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May 22, 1998
To: Securityholders of The Grand Union Company:
We are very pleased to deliver to you the attached Disclosure Statement and
Ballots pursuant to a solicitation that is being conducted to obtain sufficient
acceptances of a plan of reorganization before the filing of a voluntary
reorganization case under chapter 11 of the Bankruptcy Code. With the enclosed
Ballot, you may vote to accept or reject Grand Union's proposed chapter 11 plan
of reorganization (the 'Plan of Reorganization'). Your vote must be received by
Grand Union's Voting Agent by 5:00 p.m. Eastern Time on June 22, 1998. Shortly
after such date, Grand Union intends to file the Plan of Reorganization and
Disclosure Statement with the United States Bankruptcy Court and request a
hearing to consider confirmation and approval of the Plan of Reorganization.
The Plan of Reorganization and its related documents are the product of
negotiations over the past several months between Grand Union, an unofficial
committee of noteholders owning in excess of 48% of the aggregate principal
amount of Grand Union's 12% Senior Notes due September 1, 2004 (the 'Old Senior
Notes') and the holders of Grand Union's preferred stock (the 'Old Preferred
Stock Interests').
The Plan of Reorganization provides for a capital restructuring.
Specifically, the holders of the Old Senior Notes will exchange those Old Senior
Notes for a pro rata share of all of the new common stock of Grand Union. The
holders of Grand Union's Old Preferred Stock Interests will receive (i)
five-year warrants to purchase approximately 10.5% in the aggregate of the new
common stock at an exercise price of $19.82 per share, (ii) five-year warrants
to purchase approximately 2.5% in the aggregate of the new common stock at an
exercise price of $23.15 per share and (iii) four-year warrants to purchase
approximately 1% in the aggregate of the new common stock at an exercise price
of $12.32 per share. The holders of Grand Union's existing common stock (the
'Old Common Stock Interests') will receive five-year warrants to purchase
approximately 1.5% in the aggregate of the new common stock at an exercise price
of $19.82 per share. In addition, Grand Union will enter into a new $300 million
senior credit facility upon consummation of the Plan of Reorganization. The
result will be a reorganized company which has significantly reduced debt and a
new working capital facility for its operations.
The capital restructuring represented by the Plan of Reorganization is
essential to the success of Grand Union. By reducing Grand Union's debt and
providing for an increase in bank financing, the Plan of Reorganization will
significantly improve Grand Union's financial condition and overall
creditworthiness, thereby enhancing Grand Union's ability to make the necessary
capital expenditures to compete more effectively in its operating areas.
Grand Union is seeking your vote to accept or reject the Plan of
Reorganization prior to the commencement of its chapter 11 case. By using the
'prepackaged bankruptcy' method, Grand Union anticipates that its chapter 11
case will be significantly shortened and the administration of such case will be
simplified and less costly. The members of the Unofficial Noteholder Committee
and the holders of Grand Union's Old Preferred Stock Interests intend to vote to
accept the Plan of Reorganization. Please review the attached Disclosure
Statement carefully for details about voting, recoveries, Grand Union and its
financial performance, and other relevant matters. Grand Union has established
the following Record Date (for determining who is entitled to vote on the Plan
of Reorganization) and deadline for its Voting Agent to receive votes:
RECORD DATE: May 19, 1998.
DEADLINE FOR GRAND UNION'S VOTING AGENT
TO RECEIVE VOTES: June 22, 1998
5:00 p.m. Eastern Time.
Sincerely,
J. Wayne Harris
Chairman of the Board
and Chief Executive Officer
THE GRAND UNION COMPANY
201 WILLOWBROOK BOULEVARD
WAYNE, NEW JERSEY 07470-0966
(973) 890-6000
UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF NEW JERSEY
................................................................................
In re
THE GRAND UNION COMPANY,
Debtor.
Chapter 11 Case No. 98
................................................................................
DISCLOSURE STATEMENT RELATING TO DEBTOR'S PLAN OF
REORGANIZATION UNDER CHAPTER 11 OF THE BANKRUPTCY CODE
------------------------------------------------------
WEIL, GOTSHAL & MANGES LLP
Co-Attorneys for The Grand Union Company
767 Fifth Avenue
New York, New York 10153
(212) 310-8000
RAVIN, GREENBERG & MARKS, P.A.
Co-Attorneys for The Grand Union Company
101 Eisenhower Parkway
Roseland, New Jersey 07068
(973) 226-1500
Dated: May 22, 1998
THIS SOLICITATION IS BEING CONDUCTED TO OBTAIN SUFFICIENT ACCEPTANCES OF A PLAN
OF REORGANIZATION BEFORE THE FILING OF A VOLUNTARY REORGANIZATION CASE UNDER
CHAPTER 11 OF THE BANKRUPTCY CODE. BECAUSE A CHAPTER 11 CASE HAS NOT YET BEEN
COMMENCED, THIS DISCLOSURE STATEMENT HAS NOT BEEN APPROVED BY THE BANKRUPTCY
COURT AS CONTAINING ADEQUATE INFORMATION WITHIN THE MEANING OF SECTION 1125(a)
OF THE BANKRUPTCY CODE. FOLLOWING THE COMMENCEMENT OF ITS CHAPTER 11 CASE, THE
GRAND UNION COMPANY INTENDS TO SEEK PROMPTLY AN ORDER OF THE BANKRUPTCY COURT
CONFIRMING ITS PLAN OF REORGANIZATION.
DISCLOSURE STATEMENT, DATED MAY 22, 1998
Solicitation of Votes on the
Plan of Reorganization of
THE GRAND UNION COMPANY
from the holders of The Grand Union Company's outstanding 12%
SENIOR NOTES DUE SEPTEMBER 1, 2004
and
PREFERRED STOCK INTERESTS
THE VOTING DEADLINE TO ACCEPT OR REJECT THE PLAN OF REORGANIZATION IS 5:00
P.M., EASTERN TIME, ON JUNE 22, 1998, UNLESS EXTENDED.
Recommendation by The Grand Union Company
The Board of Directors of The Grand Union Company has approved the
pre-chapter 11 solicitation, the Plan of Reorganization and the transactions
contemplated thereby, and recommends that all noteholders and interestholders
whose votes are being solicited submit Ballots to accept the Plan of
Reorganization.
Unofficial Noteholder Committee and Preferred Stockholders
The Plan of Reorganization is the product of extensive negotiations over
the past several months among The Grand Union Company, its legal, financial and
other professional advisors and the members of the Unofficial Noteholder
Committee (which hold in excess of 48% of the aggregate principal amount of 12%
Senior Notes issued by The Grand Union Company (the 'Old Senior Notes')), with
the assistance of such Committee's legal and financial advisors, and the holders
of Grand Union's preferred stock (the 'Old Preferred Stock Interests') and their
legal advisors. The members of the Unofficial Noteholder Committee and the
holders of Old Preferred Stock Interests intend to vote to accept the Plan of
Reorganization.
HOLDERS OF THE OLD SENIOR NOTES AND OLD PREFERRED STOCK INTERESTS SHOULD
NOT CONSTRUE THE CONTENTS OF THIS DISCLOSURE STATEMENT AS PROVIDING ANY LEGAL,
BUSINESS, FINANCIAL OR TAX ADVICE AND SHOULD CONSULT WITH THEIR OWN ADVISORS.
THIS OFFER OF NEW COMMON STOCK AND NEW WARRANTS IN EXCHANGE FOR THE
CANCELLATION OF CERTAIN EXISTING SECURITIES PREVIOUSLY ISSUED BY THE GRAND UNION
COMPANY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE 'SECURITIES ACT'), OR SIMILAR STATE SECURITIES OR 'BLUE SKY' LAWS. THE
OFFER OF NEW COMMON STOCK IS BEING MADE IN RELIANCE ON THE EXEMPTION FROM
REGISTRATION SPECIFIED IN SECTION 3(a)(9) OF THE SECURITIES ACT. THE ISSUANCE OF
THE NEW COMMON STOCK, THE NEW WARRANTS AND THE NEW COMMON STOCK TO BE ISSUED
UPON EXERCISE OF THE NEW WARRANTS WILL BE MADE PURSUANT TO SECTION 1145 OF THE
BANKRUPTCY CODE.
NONE OF THE NEW COMMON STOCK OR NEW WARRANTS TO BE ISSUED ON THE
CONSUMMATION DATE HAS BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION (THE 'SEC') OR BY ANY STATE SECURITIES COMMISSION OR SIMILAR
PUBLIC, GOVERNMENTAL OR REGULATORY AUTHORITY, AND NEITHER THE SEC NOR ANY SUCH
AUTHORITY HAS PASSED UPON THE ACCURACY OR ADEQUACY OF THE INFORMATION CONTAINED
IN THIS DISCLOSURE STATEMENT OR UPON THE MERITS OF THE PLAN OF REORGANIZATION.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
WITH THE EXCEPTION OF HISTORICAL INFORMATION, SOME MATTERS DISCUSSED
HEREIN, INCLUDING THE PROJECTIONS AND VALUATION ANALYSIS DESCRIBED IN SECTION V
BELOW, ARE 'FORWARD-LOOKING STATEMENTS' WITHIN THE MEANING OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995. SUCH FORWARD-LOOKING STATEMENTS ARE
SUBJECT TO RISKS, UNCERTAINTIES AND OTHER FACTORS WHICH 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 HIGHLY COMPETITIVE ENVIRONMENT IN WHICH THE GRAND UNION
COMPANY OPERATES, AND THE GENERAL ECONOMIC CONDITIONS IN THE GEOGRAPHIC AREAS IN
WHICH THE GRAND UNION COMPANY OPERATES. NO PROJECTIONS OR OTHER FORWARD-LOOKING
ANALYSES CONTAINED HEREIN WERE PREPARED WITH A VIEW TO COMPLYING WITH THE
GUIDELINES FOR PROSPECTIVE FINANCIAL STATEMENTS PUBLISHED BY THE AMERICAN
INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS. GRAND UNION'S INDEPENDENT
ACCOUNTANTS, PRICE WATERHOUSE, LLP, HAS NEITHER COMPILED NOR EXAMINED THE
ACCOMPANYING PROSPECTIVE FINANCIAL INFORMATION TO DETERMINE THE REASONABLENESS
THEREOF AND, ACCORDINGLY, HAS NOT EXPRESSED AN OPINION OR ANY OTHER FORM OF
ASSURANCE WITH RESPECT THERETO. FOR ADDITIONAL INFORMATION ABOUT THE GRAND UNION
COMPANY AND ITS OPERATING AND FINANCIAL CONDITION, PLEASE SEE THE GRAND UNION
COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED MARCH 29, 1997
AND QUARTERLY REPORT ON FORM 10-Q FOR THE PERIOD ENDED JANUARY 3, 1998, AS FILED
WITH THE SEC AND ANNEXED AS EXHIBITS 2 AND 3 HERETO, RESPECTIVELY.
THE STATEMENTS CONTAINED IN THIS DISCLOSURE STATEMENT ARE MADE AS OF THE
DATE HEREOF UNLESS OTHERWISE SPECIFIED.
THE TERMS OF THE PLAN OF REORGANIZATION (ANNEXED AS EXHIBIT 1 HERETO)
GOVERN IN THE EVENT OF ANY INCONSISTENCY WITH THE SUMMARIES IN THIS DISCLOSURE
STATEMENT.
THE INFORMATION IN THIS DISCLOSURE STATEMENT IS BEING PROVIDED SOLELY FOR
PURPOSES OF VOTING TO ACCEPT OR REJECT THE PLAN OF REORGANIZATION. NOTHING IN
THIS DISCLOSURE STATEMENT MAY BE USED BY ANY ENTITY FOR ANY OTHER PURPOSE.
ALL EXHIBITS TO THE DISCLOSURE STATEMENT ARE INCORPORATED INTO AND ARE A
PART OF THIS DISCLOSURE STATEMENT AS IF SET FORTH IN FULL HEREIN.
INTRODUCTION
IMPORTANT--PLEASE READ
The Grand Union Company ('Grand Union') is soliciting acceptances of the
'prepackaged' chapter 11 plan of reorganization (the 'Plan of Reorganization')
attached as Exhibit 1 to this Disclosure Statement. This solicitation is being
conducted at this time in order to obtain (prior to the commencement of a
voluntary chapter 11 reorganization case by Grand Union) sufficient votes to
enable the Plan of Reorganization to be confirmed by the Bankruptcy Court. Grand
Union anticipates that by conducting the solicitation in advance of commencing
its chapter 11 case, the pendency of the case will be significantly shortened
and its administration will be simplified and less costly.
WHO IS ENTITLED TO VOTE: The holders that beneficially own, as of the May
19, 1998 record date, any of the 12% Senior Notes due September 1, 2004 issued
by Grand Union (the 'Old Senior Notes') and holders of Grand Union's preferred
stock (the 'Old Preferred Stock Interests') are entitled to vote on the Plan of
Reorganization. Holders of Grand Union's existing common stock (the 'Old Common
Stock Interests') and warrants (the 'Old Warrants') are deemed to reject the
Plan of Reorganization and are not entitled to vote to accept or reject the Plan
of Reorganization.
Grand Union is commencing this solicitation after extensive discussions
with an unofficial committee of noteholders, consisting of Appaloosa Management
LP, Conseco Capital Management, Contrarian Capital Advisors LLC, Farallon
Capital Management, L.L.C., Lehman Brothers, Inc., Merrill Lynch Phoenix Fund,
Inc., Swiss Bank Corporation and Turnberry Capital (the 'Unofficial Noteholder
Committee').
The Plan of Reorganization is the product of Grand Union's extensive
negotiations with the members of the Unofficial Noteholder Committee and holders
of Grand Union's Old Preferred Stock Interests, who intend to vote in favor of
the Plan of Reorganization. Grand Union's Board of Directors urges you to vote
to accept the Plan of Reorganization.
Grand Union's legal advisors are Weil, Gotshal & Manges LLP and Ravin,
Greenberg & Marks, P.A.; its financial advisors are Salomon Smith Barney. They
can be contacted at:
Weil, Gotshal & Manges LLP Salomon Smith Barney
767 Fifth Avenue 388 Greenwich Street
New York, New York 10153 New York, New York 10013
(212) 310-8000 (212) 816-6000
Attn: Jeffrey L. Tanenbaum, Esq. Attn: Mr. Benjamin Waisbren
Ted S. Waksman, Esq.
Judy G.Z. Liu, Esq.
and
Ravin, Greenberg & Marks, P.A.
101 Eisenhower Parkway
Roseland, NJ 07068
(973) 226-1500
Attn: Howard S. Greenberg, Esq.
The following table summarizes the treatment for creditors and shareholders
under the Plan of Reorganization. For a complete explanation, please refer to
the discussion in Section IV below, entitled 'THE PLAN OF REORGANIZATION' and to
the Plan of Reorganization itself.
Estimated
Class Description Treatment Recovery
- ----- ----------- --------- ---------
1 Priority Non-Tax Claims Unimpaired 100%
2 Supplemental Term Loan Claims Unimpaired 100%
3 Other Secured Claims Unimpaired 100%
4 Old Senior Note Claims Ratable Proportion of 100% of the initial shares of 63%*
New Common Stock
5 General Unsecured Claims Unimpaired 100%
6 Old Preferred Stock Interests Ratable Proportion of (i) five-year warrants to 9.5%**
purchase approximately 10.5% in the aggregate
of the New Common Stock at an exercise price
of $19.82 per share, (ii) five-year warrants
to purchase approximately 2.5% in the
aggregate of the New Common Stock at an
exercise price of $23.15 per share and (iii)
four-year warrants to purchase approximately
1% in the aggregate of the New Common Stock at
an exercise price of $12.32 per share
7 Old Common Stock Interests Ratable Proportion of five-years warrants to --***
purchase approximately 1.5% in the aggregate of
the New Common Stock at an exercise price of
$19.82 per share; deemed to reject the Plan
8 Old Warrants No Distribution; deemed to reject the Plan --
* This estimate assumes that the Old Senior Notes represent claims in the
aggregate principal amount of $595.4 million and does not reflect any
reduction to the value of the New Common Stock to take into account the
issuance of the New Warrants.
** Grand Union estimates the value of the New Warrants to be distributed to the
holders of the Old Preferred Stock Interests to be $9.5 million.
*** Grand Union estimates the value of the New Warrants to be distributed to the
holders of Old Common Stock Interests to be $1 million.
For detailed historical and projected financial information and financial
estimates, see Section V below, entitled 'PROJECTIONS AND VALUATION ANALYSIS.'
ADDITIONAL FINANCIAL INFORMATION IS CONTAINED IN GRAND UNION'S MOST RECENT
ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED MARCH 29, 1997 AND
QUARTERLY REPORT ON FORM 10-Q FOR THE PERIOD ENDED JANUARY 3, 1998, ATTACHED AS
EXHIBITS 2 AND 3, RESPECTIVELY, TO THIS DISCLOSURE STATEMENT.
Summary of Voting Procedures
To be counted, your vote must be received, pursuant to the following
instructions, by Grand Union's Voting Agent at the following address, before the
Voting Deadline of 5:00 p.m. (Eastern Time) on June 22, 1998:
THE GRAND UNION COMPANY
c/o THE ALTMAN GROUP, INC.
60 EAST 42ND STREET
NEW YORK, NEW YORK 10165
TEL: (212) 681-9600
1. IF YOU ARE, AS OF THE MAY 19, 1998 RECORD DATE, THE BENEFICIAL OWNER OF OLD
SENIOR NOTES (CLASS 4):
If the Old Senior Notes are registered in your own name: Please complete the
information requested on the Ballot, sign, date, and indicate your vote on
the Ballot, and return the Ballot in the enclosed, pre-addressed,
postage-paid envelope so that it is actually received by the Voting Agent
before the Voting Deadline.
If the Old Senior Notes are registered in 'street name':
If your Ballot has already been signed (or 'prevalidated') by your nominee
(your broker, bank, other nominee or their agent): Please complete the
information requested on the Ballot, and indicate your vote on the Ballot,
and return your completed Ballot in the enclosed pre-addressed postage-paid
envelope so that it is actually received by the Voting Agent before the
Voting Deadline.
OR
If your Ballot has NOT been signed (or 'prevalidated') by your nominee (your
broker, bank, other nominee, or their agent): Please complete the information
requested on the Ballot, sign, date and indicate your vote on the Ballot, and
return the Ballot to your nominee in sufficient time for your nominee to then
forward your vote to the Voting Agent so that it is actually received by the
Voting Agent before the Voting Deadline.
2. IF YOU ARE THE NOMINEE FOR A BENEFICIAL OWNER, AS OF THE MAY 19, 1998 RECORD
DATE, OF OLD SENIOR NOTES (CLASS 4): Please forward a copy of this Disclosure
Statement and the appropriate Ballot to each beneficial owner, AND:
All Ballots that you have signed (or 'prevalidated') should be
completed by the beneficial owners and returned by the beneficial
owners directly to the Voting Agent so that such Ballots are
received by the Voting Agent before the Voting Deadline.
All Ballots that you have NOT signed (or 'prevalidated') must be
collected by you, and you should complete the Master Ballot, and
deliver the completed Master Ballot to the Voting Agent so that it
is actually received by the Voting Agent before the Voting Deadline.
3. IF YOU ARE A SECURITIES CLEARING AGENCY: Please arrange for your respective
participants to vote by executing an omnibus proxy in their favor.
4. IF YOU ARE, AS OF THE MAY 19, 1998 RECORD DATE, THE RECORD OWNER OF OLD
PREFERRED STOCK INTERESTS (CLASS 6):
Please complete the information requested on the Ballot, sign, date and
indicate your vote on the Ballot, and return your completed Ballot in the
enclosed pre-addressed postage-paid envelope so that it is actually received
by the Voting Agent before the Voting Deadline.
5. SOLICITATION REGARDING BENEFIT PLANS (HOLDERS OF OLD SENIOR NOTES ONLY):
In addition to voting to accept or reject the Plan of Reorganization, holders
of Old Senior Notes should use the Ballot to cast their votes to accept or
reject (i) The Grand Union Company Executive Annual Incentive Bonus Plan (the
'EAIB Plan'), and (ii) The Grand Union Company 1995 Equity Incentive Plan, as
amended (as described herein, the 'EIP'). On May 14, 1998, Grand Union's
Board of Directors voted, based on the recommendation of the Compensation
Committee of the Board of Directors, to amend the plan to reduce the number
of shares or options to acquire shares issuable under the plan to 3,250,000
(inclusive of options proposed to be issued to the Senior Managers as
described herein) and to increase the number of shares or options to acquire
shares that can be granted to any individual under the plan from 2,000,000 to
3,000,000. A vote to accept the EIP by holders of the Old Senior Notes will
constitute a vote in favor of the EIP including such amendment.
For a detailed discussion of the EAIB Plan and the EIP, see Section IV.M.3.
below, entitled 'PLAN OF REORGANIZATION--Miscellaneous Provisions--Benefit
Plans,' and Grand Union's Proxy Statement dated November 3,
1997 attached hereto as Exhibit 4, and incorporated herein by reference
(other than as modified by the discussion in Section IV.M.3. below). Such
benefit plans will be retained and/or amended only if the holders of a
majority in principal amount of Old Senior Notes who cast Ballots with
respect to the EAIB Plan and the EIP vote to approve the EAIB Plan and the
EIP, respectively. Any options proposed to be issued and any bonuses proposed
to be paid under such benefit plans in connection with the consummation of
the Plan of Reorganization, as subsequently described herein, are subject to
such approval. See Section IV.H. below, entitled 'PLAN OF REORGANIZATION
--Senior Management Employment Agreements.'
IF YOU ARE A HOLDER OF OLD SENIOR NOTES AND YOU HAVE RETURNED YOUR BALLOT,
BUT FAILED TO INDICATE ON YOUR BALLOT WHETHER YOU ACCEPT OR REJECT THE EAIB
PLAN OR THE EIP, SUCH BALLOT WILL BE COUNTED AS AN ACCEPTANCE OF THE EAIB
PLAN AND/OR THE EIP. THE MEMBERS OF THE UNOFFICIAL NOTEHOLDER COMMITTEE
INTEND TO VOTE IN FAVOR OF THE EAIB PLAN AND THE EIP.
* * *
For detailed voting instructions, see Section VII below, entitled 'VOTING
PROCEDURES AND REQUIREMENTS' and the instructions on your Ballot or Master
Ballot.
TABLE OF CONTENTS
I. DESCRIPTION OF THE BUSINESS..................................................... 1
A. General..................................................................... 1
B. Store Formats and Locations; Competition.................................... 1
C. Distribution and Supply..................................................... 1
D. Common Stock Formerly Traded on NASDAQ SmallCap Market...................... 1
II. KEY EVENTS LEADING TO THE SOLICITATION AND DECISION TO COMMENCE A VOLUNTARY
CHAPTER 11 REORGANIZATION CASE.................................................. 2
A. The 1995 Restructuring...................................................... 2
1. Treatment of Administrative Claims and General Unsecured Claims............. 2
2. Bank Claims and Execution of Credit Agreement............................... 2
3. Exchange of Senior Notes.................................................... 2
4. Cancellation of Subordinated Notes and Issuance of Common Stock............. 2
5. Issuance of Warrants........................................................ 2
6. Cancellation of Remaining Long-Term Debt and Common Stock Interests......... 2
B. 1996 Issuance of Old Preferred Stock Interests.............................. 2
C. Downgrading................................................................. 3
D. Strategic Initiatives....................................................... 4
E. August 1997 Amendment of Credit Agreement and Prepetition Negotiations with 4
Secured Banks...................................................................
F. Prepetition Negotiations with the Unofficial Noteholder Committee........... 5
G. Negotiations with Holders of Old Preferred Stock Interests.................. 6
III. ANTICIPATED EVENTS DURING THE CHAPTER 11 CASE................................... 6
A. Chapter 11 Financing........................................................ 6
B. Operational Issues After the Petition Date.................................. 7
1. Trade Vendor Matters........................................................ 7
2. Employee Matters............................................................ 7
3. Consent of DIP Credit Agreement Lenders and Cash Collateral Lenders......... 7
4. Executory Contracts and Unexpired Leases.................................... 7
C. Confirmation Hearing........................................................ 7
IV. THE PLAN OF REORGANIZATION...................................................... 7
A. Introduction................................................................ 7
B. Classification and Treatment of Claims and Equity Interests Under the Plan 8
of Reorganization...............................................................
C. Securities to Be Issued Pursuant to the Plan of Reorganization.............. 13
1. New Common Stock............................................................ 13
2. New Warrants................................................................ 13
3. Securities Law Matters...................................................... 13
4. Hart-Scott-Rodino Act Filing Requirements................................... 14
D. Means of Implementation of the Plan of Reorganization....................... 15
1. Exit Facility............................................................... 15
2. Corporate Action Regarding Issuance of New Securities....................... 15
3. Registration Rights Agreement............................................... 15
4. New Warrant Agreement....................................................... 15
5. Cancellation of Existing Securities and Agreements.......................... 16
6. General Corporate Action.................................................... 16
E. Provisions Governing Distributions.......................................... 16
1. Date of Distributions....................................................... 16
2. Disbursing Agent............................................................ 16
3. Surrender of Instruments.................................................... 16
4. Compensation of Professionals............................................... 17
(i)
5. Delivery of Distributions................................................... 17
6. Manner of Payment Under Plan of Reorganization.............................. 17
7. Fractional Shares........................................................... 17
8. Setoffs and Recoupment...................................................... 17
9. Distributions After Consummation Date....................................... 17
10. Rights and Powers of Disbursing Agent...................................... 17
11. Exculpation................................................................ 18
12. Allocation Relating to the Old Senior Notes................................ 18
13. Voluntary Cancellation of Old Common Stock; Return of Warrants............. 18
14. Allowance of Certain Claims................................................ 18
F. Procedures for Treating Disputed Claims Under Plan of Reorganization........ 18
1. Disputed Claims............................................................. 18
2. Objections to Claims........................................................ 19
3. No Distributions Pending Allowance.......................................... 19
4. Distributions After Allowance............................................... 19
G. Provisions Governing Executory Contracts and Unexpired Leases............... 19
H. Senior Management Employment Agreements..................................... 19
1. Harris Employment Agreement................................................. 19
2. Partridge Employment Agreement.............................................. 20
3. Philbin Employment Agreement................................................ 20
4. Freimark Employment Agreement............................................... 20
5. Management Stock Options.................................................... 21
6. Change of Control Arrangements.............................................. 21
I. Conditions Precedent to Consummation Date................................... 21
1. Conditions Precedent to Consummation Date of Plan of Reorganization......... 21
2. Waiver of Conditions Precedent.............................................. 22
J. Effect of Confirmation...................................................... 22
1. Vesting of Assets........................................................... 22
2. Binding Effect.............................................................. 22
3. Discharge of Grand Union.................................................... 22
4. Term of Injunctions or Stays................................................ 22
5. Indemnification Obligations................................................. 23
6. Limited Release............................................................. 23
K. Waiver of Claims............................................................ 23
1. Avoidance Actions........................................................... 23
L. Retention of Jurisdiction................................................... 23
M. Miscellaneous Provisions..................................................... 24
1. Payment of Statutory Fees................................................... 24
2. Retiree Benefits............................................................ 24
3. Benefit Plans............................................................... 24
4. Administrative Expenses Incurred After the Confirmation Date................ 25
5. Section 1125(e) of the Bankruptcy Code...................................... 25
6. Compliance with Tax Requirements............................................ 25
7. Severability of Plan Provisions............................................. 25
8. Governing Law............................................................... 25
V. PROJECTIONS AND VALUATION ANALYSIS.............................................. 25
A. Consolidated Condensed Projected Financial Statements....................... 25
1. Responsibility for and Purpose of the Projections........................... 25
2. Summary of Significant Assumptions.......................................... 26
(ii)
3. Special Note Regarding Forward-Looking Statements........................... 28
4. Financial Projections....................................................... 28
B. Valuation................................................................... 35
VI. CERTAIN FACTORS AFFECTING GRAND UNION........................................... 35
A. Certain Bankruptcy Law Considerations....................................... 35
1. Failure to Satisfy Vote Requirement......................................... 35
2. Risk of Non-Confirmation of the Plan of Reorganization...................... 35
3. Non-Consensual Confirmation................................................. 35
4. Risk of Non-Occurrence of the Consummation Date............................. 35
5. Effect of Grand Union's Chapter 11 Case on Relations With Trade Vendors..... 36
B. Factors Affecting the Value of the Securities to Be Issued Under the Plan of 36
Reorganization..................................................................
1. Competitive Conditions...................................................... 36
2. Capital Requirements........................................................ 36
3. Variances from Projections.................................................. 36
4. Disruption of Operations.................................................... 36
5. Lack of Trading Market...................................................... 36
6. Dividend Policies........................................................... 37
C. Certain Tax Matters......................................................... 37
D. Pending Litigation or Demands Asserting Prepetition Liability............... 37
VII. VOTING PROCEDURES AND REQUIREMENTS.............................................. 37
A. Voting Deadline............................................................. 37
B. Holders of Claims and Equity Interests Entitled to Vote..................... 38
C. Vote Required for Acceptance by a Class..................................... 38
D. Voting Procedures........................................................... 38
1. Holders of Class 6 (Old Preferred Stock Interests).......................... 38
2. Holders of Class 4 (Old Senior Note Claims)................................. 38
3. Delivery of Old Securities.................................................. 39
4. Withdrawal of Ballot or Master Ballot....................................... 39
E. Solicitation Regarding Benefit Plans........................................ 40
VIII. CONFIRMATION OF THE PLAN OF REORGANIZATION...................................... 40
A. Confirmation Hearing........................................................ 40
B. Requirements for Confirmation of the Plan of Reorganization................. 40
1. Requirements of Section 1129(a) of the Bankruptcy Code...................... 40
2. Requirements of Section 1129(b) of the Bankruptcy Code...................... 46
IX. FINANCIAL INFORMATION........................................................... 46
A. General..................................................................... 46
B. Selected Financial Data..................................................... 47
C Management's Discussion and Analysis of Financial Condition and Results of 47
Operations......................................................................
D. Recent Performance.......................................................... 47
X. ALTERNATIVES TO CONFIRMATION AND CONSUMMATION OF THE PLAN OF REORGANIZATION..... 47
A. Liquidation Under Chapter 7................................................. 47
B. Alternative Plan of Reorganization.......................................... 47
XI. CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE PLAN OF REORGANIZATION........... 47
A. Consequences to Grand Union................................................. 48
1. Cancellation of Debt........................................................ 48
2. Limitations on NOL Carryforwards and Other Tax Attributes................... 48
3. Alternative Minimum Tax..................................................... 49
B. Consequences to Holders of Old Senior Note Claims........................... 49
1. Gain or Loss................................................................ 50
(iii)
2. Distributions in Discharge of Accrued Interest.............................. 50
3. Subsequent Sale of New Common Stock......................................... 50
4. Withholding................................................................. 50
C. Consequences to Holders of Old Preferred Stock.............................. 51
D. Consequences to Holders of Old Common Stock................................. 51
XII. CONCLUSION...................................................................... 52
Exhibits to Disclosure Statement
Exhibit 1 Plan of Reorganization
Exhibit 2 Annual Report on Form 10-K for the Fiscal Year Ended March 29, 1997
Exhibit 3 Quarterly Report on Form 10-Q for the Period Ended January 3, 1998
Exhibit 4 Proxy Statement, dated November 3, 1997
Exhibit 5 Board of Directors
Exhibit 6 The Grand Union Company 1995 Equity Incentive Plan, as Amended
(iv)
GLOSSARY
The following glossary contains important terms used throughout the
Disclosure Statement. Capitalized terms used in the Disclosure Statement but not
defined herein have the meanings assigned to such terms in the Plan of
Reorganization.
Alternate DIP Credit Agreement............ A debtor-in-possession credit
facility that Grand Union may obtain
from lender(s) other than the
lenders under the BT DIP Credit
Agreement on terms and conditions
that are more favorable to Grand
Union than the BT DIP Credit
Agreement and reasonably acceptable
to Grand Union and an Unofficial
Noteholder Committee Majority;
provided, however, that the
Alternate DIP Credit Agreement shall
(a) be consistent with the Credit
Agreement, (b) provide for the
satisfaction in full of all Tranche
A/B Claims, from the first advances
made under such agreement, or if
such agreement does not provide for
the satisfaction in full of such
claims in such manner, the lenders
who hold Tranche A/B Claims shall
have consented to the terms of the
Alternate DIP Credit Agreement, (c)
not affect the Supplemental Term
Loan Claims, which will be
reinstated and rendered unimpaired
in accordance with section 1124 of
the Bankruptcy Code, (d) not be in
excess of $172,022,020 without (i)
the consent of the lenders who hold
the requisite majority of
Supplemental Term Loan Claims to
bind such lenders or (ii) providing
adequate protection to such lenders
as provided in the Credit Agreement,
and (e) so long as any Tranche A/B
Claims remain outstanding, not grant
to the lenders under such Alternate
DIP Credit Agreement any liens or
priorities which are senior to, or
pari passu with, the liens and
priorities of the holders of Tranche
A/B Claims.
Bankruptcy Code........................... Title 11, United States Code, as
applicable to the Reorganization
Case.
Bankruptcy Court.......................... The United States District Court for
the District of New Jersey having
jurisdiction over the Reorganization
Case and, to the extent of any
reference made under section 157,
title 28, United States Code, the
unit of such District Court having
jurisdiction over the Reorganization
Case under section 151, title 28,
United States Code.
Bankruptcy Rules.......................... The Federal Rules of Bankruptcy
Procedure as promulgated by the
United States Supreme Court under
section 2075, title 28, United
States Code, as amended from time to
time, applicable to the
Reorganization Case, and any Local
Rules of the Bankruptcy Court.
BT DIP Credit Agreement................... The Debtor-In-Possession Credit
Agreement among Grand Union, the
Agent, and the Secured Banks, dated
as of the Petition Date, which
amends and restates the Credit
Agreement in accordance with that
certain commitment letter dated
March 19, 1998 among such parties
and as described in section III.A.
hereof.
Confirmation Date......................... The date on which the Clerk of the
Bankruptcy Court enters the
Confirmation Order on its docket.
Confirmation Hearing...................... The hearing to be held by the
Bankruptcy Court regarding
confirmation of the Plan of
Reorganization, as such hearing may
be adjourned or continued from time
to time.
Confirmation Order........................ The order of the Bankruptcy Court
confirming the Plan of
Reorganization, which shall be in a
form reasonably acceptable to Grand
Union, an Unofficial Noteholder
Committee Majority, holders of the
requisite majority of outstanding
Secured Credit Agreement Claims or
DIP Obligations as of the
Confirmation Date necessary to bind
such holders, and the holders of
two-thirds of the number of shares
constituting the Old Preferred Stock
Interests; but, with respect to such
Old Preferred Stock Interests, only
to the extent that such order
affects such interests.
Consummation Date......................... The first business day on which all
the conditions precedent to the
Consummation Date specified in
section 10.1 of the Plan of
Reorganization shall have been
satisfied or waived as provided in
section 10.2 of the Plan of
Reorganization; provided, however,
that if a stay of the Confirmation
Order is in effect, the Consummation
Date shall be the first business day
after such stay is no longer in
effect. For purposes of presenting
certain estimates and projections
contained herein, Grand Union has
assumed that the Consummation Date
would occur on or about August 15,
1998.
G-1
Credit Agreement.......................... The Amended and Restated Credit
Agreement, among Grand Union,
Bankers Trust Company, as Agent, and
the Secured Banks, dated as of June
15, 1995, as amended.
DIP Credit Agreement...................... Either (i) the BT DIP Credit
Agreement or (ii) the Alternate DIP
Credit Agreement.
DIP Obligations........................... All obligations under the DIP Credit
Agreement exclusive, in the case of
the BT DIP Credit Agreement, of
obligations with respect to
Supplemental Term Loan Claims.
EAIB Plan................................. The Grand Union Company Executive
Annual Incentive Bonus Plan.
EIP....................................... The Grand Union Company 1995 Equity
Incentive Plan, as amended as
described herein.
Exit Facility............................. Either (i) that certain term loan
and working capital facility in the
aggregate principal amount of $300
million to be provided by the
lenders to be party thereto, SBC
Warburg Dillon Read and Lehman
Brothers Inc., as co-arrangers and
advisors, Swiss Bank Corporation, as
syndication agent, and Lehman
Commercial Paper Inc., as
administrative agent, for the
operation of Grand Union's business
after the Consummation Date, or (ii)
such other exit facility that Grand
Union may obtain on terms and
conditions that are more favorable
to Grand Union and reasonably
acceptable to Grand Union and an
Unofficial Noteholder Committee
Majority.
Grand Union............................... The Grand Union Company, a Delaware
corporation.
New Common Stock.......................... Shares of common stock of
Reorganized Grand Union to be issued
and outstanding on or after the
Consummation Date.
New Warrants.............................. The Series 1 Warrants, the Series 2
Warrants and the Series 3 Warrants,
which are issued pursuant to, and
exercisable in accordance with, the
terms and conditions of the New
Warrant Agreement, which is annexed
as Exhibit A to the Plan of
Reorganization.
Old Common Stock Interest................. Any equity interest other than an
Old Preferred Stock Interest and an
Old Warrant,
including all rights, interests and
claims (including claims for fraud,
misrepresentation, rescission,
reimbursement, contribution or
damages) arising under or in
connection with (i) all agreements
entered into by Grand Union in
connection with the issuance of such
interests or (ii) the purchase or
sale of such interests.
Old Indenture............................. That certain Indenture, dated as of
June 15, 1995, between Grand Union
and the Old Indenture Trustee
relating to the Old Senior Notes.
Old Indenture Trustee..................... IBJ Schroder Bank & Trust Company or
a successor indenture trustee
appointed in accordance with the Old
Indenture.
Old Preferred Stock Interest.............. Any of the issued and outstanding
shares of Grand Union's Class A
Convertible Preferred Stock and
Class B Convertible Preferred Stock,
including all rights, interests and
claims (including claims for fraud,
misrepresentation, rescission,
reimbursement, contribution or
damages) arising under or in
connection with (i) all agreements
entered into by Grand Union in
connection with the issuance of such
interests or (ii) the purchase or
sale of such interests.
Old Senior Note Claim..................... Any claim arising under or in
connection with the Old Senior
Notes.
Old Senior Notes.......................... Those certain 12% senior notes due
September 1, 2004 issued by Grand
Union under the Old Indenture.
Old Warrants.............................. All incentive stock options,
non-qualified stock options and
stock appreciation rights granted
under any Grand Union-sponsored
stock option plans and any other
options, warrants or rights,
contractual or otherwise, if any, to
acquire an equity interest,
including the warrants issued
pursuant to the Warrant Agreement,
dated as of June 15, 1995, between
Grand Union and American Stock
Transfer & Trust Company, as Warrant
Agent.
Petition Date............................. The date on which Grand Union
commences its Reorganization Case.
For purposes of presenting certain
estimates and projections contained
herein, Grand Union has assumed that
the Petition Date will occur on or
about June 22, 1998.
G-2
Plan of Reorganization.................... The Plan of Reorganization annexed
hereto as Exhibit 1, including,
without limitation, the exhibits and
schedules thereto, as the same may
be amended or modified from time to
time in accordance with the
provisions of the Bankruptcy Code
and the terms thereof.
Purchasers................................ Trefoil Capital Investors II, L.P.
and GE Investment Private Placement
Partners II, A Limited Partnership.
Ratable Proportion........................ With reference to any distribution
on account of any claim or equity
interest in any class, a
distribution equal in amount to the
ratio (expressed as a percentage)
that the amount of such claim or
number of shares evidencing such
equity interests, as applicable,
bears to the aggregate amount of
claims or aggregate number of
outstanding shares of equity
interests in the same class, as
applicable.
Reorganization Case....................... Grand Union's voluntary case filed
with the Bankruptcy Court under
chapter 11 of the Bankruptcy Code.
Reorganized Grand Union................... Grand Union, as it will be
reorganized as of the Consummation
Date in accordance with the Plan of
Reorganization.
SEC....................................... The Securities and Exchange
Commission.
Secured Banks............................. The lending institutions party to
the Credit Agreement.
Secured Credit Agreement Claim............ The Tranche A/B Claims and the
Supplemental Term Loan Claims.
Securities Act............................ The Securities Act of 1933, as
amended.
Senior Management Employment Agreements... Each of (i) that certain employment
agreement between Grand Union and J.
Wayne Harris, dated as of August 1,
1997, (ii) that certain employment
agreement between Grand Union and
Jack W. Partridge, dated as of
January 5, 1998, (iii) that certain
employment agreement between Grand
Union and Gary M. Philbin, dated as
of October 3, 1997, (iv) the
amendments to each of such
employment agreements to be executed
prior to the Petition Date, which
amendments shall contain such terms
as are described in section IV.H.
hereof, and (v) that certain
employment agreement between Grand
Union and Jeffrey P. Freimark to be
entered into prior to the Petition
Date and which shall contain the
terms described in section IV.H.4.
hereof; provided, however, that (a)
the effectiveness of such amendments
and the agreement with Mr. Freimark
are subject to the occurrence of the
Consummation Date and (b) such
amendments or agreements, including
any option provisions in (or entered
into in connection with) any
amendments or agreements, shall be
in a form reasonably acceptable to
Grand Union and an Unofficial
Noteholder Committee Majority.
Senior Managers........................... Each of J. Wayne Harris, Jack W.
Partridge, Jr., Gary M. Philbin and
Jeffrey P. Freimark, who serve as
senior managers of Grand Union.
Series 1 Warrants......................... The five-year warrants to purchase
an aggregate of 4,324,015 shares of
New Common Stock, representing the
right to purchase in the aggregate
approximately 12% of the shares of
New Common Stock at an exercise
price of $19.82 per share,
consisting of rights to purchase (i)
3,783,513 shares (representing
approximately 10.5% of the shares of
New Common Stock), which will be
issued in accordance with section
4.6 of the Plan of Reorganization
and the New Warrant Agreement and
(ii) 540,502 shares (representing
approximately 1.5% of the shares of
New Common Stock), which will be
issued in accordance with section
4.7 of the Plan of Reorganization
and the New Warrant Agreement.
Series 2 Warrants......................... The five-year warrants to purchase
an aggregate of 942,791 shares of
New Common Stock, representing the
right to purchase in the aggregate
approximately 2.5% of the shares of
New Common Stock at an exercise
price of $23.15 per share, to be
issued in accordance with section
4.6 of the Plan of Reorganization
and the New Warrant Agreement.
G-3
Series 3 Warrants......................... The four-year warrants to purchase
an aggregate of 306,122 shares of
New Common Stock, representing the
right to purchase in the aggregate
approximately 1% of the shares of
New Common Stock at an exercise
price of $12.32 per share, to be
issued in accordance with section
4.6 of the Plan of Reorganization
and the New Warrant Agreement.
Supplemental Term Loan Claim.............. Any claim arising under or in
connection with the Supplemental
Term Loan (as defined in the Credit
Agreement) or any note issued in
connection therewith, which
Supplemental Term Loan Claim shall
not be converted to a DIP Obligation
arising under or in connection with
the BT DIP Credit Agreement, in
accordance with the terms of such BT
DIP Credit Agreement and any order
of the Bankruptcy Court approving
such BT DIP Credit Agreement;
provided, however, that all fees and
expenses reimbursable under the
Credit Agreement (including, without
limitation, all fees and expenses of
the Agent and its legal and
financial advisors) shall be deemed
Tranche A/B Claims.
Tranche A/B Claim......................... Any claim arising under the Credit
Agreement that is not a Supplemental
Term Loan Claim and includes any
fees and expenses reimbursable under
the Credit Agreement (including,
without limitation, all fees and
expenses of the Agent and its
financial and legal advisors), all
of which claims shall be converted
to DIP Obligations in the event the
BT DIP Credit Agreement is approved
by final order of the Bankruptcy
Court.
Unofficial Noteholder Committee........... The unofficial committee of holders
of Old Senior Notes, whose initial
members are Appaloosa Management LP,
Conseco Capital Management,
Contrarian Capital Advisors LLC,
Farallon Capital Management, L.L.C.,
Lehman Brothers, Inc., Merrill Lynch
Phoenix Fund, Inc., Swiss Bank
Corporation and Turnberry Capital;
provided, however, that no new
members will be added to the
Unofficial Noteholder Committee
without the consent of Grand Union
(which consent shall not be
unreasonably withheld).
Unofficial Noteholder Committee
Majority................................ At any time, the holders of a
majority in principal amount of the
Old Senior Notes held in the
aggregate by the members of the
Unofficial Noteholder Committee at
such time.
G-4
I.
DESCRIPTION OF THE BUSINESS
A. General
Grand Union 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.'
As a result of the implementation of several key strategic initiatives,
Grand Union believes it 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, elimination of regional offices and
reconfiguration of the company into three operating areas. Grand Union is
continuing these strategic initiatives, identifying additional areas for 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.
B. Store Formats and Locations; Competition
Grand Union's store sizes and formats vary depending upon the demographic
and competitive conditions in each location in which it operates, as well as the
availability of real estate. Grand Union supermarkets offer a wide selection of
national brand and private label grocery and general merchandise products as
well as high-quality perishables and service departments. The majority of 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. Newly constructed stores are typically in
excess of 40,000 square feet.
Grand Union currently operates 222 stores in six states, including 123 in
New York, 41 in Vermont, 40 in New Jersey, 13 in Connecticut, 3 in New Hampshire
and 2 in Pennsylvania. There is one planned store re-opening for June 1998 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.
C. 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 between Grand Union and C&S. Under the agreements, C&S
stocks and supplies 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 Grand Union's ability to offer consistently fresh and high-quality
products to its customers at favorable prices.
D. Common Stock Formerly Traded on NASDAQ SmallCap Market
On September 19, 1997, the NASDAQ Listing Qualifications Panel determined
that Grand Union's Old Common Stock Interests 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 Old Common
Stock Interests were delisted from the NASDAQ SmallCap Market effective as of
the close of business on May 20, 1998. Effective May 21, 1998, the Common Stock
is eligible for quotation on the Over-The-Counter Bulletin Board.
Additional information concerning Grand Union and its financial condition
and results of operations is set forth in Grand Union's (i) Annual Report on
Form 10-K for the fiscal year ended March 29, 1997, (ii) Quarterly Report on
Form 10-Q for the period ended January 3, 1998, and (iii) Proxy Statement dated
November 3, 1997, for its 1997 Annual Meeting, copies of which are annexed as
Exhibits 2, 3 and 4, respectively, to this Disclosure Statement.
II.
KEY EVENTS LEADING TO THE SOLICITATION AND DECISION
TO COMMENCE A VOLUNTARY CHAPTER 11 REORGANIZATION CASE
A. 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 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. For a more
detailed description of the Credit Agreement, see subsection E, entitled 'August
1997 Amendment of Credit Agreement and Prepetition Negotiations with Secured
Banks.'
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 the issuance of $595,421,000 in aggregate principal amount of 12% Senior
Notes due 2004 and cash payments of $54,922 for fractional charges. For the
purposes of this Disclosure Statement, such 12% Senior Notes are referred to as
the 'Old Senior Notes.' Interest on the Old Senior Notes is due semi-annually,
on March 1 and September 1, in equal payments of approximately $36 million.
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. For the purposes of this Disclosure
Statement, such common stock interests are referred to as the 'Old Common Stock
Interests.'
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. For the purposes of this
Disclosure Statement, such warrants, together with other warrants and options
previously issued by Grand Union, are referred to as the 'Old Warrants.'
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.
B. 1996 Issuance of Old Preferred Stock Interests
In a series of related transactions commencing on July 30, 1996, 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 (i.e., the
stock referred to herein as 'Old Common Stock Interests'). Pursuant to the Stock
Purchase
2
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. 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 May 1, 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 77.75% 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.
The term 'Old Preferred Stock Interests' used throughout this Disclosure
Statement includes, among other interests and rights associated with the
purchase and sale of such interests, the Class A Preferred and the Class B
Preferred. See 'Glossary' of Defined Terms prefixed hereto.
C. 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 Old 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 the financial covenants contained in the Credit Agreement.
3
D. Strategic Initiatives
In recent years, the supermarket industry has 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 has established 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, close or modify store locations that
are not providing adequate levels of contribution to operating performance.
Due to an historically overleveraged balance sheet, Grand Union has had
insufficient resources to fund capital expenditures adequately. The significant
reduction in debt, and the attendant reduction in interest expense, to be
effected by the Plan of Reorganization, together with the execution of the Exit
Facility, will provide Grand Union with in excess of $50 million in additional
availability. 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. FOR A
DESCRIPTION OF SUCH RISKS AND UNCERTAINTIES, SEE SECTION VI, ENTITLED 'CERTAIN
FACTORS AFFECTING GRAND UNION.'
E. August 1997 Amendment of Credit Agreement and Prepetition Negotiations with
Secured Banks
In August 1997, the Secured Banks and Grand Union executed an amendment to
the Credit Agreement. 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
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 May 12, 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 to 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 Old 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 valid and
perfected first-priority 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 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.
4
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 Old Senior Notes. Grand Union has not made the March 2, 1998 interest
payment to holders of the Old Senior Notes. The failure to make such interest
payment constituted a default under the Old Indenture 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 Plan of Reorganization.
Those negotiations resulted in an agreement by the Secured Banks to waive
certain defaults under the Credit Agreement, subject to the continued
satisfaction of the terms and conditions of such waiver. In addition, Grand
Union and Bankers Trust Company, as agent, reached an agreement with respect to
(i) the treatment of the Secured Credit Agreement Claims and (ii) the terms of a
debtor-in-possession credit facility, which are described in Section III.A.
below, entitled 'ANTICIPATED EVENTS DURING THE CHAPTER 11 CASE--Chapter 11
Financing.'
F. 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 Grand Union to commence
negotiations regarding a restructuring of its obligations with the holders of
the Old Senior Notes. In February and March 1998, the following eight
institutions owning approximately 48% of the Old Senior Notes agreed to serve on
the Unofficial Noteholder Committee and receive confidential, non-public
information about Grand Union:
Appaloosa Management LP
Conseco Capital Management
Contrarian Capital Advisors LLC
Farallon Capital Management, L.L.C.
Lehman Brothers, Inc.
Merrill Lynch Phoenix Fund, Inc.
Swiss Bank Corporation
Turnberry Capital
The Unofficial Noteholder Committee retained Wasserstein Perella & Co.,
Inc., as its financial advisor, and Wachtell, Lipton, Rosen & Katz, as its legal
advisor. Grand Union is obligated to pay the reasonable professional fees and
expenses incurred by the advisors to the Unofficial Noteholder Committee. Grand
Union had previously retained Salomon Smith Barney as its own financial advisor.
The financial advisor to the Unofficial Noteholder Committee can be
contacted at:
Wasserstein Perella & Co., Inc.
