<PAGE>

                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                  FORM 10-K


 ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES EXCHANGE 
 ACT OF 1934

For the fiscal year ended March 29, 1997

Commission File Number 0-26602

                           THE GRAND UNION COMPANY
           (Exact name of registrant as specified in its charter)


            Delaware                                      22-1518276
--------------------------------                     ------------------
   (State or other jurisdiction                        (I.R.S. Employer 
 of incorporation or organization)                     Identification No.)


201 Willowbrook Boulevard, Wayne, New Jersey                07470-0966
---------------------------------------------          --------------------
  (Address of principal executive offices)                  (Zip Code)


Registrant's telephone number, including area code         973-890-6000
                                                       --------------------

Securities registered pursuant to Section 12 (b) of the Act:

      Title of each class              Name of each exchange on which registered
----------------------------------     -----------------------------------------

   Common Stock, Par Value $0.01            National Market System of NASD
----------------------------------     -----------------------------------------

Securities registered pursuant to Section 12 (g) of the Act:      None
                                                            --------------------

Indicate by check mark whether the registrant  (1) has filed all reports  
required to be filed by Section 13 or 15 (d) of the Securities Exchange  Act 
of 1934  during the  preceding  12 months (or for such  shorter  period  that 
the  registrant  was  required  to file such reports), and (2) has been 
subject to such requirements for the past 90 days. Yes   X      No      
                                                       -----       -----
Indicate by check mark if disclosure of delinquent filers pursuant to Item 
405 of Regulation S-K is not contained  herein,  and will not be contained,  
to the best of the Registrant's  knowledge,  in definitive proxy or 
information statements incorporated by reference in Part III of this Form 
10-K or any amendment to this Form 10-K.  / X /

The  aggregate  market  value  of the  voting  stock  held by  nonaffiliates  
of the  registrant  as of June 24,  1997 is  approximately $16,200,000,  
based upon the  closing  sales  price of the Common  Stock on such date.  
Voting  stock  includes  the Class A  Cumulative Convertible  Preferred Stock 
and the Class B Cumulative  Convertible  Preferred Stock. For the purpose of 
this calculation,  all members of the Board of Directors  and all  
stockholders  with sole or shared  voting power over 10% or more of the  
Company's Common Stock are presumed to be affiliates.

Indicate by check mark whether the  registrant  has filed all documents and 
reports  required to be filed by Section 12, 13 or 15 (d) of the Securities 
Exchange Act of 1934 subsequent to the distribution of securities under a 
plan confirmed by a court. Yes   X       No       
                               -----        ------

As of June 24, 1997 there were issued and outstanding 10,000,000 shares, par 
value $0.01 per share, of the Registrant's Common Stock.

Documents Incorporated by Reference: The Proxy Statement for the 1997 Annual 
Meeting of Shareholders has been incorporated by reference partially in Part 
III hereof.

                                       1
<PAGE>

                            THE GRAND UNION COMPANY

         Other than  historical  information,  statements  in this  report  
may be deemed to be  forward-looking  statements  within the meaning of the 
federal  securities  laws.  Actual results and the timing of certain events 
could differ  materially from those projected in the  forward-looking  
statements due to a number of factors,  including those set forth in this 
report.  See "Special Note Concerning Forward-Looking Statements" in Part II 
of this report.

PART I

ITEM 1. BUSINESS

GENERAL
     The Grand Union Company, a Delaware  corporation ("Grand Union" or the 
"Company"),  currently operates 225 retail food stores under the "Grand  
Union" name in six  northeastern  states.  Grand  Union's  common  stock is 
listed on the NASDAQ  National  Market under the symbol GUCO.

     The Grand Union  Company's  greatest  challenge is to increase  sales 
and margins in an  intensely  competitive  and  consolidating retail food 
industry.  To address this  challenge,  the Company has adopted  strategies 
over the past two fiscal years to build on its strengths and reduce its 
expenses.

     During the fiscal year ended March 29, 1997 ("Fiscal  1997"),  the 
Company  adopted  organizational  restructuring  measures  which 
substantially  eliminated its regional offices and consolidated its 
management  functions,  thereby reducing the number of employees and 
associated expenses.  After the end of Fiscal 1997, the Company announced  
additional  restructuring  measures to significantly  further reduce the 
number of its administrative  employees.  The Company anticipates that these 
measures  collectively should reduce expenses by more than $8 million per 
year.

     During Fiscal 1997, the Company  continued to renovate and replace its 
stores with stores designed under its MASTERS  (Maximize All Space, Totally 
Expand the Right Stuff) format,  designed to significantly  increase the 
number and variety of product offerings.  During Fiscal  1997,  six stores  
were  renovated  to this  format and two stores  were  completed  during the 
fiscal year ended March 30, 1996 ("Fiscal 1996").

     The  Company  anticipates,  however,  that the  number  of store  
projects  completed  over the next two  fiscal  years,  including conversion 
of stores to the  M.A.S.T.E.R.S.  format,  the  renovation  and  replacement  
of existing  stores,  and the completion of new stores, will be significantly 
reduced compared to previous estimates.

     During  Fiscal 1997,  the Company  continued to operate  under and 
improve the strategic  initiatives  adopted  during Fiscal 1996, calculated 
to enhance its image as a high-quality,  price-conscious  operator in the 
Northeastern  retail food industry,  and to improve the efficiency and 
profitability of its operations.  In connection with that plan, the Company 
adopted  newspaper,  television and radio advertising  to  introduce  and  
support  its "More  Lower  Prices"  campaign,  and to  emphasize  the  
superior  quality of its produce departments.  In addition,  the Company 
expanded and emphasized its "Best Take-Out Restaurant in Town" prepared and 
ready-to-serve food offerings,  and took measures to improve its in-stock 
position,  the cleanliness and safety of its stores, and the speed and 
convenience of the service offered in each department and in its check-out 
areas.

     In connection  with the Company's  1996  strategic  plan,  the Company 
also  discontinued  operating its internal  warehousing  and distribution  
functions,  by replacing its  distribution  activities with  third-party  
wholesale  supply  arrangements.  (See "Item 1 -Business - Distribution  and 
Supply and Management Information Systems.") The Company also completed  
voluntary  resignation  programs which resulted in a reduction in the 
Company's number of employees and associated costs.

    STORE FORMATS
     Grand  Union's  store sizes and formats vary  depending  upon the  
demographics  and  competitive  conditions  in each  location 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 the Company's  sales are generated 
from stores which include high margin  specialty and service  areas.  
Selected  stores  feature  in-store kitchens and pharmacies.  Liquor,  beer 
and wine  departments  are included in many  locations,  subject to the 
limitations of state and local law.  Grand  Union's  supermarkets  range in 
size from 7,000 to 64,000  square feet.  Newly  constructed  stores are 
typically in excess of 40,000 square feet.


                                       2
<PAGE>

SELECTED DATA

     The table below sets forth certain statistical information with respect 
to Grand Union retail stores for the past three years.

<TABLE>
<CAPTION>
                                                                     Fiscal        Fiscal        Fiscal
                                                                      1997          1996          1995
                                                                   ----------    ----------    ----------
<S>                                                                   <C>           <C>           <C>
Number of stores (at end of year)                                        226           229           231
Total selling square feet at end of year (in thousands)                4,312         4,305         4,276
Average sales per selling square foot per week                        $10.28        $10.28        $10.29
</TABLE>

SUMMARY OF OPERATIONS AND COMPETITION

     The food retailing business is highly competitive.  The Company competes 
with numerous national, regional and local supermarket chains.  The Company 
also competes with convenience stores, stores owned and  operated or 
otherwise affiliated with large food wholesalers,  unaffiliated independent 
food stores, warehouse/merchandise clubs,  discount drugstore chains and 
discount general merchandise chains.  Some of the Company's competitors have 
greater financial resources than the Company and could use those resources to 
take steps which  would  adversely  affect the Company's competitive  
position. (See also "Item 7 -  Management's Discussion and Analysis of 
Financial Condition and Results of Operations").

     Grand Union currently  operates 225 stores,  including 81 in 
northeastern  New York, 41 in Vermont,  41 in central and northern New 
Jersey,  28 in Westchester,  Orange,  Rockland,  Dutchess and Putnam Counties 
of New York, 14 on Long Island,  New York, 12 in Fairfield County, 
Connecticut, 3 in New Hampshire, 3 in New York City, and 2 in Pennsylvania.
 
     In upstate New York,  Grand Union  generally  operates in small cities 
and rural  communities.  The Company's main  competitors are Golub 
Corporation  ("Price Chopper") and Hannaford  Brothers,  Inc.  ("Hannaford"). 
 Commercial  development in areas north of Albany is limited and constrained 
by zoning and  environmental  restrictions,  particularly in areas regulated 
by the Adirondack Park  Commission. In the more urban Albany,  New York  
metropolitan  area, Price Chopper and Hannaford have each opened a number of 
new stores in the last five years,  which are generally larger than the 
Company's stores.

     In the  Mid-Hudson  Valley area of New York,  the  Company's  principal 
competitors  are Big V  Supermarkets  Inc. (a member of  the Wakefern
("ShopRite")  cooperative),  Price Chopper,  Hannaford and The  Great Atlantic
& Pacific Tea Company,  Inc. ("A&P").  Continuing weak  economic  conditions in
the Mid-Hudson  Valley have  constrained  business in  recent years.  In
addition, the Company's  results in this region have also  been adversely
affected by recent store openings by competitors.

     In Vermont,  Grand Union's  principal  competitors are Price Chopper,  
Hannaford and A&P. Zoning and  environmental  regulations in the state 
restrict  commercial  development  (including  supermarkets  which might be 
competitors  of the Company).  Shaws  Supermarkets recently opened two stores 
in the state.

     A number of stores in upstate New York and  Vermont are in resort  
areas.  These  generally  experience  significant  increases  in sales in the 
summer months and in some cases during the winter ski season.

     The Company's stores in downstate New York,  Connecticut,  and New 
Jersey serve densely  populated  communities  with  demographics particularly 
 well-suited for store formats emphasizing  specialty  departments.  
Accordingly,  the sales mix in these stores includes a larger percentage of 
higher margin perishable items. In addition,  the high population  density as 
well as the geographic  concentration of stores provide substantial economy 
of scale opportunities.

     In New Jersey,  the Company  competes  primarily  against  A&P,  
Pathmark  Stores,  Inc.  ("Pathmark"),  Ahold  Supermarkets,  Inc. ("Edwards" 
and "Stop and Shop"), ShopRite and various supermarkets supplied by the Twin 
County ("Foodtown") cooperative.

     In Westchester,  Orange,  Rockland,  Dutchess and Putnam Counties in New 
York, the Company generally competes with A&P, Edwards and ShopRite.

     On Long Island, the Company's principal competitors are A&P, Waldbaums, 
Pathmark, and  King Kullen Grocery Co., Inc.

     Grand Union's main competitors in Fairfield County, Connecticut are 
Stop & Shop and A&P.

CAPITAL INVESTMENT
     The  Company's  capital  spending is directed  towards  renovating  and 
upgrading  existing  Grand Union stores and opening new and replacement  
stores in existing marketing areas. Cash capital  expenditures for Fiscal 
1997 and 1996 were approximately  $55,000,000 and $44,000,000, respectively, 
excluding capital lease additions of $23,000,000 and $29,000,000.

                                       3
<PAGE>

     The Company continues to renovate certain locations using its MASTERS 
prototype.

DISTRIBUTION AND SUPPLY AND MANAGEMENT INFORMATION SYSTEMS
     DISTRIBUTION  AND SUPPLY.  The  majority of the  Company's  merchandise  
is stocked and  distributed  to Grand Union  stores by C&S Wholesale Grocers, 
Inc. ("C&S") pursuant to supply and distribution  agreements between the 
Company and C&S. Under the agreements,  C&S stocks and  supplies  grocery and 
 perishable  products  from its own  warehouses,  and health and beauty  care 
and general  merchandise products  from  the  Company's  Montgomery,  New 
York  warehouse.  Grand  Union  also  contracts  with a third  party  for  
frozen  food distribution.  Management  believes that the  agreements  with 
C&S enhance the Company's  ability to offer  consistently  fresh and high 
quality products to its customers at a favorable cost.

     MANAGEMENT  INFORMATION SYSTEMS.  Financial,  purchasing and operating 
system requirements are supported through a central computer system  located 
in Wayne,  New  Jersey.  As of March 29,  1997,  Grand  Union  utilized  
scanning  systems  in 181 stores  (representing approximately  94% of total  
sales)  and  intends to  continue  investing  in  scanning  and other  store  
systems  in the future  where economically justified.

     COMMISSARY.  Grand Union  operates a 20,000 square foot  commissary  
located in Newburgh,  New York,  in which high quality  cooked meat products, 
salads, salad ingredients and soups are prepared for sale in the Company's 
delicatessen departments.

MANAGEMENT  
     Between  January and May 1997,  four of the Company's  five 
Executive  officers  retired or resigned,  leaving  certain  positions 
temporarily  vacant, including, among others, Chief Executive Officer, and 
Executive Vice Presidents for Store Operations and Merchandising.  Roger 
Stangeland, the Company's Chairman and a member of the Board of Directors, 
has been named interim Chief Executive Officer, and Jeffrey P. Friemark has 
been hired to serve as Executive Vice President, Chief Financial and 
Administrative Officer. As an interim measure,  the  Company is being  
managed by an Office of the  Chairman  comprised  of Mr. Stangeland, Mr. 
Josephs,  Director,  Mr. Freimark,  and Mr. Vuolo, Senior Vice President, 
Human Resources, and Labor Relations.  The Company is continuing to identify 
and interview appropriate candidates to fill the position of Chief Executive 
Officer.  Upon selecting a new Chief Executive Officer, the Company 
anticipates that such person will seek to fill some or all of the remaining 
vacancies.

EMPLOYEES
     As of March 29, 1997,  Grand Union had  approximately  15,000  
employees,  of whom  approximately  67% were employed on a part-time basis. 
Approximately 50% of Grand Union's employees are covered by 13 collective 
bargaining agreements with 9 different union locals.

     On April 13, 1997, the Company entered into a new labor agreement with 
United Food and Commercial Workers Local 1262 covering approximately 3,550 
clerks in 56 of the Company's stores in New Jersey, Pennsylvania and Rockland 
and Orange counties in New York.  The agreement expires in April 2001. The 
Company's other labor  agreements  expire between June 1997 and January 2001.

     As of March 29, 1997,  all  employees  covered by  collective  
bargaining  agreements  were  employed at store  locations or in the 
Company's remaining warehouse.

     From  December  1996  through May 1997,  the Company  effected a 
corporate  reduction  in  workforce,  terminating  or  reassigning 
approximately  130  employees  at its  headquarters  and in its  operating  
areas.  The  Company  provided  severance  payments to those employees who 
were terminated, in accordance with its severance policy, based on each 
employee's position and length of service.

     The Company believes that its relationship with its employees is 
generally satisfactory.

TRADE NAMES, SERVICE MARKS AND TRADEMARKS

     Grand Union owns and actively uses over 20 trade names,  service marks 
and trademarks  (collectively, "Marks").  Among these Marks are "Grand 
Union"-Registered Trademark-, the symbol of a red dot, "Grand
Classics"-Registered Trademark-,  "Big Gold Top"-Registered Trademark-,  
"Holland Hall"-Registered Trademark-, and "Red Dot Special"-Registered
Trademark-, all of which are  significant  to  the  Company's  business.  The
Company also has common law rights in, has  filed for, or intends to file for
various other Marks.

RECENT HISTORY
     CHANGE IN CONTROL

     TRANSACTION
     In a series of  transactions  pursuant to a Stock Purchase  Agreement 
(the "Stock Purchase  Agreement")  dated as of July 30, 1996, between the 
Company and Trefoil  Capital  Investors  II, L.P.  ("Trefoil")  and GE  
Investment  Private  Placement  Partners,  A Limited Partnership ("GEI" and,  
collectively with Trefoil,  the  "Purchasers"),  and an Acceleration and 
Exchange Agreement dated as of June 5, 1997, among the Company and the 
Purchasers,  the Purchasers  acquired,  for aggregate  consideration  of  
$100,000,000,  an aggregate of 

                                       4
<PAGE>

1,200,000  shares of the Company's Class A Convertible  Preferred Stock (the 
"Class A Stock") and an aggregate of 800,000 shares of the Company's Class B 
Convertible  Preferred Stock (the "Class B Stock" and,  collectively  with 
the Class A Stock, the "Preferred  Stock"). In March 1997, the Company's  
Chairman and interim Chief  Executive  Officer also acquired  600,000  shares 
of the Class A Stock,  for a purchase price of $3,000,000.
 
     VOTING CONTROL
     Pursuant to the  Certificates  of Designation of Preferred  Stock 
setting forth the powers,  preferences,  rights,  qualifications, limitations 
and restrictions of each class of preferred stock (the "Certificates of  
Designation"),  the holders of the preferred stock have the right to vote 
together with the holders of the Company's common stock (the "Common  
Stock"),  as a single class, on all matters submitted to the Company's  
stockholders for a vote, including the election of directors.  The number 
of votes  entitled to be cast by the  holder of  Preferred  Stock is equal to 
the  number of whole  votes  which  could be cast in such vote by a holder of 
the shares of Common Stock into which such shares of Preferred Stock are 
convertible on the record date for such vote.

     Each  share of Class A Stock  currently  is  convertible  into  6.8966  
shares of  Common  Stock,  and each  share of Class B Stock currently is  
convertible  into 20.8333  shares of Common Stock.  The  conversion  prices 
of the Preferred  Stock are subject to certain customary anti-dilution  
adjustments,  and the terms of the Class B Stock provide that the conversion 
price of the Class B Stock will be reset  during  March 1998 to a  conversion 
price based on a 20%  premium to the  average  trading  price of the Common  
Stock  during a twenty-day period during February 1998.

     Based on current  conversion  prices and including  dividends that have 
been paid in respect of the  outstanding  shares of Class A Stock,  as of 
June 24, 1997 the  Purchasers  owned an  aggregate  of 1,240,424  shares of 
Class A Stock,  and 800,000  shares of Class B Stock,  which  together  were  
convertible  into an aggregate of 25,221,348  shares of Common  Stock.  Such 
shares of Common Stock would represent approximately 70.77% of the aggregate 
voting power outstanding.

     The Preferred Stock entitles the holders to quarterly dividends,  when, 
as and if declared by the Company's Board of Directors,  in an amount  equal 
to 8.5% per annum of the  stated  value of the  preferred  stock.  Unpaid  
dividends  shall  cumulate,  and shall  bear additional  dividends at such 
rate.  Until September 17, 1999, such dividends are payable,  at the option 
of the Company,  in additional shares of Preferred  Stock or in shares of 
Common Stock.  From September 18, 1999 to September 17, 2001,  dividends are 
payable in cash, unless the Company's bank credit  agreement or the indenture 
governing its 12% Senior Notes due 2004 shall prohibit such cash payments, 
in which case such dividends on the Preferred  Stock are payable,  at the 
option of the Company,  in shares of Preferred Stock or shares of Common 
Stock.  To the extent that any dividends on the  Preferred  Stock are paid in 
shares of Common Stock,  the Company is required to pay a premium  in  
additional  shares of Common  Stock  equal to  33-1/3%  of the total  number 
of shares of Common  Stock that would otherwise be paid as the dividend.  
After September 17, 2001, all dividends are payable in cash.

