-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, PNET0gTsGbiqFHWrxK03oG5ZWAvKvR9HDSHVcFoA6X/PaxMQeYIhRFcZyxoIGRrq QIJDDXnNKO9urj1FPT+xwA== 0000950162-07-000125.txt : 20070306 0000950162-07-000125.hdr.sgml : 20070306 20070306171643 ACCESSION NUMBER: 0000950162-07-000125 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 15 CONFORMED PERIOD OF REPORT: 20070304 ITEM INFORMATION: Entry into a Material Definitive Agreement ITEM INFORMATION: Financial Statements and Exhibits FILED AS OF DATE: 20070306 DATE AS OF CHANGE: 20070306 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GREAT ATLANTIC & PACIFIC TEA CO INC CENTRAL INDEX KEY: 0000043300 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-GROCERY STORES [5411] IRS NUMBER: 131890974 STATE OF INCORPORATION: MD FISCAL YEAR END: 0225 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-04141 FILM NUMBER: 07675650 BUSINESS ADDRESS: STREET 1: 2 PARAGON DR CITY: MONTVALE STATE: NJ ZIP: 07645 BUSINESS PHONE: 2015739700 MAIL ADDRESS: STREET 1: 2 PARAGON DRIVE CITY: MONTVALE STATE: NJ ZIP: 07645 8-K 1 ap8k_030507.htm THE GREAT ATLANTIC & PACIFIC TEA COMPANY, INC. 8K - 03/04/07 The Great Atlantic & Pacific Tea Company, Inc. 8K - 03/04/07
 




 
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
________________________
 
FORM 8-K
 
Current Report
 
Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
 
March 4, 2007
Date of Report (Date of earliest event reported)
 
THE GREAT ATLANTIC & PACIFIC TEA COMPANY, INC.
(Exact name of registrant as specified in its charter)
 
Maryland
1-4141
13-1890974
(State or other jurisdiction of
incorporation or organization)
(Commission file number)
(I.R.S. Employer
Identification No.)

Two Paragon Drive
Montvale, New Jersey 07645
(Address of principal executive offices)
 
(201) 573-9700
(Registrant’s telephone number, including area code)
 
Not Applicable
(Former name or former address, if changed since last report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

[ ] Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))








Item 1.01. Entry into a Material Definitive Agreement.
 
On March 5, 2007, The Great Atlantic & Pacific Tea Company, Inc. (the “Company”) announced that it and its wholly owned subsidiary, Sand Merger Corp. (“Merger Sub”), had entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Pathmark Stores, Inc. (“Pathmark”), dated as of March 4, 2007, pursuant to which the Company, through Merger Sub, would acquire all of the shares of Pathmark for approximately $1.3 billion in cash, stock and debt assumption or retirement.
 
The merger is not conditioned upon receipt of financing by the Company, however, in connection with entry into the Merger Agreement, the Company has entered into a Commitment Letter dated as of March 4, 2007, pursuant to which Banc of America Securities LLC, Bank of America, N. A. and Banc of America Bridge LLC, Lehman Brothers Commercial Bank, Lehman Brothers Inc. and Lehman Commercial Paper Inc. have committed to provide financing to support the acquisition. The commitment provides for up to $1.395 billion of senior secured credit facilities, of which up to $615.0 million will be a five-year ABL facility and up to $780.0 million will be a twelve-month bridge facility. It is presently contemplated that the Company will finance the Merger through a combination of the following: borrowings under a senior secured revolving credit facility; either the issuance and sale by the Company of senior secured notes or borrowings under a senior secured bridge loan; the issuance to Pathmark’s shareholders of the Company’s common equity; and proceeds from the sale of up to 7.1 million shares of Metro, Inc. stock and, if needed, the issuance of Company common and/or preferred stock. Such commitments are subject to various conditions, including consummation of the Merger in accordance with the Merger Agreement and other customary closing conditions.
 
The foregoing description of the Commitment Letter is qualified in its entirety by reference to the Commitment Letter, which is attached hereto as Exhibit 10.1 and incorporated herein by reference.
 
Attached and incorporated by reference as Exhibit 99.1 is a transcript of a press conference held on March 5, 2007 by the Company with respect to the Merger Agreement. Attached and incorporated by reference as Exhibit 99.2 is a transcript of an investor conference call, and webcast on the Company’s website, conducted by the Company on March 5, 2007 with respect to the acquisition. Attached and incorporated by reference as Exhibit 99.3 is a slide presentation posted to the Company’s website, relating to the investor conference call and webcast. Attached and incorporated by reference as Exhibit 4.1 is a fully executed and complete copy of the Yucaipa Warrant Agreement, as defined in the Form 8-K filed by the Company on March 5, 2007 and which supersedes the copy that was attached as Exhibit 4.1 thereto.
 

Item 9.01. Exhibits.
 
(c) Exhibits. The following exhibit is filed herewith:
 
Exhibit No.
Description
   
4.1
Amended and Restated Warrant Agreement, dated as of March 4, 2007, by and among The Great Atlantic & Pacific Tea Company, Inc., Yucaipa Corporate Initiatives Fund I, LP, Yucaipa American Alliance (Parallel) Fund I, LP and Yucaipa American Alliance Fund I, LP.




10.1
Commitment Letter from Banc of America Securities LLC, Bank of America, N.A., Banc of America Bridge LLC, Lehman Brothers Commercial Bank, Lehman Brothers Inc. and Lehman Commercial Paper Inc. to The Great Atlantic & Pacific Tea Company, Inc., dated as of March 4, 2007.
99.1
Transcript of March 5, 2007 Press Conference
99.2
Transcript of March 5, 2007 Investor Conference Call and Webcast
99.3
Slide Presentation Relating to March 5, 2007 Investor Conference Call and Webcast






 
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.
 
Dated: March 6, 2007
 
THE GREAT ATLANTIC & PACIFIC TEA
COMPANY, INC.
 
 
By:  /s/ Allan Richards            
        Name:  Allan Richards
        Title:    Senior Vice President, Human
                     Resources, Labor Relations, Legal
                     Services & Secretary

EX-4.1 2 ex4_1.htm EXHIBIT 4.1 Exhibit 4.1
Exhibit 4.1
 
EXECUTION VERSION
 

 
 
AMENDED AND RESTATED
 
WARRANT AGREEMENT
 
Dated as of March 4, 2007
 
among
 
The Great Atlantic & Pacific Tea Company, Inc.
 
and
 
The Investors Identified Herein


 

 



AMENDED AND RESTATED
 
WARRANT AGREEMENT
 
AMENDED AND RESTATED WARRANT AGREEMENT (the Agreement”) dated as of  March 4, 2007 among The Great Atlantic & Pacific Tea Company, Inc., a Maryland corporation (the “Company”), and the investors identified on the signature pages hereof, or their registered permitted assigns (the “Investors”).
 
RECITALS
 
WHEREAS, pursuant to that certain Warrant Agreement, dated as of June 9, 2005 (the “Pathmark Warrant Agreement”), by and among Pathmark, Inc., a Delaware corporation (“Pathmark”), and the Investors, Pathmark issued to the Investors (i) a series of warrants (the “Exchanged Series A Warrants”) to purchase an aggregate of 10,060,000 shares of the common stock, $.01 par value per share, of Pathmark (the “Pathmark Common Stock”) at an exercise price of $8.50 per share and (ii) a series of warrants (the “Exchanged Series B Warrants” and, together with the Exchanged Series A Warrants, the “Exchanged Warrants”) to purchase an aggregate of 15,046,350 shares of Pathmark Common Stock at an exercise price of $15.00 per share.
 
WHEREAS, the Company and Pathmark have entered into that certain Agreement and Plan of Merger of even date herewith (the “Merger Agreement”), pursuant to which, among other things, a wholly owned subsidiary of the Company will merge with and into Pathmark (the “Merger”) and each share of Pathmark Common Stock issued and outstanding at the time of the Merger shall be converted into the right to receive $9.00 in cash and 0.12963 shares of the common stock, $1.00 par value per share, of the Company (the “Common Stock”).
 
WHEREAS, Section 3.3(b) of the Merger Agreement provides that, at the Effective Time (as defined in the Merger Agreement), the Company shall issue warrants to purchase Common Stock to the holders of the Exchanged Warrants on the terms and subject to the conditions set forth herein.
 
WHEREAS, at the Effective Time, the Company has agreed to issue, and the Investors have agreed to accept, in each case on the terms and subject to the conditions set forth herein, (i) in exchange for the Exchanged Series A Warrants, Series A Warrants (the “Series A Warrants”) to purchase an aggregate of 4,657,377.61 shares of Common Stock (subject to adjustment) at an exercise price of $18.36 per share (subject to adjustment) and (ii) in exchange for the Exchanged Series B Warrants, Series B Warrants (the “Series B Warrants” and, together with the Series A Warrants, the “Warrants”) to purchase an aggregate of 6,965,858.19 shares of Common Stock (subject to adjustment) at an exercise price of $32.40 per share (subject to adjustment). The shares of Common Stock issuable on exercise of the Warrants are referred to herein as the “Warrant Shares.”
 
WHEREAS, the Warrants will be exercisable solely on a net (i.e., “cashless”) basis.
 




 
WHEREAS, subject to the terms of this Agreement, in lieu of issuing Warrant Shares, the Company, in its sole discretion, shall be entitled to settle all or any portion of exercised Warrants in cash.
 
AGREEMENT
 
NOW, THEREFORE, in consideration of the premises and the mutual agreements herein set forth, the parties hereto agree as follows:
 
SECTION 1.  Issuance. At the Effective Time, the Company will issue and deliver certificates evidencing the Warrants (the “Warrant Certificates”) to the Investors in the amounts (subject to adjustment) set forth on Annex I hereto. Upon the issuance and delivery thereof, Pathmark shall be released from any and all of its obligations under the Pathmark Warrant Agreement with respect to the Exchanged Warrants.
 
SECTION 2.  Warrant Certificates. The Warrant Certificates evidencing the Series A Warrants will be issued substantially in the form of Exhibit A hereto. The Warrant Certificates evidencing the Series B Warrants will be issued substantially in the form of Exhibit B hereto. The Warrant Certificates shall be in registered form only, shall be dated the date of issuance by the Company and may have such additional notations, legends and endorsements as required by law, or the rules and regulations of applicable stock exchanges.
 
SECTION 3.  Execution of Warrant Certificates. Warrant Certificates shall be signed on behalf of the Company by its Chairman of the Board or its Chief Executive Officer, President or a Vice President. Each such signature upon the Warrant Certificates may be in the form of a facsimile signature of the present or any future Chairman of the Board, Chief Executive Officer, President or Vice President, and may be imprinted or otherwise reproduced on the Warrant Certificates and for that purpose the Company may adopt and use the facsimile signature of any person who shall have been Chairman of the Board, Chief Executive Officer, President or Vice President, notwithstanding the fact that at the time the Warrant Certificates shall be delivered or disposed of he shall have ceased to hold such office. Each Warrant Certificate shall also be manually signed on behalf of the Company by its Secretary or an Assistant Secretary under its corporate seal. The seal of the Company may be in the form of a facsimile thereof and may be impressed, affixed, imprinted or otherwise reproduced on the Warrant Certificates.
 
SECTION 4.  Registration. The Company shall number and register the Warrant Certificates in a register as they are issued. The Company may deem and treat the registered holder(s) of the Warrant Certificates (the “Holders”) as the absolute owner(s) thereof (notwithstanding any notation of ownership or other writing thereon made by anyone) for all purposes and shall not be affected by any notice to the contrary. The Warrants shall be registered initially in such name or names as the Investors shall designate.
 
SECTION 5.  Restrictions on Transfer; Registration of Transfers and Exchanges. The Warrants (and any Warrant Shares issued upon the exercise of the Warrants) shall not be transferable except in accordance with the terms of that certain Stockholders’ Agreement of even date herewith by and among the Investors and the Company (the “Stockholders’ Agreement”).
 

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Prior to any proposed transfer of any Warrants, the transferring Holder will deliver to the Company a Certificate of Transfer in the form attached to the Warrant Certificate and, if so requested by the Company, such other information relating to the proposed transfer and the identity of the proposed transferee as the Company may reasonably request in order to confirm that the Warrants may be sold or otherwise transferred in the manner proposed. Upon original issuance thereof, and until such time as the same shall have been registered under the United States Securities Act of 1933, as amended (the “Securities Act”) or sold pursuant to Rule 144 promulgated thereunder (or any similar rule or regulation), each Warrant Certificate and any certificates evidencing Warrant Shares shall bear any legend required pursuant to the Stockholders’ Agreement unless, in the opinion of qualified counsel, such legend is no longer required by the Securities Act.
 
The Company shall from time to time, subject to compliance with the applicable provisions of the Stockholders’ Agreement, register the transfer of any outstanding Warrant Certificates in a Warrant register to be maintained by the Company upon surrender thereof accompanied by a written instrument or instruments of transfer in form satisfactory to the Company, duly executed by the registered Holder or Holders thereof or by the duly appointed legal representative thereof or by a duly authorized attorney. Upon any such registration of transfer, a new Warrant Certificate shall be issued to the transferee(s) and the surrendered Warrant Certificate shall be canceled and disposed of by the Company.
 
Warrant Certificates may be exchanged at the option of the Holder(s) thereof, when surrendered to the Company at its office for another Warrant Certificate or other Warrant Certificates of like series and tenor and representing in the aggregate a like number of Warrants. Warrant Certificates surrendered for exchange shall be canceled and disposed of by the Company.
 
SECTION 6.  Warrants; Exercise of Warrants. Subject to the terms of this Agreement, each Holder shall have the right, which may be exercised at any time or from time to time during the applicable Exercise Period (as defined below) to receive from the Company, that number (the “Gross Number”) of fully paid and nonassessable Warrant Shares (and such other consideration) which the Holder may at the time be entitled to receive upon the exercise of such Warrants, less that number of Warrant Shares equal to the quotient of (a) the product of (i) the Gross Number and (ii) the Exercise Price (as defined below) then in effect for such Warrants and (b) the Market Price of the Warrant Shares on the business day immediately preceding the date the Warrants are presented for exercise. The exercise price for each Series A Warrant (the “Series A Exercise Price”) shall initially be $18.36 per share, subject to adjustment pursuant to the terms hereof. The exercise price for each Series B Warrant (the “Series B Exercise Price”) shall initially be $32.40 per share, subject to adjustment pursuant to the terms hereof. Each of the Series A Exercise Price and the Series B Exercise Price may be referred to herein generically as an “Exercise Price.” For the avoidance of doubt, Warrants may be exercised solely on a net basis in the manner set forth in the immediately preceding sentence, and no Investor shall be required, or permitted, to pay any cash in connection with the exercise of Warrants. Each Warrant not exercised during the Exercise Period shall become void and all rights thereunder and all rights in respect thereof under this Agreement shall cease as of such time. No adjustments as to dividends will be made upon exercise of the Warrants, except as otherwise expressly provided herein.
 

-3-



 
The Series A Warrants shall be exercisable for a period (the Series A Exercise Period”) commencing on their date of issuance and expiring at 5:00 p.m., New York time, on June 9, 2008. The Series B Warrants shall be exercisable for a period (the “Series B Exercise Period” and, together with the Series A Exercise Period, an “Exercise Period”) commencing on their date of issuance and expiring at 5:00 p.m., New York time, on June 9, 2015. Notwithstanding the foregoing or anything else in this Agreement to the contrary, until June 9, 2014, no Series B Warrant shall be exercisable to the extent that such exercise, when taken together with all other exercises of Series B Warrants during the twelve (12) months immediately preceding such exercise, would result in more than fifty-percent (50%) of the aggregate Series B Warrants issued to Investors having been exercised during such twelve (12) month period, unless the exercise of such Series B Warrant is (i) in connection with or following a Change of Control Event (as defined below) or (ii) pursuant to the exercise by the Holders, as part of a single transaction and on a single date, of all Series B Warrants then outstanding (the “100% Series B Warrant Exercise”).
 
As used herein, “Change of Control Event” shall mean (i) the acquisition of an interest in the Company by means of any transaction or series of related transactions (including, without limitation, any reorganization, merger or consolidation) as a result of which the holders of shares of Common Stock immediately prior to the commencement of such transaction or series of transactions hold less than fifty percent (50%) of the ordinary voting power (on a fully diluted basis) of the surviving or acquiring entity; (ii) the sale to a third party that is not a subsidiary of the Company of all, or substantially all, of the Company’s consolidated assets in any single transaction or series of related transactions; (iii) any voluntary or involuntary dissolution, liquidation or winding up of the Company; or (iv) any transaction or series of related transactions (including, without limitation, any reorganization, merger or consolidation) as a result of which any “person” (as that term is used in Section 13(d)(3) of the Exchange Act) becomes the beneficial owner, directly or indirectly, of a greater number of shares of Common Stock or other voting securities representing the votes entitled to be cast generally in the election of directors of the Company or the surviving or acquiring entity in any such transaction (as the case may be) than Teal and its Affiliates, collectively, beneficially own.
 
A Warrant may be exercised upon surrender to the Company (at its office address set forth in Section 13 hereof) of the Warrant Certificate(s) to be exercised with the form of election to exercise attached thereto duly filled in and signed.
 
Subject to the provisions of Section 7 hereof, on or prior to the twentieth (20th) business day after exercise and surrender of Warrant Certificates, the Company shall issue and cause to be delivered with all reasonable dispatch to the Holder and in the name of the Holder a certificate or certificates for the number of full Warrant Shares issuable upon the exercise of such Warrants (and such other consideration as may be deliverable upon exercise of such Warrants) together with cash for fractional Warrant Shares as provided in Section 11. If the exercise is settled by the issuance of Warrant Shares, then such certificate or certificates shall be deemed to have been issued and the Holder shall be deemed to have become a holder of record of such Warrant Shares as of the date of the surrender of such Warrant Certificates, irrespective of the date of delivery of such certificate or certificates for Warrant Shares.
 

-4-



 
Except as otherwise expressly set forth in this Agreement, each Warrant shall be exercisable during the Exercise Period, at the election of the Holder thereof, either in full or from time to time in part and, in the event that fewer than all of the Warrants represented by a Warrant Certificate are exercised at any time prior to the date of expiration of the Warrants, a new certificate evidencing the remaining Warrant or Warrants will be issued and delivered pursuant to the provisions of this Section and of Section 3 hereof.
 
All Warrant Certificates surrendered upon exercise of Warrants shall be cancelled and disposed of by the Company. The Company shall keep copies of this Agreement and any notices given or received hereunder available for inspection by the Holders during normal business hours at its office.
 
In lieu of issuing Warrant Shares upon exercise of Warrants as set forth above (together with such other consideration as may be deliverable upon exercise of such Warrants), the Company, in its sole discretion, shall be entitled to settle all or any portion of exercised Warrants in cash on or prior to the twentieth (20th) business day after the exercise and surrender of the Warrant Certificates.
 
The amount of cash or other consideration issuable or deliverable upon the exercise of Warrants shall be (i) the Market Prices of the number of Warrant Shares otherwise to be issued pursuant to the first paragraph of this Section 6 or other consideration to be paid in settlement of any Warrant for the business day immediately preceding the date that the applicable Warrants are exercised and surrendered or (ii) in the case of consideration issuable or deliverable upon the exercise of Warrants for which there is no Market Price, the Current Market Value (as defined below) of such consideration.
 
Notwithstanding the foregoing, in connection with a 100% Series B Exercise, the Company may elect, by written notice delivered to the Holder at any time during such twenty (20) business day settlement period, to defer the settlement of up to fifty-percent (50%) of the exercised Series B Warrants for up to one (1) year from the date of such exercise; provided, however, that the deferred portion of such settlement (i) shall thereafter be payable only in cash and (ii) shall accrue interest at a rate equal to the U.S. prime rate, as the same may be published under “Money Rates” in The Wall Street Journal from time to time, from and including the twentieth (20th) business day following the date of exercise of such Series B Warrants until but excluding the date payment of the deferred portion of such settlement, together with all interest accrued thereon, is received by the Holder (the deferred portion of such settlement, together with all interest accrued thereon, “Deferred Cash Amount”). If the Company determines to pay the Deferred Cash Amount, in whole or in part, on a date (an “Early Payment Date”) other than the first (1st) anniversary of such 100% Series B Warrant Exercise, it will so notify the Holder in writing (a “Payment Notice”) at least twenty (20) business days prior to the Early Payment Date, and upon delivery of such Payment Notice, will be irrevocably bound to pay the Deferred Cash Amount on such Early Payment Date.
 
SECTION 7.  Payment of Taxes. The Company will pay all documentary stamp taxes and other governmental charges (excluding all foreign, federal or state income, franchise, property, estate, inheritance, gift or similar taxes) in connection with the issuance or delivery of the Warrant Certificates hereunder, as well as all such taxes attributable to the initial issuance or
 

-5-


delivery of any Warrant Shares upon the exercise of Warrants. The Company shall not, however, be required to pay any tax that may be payable in respect of any subsequent transfer of the Warrants or any transfer involved in the issuance and delivery of Warrant Shares in a name other than that in which the Warrants to which such issuance relates were registered, and, if any such tax would otherwise be payable by the Company, no such issuance or delivery shall be made unless and until the person requesting such issuance has paid to the Company the amount of any such tax, or it is, established to the reasonable satisfaction of the Company that any such tax has been paid.
 
SECTION 8.  Mutilated or Missing Warrant Certificates. If any Warrant Certificate or certificate evidencing Warrant Shares shall be mutilated, lost, stolen or destroyed, the Company shall issue, in exchange and substitution therefor and upon cancellation of the mutilated Warrant Certificate or other certificate, or in lieu of and substitution for the Warrant Certificate or other certificate lost, stolen or destroyed, a new Warrant Certificate or other certificate of like tenor and representing an equivalent number of Warrants or Warrant Shares.
 
SECTION 9.  Reservation of Warrant Shares. The Company shall at all times reserve and keep available, free from preemptive rights, out of the aggregate of its authorized but unissued Common Stock or its authorized and issued Common Stock held in its treasury, for the purpose of enabling it to satisfy any obligation to issue the Warrant Shares upon exercise of the Warrants, the maximum number of shares of Common Stock which may then be deliverable upon the exercise of all outstanding Warrants.
 
