Exhibit 10.7

 

 

 

 

December 12, 2007

 

 

To:

The Great Atlantic and Pacific Tea Company, Inc.

 

2 Paragon Drive

 

Montvale, NJ 07645

 

Attn: Brenda Galgano, Senior Vice President and Chief Financial Officer

 

Telephone: 201-573-4363

 

Facsimile: 201-937-8715

 

 

From:

Lehman Brothers Inc., acting as Agent

 

Lehman Brothers OTC Derivatives Inc., acting as Principal

 

745 Seventh Avenue

 

New York, NY 10019

 

Telephone:

212-526-9986

 

Facsimile:

646-885-9546 (United States of America)

 

 

Re:

Convertible Bond Hedge Transaction (2011)

 

(Global ID: 3533505)

Ladies and Gentlemen:

          The purpose of this communication (this “Confirmation”) is to set
forth the terms and conditions of the above-referenced transaction entered into
on the Trade Date specified below (the “Transaction”) between Lehman Brothers
OTC Derivatives Inc. (“Dealer”) and The Great Atlantic and Pacific Tea Company,
Inc. (“Counterparty”). This communication constitutes a “Confirmation” as
referred to in the ISDA Master Agreement specified below. This Confirmation is
sent on behalf of both Dealer and Lehman Brothers Inc. (“LBI”). Lehman Brothers
OTC Derivatives Inc. is not a member of the Securities Investor Protection
Corporation.

          1. This Confirmation is subject to, and incorporates, the definitions
and provisions of the 2000 ISDA Definitions (including the Annex thereto) (the
“2000 Definitions”) and the definitions and provisions of the 2002 ISDA Equity
Derivatives Definitions (the “Equity Definitions”, and together with the 2000
Definitions, the “Definitions”), in each case as published by the International
Swaps and Derivatives Association, Inc. (“ISDA”). In the event of any
inconsistency between the 2000 Definitions and the Equity Definitions, the
Equity Definitions will govern. Certain defined terms used herein have the
meanings assigned to them in the Indenture to be dated as of December 18, 2007
between Counterparty and Wilmington Trust Company, as trustee and the first
supplemental indenture to such indenture to be dated as of December 18, 2007
(such indenture, together with such supplemental indenture, the “Supplemental
Indenture”) relating to the USD 150 million principal amount of 5.125%
convertible senior notes due 2011 (the “Convertible Securities”). In the event
of any inconsistency between the terms defined in the Supplemental Indenture and
this Confirmation, this Confirmation shall govern. For the avoidance of doubt,
references herein to sections of the Supplemental Indenture are based on the
draft of the Supplemental Indenture most recently reviewed by the parties at the
time of execution of this Confirmation. If any relevant sections of the
Supplemental Indenture are changed, added or renumbered following execution of
this Confirmation but prior to the execution of the Supplemental Indenture, the
parties will amend this Confirmation in good faith to preserve the economic
intent of the parties. The parties further acknowledge that references to the
Supplemental Indenture herein are references to the Supplemental Indenture as in
effect on the date of its execution and if the Supplemental Indenture is amended
following its execution any such amendment will be disregarded for purposes of
this Confirmation unless the parties agree otherwise in writing.

          This Confirmation evidences a complete and binding agreement and
supersedes any prior agreements, written or oral, between Dealer and
Counterparty as to the terms of the Transaction to which this Confirmation
relates. This Confirmation shall be subject to an agreement (the “Agreement”) in
the form of the 2002 ISDA Master Agreement (the “ISDA Master Agreement”) as if
Dealer and Counterparty had executed an agreement in such form (without any
Schedule but with the elections set forth in this Confirmation). For the
avoidance of doubt, the Transaction shall be the only transaction under the
Agreement.

          All provisions contained in, or incorporated by reference to, the
Agreement will govern this Confirmation

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except as expressly modified herein. In the event of any inconsistency between
this Confirmation and either the Definitions or the Agreement, this Confirmation
shall govern.

          2. The Transaction constitutes a Share Option Transaction for purposes
of the Equity Definitions. The terms of the particular Transaction to which this
Confirmation relates are as follows:

General Terms:

 

 

 

 

 

Trade Date:

 

December 12, 2007

 

 

 

 

 

Effective Date:

 

The closing date of the offering of the Convertible Securities.

 

 

 

 

 

Option Type:

 

Call

 

 

 

 

 

Seller:

 

Dealer

 

 

 

 

 

Buyer:

 

Counterparty

 

 

 

 

 

Shares:

 

The Common Stock of Counterparty, par value USD 1.00 per share (Ticker Symbol:
“GAP”).

 

 

 

 

 

Number of Options:

 

The number of Convertible Securities in denominations of USD 1,000 principal
amount issued by Counterparty on the closing date for the initial issuance of
the Convertible Securities; provided that the Number of Options shall be
automatically increased as of the date of exercise by Banc of America Securities
LLC, and Lehman Brothers Inc., as Representatives of the Underwriters (as
defined in the Underwriting Agreement), of their option pursuant to Section 2(b)
of the Underwriting Agreement dated as of December 12, 2007, between the
Counterparty and Banc of America Securities LLC, Lehman Brothers Inc. and
Friedman, Billings, Ramsay & Co., as a “qualified independent underwriter,” (the
“Underwriting Agreement”), by the number of Convertible Securities in
denominations of USD 1,000 principal amount issued pursuant to such exercise
(such Convertible Securities, the “Additional Convertible Securities”).

 

 

 

 

 

Applicable Percentage:

 

50%

 

 

 

 

 

Number of Shares:

 

As of any date, the product of the Number of Options and the Option Entitlement.

 

 

 

 

 

Option Entitlement:

 

As of any date, a number equal to the product of the Conversion Rate as of such
date and the Applicable Percentage.

 

 

 

 

 

Strike Price:

 

USD 36.40

 

 

 

 

 

Conversion Rate:

 

As of any date, the Conversion Rate, as defined in the Supplemental Indenture,
but without regard to any adjustments to the Conversion Rate pursuant to the
Conversion Rate Adjustment Sections (as defined in the Supplemental Indenture)
(except as set forth under the “Delivery Obligation”).

 

 

 

 

 

Premium:

 

USD 12,000,000 (Premium per Option USD 5.824); provided that if the Number of
Options is increased pursuant to the proviso to the definition of “Number of
Options” above, an additional Premium equal to the product of the number of
Options by which the Number of Options is so increased and the Premium per
Option shall be paid on the Additional Premium Payment Date.

 

 

 

 

 

Premium Payment Date:

 

The Effective Date

2

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Additional Premium Payment Date:

 

The closing date for the purchase and sale of the Additional Convertible
Securities.

 

 

 

 

 

Exchange:

 

New York Stock Exchange

 

Related Exchange:

 

All Exchanges

 

 

 

 

Procedures for Exercise:

 

 

 

 

 

 

 

Potential Exercise Dates:

 

Each Conversion Date.

 

 

 

 

 

Conversion Date:

 

Each “Conversion Date” as defined in the Supplemental Indenture.