     The  Stock  Purchase  Agreement  provides  that,  for so long as the  
Purchasers  own at least  50% of the  total  number of shares purchased by 
them pursuant to the Stock Purchase  Agreement,  the Purchasers shall have  
pre-emptive  rights with respect to any sale by the Company of any shares of 
its Common  Stock or  securities  convertible  into or  exchangeable  for 
shares of its Common  Stock (with certain limited exceptions) in proportion 
to the shares of Preferred Stock then held by the Purchasers.

     The Stock Purchase Agreement also provides that, until the third 
anniversary of September 17, 1996 (the "Principal  Closing"),  the Purchasers 
will not sell more than  one-third  of the Class A Stock (or shares of 
Common Stock  issued upon  conversion  of such shares (the "Conversion 
Shares")).

  CHAPTER 11 REORGANIZATION
     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, the Company filed a 
voluntary  petition for relief under Chapter 11 of the Code in Bankruptcy  
Court.  The Bankruptcy  Court confirmed the Second Amended  Chapter 11 Plan 
of The Grand Union Company,  dated as of April 19, 1995, on May 31, 1995 and 
the Company emerged from Chapter 11 on June 15, 1995.  Significant provisions 
of the Plan included:

     1.  Payment in full of all allowed administrative claims and all allowed 
         general unsecured and priority claims.

     2.  Payment in full of obligations  under the Company's  existing bank 
         credit  agreement (the "Bank Credit  Agreement"),  including 
         principal and accrued  interest.  Concurrently,  the Company  
         entered into an Amended and Restated  Credit  Agreement (the "New 
         Bank Facility")  providing for a five-year  revolving  credit  
         facility of $100,000,000  and a seven-year term loan facility of 
         $104,144,371, secured by a lien on substantially all of the assets 
         of Grand Union and its subsidiaries.

     3.  Cancellation of obligations under the Company's  11.375% Senior 
         Notes due 1999 and 11.25% Senior Notes due 2000  (collectively, the 
         "Old Senior  Notes"),  with an  aggregate  principal  amount of  
         $525,000,000  plus accrued  interest,  in exchange

                                       5
<PAGE>

         for the issuance of  $595,421,000  aggregate  principal  amount of 
         12% Senior Notes due 2004 (the "Senior  Notes") and cash payments of 
         $54,922 for fractional shares.

     4.  Cancellation of obligations under the Company's 12.25% Senior  
         Subordinated  Notes due 2002,  12.25% Senior  Subordinated  Notes 
         due 2002, Series A and 13% Senior  Subordinated  Notes due 1998  
         (collectively,  the "Subordinated  Notes"),  with an aggregate 
         principal  amount of  $566,150,000,  in exchange for a pro rata 
         share of an aggregate of 10,000,000  shares of new common stock (the 
         "Common Stock").

     5.  Issuance of  warrants,  which expire June 15,  2000,  to purchase an 
         aggregate of 900,000  shares of Common Stock to holders of 15% 
         Senior Zero Coupon Notes due 2004 and 16.5% Senior  Subordinated  
         Zero Coupon  Notes due 2007  (collectively,  the "Capital Notes")  
         pursuant to the terms of a settlement  reached among the Company,  
         its then indirect  parent  companies,  the Official Committee  of  
         Unsecured  Creditors  of its then parent  company,  and  certain  
         holders of Capital  Notes.  The  warrants  are comprised  of 300,000 
         Series 1 Warrants to purchase  shares of 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.

     The 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 the Company's then indirect parent.

FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND EXPORT SALES
     Grand Union has no foreign operations or export sales.

ITEM 2. PROPERTIES

     Grand Union  conducts its  operations  primarily in leased  stores and 
offices.  The  following  table  indicates  the location and number of stores 
as of March 29, 1997.
 
                                             Number of
       Locations                              Stores
       ---------                              ------
       New York                                 126
       New Jersey                                42
       Vermont                                   41
       Connecticut                               12
       New Hampshire                              3
       Pennsylvania                               2
                                                ---
       Total                                    226
                                                ---
                                                ---

     As of March 29, 1997,  Grand Union owned 13 and leased 213 of its store 
sites pursuant to commercial  leases.  Management  believes no store lease is 
individually  material to Grand Union.  Most store leases contain several  
renewal  options.  Nine store leases do not contain  renewal  options  and  
will  expire  over the next  five  years.  Management  anticipates  that it 
will be able to  renegotiate favorable lease terms for most of these 
locations, if so desired.

     Grand Union  currently  operates one  distribution  center in 
Montgomery,  New York,  which is leased,  and a commissary,  which is housed 
in a building  owned by the  Company on a  ground-leased  site in  Newburgh,  
New York.  Grand  Union owns a 101,000  square foot warehouse in Waverly,  
New York that is  currently  vacant.  Grand  Union's  lease on its  
distribution  center has 32 years  remaining, including options. See Note 9 
to the Consolidated Financial Statements, Property Leases, for information on 
leases and annual rents.

ITEM 3. LEGAL PROCEEDINGS

     CHAPTER  11  PROCEEDINGS.  Reference  is made to "Item 1 - Business - 
Recent  History"  for  information  regarding  the  Company's Chapter 11  
proceedings.  The Company  does not believe  that  lingering  Chapter 11  
proceedings  will  result in any  modification  or revocation of the order.

     ENVIRONMENTAL -- CONNECTICUT.  Soil and  ground-water  contamination  
has been detected at a shopping  center owned by Grand Union which is located 
in  Connecticut.  The  Company  is  investigating  whether  such  
contamination  was  caused by  improper  disposal  of perchloroethylene  
wastes by a dry cleaner previously  operating at this location or by an 
off-site source.  Grand Union has undertaken, under approval by the 
Connecticut Department of Environmental  Protection,  a proposal for a 
remedial investigation designed to identify the sources of such soil and  
ground-water  contamination  and to determine the length,  depth and breadth 
of the  contamination  on and off-site.  Sampling  analyses for the  
ground-water at the shopping center and for drinking water in private  
residences  located in the 

                                       6
<PAGE>

immediately  surrounding  area confirm  that the source of the on-site  
contamination,  in part,  is an off-site  shopping  center and a gasoline  
station  located  nearby.  A  Remedial  Action and  Investigation  Report  
was  submitted  to the  Connecticut  Department  of Environmental  Protection 
 on May 21, 1993.  The Company is  awaiting a response  from the  
Connecticut  Department  of  Environmental Protection.

     The Company's  potential  responsibility  does not arise from any aspect 
of its operation of a supermarket  at the shopping  center but from the 
actions of a former tenant.  Any contamination  caused on-site by a source 
located off-site would be the  responsibility of another party. The Company  
believes that the current  intention of the Connecticut  Department of  
Environmental  Protection is to seek reimbursement  of past costs and 
clean-up costs from some or all of these other  parties.  The Company is 
unable to determine the amount of its potential liability arising from the 
on-site  contamination,  but does not believe, based upon the results of 
investigations made to date, that the amount of potential  liability is 
likely to be materially  adverse to the Company's  financial  condition.  
Management presently estimates,  based upon investigations made by the 
Company's  environmental  consultant to date, that such liability should not 
exceed  $2,000,000.  Investigations  are  continuing,  and there can be no 
assurance  that the amount of such  liability will not exceed $2,000,000.

     ENVIRONMENTAL --  NEW YORK. In 1991,  Grand Union's  landlord  brought 
an action against Grand Union,  two other tenants at the Apple Valley  
Shopping  Center in LaGrange,  New York,  and a supplier of hazardous  
substances to one of the tenants,  seeking  approximately $1,600,000 in 
response costs within the meaning of the Comprehensive  Environmental  
Response  Compensation and Liability Act ("CERCLA") and  consequential  
damages  (pursuant  to the  court's  supplemental  jurisdiction).  The  
plaintiff  claims that Grand Union and other tenants  discharged  hazardous  
substances from their premises which caused the plaintiff to incur response  
costs.  The gravamen of the plaintiff's  claim is that Grand Union  placed  
household  cleaning  products  containing  volatile  organic  substances  in 
a compactor situated at the rear of its premises and that such  substances  
were released  into the  environment.  In connection  with the Company's 
Chapter 11  proceedings,  the plaintiff filed a proof of claim in the amount 
of $4,389,518.  The U.S.  Environmental  Protection  Agency carried out a 
removal  action at this site and  recently  notified the Company that it was 
a  potentially  responsible  party within the meaning of Section  107(a) of 
CERCLA.  Subsequent  to the end of the fiscal  year,  the  Company  settled  
this  action  under terms not materially adverse to the Company's financial 
condition.

     FTC ORDER.  At the time of the  acquisition of Grand Union by Holdings 
in July 1989,  Grand Union and P&C Foods,  then a subsidiary and currently a 
division of Penn Traffic,  operated  stores in some of the same  geographic  
areas in Vermont and upstate  New York.  In order to satisfy the concerns of 
federal  antitrust  authorities  arising therefrom in connection with the 
acquisition of Grand Union by Holdings,  prior to consummation thereof MTH 
Holdings, Inc. ("MTH Holdings"),  which indirectly controlled Grand Union and 
Penn Traffic, an affiliate of Miller Tabak Hirsch + Co., a New York  Limited  
Partnership,  and GUAC entered into an Agreement to Hold  Separate  with 
Salomon Inc. and the Federal Trade  Commission  ("FTC") and an Agreement  
Containing  Consent  Order (the  "Order") with the FTC,  which Order was 
subsequently modified on February 16, 1996 (collectively, the "FTC 
Agreements").

     The FTC  Agreements  required  the  divestiture  by MTH  Holdings  
and/or  Grand  Union  (including  in each case their  respective subsidiaries 
 and  affiliates) of sixteen stores located in Vermont and upstate New York. 
Such  divestitures  were completed on July 30, 1990.  Thirteen of the sixteen 
stores  divested were P&C Foods stores and three of the sixteen stores  
divested were Grand Union stores. In a related transaction,  Grand Union and 
P&C Foods entered into an operating agreement (the "Operating Agreement"),  
pursuant to which Grand Union  acquired the right to operate P&C Foods'  
thirteen  remaining  stores in New England  under the Grand Union name until 
July 2000, for an average  annual rent of  approximately  $10,700,000 with 
an option to extend the term of such operation for an additional five years. 
 Grand  Union  paid P&C Foods  $7,500,000 for an option to  purchase  the 
stores at an amount  defined  in the  Operating Agreement.  Pursuant to the 
terms of the Operating Agreement,  the 1992 Recapitalization  triggered a 
$15,000,000  prepayment obligation to P&C Foods.  The Operating Agreement was 
assumed during the Chapter 11 case and continues on its then current terms.

     The FTC Agreements also provide,  among other things,  that MTH Holdings 
and Grand Union  (including in each case their  respective subsidiaries and 
affiliates)  shall not acquire,  for a period of ten years, any retail 
grocery stores in Vermont and certain  specified counties in New York without 
the prior notification to, and concurrence of, the FTC.

     As required by the FTC  Agreements,  following  commencement  of the 
Chapter 11  proceedings,  Grand Union  notified the FTC that a change of 
control of the Company would occur upon  completion of the  reorganization.  
The Agreement to Hold Separate was, by its terms, applicable  only until 
certain  stores  identified  therein could be divested.  All required  
divestitures  have occurred and, as of the Effective  Date,  there is no 
longer any control  affiliation  between Penn  Traffic and Grand Union,  
which may in the future be direct competitors  in  certain  market  areas.  
The  consummation  of the Plan did not result in any  change in the  
applicability  of the FTC Agreements.

     OTHER  PROCEEDINGS.  The Company is also subject to certain  other legal 
 proceedings  and claims  arising in  connection  with its business.  It is  
management's  opinion  that the  ultimate  resolution  of such claims will 
not have a material  adverse  effect on the Company's consolidated results of 
operations or its financial position.

                                       7
<PAGE>

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     No matters were submitted to a vote of the Company's securityholders 
during the fourth quarter of Fiscal 1997.

PART II

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDERS' 
MATTERS

     The Common Stock of the Company is listed on the NASDAQ  National  
Market  under the symbol GUCO.  At the close of business on June 24, 1997,  
there were 10,000,000  shares of Common Stock,  $0.01 par value  outstanding 
and entitled to vote.  There were  approximately 3,000 holders of record as 
of June 25, 1997.

     The quarterly market value of the Company's stock is discussed in Note 
16 to the Consolidated Financial Statements.

     No cash  dividends  were  declared or paid during each of the three  
fiscal  years ended March 29,  1997.  Payment of  dividends to holders of 
Common Stock is restricted by the Bank Facility and by the terms of the 
Senior Notes and the Preferred Stock.





                                       8
<PAGE>

ITEM 6. SELECTED FINANCIAL DATA

     As discussed in Item 1, the Company  emerged from its Chapter 11 
proceedings  effective June 15, 1995 (the "Effective  Date").  For financial  
reporting  purposes,  the Company  accounted for the consummation of the Plan 
effective June 17, 1995. In accordance with the American  Institute of 
Certified  Public  Accountants  Statement of Position 90-7,  "Financial  
Reporting By Entities In  Reorganization Under The Bankruptcy  Code",  the 
Company has applied  Fresh-Start  Reporting as of the Effective Date which 
has resulted in significant changes to the valuation of certain of the 
Company's assets and liabilities,  and to its  stockholders'  equity.  In 
connection with the adoption of Fresh-Start  Reporting,  a new entity has 
been deemed  created for financial  reporting  purposes.  The periods prior 
to the Effective  Date have been  designated  "Predecessor  Company" and the 
periods  subsequent  to the  Effective  Date have been  designated "Successor 
Company".  All information is derived from the consolidated  financial 
statements of the Company.  This information should be read in conjunction 
with the historical financial statements of the Company, including the notes 
thereto, included elsewhere herein. The financial  statements  prior to the 
Effective Date reflect the accounts of Holdings pushed down to the accounts 
of Grand Union.  All dollars are in millions, except per share data.

<TABLE>
<CAPTION>
                                                   Successor Company                           Predecessor Company
                                                ------------------------------------------------------------------------------
                                                52 Weeks       41 Weeks      11 Weeks      52 Weeks     52 Weeks     53 Weeks
                                                 Ended          Ended          Ended         Ended        Ended       Ended
                                               March 29,      March 30,      June 17,      April 1,      April 2,    April 3,
                                                  1997           1996          1995          1995         1994         1993
                                                  ----           ----          ----          ----         ----         ----
<S>                                            <C>             <C>          <C>           <C>           <C>              <C>
STATEMENT OF OPERATIONS DATA:
  Sales                                        $  2,312.7      $  1,819.9   $    487.9    $  2,391.7    $  2,477.3       $ 2,834.0
  Gross profit                                      705.7           569.9        143.8         708.3         731.7           822.3
  Operating and administrative expenses             582.9           453.7        117.5         571.6         552.5           627.0
  Depreciation and amortization                     188.1           143.8         17.2          87.1          78.6            80.6
  Unusual items                                       9.8            22.0         18.6          27.4           4.5           201.5
  Interest expense                                  105.8            79.2         19.8         182.0         183.8           174.5
  Loss before income taxes, extraordinary
    items and cumulative effect of
    accounting change                               180.8           128.8         29.3         159.8          87.6           261.2
  Income tax (provision) benefit                     (2.5)           18.9          -             -             -              (4.5)
  Extraordinary items                                 -               -          854.8           -             -             (47.7)
  Cumulative effect of accounting change              -               -            -             -            30.3             -
  Net (loss) income                                (183.4)         (109.9)       825.5        (159.8)       (118.0)         (313.4)
  Net loss applicable to common stock               185.4             -            -             -             -               -
  Net loss per common share (3)                      18.54           10.99         -             -             -               -
  Ratio of earnings to fixed charges (1)              -               -            -             -             -               -
  Deficiency in earnings available to
    cover fixed charges                             180.8           128.8         29.3         159.8          87.6         261.2
BALANCE SHEET DATA:
  Total assets                                  $ 1,060.8       $ 1,178.2         (2)      $ 1,394.8    $  1,394.2      $1,418.2
  Total debt and capital lease obligations          888.4           875.1         (2)        1,614.9       1,532.2       1,402.5
  Redeemable stock                                   65.0             -           (2)          174.2         154.7         139.8
  Nonredeemable stock and stockholders'                                                                                 
    equity (deficit)                               (153.2)           44.1         (2)         (824.3)       (644.8)       (510.3)
OPERATING AND OTHER DATA:
  Capital expenditures                          $    55.1       $    43.0    $    3.0      $    70.8     $     86.2     $     66.2
  Number of stores at year end                      226             229            N/A         231            254            250
</TABLE>

(1)  The ratio of earnings to fixed charges is computed by dividing 
(i) earnings before income taxes, extraordinary items, the cumulative  effect 
of accounting  change and fixed charges by (ii) fixed charges.  Fixed charges 
consist of total interest expense plus the estimated interest component of 
operating leases. No ratio is indicated where the ratio is less than one.

(2)  Balance sheet data is not applicable at this date.

(3)  Loss per share data is not  meaningful  for  periods  prior to the  
Effective  Date due to the  significant  changes in the  capital structure of 
the Company.

                                       9
<PAGE>

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND 
RESULTS OF OPERATIONS

GENERAL:
     As discussed in Item 1, the Company  emerged from its Chapter 11 
proceedings  effective June 15, 1995 (the "Effective  Date").  For financial  
reporting  purposes,  the Company  accounted for the consummation of the Plan 
effective June 17, 1995. In accordance with the American  Institute of 
Certified  Public  Accountants  Statement of Position 90-7, "Financial  
Reporting By Entities In Reorganization Under The Bankruptcy  Code",  the 
Company has applied  Fresh-Start  Reporting as of the Effective Date which 
has resulted in significant changes to the valuation of certain of the 
Company's assets and liabilities,  and to its  stockholders' equity.  In 
connection with the adoption of Fresh-Start  Reporting,  a new entity has 
been deemed  created for financial  reporting  purposes.  The periods prior 
to the Effective  Date have been  designated  "Predecessor  Company" and the 
periods  subsequent  to the  Effective  Date have been  designated "Successor 
Company".  For purposes of the discussion of Results of Operations and 
Liquidity and Capital  Resources,  the results of the Predecessor Company and 
Successor Company for the 52 weeks ended March 30, 1996, have been combined.

RESULTS OF OPERATIONS
     The following table sets forth certain  statement of operations  data  
reflecting the  combination  discussed above (all dollars in millions):

<TABLE>
<CAPTION>
                                                                       Fiscal          Fiscal          Fiscal
                                                                        1997            1996            1995
                                                                        ----            ----            ----
<S>                                                                <C>              <C>              <C>
Sales                                                              $  2,312.7       $ 2,307.8        $ 2,391.7
Gross profit                                                            705.7           713.7            708.3
Operating and administrative expenses                                   582.9           571.2            571.6
Depreciation and amortization                                            85.5            77.1             87.1
Amortization of excess reorganization value                             102.6            84.0               -
Unusual items                                                             9.8            40.6             27.4
Interest expense                                                        105.8            99.0            182.0
Income tax (provision) benefit                                           (2.5)           18.9               -
Extraordinary credit                                                       -            854.8               -
Net (loss) income                                                      (183.4)          715.6           (159.8)
Net (loss) income applicable to common stock                           (185.4)          715.6           (179.3)


Sales percentage increase (decrease)                                      0.2%           (3.5)%           (3.5)%
Gross profit as a percentage of sales                                    30.5            30.9             29.6
Operating and administrative expenses as a percentage of sales           25.2            24.7             23.9
</TABLE>

     Sales for Fiscal 1997  increased  $4.9 million or 0.2% compared to 
Fiscal 1996.  The sales increase in Fiscal 1997 was comprised of 0.9% in 
sales from new stores,  and 0.5% in sales from same store  sales  (sales of 
stores  which were  operated  during the  comparable periods  of both  fiscal 
 years,  including  stores  replaced  during  the  year),  offset by 1.2% 
from  sales lost as a result of store closures.  Same store sales  changes,  
by quarter  for Fiscal  1997,  beginning  with the first  quarter,  were 
1.0%,  2.0%,  (0.8)% and (0.4)%.  Same store sales comparisons were 
positively  influenced by the Company's  marketing and customer service 
programs  implemented during the year  including "More Lower Prices" and 
Green Team Produce and the inclusion of two Easter  periods  compared to one 
in the prior year. Same store sales  comparisons  were negatively  influenced 
by intensified  competition,  the overall economic climate in the Company's  
operating areas,  short term disruptions  associated with the store 
renovation  programs,  a generally milder winter, and the shorter than normal 
 holiday  season this year.  During Fiscal 1997,  the Company  opened one new 
store,  two  replacement  stores,  and completed six major renovations, and 
closed four stores.

