Document:

<PAGE>

                                                               Execution Copy

                                 AMENDMENT NO. 2
                                       TO
                    SECURITIES PURCHASE AND HOLDERS AGREEMENT

                  AMENDMENT NO. 2 (this "Amendment"), dated as of May 31, 2000,
to the Securities Purchase and Holders Agreement, dated as of August 13, 1999,
by and among Intersil Holding Corporation, a Delaware corporation (the
"Company"), Sterling Holding Company, LLC, a Delaware limited liability company,
Manatee Investment Corporation, a Delaware corporation, Intersil Prism, LLC, a
Delaware limited liability company, Citicorp Mezzanine Partners, L.P., a
Delaware limited partnership, William N. Stout, and the individuals and trust(s)
listed as "Management Investors" on Schedule I thereto and who joined the
Original Stockholders Agreement, as provided therein, as "Management Investors"
(collectively, the "Management Investors"), as amended by Amendment No. 1 to the
Securities Purchase and Holders Agreement dated as of December 13, 1999 (the
"Original Stockholders Agreement").

                                   Background

         A. The parties hereto are parties to the Original Stockholders
Agreement.

         B. The parties hereto desire to amend the Original Stockholders
Agreement, in accordance with the requirements of Section 9.3 thereof, and upon
the terms and conditions and in the manner set forth below.

                                      Terms

            In consideration of the mutual covenants contained herein and
intending to be legally bound hereby, the parties hereto agree as follows:

            1. Definitions. Unless otherwise defined herein, capitalized terms
used herein without definition shall have the meanings ascribed to them in the
Original Stockholders Agreement.

            2. Amendments to Original Stockholders Agreement.

            2.1. Section 1.1. Section 1.1 of the Original Stockholders Agreement
is hereby amended by replacing the definition of "Purchase Number" as follows:

            "Purchase Number" has the meaning set forth in Section 7.2(a) of
this Agreement.

            2.2. Sections 4.9, 5.5 and 5.7. Sections 4.9, 5.5 and 5.7 of the
Original Stockholders Agreement are hereby deleted in their entirety.

            2.3. Section 5.8. Section 5.8 of the Original Stockholders Agreement
is hereby amended by adding a subsection (f) as follows:

<PAGE>

                 (f) Notwithstanding the foregoing, the employment of Chin Bin
Teh by ChipPAC shall not violate the provisions of this Section 5.8.

            2.4. Section 6.2. Section 6.2 of the Original Stockholders Agreement
is hereby amended to read, in its entirety, as follows:

                 6.2 Directors and Voting Agreements. Each Investor shall take,
at any time and from time to time, all action necessary (including, without
limitation, voting the Class A Common Stock owned by him, her or it, calling
special meetings of stockholders and executing and delivering written consents)
to ensure that the Board of Directors of the Company is composed at all times of
up to seven persons, determined as follows: (i) the chief executive officer of
the Company; (ii) one individual designated by Sterling; (iii) up to four
independent directors, who shall be designated by Sterling (to the extent
permitted by applicable law as determined by Sterling in its sole discretion),
subject to the right of the holders of a majority of the outstanding shares of
Class A Common Stock (including any shares of Class A Common Stock held by
Sterling) to veto the election of any such independent director, provided that
in the event that Sterling concludes that it is unable to designate, or elects
not to designate for any reason, one or more of such independent directors or
the election of any such independent director is not approved by the holders of
a majority of the outstanding shares of Class A Common Stock, such
directorship(s) shall not be filled by the remaining members of the Company's
Board of Directors but shall remain vacant until the election of a director
designated by Sterling to fill such vacancy in accordance with this Section 6.2;
and (iv) at all times, but only at such times, when the Board of Directors of
the Company includes four independent directors determined in accordance with
clause (iii) of this Section 6.2, one additional individual designated by
Sterling, and provided that, notwithstanding clauses (i) through (iv) of this
Section 6.2, if Sterling at any time owns of record in excess of 50% of the
Class A Common Stock then outstanding, then the Board of Directors of the
Company shall consist of the chief executive officer of the Company and up to
six individuals designated by Sterling in its sole discretion. The initial
directors named pursuant to this Section 6.2 shall be Gregory L. Williams, James
A. Urry and Gary E. Gist.