The Company or, if appointed, the transfer agent for the Common Stock and each transfer agent for any shares of the Company’s capital stock issuable upon the exercise of any of the Warrants (collectively, the “Transfer Agent”) will be irrevocably authorized and directed at all times to reserve such number of authorized shares as shall be required for such purpose. The Company shall keep a copy of this Agreement on file with the Transfer Agent. The Company will supply the Transfer Agent with duly executed certificates for such purposes and will provide or otherwise make available all other consideration that may be deliverable upon exercise of the Warrants. The Company will furnish such Transfer Agent a copy of all notices of adjustments and certificates related thereto, transmitted to each Holder pursuant to Section 12 hereof.
 
The Company covenants that all the Warrant Shares and other capital stock issued upon exercise of the Warrants will, upon issue, be validly authorized and issued, fully paid, nonassessable, free of preemptive rights and free from all taxes, liens, charges and security interests with respect to the issue thereof.
 
The Company shall from time to time take all action which may be necessary or appropriate so that the Common Stock issuable upon conversion of the Warrant Shares following an exercise of the Warrants, will be listed on the principal securities exchanges and markets within the United States of America, if any, on which other shares of the same class of Common Stock of the Company are then listed.
 
SECTION 10.  Adjustment of Exercise Price and Number of Warrant Shares Issuable. The Exercise Price and the number of shares of Common Stock issuable upon the exercise of each Warrant (the “Warrant Number”) are subject to adjustment from time to time
 

-6-


upon the occurrence of the events enumerated in, or as otherwise provided in, this Section 10. The Warrant Number is initially one.
 
(a)  Adjustment for Change in Capital Stock
 
If the Company:
 
(1)  pays a dividend or makes a distribution on its Common Stock in shares of its Common Stock;
 
(2)  subdivides or reclassifies its outstanding shares of Common Stock into a greater number of shares;
 
(3)  combines or reclassifies its outstanding shares of Common Stock into a smaller number of shares;
 
(4)  makes a distribution on its Common Stock in shares of its capital stock other than its Common Stock; or
 
(5)  issues by reclassification of its Common Stock any shares of its capital stock;
 
then the Exercise Price in effect immediately prior to such action shall be proportionately adjusted so that the holder of any Warrant thereafter exercised may receive the aggregate number and kind of shares of capital stock of the Company which he or it would have owned immediately following such action if such Warrant had been exercised immediately prior to such action.
 
The adjustment shall become effective immediately after the record date in the case of a dividend or distribution and immediately after the effective date in the case of a subdivision, combination or reclassification.
 
If after an adjustment a holder of a Warrant upon exercise of it may receive shares of two or more classes of capital stock of the Company, the Company shall determine the allocation of the adjusted Exercise Price between the classes of capital stock. After such allocation, the exercise privilege and the Exercise Price of each class of capital stock shall thereafter be subject to adjustment on terms comparable to those applicable to Common Stock in this Section.
 
Such adjustment shall be made successively whenever any event listed above shall occur. If the occurrence of any event listed above results in an adjustment under subsections (b) or (c) below, no further adjustment shall be made under this subsection (a).
 
(b)  Adjustment for Rights Issue
 
 
If the Company distributes any rights, options or warrants (whether or not immediately exercisable) to all holders of its Common Stock entitling them to purchase shares of Common Stock at a price per share less than the Current Market Value per share upon exercise
 

-7-


 
within 60 days after the record date relating to such distribution, the Exercise Price shall be adjusted in accordance with the formula:
 
       
O +   N x P   
E′
=
E
x
              M   
       
     O  +  N   
 
where:
 
E′
=
the adjusted Exercise Price.
     
E
=
the then current Exercise Price.
     
O
=
the number of shares of Common Stock outstanding on the record date for any such distribution.
     
N
=
the number of additional shares of Common Stock issuable upon exercise of such rights, options or warrants.
     
P
=
the exercise price per share of such rights, options or warrants.
     
M
=
the Current Market Value per share of Common Stock on the record date for any such distribution.

 
The adjustment shall be made successively whenever any such rights, options or warrants are issued and shall become effective immediately after the record date for the determination of stockholders entitled to receive the rights, options or warrants. If at the end of the period during which such rights, options or warrants are exercisable, not all rights, options or warrants shall have been exercised, the Exercise Price shall be immediately readjusted to what it would have been if “N” in the above formula had been the number of shares actually issued. No adjustment shall be required under this subsection (b) if at the time of such distribution the Company makes the same distribution to Holders of Warrants as it makes to holders of shares of Common Stock pro rata based on the number of shares of Common Stock for which such Warrants are exercisable. No adjustment shall be made pursuant to this subsection (b) which shall have the effect of decreasing the number of Warrant Shares purchasable upon exercise of each Warrant.
 
(c)  Adjustment for Other Distributions
 
If the Company distributes to all holders of its Common Stock (i) any evidences of indebtedness of the Company or any of its subsidiaries, (ii) any cash or other assets of the Company or any of its subsidiaries, (iii) shares of its capital stock or any other properties or securities or (iv) any rights, options or warrants to acquire any of the foregoing or to acquire any other securities of the Company (the items described in the foregoing clauses (i)-(iv) being collectively referred to as the “Consideration”), the Exercise Price shall be adjusted in accordance with the formula:
 
 
 
-8-




 
         
E′
=
E
x
M - F
         
 
where:
 
E′
=
the adjusted Exercise Price.
     
E
=
the then current Exercise Price.
     
M
=
the Current Market Value per share of Common Stock on the record date mentioned below.
     
F
=
the fair market value on the record date mentioned below of the Consideration distributable to the holder of one share of Common Stock.

 
The adjustment shall be made successively whenever any such distribution is made and shall become effective immediately after the record date for the determination of stockholders entitled to receive the distribution. If an adjustment is made pursuant to this subsection (c) as a result of the issuance of rights, options or warrants and at the end of the period during which any such rights, options or warrants are exercisable, not all such rights, options or warrants shall have been exercised, the Exercise Price shall be immediately readjusted as if “F” in the above formula was the fair market value on the record date of the indebtedness or assets actually distributed upon exercise of such rights, options or warrants divided by the number of shares of Common Stock outstanding on the record date. No adjustment shall be required under this subsection (c) if at the time of such distribution the Company makes the same distribution to Holders of Warrants as it makes to holders of shares of Common Stock pro rata based on the number of shares of Common Stock for which such Warrants are exercisable. No adjustment shall be made pursuant to this subsection (c) which shall be have the effect of decreasing the number of Warrant Shares purchasable upon exercise of each Warrant.
 
This subsection does not apply to any distribution referred to in subsection (a) of this Section 10 or to rights, options or warrants referred to in subsection (b) of this Section 10.
 
(d)  Current Market Value
 
Current Market Value” per share of Common Stock or of any other security (herein collectively referred to as a “Security”) at any date shall be:
 
(1)  if the Security is registered under the Exchange Act, the average of the daily Market Prices for each business day during the period commencing 5 business days before such date and ending on the date one day prior to such date or, if the Security has been registered under the Exchange Act for less than 5 consecutive business days before such date, then the average of the daily Market Prices for all of the business days before such date for which daily Market Prices are available. If the Market Price is not determinable for at least 10
 

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business days in such period, the Current Market Value of the Security shall be determined as if the Security was not registered under the Exchange Act; or
 
(2)  if the Security is not registered under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), (i) the value of the Security determined in good faith by the Board of Directors of the Company and certified in a board resolution, based on the most recently completed arm’s length transaction between the Company and a person other than an Affiliate of the Company in which such determination is necessary and the closing of which occurs on such date or shall have occurred within the six months preceding such date, (ii) if no such transaction shall have occurred on such date or within such six-month period, the value of the Security most recently determined as of a date within the six months preceding such date by an Independent Financial Expert or (iii) if neither clause (i) nor (ii) is applicable, the value of the Security determined as of such date by an Independent Financial Expert.
 
The Market Price” for any Security on each business day means: (A) if such Security is listed or admitted to trading on any securities exchange, the closing price, regular way, on such day on the principal exchange on which such Security is traded, or if no sale takes place on such day, the average of the closing bid and asked prices on such day, (B) if such Security is not then listed or admitted to trading on any securities exchange, the last reported sale price on such day, or if there is no such last reported sale price on such day, the average of the closing bid and the asked prices on such day, as reported by a reputable quotation source designated by the Company, or (C) if neither clause (A) nor (B) is applicable, the average of the reported high bid and low asked prices on such day, as reported by a reputable quotation service, or a newspaper of general circulation in the Borough of Manhattan, City of New York, customarily published on each business day, designated by the Company. If there are no such prices on a business day, then the Market Price shall not be determinable for such business day.
 
Independent Financial Expert” shall mean a nationally recognized investment banking firm designated by the Company and reasonably acceptable to the Holders of a majority of the Warrants (i) that does not (and whose directors, officers, employees and Affiliates do not) have a direct or indirect material financial interest in the Company, (ii) that has not been, and, at the time it is called upon to serve as an Independent Financial Expert under this Agreement is not (and none of whose directors, officers, employees or Affiliates is) a promoter, director or officer of the Company, (iii) that has not been retained by the Company or any Holder or Affiliate of a Holder for any purpose, other than to perform an equity valuation, within the preceding twelve months, and (iv) that, in the reasonable judgment of the Board of Directors of the Company, is otherwise qualified to serve as an independent financial advisor. Any such person may receive customary compensation and indemnification by the Company for opinions or services it provides as an Independent Financial Expert.
 
Affiliate” shall mean, with respect to any person, any other person directly or indirectly controlling or controlled by or under direct or indirect common control with such person. For the purposes of this definition, “control,” when used with respect to any person, means the power to direct the management and policies of such person, directly or indirectly,
 

-10-


whether through the ownership of voting securities, by contract or otherwise; and the terms “controlling” and “controlled” have meanings correlative to the foregoing.
 
(e)  When De Minimis Adjustment May Be Deferred
 
No adjustment in the Exercise Price need be made unless the adjustment would require an increase or decrease of at least 1% in the Exercise Price. No adjustment in the Warrant Number need be made unless the adjustment would require an increase or decrease of at least 0.5% in the Warrant Number. Any adjustments that are not made shall be carried forward and taken into account in any subsequent adjustment, provided that no such adjustment shall be deferred beyond the date on which a Warrant is exercised.
 
All calculations under this Section 10 shall be made to the nearest 1/1000th of a share.
 
(f)  When No Adjustment Required
 
If an adjustment is made upon the establishment of a record date or issuance date for a distribution or issuance subject to subsections (a), (b) or (c) hereof and such distribution or issuance is subsequently cancelled, the Exercise Price then in effect shall be readjusted, effective as of the date when the Board of Directors determines to cancel such distribution, to that which would have been in effect if such record date had not been fixed.
 
(g)  Notice of Adjustment
 
Whenever the Exercise Price or the Warrant Number is adjusted, the Company shall provide the notices required by Section 12 hereof.
 
(h)  When Issuance or Payment May Be Deferred
 
In any case in which this Section 10 shall require that an adjustment in the Exercise Price and Warrant Number be made effective as of a record date for a specified event, the Company may elect to defer until the occurrence of such event (i) issuing to the Holder of any Warrant exercised after such record date the Warrant Shares and other capital stock of the Company, if any, issuable upon such exercise over and above the Warrant Shares and other capital stock of the Company, if any, issuable upon such exercise on the basis of the Warrant Number prior to such adjustment, and (ii) paying to such Holder any amount in cash in lieu of a fractional share pursuant to Section 11; provided, however, that the Company shall deliver to such Holder a due bill or other appropriate instrument evidencing such Holder’s right to receive such additional Warrant Shares, other capital stock and cash upon the occurrence of the event requiring such adjustment.
 
(i)  Reorganizations
 
In case of any capital reorganization, other than in the cases referred to in Sections 10(a), (b) or (c) hereof, or the consolidation or merger of the Company with or into another corporation (other than a merger or consolidation which does not result in any reclassification of the outstanding shares of Common Stock into shares of other stock or other
 

-11-


securities or property) (collectively such actions being hereinafter referred to as “Reorganizations”), there shall thereafter be deliverable upon exercise of any Warrant (in lieu of the number of shares of Common Stock theretofore deliverable) the number of shares of stock or other securities or property to which a holder of the number of shares of Common Stock that would otherwise have been deliverable upon the exercise of such Warrant would have been entitled upon such Reorganization if such Warrant had been exercised in full immediately prior to such Reorganization (and assuming, for this purpose, that the Company were not entitled to settle all or any portion of exercised Warrants in cash as provided in Section 6 hereof). In case of any Reorganization, appropriate adjustment, as determined in good faith by the Board of Directors of the Company, whose determination shall be described in a duly adopted resolution certified by the Company’s Secretary or Assistant Secretary, shall be made in the application of the provisions herein set forth with respect to the rights and interests of Holders so that the provisions set forth herein shall thereafter be applicable, as nearly as possible, in relation to any shares or other property thereafter deliverable upon exercise of Warrants.
 
The Company shall not effect any such Reorganization unless prior to or simultaneously with the consummation thereof the successor corporation (if other than the Company) resulting from such Reorganization or other appropriate corporation or entity shall expressly assume, by a supplemental Warrant Agreement or other acknowledgement executed and delivered to the Holder(s), the obligation to deliver to each such Holder such shares of stock, securities or assets as, in accordance with the foregoing provisions, such Holder may be entitled to purchase, and all other obligations and liabilities under this Agreement.
 
(j)  Adjustment in Number of Shares
 
Upon each adjustment of the Exercise Price pursuant to this Section 10, each Warrant outstanding prior to the making of the adjustment in the Exercise Price shall thereafter evidence the right to receive that number of shares of Common Stock (calculated to the nearest thousandth) obtained from the following formula:
 
N′
=
N
x
E 
       
E′
         
where:
 
N′
=
the adjustment number of Warrant Shares issuable upon exercise of a Warrant, assuming for this purpose that exercise required the payment of the adjusted Exercise Price.
     
N
=
the number of Warrant Shares previously issuable upon exercise of a Warrant, assuming for this purpose that exercise required the payment of the Exercise Price prior to adjustment.
     
E′
=
the adjusted Exercise Price.
     
E
=
the Exercise Price prior to adjustment.

-12-

 


 
(k)  Form of Warrants
 
Irrespective of any adjustments in the Exercise Price or the number or kind of shares purchasable upon the exercise of the Warrants, Warrants theretofore or thereafter issued may continue to express the same price and number and kind of shares as are stated in the Warrants initially issuable pursuant to this Agreement.
 
(l)  Adjustments in Other Securities
 
If as a result of any event or for any other reason, any adjustment is made which increases the number of shares of Common Stock issuable upon conversion, exercise or exchange of, or in the conversion or exercise price or exchange ratio applicable to, any outstanding securities of the Company that are convertible into, or exercisable or exchangeable for, Common Stock of the Company, then a corresponding adjustment shall be made hereunder to increase the number of shares of Common Stock issuable upon exercise of the Warrants, but only to the extent that no such adjustment has been made pursuant to Sections 10(a), (b) or (c) hereof with respect to such event or for such other reason.
 
(m)  Tender Offers; Exchange Offers
 
In the event that the Company or any subsidiary of the Company shall purchase shares of Common Stock pursuant to a tender offer or an exchange offer for a price per share of Common Stock that is greater than the then Current Market Value per share of shares of Common Stock in effect at the end of the trading day immediately following the day on which such tender offer or exchange offer expires, then the Company, or such subsidiary of the Company, shall, within (10) business days of the expiry of such tender offer or exchange offer, offer to purchase the Warrants for comparable consideration per share of Common Stock based on the number of shares of Common Stock which the Holders of such Warrants would receive upon exercise of such Warrants (the “Offer”) (such amount less the Exercise Price in respect of such share, the “Per Share Consideration”); provided, however, if a tender offer is made for only a portion of the outstanding shares of Common Stock, then such offer shall be made for such shares of Common Stock issuable upon exercise of the Warrants in the same pro rata proportion; provided, further, that the Company shall not be required to make such an Offer if the Per Share Consideration is an amount less than the then-existing Exercise Price per share.
 
The Offer shall remain open for a period of twenty (20) business days following its commencement and no longer, except to the extent that a longer period is required by applicable law (the “Offer Period”). No later than five (5) business days after the termination of the Offer Period (the “Purchase Date”), the Company shall purchase such Warrants for the applicable Per Share Consideration.
 
(n)  Other Events
 
If any event shall occur as to which the other provisions of this Section 10 are not strictly applicable but the failure to make any adjustment would have the effect of depriving holders of the benefit of all or a portion of the exercise rights in respect of any Warrant in accordance with the essential intent and principles of this Section 10, then, in each such case, the
 

-13-


Company shall appoint an Independent Financial Expert, which shall give its opinion upon the adjustment, if any, on a basis consistent with the essential intent and principles established in this Section 10 necessary to preserve, without dilution, such exercise rights. Upon receipt of such opinion, the Company will promptly mail a copy thereof to the Holders and shall make the adjustments described therein.
 
(o)  Miscellaneous
 
For purpose of this Section 10 the term “shares of Common Stock” shall mean (i) shares of any class of stock designated as Common Stock of the Company at the date of this Agreement, and (ii) shares of any other class of stock resulting from successive changes or reclassification of such shares consisting solely of changes in par value, or from par value to no par value, or from no par value to par value. In the event that at any time, as a result of an adjustment made pursuant to this Section 10, the holders of Warrants shall become entitled to purchase any securities of the Company other than, or in addition to, shares of Common Stock, thereafter the number or amount of such other securities so purchasable upon exercise of each Warrant shall be subject to adjustment from time to time in a manner and on terms as nearly equivalent as practicable to the provisions with respect to the Warrant Shares contained in subsections (a) through (n) of this Section 10, inclusive, and the provisions of Sections 6, 7, 9 and 11 with respect to the Warrant Shares or the Common Stock shall apply on like terms to any such other securities.
 
SECTION 11.  Fractional Interests. The Company shall not issue fractional Warrant Shares on the exercise of the Warrants. If more than one Warrant shall be presented for exercise in full at the same time by the same holder, the number of full Warrant Shares which shall be issuable upon the exercise thereof shall be computed on the basis of the aggregate number of the Warrant Shares purchasable on exercise of the Warrants so presented. If any fraction of a Warrant Share would, except for the provisions of this Section 11, be issuable on the exercise of any Warrants (or specified portion thereof), the Company shall pay an amount in cash equal to the Market Price of the Warrant Share on the business day immediately preceding the exercise of such Warrants, multiplied by such fraction.
 
SECTION 12.  Notices to Warrant Holders. Upon any adjustment pursuant to Section 10 hereof, the Company shall promptly thereafter (i) cause to be filed with the Company a certificate of an officer of the Company setting forth the Warrant Number and Exercise Price after such adjustment and setting forth in reasonable detail the method of calculation and the facts upon which such calculations are based, and (ii) cause to be given to each of the registered Holders of the Warrant Certificates at his or its address appearing on the Warrant register written notice of such adjustments by first class mail, postage prepaid. Where appropriate, such notice may be given in advance and included as a part of the notice required to be mailed under the other provisions of this Section 12.
 
In case:
 
(a)  the Company shall authorize the issuance to all holders of shares of Common Stock of rights, options or warrants to subscribe for or purchase shares of Common Stock or of any other subscription rights or warrants; or
 

-14-


 
(b)  the Company shall authorize the distribution to all holders of shares of Common Stock of assets, including, without limitation, cash, evidences of its indebtedness, or other securities; or
 
(c)  of any reclassification, reorganization, consolidation or merger to which the Company is a party and for which approval of any stockholders of the Company is required, or of the conveyance or transfer of the properties and assets of the Company substantially as an entirety, or of any reclassification or change of Common Stock issuable upon exercise of the Warrants (other than a change in par value, or from par value to no par value, or from no par value to par value, or as a result of a subdivision or combination), or a tender offer or exchange offer for shares of Common Stock; or
 
(d)  of the voluntary or involuntary dissolution, liquidation or winding up of the Company; or
 
(e)  the Company proposes to take any action that would require an adjustment to the Warrant Number or the Exercise Price pursuant to Section 10 hereof;
 
then the Company shall cause to be given to each of the registered Holders of the Warrant Certificates at his or its address appearing on the Warrant register, at least 20 days prior to the applicable record date hereinafter specified, or at least 20 days prior to the date of the event in the case of events for which there is no record date, by first-class mail, postage prepaid, a written notice of (i) the date as of which the holders of record of shares of Common Stock to be entitled to receive any such rights, options, warrants or distribution are to be determined, or (ii) the initial expiration date set forth in any tender offer or exchange offer for shares of Common Stock, or (iii) such reclassification, reorganization, consolidation, merger, conveyance, transfer, dissolution, the date on which liquidation or winding up is expected (to the extent reasonably determinable) to become effective or consummated and the date as of which it is expected (to the extent reasonably determinable) that holders of record of shares of Common Stock shall be entitled to exchange such shares for securities or other property, if any, deliverable thereupon . The failure to give the notice required by this Section 12 or any defect therein shall not affect the legality or validity of any distribution, right, option, warrant, reclassification, reorganization, consolidation, merger, conveyance, transfer, dissolution, liquidation or winding up, or the vote upon any action.
 
Nothing contained in this Agreement or in any Warrant Certificate shall be construed as conferring upon the Holders of Warrants (prior to the exercise of such Warrants) the right to vote or to consent or to receive notice as stockholders in respect of the meetings of stockholders or the election of Directors of the Company or any other matter, or any rights whatsoever as stockholders of the Company.
 
SECTION 13.  Notices to the Company and Warrant Holders. All notices and other communications provided for or permitted hereunder shall be made by hand delivery, first-class mail, telex, telecopier, or overnight air courier guaranteeing next day delivery:
 

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(a)  if to the Holders at the addresses provided on the signature pages hereto or otherwise reflected in the books and records of the Company from time to time; and
 
(b)  if to the Company, at Two Paragon Drive, Montvale, New Jersey 07645, Attention: Allan Richards.
 
All such notices and communications shall be deemed to have been duly given: at the time delivered by hand, if personally delivered; five (5) business days after being deposited in the mail, postage prepaid, if mailed; when answered back if telexed; when receipt acknowledged, if telecopied; and the next business day after timely delivery to the courier, if sent by overnight air courier guaranteeing next day delivery. The parties may change the addresses to which notices are to be given by giving five days’ prior notice of such change in accordance herewith.
 
SECTION 14.  Amendments and Supplements.
 
