Execution Copy
November 6, 2000
Glenn J. Smith
Re: Sale Bonus Agreement
Dear Glenn:
The following sets forth the agreement between you and The Grand Union Company,
a Delaware corporation (the "Company"), regarding the terms of the sale bonus
(the "Sale Bonus") that you may be eligible to receive in accordance with the
terms and conditions set forth below. This letter agreement (the "Letter
Agreement") is in addition to, and not in substitution for, any other agreements
between you and the Company, including without limitation the employment
agreement between you and the Company dated April 13, 2000 (the "Employment
Agreement") and as amended November 6, 2000, and the Sale Bonus is in addition
to, and not in substitution for, any other pay or benefits to which you are
eligible to earn from the Company. Any prior Sale bonus Agreements between you
and the Company are null and void and are superceded by this Letter Agreement.
1. Definitions. For purposes of this Letter Agreement, the following capitalized
words that are not otherwise defined in the text of the Letter Agreement shall
have the meanings set forth below:
"Aggregate Consideration" shall mean an amount equal to the sum of the
aggregate fair market value of any securities issued and any other non-cash
consideration delivered, and any cash consideration paid to the Company or
its security holders in connection with a Change in Control or in
connection with any sale of Company assets (other than sales in the
ordinary course of business) after the Effective Date and whether before,
as part of, or after a Triggering Event, plus the amount of all
indebtedness for money borrowed and capitalized leases, net of excess cash,
of the Company and its subsidiaries which is assumed or acquired by any
Purchaser in connection with a Change in Control or retired or defeased in
connection with such Change in Control. Aggregate Consideration shall not
include capitalized leases assumed, however, unless (i) payments to the
Company's senior lenders in connection with the Change in Control equal or
exceed the sum of pre-petition and post-petition amounts of indebtedness
then-owing to such lenders or (ii) the Company's senior lenders agree in
writing to accept a reduced amount of the then-owing debt ("Reduced
Amount") in a pre-arranged or pre-packaged bankruptcy, which Reduced Amount
is subsequently paid. Aggregate Consideration shall be reduced by the
following, to the extent such amounts are not deducted from the purchase
price paid in a Change in Control or asset sale: (i) any actual PACA claims
paid; (ii) the amount that the drawn DIP facility upon the termination of
such facility exceeds $20,000,000; (iii) the amount of any Sale Bonuses
paid; (iv) the amount of Retention Bonuses paid; (v) the amount of any
transaction fee paid to Merrill Lynch in connection with a Change in
Control or asset sale, and; (vi) the amount of any Sale Incentive Fee paid
to C&S Wholesale Grocers, Inc in connection with a Change in Control or
asset sale. The fair market value of any securities issued and any other
non-cash consideration delivered in connection with a Change in Control
will be the value determined in good faith by the Board.
"Board" shall mean the Board of Directors of the Company.
"Cause" shall have the meaning set forth in your Employment Agreement.
"Change in Control" shall mean the consummation of a Triggering Event.
"Effective Date" shall mean October 3, 2000.
The "Eligible Management Members" for the Sale Bonus are Gary Philbin,
Jeffrey Freimark, Manouchehr Moslemi, Glenn Smith, Timothy Carnahan, Gary
Duncan, James Santamarina, Richard Skelly and Robert Smith.
"Good Reason" shall have the meaning set forth in your Employment
Agreement.
"Individual Share" shall mean 12.00% of the Management Share for Aggregate
Consideration paid, except that, to the extent that the Aggregate
Consideration paid exceeds $320,000,000, then the Individual Share above
$320,000,000 shall be 11% of a) the portion of the Management Share that
exceeds $320,000,000 times b) the Management Share Percent at the level of
Aggregate Consideration paid. Thus, for example, if the Aggregate
Consideration paid is $330,000,000, then the Sale Bonus Payment would =
(12.00% x 1.5% x $320,000,000) + (11% x 1.5% x $10,000,000) or $592,500.
