10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

[  X  ]           QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 18, 2011

OR

[       ]           TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from   ______________  to ________________                                                                       

Commission file number 1-4141

THE GREAT ATLANTIC & PACIFIC TEA COMPANY, INC.

(Exact name of registrant as specified in its charter)

Maryland                                                         13-1890974                                  

                                                   (State or other jurisdiction of                                        (I.R.S. Employer

                                                     incorporation or organization)                                     Identification No.)

2 Paragon Drive

Montvale, New Jersey 07645

(Address of principal executive offices)

Registrant’s telephone number, including area code:              201-573-9700

_________________________________

Securities registered pursuant to Section 12 (b) of the Act:

Title of each class                                                                                     Name of each exchange on which registered

Common Stock - $1 par value                                                                 OTC Markets, Inc.

9.375% Notes, due August 1, 2039                                                        OTC Markets, Inc.

Securities registered pursuant to Section 12 (g) of the Act:  None

_________________________________

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes [   ] No [   ]

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files.   Yes [ x ]  No [   ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ________     Accelerated filer ­­­­­­­­  _________    Non-accelerated filer           X                 ­­­­­­­­Smaller reporting company ________

Indicate by check mark whether the registrant is a shell company (as defined in Exchange Act Rule 12b-2).  Yes [  ] No [ X ]

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by section 12, 13, or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes [  ] No [  ]

The number of shares of common stock outstanding as of the close of business on July 27, 2011 was 53,852,470.

PART I – FINANCIAL INFORMATION

ITEM 1 – Financial Statements

The Great Atlantic & Pacific Tea Company, Inc.

(Debtors-in-Possession)

Consolidated Statements of Operations

(Dollars in thousands, except share and per share amounts)

(Unaudited)

	For the 16 Weeks Ended
	June 18, 2011			June 19, 2010
Sales	$	2,230,646		$	2,564,930
Cost of merchandise sold		(1,608,449	)		(1,801,118	)
Gross margin		622,197			763,812
Store operating, general and administrative expense		(788,727	)		(821,016	)
Goodwill, trademark and long-lived asset impairment		(55,418	)		(5,398	)
Loss from continuing operations before
nonoperating income, interest expense, net
and reorganization items, net		(221,948	)		(62,602	)
Nonoperating income		83			8,277
Interest expense, net		(48,454	)		(61,142	)
Reorganization items, net		77,878			-
Loss from continuing operations before income taxes		(192,441	)		(115,467	)
Benefit from (provision for) income taxes		14,650			(140	)
Loss from continuing operations		(177,791	)		(115,607	)
Discontinued operations:
Income (loss) from operations of discontinued businesses, net of income tax benefit of $1,142 and $0 for the 16 weeks ended June 18, 2011 and June 19, 2010, respectively		797			(7,115	)
Gain on disposal of discontinued operations, net of income tax provision of $0 for the 16 weeks ended June 19, 2010		-			79
Reorganization items, net of income tax provision of $14,361 for the 16 weeks ended June 18, 2011		19,833			-
Income (loss) from discontinued operations		20,630			(7,036	)
Net loss	$	(157,161	)	$	(122,643	)
Net (loss) income per share – basic:
Continuing operations	$	(3.33	)	$	(2.27	)
Discontinued operations		0.38			(0.13	)
Net loss per share – basic	$	(2.95	)	$	(2.40	)
Net (loss) income per share – diluted:
Continuing operations	$	(3.33	)	$	(4.60	)
Discontinued operations		0.38			(0.23	)
Net loss per share – diluted	$	(2.95	)	$	(4.83	)
Weighted average common shares outstanding:
Basic		53,852,470			53,498,121
Diluted		53,852,470			30,524,651
See Notes to Consolidated Financial Statements.

The Great Atlantic & Pacific Tea Company, Inc.

(Debtors-in-Possession)

Consolidated Statements of Stockholders’ Deficit and Comprehensive Loss

(Dollars in thousands, except share amounts)

(Unaudited)

								Accumulated
					Additional			Other						Total
	Common Stock				Paid-in			Comprehensive			Accumulated			Stockholders’
16 Weeks Ended June 18, 2011	Shares		Amount		Capital			Loss			Deficit			Deficit
Balance at 2/26/2011		53,852,470	$	53,852	$	511,157		$	(75,309	)	$	(1,630,664	)	$	(1,140,964	)
Net loss		-		-		-			-			(157,161	)		(157,161	)
Beneficial conversion feature related to
preferred stock, net of accretion		-		-		(1,482	)		-			-			(1,482	)
Preferred stock financing fees amortization		-		-		(535	)		-			-			(535	)
Other share based awards		-		-		491			-			-			491
Other comprehensive loss		-		-		-			(1,236	)		-			(1,236	)
Balance at 06/18/2011		53,852,470	$	53,852	$	509,631		$	(76,545	)	$	(1,787,825	)	$	(1,300,887	)
16 Weeks Ended June 19, 2010
Balance at 2/27/2010		55,868,129	$	55,868	$	526,421		$	(79,403	)	$	(1,032,089	)	$	(529,203	)
Net loss		-		-		-			-			(122,643	)		(122,643	)
Beneficial conversion feature related to
preferred stock, net of accretion		-		-		(1,481	)		-			-			(1,481	)
Dividends on preferred stock		-		-		(4,308	)		-			-			(4,308	)
Preferred stock financing fees amortization		-		-		(534	)		-			-			(534	)
Stock options exercised		4,834		5		23			-			-			28
Other share based awards		250,245		250		(1,111	)		-			-			(861	)
Other comprehensive income		-		-		-			252			-			252
Balance at 06/19/2010		56,123,208	$	56,123	$	519,010		$	(79,151	)	$	(1,154,732	)	$	(658,750	)

Comprehensive Loss	16 Weeks Ended
	June 18, 2011	June 19, 2010
Net loss	$(157,161)	$(122,643)
Pension and other postretirement benefits, net of tax of $1,719 and $0	(1,236)	252
Other comprehensive (loss) income, net of tax of $1,719 and $0	(1,236)	252
Total comprehensive loss	$(158,397)	$(122,391)
See Notes to Consolidated Financial Statements.

The Great Atlantic & Pacific Tea Company, Inc.

(Debtors-in-Possession)

Consolidated Balance Sheets

 (Dollars in thousands, except share and per share amounts)

(Unaudited)

Assets	June 18, 2011			February 26, 2011
Current assets:
Cash and cash equivalents	$	312,131		$	352,607
Restricted cash		1,731			1,731
Accounts receivable, net of allowance for doubtful accounts of $5,189 and $5,554 at
June 18, 2011 and February 26, 2011, respectively		161,982			209,966
Inventories, net		406,279			440,960
Prepaid expenses and other current assets		35,451			36,329
Assets held for sale		12,915			-
Total current assets		930,489			1,041,593
Non-current assets:
Property:
Property owned, net		1,040,903			1,163,853
Property under capital leases, net		60,296			63,346
Property, net		1,101,199			1,227,199
Goodwill		110,412			110,412
Intangible assets, net		120,988			124,288
Other assets		142,313			141,357
Total assets	$	2,405,401		$	2,644,849
Liabilities and Stockholders’ Deficit
Current liabilities:
Current portion of long-term debt	$	350,000		$	-
Accounts payable		112,300			119,245
Book overdrafts		20,897			23,722
Accrued salaries, wages and benefits		105,111			109,428
Accrued taxes		32,309			26,175
Other accruals		75,427			65,048
Total current liabilities		696,044			343,618
Non-current liabilities:
Long-term debt		-			350,000
Other non-current liabilities		75,539			74,162
Total liabilities not subject to compromise		771,583			767,780
Liabilities subject to compromise		2,789,412			2,874,734
Total liabilities		3,560,995			3,642,514
Series A redeemable preferred stock – no par value, $1,000 redemption value; authorized –
700,000 shares; issued 179,020 shares at June 18, 2011 and February 26, 2011		145,293			143,299
Commitments and contingencies  (Refer to Note 20)
Stockholders’ deficit:
Common stock – $1 par value; authorized – 260,000,000 shares; issued and outstanding –
53,852,470 shares at June 18, 2011 and February 26, 2011		53,852			53,852
Additional paid-in capital		509,631			511,157
Accumulated other comprehensive loss		(76,545	)		(75,309	)
Accumulated deficit		(1,787,825	)		(1,630,664	)
Total stockholders’ deficit		(1,300,887	)		(1,140,964	)
Total liabilities and stockholders’ deficit	$	2,405,401		$	2,644,849
See Notes to Consolidated Financial Statements.

The Great Atlantic & Pacific Tea Company, Inc.

(Debtors-in-Possession)

Consolidated Statements of Cash Flows

(Dollars in thousands)

(Unaudited)

	16 Weeks Ended
	June 18, 2011			June 19, 2010
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(157,161	)	$	(122,643	)
Adjustments to reconcile net loss to net cash used in
operating activities (see next page)		92,890			82,782
Other changes in assets and liabilities:
Decrease in receivables		47,920			4,139
Decrease (increase) in inventories		26,573			(4,401	)
(Increase) decrease in prepaid expenses and other current assets		(2,039	)		1,209
Increase in other assets		(4,487	)		(1,224	)
(Decrease) increase in accounts payable		(21,151	)		1,584
(Decrease) increase in accrued salaries, wages and benefits, and taxes		(1,853	)		2,059
Increase (decrease) in other accruals		67,753			(1,763	)
Decrease in other non-current liabilities		(67,943	)		(19,978	)
Other operating activities, net		(113	)		(29	)
Payment for reorganization items		(11,304	)		-
Net cash used in operating activities		(30,915	)		(58,265	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for property		(11,177	)		(19,668	)
Proceeds from disposal of property		6,805			1,677
Decrease in restricted cash		-			302
Proceeds from sale of pharmacy assets		2,821			-
Net cash used in investing activities		(1,551	)		(17,689	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt		-			800
Principal payments on long-term debt		(55	)		(69	)
Principal payments on long-term real estate liabilities		(355	)		(383	)
Principal payments on capital leases		(3,360	)		(3,775	)
(Decrease) increase in book overdrafts		(2,825	)		4,710
Payments of financing fees for debtor-in-possession financing		(1,415	)		-
Deferred financing fees		-			(21	)
Dividends paid on preferred stock		-			(7,000	)
Proceeds from exercises of stock options		-			28
Net cash used in financing activities		(8,010	)		(5,710	)
Net decrease in cash and cash equivalents		(40,476	)		(81,664	)
Cash and cash equivalents at beginning of period		352,607			252,426
Cash and cash equivalents at end of period	$	312,131		$	170,762
See Notes to Consolidated Financial Statements.

The Great Atlantic & Pacific Tea Company, Inc.

(Debtors-in-Possession)

Consolidated Statements of Cash Flows - Continued

(Dollars in thousands)

(Unaudited)

ADJUSTMENTS TO RECONCILE NET LOSS TO NET CASH USED IN OPERATING ACTIVITIES:
	16 Weeks Ended
	June 18, 2011			June 19, 2010
Depreciation and amortization	$	59,444		$	70,379
Impairment of long-lived assets		55,418			5,890
Nonoperating income		(83	)		(8,277	)
Non-cash interest expense		3,726			12,785
Stock compensation expense (income)		491			(861	)
Pension withdrawal costs		13,923			-
Employee benefit related costs		3,672			1,965
LIFO adjustment		1,122			856
Asset disposition initiatives in the normal course of business		64,662			-
Asset disposition initiatives relating to discontinued operations		-			4
Non-cash occupancy charges for locations closed in the normal course of business		813			466
(Gains) losses on disposal of owned property and write-down of property, net		(146	)		1,025
Amortization of deferred real estate income		(1,030	)		(1,371	)
Gain on disposal of discontinued operations		-			(79	)
Gain on sale of pharmacy assets		(2,821	)		-
C&S contract effect		6,986			-
Provision for deferred income taxes		(1,719	)		-
Reorganization items, net relating to continuing operations		(77,878	)		-
Reorganization items, net relating to discontinued operations		(34,194	)		-
Financing fees		504			-
Total adjustments to net loss	$	92,890		$	82,782
See Notes to Consolidated Financial Statements.

The Great Atlantic & Pacific Tea Company, Inc.

Notes to Consolidated Financial Statements

(Dollars in thousands, except share and per share amounts)

 (Unaudited)

1.  Basis of Presentation

The accompanying Consolidated Statements of Operations, Consolidated Statements of Stockholders’ Deficit and Comprehensive Loss, and Consolidated Statements of Cash Flows for the 16 weeks ended June 18, 2011 and June 19, 2010, and the Consolidated Balance Sheets at June 18, 2011 and February 26, 2011 of The Great Atlantic & Pacific Tea Company, Inc. (“we,” “our,” “us” or “our Company”) are unaudited and, in the opinion of management, contain all adjustments that are of a normal and recurring nature necessary for a fair statement of financial position and results of operations for such periods.  The consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes contained in our Fiscal 2010 Annual Report on Form 10-K.  Interim results are not necessarily indicative of results for a full year.

The consolidated financial statements include the accounts of our Company and all subsidiaries.  All intercompany accounts and transactions have been eliminated.

Bankruptcy Filing

On December 12, 2010, our Company and all of our U.S. subsidiaries (the “Debtors”) filed voluntary petitions for relief (the “Bankruptcy Filing”) under chapter 11 of title 11 of the United States Bankruptcy Code (the “Bankruptcy Code”) in the United States Bankruptcy Court for the Southern District of New York in White Plains (the “Bankruptcy Court”), which are being jointly administered under case number 10-24549.   Management's decision to initiate the Bankruptcy Filing was in response to, among other things, our Company’s deteriorating liquidity and management's conclusion that the challenges of successfully implementing additional financing initiatives and of obtaining necessary cost concessions from our Company’s business and labor partners, was negatively impacting our Company’s ability to implement our previously announced turnaround strategy.  Our Company’s non-U.S. subsidiaries, which are immaterial on a consolidated basis and have no retail operations, were not part of the Bankruptcy Filing.

We are currently operating as debtors-in-possession pursuant to the Bankruptcy Filing and continuation of our Company as a going-concern is contingent upon, among other things, the Debtors’ ability (i) to comply with the terms and conditions of the DIP Credit Agreement described in Note 8 – Indebtedness and Other Financial Liabilities; (ii) to develop a plan of reorganization and obtain confirmation of that plan under the Bankruptcy Code; (iii) to reduce debt and other liabilities through the bankruptcy process; (iv) to return to profitability, including by securing necessary near-term cost concessions from our business and labor partners; (v) to generate sufficient cash flow from operations; and (vi) to obtain financing sources to meet our future obligations.  The uncertainty regarding these matters raises substantial doubt about our ability to continue as a going concern.

Our Company was required to apply the FASB’s provisions of Reorganizations effective on December 12, 2010, which is applicable to companies in chapter 11, which generally does not change the manner in which financial statements are prepared. However, it does require that the financial statements for periods subsequent to the filing of the Bankruptcy Filing petition distinguish transactions and events that are directly associated with the reorganization from the ongoing operations of the business. Revenues, expenses, realized gains and losses, and provisions for losses that can be directly associated with the reorganization and restructuring of the business must be reported separately as reorganization items in the Consolidated Statements of Operations beginning in the year ended February 26, 2011. The balance sheet must distinguish pre-Bankruptcy Filing liabilities subject to compromise from both those pre-Bankruptcy Filing liabilities that are not subject to compromise and from post-Bankruptcy Filing liabilities.  As discussed in Note 8 - Indebtedness and Other Financial Liabilities, currently the Senior Secured Notes totaling $260.0 million have priority over the unsecured creditors of our Company. Based upon the uncertainty surrounding the ultimate treatment of the Notes in our reorganization plan, including the potential that these Notes may be impaired, these Notes are classified as “Liabilities subject to compromise” in our Consolidated Balance Sheets.  Our Company continues to evaluate creditors' claims for other claims that may also have priority over unsecured creditors. Liabilities that may be affected by a plan of reorganization must be reported at the amounts expected to be approved by the Bankruptcy Court, even if they may be settled for lesser amounts as a result of the plan of reorganization. In addition, cash used in reorganization items must be disclosed separately in our Consolidated Statements of Cash Flows.

Supply Agreement

On June 2, 2011, our Company entered into a definitive agreement with C&S Wholesale Grocers, Inc. (“C&S”) effective May 29, 2011, whereby C&S will provide warehousing, transportation, procurement, purchasing and ancillary services (the “Services”) in support of a substantial portion of our Company’s supply chain. This agreement terminates and replaces the warehousing, logistics, procurement and purchasing agreement under which the parties have been operating since 2008.

The term of the agreement is through the effective date of our Company’s plan of reorganization in its Bankruptcy Filing but may be extended by either party for a term concurrent with a fixed volume commitment based upon wholesale purchases of merchandise resulting in a term of approximately seven years. The cost structure of the agreement is a combination of a fixed cost and variable upcharge pricing model. The charges are subject to adjustment due to volume change or other material changes to the operating assumptions of the agreement.

Our Company expects it will realize a run-rate of more than $50 million in annual savings commencing with our Company's emergence from the Bankruptcy Filing pursuant to a plan of reorganization. The agreement provides our Company with important service enhancements, including detailed service specifications and key performance measures. The agreement also permits our Company to maintain product standards and specifications for all merchandise purchased for resale in our Company’s stores.

Significant Accounting Policies

A summary of our significant accounting policies may be found in our Annual Report on Form 10-K for the year ended February 26, 2011.  There have been no significant changes in these policies during the 16 weeks ended June 18, 2011.

2.  Recently Issued Accounting Pronouncements

Comprehensive Income. In June 2011, the FASB issued updated guidance on the presentation of comprehensive income, eliminating the option to present components of other comprehensive income as part of the statement of changes in stockholders’ equity. All changes in our Company’s stockholders’ deficit will be presented in either a single continuous statement of comprehensive loss or in two separate but consecutive statements. The updated guidance is to be applied retrospectively and is effective for public entities for fiscal years, and interim periods within those years, ending after December 15, 2011 with early adoption permitted. The impact of this update is expected to be immaterial.

3.   Goodwill and Other Intangible Assets

The carrying values of our finite-lived intangible assets are reviewed for possible impairment whenever events or changes in circumstances indicate that the carrying amount of assets may not be recoverable.   Our intangible assets that have finite useful lives are amortized over their estimated useful lives. Goodwill and other intangibles with indefinite useful lives that are not subject to amortization are tested for impairment in the fourth quarter of each fiscal year, or more frequently whenever events or changes in circumstances indicate that impairment may have occurred.  The latest impairment assessment of goodwill and indefinite lived intangible assets was completed in the fourth quarter of fiscal 2010 for all of our reporting units in our reportable segments.  This assessment concluded that there was no impairment.

Goodwill

The carrying amount of our goodwill was $110.4 million at June 18, 2011 and February 26, 2011, respectively.  Our goodwill allocation by segment at June 18, 2011 and February 26, 2011 was as follows (in thousands):

	Fresh			Gourmet		Other		Total
Goodwill	$	116,032		$	12,110	$	5,974	$	134,116
Accumulated impairment losses		(23,704	)		-		-		(23,704	)
Goodwill at February 26, 2011	$	92,328		$	12,110	$	5,974	$	110,412
Goodwill	$	116,032		$	12,110	$	5,974	$	134,116
Accumulated impairment losses		(23,704	)		-		-		(23,704	)
Goodwill at June 18, 2011	$	92,328		$	12,110	$	5,974	$	110,412

The Great Atlantic & Pacific Tea Company, Inc.

Notes to Consolidated Financial Statements - Continued

(Dollars in thousands, except share and per share amounts)

 (Unaudited)

Intangible Assets, net

Intangible assets acquired as part of our acquisition of Pathmark in December 2007 consisted of the following (in thousands):

	Weighted Average		Gross		Accumulated		Accumulated
	Amortization		Carrying		Amortization at		Amortization at
	Period (years)		Amount		June 18, 2011		Feb. 26, 2011
Loyalty card customer relationships		5	$	19,200	$	13,114	$	11,815
In-store advertiser relationships		20		14,720		2,604		2,378
Pharmacy payor relationships		13		75,000		20,414		18,639
Pathmark trademark	Indefinite			48,200		-		-
Total			$	157,120	$	36,132	$	32,832

Amortization expense relating to our intangible assets for the 16 weeks ended June 18, 2011 and June 19, 2010 was $3.3 million during each period.

The following table summarizes the estimated future amortization expense for our finite-lived intangible assets (in thousands):

2011	$7,425
2012	9,670
2013	6,505
2014	6,505
2015	6,505
Thereafter	36,178

4.  Fair Value Measurements

The accounting guidance for fair value measurement defines and establishes a framework for measuring fair value.  Inputs used to measure fair value are classified based on the following three-tier fair value hierarchy:

Level 1 – Quoted prices in active markets for identical assets or liabilities.

Level 2 – Directly or indirectly observable inputs other than Level 1 quoted prices in active markets. Our Level 2 liabilities include warrants, which are valued using the Black-Scholes pricing model with inputs that are observable or can be derived from or corroborated by observable market data.  In addition, our investments in money market funds, which are considered cash equivalents, are classified as Level 2, as they are valued based on their reported Net Asset Value (NAV).

Level 3 – Unobservable inputs that are supported by little or no market activity whose value is determined using pricing models, discounted cash flows, or similar methodologies, as well as instruments for which the determination of fair value requires significant judgment or estimation.

A financial asset or liability’s classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement.

The following table provides the assets and liabilities carried at fair value measured on a recurring basis as of June 18, 2011 and February 26, 2011 (in thousands):

			Fair Value Measurements at June 18, 2011 Using
			Quoted Prices		Significant Other		Significant
	Total Carrying		in Active		Observable		Unobservable
	Value at		Markets		Inputs		Inputs
	June 18, 2011		(Level 1)		(Level 2)		(Level 3)
Assets:
Cash equivalents	$	1,552	$	-	$	1,552	$	-
Liabilities:
Series B warrant	$	87	$	-	$	87	$	-

The Great Atlantic & Pacific Tea Company, Inc.

Notes to Consolidated Financial Statements - Continued

(Dollars in thousands, except share and per share amounts)

 (Unaudited)

			Fair Value Measurements at Feb. 26, 2011 Using
			Quoted Prices		Significant Other		Significant
	Total Carrying		in Active		Observable		Unobservable
	Value at		Markets		Inputs		Inputs
	Feb. 26, 2011		(Level 1)		(Level 2)		(Level 3)
Assets:
Cash equivalents	$	1,553	$	-	$	1,553	$	-
Liabilities:
Series B warrant	$	170	$	-	$	170	$	-

There were no transfers in and out of Level 1 and Level 2 fair value measurements during the 16 weeks ended June 18, 2011.

Level 3 Valuations

We did not have any financial assets or liabilities classified as Level 3 within the fair value hierarchy as of June 18, 2011 and February 26, 2011.

Nonfinancial Assets and Liabilities Measured on a Nonrecurring Basis.  Fair value measurements of our nonfinancial assets and nonfinancial liabilities on a nonrecurring basis using Level 3 inputs are primarily used in the impairment analyses of our goodwill and other indefinite-lived intangible assets, our long-lived assets and closed locations occupancy costs.  Long-lived assets and closed locations occupancy costs were measured at fair value on a nonrecurring basis using Level 3 inputs, as unobservable inputs were used to measure their fair value.  Refer to Note 5 – Valuation of Long-Lived Assets, Note 16 – Discontinued Operations and Note 17 – Asset Disposition Initiatives for more information relating to the valuation of these assets and liabilities.

Long-Term Debt

The following table provides the carrying values recorded on our balance sheet and the estimated fair values of financial instruments as of June 18, 2011 and February 26, 2011 (in thousands):

	At June 18, 2011				At February 26, 2011
	Carrying		Fair		Carrying		Fair
	Amount		Value		Amount		Value
Current portion of long-term debt	$	350,000	$	350,000	$	159	$	159
Long-term debt-subject to compromise, net of related discount		905,278		470,674		1,255,225		765,577

Our long-term debt includes borrowings under our line of credit, credit agreement, related party promissory note and our debt securities.  The fair value of our debt securities are determined based on quoted market prices for such notes in non-active markets. 

The Great Atlantic & Pacific Tea Company, Inc.

Notes to Consolidated Financial Statements - Continued

(Dollars in thousands, except share and per share amounts)

 (Unaudited)

5.  Valuation of Long-Lived Assets

We review the carrying values of our long-lived assets for possible impairment whenever events or changes in circumstances indicate that the carrying amount of assets may not be recoverable.

Impairments due to closure or conversion in the normal course of business

We review assets in stores planned for closure or conversion for impairment upon determination that such assets will not be used for their intended useful life.  During the 16 weeks ended June 18, 2011 and June 19, 2010, we recorded impairment losses on long-lived assets of nil and $0.5 million, respectively, related to stores that were closed or converted in the normal course of business.  These amounts were recorded within “Store operating, general and administrative expense” in our Consolidated Statements of Operations.

Impairments due to store closures

In February 2011, our Company obtained authority from the Bankruptcy Court to close 32 stores in six states as we continue to fully implement our comprehensive financial and operational restructuring.  As a result, we recorded an impairment charge of $31.4 million during fiscal 2010, of which $19.4 million, $9.0 million and $3.0 million related our Fresh, Pathmark, and Other reporting segments, respectively.  These store closures were completed on April 16, 2011.  During the 16 weeks ended June 18, 2011, we recorded an additional impairment charge of $0.4 million, of which $0.3 million and $0.1 million were attributed to our Pathmark and Fresh reporting segments, respectively. These amounts were recorded within “Goodwill, trademark, and long-lived asset impairment” in our Consolidated Statements of Operations.

In April and May 2011, our Company obtained approval from the Bankruptcy Court to sell, or alternatively, to close, an additional 25 stores located in Maryland, Delaware and the District of Columbia (the “Southern Stores”).  During the first quarter of fiscal 2011, our Company held an auction whereby we agreed to sell our interests in 12 of our existing stores based in Maryland and the District of Columbia, all of which are a part of our Fresh reportable segment, for approximately $37.8 million.  The transactions closed during June and July 2011.During the 16 weeks ended June 18, 2011, we recorded an impairment charge of $2.9 million, all of which pertained to our Fresh reporting segment. These amounts were recorded within “Goodwill, trademark, and long-lived asset impairment” in our Consolidated Statements of Operations. These store closures were completed by July 9, 2011.

There were no such closures during the 16 weeks ended June 19, 2010.

Impairments due to unrecoverable assets

As a result of recently performed projections combined with continued cash flow loss experience, we determined that a triggering event had occurred that required us to test the related long-lived assets for potential impairment.  We recorded an impairment charge of $52.1 million and $5.4 million during the 16 weeks ended June 18, 2011 and  June 19, 2010, respectively, to partially write down these stores’ long-lived assets, which consist of favorable leases, capital leases, and land and buildings, with a carrying amount of $84.3 million to their fair value of $32.2 million and with a carrying amount of $40.5 million to their fair value of $35.1 million for the 16 weeks ended June 18, 2011 and June 19, 2010, respectively. The impairment charge of $52.1 million recorded during the 16 weeks ended June 18, 2011 all related to our Pathmark reportable segment. The impairment charge of $5.4 million recorded during the 16 weeks ended June 19, 2010, all related to our Pathmark reporting segment with the exception of $0.9 million which was attributed to our Fresh reporting segment. These amounts were recorded within “Goodwill, trademark, and long-lived asset impairment” in our Consolidated Statements of Operations.

The effects of changes in estimates of useful lives were not material to ongoing depreciation expense.  If current operating levels do not improve, there may be a need to take further actions which may result in additional future impairments on long-lived assets, including the potential for impairment of assets that are held and used.

6.  Other Accruals

Other accruals at June 18, 2011 and February 26, 2011 were comprised of the following (in thousands):

	At							At
	June 18, 2011							February 26, 2011
	Other Accruals							Other Accruals
	Prior to		Amounts					Prior to		Amounts
	Financial		Classified as					Financial		Classified as
	Statement		Subject to			Other		Statement		Subject to			Other
	Classification		Compromise1			Accruals		Classification		Compromise1			Accruals
Self-insurance reserves	$	52,446	$	(43,406	)	$	9,040	$	47,792	$	(45,466	)	$	2,326
Deferred taxes		27,064		-			27,064		28,335		-			28,335
Closed locations reserves		6,261		(6,261	)		-		11,358		(11,358	)		-
Damages claim for rejected leases		168,796		(168,796	)		-		106,642		(106,642	)		-
Pension withdrawal liabilities		10,461		(10,461	)		-		10,461		(10,461	)		-
GHI liability for employee benefits		7,946		(7,946	)		-		7,776		(7,776	)		-
Accrued occupancy-related costs for open stores		40,721		(22,200	)		18,521		48,742		(24,523	)		24,219
Deferred income		20,664		(11,931	)		8,733		23,299		(21,363	)		1,936
Deferred real estate income		1,799		(1,799	)		-		2,508		(2,508	)		-
Accrued audit, legal and other		10,377		(6,886	)		3,491		11,777		(8,118	)		3,659
Accrued interest		49,213		(43,021	)		6,192		35,600		(33,921	)		1,679
Other postretirement and postemployment benefits		2,918		(2,918	)		-		2,918		(2,918	)		-
Accrued advertising		488		-			488		718		-			718
Other accruals		11,208		(9,310	)		1,898		10,181		(8,005	)		2,176
Total	$	410,362	$	(334,935	)	$	75,427	$	348,107	$	(283,059	)	$	65,048

1Refer to Note 9 – Liabilities subject to compromise for additional information.

The Great Atlantic & Pacific Tea Company, Inc.

Notes to Consolidated Financial Statements - Continued

(Dollars in thousands, except share and per share amounts)

 (Unaudited)

7.  Other Non-Current Liabilities

Other non-current liabilities at June 18, 2011 and February 26, 2011 were comprised of the following (in thousands):

	At							At
	June 18, 2011							February 26, 2011
	Non-Current							Non-Current
	Liabilities							Liabilities
	Prior to Financial		Amounts Classified as			Other Non-		Prior to Financial		Amounts Classified as			Other Non-
	Statement		Subject to			Current		Statement		Subject to			Current
	Classification		Compromise1			Liabilities		Classification		Compromise1			Liabilities
Self-insurance reserves	$	365,797	$	(352,854	)	$	12,943	$	366,891	$	(354,704	)	$	12,187
Closed locations reserves		5,093		(5,093	)		-		39,192		(39,192	)		-
Pension withdrawal liabilities		102,152		(102,152	)		-		86,735		(86,735	)		-
GHI liability for employee benefits		88,755		(88,755	)		-		86,505		(86,505	)		-
Pension plan benefits		127,659		(127,659	)		-		125,000		(125,000	)		-
Other postretirement and postemployment benefits		38,913		(38,913	)		-		38,737		(38,737	)		-
Loans on life insurance policies		61,943		-			61,943		61,943		-			61,943
Deferred rent liabilities		51,570		(51,524	)		46		56,287		(56,287	)		-
Deferred income		22,676		(22,112	)		564		53,031		(53,031	)		-
Deferred real estate income		33,196		(33,196	)		-		86,801		(86,801	)		-
Unfavorable lease liabilities		825		(825	)		-		4,201		(4,201	)		-
Other non-current liabilities		10,721		(10,678	)		43		11,348		(11,316	)		32
Total	$	909,300	$	(833,761	)	$	75,539	$	1,016,671	$	(942,509	)	$	74,162

1Refer to Note 9 – Liabilities subject to compromise for additional information.

