Sample "Chinese Wall" Agreement

The following "Chinese Wall" procedures (otherwise referred to as "Information-Blocking Procedures") were instituted in the Megafoods Stores Chapter 11 proceedings in 1994. The debtor was the operator of a large regional chain of supermarkets. Certain members of the Unsecured Creditors' Committee were current holders of the debtor's bonds. The blocking procedures were established to ensure that the bondholders' activities as members of the Committee would be insulated and separated from those members' trading desks with respect to the debtor's bonds. The concern in this case is present in many cases: the bondholder member of a Committee will become privy to extensive non-public, confidential information regarding the debtor and its operations and finances. Trading on such information would create many legal and fiduciary problems, so the bondholder will erect a "Chinese Wall" to separate its trading desk from its workout and reorganization desk.

Executive Guide to Corporate Bankruptcy

THOMAS J. SALERNO

CRAIG D. HANSEN

JORDAN A. KROOP

SQUIRE, SANDERS & DEMPSEY L.L.P.

40 North Central Avenue, Suite 2700

Phoenix, Arizona 85004

(602) 528-4000

Counsel For The Debtors

PAUL S. ARONZON

VALERIE A. LONGMIRE

MILBANK, TWEED, HADLEY & McCLOY

601 South Figueroa, 32nd Floor

Los Angeles, California 90017

(213) 892-4000

Counsel for the Official Committee

of Unsecured Creditors

IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT DISTRICT OF ARIZONA

Megafoods Stores, Inc. (the "Debtor") and the Official Committee (the "Committee") of Unsecured Creditors of Megafoods Stores, Inc., Handy Andy, Inc., Megafoods Real Estate, Inc. and Texas National Food Store Leasing, Inc. (collectively, the "Debtors"), appointed by the United States Trustee (the "Trustee") on August 18, 1994, of PaineWebber Incorporated ("PaineWebber"), and of Alliance Corporate Finance Group Incorporated ("Alliance") (acting on behalf of The Equitable Life Assurance Society of the United States ("Equitable") (collectively, PaineWebber and Alliance

Sample "Chinese Wall" Agreement

are referred to herein as the "Bondholders"), as individual members of the Committee, hereby jointly bring this Motion for an Order Approving Specified Information Blocking Procedures And Permitting Securities Trading In Certain Circumstances" (the "Motion").

By this Motion, the Debtors, the Committee and the Bondholders (collectively, the "Movants") respectfully request that the Court enter an order determining that the Bondholders will not be violating their respective duties as members of the Committee (and accordingly will not be subjecting their claims to possible disallowance, subordination or other adverse treatment) by trading in the Debtors' securities, during the pendency of the Debtors' chapter 11 case. To that end, the Bondholders will establish and maintain certain specified information blocking procedures to insulate the Bondholders' trading activities from their activities as members of the Committee.

The Motion is made on the grounds that the Bondholders' continued membership on the Committee is vital to the reorganization process and the protection of the interests of their investor constituents. Additionally, both the courts and the Securities and Exchange Commission (the "SEC") have favored such bondholder committee membership subject to information blocking devices similar to the ones proposed herein.

The Motion is filed pursuant to chapter 11 of Title 11 of the United States Code (the "Bankruptcy Code"), the Memorandum of Points and Authorities, exhibits, and Declarations of Paul H. Phaneuf and Kate Kutasi filed concurrently herewith, the files, records and other pleadings in these cases, as well as all matters of which this court properly may take judicial notice.

The Movants further move this Court for an order setting a hearing only upon the objection and a request for a hearing. Any such objection and request for a hearing must be in writing and must set forth with particularity the grounds for objection to the Motion. Any objection must be filed and served not later than fifteen (15) days from the date of the "Notice of Filing of Motion of the Official Committee of Unsecured Creditors, of PaineWebber Incorporated, and of Alliance Corporate Finance Group

Incorporated (On Behalf of the Equitable Life Assurance Society of the United States) for an Order Approving Specified Information Blocking Procedures and Permitting Securities Trading in Certain Circumstances." Failure to file and serve an objection may be deemed by the Court to be consent to the granting of the relief requested.

