) In re: ) Chapter 11 ) THE GREAT ATLANTIC & PACIFIC TEA COMPANY, INC., et al., ) Case No (RDD)

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1 Requested Hearing Date: November 14, 2011 at 4:00 p.m. (ET) Requested Objection Deadline: November 11, 2011 at 4:00 p.m. (ET) James H.M. Sprayregen, P.C. Paul M. Basta Ray C. Schrock KIRKLAND & ELLIS LLP 601 Lexington Avenue New York, New York Telephone: (212) Facsimile: (212) and - James J. Mazza, Jr. KIRKLAND & ELLIS LLP 300 North LaSalle Chicago, Illinois Telephone (312) Facsimile: (312) Counsel to the Debtors and Debtors in Possession UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF NEW YORK ) In re: ) Chapter 11 ) THE GREAT ATLANTIC & PACIFIC TEA COMPANY, INC., et al., ) Case No (RDD) ) ) Debtors. ) Jointly Administered ) NOTICE OF DEBTORS MOTION FOR AN ORDER AUTHORIZING THE DEBTORS TO (A) ENTER INTO CERTAIN SECURITIES PURCHASE AGREEMENTS FOR A $490 MILLION NEW CAPITAL INVESTMENT AND (B) PAY CERTAIN FEES IN CONNECTION THEREWITH, EACH TO SUPPORT DEBTORS PLAN OF REORGANIZATION PLEASE TAKE NOTICE that the undersigned 1 will present the attached Debtors 1 The Debtors in these chapter 11 cases, along with the last four digits of each Debtor s federal tax identification number, are: The Great Atlantic & Pacific Tea Company, Inc. (0974); 2008 Broadway, Inc. (0986); AAL Realty Corporation (3152); Adbrett Corporation (5661); Amsterdam Trucking Corporation (1165); APW Supermarket Corporation (7132); APW Supermarkets, Inc. (9509); Bergen Street Pathmark, Inc. (1604); Best (Continued )

2 Motion for an Order Authorizing the Debtors to (A) Enter Into Certain Securities Purchase Agreements for a $490 Million New Capital Investment and (B) Pay Certain Fees in Connection Therewith, Each to Support Debtors Plan of Reorganization (the Motion ) to the Honorable Judge Robert D. Drain, Bankruptcy Judge of the United States Bankruptcy Court for the Southern District of New York (the Bankruptcy Court ), at 300 Quarropas Street, White Plains, New York 10601, at a hearing requested to be held on November 14, 2011 at 4:00 p.m. (ET) (the Requested Hearing ). 2 PLEASE TAKE FURTHER NOTICE that responses or objections, if any, to the relief requested in the Motion must comply with the Federal Rules of Bankruptcy Procedure and the Local Rules of the United States Bankruptcy Court for the Southern District of New York, must be set forth in a writing describing the basis therefore, and must be filed with the Bankruptcy Court electronically in accordance with General Order M-399 by registered users of the Cellars DC Inc. (2895); Best Cellars Inc. (9550); Best Cellars Licensing Corp. (2896); Best Cellars Massachusetts, Inc. (8624); Best Cellars VA Inc. (1720); Bev, Ltd. (9046); Borman s Inc. (9761); Bridge Stuart, Inc. (8652); Clay-Park Realty Co., Inc. (0902); Compass Foods, Inc. (0653); East Brunswick Stuart, LLC (9149); Farmer Jack s of Ohio, Inc. (5542); Food Basics, Inc.(1210); Gramatan Foodtown Corp. (5549); Grape Finds At DuPont, Inc. (9455); Grape Finds Licensing Corp. (7091); Grapefinds, Inc. (4053); Greenlawn Land Development Corp. (7062); Hopelawn Property I, Inc. (6590); Kohl s Food Stores, Inc. (2508); Kwik Save Inc. (8636); Lancaster Pike Stuart, LLC (9158); LBRO Realty, Inc. (1125); Lo-Lo Discount Stores, Inc. (8662); Mac Dade Boulevard Stuart, LLC (9155); McLean Avenue Plaza Corp. (5227); Milik Service Company, LLC (0668); Montvale Holdings, Inc. (6664); North Jersey Properties, Inc. VI (6586); Onpoint, Inc. (6589); Pathmark Stores, Inc. (9612); Plainbridge, LLC (5965); SEG Stores, Inc. (4940); Shopwell, Inc. (3304); Shopwell, Inc. (1281); Spring Lane Produce Corp. (5080); Super Fresh/Sav-A-Center, Inc. (0228); Super Fresh Food Markets, Inc. (2491); Super Market Service Corp. (5014); Super Plus Food Warehouse, Inc. (9532); Supermarkets Oil Company, Inc. (4367); The Food Emporium, Inc. (3242); The Old Wine Emporium of Westport, Inc. (0724); The South Dakota Great Atlantic & Pacific Tea Company, Inc (4647); Tradewell Foods of Conn., Inc. (5748); Upper Darby Stuart, LLC (9153); and Waldbaum, Inc. (8599). The location of the Debtors corporate headquarters is Two Paragon Drive, Montvale, New Jersey The Debtors have also filed the Motion to Shorten Notice of Debtors Motion for an Order Authorizing the Debtors to (A) Enter Into Certain Securities Purchase Agreements for a $490 Million New Capital Investment and (B) Pay Certain Fees in Connection Therewith, Each to Support Debtors Plan of Reorganization, contemporaneously herewith, requesting that the Court hear the Motion on November 14, 2011 and establish November 11, 2011 as the deadline to object to the Motion; should the Court not grant the relief requested therein, the Debtors will file a revised notice for the Motion. 2

