Case KJC Doc 597 Filed 03/07/14 Page 1 of 14 UNITED STATES BANKRUPTCY COURT DISTRICT OF DELAWARE : : : : : : : : : Chapter 11

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1 Case KJC Doc 597 Filed 03/07/14 Page 1 of 14 UNITED STATES BANKRUPTCY COURT DISTRICT OF DELAWARE In re OLD FENM INC., et al., 1 Debtors. : : : : : : : : : Chapter 11 Case No (KJC) (Jointly Administered) Objection Deadline: March 25, 2014 at 4:00 p.m. (EDT) Hearing Date: April 1, 2014 at 1:00 p.m. (EDT) APPLICATION OF DEBTORS TO RETAIN AND EMPLOY GRANT THORNTON LLP AS TAX ADVISOR TO PROVIDE TAX COMPLIANCE AND CONSULTING SERVICES, EFFECTIVE MARCH 3, 2014, AND TAX PREPARATION SERVICES NUNC PRO TUNC AS OF OCTOBER 3, 2013 The above-captioned debtors (collectively, the Debtors ) hereby submit this application (the Application ) for entry of an order, pursuant to section 327(a) of the Bankruptcy Code (defined below), Rules 2014(a) and 2016 of the Federal Rules of Bankruptcy Procedure (the Bankruptcy Rules ) and Rule of the Local Rules of Bankruptcy Practice and Procedure of the United States Bankruptcy Court for the District of Delaware (the Local Rules ), (i) authorizing them to retain and employ Grant Thornton LLP ( Grant Thornton ) to provide tax compliance and consulting services under the Engagement Agreement (defined below) effective March 3, 2014, and certain tax preparation services under the Letter (defined below) nunc pro tunc as of October 3, 2013; and (ii) granting such other and further relief as is just and proper. In support of this Application, the Debtor submits the Declaration of Kullen J. Birkeland (the Birkeland Declaration ), a partner of Grant Thornton, a copy of which is attached hereto as Exhibit A. In further support of the Application, the Debtors respectfully represent as follows: 1 The Debtors are the following two entities (the last four digits of their respective taxpayer identification numbers follow in brackets): Old FENM Inc. (f/k/a Fresh & Easy Neighborhood Market Inc.) [7028] and Old FEPC LLC (f/k/a Fresh & Easy Property Company LLC) [9636]. The address of each of the Debtors is 2120 Park Place, Suite 200, El Segundo, California RLF v.1

2 Case KJC Doc 597 Filed 03/07/14 Page 2 of 14 JURISDICTION 1. This Court has jurisdiction over this Application pursuant to 28 U.S.C. 157 and This is a core proceeding within the meaning of 28 U.S. C. 157(b). Venue of these cases and the Application is proper in this Court pursuant to 28 U.S.C and The statutory predicates for the relief sought herein are 11 U.S.C. 327 and 328 and Rule 2014 of the Bankruptcy Rules. BACKGROUND 2. On September 30, 2013 (the Petition Date ), each of the Debtors filed a voluntary petition for relief under chapter 11 of title 11 of the United States Code (the Bankruptcy Code ) in the United States Bankruptcy Court for the District of Delaware (the Court ). Since the filing of the chapter 11 petitions, the Debtors have continued in possession of their property and operation their business as debtors-in-possession pursuant to sections 1107 and 1108 of the Bankruptcy Code. No chapter 11 trustee or examiner has been sought or appointed in these cases. The Debtors chapter 11 cases have been consolidated for procedural purposes and are administered jointly. 3. The factual background regarding the Debtors, including their business operations, their capital and debt structure, and the events leading to the filing of these bankruptcy cases is set forth in detail in the Declaration of James Dibbon in Support of Chapter 11 Petitions and First Day Motions and Applications [Docket No. 3], filed on September 30, BASIS FOR RELIEF REQUESTED 4. By this Application, the Debtors request entry of an order authorizing them to retain and employ Grant Thornton to provide tax compliance, preparation and consulting RLF v.1 2

3 Case KJC Doc 597 Filed 03/07/14 Page 3 of 14 services in accordance with the terms and conditions set forth in that certain engagement agreement dated February 5, 2014, a copy of which is attached hereto as Exhibit B (the Engagement Agreement ) 2, and the loan staffing letter dated February 5, 2014, a copy of which is attached hereto as Exhibit C (the Letter ) Pursuant to section 327(a) of the Bankruptcy Code, a debtor in possession with the Court s approval may employ professionals that do not hold or represent an interest adverse to the estate, and that are disinterested persons, to represent or assist the [debtor in possession] in carrying out [its] duties under this title. 11 U.S.C. 327(a). Section 101(14) of the Bankruptcy Code defines disinterested person as a person that: (a) (b) is not a creditor, an equity security holder, or an insider; is not and was not, within 2 years before the date of the filing of the petition, a director, officer, or employee of the debtor; and (c) does not have an interest materially adverse to the interest of the estate or of any class of creditors of equity security holders, by reason of any direct or indirect relationship to, in connection with, or interest in, the debtor, or for any other reason. A. Grant Thornton s Qualifications 6. Grant Thornton has rendered tax and consulting services to the Debtors prepetition, and, as a result, has considerable knowledge concerning the Debtors books and records and many of the potential tax-related issues that may arise as these cases proceed. Consequently, 2 3 Services under the Engagement Agreement have not yet commenced. The Letter involves supplying on-site personnel from Grant Thornton to perform services for the Debtors described therein. Services under the Letter commenced on October 3, The Letter is dated February 5, 2014, as it had been updated to incorporate prospective services to be performed by Grant Thornton on behalf of the Debtors. RLF v.1 3