Executive Guide to Corporate Bankruptcy

Dated: October 3, 1994 RESPECTFULLY SUBMITTED,

SQUIRE SANDERS & DEMPSEY LLP

By: /s/ Thomas J. Salerno

Thomas J. Salerno

Craig D. Hansen

Jordan A. Kroop

Attorneys For The Debtors

MILBANK, TWEED, HADLEY & McCLOY

By: /s/ Paul S. Aronzon

Paul S. Aronzon

Valerie S. Longmire

Attorneys for Official Committee of Unsecured Creditors

Sample "Chinese Wall" Agreement

introduction
The Official Committee (the "Committee") of Unsecured Creditors of Megafoods Stores, Inc., Handy Andy, Inc., Megafoods Real Estate, Inc. and Texas National Food Store Leasing, Inc. (collectively, the "Debtors"), appointed by the United States Trustee (the "Trustee") on August 18, 1994, of PaineWebber Incorporated ("PaineWebber"), and of Alliance Corporate Finance Group Incorporated ("Alliance") (acting on behalf of The Equitable Life Assurance Society of the United States ("Equitable")) (collectively, PaineWebber and Alliance are referred to herein as the "Bondholders"), as individual members of the Committee, submit this "Memorandum of Points and Authorities in Support of the Motion of the Official Committee of Unsecured Creditors, of PaineWebber Incorporated, and of Alliance Corporate Finance Group Incorporated (on behalf of Equitable Life Assurance Society of the United States), for an Order Approving Specified Information Blocking Procedures And Permitting Securities Trading In Certain Circumstances" (the "Motion").
The Debtors.

The Debtors commenced their reorganization case on August 17, 1994, by filing a voluntary petition under the Bankruptcy Code. Megafoods Stores, Inc. filed a motion with this Court to jointly administer its case with that of Megafoods Real Estate, Inc., Handy Andy, Inc., and Texas National Food Store Leasing Co. The administrative consolidation motion was granted by this Court on September 7, 1994. The Debtors have continued to operate their businesses as debtors-in-possession pursuant to Bankruptcy Code §§ 1107(a) and 1108.

Pursuant to Bankruptcy Code § 1102(a)(1), the United States Trustee for the District of Arizona appointed the Committee on August 18, 1994, to represent the interests of the Debtors' unsecured creditors. A copy of the United States Trustee's Appointment of Committee of Unsecured Creditors is attached hereto as Exhibit 1. Paul Phaneuf, First Vice President of the High Yield Capital Markets Division of PaineWebber ("Phaneuf"), was appointed to represent PaineWebber on the Committee. See Declaration of Phaneuf (the "Phaneuf Declaration"), ¶ 3, attached hereto. Kate Kutasi, an investment officer of Equitable and a Managing Director of Alliance "Kutasi"), was appointed to represent Equitable on the Committee. See Declaration of Kutasi (the "Kutasi Declaration"), ¶ 3, attached hereto.

The Information Blocking Procedures.

Alliance.

Alliance proposes that the information blocking procedures ("IBP") that

Executive Guide to Corporate Bankruptcy

it has established and maintained, be continued as a condition precedent to its trading in the securities. These internal procedures include: (i) written acknowledgment by relevant Alliance personnel that they have received, reviewed and are in full compliance with the firm's IBP's and guidelines; (ii) a prohibition against employees engaged in transactional activities, sharing, discussing or exchanging any written or oral non-public information, whether or not material, with employees performing investment management activities; (iii) a prohibition against disclosing written or oral material non-public information to employees engaged in investment management activities and limiting access to such information to employees engaged in transactional activities (and to directors and senior executives of Alliance who are not actually involved in investment management decisions, compliance officers, and certain identified accountants, lawyers or other outside professional advisors); (iv) restrictions to help assure the confidentiality of material non-public information including limiting access to office areas where inside information may be discussed, securing confidential documents in locked cabinets or other secure locations; (v) where necessary, prohibitions against any employee engaged in investment management activities who has access to material non-public information from buying, selling, trading or recommending the securities, or participating in any decisions to do so; and (vi) an internal compliance review process to assure that any trades of securities by Alliance were made in compliance with the IBP's. As discussed more fully below, other courts and the SEC commonly approve such IBP's in similar circumstances.

PaineWebber.