31 W. 52nd Street
New York, New York 10019-6163
(212) 969-2700
Attn: Mr. Alexander Greene
Mr. Jeffrey Cohen
Attorneys for the Unofficial Noteholder Committee can be contacted at:
Wachtell, Lipton, Rosen & Katz
51 W. 52nd Street
New York, New York 10019
(212) 403-1000
Attn: Chaim J. Fortgang, Esq.
Richard G. Mason, Esq.
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 March 2, 1998, which resulted in the
occurrence of events of default under the Old Indenture 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. As
described more fully below, on May 13, 1998, Grand Union, the Unofficial
Noteholder Committee and the holders of the Old Preferred Stock Interests
reached an agreement in principle regarding the proposed treatment of the Old
Preferred Stock Interests, which treatment is reflected in the Plan of
Reorganization.
5
G. Negotiations with Holders of Old Preferred Stock Interests
As noted above, on March 30, 1998, Grand Union and the members of the
Unofficial Noteholder Committee reached an agreement in principle regarding the
terms of a proposed plan of reorganization. Certain holders of Old Preferred
Stock Interests advised Grand Union of their disapproval of the proposed
recapitalization, as reflected in the March 30, 1998 agreement in principle.
Thereafter, negotiations commenced among the holders of the Old Preferred Stock
Interests, the Unofficial Noteholder Committee and Grand Union. Ultimately, a
consensus among the parties was reached, culminating in the proposed Plan of
Reorganization and the terms set forth therein, and the holders of Old Preferred
Stock Interests indicated their intention to vote to accept the Plan of
Reorganization.
The holders of Old Preferred Stock Interests retained Dewey Ballantine LLP
as their legal advisor. Attorneys for the holders of the Old Preferred Stock
Interests can be reached at:
Dewey Ballantine LLP
1301 Avenue of the Americas
New York, New York 10019-6092
(212) 259-8000
Attn: Sanford W. Morhouse, Esq.
Richard S. Miller, Esq.
III.
ANTICIPATED EVENTS DURING THE CHAPTER 11 CASE
A. Chapter 11 Financing
During its negotiations regarding the treatment of the Secured Credit
Agreement Claims, Grand Union reached agreement with a syndicate of banks led by
Bankers Trust Company, as agent ('Bankers Trust'), regarding the BT DIP Credit
Agreement. Under the BT DIP Credit Agreement, (x) the outstanding prepetition
term loan (excluding the Supplemental Term Loan) under the Credit Agreement will
be converted into revolving loans, (y) all prepetition obligations (excluding
the Supplemental Term Loan) under the Credit Agreement shall be converted to and
deemed to be outstanding DIP Obligations and (z) the Supplemental Term Loan
obligation under the Credit Agreement shall be deemed to remain prepetition
obligations of Grand Union. The BT DIP Credit Agreement provides for an
aggregate of not more than $250,000,000 in financing, comprised of (A) a
commitment of not more than $172,022,020 in principal amount with respect to the
DIP Obligations, inclusive of the revolving credit loans, term loans, all
letters of credit and other obligations (excluding obligations arising under or
related to the Supplemental Term Loan) outstanding as of the Petition Date under
the Credit Agreement and (B) the $77,977,980 prepetition principal amount of the
Supplemental Term Loan obligations outstanding as of the Petition Date under the
Credit Agreement. All of Grand Union's obligations under the BT DIP Credit
Agreement will continue to be guaranteed by all subsidiaries of Grand Union
(collectively, the 'Guarantors'). In addition, all of the DIP Obligations under
the BT DIP Credit Agreement shall constitute an allowed administrative expense
claim pursuant to section 364(c)(1) of the Bankruptcy Code, having
administrative expense priority subject only to a $1,000,000 carve-out for
professional fees and U.S. Trustee fees. Such DIP Obligations shall be secured
by a valid, enforceable, first-priority, perfected security interest (the 'DIP
Liens') in all tangible and intangible assets of Grand Union and the Guarantors,
whether in existence as of the Petition Date or acquired thereafter. The DIP
Liens shall be (i) prior (except as described in (ii) below) to all other liens
on the collateral, and (ii) junior to other valid existing liens that are
permitted under the terms of the BT DIP Credit Agreement.
Except as otherwise set forth in the BT DIP Credit Agreement and following
entry of a final financing order by the Bankruptcy Court, the revolving loans
under the BT DIP Credit Agreement (the 'DIP Loans') may be maintained at Grand
Union's option as (i) Base Rate Loans, which shall bear interest at the
applicable margin (as described below) in excess of the Base Rate (as described
below), or (ii) Eurodollar Loans, which shall bear interest at the applicable
margin in excess of the Eurodollar Rate (adjusted for maximum reserves) as
determined by Bankers Trust for the respective interest period. Applicable
margin shall not be less than 2.0% in the case of Base Rate Loans and 3.75% in
the case of Eurodollar Loans. The Base Rate is the higher of (i) 0.5% in excess
of the adjusted Federal Reserve reported certificate of deposit rate, (ii) .25%
in excess of the Federal Funds Rate (as defined in Grand Union's existing Credit
Agreement), and (iii) the rate that Bankers Trust announces from time to time as
its prime lending rate.
Under the BT DIP Credit Agreement, the Supplemental Term Loan outstanding
under the Credit Agreement immediately prior to the Petition Date shall remain
outstanding prepetition indebtedness of Grand Union and not be converted to DIP
Obligations. Each holder of a Supplemental Term Loan Claim shall be granted,
pursuant to and as limited by section 361(2) of the Bankruptcy Code, as adequate
protection for use of cash collateral, a replacement lien in all of Grand
Union's postpetition assets of the type which secured the Supplemental Term Loan
Claims under the Credit Agreement as their sole and exclusive adequate
protection in respect of the Supplemental Term Loan Claims. Such replacement
liens are junior and fully subordinated in all respects to the DIP Obligations,
it being the intention of the holders of Tranche A/B Claims and the holders of
Supplemental Term Loan Claims that the senior rights of the holders of Tranche
A/B Claims shall bear the same relationship to the Supplemental Term Loans
(including
6
the replacement liens granted under the BT DIP Credit Agreement) as that
established in the Credit Agreement between the revolving loans and term loans
on the one hand and the Supplemental Term Loan on the other.
Under the Plan of Reorganization, Grand Union may accept a commitment to
provide a debtor-in-possession financing agreement other than the BT DIP Credit
Agreement provided that such other financing agreement meets the requirements of
an Alternate DIP Credit Agreement.
B. Operational Issues After the Petition Date
Grand Union intends to obtain certain orders from the Bankruptcy Court
designed to minimize disruptions of business operations and to facilitate its
reorganization. These include the following:
1. Trade Vendor Matters
Grand Union considers good relations with its trade and other business
vendors to be essential to the continued operation of its business during
the pendency of its chapter 11 case. Accordingly, Grand Union intends to
request an order of the Bankruptcy Court authorizing payments to vendors as
they become due in the ordinary course of business, including any amounts
that may relate to claims arising prior to the Petition Date, as long as
the vendors who receive such payments continue to provide Grand Union with
customary shipments and credit terms (the 'Trade Order').
2. Employee Matters
Grand Union considers its employee workforce to be one of its most
valuable assets. Continued employee cooperation and support is important to
a successful reorganization. Accordingly, on the Petition Date, Grand Union
intends to take actions to minimize any salary, wage, employee benefit and
retiree benefit disruptions. These actions include requesting an order of
the Bankruptcy Court authorizing Grand Union to pay wages, salaries,
bonuses, reimbursable employee expenses and accrued and unpaid employee
benefits incurred prior to the Petition Date (the 'Employee Order').
3. Consent of DIP Credit Agreement Lenders and Cash Collateral Lenders
The Trade Order, the Employee Order and any other first day order
shall be in form and substance reasonably acceptable to (i) the holders of
the requisite majority of DIP Obligations necessary to bind such holders
and (ii) the holders of the requisite majority of Tranche A/B Claims
necessary to bind such holders that provide, or allow Grand Union to use,
funds under a cash collateral order (the 'Required Cash Collateral
Lenders'); provided, however, that, to the extent the Required Cash
Collateral Lenders fail to consent to any provision of the Trade Order,
Employee Order or such other first day order, including the amounts that
Grand Union otherwise proposes to pay under the Trade Order, the Employee
Order or such other first day order, any limitation resulting from such
failure to consent shall only apply for so long as such cash collateral
order is in effect.
4. Executory Contracts and Unexpired Leases
Grand Union is a party to a large number of contracts or leases that
constitute executory contracts and unexpired leases pertaining to
non-residential real property and to personal property within the meaning
of section 365 of the Bankruptcy Code. The Plan of Reorganization provides
for the assumption of all executory contracts and unexpired leases,
including the Senior Management Employment Agreements.
C. Confirmation Hearing
Grand Union anticipates that as soon as practicable after commencing its
chapter 11 case, it will seek an order of the Bankruptcy Court scheduling a
hearing to consider confirmation of the Plan of Reorganization. Grand Union
anticipates that notice of the confirmation hearing will be published in The
Wall Street Journal (National Edition), and will be mailed to all known holders
of claims and equity interests, at least 25 days before the date by which
objections to confirmation must be filed with the Bankruptcy Court. See Section
VIII.A. below, entitled 'CONFIRMATION OF THE PLAN OF REORGANIZATION--
Confirmation Hearing.'
IV.
THE PLAN OF REORGANIZATION
A. Introduction
The Plan of Reorganization provides for a major restructuring of Grand
Union's financial obligations. In essence, the Plan of Reorganization (i)
converts the aggregate principal amount of $595,421,000 of the Old Senior Notes
plus accrued and unpaid interest thereon through the Petition Date to 100% of
Grand Union's New Common Stock, subject to dilution from the issuance of New
Warrants and options to management, (ii) provides the holders of Old Preferred
Stock Interests with their Ratable Proportion of 3,783,513 Series 1 Warrants,
the Series 2 Warrants and the Series 3 Warrants, and (iii) provides the holders
of Old Common Stock Interests with their Ratable Proportion of 540,502 Series 1
Warrants. The New Common Stock and New Warrants are described in detail in
subsection C below, entitled 'Securities to Be Issued Pursuant to the Plan of
Reorganization.' The Plan of Reorganization also provides for Reorganized Grand
Union to satisfy in full its obligations under the DIP Credit Agreement and the
Credit Agreement and enter into the Exit Facility on the Consummation Date.
7
The Plan of Reorganization releases all claims and causes of action, if
any, held by Grand Union or any of its subsidiaries against their officers and
directors, and advisors and each of their affiliates, as well as against the
members of the Unofficial Noteholder Committee and their respective affiliates
and advisors and any official committee of unsecured creditors appointed in the
chapter 11 case, each of the Secured Banks (including the lenders under the BT
DIP Credit Agreement if utilized by Grand Union), the Agent and each of the
holders of Old Preferred Stock Interests and their respective affiliates and
advisors. See subsection IV.J.6. below, entitled 'Effect of
Confirmation--Limited Release.'
The result of the restructuring will be a significant reduction of debt.
Grand Union believes that the proposed restructuring will provide Grand Union
with the necessary liquidity to fund essential capital expenditures and compete
effectively in today's competitive environment.
Grand Union and the members of the Unofficial Noteholder Committee believe
that the Plan of Reorganization provides the best opportunity for enhanced
recoveries for the holders of its Old Senior Notes. Grand Union believes, and
will demonstrate to the Bankruptcy Court, that creditors and shareholders will
receive at least as much, if not more, in value under the Plan of Reorganization
than they would receive in a liquidation case under chapter 7 of the Bankruptcy
Code.
The following is a non-technical discussion of the provisions of the Plan
of Reorganization. The Plan of Reorganization is attached as Exhibit 1 to this
Disclosure Statement. The terms of the Plan of Reorganization govern in the
event there are any discrepancies in the following discussion.
B. Classification and Treatment of Claims and Equity Interests Under the Plan of
Reorganization
One of the key concepts under the Bankruptcy Code is that only claims and
equity interests that are 'allowed' may receive distributions under a chapter 11
plan. This term is used throughout the Plan of Reorganization and the
descriptions below. In general, an 'allowed' claim or 'allowed' equity interest
simply means that the debtor agrees, or in the event of a dispute, that the
Bankruptcy Court determines, that the claim or equity interest, and the amount
thereof, is in fact a valid obligation of the debtor. Section 502(a) of the
Bankruptcy Code provides that a timely filed claim or equity interest is
automatically 'allowed' unless the debtor or other party in interest objects.
However, section 502(b) of the Bankruptcy Code specifies certain claims that may
not be 'allowed' in bankruptcy even if a proof of claim is filed. These include,
but are not limited to, claims that are unenforceable under the governing
agreement between Grand Union and the claimant or applicable nonbankruptcy law,
claims for unmatured interest, property tax claims in excess of the debtor's
equity in the property, claims for services that exceed their reasonable value,
lease and employment contract rejection damage claims in excess of specified
amounts, late-filed claims, and contingent claims for contribution and
reimbursement.
Grand Union does not intend to set a bar date by which holders of claims
and equity interests must file proofs of claim and proofs of equity interest.
The Plan of Reorganization contemplates that allowed General Unsecured Claims,
such as trade vendor and other business claims, but exclusive of its allowed Old
Senior Note Claims, will be paid in the ordinary course of business of Grand
Union. If Grand Union disputes any claim, such dispute shall be resolved or
adjudicated by an appropriate tribunal in a manner as if the Reorganization Case
had not been commenced and shall survive the Consummation Date as if the
Reorganization Case had not been commenced. If, however, a holder of a claim
files a proof of claim with the Bankruptcy Court that is inconsistent with Grand
Union's books and records, as reflected on its schedules of liabilities filed
with the Bankruptcy Court, Grand Union may elect, at its sole option, to contest
the claim by filing an objection under section 502 of the Bankruptcy Code.
The Plan of Reorganization also provides that all tort claims, including
personal injury, property damage, products liability or other similar claims
against Grand Union that have not been previously compromised or settled or
otherwise resolved, will be disputed claims. Any unliquidated tort claim that is
not otherwise settled or resolved in the Reorganization Case will be determined
and liquidated in the administrative or judicial tribunal in which it is pending
on the Confirmation Date or, if no such action was pending on the Confirmation
Date, in any administrative or judicial tribunal of appropriate jurisdiction.
Under the Plan of Reorganization, the automatic stay arising pursuant to section
362 of the Bankruptcy Code will be vacated as of the Confirmation Date as to all
tort claims. Any tort claim determined and liquidated pursuant to a judgment
obtained in a court other than the Bankruptcy Court in accordance with
applicable non-bankruptcy law which is no longer subject to appeal or other
review will be deemed to be an allowed claim in Class 5 (General Unsecured
Claims) in such liquidated amount and satisfied in accordance with the Plan of
Reorganization.
The Bankruptcy Code requires that, for purposes of treatment and voting, a
chapter 11 plan divide the different claims against, and equity interests in,
the debtor into separate classes based upon their legal nature. Claims of a
substantially similar legal nature are usually classified together, as are
equity interests of a substantially similar legal nature. Because an entity may
hold multiple claims and/or equity interests which give rise to different legal
rights, the 'claims' and 'equity interests' themselves, rather than their
holders, are classified.
Under a chapter 11 plan, the separate classes of claims and equity
interests must be designated either as 'impaired' (affected by the plan) or
'unimpaired' (unaffected by the plan). If a class of claims is 'impaired,' the
Bankruptcy Code affords certain
8
rights to the holders of such claims, such as the right to vote on the plan, and
the right to receive, under the chapter 11 plan, no less value than the holder
would receive if the debtor were liquidated in a case filed under chapter 7 of
the Bankruptcy Code. Under section 1124 of the Bankruptcy Code, a class of
claims or interests is 'impaired' unless the plan (i) does not alter the legal,
equitable and contractual rights of the holders or (ii) irrespective of the
holders' acceleration rights, cures all defaults (other than those arising from
the debtor's insolvency, the commencement of the case or nonperformance of a
nonmonetary obligation), reinstates the maturity of the claims or interests in
the class, compensates the holders for actual damages incurred as a result of
their reasonable reliance upon any acceleration rights, and does not otherwise
alter their legal, equitable and contractual rights. Typically, this means that
the holder of an unimpaired claim will receive on the later of the consummation
date or the date on which amounts owing are actually due and payable, payment in
full, in cash, with postpetition interest to the extent appropriate and provided
for under the governing agreement (or if there is no agreement, under applicable
nonbankruptcy law), and the remainder of the debtor's obligations, if any, will
be performed as they become due in accordance with their terms. Thus, other than
its right to accelerate the debtor's obligations, the holder of an unimpaired
claim will be placed in the position it would have been in had the debtor's case
not been commenced.
Under certain circumstances, a class of claims or equity interests may be
deemed to reject a plan of reorganization. For example, a class is deemed to
reject a plan of reorganization under section 1126(g) of the Bankruptcy Code if
the holders of claims or interests in such class do not receive or retain
property under the plan of reorganization on account of their claims or equity
interests. Under this provision of the Bankruptcy Code, the holders of equity
interests in Class 8 (Old Warrants) are deemed to reject the Plan of
Reorganization because they receive no distribution under the Plan of
Reorganization and such plan cancels the Old Warrants. The Plan of
Reorganization also deems the holders of Old Common Stock Interests to reject
the Plan of Reorganization because of the small distribution provided to the
holders of Old Common Stock Interests in Class 7. Grand Union intends to seek an
order from the Bankruptcy Court confirming that it is not required to solicit
votes from the holders of Old Common Stock Interests. If the Bankruptcy Court
determines that such solicitation is required, Grand Union will conduct such
solicitation after the Petition Date. Because Class 7 (Old Common Stock
Interests) and Class 8 (Old Warrants) are deemed to reject the Plan of
Reorganization, Grand Union is required to demonstrate that the Plan of
Reorganization satisfies the requirements of section 1129(b) of the Bankruptcy
Code with respect to such classes. Among these are the requirements that the
plan be 'fair and equitable' and not 'discriminate unfairly' against the holders
of equity interests in such classes. For a more detailed description of the
requirements for confirmation, see Section VIII.B. below, entitled 'CONFIRMATION
OF THE PLAN OF REORGANIZATION--Requirements for Confirmation of the Plan of
Reorganization.'
Consistent with these requirements, the Plan of Reorganization divides the
allowed claims against, and allowed equity interests in, Grand Union into the
following classes:
Unclassified Administrative Expenses
Unclassified Priority Tax Claims
Class 1 Priority Non-Tax Claims Unimpaired
Class 2 Supplemental Term Loan Claims Unimpaired
Class 3 Other Secured Claims Unimpaired
Class 4 Old Senior Note Claims Impaired
Class 5 General Unsecured Claims Unimpaired
Class 6 Old Preferred Stock Interests Impaired
Class 7 Old Common Stock Interests Deemed Rejected
Class 8 Old Warrants Deemed Rejected
Administrative Expenses
Administrative expenses are the actual and necessary costs and expenses of
Grand Union's chapter 11 case that are allowed under sections 503(b) and
507(a)(1) of the Bankruptcy Code. Those expenses will include, but are not
limited to, the postpetition salaries and other benefits for its employees,
postpetition rent for its headquarters, amounts owed to vendors providing goods
and services to Grand Union during the chapter 11 case, tax obligations incurred
after the Petition Date, and certain statutory fees and charges assessed under
section 1930, chapter 123, title 28, United States Code. Other administrative
expenses include the actual, reasonable and necessary professional fees and
expenses of Grand Union's advisors, including attorneys for the special
committee of independent directors serving on Grand Union's Board of Directors,
and the advisors to the Unofficial Noteholder Committee or any official
committees appointed in the Reorganization Case, which fees and expenses are
incurred during the pendency thereof.
Administrative expenses representing liabilities incurred by Grand Union in
the ordinary course of business, consistent with past practice, or liabilities
arising under loans or advances to Grand Union after the Petition Date, whether
or not incurred in the ordinary course of business, will be paid by Grand Union
in accordance with the terms and conditions of the particular transaction and
any related agreements and instruments. All other administrative expenses will
be paid, in full, in cash, on the Consummation Date or as soon thereafter as is
practicable, or on such other terms to which Grand Union and the holder of such
administrative expense claim agree.
9
All payments to professionals for compensation and reimbursement of
expenses and all payments to reimburse expenses of members of any statutory
committees will be made in accordance with the procedures established by the
Bankruptcy Court and Bankruptcy Rules relating to the payment of interim and
final compensation and expenses.
In addition to the foregoing, section 503(b) of the Bankruptcy Code
provides for payment of compensation to creditors, indenture trustees and other
persons making a 'substantial contribution' to a chapter 11 case, and to
attorneys for, and other professional advisors to, such persons. Requests for
such compensation must be approved by the Bankruptcy Court after notice and a
hearing at which Grand Union and other parties in interest may participate, and,
if appropriate, object to such requests.
All DIP Obligations shall be deemed allowed Administrative Expense Claims
and paid in full in cash on the Consummation Date in accordance with section 2.1
of the Plan of Reorganization. Grand Union also has agreed to pay the reasonable
fees and expenses of the attorneys and financial advisors to the Unofficial
Noteholder Committee, the Secured Banks (including the lenders under the BT DIP
Credit Agreement if utilized by Grand Union), and the Agent as Administrative
Expense Claims in accordance with section 2.1 of the Plan of Reorganization
without such parties being required to file an application with the Bankruptcy
Court under section 503(b) of the Bankruptcy Code or otherwise seek approval of
the Bankruptcy Court.
Priority Tax Claims
Priority Tax Claims essentially consist of unsecured claims of federal and
state governmental authorities for the kinds of taxes specified in section
507(a)(8) of the Bankruptcy Code, such as certain income taxes, property taxes,
excise taxes, and employment and withholding taxes. These unsecured claims are
given a statutory priority in right of payment. Grand Union does not intend to
set a bar date and therefore it is difficult to estimate the number and amount,
if any, of Priority Tax Claims that will be filed with the Bankruptcy Court. On
the Petition Date, Grand Union intends to request authorization from the
Bankruptcy Court to pay certain prepetition claims of taxing authorities.
Assuming the Bankruptcy Court provides Grand Union with such authority, Grand
Union estimates that on the Consummation Date, based upon Grand Union's books
and records, the allowed amount of remaining unpaid prepetition claims will
aggregate no more than $2 million.
With respect to any Priority Tax Claims not paid pursuant to prior
Bankruptcy Court order, on the Consummation Date, except to the extent that a
holder of an allowed Priority Tax Claim agrees to a different treatment of such
allowed Priority Tax Claim, Reorganized Grand Union shall pay to each holder of
an allowed Priority Tax Claim cash in an amount equal to such allowed Priority
Tax Claim. All allowed Priority Tax Claims which are not due and payable on or
before the Consummation Date shall be paid thereafter in the ordinary course of
business in accordance with the terms thereof.
Class 1-- Priority Non-Tax Claims
(Unimpaired. Presumed to accept the
Plan of Reorganization and not entitled to vote.)
Priority Non-Tax Claims include certain claims that are granted priority in
payment under section 507(a) of the Bankruptcy Code, including certain wage,
salary and other compensation obligations to employees of Grand Union. Grand
Union does not intend to set a bar date and therefore it is difficult to
estimate the number and amount, if any, of Priority Non-Tax Claims that will be
filed with the Bankruptcy Court. On the Petition Date, Grand Union intends to
request authorization from the Bankruptcy Court to pay certain prepetition
employee claims that would be entitled to priority in payment in any event, if
paid as of the Consummation Date. Assuming the Bankruptcy Court provides Grand
Union with such authority, Grand Union believes that claims which would be
included in Class 1 will be paid during the pendency of the Reorganization Case.
With respect to any Priority Non-Tax Claims not paid pursuant to prior
Bankruptcy Court order, on the Consummation Date, except to the extent that a
holder of an allowed Priority Non-Tax Claim agrees to a different treatment of
such allowed Priority Non-Tax Claim, each allowed Priority Non-Tax Claim shall
be unimpaired in accordance with section 1124 of the Bankruptcy Code. All
allowed Priority Non-Tax Claims that are not due and payable on or before the
Consummation Date shall be paid in the ordinary course of business in accordance
with the terms thereof.
Class 2-- Supplemental Term Loan Claims
(Unimpaired. Presumed to accept the
Plan of Reorganization and not entitled to vote.)
Class 2 consists of the allowed Supplemental Term Loan Claims. Grand Union
estimates that, as of the Petition Date, the aggregate amount of allowed
Supplemental Term Loan Claims (including accrued interest through the Petition
Date) will be approximately $81.5 million.
The Plan of Reorganization provides that each Supplemental Term Loan Claim
constitutes an allowed Supplemental Term Loan Claim.
10
On the Consummation Date, except to the extent that a holder of an allowed
Supplemental Term Loan Claim agrees to a different treatment of such allowed
Supplemental Term Loan Claim, all Supplemental Term Loan Claims shall be
reinstated and rendered unimpaired in accordance with section 1124 of the
Bankruptcy Code; provided, however, that (i) in accordance with the terms of the
Credit Agreement the Supplemental Term Loan Claims cannot be prepaid prior to
August 31, 1998 without the consent of the lenders whose Supplemental Term Loan
Claims are to be prepaid and (ii) until the Supplemental Term Loan Claims are
paid in full, the amounts actually borrowed under the Exit Facility cannot
exceed $172,022,020 without the consent of the holders of Supplemental Term Loan
Claims.
Class 3-- Other Secured Claims
(Unimpaired. Presumed to accept the
Plan of Reorganization and not entitled to vote.)
Class 3 consists of allowed secured claims, other than the Class 2 Secured
Credit Agreement Claims. Such claims generally would include claims arising
under agreements relating to the financing of Grand Union's office equipment or
equipment located at its stores. Grand Union does not intend to set a bar date
and therefore it is difficult to estimate the number and amount, if any, of
Other Secured Claims that will be filed with the Bankruptcy Court. Nevertheless,
Grand Union estimates that, based upon its books and records, the allowed amount
of Other Secured Claims, as of the Consummation Date, will not exceed
approximately $7.7 million.
On the Consummation Date, except to the extent that a holder of an allowed
Other Secured Claim agrees to a different treatment of such allowed Other
Secured Claim, each allowed Other Secured Claim shall be reinstated or rendered
unimpaired in accordance with section 1124 of the Bankruptcy Code,
notwithstanding any contractual provision or applicable nonbankruptcy law that
entitles the holder of an allowed Other Secured Claim to demand or receive
payment of such allowed Other Secured Claim prior to the stated maturity of such
allowed Other Secured Claim from and after the occurrence of a default. All
allowed Other Secured Claims that are not due and payable on or before the
Consummation Date shall be paid in the ordinary course of business in accordance
with the terms thereof.
Class 4-- Old Senior Note Claims
(Impaired. Entitled to vote.)
Class 4 consists of the allowed claims of the holders of Old Senior Notes.
The Plan of Reorganization provides that each Old Senior Note Claim constitutes
an allowed Old Senior Note Claim. On the Consummation Date, each holder of an
allowed Old Senior Note Claim shall receive, in full satisfaction of such
allowed Old Senior Note Claim, its Ratable Proportion of 30,000,000 shares of
New Common Stock (representing 100% of the initial shares of such New Common
Stock), subject to possible dilution from the New Warrants and management
options.
The recovery for the holders of Old Senior Notes in Class 4 depends
significantly on the value of the New Common Stock on the Consummation Date.
Grand Union estimates that the overall recovery for Class 4 will be
approximately 63% under the Plan of Reorganization, assuming that the Old Senior
Notes represent claims in the aggregate principal amount of $595.4 million and
no reduction to the value of the New Common Stock to take into account the
issuance of the New Warrants. Grand Union estimates that Class 4 will receive
New Common Stock valued at $374.6 million (based on an estimated value of $12.49
per share). For a discussion of the New Common Stock, see subsection C below,
entitled 'Securities to Be Issued Pursuant to the Plan of Reorganization--New
Common Stock,' and Section V below, entitled 'PROJECTIONS AND VALUATION
ANALYSIS.'
The members of the Unofficial Noteholder Committee have consented to the
distribution to be provided to the holders of Old Preferred Stock Interests and
Old Common Stock Interests under the Plan of Reorganization.
Class 5-- General Unsecured Claims
(Unimpaired. Presumed to accept the
Plan of Reorganization and not entitled to vote.)
Class 5 consists of allowed General Unsecured non-priority claims which
generally include the claims of trade and other business creditors for goods and
services provided to Grand Union prior to the Petition Date (to the extent not
paid pursuant to orders of the Bankruptcy Court prior to the Consummation Date)
and other damage or general litigation claims. Grand Union does not intend to
set a bar date and therefore it is difficult to estimate the number and amount,
if any, of General Unsecured Claims that will be filed with the Bankruptcy
Court.
Assuming the Bankruptcy Court authorizes Grand Union to pay many trade
creditors and other suppliers of goods and services in the normal course of its
business as and when such obligations become due and owing during the pendency
of the
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Reorganization Case, Grand Union does not expect prepetition claims of this
nature to be in excess of $10 million to $15 million at the Consummation Date.
Grand Union's books and records, prepared according to generally accepted
accounting principles, reflect certain accrued and other liabilities which for
classification purposes in a chapter 11 proceeding could be classified as
contingent and/or unliquidated. Examples of these types of liabilities include
unfunded pension amounts, future obligations for benefits to be paid to retirees
and amounts due under percentage of rent leases for stores, among others. As of
the Consummation Date, Grand Union estimates that accrued and other liabilities
(exclusive of accounts payable) will total approximately $160.4 million, as
measured by generally accepted accounting principles.
On the Consummation Date, except to the extent that a holder of an allowed
General Unsecured Claim agrees to a different treatment of such allowed General
Unsecured Claim, each allowed General Unsecured Claim shall be unimpaired in
accordance with section 1124 of the Bankruptcy Code. All allowed General
Unsecured Claims that are not due and payable on or before the Consummation Date
shall be paid in the ordinary course of business in accordance with the terms
thereof.
Class 6-- Old Preferred Stock Interests
(Impaired. Entitled to vote.)
Class 6 consists of the allowed Old Preferred Stock Interests. On the
Consummation Date, the Old Preferred Stock Interests shall be cancelled, and
each holder of Old Preferred Stock Interests shall receive, in full satisfaction
of such Old Preferred Stock Interests, its Ratable Proportion of (i) 3,783,513
of the Series 1 Warrants (representing the right to purchase approximately 10.5%
of the shares of New Common Stock at an exercise price of $19.82 per share),
(ii) the Series 2 Warrants (representing the right to purchase approximately
2.5% of the shares of New Common Stock at an exercise price of $23.15 per share)
and (iii) the Series 3 Warrants (representing the right to purchase
approximately 1% of the shares of New Common Stock at an exercise price of
$12.32 per share).
Grand Union estimates the value of the New Warrants to be distributed to
the holders of the Old Preferred Stock Interests to be $9.5 million. For a
discussion of the New Common Stock, see subsection C below, entitled 'Securities
to Be Issued Pursuant to the Plan of Reorganization--New Common Stock,' and
Section V below, entitled 'PROJECTIONS AND VALUATION ANALYSIS.'
The holders of Old Preferred Stock Interests have consented to the
distribution to be provided to the holders of Old Common Stock Interests under
the Plan of Reorganization.
Class 7-- Old Common Stock Interests
(Deemed to reject the Plan of
Reorganization. Not entitled to vote.)
Class 7 consists of the Old Common Stock Interests. On the Consummation
Date, the Old Common Stock Interests shall be cancelled and each holder of Old
Common Stock Interests shall receive, with the consent of the holders of the Old
Senior Notes and the Old Preferred Stock Interests (to be evidenced by their
votes to accept the Plan of Reorganization), its Ratable Proportion of 540,502
of the Series 1 Warrants (representing the right to purchase approximately 1.5%
of the shares of New Common Stock at an exercise price of $19.82 per share).
Grand Union estimates the value of the Series 1 Warrants to be distributed
to the holders of Old Common Stock Interests to be $1 million. For a discussion
of the New Warrants, see subsection C below, entitled 'Securities to Be Issued
Pursuant to the Plan of Reorganization.'
Class 8-- Old Warrants
(Deemed to reject the Plan of
Reorganization. Not entitled to vote.)
Class 8 consists of the Old Warrants. On the Consummation Date, the Old
Warrants will be cancelled, and the holders of the Old Warrants will not be
entitled to, and shall not receive or retain, any property or interest in
property on account of such Old Warrants.
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C. Securities to Be Issued Pursuant to the Plan of Reorganization
1. New Common Stock
Pursuant to the Plan of Reorganization, on the Consummation Date,
60,000,000 shares of New Common Stock will be authorized under Grand Union's
certificate of incorporation. Of such authorized shares, 30,000,000 shares,
representing 100% of the issued and outstanding shares of New Common Stock, will
be distributed to the holders of allowed Old Senior Note Claims in Class 4.
Each share of New Common Stock will entitle its holder to one vote. Holders
of New Common Stock will have the right to participate proportionately in any
dividends distributed by Reorganized Grand Union. For a description of the
options to purchase shares to be provided to the Senior Managers, see subsection
H.5. below, entitled 'Senior Management Employment Agreements--Management Stock
Options.'
2. New Warrants
On the Consummation Date, Reorganized Grand Union will issue (i) the Series
1 Warrants to purchase 4,324,015 shares of New Common Stock, representing
approximately 12% of the shares of New Common Stock at a price equal to $19.82
per share, (ii) the Series 2 Warrants to purchase 942,791 shares of New Common
Stock, representing approximately 2.5% of the shares of New Common Stock at a
price equal to $23.15 per share and (iii) the Series 3 Warrants to purchase
306,122 shares of New Common Stock, representing approximately 1% of the shares
of New Common Stock at a price equal to $12.32 per share. The Series 1 Warrants
and the Series 2 Warrants will expire on the fifth anniversary of the
Consummation Date. The Series 3 Warrants will expire on the fourth anniversary
of the Consummation Date. The New Warrants are governed by the New Warrant
Agreement annexed to the Plan of Reorganization as Exhibit A. The purpose of the
issuance of the Series 1 Warrants and the Series 2 Warrants is to provide value
to the holders of Old Preferred Stock Interests and Old Common Stock Interests
in the event the value of the New Common Stock appreciates significantly.
Specifically, the Series 1 Warrants and the Series 2 Warrants will have no
significant value until the New Common Stock appreciates sufficiently to provide
a full recovery for the holders of allowed claims in Class 4 (Old Senior Note
Claims). The likelihood of such appreciation cannot be determined at this time
and there can be no assurance that it will occur. The value of the Series 3
Warrants depends on the value of the New Common Stock after the Consummation
Date, which may or may not exceed the exercise price of the Series 3 Warrants.
3. Securities Law Matters
a. The Solicitation. Grand Union is relying on Section 3(a)(9) of the
Securities Act to exempt from the registration requirements of such Act the
offer to holders of the Old Senior Notes of New Common Stock, which may be
deemed to be made by Grand Union pursuant to the solicitation of votes on the
Plan of Reorganization.
Grand Union has no contract, arrangement or understanding relating to, and
will not, directly or indirectly, pay any commission or other remuneration to
any broker, dealer, salesperson, agent or any other person for soliciting votes
to accept or reject the Plan of Reorganization or for soliciting any exchanges
of Old Senior Notes. Grand Union has received assurances that no person will
provide any information to holders of Old Senior Notes relating to the
solicitation or the Plan of Reorganization other than to refer the holders of
such securities to the information contained in this Disclosure Statement and in
the Ballots delivered with it. In addition, none of the financial advisors to
Grand Union or the Unofficial Noteholder Committee, the Voting Agent or the Old
Indenture Trustee, and no broker, dealer, salesperson, agent or any other
person, has been engaged or authorized to express any statement, opinion,
recommendation or judgment with respect to the relative merits and risks of the
solicitation, the value and terms of the New Common Stock or the Plan of
Reorganization (and the transactions contemplated thereby).
Grand Union is not making any representation to any offeree of the
securities issued under the Plan of Reorganization regarding the legality of any
investment therein by such offeree under appropriate legal investment or similar
laws or regulations.
b. Issuance and Resale of New Securities Under the Plan of Reorganization.
Section 1145 of the Bankruptcy Code generally exempts from registration under
the Securities Act the offer or sale of a debtor's securities under a chapter 11
plan if such securities are offered or sold in exchange for a claim against, or
equity interest in, such debtor and, in the case of warrants so issued under a
chapter 11 plan, also generally exempts the issuance of stock issued upon
exercise of such warrants. In reliance upon this exemption, the New Common Stock
and New Warrants to be issued on the Consummation Date as provided in the Plan
of Reorganization, and the New Common Stock to be issued upon exercise of the
New Warrants, generally will be exempt from the registration requirements of the
Securities Act, and state and local securities laws. Accordingly, such
securities may be resold without registration under the Securities Act or other
federal securities laws pursuant to the exemption provided by Section 4(1) of
the Securities Act, unless the holder is an 'underwriter' with respect to such
securities, as that term is defined in the Bankruptcy Code. In addition, such
securities generally may be resold without registration under state securities
laws pursuant to various exemptions provided by the respective laws of the
several states. However, recipients of securities issued under the Plan of
13
Reorganization are advised to consult with their own legal advisors as to the
availability of any such exemption from registration under state law in any
given instance and as to any applicable requirements or conditions to such
availability.
Section 1145(b) of the Bankruptcy Code defines 'underwriter' for purposes
of the Securities Act as one who (a) purchases a claim with a view to
distribution of any security to be received in exchange for the claim other than
in ordinary trading transactions, (b) offers to sell securities issued under a
plan for the holders of such securities, (c) offers to buy securities issued
under a plan from persons receiving such securities, if the offer to buy is made
with a view to distribution, or (d) is a control person of the issuer of the
securities.
Notwithstanding the foregoing, statutory underwriters may be able to sell
securities without registration pursuant to the resale limitations of Rule 144
under the Securities Act which, in effect, permit the resale of securities
received by statutory underwriters pursuant to a chapter 11 plan, subject to
applicable volume limitations, notice and manner of sale requirements, and
certain other conditions. Parties who believe they may be statutory underwriters
as defined in section 1145 of the Bankruptcy Code are advised to consult with
their own legal advisors as to the availability of the exemption provided by
Rule 144.
c. Listing. Reorganized Grand Union will use its best efforts to continue
to be a reporting company under the Securities Exchange Act of 1934 and to be
listed on a nationally recognized market or exchange. 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 Old Common Stock Interests were delisted from the NASDAQ SmallCap Market
effective as of the close of business on May 20, 1998. Effective May 21, 1998,
the Common Stock is eligible for quotation on the Over-The-Counter Bulletin
Board.
d. Registration Rights. The Plan of Reorganization provides for the
execution of a registration rights agreement. Under such agreement, each of the
holders of the Old Senior Notes who will receive at least 10% of the New Common
Stock issued under the Plan of Reorganization will be entitled to exercise
certain demand and incidental registration rights in accordance with the terms
and conditions of such registration rights agreement to effect any resales
thereof that require registration under the Securities Act. Within 120 days
after the Consummation Date, Reorganized Grand Union will use its best efforts
to file, and have the SEC declare effective, a shelf registration statement for
the benefit of such holders and keep such shelf registration statement effective
for up to three years from the effective date thereof. Such holders will be
entitled to no more than three demand registrations in the aggregate (provided
the shelf registration statement is not then effective or unless such demand
registration is to be on an underwritten basis) and unlimited piggyback
registrations for a period of five years from the Consummation Date.
4. Hart-Scott-Rodino Act Filing Requirements
The Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the
'HSR Act'), requires the parties to certain business combination, acquisition
and/or change-in-control-related transactions to provide the United States
Federal Trade Commission and Antitrust Division of the Department of Justice
with certain information about the business of the parties involved and the
proposed transaction. Any entity that will receive a distribution of New Common
Stock under the Plan of Reorganization that satisfies the tests outlined below
may be required, prior to the receipt of such shares, to file a Premerger
Notification and Report Form pursuant to the HSR Act. In general, in the absence
of an available exemption, if (i) an entity entitled to a distribution of New
Common Stock under the Plan of Reorganization would own, at the Consummation
Date, New Common Stock that exceeds $15 million in value (i.e., the statutory
size of transaction threshold), and (ii) certain jurisdictional tests are
satisfied relating to the amount of sales or assets (i.e., the size) of the
acquiring person, the HSR Act would require that such entity file a Premerger
Notification and Report Form and delay completion of the acquisition of New
Common Stock pursuant to the Plan of Reorganization until the expiration of the
applicable waiting periods under the HSR Act. The staff of the Premerger
Notification Office of the Federal Trade Commission has taken the position that
the 'debt workout' exemption to the HSR Act, codified at 16 C.F.R. Section
802.63(a), is not available to entities who desire to exchange debt claims for
voting securities of an issuer if such entities acquired the debt claims after
the issuer has filed for bankruptcy or after it otherwise becomes virtually
certain that the debt of the issuer would be converted into voting securities.
Accordingly, such exemption would not apply to such entities and such entities
may be required to observe the notification and waiting period requirements of
the HSR Act. If such waiting periods have not expired or been terminated as of
the Consummation Date, the indenture trustee may retain, or be required to
deliver, such entities' shares of New Common Stock into an escrow account,
pending the expiration or termination of such waiting period. Holders of Old
Senior Notes are urged to consult with their legal counsel to determine whether
the requirements of the HSR Act would apply to the distribution to such entities
of shares of New Common Stock under the Plan of Reorganization.
14
D. Means of Implementation of the Plan of Reorganization
1. Exit Facility
On the Consummation Date, Reorganized Grand Union will enter into the Exit
Facility. On April 23, 1998, Grand Union received a letter from SBC Warburg
Dillon Read Inc., Swiss Bank Corporation, Lehman Brothers Inc. and Lehman
Commercial Paper Inc., 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, financial 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 DIP Obligations and the Supplemental
Term Loan Claims 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 Swiss Bank Corporation 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 Agent Banks, which resulted in the commitment letter for such exit
facility.
In addition to the foregoing exit financing commitment, as part of the
commitment relating to the BT DIP Credit Agreement, Grand Union had previously
accepted a commitment from the Secured Banks to provide Grand Union with an exit
facility in the aggregate amount of $250 million in accordance with that certain
commitment letter dated March 19, 1998. Based upon Grand Union's determination
that additional availability was needed to provide Reorganized Grand Union with
greater liquidity and to fulfill the anticipated capital needs of its business
plan, Grand Union does not intend to utilize such commitment. Under the Plan of
Reorganization, Grand Union may accept from another lender(s) an alternative
commitment to provide exit financing other than as described above upon terms
and conditions more favorable to Grand Union and reasonably acceptable to Grand
Union and an Unofficial Noteholder Committee Majority.
2. Corporate Action Regarding Issuance of New Securities
The Plan of Reorganization provides that the issuance of the New Common
Stock and New Warrants by Reorganized Grand Union is authorized by the Plan of
Reorganization without the need for any further corporate action.
3. Registration Rights Agreement
The Plan of Reorganization provides that the Registration Rights Agreement
will be executed and delivered by Reorganized Grand Union.
4. New Warrant Agreement
The Plan of Reorganization provides that the New Warrant Agreement will be
executed and delivered by Reorganized Grand Union and American Stock Transfer &
Trust Company or any replacement agent reasonably acceptable to Grand Union, an
Unofficial Noteholder Committee Majority and the holders of two-thirds of the
number of shares constituting the Old Preferred Stock Interests.
15
5. Cancellation of Existing Securities and Agreements
On the Consummation Date, the Old Senior Notes, the Old Preferred Stock
Interests, the Old Common Stock Interests, the Old Warrants or other agreements
or commitments, contractual or otherwise, obligating Grand Union to issue,
transfer or sell Old Preferred Stock Interests, Old Common Stock Interests or
any other capital stock of Grand Union, shall be cancelled. Except for purposes
of effectuating the distributions under the Plan of Reorganization on the
Consummation Date, the Old Indenture shall be cancelled.
6. General Corporate Action
a. Certificates of Elimination. On the Consummation Date or as soon
thereafter as is practicable, Reorganized Grand Union shall file with the
Secretary of State of the State of Delaware, in accordance with sections 103 and
151 of the Delaware General Corporation Law, the Certificates of Elimination,
which certificates are required to cancel the Old Preferred Stock Interests.
b. Board of Directors of Reorganized Grand Union. On the Consummation Date,
the operation of Reorganized Grand Union shall become the general responsibility
of its Board of Directors, subject to, and in accordance with its certificate of
incorporation and bylaws. The initial Board of Directors of Reorganized Grand
Union shall consist of eleven members, eight of whom shall be selected by the
Unofficial Noteholder Committee and three of whom shall be Mr. J. Wayne Harris,
Mr. Jack W. Partridge, Jr., and Mr. Gary M. Philbin in their capacities as
Senior Managers and who shall serve as directors for the entire term of their
employment agreements. Notwithstanding the foregoing, the initial 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 Senior Managers have at least five-sevenths (5/7ths) of
the voting power on the Board of Directors. The identity of the Board of
Directors of Reorganized Grand Union on the Consummation Date, and the
biographical information relating to such directors, is set forth in Exhibit 5
hereto.
c. Officers of Reorganized Grand Union. The selection of officers of
Reorganized Grand Union after the Consummation Date will be as provided in its
certificate of incorporation and bylaws. The biographical information on the
executive officers of Reorganized Grand Union, except for Mr. Jack W. Partridge,
Jr., is set forth in the Proxy Statement, dated November 3, 1997, which is
annexed to this Disclosure Statement as Exhibit 4. 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, 52,
joined Grand Union after a 23-year career with The Kroger Co., the largest food
retailer in the United States, where he served as Group Vice President and as a
member of the company's Senior Management Committee.
E. Provisions Governing Distributions
1. Date of Distributions
Unless otherwise provided herein, any distributions and deliveries to be
made under the Plan of Reorganization will be made on the Consummation Date or
as soon as practicable thereafter. In the event that any payment or act under
the Plan of Reorganization is required to be made or performed on a date that is
not a business day, then the making of such payment or the performance of such
act may be completed on the next succeeding business day, but will be deemed to
have been completed as of the required date.
2. Disbursing Agent
In general, a disbursing agent is an entity designated to administratively
effect the distributions to be provided under a plan of reorganization. Grand
Union does not intend to set a bar date by which creditors and equity holders
must file proofs of claim or proofs of equity interest. In addition, Grand Union
does not anticipate designating a special disbursing agent. It is anticipated
that all distributions under the Plan of Reorganization will be made by
Reorganized Grand Union as disbursing agent. Grand Union reserves the right to
designate another entity as a disbursing agent on the Consummation Date. A
disbursing agent will not be required to give any bond or surety or other
security for the performance of its duties unless otherwise ordered by the
Bankruptcy Court. In the event that a disbursing agent is so otherwise ordered,
all costs and expenses of procuring any such bond or surety will be borne by
Reorganized Grand Union.
3. Surrender of Instruments
Plans of reorganization generally require a holder of an instrument or
security of a debtor to surrender such instrument or security prior to receiving
a new instrument or security in exchange therefor under a plan of
reorganization. This rule avoids disputes regarding who is the proper recipient
of instruments or securities under a plan of reorganization. Pursuant to this
rule, as a condition to receiving any distribution under the Plan of
Reorganization, each holder of an Old Senior Note, Old Preferred Stock Interest
and Old Common Stock Interest must surrender such Old Senior Note, Old Preferred
Stock Interest and Old Common
16
Stock Interest to Reorganized Grand Union or its designee. Any holder of an Old
Senior Note, Old Preferred Stock Interest or Old Common Stock Interest that
fails to (a) surrender such instrument or (b) execute and deliver an affidavit
of loss and/or indemnity reasonably satisfactory to Reorganized Grand Union and
furnish a bond in form, substance and amount reasonably satisfactory to
Reorganized Grand Union before the first anniversary of the Consummation Date,
shall be deemed to have forfeited all rights and claims and may not participate
in any distribution under the Plan of Reorganization.
4. Compensation of Professionals
Each person retained or requesting compensation in the Reorganization Case
pursuant to section 330 or 503(b) of the Bankruptcy Code will be required to
file an application for allowance of final compensation and reimbursement of
expenses in the Reorganization Case on or before a date to be determined by the
Bankruptcy Court in the Confirmation Order or any other order of the Bankruptcy
Court. Objections to any application made under section 7.4 of the Plan of
Reorganization will be filed on or before a date to be fixed and determined by
the Bankruptcy Court in the Confirmation Order or such other order of the court.
5. Delivery of Distributions
Subject to Bankruptcy Rule 9010, all distributions to any holder of an
allowed claim or an allowed equity interest will be made at the address of such
holder as set forth on the schedules of liabilities filed by Grand Union with
the Bankruptcy Court or on the books and records of Grand Union or its agents,
unless Grand Union or Reorganized Grand Union, as applicable, has been notified
in writing of a change of address, including, without limitation, by the filing
of a proof of claim or interest by such holder that contains an address for such
holder different from the address reflected on such schedules for such holder.
In the event that any distribution to any holder is returned as undeliverable,
the disbursing agent will use reasonable efforts to determine the current
address of such holder, but no distribution to such holder will be made unless
and until the disbursing agent has determined the then current address of such
holder, at which time such distribution will be made to such holder without
interest; provided that such distributions will be deemed unclaimed property
under section 347(b) of the Bankruptcy Code at the expiration of one year from
the Consummation Date. After such date, all unclaimed property or interest in
property shall revert to Reorganized Grand Union, and the claim of any other
holder to such property or interest in property will be discharged and forever
barred.
6. Manner of Payment Under Plan of Reorganization
At the option of the disbursing agent, any cash payment to be made under
the Plan of Reorganization may be made by a check or wire transfer or as
otherwise required or provided in applicable agreements.
7. Fractional Shares
No fractional shares of New Common Stock or cash in lieu thereof will be
distributed. No New Warrants will be issued for fractional shares of New Common
Stock. For purposes of distribution, fractional shares of New Common Stock and
fractional New Warrants shall be rounded up to the next whole number.
8. Setoffs and Recoupment
Grand Union may, but shall not be required to, set off against, or recoup
from, any claim and the payments to be made pursuant to the Plan of
Reorganization in respect of such claim (other than Senior Note Claims, DIP
Obligations or Secured Credit Agreement Claims), any claims of any nature
whatsoever that Grand Union may have against the claimant; but neither the
failure to do so nor the allowance of any claim under the Plan of Reorganization
will constitute a waiver or release by Grand Union of any such claim it may have
against such claimant.
9. Distributions After Consummation Date
Distributions made after the Consummation Date to holders of disputed
claims that are not allowed claims as of the Consummation Date but which later
become allowed claims will be deemed to have been made on the Consummation Date.
10. Rights and Powers of Disbursing Agent
a. Powers of the Disbursing Agent. The disbursing agent will be empowered
to (a) effect all actions and execute all agreements, instruments and other
documents necessary to perform its duties under the Plan of Reorganization, (b)
make all distributions contemplated by the Plan of Reorganization, (c) employ
professionals to represent it with respect to its responsibilities, and (d)
exercise such other powers as may be vested in the disbursing agent by order of
the Bankruptcy Court, pursuant to the Plan of Reorganization, or as deemed by
the disbursing agent to be necessary and proper to implement the provisions of
the Plan of Reorganization.