4 Case KJC Doc 597 Filed 03/07/14 Page 4 of 14 Grant Thornton is already familiar with the Debtors business affairs and uniquely qualified to provide the proposed and anticipated services. Thus, the Debtors respectfully submit that the employment and retention of Grant Thornton would be in the best interests of the Debtors, their estates and their creditors. 7. Further, Grant Thornton has extensive experience and knowledge in performing the scope of the work described below. The firm s experience in tax matters is widely recognized, and it regularly provides such services to large and complex business entities, often in the context of a chapter 11 case. Thus, the Debtors believe that Grant Thornton is well suited and qualified to serve as the Debtors tax advisor in a cost-effective, efficient and timely manner. B. Scope of Services 4 8. Subject to the Court s approval of the Application, Grant Thornton will provide services to the Debtors, as follows: (a) Engagement Agreement: Pursuant to the terms of the Engagement Agreement, Grant Thornton will provide Tax Compliance Services and Tax Consulting Services. Tax Compliance (including Tax Return Preparation) Services. These services (as set forth in greater detail in the addendum to the Engagement Agreement) include preparation of the following: (i) federal and state corporate income tax returns; (ii) extension calculations and applicable forms; (iii) estimated tax payment calculations and applicable forms, as required; and (iv) preparation of Treasury Form , Report of Foreign Bank and Financial Accounts for the year ended December 31, This summary is for convenience purposes only. To the extent that the summary conflicts with the Engagement Agreement and the Letter, the Engagement Agreement and Letter shall govern. RLF v.1 4

5 Case KJC Doc 597 Filed 03/07/14 Page 5 of 14 Additional Tax Compliance Filings. Further, due to the acquisition completed during the tax year ended February 23, 2014, various attachments will be required in the 2013 tax filing of the Debtors. As a result, the following additional services will be required: (i) review of transaction documents; (ii) preparation of forms 8594 allocating purchase price across asset categories; and (iii) preparation of return attachments, etc. General Tax Consulting Services. Grant Thornton may provide routine time-to-time tax consulting services, upon the Debtor s request, for assignments individually that do not exceed $10,000 in fees. (b) Letter: Pursuant to the terms of the Letter, the services to be provided by Grant Thornton personnel include preparation of the following: (i) federal, California and Arizona state income tax returns for the year ended February 24, ; (ii) income tax provision for the year ended February 23, 2014; and (iii) foreign corporation U.S. income tax returns for the year ended February 23, C. Terms of Retention 9. Subject to the provisions of sections 327(a) and 328(a) of the Bankruptcy Code, as incorporated in section 330 of the Bankruptcy Code, the Bankruptcy Rules and the Local Rules, the Debtors may retain Grant Thornton on reasonable terms and conditions. The Debtors submit that the terms and conditions under the Engagement Agreement and the Letter, which are similar to the terms and conditions Grant Thornton offers to similar clients for similar services, are reasonable. 5 Grant Thornton seeks nunc pro tunc relief solely as it relates to the preparation of the federal, California and Arizona state income tax returns for the year ended February 24, RLF v.1 5

6 Case KJC Doc 597 Filed 03/07/14 Page 6 of Fees for Services Under the Engagement Agreement (a) Tax Compliance (including Tax Return Preparation) Services. The fee for these services shall be a fixed-fee amount of $30,000. If all the information necessary to prepare the tax returns is received by June 15, 2014, a 10% discount shall be applied to the $30,000 fixed fee. (b) Additional Tax Compliance Filings. The time associated with these additional filings will be based on time incurred at 60% of Grant Thornton s hourly rates, so that the discounted hourly rates are as follows: Partner ($420); Senior Manager ($345); Manager ($315); Senior Associate ($264); Associate ($168); GTSSC ($117). (c) General Tax Consulting Services. Grant Thornton may provide routine time-to-time tax consulting services, upon the Debtors request, for assignments individually that do not exceed $10,000 in fees. These services will be provided based on time incurred at 60% of Grant Thornton s hourly rates as follows: Partner ($420); Senior Manager ($345); Manager ($315); Senior Associate ($264); Associate ($168); GTSSC ($117). 11. Fees for Services Under the Letter (a) The fee for preparation of the federal and state income tax returns will be a fixed-fee amount of $17, Additionally, services relating to preparation of the income tax provision and foreign corporation U.S. income tax returns will be provided based upon actual hours incurred at the hourly rate of $200 for the Manager. 6 Grant Thornton seeks nunc pro tunc relief solely as it relates to the preparation of the federal, California RLF v.1 6

7 Case KJC Doc 597 Filed 03/07/14 Page 7 of Reimbursement of Expenses (a) In addition to compensation for professional services, Grant Thornton will seek reimbursement for reasonable and necessary expenses incurred in connection with the services performed for the Debtors, including bankruptcy attorney s fees and expenses, as they are incurred in connection with administering this engagement and any Court appearance, the costs of transportation, mileage, lodging, working meals, telephone, facsimile transfers, photocopying and messenger services. Specifically, pursuant to the terms of the Engagement Agreement, Grant Thornton will bill an administrative charge of 5% for its expenses. 13. The terms and conditions of the Engagement Agreement and the Letter were negotiated between the Debtors and Grant Thornton and reflect the parties mutual agreement as to the substantial efforts that will be required in this engagement. 14. Subject to this Court s approval, and pursuant to the terms and conditions of the Engagement Agreement and the Letter, Grant Thornton intends to apply to the Court for allowance of compensation and reimbursement of expenses for the services performed for the Debtors in accordance with the applicable provisions of the Bankruptcy Code, the Bankruptcy Rules, corresponding Local Rules, the guidelines established by the Office of the United States Trustee, and any orders of this Court, including that certain Order Establishing Procedures for Interim Compensation and Reimbursement of Expenses of Professionals (the Interim Compensation Procedures Order ) [Docket No. 170] entered on October 23, and Arizona state income tax returns for the year ended February 24, 2013, for the fixed-fee amount of $17,500. RLF v.1 7