(a)  Until such time as this Agreement has become effective pursuant to Section 16 hereof, this Agreement may not be amended, or any provision hereof waived, in any manner unless such amendment or waiver is in a writing signed, in the case of an amendment, by the parties hereto or, in the case of a waiver, by the party against whom the waiver is effective.
 
(b)  Upon the effectiveness of this Agreement pursuant to Section 16 hereof, the Company may thereafter from time to time supplement or amend this Agreement without the approval of any Holders of Warrant Certificates in order to cure any ambiguity or to correct or supplement any provision contained herein which may be defective or inconsistent with any other provision herein, or to make any other provisions in regard to matters or questions arising hereunder which the Company may deem necessary or desirable and which shall not in any way adversely affect the interests of the Holders of Warrant Certificates. An amendment or supplement to this Warrant Agreement that has an adverse effect on Holders of Warrants shall require the written consent of the Holders of a majority of the then-outstanding Warrants excluding Warrants held by the Company.
 
SECTION 15.  Successors and Assigns. All the covenants and provisions of this Agreement by or for the benefit of the Company shall bind and inure to the benefit of its respective successors and permitted assigns hereunder.
 
SECTION 16.  Effectiveness. Except for this Section 16 and Sections 13, 14(a), 15, 17(a), 18, 19, 20, 21 and 22 hereof, which shall be come effective as of the date hereof, this Agreement shall become effective only upon the Effective Time.
 
SECTION 17.  Termination.

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(a)  Notwithstanding anything to the contrary set forth herein, this Agreement will automatically terminate if the Merger Agreement is terminated in accordance with its own terms and shall thereafter be null and void.
 
(b)  Upon the effectiveness of this Agreement pursuant to Section 16 hereof, this Agreement shall remain in effect until such time as all Warrants have been exercised or have expired pursuant to this Agreement.
 
SECTION 18.  No Rights or Liabilities as Stockholder. Nothing contained herein shall be construed as conferring upon any Holder any rights as a stockholder of the Company or as imposing any obligation on such holder to purchase any securities or as imposing any liabilities on such holder as a stockholder of the Company, whether such obligation or liabilities are asserted by the Company or by creditors of the Company.
 
SECTION 19.  Governing Law. This Agreement and each Warrant Certificate issued hereunder shall be deemed to be a contract made under the laws of the State of New York and for all purposes shall be construed in accordance with the internal laws of said State.
 
SECTION 20.  Benefits of This Agreement. Nothing in this Agreement shall be construed to give to any person or corporation other than the Company and the registered Holders of the Warrant Certificates any legal or equitable right, remedy or claim under this Agreement; but this Agreement shall be for the sole and exclusive benefit of the Company and the registered Holders of the Warrant Certificates.
 
SECTION 21.  Construction; Interpretation. This Agreement shall not be construed for or against any party by reason of the authorship or alleged authorship of any provision hereof or by reason of the status of the respective parties. This Agreement shall be construed reasonably to carry out its intent without presumption against or in favor of any party. The natural persons executing this Agreement on behalf of each party have the full right, power and authority to do and affirm the foregoing warranty on behalf of each party and on their own behalf. The captions on sections are provided for purposes of convenience and are not intended to limit, define the scope of or aid in interpretation of any of the provisions hereof. All pronouns and singular or plural references as used herein shall be deemed to have interchangeably (where the sense of the sentence requires) a masculine, feminine or neuter, and/or singular or plural meaning, as the case may be.
 
SECTION 22.  Counterparts. This Agreement may be executed in any number of counterparts and each of such counterparts shall for all purposes be deemed to be an original, and all such counterparts shall together constitute but one and the same instrument.
 

 

-17-



IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed, as of the day and year first above written.
 
COMPANY:

THE GREAT ATLANTIC & PACIFIC TEA
COMPANY, INC., a Maryland corporation
 
By: /s/ William J. Moss 
       Name: William J. Moss
       Title: Vice President and Treasurer



INVESTORS:

YUCAIPA CORPORATE INITIATIVES FUND I,
L.P., a Delaware limited partnership

 
By:
Yucaipa Corporate Initiatives Fund I,
LLC
Its: General Partner
 
/s/ Robert P. Berminham
Name: Robert P. Bermingham
Title: Vice President
 
YUCAIPA AMERICAN ALLIANCE
(PARALLEL) FUND I, L.P., a Delaware limited
partnership

 
By:
Yucaipa American Alliance Fund I,
LLC
Its: General Partner
 
/s/ Robert P. Bermingham
Name: Robert P. Bermingham
Title: Vice President
 
YUCAIPA AMERICAN ALLIANCE FUND I,
L.P., a Delaware limited partnership

 
By:
Yucaipa American Alliance Fund I,
LLC
Its: General Partner
 
/s/ Robert P. Bermingham
Name: Robert P. Bermingham
Title: Vice President
 
Address for Notices to the Investors:
9130 W. Sunset Boulevard
Los Angeles, California 90069
Attention: Robert P. Bermingham




ANNEX I
 
WARRANTS TO BE ISSUED1
 
SERIES A WARRANTS
 
Investor
Series A Exchanged Warrants
Series A Warrants
     
Yucaipa Corporate Initiatives Fund I, L.P.
3,462,652
1,603,069.37
     
Yucaipa American Alliance Fund I, L.P.
3,298,674
1,527,154.12
     
Yucaipa American Alliance (Parallel) Fund I, L.P.
3,298,674
1,527,154.12
     
SERIES B WARRANTS
 
Investor
Series B Exchanged Warrants
Series B Warrants
     
Yucaipa Corporate Initiatives Fund I, L.P.
5,178,953.67
2,397,648.39
     
Yucaipa American Alliance Fund I, L.P.
4,933,698.17
2,284,104.90
     
Yucaipa American Alliance (Parallel) Fund I, L.P.
4,933,698.17
2,284,104.90

 

 

 

 


 1  Subject to adjustment and to transfers made in accordance with the terms of the Stockholder Voting Agreement entered into between the Company  and the Investors on the date hereof.




EXHIBIT A
 
[Form of Series A Warrant Certificate]
 
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF. SUCH SECURITIES GENERALLY MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR PURSUANT TO AN APPLICABLE EXEMPTION FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SAID ACT.
 
THE SECURITIES EVIDENCED HEREBY ARE SUBJECT TO CERTAIN RESTRICTIONS UNDER THE TERMS OF THE STOCKHOLDERS’ AGREEMENT DATED AS OF MARCH 4, 2007 (“STOCKHOLDERS’ AGREEMENT”), AS AMENDED FROM TIME TO TIME, BETWEEN THE ISSUER AND THE HOLDER HEREOF AND MAY NOT BE OFFERED, SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF EXCEPT IN ACCORDANCE WITH THE TERMS OF THAT AGREEMENT.
 
No.                                                                                                                                          60;                            _____ _____ Series A Warrants2
 
 
Series A Warrant Certificate
 
THE GREAT ATLANTIC & PACIFIC TEA COMPANY, INC.
 
This Warrant Certificate certifies that ___________________, or registered assigns, is the registered holder of the number of Warrants (the Warrants”) set forth above to purchase Common Stock, $1.00 par value (the “Common Stock”), of The Great Atlantic & Pacific Tea Company, Inc., Inc., a Maryland corporation (the “Company”). Each Warrant entitles the holder upon exercise to receive from the Company that number of fully paid and nonassessable shares of Common Stock (each, a “Warrant Share”) (and such other consideration) which the Holder may at the time be entitled to receive upon the exercise of such Warrants, less that number of Warrant Shares having an aggregate Market Price (as defined in the Warrant Agreement referred to hereafter) on the business day immediately preceding the date the Warrants are presented for exercise equal to the aggregate Exercise Price (as defined below) that would otherwise have been paid by the Holder for the Warrant Shares. The exercise price for each Warrant (the “Exercise Price”) shall initially be $18.36 per share. For the avoidance of doubt, Warrants may be exercised solely on a net basis in the manner set forth in the immediately preceding sentence, and no holder shall be required, or permitted, to pay any cash in connection with the exercise of Warrants. The Warrants may be exercised only during the Series A Exercise Period (as defined in the Warrant Agreement). The Exercise Price and number of Warrant
 
 

 
2  Amount of Series A Warrants issued to be as set forth on Annex I.

A-1


Shares issuable upon exercise of the Warrants are subject to adjustment upon the occurrence of certain events, as set forth in the Warrant Agreement.
 
The Warrants evidenced by this Warrant Certificate are part of a duly authorized issue of Series A Warrants, and are issued or to be issued pursuant to an Amended and Restated Warrant Agreement dated as of March 4, 2007 (the “Warrant Agreement”), duly executed and delivered by the Company, which Warrant Agreement is hereby incorporated by reference in and made a part of this instrument and is hereby referred to for a description of the rights, limitation of rights, obligations, duties and immunities thereunder of the Company and the holders (the words “holders” or “holder” meaning the registered holders or registered holder) of the Warrants. A copy of the Warrant Agreement may be obtained by the holder hereof upon written request to the Company.
 
The holder of Warrants evidenced by this Warrant Certificate may exercise such Warrants during the Series A Exercise Period under and pursuant to the terms and conditions of the Warrant Agreement by surrendering this Warrant Certificate, with the form of election to exercise set forth hereon (and by this reference made a part hereof), properly completed and executed at the office of the Company designated for such purpose. In the event that upon any exercise of Warrants evidenced hereby the number of Warrants exercised shall be less than the total number of Warrants evidenced hereby, there shall be issued by the Company to the holder hereof or his or its registered assignee a new Warrant Certificate evidencing the number of Warrants not exercised.
 
The Warrant Agreement provides that upon the occurrence of certain events the number of Warrants and the Exercise Price set forth on the face hereof may, subject to certain conditions, be adjusted. No fractions of a share of Common Stock will be issued upon the exercise of any Warrant, but the Company will pay the cash value thereof determined as provided in the Warrant Agreement.
 
Subject to the conditions set forth the Warrant Agreement, in lieu of issuing Warrant Shares upon exercise of Warrants as set forth above (together with such other consideration as may be deliverable upon exercise of such Warrants), the Company, in its sole discretion at settlement, shall be entitled to settle all or any portion of exercised Warrants in cash as provided in the Warrant Agreement.
 
The holders of the Warrants are entitled to certain registration rights with respect to any Warrant Shares issued in settlement of exercised Warrants. Said registration rights are set forth in the Stockholders’ Agreement. By acceptance of this Warrant Certificate, the holder hereof agrees that upon issuance of Warrant Shares in settlement of exercised Warrants evidenced hereby, he or it will be bound by the Stockholders’ Agreement as a holder of Registrable Securities thereunder. A copy of the Stockholders’ Agreement may be obtained by the holder hereof upon written request to the Company.
 
Warrant Certificates, when surrendered at the office of the Company by the registered holder thereof in person or by legal representative or attorney duly authorized in writing, may be exchanged, in the manner and subject to the limitations provided in the Warrant
 

A-2


Agreement, but without payment of any service charge, for another Warrant Certificate or Warrant Certificates of like tenor evidencing in the aggregate a like number of Warrants.
 
Subject to the terms and conditions of the Warrant Agreement and the Stockholders’ Agreement, upon due presentation for registration of transfer of this Warrant Certificate at the office of the Company a new Warrant Certificate or Warrant Certificates of like tenor and evidencing in the aggregate a like number of Warrants shall be issued to the transferee(s) in exchange for this Warrant Certificate, subject to the limitations provided in the Warrant Agreement, without charge except for any tax or other governmental charge imposed in connection therewith.
 
The Company may deem and treat the registered holder(s) thereof as the absolute owner(s) of this Warrant Certificate (notwithstanding any notation of ownership or other writing hereon made by anyone), for the purpose of any exercise hereof, of any distribution to the holder(s) hereof, and for all other purposes, and the Company shall not be affected by any notice to the contrary. Neither the Warrants nor this Warrant Certificate entitles any holder hereof to any rights of a stockholder of the Company.
 
IN WITNESS WHEREOF, The Great Atlantic & Pacific Tea Company, Inc. has caused this Warrant Certificate to be signed by its Chairman of the Board, Chief Executive Officer, President or Vice President and by its Secretary or Assistant Secretary and has caused its corporate seal to be affixed hereunto or imprinted hereon.
 
Dated:  _____________, 2007
THE GREAT ATLANTIC & PACIFIC TEA
COMPANY, INC., a Maryland corporation
 
 
By:  ______________________________________
        Name:
        Title:
 
 
By:  ______________________________________
        Name:
        Title:

A-3


FORM OF ELECTION TO EXERCISE
 
(To Be Executed Upon Exercise Of Warrant)
 
The undersigned holder hereby represents that he or it is the registered holder of this Warrant Certificate, and hereby irrevocably elects to exercise ________ Warrants represented by this Warrant Certificate, and receive shares of Common Stock, $1.00 par value, of The Great Atlantic & Pacific Tea Company, Inc., and such other consideration, if any, to which the undersigned is entitled upon such exercise in accordance with the Amended and Restated Warrant Agreement dated as of March 4, 2007 (the “Warrant Agreement”). This exercise is being effected on a net basis in the manner provided in the Warrant Agreement and no cash is, or is required to be, paid in connection with such exercise. The undersigned requests that (i) a certificate for shares or other securities issued upon this exercise be registered in the name of the undersigned or nominee hereinafter set forth, and further that such certificate be delivered to the undersigned at the address hereinafter set forth or to such other person or entity as is hereinafter set forth and (ii) any cash payable to the undersigned upon this exercise be paid in accordance with the wire transfer instructions hereinafter set forth. If the number of Warrants exercised is less than all of the Warrants represented by this Warrant Certificate, the undersigned requests that a new Warrant Certificate representing the remaining balance of Warrants be registered in the name of the undersigned or nominee hereinafter set forth, and further that such certificate be delivered to the undersigned at the address hereinafter set forth or to such other person or entity as is hereinafter set forth.
 
Certificate to be registered as follows:
 
Name:  _____________________________________________________________________________________________________________________
 
Address:  ___________________________________________________________________________________________________________________
 
            ______________________________________________________________________________________
 
            ______________________________________________________________________________________
 
Social Security or
Taxpayer Identification No.:  ___________________________________________________________________________________________________
 
 
Certificate to be delivered as follows:
 
Name:  _____________________________________________________________________________________________________________________
 
Address:  ___________________________________________________________________________________________________________________
 
            ______________________________________________________________________________________
 
            ______________________________________________________________________________________
 
 
Date:  __________________________                                                           Signature:  _____________________________________________________
 

A-4



 
Cash to be paid as follows:

 

A-5



EXHIBIT B
 
[Form of Series B Warrant Certificate]
 
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF. SUCH SECURITIES GENERALLY MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR PURSUANT TO AN APPLICABLE EXEMPTION FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SAID ACT.
 
THE SECURITIES EVIDENCED HEREBY ARE SUBJECT TO CERTAIN RESTRICTIONS UNDER THE TERMS OF THE STOCKHOLDERS’ AGREEMENT DATED AS OF MARCH 4, 2007 (“STOCKHOLDERS’ AGREEMENT”), AS AMENDED FROM TIME TO TIME, BETWEEN THE ISSUER AND THE HOLDER HEREOF AND MAY NOT BE OFFERED, SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF EXCEPT IN ACCORDANCE WITH THE TERMS OF THAT AGREEMENT.
 
 
No.  _______                                                                                                                                                                        &# 160;                  _____ Series B Warrants3
 
Series B Warrant Certificate
 
THE GREAT ATLANTIC & PACIFIC TEA COMPANY, INC.
 
This Warrant Certificate certifies that ___________________, or registered assigns, is the registered holder of the number of Warrants (the Warrants”) set forth above to purchase Common Stock, $1.00 par value (the “Common Stock”), of The Great Atlantic & Pacific Tea Company, Inc., a Maryland corporation (the “Company”). Each Warrant entitles the holder upon exercise to receive from the Company that number of fully paid and nonassessable shares of Common Stock (each, a “Warrant Share”) (and such other consideration) which the Holder may at the time be entitled to receive upon the exercise of such Warrants, less that number of Warrant Shares having an aggregate Market Price (as defined in the Warrant Agreement referred to hereafter) on the business day immediately preceding the date the Warrants are presented for exercise equal to the aggregate Exercise Price (as defined below) that would otherwise have been paid by the Holder for the Warrant Shares. The exercise price for each Warrant (the “Exercise Price”) shall initially be $32.40 per share. For the avoidance of doubt, Warrants may be exercised solely on a net basis in the manner set forth in the immediately preceding sentence, and no holder shall be required, or permitted, to pay any cash in connection with the exercise of Warrants. The Warrants may be exercised only during the Series B Exercise Period (as defined in the Warrant Agreement). The Exercise Price and number of Warrant Shares issuable upon exercise of the Warrants are subject to adjustment upon the occurrence of certain events, as set forth in the Warrant Agreement.
 
 
 

3 Amount of Series B Warrants issued to be as set forth on Annex I.

B-1


 
The Warrants evidenced by this Warrant Certificate are part of a duly authorized issue of Series B Warrants, and are issued or to be issued pursuant to an Amended and Restated Warrant Agreement dated as of March 4, 2007 (the “Warrant Agreement”), duly executed and delivered by the Company, which Warrant Agreement is hereby incorporated by reference in and made a part of this instrument and is hereby referred to for a description of the rights, limitation of rights, obligations, duties and immunities thereunder of the Company and the holders (the words “holders” or “holder” meaning the registered holders or registered holder) of the Warrants. A copy of the Warrant Agreement may be obtained by the holder hereof upon written request to the Company.
 
The holder of Warrants evidenced by this Warrant Certificate may exercise such Warrants during the Series B Exercise Period under and pursuant to the terms and conditions of the Warrant Agreement by surrendering this Warrant Certificate, with the form of election to exercise set forth hereon (and by this reference made a part hereof), properly completed and executed at the office of the Company designated for such purpose. In the event that upon any exercise of Warrants evidenced hereby the number of Warrants exercised shall be less than the total number of Warrants evidenced hereby, there shall be issued by the Company to the holder hereof or his or its registered assignee a new Warrant Certificate evidencing the number of Warrants not exercised.
 
The Warrant Agreement provides that upon the occurrence of certain events the number of Warrants and the Exercise Price set forth on the face hereof may, subject to certain conditions, be adjusted. No fractions of a share of Common Stock will be issued upon the exercise of any Warrant, but the Company will pay the cash value thereof determined as provided in the Warrant Agreement.
 
Subject to the conditions set forth the Warrant Agreement, in lieu of issuing Warrant Shares upon exercise of Warrants as set forth above (together with such other consideration as may be deliverable upon exercise of such Warrants), the Company, in its sole discretion at settlement, shall be entitled to settle all or any portion of exercised Warrants in cash as provided in the Warrant Agreement.
 
The holders of the Warrants are entitled to certain registration rights with respect to any Warrant Shares issued in settlement of exercised Warrants. Said registration rights are set forth in the Stockholders’ Agreement. By acceptance of this Warrant Certificate, the holder hereof agrees that upon issuance of Warrant Shares in settlement of exercised Warrants evidenced hereby, he or it will be bound by the Stockholders’ Agreement as a holder of Registrable Securities thereunder. A copy of the Stockholders’ Agreement may be obtained by the holder hereof upon written request to the Company.
 
Warrant Certificates, when surrendered at the office of the Company by the registered holder thereof in person or by legal representative or attorney duly authorized in writing, may be exchanged, in the manner and subject to the limitations provided in the Warrant Agreement, but without payment of any service charge, for another Warrant Certificate or Warrant Certificates of like tenor evidencing in the aggregate a like number of Warrants.
 

B-2



 
Subject to the terms and conditions of the Warrant Agreement and the Stockholders’ Agreement, upon due presentation for registration of transfer of this Warrant Certificate at the office of the Company a new Warrant Certificate or Warrant Certificates of like tenor and evidencing in the aggregate a like number of Warrants shall be issued to the transferee(s) in exchange for this Warrant Certificate, subject to the limitations provided in the Warrant Agreement, without charge except for any tax or other governmental charge imposed in connection therewith.
 
The Company may deem and treat the registered holder(s) thereof as the absolute owner(s) of this Warrant Certificate (notwithstanding any notation of ownership or other writing hereon made by anyone), for the purpose of any exercise hereof, of any distribution to the holder(s) hereof, and for all other purposes, and the Company shall not be affected by any notice to the contrary. Neither the Warrants nor this Warrant Certificate entitles any holder hereof to any rights of a stockholder of the Company.
 
IN WITNESS WHEREOF, The Great Atlantic & Pacific Tea Company, Inc. has caused this Warrant Certificate to be signed by its Chairman of the Board, Chief Executive Officer, President or Vice President and by its Secretary or Assistant Secretary and has caused its corporate seal to be affixed hereunto or imprinted hereon.
 
 
Dated:  _____________, 2007
THE GREAT ATLANTIC & PACIFIC TEA
COMPANY, INC., a Maryland corporation
 
 
By:  ______________________________________
        Name:
        Title:
 
 
By:  ______________________________________
        Name:
        Title:
 

B-3


FORM OF ELECTION TO EXERCISE
 
(To Be Executed Upon Exercise Of Warrant)
 
The undersigned holder hereby represents that he or it is the registered holder of this Warrant Certificate, and hereby irrevocably elects to exercise ________ Warrants represented by this Warrant Certificate, and receive shares of Common Stock, $1.00 par value, of The Great Atlantic & Pacific Tea Company, Inc., and such other consideration, if any, to which the undersigned is entitled upon such exercise in accordance with the Amended and Restated Warrant Agreement dated as of March 4, 2007 (the “Warrant Agreement”). This exercise is being effected on a net basis in the manner provided in the Warrant Agreement and no cash is, or is required to be, paid in connection with such exercise. The undersigned requests that (i) a certificate for shares or other securities issued upon this exercise be registered in the name of the undersigned or nominee hereinafter set forth, and further that such certificate be delivered to the undersigned at the address hereinafter set forth or to such other person or entity as is hereinafter set forth and (ii) any cash payable to the undersigned upon this exercise be paid in accordance with the wire transfer instructions hereinafter set forth. If the number of Warrants exercised is less than all of the Warrants represented by this Warrant Certificate, the undersigned requests that a new Warrant Certificate representing the remaining balance of Warrants be registered in the name of the undersigned or nominee hereinafter set forth, and further that such certificate be delivered to the undersigned at the address hereinafter set forth or to such other person or entity as is hereinafter set forth.
 
