you feel are pertinent to permit the Plan Administrator to
re-examine all facts and make a final determination with respect to the
denial. The Plan Administrator, in most cases, will make a decision within 60
days of a request on appeal unless special circumstances would make the
rendering of a decision within the 60-day period not feasible. In any event,
the Plan Administrator must render a decision within 120 days after its
receipt of a request for review and must notify you of the extension within 60
days of receipt of the request for review. In the event no decision is
rendered within that time period, the appeal is considered denied.
(13) PARTICIPANT'S RIGHTS UNDER ERISA.
As a Participant in this Plan, you are entitled to certain rights and
protections under the Employee Retirement Income Security Act of 1974
("ERISA"). ERISA provides that all Plan Participants shall be entitled to:
a) Examine, without charge, at the Plan Administrator's office and
at other specified locations, all Plan documents; and
b) Obtain copies of all Plan documents and other Plan information upon
written request to the Plan Administrator. The Plan Administrator may
make a reasonable charge for the copies.
In addition to creating rights for Plan Participants, ERISA imposes duties
upon the people who are responsible for the operation of an employee benefit
plan. The people who operate this Plan,
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<PAGE>
called "fiduciaries" of the Plan, have a duty to do so prudently and in the
interests of you and other Plan Participants. No one, including the Company or
any other person, may terminate you or otherwise discriminate against you in
any way to prevent you from obtaining a Severance Benefit or from exercising
your rights under ERISA. If your claim for a Severance Benefit is denied in
whole or in part, you must receive a written explanation of the reason for the
denial. You have the right to have the Plan review and reconsider your claim.
Under ERISA, there are steps you can take to enforce the above rights. For
instance, if you request materials from the Plan and do not receive the
material within 30 days, you may file suit in federal court. In such a case,
the court may require the Plan Administrator to provide the materials and pay
you up to $100 a day until you receive the materials, unless the materials
were not sent because of reasons beyond the control of the Plan Administrator.
If you have a claim for Severance Benefits which is denied or ignored, in
whole or in part, you may file suit in a state or federal court. If it should
happen that you are discriminated against for asserting your rights, you may
seek assistance from the U.S. Department of Labor, or you may file suit in a
federal court. The court will decide who should pay court costs and legal
fees. If you are successful, the court may order the person you have sued to
pay these costs and fees. If you lose, the court may order you to pay these
costs and fees; for example, if it finds your claim is frivolous. If you have
any questions about the Plan, you should contact the Plan Administrator. If
you have any questions about this statement or about your rights under ERISA,
you should contact the nearest area office of the U.S. Labor-Management
Services Administration, U.S. Department of Labor.
(14) FEDERAL AND STATE INCOME TAXATION OF SEVERANCE BENEFITS PAID.
In the event that you do receive Severance Benefits under the Plan, those
Severance Benefits will be subject to automatic withholding of applicable
federal and state taxes. You must report as income the Plan distributions you
receive. We emphasize that you should consult your own tax advisor with
respect to the proper method of reporting any distribution you receive from
the Plan.
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<PAGE>
EXHIBIT 10.18
THE GRAND UNION COMPANY SEVERANCE PLAN
FOR EXEMPT PERSONNEL
AND
SUMMARY PLAN DESCRIPTION
Effective April 14, 1998
(1) GENERAL.
The legal name, address and federal employer identification number of the
Company are:
The Grand Union Company EIN: 22-1518276
201 Willowbrook Blvd.
Wayne, NJ 07470
The Company has established a severance plan (the "Plan") for all of the
Company's salaried personnel at its headquarters and salaried store management
personnel. If after reading this Plan and Summary Plan Description you have
any questions, please present them to the Plan Administrator identified in
Section (4).
(2) IDENTIFICATION OF PLAN.
The Plan is known as The Grand Union Company Severance Plan for Exempt
Personnel. The Company has assigned 530 as the plan identification number.
(3) TYPE OF PLAN.
The Plan is commonly known as an employee welfare benefit plan, which
provides, in the discretion and sole determination of the Plan Administrator,
certain severance benefits ("Severance Benefits"). The Plan may provide you
with Severance Benefits if your employment with the Company terminates for any
reason specified in Section (6), "Terminations Which May Give Rise to
Severance Benefits", unless you are subject to Section (7), "Terminations
Which Do Not Give Rise to Severance Benefits". Section (8), "Payment of
Severance Benefits", explains how Severance Benefits are calculated and paid.
Section (9) "Disqualification of Participant Status/Loss of Benefits" explains
when Severance Benefits will not be paid and how Severance Benefits can be
lost. The Severance Benefit is paid by the Company and does not require
participant contributions to the Plan.
As you may know, a governmental agency known as the Pension Benefit Guaranty
Corporation ("PBGC") insures certain benefits payable under plans which
provide for fixed and determinable
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retirement benefits. Since the Plan is not a retirement plan, the PBGC does
not include this Plan within its insurance program.
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(4) PLAN ADMINISTRATOR.
The Plan Administrator is the entity that is responsible for administering the
Plan. The Company's Vice President of Associate Relations, or such person who
is designated as his/her successor, is the Plan Administrator. You may contact
the Plan Administrator at the Company's address. The Plan Administrator is
responsible for providing you and other participants with information
regarding your rights, obligations and benefits under the Plan. The Plan
Administrator also has the primary authority for filing the various reports,
forms and returns with the Department of Labor and the Internal Revenue
Service. The Plan Administrator shall have discretionary authority to
determine eligibility for Severance Benefits and to construe the terms of the
Plan, as indicated. Any interpretation or determination made by the Plan
Administrator pursuant to its discretionary authority shall be given full
force and effect, unless it can be shown that the interpretation or
determination was arbitrary and capricious.
The Plan Administrator is designated as agent for service of legal process and
the address where a processor may serve legal process upon the Plan is:
The Grand Union Company
Severance Plan Administrator
Personnel Benefits Department
201 Willowbrook Blvd.
Wayne, NJ 07470
Severance Benefits are paid from the general assets of the Company. There is
no separate trust fund from which Severance Benefits are provided. All records
of the Plan shall be kept on the basis of the Plan Year, which shall
correspond with the Company's fiscal year that typically ends on the fourth
Saturday in March.
(5) ELIGIBILITY TO PARTICIPATE.
Subject to all of the terms and conditions of the Plan (including without
limitation the condition that eligibility for Severance Benefits in each case
is subject to the determination of the Plan Administrator in its sole and
absolute discretion), all salaried personnel at the Company's headquarters and
salaried store management personnel who are actively employed and working may
be eligible to receive a Severance Benefit under the Plan (hereinafter
"Participants").
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(6) TERMINATIONS WHICH MAY GIVE RISE TO SEVERANCE BENEFITS.
Unless you are subject to Section (7), you may be entitled to receive
Severance Benefits if:
(a) you are terminated by the Company due to a job elimination, a
reduction in force for economic reasons, a decision to
outsource work performed by Company employees to a third-party
service provider, or another Company-initiated event (other
than the sale of a major business unit of the Company); and
(b) you work up to and including your last scheduled day of
employment as determined by the Company, and
(c) the Plan Administrator determines that you are eligible to
receive Severance Benefits under the Plan.
As explained in Section (8) below, receipt of Severance Benefits in excess of
the base Severance Benefit under this Plan is further contingent upon your
first executing an Agreement and Release of any claims you have or may have
against the Company as of the date you accept Severance Benefits.
(7) TERMINATIONS WHICH DO NOT GIVE RISE TO SEVERANCE BENEFITS.
You are not entitled to receive Severance Benefits if your employment is
terminated on account of death, disability, retirement, voluntary termination,
proven dishonesty, theft of Company assets, or violation of Company business
standards, as determined by the Plan Administrator in its sole and absolute
discretion. In addition, if your employment is terminated in connection with
the sale of a major business unit of the Company, you will not be eligible to
receive a Severance Benefit under this Plan. You also are not eligible to
receive Severance Benefits under this Plan if you are eligible to receive
Severance Benefits under the Grand Union Company Severance Plan for Non-Union
Associates, or if you are eligible to receive severance benefits under a
separate written agreement.
(8) PAYMENT OF SEVERANCE BENEFITS.
All Participants eligible to receive payment of Severance Benefits shall
receive a base Severance Benefit equal to one week's salary. Severance
Benefits in excess of one week's salary shall be contingent upon execution of
an Agreement and Release, which releases the Company from any and all claims a
Participant has or may have against the Company or any of its officers,
directors or employees as of the date of acceptance of Severance Benefits. If
such an Agreement and Release is executed, additional Severance Benefits shall
be payable on the basis of a combination of length of service and position
level at the time of termination, as shown in the following schedule:
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Position Severance Payment
- -------- -----------------
Senior Vice-President or above 18 months' salary
Corporate Vice-President 1 year's salary
Appointed Vice-President 6 months' salary
Director 6 months' salary
All other Exempt Personnel 1 week's pay per year of service,
to a maximum of 26 weeks
Severance Benefits payable under the preceding schedule shall be inclusive of
the base Severance Benefit payable to all Participants. Severance Benefits
will be distributed in one lump sum payment, from which applicable federal and
state taxes will be withheld.
In addition to the Severance Benefits set forth in the preceding schedule, the
following Severance Benefits will also be provided upon execution of an
Agreement and Release which releases the Company from all claims a Participant
has or may have against the Company or any of its officers, directors or
employees:
(a) a payment equal to the number of whole months employed since
the preceding June 1 divided by twelve times the number of
vacation days to which the employee would be entitled on the
following June 1; and
(b) the opportunity to purchase your Company car at the lease
buyout price, if a Company car has been provided to you as
part of your compensation and that car was leased by the
Company for your use.
The preceding levels of Severance Benefits may be modified by individual
employment agreements made on or after the time of hire. All such agreements
must be in writing and must have the final approval of the Chief Executive
Officer of the Company or the Board of Directors. Any employee of the Company
who has a separate written agreement with the Company which provides for the
payment of severance benefits will receive no Severance Benefits under this
Plan.
Notwithstanding anything in this Section (8) to the contrary, in the event you
are terminated by the Company in connection with a decision to outsource work
performed by Company employees to a third-party service provider, the Plan
Administrator shall have complete and sole discretion to determine whether,
and to what extent, Severance Benefits will be payable to you under this Plan.
(9) DISQUALIFICATION OF PARTICIPANT STATUS/LOSS OF BENEFITS.
There are no specific Plan provisions which provide for a disqualification of
your status as a Participant under the Plan or for denial or loss of Plan
benefits. If you terminate employment for any reason specified in Section (7),
however, you will not receive a Severance Benefit. In
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addition, if you are eligible to receive a Severance Benefit, and the Plan
Administrator is unable to locate you at your last address of record with the
Company during the ten day period following employment termination, you may
lose eligibility for Severance Benefits under the Plan. Therefore, it is your
obligation under the Plan to keep the Company apprised of your mailing address
following termination of your employment. Further, the fact that the Company
has established this Plan does not confer any right to the payment of
Severance Benefits under any circumstance, nor any right to continued
employment with the Company, nor does it impose on the Company any obligation
to change its policies regarding termination of employment.
(10) AMENDMENT AND TERMINATION.
The Company reserves the complete and absolute right to terminate, suspend or
modify the Plan in whole or in part at any time without notice. No benefits
are vested or accrued in connection with the Plan at any time.
(11) COMPANY ACTION.
Any actions to be taken by the Company under the Plan will be taken by the
Company's duly authorized officers. In addition, pursuant to Section 405(c) of
the Employee Retirement Income Security Act of 1974, as amended, the Company
may designate any person or persons to carry out any or all of its fiduciary
responsibilities under the Plan.
(12) CLAIMS PROCEDURE.
You need not file a formal claim with the Plan Administrator in order to
receive Severance Benefits under the Plan. When an event occurs which may make
you eligible to receive a distribution under the Plan, the Plan Administrator
will notify you regarding the distribution of your Severance Benefits. If you
disagree with the Plan Administrator's determination of the amount of
Severance Benefits under the Plan or with respect to any other decision the
Plan Administrator may make regarding your interest in the Plan, the Plan
contains an appeal procedure which you must follow. In brief, if the Plan
Administrator denies Severance Benefits to you, the Plan Administrator will
give you adequate notice in writing setting forth the reason or reasons for
the denial and referring you to the pertinent provisions of the Plan
supporting the Plan Administrator's decision. If you disagree with the Plan
Administrator, you, or a duly authorized representative, must appeal the
adverse determination in writing to the Plan Administrator within 75 days
after receipt of the notice of denial of Severance Benefits. If you fail to
appeal a denial within the 75-day period, the Plan Administrator's
determination will be final and binding. If you appeal to the Plan
Administrator, you or your duly authorized representative must submit the
issues and comments you feel are pertinent to permit the Plan Administrator to
re-examine all facts and make a final determination with respect to the
denial. The Plan Administrator, in most cases, will make a decision within 60
days of a request on
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appeal unless special circumstances would make the rendering of a decision
within the 60-day period not feasible. In any event, the Plan Administrator
must render a decision within 120 days after its receipt of a request for
review and must notify you of the extension within 60 days of receipt of the
request for review. In the event no decision is rendered within that time
period, the appeal is considered denied.
(13) PARTICIPANT'S RIGHTS UNDER ERISA.
As a Participant in this Plan, you are entitled to certain rights and
protections under the Employee Retirement Income Security Act of 1974
("ERISA"). ERISA provides that all Plan Participants shall be entitled to:
a) Examine, without charge, at the Plan Administrator's office and at
other specified locations, all Plan documents; and
b) Obtain copies of all Plan documents and other Plan information upon
written request to the Plan Administrator. The Plan Administrator may
make a reasonable charge for the copies.
In addition to creating rights for Plan Participants, ERISA imposes duties
upon the people who are responsible for the operation of an employee benefit
plan. The people who operate this Plan, called "fiduciaries" of the Plan, have
a duty to do so prudently and in the interests of you and other Plan
Participants. No one, including the Company or any other person, may terminate
you or otherwise discriminate against you in any way to prevent you from
obtaining a Severance Benefit or from exercising your rights under ERISA. If
your claim for a Severance Benefit is denied in whole or in part, you must
receive a written explanation of the reason for the denial. You have the right
to have the Plan review and reconsider your claim.
Under ERISA, there are steps you can take to enforce the above rights. For
instance, if you request materials from the Plan and do not receive the
material within 30 days, you may file suit in federal court. In such a case,
the court may require the Plan Administrator to provide the materials and pay
you up to $100 a day until you receive the materials, unless the materials
were not sent because of reasons beyond the control of the Plan Administrator.
If you have a claim for Severance Benefits which is denied or ignored, in
whole or in part, you may file suit in a state or federal court. If it should
happen that you are discriminated against for asserting your rights, you may
seek assistance from the U.S. Department of Labor, or you may file suit in a
federal court. The court will decide who should pay court costs and legal
fees. If you are successful, the court may order the person you have sued to
pay these costs and fees. If you lose, the court may order you to pay these
costs and fees; for example, if it finds your claim is frivolous. If you have
any questions about this Plan, you should contact the Plan Administrator. If
you have any questions about this statement or about your rights under ERISA,
you should contact the nearest area office of the U.S. Labor-Management
Services Administration, U.S. Department of Labor.
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(14) FEDERAL AND STATE INCOME TAXATION OF SEVERANCE BENEFITS PAID.
In the event that you do receive Severance Benefits under the Plan, those
Severance Benefits will be subject to automatic withholding of applicable
federal and state taxes. You must report as income the Plan distributions you
receive. We emphasize that you should consult your own tax advisor with
respect to the proper method of reporting any distribution you receive from
the Plan.
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EXHIBIT 10.26
INDEMNIFICATION AGREEMENT
This Agreement, made and entered into effective this 3rd day of
March, 1997 ("Agreement"), by and between The Grand Union Company, a Delaware
corporation ("Company"), and Jeffrey P. Freimark ("Indemnitee"):
WHEREAS, highly competent persons have become more reluctant to serve
publicly-held corporations as directors or in other capacities unless they are
provided with adequate protection through insurance and adequate
indemnification against inordinate risks of claims and actions against them
arising out of their service to and activities on behalf of the corporation;
and
WHEREAS, the Board of Directors of the Company (the "Board") has
determined that, in order to attract and retain qualified individuals, the
Company will attempt to maintain on an ongoing basis, at its sole expense,
liability insurance to protect persons serving the Company and its
subsidiaries from certain liabilities. Although the furnishing of such
insurance has been a customary and widespread practice among United
States-based corporations and other business enterprises, the Company believes
that, given current market conditions and trends, such insurance may be
available to it in the future only at higher premiums and with more
exclusions. At the same time, directors, officers, and other persons in
service to corporations or business enterprises are being increasingly
subjected to expensive and time-consuming litigation relating to, among other
things, matters that traditionally would have been brought only against the
Company or business enterprise itself; and
WHEREAS, the uncertainties relating to such insurance and to
indemnification have increased the difficulty of attracting and retaining such
persons; and
WHEREAS, the Board has determined that the increased difficulty in
attracting and retaining such persons is detrimental to the best interests of
the Company's stockholders and that the Company should act to assure such
persons that there will be increased certainty of such protection in the
future; and
WHEREAS, it is reasonable, prudent and necessary for the Company
contractually to obligate itself to indemnify such persons to the fullest
extent permitted by applicable law so that they will serve or continue to
serve the Company free from undue concern that they will not be so
indemnified; and
WHEREAS, this Agreement is a supplement to and in furtherance of the
By-laws of the Company and any resolutions adopted pursuant thereto, and shall
not be deemed a substitute therefore, nor to diminish or abrogate any rights
of Indemnitee thereunder; and
WHEREAS, the By-laws and the Delaware director indemnification
statute each is
<PAGE>
nonexclusive, and therefore contemplates that contracts may be entered into
with respect to indemnification of directors, officers and employees; and
WHEREAS, it is reasonable, prudent and necessary for the Company
contractually to obligate itself to indemnify, and to advance expenses on
behalf of, such persons to the fullest extent permitted by applicable law so
that they will serve or continue to serve the Company free from undue concern
that they will not be so indemnified; and
WHEREAS, Indemnitee is willing to serve, continue to serve and to
take on additional service for or on behalf of the Company on the condition
that he be so indemnified;
NOW, THEREFORE, in consideration of the premises and the covenants
contained herein, the Company and Indemnitee do hereby covenant and agree as
follows:
Section 1. Services by Indemnitee. Indemnitee agrees to serve as a
director and/or officer of the Company. Indemnitee may at any time and for any
reason resign from such position (subject to any other contractual obligation
or any obligation imposed by operation of law), in which event the Company
shall have no obligation under this Agreement to continue Indemnitee in such
position. This Agreement shall not be deemed an employment contract between
the Company (or any of its subsidiaries) and Indemnitee. Indemnitee
specifically acknowledges that Indemnitee's employment with the Company (or
any of its subsidiaries), if any, is at will, and the Indemnitee may be
discharged at any time for any reason, with or without cause, except as may be
otherwise provided in any written employment contract between Indemnitee and
the Company (or any of its subsidiaries), other applicable formal severance
policies duly adopted by the Board, or, with respect to service as a director
or officer of the Company, by the Company's Certificate of Incorporation,
By-laws, and the General Corporation Law of the State of Delaware. The
foregoing notwithstanding, this Agreement shall continue in force after
Indemnitee has ceased to serve as a director and/or officer of the Company.
Section 2. Indemnification - General. The Company shall indemnify,
and advance Expenses (as hereinafter defined) to, Indemnitee (a) as provided
in this Agreement and (b) (subject to the provisions of this Agreement) to the
fullest extent permitted by applicable law in effect on the date hereof and as
amended from time to time. The rights of Indemnitee provided under the
preceding sentence shall include, but shall not be limited to, the rights set
forth in the other Sections of this Agreement.
Section 3. Proceedings Other Than Proceedings by or in the Right of
the Company. Indemnitee shall be entitled to the rights of indemnification
provided in this Section 3 if, by reason of his Corporate Status (as
hereinafter defined), he is, or is threatened to be made, a party to or a
participant in any threatened, pending or completed Proceeding (as hereinafter
defined), other than a Proceeding by or in the right of the Company. Pursuant
to this Section 3, Indemnitee shall be indemnified against all Expenses,
judgments, penalties, fines and amounts paid in settlement (including all
interest, assessments and other charges paid or payable in
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connection with or in respect of such Expenses, judgments, penalties, fines
and amounts paid in settlement) actually and reasonably incurred by him or on
his behalf in connection with such Proceeding or any claim, issue or matter
therein, if he acted in good faith and in a manner he reasonably believed to
be in or not opposed to the best interests of the Company and, with respect to
any criminal Proceeding, had no reasonable cause to believe his conduct was
unlawful.
Section 4. Proceedings by or in the Right of the Company. Indemnitee
shall be entitled to the rights of indemnification provided in this Section 4
if, by reason of his Corporate Status, he is, or is threatened to be made, a
party to or a participant in any threatened, pending or completed Proceeding
brought by or in the right of the Company to procure a judgment in its favor.
Pursuant to this Section, Indemnitee shall be indemnified against all Expenses
(including all interest, assessments and other charges paid or payable in
connection with or in respect of such Expenses) actually and reasonably
incurred by him or on his behalf in connection with such Proceeding if he
acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the Company; provided, however, that, if
applicable law so provides, no indemnification against such Expenses shall be
made in respect of any claim, issue or matter in such Proceeding as to which
Indemnitee shall have been adjudged to be liable to the Company unless and to
the extent that the Court of Chancery of the State of Delaware, or the court
in which such Proceeding shall have been brought or is pending, shall
determine that such indemnification may be made.
Section 5. Partial Indemnification. Notwithstanding any other
provision of this Agreement, to the extent that Indemnitee is, by reason of
his Corporate Status, a party to (or a participant in) and is successful, on
the merits or otherwise, in defense of any Proceeding, he shall be indemnified
against all Expenses actually and reasonably incurred by him or on his behalf
in connection therewith. If Indemnitee is not wholly successful in defense of
such Proceeding but is successful, on the merits or otherwise, as to one or
more but less than all claims, issues or matters in such Proceeding, the
Company shall indemnify Indemnitee against all Expenses actually and
reasonably incurred by him or on his behalf in connection with each
successfully resolved claim, issue or matter. For purposes of this Section and
without limitation, the termination of any claim, issue or matter in such a
Proceeding by dismissal, with or without prejudice, shall be deemed to be a
successful result as to such claim, issue or matter. If Indemnitee is entitled
under any provision of this agreement to indemnification by the Company for
some or a portion of the Expenses, judgments, penalties, fines and amounts
paid in settlement (including all interest, assessments and other charges paid
or payable in connection with or in respect of such Expenses, judgments,
penalties, fines and amounts paid in settlement) actually and reasonably
incurred by him or on his behalf in connection with such Proceeding or any
claim, issue or matter therein, but not, however, for the total amount
thereof, the Company shall nevertheless indemnify Indemnitee for the portion
to which the Indemnitee is entitled.
Section 6. Indemnification for Additional Expenses.
(a) The Company shall indemnify Indemnitee against any and
all Expenses
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and, if requested by Indemnitee, shall (within seven (7) business days of such
request) advance such Expenses to Indemnitee, which are incurred by Indemnitee
in connection with any action brought by Indemnitee for (i) indemnification or
advance payment of Expenses by the Company under this Agreement or any other
agreement or by-law of the Company now or hereafter in effect; or (ii)
recovery under any directors' and officers' liability insurance policies
maintained by the Company, regardless of whether Indemnitee ultimately is
determined to be entitled to such indemnification, advance expense payment or
insurance recovery, as the case may be.
(b) Notwithstanding any other provision of this Agreement,
to the extent that Indemnitee is, by reason of his Corporate Status, a witness
in any Proceeding to which Indemnitee is not a party, he shall be indemnified
against all Expenses actually and reasonably incurred by him or on his behalf
in connection therewith.
Section 7. Advancement of Expenses. The Company shall advance all
reasonable Expenses incurred by or on behalf of Indemnitee in connection with
any Proceeding within seven (7) days after the receipt by the Company of a
statement or statements from Indemnitee requesting such advance or advances
from time to time, whether prior to or after final disposition of such
Proceeding. Such statement or statements shall reasonably evidence the
Expenses incurred by Indemnitee and shall include or be preceded or
accompanied by an undertaking by or on behalf of Indemnitee to repay any
Expenses advanced if it shall ultimately be determined that Indemnitee is not
entitled to be indemnified against such Expenses. Notwithstanding the
foregoing, the obligation of the Company to advance Expenses pursuant to this
Section 7 shall be subject to the condition that, if, when and to the extent
that the Company determines that Indemnitee would not be permitted to be
indemnified under applicable law, the Company shall be entitled to be
reimbursed, within thirty (30) days of such determination, by Indemnitee (who
hereby agrees to reimburse the Company) for all such amounts theretofore paid;
provided, however, that if Indemnitee has commenced or thereafter commences
legal proceedings in a court of competent jurisdiction to secure a
determination that Indemnitee should be indemnified under applicable law, any
determination made by the Company that Indemnitee would not be permitted to be
indemnified under applicable law shall not be binding and Indemnitee shall not
be required to reimburse the Company for any advance of Expenses until a final
judicial determination is made with respect thereto (as to which all rights of
appeal therefrom have been exhausted or lapsed).
Section 8. Procedure for Determination of Entitlement to
Indemnification.
(a) To obtain indemnification under this Agreement,
Indemnitee shall submit to the Company a written request, including therein or
therewith such documentation and information as is reasonably available to
Indemnitee and is reasonably necessary to determine whether and to what extent
Indemnitee is entitled to indemnification. The Secretary of the Company shall,
promptly upon receipt of such a request for indemnification, advise the Board
in writing that Indemnitee has requested indemnification.
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(b) Upon written request by Indemnitee for indemnification
pursuant to the first sentence of Section 8(a) hereof, a determination, if
required by applicable law, with respect to Indemnitee's entitlement thereto
shall be made in the specific case: (i) if a Change in Control (as hereinafter
defined) shall have occurred, by Independent Counsel (as hereinafter defined)
in a written opinion to the Board of Directors, a copy of which shall be
delivered to Indemnitee; or (ii) if a Change of Control shall not have
occurred, (A) by a majority vote of the Disinterested Directors (as
hereinafter defined), even though less than a quorum of the Board, or (B) if
there are no such Disinterested Directors or, if such Disinterested Directors
so direct, by Independent Counsel in a written opinion to the Board, a copy of
which shall be delivered to Indemnitee or (C) if so directed by the Board, by
the stockholders of the Company; and, if it is so determined that Indemnitee
is entitled to indemnification, payment to Indemnitee shall be made within
seven (7) days after such determination. Indemnitee shall cooperate with the
person, persons or entity making such determination with respect to
Indemnitee's entitlement to indemnification, including providing to such
person, persons or entity upon reasonable advance request any documentation or
information which is not privileged or otherwise protected from disclosure and
which is reasonably available to Indemnitee and reasonably necessary to such
determination. Any costs or expenses (including attorneys' fees and
disbursements) incurred by Indemnitee in so cooperating with the person,
persons or entity making such determination shall be borne by the Company
(irrespective of the determination as to Indemnitee's entitlement to
indemnification) and the Company hereby indemnifies and agrees to hold
Indemnitee harmless therefrom.
(c) In the event the determination of entitlement to
indemnification is to be made by Independent Counsel pursuant to Section 8(b)
hereof, the Independent Counsel shall be selected as provided in this Section
8(c). If a Change of Control shall not have occurred, the Independent Counsel
shall be selected by the Board of Directors, and the Company shall give
written notice to Indemnitee advising him of the identity of the Independent
Counsel so selected. If a Change of Control shall have occurred, the
Independent Counsel shall be selected by Indemnitee (unless Indemnitee shall
request that such selection be made by the Board of Directors, in which event
the preceding sentence shall apply), and Indemnitee shall give written notice
to the Company advising it of the identity of the Independent Counsel so
selected. In either event, Indemnitee or the Company, as the case may be, may,
within 10 days after such written notice of selection shall have been given,
deliver to the Company or to Indemnitee, as the case may be, a written
objection to such selection; provided, however, that such objection may be
asserted only on the ground that the Independent Counsel so selected does not
meet the requirements of "Independent Counsel" as defined in Section 17 of
this Agreement, and the objection shall set forth with particularity the
factual basis of such assertion. If such written objection is so made and
substantiated, the Independent Counsel so selected may not serve as
Independent Counsel unless and until such objection is withdrawn or a court
has determined that such objection is without merit. If, within 20 days after
submission by Indemnitee of a written request for indemnification pursuant to
Section 8(a) hereof, no Independent Counsel shall have been selected and not
objected to, either the Company or Indemnitee may petition the Court of
Chancery of the State of Delaware for resolution of any objection which shall
have been made by the Company or Indemnitee to the other's selection of
Independent Counsel and/or for the
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appointment as Independent Counsel of a person selected by the Court or by
such other person as the Court shall designate, and the person with respect to
whom all objections are so resolved or the person so appointed shall act as
Independent Counsel under Section 8(b) hereof. The Company shall pay any and
all reasonable fees and expenses of Independent Counsel incurred by such
Independent Counsel in connection with acting pursuant to Section 8(b) hereof,
and the Company shall pay all reasonable fees and expenses incident to the
procedures of this Section 8(c), regardless of the manner in which such
Independent Counsel was selected or appointed. Upon the due commencement of
any judicial proceeding or arbitration pursuant to Section 10(a)(iii) of this
Agreement, Independent Counsel shall be discharged and relieved of any further
responsibility in such capacity (subject to the applicable standards of
professional conduct then prevailing).
(d) The Company shall not be required to obtain the consent
of the Indemnitee to the settlement of any Proceeding which the Company has
undertaken to defend if the Company assumes full and sole responsibility for
such settlement and the settlement grants the Indemnitee a complete and
unqualified release in respect of the potential liability. The Company shall
not be liable for any amount paid by the Indemnitee in settlement of any
Proceeding that is not defended by the Company, unless the Company has
consented to such settlement, which consent shall not be unreasonably
withheld.
Section 9. Presumptions and Effect of Certain Proceedings.
(a) In making a determination with respect to entitlement to
indemnification or the advancement of expenses hereunder, the person or
persons or entity making such determination shall presume that Indemnitee is
entitled to indemnification or advancement of expenses under this Agreement if
Indemnitee has submitted a request for indemnification or the advancement of
expenses in accordance with Section 8(a) of this Agreement, and the Company
shall have the burden of proof to overcome that presumption in connection with
the making by any person, persons or entity of any determination contrary to
that presumption. Neither the failure of the Company (including its board of
directors or independent legal counsel) to have made a determination prior to
the commencement of any action pursuant to this Agreement that indemnification
is proper in the circumstances because Indemnitee has met the applicable
standard of conduct, nor an actual determination by the Company (including its
board of directors or independent legal counsel) that Indemnitee has not met
such applicable standard of conduct, shall be a defense to the action or
create a presumption that Indemnitee has not met the applicable standard of
conduct.
(b) If the person, persons or entity empowered or selected
under Section 8 of this Agreement to determine whether Indemnitee is entitled
to indemnification shall not have made a determination within sixty (60) days
after receipt by the Company of the request therefor, the requisite
determination of entitlement to indemnification shall be deemed to have been
made and Indemnitee shall be entitled to such indemnification, absent (i) a
misstatement by Indemnitee of a material fact, or an omission of a material
fact necessary to make Indemnitee's statement not
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materially misleading, in connection with the request for indemnification, or
(ii) a prohibition of such indemnification under applicable law; provided,
however, that such 60-day period may be extended for a reasonable time, not to
exceed an additional thirty (30) days, if the person, persons or entity making
the determination with respect to entitlement to indemnification in good faith
requires such additional time for the obtaining or evaluating of documentation
and/or information relating thereto; and provided, further, that the foregoing
provisions of this Section 9(b) shall not apply (i) if the determination of
entitlement to indemnification is to be made by the stockholders pursuant to
Section 8(b) of this Agreement and if (A) within fifteen (15) days after
receipt by the Company of the request for such determination the Board of
Directors has resolved to submit such determination to the stockholders for
their consideration at an annual meeting thereof to be held within
seventy-five (75) days after such receipt and such determination is made
thereat, or (B) a special meeting of stockholders is called within fifteen
(15) days after such receipt for the purpose of making such determination,
such meeting is held for such purpose within sixty (60) days after having been
so called and such determination is made thereat, or (ii) if the determination
of entitlement to indemnification is to be made by Independent Counsel
pursuant to Section 8(b) of this Agreement.
(c) The termination of any Proceeding or of any claim, issue
or matter therein, by judgment, order, settlement or conviction, or upon a
plea of nolo contendere or its equivalent, shall not (except as otherwise
expressly provided in this Agreement) of itself adversely affect the right of
Indemnitee to indemnification or create a presumption that Indemnitee did not
act in good faith and in a manner which he reasonably believed to be in or not
opposed to the best interests of the Company or, with respect to any criminal
Proceeding, that Indemnitee had reasonable cause to believe that his conduct
was unlawful.
(d) Reliance as Safe Harbor. For purposes of any
determination of Good Faith, Indemnitee shall be deemed to have acted in Good
Faith if Indemnitee's action is based on the records or books of account of
the Company or relevant enterprise, including financial statements, or on
information supplied to Indemnitee by the officers of the Company or relevant
enterprise in the course of their duties, or on the advice of legal counsel
for the Company or relevant enterprise or on information or records given to
reports made to the Company or relevant enterprise by an independent certified
public accountant or by an appraiser or other expert selected with reasonable
care by the Company or relevant enterprise. The provisions of this Section
9(d) shall not be deemed to be exclusive or to limit in any way the other
circumstances in which the Indemnitee may be deemed to have met the applicable
standard of conduct set forth in this Agreement.
(e) Actions of Others. The knowledge and/or actions, or
failure to act, of any director, officer, agent or employee of the Company or
relevant enterprise shall not be imputed to Indemnitee for purposes of
determining the right to indemnification under this Agreement.
Section 10. Remedies of Indemnitee.
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(a) In the event that (i) a determination is made pursuant
to Section 8 of this Agreement that Indemnitee is not entitled to
indemnification under this Agreement, (ii) advancement of Expenses is not
timely made pursuant to Section 7 of this Agreement, (iii) no determination of
entitlement to indemnification shall have been made pursuant to Section 8(b)
of this Agreement within 90 days after receipt by the Company of the request
for indemnification, (iv) payment of indemnification is not made pursuant to
Section 5 or 6 of this Agreement within ten (10) days after receipt by the
Company of a written request therefor, or (v) payment of indemnification is
not made within ten (10) days after a determination has been made that
Indemnitee is entitled to indemnification, Indemnitee shall be entitled to an
adjudication by the Court of Chancery of the State of Delaware of his
entitlement to such indemnification or advancement of Expenses. Alternatively,
Indemnitee, at his option, may seek an award in arbitration to be conducted by
a single arbitrator pursuant to the Commercial Arbitration Rules of the
American Arbitration Association. Indemnitee shall commence such proceeding
seeking an adjudication or an award in arbitration within 180 days following
the date on which Indemnitee first has the right to commence such proceeding
pursuant to this Section 10(a); provided, however, that the foregoing clause
shall not apply in respect of a proceeding brought by Indemnitee to enforce
his rights under Section 5 of this Agreement.
(b) In the event that a determination shall have been made
pursuant to Section 8(b) of this Agreement that Indemnitee is not entitled to
indemnification, any judicial proceeding or arbitration commenced pursuant to
this Section 10 shall be conducted in all respects as a de novo trial, or
arbitration, on the merits and Indemnitee shall not be prejudiced by reason of
that adverse determination. If a Change of Control shall have occurred, in any
judicial proceeding or arbitration commenced pursuant to this Section 10, the
Company shall have the burden of proving that Indemnitee is not entitled to
indemnification or advancement of Expenses, as the case may be.
(c) If a determination shall have been made pursuant to
Section 8(b) of this Agreement that Indemnitee is entitled to indemnification,
the Company shall be bound by such determination in any judicial proceeding or
arbitration commenced pursuant to this Section 10, absent (i) a misstatement
by Indemnitee of a material fact, or an omission of a material fact necessary
to make Indemnitee's statement not materially misleading in connection with
the request for indemnification, or (ii) a prohibition of such indemnification
under applicable law.
(d) In the event that Indemnitee, pursuant to this Section
10, seeks a judicial adjudication of or an award in arbitration to enforce his
rights under, or to recover damages for breach of, this Agreement, Indemnitee
shall be entitled to recover from the Company, and shall be indemnified by the
Company against, any and all expenses (of the types described in the
definition of Expenses in Section 17 of this Agreement) actually and
reasonably incurred by him in such judicial adjudication or arbitration, but
only if he prevails therein. If it shall be determined in said judicial
adjudication or arbitration that Indemnitee is entitled to receive part but
not all of the indemnification or advancement of expenses sought, the expenses
incurred by Indemnitee in connection with such judicial adjudication or
arbitration shall be appropriately
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prorated. The Company shall indemnify Indemnitee against any and all Expenses
and, if requested by Indemnitee, shall (within ten (10) days after receipt by
the Company of a written request therefor) advance such expenses to
Indemnitee, which are incurred by Indemnitee in connection with any action
brought by Indemnitee for indemnification or advance of Expenses from the
Company under this Agreement or under any directors' or officers' liability
insurance policies maintained by the Company, regardless of whether Indemnitee
ultimately is determined to be entitled to such indemnification, advancement
of Expenses or insurance recovery, as the case may be.
(e) The Company shall be precluded from asserting in any
judicial proceeding or arbitration commenced pursuant to this Section 10 that
the procedures and presumptions of this Agreement are not valid, binding and
enforceable and shall stipulate in any such court or before any such
arbitrator that the Company is bound by all the provisions of this Agreement.
Section 11. Non-Exclusivity; Survival of Rights; Insurance;
Subrogation.
(a) The rights of indemnification and to receive advancement
of Expenses as provided by this Agreement shall not be deemed exclusive of any
other rights to which Indemnitee may at any time be entitled under applicable
law, the Certificate of Incorporation, the By-Laws, any agreement, a vote of
stockholders or a resolution of directors, or otherwise. No amendment,
alteration or repeal of this Agreement or of any provision hereof shall limit
or restrict any right of Indemnitee under this Agreement in respect of any
action taken or omitted by such Indemnitee in his Corporate Status prior to
such amendment, alteration or repeal. To the extent that a change in the
General Corporation Law of the State of Delaware, whether by statute or
judicial decision, permits greater indemnification or advancement of Expenses
than would be afforded currently under the Company's By-Laws and this
Agreement, it is the intent of the parties hereto that Indemnitee shall enjoy
by this Agreement the greater benefits so afforded by such change. No right or
remedy herein conferred is intended to be exclusive of any other right or
remedy, and every other right and remedy shall be cumulative and in addition
to every other right and remedy given hereunder or now or hereafter existing
at law or in equity or otherwise. The assertion or employment of any right or
remedy hereunder, or otherwise, shall not prevent the concurrent assertion or
employment of any other right or remedy.
(b) To the extent that the Company maintains an insurance
policy or policies providing liability insurance for directors, officers,
employees or agents of the Company or of any other corporation, partnership,
joint venture, trust, employee benefit plan or other enterprise which such
person serves at the request of the Company, Indemnitee shall be covered by
such policy or policies in accordance with its or their terms to the maximum
extent of the coverage available for any such director, officer, employee or
agent under such policy or policies.
(c) In the event of any payment under this Agreement, the
Company shall be subrogated to the extent of such payment to all of the rights
of recovery of Indemnitee, who shall execute all papers required and take all
action necessary to secure such rights, including
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<PAGE>
execution of such documents as are necessary to enable the Company to bring
suit or enforce such rights.
(d) The Company shall not be liable under this Agreement to
make any payment of amounts otherwise indemnifiable hereunder if and to the
extent that Indemnitee has otherwise actually received such payment under any
insurance policy, contract, agreement or otherwise.
(e) The Company's obligation to indemnify or advance
expenses hereunder to Indemnitee who is or was serving at the request of the
Company as a director, officer, employee or agent of any other corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise
shall be reduced by any amount Indemnitee has actually received as
indemnification or advancement of expenses from such other corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise.
Section 12. Duration of Agreement. This Agreement shall continue
until and terminate upon the later of: (a) 10 years after the date that
Indemnitee shall have ceased to serve as a director and/or officer of the
Company (or of any other corporation, partnership, joint venture, trust,
employee benefit plan or other enterprise which Indemnitee served at the
request of the Company); or (b) the final termination of any Proceeding then
pending in respect of which Indemnitee is granted rights of indemnification or
advancement of expenses hereunder and of any proceeding commenced by
Indemnitee pursuant to Section 10 of this Agreement relating thereto. This
Agreement shall be binding upon the Company and its successors and assigns and
shall inure to the benefit of Indemnitee and his heirs, executors and
administrators.
Section 13. Severability. If any provision or provisions of this
Agreement shall be held to be invalid, illegal or unenforceable for any reason
whatsoever: (a) the validity, legality and enforceability of the remaining
provisions of this Agreement (including without limitation, each portion of
any Section of this Agreement containing any such provision held to be
invalid, illegal or unenforceable, that is not itself invalid, illegal or
unenforceable) shall not in any way be affected or impaired thereby; (b) such
provision or provisions shall be deemed reformed to the extent necessary to
conform to applicable law and to give the maximum effect to the intent of the
parties hereto; and (c) to the fullest extent possible, the provisions of this
Agreement (including, without limitation, each portion of any Section of this
Agreement containing any such provision held to be invalid, illegal or
unenforceable, that is not itself invalid, illegal or unenforceable) shall be
construed so as to give effect to the intent manifested thereby.
Section 14. Exception to Right of Indemnification or Advancement of
Expenses. Except as provided in Section 6(a) of this Agreement, Indemnitee
shall not be entitled to indemnification or advancement of Expenses under this
Agreement with respect to any Proceeding brought by Indemnitee (other than a
Proceeding by Indemnitee to enforce his rights under this Agreement), or any
claim therein prior to a Change in Control, unless the bringing of such
Proceeding or making of such claim shall have been approved by the Board of
Directors.
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Section 15. Identical Counterparts. This Agreement may be executed in
one or more counterparts, each of which shall for all purposes be deemed to be
an original but all of which together shall constitute one and the same
Agreement. Only one such counterpart signed by the party against whom
enforceability is sought needs to be produced to evidence the existence of
this Agreement.
Section 16. Headings. The headings of the paragraphs of this Agreement
are inserted for convenience only and shall not be deemed to constitute part of
this Agreement or to affect the construction thereof.
Section 17. Definitions. For purposes of this Agreement:
(a) "Change in Control" means a change in control of the
Company occurring after the Effective Date of a nature that would be required
to be reported in response to Item 6(e) of Schedule 14A of Regulation 14A (or
in response to any similar item on any similar schedule or form) promulgated
under the Securities Exchange Act of 1934 (the "Act"), whether or not the
Company is then subject to such reporting requirement; provided, however,
that, without limitation, such a Change in Control shall be deemed to have
occurred if after the Effective Date (i) any "person" (as such term is used in
Sections 13(d) and 14(d) of the Act) is or becomes the "beneficial owner" (as
defined in Rule 13d-3 under the Act), directly or indirectly, of securities of
the Company representing 20% or more of the combined voting power of the
Company's then outstanding securities without the prior approval of at least
two-thirds of the members of the Board in office immediately prior to such
person attaining such percentage interest; (ii) there occurs a proxy contest,
or the Company is a party to a merger, consolidation, sale of assets, plan of
liquidation or other reorganization not approved by at least two-thirds of the
members of the Board then in office, as a consequence of which members of the
Board in office immediately prior to such transaction or event constitute less
than a majority of the Board thereafter; or (iii) during any period of two
consecutive years, other than as a result of an event described in clause
(a)(ii) of this Section 17, individuals who at the beginning of such period
constituted the Board (including for this purpose any new director whose
election or nomination for election by the Company's stockholders was approved
by a vote of at least two-thirds of the directors then still in office who
were directors at the beginning of such period) cease for any reason to
constitute at least a majority of the Board.
(b) "Corporate Status" describes the status of a person who
is or was a director, officer, employee, fiduciary or agent of the Company or
of any other corporation, partnership, joint venture, trust, employee benefit
plan or other enterprise which such person is or was serving at the request of
the Company.
(c) "Disinterested Director" means a director of the company
who is not and was not a party to the Proceeding in respect of which
indemnification is sought by Indemnitee.
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(d) "Effective Date" means March 3, 1997.
(e) "Expenses" shall include all reasonable attorneys' fees,
retainers, court costs, transcript costs, fees of experts, witness fees,
travel expenses, duplicating costs, printing and binding costs, telephone
charges, postage, delivery service fees, and all other disbursements or
expenses of the types customarily incurred in connection with prosecuting,
defending, preparing to prosecute or defend, investigating, being or preparing
to be a witness, in, or otherwise participating in, a Proceeding.
(f) "Independent Counsel" means a law firm, or a member of a
law firm, that is experienced in matters of corporation law and neither
presently is, nor in the past five years has been, retained to represent: (i)
the Company or Indemnitee in any matter material to either such party, or (ii)
any other party to the Proceeding giving rise to a claim for indemnification
hereunder. Notwithstanding the foregoing, the term "Independent Counsel" shall
not include any person who, under the applicable standards of professional
conduct then prevailing, would have a conflict of interest in representing
either the Company or Indemnitee in an action to determine Indemnitee's rights
under this Agreement. The Company agrees to pay the reasonable fees of the
Independent Counsel referred to above and to fully indemnify such counsel
against any and all Expenses, claims, liabilities and damages arising out of
or relating to this Agreement or its engagement pursuant hereto.
(g) "Proceeding" includes any threatened, pending or
completed action, suit, arbitration, alternate dispute resolution mechanism,
investigation, inquiry, administrative hearing or any other actual, threatened
or completed proceeding, whether brought by or in the right of the Corporation
or otherwise and whether civil, criminal, administrative or investigative, in
which Indemnitee was, is, may be or will be involved as a party or otherwise,
by reason of the fact that Indemnitee is or was a director or officer of the
Company, by reason of any action taken by him or of any inaction on his part
while acting as director or officer of the Company, or by reason of the fact
that he is or was serving at the request of the Company as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise; in each case whether or not he is acting or serving
in any such capacity at the time any liability or expense is incurred for
which indemnification or advancement of expenses can be provided under this
Agreement; except one (i) initiated by an Indemnitee pursuant to Section 10 of
this Agreement to enforce his right under this Agreement or (ii) pending on or
before the Effective Date.
Section 18. Enforcement.
(a) The Company expressly confirms and agrees that it has
entered into this Agreement and assumed the obligations imposed on it hereby
in order to induce Indemnitee to serve as a director and/or officer of the
Company, and the Company acknowledges that Indemnitee is relying upon this
Agreement in serving as a director and/or officer of the Company.
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(b) This Agreement constitutes the entire agreement between
the parties hereto with respect to the subject matter hereof and supersedes
all prior agreements and understandings, oral, written and implied, between
the parties hereto with respect to the subject matter hereof.
Section 19. Modification and Waiver. No supplement, modification or
amendment of this Agreement shall be binding unless executed in writing by
both of the parties hereto. No waiver of any of the provisions of this
Agreement shall be deemed or shall constitute a waiver of any other provisions
hereof (whether or not similar) nor shall such waiver constitute a continuing
waiver.
Section 20. Notice by Indemnitee. Indemnitee agrees promptly to
notify the Company in writing upon being served with any summons, citation,
subpoena, complaint, indictment, information or other document relating to any
Proceeding or matter which may be subject to indemnification or advancement of
Expenses covered hereunder. The failure of Indemnitee to so notify the Company
shall not relieve the Company of any obligation which it may have to the
Indemnitee under this Agreement or otherwise.
Section 21. Notices. All notices, requests, demands or other
communications hereunder shall be in writing and shall be deemed to have been
duly given if (i) delivered by hand and receipted for by the party to whom
said notice or other communication shall have been direct, or (ii) mailed by
certified or registered mail with postage prepaid, on the third business day
after the date on which it is so mailed:
(a) If to Indemnitee to:
Address set forth below Indemnitee's signature.
(b) If to the Company to:
The Grand Union Company
Attn: General Counsel
201 Willowbrook Blvd., 9th Floor
Wayne, New Jersey 07470-0966
or to such other address as may have been furnished to Indemnitee by the
Company or to the Company by Indemnitee, as the case may be.