8 Case KJC Doc 597 Filed 03/07/14 Page 8 of As part of the Application, Grant Thornton requests that it is authorized to participate in and proceed with receiving compensation and reimbursement of its expenses consistent with the Interim Compensation Procedures Order. 16. All payments rendered to Grant Thornton by the Debtors shall be subject to the approval of this Court and based upon the filing by Grant Thornton of appropriate interim and final applications for allowance of compensation and reimbursement of expenses. 17. Grant Thornton s hourly rates and reimbursement policies are what the general marketplace for accounting services pays Grant Thornton in hundreds of other matters every day and are reasonable as determined by the market at arm s-length. Nevertheless, Grant Thornton has agreed to reduce its hourly rates, as set forth in greater detail above. 18. The Debtors believe the compensation arrangement provided for in the Engagement Agreement and the Letter is consistent with, and typical of, arrangements entered into by Grant Thornton and other accounting firms with respect to rendering similar services for clients such as the Debtors. 19. As part of the overall compensation payable to Grant Thornton under the terms of the Engagement Agreement and the Letter, the Debtors have agreed to indemnify Grant Thornton. Notwithstanding the indemnification provision contained in the Engagement Agreement and the Letter (the Indemnification Provision ), the Debtors obligations to indemnify and hold Grant Thornton harmless shall be subject to the following terms and conditions: (a) Upon the receipt of written notice, the Debtors shall, indemnify, defend and hold harmless Grant Thornton and its present and former partners, principals, directors, employees, agents and contractors, from and against any liability, damages, fees, RLF v.1 8

9 Case KJC Doc 597 Filed 03/07/14 Page 9 of 14 expenses, losses, demands and costs (including defense costs) associated with any claim arising from or relating to the Engagement Agreement and the Letter, except to the extent that it is finally determined to have arisen from the gross negligence, willful misconduct or fraud of Grant Thornton. (b) The Debtors agree to reimburse Grant Thornton for all reasonable expenses, including attorney s fees and expenses, as they are incurred in connection with the investigation of, preparation for, or defense of, any pending or threatened claim or action or proceeding arising therefrom, whether or not Grant Thornton is a party The Indemnification Provision is typical of the indemnification provisions contained in the engagement letters of other tax service providers retained in this District. 7 The Indemnification Provision shall be subject to the following terms, as provided in the Order (Exhibit D): (a) Grant Thornton shall not be entitled to indemnification, contribution or reimbursement pursuant to the Engagement Agreement and the Letter for services, unless such services and the indemnification, contribution or reimbursement therefore are approved by the Court; (b) The Debtors shall have no obligation to indemnify Grant Thornton or provide contribution or reimbursement to Grant Thornton, for any claim or expense that is either: (i) judicially determined (the determination having become final) to have arisen from Grant Thornton s gross negligence, willful misconduct, breach of fiduciary duty, if any, bad faith or self-dealing; (ii) for a contractual dispute in which the Debtors allege the breach of Grant Thornton contractual obligations unless the Court determines that indemnification, contribution or reimbursement would be permissible pursuant to In re United Artists Theater Company, et al., 315 F.3d 217 (3d Cir. 2003); or (iii) settled prior to a judicial determination as to Grant Thornton s gross negligence, willful misconduct, breach of fiduciary duty, or bad faith or self-dealing but determined by this Court, after notice and a hearing to be a claim or expense for which Grant Thornton should not receive indemnity, contribution or reimbursement under the terms of the Engagement Agreement and Letter as modified by the Court s Order; and (c) If, before the earlier of (i) the entry of an order confirming a chapter 11 plan in these chapter 11 cases (that order having become a final order no longer subject to appeal), and (ii) the entry of an order closing these chapter 11 cases, Grant Thornton believes that it is entitled to the payment of any amounts by the Debtors on account of the Debtors indemnification, contribution and/or reimbursement obligations under the Engagement Agreement and Letter, including without limitation the advancement of defense costs, Grant Thornton must file an application therefore in this Court, and the Debtors may not pay any such amounts to Grant Thornton before the entry of an order by this Court approving the payment. This subparagraph (c) is intended only to specify the period of time under which the Court shall have jurisdiction over any request for fees and expenses by Grant Thornton for indemnification, contribution or reimbursement, and not a provision limiting the duration of the Debtors obligation to indemnify Grant Thornton. All parties in interest shall retain the right to object to any demand by Grant Thornton for indemnification, contribution or reimbursement. RLF v.1 9

10 Case KJC Doc 597 Filed 03/07/14 Page 10 of The terms and conditions of the Engagement Agreement and the Letter, including the Indemnification Provision, were negotiated by the Debtors and Grant Thornton at arm slength and in good faith. The Debtors respectfully submit that the Indemnification Provision contained in the Engagement Agreement and the Letter, and the terms set forth in Exhibit D, are reasonable and in the best interests of the Debtors, their estates and creditors. 22. No promises have been received by Grant Thornton, or any partner or associate thereof, as to payment or compensation in connection with these cases other than in accordance with the provisions of the Bankruptcy Code. Grant Thornton has no agreement with any other entity to share with such entity any compensation received by Grant Thornton or by any such entity. D. Grant Thornton s Disinterestedness 23. To the best of the Debtors knowledge and except to the extent disclosed in the Birkeland Declaration, the Debtors believe Grant Thornton is a disinterested person as that term is defined in section 101(14) of the Bankruptcy Code, in that Grant Thornton: (a) (b) is not a creditor, an equity security holder, or an insider of the Debtors; is not and was not, within two years before the date of the filing of the petition, a director, an officer, or an employee of the Debtors; and (c) does not have an interest materially adverse to the interest of the estates or of any class of creditors or equity security holders, by reason of any direct or indirect relationship to, connection with, or interest in, the Debtors, or for any other reason. 24. As set forth in further detail in the Birkeland Declaration, Grant Thornton has certain connections with creditors, equity security holders and other parties in interest in these RLF v.1 10