PaineWebber proposes that the IBP's that PaineWebber has established and maintained, be continued as a condition precedent to its trading in the securities. These internal procedures include: (i) written acknowledgement by PaineWebber personnel that they have received, reviewed and are in full compliance with the firm's IBP's and guidelines; (ii) a prohibition against investment banking personnel (including employees who serve on creditor's committee) sharing, discussing or exchanging any material non-public information with employees engaged in research, sales, trading, portfolio management and administrative activities; (iii) a prohibition against disclosing material non-public information to any other person except firm personnel or persons outside the firm (such as the firm's outside counsel or accountants) who have a valid business reason for receiving such information, i.e., who have a "need to know" the information to serve the business purposes of the firm or clients; (iv) restrictions to help assure the confidentiality of material non-public information including limiting access to office areas where inside information may be discussed, securing confidential documents in locked file cabinets or other secure locations and, where appropriate, physically segregating various business units of the firm; (v) prohibitions against any investment banking person

Sample "Chinese Wall" Agreement

nel who have access to material non-public information from buying, selling, trading or recommending the securities, or participating in any decisions to do so; and (vi) internal compliance restrictions and reviews to assure that any trades of securities by PaineWebber are made in compliance with the IBP's. As discussed more fully below, other courts and the SEC commonly approve such IBP's in similar circumstances.

argument

The Policy Underlying the Appointment of Committees, the Securities Trading Regulations, and the Securities and Exchange Commission Support the Use of Information Blocking Procedures as a Means of Allowing Committee Members to Trade in the Debtors' Securities.

Compelling policy reasons exist in favor of allowing trading bondholders to serve on a committee. Robert C. Pozer and Judy K. Mencher, "Chinese Walls For Creditors' Committee", 48 Bus. Law. 747 (1993).

The Bondholders are obligated to maximize returns for their investors through the trading of securities. But, as members of the Committee, the Bondholders' representatives may have access to confidential information regarding the Debtors and, thus, owe a fiduciary duty to other holders of the securities not to profit from their status as insiders. The result is that the Bondholders may be prevented from trading in the Debtors' securities during the pendency of the Debtors' chapter 11 case because of their duties to others as a member of the Committee.

If the Bondholders are barred from trading in the securities during the pendency of the Debtors' case because of their fiduciary duties to other creditors, they face a dilemma: they can remain members of the Committee and risk the loss of beneficial investment opportunities for their investors, or resign from the Committee and possibly compromise their shareholders' existing positions in the securities by not contributing to the reorganization process as a member of the Committee. Moreover, for the Committee, the unpleasant alternatives are either to lose the services of a potentially valuable member, or to risk damage to the Committee's role in the reorganization process from allegations that one of its members violated its fiduciary duties as a Committee member.

The solution to this dilemma is to allow the Bondholders to serve on the Committee and to trade in the securities on terms that protect the interests of others. Therefore, the Movants seek an order of this Court holding that the Bondholders will not be violating their fiduciary duties as members of the Committee (and, therefore, will not be subjecting their claims to possible disallowance, subordination or other adverse treatment) by trading in the securities during the pendency of the Debtors' chapter 11 case. Such an order should be granted provided that they use IBP's to insulate their trading activities from their activities as a member of the Committee. Such IBP's

Executive Guide to Corporate Bankruptcy

are common throughout the securities trading industry as a means for financial institutions to provide different types of financial services to their customers without violating the federal securities laws. The Movants submit that just as IBP's are an accepted means under the federal securities law for permitting financing institutions to trade without misusing "inside information," so too will the IBP's in the instant situation ensure that the Bondholders' trading in the securities will not constitute an abuse of their Committee position or a violation of their fiduciary duties as members of the Committee.

The Securities and Exchange Commission and the Courts Have

Supported the Use of Information Blocking Procedures in Similar

Situations
The order that the Movants seek is identical to orders entered in at least five other Chapter 11 cases. In re Federated Departments Stores, Inc., 1991 Bankr. LEXIS 288, No. 1-900130, slip. op. (Bankr. S.D. Ohio, entered March 7, 1991) (bondholder may sit on creditors' committee when it employs the appropriate information blocking devices); In re Harvard Industries, Inc., Nos. 91-404, 91-479 to 91-487, slip op. (Bankr. D. Del., entered July 15, 1991) (same); In re Farley, Inc., No. 91-B-15610 (Bankr. N.D. Ill., entered November 8, 1991) (same); In re Days Inn of America, Inc., Nos. 91-978 through 91-986 inclusive (Bankr. D. Del., entered January 31, 1992) (same); and, In re Interco, Inc., No. 91-40442-172-BKC-JJB (Bankr. E.D. Mo., entered February 7, 1992) (same). Copies of the foregoing orders are annexed hereto as Exhibits 2, 3, 4, 5 and 6, respectively. The order entered in each of these cases provides that a committee member will not violate its fiduciary duties as a committee member if it trades in the debtors' securities in accordance with information blocking procedures set forth therein and approved in advance by those courts. Under those orders, the courts reserved the right to take appropriate action if an actual breach of fiduciary duty occurs because the IBP's are not followed or for any other unrelated reason.
The SEC filed a memorandum supporting the entry of an order instituting information blocking procedures in the Federated Department Stores case.¹ As the SEC explained in its memorandum, neither the federal securities laws nor the Bankruptcy Code precludes a court from granting relief of this kind:

¹The SEC memorandum contains a thorough analysis of the relevant law and is often cited as the seminal piece of IBPs for creditors' committees. In lieu of preparing and filing an additional memorandum of law on the identical subject with substantially the same arguments, the Committee adopts the legal analysis in the SEC's memorandum and annexes a copy as Exhibit 7 in support of the Motion.