     Sales for Fiscal 1996  decreased  $83.9 million or 3.5%  compared to 
Fiscal 1995.  The sales decline in Fiscal 1996 was a result of the sale or 
closure of 24 stores during  Fiscal 1995 which were not replaced and from 
same store sales  decreases,  partially  offset by sales of new stores.  Same 
store sales  declined  .9% for the year.  Same store sales  changes,  by 
quarter for Fiscal  1996,  beginning with the first  quarter,  were 0.1%,  
(2.8)%,  (1.3)% and 0.4%.  Same store  sales  comparisons  were  negatively  
influenced  by strong promotional  programming  during the second and third  
quarters  of Fiscal  1995 and the  effects of closing  two  distribution  
centers servicing  the  metropolitan  New York area stores.  Same store sales 
were  positively  influenced  by the positive  impact of the "More Lower 
Prices" price  repositioning  program  implemented in most of the Company's 
stores during the year, by additional  marketing,  and store service  
programs  introduced in the second quarter of this year in the Albany,  New 
York and Bergen County,  New Jersey areas and by a relatively  harsh winter.  
During Fiscal 1996, the Company  opened two new stores,  two  replacement  
stores,  and completed  three enlargements and four major renovations.

                                       10
<PAGE>

     Gross profit,  as a percentage of sales,  was 30.5% in Fiscal 1997 
compared to 30.9% in Fiscal 1996. The decreased  gross profit is attributable 
 to the "More Lower Prices"  program and higher  promotional  activity,  
offset by savings from the  outsourcing of certain distribution functions to 
C&S Wholesale Grocers, Inc. ("C&S").

     Gross  margin  (defined as gross  profit as a percent of sales) was 
30.9% in Fiscal  1996,  compared to 29.6% in Fiscal  1995.  The gross profit  
percentage in Fiscal 1996 was impacted  favorably by savings  generated by 
replacing the  Company's  distribution  network with a wholesaler  
arrangement and the restoration of vendor promotional  allowances and other 
vendor support not generally available to the Company during the  bankruptcy  
proceedings  in Fiscal 1995.  Gross margin was negatively  affected by the 
"More Lower Prices" price repositioning program implemented in certain of the 
Company's stores during Fiscal 1996.

     Operating and  administrative  expenses,  as a percentage of sales, were 
25.2% during Fiscal 1997,  compared to 24.7% during Fiscal 1996. The increase 
in operating and  administrative  expenses,  as a percentage of sales,  
resulted from  investments in store labor and advertising  expense to support 
key elements of the  Company's  strategic  plan such as "The Green Team",  
"Best  Takeout  Restaurant in Town" and "Fresh at Five" Programs.

     Operating and  administrative  expenses,  as a percentage of sales, were 
24.7% during Fiscal 1996,  compared to 23.9% during Fiscal 1995.  Store labor 
increased,  as a percentage of sales, as a result of the Company's  Albany,  
New York and Bergen County,  New Jersey marketing and customer service 
programs,  offset by the benefits of the voluntary resignation  programs.  
Advertising costs increased in Fiscal 1996 in  connection  with the "More 
Lower Prices" price  repositioning  program and the Albany and Bergen  
County  marketing and customer service  programs.  Occupancy costs increased, 
 as a percentage of sales,  principally as a result of decreased sales in 
Fiscal 1996.  Included in operating and  administrative  expenses  were gains 
from the sale of stores  totaling $5.4 million in Fiscal 1996 and $2.5 
million in Fiscal 1995.
 
     The increase in depreciation and amortization  expense during Fiscal 
1997 was largely  attributable to the application of Financial Accounting  
Standard No. 121 ("FAS No. 121"), "Accounting  for the  Impairment of 
Long-Lived  Assets and for  Long-Lived  Assets to Be Disposed Of";  whereby 
$6.4 million of an impairment  loss was recorded to reduce the estimated fair 
value of certain store assets.  See Note 4 of the  consolidated  financial  
statements  for a discussion  of this  charge.  The decrease in  depreciation 
 and  amortization expense  during  Fiscal 1996  compared to Fiscal 1995  
resulted  principally  from the  absence of  amortization  of goodwill  after 
the Effective Date.

     In  accordance  with  Fresh-Start  Reporting,  the Company  valued its 
assets and  liabilities  at fair values and  eliminated  its retained  
earnings as of the Effective  Date.  The total  reorganization  value as of 
the Effective  Date was  determined to be $1,334.0 million which is $521.7  
million in excess of the aggregated  fair value of the Company's  tangible 
and  identified  intangible  assets. Such excess is being amortized on a 
straight-line  basis over a five-year period.  See Note 1 of the consolidated 
 financial  statements for a more comprehensive discussion.

     Unusual items in Fiscal 1997 consisted of (a) a $7.8 million  provision 
for restructuring  which  principally  relates to severance costs in  
connection  with a reduction of  administrative  overhead and (b) a $2.0 
million  adjustment of inventory  valuation.  Unusual items in Fiscal 1996 
consisted of (a) a $2.5 million organizational  restructuring  provision,  
(b) a $15.0 million provision related to the  closure of the  Company's  two 
New York  metropolitan  area  warehouses,  (c) a $4.5  million  provision  
relating  to a  voluntary resignation  program and (d) $18.6 million of  
restructuring  charges  incurred in connection with the Chapter 11  
proceedings.  Unusual items in Fiscal 1995  consisted of (a) a store closure  
provision  totaling  $16.9  million  offset by $4.0 million of proceeds from 
the termination of a warehouse  sublease,  (b) a charge of $3.7 million for 
an early retirement  program offered to certain  employees,  and (c) $10.8 
million of restructuring charges incurred in connection with the Chapter 11 
proceedings.

       The increase in interest  expense in Fiscal 1997  compared to Fiscal 
1996 is  principally  a result of higher  capitalized  lease costs and 
renegotiated  debt related to the Company's  emergence from  bankruptcy.  
Interest  expense was  substantially  less in Fiscal 1996 than Fiscal 1995 as 
a result of the decreased  level of debt of the Successor  Company.  As a 
result of the Chapter 11 proceedings, the Company did not accrue  interest  
expense on its  Subordinated  Notes,  or on the debt of its then parent  
companies,  subsequent to January 25, 1995 and prior to the Effective Date.

        During  Fiscal  1997,  the Company  recorded an income tax  provision 
 of $2.5  million.  As a result of lower than  anticipated earnings and net 
operating loss  carryforward  limitations  as a result of the change in 
control of the Company,  the Company wrote down $8.5  million of the  
previously  recorded  income tax benefits and  recorded a valuation  
allowance  for the balance of the  previously recorded  benefits relating to 
the use of operating loss  carryforwards.  During Fiscal 1996, the Company 
recorded an income tax benefit of $18.9 million  consisting of federal and 
state income taxes.  Operating  loss and credit  carryforwards  of the  
Predecessor  Company have been offset by taxable gains realized on the debt  
discharged in connection  with the Plan.  There are no remaining  operating 
loss or credit  carryforwards  of the  Predecessor  Company  and there  was 
no  change  in the tax  basis of the  Company's  assets as of the Effective 
Date.  No income taxes were provided in Fiscal 1995.

                                       11
<PAGE>

     During Fiscal 1996, in connection  with the Company's  emergence  from 
Chapter 11, the Company  recorded an  extraordinary  gain on debt discharge 
of $854.8 million.

LIQUIDITY AND CAPITAL RESOURCES

     On July 30,  1996,  the Company  entered  into an  agreement  (the 
"Stock Purchase Agreement")  to sell $100  million of its 8.5% convertible  
preferred  stock,  $1.00 par value per share (the "Class A Preferred  Stock") 
to an  investment  group  composed of Trefoil Capital Investors II, L.P., a 
Delaware limited partnership,  and GE Investment Private Placement Partners 
II, A Limited  Partnership,  a Delaware limited partnership (collectively, 
the "Purchasers").

     On  September  17,  1996 and  February  25,  1997,  the  Company  sold  
800,000  and  400,000  shares of Class A  Preferred  Stock, respectively,  to 
the Purchasers for an aggregate  price of $60 million.  On March 20, 1997, 
the Company sold 60,000 shares of the Class A Preferred  Stock to the 
Chairman of its Board of Directors  for a purchase  price of $3 million.  The 
Company  incurred $12 million of costs related to the sale of Class A 
Preferred Stock, including one-time fees totaling approximately $9.2 million.

     On June 12, 1997, through an acceleration of the original Stock Purchase 
 Agreement,  the Company sold the remaining 800,000 shares of Class A 
Preferred Stock to the Purchasers.  These shares were immediately converted 
to 800,000 shares of Class B Stock.

     The Company continues to be highly  leveraged.  Interest payments during 
Fiscal 1997 totaled  approximately  $105 million.  Capital expenditures,  
including  capitalized leases,  totaled approximately $79 million in Fiscal 
1997. Capital expenditures during Fiscal 1997 were dedicated to remodels,  
new and replacement  stores,  store systems and  maintenance.  Fiscal 1998 
capital  expenditures  will also principally be dedicated to remodels, new 
and replacement stores, store systems and maintenance, although at a slower 
pace than previous estimates. During  Fiscal  1997,  the  Company  opened  
one new and two  replacement  stores.  The  Company  has  completed  a total 
of twelve M.A.S.T.E.R.S.  ("Maximize All Space, Totally Expand the Right 
Stuff")  renovations,  six of which were reopened during the fiscal year. 
There are no  significant  scheduled  debt principal  repayments  prior to 
June 2000.

     The Company plans to finance its working  capital, interest expense,  
and capital  expenditure  requirements  from its operating cash flow,  
proceeds received from the sale of the Class A Preferred  Stock,  its Amended 
and Restated  Credit  Agreement  (the "Bank  Facility"),  and to a limited  
extent,  equipment  leases or purchase money mortgages.  The Company's 
ability to fund the payment of interest and other  obligations when due is 
primarily  dependent on cash  generated  from its  operations,  net of cash 
capital  expenditures.  The  Company's  ability to continue to pursue its 
expanded  capital expenditure program is dependent on operating performance. 
There can be no assurance as to when, or whether, the Company will have 
sufficient funds from operations available to complete the 78 store projects 
originally contemplated in its previously announced capital expenditure 
program.  The Company intends to continue to renovate, remodel and replace 
its stores if, as and when funds become available.

     The Company's bank lenders waived the EBITDA and interest  coverage  
covenants of the Bank Facility for the fourth quarter.  The Company also 
amended the agreements for the 1998 Fiscal year to reduce the EBITDA 
requirement to $120 million, changed interest coverage requirements to 1.0, 
and lowered the required amount of capital expenditures to $30 million.  The 
Company is currently in compliance with these amended debt agreements.  If 
results from operations do not meet management's expectations, the Company 
will need to obtain additional amendments to such covenants.  There can 
be no assurance the Company will be able to obtain such amendments.

     As of March 29, 1997,  the Company had $36 million of borrowings  and  
approximately  $44 million of letters of credit  outstanding under its $100 
million revolving credit facility.

     Significant  expenditures  and  resources  used to finance  such  
expenditures  for the three fiscal years ended March 29, 1997 are reflected 
in the following table (in millions):

<TABLE>
<CAPTION>
                                                                              Fiscal            Fiscal           Fiscal
                                                                               1997              1996             1995
                                                                           -------------     -------------    -------------
<S>                                                                           <C>                 <C>              <C>
Resources used:
  Debt and capital lease repayments                                           $ 18.5              $ 102.0          $  11.3
  Capital expenditures                                                          55.1                 43.7             63.0
  Loan placement fees                                                             -                   3.1                -
  Other                                                                           -                    -                -
                                                                           =============     =============    =============
                                                                              $ 73.6              $ 148.8          $  74.3
                                                                           =============     =============    =============
Financed by:
  Net proceeds from sale of Class A Preferred Stock                           $ 51.0              $    -           $    -
  Net proceeds from long-term debt                                               9.0                   -                -
  Proceeds from New Bank Facility                                                 -                 137.2               -
  Property disposals                                                             8.0                 11.0              2.1
  Operating activities, including cash and temporary investments                 5.6                  0.6             43.2
  Debt incurred                                                                   -                    -              29.0
                                                                           -------------     -------------    -------------
                                                                              $ 73.6              $ 148.8           $ 74.3
                                                                           =============     =============    =============
</TABLE>

                                        12
<PAGE>

IMPACT OF NEW ACCOUNTING STANDARDS

    In February 1997,  the FASB issued FAS No. 128, "Earnings per Share,"
which is effective for year end periods ending after December 15, 1997.  This 
Statement  requires  entities to present,  on the face of the income  
statement  for all periods  presented,  basic and diluted per share amounts 
for income from  continuing  operations  and for net income.  Basic  earnings 
per share ("EPS") is computed by dividing income available to common  
stockholders by the weighted  average number of common shares  outstanding.  
Fully-diluted  EPS has been renamed diluted EPS with a few changes in the 
computation  methodology.  Diluted EPS gives effect to all dilutive  
potential common shares that were  outstanding  during the reporting  period. 
The computation  excludes  security  conversions that have an antidilutive 
effect on EPS. FAS No. 128  currently has no impact upon the Company's  
reported per share results as all common stock  equivalents  are 
anti-dilutive.

FUTURE OUTLOOK

    The Company has adopted a number of strategies in Fiscal 1997 and the 
preceding fiscal years intended to increase sales and to reduce expenses.  
The Company anticipates that it will continue to pursue such strategies 
during Fiscal 1998, and will explore additional opportunities to increase 
sales and further reduce expenses, including, among other things, improving 
and expanding its marketing and promotional activities, and reviewing its 
operations to enhance efficiency and productivity.  There can be no 
assurance, however, as to when, or whether, such measures will be successful 
in restoring the Company to profitability.  The Company anticipates, in any 
event, that improvements, if achieved, will not begin to be significantly 
reflected in its operating results until the second half of Fiscal 1998, due 
to continued adverse effects on its operating results and margins resulting 
from, among other things, continuing competitive pressures on its pricing, 
fluctuations in the amount and timing of receipt and recognition of certain 
promotional allowances, a continuing high level of advertising expenses until 
the Company is able to fully implement new marketing programs, and continuing 
weak economic conditions in certain of the regions in which the Company 
operates.

SPECIAL NOTE CONCERNING FORWARD-LOOKING STATEMENTS

    Except for  historical  information,  statements by the Company under the 
caption "Future Outlook" and elsewhere in this report may be considered  
"forward-looking  statements"  within the meaning of federal  securities law. 
Such  forward-looking  statements are subject to risks,  uncertainties  and 
other factors that could cause actual  results to differ  materially  from 
future  results  expressed or implied by such  forward-looking  statements.  
Potential risks and uncertainties  include, but are not limited to, the 
competitive  environment in which the Company operates, the ability of the 
Company to  maintain  and improve  its gross  sales and  margins,  the  
liquidity  of the  Company on a cash flow basis  (including  the Company's  
ability to comply  with the  financial  covenants  of its credit  agreement  
and to fund the  Company's  capital  expenditure program),  the Company's  
ability to complete its capital  expenditures  on a timely basis,  the 
success of operating  initiatives,  the viability of the Company's  strategic 
plan, regional weather conditions, and the general economic conditions in 
the geographic areas in which the Company operates.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

    The Financial Statements and Supplementary Data listed below are included 
in this report on the page indicated.

INDEX TO FINANCIAL STATEMENTS:

<TABLE>
<CAPTION>

DOCUMENT                                                                                         PAGE
--------                                                                                         ----

<S>                                                                                              <C>

Reports of Independent Accountants                                                               F-1

Consolidated Statement of Operations for the 52 weeks ended March 29, 1997 and
   the 41 weeks ended March 30, 1996 (Successor Company) and the 11 weeks ended
   June 17, 1995 and the 52 weeks ended April 1, 1995 (Predecessor Company)                      F-3

Consolidated Balance Sheet at March 29, 1997 and March 30, 1996                                  F-4

Consolidated Statement of Cash Flows for the 52 weeks ended March 29, 1997 and
  the 41 weeks ended March 30, 1996 (Successor Company) and the 11 weeks ended June 17, 1995
  and the 52 weeks ended April 1, 1995 (Predecessor Company)                                     F-5

Notes to Consolidated Financial Statements                                                       F-6
</TABLE>

         All other  schedules  are omitted  either  because  they are not  
applicable  or the required  information  is disclosed in the consolidated 
financial statements or notes thereto.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND 
FINANCIAL DISCLOSURE

         None.

                                            13
<PAGE>
 
PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

      The information  required in this item is  incorporated  by reference 
to "Directors and Executive  Officers of the Registrant" and "Compliance with 
Section 16(a) of the Securities  Exchange Act of 1934" contained in the Proxy 
Statement,  which will be filed with the Commission within 120 days of the 
end of the fiscal year covered by this report.

ITEM 11. EXECUTIVE COMPENSATION

      The  information  required in this item is  incorporated by reference 
to "Executive  Compensation",  "Compensation  of Directors", "Severance 
Policy",  "Change in Control Provisions",  and "Compensation Committee 
Interlocks and Insider Participation" contained in the Proxy Statement, which 
will be filed with the Commission within 120 days of the end of the fiscal 
year covered by this report.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

      The information required in this item is incorporated  by reference to 
"Security Ownership Of Management And Certain Beneficial Owners" contained in 
the Proxy Statement, which will be filed with the Commission within  120 days 
of the end of the fiscal year covered by this report.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

      The information required in this item is incorporated by reference to 
"Certain Relationships and Related Transactions" contained in the Proxy 
Statement, which will be filed with the Commission within 120 days of the end 
of the fiscal year covered by this report.

PART IV

ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORT ON FORM 8-K

THE FOLLOWING DOCUMENTS ARE FILED AS A PART OF THIS REPORT:

(a)      FINANCIAL STATEMENTS
         All financial statements as set forth under Item 8.

(b)      REPORT ON FORM 8-K
         No reports on Form 8-K were filed during the fourth quarter of 
         Fiscal 1997.

(c)      EXHIBITS

<TABLE>
<CAPTION>

Exhibit
Number                                            Description of Document
-----                                             -----------------------
    <S>       <C>
    2.1       Second Amended Chapter 11 Plan of  Reorganization  of The Grand Union Company  ("Grand  Union"),
              filed  with the United  States  Bankruptcy  Court,  District  of  Delaware,  on April 19,  1995,
              incorporated by reference to Exhibit T3E1 to Grand Union's Form T-3 dated May 8, 1995.

    2.2       Findings  of  Fact,  Conclusions  of Law  and  Order  Confirming  the  Second  Amended  Plan  of
              Reorganization  proposed by Grand  Union,  dated May 31,  1995,  incorporated  by  reference  to
              Exhibit 2.2 to Grand Union's  Annual Report on Form 10-K for the fiscal year ended April 1, 1995
              ("Fiscal 1995").