The Great Atlantic & Pacific Tea Company, Inc.

Notes to Consolidated Financial Statements - Continued

(Dollars in thousands, except share and per share amounts)

 (Unaudited)

8.   Indebtedness and Other Financial Liabilities

Our debt obligations at June 18, 2011 and February 26, 2011 consisted of the following (in thousands):

	At									At
	June 18, 2011									February 26, 2011
	Indebtedness									Indebtedness
	Prior to			Amounts						Prior to			Amounts
	Financial			Classified as						Financial			Classified as
	Statement			Subject to						Statement			Subject to
	Classification			Compromise1			Indebtedness			Classification			Compromise1			Indebtedness
Debtor-in-Possession Credit Agreement, due June 14, 2012	$	350,000		$	-		$	350,000		$	350,000		$	-		$	350,000
Related Party Promissory Note, due August 18, 2011		10,000			(10,000	)		-			10,000			(10,000	)		-
5.125% Convertible Senior Notes, due June 15, 2011		165,000			(165,000	)		-			165,000			(165,000	)		-
9.125% Senior Notes, due December 15, 2011		12,840			(12,840	)		-			12,840			(12,840	)		-
6.750% Convertible Senior Notes, due December 15, 2012		255,000			(255,000	)		-			255,000			(255,000	)		-
11.375% Senior Secured Notes, due August 1, 2015		260,000			(260,000	)		-			260,000			(260,000	)		-
9.375% Notes, due August 1, 2039		200,000			(200,000	)		-			200,000			(200,000	)		-
Other		2,438			(2,438	)		-			2,544			(2,544	)		-
Subtotal		1,255,278			(905,278	)		350,000			1,255,384			(905,384	)		350,000
Less current portion of long-term debt		(350,000	)		-			(350,000	)		(159	)		159			-
Long-term debt	$	905,278		$	(905,278	)	$	-		$	1,255,225		$	(905,225	)	$	350,000

1Refer to Note 9 – Liabilities subject to compromise for additional information.

DEBTOR-IN-POSSESSION CREDIT AGREEMENT

In connection with the Bankruptcy Filing, on December 13, 2010, the Bankruptcy Court entered its interim financing order, among other things, permitting us to enter into a Superpriority Debtor-in-Possession Credit Agreement (as amended and restated in its entirety by that certain Amended and Restated Superpriority Debtor-in-Possession Credit Agreement dated as of December 21, 2010, further amended and restated in its entirety by that certain Second Amended and Restated Superpriority Debtor-in-Possession Credit Agreement dated as of January 10, 2011, further amended and restated in its entirety by that certain Third Amended and Restated Superpriority Debtor-in-Possession Credit Agreement dated as of January 13, 2011, further amended (subsequent to the reporting period) by that certain First Amendment to the Third Amended and Restated Superpriority Debtor-in-Possession Credit Agreement dated as of July 8, 2011 (“the First Amendment to the DIP Credit Agreement”), as may be therefore further amended, amended and restated, supplemented or otherwise modified from time to time (the "DIP Credit Agreement") with JPMorgan Chase Bank, N.A., as administrative agent and as collateral agent (in such capacity, the “Agent”), the lenders from time to time party thereto (collectively, the “DIP Lenders”) and our Company and certain subsidiaries as borrowers thereunder.  On December 14, 2010, we satisfied all of the conditions to the effectiveness of the DIP Credit Agreement and to the initial closing thereunder and consummated the transactions contemplated thereunder including the refinancing in full of our Company’s and its applicable subsidiaries’ obligations under the pre-existing first lien credit facility. The Bankruptcy Court entered a final order approving the DIP Credit Agreement on January 11, 2011.  Pursuant to the terms of the DIP Credit Agreement:

• the DIP Lenders agreed to lend up to $800.0 million in the form of a $350.0 million term loan and a $450.0 million revolving credit facility with a $250.0 million sublimit for letters of credit, in each case subject to the terms and conditions therein;

• our Company’s and the Subsidiary Borrower’s obligations under the DIP Credit Agreement and the other specified loan documents are guaranteed by our Company’s certain other subsidiaries that are Debtors (“Subsidiary Guarantors” and, together with our Company and the Subsidiary Borrowers, the “Loan Parties”); and

• the Loan Parties’ obligations under the DIP Credit Agreement and such other specified loan documents are secured by a security interest in, and lien upon, substantially all of the Loan Parties’ existing and after-acquired personal and real property, having the priority and subject to the terms therein and in the order(s) entered into by the Bankruptcy Court, as applicable.

Our Company will have the option to have interest on the revolving loans under the revolving credit facility provided under the DIP Credit Agreement accrue at an alternate base rate plus 200 basis points or at adjusted LIBOR plus 300 basis points. Our Company will have the option to have interest on the term loan provided under the DIP Credit Agreement accrue at an alternate base rate plus 600 basis points or at adjusted LIBOR (with a floor of 175 basis points) plus 700 basis points. The DIP Credit Agreement limits, among other things, our Company’s and the other Loan Parties’ ability to (i) incur indebtedness, (ii) incur or create liens, (iii) dispose of assets, (iv) prepay certain indebtedness and make other restricted payments, (v) enter into sale and leaseback transactions and (vi) modify the terms of certain indebtedness and certain material contracts. Notably, however, the DIP Credit Agreement permits our Company to use the proceeds generated from the sale of the Southern Stores in the operation of our business rather than requiring us to use those proceeds to reduce the Loan Parties’ outstanding indebtedness under the DIP Credit Agreement.

The DIP Credit Agreement also contains certain financial covenants, including a minimum excess availability covenant of $100.0 million (or $75.0 million at any time after August 13, 2011 but on or before November 5, 2011, or $50.0 million at any time after November 5, 2011), minimum liquidity covenant of $100.0 million and minimum cumulative EBITDA covenant as defined in the DIP Credit Agreement.  Minimum cumulative EBITDA measured beginning on April 24, 2011 is as follows (in millions):

Date	Minimum Cumulative EBITDA
August 13, 2011	$         -
September 10, 2011	10.0
October 8, 2011	20.0
November 5, 2011	35.0
December 3, 2011	50.0
December 31, 2011	65.0
January 28, 2012	90.0
February 25, 2012	100.0
March 24, 2012	110.0
April 21, 2012	125.0
May 19, 2012	150.0
June 16, 2012	175.0

Meeting our EBITDA covenant requires increasing levels of performance throughout the year, including the successful implementation of our business improvement initiatives. As of the balance sheet date, we have entered into a definitive agreement with C&S to provide services and we are in the process of negotiating with union locals to obtain consensual modifications to collective bargaining agreements necessary for our successful reorganization. We may not achieve our minimum cumulative EBITDA covenant. A financial covenant violation could result in termination of the DIP Credit Agreement and/or termination of our access to funding thereunder. If either (or both) of those were to occur, our Company could be without sufficient cash availability to meet our operating needs or satisfy our obligations as they fall due, in which instance we may be unable to successfully reorganize.

The DIP Credit Agreement matures upon the earliest to occur of (a) June 14, 2012, (b) the acceleration of the loans and the termination of the commitment thereunder, and (c) the substantial consummation (as defined in Section 1101(2) of the Bankruptcy Code, which for purposes hereof shall be no later than the effective date thereof) of a plan of reorganization that is confirmed pursuant to an order entered by the Bankruptcy Court.

Warrants

Our Series B warrants issued as part of the acquisition of Pathmark on December 3, 2007, are exercisable at $32.40 and expire on June 9, 2015.  The Tengelmann Warenhandelsgesellschaft KG (“Tengelmann”) stockholders have the right to approve any issuance of common stock under these warrants upon exercise (assuming Tengelmann’s outstanding interest is at least 25% and subject to liquidity impairments defined within the Tengelmann Stockholder Agreement).  In addition, Tengelmann has the ability to exercise a “Put Right” whereby it has the ability to require our Company to purchase our common stock held by Tengelmann to settle these warrants.  Based on the rights provided to Tengelmann, our Company does not have sole discretion to determine whether the payment upon exercise of these warrants will be settled in cash or through issuance of an equivalent portion of our shares.  Therefore, these warrants are recorded as liabilities and marked-to-market each reporting period based on our Company’s current stock price.

The value of the Series B warrants as of June 18, 2011 and February 26, 2011 was $0.1 million and $0.2 million, respectively, and is included in “Liabilities subject to compromise” in our Consolidated Balance Sheets.  Our “Nonoperating income” for the 16 weeks ended June 18, 2011 and June 19, 2010 was comprised of gains of approximately $0.1 million and $8.3 million, respectively, relating to market value adjustments for Series B warrants.   The following assumptions and estimates were used in the Black-Scholes model used to value the Series B warrants:

	At	At
	June 18, 2011	Feb. 26, 2011
Expected life	3.98 Years	4.29 Years
Volatility	116.7%	111.3%
Dividend yield range	0%	0%
Risk-free interest rate	1.53%	2.16%

Call Option and Financing Warrants

On or about October 3, 2008, Lehman Brothers OTC Derivatives, Inc. or “LBOTC,” which accounts for 50% of our call option and financing warrant transactions, filed for bankruptcy protection, which is an event of default under such transactions.  We are monitoring the developments affecting LBOTC, noting the impact of the LBOTC bankruptcy effectively reduced conversion prices for 50% of our convertible senior notes to their stated prices of $36.40 for the 5.125% Notes and $37.80 for the 6.750% Notes.

In the event we terminate these transactions, or they are canceled in the LBOTC bankruptcy, or LBOTC otherwise fails to perform its obligations under such transactions, we would have the right to monetary damages in the form of an unsecured claim against LBOTC in an amount equal to the present value of our cost to replace these transactions with another party for the same period and on the same terms.

9.   Liabilities Subject to Compromise

As a result of the Bankruptcy Filing, the payment of pre-petition indebtedness is subject to compromise or other treatment under a plan of reorganization. Generally, actions to enforce or otherwise effect payment of pre-Bankruptcy Filing liabilities are stayed. Although payment of pre-petition claims generally is not permitted, the Bankruptcy Court granted the Debtor authority to pay certain pre-petition claims in designated categories and subject to certain terms and conditions. This relief generally was designed to preserve the value of our Company’s businesses and assets. Among other things, the Bankruptcy Court authorized us to pay certain pre-petition claims relating to employee wages and benefits, customers, vendors, and suppliers.

We have been paying and intend to continue to pay undisputed post-petition claims in the ordinary course of business. In addition, we may reject pre-petition executory contracts and unexpired leases with respect to our operations, with the approval of the Bankruptcy Court. Any damages resulting from rejection of executory contracts and unexpired leases are treated as general unsecured claims and will be classified as “Liabilities subject to compromise” in our Consolidated Balance Sheets. We previously notified all known claimants subject to the bar date of their need to file a proof of claim with the Bankruptcy Court. A bar date is the date by which claims against our Company must be filed if the claimants disagree with the amounts included in our schedule of assets and liabilities filed with the Bankruptcy Court and wish to receive any distribution in the Bankruptcy Filing.  The bar date of June 17, 2011 set by the Bankruptcy Court has passed. Thus far, claimants filed over nine thousand claims against our Company, asserting approximately $27.8 billion worth of liabilities.  Our Company and our retained professionals are continuing to review and analyze the proofs of claim submitted by claimants and will investigate any material differences between these claims and liability amounts estimated by our Company. If necessary, in the event of a claims dispute, the Bankruptcy Court will make a final determination whether such claims should be allowed and, if so, the appropriate amount of such allowed claims. The ultimate amount of such liabilities is not determinable at this time.

Pre-petition liabilities that are subject to compromise are required to be reported at the amounts expected to be allowed, even if they may be settled for lesser amounts.  The amounts currently classified as “Liabilities subject to compromise” may be subject to future adjustments depending on Bankruptcy Court actions, further developments with respect to disputed claims, determinations of the secured status of certain claims, the values of any collateral securing such claims, or other events.  We expect that certain amounts currently classified as “Liabilities subject to compromise” may in fact be paid in the ordinary course as they come due.  Any resulting changes in classification will be reflected in subsequent financial statements.

Liabilities subject to compromise consist of the following (in thousands):

	At		At
	June 18, 2011		February 26, 2011
Accounts payable	$	204,044	$	212,135
Accrued salaries, wages, and benefits		10,941		10,939
Self-insurance reserves		396,260		400,170
Closed locations reserves		11,354		50,550
Damages claim for rejected leases		168,796		106,642
Pension withdrawal liabilities		112,613		97,196
GHI liability for employee benefits		96,701		94,281
Accrued occupancy related costs for open stores		22,200		24,523
Deferred income		34,043		74,394
Deferred real estate income		34,995		89,309
Accrued audit, legal and other		6,886		8,118
Accrued interest		43,021		33,921
Other postretirement and postemployment benefits		41,831		41,655
Other accruals		9,310		8,005
Pension plan benefits		127,659		125,000
Deferred rent liabilities		51,524		56,287
Unfavorable lease liabilities		825		4,201
Other noncurrent liabilities		10,678		11,316
5.125% Convertible Senior Notes, due June 15, 2011		165,000		165,000
Related Party Promissory Note, due August 18, 2011		10,000		10,000
9.125% Senior Notes, due December 15, 2011		12,840		12,840
6.750% Convertible Senior Notes, due December 15, 2012		255,000		255,000
11.375% Senior Secured Notes, due August 1, 2015		260,000		260,000
9.375% Notes, due August 1, 2039		200,000		200,000
Other debt		2,525		2,714
Obligations under capital leases		110,337		121,058
Real estate liabilities		390,029		399,480
Total liabilities subject to compromise	$	2,789,412	$	2,874,734

The Great Atlantic & Pacific Tea Company, Inc.

Notes to Consolidated Financial Statements - Continued

(Dollars in thousands, except share and per share amounts)

 (Unaudited)

Rejected Leases

During the 16 weeks ended June 18, 2011, we rejected 44 of our leases through the bankruptcy process. We reduced the reserves balance associated with these leases by $39.0 million, net to the allowance claim for damages of $168.8 million. The remaining closed locations reserves balance of $11.3 million pertains to locations for which the leases have not been rejected.  In connection with the 44 rejected leases, the related deferred real estate income, unfavorable lease liabilities, obligations under capital leases and real estate liabilities were written off, all which were recorded to “Reorganization items, net” in our Consolidated Statements of Operations. Refer to Note 14 – Reorganization Items, Net, for further discussion of our rejected leases.

Non-debtor Financing Agreements

Intercompany financing agreements with foreign non-Debtor subsidiaries of $94.1 million are not reflected in the above liabilities subject to compromise table as these amounts were eliminated on a consolidated basis.

10.  Redeemable Preferred Stock

On August 4, 2009, our Company issued 60,000 shares of 8.0% Cumulative Convertible Preferred Stock, Series A-T, without par value, to affiliates of Tengelmann Warenhandelsgesellschaft KG (“Tengelmann”) and 115,000 shares of 8.0% Cumulative Convertible Preferred Stock, Series A-Y, without par value, to affiliates of Yucaipa Companies LLC (“Yucaipa”), together referred to as the “Preferred Stock,” for approximately $162.8 million, after deducting approximately $12.2 million in closing and issuance costs. Each share of the Preferred Stock has an initial liquidation preference of one thousand dollars, subject to adjustment.

The Preferred Stock issuance was classified within temporary stockholders’ equity in our Consolidated Balance Sheets as of June 18, 2011 and February 26, 2011.  The holders of the Preferred Stock are entitled under a pre-bankruptcy agreement to an 8.0% dividend, payable quarterly in arrears in cash or in additional shares of Preferred Stock if our Company does not meet the liquidity levels required to pay the dividends.  However, no dividends have been paid during the pendency of our bankruptcy case.

On November 24, 2010 our Company’s Board of Directors authorized a payment-in-kind (“PIK”) dividend on our Preferred Stock, payable on December 15, 2010 to holders of record on November 15, 2010 (“Record Date”). Dividends are required to be PIK in the event our Company does not have the ability to pay the dividends in cash. As of the Record Date, we did not have the ability to pay the dividends in cash. The calculation of PIK dividends on our Preferred Stock is based upon the rate defined by the original terms of the Preferred Stock at 9.5% per annum. The PIK dividends of approximately $4.0 million are included in “Series A Redeemable Preferred Stock” in our Consolidated Balance Sheets.

Deferred financing fees amortization and embedded beneficial conversion features accretion for the 16 weeks ended June 18, 2011 and June 19, 2010 was $0.5 million and $1.5 million, respectively, during each period. During the 16 weeks ended June 19, 2010, we accrued Preferred Stock dividends of $4.3 million, within “Additional paid-in capital” and paid Preferred Stock cash dividends of $7.0 million.

The Great Atlantic & Pacific Tea Company, Inc.

Notes to Consolidated Financial Statements - Continued

(Dollars in thousands, except share and per share amounts)

 (Unaudited)

11.  Stock Based Compensation

At June 18, 2011, we had two stock-based compensation plans, the 2008 Long Term Incentive and Share Award Plan and the 2004 Non-Employee Director Compensation Plan.  The general terms of each plan are reported in our Fiscal 2010 Annual Report on Form 10-K.

The components of our compensation expense (income) related to stock-based incentive plans were as follows (in thousands):

	For the 16 Weeks Ended
	June 18, 2011			June 19, 2010
Stock options	$	756		$	(368	)
Restricted stock units		199			231
Performance restricted stock units		-			(973	)
Common stock granted to Directors		(464	)		249
Total stock-based compensation expense (income)	$	491		$	(861	)

There were no stock-based grants during the 16 weeks ended June 18, 2011.

Stock options

As of June 18, 2011, approximately $6.7 million, after tax, of total unrecognized compensation expense related to unvested stock option awards will be recognized over a weighted average period of 2.1 years.

Restricted Stock

None of the previously granted restricted stock units vested during the 16 weeks ended June 18, 2011.  As of June 18, 2011, approximately $1.8 million, net of tax, of total unrecognized compensation expense relating to restricted stock units granted during fiscal 2010 and fiscal 2009 is expected to be recognized through fiscal 2013.

2004 Non-Employee Director Compensation Plan

Although the 2004 Non-Employee Director Compensation Plan (“Director Plan”) is still in effect, at this time our Company does not anticipate issuing an annual grant of common stock or common stock equivalent in fiscal 2011. As a result, our Company reversed previously recognized stock compensation expense expected to be issued at the Fiscal 2011 annual meeting during the 16 weeks ended June 18, 2011. Such stock compensation expense will not be recognized in our Consolidated Statements of Operations until formal changes are made to the Director Plan.

The Great Atlantic & Pacific Tea Company, Inc.

Notes to Consolidated Financial Statements - Continued

(Dollars in thousands, except share and per share amounts)

 (Unaudited)

12.  Retirement Plans and Benefits

Defined Benefit Plans

The components of our net pension cost were as follows (in thousands):

	For the 16 Weeks Ended
	June 18, 2011			June 19, 2010
Service cost	$	1,998		$	2,158
Interest cost		8,837			8,929
Expected return on plan assets		(9,795	)		(8,853	)
Amortization of:
Net prior service cost		28			81
Actuarial loss		539			585
Special termination benefits		-			50
Net pension cost	$	1,607		$	2,950

We did not contribute to our defined benefit plans during the first quarter of fiscal 2011. As a result of the Bankruptcy Filing, we do not plan to make any contributions to our defined benefit plans during the remainder of fiscal 2011. However, in the event that we successfully reorganize under chapter 11, our Company may be required to pay all such missed contributions immediately prior to our emergence from bankruptcy.  Thus, if our Company emerges from bankruptcy prior to the end of fiscal 2011, our Company may have to make sizable contributions to our defined benefit plans during fiscal 2011.

Postretirement Plans

The components of our net postretirement benefits cost were as follows (in thousands):

	For the 16 Weeks Ended
	June 18, 2011			June 19, 2010
Service cost	$	233		$	201
Interest cost		575			571
Amortization of:
Net prior service credit		-			(264	)
Actuarial gain		(85	)		(150	)
Net postretirement benefits cost	$	723		$	358

Our current estimates are subject to change due to changes in actuarial assumptions and further clarifications provided by regulatory guidance expected to be released in future years.

GHI Employee Obligation

As of June 18, 2011 and February 26, 2011, the fair value of our contractual obligation to Grocery Hauler Inc.’s (“GHI”) employees was $96.7 million and $94.3 million, respectively, using discount rates of 5.25% and 5.50%, respectively, which were derived from the published zero-coupon AA corporate bond yields. Additions to our GHI employee obligation for current service costs is recorded within “Cost of merchandise sold” in our Consolidated Statements of Operations at its current value.  Accretion of the obligation to present value and impact of discount rates used to value the obligation are recorded within “Interest expense” in our Consolidated Statements of Operations.   During the 16 weeks ended June 18, 2011 and June 19, 2010, we recognized service costs of $5,700 and $0.2 million respectively, and interest expense of $4.2 million and $4.4 million, respectively, representing interest accretion on this obligation, as well as the impact of the lower discount rates used to value this obligation, resulting from declines in the published zero-coupon AA corporate bond yields during each period.  During the 16 weeks ended June 18, 2011, benefit payments of $1.8 million were made by the Pathmark Pension Plan.

Our employee obligation relating to pension benefits for GHI’s employees are considered subject to compromise and are included within “Liabilities subject to compromise” in our Consolidated Balance Sheets as of June 18, 2011 and February 26, 2011.

Multi-employer Union Pension Plans

We participate in various multi-employer pension plans which are administered jointly by management and union representatives.  During the fourth quarter of fiscal 2008, we made a standard withdrawal from one of our multi-employer pension plans, to limit our pension benefit obligation to our employees, as we believed that this plan was likely to have funding challenges and would require higher contributions in the future, and recorded standard withdrawal liability of $28.9 million.  During the second quarter of fiscal 2010, we received notification that the trustees of the multi-employer pension plan have voted to go into a mass withdrawal.  The impact of the mass withdrawal to our Company is not currently estimable, therefore no adjustment has been recorded in our consolidated financial statements. We may have a potential additional withdrawal obligation of up to $50 million payable over a period of up to 25 years in the future.  This preliminary estimate is subject to change due to the uncertainty as to the number of participants that will be subject to mass withdrawal and the finalization of asset values and calculations by the multi-employer pension plan.

During the first quarter of fiscal 2011, we received notification from the trustees of a multi-employer union pension plan for payment of a partial withdrawal resulting from the closure of certain Pathmark stores in fiscal 2009. The impact of the partial withdrawal is a liability of approximately $13.9 million, which is included within “Liabilities subject to compromise” in our Consolidated Balance Sheets as of June 18, 2011. We could, under certain circumstances, be liable for unfunded vested benefits or other expenses of jointly administered union/management plans, which benefits could be significant and material for our Company.

The Great Atlantic & Pacific Tea Company, Inc.

Notes to Consolidated Financial Statements - Continued

(Dollars in thousands, except share and per share amounts)

 (Unaudited)

13.  Interest Expense, Net

Interest expense, net is comprised of the following (in thousands):

	For the 16 Weeks Ended
	June 18, 2011		June 19, 2010
$800 million Debtor-in-Possession Credit Agreement	$	11,469	$	-
$655 million Credit Agreement		711		4,005
Related Party Promissory Note, due Aug. 18, 2011		-		187
11.375% Senior Secured Notes, due Aug. 1, 2015		9,100		9,150
9.125% Senior Notes, due Dec. 15, 2011		-		360
5.125% Convertible Senior Notes, due June 15, 2011		-		2,601
6.750% Convertible Senior Notes, due Dec. 15, 2012		-		5,295
9.375% Notes, due August 1, 2039		-		5,815
Obligations under capital leases and real estate liabilities		16,262		15,442
Self-insurance and GHI interest		6,933		5,119
GHI discount rate adjustment and COLI non-cash interest		3,641		3,889
Amortization of deferred financing fees and discounts		332		8,734
Other		6		575
Subtotal		48,454		61,172
Interest and dividend income		-		(30	)
Interest expense, net	$	48,454	$	61,142

We recorded $11.5 million in contractual interest from the DIP Credit Agreement during the 16 weeks ended June 18, 2011. We continued to record contractual interest for our $260 million 11.375% Senior Secured Notes due 2015 that were issued in August 2009.  We did not record contractual interest expense of approximately $14.0 million for our Related Party Promissory Note, due August 18, 2011, 9.125% Senior Notes, due December 15, 2011, 5.125% Convertible Senior Notes, due June 15, 2011, 6.750% Convertible Senior Notes, due December 15, 2012, and 9.375% Notes, due August 1, 2039, all of which are unsecured obligations for which we ceased accruing interest during the fourth quarter 2010 as a result of the Bankruptcy Filing.  Debt discounts and deferred financing fees for all debt which is subject to compromise were reclassified into the carrying value of the respective indebtedness upon the Bankruptcy Filing and the balances were then adjusted to the face value of the debt.  As a result of this reclassification, we ceased amortization of deferred financing fees and discounts effective as of the Bankruptcy Filing date. Although we have recorded interest accretion expense on obligations under capital leases and real estate liabilities, self-insurance reserves, GHI and corporate owned life insurance obligations, we have not made a final determination as to the value of any underlying assets or the rejection/assumption of any of the obligations.  Once a determination is made, the accretion of the interest expense may change. 

The Great Atlantic & Pacific Tea Company, Inc.

Notes to Consolidated Financial Statements - Continued

(Dollars in thousands, except share and per share amounts)

 (Unaudited)

14.   Reorganization Items, Net

Reorganization items, net represent amounts incurred and recovered as a direct result of the Bankruptcy Filing and were comprised of the following (in thousands):

	For the 16 Weeks
	Ended
	June 18, 2011
Professional fees, net	$	(17,168	)
US Trustee fees		(255	)
Write-off of balance sheet items related to rejected contracts, net - continuing operations		30,513
C & S contract settlement		34,139
Reduction of closed locations reserves - continuing operations		30,649
Reorganization items, net - continuing operations		77,878
Write-off of real estate liabilities - discontinued operations		25,799
Reduction of closed locations reserves - discontinued operations		8,395
Provision for income taxes for reorganization items, net – discontinued operations		(14,361	)
Total reorganization items, net	$	97,711

For the 16 weeks ended June 18, 2011, professional fees of $17.2 million were accrued and $11.0 million were paid related to our Bankruptcy Filing. U.S. Trustee fees of approximately $0.3 million were incurred and paid during the 16 weeks ended June 18, 2011.

On June 2, 2011, our Company rejected its contract with C&S and entered into a new definitive agreement effective May 29, 2011.  As a result of our renegotiated contract, we eliminated $34.1 million of previously recorded unfavorable contract liability.  

During the 16 weeks ended June 18, 2011, we rejected 44 of our leases through the bankruptcy process and reduced the closed locations reserves balance associated with these leases by $39.0 million, $30.6 million of which was attributed to continuing operations and $8.4 million was attributed to discontinued operations, net to the allowable claim for damages of $37.9 million.  Our total closed locations reserves balance of $180.1 million relates to damage claims of $168.8 million and $11.3 million pertains to locations for which the leases have not been rejected as of June 18, 2011.  In connection with the rejection of the 44 leases, we also wrote off the related obligations under capital leases of $7.3 million, unfavorable lease liabilities of $3.2 million, real estate liabilities of $8.9 million, deferred real estate income of $9.4 million, with an offsetting write-off of other assets of $0.8 million, totaling $28.0 million, net.  Of this amount, $26.3 million relates to continuing operations and $1.7 million relates to discontinued operations.

During the 16 weeks ended June 18, 2011, we rejected 9 of our assigned leases through the bankruptcy process and wrote-off the related property, net of $13.5 million, with an offsetting write-off of deferred real estate income of $41.8 million, totaling $28.3 million. Of this amount, $4.2 million relates to continuing operations and $24.1 million relates to discontinued operations.

The Great Atlantic & Pacific Tea Company, Inc.

Notes to Consolidated Financial Statements - Continued

(Dollars in thousands, except share and per share amounts)

 (Unaudited)

15.  Income Taxes

During the 16 weeks ended June 18, 2011 and June 19, 2010, our valuation allowance increased by $61.2 million and $48.6 million, respectively, to reflect generation of additional operating losses. In future periods, we will continue to record a valuation allowance against net deferred tax assets that are created by losses until such time as the certainty of future tax benefits can be reasonably assured.

Our Company is subject to U.S. federal income tax, as well as income tax in multiple state and foreign jurisdictions.  As of June 18, 2011, with a few exceptions, we remain subject to examination by federal, state and local tax authorities for tax years 2005 through 2009.  With a few exceptions, we are no longer subject to federal, state or local examinations by tax authorities for tax years 2004 and prior.  At June 18, 2011 and February 26, 2011, we had unrecognized tax benefits of $0.6 million and $1.4 million, which were recorded within deferred tax liabilities in “Other accruals” in our Consolidated Balance Sheets.  We do not expect that the amount of our gross unrecognized tax positions will change significantly in the next 12 months.  Any future decrease in our Company's gross unrecognized tax positions would require a reevaluation of our Company's valuation allowance maintained on our net deferred tax asset and, therefore, is not expected to affect our effective tax rate.  Our Company classifies interest and penalty expense related to unrecognized tax benefits within “Benefit from (provision for) income taxes” in our Consolidated Statements of Operations.  For the 16 weeks ended June 18, 2011 and June 19, 2010, no amounts were recorded for interest and penalties within “Benefit from (provision for) income taxes” in our Consolidated Statements of Operations.

The effective tax rate on continuing operations of 7.6% and 0.1% for the 16 weeks ended June 18, 2011 and June 19, 2010, respectively, varied from the statutory rate of 35%, primarily due to state and local income taxes, and the increase in our valuation allowance. The rate for the 16 weeks ended June 19, 2010 was also impacted by the mark to market of the Series B warrants issued in the acquisition of Pathmark.

At June 18, 2011, we had federal Net Operating Loss (“NOL”) carry forwards of $981 million, which will expire between fiscal 2024 and 2031, some of which are subject to an annual limitation.  The federal NOL carry forwards include $7.4 million related to the excess tax deductions for stock option plans that have yet to reduce income taxes payable.  Upon utilization of these carry forwards, the associated tax benefits of approximately $2.6 million will be recorded in “Additional paid-in capital” in our Consolidated Balance Sheets.  In addition, we had state loss carry forwards of $1.0 billion that will expire between fiscal 2011 and fiscal 2031. Our Company’s general business credits consist of federal and state work incentive credits, which will expire between fiscal 2011 and fiscal 2030, some of which are subject to an annual limitation.

At June 18, 2011 and February 26, 2011, we had net current deferred tax liabilities of $27.1 million and $28.3 million, respectively, which were included in “Other accruals” in our Consolidated Balance Sheets and non-current deferred tax assets of $15.5 million and $16.7 million, respectively, which were recorded in “Other non-current liabilities” in our Consolidated Balance Sheets.

The Great Atlantic & Pacific Tea Company, Inc.