Section 22. Contribution. To the fullest extent permissible under
applicable law, if the indemnification provided for in this Agreement is
unavailable to Indemnitee for any reason whatsoever, the Company, in lieu of
indemnifying Indemnitee, shall contribute to the amount incurred by
Indemnitee, whether for judgments, fines, penalties, excise taxes, amounts
paid or to be paid in settlement and/or for Expenses, in connection with any
claim relating to an
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indemnifiable event under this Agreement, in such proportion as is deemed fair
and reasonable in light of all of the circumstances of such Proceeding in
order to reflect (i) the relative benefits received by the Company and
Indemnitee as a result of the event(s) and/or transaction(s) giving cause to
such Proceeding; and/or (ii) the relative fault of the Company (and its
directors, officers, employees and agents) and Indemnitee in connection with
such event(s) and/or transaction(s).
Section 23. Governing Law; Submission to Jurisdiction; Appointment of
Agent for Service of Process. This Agreement and the legal relations among the
parties shall be governed by, and construed and enforced in accordance with,
the laws of the State of Delaware, without regard to its conflict of laws
rules. Except with respect to any arbitration commenced by Indemnitee pursuant
to Section 10(a) of this Agreement, the Company and Indemnitee hereby
irrevocably and unconditionally (i) agree that any action or proceeding
arising out of or in connection with this Agreement shall be brought only in
the Chancery Court of the State of Delaware (the "Delaware Court"), and not in
any other state or federal court in the United States of America or any court
in any other country, (ii) consent to submit to the exclusive jurisdiction of
the Delaware Court for purposes of any action or proceeding arising out of or
in connection with this Agreement, (iii) appoint, to the extent such party is
not a resident of the State of Delaware, irrevocably RL&F Service Corp., One
Rodney Square, 10th Floor, 10th and King Streets, Wilmington, Delaware 19801
as its agent in the State of Delaware for acceptance of legal process in
connection with any such action or proceeding against such party with the same
legal force and validity as if served upon such party personally within the
State of Delaware, (iv) waive any objection to the laying of venue of any such
action or proceeding in the Delaware Court, and (v) waive, and agree not to
plead or to make, any claim that any such action or proceeding brought in the
Delaware Court has been brought in an improper or otherwise inconvenient
forum.
Section 24. Miscellaneous. Use of the masculine pronoun shall be
deemed to include usage of the feminine pronoun where appropriate.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
on the day and year first above written.
ATTEST: THE GRAND UNION COMPANY
By:
- ----------------------------------- -----------------------------------
Name: Name: Joseph J. McCaig
Title: Chief Executive Officer
ATTEST: INDEMNITEE
By:
- ----------------------------------- -----------------------------------
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Name: Jeffrey P. Freimark
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EXHIBIT 10.39
CONFIDENTIAL
SBC WARBURG DILLON LEHMAN BROTHERS INC.
READ INC.
SWISS BANK CORPORATION LEHMAN COMMERCIAL
PAPER INC.
THE GRAND UNION COMPANY
$300,000,000 SENIOR SECURED CREDIT FACILITY
Commitment Letter
April 23, 1998
The Grand Union Company
201 Willowbrook Boulevard
Wayne, New Jersey 07470
Attention: Mr. Jeffrey P. Freimark
Ladies and Gentlemen:
You have advised (a) Swiss Bank Corporation ("SBC") and SBC
Warburg Dillon Read Inc. ("SBCWDR") and (b) Lehman Commercial Paper Inc.
("LCPI") and Lehman Brothers Inc. ("LBI") that The Grand Union Company, a
Delaware corporation (the "Company"), intends to (i) solicit consents to a
prepackaged plan of reorganization pursuant to Section 3(a)(9) of the Securities
Act of 1933, as amended, and immediately thereafter file a voluntary petition
under Chapter 11 of the United States Bankruptcy Code (the "Code") in the United
States Bankruptcy Court for either the Southern District of New York or the
District of Delaware or the District of New Jersey (the "Bankruptcy Court") and
(ii) in connection therewith, upon consummation (the "Reorganization") of the
Borrower's prepackaged plan of reorganization (the "Plan"), which shall be in
form and substance reasonably satisfactory to SBCWDR, SBC, LBI and LCPI,
refinance the Company's existing $250,000,000 senior secured credit facility, as
such facility may be rolled up into a post-petition financing pursuant to
Section 364 of the Bankruptcy Code. In that connection, you have requested that
SBCWDR and LBI agree to structure, arrange and syndicate senior secured credit
facilities in an aggregate amount of up to $300,000,000 (the "Financing"), and
<PAGE>
that SBC and LCPI commit to provide the entire principal amount of the Financing
Facilities. It is proposed that the Financing be provided in two tranches,
comprising (i) a 5-year term loan tranche in an aggregate amount of up to $230
million (the "Term Facility") and (ii) a 5-year revolving credit facility in an
aggregate amount of up to $70 million (the "Revolving Facility", and together
with the Term Facility, the "Facility"). SBCWDR, SBC, LBI and LCPI hereby
acknowledge that the Agreement in Principle entered into March 30, 1998 (the
"Agreement in Principle") by and between the Company and the Unofficial Steering
Committee (the "Steering Committee") for certain holders of the Company's 12%
Senior Notes due 2004, to the extent it pertains to the Plan, is acceptable.
SBCWDR and LBI are pleased to advise you that they are willing
to act as exclusive advisors and arrangers for the Facility. Furthermore, SBC
and LCPI are pleased to advise you of their several but not joint commitment
(the "Commitment") to provide up to an aggregate of $300 million of the Facility
($150 million of which shall be provided by SBC and $150 million of which shall
be provided by LCPI) upon the terms and subject to the conditions set forth or
referred to in this commitment letter and in the Term Sheet attached hereto as
Exhibit A (the "Term Sheet", and such commitment letter with the Term Sheet, the
"Commitment Letter").
It is agreed that (i) SBCWDR and LBI will act as the sole and
exclusive advisors and arrangers, (ii) SBC will act as the sole and exclusive
syndication agent and (iii) LCPI will act as the sole and exclusive
administrative agent, for the Facility, and each will, in such capacities,
perform the duties and exercise the authority customarily performed and
exercised by it in such roles. You agree that no other agents, co-agents or
arrangers will be appointed, no other titles will be awarded and no compensation
(other than that expressly contemplated by the Term Sheet, this Commitment
Letter and the Fee Letter referred to below) will be paid in connection with the
Facility unless you and we shall so agree.
We intend to syndicate the Facility to a group of financial
institutions (together with SBC and LCPI, the "Lenders") acceptable to SBC,
LCPI and the Company (such approval of the Company not to be unreasonably
withheld). SBC and LCPI intend to commence syndication efforts promptly upon
the execution of this Commitment Letter, and you agree actively to assist SBC
and LCPI in completing a syndication reasonably satisfactory to them. Such
assistance shall include (a) your using commercially reasonable efforts to
ensure that the syndication efforts benefit materially from your existing
lending relationships, (b) direct contact between senior management and
advisors of the Company and the proposed Lenders, (c) assistance in the
preparation of a Confidential Information Memorandum and other marketing
materials to be used in connection with the syndication and (d) the hosting,
with SBC and LCPI, of
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one or more meetings of prospective Lenders. You also agree that, at your
expense, you will work with SBCWDR, SBC, LBI and LCPI to procure a rating for
the Facility by Moody's Investors Service, Inc. and Standard & Poor's Ratings
Group.
SBCWDR and LBI will manage all aspects of the syndication,
including decisions as to the selection of institutions to be approached and
when they will be approached, when their commitments will be accepted, which
institutions will participate, the allocations of the commitments among the
Lenders and the amount and distribution of fees among the Lenders. To assist
SBCWDR and LBI in their syndication efforts, you agree promptly to prepare and
provide to SBCWDR, SBC, LBI and LCPI all information with respect to the
Company and its subsidiaries, the Reorganization and the other transactions
contemplated hereby, including all financial information and projections (the
"Projections"), as we may reasonably request in connection with the
arrangement and syndication of the Facility. It shall be a condition to the
Commitment hereunder and SBCWDR's and LBI's agreement to perform the services
described herein that (a) all written information other than the Projections
(the "Information") that has been or will be made available to SBCWDR, SBC,
LBI or LCPI by the Company or any of its representatives is or will be, when
furnished, complete and correct in all material respects and does not or will
not, when furnished, contain any untrue statement of a material fact or omit
to state a material fact necessary in order to make the statements contained
therein not materially misleading in light of the circumstances under which
such statements are made and (b) the Projections that have been or will be
made available to SBCWDR, SBC, LBI or LCPI by the Company or any of its
representatives have been or will be prepared in good faith based upon
reasonable assumptions. You understand that in arranging and syndicating the
Facility we may use and rely on the Information and Projections without
responsibility for independent verification thereof.
As consideration for the Commitment and SBCWDR's and LBI's
agreement to perform the services described herein, the Company agrees to pay
the nonrefundable fees set forth in the Term Sheet and the Fee Letter dated
the date hereof and delivered herewith (the "Fee Letter").
The Commitment hereunder and SBCWDR's and LBI's agreement to
perform the services described herein are further subject to the following, in
addition to the conditions set forth in the Term Sheet: (a) there shall not
have occurred any material adverse condition or material adverse change in the
business, assets, liabilities, operations, condition (financial or otherwise)
or prospects of the Company and its subsidiaries (such elements collectively,
the "Assets, Business and Condition" of the Company), taken as a whole, (b)
the absence of any material disruption of capital or other domestic markets
that has or is reasonably likely to have a material adverse effect on the
ability of SBC,
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<PAGE>
SBCWDR, LCPI and LBI to syndicate the Facility to other Lenders, (c) SBC and
LCPI shall have completed (and shall satisfied with the scope and results of)
its diligence investigation of environmental matters of the Company and its
subsidiaries, (d) the entry by the Bankruptcy Court of a final order in form and
substance reasonably satisfactory to SBCWDR, SBC, LBI and LCPI confirming the
Plan in accordance with Section 1129 of the Code, and (e) negotiation of legal
documentation (including opinions of counsel) reasonably satisfactory to SBCWDR,
SBC, LBI and LCPI and their counsel not later than June 30, 1998 and execution
and delivery of legal documentation (including opinions of counsel) reasonably
satisfactory to SBCWDR, SBC, LBI and LCPI and their counsel not later than
August 31, 1998. The terms and conditions of the Commitment hereunder and of the
Facility are not limited to those set forth herein and in the Term Sheet. Those
matters that are not covered by the provisions hereof and of the Term Sheet are
subject to the approval and agreement of SBCWDR, SBC, LBI and LCPI and the
Company.
You agree, in consideration of the engagement hereunder,
that you (the "Indemnifying Party"), shall indemnify and hold harmless SBCWDR,
SBC, LBI and LCPI and the other "Indemnified Parties" referred to on Schedule
1 hereto, to the extent set forth therein, which provisions are incorporated
by reference herein and constitute a part hereof.
In addition, you hereby agree to reimburse SBCWDR, SBC, LBI
and LCPI promptly upon request for all reasonable out-of-pocket costs and
expenses (including, without limitation, fees, disbursements and other charges
of legal counsel) incurred by SBCWDR, SBC, LBI or LCPI and their affiliates in
connection with the preparation of this Commitment Letter or any of the
transactions contemplated hereby, whether or not such transactions are
consummated.
You agree that you will not disclose this Commitment Letter,
the contents hereof, the advice (written or oral) rendered by SBCWDR, SBC, LBI
or LCPI pursuant hereto, or any other activities of SBCWDR, SBC, LBI or LCPI
pursuant hereto to any person without the prior written approval of SBCWDR,
SBC, LBI and LCPI, except that you may disclose this Commitment Letter and the
contents hereof, subject (in the case of persons in (i) and (ii) to advising
the recipient of the confidential nature of this Commitment Letter and the
contents hereof, (i) to your directors, officers, employees, attorneys and
advisors on a confidential and need-to-know basis, (ii) to your creditors and
equity claimants and their advisors on a confidential and need-to-know basis
in connection with the Reorganization, (iii) to the Bankruptcy Court and (iv)
as required by applicable law or compulsory legal process or in the
prosecution of any proceeding initiated by you.
You acknowledge that SBCWDR, SBC, LBI and LCPI and their
4
<PAGE>
affiliates may be providing debt financing, equity capital or other services
(including financial advisory services) to other companies in respect of which
you may have conflicting interests regarding the transactions described herein
and otherwise. The provisions contained in this paragraph and the immediately
foregoing three paragraphs shall remain in full force and effect notwithstanding
the termination of this Commitment Letter. You also acknowledge that neither
SBCWDR, SBC, LBI nor LCPI has any obligation to use in connection with the
transactions contemplated by this Commitment Letter, or to furnish to you,
confidential information obtained by SBCWDR, SBC, LBI or LCPI from other
companies.
The Company irrevocably and unconditionally submits to the
exclusive jurisdiction of any state or federal court sitting in the City of
New York over any suit, action or proceeding arising out of or relating to
this Commitment Letter. Service of any process, summons, notice or document by
registered mail addressed to the Company shall be effective service of process
against you for any suit, action or proceeding brought in any such court. The
Company irrevocably and unconditionally waives any objection to the laying of
venue of any such suit, action or proceeding brought in any such court and any
claim that any such suit, action or proceeding brought in any such court has
been brought in an inconvenient forum. A final judgment in any such suit,
action or proceeding brought in any such court may be enforced in any other
courts to whose jurisdiction the Company is or may be subject, by suit upon
judgment.
This Commitment Letter contains the entire agreement between
the parties relating to the subject matter hereof and supersedes all oral
statements and prior writings with respect thereto. This Commitment Letter is
solely for the benefit of the parties hereto and no other person (except for
Indemnified Persons, to the extent set forth on Schedule 1 hereto) shall
acquire or have any rights under or by virtue of this Commitment Letter. This
Commitment Letter may not be assigned by the Company without the prior written
consent of SBC, SBCWDR, LBI and LCPI (and any purported assignment without
such consent shall be null and void).
Upon any termination of this Commitment Letter, the
obligations of the parties hereunder shall terminate, except that no such
termination will affect SBC's, SBCWDR's, LBI's or LCPI's rights hereunder to
receive fees accrued, reimbursement of expenses, or rights (including those of
any Indemnified Person) to indemnification and contribution.
This Commitment Letter may be executed in counterparts, each
of which will be deemed an original, but all of which taken together will
constitute one and the same instrument. This Commitment Letter shall be
governed by and construed in accordance with the laws of the State of New
York.
5
<PAGE>
THE COMPANY AND EACH OF SBC, SBCWDR, LBI AND LCPI
IRREVOCABLY AGREES TO WAIVE TRIAL BY JURY IN ANY ACTION, PROCEEDING, CLAIM OR
COUNTERCLAIM (WHETHER BASED ON CONTRACT, TORT OR OTHERWISE) RELATING TO OR
ARISING OUT OF THIS COMMITMENT LETTER OR THE PERFORMANCE OF SERVICES
HEREUNDER.
6
<PAGE>
If the foregoing correctly sets forth our understanding, please
indicate your acceptance of the terms hereof by signing three copies of this
Commitment Letter in the appropriate space below, retaining one copy for your
files and returning one copy to each of SBCWDR, SBC, LBI and LCPI on or before
5:00 P.M. (New York City time) on April 24, 1998, whereupon this Commitment
Letter will become a binding agreement between us.
Very truly yours,
SBC WARBURG DILLON READ INC.
By:
--------------------------------
Title:
By:
--------------------------------
Title:
SWISS BANK CORPORATION,
STAMFORD BRANCH
By:
--------------------------------
Title:
By:
--------------------------------
Title:
LEHMAN COMMERCIAL PAPER INC.
By:
--------------------------------
Title: Authorized Signatory
LEHMAN BROTHERS INC.
By:
--------------------------------
Title: Authorized Signatory
7
<PAGE>
Accepted and agreed to as of
the date first written above by:
THE GRAND UNION COMPANY
By:
---------------------
Name:
Title:
8
<PAGE>
SCHEDULE 1
The Grand Union Company (the "Indemnifying Party"), as
contemplated by the commitment letter to which this Schedule 1 is attached (the
"Letter"), agrees to indemnify and hold harmless each of SBC Warburg Dillon Read
Inc. ("SBCWDR"), Swiss Bank Corporation ("SBC"), Lehman Brothers Inc. ("LBI")
and Lehman Commercial Paper Inc. ("LCPI") and their respective affiliates, and
the respective directors, officers, agents, advisors and employees of each of
the foregoing and each other entity or person, if any, controlling SBCWDR, SBC,
LBI or LCPI or any of their affiliates (each of the foregoing entities or
persons being referred to as an "Indemnified Party") from and against any
claims, actions, proceedings, demands, judgments, assessments, losses, damages,
liabilities and expenses, including fees and expenses, arising out of or in
connection with (a) the services rendered by any Indemnified Party to the
Indemnifying Party, (b) the transactions contemplated by the Letter and (c) the
Facility and any other financings, or any use made or proposed to be made with
the proceeds thereof, and each Indemnified Party shall have no liability for any
losses, claims, damages or liabilities (or actions in respect thereof) relating
to or arising out of any of the events or activities specified in clauses (a)
through (c) above. The Indemnifying Party will reimburse each Indemnified Party
on a current basis for all expenses (including, without limitation, fees and
disbursements of counsel ) incurred by such Indemnified Party in connection with
investigating, preparing or defending any such claim, action or proceeding,
whether or not in connection with pending or threatened litigation to which an
Indemnified Party or the Indemnifying Party or any of its securityholders is a
party, in each case, as such expenses are incurred or paid. The foregoing
indemnification and reimbursement will be effective whether or not such claim,
action, proceeding or demand is brought by the Indemnifying Party, the
shareholders or creditors of the Indemnifying Party, or an Indemnified Party or
an Indemnified Party is otherwise a party thereto and whether or not the
Financing is consummated. The Indemnifying Party will not, however, be
responsible for any such claims, losses, damages, liabilities or expenses of an
Indemnified Party that are finally judicially determined to have resulted
primarily from actions taken or omitted to be taken by such Indemnified Party in
bad faith or from such Indemnified Party's gross negligence or wilful
misconduct. The Indemnifying Party will not settle any claim, action or
proceeding in respect of which indemnity may be sought hereunder if SBCWDR, SBC,
LBI or LCPI is an actual or potential party to such claim, action or proceeding,
without SBCWDR's, SBC's, LBI's and LCPI's written consent, which shall not be
unreasonably withheld.
If the indemnification provided for in the first paragraph of
this Schedule 1 is judicially determined to be unavailable to an Indemnified
Party (other than in accordance with the terms hereof), the Indemnifying Party
shall contribute to the claims, losses, damages, liabilities and expenses
referred to herein that are paid or payable by such Indemnified Party in such
proportion as is appropriate to reflect (i) the relative benefits to the
Indemnifying Party and its shareholders, on the one hand, and to SBCWDR, SBC,
LBI and LCPI, on the other hand, of the transactions contemplated by the Letter
or (ii) if the allocation provided by clause (i) is not permitted by applicable
law, not only such relative benefits but also the relative fault of the
Indemnifying Party, on the one hand, and SBCWDR, SBC, LBI and LCPI, on the other
hand, as well as any other relevant equitable considerations; provided that in
no event shall the Indemnifying Party contribute less than the amount necessary
to assure that all Indemnified Parties, in the aggregate, are not liable for
claims, losses, damages, liabilities and expenses in
<PAGE>
excess of the amount of fees actually received by SBCWDR, SBC, LBI and LCPI
pursuant to the Letter. For purposes of this paragraph, the relative benefits to
the Indemnifying Party and its shareholders, on the one hand, and to SBCWDR,
SBC, LBI and LCPI, on the other hand, of the transactions contemplated by the
Letter shall be deemed to be in the same proportion as (a) the total value to be
paid or received by the Indemnifying Party or the Indemnifying Party's
shareholders, as the case may be, in the transactions contemplated by the
Letter, whether or not any such transactions are consummated bears to (b) the
fees paid or to be paid to SBCWDR, SBC, LBI and LCPI under the Letter.
The provisions contained in this Schedule 1 shall remain
operative and in full force and effect regardless of the expiration or any
termination of the Letter.
2
<PAGE>
EXHIBIT A
BANK FACILITY
SUMMARY OF TERMS AND CONDITIONS
<TABLE>
<S> <C>
Borrower: The Grand Union Company (the "Company").
Guarantors: Each of the Company's direct and indirect subsidiaries.
Facility Amounts and Maturities:
Term Loan: $230,000,000 five-year term loan (the "Term Loans" and the
"Term Facility"). The Term Facility commitment will expire
at the close of business on the day of the closing hereunder
(the "Closing Date").
Revolver: $70,000,000 five-year revolving credit facility, including a
$10,000,000 swing line facility (the "Revolving Loans" and
the "Revolving Facility" and, together with the Term Loans
and the Term Facility, the "Loans" and the "Facility"). The
Revolving Facility will also be available for the issuance
of letters of credit ("Letters of Credit") in an aggregate
amount at any time of up to $50,000,000.
Purpose: Proceeds will be used (i) in the case of the Term Loans and a
portion of the amounts under the Revolving Facility, to refinance
existing indebtedness and other obligations of the Company
and its subsidiaries in accordance with, and to pay fees and
expenses in connection with, the Plan of Reorganization
confirmed in connection with the Company's voluntary filing
under Chapter 11 of the U.S. Bankruptcy Code, which Plan of
Reorganization shall be in form and substance reasonably
satisfactory to the Agents (the "Reorganization" and the
"Plan of Reorganization") and (ii) in the case of the
remainder of the Revolving Facility, for general corporate
purposes, including working capital and the issuance of
letters of credit.
Administrative Agent: Lehman Commercial Paper Inc. ("LCPI" or the "Administrative Agent").
Syndication Agent: Swiss Bank Corporation, Stamford Branch ("SBC" or the
"Syndication Agent"; together with the Administrative Agent,
the "Agents").
</TABLE>
1
<PAGE>
<TABLE>
<S> <C>
Collateral Agent: An entity to be selected by the Agents (subject to the consent
of the Company, which consent will not be unreasonably withheld)
in the syndication process (the "Collateral Agent").
Advisors and Arrangers: SBC Warburg Dillon Read Inc. ("SBCWDR") and Lehman Brothers Inc.
("LBI").
LC Issuing Bank: To be determined.
Swing Line Lender: To be determined.
Lenders: A group of financial institutions acceptable to SBCWDR, SBC,
LBI and LCPI and the Company (such approval of the Company not
to be unreasonably withheld).
Initial Commitment: $300,000,000 (one-half of such amount shall be provided
initially by SBC and one-half of such amount shall be
provided initially by LCPI).
Security: The Company's obligations under the Facility will be secured
by perfected liens on all assets of the Company, with
exceptions to be negotiated and a best efforts undertaking
by the Company to perfect such liens, including, but not
limited to, receivables, inventory, equipment, real estate,
leases, licenses, patents, brand names, trademarks,
contracts, securities and stock of subsidiaries. The
Guarantees described below will be secured by perfected
liens on all assets of the respective Guarantors referred to
below.
Guarantees: Each of the Company's present and future subsidiaries
(collectively, the "Guarantors") will guarantee the
Company's obligations under the Facility, up to the maximum
amount possible without violating applicable fraudulent
conveyance laws.
Borrowing Options: LIBOR and Base Rate. LIBOR will be automatically adjusted
for reserves, Regulation D charges and other regulatory
requirements. Base Rate means the higher of (i) SBC's prime
rate and (ii) 0.50% per annum over the federal funds rate.
For a period of 90 days after closing, and thereafter at any
time a default exists, only the Base Rate option will be
available. Loans under the Swing Facility will be made on
the basis of the Base Rate.
</TABLE>
2
<PAGE>
<TABLE>
<S> <C>
Interest Rates: Margins over adjusted LIBOR (the "LIBOR Margin") and margins over
Base Rate (the "Base Rate Margin") will be as follows during
the following periods (in each case expressed in basis
points per annum):
First 12 Months After the Closing Date:
LIBOR Margin: 300.0
Base Rate Margin: 200.0
After the First 12 Months:
<CAPTION>
Total Debt to Libor Base Rate
EBITDA Margin Margin
------------- ------ ---------
<C> <C> <C> <C>
(greater than)3.75x 300.0 200.0
(less than)3.75x and (greater than)3.25x 275.0 175.0
(less than)3.25x 250.0 150.0
</TABLE>
<TABLE>
<S> <C>
"Total Debt" and "EBITDA" are used as defined in Appendix A
hereto, and the ratio of Total Debt to EBITDA shall be
determined on the basis of the four fiscal quarters then
most recently ended at any time of determination.
Interest in respect of Base Rate loans shall be payable quarterly
in arrears on the last business day of each quarter. Interest in
respect of LIBOR loans shall be payable in arrears at the end of
the applicable interest period and every three months in the case
of interest periods in excess of three months. Interest will also
be payable at the time of conversion or repayment of any loans
and at maturity. All interest and fee calculations with respect
to LIBOR loans shall be based on a 360-day year and actual days
elapsed. All interest and fee calculations with respect to Base
Rate loans shall be based on a 365/366-day year and actual days
elapsed.
During the continuance of any Event of Default (as described
below), including upon any default in the payment of principal or
interest, all loans under the Facility shall bear interest at a
rate per annum equal to the greater of (i) the rate which is 2%
in excess of the rate otherwise applicable to Base Rate loans
from time to time and (ii) the rate which is 2% in excess of the
rate then borne by such borrowings. Such interest shall be
payable on demand.
</TABLE>
3
<PAGE>
<TABLE>
<S> <C>
Interest Periods: LIBOR Loans - 1, 2, 3 or 6 months.
Commitment Fees: 0.50% per annum, payable quarterly in arrears on the unused portion
of the Revolver commitments, such fees to accrue from the
date on which a credit agreement (the "Credit Agreement")
evidencing the Facility is signed.
Letter of Credit Commissions: For all Lenders, a commission equal to the applicable margin from
time to time for LIBOR loans under the Revolver. For the LC
Issuing Bank, a fronting fee of 0.125% per annum and its
other standard and customary processing charges. Such
commission and fronting fee shall be payable quarterly in
arrears, based on the aggregate undrawn amount of all
letters of credit outstanding from time to time under the
Revolving Facility.
Mandatory
Prepayments: The following amounts will be applied to reduce the Facility:
1. 100% of the net proceeds from the issuance of
indebtedness by the Company and its subsidiaries;
2. 50% of the net proceeds from the issuance of
equity by the Company.
3. 100% of the net proceeds from asset sales (including proceeds of
casualty insurance, condemnation awards or other recoveries to
the extent such proceeds or other recoveries are not reinvested
by the Company in assets similar to those that were the subject
of such proceeds or other recoveries within 365 days after the
receipt thereof) by the Company and its subsidiaries (with
exceptions to be negotiated, including an exception for net
proceeds of asset sales of up to $5,000,000 in any fiscal year,
which proceeds are reinvested by the Company in capital assets
for use in the Company's business within 365 days after such
disposition).
4. 75% of Excess Cash Flow (as defined in Appendix A) for any
fiscal year, reducing to 50% if the ratio of Total Debt to
EBITDA (determined as provided above) is less than
</TABLE>
4
<PAGE>
<TABLE>
<S> <C>
3.25x for such fiscal year.
Prepayments under this section shall be applied, first, to prepay
the Term Loans proportionately among the Lenders (except that any
Term Loan Lender may refuse any such prepayment, and such amount
shall be allocated pro rata to the other Term Loan Lenders) and,
second, to reduce the Revolving Facility commitment (and to repay
Revolver loans and/or cash collateralize outstanding Letters of
Credit in an amount equal to the excess of such exposure over the
Revolving Facility commitment as reduced). Prepayments under
clauses 1, 2 and 3 shall be subject to the prepayment premium
referred to below under "Prepayment Premium".
Voluntary Prepayments: Permitted at any time with one business day's notice for Base Rate
loans and three business days' notice for LIBOR loans. The
Company will compensate the Lenders for any break-funding
losses if it prepays LIBOR loans at any time other than the
end of an Interest Period, and shall pay any applicable
prepayment premium referred to below under "Prepayment
Premium". Prepayments under this section shall be applied
to prepay the Term Loans or Revolving Loans (as applicable)
of the Lenders pro rata to their outstanding Loans of such
tranche, except that any Term Loan Lender may refuse any
such prepayment, and such amount shall be allocated pro rata
to the other Term Loan Lenders.
Prepayment Premium:
Voluntary prepayments and contingent mandatory prepayments (other
than such prepayments required out of excess cash flow) shall be
subject to a prepayment premium in the following amounts and the
following times:
Month 1-12 (after the Closing Date): 102%
Month 13-18: 101%
Month 19 and thereafter: 100% (no premium)
Conditions to Initial Funding:
The obligation of the Lenders to make their initial loans under
the Facility will be subject to the reasonable satisfaction of
conditions precedent for leveraged financings generally and for
this transaction in particular, including but not limited to the
following (in addition to the "Conditions to each Borrowing" set
forth below):
</TABLE>
5
<PAGE>
<TABLE>
<S> <C> <C>
1. The entry of a final order of the Bankruptcy Court
confirming the Plan of Reorganization in accordance with
Section 1129 of the Bankruptcy Code, which order shall
be in full force and effect and shall not have been
stayed, reversed, vacated or otherwise modified, not
later than August 31, 1998, all on such terms and
conditions as may be reasonably satisfactory to the
Lenders.
2. The outstanding debt of the Company and its subsidiaries,
except as specified in schedules to be negotiated,
shall be retired, and all liens securing the same shall
be discharged, and the Agents shall have received evidence
reasonably satisfactory to them of the foregoing.
3. The Lenders shall have completed (and shall be
satisfied with the scope and results of) its diligence
investigation of environmental matters of the
Company and its subsidiaries.
4. Receipt by the Lenders of a pro forma balance sheet and
income statement of the Company giving effect to the
Reorganization, the loans under the Facility and all
related transactions, which pro forma financial
statements shall be reasonably satisfactory to
the Lenders and demonstrate that the covenants described
herein are satisfied at the Closing Date.
5. Satisfactory completion prior to August 31, 1998, of the
Credit Agreement and all other documentation relating
to the Facility in form and substance reasonably
satisfactory to the Lenders, including receipt by the
Lenders of reasonably satisfactory opinions of
counsel to the Company as to the transactions contemplated
thereby, together with customary closing documentation.
6. Creation and perfection of security arrangements to the
satisfaction of the Lenders, to include title insurance
with all appropriate endorsements (in the case of
any real property mortgages) and opinions of counsel for
the Company and local counsel, all in form and
substance reasonably satisfactory to the Lenders.
7. Receipt of all necessary governmental, shareholder
</TABLE>
6
<PAGE>
<TABLE>
<S> <C>
and third party consents and approvals necessary or
reasonably desirable in connection with the
Reorganization, the Facility and the related transactions
contemplated hereby.
8. Absence of any pending or threatened litigation or
proceeding against the Company or any of its
subsidiaries which (i) seeks to enjoin or challenge the
Facility or (ii) could reasonably be expected in the
Lenders' judgment to have a material adverse effect on
the condition (financial or otherwise), business,
results of operations, properties or liabilities of the
Company and its subsidiaries, considered as a whole
after giving effect to the Reorganization.
9. The Lenders shall have received evidence of
insurance maintained by the Company and its subsidiaries
reasonably satisfactory to the Lenders.
10. The Lenders shall have received, to the extent they
shall request the same, environmental reports with
respect to such properties, all reasonably satisfactory
in scope, form and substance to the Lenders.
11. All agreements relating to, and the corporate and capital
structure of, the Company and the Guarantors and all
organizational documents of such entities shall be
reasonably satisfactory to the Lenders.
12. All costs, fees, expenses (including, without
limitation, legal fees and expenses, title premiums,
survey charges and recording taxes and fees) and other
compensation contemplated hereby payable to the Agents
and the Lenders shall have been paid.
Conditions to Each Borrowing: Customary in facilities of this nature, including but not
limited to:
1. Absence of Default.
2. Accuracy of representations and warranties in all
material respects.
Representations and Warranties: Customary in facilities of this nature, with
respect to the Company and its subsidiaries, including but not
limited to (and with materiality exceptions where appropriate):
</TABLE>
7
<PAGE>
<TABLE>
<S> <C>
1. Corporate existence.
2. Corporate and governmental authorizations; no
contravention; binding and enforceable agreements.
3. Financial information.
4. No material adverse change.
5. Environmental matters.
6. Compliance with laws, including ERISA and
environmental laws.
7. No material litigation.
8. Existence, incorporation, etc., of subsidiaries.
9. Payment of taxes and other material obligations.
10. Full disclosure (including accuracy of information in
Plan of Reorganization and disclosure statement related
thereto).
11. Customary representations with respect to the collateral
securing the Facility and the Guarantees and the
creation, perfection and first priority of the Lenders'
security interests therein.
Covenants: Customary in facilities of this nature with respect to the
Company and its subsidiaries, including, but not limited to,
the following:
1. Furnishing of information.
2. Maintenance of property; insurance coverage.
3. Compliance with laws; conduct of business.
4. Use of proceeds.
5. Restriction on liens, with exceptions to be agreed,
including a provision permitting up to $4,000,000
aggregate outstanding amount of deposits or bonds
pledged to utility companies.
6. Financial covenants as provided in Appendix A hereto.
7. No restricted stock payments by the Company and its
subsidiaries (including retirements, acquisitions and
other payments in respect of capital stock of the
Company) and no loans or other advances to, or
guarantees of the obligations of, affiliates of the
Company.
8. No equity or debt investments (including by
way of advances) in any person after the Closing
Date, except (i) investments in subsidiary Guarantors,
(ii) temporary cash investments and (iii)
Permitted Investments (as defined in Appendix A). No
material acquisitions.
9. Limitations on debt, with exceptions to be agreed
(including $10,000,000 of unsecured debt incurred
</TABLE>
8
<PAGE>
<TABLE>
<S> <C>
within 6 months after the Closing Date).
10. No mergers or consolidations by the Company, and
limits on sale of the assets (except inventory sold in
the ordinary course of business) of the Company and
its subsidiaries, including sale-leaseback
transactions, with exceptions to be negotiated
(including those described herein), including
provisions permitting sale-leasebacks of (i) 3
identified stores and (ii) stores acquired after the
Closing Date and transferred pursuant to a
sale-leaseback transaction within 270 days after the
acquisition date.
11. No transactions with affiliates (defined to
exclude subsidiary Guarantors) on terms less
favorable to the Company or any subsidiary Guarantor
than would be reasonably expected to be obtainable in
a transaction with a non-affiliate, with
exceptions to be negotiated.
12. No significant changes in the nature of the business
of the Company and its subsidiaries, taken as a
whole.
13. Guarantees and other contingent obligations not
to exceed amounts to be negotiated.
14. No termination of material licenses and material
contracts.
15. The Company will enter into and maintain, with one or
more of the Lenders, interest rate swaps, caps or
other appropriate hedging arrangements to convert to
fixed rate or otherwise limit, in a manner reasonably
satisfactory to the Lenders, its floating interest
rate risk on at least 50% of its outstanding Term
Loans under the Facility for a period of at least
three years.
16. The Company will cause any person becoming a subsidiary
after the date of the credit agreement to become a
Guarantor, and will cause all assets of such a
subsidiary, together with all other assets of the
Company and its subsidiaries acquired subsequent to the
date of the credit agreement, to be pledged to
the Lenders.
17. Limitation on restrictions on subsidiaries.
Events of Default: Customary in credit agreements of this nature to include,
but not be limited to:
1. Failure to pay (i) when due any principal or (ii) within
3 days after the date when due, interest or other
amounts.
</TABLE>
9
<PAGE>
<TABLE>
<S> <C>
2. Violation of covenants, with grace periods where
appropriate.
3. Representations or warranties false in any
material respect when made.
4. Cross-default to other debt of the Company and its
subsidiaries which is triggered by an event which
permits or, with the giving of notice or lapse of time
(or both), would permit the holders to accelerate such
debt.
5. Judgment defaults in excess of an amount to be
negotiated.
6. Change of ownership or control.
7. Loss of lien perfection or priority.
8. Other usual defaults, including without limitation,
insolvency, bankruptcy and ERISA.
Required Lenders: Lenders holding at least 51% of the aggregate amount of the
outstanding loans, Letter of Credit exposure and undrawn
commitments; provided that (i) 100% of the Lenders will be
required to change pricing or commitment levels and (ii) 100% of
the Lenders will be required to release all or substantially all
the collateral.
Increased Costs/Change of
Circumstances: The Credit Agreement will contain customary provisions
protecting the Lenders in the event of unavailability of
funding, illegality, increased costs, capital adequacy and
funding losses.
Assignments and Participations: With the consent of the Administrative Agent (which shall not be
unreasonably withheld) and, in the case of the Revolving
Facility, the LC Issuing Bank, each Lender will be able to
assign any one of, or any combination of, the following:
(i) all or a pro rata portion of its outstanding Term Loans
or (ii) all or a pro rata portion of its outstanding
Revolving Loans, Letter of Credit exposure and Revolving
Commitment; provided that the aggregate amount assigned is
at least $2,000,000. No assignee Lender shall receive
greater payments from the Company in respect of withholding
taxes then the relevant assignor Lender unless such
assignment was with the prior written consent of the
Company. Each assigning Lender must pay to the
Administrative Agent an administration fee of $3,500 per
assignment. No restrictions on participations.
Indemnification: The Company will indemnify each Lender and the
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Agents against all losses, liabilities, claims, damages or
expenses relating to their loans, the Facility and the Company's
use of the loan proceeds or the commitments, including but not
limited to attorneys' fees and settlement costs, except for
losses, liabilities, claims, damages or expenses caused by such
indemnitee's gross negligence or willful misconduct.
Governing Law and Forum: State of New York.
Expenses: The Company will pay (i) all reasonable legal and other
out-of-pocket expenses of the Agents, including the fees and
expenses of Simpson Thacher & Bartlett, special counsel to the
Agents, and (ii) all reasonable fees and expenses of consultants
and other experts consulted by the Agents or the Required Lenders in
connection with the Facility.
</TABLE>
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APPENDIX A
TO TERM SHEET
CERTAIN FINANCIAL COVENANTS AND DEFINITIONS
References to "FQ" below refer to the first, second, third or fourth
(as indicated) fiscal quarter of the Company's fiscal year, which, in the case
of the Company's 1998 fiscal year, ends on or about March 28, 1998. The
reference to "1999 FQ1", e.g., means the fiscal quarter of the Company ending
on or about June 30, 1998.
1. Ratio of Minimum EBITDA to Interest
Quarter Ratio
------- -----
1999 FQ3 1.60x
1999 FQ4 1.65x
2000 FQ1 1.75x
2000 FQ2 1.80x
2000 FQ3 1.90x
2000 FQ4 1.90x
2001 FQ1 1.90x
2001 FQ2 1.95x
2001 FQ3 2.00x
2001 FQ4 2.00x
2002 FQ1 2.10x
2002 FQ2 2.20x
2002 FQ3 2.25x
2002 FQ4 2.30x
2003 FQ1
and thereafter 2.40x
All determinations of this covenant shall be made on a
rolling four quarter basis, except that during the first year after
the Closing Date, determinations shall be made on the basis on the
period elapsed from the Closing Date.
2. Ratio of Maximum Total Debt to EBITDA
Quarter Ratio
------- -----
2000 FQ2 4.60x
2000 FQ3 4.50x
2000 FQ4 4.50x
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2001 FQ1 4.45x
2001 FQ2 4.30x
2001 FQ3 4.15x
2001 FQ4 4.00x
2002 FQ1 4.00x
2002 FQ2 4.00x
2002 FQ3
and thereafter 3.75x
All determinations of this covenant shall be made using Total Debt as
of any date of determination measured against EBITDA for the 12
months preceding such date of determination. This covenant shall not
be tested until September, 1999 (which is expected to be the first
fiscal quarter in which the Company reflects a full year of results
after the Closing Date), and until such date, shall be replaced with
a covenant restricting Total Debt to an amount not in excess of $450
million at any time.
3. Maximum Capital Expenditures
Test Period:
12 Months Ending Amount
---------------- ------
March 31, 1999 $60.0 million
March 31, 2000 $80.0 million
March 31, 2001 $52.5 million
March 31, 2002 $55.0 million
March 31, 2003 $57.5 million
In addition, (i) the Company may carry forward the amount by which
Capital Expenditures permitted for such Test Period pursuant to the
above table exceeds the amount of Capital Expenditures actually made
during such Test Period, but not in excess of 25% of such amount set
forth in such table and (ii) from and after the date on which a
portion of Excess Cash Flow is required to be used to prepay the
Loans pursuant to the Credit Agreement, the Company may make
additional Capital Expenditures during the remainder of such fiscal
year equal to the amount of Excess Cash Flow not required to be so
used.
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4. Definition of Certain Additional Financial Terms
As used in this Term Sheet:
"Consolidated Capital Expenditures" means, for any period,
the additions to property, plant and equipment and other capital
expenditures of the Company and its Consolidated Subsidiaries for
such period, as the same are or would be set forth in a consolidated
statement of cash flows of the Company and its Consolidated
Subsidiaries for such period.
"Consolidated Interest Expense" means, for any period, the
interest expense of the Company and its Consolidated Subsidiaries for
such period, determined on a consolidated basis.
"Consolidated Net Income" means, for any period, the net
income of the Company and its Consolidated Subsidiaries for such
period, determined on a consolidated basis and adjusted to exclude
the effect of any extraordinary or other non-recurring gain (but not
loss).
"EBITDA" means, for any period, Consolidated Net Income for
such period (as more fully defined in definitive documentation) plus,
without duplication and to the extent reflected as a charge in the
statement of such Consolidated Net Income for such period, the sum of
(a) income tax expense, (b) interest expense, amortization or
writeoff of debt discount and debt issuance costs and commissions,
discounts and other fees and charges associated with Total Debt (c)
depreciation and amortization expense, (d) amortization of
intangibles (including, but not limited to, goodwill) and
organization costs, (e) any extraordinary, unusual or non-recurring
expenses or losses (including, whether or not otherwise includable as
a separate item in the statement of such Consolidated Net Income for
such period, losses on sales of assets outside the ordinary course of
business) and (f) any other non-cash charges, and minus, to the
extent included in the statement of such Consolidated Net Income for
such period, the sum of (a) interest income, (b) any extraordinary,
unusual or non-recurring income or gains (including, whether or not
otherwise includable as a separate item in the statement of such
Consolidated Net Income for such period, gains on the sales of assets
outside the ordinary course of business; it being understood that the
foregoing excludes up to $3,000,000 per fiscal year derived from
recurring asset sales) and (c) any other non-cash income, all as
determined on a consolidated basis.
"Excess Cash Flow" means, for any period, an amount equal to
(i) EBITDA for such period minus (ii) all cash payments of income
taxes by the Company and its Consolidated Subsidiaries during such
period, minus (iii) Consolidated Capital Expenditures for such
period, to the extent that
3
<PAGE>
such Consolidated Capital Expenditures are permitted by the Credit
Agreement and are not financed during such period (and will not be
financed in any future period) with the proceeds of debt of the
Company permitted by the Credit Agreement plus (or minus) (iv) any
net cash extraordinary gains (or extraordinary cash losses) for such
period of the Company and its Consolidated Subsidiaries plus
(or minus) (v) any decrease (or increase) in consolidated net working
investment of the Company and its Consolidated Subsidiaries
(excluding indebtedness and cash and cash equivalents) at the last
day of such period, when compared with such consolidated net working
investment at the first day of such period, plus (vi) any interest
income of the Company and its Consolidated Subsidiaries for such
period, minus (vii) the sum for such period of (x) total debt service
(exclusive of amortization of debt discount or premium) for such
period, (y) all optional payments of the Loans during such period
pursuant to the terms of the Credit Agreement.
"Permitted Investments" means, at any time with respect to
the Company and its Subsidiaries, (i) advances or loans to
contractors in connection with the construction of new stores of the
Company in an aggregate principal amount at any time outstanding not
exceeding $10,000,000, (ii) Investments acquired in the form of
consideration received pursuant to an asset sale consummated in
accordance with the terms of the Credit Agreement, provided that the
amount (x) of such Investments acquired pursuant to any asset sale
(including a series of related transactions) does not exceed $500,000
and (y) of all such Investments under this clause (ii) outstanding at
any time does not exceed $5,000,000, (iii) Investments acquired as
part of the settlement of litigation or claims, or in satisfaction of
claims made pursuant to a reorganization, bankruptcy or liquidation
of an corporation or other entity, or as a good faith settlement of
indebtedness owed by a corporation or other entity to the Company or
any of its Subsidiaries and (iv) Investments not permitted pursuant
to the foregoing clauses of this definition with an aggregate book
value (in each determined at the time when made) for all such
Investments not in excess of $1,000,000.
"Total Debt" means, at any date, all Debt of the Company and
its Consolidated Subsidiaries, determined on a consolidated basis,
including without limitation all obligations under capital leases but
excluding undrawn letters of credit.