            2.5. Section 6.6. Section 6.6 of the Original Stockholders Agreement
is hereby amended to read, in its entirety, as follows:

                 6.6 Termination of Voting Agreements. The voting agreements in
Sections 6.2, 6.3, 6.4 and 6.5 shall terminate on the earlier of (i) the date
the Company consummates a Public Offering (if requested by the underwriter with
respect to such offering or in any event as to Harris) and (ii) the date when
Sterling and its Permitted Transferees and their respective Affiliates no longer
own at least 15% of the issued and outstanding Common Stock.

            2.6. Section 7.1. The first sentence of Section 7.1 of the Original
Stockholders Agreement is hereby deleted in its entirety.

            2.7. Section 7.2(a). Section 7.2(a), but not its subsections unless
otherwise provided herein, of the Original Stockholders Agreement is hereby
amended to read, in its entirety, as follows:

                                      -2-
<PAGE>

                 (a) General Terms. In the event that on or prior to March 1,
2001, any Management Investor shall cease to be employed by the Company for any
reason (including, but not limited to, death, temporary or permanent disability,
retirement at age 62 or more under the Company's normal retirement policies,
resignation or termination by the Company with or without Cause), such
Management Investor (or such Management Investor's heirs, executors,
administrators, transferees, successors or assigns) shall give prompt notice to
the Company of such termination (except in the case of termination by the
Company with or without Cause), and the Company, or one or more designee(s)
selected by a majority of the members of the Board of Directors, shall have the
right and option at any time within 90 days after the later of the effective
date of such termination of employment (the "Termination Date") or the date of
the Company's receipt of the aforesaid notice, to purchase from such Management
Investor, any Person purchasing Securities hereunder on behalf of such
Management Investor, or such Management Investor's or Person's heirs, executors,
administrators, transferees, successors or assigns, as the case may be, 20% of
the Incentive Shares then owned by such Management Investor (such number of
Incentive Shares being the "Purchase Number") and such Management Investor's
Permitted Transferees at a purchase price equal to the Option Purchase Price as
defined in Section 7.2(a)(ii)(A) below. The Company or its designee(s) shall
give notice to the terminated Management Investor (or such Management Investor's
heirs, executors, administrators, transferees, successors or assigns) of its
intention to purchase Incentive Shares at any time not later than 90 days after
the Termination Date. (The right of the Company and its designee(s) set forth in
this Section 7.2 to purchase a terminated Management Investor's Incentive Shares
is hereinafter referred to as the "Purchase Option"). As a condition to
purchasing a Management Investor's Incentive Shares pursuant to this Section
7.2, any designee(s) selected by the Board of Directors must agree in writing to
assume the Company's obligations under Section 7.2(a)(iii). A designee's
agreement to assume such obligations will relieve the Company of its obligations
under Section 7.2(a)(iii) with regard to the particular terminated Management
Investor and such Management Investor shall thereafter have no recourse against
the Company under Section 7.2(a)(iii).

            2.8. Section 7.2(a)(ii)(A). Section 7.2(a)(ii)(A) of the Original
Stockholders Agreement is hereby amended to read, in its entirety, as follows:

                 (ii) Option Purchase Price. (A) If the Management Investor
shall be terminated by the Company for any reason (including, but not limited
to, normal retirement at age 62 or more under the Company's normal retirement
policies, voluntary resignation or termination by the Company with or without
Cause), other than for death or temporary or permanent disability, the "Option
Purchase Price" for the Incentive Shares to be purchased from such Management
Investor or such Management Investor's Permitted Transferees pursuant to the
Purchase Option shall equal the price set forth in the table below opposite the
applicable Termination Date of such Management Investor:

                                      -3-
<PAGE>

If the Termination Date Occurs:            Option Purchase Price
-------------------------------            ---------------------

On or after March 1, 2000                  Adjusted Cost Price multiplied by
                                           the Purchase Number

After March 1, 2001                        Not applicable

If the Management Investor shall be terminated by the Company for death or
temporary or permanent disability prior to March 1, 2001, the Board of Directors
shall determine the Option Purchase Price applicable for the Incentive Shares to
be purchased from such Management Investor or such Management Investor's
Permitted Transferees pursuant to the Purchase Option and shall notify the
Company of such Option Purchase Price within 60 days after the Management
Investor's Termination Date; provided, however, that the Option Purchase Price
shall in no event be less than the Adjusted Cost Price multiplied by the
Purchase Number.

