Case KG Doc 265 Filed 10/03/15 Page 1 of 7 IN THE UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF DELAWARE

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1 Case KG Doc 265 Filed 10/03/15 Page 1 of 7 IN THE UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF DELAWARE In re: Chapter 11 HAGGEN HOLDINGS, LLC, et al., 1 Case No (KG Debtors. (Jointly Administered DECLARATION OF SCOTT MOSES IN SUPPORT OF DEBTORS MOTION PURSUANT TO 11 U.S.C. 105, 363, 365, 503 AND 507 FOR APPROVAL OF: (I (A GLOBAL BIDDING PROCEDURES, (B BID PROTECTIONS, (C FORM AND MANNER OF NOTICE OF SALE TRANSACTIONS AND SALE HEARING, AND (D ASSUMPTION AND ASSIGNMENT PROCEDURES; AND (II (A PURCHASE AGREEMENTS, (B SALE OF CERTAIN OF THE DEBTORS ASSETS FREE AND CLEAR OF LIENS, CLAIMS, INTERESTS AND ENCUMBRANCES, AND (C ASSUMPTION AND ASSIGNMENT OF CERTAIN EXECUTORY CONTRACTS AND LEASES I, Scott Moses, make this declaration under 28 U.S.C. 1746: 1. I am a Managing Director with Sagent Advisors, LLC (together with employees of its affiliates (all of which are wholly-owned by its parent company and employees, its wholly owned subsidiaries, and independent contractors, Sagent, a leading independent investment bank with offices throughout the country. I am also the Head of Food, Drug & Specialty Retail Investment Banking, specializing in retail and restaurant sector strategic advice. 2. I received a Bachelor of Arts degree in political science from the University of Pennsylvania, and Master of Business Administration and Juris Doctor degrees from Columbia University. 1 The Debtors in these chapter 11 cases, along with the last four digits of each Debtor s federal tax identification number, are: Haggen Holdings, LLC (7558, Haggen Operations Holdings, LLC (6341, Haggen Opco South, LLC (7257, Haggen Opco North, LLC (5028, Haggen Acquisition, LLC (7687, and Haggen, Inc. (4583. The mailing address for each of the Debtors is 2211 Rimland Drive, Bellingham, WA

2 Case KG Doc 265 Filed 10/03/15 Page 2 of 7 3. On September 8, 2015 (the Petition Date, each of the Debtors filed a voluntary petition for relief under chapter 11 of title 11 of the United States Code, 11 U.S.C. 101, et seq. (the Bankruptcy Code, thereby commencing the above-captioned chapter 11 cases (collectively, the Chapter 11 Cases. The Debtors are operating their businesses and managing their assets as debtors-in-possession during the pendency of these Chapter 11 Cases. 4. I submit this declaration (the Declaration in support of the Debtors Motion Pursuant to 11 U.S.C. 105, 363, 365, 503 and 507 for Approval of: (I (A Global Bidding Procedures, (B Bid Protections, (C Form and Manner of Notice of Sale Transactions and Sale Hearing, and (D Assumption and Assignment Procedures; and (II (A Purchase Agreements, (B Sale of Certain of the Debtors Assets Free and Clear of Liens, Claims, Interests and Encumbrances, and (C Assumption and Assignment of Certain Executory Contracts and Leases (the Motion, 2 filed concurrently herewith. 5. Except as otherwise indicated, all facts set forth in this Declaration are based upon my personal knowledge of the Debtors operations and finances gleaned during the course of my engagement with the Debtors, my discussions with the Debtors senior management team, other members of the Sagent team, my review of relevant documents, or my opinion based upon experience. I am authorized to submit this Declaration. If called upon to testify, I could and would testify competently to the facts set forth herein. 6. Since Sagent s engagement, Sagent has assisted the Debtors in marketing the Stores in an effort to consummate the sales transactions contemplated in the Motion, and has advised the Debtors on matters related thereto. During the course of this engagement, Sagent has 2 Capitalized terms not otherwise herein defined shall have the meanings ascribed to such terms in the Motion. 2

3 Case KG Doc 265 Filed 10/03/15 Page 3 of 7 worked closely with the Debtors management and other retained professionals, and has become well-acquainted with the Debtors business operations and capital structure. THE SALE PROCESS AND STALKING HORSE BIDS 7. In pursuit of the sale of the Stores, on the Petition Date, the Debtors, with the assistance of Sagent, began to market their Stores for sale to other grocery store operators, who would later operate the purchased Stores as going concerns. 8. To that end, Sagent prepared a comprehensive information package, containing store-by-store information for the Debtors entire Store portfolio, to be shared with potential buyers upon the signing of a confidentiality agreement; furthermore, each package was tailored to reflect the particular Stores in which each potential buyer had expressed interest. The Debtors and Sagent contacted, or were contacted by, a total of 131 parties, including parties that had, prior to the Petition Date, expressed interest in acquiring the Stores. A total of 92 parties executed confidentiality agreements and were granted access to an electronic data room containing diligence and other confidential information with respect to the Debtors business. Twenty-five of these parties submitted proposals to purchase Stores. 9. The Debtors, in consultation with Sagent, evaluated these proposals to determine the optimal composition of one or more stalking horse bids, and analyzed, among other things, (a the consideration offered by each potential buyer; (b the profitability of the stores included in each proposal; (c the leasehold value of the stores included in each proposal; and (d each proposal s treatment of and effect on labor. The Debtors and Sagent also evaluated the overlap of Stores among bids in an effort to construct an optimal composition of nonoverlapping stalking horse bids. 3