3 Bankruptcy Court s electronic case filing system (the User s Manual for the Electronic Case Filing System can be found at the official website of the Bankruptcy Court) and, by all other parties in interest, on a 3 ½ inch disk, preferably in Portable Document Format (PDF), WordPerfect or any other Windows-based word processing format (with a hard copy delivered directly to Chambers) and served in accordance with General Order M-399 or by first-class mail upon each of the following: (a) counsel for the Debtors, Kirkland & Ellis LLP, 601 Lexington Avenue, New York, New York 10022, Attn.: Paul M. Basta, Attn.: Ray C. Schrock, Attn.: James J. Mazza, Jr.; (b) counsel for the Convertible Noteholders (as defined in the Motion), Stroock & Stroock & Lavan LLP, 180 Maiden Lane, New York, New York 10038, Attn.: Kristopher M. Hansen, Attn.: Jayme T. Goldstein, Attn.: Marianne S. Mortimer; (c) counsel for Yucaipa (as defined in the Motion), Latham & Watkins LLP, 355 S Grand Ave, Suite 100, Los Angeles, California, 90071, Attn.: Robert Klyman; (d) counsel for Wilmington Trust Company as indenture trustee for the Debtors prepetition unsecured notes, Covington & Burling LLP, 620 Eighth Ave, New York, New York, 10018, Attn.: Michael B. Hopkins, Attn.: Ronald A. Hewitt; (e) counsel for Wells Fargo Bank, N.A., as successor trustee and collateral agent for the Debtors prepetition secured notes, Brown Rudnick LLP, Seven Times Square, New York, New York 10036, Attn.: Edward S. Weisfelner; (f) counsel to the administrative agent for the Debtors postpetition secured lenders, Davis Polk & Wardwell LLP, 450 Lexington Avenue, New York, New York, 10017, Attn.: Donald S. Bernstein, Attn.: Marshall S. Huebner; (g) the Office of the United States Trustee for the Southern District of New York at 33 Whitehall Street, 21st Floor, New York, New York 10004, Attn.: Susan Golden, Attn.: Richard Morrissey; (h) counsel to the official committee of unsecured creditors, Milbank, Tweed, Hadley & McCloy LLP, Attn.: Dennis F. Dunne, Attn.: Abhilash M. Raval, Attn.: 3

4 Matthew S. Barr; and (h) any other parties as specified in the Order Establishing Certain Notice, Case Management and Administrative Procedures [Docket No. 75] so as to be actually received no later than November 11, 2011 at 4:00 p.m. (ET). Only those responses that are timely filed, served and received will be considered at the Requested Hearing. Failure to file a timely objection may result in entry of a final order granting the Motion as requested by the Debtors without further notice. The parties are required to attend the Requested Hearing and failure to attend in person or by counsel may result in relief being granted or denied upon default. New York, New York Dated: November 3, 2011 /s/ Ray Schrock James H.M. Sprayregen, P.C. Paul M. Basta Ray C. Schrock KIRKLAND & ELLIS LLP 601 Lexington Avenue New York, New York Telephone: (212) Facsimile: (212) and - James J. Mazza, Jr. KIRKLAND & ELLIS LLP 300 North LaSalle Chicago, Illinois Telephone: (312) Facsimile: (312) Counsel to the Debtors and Debtors in Possession 4

5 Requested Hearing Date: November 14, 2011 at 4:00 p.m. (ET) Requested Objection Deadline: November 11, 2011 at 4:00 p.m. (ET) James H.M. Sprayregen, P.C. Paul M. Basta Ray C. Schrock KIRKLAND & ELLIS LLP 601 Lexington Avenue New York, New York Telephone: (212) Facsimile: (212) and - James J. Mazza, Jr. KIRKLAND & ELLIS LLP 300 North LaSalle Chicago, Illinois Telephone (312) Facsimile: (312) Counsel to the Debtors and Debtors in Possession UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF NEW YORK ) In re: ) Chapter 11 ) THE GREAT ATLANTIC & PACIFIC TEA COMPANY, INC., et al., ) Case No (RDD) ) ) Debtors. ) Jointly Administered ) DEBTORS MOTION FOR AN ORDER AUTHORIZING THE DEBTORS TO (A) ENTER INTO CERTAIN SECURITIES PURCHASE AGREEMENTS FOR A $490 MILLION NEW CAPITAL INVESTMENT AND (B) PAY CERTAIN FEES IN CONNECTION THEREWITH, EACH TO SUPPORT DEBTORS PLAN OF REORGANIZATION The Great Atlantic & Pacific Tea Company, Inc. ( A&P ) and certain of its affiliates, as debtors and debtors in possession (collectively, the Debtors ) 1 file this motion (the 1 The Debtors in these Chapter 11 Cases, along with the last four digits of each Debtor s federal tax identification (Continued )