            2.9. Section 7.2(a)(ii)(B). Section 7.2(a)(ii)(B) of the Original
Stockholders Agreement is hereby deleted in its entirety.

            2.10. Section 7.2(a)(iv). Section 7.2(a) of the Original
Stockholders Agreement is hereby amended by adding a subsection (iv) as follows:

                  (iv) With respect solely to Chin Bin Teh, the reference in the
first sentence of Section 7.2(a) to cessation of the Management Investor's
employment with the Company is replaced with a reference to cessation of the
Management Investor's employment with ChipPAC and the corresponding reference to
the effective date of such termination of employment refers to the termination
of employment of such Management Investor with ChipPAC.

            2.11. Section 7.3. Section 7.3 of the Original Stockholders
Agreement is hereby deleted in its entirety.

            2.12. Section 7.6. Section 7.6 of the Original Stockholders
Agreement is hereby amended by adding a subsection (c) as follows:

                  (c) Notwithstanding the foregoing, the employment of Chin Bin
Teh by ChipPAC shall not violate the provisions of this Section 7.6.

            2.13. Sections 7.7 and 7.9. Sections 7.7 and 7.9 of the Original
Stockholders Agreement are hereby deleted in their entirety.

            2.14. Section 9.6. Section 9.6 of the Original Stockholders
Agreement is hereby amended to read, in its entirety, as follows:

                  9.6 Successors and Assigns; Entire Agreement. This Agreement
and all of the provisions hereof shall be binding upon and inure to the benefit
of the parties hereto and their respective successors and permitted assigns and
executors, administrators and heirs; provided that, in the event Sterling
distributes the Shares held by it to its members, the rights of

                                      -4-
<PAGE>

Sterling shall inure to the benefit of the distributee of a majority of the
Shares previously held by Sterling. Except for any agreement entered into
between the Company and a Management Investor with respect to the vesting of
Incentive Shares existing as of the date hereof which shall for such purpose
supersede this Agreement, this Agreement, together with the Registration Rights
Agreement, sets forth the entire agreement and understanding among the parties
as to the subject matter hereof and merges and supersedes all prior discussions,
agreements and understandings of any and every nature among them.

            2.15. Section 9.21. Section 9.21 of the Original Stockholders
Agreement is hereby deleted in its entirety.

            2.16. Schedule I. Schedule I to the Original Stockholders Agreement
is hereby replaced and superseded by Schedule I attached hereto. All references
to Schedule I in the Original Stockholders Agreement shall hereafter be deemed
to be references to the attached Schedule I.

            3. Effectiveness. This Amendment shall take effect as of the date
first set forth above.

            4. Miscellaneous.

            4.1. Headings. The headings preceding the text of the sections and
subsections of this Amendment are for convenience of reference only and shall
not constitute a part of this Amendment, nor shall they affect its meaning,
construction or effect.

            4.2. Counterparts. This Amendment may be executed in counterparts,
each of which when so executed shall be deemed to be an original, and all of
which taken together shall constitute one and the same instrument.

            4.3. No Effect on Employment. Nothing herein contained shall confer
on any Management Investor the right to remain in the employ of the Company or
any of its subsidiaries or Affiliates.

            4.4. Governing Law. This Amendment shall be governed by and
construed in accordance with the internal law of Delaware, without giving effect
to principles of conflicts of law.

            4.5. Incorporation of Amendment. On and after the date hereof each
reference in the Original Stockholders Agreement to "this Agreement,"
"hereunder," "hereof," "herein" or words of like import shall be a reference to
the Original Stockholders Agreement as amended hereby.

            4.6. Continued Effectiveness of Original Stockholders Agreement.
Except as specifically amended above, all terms of the Original Stockholders
Agreement shall remain unchanged and in full force and effect.