Sample "Chinese Wall" Agreement

[C]onsistent with the requirements of the federal securities laws and the bankruptcy laws, an entity that is engaged in the trading of securities as a regular part of its business and that has implemented procedures reasonably designed to prevent the transmission to its trading personnel of information obtained through service on an official committee is not precluded from serving on the committee and, at the same time, trading in the debtor's securities.

SEC Memorandum at p. 3; see also Alan R. Bromberg & Lewis D. Lowenfels, Securities Fraud & Commodities Fraud, § 7.5 (312) (1993).

The result urged by the SEC is consistent with good corporate practice regardless of the existence of a bankruptcy case. The use of IBP's, such as those suggested here, have become a common method by which firms such as the Bondholders guard against the misuse of non-public information. See SEC Memorandum at p. 3; 48 Bus. Law. at 754-757. In fact, such devices are mandated under the Insider Trading Securities Fraud Enforcement Act of 1988 for broker-dealers and investment advisers and provide a defense to actions brought under the anti-fraud provisions of the securities laws. See 15 U.S.C. §78(o)f and 15 U.S.C. §80b-4a. There is no reason why the same techniques should not be employed in a bankruptcy reorganization case, particularly when (i) the same danger _ trading on insider information _ is to be protected against; (ii) nothing in the Bankruptcy Code or Bankruptcy Rules would prohibit such trading; and (iii) strong bankruptcy policies that encourage participation on creditors' committees militate towards such a result. 48 Bus. Law. at 756-757.

The SEC also observed that large institutional creditors may be among a debtor's largest creditors and "have skills and expertise that are likely to be extremely valuable to the committee," and concluded that there should be no "legal impediment to permitting the service of such entities on official committees." SEC Memorandum at p. 3. The Bankruptcy Courts in Federal Department Stores, Harvard Industries, Farley, Days Inn, and Interco concurred. See Exhibits 2, 3, 4, 5 and 6, respectively.

Allowing the Debtors' Largest Creditors to Serve on the Committee Constitutes Sound Bankruptcy Policy

The Bondholders rank among the Debtors' largest security holders and creditors. As such, they have a great incentive to pursue Committee work diligently toward the goal of confirming a plan of reorganization. Moreover, as a matter of sound bankruptcy policy, the largest creditors of a debtor, who often have substantial expertise and experience in reorganizations, should not be deterred from serving on a committee. See SEC Memorandum at p. 3; 48 Bus. Law. at 747-749. This result would be contrary to the expressed intent of the Bankruptcy Code, which states in pertinent part that an appointed committee "shall ordinarily consist of the persons, willing to serve, that hold the . . . largest claims against the debtor of the kinds

Executive Guide to Corporate Bankruptcy

represented on such committee." Bankruptcy Code § 1102(b)(1).

The Movants submit that in light of the present financial environment, trading by committee members in a debtor's securities makes even more sense. During the past several years, high yield securities have coma to represent a significant portion of the unsecured claims against financially distressed companies. Unlike traditional bank loans, most high yield securities are actively traded and the largest investors in them place great importance on the liquidity of the securities in which they invest. Further, many of the large holders of such securities, as are the Bondholders in this case, are financial managers or other fiduciaries investing on behalf of their clients. A financial manager's decision to sell and buy securities is generally driven by the decisions of its clients as they increase or withdraw their investments.

The Bondholders should not be precluded from trading in the Securities during the pendency of the Debtors' chapter 11 cases. The Bondholders, by establishing IBP's have complied with such procedures, and have the experience to make their presence on the Committee particularly valuable. See SEC Memorandum at p. 3.

Approval of the motion without a Hearing is Appropriate.

It is appropriate that the Court consider the Motion without a hearing if none is specifically requested under the circumstances of this case. Given the size of this case and the need to begin active committee participation in the bankruptcy case, an order based on notice and opportunity to request a hearing is appropriate for this Motion.