 
Certificate to be registered as follows:
 
Name:  _____________________________________________________________________________________________________________________
 
Address:  ___________________________________________________________________________________________________________________
 
            ______________________________________________________________________________________
 
            ______________________________________________________________________________________
 
Social Security or
Taxpayer Identification No.:  ___________________________________________________________________________________________________
 
 
Certificate to be delivered as follows:
 
Name:  _____________________________________________________________________________________________________________________
 
Address:  ___________________________________________________________________________________________________________________
 
            ______________________________________________________________________________________
 
            ______________________________________________________________________________________
 
 
Date:  __________________________                                                           Signature:  _____________________________________________________

B-4


 
Cash to be paid as follows:
 

 
 
 
B-5
 
EX-10.1 3 ex10_1.htm EXHIBIT 10.1 Exhibit 10.1

Exhibit 10.1


Bank of America, N.A.
Banc of America Bridge LLC
Banc of America Securities LLC
9 West 57th Street
New York, NY 10019
Lehman Brothers Commercial Bank
Lehman Brothers Inc.
Lehman Commercial Paper Inc.
745 Seventh Avenue
New York, NY 10019



March 4, 2007
The Great Atlantic & Pacific Tea Company, Inc.
2 Paragon Drive
Montvale, NJ 07645
 
Project Pearl
Commitment Letter
$615,000,000 ABL Facility
$780,000,000 Senior Secured Bridge Facility
Ladies and Gentlemen:
 
You have advised Bank of America, N.A. (“Bank of America”), Banc of America Bridge LLC (“Banc of America Bridge”), Banc of America Securities LLC (“BAS”), Lehman Brothers Commercial Bank (“LBCB”), Lehman Brothers Inc. (“Lehman”) and Lehman Commercial Paper Inc. (“LCPI” and, together with Bank of America, Banc of America Bridge, BAS, LBCB and Lehman, each a “Commitment Party” and, collectively, the “Commitment Parties”) that The Great Atlantic & Pacific Tea Company, Inc., a Maryland corporation (the “Borrower” or “you”), intends to acquire (the “Acquisition”), directly or indirectly through one or more subsidiaries, all or substantially all of the issued and outstanding capital stock, or all or substantially all of the assets, of Pathmark Stores, Inc., a Delaware corporation (the “Target”). The Borrower, the Target and their respective subsidiaries are sometimes herein collectively referred to as the "Companies". For purposes of this Commitment Letter, “LBCB,” “LCPI” and “Lehman” shall mean LBCB, LCPI or Lehman, as the case may be, and/or any of their respective affiliates, as they shall determine to be appropriate to provide the services contemplated herein.
 
You have also advised us that you intend to finance the Acquisition, the costs and expenses related to the Transaction (as hereinafter defined), the repayment of certain existing indebtedness of the Companies (the “Refinancing”) and the ongoing working capital and other general corporate purposes of the Companies after consummation of the Acquisition from the following sources (and that no financing other than the financing described herein will be required in connection with the Transaction): (a) a senior secured revolving credit facility of $615.0 million (the “ABL Facility”); (b) up to $780.0 million in gross proceeds from the issuance and sale by the Borrower of fixed rate or a combination of fixed and floating rate senior secured notes (the “Senior Secured Notes”) or, alternatively, up to $780.0 million of senior secured loans (such senior secured loans, the “Bridge Loans” and, together with any rollover loans and exchange notes related thereto, the “Bridge Advances”) under a bridge facility (the “Bridge Facility” and, together with the ABL Facility, the “Facilities”) made available to the Borrower as interim financing to senior secured notes or other securities of the Companies which may be issued after the Closing Date for the purpose of refinancing all or a portion of the outstanding Bridge Loans; (c) shares of common stock, par value $1.00 per share, of the Borrower in an amount no less than $169.0 million (the “Equity Consideration”); and (d) proceeds from the sale of up to 7.1 million Class A subordinate shares of Metro, Inc. or, if such sale results in net cash proceeds of less than $190 million, additional shares of common stock or preferred stock of the Borrower in an amount equal to the difference between $190.0 million and the net cash proceeds generated by such sale. The Acquisition, the Refinancing, the entering into and funding of the ABL Facility, the issuance and sale of the Senior Secured Notes or the entering into and funding of the Bridge Facility, the Equity Consideration, the sale of the Metro, Inc. equity securities and/or Borrower equity securities and all related transactions are hereinafter collectively referred to as the “Transaction”. The currently projected sources and uses of funds for financing the Transaction are as set forth on Schedule I hereto.
 
1.  Commitments. (a) In connection with the foregoing, Bank of America (the “Initial ABL Lender”) is pleased to advise you of its commitment to provide the full principal amount of
 



the ABL Facility upon and subject to the terms and conditions set forth in this letter and in the summary of terms attached as Annex I and III hereto (collectively, the “Senior Financing Summary of Terms”). In addition, Bank of America is pleased to advise you of its willingness to act (either directly or through one of its affiliates or divisions) as the sole and exclusive administrative agent (in such capacity the “ABL Administrative Agent”) for the ABL Facility. BAS is pleased to advise you of its willingness, as sole lead arranger and sole book running manager (in such capacity, the “ABL Lead Arranger”) for the ABL Facility, to form a syndicate of financial institutions and institutional lenders (including the Initial ABL Lender) (collectively, the “ABL Lenders”) in consultation with you for the ABL Facility. In addition, BAS is pleased to advise you of its willingness to act as the sole and exclusive syndication agent and documentation agent for the ABL Facility, and will perform the duties and exercise the authority customarily performed by it in such roles.
 
(b) In connection with the foregoing, each of Banc of America Bridge and LBCB (each an “Initial Bridge Lender” and collectively the “Initial Bridge Lenders” and, together with the Initial ABL Lender, the “Initial Lenders”) is pleased to advise you of its several, but not joint, commitment to provide, upon and subject to the terms and conditions set forth in this letter and in the summary of terms attached as Annex II and III hereto (collectively, the “Bridge Summary of Terms” and, together with the Senior Financing Summary of Terms, the “Summaries of Terms” and, together with this letter agreement, the “Commitment Letter”), 60% and 40%, respectively, of the aggregate principal amount of the Bridge Facility. BAS and Lehman are pleased to advise you of their willingness, as joint lead arrangers and joint book running managers (it being understood that BAS shall appear on the “left” and Lehman shall appear on the “right” of any Information Memorandum or other offering materials in connection with the Bridge Facility) (in such capacities, the “Bridge Lead Arrangers” and, together with the ABL Lead Arranger, the “Lead Arrangers”) for the Bridge Facility, to form a syndicate of financial institutions and institutional lenders (including the Initial Bridge Lenders) (collectively, the “Bridge Lenders” and, together with the ABL Lenders, collectively, the “Lenders”) in consultation with you for the Bridge Facility. In addition, Banc of America Bridge is pleased to advise you of its willingness to act (either directly or through one of its affiliates or divisions) as the sole and exclusive administrative agent (in such capacity the “Bridge Administrative Agent” and, together with the ABL Administrative Agent, the “Administrative Agents”) for the Bridge Facility, and LCPI is pleased to advise you of its willingness to act as the sole and exclusive syndication agent for the Bridge Facility, and each will perform the duties and exercise the authority customarily performed by it in such a role.
 
(c) If you accept this Commitment Letter as provided below in respect of the ABL Facility, the date of the initial funding under the ABL Facility, and/or if you accept this Commitment Letter as provided below in respect of the Bridge Facility, the date of the initial funding of the Bridge Facility (or of the issuance and sale of the Senior Secured Notes in lieu of funding the Bridge Facility), in each case is referred to herein as the “Closing Date”, and the consummation of such initial funding or issuance and sale is referred to herein as the “Closing”.
 
(d) All capitalized terms used and not otherwise defined herein shall have the same meanings as specified therefor in the Summaries of Terms.
 
2.  Conditions to Financing. The commitment of Bank of America in respect of the ABL Facility, the commitment of Banc of America Bridge and LBCB in respect of the Bridge Facility and the undertaking of BAS, Lehman and LCPI to provide the services described herein are each subject to the satisfaction of the conditions precedent set forth in Annex III hereto in addition to your acceptance of the separate confidential fee letter addressed to you dated the date hereof from the Commitment Parties (the “Fee Letter”).
 
3.  Syndication. The Lead Arrangers intend to commence syndication of each of the Facilities promptly after your acceptance of the terms of this Commitment Letter and the Fee Letter related to each such Facility, and the commitment of Bank of America, Banc of America Bridge or LBCB hereunder, as the case may be, related to each such Facility shall be reduced dollar-for-dollar as and when corresponding commitments are received from the ABL Lenders or Bridge Lenders, as the case may be; provided that, notwithstanding the foregoing, the respective commitments of Bank of America, Banc of America Bridge or LBCB hereunder, as the case may be, shall not be so reduced to the extent
 

2


that any ABL Lender or Bridge Lender, as the case may be, to whom commitments are syndicated fails to fund its commitment at Closing. You agree to assist actively, and to use your commercially reasonable efforts to cause the Target to assist actively, the Lead Arrangers in achieving a Successful Syndication (as defined in the Fee Letter), in the case of the ABL Facility, and Banc of America Bridge and LBCB, in the case of the Bridge Facility. Such assistance shall include (a) your providing and causing your advisors to provide, and using your commercially reasonable efforts to cause the Target and its advisors to provide, the Commitment Parties upon request with all information reasonably deemed necessary by the Lead Arrangers to complete such syndication, including, but not limited to, information, evaluations and projections prepared by Companies and your and their advisors, or on your or their behalf, or as may be reasonably requested by the Lead Arrangers, relating to the Transaction, (b) your assistance in the preparation of one or more information memoranda (collectively, the “Information Memoranda”) to be used in connection with the syndication of each such Facility, (c) using your commercially reasonable efforts to ensure that the syndication efforts of the Lead Arrangers benefit materially from your existing lending relationships, (d) using your commercially reasonable efforts to obtain third-party collateral appraisals and commercial finance audits at least 30 days prior to the Closing Date, and (e) otherwise assisting the Lead Arrangers in their syndication efforts, including by making your officers and advisors, and using your commercially reasonable efforts to make the officers and advisors of the Target, available from time to time to attend and make presentations regarding your and the Target’s business and prospects at one or more meetings of prospective Lenders.
 
It is understood and agreed that the Lead Arrangers (as applicable) will manage and control all aspects of the syndication of each Facility in consultation with you, including decisions as to the selection of prospective Lenders and any titles offered to proposed Lenders, when commitments will be accepted and the final allocations of the commitments among the Lenders. It is understood that no Lender participating in either Facility will receive compensation from you in order to obtain its commitment, except on the terms contained herein and in the Summaries of Terms or otherwise mutually agreed. You agree that no other agents, co-agents or arrangers will be appointed and no other titles awarded, in each case in connection with the Facilities, unless otherwise agreed by you and the Lead Arrangers (as applicable). It is also understood and agreed that the amount and distribution of the fees among the Lenders will be at the sole discretion of the Lead Arrangers (as applicable).
 
Your agreements in this Section 3 shall continue and survive until the completion of a Successful Syndication of the Facilities (as determined by the Lead Arrangers (as applicable)) notwithstanding the Closing of the Facilities.
 
4.  Information Requirements. You hereby represent, warrant and covenant that (a) all information, other than Projections (as defined below), that has been or is hereafter made available to the Lead Arrangers or any of the Lenders by you or any of your representatives (or on your or their behalf) or, to the best of your knowledge, by the Target or its subsidiaries or representatives (on its behalf) in connection with any aspect of the Transaction (the “Information”) is, as of each date furnished, and will be, when taken as a whole, complete and correct in all material respects and does not and will not, when taken as a whole, contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements contained therein not misleading and (b) all financial projections concerning the Companies that have been or are hereafter made available to the Lead Arrangers or any of the Lenders by you or any of your representatives (or on your behalf) or, to the best of your knowledge, by the Target or its subsidiaries or representatives (or on its behalf) (the "Projections"), as of the date such Projections have been or are hereafter made available, have been or will be prepared in good faith based upon reasonable assumptions. You agree to furnish us with such Information and Projections as we may reasonably request and to supplement the Information and the Projections from time to time so that the representation, warranty and covenant in the immediately preceding sentence is and remains correct on the Closing Date and on such later date on which a Successful Syndication of the Facilities is completed. In issuing their respective commitments and in arranging and syndicating each of the Facilities, you recognize and confirm that each of the Commitment Parties is and will be using and relying on the Information and the Projections without independent verification thereof. In addition, you agree to furnish us with drafts of any registration statement and/or proxy statement prepared in connection with the Transaction and all correspondence to or from the SEC related thereto.
 

3



 
You hereby acknowledge that (a) the Commitment Parties will make available Information and Projections (collectively, “Company Materials”) to the proposed syndicates of Lenders by posting the Company Materials on IntraLinks or another similar electronic system (the “Platform”) and (b) certain of the proposed Lenders may be “public-side” Lenders (i.e., Lenders that do not wish to receive material non-public information with respect to the Companies or their securities) (each, a “Public Lender”). You hereby agree that: (a) you will use commercially reasonable efforts to identify that portion of the Company Materials that may be distributed to the Public Lenders and include a reasonably detailed term sheet among such Company Materials and that all Company Materials that are to be made available to Public Lenders shall be clearly and conspicuously marked “PUBLIC” which, at a minimum, shall mean that the word “PUBLIC” shall appear prominently on the first page thereof; (b) by marking Company Materials “PUBLIC,” you shall be deemed to have authorized each of the Commitment Parties and the proposed Lenders to treat such Company Materials as not containing any material non-public information with respect to the Companies or their securities for purposes of United States federal and state securities laws, it being understood that certain of such Company Materials may be subject to confidentiality requirements of the definitive loan documentation; (c) all Company Materials marked “PUBLIC” are permitted to be made available through a portion of the Platform designated “Public Investor”; and (d) each of the Commitment Parties shall be entitled to treat any Company Materials that are not marked “PUBLIC” as being suitable only for posting on a portion of the Platform not designated “Public Investor”.
 
5.  Fees and Indemnities. By executing this Commitment Letter, you agree to reimburse the Commitment Parties from time to time on demand, upon presentation of supporting documentation (including actual legal invoices), for all reasonable documented out-of-pocket fees and expenses (including, but not limited to, (i) the reasonable fees, disbursements and other charges of Fried Frank Harris Shriver & Jacobson LLP, as counsel to the Commitment Parties, Riemer & Braunstein LLP, as counsel to Bank of America and BAS, and of any special and local counsel to the Commitment Parties or the Lenders retained by us or on our behalf and (ii) reasonable due diligence expenses, including, without limitation, fees and expenses related to field examinations, audits and appraisals) incurred in connection with the Facilities, the syndication thereof and the preparation of the definitive documentation therefor, and with any other aspect of the Transaction, any similar transaction and any of the other transactions contemplated hereby, whether or not definitive documentation is executed or delivered or the Transaction is consummated, unless otherwise mutually agreed. You also agree to pay the Commitment Parties such arrangement, underwriting, agency, funding and other fees in amounts to be agreed upon in connection with the financing contemplated by this Commitment Letter.
 
You also agree to indemnify and hold harmless each Commitment Party and each Lender and each of their respective affiliates and their respective officers, directors, employees, agents, advisors and other representatives (each an “Indemnified Party”) from and against (and will reimburse each Indemnified Party as the same are incurred for) any and all claims, damages, losses, liabilities and expenses (including, without limitation, the reasonable fees, disbursements and other charges of counsel) that may be incurred by or asserted or awarded against any Indemnified Party, in each case arising out of or in connection with or by reason of (including, without limitation, in connection with any investigation, litigation or proceeding or preparation of a defense in connection therewith) (a) any aspect of the Transaction or any similar transaction and any of the other transactions contemplated thereby or (b) the Facilities and any other financings, or any use made or proposed to be made with the proceeds thereof, except to the extent such claim, damage, loss, liability or expense is found in a final, non-appealable judgment by a court of competent jurisdiction to have resulted from such Indemnified Party’s gross negligence or willful misconduct, provided, however, that in the event a final, non-appealable judgment is made to the effect that such claim, damage, loss, liability or expense resulted from such Indemnified Party’s gross negligence or willful misconduct, such Indemnified Party will be responsible for all damages, losses, liabilities and expenses assessed against the Indemnified Party as set forth in such final, non-appealable judgment and will remit to you or the Companies, as the case may be, any amounts previously reimbursed under this Section 5 prior to the entry of such final, non-appealable judgment. In the case of an investigation, litigation or proceeding to which the indemnity in this paragraph applies, such indemnity shall be effective whether or not such investigation, litigation or proceeding is brought by you, your equityholders or creditors or an Indemnified Party, whether or not an Indemnified Party is otherwise a party thereto and whether or not any aspect of the Transaction is consummated. You also agree that no Indemnified Party shall have any liability (whether direct or indirect, in contract or tort or otherwise) to
 

4


you or your subsidiaries or affiliates or to your or their respective equity holders or creditors arising out of, related to or in connection with any aspect of the Transaction, except to the extent of direct (as opposed to special, indirect, consequential or punitive) damages determined in a final non-appealable judgment by a court of competent jurisdiction to have resulted from such Indemnified Party’s gross negligence or willful misconduct. It is further agreed that each Commitment Party shall only have liability to you (as opposed to any other person), and that such Commitment Party shall be liable solely in respect of its own commitment to the Facilities on a several, and not joint, basis with any other Lender. Notwithstanding any other provision of this Commitment Letter, no Indemnified Party shall be liable for any damages arising from the use by others of information or other materials obtained through electronic telecommunications or other information transmission systems, except to the extent such damages are found in a final, non-appealable judgment by a court of competent jurisdiction to have resulted from such Indemnified Party’s gross negligence or willful misconduct.
 
6.  Confidentiality; Arm’s Length Relationship. This Commitment Letter and the Fee Letter and the contents hereof and thereof are confidential and, except for the disclosure hereof or thereof on a confidential basis to your accountants, attorneys and other professional advisors retained in connection with the Transaction, may not be disclosed in whole or in part to any person or entity without our prior written consent; provided, however, it is understood and agreed that you may disclose this Commitment Letter (including the Summaries of Terms) (but not the Fee Letter) (a) on a confidential basis to the board of directors and advisors of the Target in connection with their consideration of the Transaction, (b) after your acceptance of this Commitment Letter and the Fee Letter, in filings with the Securities and Exchange Commission and other applicable regulatory authorities and stock exchanges and (c) after prompt written notice to the Lead Arrangers of any legally required disclosure, as otherwise required by law or in response to a valid court order by a court or other governmental body.
 
You acknowledge that each of the Commitment Parties or their affiliates may be providing financing or other services to parties whose interests may conflict with yours. Each of the Commitment Parties, agree that they will not furnish confidential information obtained from you to any of their other customers and that they will treat confidential information relating to you, the Companies and your and their respective affiliates with the same degree of care as they treat their own confidential information. Each of the Commitment Parties further advises you that it will not make available to you confidential information that they have obtained or may obtain from any other customer. In connection with the services and transactions contemplated hereby, you agree that each of the Commitment Parties is permitted to access, use and share with any of its bank or non-bank affiliates, agents, advisors (legal or otherwise) or representatives, any information concerning you, the Companies or any of your or its respective affiliates that is or may come into the possession of such Commitment Party or any of such affiliates.
 
In connection with all aspects of each transaction contemplated by the Commitment Letter, you acknowledge and agree, and acknowledge your affiliates’ understanding, that: (a) the Facilities and any related arranging or other services described in the Commitment Letter is an arm’s-length commercial transaction between you and your affiliates, on the one hand, and the Commitment Parties, on the other hand, and you are capable of evaluating and understanding and understand and accept the terms, risks and conditions of the transactions contemplated by the Commitment Letter; (b) in connection with the process leading to such transaction, the Commitment Parties each is and has been acting solely as a principal and is not the financial advisor, agent or fiduciary, for you or any of your affiliates, stockholders, creditors or employees or any other party; (c) none of the Commitment Parties has assumed or will assume an advisory, agency or fiduciary responsibility in your or your affiliates’ favor with respect to any of the transactions contemplated hereby or the process leading thereto (irrespective of whether any Commitment Party has advised or is currently advising you or your affiliates on other matters) and none of the Commitment Parties has any obligation to you or your affiliates with respect to the transactions contemplated hereby except those obligations expressly set forth in this letter; (d) the Commitment Parties and their respective affiliates may be engaged in a broad range of transactions that involve interests that differ from yours and your affiliates and the Commitment Parties have no obligation to disclose any of such interests by virtue of any advisory, agency or fiduciary relationship; and (e) the Commitment Parties have not provided any legal, accounting, regulatory or tax advice with respect to any of the transactions contemplated hereby and you have consulted your own legal, accounting, regulatory
 

5


and tax advisors to the extent you have deemed appropriate. You hereby waive and release, to the fullest extent permitted by law, any claims that you may have against the Commitment Parties with respect to any breach or alleged breach of agency or fiduciary duty.
 
Each of the Commitment Parties hereby notifies you that, pursuant to the requirements of the USA Patriot Act, Title III of Pub. L. 107-56 (signed into law October 26, 2001), as amended, each of them may be required to obtain, verify and record information that identifies you, which information includes your name and address and other information that will allow such Commitment Party as applicable, to identify you in accordance with such Act.
 
7.  Survival of Obligations. The provisions of numbered paragraph 4 (until a Successful Syndication shall have occurred) and paragraphs 5 and 6 (regardless of whether any definitive documentation for the Facilities shall be executed and delivered) shall remain in full force and effect notwithstanding the termination of this Commitment Letter or any commitment or undertaking of any Commitment Party hereunder.
 
8.  Miscellaneous. This Commitment Letter and the Fee Letter may be executed in counterparts which, taken together, shall constitute one original. Delivery of an executed counterpart of a signature page to this Commitment Letter or the Fee Letter by telecopier shall be effective as delivery of a manually executed counterpart thereof.
 