 

 

 

 

 

Required Exercise on

 

 

 

Conversion Dates:

 

On each Conversion Date, a number of Options equal to the number of Convertible
Securities in denominations of USD 1,000 principal amount submitted for
conversion on such Conversion Date in accordance with the terms of the
Supplemental Indenture shall be automatically exercised, subject to “Notice of
Exercise” below.

 

 

 

 

 

Expiration Date:

 

June 15, 2011

 

 

 

 

 

Automatic Exercise:

 

Not applicable (as provided above under “Required Exercise on Conversion
Dates”).

 

 

 

 

 

Notice of Exercise:

 

Notwithstanding anything to the contrary in the Equity Definitions, in order to
exercise any Options, Counterparty must notify Dealer in writing before 5:00
p.m. (New York City time) on the Scheduled Valid Day prior to the scheduled
first day of the applicable Settlement Averaging Period for the Options, which
notice shall specify (i) the number of Options being exercised and the scheduled
Settlement Date, (ii) the scheduled first day of the applicable Settlement
Averaging Period, (iii) the applicable Settlement Method and (iv) the applicable
Specified Cash Amount (as defined in the Supplemental Indenture); provided that
in respect of Options relating to Convertible Securities with a Conversion Date
occurring on or after the Final Conversion Period, such notice (except for
notice of the Settlement Method, which shall be provided as specified above) may
be given on or prior to the second Scheduled Valid Day immediately preceding the
Expiration Date and need only specify the number of such Options and the
applicable Specified Cash Amount.

 

 

 

 

 

Final Conversion Period:

 

With respect to any Conversion Date occurring on or after the 32nd Scheduled
Valid Day immediately preceding the Expiration Date, the 30 consecutive Valid
Day period beginning on, and including, the 32nd Scheduled Valid Day immediately
prior to the Expiration Date, as applicable, subject to any extension due to a
Market Disruption Event.

 

 

 

 

 

Specified Cash Amount:

 

“Specified Cash Amount” (defined in the Supplemental Indenture) applicable to
such conversion.

 

 

 

 

 

Valuation Time:

 

At the close of trading of the regular trading session on the Exchange; provided
that if the principal trading session is extended, the Calculation Agent shall
determine the Valuation Time in its reasonable discretion.

3

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Market Disruption Event:

 

Section 6.3(a) of the Equity Definitions is hereby replaced in its entirety by
the following:

 

 

 

 

 

 

 

“‘Market Disruption Event’ means, in respect of a Share, (i) a failure by the
primary United States national or regional securities exchange or market on
which the Shares are listed or admitted to trading to open for trading during
its regular trading session or (ii) the occurrence or existence prior to 1:00
p.m., New York City time, on any Valid Day for the Shares for an aggregate one
half hour period of any suspension or limitation imposed on trading (by reason
of movements in price exceeding limits permitted by the relevant stock exchange
or otherwise) in the Shares or in any options, contracts or future contracts
relating to the Shares.”

 

 

 

 

Settlement Terms:

 

 

 

 

 

 

 

Settlement Method:

 

Net Share Extended Settlement, Net Share Regular Settlement, Combination
Settlement or Cash Settlement consistent with the settlement method elected by
Counterparty for the corresponding Convertible Securities; provided that, if
Counterparty does not provide a notice of Settlement Method to Dealer pursuant
to Notice of Exercise above, Net Share Extended Settlement shall be deemed to
apply to the relevant Options.

 

 

 

 

 

Net Share Extended Settlement:

 

Net Share Extended Settlement shall apply if either (i) Counterparty has elected
to deliver only Shares to satisfy the Conversion Obligation (as defined in the
Supplemental Indenture) in connection with the conversion of the relevant
Convertible Securities or (ii) Counterparty has elected to deliver a combination
of Shares and cash to satisfy the Conversion Obligation in connection with the
conversion of the relevant Convertible Securities and the Specified Cash Amount
with respect to such conversion is less than $1,000.

 

 

 

 

 

Net Share Regular Settlement:

 

Net Share Regular Settlement shall apply if (i) Counterparty has elected to
deliver a combination of Shares and cash to satisfy the Conversion Obligation in
connection with the conversion of the relevant Convertible Securities and (ii)
the Specified Cash Amount with respect to such conversion is equal to $1,000.

 

 

 

 

 

Combination Settlement:

 

Combination Settlement shall apply if (i) Counterparty has elected to deliver a
combination of Shares and cash to satisfy the Conversion Obligation in
connection with the conversion of the relevant Convertible Securities and (ii)
the Specified Cash Amount with respect to such conversion is greater than
$1,000.

 

 

 

 

 

Cash Settlement:

 

Cash Settlement shall apply if Counterparty has elected to deliver only cash to
satisfy the Conversion Obligation in connection with the conversion of the
relevant Convertible Securities.

 

 

 

 

 

Delivery Obligation:

 

Dealer will deliver to Counterparty, on the relevant Settlement Date,

 

 

 

 

 

 

 

(a) if Net Share Extended Settlement applies, a number of Shares equal to the
Net Shares (calculated based on a Settlement

4

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Averaging Period for a Net Share Extended Settlement) in respect of any Option
exercised or deemed exercised hereunder. 1 In no event will the Net Shares be
less than zero.

 

 

 

 

 

 

 

(b) if Net Share Regular Settlement applies, a number of Shares equal to the Net
Shares (calculated based on a Settlement Averaging Period for a Net Share
Regular Settlement) in respect of any Option exercised or deemed exercised
hereunder. In no event will the Net Shares be less than zero.

 

 

 

 

 

 

 

(c) if Combination Settlement applies, an amount of cash and a number of Shares,
if any, equal to the Combination Amount.

 

 

 

 

 

 

 

(d) if Cash Settlement applies, an amount of cash equal to the Conversion Value
in excess of $1,000.

 

 

 

 

 

 

 

If such exercise relates to the conversion of Convertible Securities in
connection with which holders thereof are entitled to receive additional Shares
and/or cash pursuant to the adjustments to the Conversion Rate pursuant to
Section 5.20 of the Supplemental Indenture, then, notwithstanding the foregoing,
the Delivery Obligation shall include such additional Shares and/or cash, except
that the Delivery Obligation shall be capped so that the value of the Delivery
Obligation per Option (with the value of any Shares included in the Delivery
Obligation determined by the Calculation Agent using the VWAP Price on the last
day of the relevant Settlement Averaging Period) does not exceed the amount as
determined by the Calculation Agent that would be payable by Dealer pursuant to
Section 6 of the Agreement if such Conversion Date were an Early Termination
Date resulting from an Additional Termination Event with respect to which the
Transaction (except that, for purposes of determining such amount (x) the Number
of Options shall be deemed to be equal to the number of Options exercised on
such Exercise Date and (y) such amount payable will be determined as if Section
5.20 of the Supplemental Indenture were deleted) was the sole Affected
Transaction and Counterparty was the sole Affected Party (determined without
regard to Section 8(b) of this Confirmation).

 

 

 

 

 

 

 

Dealer will deliver cash in lieu of any fractional Shares to be delivered with
respect to any Net Shares or Combination Amount valued at the VWAP Price for the
last Valid Day of the relevant Settlement Averaging Period.