4
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EXHIBIT 10.40
$172,022,020
REVOLVING CREDIT AGREEMENT
among
THE GRAND UNION COMPANY, a Debtor-in-Possession,
as Borrower,
The Several Lenders
from Time to Time Parties Hereto,
SBC WARBURG DILLON READ INC.,
as Co-Advisor and Co-Arranger
SWISS BANK CORPORATION,
as Syndication Agent
LEHMAN BROTHERS INC.,
as Co-Advisor and Co-Arranger
and
LEHMAN COMMERCIAL PAPER INC.,
as Administrative Agent
Dated as of June 24, 1998
===============================================================================
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TABLE OF CONTENTS
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SECTION 1. DEFINITIONS........................................................................................ 3
1.1 Defined Terms..................................................................................... 3
1.2 Other Definitional Provisions..................................................................... 20
SECTION 2. AMOUNT AND TERMS OF REVOLVING CREDIT COMMITMENTS................................................... 21
2.1 Revolving Credit Commitments...................................................................... 21
2.2 Procedure for Revolving Credit Borrowing.......................................................... 21
2.3 Swing Line Commitment............................................................................. 22
2.4 Procedure for Swing Line Borrowing; Refunding of Swing Line Loans................................. 22
2.5 Repayment of Loans; Evidence of Debt.............................................................. 24
2.6 Revolving Credit Commitment Fees, etc. ........................................................... 25
2.7 Termination or Reduction of Revolving Credit Commitments.......................................... 25
2.8 Optional Prepayments.............................................................................. 25
2.9 Mandatory Prepayments and Revolving Credit Commitment Reductions.................................. 25
2.10 Conversion and Continuation Options.............................................................. 26
2.11 Minimum Amounts and Maximum Number of Eurodollar Tranches........................................ 26
2.12 Interest Rates and Payment Dates................................................................. 27
2.13 Computation of Interest and Fees................................................................. 27
2.14 Inability to Determine Interest Rate............................................................. 28
2.15 Pro Rata Treatment and Payments.................................................................. 28
2.16 Requirements of Law.............................................................................. 29
2.17 Taxes............................................................................................ 31
2.18 Indemnity........................................................................................ 33
2.19 Illegality....................................................................................... 33
2.20 Change of Lending Office......................................................................... 33
SECTION 3. LETTERS OF CREDIT.................................................................................. 34
3.1 L/C Commitment.................................................................................... 34
3.2 Procedure for Issuance of Letter of Credit........................................................ 34
3.3 Fees and Other Charges............................................................................ 35
3.4 L/C Participations................................................................................ 35
3.5 Reimbursement Obligation of the Borrower.......................................................... 36
3.6 Obligations Absolute.............................................................................. 36
3.7 Letter of Credit Payments......................................................................... 37
3.8 Applications...................................................................................... 37
SECTION 4. PRIORITY AND LIENS................................................................................. 37
4.1 Priority and Liens................................................................................ 37
4.2 Security Interest in L/C Cash Collateral Account.................................................. 38
4.3 Payment of Obligations............................................................................ 38
4.4 No Discharge; Survival of Claims.................................................................. 39
SECTION 5. REPRESENTATIONS AND WARRANTIES..................................................................... 39
5.1 Financial Condition............................................................................... 39
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5.2 No Change......................................................................................... 40
5.3 Corporate Existence; Compliance with Law.......................................................... 40
5.4 Corporate Power; Authorization; Enforceable Obligations........................................... 40
5.5 No Legal Bar...................................................................................... 40
5.6 No Material Litigation............................................................................ 41
5.7 No Default........................................................................................ 41
5.8 Ownership of Property; Liens...................................................................... 41
5.9 Intellectual Property............................................................................. 41
5.10 Taxes............................................................................................ 41
5.11 Federal Regulations.............................................................................. 41
5.12 Labor Matters.................................................................................... 41
5.13 ERISA............................................................................................ 42
5.14 Investment Company Act; Other Regulations........................................................ 42
5.15 Subsidiaries..................................................................................... 42
5.16 Use of Proceeds.................................................................................. 42
5.17 Environmental Matters............................................................................ 43
5.18 Accuracy of Information, etc..................................................................... 44
5.19 Security Documents............................................................................... 44
SECTION 6. CONDITIONS PRECEDENT............................................................................... 45
6.1 Conditions to Initial Extension of Credit......................................................... 45
6.2 Conditions to Each Extension of Credit............................................................ 46
SECTION 7. AFFIRMATIVE COVENANTS.............................................................................. 47
7.1 Financial Statements.............................................................................. 47
7.2 Certificates; Other Information................................................................... 48
7.3 Payment of Obligations............................................................................ 49
7.4 Conduct of Business and Maintenance of Existence, etc. ........................................... 49
7.5 Maintenance of Property; Insurance................................................................ 49
7.6 Inspection of Property; Books and Records; Discussions; Collateral Audit.......................... 50
7.7 Notices........................................................................................... 50
7.8 Environmental Laws................................................................................ 51
7.9 Further Assurances................................................................................ 51
SECTION 8. NEGATIVE COVENANTS................................................................................. 51
8.1 Financial Condition Covenants..................................................................... 51
8.2 Limitation on Indebtedness........................................................................ 52
8.3 Limitation on Liens............................................................................... 52
8.4 Limitation on Fundamental Changes................................................................. 53
8.5 Limitation on Disposition of Property............................................................. 53
8.6 Limitation on Restricted Payments................................................................. 54
8.7 Limitation on Capital Expenditures................................................................ 54
8.8 Limitation on Investments......................................................................... 54
8.9 Limitation on Transactions with Affiliates........................................................ 55
8.10 Limitation on Sales and Leasebacks............................................................... 55
8.11 Limitation on Changes in Fiscal Periods.......................................................... 55
8.12 Limitation on Negative Pledge Clauses............................................................ 55
8.13 Limitation on Restrictions on Subsidiary Distributions........................................... 55
8.14 Limitation on Lines of Business.................................................................. 56
8.15 Chapter 11 Claims; Payment of Pre-Petition Date Claims........................................... 56
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SECTION 9. EVENTS OF DEFAULT.................................................................................. 56
SECTION 10. THE AGENTS......................................................................................... 59
10.1 Appointment...................................................................................... 59
10.2 Delegation of Duties............................................................................. 59
10.3 Exculpatory Provisions........................................................................... 59
10.4 Reliance by Administrative Agent................................................................. 60
10.5 Notice of Default................................................................................ 60
10.6 Non-Reliance on Agents and Other Lenders......................................................... 60
10.7 Indemnification.................................................................................. 61
10.8 Agent in Its Individual Capacity................................................................. 61
10.9 Successor Administrative Agent................................................................... 61
10.10 Authorization to Release Liens.................................................................. 62
10.11 The Arranger.................................................................................... 62
SECTION 11. REMEDIES; APPLICATION OF PROCEEDS.................................................................. 62
11.1 Remedies; Obtaining the Collateral Upon Default.................................................. 62
11.2 Remedies; Disposition of the Collateral.......................................................... 63
11.3 Application of Proceeds.......................................................................... 64
11.4 WAIVER OF CLAIMS................................................................................. 65
11.5 Remedies Cumulative.............................................................................. 65
11.6 Discontinuance of Proceedings.................................................................... 65
SECTION 12. MISCELLANEOUS...................................................................................... 66
12.1 Amendments and Waivers........................................................................... 66
12.2 Notices.......................................................................................... 67
12.3 No Waiver; Cumulative Remedies................................................................... 68
12.4 Survival of Representations and Warranties....................................................... 68
12.5 Payment of Expenses.............................................................................. 68
12.6 Successors and Assigns; Participations and Assignments........................................... 69
12.7 Adjustments; Set-off............................................................................. 71
12.8 Counterparts..................................................................................... 72
12.9 Severability..................................................................................... 72
12.10 Integration..................................................................................... 72
12.11 GOVERNING LAW................................................................................... 72
12.12 Submission To Jurisdiction; Waivers............................................................. 73
12.13 Acknowledgements................................................................................ 73
12.14 Absence of Prejudice with Respect to Matters Before the Bankruptcy Court........................ 74
12.15 Confidentiality................................................................................. 74
12.16 WAIVERS OF JURY TRIAL........................................................................... 74
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SCHEDULES:
1.1 Commitments
5.16 Subsidiaries
8.2(c) Existing Indebtedness
8.3(f) Existing Liens
8.8(h) Existing Investments
EXHIBITS:
A Form of Guarantee and Collateral Agreement
B Form of Final Order
C Form of Compliance Certificate
D Form of Closing Certificate
E Form of Assignment and Acceptance
F Form of Legal Opinion of Weil, Gotshal & Manges LLP
G-1 Form of Revolving Credit Note
G-2 Form of Swing Line Note
H Form of Exemption Certificate
I Form of Budget
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REVOLVING CREDIT AGREEMENT, dated as of June 24, 1998, among
THE GRAND UNION COMPANY, a Delaware corporation (the "Borrower"), a
debtor-in-possession in a case pending under Chapter 11 of the Bankruptcy
Code, the several banks and other financial institutions or entities from time
to time parties to this Agreement (the "Lenders"), SBC WARBURG DILLON READ
INC., as co-advisor and co-arranger, SWISS BANK CORPORATION, STAMFORD BRANCH,
as syndication agent (in such capacity, the "Syndication Agent"), LEHMAN
BROTHERS INC., as co-advisor and co-arranger (together with SBC Warburg Dillon
Read Inc. in their capacities as co-advisors and co-arrangers, the
"Arrangers"), and LEHMAN COMMERCIAL PAPER INC., as administrative agent (in
such capacity, the "Administrative Agent").
W I T N E S S E T H:
--------------------
WHEREAS, on June 24, 1998 (the "Petition Date"), the
Borrower filed a voluntary petition under Section 301 of the Bankruptcy Code
with the United States Bankruptcy Court for the District of New Jersey (the
"Bankruptcy Court") initiating its Chapter 11 case (the "Case") and has
continued in the possession of its assets and in the management of its
business pursuant to Sections 1107 and 1108 of the Bankruptcy Code;
WHEREAS, on the Petition Date, following a prepetition
solicitation of votes for the acceptance or rejection of the Borrower's plan
of reorganization (the "Plan of Reorganization") pursuant to Section 1126 of
the Bankruptcy Code, the Borrower filed with the Bankruptcy Court the Plan of
Reorganization, together with a certification of its balloting agent
certifying that the Plan of Reorganization had been accepted by the requisite
number and amount of claims and amount of interests pursuant to Section 1126
of the Bankruptcy Code;
WHEREAS, the Borrower requested that the Lenders make
available a revolving credit and letter of credit facility in an aggregate
principal amount not to exceed $172,022,020, under which all of the Borrower's
obligations are guaranteed by the Subsidiary Guarantors, and the proceeds of
which will be used (i) to finance the working capital needs of the Borrower
and the Subsidiary Guarantors in the ordinary course of business, (ii) for
payment of Chapter 11 expenses, including professional fees, (iii) for general
corporate purposes, and (iv) to refinance the revolving credit and term loans,
and to cash collateralize letters of credit outstanding under the Prepetition
Credit Agreement, in all cases subject to the terms of this Agreement, the
Final Order and the Budget;
WHEREAS, to provide security for the repayment of the
Revolving Credit Loans, the reimbursement of any draft drawn under the Letters
of Credit and the payment of the other Obligations of the Borrower hereunder
and under the other Loan Documents, the Borrower shall provide to the Agents
and the Lenders, pursuant to this Agreement and the Final Order, the following
(each as more fully described herein):
(a) with respect to the Obligations of the Borrower
hereunder, an allowed administrative expense claim in the Case
pursuant to Section 364(c)(1) of the Bankruptcy
<PAGE>
2
Code having priority over all administrative expenses of the kind
specified in Sections 503(b) and 507(b) of the Bankruptcy Code;
(b) a perfected first priority Lien, pursuant to Section
364(c)(2) of the Bankruptcy Code, upon all unencumbered property of
the Borrower and all cash and cash equivalents in the L/C Cash
Collateral Account;
(c) a perfected second priority Lien, pursuant to Section
364(c)(3) of the Bankruptcy Code, upon all property of the Borrower
(other than property subject to Liens securing the Prepetition
Supplemental Term Loans) that is subject to Permitted Liens,
including valid and perfected Liens in existence on the Petition
Date, junior to such Permitted Liens and other valid and perfected
Liens (except as otherwise provided in Section 4.1(c) and the Final
Order); and
(d) a perfected first priority priming Lien, pursuant to
Section 364(d)(1) of the Bankruptcy Code, upon all property of the
Borrower (including, without limitation, accounts receivable, chattel
paper, contracts, documents, equipment, general intangibles,
instruments, inventory, trademarks and trademark licenses and real
property) that is subject to the Liens securing the Prepetition
Supplemental Term Loans and any Liens granted after the Petition Date
to provide adequate protection in respect of the Prepetition
Supplemental Term Loans, which Lien in favor of the Administrative
Agent and the Lenders shall be senior in all respects to all of the
Liens securing the Prepetition Supplemental Term Loans and to any
Liens granted after the Petition Date to provide adequate protection
in respect thereof;
WHEREAS, all of the claims and the Liens granted hereunder
and pursuant to the Final Order in the Case to the Agents and the Lenders
shall be subject to the Carve-Out and the Permitted Liens, in each case to the
extent provided in Section 4.1 and the Final Order;
WHEREAS, to provide guarantees for the repayment of the
Revolving Credit Loans, the reimbursement of any draft drawn under the Letters
of Credit and the payment of the other Obligations of the Borrower hereunder
and under the other Loan Documents, the Subsidiary Guarantors shall provide to
the Agents and the Lenders (a) a guarantee of the due and punctual payment and
performance of the Obligations of the Borrower hereunder and under the
Revolving Credit Notes and (b) a perfected first priority Lien upon all
personal property of the Subsidiary Guarantors; and
WHEREAS, the Lenders are willing to make such credit
facility available upon and subject to the terms and conditions hereinafter
set forth;
NOW, THEREFORE, in consideration of the premises and the
agreements hereinafter set forth, the parties hereto hereby agree as follows:
SECTION 1. DEFINITIONS
1.1 Defined Terms. As used in this Agreement, the terms
listed in this Section 1.1 shall have the respective meanings set forth in
this Section 1.1.
<PAGE>
3
"Accounts": as to any Person, all rights to receive payment
for goods sold or leased by such Person or for services rendered in
the ordinary course of business of such Person to the extent not
evidenced by an instrument or chattel paper, together with all
interest, finance charges and other amounts payable by an account
debtor in respect thereof.
"Affiliate": as to any Person, any other Person which,
directly or indirectly, is in control of, is controlled by, or is
under common control with, such Person. For purposes of this
definition, "control" of a Person means the power, directly or
indirectly, either to (a) vote 10% or more of the securities having
ordinary voting power for the election of directors (or persons
performing similar functions) of such Person or (b) direct or cause
the direction of the management and policies of such Person, whether
by contract or otherwise.
"Agents": the collective reference to the Syndication Agent
and the Administrative Agent.
"Aggregate Exposure": with respect to any Lender at any
time, an amount equal to (a) until the Closing Date, the aggregate
amount of such Lender's Revolving Credit Commitments at such time and
(b) thereafter, the aggregate amount of such Lender's Revolving
Credit Commitment then in effect or, if the Revolving Credit
Commitments have been terminated, the amount of such Lender's
Revolving Extensions of Credit then outstanding.
"Aggregate Exposure Percentage" with respect to any Lender
at any time, the ratio (expressed as a percentage) of such Lender's
Aggregate Exposure at such time to the Aggregate Exposure of all
Lenders at such time.
"Agreement": this Revolving Credit Agreement, as amended,
supplemented or otherwise modified from time to time.
"Application": an application, in such form as the Issuing
Lender may specify from time to time, requesting the Issuing Lender
to open a Letter of Credit.
"Assignee": as defined in Section 12.6(c).
"Assignor": as defined in Section 12.6(c).
"Available Revolving Credit Commitment": as to any Lender at
any time, an amount equal to the excess, if any, of (a) such Lender's
Revolving Credit Commitment then in effect over (b) such Lender's
Revolving Extensions of Credit then outstanding; provided, that in
calculating any Lender's Revolving Extensions of Credit for the
purpose of determining such Lender's Available Revolving Credit
Commitment pursuant to Section 2.6(a), the aggregate principal amount
of Swing Line Loans then outstanding shall be deemed to be zero.
"Bankruptcy Code": The Bankruptcy Reform Act of 1978, as
heretofore and
<PAGE>
4
hereafter amended, and codified as 11 U.S.C. ??101 et seq.
"Bankruptcy Court": as defined in the Recitals.
"Base Rate": for any day, a rate per annum (rounded upwards,
if necessary, to the next 1/16 of 1%) equal to the greatest of (a)
the Prime Rate in effect on such day, (b) the Base CD Rate in effect
on such day plus 1% and (c) the Federal Funds Effective Rate in
effect on such day plus 1/2 of 1%. For purposes hereof: "Prime Rate"
shall mean the rate of interest per annum publicly announced from
time to time by Citibank N.A. as its prime or base rate in effect at
its principal office in New York City (the Prime Rate not being
intended to be the lowest rate of interest charged by Citibank N.A.
in connection with extensions of credit to debtors); "Base CD Rate"
shall mean the sum of (a) the product of (i) the Three-Month
Secondary CD Rate and (ii) a fraction, the numerator of which is one
and the denominator of which is one minus the C/D Reserve Percentage
and (b) the C/D Assessment Rate; and "Three-Month Secondary CD Rate"
shall mean, for any day, the secondary market rate for three-month
certificates of deposit reported as being in effect on such day (or,
if such day shall not be a Business Day, the next preceding Business
Day) by the Board through the public information telephone line of
the Federal Reserve Bank of New York (which rate will, under the
current practices of the Board, be published in Federal Reserve
Statistical Release H.15(519) during the week following such day),
or, if such rate shall not be so reported on such day or such next
preceding Business Day, the average of the secondary market
quotations for three-month certificates of deposit of major money
center banks in New York City received at approximately 10:00 A.M.,
New York City time, on such day (or, if such day shall not be a
Business Day, on the next preceding Business Day) by Citibank N.A.
from three New York City negotiable certificate of deposit dealers of
recognized standing selected by it. Any change in the Base Rate due
to a change in the Prime Rate, the Three-Month Secondary CD Rate or
the Federal Funds Effective Rate shall be effective as of the opening
of business on the effective day of such change in the Prime Rate,
the Three-Month Secondary CD Rate or the Federal Funds Effective
Rate, respectively.
"Base Rate Loans": Loans the rate of interest applicable to
which is based upon the Base Rate.
"Benefitted Lender": as defined in Section 12.7.
"Board": the Board of Governors of the Federal Reserve System
of the United States (or any successor).
"Borrowing Date": any Business Day specified by the Borrower
as a date on which the Borrower requests the relevant Lenders to make
Loans hereunder.
"Budget": the monthly budget of the Borrower in the form of
Exhibit I.
"Business": as defined in Section 5.17(b)
"Business Day": (i) for all purposes other than as covered
by clause (ii) below, a day other than a Saturday, Sunday or other
day on which commercial banks in New York
<PAGE>
5
City are authorized or required by law to close and (ii) with respect
to all notices and determinations in connection with, and payments of
principal and interest on, Eurodollar Loans, any day which is a
Business Day described in clause (i) and which is also a day for
trading by and between banks in Dollar deposits in the interbank
eurodollar market.
"Capital Expenditures": for any period, with respect to any
Person, the aggregate of all expenditures by such Person and its
Subsidiaries for the acquisition or leasing (pursuant to a capital
lease) of fixed or capital assets or additions to equipment
(including replacements, capitalized repairs and improvements during
such period) which should be capitalized under GAAP on a consolidated
balance sheet of such Person and its Subsidiaries.
"Capital Lease Obligations": as to any Person, the
obligations of such Person to pay rent or other amounts under any
lease of (or other arrangement conveying the right to use) real or
personal property, or a combination thereof, which obligations are
required to be classified and accounted for as capital leases on a
balance sheet of such Person under GAAP, and, for the purposes of
this Agreement, the amount of such obligations at any time shall be
the capitalized amount thereof at such time determined in accordance
with GAAP.
"Capital Stock": any and all shares, interests,
participations or other equivalents (however designated) of capital
stock of a corporation, any and all equivalent ownership interests in
a Person (other than a corporation) and any and all warrants, rights
or options to purchase any of the foregoing.
"Carve-Out": as defined in Section 4.1.
"Case": as defined in the Recitals.
"Cash Collateral": the meaning set forth in Section 363(a) of
the Bankruptcy Code.
"Cash Equivalents": (a) marketable direct obligations issued
by, or unconditionally guaranteed by, the United States Government or
issued by any agency thereof and backed by the full faith and credit
of the United States, in each case maturing within one year from the
date of acquisition; (b) certificates of deposit, time deposits,
eurodollar time deposits or overnight bank deposits having maturities
of one year or less from the date of acquisition issued by any Lender
or by any commercial bank organized under the laws of the United
States of America or any state thereof having combined capital and
surplus of not less than $500,000,000; (c) commercial paper of an
issuer rated at least A-2 by Standard & Poor's Ratings Services
("S&P") or P-2 by Moody's Investors Service, Inc. ("Moody's"), or
carrying an equivalent rating by a nationally recognized rating
agency, if both of the two named rating agencies cease publishing
ratings of commercial paper issuers generally, and maturing within
six months from the date of acquisition; (d) repurchase obligations
of any Lender or of any commercial bank satisfying the requirements
of clause (b) of this definition, having a term of not more than 30
days with respect to securities issued or fully guaranteed or insured
by the United States government; (e) securities with maturities of
one year or less from the date of
<PAGE>
6
acquisition issued or fully guaranteed by any state, commonwealth or
territory of the United States, by any political subdivision or taxing
authority of any such state, commonwealth or territory or by any
foreign government, the securities of which state, commonwealth,
territory, political subdivision, taxing authority or foreign
government (as the case may be) are rated at least A by S&P or A by
Moody's; (f) securities with maturities of six months or less from the
date of acquisition backed by standby letters of credit issued by any
Lender or any commercial bank satisfying the requirements of clause
(b) of this definition; or (g) shares of money market mutual or
similar funds which invest exclusively in assets satisfying the
requirements of clauses (a) through (f) of this definition.
"C/D Assessment Rate": for any day as applied to any Base
Rate Loan, the annual assessment rate in effect on such day which is
payable by a member of the Bank Insurance Fund maintained by the
Federal Deposit Insurance Corporation (the "FDIC") classified as
well-capitalized and within supervisory subgroup "B" (or a comparable
successor assessment risk classification) within the meaning of 12
C.F.R. ? 327.4 (or any successor provision) to the FDIC (or any
successor) for the FDIC's (or such successor's) insuring time
deposits at offices of such institution in the United States.
"C/D Reserve Percentage": for any day as applied to any Base
Rate Loan, that percentage (expressed as a decimal) which is in
effect on such day, as prescribed by the Board, for determining the
maximum reserve requirement for a Depositary Institution (as defined
in Regulation D of the Board as in effect from time to time) in
respect of new non-personal time deposits in Dollars having a
maturity of 30 days or more.
"Closing Date": the date on which the conditions precedent
set forth in Section 6.1 shall have been satisfied.
"Code": the Internal Revenue Code of 1986, as amended from
time to time.
"Collateral": all Property of the Loan Parties, now owned or
hereafter acquired, upon which a Lien is purported to be created by
the Final Order or any Security Document.
"Commonly Controlled Entity": an entity, whether or not
incorporated, which is under common control with the Borrower within
the meaning of Section 4001 of ERISA or is part of a group which
includes the Borrower and which is treated as a single employer under
Section 414 of the Code.
"Compliance Certificate": a certificate duly executed by a
Responsible Officer substantially in the form of Exhibit C.
"Confidential Information Memorandum": the Confidential
Information Memorandum dated June 1998 and furnished to the Lenders.
"Confirmation Order": an order of the Bankruptcy Court
confirming a Plan of Reorganization in the Case.
<PAGE>
7
"Consolidated Current Assets": at any date, all amounts
(other than cash and Cash Equivalents) which would, in conformity
with GAAP, be set forth opposite the caption "total current assets"
(or any like caption) on a consolidated balance sheet of the Borrower
and its Subsidiaries at such date.
"Consolidated Current Liabilities": at any date, all amounts
which would, in conformity with GAAP, be set forth opposite the
caption "total current liabilities" (or any like caption) on a
consolidated balance sheet of the Borrower and its Subsidiaries at
such date, but excluding (a) the current portion of any Funded Debt
of the Borrower and its Subsidiaries and (b) without duplication of
clause (a) above, all Indebtedness consisting of Revolving Credit
Loans or Swing Line Loans to the extent otherwise included therein.
"Consolidated EBITDA": for any period, Consolidated Net
Income for such period plus, without duplication and to the extent
reflected as a charge in the statement of such Consolidated Net
Income for such period, the sum of (a) income tax expense, (b)
interest expense, amortization or writeoff of debt discount and debt
issuance costs and commissions, discounts and other fees and charges
associated with Indebtedness (including the Loans), (c) depreciation
and amortization expense, (d) amortization of intangibles (including,
but not limited to, goodwill) and organization costs, (e) any
extraordinary, unusual or non-recurring expenses or losses
(including, whether or not otherwise includable as a separate item in
the statement of such Consolidated Net Income for such period, losses
on sales of assets outside of the ordinary course of business), (f)
Chapter 11 expenses or administrative costs reflecting Chapter 11
expenses and (g) any other non-cash charges, and minus, to the extent
included in the statement of such Consolidated Net Income for such
period, the sum of (a) interest income, (b) any extraordinary,
unusual or non-recurring income or gains (including, whether or not
otherwise includable as a separate item in the statement of such
Consolidated Net Income for such period, gains on the sales of assets
outside of the ordinary course of business; it being understood that
the foregoing excludes up to $3,000,000 per fiscal year derived from
recurring asset sales) and (c) any other non-cash income, all as
determined on a consolidated basis.
"Consolidated Interest Coverage Ratio": for any period, the
ratio of (a) Consolidated EBITDA for such period to (b) Consolidated
Interest Expense for such period.
"Consolidated Interest Expense": for any period, total
interest expense (including that attributable to Capital Lease
Obligations but excluding amortization of deferred financing costs)
of the Borrower and its Subsidiaries for such period with respect to
all outstanding Indebtedness of the Borrower and its Subsidiaries
(including, without limitation, all commissions, discounts and other
fees and charges owed with respect to letters of credit and bankers'
acceptance financing and net costs under Hedge Agreements in respect
of interest rates to the extent such net costs are allocable to such
period in accordance with GAAP).
"Consolidated Leverage Ratio": as at the last day of any
period of four consecutive fiscal quarters, the ratio of (a)
Consolidated Total Debt on such day to (b) Consolidated EBITDA for
such period; provided that for purposes of calculating
<PAGE>
8
Consolidated EBITDA of the Borrower and its Subsidiaries for any
period, the Consolidated EBITDA of any Person acquired by the Borrower
or its Subsidiaries during such period shall be included on a pro
forma basis for such period (assuming the consummation of such
acquisition and the incurrence or assumption of any Indebtedness in
connection therewith occurred on the first day of such period) if the
consolidated balance sheet of such acquired Person and its
consolidated Subsidiaries as at the end of the period preceding the
acquisition of such Person and the related consolidated statements of
income and stockholders' equity and of cash flows for the period in
respect of which Consolidated EBITDA is to be calculated (i) have been
previously provided to the Agents and the Lenders and (ii) either (A)
have been reported on without a qualification arising out of the scope
of the audit by independent certified public accountants of nationally
recognized standing or (B) have been found reasonably acceptable by
the Agents.
"Consolidated Net Income": for any period, the consolidated
net income (or loss) of the Borrower and its Subsidiaries, determined
on a consolidated basis in accordance with GAAP; provided that there
shall be excluded (a) the income (or deficit) of any Person accrued
prior to the date it becomes a Subsidiary of the Borrower or is
merged into or consolidated with the Borrower or any of its
Subsidiaries, (b) the income (or deficit) of any Person (other than a
Subsidiary of the Borrower) in which the Borrower or any of its
Subsidiaries has an ownership interest, except to the extent that any
such income is actually received by the Borrower or such Subsidiary
in the form of dividends or similar distributions and (c) the
undistributed earnings of any Subsidiary of the Borrower to the
extent that the declaration or payment of dividends or similar
distributions by such Subsidiary is not at the time permitted by the
terms of any Contractual Obligation (other than under any Loan
Document) or Requirement of Law applicable to such Subsidiary.
"Consolidated Net Working Capital": at any date, the excess
of Consolidated Current Assets on such date over Consolidated Current
Liabilities on such date.
"Consolidated Total Debt": at any date, the aggregate
principal amount of all Funded Debt of the Borrower and its
Subsidiaries at such date, determined on a consolidated basis in
accordance with GAAP.
"Contractual Obligation": as to any Person, any provision of
any security issued by such Person or of any agreement, instrument or
other undertaking to which such Person is a party or by which it or
any of its Property is bound.
"Default": any of the events specified in Section 9, whether
or not any requirement for the giving of notice, the lapse of time, or
both, has been satisfied.
"Disposition": with respect to any Property, any sale, lease,
sale and leaseback, assignment, conveyance, transfer or other
disposition thereof; the terms "Dispose" and "Disposed of" shall have
correlative meanings.
"Dollars" and "$": dollars in lawful currency of the United
States of America.
<PAGE>
9
"Domestic Subsidiary": any Subsidiary of the Borrower
organized under the laws of any jurisdiction within the United States
of America.
"Environmental Laws": any and all foreign, Federal, state,
local or municipal laws, rules, orders, regulations, statutes,
ordinances, codes, decrees, requirements of any Governmental
Authority or other Requirements of Law (including common law)
regulating, relating to or imposing liability or standards of conduct
concerning protection of human health or the environment, as now or
may at any time hereafter be in effect.
"ERISA": the Employee Retirement Income Security Act of 1974,
as amended from time to time.
"Eurocurrency Reserve Requirements": for any day as applied
to a Eurodollar Loan, the aggregate (without duplication) of the
maximum rates (expressed as a decimal fraction) of reserve
requirements in effect on such day (including, without limitation,
basic, supplemental, marginal and emergency reserves under any
regulations of the Board or other Governmental Authority having
jurisdiction with respect thereto) dealing with reserve requirements
prescribed for eurocurrency funding (currently referred to as
"Eurocurrency Liabilities" in Regulation D of the Board) maintained
by a member bank of the Federal Reserve System.
"Eurodollar Base Rate": with respect to each day during each
Interest Period pertaining to a Eurodollar Loan, the rate per annum
determined on the basis of the rate for deposits in Dollars for a
period equal to such Interest Period commencing on the first day of
such Interest Period appearing on Page 3750 of the Dow Jones Markets
screen as of 11:00 A.M., London time, two Business Days prior to the
beginning of such Interest Period. In the event that such rate does
not appear on Page 3750 of the Dow Jones Markets screen (or otherwise
on such screen), the "Eurodollar Base Rate" for purposes of this
definition shall be determined by reference to such other comparable
publicly available service for displaying eurodollar rates as may be
selected by the Administrative Agent or, in the absence of such
availability, by reference to the rate at which the Administrative
Agent is offered Dollar deposits at or about 11:00 A.M., New York
City time, two Business Days prior to the beginning of such Interest
Period in the interbank eurodollar market where its eurodollar and
foreign currency and exchange operations are then being conducted for
delivery on the first day of such Interest Period for the number of
days comprised therein.
"Eurodollar Loans": Loans the rate of interest applicable to
which is based upon the Eurodollar Rate.
"Eurodollar Rate": with respect to each day during each
Interest Period pertaining to a Eurodollar Loan, a rate per annum
determined for such day in accordance with the following formula
(rounded upward to the nearest 1/100th of 1%):
Eurodollar Base Rate
----------------------------------
1.00 - Eurocurrency Reserve Requirements
"Eurodollar Tranche": the collective reference to Eurodollar
Loans the then
<PAGE>
10
current Interest Periods with respect to all of which begin on the
same date and end on the same later date (whether or not such Loans
shall originally have been made on the same day).
"Event of Default": any of the events specified in Section 9,
provided that any requirement for the giving of notice, the lapse of
time, or both, has been satisfied.
"Excluded Foreign Subsidiaries": any Foreign Subsidiary in
respect of which either (i) the pledge of all of the Capital Stock of
such Subsidiary as Collateral or (ii) the guaranteeing by such
Subsidiary of the Obligations, would, in the good faith judgment of
the Borrower, result in adverse tax consequences to the Borrower.
"Federal Funds Effective Rate": for any day, the weighted
average of the rates on overnight federal funds transactions with
members of the Federal Reserve System arranged by federal funds
brokers, as published on the next succeeding Business Day by the
Federal Reserve Bank of New York, or, if such rate is not so
published for any day which is a Business Day, the average of the
quotations for the day of such transactions received by Citibank N.A.
from three federal funds brokers of recognized standing selected by
it.
"Final Order": an order of the Bankruptcy Court entered in
the Case after a final hearing under Bankruptcy Rule 4001(c)(2)
granting final approval of this Agreement and the other Loan
Documents and granting the Liens and Super-Priority Claims in favor
of the Administrative Agent for the benefit of the Agents and the
Lenders, substantially in the form of Exhibit B, and otherwise in
form and substance reasonably satisfactory to the Agents.
"Foreign Subsidiary": any Subsidiary of the Borrower that is
not a Domestic Subsidiary.
"Funded Debt": as to any Person, all Indebtedness of such
Person that matures more than one year from the date of its creation
or matures within one year from such date but is renewable or
extendible, at the option of such Person, to a date more than one
year from such date or arises under a revolving credit or similar
agreement that obligates the lender or lenders to extend credit
during a period of more than one year from such date, including,
without limitation, all current maturities and current sinking fund
payments in respect of such Indebtedness whether or not required to
be paid within one year from the date of its creation and, in the
case of the Borrower, Indebtedness in respect of the Loans.
"Funding Office": the office specified from time to time by
the Administrative Agent as its funding office by notice to the
Borrower and the Lenders.
"GAAP": generally accepted accounting principles in the
United States of America as in effect from time to time, except that
for purposes of Section 8.1, GAAP shall be determined on the basis of
such principles in effect on the date hereof and consistent with
those used in the preparation of the most recent audited financial
statements delivered pursuant to Section 5.1(b). In the event that
any "Accounting
<PAGE>
11
Change" (as defined below) shall occur and such change results in a
change in the method of calculation of financial covenants, standards
or terms in this Agreement, then the Borrower and the Agents agree to
enter into negotiations in order to amend such provisions of this
Agreement so as to equitably reflect such Accounting Changes with the
desired result that the criteria for evaluating the Borrower's
financial condition shall be the same after such Accounting Changes as
if such Accounting Changes had not been made. Until such time as such
an amendment shall have been executed and delivered by the Borrower,
the Agents and the Required Lenders, all financial covenants,
standards and terms in this Agreement shall continue to be calculated
or construed as if such Accounting Changes had not occurred.
"Accounting Changes" refers to changes in accounting principles
required by the promulgation of any rule, regulation, pronouncement or
opinion by the Financial Accounting Standards Board of the American
Institute of Certified Public Accountants or, if applicable, the
Securities and Exchange Commission (or successors thereto or agencies
with similar functions).
"Governmental Authority": any nation or government, any state
or other political subdivision thereof and any entity exercising
executive, legislative, judicial, regulatory or administrative
functions of or pertaining to government (including, without
limitation, the National Association of Insurance Commissioners).
"Guarantee and Collateral Agreement": the Guarantee and
Collateral Agreement to be executed and delivered by each Subsidiary
Guarantor, substantially in the form of Exhibit A, as the same may be
amended, supplemented or otherwise modified from time to time.
"Guarantee Obligation": as to any Person (the "guaranteeing
person"), any obligation of (a) the guaranteeing person or (b)
another Person (including, without limitation, any bank under any
letter of credit) to induce the creation of which the guaranteeing
person has issued a reimbursement, counterindemnity or similar
obligation, in either case guaranteeing or in effect guaranteeing any
Indebtedness, leases, dividends or other obligations (the "primary
obligations") of any other third Person (the "primary obligor") in
any manner, whether directly or indirectly, including, without
limitation, any obligation of the guaranteeing person, whether or not
contingent, (i) to purchase any such primary obligation or any
Property constituting direct or indirect security therefor, (ii) to
advance or supply funds (1) for the purchase or payment of any such
primary obligation or (2) to maintain working capital or equity
capital of the primary obligor or otherwise to maintain the net worth
or solvency of the primary obligor, (iii) to purchase Property,
securities or services primarily for the purpose of assuring the
owner of any such primary obligation of the ability of the primary
obligor to make payment of such primary obligation or (iv) otherwise
to assure or hold harmless the owner of any such primary obligation
against loss in respect thereof; provided, however, that the term
Guarantee Obligation shall not include endorsements of instruments
for deposit or collection in the ordinary course of business. The
amount of any Guarantee Obligation of any guaranteeing person shall
be deemed to be the lower of (a) an amount equal to the stated or
determinable amount of the primary obligation in respect of which
such Guarantee Obligation is made and (b) the maximum amount for
which such guaranteeing person may be liable pursuant to the terms of
the instrument embodying such Guarantee Obligation, unless such
primary obligation and the maximum amount for which such
<PAGE>
12
guaranteeing person may be liable are not stated or determinable, in
which case the amount of such Guarantee Obligation shall be such
guaranteeing person's maximum reasonably anticipated liability in
respect thereof as determined by the Borrower in good faith.
"Hedge Agreements": all interest rate swaps, caps or collar
agreements or similar arrangements entered into by the Borrower
providing for protection against fluctuations in interest rates or
currency exchange rates or the exchange of nominal interest
obligations, either generally or under specific contingencies.
"Indebtedness": of any Person at any date, without
duplication, (a) all indebtedness of such Person for borrowed money,
(b) all obligations of such Person for the deferred purchase price of
Property or services (other than current trade payables incurred in
the ordinary course of such Person's business), (c) all obligations
of such Person evidenced by notes, bonds, debentures or other similar
instruments, (d) all indebtedness created or arising under any
conditional sale or other title retention agreement with respect to
Property acquired by such Person (even though the rights and remedies
of the seller or lender under such agreement in the event of default
are limited to repossession or sale of such Property), (e) all
Capital Lease Obligations of such Person, (f) all obligations of such
Person, contingent or otherwise, as an account party under
acceptance, letter of credit or similar facilities, (g) all
obligations of such Person, contingent or otherwise, to purchase,
redeem, retire or otherwise acquire for value any Capital Stock of
such Person, (h) all Guarantee Obligations of such Person in respect
of obligations of the kind referred to in clauses (a) through (g)
above; (i) all obligations of the kind referred to in clauses (a)
through (h) above secured by (or for which the holder of such
obligation has an existing right, contingent or otherwise, to be
secured by) any Lien on Property (including, without limitation,
accounts and contract rights) owned by such Person, whether or not
such Person has assumed or become liable for the payment of such
obligation, (j) for the purposes of Section 8(e) only, all
obligations of such Person in respect of Hedge Agreements and (k) the
liquidation value of any mandatorily redeemable preferred Capital
Stock of such Person or its Subsidiaries held by any Person other
than such Person and its Wholly Owned Subsidiaries.
"Indemnified Liabilities": as defined in Section 12.5.
"Indemnitee": as defined in Section 12.5.
"Insolvency": with respect to any Multiemployer Plan, the
condition that such Plan is insolvent within the meaning of Section
4245 of ERISA.
"Insolvent": pertaining to a condition of Insolvency.
"Intellectual Property": the collective reference to all
rights, priorities and privileges relating to intellectual property,
whether arising under United States, multinational or foreign laws or
otherwise, including, without limitation, copyrights, copyright
licenses, patents, patent licenses, trademarks, trademark licenses,
technology, know-how and processes, and all rights to sue at law or
in equity for any infringement or other impairment thereof, including
the right to receive all proceeds and damages
<PAGE>
13
therefrom.
"Interest Payment Date": (a) as to any Base Rate Loan, the
last day of each month to occur while such Loan is outstanding and
the final maturity date of such Loan, (b) as to any Eurodollar Loan,
the last day of such Interest Period, and (c) as to any Loan (other
than any Revolving Credit Loan that is a Base Rate Loan and any Swing
Line Loan), the date of any repayment or prepayment made in respect
thereof.
"Interest Period": as to any Eurodollar Loan, (a) initially,
the period commencing on the borrowing or conversion date, as the
case may be, with respect to such Eurodollar Loan and ending one
week, two weeks, three weeks or one month thereafter, as selected by
the Borrower in its notice of borrowing or notice of conversion, as
the case may be, given with respect thereto; and (b) thereafter, each
period commencing on the last day of the next preceding Interest
Period applicable to such Eurodollar Loan and ending one week, two
weeks, three weeks or one month thereafter, as selected by the
Borrower by irrevocable notice to the Administrative Agent not less
than three Business Days prior to the last day of the then current
Interest Period with respect thereto; provided that, all of the
foregoing provisions relating to Interest Periods are subject to the
following:
(i) if any Interest Period would otherwise end
on a day that is not a Business Day, such Interest Period
shall be extended to the next succeeding Business Day unless
the result of such extension would be to carry such Interest
Period into another calendar month in which event such
Interest Period shall end on the immediately preceding
Business Day;
(ii) any Interest Period that would otherwise
extend beyond the Termination Date shall end on the
Termination Date or such due date, as applicable;
(iii) any Interest Period that begins on the last
Business Day of a calendar month (or on a day for which
there is no numerically corresponding day in the calendar
month at the end of such Interest Period) shall end on the
last Business Day of a calendar month; and
(iv) the Borrower shall select Interest Periods
so as not to require a payment or prepayment of any
Eurodollar Loan during an Interest Period for such Loan.
"Investments": as defined in Section 8.8.
"Issuing Lender": Swiss Bank Corporation, in its capacity as
issuer of any Letter of Credit.
"L/C Cash Collateral Account": the account established by
the Borrower under the sole and exclusive control of the
Administrative Agent maintained at the office of the Administrative
Agent designated as "The Grand Union Company, Debtor-in-Possession
L/C Cash Collateral Account" or other similar title which shall be
used solely for the purposes set forth in Sections 3.1(b) and 4.2.
<PAGE>
14
"L/C Commitment": $50,000,000.
"L/C Fee Payment Date": the last day of each month to occur
while Letters of Credit are outstanding and the Termination Date.
"L/C Obligations": at any time, an amount equal to the sum
of (a) the aggregate then undrawn and unexpired amount of the then
outstanding Letters of Credit and (b) the aggregate amount of
drawings under Letters of Credit which have not then been reimbursed
pursuant to Section 3.5.
"L/C Participants": the collective reference to all the
Lenders other than the Issuing Lender.
"Letters of Credit": as defined in Section 3.1(a).
"Lien": any mortgage, pledge, hypothecation, assignment,
deposit arrangement, encumbrance, lien (statutory or other), charge
or other security interest or any preference, priority or other
security agreement or preferential arrangement of any kind or nature
whatsoever (including, without limitation, any conditional sale or
other title retention agreement and any capital lease having
substantially the same economic effect as any of the foregoing).
"Loan": any loan made by any Lender pursuant to this
Agreement.
"Loan Documents": this Agreement, the Security Documents and
the Notes.
"Loan Parties": the Borrower and each Subsidiary Guarantor.
"Material Adverse Effect": a material adverse effect on (a)
the business, assets, property, condition (financial or otherwise) of
the Borrower and its Subsidiaries taken as a whole or (b) the
validity or enforceability of this Agreement or any of the other Loan
Documents or the rights or remedies of the Agents or the Lenders
hereunder or thereunder, in each case, other than such effects as
result solely from the commencement of the Case.
"Material Environmental Amount": an amount payable by the
Borrower and/or its Subsidiaries in excess of $5,000,000 for remedial
costs, compliance costs, compensatory damages, punitive damages,
fines, penalties or any combination thereof.
"Materials of Environmental Concern": any gasoline or
petroleum (including crude oil or any fraction thereof) or petroleum
products or any hazardous or toxic substances, materials or wastes,
defined or regulated as such in or under any Environmental Law,
including, without limitation, asbestos, polychlorinated biphenyls
and urea-formaldehyde insulation.
"Maturity Date": October 22, 1998.
<PAGE>
15
"Multiemployer Plan": a Plan which is a multiemployer plan as
defined in Section 4001(a)(3) of ERISA.
"New Lending Office": as defined in Section 2.17(d).
"Non-Excluded Taxes": as defined in Section 2.17(a).
"Non-U.S. Lender": as defined in Section 2.17(d).
"Notes": the collective reference to any promissory note
evidencing Loans.
"Obligations": the unpaid principal of and interest on
(including, without limitation, interest accruing after the maturity
of the Loans and Reimbursement Obligations and interest accruing
after the filing of any petition in bankruptcy, or the commencement
of any insolvency, reorganization or like proceeding, relating to the
Borrower, whether or not a claim for post-filing or post-petition
interest is allowed in such proceeding) the Loans and all other
obligations and liabilities of the Borrower to the Agents or to any
Lender (or, in the case of Hedge Agreements, any affiliate of any
Lender), whether direct or indirect, absolute or contingent, due or
to become due, or now existing or hereafter incurred, which may arise
under, out of, or in connection with, this Agreement, any other Loan
Document, the Letters of Credit, any Hedge Agreement entered into
with any Lender or any affiliate of any Lender or any other document
made, delivered or given in connection herewith or therewith, whether
on account of principal, interest, reimbursement obligations, fees,
indemnities, costs, expenses (including, without limitation, all
fees, charges and disbursements of counsel to the Agents or to any
Lender that are required to be paid by the Borrower pursuant hereto)
or otherwise.
"Other Taxes": any and all present or future stamp or
documentary taxes or any other excise or property taxes, charges or
similar levies arising from any payment made hereunder or from the
execution, delivery or enforcement of, or otherwise with respect to,
this Agreement or any other Loan Document.
"Participant": as defined in Section 12.6(b).
"Payment Office": the office specified from time to time by
the Administrative Agent as its payment office by notice to the
Borrower and the Lenders.
"PBGC": the Pension Benefit Guaranty Corporation established
pursuant to Subtitle A of Title IV of ERISA (or any successor).
"Permitted Liens": Liens permitted to exist under Section 8.3.
"Person": an individual, partnership, corporation, limited
liability company, business trust, joint stock company, trust,
unincorporated association, joint venture, Governmental Authority or
other entity of whatever nature.
"Petition Date": as defined in the Recitals.
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"Plan": at a particular time, any employee benefit plan
which is covered by ERISA and in respect of which the Borrower or a
Commonly Controlled Entity is (or, if such plan were terminated at
such time, would under Section 4069 of ERISA be deemed to be) an
"employer" as defined in Section 3(5) of ERISA.
"Plan of Reorganization": as defined in the Recitals.
"Prepetition Agent": Bankers Trust Company in its capacity as
agent for the Prepetition Lenders under the Prepetition Credit
Agreement.
"Prepetition Credit Agreement": the Amended and Restated
Credit Agreement, dated as of June 15, 1995, among the Borrower, the
Prepetition Lenders, and the Prepetition Agent, as amended,
supplemented or otherwise modified prior to the Petition Date.
"Prepetition Collateral": all Property securing the
Prepetition Obligations.
"Prepetition Lenders": collectively, the several banks,
financial institutions and other entities from time to time parties to
the Prepetition Credit Agreement.
"Prepetition Obligations": the aggregate outstanding
principal amount of the loans and other financial accommodations made
(including letters of credit outstanding as of the Petition Date)
under or pursuant to the Prepetition Credit Agreement, and all
accrued but unpaid interest and fees, costs and other charges payable
to the Prepetition Agent or the Prepetition Lenders under or pursuant
to the Prepetition Credit Agreement.
"Prepetition Supplemental Term Loans": Supplemental Term
Loans, as defined in the Prepetition Credit Agreement.
"Pro Forma Balance Sheet": as defined in Section 5.1(a).
"Projections": as defined in Section 7.2(c).
"Properties": as defined in Section 5.17(a).
"Property": any right or interest in or to property of any
kind whatsoever, whether real, personal or mixed and whether tangible
or intangible, including, without limitation, Capital Stock.
"Refunded Swing Line Loans": as defined in Section 2.4(b).
"Refunding Date": as defined in Section 2.4(c).
"Register": as defined in Section 12.6(d).
"Regulation U": Regulation U of the Board as in effect from
time to time.
"Reimbursement Obligation": the obligation of the Borrower to
reimburse the
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17
Issuing Lender pursuant to Section 3.5 for amounts drawn under Letters
of Credit.
"Reorganization": with respect to any Multiemployer Plan, the
condition that such plan is in reorganization within the meaning of
Section 4241 of ERISA.
"Reportable Event": any of the events set forth in Section
4043(b) of ERISA, other than those events as to which the thirty day
notice period is waived under subsections .27, .28, .29, .30, .31,
.32, .34 or .35 of PBGC Reg. ss. 4043.
"Required Lenders": at any time, the holders of more than
50% of (a) until the Closing Date, the Revolving Credit Commitments
and (b) thereafter, the Total Revolving Credit Commitments then in
effect or, if the Revolving Credit Commitments have been terminated,
the Total Revolving Extensions of Credit then outstanding.
"Requirement of Law": as to any Person, the Certificate of
Incorporation and By-Laws or other organizational or governing
documents of such Person, and any law, treaty, rule or regulation or
determination of an arbitrator or a court or other Governmental
Authority, in each case applicable to or binding upon such Person or
any of its Property or to which such Person or any of its Property is
subject.
"Responsible Officer": the chief executive officer,
president, chief administrative officer or chief financial officer of
the Borrower, but in any event, with respect to financial matters, the
chief financial officer, the treasurer and controller of the Borrower.
"Restricted Payments": as defined in Section 8.6.
"Revolving Credit Commitment": as to any Lender, the
obligation of such Lender to make Revolving Credit Loans and
participate in Swing Line Loans and Letters of Credit, in an aggregate
principal and/or face amount not to exceed the amount set forth under
the heading "Revolving Credit Commitment" opposite such Lender's name
on Schedule 1.1, as the same may be changed from time to time pursuant
to the terms hereof. The original amount of the Total Revolving Credit
Commitments is $172,022,020.
"Revolving Credit Commitment Fee Rate": 1/2 of 1% per annum.
"Revolving Credit Commitment Period": the period from and
including the Closing Date to the Termination Date.
"Revolving Credit Loans": as defined in Section 2.1.
"Revolving Credit Percentage": as to any Lender at any time,
the percentage which such Lender's Revolving Credit Commitment then
constitutes of the Total Revolving Credit Commitments (or, at any
time after the Revolving Credit Commitments shall have expired or
terminated, the percentage which the aggregate principal amount of
such Lender's Revolving Credit Loans then outstanding constitutes of
the aggregate principal amount of the Revolving Credit Loans then
outstanding).
"Revolving Extensions of Credit": as to any Lender at any
time, an amount equal
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to the sum of (a) the aggregate principal amount of all Revolving
Credit Loans made by such Lender then outstanding, (b) such Lender's
Revolving Credit Percentage of the L/C Obligations then outstanding
and (c) such Lender's Revolving Credit Percentage of the aggregate
principal amount of Swing Line Loans then outstanding.
"Security Documents": the collective reference to the
Guarantee and Collateral Agreement, this Agreement and all other
security documents hereafter delivered to the Administrative Agent
granting a Lien on any Property of any Person to secure the
obligations and liabilities of any Loan Party under any Loan Document.