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b. Expenses Incurred On or After the Consummation Date. Except as otherwise
ordered by the Bankruptcy Court, the amount of any reasonable fees and expenses
incurred by the disbursing agent on or after the Consummation Date (including,
without limitation, taxes) and any reasonable compensation and expense
reimbursement claims (including, without limitation, reasonable attorney fees
and expenses) made by the disbursing agent, will be paid in cash by Reorganized
Grand Union.
11. Exculpation
Grand Union, Reorganized Grand Union, each of the members of the Unofficial
Noteholder Committee, each of the holders of the Old Preferred Stock Interests,
the Old Indenture Trustee and the disbursing agent, and their respective
members, officers, directors, employees and agents (including any attorneys,
financial advisors, investment bankers and other professionals retained by such
persons) will have no liability to any holder of a claim or equity interest for
any act or omission arising out of, or related to, the pursuit of approval of
the Disclosure Statement or the Plan of Reorganization or the solicitation of
votes for, or confirmation of, the Plan of Reorganization, the consummation of
the Plan of Reorganization, or the administration of the Plan of Reorganization
or the property to be distributed under the Plan of Reorganization, except for
willful misconduct or gross negligence as determined by a final order of the
Bankruptcy Court, and in all respects, will be entitled to rely upon the advice
of counsel with respect to their duties and responsibilities under the Plan of
Reorganization.
12. Allocation Relating to the Old Senior Notes
All distributions to holders of Old Senior Note Claims shall be allocated
first to the portion of each of such claims representing the principal amount of
the Old Senior Notes and then, to the extent the consideration exceeds such
amount, to the remainder of such claim.
13. Voluntary Cancellation of Old Common Stock; Return of Warrants
Any holder of an Old Common Stock Interest that does not desire to receive
any consideration for the cancellation and extinguishment of its shares of Old
Common Stock may send a letter to Grand Union so directing. In such event, if
such holder nevertheless receives its Ratable Proportion of Series 1 Warrants in
accordance with section 4.7 of the Plan of Reorganization, such holder should
return such Series 1 Warrants to Reorganized Grand Union.
14. Allowance of Certain Claims
The Plan of Reorganization provides that the Supplemental Term Loan Claims
and the DIP Obligations shall be allowed in full as set forth in the Plan of
Reorganization. On or before fifteen (15) days prior to the date first set for
hearing on confirmation of the Plan of Reorganization, the Agent shall serve on
counsel for Grand Union and the Unofficial Noteholder Committee a schedule
setting forth the proposed amounts of allowed Supplemental Term Loan Claims and,
in the event the BT DIP Credit Agreement is approved by the Bankruptcy Court,
the DIP Obligations, for each of the lenders who hold such claims as of the date
such schedule is prepared. If no objection is raised by Grand Union or the
Unofficial Noteholder Committee and served on the Agent under the BT DIP Credit
Agreement within five (5) days after receipt of such schedule, the Supplemental
Term Loan Claims and the DIP Obligations shall be deemed allowed in the amount
set forth on the schedule together with such additional advances, interest,
fees, expenses and other amounts which may accrue (less any repayments)
subsequent to the date the schedule was prepared through and including the
Consummation Date. In the event Grand Union or the Unofficial Noteholder
Committee objects to the scheduled amounts, the only issue that may be
determined by the Bankruptcy Court is the amount of each lender's allowed claim.
F. Procedures for Treating Disputed Claims Under Plan of Reorganization
1. Disputed Claims
Grand Union does not intend to set a bar date by which holders of claims
and equity interests must file proofs of claim and proofs of equity interest.
The Plan of Reorganization contemplates that, on and after the Consummation
Date, except as otherwise provided in the Plan of Reorganization, all claims
will be paid in the ordinary course of business of Grand Union. If Grand Union
disputes any claim, such dispute shall be resolved or adjudicated by an
appropriate tribunal in a manner as if the Reorganization Case had not been
commenced and will survive the Consummation Date as if the Reorganization Case
had not been commenced. If, however, a holder of a claim files a proof of claim
with the Bankruptcy Court that is inconsistent with Grand Union's books and
records reflected in its schedules of liabilities filed with the Bankruptcy
Court, Grand Union may elect, at its sole option, to contest the claim by filing
an objection under section 502 of the Bankruptcy Code.
All tort claims are disputed claims. Tort claims include any personal
injury, property damage, products liability or other similar claims against
Grand Union that have not been compromised or settled or otherwise resolved. Any
unliquidated tort claim that is not otherwise settled or resolved will be
determined and liquidated in the administrative or judicial tribunal in which it
is pending on the Confirmation Date or, if no such action was pending on the
Confirmation Date, in any administrative or judicial
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tribunal of appropriate jurisdiction. Under the Plan of Reorganization, the
automatic stay arising pursuant to section 362 of the Bankruptcy Code will be
vacated as of the Confirmation Date as to all tort claims. Any tort claim
determined and liquidated pursuant to a judgment obtained in any administrative
or judicial tribunal and applicable non-bankruptcy law which is no longer
subject to appeal or other review shall be deemed to be an allowed claim in
Class 5 (General Unsecured Claims) in such liquidated amount and satisfied in
accordance with the Plan of Reorganization. Nothing contained in the Plan of
Reorganization shall constitute or be deemed a waiver of any claim, right or
cause of action that Grand Union or Reorganized Grand Union may have against any
person in connection with or arising out of any tort claim, including, without
limitation, any rights under section 157(b) of title 28, United States Code.
2. Objections to Claims
Except insofar as a claim is allowed under the Plan of Reorganization,
Reorganized Grand Union shall be entitled to object to claims. Any objections to
claims shall be served and filed on or before the latest of (a) one hundred and
twenty (120) days after the Consummation Date, (b) forty-five (45) days after a
claim is filed with the Bankruptcy Court, or (c) such date as may be fixed by
the Bankruptcy Court.
3. No Distributions Pending Allowance
If a holder of a claim files a proof of claim and Grand Union objects to
such claim, no payment or distribution provided under the Plan of Reorganization
will be made on account of such claim unless and until such disputed claim
becomes an allowed claim.
4. Distributions After Allowance
To the extent that a disputed claim or disputed equity interest ultimately
becomes an allowed claim or allowed equity interest, a distribution shall be
made to the holder of such allowed claim or allowed equity interest in
accordance with the provisions of the Plan of Reorganization. As soon as
practicable after the date that the order or judgment of the Bankruptcy Court
allowing any disputed claim or disputed equity interest becomes a final order,
the Disbursing Agent shall provide to the holder of such claim or equity
interest the distribution to which such holder is entitled under the Plan of
Reorganization.
G. Provisions Governing Executory Contracts and Unexpired Leases
As of the Consummation Date, all executory contracts and unexpired leases
that exist between Grand Union and any person are specifically assumed by the
Plan of Reorganization, including the Senior Management Employment Agreements.
Entry of the Confirmation Order shall constitute approval, pursuant to section
365(a) of the Bankruptcy Code, of such assumptions pursuant to the Plan of
Reorganization.
H. Senior Management Employment Agreements
1. Harris Employment Agreement
J. Wayne Harris is currently the Chairman of the Board of Directors and is
employed as Grand Union's Chief Executive Officer. 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 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) subject to prior approval of the EAIB Plan by the
holders of a majority in principal amount of the Old Senior Notes who cast
Ballots with respect thereto (as discussed at Section IV.M.3. below, entitled
'PLAN OF REORGANIZATION--Miscellaneous Provisions--Benefit Plans') and the prior
approval of the bonus arrangement by the Compensation Committee of Grand Union's
Board of Directors in accordance with the EAIB Plan, 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) 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 will
provide for rights
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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.
2. Partridge Employment Agreement
Jack W. Partridge, Jr. is currently Vice Chairman of the Board of Directors
and is employed as Grand Union's Chief Administrative Officer. 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) subject to prior approval of the EAIB Plan by
holders of a majority in principal amount of the Old Senior Notes who cast
Ballots with respect thereto and the prior approval of the bonus arrangement by
the Compensation Committee of Grand Union's Board of Directors in accordance
with the EAIB Plan, 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 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 residence 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 will also contain 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.
3. Philbin Employment Agreement
Gary M. Philbin is currently a member of the Board of Directors and is
employed as Grand Union's President and Chief Merchandising Officer. 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 (a) an annual salary of $350,000; (b) subject to prior
approval of the EAIB Plan by the holders of a majority in principal amount of
the Old Senior Notes who cast Ballots with respect thereto and the prior
approval of the bonus arrangement by the Compensation Committee of Grand Union's
Board of Directors in accordance with the EAIB Plan, 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 the New York/New Jersey metropolitan area and the
Midwestern United States.
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 will also contain 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.
4. Freimark Employment Agreement
Jeffrey P. Freimark is currently Grand Union's Executive Vice President and
Chief Financial Officer. 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,
subject to prior approval of the EAIB Plan by the holders of a majority in
principal amount of the Old Senior Notes who cast Ballots with respect thereto
and the prior approval of the bonus arrangement by the Compensation Committee of
Grand Union's Board of Directors in accordance with the EAIB Plan, 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, 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 will also contain
provisions concerning other employee benefits, rights of
20
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.
5. Management Stock Options
In connection with the consummation of the Plan of Reorganization and
subject to the prior approval of the EIP by the holders of the Old Senior Notes
(as discussed at Section IV.M.3. below, entitled 'PLAN OF
REORGANIZATION--Miscellaneous Provisions--Benefit Plans') and the prior approval
of the following stock option grants by the Compensation Committee of Grand
Union's Board of Directors in accordance with the EIP, Messrs. Harris, Philbin,
Partridge and Freimark, as Senior Managers, will be granted options under the
EIP to purchase an aggregate of 2,138,693 shares of Grand Union's New Common
Stock at the prices and on the terms described herein and in the EIP. Except as
otherwise noted, all of the options are exercisable for four years from the
Consummation Date, unless 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 transfers in connection with estate planning,
the options and Option Shares will not be transferable during the term of a
Senior Manager's employment.
6. Change of Control Arrangements
Each Senior Manager's employment agreement 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
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 Managers' 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 New Common Stock; provided,
however, that no Change of Control shall occur by reason of the issuance of New
Common Stock to holders of the Old 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.
I. Conditions Precedent to Consummation Date
1. Conditions Precedent to Consummation Date of Plan of Reorganization
The occurrence of the Consummation Date of the Plan of Reorganization is
subject to satisfaction of the following conditions precedent:
a. Confirmation Order. The Clerk of the Bankruptcy Court shall have
entered the Confirmation Order, the Confirmation Order shall not have been
amended or modified in a manner so as to materially and adversely affect
the treatment of (i) the Secured Credit Agreement Claims, (ii) the DIP
Obligations, (iii) the Old Senior Note Claims or (iv) the Old Preferred
Stock Interests.
b. Exit Facility. The Exit Facility Documents shall have been executed
and delivered and all conditions precedent to the effectiveness of such
documents shall have been satisfied or waived.
c. New Warrant Agreement. The New Warrant Agreement shall have been
executed and delivered.
d. Registration Rights Agreement. The Registration Rights Agreement
shall have been executed and delivered.
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e. Execution and Delivery of Other Documents. All other actions and
all agreements, instruments or other documents necessary to implement the
terms and provisions of the Plan of Reorganization shall have been
effected.
f. Regulatory Approvals. All authorizations, consents, and regulatory
approvals required (if any) in connection with the effectiveness of the
Plan of Reorganization shall have been obtained.
2. Waiver of Conditions Precedent
Each of the conditions precedent in section 10.1 of the Plan of
Reorganization may be waived, in whole or in part, by Grand Union, with the
prior written consent of an Unofficial Noteholder Committee Majority and holders
of the requisite majority of any Secured Credit Agreement Claims or DIP
Obligations outstanding at the time of such proposed waiver necessary to bind
such holders (which consent in all cases shall not be unreasonably withheld).
The condition precedent in section 10.1(a)(iv) relating to the treatment of the
Old Preferred Stock Interests cannot be waived without the prior written consent
of the holders of two-thirds of the number of shares constituting the Old
Preferred Stock Interests, which consent shall not be unreasonably withheld. Any
such waivers of a condition precedent in section 10.1 of the Plan of
Reorganization may be effected at any time, without notice, without leave or
order of the Bankruptcy Court and without any formal action.
J. Effect of Confirmation
1. Vesting of Assets
On the Consummation Date, Grand Union, its properties and interests in
property, and its operations shall be released from the custody and jurisdiction
of the Bankruptcy Court, and the estate of Grand Union, as debtor, shall vest in
Reorganized Grand Union. From and after the Consummation Date, Reorganized Grand
Union may operate its business and may use, acquire and dispose of property free
of any restrictions of the Bankruptcy Code or the Bankruptcy Rules, subject to
the terms and conditions of the Plan of Reorganization.
2. Binding Effect
Except as otherwise provided in section 1141(d)(3) of the Bankruptcy Code
and subject to the occurrence of the Consummation Date, on and after the
Confirmation Date, the provisions of the Plan of Reorganization will bind any
holder of a claim against, or equity interest in, Grand Union and such holder's
respective successors and assigns, whether or not the claim or equity interest
of such holder is impaired under the Plan of Reorganization and whether or not
such holder has accepted the Plan of Reorganization.
3. Discharge of Grand Union
Except to the extent otherwise provided in the Plan of Reorganization, the
treatment of all claims against or equity interests in Grand Union under the
Plan of Reorganization shall be in exchange for, and in complete satisfaction,
discharge and release of, all claims against or equity interests in Grand Union
of any nature whatsoever, known or unknown, including, without limitation, any
interest accrued or expenses incurred thereon from and after the Petition Date,
or against its estate or properties or interests in property. Except as
otherwise provided in the Plan of Reorganization, upon the Consummation Date,
all claims against and equity interests in Grand Union will be satisfied,
discharged and released in full exchange for the consideration provided under
the Plan of Reorganization. Except as otherwise provided in the Plan of
Reorganization, all entities shall be precluded from asserting against Grand
Union or Reorganized Grand Union or their respective properties or interests in
property, any other claims based upon any act or omission, transaction or other
activity of any kind or nature that occurred prior to the Consummation Date.
4. Term of Injunctions or Stays
Unless otherwise provided, all injunctions or stays arising under or
entered during the Reorganization Case under section 105 or 362 of the
Bankruptcy Code, or otherwise, and in existence on the Confirmation Date, will
remain in full force and effect until the Consummation Date.
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5. Indemnification Obligations
Subject to the occurrence of the Consummation Date, the obligations of
Grand Union as of the Petition Date to indemnify, defend, reimburse or limit the
liability of directors or officers who were directors or officers of Grand
Union, respectively, against any claims or causes of action as provided in Grand
Union's certificate of incorporation, bylaws or applicable state law, will
survive confirmation of the Plan of Reorganization, remain unaffected thereby,
and not be discharged, irrespective of whether such indemnification, defense,
reimbursement or limitation is owed in connection with an event occurring before
or after the Petition Date.
6. Limited Release
On the Consummation Date, Grand Union, on behalf of itself and its
subsidiaries, will release the officers and directors of Grand Union and its
non-debtor subsidiaries holding office at any time prior to the Consummation
Date, the members of the Unofficial Noteholder Committee, each of the Secured
Banks (including the lenders under the BT DIP Credit Agreement if utilized by
Grand Union), the Agent, each of the holders of Old Preferred Stock Interests
and each of the respective agents, employees, advisors (including any attorneys,
financial advisors, investment bankers and other professionals retained by such
persons or entities), affiliates and representatives of each of the foregoing
entities from any and all claims or liabilities arising from or related to
actions taken or omissions occurring in connection with the Plan of
Reorganization or otherwise in their capacity as officers, directors, agents,
members, employees, affiliates or advisors of each of the foregoing, as
applicable.
K. Waiver of Claims
1. Avoidance Actions
Effective as of the Consummation Date, Grand Union will waive the right to
prosecute any avoidance or recovery actions under sections 545, 547, 548, 549,
550, 551 and 553 of the Bankruptcy Code that belong to Grand Union as debtor or
debtor in possession.
L. Retention of Jurisdiction
The Bankruptcy Court will have exclusive jurisdiction of all matters
arising out of, or related to, the Reorganization Case and the Plan of
Reorganization pursuant to, and for the purposes of, sections 105(a) and 1142 of
the Bankruptcy Code and for, among other things, the following purposes:
a. To hear and determine pending applications for the assumption or
rejection of executory contracts or unexpired leases and the allowance of
claims resulting therefrom;
b. To determine any and all adversary proceedings, applications and
contested matters;
c. To ensure that distributions to holders of allowed claims and
allowed equity interests are accomplished as provided in the Plan of
Reorganization;
d. To hear and determine any timely objections to administrative
expense claims or to proofs of claim and equity interests, including,
without limitation, any objections to the classification of any claim or
equity interest, and to allow or disallow any disputed claim or disputed
equity interest, in whole or in part;
e. To enter and implement such orders as may be appropriate in the
event the Confirmation Order is for any reason stayed, revoked, modified or
vacated;
f. To issue such orders in aid of execution of the Plan of
Reorganization, to the extent authorized by section 1142 of the Bankruptcy
Code;
g. To consider any amendments to or modifications of the Plan of
Reorganization, to cure any defect or omission, or reconcile any
inconsistency in any order of the Bankruptcy Court, including, without
limitation, the Confirmation Order;
h. To hear and determine all applications of retained professionals
under sections 330, 331 and 503(b) of the Bankruptcy Code for awards of
compensation for services rendered and reimbursement of expenses incurred
prior to the Confirmation Date;
i. To hear and determine disputes arising in connection with the
interpretation, implementation or enforcement of the Plan of
Reorganization, the Confirmation Order, any transactions or payments
contemplated by the Plan of Reorganization or any agreement, instrument or
other document governing or relating to any of the foregoing;
j. To hear and determine matters concerning state, local and federal
taxes in accordance with sections 346, 505 and 1146 of the Bankruptcy Code;
23
k. To hear any other matter not inconsistent with the Bankruptcy Code;
l. To hear and determine all disputes involving the existence, scope
and nature of the discharges granted under section 11.3 of the Plan of
Reorganization;
m. To issue injunctions and effect any other actions that may be
necessary or desirable to restrain interference by any entity with the
consummation or implementation of the Plan of Reorganization; and
n. To enter a final decree closing the Reorganization Case.
M. Miscellaneous Provisions
1. Payment of Statutory Fees
All fees payable under section 1930, chapter 123, title 28, United States
Code, as determined by the Bankruptcy Court at the Confirmation Hearing, will be
paid on the Consummation Date. Any such fees accrued after the Consummation Date
will constitute an allowed administrative expense claim.
2. Retiree Benefits
On and after the Consummation Date, pursuant to section 1129(a)(13) of the
Bankruptcy Code, Reorganized Grand Union will continue to pay all retiree
benefits (within the meaning of section 1114 of the Bankruptcy Code), at the
level established in accordance with subsection (e)(1)(B) or (g) of section 1114
of the Bankruptcy Code, at any time prior to the Confirmation Date, for the
duration of the period Grand Union has obligated itself to provide such
benefits.
3. Benefit Plans
Subject to the occurrence of the Consummation Date, and with the exception
of the EAIB Plan, the EIP and The Grand Union Company Associate Stock Purchase
Plan as discussed below, all Grand Union-sponsored benefit plans, policies and
programs, including, without limitation, all savings plans, retirement pension
plans, and The Grand Union Company 1995 Non-Employee Directors' Stock Option
Plan will survive confirmation of the Plan of Reorganization. The Grand Union
Company Associate Stock Purchase Plan shall be terminated as of the Consummation
Date.
With respect to the EAIB Plan and the EIP, such benefits plans will be
subject to a separate vote on the Ballot and will be retained only if approved
by the holders of a majority in principal amount of Old Senior Notes who cast
Ballots with respect thereto. The EIP, as amended, is attached hereto as Exhibit
6. As amended, the EIP provides for the issuance of up to 3,250,000 shares of
New Common Stock or options to acquire such New Common Stock (inclusive of
options proposed to be issued to the Senior Managers as described herein) and
limits the number of shares or options to acquire shares issuable thereunder to
any individual to 3,000,000.
A detailed discussion of the EIP, prior to the above amendment, and the
EAIB Plan (including the text of the EAIB Plan) is contained in Grand Union's
Proxy Statement, dated November 3, 1997, attached hereto as Exhibit 4 and
incorporated herein by reference. Such discussion of the EIP is modified hereby,
however, to reflect the foregoing amendment, including certain technical changes
highlighted in the text of the EIP in Exhibit 6 hereto. In addition, as
disclosed in the Proxy Statement, under Section 162(m) of the Internal Revenue
Code of 1986, as amended (the 'Tax Code'), a publicly held corporation may be
disallowed a deduction for compensation paid to certain executive officers in
excess of $1 million per executive per taxable year (including any deduction
with respect to the exercise of a nonqualified stock option). One exception to
such disallowance applies to certain performance-based compensation provided
that such compensation has been approved by stockholders in a separate vote and
certain other requirements are met (including that, in the case of stock
options, the exercise of such stock options is either contingent on a
pre-established, objective performance goal or at an exercise price at least
equal to the fair market value of the underlying shares at the date of grant).
Grand Union believes that the options proposed to be issued and the bonuses
proposed to be paid to Senior Managers under the EIP and the EAIB Plan in
connection with the Plan of Reorganization will qualify for the performance
based compensation exception to Section 162(m), other than possibly (i) the
first tranche of options in that the exercise of such options is not contingent
on performance and the exercise price of such options may be less than the fair
market value of the underlying shares at the date of grant and (ii) the bonus
proposed to be paid to Mr. Partridge for fiscal year 1999, given that Mr.
Partridge would be guaranteed a minimum bonus for the first half of such year.
All stock options proposed to be issued under the EIP to the Senior
Managers in connection with the Plan of Reorganization, and any bonus
arrangements proposed to be instituted under the EAIB Plan for the Senior
Managers in connection with the Plan of Reorganization, as described in Section
IV.H. above, entitled 'PLAN OF REORGANIZATION--Senior Management Employment
Agreements,' are subject to the prior approval of the EIP and the EAIB Plan by
the holders of a majority in principal amount of the Old Senior Notes who cast
Ballots with respect thereto and the prior approval of the Compensation
Committee of Grand Union's Board of Directors in accordance with such benefit
plans.
24
Accordingly, holders of Old Senior Notes should indicate their approval or
rejection of the EAIB Plan and the EIP on their Ballot. Properly signed and
returned Ballots that do not indicate a vote for, against or abstention with
respect to the EAIB Plan or the EIP will be deemed cast for the approval of the
EAIB Plan and the EIP.
4. Administrative Expenses Incurred After the Confirmation Date
Subject to the terms and conditions of any interim or final order of the
Bankruptcy Court approving the DIP Credit Agreement or any order of the
Bankruptcy Court authorizing the use of cash collateral, administrative expenses
incurred by Grand Union or Reorganized Grand Union after the Confirmation Date,
including (without limitation) claims for professionals' fees and expenses,
shall not be subject to application and may be paid by Grand Union or
Reorganized Grand Union, as the case may be, in the ordinary course of business
and without further Bankruptcy Court approval; provided, however, that no claims
for professional fees and expenses incurred after the Confirmation Date shall be
paid until after the occurrence of the Consummation Date.
5. Section 1125(e) of the Bankruptcy Code
As of the Confirmation Date, Grand Union shall be deemed to have solicited
acceptances of the Plan of Reorganization in good faith and in compliance with
the applicable provisions of the Bankruptcy Code. Grand Union, each of the
members of the Unofficial Noteholder Committee and each of the holders of the
Old Preferred Stock Interests (and each of their respective affiliates, agents,
directors, officers, employees, investment bankers, financial advisors,
attorneys and other professionals) have participated in good faith and in
compliance with the applicable provisions of the Bankruptcy Code in the offer
and issuance of the securities under the Plan of Reorganization. Accordingly,
such entities and individuals will not be liable at any time for the violation
of any applicable law, rule or regulation governing the solicitation of
acceptances or rejections of the Plan of Reorganization or the offer and
issuance of the securities under the Plan of Reorganization.
6. Compliance with Tax Requirements
In connection with the consummation of the Plan of Reorganization, Grand
Union will comply with all withholding and reporting requirements imposed by any
taxing authority, and all distributions under the Plan of Reorganization will be
subject to such withholding and reporting requirements.
7. Severability of Plan Provisions
In the event that, prior to the Confirmation Date, any term or provision of
the Plan of Reorganization is held by the Bankruptcy Court to be invalid, void
or unenforceable, the Bankruptcy Court shall have the power to alter and
interpret such term or provision to make it valid or enforceable to the maximum
extent practicable, consistent with the original purpose of the term or
provision held to be invalid, void or unenforceable, and such term or provision
shall then be applicable as altered or interpreted. Notwithstanding any such
holding, alteration or interpretation, the remainder of the terms and provisions
of the Plan of Reorganization shall remain in full force and effect and shall in
no way be affected, impaired or invalidated by such holding, alteration or
interpretation. The Confirmation Order shall constitute a judicial determination
and shall provide that each term and provision of the Plan of Reorganization, as
it may have been altered or interpreted in accordance with the foregoing, is
valid and enforceable in accordance with its terms. All actions taken under
section 14.7 of the Plan of Reorganization shall require the consent of Grand
Union, an Unofficial Noteholder Committee Majority and the holders of the
requisite majority of Secured Credit Agreement Claims or DIP Obligations
outstanding at the time of such proposed action necessary to bind such holders,
which consents shall not be unreasonably withheld. To the extent that action
under the Plan of Reorganization affects the treatment of the Old Preferred
Stock Interests, such action shall require the consent of the holders of
two-thirds of the number of shares constituting the Old Preferred Stock
Interests, which consent shall not be unreasonably withheld.
8. Governing Law
Except to the extent that the Bankruptcy Code or other federal law is
applicable, or to the extent an Exhibit to the Plan of Reorganization provides
otherwise, the rights, duties and obligations arising under the Plan of
Reorganization will be governed by, and construed and enforced in accordance
with, the laws of the State of New York without giving effect to the principles
of conflict of laws.
V.
PROJECTIONS AND VALUATION ANALYSIS
A. Consolidated Condensed Projected Financial Statements
1. Responsibility for and Purpose of the Projections
As a condition to confirmation of a plan, the Bankruptcy Code requires,
among other things, that the Bankruptcy Court determine that confirmation is not
likely to be followed by the liquidation or the need for further financial
reorganization of the
25
debtor. In connection with the development of the Plan of Reorganization, and
for purposes of determining whether the Plan of Reorganization satisfies this
feasibility standard, Grand Union's management has analyzed the ability of Grand
Union to meet its obligations under the Plan of Reorganization and retain
sufficient liquidity and capital resources to conduct its business.
The Projections should be read in conjunction with Section VI below,
entitled 'CERTAIN FACTORS AFFECTING GRAND UNION' and with the assumptions,
qualifications and footnotes to tables containing the Projections set forth
herein, the historical consolidated financial information (including the notes
and schedules thereto) and the other information set forth in Grand Union's
Annual Report on Form 10-K for the fiscal year ended March 29, 1997 and Grand
Union's Quarterly Report on Form 10-Q for the period ended January 3, 1998
annexed hereto as Exhibits 2 and 3, respectively, the full texts of which are
incorporated herein by reference, and the Selected Financial Data appearing in
Item 6 of the Form 10-K. The Projections were prepared in good faith based upon
assumptions believed to be reasonable and applied in a manner consistent with
past practice.
THE PROJECTIONS WERE NOT PREPARED WITH A VIEW TO COMPLYING WITH THE
GUIDELINES FOR PROSPECTIVE FINANCIAL STATEMENTS PUBLISHED BY THE AMERICAN
INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS. GRAND UNION'S INDEPENDENT
ACCOUNTANTS, PRICE WATERHOUSE LLP, HAS NEITHER COMPILED NOR EXAMINED THE
ACCOMPANYING PROSPECTIVE FINANCIAL INFORMATION TO DETERMINE THE REASONABLENESS
THEREOF AND, ACCORDINGLY, HAS NOT EXPRESSED AN OPINION OR ANY OTHER FORM OF
ASSURANCE WITH RESPECT THERETO.
GRAND UNION DOES NOT, AS A MATTER OF COURSE, PUBLISH ITS PROJECTIONS OF ITS
ANTICIPATED FINANCIAL POSITION, RESULTS OF OPERATIONS OR CASH FLOWS.
ACCORDINGLY, GRAND UNION DOES NOT INTEND, AND DISCLAIMS ANY OBLIGATION TO, (A)
FURNISH UPDATED PROJECTIONS TO HOLDERS OF CLAIMS OR EQUITY INTERESTS PRIOR TO
THE CONSUMMATION DATE OR TO HOLDERS OF NEW COMMON STOCK OR ANY OTHER PARTY AFTER
THE CONSUMMATION DATE, (B) INCLUDE SUCH UPDATED INFORMATION IN ANY DOCUMENTS
THAT MAY BE REQUIRED TO BE FILED WITH THE SEC, OR (C) OTHERWISE MAKE SUCH
UPDATED INFORMATION PUBLICLY AVAILABLE.
THE PROJECTIONS PROVIDED IN THE DISCLOSURE STATEMENT HAVE BEEN PREPARED
EXCLUSIVELY BY GRAND UNION'S MANAGEMENT. THESE PROJECTIONS, WHILE PRESENTED WITH
NUMERICAL SPECIFICITY, ARE NECESSARILY BASED ON A VARIETY OF ESTIMATES AND
ASSUMPTIONS WHICH, THOUGH CONSIDERED REASONABLE BY MANAGEMENT, MAY NOT BE
REALIZED, AND ARE INHERENTLY SUBJECT TO SIGNIFICANT BUSINESS, ECONOMIC AND
COMPETITIVE UNCERTAINTIES AND CONTINGENCIES, MANY OF WHICH ARE BEYOND GRAND
UNION'S CONTROL. GRAND UNION CAUTIONS THAT NO REPRESENTATIONS CAN BE MADE AS TO
THE ACCURACY OF THESE FINANCIAL PROJECTIONS OR TO REORGANIZED GRAND UNION'S
ABILITY TO ACHIEVE THE PROJECTED RESULTS. SOME ASSUMPTIONS INEVITABLY WILL NOT
MATERIALIZE, AND EVENTS AND CIRCUMSTANCES OCCURRING SUBSEQUENT TO THE DATE ON
WHICH THESE PROJECTIONS WERE PREPARED MAY BE DIFFERENT FROM THOSE ASSUMED OR MAY
BE UNANTICIPATED, AND THUS MAY AFFECT FINANCIAL RESULTS IN A MATERIAL AND
POSSIBLY ADVERSE MANNER. THE PROJECTIONS, THEREFORE, MAY NOT BE RELIED UPON AS A
GUARANTY OR OTHER ASSURANCE OF THE ACTUAL RESULTS THAT WILL OCCUR.
THE FOLLOWING ASSUMPTIONS AND RESULTANT COMPUTATIONS WERE MADE SOLELY FOR
PURPOSES OF PREPARING THE PROJECTIONS. REORGANIZED GRAND UNION WILL BE REQUIRED
TO ESTIMATE GRAND UNION'S REORGANIZATION VALUE, THE FAIR VALUE OF ITS ASSETS,
AND ITS ACTUAL LIABILITIES AS OF THE CONSUMMATION DATE. SUCH DETERMINATION WILL
BE BASED UPON THE FAIR VALUES AS OF THAT DATE, WHICH COULD BE MATERIALLY GREATER
OR LOWER THAN THE VALUES ASSUMED IN THE FOREGOING ESTIMATES. IN ALL EVENTS, THE
REORGANIZATION VALUE, AS WELL AS THE DETERMINATION OF THE FAIR VALUE OF
REORGANIZED GRAND UNION'S ASSETS AND THE DETERMINATION OF ITS ACTUAL
LIABILITIES, WILL BE MADE AS OF THE CONSUMMATION DATE. ALTHOUGH GRAND UNION
EXPECTS TO UTILIZE A CONSISTENT METHODOLOGY, THE AMOUNTS OF ANY OR ALL OF THE
FOREGOING ESTIMATES AS ASSUMED IN THE PROJECTIONS, AS COMPARED WITH THE ACTUAL
AMOUNTS THEREOF AS OF THE CONSUMMATION DATE, MAY BE MATERIAL.
2. Summary of Significant Assumptions
The projections are based on and assume the successful implementation of
management's business plan, and include assumptions with respect to the future
performance of Grand Union, the performance of the industry, general business
and economic conditions and other matters, many of which are beyond the control
of management. Therefore, while the projections are necessarily presented with
numerical specificity, the actual results achieved during the projection period
will vary from the projected results, and may vary substantially. No
representation can be or is being made with respect to the accuracy of the
projections or the ability of Grand Union to achieve the projected results.
While management believes that the assumptions which
26
underlie the projections are reasonable in light of current circumstances and in
light of the information available, holders of claims and interests must make
their own determinations as to the reasonableness of the assumptions and the
reliability of the projections in deciding whether to vote to accept the Plan of
Reorganization.
Additional information concerning the assumptions underlying the
projections is as follows:
a. Plan Terms and Consummation. The projections assume a Consummation
Date as of August 15, 1998 (5/13ths of Grand Union's fiscal year ending
April 3, 1999), with allowed claims and equity interests treated in
accordance with the treatment provided in the Plan of Reorganization with
respect to such allowed claims and equity interests. With respect to the
projection of expenses to be incurred as a result of the Reorganization
Case, if the Consummation Date does not occur by August 15, 1998,
additional bankruptcy expenses will be incurred until such time as a plan
of reorganization is confirmed and certain tax benefits to which Grand
Union may otherwise be entitled may be lost, resulting in the payment of
additional taxes by Grand Union. These expenses could significantly impact
Grand Union's results of operations and cash flows.
b. Assumptions Preceding the Consummation Date. As a basis for the
projections which cover the time period from March 29, 1998 through the
fiscal year ended March 29, 2003, management has estimated the results for
certain periods of time leading up to the Consummation Date including: (a)
the fiscal year ended March 28, 1998; (b) the first three periods of fiscal
year 1999 ended June 22, 1998 (also the assumed Petition Date); and (c) the
two periods assumed to occur during the pendency of the Reorganization
Case. During each of these periods, Grand Union has experienced and expects
a continuing reduction in amounts of promotional allowances and other
vendor support, including payment and shipping terms, increased operating
and administrative expenses associated with disruptions in the business and
increased costs related to the proposed restructuring.
c. General Economic Conditions. The projections were prepared assuming
that economic conditions in the markets served by Grand Union do not differ
markedly over the next five years from current economic conditions.
Inflation in revenues and costs are assumed to remain relatively low.
d. Sales. Sales reflect the assumed effect of store openings, closings
and conversions. Sales at existing stores are projected to decline at 1.0%
in fiscal year 1999 and remain constant for fiscal years 2000 to 2003.
Sales at new stores and converted stores are projected to grow at 1%. With
operations in very competitive markets and with little or no inflation in
the cost of goods sold, the achievement of sales projected in the Plan of
Reorganization will require strategic and aggressive pricing and promotion.
In addition, the projections assume that there will be no significant
after-effect on Grand Union from the bankruptcy process and the return of
vendor support.
e. Gross Margin. Gross margin is projected to increase 0.42% (as a
percentage of sales) over the five-year period. The modest growth can
primarily be attributed to greater advertising and promotion allowances
from the anticipation of more square footage. It is projected that market
competition will not allow significant growth in gross margin through
higher prices.
f. Operating and Administrative Expenses. It is projected that
expenses, after the impact of higher occupancy costs, will be reduced by
.19% (as a percentage of sales) over the five-year plan. Efficiencies from
the management of the labor, training of store management and personnel and
implementation of new technologies will enable the reduction in expenses.
g. Income Taxes. The projections assume that Reorganized Grand Union
will not have the benefit of any net operating loss carryforwards for
income tax purposes as all net operating losses will be used to offset debt
forgiveness. The combined federal, state and local income tax rate is
estimated at 41%. The projections also assume a certain amount of reduction
in tax basis as a result of debt forgiveness. See Section XI below,
entitled 'CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE PLAN OF
REORGANIZATION.'
h. Capital Expenditures. Capital Expenditures consist of investment in
new and converted stores, store upgrades and technological improvements.
Management believes that the up-front remodeling of the existing store
base, in addition to the opening of new stores, is necessary to achieve the
level of operating profit contained in the projections. The projections
assume a level of capital expenditures which, consistent with management's
business plan, can be supported by the capital structure and operating
results of Reorganized Grand Union.
i. EBITDA. EBITDA is defined for purposes of these projections as
earnings before LIFO provision, depreciation and amortization, interest
expense, reorganization items, income tax provision and extraordinary
items.
j. Fresh Start Accounting. The projections have been prepared using
the basic principles of 'fresh start' accounting for periods after August
15, 1998 (the conclusion of 5/13ths of Grand Union's fiscal year ending
April 3, 1999). These principles are contained in the American Institute of
Certified Public Accountants Statement of Position 90-7 'Financial
Reporting by Entities in Reorganization Under the Bankruptcy Code.' Under
'fresh start' accounting principles, Grand Union will determine the
reorganization value of the reorganized company at the Consummation Date.
This value will be allocated, based on estimated fair market values, to
specific tangible or identifiable intangible assets, and Grand Union will
record an
27
intangible asset equal to the reorganization value in excess of amounts
allocable to identifiable assets. The projections assume that the
reorganization value in excess of amounts allocable to identifiable assets
will be amortized over the three years following the Consummation Date.
k. Reorganization Value. For purposes of this Disclosure Statement and
in order to prepare the projections, management has estimated the
reorganization value of Reorganized Grand Union as of August 15, 1998 to be
approximately $730 million. See subsection B below, entitled 'Valuation.'
l. Working Capital. Components of working capital are projected on the
basis of historic patterns applied to projected levels of operation,
including a growth in the store base.
3. Special Note Regarding Forward-Looking Statements
Except for historical information, statements contained in this Disclosure
Statement, including the projections in this section, 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 Grand Union operates, the ability of Grand Union to maintain and improve
its gross sales and margins, the liquidity of Grand Union on a cash flow basis
(including the ability to comply with the financial covenants of its credit
arrangements and to fund Grand Union's capital expenditure program), Grand
Union's success in implementing its operating initiatives, the viability of
Grand Union's strategic plan, regional weather conditions, and the general
economic conditions in the geographic areas in which Grand Union operates. For
additional information about Grand Union and relevant risk factors, reference is
made to Grand Union's Annual Report on Form 10-K for the fiscal year ended March
29, 1997 attached hereto as Exhibit 2 and Grand Union's Quarterly Report on Form
10-Q for the period ended January 3, 1998 attached hereto as Exhibit 3.
4. Financial Projections
Each of the following tables summarizes management's projections for the
several distinct periods including:
a. The Fiscal Year Ended March 28, 1998;
b. The first five periods of fiscal year 1999 including the three
periods prior to the Reorganization Case and the two periods during the
Reorganization Case.
c. The first partial fiscal year of Reorganized Grand Union beginning
at the Consummation Date and ending on April 3, 1999; and
d. The four fiscal years ended in 2000, 2001, 2002 and 2003.
The projections include Projected Statements of Operations, Projected
Balance Sheets (including estimates of the effects of 'fresh start' accounting),
and Projected Statements of Cash Flows.
28
THE GRAND UNION COMPANY
PROJECTED STATEMENT OF OPERATIONS Fiscal Years Ending
March 28, 1998 and April 3, 1999
(Unaudited)
(In thousands)
'Reorganized
'Old Grand Union' Grand Union'
------------------------------- ---------------
52 Weeks Ending Pro forma Pro forma 20 Weeks Ending 33 Weeks Ending
March 28, 1998 Adjustments March 28, 1998 August 15, 1998 April 3, 1999
--------------- ----------- -------------- --------------- ---------------
Sales................................ $ 2,264,192 $2,264,192 $ 876,083 $ 1,432,744
Merchandise services................. 2,578 2,578 957 1,579
--------------- ----------- -------------- --------------- ---------------
Total sales........................ 2,266,770 -- 2,266,770 877,040 1,434,322
Cost of sales........................ (1,631,086) 39,319(1)(2) (1,591,767) (630,902) (996,509)
LIFO provision....................... (800) (800) -- --
--------------- ----------- -------------- --------------- ---------------
Gross profit....................... 634,884 674,203 246,137 437,813
Operating & administrative expenses.. (565,066) 8,386(3) (556,680) (220,358) (358,481)
--------------- ----------- -------------- --------------- ---------------
Operating income (loss)............ 69,818 117,523 25,779 79,332
Depreciation......................... (77,748) (77,748) (28,721) (44,482)
Unusual items........................ (3,665) (3,665) -- --
--------------- ----------- -------------- --------------- ---------------
EBITA.............................. (11,596) 36,109 (2,942) 34,850
Amortization of excess reorganization
value.............................. (104,338) (104,338) (40,130) (61,255)
Reorganization/restructuring charges. -- -- 601,251 --
--------------- ----------- -------------- --------------- ---------------
EBIT............................... (115,934) (68,229) 558,179 (26,405)
Interest expense..................... (113,770) 2,597(4) (111,172) (35,266) (28,146)
--------------- ----------- -------------- --------------- ---------------
Earnings before taxes................ (229,703) (179,401) 522,912 (54,551)
Income tax (provision) benefit....... -- -- -- (2,749)
--------------- ----------- -------------- --------------- ---------------
Net income/(loss).................. (229,703) (179,401) 522,912 (57,300)
Accrued dividends on Preferred Stock. (8,432) (8,432) (2,205) --
--------------- ----------- -------------- --------------- ---------------
Net (loss) income applicable to Common
Stock........................... (238,135) (187,832) 520,707 (57,300)
--------------- ----------- -------------- --------------- ---------------
--------------- ----------- -------------- --------------- ---------------
EBITDA (excluding LIFO provision).... $ 70,618 $47,705 $ 118,323 $ 25,779 $ 79,332
- ------------------
(1) Includes adjustments for block & bulk buys which management believes
adversely affected measurement of cost of sales and increased warehouse
storage and distribution costs.
(2) Adjustments resulting primarily from a change in recognition of advertising
and promotion income and from shortfalls in the fourth quarter as a result
of uncertainties perceived by vendors relating to the restructuring, as well
as other shortfalls during the year.
(3) Includes estimated cost savings initiatives implemented during the second
half of FY 1998 primarily in the areas of store labor, advertising and
promotion expense, and warehouse and store supplies.
(4) Estimated assuming incremental EBITDA would have reduced the borrowing needs
of the company. Estimated assuming the incremental EBITDA would have been
generated uniformly over the year and resulted in reduced borrowing at an
assumed 10% rate.
29
THE GRAND UNION COMPANY
PROJECTED STATEMENT OF OPERATIONS
Fiscal Years Ended 2000 Through 2003
(Unaudited)
(In thousands)
'Reorganized Grand Union'
----------------------------------
52 Weeks Ending 52 Weeks Ending 52 Weeks Ending 52 Weeks Ending
April 1, 2000 March 31, 2001 March 30, 2002 March 29, 2003
--------------- --------------- --------------- ---------------
Sales........................................... $ 2,387,712 $ 2,481,528 $ 2,589,639 $ 2,770,990
Merchandise services............................ 2,487 2,487 2,487 2,487
--------------- --------------- --------------- ---------------
Total sales................................... 2,390,199 2,484,015 2,592,127 2,773,478
Cost of sales................................... (1,676,368) (1,742,742) (1,814,837) (1,941,066)
LIFO provision.................................. -- -- -- --
--------------- --------------- --------------- ---------------
Gross profit.................................. 713,831 741,273 777,290 832,412
Operating & administrative expenses............. (599,586) (618,178) (645,419) (690,286)
--------------- --------------- --------------- ---------------
Operating income (loss)....................... 114,245 123,095 131,871 142,126
Depreciation.................................... (76,320) (78,277) (79,471) (82,163)
Unusual items................................... -- -- -- --
--------------- --------------- --------------- ---------------
EBITA......................................... 37,925 44,819 52,400 59,962
Amortization of excess reorganization value..... (99,539) (99,539) (38,284) --
Reorganization/restructuring charges............ -- -- -- --
--------------- --------------- --------------- ---------------
EBIT.......................................... (61,614) (54,721) 14,115 59,962
Interest expense................................ (43,270) (42,256) (40,606) (39,163)
--------------- --------------- --------------- ---------------
Earnings before taxes........................... (104,884) (96,976) (26,490) 20,799
Income tax (provision) benefit.................. 2,191 (1,051) (4,836) (8,528)
--------------- --------------- --------------- ---------------
Net income/(loss)............................. (102,693) (98,027) (31,326) 12,271
--------------- --------------- --------------- ---------------
--------------- --------------- --------------- ---------------
EBITDA (excluding LIFO provision)............... $ 114,245 $ 123,095 $ 131,871 $ 142,126
30
THE GRAND UNION COMPANY
PROJECTED BALANCE SHEETS
March 28, 1998 and August 15, 1998
(Unaudited)
(In thousands)
Fresh Start/Restructuring Consummation
'Old Grand Union' Adj. ---------------
--------------------------------- -------------------------- Fresh Start
March 28, 1998 August 15, 1998 Dr Cr August 15, 1998
-------------- --------------- ---------- ---------- ---------------
ASSETS
Current assets:
Cash and temporary investments......... $ 44,745 $ 31,000 28,255 11,334 $ 47,921
Accounts receivable.................... 20,810 17,589 -- -- 17,589
Inventories............................ 128,924 124,890 4,600 -- 129,490
Other current assets................... 14,962 14,211 -- 9,735 4,477
-------------- --------------- ---------------
Total current assets................ 209,441 187,691 199,477
Property................................. 282,435 280,272 -- 30,000 250,272
Property held under capital lease........ 127,399 123,085 -- -- 123,085
-------------- --------------- ---------------
Property/real estate/capital leases...... 409,835 403,357 373,357
Excess reorganization value, net......... 230,731 190,601 629,695 521,678 298,618
Beneficial leases........................ 40,370 35,800 27,530 -- 63,330
Deferred income taxes.................... 51,393 51,393 -- 6,194 45,199
Other assets............................. 22,677 21,100 6,000 9,650 17,449
-------------- --------------- ---------------
Total assets............................. 964,446 889,942 997,431
-------------- --------------- ---------------
-------------- --------------- ---------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of obligations under capital
leases.............................. 7,562 7,562 -- -- 7,562
Accounts payable....................... 72,973 71,796 -- -- 71,796
Accrued liabilities.................... 70,758 64,371 -- -- 64,371
Interest payable....................... 44,832 7,670 5,334 -- 2,335
-------------- --------------- ---------------
Total current liabilities........... 196,125 151,399 146,064
Revolver............................... 16,997 19,623 19,623 -- --
Term loans............................. 182,122 182,122 104,144 152,022 230,000
12% senior notes....................... 599,428 -- -- -- --
-------------- --------------- ---------------
Long term debt........................... 798,547 201,745 230,000
Capital lease obligations................ 153,425 150,780 -- -- 150,780
Other non-current liabilities............ 93,722 96,008 -- -- 96,008
Liabilities subject to compromise........ -- 657,222 657,222 -- --
-------------- --------------- ---------------
Total Liabilities................... 1,241,819 1,257,153 622,852
Redeemable stock......................... 113,432 115,637 115,637 -- --
Non-redeemable common stock.............. 102 102 102 300 300
Additional paid-in-capital............... 132,006 129,801 129,801 374,279 374,279
Retained earnings/(accumulated deficit).. (522,912) (612,751) 246,179 858,930 --
-------------- --------------- ---------------
Total stockholders' equity............... (277,373) (367,211) 374,579
-------------- --------------- ---------- ---------- ---------------
Total liabilities and stockholders' $ 964,446 $ 889,942 $1,974,122 $1,974,122 $ 997,431
equity -------------- --------------- ---------- ---------- ---------------
-------------- --------------- ---------- ---------- ---------------
31
THE GRAND UNION COMPANY
PROJECTED BALANCE SHEETS
As of Fiscal Years Ending 1999 Through 2003
(Unaudited)
(In thousands)
'Reorganized Grand Union'
------------------------------------------------------------------------------
April 3, 1999 April 1, 2000 March 31, 2001 March 30, 2002 March 29, 2003
------------- ------------- -------------- -------------- --------------
ASSETS
Current assets:
Cash & temporary investments................ $ 32,707 $ 31,111 $ 43,841 $ 65,434 $ 90,262
Accounts receivable......................... 22,830 22,681 23,362 24,088 24,857
Inventories................................. 132,324 136,823 138,447 144,272 152,182
Other current assets........................ 6,509 5,369 5,526 5,788 6,102
------------- ------------- -------------- -------------- --------------
Total current assets................... 194,369 195,983 211,176 239,582 273,402
Property...................................... 273,838 294,569 294,236 292,475 290,566
Property held under capital lease............. 116,914 107,732 99,962 92,921 86,240
------------- ------------- -------------- -------------- --------------
Property/real estate/capital leases........... 390,752 402,302 394,198 385,396 376,806
Excess reorganization value, net.............. 237,363 137,824 38,284 -- --
Beneficial leases............................. 59,228 52,561 45,895 39,229 32,562
Deferred income taxes......................... 42,451 44,642 43,591 46,565 51,399
Other assets.................................. 15,325 10,949 8,712 7,326 5,746
------------- ------------- -------------- -------------- --------------
Total assets.................................. 939,487 844,260 741,857 718,098 739,915
------------- ------------- -------------- -------------- --------------
------------- ------------- -------------- -------------- --------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of obligations under capital
leases................................... 7,562 5,333 5,327 4,681 4,681
Accounts payable............................ 75,628 75,700 78,352 82,338 87,766
Accrued liabilities......................... 61,900 63,248 62,116 64,065 66,354
Interest payable............................ 1,705 1,402 1,366 996 967
------------- ------------- -------------- -------------- --------------
Total current liabilities.............. 146,795 145,682 147,161 152,080 159,768
Revolver.................................... -- 7,307 -- -- --
Term loan................................... 230,000 230,000 230,000 230,000 230,000
------------- ------------- -------------- -------------- --------------
Long term debt................................ 230,000 237,307 230,000 230,000 230,000
Capital lease obligations..................... 146,983 143,590 139,263 136,082 132,401
Other non-current liabilities................. 98,429 103,094 108,873 114,702 120,240
------------- ------------- -------------- -------------- --------------
Total liabilities...................... 622,207 629,673 625,297 632,864 642,410
Redeemable stock.............................. -- -- -- -- --
Non-redeemable common stock................... 300 300 300 300 300
Additional paid-in-capital.................... 374,279 374,279 374,279 374,279 374,279
Retained earnings/(accumulated deficit)....... (57,300) (159,992) (258,019) (289,345) (277,074)
------------- ------------- -------------- -------------- --------------
Total stockholders' equity.................... 317,280 214,587 116,560 85,234 97,505
------------- ------------- -------------- -------------- --------------
Total liabilities and stockholders' $ 939,487 $ 844,260 $ 741,857 $ 718,098 $ 739,915
equity ------------- ------------- -------------- -------------- --------------
------------- ------------- -------------- -------------- --------------
32
THE GRAND UNION COMPANY
PROJECTED STATEMENT OF CASH FLOWS
Fiscal Years Ending March 28, 1998 and April 3, 1999
(Unaudited)
(In thousands)
'Old Grand Union' 'Reorganized Grand Union'
---------------------------------- ---------------------------
52 Weeks Ending 20 Weeks Ending 33 Weeks Ending
March 28, 1998 August 15, 1998 April 3, 1999
--------------- --------------- ---------------------------
Operating Activities:
Net (loss) income............................................... $(229,703) $ (89,839) $ (57,300)
Adjustments to reconcile net (loss) income to net cash provided
by (used for) operating activities:
Depreciation.................................................... 77,748 28,721 44,482
Deferred financing.............................................. 1,539 812 738
Non-cash interest............................................... (637) -- --
Net changes in assets and liabilities:
Accounts receivable............................................. (2,835) 3,221 (5,240)
Inventories, net of LIFO reserve................................ 2,485 4,034 (2,833)
Other current assets............................................ (636) 751 (2,032)
Accounts payable and accrued liabilities........................ 24,014 (44,727) 731
Deferred income taxes........................................... -- -- 2,749
Other assets.................................................... (11,841) 765 1,386
Other non-current liabilities................................... (8,291) (1,560) (3,733)
--------------- --------------- ----------
Net changes in assets and liabilities........................... 2,895 (37,517) (8,972)
--------------- --------------- ----------
Net cash provided by (used for) operating activities before
recorganization items........................................... (148,158) (97,823) (21,051)
Reorganization items--amortization.............................. 104,338 40,130 61,255
--------------- --------------- ----------
Net cash provided by (used for) operating activities.............. (43,820) (57,693) 40,204
Investment Activities:
Capital expenditures............................................ (39,727) (13,001) (53,999)
Disposal of assets/other CAPX................................... 3,431 (826) 2,378
--------------- --------------- ----------
Net cash provided by (used for) investment activities............. (36,297) (13,827) (51,621)
Financing Activities:
Net proceeds from revolver...................................... (19,003) 2,626 --
Proceeds from long-term debt.................................... 77,978 -- --
Long-term lease obligations..................................... -- 250 750
Net proceeds from sale of preferred stock....................... 40,540 -- --
Payment of long-term debt....................................... (47) (599,428) --
Obligations under capital leases discharged..................... (8,731) (2,895) (4,547)
Changes in liabilities subject to compromise.................... -- 657,222 --
--------------- --------------- ----------
Net cash provided by financing activities......................... 90,737 57,775 (3,797)
--------------- --------------- ----------
(Decrease) increase in cash and temporary investments............. 10,621 (13,745) (15,214)
--------------- --------------- ----------
--------------- --------------- ----------
Cash and temporary investment at beginning of period.............. 34,119 44,745 47,921
--------------- --------------- ----------
Cash and temporary investment at end of period.................... $ 44,740 $ 30,997 $ 32,707
--------------- --------------- ----------
--------------- --------------- ----------
33
THE GRAND UNION COMPANY
PROJECTED STATEMENT OF CASH FLOWS
Fiscal Years Ended 2000 Through 2003
(Unaudited)
(In thousands)
'Reorganized Grand Union'
----------------------------------------------------------------------
52 Weeks Ending 52 Weeks Ending 52 Weeks Ending 52 Weeks Ending
April 1, 2000 March 31, 2001 March 30, 2002 March 29, 2003
--------------- --------------- --------------- ---------------
Operating Activities:
Net (loss) income........................................ $(102,693) $ (98,027) $ (31,326) $ 12,271
Adjustments to reconcile net (Loss) income to net cash
provided by (used for) operating activities:
Depreciation............................................. 76,320 78,277 79,471 82,163
Deferred Financing....................................... 1,200 1,200 1,200 1,200
Non-Cash Interest........................................ -- -- -- --
Net changes in assets and liabilities:
Accounts receivable...................................... 149 (681) (726) (769)
Inventories, net of LIFO reserve......................... (4,500) (1,624) (5,826) (7,910)
Other current assets..................................... 1,140 (158) (261) (314)
Accounts payable and accrued liabilities................. 1,116 1,485 5,564 7,689
Deferred income taxes.................................... (2,191) 1,051 (2,974) (4,834)
Other assets............................................. 3,176 1,037 186 380
Other non-current liabilities............................ (5,335) (4,221) (4,171) (4,462)
--------------- --------------- --------------- ---------------
Net changes in assets and liabilities.................... (6,445) (3,111) (8,207) (10,219)
--------------- --------------- --------------- ---------------
Net cash provided by (used for) operating activities before
reorganization items..................................... (31,618) (21,662) 41,139 85,416
Reorganization items--amortization....................... 99,539 99,539 38,284 --
--------------- --------------- --------------- ---------------
Net cash provided by (used for) operating activities....... 67,922 77,877 79,423 85,416
Investment Activities:
Capital expenditures..................................... (68,600) (50,800) (51,400) (54,200)
Disposal of assets/other CAPX............................ (2,603) (2,707) (2,603) (2,707)
--------------- --------------- --------------- ---------------
Net cash provided by (used for) investment activities...... (71,203) (53,507) (54,003) (56,907)
Financing Activities:
Net proceeds from revolver............................... 7,307 (7,307) -- --
Proceeds from long-term debt............................. -- -- -- --
Long-term lease obligations.............................. 1,000 1,000 1,000 1,000
Net proceeds from sale of perferred stock................ -- -- -- --
Payment of long-term debt................................ -- -- -- --
Obligations under capital leases discharged.............. (6,622) (5,333) (4,827) (4,681)
Changes in liabilities subject to compromise............. -- -- -- --
--------------- --------------- --------------- ---------------
Net cash provided by financing activities.................. 1,685 (11,640) (3,827) (3,681)
--------------- --------------- --------------- ---------------
(Decrease) increase in cash and temporary investments...... (1,596) 12,730 21,593 24,828
--------------- --------------- --------------- ---------------
--------------- --------------- --------------- ---------------
Cash and temporary investments at beginning of period...... 32,707 31,111 43,841 65,434
--------------- --------------- --------------- ---------------
Cash and temporary investment at end of period............. $ 31,111 $ 43,841 $ 65,434 $ 90,262
--------------- --------------- --------------- ---------------
--------------- --------------- --------------- ---------------
34
B. Valuation
THE VALUATIONS SET FORTH HEREIN REPRESENT ESTIMATED REORGANIZATION VALUES
AND DO NOT NECESSARILY REFLECT VALUES THAT COULD BE ATTAINABLE IN THE PUBLIC OR
PRIVATE MARKETS. THE EQUITY VALUE ASCRIBED IN THE ANALYSIS DOES NOT PURPORT TO
BE AN ESTIMATE OF THE POST-REORGANIZATION MARKET VALUE. SUCH TRADING VALUE, IF
ANY, MAY BE MATERIALLY DIFFERENT FROM THE REORGANIZATION VALUE RANGES ASSOCIATED
WITH THE VALUATION ANALYSIS.