11 Case KJC Doc 597 Filed 03/07/14 Page 11 of 14 chapter 11 cases. All of these matters, however, are unrelated to these chapter 11 cases. Grant Thornton does not believe that any of these matters represent an interest materially adverse to the Debtors estates or otherwise create a conflict of interest regarding the Debtors or these chapter 11 cases. 25. Accordingly, the Debtors believe that Grant Thornton is a disinterestedness person as that term is defined in section 101(14) of the Bankruptcy Code and is therefore eligible for retention by the Debtors under the Bankruptcy Code. 26. Prior to the Petition Date, Grant Thornton provided tax-related services to the Debtors. Within the ninety (90) days prior to the Petition Date, Grant Thornton received the sum of $7,070 as payment for its pre-petition services. As of the Petition Date, Grant Thornton did not have any unpaid pre-petition fees owing to it by the Debtors. E. Nunc Pro Tunc Relief 27. The Debtors request approval of Grant Thornton s retention under the Letter nunc pro tunc to October 3, 2013 solely as it relates to preparation of the federal, California and Arizona state income tax returns for the year ended February 24, 2013 for the fixed-fee amount of $17,500, as that is the date that Grant Thornton commenced these tax preparation services under the Letter for the Debtors 8. Due to the size and scope of the Debtors business operations, and the ongoing and evolving negotiations with the purchasers of the Debtors assets over the last few months, there was an immediate need for Grant Thornton to perform tax services for the Debtors following the filing of the chapter 11 petitions, and Grant Thornton continued to perform such services post-petition. Further, Grant Thornton was under the belief that its 8 Grant Thornton began preparation of the federal, California and Arizona state income tax returns under the Letter on October 3, Under the Letter, Grant Thornton has not commenced services in connection with the preparation of the income tax provision and foreign corporation U.S. income tax returns for the RLF v.1 11

12 Case KJC Doc 597 Filed 03/07/14 Page 12 of 14 retention and compensation was covered under the Order Authorizing the Retention and Payment of Legal Professionals Utilized by the Debtors in the Ordinary Course of Business [Docket No. 169], entered on October 23, 2013, and only realized recently that it was not. Indeed, the Debtors have sought authorization to retain Grant Thornton for its post-petition work under the Letter as soon as reasonably practicable, and the Debtors submit that the circumstances of these cases warrant approval of the nunc pro tunc relief. See In re Parklex Associates, Inc., 435 B.R. 195, 206 (quoting In re F/S Airlease II, Inc., 844 F.2d 99, (3d Cir. 1988) and describing the circumstances under which retroactive professional employment will be granted). Relief similar to that requested herein routinely has been granted by courts in this district. See, e.g., In re Highway Tech, Inc., et al., Case No (KJC) (Bankr. D. Del. June 27, 2013); In re AFA Investment Inc., et al., Case No (MFW) (Bankr. D. Del. Apr. 20, 2012); In re Chef Solutions Holdings, LLC, et al., Case No (KG) (Bankr. D. Del. Oc. 26, 2011); In re Harry & David Holdings, Inc. et al., Case No (MFW) (Bankr. D. Del. Apr. 26, 2011). 28. The employment of Grant Thornton is necessary, essential, and in the best interests of the Debtors, their estates and their creditors. Grant Thornton is and has been wellqualified to perform the required services, and the Debtors know of no reason why Grant Thornton should not be retained. If the Debtors were required to retain professionals other than Grant Thornton with respect to such matters, the Debtors, their estates and all parties in interest would be unduly prejudiced by the time and expense necessarily attendant to such consultant s familiarization with the intricacies of the Debtors business operations. The Debtors therefore request the Court enter an order, substantially in the form of the proposed order attached hereto year ended February 23, Grant Thornton has not yet begun any services under the Engagement Agreement. RLF v.1 12

13 Case KJC Doc 597 Filed 03/07/14 Page 13 of 14 as Exhibit D, approving all of the terms in the Engagement Agreement and the Letter as well as the billing practices described in this Application. The Debtors request the Court enter an order approving Grant Thornton s retention as the Debtor s tax advisor to provide tax compliance and consulting services, as well as tax preparation services nunc pro tunc to October 3, 2013 (the date that Grant Thornton commenced services for the Debtors under the Letter), pursuant to Bankruptcy Code section 327(a). 29. No previous request for the relief sought herein has been made by the Debtor to this or any other court. NOTICE 30. A copy of this Application and notice thereof has been delivered to (i) the Office of the U.S. Trustee, (ii) counsel to the Committee, (iii) all parties who have requested notice pursuant to Bankruptcy Rule 2002, and (iv) any other interested parties required under the Bankruptcy Code, Bankruptcy Rules and/or Local Rules. RLF v.1 13