CONCLUSION

WHEREFORE, the Movants respectfully request that this Court enter an order in the form attached as Exhibit 8 (i) determining that the Bondholders will not be violating their fiduciary duties as members of the Committee (and accordingly will not be subjecting their claims to possible disallowance, subordination, or other adverse treatment) by trading in the securities of the Debtors during the pendency of the Debtors' chapter 11 cases, provided that the Bondholders use their IBP's to insulate their trading activities from their activities as members of the Committee: (ii) approving the order attached as Exhibit 8 without a hearing unless one is specifically requested; and (iii) granting such other and further relief as the Court may consider appropriate.
Dated: October 3, 1994 RESPECTFULLY SUBMITTED,

Sample "Chinese Wall" Agreement

SQUIRE SANDERS & DEMPSEY LLP

By: /s/ Thomas J. Salerno

Thomas J. Salerno

Craig d. Hansen

Jordan A. Kroop

Attorneys For The Debtors

MILBANK, TWEED, HADLEY & McCLOY

By: /s/ Paul S. Aronzon

Paul S. Aronzon

Valerie S. Longmire

Attorneys for Official Committee of Unsecured Creditors

Executive Guide to Corporate Bankruptcy

DECLARATION OF PAUL R. PHANEUF

I, Paul H. Phaneuf, hereby declare:

1. I have personal knowledge of each of the facts stated in this Declaration, except for those facts stated on information and belief and, as to those facts, I am informed and believe them to be true. I am submitting this Declaration in support of the "Memorandum of Points and Authorities in Support of Motion of the Debtor And The Official Committee of Unsecured Creditors, of PaineWebber Incorporated, and of Alliance Corporate Finance Group Incorporated (on behalf of The Equitable Life Assurance Society of the United States) for an order Approving Specified Information Blocking Procedures and Permitting Securities Trading in Certain Circumstances" (the "Motion"). Capitalized terms not defined herein are used as defined in the Motion.

2. I am a First Vice President of the High Yield Capital Markets Division of PaineWebber, one of the bondholders that hold securites in the Debtors' cases. In that capacity, I am the representative for such finds that serve on committees in out-of-court restructurings and chapter 11 reorganization cases. In addition to being PaineWebber's representative on the Committee in this case, I currently am representing or in the past have represented other Bondholders on committees in such cases as Kash `n Karry, Inc. In each of those cases the information blocking procedures described in Paragraph 5 below have been in place, and I have complied with they fully.

3. Pursuant to Bankruptcy Code § 1102(a)(1), the United States Trustee for the District of Arizona appointed the Committee on August 18, 1994, to represent the interests of the Debtors' unsecured creditors. I was appointed by the United States Trustee to represent PaineWebber on the Committee.

4. I have read the Motion and, to the best of my knowledge, the statements set forth therein, and the exhibits attached thereto, are true and correct.

5. On behalf of PaineWebber, I propose that information blocking procedures ("IBP") that PaineWebber has established and maintained, be continued as a condition precedent to its trading in the securities. These internal procedures include: (i) written acknowledgment by PaineWebber personnel that they have received, reviewed and are in full compliance with the firm's IBP's and guidelines: (ii) a prohibition against investment banking personnel (including employees who serve on creditor's committees) sharing, discussing or exchanging any material non-public information with employees engaged in research, sales, trading, portfolio management and administrative activities: (iii) a prohibition against disclosing material nonpublic information to any other person except firm personnel or persons outside the firm (such as the firm's outside counsel or accountants) who have a valid business reason for receiving such, information, i.e., who have a "need

Sample "Chinese Wall" Agreement

to know" the information to serve the business purposes of the firm or clients; (iv) restrictions to help assure the confidentiality of material nonpublic information including limiting access to office areas where inside information may be discussed, securing confidential documents in locker file cabinets or other secure locations and, where inside information may be discussed, securing confidential documents in locked file cabinets or other secure locations and, where appropriate, physically segregating various business units of the firm: (v) prohibitions against any investment banking personnel who have access to material nonpublic information from buying, selling, trading or recommending the securities, or participating in any decisions to do so; and (vi) internal compliance restrictions and reviews to assure that any trades of securities by PaineWebber are made in compliance with the IBP's.

6. Since my appointment to the Committee I have complied with the information blocking procedures set forth above with respect to the securities.

I declare under penalty of perjury that the foregoing is true and correct.

Executed this 28th day of September 1994, at New York, New York.