Notes to Consolidated Financial Statements - Continued

(Dollars in thousands, except share and per share amounts)

 (Unaudited)

Revision of Prior Period Financial Statements

During the 16 weeks ended June 18, 2011, our Company identified the amount of income tax benefit and income tax expense allocated to continuing operations and discontinued operations, respectively, for the fiscal year ended February 26, 2011 was improperly presented in our Consolidated Statements of Operations.  The impact of this improper presentation, which results from the improper intraperiod allocation of income taxes, was an understatement of the “Benefit from income taxes” related to “Loss from continuing operations” and an understatement of the “Provision for income taxes” related to “Income from discontinued operations” of $33.1 million in our Consolidated Statements of Operations during the fiscal year ended February 26, 2011.  The effect of this revision had no impact on our “Net loss” in our Consolidated Statements of Operations or “Net cash used in operating activities” in our Consolidated Statements of Cash Flows for the fiscal year ended February 26, 2011.

The following table presents the impact of this revision in our Company's Consolidated Statements of Operations for the fiscal year ended February 26, 2011 (in thousands):

	As Reported			Adjustment			As Revised
Benefit from (provision for) income taxes	$	3,798		$	33,146		$	36,944
Loss from continuing operations		(673,400	)		33,146			(640,254	)
Income (loss) from discontinued operations		74,825			(33,146	)		41,679
Net (loss) income per share - basic		(11.45	)		0.01			(11.44	)

The revisions described above will be reflected in our Company's consolidated financial statements for the fiscal year ended February 25, 2012, which will be included in our Company's Annual Report on Form 10-K for the fiscal year ended February 25, 2012.

16.  Discontinued Operations

We have had multiple transactions throughout the years which met the criteria for discontinued operations.  These events are described based on the year the transaction was initiated.

The Great Atlantic & Pacific Tea Company, Inc.

Notes to Consolidated Financial Statements - Continued

(Dollars in thousands, except share and per share amounts)

 (Unaudited)

Summarized below is a reconciliation of the liabilities related to restructuring obligations resulting from these activities (in thousands):

	For the 16 Weeks Ended June 18, 2011
	Balance at		Interest								Balance at
	2/26/2011		Accretion(1)		Adjustments(2)			Utilization(3)			6/18/2011
2007 Events
Occupancy	$	49,317	$	80	$	(6,716	)	$	-		$	42,681
Pension withdrawal		57,581		1,079		-			-			58,660
2007 events total		106,898		1,159		(6,716	)		-			101,341
2005 Event
Occupancy		21,390		-		-			-			21,390
2003 Events
Occupancy		8,451		12		(1,641	)		(35	)		6,787
Total	$	136,739	$	1,171	$	(8,357	)	$	(35	)	$	129,518

 (1) The additions to occupancy and severance represent the interest accretion on future occupancy costs and future obligations for early withdrawal from multi-employer union pension plans which were recorded at present value at the time of the original charge.   Interest accretion is recorded as a component of “Loss from operations of discontinued businesses” in our Consolidated Statements of Operations.

(2)   At each balance sheet date, we assess the adequacy of the balance of the remaining liability to determine if any adjustments are required as a result of changes in circumstances and/or estimates.   These adjustments are recorded as a component of “Loss from operations of discontinued business” in our Consolidated Statements of Operations.

For the 16 Weeks Ended June 18, 2011

During the 16 weeks ended June 18, 2011, we recorded adjustments for the 2007 and 2003 events to reduce occupancy liabilities by $6.7 million and $1.6 million, respectively, due to an estimated allowable claim amount for property leases that were rejected in bankruptcy court during the first quarter.

(3)   Occupancy utilization represents payments made during those periods for rent, common area maintenance and real estate taxes.  Pension withdrawal utilization represents payments made to the union pension fund during the period.

The Great Atlantic & Pacific Tea Company, Inc.

Notes to Consolidated Financial Statements - Continued

(Dollars in thousands, except share and per share amounts)

 (Unaudited)

Summarized below are the payments made to date from the time of the original charge and expected future payments related to these events (in thousands):

	2007 Events		2005 Event		2003 Event		Total
Total severance payments made to date	$	37,089	$	2,650	$	22,528	$	62,267
Expected future pension withdrawal payments		58,660		-		-		58,660
Total severance and pension withdrawal payments expected to be incurred		95,749		2,650		22,528		120,927
Total occupancy payments made to date		92,140		60,866		34,119		187,125
Expected future occupancy payments,
excluding interest accretion		42,681		21,390		6,787		70,858
Total occupancy payments expected to be incurred,
excluding interest accretion	$	134,821	$	82,256	$	40,906	$	257,983
Total severance and occupancy payments made to date	$	129,229	$	63,516	$	56,647	$	249,392
Expected future pension withdrawal and occupancy payments
expected to be incurred, excluding interest accretion		101,341		21,390		6,787		129,518
Total severance, pension withdrawal and occupancy payments expected to be incurred, excluding interest accretion	$	230,570	$	84,906	$	63,434	$	378,910

Payments to date were primarily for occupancy related costs such as rent, common area maintenance, real estate taxes, lease termination costs, severance, and benefits.  The remaining obligation relates to expected future payments under long term leases and expected future payments for early withdrawal from multi-employer union pension plans.  The expected completion dates for the 2007, 2005 and 2003 events are 2028, 2012 and 2012, respectively.

Summarized below are the amounts included in our balance sheet captions in our Company’s Consolidated Balance Sheets related to these events (in thousands):

	June 18, 2011
	2007 Events		2005 Event		2003 Events		Total
Other accruals	$	-	$	-	$	-	$	-
Other non-current liabilities	$	-	$	-	$	-	$	-
Liabilities subject to compromise	$	101,341	$	21,390	$	6,787	$	129,518
	February 26, 2011
	2007 Events		2005 Event		2003 Events		Total
Other accruals	$	-	$	-	$	-	$	-
Other non-current liabilities	$	-	$	-	$	-	$	-
Liabilities subject to compromise	$	106,898	$	21,390	$	8,451	$	136,739

We evaluated the closed locations reserves balances as of June 18, 2011 based on current information and have concluded that they are adequate to cover future costs.  We will continue to monitor the status of the vacant and subsidized properties, severance and benefits, and pension withdrawal liabilities, and adjustments to the closed locations reserves balances may be recorded in the future, if necessary.

The Great Atlantic & Pacific Tea Company, Inc.

Notes to Consolidated Financial Statements - Continued

(Dollars in thousands, except share and per share amounts)

 (Unaudited)

17.  Asset Disposition Initiatives

In addition to the events describe in Note 16 – Discontinued Operations, there were restructuring transactions which were not primarily related to our discontinued operations businesses. These events are referred to based on the year the transaction was initiated, as described below.

Summarized below is a reconciliation of the liabilities related to restructuring obligations resulting from these activities (in thousands):

	For the 16 Weeks Ended June 18, 2011
	Balance at		Interest							Balance at
	2/26/2011		Accretion(1)		Adjustments(2)		Utilization(3)			6/18/2011
2011 Event
Continuing Operations
Occupancy	$	-	$	-	$	33,960	$	(1,264	)	$	32,696
Severance		2,738		-		2,948		(945	)		4,741
2011 event total		2,738		-		36,908		(2,209	)		37,437
2010 Event
Continuing Operations
Occupancy		29,353		-		-		(168	)		29,185
Health benefits		239		-		-		-			239
2010 event total		29,592		-		-		(168	)		29,424
2005 Event
Continuing Operations
Health benefits		445		-		-		(60	)		385
2005 event total		445		-		-		(60	)		385
2001 Event
Continuing Operations
Occupancy		2,127		-		166		-			2,293
Discontinued Operations
Occupancy		1,774		-		-		-			1,774
2001 event total		3,901		-		166		-			4,067
1998 Event
Continuing Operations
Occupancy		3,400		8		-		(118	)		3,290
Pension withdrawals and health benefits		524		-		-		-			524
1998 event total		3,924		8		-		(118	)		3,814
Total	$	40,600	$	8	$	37,074	$	(2,555	)	$	75,127

(1)   The additions to occupancy represent the interest accretion on future occupancy costs which were recorded at present value at the time of the original charge.   These adjustments are recorded to “Store operating, general and administrative expense” and "Reorganization items, net" for continuing operations and “Loss from operations of discontinued businesses” for discontinued operations in our Consolidated Statements of Operations.  

(2)   At each balance sheet date, we assess the adequacy of the balance to determine if any adjustments are required as a result of changes in circumstances and/or estimates.   These adjustments are recorded to “Store operating, general and administrative expense” for continuing operations and “Loss from operations of discontinued businesses” for discontinued operations in our Consolidated Statements of Operations.

For the 16 Weeks Ended June 18, 2011

For the 16 weeks ended June 18, 2011, we recorded an initial occupancy charge for the 2011 event related to the April store closings of $63.3 million partially offset by an adjustment of $29.3 million to reduce the occupancy liabilities to an estimated allowable claim amount due to property leases that were rejected in bankruptcy court during the first quarter of fiscal 2011.  In addition, we recorded an initial severance charge for the 2011 Event related to the southern store closings of $2.8 million and an adjustment of $0.1 million for the 2011 Event related to the April store closings.  These store closures were completed by July 9, 2011.  An occupancy charge for these stores will be recorded in the second quarter of fiscal 2011.

(3)   Occupancy utilization represents payments made during those periods for rent.  Severance and benefits utilization represents payments made to terminated employees during the period.

Summarized below are the payments made to date from the time of the original charge and expected future payments related to these events (in thousands):

	2011		2010		2005		2001		1998
	Event		Event		Event		Event		Event		Total
Total severance payments made to date	$	945	$	533	$	49,297	$	28,205	$	30,940	$	109,920
Expected future severance payments		4,741		239		385		-		524		5,889
Total severance payments expected
to be incurred	$	5,686	$	772	$	49,682	$	28,205	$	31,464	$	115,809
Total occupancy payments made to date	$	1,264	$	957	$	13,856	$	67,283	$	120,090	$	203,450
Expected future occupancy payments,
excluding interest accretion		32,696		29,185		-		4,067		3,290		69,238
Total occupancy payments expected
to be incurred, excluding interest
accretion	$	33,960	$	30,142	$	13,856	$	71,350	$	123,380	$	272,688
Total severance and occupancy
payments made to date	$	2,209	$	1,490	$	63,153	$	95,488	$	151,030	$	313,370
Expected future severance and
occupancy payments, excluding
interest accretion		37,437		29,424		385		4,067		3,814		75,127
Total severance and occupancy payments
expected to be incurred, excluding
interest accretion	$	39,646	$	30,914	$	63,538	$	99,555	$	154,844	$	388,497

Payments to date were primarily for occupancy related costs such as rent, common area maintenance, real estate taxes, lease termination costs, severance, and benefits.  The remaining obligation relates to expected future payments under long-term leases and expected future payments for early withdrawal from multi-employer union pension plans.  The expected completion dates for the 2011, 2010, 2005, 2001 and 1998 events are 2015, 2012, 2015, 2012 and 2013, respectively.

Summarized below are the amounts included in our balance sheet captions in our Company’s Consolidated Balance Sheets related to these events (in thousands):

					June 18, 2011
	2011		2010		2005		2001		1998
	Event		Event		Event		Event		Event		Total
Other accruals	$	4,741	$	-	$	-	$	-	$	-	$	4,741
Other non-current liabilities	$	-	$	-	$	-	$	-	$	-	$	-
Liabilities subject to compromise	$	32,696	$	29,424	$	385	$	4,067	$	3,814	$	70,386
					February 26, 2011
			2010		2005		2001		1998
			Event		Event		Event		Event		Total
Other accruals			$	-	$	-	$	-	$	-	$	-
Other non-current liabilities			$	-	$	-	$	-	$	-	$	-
Liabilities subject to compromise			$	29,592	$	445	$	3,901	$	3,924	$	37,862

We evaluated the closed locations reserves balances as of June 18, 2011 based on current information and have concluded that they are adequate to cover future costs.  We will continue to monitor the status of the vacant and subsidized properties, severance and benefits, and pension withdrawal liabilities, and adjustments to the closed locations reserves balances may be recorded in the future, if necessary.

18.  Assets Held For Sale

During the first quarter of fiscal 2011, our Company held an auction whereby we agreed to sell our interests in 12 of our existing stores based in Maryland and the District of Columbia, all of which are a part of our Fresh reportable segment, for approximately $37.8 million.  The transactions closed during June and July 2011.

19.  Loss Per Share

Basic loss per share is computed by dividing loss available to common shareholders by the weighted average shares outstanding for the reporting period.  Diluted loss per share reflects all potential dilution, using either the treasury stock method or the “if-converted” method, and assumes that the convertible debt, stock options, restricted stock, performance restricted stock, warrants, preferred stock, and other potentially dilutive financial instruments were converted into common stock on the first day of the period.  If the conversion of a potentially dilutive security yields an antidilutive result, such potential dilutive security is excluded from the diluted earnings per share calculation.

The following table contains common share equivalents, which were not included in the historical loss per share calculations as their effect would be antidilutive:

	16 Weeks Ended	16 Weeks Ended
	June 18, 2011	June 19, 2010
Stock options	5,096,413	1,988,469
Warrants	6,965,858	686,277
Performance restricted stock units	-	218,294
Restricted stock units	719,533	1,080,710
Convertible debt	11,157,569	8,086,769
Financing warrant	11,157,569	11,278,988
Preferred stock	35,804,000	35,000,000

The following table sets forth the calculation of basic and diluted loss per share (in thousands):

	16 Weeks Ended			16 Weeks Ended
	June 18, 2011			June 19, 2010
Loss from continuing operations	$	(177,791	)	$	(115,607	)
Preferred stock dividends		-			(4,308	)
Beneficial conversion feature amortization		(1,482	)		(1,481	)
Loss from continuing operations - basic		(179,273	)		(121,396	)
Adjustments for convertible debt (1)		-			(10,655	)
Adjustments on Other financial liabilities (2)		-			(8,277	)
Loss from continuing operations–diluted	$	(179,273	)	$	(140,328	)
Weighted average common shares outstanding		53,852,470			55,926,065
Share lending agreement (3)		-			(2,427,944	)
Common shares outstanding–basic		53,852,470			53,498,121
Effect of dilutive securities:
Convertible debt (1)		-			3,192,219
Convertible financial liabilities (2)		-			(26,165,689	)
Common shares outstanding–diluted		53,852,470			30,524,651

   (1) We have debt instruments with a bifurcated conversion feature that were recorded at a significant discount.  (Refer to Note 8 – Indebtedness and Other Financial Liabilities).  For purposes of determining if an application of the “if-converted method” to these convertible instruments produces a dilutive result, we consider the combined impact of the numerator and denominator adjustments, including a numerator adjustment for gains and losses, which would have been incurred had the instruments been converted on the first day of the period presented.  

   (2) Our Series B Warrants are classified as a liability because a third party has the right to determine their cash or share settlement.    (Refer to Note 8 – Indebtedness and Other Financial Liabilities).  These warrants are marked-to-market in our Consolidated Statements of Operations.  For example, in periods when the market price of our common stock decreases, our income from continuing operations is increased.   For purposes of determining if an application of the treasury stock method produces a dilutive result, we assume proceeds are used to repurchase common stock and we adjust the numerator similar to the adjustments required under the “if-converted” method.  We consider the combined impact of the numerator and denominator adjustments, including a denominator adjustment to reduce shares, even when the average market price of our common stock for the period is below the warrant’s strike price.  

  (3) As of June 19, 2010, we had 5,634,002 of loaned shares under our share lending agreements, which were considered issued and outstanding.  The obligation of the financial institutions to return the borrowed shares has been accounted for as prepaid forward contract and, accordingly, shares underlying this contract are removed from the computation of basic and diluted earnings per share, unless the borrower defaults on returning the related shares.  On September 15, 2008, Lehman Europe, who is a party to a 3,206,058 share lending agreement with our Company filed under chapter 11 of the U.S. Bankruptcy Code with the United States Bankruptcy Court and/or commenced equivalent proceedings in jurisdictions outside of the United States (collectively, the “Lehman Bankruptcy”).  As such, we have included these loaned shares as issued and outstanding effective September 15, 2008 for purposes of computing our basic and diluted weighted average shares and (loss) income per share.  During fiscal 2009, Bank of America, N.A., who is a party to our share lending agreement, returned 2,500,000 shares, eliminating our obligation to lend additional shares to them in the future.  The returned shares were immediately retired, reducing our issued and outstanding shares. For the 16 weeks ended June 19, 2010, weighted average common shares relating to share lending agreements of 2,427,944 were excluded from the computation of earnings per share. As of February 26, 2011, there were no shares outstanding with Bank of America, N.A.

20.  Commitments and Contingencies

Supply Agreement

On June 2, 2011, our Company entered into a definitive agreement with C&S effective May 29, 2011, whereby C&S will provide Services in support of a substantial portion of our Company’s supply chain. This agreement terminates and replaces the warehousing, logistics, procurement and purchasing agreement under which the parties have been operating since 2008.

The term of the agreement is through the effective date of our Company’s plan of reorganization in its Bankruptcy Filing but may be extended by either party for a term concurrent with a fixed volume commitment based upon wholesale purchases of merchandise resulting in a term of approximately seven years. The cost structure of the agreement is a combination of a fixed cost and variable upcharge pricing model. The charges are subject to adjustment due to volume change or other material changes to the operating assumptions of the agreement.

Our Company expects it will realize a run-rate of more than $50 million in annual savings commencing with our Company's emergence from the Bankruptcy Filing pursuant to a plan of reorganization. The agreement provides our Company with important service enhancements, including detailed service specifications and key performance measures. The agreement also permits our Company to maintain product standards and specifications for all merchandise purchased for resale in our Company’s stores.

Lease Assignment

On August 14, 2007, Pathmark entered into a leasehold assignment contract for the sale of its leasehold interests in one of its stores to CPS Operating Company LLC, a Delaware limited liability company ("CPS").  Pursuant to the terms of the agreement, Pathmark was to receive $87.0 million for assigning and transferring to CPS all of Pathmark's interest in the lease and CPS was to have assumed all of the duties and obligations of Pathmark under the lease.  CPS deposited $6.0 million in escrow as a deposit against the purchase price for the lease, which is non-refundable to CPS, except as otherwise expressly provided in the agreement.  The assignment of the lease was scheduled to close on December 28, 2007.   On December 27, 2007, CPS issued a notice terminating the agreement for reason of a purported breach of the agreement, which, if proven, would require the return of the escrow. We are disputing the validity of CPS’s notice of termination as we believe CPS's position is without merit.  Because we are challenging the validity of CPS’s December 27, 2007 notice of termination, we issued our own notice to CPS on December 31, 2007, asserting CPS's breach of the agreement as a result of their failure to close on December 28, 2007.  CPS’s breach, if proven, would entitle us to keep the escrow.  Both parties have taken legal action in New York state court to obtain the $6.0 million deposit held in escrow. In May 2011, the Bankruptcy Court entered an order authorizing the Pathmark and CPS to proceed with their New York state litigation notwithstanding the automatic stay.

Rejection of GHI Trucking Agreement

On February 4, 2011, the Bankruptcy Court entered an order authorizing Pathmark to reject a burdensome trucking agreement with GHI and enter into an interim replacement trucking arrangement with C&S.  Because Pathmark was GHI’s largest customer, its rejection of the trucking agreement negatively impacted GHI’s business, prompting GHI to layoff a significant number of its employees.  The local union representing GHI’s employees subsequently brought suit against GHI in New Jersey federal court alleging that GHI’s termination of its employees violated New Jersey state and federal WARN statutes and constituted a breach of GHI’s collective bargaining agreement with the union.  On March 31, 2011, GHI filed a motion with the Bankruptcy Court seeking leave to file a third party complaint in the New Jersey action seeking in excess of $100 million in damages against our Company alleging, among other things, that our conduct in connection with rejecting the trucking agreement was tortious and that we were responsible for any WARN Act liability of GHI to its former employees.  The Bankruptcy Court denied GHI’s motion, and GHI appealed the Bankruptcy Court’s decision to the district court, which appeal is pending.

LaMarca et al v. The Great Atlantic & Pacific Tea Company, Inc (“Defendants”)

On June 24, 2004, a class action complaint was filed in the Supreme Court of the State of New York against The Great Atlantic & Pacific Tea Company, Inc., d/b/a A&P, The Food Emporium, and Waldbaum’s alleging violations of the overtime provisions of the New York Labor Law.  Three named plaintiffs, Benedetto LaMarca, Dolores Guiddy, and Stephen Tedesco, alleged on behalf of a class that our Company failed to pay overtime wages to full-time hourly employees who were either required or permitted to work more than 40 hours per week. This matter has been stayed by our Bankruptcy Filing and is a claim that is subject to compromise.  

Other

We are subject to various legal proceedings and claims, either asserted or unasserted, which arise in the ordinary course of business.  We are also subject to certain environmental claims.  While the outcome of these claims cannot be predicted with certainty, Management does not believe that the outcome of any of these legal matters will have a material adverse effect in our Consolidated results of operations, financial position or cash flows.

21.  Reportable Segments

Reportable segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance.  Our chief operating decision maker is our President and Chief Executive Officer.

We have four reportable segments: Fresh, Pathmark, Gourmet and Other.  The Other segment includes our Food Basics and Wine, Beer & Spirits businesses.

The accounting policies for these segments are the same as those described in the summary of significant accounting policies included in our Fiscal 2010 Annual Report.  Assets and capital expenditures are not allocated to segments for internal reporting presentations.

The Great Atlantic & Pacific Tea Company, Inc.

Notes to Consolidated Financial Statements - Continued

(Dollars in thousands, except share and per share amounts)

 (Unaudited)

Interim information on segments is as follows (in thousands):

	Sales by Category
	For the 16 Weeks Ended
	June 18, 2011		June 19, 2010
Grocery (1)	$	1,537,285	$	1,758,844
Meat (2)		428,711		491,482
Produce (3)		264,650		314,604
Total	$	2,230,646	$	2,564,930

(1)   The grocery category includes grocery, frozen foods, dairy, general merchandise/health and beauty aids, wine, beer & spirits, and pharmacy.

(2)   The meat category includes meat, deli, bakery and seafood.

(3)   The produce category includes produce and floral.

	For the 16 Weeks Ended
	June 18, 2011			June 19, 2010
Sales
Fresh	$	1,127,572		$	1,278,569
Pathmark		931,063			1,111,401
Gourmet		82,793			82,872
Other		89,218			92,088
Total sales	$	2,230,646		$	2,564,930
Segment (loss) income
Fresh	$	(19,390	)	$	13,472
Pathmark		(54,280	)		(24,808	)
Gourmet		6,451			6,511
Other		(277	)		737
Total segment loss		(67,496	)		(4,088	)
Corporate (4)		(16,476	)		(47,242	)
Reconciling items (5)		(137,976	)		(11,272	)
Loss from operations		(221,948	)		(62,602	)
Nonoperating income		83			8,277
Interest expense, net		(48,454	)		(61,142	)
Reorganization items, net		77,878			-
Loss from continuing operations before income taxes	$	(192,441	)	$	(115,467	)

The Great Atlantic & Pacific Tea Company, Inc.

Notes to Consolidated Financial Statements - Continued

(Dollars in thousands, except share and per share amounts)

 (Unaudited)

	For the 16 Weeks Ended
	June 18, 2011		June 19, 2010
Segment depreciation and amortization – continuing operations
Fresh	$	20,418	$	23,392
Pathmark		22,200		26,771
Gourmet		2,170		2,751
Other		1,655		1,663
Total segment depreciation and amortization – continuing operations		46,443		54,577
Corporate		13,001		15,802
Total depreciation and amortization – continuing operations		59,444		70,379
Discontinued operations		-		-
Total company depreciation and amortization	$	59,444	$	70,379

(4) Represents a $21.4 million decrease in corporate costs attributable to store-related activities, primarily benefits and occupancy costs which are not allocated to segments and a $9.4 million decline in corporate and administrative costs.

(5) Reconciling items, which are not included in segment income, consist of the following:

	For the 16 Weeks Ended
	June 18, 2011			June 19, 2010
Goodwill, trademark and long-lived asset impairment	$	(55,418	)	$	(5,398	)
Net restructuring and other		(6,311	)		(3,932	)
Real estate related activity		(53,725	)		(1,947	)
Stock-based compensation (expense) income		(491	)		861
Pension withdrawal costs		(13,923	)		-
LIFO adjustment		(1,122	)		(856	)
C&S contract effect		(6,986	)		-
Total reconciling items	$	(137,976	)	$	(11,272	)

22.  Subsequent Events

On July 8, 2011, our Company and certain of its U.S. subsidiaries, each as a borrower, entered into the First Amendment to the DIP Credit Agreement with the Agent and the DIP Lenders.  Pursuant to the terms of the First Amendment to the DIP Credit Agreement, among other things, any of the dispositions by our Company and its subsidiaries of our Southern Stores as specified therein will not constitute a prepayment event, and the proceeds of such dispositions will not be required to be applied to prepayment of the loans under the DIP Credit Agreement.  The First Amendment to the DIP Credit Agreement also contains some other clarifying changes.

The above summary of material terms of the First Amendment to the DIP Credit Agreement does not purport to be complete and is subject to, and qualified in its entirety, by reference to the complete text of the First Amendment to the DIP Credit Agreement.

The Great Atlantic & Pacific Tea Company, Inc.

Management’s Discussion and Analysis

ITEM 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations

INTRODUCTION

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations is intended to help the reader understand the financial position, operating results, and cash flows of The Great Atlantic & Pacific Tea Company, Inc. (“we,” “our,” “us” or “our Company”) It should be read in conjunction with our consolidated financial statements and the accompanying notes (“Notes”).  It discusses matters that Management considers relevant to understanding the business environment, financial position, results of operations and our Company’s liquidity and capital resources.  These items are presented as follows:

• Overview – a general description of our business and segment structure.

•   Operating Results – a discussion of the value drivers of our business; measurements; opportunities; challenges and risks; and initiatives.

•   Outlook – a discussion of certain trends or business initiatives for the remainder of fiscal 2011 to assist in understanding the business.

• Results of Operations and Liquidity and Capital Resources – a discussion of results for the 16 weeks ended June 18, 2011 compared to the 16 weeks ended June 19, 2010 and current and expected future liquidity.

•   Critical Accounting Estimates – a discussion of significant estimates made by Management.

• Market Risk – a discussion of the impact of market changes in our Consolidated financial statements.

OVERVIEW

Our Company is based in Montvale, New Jersey, operates conventional supermarkets, combination food and drug stores and discount food stores in 7 U.S. states and the District of Columbia.  Our Company’s business consists strictly of our retail operations, which totaled 361 stores as of June 18, 2011.

On December 12, 2010, our Company and all of our U.S. subsidiaries (the “Filing Subsidiaries” and, together with our Company, the “Debtors”) filed voluntary petitions for relief (the “Bankruptcy Filing”) under chapter 11 of title 11 of the United States Bankruptcy Code (the “Bankruptcy Code”) in the United States Bankruptcy Court for the Southern District of New York in White Plains (the “Bankruptcy Court”), which are being jointly administered under case number 10-24549. See Capital Resources and Liquidity below for further details.

We operate in four reportable segments:  Fresh, Pathmark, Gourmet and Other.  The Other segment includes our Food Basics and Wine, Beer & Spirits businesses.

The Great Atlantic & Pacific Tea Company, Inc.

Management’s Discussion and Analysis - Continued

OPERATING RESULTS

Our comparable store sales, which include stores that have been in operation for at least one full year and replacement stores, declined 4.2% this quarter.  As a result, our results of operations were below those of the prior year.

Our Fresh and Pathmark segments continued to have lower revenue and operating income for the 16 weeks ended June 18, 2011 as compared to the 16 weeks ended June 19, 2010. Our management team continues to address these challenges, including making the difficult decision to close 18 underperforming stores in our Fresh segment and 14 underperforming stores in our Pathmark segment during early fiscal 2011.

Our Gourmet stores located in Manhattan, New York continued to deliver strong results, despite a decline in gross margin and increase in labor costs, which were partially offset by a decrease in occupancy and administrative expenses.

Our Discount business experienced an increase in comparable store sales and a decline in gross margin which was partially offset by a decrease in labor and occupancy expenses.

Our Wine, Beer & Spirits businesses experienced a decline in comparable store sales and related gross margin, which was offset by improved labor, occupancy and administrative expenses.

CAUTIONARY NOTE REGARDING FORWARD LOOKING STATEMENTS

This discussion may contain forward-looking statements about the future performance of our Company, and is based on our assumptions and beliefs in light of information currently available.  We assume no obligation to update this information.  These forward-looking statements are subject to uncertainties and other factors that could cause actual results to differ materially from such statements, including, but not limited to: the ability of the Debtors to continue as going concerns; the ability of the Debtors to obtain Bankruptcy Court approval with respect to motions in the chapter 11 cases; the ability of the Debtors to prosecute, develop and consummate one or more plans of reorganization with respect to the chapter 11 cases; the effects of the Bankruptcy Filing on the Debtors and the interests of various creditors, equity holders and other constituents; Bankruptcy Court rulings in the chapter 11 cases and the outcome of the cases in general; the length of time the Debtors will operate under the chapter 11 cases; risks associated with third-party motions in the chapter 11 cases, which may interfere with the ability of the Debtors to develop and consummate one or more plans of reorganization once such plans are developed; the potential adverse effects of the chapter 11 proceedings on the Debtors’ liquidity or results of operations; the ability to execute Debtors’ business and restructuring plan and to timely and effectively implement the turnaround strategy; increased legal costs related to the Bankruptcy Filing and other litigation; the Debtors’ ability to maintain contracts that are critical to its operation, to obtain and maintain normal terms with customers, suppliers and service providers and to retain key executives, managers and employees; various operating factors and general economic conditions, competitive practices and pricing in the food industry generally and particularly in our principal geographic markets; our relationships with our employees; the terms of future collective bargaining agreements; the costs and other effects of lawsuits and administrative proceedings; the nature and extent of continued consolidation in the food industry; changes in the capital markets which may affect our cost of capital or the ability to access capital; supply or quality control problems with our vendors; regulatory compliance; and changes in economic conditions, which may affect the buying patterns of our customers.  Refer to Risk Factors included in this quarterly report.

OUTLOOK

During our first quarter 2011, we closed an additional 32 stores in six states.  We also completed an auction of 25 stores located in Maryland, Delaware and the District of Columbia (“Southern Stores”) that resulted in the sale of an additional 12 stores and the closure of an additional 13 stores during our second quarter 2011.

Supply Agreement

On June 2, 2011, our Company entered into a definitive agreement with C&S Wholesale Grocers, Inc. (“C&S”) effective May 29, 2011, whereby C&S will provide warehousing, transportation, procurement, purchasing and ancillary services (the “Services”) in support of a substantial portion of our Company’s supply chain. This agreement terminates and replaces the warehousing, logistics, procurement and purchasing agreement under which the parties have been operating since 2008.

The term of the agreement is through the effective date of our Company’s plan of reorganization in its Bankruptcy Filing but may be extended by either party for a term concurrent with a fixed volume commitment based upon wholesale purchases of merchandise resulting in a term of approximately seven years. The cost structure of the agreement is a combination of a fixed cost and variable upcharge pricing model. The charges are subject to adjustment due to volume change or other material changes to the operating assumptions of the agreement.

Our Company expects it will realize a run-rate of more than $50 million in annual savings commencing with our Company's emergence from the Bankruptcy Filing pursuant to a plan of reorganization. The agreement provides our Company with important service enhancements, including detailed service specifications and key performance measures. The agreement also permits our Company to maintain product standards and specifications for all merchandise purchased for resale in our Company’s stores.