 

 

 

 

 

Net Shares:

 

In respect of any Option exercised or deemed exercised, a number of Shares equal
to (i) the Option Entitlement on the Conversion Date multiplied by (ii) the sum
of the quotients, for each Valid Day during the applicable Settlement Averaging
Period for such Option, of (A) the VWAP Price on such Valid Day less the Strike
Price, divided by (B) such VWAP Price, divided by (iii) the number of Valid Days
in such Settlement Averaging Period; provided, however, that if the calculation
contained in clause (A)

5

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above results in a negative number, such number shall be replaced with the
number “zero”.

 

 

 

 

 

Valid Day:

 

A day on which (i) trading in the Shares generally occurs on the Exchange or, if
the Shares are not then listed on the Exchange, on the principal other U.S.
national or regional securities exchange on which the Shares are then listed or,
if the Shares are not then listed on a U.S. national or regional securities
exchange, in the principal other market on which the Shares are then traded and
(ii) there is no Market Disruption Event.

 

 

 

 

 

Scheduled Valid Day:

 

A day on which trading in the Shares is scheduled to occur on the principal U.S.
national or regional securities exchange or market on which the Shares are
listed or admitted for trading. If the Shares are not so listed or admitted for
trading, “Scheduled Valid Day” means a “Business Day.”

 

 

 

 

 

VWAP Price:

 

On any Valid Day, the per Share volume-weighted average price as displayed under
the heading “Bloomberg VWAP” on Bloomberg page GAP <equity> VAP (or any
successor thereto) in respect of the period from 9:30 a.m. to 4:00 p.m. (New
York City time) on such Valid Day (or if such volume-weighted average price is
unavailable, the market value of one Share on such Valid Day, as determined by
the Calculation Agent using a volume-weighted method).

 

 

 

 

 

Settlement Averaging Period:

 

For any Option, (x) if Counterparty has, on or prior to the first Valid Day of
the Final Conversion Period, delivered a Notice of Exercise to Dealer with
respect to such Option with a Conversion Date occurring prior to the first Valid
Day of the Final Conversion Period, (i) if Net Share Extended Settlement
applies, the ninety (90) consecutive Valid Days commencing on and including the
second Valid Day following such Conversion Date or (ii) if Net Share Regular
Settlement, Combination Settlement or Cash Settlement applies, the thirty (30)
consecutive Valid Days commencing on and including the second Valid Day
following such Conversion Date, or

 

 

 

 

 

 

 

(y) if Counterparty has, on or following the first Valid Day of the Final
Conversion Period, delivered a Notice of Exercise to Dealer with respect to such
Option with a Conversion Date occurring on or following the first Valid Day of
the Final Conversion Period, (i) if Net Share Extended Settlement applies, the
ninety (90) consecutive Valid Days commencing on, and including, the ninety
second (92nd) Scheduled Valid Day immediately prior to the Expiration Date or
(ii) if Net Share Regular Settlement, Combination Settlement or Cash Settlement
applies, the thirty (30) consecutive Valid Days commencing on, and including,
the thirty second (32nd) Scheduled Valid Day immediately prior to the Expiration
Date.

 

 

 

 

 

Combination Amount:

 

In respect of any Option exercised or deemed exercised, (A) an amount of cash
equal to the difference between (i) the lesser of (x) the Specified Cash Amount
and (y) the Conversion Value and (ii) $1,000, and (B) to the extent the
Conversion Value exceeds the Specified Cash Amount, a number of Shares equal to
the sum of

6

--------------------------------------------------------------------------------

 

 

 

 

 

 

 

the Daily Share Amounts for each of the Valid Days during the applicable
Settlement Averaging Period; provided, however, that if the calculation
contained in clause (A) above results in a negative number, such number shall be
replaced with the number “zero”.

 

 

 

 

 

Daily Share Amount:

 

Means, for each Valid Day during the applicable Settlement Averaging Period, (A)
the greater of (i) zero and (ii) the Option Entitlement on the Conversion Date
minus the quotient of (x) the product of (1) the Applicable Percentage and (2)
the Specified Cash Amount divided by (y) the VWAP Price on such Valid Day
divided by (B) 30.

 

 

 

 

 

Conversion Value:

 

Means the product of (i) the Option Entitlement on the Conversion Date and (ii)
the average of the VWAP Prices on each of the Valid Days during the applicable
Settlement Averaging Period.

 

 

 

 

 

Settlement Date:

 

For any Option, the date Shares will be delivered with respect to the
Convertible Securities related to such Options, under the terms of the
Supplemental Indenture; provided that if Net Share Extended Settlement applies,
the Settlement Date shall be the date Shares and/or cash would have been
required to be delivered if Combination Settlement or Cash Settlement applied to
the settlement of such Relevant Convertible Securities. Other Applicable
Provisions:     To the extent Dealer is obligated to deliver Shares hereunder,
the provisions of Sections 9.1(c), 9.8, 9.9, 9.10, 9.11 (except that the
Representation and Agreement contained in Section 9.11 of the Equity Definitions
shall be modified by excluding any representations therein relating to
restrictions, obligations, limitations or requirements under applicable
securities laws arising as a result of the fact that Counterparty is the issuer
of the Shares) and 9.12 of the Equity Definitions will be applicable as if
“Physical Settlement” applied to the Transaction.

 

 

 

 

 

Restricted Certificated Shares:

 

Notwithstanding anything to the contrary in the Equity Definitions, Dealer may,
in whole or in part, deliver Shares in certificated form representing the Number
of Shares to be Delivered to Counterparty in lieu of delivery through the
Clearance System. With respect to such certificated Shares, the Representation
and Agreement contained in Section 9.11 of the Equity Definitions shall be
modified by deleting the remainder of the provision after the word “encumbrance”
in the fourth line thereof.

 

 

 

 

Share Adjustments:

 

 

 

 

 

 

 

Method of Adjustment:

 

Notwithstanding Section 11.2 of the Equity Definitions, upon the occurrence of
any event or condition set forth in the Dilution Adjustment Sections (as defined
in the Supplemental Indenture), the Calculation Agent shall make a corresponding
adjustment, if necessary, to the terms relevant to the exercise, settlement or
payment of the Transaction, subject to the definition of Conversion Rate.
Promptly (but in no event later than the close of business on the following New
York Business Day) upon the occurrence of any “Adjustment Event” (as defined in
the Supplemental Indenture) Counterparty shall notify the Calculation Agent of
such Adjustment Event; and once the adjustments to be made to the terms of the
Supplemental Indenture and the Convertible Securities

7

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in respect of such Adjustment Event have been determined, Counterparty shall
promptly (but in no event later than the close of business on the following New
York Business Day) notify the Calculation Agent in writing of the details of
such adjustment necessary to make such corresponding adjustment hereunder.

Extraordinary Events:

 

 

 

 

 

 

 

Merger Events:

 

Notwithstanding Section 12.1(b) of the Equity Definitions, a “Merger Event”
means the occurrence of any event or condition set forth in the Consequences of
Merger Section (as defined in the Supplemental Indenture).