    2.3       Minute  Order  Clarifying  Findings  of Fact,  Conclusions  of Law and Order  Confirming  Second
              Amended Plan of  Reorganization  proposed by Grand Union,  dated June 14, 1995,  incorporated by
              reference to Exhibit 2.3 to Grand Union's Annual Report on Form 10-K for Fiscal 1995.
</TABLE>

                                              14
<PAGE>
<TABLE>
<CAPTION>
    <S>       <C>
    3.1       Certificate of Incorporation of Grand Union, as amended through January 6, 1997.

    3.2       Certificate of Designation of Class A Convertible Preferred Stock,  incorporated by reference to
              Exhibit 10.4 to Grand  Union's Quarterly  Report on Form 10-Q for the period ended  October 12,
              1996.

    3.3       Certificate of Designation of Class B Convertible Preferred Stock, dated as of June 11, 1997.

    3.4       By-laws of The Grand Union  Company,  as amended  through  September 12, 1996,  incorporated  by
              reference  to Exhibit 3.1 to Grand Union's Quarterly Report on Form 10-Q for the period ended
              October 12, 1996.

    4.1       Form of New Common Stock  Certificate of Grand Union,  incorporated  by reference to Exhibit 4.1
              to Grand Union's Annual Report on Form 10-K for Fiscal 1995.

    4.2       Warrant  Agreement dated as of June 15, 1995,  between Grand Union and American Stock Transfer &
              Trust  Company,  as Warrant Agent for 300,000  Series 1 Warrants and 600,000  Series 2 Warrants,
              incorporated  by reference to Exhibit 4.5 to Grand Union's Annual Report on Form 10-K for Fiscal
              1995.

    4.3       Registration  Rights  Agreement  dated as of June 15, 1995,  among  Grand Union and Each of the
              Persons  Named in Schedule A thereto for the New Common  Stock,  incorporated  by  reference  to
              Exhibit 4.6 to Grand Union's Annual Report on Form 10-K for Fiscal 1995.
               
    4.4       Registration  Rights  Agreement  dated as of June 15,  1995,  by and among  Grand  Union and The
              Holders Named therein for the  Registrable  Notes,  incorporated  by reference to Exhibit 4.7 to
              Grand Union's Annual Report on Form 10-K for Fiscal 1995.

    4.5       Indenture  dated as of June 15, 1995,  between Grand Union,  as Issuer and IBJ Schroeder  Bank &
              Trust Company, as Trustee for the 12% Senior Notes due September 1, 2004,  including form of the
              12% Senior Notes due 2004,  incorporated  by reference  to Exhibit 4.2 to Grand  Union's  Annual
              Report on Form 10-K for Fiscal 1995.

    4.6       First  Supplement  Indenture,  dated  September 9, 1996, to the  Indenture  dated as of June 15,
              1995,  between Grand Union,  as Issuer,  and IBJ Schroeder Bank & Trust Company,  as Trustee for
              the 12% Senior Notes due September 1, 2004,  incorporated  by reference to Exhibit 10.3 to Grand
              Union's Quarterly Report on Form 10-Q for the period ended October 12, 1996.

    4.7       Amended and Restated  Borrower  Pledge  Agreement dated as of June 15, 1995, made by Grand Union
              to Bankers Trust Company ("Bankers  Trust"),  as Collateral Agent,  incorporated by reference to
              Exhibit 4.3 to Grand Union's Annual Report on Form 10-K for Fiscal 1995.

    4.8       Amended and Restated Borrower Security  Agreement dated as of June 15, 1995, between Grand Union
              and Bankers  Trust,  as  Collateral  Agent,  incorporated  by  reference to Exhibit 4.4 to Grand
              Union's Annual Report on Form 10-K for Fiscal 1995.

   10.1      Agreement to Hold Separate dated July 17, 1989, by and among MTH Holdings Inc. ("MTH  Holdings"),
             GU Acquisition  Corporation  ("GUAC"),  Salomon Inc. and the Federal Trade Commission (the "FTC")
             entered into in the matter of MTH Holdings and GUAC before the FTC,  incorporated by reference to
             Exhibit No. 10.5 to Grand Union's Registration  Statement on Form S-1 (Registration No. 33-29707)
             (the "1989 Grand Union Registration Statement").

   10.2      Agreement  containing  Consent  Order among MTH  Holdings,  GUAC and the FTC entered  into in the
             matter of MTH Holdings and GUAC before the FTC,  incorporated by reference to Exhibit No. 10.6 to
             the 1989 Grand Union Registration Statement.

   10.3      Asset  Purchase  Agreement,  dated as of January 25, 1990,  by and between  Grand Union and Price
             Chopper  Operating  Co. of Vermont,  Inc.,  incorporated  by  reference  to Exhibit No.  10.15 to
             Holdings Registration Statement on Form S-1 (Registration No. 33-32879).
</TABLE>

                                        15
<PAGE>
<TABLE>
<CAPTION>
   <S>       <C>
   10.4      Asset Purchase Agreement, dated as of February 9, 1990, by and between Grand Union and Price
             Chopper  Operating  Co.,  Inc.,  incorporated  by  reference  to  Exhibit  No.  10.49  to  GUAC's
             Registration Statement on Form S-1 (Registration No. 33-22398).

   10.5      Agreement and Master  Sublease dated as of July 30, 1990, by and between Grand Union and P&C Food
             Markets,  Inc. ("P&C Foods"),  incorporated by reference to Exhibit  No.10.18 to Holdings' Report
             on Form 10-Q dated July 21, 1990 (Commission File No. 33-29707).

   10.6      Asset Purchase  Agreement dated as of February 4, 1993,  between The Great Atlantic & Pacific Tea
             Company,  Inc. and Grand  Union,  incorporated  by reference to Exhibit No. 2.1 to Grand  Union's
             Report on Form 8-K dated February 4, 1993.

   10.7      Asset Purchase Agreement dated as of September 20, 1993 among Foodarama Supermarkets, Inc.,
             ShopRite of Malverne,  Inc. and Grand  Union,  incorporated  by reference to Exhibit No. 10.19 to
             Grand Union's Registration Statement on Form S-1 (Registration No. 33-70956).

   10.8      Letter dated June 15, 1995,  containing  MTH Settlement  Agreement  between Miller Tabak Hirsch +
             Co. ("MTH") and Grand Union in connection with (i) the  termination of the Agreement,  dated July
             22, 1992, between MTH and Grand Union, and (ii) the Second Amended Plan of Reorganization,  dated
             April 19, 1995,  of Grand Union,  incorporated  by  reference to Exhibit  10.15 to Grand  Union's
             Annual Report on Form 10-K for Fiscal 1995.

   10.9      Agreement  dated  as  of  April,  1995,  among  Grand  Union,  Grand  Union  Capital  Corporation
             ("Capital"),  Holdings,  the Official  Committee  of  Unsecured  Creditors of Capital and certain
             holders of Zero  Coupon  Notes  issued by Capital  and  guaranteed  by  Holdings  named  therein,
             incorporated by reference to Exhibit 10.16 to Grand  Union's Annual Report on Form 10-K for
             Fiscal 1995.

   10.10     Waiver dated June 14, 1995,  with respect to the Second  Amended  Chapter 11 Plan of Grand Union,
             among Grand Union,  Bankers Trust, the Official  Committee of Unsecured  Creditors of Grand Union
             and the Informal Committee of Senior  Noteholders,  incorporated by reference to Exhibit 10.17 to
             Grand Union's Annual Report on Form 10-K for Fiscal 1995.

   10.11     Amended and Restated  Borrower Pledge Agreement dated as of June 15, 1995, made by Grand Union to
             Bankers Trust,  as Collateral  Agent  incorporated by reference to Exhibit 10.10 to Grand Union's
             Annual Report on Form 10-K for Fiscal 1995.

   10.12     Amended and Restated Borrower Security  Agreement dated as of June 15, 1995,  between Grand Union
             and Bankers Trust, as Collateral  Agent  (included in Exhibit 4.4),  incorporated by reference to
             Exhibit 10.11 to Grand Union's Annual Report on Form 10-K for Fiscal 1995.

   10.13     Subsidiary  Security  Agreement  dated as of June 15,  1995,  among  the  corporations  listed on
             Schedule 1 thereto and Bankers Trust, as Collateral  Agent,  incorporated by reference to Exhibit
             10.12 to Grand Union's Annual Report on Form 10-K for Fiscal 1995.

   10.14     Subsidiary  Guaranty  dated as of June 15, 1995,  made by each of the  corporations  from time to
             time  listed on Annex A  attached  thereto  in favor of the Banks and the Agent from time to time
             party to the Credit Agreement, incorporated by reference to Exhibit 10.13 to Grand Union's
             Annual Report on Form 10-K for Fiscal 1995.

   10.15     Form of Indenture of Open-End Mortgage,  Deed of Trust, Deed to Secure Debt,  Security Agreement,
             Assignment of Leases,  Rents and Profits,  Financing  Statement and Fixture  Filing,  dated as of
             June 15,  1995,  made by Grand Union to Bankers  Trust,  as  Collateral  Agent,  incorporated  by
             reference to Exhibit 10.14 to Grand Union's Annual Report on Form 10-K for Fiscal 1995.

   10.16     Amended and Restated Credit Agreement dated as of June 15, 1995, (the "Credit Agreement"), among
             Grand  Union,  the  lending  institutions  listed  from time to time on  Schedule 1 thereto,  and
</TABLE>
                                         16
<PAGE>
<TABLE>
<CAPTION>
   <S>       <C>
             Bankers Trust,  as Agent,  including  Exhibits A-1, A-2 and A-3, and various  Schedules  thereto,
             incorporated  by reference to Exhibit 10.9 to Grand Union's Annual Report on Form 10-K for Fiscal
             1995.

   10.18     Second  Amendment  to the Credit  Agreement,  incorporated  by reference to Exhibit 10.1 to Grand
             Union's Quarterly Report on Form 10-Q for the period ended July 20, 1996.

   10.19     Third  Amendment  to the Credit  Agreement,  incorporated  by  reference to Exhibit 10.2 to Grand
             Union's Quarterly Report on Form 10-Q for the period ended October 12, 1996.

   10.20     Fourth  Amendment  to the Amended and  Restated  Credit  Agreement  incorporated  by reference to
             Exhibit 10.1 to Grand Union's Quarterly Report on Form 10-Q for the period ended January 4, 1997.

   10.21     Fifth Amendment to the Credit Agreement.

   10.22     Sixth Amendment to the Credit Agreement.

   10.23     Seventh Amendment to the Credit Agreement.

   10.24     Eighth Amendment to the Credit Agreement.

  10.25**    Supply and  Distribution  Agreement  between The Grand Union Company and C&S  Wholesalers,  dated
             June 15, 1995,  incorporated  by reference to Exhibit 10.3 to Grand Union's  Quarterly  Report on
             Form 10-QA for the period ended January 6, 1996.

  10.26**    First Amendment to the Supply and Distribution  Agreement between The Grand Union Company and C&S
             Wholesalers, dated June 15, 1995, incorporated by reference to Exhibit 10.4 to Grand Union's
             Quarterly Report on Form 10-QA for the period ended January 6, 1996.

  10.27**    Supply and  Distribution  Agreement  between The Grand Union Company and C&S  Wholesalers,  dated
             January 2, 1996,  incorporated by reference to Exhibit 10.5 to Grand Union's  Quarterly Report on
             Form 10-QA for the period ended January 6, 1996.

  10.28**    Agreement with C&S Wholesalers Inc. dated January 21, 1996.

  10.29*     Third Amendment and Restatement of The Grand Union Company  Supplemental  Retirement  Program for
             Key Executives effective as of June 15, 1995,  incorporated by reference to Exhibit 10.8 to Grand
             Union's Annual Report on Form 10-K for the fiscal year ended March 30, 1996.

   10.30     Executive Severance Policy,  incorporated by reference to Exhibit 10.2 to Grand Union's Quarterly
             Report on Form 10-Q for the period ended July 20, 1996.

  10.31*     The Grand Union Company 1995 Equity Incentive Plan,  incorporated by reference to Exhibit 10.1 to
             Grand Union's Quarterly Report on Form 10-Q for the period ended January 6, 1996.

  10.32*     First  Amendment to the 1995 Equity  Incentive Plan of the Grand Union Company,  incorporated  by
             reference to Exhibit  10.4 to Grand  Union's  Quarterly  Report on Form 10-Q for the period ended
             July 20, 1996.

  10.33*     Second Amendment to the 1995 Equity Incentive Plan.

  10.34*     Resolution amending the number of shares issuable under the 1995 Equity Incentive Plan.

  10.35*     Letters dated December 14, 1995, with respect to the 1995 Equity Incentive Plan,  incorporated by
             reference to Exhibit  10.3 to Grand  Union's  Quarterly  Report on Form 10-Q for the period ended
             July 20, 1996.

  10.36*     Option Agreement with Jeffrey P. Freimark.
</TABLE>
                                         17
<PAGE>
<TABLE>
<CAPTION>

  <S>        <C>
  10.37      The Grand Union Company 1995 Non-Employee Directors Stock Option Plan, incorporated by
             reference to Exhibit 10.2 to Grand Union's Quarterly Report on Form 10-Q for the period ended
             January 6, 1996.

  10.38*     First Amendment to the 1995 Non-Employee Directors' Stock Option Plan of The Grand Union
             Company, incorporated  by reference to Exhibit 10.6 to Grand  Union's  Quarterly  Report on Form
             10-Q for the period ended July 20, 1996.

  10.39*     Resolution  amending the number of shares issuable under the 1995 Non-Employee Directors' Stock
             Option Plan.

  10.40*     Letters dated April 3, 1996, with respect to the 1995 Non-Employee  Directors' Stock Option Plan,
             incorporated by reference to Exhibit 10.5 to Grand Union's Quarterly Report on Form 10-Q for the
             period ended July 20, 1996.

   10.41     Non-competition  Agreement between The Grand Union Company and Joseph J. McCaig,  incorporated by
             reference to Exhibit 10.23 of Grand Union's  Annual Report on Form 10-K for the fiscal year ended
             March 30, 1996.

   10.42     Non-competition  Agreement  between The Grand Union Company and William A. Louttit,  incorporated
             by reference to Exhibit  10.24 of Grand  Union's  Annual  Report on Form 10-K for the fiscal year
             ended March 30, 1996.

   10.43     Non-competition  Agreement between The Grand Union Company and Kenneth R. Baum, Jr., incorporated
             by reference to Exhibit  10.25 of Grand  Union's  Annual  Report on Form 10-K for the fiscal year
             ended March 30, 1996.

   10.44     Non-competition  Agreement between The Grand Union Company and Darrell W. Stine,  incorporated by
             reference to Exhibit 10.26 of Grand Union's  Annual Report on Form 10-K for the fiscal year ended
             March 30, 1996.

   10.45     Non-competition  Agreement between The Grand Union Company and Gilbert C. Vuolo,  incorporated by
             reference to Exhibit 10.27 of Grand Union's  Annual Report on Form 10-K for the fiscal year ended
             March 30, 1996.

   10.46     Form of Indemnification  Agreement between the Company and R. Stangeland,  D. Josephs, W. Kagler,
             D. McClure,  Jr., D. Ying, J. McCaig,  W. Louttit,  K. Baum, D. Stine, G. Vuolo and J. Schroeder,
             incorporated by reference to Exhibit 10.7 to Grand Union's  Quarterly Report on Form 10-Q for the
             period ended July 20, 1996.

   10.47     Form of  Indemnification  Agreement between the Company and J. Costello,  C. Miller, G. Moore and
             J.R.  Stonesifer,  incorporated by reference to Exhibit 10.1 to Grand Union's Quarterly Report on
             Form 10-Q for the period ended October 12, 1996.

   10.48     Investment  Banking Agreement  between The Grand Union Company and Donaldson,  Lufkin & Jenrette,
             incorporated  by reference to Exhibit 10.28 of Grand  Union's  Annual Report on Form 10-K for the
             fiscal year ended March 30, 1996.

   10.49     Stock Purchase  Agreement  dated July 30, 1996,  among The Grand Union Company,  Trefoil  Capital
             Investors  II, L.P.  and GE  Investment  Private  Placement  Partners  II, A Limited  Partnership
             incorporated  by reference to Exhibit  10.1 to The Grand Union  Company  report filed on Form 8-K
             dated July 30, 1996.

   10.50     Amendment  No. 1 to the Stock  Purchase  Agreement  dated July 30,  1996,  among the Grand  Union
             Company,  Trefoil Capital Investors II, L.P., and GE Investment  Private Placement Partners II, a
             Limited Partnership.

   10.51     Management  Agreement between The Grand Union Company and Shamrock Capital Advisors,
             Inc., dated July 30, 1996,  incorporated  by reference to Exhibit 10.7 to Grand Union's  Quarterly 
             Report on Form 10-Q for the period ended October 12, 1996.

</TABLE>
                                         18
<PAGE>
<TABLE>
<CAPTION>

  <S>        <C>

   10.52     Stock Purchase  Agreement by and between The Grand Union Company and Roger  Stangeland, dated 
             as of February 25, 1997.

   10.53     Amendment No. 1, dated March 20, 1997, to the Stock  Purchase  Agreement  between The Grand Union Company
             and Roger Stangeland, dated as of February 25, 1997.

   10.54     Assignment and  Assumption  Agreement by and between Roger  Stangeland and The Stangeland  Family
             Limited Partnership, dated March 20, 1997.

   10.55     Stockholder   Agreement   between  Trefoil  Capital   Investors  II,  L.P.,  a  Delaware  limited
             partnership,  GE Investment  Private  Placement  Partners II, A Limited  Partnership,  a Delaware
             limited  partnership,  Roger Stangeland,  an individual,  and The Grand Union Company, a Delaware
             corporation.

   10.56     Addendum to Stockholder  Agreement among Trefoil Capital  Investors II, L.P., a Delaware  limited
             partnership,  GE Investment  Private  Placement  Partners II, A Limited  Partnership,  a Delaware
             limited  partnership,  Roger Stangeland,  an individual,  and The Grand Union Company, a Delaware
             corporation.

   10.57     Acceleration and Exchange Agreement, dated as of June 5, 1997, by and among The Grand Union 
             Company, Trefoil Capital Investors II, L.P., a Delaware limited partnership, and GE Investments 
             Private Placement Partners II, A Limited Partnership, a Delaware limited partnership, including 
             Exhibits thereto.

   10.58     Amendment No. 1, dated as of June 5, 1997, to the Registration Rights Agreement dated as of 
             July 30, 1996, by and among The Grand Union Company, Trefoil Capital Investors II, L.P., a 
             Delaware limited partnership, and GE Investments Private Placement Partners II, A Limited 
             Partnership, a Delaware limited partnership.

   21.1      Subsidiaries of Grand Union.

   27.1      Financial Data Schedule.
</TABLE>

*     Compensatory plan or arrangement
**    Confidential treatment requested

                                            19
<PAGE>

                                   SIGNATURES

     Pursuant to the requirements of Section 13 or 15(d) of the Securities 
Exchange Act of 1934, the Registrant has duly caused this  report to be 
signed on its behalf by the undersigned, thereunto duly authorized.

                              THE GRAND UNION COMPANY
                                    (Registrant)

      /s/ Jeffrey P. Freimark                          Date:  June 27, 1997
    ----------------------------------------
         Jeffrey P. Freimark
    Executive Vice President-Chief Financial 
    and Administrative Officer

     Pursuant to the requirements of the Securities Exchange Act of 1934, 
this report has been signed below by the following persons on behalf of the 
Registrant and in the capacities and on the dates indicated.