Management estimates that the reorganization value of Grand Union is $730
million. Grand Union has selected a valuation multiple of 6.2 times EBITDA. This
is based on the assumed pro-forma EBITDA of $118 million, a review of comparable
companies' values, recent transactions and other factors. Accordingly, Grand
Union's estimate of the reorganization value is set forth below:
6.2x EBITDA
--------------
Reorganization Value.............................. $730.0 million
Less Debt(1)...................................... $355.4 million
New Equity Value.................................. $374.6 million
- ------------------
(1) Amount includes estimated cash balances as of the Consummation Date
attributable to cash available in the store operations as well as all excess
cash that may be available due to borrowings under the new term loan.
VI.
CERTAIN FACTORS AFFECTING GRAND UNION
A. Certain Bankruptcy Law Considerations
1. Failure to Satisfy Vote Requirement
If the holders of Old Senior Note Claims (Class 4) vote to accept the Plan
of Reorganization in accordance with the requirements of the Bankruptcy Code,
Grand Union intends to file a voluntary petition for reorganization under
chapter 11 of the Bankruptcy Code and to seek, as promptly as practicable
thereafter, confirmation of the Plan of Reorganization. In the event that
sufficient votes are not received, Grand Union may nevertheless file a petition
for relief under chapter 11 of the Bankruptcy Code. In such event, Grand Union
may seek to accomplish an alternative restructuring of its capitalization and
its obligations to creditors and equity holders. There can be no assurance that
the terms of any such alternative restructuring would be similar to or as
favorable to holders of the Old Senior Notes, other creditors and equity
holders, as those proposed in the Plan of Reorganization.
2. Risk of Non-Confirmation of the Plan of Reorganization
Although Grand Union believes that the Plan of Reorganization will satisfy
all requirements necessary for confirmation by the Bankruptcy Court, 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.
3. Non-Consensual Confirmation
In the event any impaired class of claims or equity interests does not
accept a plan of reorganization, a bankruptcy court may nevertheless confirm
such plan at the proponent's request if at least one impaired class has accepted
the plan (with such acceptance being determined without including the vote of
any 'insider' in such class), and as to each impaired class that has not
accepted the plan, the bankruptcy court determines that the plan of
reorganization 'does not discriminate unfairly' and is 'fair and equitable' with
respect to the dissenting impaired classes. See Section VIII below, entitled
'CONFIRMATION OF THE PLAN OF REORGANIZATION--Requirements for Confirmation of
the Plan of Reorganization--Requirements of Section 1129(b) of the Bankruptcy
Code.' Because the Plan of Reorganization deems Class 7 (Old Common Stock
Interests) and Class 8 (Old Warrants) to reject the Plan of Reorganization,
these requirements must be satisfied with respect to such classes. Grand Union
believes that the Plan of Reorganization satisfies these requirements.
4. Risk of Non-Occurrence of the Consummation Date
Although Grand Union believes that the Consummation Date will occur soon
after the Confirmation Date, there can be no assurance as to such timing.
Moreover, if the conditions precedent to the Consummation Date have not occurred
or been waived within six months after the Confirmation Date, the Bankruptcy
Court may vacate the Confirmation Order, in which event the Plan
35
of Reorganization would be deemed null and void, and Grand Union may propose and
solicit votes on an alternative plan of reorganization that may not be as
favorable to parties in interest as the Plan of Reorganization.
5. Effect of Grand Union's Chapter 11 Case on Relations With Trade Vendors
The commencement of a chapter 11 case by Grand Union may adversely affect
its business and cause certain trade suppliers and vendors to cease shipping
goods to Grand Union. Although Grand Union believes that it has good
relationships with its suppliers and trade vendors and intends to seek authority
from the Bankruptcy Court on the Petition Date to pay certain prepetition claims
of suppliers and trade vendors on the condition that they continue to provide
customary goods and services to Grand Union on customary credit and shipping
terms, there can be no assurance that such suppliers and vendors will continue
to generally provide such goods and services to Grand Union after the
commencement of the Reorganization Case.
B. Factors Affecting the Value of the Securities to Be Issued Under the Plan of
Reorganization
1. Competitive Conditions
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 that
would adversely affect Grand Union's competitive position.
2. Capital Requirements
The business of Reorganized Grand Union is expected to have substantial
capital expenditure needs. Although (i) Grand Union intends to enter into the
Exit Facility, which will provide Grand Union with $50 million of additional
funds, and (ii) the Plan of Reorganization significantly decreases Grand Union's
debt obligations, Grand Union's ability to gain access to additional capital, if
needed, cannot be assured, particularly in view of competitive factors and
industry conditions.
3. Variances from Projections
The fundamental premise of the Plan of Reorganization is the deleveraging
of Grand Union and the implementation and realization of Grand Union's business
plan, as reflected in the projections contained in this Disclosure Statement.
The projections reflect numerous assumptions concerning the anticipated future
performance of Reorganized Grand Union and its subsidiaries, some of which may
not materialize. Such assumptions include, among other items, assumptions
concerning the general economy, the ability to make necessary capital
expenditures, the ability to establish market strength, consumer purchasing
trends and preferences, and the ability to stabilize and grow the company's
sales base and control future operating expenses. Grand Union believes that the
assumptions underlying the projections are reasonable. However, unanticipated
events and circumstances occurring subsequent to the preparation of the
projections may affect the actual financial results of Reorganized Grand Union.
Therefore, the actual results achieved throughout the periods covered by the
projections necessarily will vary from the projected results, and such
variations may be material and adverse.
Moreover, the estimated percentage recovery by holders of allowed claims in
Class 4 (Old Senior Note Claims) and Class 6 (Old Preferred Stock Interests) is
based upon Grand Union's estimate of the values of the New Common Stock. Because
the market and economic conditions upon which such values are based are beyond
the control of Grand Union, the actual results achieved necessarily will vary
from the estimate. Such variations may be material and adverse.
4. Disruption of Operations
The commencement and pendency of Grand Union's chapter 11 case could
adversely affect Grand Union's relationships with its customers and suppliers,
as well as Grand Union's ability to retain or attract high-quality employees. In
such event, weakened operating results may occur that could give rise to
variances from Grand Union's projections.
5. Lack of Trading Market
Reorganized Grand Union will seek the listing of the New Common Stock on a
nationally recognized market or exchange. Through May 20, 1998, Grand Union's
existing common stock was listed on the NASDAQ SmallCap Market. 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 Old Common Stock Interests were delisted from the NASDAQ
SmallCap Market effective as of the close of business on May 20, 1998. Effective
May 21, 1998, the
36
Common Stock is eligible for quotation on the Over-The-Counter Bulletin Board.
There can be no assurance that the New Common Stock would be listed on the
NASDAQ Stock Market or other nationally recognized market or that an active
trading market for the New Common Stock would develop and continue. In addition,
there can be no assurance as to the degree of price volatility in the market for
the New Common Stock that does develop. Accordingly, no assurance can be given
that a holder of New Common Stock will be able to sell such securities in the
future or as to the price at which any such sale may occur. If such markets were
to exist, the securities could trade at prices higher or lower than the value
ascribed to them in this Disclosure Statement, depending upon many factors,
including prevailing interest rates, markets for similar securities, industry
conditions and the performance of, and investor expectations for, Reorganized
Grand Union and its subsidiaries.
6. Dividend Policies
Grand Union does not anticipate that any dividends will be paid on the New
Common Stock in the foreseeable future. In addition, the covenants in the Exit
Facility will limit the ability of Reorganized Grand Union to pay dividends.
Certain institutional investors may only invest in dividend-paying equity
securities or may operate under other restrictions which may prohibit their
ability to invest in the New Common Stock.
C. Certain Tax Matters
For a summary of certain federal income tax consequences of the Plan of
Reorganization to holders of claims and equity interests and to Grand Union, see
Section XI below, entitled 'CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE PLAN
OF REORGANIZATION.'
D. Pending Litigation or Demands Asserting Prepetition Liability
As of the date of this Disclosure Statement, there were no pending demands
or litigation asserting prepetition liability which Grand Union believes will
have a material adverse effect upon the operations or financial position of
Grand Union, Reorganized Grand Union or its subsidiaries, if determined
unfavorably to Grand Union. For a description of any material legal proceedings
pending against Grand Union, see the information set forth in Item 4 of Grand
Union's Annual Report on Form 10-K for the fiscal year ended March 29, 1997, a
copy of which is annexed as Exhibit 2 to this Disclosure Statement.
VII.
VOTING PROCEDURES AND REQUIREMENTS
A. Voting Deadline
IT IS IMPORTANT THAT THE HOLDERS OF CLAIMS IN CLASS 4 (OLD SENIOR NOTE
CLAIMS) AND HOLDERS OF INTERESTS IN CLASS 6 (OLD PREFERRED STOCK INTERESTS)
TIMELY EXERCISE THEIR RIGHT TO VOTE TO ACCEPT OR REJECT THE PLAN OF
REORGANIZATION. All known holders of Old Senior Note Claims and Old Preferred
Stock Interests entitled to vote on the Plan of Reorganization have been sent a
Ballot together with this Disclosure Statement. Such holders should read the
Ballot carefully and follow the instructions contained therein. Please use only
the Ballot that accompanies this Disclosure Statement.
Grand Union has engaged The Altman Group, Inc. as its Voting Agent to
assist in the transmission of voting materials and in the tabulation of votes
with respect to the Plan of Reorganization. IN ORDER FOR YOUR VOTE TO BE
COUNTED, YOUR VOTE MUST BE RECEIVED BY THE VOTING AGENT AT THE ADDRESS SET FORTH
BELOW BEFORE THE VOTING DEADLINE OF 5:00 P.M., EASTERN TIME, ON JUNE 22, 1998.
IF YOU MUST RETURN YOUR BALLOT TO YOUR BANK, BROKER OR OTHER NOMINEE, OR TO
THEIR AGENT, YOU MUST RETURN YOUR BALLOT TO THEM IN SUFFICIENT TIME FOR THEM TO
PROCESS IT AND RETURN IT TO THE VOTING AGENT BEFORE THE VOTING DEADLINE.
IF A BALLOT IS DAMAGED OR LOST, YOU MAY CONTACT GRAND UNION'S VOTING AGENT
AT THE NUMBER SET FORTH BELOW. ANY BALLOT THAT IS EXECUTED AND RETURNED BUT
WHICH DOES NOT INDICATE AN ACCEPTANCE OR REJECTION OF THE PLAN OF REORGANIZATION
WILL NOT BE COUNTED.
IF YOU HAVE ANY QUESTIONS CONCERNING VOTING PROCEDURES, YOU MAY CONTACT THE
VOTING AGENT AT:
THE ALTMAN GROUP, INC.
60 EAST 42ND STREET
NEW YORK, NEW YORK 10165
TEL: 212-681-9600
37
Additional copies of this Disclosure Statement are available upon request
made to the Voting Agent, at the address set forth immediately above.
B. Holders of Claims and Equity Interests Entitled to Vote
Class 4 (Old Senior Note Claims) and Class 6 (Old Preferred Stock
Interests) are the only classes of claims and equity interests under the Plan of
Reorganization that are impaired and entitled to vote to accept or reject the
Plan of Reorganization. Each holder of a Class 4 (Old Senior Note Claim) or
Class 6 (Old Preferred Stock Interest) as of the May 19, 1998 record date
established by Grand Union for purposes of this solicitation may vote to accept
or reject the Plan of Reorganization.
C. Vote Required for Acceptance by a Class
Under the Bankruptcy Code, acceptance of a plan of reorganization by a
class of claims occurs when holders of at least two-thirds in dollar amount and
more than one half in number of the allowed claims of that class that cast
ballots for acceptance or rejection of the plan of reorganization vote to accept
the plan. Thus, acceptance of the Plan of Reorganization by Class 4 (Old Senior
Note Claims) will occur only if at least two-thirds in dollar amount and a
majority in number of the holders of Old Senior Note Claims that cast their
Ballots vote in favor of acceptance. Acceptance by a class of interests occurs
when holders of at least two-thirds of the allowed interests of that class that
cast ballots for acceptance or rejection of the Plan of Reorganization vote to
accept the Plan. Thus, acceptance of the Plan of Reorganization by Class 6 (Old
Preferred Stock Interests) will occur only if the holders of two-thirds of the
number of shares held by holders of Old Preferred Stock Interests that cast
their Ballots vote to accept the Plan of Reorganization.
A vote may be disregarded if the Bankruptcy Court determines, after notice
and a hearing, that such acceptance or rejection was not solicited or procured
in good faith or in accordance with the provisions of the Bankruptcy Code.
D. Voting Procedures
1. Holders of Class 6 (Old Preferred Stock Interests)
All record holders of Old Preferred Stock Interests in Class 6 should
complete the enclosed Ballot and return it to the Voting Agent so that it is
received by the Voting Agent before the Voting Deadline.
2. Holders of Class 4 (Old Senior Note Claims)
Grand Union is providing copies of this Disclosure Statement, Ballots and,
where appropriate, Master Ballots, to all registered holders (as of the May 19,
1998 record date) of Old Senior Notes in Class 4. Registered holders may include
brokers, banks and other nominees. If such registered holders do not hold for
their own accounts, they or their agents (collectively with such registered
holders, 'Nominees') should provide copies of this Disclosure Statement and
appropriate Ballots to their customers and to beneficial owners. Any beneficial
owner who has not received a Ballot should contact his, her or its Nominee, or
the Voting Agent.
Beneficial Owners. Any beneficial owner, as of the record date, of Old
Senior Notes in his, her or its own name can vote by completing and signing the
enclosed Ballot and returning it directly to the Voting Agent (using the
enclosed pre-addressed, postage-paid envelope) so as to be received by the
Voting Agent before the Voting Deadline. If no envelope was enclosed, contact
the Voting Agent for instructions.
Any beneficial owner holding, as of the record date, Old Senior Notes in
'street name' through a Nominee can vote by completing and signing the Ballot
(unless the Ballot has already been signed, or 'prevalidated,' by the Nominee),
and returning it to the Nominee in sufficient time for the Nominee to then
forward the vote so as to be received by the Voting Agent before the Voting
Deadline of 5:00 p.m (Eastern Time) on June 22, 1998. Any Ballot submitted to a
Nominee will not be counted until such Nominee properly completes and timely
delivers a corresponding Master Ballot to the Voting Agent. If your Ballot has
already been signed (or 'prevalidated') by your Nominee, you must complete the
Ballot and return it directly to the Voting Agent so that it is received by the
Voting Agent before the Voting Deadline.
Nominees. A Nominee which, on the record date, is the registered holder of
Old Senior Notes for a beneficial owner can obtain the votes of the beneficial
owners of such securities, consistent with customary practices for obtaining the
votes of securities held in 'street name,' in one of the following two ways:
The Nominee may 'prevalidate' a Ballot by (i) signing the Ballot; (ii)
indicating on the Ballot the name of the registered holder, the amount of
securities held by the Nominee for the beneficial owner, and the account
numbers for the accounts in which such securities are held by the Nominee;
and (iii) forwarding such Ballot, together with the Disclosure Statement,
return envelope and other materials requested to be forwarded, to the
beneficial owner for voting. The beneficial owner must then complete the
information requested in the Ballot; review the certifications contained in
the Ballot, and return the Ballot directly to the Voting Agent in the
pre-addressed, postage-paid envelope so that it is received by the Voting
Agent
38
before the Voting Deadline. A list of the beneficial owners to whom
'prevalidated' Ballots were delivered should be maintained by Nominees for
inspection for at least one year from the Voting Deadline.
OR
If the Nominee elects not to prevalidate Ballots, the Nominee may
obtain the votes of beneficial owners by forwarding to the beneficial
owners the unsigned Ballots, together with the Disclosure Statement, a
return envelope provided by, and addressed to, the Nominee, and other
materials requested to be forwarded. Each such beneficial owner must then
indicate his, her or its vote on the Ballot, complete the information
requested in the Ballot, review the certifications contained in the Ballot,
execute the Ballot and return the Ballot to the Nominee. After collecting
the Ballots, the Nominee should, in turn, complete a Master Ballot
compiling the votes and other information from the Ballots, execute the
Master Ballot and deliver the Master Ballot to the Voting Agent so that it
is received by the Voting Agent before the Voting Deadline. All Ballots
returned by beneficial owners should either be forwarded to the Voting
Agent (along with the Master Ballot) or retained by Nominees for inspection
for at least one year from the Voting Deadline. Please note: the Nominee
should advise the beneficial owner to return his, her or its Ballot to the
Nominee by a date calculated by the Nominee to allow it to prepare and
return the Master Ballot to the Voting Agent so that it is received by the
Voting Agent before the Voting Deadline.
Securities Clearing Agencies. Grand Union expects that The Depository Trust
Company, as a nominee holder of Old Senior Notes, will arrange for its
participants to vote by executing an omnibus proxy in favor of such
participants. As a result of the omnibus proxy, such participant will be
authorized to vote its record date positions held in the name of such securities
clearing agencies.
Other. If a Ballot is signed by trustees, executors, administrators,
guardians, attorneys-in-fact, officers of corporations or others acting in a
fiduciary or representative capacity, such persons should indicate such capacity
when signing, and unless otherwise determined by Grand Union, must submit proper
evidence satisfactory to Grand Union of their authority to so act.
For purposes of voting to accept or reject the Plan of Reorganization, the
beneficial owners of such securities will be deemed to be the 'holders' of such
claims represented by such securities. Unless otherwise ordered by the
Bankruptcy Court, Ballots or Master Ballots that are signed, dated and timely
received, but on which a vote to accept or reject the Plan of Reorganization has
not been indicated, will not be counted as to the Plan of Reorganization. Grand
Union, in its discretion, may request that the Voting Agent attempt to contact
such voters to cure any such defects in the Ballots or Master Ballots.
Except as provided below, unless the Ballot or Master Ballot is timely
submitted to the Voting Agent before the Voting Deadline together with any other
documents required by such Ballot or Master Ballot, Grand Union may, in its sole
discretion, reject such Ballot or Master Ballot as invalid, and therefore
decline to utilize it in connection with seeking confirmation of the Plan of
Reorganization by the Bankruptcy Court.
In the event of a dispute with respect to any Old Senior Note Claim, any
vote to accept or reject the Plan of Reorganization cast with respect to such
claim will not be counted for purposes of determining whether the Plan of
Reorganization has been accepted or rejected, unless the Bankruptcy Court orders
otherwise.
3. Delivery of Old Securities
Grand Union is not at this time requesting the delivery of, and neither
Grand Union nor the Voting Agent will accept, certificates representing any Old
Senior Notes or any equity securities, including Old Preferred Stock Interests.
In connection with the Consummation Date, Grand Union will furnish all such
holders with appropriate letters of transmittal to be used to remit such
securities in exchange for the distribution under the Plan of Reorganization.
Information regarding such remittance procedure (together with all appropriate
materials) will be distributed by Grand Union after confirmation of the Plan of
Reorganization.
4. Withdrawal of Ballot or Master Ballot
Any voter that has delivered a valid Ballot or Master Ballot may withdraw
its vote by delivering a written notice of withdrawal to the Voting Agent before
the Voting Deadline. To be valid, the notice of withdrawal must (a) be signed by
the party who signed the Ballot or Master Ballot to be revoked, and (b) be
received by the Voting Agent before the Voting Deadline. Grand Union may contest
the validity of any withdrawals.
Any holder that has delivered a valid Ballot or Master Ballot may change
its vote by delivering to the Voting Agent a properly completed subsequent
Ballot or Master Ballot so as to be received before the Voting Deadline. In the
case where more than one timely, properly completed Ballot or Master Ballot is
received, only the Ballot or Master Ballot that bears the latest date will be
counted.
39
E. Solicitation Regarding Benefit Plans
In addition to voting to accept or reject the Plan of Reorganization,
holders of Old Senior Note Claims should use the Ballot to cast their vote to
accept or reject (i) the EAIB Plan, and (ii) the EIP. Such benefit plans will be
retained only if the holders of a majority in principal amount of Old Senior
Notes who cast Ballots with respect to the EAIB Plan and the EIP vote to approve
the EAIB Plan and the EIP. For a detailed discussion of the EAIB Plan and the
EIP, see Section IV.M.3. below, entitled 'PLAN OF REORGANIZATION--Miscellaneous
Provisions--Benefit Plans.' Any options proposed to be issued and any bonuses
proposed to be paid under such benefit plans in connection with consummation of
the Plan of Reorganization are subject to such approval. See Section IV.H.
above, entitled 'PLAN OF REORGANIZATION--Senior Management Employment
Agreements'. IF YOU ARE A HOLDER OF OLD SENIOR NOTES, YOU RETURN YOUR BALLOT,
AND YOU FAIL TO INDICATE ON YOUR BALLOT WHETHER YOU ACCEPT OR REJECT THE EAIB
PLAN OR THE EIP, SUCH BALLOT WILL BE COUNTED AS AN ACCEPTANCE OF THE EAIB PLAN
AND/OR THE EIP. THE MEMBERS OF THE UNOFFICIAL NOTEHOLDER COMMITTEE INTEND TO
VOTE IN FAVOR OF THE EAIB PLAN AND THE EIP.
VIII.
CONFIRMATION OF THE PLAN OF REORGANIZATION
A. Confirmation Hearing
Section 1128(a) of the Bankruptcy Code requires the Bankruptcy Court, after
appropriate notice, to hold a hearing on confirmation of a plan of
reorganization. As promptly as practicable after the commencement by Grand Union
of its chapter 11 case, Grand Union will request the Bankruptcy Court to
schedule a confirmation hearing. Notice of the confirmation hearing will be
provided to all creditors and equity holders or their representatives. The
confirmation hearing may be adjourned from time to time by the Bankruptcy Court
without further notice except for an announcement of the adjourned date made at
the confirmation hearing or any subsequent adjourned confirmation hearing.
Section 1128(b) of the Bankruptcy Code provides that any party in interest
may object to confirmation of a plan of reorganization. Any objection to
confirmation of the Plan of Reorganization must be in writing, must conform to
the Bankruptcy Rules, must set forth the name of the objector, the nature and
amount of claims or interests held or asserted by the objector against Grand
Union's estate or property, the basis for the objection and the specific grounds
therefor, and must be filed with the Bankruptcy Court, with a copy to Chambers,
together with proof of service thereof, and served upon (i) Weil, Gotshal &
Manges LLP, Co-Attorneys for Grand Union, 767 Fifth Avenue, New York, New York
10153, Attention: Jeffrey L. Tanenbaum, Esq.; (ii) Ravin, Greenberg & Marks,
P.A., Co-Attorneys for Grand Union, 101 Eisenhower Pkwy, Roseland, New Jersey
07068, Attention: Howard S. Greenberg, Esq.; (iii) The United States Trustee for
the District of New Jersey, 1 Newark Center, Suite 2100, Newark, New Jersey
07102, Attention: Patricia A. Staiano, Esq.; (iv) Wachtell, Lipton, Rosen &
Katz, Attorneys for the Unofficial Noteholder Committee, 51 West 52nd Street,
New York, New York 10019, Attention: Chaim J. Fortgang, Esq.; (v) Dewey
Ballantine LLP, Attorneys for the holders of Old Preferred Stock Interests, 1301
Avenue of the Americas, New York, New York 10019, Attention: Richard S. Miller,
Esq.; (vi) Skadden, Arps, Slate, Meagher & Flom (Illinois), Attorneys for the
Agent on behalf of the Secured Banks, 333 W. Wacker Drive, Suite 2100, Chicago,
Illinois 60606, Attention: John Wm. Butler, Jr., Esq., and (vii) Skadden, Arps,
Slate, Meagher & Flom LLP, Attorneys for the Agent on behalf of the Secured
Banks, One Riverfront Plaza, Newark, New Jersey 07102, Attention: Robert J. Del
Tufo, so as to be received no later than the date and time designated in the
notice of the confirmation hearing.
Objections to confirmation of the Plan of Reorganization are governed by
Bankruptcy Rule 9014. UNLESS AN OBJECTION TO CONFIRMATION IS TIMELY SERVED AND
FILED, IT MAY NOT BE CONSIDERED BY THE BANKRUPTCY COURT.
B. Requirements for Confirmation of the Plan of Reorganization
1. Requirements of Section 1129(a) of the Bankruptcy Code
a. General Requirements. At the confirmation hearing, the Bankruptcy
Court will determine whether the following confirmation requirements
specified in section 1129 of the Bankruptcy Code have been satisfied:
(1) The Plan of Reorganization complies with the applicable
provisions of the Bankruptcy Code.
(2) Grand Union has complied with the applicable provisions of the
Bankruptcy Code.
(3) The Plan of Reorganization has been proposed in good faith and
not by any means proscribed by law.
(4) Any payment made or promised by Grand Union or by a person
issuing securities or acquiring property under the Plan of
Reorganization for services or for costs and expenses in, or in
connection with, the chapter 11 case, or in
40
connection with the Plan of Reorganization and incident to the chapter
11 case, has been disclosed to the Bankruptcy Court, and any such
payment made before confirmation of the Plan of Reorganization is
reasonable, or if such payment is to be fixed after confirmation of the
Plan of Reorganization, such payment is subject to the approval of the
Bankruptcy Court as reasonable.
(5) Grand Union has disclosed the identity and affiliations of any
individual proposed to serve, after confirmation of the Plan of
Reorganization, as a director, officer or voting trustee of Grand Union,
an affiliate of Grand Union participating in a Plan of Reorganization
with Grand Union, or a successor to Grand Union under the Plan of
Reorganization, and the appointment to, or continuance in, such office
of such individual is consistent with the interests of creditors and
equity holders and with public policy, and Grand Union has disclosed the
identity of any insider that will be employed or retained by Grand
Union, and the nature of any compensation for such insider.
(6) With respect to each class of claims or equity interests, each
holder of an impaired claim or impaired equity interest either has
accepted the Plan of Reorganization or will receive or retain under the
Plan of Reorganization on account of such holder's claim or equity
interest, property of a value, as of the Consummation Date, that is not
less than the amount such holder would receive or retain if Grand Union
were liquidated on the Consummation Date under chapter 7 of the
Bankruptcy Code. See discussion of 'Best Interests Test' below.
(7) Except to the extent the Plan of Reorganization meets the
requirements of section 1129(b) of the Bankruptcy Code (discussed
below), each class of claims or equity interests has either accepted the
Plan of Reorganization or is not impaired under the Plan of
Reorganization.
(8) Except to the extent that the holder of a particular claim has
agreed to a different treatment of such claim, the Plan of
Reorganization provides that administrative expenses and priority claims
other than priority tax claims will be paid in full on the Consummation
Date and that priority tax claims will receive on account of such claims
deferred cash payments, over a period not exceeding six years after the
date of assessment of such claims, of a value, as of the Consummation
Date, equal to the allowed amount of such claims.
(9) At least one class of impaired claims has accepted the Plan of
Reorganization, determined without including any acceptance of the Plan
of Reorganization by any insider holding a claim in such class.
(10) Confirmation of the Plan of Reorganization is not likely to be
followed by the liquidation or the need for further financial
reorganization of Grand Union or any successor to Grand Union under the
Plan of Reorganization, unless such liquidation or reorganization is
proposed in the Plan of Reorganization. See discussion of 'Feasibility'
below.
(11) The Plan of Reorganization provides for the continuation after
the Consummation Date of payment of all Retiree Benefits (as defined in
section 1114 of the Bankruptcy Code), at the level established pursuant
to subsection 1114(e)(1)(B) or 1114(g) of the Bankruptcy Code at any
time prior to confirmation of the Plan of Reorganization, for the
duration of the period Grand Union has obligated itself to provide such
benefits.
b. Best Interests Test. As described above, the Bankruptcy Code
requires that each holder of an impaired claim or equity interest either
(a) accepts the plan of reorganization or (b) receives or retains under the
plan property of a value, as of the Consummation Date, that is not less
than the value such holder would receive or retain if Grand Union were
liquidated under chapter 7 of the Bankruptcy Code on the Consummation Date.
The first step in meeting this test is to determine the dollar amount that
would be generated from the liquidation of Grand Union's assets and properties
in the context of a chapter 7 liquidation case. The gross amount of cash
available would be the sum of the proceeds from the disposition of Grand Union's
assets and the cash held by Grand Union at the time of the commencement of the
chapter 7 case. The next step, however, is to reduce that total by the amount of
any claims secured by such assets, the costs and expenses of the liquidation,
and such additional administrative expenses and priority claims that may result
from the termination of Grand Union's business and the use of chapter 7 for the
purposes of liquidation. Any remaining net cash would be allocated to creditors
and shareholders in strict priority in accordance with section 726 of the
Bankruptcy Code (see discussion below). Finally, the present value of such
allocations (taking into account the time necessary to accomplish the
liquidation) are compared to the value of the property that is proposed to be
distributed under the Plan of Reorganization on the Consummation Date.
Grand Union's costs of liquidation under chapter 7 would include the fees
payable to a chapter 7 trustee in bankruptcy, as well as those which might be
payable to attorneys and other professionals that such a trustee may engage,
plus any unpaid expenses incurred by Grand Union during the chapter 11 case and
allowed in the chapter 7 case, such as compensation for attorneys, financial
advisors, appraisers, accountants and other professionals, and costs and
expenses of members of any statutory committee of unsecured creditors appointed
by the United States Trustee pursuant to section 1102 of the Bankruptcy Code and
any other committee so appointed. Moreover, additional claims would arise by
reason of the breach or rejection of obligations incurred and executory
contracts or leases entered into by Grand Union both prior to, and during the
pendency of, the chapter 11 case.
41
The foregoing types of claims, costs, expenses, fees and such other claims
that may arise in a liquidation case would be paid in full from the liquidation
proceeds before the balance of those proceeds would be made available to pay
pre-chapter 11 priority and unsecured claims. Under the absolute priority rule,
no junior creditor would receive any distribution until all senior creditors are
paid in full, with interest, and no equity holder receives any distribution
until all creditors are paid in full, with interest. Grand Union believes that
in a chapter 7 case, holders of Old Preferred Stock Interests, Old Common Stock
Interests and Old Warrants would receive no distributions of property.
After consideration of the effects that a chapter 7 liquidation would have
on the ultimate proceeds available for distribution to creditors in a chapter 11
case, including (i) the increased costs and expenses of a liquidation under
chapter 7 arising from fees payable to a trustee in bankruptcy and professional
advisors to such trustee, (ii) the erosion in value of assets in a chapter 7
case in the context of the expeditious liquidation required under chapter 7 and
the 'forced sale' atmosphere that would prevail, and (iii) substantial increases
in claims which would be satisfied on a priority basis, Grand Union has
determined that confirmation of the Plan of Reorganization will provide each
creditor and equity holder with a recovery that is not less than it would
receive pursuant to a liquidation of Grand Union under chapter 7 of the
Bankruptcy Code.
Moreover, Grand Union believes that the value of any distributions from the
liquidation proceeds to each class of allowed claims in a chapter 7 case would
be the same or less than the value of distributions under the Plan of
Reorganization because such distributions in a chapter 7 case may not occur for
a substantial period of time. In this regard, it is possible that distribution
of the proceeds of the liquidation could be delayed for a year or more after the
completion of such liquidation in order to resolve the claims and prepare for
distributions. In the event litigation were necessary to resolve claims asserted
in the chapter 7 case, the delay could be further prolonged and administrative
expenses further increased.
Grand Union's liquidation analysis is an estimate of the proceeds that may
be generated as a result of a hypothetical chapter 7 liquidation of the assets
of Grand Union. The analysis is based upon a number of significant assumptions
which are described. The liquidation analysis does not purport to be a valuation
of Grand Union's assets and is not necessarily indicative of the values that may
be realized in an actual liquidation.
c. Liquidation Analysis. The chapter 7 liquidation period is assumed to
average six months following the appointment of a chapter 7 trustee. While some
assets may be liquidated in less than six months, other assets may be more
difficult to collect or sell, requiring a liquidation period substantially
longer than six months. This time would allow for the collection of receivables,
sale of assets and wind down of daily operations.
Estimates were made of the cash proceeds which might be realized from the
liquidation of Grand Union's assets. For certain assets, such as real property,
estimates of liquidation were made for each asset individually. For other
assets, such as fixtures and equipment, liquidation values were assessed for
general classes of assets by estimating the percentage recoveries which Grand
Union might achieve through their disposition.
Underlying the liquidation analysis are a number of estimates and
assumptions that are inherently subject to significant economic, competitive and
operational uncertainties and contingencies beyond the control of Grand Union or
a chapter 7 trustee. Additionally, various liquidation decisions upon which
certain assumptions are based are subject to change. Therefore, there can be no
assurance that the assumptions and estimates employed in determining the
liquidation values of Grand Union's assets will result in an accurate estimate
of the proceeds which would be realized were Grand Union to undergo an actual
liquidation. The actual amounts of claims against the estate could vary
significantly from Grand Union's estimate, depending on the claims asserted
during the pendency of the chapter 7 case. This liquidation analysis does not
include liabilities that may arise as a result of litigation, certain new tax
assessments or other potential claims. This analysis also does not include
potential recoveries from avoidance actions. No value was assigned to additional
proceeds which might result from the sale of certain items with intangible
value. Therefore, the actual liquidation value of Grand Union could vary
materially from the estimates provided herein.
The liquidation analysis set forth below was based on the estimated and
unaudited book values of Grand Union's assets on March 28, 1998. Management of
Grand Union does not believe that more current historical information or
projected information would vary significantly. However, this analysis is
subject to any changes due to Grand Union's continued operation since that date.
The book values used were obtained from Grand Union's monthly internal financial
statements and accounting records. These values have not been subject to any
review, compilation or audit by any independent accounting firm.
42
THE GRAND UNION COMPANY
LIQUIDATION ANALYSIS
($ in thousands)
Estimated Estimated
Balance Estimated Liq.
03/28/98 Recovery Proceeds
--------- --------- ---------
Cash and Investments............................................................ $ 44,745 100% $44,745
Accounts Receivable............................................................. 20,810 54% 11,153
Inventories..................................................................... 128,924 51% 65,909
Other Current Assets............................................................ 14,962 0% --
Property
Property Owned................................................................ 282,435 21% 59,177
Property Held with Beneficial Leases (net of related liabilities)............. N/A N/A 201,702
Other Non-Current Assets
Excess Reorganization Value................................................... 230,733 0% --
Debt Issuance Costs........................................................... 10,624 0% --
Deferred Income Tax........................................................... 51,393 0% --
Other Assets.................................................................. 12,053 26% 3,081
--------- --------- ---------
Proceeds Available for Distribution............................................. 385,766
Estimated Estimated %
Claim Recovery Recovery
--------- --------- ---------
Secured Claims:
Revolver........................................................................ 17,000 17,000 100%
Term Loan....................................................................... 77,978 77,978 100%
15% Note--Supplemental Term Loan................................................ 104,144 104,144 100%
Letters of Credit............................................................... 43,527 43,527 100%
--------- --------- ---------
242,649 242,649 100%
Pre- and Post-Petition Interest
Revolver...................................................................... 1,036 1,036 100%
Term Loan..................................................................... 6,528 6,528 100%
15% Note--Supplemental Term Loan.............................................. 6,313 6,313 100%
Letters of Credit............................................................. 2,720 2,720 100%
--------- --------- ---------
16,596 16,596 100%
Total Secured Claims.......................................................... 259,245 259,245 100%
Proceeds available for payment of administrative claims......................... 126,521
Priority Administrative Claims
Trustee Fees.................................................................... 5,786 5,786 100%
Professional Fees............................................................... 5,000 5,000 100%
Wind Down Costs................................................................. 18,185 18,185 100%
Reclamation Claims.............................................................. 9,850 9,850 100%
Perishable Agricultural Commodities Act Claims.................................. 6,250 6,250 100%
--------- --------- ---------
45,071 45,071 100%
Other Priority Claims:
Employee Claims................................................................. 27,809 27,809 100%
Accrued Taxes................................................................... 8,328 8,328 100%
--------- --------- ---------
36,137 36,137 100%
Proceeds available for payment of unsecured claims.............................. 45,313
General Unsecured Claims
12% Sr. Notes................................................................... 595,421 29,344 5%
Accounts Payable................................................................ 55,727 2,746 5%
Accrued Liabilities............................................................. 18,265 900 5%
Accrued Interest................................................................ 43,178 2,128 5%
Lease Rejection Claims.......................................................... 86,745 4,275 5%
Executory Contracts............................................................. 56,238 2,772 5%
Medical, Insurance, and Pension Liability....................................... 56,243 2,772 5%
Other Liabilities............................................................... 7,632 376 5%
--------- --------- ---------
$ 919,449 $45,313 5%
43
FOOTNOTES TO LIQUIDATION ANALYSIS
A. Cash and Cash Equivalents
Cash consists of all cash in banks or operating accounts, cash held at
stores, and liquid investments with maturities of three months or less and
is assumed to be fully recoverable.
B. Accounts Receivable
1. Trade Accounts Receivable primarily consists of trade vendor balances
related to advertising and promotional allowances, coupons, and
pharmacy receivables. The collection of these receivables are primarily
administered by third parties which is assumed to improve the potential
recovery. The recovery of accounts receivable is based on management's
estimate of collection, given such factors as the aging and historical
collection patterns of the receivables and the effect of the
liquidation on collection.
2. Notes Receivable primarily consists of subtenant receivables. Certain
notes receivable have been assumed to be uncollectable as they relate
to items subject to dispute or pending litigation.
3. Other Receivables includes insurance proceeds related to claims for
storm and natural disaster damages. Management believes that a
liquidation will have little effect on the value and assumes the
insurance proceeds are fully recoverable.
C. Inventory
Inventory is comprised of grocery, general merchandise, and perishable
inventories at stores and warehouses. Each category of inventory has been
estimated separately. The overall inventory recovery is derived from the
individual estimates and aggregates to 51%.
D. Other Current Assets
Other current assets consists primarily of prepaid expenses and operating
supplies. Prepaid expenses include prepaid rent, insurance, taxes, and
deposits. Operating supplies include store and warehouse supplies such as
bags and film. Both prepaids and operating supplies are assumed to have no
estimated liquidation value. Where applicable, prepaid expenses were offset
against corresponding claims.
E. Property, Plant and Equipment
1. Property Owned includes owned land, buildings, fixtures and equipment,
and leasehold improvements.
a) Land and Buildings. To estimate the potential recovery from the
liquidation of these properties, management assessed each property
value based on past appraisals and knowledge of the real estate
market.
b) Fixtures and Equipment include warehouse equipment, office
fixtures, scanning equipment, store equipment, and shopping carts.
Based on management's review of these assets, results achieved in
similar liquidations and sales, and discussions with 2nd tier
equipment vendors, the overall recovery was estimated to be 6% of
the net book value.
c) Leasehold improvements associated with property under capital
leases. No value has been ascribed in liquidation as the
improvements will revert to the lessor upon the discontinuation of
the leases, or inure to the benefit of the assignees of leases
with beneficial value.
2. Property Held with Beneficial Leases is comprised of stores, parking
lots, and real property, which have been financed through capital lease
arrangements. To determine the estimated recovery from the liquidation
of these properties, management retained an outside real estate
specialist to assess the market value of each property. For the purpose
of the liquidation analysis, both base term (excluding CAM and taxes)
and lease options were included in the calculation of the beneficial
lease value. A 9% discount rate was used to determine the net present
value of the leasehold. These estimated liquidation values could vary
dramatically from the amounts which might be achieved in an actual
chapter 7 liquidation.
F. Other Non-Current Assets
Other non-current assets include deposits, net excess reorganization value,
debt issuance costs, and deferred income tax. In the opinion of management,
deposits are assumed to have some recoverable value while the remainder of
other current assets are assumed to have no estimated recoverable value in
liquidation.
G. Credit Agreement
The facility evidenced by the Credit Agreement is secured by substantially
all of the assets of Grand Union and its subsidiaries. Post-petition
interest on the revolving credit facility has been assumed to accrue at
10.5%, the term loan has been assumed to accrue at 10.5%, and the
supplemental term loan has been assumed to accrue at approximately 15.0% for
six
44
months during the liquidation period. The post-petition revolver and term
loan interest rate was assumed to increase due to an Event of Default.
H. Bank Letters of Credit
The letters of credit issued by the Bank back certain worker's compensation
and general liability claims, contracts of C&S Distributors, Inc. ('C&S'),
and other items. For the purposes of this analysis, management has assumed
that all letters of credit are fully drawn to cover these liabilities.
I. Trustee Fees
Trustee fees are estimated at an amount which management believes would be
ultimately allowed by the Bankruptcy Court.
J. Professional Fees
Professional fees represent the costs of a chapter 7 case related to
attorneys, accountants, appraisers and other professionals retained by the
trustee. Based on management's review of the nature of these costs and the
outcomes of similar liquidations, fees were estimated at $5.0 million.
K. Wind Down Costs
Wind down costs consist of store expenses, occupancy costs, and corporate
overhead to be incurred during the chapter 7 liquidation period. Management
assumed that the liquidation would occur over a six month period and that
such expenses, costs and overhead would decrease over time.
L. Reclamation Claims
Reclamation claims represent claims from vendors to reclaim inventory that
Grand Union received ten days prior to the Petition Date. Management made
separate assumptions for inventory supplied by C&S and by direct store
delivery vendors.
M. PACA Claims
PACA claims represent pre-petition claims on perishable foods such as
produce. Management has assumed PACA claims of $7.0 million less the PACA
deposit of $750,000.
N. Employee Claims
Employee claims entitled to priority, including wages, vacation, and other
related compensation, have been estimated at $3,000 per employee for
full-time employees and $1,500 per employee for part-time employees. At
March 28, 1998, Grand Union employed 4,558 full-time and 9,423 part-time
employees.
O. Lease Rejection Claims
Lease rejection claims comprise claims resulting from Grand Union's
rejection of unexpired leases. In accordance with section 502(b)(6) of the
Bankruptcy Code, each lease rejection claim was calculated as the greater of
one year, or 15%, not to exceed three years, of the remaining term of each
lease. For the purpose of this analysis, rent was assumed to include rent,
CAM, and taxes.
P. Executory Contracts
Executory contracts include those with C&S, management, equipment lessors
and unions. Claim estimates were based on each individual contract.
Q. Other Liabilities
Other liabilities include certain rent liability, restructure reserves, and
bank fees.
d. Feasibility. The Bankruptcy Code requires a debtor to demonstrate
that confirmation of a plan of reorganization is not likely to be followed
by the liquidation or the need for further financial reorganization of a
debtor unless so provided by the plan of reorganization. For purposes of
determining whether the Plan of Reorganization meets this requirement,
Grand Union has analyzed its ability to meet its obligations as
contemplated thereunder. As part of this analysis, Grand Union has prepared
the projections contained in Section V above, entitled 'PROJECTIONS AND
VALUATION ANALYSIS-- Projections.' These projections are based upon the
assumption that the Plan of Reorganization will be confirmed by the
Bankruptcy Court, and for projection purposes, that the Consummation Date
of the Plan of Reorganization and its substantial consummation will take
place on or about August 15, 1998. The projections include (i) Pro Forma
Condensed Consolidated Balance Sheet, (ii) Condensed Consolidated Projected
Balance Sheets, (iii) Condensed Consolidated Projected Statements of
Operations, and (iv) Condensed Consolidated Projected Cash Flow Statements,
and (v) Operating Assumptions. Based upon
45
the projections, Grand Union believes it will be able to make all payments
required to be made pursuant to the Plan of Reorganization.
2. Requirements of Section 1129(b) of the Bankruptcy Code
The Bankruptcy Court may confirm the Plan of Reorganization over the
rejection or deemed rejection of the Plan of Reorganization by a class of claims
or equity interests if the Plan of Reorganization 'does not discriminate
unfairly' and is 'fair and equitable' with respect to such class.