THIS COMMITMENT LETTER AND THE FEE LETTER SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK (INCLUDING, WITHOUT LIMITATION, SECTION 5-1401 OF THE GENERAL OBLIGATIONS LAW OF THE STATE OF NEW YORK), WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES. Each of you and each of the Commitment Parties hereby irrevocably waives all right to trial by jury in any action, proceeding or counterclaim (whether based in contract, tort or otherwise) arising out of or relating to this Commitment Letter (including, without limitation, the Summaries of Terms), the Fee Letter, the Transaction and the other transactions contemplated hereby and thereby or the actions of each of the Commitment Parties in the negotiation, performance, administration or enforcement hereof. Each of you and the Commitment Parties hereby irrevocably submits to the non-exclusive jurisdiction of any New York State court or Federal court sitting in the Borough of Manhattan in New York City in respect of any suit, action or proceeding arising out of or relating to the provisions of this Commitment Letter (including, without limitation, the Summaries of Terms), the Fee Letter, the Transaction and the other transactions contemplated hereby and thereby and irrevocably agrees that all claims in respect of any such suit, action or proceeding, to the fullest extent permitted under applicable law, may be heard and determined in any such court. Each of you and the Commitment Parties waives, to the fullest extent permitted by applicable law, any objection that it may now or hereafter have to the laying of the venue of any such suit, action or proceedings brought in any such court, and any claim that any such suit, action or proceeding brought in any such court has been brought in an inconvenient forum.
 
This Commitment Letter (together with the Summaries of Terms and the Fee Letter) embodies the entire agreement and understanding among each of the Commitment Parties, you and your affiliates with respect to the Facilities and supersedes all prior agreements and understandings relating to the subject matters hereof, other than the Engagement Letter, dated November 13, 2006, among you, BAS and Lehman. Those matters that are not covered or made clear herein or in the Summaries of Terms or the Fee Letter are subject to mutual agreement of the parties. No party has been authorized by any of the Commitment Parties to make any oral or written statements that are inconsistent with this Commitment Letter.
 
Except as otherwise provided in the following paragraph, this Commitment Letter is not assignable by any party without the prior written consent of the other parties hereto and is intended to be solely for the benefit of the parties hereto and the Indemnified Parties. Nothing herein, express or implied, is intended to or shall confer upon any other third party any legal or equitable right, benefit, standing or remedy of any nature whatsoever under or by reason of this Commitment Letter.
 

6



 
Each of the Commitment Parties reserves the right to employ the services of its affiliates in providing services contemplated by this Commitment Letter and to allocate, in whole or in part, to its affiliates certain fees payable to it in such manner as it and its affiliates may agree in their sole discretion. You also agree that each Commitment Party may at any time and from time to time assign all or any portion of its commitment hereunder to one or more of its adequately capitalized affiliates subject to the limitations set forth in this Commitment Letter.
 
All amounts payable by you under this Commitment Letter will be made in U.S. dollars and, in any case, shall not be subject to counterclaim or set-off for, or be otherwise affected by, any claim or dispute relating to any other matter. In addition, all such payments shall be made without deduction for any taxes, levies, imposts, duties, deductions, charges or withholdings imposed by any national, state or provincial taxing authority, or will be grossed up by you for such amounts.
 
All respective commitments and undertakings of the Commitment Parties under this Commitment Letter with respect to the ABL Facility will expire at 5:00 p.m. (New York City time) on March 6, 2007, unless you execute this Commitment Letter as provided below and the Fee Letter as provided therein to accept such commitments and return both of them to us prior to that time. All respective commitments and undertakings of the Commitment Parties under this Commitment Letter with respect to the Bridge Facility will also expire at that time unless you sign this Commitment Letter as provided below and the Fee Letter as provided therein to accept such commitments and return each of them to us prior to that time. Thereafter, all accepted commitments and undertakings of the Commitment Parties hereunder will expire on the earliest of (a) March 4, 2008, unless the Closing Date occurs on or prior thereto, (b) the closing of the Acquisition, (i) in the case of the ABL Facility, without the use of the ABL Facility and (ii) in the case of the Bridge Facility, without use of the Bridge Facility, and (c) the acceptance by the Target of an offer for all or any substantial part of the capital stock or property and assets of the Target other than as part of the Transaction.
 
BY SIGNING THIS COMMITMENT LETTER, EACH OF THE PARTIES HERETO HEREBY ACKNOWLEDGES AND AGREES THAT (A) BANK OF AMERICA IS OFFERING TO PROVIDE THE ABL FACILITY SEPARATE AND APART FROM BANC OF AMERICA BRIDGE’S AND LBCB’S OFFER TO PROVIDE THE BRIDGE FACILITY, (B) BANC OF AMERICA BRIDGE AND LBCB ARE OFFERING TO PROVIDE THE BRIDGE FACILITY SEPARATE AND APART FROM BANK OF AMERICA’S OFFER TO PROVIDE THE ABL FACILITY AND (C) BAS’ AND LEHMAN’S ENGAGEMENT WITH RESPECT TO AN OFFERING OF SENIOR SECURED NOTES OR SECURITIES PURSUANT TO THE ENGAGEMENT LETTER IS SEPARATE AND APART FROM (1) BANK OF AMERICA’S OFFER TO PROVIDE THE ABL FACILITY AND (2) BANC OF AMERICA BRIDGE’S AND LBCB’S OFFER TO PROVIDE THE BRIDGE FACILITY. YOU MAY, AT YOUR OPTION, ELECT TO ACCEPT THIS COMMITMENT LETTER (AND THE APPLICABLE PROVISIONS OF THE FEE LETTER) WITH RESPECT TO ANY OR ALL OF THE FOREGOING.
 
We are pleased to have the opportunity to work with you in connection with this important financing.
 
[The remainder of this page intentionally left blank.]
 

7

 
 
If the foregoing is in accordance with your understanding, please sign and return this Fee Letter to us.

 
 
Very truly yours,
 
 
 
BANK OF AMERICA, N.A.
 
 
By:  /s/ James G. Rose, Jr.
        Name:  James G. Rose, Jr.
        Title:    Managing Director
 
 
BANC OF AMERICA BRIDGE LLC
 
 
By:  /s/ James G. Rose, Jr.
        Name:  James G. Rose, Jr.
        Title:    Managing Director
 
 
 
BANC OF AMERICA SECURITIES LLC
 
 
By:  /s/ James G. Rose, Jr.
        Name:  James G. Rose, Jr.
        Title:    Managing Director
 
 
 
LEHMAN BROTHERS COMMERCIAL BANK
 
 
By:  /s/ Brian McNany
      Name:  Brian McNany
Title:    Authorized Signatory
 
 
 
LEHMAN BROTHERS INC.
 
 
By:  /s/ Laurie Perper
Name:  Laurie Perper
Title:    Senior Vice President
 
 
 
LEHMAN COMMERCIAL PAPER INC.
 
 
By:  /s/ Laurie Perper
Name:  Laurie Perper
Title:    Senior Vice President
 

8



The provisions of this Commitment Letter with respect to the ABL Facility are Accepted and Agreed to as of March 4, 2007:
 
 
THE GREAT ATLANTIC & PACIFIC TEA COMPANY, INC.
 
 
By:  /s/ William J. Moss
        Name:  William J. Moss
        Title:    Treasurer
 
 
The provisions of this Commitment Letter with respect to the Bridge Facility are Accepted and Agreed to as of March 4, 2007:
 
 
THE GREAT ATLANTIC & PACIFIC TEA COMPANY, INC.
 
 
By:  /s/ William J. Moss
        Name:  William J. Moss
        Title:    Treasurer
 
 




9



CURRENTLY PROJECTED
SOURCES AND USES OF FUNDS1
(all amounts $ millions)
 
Sources
     
Uses
     
               
Excess Cash
 
$
88.1
   
Purchase of Target Equity
 
$
673.6
 
Proceeds from Sale of Metro Shares or common stock or preferred stock of Borrower
   
190.0
   
Refinancing of Target Debt
   
455.1
 
ABL Facility ($615)
   
119.6
   
Assumed Debt of Target (Leases)
 
 
166.7
 
Senior Secured Notes or Bridge Facility
   
780.0
   
Retired Debt of Borrower
   
134.9
 
Assumed Debt of Target (Leases)
   
166.7
   
Series A Warrants
   
40.2
 
Equity Consideration
   
188.6
   
Series B Warrants
   
70.2
 
Series C Warrants
   
40.2
   
Estimated Transaction Fees and Expenses
   
102.7
 
Series D Warrants
   
70.2
             
                     
Total Sources
 
$
1,643.4
   
Total Uses
 
$
1,643.4
 
                     






1  These sources and uses of funds are based on current projections, and the actual sources and uses may differ based on the cash resources and total debt of the Borrower and the Target in existence on the Closing Date. Any increases in Target debt permitted pursuant to the Acquisition Agreement will be assumed.
 



 

ANNEX I
 
SUMMARY OF PRINCIPAL TERMS AND CONDITIONS
$615,000,000 ABL FACILITY
 
Capitalized terms not otherwise defined herein have the same meanings as
specified in the Commitment Letter to which this Annex I is attached.
 
Borrower:
The Great Atlantic & Pacific Tea Company, Inc. and certain of its subsidiaries to be mutually agreed (the “Borrower”).
   
Guarantors:
All material domestic subsidiaries of Borrower shall guarantee the obligations of the Borrower.
   
Sole Lead Arranger and Sole Book Runner:
Banc of America Securities LLC (“BAS” and, in such capacity, the “ABL Lead Arranger”) will act as sole lead arranger and sole book running manager.
   
Administrative and Collateral Agent:
Bank of America, N.A. through its Retail Finance Group will act as sole and exclusive administrative agent for the ABL Lenders (in such capacity, the “ABL Administrative Agent”) and as sole and exclusive collateral agent for the ABL Lenders (in such capacity, the “ABL Collateral Agent” and, together with the ABL Administrative Agent, the “ABL Agent”).
   
ABL Facility:
A $615.0 million (the “Loan Cap”) fully underwritten senior secured revolving credit facility (the “ABL Facility”), consisting of a $575.0 million revolver (the “Revolver”) and up to a $40.0 million last out revolver advance (the "Last Out Revolver Tranche"). The Last Out Revolver Tranche may be drawn at any time, and shall be required to be drawn if outstanding loans under the Revolver equal or exceed $100.0 million (the proceeds of which shall be used to repay the outstanding loans under the Revolver). After the Last Out Revolver Tranche has been drawn (in whole or in part), it may thereafter be repaid only as set forth below.
The Revolver shall have a sub-limit of $300.0 million for the issuance of standby and documentary letters of credit. Loans to the Borrower shall be limited to amounts available based on the Borrowing Base (but in no event in excess of the Loan Cap).
   
Increase Option:
Provided that there is no default or event of default then existing or would arise therefrom, the Borrower, at its option, may request that the ABL Facility be increased by an amount not to exceed $100.0 million. Any or all of the existing Lenders shall initially have the right of first refusal (but not the obligation) to increase their respective commitments to satisfy the Borrower’s requested increase of the ABL Facility. If the Lenders are unwilling to increase their commitments by an amount equal to the requested increase, BAS, in consultation with the Borrower, will use its reasonable efforts to obtain one or more financial institutions which are not then lenders (which financial institution may be suggested by the Borrower) to become party to the loan documentation and to provide a commitment to the extent necessary to satisfy the Borrower’s requested increase in the ABL Facility, provided that any such additional lender(s) shall be reasonably satisfactory to the ABL Agent and the Borrower. The Borrower shall pay the Agent and the Lenders fees which are customary and appropriate for the exercise of the Increase Option.




 
Lenders:
Bank of America, N.A. (the “Bank”) and a syndicate of financial institutions arranged by ABL Agent and BAS in consultation with the Borrower.
   
Purpose:
To finance a portion of the Acquisition and to finance other general corporate purposes and working capital of the Borrower and its subsidiaries, including debt repayment, capital expenditures, permitted acquisitions, permitted distributions, stock repurchases, and the issuance of standby and documentary letters of credit. The ABL Facility may be used to pay cash consideration to holders of up to 10% of Target’s shares of common stock outstanding immediately prior to the Closing Date who have exercised dissenters’ rights in accordance with the terms of the Acquisition Agreement.
   
Closing Date:
A mutually agreed upon date to be determined but in any event on or before March 4, 2008.
   
Maturity:
Five years from the Closing.
   
Security:
The ABL Facility (and all cash management services and other bank products provided to any of the Borrower or Guarantors by the ABL Agent or its affiliates) will be secured by a first priority (subject to exceptions to be mutually agreed) perfected security position on all real and personal property of the Borrower and Guarantors, including, without limitation, all inventory, accounts, prescription lists, owned real property (to the extent the granting of such security interest would not require the Borrower’s 9⅜% Senior Quarterly Interest Bonds due 2039 (“QUIBS”) to be equally and ratably secured by such security interest in accordance with Section 1008(d) of the Borrower’s indenture, dated as of January 1, 1991, governing the QUIBS), material leased real properties of the Borrower and the Target (other than for leased material real properties for which landlord consent is required and not obtained following the Borrower’s good faith efforts; provided such good faith efforts shall not require any accommodation to the landlord including accepting any increase in rent), investment property (including the capital stock of all subsidiaries, other than A&P Bermuda Limited and A&P Luxembourg S.á.r.l.), contract rights, documents, supporting obligations and letter-of-credit rights, instruments, money, cash, cash equivalents, securities and other property of any kind, deposit accounts, credits, and balances with any financial institution with which the Borrower maintains deposits, commercial tort claims, all books, records and other property related to or referring to any of the foregoing, including books, records, account ledgers, data processing records, computer software and other property, and proceeds of any of the foregoing, including, but not limited to, proceeds of any insurance policies, and claims against third parties, excluding the Borrower’s Class A subordinate shares of Metro, Inc. (the “Metro Shares”), the Bridge Collateral (defined below) and other

2



 
 
exceptions to be mutually agreed (collectively, the “ABL Collateral”).
In addition, the ABL Facility (and all cash management services and other bank products provided to any of the Borrower or Guarantors by the ABL Agent or its affiliates) will be secured by a second priority (subject to exceptions to be mutually agreed) perfected security position on all of the collateral securing the Bridge Facility on a first priority basis, as set forth in the Bridge Summary of Terms (collectively, the “Bridge Collateral” and, together with the ABL Collateral, the “Collateral”), excluding a security interest in any voting stock of (or other ownership or profit interests in) A&P Bermuda Limited or the Metro Shares.
All proceeds from the liquidation of the ABL Collateral from the Borrower and the Guarantors shall be first applied to obligations other than the Last Out Revolver Tranche, and after payment of such obligations will be applied to the Last Out Revolver Tranche.
All of the above described pledges, security interests, and mortgages shall be created on terms, and pursuant to documentation based upon the Borrower’s existing credit facility (the “Existing Credit Facility”), with such additions and modifications thereto as the ABL Agent and the Borrower may reasonably agree to reflect the proposed transaction, including, without limitation, an intercreditor agreement with the Bridge Lenders as contemplated in the Bridge Summary of Terms.
   
Borrowing Base:
The aggregate amount of loans made and letters of credit issued under the Revolver (including the Last Out Revolver Tranche) shall at no time exceed the lesser of the Loan Cap or the Borrowing Base.
The Borrowing Base shall be calculated as follows:
The sum of (i) the Inventory Advance Rate multiplied by the net appraised recovery value of Eligible Inventory, plus (ii) the Receivables Advance Rate multiplied by the face amount of Eligible Credit Card Receivables, plus (iii) the Script List Advance Rate multiplied by the most recent forced liquidation appraised value of Eligible Prescription Lists, plus (iv) the Coinstar Advance Rate multiplied by the face amount of Eligible Coinstar Receivables, plus (v) the Prescription Advance Rate multiplied by the face amount of Eligible Prescription Receivables, plus (vi) the Real Estate Advance Rate multiplied by the most recent forced liquidation appraised value of Eligible Real Estate, plus (vii) at the election of the Borrower to be exercised by written notice at least 15 business days prior to the Closing Date, for the twelve month period after the Closing Date only, the lesser of (A) the Leasehold Advance Rate multiplied by the most recent forced liquidation appraised value of Eligible Leaseholds, or (B) the Leasehold Cap, minus (viii) a Closing Date Reserve of $200.0 million (which reserve shall be eliminated immediately following the consummation of the Acquisition), minus (ix) such reserves as the ABL Agent may establish from time to time on a basis consistent with the Existing Credit Facility, with such additions and modifications thereto as the ABL Agent and the

3



 
 
Borrower may reasonably agree to reflect the proposed transaction. In no event shall the amounts advanced against (x) Eligible Prescription Lists exceed 20% of the Borrowing Base, or (y) Eligible Real Estate and Eligible Leaseholds, in the aggregate, exceed 30% of the Borrowing Base.
 
The initial reserves and the definitions of “Eligible Inventory”, “Eligible Credit Card Receivables”, “Eligible Prescription Lists”, “Eligible Coinstar Receivables”, “Eligible Prescription Receivables”, “Eligible Real Estate” and “Eligible Leaseholds” shall, to the extent defined in the Existing Credit Facility, be based upon the Existing Credit Facility, with such additions and modifications thereto as the ABL Agent and the Borrower may reasonably agree to reflect the proposed transaction, and otherwise shall be mutually established following completion of an appraisal of the inventory, prescription lists, leasehold interests and real estate and a commercial finance examination. After the Closing Date, the ABL Agent may establish additional reserves or change any reserves on terms similar to those in the Existing Credit Facility, with such additions and modifications thereto as the ABL Agent and the Borrower may reasonably agree to reflect the proposed transaction.
 
Prior to the completion of a commercial finance audit and inventory appraisals satisfactory to the ABL Agent, (i) for the Revolver (excluding the Last Out Revolver Tranche), the Inventory Advance Rate against the Target's inventory shall be 54% and (ii) for the Last Out Revolver Tranche, the Inventory Advance Rate against the Target's inventory, when combined with the Inventory Advance Rate for the Revolver, shall be 59%. After the completion of a commercial finance audit and inventory appraisals satisfactory to the ABL Agent and for all times for the Borrower’s Eligible Inventory, (i) for the Revolver (excluding the Last Out Revolver Tranche), the Inventory Advance Rate shall be 90% and (ii) for the Last Out Revolver Tranche, the Inventory Advance Rate, when combined with the Inventory Advance Rate for the Revolver, shall be 95%.
 
For the Revolver and the Last Out Revolver Tranche the Receivables Advance Rate shall be 90%, the Coinstar Advance Rate shall be 85% and (i) for the Revolver (excluding the Last Out Revolver Tranche), the Prescription Advance Rate shall be 85% and (ii) for the Last Out Revolver Tranche, the Prescription Advance Rate, when combined with the Prescription Advance Rate for the Revolver, shall be 90%.
 
Prior to the completion of prescription lists appraisals satisfactory to the ABL Agent, the Script List Advance Rate against the Target's Eligible Prescription List shall be 68%. After the completion of prescription lists appraisals satisfactory to the ABL Agent and for all times for the Borrower's Eligible Prescription Lists, the Script List Advance Rate shall be 85%.
Prior to the completion of real estate appraisals satisfactory to the ABL Agent, (i) for the Revolver (excluding the Last Out Revolver Tranche), the Real Estate Advance Rate against the Target's Eligible

4



 
 
Real Estate shall be 50% and (ii) for the Last Out Revolver Tranche, the Real Estate Advance Rate against the Target's Eligible Real Estate, when combined with the Real Estate Advance Rate for the Revolver, shall be 60%, provided that the maximum amount advanced against Eligible Real Estate shall not exceed $60.0 million in the aggregate. After the completion of real estate appraisals satisfactory to the ABL Agent and at all times for the Borrower's Eligible Real Estate (i) for the Revolver (excluding the Last Out Revolver Tranche), the Real Estate Advance Rate shall be 50% and (ii) for the Last Out Revolver Tranche, the Real Estate Advance Rate, when combined with the Real Estate Advance Rate for the Revolver, shall be 60%.
 
The Leasehold Advance Rate shall be 40%. The Leasehold Cap shall be (a) $50.0 million for the first nine months after the Closing Date, (b) $37.5 million for the tenth month after the Closing Date, (c) $25.0 million for the eleventh month after the Closing Date, (d) $12.5 million for the twelfth month after the Closing Date, and (d) $0 thereafter.
   
Borrowing Options:
 
Borrowings under the Revolver shall be at the Alternate Base Rate (being the higher of the Prime Rate established by Bank of America, N.A. from time to time or the Federal Funds Effective Rate plus 0.50%) plus the Applicable Margin ("Prime Rate Loan") or the LIBOR Rate plus the Applicable Margin ("LIBOR Rate Loan"). LIBOR Rates will be quoted for one, two, three, or six months (and, if available to all Lenders, nine or twelve months). Prime Rate Loans shall require same business day’s notice. LIBOR Rate Loans shall require three business days’ advance notice. Interest on Prime Rate Loans will be due and payable quarterly in arrears. Interest on LIBOR Rate Loans will be payable at the end of each applicable interest period or quarterly in arrears, whichever is earlier. All interest shall be based on a 360-day year (or 365/366 in the case of Prime Rate Loans) and actual days elapsed.
   
Swing Line Option:
Swing line loans (“Swing Line Loans”) will be made available by the Bank on a same day basis in an aggregate amount not to exceed $50.0 million. All Swing Line Loans shall bear interest at the Prime Rate plus the Applicable Margin. Each Lender will acquire an irrevocable and unconditional pro rata participation in each Swing Line Loan. Any such Swing Line Loan(s) will reduce availability under the Revolver on a dollar for dollar basis.
   