       Signature                      Title                           Date


 /s/ Roger E. Stangeland     Director, Chairman, and interim       June 27, 1997
---------- --------------    Chief Executive Officer
     Roger E. Stangeland     (Principal Executive Officer)

 /s/ James J. Costello       Director                              June 27, 1997
-------------------------
     James J. Costello

 /s/ Daniel E. Josephs       Director                              June 27, 1997
-------------------------
     Daniel E. Josephs

 /s/ William G. Kagler       Director                              June 27, 1997
-------------------------
     William G. Kagler

 /s/ Clifford A. Miller      Director                              June 27, 1997
-------------------------
     Clifford A. Miller

 /s/ Geoffrey T. Moore       Director                              June 27, 1997
-------------------------
     Geoffrey T. Moore

                             Director                              June 27, 1997
--------------------------
     J. Richard Stonesifer  

 /s/ David Y. Ying           Director                              June 27, 1997
-------------------------
     David Y. Ying

 /s/ Jeffrey P. Freimark     Executive Vice President              June 27, 1997
-------------------------    Chief Financial and
     Jeffrey P. Freimark     Administrative Officer
                             (Principal Financial Officer and
                             Principal Accounting Officer)



                                            20


<PAGE>

                       REPORT OF INDEPENDENT ACCOUNTANTS
                               (Post-Emergence)
 
To the Shareholders and the Board of Directors of
The Grand Union Company
 
    In our opinion, the accompanying consolidated balance sheet and the 
related consolidated statements of operations and cash flows present fairly, 
in all material respects, the financial position of The Grand Union Company 
and its subsidiaries (the "Company") at March 29, 1997 and March 30, 1996 and 
the results of their operations and their cash flows for the 52 weeks ended 
March 29, 1997 and the 41 weeks ended March 30, 1996 in conformity with 
generally accepted accounting principles. These financial statements are the 
responsibility of the Company's management; our responsibility is to express 
an opinion on these financial statements based on our audits. We conducted 
our audits of these statements in accordance with generally accepted auditing 
standards which require that we plan and perform an audit to obtain 
reasonable assurance about whether the financial statements are free of 
material misstatement. An audit includes examining, on a test basis, evidence 
supporting the amounts and disclosures in the financial statements, assessing 
the accounting principles used and significant estimates made by management 
and evaluating the overall financial statement presentation. We believe that 
our audits provide a reasonable basis for the opinion expressed above.
 
    As discussed in Note 1 to the consolidated financial statements, on May 
31, 1995, the United States Bankruptcy Court for the District of Delaware 
confirmed the Company's Plan of Reorganization, as amended (the "Plan"). 
Confirmation of the Plan resulted in the discharge of all claims against the 
Company that arose before January 25, 1995 and terminated all rights and 
interests of equity shareholders as provided for in the Plan. The Plan became 
effective on June 15, 1995 and the Company emerged from Chapter 11 of Title 
11 of the United States Code ("Chapter 11"). In connection with its emergence 
from Chapter 11, the Company adopted Fresh-Start Reporting as of June 18, 
1995.



PRICE WATERHOUSE LLP
New York, New York 
May 29, 1997, except as to the
second, fourth, fifth and sixth 
paragraphs of Note 8,  which 
are as of June 12, 1997



                                    F-1
<PAGE>
 

                       REPORT OF INDEPENDENT ACCOUNTANTS 
                                (Pre-Emergence)

 
To the Shareholders and the Board of Directors of
The Grand Union Company
 
    In our opinion, the accompanying consolidated statements of operations 
and   cash flows present fairly, in all material respects, the results of 
operations and cash flows of The Grand Union Company and its subsidiaries 
(the "Company") for the 11 weeks ended June 17, 1995 and the 52 weeks ended 
April 1, 1995 in conformity with generally accepted accounting principles. 
These financial statements are the responsibility of the Company's 
management; our responsibility is to express an opinion on these financial 
statements based on our audits. We conducted our audits of these statements 
in accordance with generally accepted auditing standards which require that 
we plan and perform an audit to obtain reasonable assurance about whether the 
financial statements are free of material misstatement. An audit includes 
examining, on a test basis, evidence supporting the amounts and disclosures 
in the financial statements, assessing the accounting principles used and 
significant estimates made by management and evaluating the overall financial 
statement presentation. We believe that our audits provide a reasonable basis 
for the opinion expressed above.
 
    As discussed in Note 1 to the consolidated financial statements, on 
January 25, 1995, the Company filed a voluntary petition for relief under 
Chapter 11 of Title 11 of the United States Code ("Chapter 11") in the United 
States Bankruptcy Court for the District of Delaware. The Company's Plan of 
Reorganization, as amended, became effective on June 15, 1995 and the Company 
emerged from Chapter 11. In connection with its emergence from Chapter 11, 
the Company adopted Fresh-Start Reporting as of June 18, 1995.



PRICE WATERHOUSE LLP
New York, New York
May 17, 1996
 
                                       F-2
<PAGE>


                           THE GRAND UNION COMPANY
                     CONSOLIDATED STATEMENT OF OPERATIONS
                (dollars in thousands, except per share data)
 
<TABLE>
<CAPTION>
                                                                 SUCCESSOR COMPANY         PREDECESSOR COMPANY
                                                             --------------------------  ------------------------
<S>                                                          <C>           <C>           <C>         <C>
                                                               52 WEEKS      41 WEEKS     11 WEEKS     52 WEEKS
                                                                ENDED         ENDED        ENDED        ENDED
                                                              MARCH 29,     MARCH 30,     JUNE 17,     APRIL 1,
                                                                 1997          1996         1995         1995
                                                             ------------  ------------  ----------  ------------
Sales......................................................  $  2,312,673  $  1,819,928  $  487,882  $  2,391,696
Cost of sales..............................................    (1,606,926)   (1,250,072)   (344,041)   (1,683,355)
                                                             ------------  ------------  ----------  ------------
Gross profit...............................................       705,747       569,856     143,841       708,341
Operating and administrative expenses......................      (582,889)     (453,620)   (117,544)     (571,640)
Depreciation and amortization..............................       (85,459)      (59,840)    (17,215)      (87,098)
Amortization of excess reorganization value................      (102,607)      (83,985)         --            --
Unusual items..............................................        (9,800)      (22,000)    (18,627)      (27,417)
Interest expense, net (contractual interest totaled $43,360
  and $203,285 for the 11 weeks ended June 17, 1995 and the
  52 weeks ended April 1, 1995, respectively--
  See Note 2)..............................................      (105,823)      (79,194)    (19,791)     (182,016)
                                                             ------------  ------------  ----------  ------------
Loss before income taxes and extraordinary gain on debt
  discharge................................................      (180,831)     (128,783)    (29,336)     (159,830)
Income tax (provision) benefit.............................        (2,523)       18,927          --            --
                                                             ------------  ------------  ----------  ------------
Loss before extraordinary gain on debt discharge...........      (183,354)     (109,856)    (29,336)     (159,830)
Extraordinary gain on debt discharge.......................            --            --     854,785            --
                                                             ------------  ------------  ----------  ------------
Net (loss) income..........................................      (183,354)     (109,856)    825,449      (159,830)
Accrued dividends on preferred stock.......................        (2,000)           --          --            --
Accrued dividends on old preferred stock...................            --            --          --       (19,480)
                                                             ------------  ------------  ----------  ------------
Net (loss) income applicable to common stock...............  $   (185,354) $   (109,856) $  825,449  $   (179,310)
                                                             ------------  ------------  ----------  ------------
                                                             ------------  ------------  ----------  ------------
Net (loss) per common share................................  $     (18.54) $     (10.99)
                                                             ------------  ------------ 
                                                             ------------  ------------
</TABLE>
 
    See accompanying notes to consolidated financial statements.
 
                                      F-3
<PAGE>


                            THE GRAND UNION COMPANY
                          CONSOLIDATED BALANCE SHEET 
        (dollars in thousands, except par value and liquidation preference)
 

                                              MARCH 29,   MARCH 30,
                                                1997        1996
                                             ----------  -----------
ASSETS
Current assets:
  Cash and temporary investments...........  $   34,119   $   39,425
  Receivables..............................      17,975       20,948
  Inventories..............................     131,409      133,506
  Other current assets.....................      14,326       13,709
                                             ----------   ----------
    Total current assets...................     197,829      207,588
Property, net..............................     411,911      405,579
Excess reorganization value, net...........     335,065      437,672
Beneficial leases, net.....................      52,266       68,147
Deferred tax asset.........................      51,393       53,916
Other assets...............................      12,375       12,304
                                             ----------   ----------
                                             $1,060,839   $1,185,206
                                             ----------   ----------
                                             ----------   ----------
LIABILITIES AND STOCKHOLDERS' (DEFICIT)
  EQUITY
Current liabilities:
Current maturities of long-term debt.......  $      46    $    1,813
Current portion of obligations under 
  capital leases...........................       8,045        7,080
Accounts payable and accrued liabilities...     164,549      170,010
                                             ----------   ----------
Total current liabilities..................     172,640      178,903
Long-term debt.............................     740,207      738,067
Obligations under capital leases...........     140,058      128,114
Other noncurrent liabilities...............      96,144       95,978
                                             ----------   ----------
Total liabilities..........................   1,149,049    1,141,062
                                             ----------   ----------
Redeemable Class A preferred stock, $1.00       
  par value, 3,500,000 shares authorized,
  1,279,700 shares issued and outstanding;
  liquidation preference $65,000,000.......      65,000           --
                                             ----------   ----------
Stockholders' (deficit) equity:
  Common Stock, $.01 and $1.00 par value at
   March 29, 1997 and March 30, 1996,  
   respectively; 60,000,000 shares 
   authorized, 10,000,000 shares issued 
   and outstanding.........................         100       10,000
  Preferred Stock, $1.00 par value;                   
   10,000,000 shares authorized, less 
   amount authorized as Class A preferred 
   stock, no shares issued and 
   outstanding.............................          --           --
  Capital in excess of par value...........     139,900      144,000
  Accumulated deficit......................    (293,210)    (109,856)
                                             ----------   ----------
Total stockholders' (deficit) equity.......    (153,210)      44,144
                                             ----------   ----------
                                             $1,060,839   $1,185,206
                                             ----------   ----------
                                             ----------   ----------
 
    See accompanying notes to consolidated financial statements.
 
                                      F-4
<PAGE>


                          THE GRAND UNION COMPANY
                  CONSOLIDATED STATEMENT OF CASH FLOWS
                          (dollars in thousands)
 
<TABLE>
<CAPTION>
                                                                   SUCCESSOR COMPANY        PREDECESSOR COMPANY
                                                                ------------------------  -----------------------
                                                                 52 WEEKS     41 WEEKS     11 WEEKS    52 WEEKS
                                                                   ENDED        ENDED       ENDED        ENDED
                                                                 MARCH 29,    MARCH 30,    JUNE 17,    APRIL 1,
                                                                   1997         1996         1995        1995
                                                                -----------  -----------  ----------  -----------
<S>                                                             <C>          <C>          <C>         <C>

OPERATING ACTIVITIES:
Net (loss) income.............................................  $  (183,354) $  (109,856) $  825,449  $  (159,830)
 Adjustments to reconcile net (loss) income to net cash
   provided by (used for) operating activities before
   reorganization items paid:
 Extraordinary gain on debt discharge.........................           --           --    (854,785)          --
 Depreciation and amortization................................      188,066      143,825      17,215       87,098
 Deferred taxes...............................................        2,523      (18,927)         --           --
 Charges relating to pension settlement.......................           --           --          --        3,747
 Noncash interest.............................................         (188)      14,552       1,126       38,418
 Net changes in assets and liabilities:
 Receivables..................................................        2,973      (12,652)      1,769       18,480
 Inventories..................................................        2,097       50,372      12,946       16,596
 Other current assets.........................................         (617)         123       2,776          657
 Accounts payable and accrued liabilities.....................       (2,783)     (59,509)    (34,928)      86,550
 Other........................................................       (2,867)      (7,733)      4,493        7,330
                                                                -----------  -----------  ----------  -----------
Net cash provided by (used for) operating activities before
  reorganization items........................................        5,850          195     (23,939)      99,046
Reorganization items..........................................       (5,484)     (20,729)     (4,913)     (10,770)
                                                                -----------  -----------  ----------  -----------
Net cash provided by (used for) operating activities..........          366      (20,534)    (28,852)      88,276
                                                                -----------  -----------  ----------  -----------
INVESTMENT ACTIVITIES:
Capital expenditures..........................................      (55,147)     (40,402)     (3,301)     (62,973)
Disposals of property.........................................        8,011        5,555       5,452        2,128
                                                                -----------  -----------  ----------  -----------
Net cash (used for) provided by investment activities.........      (47,136)     (34,847)      2,151      (60,845)
                                                                -----------  -----------  ----------  -----------
FINANCING ACTIVITIES:
Net proceeds from sale of preferred stock.....................       51,000           --          --           --
Proceeds from New Bank debt...................................           --           --     104,144           --
Payment of old bank debt......................................           --           --     (93,144)          --
Net proceeds from long-term debt..............................        9,000       33,089          --       29,000
Obligations under capital leases discharged...................      (10,543)      (6,126)     (1,707)     (10,339)
Loan placement fees...........................................           --           --      (3,125)          --
Payment of long-term debt.....................................       (7,993)        (808)       (239)        (963)
                                                                -----------  -----------  ----------  -----------
Net cash provided by financing activities.....................       41,464       26,155       5,929       17,698
                                                                -----------  -----------  ----------  -----------
(Decrease) increase in cash and temporary investments.........       (5,306)     (29,226)    (20,772)      45,129
Cash and temporary investments at beginning of period.........       39,425       68,651      89,423       44,294
                                                                -----------  -----------  ----------  -----------
Cash and temporary investments at end of period...............  $    34,119  $    39,425  $   68,651  $    89,423
                                                                -----------  -----------  ----------  -----------
                                                                -----------  -----------  ----------  -----------
Supplemental disclosure of cash flow information:
Interest payments.............................................  $   105,045  $    57,565  $    9,515  $    89,985
Capital lease obligations incurred............................       23,452        8,529      20,072       31,686
Accrued dividends on preferred stock..........................        2,000           --          --           --
Accrued dividends on old preferred stock......................           --           --          --       19,480
Decrease in common stock par value............................        9,900           --          --           --
</TABLE>
 
    See accompanying notes to consolidated financial statements.
 
                                       F-5
<PAGE>
                            THE GRAND UNION COMPANY
                    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 1--BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
    The Grand Union Company, a Delaware corporation, ("Grand Union" or the
"Company") is a regional food retailer which currently operates stores in six
northeastern states. The Company has been publicly owned since June 15, 1995 and
its Common Stock is traded on the NASDAQ Stock Market. Prior to June 15, 1995,
Grand Union Capital Corporation ("Capital"), a wholly owned subsidiary of Grand
Union Holdings Corporation ("Holdings"), owned all of Grand Union's Common
Stock.
 
Basis of Presentation.
    As of the Company's emergence from Chapter 11 ("Chapter 11") of Title 11 of
    the United States Code (the "Code") on June 15, 1995 (the "Effective Date",
    see Note 2), the Company adopted fresh-start reporting in accordance with 
    American Institute of Certified Public Accountants Statement of Position 
    90-7, "Financial Reporting By Entities in Reorganization Under the 
    Bankruptcy Code" ("Fresh-Start Reporting"). In connection with the adoption
    of Fresh-Start Reporting, a new entity was deemed created for financial 
    reporting purposes. The periods presented prior to the Effective Date have 
    been designated "Predecessor Company" and the periods subsequent to the 
    Effective Date have been designated "Successor Company".
 
Principles of Consolidation.
    The consolidated financial statements include the accounts of the Company
    and its subsidiaries, all of which are wholly owned. Intercompany 
    transactions and balances have been eliminated.
 
Fiscal Year.
    The Company's fiscal year ends on the Saturday nearest the last day of
    March. The years ended March 29, 1997 ("Fiscal 1997"), March 30, 1996 
    ("Fiscal 1996") and April 1, 1995 ("Fiscal 1995") each comprises 52 
    weeks. Fiscal 1996 includes the 11 weeks prior to the Effective Date, 
    which have been designated "Predecessor Company," and the 41 weeks 
    subsequent to the Effective Date, which have been designated "Successor 
    Company".
 
Temporary Cash Investments.
    Temporary cash investments consist of short-term investments in highly
    liquid securities with initial maturities of three months or less.
 
Inventory Valuation.
    Grocery and general merchandise inventories are all valued at the lower of
    last-in, first-out ("LIFO") cost or market. At March 29, 1997 and March 30,
    1996, approximately $111,923,000 and $111,327,000, respectively, of grocery 
    and general merchandise inventories were valued using the LIFO method. 
    Replacement cost exceeded the LIFO cost of these inventories by 
    approximately $3,800,000 and $1,500,000 at March 29, 1997 and March 30, 
    1996, respectively. During Fiscal 1995, inventory levels were reduced 
    resulting in a liquidation of LIFO inventories that had been carried at a 
    value lower than current cost. Net loss was decreased by approximately 
    $1,628,000 as a result of the liquidation. Perishable inventories are 
    valued at the lower of average cost or market, which adequately provides 
    for the matching of costs and related revenues due to the rapid turnover of
    such inventories.
 
Property.
    Land, buildings, fixtures and equipment, and leasehold improvements are
    recorded at cost and include interest on the funds borrowed to finance
    construction. Depreciation and amortization of buildings and fixtures and 
    equipment is computed using the straight-line method over estimated useful 
    lives ranging from three to forty years. Depreciation of leasehold 
    improvements is computed over the life of the asset or life of the lease, 
    net of options, whichever is shorter. Properties held under capital leases 
    are capitalized net of gains on sale leaseback transactions and are
    amortized on a straight-line basis over the life of each lease.
 
Excess Reorganization Value.
    Excess Reorganization Value, established in connection with Fresh-Start
    Reporting, is being amortized on a straight-line basis over five years.
    Accumulated amortization was $186,592,000 and $83,985,000 at March 29, 
    1997 and March 30, 1996, respectively.
 
Beneficial Leases.
    Amortization of beneficial leases is computed on a straight-line basis over
    the lease life. At March 29, 1997 and March 30, 1996, accumulated 
    amortization was $27,682,000 and $14,275,000, respectively.
 
                                      F-6
<PAGE>


Amortization of Debt Premium.
    The Company amortizes premiums in connection with the issuance of long-term
    debt over the life of the respective issue.
 
Deferred Financing Fees.
    Financing fees are deferred and amortized over the expected life of the
    related loan. At March 29, 1997 and March 30, 1996, accumulated 
    amortization was $802,000 and $356,000, respectively.
 
Income Taxes.
    The Company follows the provisions of Financial Accounting Standard ("FAS")
    No. 109, "Accounting for Income Taxes", whereby deferred taxes represent
    differences between the financial reporting and tax bases of assets and
    liabilities and are measured using enacted tax rates expected to be in 
    effect when differences reverse. Valuation allowances are recorded to the 
    extent that it is more likely than not that future tax benefits will not be
    realized.
 
Retirement Plans.
    The Company maintains a noncontributory, trusteed pension plan covering
    eligible employees and a supplemental nonqualified, nontrusteed plan for 
    certain executives. The Company's policy is to fund pension amounts which 
    satisfy the requirements of the Employee Retirement Income Security Act of 
    1974, as amended ("ERISA"). The Company also maintains a saving plan in 
    which eligible employees may contribute up to a total of 14% of their 
    salary, the allowable percentage of pre- and post-tax contributions vary 
    depending upon the earnings of a particular employee. The Company provides 
    a match of 25% on the dollar up to the first 4% of employee contributions.
 