 

 

 

 

 

Tender Offer:

 

Applicable. Notwithstanding Section 12.1(d) of the Equity Definitions, a “Tender
Offer” means the occurrence of any event or condition set forth in the
Consequences of Tender Offer Section (as defined in the Supplemental Indenture).

 

 

 

 

 

Consequences of Merger Events and
Tender Offers:

 

Notwithstanding Sections 12.2 and 12.3 of the Equity Definitions, upon the
occurrence of a Merger Event or Tender Offer, the Calculation Agent shall make
the corresponding adjustment in respect of any adjustment under the Supplemental
Indenture to any one or more of the nature of the Shares, the Number of Options,
the Option Entitlement and any other variable relevant to the exercise,
settlement or payment for the Transaction; provided that such adjustment shall
be made without regard to any adjustment to the Conversion Rate pursuant the
Conversion Rate Adjustment Sections and the election, if any, by Counterparty to
adjust the Conversion Rate; and provided further that the Calculation Agent may
limit or alter any such adjustment referenced in this paragraph so that the fair
value of the Transaction to Dealer is not reduced as a result of such
adjustment.

 

 

 

 

 

Notice of Merger Consideration:

 

Upon the occurrence of a Merger Event that causes the Shares to be converted
into the right to receive more than a single type of consideration (determined
based in part upon any form of stockholder election), Counterparty shall
reasonably promptly (but, in any event prior to the Merger Date) notify the
Calculation Agent of (i) the weighted average of the types and amounts of
consideration received by the holders of Shares entitled to receive cash,
securities or other property or assets with respect to or in exchange for such
Shares in any Merger Event who affirmatively make such an election and (ii) the
details of the adjustment made under the Supplemental Indenture in respect of
such Merger Event.

 

 

 

 

 

Nationalization, Insolvency
or Delisting:

 

Cancellation and Payment (Calculation Agent Determination); provided that, in
addition to the provisions of Section 12.6(a)(iii) of the Equity Definitions, it
will also constitute a Delisting if the Exchange is located in the United States
and the Shares are not immediately re-listed, re-traded or re-quoted on any of
the New York Stock Exchange, the American Stock Exchange the NASDAQ Global
Select Market or the NASDAQ Global Market (or their respective successors); if
the Shares are immediately re-listed, re-traded or re-quoted on any such
exchange or quotation system, such exchange or quotation system shall thereafter
be deemed to be the Exchange.

8

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Additional Disruption Events:

 

 

 

 

 

 

 

     (a) Change in Law:

 

Applicable

 

 

 

 

 

     (b) Failure to Deliver:

 

Applicable

 

 

 

 

 

     (c) Insolvency Filing:

 

Applicable

 

 

 

 

 

     (d) Hedging Disruption:

 

Applicable

 

 

 

 

 

     (e) Increased Cost of Hedging:

 

Applicable

 

 

 

 

 

Hedging Party:

 

For all applicable Additional Disruption Events, Dealer

 

 

 

 

 

Determining Party:

 

For all applicable Extraordinary Events, Dealer

 

 

 

 

 

Non-Reliance:

 

Applicable

 

 

 

 

 

Agreements and Acknowledgments

 

 

 

Regarding Hedging Activities:

 

Applicable

 

 

 

 

 

Additional Acknowledgments:

 

Applicable

 

 

 

 

 

3. Calculation Agent:

 

LBI is acting as agent on behalf of Dealer and Counterparty for the Transaction.
LBI has no obligations, by guarantee, endorsement or otherwise, with respect to
the performance of the Transaction by either party. LBI shall at all times act
in good faith and in a commercially reasonable manner. In addition, LBI shall
use commercially reasonable efforts under the circumstances to consult with
Counterparty on decisions it makes in its capacity as Calculation Agent;
provided that LBI shall not be required to take into account or be bound by any
considerations raised by Counterparty.

 

 

 

 

 

4. Account Details:

 

 

 

 

 

 

 

     Dealer Payment Instructions:

 

To be provided by Dealer.

 

 

 

 

 

     Counterparty Payment Instructions:

 

To be provided by Counterparty.

 

 

 

 

 

5. Offices:

 

 

 

 

 

 

 

     The Office of Dealer for the Transaction is: New York

 

 

 

 

 

 

Lehman Brothers Inc., acting as Agent
Lehman Brothers OTC Derivatives Inc., acting as Principal
745 Seventh Avenue
New York, NY 10019

 

 

Attention:

Transaction Management Group

 

 

Telephone:

212-526-9986

 

 

Facsimile:

646-885-9546 (United States of America)

 

 

 

 

 

    The Office of Counterparty for the Transaction is: Not applicable

 

 

 

6. Notices: For purposes of this Confirmation:

 

 

 

     (a) Address for notices or communications to Counterparty:

 

 

 

 

 

 

To:

The Great Atlantic & Pacific Tea Company

 

 

 

2 Paragon Drive

 

 

 

Montvale, New Jersey 07645

 

 

Attn:

Brenda Galgano, Senior Vice President & Chief Financial Officer

 

 

Telephone:

201-571-4363

 

 

Facsimile:

201-571-8715

9

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          (b) Address for notices or communications to Dealer:

 

 

 

 

 

      To:

Lehman Brothers Inc., acting as Agent
Lehman Brothers OTC Derivatives Inc., acting as Principal
745 Seventh Avenue
New York, New York 10019

 

 

      Attn:

Transaction Management Group

 

 

      Telephone No.:

(212) 526-9986

 

 

      Facsimile No.:

(646) 885-9546

 

 

 

 

 

with a copy:

 

 

 

 

      To:

Lehman Brothers Inc., acting as Agent

 

 

 

Lehman Brothers OTC Derivatives Inc., acting as Principal

 

 

 

745 Seventh Avenue

 

 

 

New York, New York 10019

 

 

      Attn:

Steve Roti – US Equity Linked

 

 

      Telephone No.:

(212) 526-0055

 

 

      Facsimile No.:

(917) 552-0561

 

 

 

7. Representations, Warranties and Agreements:

          (a) In addition to the representations and warranties in the Agreement
and those contained elsewhere herein, Counterparty represents and warrants to
and for the benefit of, and agrees with, Dealer as follows:

 

 

 

          (i) On the Trade Date, (A) none of Counterparty and its officers and
directors is aware of any material nonpublic information regarding Counterparty
or the Shares and (B) all reports and other documents filed by Counterparty with
the Securities and Exchange Commission pursuant to the Securities Exchange Act
of 1934, as amended (the “Exchange Act”) when considered as a whole (with the
more recent such reports and documents deemed to amend inconsistent statements
contained in any earlier such reports and documents), do not contain any untrue
statement of a material fact or any omission of a material fact required to be
stated therein or necessary to make the statements therein, in the light of the
circumstances in which they were made, not misleading.

 

 

 

          (ii) (A) On the Trade Date, the Shares or securities that are
convertible into, or exchangeable or exercisable for Shares, are not, and shall
not be, subject to a “restricted period,” as such term is defined in Regulation
M under the Exchange Act (“Regulation M”) and (B) Counterparty shall not engage
in any “distribution,” as such term is defined in Regulation M, other than a
distribution meeting the requirements of the exceptions set forth in sections
101(b)(10) and 102(b)(7) of Regulation M, until the second Exchange Business Day
immediately following the Trade Date.