Labor Negotiations

We believe that we have good relationships with our union partners.  To reorganize as a viable business, our Company believes it needs to secure cost savings in multiple areas, including obligations arising under our collective bargaining agreements.  Our Company is in the process of negotiating with its 13 union locals of the UFCW and SEIU to obtain consensual modifications to its collective bargaining agreements necessary for our successful reorganization.  We have exchanged proposals for substantial cost reductions and received a counter proposal from our union partners, which we continue to discuss.  Although we believe that we will successfully achieve new collective bargaining agreements with the necessary amount of labor savings, there can be no assurances that our Company will succeed in obtaining necessary labor cost savings.

Other Bankruptcy Matters

The Bankruptcy Filing provides our Company with the breathing room and the tools available under the Bankruptcy Code to implement our comprehensive financial and operational restructuring. We remain committed to implementing our turnaround strategy while operating our business during the chapter 11 restructuring process. However, there can be no assurance regarding these matters. We have noted that the improvements originally anticipated from our turnaround strategy are taking longer to realize than originally anticipated and has negatively impacted our profitability and cash flows from operations. While reversing negative consumer trends is a very difficult process and the timing and success of these measures cannot be assured, we anticipate that our initiatives to improve our customers’ shopping experience will reverse the decreasing customer count and comparable store sales decline that we have been experiencing. There can be no assurance that our operational and financial turnaround strategy will be successful or that the DIP Lenders or the Bankruptcy Court will approve the plan ultimately proposed by our Company and under such circumstances we could be forced to consider other alternatives to maximize potential recovery for our various creditor constituencies. The uncertainty regarding these matters raises substantial doubt about our Company’s ability to continue as a going concern. 

Our future performance is subject to uncertainties and other risk factors that could have a negative impact on our business and cause actual results to differ materially from our expectations.  Refer to Part II. - Item 1A for a description of our Risk Factors.

RESULTS OF CONTINUING OPERATIONS AND LIQUIDITY AND CAPITAL RESOURCES

Our consolidated financial information presents the results related to our operations of discontinued businesses separate from the results of our continuing operations.  The discussion and analysis that follows focuses on continuing operations.  All amounts are in millions, except share, per share amounts and where noted.

16 WEEKS ENDED JUNE 18, 2011 COMPARED TO THE 16 WEEKS ENDED JUNE 19, 2010

OVERALL

The following table summarizes our results of operations for the 16 weeks ended June 18, 2011 compared to the 16 weeks ended June 19, 2010:

	16 Weeks Ended			16 Weeks Ended			Favorable
	June 18, 2011			June 19, 2010			(unfavorable)			% Change
	(in millions, except percentages and per share data)
Sales	$	2,230.6		$	2,564.9		$	(334.3	)		(13.0	)%
Decrease in comparable store sales		(4.2	)%		(7.2	)%	NA			NA
Loss from continuing operations	$	(177.8	)	$	(115.6	)	$	(62.2	)		(53.8	)%
Income (loss) from discontinued operations	$	20.6		$	(7.0	)	$	27.6		>100.0		%
Net loss	$	(157.2	)	$	(122.6	)	$	(34.6	)		(28.2	)%
Net loss per share - basic	$	(2.95	)	$	(2.40	)	$	(0.55	)		(22.9	)%
Net loss per share - diluted	$	(2.95	)	$	(4.83	)	$	1.88			38.9	%

Average weekly sales per supermarket were approximately $390,000 for the first quarter of fiscal 2011 versus $393,000 for the corresponding period of the prior year, a decrease of 0.8% primarily due to the overall decline in our sales resulting from a decrease in customer counts.

SALES

	For the 16 Weeks Ended
	June 18, 2011		June 19, 2010
	(in thousands)
Fresh	$	1,127,572	$	1,278,569
Pathmark		931,063		1,111,401
Gourmet		82,793		82,872
Other		89,218		92,088
Total sales	$	2,230,646	$	2,564,930

Sales decreased from $2,564.9 million for the 16 weeks ended June 19, 2010 to $2,230.6 million for the 16 weeks ended June 18, 2011, primarily due to a decrease in comparable store sales of $103.4 million and the absence of sales due to store closures of $238.7 million, partially offset by sales from one new store of $7.8 million. The decrease in sales in our Fresh segment of $151.0 million was primarily related to a decline in the comparable store sales of $39.6 million and the absence of sales due to store closures of $119.2 million, partially offset by sales from one new store of $7.8 million.  Comparable store sales declined because our lower price initiative, which offered lower everyday prices in place of previously offered discounts and coupons, was not well received by our customers. This impact was most significant in our Pathmark segment. Our Company phased out this program during the latter part of the first quarter of fiscal 2011. The decrease in sales in our Pathmark segment of $180.3 million was primarily due to a decline in comparable store sales of $65.5 million and the absence of sales due to store closures of $114.8 million.   Sales generated by our Gourmet segment declined by $0.1 million.  The sales decrease of $2.9 million in our Other segment, representing Discount and Wine, Beer & Spirits, was primarily attributable to the absence of sales due to one store closure within Discount of $3.5 million and four store closures within Wine, Beer & Spirits of $1.2 million, partially offset by an increase in comparable store sales of $1.8 million.

GROSS MARGIN

Gross margin of $622.2 million decreased 189 basis points as a percentage of sales to 27.89% for the first quarter of fiscal 2011 from gross margin of $763.8 million or 29.78% for the first quarter of fiscal 2010 reflecting lower margins across all of our operating segments due to the lack of success of our lower price initiative as described above in SALES.

The following table details the dollar impact of items affecting the gross margin dollar decrease from the first quarter of fiscal 2010 to the first quarter of fiscal 2011 (in millions):

	Sales Volume			Gross Margin Rate			Total
Total Company	$	(99.5	)	$	(42.1	)	$	(141.6	)

STORE OPERATING, GENERAL AND ADMINISTRATIVE EXPENSE

Our Store operating, general and administrative (“SG&A”) expense was $788.7 million or 35.36% as a percentage of sales for the first quarter of fiscal 2011, as compared to $821.0 million or 32.01% as a percentage of sales for the first quarter of fiscal 2010.

SG&A expenses for the first quarter of fiscal 2011 included (i) real estate related costs of $56.5 million, or 254 basis points, of which $55.7 million was primarily attributed to the closing of 32 stores during the 16 weeks ended June 18, 2011 (ii) pension withdrawal costs of $13.9 million, or 62 basis points (iii) net restructuring and other costs of $3.5 million, or 16 basis points and (iv) net stock-based compensation related expense of $0.5 million, or 2 basis points.

SG&A expenses for the first quarter of fiscal 2010 included (i) net restructuring and other costs of $3.9 million, or 15 basis points and (ii) real estate related costs of $1.9 million, or 8 basis points.  These costs were partially offset by net stock-based compensation related income of $0.9 million, or 3 basis points, primarily due to forfeitures.

Excluding the items listed above, SG&A as a percentage of sales increased by 21 basis points during the first quarter of fiscal 2011 as compared to the first quarter of fiscal 2010.  Labor and occupancy costs decreased $41.2 million and $28.8 million, respectfully, primarily attributable to a reduction in the number of open stores.  However, the corresponding rates as a percentage of sales increased 69 basis points and decreased 1 basis point, respectively.  Despite decreases in advertising and other operating expenditures of $5.0 million, the corresponding rate as a percentage of sales increased 33 basis points.  Partially offsetting these overall increased in expenditures as a percentage of sales was a decrease in administrative expenses of $27.2 million, representing a 91 basis point decrease a percentage of sales.

During the 16 weeks ended June 18, 2011 and June 19, 2010, we recorded impairment losses on long-lived assets for impairments due to closure or conversion of stores in the normal course of business of nil and $0.5 million, respectively.

The effects of changes in estimates of useful lives were not material to ongoing depreciation expense.  If current operating levels do not improve, there may be a need to take further actions which may result in additional future impairments on long-lived assets, including the potential for impairment of assets that are held and used.

LONG-LIVED ASSET IMPAIRMENT

In February 2011, our Company obtained authority from the Bankruptcy Court to close 32 stores in six states as we continue to fully implement our comprehensive financial and operational restructuring.  As a result, we recorded an impairment charge of $31.4 million during fiscal 2010, of which $19.4 million, $9.0 million and $3.0 million related our Fresh, Pathmark, and Other reporting segments, respectively.  These store closures were completed on April 16, 2011.  During the 16 weeks ended June 18, 2011, we recorded an additional impairment charge of $0.4 million, of which $0.3 million and $0.1 million were attributed to our Pathmark and Fresh reporting segments, respectively. These amounts were recorded within “Goodwill, trademark, and long-lived asset impairment” in our Consolidated Statements of Operations.

In April and May 2011, our Company obtained approval from the Bankruptcy Court to sell, or alternatively, to close an additional 25 stores located in Maryland, Delaware and the District of Columbia.  During the first quarter of fiscal 2011, our Company held an auction whereby we agreed to sell our interests in 12 of our existing stores based in Maryland and the District of Columbia, all of which are a part of our Fresh reportable segment, for approximately $37.8 million.  The transactions closed during June and July 2011.During the 16 weeks ended June 18, 2011, we recorded an impairment charge of $2.9 million, all of which pertained to our Fresh reporting segment. These amounts were recorded within “Goodwill, trademark, and long-lived asset impairment” in our Consolidated Statements of Operations. These store closures were completed by July 9, 2011.

There were no such closures during the 16 weeks ended June 19, 2010.

As a result of recently performed projections combined with continued cash flow loss experience, we determined that a triggering event had occurred that required us to test the related long-lived assets for potential impairment.  We recorded an impairment charge of $52.1 million and $5.4 million during the 16 weeks ended June 18, 2011 and  June 19, 2010, respectively, to partially write down these stores’ long-lived assets, which consist of favorable leases, capital leases, and land and buildings, with a carrying amount of $84.3 million to their fair value of $32.2 million and with a carrying amount of $40.5 million to their fair value of $35.1 million for the 16 weeks ended June 18, 2011 and June 19, 2010, respectively. The impairment charge of $52.1 million recorded during the 16 weeks ended June 18, 2011 all related to our Pathmark reportable segment. The impairment charge of $5.4 million recorded during the 16 weeks ended June 19, 2010, all related to our Pathmark reporting segment with the exception of $0.9 million which was attributed to our Fresh reporting segment. These amounts were recorded within “Goodwill, trademark, and long-lived asset impairment” in our Consolidated Statements of Operations.

SEGMENT (LOSS) INCOME

	For the 16 Weeks Ended
	June 18, 2011			June 19, 2010
	(in thousands)
Fresh	$	(19,390	)	$	13,472
Pathmark		(54,280	)		(24,808	)
Gourmet		6,451			6,511
Other		(277	)		737
Total segment loss	$	(67,496	)	$	(4,088	)

Segment loss increased $63.4 million from a loss of $4.1 million for the 16 weeks ended June 19, 2010 to a loss of $67.5 million for the 16 weeks ended June 18, 2011.  Our Fresh and Pathmark segments experienced segment income declines of $32.9 million and $29.5 million, respectively, primarily attributable to declines in sales and lower gross margins, partially offset by reduced labor, operating and occupancy expenses.  Segment income from our Gourmet business remained relatively flat quarter over quarter.  Segment income for our Other segment, representing Discount and Wine, Beer and Spirits, declined by $1.0 million, driven primarily by a decrease in sales and gross margin within our Discount business.  Refer to Note 21 – Reportable Segments for further discussion of our reportable operating segments.

NONOPERATING INCOME

During the first quarter of fiscal 2011 and 2010, we recorded favorable adjustments of $0.1 million and $8.3 million, respectively, relating to our Series B warrants acquired in connection with our purchase of Pathmark.  These adjustments are primarily a function of fluctuations in the market price of our Company’s common stock.

INTEREST EXPENSE, NET

Interest expense, net of $48.5 million for the first quarter of fiscal 2011 decreased from the prior year expense of $61.1 million, primarily attributable to the aggregate decreases in contractual interest expense of $14.0 million for our Related Party Promissory Note, due August 18, 2011, 9.125% Senior Notes, due December 15, 2011, 5.125% Convertible Senior Notes, due June 15, 2011, 6.750% Convertible Senior Notes, due December 15, 2012, and 9.375% Notes, due August 1, 2039, all of which are unsecured obligations that we ceased accruing interest for during the fourth quarter 2010 as a result of the Bankruptcy Filing. We also had aggregate decreases of interest expense of approximately $8.4 million attributed to amortization of deferred financing fees and discounts on unsecured obligations that we ceased amortizing as a result of the Bankruptcy Filing as well as a decrease in interest expense of $3.3 million from our $655 million Credit Agreement, which was paid off with proceeds from the DIP Credit Agreement during fourth quarter 2010.

These decreases in interest expense were partially offset by interest expense for our DIP Credit Agreement of $11.5 million and an increase of $1.8 million in interest expense resulting from our self-insurance and GHI obligations.

The Great Atlantic & Pacific Tea Company, Inc.

Management’s Discussion and Analysis - Continued

REORGANIZATION ITEMS, NET

For the 16 weeks ended June 18, 2011, professional fees of $17.2 million were accrued and $11.0 million were paid related to our Bankruptcy Filing. U.S. Trustee fees of approximately $0.3 million were incurred and paid during the 16 weeks ended June 18, 2011.

On June 2, 2011, our Company rejected its contract with C&S and entered into a new definitive agreement effective May 29, 2011.  As a result of our renegotiated contract, we eliminated $34.1 million of previously recorded unfavorable contract liability.  

During the 16 weeks ended June 18, 2011, we rejected 44 of our leases through the bankruptcy process and reduced the closed locations reserves balances associated with these leases by $39.0 million, $30.6 million of which was attributed to continuing operations and $8.4 million was attributed to discontinued operations, net to the allowable claim for damages of $37.9 million.  In connection with the rejection of the 44 leases, we also wrote off the related obligations under capital leases of $7.3 million, unfavorable lease liabilities of $3.2 million, real estate liabilities of $8.9 million, deferred real estate income of $9.4 million, with an offsetting write-off of other assets of $0.8 million, totaling $28.0 million, net.  Of this amount, $26.3 million relates to continuing operations and $1.7 million relates to discontinued operations. In addition, we rejected 9 of our assigned leases through the bankruptcy process and wrote-off the related property, net of $13.5 million, with an offsetting write-off of deferred real estate income of $41.8 million, totaling $28.3 million. Of this amount, $4.2 million relates to continuing operations and $24.1 million relates to discontinued operations.

INCOME TAXES

The benefit for income taxes from continuing operations for the 16 weeks ended June 18, 2011 was $14.6 million, compared to a provision for income taxes of $0.1 million for the 16 weeks ended June 19, 2010.  Consistent with prior year, we continue to record a valuation allowance against our net deferred tax assets.

The effective tax rate on continuing operations of 7.6% and 0.1%, respectively, for the 16 weeks ended June 18, 2011 and June 19, 2010, respectively, varied from the statutory rate of 35%, primarily due to state and local income taxes and the increase in our valuation allowance. The rate for the 16 weeks ended June 19, 2010 was also impacted by the mark to market of the Series B warrant issued in the acquisition of Pathmark.

DISCONTINUED OPERATIONS

Income from discontinued operations for the 16 weeks ended June 18, 2011 of $20.6 million increased from a loss from discontinued operations of $7.0 million for the 16 weeks ended June 19, 2010, primarily due to the rejection of property leases and the corresponding adjustment to the reserves balance associated with these leases to the allowable claims for damages of $8.4 million, writing off deferred real estate income of $24.6 million and obligations under capital leases of $1.6 million, lower legal expenses of $1.5 million,  and lower present value interest expense of $4.0 million. The increase in income from discontinued operations also includes an intraperiod tax allocation benefit of $1.1 million offset by provision for income taxes for reorganization items, net of $14.4 million.

The Great Atlantic & Pacific Tea Company, Inc.

Management’s Discussion and Analysis - Continued

LIQUIDITY AND CAPITAL RESOURCES

Cash Flows

The following table presents excerpts from our Consolidated Statement of Cash Flows (in thousands):

	For the 16 Weeks Ended
	June 18, 2011	June 19, 2010
Net cash used in operating activities	$(30,915)	$(58,265)
Net cash used in investing activities	(1,551)	(17,689)
Net cash used in financing activities	(8,010)	(5,710)

Net cash used in operating activities decreased by $27.4 million during the 16 weeks ended June 18, 2011 as compared to 16 weeks ended June 19, 2010.  The decrease in cash used in operating activities is primarily the result in an improvement in the cash provided from working capital of approximately $114.4 million, which included $62.2 million in the current portion of the allowable claim for damages pertaining to rejected leases. Excluding the impact of the current portion of the allowable claim for damages pertaining to rejected leases, improvement in working capital was approximately $52.2 million.  Partially offsetting the impact of the improvement in working capital was an increase of $24.4 million in net loss adjusted by non-cash charges, due to lower comparable store revenues, decreased volume at the stores, and the results of underperforming stores that were closed in the earlier part of first quarter fiscal 2011.

Net cash used in investing activities decreased by $16.1 million during the 16 weeks ended June 18, 2011 as compared to 16 weeks ended June 19, 2010.  The decrease in cash used in investing activities is primarily due lower property expenditures of $8.5 million during the current fiscal year period. In addition, our Company received increased proceeds via the disposal of property during the current fiscal period as compared to the prior year period of $5.1 million along with proceeds from the sale of pharmacy assets during fiscal 2011 of $2.8 million.  Property expenditures during the 16 weeks ended June 18, 2011 totaled $11.2 million, relating to equipment and leasehold improvements for existing stores, as compared to $19.7 million during the 16 weeks ended June 19, 2010, which related to two additions, four remodels and two conversions.

Net cash used in financing activities increased $2.3 million during the 16 weeks ended June 18, 2011 as compared to 16 weeks ended June 19, 2010.  The increase in cash used in financing activities is due to payment of financing fees for our debtor-in-possession financing of $1.4 million and a decrease in book overdrafts of $7.5 million.  The increase in cash used in financing activities was partially offset by the respective absences of the proceeds from the issuance of long term debt of $0.8 million and payment of dividends on preferred stock of $7.0 million during the first quarter of fiscal 2010.

Working Capital

At June 18, 2011, we had working capital of $234.4 million compared to working capital of $698.0 million, at February 26, 2011 excluding liabilities considered subject to compromise.  Considering working capital type items classified as “Liabilities subject to compromise” in our Consolidated Balance Sheets, we had negative working capital of $328.8 million at June 18, 2011 compared to positive working capital of $177.9 million at February 26, 2011.  We had cash and cash equivalents aggregating $312.1 million at June 18, 2011 compared to $352.6 million at February 26, 2011.  The remaining decrease in working capital after considering the impact of “Liabilities subject to compromise” in our Consolidated Balance Sheets was attributable primarily to the following:

• An increase in the current portion of our long-term debt due to the reclassification of our term loan under the DIP Credit Agreement, due June 14, 2012;

• A decline in inventories primarily related to lower sales volume and a reduced number of open locations;

• • A decrease in accounts receivable, primarily related to 1) lower sales, 2) settlement of C&S pre-petition accounts receivable, as well as, 3) an improvement in the collection rate and the related vendor funding of receivables from certain vendors since the Bankruptcy Filing;

• An increase in accrued taxes attributed to timing of payments; and

• • An increase in other accruals resulting from the current portion of the allowable claim for damages pertaining to rejected leases that are expected to be settled upon our Company’s emergence from the Bankruptcy Filing.

Partially offset by the following:

• A decrease in accounts payable attributed to the payment of certain pre-petition liabilities;

•• A decline in accrued salaries, wages and benefits, primarily attributable to a reversal of the incentive compensation accrued for our executive and non-executive employees based on our operating results; and

• An increase in other current assets resulting from the reclassification of the Southern stores to be sold in July 2011 from Property to Assets held for sale in our Consolidated Balance Sheets.

Debt Obligations

Our debt obligations consisted of the following (in thousands):

	At			At
	June 18, 2011			Feb. 26, 2011
Debtor-in-Possession Credit Agreement, due June 14, 2012	$	350,000		$	350,000
Related Party Promissory Note, due August 18, 2011		10,000			10,000
5.125% Convertible Senior Notes, due June 15, 2011(1)		165,000			165,000
9.125% Senior Notes, due December 15, 2011(1)		12,840			12,840
6.750% Convertible Senior Notes, due December 15, 2012(1)		255,000			255,000
11.375% Senior Secured Notes, due August 1, 2015		260,000			260,000
9.375% Notes, due August 1, 2039(1)		200,000			200,000
Other		2,438			2,544
		1,255,278			1,255,384
Less current portion of long-term debt		(350,000	)		(159	)
Less long-term debt - subject to compromise		(905,278	)		(905,225	)
Long-term debt	$	-		$	350,000

(1)   Represents public debt obligations.

Debtor-in-Possession Credit Agreement

On December 12, 2010, our Company and all of its U.S. subsidiaries (the “Debtors”) filed voluntary petitions for relief (the “Bankruptcy Filing”) under chapter 11 of title 11 of the United States Bankruptcy Code (the “Bankruptcy Code”) in the United States Bankruptcy Court for the Southern District of New York in White Plains (the “Bankruptcy Court”), which are being jointly administered under case number 10-24549.  Management's decision to initiate the Bankruptcy Filing was in response to, among other things, our Company’s deteriorating liquidity and management's conclusion in the third quarter that the challenges of successfully implementing additional financing initiatives and of obtaining necessary cost concessions from our Company’s business and labor partners, was negatively impacting our Company’s ability to implement its previously announced turnaround strategy. The Debtors continue to operate their businesses in the ordinary course of business as “debtors-in-possession” under the jurisdiction of the Bankruptcy Court and in accordance with the applicable provisions of the Bankruptcy Code and the orders of the Bankruptcy Court. Our Company’s non-U.S. subsidiaries were not part of the Bankruptcy Filing and will continue to operate in the ordinary course of business.

In connection with the Bankruptcy Filing, on December 13, 2010, the Bankruptcy Court entered its interim financing order, among other things, permitting us to enter into a Superpriority Debtor-in-Possession Credit Agreement (as amended and restated in its entirety by that certain Amended and Restated Superpriority Debtor-in-Possession Credit Agreement dated as of December 21, 2010, further amended and restated in its entirety by that certain Second Amended and Restated Superpriority Debtor-in-Possession Credit Agreement dated as of January 10, 2011, further amended and restated in its entirety by that certain Third Amended and Restated Superpriority Debtor-in-Possession Credit Agreement dated as of January 13, 2011, further amended (subsequent to the reporting period) by that certain First Amendment to the Third Amended and Restated Superpriority Debtor-in-Possession Credit Agreement dated as of July 8, 2011 (“the First Amendment to the DIP Credit Agreement”), as may be therefore further amended, amended and restated, supplemented or otherwise modified from time to time (the "DIP Credit Agreement") with JPMorgan Chase Bank, N.A., as administrative agent and as collateral agent (in such capacity, the “Agent”), the lenders from time to time party thereto (collectively, the “DIP Lenders”) and our Company and certain subsidiaries as borrowers thereunder.  On December 14, 2010, we satisfied all of the conditions to the effectiveness of the DIP Credit Agreement and to the initial closing thereunder and consummated the transactions contemplated thereunder including the refinancing in full of our Company’s and its applicable subsidiaries’ obligations under the pre-existing first lien credit facility evidenced by the Credit Agreement (refer to Note 8 – Indebtedness and Other Financial Liabilities to our Consolidated Financial Statements). The Bankruptcy Court entered a final order approving the DIP Credit Agreement on January 11, 2011.  Pursuant to the terms of the DIP Credit Agreement:

·   the DIP Lenders agreed to lend up to $800.0 million in the form of a $350.0 million term loan and a $450.0 million revolving credit facility with a $250.0 million sublimit for letters of credit, in each case subject to the terms and conditions therein;

·   our Company’s and the Subsidiary Borrower’s obligations under the DIP Credit Agreement and the other specified loan documents are guaranteed by our Company’s certain other subsidiaries that are Debtors (“Subsidiary Guarantors” and, together with our Company and the Subsidiary Borrowers, the “Loan Parties”); and

·   the Loan Parties’ obligations under the DIP Credit Agreement and such other specified loan documents are secured by a security interest in, and lien upon, substantially all of the Loan Parties’ existing and after-acquired personal and real property, having the priority and subject to the terms therein and in the order(s) entered into by the Bankruptcy Court, as applicable.

Our Company will have the option to have interest on the revolving loans under the revolving credit facility provided under the DIP Credit Agreement accrue at an alternate base rate plus 200 basis points or at adjusted LIBOR plus 300 basis points. Our Company will have the option to have interest on the term loan provided under the DIP Credit Agreement accrue at an alternate base rate plus 600 basis points or at adjusted LIBOR (with a floor of 175 basis points) plus 700 basis points. The DIP Credit Agreement limits, among other things, our Company’s and the other Loan Parties’ ability to (i) incur indebtedness, (ii) incur or create liens, (iii) dispose of assets, (iv) prepay certain indebtedness and make other restricted payments, (v) enter into sale and leaseback transactions and (vi) modify the terms of certain indebtedness and certain material contracts. Notably, however, the DIP Credit Agreement permits our Company to use the proceeds generated from the sale of the Southern Stores in the operation of our business rather than requiring us to use those proceeds to reduce the Loan Parties’ outstanding indebtedness under the DIP Credit Agreement.

The DIP Credit Agreement also contains certain financial covenants, including a minimum excess availability covenant of $100.0 million (or $75.0 million at any time after August 13, 2011 but on or before November 5, 2011, or $50.0 million at any time after November 5, 2011), minimum liquidity covenant of $100.0 million and minimum cumulative EBITDA covenant as defined in the DIP Credit Agreement.  Minimum cumulative EBITDA measured beginning on April 24, 2011 is as follows (in millions):

Date	Minimum Cumulative EBITDA
August 13, 2011	$         -
September 10, 2011	10.0
October 8, 2011	20.0
November 5, 2011	35.0
December 3, 2011	50.0
December 31, 2011	65.0
January 28, 2012	90.0
February 25, 2012	100.0
March 24, 2012	110.0
April 21, 2012	125.0
May 19, 2012	150.0
June 16, 2012	175.0

Meeting our EBITDA covenant requires increasing levels of performance throughout the year, including the successful implementation of our business improvement initiatives. As of the balance sheet date, we have entered into a definitive agreement with C&S to provide services and we are in the process of negotiating with union locals to obtain consensual modifications to collective bargaining agreements necessary for our successful reorganization. We may not achieve our minimum cumulative EBITDA covenant. A financial covenant violation could result in termination of the DIP Credit Agreement and/or termination of our access to funding thereunder. If either (or both) of those were to occur, our Company could be without sufficient cash availability to meet our operating needs or satisfy our obligations as they fall due, in which instance we may be unable to successfully reorganize. 

The DIP Credit Agreement matures upon the earliest to occur of (a) June 14, 2012, (b) the acceleration of the loans and the termination of the commitment thereunder, and (c) the substantial consummation (as defined in Section 1101(2) of the Bankruptcy Code, which for purposes hereof shall be no later than the effective date thereof) of a plan of reorganization that is confirmed pursuant to an order entered by the Bankruptcy Court.

The Bankruptcy Filing constituted an event of default with respect to the debt obligations described within Note 8 – Indebtedness and Other Financial Liabilities to our Consolidated Financial Statements.

We are currently operating as debtors-in-possession pursuant to Bankruptcy Filing and continuation of our Company as a going-concern is contingent upon, among other things, the Debtors’ ability (i) to comply with the terms and conditions of the DIP Credit Agreement described in Note 8 – Indebtedness and Other Financial Liabilities to our Consolidated Financial Statements; (ii) to develop a plan of reorganization and obtain confirmation of that plan under the Bankruptcy Code; (iii) to reduce debt and other liabilities through the bankruptcy process; (iv) to return to profitability, including by securing necessary near-term cost concessions from our business and labor partners; (v) to generate sufficient cash flow from operations; and (vi) to obtain financing sources to meet our future obligations.  The uncertainty regarding these matters raises substantial doubt about our ability to continue as a going concern.

After our Company’s Bankruptcy Filing on December 12, 2010, we repaid our $655.0 million Credit Agreement with a balance of $140.5 million with the proceeds from the $350.0 million term loan under the DIP Credit Agreement. As of June 18, 2011, we held excess cash not utilized in our store operations of $215.9 million. At January 10, 2011, we received court approval to draw down on the $450.0 million revolver which provided, after adjusting for letters of credit and borrowing base collateral requirements, an additional $156.8 million of availability as of June 18, 2011. The $156.8 million of availability is further subject to a current minimum availability covenant of $100.0 million.  Based on the $350.0 million term loan under the DIP Credit Agreement becoming due on June 14, 2012 and the ongoing status of negotiations with union locals to obtain consensual modifications to collective bargaining agreements necessary for our successful reorganization, there is substantial doubt about our Company's ability to meet our obligations for the next twelve months.

Redeemable Preferred Stock

On August 4, 2009, our Company issued 60,000 shares of 8.0% Cumulative Convertible Preferred Stock, Series A-T, without par value, to affiliates of Tengelmann Warenhandelsgesellschaft KG (“Tengelmann”) and 115,000 shares of 8.0% Cumulative Convertible Preferred Stock, Series A-Y, without par value, to affiliates of Yucaipa Companies LLC (“Yucaipa”), together referred to as the “Preferred Stock,” for approximately $162.8 million, after deducting approximately $12.2 million in closing and issuance costs. Each share of the Preferred Stock has an initial liquidation preference of one thousand dollars, subject to adjustment.

The Preferred Stock issuance was classified within temporary stockholders’ equity in our Consolidated Balance Sheets as of June 18, 2011 and February 26, 2011. The holders of the Preferred Stock are entitled under a pre-bankruptcy agreement to an 8.0% dividend, payable quarterly in arrears in cash or in additional shares of Preferred Stock if our Company does not meet the liquidity levels required to pay the dividends.  However, no dividends have been paid during the pendency of our bankruptcy case.

On November 24, 2010 our Company’s Board of Directors authorized a payment-in-kind (“PIK”) dividend on our Preferred Stock, payable on December 15, 2010 to holders of record on November 15, 2010 (“Record Date”). Dividends are required to be PIK in the event our Company does not have the ability to pay the dividends in cash. As of the Record Date, we did not have the ability to pay the dividends in cash. The calculation of PIK dividends on our Preferred Stock is based upon the rate defined by the original terms of the Preferred Stock at 9.5% per annum. The PIK dividends of approximately $4.0 million are included in “Series A Redeemable Preferred Stock” in our Consolidated Balance Sheets. The PIK dividend due on December 15, 2010 was never made by our Company due to the Bankruptcy Filing.

Deferred financing fees amortization and embedded beneficial conversion features accretion for the 16 weeks ended June 18, 2011 and June 19, 2010 was $0.5 million and $1.5 million, respectively, during each period. During the 16 weeks ended June 19, 2010, we accrued Preferred Stock dividends of $4.3 million, within “Additional paid-in capital” and paid Preferred Stock cash dividends of $7.0 million.

The Great Atlantic & Pacific Tea Company, Inc.