Postretirement Benefits other than Pension.
    The Company accrues the estimated cost of retiree benefit payments, other
    than pension, during the years each employee provides services.
 
Stock-Based Compensation.
    The Company accounts for stock-based compensation using the intrinsic value
    method under which compensation cost is measured as the excess, if any, of 
    the quoted market price of the Company's stock at the date of grant over 
    the exercise price of the option granted. Compensation cost for stock 
    options, if any, is recognized ratably over the vesting period. The Company
    provides additional pro forma disclosures as required under FAS No. 123, 
    "Accounting for Stock-Based Compensation". See Note 13.
 
Self Insurance.
    The Company self insures workers' compensation, automobile liability,
    general liability, and non-union employee medical costs to varying 
    deductible limits, and with the exception of medical costs, carries third 
    party insurance in excess of such limits. Reserves are provided for the 
    estimated settlement value up to the deductible limit of all claims 
    incurred during each policy year.
 
Advertising Costs.
    Advertising costs are expensed as incurred. Advertising expense for Fiscal
    1997, the 41 weeks ended March 30, 1996, the 11 weeks ended June 17, 1995 
    and Fiscal 1995 was $37,481,000, $28,084,000, $7,383,000 and $31,691,000,
    respectively.
 
Store Closure Expense.
    Estimated net costs of holding and disposing of closed stores are provided
    as of the later of the date the decision is made to close the store or the 
    date such costs are reasonably estimable.
 
Pre-opening Costs.
    Store pre-opening costs are charged to expense as incurred.
 
Fair Value of Financial Instruments.
    The carrying amount of cash, temporary cash investments, receivables,
    accounts payable, accrued liabilities and debt, other than the Senior 
    Notes, approximates fair value. The fair value of the Senior Notes, based 
    upon published trading values, is $592,444,000 and $519,505,000 at 
    March 29, 1997 and March 30, 1996, respectively.
 
Use of Estimates.
    The preparation of financial statements in conformity with generally
    accepted accounting principles requires management to make estimates and
    assumptions that affect the reported amounts of assets and liabilities and 
    the disclosure of contingent assets and liabilities at the date of the 
    financial statements and the reported amounts of revenues, costs and 
    expenses during the reporting period. Actual results could differ from 
    those estimates. Areas of significant estimates include self insurance 
    reserves, realization of deferred tax assets and retirement benefit 
    reserves.
 
                                      F-7
<PAGE>

Net Loss Per Share.
    Net loss per share for Fiscal 1997 and the 41 weeks ended March 30, 1996 has
    been calculated on the basis of 10,000,000 shares outstanding. The effect of
    exercising warrants and options and the conversion of Class A Preferred 
    Stock are excluded from the calculation of earnings per share because their
    inclusion would be anti-dilutive. Net loss per common share data is not 
    meaningful for periods prior to the Effective Date due to the significant 
    change in the capital structure of the Company.
 
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of.
    In March 1995, the Financial Accounting Standards Board issued FAS No. 121,
    "Accounting for the Impairment of Long-Lived Assets and for Long-Lived 
    Assets to Be Disposed Of", which establishes accounting standards for the 
    impairment of long-lived assets, certain identifiable intangibles and 
    goodwill related to those assets to be held and used and for long-lived 
    assets and certain identifiable intangibles to be disposed. The Company 
    adopted FAS No. 121 as of the Effective Date.
 
NOTE 2--REORGANIZATION
 
    On November 29, 1994, the Company announced that it was not likely to be
able to fund cash interest payments due in early calendar 1995, and that it
intended to develop a capital restructuring plan. Beginning on January 16, 1995,
the Company did not make interest payments required under its outstanding debt
obligations.
 
    On January 24, 1995, the Company announced that it had reached an agreement
in principle with its bank lenders and with members of informal committees of
certain holders of its 11.375% Senior Notes due 1999 (the "11.375% Senior
Notes") and 11.25% Senior Notes due 2000 (the "11.25% Senior Notes" and,
collectively with the 11.375% Senior Notes, the "Old Senior Notes") and certain
holders of its 12.25% Senior Subordinated Notes due 2002 (the "12.25%
Subordinated Notes"), 12.25% Senior Subordinated Notes due 2002, Series A (the
"Series A 12.25% Subordinated Notes") and 13% Senior Subordinated Notes due 1998
(the "13% Subordinated Notes" and, collectively with the 12.25% Subordinated
Notes and the Series A 12.25% Subordinated Notes, the "Subordinated Notes") on
the terms of a capital restructuring.
 
    Chapter 11 Bankruptcy Filings--On January 25, 1995 (the "Filing Date"), as
part of the implementation of such agreement, the Company filed a voluntary
petition for relief under Chapter 11 of the Code in the United States Bankruptcy
Court for the District of Delaware (the "Bankruptcy Court"). From the Filing
Date through the Effective Date, the Company operated as a debtor-in-possession
under Chapter 11 of the Code and was subject to the supervision of the
Bankruptcy Court in accordance with the Code. During this period, the Company's
business was operated under a series of "first day orders" which, among other
things, permitted it to retain certain financial and legal advisors and which
authorized payment of certain pre-petition employee costs, including worker's
compensation benefits, and pre-petition trade claims, subject to the
satisfaction of various requirements.
 
    On January 30, 1995, the Company (as debtor and as debtor-in-possession)
entered into a credit agreement (the "DIP Facility") with the banks party
thereto providing for borrowings of up to $150 million on a revolving credit
basis. On February 16, 1995, final approval of the DIP Facility was granted and
the Bankruptcy Court also issued a Final Cash Collateral Order which allowed the
Company to use cash collateral to pay operating expenses in the ordinary course
of business. The DIP Facility provided for a commitment fee equal to .5% of the
average unused portion. There were no borrowings made under the DIP Facility
during the Chapter 11 proceedings and it was terminated on the Effective Date.
 
    On February 16, 1995, Capital consented to the entry of an order for relief
in respect of an involuntary Chapter 11 petition filed in the Bankruptcy Court
on February 6, 1995 by entities purporting to be holders of Capital's 15% Senior
Zero Coupon Notes due 2004 (the "Capital Senior Zero Notes") and 16.5%
Senior Subordinated Zero Coupon Notes due 2007 (the "Capital Subordinated Zero
Notes" and, collectively with the Capital Senior Zero Notes, the "Capital
Notes"). On February 16, 1995, Holdings, of which Capital was a wholly owned
subsidiary, filed a voluntary Chapter 11 petition in the Bankruptcy Court.
 
    Plan of Reorganization--The Bankruptcy Court confirmed the Second Amended
Chapter 11 Plan of The Grand Union Company, dated April 19, 1995, (the "Plan")
on May 31, 1995 (the "Confirmation Date") and the Company emerged from Chapter
11 on the Effective Date.
 
    On the Effective Date, Grand Union adopted a restated certificate of
incorporation (the "New Certificate"), the principal effects of which were: (i)
to authorize 30,000,000 shares of new common stock (the "Common Stock") (of
which 10,000,000 shares were issued under the Plan) and (ii) to prohibit the
issuance of non-voting equity securities. The Plan provided for full payment of
all allowed administrative expenses and all allowed general unsecured and
priority claims. On the Effective Date, obligations relating to the Company's
existing bank credit agreement (the "Old Bank Credit Agreement") were paid in
full and the Company entered into an Amended and Restated Credit Agreement (the
"Bank Facility") with its bank lending group which provides for a five-

                                      F-8
<PAGE>


year revolving credit facility of $100,000,000 (the "Revolving Credit 
Facility") and a seven-year term loan facility of $104,144,371 (the "Term 
Loan"). The Bank Facility is secured by a lien on substantially all of the 
assets of the Company and its subsidiaries.
 
    As of the Effective Date, the Old Senior Notes, which had an aggregate
principal amount of $525,000,000 plus accrued interest, were deemed cancelled
and each holder of Old Senior Notes became entitled to receive its pro rata
share of the Company's new 12% Senior Notes due 2004 (the "Senior Notes"),
having an aggregate principal amount of $595,475,922, issued pursuant to the
Plan. Subsequent to the Effective Date, the Company issued $595,421,000,
aggregate principal amount of Senior Notes and made cash payments of $54,922 for
fractional amounts to the holders of the Old Senior Notes. The Senior Notes
began to accrue interest beginning on September 1, 1995. Accordingly, the Senior
Notes have been discounted at 12% for the period from June 15, 1995 to September
1, 1995 and imputed interest was charged at 12% during that period. In addition,
the difference between such discounted value and the fair value of the Senior
Notes at the Effective Date was recorded as a debt premium totaling $5,779,000
which is being amortized over the life of the Senior Notes.
 
    As of the Effective Date, the Subordinated Notes, which had an aggregate
principal amount of $566,150,000, and the old capital stock of Grand Union were
deemed cancelled and each holder of Subordinated Notes became entitled to
receive its pro rata share of an aggregate of 10,000,000 shares of Common Stock
issued pursuant to the Plan.
 
    The Plan also provided for the issuance of warrants to purchase an aggregate
of 900,000 shares of Common Stock to holders of several other series of
long-term debt of its then parent company (the "Capital Notes") pursuant to the
terms of a settlement reached among the Company, its then direct and indirect
parent companies, the Official Committee of Unsecured Creditors of its then
parent company and certain holders of the Capital Notes. Such warrants are
comprised of 300,000 Series 1 Warrants to purchase shares of Common Stock at a
purchase price of $30 per share and of 600,000 Series 2 Warrants to purchase
shares of Common Stock at a purchase price of $42 per share. The warrants expire
on June 15, 2000.
 
    The Plan made no provision for the holders of the remaining long-term debt,
Redeemable Preferred Stock, common shares or warrants to purchase common shares
of the Company's then indirect parent. Holdings and Capital were dissolved on
March 28, 1996 and March 27, 1996, respectively.

    Interest expense was not accrued on the Subordinated Notes, Capital Notes
and Holdings Junior Notes subsequent to the Filing Date. Accordingly, interest
expense for the 11 weeks ended June 17, 1995 and the 52 weeks ended April 1,
1995 excludes contractual interest expense of $23,569,000 and $21,269,000,
respectively.
 
    For financial reporting purposes, the Company accounted for the 
consummation of the Plan effective June 17, 1995. In accordance with 
Fresh-Start Reporting, the Company valued its assets and liabilities at fair 
values and eliminated its retained earnings at the Effective Date. The 
reorganization value of the Company was determined utilizing several methods 
which yielded similar results, including (a) the trading value of the 
Company's Common Stock for a representative number of days subsequent to the 
Effective Date and the fair value of the Company's obligations as of the 
Effective Date, (b) discounted cash flows and (c) a multiple of adjusted 
trailing year operating cash flow. The total reorganization value as of the 
Effective Date was determined to be $1,334,000,000, which was $521,657,000 in 
excess of the aggregate fair value of the Company's tangible and identified 
intangible assets. Such excess is classified as "Excess reorganization value, 
net" in the accompanying consolidated balance sheet.
 
                                       F-9
<PAGE>

    The components of reorganization items included as unusual items in the
consolidated statement of operations are as follows (in thousands):
 
<TABLE>
<CAPTION>
                                                                         11 WEEKS    52 WEEKS
                                                                          ENDED       ENDED
                                                                         JUNE 17,    APRIL 1,
                                                                           1995        1995
                                                                        ----------  ----------
<S>                                                                     <C>         <C>
Fresh-Start Reporting:
  Establish excess reorganization value...............................  $  521,657  $   --
  Eliminate existing goodwill.........................................    (540,434)     --
  Revalue beneficial leases...........................................      40,633      --
  Establish deferred tax asset........................................      35,414      --
  Revalue pension assets and liabilities and postretirement
  obligations.........................................................     (23,653)     --
  Record lease rejection liability....................................     (19,734)     --
  Provide for warehouse closing.......................................     (10,450)     --
  Eliminate LIFO inventory reserve....................................       7,757      --
  Provide for other reorganization liabilities........................      (5,400)     --
  Record liability for fair value of interest rate protection
  agreement...........................................................      (3,500)     --
  Other...............................................................      (1,905)     --
                                                                        ----------  ----------
 Total Fresh-Start Reporting..........................................         385      --
Professional fees incurred in connection with the reorganization......     (20,000)     (5,704)
Interest earned on accumulated cash resulting from the Chapter 11
  proceedings.........................................................         988         173
Debtor-in-possession financing fees...................................      --          (3,740)
Other.................................................................      --          (1,499)
                                                                        ----------  ----------
     Total reorganization items.......................................  $  (18,627) $  (10,770)
                                                                        ----------  ----------
                                                                        ----------  ----------
</TABLE>
 
    At June 17, 1995, as a result of the debt restructuring, the Company
recorded an extraordinary gain on debt discharge as follows (in thousands):
 
<TABLE>
<S>                                                                 <C>
    Elimination of Old Debt, deferred financing fees 
      and accrued interest discharged............................... $1,589,506
    Issuance of Senior Notes........................................   (580,721)
    Issuance of Common Stock........................................   (154,000)
                                                                     -----------
      Extraordinary gain on debt discharge..........................  $ 854,785
                                                                     -----------
                                                                     -----------

</TABLE>
 
                                      

NOTE 3--UNUSUAL ITEMS
 
    Unusual items included in the consolidated statement of operations consist
of the following (in thousands):
 
<TABLE>
                                                                                                
                                                                         SUCCESSOR COMPANY       PREDECESSOR COMPANY
                                                                      ------------------------  --------------------
<S>                                                                   <C>          <C>          <C>        <C>
                                                                       52 WEEKS     41 WEEKS    11 WEEKS   52 WEEKS
                                                                         ENDED        ENDED       ENDED      ENDED
                                                                       MARCH 29,    MARCH 30,   JUNE 17,   APRIL 1,
                                                                         1997         1996        1995       1995
                                                                      -----------  -----------  ---------  ---------
Charges relating to severance.......................................   $   7,800    $  --       $  --      $  --
Inventory valuation reserve.........................................       2,000       --          --         --
Provision for warehouse closures....................................      --           15,000      --         --
Charges relating to voluntary resignation programs..................      --            4,500      --         --
Provision for organizational restructuring..........................      --            2,500      --         --
Reorganization items (See Note 2)...................................      --           --          18,627     10,770
Provision for store closures........................................      --           --          --         12,900
Charges relating to pension settlement (See Note 11)................      --           --          --          3,747
                                                                      -----------  -----------  ---------  ---------
                                                                       $   9,800    $  22,000   $  18,627  $  27,417
                                                                      -----------  -----------  ---------  ---------
                                                                      -----------  -----------  ---------  ---------
</TABLE>
                                       F-10

<PAGE>

    During the fourth quarter of Fiscal 1997, the Company recorded $9,800,000 of
unusual charges including $7,800,000 of severance and $2,000,000 of an inventory
valuation reserve.
 
    In Fiscal 1996, the Company entered into several supply agreements with C&S
Wholesale Grocers, Inc. ("C&S"), pursuant to which C&S stocks and distributes to
all Grand Union stores substantially all of the merchandise formerly owned and
warehoused by Grand Union. Under the agreements, C&S stocks and supplies grocery
and perishable products from its own warehouses and stocks and supplies health
and beauty care and general merchandise products from the Company's Montgomery,
New York warehouse. Accordingly, the Company recorded a provision relating to
the closure of two metropolitan New York warehouses consisting principally of
the cash costs of severance, pension withdrawal liability, security, and other
expenses directly related to the closing of the warehouses. Substantially all of
the net costs of closing these facilities were paid prior to March 30, 1996.
 
    During the 41 weeks ended March 30, 1996, the Company made cash payments of
$4,500,000 relating to voluntary resignation programs under which certain
classes of store employees accepted monetary incentives to voluntarily resign
from their positions.
 
    The provision for organizational restructuring of $2,500,000 is principally
comprised of the cash cost of severance, all of which was paid at March 29,
1997, and future lease payments.
 
    During Fiscal 1995, the Company established a provision for store closings,
net of a non-recurring item. The provision included a charge of $16,900,000
($8,200,000 of which required cash outlays) relating to the closure of sixteen
stores principally consisting of store closing costs, estimated carrying costs
through expected dates of disposition and the remaining net book value of store
fixed assets. Additionally, the Company realized $4,000,000 of proceeds from the
termination of a warehouse sublease. All stores were closed prior to April 1,
1995. Substantially all of the costs of closing these facilities were paid by
March 30, 1996.
 

NOTE 4--PROPERTY
 
    Property, at cost, consists of the following (in thousands):
 
<TABLE>
<CAPTION>
                                                               MARCH 29, 1997  MARCH 30, 1996
                                                               --------------  --------------
<S>                                                            <C>             <C>
Property owned:
  Land.......................................................    $   19,196      $   18,776
  Buildings..................................................        60,422          57,309
  Fixtures and equipment.....................................       168,053         144,268
  Leasehold improvements.....................................       126,002         107,220
                                                               --------------  --------------
                                                                    373,673         327,573
Less: accumulated depreciation and amortization..............        81,098          32,493
                                                               --------------  --------------
Property owned, net..........................................       292,575         295,080
                                                               --------------  --------------
Property held under capital leases:
  Land and buildings.........................................       112,056          97,801
  Equipment..................................................        18,081          18,184
                                                               --------------  --------------
                                                                    130,137         115,985
Less: accumulated amortization...............................        10,801           5,486
                                                               --------------  --------------
Property held under capital leases, net......................       119,336         110,499
                                                               --------------  --------------
Property.....................................................    $  411,911      $  405,579
                                                               --------------  --------------
                                                               --------------  --------------
</TABLE>
 
    Depreciation and amortization of owned and leased property for Fiscal 1997,
the 41 weeks ended March 30, 1996, the 11 weeks ended June 17, 1995 and Fiscal
1995 was $64,256,000, $42,706,000, $11,246,000 and $57,089,000, respectively.
 
    As discussed in Note 1, the Company adopted FAS No. 121 as of the Effective
Date. This statement requires companies to record impairments of long-lived
assets, certain identifiable intangibles, and associated goodwill when there is
evidence that events or changes in circumstances have made recovery of an
asset's carrying value unlikely. In accordance with this statement, during
Fiscal 1997 the Company performed an evaluation of its assets for impairment
considering the present value of estimated net future operating cash flows
(which includes the estimated fair value that would be received upon sublease or
disposition). The result of such review was that an impairment loss of
$6,362,000 was recorded through depreciation in order to write down certain
store impaired assets.
 
                                       F-11

<PAGE>

NOTE 5--RECEIVABLES AND ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
 
    Receivables at March 29, 1997 and March 30, 1996 are net of allowances for
doubtful accounts of $930,000 and $1,146,000, respectively.
 