 

 

 

          (iii) On the Trade Date, neither Counterparty nor any “affiliate” or
“affiliated purchaser” (each as defined in Rule 10b-18 of the Exchange Act)
shall directly or indirectly (including, without limitation, by means of any
cash-settled or other derivative instrument) purchase, offer to purchase, place
any bid or limit order that would effect a purchase of, or commence any tender
offer relating to, any Shares (or an equivalent interest, including a unit of
beneficial interest in a trust or limited partnership or a depository share) or
any security convertible into or exchangeable or exercisable for Shares, except
through Dealer.

 

 

 

          (iv) Without limiting the generality of Section 13.1 of the Equity
Definitions, Counterparty acknowledges that Dealer is not making any
representations or warranties with respect to the treatment of the Transaction
under FASB Statements 133, as amended, or 150, EITF Issue No. 00-19 (or any
successor issue statements) or under FASB’s Liabilities & Equity Project.

 

 

 

          (v) Without limiting the generality of Section 3(a)(iii) of the
Agreement, the Transaction will not violate Rule 13e-1 or Rule 13e-4 under the
Exchange Act.

 

 

 

          (vi) Prior to the Trade Date, Counterparty shall deliver to Dealer a
resolution of Counterparty’s board of directors authorizing the Transaction and
such other certificate or certificates as Dealer shall reasonably request.

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          (vii) Counterparty is not entering into this Confirmation to create
actual or apparent trading activity in the Shares (or any security convertible
into or exchangeable for Shares) or to raise or depress or otherwise manipulate
the price of the Shares (or any security convertible into or exchangeable for
Shares) or otherwise in violation of the Exchange Act.

 

 

 

          (viii) Counterparty is not, and after giving effect to the
transactions contemplated hereby will not be, an “investment company” as such
term is defined in the Investment Company Act of 1940, as amended.

 

 

 

          (ix) On each of the Trade Date, the Premium Payment Date and the
Additional Premium Payment Date, if any, Counterparty would be able to purchase
the Shares hereunder in compliance with the laws of the jurisdiction of its
incorporation.

 

 

 

          (x) The representations and warranties of Counterparty set forth in
Section 3 of the Agreement and Sections 1 and 3 of the Underwriting Agreement
are true and correct and are hereby deemed to be repeated to Dealer as if set
forth herein.

 

 

 

          (xi) Counterparty understands no obligations of Dealer to it hereunder
will be entitled to the benefit of deposit insurance and that such obligations
will not be guaranteed by any affiliate of Dealer or any governmental agency.

 

 

 

          (xii) Counterparty has received and read and understands the Notice of
Regulatory Treatment and the OTC Option Risk Disclosure Statement.

          (b) Each of Dealer and Counterparty agrees and represents that it is
an “eligible contract participant” as defined in Section 1a(12) of the U.S.
Commodity Exchange Act, as amended.

          (c) Each of Dealer and Counterparty acknowledges that the offer and
sale of the Transaction to it is intended to be exempt from registration under
the Securities Act of 1933, as amended (the “Securities Act”), by virtue of
Section 4(2) thereof. Accordingly, Counterparty represents and warrants to
Dealer that (i) it has the financial ability to bear the economic risk of its
investment in the Transaction and is able to bear a total loss of its
investment, (ii) it is an “accredited investor” as that term is defined in
Regulation D as promulgated under the Securities Act, (iii) it is entering into
the Transaction for its own account and without a view to the distribution or
resale thereof, and (iv) the assignment, transfer or other disposition of the
Transaction has not been and will not be registered under the Securities Act and
is restricted under this Confirmation, the Securities Act and state securities
laws.

          (d) Each of Dealer and Counterparty agrees and acknowledges that
Dealer is a “swap participant” and “financial participant” within the meaning of
Sections 101(22), 101(53C) and 101(22A) of Title 11 of the United States Code
(the “Bankruptcy Code”). The parties hereto further agree and acknowledge (A)
that this Confirmation is (i) intended to be a “securities contract,” as such
term is defined in Section 741(7) of the Bankruptcy Code, with respect to which
each payment and delivery hereunder is a “settlement payment,” as such term is
defined in Section 741(8) of the Bankruptcy Code, and (ii) a “swap agreement,”
as such term is defined in Section 101(53B) of the Bankruptcy Code, with respect
to which each payment and delivery hereunder is a “transfer,” as such term is
defined in Section 101(54) of the Bankruptcy Code, and (B) that Dealer is
intended to be entitled to the protections afforded by, among other sections,
Section 362(b)(6), 362(b)(17), 546(e), 546(g), 555 and 560 of the Bankruptcy
Code.

          (e) Counterparty shall deliver to Dealer an opinion of counsel, dated
as of the Trade Date and reasonably acceptable to Dealer in form and substance
(subject to customary qualifications, assumptions and exceptions), with respect
to the matters set forth in Section 3(a) of the Agreement.

          (f) LBI will furnish Counterparty upon written request, a statement as
to the source and amount of any remuneration received or to be received by the
LBI in connection with the Transaction evidenced hereby.

          8. Other Provisions:

          (a) Additional Termination Events. The occurrence of (i) an event of
default with respect to Counterparty under the terms of the Convertible
Securities as set forth in the Default Events (as defined in the Supplemental
Indenture), (ii) an Amendment Event, (iii) or a Repayment Event and shall be an
Additional Termination Event with respect to which the Transaction is the sole
Affected Transaction and Counterparty is the sole Affected Party and Dealer
shall be the party entitled to designate an Early Termination Date pursuant to
Section 6(a) of the Agreement; provided that in the case of a Repayment Event
the Transaction shall be subject to termination only in respect of the number of
Convertible Securities that cease to be outstanding in connection with or as a
result of such Repayment Event.

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          “Amendment Event” means that Counterparty amends, modifies,
supplements or waives any term of the Supplemental Indenture or the Convertible
Securities governing the principal amount, coupon, maturity, repurchase
obligation of Counterparty, redemption right of Counterparty, any term relating
to conversion of the Convertible Securities (including changes to the conversion
price, conversion settlement dates or conversion conditions), or any term that
would require consent of the holders of not less than 100% of the principal
amount of the Convertible Securities to amend.

 

 

 

          “Repayment Event” means that (A) any Convertible Securities are
repurchased (whether in connection with or as a result of a change of control,
howsoever defined, or for any other reason) by Counterparty or any of its
subsidiaries, (B) any Convertible Securities are delivered to Counterparty in
exchange for delivery of any property or assets of Counterparty or any of its
subsidiaries (howsoever described), (C) any principal of any of the Convertible
Securities is repaid prior to the final maturity date of the Convertible
Securities (whether following acceleration of the Convertible Securities or
otherwise), or (D) any Convertible Securities are exchanged by or for the
benefit of the holders thereof for any other securities of Counterparty or any
of its affiliates (or any other property, or any combination thereof) pursuant
to any exchange offer or similar transaction; provided that, in the case of
clause (B) and clause (D), conversions of the Convertible Securities pursuant to
the terms of the Supplemental Indenture as in effect on the date hereof shall
not be Repayment Events.