Management’s Discussion and Analysis - Continued

Share Lending Agreements

We had share lending agreements with certain financial institutions, pursuant to which we loaned 8,134,002 shares of our stock of which 6,300,752 shares were sold to the public on December 18, 2007 in a public offering to facilitate hedging transactions relating to the issuance of our 5.125% and 6.750% Senior Convertible Notes. We did not receive any proceeds from the sale of the borrowed shares.  We received a nominal lending fee from the financial institutions pursuant to the share lending agreements. Any shares we loan are considered issued and outstanding.  Investors that purchase borrowed shares are entitled to the same voting and dividend rights as any other holders of our common stock; however, the financial institutions do not have rights pursuant to the share lending agreements.  During fiscal 2010, Bank of America, N.A., who was a party to our share lending agreement, returned 2,427,944 shares.  As of June 18, 2011, there were no shares outstanding under our share lending agreement with Bank of America, N.A.

On September 15, 2008, Lehman and certain of its subsidiaries, including Lehman Europe, filed a petition under chapter 11 of the U.S. Bankruptcy Code with the United States Bankruptcy Court and/or commenced equivalent proceedings in jurisdictions outside of the United States (collectively, the “Lehman Bankruptcy”).  Lehman Europe is party to a 3,206,058 share lending agreement with our Company.  Due to the circumstances of the Lehman Bankruptcy, we have recorded these loaned shares as issued and outstanding effective September 15, 2008, for purposes of computing and reporting our Company’s basic and diluted weighted average shares and earnings per share.

Other

We participate in various multi-employer pension plans which are administered jointly by management and union representatives.  During the first quarter of fiscal 2011, we received notification from the trustees of a multi-employer union pension plan for payment of a partial withdrawal resulting from the closure of certain Pathmark stores in fiscal 2009. The impact of the partial withdrawal is a liability of approximately $13.9 million, which is included within “Liabilities subject to compromise” in our Consolidated Balance Sheets as of June 18, 2011.

CRITICAL ACCOUNTING ESTIMATES

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period.  Actual results could differ from those estimates.  A summary of our critical accounting policies may be found in the Management Discussion and Analysis included in our Annual Report on Form 10-K for the year ended February 26, 2011.  There have been no significant changes in these policies during the 16 weeks ended June 18, 2011. 

During the 16 weeks ended June 18, 2011, we recorded impairment of $55.4 million of our long-lived assets, $52.4 million of which related to our Pathmark reporting unit while $3.0 million pertained to our Fresh reporting unit.

ITEM 3 – Quantitative and Qualitative Disclosures About Market Risk

MARKET RISK

Market risk represents the risk of loss from adverse market changes that may impact our consolidated financial position, results of operations or cash flows.  Among other possible market risks, we are exposed to interest rate risk.  From time to time, we may enter hedging agreements in order to manage risks incurred in the normal course of business.

Interest Rates

Our exposure to market risk for changes in interest rates relates primarily to our debt obligations, specifically for our DIP Credit Agreement. Our Company would have potential exposure to changes in interest rates when the adjusted LIBOR resets. During first quarter of 2011, a presumed 1% change in the adjusted LIBOR would not have impacted interest expense as the combination of the LIBOR rate of 25 basis points and a 1% increase would remain below the adjusted LIBOR floor of 175 basis points.  As of June 18, 2011, we did not have cash flow exposure due to rate changes on any of our other debt securities because they are at fixed interest rates ranging from 2.0% to 11.375%.  Accordingly, as of June 18, 2011, we did not have exposure to variable floating interest rates.   During the first quarters of fiscal 2011 and fiscal 2010, a presumed 1% change in the variable floating rate would have impacted interest expense by $0 and $0.4 million, respectively.

Foreign Exchange Risk

As of June 18, 2011, we did not have exposure to foreign exchange risk as we did not hold any significant assets denominated in foreign currency.

ITEM 4 – Controls and Procedures

We have established and maintain disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) that are designed to ensure that information required to be disclosed in our Company’s Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our Company’s management, including our President and Chief Executive Officer, and Chief Administrative Officer, Chief Restructuring Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.   

We carried out an evaluation, under the supervision and with the participation of our Company’s management, including our Company’s President and Chief Executive Officer along with our Company’s Chief Administrative Officer, Chief Restructuring Officer and Chief Financial Officer, of the effectiveness of the design and operation of our Company’s disclosure controls and procedures pursuant to Exchange Act Rule 13a-15(b).  Based upon the foregoing, as of the end of the period covered by this report, our Company’s President and Chief Executive Officer along with our Company’s Chief Administrative Officer, Chief Restructuring Officer and Chief Financial Officer, concluded that our Company’s disclosure controls and procedures were effective at the reasonable assurance level.

There have been no changes during our Company’s fiscal quarter ended June 18, 2011 in our Company’s internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, our Company’s internal control over financial reporting.

PART II.  OTHER INFORMATION

ITEM 1 – Legal Proceedings

Refer to Note 20 – Commitments and Contingencies to our Notes to Consolidated Financial Statements for a discussion of our legal proceedings.

ITEM 1A – Risk Factors

Various risk factors could have a negative effect on our Company’s business, financial position, cash flows and results of operations.  These risk factors include those listed in our Company’s Annual Report on Form 10-K for the fiscal year ended February 26, 2011, and should be considered in conjunction with the risks and uncertainties that are discussed below.

Risks Relating to Our Business

·   Failure to execute on our turnaround strategy could adversely affect our Company’s liquidity, financial condition and results of operations.

We are currently operating our business as debtors-in-possession in chapter 11. The continuation of our Company as a going-concern is contingent upon, among other things, the Debtors’ ability (i) to comply with the terms and conditions of the DIP Credit Agreement described in Note 8 – Indebtedness and Other Financial Liabilities to our Consolidated Financial Statements; (ii) to develop a plan of reorganization and obtain confirmation of that plan under the Bankruptcy Code; (iii) to reduce debt and other liabilities through the bankruptcy process; (iv) to return to profitability, including by securing necessary near-term cost concessions from our business and labor partners; (v) to generate sufficient cash flow from operations; and (vi) to obtain financing sources to meet our future obligations.  The uncertainty regarding these matters raises substantial doubt about our ability to continue as a going concern.

·   As a result of the Bankruptcy Filing, our historical financial information may not be indicative of our future financial performance.

Our capital structure will likely be significantly altered through the chapter 11 process. Under fresh-start reporting rules that may apply to the Debtors upon the effective date of a plan of reorganization, our assets and liabilities would be adjusted to fair values and our accumulated deficit would be restated to zero. Accordingly, if fresh-start reporting rules apply, our financial condition and results of operations following our emergence from the bankruptcy would not be comparable to the financial condition and results of operations reflected in our historical financial statements. In connection with the Bankruptcy Filing and the development of a plan of reorganization, it is also possible that additional restructuring and related charges may be identified and recorded in future periods. Such charges could be material to our consolidated financial position and results of operations in any given period.

·   Operating during the Bankruptcy Filing may restrict our ability to pursue our strategic and operational initiatives. 

As a result of the Bankruptcy Filing, transactions outside the ordinary course of business are subject to the prior approval of the Bankruptcy Court, which may limit our ability to respond in a timely manner to certain events or take advantage of certain opportunities. Additionally, the terms of the DIP Credit Agreement limit our ability to undertake certain business initiatives. These limitations include, among other things, our ability to:

·incur indebtedness;

·incur or create liens;

·dispose of assets;

·prepay certain indebtedness and make other restricted payments;

·enter into sale and leaseback transactions; and

·modify the terms of certain indebtedness and certain material contracts.

·   The Bankruptcy Filing may have an adverse effect on our business and results of operations.

The requirements of the Bankruptcy Filing have consumed and will continue to consume a substantial portion of our corporate management’s time and attention and leave them with less time to devote to the operation of our business. This diversion of attention may materially and adversely affect the conduct of our business, and, as a result, on our financial condition and results of operations, particularly if the bankruptcy cases are protracted.

Furthermore, we have incurred and will continue to incur during the pendency of the Bankruptcy Filing substantial costs for professional fees and other expenses associated with the administration of the bankruptcy cases. 

·   We may not be able to remain in compliance with the requirements of the DIP Credit Agreement therefore the lending commitments under the DIP Credit Agreement may be terminated by the DIP Lender.

The DIP Credit Agreement also contains certain financial covenants, including a minimum excess availability covenant of $100.0 million (or $75.0 million at any time after August 13, 2011 but on or before November 5, 2011, or $50.0 million at any time after November 5, 2011), minimum liquidity covenant of $100.0 million and minimum cumulative EBITDA covenant as defined in the DIP Credit Agreement.  Minimum cumulative EBITDA measured beginning on April 24, 2011 is as follows (in millions):

Date	Minimum Cumulative EBITDA
August 13, 2011	$         -
September 10, 2011	10.0
October 8, 2011	20.0
November 5, 2011	35.0
December 3, 2011	50.0
December 31, 2011	65.0
January 28, 2012	90.0
February 25, 2012	100.0
March 24, 2012	110.0
April 21, 2012	125.0
May 19, 2012	150.0
June 16, 2012	175.0

Meeting our EBITDA covenant requires increasing levels of performance throughout the year, including the successful implementation of our business improvement initiatives. As of June 18, 2011, we have entered into a definitive agreement with C&S to provide services and we are in the process of negotiating with union locals to obtain consensual modifications to collective bargaining agreements necessary for our successful reorganization. We may not achieve our minimum cumulative EBITDA covenant. A financial covenant violation could result in termination of the DIP Credit Agreement and/or termination of our access to funding thereunder. If either (or both) of those were to occur, our Company could be without sufficient cash availability to meet our operating needs or satisfy our obligations as they fall due, in which instance we could be required to seek a sale of our Company or certain of its material assets pursuant to Section 363 of the Bankruptcy Code, or to convert the Bankruptcy Filing into a liquidation under Chapter 7 of the Bankruptcy Code.

The DIP Credit Agreement matures upon the earliest to occur of (a) June 14, 2012, (b) the acceleration of the loans and the termination of the commitment thereunder, and (c) the substantial consummation (as defined in Section 1101(2) of the Bankruptcy Code, which for purposes hereof shall be no later than the effective date thereof) of a plan of reorganization that is confirmed pursuant to an order entered by the Bankruptcy Court.

·   If we are unable to implement a plan of reorganization, we may not be able to restructure our Company’s debts and continue as a going concern.

There can be no assurance that we will be able to confirm a plan of reorganization that will permit our Company to emerge from bankruptcy and continue operations.  For example, we may be unable to secure sufficient exit financing to fund a confirmable chapter 11 plan of reorganization or we may fall out of compliance with the covenants in our DIP Credit Agreement, which could result in the DIP Lenders’ exercise of remedies forcing us to liquidate unless we could refinance our obligations under the DIP Credit Agreement.  As a result, there is no guarantee that we will successfully reorganize.

·   As a result of approval and implementation of a proposed plan, should such occur, certain changes in ownership of our Company could occur, which could adversely affect our ability to utilize our significant net operating loss carry-forwards upon our emergence from the Bankruptcy Filing.

There are certain tax attributes, such as net operating loss carry-forwards, that may be limited or lost altogether in the event of an ownership change as defined under Section 382 of the Internal Revenue Code. If a change of ownership were to occur as a result of the implementation of the proposed plan, upon our emergence from the Bankruptcy Filing there could be significant valuation allowances placed on deferred tax assets.

·    We may experience increased levels of employee attrition.

During the pendency of the Bankruptcy Filing, we may experience increased levels of employee attrition, and our employees are facing considerable distraction and uncertainty. A loss of key personnel or material erosion of employee morale, at the corporate, field and store levels, could have a materially adverse affect on our ability to meet customer, trade partner and strategic partner expectations, thereby adversely affecting our business and results of operations. Our ability to engage, motivate and retain key employees or take other measures intended to motivate and incent key employees to remain with us through the pendency of the Bankruptcy Filing is limited during the Bankruptcy Filing by restrictions on implementation of retention programs.

·   Trading in our securities during the pendency of the Bankruptcy Filing is highly speculative and poses substantial risks. Our common stock may be cancelled and holders of such common stock may not receive any distribution with respect to, or be able to recover any portion of, their investments.

Although we cannot say for certain whether holders of our common stock will be eligible to receive any distributions on account of those holdings under a plan of reorganization or, if applicable, in a liquidation, it is exceedingly likely that these equity interests will be cancelled and extinguished in connection with confirmation of a plan of reorganization by the Bankruptcy Court and the holders thereof would not be entitled to receive, and would not receive or retain, any property or interest in property on account of such equity interests. In the event of cancellation of these equity interests, amounts invested by such holders in our outstanding equity securities will not be recoverable. As a result, our currently outstanding common stock would have no value. Trading prices for our common stock may bear little or no relationship to the actual recovery, if any, by the holders thereof in the Bankruptcy Filing. Accordingly, we urge extreme caution with respect to existing and future investments in our equity securities and any of our other securities.

·   Our common stock and 9 3/8% senior quarterly interest bonds are no longer listed on a national securities exchange and are quoted only on the Pink Sheets, which could negatively affect our stock price, bond price and marketplace liquidity.

As of December 13, 2010, our common stock and 9 3/8% senior quarterly interest bonds (“9 3/8% bonds”) trade exclusively on the Pink OTCQB market (the “Pink Sheets”) and are currently traded under the symbols GAPTQ and GAJTQ, respectively. The Pink Sheets is a significantly more limited market than the NYSE, and the quotation of our common stock and 9 3/8% bonds on the Pink Sheets may result in a less liquid market available for existing and potential stockholders and bondholders, respectively, to trade in our common stock and 9 3/8% bonds. This could further depress the trading price of our common stock and 9 3/8% bonds.

·   Our substantial indebtedness could impair our financial condition and our ability to fulfill our debt obligations, including our obligations under the notes.

We have substantial indebtedness. As of June 18, 2011, we had total indebtedness of $1,365.6 million, consisting of approximately $350.0 million outstanding under our debtor-in-possession financing, $260.0 million of senior secured notes – subject to compromise, $645.3 million of other outstanding notes – subject to compromise, approximately $110.3 million outstanding under obligations under our capital leases – subject to compromise.  Our indebtedness could have important consequences to you. For example, it could: (i) make it more difficult for us to satisfy our obligations with respect to the notes and our other indebtedness, (ii) require us to dedicate a substantial portion of our cash flow from operations to debt service payments, thereby reducing the availability of cash for working capital, capital expenditures, acquisitions, general corporate purposes or other purposes, (iii) impair our ability to obtain additional financing in the future for working capital, capital expenditures, acquisitions, general corporate purposes or other purposes, (iv) diminish our ability to withstand a downturn in our business, the industry in which we operate or the economy generally, (v) limit our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate, and (vi) place us at a competitive disadvantage compared to certain competitors that have proportionately less debt.

·   We are affected by increasing labor, benefit and other operating costs and a competitive labor market and are subject to the risk of unionized labor disruptions.

Our financial performance is greatly influenced by increasing wage and benefit costs, including pension and health care costs, a competitive labor market and the risk of labor disruption of our highly unionized workforce.

We have approximately 37,000 employees, of which approximately 69% are employed on a part-time basis. Over the last few years, increased wage and benefit costs have caused our Company’s labor costs to increase. While we are in the process of negotiating with our union partners for revised terms of employment for our unionized employees, we cannot assure you that our labor costs will not continue to increase, or that any such increases would be offset through increased prices of products in our stores. Any significant failure to attract and retain qualified employees, to control our labor costs or to recover any increased labor costs through increased prices charged to customers could have a material adverse effect on our results of operations.

As of June 18, 2011, approximately 93% of our employees were represented by unions and covered by collective bargaining or similar agreements that are subject to periodic renegotiations. Although we are in the process of negotiating modifications to collective bargaining agreements that are necessary for our Company to reorganize, these negotiations may not prove successful and/or may result in the disruption of our operations if negotiations become adversarial and result in work stoppages or other labor problems.

We believe that we have good relationships with our employees and our union partners.  To reorganize as a viable business, our Company believes it needs to secure cost savings in multiple areas, including obligations arising under our collective bargaining agreements.  Our Company is currently negotiating with its union partners to obtain consensual modifications to its collective bargaining agreements that are necessary for our Company’s successful reorganization.  Our Company’s goal is to consensually modify its collective bargaining obligations by agreement with each of its union partners, although our Company cannot guaranty whether such outcome can be achieved.

If our Company is unable to obtain cost savings from its labor partners on a consensual basis, our Company may need to avail itself of certain rights and remedies under the Bankruptcy Code with regard to its collective bargaining obligations.  Our Company has not sought to utilize any of those rights or remedies at this time.

There can be no assurance that our Company will succeed in obtaining necessary labor cost savings or that work stoppages or labor disturbances will not occur as a result of this process.

·   We may incur additional pension liabilities resulting from the sales or closures of our Company’s stores.

Our Company participates in various multi-employer pension plans which are administered jointly between our Company’s management and union representatives. It is possible that sales or closures of our Company’s stores would trigger a pension withdrawal liability based upon formulas defined under ERISA. There can be no assurance that cash flows from our Company’s operations will be sufficient to fund such liabilities. The duration of these liabilities may also be for an extended period of time.

ITEM 2 – Unregistered Sales of Equity Securities and Use of Proceeds

None

ITEM 3 – Defaults Upon Senior Securities

None

ITEM 4 – (Removed and Reserved)

ITEM 5 – Other Information

None

ITEM 6 – Exhibits

(a)      Exhibits required by Item 601 of Regulation S-K

EXHIBIT NO.                                       DESCRIPTION

10.1* Supply, Distribution and Related Services Agreement dated May 29, 2011 by and between the Company and C&S Wholesale Grocers, Inc. **

10.2 Third Amended and Restated Superpriority Debtor-in-Possession Credit Agreement dated as of January 13, 2011 among The Great Atlantic & Pacific Tea Company, Inc. and the other Borrowers party thereto, as Borrowers and the Lenders party thereto, and JPMorgan Chase Bank, N.A., as Administrative Agent and Collateral Agent (incorporated herein by reference to Exhibit 10.1 to Form 8-K filed on May 10, 2011)

31.1* Certification of the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2* Certification of the Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32* Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

* Filed with this Form 10-Q

** Confidential treatment has been requested for certain portions thereof pursuant to a confidential treatment request filed with the Securities and Exchange Commission (the “Commission”) on July 29, 2011.  Such provisions have been filed separately with the Commission.

The Great Atlantic & Pacific Tea Company, Inc.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 THE GREAT ATLANTIC & PACIFIC TEA COMPANY, INC.

Date:  July 29, 2011                                                       By:         /s/ Melissa E. Sungela                                                                      

           Melissa E. Sungela, Senior Vice President,

           Corporate Controller (Chief Accounting Officer

           and Duly Authorized Officer)

EX-10.1

CONFIDENTIAL TREATMENT REQUESTED

Confidential portions of this document have been redacted and have been separately filed with the Securities and Exchange Commission

EXECUTION COPY

Exhibit 10.1

SUPPLY, DISTRIBUTION AND RELATED SERVICES AGREEMENT

THIS SUPPLY, DISTRIBUTION AND RELATED SERVICES AGREEMENT (the “Agreement”) is made as of May 29, 2011 between THE GREAT ATLANTIC & PACIFIC TEA COMPANY, INC., a Maryland corporation with principal offices located at 2 Paragon Drive, Montvale, New Jersey 07645 (and its current and future subsidiaries and affiliates) (collectively, “A&P”) and C&S WHOLESALE GROCERS, INC., a Vermont corporation with principal offices located at 7 Corporate Drive, Keene, New Hampshire 03431 (“C&S” and together with A&P, the “Parties”).

W I T N E S S E T H:

WHEREAS, C&S operates warehouse and distribution centers, performs procurement and wholesale supply services, and provides transportation-related services to its customers; and

WHEREAS, A&P has agreed to retain C&S to provide A&P certain warehousing and distribution services, transportation services and certain wholesale supply services, on the conditions set forth in this Agreement.

WHEREAS, on December 12, 2010, A&P and certain of its subsidiaries (each a “Debtor” and, collectively, the “Debtors”) commenced chapter 11 cases by filing voluntary petitions for relief under chapter 11 of the United States Bankruptcy Code (the “Bankruptcy Code”) in the United States Bankruptcy Court for the Southern District of New York, White Plains Division (the “Bankruptcy Court”), which cases are currently pending (collectively, the “Bankruptcy Cases”).

NOW, THEREFORE, in consideration of the mutual covenants and obligations hereinafter set forth, the Parties hereto, intending to be legally bound, hereby agree as follows:

ARTICLE 1

PRELIMINARY MATTERS

1.1   Effective Date.  The “Effective Date” shall mean 12:01 a.m. May 29, 2011, understanding that the Debtors will seek, as soon as practicable, entry of, one or more orders entered by the Bankruptcy Court authorizing the Debtors’ entry into and performance of this Agreement, which orders shall be in form and substance reasonably satisfactory to each Party (collectively, the “Bankruptcy Court Orders”); provided, however, that the Effective Date shall be deemed to have never occurred if the Bankruptcy Court does not enter the Bankruptcy Court Orders.  Neither Party shall revoke its execution and delivery of this Agreement, or otherwise seek to amend any of the terms and conditions hereof, pending issuance of the Bankruptcy Court Orders.

1.2   Prior Agreements. As of May 29, 2011, C&S and A&P are parties to that certain Warehousing, Distribution and Related Services Agreement dated March 7, 2008 (the “Prior C&S Agreement”) and that certain Interim Transportation Services Agreement dated February 6, 2011 (the “Interim Agreement,” which together with the Prior C&S Agreement and all amendments, modifications or letter agreements related thereto shall be referred to as the “Prior Agreements”).

(a)   On the Effective Date, this Agreement shall replace and supersede the Prior Agreements in all respects, the Prior Agreements shall be terminated and no longer in effect, and the parties shall thereupon have no further obligation to each other thereunder, as of the Effective Date, except that the parties shall diligently and in good faith work with each other to conduct a final reconciliation under the Prior C&S Agreement for all applicable transactions for the period commencing September 26, 2011 through the date immediately preceding the Effective Date (the “Reconciliation Period”).  ****.  The Parties agree to use commercially reasonable efforts to complete the final reconciliation contemplated hereunder not later than the date on which the Bankruptcy Court enters the Bankruptcy Court Orders.

(b)   This Agreement is a single agreement separately bargained for by and between the parties, separate and distinct from any and all other agreements and dealings between the Parties, and the Prior Agreements shall in no event constitute parol evidence or otherwise be instructive in the construction of this Agreement;  nor shall the execution of this Agreement be parol evidence or otherwise instructive on the interpretation or application of the Prior Agreements.  Similarly, the parties’ respective performance under the Prior Agreements shall in no way constitute past practice or otherwise be informative of the way any provision in this Agreement should be interpreted, construed or applied.

1.3   Performance Standards.  Collectively, the Warehousing Services, the Transportation Services, and the Procurement and Purchasing Services (all defined below) shall be referred to as the “Services”. The Services shall be performed in accordance with the operating procedures set forth in Exhibit “B” to this Agreement (the “Service Specifications”) and the targeted performance levels set forth in Exhibit “C” to this Agreement (the “Key Performance Measures”).  The Service Specifications and Key Performance Measures are incorporated herewith and made a part of this Agreement.  The Warehousing Services Standards (defined in Section 2.4 below), the Transportation Services Standards (defined in Section 3.2, below) and the Procurement and Purchasing Standards (defined in Section 4.3, below) shall be collectively referred to as the “Performance Standards”.

1.4   Prepetition Claims.                                  Claims against the Debtor arising under the Prior C&S Agreement shall be dealt with as follows:

(a)  C&S shall have an allowed claim in the amount of $15.1 million on account of merchandise supplied and services performed with respect to periods arising before the Petition Date (the "C&S Liquidated Claim").  Upon entry of the Bankruptcy Court Orders, C&S shall apply the $12.2 million of cash in its possession in respect of amounts owed to the Debtors as of the Petition Date under the Prior C&S Agreement to the satisfaction of the C&S Liquidated Claim.  The balance of the C&S Liquidated Claim, in the amount of $2.9 million shall constitute an allowed 503(b)(9) claim and be paid in full in cash on the effective date of a chapter 11 plan for A&P.

(b)  C&S hereby agrees to waive any claim for damages resulting from the rejection of the Prior C&S Agreement (the “Prepetition Rejection Damages Claim”);

provided, however, that if the Reorganization Plan Effective Date does not occur prior to the termination of this Agreement for any reason such waiver shall be null and void ab initio and the C&S Prior Agreement shall be deemed to have been rejected as of such termination date.  In such event, the Parties’ rights are fully reserved in all respects including, but without limitation, those rights regarding the validity, amount and allowance of any such Prepetition Rejection Damages Claim.

(c) C&S and A&P agree to waive all other claims not described in subsections (a) or (b) above against the other Party that arose on or before December 12, 2010, except for i) claims resulting from the reconciliation under Section 1.2(a) above ****, with respect to which all parties reserve all rights, claims and defenses; ii) claims related to avoidance actions or preference payments, provided that A&P expressly waives any and all avoidance actions or preference claims with respect to the settlement of the C&S Liquidated Claim set forth in Section 1.4(a); and iii) third party claims that have not been asserted prior to the execution of this Agreement and for which one Party would be entitled to indemnification from the other under the Prior C&S Agreement.

ARTICLE 2

WAREHOUSING SERVICES

2.1   Warehousing and Logistics Services.  During the Term of this Agreement, C&S shall provide to A&P comprehensive managed warehousing and logistics services with respect to the Merchandise (as defined in Article 4 below) distributed to the A&P Stores (defined in Section 4.4, below), all on the terms and conditions set forth in this Agreement (the “Warehousing Services”), including but not limited to: the daily operation and maintenance of the C&S Facilities; handling and confirming receipt of inbound orders; loading and unloading; storage; selection; pallet building; case labelling (where applicable); providing off-site resources for logistics management or analytical services; processing claims for recovery of lost or damaged Merchandise, as applicable; providing trained, skilled personnel; providing reverse logistics services including, but not limited to, the loading, unloading and handling of Merchandise and materials associated with A&P’s product reclamation, pallets, totes, cardboard bales and plastic recyclables programs; and interfacing with A&P personnel, all in accordance with the Performance Standards.

2.2   Exclusivity.  Except as may be otherwise stated in this Agreement, A&P agrees that for the Term of this Agreement it shall not contract with any third party other than C&S for the rendering of the Warehousing Services; provided, A&P may perform the Warehousing Services (from facilities other than the C&S Facilities) on its own account or may contract with a third party to perform the Warehousing Services by providing C&S with prior written notice of A&P’s intent to source such Merchandise in the event C&S has failed, or where A&P has a reasonable basis (based on objective information) to believe that C&S will fail, to meet the Targeted Service Level for any Contract Week for any C&S Facility or for any Product Category within a C&S Facility.  In the event A&P exercises its rights under the preceding sentence, A&P agrees to perform or contract for only such scope and duration of Warehousing Services as are necessary to mitigate

****Confidential material redacted and filed separately with the Securities and Exchange Commission.

C&S’s actual or anticipated failure to meet the Targeted Service Level as abovedescribed.

2.3   C&S Facilities.  Commencing on the Effective Date, C&S shall perform all Warehousing Services and Transportation Services hereunder (with the exception of Warehousing Services at the Edison GMDC Facility, which shall be performed by A&P) from the warehouse and/or distribution centers that are owned or leased by C&S and set forth on Exhibit “A” hereto (the “C&S Facilities”).  Exhibit “A” also lists each of the A&P Stores (defined in Section 4.4, below) for which each C&S Facility serves as the shipping origin as of the Effective Date. The parties agree that C&S may change the shipping origin for any A&P Store (including by shipping A&P Stores from distribution centers that are not listed on Exhibit “A”), provided that C&S will provide not less than thirty (30) days’ prior written notice to A&P of such change and that such change shall not:  a) result in an increase in the **** charged to A&P hereunder;  b) result in an increased fuel surcharge charged to A&P due to increased consumption of fuel; nor c) materially impact C&S’s ability to perform the Services in accordance with the  Performance Standards.  In the event C&S changes the shipping origin for a group of A&P Stores or unilaterally takes such other action which has the effect of increasing the routed miles for such A&P Stores or otherwise increases the Transportation Costs (e.g. incremental toll, tariffs and government levies), ****.

2.4 Warehousing Services Standards.  In addition to complying with the Services Specifications and Key Performance Measures and the representations set forth in Section 4.6 of this Agreement, C&S covenants and agrees to perform the Warehousing Services and to maintain and operate the C&S Facilities (including the cleanliness thereof) with the degree of care, skill and diligence consistent with an experienced, reputable warehouseman operating a warehouse and distribution service network for the Product Categories.

2.5 C&S Covenants.   In addition to any of its other obligations as set out in this Agreement, C&S covenants and agrees that during the Term it will:

(a)   take all necessary and desirable steps and precautions to protect Merchandise from weather, water, theft, vandalism and all other reasonably foreseeable hazards and damages;

(b)   comply with all federal, state and municipal governmental laws, rules, regulations, by-laws, zoning legislation, guidelines, ordinances, orders of any governmental body, and any other restrictions, covenants and other limitations (including, without limit, those in respect of environmental and health and safety matters) applicable to the occupation and operation of the C&S Facilities and the performance of the Warehousing Services and to otherwise comply with the terms and conditions of this Agreement.  C&S shall keep in full force and effect all licenses, registrations and other qualifications imposed by any applicable governmental authorities necessary to occupy and operate the C&S Facilities,

****Confidential material redacted and filed separately with the Securities and Exchange Commission.

and to provide the Warehousing Services and to otherwise fulfill the terms and conditions of this Agreement;

(c)   except as otherwise instructed by A&P, not place any Merchandise in proximity to any other products or any material that is or may be noxious, flammable, hazardous or whose characteristics may adversely affect the quality, fitness or intended purpose, merchantability and other characteristics of the Merchandise or otherwise cause in any manner whatsoever Merchandise to be adulterated or deteriorate; and

(d)   maintain all of the C&S Facilities and equipment utilized in the performance of the Services in good working order and promptly (or as soon as practicable in the case of refrigeration equipment) repair and/or replace any equipment that may prevent or hinder C&S’s ability to provide the Services in accordance with the terms and conditions of this Agreement.

2.6 Accounts Receivables Deductions.  The Parties agree that throughout the Term of this Agreement, A&P shall not contract with any third party for the performance of, and C&S will be the exclusive provider of, processing and collection services on A&P’s behalf with respect to A&P’s deductions for all accounts receivable amounts that are due A&P ****.

****Confidential material redacted and filed separately with the Securities and Exchange Commission.

2.7   Other Services.

(a)   Coupon Processing.  The parties agree that for the Term of this Agreement, A&P will not perform on its own behalf or contract with any third party other than C&S for, and C&S will be A&P’s exclusive provider of, manufacturer paper coupon processing services with respect to all of the A&P Stores. ****

(b)   Reclamation.    C&S agrees that throughout the Term of this Agreement A&P will not perform on its own behalf or contract with any third party for the performance of, and C&S will be A&P’s exclusive provider of,  reclamation services (the “Reclamation Services”) with respect to all damaged, discontinued or unsaleable Merchandise located at the A&P Stores in accordance with the terms and conditions set forth in Schedule 2.7(b)  hereto.