No Unfair Discrimination. This test applies to classes of claims or equity
interests that are of equal priority and are receiving different treatment under
a plan of reorganization. The test does not require that the treatment be the
same or equivalent, but that such treatment be 'fair.'
Fair and Equitable Test. This test applies to classes of different priority
(e.g., unsecured versus secured) and includes the general requirement that no
class of claims receive more than 100% of the allowed amount of the claims in
such class. As to the dissenting class, the test sets different standards,
depending on the type of claims or interests in such class:
Secured Claims. Each holder of an impaired secured claim either (i)
retains its liens on the property (or if sold, on the proceeds thereof) to
the extent of the allowed amount of its secured claim and receives deferred
cash payments having a value, as of the consummation date of the plan, of
at least the allowed amount of such claim or (ii) receives the 'indubitable
equivalent' of its allowed secured claim.
Unsecured Claims. Either (i) each holder of an impaired unsecured
claim receives or retains under the plan property of a value equal to the
amount of its allowed unsecured claim, or (ii) the holders of claims and
interests that are junior to the claims of the dissenting class will not
receive or retain any property under the plan of reorganization.
Equity Interests. Either (i) each equity interest holder will receive
or retain under the plan of reorganization property of a value equal to the
greater of (a) the fixed liquidation preference or redemption price, if
any, of such stock and (b) the value of the stock, or (ii) the holders of
interests that are junior to the equity interests of the dissenting class
will not receive or retain any property under the plan of reorganization.
Grand Union believes the Plan of Reorganization will satisfy the 'fair and
equitable' requirement notwithstanding that Class 7 (Old Common Stock Interests)
and Class 8 (Old Warrants) are deemed to reject the Plan of Reorganization,
because as to Class 7 and Class 8, no class that is junior to such a dissenting
class will receive or retain any property on account of the claims or equity
interests in such class.
As to Class 4 (Old Senior Notes) and Class 6 (Old Preferred Stock
Interests), the holders of Old Senior Notes and Old Preferred Stock Interests
have affirmatively consented to the distribution to the holders of Old Common
Stock Interests. Because the distribution to a class of interests junior to
Class 4 (Old Senior Notes) and Class 6 (Old Preferred Stock Interests) is
predicated upon the consent of the holders of Old Senior Notes and Old Preferred
Stock Interests, Grand Union believes that the Plan of Reorganization is 'fair
and equitable' with respect to such classes and complies with the absolute
priority rule.
IX.
FINANCIAL INFORMATION
A. General
The audited consolidated balance sheets for each of the three fiscal years
ended March 29, 1997, March 30, 1996 and April 1, 1995 and the related
consolidated statements of operations and consolidated statements of cash flows
of Grand Union and its subsidiaries are contained in Item 8--'Financial
Statements and Supplementary Data' in Grand Union's Annual Report on Form 10-K
for the fiscal year ended March 29, 1997, a copy of which is annexed as Exhibit
2 to this Disclosure Statement, and the full text of which is incorporated
herein by reference. This financial information is provided to permit the
holders of claims and equity interests to better understand Grand Union's
historical business performance and the impact of the Reorganization Case on
Grand Union's business.
46
B. Selected Financial Data
See Item 6 'Selected Financial Data' set forth in the Annual Report on Form
10-K for the fiscal year ended March 29, 1997 annexed as Exhibit 2 to this
Disclosure Statement.
C. Management's Discussion and Analysis of Financial Condition and Results of
Operations
For a detailed discussion by management of Grand Union's financial
condition, results of operations, and liquidity and capital resources, see Item
7 'Management's Discussion and Analysis of Financial Condition and Results of
Operations' in the Annual Report on Form 10-K for the fiscal year ended March
29, 1997 annexed as Exhibit 2 to this Disclosure Statement.
D. Recent Performance
See Grand Union's Quarterly Report on Form 10-Q for the period ended
January 3, 1998 annexed as Exhibit 3 to this Disclosure Statement.
X.
ALTERNATIVES TO CONFIRMATION
AND CONSUMMATION OF THE PLAN OF REORGANIZATION
If the Plan of Reorganization is not confirmed and consummated, the
alternatives to the Plan of Reorganization include (i) liquidation of Grand
Union under chapter 7 of the Bankruptcy Code and (ii) an alternative chapter 11
plan of reorganization.
A. Liquidation Under Chapter 7
If no plan can be confirmed, Grand Union's chapter 11 case may be converted
to a case under chapter 7 of the Bankruptcy Code, pursuant to which a trustee
would be appointed to liquidate the assets of Grand Union for distribution in
accordance with the priorities established by the Bankruptcy Code. A discussion
of the effects that a chapter 7 liquidation would have on the recovery of
holders of claims and equity interests and Grand Union's liquidation analysis
are set forth in Section VIII above, entitled 'CONFIRMATION OF THE PLAN OF
REORGANIZATION--Requirements for Confirmation of the Plan of Reorganization--
Requirements of Section 1129(a) of the Bankruptcy Code--Best Interests Test.'
Grand Union believes that liquidation under chapter 7 would result in smaller
distributions being made to creditors than those provided for in the Plan of
Reorganization because of (a) the likelihood that the assets of Grand Union
would have to be sold or otherwise disposed of in a less orderly fashion over a
shorter period of time, (b) additional administrative expenses involved in the
appointment of a trustee, and (c) additional expenses and claims, some of which
would be entitled to priority, which would be generated during the liquidation
and from the rejection of leases and other executory contracts in connection
with a cessation of Grand Union's operations. In a chapter 7 liquidation, Grand
Union believes that there would be no distribution to the holders of equity
interests.
B. Alternative Plan of Reorganization
If the Plan of Reorganization is not confirmed, Grand Union (or if Grand
Union's exclusive period in which to file a plan of reorganization has expired,
any other party in interest) could attempt to formulate a different chapter 11
plan of reorganization. Such a plan of reorganization might involve either a
reorganization and continuation of Grand Union's business or an orderly
liquidation of its assets under chapter 11. With respect to an alternative plan,
Grand Union has explored various alternatives in connection with the formulation
and development of the Plan of Reorganization. Grand Union believes that the
Plan of Reorganization, as described herein, enables creditors and equity
holders to realize the most value under the circumstances. In a liquidation
under chapter 11, Grand Union's assets would be sold in an orderly fashion over
a more extended period of time than in a liquidation under chapter 7, possibly
resulting in somewhat greater (but indeterminate) recoveries than would be
obtained in chapter 7. Further, if a trustee were not appointed, because such
appointment is not required in a chapter 11 case, the expenses for professional
fees would most likely be lower than those incurred in a chapter 7 case.
Although preferable to a chapter 7 liquidation, Grand Union believes that any
alternative liquidation under chapter 11 is a much less attractive alternative
to creditors and equity holders than the Plan of Reorganization because of the
greater return provided by the Plan of Reorganization.
XI.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
OF THE PLAN OF REORGANIZATION
The following discussion summarizes certain federal income tax consequences
of the implementation of the Plan of Reorganization to Grand Union and certain
holders of claims and equity interests. The following summary does not address
the
47
federal income tax consequences to (i) holders whose claims are entitled to
reinstatement or payment in full in cash under the Plan of Reorganization (e.g.,
holders of Priority Non-Tax Claims), or (ii) holders whose equity interests are
extinguished (e.g., holders of Old Warrants).
The following summary is based on the Tax Code, Treasury regulations
promulgated and proposed thereunder, judicial decisions and published
administrative rules and pronouncements of the Internal Revenue Service ('IRS')
as in effect on the date hereof. Changes in such rules or new interpretations
thereof may have retroactive effect and could significantly affect the federal
income tax consequences described below.
The federal income tax consequences of the Plan of Reorganization are
complex and are subject to significant uncertainties. Grand Union has not
requested a ruling from the IRS or an opinion of counsel with respect to any of
the tax aspects of the Plan of Reorganization. Thus, no assurance can be given
as to the interpretation that the IRS will adopt. In addition, this summary does
not address foreign, state or local tax consequences of the Plan of
Reorganization, nor does it purport to address the federal income tax
consequences of the Plan of Reorganization to special classes of taxpayers (such
as foreign taxpayers, broker-dealers, banks, mutual funds, insurance companies,
financial institutions, small business investment companies, regulated
investment companies, tax-exempt organizations, and investors in pass-through
entities).
ACCORDINGLY, THE FOLLOWING SUMMARY OF CERTAIN FEDERAL INCOME TAX
CONSEQUENCES IS FOR INFORMATIONAL PURPOSES ONLY AND IS NOT A SUBSTITUTE FOR
CAREFUL TAX PLANNING AND ADVICE BASED UPON THE INDIVIDUAL CIRCUMSTANCES
PERTAINING TO A HOLDER OF A CLAIM OR EQUITY INTEREST. ALL HOLDERS OF CLAIMS OR
EQUITY INTERESTS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS FOR THE FEDERAL,
STATE, LOCAL AND OTHER TAX CONSEQUENCES APPLICABLE UNDER THE PLAN OF
REORGANIZATION.
A. Consequences to Grand Union
Grand Union expects to report a consolidated net operating loss ('NOL')
carryforward for federal income tax purposes of approximately $220 million for
its taxable year ended March 31, 1998 and expects to incur additional NOLs
during its current taxable year. A portion of such NOL carryforwards is subject
to prior limitations, and the amount of such NOL carryforwards and other losses
remain subject to adjustment by the IRS. See Item 8, 'Financial Statements' in
the Annual Report on Form 10-K, annexed as Exhibit 2 to the Disclosure
Statement, Note 6 (Income Taxes). Moreover, as discussed below, such NOL
carryforwards (and possibly certain other tax attributes of Grand Union) may be
reduced or subject to limitation upon the implementation of the Plan of
Reorganization.
1. Cancellation of Debt
In general, the Tax Code provides that a debtor in a bankruptcy case must
reduce certain of its tax attributes--such as its NOL carryforwards and current
year NOLs, tax credits, and tax basis in assets--by the amount of any
cancellation of debt ('COD'). COD is the amount by which the indebtedness
discharged exceeds any consideration given in exchange therefor. Any reduction
in tax attributes generally occurs on a separate company basis, even though
Grand Union files a consolidated federal income tax return. As a result of the
discharge of the allowed Old Senior Note Claims pursuant to the Plan of
Reorganization, Grand Union will suffer COD and attribute reduction, except to
the extent that one or more statutory exceptions to COD and attribute reduction
apply (such as where the payment of the cancelled debt would have given rise to
a tax deduction). Grand Union believes that it will recognize significant COD,
which will result in significant attribute reduction for federal income tax
purposes. The extent of such COD and resulting attribute reduction will depend
on the fair market value of the New Common Stock distributed in discharge of the
allowed Old Senior Note Claims. Based on the estimated reorganization value of
Grand Union (see Section V above, entitled 'PROJECTIONS AND VALUATION
ANALYSIS'), Grand Union anticipates that such attribute reduction will
substantially reduce or eliminate its NOL carryforwards and any NOLs that it
incurs in its current taxable year and may reduce the tax basis in its assets.
2. Limitations on NOL Carryforwards and Other Tax Attributes
Following the implementation of the Plan of Reorganization, any
consolidated NOLs (and carryforwards thereof) and certain other tax attributes
of Grand Union allocable to periods prior to the Consummation Date also will be
subject to the limitations imposed by Section 382 of the Tax Code.
Under Section 382, if a corporation undergoes an 'ownership change,' the
amount of its pre-change losses that may be utilized to offset future taxable
income is, in general, subject to an annual limitation. Such limitation also may
apply to certain losses or deductions which are 'built-in' (i.e., economically
accrued but unrecognized) as of the date of the ownership change that are
subsequently recognized. The issuance of New Common Stock pursuant to the Plan
of Reorganization will constitute an ownership change of Grand Union.
48
The amount of the annual limitation to which Grand Union would be subject
generally should be equal to the product of (i) the lesser of the value of the
equity of Reorganized Grand Union immediately after the ownership change or the
value of Grand Union's consolidated gross assets immediately before such change
(with certain adjustments) and (ii) the 'long-term tax exempt rate' in effect
for the month in which the ownership change occurs (5.05% for ownership changes
occurring in May 1998). However, if Grand Union does not continue its historic
business or use a significant portion of its business assets in a new business
for two years after the ownership change, the annual limitation would be zero.
As stated above, Section 382 also can operate to limit built-in losses
recognized subsequent to the date of the ownership change. If a loss corporation
has a net unrealized built-in loss at the time of an ownership change (taking
into account most assets and all items of 'built-in' income and deductions),
then any built-in losses recognized during the following five years (up to the
amount of the original net built-in loss) generally will be treated as a
pre-change loss and similarly will be subject to the annual limitation.
Conversely, if the loss corporation has a net unrealized built-in gain at the
time of an ownership change, any built-in gains recognized during the following
five years (up to the amount of the original net built-in gain) generally will
increase the annual limitation in the year recognized, such that the loss
corporation would be permitted to use its pre-change losses against such
built-in gain income in addition to its regular annual allowance. In general, a
loss corporation's net unrealized built-in gain or loss will be deemed to be
zero unless it is greater than the lesser of (i) $10 million or (ii) 15% of the
fair market value of its assets (with certain adjustments) before the ownership
change. Based on the estimated reorganization value of Grand Union (see Section
V above, entitled 'PROJECTIONS AND VALUATION ANALYSIS'), Grand Union currently
anticipates that it will be in a net unrealized built-in gain position on the
Consummation Date.
An exception to the foregoing annual limitation (and built-in gain and
loss) rules generally applies where qualified (so-called 'old and cold')
creditors of the debtor receive at least 50% of the vote and value of the stock
of the reorganized debtor pursuant to a confirmed chapter 11 plan. Under this
exception, a debtor's pre-change losses are not limited on an annual basis but
are reduced by the amount of any interest deductions claimed during the three
taxable years preceding the effective date of the reorganization, and during the
part of the taxable year prior to and including the reorganization, in respect
of the debt converted into stock in the reorganization. Moreover, if this
exception applies, any further ownership change of the debtor within a two-year
period will preclude the debtor's utilization of any pre-change losses at the
time of the subsequent ownership change against future taxable income.
An old and cold creditor includes a creditor who has held its debt for at
least 18 months prior to the chapter 11 case. In addition, any stock received by
a creditor who does not become a direct or indirect 5% shareholder of the
reorganized debtor generally will be treated as received by an old and cold
creditor, other than in the case of any creditor whose participation in the plan
makes evident to the debtor that the creditor has not owned the debt for the
requisite period. Accordingly, subject to any subsequent trading in the Old
Senior Note Claims, Grand Union anticipates that it would qualify for this
exception. However, if Grand Union so desires it may elect not to apply this
exception and instead remain subject to the annual limitation and built-in gain
and loss rules described above.
3. Alternative Minimum Tax
In general, an alternative minimum tax ('AMT') is imposed on a
corporation's alterative minimum taxable income at a 20% rate to the extent such
tax exceeds the corporation's regular federal income tax. For purposes of
computing taxable income for AMT purposes, certain tax deductions and other
beneficial allowances are modified or eliminated. In particular, even though a
corporation otherwise might be able to offset all of its taxable income for
regular tax purposes by available NOL carryforwards, only 90% of a corporation's
taxable income for AMT purposes may be offset by available NOL carryforwards (as
recomputed for AMT purposes).
In addition, if a corporation undergoes an 'ownership change' within the
meaning of Section 382 of the Tax Code and is in a net unrealized built-in loss
position (as determined for AMT purposes) on the date of the ownership change,
the corporation's aggregate tax basis in its assets would be reduced for certain
AMT purposes to reflect the fair market value of such assets as of the change
date.
Any AMT that a corporation pays generally will be allowed as a
nonrefundable credit against its regular federal income tax liability in future
taxable years when the corporation is no longer subject to the AMT.
B. Consequences to Holders of Old Senior Note Claims
Pursuant to the Plan of Reorganization, holders of Old Senior Note Claims
will receive, in exchange for their allowed claims, New Common Stock.
The federal income tax consequences of the Plan of Reorganization to a
holder of an Old Senior Note Claim depends, in part, on whether such claims
constitute 'securities' for federal income tax purposes. The term 'security' is
not defined in the Tax Code or in the regulations issued thereunder and has not
been clearly defined by judicial decisions. The determination of whether a
49
particular debt constitutes a 'security' depends upon an overall evaluation of
the nature of the debt. One of the most significant factors considered in
determining whether a particular debt is a security is its original term. In
general, debt obligations issued with a weighted average maturity at issuance of
five years or less (e.g., trade debt and revolving credit obligations) do not
constitute securities, whereas debt obligations with a weighted average maturity
at issuance of ten years or more constitute securities. The following discussion
assumes that the Old Senior Note Claims constitute 'securities' for federal
income tax purposes. However, each holder is urged to consult its tax advisor
regarding the status of such claims.
1. Gain or Loss
In general, each holder of an allowed Old Senior Note Claim will not
recognize any gain or loss upon implementation of the Plan of Reorganization
(except possibly in respect of any claim for accrued interest). See
'Distributions in Discharge of Accrued Interest,' below. Accordingly, a holder's
aggregate tax basis in the New Common Stock received in satisfaction of its
claim will equal the holder's adjusted tax basis in its claim (including any
claim for accrued interest), increased by any interest income recognized in
respect of its claim and decreased by any deduction claimed in respect of any
unpaid previously accrued interest. In general, the holder's holding period for
the New Common Stock received will include the holder's holding period for the
claim, except to the extent the New Common Stock was issued in respect of a
claim for accrued interest.
2. Distributions in Discharge of Accrued Interest
Pursuant to the Plan of Reorganization, all distributions in respect of
allowed Old Senior Note Claims will be allocated first to the principal amount
of the Old Senior Notes, with any excess allocated to unpaid accrued interest.
However, there is no assurance that such allocation would be respected by the
IRS for federal income tax purposes. In general, to the extent any amount
received (whether stock, cash or other property) by a holder of a debt is
received in satisfaction of accrued interest during its holding period, such
amount will be taxable to the holder as interest income (if not previously
included in the holder's gross income). Conversely, a holder generally
recognizes a deductible loss to the extent any accrued interest claimed was
previously included in its gross income and is not paid in full. Each holder of
an Old Senior Note Claim is urged to consult its tax advisor regarding the
allocation of consideration and the deductibility of unpaid interest for tax
purposes.
3. Subsequent Sale of New Common Stock
Any gain recognized by a holder upon a subsequent taxable disposition of
New Common Stock received pursuant to the Plan of Reorganization in satisfaction
of an Old Senior Note Claim (or any stock or other property received for it in a
later tax-free exchange) will be treated as ordinary income to the extent of (i)
any bad debt deductions (or additions to a bad debt reserve) claimed with
respect to its claim and any ordinary loss deduction incurred upon satisfaction
of its claim, less any income (other than interest income) recognized by the
holder upon satisfaction of its claim, and (ii) with respect to a cash-basis
holder, also any amounts which would have been included in its gross income if
the holder's claim had been satisfied in full but which was not included by
reason of the cash method of accounting.
In addition, the Treasury Department is expected to promulgate regulations
that will provide that any accrued 'market discount' not treated as ordinary
income upon a tax-free exchange of market discount bonds would carry over to the
nonrecognition property received in the exchange. If such regulations are
promulgated and applicable to the Plan of Reorganization, any holder of an Old
Senior Note Claim which has accrued market discount would carry over such
accrued market discount to the New Common Stock received pursuant to the Plan of
Reorganization, such that any gain recognized by the holder upon a subsequent
disposition of such New Common Stock also would be treated as ordinary income to
the extent of any accrued market discount not previously included in income. In
general, a claim will have accrued 'market discount' if such claim was acquired
after its original issuance at a discount to its adjusted issue price.
4. Withholding
All distributions to holders of allowed claims under the Plan of
Reorganization are subject to any applicable withholding. Under federal income
tax law, interest, dividends, and other reportable payments may, under certain
circumstances, be subject to 'backup withholding' at a 31% rate. Backup
withholding generally applies if the holder (a) fails to furnish its social
security number or other taxpayer identification number ('TIN'), (b) furnishes
an incorrect TIN, (c) fails properly to report interest or dividends, or (d)
under certain circumstances, fails to provide a certified statement, signed
under penalty of perjury, that the TIN provided is its correct number and that
it is not subject to backup withholding. Backup withholding is not an additional
tax but merely an advance payment, which may be refunded to the extent it
results in an overpayment of tax. Certain persons are exempt from backup
withholding, including, in certain circumstances, corporations and financial
institutions.
50
C. Consequences to Holders of Old Preferred Stock
Pursuant to the Plan of Reorganization, holders of Old Preferred Stock will
receive, in exchange for their allowed Old Preferred Stock Interests, New
Warrants.
In general, a holder of Old Preferred Stock will recognize gain or loss
(subject to the 'wash sale' rules discussed below) in an amount equal to the
difference between (i) the fair market value of the warrants received by such
holder and (ii) the tax basis in its Old Preferred Stock. The character of any
gain or loss recognized as long-term, mid-term or short-term capital gain or
loss or as ordinary income or loss will be determined by a number of factors,
including the tax status of the holder, whether the Old Preferred Stock
constitutes a capital asset in the hands of the holder, and whether the Old
Preferred Stock has been held for more than eighteen months or one year at the
Consummation Date.
To the extent a loss would otherwise be recognizable on the exchange, such
loss may be effectively deferred under the 'wash sale' rules of the Tax Code.
Section 1091(a) of the Tax Code provides for the disallowance of a loss on the
sale or other disposition of shares of stock or securities where it appears
that, within a period beginning 30 days before the date of such sale or
disposition and ending 30 days after such date, the holder acquired, or has
entered into a contract or option to acquire, substantially identical stock or
securities. If the Old Preferred Stock Interests and the New Common Stock
receivable upon exercise of the New Warrants are considered 'substantially
identical' and the exchange of Old Preferred Stock Interests for the New
Warrants results in a loss to the holder, such loss may be disallowed and added
to the tax basis of the New Warrants received. The extent to which such loss
would be disallowed is unclear. Holders of Old Preferred Stock Interests should
consult their tax advisors.
D. Consequences to Holders of Old Common Stock
Pursuant to the Plan of Reorganization, holders of Old Common Stock
Interests will receive, in cancellation of their allowed Common Stock Interests,
Series 1 Warrants. However, under section 7.13 of the Plan of Reorganization,
any holder of Old Common Stock that does not desire to receive any consideration
in cancellation of its shares of Old Common Stock may send a letter to Grand
Union so directing.
A holder of Old Common Stock Interests that receives Series 1 Warrants in
cancellation of its Old Common Stock Interests generally will recognize gain or,
subject to the 'wash sale' rules of the Tax Code, loss in an amount equal to the
difference between (i) the fair market value of the Series 1 Warrants received
by such holder and (ii) the tax basis in its Old Common Stock. To the extent a
loss would otherwise be recognizable on the exchange, such loss will be
disallowed, either in whole or in part, under Section 1091 (the 'wash sale'
rules) of the Tax Code and added to the tax basis of the Series 1 Warrants
received. The extent to which such loss would be disallowed is unclear. Holders
of Old Common Stock Interests should consult their tax advisors. The character
of any gain or loss recognized as long-term, mid-term or short-term capital gain
or loss or as ordinary income or loss will be determined by a number of factors,
including the tax status of the holder, whether the Old Common Stock Interests
constitute a capital asset in the hands of the holder, and whether the Old
Common Stock Interests have been held for more than eighteen months or one year
at Consummation Date.
In addition, holders of Old Common Stock Interests who acquired their stock
under The Grand Union Company Associate Stock Purchase Plan should consult their
tax advisors regarding the particular tax consequences to them of the
cancellation of their stock pursuant to the Plan of Reorganization.
THE FOREGOING SUMMARY HAS BEEN PROVIDED FOR INFORMATIONAL PURPOSES ONLY.
ALL HOLDERS OF CLAIMS AND EQUITY INTERESTS ARE URGED TO CONSULT THEIR TAX
ADVISORS CONCERNING THE FEDERAL, STATE, LOCAL, AND OTHER TAX CONSEQUENCES
APPLICABLE UNDER THE PLAN OF REORGANIZATION.
51
XII.
CONCLUSION
Grand Union believes the Plan of Reorganization is in the best interests of
all creditors and equity holders and urges the holders of impaired claims in
Class 4 (Old Senior Note Claims) and impaired interests in Class 6 (Old
Preferred Stock Interests) to vote to accept the Plan of Reorganization and to
evidence such acceptance by returning their Ballots so that they will be
received not later than 5:00 p.m. (Eastern Time) on June 22, 1998.
May 22, 1998
Respectfully submitted,
The Grand Union Company
By: /s/ JEFFREY P. FREIMARK
---------------------------------
Name: Jeffrey P. Freimark
Title: Executive Vice President and
Chief Financial Officer
CO-ATTORNEYS:
/s/ JEFFREY L. TANENBAUM
- ---------------------------------
Jeffrey L. Tanenbaum (JT 9797)
Judy G.Z. Liu (JL 6449)
Weil, Gotshal & Manges LLP
767 Fifth Avenue
New York, New York 10153
(212) 310-8000
/s/ HOWARD S. GREENBERG
- --------------------------------
Howard S. Greenberg (HSG 8559)
Ravin, Greenberg & Marks, P.A.
101 Eisenhower Parkway
Roseland, NJ 07068
(973) 226-1500
52
EXHIBIT 1
PLAN OF REORGANIZATION
UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF NEW JERSEY
..............................................................................
In re
THE GRAND UNION COMPANY,
Debtor.
Chapter 11 Case No.
98 B
..............................................................................
DEBTOR'S PLAN OF REORGANIZATION
-------------------------------
UNDER CHAPTER 11 OF THE BANKRUPTCY CODE
---------------------------------------
WEIL, GOTSHAL & MANGES LLP RAVIN, GREENBERG & MARKS, P.A.
Co-Attorneys for The Grand Co-Attorneys for The Grand
Union Company Union Company
767 Fifth Avenue 101 Eisenhower Parkway
New York, New York 10153 Roseland, NJ 07068
(212) 310-8000 (973) 226-1500
Dated: June [ ], 1998
TABLE OF CONTENTS
Page
-----
DEBTOR'S PLAN OF REORGANIZATION UNDER CHAPTER 11 OF THE BANKRUPTCY CODE.................................................. 1
SECTION 1. DEFINITIONS AND INTERPRETATION.......................................................................... 1
A. Definitions..................................................................................... 1
B. Interpretation; Application of Definitions and Rules of Construction............................ 5
SECTION 2. PROVISIONS FOR PAYMENT OF ADMINISTRATIVE EXPENSE CLAIMS AND PRIORITY TAX CLAIMS.........................
5
2.1. Administrative Expense Claims................................................................... 5
2.2. Priority Tax Claims............................................................................. 6
SECTION 3. CLASSIFICATION OF CLAIMS AND EQUITY INTERESTS........................................................... 6
SECTION 4. PROVISIONS FOR TREATMENT OF CLAIMS AND EQUITY INTERESTS................................................. 6
4.1. Priority Non-Tax Claims (Class 1)............................................................... 6
4.2. Supplemental Term Loan Claims (Class 2)......................................................... 6
4.3. Other Secured Claims (Class 3).................................................................. 6
4.4. Old Senior Note Claims (Class 4)................................................................ 7
4.5. General Unsecured Claims (Class 5).............................................................. 7
4.6. Old Preferred Stock Interests (Class 6)......................................................... 7
4.7. Old Common Stock Interests (Class 7)............................................................ 7
4.8. Old Warrants (Class 8).......................................................................... 7
SECTION 5. IDENTIFICATION OF CLASSES OF CLAIMS AND INTERESTS IMPAIRED; ACCEPTANCE OR REJECTION OF THIS PLAN OF
REORGANIZATION.......................................................................................... 7
5.1. Holders of Claims and Equity Interests Entitled to Vote......................................... 7
SECTION 6. MEANS OF IMPLEMENTATION................................................................................. 7
6.1. Exit Facility................................................................................... 7
6.2. Issuance of New Securities...................................................................... 7
6.3. Registration Rights Agreement................................................................... 7
6.4. New Warrant Agreement........................................................................... 8
6.5. Cancellation of Existing Securities and Agreements.............................................. 8
6.6. Corporate Action................................................................................ 8
SECTION 7. PROVISIONS GOVERNING DISTRIBUTIONS...................................................................... 8
7.1. Date of Distributions........................................................................... 8
7.2. Disbursing Agent................................................................................ 8
7.3. Surrender of Instruments........................................................................ 8
7.4. Compensation of Professionals................................................................... 9
7.5. Delivery of Distributions....................................................................... 9
7.6. Manner of Payment Under Plan of Reorganization.................................................. 9
7.7. Fractional Shares............................................................................... 9
7.8. Setoffs and Recoupment.......................................................................... 9
7.9. Distributions After Consummation Date........................................................... 9
7.10. Rights and Powers of Disbursing Agent........................................................... 9
7.11. Exculpation..................................................................................... 9
7.12. Allocation Relating to Old Senior Notes......................................................... 10
7.13. Voluntary Cancellation of Old Common Stock; Return of Warrants.................................. 10
7.14 Allowance of Certain Claims..................................................................... 10
SECTION 8. PROCEDURES FOR TREATING DISPUTED CLAIMS UNDER PLAN OF REORGANIZATION.................................... 10
8.1. Disputed Claims................................................................................. 10
8.2. Objections to Claims............................................................................ 10
8.3. No Distributions Pending Allowance.............................................................. 11
8.4. Distributions After Allowance................................................................... 11
SECTION 9. PROVISIONS GOVERNING EXECUTORY CONTRACTS AND UNEXPIRED LEASES........................................... 11
SECTION 10. CONDITIONS PRECEDENT TO CONSUMMATION DATE............................................................... 11
10.1. Conditions Precedent to Consummation Date of Plan of Reorganization............................. 11
10.2. Waiver of Conditions Precedent.................................................................. 11
i
SECTION 11. EFFECT OF CONFIRMATION.................................................................................. 11
11.1. Vesting of Assets............................................................................... 11
11.2. Binding Effect.................................................................................. 12
11.3. Discharge of Debtor............................................................................. 12
11.4. Term of Injunctions or Stays.................................................................... 12
11.5. Indemnification Obligations..................................................................... 12
11.6. Limited Release................................................................................. 12
SECTION 12. WAIVER OF CLAIMS........................................................................................ 12
12.1. Avoidance Actions............................................................................... 12
SECTION 13. RETENTION OF JURISDICTION............................................................................... 12
SECTION 14. MISCELLANEOUS PROVISIONS................................................................................ 13
14.1. Payment of Statutory Fees....................................................................... 13
14.2. Retiree Benefits................................................................................ 13
14.3. Benefit Plans................................................................................... 13
14.4. Administrative Expenses Incurred After the Confirmation Date.................................... 13
14.5. Section 1125(e) of the Bankruptcy Code.......................................................... 14
14.6. Compliance with Tax Requirements................................................................ 14
14.7. Severability of Plan Provisions................................................................. 14
14.8. Governing Law................................................................................... 14
14.9. Notices......................................................................................... 14
Exhibit to Plan of Reorganization
Exhibit A New Warrant Agreement
ii
DEBTOR'S PLAN OF REORGANIZATION
UNDER CHAPTER 11 OF THE BANKRUPTCY CODE
The Grand Union Company proposes the following chapter 11 Plan of
Reorganization, dated as of [date], 1998, pursuant to section 1121(a) of the
Bankruptcy Code:
SECTION 1. DEFINITIONS AND INTERPRETATION
A. Definitions.
The following terms used herein shall have the respective meanings defined
below:
1.1. Administrative Expense Claim means any right to payment constituting a
cost or expense of administration of the Reorganization Case allowed under
sections 503(b) and 507(a)(1) of the Bankruptcy Code, including, without
limitation, (a) any actual and necessary costs and expenses of preserving the
Debtor's estate, (b) any actual and necessary costs and expenses of operating
the Debtor's business, (c) any indebtedness or obligations incurred or assumed
by the Debtor in Possession during the Reorganization Case, including, without
limitation, the DIP Obligations, (d) any allowances of compensation and
reimbursement of expenses to the extent allowed by Final Order under section 330
or 503 of the Bankruptcy Code, and (e) any fees or charges assessed against the
Debtor's estate under section 1930, title 28, United States Code.
1.2. Agent means Bankers Trust Company, as agent under the Credit Agreement
(prior to the Petition Date) and the BT DIP Credit Agreement (on and after the
Petition Date), or any successor agent appointed in accordance with such
agreements.
1.3. Allowed means, with reference to any Claim or Equity Interest, (a) any
Claim or Equity Interest as to which no objection to allowance has been
interposed on or before the Confirmation Date or such other applicable period of
limitation fixed by the Bankruptcy Code, the Bankruptcy Rules, or the Bankruptcy
Court, or as to which any objection has been determined by a Final Order to the
extent such objection is determined in favor of the respective holder, (b) any
Claim or Equity Interest as to which the liability of the Debtor and the amount
thereof are determined by final order of a court of competent jurisdiction other
than the Bankruptcy Court or (c) any Claim or Equity Interest expressly allowed
hereunder.
1.4. Alternate DIP Credit Agreement means a debtor-in-possession credit
facility that the Debtor may obtain from lender(s) other than the lenders under
the BT DIP Credit Agreement on terms and conditions that are more favorable to
Grand Union than the BT DIP Credit Facility and reasonably acceptable to Grand
Union and an Unofficial Noteholder Committee Majority; provided, however, that
the Alternate DIP Credit Agreement shall (a) be consistent with the Credit
Agreement, (b) provide for the satisfaction in full of all Tranche A/B Claims
from the first advances made under such agreement, or if such facility does not
provide for the satisfaction in full of such claims in such manner, the lenders
who hold Tranche A/B Claims shall have consented to the terms of the Alternate
DIP Credit Agreement, (c) not affect the Supplemental Term Loan Claims, which
will be reinstated and rendered unimpaired in accordance with section 1124 of
the Bankruptcy Code, (d) not be in an amount in excess of $172,022,020 without
(i) the consent of the lenders who hold the requisite majority of Supplemental
Term Loan Claims necessary to bind such lenders or (ii) providing adequate
protection to such lenders as provided in the Credit Agreement, and (e) so long
as any Tranche A/B Claims remain outstanding, not grant to the lenders under
such Alternate DIP Credit Agreement any liens or priorities which are senior to,
or pari passu with, the liens and priorities of the holders of Tranche A/B
Claims.
1.5. Bankruptcy Code means title 11, United States Code, as applicable to
the Reorganization Case, as in effect on the Confirmation Date.
1.6. Bankruptcy Court means the United States District Court for the
District of New Jersey having jurisdiction over the Reorganization Case and, to
the extent of any reference made under section 157, title 28, United States
Code, the unit of such District Court having jurisdiction over the
Reorganization Case under section 151, title 28, United States Code.
1.7. Bankruptcy Rules means the Federal Rules of Bankruptcy Procedure as
promulgated by the United States Supreme Court under section 2075, title 28,
United States Code, as amended from time to time, applicable to the
Reorganization Case, and any Local Rules of the Bankruptcy Court.
1.8. Benefit Plans means all benefit plans, policies and programs sponsored
by The Grand Union Company, including, without limitation, all savings plans,
retirement pension plans, The Grand Union Company Executive Annual Incentive
Bonus Plan as amended as described in the Disclosure Statement, The Grand Union
Company 1995 Equity Incentive Plan and The Grand Union Company 1995 Non-Employee
Directors' Stock Option Plan.
1.9. BT DIP Credit Agreement means the Debtor-In-Possession Credit
Agreement among the Debtor, the Agent, and the Secured Banks, dated as of the
Petition Date, which amends and restates the Credit Agreement in accordance with
that certain commitment letter dated March 19, 1998 among such parties and as
described in section III.A. of the Disclosure Statement.
1.10. BT Exit Facility Commitment means that certain commitment for an exit
facility in the aggregate principal amount of $250 million provided by Bankers
Trust, as agent for lenders to be party thereto, and evidenced by that certain
commitment letter dated March 19, 1998.
1.11. Business Day means any day other than a Saturday, a Sunday or any
other day on which banking institutions in New York, New York are required or
authorized to close by law or executive order.
1.12. Cash means legal tender of the United States of America.
1.13. Certificates of Elimination means the certificates to be filed by
Reorganized Grand Union with the Secretary of State of the State of Delaware to
cancel the certificates of designation relating to the Old Preferred Stock
Interests in accordance with sections 6.5 and 6.6 hereof.
1.14. Claim means (a) any right to payment from the Debtor, whether or not
such right is reduced to judgment, liquidated, unliquidated, fixed, contingent,
matured, unmatured, disputed, undisputed, legal, equitable, secured, or
unsecured, known or unknown, or (b) any right to an equitable remedy for breach
of performance if such breach gives rise to a right of payment from the Debtor,
whether or not such right to an equitable remedy is reduced to judgment, fixed,
contingent, matured, unmatured, disputed, undisputed, secured, or unsecured,
known or unknown.
1.15. Class means any group of substantially similar Claims or Equity
Interests classified by this Plan of Reorganization pursuant to section
1129(a)(1) of the Bankruptcy Code.
1.16. Collateral means any property or interest in property of the Debtor's
estate subject to a Lien to secure the payment or performance of a Claim, which
Lien is not subject to avoidance under the Bankruptcy Code.
1.17. Confirmation Date means the date on which the Clerk of the Bankruptcy
Court enters the Confirmation Order on its docket.
1.18. Confirmation Hearing means the hearing to be held by the Bankruptcy
Court regarding confirmation of this Plan of Reorganization, as such hearing may
be adjourned or continued from time to time.
1.19. Confirmation Order means the order of the Bankruptcy Court confirming
this Plan of Reorganization, which shall be in a form reasonably acceptable to
the Debtor, an Unofficial Noteholder Committee Majority, holders of the
requisite majority of outstanding Secured Credit Agreement Claims or DIP
Obligations as of the Confirmation Date necessary to bind such holders, and the
holders of two-thirds of the number of shares constituting the Old Preferred
Stock Interests; but, with respect to such Old Preferred Stock Interests, only
to the extent that such order affects such interests.
1.20. Consummation Date means the first Business Day on which all the
conditions precedent to the Consummation Date specified in section 10.1 hereof
shall have been satisfied or waived as provided in section 10.2 hereof;
provided, however, that if a stay of the Confirmation Order is in effect, the
Consummation Date shall be the first Business Day after such stay is no longer
in effect.
1.21. Credit Agreement means the Amended and Restated Credit Agreement,
among the Debtor, the Agent and the Secured Banks, dated as of June 15, 1995, as
amended.
1.22. Debtor means The Grand Union Company, a Delaware corporation, the
debtor in the Reorganization Case.
1.23. Debtor in Possession means the Debtor in its capacity as a debtor in
possession in the Reorganization Case under sections 1107(a) and 1108 of the
Bankruptcy Code.
1.24. DIP Credit Agreement means (i) the BT DIP Credit Agreement or (ii)
the Alternate DIP Credit Agreement.
1.25. DIP Obligations means all obligations under the DIP Credit Agreement
exclusive, in the case of the BT DIP Credit Agreement, of any obligations with
respect to Supplemental Term Loan Claims.
1.26. Disbursing Agent means any entity in its capacity as a disbursing
agent under section 7.2 hereof.
1.27. Disclosure Statement means that certain disclosure document relating
to the Debtor's Plan of Reorganization, including, without limitation, all
exhibits and schedules thereto, distributed to the holders of Old Senior Notes
and Old Preferred Stock Interests on May 22, 1998 in reliance upon the exemption
from registration specified in section 3(a)(9) of the Securities Act.
1.28. Disputed Claim means, with respect to a Claim or Equity Interest, any
such Claim or Equity Interest proof of which was filed with the Bankruptcy Court
and (a) which has been or hereafter is listed on the Schedules as unliquidated,
disputed or contingent, and which has not been resolved by written agreement of
the parties or an order of the Bankruptcy Court, or (b) as to which the Debtor
or any other party in interest has interposed a timely objection in accordance
with the Bankruptcy Code and the Bankruptcy Rules, which objection has not been
withdrawn or determined by a Final Order. Prior to (i) the time an objection has
been filed and (ii) the expiration of the time within which to object to such
Claim or Equity Interest set forth herein or otherwise established by order of
the Bankruptcy Court, a Claim or Equity Interest shall be considered a Disputed
Claim or Disputed Equity Interest to the extent that the amount of the Claim or
Equity Interest specified in a proof of Claim or Equity Interest exceeds the
amount of the Claim or Equity Interest scheduled by the Debtor as not disputed,
contingent or unliquidated.
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1.29. Exchange Act means the Securities and Exchange Act of 1934, as
amended.
1.30. Exit Facility means (i) that certain term loan and working capital
facility in the aggregate principal amount of $300 million to be provided by the
lenders to be party thereto, SBC Warburg Dillon Read and Lehman Brothers Inc.,
as co-arrangers and advisors, Swiss Bank Corporation, as syndication agent, and
Lehman Commercial Paper Inc., as administrative agent, for the operation of the
Debtor's business after the Consummation Date, which facility is to be evidenced
by the Exit Facility Documents, or (ii) such other exit facility that the Debtor
may obtain on terms and conditions that are reasonably acceptable to the Debtor
and an Unofficial Noteholder Committee Majority.
1.31. Exit Facility Documents means the documents evidencing the Exit
Facility to be executed on the Consummation Date by Reorganized Grand Union, the
lenders to be party thereto and the respective agents and arrangers for such
Exit Facility in a form reasonably acceptable to the Debtor and an Unofficial
Noteholder Committee Majority.
1.32. Equity Interest means the interest of any holder of equity securities
of the Debtor represented by any issued and outstanding shares of common or
preferred stock or other instrument evidencing a present ownership interest in
the Debtor, whether or not transferable, or any option, warrant or right,
contractual or otherwise, to acquire any such interest.
1.33. Final Order means an order or judgment of the Bankruptcy Court
entered by the Clerk of the Bankruptcy Court on the docket in the Reorganization
Case, which has not been reversed, vacated or stayed and as to which (a) the
time to appeal, petition for certiorari or move for a new trial, reargument or
rehearing has expired and as to which no appeal, petition for certiorari or
other proceedings for a new trial, reargument or rehearing shall then be pending
or (b) if an appeal, writ of certiorari, new trial, reargument or rehearing
thereof has been sought, such order or judgment of the Bankruptcy Court shall
have been affirmed by the highest court to which such order was appealed, or
certiorari shall have been denied or a new trial, reargument or rehearing shall
have been denied or resulted in no modification of such order, and the time to
take any further appeal, petition for certiorari or move for a new trial,
reargument or rehearing shall have expired; provided, however, that the
possibility that a motion under Rule 60 of the Federal Rules of Civil Procedure,
or any analogous rule under the Bankruptcy Rules, may be filed relating to such
order, shall not cause such order not to be a Final Order.
1.34. General Unsecured Claim means any Unsecured Claim other than an Old
Senior Note Claim.
1.35. Lien means any charge against, encumbrance upon or other interest in
property, the purpose of which is to secure payment of a debt or performance of
an obligation.
1.36. New Common Stock means the shares of common stock of Reorganized
Grand Union to be issued and outstanding as of the Consummation Date.
1.37. New Warrants means the Series 1 Warrants, the Series 2 Warrants and
the Series 3 Warrants, which are issued pursuant to, and exercisable in
accordance with, the terms and conditions of the New Warrant Agreement.
1.38. New Warrant Agreement means the warrant agreement governing the
issuance of the New Warrants, a copy of which is annexed hereto as Exhibit A.
1.39. Old Common Stock Interest means any Equity Interest other than an Old
Preferred Stock Interest and an Old Warrant, including all rights, interests and
Claims (including Claims for fraud, misrepresentation, rescission,
reimbursement, contribution or damages) arising under or in connection with (i)
all agreements entered into by the Debtor in connection with the issuance of
such interests or (ii) the purchase or sale of such interests.
1.40. Old Indenture means that certain Indenture, dated as of June 15,
1995, between the Debtor and the Old Indenture Trustee relating to the Old
Senior Notes.
1.41. Old Indenture Trustee means IBJ Schroder Bank & Trust Company or a
successor indenture trustee appointed in accordance with the Old Indenture.
1.42. Old Preferred Stock Interest means any of the issued and outstanding
shares of the Debtor's Class A Convertible Preferred Stock and the Debtor's
Class B Convertible Preferred Stock, including all rights, interests and Claims
(including Claims for fraud, misrepresentation, rescission, reimbursement,
contribution or damages) arising under or in connection with (i) all agreements
entered into by the Debtor in connection with the issuance of such interests or
(ii) the purchase or sale of such interests.
1.43. Old Senior Note Claim means a Claim arising under or in connection
with the Old Senior Notes and the Old Indenture.
1.44. Old Senior Notes mean those 12% senior notes due September 1, 2004
issued by the Debtor under the Old Indenture.
1.45. Old Warrants means all incentive stock options, non-qualified stock
options and stock appreciation rights granted under any Debtor-sponsored stock
option plans and any other options, warrants or rights, contractual or
otherwise, if any, to acquire an Equity Interest, including the warrants issued
pursuant to the Warrant Agreement, dated as of June 15, 1995, between the Debtor
and American Stock Transfer & Trust Company, as Warrant Agent.
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1.46. Other Secured Claims means any Secured Claim not constituting a
Secured Credit Agreement Claim.
1.47. Petition Date means [date], 1998, the date on which the Debtor
commenced its Reorganization Case.
1.48. Plan of Reorganization means this Plan of Reorganization dated as of
[date], 1998, including, without limitation, the exhibits and schedules hereto,
as the same may be amended or modified from time to time in accordance with the
provisions of the Bankruptcy Code and the terms hereof.
1.49. Priority Non-Tax Claim means any Claim other than an Administrative
Expense Claim or a Priority Tax Claim, entitled to priority in payment as
specified in section 507(a)(2), (3), (4), (5), (6), (7) or (9) of the Bankruptcy
Code.
1.50. Priority Tax Claim means any Claim of a governmental unit of the kind
entitled to priority in payment as specified in sections 502(i) and 507(a)(8) of
the Bankruptcy Code.
1.51. Ratable Proportion means, with reference to any distribution on
account of any Claim or Equity Interest in any Class, a distribution equal in
amount to the ratio (expressed as a percentage) that the amount of such Claim or
number of shares evidencing such Equity Interests, as applicable, bears to the
aggregate amount of Claims or aggregate number of outstanding shares of Equity
Interests in the same Class, as applicable.
1.52. Registration Rights Agreement means a Registration Rights Agreement
to be signed by Reorganized Grand Union for the benefit of certain holders of
Old Senior Note Claims that receive New Common Stock under this Plan of
Reorganization, containing such terms as are described in section IV.C.3.d. of
the Disclosure Statement, in a form reasonably acceptable to the Debtor and an
Unofficial Noteholder Committee Majority.
1.53. Reorganization Case means the Debtor's voluntary case filed with the
Bankruptcy Court under chapter 11 of the Bankruptcy Code.
1.54. Reorganized Grand Union means the Debtor, as it will be reorganized
as of the Consummation Date in accordance with this Plan of Reorganization.
1.55. Schedules means the schedules of assets and liabilities and the
statement of financial affairs filed by the Debtor under section 521 of the
Bankruptcy Code, Bankruptcy Rule 1007 and the Official Bankruptcy Forms of the
Bankruptcy Rules as such schedules and statements have been or may be
supplemented or amended through the Confirmation Date.
1.56. Secured Banks means the lending institutions party to the Credit
Agreement.
1.57. Secured Claim means a Claim secured by a Lien on Collateral to the
extent of the value of such Collateral (i) as set forth in this Plan of
Reorganization, (ii) as agreed to by the holder of such Claim and the Debtor
(with the consent of an Unofficial Noteholder Committee Majority, which shall
not be unreasonably withheld) or (iii) as determined by a Final Order in
accordance with section 506(a) of the Bankruptcy Code or, in the event that such
Claim is subject to setoff under section 553 of the Bankruptcy Code, to the
extent of such setoff.
1.58. Secured Credit Agreement Claim means the Tranche A/B Claims and the
Supplemental Term Loan Claims.
1.59. Securities Act means the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder.
1.60. Senior Managers means each of J. Wayne Harris, Jack W. Partridge,
Jr., Gary M. Philbin and Jeffrey P. Freimark, who serve as senior managers of
the Debtor.
1.61. Senior Management Employment Agreements means (i) that certain
employment agreement between the Debtor and J. Wayne Harris, dated August 1,
1997, (ii) that certain employment agreement between the Debtor and Jack W.
Partridge, dated January 5, 1998, (iii) that certain employment agreement
between the Debtor and Gary M. Philbin, dated October 3, 1997, (iv) the
amendments to each of such employment agreements to be executed prior to the
Petition Date, which amendments shall contain such terms as are described in
section IV.H. of the Disclosure Statement, and (v) that certain employment
agreement between the Debtor and Jeffrey P. Freimark to be entered into prior to
the Petition Date and which shall contain the terms described in section IV.H.4.
of the Disclosure Statement; provided, however, that (a) the effectiveness of
such amendments and the agreement with Mr. Freimark are subject to the
occurrence of the Consummation Date and (b) such amendments and agreements,
including any option provisions in (or entered into in connection with) any
amendments or agreements, shall be in a form reasonably acceptable to the Debtor
and an Unofficial Noteholder Committee Majority.
1.62. Series 1 Warrants means the five-year warrants to purchase an
aggregate of 4,324,015 shares of New Common Stock, representing the right to
purchase in the aggregate approximately 12% of the shares of New Common Stock at
an exercise price of $19.82 per share, consisting of rights to purchase (i)
3,783,513 shares (representing approximately 10.5% of the shares of New Common
Stock), which will be issued in accordance with section 4.6 hereof and the New
Warrant Agreement and (ii) 540,502 shares (representing approximately 1.5% of
the shares of New Common Stock), which will be issued in accordance with section
4.7 hereof and the New Warrant Agreement.
4
1.63. Series 2 Warrants means the five-year warrants to purchase an
aggregate of 942,791 shares of New Common Stock, representing the right to
purchase in the aggregate approximately 2.5% of the shares of New Common Stock
at an exercise price of $23.15 per share, to be issued in accordance with
section 4.6 hereof and the New Warrant Agreement.
1.64. Series 3 Warrants means the four-year warrants to purchase an
aggregate of 306,122 shares of New Common Stock, representing the right to
purchase in the aggregate approximately 1% of the shares of New Common Stock at
an exercise price of $12.32 per share, to be issued in accordance with section
4.6 hereof and the New Warrant Agreement.
1.65. Supplemental Term Loan Claim means any Claim arising under or in
connection with the Supplemental Term Loan (as defined in the Credit Agreement)
or any note issued in connection therewith, which Supplemental Term Loan Claim
shall not be converted to a DIP Obligation arising under or in connection with
the BT DIP Credit Agreement, in accordance with the terms of such BT DIP Credit
Agreement and any order of the Bankruptcy Court approving such BT DIP Credit
Agreement; provided, however, that all fees and expenses reimbursable under the
Credit Agreement (including, without limitation, all fees and expenses of the
Agent and its financial and legal advisors) shall be deemed Tranche A/B Claims.