          (b) Alternative Calculations and Payment on Early Termination and on
Certain Extraordinary Events. If, subject to Section 8(k) below, Dealer shall
owe Counterparty any amount pursuant to Section 12.2 or 12.3 of the Equity
Definitions and “Consequences of Merger Events and Tender Offers” above, or
Sections 12.6, 12.7 or 12.9 of the Equity Definitions (except in the event of an
Insolvency, a Nationalization, a Tender Offer or a Merger Event, in each case,
in which the consideration or proceeds to be paid to holders of Shares consists
solely of cash) or pursuant to Section 6(d)(ii) of the Agreement (except in the
event of an Event of Default in which Counterparty is the Defaulting Party or a
Termination Event in which Counterparty is the Affected Party, that resulted
from an event or events within Counterparty’s control) (a “Payment Obligation”),
Counterparty shall have the right, in its sole discretion, to require Dealer to
satisfy any such Payment Obligation by the Share Termination Alternative (as
defined below) by giving irrevocable telephonic notice to Dealer, confirmed in
writing within one Scheduled Trading Day, between the hours of 9:00 A.M. and
4:00 P.M. New York City time on the Merger Date, Tender Offer Date, Announcement
Date or Early Termination Date, as applicable (“Notice of Share Termination”).
Upon such Notice of Share Termination, the following provisions shall apply on
the Scheduled Trading Day immediately following the Merger Date, the Tender
Offer Date, Announcement Date or Early Termination Date, as applicable:

 

 

 

Share Termination Alternative:

 

Applicable and means that Dealer shall deliver to Counterparty the Share
Termination Delivery Property on the date on which the Payment Obligation would
otherwise be due pursuant to Section 12.7 or 12.9 of the Equity Definitions or
Section 6(d)(ii) of the Agreement, as applicable, in satisfaction of the Payment
Obligation.

 

 

 

Share Termination Delivery
Property:

 

A number of Share Termination Delivery Units, as calculated by the Calculation
Agent in good faith, equal to the Payment Obligation divided by the Share
Termination Unit Price. The Calculation Agent shall adjust the Share Termination
Delivery Property by replacing any fractional portion of a security therein with
an amount of cash equal to the value of such fractional security based on the
values used to calculate the Share Termination Unit Price.

 

 

 

Share Termination Unit Price:

 

The value of property contained in one Share Termination Delivery Unit on the
date such Share Termination Delivery Units are to be delivered as Share
Termination Delivery Property, as determined by the Calculation Agent in its
discretion by commercially reasonable means and notified by the Calculation
Agent to Dealer at the time of notification of the Payment Obligation.

 

 

 

Share Termination Delivery Unit:

 

In the case of a Termination Event, Event of Default or Delisting, one Share or,
in the case of an Insolvency, Nationalization, Merger Event or Tender Offer, a
unit consisting of the number or amount of each type of property received by a
holder of one Share (without consideration of any requirement to pay cash or
other consideration in lieu of fractional amounts of any securities) in such
Insolvency,

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Nationalization, Merger Event or Tender Offer. If such Insolvency,
Nationalization, Merger Event or Tender Offer involves a choice of consideration
to be received by holders, such holder shall be deemed to have elected to
receive the maximum possible amount of cash.

 

 

 

Failure to Deliver:

 

Applicable

 

 

 

Other applicable provisions:

 

If Share Termination Alternative is applicable, the provisions of Sections
9.1(c), 9.8, 9.9, 9.10, 9.11 (except that the Representation and Agreement
contained in Section 9.11 of the Equity Definitions shall be modified by
excluding any representations therein relating to restrictions, obligations,
limitations or requirements under applicable securities laws arising as a result
of the fact that Counterparty is the issuer of the Shares) and 9.12 of the
Equity Definitions will be applicable as if “Physical Settlement” applied to the
Transaction, except that all references to “Shares” shall be read as references
to “Share Termination Delivery Units.”

          (c) Disposition of Hedge Shares. Counterparty hereby agrees that if,
in the good faith reasonable judgment of Dealer, any Shares (the “Hedge Shares”)
acquired by Dealer for the purpose of hedging its obligations pursuant to the
Transaction cannot be sold in the public market by Dealer without registration
under the Securities Act, Counterparty shall, at its election: (i) in order to
allow Dealer to sell the Hedge Shares in a registered offering, make available
to Dealer an effective registration statement under the Securities Act to cover
the resale of such Hedge Shares and (A) enter into an agreement, in form and
substance commercially reasonably satisfactory to Dealer and Counterparty,
substantially in the form of an underwriting agreement for a registered
offering, (B) provide accountant’s “comfort” letters in customary form for
registered offerings of equity securities, (C) provide disclosure opinions of
nationally recognized outside counsel to Counterparty reasonably acceptable to
Dealer, (D) provide other customary opinions, certificates and closing documents
customary in form for registered offerings of equity securities and (E) afford
Dealer a reasonable opportunity to conduct a “due diligence” investigation with
respect to Counterparty customary in scope for underwritten offerings of equity
securities; provided, however, that if Dealer, in its sole reasonable
discretion, is not satisfied with access to due diligence materials, the results
of its due diligence investigation, or the procedures and documentation for the
registered offering referred to above, then clause (ii) or clause (iii) of this
Section 8(c) shall apply at the election of Counterparty; (ii) in order to allow
Dealer to sell the Hedge Shares in a private placement, enter into a private
placement agreement substantially similar to private placement purchase
agreements customary for private placements of equity securities, in form and
substance commercially reasonably satisfactory to Dealer and Counterparty,
including customary representations, covenants, blue sky and other governmental
filings and/or registrations, indemnities to Dealer, due diligence rights (for
Dealer or any designated buyer of the Hedge Shares from Dealer), opinions and
certificates and such other documentation as is customary for private placements
agreements, all reasonably acceptable to Dealer (in which case, the Calculation
Agent shall make any adjustments to the terms of the Transaction that are
necessary, in its reasonable judgment, to compensate Dealer for any discount
from the public market price of the Shares incurred on the sale of Hedge Shares
in a private placement); or (iii) purchase the Hedge Shares from Dealer at the
VWAP Price on such Exchange Business Days, and in the amounts, requested by
Dealer. For the avoidance of doubt, unless Counterparty elects to purchase Hedge
Shares from Dealer pursuant to clause (iii) above, under no circumstances shall
Counterparty be required to pay cash to purchase Hedge Shares from Dealer.

          (d) Amendment to Equity Definitions. The following amendment shall be
made to the Equity Definitions:

 

 

 

 

 

          Section 12.6(a)(ii) of the Equity Definitions is hereby amended by (1)
deleting from the fourth line thereof the word “or” after the word “official”
and inserting a comma therefor, and (2) deleting the semi-colon at the end of
subsection (B) thereof and inserting the following words therefor “or (C) at
Dealer’s option, the occurrence of any of the events specified in Section
5(a)(vii) (1) through (9) of the ISDA Master Agreement with respect to that
Issuer.”