"Involuntary Termination" shall mean (a) the termination of your employment
by the Company other than for Cause, Death, Disability as defined in your
Employment Agreement, or retirement under the Company's Retirement Plan or
(b) the resignation of your employment by you for Good Reason.
"Management Share" shall mean the aggregate amount of compensation payable
to Eligible Management Members in connection with the Sale Bonus. The
Management Share shall be determined pursuant to the following grid:
-------------------------------------- --------------------------------
Aggregate Consideration Paid Management Share Percent
---------------------------- ------------------------
-------------------------------------- --------------------------------
Below $240,000,000 0.00%
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$240,000,000 0.60%
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$260,000,000 0.70%
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$280,000,000 0.90%
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$300,000,000 1.00%
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$310,000,000 1.10%
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$320,000,000 1.30%
-------------------------------------- --------------------------------
$330,000,000 1.50%
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$340,000,000 1.75%
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$350,000,000 or more 2.00%
-------------------------------------- --------------------------------
The Management Share shall be calculated from the first dollar of Aggregate
Consideration paid and shall be calculated on Aggregate Consideration paid
from any and all Purchasers. The percentage utilized to determine the
Management Share shall be multiplied by the full amount of Aggregate
Consideration paid. Moreover, in the event the Aggregate Consideration paid
falls between two of the ranges in the above grid, the percentage to be
utilized to determine the Management Share shall be interpolated on a
straight line basis between the two ranges. Thus, for example, assuming the
Aggregate Consideration paid is $325,000,000, the Management Share would be
1.40% times $325,000,000 or $4,550,000.
"Purchaser" shall mean any person or entity that engages in a Change in
Control transaction or who purchases assets of the Company.
"Sellers" shall mean the Company or, if applicable, the selling equity
holders and/or selling debt holders of the Company.
A "Triggering Event" shall be deemed to have occurred on the date that any
of the following shall have occurred:
(A) the Company enters into one or more binding agreements with one or more
Purchasers to directly acquire, in exchange for cash, stock, claims, or
property, fifty percent or more of the aggregate equity securities of the
Company;
(B) the Company enters into one or more binding agreements providing for a
merger, consolidation, reorganization or other business combination upon
consummation of which one or more Purchasers would own or control fifty
percent or more of either (i) the aggregate voting securities of the
Company, (ii) the aggregate economic interest of the outstanding equity
securities of the Company or (iii) the aggregate value of the assets of the
Company;
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(C) the Company enters into a transaction or transactions upon consummation
of which one or more Purchasers would acquire in exchange for cash, stock,
claims or property fifty percent or more of either (i) the aggregate equity
securities of the Company, or (ii) the Company's assets; or
(D) the Company files a plan of reorganization or motion for relief in a
case under title 11 of the United States Code for the purpose of
implementing an agreement or transaction of the type described in any of
the preceding clauses (A), (B) or (C); provided, however, that a Triggering
Event shall not include any change of ownership resulting from a public
offering of any of the securities of the Company pursuant to an effective
registration statement under the Securities Act of 1933, as amended.
2. Term. The term of this Letter Agreement (the "Term") shall commence on the
Effective Date and shall continue until the earlier of October 3, 2001 or the
sale of all the Company's assets.
3. Sale Bonus.
(a) General Terms. You will become entitled to receive the Sale Bonus in the
event that (i) a Triggering Event occurs during the Term, and (ii) a Change in
Control contemplated by such Triggering Event occurs thereafter. The amount of
the Sale Bonus shall be equal to your Individual Share multiplied by the
Management Share.
(b) Payment of Sale Bonus.