6 Motion ) for the entry of an order, substantially in the form attached hereto as Exhibit A (the Order ), authorizing the Debtors to: (a) enter into certain securities purchase agreements, each dated as of November 3, 2011, by and among the Debtors and certain holders of A&P s prepetition 5.125% unsecured, convertible notes due in 2011 (the 5.125% Convertible Notes ), 6.75% unsecured, convertible notes due in 2012 (the 6.75% Convertible Notes, and with the 5.125% Convertible Notes, the Convertible Notes ), and the 9.375% senior quarterly interest bonds due August 1, 2039 (the Quarterly Interest Bonds, and with the 5.125% Convertible Notes and 6.75% Convertible Notes, the Existing Unsecured Debt Securities ) (such holders, the Convertible Noteholders ) and certain affiliates of The Yucaipa Companies LLC, holders of A&P s Series A-Y convertible preferred stock and Series A-T convertible preferred stock (such holders, collectively, Yucaipa, and with the Convertible Noteholders, the Investors ), copies of which are attached to the proposed Order as Exhibits 1, 2, and 3 (the Securities number, are: The Great Atlantic & Pacific Tea Company, Inc. (0974); 2008 Broadway, Inc. (0986); AAL Realty Corporation (3152); Adbrett Corporation (5661); Amsterdam Trucking Corporation (1165); APW Supermarket Corporation (7132); APW Supermarkets, Inc. (9509); Bergen Street Pathmark, Inc. (1604); Best Cellars DC Inc. (2895); Best Cellars Inc. (9550); Best Cellars Licensing Corp. (2896); Best Cellars Massachusetts, Inc. (8624); Best Cellars VA Inc. (1720); Bev, Ltd. (9046); Borman s Inc. (9761); Bridge Stuart, Inc. (8652); Clay-Park Realty Co., Inc. (0902); Compass Foods, Inc. (0653); East Brunswick Stuart, LLC (9149); Farmer Jack s of Ohio, Inc. (5542); Food Basics, Inc.(1210); Gramatan Foodtown Corp. (5549); Grape Finds At DuPont, Inc. (9455); Grape Finds Licensing Corp. (7091); Grapefinds, Inc. (4053); Greenlawn Land Development Corp. (7062); Hopelawn Property I, Inc. (6590); Kohl s Food Stores, Inc. (2508); Kwik Save Inc. (8636); Lancaster Pike Stuart, LLC (9158); LBRO Realty, Inc. (1125); Lo-Lo Discount Stores, Inc. (8662); Mac Dade Boulevard Stuart, LLC (9155); McLean Avenue Plaza Corp. (5227); Milik Service Company, LLC (0668); Montvale Holdings, Inc. (6664); North Jersey Properties, Inc. VI (6586); Onpoint, Inc. (6589); Pathmark Stores, Inc. (9612); Plainbridge, LLC (5965); SEG Stores, Inc. (4940); Shopwell, Inc. (3304); Shopwell, Inc. (1281); Spring Lane Produce Corp. (5080); Super Fresh/Sav-A-Center, Inc. (0228); Super Fresh Food Markets, Inc. (2491); Super Market Service Corp. (5014); Super Plus Food Warehouse, Inc. (9532); Supermarkets Oil Company, Inc. (4367); The Food Emporium, Inc. (3242); The Old Wine Emporium of Westport, Inc. (0724); The South Dakota Great Atlantic & Pacific Tea Company, Inc (4647); Tradewell Foods of Conn., Inc. (5748); Upper Darby Stuart, LLC (9153); and Waldbaum, Inc. (8599). The location of the Debtors corporate headquarters is Two Paragon Drive, Montvale, New Jersey

7 Purchase Agreements ); 2 and (b) pay certain customary fees and expenses in connection therewith. In support of this Motion, the Debtors state as follows: 3 Preliminary Statement 1. The Securities Purchase Agreements that the Debtors seek approval of through this Motion serve as the foundation to allow the Debtors to emerge successfully from chapter 11 as a competitive, standalone enterprise by early 2012 through a plan of reorganization (the Plan ). Among other things, the Securities Purchase Agreements: infuse the Debtors estates with a $490 million new debt and equity investment from the Investors, backed by a specific performance remedy against the Investors (the New Money Commitment ); 4 are supported by the Convertible Noteholders, who hold approximately 80% in amount of the Convertible Notes; 5 and provide a cash recovery to general unsecured creditors. 2 Contemporaneously herewith, the Debtors have filed the Debtors Ex Parte Motion for Entry of an Order Authorizing the Debtors to Seal Portions of Their Securities Purchase Agreements and Debtors Motion for an Order Authorizing the Debtors to (A) Enter into Securities Purchase Agreements for a $490 Million New Capital Investment and (B) Pay Certain Fees in Connection Therewith, Each to Support Debtors Plan of Reorganization requesting to file certain provisions of the Securities Purchase Agreements under seal. 3 To the extent that the following summaries or descriptions and the terms of the Securities Purchase Agreements differ from the terms of the agreements themselves, the terms of the Securities Purchase Agreements, as applicable, shall control. Any capitalized terms used but not defined herein shall have the meanings ascribed to them in the Securities Purchase Agreements. 4 The New Money Commitment amount reflects that the $210 million face amount of the New Second Lien Notes (as defined below) will be issued with a 5.0% original issue discount, thus yielding $200 million in cash proceeds from the issuance. 5 The Convertible Noteholders hold approximately $133.5 million of the $165 million aggregate principal amount outstanding of 5.125% Convertible Notes, $204.9 million of the $255 million aggregate principal amount outstanding of the 6.75% Convertible Notes and $30.2 million of the $200 million aggregate principal amount outstanding of the Quarterly Interest Bonds. The Debtors also have consulted with the advisors to the official committee of unsecured creditors (the Creditors Committee ) throughout this process and hope to obtain the Creditors Committee s support for the Plan in the near future. 3

8 2. The Securities Purchase Agreements represent the culmination of several months of diligent efforts by the Debtors to execute numerous restructuring initiatives in the condensed timeframe imposed by the Bankruptcy Code to develop a stand-alone plan of reorganization a rarity for any retail debtor since the 2005 Bankruptcy Code amendments and a testament to the Debtors efforts in this complex reorganization. Indeed, over the last several months, the Debtors have made tremendous progress in achieving their restructuring objectives from, among other things, rationalizing their store footprint, to obtaining favorable supply and logistics arrangements, to progressing negotiations to restructure their labor costs to an advanced state, to developing and executing a business plan. Indeed, the United Food and Commercial Workers International Union (the UFCW ) has indicated that it supports the efforts of the Debtors, the Convertible Noteholders, and Yucaipa to work towards a successful restructuring transaction. 3. Simultaneously with these reorganization efforts, the Debtors engaged in plan discussions with the Convertible Noteholders several months ago regarding capital investments similar to those memorialized in the Securities Purchase Agreements (the Noteholders Proposal ). The Noteholders Proposal proved to be a catalyst for an alternative offer. On October 24, 2011, Yucaipa submitted an indication of interest in providing an alternative investment. Immediately upon receiving such indication, A&P s board of directors (the Board ) formed an independent restructuring committee, excluding those directors that could be perceived as having an affiliation with Yucaipa (the Restructuring Committee ), to evaluate both the Convertible Noteholders Proposal and Yucaipa s proposal. 4. Consistent with their fiduciary duties, the Debtors and their advisors engaged in parallel, around-the-clock negotiations with both the Convertible Noteholders and Yucaipa and their respective advisors. In the days to follow, Yucaipa and the Debtors substantially agreed on 4