14 Case KJC Doc 597 Filed 03/07/14 Page 14 of 14 WHEREFORE, the Debtors respectfully request that the Court enter an order, substantially in the form attached hereto as Exhibit D: (i) granting the relief sought herein; and (ii) granting the Debtors such other and further relief as the Court may deem proper. Dated: El Segundo, California March 7, 2014 Approved by: OLD FENM INC. et al. /s/ Mary Kasper Mary Kasper Vice President and Secretary for the Debtors Respectfully submitted, /s/ Kullen Birkeland Kullen Birkeland Partner Grant Thornton LLP 515 South Flower Street, Suite 700 Los Angeles, CA T F RLF v.1 14

15 Case KJC Doc Filed 03/07/14 Page 1 of 2 UNITED STATES BANKRUPTCY COURT DISTRICT OF DELAWARE In re OLD FENM INC., et al., 1 Debtors. : : : : : : : : : Chapter 11 Case No (KJC) (Jointly Administered) Objection Deadline: March 25, 2014 at 4:00 p.m. (EDT) Hearing Date: April 1, 2014 at 1:00 p.m. (EDT) NOTICE OF APPLICATION AND HEARING PLEASE TAKE NOTICE that, on March 7, 2014, the above-captioned debtors and debtors in possession (collectively, the Debtors ) filed the Application of Debtors to Retain and Employ Grant Thornton LLP as Tax Advisor to Provide Tax Compliance and Consulting Services, Effective March 3, 2014, and Tax Preparation Services Nunc Pro Tunc as of October 3, 2013 (the Application ) with the United States Bankruptcy Court for the District of Delaware (the Bankruptcy Court ). PLEASE TAKE FURTHER NOTICE that any responses or objections to the Application must be in writing, filed with the Clerk of the Bankruptcy Court, 824 North Market Street, 3 rd Floor, Wilmington, Delaware 19801, and served upon and received by the undersigned attorneys for the Debtors on or before March 25, 2014 at 4:00 p.m. (EDT). PLEASE TAKE FURTHER NOTICE that a hearing to consider the Application is scheduled before The Honorable Kevin J. Carey, United States Bankruptcy Judge for the District of Delaware, at the Bankruptcy Court, 824 North Market Street, 5th Floor, Courtroom 5, Wilmington, Delaware on April 1, 2014 at 1:00 p.m. (EDT). 1 The Debtors are the following two entities (the last four digits of their respective taxpayer identification numbers follow in brackets): Old FENM Inc. (f/k/a Fresh & Easy Neighborhood Market Inc.) [7028] and Old FEPC LLC (f/k/a Fresh & Easy Property Company LLC) [9636]. The address of each of the Debtors is 2120 Park Place, Suite 200, El Segundo, California RLF v.1

16 Case KJC Doc Filed 03/07/14 Page 2 of 2 IF NO OBJECTIONS TO THE APPLICATION ARE TIMELY FILED, SERVED AND RECEIVED IN ACCORDANCE WITH THIS NOTICE, THE COURT MAY GRANT THE RELIEF REQUESTED IN THE APPLICATION WITHOUT FURTHER NOTICE OR HEARING. Dated: March 7, 2014 Wilmington, Delaware Respectfully submitted, /s/ Lee E. Kaufman Mark D. Collins (DE 2981) John H. Knight (DE 3848) Lee E. Kaufman (DE 4877) Amanda R. Steele (DE 5530) RICHARDS, LAYTON & FINGER, P.A. One Rodney Square 920 North King Street Wilmington, Delaware Telephone: (302) Facsimile: (302) and- Paul D. Leake Lisa Laukitis JONES DAY 222 East 41st Street New York, New York Telephone: (212) Facsimile: (212) ATTORNEYS FOR DEBTORS 2 RLF v.1

17 Case KJC Doc Filed 03/07/14 Page 1 of 44 EXHIBIT A Birkeland Declaration

18 Case KJC Doc Filed 03/07/14 Page 2 of 44 UNITED STATES BANKRUPTCY COURT DISTRICT OF DELAWARE In re OLD FENM INC., et al., 1 Debtors. : : : : : : : : Chapter 11 Case No (KJC) (Jointly Administered) DECLARATION OF KULLEN BIRKELAND IN SUPPORT OF APPLICATION OF DEBTORS TO RETAIN AND EMPLOY GRANT THORNTON LLP AS TAX ADVISOR TO PROVIDE TAX COMPLIANCE AND CONSULTING SERVICES EFFECTIVE MARCH 3, 2014 AND TAX PREPARATION SERVICES NUNC PRO TUNC AS OF OCTOBER 3, 2013 Pursuant to Rule 2014(a) of the Federal Rules of Bankruptcy Procedure (the Bankruptcy Rules ) and Rule (a) of the Local Rules of Bankruptcy Practice and Procedure of the United States Bankruptcy Court for the District of Delaware (the Local Rules ), Kullen Birkeland declares: 1. I am a partner at the accounting firm of Grant Thornton LLP ( Grant Thornton ), retained to provide tax services to the above-captioned debtors (collectively, the Debtors ), and am duly authorized to make this Declaration on behalf of Grant Thornton. I make this Declaration in support of the Application of Debtors to Retain and Employ Grant Thornton LLP as Tax Advisor to Provide Tax Compliance and Consulting Services Effective March 3, 2014 and Tax Preparation Services Nunc Pro Tunc as of October 3, 2013 (the Application ) 2. The facts 1 2 The Debtors are the following two entities (the last four digits of their respective taxpayer identification numbers follow in brackets): Old FENM Inc. (f/k/a Fresh & Easy Neighborhood Market Inc.) [7028] and Old FEPC LLC (f/k/a Fresh & Easy Property Company LLC) [9636]. The address of each of the Debtors is 2120 Park Place, Suite 200, El Segundo, California Capitalized terms used but not otherwise defined herein shall have the meanings ascribed to them in the Application. RLF v.1