Applicable Margin:
At Closing, the Applicable LIBOR/Prime Rate Margin will be set at Level III of the first grid set forth below (if, prior to the Closing Date, the Borrower elects to include Eligible Leaseholds as a category in the Borrowing Base) or of the second grid set forth below (if, prior to the Closing Date, the Borrower elects not to include Eligible Leaseholds as a category in the Borrowing Base). Commencing six months after the Closing Date, the Applicable Margin will be based upon the applicable pricing grid below, based upon Excess Availability (to be defined in the definitive loan documents) as set forth below (dollars in millions):


5



Pricing Grid For such Period that Eligible Leaseholds are included in the Borrowing Base:
 
                               
Level
 
Minimum Excess Availability
 
Revolver LIBOR Applicable Margin
 
Last Out Revolver Tranche LIBOR Applicable Margin
 
Revolver Prime Rate Applicable Margin
 
Last Out Revolver Tranche Prime Rate Applicable Margin
 
Revolver Unused Fee
 
Last Out Revolver Tranche Unused Fee
 
I
   
³$325.0
   
1.25
%
 
2.50
%
 
0.25
%
 
1.00
%
 
0.25
%
 
0.50
%
II
   
³$225.0, <$325.0
   
1.50
%
 
2.75
%
 
0.25
%
 
1.25
%
 
0.25
%
 
0.50
%
III
   
³$125.0, <$225.0
   
1.75
%
 
3.00
%
 
0.25
%
 
1.50
%
 
0.25
%
 
0.50
%
IV
   
<$125.0
   
2.00
%
 
3.25
%
 
0.50
%
 
1.75
%
 
0.25
%
 
0.375
%

 
Pricing Grid for any Period that Eligible Leaseholds are not included in the Borrowing Base:
 
                               
Level
 
Minimum Excess Availability
 
Revolver LIBOR Applicable Margin
 
Last Out Revolver Tranche LIBOR Applicable Margin
 
Revolver Prime Rate Applicable Margin
 
Last Out Revolver Tranche Prime Rate Applicable Margin
 
Revolver Unused Fee
 
Last Out Revolver Tranche Unused Fee
 
I
   
³$325.0
   
1.00
%
 
2.50
%
 
0.00
%
 
1.00
%
 
0.25
%
 
0.50
%
II
   
³$225.0, <$325.0
   
1.25
%
 
2.75
%
 
0.00
%
 
1.25
%
 
0.25
%
 
0.50
%
III
   
³$125.0, <$225.0
   
1.50
%
 
3.00
%
 
0.00
%
 
1.50
%
 
0.25
%
 
0.50
%
IV
   
<$125.0
   
1.75
%
 
3.25
%
 
0.25
%
 
1.75
%
 
0.25
%
 
0.375
%
 

Letter of Credit Issuer:
Bank of America, N.A. or any of its affiliates.
   
Letter of Credit Fees:
Standby Letter of Credit Fees shall be set at the greater of the Revolver LIBOR Applicable Margin minus 0.25% or 1.00% per annum. Documentary Letter of Credit Fees will be set at 50% of the Revolver LIBOR Applicable Margin. In addition, the Borrower shall pay the Issuer customary fees for the negotiation and amendment of each Letter of Credit as agreed between the Borrower and the Issuer from time to time. Borrower shall pay the Issuer, for its own account, a fronting fee equal to 1/8 of 1% on the aggregate outstanding stated amount of all Letters of Credit, payable quarterly in arrears.
   
Default Pricing:
2.00% above the then Applicable Margin upon written demand at the election of the Majority Lenders following a payment or bankruptcy event of default.
   
Underwriting Fee:
Payable to the ABL Agent and the ABL Lead Arranger in the amounts and at the times as set forth in a Fee Letter of even date.
   
Agent’s Fee:
Payable to the ABL Agent in the amounts and at the times as set forth in a Fee Letter of even date.
   
Unused Fee:
An unused fee will be charged against the average daily undrawn amount of each of the Revolver and the Last Out Revolver Tranche, payable quarterly in an amount equal to the amount set forth in the definition of Applicable Margin.

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Mandatory Prepayments:
(A) If at any time the aggregate amount of outstanding loans, unreimbursed letter of credit drawings and undrawn letters of credit under the ABL Facility exceeds the lesser of the Loan Cap and the Borrowing Base in effect at such time, then the Borrower will immediately repay outstanding loans and cash collateralize letters of credit in an aggregate amount equal to such excess, with such payments to be first applied to the Revolver and after the Revolver has been paid in full, the Last Out Revolver Tranche.
 
(B) Upon the occurrence and during the continuance of a Cash Control Trigger, all proceeds of ABL Collateral shall be deposited in a Concentration Account maintained by the ABL Agent and will be promptly applied by the ABL Agent on a daily basis to repay outstanding loans, and if an Event of Default then exists, to cash collateralize letters of credit.
 
(C) All proceeds from the sale or disposition of any ABL Collateral (other than in the ordinary course of business) shall be paid to the ABL Agent and applied by the ABL Agent to the outstanding obligations in a manner based upon the terms of the Existing Credit Facility, with such additions and modifications thereto as the ABL Agent and the Borrower may reasonably agree to reflect the proposed transaction.
 
(D) The application of proceeds from mandatory prepayments shall not reduce the commitments under the ABL Facility and such proceeds may be reborrowed subject to the terms of the definitive loan documentation.
   
Prepayments/Commitment Reduction:
The Borrower may prepay the amounts owed under the Revolver and reduce or terminate the total commitments under the Revolver from time to time in minimum amounts to be mutually agreed without penalty or premium. If the amounts owed on account of loans made under the ABL Facility are less than $75.0 million for five consecutive business days, the Borrower may prepay amounts owed under the Last Out Revolver Tranche. If the Last Out Revolver Tranche is prepaid in whole or in part, any borrowings under the ABL Facility thereafter requested shall, if loans under the Revolver then equal or exceed $100.0 million, be again made under the Last Out Revolver Tranche (the proceeds of which shall be used to repay the outstanding loans under the Revolver) until the Last Out Revolver Tranche is again fully borrowed before any further borrowings are made under the Revolver. The Borrower may also repay in full the Last Out Revolver Tranche and terminate the commitments therefor if at the time of such payment and termination (a) there are no loans outstanding under the ABL Facility (other than under the Last Out Revolver Tranche), (b) there is Excess Availability in an amount not less than 20% of the Borrowing Base for the Revolver, and (c) the Borrower has demonstrated to the ABL Agent on a pro forma basis, average Excess Availability for the next 12 months will not be less that 20% of the Borrowing Base for the Revolver. The Borrower may, prior to the Closing Date or at any time thereafter, upon prior notice to the ABL Agent cause the Borrowing Base to be modified by the termination of Eligible Leaseholds as a Borrowing Base category, as long as no overadvance would result therefrom. Any such termination, once

7



 
 
made, may not be reversed and no further advances shall thereafter be made against Eligible Leaseholds.
   
Cash Management:
The Borrower shall maintain a concentration account with the Bank throughout the term of the ABL Facility. All collections and proceeds from collateral will be deposited either directly into the ABL Agent’s account with the Bank or as otherwise provided in the Existing Credit Facility, with such additions and modifications thereto as the ABL Agent and the Borrower may reasonably agree to reflect the proposed transaction. The Borrower shall establish cash management provisions reasonably acceptable to the ABL Agent based upon the terms of the Existing Credit Facility, with such additions and modifications thereto as the ABL Agent and the Borrower may reasonably agree to reflect the proposed transaction, provided that the Borrower shall not be obligated to obtain control agreements with any depository which is not an institution into which the collections and proceeds of collateral are concentrated. The ABL Agent shall not exercise control over cash unless and until Excess Availability is less than or equal to $75.0 million (the “Cash Control Trigger”) or (b) an event of default exists. In the event that Excess Availability exceeds the Cash Control Trigger for 30 consecutive days, or if the event of default is cured or waived, the ABL Agent shall relinquish control over cash until another Cash Control Trigger Event or event of default occurs, provided that in no event shall the ABL Agent be obligated to release cash control more than a number of times to be mutually agreed.
   
Financial Covenants:
Excess Availability shall not, at any time, be less than 10% of the Borrowing Base (calculated based on the advance rates for the Last Out Revolver Tranche).
   
Representations and Warranties:
Based upon the terms of the Existing Credit Facility, with such additions and modifications thereto as the ABL Agent and the Borrower may reasonably agree to reflect the proposed transaction.
   
Other Covenants:
Affirmative and negative covenants based upon the terms of the Existing Credit Facility, with such additions and modifications thereto as the ABL Agent and the Borrower may reasonably agree to reflect the proposed transaction (with carveouts, baskets and materiality thresholds to be mutually agreed)
ABL Agent will have the right to conduct periodic commercial finance exams and appraisals at the Borrower’s expense. As long as Excess Availability is (i) greater than $250.0 million, the ABL Agent may undertake one such exam and appraisal in any twelve month period, (ii) less than or equal to $250.0 million but greater than or equal to $100.0 million, the ABL Agent may undertake two such exams and appraisals in any twelve month period, and (iii) less than $100.0 million, the ABL Agent may undertake three such exams and appraisals in any twelve month period; provided that, the provisions of this clause (iii) shall not apply to real estate appraisals or prescription lists appraisals, to the end that only one or two such appraisals (as applicable) may be undertaken at the Borrower's expense prior to the occurrence of an Event of Default. In addition to the foregoing, the

8



 
 
Agent may undertake additional exams and appraisals at any time at its own expense and may undertake such exams and appraisals as it deemed necessary, at the Borrower’s expense, after the occurrence of an Event of Default.
   
Events of Default:
Events of Default based upon the terms of the Existing Credit Facility, with such additions and modifications thereto as the ABL Agent and the Borrower may reasonably agree to reflect the proposed transaction (with carveouts, baskets, and materiality thresholds to be mutually agreed).
   
Conditions Precedent:
Those specified in Annex III to the Commitment Letter.
   
Expenses:
Reasonable expenses for syndication, commercial finance exams, appraisals and reasonable legal fees and expenses of counsel for the ABL Agent and other out of pocket expenses of the ABL Agent and the ABL Lead Arranger will be paid by the Borrower whether or not the ABL Facility is closed.
   
Indemnification:
The Borrower agrees to indemnify and hold the ABL Lead Arranger, the ABL Agent, and the Lenders and their respective shareholders, directors, agents, officers, subsidiaries and affiliates harmless from and against any and all damages, actual out of pocket losses, settlement payments, obligations, liabilities, claims, actions or causes of action, and reasonable costs and expenses incurred, suffered, sustained or required to be paid by an indemnified party by reason of or resulting from the transactions contemplated hereby except to the extent resulting from the gross negligence, bad faith or willful misconduct of any indemnified party. In all such litigation, or the preparation therefor, the Lead Arrangers, the ABL Agent and the Lenders shall be entitled to select their respective counsel (provided that, with respect to Lenders which are not the ABL Agent, such Lenders shall be limited to one counsel, absent a conflict of interest) and, in addition to the foregoing indemnity, the Borrower agrees to pay the reasonable fees and expenses of such counsel.
   
Assignments and Participations:
The Lenders will be permitted to grant participations or assignments of their loans and commitments. Any Lender will be permitted to assign a portion of Revolver (or Last Out Revolver Tranche) to another eligible lending institution (to be defined in the definitive documentation) in minimum amounts of $10.0 million, subject to customary provisions of participation or assignment transactions. Except during the continuance of an event of default, the Borrower shall have the right to consent to any such assignment, such consent not to be unreasonably withheld or delayed.
   
Voting Rights:
Lenders holding at least a majority of all of the outstanding commitments (the "Majority Lenders") for all amendments and waivers, provided that certain events shall require consent of all Lenders directly affected thereby.
   
ABL Agent’s Counsel:
Riemer & Braunstein, LLP.
   
Governing Law:
New York.



9



ANNEX II-A
SUMMARY OF PRINCIPAL TERMS AND CONDITIONS
 
$780,000,000 SENIOR SECURED BRIDGE FACILITY
 
Capitalized terms not otherwise defined herein have the same meanings as
specified therefor in the Commitment Letter to which this Annex II-A is attached.
 
Borrower:
Same Borrower as in the ABL Summary of Terms.
   
Guarantors:
Same Guarantors as in the ABL Summary of Terms. The Bridge Loans will be guaranteed on a senior secured basis by the Guarantors. Any Guarantor no longer required to guarantee the ABL Facility in accordance with the terms thereof will be automatically released from its obligations to guarantee the Bridge Loans.
   
Joint Lead Arrangers and Joint Book Managers:
Banc of America Securities LLC (“BAS”) and Lehman Brothers Inc. (“Lehman”) will act as joint lead arrangers and joint book running managers for the Bridge Facility (in such capacity, the “Bridge Lead Arrangers”).
   
Initial Bridge Lenders:
Banc of America Bridge LLC or an affiliate thereof (“Banc of America Bridge”), Lehman Brothers Commercial Bank (“LBCB” and, together with Banc of America Bridge, the “Initial Bridge Lenders”) and other financial institutions and institutional lenders acceptable to the Bridge Lead Arrangers (the “Bridge Lenders”).
   
Administrative and Collateral Agent:
Banc of America Bridge will act as sole and exclusive administrative agent for the Bridge Lenders (in such capacity, the “Bridge Administrative Agent”) and as sole and exclusive collateral agent for the Bridge Lenders (in such capacity, the “Bridge Collateral Agent”).
   
Syndication Agent:
Lehman Commercial Paper Inc. (“LCPI”) will act as sole and exclusive syndication agent for the Bridge Facility (in such capacity, the “Bridge Syndication Agent”).
   
Bridge Facility:
Up to $780.0 million of senior secured bridge loans (the “Bridge Loans”). The Bridge Loans will be available to the Borrower in one drawing upon consummation of the Acquisition.
   
Security:
The Borrower and each of its Subsidiaries will grant the Bridge Collateral Agent, for the benefit of the Bridge Lenders, valid and perfected first priority (subject to certain exceptions to be set forth in the loan documentation) liens and security interests in general intangibles (including payment intangibles, software, trademarks and other intellectual property), 65% of the voting stock of (or other ownership or profit interests in) A&P Bermuda Limited (which will own, directly or indirectly, at least 10.9 million Metro Shares at the Closing Date) and all proceeds and products of the foregoing (collectively, the “Bridge Collateral”). In addition, in the event of bankruptcy and insolvency defaults, the Borrower and each applicable Subsidiary will grant the Bridge Collateral Agent, for the benefit of the Bridge Lenders, valid and perfected first priority (subject to certain exceptions to be set forth in the loan documentation) liens and security interests




 
 
in the Metro Shares.
 
In addition, the Borrower and each of its Subsidiaries will grant the Bridge Collateral Agent, for the benefit of the Bridge Lenders, valid and perfected second priority (subject to certain exceptions to be set forth in the loan documentation) liens and security interests in all of the collateral securing the ABL Facility on a first priority basis, as set forth in ABL Summary of Terms (collectively, the “ABL Collateral” and, together with the Bridge Collateral, the “Collateral”).
 
The liens and security interests granted to the Bridge Collateral Agent for the benefit of the Bridge Lenders in the ABL Collateral will be subject to a first priority lien in favor of Bank of America, N.A. through its Retail Finance Group, in its capacity as collateral agent (the “ABL Collateral Agent”) for the benefit of the ABL Lenders, pursuant to the Intercreditor Agreement referred to below.
   
Intercreditor Agreement:
The Bridge Collateral Agent and the ABL Collateral Agent will enter into an intercreditor agreement (the “Intercreditor Agreement”) in form and substance reasonably satisfactory to the Bridge Administrative Agent and the ABL Agent, BAS and Lehman providing, among other things, that (i) the lien of the Bridge Collateral Agent for the benefit of the Bridge Lenders in the ABL Collateral shall be subordinate to the lien of the ABL Collateral Agent in such ABL Collateral for the benefit of the lenders under the ABL Facility, (ii) the Bridge Collateral Agent and the Bridge Lenders shall have limited voting rights with respect to releases of ABL Collateral and (iii) prior to the termination of the Bridge Facility and the repayment in full of all Bridge Advances, the Bridge Collateral Agent and the Bridge Lenders shall have the exclusive right to administer, perform and enforce (or not enforce) the terms of the security documents with respect to the Bridge Collateral, subject to certain limited rights of access on behalf of the ABL Collateral Agent on behalf of the lenders under the ABL Facility.
   
Ranking:
The Bridge Loans will be senior secured obligations of the Borrower, ranking equally in right of payment with all of Borrower’s existing and future senior secured obligations and senior to all of Borrower’s future subordinated obligations. The Guarantees will be senior secured obligations of each Guarantor, ranking equally with all existing and future senior secured obligations of such Guarantor and senior in right of payment to any future subordinated obligations of such Guarantor. The Bridge Loans and the Guarantees will be effectively subordinated to all indebtedness which may become outstanding under the ABL Facility with respect to the ABL Collateral, to the extent of the value of those assets.
   
Purpose:
To finance a portion of the Acquisition, to refinance certain existing debt of the Borrower, the Target and their respective subsidiaries and to pay related fees and expenses.
   
Closing Date:
March 4, 2008.

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Interest Rate:
Interest shall be payable quarterly in arrears at a rate per annum equal to the three month LIBOR in effect from time to time plus the Applicable Margin. The Applicable Margin for Bridge Loans shall be 575 basis points and will increase by an additional 50 basis points at the end of each subsequent three-month period for so long as the Bridge Loans are outstanding; provided that the interest rate shall not exceed 12.00% per annum (the “Total Cap”). Notwithstanding the foregoing, following the occurrence of a payment or bankruptcy event of default, the applicable interest rate shall be increased by an additional 2.00% per annum.
   
Maturity:
Twelve months from the date of initial advance (the “Bridge Loan Maturity Date” or “Rollover Date”).
   
Optional Prepayment:
The Bridge Loans may be prepaid prior to the Bridge Loan Maturity Date, without premium or penalty, in whole or in part, upon written notice, at the option of the Borrower, at any time, together with accrued interest to the prepayment date.
   
Mandatory Prepayments:
The Borrower will prepay the Bridge Loans, without premium or penalty, together with accrued interest to the prepayment date, with any of the following: (i) the net proceeds from the issuance of any debt securities or equity securities of the Borrower, the Target or any of their respective subsidiaries; (ii) subject to customary exceptions to be agreed and only to the extent such amounts are not required to be paid to the ABL Lenders under the ABL Facility, the net proceeds from any other indebtedness incurred by the Borrower or any of the Borrower’s subsidiaries; and (iii) subject to customary exceptions to be agreed and only to the extent such amounts are not required to be paid to the ABL Lenders under the ABL Facility, the net proceeds from asset sales (including, without limitation, the sale or disposition of any Bridge Collateral or any of the Metro Shares) by the Borrower or any of the Borrower’s subsidiaries, subject to the right of the Borrower, in the case of sales of stores, warehouses and other assets in the ordinary course of business and consistent with past practice in an aggregate amount not to exceed $25.0 million per year, to reinvest such proceeds within 15 months or commit to reinvest such proceeds within 12 months and, if so committed to reinvestment, reinvest within 180 days after such commitment.
   
Change of Control:
In the event of a Change of Control, each Bridge Lender will have the right to require the Borrower, and the Borrower must offer, to prepay the outstanding principal amount of the Bridge Loans, plus accrued and unpaid interest thereon to the date of prepayment without any premium (other than, in the case of Exchange Notes the interest rate for which has been fixed in accordance with the terms set forth in Annex II-C, a prepayment fee equal to 1.00% of such outstanding principal amount). Prior to making any such offer, the Borrower will, within 30 days of the Change of Control, repay all obligations under the ABL Facility or obtain any required consent of the ABL Lenders under the ABL Facility to make such prepayment of the Bridge Loans.
   
Conversion into Rollover Loans:
If the Bridge Loans have not been previously prepaid in full for cash on or prior to the Bridge Loan Maturity Date, the principal amount of

3



 
 
the Bridge Loans outstanding on the Rollover Date may, subject to the conditions precedent set forth in Annex II-B, be refinanced by senior secured rollover loans with a maturity of seven years from the Rollover Date (the “Rollover Loans” and, together with the Bridge Loans, the “Bridge Advances”) and otherwise having the terms set forth in Annex II-B. On or after the Rollover Date, the Bridge Lenders will have the right to exchange the notes evidencing the outstanding Rollover Loans advanced by them having an aggregate principal amount exceeding $50.0 million to the Borrower for Exchange Notes of the Borrower having the terms set forth in Annex II-C.
   
Conditions Precedent to Initial Funding:
Those specified in Annex III to the Commitment Letter.
   
Covenants:
Usual and customary for financing transactions of this type, including without limitation (a) a negative pledge on the Metro Shares and the capital stock of A&P Bermuda Limited and A&P Luxembourg S.á.r.l., and (b) affirmative covenants similar to those contained in the ABL Facility and negative covenants customary for high yield financings of issuers of similar credit quality (which would be intended to be based on negative covenants contained in the proposed offering of Senior Secured Notes) (with such additions and modifications thereto as the Bridge Lead Arrangers and the Borrower may reasonably agree to reflect the proposed transaction).
   
Representations and Warranties, Events of Default, Waivers and Consents:
Similar to those contained in the ABL Facility (with such additions and modifications thereto as the Bridge Lead Arrangers and the Borrower may reasonably agree to reflect the proposed transaction) (except that only a cross acceleration default shall apply with respect to defaults under the ABL Facility or other material indebtedness).
   
Right to Assign
Bridge Loans:
The Bridge Lenders shall have the right to assign their interest in the Bridge Loans in whole or in part in compliance with applicable law to any third parties only with the prior written consent of the Bridge Lead Arrangers. In addition, the Initial Bridge Lenders may share their respective commitments with any third party only with the prior written consent of the Bridge Lead Arrangers. Notwithstanding the foregoing, if the Initial Bridge Lenders hold less than 51% of the aggregate amount of Bridge Advances, the Initial Bridge Lenders shall be deemed to hold 51% of the aggregate amount of Bridge Advances such that the Initial Bridge Lenders can at all times approve any amendment or waiver of the provisions of the loan agreement and other definitive credit documentation, except any such amendment or waiver requiring the consent of all Bridge Lenders holding Bridge Advances.
   
Governing Law:
New York.
   
Expenses:
The Borrower will pay all reasonable costs and expenses associated with the preparation, due diligence, administration, syndication and enforcement of all loan documentation, including, without limitation, the legal fees of the Bridge Lead Arrangers’ counsel, regardless of whether or not the Bridge Facility is closed. The Borrower will also pay the expenses of each Bridge Lender in connection with the
 
 

4



 
 
enforcement of any of the loan documentation related to the Bridge Facility.
   
Counsel to Bridge Lead Arranger:
Fried Frank Harris Shriver & Jacobson LLP.
   
Fees:
As provided in the Fee Letter.







5




ANNEX II-B
SUMMARY OF PRINCIPAL TERMS AND CONDITIONS
 
$780,000,000 SENIOR SECURED ROLLOVER FACILITY
 
Capitalized terms not otherwise defined herein have the same meanings as
specified therefor in the Commitment Letter to which this Annex II-B is attached.
 
Borrower:
Same Borrower as in ABL Summary of Terms and Bridge Summary of Terms.
   
Guarantors:
Same Guarantors as in ABL Summary of Terms and Bridge Summary of Terms. The Rollover Loans will be guaranteed on the same basis as the Bridge Loans.
   