****Confidential material redacted and filed separately with the Securities and Exchange Commission.

2.8  Variable Warehouse Upcharge.  As consideration for performing the Warehousing Services hereunder, A&P shall pay to C&S an amount (the “Variable Warehouse Upcharge”) equal to A&P’s dollar purchases of Merchandise from C&S **** for each of the following Product Categories, multiplied by such Product Category’s corresponding Variable Warehouse Upcharge, as stated below:

****	****
****	****
****	****
****	****
****	****
****	****
****	****
****	****
****	****
****	****
****	****
****	****
****	****

Notwithstanding the foregoing, ****

****:

****Confidential material redacted and filed separately with the Securities and Exchange Commission.

****
	****	****	****	****	****
****	****	****	****	****	****
****	****	****	****	****	****
****	****	****	****	****	****
****	****	****	****	****	****
****	****	****	****	****	****
****	****	****	****	****	****
****	****	****	****	****	****
****	****	****	****	****	****
****	****	****	****	****	****
****
	****	****	****	****	****
****	****	****	****	****	****
****	****	****	****	****	****
****	****	****	****	****	****
****	****	****	****	****	****
****	****	****	****	****	****
****	****	****	****	****	****
****	****	****	****	****	****
****	****	****	****	****	****
****	****	****	****	****	****

2.9 Fixed Warehouse Charge.

(a)  As additional consideration for performing the Warehousing Services hereunder, A&P shall pay to C&S a fixed amount (the “Fixed Warehouse Charge”) equal to **** per Contract Year (or prorated for any portion thereof), which is allocated across Product Category Groups as indicated in the below table.  The Product Category Groups shall be four (4) in number and consist of: ****.

****	****
****	****

****Confidential material redacted and filed separately with the Securities and Exchange Commission.

****	****
****	****
****	****

(b) For each week between the Effective Date and the earlier of (x) the Reorganization Plan Effective Date or (y) the Effective Date of Termination, A&P shall pay an additional weekly fixed amount as set forth on Schedule 2.9 hereof (the “Interim Fixed Warehouse Charge”).

2.10    Payment.  Together, the Variable Warehouse Upcharge, the Fixed Warehouse Charge and the Interim Fixed Warehouse Charge shall be referred to as the Warehousing Costs.  The Warehousing Costs shall be payable to C&S in accordance with Article 5 hereof.

2.11 Adjustments to Fixed and Variable Charges Due to Volume Changes.  To the extent A&P’s actual purchase volume of Merchandise **** in any Contract Year after the Reorganization Plan Effective Date increases or decreases by more than **** from A&P’s purchase volume of ****, the Parties will negotiate in good faith an appropriate adjustment to the Fixed and Variable Warehouse Charges set forth in Sections 2.8 and 2.9 above, and Fixed and Variable Transportation Charges set forth in Sections 3.9 and 3.10 below.  ****.

2.12 CPI Adjustment.  Upon the **** anniversary of the Reorganization Plan Effective Date (the “Adjustment Date”), ****.

****Confidential material redacted and filed separately with the Securities and Exchange Commission.

ARTICLE 3

TRANSPORTATION SERVICES

3.1   General.  During the Term of this Agreement, C&S shall provide comprehensive managed transportation services for the benefit of the A&P Stores.  C&S shall be responsible for the design, development and implementation of the transportation activities, including, but not limited to, the independent oversight and management of the inbound transportation of Merchandise to the C&S Facilities and/or the A&P Stores and the routing and overall management of outbound transportation and delivery of Merchandise from the C&S Facilities to the A&P Stores (the “Transportation Services”).  C&S shall arrange, through the hiring of reputable contract carriers, for the provision of Transportation Services, including such accessorial and special services that may relate to Transportation Services and may be requested by A&P, and to adhere to, and to cause its contract carriers to adhere to, the standards of service, delivery specifications, and other service requirements as may be set forth in the Service Specifications.  C&S acknowledges and agrees that it will be responsible to A&P for the performance of the Transportation Services by such contract carriers.  For the purposes of this Article 3, any reference to C&S shall also be deemed a reference to any contract carrier hired by C&S in performance of the Transportation Services.  A&P agrees that it shall provide C&S and/or its contract carrier suitable office space and telephone/Internet connectivity to operate an administrative office in or adjacent to the Edison GMDC facility at no additional cost to C&S.

3.2   Transportation Services Standards.  In addition to complying with the Services Specifications and Key Performance Measures and the representations set forth in Section 4.6 of this Agreement, C&S covenants and agrees to perform the Transportation Services with the degree of care, skill and diligence consistent with an experienced, reputable third party carrier performing trucking and related transportation services for the Product Categories.

3.3   A&P Right to Assume Transportation Services.   The Parties agree that, in its sole and exclusive discretion, A&P may elect, upon **** days prior written notice to C&S, to assume exclusive responsibility for, or to contract with any third party to manage, all or any of the Transportation Services, provided that:  a) A&P shall be responsible for (i) assuming from C&S such tractors, trailers or other similar assets or equipment owned or leased by C&S that were utilized by C&S in performing the Transportation Services and that C&S certifies will no longer be utilized elsewhere in C&S’s business once A&P assumes the Transportation Services (or portion thereof), giving due consideration to the ordinary and customary requirements of C&S’s business; (ii) paying reasonable severance and shut-down expenses, if any, related to the termination of any or all of the Transportation Services;  and (iii) paying to C&S the ****;  and b) the parties shall in good faith negotiate an adjustment to the Fixed Transportation Charge and Variable Transportation Charge provided for in Sections 3.9 and 3.10 below, to take effect upon A&P’s assumption of all or any of the Transportation Services.  ****.  C&S agrees that upon receipt of written notice of A&P’s intent to assume Transportation Services hereunder it will use commercially reasonable efforts to dispose of the assets and equipment referred to in the first sentence of this Section 3.3 (to the extent such equipment is not needed by A&P or its designee), to re-deploy employees (or to cause its third-party carriers to re-deploy employees)

****Confidential material redacted and filed separately with the Securities and Exchange Commission.

and take other action to minimize severance costs and to otherwise mitigate the costs and obligations to be assumed by A&P upon exercise of its rights under this Section 3.3.

3.4   Title to Merchandise.  Title to and risk of loss to all Merchandise shall remain with C&S until such time as the Merchandise is delivered to A&P.  For the purposes of this Section, “delivery” shall be deemed to have occurred when the Merchandise arrives at the A&P Store and is unloaded from the trailer utilized by C&S.  Delivery shall be evidenced by route manifests maintained by C&S and countersigned by A&P.  However, if A&P directs that a trailer containing Merchandise be parked at an A&P Store drop area designated by A&P for later unloading, delivery will be deemed to have occurred when the trailer is parked as directed by A&P.  If A&P performs, or makes arrangements with contract carriers to perform the Transportation Services, or in the event A&P elects to have Merchandise picked up at C&S Facilities for any reason,  delivery will be deemed to have occurred at such time as the trailer containing Merchandise is sealed at the applicable shipping Facility.  The parties shall, respectively, be fully liable for loss of, theft of, destruction or damage to, any and all Merchandise while in its care, custody and/or control.

3.5   Transportation Covenants.  C&S shall cause its contract carriers to, comply with, and to ensure compliance with, all applicable material federal, state and local laws and regulations of the respective regulatory bodies having jurisdiction over the rendering of the Transportation Services (collectively, the “Transportation Laws”) including, but not limited to, such Transportation Laws governing the ownership, operation and use of vehicles to be used by C&S in connection with its performance hereunder.  C&S agrees to ensure that all drivers are properly licensed in accordance with applicable Transportation Laws and that all drivers are thoroughly familiar with the equipment and operations of any vehicles and operate each vehicle in a safe and workmanlike manner.  Without limiting the foregoing, C&S shall pay any and all fees, taxes, assessments, fines, penalties and other amounts payable in respect of C&S’s compliance (or non-compliance) with Transportation Laws directly related to the Transportation Services, maintain all books and records, display all identifying symbols showing C&S’s carrier classification, and maintain all workman’s compensation and liability insurance or other protection as required by the Transportation Laws and/or otherwise related to performance of the Transportation Services.

3.6   Licenses and Permits.  C&S will ensure that its contract carriers have obtained, and will maintain in full force and effect during the Term, all permits, licenses and authorizations required by the Transportation Laws or otherwise necessary or appropriate for it to carry out the Transportation Services under the Agreement.  Without limiting the generality of the foregoing, C&S will use contract carriers that hold valid and effective permits as a highway carrier from the Departments of Transportation (or the relevant analogs thereto) in all applicable jurisdictions, and has and will maintain in full force and effect at all times during the term hereof all other permits, licenses, certifications and other authorizations from said Departments and any other federal or state agencies having jurisdiction over the Transportation Services.

3.7   Equipment.  C&S shall, and shall cause its contract carriers to, maintain all vehicles and other equipment used in connection with the Transportation Services in good and safe condition, both as to operation and appearance, and shall perform in accordance with applicable Transportation Laws with respect to the maintenance and operation of such vehicles and other equipment.

3.8   A&P Store Requirements.  C&S will cause its contract carriers to comply with commercially reasonable direction provided by A&P with respect to any real estate lease for any A&P Store that is applicable to the Transportation Services, as communicated by A&P (it being understood that C&S shall not be liable for A&P’s compliance with the terms of any real estate lease, but shall only be responsible for fulfilling its obligations under this Agreement).

3.9   Variable Transportation Upcharge.  As consideration for performing the Transportation Services hereunder, A&P shall pay to C&S an amount (the “Variable Transportation Upcharge”) equal to ****, as stated below:

**** ****

****	****
****	****

****	****
****	****
****	****

****	****
****	****

****

****	****
****	****
****	****
****	****
****	****
****	****
****	****

****

****	****
****	****
****	****
****	****
****	****
****	****
****	****

****.

3.10   Fixed Transportation Charge.  As additional consideration for performing the Transportation Services hereunder, A&P shall pay to C&S ****.  Where applicable, the Fixed Transportation Charge is subject to adjustment in accordance with Section 2.11 above. Together, the Variable Transportation Upcharge and the Fixed Transportation Charge shall be referred to as the Transportation Costs.

The Transportation Costs shall be payable to C&S in accordance with Article 5 hereof.

3.11 Transportation Start-Up Costs.  As additional consideration for performing the Transportation Services hereunder, A&P shall pay to C&S ****.  The Weekly Transportation Start-Up Charge shall be billed in accordance with Article 5.

3.12 ****.

3.13 Weekly Fuel Cost Adjustment.  C&S and A&P agree that a fuel surcharge (“Total Miles Fuel Surcharge”) for the total miles driven to service the A&P Stores will be assessed weekly, and paid by (or credited to) A&P, as applicable, in the event that the applicable DOE index price in the previous week exceeds (or is below) the Baseline Cost.  For purposes of this provision, the Baseline Cost shall be ****.  For reefer fuel, the DOE index price will be used, less road and other inapplicable taxes.   The Total Miles Fuel Surcharge shall be assessed pursuant to the example attached on Schedule 3.12 and shall be made up of both the Delivery Fuel Surcharge and the Reefer Fuel Surcharge.

The Delivery Fuel Surcharge shall be applied to Total Miles.  Fuel consumption will initially be set at **** miles per gallon, and will be reviewed and adjusted as necessary to reflect actual consumption once per quarter hereunder.

In addition to the Delivery Fuel Surcharge, the Reefer Fuel Surcharge shall be applied to all A&P refrigerated or frozen loads  (“Chill/Frozen Miles”).  The following assumptions will be used to calculate the Reefer Fuel Surcharge:****.

****Confidential material redacted and filed separately with the Securities and Exchange Commission.

The Total Miles Fuel Surcharge will be billed (or credited) to A&P weekly.  For purposes of this Agreement, Total Miles shall equal the routed delivery miles to service A&P plus an appropriate adjustment to more accurately capture actual miles.  

3.14 Transportation Modeling Assumptions.  The Transportation Costs stated herein are based on the operating assumptions and parameters as set forth in Schedule 3.14.  The Transportation Costs are inclusive of store delivery and associated routine returns of product, pallets, totes and recyclables only. Special services, transfers, additional drop trailers and other requests from A&P shall be billed to A&P at cost.  C&S shall provide a detailed accounting of all charges relating to special services hereunder.  Any material change to (i) the average distance to service the A&P Stores caused by closures, openings or acquisitions of stores that are serviced under this Agreement; (ii) the composition of Edison-based direct store delivery versus cross dock shuttles; or (iii) a **** variation (up or down) in C&S’s actual cost per case of providing the Transportation Services (excluding fuel) resulting from a change in the operating assumptions or parameters as set forth in Schedule 3.14, will necessitate that the parties in good faith negotiate an appropriate adjustment to the applicable Transportation Costs.  Notwithstanding the foregoing, the parties shall not be under any obligation to negotiate adjustments to the Transportation Costs to the extent C&S has changed shipping origins under Section 2.3 and A&P’s has not specifically agreed in writing to negotiate adjustments as a result of such change(s), or to the extent there occur changes in the assumptions or parameters in Schedule 3.14, or C&S has implemented changes in its business or operations, that were not necessitated by a change in A&P’s business or due to the actions or omissions of A&P.

A&P further agrees that it will cooperate with C&S to ensure, where commercially reasonable, that trucks are full, including adjusting schedules and permitting split deliveries.

3.15 Adjustment of Transportation Costs.

(a) During the Term, ****.

(b) At C&S’s option, ****.  A&P will work with C&S in good faith to assume tractors, trailers or other assets or equipment owned or leased by C&S and used in performing the Transportation Services to the extent (i) such equipment will no longer be used in C&S’s business, (ii) such equipment has not been specially modified or customized for C&S’s use in any way that would render such equipment unusable to A&P or its agent, (iii) such equipment reflects, as a whole,

****Confidential material redacted and filed separately with the Securities and Exchange Commission.

the average lease term for such type of equipment as used in the Transportation Services (e.g. an average of approximately 2.5 years remaining on tractor leases and an average of approximately 3.5 years remaining on trailer leases), (iv) A&P will not be requested to assume more equipment than A&P reasonably determines would be required to perform the Transportation Services for the A&P Stores;  and (v) the C&S equipment is offered to A&P on commercially reasonable terms.  Noting in the foregoing shall be construed to limit or restrict A&P’s ability to assume any or all Transportation Services as otherwise provided under Section 3.3 hereof.

ARTICLE 4

PROCUREMENT AND PURCHASING SERVICES

I.  GENERAL

4.1 Merchandise.  Subject to the terms and conditions set forth in this Agreement, A&P agrees to purchase from C&S, and C&S agrees to sell to A&P, A&P’s entire requirements of merchandise customarily associated with the following product categories (each, a “Product Category” and, collectively, the “Product Categories”):  ****.

4.2 Exclusivity.  Except as may be otherwise expressly stated in this Agreement, A&P agrees that for the Term of this Agreement it shall not contract with any unaffiliated third party other than C&S to procure and/or purchase the Merchandise.   Notwithstanding the preceding paragraph, nothing in this Agreement shall be deemed to prohibit or restrict A&P from temporarily performing the procurement and/or purchasing function with respect to any Merchandise where C&S has failed, or where A&P has an objectively  reasonable basis to believe that C&S will fail, to meet the Targeted Service Level during any Contract Week for any C&S Facility or for any Product Category within a C&S Facility. In the event A&P exercises its rights under the preceding sentence, A&P agrees to perform only such scope and duration of procurement and/or purchasing functions as are necessary to mitigate C&S’s actual or anticipated failure to meet the Targeted Service Level as above described.

4.3 Procurement and Purchasing Standards.    In addition to complying with the Services Specifications and Key Performance Measures and the other C&S covenants, warranties and representations contained in this Agreement, C&S covenants and agrees to perform the Procurement and Purchasing Services with the degree of care, skill and diligence consistent with an experienced, reputable grocery wholesale supplier providing procurement, purchasing and related grocery wholesale supply services.

****Confidential material redacted and filed separately with the Securities and Exchange Commission.

4.4 A&P Stores.  The term “A&P Stores” means all retail supermarket stores operated by A&P  set forth on Exhibit “A”, attached hereto.  In addition, the term “A&P Stores” shall include any retail supermarket store(s) that are  replacement(s) for one or more A&P Stores, or any new, incremental “in-market” retail supermarket store opened (or acquired) and operated by A&P.  For the purposes of the preceding sentence, a store shall qualify as “in-market” where such store is located within:  (i) the states in which A&P Stores are operated as of the Effective Date; or (ii) the states that are contiguous to the states in which A&P Stores are operated as of the Effective Date ****.  Nothing in this Section 4.4 or this Agreement shall limit the ability of A&P to close any of the A&P Stores set forth on Exhibit “A” hereto (which closure(s) shall automatically result in the definition of “A&P Stores” changing to exclude any store closed after the date hereof).

4.5 Exclusions.

(a) Merchandise does not include the following products:

(i)   products that are available for purchase by A&P through direct store delivery (“DSD”) or from cross dock vendors and designated as DSD or cross dock by A&P from time to time, with the understanding that A&P shall in no respect be prohibited or limited from designating on a temporary or long-term basis any Merchandise or other products as DSD or cross-dock, provided that A&P’s discretion under this section shall be limited to:  (x) private label products;  (y) seasonal and/or promotional products;  and (z) no more than **** of all other Center Store Products that are not currently designated by A&P as DSD or cross-dock (A&P will provide C&S with advance notice of its intention to designate any Center-Store Products as cross-dock or DSD); and ****;

(ii)   seasonal GM or other specialty products as may from time to time, or at any time, be so designated by A&P in its sole discretion, which may include (by way of example but not exclusion) natural, organic and private label products, which are now or in the future may be procured and purchased by A&P from specialty suppliers, except as may be otherwise agreed to by the parties in writing;  provided that if C&S can offer competitive pricing, services (including pack-out services), payment terms, credit requirements or other program attributes with respect to products falling under this subsection “(ii)”, A&P will agree to purchase such products from C&S (subject to any contractual commitments A&P may have with any alternative supplier of such products);

(iii)   distribution of private label products or other proprietary brands outside of A&P’s market and in all cases outside of the A&P Stores;

(iv)    tobacco;

(v)    pharmacy (prescription medications); or

****Confidential material redacted and filed separately with the Securities and Exchange Commission.

(vi)    liquor.

If any product excluded from Merchandise is proposed by either party to be included as Merchandise under the Agreement, and if A&P agrees in its sole discretion to include such product as Merchandise, the parties shall negotiate in good faith as to the terms governing such inclusion, or shall enter into a separate agreement thereto.

4.6  C&S Representations. C&S makes the following representations, warranties and guarantees, which with respect to the Merchandise C&S’s commitments apply only to the period of time such Merchandise is in C&S’s or its contract carriers’ care, custody or control:

(a)  C&S shall not adulterate or misbrand Merchandise within the meaning of the Federal Food, Drug and Cosmetic Act, as amended, (“FDCA”), including, without limitation, the Food Additives Amendment and any other amendment thereto, and any state food and drug law, and shall not add to Merchandise any articles that may not, pursuant to Sections 404 or 505 of the FDCA, the Federal Hazardous Substances Act (“FHSA”), or otherwise, be introduced into interstate commerce; C&S shall comply with the Federal Meat Inspection Act, the Poultry Products Inspection Act, and all other applicable federal, state and local food safety related laws, rules and regulations.

(b) C&S shall not misbrand or mislabel Merchandise within the meaning of the FHSA or any other law or regulation, and will not add to Merchandise any articles that constitute or contain an economic poison as defined in the Federal Insecticide, Fungicide, and Rodenticide Act, and comply with all other applicable provisions of such Act (7 U.S.C.A. 135-135k); C&S shall comply with all applicable Occupational Safety and Health Administration Standards.

(c) C&S shall not alter the packaging, advertising, labels and other materials contained on, with, or relating to the Merchandise so as to infringe any patent, copyright, trademark, trade name or other proprietary interest of any third party.

(d)  The Merchandise and C&S’s sale, storage, handling, transportation and billing for the Merchandise comply with all provisions of applicable law and with all applicable promulgations of governmental authority.

(e)  C&S is the lawful owner of the Merchandise, has good right to sell same and convey good and merchantable title, and the Merchandise is and will be conveyed free of any and all claims, liens, security interests or other encumbrances.

(f)  C&S shall not do anything that shall render the Merchandise of a less than merchantable quality.  C&S and the Merchandise complies (or prior to the Effective Date will be in full compliance) with all federal, state and local Country of Origin labeling and related requirements, including those required by the U.S. Customs Service, those contained in the Agricultural Marketing Act, as amended by the 2002 Farm Bill, and the implementing regulations (collectively, “Country of Origin Requirements”), and will provide to A&P all reasonable assistance requested by A&P and information necessary to enable A&P to comply with the Country of Origin Requirements as they apply to Merchandise sold under this Agreement.  In particular, C&S will:

(i)  ship Merchandise appropriately labeled by the manufacturer with Country of Origin declarations;

(ii)  comply with all record keeping and product segregation standards required by the Country of Origin Requirements; and

(iii)  provide to A&P upon written request no more often than once each Contract Year a certification that C&S is in compliance with the Country of Origin Requirements.

(g)  C&S will perform the Services in compliance with, and in every manner of its respective business related to the Agreement obey and conform to, all applicable laws, rules and regulations, both domestic and foreign, now existing or which may be later adopted.

The representations, warranties and guarantees contained in this Section 4.6 run solely to A&P and its successors and assigns.  The representations, warranties and guarantees set forth in this Section 4.6 are continuing in nature and survive A&P’s payment, acceptance, inspection or failure to inspect the Merchandise.

Except as otherwise expressly stated in this Agreement, C&S expressly disclaims any unstated or implied warranties, including warranties of merchantability or fitness for a particular purpose.

II. PROCUREMENT

4.7   Procurement Generally.  For purposes of this Agreement, to “procure” or to perform “Procurement Services” shall mean to negotiate directly or indirectly with the applicable vendor with respect to terms of the purchase of goods including, but not limited to (as applicable), price, specifications, quantity, freight and **** (collectively, the “Purchase Terms”).  The responsibility for procuring Merchandise is allocated between A&P and C&S under this Article 4. A&P shall have exclusive responsibility for procuring the goods that are excluded from Merchandise as set forth in Section 4.5(a), hereof.

(a)    Allocation of Procurement Responsibility - General.  ****.

(b)   Fresh Meat and Produce - Product Specifications.  A&P, in its sole discretion and with such frequency as it shall decide (provided there is reasonable advance notice), shall determine and provide to C&S, in writing, detailed item specifications for all Fresh Meat and other Fresh Products.  Except as otherwise set forth below, such item specifications shall not prescribe a specific vendor from which to purchase the item.

(c)   Fresh Meat - Procurement.   A&P shall have the authority to direct, in its discretion, all procurement activities in the Fresh Meat category, including vendor selection and contracted product pricing; provided, ****.

****. A&P will preorder all poultry products so as to permit C&S to effectively manage inventory levels and avoid code dating or availability issues.

(d)   Produce - Procurement.   Subject to meeting A&P’s product specifications as set forth in subparagraph (b) of this Section 4.7, ****.

III.  PURCHASING

4.8  Purchasing Generally.  For the purposes of this Agreement, to “purchase” or to perform “Purchasing Services” shall mean to: (a) perform the physical act of purchasing goods through the execution and tender of purchase orders to an applicable vendor;  (b) to pay for such goods; and (c) to own such goods for the period immediately preceding their resale to A&P.  A&P shall have exclusive responsibility for purchasing the goods that are excluded from Merchandise as set forth in Section 4.5(a), hereof.

4.9  Center Store Products Purchasing

(a) C&S shall purchase and manage the regular turn Center-Store Products inventory intended for use or resale at the A&P Stores.  C&S’s management of A&P’s regular turn Center-Store Products inventory shall be based upon historic Center-Store Products turn information maintained by C&S, product specifications supplied by A&P, and other projections and other information provided by A&P to C&S. C&S shall be responsible for determining the quantity and delivery date of the regular turn Center-Store Products inventory.

(b) C&S shall purchase promotional or other high-velocity Center-Store Products inventory intended for use or resale at the A&P Stores as directed by A&P.  C&S’s purchase of promotional or high-velocity Center-Store Products shall be based upon A&P’s advance estimates of promotional volumes, product specifications, purchase quantities, delivery dates, store-specific volume allocations (as further set forth in the Service Specifications) and other Center-Store Products information supplied by A&P to C&S, and other projections and other information and direction provided by A&P to C&S.

(c)   C&S agrees that it shall maintain and provide A&P, on a daily basis, detailed inventory date code viewing and close dated reports with respect to all Center-Store Products that have code dates.  In addition, C&S will work with A&P to maintain and provide such other reports or information required under the Service Specifications, or develop such reports to the extent they are not already provided. On the first Tuesday following the end of each Fiscal Accounting Period (but in no event sooner

****Confidential material redacted and filed separately with the Securities and Exchange Commission.

than 2 days following the end of the Fiscal Accounting Period), C&S will provide to A&P movement reports ****.

4.10  Fresh Products Purchasing.

(a) General.  ****. Under no circumstances shall C&S substitute for any Fresh Products alternative goods that do not possess the identical product specifications as those designated by A&P without A&P’s express written consent.  A&P agrees to respond in a timely manner to C&S requests to substitute Fresh Products in order to meet A&P’s service requirements in the event a vendor designated by A&P (only as such designation is permitted under this Agreement) is unable to fulfill an order.

(b) Purchases – Regular Turn Inventory.  C&S shall purchase and manage the regular turn Fresh Products inventory intended for use or resale at the A&P Stores.  C&S’s management of A&P’s regular turn Fresh Products inventory shall be based upon historic Fresh Products turn information maintained by C&S, product specifications and vendor designations (only as such designation is permitted under this Agreement)  supplied by A&P, and other projections and other information provided by A&P to C&S.  ****.

(c) Purchases – Promotional. C&S shall purchase promotional or other high-velocity Fresh Products inventory intended for use or resale at the A&P Stores.  C&S’s purchase of promotional or high-velocity Fresh Products (which shall include turkey, shrimp, crab and other high-tonnage categories of frozen commodities) shall be based upon A&P’s advance estimates of promotional volumes, product specifications, vendor designations (only as such designation is permitted under this Agreement), purchase quantities, delivery dates, store specific volume allocations, and other Fresh Products information supplied by A&P to C&S.

(d) Inspections.  C&S will be responsible for the inspection of all Fresh Products prior to their acceptance at the Facilities by C&S to ensure strict compliance with A&P’s Fresh Products specifications.  If A&P requests that C&S accept any Fresh Products that C&S would otherwise reject, A&P and C&S will agree on a plan of distribution for such Fresh Products and C&S will not be responsible for out-of-code or quality issues related to such product.  The parties agree that they shall use USDA/PACA standards for determining whether Fresh Products should be accepted or pulled from received inventory.  Product that meets US Grade # 1 or “Good” delivery shall be acceptable for C&S to receive.

(e)  Information and Reports.  C&S agrees that it shall maintain and provide to A&P, on a daily basis, detailed inventory date code viewing with respect to short coded items and close dated reports with respect to all Fresh Products intended for use or resale at

****Confidential material redacted and filed separately with the Securities and Exchange Commission.

the A&P Stores, along with any other reports or information required under the Service Specifications.  In addition, C&S will provide A&P on a daily basis a daily inventory report on all fresh seafood slots/SKUs at the C&S Facilities, which shall be prepared and maintained by C&S in accordance with mutually agreed upon polling Sections and other specifications.  The Parties agree to collaborate closely on minimizing out-of-code Fresh Product.

(f)  Exact Weight - Meat.  C&S shall invoice A&P for the exact weight of all fresh and frozen meat products in Facilities with voice selection technology, which information shall be scanned from the case packaging of the meat products as they are selected by C&S for delivery to the A&P Stores.

(g)  Product Handling Requirements.  C&S shall receive, store, handle and distribute all Fresh Products in strict accordance with the Fresh Products handling requirements set forth in the Service Specifications.

(h) Holiday and Seasonal Commodities.  A&P shall be responsible for all pre-distribution, storage and handling of frozen holiday and seasonal commodities (primarily, but not exclusively, holiday turkeys and shrimp).  A&P shall purchase such goods, place them in outside storage, and will be responsible for all outside storage expenses.  With respect to the initial distribution of such goods, C&S will receive such products from the outside storage facilities two days prior to the agreed upon distribution or store order billing date for such goods.  All such product must be distributed (i) no later than the Sunday immediately following Thanksgiving for Thanksgiving items and (ii) by February 1 for all Christmas and New Year’s items.  It is the intent of this section that C&S shall not have to store in its facilities any frozen holiday or seasonal commodities for more than two weeks.

IV. TERMS COMMON TO ALL PROCUREMENT AND PURCHASING

4.11 Quality Assurance.  The parties agree that A&P shall maintain, at its own expense, Quality Assurance inspectors at each C&S Facility to determine whether the product specifications, Performance Standards, and C&S’s other obligations under this Agreement are being met and maintained.

4.12 Assumptions.  The pricing provisions set forth in this Agreement are based upon the parties mutual assumption that:  a) deal activity and other manufacturers’ promotions will remain at levels throughout the Term that are essentially the same as those prior to the execution of this Agreement;  b) that no fundamental changes will occur in the structuring of promotions or other facts affecting the wholesale cost of Merchandise;  c) ****;  and d) ****.  If the parties’ mutual assumptions cease to be true to a material degree at any time during the Term, or if A&P implements a material change in its sales mix, store delivery schedules or other similar change in the way it operates the A&P Stores that has a material effect on C&S’s costs of performing the Warehousing Services or Transportation Services (but specifically excluding cost impacts relating to changes in A&P Volume which are addressed in Section 2.11 hereof), the parties agree to negotiate in good faith to reach agreement on new, mutually acceptable Warehousing Costs and Transportation

****Confidential material redacted and filed separately with the Securities and Exchange Commission.

Costs (as the case may be) that will to the greatest extent possible restore the respective economic expectations held by the Parties as of the Effective Date.  The parties further agree that any willful breach of sub-section “d” above shall constitute a material breach for which the non-breaching party shall be entitled to terminate this Agreement in accordance with Article 7.

4.13 Service Levels.  C&S agrees that, commencing on the Effective Date and continuing during the Term of this Agreement, the target service level and punitive service level for all Merchandise purchased by C&S on A&P’s behalf (the “Targeted Service Level” and “Penalty Service Level”, respectively and each a “Purchasing Service Level”), together with the penalties for failing to meet any Penalty Service Level, shall be as set forth in the Key Performance Measures attached hereto this Agreement as Exhibit “C”.  ****.

The “Purchasing Service Level” in each instance is calculated as a ****.  The Purchasing Service Level calculation shall be adjusted at the end of each Contract Week to reflect any shortages from the prior week that are in excess of **** (based on audited results).

“Ad Overpull” shall be defined as any promotional volume in excess of the forecast timely provided by A&P (with respect to whether A&P has provided information “timely” being determined in accordance with the subject vendor’s lead-time requirements).