 

 

 

          Section 12.9(b)(i) of the Equity Definitions is hereby amended by (1)
replacing “either party may elect” with “Dealer may elect” and (2) replacing
“notice to the other party” with “notice to the Counterparty” in the first
sentence of such section.

          (e) Repurchase Notices. Counterparty shall, on any day on which
Counterparty effects any repurchase of Shares, promptly give Dealer a written
notice of such repurchase (a “Repurchase Notice”) on such day if, following such
repurchase, the Notice Percentage as determined on such day is (i) greater than
6% and (ii) greater by 0.5% than the Notice Percentage included in the
immediately preceding Repurchase Notice (or, in the case of the first such
Repurchase

13

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Notice, greater than the Notice Percentage as of the date hereof). The “Notice
Percentage” as of any day is the fraction, expressed as a percentage, the
numerator of which is the Number of Shares and the denominator of which is the
number of Shares outstanding on such day. In the event that Counterparty fails
to provide Dealer with a Repurchase Notice when and in the manner specified in
this Section 8(e) then Counterparty agrees to indemnify and hold harmless
Dealer, its affiliates and their respective directors, officers, employees,
agents and controlling persons (Dealer and each such person being an
“Indemnified Party”) from and against any and all losses, claims, damages and
liabilities (or actions in respect thereof), joint or several, to which such
Indemnified Party may become subject under applicable securities laws, including
without limitation, Section 16 of the Exchange Act, solely relating to or
arising out of such failure. If for any reason the foregoing indemnification is
unavailable to any Indemnified Party or insufficient to hold harmless any
Indemnified Party, then Counterparty shall contribute, to the maximum extent
permitted by law, to the amount paid or payable by the Indemnified Party as a
result of such loss, claim, damage or liability. In addition, Counterparty will
reimburse any Indemnified Party for all reasonable expenses (including
reasonable counsel fees and expenses) as they are incurred (after notice to
Counterparty) in connection with the investigation of, preparation for or
defense or settlement of any pending or threatened claim or any action, suit or
proceeding arising therefrom, whether or not such Indemnified Party is a party
thereto and whether or not such claim, action, suit or proceeding is initiated
or brought by or on behalf of Counterparty. This indemnity shall survive the
completion of the Transaction contemplated by this Confirmation and any
assignment and delegation of the Transaction made pursuant to this Confirmation
or the Agreement shall inure to the benefit of any permitted assignee of Dealer.

          (f) Transfer and Assignment. Either party may transfer any of its
rights or obligations under the Transaction with the prior written consent of
the non-transferring party, such consent not to be unreasonably withheld. In
addition, Dealer may transfer or assign without any consent of the Counterparty
its rights and obligations hereunder and under the Agreement, in whole or in
part, to (i) any of its affiliates, (ii) any entities sponsored or organized by,
or on behalf of or for the benefit of Dealer, or (iii) any person of credit
quality equivalent to Dealer; provided further that at any time at which the
Equity Percentage exceeds 8.5% (an “Excess Ownership Position”) or a Hedging
Disruption has occurred and is continuing, if Dealer, in its commercially
reasonable discretion, is unable to effect a transfer or assignment to a third
party in accordance with the requirements set forth above after using its
commercially reasonable efforts on pricing terms commercially reasonably
acceptable to Dealer such that an Excess Ownership Position or a Hedging
Disruption, as the case may be, no longer exists, Dealer may designate any
Scheduled Trading Day as an Early Termination Date with respect to a portion
(the “Terminated Portion”) of the Transaction, such that such Excess Ownership
Position or Hedging Disruption, as the case may be, no longer exists. In the
event that Dealer so designates an Early Termination Date with respect to a
portion of the Transaction, a payment or delivery shall be made pursuant to
Section 6 of the Agreement and Section 8(b) of this Confirmation as if (i) an
Early Termination Date had been designated in respect of a Transaction having
terms identical to the Terminated Portion of the Transaction, (ii) Counterparty
shall be the sole Affected Party with respect to such partial termination and
(iii) such portion of the Transaction shall be the only Terminated Transaction.
The “Equity Percentage” as of any day is the fraction, expressed as a
percentage, (A) the numerator of which is the number of Shares that Dealer and
any of its affiliates or any other person subject to aggregation with Dealer,
for purposes of the “beneficial ownership” test under Section 13 of the Exchange
Act (collectively, “Dealer Group”), beneficially own (within the meaning of
Section 13 of the Exchange Act) on such day and (B) the denominator of which is
the number of Shares outstanding on such day.

          (g) Staggered Settlement. Dealer may, by notice to Counterparty prior
to any Settlement Date (a “Nominal Settlement Date”), elect to deliver the
Shares on two or more dates (each, a “Staggered Settlement Date”) or at two or
more times on the Nominal Settlement Date as follows:

 

 

 

          (i) in such notice, Dealer will specify to Counterparty the related
Staggered Settlement Dates (each of which will be on or prior to such Nominal
Settlement Date, but not prior to the beginning of the related Conversion
Reference Period (as defined in the Supplemental Indenture) or delivery times
and how it will allocate the Shares it is required to deliver under “Delivery
Obligation” (above) among the Staggered Settlement Dates or delivery times; and

 

 

 

 

          (ii) the aggregate number of Shares that Dealer will deliver to
Counterparty hereunder on all such Staggered Settlement Dates and delivery times
will equal the number of Shares that Dealer would otherwise be required to
deliver on such Nominal Settlement Date.

          (h) Right to Extend. Dealer may postpone any Potential Exercise Date
or any other date of valuation or delivery by Dealer, with respect to some or
all of the relevant Options (in which event the Calculation Agent shall make
appropriate adjustments to the Delivery Obligation), if Dealer determines, in
its commercially reasonable discretion, that

14

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such extension is reasonably necessary or appropriate (i) to preserve Dealer’s
hedging or hedge unwind activity hereunder in light of existing liquidity
conditions or (ii) to enable Dealer to effect purchases of Shares in connection
with its hedging, hedge unwind or settlement activity hereunder in a manner that
would, if Dealer were Counterparty or an affiliated purchaser of Counterparty,
be in compliance with applicable legal, regulatory or self-regulatory
requirements, or with related policies and procedures applicable to Dealer.

          (i) Disclosure. Effective from the date of commencement of discussions
concerning the Transaction, Counterparty and each of its employees,
representatives, or other agents may disclose to any and all persons, without
limitation of any kind, the tax treatment and tax structure of the Transaction
and all materials of any kind (including opinions or other tax analyses) that
are provided to Counterparty relating to such tax treatment and tax structure.

          (j) Designation by Dealer. Notwithstanding any other provision in this
Confirmation to the contrary requiring or allowing Dealer to purchase, sell,
receive or deliver any Shares or other securities to or from Counterparty,
Dealer may designate any of its affiliates to purchase, sell, receive or deliver
such shares or other securities and otherwise to perform Dealer obligations in
respect of the Transaction and any such designee may assume such obligations.
Dealer shall be discharged of its obligations to Counterparty to the extent of
any such performance.

 

 

 

(k) Netting and Set-off.