                                      -5-
<PAGE>

                  IN WITNESS WHEREOF, the parties hereto have executed this
Amendment on the date first written above.

                                 INTERSIL HOLDING CORPORATION

                                 By:  /s/ Gregory L. Williams
                                     ----------------------------------------
                                     Name:  Gregory L. Williams
                                     Title: Chief Executive Officer

                                 STERLING HOLDING COMPANY, LLC

                                 By:  /s/ James A. Urry
                                     ----------------------------------------
                                     Name:  James A. Urry
                                     Title: Authorized Signatory

                                 MANATEE INVESTMENT CORPORATION

                                 By:  /s/ David S. Wasserman
                                     ----------------------------------------
                                      Name:  David S. Wasserman
                                      Title: Vice President-Treasurer

                                 CITICORP MEZZANINE PARTNERS, L.P.

                                 By: /s/ Richard E. Mayberry, Jr.
                                     ----------------------------------------
                                     Name:  Richard E. Mayberry, Jr.
                                     Title: Managing Director

                    [SIGNATURES CONTINUED ON FOLLOWING PAGE]
<PAGE>

                                 MANAGEMENT INVESTORS:

                                 MICHAEL W. ALTHAR & MICHELLE J.
                                 ALTHAR REVOCABLE TRUST

                                 By: /s/ Michael W. Althar
                                     ----------------------------------------
                                         Michael W. Althar, Trustee

                                      Matthew Althar   /s/ Michael Althar
                                 --------------------------------------------
                                      Matthew Althar

                                      Adam Althar      /s/ Michael Althar
                                 --------------------------------------------
                                      Adam Althar

                                  /s/ Lawrence J. Ciaccia
                                 --------------------------------------
                                      Lawrence J. Ciaccia

                                  /s/ Marcia Ciaccia
                                 --------------------------------------
                                      Marcia Ciaccia

                                 LAWRENCE J. CIACCIA & MARCIA R.
                                 CIACCIA TRUST DATED 1/20/00 fbo
                                 MICHAEL L. CIACCIA

                                 By:  /s/ David S. Landeta
                                     ----------------------------------------
                                          David S. Landeta, Trustee

                                 LAWRENCE J. CIACCIA & MARCIA R.
                                 CIACCIA TRUST DATED 1/20/00 fbo
                                 LAUREN A. CIACCIA

                                 By:  /s/ David S. Landeta
                                     ----------------------------------------
                                          David S. Landeta, Trustee

                                  /s/ Joseph Ciaccia
                                 --------------------------------------
                                      Joseph Ciaccia

                                  /s/ Julie B. Forbes
                                 --------------------------------------
                                      Julie B. Forbes

                    [SIGNATURES CONTINUED ON FOLLOWING PAGE]
<PAGE>
                                  /s/ Peter K. Forbes
                                 --------------------------------------
                                      Peter K. Forbes

                                 PETER K. FORBES & JULIE B. FORBES
                                 TRUST DATED 1/20/00 fbo JENNIFER
                                 LEIGH FORBES

                                 By:  /s/ Laura A. Forbes
                                     ----------------------------------------
                                      Laura A. Forbes, Trustee

                                 PETER K. FORBES & JULIE B. FORBES
                                 TRUST DATED 1/20/00 fbo JAKE P.
                                 FORBES

                                 By:  /s/ Laura A. Forbes
                                     ----------------------------------------
                                      Laura A. Forbes, Trustee

                                  /s/ Raymond T. Ford
                                 --------------------------------------
                                      Raymond T. Ford

                                  /s/ Sandra Ford
                                 --------------------------------------
                                      Sandra Ford

                                 RAYMOND T. FORD AND SANDRA L.
                                 FORD IRREVOCABLE AGREEMENT OF
                                 TRUST DATED JANUARY 31, 2000
                                 BETWEEN RAYMOND T. FORD AND
                                 SANDRA L. FORD, AS SETTLORS AND
                                 WILLIAM FORD, AS TRUSTEE

                                 By:  /s/ William Ford
                                     ----------------------------------------
                                          William Ford, Trustee

                                 MITCHELL FORD

                                 By:  /s/ William Ford
                                     ----------------------------------------
                                          William Ford, Custodian