By: /s/ Paul H. Phaneuf

Paul H. Phaneuf

Executive Guide to Corporate Bankruptcy

DECLARATION OF KATE KUTASI

I, Kate Kutasi, hereby declare:

1. I have personal knowledge of each of the facts stated in this Declaration, except for those facts stated on information and belief and, as to those facts, I am informed and believe them to be true. I am submitting this Declaration in support of the "Memorandum of Points and Authorities in Support of Motion the Debtors And The Official Committee of Unsecured Creditors, of PaineWebber Incorporated, and of Alliance Corporate Finance Group Incorporated ("Alliance") (on behalf of The Equitable Life Assurance Society of the United States "Equitable"), for an Order Approving Specified Information Blocking Procedures and Permitting Securities Trading in Certain Circumstances" (the "Motion"). Capitalized terms not defined herein are used as defined in the Motion.

2. I am a Managing Director at Alliance and an investment officer at Equitable, a holder of securities in the Debtors' cases. In that capacity, I am the representative for such funds that saws on committees in out-of-court restructurings and chapter 11 reorganization cases.

3. Pursuant to Bankruptcy Code § 1102(a)(1), the United States Trustee for the District of Arizona appointed the Committee on August 18, 1994, to represent the interests of the Debtors' unsecured creditors. I was appointed by the United States Trustee to represent Equitable on the Committee.

4. I have read the Motion and, to the best of my knowledge, the statements set forth therein, and the exhibits attached thereto, are true and correct.

5. On behalf of Equitable, I propose that information blocking procedures ("IBP") that Alliance has established and maintained, be continued as a condition precedent to its trading in the securities. These internal procedures include: (i) written acknowledgment by relevant personnel that they have received, reviewed and are in full compliance with the firm's IBP's and guidelines; (ii) a prohibition against employees engaged in transactional activities, sharing, discussing or exchanging any written or oral non-public information, whether or not material, with employees performing investment management activities; (iii) a prohibition against disclosing written or oral material nonpublic information to employees engaged in investment management activities and limiting access to such information to employees engaged in transactional activities (and to directors and senior executives of Alliance who are not actually involved in investment management decisions, compliance officers, and certain identified accountants, lawyers or other outsides professional advisors); (iv) restrictions to help assure the confidentiality of material nonpublic information including limiting access to office areas where inside information may be discussed, securing confidential documents in locked cabinets or other secures locations; (v) where necessary, prohibitions against any employees engaged in investment management activities who has access to material nonpublic information

Sample "Chinese Wall" Agreement

from buying, selling, trading or recommending the securities, or participating in any decisions to do so; and (vi) an internal compliance review process to assure that any trades of securities by Alliance were made in compliance with the IBP's.

6. Since my appointment to the Committee I have complied with the information blocking procedures set forth above with respect to the securities.

I declare under penalty of perjury that the foregoing is true and correct.

Executed this 27th day of September 1994, at New York, New York.

By: /s/ Kate Kutasi

Kate Kutasi

Executive Guide to Corporate Bankruptcy

FOR THE DISTRICT OF ARIZONA

The Court, having considered the "Motion of the Debtors And The Official Committee of Unsecured Creditors, of PaineWebber Incorporated, and of Alliance Corporate Finance Group Incorporated (on behalf of the Equitable Life Assurance Society of the United States) for an Order Approving Specified Information Blocking Procedures and Permitting Securities Trading in Certain_Circumstances" (the "Motion") dated October 3, 1994, the Memorandum of Points and Authorities and Declarations of Paul H. Phaneuf and Kate Kutasi in support thereof and the Exhibits attached thereto, and that the Motion received no opposition to the relief requested therein, finds that (a) the notice of the Motion was sufficient; (b) no objection to the Motion having been filed and no request for hearing having been made; (c) the relief requested in the Motion is appropriate; (d) good and sufficient cause exists therefore; and, accordingly,

IT IS HEREBY ORDERED THAT:

1. PaineWebber Incorporated and Alliance Corporate Finance Group (acting on behalf of the Equitable Life Assurance Society of the United States) (the "Bondholders") will not be violating their fiduciary duties as members of the Committee and, accordingly, will not be subjecting their claims to possible disallowance, subordination, or other adverse treatment, by trading in the debt securities of Megafoods Stores Inc. et al. ("Megafoods"), during the pendency of the Megafoods' Chapter 11 case, provided that, the Bondholders have satisfied and effectively implemented appropriate information blocking procedures.

DATED: October 20, 1994 Hon. Redfield T. Baum

Hon. Redfield T. Baum

United States Bankruptcy

Judge