"Single Employer Plan": any Plan which is covered by Title IV
of ERISA, but which is not a Multiemployer Plan.
"Steering Committee": the unofficial committee of holders of
the Debtor's 12% Senior Notes due September 1, 2004.
"Subsidiary": as to any Person, a corporation, partnership,
limited liability company or other entity of which shares of stock or
other ownership interests having ordinary voting power (other than
stock or such other ownership interests having such power only by
reason of the happening of a contingency) to elect a majority of the
board of directors or other managers of such corporation, partnership
or other entity are at the time owned, or the management of which is
otherwise controlled, directly or indirectly through one or more
intermediaries, or both, by such Person. Unless otherwise qualified,
all references to a "Subsidiary" or to "Subsidiaries" in this
Agreement shall refer to a Subsidiary or Subsidiaries of the
Borrower.
"Subsidiary Guarantor": each Subsidiary of the Borrower other
than any Excluded Foreign Subsidiary.
"Super-Priority Claim": a claim against the Borrower and in
the Case which is an administrative expense claim having priority over
any or all administrative expenses of the kind specified in Sections
503(b) or 507(b) of the Bankruptcy Code.
"Swing Line Commitment": the obligation of the Swing Line
Lender to make Swing Line Loans pursuant to Section 2.3 in an
aggregate principal amount at any one time outstanding not to exceed
$10,000,000.
"Swing Line Lender": Lehman Commercial Paper Inc., in its
capacity as the lender of Swing Line Loans.
"Swing Line Loans": as defined in Section 2.3.
"Swing Line Participation Amount": as defined in Section 2.4.
"Termination Date": the earliest to occur of (i) the Maturity
Date, (ii) the effective date of a Plan of Reorganization confirmed by
the Bankruptcy Court pursuant to the Confirmation Order, or (iii) the
termination of the Total Revolving Credit Commitment in accordance
with the terms hereof.
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"Total Revolving Credit Commitments": at any time, the
aggregate amount of the Revolving Credit Commitments then in effect.
"Total Revolving Extensions of Credit": at any time, the
aggregate amount of the Revolving Extensions of Credit of the Lenders
outstanding at such time.
"Transferee": as defined in Section 12.15.
"Type": as to any Loan, its nature as a Base Rate Loan or a
Eurodollar Loan.
"Uniform Customs": the Uniform Customs and Practice for
Documentary Credits (1993 Revision), International Chamber of Commerce
Publication No. 500, as the same may be amended from time to time.
"Wholly Owned Subsidiary": as to any Person, any other Person
all of the Capital Stock of which (other than directors' qualifying
shares required by law) is owned by such Person directly and/or
through other Wholly Owned Subsidiaries.
"Wholly Owned Subsidiary Guarantor": any Subsidiary Guarantor
that is a Wholly Owned Subsidiary of the Borrower.
1.2 Other Definitional Provisions. (a) Unless otherwise
specified therein, all terms defined in this Agreement shall have the defined
meanings when used in the other Loan Documents or any certificate or other
document made or delivered pursuant hereto or thereto.
(b) As used herein and in the other Loan Documents, and any
certificate or other document made or delivered pursuant hereto or thereto,
accounting terms relating to the Borrower and its Subsidiaries not defined in
Section 1.1 and accounting terms partly defined in Section 1.1, to the extent
not defined, shall have the respective meanings given to them under GAAP.
(c) The words "hereof", "herein" and "hereunder" and words
of similar import when used in this Agreement shall refer to this Agreement as
a whole and not to any particular provision of this Agreement, and Section,
Schedule and Exhibit references are to this Agreement unless otherwise
specified.
(d) The meanings given to terms defined herein shall be
equally applicable to both the singular and plural forms of such terms.
SECTION 2. AMOUNT AND TERMS OF REVOLVING CREDIT COMMITMENTS
2.1 Revolving Credit Commitments. (a) Subject to the terms
and conditions hereof, each Lender severally agrees to make revolving credit
loans ("Revolving Credit Loans") to the Borrower from time to time during the
Revolving Credit Commitment Period in an aggregate principal amount at any one
time outstanding which, when added to such Lender's Revolving Credit
Percentage of the sum of (i) the L/C Obligations then outstanding and (ii) the
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20
aggregate principal amount of the Swing Line Loans then outstanding, does not
exceed the amount of such Lender's Revolving Credit Commitment then in effect.
During the Revolving Credit Commitment Period the Borrower may use the
Revolving Credit Commitments by borrowing, prepaying the Revolving Credit
Loans in whole or in part, and reborrowing, all in accordance with the terms
and conditions hereof. The Revolving Credit Loans may from time to time be
Eurodollar Loans or Base Rate Loans, as determined by the Borrower and
notified to the Administrative Agent in accordance with Sections 2.2 and 2.10,
provided that no Revolving Credit Loan shall be made as a Eurodollar Loan
after the day that is one week prior to the Termination Date.
(b) The Borrower shall repay all outstanding Revolving
Credit Loans on the Termination Date.
2.2 Procedure for Revolving Credit Borrowing. The Borrower
may borrow under the Revolving Credit Commitments during the Revolving Credit
Commitment Period on any Business Day, provided that the Borrower shall give
the Administrative Agent irrevocable notice (which notice must be received by
the Administrative Agent prior to 12:00 Noon, New York City time, (a) three
Business Days prior to the requested Borrowing Date, in the case of Eurodollar
Loans, or (b) one Business Day prior to the requested Borrowing Date, in the
case of Base Rate Loans), specifying (i) the amount and Type of Revolving
Credit Loans to be borrowed, (ii) the requested Borrowing Date and (iii) in
the case of Eurodollar Loans, the respective amounts of each such Type of Loan
and the respective lengths of the initial Interest Period therefor. Each
borrowing under the Revolving Credit Commitments shall be in an amount equal
to (x) in the case of Base Rate Loans, $1,000,000 or a whole multiple thereof
(or, if the then aggregate Available Revolving Credit Commitments are less
than $1,000,000, such lesser amount) and (y) in the case of Eurodollar Loans,
$5,000,000 or a whole multiple of $1,000,000 in excess thereof; provided, that
the Swing Line Lender may request, on behalf of the Borrower, borrowings under
the Revolving Credit Commitments which are Base Rate Loans in other amounts
pursuant to Section 2.4. Upon receipt of any such notice from the Borrower,
the Administrative Agent shall promptly notify each Lender thereof. Each
Lender will make the amount of its pro rata share of each borrowing available
to the Administrative Agent for the account of the Borrower at the Funding
Office prior to 12:00 Noon, New York City time, on the Borrowing Date
requested by the Borrower in funds immediately available to the Administrative
Agent. Such borrowing will then be made available to the Borrower by the
Administrative Agent crediting the account of the Borrower on the books of the
Funding Office with the aggregate of the amounts made available to the
Administrative Agent by the Lenders and in like funds as received by the
Administrative Agent.
2.3 Swing Line Commitment. (a) Subject to the terms and
conditions hereof, the Swing Line Lender agrees to make a portion of the
credit otherwise available to the Borrower under the Revolving Credit
Commitments from time to time during the Revolving Credit Commitment Period by
making swing line loans ("Swing Line Loans") to the Borrower; provided that
(i) the aggregate principal amount of Swing Line Loans outstanding at any time
shall not exceed the Swing Line Commitment then in effect (notwithstanding
that the Swing Line Loans outstanding at any time, when aggregated with the
Swing Line Lender's other outstanding Revolving Credit Loans hereunder, may
exceed the Swing Line Commitment then in effect) and (ii) the Borrower shall
not request, and the Swing Line Lender shall not make, any Swing Line Loan if,
after giving effect to the making of such Swing Line Loan, the aggregate
amount of the
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Available Revolving Credit Commitments would be less than zero. During the
Revolving Credit Commitment Period, the Borrower may use the Swing Line
Commitment by borrowing, repaying and reborrowing, all in accordance with the
terms and conditions hereof. Swing Line Loans shall be Base Rate Loans only.
(b) The Borrower shall repay all outstanding Swing Line
Loans on the Termination Date.
2.4 Procedure for Swing Line Borrowing; Refunding of Swing
Line Loans. (a) Whenever the Borrower desires that the Swing Line Lender make
Swing Line Loans it shall give the Swing Line Lender irrevocable telephonic
notice confirmed promptly in writing (which telephonic notice must be received
by the Swing Line Lender not later than 1:00 P.M., New York City time, on the
proposed Borrowing Date), specifying (i) the amount to be borrowed and (ii)
the requested Borrowing Date (which shall be a Business Day during the
Revolving Credit Commitment Period). Each borrowing under the Swing Line
Commitment shall be in an amount equal to $500,000 or a whole multiple of
$100,000 in excess thereof. Not later than 3:00 P.M., New York City time, on
the Borrowing Date specified in a notice in respect of Swing Line Loans, the
Swing Line Lender shall make available to the Administrative Agent at the
Funding Office an amount in immediately available funds equal to the amount of
the Swing Line Loan to be made by the Swing Line Lender. The Administrative
Agent shall make the proceeds of such Swing Line Loan available to the
Borrower on such Borrowing Date by depositing such proceeds in the account of
the Borrower with the Administrative Agent on such Borrowing Date in
immediately available funds.
(b) The Swing Line Lender, at any time and from time to time
in its sole and absolute discretion may, on behalf of the Borrower (which
hereby irrevocably directs the Swing Line Lender to act on its behalf), on one
Business Day's notice given by the Swing Line Lender no later than 12:00 Noon,
New York City time, request each Lender to make, and each Lender hereby agrees
to make, a Revolving Credit Loan, in an amount equal to such Lender's
Revolving Credit Percentage of the aggregate amount of the Swing Line Loans
(the "Refunded Swing Line Loans") outstanding on the date of such notice, to
repay the Swing Line Lender. Each Lender shall make the amount of such
Revolving Credit Loan available to the Administrative Agent at the Funding
Office in immediately available funds, not later than 10:00 A.M., New York
City time, one Business Day after the date of such notice. The proceeds of
such Revolving Credit Loans shall be immediately made available by the
Administrative Agent to the Swing Line Lender for application by the Swing
Line Lender to the repayment of the Refunded Swing Line Loans. The Borrower
irrevocably authorizes the Swing Line Lender to charge the Borrower's accounts
with the Administrative Agent (up to the amount available in each such
account) in order to immediately pay the amount of such Refunded Swing Line
Loans to the extent amounts received from the Lenders are not sufficient to
repay in full such Refunded Swing Line Loans.
(c) If prior to the time a Revolving Credit Loan would have
otherwise been made pursuant to Section 2.4(b), if for any reason, as
determined by the Swing Line Lender in its sole discretion, Revolving Credit
Loans may not be made as contemplated by Section 2.4(b), each Lender shall, on
the date such Revolving Credit Loan was to have been made pursuant to the
notice referred to in Section 2.4(b) (the "Refunding Date"), purchase for cash
an undivided participating interest in the then outstanding Swing Line Loans
by paying to the Swing Line Lender an amount (the "Swing Line Participation
Amount") equal to (i) such Lender's Revolving
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Credit Percentage times (ii) the sum of the aggregate principal amount of Swing
Line Loans then outstanding which were to have been repaid with such Revolving
Credit Loans.
(d) Whenever, at any time after the Swing Line Lender has
received from any Lender such Lender's Swing Line Participation Amount, the
Swing Line Lender receives any payment on account of the Swing Line Loans, the
Swing Line Lender will distribute to such Lender its Swing Line Participation
Amount (appropriately adjusted, in the case of interest payments, to reflect
the period of time during which such Lender's participating interest was
outstanding and funded and, in the case of principal and interest payments, to
reflect such Lender's pro rata portion of such payment if such payment is not
sufficient to pay the principal of and interest on all Swing Line Loans then
due); provided, however, that in the event that such payment received by the
Swing Line Lender is required to be returned, such Lender will return to the
Swing Line Lender any portion thereof previously distributed to it by the
Swing Line Lender.
(e) Each Lender's obligation to make the Loans referred to
in Section 2.4(b) and to purchase participating interests pursuant to Section
2.4(c) shall be absolute and unconditional and shall not be affected by any
circumstance, including, without limitation, (i) any setoff, counterclaim,
recoupment, defense or other right which such Lender or the Borrower may have
against the Swing Line Lender, the Borrower or any other Person for any reason
whatsoever; (ii) the occurrence or continuance of a Default or an Event of
Default or the failure to satisfy any of the other conditions specified in
Section 6; (iii) any adverse change in the condition (financial or otherwise)
of the Borrower; (iv) any breach of this Agreement or any other Loan Document
by the Borrower, any other Loan Party or any other Lender; or (v) any other
circumstance, happening or event whatsoever, whether or not similar to any of
the foregoing.
2.5 Repayment of Loans; Evidence of Debt. (a) The Borrower
hereby unconditionally promises to pay to the Administrative Agent for the
account of the appropriate Lender, (i) the then unpaid principal amount of
each Revolving Credit Loan of such Lender on the Termination Date (or such
earlier date on which the Loans become due and payable pursuant to Section 9)
and (ii) the then unpaid principal amount of each Swing Line Loan of such
Swing Line Lender on the Termination Date (or such earlier date on which the
Loans become due and payable pursuant to Section 9). The Borrower hereby
further agrees to pay interest on the unpaid principal amount of the Loans
from time to time outstanding from the date hereof until payment in full
thereof at the rates per annum, and on the dates, set forth in Section 2.12.
(b) Each Lender shall maintain in accordance with its usual
practice an account or accounts evidencing indebtedness of the Borrower to
such Lender resulting from each Loan of such Lender from time to time,
including the amounts of principal and interest payable and paid to such
Lender from time to time under this Agreement.
(c) The Administrative Agent, on behalf of the Borrower,
shall maintain the Register pursuant to Section 12.6(e), and a subaccount
therein for each Lender, in which shall be recorded (i) the amount of each
Loan made hereunder and any Note evidencing such Loan, the Type thereof and
each Interest Period applicable thereto, (ii) the amount of any principal or
interest due and payable or to become due and payable from the Borrower to
each Lender hereunder and (iii) both the amount of any sum received by the
Administrative Agent hereunder from the Borrower and each Lender's share
thereof.
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(d) The entries made in the Register and the accounts of
each Lender maintained pursuant to Section 2.5(b) shall, to the extent
permitted by applicable law, be prima facie evidence of the existence and
amounts of the obligations of the Borrower therein recorded; provided,
however, that the failure of any Lender or the Administrative Agent to
maintain the Register or any such account, or any error therein, shall not in
any manner affect the obligation of the Borrower to repay (with applicable
interest) the Loans made to such Borrower by such Lender in accordance with
the terms of this Agreement.
(e) The Borrower agrees that, upon the request to the
Administrative Agent by any Lender, the Borrower will execute and deliver to
such Lender a promissory note of the Borrower evidencing any Revolving Credit
Loans or Swing Line Loans, as the case may be, of such Lender, substantially
in the forms of Exhibit G-1 or G-2, respectively, with appropriate insertions
as to date and principal amount.
2.6 Revolving Credit Commitment Fees, etc. (a) The Borrower
agrees to pay to the Administrative Agent for the account of each Lender a
commitment fee for the Revolving Credit Commitment Period, computed at the
Revolving Credit Commitment Fee Rate on the average daily amount of the
Available Revolving Credit Commitment of such Lender during the period for
which payment is made, payable monthly in arrears on the last day of each
month and on the Termination Date.
(b) The Borrower agrees to pay to the Agents the fees in the
amounts and on the dates from time to time agreed to in writing by the
Borrower and the Agents.
2.7 Termination or Reduction of Revolving Credit
Commitments. The Borrower shall have the right, upon not less than three
Business Days' notice to the Administrative Agent, to terminate the Revolving
Credit Commitments or, from time to time, to reduce the amount of the
Revolving Credit Commitments; provided that no such termination or reduction
of Revolving Credit Commitments shall be permitted if, after giving effect
thereto and to any prepayments of the Revolving Credit Loans and Swing Line
Loans made on the effective date thereof, the Total Revolving Extensions of
Credit would exceed the Total Revolving Credit Commitments. Any such reduction
shall be in an amount equal to $1,000,000, or a whole multiple thereof, and
shall reduce permanently the Revolving Credit Commitments then in effect.
2.8 Optional Prepayments. The Borrower may at any time and
from time to time prepay the Loans, in whole or in part, upon irrevocable
notice delivered to the Administrative Agent at least three Business Days
prior thereto in the case of Eurodollar Loans and at least one Business Day
prior thereto in the case of Base Rate Loans, which notice shall specify the
date and amount of prepayment and whether the prepayment is of Eurodollar
Loans or Base Rate Loans; provided, that if a Eurodollar Loan is prepaid on
any day other than the last day of the Interest Period applicable thereto, the
Borrower shall also pay any amounts owing pursuant to Section 2.18. Upon
receipt of any such notice the Administrative Agent shall promptly notify each
relevant Lender thereof. If any such notice is given, the amount specified in
such notice shall be due and payable on the date specified therein, together
with (except in the case of Revolving Credit Loans which are Base Rate Loans
and Swing Line Loans) accrued interest to such date on the amount prepaid.
Partial prepayments of Revolving Credit Loans shall be in an aggregate
principal amount of $1,000,000 or a whole multiple thereof. Partial
prepayments of Swing Line Loans shall be in an aggregate principal amount of
$100,000 or a whole multiple
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thereof.
2.9 Mandatory Prepayments and Revolving Credit Commitment
Reductions. (a) If, at any time during the Revolving Credit Commitment Period,
the Total Revolving Extensions of Credit exceed the amount of the Total
Revolving Credit Commitments, the Borrower shall, without notice of demand,
immediately prepay the Revolving Credit Loans and/or Swing Line Loans in an
aggregate principal amount equal to such excess, together with interest
accrued to the date of such payment or prepayment.
(b) Any reduction of the Revolving Credit Commitments shall
be accompanied by prepayment of the Revolving Credit Loans and/or Swing Line
Loans to the extent, if any, that the Total Revolving Extensions of Credit
exceed the amount of the Total Revolving Credit Commitments as so reduced,
provided that if the aggregate principal amount of Revolving Credit Loans and
Swing Line Loans then outstanding is less than the amount of such excess
(because L/C Obligations constitute a portion thereof), the Borrower shall, to
the extent of the balance of such excess, replace outstanding Letters of
Credit and/or deposit an amount in cash equal to 105% of the amount of such
excess in the L/C Cash Collateral Account. The application of any prepayment
pursuant to this Section 2.9 shall be made first to Base Rate Loans and second
to Eurodollar Loans. Each prepayment of the Loans under this Section 2.9
(except in the case of Revolving Credit Loans that are Base Rate Loans and
Swing Line Loans) shall be accompanied by accrued interest to the date of such
prepayment on the amount prepaid.
2.10 Conversion and Continuation Options. (a) The Borrower
may elect from time to time to convert Eurodollar Loans to Base Rate Loans by
giving the Administrative Agent at least two Business Days' prior irrevocable
notice of such election, provided that any such conversion of Eurodollar Loans
may only be made on the last day of an Interest Period with respect thereto.
The Borrower may elect from time to time to convert Base Rate Loans to
Eurodollar Loans by giving the Administrative Agent at least three Business
Days' prior irrevocable notice of such election (which notice shall specify
the length of the initial Interest Period therefor), provided that no Base
Rate Loan may be converted into a Eurodollar Loan (i) when any Event of
Default has occurred and is continuing and the Administrative Agent or the
Required Lenders have determined in its or their sole discretion not to permit
such conversions or (ii) after the date that is one week prior to the
Termination Date. Upon receipt of any such notice the Administrative Agent
shall promptly notify each relevant Lender thereof.
(b) Any Eurodollar Loan may be continued as such upon the
expiration of the then current Interest Period with respect thereto by the
Borrower giving irrevocable notice to the Administrative Agent, in accordance
with the applicable provisions of the term "Interest Period" set forth in
Section 1.1, of the length of the next Interest Period to be applicable to
such Loans, provided that no Eurodollar Loan may be continued as such (i) when
any Event of Default has occurred and is continuing and the Administrative
Agent has or the Required Lenders have determined in its or their sole
discretion not to permit such continuations or (ii) after the date that is one
week prior to the Termination Date, and provided, further, that if the
Borrower shall fail to give any required notice as described above in this
paragraph or if such continuation is not permitted pursuant to the preceding
proviso such Loans shall be automatically converted to Base Rate Loans on the
last day of such then expiring Interest Period. Upon receipt of any such
notice the Administrative Agent shall promptly notify each relevant Lender
thereof.
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2.11 Minimum Amounts and Maximum Number of Eurodollar
Tranches. Notwithstanding anything to the contrary in this Agreement, all
borrowings, conversions, continuations and optional prepayments of Eurodollar
Loans hereunder and all selections of Interest Periods hereunder shall be in
such amounts and be made pursuant to such elections so that, (a) after giving
effect thereto, the aggregate principal amount of the Eurodollar Loans
comprising each Eurodollar Tranche shall be equal to $5,000,000 or a whole
multiple of $1,000,000 in excess thereof and (b) no more than ten Eurodollar
Tranches shall be outstanding at any one time.
2.12 Interest Rates and Payment Dates. (a) Each Eurodollar
Loan shall bear interest for each day during each Interest Period with respect
thereto at a rate per annum equal to the Eurodollar Rate determined for such
day plus 2.50%.
(b) Each Base Rate Loan shall bear interest at a rate per
annum equal to the Base Rate plus 1.50%.
(c) (i) If all or a portion of the principal amount of any
Loan or Reimbursement Obligation shall not be paid when due (whether at the
stated maturity, by acceleration or otherwise), all outstanding Loans and
Reimbursement Obligations (whether or not overdue) shall bear interest at a
rate per annum which is equal to (x) in the case of the Loans, the rate that
would otherwise be applicable thereto pursuant to the foregoing provisions of
this Section 2.12 plus 2%, or (y) in the case of Reimbursement Obligations,
the rate applicable to Base Rate Loans plus 2%, and (ii) if all or a portion
of any interest payable on any Loan or Reimbursement Obligation or any
commitment fee or other amount payable hereunder shall not be paid when due
(whether at the stated maturity, by acceleration or otherwise), such overdue
amount shall bear interest at a rate per annum equal to the rate then
applicable to Base Rate Loans plus 2%, in each case, with respect to clauses
(i) and (ii) above, from the date of such non-payment until such amount is
paid in full (as well after as before judgment).
(d) Interest shall be payable in arrears on each Interest
Payment Date, provided that interest accruing pursuant to paragraph (c) of
this Section 2.12 shall be payable from time to time on demand.
2.13 Computation of Interest and Fees. (a) Interest, fees
and commissions payable pursuant hereto shall be calculated on the basis of a
360-day year for the actual days elapsed, except that, with respect to Base
Rate Loans the rate of interest on which is calculated on the basis of the
Prime Rate, the interest thereon shall be calculated on the basis of a 365-
(or 366-, as the case may be) day year for the actual days elapsed. The
Administrative Agent shall as soon as practicable notify the Borrower and the
relevant Lenders of each determination of a Eurodollar Rate. Any change in the
interest rate on a Loan resulting from a change in the Base Rate or the
Eurocurrency Reserve Requirements shall become effective as of the opening of
business on the day on which such change becomes effective. The Administrative
Agent shall as soon as practicable notify the Borrower and the relevant
Lenders of the effective date and the amount of each such change in interest
rate.
(b) Each determination of an interest rate by the
Administrative Agent pursuant to any provision of this Agreement shall be
conclusive and binding on the Borrower and the Lenders in the absence of
manifest error. The Administrative Agent shall, at the request of the
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26
Borrower, deliver to the Borrower a statement showing the quotations used by
the Administrative Agent in determining any interest rate pursuant to Section
2.12(a).
2.14 Inability to Determine Interest Rate. If prior to the
first day of any Interest Period:
(a) the Administrative Agent shall have determined (which
determination shall be conclusive and binding upon the Borrower)
that, by reason of circumstances affecting the relevant market,
adequate and reasonable means do not exist for ascertaining the
Eurodollar Rate for such Interest Period, or
(b) the Administrative Agent shall have received notice from
the Required Lenders that the Eurodollar Rate determined or to be
determined for such Interest Period will not adequately and fairly
reflect the cost to such Lenders (as conclusively certified by such
Lenders) of making or maintaining their affected Loans during such
Interest Period,
the Administrative Agent shall give telecopy or telephonic notice thereof to
the Borrower and the relevant Lenders as soon as practicable thereafter. If
such notice is given (x) any Eurodollar Loans requested to be made on the
first day of such Interest Period shall be made as Base Rate Loans, (y) any
Loans that were to have been converted on the first day of such Interest
Period to Eurodollar Loans shall be continued as Base Rate Loans and (z) any
outstanding Eurodollar Loans shall be converted, on the first day of such
Interest Period, to Base Rate Loans. Until such notice has been withdrawn by
the Administrative Agent, no further Eurodollar Loans shall be made or
continued as such, nor shall the Borrower have the right to convert Loans to
Eurodollar Loans.
2.15 Pro Rata Treatment and Payments. (a) Each borrowing by
the Borrower from the Lenders hereunder, each payment by the Borrower on
account of any commitment fee and any reduction of the Revolving Credit
Commitments of the Lenders shall be made pro rata according to the Revolving
Credit Percentages of the relevant Lenders. Each payment (other than
prepayments) in respect of principal or interest in respect of the Loans, each
payment in respect of fees payable hereunder, and each payment in respect of
Reimbursement Obligations, shall be applied to the amounts of such obligations
owing to the Lenders pro rata according to the respective amounts then due and
owing to the Lenders.
(b) Each payment (including each prepayment) by the Borrower
on account of principal of and interest on the Revolving Credit Loans shall be
made pro rata according to the respective outstanding principal amounts of the
Revolving Credit Loans then held by the Lenders.
(c) All payments (including prepayments) to be made by the
Borrower hereunder, whether on account of principal, interest, fees or
otherwise, shall be made without setoff or counterclaim and shall be made
prior to 12:00 Noon, New York City time, on the due date thereof to the
Administrative Agent, for the account of the Lenders, at the Payment Office,
in Dollars and in immediately available funds. The Administrative Agent shall
distribute such payments to the Lenders promptly upon receipt in like funds as
received. If any payment hereunder (other than payments on the Eurodollar
Loans) becomes due and payable on a day other than a Business Day, such
payment shall be extended to the next succeeding Business Day.
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27
If any payment on a Eurodollar Loan becomes due and payable on a day other than
a Business Day, the maturity thereof shall be extended to the next succeeding
Business Day unless the result of such extension would be to extend such
payment into another calendar month, in which event such payment shall be made
on the immediately preceding Business Day. In the case of any extension of any
payment of principal pursuant to the preceding two sentences, interest thereon
shall be payable at the then applicable rate during such extension.
(d) Unless the Administrative Agent shall have been notified
in writing by any Lender prior to a borrowing that such Lender will not make
the amount that would constitute its share of such borrowing available to the
Administrative Agent, the Administrative Agent may assume that such Lender is
making such amount available to the Administrative Agent, and the
Administrative Agent may, in reliance upon such assumption, make available to
the Borrower a corresponding amount. If such amount is not made available to
the Administrative Agent by the required time on the Borrowing Date therefor,
such Lender shall pay to the Administrative Agent, on demand, such amount with
interest thereon at a rate equal to the daily average Federal Funds Effective
Rate for the period until such Lender makes such amount immediately available
to the Administrative Agent. A certificate of the Administrative Agent
submitted to any Lender with respect to any amounts owing under this paragraph
shall be conclusive in the absence of manifest error. If such Lender's share
of such borrowing is not made available to the Administrative Agent by such
Lender within three Business Days of such Borrowing Date, the Administrative
Agent shall also be entitled to recover such amount with interest thereon at
the rate per annum applicable to Base Rate Loans under the relevant Facility,
on demand, from the Borrower.
(e) Unless the Administrative Agent shall have been notified
in writing by the Borrower prior to the date of any payment being made
hereunder that the Borrower will not make such payment to the Administrative
Agent, the Administrative Agent may assume that the Borrower is making such
payment, and the Administrative Agent may, but shall not be required to, in
reliance upon such assumption, make available to the Lenders their respective
pro rata shares of a corresponding amount. If such payment is not made to the
Administrative Agent by the Borrower within three Business Days of such
required date, the Administrative Agent shall be entitled to recover, on
demand, from each Lender to which any amount which was made available pursuant
to the preceding sentence, such amount with interest thereon at the rate per
annum equal to the daily average Federal Funds Effective Rate. Nothing herein
shall be deemed to limit the rights of the Administrative Agent or any Lender
against the Borrower.
2.16 Requirements of Law. (a) If the adoption of or any
change in any Requirement of Law or in the interpretation or application
thereof or compliance by any Lender with any request or directive (whether or
not having the force of law) from any central bank or other Governmental
Authority made subsequent to the date hereof:
(i) shall subject any Lender to any tax of any kind
whatsoever with respect to this Agreement, any Letter of Credit, any
Application or any Eurodollar Loan made by it, or change the basis of
taxation of payments to such Lender in respect thereof (except for
Non-Excluded Taxes covered by Section 2.17 and changes in the rate of
taxes based on or measured by net income and franchise taxes imposed
in lieu thereof of such Lender);
(ii) shall impose, modify or hold applicable any reserve,
special deposit,
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28
compulsory loan or similar requirement against assets held by,
deposits or other liabilities in or for the account of, advances,
loans or other extensions of credit by, or any other acquisition of
funds by, any office of such Lender which is not otherwise included in
the determination of the Eurodollar Rate hereunder; or
(iii) shall impose on such Lender any other condition;
and the result of any of the foregoing is to increase the cost to such Lender,
by an amount which such Lender deems to be material, of making, converting
into, continuing or maintaining Eurodollar Loans or issuing or participating
in Letters of Credit, or to reduce any amount receivable hereunder in respect
thereof, then, in any such case, the Borrower shall promptly pay such Lender,
upon its demand, any additional amounts necessary to compensate such Lender
for such increased cost or reduced amount receivable. If any Lender becomes
entitled to claim any additional amounts pursuant to this Section 2.16, it
shall promptly notify the Borrower (with a copy to the Administrative Agent)
of the event by reason of which it has become so entitled.
(b) If any Lender shall have determined that the adoption of
or any change in any Requirement of Law regarding capital adequacy or in the
interpretation or application thereof or compliance by such Lender or any
corporation controlling such Lender with any request or directive regarding
capital adequacy (whether or not having the force of law) from any
Governmental Authority made subsequent to the date hereof shall have the
effect of reducing the rate of return on such Lender's or such corporation's
capital as a consequence of its obligations hereunder or under or in respect
of any Letter of Credit to a level below that which such Lender or such
corporation could have achieved but for such adoption, change or compliance
(taking into consideration such Lender's or such corporation's policies with
respect to capital adequacy) by an amount deemed by such Lender to be
material, then from time to time, after submission by such Lender to the
Borrower (with a copy to the Administrative Agent) of a written request
therefor, the Borrower shall pay to such Lender such additional amount or
amounts as will compensate such Lender for such reduction.
(c) A certificate as to any additional amounts payable
pursuant to this Section 2.16 submitted by any Lender to the Borrower (with a
copy to the Administrative Agent) shall be conclusive in the absence of
manifest error. The obligations of the Borrower pursuant to this Section 2.16
shall survive the termination of this Agreement and the payment of the Loans
and all other amounts payable hereunder.
2.17 Taxes. (a) All payments made by the Borrower under this
Agreement shall be made free and clear of, and without deduction or
withholding for or on account of, any present or future income, stamp or other
taxes, levies, imposts, duties, charges, fees, deductions or withholdings, now
or hereafter imposed, levied, collected, withheld or assessed by any
Governmental Authority, excluding taxes based on or measured by net income and
franchise taxes (imposed in lieu thereof) imposed on any Agent or any Lender
as a result of a present or former connection between such Agent or such
Lender and the jurisdiction of the Governmental Authority imposing such tax or
any political subdivision or taxing authority thereof or therein (other than
any such connection arising solely from such Agent or such Lender having
executed, delivered or performed its obligations or received a payment under,
or enforced, this Agreement or any other Loan Document). If any such
non-excluded taxes, levies, imposts, duties, charges, fees, deductions or
withholdings ("Non-Excluded Taxes") are required to be withheld from any
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29
amounts payable to any Agent or any Lender hereunder, the amounts so payable
to such Agent or such Lender shall be increased to the extent necessary to
yield to such Agent or such Lender (after payment of all Non-Excluded Taxes)
interest or any such other amounts payable hereunder at the rates or in the
amounts specified in this Agreement, provided, however, that the Borrower
shall not be required to increase any such amounts payable to any Lender with
respect to any Non-Excluded Taxes (i) that are attributable to such Lender's
failure to comply with the requirements of paragraph (d) or paragraph (e) of
this Section 2.17 or (ii) to the extent that the obligation to withhold
amounts with respect to United States federal withholding tax existed on the
date such Lender became a party to this Agreement (or, in the case of a
Participant, on the date such Participant became a Participant hereunder) or,
with respect to payments to a New Lending Office, the date such Lender
designated such New Lending Office with respect to a Loan, except to the
extent that such Lender's assignor (if any) was entitled, at the time of
assignment or such Lender was entitled at the time the New Lending Office was
designated, to receive additional amounts from the Borrower with respect to
such Non-Excluded Taxes pursuant to this Section 2.17(a).
(b) In addition, the Borrower shall pay any Other Taxes to
the relevant Governmental Authority in accordance with applicable law.
(c) Whenever any Non-Excluded Taxes or Other Taxes are
payable by the Borrower, as promptly as possible thereafter the Borrower shall
send to the Administrative Agent for the account of the relevant Agent or
Lender, as the case may be, a certified copy of an original official receipt
received by the Borrower showing payment thereof. If the Borrower fails to pay
any Non-Excluded Taxes or Other Taxes when due to the appropriate taxing
authority or fails to remit to the Agents the required receipts or other
required documentary evidence, the Borrower shall indemnify the Administrative
Agent and the Lenders for any incremental taxes, interest or penalties that
may become payable by any Agent or any Lender as a result of any such failure.
The agreements in this Section 2.17 shall survive the termination of this
Agreement and the payment of the Loans and all other amounts payable
hereunder.
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30
(d) Each Lender (or Transferee) that is not a United States
person as defined in Section 7701(a)(30) of the Code (a "Non-U.S. Lender")
shall deliver to the Borrower and the Administrative Agent (or, in the case of
a Participant, to the Lender from which the related participation shall have
been purchased) (x) two copies of either U.S. Internal Revenue Service Form
1001 or Form 4224, or, in the case of a Non-U.S. Lender claiming exemption
from U.S. federal withholding tax under Section 871(h) or 881(c) of the Code
with respect to payments of "portfolio interest" a statement substantially in
the form of Exhibit H and a Form W-8, or any subsequent versions thereof or
successors thereto properly completed and duly executed by such Non-U.S.
Lender claiming complete exemption from, or a reduced rate of, U.S. federal
withholding tax on all payments by the Borrower under this Agreement and the
other Loan Documents and (y) any other related documents reasonably requested
by the Borrower. Such forms shall be delivered by each Non-U.S. Lender on or
before the date it becomes a party to this Agreement (or, in the case of any
Participant, on or before the date such Participant purchases the related
participation) and on or before the date, if any, such Non-U.S. Lender changes
its applicable lending office by designating a different lending office (a
"New Lending Office"). In addition, each Non-U.S. Lender shall deliver such
forms promptly upon the obsolescence or invalidity of any form previously
delivered by such Non-U.S. Lender. Each Non-U.S. Lender shall promptly notify
the Borrower at any time it determines that it is no longer in a position to
provide any previously delivered certificate to the Borrower (or any other
form of certification adopted by the U.S. taxing authorities for such
purpose). Notwithstanding any other provision of this paragraph, a Non-U.S.
Lender shall not be required to deliver any form pursuant to this paragraph
that such Non-U.S. Lender is not legally able to deliver.
(e) A Lender that is entitled to an exemption from or
reduction of non-U.S. withholding tax under the law of the jurisdiction in
which the Borrower is located, or any treaty to which such jurisdiction is a
party, with respect to payments under this Agreement shall deliver to the
Borrower (with a copy to the Administrative Agent), at the time or times
prescribed by applicable law or reasonably requested by the Borrower, such
properly completed and executed documentation prescribed by applicable law as
will permit such payments to be made without withholding or at a reduced rate,
provided that such Lender is legally entitled to complete, execute and deliver
such documentation and in such Lender's reasonable judgment such completion,
execution or submission would not materially prejudice the legal position of
such Lender.
(f) If any Agent or any Lender determines that it has
received a refund in respect of any Non-Excluded Taxes or Other Taxes as to
which indemnification has been paid by the Borrower pursuant to Section 2.20,
it shall promptly remit such refund (including any interest) to the Borrower,
net of all out-of-pocket expenses of such Agent or such Lender; provided,
however, that the Borrower, upon the request of such Agent or such Lender,
agrees promptly to return such refund (plus any interest) to such party in the
event such party is required to repay such refund to the relevant taxing
authority requiring prepayment or such refund. Such Agent or Lender shall
provide the Borrower with a copy of any notice or assessment from the relevant
taxing authority (deleting any confidential information contained therein)
requiring repayment of such refund.
2.18 Indemnity. The Borrower agrees to indemnify each Lender
and to hold each Lender harmless from any loss or expense which such Lender
may sustain or incur as a consequence of (a) default by the Borrower in making
a borrowing of, conversion into or
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31
continuation of Eurodollar Loans after the Borrower has given a notice
requesting the same in accordance with the provisions of this Agreement, (b)
default by the Borrower in making any prepayment after the Borrower has given a
notice thereof in accordance with the provisions of this Agreement or (c) the
making of a prepayment of Eurodollar Loans on a day which is not the last day
of an Interest Period with respect thereto. Such indemnification may include an
amount equal to the excess, if any, of (i) the amount of interest which would
have accrued on the amount so prepaid, or not so borrowed, converted or
continued, for the period from the date of such prepayment or of such failure
to borrow, convert or continue to the last day of such Interest Period (or, in
the case of a failure to borrow, convert or continue, the Interest Period that
would have commenced on the date of such failure) in each case at the
applicable rate of interest for such Loans provided for herein over (ii) the
amount of interest (as reasonably determined by such Lender) which would have
accrued to such Lender on such amount by placing such amount on deposit for a
comparable period with leading banks in the interbank eurodollar market. A
certificate as to any amounts payable pursuant to this Section 2.18 submitted
to the Borrower by any Lender shall be conclusive in the absence of manifest
error. This covenant shall survive the termination of this Agreement and the
payment of the Loans and all other amounts payable hereunder.
2.19 Illegality. Notwithstanding any other provision herein,
if the adoption of or any change in any Requirement of Law or in the
interpretation or application thereof shall make it unlawful for any Lender to
make or maintain Eurodollar Loans as contemplated by this Agreement, (a) the
commitment of such Lender hereunder to make Eurodollar Loans, continue
Eurodollar Loans as such and convert Base Rate Loans to Eurodollar Loans shall
forthwith be cancelled and (b) such Lender's Loans then outstanding as
Eurodollar Loans, if any, shall be converted automatically to Base Rate Loans
on the respective last days of the then current Interest Periods with respect
to such Loans or within such earlier period as required by law. If any such
conversion of a Eurodollar Loan occurs on a day which is not the last day of
the then current Interest Period with respect thereto, the Borrower shall pay
to such Lender such amounts, if any, as may be required pursuant to Section
2.18.
2.20 Change of Lending Office. Each Lender agrees that, upon
the occurrence of any event giving rise to the operation of Section 2.16 or
2.17(a) with respect to such Lender, it will, if requested by the Borrower,
use reasonable efforts (subject to overall policy considerations of such
Lender) to designate another lending office for any Loans affected by such
event with the object of avoiding the consequences of such event; provided,
that such designation is made on terms that, in the good faith judgment of
such Lender, cause such Lender and its lending office(s) to suffer no
economic, legal or regulatory disadvantage, and provided, further, that
nothing in this Section 2.20 shall affect or postpone any of the obligations
of any Borrower or the rights of any Lender pursuant to Section 2.16 or
2.17(a).
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SECTION 3. LETTERS OF CREDIT
3.1 L/C Commitment. (a) Subject to the terms and conditions
hereof, the Issuing Lender, in reliance on the agreements of the other Lenders
set forth in Section 3.4(a), agrees to issue letters of credit ("Letters of
Credit") for the account of the Borrower on any Business Day during the
Revolving Credit Commitment Period in such form as may be approved from time
to time by the Issuing Lender; provided that the Issuing Lender shall have no
obligation to issue any Letter of Credit if, after giving effect to such
issuance, (i) the L/C Obligations would exceed the L/C Commitment or (ii) the
aggregate amount of the Available Revolving Credit Commitments would be less
than zero.
(b) Each Letter of Credit shall be denominated in Dollars
and expire no later than the first anniversary of the date of issuance of such
Letter of Credit (subject to certain extension provisions acceptable to the
Administrative Agent and the Issuing Lender; it being understood that
provisions which provide for the automatic extensions of up to one year unless
the Issuing Lender has given a termination notice at least 30 to 60 days prior
to the date of such automatic extension shall be permitted), provided, that if
the Termination Date occurs prior to the expiration of any Letter of Credit,
the Borrower shall, on or prior to the Termination Date, (i) cause all such
Letters of Credit to be returned to the Issuing Bank undrawn and marked
"cancelled" or (ii) to the extent that the Borrower is unable to replace and
return any such Letter of Credit, deposit cash in the L/C Cash Collateral
Account in an amount equal to 105% of the face amount of all such Letters of
Credit, as collateral security for the Borrower's reimbursement obligations in
connection therewith, such cash to be remitted to the Borrower upon the
expiration, cancellation or other termination or satisfaction of the
Borrower's reimbursement obligations in respect of all such Letters of Credit
and all other Obligations then outstanding under this Agreement. Each Letter
of Credit that remains outstanding as of the date of a refinancing of the
Lenders' Revolving Credit Commitments under this Agreement pursuant to an exit
facility agented by the Agents as contemplated under the Plan of
Reorganization shall be rolled into, and deemed to be, letters of credit
outstanding under such facility.
(c) Each Letter of Credit shall be subject to the Uniform
Customs and, to the extent not inconsistent therewith, the laws of the State
of New York.
(d) The Issuing Lender shall not at any time be obligated to
issue any Letter of Credit hereunder if such issuance would conflict with, or
cause the Issuing Lender or any L/C Participant to exceed any limits imposed
by, any applicable Requirement of Law.
3.2 Procedure for Issuance of Letter of Credit. The Borrower
may from time to time request that the Issuing Lender issue a Letter of Credit
by delivering to the Issuing Lender at its address for notices specified
herein an Application therefor, completed to the satisfaction of the Issuing
Lender, and such other certificates, documents and other papers and
information as the Issuing Lender may request. Upon receipt of any
Application, the Issuing Lender will process such Application and the
certificates, documents and other papers and information delivered to it in
connection therewith in accordance with its customary procedures and shall
promptly issue the Letter of Credit requested thereby (but in no event shall
the Issuing Lender be required to issue any Letter of Credit earlier than
three Business Days but no later than five Business Days after its receipt of
the Application therefor and all such other certificates, documents and other
papers and information relating thereto) by issuing the original of such
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33
Letter of Credit to the beneficiary thereof or as otherwise may be agreed to
by the Issuing Lender and the Borrower. The Issuing Lender shall furnish a
copy of such Letter of Credit to the Borrower promptly following the issuance
thereof. The Issuing Lender shall promptly furnish to the Administrative
Agent, which shall in turn promptly furnish to the Lenders, notice of the
issuance of each Letter of Credit (including the amount thereof).
3.3 Fees and Other Charges. (a) The Borrower shall pay a fee
on the daily average undrawn amount of all outstanding Letters of Credit at a
per annum rate equal to 2.50% shared ratably among the Lenders and payable
monthly in arrears on each L/C Fee Payment Date after the issuance date. In
addition, the Borrower shall pay to the Issuing Lender for its own account a
fronting fee of 1/8 of 1% per annum, payable monthly in arrears on each L/C
Fee Payment Date after the issuance date.
(b) In addition to the foregoing fees, the Borrower shall
pay or reimburse the Issuing Lender for such normal and customary costs and
expenses as are incurred or charged by the Issuing Lender in issuing,
negotiating, effecting payment under, amending or otherwise administering any
Letter of Credit.
3.4 L/C Participations. (a) The Issuing Lender irrevocably
agrees to grant and hereby grants to each L/C Participant, and, to induce the
Issuing Lender to issue Letters of Credit hereunder, each L/C Participant
irrevocably agrees to accept and purchase and hereby accepts and purchases
from the Issuing Lender, on the terms and conditions hereinafter stated, for
such L/C Participant's own account and risk an undivided interest equal to
such L/C Participant's Revolving Credit Percentage in the Issuing Lender's
obligations and rights under each Letter of Credit issued hereunder and the
amount of each draft paid by the Issuing Lender thereunder. Each L/C
Participant unconditionally and irrevocably agrees with the Issuing Lender
that, if a draft is paid under any Letter of Credit for which the Issuing
Lender is not reimbursed in full by the Borrower in accordance with the terms
of this Agreement, such L/C Participant shall pay to the Issuing Lender upon
demand at the Issuing Lender's address for notices specified herein an amount
equal to such L/C Participant's Revolving Credit Percentage of the amount of
such draft, or any part thereof, which is not so reimbursed.
(b) If any amount required to be paid by any L/C Participant
to the Issuing Lender pursuant to Section 3.4(a) in respect of any
unreimbursed portion of any payment made by the Issuing Lender under any
Letter of Credit is paid to the Issuing Lender within three Business Days
after the date such payment is due, such L/C Participant shall pay to the
Issuing Lender on demand an amount equal to the product of (i) such amount,
times (ii) the daily average Federal Funds Effective Rate during the period
from and including the date such payment is required to the date on which such
payment is immediately available to the Issuing Lender, times (iii) a fraction
the numerator of which is the number of days that elapse during such period
and the denominator of which is 360. If any such amount required to be paid by
any L/C Participant pursuant to Section 3.4(a) is not made available to the
Issuing Lender by such L/C Participant within three Business Days after the
date such payment is due, the Issuing Lender shall be entitled to recover from
such L/C Participant, on demand, such amount with interest thereon calculated
from such due date at the rate per annum equal to the rate then applicable to
Base Rate Loans plus 1.50%. A certificate of the Issuing Lender submitted to
any L/C Participant with respect to any amounts owing under this Section 3.4
shall be conclusive in the absence of manifest error.
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(c) Whenever, at any time after the Issuing Lender has made
payment under any Letter of Credit and has received from any L/C Participant
its pro rata share of such payment in accordance with Section 3.4(a), the
Issuing Lender receives any payment related to such Letter of Credit (whether
directly from the Borrower or otherwise, including proceeds of collateral
applied thereto by the Issuing Lender), or any payment of interest on account
thereof, the Issuing Lender will distribute to such L/C Participant its pro
rata share thereof; provided, however, that in the event that any such payment
received by the Issuing Lender shall be required to be returned by the Issuing
Lender, such L/C Participant shall return to the Issuing Lender the portion
thereof previously distributed by the Issuing Lender to it.
3.5 Reimbursement Obligation of the Borrower. The Borrower
agrees to reimburse the Issuing Lender on each date on which the Issuing
Lender notifies the Borrower of the date and amount of a draft presented under
any Letter of Credit and paid by the Issuing Lender for the amount of (a) such
draft so paid and (b) any taxes, fees, charges or other costs or expenses
incurred by the Issuing Lender in connection with such payment. Each such
payment shall be made to the Issuing Lender at its address for notices
specified herein in lawful money of the United States of America and in
immediately available funds. Interest shall be payable on any and all amounts
remaining unpaid by the Borrower under this Section 3.5 from the date such
amounts become payable (whether at stated maturity, by acceleration or
otherwise) until payment in full at the rate set forth in (i) until the second
Business Day following the date of the applicable drawing, Section 2.12(b) and
(ii) thereafter, Section 2.12(c). Each drawing under any Letter of Credit
shall constitute a request by the Borrower to the Administrative Agent for a
borrowing pursuant to Section 2.2 of Base Rate Loans (or, at the option of the
Administrative Agent and the Swing Line Lender in their sole discretion, a
borrowing pursuant to Section 2.4 of Swing Line Loans) in the amount of such
drawing. The Borrowing Date with respect to such borrowing shall be the date
of such drawing.