Rollover Facility:
Senior secured subordinated rollover loans (the “Rollover Loans”) in an initial principal amount equal to 100% of the outstanding principal amount of the Bridge Loans on the Rollover Date. Subject to the conditions precedent set forth below, the Rollover Loans will be available to the Borrower in one drawing on the Rollover Date. The Rollover Loans will be governed by the definitive documents for the Bridge Loans and, except as set forth below, shall have the same terms as the Bridge Loans.
   
Security:
Same as Bridge Loans.
   
Ranking:
Same as Bridge Loans.
   
Interest Rate:
At the Rollover Date, the interest rate on the Rollover Loans will be a rate per annum equal to the three month LIBOR in effect on the Rollover Date plus the Applicable margin on Bridge Loans in effect on the Rollover Date. For each three-month period after the Rollover Date the interest rate shall increase by 0.50%.
 
The interest rate on the Rollover Loans shall not exceed the Total Cap. Notwithstanding the foregoing, following the occurrence of a payment or bankruptcy event of default, the applicable interest rate shall be increased by an additional 2.00% per annum.
Interest on the Rollover Loans will be payable quarterly in arrears.
   
Maturity:
Seven years from the Rollover Date (the “Rollover Maturity Date”).
   
Optional Prepayment:
For so long as the Rollover Loans have not been exchanged for Exchange Notes as provided in Annex II-C, they may be prepaid at the option of the Borrower, in whole or in part, at any time, together with accrued and unpaid interest to the prepayment date (but without premium or penalty).
   
Conditions Precedent to any Rollover Loans:
The ability of the Borrower to refinance any Bridge Loans with Rollover Loans is subject to the following conditions being satisfied:
(a) at the time of any such refinancing, there shall exist no Event




 
of Default or event which, with notice and/or lapse of time, could become an Event of Default;
 
(b)  all fees due to the Bridge Lead Arrangers and the Initial Bridge Lenders shall have been paid in full; and
 
(c)  no order, decree, injunction or judgment enjoining any such refinancing or the provision of any Rollover Loans shall be in effect.
   
Assignments and Participations:
The Bridge Lenders shall have the right to assign their interest in any Rollover Loans in whole or in part in compliance with applicable law to any third parties only with the prior written consent of the Bridge Lead Arrangers. The Bridge Lenders will be permitted to sell participations with voting rights limited to significant matters such as changes in amount, rate and maturity date.
   
Rollover Covenants and Events of Default:
From and after the Rollover Date, the covenants and events of default applicable to the Rollover Loans will conform to those applicable to the Exchange Notes.
   
Governing Law:
New York.
   
Expenses:
Same as the Bridge Loans.
   
Fees:
As provided in the Fee Letter.


 

 

2



ANNEX II-C
SUMMARY OF PRINCIPAL TERMS AND CONDITIONS
 
$780,000,000 SENIOR SECURED EXCHANGE NOTES
 
Capitalized terms not otherwise defined herein have the same meanings as
specified therefor in the Commitment Letter to which this Annex II-C is attached.
 
Borrower:
Same Borrower as in ABL Summary of Terms and Bridge Summary of Terms.
   
Guarantors:
Same Guarantors as in ABL Summary of Terms and Bridge Summary of Terms.
   
Exchange Notes:
At any time on or after the Rollover Date, the notes evidencing the Rollover Loans due to the Bridge Lenders having a minimum aggregate principal amount of $50.0 million may, at the option of such Bridge Lenders, be exchanged for an equal principal amount of senior secured exchange notes of the Borrower (the “Exchange Notes”). The Borrower will issue Exchange Notes under an indenture that complies with the Trust Indenture Act of 1939, as amended (the “Indenture”). The Borrower will appoint a trustee reasonably acceptable to the Bridge Lead Arranger. The terms of the Exchange Notes will be substantially negotiated at the closing of the Bridge Loans and are intended to be based generally on the terms of the proposed offering of Senior Secured Notes. The Indenture will include provisions customary for an indenture governing publicly traded high yield debt securities for issuers of similar credit quality. Except as expressly set forth herein, the Exchange Notes shall have the same terms as the Rollover Loans.
   
Interest Rate; Redemption:
Each Exchange Note will bear interest at a fixed rate equal to the then applicable interest rate in effect on the Rollover Loans for which it is exchanged (plus 50 basis points if the Exchange Notes do not bear registration rights as described below under “Registration Rights”), but in no event in excess of 12.00% per annum (if they bear registration rights as described below) or 12.50% per annum (if they do not bear such registration rights). The Exchange Notes will be noncallable until the fourth anniversary of the Closing Date and will be callable thereafter at par plus accrued interest plus a premium equal to one-half of the coupon declining ratably to par on the date that is two years prior to maturity of the Exchange Notes. The Borrower may redeem up to 35% of the aggregate principal amount of the Exchange Notes, at a price of 100% plus the applicable coupon, together with accrued and unpaid interest, if any, to the redemption date, with the net proceeds of one or more equity offerings; provided, however, that the minimum outstanding principal amount of the Exchange Notes after such repurchase is not less than 65% of the amount of the original issue. The Exchange Notes will provide for mandatory repurchase offers customary for publicly traded high yield debt securities.
   
Registration Rights:
At the Borrower’s option, the Exchange Notes will bear the following registration rights:




 
 
Within 180 days after each issuance of Exchange Notes, the Borrower shall file with the Securities and Exchange Commission a shelf registration statement and/or an exchange offer registration statement with respect to an offer to exchange the Exchange Notes for publicly registered notes having identical terms and the Borrower shall use its commercially reasonable efforts to cause such registration statement to be declared effective by the 270th day following each such issuance and, with respect to a shelf registration statement, keep such shelf registration statement effective, with respect to resales of the Exchange Notes, for the greater of (a) two years or (b) as long as it is required by the Initial Bridge Lenders to resell the Exchange Notes. Upon failure to comply with the requirements of the registration rights agreement (a “Registration Default”), the Borrower shall pay liquidated damages to each holder of Exchange Notes with respect to the first 90-day period immediately following the occurrence of the first Registration Default in an amount equal to 0.25% per annum on the principal amount of Exchange Notes held by such holder. The amount of the liquidated damages will increase by an additional 0.25% per annum on the principal amount of Exchange Notes with respect to each subsequent 90-day period until all Registration Defaults have been cured or otherwise become inapplicable, up to a maximum amount of liquidated damages for all Registration Defaults of 1.00% per annum.
   
Governing Law:
New York.



 

 

2

 
 

ANNEX III
CONDITIONS PRECEDENT*
 
The commitments under the Commitment Letter, the closing and the initial extension of credit under the ABL Facility and the extension of the Bridge Loans under the Bridge Facility will be subject to the satisfaction of the following conditions precedent as applicable:
 
(a)  Prior to and during the syndication of the Facilities and the offering of the Senior Secured Notes, there shall be no offering, placement or arrangement of any equity securities, debt securities or bank financing by or on behalf of any of the Companies or any of their respective affiliates (other than (i) the Senior Secured Notes and (ii) pursuant to the Target’s existing credit agreement (including the “accordion” feature thereof) or, as an alternative to the accordion feature of the Target’s existing credit agreement, in mortgages not in excess of $40.0 million encumbering real property of the Target, in each case as permitted by the Acquisition Agreement (defined below)) that could reasonably be expected to, in the discretion of the Lead Arrangers, disrupt or materially interfere with the orderly syndication of the Facilities and the offering of the Senior Secured Notes.
 
(b)  Since the date of the Acquisition Agreement, no change, event or circumstance has occurred that has had a Company Material Adverse Effect (as defined in the Acquisition Agreement) that is continuing and no change, event or circumstance has occurred and is continuing that would reasonably be expected to have a Company Material Adverse Effect.
 
(c) The Acquisition shall have been consummated in accordance with the Agreement and Plan of Merger dated as of the date of the Commitment Letter regarding the Acquisition (together with the disclosure letters related thereto, the “Acquisition Agreement”), and no provision of the Acquisition Agreement shall have been waived, amended or otherwise modified in a manner materially adverse to the Lenders without the prior written consent of the Lead Arrangers. The Lead Arrangers shall be reasonably satisfied in all material respects with the terms of any agreements that are material to the interests of the Lenders and are to be entered into in connection with the Acquisition Agreement. The Lead Arrangers acknowledge that the draft of the Acquisition Agreement dated March 2, 2007 is satisfactory to the Lead Arrangers. No agreement, order or decree has been entered into or issued requiring one or more of the Companies to hold separate (including by trust or otherwise), divest, dispose of or sell any of their respective businesses or assets with aggregated Allocated Amounts (as defined in the Acquisition Agreement) in excess of the Threshold Amount (as defined in the Acquisition Agreement).
 
(d) (i) In the case of the Bridge Loans, all conditions to drawing under the ABL Facility on the Closing Date shall have been satisfied, and (ii) in the case of the ABL Facility, the Borrower shall have received $780.0 million in gross proceeds from the advance of the Bridge Loans or the issuance and sale by the Borrower of the Senior Secured Notes.
 
(e) The Borrower shall use commercially reasonable efforts to obtain a rating for the Senior Secured Notes from each of Moody’s and S&P.
 
(f) The Lead Arrangers and the Lenders shall have received (i) such audited, unaudited, pro forma and other financial statements, schedules and information of the Borrower and its subsidiaries and the Target and its subsidiaries of the type that would be required in a registered public offering on Form S-1 under the Securities Act and/or that would be necessary for such investment banks to receive customary “comfort” (including “negative assurance” comfort) from independent accountants of the Borrower and the Target in connection with the offering of the Senior Secured Notes (but excluding information required by Regulation S-X Rule 3-10 to the extent not available after your use of commercially reasonable efforts); and (ii) forecasts prepared by management of the Companies, each in the same form as the Projections, on a monthly basis for the first year following the Closing Date and on an annual basis for each year thereafter during the term of the Facilities.




(g) (x) In the case of the ABL Facility and the Bridge Facility, the Companies shall have completed and made available to the Lead Arrangers and potential Lenders one or more Information Memoranda (including a separate information memorandum for both public and private investors) to be used in connection with the syndication of the Facilities a reasonable amount of time after the date of the Commitment Letter, (y) in the case of the Bridge Facility, not later than 20 days prior to the Closing Date, the Companies shall have completed and made available to the Lead Arrangers and potential investors copies of one or more offering memoranda for the offering and sale of the Senior Secured Notes containing such disclosures of the type that would be required in a registered public offering on Form S-1 under the Securities Act (with such exceptions as are mutually agreed) and as otherwise customary for Rule 144A offerings of securities similar to the Senior Secured Notes, and (z) senior management of the Companies (including the Target) shall have made themselves available for rating agency presentations and roadshows and other meetings with potential lenders in the ABL Facility and potential investors for the Senior Secured Notes as required by the Lead Arrangers in their reasonable judgment to syndicate the ABL Facility and to market the Senior Secured Notes.
 
(h) The negotiation, execution and delivery of mutually satisfactory definitive documentation with respect to the Facilities (the “Facilities Documentation”), providing for valid and perfected (subject to certain exceptions to be set forth in the loan documentation) liens and security interests in the collateral securing the ABL Facility and the Bridge Facility or the Senior Secured Notes, as the case may be, including without limitation customary certificates and opinions. The Facilities Documentation shall not contain any conditions precedent to the funding of the Facilities on the Closing Date other than the conditions expressly set forth in the Commitment Letter or this Annex III thereto.

 
Notwithstanding anything in the Commitment Letter, Annexes I, II or III thereto, the Fee Letter or any other letter agreement or other undertaking concerning the financing of the Transactions to the contrary, (i) the only representations relating to the Borrower, the Target, their subsidiaries and their businesses the making of which shall be a condition to availability of the Facilities on the Closing Date shall be (A) such of the representations made by the Target in the Acquisition Agreement as are material to the interests of the Lenders, but only to the extent that you have the right to terminate your obligations under the Acquisition Agreement as a result of a breach of such representations in the Acquisition Agreement and (B) the Specified Representations (as defined below) and (ii) the terms of the Facilities Documentation shall be in a form such that they do not impair availability of the Facilities on the Closing Date if the conditions set forth in the Commitment Letter and this Annex III are satisfied (it being understood that, to the extent any Collateral (other than (x) the pledge and perfection of the security interests in capital stock of U.S. subsidiaries held by the Borrower or any Guarantor and (y) other assets pursuant to which a lien may be perfected by the filing of a financing statement under the Uniform Commercial Code) is not provided on the Closing Date after your use of commercially reasonable efforts to do so, the delivery of Collateral shall not constitute a condition precedent to the availability of the Facilities on the Closing Date but shall be required to be delivered after the Closing Date pursuant to arrangements to be mutually agreed. For purposes hereof, “Specified Representations” means representations and warranties relating to legal existence, corporate power and authority, the due authorization and execution and enforceability of the Facilities Documentation, Federal Reserve margin regulations, solvency, the Investment Company Act, status of the ABL Facility as senior debt and, to the extent set forth above, validity and perfection of security interests granted in the Collateral.
 



Capitalized terms not otherwise defined herein have the same meanings as specified in the Commitment Letter to which this Annex I is attached.
 
 
 
 
 
 
2
EX-99.1 4 ex99_1.htm EXHIBIT 99.1 Exhibit 99.1

Exhibit 99.1






A & P- Press Conference

Moderator: Glen Mastro
March 5, 2007
12:00 p.m. CT



Operator: Good afternoon and welcome to the Great Atlantic & Pacific Tea Company’s A&P announcement. All lines will be in a listen-only mode until the question and answer session. Today’s teleconference is being recorded. If you object, please disconnect at this time. For your information, a Web cast is available on A&P’s Web site at www.aptea.com. And at this time, I would like to turn the call over to Mr. Glen Mastro. Please go ahead, sir.

Glen Mastro: Thank you. Good afternoon everyone. On behalf of The Great Atlantic & Pacific Tea Company, better known as A&P, I want to welcome you to this afternoon’s media teleconference.

                As you know, this morning, A&P made a major announcement that is significant to the future of the company, and joining us today to talk about that announcement are Mr. Christian Haub, the Executive Chairman of A&P, Mr. Eric Claus, the President and Chief Executive Officer of A&P, and Mr. John Standley, Chief Executive Officer, Pathmark Stores Incorporated.

                To begin the presentation, Mr. Christian Haub.

Christian Haub: Thank you Glen. Good afternoon and welcome. Today is a momentous day in the history of A&P. This morning we announced the acquisition of Pathmark, a move that will create a 550 store, $11 billion chain with critical mass in our northeast region, including metro New York and New Jersey and greater Philadelphia.





It also marks a dramatic step in the transformation of our company. This combination will make us a more competitive and profitable supermarket chain and is an excellent strategic fit, offering significant financial and operating synergies and strong positions in two of the largest and most important retail markets in the nation.

                This is a marriage of two very well known brands with a long heritage in the northeast whose formats are very complimentary to each other and cover the entire demographic spectrum that we operate in today.

                In fact, the Pathmark brand will continue as its own brand, banner and format as it enhances A&P’s current offerings by attracting and serving a diverse customer base.

                And this combination will serve our customers quite well by creating a new company that will compete much more effectively against supermarkets, warehouse clubs and other food retailers, benefiting from a lower cost structure and lower cost of goods.

                Adding the Pathmark banner further expands our marketing reach with a volume driven, big box format as compared to our fresh discount and gourmet concepts.

                This combination also enhances our buying efficiencies with the consolidation of Pathmark’s volume and product range and increased distribution efficiency through the existing relationship of C&S Wholesale Grocers to those businesses.

                Equally exciting will be our enhanced efficiencies thanks to the integration of Pathmark’s systems with our own information technology network backed by A&P’s comprehensive technology platform.

               Additionally, we are very excited at the anticipated near-term savings of approximately 150 million by merging administrative and support functions following completion of the deal.

                This deal is the latest step in A&P’s strategic transformation which began in 2005 with the successful sale of A&P Canada as well as the leadership change within our U.S. operations. Since then, under the leadership of our President and CEO, Eric Claus, we’ve made substantial progress in our business, and we’ve established a sound foundation to pursue strategic growth opportunities such as this acquisition of Pathmark.





                We are also thrilled to add Pathmark’s excellent management talent, its exceptional store portfolio, its formidable brand strength and its fervent consumer reputation to A&P. And we believe Pathmark will become an integral part of our breadth of offerings, including our fresh gourmet and discount concepts.

                This transaction could have not come at a more exciting time for our company as we are now ready to take, to take on the challenge of a major integration of this size and importance that leads the new A&P to becoming a very successful and competitive retailer in the northeast grocery industry.

                I want to thank you all for coming today, and I would like to now turn it over to our President and CEO, Eric Claus.

Eric Claus: Thank you Christian. Good afternoon everyone. Let me start by saying that this transaction is really a marriage that’s, you could almost say is made in heaven. It’s an opportunity that presented itself at the right time for both organizations.

As our CFO, Brenda Galgano said this morning on our call with the industry analysts - and you won’t hear this very often - this transaction is really a one plus one equals three.

                On the business side of things, we’re combining two retail businesses with strong coverage across two of the most important markets in the country, and two markets that are core for us. We’re marrying two of the best known brands in food retailing and certainly household names in the northeast. (Inaudible) in Pathmark a price oriented, high volume format, and it serves a consumer base that’s broad yet not fully targeted by our own fresh, discount and gourmet concept.

                Financially, the synergies we’ll be generating by integrating the businesses will get us off onto a sound and profitable basis as a combined entity under one roof.

                And the consumer side of things, the same financial stability and growth opportunity will also mean job security and personal growth for Pathmark field and store personnel as well as A&P’s. We’re anxious not only to bring the Pathmark associates into the fold, but to learn from their operations as well to quickly incorporate the most successful practices from both companies. Candidly, the difficult side of this will lie in the elimination of duplicate positions in the management, administrative and support structures after we close the deal. Here again, our intention is not just to save money, but to come away with the best possible staff capability in



place. So we will be evaluating the talent in both organizations in that process. At the end of the day, we’ll have a best in class team with exciting opportunities to grow personally and professionally, as our combined retail businesses thrive into the future.

                I’ll close by saying that I am excited and very fortunate to have the opportunity to lead a business with the potential that this one has, and I look forward to working with both teams to restore these great retail brands to the position they richly deserve.

Thanks for listening to us, and with that I’ll turn it over to John Standley.

John Standley: Thank you, Eric and thank you, Christian. I appreciate your kind words about the Pathmark team and its accomplishments. I’m proud of our team and their efforts. Without their dedication and performance, this transaction could not have been put in place.

                In addition to talented associates, the new A&P will obtain a portfolio of excellent, high volume stores in strong locations. And although our formats and merchandising strengths may be somewhat different, both A&P and Pathmark know that the supermarket business starts and ends with the consumer.

                The increased size and flexibility provided by the Pathmark acquisition will allow A&P to better serve communities throughout the New York, New Jersey and Philadelphia metropolitan areas. I’m confident that the A&P has a future filled with great potential.

Male: Thank you.

Glen Mastro: Thanks John. I’d like to now turn it back to the operator to open the conference for Q&A.

Operator: Thank you, the question-and-answer session will be conducted electronically. If you would like to ask a question, please press star followed by the digit one. If you are on a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Once again, star one to ask a question.

                And our first question we’ll hear from Kevin DeMarrais with The Record.





Kevin DeMarrais: This is Kevin DeMarrais at The Record. In the release, you talk about 550 stores; don’t you anticipate that the Federal Trade Commission is going to force you to sell off some or even some you might decide where stores are nearby?

Christian Haub: Kevin, this is Christian. Obviously this transaction will go through the normal regulatory review process, and clearly it’s far too early to speculate on divestitures or anything like that, but from our perspective, we’re not looking to close any stores. These are all fantastic locations, great facilities that are serving customers very successfully for many, many years, and that’s why we bought the company. So, you know, we will, we will want to operate as many stores as possible.

Kevin DeMarrais: But certainly the whole Pathmark situation with the Federal Trade Commission has to be something in your, on your minds?

Christian Haub: Well I think the world has changed great dramatically in the last eight years since that transaction. If you think about how many new supermarkets have built, have been built during that time, and particularly how many new competitors and non-traditional food retailers have come into the market during that time, just consider that this is one of the few markets in the United States that has three warehouse club operators that are all actively competing in this market.

The new competition from the likes of Whole Foods, Trader Joe’s that have come into the marketplace, as well as all the other, you know, non-traditional retailers, you know, Wal-Mart and Target, even without super centers, carry a lot of grocery and consumables in their stores. And so, you know, we think the market has changed very dramatically, and you can’t just look at just supermarkets to define, you know, the competitive landscape from these two companies coming together.

Operator: Mr. DeMarrais, do you have any further comments?

Kevin DeMarrais: No, thank you.

Operator: Thank you. Next we’ll move on to David Jones with Cranes New York Business.

David Jones: Good afternoon. I wanted to ask, in terms of what Pathmark does well and what it can improve on, can you comment on how you see Pathmark going forward? What changes do you think, what you can bring to the table to Pathmark and what Pathmark brings to the table?





Eric Claus: Well I think - this is Eric Claus - we’ve had, we’ve been pretty fortunate to have had some time to look at, and obviously we know the company fairly well as it is an in-market company. We’ve had the chance to work over the past couple of months through this negotiation fairly closely with a lot of the management people at Pathmark, and I think, I would say there’s a lot of good people there, and there’s things that, as a format, as a brand format, Pathmark is different to A&P.

And I’ll give an example of their Center Store, I think that they do a tremendous job in Center Store and can bring a lot of value and upside to bringing new techniques, way to go to market, new merchandising techniques that we aren’t using. There’s things that we do, perhaps in fresh over the past couple of years, we’ve really improved our fresh offer. That’s something we could probably help the Pathmark stores with.

                So one of the things we don’t want to do is what’s happened in many acquisitions in this country is where the acquiring company tries to make the acquiree basically conform to everything that it does. And it’s not our intention to A&P-ize Pathmark. Pathmark is a very powerful format, especially in the urban markets. We’re not quite as powerful in the urban markets. They’re not quite as powerful in some of the more middle, upscale, suburban markets where we are with our fresh stores. So it’s just upside for the people in those stores and upside for both companies combined.

David Jones: Do you see any expansion into, you know, beyond the stores you have now, would you like to extend the A&P brand into new markets? Would you like to extend the Pathmark brand into new markets?