9 terms that offered advantages when compared to the Convertible Noteholders Proposal. Ultimately, the parties expressed an interest in submitting a joint proposal and it became clear to the Debtors and the Restructuring Committee that the best solution for the Debtors and their estates would be to allow the Convertible Noteholders and Yucaipa to jointly invest, harnessing the benefits of each proposal. 6 Through the joint proposal ultimately struck, the Debtors aim to greatly expedite the plan confirmation and consummation process through a consensual transaction which is critical given the Debtors postpetition financing milestone requirements, the expiration of the section 365(d)(4) assumption and rejection deadline for approximately 100 of the Debtors store leases at year s end and the impact lingering in bankruptcy would have on the Debtors operational performance. Recognizing this, on November 2, 2011, the Debtors Restructuring Committee and the Board approved resolutions authorizing the Debtors to file this Motion for approval of the Securities Purchase Agreements. 5. The Securities Purchase Agreements are the backbone of the Debtors Plan, which the Debtors believe represents their best option to maximize value for the estates, exit chapter 11 as expeditiously as possible, and provide their reorganized enterprise with the capital needed to implement their post-reorganization business plan. For these reasons, and those stated below, the Motion should be approved. 6 The Investors have entered among themselves into a Securities Purchase Side Agreement regarding their agreement to coordinate among one another in support of the Plan and a Management Services Agreement (the MSA ), which addresses certain issues after the effective date of the Plan. Furthermore, in accordance with the Plan, the reorganized Debtors and Yucaipa will enter into the MSA on the effective date of the Plan. The Debtors do not intend to file the Securities Purchase Side Agreement with the Court. The Debtors intend to file the form of the MSA with the Court in advance of the confirmation hearing and reserve the right to seek to file the terms of that document under seal. 5

10 Overview of the Securities Purchase Agreements and Plan 6. Pursuant to the Securities Purchase Agreements, the Investors will purchase: (a) new privately placed $210 million 7 face value second lien notes (the New Second Lien Notes ); (b) new privately placed $210 million face value convertible third lien notes (the New Convertible Third Lien Notes ); and (c) $80 million in shares of the reorganized company s stock (the New Common Stock and collectively with the New Second Lien Notes and New Convertible Third Lien Notes, the Investor Securities ) and will receive all of the equity of the reorganized company. 8 The proceeds of the Investor Securities will allow the Debtors to make distributions pursuant to the Plan, including paying their secured creditors in full in cash and providing for a $40 million cash pool for distributions to general unsecured creditors Importantly, the Debtors entry into the Securities Purchase Agreements remains subject to offers on higher or better terms. Moreover, the Debtors only incur a commitment fee payable ($40 million in additional New Convertible Third Lien Notes (defined herein)) pursuant to the Securities Purchase Agreements if the Debtors close this transaction. Namely, the Debtors will be able to (a) fully consider any proposal they receive from a third party, and (b) should the Board approve the negotiation of such proposal, and under the circumstances delineated in the Securities Purchase Agreements, terminate such agreements, subject to payment of a $20 million The $210 million face amount of the New Second Lien Notes will be issued with a 5.0% original issue discount, therefore, the aggregate amount of the Investor Securities includes $200 million not $210 million in funds from issuance of the New Second Lien Notes. The New Common Stock is subject to dilution by any equity provided pursuant to the management equity incentive plan or other parties. The Plan may provide for an increased incremental recovery for trade creditors who execute go-forward trade agreements on terms acceptable to the Debtors and the Investors. 6

11 market break-up fee (the Break-Up Fee ). Thus, entry into the Securities Purchase Agreements creates a floor for any competing proposal, thus ensuring the best plan of reorganization is ultimately pursued while not sacrificing the Debtors prospects to emerge from chapter 11 as a going-concern as expeditiously as possible. Moreover, the Break-Up Fee is only payable if the Debtors pursue a superior transaction an event the Debtors think is unlikely given the lack of alternative proposals presented to the Debtors in the many months of these cases. 8. On the other hand, the Investors are permitted to terminate the Securities Purchase Agreements only upon the occurrence or non-occurrence of certain enumerated conditions that could cause an event of default, including variances of certain financial performance thresholds (such as minimal cash requirements), a material adverse change to the Debtors operations or financial performance or the Debtors inability to achieve certain labor savings. Given the Debtors right to specifically enforce the terms and provisions of the Securities Purchase Agreements against any individual Investor, in addition to other remedies, and the financial wherewithal of the Investors, the Debtors believe that that they have robust protections to ensure that the transactions contemplated by the Securities Purchase Agreements are consummated. 9. Certain other significant terms of the Securities Purchase Agreements include the following: The Investors: The Convertible Noteholders; and Yucaipa Plan Support: New Common Stock: The Investors shall support the Plan and shall be required to vote or cause to be voted any claims or interests held by them in favor of the Plan. The Investors shall receive all of the New Common Stock, subject to dilution due to equity issued under a union settlement or under a long-term management 7

12 equity incentive plan (the MEIP ). Warrants: In connection with its purchase of the New Common Stock and New Convertible Third Lien Notes, Yucaipa will acquire warrants to purchase New Common Stock of the reorganized company representing 7.0% of the New Common Stock on a fully-diluted basis on the Effective Date (the Investment Warrants ). The Investment Warrants will have an exercise price struck at an assumed equity value of the reorganized company of $725 million and will be exercisable for a period of ten years from the date of issuance. Exit Financing: Upon the effective date of the Plan (the Effective Date ), the Debtors existing debtor-in-possession financing facility (the DIP Facility ) will be refinanced with a similar facility that will be raised on market terms that are in form and substance reasonably satisfactory to the Investors. Treatment of Claims: The Plan shall provide, unless a holder of an allowed claim agrees to a different treatment, for the following treatment of allowed claims: o DIP Facility Claims Will be satisfied in full in cash. o Administrative and Priority Claims Will be satisfied in full in cash. o Second Lien Note Claims Second Lien Notes Claims that are allowed by the Bankruptcy Court will be satisfied in full in cash, provided that upon agreement of the Plan Sponsors and the Company, the Plan may provide for the cramdown of Second Lien Notes Claims to the extent permitted by 11 U.S.C. 1129(b)(2), and the New Money Commitment may be adjusted accordingly in such instance. o Holders of one or more classes of allowed general unsecured claims will receive their pro rata distribution of a $40 million cash pool, subject to the conditions of a settlement of substantive consolidation issues. The Plan may also provide for an incremental recovery to trade creditors designated by the Debtors and the Investors that sign a post-effective Date trade agreement that is acceptable to both the Investors and the Debtors. Union Settlement: The New Money Commitment is conditioned upon obtaining a settlement and labor savings on an expedited 8