1.66. Tort Claim means any Claim related to personal injury, property
damage, products liability or other similar Claims against the Debtor.
1.67. Tranche A/B Claim means any Claim under the Credit Agreement that is
not a Supplemental Term Loan Claim and includes any fees and expenses
reimbursable under the Credit Agreement (including, without limitation, all fees
and expenses of the Agent and its financial and legal advisors), all of which
shall be converted to DIP Obligations in the event the BT DIP Credit Agreement
is approved by Final Order of the Bankruptcy Court.
1.68. Unofficial Noteholder Committee means the unofficial committee of
holders of Old Senior Notes, whose initial members are Appaloosa Management LP,
Conseco Capital Management, Contrarian Capital Advisors LLC, Farallon Capital
Management, L.L.C., Lehman Brothers, Inc., Merrill Lynch Phoenix Fund, Inc.,
Swiss Bank Corporation, and Turnberry Capital; provided, however, that no new
members shall be added to the Unofficial Noteholder Committee without the
consent of the Debtor, which consent shall not be unreasonably withheld.
1.69. Unofficial Noteholder Committee Majority means at any time, the
holders of a majority in principal amount of the Old Senior Notes held in the
aggregate by the members of the Unofficial Noteholder Committee at such time.
1.70. Unsecured Claim means any Claim against the Debtor that is not an
Administrative Expense Claim, a Priority Non-Tax Claim, a Priority Tax Claim or
a Secured Claim.
1.71. U.S. Trustee means the United States Trustee appointed under section
581, title 28, United States Code to serve in the District of New Jersey.
B. Interpretation; Application of Definitions and Rules of Construction.
Unless otherwise specified, all section, schedule or exhibit references in
this Plan of Reorganization are to the respective section in, article of, or
schedule or exhibit to, this Plan of Reorganization, as the same may be amended,
waived or modified from time to time. The words 'herein,' 'hereof,' 'hereto,'
'hereunder' and other words of similar import refer to this Plan of
Reorganization as a whole and not to any particular section, subsection or
clause contained in this Plan of Reorganization. A term used herein that is not
defined herein shall have the meaning assigned to that term in the Bankruptcy
Code. The rules of construction contained in section 102 of the Bankruptcy Code
shall apply to the construction of this Plan of Reorganization. The headings in
this Plan of Reorganization are for convenience of reference only and shall not
limit or otherwise affect the provisions hereof.
SECTION 2. PROVISIONS FOR PAYMENT OF ADMINISTRATIVE EXPENSE CLAIMS AND
PRIORITY TAX CLAIMS
2.1. Administrative Expense Claims.
(a) On the Consummation Date, except to the extent that a holder of an
Allowed Administrative Expense Claim agrees to a different treatment of such
Administrative Expense Claim, Reorganized Grand Union shall pay to each holder
of an Allowed Administrative Expense Claim Cash in an amount equal to such
Allowed Administrative Expense Claim; provided, however, that Allowed
Administrative Expense Claims representing liabilities incurred in the ordinary
course of business by the Debtor in Possession or liabilities arising under
loans or advances to or other obligations incurred by the Debtor in Possession,
whether or not incurred in the ordinary course of business, shall be assumed and
paid by the Debtor in the ordinary course of business, consistent with past
practice and in accordance with the terms and subject to the conditions of any
agreements governing, instruments evidencing or other documents relating to such
transactions.
5
(b) All DIP Obligations, including any Claims under the Credit Agreement
which have been converted on or after the Petition Date to obligations under the
BT DIP Credit Agreement in accordance with any order of the Bankruptcy Court,
shall be deemed Allowed Administrative Expense Claims and paid in full in Cash
on the Consummation Date in accordance with this section 2.1.
(c) The Debtor shall pay the reasonable professional fees and expenses of
the attorneys and the financial advisor to the Unofficial Noteholder Committee,
the Secured Banks (including the lenders under the BT DIP Credit Agreement if
utilized by the Debtor), and the Agent as Administrative Expense Claims in
accordance with subsection 2.1(a) above without such parties being required to
file with the Bankruptcy Court an application under section 503(b) of the
Bankruptcy Code or otherwise seek approval of the Bankruptcy Court.
2.2. Priority Tax Claims.
On the Consummation Date, except to the extent that a holder of an Allowed
Priority Tax Claim agrees to a different treatment of such Allowed Priority Tax
Claim, Reorganized Grand Union shall pay to each holder of an Allowed Priority
Tax Claim Cash in an amount equal to such Allowed Priority Tax Claim. All
Allowed Priority Tax Claims which are not due and payable on or before the
Consummation Date shall be paid in the ordinary course of business in accordance
with the terms thereof.
SECTION 3. CLASSIFICATION OF CLAIMS AND EQUITY INTERESTS
Claims against and Equity Interests in the Debtor are divided into the
following Classes:
Class 1--Priority Non-Tax Claims
Class 2--Supplemental Term Loan Claims
Class 3--Other Secured Claims
Class 4--Old Senior Note Claims
Class 5--General Unsecured Claims
Class 6--Old Preferred Stock Interests
Class 7--Old Common Stock Interests
Class 8--Old Warrants
SECTION 4. PROVISIONS FOR TREATMENT OF CLAIMS AND EQUITY INTERESTS
4.1. Priority Non-Tax Claims (Class 1).
On the Consummation Date, except to the extent that a holder of an Allowed
Priority Non-Tax Claim agrees to a different treatment of such Allowed Priority
Non-Tax Claim, each Allowed Priority Non-Tax Claim shall be unimpaired in
accordance with section 1124 of the Bankruptcy Code. All Allowed Priority
Non-Tax Claims which are not due and payable on or before the Consummation Date
shall be paid in the ordinary course of business in accordance with the terms
thereof.
4.2. Supplemental Term Loan Claims (Class 2).
Each Supplemental Term Loan Claim constitutes an Allowed Supplemental Term
Loan Claim. On the Consummation Date, except to the extent that a holder of an
Allowed Supplemental Term Loan Claim agrees to a different treatment of such
Allowed Supplemental Term Loan Claim, all Supplemental Term Loan Claims shall be
reinstated and rendered unimpaired in accordance with section 1124 of the
Bankruptcy Code; provided, however, that (i) in accordance with the terms of the
Credit Agreement, the Supplemental Term Loan Claims cannot be prepaid prior to
August 31, 1998 without the consent of the lenders whose Supplemental Term Loan
Claims are to be prepaid and (ii) until the Supplemental Term Loan Claims are
paid in full, the amounts actually borrowed under the Exit Facility cannot
exceed $172,022,020 without the consent of the holders of Supplemental Term Loan
Claims.
4.3. Other Secured Claims (Class 3).
On the Consummation Date, except to the extent that a holder of an Allowed
Other Secured Claim agrees to a different treatment of such Allowed Other
Secured Claim, each Allowed Other Secured Claim shall be reinstated or rendered
unimpaired in accordance with section 1124 of the Bankruptcy Code,
notwithstanding any contractual provision or applicable nonbankruptcy law that
entitles the holder of an Allowed Other Secured Claim to demand or receive
payment of such Allowed Other Secured Claim prior to the stated maturity of such
Allowed Other Secured Claim from and after the occurrence of a default. All
Allowed Other Secured Claims which are not due and payable on or before the
Consummation Date shall be paid in the ordinary course of business in accordance
with the terms thereof.
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4.4. Old Senior Note Claims (Class 4).
Each Old Senior Note Claim constitutes an Allowed Old Senior Note Claim. On
the Consummation Date, each holder of an Allowed Old Senior Note Claim shall
receive, in full satisfaction of such Allowed Old Senior Note Claim, its Ratable
Proportion of 30,000,000 shares of New Common Stock (representing 100% of the
initial shares of New Common Stock), subject to dilution by the exercise of the
New Warrants.
4.5. General Unsecured Claims (Class 5).
On the Consummation Date, except to the extent that a holder of an Allowed
General Unsecured Claim agrees to a different treatment of such Allowed General
Unsecured Claim, each Allowed General Unsecured Claim shall be unimpaired in
accordance with section 1124 of the Bankruptcy Code. All Allowed General
Unsecured Claims which are not due and payable on or before the Consummation
Date shall be paid in the ordinary course of business in accordance with the
terms thereof.
4.6. Old Preferred Stock Interests (Class 6).
Each Old Preferred Stock Interest constitutes an Allowed Old Preferred
Stock Interest. On the Consummation Date, the Old Preferred Stock Interests
shall be cancelled, and each holder of Old Preferred Stock Interests shall
receive, in full satisfaction of such Old Preferred Stock Interests, its Ratable
Proportion of (i) 3,783,513 of the Series 1 Warrants, (ii) the Series 2 Warrants
and (iii) the Series 3 Warrants.
4.7. Old Common Stock Interests (Class 7).
On the Consummation Date, the Old Common Stock Interests shall be cancelled
and each holder of Old Common Stock Interests shall receive, with the consent of
the holders of the Old Senior Notes and Old Preferred Stock Interests (to be
evidenced by their vote to accept the Plan of Reorganization), its Ratable
Proportion of 540,502 of the Series 1 Warrants.
4.8. Old Warrants (Class 8).
On the Consummation Date, the Old Warrants shall be cancelled, and each
holder of Old Warrants shall not receive or retain any property or interest in
property on account of such Old Warrants.
SECTION 5. IDENTIFICATION OF CLASSES OF CLAIMS AND INTERESTS IMPAIRED;
ACCEPTANCE OR REJECTION OF THIS PLAN OF REORGANIZATION
5.1. Holders of Claims and Equity Interests Entitled to Vote.
Each of Class 1 (Priority Non-Tax Claims), Class 2 (Supplemental Term Loan
Claims), Class 3 (Other Secured Claims) and Class 5 (General Unsecured Claims)
is unimpaired by the Plan of Reorganization and the holders of Claims in each of
such Classes are conclusively presumed to have accepted the Plan of
Reorganization and are not entitled to vote to accept or reject this Plan of
Reorganization.
Each of Class 4 (Old Senior Note Claims) and Class 6 (Old Preferred Stock
Interests) is impaired and the holders of Old Senior Note Claims and Old
Preferred Stock Interests are entitled to vote to accept or reject this Plan of
Reorganization.
Each of Class 7 (Old Common Stock Interests) and Class 8 (Old Warrants) is
impaired by the Plan of Reorganization and the holders of Equity Interests in
each of such Classes are conclusively presumed to have rejected this Plan of
Reorganization and are not entitled to vote to accept or reject this Plan of
Reorganization.
SECTION 6. MEANS OF IMPLEMENTATION
6.1. Exit Facility.
On the Consummation Date, the Exit Facility Documents shall be executed and
delivered.
6.2. Issuance of New Securities.
The issuance of the New Common Stock and the New Warrants by Reorganized
Grand Union is hereby authorized without the need for any further corporate
action.
6.3. Registration Rights Agreement.
The Registration Rights Agreement shall be executed and delivered by
Reorganized Grand Union. Reorganized Grand Union will use its best efforts to
continue to be a reporting company under the Securities Exchange Act of 1934 and
listed on a nationally recognized market or exchange.
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6.4. New Warrant Agreement.
The New Warrant Agreement shall be executed and delivered by Reorganized
Grand Union and American Stock Transfer & Trust Company or any replacement agent
reasonably acceptable to the Debtor, an Unofficial Noteholder Committee Majority
and the holders of two-thirds of the number of shares constituting the Old
Preferred Stock Interests.
6.5. Cancellation of Existing Securities and Agreements.
On the Consummation Date, the Old Senior Notes, the Old Preferred Stock
Interests, the Old Common Stock Interests, the Old Warrants or other agreements
or commitments, contractual or otherwise, obligating the Debtor to issue,
transfer or sell Old Preferred Stock Interests, Old Common Stock Interests or
any other capital stock of the Debtor shall be cancelled. Except for purposes of
effectuating the distributions under this Plan of Reorganization on the
Consummation Date, the Old Indenture shall be cancelled.
6.6. Corporate Action.
(a) Certificates of Elimination. On the Consummation Date or as soon
thereafter as is practicable, Reorganized Grand Union shall file with the
Secretary of State of the State of Delaware, in accordance with sections 103 and
151 of the Delaware General Corporation Law, the Certificates of Elimination.
(b) Board of Directors of Reorganized Grand Union. On the Consummation
Date, the operation of Reorganized Grand Union shall become the general
responsibility of its Board of Directors, subject to, and in accordance with,
its certificate of incorporation and bylaws. The initial Board of Directors of
Reorganized Grand Union shall consist of eleven members, eight of whom shall be
selected by the Unofficial Noteholder Committee and three of whom shall be Mr.
J. Wayne Harris, Mr. Jack W. Partridge and Mr. Gary M. Philbin in their
capacities as Senior Managers of the Reorganized Debtor and who shall serve as
directors for the entire term of their employment agreements. Notwithstanding
the foregoing, the initial 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 Senior Managers have at least
five-sevenths (5/7ths) of the voting power on the Board of Directors. The
initial members of the Board of Directors of Reorganized Grand Union are or
shall be disclosed in the Disclosure Statement or an amendment or supplement to
the Disclosure Statement or such other filing as may be made with the Bankruptcy
Court.
(c) Officers of Reorganized Grand Union. The initial officers of
Reorganized Grand Union are or shall be disclosed in the Disclosure Statement or
an amendment or supplement to the Disclosure Statement or such other filing as
may be made with the Bankruptcy Court. The selection of officers of Reorganized
Grand Union after the Consummation Date shall be as provided in its certificate
of incorporation and bylaws.
SECTION 7. PROVISIONS GOVERNING DISTRIBUTIONS
7.1. Date of Distributions.
Unless otherwise provided herein, any distributions and deliveries to be
made hereunder shall be made on the Consummation Date or as soon as practicable
thereafter and deemed made on the Consummation Date. In the event that any
payment or act under this Plan of Reorganization is required to be made or
performed on a date that is not a Business Day, then the making of such payment
or the performance of such act may be completed on the next succeeding Business
Day, but shall be deemed to have been completed as of the required date.
7.2. Disbursing Agent.
All distributions under this Plan of Reorganization shall be made by
Reorganized Grand Union as Disbursing Agent or such other entity designated by
Reorganized Grand Union as a Disbursing Agent on the Consummation Date. A
Disbursing Agent shall not be required to give any bond or surety or other
security for the performance of its duties unless otherwise ordered by the
Bankruptcy Court; and, in the event that a Disbursing Agent is so otherwise
ordered, all costs and expenses of procuring any such bond or surety shall be
borne by Reorganized Grand Union.
7.3. Surrender of Instruments.
As a condition to receiving any distribution under this Plan of
Reorganization, each holder of an Old Senior Note, Old Preferred Stock Interest
and Old Common Stock Interest must surrender such Old Senior Note, Old Preferred
Stock Interest and Old Common Stock Interest to Reorganized Grand Union or its
designee. Any holder of an Old Senior Note, Old Preferred Stock Interest or Old
Common Stock Interest that fails to (a) surrender such instrument or (b) execute
and deliver an affidavit of loss and/or indemnity reasonably satisfactory to
Reorganized Grand Union and furnish a bond in form, substance, and amount
reasonably satisfactory to Reorganized Grand Union before the first anniversary
of the Consummation Date shall be deemed to have forfeited all rights and claims
and may not participate in any distribution under this Plan of Reorganization.
8
7.4. Compensation of Professionals.
Each person retained or requesting compensation in the Reorganization Case
pursuant to section 330 or 503(b) of the Bankruptcy Code shall be required to
file an application for allowance of final compensation and reimbursement of
expenses in the Reorganization Case on or before a date to be determined by the
Bankruptcy Court in the Confirmation Order or any other order of the Bankruptcy
Court. Objections to any application made under this section 7.4 shall be filed
on or before a date to be fixed and determined by the Bankruptcy Court in the
Confirmation Order or such other order.
7.5. Delivery of Distributions.
Subject to Bankruptcy Rule 9010, all distributions to any holder of an
Allowed Claim or an Allowed Equity Interest shall be made at the address of such
holder as set forth on the Schedules filed with the Bankruptcy Court or on the
books and records of the Debtor or its agents, unless the Debtor or Reorganized
Grand Union, as applicable, have been notified in writing of a change of
address, including, without limitation, by the filing of a proof of claim or
interest by such holder that contains an address for such holder different from
the address reflected on such Schedules for such holder. In the event that any
distribution to any holder is returned as undeliverable, the Disbursing Agent
shall use reasonable efforts to determine the current address of such holder,
but no distribution to such holder shall be made unless and until the Disbursing
Agent has determined the then current address of such holder, at which time such
distribution shall be made to such holder without interest; provided that such
distributions shall be deemed unclaimed property under section 347(b) of the
Bankruptcy Code at the expiration of one year from the Consummation Date. After
such date, all unclaimed property or interest in property shall revert to
Reorganized Grand Union, and the claim of any other holder to such property or
interest in property shall be discharged and forever barred.
7.6. Manner of Payment Under Plan of Reorganization.
At the option of the Disbursing Agent, any Cash payment to be made
hereunder may be made by a check or wire transfer or as otherwise required or
provided in applicable agreements.
7.7. Fractional Shares.
No fractional shares of New Common Stock or Cash in lieu thereof shall be
distributed. No New Warrants shall be issued for fractional shares of New Common
Stock. For purposes of distribution, fractional shares of New Common Stock and
fractional New Warrants shall be rounded up to the next whole number.
7.8. Setoffs and Recoupment.
The Debtor may, but shall not be required to, setoff against, or recoup
from, any Claim and the payments to be made pursuant to the Plan of
Reorganization in respect of such Claim (other than Senior Note Claims, DIP
Obligations or Secured Credit Agreement Claims), any claims of any nature
whatsoever that the Debtor may have against the claimant, but neither the
failure to do so nor the allowance of any Claim hereunder shall constitute a
waiver or release by the Debtor of any such claim it may have against such
claimant.
7.9. Distributions After Consummation Date.
Distributions made after the Consummation Date to holders of Disputed
Claims that are not Allowed Claims as of the Consummation Date but which later
become Allowed Claims shall be deemed to have been made on the Consummation
Date.
7.10. Rights and Powers of Disbursing Agent.
(a) Powers of the Disbursing Agent. The Disbursing Agent shall be empowered
to (i) effect all actions and execute all agreements, instruments and other
documents necessary to perform its duties under this Plan of Reorganization,
(ii) make all distributions contemplated hereby, (iii) employ professionals to
represent it with respect to its responsibilities and (iv) exercise such other
powers as may be vested in the Disbursing Agent by order of the Bankruptcy
Court, pursuant to this Plan of Reorganization, or as deemed by the Disbursing
Agent to be necessary and proper to implement the provisions hereof.
(b) Expenses Incurred on or After the Consummation Date. Except as
otherwise ordered by the Bankruptcy Court, the amount of any reasonable fees and
expenses incurred by the Disbursing Agent on or after the Consummation Date
(including, without limitation, taxes) and any reasonable compensation and
expense reimbursement claims (including, without limitation, reasonable attorney
fees and expenses) made by the Disbursing Agent shall be paid in Cash by
Reorganized Grand Union.
7.11. Exculpation.
The Debtor, Reorganized Grand Union, each of the members of the Unofficial
Noteholder Committee, each of the holders of Old Preferred Stock Interests, the
Old Indenture Trustee and the Disbursing Agent, and their respective members,
partners, officers, directors, employees and agents (including any attorneys,
financial advisors, investment bankers and other professionals retained by such
persons) shall have no liability to any holder of any Claim or Equity Interest
for any act or omission in connection with, or arising out of, the Disclosure
Statement, the Plan of Reorganization, the solicitation of votes for and the
pursuit of confirmation of
9
this Plan of Reorganization, the consummation of this Plan of Reorganization, or
the administration of this Plan of Reorganization or the property to be
distributed under this Plan of Reorganization, except for willful misconduct or
gross negligence as determined by a Final Order of the Bankruptcy Court and, in
all respects, shall be entitled to rely upon the advice of counsel with respect
to their duties and responsibilities under this Plan of Reorganization.
7.12. Allocation Relating to Old Senior Notes.
All distributions to holders of Old Senior Note Claims shall be allocated
first to the portion of each of such Claims representing the principal amount of
the Old Senior Notes and then, to the extent the consideration exceeds such
amount, to the remainder of such Claim.
7.13. Voluntary Cancellation of Old Common Stock; Return of Warrants.
Any holder of an Old Common Stock Interest that does not desire to receive
any consideration under the Plan of Reorganization in consideration for the
cancellation of its Old Common Stock Interests may send a letter to the Debtor
so directing. In such event, if such holder nevertheless receives its Ratable
Proportion of Series 1 Warrants in accordance with section 4.7 of this Plan of
Reorganization, such holder should return such Series 1 Warrants to Reorganized
Grand Union.
7.14. Allowance of Certain Claims.
The Supplemental Term Loan Claims and the DIP Obligations shall be allowed
in full as set forth herein. On or before fifteen (15) days prior to the date
first set for hearing on confirmation of the Plan of Reorganization, the Agent
under the BT DIP Credit Agreement shall serve on counsel for the Debtor and the
Unofficial Noteholder Committee a schedule setting forth the proposed amounts of
allowed Supplemental Term Loan Claims and, in the event the BT DIP Credit
Agreement is approved by the Bankruptcy Court, the DIP Obligations for each of
the lenders who hold such claims as of the date such schedule is prepared. If no
objection is raised by the Debtor or the Unofficial Noteholder Committee and
served on the Agent under the BT DIP Credit Agreement within five (5) days after
receipt of such schedule, the Supplemental Term Loan Claims and the DIP
Obligations shall be deemed allowed in the amount set forth on the schedule
together with such additional advances, interest, fees, expenses and other
amounts which may accrue (less any repayments) subsequent to the date the
schedule was prepared through and including the Consummation Date. In the event
the Debtor or the Unofficial Noteholder Committee objects to the scheduled
amounts, the only issue that may be determined by the Bankruptcy Court is the
amount of each lender's allowed Claim.
SECTION 8. PROCEDURES FOR TREATING DISPUTED CLAIMS UNDER PLAN OF REORGANIZATION
8.1. Disputed Claims.
(a) Process. Holders of Claims and Equity Interests need not file proofs of
claim with the Bankruptcy Court and shall be subject to Bankruptcy Court process
only to the extent provided in the Plan of Reorganization. On and after the
Consummation Date, except as otherwise provided herein, all Claims shall be paid
in the ordinary course of business of Reorganized Grand Union. If the Debtor
disputes any Claim (including any Administrative Expense Claim, Priority Tax
Claim, Priority Non-Tax Claim, Other Secured Claim or General Unsecured Claim),
such dispute shall be determined, resolved or adjudicated, as the case may be,
in a manner as if the Reorganization Case had not been commenced and shall
survive the Consummation Date as if the Reorganization Case had not been
commenced; provided, however, that the Debtor may elect, at its sole option, to
object under section 502 of the Bankruptcy Code with respect to any proof of
claim filed by or on behalf of a holder of a Claim.
(b) Tort Claims. All Tort Claims are Disputed Claims. Any unliquidated Tort
Claim that is not otherwise settled or resolved pursuant to subsection 8.1(a)
above shall be determined and liquidated in the administrative or judicial
tribunal in which it is pending on the Confirmation Date or, if no such action
was pending on the Confirmation Date, in any administrative or judicial tribunal
of appropriate jurisdiction. Pursuant to section 11.4 hereof, the
automatic stay arising pursuant to section 362 of the Bankruptcy Code shall be
vacated as of the Consummation Date as to all Tort Claims. Any Tort Claim
determined and liquidated pursuant to a judgment obtained in accordance with
this subsection 8.1(b) and applicable non-bankruptcy law that is no longer
subject to appeal or other review shall be deemed to be an Allowed Claim in
Class 5 in such liquidated amount and satisfied in accordance with this Plan of
Reorganization. Nothing contained in this subsection 8.1(b) shall constitute or
be deemed a waiver of any claim, right or cause of action that the Debtor or
Reorganized Grand Union may have against any person in connection with or
arising out of any Tort Claim, including, without limitation, any rights under
section 157(b) of title 28, United States Code.
8.2. Objections to Claims.
Except insofar as a Claim is allowed hereunder, Reorganized Grand Union
shall be entitled to object to Claims. Any objections to Claims shall be served
and filed on or before the latest of (a) one hundred and twenty (120) days after
the Consummation Date, (b) forty-five (45) days after a Claim is filed with the
Bankruptcy Court or (c) such date as may be fixed by the Bankruptcy Court.
10
8.3. No Distributions Pending Allowance.
Notwithstanding any other provision hereof, if any portion of a Claim is a
Disputed Claim, no payment or distribution provided hereunder shall be made on
account of such Claim unless and until such Disputed Claim becomes an Allowed
Claim.
8.4. Distributions After Allowance.
To the extent that a Disputed Claim or Disputed Equity Interest ultimately
becomes an Allowed Claim or Allowed Equity Interest, a distribution shall be
made to the holder of such Allowed Claim or Allowed Equity Interest in
accordance with the provisions of this Plan of Reorganization. As soon as
practicable after the date that the order or judgment of the Bankruptcy Court
allowing any Disputed Claim or Disputed Equity Interest becomes a Final Order,
the Disbursing Agent shall provide to the holder of such Claim or Equity
Interest the distribution to which such holder is entitled under this Plan of
Reorganization.
SECTION 9. PROVISIONS GOVERNING EXECUTORY CONTRACTS AND UNEXPIRED LEASES
As of the Consummation Date, all executory contracts and unexpired leases
that exist between the Debtor and any person are specifically assumed hereby,
including the Senior Management Employment Agreements (as amended). Entry of the
Confirmation Order shall constitute approval, pursuant to subsection 365(a) of
the Bankruptcy Code, of such assumptions pursuant to this Plan of
Reorganization.
SECTION 10. CONDITIONS PRECEDENT TO CONSUMMATION DATE
10.1. Conditions Precedent to Consummation Date of Plan of Reorganization.
The occurrence of the Consummation Date of this Plan of Reorganization is
subject to satisfaction of the following conditions precedent:
(a) Confirmation Order. The Clerk of the Bankruptcy Court shall have
entered the Confirmation Order, and the Confirmation Order shall not have
been amended or modified in a manner so as to materially and adversely
affect the treatment of (i) the Secured Credit Agreement Claims, (ii) the
DIP Obligations, (iii) the Old Senior Note Claims or (iv) the Old Preferred
Stock Interests.
(b) Exit Facility. The Exit Facility Documents shall have been
executed and delivered and all conditions precedent to the effectiveness of
such documents shall have been satisfied or waived.
(c) New Warrant Agreement. The New Warrant Agreement shall have been
executed and delivered.
(d) Registration Rights Agreement. The Registration Rights Agreement
shall have been executed and delivered.
(e) Execution and Delivery of Other Documents. All other actions and
all agreements, instruments or other documents necessary to implement the
terms and provisions hereof shall have been effected.
(f) Regulatory Approvals. All authorizations, consents, and regulatory
approvals required (if any) in connection with the effectiveness of this
Plan of Reorganization shall have been obtained.
10.2. Waiver of Conditions Precedent.
Each of the conditions precedent in section 10.1 hereof may be waived, in
whole or in part, by the Debtor, with the prior written consent of an Unofficial
Noteholder Committee Majority and holders of the requisite majority of any
Secured Credit Agreement Claims or DIP Obligations outstanding at the time of
such proposed waiver necessary to bind such holders (which consent in all cases
shall not be unreasonably withheld). The condition precedent in section
10.1(a)(iv) relating to the treatment of the Old Preferred Stock Interests
cannot be waived without the prior written consent of the holders of two-thirds
of the number of shares constituting the Old Preferred Stock Interests, which
consent shall not be unreasonably withheld. Any such waivers of a condition
precedent in section 10.1 hereof may be effected at any time, without notice,
without leave or order of the Bankruptcy Court and without any formal action.
SECTION 11. EFFECT OF CONFIRMATION
11.1. Vesting of Assets.
On the Consummation Date, the Debtor, its properties and interests in
property and its operations shall be released from the custody and jurisdiction
of the Bankruptcy Court, and the estate of the Debtor shall vest in Reorganized
Grand Union. From and after the Consummation Date, Reorganized Grand Union may
operate its business and may use, acquire and dispose of property free of any
restrictions of the Bankruptcy Code or the Bankruptcy Rules, subject to the
terms and conditions of this Plan of Reorganization.
11
11.2. Binding Effect.
Except as otherwise provided in section 1141(d)(3) of the Bankruptcy Code
and subject to the occurrence of the Consummation Date, on and after the
Confirmation Date, the provisions of the Plan of Reorganization shall bind any
holder of a Claim against, or Equity Interest in, the Debtor and such holder's
respective successors and assigns, whether or not the Claim or Equity Interest
of such holder is impaired under the Plan of Reorganization and whether or not
such holder has accepted the Plan of Reorganization.
11.3. Discharge of Debtor.
Except to the extent otherwise provided herein, the treatment of all Claims
against or Equity Interests in the Debtor hereunder shall be in exchange for and
in complete satisfaction, discharge and release of all Claims against or Equity
Interests in the Debtor of any nature whatsoever, known or unknown, including,
without limitation, any interest accrued or expenses incurred thereon from and
after the Petition Date, or against its estate or properties or interests in
property. Except as otherwise provided herein, upon the Consummation Date, all
Claims against and Equity Interests in the Debtor will be satisfied, discharged
and released in full exchange for the consideration provided hereunder. Except
as otherwise provided herein, all entities shall be precluded from asserting
against the Debtor or Reorganized Grand Union or their respective properties or
interests in property, any other Claims based upon any act or omission,
transaction or other activity of any kind or nature that occurred prior to the
Consummation Date.
11.4. Term of Injunctions or Stays.
Unless otherwise provided, all injunctions or stays arising under or
entered during the Reorganization Case under section 105 or 362 of the
Bankruptcy Code, or otherwise, and in existence on the Confirmation Date, shall
remain in full force and effect until the Consummation Date.
11.5. Indemnification Obligations.
Subject to the occurrence of the Consummation Date, the obligations of the
Debtor as of the Petition Date to indemnify, defend, reimburse or limit the
liability of directors or officers who were directors or officers of the Debtor,
respectively, against any claims or causes of action as provided in the Debtor's
certificate of incorporation, bylaws or applicable state law, shall survive
confirmation of this Plan of Reorganization, remain unaffected thereby and not
be discharged, irrespective of whether such indemnification, defense,
reimbursement or limitation is owed in connection with an event occurring before
or after the Petition Date.
11.6. Limited Release.
On the Consummation Date, the Debtor, on behalf of itself and its
non-debtor subsidiaries, hereby releases the officers and directors of the
Debtor and its subsidiaries holding office at any time prior to the Consummation
Date, each of the members of the Unofficial Noteholder Committee, each of the
Secured Banks (including the lenders under the BT DIP Credit Agreement if
utilized by the Debtor), the Agent and each of the holders of Old Preferred
Stock Interests and each of their respective agents, employees, advisors
(including any attorneys, financial advisors, investment bankers and other
professionals retained by such persons or entities), affiliates and
representatives from any and all claims or liabilities arising from or related
to actions taken or omissions occurring in connection with this Plan of
Reorganization or otherwise in their capacity as officers, directors, agents,
members, employees, affiliates or advisors of each of the foregoing, as
applicable.
SECTION 12. WAIVER OF CLAIMS
12.1. Avoidance Actions.
Effective as of the Consummation Date, the Debtor waives the right to
prosecute any avoidance or recovery actions under sections 545, 547, 548, 549,
550, 551 and 553 of the Bankruptcy Code that belong to the Debtor or Debtor in
Possession.
SECTION 13. RETENTION OF JURISDICTION
The Bankruptcy Court shall have exclusive jurisdiction of all matters
arising out of, or related to, the Reorganization Case and this Plan of
Reorganization pursuant to, and for the purposes of, sections 105(a) and 1142 of
the Bankruptcy Code and for, among other things, the following purposes:
(a) To hear and determine pending applications for the assumption or
rejection of executory contracts or unexpired leases and the allowance of
Claims resulting therefrom.
(b) To determine any and all adversary proceedings, applications and
contested matters.
(c) To ensure that distributions to holders of Allowed Claims and
Allowed Equity Interests are accomplished as provided herein.
12
(d) To hear and determine any timely objections to Administrative
Expense Claims or to proofs of claim and equity interests, including,
without limitation, any objections to the classification of any Claim or
Equity Interest, and to allow or disallow any Disputed Claim or Disputed
Equity Interest, in whole or in part.
(e) To enter and implement such orders as may be appropriate in the
event the Confirmation Order is for any reason stayed, revoked, modified or
vacated.
(f) To issue such orders in aid of execution of this Plan of
Reorganization, to the extent authorized by section 1142 of the Bankruptcy
Code.
(g) To consider any amendments to or modifications of this Plan of
Reorganization, or to cure any defect or omission, or reconcile any
inconsistency, in any order of the Bankruptcy Court, including, without
limitation, the Confirmation Order.
(h) To hear and determine all applications of retained professionals
under sections 330, 331 and 503(b) of the Bankruptcy Code for awards of
compensation for services rendered and reimbursement of expenses incurred
prior to the Confirmation Date.
(i) To hear and determine disputes arising in connection with the
interpretation, implementation or enforcement of this Plan of
Reorganization, the Confirmation Order, any transactions or payments
contemplated hereby or any agreement, instrument or other document
governing or relating to any of the foregoing.
(j) To hear and determine matters concerning state, local and federal
taxes in accordance with sections 346, 505 and 1146 of the Bankruptcy Code.
(k) To hear any other matter not inconsistent with the Bankruptcy
Code.
(l) To hear and determine all disputes involving the existence, scope
and nature of the discharges granted under section 11.3 hereof.
(m) To issue injunctions and effect any other actions that may be
necessary or desirable to restrain interference by any entity with the
consummation or implementation of this Plan of Reorganization.
(n) To enter a final decree closing the Reorganization Case.
SECTION 14. MISCELLANEOUS PROVISIONS
14.1. Payment of Statutory Fees.
All fees payable under section 1930, chapter 123, title 28, United States
Code, as determined by the Bankruptcy Court at the Confirmation Hearing, shall
be paid on the Consummation Date. Any such fees accrued after the Consummation
Date will constitute an Allowed Administrative Expense Claim and be treated in
accordance with section 2.1 hereof.
14.2. Retiree Benefits.
On and after the Consummation Date, pursuant to section 1129(a)(13) of the
Bankruptcy Code, Reorganized Grand Union shall continue to pay all retiree
benefits (within the meaning of section 1114 of the Bankruptcy Code), at the
level established in accordance with section 1114 of the Bankruptcy Code, at any
time prior to the Confirmation Date, for the duration of the period for which
the Debtor has obligated itself to provide such benefits.
14.3. Benefit Plans.
Subject to the occurrence of the Consummation Date, all Benefit Plans will
survive confirmation of this Plan of Reorganization; provided, however, that (i)
The Grand Union Company Associate Stock Purchase Plan shall be terminated as of
the Consummation Date and (ii) The Grand Union Company Executive Annual
Incentive Bonus Plan and The Grand Union Company 1995 Equity Incentive Plan, as
amended and attached to the Disclosure Statement as Exhibit 6, are each subject
to a separate vote by the holders of the Old Senior Notes as reflected on their
Ballots accompanying the Disclosure Statement and will be retained only if such
plan is approved by the holders of a majority in principal amount of the Old
Senior Notes that cast Ballots with respect thereto.
14.4. Administrative Expenses Incurred After the Confirmation Date.
Subject to the terms and conditions of any interim or Final Order of the
Bankruptcy Court approving the DIP Credit Agreement or any order of the
Bankruptcy Court authorizing the use of cash collateral, administrative expenses
incurred by the Debtor or Reorganized Grand Union after the Confirmation Date,
including (without limitation) claims for professionals' fees and expenses,
shall not be subject to application and may be paid by the Debtor or Reorganized
Grand Union, as the case may be, in the ordinary course of business and without
further Bankruptcy Court approval; provided, however, that no claims for
professional fees and expenses incurred after the Confirmation Date shall be
paid until after the occurrence of the Consummation Date.
13
14.5. Section 1125(e) of the Bankruptcy Code.
As of the Confirmation Date, the Debtor shall be deemed to have solicited
acceptances of this Plan of Reorganization in good faith and in compliance with
the applicable provisions of the Bankruptcy Code. The Debtor, each of the
members of the Unofficial Noteholder Committee and each of the holders of Old
Preferred Stock Interests (and each of their respective affiliates, agents,
directors, officers, employees, investment bankers, financial advisors,
attorneys and other professionals) have participated in good faith and in
compliance with the applicable provisions of the Bankruptcy Code in the offer
and issuance of the securities under this Plan of Reorganization, and therefore
are not, and on account of such offer, issuance and solicitation will not be,
liable at any time for the violation of any applicable law, rule or regulation
governing the solicitation of acceptances or rejections of this Plan of
Reorganization or the offer and issuance of securities under this Plan of
Reorganization.
14.6. Compliance with Tax Requirements.
In connection with the consummation of this Plan of Reorganization, the
Debtor shall comply with all withholding and reporting requirements imposed by
any taxing authority, and all distributions hereunder shall be subject to such
withholding and reporting requirements.
14.7. Severability of Plan Provisions.
In the event that, prior to the Confirmation Date, any term or provision of
this Plan of Reorganization is held by the Bankruptcy Court to be invalid, void
or unenforceable, the Bankruptcy Court shall have the power to alter and
interpret such term or provision to make it valid or enforceable to the maximum
extent practicable, consistent with the original purpose of the term or
provision held to be invalid, void or unenforceable, and such term or provision
shall then be applicable as altered or interpreted. Notwithstanding any such
holding, alteration or interpretation, the remainder of the terms and provisions
hereof shall remain in full force and effect and shall in no way be affected,
impaired or invalidated by such holding, alteration or interpretation. The
Confirmation Order shall constitute a judicial determination and shall provide
that each term and provision hereof, as it may have been altered or interpreted
in accordance with the foregoing, is valid and enforceable in accordance with
its terms. All actions taken under this section 14.7 shall require the consent
of the Debtor, an Unofficial Noteholder Committee Majority and the holders of
the requisite majority of any Secured Credit Agreement Claims or DIP Obligations
outstanding at the time of such proposed action necessary to bind such holders,
which consents shall not be unreasonably withheld. To the extent that action
hereunder affects the treatment of the Old Preferred Stock Interests, such
action shall require the consent of the holders of two-thirds of the number of
shares constituting the Old Preferred Stock Interests, which consent shall not
be unreasonably withheld.
14.8. Governing Law.
Except to the extent that the Bankruptcy Code or other federal law is
applicable, or to the extent an Exhibit hereto provides otherwise, the rights,
duties and obligations arising under this Plan of Reorganization shall be
governed by, and construed and enforced in accordance with, the laws of the
State of New York without giving effect to the principles of conflict of laws
thereof.
14.9. Notices.
All notices, requests, and demands to or upon the Debtor to be effective
shall be in writing (including by facsimile transmission) and, unless otherwise
expressly provided herein, shall be deemed to have been duly given or made when
actually delivered or, in the case of notice by facsimile transmission, when
received and telephonically confirmed, addressed as follows:
The Grand Union Company
201 Willowbrook Boulevard
Wayne, New Jersey 07470
Attn: Glenn J. Smith, Esq.
Corporate Vice President and General Counsel
Telephone: (973) 890-6000
Telecopier: (973) 890-6012
and
Weil, Gotshal & Manges LLP
767 Fifth Avenue
New York, New York 10153
Attn: Jeffrey L. Tanenbaum, Esq.
Telephone: (212) 310-8000
Telecopier: (212) 310-8007
14
and
Ravin, Greenberg & Marks, P.A.
101 Eisenhower Parkway
Roseland, New Jersey 07068
Attn: Howard S. Greenberg, Esq.
Telephone: (973) 226-1500
Telecopier: (973) 226-6888
Dated: June , 1998
Respectfully submitted,
The Grand Union Company
By:
----------------------------------------
Name: Jeffrey P. Freimark
Title: Executive Vice President and
Chief Financial Officer
COUNSEL:
- ------------------------------------------------
Jeffrey L. Tanenbaum (JT 9797)
Judy G.Z. Liu (JL 6449)
Weil, Gotshal & Manges LLP
Co-Attorneys for The Grand Union Company
767 Fifth Avenue
New York, New York 10153
Telephone: (212) 310-8000
- ------------------------------------------------
Howard S. Greenberg, Esq. (HG 8559)
Ravin, Greenberg & Marks, P.A.
101 Eisenhower Parkway
Roseland, New Jersey 07068
Telephone: (973) 226-1500
15
EXHIBIT A
NEW WARRANT AGREEMENT
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
WARRANT AGREEMENT
between
THE GRAND UNION COMPANY
and
AMERICAN STOCK TRANSFER & TRUST COMPANY
as Warrant Agent
4,324,015 Series 1 Warrants
942,791 Series 2 Warrants
306,122 Series 3 Warrants
Dated as of , 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
Page
----
ARTICLE 1 DEFINITIONS................................................... 1
ARTICLE 2 ISSUANCE OF WARRANTS.......................................... 3
2.1 Initial Issuance.............................................. 3
2.2 Initial Share Amount.......................................... 3
2.3 Form of Warrant Certificates.................................. 3
2.4 Execution of Warrant Certificates............................. 3
2.5 Countersignature of Warrant Certificates...................... 3
ARTICLE 3 EXERCISE PERIOD............................................... 3
3.1 Series 1 Warrants and Series 2 Warrants....................... 3
3.2 Series 3 Warrants............................................. 3
3.3 Expiration or Cancellation of Warrants........................ 4
ARTICLE 4 EXERCISE PRICES............................................... 4
4.1 Series 1...................................................... 4
4.2 Series 2...................................................... 4
4.3 Series 3...................................................... 4
ARTICLE 5 EXERCISE OF WARRANTS.......................................... 4
5.1 Manner of Exercise............................................ 4
5.2 When Exercise Effective....................................... 4
5.3 Delivery of Certificates, Etc................................. 4
5.4 Fractional Shares............................................. 4
ARTICLE 6 ADJUSTMENT OF THE AMOUNT OF COMMON STOCK ISSUABLE
AND THE EXERCISE PRICES UPON EXERCISE......................... 5
6.1 Stock Dividends, Split-ups and Combinations of Shares......... 5
6.2 Distributions................................................. 5
6.3 Exercise Price Adjustment..................................... 5
6.4 Adjustments for Mergers and Consolidations.................... 5
6.5 Calculation to Nearest Cent and One-hundredth of Share........ 5
6.6 Notice of Adjustment in Exercise Price........................ 5
6.7 Other Notices................................................. 6
6.8 No Change in Warrant Terms on Adjustment...................... 6
6.9 Treasury Shares............................................... 6
ARTICLE 7 CONSOLIDATION, MERGER, ETC.................................... 6
ARTICLE 8 NO DILUTION OR IMPAIRMENT..................................... 6
ARTICLE 9 REPORTS....................................................... 7
ARTICLE 10 NOTIFICATION OF CERTAIN EVENTS................................ 7
10.1 Corporate Action.............................................. 7
10.2 Available Information......................................... 7
i
Page
----
ARTICLE 11 RESERVATION OF STOCK.......................................... 7
11.1 Reservation; Due Authorization, Etc........................... 7
11.2 Compliance with Law........................................... 8
ARTICLE 12 PAYMENT OF TAXES.............................................. 8
ARTICLE 13 LOSS OR MUTILATION............................................ 8
ARTICLE 14 WARRANT REGISTRATION.......................................... 8
14.1 Registration.................................................. 8
14.2 Transfer or Exchange.......................................... 8
14.3 Valid and Enforceable......................................... 9
14.4 Endorsement................................................... 9
14.5 No Service Charge............................................. 9
14.6 Cancellation.................................................. 9
ARTICLE 15 WARRANT AGENT................................................. 9
15.1 Obligations Binding........................................... 9
15.2 No Liability.................................................. 9
15.3 Instructions.................................................. 9
15.4 Agents........................................................ 9
15.5 Cooperation................................................... 9
15.6 Agent Only.................................................... 10
15.7 Right to Counsel.............................................. 10
15.8 Compensation.................................................. 10
15.9 Accounting.................................................... 10
15.10 No Conflict................................................... 10
15.11 Resignation; Termination...................................... 10
15.12 Change of Warrant Agent....................................... 10
15.13 Successor Warrant Agent....................................... 10
ARTICLE 16 REMEDIES, ETC................................................. 11
16.1 Remedies...................................................... 11
16.2 Warrant Holder Not Deemed a Stockholder....................... 11
16.3 Right of Action............................................... 11
ARTICLE 17 MISCELLANEOUS................................................. 11
17.1 Notices....................................................... 11
17.2 Governing Law and Consent to Forum............................ 11
17.3 Benefits of this Agreement.................................... 12
17.4 Agreement of Holders of Warrant Certificates.................. 12
17.5 Counterparts.................................................. 12
17.6 Amendments.................................................... 12
17.7 Consent to Jurisdiction....................................... 12
17.8 Headings...................................................... 12
ii
EXHIBITS
Exhibit A: Form of Series 1 Warrant Certificate
Exhibit B: Form of Series 2 Warrant Certificate
Exhibit C: Form of Series 3 Warrant Certificate
iii
WARRANT AGREEMENT
THIS WARRANT AGREEMENT, is made and entered into as of , 1998 (the
'Agreement'), by and between THE GRAND UNION COMPANY, a Delaware corporation
(the 'Company'), and AMERICAN STOCK TRANSFER & TRUST COMPANY, as Warrant Agent
(the 'Warrant Agent').
WITNESSETH:
WHEREAS, in connection with the financial restructuring of the Company
pursuant to its plan of reorganization (the 'Plan') and pursuant to its Chapter
11 Case (as defined herein), the Company proposes to issue three series of
warrants which, in the aggregate, are exercisable to purchase up to 5,572,928
shares of Common Stock (as defined herein), subject to adjustment as provided
herein (the 'Warrants'), to the holders of the Company's Old Common Stock and
Old Preferred Stock (each as defined herein) in exchange for such Old Common
Stock and Old Preferred Stock; and
WHEREAS, the Company desires the Warrant Agent to act on behalf of the
Company, and the Warrant Agent is willing to act, in connection with the
issuance, transfer, exchange, replacement and exercise of the Warrant
Certificates and other matters as provided herein; and
WHEREAS, the Company desires to enter into this Agreement to set forth the
terms and conditions of the Warrants and the rights of the holders thereof;
NOW, THEREFORE, in consideration of the foregoing premises and of the
mutual agreements set forth herein, the Company and the Warrant Agent hereby
agree as follows:
ARTICLE 1
DEFINITIONS
As used herein, the following terms have the following respective meanings:
'Affiliate' means with respect to any Person, any Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such Person. For purposes of this definition, (a) 'control' when
used with respect to any Person means the power to direct the management and
policies of such Person, directly or indirectly, whether through the ownership
of voting Common Stock (or equivalent equity interests), by contract or
otherwise, and the terms 'controlling' or 'controlled' have meanings correlative
to the foregoing, and (b) a subsidiary of a Person is an Affiliate of such
Person and of each other subsidiary of that Person.
'Agreement' means this Warrant Agreement, as the same may be amended or
modified from time to time hereafter.
'Bankruptcy Code' means title 11, United States Code.
'Bankruptcy Court' means the United States Bankruptcy Court for the
District of New Jersey.
'Business Day' means any day other than a Saturday or a Sunday or a day on
which commercial banking institutions in New York City, New York are authorized
or required by law to be closed; provided that, in determining the period within
which certificates or Warrants are to be issued and delivered at a time when
shares of Common Stock (or Other Securities) are listed or admitted to trading
on any national securities exchange or in the over-the-counter market and in
determining the Fair Value of any securities listed or admitted to trading on
any national securities exchange or in the over-the-counter market, 'Business
Day' shall mean any day when the principal exchange on which such securities are
then listed or admitted to trading is open for trading or, if such securities
are traded in the over-the-counter market in the United States, such market is
open for trading; and provided, further, that any reference in this Agreement to
'days' (unless Business Days are specified) shall mean calendar days.
'Chapter 11 Case' means the case under Chapter 11 of the Bankruptcy Code
concerning the Company which was commenced on , 1998 before the Bankruptcy
Court.
'Common Stock' means the Company's Common Stock, par value $.01 per share,
as authorized from and after the Consummation Date.
'Commission' means the Securities and Exchange Commission or any other
Federal agency at the time administering the Securities Act or the Exchange Act,
whichever is the relevant statute for the particular purpose.
'Company' means The Grand Union Company, a Delaware corporation.
'Consummation Date' has the meaning specified in the Plan.
'Exchange Act' means the Securities Exchange Act of 1934, or any successor
Federal statute, and the rules and regulations of the Commission thereunder, all
as the same shall be amended and in effect at the time. Reference to a
particular section of the Securities Exchange Act of 1934 shall include a
reference to the comparable section, if any, of any such successor Federal
statute.
'Exercise Period' has the meaning specified in Article 3.
'Exercise Price' has the meaning specified in Article 4.
'Fair Value' means (i) with respect to Common Stock or any Other Security,
in each case if such security is listed on one or more stock exchanges or quoted
on the National Market System or SmallCap Market of NASDAQ (the 'NASDAQ
Market'), the average of the closing sales prices of a share of such Common
Stock or, if an Other Security in the minimum denomination in which such
security is traded, on the primary national or regional stock exchange on which
such security is listed or on the NASDAQ Market if quoted thereon or (ii) if the
Common Stock or Other Security, as the case may be, is not so listed or quoted
but is traded in the over-the-counter market (other than the NASDAQ Market), the
average of the closing bid and asked prices of a share of such Common Stock or
Other Security, in each case for the 30 Business Days (or such lesser number of
Business Days as such Common Stock or other security shall have been so listed,
quoted or traded) next preceding the date of measurement; provided, however,
that if no such sales price or bid and asked prices have been quoted during the
preceding 30-day period or there is otherwise no established trading market for
such security, then 'Fair Value' means the value of such Common Stock or Other
Security as determined reasonably and in good faith by the Board of Directors of
the Company; and provided, further, however, that in the event the current
market price of a share of such Common Stock or of the minimum traded
denomination of such Other Security is determined during a period following the
announcement by the Company of (i) a dividend or distribution on the Common
Stock or Other Security payable in shares of Common Stock or in such Other
Security, or (ii) any subdivision, combination or reclassification of the Common
Stock or Other Security, and prior to the expiration of 30 Business Days after
the ex-dividend date for such dividend or distribution, or the record date for
such subdivision, combination or reclassification, then, and in each such case,
the 'Fair Value' shall be appropriately adjusted to take into account
ex-dividend trading. Anything herein to the contrary notwithstanding, in case
the Company shall issue any shares of Common Stock, rights, options, or Other
Securities in connection with the acquisition by the Company of the stock or
assets of any other Person or the merger of any other Person into the Company,
the Fair Value of the Common Stock or Other Securities so issued shall be
determined as of the date the number of shares of Common Stock, rights, options
or Other Securities was determined (as set forth in a written agreement between
the Company and the other party to the transaction) rather than on the date of
issuance of such shares of Common Stock, rights, options or Other Securities.