                    [SIGNATURES CONTINUED ON FOLLOWING PAGE]
<PAGE>

                                 CAMERON FORD

                                 By:  /s/ William Ford
                                     ----------------------------------------
                                          William Ford, Custodian

                                 MEGAN FORD

                                 By:  /s/ Robert Ford
                                     ----------------------------------------
                                          Robert Ford, Custodian

                                 CASSANDRA FORD

                                 By:  /s/ Robert Ford
                                     ----------------------------------------
                                          Robert Ford, Custodian

                                 DANIELLE MAZUR

                                 By:  /s/ Sheila Mazur
                                     ----------------------------------------
                                          Sheila Mazur, Custodian

                                 NICHOLAS MAZUR

                                 By:  /s/ Sheila Mazur
                                     ----------------------------------------
                                          Sheila Mazur, Custodian

                                 RAYMOND T. FORD IRA ROLLOVER
                                 DATED 10/14/98

                                 BY:  DEAN WITTER REYNOLDS
                                          CUSTODIAN

                                 By:
                                     ----------------------------------------
                                      Name:
                                      Financial Advisor

                                  /s/ Rick Furtney
                                 --------------------------------------
                                      Rick Furtney

                                  /s/ George Gidzinski
                                 --------------------------------------
                                 George Gidzinski

                                  /s/ Daniel J. Heneghan
                                 --------------------------------------
                                      Daniel J. Heneghan

                    [SIGNATURES CONTINUED ON FOLLOWING PAGE]
<PAGE>
                                  /s/ Barbara Heneghan
                                 -------------------------------------
                                      Barbara Heneghan

                                  /s/ Jeffrey G. Mansmann
                                 --------------------------------------
                                      Jeffrey G. Mansmann

                                  /s/ Patricia Mansmann
                                 --------------------------------------
                                      Patricia Mansmann

                                 IRREVOCABLE TRUST AGREEMENT
                                 DATED 1/21/00

                                 By:  /s/ H. Joseph Mansmann
                                     ----------------------------------------
                                      H. Joseph Mansmann, Trustee

                                 By:  /s/ V. Laverne Mansmann
                                     ----------------------------------------
                                      V. Laverne Mansmann, Trustee

                                  /s/ Karl McCalley
                                 -------------------------------------
                                      Karl McCalley

                                  /s/ Phillip K. McCalley
                                 -------------------------------------
                                      Phillip K. McCalley

                                  /s/ Cinsy McCalley Krehbiel
                                 -------------------------------------
                                      Cinsy McCalley Krehbiel

                                  /s/ Stephen M. Moran
                                 -------------------------------------
                                      Stephen M. Moran

                                 W. RUSSELL MORCOM
                                 REVOCABLE TRUST

                                 By:  /s/ W. Russell Morcom
                                     ----------------------------------------
                                          W. Russell Morcom, Trustee

                                 W. RUSSELL MORCOM IRREVOCABLE
                                 TRUST fbo TODD RUSSELL MORCOM
                                 DATED 12/23/99

                                 By:  /s/ Thomas A. Morcom
                                     ----------------------------------------
                                          Thomas A. Morcom, Trustee

                    [SIGNATURES CONTINUED ON FOLLOWING PAGE]
<PAGE>

                                 W. RUSSELL MORCOM IRREVOCABLE
                                 TRUST fbo BRAD ALLEN MORCOM
                                 DATED 12/23/99

                                 By:  /s/ Thomas A. Morcom
                                     ----------------------------------------
                                          Thomas A. Morcom, Trustee

                                  /s/ Ray D. Odom
                                 --------------------------------------
                                      Ray D. Odom

                                 JENNIFER ODOM IRREVOCABLE
                                 TRUST AGREEMENT DATED 12/29/99

                                 By:  /s/ A. Van Catteron, Jr.
                                     ----------------------------------------
                                          A. Van Catteron, Jr., Trustee

                                 BRIAN ODOM IRREVOCABLE TRUST
                                 AGREEMENT DATED 12/29/99

                                 By:  /s/ A. Van Catteron, Jr.
                                     ----------------------------------------
                                          A. Van Catteron, Jr., Trustee

                                  /s/ Larry Sims
                                 --------------------------------------
                                      Larry Sims