An item will qualify as a “Manufacturer Out-of-Stock” if:  (i) such item was subject to a product recall; (ii) such Fresh Products item was rejected by C&S on quality-based grounds and such rejection was confirmed by A&P or a USDA inspector; (iii) C&S provides within seven (7) days after shipment to the A&P Stores written proof of out-of-stock status (e.g., a letter from the manufacturer indicating the quantity of the item that was unavailable from the manufacturer for the period in question, or a received purchase order issued within proper lead time indicating the quantity of the item that was cut by the manufacturer); or (iv) the manufacturer has refused to ship product due to a dispute over an A/R Deduction and C&S provides such evidence as described in sub-schedule (iii) in this paragraph.

“Product Category” shall have the meaning set forth in Section 4.1 hereof.

C&S will provide A&P, throughout the Term of this Agreement, on a daily, weekly and Fiscal Accounting Period basis, a “Purchasing Service Level Report” showing, with respect to all orders processed for the given period, the actual Purchasing Service Levels (i) by C&S Facility; (ii) by Product Category within individual C&S Facilities; and (iii) in the aggregate for all C&S Facilities (each, respectively, the “Actual Purchasing Service Level”).

****.  Other consequences or and remedies for Service Level defaults are set forth in Article 7.

****Confidential material redacted and filed separately with the Securities and Exchange Commission.

4.14 ****.

****:

****.

****.

****.

****.

****.

****Confidential material redacted and filed separately with the Securities and Exchange Commission.

****.

****.

****.

4.15 ****.

4.16  Standard Credit Policy.  The Parties agree to the terms and conditions of the Standard Credit

Policy set forth in the Services Specifications attached hereto this Agreement as Exhibit “C”.

4.17  Leftover, Discontinued, Slow Moving and Out of Code Product.   The parties will work together to eliminate items that have limited to no movement for four consecutive weeks, including without limitation working together to have the responsible manufacturer repurchase and remove the inventory.  To minimize such inventory, A&P will give C&S advance notice of any discontinuance to avoid unnecessary ordering.  The parties will likewise work together to minimize (i) leftover ad product through regular communications about ad quantities and promotional forecasts and histories, and (ii) out of code product

****Confidential material redacted and filed separately with the Securities and Exchange Commission.

through regular communication about product that is at or reaching its terminal code life.  A&P agrees that it will work with C&S to re-merchandise all such product and authorize distributions of such product to its stores, and the parties will work together to maximize vendor support where possible.  In the event that there is no disposition or outlet of the product despite all of the mutual efforts cited in this section, C&S shall bill A&P for **** on the next applicable Weekly Statement.

ARTICLE 5

 PAYMENT

5.1 Weekly Statements.  Commencing on the Effective Date and continuing on each Sunday thereafter during the Term of this Agreement, C&S will electronically transmit to A&P a statement (the “Weekly Estimate”) setting forth the estimated amounts payable to C&S for: **** (b) Warehousing Costs, **** and (d) Transportation Costs, in each case (a)-(d) for the forthcoming Contract Week (the “Estimated Weekly Payment Amount”).  In addition, each Sunday during the Term, C&S will electronically transmit to A&P files (such files shall be referred to collectively as the “Weekly Statement”) setting forth all amounts actually due and owing to C&S including, but not limited to, ****, (b) the Warehousing Costs, **** and (d) the Transportation Costs, in each case (a)-(d) for the immediately preceding seven day period ending Saturday (the “Weekly Actual Amount”). The Weekly Statement will include a shipment file with all Merchandise charged to the A&P Stores at the ****; a gross profit file indicating the ****; an Expense/Charge File with all Warehousing Costs, ****, the Transportation Costs and the Fuel Surcharge; and ****. Upon the commencement of the payment terms set forth in Section 5.3 below, the Weekly Estimate, the Estimated Weekly Payment Amount, the Weekly Actual Amount and the Weekly Statement will identify the portion of A&P’s weekly purchases which is comprised of PACA Eligible Merchandise (defined below) and account for such PACA Eligible Merchandise separately.  The Variable Warehouse Upcharge and Variable Transportation Upcharge will be estimated and billed weekly as part of the Estimated Weekly Payment Amount.  ****. The upcharges will not be billed at the invoice level.

****:

****.

****Confidential material redacted and filed separately with the Securities and Exchange Commission.

****. Should the due date of A&P's payment fall on a date on which banks in New York are required to be closed, the due date shall be accelerated to the previous day that banks in New York may legally open.

****

****

****

****

****.

·   ****:

****.

·   ****:

****.

****

****Confidential material redacted and filed separately with the Securities and Exchange Commission.

****

****.

****:

·   ****.

****:

·   ****.

****:

****Confidential material redacted and filed separately with the Securities and Exchange Commission.

****

****.

5.4 Miscellaneous Billing and Payment Matters.

(a) Time is of the essence.  If A&P has failed to make any payment when due pursuant to this Article 5 and A&P has failed to cure the default within seventy-two (72) hours after receivingwritten noticefrom C&S, then C&S shall have the right (which rights shall be nonexclusive, cumulative of and additional to all other remedies) to defer further deliveries until all payments in default have been made, or if such payment is in default for more than five (5) business days following notice from C&S, to terminate this Agreement in accordance with Article 7 hereof.  If either of the Parties in good faith disputes any portion of the Weekly Statement, absent manifest error, such Party shall nonetheless pay the full amount of the statement by the payment due date, without any deductions or offsets; provided, such Party may avail itself of the dispute resolution provision set forth below and in Article 8 hereof with respect to such disputed amount.

(b) Set-off; Recoupment.  (i)  In the event that A&P fails to pay any undisputed amounts due under this Agreement, C&S may set-off or recoup such amounts due against any amounts due by C&S to A&P under this Agreement.  C&S may determine the application of any monies received from A&P against amounts owed to it by A&P.  (ii)  In the event that C&S fails to pay, or to credit, to A&P any undisputed amounts due A&P under this Agreement, A&P may set-off or recoup such amounts due against any amounts due from A&P to C&S.

(c) Bank Holidays.  Should the due date of any of A&P's payments fall on a date on which banks in New York are closed, the due date shall be accelerated to the previous day that banks in New York are open;  provided, however that commencing on the earlier of (i) the thirty-six (36) month anniversary of the Reorganization Plan Effective Date, and (ii) the date on which the fourth week of payment terms for PACA Eligible Merchandise is

****Confidential material redacted and filed separately with the Securities and Exchange Commission.

 repaid under Section 5.3(a) above, the due date shall thereafter be decelerated to the next subsequent day on which banks in New York are open.

5.5  PACA Compliance.  A&P affirms and acknowledges that upon a failure by A&P to make any payment when due pursuant to this Article 5, C&S may fully enforce against A&P any and all rights that C&S may possess pursuant to PACA, with respect to payments subject to such Act.  A&P shall execute and deliver to C&S, from time to time during the term of this Agreement, such documents (including paper or electronic invoices with the required PACA legend) as C&S may reasonably request to create, maintain, acknowledge or confirm the rights of C&S, as affirmed and acknowledged by A&P pursuant to this Article 5.  A&P will cooperate with C&S to add (now and in the future) any appropriate or necessary language to the Weekly Statement, account statements, purchase orders, invoices and other documents and to take any other actions (now and in the future) reasonably requested by C&S to ensure that both Parties are in compliance with PACA, and that, with respect to PACA regulated commodities sold hereunder, C&S can preserve its rights to the PACA trust.

ARTICLE 6

INDEMNIFICATION AND INSURANCE; FORCE MAJEURE

6.1 Indemnification.

(a)   C&S.  C&S shall defend, indemnify and hold harmless A&P and its Affiliates, and their respective employees, servants, agents, independent contractors, successors and assigns from any and all losses, damages, claims, liabilities, causes of action, costs and expenses, including but not limited to reasonable legal fees and costs of settlement (collectively, “Losses”) arising out of or related to any third party claim in connection with or resulting from (i) C&S’s acts, omissions or negligence in its performance of the Services or its other obligations under this Agreement; (ii) C&S’s failure to comply with any applicable laws related to its performance of the Services or its other obligations under this Agreement; or (iii) the acts, omissions or negligence of any third party hired by C&S or its Affiliates in connection with this Agreement;  provided, however, this indemnification and hold harmless with respect to sub-sections (i)-(iii) shall not apply to the extent of any claims arising out of or resulting from the negligence or willful misconduct of A&P, its Affiliates or their respective employees, representatives or agents.    Whenever A&P receives notice of a claim or demand that would be covered by this provision, A&P shall in turn provide C&S with prompt written notice of such claim or demand.

 (b) A&P.  A&P shall defend, indemnify and hold harmless C&S and its Affiliates, and their respective employees, servants, agents, successors and assigns from any and all Losses arising out of or related to any third party claim in connection with or resulting from (i) A&P’s acts, omissions or negligence related to this Agreement; (ii) A&P’s failure to comply with any applicable laws related to Merchandise procured, handled, packaged, used, possessed, transported or stored by A&P; or (iii) acts, omissions or negligence of any Affiliate of A&P or any third party hired by A&P or its Affiliates in connection with this Agreement; provided, however, this indemnification and hold harmless with respect to sub-sections (i)-(iii) shall not apply to the extent of any claims arising out of or resulting from the negligence or willful misconduct of C&S, its Affiliates or their respective employees, representatives or agents.  Whenever C&S receives notice of a claim or demand that would be covered by this provision, C&S shall in turn provide A&P with prompt written notice of such claim or demand.

(c) Product Liability - Infringement. The Parties hereto agree that each shall use commercially reasonable efforts to seek indemnity from the manufacturer of any Merchandise with respect to any and all Losses arising out of or relating to any third party claim in connection with or resulting from (i) actual or alleged product liability or the handling, possession, storage, use or any other dealing by any person of any Merchandise or (ii) any actual or alleged infringement of any trademark, patent, copyright or other intellectual property right.  To the extent C&S has exhausted its efforts to seek indemnity from the manufacturer as set forth in this Section 6.1(c), but was unable to secure such indemnity, A&P shall indemnify C&S with respect to Losses to the extent such Losses are related to private label or A&P unique items (provided such private label or unique item Losses do not arise from or are not related to the negligence or willful misconduct of C&S).  To the extent A&P has utilized commercially reasonable efforts to seek indemnity from the manufacturer as set forth in this Section 6.1(c), but was unable to secure such indemnity, C&S shall indemnify A&P with respect to any Losses arising out of or relating to any third party product liability claim related to C&S’s handling, possession, storage or use of Merchandise, to the extent such claim does not relate to any actual or alleged negligence or willful misconduct of A&P.  Notwithstanding anything to the contrary set forth herein, this paragraph shall not be deemed to prohibit or restrict either Party in any way from seeking indemnification from the other Party under this Article 6.

6.2 Insurance by C&S

(a) Insurance Policies.During the Term of this Agreement, C&S shall carry and maintain the following policies of insurance issued by recognized, reputable insurers reasonably acceptable to A&P and possessing an AM Best rating of AVIII, and naming A&P as an additional insured on all policies except the Workers Compensation and Disability Benefits policies of insurance:

(i)   All Risks of physical damage property insurance for the Facilities and Fixed Assets including Boiler & Machinery coverage, all on a full replacement cost basis,

(ii)   All Risks of physical damage property insurance (including coverage against acts of terrorism and coverage for goods in transit) on all inventories of Merchandise on a full replacement cost basis.

(iii)   Commercial General Liability coverage with a limit of not less than **** per occurrence for bodily injury, personal injury and property damage (with the parties agreement that such threshold limit may be achieved through a combination of primary and umbrella coverage).  Such policy shall include blanket contractual liability coverage and products/completed operations liability coverage.  Products/completed operations liability coverage shall remain in effect for not less than two (2) years after expiration or earlier termination of this Agreement.

(iv)   Workers Compensation and Disability Benefits coverage as required by statute and Employers Liability coverage in a minimum amount of **** per accident/disease.

(v)   Automobile Liability Insurance coverage with a limit of not less than **** per occurrence for bodily injury, personal injury and property damage.

(b) Primary Coverage.  The policies set forth in this Section 6.2 shall be primary with respect to the acts or omissions of C&S.

(c) Subrogation.  C&S agrees to waive all rights of subrogation against A&P and its employees, for damages to the extent such damages are covered by the proceeds of the insurance required by this Agreement.  If the policies of insurance referred to in this Agreement require an endorsement to provide for continued coverage where there is a waiver of subrogation, C&S shall cause them to be so endorsed.

(d) Proof of Insurance.  Not later than ten (10) days prior to the Effective Date, C&S shall provide to A&P certificates evidencing the insurance coverages required of C&S under this Section 6.2, and such certificates shall state that all policies of insurance evidenced therein may not be terminated, cancelled or modified except upon no less than thirty (30) days prior written notice to A&P.  In addition, C&S shall deliver renewal certificates to A&P promptly upon receipt by C&S, and C&S will provide evidence that such coverage did not lapse.

(e) Self-Insurance.  C&S may satisfy certain of its requirements to carry insurance hereunder under a program of self-insurance, subject to A&P’s approval of the risks and coverage amounts to be covered through self insurance, which approval shall not be unreasonably withheld, conditioned or delayed.

6.3 Insurance by A&P.

(a) Insurance Policies.  During the Term of this Agreement A&P shall carry and maintain the following, naming C&S as an additional insured with respect to “i” and “iii” below, policies of insurance issued by recognized, reputable insurers reasonably acceptable to C&S and possessing an AM Best rating of AVIII:

(i) Commercial General Liability coverage with a limit of not less than **** per occurrence for bodily injury, personal injury and property damage (with the parties agreement that such threshold limit may be achieved through a combination of primary and umbrella coverage).   Such policy shall include blanket contractual liability coverage and products/completed operations liability coverage.  Products/completed operations liability coverage shall remain in effect for not less than two (2) years after expiration or earlier termination of this Agreement.

(ii) Workers Compensation and Disability Benefits coverage as required by statute and Employers Liability coverage in a minimum amount of **** per accident/disease.

(iii) Automobile Liability coverage for all vehicles owned, non owned, leased and hired with a limit of not less than **** combined single limit

(a)   Primary Coverage.  The policies set forth in this Schedule 6.3 shall be primary with respect to the acts or omissions of A&P.

(c) Subrogation.  A&P agrees to waive all rights of subrogation against C&S, its employees and transportation vendors, for damages to the extent such damages are covered by the proceeds of the insurance required by this Agreement.  If the policies of insurance referred to in this Agreement require an endorsement to provide for continued coverage where there is a waiver of subrogation, A&P shall cause them to be so endorsed.

(d)   Proof of Insurance.  Not later than ten (10) days prior to the Effective Date, A&P shall provide to C&S certificates evidencing the insurance coverages required of A&P under this Section 6.3 and such certificates shall state that all policies of insurance evidenced therein may not be terminated or cancelled except upon no less than thirty (30) days prior written notice to C&S.  In addition, A&P shall deliver renewal certificates to C&S promptly upon receipt by A&P.

(e)   Self-Insurance.  A&P may satisfy certain of its requirements to carry insurance hereunder under a program of self-insurance, subject to C&S’s approval of the risks and coverage amounts to be covered through self insurance, which approval shall not be unreasonably withheld, conditioned or delayed.

6.4 Force Majeure.

(a)   If either Party is rendered unable at any time, wholly or in part, to perform or comply with any of its obligations under this Agreement, other than obligations regarding the payment of money, by reason of act of God, force of nature, fire, or other casualty, eminent domain, war-like activity, utility failure, insurrection, or civil commotion, shortage of raw materials or supplies, any law, regulation or order by any governmental body or authority of competent jurisdiction, or any other cause beyond its reasonable control, or beyond the control of any person directly or indirectly engaged by it (any such event being referred to as a “Force Majeure”), the obligations of such Partyshall be suspended for the duration of the Force Majeure, but only to the extent such event of Force Majeure impairs the Party’s ability to perform its obligations under this Agreement.

(b)   As soon as the Party whose performance is affected by the Force Majeure (the “Affected Party”) becomes aware that an event of Force Majeure has occurred or is likely to occur, such Affected Partywill notify the other Party.  Upon receipt of such notice by the other Party,representatives of the Parties shall meet to establish plans and procedures to overcome or mitigate the effects of the Force Majeure and the Affected Partyshall use all reasonable efforts to minimize any adverse effects on the other Party.

(c)   The foregoing notwithstanding, if the Force Majeure causes C&S to be unable to render substantial performance of its obligations under this Agreement, which inability causes substantial damage to A&P and A&Pcan either render such performance itself or obtain such performance from a third party, then A&P may perform or engage third parties to perform the Services until A&P is satisfied, in its sole discretion, that C&S is able to resume the performance of the Services.

(d)   Either party shall have the right to terminate this Agreement (but only to the extent of the Services that are impacted by the Force Majeure) without penalty if, due to a Force Majeure event which has occurred and is continuing, C&S is unable to perform any material obligation, as and when required, under this Agreement for more than sixty (60) consecutive days.

6.5 Disaster and Recovery Plans. Each of the Parties shall maintain a disaster and recovery plan that is specific to the performance of their respective obligations under this Agreement and to the information systems maintained by the respective Parties in connection with this Agreement.  Each Party shall have the right to audit, test and review the other Party’s disaster and recovery plan, and may conduct on-site interviews with relevant officers and employees.

ARTICLE 7

TERM AND TERMINATION

7.1 Term.  This Agreement will commence on the Effective Date and terminate on the effective date of a chapter 11 plan for A&P, subject to earlier termination as provided in this Article 7; provided, however, that if such plan effective date is a Reorganization Plan Effective Date, then either C&S or A&P may elect, on or before the seventh day prior to the commencement of the hearing by the Bankruptcy Court to approve a Reorganization Plan, to extend the term of this Agreement through the date when A&P has purchased no less than **** of Merchandise from C&S (exclusive of Warehouse Costs, Transportation Costs, the Weekly Transportation Start-Up Charge, and other fees, charges and taxes applicable to the sale of Merchandise hereunder, but including any purchases of Merchandise that may be made by A&P through alternative sources of supply as a result of C&S’s failure to meet its obligations hereunder). The failure of either Party to elect to extend the Term of this Agreement no later than the seventh day prior to the commencement of the hearing by the Bankruptcy Court to approve a Reorganization Plan shall be deemed a Special Circumstances Termination pursuant to Section 7.6 hereof.  Upon the extension of the Term, ****. Unless the Parties otherwise agree in writing, the Parties shall cooperate in good faith to ensure that upon the expiration or earlier termination of this Agreement, the Services and inventory of Merchandise purchased by C&S on A&P’s behalf are transitioned or sold, as applicable, to A&P or A&P’s designee in accordance with Section 7.8.  ****.  All volume thresholds, purchase requirements, ****, guarantees, payment obligations or other obligations under this Agreement, and any actual amounts measured against such thresholds, requirements, etc., which are measured in Contract Years, Contract Quarters and/or Contract Weeks shall be prorated for the actual number of days in the first and final Contract Year, Contract Quarter and/or Contract Week, as applicable.

7.2 C&S Events of Default. Subject to any applicable cure period set forth in this Section 7.2 or elsewhere in this Agreement, each of the following is a “C&S Event of Default” and in case of occurrence of one or more of the following, C&S will be in default hereunder:

(a)C&S fails to make any material, undisputed payment, **** required underthis Agreement, and such non-payment remains uncured for a period of ten(10) days after written notice thereof from A&P.

(b)   C&S fails a Facility Audit for any C&S Facility and such failure continues for fourteen (14) days from C&S’s receipt of notice from A&P, provided the following conditions occur:  i) A&P promptly delivers to C&S a written notice of the Facility Audit failure (the “Facility Audit Default Notice”);  ii) the failure continues for fourteen (14) days following C&S’s receipt of the Facility Audit Default Notice, and iii), not sooner than the fifteenth day following C&S’s receipt of the Facility Audit Default Notice, A&P delivers to C&S a notice of its intent to partially terminate this Agreement in accordance with Section 7.3(b) (the “Partial Termination Notice”).  Acknowledging that some warehouse quality and control issues may take longer than the cure period provided above, if, in A&P’s reasonable judgment, C&S has promptly taken demonstrable, sustainable, material steps to remedy the matters listed as unsatisfactory on the Housekeeping Audit Check Sheet for Warehousing (included as Exhibit “B”) after receipt of a Facility Audit Default Notice (and such efforts are continuing), A&P will cooperate with C&S to resolve the issues to A&P’s satisfaction.  At any time between the receipt of the Facility Audit Default Notice and the day that is fourteen (14) days following C&S’s receipt of the Partial Termination Notice, C&S shall have the right to demand a walk-through of the C&S Facility with A&P to determine whether the failure has been cured.  C&S shall have the right to refer any default hereunder to the Dispute Resolution process described in Section 8.1;  however, no such referral will operate to toll the cure period described in this Section 7.2(b).   Notwithstanding the foregoing, if the failure under this Section 7.2(b) represents an immediate, substantial and emergent threat to the health, safety or welfare of the public, then such failure shall be deemed to constitute a “C&S Event of Default” if it continues uncured for forty-eight (48) hours.  For the purposes of this Section 7.2(b), a Facility Audit “failure” shall mean ****.

(c)   C&S fails to perform the Services in accordance with any material Performance Standard or material Performance Standards, and such has a material adverse impact on C&S’s overall operating performance, and such failure continues for fourteen (14) days from C&S’s receipt of a notice of termination from A&P, provided the following conditions occur:  (i) A&P promptly delivers to C&S a written notice of the Performance Standard failure (the “Performance Standard Default Notice”);  (ii) the failure continues for fourteen (14) days following C&S’s receipt of the Performance Standard Default Notice and (iii), not sooner than the fifteenth day, A&P delivers to C&S a notice of its intent to terminate the agreement in accordance with Section 7.3(c).  C&S shall have the right to refer any default hereunder to the Dispute Resolution process described in Section 8.1;  however, no such referral will operate to toll the cure period described in this Section. Notwithstanding the foregoing, if the failure under this Section 7.2(c) represents an immediate, substantial and emergent threat to the health, safety or welfare of the public, then such failure shall be deemed to constitute a “C&S Event of Default” if it continues uncured for forty-eight (48) hours.

(d)   C&S fails to perform any of its material obligations (not contemplated in sub-sections “(b)” or “(c)” above) as and when required under this Agreement and such

****Confidential material redacted and filed separately with the Securities and Exchange Commission.

failure continues uncured for fourteen (14) days after receipt of written notice from A&P of its intention to terminate this Agreement pursuant to this Section 7.2(d) if such default is not cured within the fourteen (14) day cure period.  Notwithstanding the foregoing, if the failure under this Section 7.2(d) represents an immediate, substantial and emergent threat to the health, safety or welfare of the public, then such nonperformance shall be deemed to constitute a “C&S Event of Default” if it continues uncured for forty-eight (48) hours.

(e)   Any of C&S’s material representations or warranties in Sections 4.6 or 8.11 of this Agreement is breached or not true in any respect, and such breach has a material adverse impact on C&S’s overall operating performance, and such breach of representation or warranty remains breached or untrue for fourteen (14) days after written notice thereof from A&P of its intention to terminate this Agreement pursuant to this Section 7.2(e) if such default is not cured within the fourteen (14) day cure period.  Notwithstanding the foregoing, if the breach of such representation or warranty under this Section 7.2(e) presents an immediate and emergent threat to the health, safety or welfare of the public, then such breach of representation or warranty shall be deemed to constitute a “C&S Event of Default” if it continues uncured for seven (7) days.

(f)   An Event of Insolvency with respect to C&S.

(g)   C&S is in default with respect to any financial covenant of C&S’s most senior tranche of indebtedness and such default remains uncured or un-waived beyond the applicable cure period or any extension thereof. With respect to this sub-section “g”, C&S agrees to provide to A&P within 120 days of the completion of its fiscal year a copy of the annual certification of covenant compliance that C&S’s auditors provide to C&S lenders for the just-completed fiscal year.

(h)   C&S is in breach of Section 4.14(e) or the last sentence of Section 4.12.

(i)  A majority of the assets or voting stock of C&S is acquired by a competitor of A&P.

7.3 Remedies Upon C&S Event of Default.

Upon the occurrence of any C&S Event of Default and subject to any applicable cure periods:

(a)   A&P shall have all remedies available to it under this Agreement, at law and/or in equity in each case subject to the terms of this Agreement.

(b)   In the case of a Default under Section 7.2(b) above, A&P shall have the right to partially terminate this Agreement only with respect to the Product Category Grouping that is distributed from the C&S Facility that is the subject of the default.

(c)   In all other cases, A&P shall have, at its discretion, the right to terminate this Agreement upon written notice to C&S, such termination to occur at the termination date specified in such notice.

7.4 A&P Events of Default.   Subject to any applicable cure period set forth in this Section 7.4 or elsewhere in this Agreement, each of the following is an “A&P Event of Default” and in the occurrence of one or more of the following, A&P will be in default hereunder:

(a)   A&P fails to make any material, undisputed payment required under this Agreement, and such non-payment remains uncured for a period of ten (10) days after written notice thereof from C&S.

(b)   A&P fails to perform any of its other material obligations as and when required under this Agreement and such non-performance continues uncured for fourteen (14) days after written notice thereof from C&S.  Notwithstanding the foregoing, if the non-performance under this Section 7.4(b) represents an immediate and emergent threat to the health, safety or welfare of the public, then such nonperformance shall be deemed to constitute an “A&P Event of Default” if it continues uncured for forty-eight (48) hours.

(c)   Any of A&P’s material representations or warranties in this Agreement is breached or not true in any respect, and such representation or warranty remains breached or untrue for fourteen (14) days after written notice thereof from C&S and  such continuing breach materially adversely affects A&P’s ability to perform its obligations hereunder.

(d)   An Event of Insolvency with respect to A&P occurring any time after the Reorganization Plan Effective Date.

(e)   A&P is in breach of the last sentence of Section 4.12.

7.5 Remedies Upon A&P Event of Default or Termination.

(a)

Upon the occurrence of any A&P Event of Default, and subject to any applicable cure periods:

(i) C&S shall have all remedies available to it under this Agreement, at law and/or in equity in each case subject to the terms of this Agreement.

(ii) C&S shall have, at its discretion, the right to terminate this Agreement upon written notice to A&P, such termination to occur at the termination date specified in such notice. If such right to terminate this Agreement arises prior to the Reorganization Plan Effective Date, no further order will be required by the Bankruptcy Court for C&S to exercise its right to terminate hereunder.

7.6   Special Circumstances Termination.  Commencing on the Effective Date until the earlier of (x) the termination of this Agreement under Sections 7.3, 7.5 or 7.7 hereof and (y) the effective date of a chapter 11 plan for A&P, either Party shall be permitted to immediately terminate this Agreement via written notice to the other party (a) upon the filing by a Debtor of a motion to sell substantially all of the Debtors' assets pursuant to 11 U.S.C. § 363, (b) written notice to C&S from the Debtors stating that the Debtors do not intend to pursue a Reorganization Plan, (c) the filing of any plan by A&P other than a Reorganization Plan, (d) acceleration of the obligations and termination of the commitments to lend under the Debtors' postpetition financing facility (excluding a refinancing where replacement commitments are in effect immediately following such termination), (e) the conversion of the Debtors' chapter 11 cases to cases under chapter 7 of the Bankruptcy Code, (f) the appointment of a chapter 11 trustee, or (g) if neither Party has elected to extend the Term of this Agreement as provided in Section 7.1 (each of “(a)” through “(g)” above or a termination of this Agreement pursuant to Section 7.7 (below) being considered a “Special Termination Event”).

7.7   Special Circumstances Termination by C&S.  In the event the Reorganization Plan Effective Date does not occur on or prior to June 12, 2012, C&S may terminate this Agreement without any further order of the Bankruptcy Court by providing written notice to A&P, such termination to occur as of the termination date specified in such notice.

7.8           Effects of Termination

(a)   Notwithstanding termination of this Agreement, C&S shall remain obligated to fully perform, to the extent permitted by Law and for a period of up to (but no more than) one hundred and eighty (180) days, the Services pursuant to this Agreement (including without limitation, making whatever arrangements are necessary to continue such Services without interruption or diminution in the Performance Standards), and C&S shall continue to be compensated for such Services in accordance with this Agreement including, but not limited to, payment of the ****, until such time during such one hundred and eighty (180) days (the “Effective Date of Termination”) as may be reasonably required to transition or transfer to A&P or its designee responsibility for performing all Services.  The Parties shall cooperate to ensure that the Services and, where applicable, the inventory of Merchandise, are transferred or transitioned to A&P or A&P’s designee in an orderly and professional manner.  This Section 7.8(a) shall be void in the event that the termination by C&S of this Agreement was due to nonpayment by A&P and such nonpayment is not immediately cured.

(b)   If this Agreement terminates by reason of a C&S Event of Default, C&S agrees to:

(i)   pay **** to A&P all sums due to A&P under the Agreement through the specified date of termination and for such further period during which Services are rendered in accordance with sub-section (a) above; and

(ii)   pay and/or reimburse A&P for all direct damages made against or suffered or incurred by A&P arising from or in any way related to the termination of this Agreement.

(c)   If this Agreement terminates following the effective date of a chapter 11 plan for A&P by reason of an A&P Event of Default, A&P agrees to:

(i) pay C&S all sums due to C&S under the Agreement through the specified date of termination and for such further period during which Services are rendered in accordance with sub-section (a) above;

(ii)  pay and/or reimburse C&S for all direct damages made against or suffered or incurred by C&S arising from or in any way related to the termination of this Agreement;

(iii) pay to C&S the ****, if applicable, as set forth in Section 3.11; and

(iv) pay to C&S  ****.

(d) If this Agreement terminates (a) pursuant to Section 7.4(a) or 7.4(e) prior to the Reorganization Plan Effective Date, or (b) pursuant to Sections 7.6 or 7.7, C&S’s sole remedies, shall be as follows:

(i)  A&P will pay C&S all sums due to C&S under the Agreement through the specified date of termination and for such further period during which Services are rendered in accordance with sub-section (a) above;

(ii) A&P will within two (2) business days of the specified date of termination pay to C&S:  (A) any applicable ****, (B) the ****,  and (C) ****, to the extent payable in accordance with Section 2.8.

(iii)   The amounts specified in the immediately preceding clause (ii) shall constitute allowed superpriority administrative expenses, junior only to the superpriority claims granted under the Final DIP Order.

(e) Notwithstanding anything to the contrary herein, if this Agreement terminates prior to the Reorganization Plan Effective Date for any reason, A&P will either (1) within two (2) business days, pay to C&S **** or (2) **** (e) shall constitute allowed superpriority administrative expenses, junior only to the superpriority claims granted under the Final DIP Order.

(f) In no event will either Party be liable to the other Party for any special, indirect, consequential, punitive or exemplary damages, including third party lost sales; provided that this limitation of liability shall not apply in instances of gross negligence, willful breach or willful misconduct.

(g) Nothing in this Section 7.8, however, shall amend, restrict or otherwise modify the Parties’ agreements as set forth in Section 1.4 hereof, which shall remain in full force and effect.

7.9 Facilities and Fixed Assets.  Notwithstanding anything to the contrary set forth in this Agreement, but without limiting A&P’s obligations in Section 7.9 hereof, in no event shall A&P be required to assume any responsibility or obligation to take title to any of the C&S Facilities or fixed assets used in the performance of the Services (except for those fixed assets used in connection with the Edison GMDC Facility which are, and shall remain, A&P’s liability), or to assume any real estate obligations relating to the C&S Facilities, or to assume any leases, licenses or other agreements relating to C&S’ fixed

****Confidential material redacted and filed separately with the Securities and Exchange Commission.

assets or otherwise, upon the expiration or earlier termination of this Agreement (regardless, in the case of an early termination, of the reason for such early termination).