13 Plan Milestones: timeline. The terms of required labor savings and timeline for obtaining this settlement are set forth in the Securities Purchase Agreements. 10 The Investors shall be permitted to terminate the Securities Purchase Agreements for, among other reasons, (a) if the Plan and accompanying disclosure statement are not filed by the earlier of (i) entry of the Order and (ii) December 2, 2011; 11 (b) if the disclosure statement accompanying the Plan is not approved by January 6, 2012; (c) if the Confirmation Order is not entered by February 14, 2012; and (d) if the Effective Date of the Plan has not occurred by March 1, Contemporaneously herewith, the Debtors have filed the Debtors Ex Parte Motion for Entry of an Order Authorizing the Debtors to Seal Portions of Their Securities Purchase Agreements requesting to file certain provisions of the Securities Purchase Agreements under seal. Pursuant to the Court s Order Extending Debtors Exclusive Periods to File and Solicit Votes for a Chapter 11 Plan Pursuant to Section 1121(D) of the Bankruptcy Code [Docket No. 2370], the Debtors exclusive period to file a chapter 11 plan was extended to January 16, 2012 (just over one month following the deadline set forth in the Securities Purchase Agreements for filing a plan of reorganization). These deadlines may be extended upon consent of the Investors and the Debtors, which consent shall not be unreasonably withheld. 9

14 Break-Up Fee: Fees and Expense Reimbursement: The $20 million Break-Up Fee shall be payable to the Investors in the event the Debtors, after execution of the Securities Purchase Agreements, terminate the Securities Purchase Agreements, pursuant to such agreements terms, to pursue an unsolicited proposal or expression of interest in undertaking an Alternative Transaction that the Board reasonably determines in its good faith judgment is (a) on higher or better terms, taken as a whole, relative to the creditors of the Debtors, than the transactions contemplated by the Securities Purchase Agreements, and (b) the Alternative Transaction is from a party or entity that has the financial capacity or wherewithal to consummate the Alternative Transaction, and the Alternative Transaction is otherwise reasonably likely to be consummated in accordance with its terms. The Break-Up Fee will not be triggered if the Securities Purchase Agreements are terminated solely because of the non-occurrence of conditions precedent to the purchase of the Investor Securities or in the event the Debtors pursue an Alternative Transaction and the Investors challenge such Alternative Transaction or vote against a plan of reorganization implementing such Alternative Transaction. Upon entry of the Order, the Debtors will pay all of the reasonable and documented fees and expenses incurred to such date by the Investors professional advisors in connection with the chapter 11 cases (other than any success fee) (such obligations, as more particularly described in the Securities Purchase Agreements, the Fee and Expense Reimbursement ). Commitment Fee: A $40 million fee (the Commitment Fee ), payable in the form of additional New Convertible Third Lien Notes, shall be paid to the Convertible Noteholders on the Effective Date. The Commitment Fee shall not be payable if the New Money Commitment is not consummated. Thus, the Debtors will not be obligated to pay both the Commitment Fee and the Break-Up Fee. Reorganized Board of Directors: The board of directors of the reorganized company (the New Board ) will be comprised of 7 members, which members shall include: (a) 2 designees of the funds associated with Goldman Sachs Asset Management, L.P. (b) 2 designees of the funds affiliated with Mount Kellett Capital Management LP; (c) one designee of Yucaipa, Ronald Burkle, who shall serve as Chairman of the New Board; (d) one designee of the UFCW who (i) shall be an 10

15 independent director and a grocery industry expert, and (ii) shall not serve at the direction of the UFCW; and (e) the Chief Executive Officer of the reorganized company. The New Board will be divided into three classes serving staggered terms. Employee Issues: The Plan shall provide for mutually agreeable, marketbased employment arrangements between the reorganized company and the Debtors executive management team and the MEIP. The Securities Purchase Agreements obligate the Investors to offer market terms for employment arrangements the Debtors executive management team, and should that fail to occur, the Investors have agreed that the Reorganized Debtors would provide severance packages to the affected executive management team members upon the Effective Date. This provision is not an obligation of the Debtors. Private Status: The reorganized company shall be private to the extent permitted by applicable securities law and shall not be listed on any securities exchange and shall not file reports under the Securities Exchange Act of Releases, Exculpation, and The Plan shall provide for customary releases, Indemnification: exculpation provisions, and indemnification provisions. Specific Performance: The Debtors shall have a specific performance remedy, in addition to a damages remedy, against any Investor in the event such Investor defaults upon its obligations under the Securities Purchase Agreements in addition to money damages. Jurisdiction 10. This Court has jurisdiction pursuant to 28 U.S.C This matter is a core proceeding within the meaning of 28 U.S.C. 157(b)(2). 11. Venue is proper in this district pursuant to 28 U.S.C The statutory basis for the relief requested herein is section 363(b) of title 11 of the United States Code, 11 U.S.C (the Bankruptcy Code ). 11