(i) Change in Control--No Post-Closing Adjustment. In the event that the
transaction resulting in a Change in Control does not include any provisions
either (A) for an earn-out with respect to which a part of the Aggregate
Consideration will be paid to the Sellers either in full or in part in one or
more installments after the Change in Control or any similar deferral of the
payment of the Aggregate Consideration or (B) that would potentially require the
Sellers to reimburse any portion of the Sale Price to the Purchaser or require
the Purchaser to pay to the Sellers any amount in addition to the Aggregate
Consideration, as a result of a post-closing adjustment or any other reason,
after the Change in Control (either (A) or (B), a "Post-Closing Adjustment"),
the Company shall pay to you the Sale Bonus within five days following the date
of such Change in Control; provided, however, that in no event shall the Sale
Bonus be payable to you until the full amount of the Aggregate Consideration has
been paid to the Sellers. The Board, however, shall have the discretion to make
pro-rata payments of the Sale Bonus to the extent that the Aggregate
Consideration is paid in installments.
(ii) Change in Control--Post-Closing Adjustment. In the event that the Change in
Control transaction includes provisions for any Post-Closing Adjustment, the
Company shall pay the Sale Bonus according to the terms of this Section
3(b)(ii).
(A) In the event that the Change in Control transaction includes a
Post-Closing Adjustment described in Section 3(b)(i)(A) above, the Company
shall pay you a portion of the Sale Bonus within five days after the date
of such Change in Control equal to your Individual Share multiplied by the
Management Share multiplied by the portion of the Aggregate Consideration
paid to the Sellers on or about the date of the Change in Control.
Thereafter, within five days after any additional portion of the Aggregate
Consideration is paid to the Sellers, the Company shall pay you the
remaining portion of the Sale bonus in an amount equal to your Individual
Share multiplied by the Management Share multiplied by the additional
Aggregate Consideration.
(B) In the event that the Change in Control transaction is a Post-Closing
Adjustment described in Section 3(b)(i)(B) that would potentially require
the Sellers to reimburse any portion of the Aggregate Consideration to the
Purchaser after the Change in Control, within five days after the date of
such Change in Control, the Company shall pay you a portion of the Sale
Bonus determined in good faith by the Board immediately prior to the
consummation of the Change in Control, less an amount that shall take into
account the potential adjustment to the Sales Price (the "Withheld
Amount"). As soon as practicable after the Sellers know with certainty the
portion, if any, of the Sale Price that the Sellers must reimburse to the
Purchaser and the Sellers make such reimbursement, if any, the Company
shall pay to you a prorated portion of the Withheld Amount corresponding to
the portion of the maximum potential amount that Sellers may have been
required to reimburse to the Purchaser less the amount actually reimbursed.
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(C) In the event that the Change in Control transaction is a Post-Closing
Adjustment described in Section 3(b)(i)(B) that would potentially require
the Purchaser to pay to the Sellers any amount in addition to the Sale
Price after the Change in Control, within five days after the date of such
Change in Control, the Company shall pay you the Sale Bonus. Thereafter,
within five days after the Purchaser knows with certainty the additional
amount that such Purchaser must pay to the Sellers, if any, and the
Purchaser makes such payment to the Sellers, the Company shall pay to you
an additional amount determined in good faith by the Board that shall take
into account the additional payment made by the Purchaser to the Sellers.
(c) Determination of the Board Final. The determination of whether a Triggering
Event or Change in Control has occurred, the amount of the Aggregate
Consideration and the amount of any Sale Bonus shall be made in good faith by
the Board (unless otherwise required by applicable law) and, absent manifest
error, shall be final and binding on you, the Company and all other interested
parties.
(d) Sale Bonus Adjustment. The parties hereto acknowledge and agree that you
shall be entitled to receive an initial Sale Bonus under this Letter Agreement
which shall become payable in connection with the first Triggering Event that
occurs during the Term, which results in a Change in Control. Adjustments to the
initial Sale Bonus and additional Sale Bonuses ("Sale Bonus Adjustments") shall
be payable with respect to any additional transactions or asset sales that occur
during the Term that would have constituted part of the Triggering Event had
they occurred prior to the Change in Control. The Sale Bonus Adjustment shall
not be made for asset sales made in the ordinary course of business. The amount
of each Sale Bonus Adjustment shall be calculated in respect to the aggregate of
all such transactions made during the Term, including those previously resulting
in the Triggering Event.