ARTICLE 8

MISCELLANEOUS

8.1 Dispute Resolution. If A&P issues a Default Notice under Sections 7.2(b) or (c), or if any other dispute arises under this Agreement which cannot be resolved by the personnel directly involved, either Party may invoke the dispute resolution procedure set forth below by giving written notice to the other Party of the dispute and designating its chief legal officer as its representative in negotiations relating to the dispute.  The chief legal officers of both Parties, acting in good faith and using reasonable efforts, shall work toward a reasonable and equitable resolution of the dispute.  In the event the chief legal officers are unable to reach resolution, the Parties will designate their respective Chief Executive Officers to negotiate resolution of the dispute.  The dispute resolution procedure above shall not apply to intellectual property claims or to any claim for injunctive relief or other form of equitable relief in the aggrieved party’s sole discretion. Notwithstanding anything to the contrary contained in this Article 8, neither Party shall be prohibited from litigating in court any claim arising under this Agreement. Prior to the effective date of a chapter 11 plan for A&P, the Parties stipulate that any claim or dispute arising under this Agreement shall be adjudicated in the Bankruptcy Court, provided that if the Bankruptcy Court abstains from hearing such claim or dispute, the provisions of Section 8.5 of this Agreement shall control.  By executing this Agreement, C&S voluntarily submits to the Bankruptcy Court’s personal jurisdiction until the effective date of a chapter 11 plan for A&P. 

8.2           Audit and Access Rights

(a) Books and Records. C&S shall prepare and maintain for a period of not less than five (5) years following the end of each of its fiscal years, such complete and detailed records, data, information and statements in auditable form and quality suitable to permit A&P to verify the following: (i) C&S’s performance of Services, Other Services, compliance with the Performance Standards, and all of its other obligations under this Agreement;  ****; (iii) ****;  (iv) C&S’s compliance with laws governing its performance hereunder; and (v) such other records, data or information as may be required to validate or enforce the parties respective rights and obligations under this Agreement (collectively, the “Books and Records”).  The Books and Records shall be maintained consistent with GAAP, consistently applied, and shall be in a form suitable for audit, review and copying and shall be made available as reports produced from C&S’s overall financial statements maintained by C&S for its entire operations in the ordinary course of business.  A&P will be provided access to, and the right to audit, any information A&P reasonably requires in order to verify any of the items listed in (i)-

****Confidential material redacted and filed separately with the Securities and Exchange Commission.

(iv) above; provided, however, A&P will not be provided access to data or information relating to ****.

(b) Financial Statements. Each Party shall promptly deliver to the other audited financial statements for the year-end period, which have been certified to by a registered public accounting firm, after such financial statements have been issued by such public accounting firm.

(c) Access to Books and Records.  C&S shall permit A&P and its officers, directors, representatives, counsel, advisors and other agents (collectively, “Agents”), upon reasonable notice and during normal business hours, to inspect, have access to the Facilities and to inspect, have access to and audit all of the Books and Records for the purpose of verifying the items listed in Section 8.2.a(i)-(iv) above. The right of access under this Section 8.2(c) shall include the right to discuss such documentation with C&S’s employees, representatives and outside vendors having knowledge of their contents, and C&S shall instruct all such employees, representatives or third-party vendors to fully cooperate with any request for information made by A&P to such employee, representative or third-party vendor.  The parties agree that A&P shall have the right to maintain an A&P associate on premises at the C&S Facilities during all normal hours of operation for such C&S Facilities, and that such A&P associate shall have access to all operating areas, and all employees, of such C&S Facilities as would permit the reasonable monitoring of Services performed at the C&S Facilities.

(d) Frequency and Scope. During the Term of this Agreement (but not more frequently than once during any twelve-month period), and for a period of one (1) year thereafter, A&P or A&P’s duly authorized auditor or agent shall have the right at any time to audit and review the Books and Records.  The scope of the audit shall encompass no more than the prior 12-month period, except in the event that the auditor determines reasonably that there is a specifically identified irregularity that requires further inspection, in which case the audit shall be permitted to look back an additional twelve (12) months but solely with respect to the identified irregularity.

(e) Special Audit Provisions for ****.  As stated above, A&P may audit C&S’s records in order to confirm that ****.

****Confidential material redacted and filed separately with the Securities and Exchange Commission.

****.

(f) Restricted Information.  ****.  Accordingly, in order for C&S to agree to provide such Restricted Information, A&P agrees that it will allow access to such Restricted Information only to those A&P employees or third party agents who have a need to know such Restricted Information in connection with A&P’s confirmation of ****, who have been approved by C&S and who will each individually be required to execute affirmations of the confidentiality obligations stated herein (“Permitted Individuals”).  A&P agrees that other than to the Permitted Individuals, A&P shall not disclose such information to any other person or party.  All such Restricted Information may not be copied or reproduced by A&P in any form, and may only be used pursuant to the Permitted Use.

(g) Confidentiality.  Any and all information provided to A&P pursuant to this Section 8.2 including, but not limited to any audited financial statements and other financial information, will be subject to the Confidential Information provisions set forth in Section 8.16 below.

(h) Reciprocal Application to A&P.  All of the terms of this Section 8.2 shall have reciprocal application to A&P to the extent necessary to verify A&P’s compliance with its obligations under this Agreement including, but not limited to, Sections 4.5(a)(iii) and 4.7(d) and to permit C&S to audit or validate the assumptions under Section 4.12(c) of this Agreement.

(i)  Deficiencies.  If an audit or review reveals that any amounts to be paid or charged to either Party have been overstated or understated, then the deficient Party shall issue a charge or credit to correct same.  If an audit or review reveals that amounts paid or charged to either Party were overstated or understated by **** or more during the period audited, then the Party required to pay such amount shall reimburse the other Party for all costs and expenses incurred in connection with the audit or review.  The foregoing remedies shall be in addition to any other remedies available to the parties at law or in equity.

8.3 Headings.  The division of this Agreement into Articles and the insertion of headings are for convenience of reference only and shall not affect the construction or interpretation of

****Confidential material redacted and filed separately with the Securities and Exchange Commission.

this Agreement. Unless inconsistent with the context, references in this Agreement to Articles are to Articles of this Agreement.

8.4 Extended Meanings.     In this Agreement words importing the singular number only include the plural and vice versa, words importing the masculine gender include the feminine and neuter genders and vice versa and words importing persons include individuals, partnerships, associations, trusts, unincorporated organizations and corporations.

8.5 Proper Law of Contract; Venue. This Agreement shall be governed by the laws of the State of New York and the laws of The United States of America as applicable in such State. Subject to the last two sentences of Section 8.1 above, any action or proceeding against any of the parties hereto relating in any way to this Agreement or the subject matter hereof shall be brought and enforced exclusively in the federal or state courts of the State of New York.

8.6 Independent Contractor.   It is expressly intended by the Parties hereto and each Party hereby specifically warrants, represents and agrees, that each Party (the “Performing Party” for the purposes of this Article) is an independent contractor having its own established place of business and all persons assisting the Performing Party in the performance of its obligations under this Agreement are and shall be deemed the employees of the Performing Party or under contract to the Performing Party for all purposes, and not of the other Party or any Affiliate of the other Party.  It is further intended and agreed between the Parties that each Party shall have sole control of the manner and means of performing its obligations under this Agreement.  The specific means of accomplishing the purposes of this Agreement shall be left to the discretion of the Performing Party, provided that the purpose of this Agreement is accomplished in a cost-effective manner and otherwise in a manner intended to benefit A&P and C&S.  Each Party agrees that its officers, managers, or other management or supervisory personnel employed by them shall effect such management, direction and control in the sole and complete discretion of such Party.

8.7 Notices. Any demand, notice or other communication to be given in connection with this Agreement shall be in writing and shall be given by personal delivery, by overnight courier, by registered mail or by facsimile or electronic means of communication addressed to the recipient at the address set forth below or to such other address, individual or electronic communication number as may be designated by notice given by either Party to the other.  Any demand, notice or other communication shall be conclusively deemed to have been given (i) on the day of actual delivery if given by personal delivery; (ii) on the next business day if given by overnight courier; (iii) on the third business day following deposit in the mail if given by registered mail; and (iv) on the day of transmittal if given by facsimile or electronic communication during the normal business hours of the recipient and on the next following business day if not given during such hours on any day.

If to C&S:

C&S Wholesale Grocers, Inc.

7 Corporate Drive

Keene, NH 03431

Attn: Richard B. Cohen, Chairman and Chief Executive Officer

Phone: (603) 354-4601

Fax: (603) 354-4692

with a copy to:

General Counsel

Phone: (603) 354-5885

Fax: (603) 354-4694

If to A&P:

The Great Atlantic & Pacific Tea Company, Inc.

2 Paragon Drive

Montvale, NJ 07645

Attention: Sam Martin, President and Chief Executive Officer

Phone:  (201) 571-8770

Fax:  (201) 571-8715

with a copy to:

General Counsel

Phone:  (201) 571-8161

Fax:  (201) 571-8106

8.8 Third Party Agreements.  Neither C&S nor A&P shall enter into any agreement with any Person that would have the effect of impairing any of the other Party’s rights hereunder this Agreement or limiting either Party’s ability to amend this Agreement in accordance with the terms hereof, without the prior written consent of the other Party hereto.

8.9 Continued Provisions.  Notwithstanding any expiration or termination of this Agreement, (i) the indemnification obligation of both Parties as set forth in Article 6; (ii) the obligations of the both Parties upon termination of this Agreement as set forth in Article 7; (iii) the confidentiality and non-solicitation provisions set forth below; (iv) provisions related to C&S’s prepetition claims, including the Liquidated Damages Claim and the Prepetition Rejection Damages Claim, as set forth in Section 1.4 and Article 7 and (v) any other provisionwhich expressly or by its nature is intended to survive termination of this Agreement, shall continue in full force and effect.

8.10 General Representations and Warranties by A&P. A&P represents and warrants to C&S as follows:

(a) A&P is a corporation duly incorporated and validly existing under the laws of its jurisdiction of incorporation and has all necessary corporate power, authority and capacity to enter into this Agreement and to carry out its obligations under this Agreement, subject to entry of the Bankruptcy Court Orders.  The execution and delivery of this Agreement and the performance of A&P’s obligations under this Agreement have been duly authorized by all necessary corporate action on the part of A&P.

(b) A&P is not a party to, bound or affected by, or subject to, any indenture, mortgage, lease, agreement, collective bargaining agreement, obligation, instrument, charter or by-law provision, statute, regulation, order, judgment, decree, license, permit or law which would be violated, contravened or breached as a result of the execution and delivery of this Agreement, or the performance by A&P of any of its obligations under this Agreement, taking into account the effect of the United States Bankruptcy Code during the pendency of the Bankruptcy Case.

(c) A&P is not in breach of any laws that could reasonably be expected to have a material, adverse effect on A&P’s ability to perform its obligations as a whole under this Agreement, taking into account the effect of the United States Bankruptcy Code during the pendency of the Bankruptcy Case.

8.11 General Representations and Warranties by C&S. C&S represents and warrants to A&P as follows:

(a) C&S is a corporation duly incorporated and validly existing under the laws of its jurisdiction of incorporation and has all necessary corporate power, authority and capacity to enter into this Agreement and to carry out its obligations under this Agreement.  The execution and delivery of this Agreement and the performance of C&S’s obligations under this Agreement have been duly authorized by all necessary corporate action on the part of C&S.

(b) C&S is not a party to, bound or affected by, or subject to, any indenture, mortgage, lease, agreement, collective agreement, obligation, instrument, charter or by-law provision, statute, regulation, order, judgment, decree, license, permit or law which would be violated, contravened or breached as a result of the execution and delivery of this Agreement, or the performance by C&S of any of its obligations under this Agreement.

(c) C&S is not in breach of any laws that could reasonably be expected to have a material, adverse effect on C&S’s ability to perform the Services or perform its other obligations under this Agreement, including without limitation and to the extent applicable all laws pertaining to human rights, labor or employment standards, labor relations and employment, protection of personal information, occupational health and safety, workers’ compensation and workplace safety insurance and environmental Laws.

8.12 Entire Agreement.  This Agreement together with all Articles, exhibits and schedules hereto constitutes the entire agreement between the Parties with respect to its subject matter and cancels and supersedes any prior understandings and agreements between the Parties with respect to such subject matter.  There are no representations, warranties, terms, conditions, undertakings or collateral agreements, express, implied or statutory, between the Parties other than as expressly set forth in this Agreement.

8.13 Amendments and Waiver.   No modification of or amendment to this Agreement shall be valid or binding unless in writing and duly executed by both of the Parties and no waiver of any breach of any term or provision of this Agreement shall be effective or binding unless made in writing and signed by the Party purporting to give the same and, unless otherwise provided, shall be limited to the specific breach waived.

8.14 Assignment. Except as provided below, this Agreement may not be assigned, either directly or by operation of law, by either Party without the written consent of the other Party, such consent not to be unreasonably withheld; provided, however, that in the event of any assignment the assignor shall continue to be bound by all obligations under this Agreement as if such assignment had not occurred and shall perform such obligations to the extent that the assignee fails to do so.  This Agreement may be assigned by either Party without the consent of the other Party to an affiliate of the assignor, provided that the affiliate enters into a written agreement with the other Party to be bound by the provisions of this Agreement in all respects and to the same extent as the assignor is bound and provided that the assignor shall continue to be bound by all obligations under this Agreement as if such assignment had not occurred and shall perform such obligations to the extent that the affiliate fails to do so.   Notwithstanding anything to the contrary in the two preceding sentences, A&P may assume and assign this Agreement to a reorganized entity in connection with a Reorganization Plan to the extent legally necessary.

8.15 Non-Solicitation. During the Term of this Agreement and for a period of **** following the expiration or termination of this Agreement for any reason whatsoever, A&P shall not, and shall not permit any of its Affiliates to, directly or indirectly, hire, solicit, induce or encourage any person who is a managerial employee or agent employed or engaged by C&S or any of its Affiliates within **** prior to such solicitation, to leave or otherwise cease being employed or engaged by C&S or any of its Affiliates (other than a person whose pay in lieu of notice, termination, and severance payments has been reimbursed pursuant to this Agreement).

8.16 Confidentiality. Each Party shall not, during the Term of this Agreement or at any time thereafter, transmit Confidential Information of the other Party to any third person either in whole or in part;  provided that A&P may share the contents of this Agreement during the pendency of its Bankruptcy Cases with the Official Unsecured Creditors’ Committee and other parties that have signed confidentiality agreement reasonably acceptable to the Parties, with the understanding that neither party shall unreasonably withhold, condition or delay its approval of the form of such confidentiality agreement.  Each Party shall take all reasonable precautions to safeguard the Confidential Information of the other Party from unauthorized disclosure and, at a minimum, shall afford the Confidential Information of the other Party such precautions and safeguards as it affords to its own confidential information of a similar nature.  A&P also agrees to the heightened confidentiality restrictions related to Restricted Information as set forth in Section 8.2(f). “Confidential Information” for purposes of this Agreement shall mean this Agreement and  the terms and conditions hereof and all non-public, confidential or proprietary information of either Party and its clients and customers, including but not limited to information regarding ****, received by the other Party in the course of the negotiation of, or performance of its obligations under, this Agreement.  The above restrictions shall not apply to the extent that Confidential Information comes into the public domain through no fault of the other Party, is received by the other Party from a third party having a bona fide right to disclose such information, or disclosure is required by Law as set forth in subsection (b) below.

(a) Public Notices. Neither Party shall make any press release or public announcement regarding this Agreement or otherwise publicly disclose any of the terms of this Agreement without the prior written consent of the other Party,  except where required to do so by Law or by the applicable regulations or policies of any Federal, State or other regulatory agency of competent jurisdiction or any stock exchange in circumstances but only after prior consultation with the other Party, and the disclosing Party shall use reasonable best efforts to ensure that all Confidential Information and other information that is required to be disclosed in accordance with Laws will be accorded confidential treatment.

(b) Requirement to Disclose. Wherever in this Agreement disclosure is permitted if "required by Law",

(i) the term "Law" shall be deemed to include (A) any applicable statute, regulation or policy of The United States of America or other government, any State or local government or any agency or authority of any of them having jurisdiction over a Party or its business or any stock exchange or self-regulatory organization in the securities industry and (B) any order, demand or subpoena of any such government, agency, authority, exchange or organization or any court of competent jurisdiction; and

(ii) such disclosure shall be permitted only if, as promptly as practicable after determining that disclosure is required or after receipt of any such order, demand or subpoena, the Party intending to make such disclosure shall notify the other Party of such requirement and the scope of the proposed disclosure and shall simultaneously deliver to the other Party a copy of such order, demand or subpoena or, if there is none, a written opinion of its counsel describing the legal basis upon which such disclosure is required.  The Party intending to make such disclosure shall cooperate with all reasonable requests of the other Party for assistance in preventing or limiting such disclosure.

(iii) A&P will use its reasonable best efforts to obtain a Bankruptcy Court order authorizing this Agreement to be filed under seal.

(iv) Each Party may disclose Confidential Information to obtain approval of this Agreement from the Bankruptcy Court, and defend any appeals or take actions in conjunction therewith, provided that (a) any such disclosure is limited to the extent reasonably necessary and is (x) subject to a customary Bankruptcy Court order requiring any recipient of such Confidential Information to maintain it as confidential and otherwise restricting its use and dissemination, including requiring that such Confidential Information be filed under seal or (y) any such recipient shall have previously executed and delivered a confidentiality agreement that conforms with the requirements set forth in Section 8.16, and (b) in the case of any court filing, the Party proposing to file such Confidential Information uses its reasonable best efforts to file such Confidential Information under seal.

8.17 Bankruptcy Court Orders. Subject to the proviso contained in Section 8.16(b)(iv), C&S agrees to cooperate with A&P in providing any information and evidence that may be required to demonstrate to the Bankruptcy Court’s satisfaction (i) that A&P’s execution of and performance under this Agreement is a reasonable exercise of A&P’s business judgment and in the best interests of A&P’s chapter 11 estates, and/or (ii) that this Agreement was the result of a fair process.

8.18 Benefit of the Agreement. This Agreement shall inure to the benefit of and be binding upon C&S, A&P and their respective successors and, to the extent permissible under Section 8.14, assigns.

8.19 Closing Conditions. The respective obligations of each party hereto to consummate the transactions contemplated by this Agreement shall not become effective and/or binding on any party unless and until each of the conditions set forth below has been satisfied or otherwise waived by both Parties hereto:

(a) The Bankruptcy Court has entered the Bankruptcy Court Orders, such Bankruptcy Court Orders have become final and non-appealable, and no court order staying, reversing, modifying or amending the Bankruptcy Court Orders shall have been entered or be in effect on the Effective Date; and

8.20 Definitions.

“A&P”is a Maryland corporation with its principal offices located at 2 Paragon Drive in Montvale, New Jersey 07645, together with its current and future subsidiaries and affiliates.

“A&P Event of Default” has the meaning set forth in Section 7.4.

“A&P Stores” has the meaning set forth in Section 4.4.

“A&P Volume”means any volume of Merchandise intended for use or resale at the A&P Stores or otherwise procured or purchased on A&P’s behalf, at A&P’s direction or with any other reference to A&P’s account, business, operations or name.

“Accounts Receivables Deductions” has the meaning set forth in Section 2.6.

“Adjustment Date” has the meaning set forth in Section 2.12 hereof.

“Affiliate”means a corporation or business entity that, directly or indirectly, is controlled by, controls or is under common control, with respect to A&P or C&S, as applicable.

“Agents” has the meaning set forth in Section 8.2(c).

“Agreement” means this Supply, Distribution and Related Services Agreement, including the Articles, Exhibits and Schedules to this Agreement, as it or they may be amended or supplemented from time to time, and the expressions “hereof”, “herein”, “hereto”, “hereunder” and similar expressions refer to this Agreement and not to any particular portion or section of this Agreement;

“All Risk” means losses are covered with respect to all perils unless a peril is specifically excluded under the policy.

“Bankruptcy Cases” has the meaning set forth in the Preamble.

“Bankruptcy Code” has the meaning set forth in the Preamble.

“Bankruptcy Court” has the meaning set forth in the Preamble.

“Bankruptcy Court Orders” has the meaning set forth in Section 1.1.

****.

“Books and Records” has the meaning set forth in Section 8.2(a).

“C&S” is a Vermont corporation with its principal offices located at 7 Corporate Drive, Keene, New Hampshire 03431.

“C&S Event of Default” has the meaning set forth in Section 7.2.

“C&S Facilities” has the meaning set forth in Section 2.3.

“C&S Liquidated Claim” has the meaning set forth in Section 1.4(a).

“Center-Store Products” meansgrocery, spices, candy, dairy, frozen (mainline), ice cream, ice, and HBC/GM, and supplies.

“Confidential Information” has the meaning set forth in Section 8.16.

“Contract Week” means any period of seven (7) consecutive calendar days commencing on a Sunday and concluding on a Saturday during any Contract Year.

“Contract Quarter” means the thirteen (13) consecutive Contract Weeks, with the first Contract Quarter commencing on the Effective Date.

“Contract Year”means each successive 52-week period commencing with the 52-week beginning on the Effective Date.

****.

“CPI” has the meaning set forth in Section 2.12.

****.

“DSD” has the meaning set forth in Section 4.5(a)(i).

“Effective Date” has the meaning set forth in Section 1.1.

“Effective Date of Termination” has the meaning set forth in Section 7.8(a).

****.

“Event of Insolvency” means that, with respect to any person or entity, such person or entity shall admit in writing its inability to pay its debts generally or shall make a general assignment for the benefit of creditors; or any proceeding shall be instituted by or against such person or entity seeking to adjudicate it a bankrupt or insolvent, or seeking liquidation, winding up, reorganization, arrangement, adjustment, relief or composition of it or its debts under any law relating to bankruptcy, insolvency or reorganization or relief of debtors, or seeking the entry of an order for relief or the appointment of a receiver, trustee, custodian or other similar official for it or for any substantial part of its property and, in the case of any such proceeding instituted against it (but not instituted by it), either such proceeding shall remain undismissed or unstayed for a period of sixty (60) days, or any of the actions sought in such proceeding (including, without limitation, the entry of an order for relief against, or the appointment of a receiver, trustee, custodian or other similar official for, it or for any substantial part of its property) shall occur; or such person or entity shall take any corporate action to authorize any of the actions set forth above in this definition.

****.

“Facility Audit Default Notice” has the meaning set forth in Section 7.2(b).

“Final DIP Order” means the Final Order (I) Authorizing Debtors (A) to Obtain Post-Petition Financing Pursuant to 11 U.S.C. §§ 105, 361, 362, 364(c)(1), 364(c)(2), 364(c)(3), 364(d)(1) and 364(e) and (B) to Utilize Cash Collateral Pursuant to 11 U.S.C. § 363 and (II) Granting Adequate Protection to Pre-Petition Secured Parties Pursuant to 11 U.S.C. §§ 361, 362, 363 and 364 [Docket No. 479] entered by the Bankruptcy Court on January 11, 2011 in A&P’s Bankruptcy Cases.

“Fiscal Accounting Period” means periods of four consecutive Contract Weeks beginning with the first of A&P’s fiscal accounting periods next following the Effective Date.  Thirteen (13) Fiscal Accounting Periods comprise each Contract Year.

“Force Majeure” has the meaning set forth in Section 6.4(a).

****.

“Fresh Products” shall include, but not be limited to, ****.

****.

“Interim Agreement” has the meaning set forth in Section 1.2.

“Interim Fixed Warehouse Charge” has the meaning set forth in Section 2.9(b).

“Key Performance Measures” has the meaning set forth in Section 1.3.

****.

“Measurement Period” has the meaning set forth in Section 4.13.

“Merchandise” has the meaning set forth in Section 4.1.

****.

“PACA” has the meaning set forth in Section 5.3(a)(i).

“PACA Eligible Merchandise” has the meaning set forth in Section 5.3(a)(i).

“Parties” means C&S together with A&P.

“Partial Termination Notice” has the meaning set forth in Section 7.2(b).

“Penalty Service Level” has the meaning set forth in Section 4.13.

“Performance Standards”has the meaning set forth in Section 1.3.

“Permitted Individuals” has the meaning set forth in Section 8.2(f).

“Permitted Use” has the meaning set forth in Section 8.2(f).

“Performance Standard Default Notice” has the meaning set forth in Section 7.2(c).

“Person” is to be interpreted broadly and includes an individual or group of individuals, an entity or group of entities, a corporation, a partnership, a trust, an unincorporated organization, the government of a country or any political subdivision thereof, or any agency or department of any such government, and the executors, administrators or other legal representatives of an individual in such capacity.

“Prepetition Rejection Damages Claim” shall have the meaning set forth in Section 1.4(b).

“Procurement Services” shall be those services described in Article 4 related to the procurement of Merchandise.

 “Purchase Services” shall mean those services described in Article 4 related to the purchase of Merchandise.

“Purchasing Service Level” has the meaning set forth in Section 4.13.

“Purchase Terms” has the meaning set forth in Section 4.7.

****Confidential material redacted and filed separately with the Securities and Exchange Commission.

“Reorganization Plan” means a Chapter 11 plan for A&P and its operating subsidiaries that contemplates A&P's assumption of and continuing performance under the terms of this Agreement following the effective date of such plan and under which the Debtors' operating assets owned as of such date are to remain a going concern, operating enterprise and are not sold in one or more transactions under Section 363(b) of the Bankruptcy Code to one or more third-party retailers in lieu of a reorganization.

“Reorganization Plan Effective Date” meansthe date of substantial consummation (as used in Section1127 of the Bankruptcy Code) of a Reorganization Plan.

****.

****.

“Service Specifications” shall mean the standard operating procedures to be followed by the Parties in connection with the performance of the Services, which are annexed to this Agreement as Exhibit “B” and incorporated and made a part hereof.

“Services”means Warehousing Services, the Transportation Services, the Purchase Services and Procurement Services allocated to C&S under Article 4 hereof.

 “Special Termination Event” shall have the meaning set forth in Section 7.6.

“Targeted Service Level” has the meaning set forth in Section 4.13.

“Term” has the meaning set forth in Section 7.1.

****.

****.

“Transportation Laws” has the meaning set forth in Section 3.5.

“Transportation Services” has the meaning set forth in Section 3.1.

“Warehousing Services”has the meaning set forth in Section 2.1.

****.

“Weekly Actual Amount” has the meaning set forth in Section 5.1.

“Weekly Estimate” has the meaning set forth in Section 5.1.

“Weekly Statement” has the meaning set forth in Section 5.1.

****Confidential material redacted and filed separately with the Securities and Exchange Commission.

EXHIBIT “A” – List of C&S Facilities;  List of A&P Stores by Shipping Origin

EXHIBIT “B” – Services Specifications

EXHIBIT “C” – Key Performance Measures

SCHEDULE 2.7(b) – Reclamation Terms and Conditions

SCHEDULE 2.9 –Interim Fixed Warehouse Charge

SCHEDULE 3.12 – Fuel Surcharge Calculation

SCHEDULE 3.14 – Transportation Assumptions and Parameters

[Remainder of page intentionally left blank]

[Signature Page to follow]

IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the date first written above.

THE GREAT ATLANTIC AND                                                                                     C&S WHOLESALE GROCERS, INC.

PACIFIC TEA COMPANY, INC.

By:      /s/ Samuel Martin_________                                                                                     By:     /s/ Richard Cohen________

Name:           Samuel Martin                                                                           Name:                      Richard B. Cohen

Title: President and Chief Executive Officer Title: Chairman and Chief Executive Officer

EXHIBIT “A”

LIST OF C&S FACILITIES;  LIST OF A&P STORES BY SHIPPING ORIGIN

*****

****Confidential material redacted and filed separately with the Securities and Exchange Commission

EXHIBIT “B” – SERVICES SPECIFICATIONS

*****

****Confidential material redacted and filed separately with the Securities and Exchange Commission

EXHIBIT “C” – KEY PERFORMANCE MEASURES

Service Level and Audit Addendum

*****

****Confidential material redacted and filed separately with the Securities and Exchange Commission

SCHEDULE 2.7(b)

Terms and Conditions – Reclamation

The Parties agree that C&S will be the exclusive Reclamation Services provider for A&P with respect to the A&P Stores, in accordance with the terms and conditions set forth in this Exhibit 2.7(b). A&P will not contract with any other third party for the performance of Reclamation Services as set forth herein, nor will A&P perform such services for its own account.

Applicable Merchandise

A&P will process all damaged or unsaleable Merchandise (including all private label products) through C&S’s reclamation program. ****.

A&P will package all non-perishable damaged and unsaleable Merchandise from the A&P Stores in banana boxes and C&S and will pick up such product on a regular basis. For perishable Merchandise, Merchandise requiring refrigeration ****.

****

****Confidential material redacted and filed separately with the Securities and Exchange Commission

SCHEDULE 2.9

Interim Fixed Warehouse Charge

****

****Confidential material redacted and filed separately with the Securities and Exchange Commission

SCHEDULE 3.12

Fuel Surcharge Calculation

****

****Confidential material redacted and filed separately with the Securities and Exchange Commission

SCHEDULE 3.14

Transportation Assumptions and Parameters

****

****Confidential material redacted and filed separately with the Securities and Exchange Commission

EX-31.1

Exhibit 31.1

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER

Section 302 Certification

I, Samuel Martin, certify that:

1. I have reviewed this quarterly report on Form 10-Q of The Great Atlantic & Pacific Tea Company, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and we have:

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusion about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is likely to materially affect, the registrant’s internal control over financial reporting;

5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions):

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

/s/ Samuel Martin                                                                Date:  July 29, 2011

Samuel Martin

President and

Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER

Section 302 Certification

I, Frederic F. Brace, certify that:

1. I have reviewed this quarterly report on Form 10-Q of The Great Atlantic & Pacific Tea Company, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and we have:

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusion about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is likely to materially affect, the registrant’s internal control over financial reporting;

5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions):

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date:  July 29, 2011

/s/ Frederic F. Brace

Frederic F. Brace

Chief Administrative Officer,

Chief Restructuring Officer and

Chief Financial Officer

EX-32

Exhibit 32

Certification Accompanying Periodic Report

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

(18 U.S.C. ss. 1350)

The undersigned, Samuel Martin, President and Chief Executive Officer of The Great Atlantic & Pacific Tea Company, Inc. (the ‘‘Company’’), and Frederic F. Brace, Chief Administrative Officer, Chief Restructuring Officer and Chief Financial Officer of the Company, each hereby certifies that (1) the Quarterly Report of the Company on Form 10-Q for the period ended June 18, 2011 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and (2) the information contained in the Report fairly presents, in all material respects, the financial condition and the results of operations of the Company.

Dated: July 29, 2011                                                                    /s/ Samuel Martin                                       

Samuel Martin

President and

Chief Executive Officer

Dated: July 29, 2011                                                                    /s/ Frederic F. Brace                                       

Frederic F. Brace

                                                                                                     Chief Administrative Officer,

                                                                                                             Chief Restructuring Officer and

                                                                                                              Chief Financial Officer