16 Background 13. On December 12, 2010 (the Commencement Date ), each of the Debtors filed a voluntary petition for relief under chapter 11 of the Bankruptcy Code. The Debtors are operating their businesses and managing their properties as debtors in possession pursuant to section 1107(a) and 1108 of the Bankruptcy Code. The chapter 11 cases are being jointly administered. On December 21, 2010, the United States Trustee for the Southern District of New York appointed the Creditors Committee. Relief Requested 14. The Debtors seek entry of the Order authorizing them to (a) enter into the Securities Purchase Agreements and (b) pay the fees and expenses associated therewith and described herein. Basis for Relief A. Entry Into the Securities Purchase Agreements Is An Exercise of the Debtors Sound Business Judgment 15. Section 363(b) of the Bankruptcy Code provides, in relevant part, that a debtor, after notice and a hearing, may use, sell, or lease, other than in the ordinary course of business, property of the estate. 11 U.S.C. 363(b)(1). While section 363 does not indicate a standard to be used in determining whether a debtor s use of estate property is appropriate, courts routinely authorize a debtor s use of property outside the ordinary course if such use is based upon the sound business judgment of the debtor. See Comm. of Equity Sec. Holders v. Lionel Corp. (In re Lionel Corp.), 722 F.2d 1063, 1071 (2d Cir. 1983) (explaining that the business judgment rule requires that a sound business purpose for the transaction exist); Myers v. Martin (In re Martin), 12

17 91 F.3d 389, 395 (3d Cir. 1996) (noting that courts usually defer to a trustee s judgment as long as there is legitimate business justification ). 16. Once a debtor has articulated a valid business justification under section 363 of the Bankruptcy Code, a presumption arises that the debtor s decision was made on an informed basis, in good faith, and in the honest belief that the action was in the best interest of the Debtors. See Official Comm. of Sub. Bondholders v. Integrated Res., Inc. (In re Integrated Res., Inc.), 147 B.R. 650, 656 (S.D.N.Y. 1992) (quoting Smith v. Van Gorkom, 488 A.2d 858, 872 (Del. 1985)). Further, once the debtor articulates a reasonable basis for its business decisions (as distinct from a decision made arbitrarily or capriciously), courts will generally not entertain objections to the debtor s conduct. Comm. of Asbestos Related Litigants v. Johns Manville Corp., (In re Johns- Manville Corp.), 60 B.R. 612, 616 (Bankr. S.D.N.Y. 1986). The business judgment rule has vitality in chapter 11 cases and shields a debtor s management from judicial second-guessing. See Integrated Res., 147 B.R. at 656; Johns-Manville, 60 B.R. at ( [T]he Code favors the continued operation of a business by a debtor and a presumption of reasonableness attaches to a debtor s management decisions. ). Thus, if a debtor s actions satisfy the business judgment rule, then the transaction in question should be approved under section 363(b)(1) of the Bankruptcy Code. 17. Here, the Debtors have engaged in substantial negotiations with the Investors, and other key constituents and their advisors, to arrive at the terms of the Securities Purchase Agreements. The Securities Purchase Agreements provide the Debtors with a firm commitment for $410 million of new debt financing and an $80 million equity infusion, which, in conjunction with an exit financing facility, will allow the Debtors to pay their secured lenders in full in cash and fund cash recoveries for general unsecured creditors. Moreover, the Securities Purchase 13

18 Agreements provide a strong degree of certainty to the Debtors reorganization prospects by obligating the Investors to support the Plan and giving the Debtors a specific performance remedy against the Investors. 18. The Securities Purchase Agreements will enable the Debtors to secure adequate capital to execute their business plan and ensure that the Debtors do not linger in bankruptcy to the detriment of their creditors waiting for an alternative proposal to materialize. Indeed, it is critical that the Debtors be able to move forward on a plan structure that provides sufficient capital to implement their business plan to avoid a further stay in bankruptcy at a continued cost to the Debtors estates. Particularly at this critical juncture in the Debtors chapter 11 cases as the Debtors near a deadline to assume or reject approximately 100 of the their store leases before the end of the year that the Debtors secure a committed exit path that will ensure their continued viability for the benefit of their creditors and key constituents. Given the significance of the benefits the Debtors will be receiving under the Securities Purchase Agreements, and in light of the fact that the fees and expenses the Debtors are paying in connection with the Securities Purchase Agreements are, as described further below, in line with market values such fees and expenses are a reasonable and justified exchange for the benefits to be extolled by virtue of the Debtors entry into the Securities Purchase Agreements Here, the Debtors are not required to prove the entire fairness of the transactions contemplated by the Securities Purchase Agreements, given that the agreement was approved unanimously by A&P s independent Restructuring Committee. See In re Boston Generating, LLC, 440 B.R. 302, 335 (Bankr. S.D.N.Y. 2010) (finding that an entire fairness standard did not apply to a sale approved by a special committee of disinterested board members); see also In re Adelphia Commc'ns Corp., 323 B.R. 345, (Bankr. S.D.N.Y. 2005) (applying Delaware and Pennsylvania law and finding that entire fairness standard applies where directors considering a transaction are not disinterested and have a personal stake in the outcome ) (emphasis added). Even assuming, however, that the entire fairness rule were applicable which it is not the Debtors easily satisfy the standard, as they need only show that the Securities Purchase Agreements were entered into after fair dealing and in exchange for fair value to the company. Given the competitive process engaged in by the (Continued ) 14

19 (i) The Break-Up Fee 19. With respect to break-up fees in bankruptcy cases, courts in the Second Circuit (and in particular the Southern District of New York) have generally considered three factors when assessing proposals for such fees: (a) whether the relationship of the parties who negotiated the break-up fee is tainted by self-dealing or manipulation; (b) whether the fee hampers, rather than encourages, alternative proposals; and (c) whether the amount of the fee is unreasonable relative to the proposed investment. See Integrated Resources, 147 B.R. at 657. Here, each of these three factors supports approval of the Break-Up Fee. 20. First, the Break-Up Fee was negotiated in good faith and at arm s length. The Securities Purchase Agreements including the proposed Break-Up Fee were subject to rigorous scrutiny by the Debtors management, advisors, and the Restructuring Committee, which consists of independent directors. Indeed, the Break-Up Fee remained a heavily negotiated point for months with respect to the Noteholders Proposal and the Investors agreed to substantially reduce the amount of the Break-Up Fee from that presented in connection with the Noteholders Proposal. During negotiations regarding the Securities Purchase Agreements, the Debtors weighed the benefits and burdens associated with all aspects of the contemplated transactions including the Break-Up Fee with the assistance of experienced advisors and in light of available alternatives. The Debtors advisors surveyed break-up fees approved in other chapter 11 cases and concluded that the amount was reasonable and commensurate with fees Debtors and the favorable terms of the Securities Purchase Agreements, the entire fairness of this transaction is readily apparent. 15