 

 

          (i) If on any date cash would otherwise be payable or Shares or other
property would otherwise be deliverable hereunder or pursuant to the Agreement
or pursuant to any other agreement between the parties by Counterparty to Dealer
and cash would otherwise be payable or Shares or other property would otherwise
be deliverable hereunder or pursuant to the Agreement or pursuant to any other
agreement between the parties by Dealer to Counterparty and the type of property
required to be paid or delivered by each such party on such date is the same,
then, on such date, each such party’s obligation to make such payment or
delivery will be automatically satisfied and discharged and, if the aggregate
amount that would otherwise have been payable or deliverable by one such party
exceeds the aggregate amount that would otherwise have been payable or
deliverable by the other such party, replaced by an obligation of the party by
whom the larger aggregate amount would have been payable or deliverable to pay
or deliver to the other party the excess of the larger aggregate amount over the
smaller aggregate amount.

 

 

 

          (ii) In addition to and without limiting any rights of set-off that a
party hereto may have as a matter of law, pursuant to contract or otherwise,
upon the occurrence of an Early Termination Date, Dealer shall have the right to
terminate, liquidate and otherwise close out the Transaction and to set off any
obligation or right that Dealer or any affiliate of Dealer may have to or
against Counterparty hereunder or under the Agreement against any right or
obligation Dealer or any of its affiliates may have against or to Counterparty,
including without limitation any right to receive a payment or delivery pursuant
to any provision of the Agreement or hereunder. In the case of a set-off of any
obligation to release, deliver or pay assets against any right to receive assets
of the same type, such obligation and right shall be set off in kind. In the
case of a set-off of any obligation to release, deliver or pay assets against
any right to receive assets of any other type, the value of each of such
obligation and such right shall be determined by the Calculation Agent and the
result of such set-off shall be that the net obligor shall pay or deliver to the
other party an amount of cash or assets, at the net obligor’s option, with a
value (determined, in the case of a delivery of assets, by the Calculation
Agent) equal to that of the net obligation. In determining the value of any
obligation to release or deliver Shares or any right to receive Shares, the
value at any time of such obligation or right shall be determined by reference
to the market value of the Shares at such time, as determined in good faith by
the Calculation Agent. If an obligation or right is unascertained at the time of
any such set-off, the Calculation Agent may in good faith estimate the amount or
value of such obligation or right, in which case set-off will be effected in
respect of that estimate, and the relevant party shall account to the other
party at the time such obligation or right is ascertained.

 

 

          (iii) Counterparty shall not net or set off its obligations, if any,
under the Transaction against its rights against Dealer under any other
transaction or instrument. Dealer shall not net or set off its obligations, if
any, under the Transaction against its rights against Counterparty under any
other transaction or instrument.

          (l) Equity Rights. Dealer acknowledges and agrees that this
Confirmation is not intended to convey to it rights with respect to the
Transaction that are senior to the claims of common stockholders in the event of
Counterparty’s bankruptcy. For the avoidance of doubt, the parties agree that
the preceding sentence shall not apply at any time other than during
Counterparty’s bankruptcy to any claim arising as a result of a breach by
Counterparty of any of its obligations under this Confirmation or the Agreement.

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          (m) Early Unwind. In the event the sale by Counterparty of the
Convertible Securities is not consummated with the underwriters pursuant to the
Underwriting Agreement for any reason by the close of business in New York on
December 18, 2007 (or such later date as agreed upon by the parties, which in no
event shall be later than December 28, 2007) (December 18, 2007 or such later
date being the “Early Unwind Date”), the Transaction shall automatically
terminate (the “Early Unwind”) on the Early Unwind Date and (i) the Transaction
and all of the respective rights and obligations of Dealer and Counterparty
thereunder shall be cancelled and terminated and (ii) Counterparty shall pay to
Dealer an amount in cash equal to the aggregate amount of the reasonable costs
and expenses relating to the unwinding of Dealer’s hedging activities in respect
of the Transaction (including market losses incurred in reselling any Shares
purchased by Dealer or its affiliates in connection with such hedging
activities). Following such termination, cancellation and payment, each party
shall be released and discharged by the other party from and agrees not to make
any claim against the other party with respect to any obligations or liabilities
of either party arising out of and to be performed in connection with the
Transaction either prior to or after the Early Unwind Date. Dealer and
Counterparty represent and acknowledge to the other that upon an Early Unwind
and following the payment referred to above, all obligations with respect to the
Transaction shall be deemed fully and finally discharged.

          (n) Waiver of Trial by Jury. EACH OF COUNTERPARTY AND DEALER HEREBY
IRREVOCABLY WAIVES (ON ITS OWN BEHALF AND, TO THE EXTENT PERMITTED BY APPLICABLE
LAW, ON BEHALF OF ITS STOCKHOLDERS) ALL RIGHT TO TRIAL BY JURY IN ANY ACTION,
PROCEEDING OR COUNTERCLAIM (WHETHER BASED ON CONTRACT, TORT OR OTHERWISE)
ARISING OUT OF OR RELATING TO THE TRANSACTION OR THE ACTIONS OF COUNTERPARTY OR
DEALER OR THEIR RESPECTIVE AFFILIATES IN THE NEGOTIATION, PERFORMANCE OR
ENFORCEMENT HEREOF.

          (o) Governing Law. THIS CONFIRMATION SHALL BE GOVERNED BY THE LAWS OF
THE STATE OF NEW YORK. THE PARTIES HERETO IRREVOCABLY SUBMIT TO THE EXCLUSIVE
JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK AND THE UNITED STATES COURT
FOR THE SOUTHERN DISTRICT OF NEW YORK IN CONNECTION WITH ALL MATTERS RELATING
HERETO AND WAIVE ANY OBJECTION TO THE LAYING OF VENUE IN, AND ANY CLAIM OF
INCONVENIENT FORUM WITH RESPECT TO, THESE COURTS.

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          Counterparty hereby agrees (a) to check this Confirmation carefully
and promptly upon receipt so that errors or discrepancies can be promptly
identified and rectified and (b) to confirm that the foregoing (in the exact
form provided by Dealer) correctly sets forth the terms of the agreement between
Dealer and Counterparty with respect to the Transaction, by manually signing
this Confirmation or this page hereof as evidence of agreement to such terms and
providing the other information requested herein and promptly returning an
executed copy to us at facsimile number 646-885-9545 (United States of America),
Attention: Documentation.

 

 

 

 

 

 

Yours faithfully,

 

 

 

 

 

 

LEHMAN BROTHERS OTC DERIVATIVES INC.

 

 

 

 

 

 

By: 

/s/ Anatoly Kozlov

 

 

 

--------------------------------------------------------------------------------

 

 

 

Name: Anatoly Kozlov

 

 

 

Authorized Signatory

 

 

 

 

Agreed and Accepted By:

 

 

 

 

 

 

THE GREAT ATLANTIC & PACIFIC TEA COMPANY, INC.

 

 

 

By: 

/s/ William Moss

 

 

 

--------------------------------------------------------------------------------

 

 

 

Name: William Moss

 

 

 

Title: Vice President and Treasurer

 

 

17

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