4 Case KG Doc 265 Filed 10/03/15 Page 4 of After extensive deliberations with Sagent, and separate negotiations with several bidders regarding the terms of an asset purchase agreement, the Debtors secured two separate Stalking Horse Agreements (collectively, the Stalking Horse Bids for the sale of a total of 36 Stores. The total purchase price for the Stalking Horse Bids is approximately $92 million, subject to certain adjustments and subject to higher or otherwise better offers. The Stalking Horse Bids were submitted by Gelson s Markets ( Gelson s and Smart & Final Stores, LLC ( Smart & Final (each, a Stalking Horse Bidder. THE GLOBAL BIDDING PROCEDURES 11. Furthermore, with the Store Closing Sales winding down at the Phase 1 Stores and scheduled to commence in the near-term at the Phase 2 Stores, the Debtors now seek authority to proceed with the robust bidding and auction process set forth in the Motion in order to generate the maximum value for the Stores. With the assistance of Sagent, the Debtors developed global bidding and auction procedures for the sale of the Stores (the Global Bidding Procedures. In order to stimulate bidding, under such procedures, potential buyers may submit bids for (a all of the Stores in a particular stalking horse bid (a Stalking Horse Package, or (b one or more of the Stores, in any combination, whether or not such Stores are included in a Stalking Horse Package. Thus, the Global Bidding Procedures will preserve flexibility in the sale process and generate the greatest level of interest and the highest or best value for the Stores. Additionally, by establishing global dates for submitting bids, conducting auctions, and approving sales, the Global Bidding Procedures will provide clarity as to the bidding and auction process to all interested parties. 12. As part of the Debtors postpetition marketing process, Sagent has marketed and will continue to market the Debtors entire portfolio of Stores, subject to the terms 4

5 Case KG Doc 265 Filed 10/03/15 Page 5 of 7 of the non-solicitation clauses contained in the Stalking Horse Agreements. Additionally, in an effort to attract additional bids, the Debtors and Sagent are continuing to engage in negotiations with bidders who had expressed interest in Stores that were not included in a Stalking Horse Package. 13. It is my opinion that the Stalking Horse Agreements currently represent the best offers available for the Stores included in the Stalking Horse Packages. However, subjecting the Stalking Horse Bids to the competitive bidding and auction process in accordance with the Global Bidding Procedures will result in the realization of the best value available for the Stalking Horse Stores on an aggregate basis. THE BID PROTECTIONS 14. The Global Bidding Procedures and the Stalking Horse Agreements contain certain bid protections, including: (a the Termination Payments; and (b the initial and subsequent bid increments (collectively, the Bid Protections. The applicable Stalking Horse Bidder and the Debtors negotiated the Bid Protections at arms length and in good faith. Accordingly, it is my opinion that the Bid Protections, collectively and individually, are fair and reasonable, will not chill bidding, and will enable the Debtors to maximize value through a postpetition bidding and auction process. 15. Based on the extensive marketing process that has been conducted thus far, I have determined that the Bid Protections were a material inducement for, and an express condition of, each applicable Stalking Horse Bidder s execution of the applicable Stalking Horse Agreement, and each of the Stalking Horse Bidders has the ability to terminate its Stalking Horse Agreement if the applicable Bid Protections are not approved on the terms set forth therein. 5

6 Case KG Doc 265 Filed 10/03/15 Page 6 of Specifically, I believe that the Termination Payments are not only commensurate to the real and substantial benefits conferred upon the Debtors estates by the Stalking Horse Bidders, but also fair, reasonable, and appropriate in light of the size and nature of the proposed sales and the efforts that have been and will be expended by the Stalking Horse Bidders. Each Termination Payment is payable as an administrative expense, subject to the terms and conditions of the applicable Stalking Horse Agreement. 17. Additionally, the Stalking Horse Bidders each requested that the Debtors agree to certain group-level protections for the Stores included in their respective bids, including a provision that the Global Bidding Procedures would prohibit a purchaser, or group of purchasers, from buying certain stores included in the applicable Stalking Horse Bid unless the purchase is for a minimum number of stores included in such Stalking Horse Bid. In evaluating the request for Stalking Horse Package protections, the Debtors and Sagent considered factors such as: (a whether the incremental value to be realized on account of the higher purchase price offered by the Stalking Horse Bidders would likely outweigh the value that could potentially be realized (net of administrative costs if stores included in a Stalking Horse Bid were offered for sale separate and apart from a Stalking Horse Bid, and (b the uncertainty of proceeding to a competitive bidding process without binding bids for the significant number of stores included in the Stalking Horse Bids. 18. The Debtors, in consultation with Sagent, determined that Stores included in a Stalking Horse Bid should not be offered for sale separate from the rest of the Stores included in such bid, subject to certain key concessions: (a competing bidders will be allowed to submit bids for less than all of the Stores included in a Stalking Horse Bid (a Partial Bid, and (b the Debtors will be permitted to designate a Partial Bid as a Qualified Bid if such bid, when 6

7 Case KG Doc 265 Filed 10/03/15 Page 7 of 7 considered in combination with one or more other Partial Bids for the remaining Stores in a Stalking Horse Bid, constitute a higher or better bid than the applicable Stalking Horse Bid and otherwise satisfies the criteria set forth in the applicable Stalking Horse Agreement. I declare under penalty of perjury that the foregoing is true and correct. Executed on October 3, 2015, in New York, New York. /s/ Scott Moses Scott Moses 7