19 Case KJC Doc Filed 03/07/14 Page 3 of 44 set forth in this Declaration are personally known to me and, if called as a witness, I could and would testify thereto. A. Grant Thornton s Qualifications 2. Grant Thornton has rendered tax and consulting services to the Debtors prepetition, and, as a result, has considerable knowledge concerning the Debtors books and records any many of the potential tax-related issues that may arise as these cases proceed. Consequently, Grant Thornton is already familiar with the Debtors business affairs and uniquely qualified to provide the proposed and anticipated services. Thus, the Debtors respectfully submit that the employment and retention of Grant Thornton would be in the best interests of the Debtors, their estates and their creditors. 3. Further, Grant Thornton has extensive experience and knowledge in performing the scope of the work described below. The firm s experience in tax matters is widely recognized, and it regularly provides such services to large and complex business entities, often in the context of a chapter 11 case. Thus, the Debtors believe that Grant Thornton is well suited and qualified to serve as the Debtors tax advisor in a cost-effective, efficient and timely manner. B. Scope of Services 3 4. As set forth in the Application, subject to the Court s approval of the Application, Grant Thornton will provide services to the Debtors, as follows: (a) Engagement Agreement: Pursuant to the terms of the Engagement Agreement, Grant Thornton will provide Tax Compliance Services and Tax Consulting Services. 3 This summary is for convenience purposes only. To the extent that the summary conflicts with the Engagement Agreement, the Engagement Agreement shall govern. RLF v.1 2

20 Case KJC Doc Filed 03/07/14 Page 4 of 44 Tax Compliance (including Tax Return Preparation) Services. These services (as set forth in greater detail in the addendum to the Engagement Agreement) include preparation of the following: (i) federal and state corporate income tax returns; (ii) extension calculations and applicable forms; (iii) estimated tax payment calculations and applicable forms, as required; and (iv) preparation of Treasury Form , Report of Foreign Bank and Financial Accounts for the year ended December 31, Additional Tax Compliance Filings. Further, due to the acquisition completed during the tax year ended February 23, 2014, various attachments will be required in the 2013 tax filing of the Debtors. As a result, the following additional services will be required: (i) review of transaction documents; (ii) preparation of forms 8594 allocating purchase price across asset categories; and (iii) preparation of return attachments, etc. General Tax Consulting Services. Grant Thornton may provide routine time-to-time tax consulting services, upon the Debtors request, for assignments individually that do not exceed $10,000 in fees. (b) Letter: Pursuant to the terms of the Letter, the services to be provided by Grant Thornton personnel include preparation of the following: (i) federal, California and Arizona state income tax returns for the year ended February 24, ; (ii) income tax provision for the year ended February 23, 2014; and (iii) foreign corporation U.S. income tax returns for the year ended February 23, C. Terms of Retention 5. Subject to the provisions of sections 327(a) and 328(a) of the Bankruptcy Code, as incorporated in section 330 of the Bankruptcy Code, the Bankruptcy Rules and the Local 4 Grant Thornton seeks nunc pro tunc relief solely as it relates to the preparation of the federal, California and Arizona state income tax returns for the year ended February 24, RLF v.1 3

21 Case KJC Doc Filed 03/07/14 Page 5 of 44 Rules, the Debtors may retain Grant Thornton on reasonable terms and conditions. The Debtors submit that the terms and conditions under the Engagement Agreement and the Letter, which are similar to the terms and conditions Grant Thornton offers to similar clients for similar services, are reasonable. 6. Fees for Services Under the Engagement Agreement (a) Tax Compliance (including Tax Return Preparation) Services. The fee for these services shall be a fixed-fee amount of $30,000. If all the information necessary to prepare the tax returns is received by June 15, 2014, a 10% discount shall be applied to the $30,000 fixed fee. (b) Additional Tax Compliance Filings. The time associated with these additional filings will be based on time incurred at 60% of Grant Thornton s hourly rates, so that the discounted hourly rates are as follows: Partner ($420); Senior Manager ($345); Manager ($315); Senior Associate ($264); Associate ($168); GTSSC ($117). (c) General Tax Consulting Services. Grant Thornton may provide routine time-to-time tax consulting services, upon the Debtors request, for assignments individually that do not exceed $10,000 in fees. These services will be provided based on time incurred at 60% of Grant Thornton s hourly rates as follows: Partner ($420); Senior Manager ($345); Manager ($315); Senior Associate ($264); Associate ($168); GTSSC ($117). RLF v.1 4

22 Case KJC Doc Filed 03/07/14 Page 6 of Fees for Services Under the Letter (a) The fee for preparation of the federal and state income tax returns will be a fixed-fee amount of $17, Additionally, services relating to preparation of the income tax provision and foreign corporation U.S. income tax returns will be provided based upon actual hours incurred at the hourly rate of $200 for the Manager. 8. Reimbursement of Expenses (a) In addition to compensation for professional services, Grant Thornton will seek reimbursement for reasonable and necessary expenses incurred in connection with the services performed for the Debtors, including bankruptcy attorney s fees and expenses, as they are incurred in connection with administering this engagement and any Bankruptcy Court appearance, the costs of transportation, mileage, lodging, working meals, telephone, facsimile transfers, photocopying and messenger services. Specifically, pursuant to the terms of the Engagement Agreement, Grant Thornton will bill an administrative charge of 5% for its expenses. 9. The terms and conditions of the Engagement Agreement and the Letter were negotiated between the Debtors and Grant Thornton and reflect the parties mutual agreement as to the substantial efforts that will be required in this engagement. 10. Subject to this Court s approval, and pursuant to the terms and conditions of the Engagement Agreement and the Letter, Grant Thornton intends to apply to the Court for allowance of compensation and reimbursement of expenses for the services performed for the Debtors in accordance with the applicable provisions of the Bankruptcy Code, the Bankruptcy Rules, corresponding Local Rules, the guidelines established by the Office of the United States RLF v.1 5

