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






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






	
 

	
 

	
 

	
 


	
 

	
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






	
 

	
 

	
 

	
 


	
 

	
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






	
 

	
 

	
 

	
 


	
 

	
 

	
 

	
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






	
 

	
 

	
 

	
 


	
 

	
 

	
 

	
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






	
 

	
 

	
 

	
 


	
 

	
 

	
 

	
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






	
 

	
 

	
 

	
 

	
 

	
 


	
 

	
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






	
 

	
 

	
 

	
 

	
 

	
 


	
          (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.





10






	
 

	
 


	
 

	
          (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.


11






	
 

	
 


	
 

	
          “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,





12






	
 

	
 

	
 


	
 

	
 

	
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






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






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

	
 

	
 





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