20 approved in connection with similarly-sized investments. 14 In light of these hard-fought negotiations and benefits, the Debtors Restructuring Committee approved the Securities Purchase Agreements, including the proposed Break-Up Fee. 21. Second, the Break-Up Fee locks in a $490 million capital infusion while still permitting the Debtors to continue to consider potentially higher and better bids during these chapter 11 cases. [I]t is plausible to believe that an initial [proposal], ordinarily or perhaps even always, will provide a benefit to an estate because it will establish a floor price for the assets to be sold. In re Reliant Energy Channelview LP, 594 F.3d 200, 207 (3d Cir. 2010). While the Debtors have agreed not to affirmatively solicit alternative proposals, they believe the benefits of securing $490 million in committed debt and equity financing and being able to move forward on a confirmable, stand-alone plan of reorganization outweigh the potential drawbacks of such restrictions, particularly given that they may entertain in-bound proposals after approval of the Securities Purchase Agreements. See Integrated Resources, 147 B.R. at 659 ( Admittedly, the [commitment] may have deterred some bidding, but such deterrence must be weighed against the value of securing [the] commitment to a plan of reorganization for [the debtor]. ) 22. Lastly, the Break-Up Fee is reasonable in light of the Investors commitment to purchase the Investor Securities and to vote in favor of (or otherwise not oppose) the Plan. The Break-Up Fee payable to the Investors, in the event that the Debtors pursue an Alternative Transaction 15 other than the Plan, is $20 million approximately 4.0% of the $490 million If necessary, representatives of the Debtors financial advisor, Lazard Frères & Co., will be prepared to testify to the reasonableness of the Break-Up Fee and the Debtors will be prepared to offer additional evidence in support of the relief sought herein at the hearing on the Motion. As defined in the Securities Purchase Agreements. 16

21 investment being made under the Securities Purchase Agreements which is of similar magnitude as break-up fees approved in other cases involving analogous transactions. See Financial News Network, Inc., 980 F.2d 165, 167 (2d Cir. 1992) (approving a break-up fee representing 5.5% of the total consideration offered). See also In re Tronox Inc., No (Bankr. S.D.N.Y. Sept. 17, 2010) (approving a break-up fee representing 6% of the capital commitment); In re AbitibiBowater Inc., No (Bankr. D. Del. June 25, 2010) (approving a break-up fee representing 6% of the capital commitment); In re Simmons Bedding Co., No (Bankr. D. Del. Dec. 10, 2009) (approving a break-up fee representing 6.77% of the capital commitment); In re Accuride Corp., No (Bankr. D. Del. Nov. 2, 2009) (approving a break-up fee representing 7.1% of the capital commitment); In re RathGibson, Inc., No (Bankr. D. Del. Aug. 31, 2009) (approving a break-up fee representing 6.2% of the capital commitment); In re Landsource Communities Development LLC, No (Bankr. D. Del. June 2, 2009) (approving a break-up fee representing 5% of the capital commitment); In re Key Plastics Finance Corp., No (Bankr. D. Del. Dec. 17, 2008) (approving a break-up fee representing 5.5% of the capital commitment). (ii) Fee and Expense Reimbursement 23. With respect to the Fee and Expense Reimbursement, the Investors undertaking of several months of extensive diligence efforts and good-faith negotiations that resulted in the Securities Purchase Agreements more than warrant payment of the Fee and Expense Reimbursement. 16 Indeed, the Debtors consider the Fee and Expense Reimbursement to be 16 The Debtors shall make estimates of the Fee and Expense Reimbursement available to the Court and parties in interest prior to the hearing on this Motion. 17

22 justified in light of the Convertible Noteholders support of the Plan and consequential costs avoided with potential Plan-related litigation with holders of the Existing Unsecured Debt Securities and the risks of a delayed exit from chapter 11. Additionally, as added protection, the Fee and Expense Reimbursement may be disgorged with respect to an Investor if such Investor fails to perform under the Securities Purchase Agreements. In other words, if the Convertible Noteholders breach their obligations under the Securities Purchase Agreements, and Yucaipa does not, the Convertible Noteholders professionals fees and expenses would be disgorged and Yucaipa, as a performing party, would be entitled to keep its portion of the Fee and Expense Reimbursement. Thus, the payment of accrued fees and expenses prior to the Effective Date should motivate and fund the Investors efforts to close the Securities Purchase Agreements. Moreover, the Debtors believe that the Fee and Expense Reimbursement is reasonable when compared to similar reimbursement provisions approved by courts in this and other districts and justifiable given the considerable amount of work done to present the Securities Purchase Agreements to the Court for approval. 17 (iii) The Commitment Fee 24. The Convertible Noteholders will be paid the Commitment Fee, in the form of additional New Convertible Third Lien Notes, on the Effective Date only if the transactions contemplated by the Securities Purchase Agreements are consummated, and only then in New 17 See, e.g., In re Tronox Inc., No (Bankr. S.D.N.Y. Sept. 17, 2010) (approving expense reimbursement of reasonable fees in $185 million equity commitment); In re Accuride Corp., No (Bankr. D. Del. Nov. 2, 2009) (approving expense reimbursement of reasonable fees in a $140 million rights offering); In re RathGibson, Inc., No (Bankr. D. Del. Aug. 31, 2009) (approving expense reimbursement of reasonable fees in a $60 million rights offering); Bally Total Fitness, No (Bankr. S.D.N.Y. Aug. 21, 2007) (approving expense reimbursement capped at $5 million subject to certain conditions in a $90 million rights offering); In re Delphi Corp., No (Bankr. S.D.N.Y.) (approving expense reimbursement capped at $5 million subject to certain conditions). 18

