Exhibit 10.8


	
 

	
 

	
 


	
 

	
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 (2012)


	
 

	
(Global ID: 3534958)





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 second 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 230 million principal amount of
6.75% convertible senior notes due 2012 (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 37.80


	
 

	
 

	
 

	
 


	
 

	
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
 21,045,000.00 (Premium per Option USD 6.9174); 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:

	
 

	
December 15,
 2012


	
 

	
 

	
 

	
 


	
 

	
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, 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.


	
 

	
 

	
 

	
 


	
 

	
Market
 Disruption Event:

	
 

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





3






	
 

	
 

	
 

	
 


	
 

	
 

	
 

	
“‘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 Averaging Period for a Net Share Extended
 Settlement) in respect 





4






	
 

	
 

	
 

	
 


	
 

	
 

	
 

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





5






	
 

	
 

	
 

	
 


	
 

	
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 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 the Daily Share Amounts for each of the Valid Days during the applicable
 Settlement Averaging Period; provided, however, that if 





6






	
 

	
 

	
 

	
 


	
 

	
 

	
 

	
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 in respect of such Adjustment Event have been determined,
 Counterparty shall promptly (but in no event later than the close of 





7






	
 

	
 

	
 

	
 


	
 

	
 

	
 

	
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 to 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.


	
 

	
 

	
 

	
 


	
 

	
Additional
 Disruption Events:

	
 

	
 


	
 

	
 

	
 

	
 


	
 

	
     (a)
 Change in Law:

	
 

	
Applicable





8






	
 

	
 

	
 

	
 


	
 

	
     (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


	
 

	
 

	
 

	
 


	
 

	
     (b)
 Address for notices or communications to Dealer:





9






	
 

	
 

	
 

	
 


	
 

	
 

	
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.


	
 

	
 


	
 

	
          (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 





10






	
 

	
 


	
 

	
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) a Repayment Event, or (iv) a Redemption 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; provided
further that in the case of a Redemption Event the Transaction shall
be subject to termination only in respect of the number of Convertible
Securities in respect of which the Counterparty has delivered a redemption
notice.


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.


          “Redemption
Event” means that the Counterparty (i) notifies the trustee under
the Supplemental Indenture of the redemption date and of the principal amount
of Convertible Securities to be redeemed or (ii) makes a public announcement of
its intention to redeem a specified principal amount of Convertible Securities
on a particular redemption date.


          (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. 





12






	
 

	
 

	
 


	
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, 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.





13






          (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
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.





14






          (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 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.





15






	
 

	
 


	
 

	
          (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. 


	
 

	
 


	
 

	
          (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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