'Old Common Stock' means the Company's common stock, par value $.01 per
share, outstanding prior to the consummation of the Plan.
'Old Preferred Stock' means the shares of Class A Convertible Preferred
Stock and Class B Convertible Preferred Stock of the Company, par value $1.00
per share, outstanding prior to the consummation of the Plan.
'Original Issue Date' has the meaning specified in Section 2.1.
'Other Securities' means any stock (other than Common Stock) and other
securities of the Company or any other Person (corporate or otherwise) that the
holders of the Warrants at any time shall be entitled to receive or shall have
received, upon the exercise of the Warrants, in lieu of or in addition to Common
Stock, or that at any time shall be issuable or shall have been issued in
exchange for or in replacement of Common Stock or Other Securities.
'Person' means any individual, partnership, association, joint venture,
corporation, business trust, unincorporated organization, government or
department, agency or subdivision thereof, or other person or entity.
'Plan' means the plan of reorganization of the Company, as confirmed by
order of the Bankruptcy Court entered on , 1998.
'Public Offering' means any offering of Common Stock (or Other Securities)
to the public pursuant to an effective registration statement under the
Securities Act.
'Securities Act' means the Securities Act of 1933, or any successor Federal
statute, and the rules and regulations of the Commission thereunder, all as the
same shall be amended and in effect at the time. Reference to a particular
section of the Securities Act of 1933 shall include a reference to the
comparable section, if any, of any such successor Federal statute.
'Series 1 Warrants' means the Company's Series 1 Warrants to purchase up to
an aggregate of 4,324,015 shares of Common Stock at the Exercise Price specified
herein, subject to adjustment as provided herein, issued in exchange for the Old
Common Stock and Old Preferred Stock pursuant to the Plan.
'Series 2 Warrants' means the Company's Series 2 Warrants to purchase up to
an aggregate of 942,791 shares of Common Stock at the Exercise Price specified
herein, subject to adjustment as provided herein, issued in exchange for the Old
Preferred Stock pursuant to the Plan.
2
'Series 3 Warrants' means the Warrants to purchase up to an aggregate of
306,122 shares of Common Stock at the Exercise Price described herein, subject
to adjustment as provided herein, issued in exchange for the Old Preferred Stock
pursuant to the Plan.
'Warrant Agent' means American Stock Transfer & Trust Company.
'Warrant Certificates' has the meaning specified in Section 2.3.
'Warrants' means, collectively, the three series of the Company's Warrants
to purchase up to an aggregate of 5,572,928 shares of Common Stock at the
Exercise Price specified for each such series, subject to adjustment as provided
herein, issued in exchange for the Old Common Stock and Old Preferred Stock
pursuant to the Plan.
ARTICLE 2
ISSUANCE OF WARRANTS
2.1 Initial Issuance. On the date hereof (the 'Original Issue Date'), which
is also the Consummation Date, the Company shall, pursuant to the Plan, deliver
to the Company's disbursing agent under the Plan for re-distribution to the
holders of the Old Common Stock and Old Preferred Stock a global certificate for
an aggregate of 4,324,015 Series 1 Warrants, and for redistribution to the
holders of the Old Preferred Stock Interests global certificates for an
aggregate of 942,791 Series 2 Warrants and 306,122 Series 3 Warrants.
2.2 Initial Share Amount. The number of shares of Common Stock purchasable
upon exercise of the Warrants shall be one (1) Warrant to one (1) share of
Common stock, subject to adjustments from and after the Original Issue Date as
provided in Article 6 of this Agreement.
2.3 Form of Warrant Certificates. The Series 1 Warrants, Series 2 Warrants
and Series 3 Warrants shall be evidenced, respectively, by certificates
substantially in the forms attached hereto as Exhibit A, Exhibit B and Exhibit C
(collectively, the 'Warrant Certificates'). Each Warrant Certificate shall be
dated as of the date on which it is countersigned by the Warrant Agent, which
shall be on the Original Issue Date or, in the event of a division, exchange,
substitution or transfer of any of the Warrants, on the date of such event. The
Warrant Certificate may have such further legends and endorsements stamped,
printed, lithographed or engraved thereon as the Company may deem appropriate
and as are not inconsistent with the provisions of this Agreement, or as may be
required to comply with any law or with any rule or regulation pursuant thereto
or with any rule or regulation of any securities exchange on which the Warrants
may be listed.
2.4 Execution of Warrant Certificates. Warrant Certificates shall be
executed on behalf of the Company by its Chairman of the Board, Vice Chairman of
the Board, President, any Vice President, Treasurer or Secretary, either
manually or by facsimile signature printed thereon. In case any such officer of
the Company whose signature shall have been placed upon any Warrant Certificate
shall cease to be such officer of the Company before countersignature by the
Warrant Agent or issuance and delivery thereof, such Warrant Certificate
nevertheless may be countersigned by the Warrant Agent and issued and delivered
with the same force and effect as though such person had not ceased to be such
officer of the Company.
2.5 Countersignature of Warrant Certificates. Warrant Certificates shall be
manually countersigned by an authorized signatory of the Warrant Agent and shall
not be valid for any purpose unless so countersigned. Such manual
countersignature shall constitute conclusive evidence of such authorization. The
Warrant Agent is hereby authorized to countersign, in accordance with the
provisions of this Section 2.5, and deliver any new Warrant Certificates, as
directed by the Company pursuant to Section 2.1 and as and when required
pursuant to the provisions of Articles 13 and 14. Each Warrant Certificate
shall, when manually countersigned by an authorized signatory of the Warrant
Agent, entitle the registered holder thereof to exercise the rights as the
holder of the number of Warrants set forth thereon, subject to the provisions of
this Agreement.
ARTICLE 3
EXERCISE PERIOD
3.1 Series 1 Warrants and Series 2 Warrants. Each Series 1 Warrant and
Series 2 Warrant shall entitle the holder thereof to purchase from the Company
one (1) share of Common Stock (subject to the adjustments provided herein), at
any time during the five (5) year period that commences on the First Business
Day that is one (1) day after the Original Issue Date, and that terminates at
5:00 p.m., New York City time on the First Business Day that is five (5) years
after the Original Issue Date (the 'Series 1/Series 2 Exercise Period').
3.2 Series 3 Warrants. Each Series 3 Warrant shall entitle the holder
thereof to purchase from the Company one (1) share of Common Stock (subject to
the adjustments provided herein), at any time during the four (4) year period
that commences on the First Business Day that is one (1) day after the Original
Issue Date, and that terminates at 5:00 p.m., New York City time on the
3
First Business Day that is four (4) years after the Original Issue Date (the
'Series 3 Exercise Period'; and together with the Series 1/Series 2 Exercise
Period, the 'Exercise Period').
3.3 Expiration or Cancellation of Warrants. Notwithstanding anything to the
contrary in this Article 3, in the event of a reorganization of the Company of
the nature described in Article 7 hereof, any Warrants that are not exercised
prior to consummation of such transaction shall be cancelled upon consummation
of such transaction, and the holders of such cancelled Warrants shall not be
entitled to receive any property with respect to their cancelled Warrants.
ARTICLE 4
EXERCISE PRICES
4.1 Series 1. The Exercise Price for the Series 1 Warrants shall be $19.82
per share of Common Stock (subject to adjustment pursuant to Article 6 hereof).
4.2 Series 2. The Exercise Price for the Series 2 Warrants shall be $23.15
per share of Common stock (subject to adjustment pursuant to Article 6 hereof).
4.3 Series 3. The Exercise Price for the Series 3 Warrants shall be $12.32
per share of Common stock (subject to adjustment pursuant to Article 6 hereof).
ARTICLE 5
EXERCISE OF WARRANTS
5.1 Manner of Exercise. All or any of the Warrants represented by a Warrant
Certificate may be exercised by the registered holder thereof during
normal business hours on any Business Day, by surrendering such Warrant
Certificate, with the subscription form set forth therein duly executed by such
holder, by hand or by mail to the Warrant Agent at its office addressed to
American Stock Transfer & Trust Company, 40 Wall Street, New York, New York
10005, or, if such exercise shall be in connection with an underwritten Public
Offering, at the location designated by the Company. Such Warrant Certificate
shall be accompanied by payment in respect of each Warrant that is exercised,
which shall be made by certified or official bank or bank cashier's check
payable to the order of the Company, except as otherwise provided herein. Such
payment shall be in an amount equal to the product of the number of shares of
Common Stock (without giving effect to any adjustment therein) designated in
such subscription form multiplied by the original Exercise Price for the Series
of Warrants being exercised (plus such additional consideration as may be
provided herein). Upon such surrender and payment, such holder shall thereupon
be entitled to receive the number of duly authorized, validly issued, fully paid
and nonassessable shares of Common Stock (or Other Securities) determined as
provided in Articles 2 and 3, and as and if adjusted pursuant to Article 6.
5.2 When Exercise Effective. Each exercise of any Warrant pursuant to
Section 5.1 shall be deemed to have been effected immediately prior to the close
of business on the Business Day on which the Warrant Certificate representing
such Warrant, duly executed, with accompanying payment shall have been delivered
as provided in Section 5.1, and at such time the Person or Persons in whose name
or names the certificate or certificates for Common Stock (or Other Securities)
shall be issuable upon such exercise as provided in Section 5.3 shall be deemed
to have become the holder or holders of record thereof.
5.3 Delivery of Certificates, Etc. (a) As promptly as practicable after the
exercise of any Warrant, and in any event within five (5) Business Days
thereafter (or, if such exercise is in connection with an underwritten Public
Offering, concurrently with such exercise), the Company at its expense (other
than as to payment of transfer taxes which will be paid by the holder) will
cause to be issued and delivered to such holder, or as such holder may otherwise
direct in writing (subject to Article 13),
(i) a certificate or certificates for the number of shares of Common
Stock (or Other Securities) to which such holder is entitled, and
(ii) if less than all the Warrants represented by a Warrant
Certificate are exercised, a new Warrant Certificate or Certificates of the
same tenor and for the aggregate number of Warrants that were not
exercised, executed and countersigned in accordance with Sections 2.4 and
2.5.
(b) The Warrant Agent shall countersign any new Warrant Certificate,
register it in such name or names as may be directed in writing by such holder,
and shall deliver it to the person entitled to receive the same in accordance
with this Section 5.3. The Company, whenever required by the Warrant Agent, will
supply the Warrant Agent with Warrant Certificates executed on behalf of the
Company for such purpose.
5.4 Fractional Shares. No fractional shares of Common Stock (or Other
Securities) shall be issued upon any exercise of Warrants. If more than one
Warrant Certificate shall be delivered for exercise at one time by the same
holder, the number of full
4
shares or securities that shall be issuable upon exercise shall be computed on
the basis of the aggregate number of Warrants exercised. As to any fraction of a
share of Common Stock (or Other Securities), the Company shall pay a cash
adjustment in respect thereto in an amount equal to the product of the Fair
Value per share of Common Stock (or Other Securities) as of the Business Day
next preceding the date of such exercise multiplied by such fraction of a share.
ARTICLE 6
ADJUSTMENT OF THE AMOUNT OF COMMON STOCK ISSUABLE AND THE
EXERCISE PRICES UPON EXERCISE
6.1 Stock Dividends, Split-ups and Combinations of Shares. If after the
date hereof the number of outstanding shares of Common Stock is increased by a
dividend, share distribution or split up, in each case payable in shares of
Common Stock, or if the number of outstanding shares of Common Stock is combined
into a smaller number of such shares or in the event of any other
reclassification of shares of Common Stock (other than a reclassification in
connection with a merger, consolidation or other business combination which will
be governed by Section 6.4), then the number of shares of Common Stock issuable
upon exercise of each Warrant immediately after the occurrence of any such event
shall be adjusted so that the holder of each Warrant shall be entitled to
receive the kind and number of shares of Common Stock (or Other Securities) of
the Company which such holder would have been entitled to receive upon the
occurrence of such event had such Warrant been exercised immediately prior
thereto or any record date with respect thereto (with any record date
requirement being deemed to have been satisfied). Any adjustment made pursuant
to this Section 6.1 shall become effective immediately after the effective date
of such event retroactive to the record date, if any, for such event.
6.2 Distributions. If after the date hereof the Company shall distribute to
all holders of its shares of Common Stock evidences of its indebtedness or
assets (excluding cash distributions made as a dividend payable out of earnings
or out of surplus legally available for dividends under the laws of the
jurisdiction of incorporation of the Company) or rights to subscribe to shares
of Common Stock expiring more than 45 days after the issuance thereof, then in
each such case the Exercise Price in effect immediately prior to such
distribution shall be decreased to an amount determined by multiplying such
Exercise Price by a fraction, the numerator of which is the Fair Value of a
share of the Common Stock at the date of such distribution less the Fair Value
per share of Common Stock outstanding at such date of the assets or evidences of
indebtedness so distributed or of such subscription rights (as determined by the
board of directors of the Company, whose determination shall be conclusive, and
described in a statement filed with the Warrant Agent) and the denominator of
which is the Fair Value of a share of Common Stock at such date. Such adjustment
shall be made whenever any such distribution is made, and shall become effective
retroactively on the date immediately after the record date for the
determination of stockholders entitled to receive such distribution.
6.3 Exercise Price Adjustment. Whenever the number of shares of Common
Stock (or Other Securities) into which a Warrant is exercisable is adjusted as
provided in this Article 6, then the Exercise Price payable upon exercise of the
Warrant shall simultaneously be adjusted by multiplying such Exercise Price
immediately prior to such adjustment by a fraction, the numerator of which shall
be the number of shares of Common Stock (or Other Securities) into which such
Warrant was exercisable immediately prior to such adjustment, and the
denominator of which shall be the number of shares of Common Stock (or Other
Securities) into which such Warrant was exercisable immediately thereafter.
6.4 Adjustments for Mergers and Consolidations. In case the Company, after
the date hereof, shall merge or consolidate with another Person, then, in the
case of any such transaction, proper provision shall be made so that, upon the
basis and terms and in the manner provided in this Warrant Agreement, the
holders of the Warrants, upon the exercise thereof at any time after the
consummation of such transaction (subject to the Exercise Period), shall be
entitled to receive (at the aggregate Exercise Price in effect at the time of
the transaction for all Common Stock or Other Securities issuable upon such
exercise immediately prior to such consummation), in lieu of the Common Stock or
Other Securities issuable upon such exercise prior to such consummation, the
greatest amount of securities, cash or other property to which such holder would
have been entitled as a holder of Common Stock (or Other Securities) upon such
consummation if such holder had exercised the rights represented by the Warrants
held by such holder immediately prior thereto, subject to adjustments
(subsequent to such consummation) as nearly equivalent as possible to the
adjustments provided for in Sections 6.1 and 6.2 hereof.
6.5 Calculation to Nearest Cent and One-hundredth of Share. All
calculations under this Article 6 shall be made to the nearest cent or to the
nearest one-hundredth of a share, as the case may be.
6.6 Notice of Adjustment in Exercise Price. Whenever the Exercise Price and
securities issuable shall be adjusted as provided in this Article 6, the Company
shall forthwith file with the Warrant Agent a statement, signed by the Chairman
of the Board, Vice Chairman of the Board, the President or any Vice President of
the Company and by its Treasurer or an Assistant Treasurer or its Secretary or
an Assistant Secretary, stating in detail the facts requiring such adjustment,
the Exercise Price that will be effective after such adjustment and the impact
of such adjustment on the number and kind of securities issuable upon exercise
of the Warrants. The Company shall also cause a notice setting forth any such
adjustments to be sent by mail, first class, postage
5
prepaid, to each registered holder of Warrants at its address appearing on the
Warrant register. The Warrant Agent shall have no duty with respect to any
statement filed with it except to keep the same on file and available for
inspection by registered holders of Warrants during reasonable business hours.
The Warrant Agent shall not at any time be under any duty or responsibility to
any holder of a Warrant to determine whether any facts exist which may require
any adjustment to the Exercise Price or securities issuable, or with respect to
the nature or extent of any adjustment of the Exercise Price or securities
issuable when made or with respect to the method employed in making such
adjustment.
6.7 Other Notices. In case the Company after the date hereof shall propose
to take any action of the type described in Sections 6.1, 6.2 or 6.3 of this
Article 6, the Company shall give notice to the Warrant Agent and to each
registered holder of a Warrant in the manner set forth in Section 6.6 of this
Article 6, which notice shall specify, in the case of action of the type
specified in Section 6.2 or 6.3, the date on which a record shall be taken with
respect to any such action. Such notice shall be given, in the case of any
action of the type specified in Section 6.2 or 6.3, at least ten (10) days prior
to the record date with respect thereto. Failure to give such notice, or any
defect therein, shall not affect the legality or validity of any such action.
Where appropriate, such notice may be given in advance and may be included as
part of a notice required to be mailed under the provisions of Section 6.6 of
this Article 6.
6.8 No Change in Warrant Terms on Adjustment. Irrespective of any
adjustments in the Exercise Price or the number of shares of Common Stock (or
any inclusion of Other Securities) issuable upon exercise, Warrants theretofore
or thereafter issued may continue to express the same prices and number of
shares as are stated in the similar Warrants issuable initially, or at some
subsequent time, pursuant to this Agreement, and the Exercise Price and such
number of shares issuable upon exercise specified thereon shall be deemed to
have been so adjusted.
6.9 Treasury Shares. Shares of Common Stock at any time owned by the
Company shall not be deemed to be outstanding for the purposes of any
computation under this Article 6.
ARTICLE 7
CONSOLIDATION, MERGER, ETC.
Notwithstanding anything contained herein to the contrary, the Company will
not effect a merger or consolidation unless, prior to the consummation of such
transaction, each Person (other than the Company) which may be required to
deliver any Common Stock, Other Securities, securities, cash or property upon
the exercise of this Warrant as provided herein shall assume, by written
instrument delivered to the Warrant Agent, the obligations of the Company under
this Warrant Agreement and under each of the Warrants, including, without
limitation, the obligation to deliver such shares of Common Stock, Other
Securities, cash or property as may be required pursuant to Article 6 hereof.
ARTICLE 8
NO DILUTION OR IMPAIRMENT
The Company will not, by amendment of its certificate of incorporation or
through any consolidation, merger, reorganization, transfer of assets,
dissolution, issuance or sale of securities or any other voluntary action or
omission, avoid or seek to avoid the observance or performance of any of the
terms of this Agreement or any of the Warrants issued hereunder, but will at all
times in good faith observe and perform all such terms and take all such action
as may be necessary or appropriate in order to protect the rights of each holder
of a Warrant against dilution or other impairment of the kind specified herein
provided, however, that, subject to compliance with the applicable provisions of
this Agreement, the Company shall not be prohibited by this Article 8 or by any
provision of this Agreement from making decisions providing for, inter alia, the
merger or consolidation of the Company or the sale of its assets which
transactions, in the judgment of the Company's board of directors, are in the
best interests of the Company and stockholders. Without limiting the generality
of the foregoing, the Company (a) will not permit the par value of any shares of
stock receivable upon the exercise of any Warrant to exceed the amount payable
therefor upon such exercise, (b) will take all such action as may be necessary
or appropriate in order that the Company may validly and legally issue fully
paid and nonassessable shares of stock upon the exercise of all of the Warrants
from time to time outstanding and (c) will not take any action that results in
any adjustment of the shares issuable upon exercise of the Warrants (or which
entitles the holders of the Warrants to receive Other Securities upon such
exercise) if the total number of shares of Common Stock (or Other Securities)
issuable after the action upon the exercise of all of the Warrants would exceed
the total number of shares of Common Stock (or Other Securities) then authorized
by the Company's certificate of incorporation and available for the purpose of
issuance upon such exercise.
6
ARTICLE 9
REPORTS
In each case of any adjustment or readjustment in the shares of Common
Stock (or Other Securities) issuable upon the exercise of the Warrants, the
Company at its expense will promptly compute such adjustment or readjustment
after giving effect to such in accordance with the terms of this Agreement and
shall prepare a report setting forth such adjustment or readjustment and showing
in reasonable detail the method of calculation thereof and the facts upon which
such adjustment or readjustment is based. The Company will forthwith mail a copy
of each such report to the Warrant Agent, which shall promptly mail a copy to
each holder of a Warrant. The Warrant Agent will cause the same to be available
for inspection at its principal office during normal business hours by any
holder of a Warrant or any prospective purchaser of a Warrant designated by the
holder thereof.
ARTICLE 10
NOTIFICATION OF CERTAIN EVENTS
10.1 Corporate Action. In the event of:
(a) any taking by the Company of a record of the holders of any class of
securities for the purpose of determining the holders thereof who are entitled
to receive any dividend (other than a regular periodic dividend payable in cash
out of earned surplus) or other distribution of any kind, or any right to
subscribe for, purchase or otherwise acquire any shares of stock of any class or
any other securities or property, or to receive any other right or interest of
any kind; or
(b) (i) any capital reorganization of the Company, (ii) any
reclassification of the capital shares of the Company (other than a change in
par value or from par value to no par value or from no par value to par value or
as a result of a split-up or combination), (iii) the consolidation or merger of
the Company with or into any other corporation (other than a consolidation or
merger in which the Company is the continuing corporation and which does not
result in any change in the shares of Common Stock), (iv) the sale of the
properties and assets of the Company as, or substantially as, an entirety to
another Person, or (v) an exchange offer for Common Stock (or Other Securities);
or
(c) the voluntary or involuntary dissolution, liquidation, or winding up of
the Company, the Company shall cause to be filed with the Warrant Agent and
mailed to each holder of a Warrant a notice specifying (x) the date or expected
date on which any such record is to be taken for the purpose of such dividend,
distribution, rights, event, transaction or amendment (or vote thereon) and the
amount and character of any such dividend, distribution, exchange, rights, or
vote, or, if a record is not to be taken, the date as of which the holders of
Common Stock of record to be entitled to such dividend, distribution, exchange
or rights are to be determined, and the amount and character of such dividend,
distribution or rights, or (y) the date or expected date on which any such
reorganization, reclassification, recapitalization, consolidation, merger, sale,
transfer, exchange offer, dissolution, liquidation or winding up is expected to
become effective, and the time, if any such time is to be fixed, as of which
holders of record of Common Stock (or Other Securities) shall be entitled to
exchange their shares of Common Stock (or Other Securities) for the securities
or other property deliverable upon such reorganization, reclassification,
recapitalization, consolidation, merger, sale, transfer, exchange offer,
dissolution, liquidation or winding up. Such notice shall be delivered not less
than twenty (20) days prior to such date therein specified, in the case of any
such date referred to in clause (x) of the preceding sentence, and not less than
thirty (30) days prior to such date therein specified, in the case of any such
date referred to in clause (y) of the preceding sentence. Failure to give such
notice within the time provided or any defect therein shall not affect the
legality or validity of any such action.
10.2 Available Information. The Company shall promptly file with the
Warrant Agent copies of its annual reports and of the information, documents and
other reports (or copies of such portions of any of the foregoing as the
Commission may by rules and regulations prescribe) that the Company is required
to file with the Commission pursuant to Section 13 or 15(d) of the Exchange Act.
If the Company is not required to make such filings, the Company shall promptly
deliver to the Warrant Agent copies of any annual, quarterly or other reports
and financial statements that are provided to any holders of equity or debt
securities of the Company (other than bank debt) in their capacity as holders of
such securities.
ARTICLE 11
RESERVATION OF STOCK
11.1 Reservation; Due Authorization, Etc. The Company shall at all times
reserve and keep available, free from preemptive rights, out of its authorized
but unissued Common Stock (or out of authorized Other Securities), solely for
issuance and delivery upon exercise of Warrants, the full number of shares of
Common Stock (and Other Securities) from time to time issuable upon the exercise
of all Warrants and any other outstanding warrants, options or similar rights,
from time to time outstanding. All shares of Common Stock (and Other Securities)
shall be duly authorized and, when issued upon such exercise, shall be duly and
validly
7
issued, and (in the case of shares) fully paid and nonassessable, and free from
all taxes, liens, charges, security interests, encumbrances and other
restrictions created by or through the Company.
11.2 Compliance with Law. The Company will use its best efforts, at its
expense and on a continual basis, to assure that all shares of Common Stock (and
Other Securities) that may be issued upon exercise of Warrants may be so issued
and delivered without violation of any Federal or state securities law or
regulation, or any other law or regulation applicable to the Company or any of
its subsidiaries, provided that with respect to any such exercise involving a
sale or transfer of Warrants or any such securities issuable upon such exercise,
the Company shall have no obligation to register such Warrants or securities
under any such securities law.
ARTICLE 12
PAYMENT OF TAXES
The Company will pay any and all documentary stamp or similar issue taxes
payable to the United States of America or any State, or any political
subdivision or taxing authority thereof or therein, in respect of the issuance
or delivery of shares of Common Stock (or Other Securities) on exercise of
Warrants, provided, that the Company shall not be required to pay any tax that
may be payable in respect of any transfer of a Warrant or any transfer involved
in the issuance and delivery of Common Stock (or Other Securities) in a name
other than that of the registered holder of the Warrants to be exercised, and no
such issuance or delivery shall be made unless and until the person requesting
such issuance has paid to the Company the amount of any such tax or has
established, to the reasonable satisfaction of the Company, that such tax has
been paid.
ARTICLE 13
LOSS OR MUTILATION
Upon receipt by the Company and the Warrant Agent of evidence reasonably
satisfactory to them of the ownership of and the loss, theft, destruction or
mutilation of any Warrant Certificate and of an indemnity bond reasonably
satisfactory to them in form or amount, and (in the case of mutilation) upon
surrender and cancellation thereof, then, in the absence of notice to the
Company or the Warrant Agent that the Warrants represented thereby have been
acquired by a bona fide purchaser, the Company shall execute and deliver to the
Warrant Agent and, upon the Company's request, an authorized signatory of the
Warrant Agent shall manually countersign and deliver, to the registered holder
of the lost, stolen, destroyed or mutilated Warrant Certificate, in exchange for
or in lieu thereof, a new Warrant Certificate of the same tenor and for a like
aggregate number of Warrants. Upon the issuance of any new Warrant Certificate
under this Article 13, the Company may require the payment of a sum sufficient
to cover any tax or other governmental charge that may be imposed in relation
thereto and any other expenses (including the reasonable fees and expenses of
the Warrant Agent) in connection therewith. Every new Warrant Certificate
executed and delivered pursuant to this Article 13 in lieu of any lost, stolen
or destroyed Warrant Certificate shall be entitled to the same benefits of this
Agreement equally and proportionately with any and all other Warrant
Certificates, whether or not the allegedly lost, stolen or destroyed Warrant
Certificate shall be at any time enforceable by anyone. The provisions of this
Article 13 are exclusive and shall preclude (to the extent lawful) all other
rights or remedies with respect to the replacement of mutilated, lost, stolen or
destroyed Warrant Certificates.
ARTICLE 14
WARRANT REGISTRATION
14.1 Registration. The Warrant Certificates shall be issued in registered
form only and shall be registered in the names of the record holders of the
Warrant Certificates to whom they are to be delivered. The Company shall
maintain or cause to be maintained a register in which, subject to such
reasonable regulations as it may prescribe, the Company shall provide for the
registration of Warrants and of transfers or exchanges of Warrant Certificates
as provided in this Agreement. Such register shall be maintained at the office
of the Company or the Warrant Agent located at the respective address therefor
as provided in Section 17.1. Such register shall be open for inspection upon
notice at all reasonable times by the Warrant Agent and each holder of a
Warrant.
14.2 Transfer or Exchange. Subject to Section 2.1 hereof, at the option of
the holder, Warrant Certificates may be exchanged or transferred for other
Warrant Certificates for a like aggregate number of Warrants, upon surrender of
the Warrant Certificates to be exchanged at the office of the Company or the
Warrant Agent maintained for such purpose at the respective address therefor as
provided in Section 17.1, and upon payment of the charges herein provided.
Whenever any Warrant Certificates are so surrendered for exchange or transfer,
the Company shall execute, and an authorized signatory of the Warrant Agent
shall manually countersign and deliver, the Warrant Certificates that the holder
making the exchange is entitled to receive.
8
14.3 Valid and Enforceable. All Warrant Certificates issued upon any
registration of transfer or exchange of Warrant Certificates shall be the valid
obligations of the Company, evidencing the same obligations, and entitled to the
same benefits under this Agreement, as the Warrant Certificates surrendered for
such registration of transfer or exchange.
14.4 Endorsement. Every Warrant Certificate surrendered for registration of
transfer or exchange shall (if so required by the Company or the Warrant Agent)
be duly endorsed, or be accompanied by an instrument of transfer in form
reasonably satisfactory to the Company and the Warrant Agent and duly executed
by the registered holder thereof or such holder's officer or representative duly
authorized in writing.
14.5 No Service Charge. No service charge shall be made for any
registration of transfer or exchange of Warrant Certificates.
14.6 Cancellation. Any Warrant Certificate surrendered for registration of
transfer, exchange or the exercise of the Warrants represented thereby shall, if
surrendered to the Company, be delivered to the Warrant Agent, and all Warrant
Certificates surrendered or so delivered to the Warrant Agent shall be promptly
cancelled by the Warrant Agent. Any such Warrant Certificate shall not be
reissued by the Company and, except as provided in this Article 14 in case of an
exchange or transfer, in Article 13 in case of a mutilated Warrant Certificate
and in Article 3 in case of the exercise of less than all the Warrants
represented thereby, no Warrant Certificate shall be issued hereunder in lieu
thereof. The Warrant Agent shall deliver to the Company from time to time or
otherwise dispose of such cancelled Warrant Certificates in a manner reasonably
satisfactory to the Company.
ARTICLE 15
WARRANT AGENT
15.1 Obligations Binding. The Warrant Agent undertakes the duties and
obligations imposed by this Agreement upon the terms and conditions set forth in
this Article 15. The Company, and the holders of Warrants by their acceptance
thereof, shall be bound by all of such terms and conditions.
15.2 No Liability. The Warrant Agent shall not by countersigning Warrant
Certificates or by any other act hereunder be accountable with respect to or be
deemed to make any representations as to the validity or authorization of the
Warrants or the Warrant Certificates (except as to its countersignature
thereon), as to the validity, authorization or value (or kind or amount) of any
Common Stock or of any Other Securities or other property delivered or
deliverable upon exercise of any Warrant, or as to the purchase price of such
Common Stock, securities or other property. The Warrant Agent shall not (i) be
liable for any recital or statement of fact contained herein or in the Warrant
Certificates or for any action taken, suffered or omitted by the Warrant Agent
in good faith in the belief that any Warrant Certificate or any other document
or any signature is genuine or properly authorized, (ii) be responsible for
determining whether any facts exist that may require any adjustment of the
purchase price and the number of shares of Common Stock purchasable upon
exercise of Warrants, or with respect to the nature or extent of any such
adjustments when made, or with respect to the method of adjustment employed,
(iii) be responsible for any failure on the part of the Company to issue,
transfer or deliver any Common Stock or Other Securities or property upon the
surrender of any Warrant for the purpose of exercise or to comply with any other
of the Company's covenants and obligations contained in this Agreement or in the
Warrant Certificates or (iv) be liable for any act or omission in connection
with this Agreement except for its own bad faith, negligence or willful
misconduct.
15.3 Instructions. The Warrant Agent is hereby authorized to accept
instructions with respect to the performance of its duties hereunder from the
Chairman of the Board, Vice Chairman of the Board, President, any Vice
President, Treasurer or any Assistant Treasurer of the Company and to apply to
any such officer for advice or instructions. The Warrant Agent shall not be
liable for any action taken, suffered or omitted by it in good faith in
accordance with the instructions of any such officer.
15.4 Agents. The Warrant Agent may execute and exercise any of the rights
and powers hereby vested in it or perform any duty hereunder either itself or by
or through its attorneys, agents or employees, provided reasonable care has been
exercised in the selection and in the continued employment of any such attorney,
agent or employee. The Warrant Agent shall not be under any obligation or duty
to institute, appear in, or defend any action, suit or legal proceeding in
respect hereof, but this provision shall not affect the power of the Warrant
Agent to take such action as the Warrant Agent may consider proper. The Warrant
Agent shall promptly notify the Company in writing of any claim made or action,
suit or proceeding instituted against the Warrant Agent arising out of or in
connection with this Agreement.
15.5 Cooperation. The Company will perform, execute, acknowledge and
deliver or cause to be performed, executed, acknowledged and delivered all such
further acts, instruments and assurances as may reasonably be required by the
Warrant Agent in order to enable the Warrant Agent to carry out or perform its
duties under this Agreement.
9
15.6 Agent Only. The Warrant Agent shall act solely as agent. The Warrant
Agent shall not be liable except for the performance of such duties as are
specifically set forth herein, and no implied covenants or obligations shall be
read into this Agreement against the Warrant Agent, whose duties and obligations
shall be determined solely by the express provisions hereof.
15.7 Right to Counsel. The Warrant Agent may at any time consult with legal
counsel satisfactory to it (who may be legal counsel for the Company) and the
Warrant Agent shall incur no liability or responsibility to the Company or to
any Warrant holder for any action taken, suffered or omitted by the Warrant
Agent in good faith in accordance with the opinion or advice of such counsel.
15.8 Compensation. The Company agrees to pay the Warrant Agent reasonable
compensation for its services hereunder and to reimburse the Warrant Agent for
its reasonable expenses hereunder; and further agrees to indemnify the Warrant
Agent and hold it harmless against any and all liabilities, including, but not
limited to, judgments, costs and reasonable counsel fees, for anything done,
suffered or omitted by the Warrant Agent in the execution of its duties and
powers hereunder, except for any such liabilities that arise as a result of the
Warrant Agent's bad faith, negligence or willful misconduct.
15.9 Accounting. The Warrant Agent shall account promptly to the Company
with respect to Warrants exercised and concurrently pay to the Company all
moneys received by the Warrant Agent on behalf of the Company on the purchase of
shares of Common Stock (or Other Securities) through the exercise of Warrants.
15.10 No Conflict. The Warrant Agent and any stockholder, director, officer
or employee of the Warrant Agent may buy, sell or deal in any of the Warrants or
other securities of the Company or become pecuniarily interested in any
transaction in which the Company may be interested, or contract with or lend
money to the Company or otherwise act as fully and freely as though it were not
Warrant Agent under this Agreement. Nothing herein shall preclude the Warrant
Agent from acting in any other capacity for the Company or for any other legal
entity.
15.11 Resignation; Termination. The Warrant Agent may resign its duties and
be discharged from all further duties and liabilities hereunder (except
liabilities arising as a result of the Warrant Agent's bad faith, negligence or
willful misconduct), after giving thirty (30) days' prior written notice to the
Company. The Company may remove the Warrant Agent upon thirty (30) days' written
notice, and the Warrant Agent shall thereupon in like manner be discharged from
all further duties and liabilities hereunder, except as to liabilities arising
as a result of the Warrant Agent's bad faith, negligence or willful misconduct.
The Company shall cause to be mailed (by first class mail, postage prepaid) to
each registered holder of a Warrant at such holder's last address as shown on
the register of the Company, at the Company's expense, a copy of such notice of
resignation or notice of removal, as the case may be. Upon such resignation or
removal the Company shall promptly appoint in writing a new warrant agent. If
the Company shall fail to make such appointment within a period of thirty (30)
days after it has been notified in writing of such resignation by the resigning
Warrant Agent or after such removal, then the holder of any Warrant may apply to
any court of competent jurisdiction for the appointment of a new warrant agent.
Pending appointment of a successor to the Warrant Agent, either by the Company
or by such a court, the duties of the Warrant Agent shall be carried out by the
Company. Any successor warrant agent, whether appointed by the Company or by
such a court, shall be a corporation, incorporated under the laws of the United
States or of any state thereof and authorized under such laws to exercise
corporate trust powers, be subject to supervision and examination by Federal or
state authority, and have a combined capital and surplus of not less than
$100,000,000 as set forth in its most recent published annual report of
condition. After acceptance in writing of such appointment by the new warrant
agent it shall be vested with the same powers, rights, duties and
responsibilities as if it had been originally named herein as the Warrant Agent,
without any further assurance, conveyance, act or deed; but if for any reason it
shall be necessary or expedient to execute and deliver any further assurance,
conveyance, act or deed, the same shall be done at the expense of the Company
and shall be legally and validly executed and delivered by the resigning or
removed Warrant Agent. Not later than the effective date of any such appointment
the Company shall file notice thereof with the resigning or removed Warrant
Agent and shall forthwith cause a copy of such notice to be mailed (by first
class, postage prepaid) to each registered holder of a Warrant at such holder's
last address as shown on the register of the Company. Failure to give any notice
provided for in this Section 15.11, or any defect in any such notice, shall not
affect the legality or validity of the resignation of the Warrant Agent or the
appointment of a new warrant agent, as the case may be.
15.12 Change of Warrant Agent. If at any time the name of the Warrant Agent
shall be changed and at such time any of the Warrant Certificates shall have
been countersigned but not delivered, the Warrant Agent may adopt the
countersignature under its prior name and deliver Warrant Certificates so
countersigned; and if at that time any of the Warrant Certificates shall not
have been countersigned, the Warrant Agent may countersign such Warrant
Certificates either in its prior name or in its changed name; and in all such
cases such Warrant Certificates shall have the full force and effect provided in
the Warrant Certificates and this Agreement.
15.13 Successor Warrant Agent. Any corporation into which the Warrant Agent
or any new warrant agent may be merged or any corporation resulting from any
consolidation to which the Warrant Agent or any new warrant agent shall be a
party or any corporation succeeding to all or substantially all the agency
business of the Warrant Agent or any new warrant agent shall be a
10
successor Warrant Agent under this Agreement without any further act, provided,
that such corporation would be eligible for appointment as a new warrant agent
under the provisions of Section 15.11 of this Article 15. The Company shall
promptly cause notice of the succession as Warrant Agent of any such successor
Warrant Agent to be mailed (by first class mail, postage prepaid) to each
registered holder of a Warrant at its last address as shown on the register of
the Company.
ARTICLE 16
REMEDIES, ETC.
16.1 Remedies. The Company stipulates that the remedies at law of each
holder of a Warrant in the event of any default or threatened default by the
Company in the performance of or compliance with any of the terms of this
Warrant Agreement are not and will not be adequate and that, to the fullest
extent permitted by law, such terms may be specifically enforced by a decree for
the specific performance of any agreement contained herein or by an injunction
against a violation of any of the terms hereof or otherwise.
16.2 Warrant Holder Not Deemed a Stockholder. Prior to the exercise of the
Warrants represented thereby no holder of a Warrant Certificate, as such, shall
be entitled to any rights of a stockholder of the Company, including, but not
limited to, the right to vote, to receive dividends or other distributions, to
exercise any preemptive right or, except as otherwise provided herein, to
receive any notice of meetings of stockholders, and no such holder shall be
entitled to receive notice of any proceedings of the Company except as provided
in this Agreement. Nothing contained in this Agreement shall be construed as
imposing any liabilities on such holder to purchase any securities or as a
stockholder of the Company, whether such liabilities are asserted by the Company
or by creditors or stockholders of the Company or otherwise.
16.3 Right of Action. All rights of action in respect of this Agreement are
vested in the registered holders of the Warrants. Any registered holder of any
Warrant, without the consent of the Warrant Agent or the registered holder of
any other Warrant, may in such holder's own behalf and for such holder's own
benefit enforce, and may institute and maintain any suit, action or proceeding
against the Company suitable to enforce, or otherwise in respect of, such
holder's right to exercise such holder's Warrants in the manner provided in the
Warrant Certificate representing such Warrants and the Company's obligations
under this Agreement and the Warrants.
ARTICLE 17
MISCELLANEOUS
17.1 Notices. Any notice, demand or delivery authorized by this Agreement
shall be sufficiently given or made if sent by first class mail, postage
prepaid, addressed to any registered holder of a Warrant at such holder's last
known address appearing on the register of the Company, and to the Company or
the Warrant Agent as follows:
If to the Company:
The Grand Union Company
201 Willowbrook Boulevard
Wayne, New Jersey 07470
Attn: General Counsel
Telephone: (973) 890-6000
Facsimile: (973) 890-6012
If to the Warrant Agent:
American Stock Transfer & Trust Company
40 Wall Street
New York, New York 10005
Attn: Donna Ansbro
Telephone: (718) 921-8261
Facsimile: (718) 236-4588
or such other address as shall have been furnished in writing, in
accordance with this Section 17.1, to the party giving or making such notice,
demand or delivery.
17.2 Governing Law and Consent to Forum. THIS AGREEMENT SHALL BE GOVERNED
BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, AS
APPLIED TO CONTRACTS MADE AND PERFORMED WITHIN THE STATE OF NEW YORK, WITHOUT
REGARD TO PRINCIPLES OF CONFLICT OF LAWS. THE COMPANY AND THE WARRANT AGENT EACH
HEREBY IRREVOCABLY SUBMIT TO THE JURISDICTION OF
11
ANY NEW YORK STATE COURT SITTING IN THE CITY OF NEW YORK OR ANY FEDERAL COURT
SITTING IN THE CITY OF NEW YORK IN RESPECT OF ANY SUIT, ACTION OR PROCEEDING
ARISING OUT OF OR RELATING TO THIS AGREEMENT, AND EACH IRREVOCABLY ACCEPTS FOR
ITSELF AND IN RESPECT OF ITS PROPERTY, GENERALLY AND UNCONDITIONALLY, THE
JURISDICTION OF THE AFORESAID COURTS. NOTHING HEREIN SHALL AFFECT THE RIGHT OF
ANY PERSON TO SERVE PROCESS IN ANY MANNER PERMITTED BY LAW OR TO COMMENCE LEGAL
PROCEEDINGS OR OTHERWISE PROCEED AGAINST THE COMPANY IN ANY OTHER JURISDICTION.
17.3 Benefits of this Agreement. This Agreement shall be binding upon and
inure to the benefit of the Company and the Warrant Agent and their respective
successors and assigns, and the registered and beneficial holders from time to
time of the Warrants and of holders of the Common Stock, where applicable.
Nothing in this Agreement is intended or shall be construed to confer upon any
other person, any right, remedy or claim under or by reason of this Agreement or
any part hereof.
17.4 Agreement of Holders of Warrant Certificates. Every holder of a
Warrant Certificate, by accepting the same, covenants and agrees with the
Company, the Warrant Agent and with every other holder of a Warrant Certificate
that the Warrant Certificates are transferable on the registry books of the
Warrant Agent only upon the terms and conditions set forth in this Agreement,
and the Company and the Warrant Agent may deem and treat the person in whose
name the Warrant Certificate is registered as the absolute owner for all
purposes whatsoever and neither the Company nor the Warrant Agent shall be
affected by any notice to the contrary.
17.5 Counterparts. This Agreement may be executed in any number of
counterparts and each such counterpart shall for all purposes be deemed to be an
original, and all such counterparts shall together constitute but one and the
same instrument.
17.6 Amendments. The Warrant Agent may, without the consent or concurrence
of the holders of the Warrants, by supplemental agreement or other writing, join
with the Company in making any amendments or modifications of this Agreement
that they shall have been advised by counsel (a) are required to cure any
ambiguity or to correct any defective or inconsistent provision or clerical
omission or mistake or manifest error herein contained and which do not
accurately reflect the understanding of the parties hereto, (b) add to the
covenants and agreements of the Company in this Agreement further covenants and
agreements of the Company thereafter to be observed, or surrender any rights or
power reserved to or conferred upon the Company in this Agreement or (c) do not
and will not adversely affect, alter or change the rights, privileges or
immunities of the registered holders of Warrants or of any person entitled to
the benefits of this Agreement who has not assented to such change, in writing.
This Agreement may otherwise be amended by the Company and the Warrant Agent
only with the consent of the holders of a majority of the then outstanding
Warrants. Notwithstanding the foregoing, the consent of each holder of a Warrant
affected shall be required for any amendment pursuant to which the Exercise
Price would be increased or the number of shares of Common Stock (or Other
Securities) purchasable upon exercise of Warrants would be decreased (other than
pursuant to adjustments provided herein). The Warrant Agent shall join with the
Company in the execution and delivery of any such amendment unless such
amendment affects the Warrant Agent's own rights, duties or immunities
hereunder, in which case the Warrant Agent may, but shall not be required to,
join in such execution and delivery. Upon execution and delivery of any
amendment pursuant to this Section 17.6, such amendment shall be considered a
part of this Agreement for all purposes and every holder of a Warrant
Certificate theretofore or thereafter countersigned and delivered hereunder
shall be bound thereby.
17.7 Consent to Jurisdiction. The parties hereby expressly acknowledge and
agree that, to the extent permitted by applicable law, the Bankruptcy Court
shall have exclusive jurisdiction to hear and determine any and all disputes
concerning the distribution of Warrants hereunder to holders of Old Common Stock
and Old Preferred Stock pursuant to the Plan. The Warrant Agent hereby assents
to the jurisdiction of the Bankruptcy Court with respect to any such disputes
and waives any argument of lack of such jurisdiction.
17.8 Headings. The table of contents hereto and the descriptive headings of
the several sections hereof are inserted for convenience only and shall not
control or affect the meaning or construction of any of the provisions hereof.
12
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed, as of the day and year first above written.
THE GRAND UNION COMPANY
By:
------------------------------------------
Name:
Title:
AMERICAN STOCK TRANSFER &
TRUST COMPANY
By:
------------------------------------------
Name:
Title:
13
EXHIBIT A
FORM OF SERIES 1 WARRANT CERTIFICATE
[FORM OF FACE OF SERIES 1 WARRANT CERTIFICATE]
Series 1 Warrant Number of Series 1 Warrant(s):
No.
Exercisable During the Period Commencing , 1998
and Terminating at 5:00 p.m. , 2003
except as provided below
SERIES 1 WARRANT TO PURCHASE
COMMON STOCK
OF
THE GRAND UNION COMPANY
This Certifies that or registered assigns, is the owner of the number of
SERIES 1 WARRANTS set forth above, each of which represents the right, at any
time after , 1998 and on or before 5:00 p.m., New York City time, on , 2003, to
purchase from The Grand Union Company, a Delaware corporation (the 'Company'),
at the price of $19.82 (the 'Exercise Price'), one share of Common Stock, $.01
par value, of the Company as such stock was constituted as of , 1998, subject to
adjustment as provided in the Warrant Agreement hereinafter referred to, upon
surrender hereof, with the subscription form on the reverse hereof duly
executed, by hand or by mail to American Stock Transfer & Trust Company, 40 Wall
Street, New York, New York 10005, or to any successor thereto, as the warrant
agent under the Warrant Agreement, at the office of such successor maintained
for such purpose (any such warrant agent being herein called the 'Warrant
Agent') (or, if such exercise shall be in connection with an underwritten Public
Offering of shares of such Common Stock (or Other securities) (as such term and
other capitalized terms used herein are defined in the Warrant Agreement)
subject to the Warrant Agreement, at the location at which the Company shall
have agreed to deliver such securities), and simultaneous payment in full (by
certified or official bank or bank cashier's check payable to the order of the
Company) of the Exercise Price in respect of each Warrant represented by this
Warrant Certificate that is so exercised, all subject to the terms and
conditions hereof and of the Warrant Agreement.
Upon any partial exercise of the Warrants represented by this Warrant
Certificate, there shall be issued to the holder hereof a new Warrant
Certificate representing the Warrants that were not exercised.
No fractional shares may be issued upon the exercise of rights to purchase
hereunder, and as to any fraction of a share otherwise issuable, the Company
will make a cash adjustment in lieu of such issuance, as provided in the Warrant
Agreement.
This Warrant Certificate is issued under and in accordance with a Warrant
Agreement, dated as of , 1998 (the 'Warrant Agreement'), between the Company and
American Stock Transfer & Trust Company, as Warrant Agent, and is subject to the
terms and provisions contained therein, all of which terms and provisions the
holder of this Warrant Certificate consents to by acceptance hereof. Copies of
the Warrant Agreement are on file at the above-mentioned office of the Warrant
Agent and may be obtained by writing to the Warrant Agent.
REFERENCE IS HEREBY MADE TO THE FURTHER PROVISIONS OF THIS WARRANT SET
FORTH ON THE REVERSE HEREOF, WHICH FURTHER PROVISIONS SHALL FOR ALL PURPOSES
HAVE THE SAME EFFECT AS IF SET FORTH AT THIS PLACE.
Dated: THE GRAND UNION COMPANY
By: _____________________________________
Title:
Countersigned:
American Stock Transfer & Trust Company,
as Warrant Agent
By: ___________________________
Authorized Signatory
A-1
[FORM OF REVERSE OF WARRANT CERTIFICATE]
THE GRAND UNION COMPANY
The transfer of this Warrant Certificate and all rights hereunder is
registrable by the registered holder hereof, in whole or in part, on the
register of the Company upon surrender of this Warrant Certificate at the office
or agency of the Company or the office of the Warrant Agent maintained for such
purpose at American Stock Transfer & Trust Company, 40 Wall Street, New York,
New York 10005, duly endorsed or accompanied by a written instrument of transfer
duly executed and in form satisfactory to the Company and the Warrant Agent, by
the registered holder hereof or his attorney duly authorized in writing and upon
payment of any necessary transfer tax or other governmental charge imposed upon
such transfer or registration thereof. Upon any partial transfer the Company
will cause to be delivered to such holder a new Warrant Certificate or
Certificates with respect to any portion not so transferred.
This Warrant Certificate may be exchanged at the office or agency of the
Company or the office of the Warrant Agent maintained for such purpose at
American Stock Transfer & Trust Company, 40 Wall Street, New York, New York
10005, for Warrant Certificates representing the same aggregate number of
Warrants, each new Warrant Certificate to represent such number of Warrants as
the holder hereof shall designate at the time of such exchange.
Prior to the exercise of the Warrants represented hereby, the holder of
this Warrant Certificate, as such, shall not be entitled to any rights of a
stockholder of the Company, including, but not limited to, the right to vote, to
receive dividends or other distributions, to exercise any preemptive right or,
except as provided in the Warrant Agreement, to receive any notice of meetings
of stockholders, and shall not be entitled to receive notice of any proceedings
of the Company except as provided in the Warrant Agreement. Nothing contained
herein shall be construed as imposing any liabilities upon the holder of this
Warrant Certificate to purchase any securities or as a stockholder of the
Company, whether such liabilities are asserted by the Company or by creditors or
stockholders of the Company or otherwise.
This Warrant Certificate shall he void and all rights represented hereby
shall cease unless exercised on or before the close of business on
, 2003.