3.6 Obligations Absolute. The Borrower's obligations under
this Section 3 shall be absolute and unconditional under any and all
circumstances and irrespective of any setoff, counterclaim or defense to
payment which the Borrower may have or have had against the Issuing Lender,
any beneficiary of a Letter of Credit or any other Person. The Borrower also
agrees with the Issuing Lender that the Issuing Lender shall not be
responsible for, and the Borrower's Reimbursement Obligations under Section
3.5 shall not be affected by, among other things, the validity or genuineness
of documents or of any endorsements thereon, even though such documents shall
in fact prove to be invalid, fraudulent or forged, or any dispute between or
among the Borrower and any beneficiary of any Letter of Credit or any other
party to which such Letter of Credit may be transferred or any claims
whatsoever of the Borrower against any beneficiary of such Letter of Credit or
any such transferee. The Issuing Lender shall not be liable for any error,
omission, interruption or delay in transmission, dispatch or delivery of any
message or advice, however transmitted, in connection with any Letter of
Credit, except for errors or omissions found by a final and nonappealable
decision of a court of competent jurisdiction to have resulted from the gross
negligence or willful misconduct of the Issuing Lender. The Borrower agrees
that any action taken or omitted by the Issuing Lender under or in connection
with any Letter of Credit or the related drafts or documents, if done in the
absence of gross negligence or willful misconduct and in accordance with the
standards of care specified in the Uniform Commercial Code of the State of New
York, shall be binding on the Borrower and shall not result in any liability
of the Issuing Lender to the Borrower.
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35
3.7 Letter of Credit Payments. If any draft shall be
presented for payment under any Letter of Credit, the Issuing Lender shall
promptly notify the Borrower of the date and amount thereof. The
responsibility of the Issuing Lender to the Borrower in connection with any
draft presented for payment under any Letter of Credit shall, in addition to
any payment obligation expressly provided for in such Letter of Credit, be
limited to determining that the documents (including each draft) delivered
under such Letter of Credit in connection with such presentment are
substantially in conformity with such Letter of Credit.
3.8 Applications. To the extent that any provision of any
Application related to any Letter of Credit is inconsistent with the
provisions of this Section 3, the provisions of this Section 3 shall apply.
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36
SECTION 4. PRIORITY AND LIENS
4.1 Priority and Liens. (a) The Borrower hereby covenants,
represents and warrants that, upon entry of the Final Order, the Obligations
of the Borrower hereunder and under the other Loan Documents, (i) pursuant to
Section 364(c)(1) of the Bankruptcy Code, shall at all times constitute
allowed Super-Priority Claims, (ii) pursuant to Section 364(c)(2) of the
Bankruptcy Code, shall at all times be secured by a perfected first priority
Lien on all Collateral, including without limitation, all cash maintained in
the L/C Cash Collateral Account and any direct investments of the funds
contained therein, that is otherwise not encumbered by a valid and perfected
Lien as of the Petition Date, (iii) pursuant to Section 364(c)(3) of the
Bankruptcy Code, shall be secured by a perfected second priority Lien upon all
Collateral (other than the Prepetition Collateral securing the Prepetition
Supplemental Term Loans, as to which the Lien in favor of the Agents and the
Lenders will be as described in clause (iv) of this sentence) that is subject
to a Permitted Lien, including, without limitation, valid and perfected Liens
in existence on the Petition Date or valid Liens perfected (but not granted)
thereafter to the extent such post-Petition Date perfection in respect of a
pre-Petition Date claim is expressly permitted under the Bankruptcy Code,
junior to such Permitted Liens, provided that the Liens granted in favor of
the Agents and the Lenders shall be senior to any Permitted Lien which is
expressly stated herein to be junior to the Liens in favor of the Agents and
the Lenders, and (iv) pursuant to Section 364(d)(1) of the Bankruptcy Code,
shall be secured by a perfected first priority, senior priming Lien on all of
the Prepetition Collateral securing the Prepetition Supplemental Term Loans
and any Property of the Debtors on which a Lien is granted after the Petition
Date to provide adequate protection in respect of the Prepetition Obligations,
subject and subordinate in each case with respect to subclauses (i) through
(iv) above, only to (x) following the occurrence and during the continuance of
a Default or an Event of Default, the payment (as the same may be due and
payable) of professional fees and disbursements allowed pursuant to Sections
105, 327, 328, 330, 503(b) or 1103(a) of the Bankruptcy Code and incurred by
the professionals retained by the Borrower, the Steering Committee and any
statutory committee of unsecured creditors appointed in the Case in an
aggregate amount not to exceed $1,000,000 (in addition to compensation
previously accrued (to the extent it is ultimately allowed by the Bankruptcy
Court) whether or not paid) and (y) the payment of unpaid fees pursuant to 28
U.S.C. ? 1930 and any fees payable to the Clerk of the Bankruptcy Court
(collectively, the "Carve-Out"), provided, further, that following the
Termination Date amounts in the L/C Cash Collateral Account shall not be
subject to the Carve-Out. The Lenders agree that so long as no Default or
Event of Default shall have occurred and be continuing, the Borrower shall be
permitted to pay compensation and reimbursement of expenses allowed and
payable under Sections 330 and 331 of the Bankruptcy Code, or as otherwise
required to be paid by the Plan of Reorganization, as the same may be payable,
and the amounts so paid shall not reduce the Carve-Out.
(b) As to all Collateral, including without limitation, all
real property the title to which is held by the Borrower or the possession of
which is held by the Borrower pursuant to leasehold interests, the Borrower
hereby assigns and conveys as security, grants a security interest in,
hypothecates, mortgages, pledges and sets over unto the Administrative Agent
all of the right, title and interest of the Borrower in all of such
Collateral, including without limitation, all owned real property and in all
such leasehold interests, together in each case with all of the right, title
and interest of the Borrower in and to all buildings, improvements, and
fixtures related thereto, any lease or sublease thereof, all general
intangibles relating thereto and all proceeds thereof. The Borrower
acknowledges that, pursuant to the Final Order, the Liens granted in favor
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37
of the Administrative Agent (on behalf of the Agents and the Lenders) in all of
the Collateral shall be perfected without the recordation of any Uniform
Commercial Code financing statements, notices of Lien or other instruments of
mortgage or assignment. The Borrower further agrees that if requested by the
Agents, the Borrower shall enter into separate security agreements, pledge
agreements and fee and leasehold mortgages with respect to such Collateral on
terms reasonably satisfactory to the Administrative Agent.
4.2 Security Interest in L/C Cash Collateral Account.
Pursuant to Section 364(c)(2) of the Bankruptcy Code, the Borrower hereby
assigns and pledges to the Administrative Agent (for the benefit of the Agents
and the Lenders), and hereby grants to the Administrative Agent (for the
benefit of the Agents and the Lenders) a first priority security interest,
senior to all other Liens, if any, in all of the Borrower's right, title and
interest in and to the L/C Cash Collateral Account and any direct investment
of the funds contained therein.
4.3 Payment of Obligations. Upon the maturity (whether by
acceleration or otherwise) of any of the Obligations under this Agreement or
any of the other Loan Documents, the Lenders shall be entitled to immediate
payment of such Obligations without further application to or order of the
Bankruptcy Court.
4.4 No Discharge; Survival of Claims. The Borrower agrees
that to the extent its Obligations hereunder are not satisfied in full, (i)
its Obligations arising hereunder shall not be discharged by the entry of a
Confirmation Order (and the Borrower pursuant to Section 1141(d)(4) of the
Bankruptcy Code hereby waives any such discharge) and (ii) the Super-Priority
Claim granted to the Administrative Agent and the Lenders pursuant to the
Final Order and described in Section 4.1 and the Liens granted to the
Administrative Agent pursuant to the Final Order and described in Section 4.1
shall not be affected in any manner by the entry of a Confirmation Order.
SECTION 5. REPRESENTATIONS AND WARRANTIES
To induce the Agents and the Lenders to enter into this
Agreement and to make the Loans and issue or participate in the Letters of
Credit, the Borrower represents and warrants to each Agent and each Lender
that:
5.1 Financial Condition. (a) The unaudited pro forma
consolidated balance sheet of the Borrower and its consolidated Subsidiaries
as at August 15, 1998 (including the notes thereto) (the "Pro Forma Balance
Sheet"), copies of which have heretofore been furnished to each Lender, has
been prepared giving effect (as if such events had occurred on such date) to
(i) the Loans to be made on the Closing Date and the use of proceeds thereof
and (ii) the payment of fees and expenses in connection with the foregoing.
The Pro Forma Balance Sheet has been prepared based on the best information
available to the Borrower as of the date of delivery thereof, and presents
fairly on a pro forma basis the estimated financial position of Borrower and
its consolidated Subsidiaries as at August 15, 1998, assuming that the events
specified in the preceding sentence had actually occurred at such date.
(b) The audited consolidated balance sheets of the Borrower
and its Subsidiaries as at March 28, 1998, March 29, 1997 and March 30, 1996,
and the related consolidated
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38
statements of income and of cash flows for the fiscal years ended on such
dates, reported on by and accompanied by a report from Price Waterhouse LLP,
present fairly the consolidated financial condition of the Borrower as at such
date, and the consolidated results of its operations and its consolidated cash
flows for the respective fiscal years then ended. All such financial
statements, including the related schedules and notes thereto, have been
prepared in accordance with GAAP applied consistently throughout the periods
involved (except as approved by the aforementioned firm of accountants and
disclosed therein). The Borrower and its Subsidiaries do not have any material
Guarantee Obligations, contingent liabilities and liabilities for taxes, or any
long-term leases or unusual forward or long-term commitments, including,
without limitation, any interest rate or foreign currency swap or exchange
transaction or other obligation in respect of derivatives, which are not
reflected in the most recent financial statements referred to in this
paragraph. During the period from March 28, 1998 to and including the date
hereof there has been no Disposition by the Borrower of any material part of
its business or Property.
5.2 No Change. Since March 28, 1998 there has been no
development or event which has had or could reasonably be expected to have a
Material Adverse Effect, other than (a) those which customarily occur as a
result of events leading up to and following the commencement of a proceeding
under Chapter 11 of the Bankruptcy Code, and (b) the commencement of the Case.
5.3 Corporate Existence; Compliance with Law. Each of the
Borrower and its Subsidiaries (a) is duly organized, validly existing and in
good standing under the laws of the jurisdiction of its organization, (b) has
the corporate power and authority, and the legal right, to own and operate its
Property, to lease the Property it operates as lessee and to conduct the
business in which it is currently engaged, (c) is duly qualified as a foreign
corporation and in good standing under the laws of each jurisdiction where its
ownership, lease or operation of Property or the conduct of its business
requires such qualification and (d) is in compliance with all Requirements of
Law except to the extent that the failure to comply therewith could not, in
the aggregate, reasonably be expected to have a Material Adverse Effect.
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39
5.4 Corporate Power; Authorization; Enforceable Obligations.
Upon entry by the Bankruptcy Court of the Final Order, each Loan Party shall
have the corporate power and authority, and the legal right, to make, deliver
and perform the Loan Documents to which it is a party and, in the case of the
Borrower, to borrow hereunder. Each Loan Party has taken all necessary
corporate action to authorize the execution, delivery and performance of the
Loan Documents to which it is a party and, in the case of the Borrower, to
authorize the borrowings on the terms and conditions of this Agreement and the
Final Order. No consent or authorization of, filing with, notice to or other
act by or in respect of, any Governmental Authority (other than entry of the
Final Order) or any other Person is required in connection with the
transactions and the borrowings hereunder or with the execution, delivery,
performance, validity or enforceability of this Agreement or any of the Loan
Documents, except the filings referred to in Section 5.19. Each Loan Document
has been duly executed and delivered on behalf of each Loan Party thereto.
This Agreement constitutes, and each other Loan Document upon execution will
constitute, a legal, valid and binding obligation of each Loan Party thereto,
enforceable against each such Loan Party in accordance with its terms and the
Final Order, except, with respect to the Subsidiary Guarantors, as
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting the enforcement of
creditors' rights generally and by equitable principles (whether enforcement
is sought by proceedings in equity or at law).
5.5 No Legal Bar. The execution, delivery and performance of
this Agreement and the other Loan Documents, the issuance of Letters of
Credit, the borrowings hereunder and the use of the proceeds thereof will not
violate any Requirement of Law or any Contractual Obligation of the Borrower
(to the extent such Contractual Obligation has been entered into after the
Petition Date) or any of its Subsidiaries and will not result in, or require,
the creation or imposition of any Lien on any of their respective properties
or revenues pursuant to any Requirement of Law or any such Contractual
Obligation (other than the Liens created by the Security Documents and the
Final Order). No Requirement of Law or Contractual Obligation applicable to
the Borrower or any of its Subsidiaries could reasonably be expected to have a
Material Adverse Effect.
5.6 No Material Litigation. Except with respect to the Case,
no litigation, investigation or proceeding of or before any arbitrator or
Governmental Authority is pending or, to the knowledge of the Borrower,
threatened by or against the Borrower or any of its Subsidiaries or against
any of their respective properties or revenues (a) with respect to any of the
Loan Documents or any of the transactions contemplated hereby or thereby, or
(b) which could reasonably be expected to have a Material Adverse Effect.
5.7 No Default. Except as may result from the commencement
of the Case and except for existing defaults under the Prepetition Credit
Agreement (without regard to waivers thereof) and the Borrower's outstanding
12% Senior Notes, neither the Borrower nor any of its Subsidiaries is in
default under or with respect to any of its Contractual Obligations in any
respect which could reasonably be expected to have a Material Adverse Effect.
No Default or Event of Default has occurred and is continuing.
5.8 Ownership of Property; Liens. Each of the Borrower and
its Subsidiaries has title in fee simple to, or a valid leasehold interest in,
all its real property, and good title to, or a valid leasehold interest in,
all its other Property, and none of such Property is subject to any Lien
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40
except Permitted Liens.
5.9 Intellectual Property. The Borrower and each of its
Subsidiaries owns, or is licensed to use, all Intellectual Property necessary
for the conduct of its business as currently conducted. No material claim has
been asserted and is pending by any Person challenging or questioning the use
of any Intellectual Property or the validity or effectiveness of any
Intellectual Property, nor does the Borrower know of any valid basis for any
such claim. The use of Intellectual Property by the Borrower and its
Subsidiaries does not infringe on the rights of any Person in any material
respect.
5.10 Taxes. Each of the Borrower and each of its
Subsidiaries has filed or caused to be filed all Federal, state and other
material tax returns which are required to be filed and has paid all taxes
shown to be due and payable on said returns or on any assessments made against
it or any of its Property and all other material taxes, fees or other charges
imposed on it by any Governmental Authority (other than any the amount or
validity of which are currently being contested in good faith by appropriate
proceedings and with respect to which reserves in conformity with GAAP have
been provided on the books of the Borrower or its Subsidiaries, as the case
may be.
5.11 Federal Regulations. No part of the proceeds of any
Loans will be used for "purchasing" or "carrying" any "margin stock" within
the respective meanings of each of the quoted terms under Regulation U as now
and from time to time hereafter in effect or for any purpose which violates
the provisions of the Regulations of the Board. If requested by any Lender or
the Administrative Agent, the Borrower will furnish to the Administrative
Agent and each Lender a statement to the foregoing effect in conformity with
the requirements of FR Form G-3 or FR Form U-1 referred to in Regulation U.
5.12 Labor Matters. There are no strikes or other labor
disputes against the Borrower or any of its Subsidiaries pending or, to the
knowledge of the Borrower, threatened that (individually or in the aggregate)
could reasonably be expected to have a Material Adverse Effect. Hours worked
by and payment made to employees of the Borrower and its Subsidiaries have not
been in violation of the Fair Labor Standards Act or any other applicable
Requirement of Law dealing with such matters that (individually or in the
aggregate) could reasonably be expected to have a Material Adverse Effect. All
payments due from the Borrower or any of its Subsidiaries on account of
employee health and welfare insurance that (individually or in the aggregate)
could reasonably be expected to have a Material Adverse Effect if not paid
have been paid or accrued as a liability on the books of the Borrower or the
relevant Subsidiary.
5.13 ERISA. Except for the commencement of the Case and the
voluntary petition filed by the Borrower in the Bankruptcy Court for the
District of Delaware in 1995, neither a Reportable Event nor an "accumulated
funding deficiency" (within the meaning of Section 412 of the Code or Section
302 of ERISA) has occurred during the five-year period prior to the date on
which this representation is made or deemed made with respect to any Plan, and
each Plan has complied in all material respects with the applicable provisions
of ERISA and the Code. No termination of a Single Employer Plan has occurred,
and no Lien in favor of the PBGC or a Plan has arisen, during such five-year
period. The present value of all accrued benefits under each Single Employer
Plan (based on those assumptions used to fund such Plans) did not, as of the
last annual valuation date prior to the date on which this representation is
made
<PAGE>
41
or deemed made, exceed the value of the assets of such Plan allocable to such
accrued benefits by a material amount. Neither the Borrower nor any Commonly
Controlled Entity has had a complete or partial withdrawal from any
Multiemployer Plan which has resulted or could reasonably be expected to result
in a material liability under ERISA, and neither the Borrower nor any Commonly
Controlled Entity would become subject to any material liability under ERISA if
the Borrower or any such Commonly Controlled Entity were to withdraw completely
from all Multiemployer Plans as of the valuation date most closely preceding
the date on which this representation is made or deemed made. To the knowledge
of the Borrower, no such Multiemployer Plan is in Reorganization or Insolvent.
5.14 Investment Company Act; Other Regulations. No Loan
Party is an "investment company", or a company "controlled" by an "investment
company", within the meaning of the Investment Company Act of 1940, as
amended. No Loan Party is subject to regulation under any Requirement of Law
(other than Regulation X of the Board) which limits its ability to incur
Indebtedness.
5.15 Subsidiaries. The Subsidiaries listed on Schedule 5.16
constitute all the Subsidiaries of the Borrower at the date hereof.
5.16 Use of Proceeds. The proceeds of the Revolving Credit
Loans and the Swing Line Loans, and the Letters of Credit, shall be used (i)
to finance the working capital needs of the Borrower and the Subsidiary
Guarantors in the ordinary course of business, (ii) for payment of Chapter 11
expenses, including professional fees, (iii) for general corporate purposes,
and (iv) to refinance the revolving credit and term loans, and to cash
collateralize, replace or backstop letters of credit outstanding, under the
Borrower's Prepetition Credit Agreement, in all cases subject to the terms of
this Agreement, the Final Order and the Budget.
5.17 Environmental Matters.
(a) The facilities and properties owned, leased or operated
by the Borrower or any of its Subsidiaries (the "Properties") do not contain,
and have not previously contained, any Materials of Environmental Concern in
amounts or concentrations or under circumstances which (i) constitute or
constituted a violation of, or (ii) could give rise to liability under, any
Environmental Law, except in either case insofar as such violation or
liability, or any aggregation thereof, could not reasonably be expected to
result in the payment of a Material Environmental Amount.
(b) The Properties and all operations at the Properties are
in material compliance, and have in the last five years been in material
compliance, with all applicable Environmental Laws, and there is no
contamination at, under or about the Properties or violation of any
Environmental Law with respect to the Properties or the business operated by
the Borrower or any of its Subsidiaries (the "Business") which could
materially interfere with the continued operation of the Properties taken as a
whole or materially impair the fair saleable value of the Properties taken as
a whole. Neither the Borrower nor any of its Subsidiaries has assumed any
liability of any other Person under Environmental Laws.
(c) Neither the Borrower nor any of its Subsidiaries has
received or is aware of any notice of violation, alleged violation,
non-compliance, liability or potential liability
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42
regarding environmental matters or compliance with Environmental Laws with
regard to any of the Properties or the Business, nor does the Borrower have
knowledge or reason to believe that any such notice will be received or is
being threatened, except insofar as such notice or threatened notice, or any
aggregation thereof, does not involve a matter or matters that could reasonably
be expected to result in the payment of a Material Environmental Amount.
(d) Materials of Environmental Concern have not been
transported or disposed of from the Properties in violation of, or in a manner
or to a location which could give rise to liability under, any Environmental
Law, nor have any Materials of Environmental Concern been generated, treated,
stored or disposed of at, on or under any of the Properties in violation of,
or in a manner that could give rise to liability under, any applicable
Environmental Law, except insofar as any such violation or liability referred
to in this paragraph, or any aggregation thereof, could not reasonably be
expected to result in the payment of a Material Environmental Amount.
(e) No judicial proceeding or governmental or administrative
action is pending or, to the knowledge of the Borrower, threatened, under any
Environmental Law to which the Borrower or any Subsidiary is or will be named
as a party with respect to the Properties or the Business, nor are there any
consent decrees or other decrees, consent orders, administrative orders or
other orders, or other administrative or judicial requirements outstanding
under any Environmental Law with respect to the Properties or the Business,
except insofar as such proceeding, action, decree, order or other requirement,
or any aggregation thereof, could not reasonably be expected to result in the
payment of a Material Environmental Amount.
(f) There has been no release or threat of release of
Materials of Environmental Concern at or from the Properties, or arising from
or related to the operations of the Borrower or any Subsidiary in connection
with the Properties or otherwise in connection with the Business, in violation
of or in amounts or in a manner that could give rise to liability under
Environmental Laws, except insofar as any such violation or liability referred
to in this paragraph, or any aggregation thereof, could not reasonably be
expected to result in the payment of a Material Environmental Amount.
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43
5.18 Accuracy of Information, etc. No statement or
information contained in this Agreement, any other Loan Document, the Plan of
Reorganization and the disclosure statement related thereto, the Confidential
Information Memorandum or any other document, certificate or statement
furnished to the Arrangers, the Agents, the Lenders, the Bankruptcy Court or
any of them, by or on behalf of any Loan Party for use in connection with the
transactions contemplated by this Agreement or the other Loan Documents,
contained as of the date such statement, information, document or certificate
was so furnished (or, in the case of the Confidential Information Memorandum,
as of the date of this Agreement), any untrue statement of a material fact or
omitted to state a material fact necessary in order to make the statements
contained herein or therein not misleading in light of the circumstances under
which such statements are made. The projections and pro forma financial
information contained in the materials referenced above are based upon good
faith estimates and assumptions believed by management of the Borrower to be
reasonable at the time made, it being recognized by the Lenders that such
financial information as it relates to future events is not to be viewed as
fact and that actual results during the period or periods covered by such
financial information may differ from the projected results set forth therein
by a material amount. There is no fact known to any Loan Party that could
reasonably be expected to have a Material Adverse Effect that has not been
expressly disclosed herein, in the other Loan Documents, in the Confidential
Information Memorandum or in any other documents, certificates and statements
furnished to the Arrangers, the Agents, the Lenders or the Bankruptcy Court
for use in connection with the transactions contemplated hereby and by the
other Loan Documents.
5.19 Security Documents. The Guarantee and Collateral
Agreement is effective to create in favor of the Administrative Agent, for the
benefit of the Lenders, a legal, valid and enforceable security interest in
all right, title and interest of the Subsidiary Guarantors in the Collateral
described therein and proceeds thereof. In the case of the Collateral (other
than Pledged Stock) described in the Guarantee and Collateral Agreement, when
financing statements in appropriate form are filed in the offices specified on
Schedule 2 of the Guarantee and Collateral Agreement, the Guarantee and
Collateral Agreement shall constitute, as security for the Obligations (as
defined in the Guarantee and Collateral Agreement), a fully perfected Lien on,
and security interest in, all right, title and interest of the Subsidiary
Guarantors in such Collateral and the proceeds thereof, as set forth in
Section 4.3 of the Guarantee and Collateral Agreement.
SECTION 6. CONDITIONS PRECEDENT
6.1 Conditions to Initial Extension of Credit. The agreement
of each Lender to make the initial extension of credit requested to be made by
it is subject to the satisfaction, prior to or concurrently with the making of
such extension of credit on the Closing Date, of the following conditions
precedent:
(a) Loan Documents. The Administrative Agent shall have
received (i) this Agreement, executed and delivered by a duly
authorized officer of the Borrower, (ii) the Guarantee and Collateral
Agreement, executed and delivered by a duly authorized officer of
each Subsidiary Guarantor, and (iii) for the account of each relevant
Lender, Notes conforming to the requirements hereof and executed and
delivered by a duly authorized officer of the Borrower.
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44
(b) Final Order. The Administrative Agent shall have
received a copy of the Final Order approving the Loan Documents and
granting the Super-Priority Claim status and Liens described in
Section 4.1 and finding that the Lenders are extending credit to the
Borrower in good faith within the meaning of Section 364(e) of the
Bankruptcy Code, which Final Order (i) shall be in form and substance
reasonably satisfactory to the Agents, (ii) shall have been entered
upon an application of the Borrower reasonably satisfactory in form
and substance to the Agents, (iii) shall be in full force and effect
and (iv) shall not have been stayed, reversed, vacated, rescinded,
modified or amended in any respect.
(c) First Day Orders. All orders submitted to the Bankruptcy
Court on or about the Petition Date shall be in form and substance
reasonably satisfactory to the Agents.
(d) Pro Forma Balance Sheet; Financial Statements. The
Lenders shall have received (i) the Pro Forma Balance Sheet and (ii)
the audited consolidated financial statements of the Borrower for the
1998 fiscal year.
(e) Related Agreements. The Administrative Agent shall have
received (in a form reasonably satisfactory to the Agents), with a
copy for each Lender, true and correct copies, certified as to
authenticity by the Borrower, of such documents or instruments as may
be reasonably requested by the Agents, including, without limitation,
a copy of any other debt instrument, security agreement or other
material contract to which the Loan Parties may be a party.
(f) Fees. The Lenders, the Arrangers and the Agents shall
have received all fees required to be paid, and all expenses for
which invoices have been presented, on or before the Closing Date.
All such amounts will be paid with proceeds of Loans made on the
Closing Date and will be reflected in the funding instructions given
by the Borrower to the Administrative Agent on or before the Closing
Date.
(g) Budget. The Agents and the Lenders shall have received
the initial Budget for the first fiscal period (or portion thereof)
of the Case and a budget covering the period from the Petition Date
through the Maturity Date and other cash flow and financial
projections that itemize on a weekly basis all revenues projected to
be received and all material expenditures proposed to be made prior
to the Maturity Date, in form and substance reasonably satisfactory
to the Agents.
(h) Lien Searches. The Administrative Agent shall have
received the results of a recent lien search in each of the
jurisdictions where assets of the Loan Parties are located, and such
search shall reveal no liens on any of the assets of the Borrower or
its Subsidiaries except for (i) Permitted Liens, and (ii) such liens
as may be reasonably satisfactory to the Agents.
(i) Certification. The Administrative Agent shall have
received a certification from the Borrower's balloting agent
evidencing the receipt of the requisite acceptances from each class
of creditors and interest holders entitled to vote on the Plan of
Reorganization in accordance with Section 1126 of the Bankruptcy
Code.
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(j) Closing Certificate. The Administrative Agent shall have
received, with a counterpart for each Lender, a certificate of each
Loan Party, dated the Closing Date, substantially in the form of
Exhibit D, with appropriate insertions and attachments.
(k) Legal Opinions. The Administrative Agent shall have
received the executed legal opinion of Weil, Gotshal & Manges LLP,
counsel to the Borrower and its Subsidiaries, substantially in the
form of Exhibit F. Such legal opinion shall cover such other matters
incident to the transactions contemplated by this Agreement as the
Agents may reasonably require.
(l) Filings, Registrations and Recordings. Each document
(including, without limitation, any Uniform Commercial Code financing
statement) required by the Security Documents or under law or
reasonably requested by the Administrative Agent to be filed,
registered or recorded in order to create in favor of the
Administrative Agent, for the benefit of the Agents and the Lenders,
a perfected Lien on the Collateral described therein, prior and
superior in right to any other Person (other than Permitted Liens),
shall be in proper form for filing, registration or recordation.
(m) Insurance. The Administrative Agent shall have received
insurance certificates satisfying the requirements of Section 7.5.
6.2 Conditions to Each Extension of Credit. The agreement of
each Lender to make any extension of credit requested to be made by it on any
date (including, without limitation, its initial extension of credit) is
subject to the satisfaction of the following conditions precedent:
(a) Representations and Warranties. Each of the
representations and warranties made by any Loan Party in or pursuant
to the Loan Documents shall be true and correct in all material
respects on and as of such date as if made on and as of such date.
(b) No Default. No Default or Event of Default shall have
occurred and be continuing on such date or after giving effect to the
extensions of credit requested to be made on such date.
(c) Bankruptcy Court Approval. The Final Order shall be in
full force and effect and shall not have been stayed, reversed,
vacated, rescinded, modified or amended in any respect.
Each borrowing by and issuance of a Letter of Credit on behalf of the Borrower
hereunder shall constitute a representation and warranty by the Borrower as of
the date of such extension of credit that the conditions contained in this
Section 6.2 have been satisfied.
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46
SECTION 7. AFFIRMATIVE COVENANTS
The Borrower hereby agrees that, so long as the Revolving
Credit Commitments remain in effect, any Letter of Credit remains outstanding
or any Loan or other amount is owing to any Lender or any Agent hereunder, the
Borrower shall and shall cause each of its Subsidiaries to:
7.1 Financial Statements. Furnish to each Agent and each
Lender:
(a) as soon as available, but in any event within 90 days
after the end of each fiscal year of the Borrower, a copy of the
audited consolidated balance sheet of the Borrower and its
consolidated Subsidiaries as at the end of such year and the related
audited consolidated statements of income and of cash flows for such
year, setting forth in each case in comparative form the figures for
the previous year, reported without a "going concern" or like
qualification or exception (other than with respect to the Case) by
Price Waterhouse LLP or other independent certified public
accountants of nationally recognized standing; and
(b) as soon as available, but in any event not later than 45
days after the end of each of the first three quarterly periods of
each fiscal year of the Borrower, the unaudited consolidated balance
sheet of the Borrower and its consolidated Subsidiaries as at the end
of such quarter and the related unaudited consolidated statements of
income and of cash flows for such quarter and the portion of the
fiscal year through the end of such quarter, setting forth in each
case in comparative form the figures for the previous year, certified
by a Responsible Officer as being fairly stated in all material
respects (subject to normal year-end audit adjustments); and
(c) as soon as available, but in any event not later than 45
days after the end of each month occurring during each fiscal year of
the Borrower (other than the third, sixth, ninth and twelfth such
month), the unaudited consolidated balance sheets of the Borrower and
its Subsidiaries as at the end of such month and the related
unaudited consolidated statements of income and of cash flows for
such month and the portion of the fiscal year through the end of such
month, setting forth in each case in comparative form the figures for
the previous year, certified by a Responsible Officer as being fairly
stated in all material respects (subject to normal year end audit
adjustments);
all such financial statements shall be complete and correct in all material
respects and shall be prepared in reasonable detail and in accordance with
GAAP applied consistently throughout the periods reflected therein and with
prior periods (except as approved by such accountants or officer, as the case
may be, and disclosed therein).
7.2 Certificates; Other Information. Furnish to each Agent
and each Lender, or, in the case of clause (i), to the relevant Lender:
(a) concurrently with the delivery of the financial
statements referred to in Section 7.1(a), a certificate of the
independent certified public accountants reporting on such financial
statements stating that in making the examination necessary therefor no
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47
knowledge was obtained of any Default or Event of Default, except as
specified in such certificate;
(b) concurrently with the delivery of any financial
statements pursuant to Section 7.1, (i) a certificate of a
Responsible Officer stating that, to the best of each such
Responsible Officer's knowledge, each Loan Party during such period
has observed or performed all of its covenants and other agreements,
and satisfied every condition, contained in this Agreement and the
other Loan Documents to which it is a party to be observed, performed
or satisfied by it, and that such Responsible Officer has obtained no
knowledge of any Default or Event of Default except as specified in
such certificate and (ii) in the case of quarterly or annual
financial statements, (x) a Compliance Certificate containing all
information necessary for determining compliance by the Borrower and
its Subsidiaries with the provisions of this Agreement referred to
therein as of the last day of the fiscal quarter or fiscal year of
the Borrower, as the case may be, and (y) to the extent not
previously disclosed to the Administrative Agent, a listing of any
county or state within the United States where any Guarantor
Subsidiary keeps inventory or equipment and of any Intellectual
Property acquired by any Loan Party since the date of the most recent
list delivered pursuant to this clause (y) (or, in the case of the
first such list so delivered, since the Closing Date);
(c) no later than five days before the end of each fiscal
period following the Closing Date, the Budget for the succeeding
fiscal period in the form of Exhibit I or otherwise in a format
reasonably satisfactory to the Agents;
(d) no later than 20 days after the first day of each fiscal
period following the Closing Date, a variance report for the
preceding fiscal period in a form reasonably satisfactory to the
Agents;
(e) on a weekly basis, reports in a form reasonably
satisfactory to the Agents detailing the Borrower's compliance with
the then current Budget and status of the Collateral;
(f) to counsel to the Agents, promptly after the same is
available, copies of all pleadings, motions, applications, judicial
information, financial information or other documents filed on or on
behalf of the Borrower with the Bankruptcy Court or the United States
Trustee in the Case, or distributed by or on behalf of the Borrower
to any official committee appointed in the Case;
(g) within five days after the same are sent, copies of all
financial statements and reports which the Borrower sends to the
holders of any class of its debt securities or public equity
securities and, within five days after the same are filed, copies of
all financial statements and reports which the Borrower may make to,
or file with, the Securities and Exchange Commission or any successor
or analogous Governmental Authority; and
(h) promptly, such additional financial and other
information as any Lender may from time to time reasonably request.
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7.3 Payment of Obligations. Except in accordance with the
Bankruptcy Code or by an applicable order of the Bankruptcy Court, pay,
discharge or otherwise satisfy at or before maturity or before they become
delinquent, as the case may be, all its material obligations of whatever
nature that constitute administrative expenses under Section 503(b) of the
Bankruptcy Code in the Case, except, so long as no material Property or assets
(other than money for such obligation and the interest or penalty accruing
thereon) of the Borrower or any of its Subsidiaries is in danger of being lost
or forfeited as a result thereof, no such obligation need be paid if the
amount or validity thereof is currently being contested in good faith by
appropriate proceedings and reserves in conformity with GAAP with respect
thereto have been provided on the books of the Borrower or its Subsidiaries,
as the case may be.
7.4 Conduct of Business and Maintenance of Existence, etc.
(_) (a) (i) Preserve, renew and keep in full force and effect its corporate
existence and (ii) take all reasonable action to maintain all rights,
privileges and franchises necessary or desirable in the normal conduct of its
business, except, in each case, as otherwise permitted by Section 8.4 and
except, in the case of clause (ii) above, to the extent that failure to do so
could not reasonably be expected to have a Material Adverse Effect; and (_) (b)
subject to the effect of the Case, comply with all Contractual Obligations
(unless otherwise not required as a result of the Case) and Requirements of
Law except to the extent that failure to comply therewith could not, in the
aggregate, reasonably be expected to have a Material Adverse Effect.
7.5 Maintenance of Property; Insurance. (a) Keep all
Property useful and necessary in its business in good working order and
condition, ordinary wear and tear excepted and (b) maintain with financially
sound and reputable insurance companies insurance on all its Property in at
least such amounts and against at least such risks (but including in any event
public liability, product liability and business interruption) as are usually
insured against in the same general area by companies engaged in the same or a
similar business.
7.6 Inspection of Property; Books and Records; Discussions;
Collateral Audit. (a) Keep proper books of records and account in which full,
true and correct entries in conformity with GAAP and all Requirements of Law
shall be made of all dealings and transactions in relation to its business and
activities, (b) permit representatives of any Lender to visit and inspect any
of its properties and examine and make abstracts from any of its books and
records at any reasonable time and as often as may reasonably be desired and
to discuss the business, operations, properties and financial and other
condition of the Borrower and its Subsidiaries with officers and employees of
the Borrower and its Subsidiaries and with its independent certified public
accountants and (c) permit employees, representatives and/or agents of the
Lenders, from time to time at the Administrative Agent's reasonable request,
during normal business hours, to enter into the premises of the Borrower and
its Subsidiaries to conduct an audit of the Collateral, the reasonable cost
and expense of which shall be borne by the Borrower.
7.7 Notices. Promptly give notice to the Administrative
Agent and each Lender of:
(a) the occurrence of any Default or Event of Default;
(b) any (i) default or event of default under any
Contractual Obligation of the
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49
Borrower (to the extent such Contractual Obligation has been entered
into after the Petition Date) or any of its Subsidiaries or (ii)
litigation, investigation or proceeding which may exist at any time
between the Borrower or any of its Subsidiaries and any Governmental
Authority, which in either case, if not cured or if adversely
determined, as the case may be, could reasonably be expected to have a
Material Adverse Effect;
(c) except for the Case, any litigation or proceeding
affecting the Borrower or any of its Subsidiaries in which the amount
involved is $500,000 or more and not covered by insurance or in which
injunctive or similar relief is sought;
(d) the following events, as soon as possible and in any
event within 30 days after the Borrower knows or has reason to know
thereof: (i) the occurrence of any Reportable Event with respect to
any Plan, a failure to make any required contribution to a Plan, the
creation of any Lien in favor of the PBGC or a Plan or any withdrawal
from, or the termination, Reorganization or Insolvency of, any
Multiemployer Plan or (ii) the institution of proceedings or the
taking of any other action by the PBGC or the Borrower or any
Commonly Controlled Entity or any Multiemployer Plan with respect to
the withdrawal from, or the termination, Reorganization or Insolvency
of, any Plan; and
(e) any development or event which has had or could
reasonably be expected to have a Material Adverse Effect, other than
changes which result solely from the Case.
Each notice pursuant to this Section 7.7 shall be accompanied by a statement
of a Responsible Officer setting forth details of the occurrence referred to
therein and stating what action the Borrower or the relevant Subsidiary
proposes to take with respect thereto.
7.8 Environmental Laws. (a) Comply in all material respects
with, and ensure compliance in all material respects by all tenants and
subtenants, if any, with, all applicable Environmental Laws, and obtain and
comply in all material respects with and maintain, and ensure that all tenants
and subtenants obtain and comply in all material respects with and maintain,
any and all licenses, approvals, notifications, registrations or permits
required by applicable Environmental Laws.
(b) Conduct and complete all investigations, studies,
sampling and testing, and all remedial, removal and other actions required
under Environmental Laws and promptly comply in all material respects with all
lawful orders and directives of all Governmental Authorities regarding
Environmental Laws.
7.9 Further Assurances. From time to time execute and
deliver, or cause to be executed and delivered, such additional instruments,
certificates or documents, and take all such actions, as the Administrative
Agent may reasonably request, for the purposes of implementing or effectuating
the provisions of this Agreement, the other Loan Documents and the Final
Order, or of more fully perfecting or renewing the rights of the
Administrative Agent and the Lenders with respect to the Collateral (or with
respect to any additions thereto or replacements or proceeds thereof or with
respect to any other property or assets hereafter acquired by the Borrower
which may be deemed to be part of the Collateral) pursuant hereto or thereto.
Upon the exercise by the Administrative Agent or any Lender of any power,
right, privilege or remedy pursuant to this Agreement, the other Loan
Documents or the Final Order which requires any
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50
consent, approval, recording, qualification or authorization of any
Governmental Authority, the Borrower will execute and deliver, or will cause
the execution and delivery of, all applications, certifications, instruments
and other documents and papers that the Administrative Agent or such Lender may
be required to obtain from the Borrower or any of its Subsidiaries for such
governmental consent, approval, recording, qualification or authorization.
SECTION 8. NEGATIVE COVENANTS
The Borrower hereby agrees that, so long as the Revolving
Credit Commitments remain in effect, any Letter of Credit remains outstanding
or any Loan or other amount is owing to any Lender or any Agent hereunder, the
Borrower shall not, and shall not permit any of its Subsidiaries to, directly
or indirectly:
8.1 Financial Condition Covenants. If the Plan of
Reorganization shall not have been consummated on or before August 31, 1998,
permit the Consolidated Leverage Ratio to exceed, and the Consolidated
Interest Coverage Ratio to be less than, certain ratios to be agreed upon by
the Agents and the Borrower; it being understood that (i) such ratios shall be
set at approximately 80% of the Borrower's "T-2 Business Plan" and shall be
measured on a monthly basis, and (ii) such ratios shall utilize the defined
terms relative to such ratios as contained in Section 1.
8.2 Limitation on Indebtedness. Create, incur, assume or
suffer to exist any Indebtedness, except:
(a) Indebtedness of any Loan Party pursuant to any Loan
Document;
(b) Indebtedness of the Borrower to any Subsidiary and of
any Wholly Owned Subsidiary Guarantor to the Borrower or any other
Subsidiary; provided that any such Indebtedness shall be evidenced by
a promissory note which shall be pledged collaterally to the
Administrative Agent;
(c) Indebtedness outstanding on the date hereof and listed
on Schedule 8.2(c), but excluding the refinancing of any such
Indebtedness; and
(d) Capital Lease Obligations with respect to vehicles and
office equipment leased in the ordinary course of the Borrower's
business.
8.3 Limitation on Liens. Create, incur, assume or suffer to
exist any Lien upon any of its Property, whether now owned or hereafter
acquired, except for:
(a) Liens for taxes not yet due or which are being contested
in good faith by appropriate proceedings, provided that adequate
reserves with respect thereto are maintained on the books of the
Borrower or its Subsidiaries, as the case may be, in conformity with
GAAP;
(b) carriers', warehousemen's, mechanics', materialmen's,
repairmen's or other like Liens arising in the ordinary course of
business which are not overdue for a period of
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51
more than 30 days or which are being contested in good faith by
appropriate proceedings;
(c) pledges or deposits in connection with workers'
compensation, unemployment insurance and other social security
legislation;
(d) deposits to secure the performance of bids, trade
contracts (other than for borrowed money), leases, statutory
obligations, surety and appeal bonds, performance bonds and other
obligations of a like nature incurred in the ordinary course of
business;
(e) easements, rights-of-way, restrictions and other similar
encumbrances incurred in the ordinary course of business which, in
the aggregate, are not substantial in amount and which do not in any
case materially detract from the value of the Property subject
thereto or materially interfere with the ordinary conduct of the
business of the Borrower or any of its Subsidiaries;
(f) Liens in existence on the date hereof listed on Schedule
8.3(f), securing Indebtedness permitted by Section 8.2(c), provided
that no such Lien is spread to cover any additional Property after
the Closing Date and that the amount of Indebtedness secured thereby
is not increased;
(g) Liens created pursuant to the Loan Documents and the
Final Order, replacement Liens granted to the holders of Supplemental
Term Loans pursuant to the Cash Collateral Order, existing Liens
granted to such holders, and existing and replacement Liens granted
to the other holders of the Prepetition Obligations under the Cash
Collateral Order;
(h) any interest or title of a lessor under any lease
entered into by the Borrower or any other Subsidiary in the ordinary
course of its business and covering only the assets so leased; and
(i) with the consent of the Administrative Agent, Liens in
respect of deposits with utilities in the ordinary course of
business; provided, however, that (i) the Borrower shall use its best
efforts not to make any such deposits with utilities, (ii) the
Borrower shall use its best efforts to terminate all such deposit
arrangements and (iii) the aggregate amount of such deposits at any
time shall not exceed $4,000,000.
8.4 Limitation on Fundamental Changes. Enter into any
merger, consolidation or amalgamation, or liquidate, wind up or dissolve
itself (or suffer any liquidation or dissolution), or Dispose of all or
substantially all of its Property or business, except that:
(a) any Subsidiary of the Borrower may be merged or
consolidated with or into the Borrower (provided that the Borrower
shall be the continuing or surviving corporation) or with or into any
Subsidiary Guarantor (provided that the Subsidiary Guarantor shall be
the continuing or surviving corporation); and
(b) any Subsidiary of the Borrower may Dispose of any or all
of its assets (upon voluntary liquidation or otherwise) to the
Borrower or any Subsidiary Guarantor.
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52
8.5 Limitation on Disposition of Property. Dispose of any of
its Property (including, without limitation, receivables and leasehold
interests), whether now owned or hereafter acquired, or, in the case of any
Subsidiary, issue or sell any shares of such Subsidiary's Capital Stock to any
Person, except:
(a) the Disposition of obsolete or worn out property in the
ordinary course of business;
(b) the sale of inventory in the ordinary course of business;
(c) Dispositions permitted by Section 8.4(b); and
(d) the sale or issuance of any Subsidiary's Capital Stock
to the Borrower or any Subsidiary Guarantor.
8.6 Limitation on Restricted Payments. Declare or pay any
dividend (other than dividends payable solely in common stock of the Person
making such dividend) on, or make any payment on account of, or set apart
assets for a sinking or other analogous fund for, the purchase, redemption,
defeasance, retirement or other acquisition of, any Capital Stock of the
Borrower or any Subsidiary, whether now or hereafter outstanding, or make any
other distribution in respect thereof, either directly or indirectly, whether
in cash or property or in obligations of the Borrower or any Subsidiary
(collectively, "Restricted Payments"), except that any Subsidiary may make
Restricted Payments to the Borrower or any Subsidiary Guarantor.
8.7 Limitation on Capital Expenditures. Make or commit to
make any Capital Expenditure except as otherwise set forth in the Budget.
8.8 Limitation on Investments. Make any advance, loan,
extension of credit (by way of guaranty or otherwise) or capital contribution
to, or purchase any Capital Stock, bonds, notes, debentures or other debt
securities of, or any assets constituting an ongoing business from, or make
any other investment in, any other Person (all of the foregoing,
"Investments"), except:
(a) extensions of trade credit in the ordinary course of
business;
(b) investments in Cash Equivalents;
(c) Investments arising in connection with the incurrence of
Indebtedness permitted by Section 8.2(b);
(d) loans and advances to employees of the Borrower or any
Subsidiaries of the Borrower in the ordinary course of business
(including, without limitation, for travel, entertainment and
relocation expenses) in an aggregate amount for the Borrower and
Subsidiaries of the Borrower not to exceed $500,000 at any one time
outstanding;
(e) Investments pursuant to the Loan Documents and the Final
Order;
(f) Investments (other than those relating to the incurrence
of Indebtedness permitted by Section 8.8(c)) by the Borrower or any
of its Subsidiaries in the Borrower or
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53
any Person that, prior to such investment, is a Subsidiary Guarantor;
(g) Investments in existence on the date hereof listed on
Schedule 8.8(h);
(h) debt or equity securities received in connection with
the bankruptcy or reorganization of suppliers and/or customers and in
settlement of delinquent obligations of, and other disputes with,
customers and/or suppliers in the ordinary course of business; and
(i) additional Investments of a nature not contemplated
pursuant to the foregoing clauses (a) through (i); provided that all
Investments pursuant to this clause (l) shall not exceed $1,000,000
at any one time.
8.9 Limitation on Transactions with Affiliates. Enter into
any transaction, including, without limitation, any purchase, sale, lease or
exchange of Property, the rendering of any service or the payment of any
management, advisory or similar fees, with any Affiliate (other than the
Borrower or any Subsidiary Guarantor) unless such transaction is (a) otherwise
permitted under this Agreement, (b) in the ordinary course of business of the
Borrower or such Subsidiary, as the case may be, and (c) upon fair and
reasonable terms no less favorable to the Borrower or such Subsidiary, as the
case may be, than it would obtain in a comparable arm's length transaction
with a Person which is not an Affiliate.
8.10 Limitation on Sales and Leasebacks. Enter into any
arrangement with any Person providing for the leasing by the Borrower or any
Subsidiary of real or personal property which has been or is to be sold or
transferred by the Borrower or such Subsidiary to such Person or to any other
Person to whom funds have been or are to be advanced by such Person on the
security of such property or rental obligations of the Borrower or such
Subsidiary.
8.11 Limitation on Changes in Fiscal Periods. Permit the
fiscal year of the Borrower to end on a day other than the Saturday closest to
the last day in March or change the Borrower's method of determining fiscal
periods.