23 Case KJC Doc Filed 03/07/14 Page 7 of 44 Trustee, and any orders of this Court, including that certain Order Establishing Procedures for Interim Compensation and Reimbursement of Expenses of Professionals (the Interim Compensation Procedures Order ) [Docket No. 170] entered on October 23, As part of the Application, Grant Thornton requests that it is authorized to participate in and proceed with receiving compensation and reimbursement of its expenses consistent with the Interim Compensation Procedures Order. 12. All payments rendered to Grant Thornton by the Debtors shall be subject to the approval of this Court and based upon the filing by Grant Thornton of appropriate interim and final applications for allowance of compensation and reimbursement of expenses. 13. Grant Thornton s hourly rates and reimbursement policies are what the general marketplace for accounting services pays Grant Thornton in hundreds of other matters every day and are reasonable as determined by the market at arm s-length. Nevertheless, Grant Thornton has agreed to reduce its hourly rates, as set forth in greater detail above. 14. The Debtors believe the compensation arrangement provided for in the Engagement Agreement and the Letter is consistent with, and typical of, arrangements entered into by Grant Thornton and other accounting firms with respect to rendering similar services for clients such as the Debtors. 15. As part of the overall compensation payable to Grant Thornton under the terms of the Engagement Agreement and the Letter, the Debtors have agreed to indemnify Grant Thornton. Notwithstanding the indemnification provision contained in the Engagement Agreement and the Letter (the Indemnification Provision ), the Debtors obligations to 5 Grant Thornton seeks nunc pro tunc relief solely as it relates to the preparation of the federal, California and Arizona state income tax returns for the year ended February 24, 2013, for the fixed-fee amount of $17,500. RLF v.1 6

24 Case KJC Doc Filed 03/07/14 Page 8 of 44 indemnify and hold Grant Thornton harmless shall be subject to the following terms and conditions: (a) Upon the receipt of written notice, the Debtors shall, indemnify, defend and hold harmless Grant Thornton and its present and former partners, principals, directors, employees, agents and contractors, from and against any liability, damages, fees, expenses, losses, demands and costs (including defense costs) associated with any claim arising from or relating to the Engagement Agreement and the Letter, except to the extent that it is finally determined to have arisen from the gross negligence, willful misconduct or fraud of Grant Thornton. (b) The Debtors agree to reimburse Grant Thornton for all reasonable expenses including attorney s fees and expenses, as they are incurred in connection with the investigation of, preparation for, or defense of, any pending or threatened claim or action or proceeding arising therefrom, whether or not Grant Thornton is a party. 6 6 The Indemnification Provision shall be subject to the following terms, as provided in the Order (Exhibit D to the Application): (a) Grant Thornton shall not be entitled to indemnification, contribution or reimbursement pursuant to the Engagement Agreement and the Letter for services, unless such services and the indemnification, contribution or reimbursement therefore are approved by the Court; (b) The Debtors shall have no obligation to indemnify Grant Thornton or provide contribution or reimbursement to Grant Thornton, for any claim or expense that is either: (i) judicially determined (the determination having become final) to have arisen from Grant Thornton s gross negligence, willful misconduct, breach of fiduciary duty, if any, bad faith or self-dealing; (ii) for a contractual dispute in which the Debtors allege the breach of Grant Thornton contractual obligations unless the Court determines that indemnification, contribution or reimbursement would be permissible pursuant to In re United Artists Theater Company, et al., 315 F.3d 217 (3d Cir. 2003); or (iii) settled prior to a judicial determination as to Grant Thornton s gross negligence, willful misconduct, breach of fiduciary duty, or bad faith or self-dealing but determined by this Court, after notice and a hearing to be a claim or expense for which Grant Thornton should not receive indemnity, contribution or reimbursement under the terms of the Engagement Agreement and Letter as modified by the Court s Order; and (c) If, before the earlier of (i) the entry of an order confirming a chapter 11 plan in these chapter 11 cases (that order having become a final order no longer subject to appeal), and (ii) the entry of an order closing these chapter 11 cases, Grant Thornton believes that it is entitled to the payment of any amounts by the Debtors on account of the Debtors indemnification, contribution and/or reimbursement obligations under the Engagement Agreement and Letter, including without limitation the advancement of defense costs, Grant Thornton must file an application therefore in RLF v.1 7

25 Case KJC Doc Filed 03/07/14 Page 9 of The Indemnification Provision is typical of the indemnification provisions contained in the engagement letters of other tax service providers retained in this District. 17. The terms and conditions of the Engagement Agreement and the Letter, including the Indemnification Provision, were negotiated by the Debtors and Grant Thornton at arm slength and in good faith. The Debtors respectfully submit that the Indemnification Provision contained in the Engagement Agreement and the Letter is reasonable and in the best interests of the Debtors, their estates and creditors. 18. No promises have been received by Grant Thornton, or any partner or associate thereof, as to payment or compensation in connection with these cases other than in accordance with the provisions of the Bankruptcy Code. Grant Thornton has no agreement with any other entity to share with such entity any compensation received by Grant Thornton or by any such entity. D. Grant Thornton s Disinterestedness 19. Prior to the Petition Date, Grant Thornton provided tax-related services to the Debtors. Within the ninety (90) days prior to the Petition Date, Grant Thornton received the sum of $7,070 as payment for its pre-petition services. As of the Petition Date, Grant Thornton did not have any unpaid pre-petition fees owing to it by the Debtors. 20. To the best of my knowledge, and based on reasonable inquiry, (i) Grant Thornton and the partners/principals and directors of Grant Thornton that are anticipated to provide the services for which Grant Thornton is to be retained in these chapter 11 cases this Court, and the Debtors may not pay any such amounts to Grant Thornton before the entry of an order by this Court approving the payment. This subparagraph (c) is intended only to specify the period of time under which the Court shall have jurisdiction over any request for fees and expenses by Grant Thornton for indemnification, contribution or reimbursement, and not a provision limiting the duration of the Debtors obligation to indemnify Grant Thornton. All parties in interest shall retain the right to object to any demand by Grant Thornton for indemnification, contribution or reimbursement. RLF v.1 8