This Warrant Certificate shall not be valid for any purpose until it shall
have been manually countersigned by an authorized signatory of the Warrant
Agent.
Witness the facsimile seal of the Company and the signature of its duly
authorized officer.
A-2
SUBSCRIPTION FORM
(To be executed only upon exercise of warrant)
TO THE GRAND UNION COMPANY
American Stock Transfer & Trust Company, as Warrant Agent
The undersigned (i) irrevocably exercises the Warrants represented by the
within Warrant Certificate, (ii) purchases one share of Common Stock of The
Grand Union Company (before giving effect to the adjustments provided in the
Warrant Agreement referred to in the within Warrant Certificate) for each
Warrant so exercised and herewith makes payment in full of the purchase price of
$19.82 in respect of each Warrant so exercised as provided in the Warrant
Agreement (such payment being by certified or official bank or bank cashier's
check payable to the order of The Grand Union Company), all on the terms and
conditions specified in the within Warrant Certificate and the Warrant
Agreement, (iii) surrenders this Warrant Certificate and all right, title and
interest therein to The Grand Union Company and (iv) directs that the securities
or other property deliverable upon the exercise of such Warrants be registered
or placed in the name and at the address specified below and delivered thereto.
Dated: ,
-----------------------------------------
(Owner)*
-----------------------------------------
(Signature of Authorized
Representative)
-----------------------------------------
(Street Address)
-----------------------------------------
(City) (State) (Zip Code)
Securities or property to be
issued and delivered to: -----------------------------------------
Signature Guaranteed**
Please insert social
security or other
identifying number
--------------------------------
Name ___________________________________________________________________________
Street Address _________________________________________________________________
City, State and Zip Code _______________________________________________________
A-3
FORM OF ASSIGNMENT
FOR VALUE RECEIVED, the undersigned registered holder of the within Warrant
Certificate hereby sells, assigns and transfers unto the Assignee named below
all of the rights of the undersigned under the within Warrant Certificate, with
respect to the number of warrants set forth below:
Name of No. of
Assignee Address Warrants
- ------------------------ ---------------------------- ------------------------
Please insert social
security or other
identifying number
of Assignee
- ------------------
and does hereby irrevocably constitute and appoint _____________________
attorney to make such transfer on the books of The Grand Union Company
maintained for the purpose, with full power of substitution in the premises.
Dated: ______________, _____
Name ___________________________________*
Signature of Authorized
Representative __________________________
Signature Guaranteed __________________**
- ---------------------------
* The signature must correspond with the name as written upon the face of
the within Warrant Certificate in every particular, without alteration or
enlargement or any change whatsoever.
** The signature must be guaranteed by a securities transfer agents
medallion program ('stamp') participant or an institution receiving prior
approval from the Warrant Agent.
A-4
EXHIBIT B
FORM OF SERIES 2 WARRANT CERTIFICATE
[FORM OF FACE OF SERIES 2 WARRANT CERTIFICATE]
Series 2 Warrant Number of Series 2 Warrant(s):
No.
Exercisable During the Period Commencing , 1998
and Terminating at 5:00 p.m. , 2003
except as provided below
SERIES 2 WARRANT TO PURCHASE
COMMON STOCK
OF
THE GRAND UNION COMPANY
This Certifies that or registered assigns, is the owner of the number of
SERIES 2 WARRANTS set forth above, each of which represents the right, at any
time after , 1998 and on or before 5:00 p.m., New York City time, on , 2003, to
purchase from The Grand Union Company, a Delaware Corporation (the 'Company'),
at the price of $23.15 (the 'Exercise Price'), one share of Common Stock, $.01
par value, of the Company as such stock was constituted as of , 1998, subject to
adjustment as provided in the Warrant Agreement hereinafter referred to, upon
surrender hereof, with the subscription form on the reverse hereof duly
executed, by hand or by mail to American Stock Transfer & Trust Company, as
Warrant Agent under the Warrant Agreement, at 40 Wall Street, New York, New York
10005, or to any successor thereto, as the warrant agent under the Warrant
Agreement, at the office of such successor maintained for such purpose (any such
warrant agent being herein called the 'Warrant Agent') (or, if such exercise
shall be in connection with an underwritten Public Offering of shares of such
Common Stock (or Other Securities) (as such term and other capitalized terms
used herein are defined in the Warrant Agreement) subject to the Warrant
Agreement, at the location at which the Company shall have agreed to deliver
such securities), and simultaneous payment in full (by certified or official
bank or bank cashier's check payable to the order of the Company) of the
Exercise Price in respect of each Warrant represented by this Warrant
Certificate that is so exercised, all subject to the terms and conditions hereof
and of the Warrant Agreement.
Upon any partial exercise of the Warrants represented by this Warrant
Certificate, there shall be issued to the holder hereof a new Warrant
Certificate representing the Warrants that were not exercised.
No fractional shares may be issued upon the exercise of rights to purchase
hereunder, and as to any fraction of a share otherwise issuable, the Company
will make a cash adjustment in lieu of such issuance, as provided in the Warrant
Agreement.
This Warrant Certificate is issued under and in accordance with a Warrant
Agreement, dated as of , 1998 (the 'Warrant Agreement'), between the Company and
American Stock Transfer & Trust Company, as Warrant Agent, and is subject to the
terms and provisions contained therein, all of which terms and provisions the
holder of this Warrant Certificate consents to by acceptance hereof. Copies of
the Warrant Agreement are on file at the above-mentioned office of the Warrant
Agent and may be obtained by writing to the Warrant Agent.
REFERENCE IS HEREBY MADE TO THE FURTHER PROVISIONS OF THIS WARRANT SET
FORTH ON THE REVERSE HEREOF, WHICH FURTHER PROVISIONS SHALL FOR ALL PURPOSES
HAVE THE SAME EFFECT AS IF SET FORTH AT THIS PLACE.
Dated:
THE GRAND UNION COMPANY
By:
--------------------------------------
Title:
Countersigned:
American Stock Transfer & Trust Company,
as Warrant Agent
By: __________________________________________
Authorized Signatory
B-1
[FORM OF REVERSE OF WARRANT CERTIFICATE]
THE GRAND UNION COMPANY
The transfer of this Warrant Certificate and all rights hereunder is
registrable by the registered holder hereof, in whole or in part, on the
register of the Company upon surrender of this Warrant Certificate at the office
or agency of the Company or the office of the Warrant Agent maintained for such
purpose at American Stock Transfer & Trust Company, 40 Wall Street, New York,
New York 10005, duly endorsed or accompanied by a written instrument of transfer
duly executed and in form satisfactory to the Company and the Warrant Agent, by
the registered holder hereof or his attorney duly authorized in writing and upon
payment of any necessary transfer tax or other governmental charge imposed upon
such transfer or registration thereof. Upon any partial transfer the Company
will cause to be delivered to such holder a new Warrant Certificate or
Certificates with respect to any portion not so transferred.
This Warrant Certificate may be exchanged at the office or agency of the
Company or the office of the Warrant Agent maintained for such purpose at
American Stock Transfer & Trust Company, 40 Wall Street, New York, New York
10005, for Warrant Certificates representing the same aggregate number of
Warrants, each new Warrant Certificate to represent such number of Warrants as
the holder hereof shall designate at the time of such exchange.
Prior to the exercise of the Warrants represented hereby, the holder of
this Warrant Certificate, as such, shall not be entitled to any rights of a
stockholder of the Company, including, but not limited to, the right to vote, to
receive dividends or other distributions, to exercise any preemptive right or,
except as provided in the Warrant Agreement, to receive any notice of meetings
of stockholders, and shall not be entitled to receive notice of any proceedings
of the Company except as provided in the Warrant Agreement. Nothing contained
herein shall be construed as imposing any liabilities upon the holder of this
Warrant Certificate to purchase any securities or as a stockholder of the
Company, whether such liabilities are asserted by the Company or by creditors or
stockholders of the Company or otherwise.
This Warrant Certificate shall be void and all rights represented hereby
shall cease unless exercised on or before the close of business on
, 2003.
This Warrant Certificate shall not be valid for any purpose until it shall
have been manually countersigned by an authorized signatory of the Warrant
Agent.
Witness the facsimile seal of the Company and the signature of its duly
authorized officer.
B-2
SUBSCRIPTION FORM
(To be executed only upon exercise of warrant)
TO THE GRAND UNION COMPANY
American Stock Transfer & Trust Company, as Warrant Agent
The undersigned (i) irrevocably exercises the Warrants represented by the
within Warrant Certificate, (ii) purchases one share of Common Stock of The
Grand Union Company (before giving effect to the adjustments provided in the
Warrant Agreement referred to in the within Warrant Certificate) for each
Warrant so exercised and herewith makes payment in full of the purchase price of
$23.15 in respect of each Warrant so exercised as provided in the Warrant
Agreement (such payment being by certified or official bank or bank cashier's
check payable to the order of The Grand Union Company), all on the terms and
conditions specified in the within Warrant Certificate and the Warrant
Agreement, (iii) surrenders this Warrant Certificate and all right, title and
interest therein to The Grand Union Company and (iv) directs that the securities
or other property deliverable upon the exercise of such Warrants be registered
or placed in the name and at the address specified below and delivered thereto.
Dated: ,
-----------------------------------------
(Owner)*
-----------------------------------------
(Signature of Authorized
Representative)
-----------------------------------------
(Street Address)
-----------------------------------------
(City) (State) (Zip Code)
Securities or property to be
issued and delivered to: -----------------------------------------
Signature Guaranteed**
Please insert social
security or other
identifying number
------------------------
Name ___________________________________________________________________________
Street Address _________________________________________________________________
City, State and Zip Code _______________________________________________________
B-3
FORM OF ASSIGNMENT
FOR VALUE RECEIVED, the undersigned registered holder of the within Warrant
Certificate hereby sells, assigns and transfers unto the Assignee named below
all of the rights of the undersigned under the within Warrant Certificate, with
respect to the number of warrants set forth below:
Name of No. of
Assignee Address Warrants
- -------------------- ------------------------ ----------------------
Please insert social
security or other
identifying number
of Assignee
- ------------------
and does hereby irrevocably constitute and appoint _____________________
attorney to make such transfer on the books of The Grand Union Company
maintained for the purpose, with full power of substitution in the premises.
Dated: ______________, _____
Name ___________________________________*
Signature of Authorized
Representative __________________________
Signature Guaranteed __________________**
- ---------------------------
* The signature must correspond with the name as written upon the face of
the within Warrant Certificate in every particular, without alteration or
enlargement or any change whatsoever.
** The signature must be guaranteed by a securities transfer agents
medallion program ('stamp') participant or an institution receiving prior
approval from the Warrant Agent.
B-4
EXHIBIT C
FORM OF SERIES 3 WARRANT CERTIFICATE
[FORM OF FACE OF SERIES 3 WARRANT CERTIFICATE]
Series 3 Warrant Number of Series 3 Warrant(s):
No.
Exercisable During the Period Commencing , 1998
and Terminating at 5:00 p.m. , 2002
except as provided below
SERIES 3 WARRANT TO PURCHASE
COMMON STOCK
OF
THE GRAND UNION COMPANY
This Certifies that or registered assigns, is the owner of the number of
SERIES 3 WARRANTS set forth above, each of which represents the right, at any
time after , 1998 and on or before 5:00 p.m., New York City time, on , 2002 to
purchase from The Grand Union Company, a Delaware Corporation (the 'Company'),
at the price of $12.32 (the 'Exercise Price'), one share of Common Stock, $.01
par value, of the Company as such stock was constituted as of , 1998, subject to
adjustment as provided in the Warrant Agreement hereinafter referred to, upon
surrender hereof, with the subscription form on the reverse hereof duly
executed, by hand or by mail to American Stock Transfer & Trust Company, as
Warrant Agent under the Warrant Agreement, at 40 Wall Street, New York, New York
10005, or to any successor thereto, as the warrant agent under the Warrant
Agreement, at the office of such successor maintained for such purpose (any such
warrant agent being herein called the 'Warrant Agent') (or, if such exercise
shall be in connection with an underwritten Public Offering of shares of such
Common Stock (or Other Securities) (as such term and other capitalized terms
used herein are defined in the Warrant Agreement) subject to the Warrant
Agreement, at the location at which the Company shall have agreed to deliver
such securities), and simultaneous payment in full (by certified or official
bank or bank cashier's check payable to the order of the Company) of the
Exercise Price in respect of each Warrant represented by this Warrant
Certificate that is so exercised, all subject to the terms and conditions hereof
and of the Warrant Agreement.
Upon any partial exercise of the Warrants represented by this Warrant
Certificate, there shall be issued to the holder hereof a new Warrant
Certificate representing the Warrants that were not exercised.
No fractional shares may be issued upon the exercise of rights to purchase
hereunder, and as to any fraction of a share otherwise issuable, the Company
will make a cash adjustment in lieu of such issuance, as provided in the Warrant
Agreement.
This Warrant Certificate is issued under and in accordance with a Warrant
Agreement, dated as of , 1998 (the 'Warrant Agreement'), between the Company and
American Stock Transfer & Trust Company, as Warrant Agent, and is subject to the
terms and provisions contained therein, all of which terms and provisions the
holder of this Warrant Certificate consents to by acceptance hereof. Copies of
the Warrant Agreement are on file at the above-mentioned office of the Warrant
Agent and may be obtained by writing to the Warrant Agent.
REFERENCE IS HEREBY MADE TO THE FURTHER PROVISIONS OF THIS WARRANT SET
FORTH ON THE REVERSE HEREOF, WHICH FURTHER PROVISIONS SHALL FOR ALL PURPOSES
HAVE THE SAME EFFECT AS IF SET FORTH AT THIS PLACE.
Dated:
THE GRAND UNION COMPANY
By: _____________________________________
Title:
Countersigned:
American Stock Transfer & Trust Company,
as Warrant Agent
By: ________________________________________________
Authorized Signatory
C-1
[FORM OF REVERSE OF WARRANT CERTIFICATE]
THE GRAND UNION COMPANY
The transfer of this Warrant Certificate and all rights hereunder is
registrable by the registered holder hereof, in whole or in part, on the
register of the Company upon surrender of this Warrant Certificate at the office
or agency of the Company or the office of the Warrant Agent maintained for such
purpose at American Stock Transfer & Trust Company, 40 Wall Street, New York,
New York 10005, duly endorsed or accompanied by a written instrument of transfer
duly executed and in form satisfactory to the Company and the Warrant Agent, by
the registered holder hereof or his attorney duly authorized in writing and upon
payment of any necessary transfer tax or other governmental charge imposed upon
such transfer or registration thereof. Upon any partial transfer the Company
will cause to be delivered to such holder a new Warrant Certificate or
Certificates with respect to any portion not so transferred.
This Warrant Certificate may be exchanged at the office or agency of the
Company or the office of the Warrant Agent maintained for such purpose at
American Stock Transfer & Trust Company, 40 Wall Street, New York, New York
10005, for Warrant Certificates representing the same aggregate number of
Warrants, each new Warrant Certificate to represent such number of Warrants as
the holder hereof shall designate at the time of such exchange.
Prior to the exercise of the Warrants represented hereby, the holder of
this Warrant Certificate, as such, shall not be entitled to any rights of a
stockholder of the Company, including, but not limited to, the right to vote, to
receive dividends or other distributions, to exercise any preemptive right or,
except as provided in the Warrant Agreement, to receive any notice of meetings
of stockholders, and shall not be entitled to receive notice of any proceedings
of the Company except as provided in the Warrant Agreement. Nothing contained
herein shall be construed as imposing any liabilities upon the holder of this
Warrant Certificate to purchase any securities or as a stockholder of the
Company, whether such liabilities are asserted by the Company or by creditors or
stockholders of the Company or otherwise.
This Warrant Certificate shall be void and all rights represented hereby
shall cease unless exercised on or before the close of business on
, 2002.
This Warrant Certificate shall not be valid for any purpose until it shall
have been manually countersigned by an authorized signatory of the Warrant
Agent.
Witness the facsimile seal of the Company and the signature of its duly
authorized officer.
C-2
SUBSCRIPTION FORM
(To be executed only upon exercise of warrant)
TO THE GRAND UNION COMPANY
American Stock Transfer & Trust Company, as Warrant Agent
The undersigned (i) irrevocably exercises the Warrants represented by the
within Warrant Certificate, (ii) purchases one share of Common Stock of The
Grand Union Company (before giving effect to the adjustments provided in the
Warrant Agreement referred to in the within Warrant Certificate) for each
Warrant so exercised and herewith makes payment in full of the purchase price of
$12.32 in respect of each Warrant so exercised as provided in the Warrant
Agreement (such payment being by certified or official bank or bank cashier's
check payable to the order of The Grand Union Company), all on the terms and
conditions specified in the within Warrant Certificate and the Warrant
Agreement, (iii) surrenders this Warrant Certificate and all right, title and
interest therein to The Grand Union Company and (iv) directs that the securities
or other property deliverable upon the exercise of such Warrants be registered
or placed in the name and at the address specified below and delivered thereto.
Dated: ,
-----------------------------------------
(Owner)*
-----------------------------------------
(Signature of Authorized
Representative)
-----------------------------------------
(Street Address)
-----------------------------------------
(City) (State) (Zip Code)
Securities or property to be
issued and delivered to: ------------------------------------------
Signature Guaranteed**
Please insert social
security or other
identifying number
- --------------------------------------
Name ___________________________________________________________________________
Street Address _________________________________________________________________
City, State and Zip Code _______________________________________________________
C-3
FORM OF ASSIGNMENT
FOR VALUE RECEIVED, the undersigned registered holder of the within Warrant
Certificate hereby sells, assigns and transfers unto the Assignee named below
all of the rights of the undersigned under the within Warrant Certificate, with
respect to the number of warrants set forth below:
Name of No. of
Assignee Address Warrants
- ------------------------------ --------------------------- -------------------
Please insert social
security or other
identifying number
of Assignee
- ------------------
and does hereby irrevocably constitute and appoint _____________________
attorney to make such transfer on the books of The Grand Union Company
maintained for the purpose, with full power of substitution in the premises.
Dated: ______________, _____
Name ___________________________________*
Signature of Authorized
Representative __________________________
Signature Guaranteed __________________**
- ---------------------------
* The signature must correspond with the name as written upon the face of
the within Warrant Certificate in every particular, without alteration or
enlargement or any change whatsoever.
** The signature must be guaranteed by a securities transfer agents
medallion program ('stamp') participant or an institution receiving prior
approval from the Warrant Agent.
C-4
EXHIBIT 5
BOARD OF DIRECTORS
Exhibit 5 to Disclosure Statement
IDENTITY AND BIOGRAPHICAL INFORMATION
OF MEMBERS OF THE BOARD OF DIRECTORS
Management Directors
Mr. J. Wayne Harris. Mr. Harris (age 59) 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 for 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.
Mr. Jack W. Partridge, Jr. Mr. Partridge (age 52) 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 The Kroger Co., the largest food retailer in
the United States, where he served as Group Vice President and as a member of
the company's Senior Management Committee.
Mr. Gary M. Philbin. Mr. Philbin (age 41) has been a Director of the
Company since October 30, 1997, and was elected President and Chief
Merchandising Officer of the Company effective 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, 1993. Prior to his employment with
Waldbaum's, Mr. Philbin served in merchandising and operations capacities with
the Kroger Company commencing in January, 1990.
Noteholder Directors
The identity and biographical information of the Noteholder nominees to the
Board of Directors will be filed with the Bankruptcy Court in a supplement to
this Exhibit 5 not later than five (5) business days prior to the Confirmation
Date.
EXHIBIT 6
THE GRAND UNION COMPANY 1995
EQUITY INCENTIVE PLAN, AS AMENDED
THE GRAND UNION COMPANY
1995 EQUITY INCENTIVE PLAN, AS PROPOSED TO BE AMENDED1
1. PURPOSE
The purpose of this Equity Incentive Plan (the 'Plan') is to advance the
interests of The Grand Union Company (the 'Company') by enhancing its ability to
attract and retain employees and other persons or entities who are in a position
to make significant contributions to the success of the Company and its
subsidiaries through ownership of shares of the Company's common stock
('Stock').
The Plan is intended to accomplish these goals by enabling the Company to
grant Awards in the form of Options, Stock Appreciation Rights, Restricted Stock
or Unrestricted Stock Awards, Deferred Stock Awards, Performance Awards, Loans
or Supplemental Grants, or combinations thereof, all as more fully described
below.
2. ADMINISTRATION
The Plan shall be administered by a committee (the 'Committee') of the
Board of Directors (the 'Board') of the Company designated by the Board for that
purpose. Unless and until a Committee is appointed, the Plan shall be
administered by the entire Board, and references in the Plan to the
'Committee'Committee' shall be deemed references to the Board. The Committee
shall consist of at least two directors, all of whom shall be 'Non-Employee
Directors' within the meaning of Rule 16b-3 under the Securities Exchange Act of
1934 (the 'Exchange Act') and, unless otherwise determined by the Board, all of
whom shall also be 'outside directors' within the meaning of Treasury Regulation
1.162- 27(e)(3) under Section 162(m) of the Internal Revenue Code of 1986, as
amended (the 'Code'). A majority of the members of the Committee shall
constitute a quorum, and all determinations of the Committee shall be made by a
majority of its members. Any determination of the Committee under the Plan may
be made without notice or meeting of the Committee by a writing signed by a
majority of the Committee members.
The Committee will have authority, not inconsistent with the express
provisions of the Plan and in addition to other authority granted under the
Plan, to (a) grant Awards at such time or times as it may choose; (b) determine
the size of each Award, including the number of shares of Stock subject to the
Award; (c) determine the type or types of each Award; (d) determine the terms
and conditions of each Award; (e) waive compliance by a Participant (as defined
below) with any obligations to be performed by the Participant under an Award
and waive any term or condition of an Award (other than any Awards intended to
qualify as performance-based compensation under Section 162(m) of the Code); (f)
amend or cancel an existing Award in whole or in part (and if an Award is
canceled, grant another award in its place on such terms as the Committee shall
specify), except that the Committee may not, without the consent of the holder
of an Award, take any action under this clause with respect to such Award if
such action would adversely affect the rights of such holder; (g) prescribe the
form or forms of instruments that are required or deemed appropriate under the
Plan, including any written notices and elections required of Participants, and
change such forms from time to time; (h) adopt, amend and rescind rules and
regulations for the administration of the Plan; and (i) interpret the Plan and
decide any questions and settle all controversies and disputes that may arise in
connection with the Plan. Such determinations and actions of the Committee, and
all other determinations and actions of the Committee made or taken under
authority granted by any provision of the Plan, will be conclusive and will bind
all parties. Nothing in this paragraph shall be construed as limiting the power
of the Committee to make adjustments under Section 7.3 or Section 8.6.
3. EFFECTIVE DATE AND TERM OF PLAN
The Plan willbe administered by a committee (the 'Committee') of the Board
of Directors (the 'Board') of the Company. The Committee shall consist of at
least two directors, all of whom shall be 'Non-Employee Directors' within the
meaning of Rule 16b-3 under the 1934 Act. A majority of the members of the
Committee shall constitute a quorum, and all determinations of the Committee
shall be made by a majority of its members. Any determination of the
Committeebecome effective on the date on which it is approved by the
stockholders of the Company. Grants of Awards under the Plan may be made without
notice or meeting of the Committee by a writing signed by a majority of the
Committee members.prior to that date (but after Board adoption of the Plan),
subject to such approval of the Plan.
No Award may be granted under the Plan after October 26, 2005, but Awards
previously granted may extend beyond that date.
- ------------------
1 The amendments which are being submitted for approval by vote of the holders
of Old Senior Notes are indicated herein as double-underlined text for
proposed insertions and struck-through text for proposed deletions as compared
to the text included in the 1997 Proxy Statement.
1
4. SHARES SUBJECT TO THE PLAN
Subject to the adjustment as provided in Section 8.6 below, the aggregate
number of shares of Stock that may be delivered under the Plan will be
6,000,000.3,250,000, and the maximum number of shares of Stock as to which
Options or Stock Appreciation Rights may be granted under the Plan to any
participant is 3,000,000. If any Award requiring exercise by the Participant for
delivery of Stock terminates without having been exercised in full, or if any
Award payable in Stock or cash is satisfied in cash rather than Stock, the
number of shares of Stock as to which such Award was not exercised or for which
cash was substituted will be available for future grants. The preceding sentence
shall apply only for purposes of determining the aggregate number of shares of
Stock subject to Awards and shall not apply for purposes of determining the
aggregate number of shares of Stock subject to Options or Stock Appreciation
Rights that any Participant may receive. For purposes of this paragraph, except
as otherwise provided in regulations or other guidelines under Section 162(m) of
the Code, any repricing of an Option or Stock Appreciation Right shall be
treated as an original grant.
Stock delivered under the Plan may be either authorized but unissued Stock
or previously issued Stock acquired by the Company and held in treasury. No
fractional shares of Stock will be delivered under the Plan. _____Subject to
Section 8.6(a), the maximum number of shares of Stock as to which Options or
Stock Appreciation Rights may be granted under the Plan to any Participant is
2,000,000 . For purposes of this paragraph, except as otherwise provided in
regulations or other guidelines issued under Section 162(m) of the Internal
Revenue Code of 1986, as amended (the 'Code'), any repricing of an Option or
Stock Appreciation Right shall be treated as an original grant.
5. ELIGIBILITY AND PARTICIPATION
Those eligible to receive Awards under the Plan ('Participants') will be
'employees' or 'salaried employees' of the Company or any of its subsidiaries
('Employees') and other persons or entities (including without limitation
non-Employee directors of the Company or a subsidiary of the Company) who, in
the opinion of the Committee, are in a position to make a significant
contribution to the success of the Company or its subsidiaries. A 'subsidiary'
for purposes of the Plan will be a corporation in which the Company owns,
directly or indirectly, stock possessing 50% or more of the total combined
voting power of all classes of stock.
6. TYPES OF AWARDS
6.1. Options.
(a) Nature of Options. An Option is an Award entitling the recipient on
exercise thereof to purchase Stock at a specified exercise price.
Both 'incentive stock options,' as defined in Section 422 of the Code (any
Option intended to qualify as an incentive stock option being hereinafter
referred to as an 'ISO'), and Options that are not incentive stock options, may
be granted under the Plan. ISOs shall be awarded only to Employees.
(b) Exercise Price. The exercise price of an Option will be determined by
the Committee subject to the following:
(1) The exercise price of an ISO shall not be less than 100% (110% in
the case of an ISO granted to a ten-percent shareholder) of the fair market
value of the Stock subject to the Option, determined as of the time the
Option is granted. A 'ten-percent shareholder' is any person who at the
time of grant owns, directly or indirectly, or is deemed to own by reason
of the attribution rules of Section 424(d) of the Code, stock possessing
more than 10% of the total combined voting power of all classes of stock of
the Company or of any of its subsidiaries.
(2) In no case may the exercise price paid for Stock which is part of
an original issue of authorized Stock be less than the par value per share
of the Stock.
(3) TheOther than as to any Option intended to qualify as
performance-based compensation under Section 162(m) of the Code, the
Committee may reduce the exercise price of an Option at any time after the
time of grant, but in the case of an Option originally awarded as an ISO,
only with the consent of the Participant.
(c) Duration of Options. The latest date on which an Option may be
exercised will be the tenth anniversary (fifth anniversary, in the case of an
ISO granted to a ten-percent shareholder) of the day immediately preceding the
date the Option was granted, or such earlier date as may have been specified by
the Committee at the time the Option was granted.
(d) Exercise of Options. Options granted under any single Award will become
exercisable at such time or times, and on such conditions, as the Committee may
specify; provided, however, that if the Committee does not so specify, 25% of
the shares subject to the Award may be purchased commencing one year after the
date of grant, and an additional 25% of such shares may be
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purchased commencing on the second, third and fourth anniversaries of the grant.
The Committee may at any time and from time to time accelerate the time at which
all or any part of the Option may be exercised.
Any exercise of an Option must be in writing, signed by the proper person
and delivered or mailed to the Company, accompanied by (1) any documents
required by the Committee and (2) payment in full in accordance with paragraph
(e) below for the number of shares for which the Option is exercised.
(e) Payment for Stock. Stock purchased on exercise of an Option must be
paid for as follows: (1) in cash or by check (acceptable to the Company in
accordance with guidelines established for this purpose), bank draft or money
order payable to the order of the Company or (2) if so permitted by the
instrument evidencing the Option (or in the case of an Option which is not an
ISO, by the Committee at or after grant of the Option), (i) through the delivery
of shares of Stock which have been outstanding for at least six months (unless
the Committee expressly approves a shorter period) and which have a fair market
value on the last business day preceding the date of exercise equal to the
exercise price, or (ii) by delivery of a promissory note of the Option holder to
the Company, payable on such terms as are specified by the Committee, or (iii)
by delivery of an unconditional and irrevocable undertaking by a broker to
deliver promptly to the Company sufficient funds to pay the exercise price, or
(iv) by any combination of the permissible forms of payment; provided, that if
the Stock delivered upon exercise of the Option is an original issue of
authorized Stock, at least so much of the exercise price as represents the par
value of such Stock must be paid other than by the Option holder's promissory
note or personal check.
(f) Discretionary Payments. If the market price of shares of Stock subject
to an Option (other than an Option which is in tandem with a Stock Appreciation
Right as described in Section 6.2 below) exceeds the exercise price of the
Option at the time of its exercise, the Committee may cancel the Option and
cause the Company to pay in cash or in shares of Common Stock (at a price per
share equal to the fair market value per share) to the person exercising the
Option an amount equal to the difference between the fair market value of the
Stock which would have been purchased pursuant to the exercise (determined on
the date the Option is canceled) and the aggregate exercise price which would
have been paid. The Committee may exercise its discretion to take such action
only if it has received a written request from the person exercising the Option,
but such a request will not be binding on the Committee.
6.2. Stock Appreciation Rights.
(a) Nature of Stock Appreciation Rights. A Stock Appreciation Right is an
Award entitling the recipient on exercise of the Right to receive an amount, in
cash or Stock or a combination thereof (such form to be determined by the
Committee), determined in whole or in part by reference to appreciation in Stock
value.
Except as provided below, a Stock Appreciation Right entitles the
Participant to receive, with respect to each share of Stock as to which the
Right is exercised, the excess of the share's fair market value on the date of
exercise over its fair market value on the date the Right was granted. The
Committee may provide at the time of grant that the amount the recipient is
entitled to receive will be adjusted upward or downward under rules established
by the Committee to take into account the performance of the Stock in comparison
with the performance of other stocks or an index or indices of other stocks. The
Committee may also grant Stock Appreciation Rights providing that following a
change in control of the Company, as determined by the Committee, the holder of
such Right will be entitled to receive, with respect to each share of Stock
subject to the Right, an amount equal to the excess of a specified value (which
may include an average of values) for a share of Stock during a period preceding
such change in control over the fair market value of a share of Stock on the
date the Right was granted.
(b) Grant of Stock Appreciation Rights. Stock Appreciation Rights may be
granted in tandem with, or independently of, Options granted under the Plan. A
Stock Appreciation Right granted in tandem with an Option which is not an ISO
may be granted either at or after the time the Option is granted. A Stock
Appreciation Right granted in tandem with an ISO may be granted only at the time
the Option is granted.
(c) Rules Applicable to Tandem Awards. When Stock Appreciation Rights are
granted in tandem with Options, the following will apply:
(1) The Stock Appreciation Right will be exercisable only at such time
or times, and to the extent, that the related Option is exercisable and
will be exercisable in accordance with the procedure required for exercise
of the related Option.
(2) The Stock Appreciation Right will terminate and no longer be
exercisable upon the termination or exercise of the related Option, except
that a Stock Appreciation Right granted with respect to less than the full
number of shares covered by an Option will not be reduced until the number
of shares as to which the related Option has been exercised or has
terminated exceeds the number of shares not covered by the Stock
Appreciation Right.
(3) The Option will terminate and no longer be exercisable upon the
exercise of the related Stock Appreciation Right.
(4) The Stock Appreciation Right will be transferable only with the
related Option.
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(5) A Stock Appreciation Right granted in tandem with an ISO may be
exercised only when the market price of the Stock subject to the Option
exceeds the exercise price of such option.
(d) Exercise of Independent Stock Appreciation Rights. A Stock Appreciation
Right not granted in tandem with an Option will become exercisable at such time
or times, and on such conditions, as the Committee may specify. The Committee
may at any time accelerate the time at which all or any part of the Right may be
exercised.
Any exercise of an independent Stock Appreciation Right must be in writing,
signed by the proper person and delivered or mailed to the Company, accompanied
by any other documents required by the Committee.
6.3. Restricted and Unrestricted Stock.
(a) Nature of Restricted Stock Award. A Restricted Stock Award entitles the
recipient to acquire, for a purchase price equal to par value, shares of Stock
subject to the restrictions described in paragraph (d) below ('Restricted
Stock').
(b) Acceptance of Award. A Participant who is granted a Restricted Stock
Award will have no rights with respect to such Award unless the Participant
accepts the Award by written instrument delivered or mailed to the Company
accompanied by payment in full of the specified purchase price, if any, of the
shares covered by the award. Payment may be by certified or bank check or other
instrument acceptable to the Committee.
(c) Rights as a Stockholder. A Participant who receives Restricted Stock
will have all the rights of a stockholder with respect to the Stock, including
voting and dividend rights, subject to the restrictions described in paragraph
(d) below and any other conditions imposed by the Committee at the time of
grant. Unless the Committee otherwise determines, certificates evidencing shares
of Restricted Stock will remain in the possession of the Company until such
shares are free of all restrictions under the Plan.
(d) Restrictions. Except as otherwise specifically provided by the Plan,
Restricted Stock may not be sold, assigned, transferred, pledged or otherwise
encumbered or disposed of, and if the Participant ceases to be an Employee or
otherwise suffers a Status Change (as defined at Section 7.2(a) below) for any
reason, must be offered to the Company for purchase for the amount of cash paid
for the Stock, or forfeited to the Company if no cash was paid. These
restrictions will lapse at such time or times, and on such conditions, as the
Committee may specify. Upon lapse of all restrictions, Stock will cease to be
restricted for purposes of the Plan. The Committee may at any time accelerate
the time at which the restrictions on all or any part of the shares will lapse.
(e) Notice of Election. Any Participant making an election under Section
83(b) of the Code with respect to Restricted Stock must provide a copy thereof
to the Company within 10 days of the filing of such election with the Internal
Revenue Service.
(f) Other Awards Settled with Restricted Stock. The Committee may, at the
time any award described in this Section 6 is granted, provide that any or all
the Stock delivered pursuant to the Award will be Restricted Stock.
(g) Unrestricted Stock. The Committee may, in its sole discretion, approve
the sale to any Participant of shares of Stock free of restrictions under the
Plan for a price which is not less than the par value of the Stock.
6.4. Deferred Stock.
A Deferred Stock Award entitles the recipient to receive shares of Stock to
be delivered in the future. Delivery of the Stock will take place at such time
or times, and on such conditions, as the Committee may specify. The Committee
may at any time accelerate the time at which delivery of all or any part of the
Stock will take place. At the time any award described in this Section 6 is
granted, the Committee may provide that, at the time Stock would otherwise be
delivered pursuant to the Award, the Participant will instead receive an
instrument evidencing the Participant's right to future delivery of Deferred
Stock.
6.5. Performance Awards; Performance Goals.
(a) Nature of Performance Awards. A Performance Award entitles the
recipient to receive, without payment, an amount in cash or Stock or a
combination thereof (such form to be determined by the Committee) following the
attainment of Performance Goals. 'Performance Goals' are goals which may be
related to personal performance, corporate performance, departmental performance
or any other category of performance deemed by the Committee to be important to
the success of the Company. The Committee will determine the Performance Goals,
the period or periods during which performance is to be measured and all other
terms and conditions applicable to the award.
(b) Other Awards Subject to Performance Conditions. The Committee may, at
the time any Award described in this Section 6 is granted, impose the condition
(in addition to any conditions specified or authorized in this Section 6 or any
other provision of the Plan) that Performance Goals be met prior to the
Participant's realization of any payment or benefit under the Award.
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(c) Certification of Attainment of Performance Goals. The attainment of
any Performance Goals imposed as a condition to the Participant's realization of
any payment of, or benefit under, an Award and the satisfaction of any other
material terms shall be certified by the Committee in writing (or in approved
minutes of the Committee meeting in which the certification is made) prior to
the payment or the realization of such benefit by the Participant.
6.6. Loans and Supplemental Grants.
(a) Loans. The Company may make a loan to a Participant ('Loan'), either on
the date of or after the grant of any Award to the Participant. A Loan may be
made either in connection with the purchase of Stock under the Award or with the
payment of any Federal, state and local income tax with respect to income
recognized as a result of the Award. The Committee will have full authority to
decide whether to make a Loan and to determine the amount, terms and conditions
of the Loan, including the interest rate (which may be zero), whether the Loan
is to be secured or unsecured or with or without recourse against the borrower,
the terms on which the Loan is to be repaid and the conditions, if any, under
which it may be forgiven. However, no Loan may have a term (including
extensions) exceeding ten years in duration.
(b) Supplemental Grants. In connection with any award, the Committee may at
the time such Award is made or at a later date, provide for and grant a cash
award to the Participant ('Supplemental Grant') not to exceed an amount equal to
(1) the amount of any federal, state and local income tax on ordinary income for
which the Participant may be liable with respect to the Award, determined by
assuming taxation at the highest marginal rate, plus (2) an additional amount on
a grossed-up basis intended to make the Participant whole on an after-tax basis
after discharging all the Participant's income tax liabilities arising from all
payments under this Section 6. Any payments under this subsection (b) will be
made at the time the Participant incurs Federal income tax liability with
respect to the Award.
7. EVENTS AFFECTING OUTSTANDING AWARDS
7.1. Death.
If a Participant dies, the following will apply:
(a) All Options and Stock Appreciation Rights held by the Participant
immediately prior to death, to the extent then exercisable, may be exercised by
the Participant's executor or administrator or the person or persons to whom the
Option or Right is transferred by will or the applicable laws of descent and
distribution, at any time within the one year period ending with the first
anniversary of the Participant's death (or such shorter or longer period as the
Committee may determine), and shall thereupon terminate. In no event, however,
shall an Option or Stock Appreciation Right remain exercisable beyond the latest
date on which it could have been exercised without regard to this Section 7.
Except as otherwise determined by the Committee, all Options and Stock
Appreciation Rights held by a Participant immediately prior to death that are
not then exercisable shall terminate at death.
(b) Except as otherwise determined by the Committee, all Restricted Stock
held by the Participant must be transferred to the Company (and, in the event
the certificates representing such Restricted Stock are held by the Company,
such Restricted Stock will be so transferred without any further action by the
Participant) in accordance with Section 6.3 above.
(c) Any payment or benefit under a Deferred Stock Award, Performance Award,
or Supplemental Grant to which the Participant was not irrevocably entitled
prior to death will be forfeited and the Award canceled as of the time of death,
unless otherwise determined by the Committee.
7.2. Termination of Service (Other Than By Death).
If a Participant who is an Employee ceases to be an Employee for any reason
other than death, or if there is a termination (other than by reason of death)
of the consulting, service or similar relationship in respect of which a
non-Employee Participant was granted an Award hereunder (such termination of the
employment or other relationship being herein referred to as a 'Status Change'),
the following will apply:
(a) Except as otherwise determined by the Committee: (i) all Options and
Stock Appreciation Rights held by the Participant that were not exercisable
immediately prior to the Status Change shall terminate at the time of the Status
Change, (ii) any ISOs that were immediately exercisable prior to the Status
Change will continue to be exercisable for a period of three months from the
date of the Status Change and shall thereupon terminate unless the Status Change
results from a discharge for cause which in the opinion of the Committee casts
such discredit on the Participant as to justify immediate termination of the
Option, and (iii) any other Options or Rights that were exercisable immediately
prior to the Status Change will continue to be exercisable for a period of one
year from the date of the Status Change (or such other period as the Committee
may determine), and shall thereupon terminate, unless the Award provides by its
terms for immediate termination in the event of a Status Change or unless the
Status Change results from discharge for cause which in the opinion of the
Committee casts such discredit on the Participant as to justify immediate
termination of the Award. In no event, however, shall an Option or Stock
Appreciation Right remain exercisable beyond
5
the latest date on which it could have been exercised without regard to this
Section 7. For purposes of this paragraph, in the case of a Participant who is
an Employee, a Status Change shall not be deemed to have resulted by reason of
(i) a sick leave or other bona fide leave of absence of one year or less or
approved for purposes of the Plan by the Committee, or (ii) a transfer of
employment between the Company and a subsidiary or between subsidiaries, or to
the employment of a corporation (or a parent or subsidiary corporation of such
corporation) issuing or assuming an option in a transaction to which Section
424(a) of the Code applies.
(b) Except as otherwise determined by the Committee, all Restricted Stock
held by the Participant at the time of the Status Change must be transferred to
the Company (and, in the event the certificates representing such Restricted
Stock are held by the Company, such Restricted Stock will be so transferred
without any further action by the Participant) in accordance with Section 6.3
above.
(c) Any payment or benefit under a Deferred Stock Award, Performance Award,
or Supplemental Grant to which the Participant was not irrevocably entitled
prior to the Status Change will be forfeited and the Award canceled as of the
date of such Status Change unless otherwise determined by the Committee.
7.3. Certain Corporate Transactions.
(a) Subject to paragraph (c) below, as of the twentieth (20th) trading day
prior to the effective date of a Change of Control, (1) each outstanding Option
and each outstanding Stock Appreciation Right shall become exercisable in full,
(2) the restrictions shall be removed from each outstanding share of Restricted
Stock, (3) the Company shall make all payments and provide all benefits under
each outstanding Deferred Stock Award, Performance Award, and Supplemental Grant
which would have been made or provided with the passage of time had the
transaction not occurred and the Participant not suffered a Status Change (or
died), (4) subject to paragraph (c) of this section, the Company shall pay to
each holder of Options and Restricted Stock whose Options (other than ISOs
granted prior to July 1, 1996) and Restricted Stock have been terminated, an
amount equal to the Award Value with respect to such Options or Restricted
Stock, such payment to be made by cash or certified check within 30 days after
the Change in Control, and (5) the Committee may, in its sole discretion,
forgive all or any portion of the principal of or interest on a Loan. For
purposes of this section, the Award Value shall be determined as the difference
between (i) the exercise price of the Option or the purchase price of the
Restricted Stock and (ii) the Market Price, times (iii) the number of shares
covered by the Option or the Restricted Stock award, as the case may be. The
Market Price shall be determined as the average of the fair market value of the
Stock for the period of twenty (20) trading days ending on the effective date of
the covered transaction.
(b) 'Change of Control' means any of the following: (1) any person, entity
or Group (persons or entities acting together) is or becomes the beneficial
owner of more than 50% of the Voting Stock of the Company; (2) a consolidation,
merger, or sale of substantially all of the assets of the Company, with the
effect that any person, entity or Group becomes the beneficial owner of more
than 50% of the Voting Stock of the Company or the Company is not the surviving
entity; (3) during any consecutive two-year period commencing July 1, 1996,
individuals who constituted the Board of Directors at the beginning of such
period, together with any new directors whose election by the Board or
nomination for election by stockholders was approved by 2/3 of the directors who
were in office at the beginning of the period or whose election or nomination
was so approved, cease to constitute a majority of the Board then in office; or
(4) any order, judgment or decree of dissolution or split-up of the Company, and
such order remains undischarged or unstayed for a period in excess of 60 days.
For purposes of this provision, 'more than 50% of the Voting Stock' means more
than 50% of one or more classes of stock pursuant to which the holders have the
general power to vote for the election of members of the Board of Directors, and
the aggregate of such classes for which the person, entity or Group holds more
than 50% has the power to elect more than 50% of the members of the Board of
Directors.
(c) Notwithstanding the foregoing, the termination of Options and the
payment of OptionAward Values described in paragraph (a) of this section shall
not apply with respect to any transaction in which the holder of an Option or
Restricted Stock receives either: (i) replacement options or restricted stock,
as the case may be, allowing the holder to receive, on the same terms as in the
original Option or Restricted Stock, the greatest amount of securities, cash or
other property to which such holder would have been entitled as a holder of
Common Stock upon consummation of the transaction if such holder had exercised
the rights represented by the Option or restricted stock held by such holder
immediately prior to the transaction, or (ii) if pooling of interests is a
condition of the transaction, a replacement equity interest which enables the
transaction to qualify for pooling of interests.
8. GENERAL PROVISIONS
8.1. Documentation of Awards.
Awards will be evidenced by such written instruments, if any, as may be
prescribed by the Committee from time to time. Such instruments may be in the
form of agreements to be executed by both the Participant and the Company, or
certificates, letters or similar instruments, which need not be executed by the
Participant but acceptance of which will evidence agreement to the terms
thereof.
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8.2. Rights as a Stockholder, Dividend Equivalents.
Except as specifically provided by the Plan, the receipt of an Award will
not give a Participant rights as a stockholder; the Participant will obtain such
rights, subject to any limitations imposed by the Plan or the instrument
evidencing the Award, upon actual receipt of Stock. However, the Committee may,
on such conditions as it deems appropriate, provide that a Participant will
receive a benefit in lieu of cash dividends that would have been payable on any
or all Stock subject to the Participant's Award had such Stock been outstanding.
Without limitation, the Committee may provide for payment to the Participant of
amounts representing such dividends, either currently or in the future, or for
investment of such amounts on behalf of the Participant.
8.3. Conditions on Delivery of Stock.
The Company will not be obligated to deliver any shares of Stock pursuant
to the Plan or to remove restriction from shares previously delivered under the
Plan (a) until all conditions of the Award have been satisfied or removed, (b)
until, in the opinion of the Company's counsel, all applicable federal and state
laws and regulations have been complied with, (c) if the outstanding Stock is at
the time listed on any stock exchange, until the shares to be delivered have
been listed or authorized to be listed on such exchange upon official notice of
issuance, and (d) until all other legal matters in connection with the issuance
and delivery of such shares have been approved by the Company's counsel. If the
sale of Stock has not been registered under the Securities Act of 1933, as
amended, the Company may require, as a condition to exercise of the Award, such
representations or agreements as counsel for the Company may consider
appropriate to avoid violation of such Act and may require that the certificates
evidencing such Stock bear an appropriate legend restricting transfer.
If an Award is exercised by the Participant's legal representative, the
Company will be under no obligation to deliver Stock pursuant to such exercise
until the company is satisfied as to the authority of such representative.
8.4. Tax Withholding,
The Company will withhold from any cash payment made pursuant to an Award
an amount sufficient to satisfy all federal, state and local withholding tax
requirements (the 'withholding requirements').
In the case of an Award pursuant to which Stock may be delivered, the
Committee will have the right to require that the Participant or other
appropriate person remit to the Company an amount sufficient to satisfy the
withholding requirements, or make other arrangements satisfactory to the
Committee with regard to such requirements, prior to the delivery of any Stock.
If and to the extent that such withholding is required, the Committee may permit
the Participant or such other person to elect at such time and in such manner as
the Committee provides to have the Company hold back from the shares to be
delivered, or to deliver to the Company, Stock having a value calculated to
satisfy the withholding requirement.
If at the time an ISO is exercised, the Committee determines that the
Company could be liable for withholding requirements with respect to a
disposition of the Stock received upon exercise, the Committee may require as a
condition of exercise that the person exercising the ISO agree (a) to inform the
Company promptly of any disposition (within the meaning of section 424(c) of the
Code) of Stock receiving upon exercise, and (b) to give such security as the
Committee deems adequate to meet the potential liability of the Company for the
withholding requirements and to augment such security from time to time in any
amount reasonably deemed necessary by the Committee to preserve the adequacy of
such security.
8.5. Nontransferability of Awards.
Unless otherwise provided in the Participant's agreement, no Award (other
than an Award in the form of an outright transfer of cash or Unrestricted Stock)
may be transferred other than by will or by the laws of descent and
distribution, and during a Participant's lifetime an Award requiring exercise
may be exercised only by him or her (or in the event of the Participant's
incapacity, the person or persons legally appointed to act on the Participant's
behalf).
8.6. Adjustments in the Event of Certain Transactions.
(a) In the event of a stock dividend, stock split or combination of shares,
recapitalization or other change in the Company's capitalization, or other
distribution to common stockholders other than normal cash dividends, after the
effective date of the Plan, the Committee will make any appropriate adjustments
to the maximum number of shares that may be delivered under the Plan under
Section 4 above.
(b) In any event referred to in paragraph (a), the Committee will also make
any appropriate adjustments to the number and kind of shares of stock or
securities subject to Awards then outstanding or subsequently granted, any
exercise prices relating to Awards and any other provision of Awards affected by
such change. The Committee may also make such adjustments to take into account
material changes in law or in accounting practices or principles, mergers,
consolidations, acquisitions, dispositions or
7
similar corporate transactions, or any other event, if it is determined by the
Committee that adjustments are appropriate to avoid distortion in the operation
of the Plan.
8.7. Employment Rights, Etc.
Neither the adoption of the Plan nor the grant of Awards will confer upon
any person any right to continued retention by the Company or any subsidiary as
an Employee or otherwise, or affect in any way the right of the Company or any
subsidiary to terminate an employment, service or similar relationship at any
time. Except as specifically provided by the Committee in any particular case,
the loss of existing or potential profit in Awards granted under the Plan will
not constitute an element of damages in the event of termination of an
employment, service or similar relationship event if the termination is in
violation of an obligation of the Company to the Participant.
8.8. Deferral of Payments.
The Committee may agree at any time, upon request of the Participant, to
defer the date on which any payment under an Award will be made.
8.9. Past Services as Consideration.
Where a Participant purchases Stock under an Award for a price equal to the
par value of the Stock the Committee may determine that such price has been
satisfied by past services rendered by the Participant.
8.10 Applicable Law
This Employee Plan, all options granted hereunder and all actions taken in
connection herewith shall be governed by and construed in accordance with the
laws of the State of Delaware without reference to principles of conflict of
laws, except as superseded by applicable federal law.
9. EFFECT, DISCONTINUANCE, CANCELLATION, AMENDMENT AND TERMINATION
Neither adoption of the Plan nor the grant of Awards to a Participant will
affect the Company's right to grant to such Participant awards that are not
subject to the Plan, to issue to such Participant Stock as a bonus or otherwise,
or to adopt other plans or arrangements under which Stock be issued to
Employees.
The Committee may at any time or times amend the Plan or any outstanding
Award for any purpose which may at the time be permitted by law, or may at any
time terminate the Plan as to any further grants of Awards, provided that
(except to the extent expressly required or permitted by the Plan) no such
amendment will, without the approval of the stockholders of the Company,
effectuate a change for which stockholder approval is required in order for the
Plan to continue to qualify for the award of ISOs under Section 422 of the Code
or for the award of performance-based compensation under Section 162(m) of the
Code and to continue to qualify under Rule 16b-3 promulgated under Section 16 of
the 1934 Act.
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