23 Convertible Third Lien Notes. Accordingly, the Commitment Fee is providing a tangible and significant benefit to the Debtors estates by virtue of inducing the Investors to commit the New Money Commitment for a period of time in order to fund the Debtors restructuring. Moreover, because the Commitment Fee will be paid in the form of the New Convertible Third Lien Notes, it will either be paid over time in accordance with the terms of the notes or converted to additional equity held by the Investors, unlike a traditional commitment fee that is paid as a lump sum cash payment. 25. The Convertible Noteholders conditioned their entry into the Securities Purchase Agreements and their support of the Plan on the payment of a Commitment Fee. Courts in this and other districts have approved similar commitment fees and premiums as a reasonable use of assets in other recent chapter 11 cases. See e.g., In re Delphi Corp., No (Bankr. S.D.N.Y. Aug. 2, 2007) (approving commitment fee of 2.5% of total commitment); In re Bally Total Fitness of Greater New York, Inc., No (Bankr. S.D.N.Y. Aug. 1, 2007) (approving a commitment fee equal to 4.0% of the rights offering amount); In re Visteon Corp., No (Bankr. D. Del. June 17, 2010) (approving a commitment fee equal to 13.3% of the rights offering amount that was entirely backstopped by the investors); In re Cooper- Standard Holdings Inc., No (Bankr. D. Del. March 26, 2010) (approving a commitment fee equal to 3.5% of the rights offering amount); In re Spansion Inc., No (Bankr. D. Del. Jan. 7, 2010) (approving a success fee of 4.1% of the backstop commitment amount); In re Hayes Lemmerz Int l, Inc., No (Bankr. D. Del. Nov. 3, 2009) (approving a commitment fee of 3.0%); In re RathGibson, Inc., No (Bankr. D. Del. Sept. 2, 2009) (authorizing a commitment fee of 5.0% paid in new common shares); In re Magnachip Semiconductor Fin. Co., No (Bankr. D. Del. Aug. 2, 2009) (approving a 19

24 commitment fee of 10.0% paid in new common units); In re Landsource Cmtys. Dev. LLC, No (Bankr. D. Del. June 2, 2009) (approving a commitment fee equal to 5.0% of the rights offering amount); In re Motor Coach Indus. Int l, Inc., No (Bankr. D. Del. Oct. 29, 2008) (authorizing a commitment fee of 5.0% paid in preferred stock); In re Dura Auto. Sys., Inc., No (Bankr. D. Del. Aug. 17, 2007) (approving a commitment fee equal to 4.0% of the rights offering amount). 20

25 26. In sum, the Commitment Fee, the Break-Up Fee, and the Fee and Expense Reimbursement provisions, under the circumstances described herein, are (a) the result of extensive, arms length negotiations, (b) actual and necessary costs and expenses of maximizing the value of the Debtors estates, (c) commensurate to the real and substantial benefits conferred upon the Debtors estates by the Investors, (d) reasonable and appropriate, in light of the size and nature of the proposed Investor Securities and the efforts that have been and will be expended by the Investors and (e) necessary to induce the Investors to continue to pursue the New Money Commitment underlying the Plan. Importantly, the Break-Up Fee and the Fee and Expense Reimbursement will also serve as a minimum floor for other potential sale or investment proposals. The Investors have accordingly provided a material benefit to the Debtors and their creditors by increasing the likelihood that the best possible plan of reorganization will be implemented in these cases. Moreover, the Fee and Expense Reimbursement represents the only fee that will be paid by the Debtors prior to the Effective Date (other than the Break-Up Fee, if applicable). Accordingly, the Commitment Fee, the Break-Up Fee, and the Fee and Expense Reimbursement are reasonable and appropriate and represent the best method for maximizing value for the benefit of the Debtors estates. B. The Plan Support Provisions of the Securities Purchase Agreements Comply with Section 1125 of the Bankruptcy Code 27. The Debtors submit that Section 1.10 of the Securities Purchase Agreements, which section provides for the Investors support of the Plan, complies with the requirements of section 1125 of the Bankruptcy Code. Section 1125(b) provides that [a]n acceptance or rejection of a plan may not be solicited after the commencement of the case under this title... unless, at the time of or before such solicitation, there is transmitted... a written disclosure 21

26 statement approved, after notice and a hearing, by the court as containing adequate information. 11 U.S.C. 1125(b). 28. Courts considering both prepetition and postpetition plan support agreements have held that such agreements are not solicitations if they permit a party to the agreement to later vote to reject a plan if there are any material deviations from the representations made at the time of signing such agreements. See In re Intermet Corp., No (Bankr. D. Del. June 4, 2009) (approving a postpetition restructuring support agreement pursuant to which a creditor agreed to vote in favor of a plan provided that there were no material modifications to the agreed upon plan); In re Owens Corning, No (Bankr. D. Del. June 29, 2006) (same); In re Heritage Organization, L.L.C., 376 B.R. 783, (Bankr. N.D. Tex. 2007) (finding that an agreement to vote for a plan in a term sheet did not constitute a solicitation for an official vote); In re Kellogg Square P ship, 160 B.R. 336 (Bankr. D. Minn. 1993) (holding that secured creditors agreement to vote for plan prior to approval of disclosure statement did not violate statutory restrictions on solicitation); Trans World Airlines, Inc. v. Texaco, Inc. (In re Texaco, Inc.), 81 B.R. 813 (Bankr. S.D.N.Y. 1988) (holding that parties agreement to use best efforts to obtain confirmation of chapter 11 plan did not violate statutory restrictions on solicitation of votes for the plan). 29. Under the terms of the Securities Purchase Agreements, the support of the Plan by the Investors is conditioned upon the Court approving a disclosure statement consistent with the Plan Summary and otherwise reasonably acceptable to the Investors. Thus, the votes of the Investors will not be secured unless and until a Court-approved disclosure statement is transmitted to the parties, in compliance with section 1125 of the Bankruptcy Code. Moreover, the Debtors may terminate their obligations under the Securities Purchase Agreements if the 22