8.12 Limitation on Negative Pledge Clauses. Enter into or
suffer to exist or become effective any agreement which prohibits or limits
the ability of the Borrower or any of its Subsidiaries to create, incur,
assume or suffer to exist any Lien upon any of its Property or revenues,
whether now owned or hereafter acquired, to secure the Obligations or, in the
case of any guarantor, its obligations under the Guarantee and Collateral
Agreement, other than (a) this Agreement and the other Loan Documents, (b) any
agreements governing any purchase money Liens or Capital Lease Obligations
otherwise permitted hereby (in which case, any prohibition or limitation shall
only be effective against the assets financed thereby) and (c) the Prepetition
Credit Agreement.
8.13 Limitation on Restrictions on Subsidiary Distributions.
Enter into or suffer to exist or become effective any consensual encumbrance
or restriction on the ability of any Subsidiary to (a) make Restricted
Payments in respect of any Capital Stock of such Subsidiary held by, or pay
any Indebtedness owed to, the Borrower or any other Subsidiary, (b) make
Investments in the Borrower or any other Subsidiary or (c) transfer any of its
assets to the Borrower or any other Subsidiary, except for such encumbrances
or restrictions existing under or
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54
by reason of (i) any restrictions existing under the Loan Documents, (ii) any
restrictions with respect to a Subsidiary imposed pursuant to an agreement
which has been entered into in connection with the Disposition of all or
substantially all of the Capital Stock or assets of such Subsidiary and (iii)
any restrictions existing under the Prepetition Credit Agreement.
8.14 Limitation on Lines of Business. Enter into any
business, either directly or through any Subsidiary, except for those
businesses in which the Borrower and its Subsidiaries are engaged on the date
of this Agreement or which are reasonably related thereto.
8.15 Chapter 11 Claims; Payment of Pre-Petition Date Claims.
(a) Except for the Carve-Out, incur, create, assume, suffer to exist or permit
any other Super-Priority Claim or Lien which is pari passu with or senior to
the claims of (i) the Agents and the Lenders granted pursuant to this
Agreement and the Final Order or (ii) other than for claims referenced in
clause (a), the Prepetition Agent and the Prepetition Lenders granted pursuant
to Section 4.1 and the Final Order.
(b) Make any payments of Indebtedness relating to
pre-Petition Date obligations other than (i) as permitted under the Final
Order, (ii) as permitted by the Bankruptcy Court, including pre-petition wages
and benefits and other employee-related claims, (iii) to refinance the
Borrower's Prepetition Obligations under the Prepetition Credit Agreement
(except with respect to Prepetition Supplemental Term Loans), and (iv) as
otherwise permitted under this Agreement.
SECTION 9. EVENTS OF DEFAULT
If any of the following events shall occur and be continuing:
(a) The Borrower shall fail to pay any principal of any Loan
or Reimbursement Obligation when due in accordance with the terms
hereof; or the Borrower shall fail to pay any interest on any Loan or
Reimbursement Obligation, or any other amount payable hereunder or
under any other Loan Document, within five days after any such
interest or other amount becomes due in accordance with the terms
hereof; or
(b) Any representation or warranty made or deemed made by
any Loan Party in any Loan Document or which is contained in any
certificate, document or financial or other statement furnished by it
at any time under or in connection with this Agreement or any such
other Loan Document shall prove to have been inaccurate in any
material respect on or as of the date made or deemed made; or
(c) Any Loan Party shall default in the observance or
performance of any agreement contained in Section 7.4(a) (with
respect to the Borrower only), Section 7.7(a) or Section 8; or
(d) Any Loan Party shall default in the observance or
performance of any other agreement contained in this Agreement or any
other Loan Document (other than as provided in paragraphs (a) through
(c) of this Section 9), and such default shall continue unremedied
for a period of 30 days; or
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55
(e) (i) The Case shall be dismissed or converted to a case
under Chapter 7 of the Bankruptcy Code or (ii) an order of the
Bankruptcy Court shall be entered in the Case appointing a trustee
under Chapter 11 of the Bankruptcy Code; or
(f) (i) Unless all the Lenders otherwise agree, except for
the Carve-Out, an order of the Bankruptcy Court shall be entered
granting another Super-Priority Claim or Lien pari passu with or
senior to that granted (x) to the Administrative Agent and the
Lenders pursuant to this Agreement and the Final Order, or (y) to the
Prepetition Lenders pursuant to the Final Order (other than pursuant
to clause (x) above), (ii) an order of a court of competent
jurisdiction shall be entered staying, reversing, vacating or
otherwise modifying the Final Order without the Agents' and the
Required Lenders' consent, (iii) the Prepetition Supplemental Term
Loan holders' Cash Collateral shall be used in a manner inconsistent
with the Final Order, or (iv) an order of a court of competent
jurisdiction shall be entered terminating the use of the Prepetition
Supplemental Term Loan holders' Cash Collateral; or
(g) An order of the Bankruptcy Court shall be entered in the
Case appointing an examiner having enlarged powers (beyond those set
forth under Sections 1106(a)(3) and (4) of the Bankruptcy Code) under
Section 1106(b) of the Bankruptcy Code; or
(h) The entry of an order granting relief from the automatic
stay so as to allow a third party to proceed against any asset or
assets of the Borrower or any Guarantor which have a value in excess
of $500,000 in the aggregate; or
(i) The filing of any pleading by the Borrower or any of its
Subsidiaries seeking, or otherwise consenting to, any of the matters
set forth in paragraphs (e) through (h); or
(j) The Borrower or any of its Subsidiaries files any
pleading seeking, or otherwise consenting to, (i) the invalidation,
subordination or other challenging of the Liens granted to secure the
Obligations or (ii) any relief under Section 506(c) of the Bankruptcy
Code with respect to any Property which secures the Prepetition
Obligations; or
(k) (i) Any Person shall engage in any "prohibited
transaction" (as defined in Section 406 of ERISA or Section 4975 of
the Code) involving any Plan, (ii) any "accumulated funding
deficiency" (as defined in Section 302 of ERISA), whether or not
waived, shall exist with respect to any Plan or any Lien in favor of
the PBGC or a Plan shall arise on the assets of the Borrower or any
Commonly Controlled Entity, (iii) a Reportable Event shall occur with
respect to, or proceedings shall commence to have a trustee
appointed, or a trustee shall be appointed, to administer or to
terminate, any Single Employer Plan, which Reportable Event or
commencement of proceedings or appointment of a trustee is, in the
reasonable opinion of the Required Lenders, likely to result in the
termination of such Plan for purposes of Title IV of ERISA, (iv) any
Single Employer Plan shall terminate for purposes of Title IV of
ERISA, (v) the Borrower or any Commonly Controlled Entity shall, or
in the reasonable opinion of the Required Lenders is likely to, incur
any liability in connection with a withdrawal from, or the Insolvency
or Reorganization of, a Multiemployer Plan or (vi) any other event or
condition shall occur or exist with respect to a Plan; and in each
case in clauses (i)
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56
through (vi) above, such event or condition, together with all other
such events or conditions, if any, could, in the sole judgment of the
Required Lenders, reasonably be expected to have a Material Adverse
Effect; or
(l) One or more judgments or decrees shall be entered
against the Borrower or any of its Subsidiaries involving in the
aggregate a liability (not paid or fully covered by insurance as to
which the relevant insurance company has acknowledged coverage) of
$5,000,000 or more, and all such judgments or decrees shall not have
been vacated, discharged, stayed or bonded pending appeal within 30
days from the entry thereof; or
(m) Any of the Security Documents shall cease, for any
reason, to be in full force and effect, or any Loan Party or any
Affiliate of any Loan Party shall so assert, or any Lien created by
any of the Security Documents shall cease to be enforceable and of
the same effect and priority purported to be created thereby; or
(n) The guarantee contained in Section 2 of the Guarantee
and Collateral Agreement shall cease, for any reason, to be in full
force and effect or any Loan Party or any Affiliate of any Loan Party
shall so assert;
then, and in every such event and at any time thereafter during the
continuance of such event, and without further order of or application to the
Bankruptcy Court, the Agents may, and, at the request of the Required Lenders,
the Agents shall, by notice to the Borrower (with a copy to counsel for any
statutory committee of unsecured creditors appointed in the Case, counsel for
the Steering Committee and to the United States Trustee), take one or more of
the following actions, at the same or different times (provided, that with
respect to clause (iv) below and the enforcement of Liens or other remedies
with respect to the Collateral under clause (v) below, the Agents shall
provide the Borrower (with a copy to counsel for any statutory committee of
unsecured creditors appointed in the Case, counsel for the Steering Committee
and to the United States Trustee) with five Business Days' written notice
prior to taking the action contemplated thereby): (i) terminate forthwith the
Revolving Credit Commitments; (ii) declare the Revolving Credit Loans then
outstanding to be forthwith due and payable, whereupon the principal of the
Revolving Credit Loans, any Letter of Credit outstandings constituting then
drawn and unreimbursed Letters of Credit, together with accrued interest
thereon and any unpaid accrued fees and all other Obligations of the Borrower
accrued hereunder and under any other Loan Document, shall become forthwith
due and payable, without presentment, demand, protest or any other notice of
any kind, all of which are hereby expressly waived by the Borrower, anything
contained herein or in any other Loan Document to the contrary
notwithstanding; (iii) require the Borrower upon demand to forthwith deposit
in the L/C Cash Collateral Account cash in an amount equal to 105% of the face
amount of each outstanding and undrawn Letter of Credit and, to the extent the
Borrower shall fail to furnish such funds as demanded by the Agents, the
Administrative Agent shall be authorized to debit the accounts of the Borrower
maintained with the Administrative Agent in such amount for the deposit of
such amounts in the L/C Cash Collateral Account; (iv) set-off amounts in the
L/C Cash Collateral Account or any other accounts of the Borrower and apply
such amounts to the Obligations of the Borrower hereunder and under the other
Loan Documents; and (v) exercise any and all remedies under this Agreement,
the Final Order, and applicable law available to the Agents and the Lenders.
After all such Letters of Credit shall have expired or been fully drawn upon,
all Reimbursement Obligations shall have been satisfied and all other
obligations of the Borrower hereunder and
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57
under the other Loan Documents shall have been paid in full, the balance, if
any, in such L/C Cash Collateral Account shall be returned to the Borrower (or
such other Person as may be lawfully entitled thereto).
SECTION 10. THE AGENTS
10.1 Appointment. Each Lender hereby irrevocably designates
and appoints the Agents as the agents of such Lender under this Agreement and
the other Loan Documents, and each such Lender irrevocably authorizes each
Agent, in such capacity, to take such action on its behalf under the
provisions of this Agreement and the other Loan Documents and to exercise such
powers and perform such duties as are expressly delegated to the such Agent by
the terms of this Agreement and the other Loan Documents, together with such
other powers as are reasonably incidental thereto. Notwithstanding any
provision to the contrary elsewhere in this Agreement, no Agent shall have any
duties or responsibilities, except those expressly set forth herein, or any
fiduciary relationship with any Lender, and no implied covenants, functions,
responsibilities, duties, obligations or liabilities shall be read into this
Agreement or any other Loan Document or otherwise exist against any Agent.
10.2 Delegation of Duties. Each Agent may execute any of its
duties under this Agreement and the other Loan Documents by or through agents
or attorneys-in-fact and shall be entitled to advice of counsel concerning all
matters pertaining to such duties. No Agent shall be responsible for the
negligence or misconduct of any agents or attorneys in-fact selected by it
with reasonable care.
10.3 Exculpatory Provisions. Neither any Agent nor any of
their respective officers, directors, employees, agents, attorneys-in-fact or
affiliates shall be (i) liable for any action lawfully taken or omitted to be
taken by it or such Person under or in connection with this Agreement or any
other Loan Document (except to the extent that any of the foregoing are found
by a final and nonappealable decision of a court of competent jurisdiction to
have resulted from its or such Person's own gross negligence or willful
misconduct) or (ii) responsible in any manner to any of the Lenders for any
recitals, statements, representations or warranties made by any Loan Party or
any officer thereof contained in this Agreement or any other Loan Document or
in any certificate, report, statement or other document referred to or
provided for in, or received by the Agents under or in connection with, this
Agreement or any other Loan Document or for the value, validity,
effectiveness, genuineness, enforceability or sufficiency of this Agreement or
any other Loan Document or for any failure of any Loan Party a party thereto
to perform its obligations hereunder or thereunder. The Agents shall not be
under any obligation to any Lender to ascertain or to inquire as to the
observance or performance of any of the agreements contained in, or conditions
of, this Agreement or any other Loan Document, or to inspect the properties,
books or records of any Loan Party.
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58
10.4 Reliance by Administrative Agent. Each Agent shall be
entitled to rely, and shall be fully protected in relying, upon any
instrument, writing, resolution, notice, consent, certificate, affidavit,
letter, telecopy, telex or teletype message, statement, order or other
document or conversation believed by it to be genuine and correct and to have
been signed, sent or made by the proper Person or Persons and upon advice and
statements of legal counsel (including, without limitation, counsel to the
Loan Parties), independent accountants and other experts selected by the
Administrative Agent. The Agents may deem and treat the payee of any Note as
the owner thereof for all purposes unless a written notice of assignment,
negotiation or transfer thereof shall have been filed with the Administrative
Agent. Each Agent shall be fully justified in failing or refusing to take any
action under this Agreement or any other Loan Document unless it shall first
receive such advice or concurrence of the Required Lenders (or, if so
specified by this Agreement, all Lenders) as it deems appropriate or it shall
first be indemnified to its satisfaction by the Lenders against any and all
liability and expense which may be incurred by it by reason of taking or
continuing to take any such action. Each Agent shall in all cases be fully
protected in acting, or in refraining from acting, under this Agreement and
the other Loan Documents in accordance with a request of the Required Lenders
(or, if so specified by this Agreement, all Lenders), and such request and any
action taken or failure to act pursuant thereto shall be binding upon all the
Lenders and all future holders of the Loans.
10.5 Notice of Default. No Agent shall be deemed to have
knowledge or notice of the occurrence of any Default or Event of Default
hereunder unless such Agent has received notice from a Lender or the Borrower
referring to this Agreement, describing such Default or Event of Default and
stating that such notice is a "notice of default". In the event that the
Administrative Agent receives such a notice, the Administrative Agent shall
give notice thereof to the Lenders. The Administrative Agent shall take such
action with respect to such Default or Event of Default as shall be reasonably
directed by the Required Lenders (or, if so specified by this Agreement, all
Lenders); provided that unless and until the Administrative Agent shall have
received such directions, the Administrative Agent may (but shall not be
obligated to) take such action, or refrain from taking such action, with
respect to such Default or Event of Default as it shall deem advisable in the
best interests of the Lenders.
10.6 Non-Reliance on Agents and Other Lenders. Each Lender
expressly acknowledges that neither the Agents nor any of their respective
officers, directors, employees, agents, attorneys-in-fact or affiliates have
made any representations or warranties to it and that no act by any Agent
hereinafter taken, including any review of the affairs of a Loan Party or any
affiliate of a Loan Party, shall be deemed to constitute any representation or
warranty by any Agent to any Lender. Each Lender represents to the Agents that
it has, independently and without reliance upon any Agent or any other Lender,
and based on such documents and information as it has deemed appropriate, made
its own appraisal of and investigation into the business, operations,
property, financial and other condition and creditworthiness of the Loan
Parties and their affiliates and made its own decision to make its Loans
hereunder and enter into this Agreement. Each Lender also represents that it
will, independently and without reliance upon any Agent or any other Lender,
and based on such documents and information as it shall deem appropriate at
the time, continue to make its own credit analysis, appraisals and decisions
in taking or not taking action under this Agreement and the other Loan
Documents, and to make such investigation as it deems necessary to inform
itself as to the business, operations, property, financial and other condition
and creditworthiness of the Loan Parties and their affiliates. Except for
notices, reports and other documents expressly required to be furnished to the
Lenders by the
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59
Administrative Agent hereunder, no Agent shall have any duty or responsibility
to provide any Lender with any credit or other information concerning the
business, operations, property, condition (financial or otherwise), prospects
or creditworthiness of any Loan Party or any affiliate of a Loan Party which
may come into the possession of such Agent or any of its officers, directors,
employees, agents, attorneys-in-fact or affiliates.
10.7 Indemnification. The Lenders agree to indemnify each
Agent in its capacity as such (to the extent not reimbursed by the Borrower
and without limiting the obligation of the Borrower to do so), ratably
according to their respective Aggregate Exposure Percentages in effect on the
date on which indemnification is sought under this Section 10.7 (or, if
indemnification is sought after the date upon which the Revolving Credit
Commitments shall have terminated and the Loans shall have been paid in full,
ratably in accordance with such Aggregate Exposure Percentages immediately
prior to such date), from and against any and all liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, costs, expenses or
disbursements of any kind whatsoever which may at any time (including, without
limitation, at any time following the payment of the Loans) be imposed on,
incurred by or asserted against such Agent in any way relating to or arising
out of, the Revolving Credit Commitments, this Agreement, any of the other
Loan Documents or any documents contemplated by or referred to herein or
therein or the transactions contemplated hereby or thereby or any action taken
or omitted by such Agent under or in connection with any of the foregoing;
provided that no Lender shall be liable for the payment of any portion of such
liabilities, obligations, losses, damages, penalties, actions, judgments,
suits, costs, expenses or disbursements which are found by a final and
nonappealable decision of a court of competent jurisdiction to have resulted
from such Agent's gross negligence or willful misconduct. The agreements in
this Section 10.7 shall survive the payment of the Loans and all other amounts
payable hereunder.
10.8 Agent in Its Individual Capacity. Each Agent and its
affiliates may make loans to, accept deposits from and generally engage in any
kind of business with any Loan Party as though such Agent was not an Agent.
With respect to its Loans made or renewed by it and with respect to any Letter
of Credit issued or participated in by it, each Agent shall have the same
rights and powers under this Agreement and the other Loan Documents as any
Lender and may exercise the same as though it were not an Agent, and the terms
"Lender" and "Lenders" shall include each Agent in its individual capacity.
10.9 Successor Administrative Agent. The Administrative
Agent may resign as Administrative Agent upon 10 days' notice to the Lenders
and the Borrower. If the Administrative Agent shall resign as Administrative
Agent under this Agreement and the other Loan Documents, then the Required
Lenders shall appoint from among the Lenders a successor agent for the
Lenders, which successor agent shall (unless an Event of Default under Section
9(a) with respect to the Borrower shall have occurred and be continuing) be
subject to approval by the Borrower (which approval shall not be unreasonably
withheld or delayed), whereupon such successor agent shall succeed to the
rights, powers and duties of the Administrative Agent, and the term
"Administrative Agent" shall mean such successor agent effective upon such
appointment and approval, and the former Administrative Agent's rights, powers
and duties as Administrative Agent shall be terminated, without any other or
further act or deed on the part of such former Administrative Agent or any of
the parties to this Agreement or any holders of the Loans. If no successor
agent has accepted appointment as Administrative Agent by the date that is 10
days following a retiring Administrative Agent's notice of resignation, the
retiring
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60
Administrative Agent's resignation shall nevertheless thereupon become
effective, and the Lenders shall assume and perform all of the duties of the
Administrative Agent hereunder until such time, if any, as the Required Lenders
appoint a successor agent as provided for above. The Syndication Agent may, at
any time, by notice to the Lenders and the Administrative Agent, resign as
Syndication Agent hereunder, whereupon the duties, rights, obligations and
responsibilities hereunder shall automatically be assumed by, and inure to the
benefit of, the Administrative Agent, without any further act by the
Syndication Agent, the Administrative Agent or any Lender. After any retiring
Agent's resignation as Agent, the provisions of this Section 10 shall inure to
its benefit as to any actions taken or omitted to be taken by it while it was
Agent under this Agreement and the other Loan Documents.
10.10 Authorization to Release Liens. The Administrative
Agent is hereby irrevocably authorized by each of the Lenders to release any
Lien covering any Property of the Borrower or any of its Subsidiaries that is
the subject of a Disposition which is permitted by this Agreement or which has
been consented to in accordance with Section 12.1.
10.11 The Arrangers. The Arrangers, in their capacity as
such, shall have no duties or responsibilities, and shall incur no liability,
under this Agreement and the other Loan Documents.
SECTION 11. REMEDIES; APPLICATION OF PROCEEDS
11.1 Remedies; Obtaining the Collateral Upon Default. Upon
the occurrence and during the continuance of an Event of Default, to the
extent any such action is not inconsistent with the Final Order and Section 9,
the Agents, in addition to any rights now or hereafter existing under
applicable law, and without application to or order of the Bankruptcy Court,
shall have all rights as a secured creditor under the Uniform Commercial Code
in all relevant jurisdictions and may:
(a) personally, or by agents or attorneys, immediately
retake possession of the Collateral or any part thereof, from the
Borrower or any other Person who then has possession of any part
thereof with or without notice or process of law (but subject to any
Requirements of Law), and for that purpose may enter upon the
Borrower's premises where any of the Collateral is located and remove
the same and use in connection with such removal any and all
services, supplies, aids and other facilities of the Borrower;
(b) instruct the obligor or obligors on any agreements,
instrument or other obligation constituting the Collateral to make
any payment required by the terms of such instrument or agreement
directly to the L/C Cash Collateral Account;
(c) withdraw all monies, securities and instruments in the
L/C Cash Collateral Account for application to the Obligations;
(d) sell, assign or otherwise liquidate, or direct the
Borrower to sell, assign or otherwise liquidate, any or all of the
Collateral or any part thereof, and take possession of the proceeds
of any such sale or liquidation;
(e) take possession of the Collateral or any part thereof,
by directing the
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61
Borrower in writing to deliver the same to the Agents at any place or
places designated by the Agents, in which event the Borrower shall at
its own expense:
(i) forthwith cause the same to be moved to the
place or places so designated by the Agents and there
delivered to the Agents,
(ii) store and keep any Collateral so delivered
to the Agents at such place or places pending further action
by the Agents as provided in Section 10.2, and
(iii) while the Collateral shall be so stored
and kept, provide such guards and maintenance services as
shall be necessary to protect the same and to preserve and
maintain them in good condition;
it being understood that the Borrower's obligation so to deliver the
Collateral is of the essence of this Agreement and that, accordingly, upon
application to the Bankruptcy Court, the Agents shall be entitled to a decree
requiring specific performance by the Borrower of such obligation.
11.2 Remedies; Disposition of the Collateral. Upon the
occurrence and during the continuance of an Event of Default, and to the
extent not inconsistent with the Final Order and Section 9, without
application to or order of the Bankruptcy Court, any Collateral repossessed by
the Agents under or pursuant to Section 11.1 or the Final Order or otherwise,
and any other Collateral whether or not so repossessed by the Agents, may be
sold, assigned, leased or otherwise disposed of under one or more contracts or
as an entirety, and without the necessity of gathering at the place of sale
the property to be sold, and in general in such manner, at such time or times,
at such place or places and on such terms as the Agents may, in compliance
with any Requirements of Law, determine to be commercially reasonable. Any of
the Collateral may be sold, leased or otherwise disposed of, in the condition
in which the same existed when taken by the Agents or after any overhaul or
repair which the Agents shall determine to be commercially reasonable. Any
such disposition which shall be a private sale or other private proceeding
permitted by applicable Requirements of Law shall be made upon not less than
10 days' written notice to the Borrower specifying the time at which such
disposition is to be made and the intended sale price or other consideration
therefor, and shall be subject, for the 10 days after the giving of such
notice, to the right of the Borrower or any nominee of the Borrower to acquire
the Collateral involved at a price or for such other consideration at least
equal to the intended sale price or other consideration so specified. Any such
disposition which shall be a public sale permitted by applicable Requirements
of Law shall be made upon not less than 10 days' written notice to the
Borrower specifying the time and place of such sale and, in the absence of
applicable Requirement of Law, shall be by public auction (which may, at the
Agents' option, be subject to reserve), after publication of notice of such
auction not less than 10 days prior thereto in two newspapers in general
circulation in New York City and Wayne, New Jersey. Subject to Section 11.4,
to the extent permitted by any such Requirement of Law, the Agents on behalf
of the Lenders may bid for and become the purchaser of the Collateral or any
item thereof, offered for sale in accordance with this subsection 11.2 without
accountability to the Borrower or the Prepetition Lenders (except to the
extent of surplus money received). If, under mandatory Requirements of Law,
the Agents shall be required to make disposition of the Collateral within a
period of time which does not permit the giving of notice to the Borrower as
hereinabove specified, the Agents need give the Borrower only such notice of
disposition as shall be
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reasonably practicable.
11.3 Application of Proceeds. (a) Notwithstanding anything
to the contrary contained in this Agreement or any other Loan Document, (i) if
the Agents take action under clause (i) or (ii) of Section 9 upon the
occurrence and during the continuance of an Event of Default, any payment by
the Borrower on account of principal of and interest on the Loans and any
proceeds arising out of any realization (including after foreclosure) upon the
Collateral shall be applied, subject to the Carve-Out, as follows: first, to
the payment in full of all costs and expenses (including without limitation,
reasonable attorneys' fees and disbursements) paid or incurred by the Agents
or any of the Lenders in connection with any such realization upon the
Collateral, second, as a permanent reduction of the Revolving Credit
Commitments, pro rata to the payment in full of the Revolving Credit Loans
(including any accrued and unpaid interest thereon, and any fees and other
Obligations in respect thereof), third, as a permanent reduction of the
Revolving Credit Commitments, to the payment in full of the Swing Line Loans
(including any accrued and unpaid interest thereon, and any fees and other
Obligations in respect thereof), fourth, as a permanent reduction of the
Revolving Credit Commitments, to the payment in full of Letter of Credit
outstandings constituting unreimbursed drawings under any Letter of Credit,
fifth, as a permanent reduction of the Revolving Credit Commitments, to cash
collateralize Letters of Credit in an amount equal to 105% of the aggregate
amount of all Letter of Credit outstandings constituting undrawn Letters of
Credit in the manner set forth in Section 3.1(b), and sixth, to the payment in
full of the Prepetition Obligations, and (ii) any payments or distributions of
any kind or character, whether in cash, property or securities, made by the
Borrower or otherwise in a manner inconsistent with clause (i) of this Section
11.3(a) shall be held in trust and paid over or delivered to the
Administrative Agent so that the priorities and requirements set forth in such
clause (i) are satisfied.
(b) It is understood that the Borrower shall remain liable
to the extent of any deficiency between the amount of the proceeds of the
Collateral and the amount of the Obligations.
11.4 WAIVER OF CLAIMS. EXCEPT AS OTHERWISE PROVIDED IN THIS
AGREEMENT, THE BORROWER HEREBY WAIVES, TO THE EXTENT PERMITTED BY APPLICABLE
LAW, NOTICE AND JUDICIAL HEARING IN CONNECTION WITH THE AGENTS' TAKING
POSSESSION OR THE AGENTS' DISPOSITION OF ANY OF THE COLLATERAL, INCLUDING,
WITHOUT LIMITATION, ANY AND ALL PRIOR NOTICE AND HEARING FOR ANY PREJUDGMENT
REMEDY OR REMEDIES AND ANY SUCH RIGHT WHICH THE BORROWER WOULD OTHERWISE HAVE
UNDER ANY REQUIREMENT OF LAW AND THE BORROWER HEREBY FURTHER WAIVES, TO THE
EXTENT PERMITTED BY LAW:
(a) all damages occasioned by such taking of possession
except any damages which are the direct result of the Agent's or any
Lender's gross negligence or wilful misconduct;
(b) all other requirement to the time, place and terms of
sale or other requirements with respect to the enforcement of the
Agent's rights hereunder; and
(c) all rights of redemption, appraisement, valuation, stay,
extension or
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63
moratorium now or hereafter in force under any applicable law in order
to prevent or delay the enforcement of this Agreement or the absolute
sale of the Collateral or any portion thereof, and the Borrower, for
itself and all who may claim under it, insofar as it now or hereafter
lawfully may, hereby waives the benefit of all such laws.
11.5 Remedies Cumulative. Each and every right, power and
remedy hereby specifically given to the Agents shall be in addition to every
other right, power and remedy specifically given under this Agreement, the
Final Order or the other Loan Documents or now or hereafter existing at law or
in equity, or by statute and each and every right, power and remedy whether
specifically herein given or otherwise existing may be exercised from time to
time or simultaneously and as often and in such order as may be deemed
expedient by the Agents. All such rights, powers and remedies shall be
cumulative and the exercise or the beginning of exercise of one shall not be
deemed a waiver of the right to exercise of any other or others. No delay or
omission of the Agents in the exercise of any such right, power or remedy and
no renewal or extension of any of the Obligations shall impair any such right,
power or remedy or shall be construed to be a waiver of any Default or Event
of Default or an acquiescence therein. In the event that the Agents shall
bring any suit to enforce any of their rights hereunder and shall be entitled
to judgment, then in such suit the Agents may recover reasonable expenses,
including attorney's fees, and the amounts thereof shall be included in such
judgment.
11.6 Discontinuance of Proceedings. In case the Agents shall
have instituted any proceeding to enforce any right, power or remedy under
this Agreement by foreclosure, sale, entry or otherwise, and such proceeding
shall have been discontinued or abandoned for any reason or shall have been
determined adversely to the Agents, then and in every such case the Borrower,
the Agents and each holder of any of the Obligations shall be restored to
their former positions and rights hereunder with respect to the Collateral
subject to the security interest created under this Agreement, and all rights,
remedies and powers of the Agents and the Lenders shall continue as if no such
proceeding had been instituted.
SECTION 12. MISCELLANEOUS
12.1 Amendments and Waivers. Neither this Agreement, any
other Loan Document, nor any terms hereof or thereof may be amended,
supplemented or modified except in accordance with the provisions of this
Section 12.1. The Required Lenders and each Loan Party to the relevant Loan
Document may, or (with the written consent of the Required Lenders) the Agents
and each Loan Party to the relevant Loan Document may, from time to time, (a)
enter into written amendments, supplements or modifications hereto and to the
other Loan Documents for the purpose of adding any provisions to this
Agreement or the other Loan Documents or changing in any manner the rights of
the Lenders or of the Loan Parties hereunder or thereunder or (b) waive, on
such terms and conditions as the Required Lenders, or the Agents, as the case
may be, may specify in such instrument, any of the requirements of this
Agreement or the other Loan Documents or any Default or Event of Default and
its consequences; provided, however, that no such waiver and no such
amendment, supplement or modification shall (i) forgive the principal amount
or extend the final scheduled date of maturity of any Loan, reduce the stated
rate of any interest or fee payable hereunder or extend the scheduled date of
any payment thereof, or increase the amount or extend the expiration date of
any Revolving Credit Commitment or modify the Super-Priority Claim status of
any Lender, in each case without the consent of each
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64
Lender directly affected thereby; (ii) amend, modify or waive any provision of
this Section 12.1 or reduce any percentage specified in the definition of
Required Lenders, consent to the assignment or transfer by the Borrower of any
of its rights and obligations under this Agreement and the other Loan
Documents, release all or substantially all of the Collateral or release all or
substantially all of the Subsidiary Guarantors from their obligations under the
Guarantee and Collateral Agreement, in each case without the consent of all
Lenders; (iii) amend, modify or waive any condition precedent to any extension
of credit under the Revolving Credit Facility set forth in Section 6.2
(including, without limitation, in connection with any waiver of an existing
Default or Event of Default) without the consent of the Required Lenders; (iv)
amend, modify or waive any provision of Section 10 without the consent of the
Agents; (v) amend, modify or waive any provision of Section 2.3 or 2.4 without
the written consent of the Swing Line Lender; (vi) amend, modify or waive any
provision of Section 2.15 without the consent of each Lender directly affected
thereby; or (vii) amend, modify or waive any provision of Section 3 without the
consent of the Issuing Lender. Any such waiver and any such amendment,
supplement or modification shall apply equally to each of the Lenders and shall
be binding upon the Loan Parties, the Lenders, the Agents and all future
holders of the Loans. In the case of any waiver, the Loan Parties, the Lenders
and the Agents shall be restored to their former position and rights hereunder
and under the other Loan Documents, and any Default or Event of Default waived
shall be deemed to be cured and not continuing; but no such waiver shall extend
to any subsequent or other Default or Event of Default, or impair any right
consequent thereon. Any such waiver, amendment, supplement or modification
shall be effected by a written instrument signed by the parties required to
sign pursuant to the foregoing provisions of this Section 12.1; provided, that
delivery of an executed signature page of any such instrument by facsimile
transmission shall be effective as delivery of a manually executed counterpart
thereof.
12.2 Notices. All notices, requests and demands to or upon
the respective parties hereto to be effective shall be in writing (including
by telecopy), and, unless otherwise expressly provided herein, shall be deemed
to have been duly given or made when delivered, or three Business Days after
being deposited in the mail, postage prepaid, or, in the case of telecopy
notice, when received, addressed (a) in the case of the Borrower, the
Syndication Agent and the Administrative Agent, as follows and (b) in the case
of the Lenders, as set forth on Schedule 1.1 or, in the case of a Lender which
becomes a party to this Agreement pursuant to an Assignment and Acceptance, in
such Assignment and Acceptance or (c) in the case of any party, to such other
address as such party may hereafter notify to the other parties hereto:
The Borrower: The Grand Union Company
201 Willowbrook Boulevard
Wayne, New Jersey 07470-0466
Attention: Chief Financial Officer
Telecopy: (973) 890-6551
Telephone: (973) 890-6340
with a copy to: Weil, Gotshal & Manges LLP
767 Fifth Avenue
New York, New York 10153
Attention: Ted S. Waksman, Esq.
Telecopy: (212) 310-8007
Telephone: (212) 310-8000
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65
The Administrative Agent: Lehman Commercial Paper Inc.
3 World Financial Center
New York, New York 10285
Attention: Michelle Swanson
Telecopy: (212) 528-0819
Telephone: (212) 526-0330
with a copy to: Simpson Thacher & Bartlett
425 Lexington Avenue
New York, New York 10017
Attention: Brian Trust, Esq.
Telecopy: (212) 455-2502
Telephone: (212) 455-2000
The Syndication Agent: Swiss Bank Corporation
677 Washington Blvd.
Stamford, Conn. 06912
Attention: Denise Clerkin
Telecopy: (203) 719-4176
Telephone: (203) 719-3146
with a copy to: Simpson Thacher & Bartlett
425 Lexington Avenue
New York, New York 10017
Attention: Brian Trust, Esq.
Telecopy: (212) 455-2502
Telephone: (212) 455-2000
provided that any notice, request or demand to or upon the either Agent or any
Lender shall not be effective until received.
12.3 No Waiver; Cumulative Remedies. No failure to exercise
and no delay in exercising, on the part of the Agents or any Lender, any
right, remedy, power or privilege hereunder under the other Loan Documents or
the Final Order shall operate as a waiver thereof; nor shall any single or
partial exercise of any right, remedy, power or privilege hereunder preclude
any other or further exercise thereof or the exercise of any other right,
remedy, power or privilege. The rights, remedies, powers and privileges herein
provided are cumulative and not exclusive of any rights, remedies, powers and
privileges provided by law.
12.4 Survival of Representations and Warranties. All
representations and warranties made hereunder, in the other Loan Documents and
in any document, certificate or statement delivered pursuant hereto or in
connection herewith shall survive the execution and delivery of this Agreement
and the making of the Loans and other extensions of credit hereunder.
12.5 Payment of Expenses. The Borrower agrees (a) to pay or
reimburse the Agents for all their reasonable out-of-pocket costs and expenses
incurred in connection with the development, preparation and execution of, and
any amendment, supplement or modification to,
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this Agreement and the other Loan Documents and any other documents prepared in
connection herewith or therewith, and the consummation and administration of
the transactions contemplated hereby and thereby, including, without
limitation, the reasonable fees and disbursements of counsel to the Agents, (b)
to pay or reimburse each Lender and the Agents for all their costs and expenses
incurred in connection with the enforcement or preservation of any rights under
this Agreement, the other Loan Documents and any such other documents,
including, without limitation, the fees and disbursements of counsel (including
the allocated fees and expenses of in-house counsel), consultants and other
experts to each Lender and of counsel to the Agents (including the on-going
monitoring by the Agents of the Case, including attendance by the Agents and
the Agents' counsel at hearings or other proceedings and the on-going review of
documents filed with the Bankruptcy Court), (c) to pay, indemnify, and hold
each Lender and the Agents harmless from, any and all recording and filing fees
and any and all liabilities with respect to, or resulting from any delay in
paying, stamp, excise and other taxes, if any, which may be payable or
determined to be payable in connection with the execution and delivery of, or
consummation or administration of any of the transactions contemplated by, or
any amendment, supplement or modification of, or any waiver or consent under or
in respect of, this Agreement, the other Loan Documents and any such other
documents, and (d) to pay, indemnify, and hold each Lender and the Agents and
their respective officers, directors, employees, affiliates, agents and
controlling persons (each, an "Indemnitee") harmless from and against any and
all other liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements of any kind or nature
whatsoever with respect to the execution, delivery, enforcement, performance
and administration of this Agreement, the other Loan Documents and any such
other documents, including, without limitation, any of the foregoing relating
to the use of proceeds of the Loans or the violation of, noncompliance with or
liability under, any Environmental Law applicable to the operations of the
Borrower any of its Subsidiaries or any of the Properties (all the foregoing in
this clause (d), collectively, the "Indemnified Liabilities"), provided, that
the Borrower shall have no obligation hereunder to any Indemnitee with respect
to Indemnified Liabilities to the extent such Indemnified Liabilities are found
by a final and nonappealable decision of a court of competent jurisdiction to
have resulted from the gross negligence or willful misconduct of such
Indemnitee. Without limiting the foregoing, and to the extent permitted by
applicable law, the Borrower agrees not to assert and to cause its Subsidiaries
not to assert, and hereby waives and agrees to cause its Subsidiaries so to
waive, all rights for contribution or any other rights of recovery with respect
to all claims, demands, penalties, fines, liabilities, settlements, damages,
costs and expenses of whatever kind or nature, under or related to
Environmental Laws, that any of them might have by statute or otherwise against
any indemnitee. The agreements in this Section 12.5 shall survive repayment of
the Loans and all other amounts payable hereunder.
12.6 Successors and Assigns; Participations and Assignments.
(a) This Agreement shall be binding upon and inure to the benefit of the
Borrower, the Lenders, the Agents, all future holders of the Loans and their
respective successors and assigns, except that the Borrower may not assign or
transfer any of its rights or obligations under this Agreement without the
prior written consent of the Agents and each Lender.
(b) Any Lender may, without the consent of the Borrower, in
accordance with applicable law, at any time sell to one or more banks,
financial institutions or other entities (each, a "Participant") participating
interests in any Loan owing to such Lender, any Revolving Credit Commitment of
such Lender or any other interest of such Lender hereunder and under the other
<PAGE>
67
Loan Documents. In the event of any such sale by a Lender of a participating
interest to a Participant, such Lender's obligations under this Agreement to
the other parties to this Agreement shall remain unchanged, such Lender shall
remain solely responsible for the performance thereof, such Lender shall
remain the holder of any such Loan for all purposes under this Agreement and
the other Loan Documents, and the Borrower and the Agents shall continue to
deal solely and directly with such Lender in connection with such Lender's
rights and obligations under this Agreement and the other Loan Documents. In
no event shall any Participant under any such participation have any right to
approve any amendment or waiver of any provision of any Loan Document, or any
consent to any departure by any Loan Party therefrom, except to the extent
that such amendment, waiver or consent would reduce the principal of, or
interest on, the Loans or any fees payable hereunder, or postpone the date of
the final maturity of the Loans, in each case to the extent subject to such
participation. The Borrower agrees that if amounts outstanding under this
Agreement and the Loans are due or unpaid, or shall have been declared or
shall have become due and payable upon the occurrence of an Event of Default,
each Participant shall, to the maximum extent permitted by applicable law, be
deemed to have the right of setoff in respect of its participating interest in
amounts owing under this Agreement to the same extent as if the amount of its
participating interest were owing directly to it as a Lender under this
Agreement, provided that, in purchasing such participating interest, such
Participant shall be deemed to have agreed to share with the Lenders the
proceeds thereof as provided in Section 12.7(a) as fully as if it were a
Lender hereunder. The Borrower also agrees that each Participant shall be
entitled to the benefits of Sections 2.16, 2.17 and 2.18 with respect to its
participation in the Revolving Credit Commitments and the Loans outstanding
from time to time as if it was a Lender; provided, that no Participant shall
be entitled to receive any greater amount pursuant to any such Section than
the transferor Lender would have been entitled to receive in respect of the
amount of the participation transferred by such transferor Lender to such
Participant had no such transfer occurred.
(c) Any Lender (an "Assignor") may, in accordance with
applicable law, at any time and from time to time assign to any Lender or any
Affiliate thereof or, with the consent of the Borrower, the Agents and the
Issuing Lender, which, in each case, shall not be unreasonably withheld or
delayed, to a bank, financial institution or other entity (an "Assignee") all
or any part of its rights and obligations under this Agreement pursuant to an
Assignment and Acceptance, substantially in the form of Exhibit E, executed by
such Assignee and such Assignor and delivered to the Administrative Agent for
its acceptance and recording in the Register; provided that no such assignment
to an Assignee shall be in an aggregate principal amount of less than
$2,000,000 (other than in the case of an assignment of all of a Lender's
interests under this Agreement). Upon such execution, delivery, acceptance and
recording, from and after the effective date determined pursuant to such
Assignment and Acceptance, (x) the Assignee thereunder shall be a party hereto
and, to the extent provided in such Assignment and Acceptance, have the rights
and obligations of a Lender hereunder with a Revolving Credit Commitment
and/or Loans as set forth therein, and (y) the Assignor thereunder shall, to
the extent provided in such Assignment and Acceptance, be released from its
obligations under this Agreement (and, in the case of an Assignment and
Acceptance covering all of an Assignor's rights and obligations under this
Agreement, such Assignor shall cease to be a party hereto). Notwithstanding
any provision of this Section 12.6, the consent of the Borrower shall not be
required for any assignment which occurs at any time when any Event of Default
shall have occurred and be continuing.
<PAGE>
68
(d) The Administrative Agent shall maintain at its address
referred to in Section 12.2 a copy of each Assignment and Acceptance delivered
to it and a register (the "Register") for the recordation of the names and
addresses of the Lenders and the Revolving Credit Commitment of, and principal
amount of the Loans owing to, each Lender from time to time. The entries in
the Register shall be conclusive, in the absence of manifest error, and the
Borrower, the Agents and the Lenders shall treat each Person whose name is
recorded in the Register as the owner of the Loans and any Notes evidencing
such Loans recorded therein for all purposes of this Agreement. Any assignment
of any Loan, whether or not evidenced by a Note, shall be effective only upon
appropriate entries with respect thereto being made in the Register (and each
Note shall expressly so provide). Any assignment or transfer of all or part of
a Loan evidenced by a Note shall be registered on the Register only upon
surrender for registration of assignment or transfer of the Note evidencing
such Loan, accompanied by a duly executed Assignment and Acceptance; thereupon
one or more new Notes in the same aggregate principal amount shall be issued
to the designated Assignee, and the old Notes shall be returned by the
Administrative Agent to the Borrower marked "cancelled". The Register shall be
available for inspection by the Borrower or any Lender at any reasonable time
and from time to time upon reasonable prior notice.
(e) Upon its receipt of an Assignment and Acceptance
executed by an Assignor and an Assignee (and, in any case where the consent of
any other Person is required by Section 12.6(c), by each such other Person)
together with payment to the Administrative Agent of a registration and
processing fee of $3,500 (except that no such registration and processing fee
shall be payable (y) in connection with an assignment involving Lehman
Commercial Paper Inc. or Swiss Bank Corporation or (z) in the case of an
Assignee which is already a Lender or is an affiliate of a Lender or a Person
under common management with a Lender), the Administrative Agent shall (i)
promptly accept such Assignment and Acceptance and (ii) on the effective date
determined pursuant thereto record the information contained therein in the
Register and give notice of such acceptance and recordation to the Lenders and
the Borrower. On or prior to such effective date, the Borrower, at its own
expense, upon request, shall execute and deliver to the Administrative Agent
(in exchange for the Note of the assigning Lender) a new Note to the order of
such Assignee in an amount equal to the Revolving Credit Commitment assumed or
acquired by it pursuant to such Assignment and Acceptance and, if the Assignor
has retained a Revolving Credit Commitment, upon request, a new Note to the
order of the Assignor in an amount equal to the Revolving Credit Commitment
retained by it hereunder. Such new Note or Notes shall be dated the Closing
Date and shall otherwise be in the form of the Note or Notes replaced thereby.
(f) For avoidance of doubt, the parties to this Agreement
acknowledge that the provisions of this Section 12.6 concerning assignments of
Loans and Notes relate only to absolute assignments and that such provisions
do not prohibit assignments creating security interests, including, without
limitation, any pledge or assignment by a Lender of any Loan or Note to any
Federal Reserve Bank in accordance with applicable law.
12.7 Adjustments; Set-off. (a) Except to the extent that
this Agreement provides for payments to be allocated to a particular Lender,
if any Lender (a "Benefitted Lender") shall at any time receive any payment of
all or part of the Obligations owing to it, or receive any collateral in
respect thereof (whether voluntarily or involuntarily, by set-off, or
otherwise), in a greater proportion than any such payment to or collateral
received by any other Lender, if any, in respect of such other Lender's
Obligations, such Benefitted Lender shall purchase for cash from
<PAGE>
69
the other Lenders a participating interest in such portion of each such other
Lender's Obligations, or shall provide such other Lenders with the benefits of
any such collateral, as shall be necessary to cause such Benefitted Lender to
share the excess payment or benefits of such collateral ratably with each of
the Lenders; provided, however, that if all or any portion of such excess
payment or benefits is thereafter recovered from such Benefitted Lender, such
purchase shall be rescinded, and the purchase price and benefits returned, to
the extent of such recovery, but without interest.
(b) Subject to (i) the Carve-Out and (ii) the giving of the
notice as described in Section 9, notwithstanding the provisions of Section
362 of the Bankruptcy Code and any other rights and remedies of the Lenders
provided by law, each Lender shall have the right, without prior notice to the
Borrower, any such notice being expressly waived by the Borrower to the extent
permitted by applicable law, upon any amount becoming due and payable by the
Borrower hereunder (whether at the stated maturity, by acceleration or
otherwise), to set off and appropriate and apply against such amount any and
all deposits (general or special, time or demand, provisional or final), in
any currency, and any other credits, indebtedness or claims, in any currency,
in each case whether direct or indirect, absolute or contingent, matured or
unmatured, at any time held or owing by such Lender or any branch or agency
thereof to or for the credit or the account of the Borrower, as the case may
be. Each Lender agrees promptly to notify the Borrower and the Administrative
Agent after any such setoff and application made by such Lender, provided that
the failure to give such notice shall not affect the validity of such setoff
and application.
12.8 Counterparts. This Agreement may be executed by one or
more of the parties to this Agreement on any number of separate counterparts,
and all of said counterparts taken together shall be deemed to constitute one
and the same instrument. Delivery of an executed signature page of this
Agreement by facsimile transmission shall be effective as delivery of a
manually executed counterpart hereof. A set of the copies of this Agreement
signed by all the parties shall be lodged with the Borrower and the
Administrative Agent.
12.9 Severability. Any provision of this Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof, and any
such prohibition or unenforceability in any jurisdiction shall not invalidate
or render unenforceable such provision in any other jurisdiction.
12.10 Integration. This Agreement and the other Loan
Documents represent the agreement of the Borrower, the Administrative Agent
and the Lenders with respect to the subject matter hereof, and there are no
promises, undertakings, representations or warranties by the Administrative
Agent or any Lender relative to subject matter hereof not expressly set forth
or referred to herein or in the other Loan Documents.
12.11 GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES UNDER THIS AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK
AND, TO THE EXTENT APPLICABLE, THE BANKRUPTCY CODE.