    Accounts payable and accrued liabilities consist of the following (in
thousands):
 
<TABLE>
<CAPTION>
                                                                 MARCH 29,      MARCH 30, 
                                                                   1997           1996
                                                               ------------   ------------
<S>                                                            <C>             <C>
Accounts payable.............................................   $  89,798      $  86,638
Accrued liabilities:                                                         
Payroll......................................................      16,294         18,179
Interest.....................................................       9,405          8,740
Insurance....................................................      16,070         12,098
Other........................................................      32,982         44,355
                                                               ------------   ------------
                                                                $ 164,549      $ 170,010
                                                               ------------   ------------
                                                               ------------   ------------
</TABLE>
 
NOTE 6--INCOME TAXES
 
    The components of the deferred income tax (provision) benefit are as follows
(in thousands):
<TABLE>
<CAPTION>
                                                         SUCCESSOR COMPANY             PREDECESSOR COMPANY
                                                      ------------------------    --------------------------
<S>                                                   <C>          <C>            <C>            <C>
                                                         52 WEEKS    41 WEEKS        11 WEEKS     52 WEEKS
                                                          ENDED       ENDED           ENDED        ENDED
                                                        MARCH 29,    MARCH 30,       JUNE 17,     APRIL 1,
                                                          1997         1996            1995         1995
                                                      -----------  -----------    ------------  ------------
Federal.............................................   $  (2,154)   $  16,157       $     --             --
State...............................................        (369)       2,770             --             --
                                                      -----------  -----------    ------------  ------------
Income tax (provision) benefit......................   $  (2,523)   $  18,927       $     --      $      --
                                                      -----------  -----------    ------------  ------------
                                                      -----------  -----------    ------------  ------------
</TABLE>
    The reconciliation of the income tax (provision) benefit computed at the
federal statutory rate to the reported income tax (provision) benefit is as
follows (in thousands):
<TABLE>
<CAPTION>
                                                                 SUCCESSOR COMPANY            PREDECESSOR COMPANY 
                                                              ------------------------    -------------------------
<S>                                                           <C>          <C>            <C>          <C>
                                                               52 WEEKS     41 WEEKS       11 WEEKS     52 WEEKS
                                                                 ENDED        ENDED          ENDED        ENDED
                                                               MARCH 29,    MARCH 30,      JUNE 17,     APRIL 1,
                                                                 1997         1996           1995         1995
                                                              -----------  -----------    ----------  -----------
Benefit computed at federal statutory tax rate..............   $  63,291    $  45,074     $  10,268    $  55,941
Increase (decrease) in the benefit resulting from:                                        
  Amortization of excess reorganization value...............     (35,429)     (28,992)           --           --
  Amortization of goodwill..................................          --           --        (6,295)      (5,379)
  State and local taxes, net of federal tax benefit.........       5,242        2,770            --           --
  Deferred tax asset valuation allowance....................     (29,841)          --        (3,948)     (51,014)
  Write-down of unrealizable deferred tax asset.............      (8,500)          --            --           --
  Other.....................................................       2,714           75           (25)         452
                                                              -----------  -----------    ----------  -----------
Income tax (provision) benefit..............................  $   (2,523)   $  18,927     $      --    $      --
                                                              -----------  -----------    ----------  -----------
                                                              -----------  -----------    ----------  -----------
</TABLE>
                                        F-12
<PAGE>
    The components of the net deferred tax asset are as follows (in thousands):
 
<TABLE>
<CAPTION>

                                                                 MARCH 29,      MARCH 30,                      
                                                                   1997           1996
                                                               ------------   ------------
<S>                                                            <C>             <C>
Deferred tax assets:                                                          
  Non-cash interest.......................................     $   2,111       $   5,727
  Insurance reserve.......................................        19,597          19,300
  Pension.................................................         5,419           4,077
  Post retirement benefit liability.......................        14,671          14,676
  Other miscellaneous reserves............................        23,505          25,477
  Net operating loss carryfoward..........................        29,841          15,246
                                                               ------------    -----------
Total deferred tax assets.................................        95,144          84,503
                                                               ------------    -----------
Deferred tax liabilities:                                                     
  Depreciable assets......................................         9,299          26,016
  Other...................................................         4,611           4,571
                                                               ------------    -----------
Total deferred tax liabilities............................        13,910          30,587
                                                               ------------    -----------
Net deferred tax asset before valuation allowance.........        81,234          53,916
Valuation allowance.......................................       (29,841)            --
                                                               ------------    -----------
Net deferred tax asset....................................     $  51,393       $  53,916
                                                               ------------    -----------
                                                               ------------    -----------
</TABLE>
 
    During the fourth quarter of Fiscal 1997, the Company determined that the 
likelihood of realizing its entire deferred tax asset had diminished as a 
result of the application of Internal Revenue Code Section 382 as well as 
other long-term financial prospects. Section 382, which was triggered by the 
sale of Class A Preferred Stock (see Note 8), limits the amount of future 
annual net operating loss carryforwards which may be utilized subsequent to a 
change in control. Consequently, during the fourth quarter of Fiscal 1997, 
the Company wrote off $8,500,000 of its deferred tax asset that related to 
net operating loss carryforwards expected to expire due to Section 382 
limitations and established a valuation allowance to fully reserve for the 
portion of its deferred tax asset related to its remaining net operating loss 
carryforwards.

    As of March 29, 1997, the Company had net operating loss carryforwards of 
approximately $73,000,000 for tax purposes, expiring in the years 2011 and 
2012. Due to Section 382, there will be a limitation on the amount of annual 
net operating loss carryforwards which can be utilized.

    Under existing income tax laws, the Company is not required to include in 
its taxable income any cancellation of debt income as a result of the debt 
forgiven pursuant to the Plan. Accordingly, no income taxes were provided on 
the extraordinary gain on debt discharge in the statement of operations for 
the 11 weeks ended June 17, 1995. There are no remaining operating loss or 
credit carryforwards of the Predecessor Company and there was no change in 
the tax basis of the Company's assets as of the Effective Date.

NOTE 7--DEBT
 
    Components of the Company's debt are as follows (in thousands):
 
<TABLE>
<CAPTION>
                                                     MARCH 29,      MARCH 30,                               
                                                       1997           1996
                                                    -----------    -----------
<S>                                                 <C>            <C> 
Equipment mortgage notes..........................  $     46       $   2,039
Bank Credit Agreements:
  Term Loan.......................................    104,144        104,144
  Revolving Credit Facility.......................     36,000         33,000
12% Senior Notes due September 1, 2004
  (includes $4,642 and $5,276 of unamortized
  debt premium at March 29, 1997 and March
  30, 1996, respectively).........................    600,063        600,697
                                                    -----------    -----------
                                                      740,253        739,880
Less: current maturities of long-term debt........         46          1,813
                                                    -----------    -----------
Long-term debt............................          $ 740,207      $ 738,067
                                                    -----------    -----------
                                                    -----------    -----------
</TABLE>
 
    On the Effective Date, obligations relating to the Predecessor Company's 
Old Bank Credit Agreement were paid in full and the Company entered into the 
Bank Facility with a group of lenders. The Bank Facility consists of the 
Revolving Credit Facility, expiring

                                       F-13

<PAGE>

June 15, 2000, that provides borrowings and letters of credit aggregating 
$100,000,000, and the Term Loan totaling $104,144,000. The Bank Facility is 
secured by substantially all of the assets of the Company and its 
subsidiaries, whether in existence at the Effective Date or acquired 
thereafter, excluding those assets permitted to be financed by third parties. 
Outstanding borrowings bear interest at a rate equal to the applicable margin 
(1.5% and 2% for the Revolving Credit Facility and Term Loan, respectively) 
plus the higher of (a) the prime rate, as defined, (b) the adjusted 
certificate of deposit rate, as defined, plus 0.5% or (c) the federal funds 
rate, as defined, plus 0.25%. Alternatively, the Company may borrow, at its 
option, at the LIBOR rate, as defined, plus the applicable margin (3.0% and 
3.5% for the Revolving Credit Facility and Term Loan, respectively). At March 
29, 1997, borrowings under the Revolving Credit Facility and the Term Loan 
were at weighted interest rates of 8.77% and 9.11%, respectively. At March 
30, 1996, borrowings under the Revolving Credit Facility and the Term Loan 
were at weighted interest rates of 9.75% and 9.00%, respectively. The Company 
is charged a commitment fee of one half of one percent per annum on the 
average unused portion of the Revolving Credit Facility. The Term Loan 
requires quarterly principal payments of $13,018,000 from September 30, 2000 
through June 15, 2002. The Bank Facility provides for mandatory prepayments 
based on the occurrence of certain specified transactions. As of March 29, 
1997, the Company had issued $44,169,000 of letters of credit.
 
    The Bank Facility contains certain restrictions and financial covenants 
relating to, among other things, minimum financial performance and 
limitations on the incurrence of additional indebtedness, asset sales, 
dividends, capital expenditures and prepayment of other indebtedness. During 
the fourth quarter of Fiscal 1997, the Company received a waiver for certain 
financial covenants as of March 29, 1997 and certain covenants for future 
periods were amended. The Company was in compliance with the remaining terms 
and restrictive covenants of the Bank Facility, as amended, as of March 29, 
1997.

    The Old Term Loan and Old Revolving Credit Facility provided for interest 
at either a floating rate of 2% and 1.5%, respectively, per annum above the 
prime rate, as defined, or 3.5% and 3%, respectively, per annum above the 
LIBOR rate, as defined, at the option of the Predecessor Company.
 
    Pursuant to the Plan, on the Effective Date, the Old Senior Notes were 
deemed cancelled and each holder became entitled to receive his pro rata 
share of the Successor Company's Senior Notes having an aggregate principal 
amount of $595,421,000. Interest on the Senior Notes is payable semi-annually 
each March 1 and September 1.
 
    During the next five years, maturities of long-term debt are $46,000 in 
Fiscal 1998, $75,054,000 in Fiscal 2001 and $39,054,000 in 2002. There are no 
payments scheduled in Fiscal 1999 or 2000.
 
NOTE 8--ISSUANCE OF PREFERRED STOCK
 
    On July 30, 1996, the Company entered into an agreement (the "Stock 
Purchase Agreement") to sell $100 million of 8.5% convertible preferred 
stock, $1.00 par value per share, (the "Class A Preferred Stock") to an 
investment group composed of Trefoil Capital Investors II, L. P., a Delaware 
limited partnership, and GE Investment Private Placement Partners II, A 
Limited Partnership, a Delaware limited partnership (collectively, the 
"Purchasers").
 
    Pursuant to the Stock Purchase Agreement, on September 17, 1996, the 
Company sold 800,000 shares of Class A Preferred Stock to the Purchasers for 
aggregate proceeds of $40,000,000 (the "Principal Closing"). On February 25, 
1997, the Company sold an additional 400,000 shares of Class A Preferred 
Stock to the Purchasers for aggregate proceeds of $20,000,000. Under the 
terms of the Stock Purchase Agreement, the Company sold to the Purchasers an 
additional 800,000 shares of Class A Preferred Stock at a purchase price of 
$50 per share (the "Stated Value") on June 12, 1997, which represents an 
acceleration of the original transaction dates, and immediately converted the 
shares to the new Class B Preferred Stock. The Class B Preferred Stock ranks 
PARI PASSU with the Class A Preferred Stock and has substantially the same 
terms as the Class A Preferred Stock.
 
    Dividends are cumulative and payable quarterly at 8.5% of the Stated 
Value per annum. Dividends are payable, at the option of the Company, in 
additional shares of Preferred Stock or Common Stock through September 17, 
1999. From September 17, 1999 through September 17, 2001, dividends are 
payable in cash, unless the terms of the Company's Bank Facility or 12% 
Senior Notes prohibit cash dividends, in which case dividends may be paid in 
Preferred Stock or Common Stock. After September 17, 2001, dividends are 
payable in cash. To the extent that any dividends on the Preferred Stock are 
paid in shares of Common Stock, the Company is required to pay a premium in 
additional shares of Common Stock equal to 33 1/3% of the number of shares of 
Common Stock that would otherwise be paid as the dividend. On December 31, 
1996 and September 30, 1996, the Company paid dividends on the Class A 
Preferred Stock through the issuance of 17,056 and 2,644 shares, 
respectively, of Class A Preferred Stock. The aggregate Stated Value of the 
dividends at December 31, 1996 and September 30, 1996 was $852,800 and 
$132,200, respectively.
 
    Each share of Class A Preferred Stock is convertible at the option of the
holder, at any time, into 6.8966 shares of Common Stock. At March 29, 1997, the
1,279,700 outstanding shares of Class A Preferred Stock were convertible into an
aggregate 8,825,579 shares of Common Stock. Each share of Class B Preferred
Stock is convertible at the option of the holder, at any time, into 20.8333

                                       F-14

<PAGE>

shares of Common Stock, to be reset during February 1998 to a conversion 
price based upon a 20% premium to the average trading price of Common Stock 
during a twenty-day period during February 1998.
 
    The Company is required to redeem the Class A Preferred Stock and the 
Class B Preferred Stock no later than June 1, 2005. Additionally, the Class A 
Preferred Stock and the Class B Preferred Stock may be redeemed at the 
Company's option at $50 per share plus all accrued and unpaid dividends if 
the volume-weighted average price of the Company's Common Stock over a 60-day 
period exceeds $13.05 per share after September 17, 1998, or $14.50 per share 
after September 17, 1999. After September 17, 2001, the Company's right to 
redeem is not contingent on the price of the Common Stock and the redemption 
price is approximately $51.60 per share plus all accrued and unpaid 
dividends, declining ratably to $50 per share plus all accrued and unpaid 
dividends after September 17, 2004.
 
    The Stock Purchase Agreement and the Certificates of Designation of 
Preferred Stock, setting forth the powers, preferences, rights, 
qualifications, limitations and restrictions of such class of preferred stock 
(the "Certificates of Designation"), also contain provisions with respect to 
the rights of the Purchasers to elect a specified number of directors, the 
number of disinterested directors, voting rights and pre-emptive rights with 
respect to any sale by the Company of shares of Common Stock or securities 
convertible into, or exchangeable for, Common Stock. The liquidation 
preference of Class A Preferred Stock and Class B Preferred Stock is equal to 
its Stated Value plus any accrued and unpaid dividends.
 
    The Class A Preferred Stock has been classified as Redeemable Class A 
Preferred Stock in the accompanying Consolidated Balance Sheet. The dividends 
on the Class A Preferred Stock and the accrued and unpaid dividends through 
March 29, 1997 have been accounted for by a charge against Capital in Excess 
of Par Value and a corresponding increase in the value of the Class A 
Preferred Stock.
 
    During Fiscal 1997, the Company recorded, as a charge to Capital in 
Excess of Par Value, costs of $12,000,000 directly related to the sale of 
Class A Preferred Stock. The costs included transaction fees paid to Shamrock 
Capital Advisors, Inc. and GE Investment Management Corporation of $2,000,000 
each, fees paid to Donaldson, Lufkin and Jenrette, the Company's financial 
advisor and a then related party, of approximately $5,200,000, and other 
expenses, including legal and other professional fees, of $2,800,000.
 
    On March 20, 1997, the Company sold 60,000 shares of Class A Preferred 
Stock to the Chairman of the Company's Board of Directors for $3,000,000.
 
NOTE 9--PROPERTY LEASES
 
    The Company operates principally in leased stores and offices, and in 
most cases holds renewal options with varying terms. Many of the leases 
contain clauses which provide for increased rentals based upon increases in 
real estate taxes and lessors' operating expenses.
 
    Future minimum payments under capital and non-cancelable operating 
leases, net of minimum sublease income, as of March 29, 1997 are as follows 
(in thousands):


<TABLE>
<CAPTION>
                                                                                   CAPITAL      OPERATING
                                                                                 ------------  -----------
<S>                                                                              <C>           <C>        
Fiscal
1998..........................................................................   $  26,503     $   33,510
1999..........................................................................      24,150         33,089
2000..........................................................................      22,456         30,888
2001..........................................................................      20,597         24,076
2002..........................................................................      19,619         20,082
Later years...................................................................     282,526        143,436
                                                                                 ------------   ----------
Total minimum lease payments..................................................     395,851        285,081
Less: estimated executory costs included in total minimum lease payments......        (250)           --
Less: sublease rental income..................................................      (2,139)       (18,608)
                                                                                 ------------   ----------
Net minimum lease payments....................................................      393,462     $ 266,473
                                                                                                ----------
                                                                                                ----------
Less: portion representing interest...........................................     247,498
                                                                                 ------------
Present value of net minimum lease payments...................................     145,964
Less: current portion of obligations under capital leases.....................       8,045
                                                                                 ------------
Non-current portion of obligations under capital leases
  (net of sublease rental income).............................................   $ 137,919
                                                                                 ------------
                                                                                 ------------
</TABLE>

                                       F-15
<PAGE>

    Contingent rentals incurred on capital leases for Fiscal 1997, the 41 
weeks ended March 30, 1996, the 11 weeks ended June 17, 1995 and Fiscal 1995 
were $106,000, $130,000, $39,000 and $253,000, respectively.

    The rental expense for all operating leases was $45,847,000, $33,923,000,
$8,696,000 and $31,900,000 during Fiscal 1997, the 41 weeks ended March 30,
1996, the 11 weeks ended June 17, 1995 and Fiscal 1995, respectively. Contingent
rental expense included in total rental expense was $2,870,000, $2,127,000,
$638,000 and $3,114,000 during Fiscal 1997, the 41 weeks ended March 30, 1996,
the 11 weeks ended June 17, 1995 and Fiscal 1995, respectively.
 
NOTE 10--Stockholders' (Deficit) Equity and Redeemable Stock
 
    Changes in Stockholders' (Deficit) Equity and Redeemable Stock were as
follows (in thousands):
 
<TABLE>
<CAPTION>
                                                                       REDEEMABLE       OLD         CAPITAL IN
                                                         COMMON        OLD COMMON     COMMON         EXCESS OF      ACCUMULATED
                                                         STOCK          STOCK (A)      STOCK         PAR VALUE        DEFICIT
                                                     ---------------  -----------  -------------  -------------   --------------
<S>                                                  <C>              <C>          <C>            <C>              <C>
Predecessor Company
Balance at April 2, 1994...........................     $  --          $   9,407     $       1       $  --         $  (644,617)
Net loss...........................................        --             --            --              --            (159,830)
Accrued preferred stock dividends of Predecessor
  Company..........................................        --             --            --              --             (19,480)
Pension adjustment.................................        --             --            --              --                (257)
                                                     ---------------  -----------  -------------  -------------   --------------
Balance at April 1, 1995...........................        --              9,407             1          --            (824,184)
Net income for the 11 weeks ended June 17, 1995....        --             --            --              --             825,449
Extinguishment of stockholders' equity in
  connection with bankruptcy.......................        --             (9,407)           (1)         --              (1,265)
                                                     ---------------  -----------  -------------  -------------   --------------
Balance at June 17, 1995...........................     $  --          $  --         $  --           $  --         $   --
                                                     ---------------  -----------  -------------  -------------   --------------
                                                     ---------------  -----------  -------------  -------------   --------------
</TABLE>
 
    (a) The Redeemable Old Common Stock represents shares of Holdings held by
management investors, which were redeemable under certain limited circumstances
at the option of the holder.
 
<TABLE>
<CAPTION>
                                                                           STOCKHOLDERS' (DEFICIT) EQUITY
                                                                       ------------------------------------------------------------
                                                      REDEEMABLE
                                                       CLASS A                                         CAPITAL IN
                                                      PREFERRED          COMMON        PREFERRED        EXCESS OF     ACCUMULATED
                                                        STOCK            STOCK           STOCK          PAR VALUE       DEFICIT
                                                      ----------       -----------    -------------    ------------    ------------
<S>                                                   <C>             <C>            <C>              <C>             <C>
Successor Company                                    
Balance at June 17, 1995........................      $  --            $  --           $  --           $   --         $   --
Issuance of Common Stock........................         --               10,000          --              144,000         --
Net loss for the 41 weeks ended March 30, 1996..         --               --              --               --            (109,856)
                                                      ----------       -----------    -------------    ------------    ------------
Balance at March 30, 1996.......................         --               10,000          --              144,000        (109,856)
Preferred stock issuance charges (see Note 8)...         --               --              --              (12,000)        --
Decrease in Common Stock par value..............         --               (9,900)         --                9,900         --
Issuance of Class A Preferred Stock.............         63,000           --              --               --             --
Accrued preferred stock dividends...............          2,000           --              --               (2,000)        --
Net loss for Fiscal 1997........................         --               --              --               --            (183,354)
                                                      ----------       -----------    -------------    ------------    ------------
Balance at March 29, 1997.......................      $  65,000        $     100       $  --           $  139,900     $  (293,210)
                                                      ----------       -----------    -------------    ------------    ------------
                                                      ----------       -----------    -------------    ------------    ------------
</TABLE>

                                                            F-16
<PAGE>
 
    The Company's Certificate of Incorporation and Bylaws were restated as of 
the Effective Date and subsequently amended. The Certificate of Incorporation 
as amended authorizes the issuance of 60,000,000 shares of Common Stock and 
10,000,000 shares of preferred stock. On November 7, 1996, the Company's 
shareholders approved a decrease in the par value of Common Stock from $1.00 
to $0.01 per share.
 