                                  /s/ Elizabeth Sims
                                 --------------------------------------
                                      Elizabeth Sims

                                 LES GRAT No. 00-1

                                 By:  /s/ Larry Sims
                                     ----------------------------------------
                                          Larry Sims, Trustee

                                 By:  /s/ Elizabeth Sims
                                     ----------------------------------------
                                          Elizabeth Sims, Trustee

                                 LS PARENTS TRUST 00-1

                                 By:  /s/ Gary Martin
                                     ----------------------------------------
                                          Gary Martin, Trustee

                    [SIGNATURES CONTINUED ON FOLLOWING PAGE]
<PAGE>

                                 ES PARENTS TRUST No. 00-1

                                 By:  /s/ Gary Martin
                                     ----------------------------------------
                                          Gary Martin, Trustee

                                  /s/ Chin Bin The
                                 --------------------------------------
                                      Chin Bin The

                                  /s/ Stephen Titus
                                 --------------------------------------
                                      Stephen Titus

                                  /s/ Peter A. Titus
                                 --------------------------------------
                                      Peter A. Titus

                                  /s/ Leah A. Titus
                                 --------------------------------------
                                      Leah A. Titus

                                 GREGORY L. WILLIAMS AND
                                 LINDA M. WILLIAMS TRUST DATED
                                 1/28/00 fbo BROOKE M. WILLIAMS

                                 By:  Bank of America N.A., Trustee

                                      By:  /s/ Michael Cook
                                          -----------------------------
                                          Name: Michael Cook
                                          Title: Authorized Signatory

                                 GREGORY L. WILLIAMS AND LINDA
                                 WILLIAMS TRUST DATED 1/28/00 fbo
                                 TINA L. WILLIAMS

                                 BY:  BANK OF AMERICA N.A.,
                                      TRUSTEE

                                      By:  /s/ Michael Cook
                                          -----------------------------
                                          Name: Michael Cook
                                          Title: Authorized Signatory

                    [SIGNATURES CONTINUED ON FOLLOWING PAGE]

<PAGE>

                                 GREGORY L. WILLIAMS AND LINDA
                                 WILLIAMS TRUST DATED 1/28/00 fbo
                                 MILLARD L. WILLIAMS AND
                                 JEANETTE M. WILLIAMS

                                 BY:  BANK OF AMERICA N.A.,
                                      TRUSTEE

                                      By:  /s/ Michael Cook
                                          -----------------------------
                                          Name: Michael Cook
                                          Title: Authorized Signatory

                                  /s/ Gregory L. Williams
                                 -------------------------------------
                                      Gregory L. Williams

                                  /s/ Linda M. Williams
                                 -------------------------------------
                                      Linda M. Williams

                                 GREGORY L. WILLIAMS IRA ACCOUNT

                                 By: DLJSC

                                      By:
                                          -----------------------------
                                          Name:
                                          Title:

<PAGE>

                                                                      Schedule I

                              Management Investors

                                Incentive Shares     Incentive Shares*
                                -----------------    -----------------

Gregory L. Williams...........    3,000,000            2,000,000
Michael W. Althar.............      300,000              200,000
Lawrence J. Ciaccia...........      500,000              333,335
Raymond T. Ford...............    176,429.60             117,625
Raymond T. Ford IRA...........    123,570.40              82,380
Julie B. Forbes...............      300,000              200,000
Rick Furtney..................      150,000              100,000
George Gidzinski..............      600,000              400,000
Daniel J. Heneghan............      500,000              333,333
Jeffrey G. Mansmann...........      150,000              100,000
Karl McCalley.................      200,000              133,333
Stephen Moran.................       50,000               33,334
W. Russell Morcom.............      500,000              333,333
Ray D. Odom...................      500,000              333,334
Larry Sims....................      600,000              400,000
CB Teh........................      200,000              133,333
Stephen Titus.................      300,000              200,000

--------
* Giving effect to the Company's 1 for 1.5 reverse stock split effective on
February 23, 2000.<PAGE>

                                                                  Execution Copy

August 3, 2000

Gary M. Philbin

RE:  Retention Bonus Agreement

Dear Gary:

The following sets forth the agreement between you and The Grand Union Company,
a Delaware corporation (the "Company"), regarding the terms of the retention
bonus (the "Retention Bonus") that you may be eligible to receive in accordance
with the terms and conditions set forth below. This letter agreement (the
"Letter Agreement") is in addition to, and not in substitution for, any other
agreements between you and the Company, including without limitation the
employment agreement between you and the Company dated April 13, 2000 (the
"Employment Agreement"), and the Retention Bonus is in addition to, and not in
substitution for, any other pay or benefits to which you are eligible to earn
from the Company. The prior letter agreement between you and the Company
concerning the Retention Bonus dated July 21, 2000 is null and void and is
superceded by this Letter Agreement.

1. Definitions. For purposes of this Letter Agreement, the following capitalized
words that are not otherwise defined in the text of the Letter Agreement shall
have the meanings set forth below:

     "Board" shall mean the Board of Directors of the Company.

     "Cause" shall have the meaning set forth in your Employment Agreement.

     "Change in Control" shall mean the consummation of a Triggering Event.

     "Effective Date" shall mean July 12, 2000, the date on which the
     Compensation Committee of the Board approved the Retention Bonus.

     "Final Payment Date" shall mean the later of (a) July 1, 2001, if a
     Triggering Event does not occur prior to such date, or (b) in the event
     that a Triggering Event occurs prior to July 1, 2001, the latest to occur
     of (i) the date of a Change in Control corresponding to a Triggering Event
     where such Triggering Event has occurred before July 1, 2001, (ii) the date
     that any Triggering Event which occurs before July 1, 2001 is definitively
     canceled or otherwise becomes void or (iii) July 1, 2001.

     "Good Reason" shall have the meaning set forth in your Employment
     Agreement.

     "Involuntary Termination" shall mean (a) the termination of your employment
     by the Company other than for Cause, Death, Disability (as defined in your
     Employment Agreement), or retirement under the Company's Retirement Plan or
     (b) the resignation of your employment by you for Good Reason.

     "Payment Dates" shall mean January 1, 2001, April 1, 2001 and the Final
     Payment Date.

     "Purchaser" shall mean any person or entity that engages in a Change in
     Control transaction.

     A "Triggering Event" shall be deemed to have occurred on the date that any
     of the following shall have occurred:

     (A) the Company enters into a binding agreement with one or more Purchasers
     to directly acquire, in exchange for cash, stock, claims, or property,
     fifty percent or more of the aggregate equity securities of the Company as
     of the Effective Date;

     (B) the Company enters into a binding agreement providing for a merger,
     consolidation, reorganization or other business combination upon
     consummation of which one or more Purchasers would own or control fifty
     percent or more of either (i) the aggregate voting securities of the
     Company, (ii) the aggregate economic interest of the outstanding equity
     securities of the Company or (iii) the aggregate value of the assets of the
     Company;

<PAGE>

     (C) the Company enters into a transaction upon consummation of which one or
     more Purchasers would acquire in exchange for cash, stock, claims or
     property fifty percent or more of either (i) the aggregate equity
     securities of the Company, or (ii) the Company's assets; or

     (D) the Company files a plan of reorganization or motion for relief in a
     case under title 11 of the United States Code for the purpose of
     implementing an agreement or transaction of the type described in any of
     the preceding clauses (A), (B) or (C); provided, however, that a Triggering
     Event shall not include any change of ownership resulting from a public
     offering of any of the securities of the Company pursuant to an effective
     registration statement under the Securities Act of 1933, as amended.

2. Term. The term of this Letter Agreement (the "Term") shall commence on the
Effective Date and shall continue until the Final Payment Date.

3. Retention Bonus. In consideration of, and subject to, your continued
employment with the Company during the period beginning on the Effective Date
and continuing through each Payment Date, the Company will pay you a Retention
Bonus equal to 33%, 33% and 34%, respectively, of the annual rate of your base
salary as in effect on the Effective Date. The Company will pay each Retention
Bonus to you in a lump sum cash amount as soon as practicable after each Payment
Date where you remain in the continued employ of the Company, but in no event
shall such payment be made more than thirty days thereafter. Notwithstanding the
above, if you are in the employ of the Company and there is a Change in Control
following a Triggering Event during the term of this Letter Agreement, any
remaining Retention Bonuses will be paid to you as soon as practicable, but in
no event later than thirty days, following such Change in Control.