12.12 Submission To Jurisdiction; Waivers. The Borrower hereby
irrevocably
<PAGE>
70
and unconditionally:
(a) submits for itself and its Property in any legal action
or proceeding relating to this Agreement and the other Loan Documents
to which it is a party, or for recognition and enforcement of any
judgment in respect thereof, to the non-exclusive general
jurisdiction of the Bankruptcy Court and, if the Bankruptcy Court
does not have (or abstains from) jurisdiction, to the non-exclusive
general jurisdiction of the courts of the State of New York, the
courts of the United States of America for the Southern District of
New York, and appellate courts from any thereof;
(b) consents that any such action or proceeding may be
brought in such courts and waives any objection that it may now or
hereafter have to the venue of any such action or proceeding in any
such court or that such action or proceeding was brought in an
inconvenient court and agrees not to plead or claim the same;
(c) agrees that service of process in any such action or
proceeding may be effected by mailing a copy thereof by registered or
certified mail (or any substantially similar form of mail), postage
prepaid, to the Borrower, as the case may be at its address set forth
in Section 12.2 or at such other address of which the Administrative
Agents shall have been notified pursuant thereto;
(d) agrees that nothing herein shall affect the right to
effect service of process in any other manner permitted by law or
shall limit the right to sue in any other jurisdiction; and
(e) waives, to the maximum extent not prohibited by law, any
right it may have to claim or recover in any legal action or
proceeding referred to in this Section 12.12 any special, exemplary,
punitive or consequential damages.
12.13 Acknowledgements. The Borrower hereby acknowledges
that:
(a) it has been advised by counsel in the negotiation,
execution and delivery of this Agreement and the other Loan
Documents;
(b) neither the Agents nor any Lender has any fiduciary
relationship with or duty to the Borrower arising out of or in
connection with this Agreement or any of the other Loan Documents,
and the relationship between the Agents and Lenders, on one hand, and
the Borrower, on the other hand, in connection herewith or therewith
is solely that of debtor and creditor; and
(c) no joint venture is created hereby or by the other Loan
Documents or otherwise exists by virtue of the transactions
contemplated hereby among the Lenders or among the Borrower and the
Lenders.
12.14 Absence of Prejudice with Respect to Matters Before
the Bankruptcy Court. The Borrower acknowledges that the Bankruptcy Code and
Bankruptcy Rules require it to seek Bankruptcy Court authorization for certain
matters that may also be addressed in this Agreement. The Borrower will not
mention in any pleading or argument before the Bankruptcy
<PAGE>
71
Court in support of, or in any way relating to, a position that Bankruptcy
Court authorization should be granted on the ground that such authorization is
permitted by this Agreement (unless a Person opposing any such pleading or
argument relies on this Agreement to assert or question the propriety of such).
12.15 Confidentiality. Each of the Agents and the Lenders
agrees to keep confidential all non-public information provided to it by any
Loan Party pursuant to this Agreement that is designated by such Loan Party as
confidential; provided that nothing herein shall prevent any Agent or any
Lender from disclosing any such information (a) to any other Agent, any other
Lender or any affiliate of any Lender, (b) to any Participant or Assignee
(each, a "Transferee") or prospective Transferee which agrees to comply with
the provisions of this Section 12.15, (c) any of its employees, directors,
agents, attorneys, accountants and other professional advisors, (d) upon the
request or demand of any Governmental Authority having jurisdiction over it,
(e) in response to any order of any court or other Governmental Authority or
as may otherwise be required pursuant to any Requirement of Law, (f) if
requested or required to do so in connection with any litigation or similar
proceeding, (g) which has been publicly disclosed other than in breach of this
Section 12.15, (h) to the National Association of Insurance Commissioners or
any similar organization or any nationally recognized rating agency that
requires access to information about a Lender's investment portfolio in
connection with ratings issued with respect to such Lender or (i) in
connection with the exercise of any remedy hereunder or under any other Loan
Document.
12.16 WAIVERS OF JURY TRIAL. THE BORROWER, THE AGENTS AND
THE LENDERS HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVE TRIAL BY JURY IN ANY
LEGAL ACTION OR PROCEEDING RELATING TO THIS AGREEMENT OR ANY OTHER LOAN
DOCUMENT AND FOR ANY COUNTERCLAIM THEREIN.
<PAGE>
72
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed and delivered by their proper and duly
authorized officers as of the day and year first above written.
THE GRAND UNION COMPANY
By:
----------------------------------
Name:
Title:
LEHMAN BROTHERS INC.,
as Co-Arranger
By:
----------------------------------
Name:
Title:
LEHMAN COMMERCIAL PAPER INC., as
Administrative Agent and as a Lender
By:
----------------------------------
Name:
Title:
SBC WARBURG DILLON READ INC., as
Co-Arranger
By:
----------------------------------
Name:
Title:
SWISS BANK CORPORATION, STAMFORD
BRANCH, as Syndication Agent and as a
Lender
By:
----------------------------------
Name:
Title:
<PAGE>
73
SWISS BANK CORPORATION, STAMFORD
BRANCH, as Syndication Agent and as a
Lender
By:
----------------------------------
Name:
Title:
<PAGE>
EXHIBIT 10.41
GUARANTEE AND COLLATERAL AGREEMENT
made by
GRAND UNION STORES, INC. OF VERMONT
GRAND UNION STORES OF NEW HAMPSHIRE, INC.,
MERCHANDISING SERVICES, INC., and
SPECIALTY MERCHANDISING SERVICES, INC.
in favor of
LEHMAN COMMERCIAL PAPER INC.,
as Administrative Agent
Dated as of June 24, 1998
<PAGE>
TABLE OF CONTENTS
<TABLE>
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<S> <C>
SECTION 1. DEFINED TERMS.......................................................... 1
1.1 Definitions.......................................................... 1
1.2 Other Definitional Provisions........................................ 5
SECTION 2. GUARANTEE.............................................................. 5
2.1 Guarantee............................................................ 5
2.2 Right of Contribution................................................ 6
2.3 No Subrogation....................................................... 6
2.4 Amendments, etc. with respect to the Borrower Obligations............ 7
2.5 Guarantee Absolute and Unconditional................................. 7
2.6 Reinstatement........................................................ 8
2.7 Payments............................................................. 8
SECTION 3. GRANT OF SECURITY INTEREST............................................. 8
3.1 Collateral........................................................... 8
3.2 Grant of Security Interest........................................... 9
SECTION 4. REPRESENTATIONS AND WARRANTIES......................................... 9
4.1 Representations in Credit Agreement.................................. 9
4.2 Title; No Other Liens................................................ 10
4.3 Perfected Liens...................................................... 10
4.4 Chief Executive Office............................................... 10
4.5 Inventory and Equipment.............................................. 10
4.6 Farm Products........................................................ 10
4.7 Receivables.......................................................... 10
4.8 Contracts............................................................ 11
4.9 Intellectual Property................................................ 11
SECTION 5. COVENANTS.............................................................. 12
5.1 Covenants in Credit Agreement....................................... 12
5.2 Delivery of Instruments and Chattel Paper........................... 12
5.3 Maintenance of Insurance............................................ 12
5.4 Payment of Obligations.............................................. 13
5.5 Maintenance of Perfected Security Interest; Further Documentation... 13
5.6 Changes in Locations, Name, etc..................................... 13
5.7 Notices............................................................. 14
5.8 Pledged Securities.................................................. 14
5.9 Receivables......................................................... 15
5.10 Contracts........................................................... 15
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
5.11 Intellectual Property............................................... 15
5.12 Vehicles............................................................ 17
SECTION 6. REMEDIAL PROVISIONS.................................................... 17
6.1 Certain Matters Relating to Receivables.............................. 17
6.2 Communications with Obligors; Guarantors Remain Liable............... 18
6.3 Pledged Stock........................................................ 18
6.4 Proceeds to be Turned Over To Administrative Agent................... 19
6.5 Application of Proceeds.............................................. 20
6.6 Code and Other Remedies.............................................. 20
6.7 Registration Rights.................................................. 21
6.8 Waiver; Deficiency................................................... 22
SECTION 7. THE ADMINISTRATIVE AGENT............................................... 22
7.1 Administrative Agent's Appointment as Attorney-in-Fact, etc.......... 22
7.2 Duty of Administrative Agent......................................... 24
7.3 Execution of Financing Statements.................................... 24
7.4 Authority of Administrative Agent.................................... 24
SECTION 8. MISCELLANEOUS.......................................................... 25
8.1 Amendments in Writing............................................... 25
8.2 Notices............................................................. 25
8.3 No Waiver by Course of Conduct; Cumulative Remedies................. 25
8.4 Enforcement Expenses; Indemnification............................... 25
8.5 Successors and Assigns.............................................. 26
8.6 Set-Off............................................................. 26
8.7 Counterparts........................................................ 26
8.8 Severability........................................................ 26
8.9 Section Headings.................................................... 27
8.10 Integration......................................................... 27
8.11 GOVERNING LAW....................................................... 27
8.12 Submission To Jurisdiction; Waivers................................. 27
8.13 Acknowledgements.................................................... 28
8.14 Additional Guarantors............................................... 28
8.15 Releases............................................................ 28
8.16 WAIVERS OF JURY TRIAL............................................... 29
</TABLE>
ii
<PAGE>
GUARANTEE AND COLLATERAL AGREEMENT
GUARANTEE AND COLLATERAL AGREEMENT, dated as of June 24,
1998, made by each of the signatories hereto (together with any other entity
that may become a party hereto as provided herein, the "Guarantors"), in favor
of Lehman Commercial Paper Inc., as administrative agent (in such capacity,
the "Administrative Agent") for the banks and other financial institutions
(the "Lenders") from time to time parties to the Revolving Credit Agreement,
dated as of June 24, 1998 (as amended, supplemented or otherwise modified from
time to time, the "Credit Agreement"), among The Grand Union Company (the
"Borrower"), the Lenders, SBC Warburg Dillon Read Inc., as co-advisor and
co-arranger, Swiss Bank Corporation, Stamford Branch, as Syndication Agent,
Lehman Brothers Inc., as co-advisor and co-arranger, and the Administrative
Agent.
W I T N E S S E T H:
WHEREAS, pursuant to the Credit Agreement, the Lenders have
severally agreed to make extensions of credit to the Borrower upon the terms
and subject to the conditions set forth therein;
WHEREAS, the Borrower is a member of an affiliated group of
companies that includes each Guarantor;
WHEREAS, the proceeds of the extensions of credit under the
Credit Agreement will be used in part to enable the Borrower to make valuable
transfers to one or more of the Guarantors in connection with the operation of
their respective businesses;
WHEREAS, the Borrower and the Guarantors are engaged in
related businesses, and each Guarantor will derive substantial direct and
indirect benefit from the making of the extensions of credit under the Credit
Agreement; and
WHEREAS, it is a condition precedent to the obligation of
the Lenders to make their respective extensions of credit to the Borrower
under the Credit Agreement that the Guarantors shall have executed and
delivered this Agreement to the Administrative Agent for the ratable benefit
of the Lenders;
NOW, THEREFORE, in consideration of the premises and to
induce the Agents and the Lenders to enter into the Credit Agreement and to
induce the Lenders to make their respective extensions of credit to the
Borrower thereunder, each Guarantor hereby agrees with the Administrative
Agent, for the ratable benefit of the Agents and the Lenders, as follows:
SECTION 1. DEFINED TERMS
1.1 Definitions. (a) Unless otherwise defined herein, terms
defined in the Credit Agreement and used herein shall have the meanings given
to them in the Credit Agreement, and the following terms which are defined in
the Uniform Commercial Code in effect in the State of New York on the date
hereof are used herein as so defined: Accounts, Chattel Paper,
<PAGE>
2
Documents, Equipment, Farm Products, Instruments, Inventory and Investment
Property.
(b) The following terms shall have the following meanings:
"Agreement": this Guarantee and Collateral Agreement, as the
same may be amended, supplemented or otherwise modified from time to
time.
"Borrower Obligations": the collective reference to the
unpaid principal of and interest on the Loans and Reimbursement
Obligations and all other obligations and liabilities of the Borrower
(including, without limitation, interest accruing at the then
applicable rate provided in the Credit Agreement after the maturity
of the Loans and Reimbursement Obligations to the Agents or any
Lender (or, in the case of any Hedge Agreement, any Affiliate of any
Lender), whether direct or indirect, absolute or contingent, due or
to become due, or now existing or hereafter incurred, which may arise
under, out of, or in connection with, the Credit Agreement, this
Agreement, the other Loan Documents, any Letter of Credit or any
Hedge Agreement entered into by the Borrower with any Lender (or any
Affiliate of any Lender) or any other document made, delivered or
given in connection therewith, in each case whether on account of
principal, interest, reimbursement obligations, fees, indemnities,
costs, expenses or otherwise (including, without limitation, all fees
and disbursements of counsel to the Agents or to the Lenders that are
required to be paid by the Borrower pursuant to the terms of any of
the foregoing agreements).
"Collateral": as defined in Section 3.
"Collateral Account": any collateral account established by
the Administrative Agent as provided in Section 6.1 or 6.4.
"Contracts": the contracts and agreements in effect as of
the date hereof, as the same may be amended, supplemented or
otherwise modified from time to time, including, without limitation,
(i) all rights of any Guarantor to receive moneys due and to become
due to it thereunder or in connection therewith, (ii) all rights of
any Guarantor to damages arising thereunder and (iii) all rights of
any Guarantor to perform and to exercise all remedies thereunder.
"Copyrights": (i) all copyrights arising under the laws of
the United States, any other country or any political subdivision
thereof, whether registered or unregistered and whether published or
unpublished, all registrations and recordings thereof, and all
applications in connection therewith, including, without limitation,
all registrations, recordings and applications in the United States
Copyright Office, and (ii) the right to obtain all renewals thereof.
"Copyright Licenses": any written agreement naming any
Guarantor as licensor or licensee granting any right under any
Copyright, including, without limitation, the grant of rights to
manufacture, distribute, exploit and sell materials derived from any
Copyright.
"General Intangibles": all "general intangibles" as such
term is defined in Section
<PAGE>
9-106 of the Uniform Commercial Code in
effect in the State of New York on the date hereof and, in any event,
including, without limitation, with respect to any Guarantor, all
contracts, agreements, instruments and indentures in any form, and
portions thereof, to which such Guarantor is a party or under which
such Guarantor has any right, title or interest or to which such
Guarantor or any property of such Guarantor is subject, as the same
may from time to time be amended, supplemented or otherwise modified,
including, without limitation, (i) all rights of such Guarantor to
receive moneys due and to become due to it thereunder or in
connection therewith, (ii) all rights of such Guarantor to damages
arising thereunder and (iii) all rights of such Guarantor to perform
and to exercise all remedies thereunder, in each case to the extent
the grant by such Guarantor of a security interest pursuant to this
Agreement in its right, title and interest in such contract,
agreement, instrument or indenture is not prohibited by such
contract, agreement, instrument or indenture without the consent of
any other party thereto, would not give any other party to such
contract, agreement, instrument or indenture the right to terminate
its obligations thereunder, or is permitted with consent if all
necessary consents to such grant of a security interest have been
obtained from the other parties thereto (it being understood that the
foregoing shall not be deemed to obligate such Guarantor to obtain
such consents); provided, that the foregoing limitation shall not
affect, limit, restrict or impair the grant by such Guarantor of a
security interest pursuant to this Agreement in any Receivable or any
money or other amounts due or to become due under any such contract,
agreement, instrument or indenture.
"Guarantor Obligations": with respect to any Guarantor, all
obligations and liabilities of such Guarantor which may arise under
or in connection with this Agreement (including, without limitation,
Section 2) or any other Loan Document to which such Guarantor is a
party, in each case whether on account of guarantee obligations,
reimbursement obligations, fees, indemnities, costs, expenses or
otherwise (including, without limitation, all fees and disbursements
of counsel to the Agents or to the Lenders that are required to be
paid by such Guarantor pursuant to the terms of this Agreement or any
other Loan Document).
"Intellectual Property": the collective reference to all
rights, priorities and privileges relating to intellectual property,
whether arising under United States, multinational or foreign laws or
otherwise, including, without limitation, the Copyrights, the
Copyright Licenses, the Patents, the Patent Licenses, the Trademarks
and the Trademark Licenses, and all rights to sue at law or in equity
for any infringement or other impairment thereof, including the right
to receive all proceeds and damages therefrom.
"Issuers": the collective reference to each issuer of a
Pledged Security.
"New York UCC": the Uniform Commercial Code as from time to
time in effect in the State of New York.
"Obligations": (i) in the case of the Borrower, the Borrower
Obligations, and (ii) in the case of each Guarantor, its Guarantor
Obligations.
"Patents": (i) all letters patent of the United States, any
other country or any political subdivision thereof, all reissues and
extensions thereof and all goodwill
<PAGE>
3
associated therewith, (ii) all applications for letters patent of the
United States or any other country and all divisions, continuations and
continuations-in-part thereof, and (iii) all rights to obtain any
reissues or extensions of the foregoing.
"Patent License": all agreements, whether written or oral,
providing for the grant by or to any Guarantor of any right to
manufacture, use or sell any invention covered in whole or in part by a
Patent.
"Pledged Notes": all promissory notes issued to or held by
any Guarantor (other than promissory notes issued in connection with
extensions of trade credit by any Guarantor in the ordinary
course of business) while this Agreement is in effect.
"Pledged Securities": the collective reference to the Pledged
Notes and the Pledged Stock.
"Pledged Stock": shares, stock certificates, options or
rights of any nature whatsoever in respect of the Capital Stock of any
Person that may be issued or granted to, or held by, any Guarantor
while this Agreement is in effect.
"Proceeds": all "proceeds" as such term is defined in
Section 9-306(1) of the Uniform Commercial Code in effect in the
State of New York on the date hereof and, in any event, shall
include, without limitation, all dividends or other income from the
Pledged Securities, collections thereon or distributions or payments
with respect thereto.
"Receivable": any right to payment for goods sold or leased
or for services rendered, whether or not such right is evidenced by an
Instrument or Chattel Paper and whether or not it has been earned
by performance (including, without limitation, any Account).
"Securities Act": the Securities Act of 1933, as amended.
"Trademarks": (i) all trademarks, trade names, corporate
names, company names, business names, fictitious business names,
trade styles, service marks, logos and other source or business
identifiers, and all goodwill associated therewith, now existing or
hereafter adopted or acquired, all registrations and recordings
thereof, and all applications in connection therewith, whether in the
United States Patent and Trademark Office or in any similar office or
agency of the United States, any State thereof or any other country
or any political subdivision thereof, or otherwise, and all
common-law rights related thereto, and (ii) the right to obtain all
renewals thereof.
"Trademark License": any agreement, whether written or oral,
providing for the grant by or to any Guarantor of any right to use any
Trademark.
"Vehicles": all cars, trucks, trailers, construction and
earth moving equipment and other vehicles covered by a certificate of
title law of any state and all tires and other appurtenances to any
of the foregoing.
1.2 Other Definitional Provisions. (a) The words "hereof,"
"herein", "hereto"
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5
and "hereunder" and words of similar import when used in this Agreement shall
refer to this Agreement as a whole and not to any particular provision of this
Agreement, and Section and Schedule references are to this Agreement unless
otherwise specified.
(b) The meanings given to terms defined herein shall be
equally applicable to both the singular and plural forms of such terms.
(c) Where the context requires, terms relating to the
Collateral or any part thereof, when used in relation to a Guarantor, shall
refer to such Guarantor's Collateral or the relevant part thereof.
SECTION 2. GUARANTEE
2.1 Guarantee. (a) Each of the Guarantors hereby, jointly
and severally, unconditionally and irrevocably, guarantees to the
Administrative Agent, for the ratable benefit of the Agents and the Lenders
and their respective successors, indorsees, transferees and assigns, the
prompt and complete payment and performance by the Borrower when due (whether
at the stated maturity, by acceleration or otherwise) of the Borrower
Obligations.
(b) Anything herein or in any other Loan Document to the
contrary notwithstanding, the maximum liability of each Guarantor hereunder
and under the other Loan Documents shall in no event exceed the amount which
can be guaranteed by such Guarantor under applicable federal and state laws
relating to the insolvency of debtors (after giving effect to the right of
contribution established in Section 2.2).
(c) Each Guarantor agrees that the Borrower Obligations may
at any time and from time to time exceed the amount of the liability of such
Guarantor hereunder without impairing the guarantee contained in this Section
2 or affecting the rights and remedies of either Agent or any Lender
hereunder.
(d) The guarantee contained in this Section 2 shall remain
in full force and effect until all the Borrower Obligations and the
obligations of each Guarantor under the guarantee contained in this Section 2
shall have been satisfied by payment in full, no Letter of Credit shall be
outstanding and the Commitments shall be terminated, notwithstanding that from
time to time during the term of the Credit Agreement the Borrower may be free
from any Borrower Obligations.
(e) No payment made by the Borrower, any of the Guarantors,
any other guarantor or any other Person or received or collected by either
Agent or any Lender from the Borrower, any of the Guarantors, any other
guarantor or any other Person by virtue of any action or proceeding or any
set-off or appropriation or application at any time or from time to time in
reduction of or in payment of the Borrower Obligations shall be deemed to
modify, reduce, release or otherwise affect the liability of any Guarantor
hereunder which shall, notwithstanding any such payment (other than any
payment made by such Guarantor in respect of the Borrower Obligations or any
payment received or collected from such Guarantor in respect of the Borrower
Obligations), remain liable for the Borrower Obligations up to the maximum
liability of such Guarantor hereunder until the Borrower Obligations are paid
in full, no Letter of Credit shall be
<PAGE>
outstanding and the Commitments are terminated.
2.2 Right of Contribution. Each Guarantor hereby agrees that
to the extent that a Guarantor shall have paid more than its proportionate
share of any payment made hereunder, such Guarantor shall be entitled to seek
and receive contribution from and against any other Guarantor hereunder which
has not paid its proportionate share of such payment. Each Guarantor's right
of contribution shall be subject to the terms and conditions of Section 2.3.
The provisions of this Section 2.2 shall in no respect limit the obligations
and liabilities of any Guarantor to the Agents and the Lenders, and each
Guarantor shall remain liable to the Agents and the Lenders for the full
amount guaranteed by such Guarantor hereunder.
2.3 No Subrogation. Notwithstanding any payment made by any
Guarantor hereunder or any set-off or application of funds of any Guarantor by
either Agent or any Lender, no Guarantor shall be entitled to be subrogated to
any of the rights of either Agent or any Lender against the Borrower or any
other Guarantor or any collateral security or guarantee or right of offset
held by either Agent or any Lender for the payment of the Borrower
Obligations, nor shall any Guarantor seek or be entitled to seek any
contribution or reimbursement from the Borrower or any other Guarantor in
respect of payments made by such Guarantor hereunder, until all amounts owing
to the Agents and the Lenders by the Borrower on account of the Borrower
Obligations are paid in full, no Letter of Credit shall be outstanding and the
Commitments are terminated. If any amount shall be paid to any Guarantor on
account of such subrogation rights at any time when all of the Borrower
Obligations shall not have been paid in full, such amount shall be held by
such Guarantor in trust for the Agents and the Lenders, segregated from other
funds of such Guarantor, and shall, forthwith upon receipt by such Guarantor,
be turned over to the Administrative Agent in the exact form received by such
Guarantor (duly indorsed by such Guarantor to the Administrative Agent, if
required), to be applied against the Borrower Obligations, whether matured or
unmatured, in such order as the Administrative Agent may determine.
2.4 Amendments, etc. with respect to the Borrower
Obligations. Each Guarantor shall remain obligated hereunder notwithstanding
that, without any reservation of rights against any Guarantor and without
notice to or further assent by any Guarantor, any demand for payment of any of
the Borrower Obligations made by either Agent or any Lender may be rescinded
by any such Agent or Lender and any of the Borrower Obligations continued, and
the Borrower Obligations, or the liability of any other Person upon or for any
part thereof, or any collateral security or guarantee therefor or right of
offset with respect thereto, may, from time to time, in whole or in part, be
renewed, extended, amended, modified, accelerated, compromised, waived,
surrendered or released by either Agent or any Lender, and the Credit
Agreement and the other Loan Documents and any other documents executed and
delivered in connection therewith may be amended, modified, supplemented or
terminated, in whole or in part, as the Agents (or the requisite Lenders, as
the case may be) may deem advisable from time to time, and any collateral
security, guarantee or right of offset at any time held by any Agent or any
Lender for the payment of the Borrower Obligations may be sold, exchanged,
waived, surrendered or released. Neither any Agent nor any Lender shall have
any obligation to protect, secure, perfect or insure any Lien at any time held
by it as security for the Borrower Obligations or for the guarantee contained
in this Section 2 or any property subject thereto.
2.5 Guarantee Absolute and Unconditional. Each Guarantor
waives any and all
<PAGE>
7
notice of the creation, renewal, extension or accrual of any of the Borrower
Obligations and notice of or proof of reliance by either Agent or any Lender
upon the guarantee contained in this Section 2 or acceptance of the guarantee
contained in this Section 2; the Borrower Obligations, and any of them, shall
conclusively be deemed to have been created, contracted or incurred, or
renewed, extended, amended or waived, in reliance upon the guarantee contained
in this Section 2; and all dealings between the Borrower and any of the
Guarantors, on the one hand, and the Agents and the Lenders, on the other
hand, likewise shall be conclusively presumed to have been had or consummated
in reliance upon the guarantee contained in this Section 2. Each Guarantor
waives diligence, presentment, protest, demand for payment and notice of
default or nonpayment to or upon the Borrower or any of the Guarantors with
respect to the Borrower Obligations. Each Guarantor understands and agrees
that the guarantee contained in this Section 2 shall be construed as a
continuing, absolute and unconditional guarantee of payment without regard to
(a) the validity or enforceability of the Credit Agreement or any other Loan
Document, any of the Borrower Obligations or any other collateral security
therefor or guarantee or right of offset with respect thereto at any time or
from time to time held by either Agent or any Lender, (b) any defense, set-off
or counterclaim (other than a defense of payment or performance) which may at
any time be available to or be asserted by the Borrower or any other Person
against either Agent or any Lender, or (c) any other circumstance whatsoever
(with or without notice to or knowledge of the Borrower or such Guarantor)
which constitutes, or might be construed to constitute, an equitable or legal
discharge of the Borrower for the Borrower Obligations, or of such Guarantor
under the guarantee contained in this Section 2, in bankruptcy or in any other
instance. When making any demand hereunder or otherwise pursuing its rights
and remedies hereunder against any Guarantor, either Agent or any Lender may,
but shall be under no obligation to, make a similar demand on or otherwise
pursue such rights and remedies as it may have against the Borrower, any other
Guarantor or any other Person or against any collateral security or guarantee
for the Borrower Obligations or any right of offset with respect thereto, and
any failure by the Agents or any Lender to make any such demand, to pursue
such other rights or remedies or to collect any payments from the Borrower,
any other Guarantor or any other Person or to realize upon any such collateral
security or guarantee or to exercise any such right of offset, or any release
of the Borrower, any other Guarantor or any other Person or any such
collateral security, guarantee or right of offset, shall not relieve any
Guarantor of any obligation or liability hereunder, and shall not impair or
affect the rights and remedies, whether express, implied or available as a
matter of law, of either Agent or any Lender against any Guarantor. For the
purposes hereof "demand" shall include the commencement and continuance of any
legal proceedings.
2.6 Reinstatement. The guarantee contained in this Section 2
shall continue to be effective, or be reinstated, as the case may be, if at
any time payment, or any part thereof, of any of the Borrower Obligations is
rescinded or must otherwise be restored or returned by either Agent or any
Lender upon the insolvency, bankruptcy, dissolution, liquidation or
reorganization of any Guarantor, or upon or as a result of the appointment of
a receiver, intervenor or conservator of, or trustee or similar officer for,
any Guarantor or any substantial part of its property, or otherwise, all as
though such payments had not been made.
2.7 Payments. Each Guarantor hereby guarantees that payments
hereunder will be paid to the Administrative Agent without set-off or
counterclaim in Dollars at the office of the Administrative Agent located at
the Payment Office specified in the Credit Agreement.
<PAGE>
8
SECTION 3. GRANT OF SECURITY INTEREST
3.1 Collateral. For the purposes of this Agreement, all of
the following property now owned or at any time hereafter acquired by a
Guarantor or in which a Guarantor now has or at any time in the future may
acquire any right, title or interest is collectively referred the
"Collateral":
(a) all Accounts;
(b) all Chattel Paper;
(c) all Contracts;
(d) all Documents;
(e) all Equipment;
(f) all General Intangibles;
(g) all Instruments;
(h) all Intellectual Property;
(i) all Inventory;
(j) all Pledged Securities;
(k) all Vehicles;
(l) all Investment Property;
(m) all deposit accounts and other bank accounts;
(n) all books and records pertaining to the Collateral; and
(o) to the extent not otherwise included, all Proceeds and
products of any and all of the foregoing and all collateral security
and guarantees given by any Person with respect to any of the
foregoing.
3.2 Grant of Security Interest. As collateral security for
the prompt and complete payment and performance when due (whether at stated
maturity, by acceleration or otherwise) of such Guarantor's Obligations, each
Guarantor hereby assigns and transfers to the Administrative Agent, and grants
to the Administrative Agent for the ratable benefit of the Agents and,
effective upon the initial Extension of Credit pursuant to the Credit
Agreement, the Lenders, a security interest in all of its Collateral.
<PAGE>
9
SECTION 4. REPRESENTATIONS AND WARRANTIES
To induce the Agents and the Lenders to enter into the
Credit Agreement and to induce the Lenders to make their respective extensions
of credit to the Borrower thereunder, each Guarantor hereby represents and
warrants to the Agents and each Lender that:
4.1 Representations in Credit Agreement. In the case of each
Guarantor, the representations and warranties set forth in Section 5 of the
Credit Agreement as they relate to such Guarantor or to the Loan Documents to
which such Guarantor is a party, each of which is hereby incorporated herein
by reference, are true and correct, and the Agents and each Lender shall be
entitled to rely on each of them as if they were fully set forth herein,
provided that each reference in each such representation and warranty to the
Borrower's knowledge shall, for the purposes of this Section 5.1, be deemed to
be a reference to such Guarantor's knowledge.
4.2 Title; No Other Liens. Except for the security interests
granted to the Administrative Agent for the ratable benefit of the Agents and
the Lenders pursuant to this Agreement and the other Liens permitted to exist
on the Collateral by the Credit Agreement, such Guarantor owns each item of
the Collateral free and clear of any and all Liens or claims of others. No
financing statement or other public notice with respect to all or any part of
the Collateral is on file or of record in any public office, except such as
have been filed in favor of the Administrative Agent, for the ratable benefit
of the Agents and the Lenders, pursuant to this Agreement or as are permitted
by the Credit Agreement.
4.3 Perfected Liens. (a) The security interests granted
pursuant to this Agreement upon completion of the filings and other actions
specified on Schedule 2 (which, in the case of all filings and other documents
referred to on said Schedule, have been delivered to the Administrative Agent
in completed and duly executed form) will constitute valid perfected security
interests in the Collateral in favor of the Administrative Agent, for the
ratable benefit of the Agents and the Lenders, having the priority ascribed to
such security interests in Section 3.
(b) The security interests granted pursuant to this
Agreement upon completion of the filings specified on Schedule 2 (which, in
the case of all filings and other documents referred to on said Schedule, have
been delivered to the Administrative Agent in completed and duly executed
form) are prior to all other Liens on the Collateral in existence on the date
of the initial Extension of Credit pursuant to the Credit Agreement except for
(i) Liens described in Schedule 5, and (ii) unrecorded Liens permitted by the
Credit Agreement which have priority over the Liens on the Collateral by
operation of law.
4.4 Chief Executive Office. On the date hereof, such
Guarantor's jurisdiction of organization and the location of such Guarantor's
chief executive office or sole place of business are specified on Schedule 3.
4.5 Inventory and Equipment. On the date hereof, such
Guarantor's Inventory and the Equipment (other than mobile goods) are kept at
the locations listed on Schedule 4.
4.6 Farm Products. None of the Collateral constitutes, or is
the Proceeds of, Farm Products.
<PAGE>
10
4.7 Receivables. (a) No amount payable to such Guarantor
under or in connection with any Receivable is evidenced by any Instrument or
Chattel Paper which has not been delivered to the Administrative Agent.
(b) None of the obligors on any Receivables is a Governmental
Authority.
(c) The amounts represented by such Guarantor to the Lenders
from time to time as owing to such Guarantor in respect of the Receivables
will at such times be accurate.
4.8 Contracts. (a) No consent of any party (other than such
Guarantor) to any Contract is required, or purports to be required, in
connection with the execution, delivery and performance of this Agreement.
(b) Each Contract is in full force and effect and
constitutes a valid and legally enforceable obligation of the Guarantor party
thereto, subject to the effects of bankruptcy, insolvency, fraudulent
conveyance, reorganization, moratorium and other similar laws relating to or
affecting creditors' rights generally, general equitable principles (whether
considered in a proceeding in equity or at law) and an implied covenant of
good faith and fair dealing.
(c) No consent or authorization of, filing with or other act
by or in respect of any Governmental Authority is required in connection with
the execution, delivery, performance, validity or enforceability of any of the
Contracts by any Guarantor party thereto other than those which have been duly
obtained, made or performed, are in full force and effect and do not subject
the scope of any such Contract to any material adverse limitation, either
specific or general in nature.
(d) Neither such Guarantor nor (to the best of such
Guarantor's knowledge) any of the other parties to the Contracts is in default
in the performance or observance of any of the terms thereof in any manner
that, in the aggregate, could reasonably be expected to have a Material
Adverse Effect.
(e) The right, title and interest of such Guarantor in, to
and under the Contracts are not subject to any defenses, offsets,
counterclaims or claims that, in the aggregate, could reasonably be expected
to have a Material Adverse Effect.
(f) No amount payable to such Guarantor under or in
connection with any Contract is evidenced by any Instrument or Chattel Paper
which has not been delivered to the Administrative Agent.
(g) None of the parties to any Contract is a Governmental
Authority.
4.9 Intellectual Property. (a) On the date hereof, all
material Intellectual Property is valid, subsisting, unexpired and
enforceable, has not been abandoned and does not infringe the intellectual
property rights of any other Person.
(b) On the date hereof, none of the Intellectual Property is
the subject of any licensing or franchise agreement pursuant to which such
Guarantor is the licensor or franchisor which could reasonably be expected to
have a Material Adverse Effect.
<PAGE>
11
(c) No holding, decision or judgment has been rendered by
any Governmental Authority which would limit, cancel or question the validity
of, or such Guarantor's rights in, any Intellectual Property in any respect
that could reasonably be expected to have a Material Adverse Effect.
(d) No action or proceeding is pending, or, to the knowledge
of such Guarantor, threatened, on the date hereof (i) seeking to limit, cancel
or question the validity of any Intellectual Property or such Guarantor's
ownership interest therein, or (ii) which, if adversely determined, would have
a material adverse effect on the value of any Intellectual Property.
SECTION 5. COVENANTS
Each Guarantor covenants and agrees with the Agents and the
Lenders that, from and after the date of this Agreement until the Obligations
shall have been paid in full, no Letter of Credit shall be outstanding and the
Commitments shall have terminated:
5.1 Covenants in Credit Agreement. In the case of each
Guarantor, such Guarantor shall take, or shall refrain from taking, as the
case may be, each action that is necessary to be taken or not taken, as the
case may be, so that no Default or Event of Default is caused by the failure
to take such action or to refrain from taking such action by such Guarantor.
5.2 Delivery of Instruments and Chattel Paper. If any amount
payable under or in connection with any of the Collateral shall be or become
evidenced by any Instrument or Chattel Paper, such Instrument or Chattel Paper
shall be immediately delivered to the Administrative Agent, duly indorsed in a
manner satisfactory to the Administrative Agent, to be held as Collateral
pursuant to this Agreement.
5.3 Maintenance of Insurance. (a) Such Guarantor will
maintain, with financially sound and reputable companies, insurance policies
(i) insuring the Inventory, Equipment and Vehicles against loss by fire,
explosion, theft and such other casualties as may be reasonably satisfactory
to the Administrative Agent and (ii) to the extent requested by the
Administrative Agent, insuring such Guarantor, the Agents and the Lenders
against liability for personal injury and property damage relating to such
Inventory, Equipment and Vehicles, such policies to be in such form and
amounts and having such coverage as may be reasonably satisfactory to the
Administrative Agent and the Lenders.
(b) All such insurance shall (i) provide that no
cancellation, material reduction in amount or material change in coverage
thereof shall be effective until at least 30 days after receipt by the
Administrative Agent of written notice thereof, (ii) name the Administrative
Agent as insured party or loss payee, (iii) if reasonably requested by the
Administrative Agent, include a breach of warranty clause and (iv) be
reasonably satisfactory in all other respects to the Administrative Agent.
(c) The Borrower shall deliver to the Administrative Agent a
report of a reputable insurance broker with respect to such insurance
substantially concurrently with the delivery by the Borrower to the
Administrative Agent of its audited financial statements for each fiscal year
<PAGE>
12
and such supplemental reports with respect thereto as the Administrative Agent
may from time to time reasonably request.
5.4 Payment of Obligations. Such Guarantor will pay and
discharge or otherwise satisfy at or before maturity or before they become
delinquent, as the case may be, all taxes, assessments and governmental
charges or levies imposed upon the Collateral or in respect of income or
profits therefrom, as well as all claims of any kind (including, without
limitation, claims for labor, materials and supplies) against or with respect
to the Collateral, except that no such charge need be paid if the amount or
validity thereof is currently being contested in good faith by appropriate
proceedings, reserves in conformity with GAAP with respect thereto have been
provided on the books of such Guarantor and such proceedings could not
reasonably be expected to result in the sale, forfeiture or loss of any
material portion of the Collateral or any interest therein.
5.5 Maintenance of Perfected Security Interest; Further
Documentation. (a) Such Guarantor shall maintain the security interests
created by this Agreement as a perfected security interests having at least
the priorities described in Section 4.3 and shall defend such security
interests against the claims and demands of all Persons whomsoever.
(b) Such Guarantor will furnish to the Administrative Agent
from time to time statements and schedules further identifying and describing
the Collateral and such other reports in connection with the Collateral as the
Administrative Agent may reasonably request, all in reasonable detail.
(c) At any time and from time to time, upon the written
request of the Administrative Agent, and at the sole expense of such
Guarantor, such Guarantor will promptly and duly execute and deliver, and have
recorded, such further instruments and documents and take such further actions
as the Administrative Agent may reasonably request for the purpose of
obtaining or preserving the full benefits of this Agreement and of the rights
and powers herein granted, including, without limitation, the filing of any
financing or continuation statements under the Uniform Commercial Code (or
other similar laws) in effect in any jurisdiction with respect to the security
interests created hereby.
5.6 Changes in Locations, Name, etc. Such Guarantor will
not, except upon 15 days' prior written notice to the Administrative Agent and
delivery to the Administrative Agent of (a) all additional executed financing
statements and other documents reasonably requested by the Administrative
Agent to maintain the validity, perfection and priority of the security
interests provided for herein and (b) if applicable, a written supplement to
Schedule 4 showing any additional location at which Inventory or Equipment
shall be kept:
(i) permit any of the Inventory or Equipment to be kept at a
location other than those listed on Schedule 4;
(ii) change the location of its chief executive office or
sole place of business from that referred to in Section 4.4; or
(iii) change its name, identity or corporate structure to
such an extent that any financing statement filed by the
Administrative Agent in connection with this Agreement
<PAGE>
13
would become misleading.
5.7 Notices. Such Guarantor will advise the Agents and the
Lenders promptly, in reasonable detail, of:
(a) any Lien (other than security interests created hereby
or Liens permitted under the Credit Agreement) on any of the Collateral which
would adversely affect the ability of the Administrative Agent to exercise any
of its remedies hereunder; and
(b) of the occurrence of any other event which could
reasonably be expected to have a material adverse effect on the aggregate
value of the Collateral or on the security interests created hereby.
5.8 Pledged Securities. (a) If such Guarantor shall become
entitled to receive or shall receive any stock certificate (including, without
limitation, any certificate representing a stock dividend or a distribution in
connection with any reclassification, increase or reduction of capital or any
certificate issued in connection with any reorganization), option or rights in
respect of the Capital Stock of any Issuer, whether in addition to, in
substitution of, as a conversion of, or in exchange for, any shares of the
Pledged Stock, or otherwise in respect thereof, such Guarantor shall accept
the same as the agent of the Agents and the Lenders, hold the same in trust
for the Agents and the Lenders and deliver the same forthwith to the
Administrative Agent in the exact form received, duly indorsed by such
Guarantor to the Administrative Agent, if required, together with an undated
stock power covering such certificate duly executed in blank by such Guarantor
and with, if the Administrative Agent so requests, signature guaranteed, to be
held by the Administrative Agent, subject to the terms hereof, as additional
collateral security for the Obligations. Any sums paid upon or in respect of
the Pledged Securities upon the liquidation or dissolution of any Issuer shall
be paid over to the Administrative Agent to be held by it hereunder as
additional collateral security for the Obligations, and in case any
distribution of capital shall be made on or in respect of the Pledged
Securities or any property shall be distributed upon or with respect to the
Pledged Securities pursuant to the recapitalization or reclassification of the
capital of any Issuer or pursuant to the reorganization thereof, the property
so distributed shall, unless otherwise subject to a perfected security
interest in favor of the Administrative Agent, be delivered to the
Administrative Agent to be held by it hereunder as additional collateral
security for the Obligations. If any sums of money or property so paid or
distributed in respect of the Pledged Securities shall be received by such
Guarantor, such Guarantor shall, until such money or property is paid or
delivered to the Administrative Agent, hold such money or property in trust
for the Agents and the Lenders, segregated from other funds of such Guarantor,
as additional collateral security for the Obligations.
(b) Without the prior written consent of the Administrative
Agent, such Guarantor will not (i) vote to enable, or take any other action to
permit, any Issuer to issue any stock or other equity securities of any nature
or to issue any other securities convertible into or granting the right to
purchase or exchange for any stock or other equity securities of any nature of
any Issuer, (ii) sell, assign, transfer, exchange, or otherwise dispose of, or
grant any option with respect to, the Pledged Securities or Proceeds thereof
(except pursuant to a transaction expressly permitted by the Credit
Agreement), (iii) create, incur or permit to exist any Lien or option in favor
of, or any claim of any Person with respect to, any of the Pledged Securities
or Proceeds thereof, or any interest therein, except for the security
interests created by this
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14
Agreement or (iv) enter into any agreement or undertaking restricting the
right or ability of such Guarantor or the Administrative Agent to sell, assign
or transfer any of the Pledged Securities or Proceeds thereof.
(c) In the case of each Guarantor which is an Issuer, such
Issuer agrees that (i) it will be bound by the terms of this Agreement
relating to the Pledged Securities issued by it and will comply with such
terms insofar as such terms are applicable to it, (ii) it will notify the
Administrative Agent promptly in writing of the occurrence of any of the
events described in Section 5.8(a) with respect to the Pledged Securities
issued by it and (iii) the terms of Sections 6.3(c) and 6.7 shall apply to it,
mutatis mutandis, with respect to all actions that may be required of it
pursuant to Section 6.3(c) or 6.7 with respect to the Pledged Securities
issued by it.
5.9 Receivables. (a) Other than in the ordinary course of
business consistent with its past practice, such Guarantor will not (i) grant
any extension of the time of payment of any Receivable, (ii) compromise or
settle any Receivable for less than the full amount thereof, (iii) release,
wholly or partially, any Person liable for the payment of any Receivable, (iv)
allow any credit or discount whatsoever on any Receivable or (v) amend,
supplement or modify any Receivable in any manner that could adversely affect
the value thereof.
(b) Such Guarantor will deliver to the Administrative Agent
a copy of each material demand, notice or document received by it that
questions or calls into doubt the validity or enforceability of more than 5%
of the aggregate amount of the then outstanding Receivables.
5.10 Contracts. (a) Such Guarantor will perform and comply
in all material respects with all its obligations under the Contracts.
(b) Such Guarantor will not amend, modify, terminate or
waive any provision of any Contract in any manner which could reasonably be
expected to materially adversely affect the value of such Contract as
Collateral.
(c) Such Guarantor will exercise promptly and diligently
each and every material right which it may have under each Contract (other
than any right of termination).
(d) Such Guarantor will deliver to the Administrative Agent
a copy of each material demand, notice or document received by it relating in
any way to any Contract that questions the validity or enforceability of such
Contract.
5.11 Intellectual Property. (a) Such Guarantor (either
itself or through licensees) will (i) continue to use each material Trademark
on each and every trademark class of goods applicable to its current line as
reflected in its current catalogs, brochures and price lists in order to
maintain such Trademark in full force free from any claim of abandonment for
non-use, (ii) maintain as in the past the quality of products and services
offered under such Trademark, (iii) use such Trademark with the appropriate
notice of registration and all other notices and legends required by
applicable Requirements of Law, (iv) not adopt or use any mark which is
confusingly similar or a colorable imitation of such Trademark unless the
Administrative Agent, for the ratable benefit of the Agents and the Lenders,
shall obtain a perfected security interest in such mark pursuant to this
Agreement, and (v) not (and not permit any licensee or sublicensee thereof to)
do any act or knowingly omit to do any act whereby such Trademark may become
invalidated
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15
or impaired in any way.
(b) Such Guarantor (either itself or through licensees) will
not do any act, or omit to do any act, whereby any material Patent may become
forfeited, abandoned or dedicated to the public.
(c) Such Guarantor (either itself or through licensees) (i)
will employ each material Copyright and (ii) will not (and will not permit any
licensee or sublicensee thereof to) do any act or knowingly omit to do any act
whereby any material portion of the Copyrights may become invalidated or
otherwise impaired. Such Guarantor will not (either itself or through
licensees) do any act whereby any material portion of the Copyrights may fall
into the public domain.
(d) Such Guarantor (either itself or through licensees) will
not do any act that knowingly uses any material Intellectual Property to
infringe the intellectual property rights of any other Person.
(e) Such Guarantor will notify the Agents and the Lenders
immediately if it knows, or has reason to know, that any application or
registration relating to any material Intellectual Property may become
forfeited, abandoned or dedicated to the public, or of any adverse
determination or development (including, without limitation, the institution
of, or any such determination or development in, any proceeding in the United
States Patent and Trademark Office, the United States Copyright Office or any
court or tribunal in any country) regarding such Guarantor's ownership of, or
the validity of, any material Intellectual Property or such Guarantor's right
to register the same or to own and maintain the same.
(f) Whenever such Guarantor, either by itself or through any
agent, employee, licensee or designee, shall file an application for the
registration of any Intellectual Property with the United States Patent and
Trademark Office, the United States Copyright Office or any similar office or
agency in any other country or any political subdivision thereof, such
Guarantor shall report such filing to the Administrative Agent within five
Business Days after the last day of the fiscal quarter in which such filing
occurs. Upon request of the Administrative Agent, such Guarantor shall execute
and deliver, and have recorded, any and all agreements, instruments,
documents, and papers as the Administrative Agent may request to evidence the
Agents' and the Lenders' security interest in any Copyright, Patent or
Trademark and the goodwill and general intangibles of such Guarantor relating
thereto or represented thereby.
(g) Such Guarantor will take all reasonable and necessary
steps, including, without limitation, in any proceeding before the United
States Patent and Trademark Office, the United States Copyright Office or any
similar office or agency in any other country or any political subdivision
thereof, to maintain and pursue each application (and to obtain the relevant
registration) and to maintain each registration of the material Intellectual
Property, including, without limitation, filing of applications for renewal,
affidavits of use and affidavits of incontestability.
(h) In the event that any material Intellectual Property is
infringed, misappropriated or diluted by a third party, such Guarantor shall
(i) take such actions as such Guarantor shall reasonably deem appropriate
under the circumstances to protect such Intellectual
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16
Property and (ii) if such Intellectual Property is of material economic
value, promptly notify the Administrative Agent after it learns thereof and
sue for infringement, misappropriation or dilution, to seek injunctive relief
where appropriate and to recover any and all damages for such infringement,
misappropriation or dilution.
5.12 Vehicles. (a) No Vehicle shall be removed from the
state which has issued the certificate of title/ownership therefor for a
period in excess of four months.
(b) Within 30 days after the date hereof, and, with respect
to any Vehicles acquired by such Guarantor subsequent to the date hereof,
within 30 days after the date of acquisition thereof, all applications for
certificates of title/ownership indicating the Administrative Agent's first
priority security interest in the Vehicle covered by such certificate, and any
other necessary documentation, shall be filed in each office in each
jurisdiction which the Administrative Agent shall deem advisable to perfect
its security interests in the Vehicles.
