Public bug reported:

When using AWS AMI ami-1c45e273 (Ubuntu Server 16.04 LTS (HVM), SSD
Volume Type)

Linux ip-10-222-127-236 4.4.0-1020-aws #29-Ubuntu SMP Wed Jun 14
15:54:52 UTC 2017 x86_64 x86_64 x86_64 GNU/Linux

lsb_release -rd
Description:    Ubuntu 16.04.2 LTS
Release:        16.04

the system hangs during automated image creation in the phase
'apt-get dist-upgrade -y' but also when running 'apt-get dist-upgrade -qq 
--force-yes' and prompts for user input:

[...]
Searching for splash image ... none found, skipping ...
Found kernel: /boot/vmlinuz-4.4.0-81-generic
A new version of /boot/grub/menu.lst is available, but the version installed 
currently has been locally modified.

  1. install the package maintainer's version
  2. keep the local version currently installed
  3. show the differences between the versions
  4. show a side-by-side difference between the versions
  5. show a 3-way difference between available versions
  6. do a 3-way merge between available versions (experimental)
  7. start a new shell to examine the situation

What would you like to do about menu.lst?
[...]

Previously reported workarounds for the bug in earlier versions like
running '/usr/sbin/update-grub-legacy-ec2' do not fix the problem.

** Affects: cloud-init (Ubuntu)
     Importance: Undecided
         Status: New

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https://bugs.launchpad.net/bugs/1701063

Title:
  system hangs in prompt when running apt-get dist-upgrade

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