4. Effect of Termination of Employment.

(a) Involuntary Termination. In the event of your Involuntary Termination prior
to any of the Payment Dates, you shall be entitled to receive the Retention
Bonus in accordance with the terms of Section 3, as if your employment had
continued until such Payment Dates as occurs after the date of the termination
of your employment. Such payment shall be in addition to any benefits you may be
eligible for under your Employment Agreement.

(b) Other Termination. In the event that your employment terminates for any
reason other than an Involuntary Termination prior to any of the Payment Dates,
you shall forfeit your right any portion of the Retention Bonus not yet earned.

5. Notice. For the purpose of this Letter Agreement, notices and all other
communications provided for in this Letter Agreement shall be in writing and
shall be deemed to have been duly given when delivered by hand, sent by
telecopier or mailed by United States registered mail, return receipt requested,
postage prepaid, addressed to the Chief Executive Officer, The Grand Union
Company, 201 Willowbrook Blvd., Wayne, New Jersey 07470, telecopier: (973)
890-6012, with a copy to the General Counsel of the Company, or to you at the
address set forth on the first page of this Letter Agreement or to such other
address as either party may have furnished to the other in writing in accordance
herewith, except that notice of change of address shall be effective only upon
receipt.

6. Reduction of Payments if Reduction Would Result in Greater After-Tax Amount.
Notwithstanding anything herein to the contrary, if the payment of the Retention
Bonus and any other payments in connection with a Change of Control (together,
the "Payments") constitute a "parachute payment" (as defined in Section
280G(b)(2) of the Internal Revenue Code of 1986, as amended (the "Code")), and
the amount of the Payments net the excise tax (as described in Section 4999 of
the Code) payable with respect thereto is less than the amount to be paid to you
if the aggregate Payments to be made to you were three times your "base amount"
(as defined in Section 280G(b)(3) of the Code), less $1.00, then the aggregate
of the Payments constituting the parachute payment paid pursuant to this
Agreement shall be reduced to an amount that will equal three times your base
amount, less $1.00.

7. Miscellaneous.

(a) No Rights to Continued Employment. Neither this Letter Agreement nor any of
the rights or benefits evidenced hereby shall confer upon you any right to
continuance of employment by the Company or

                                       2
<PAGE>

interfere in any way with the right of the Company to terminate your employment,
subject to the provisions of Section 4 above, for any reason, with or without
Cause.

(b) Amendments, Waivers. No provision of this Letter Agreement may be modified,
waived or discharged unless such waiver, modification or discharge is agreed to
in writing by the parties hereto. No waiver by either party hereto at any time
of any breach by the other party hereto of, or compliance with, any condition or
provision of this Letter Agreement to be performed by such other party shall be
deemed a waiver of similar or dissimilar provisions or conditions at the same or
at any prior or subsequent time.

(c) Counterparts. This Letter Agreement may be executed in counterparts, each of
which shall be deemed to be an original but all of which together will
constitute one and the same instrument.

(d) Withholding. Amounts paid to you hereunder shall be subject to all
applicable federal, state and local wage withholdings.

(e) Headings. The headings contained in this Letter Agreement are intended
solely for convenience of reference and shall not affect the rights of the
parties to this Letter Agreement.

(f) Governing Law. The validity, interpretation, construction and performance of
this Letter Agreement shall be governed by the laws of the State of New Jersey
applicable to contracts entered into and performed in such state.

If this Letter Agreement sets forth our agreement on the subject matter hereof,
kindly sign and return to the Company the enclosed copy of this letter, which
will then constitute our agreement on this subject.

                             Sincerely,

                             The Grand Union Company

                             By: /s/ Glenn J. Smith
                                -------------------------------------
                             Name: Glenn J. Smith
                             Senior Vice President, General Counsel

                             And Corporate Secretary

Agreed to as of this 3rd day of August, 2000.

/s/ Gary M. Philbin
----------------------------------
Gary M. Philbin

                                       3

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