SECTION 6. REMEDIAL PROVISIONS
6.1 Certain Matters Relating to Receivables. (a) The
Administrative Agent shall have the right to make test verifications of the
Receivables in any manner and through any medium that it reasonably considers
advisable, and each Guarantor shall furnish all such assistance and
information as the Administrative Agent may require in connection with such
test verifications. At any time and from time to time, upon the Administrative
Agent's request and at the expense of the relevant Guarantor, such Guarantor
shall cause independent public accountants or others satisfactory to the
Administrative Agent to furnish to the Administrative Agent reports showing
reconciliations, aging and test verifications of, and trial balances for, the
Receivables.
(b) The Administrative Agent hereby authorizes each
Guarantor to collect such Guarantor's Receivables, subject to the
Administrative Agent's direction and control, and the Administrative Agent may
curtail or terminate said authority at any time after the occurrence and
during the continuance of an Event of Default. If required by the
Administrative Agent at any time after the occurrence and during the
continuance of an Event of Default, any payments of Receivables, when
collected by any Guarantor, (i) shall be forthwith (and, in any event, within
two Business Days) deposited by such Guarantor in the exact form received,
duly indorsed by such Guarantor to the Administrative Agent if required, in a
Collateral Account maintained under the sole dominion and control of the
Administrative Agent, subject to withdrawal by the Administrative Agent for
the account of the Agents and the Lenders only as provided in Section 6.5, and
(ii) until so turned over, shall be held by such Guarantor in trust for the
Agents and the Lenders, segregated from other funds of such Guarantor. Each
such deposit of Proceeds of Receivables shall be accompanied by a report
identifying in reasonable detail the nature and source of the payments
included in the deposit.
(c) At the Administrative Agent's request, each Guarantor
shall deliver to the Administrative Agent all original and other documents
evidencing, and relating to, the agreements and transactions which gave rise
to the Receivables, including, without limitation, all original orders,
invoices and shipping receipts.
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17
6.2 Communications with Obligors; Guarantors Remain Liable.
(a) The Administrative Agent in its own name or in the name of others may at
any time communicate with obligors under the Receivables and parties to the
Contracts to verify with them to the Administrative Agent's satisfaction the
existence, amount and terms of any Receivables or Contracts.
(b) Upon the request of the Administrative Agent at any time
after the occurrence and during the continuance of an Event of Default, each
Guarantor shall notify obligors on the Receivables and parties to the
Contracts that the Receivables and the Contracts have been assigned to the
Administrative Agent for the ratable benefit of the Agents and the Lenders and
that payments in respect thereof shall be made directly to the Administrative
Agent.
(c) Anything herein to the contrary notwithstanding, each
Guarantor shall remain liable under each of the Receivables and Contracts to
observe and perform all the conditions and obligations to be observed and
performed by it thereunder, all in accordance with the terms of any agreement
giving rise thereto. Neither the Agents nor any Lender shall have any
obligation or liability under any Receivable (or any agreement giving rise
thereto) or Contract by reason of or arising out of this Agreement or the
receipt by either Agent or any Lender of any payment relating thereto, nor
shall either Agent or any Lender be obligated in any manner to perform any of
the obligations of any Guarantor under or pursuant to any Receivable (or any
agreement giving rise thereto) or Contract, to make any payment, to make any
inquiry as to the nature or the sufficiency of any payment received by it or
as to the sufficiency of any performance by any party thereunder, to present
or file any claim, to take any action to enforce any performance or to collect
the payment of any amounts which may have been assigned to it or to which it
may be entitled at any time or times.
6.3 Pledged Stock. (a) Unless an Event of Default shall have
occurred and be continuing and the Administrative Agent shall have given
notice to the relevant Guarantor of the Administrative Agent's intent to
exercise its corresponding rights pursuant to Section 6.3(b), each Guarantor
shall be permitted to receive all cash dividends paid in respect of the
Pledged Stock and all payments made in respect of the Pledged Notes, in each
case paid in the normal course of business of the relevant Issuer and
consistent with past practice, to the extent permitted in the Credit
Agreement, and to exercise all voting and corporate rights with respect to the
Pledged Securities; provided, however, that no vote shall be cast or corporate
right exercised or other action taken which, in the Administrative Agent's
reasonable judgment, would impair the Collateral or which would be
inconsistent with or result in any violation of any provision of the Credit
Agreement, this Agreement or any other Loan Document.
(b) If an Event of Default shall occur and be continuing and
the Administrative Agent shall give notice of its intent to exercise such
rights to the relevant Guarantor or Guarantors, (i) the Administrative Agent
shall have the right to receive any and all cash dividends, payments or other
Proceeds paid in respect of the Pledged Securities and make application
thereof to the Obligations in the order set forth in Section 6.5, and (ii) any
or all of the Pledged Securities shall be registered in the name of the
Administrative Agent or its nominee, and the Administrative Agent or its
nominee may thereafter exercise (x) all voting, corporate and other rights
pertaining to such Pledged Securities at any meeting of shareholders of the
relevant Issuer or Issuers or otherwise and (y) any and all rights of
conversion, exchange and subscription and any other rights, privileges or
options pertaining to such Pledged Securities as if
<PAGE>
18
it were the absolute owner thereof (including, without limitation, the right
to exchange at its discretion any and all of the Pledged Securities upon the
merger, consolidation, reorganization, recapitalization or other fundamental
change in the corporate structure of any Issuer, or upon the exercise by any
Guarantor or the Administrative Agent of any right, privilege or option
pertaining to such Pledged Securities, and in connection therewith, the right
to deposit and deliver any and all of the Pledged Securities with any
committee, depositary, transfer agent, registrar or other designated agency
upon such terms and conditions as the Administrative Agent may determine), all
without liability except to account for property actually received by it, but
the Administrative Agent shall have no duty to any Guarantor to exercise any
such right, privilege or option and shall not be responsible for any failure
to do so or delay in so doing.
(c) Each Guarantor hereby authorizes and instructs each
Issuer of any Pledged Securities pledged by such Guarantor hereunder to (i)
comply with any instruction received by it from the Administrative Agent in
writing that (x) states that an Event of Default has occurred and is
continuing and (y) is otherwise in accordance with the terms of this
Agreement, without any other or further instructions from such Guarantor, and
each Guarantor agrees that each Issuer shall be fully protected in so
complying, and (ii) unless otherwise expressly permitted hereby, pay any
dividends or other payments with respect to the Pledged Securities directly to
the Administrative Agent.
6.4 Proceeds to be Turned Over To Administrative Agent. In
addition to the rights of the Administrative Agent and the Lenders specified
in Section 6.1 with respect to payments of Receivables, if an Event of Default
shall occur and be continuing, all Proceeds received by any Guarantor
consisting of cash, checks and other near-cash items shall be held by such
Guarantor in trust for the Agents and the Lenders, segregated from other funds
of such Guarantor, and shall, forthwith upon receipt by such Guarantor, be
turned over to the Administrative Agent in the exact form received by such
Guarantor (duly indorsed by such Guarantor to the Administrative Agent, if
required). All Proceeds received by the Administrative Agent hereunder shall
be held by the Administrative Agent in a Collateral Account maintained under
its sole dominion and control. All Proceeds while held by the Administrative
Agent in a Collateral Account (or by such Guarantor in trust for the Agents
and the Lenders) shall continue to be held as collateral security for all the
Obligations and shall not constitute payment thereof until applied as provided
in Section 6.5.
6.5 Application of Proceeds. At such intervals as may be
agreed upon by the Borrower and the Administrative Agent, or, if an Event of
Default shall have occurred and be continuing, at any time at the
Administrative Agent's election, the Administrative Agent may apply all or any
part of Proceeds constituting Collateral, whether or not held in any
Collateral Account, and any proceeds of the guarantee set forth in Section 2,
in payment of the Obligations in the following order:
First, to pay incurred and unpaid fees and expenses of the
Agents under the Loan Documents;
Second, to the Administrative Agent, for application by it
towards payment of amounts then due and owing and remaining unpaid in
respect of the Obligations, pro rata among the Lenders according to
the amounts of such obligations then due and owing and remaining
unpaid to the Lenders; and
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19
Third, any balance of such Proceeds remaining after the
Obligations shall have been paid in full, no Letters of Credit shall
be outstanding (or such Letters of Credit shall be cash collaterized
or secured by a backstop letter of credit as provided in the Credit
Agreement) and the Commitments shall have terminated shall be paid
over to the Borrower or to whomsoever may be lawfully entitled to
receive the same.
6.6 Code and Other Remedies. If an Event of Default shall
occur and be continuing, the Administrative Agent, on behalf of the Agents and
the Lenders, may exercise, in addition to all other rights and remedies
granted to them in this Agreement and in any other instrument or agreement
securing, evidencing or relating to the Obligations, all rights and remedies
of a secured party under the New York UCC or any other applicable law. Without
limiting the generality of the foregoing, the Administrative Agent, without
demand of performance or other demand, presentment, protest, advertisement or
notice of any kind (except any notice required by law referred to below) to or
upon any Guarantor or any other Person (all and each of which demands,
defenses, advertisements and notices are hereby waived), may in such
circumstances forthwith collect, receive, appropriate and realize upon the
Collateral, or any part thereof, and/or may forthwith sell, lease, assign,
give option or options to purchase, or otherwise dispose of and deliver the
Collateral or any part thereof (or contract to do any of the foregoing), in
one or more parcels at public or private sale or sales, at any exchange,
broker's board or office of either Agent or any Lender or elsewhere upon such
terms and conditions as it may deem advisable and at such prices as it may
deem best, for cash or on credit or for future delivery without assumption of
any credit risk. Either Agent or any Lender shall have the right upon any such
public sale or sales, and, to the extent permitted by law, upon any such
private sale or sales, to purchase the whole or any part of the Collateral so
sold, free of any right or equity of redemption in any Guarantor, which right
or equity is hereby waived and released. Each Guarantor further agrees, at the
Administrative Agent's request, to assemble the Collateral and make it
available to the Administrative Agent at places which the Administrative Agent
shall reasonably select, whether at such Guarantor's premises or elsewhere.
The Administrative Agent shall apply the net proceeds of any action taken by
it pursuant to this Section 6.6, after deducting all reasonable costs and
expenses of every kind incurred in connection therewith or incidental to the
care or safekeeping of any of the Collateral or in any way relating to the
Collateral or the rights of the Agents and the Lenders hereunder, including,
without limitation, reasonable attorneys' fees and disbursements, to the
payment in whole or in part of the Obligations, in such order as Section 6.5
shall proscribe, and only after such application and after the payment by the
Administrative Agent of any other amount required by any provision of law,
including, without limitation, Section 9-504(1)(c) of the New York UCC, need
the Administrative Agent account for the surplus, if any, to any Guarantor. To
the extent permitted by applicable law, each Guarantor waives all claims,
damages and demands it may acquire against either Agent or any Lender arising
out of the exercise by them of any rights hereunder. If any notice of a
proposed sale or other disposition of Collateral shall be required by law,
such notice shall be deemed reasonable and proper if given at least 10 days
before such sale or other disposition.
6.7 Registration Rights. (a) If the Administrative Agent
shall determine to exercise its right to sell any or all of the Pledged Stock
pursuant to Section 6.6, and if in the opinion of the Administrative Agent it
is necessary or advisable to have the Pledged Stock, or that portion thereof
to be sold, registered under the provisions of the Securities Act, the
relevant Guarantor will cause the Issuer thereof to (i) execute and deliver,
and cause the directors and
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20
officers of such Issuer to execute and deliver, all such instruments and
documents, and do or cause to be done all such other acts as may be, in the
opinion of the Administrative Agent, necessary or advisable to register the
Pledged Stock, or that portion thereof to be sold, under the provisions of the
Securities Act, (ii) use its best efforts to cause the registration statement
relating thereto to become effective and to remain effective for a period of
one year from the date of the first public offering of the Pledged Stock, or
that portion thereof to be sold, and (iii) make all amendments thereto and/or
to the related prospectus which, in the opinion of the Administrative Agent,
are necessary or advisable, all in conformity with the requirements of the
Securities Act and the rules and regulations of the Securities and Exchange
Commission applicable thereto. Each Guarantor agrees to cause such Issuer to
comply with the provisions of the securities or "Blue Sky" laws of any and all
jurisdictions which the Administrative Agent shall designate and to make
available to its security holders, as soon as practicable, an earnings
statement (which need not be audited) which will satisfy the provisions of
Section 11(a) of the Securities Act.
(b) Each Guarantor recognizes that the Administrative Agent
may be unable to effect a public sale of any or all the Pledged Stock, by
reason of certain prohibitions contained in the Securities Act and applicable
state securities laws or otherwise, and may be compelled to resort to one or
more private sales thereof to a restricted group of purchasers which will be
obliged to agree, among other things, to acquire such securities for their own
account for investment and not with a view to the distribution or resale
thereof. Each Guarantor acknowledges and agrees that any such private sale may
result in prices and other terms less favorable than if such sale were a
public sale and, notwithstanding such circumstances, agrees that any such
private sale shall be deemed to have been made in a commercially reasonable
manner. The Administrative Agent shall be under no obligation to delay a sale
of any of the Pledged Stock for the period of time necessary to permit the
Issuer thereof to register such securities for public sale under the
Securities Act, or under applicable state securities laws, even if such Issuer
would agree to do so.
(c) Each Guarantor agrees to use its best efforts to do or
cause to be done all such other acts as may be necessary to make such sale or
sales of all or any portion of the Pledged Stock pursuant to this Section 6.7
valid and binding and in compliance with any and all other applicable
Requirements of Law. Each Guarantor further agrees that a breach of any of the
covenants contained in this Section 6.7 will cause irreparable injury to the
Agents and the Lenders, that the Agents and the Lenders have no adequate
remedy at law in respect of such breach and, as a consequence, that each and
every covenant contained in this Section 6.7 shall be specifically enforceable
against such Guarantor, and such Guarantor hereby waives and agrees not to
assert any defenses against an action for specific performance of such
covenants except for a defense that no Event of Default has occurred under the
Credit Agreement.
6.8 Waiver; Deficiency. Each Guarantor waives and agrees not
to assert any rights or privileges which it may acquire under Section 9-112 of
the New York UCC. Each Guarantor shall remain liable for any deficiency if the
proceeds of any sale or other disposition of the Collateral are insufficient
to pay its Obligations and the fees and disbursements of any attorneys
employed by the Agents or any Lender to collect such deficiency.
SECTION 7. THE ADMINISTRATIVE AGENT
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21
7.1 Administrative Agent's Appointment as Attorney-in-Fact,
etc. (a) Each Guarantor hereby irrevocably constitutes and appoints the
Administrative Agent and any officer or agent thereof, with full power of
substitution, as its true and lawful attorney-in-fact with full irrevocable
power and authority in the place and stead of such Guarantor and in the name
of such Guarantor or in its own name, for the purpose of carrying out the
terms of this Agreement, to take any and all appropriate action and to execute
any and all documents and instruments which may be necessary or desirable to
accomplish the purposes of this Agreement, and, without limiting the
generality of the foregoing, each Guarantor hereby gives the Administrative
Agent the power and right, on behalf of such Guarantor, without notice to or
assent by such Guarantor, to do any or all of the following:
(i) in the name of such Guarantor or its own name, or
otherwise, take possession of and indorse and collect any checks,
drafts, notes, acceptances or other instruments for the payment of
moneys due under any Receivable or Contract or with respect to any
other Collateral and file any claim or take any other action or
proceeding in any court of law or equity or otherwise deemed
appropriate by the Administrative Agent for the purpose of collecting
any and all such moneys due under any Receivable or Contract or with
respect to any other Collateral whenever payable;
(ii) in the case of any Intellectual Property, execute and
deliver, and have recorded, any and all agreements, instruments,
documents and papers as the Administrative Agent may request to
evidence the Agents' and the Lenders' security interest in such
Intellectual Property and the goodwill and general intangibles of
such Guarantor relating thereto or represented thereby;
(iii) pay or discharge taxes and Liens levied or placed on
or threatened against the Collateral, effect any repairs or any
insurance called for by the terms of this Agreement and pay all or
any part of the premiums therefor and the costs thereof;
(iv) execute, in connection with any sale provided for in
Section 6.6 or 6.7, any indorsements, assignments or other
instruments of conveyance or transfer with respect to the Collateral;
and
(v) (1) direct any party liable for any payment under any of
the Collateral to make payment of any and all moneys due or to become
due thereunder directly to the Administrative Agent or as the
Administrative Agent shall direct; (2) ask or demand for, collect,
and receive payment of and receipt for, any and all moneys, claims
and other amounts due or to become due at any time in respect of or
arising out of any Collateral; (3) sign and indorse any invoices,
freight or express bills, bills of lading, storage or warehouse
receipts, drafts against debtors, assignments, verifications, notices
and other documents in connection with any of the Collateral; (4)
commence and prosecute any suits, actions or proceedings at law or in
equity in any court of competent jurisdiction to collect the
Collateral or any portion thereof and to enforce any other right in
respect of any Collateral; (5) defend any suit, action or proceeding
brought against such Guarantor with respect to any Collateral; (6)
settle, compromise or adjust any such suit, action or proceeding and,
in connection therewith, give such discharges or releases as the
Administrative Agent may deem appropriate; (7) assign any Copyright,
Patent or Trademark (along with the goodwill of the business to which
any such Copyright, Patent
<PAGE>
22
or Trademark pertains), throughout the world for such term or terms,
on such conditions, and in such manner, as the Administrative Agent
shall in its sole discretion determine; and (8) generally, sell,
transfer, pledge and make any agreement with respect to or otherwise
deal with any of the Collateral as fully and completely as though the
Administrative Agent were the absolute owner thereof for all
purposes, and do, at the Administrative Agent's option and such
Guarantor's expense, at any time, or from time to time, all acts and
things which the Administrative Agent deems necessary to protect,
preserve or realize upon the Collateral and the Administrative
Agent's and the Lenders' security interests therein and to effect the
intent of this Agreement, all as fully and effectively as such
Guarantor might do.
Anything in this Section 7.1(a) to the contrary notwithstanding, the
Administrative Agent agrees that it will not exercise any rights under the
power of attorney provided for in this Section 7.1(a) unless an Event of
Default shall have occurred and be continuing.
(b) If any Guarantor fails to perform or comply with any of
its agreements contained herein, the Administrative Agent, at its option, but
without any obligation so to do, may perform or comply, or otherwise cause
performance or compliance, with such agreement.
(c) The expenses of the Administrative Agent incurred in
connection with actions undertaken as provided in this Section 7.1, together
with interest thereon at a rate per annum equal to the rate per annum at which
interest would then be payable on past due Revolving Credit Loans that are
Base Rate Loans under the Credit Agreement, from the date of payment by the
Administrative Agent to the date reimbursed by the relevant Guarantor, shall
be payable by such Guarantor to the Administrative Agent on demand.
(d) Each Guarantor hereby ratifies all that said attorneys
shall lawfully do or cause to be done by virtue hereof. All powers,
authorizations and agencies contained in this Agreement are coupled with an
interest and are irrevocable until this Agreement is terminated and the
security interests created hereby are released.
7.2 Duty of Administrative Agent. The Administrative Agent's
sole duty with respect to the custody, safekeeping and physical preservation
of the Collateral in its possession, under Section 9-207 of the New York UCC
or otherwise, shall be to deal with it in the same manner as the
Administrative Agent deals with similar property for its own account. Neither
the Agents, any Lender nor any of their respective officers, directors,
employees or agents shall be liable for failure to demand, collect or realize
upon any of the Collateral or for any delay in doing so or shall be under any
obligation to sell or otherwise dispose of any Collateral upon the request of
any Guarantor or any other Person or to take any other action whatsoever with
regard to the Collateral or any part thereof. The powers conferred on the
Agents and the Lenders hereunder are solely to protect the Agents' and the
Lenders' interests in the Collateral and shall not impose any duty upon either
Agent or any Lender to exercise any such powers. The Agents and the Lenders
shall be accountable only for amounts that they actually receive as a result
of the exercise of such powers, and neither they nor any of their officers,
directors, employees or agents shall be responsible to any Guarantor for any
act or failure to act hereunder, except for their own gross negligence or
willful misconduct.
7.3 Execution of Financing Statements. Pursuant to Section
9-402 of the New
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23
York UCC and any other applicable law, each Guarantor authorizes the
Administrative Agent to file or record financing statements and other filing
or recording documents or instruments with respect to the Collateral without
the signature of such Guarantor in such form and in such offices as the
Administrative Agent reasonably determines appropriate to perfect the security
interests of the Administrative Agent under this Agreement. A photographic or
other reproduction of this Agreement shall be sufficient as a financing
statement or other filing or recording document or instrument for filing or
recording in any jurisdiction.
7.4 Authority of Administrative Agent. Each Guarantor
acknowledges that the rights and responsibilities of the Administrative Agent
under this Agreement with respect to any action taken by the Administrative
Agent or the exercise or non-exercise by the Administrative Agent of any
option, voting right, request, judgment or other right or remedy provided for
herein or resulting or arising out of this Agreement shall, as between the
Administrative Agent and the Lenders, be governed by the Credit Agreement and
by such other agreements with respect thereto as may exist from time to time
among them, but, as between the Administrative Agent and the Guarantors, the
Administrative Agent shall be conclusively presumed to be acting as agent for
the Agents and the Lenders with full and valid authority so to act or refrain
from acting, and no Guarantor shall be under any obligation, or entitlement,
to make any inquiry respecting such authority.
SECTION 8. MISCELLANEOUS
8.1 Amendments in Writing. None of the terms or provisions
of this Agreement may be waived, amended, supplemented or otherwise modified
except in accordance with Section 12.1 of the Credit Agreement.
8.2 Notices. All notices, requests and demands to or upon
the Administrative Agent or any Guarantor hereunder shall be effected in the
manner provided for in Section 12.2 of the Credit Agreement; provided that any
such notice, request or demand to or upon any Guarantor shall be addressed to
such Guarantor at its notice address set forth on Schedule 1.
8.3 No Waiver by Course of Conduct; Cumulative Remedies.
Neither the Agents nor any Lender shall by any act (except by a written
instrument pursuant to Section 8.1), delay, indulgence, omission or otherwise
be deemed to have waived any right or remedy hereunder or to have acquiesced
in any Default or Event of Default. No failure to exercise, nor any delay in
exercising, on the part of either Agent or any Lender, any right, power or
privilege hereunder shall operate as a waiver thereof. No single or partial
exercise of any right, power or privilege hereunder shall preclude any other
or further exercise thereof or the exercise of any other right, power or
privilege. A waiver by either Agent or any Lender of any right or remedy
hereunder on any one occasion shall not be construed as a bar to any right or
remedy which such Agent or such Lender would otherwise have on any future
occasion. The rights and remedies herein provided are cumulative, may be
exercised singly or concurrently and are not exclusive of any other rights or
remedies provided by law.
8.4 Enforcement Expenses; Indemnification. (a) Each
Guarantor agrees to pay or reimburse each Lender and Agent for all its costs
and expenses incurred in collecting against such Guarantor under the guarantee
contained in Section 2 or otherwise enforcing or preserving any rights under
this Agreement and the other Loan Documents to which such Guarantor is a
<PAGE>
24
party, including, without limitation, the reasonable fees and disbursements of
counsel (including the allocated reasonable fees and expenses of in-house
counsel) to each Lender and of counsel to the Agents.
(b) Each Guarantor agrees to pay, and to save the Agents and
the Lenders harmless from, any and all liabilities with respect to, or
resulting from any delay in paying, any and all stamp, excise, sales or other
taxes which may be payable or determined to be payable with respect to any of
the Collateral or in connection with any of the transactions contemplated by
this Agreement.
(c) Each Guarantor agrees to pay, and to save the Agents and
the Lenders harmless from, any and all liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses or
disbursements of any kind or nature whatsoever with respect to the execution,
delivery, enforcement, performance and administration of this Agreement to the
extent the Borrower would be required to do so pursuant to Section 12.5 of the
Credit Agreement.
(d) The agreements in this Section 8.4 shall survive
repayment of the Obligations and all other amounts payable under the Credit
Agreement and the other Loan Documents.
8.5 Successors and Assigns. This Agreement shall be binding
upon the successors and assigns of each Guarantor and shall inure to the
benefit of the Agents and the Lenders and their successors and assigns;
provided that no Guarantor may assign, transfer or delegate any of its rights
or obligations under this Agreement without the prior written consent of the
Administrative Agent.
8.6 Set-Off. Each Guarantor hereby irrevocably authorizes
the Agents and each Lender at any time and from time to time, without notice
to such Guarantor or any other Guarantor, any such notice being expressly
waived by each Guarantor, to set-off and appropriate and apply any and all
deposits (general or special, time or demand, provisional or final), in any
currency, and any other credits, indebtedness or claims, in any currency, in
each case whether direct or indirect, absolute or contingent, matured or
unmatured, at any time held or owing by such Agent or such Lender to or for
the credit or the account of such Guarantor, or any part thereof in such
amounts as such Agent or such Lender may elect, against and on account of the
obligations and liabilities of such Guarantor to such Agent or such Lender
hereunder and claims of every nature and description of such Agent or such
Lender against such Guarantor, in any currency, whether arising hereunder,
under the Credit Agreement, any other Loan Document or otherwise, as such
Agent or such Lender may elect, whether or not either Agent or any Lender has
made any demand for payment and although such obligations, liabilities and
claims may be contingent or unmatured. The Agents and each Lender shall notify
such Guarantor promptly of any such set-off and the application made by such
Agent or such Lender of the proceeds thereof, provided that the failure to
give such notice shall not affect the validity of such set-off and
application. The rights of the Agents and each Lender under this Section 8.6
are in addition to other rights and remedies (including, without limitation,
other rights of set-off) which such Agent or such Lender may have.
8.7 Counterparts. This Agreement may be executed by one or
more of the parties to this Agreement on any number of separate counterparts
(including by telecopy), and all of said
<PAGE>
25
counterparts taken together shall be deemed to constitute one and the same
instrument.
8.8 Severability. Any provision of this Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof, and any
such prohibition or unenforceability in any jurisdiction shall not invalidate
or render unenforceable such provision in any other jurisdiction.
8.9 Section Headings. The Section headings used in this
Agreement are for convenience of reference only and are not to affect the
construction hereof or be taken into consideration in the interpretation
hereof.
8.10 Integration. This Agreement and the other Loan
Documents represent the agreement of the Guarantors, the Agents and the
Lenders with respect to the subject matter hereof and thereof, and there are
no promises, undertakings, representations or warranties by either Agent or
any Lender relative to subject matter hereof and thereof not expressly set
forth or referred to herein or in the other Loan Documents.
8.11 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW
YORK.
8.12 Submission To Jurisdiction; Waivers. Each Guarantor
hereby irrevocably and unconditionally:
(a) submits for itself and its property in any legal action
or proceeding relating to this Agreement and the other Loan Documents
to which it is a party, or for recognition and enforcement of any
judgment in respect thereof, to the non-exclusive general
jurisdiction of the Bankruptcy Court and, if the Bankruptcy Court
does not have (or abstains from) jurisdiction, to the non-exclusive
general jurisdiction of the Courts of the State of New York, the
courts of the United States of America for the Southern District of
New York, and appellate courts from any thereof;
(b) consents that any such action or proceeding may be
brought in such courts and waives any objection that it may now or
hereafter have to the venue of any such action or proceeding in any
such court or that such action or proceeding was brought in an
inconvenient court and agrees not to plead or claim the same;
(c) agrees that service of process in any such action or
proceeding may be effected by mailing a copy thereof by registered or
certified mail (or any substantially similar form of mail), postage
prepaid, to such Guarantor at its address referred to in Section 8.2
or at such other address of which the Administrative Agent shall have
been notified pursuant thereto;
(d) agrees that nothing herein shall affect the right to
effect service of process in any other manner permitted by law or
shall limit the right to sue in any other jurisdiction; and
<PAGE>
26
(e) waives, to the maximum extent not prohibited by law, any
right it may have to claim or recover in any legal action or
proceeding referred to in this Section any special, exemplary,
punitive or consequential damages.
8.13 Acknowledgements. Each Guarantor hereby acknowledges
that:
(a) it has been advised by counsel in the negotiation,
execution and delivery of this Agreement and the other Loan Documents
to which it is a party;
(b) neither the Administrative Agent nor any Lender has any
fiduciary relationship with or duty to any Guarantor arising out of
or in connection with this Agreement or any of the other Loan
Documents, and the relationship between the Guarantors, on the one
hand, and the Administrative Agent and Lenders, on the other hand, in
connection herewith or therewith is solely that of debtor and
creditor; and
(c) no joint venture is created hereby or by the other Loan
Documents or otherwise exists by virtue of the transactions
contemplated hereby among the Lenders or among the Guarantors and the
Lenders.
8.14 Additional Guarantors. Each Subsidiary of the Borrower
that is required to become a party to this Agreement pursuant to the Credit
Agreement shall become a Guarantor for all purposes of this Agreement upon
execution and delivery by such Subsidiary of an Assumption Agreement in the
form of Annex 1 hereto.
8.15 Releases. (a) At such time as the Loans, the
Reimbursement Obligations and the other Obligations shall have been paid in
full, the Commitments have been terminated and no Letters of Credit shall be
outstanding, cash collateralized or backstopped, the Collateral shall be
released from the Liens created hereby, and this Agreement and all obligations
(other than those expressly stated to survive such termination) of the
Administrative Agent and each Guarantor hereunder shall terminate, all without
delivery of any instrument or performance of any act by any party, and all
rights to the Collateral shall revert to the Guarantors. At the request and
sole expense of any Guarantor following any such termination, the
Administrative Agent shall deliver to such Guarantor any Collateral held by
the Administrative Agent hereunder, and execute and deliver to such Guarantor
such documents as such Guarantor shall reasonably request to evidence such
termination.
(b) If any of the Collateral shall be sold, transferred or
otherwise disposed of by any Guarantor in a transaction permitted by the
Credit Agreement, then the Administrative Agent, at the request and sole
expense of such Guarantor, shall execute and deliver to such Guarantor all
releases or other documents reasonably necessary or desirable for the release
of the Liens created hereby on such Collateral. At the request and sole
expense of the Borrower, a Guarantor shall be released from its obligations
hereunder in the event that all the Capital Stock of such Guarantor shall be
sold, transferred or otherwise disposed of in a transaction permitted by the
Credit Agreement; provided that the Borrower shall have delivered to the
Administrative Agent, at least ten Business Days prior to the date of the
proposed release, a written request for release identifying the relevant
Guarantor and the terms of the sale or other disposition in reasonable detail,
including the price thereof and any expenses in connection therewith, together
with a certification by the Borrower stating that such transaction is in
compliance with the Credit
<PAGE>
27
Agreement and the other Loan Documents.
8.16 WAIVERS OF JURY TRIAL. THE AGENTS, THE LENDERS AND EACH
GUARANTOR HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES TRIAL BY JURY IN ANY
LEGAL ACTION OR PROCEEDING RELATING TO THIS AGREEMENT OR ANY OTHER LOAN
DOCUMENT AND FOR ANY COUNTERCLAIM THEREIN.
<PAGE>
28
IN WITNESS WHEREOF, each of the undersigned has caused this
Guarantee and Collateral Agreement to be duly executed and delivered as of the
date first above written.
GRAND UNION STORES, INC. OF VERMONT
By:
----------------------
Name:
Title:
GRAND UNION STORES OF
NEW HAMPSHIRE, INC.
By:
---------------------
Name:
Title:
MERCHANDISING SERVICES, INC.
By:
---------------------
Name:
Title:
SPECIALTY MERCHANDISING
SERVICES, INC.
By:
---------------------
Name:
Title:
<PAGE>
Annex 1 to
Guarantee and Collateral Agreement
ASSUMPTION AGREEMENT, dated as of _______________, 1998,
made by ___________________________, a ______________ corporation (the
"Additional Guarantor"), in favor of Lehman Commercial Paper Inc., as
administrative agent (in such capacity, the "Administrative Agent") for the
banks and other financial institutions (the "Lenders") from time to time
parties to the Revolving Credit Agreement, dated as of June 24, 1998 (as
amended, supplemented or otherwise modified from time to time, the "Credit
Agreement"), among The Grand Union Company (the "Borrower"), the Lenders, SBC
Warburg Dillon Read Inc., as co-advisor and co-arranger, Swiss Bank
Corporation, Stamford Branch, as Syndication Agent, Lehman Brothers Inc., as
co-advisor and co-arranger, and the Administrative Agent. All capitalized
terms not defined herein shall have the meaning ascribed to them in such
Credit Agreement.
W I T N E S S E T H :
WHEREAS, The Borrower, the Lenders, the Agent and the
Arrangers have entered into the Credit Agreement;
WHEREAS, in connection with the Credit Agreement, the
Borrower and certain of its Affiliates (other than the Additional Guarantor)
have entered into the Guarantee and Collateral Agreement, dated as of June 24,
1998 (as amended, supplemented or otherwise modified from time to time, the
"Guarantee and Collateral Agreement") in favor of the Administrative Agent for
the benefit of the Agents and the Lenders;
WHEREAS, the Credit Agreement requires the Additional
Guarantor to become a party to the Guarantee and Collateral Agreement; and
WHEREAS, the Additional Guarantor has agreed to execute and
deliver this Assumption Agreement in order to become a party to the Guarantee
and Collateral Agreement;
NOW, THEREFORE, IT IS AGREED:
1. Guarantee and Collateral Agreement. By executing and
delivering this Assumption Agreement, the Additional Guarantor, as provided in
Section 8.15 of the Guarantee and Collateral Agreement, hereby becomes a party
to the Guarantee and Collateral Agreement as a Guarantor thereunder with the
same force and effect as if originally named therein as a Guarantor and,
without limiting the generality of the foregoing, hereby expressly assumes all
obligations and liabilities of a Guarantor thereunder. The information set
forth in Annex 1-A hereto is hereby added to the information set forth in
Schedules 2 through 9 to the Guarantee and Collateral Agreement. The
Additional Guarantor hereby represents and warrants that each of the
representations and warranties contained in Section 4 of the Guarantee and
Collateral Agreement
<PAGE>
2
applicable to it is true and correct on and as the date hereof (after giving
effect to this Assumption Agreement) as if made on and as of such date.
2. GOVERNING LAW. THIS ASSUMPTION AGREEMENT SHALL BE
GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE
STATE OF NEW YORK.
IN WITNESS WHEREOF, the undersigned has caused this
Assumption Agreement to be duly executed and delivered as of the date first
above written.
[ADDITIONAL GUARANTOR]
By:
--------------------
Name:
Title:
<PAGE>
EXHIBIT G-1
FORM OF
REVOLVING CREDIT NOTE
THIS NOTE AND THE OBLIGATIONS REPRESENTED HEREBY MAY NOT BE TRANSFERRED EXCEPT
IN COMPLIANCE WITH THE TERMS AND PROVISIONS OF THE REVOLVING CREDIT AGREEMENT
REFERRED TO BELOW. TRANSFERS OF THIS NOTE AND THE OBLIGATIONS REPRESENTED
HEREBY MUST BE RECORDED IN THE REGISTER MAINTAINED BY THE ADMINISTRATIVE AGENT
PURSUANT TO THE TERMS OF SUCH CREDIT AGREEMENT.
New York, New York
$________________ ___________, 1998
FOR VALUE RECEIVED, the undersigned, The Grand Union
Company, a Delaware corporation (the "Borrower"), hereby unconditionally
promises to pay to __________________ (the "Lender") or its registered assigns
at the Payment Office specified in the Credit Agreement (as hereinafter
defined) in lawful money of the United States and in immediately available
funds, the principal amount of (a) ___________________________
($____________), or, if less, (b) the unpaid principal amount of the Revolving
Credit Loan made by the Lender pursuant to Section 2.1 of the Credit
Agreement. The principal amount shall be paid in the amounts and on the dates
specified in Section 2.5 of the Credit Agreement. The Borrower further agrees
to pay interest in like money at such office on the unpaid principal amount
hereof from time to time outstanding at the rates and on the dates specified
in Section 2.12 of the Credit Agreement.
The holder of this Note is authorized to endorse on the
schedules annexed hereto and made a part hereof or on a continuation thereof
which shall be attached hereto and made a part hereof the date, Type and
amount of each Revolving Credit Loan made pursuant to the Credit Agreement and
the date and amount of each payment or prepayment of principal thereof, each
continuation thereof, each conversion of all or a portion thereof to another
Type and, in the case of Eurodollar Loans, the length of each Interest Period
with respect thereto. Each such endorsement shall constitute prima facie
evidence of the accuracy of the information endorsed. The failure to make any
such endorsement or any error in any such endorsement shall not affect the
obligations of the Borrower in respect of any Revolving Credit Loan.
This Note (a) is one of the Revolving Credit Notes referred
to in the Revolving Credit Agreement dated as of June 24, 1998 (as amended,
supplemented or modified from time to time, the "Credit Agreement"), among The
Grand Union Company (the "Borrower"), the financial institutions from time to
time party thereto as lenders (the "Lenders"), SBC Warburg Dillon Read Inc.,
as co-advisor and co-arranger, Swiss Bank Corporation, Stamford Branch, as
Syndication Agent, Lehman Brothers Inc., as co-advisor and co-arranger, and
Lehman Commercial Paper Inc., as Administrative Agent, (b) is subject to the
provisions of the Credit Agreement and (c) is subject to optional and
mandatory prepayment in whole or in part as provided in the Credit Agreement.
This Note is secured and guaranteed as provided in the Loan Documents.
Reference is hereby made to the Loan Documents for a description of the
properties and assets in which a security interest has been granted, the
nature and extent of the security and
<PAGE>
2
the guarantees, the terms and conditions upon which the security interests and
each guarantee were granted and the rights of the holder of this Note in
respect thereof.
Upon the occurrence of any one or more of the Events of
Default, all principal and all accrued interest then remaining unpaid on this
Note shall become, or may be declared to be, immediately due and payable, all
as provided in the Credit Agreement.
All parties now and hereafter liable with respect to this
Note, whether maker, principal, surety, guarantor, endorser or otherwise,
hereby waive presentment, demand, protest and all other notices of any kind.
Unless otherwise defined herein, terms defined in the Credit
Agreement and used herein shall have the meanings given to them in the Credit
Agreement.
NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED HEREIN OR
IN THE CREDIT AGREEMENT, THIS NOTE MAY NOT BE TRANSFERRED EXCEPT PURSUANT TO
AND IN ACCORDANCE WITH THE REGISTRATION AND OTHER PROVISIONS OF SECTION 12.6
OF THE CREDIT AGREEMENT.
THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED AND
INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.
THE GRAND UNION COMPANY
By:
-----------------------------------
Name:
Title:
<PAGE>
Schedule A
to Revolving Credit Note
LOANS, CONVERSIONS AND REPAYMENTS OF BASE RATE LOANS
<TABLE>
<CAPTION>
Amount of
Amount Principal of Amount of Base Rate Unpaid Principal
Amount of Base Converted to Base Rate Loans Converted to Balance of Base
Date Rate Loans Base Rate Loans Loans Repaid Eurodollar Loans Rate Loans Notation Made By
- -------------- ------------------- ---------------------- --------------- -------------------- ----------------- ------------------
<S> <C> <C> <C> <C> <C> <C>
- -------------- ------------------- ---------------------- --------------- -------------------- ----------------- ------------------
- -------------- ------------------- ---------------------- --------------- -------------------- ----------------- ------------------
- -------------- ------------------- ---------------------- --------------- -------------------- ----------------- ------------------
- -------------- ------------------- ---------------------- --------------- -------------------- ----------------- ------------------
- -------------- ------------------- ---------------------- --------------- -------------------- ----------------- ------------------
- -------------- ------------------- ---------------------- --------------- -------------------- ----------------- ------------------
- -------------- ------------------- ---------------------- --------------- -------------------- ----------------- ------------------
- -------------- ------------------- ---------------------- --------------- -------------------- ----------------- ------------------
- -------------- ------------------- ---------------------- --------------- -------------------- ----------------- ------------------
- -------------- ------------------- ---------------------- --------------- -------------------- ----------------- ------------------
- -------------- ------------------- ---------------------- --------------- -------------------- ----------------- ------------------
============== =================== ====================== =============== ==================== ================= ------------------
</TABLE>
<PAGE>
Schedule B
to Revolving Credit Note
LOANS, CONTINUATIONS, CONVERSIONS AND REPAYMENTS OF EURODOLLAR LOANS
<TABLE>
<CAPTION>
Unpaid
Interest Period Amount of Amount of Principal
Amount and Europdollar Principal of Eurodollar Loans Balance of
Amount of Converted to Rate with Eurodollar Loans Converted to Eurodollar Notation
Date Eurodollar Loans Eurodollar Loans Respect Thereto Repaid Base Rate Loans Loans Made By
- -------- ------------------ -------------------- ------------------ ------------------ ----------------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
- -------- ------------------ -------------------- ------------------ ------------------ ----------------- ------------- ------------
- -------- ------------------ -------------------- ------------------ ------------------ ----------------- ------------- ------------
- -------- ------------------ -------------------- ------------------ ------------------ ----------------- ------------- ------------
- -------- ------------------ -------------------- ------------------ ------------------ ----------------- ------------- ------------
- -------- ------------------ -------------------- ------------------ ------------------ ----------------- ------------- ------------
- -------- ------------------ -------------------- ------------------ ------------------ ----------------- ------------- ------------
- -------- ------------------ -------------------- ------------------ ------------------ ----------------- ------------- ------------
- -------- ------------------ -------------------- ------------------ ------------------ ----------------- ------------- ------------
- -------- ------------------ -------------------- ------------------ ------------------ ----------------- ------------- ------------
- -------- ------------------ -------------------- ------------------ ------------------ ----------------- ------------- ------------
- -------- ------------------ -------------------- ------------------ ------------------ ----------------- ------------- ------------
======== ================== ==================== ================== ================== ================= ============= ------------
</TABLE>
<PAGE>
EXHIBIT G-2
FORM OF
SWING LINE NOTE
THIS NOTE AND THE OBLIGATIONS REPRESENTED HEREBY MAY NOT BE TRANSFERRED EXCEPT
IN COMPLIANCE WITH THE TERMS AND PROVISIONS OF THE REVOLVING CREDIT AGREEMENT
REFERRED TO BELOW. TRANSFERS OF THIS NOTE AND THE OBLIGATIONS REPRESENTED
HEREBY MUST BE RECORDED IN THE REGISTER MAINTAINED BY THE ADMINISTRATIVE AGENT
PURSUANT TO THE TERMS OF SUCH CREDIT AGREEMENT.
$10,000,000 New York, New York
__________, 1998
FOR VALUE RECEIVED, the undersigned, The Grand Union
Company, a Delaware corporation (the "Borrower"), hereby unconditionally
promises to pay to Lehman Commercial Paper Inc. (the "Swing Line Lender") or
its registered assigns at the Payment Office specified in the Credit Agreement
(as hereinafter defined) in lawful money of the United States and in
immediately available funds, the principal amount of (a) TEN MILLION DOLLARS
($10,000,000), or, if less, (b) the unpaid principal amounts of all Swing Line
Loans made by the Swing Line Lenders pursuant to Section 2.3 of the Credit
Agreement. The principal amount shall be paid in the amounts and on the dates
specified in Section 2.5 of the Credit Agreement. The Borrower further agrees
to pay interest in like money at such office on the unpaid principal amount
hereof from time to time outstanding at the rates and on the dates specified
in Section 2.12 of the Credit Agreement.
The holder of this Note is authorized to endorse on the
schedules annexed hereto and made a part hereof or on a continuation thereof
which shall be attached hereto and made a part hereof the date and amount of
each Swing Line Loan made pursuant to the Credit Agreement and the date and
amount of each payment or prepayment of principal thereof. Each such
endorsement shall constitute prima facie evidence of the accuracy of the
information endorsed. The failure to make any such endorsement or any error in
any such endorsement shall not affect the obligations of the Borrower in
respect of any Swing Line Loan.
This Note (a) is one of the Swing Line Notes referred to in
the Credit Agreement dated as of June 24, 1998 (as amended, supplemented or
modified from time to time, the "Credit Agreement"), among The Grand Union
Company (the "Borrower"), the financial institutions from time to time party
thereto as lenders (the "Lenders"), SBC Warburg Dillon Read Inc., as
co-advisor and co-arranger, Swiss Bank Corporation, Stamford Branch, as
Syndication Agent, Lehman Brothers Inc., as co-advisor and co-arranger, and
Lehman Commercial Paper Inc., as Administrative Agent, (b) is subject to the
provisions of the Credit Agreement and (c) is subject to optional and
mandatory prepayment in whole or in part as provided in the Credit Agreement.
This Note is secured and guaranteed as provided in the Loan Documents.
Reference is hereby made to the Loan Documents for a description of the
properties and assets in which a security interest has been granted, the
nature and extent of the security and the guarantees, the terms and conditions
upon which the security interests and each guarantee were granted and the
rights of the holder of this Note in respect thereof.
Upon the occurrence of any one or more of the Events of
Default, all principal and all
<PAGE>
2
accrued interest then remaining unpaid on this Note shall become, or may be
declared to be, immediately due and payable, all as provided in the Credit
Agreement.
All parties now and hereafter liable with respect to this
Note, whether maker, principal, surety, guarantor, endorser or otherwise,
hereby waive presentment, demand, protest and all other notices of any kind.
Unless otherwise defined herein, terms defined in the Credit
Agreement and used herein shall have the meanings given to them in the Credit
Agreement.
NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED HEREIN OR
IN THE CREDIT AGREEMENT, THIS NOTE MAY NOT BE TRANSFERRED EXCEPT PURSUANT TO
AND IN ACCORDANCE WITH THE REGISTRATION AND OTHER PROVISIONS OF SECTION 12.6
OF THE CREDIT AGREEMENT.
THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED AND
INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.
THE GRAND UNION COMPANY
By:
----------------------------------
Name:
Title:
<PAGE>
Schedule A
to Swing Line Note
LOANS AND REPAYMENTS OF SWING LINE LOANS
<TABLE>
<CAPTION>
Amount of Amount of Principal of Swing Unpaid Principal Balance of
Date Swing Line Loans Line Loans Repaid Swing Line Loans Notation Made By
- ------- -------------------------- ------------------------------- ------------------------------- -------------------
<S> <C> <C> <C> <C>
- ------- -------------------------- ------------------------------- ------------------------------- -------------------
- ------- -------------------------- ------------------------------- ------------------------------- -------------------
- ------- -------------------------- ------------------------------- ------------------------------- -------------------
- ------- -------------------------- ------------------------------- ------------------------------- -------------------
- ------- -------------------------- ------------------------------- ------------------------------- -------------------
- ------- -------------------------- ------------------------------- ------------------------------- -------------------
- ------- -------------------------- ------------------------------- ------------------------------- -------------------
- ------- -------------------------- ------------------------------- ------------------------------- -------------------
- ------- -------------------------- ------------------------------- ------------------------------- -------------------
- ------- -------------------------- ------------------------------- ------------------------------- -------------------
- ------- -------------------------- ------------------------------- ------------------------------- -------------------
======= ========================== =============================== =============================== ===================
</TABLE>
<PAGE>
EXHIBIT NO. 21.1
The Grand Union Company
Subsidiary Listing
Name State of Incorporation
- ---- ----------------------
Grand Union Stores of New Hampshire, Inc. New Hampshire
Grand Union Stores, Inc., of Vermont Vermont
Merchandising Services, Inc. Georgia
Specialty Merchandising Services, Inc. Delaware
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated financial statements for the year ended March 28, 1998, and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-28-1998
<PERIOD-END> MAR-28-1998
<CASH> 44,745
<SECURITIES> 0
<RECEIVABLES> 21,378
<ALLOWANCES> 0
<INVENTORY> 128,370
<CURRENT-ASSETS> 209,280
<PP&E> 869,684
<DEPRECIATION> 480,047
<TOTAL-ASSETS> 892,231
<CURRENT-LIABILITIES> 798,551
<BONDS> 0
102
0
<COMMON> 0
<OTHER-SE> (466,635)
<TOTAL-LIABILITY-AND-EQUITY> 892,231
<SALES> 2,266,770
<TOTAL-REVENUES> 2,266,770
<CGS> 1,627,233
<TOTAL-COSTS> 1,627,233
<OTHER-EXPENSES> 778,357
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 113,770
<INCOME-PRETAX> (252,590)
<INCOME-TAX> 51,393
<INCOME-CONTINUING> (303,983)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (303,983)
<EPS-PRIMARY> (31.12)
<EPS-DILUTED> 0
</TABLE>