26 Case KJC Doc Filed 03/07/14 Page 10 of 44 (collectively, the Grant Thornton Professionals ) do not hold or represent any interest adverse to the Debtors and their estates and (ii) Grant Thornton and the Grant Thornton Professionals have no connections to the Debtors, the Debtors significant creditors known or identified, other known significant parties in interest in these chapter 11 cases, or to the professionals that are known to us to be assisting the Debtors or the Committee except as described below or on Grant Thornton s disclosure schedule attached hereto as Exhibit 2. As such, I believe that Grant Thornton and each of the Grant Thornton Professionals is a disinterested person as that term is defined in section 101(14) of the Bankruptcy Code. 21. As described below, Grant Thornton has undertaken a search to determine and to disclose whether it is or has been employed by, or has other relationship with, any of the Debtors; the Debtors current or recent former directors or officers; any of the Debtors significant creditors, equity security holders, or professionals; or other entities with significant relationships with the Debtors, as set forth on the disclosure schedule provided by the Debtors to Grant Thornton and attached hereto as Exhibit 1. Grant Thornton or its affiliates and the Grant Thornton Professionals have provided professional services to, currently provide professional services to, and may in the future provide professional services in matters unrelated to these chapter 11 cases to certain of the Debtors equity security holders or creditors, other parties in interest, or to the professionals that are known to us to be assisting the Debtors or the Committee. Additionally, certain entities have provided goods or services to, currently provide goods or services to, and may in the future provide goods or services to Grant Thornton or its affiliates and the Grant Thornton Professionals, in matters unrelated to these chapter 11 cases. 22. To check upon and disclose possible relationships with the aforementioned parties in interest in these chapter 11 cases, Grant Thornton researched its client databases and RLF v.1 9

27 Case KJC Doc Filed 03/07/14 Page 11 of 44 performed reasonable due diligence to determine whether it or its affiliates had any relationships with such parties. 23. From this research, Grant Thornton has determined that certain relationships should be disclosed, and such relationships are disclosed on Exhibit 2 hereto. 24. Except as may be disclose herein and on Exhibit 2, to the best of my knowledge, Grant Thornton and the Grant Thornton Professionals do not hold or represent any interest adverse to the Debtors, and I believe that Grant Thornton and each of the Grant Thornton Professionals are disinterested persons as that term is defined in section 101(14) of the Bankruptcy Code, and therefore eligible for retention by the Debtors under the Bankruptcy Code. 25. Furthermore, through reasonable inquiry, I do not believe there is any connection between the personnel of Grant Thornton who are anticipated to provide services to the Debtors and the United States Bankruptcy Judge presiding in these chapter 11 cases or the United States Trustee assigned to these chapter 11 cases. 26. Despite the efforts described above to identify and disclose Grant Thornton s connections with parties in interest, because Grant Thornton is a nationwide firm with thousands of personnel, Grant Thornton is unable to state with certainty that every client relationship or other connection has been disclosed. In this regard, Grant Thornton will continue to supplement its conflict search, and if Grant Thornton discovers additional information that it determines requires disclosure, it will promptly file a supplemental disclosure with the Court. E. Nunc Pro Tunc Relief 27. As set forth in the Application, the Debtors are requesting approval of Grant Thornton s retention under the Letter nunc pro tunc to October 3, 2013 solely as it relates to preparation of the federal, California and Arizona state income tax returns for the year ended RLF v.1 10

28 Case KJC Doc Filed 03/07/14 Page 12 of 44 February 24, 2013 for the fixed-fee amount of $17,500, as that is the date that Grant Thornton commenced these tax preparation services under the Letter for the Debtors. 7 I am informed and believe that due to the size and scope of the Debtors business operations, and the ongoing and evolving negotiations with the purchasers of the Debtors assets over the last few months, there was an immediate need for Grant Thornton to perform tax services for the Debtors following the filing of the chapter 11 petitions, and Grant Thornton continued to perform such services postpetition. Further, Grant Thornton was under the belief that its retention and compensation was covered under the Order Authorizing the Retention and Payment of Legal Professionals Utilized by the Debtors in the Ordinary Course of Business [Docket No. 169], entered on October 23, 2013, and only realized recently that it was not. Indeed, it is my understanding that the Debtors have sought authorization to retain Grant Thornton for its post-petition work under the Letter as soon as reasonably practicable. 28. The foregoing constitutes the statement of Grant Thornton pursuant to sections 327 and 330 of the Bankruptcy Code and Bankruptcy Rule I certify that the foregoing statements are true and correct to the best of my knowledge information and belief. 7 Grant Thornton began preparation of the federal, California and Arizona state income tax returns under the Letter on October 3, Under the Letter, Grant Thornton has not commenced services in connection with the preparation of the income tax provision and foreign corporation U.S. income tax returns for the RLF v.1 11