4. Effect of Termination of Employment.
(a) Involuntary Termination. In the event of your Involuntary Termination during
the Term, you shall remain entitled to receive the Sale Bonus in the same manner
as if your employment with the Company had continued for the duration of the
Term. Thus, if following your Involuntary Termination during the term, a
subsequent Triggering Event occurs during the Term, which results in a Change in
Control at any time thereafter, you shall receive a your Sale Bonus at such
time, as well as any Sale Bonus Adjustments resulting from subsequent sales of
assets.
(b) Other Termination. In the event that your employment terminates for any
reason other than an Involuntary Termination at any time during the Term, you
shall forfeit any right you may have to receive any Sale Bonus to be paid on
transactions that close after such termination of employment or any Sale Bonus
on transactions that close prior to such termination of employment if a Change
in Control has not yet occurred by the date of such termination of employment.
5. Notice. For the purpose of this Letter Agreement, notices and all other
communications provided for in this Letter Agreement shall be in writing and
shall be deemed to have been duly given when delivered by hand, sent by
telecopier or mailed by United States registered mail, return receipt requested,
postage prepaid, addressed to the Chief Executive Officer, The Grand Union
Company, 201 Willowbrook Blvd., Wayne, New Jersey 07470, telecopier: (973)
890-6012, with a copy to the General Counsel of the Company, or to you at the
address set forth on the first page of this Letter Agreement or to such other
address as either party may have furnished to the other in writing in accordance
herewith, except that notice of change of address shall be effective only upon
receipt.
6. Reduction of Payments if Reduction Would Result in Greater After-Tax Amount.
Notwithstanding anything herein to the contrary, if the payment of the Sale
Bonus and any other payments in connection with a Change in Control (together,
the "Payments") constitute a "parachute payment" (as defined in Section
280G(b)(2) of the Internal Revenue Code of 1986, as amended (the "Code")), and
the amount of the Payments net the excise tax (as described in Section 4999 of
the Code) payable with respect thereto is less than the amount to be paid to you
if the aggregate Payments to be made to you were three times your "base amount"
(as defined in Section 280G(b)(3) of the Code), less $1.00, then the aggregate
of the amounts of the Sale Bonus Payment constituting the parachute payment paid
pursuant to this Agreement shall be reduced to an amount that will equal three
times your base amount, less $1.00.
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7. Miscellaneous.
(a) No Rights to Continued Employment. Neither this Letter Agreement nor any of
the rights or benefits evidenced hereby shall confer upon you any right to
continuance of employment by the Company or interfere in any way with the right
of the Company to terminate your employment, subject to the provisions of
Section 4 above, for any reason, with or without Cause.
(b) Amendments, Waivers. No provision of this Letter Agreement may be modified,
waived or discharged unless such waiver, modification or discharge is agreed to
in writing by the parties hereto. No waiver by either party hereto at any time
of any breach by the other party hereto of, or compliance with, any condition or
provision of this Letter Agreement to be performed by such other party shall be
deemed a waiver of similar or dissimilar provisions or conditions at the same or
at any prior or subsequent time.
(c) Counterparts. This Letter Agreement may be executed in counterparts, each of
which shall be deemed to be an original but all of which together will
constitute one and the same instrument.
(d) Withholding. Amounts paid to you hereunder shall be subject to all
applicable federal, state and local wage withholdings.
(e) Headings. The headings contained in this Letter Agreement are intended
solely for convenience of reference and shall not affect the rights of the
parties to this Letter Agreement.
(f) Governing Law. The validity, interpretation, construction and performance of
this Letter Agreement shall be governed by the laws of the State of New Jersey
applicable to contracts entered into and performed in such state.
This Letter Agreement has been approved by the Board and by the Bankruptcy Court
and amounts payable hereunder shall be paid as an administrative expense in such
Bankruptcy proceeding.
Sincerely,
The Grand Union Company
By: _______________________________________
Name: Gary M. Philbin
President and Chief Executive Officer
Agreed to as of this 6th day of November, 2000.
________________________________
Glenn J. Smith