    Under the Plan, on the Effective Date, the Old Common Stock was cancelled 
and, as described in Note 2, holders of the Subordinated Notes became 
entitled to receive their pro rata share of 10,000,000 shares of Common 
Stock. In addition, on the Effective Date, holders of Capital Senior Zero 
Notes and Capital Subordinated Zero Notes who executed releases became 
entitled to receive Series 1 Warrants to purchase an aggregate of 300,000 
shares of Common Stock at an exercise price of $30 per share and Series 2 
Warrants to purchase an aggregate of 600,000 shares of Common Stock at an 
exercise price of $42 per share. Both the Series 1 Warrants and the Series 2 
Warrants expire five years after the Effective Date. As of March 29, 1997, no 
warrants have been exercised. The Common Stock and all other equity 
securities issued under the Certificate of Incorporation as amended are 
voting securities (although the voting rights of any new preferred stock 
issued may differ from those of Common Stock) and do not have any preemptive 
rights to subscribe for additional shares.
 
    Changes in Redeemable Old Preferred Stock of the Predecessor Company were 
as follows (in thousands):
 
<TABLE>
<CAPTION>
                                                                        SERIES A    SERIES B    SERIES C     TOTAL
                                                                        ---------  -----------  ---------  ----------
<S>                                                                     <C>        <C>          <C>        <C>
Balance at April 2, 1994..............................................  $  61,030   $   7,911   $  76,371  $  145,312
Accrued preferred stock dividends.....................................      8,152       1,099      10,229      19,480
                                                                        ---------  -----------  ---------  ----------
Balance at April 1, 1995..............................................     69,182       9,010      86,600     164,792
Extinguishment of Predecessor Company Stock in connection with
  bankruptcy..........................................................    (69,182)     (9,010)    (86,600)   (164,792)
                                                                        ---------  -----------  ---------  ----------
Balance at June 17, 1995..............................................  $  --       $  --       $  --      $   --
                                                                        ---------  -----------  ---------  ----------
                                                                        ---------  -----------  ---------  ----------
</TABLE>
 
    The Series A cumulative exchangeable redeemable preferred stock ("Series 
A old preferred stock") had a $.01 par value, 500,000 shares authorized and 
351,745 shares issued and outstanding. The Series B cumulative redeemable 
convertible preferred stock ("Series B old preferred stock") had a $.01 par 
value, 500,000 shares authorized and 78,256 shares issued and outstanding. 
The Series C cumulative redeemable convertible preferred stock ("Series C old 
preferred stock") had a $.01 par value, 500,000 shares authorized and 440,771 
shares issued and outstanding.
 
    Through July 23, 1994, dividends accrued on the old preferred stock at a 
rate of 12% per annum, reflecting management's estimate that the old 
preferred stock would be redeemed prior to the July 14, 1996 dividend step-up 
date. As of July 24, 1994, the Company changed its estimate of the date on 
which the old preferred stock was expected to be redeemed from on or before 
the date of the dividend step-up to an indeterminate date. Accordingly, from 
July 24, 1994 through the Filing Date, the Company accrued dividends 
recognizing a yield to redemption rate of 18.2% per annum for the Series A 
old preferred stock, 19.3% for the Series B old preferred stock and 18.3% for 
the Series C old preferred stock. Accrued undeclared dividends were recorded 
as an increase of stockholders' deficit and as an increase in the respective 
preferred stock carrying value.

NOTE 11--PENSION PLANS
 
    The components of net periodic pension expense for the Company's defined 
benefit pension plans are as follows (in thousands):
 
<TABLE>
<CAPTION>
                                                                                     FISCAL     FISCAL     FISCAL
                                                                                      1997       1996       1995
                                                                                    ---------  ---------  ---------
<S>                                                                                 <C>        <C>        <C>
Service cost--benefits earned during the period...................................  $   4,351  $   4,317  $   4,715
Interest costs on projected benefit obligations...................................     12,700     12,523     13,706
Return on plan assets.............................................................    (16,993)   (32,921)   (12,179)
Net amortization and deferral.....................................................      3,690     17,877     (4,042)
Charges relating to pension settlement............................................     --         --          3,747
                                                                                    ---------  ---------  ---------
Net periodic pension expense......................................................  $   3,748  $   1,796  $   5,947
                                                                                    ---------  ---------  ---------
                                                                                    ---------  ---------  ---------
</TABLE>
 
    The Company has not segregated the respective Successor and Predecessor
Company pension expense for Fiscal 1996 because it is impractical to do so.

                                                       F-17
<PAGE>
 
    During Fiscal 1995, the Company incurred charges totaling $3,747,000 
relating to pension settlements, under both its qualified and nonqualified 
pension plans, principally as a result of early retirement programs offered 
to certain employees.
 
    The actuarial present value of benefit obligations and the funded status 
of the Company's pension plans are as follows (in thousands):
 
<TABLE>
<CAPTION>
                                                                         QUALIFIED                NONQUALIFIED
                                                                  ------------------------  ------------------------
                                                                   MARCH 29,    MARCH 30,    MARCH 29,    MARCH 30,
                                                                     1997         1996         1997         1996
                                                                  -----------  -----------  -----------  -----------
<S>                                                               <C>          <C>          <C>          <C>
Actuarial present value of benefit obligations:
Vested benefits.................................................  $   159,438  $   146,821   $   4,715    $   3,968
Nonvested benefits..............................................        4,038        3,948      --           --
                                                                  -----------  -----------  -----------  -----------
Total benefits..................................................  $   163,476  $   150,769   $   4,715    $   3,968
                                                                  -----------  -----------  -----------  -----------
                                                                  -----------  -----------  -----------  -----------
Projected benefit obligations...................................  $  (186,207) $  (167,010)  $  (5,364)   $  (4,618)
Plan assets, primarily stocks and bonds, at fair value..........      169,707      170,684      --           --
                                                                  -----------  -----------  -----------  -----------
Funded (unfunded) status........................................      (16,500)       3,674      (5,364)      (4,618)
Unrecognized net (loss) gain....................................        8,674       (8,259)      2,073        1,364
Unrecognized prior service cost.................................      --           --              (20)         (25)
Adjustment required to recognize minimum liability..............      --           --           (1,404)        (689)
                                                                  -----------  -----------  -----------  -----------
Pension liability...............................................  $    (7,826) $    (4,585)  $  (4,715)   $  (3,968)
                                                                  -----------  -----------  -----------  -----------
                                                                  -----------  -----------  -----------  -----------
Significant actuarial assumptions used in all Company sponsored plans were as follows:
</TABLE>
 
<TABLE>
<CAPTION>
                                                                              FISCAL 1997   FISCAL 1996  FISCAL 1995
                                                                             -------------  -----------  ------------
<S>                                                                          <C>            <C>          <C>
Discount rates.............................................................         7.25%          8.0%          7.5%
Rates of increase in future compensation...................................         3.50%     4.0%-5.0%     3.5%-3.9%
Long-term rate of return on plan assets....................................         8.75%         9.75%          9.5%
</TABLE>
 
NOTE 12--POSTRETIREMENT HEALTH CARE AND LIFE INSURANCE BENEFITS
 
    The Company provides certain health care and life insurance benefits for 
substantially all of its full-time non-union employees and union employee 
groups. The Company's postretirement plans currently are not funded. The 
Company's union employee groups are participants in multi-employer plans 
which require monthly contributions and which are not subject to the 
provisions of FAS No. 106, "Employers' Accounting for Postretirement Benefits 
Other Than Pensions".
 
    Net postretirement benefit cost consisted of the following (in thousands):
 
<TABLE>
<CAPTION>
                                                                              FISCAL 1997  FISCAL 1996  FISCAL 1995
                                                                              -----------  -----------  -----------
<S>                                                                           <C>          <C>          <C>
Service cost--benefits earned during the period.............................   $     728    $     591    $     695
Interest cost on accumulated postretirement benefit obligation..............       2,668        2,594        2,604
                                                                              -----------  -----------  -----------
                                                                               $   3,396    $   3,185    $   3,299
                                                                              -----------  -----------  -----------
                                                                              -----------  -----------  -----------
</TABLE>
 
    The Company has not segregated the respective Successor and Predecessor 
Company postretirement benefit expense for Fiscal 1996 because it is 
impractical to do so.
 
                                                 F-18

<PAGE>
 
    The unfunded accumulated postretirement benefit obligation consists of the
following (in thousands):
 
<TABLE>
<CAPTION>
                                                                  MARCH 29,       MARCH 30,
                                                                    1997            1996
                                                               --------------  --------------
<S>                                                            <C>             <C>
Retirees.....................................................    $   20,660      $   17,761
Fully eligible active plan participants......................         2,482           2,613
Other active plan participants...............................        15,189          16,194
Unrecognized net loss........................................        (2,521)           (832)
                                                                 ----------      ----------
                                                                 $   35,810      $   35,736
                                                                 ----------      ----------
                                                                 ----------      ----------
</TABLE>
 
    The assumed health care cost trend rate used in measuring the accumulated
postretirement obligation as of March 29, 1997 and March 30, 1996 was 11.0% and
12.0%, respectively, for participants pre-age 65 and 8.0% and 9.0%,
respectively, for participants post-age 65, decreasing each successive year by
1% until the respective trend rates reach 4.75% after which the trend rate
remains constant. An increase of 1% in the assumed health care cost trend rate
for the current year would increase the annual net post retirement health care
cost by approximately $16,000 and the accumulated postretirement benefit
obligation by approximately $226,000.
 
    The Company provides benefits for all future retirees based on a service
related flat dollar premium allowance. Accordingly, the health care cost trend
rate will not be a significant factor in determining Grand Union's liability for
future retirees under its postretirement health care arrangements. The assumed
discount rate used in determining the accumulated postretirement benefit
obligation was 7.25% for Fiscal 1997 and Fiscal 1996 and 8.0% for Fiscal 1995.
 
NOTE 13--EQUITY COMPENSATION PLANS
 
    During the 41 weeks ended March 30, 1996, the Board of Directors of the
Company adopted The Grand Union Company 1995 Equity Incentive Plan ("Employees'
Plan"), which provides for issuance of stock options to purchase up to 900,000
shares of the Company's Common Stock, and The Grand Union Company 1995
Non-Employee Directors' Stock Option Plan ("Directors' Plan"), which provides
for the issuance of options to purchase up to 100,000 shares of the Company's
Common Stock. The shareholders approved the plans on November 7, 1996. Both
plans are administered by the Board of Directors. Options granted to date under
both plans expire no later than ten years after the grant date.
 
    Activity with Respect to the Employees' Plan was as follows:
 
<TABLE>
<CAPTION>
                                                                   NUMBER OF   WEIGHTED AVERAGE
                                                                    OPTIONS      OPTION PRICE
                                                                  -----------  -----------------
<S>                                                               <C>          <C>
Grants..........................................................     230,680       $   6.370
Expirations.....................................................       4,400           6.625
                                                                  -----------         ------
March 29, 1997..................................................     226,280       $   6.365
                                                                  -----------         ------
                                                                  -----------         ------
</TABLE>
 
    At March 29, 1997, 206,280 shares were vested under the Employees' Plan. The
range of exercise prices for options outstanding under the Employees' Plan at
March 29, 1997 was $3.688 to $6.625. These options will expire if not exercised
at specific dates ranging from April 3, 1997 to March 3, 2007.
 
    The Directors' Plan included grants of 51,000 shares with a weighted 
average option price of $5.941. No options were exercised or expired during 
the year. At March 29, 1997, 51,000 shares were exercisable under the 
Directors' Plan at exercise prices of $5.750 and $6.125. These options will 
expire if not exercised at specific dates ranging from September 16, 1997 to 
November 7, 2006.

 
    The following table summarizes information about options outstanding at
March 29, 1997 for both stock option plans:
 
<TABLE>
<CAPTION>
                                             OPTIONS OUTSTANDING                    OPTIONS EXERCISABLE
                                 --------------------------------------------  ------------------------------
                                     WEIGHTED-AVERAGE
 RANGE OF             NUMBER       REMAINING CONTRACTUAL    WEIGHTED-AVERAGE     NUMBER     WEIGHTED-AVERAGE
 EXERCISE PRICES    OUTSTANDING       LIFE (IN YEARS)        EXERCISE PRICE    EXERCISABLE   EXERCISE PRICE
------------------  -----------  -------------------------  -----------------  -----------  -----------------
<S>                 <C>          <C>                        <C>                <C>          <C>
$3.688 to $6.625       226,280                 6.3              $   6.365         206,280       $   6.625
$5.750 to $6.125        51,000                 8.4                  5.941          51,000           5.941
                       -------                                                    -------
                       277,280                                                    257,280
                       -------                                                    -------
                       -------                                                    -------
</TABLE>

                                     F-19

<PAGE>


    The Company adopted the disclosure only option under FAS No. 123,
"Accounting for Stock-Based Compensation", as of March 29, 1997. If the
accounting provisions of FAS No. 123 had been adopted as of the beginning of
Fiscal 1997, the effect on Fiscal 1997 net loss would have been less than
$100,000.
 
NOTE 14--RELATED PARTY TRANSACTIONS
 
    In connection with the Stock Purchase Agreement (see Note 8), the Company
paid transaction fees to Shamrock Capital Advisors, Inc. ("SCA"), the investment
managers for Trefoil Capital Advisors II, L.P., and GE Investment Management
Corporation of $2,000,000 each, and the Company paid Donaldson, Lufkin and
Jenrette ("DLJ"), a managing director of which served on the Company's Board of
Directors, approximately $5,200,000 for advisory services, a fairness opinion,
and other miscellaneous expenses.
 
    Also in connection with the Stock Purchase Agreement, the Company entered
into a management contract with SCA pursuant to which the Company paid $300,000
during Fiscal 1997 and is scheduled to pay additional fees of $400,000 and
$500,000 in fiscal years ending in 1998 and 1999, respectively, plus related
expenses.
 
    Also during Fiscal 1997, the Chairman of the Board of Directors purchased
through a family trust 60,000 shares of Class A Convertible Preferred Stock from
the Company for an aggregate price of $3,000,000.
 
    DLJ was paid $1,278,000 in Fiscal 1996 for consulting services in connection
with the bankruptcy proceedings.
 
    Prior to the Effective Date, the Company was party to a financial 
advisory agreement with Miller Tabak Hirsch + Co. (the "MTH Agreement") 
pursuant to which MTH, which indirectly controlled the Company and Penn 
Traffic Company ("Penn Traffic"), was to have provided certain financial 
consulting and business management services to the Company through July 1997. 
In accordance with the Plan, the MTH Agreement was terminated on the 
Effective Date and Grand Union executed a settlement agreement with MTH (the 
"MTH Settlement Agreement") which provides for the termination of the MTH 
Agreement, payment by Grand Union of accrued and unpaid fees under the MTH 
Agreement through the Effective Date and the indemnification of MTH and 
certain entities related to MTH from certain claims and liabilities, subject 
to the terms and limitations set forth in the MTH Settlement Agreement. The 
Company deposited $3,000,000 relating to the indemnification in escrow on the 
Effective Date. This amount is included in other assets in the Consolidated 
Balance Sheet. During the 11 weeks ended June 17, 1995 and Fiscal 1995, the 
Company paid $315,000 and $750,000, respectively, to MTH pursuant to the MTH 
Agreement.

    From September 1993 until September 1995, Grand Union and Penn Traffic were
parties to a combined purchasing and distribution agreement relating to general
merchandise and health and beauty care products. In September 1995, Grand Union
purchased from Penn Traffic approximately $12,821,000 of merchandise which had
been owned by Penn Traffic under the joint buying arrangement.

NOTE 15--CONTINGENCIES
 
    The Company is subject to certain legal proceedings and claims arising in
connection with its business. It is management's opinion that the ultimate
resolution of such legal proceedings and claims will not have a material adverse
effect on the Company's consolidated results of operations or its financial
position.
 
                                     F-20
<PAGE>


    NOTE 16--Quarterly Financial Information (Unaudited) (in thousands, except
loss per share and market price)
 
<TABLE>
<CAPTION>
                                                                                  SUCCESSOR COMPANY
                                                                    ---------------------------------------------
                                                                     1ST (a)       2ND         3RD         4TH
                                                                    ----------  ----------  ----------  ---------
<S>                                                                 <C>         <C>         <C>         <C>
Fiscal 1997:
Sales.............................................................  $  726,823  $  533,412  $  537,151    515,287
Gross profit......................................................     221,899     162,158     164,335    157,355
Unusual items.....................................................      --          --          --         (9,800)
Loss before income taxes..........................................     (48,251)    (37,635)    (38,364)   (56,581)
Net loss..........................................................     (43,812)    (30,653)    (31,677)   (77,212)
Net loss applicable to common stock...............................     (43,812)    (30,896)    (32,465)   (78,181)
Net loss per common share.........................................       (4.38)      (3.09)      (3.25)     (7.82)
Market Price-high................................................      7 9/16       6 7/8      7 3/16     5 3/16
Market Price-low.................................................       5 7/8           5      4 1/12          3
</TABLE>
 
<TABLE>
<CAPTION>
                                                      PREDECESSOR
                                                        COMPANY                  SUCCESSOR COMPANY               
                                                      -----------------------------------------------------------
                                                        1ST (a)                   2ND         3RD         4TH
                                                       ----------------------------------------------------------
                                                       11 WEEKS     5 WEEKS
                                                         ENDED       ENDED             
                                                       JUNE 17,     JULY 22,
Fiscal 1996                                              1995         1995                         
                                                       ----------------------------------------------------------
<S>                                                   <C>          <C>         <C>         <C>         <C>
Sales...............................................   $ 487,882   $  232,663  $  523,711  $  543,617  $  519,937
Gross profit........................................     143,841       73,080     162,637     166,863     167,276
Unusual items.......................................     (18,627)      --          (4,500)    (15,000)     (2,500)
Loss before income taxes and extraordinary gain on
  debt discharge....................................     (29,336)      (9,023)    (35,947)    (48,834)    (34,979)
Extraordinary gain on debt discharge................     854,785       --          --          --          --
Net income (loss)...................................     825,449       (9,523)    (30,075)    (40,994)    (29,264)
Net loss per share..................................      --            (0.95)      (3.01)      (4.10)      (2.93)
Market Price-high..................................      --           --          15 1/8      12 1/4      8 9/16
Market Price-low...................................      --           --              10       4 7/8     5 13/16
</TABLE>
 

 
(a) Represents 16 weeks, all other quarters are 12 weeks.
 
    Loss per common share data is not meaningful for the period prior to the
Effective Date due to the significant change in the capital structure of the
Company.
 
                                       F-21