Eric Claus: I think definitely this could be the opportunity, like I just mentioned, where Pathmark may have a particular store where an A&P Fresh is a better, is better suited in that particular market, and vice versa, we may have an A&P store where, we’re in a market where a Pathmark would be better suited. So for the employees, for the customers, it just makes a lot of sense, and for the business it makes a lot of sense. So I wouldn’t jump too quickly at that. I think we really have to assess our businesses and learn about each other’s businesses, and we’ll be very, hopefully we’ll be very smart about that.

David Jones: One last question, pricing on food, how will this affect pricing?





Eric Claus: I think it just makes the company more competitive. One of the things that you’ll learn in the, in the, in the supermarket business as you go around the world, and Canada is probably a good example. I come from up there. It’s a much more consolidated industry, but the grocery prices are significantly lower than what they are in the U.S. The retail is what decides pricing. It’s not the companies that decide it. And it’s the market that determines it. And the ability to reduce costs allow us to pass on savings to the consumers. And I think you’re just going to find that with a company reducing its costs, you become much more competitive, and you’re able to make a living with better retail prices. And I think that you would find that that’s probably the case and what will happen here.

David Jones: Thank you.

Operator: And next we’ll move on to Josh Fineman with Bloomberg News.

Josh Fineman: Yes, hi. Can you guys at all quantify the, any kind of job cuts? I imagine if you’re basically closing down (inaudible), there’s all the administrative people there and - also does this (inaudible), what position in the northeast does this make the combined company? Would it be number one as far as store count?

Christian Haub: Just to talk about the administrative consolidation. We’re clearly not at the stage yet to talk about specific numbers. I mean we’ve just signed an agreement. There’s a lot of work that now has to be done. We want to take our time and assess all the talent that Pathmark has. Of course it makes sense to consolidate into one location, but it would be much too early to talk about specific numbers.

                And as it relates to, you know, store count or market share, you know, first of all, you know, the northeast is a fairly large market, a lot of large competitors that have presence in the northeast but that also are present in other parts of the country. We’re clearly not going to be the single largest company operating in this geography. But it will, it will improve our position, and as Eric just explained, the cost savings will enable us to be, to compete more effectively, to have more resources, to reinvest into the store base and into our associates.

I mean our objective is that, you know, in a few years we want to have a very, very good group of stores and different formats that cater to different consumers and really delivering on their expectations because, in the end, the success will be determined by the consumer and not about, you know, how many stores you have or how much share you have in a particular market.





Josh Fineman: Thanks.

Operator: And next we’ll move on to Allan Drury with The Journal News.

Allan Drury: Yes, I understand that Pathmark stores will continue to operate under the Pathmark banner, the Pathmark brand. Will there be any physical changes that consumers would notice, renovations or anything, you know, on a smaller scale than that?

Christian Haub:: Probably not in the short-term because until we achieve regulatory approval, both companies will continue to operate on a stand alone basis, and Pathmark will continue to pursue their business plan, the same as A&P will then, will pursue its own. And, you know, after we will have achieved all of the approvals and close on the transaction then we will, you know, decide on what we will do physically with the stores. So that’s, you know, probably some time from now, but of course we intend to spend capital in the stores and improve them just as any good business would do that. But again, talking about specifics and particulars is probably too early at this stage.

Allan Drury: OK.

Operator: And next we’ll move to Greg Saitz with Star Ledger.

Greg Saitz: Hi. I was wondering if you guys can talk about what was the catalyst to bring this about, when you guys started seriously talking to each other, and kind of who initiated these conversations? Thank you.

Christian Haub: Well, you know, I’ve known Ron Burkle for a very long time, and so we’ve been talking about opportunities in the industry for a long time. And so I couldn’t tell you when specifically did we start about this particular process. You know, as we mentioned earlier, we only really began looking at strategic opportunities such as this after we successfully sold our Canadian company, and I was fortunate to bring Eric down here to take over the U.S. operations, and of course in the beginning we focused on, you know, improving operations, cutting costs. We outsourced distribution.

We did a lot of things to get the business on track, and then when we really started gaining traction and improving sales and improving earnings, it started making sense to even consider looking at strategic opportunities. So it was probably during the last, you know, six months or so that, you know, conversations about this started, and, you know, then it took on some momentum



and here we are today. So we’re very excited about it. We believe it makes a lot of strategic sense for both companies. It’s no secret that both have, both companies’ financial performance hasn’t been of the strongest, but, you know, both are on upward trend, and this combination will only accelerate that improvement across the board.

Greg Saitz: OK and how do you see the combination impacting the combined company’s ability to compete against some of the larger players such as Shop Rite in the market here?

Christian Haub: Well Shop Rite, of course, is a formidable competitor, and I think this combination will certainly make the combined entity financially stronger. We’ll have more resources in terms of capital to invest into the store base, and the cost savings that we generate will enable us to compete effectively on all levels, not just price, but improved service, improved store conditions, improved product offering. But you will find that in the past we’ve always talked about that we are pursuing our strategy that we think will make the company the most successful no matter what the competition does because you can’t run your business looking left and right all the time at what everybody else is doing. So that’s been our philosophy for the last couple of years, and I think we’ve achieved success with that.

                Eric, do you want to add something to that?

Eric Claus: Yes, we’ve really tried to take ourselves out of the middle, so again, you’re respectful of what your competitors do, but we’ve decided to take a different strategic, or to pursue different strategic formats. And so far in A&P we’ve pursued the food emporium or gourmet strategy with a new program that we started launching there last year with one new store.

We have our fresh stores, which we’ve expanded across all of our markets, or most of our markets I should say, and then our discount banner. And then I think bringing Pathmark into the fold creates yet another banner. And what we’ll try to do and continue to try to do is innovate all the time also. So, you know, there was a question before about will you see changes, will the customer see changes, you’re always going to see changes because we’ll be in a constant state of evolution all the time.

But I think, you know, the bottom line is that we’re, you know, bringing these companies together to make, to be stronger within our market, with different formats, and today, not necessarily all the Pathmark customer profile is different to the A&P and we compliment each other. So we just manage to be more effective in our markets with the different formats.





Greg Saitz: OK, thank you.

Male: John, you may want to talk a little bit about some of the improvements and innovations you’ve brought to the table because …

John Standley: Sure.

Male: … you’ve done a lot of nice things …

John Standley: Sure.

Male: … at Pathmark.

John Standley: Pathmark, you know, Pathmark is a long standing brand here in this market area, and after (inaudible) put its money in, really gave the company more capital to invest in its stores, gave us the opportunity to make, you know, a lot of improvements to the company. You know, we’ve worked on our - similar to A&P - we’ve worked on our store prototype. We’ve done a significant amount of work on our merchandising, focused on our customer service, improved our store conditions, I think, quite a bit.

Over the last 12 months, you know, we’ve seen good improvement in our sales trends. Our earnings have made quite an improvement, so it’s definitely a strengthening company, and I think it’s a company that will fit very nicely with A&P, and together we’ll make a very strong company to go forward in this marketplace and be a great competitor.

Operator: And next we’ll move to David Willis with Asbury Park Press.

David Willis: Hello. Thank you. I have two questions. Down here at the shore, you have some locations where there are Pathmark and A&P stores literally across the street from each other. Wall, New Jersey being one that I’m thinking about. Can you please tell me, customers might be wondering what might happen in those situations?

Christian Haub: Well I think the most important answer to that is that in the short-term nothing is going to change. Pathmark will, of course, operate as Pathmark and A&P will operate as A&P. And even in the longer-term, we believe that both stores and both formats have an important role to play in that marketplace because all these stores generate very good sales. I’m very familiar with some of those stores, and we want to, you know, maintain that success. And we believe that, you



know, the Pathmark store appeals to consumers who really enjoy that shopping experience and therefore choose to go to Pathmark versus those who choose to go to A&P. And we just want to maximize the opportunity that exists with all the stores that we can continue to operate.

David Willis: So you see it possible that two of the same, I mean two of the brands can be right next door to each other without …

Christian Haub: Absolutely. I think that is, you know, one of the things that made this combination so appealing is that we do not cater to exactly the same consumer, and therefore, there’s growth in both formats.

David Willis: OK. Can you also tell me, you mentioned, and the release mentions that the administrative functions will be moved up to Montvale. Can you tell me how many employees total each of the, each of the companies’ operations have in terms of administrative functions, you know, give a sense of how many people work and do each of those roles?

Christian Haub: I don’t, I don’t think I have the exact numbers available at this time. And again, I think speculating about the number of potential jobs being impacted by this is still way too early and something we want to rather work through and determine and then communicate with the people before they get it from any other source.

David Willis: OK, thank you.

Operator: And next move on to Harold Brubaker with the Philadelphia Inquirer.

Harold Brubaker: Hello, I have two questions. First, according to my calculations, the combined company would be the largest operator of super markets in Philadelphia proper, and also in the inner (inaudible) suburbs. Could you speak a little bit about your commitment to urban areas where there’s been real problems getting super markets? And also, I was wondering if you could say something about how the integration of the former Clemens market has gone?

Eric Claus: OK, yes.

Christian Haub: (inaudible).

Eric Claus: That’s a mixed bag of questions. Our, did you say our commitment to the urban markets or the suburban markets?





Harold Brubaker: Urban, urban.

Eric Claus: Urban, OK.

Harold Brubaker: Being you’ve seen such a large operator here in the Philadelphia as a combined company today.

Eric Claus: Well we actually just launched an urban format in Baltimore, which is a much smaller footprint, which is easier to find space for that kind of footprint, which is probably more of a 50/60 percent fresh offer versus the typical 35 to 40 percent fresh versus Center Store. We opened that to a lot of fanfare. We had modeled another store like that in Toronto, were very successful. Tried it now in Baltimore, and it looks like that will be successful also. So, in as much as, you know, we have to get through this whole thing over the next year or two. Definitely a commitment to urban markets. And again, you know, those are the markets, they’re usually, it’s good real estate. People need places to shop for food, and it’s tough if you live in an urban market. You often have to travel out, you know, quite a ways to hit the bigger super markets. So we’re definitely committed to that.

And we also, there’s a lot of expertise on the, on the Pathmark side of thing because there’s a lot of urban stores and they do a really good job of it. I think they do a better job than we do, especially in the markets that are more ethnically diversified in responding to the particular needs of those areas. And we’ve got something to learn from Pathmark there. So we think combined company, put the resources together, quick answer, yes, we’re committed and, you know, A and B, B we have the ability to do it.

                When it comes to Clemens, I think Clemens was a great opportunity for us. Speaking to the media, and I’ll be candid with the media, I think that we got a real bum rap from the media when it came to Clemens. We were portrayed as, you know, the big company that came in, and you know, all these people lost their jobs and they had been promised jobs by someone.

Basically, we didn’t do the initial transaction. That transaction was done with one of our larger competitors. There were a number of stores that were available on the market. We took them. And again, we have unionized employees. And some of our union employees were spread into those stores. We did offer jobs to the people in those stores, and actually kept a lot of the people in those stores. But again, when we came in, I guess it wasn’t business as usual, and



unfortunately we got a, you know, not a very good rap on the human side of things, which unfortunately is not at all true.

                They slowly have been picking up, and I think it’s a question of time, and as our people that work in the store actually start telling the story to the customers then the customers will make up their own minds as to, you know, what kind of a retailer that we really are.

                But again, strategically we thought it was a good move. It will be a good move, it will be a good move in the long-term as people get the word that, you know, we are a good corporate citizen. We treat our people well, and, you know, we’re a pretty fair employer when it comes to benefits and wages and the way in which we conduct ourselves in business.

Harold Brubaker: Thank you.

Operator: And as a reminder, it’s star one if you would like to ask a question. Next, we’ll move to Jon Springer with Supermarket News.

Jon Springer: Hello. Yucaipa retains an ownership stake in the company, what about the management contract that it had with Pathmark? Does that stay around?

Christian Haub: You’re right. Yucaipa will have an ongoing stake in the company, and the management contract that they have with Pathmark will be resolved when the transaction closes. They will not have the management contract going forward with A&P.

Jon Springer: OK, OK. And so would you anticipate that some of the initiatives that are underway at Pathmark would continue? Or we should anticipate that that would continue, for example, the new store prototype, et cetera, going forward, or is it going to be more of a, well, let’s leave it there?

Christian Haub: I’ll let John answer that more specifically in a minute, but let me just say that we’ve been impressed with the progress Pathmark has made in this last year, and with the positive momentum they have in terms of top and bottom line performance, so we hope they will continue with all their initiatives until the closing of the transaction because they have a lot of good things going on, and I wouldn’t certainly see any reason for them to stop with anything, but - yes, John?

John Standley: Yes, that’s right. We’re continuing full speed ahead on a lot of the very exciting initiatives that we have going on at Pathmark. The store renovation program, which is really centered



around that prototype store is proceeding nicely, and we’ll continue to do that. Again, we’re working very hard on a lot of our critical merchandising initiatives that we’ve been very focused on. You know, we’ve made a lot of progress in the fresh part of our store as well. And so we’re focused on that. So we have a lot of exciting initiatives for this fiscal year, and we’ll continue to work on those full speed ahead until this transaction closes.

Jon Springer: OK. Thanks, and you, I wonder if you can talk a little bit more detail then as you see Pathmark kind of fitting in between the fresh stores and the food basics, or does food basics get, you know, impacted at all as a result of this would you anticipate?

Eric Claus: No, I think food basics is still a very, very different concept, and it’s a much smaller footprint. Significantly less are SKU’s, probably a quarter of the SKU’s that a Pathmark store would have.


Jon Springer: OK, terrific. Thanks and congratulations.

Eric Claus: Thank you.

Male: Thank you.

Operator: And next we’ll take a follow question from Kevin DeMarrais from The Record.

Kevin DeMarrais: Just one quick question, obviously Tengelmann Group has given up controlling interest in - there’s, I think I saw the figure, 45 percent. Was that, how big an issue was that?

Christian Haub: Well that was certainly not something that was easy to kind of get over. As you probably know, Tengelmann has had an investment and a controlling stake in A&P since 1979. And, but we really step back from, you know, that issue in itself and said, you know, what’s really in the best interest of the company, all of its associates and all shareholders, and became very clear that the transaction we’d structured really was going to achieve all of this benefit and all of these upsides that will come through.





And, you know, that was so compelling that we said, you know, in order to achieve that and to get that on the way, we shouldn’t stand, so to speak, as a hurdles between, you know, all the stakeholders of the company and that potential success, and said, OK, we will, you know, no longer have a controlling stake and get diluted to below 50 percent. And I think we’re very happy with that decision, and the positive reaction in the market and the positive reaction in general I think only endorses and confirms that, that that was the right decision.

Kevin DeMarrais: Is the 45 figure about accurate?

Christian Haub: Yes.

Kevin DeMarrais: I guess Yucaipa showed 40 percent, you can control a company too.

Christian Haub: Certainly.

Kevin DeMarrais: Thank you.

Operator: And next we’ll move on with a follow up question from David Jones with Cranes New York Business.

David Jones: Hi. Where are the unions in on this deal? Have they been consulted at all? Are there talks planned?

Eric Claus: This is, this is Eric. I’ll talk for A&P, and then I’ll let John speak for Pathmark. We did speak with most of the heads of our major union locals this morning. They’re all very excited. They both, they all believe - and we spoke to several of them - that this transaction, this combination will bode well for their members in that we’ll have a stronger, more viable business that will be in growth mode.

To quote one of them, he said, you know, this is the first time in 25 years that I’ve seen A&P make such a positive growth sort of leap, and very, very excited about it. I would say that there’s very little negativity. I think that we obviously have to work because we work with different locals and different locals in different stores will have to work with the unions very closely to make sure that everything is manageable between the two companies when we actually combine. But I would say just at the outset that they’re totally open to working with us. They’re very positive with it, and I didn’t get any negative at all.





John Standley: And it was good communication this morning with our union partners on our side as well.

Eric Claus: Yes, same thing …

John Standley: … this morning …

Eric Claus: Yes.

David Jones: And also, with, in terms of the Pathmark prototype, where was that before this deal, and what impact will this deal have on it?

John Standley: Well, you know, we’ve been working on that process for the last nine, 12 months, and basically a lot of the design elements in the prototype store and our recently renovated Kinnelon store, and the concept of the prototype was really to give us something, not just to build, you know, net new stores out of the ground, but was really something to help us in our renovation program as well.

So as I look at this fiscal year, fiscal 2007, where you’ll see the prototypes show up are in the renovation stores that we do this year. We’ll have an announcement that we put out our own release in the next couple of weeks announcing our capital plan for fiscal 2007, and that’ll be coming up in the next couple of weeks.

David Jones: And just kind of can you touch on, in a little bit of detail about what the aim of the prototype was?

John Standley: Sure. I mean I think, you know, it kind of goes to a little bit this transaction, you know, as well. If I kind of stand back and look at this transaction, and I think Eric said it well earlier, you know, Pathmark has, you know, a great team, great store base, we have some very, very high volume stores, some of the highest volume stores in the industry. We sell a lot of groceries. We’re very good at our Center Store business. But, you know, we have a real opportunity to grow our business around the perimeter of our store.

We drive just a lot of traffic through the store, but we don’t necessarily capitalize on the opportunities that we have around the perimeter of our stores. So the prototype effort was really to improve, you know, the shopping environment inside the store, and to help with the perimeter



departments, make them a little bit, a little bit more marquee, a little bit more branded than they are today in our stores.

And I think that just follows along, you know, with what Eric said. A&P has made a ton of progress around the perimeter of their stores with their, with their fresh store concepts, and, you know, one of the things that will, that will come out of this transaction is, you know, more emphasis in the Pathmark stores around the perimeter departments, which is a big part of where this business is going today. So when you combine our high volume throughput in our stores with the better, you know, penetration around the perimeters, you know, with the perishable departments, it’s a powerful combination and I think should be very exciting for the Pathmark stores.

David Jones: When you talk about the perimeter departments, those are all the departments that are …

John Standley: All the perishable departments. It’s the produce, the meat, the seafood …

David Jones: OK.

John Standley: … bakery …

Male: Deli.

John Standley: Yes, deli.

David Jones: All right, great, thank you.

John Standley: You’re very welcome.

Operator: And as a reminder, star one if you would like to ask a question. And we’ll take a follow up question from Allan Drury with The Journal News.

Allan Drury: Hi. Well I don’t want to come off like I’m beleaguering the point here, but I want to make sure I’m clear. A previous questioner from New Jersey said that there’s some stores in his market that are very close to one another, and you indicated that they, there’s no plans to close any of those. Would that be true throughout the entire market? It sounds like it is because we have some stores up where I am too that are very, very close to one another.





Christian Haub: Definitely. We don’t intend to close any stores, and, you know, we bought, we want to combine this business because we think it really compliments each other.

Allan Drury: OK, thank you.

Glen Mastro: We have time for one more question.

Operator: And there are no further questions at this time.

Glen Mastro: OK. I want to thank everybody for joining us today. If any of the media on the call have follow up questions, please contact either the press office at A&P or Pathmark. Thank you all for participating today.

Operator: And that will conclude today’s call. We thank you for your participation.

Male: Thank you.

Male: Thank you.
END
EX-99.2 5 ex99_2.htm EXHIBIT 99.2 Exhibit 99.2

Exhibit 99.2


 

A & P- Investor Conference Call

Moderator: William Moss
March 05, 2007
9:00 a.m. CT



Operator: Good morning, ladies and gentlemen, and welcome to the Great Atlantic & Pacific Tea Company's A&P announcement, as was announced earlier today. All lines will be in a listen only mode until the question and answer session. Today's teleconference is being recorded. If you object, please disconnect at this time. For your information, a Webcast is available on A&P's Web site at www.aptea.com. Again that is www. A- P, as in Peter, T - as in Tom, E-A.com. Chairing today's call will be William Moss, Vice President and Treasurer, who will read A&P's Safe Harbor disclaimer. Please go ahead, Mr. Moss.

William Moss: Good morning, everyone. This morning's conference call contains forward looking statements about the future performance of A&P and Pathmark and is based on management's assumptions and beliefs in light of information currently available. A&P and Pathmark assume no obligation to update the information contained.

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, statements about the anticipated closing of the merger and the expected future business and financial performance of A&P and Pathmark resulting from and following the merger, competitive practices and pricing in the food industry generally and particularly in A&P and Pathmark's principal markets, A&P and Pathmark's relationship with their employees and future terms of collective bargaining agreements, the cost and other effects of legal and administrative cases and proceedings, the nature and extent of continued consolidation in the food industry, changes in the financial markets which may effect A&P and Pathmark's cost of capital and the ability of A&P and



Pathmark to access capital, supply and quality control problems with A&P and Pathmark's members, and changes in economic conditions which effect the buying patterns of A&P and Pathmark's customers.

                I will now turn the call over to A&P's Executive Chairman, Christian Haub.
 
Christian Haub: Thank you, Bill, and good morning everyone and welcome to our special conference call today. With me, as usual, are Eric Claus, our President and CEO, as well as Brenda Galgano, our Chief Financial Officer.

                Today is a momentous day in the history of A&P. This morning, we announced the combination with Pathmark which will create a more competitive and profitable supermarket chain in the Northeast. We've been talking about actively participating in the consolidation opportunities in the Northeast for some time and we are very excited about executing the Pathmark transaction. Pathmark truly represents a unique opportunity for us to control our destiny in the inevitable Northeast consolidation and that's why we acted upon it with focus and determination.

                This deal is the latest step in A&P's strategic transformation, which began in 2005 with the successful sale of A&P Canada and the leadership change at our US operations. Since then, under the leadership of Eric Claus, we've made substantial operating progress in our business by implementing a multiple format strategy built on proven and successful concepts that have driven positive sales and earnings, outsourcing distribution and gaining significant cost advantages and supply chain efficiencies, centralizing administration and reducing overhead costs dramatically. As a result, we have established a sound foundation to pursue strategic growth opportunities such as the combination with Pathmark.

                Our progress over the last 18 months has given us the confidence to pursue this transaction as the benefits of the combination convinced us that this is our best strategic alternative going forward. The benefits of this acquisition for A&P are numerous and exciting. We will achieve much improved market share positions in the New York and Philadelphia Metro markets, some of the countries largest consumer markets. We expect to realize significant synergies between both companies, which make this deal so tremendously compelling. When do you ever get the opportunity to buy a business where the anticipated synergies are higher than their actual EBITDA? And in turn, these synergies should make the combined entity operating profitably as soon as the integration is fully complete, which we believe will not take more than six months after closing. And of course, Eric and Brenda will further elaborate on the integration plans in a minute.





                It is our expectation that this combination will create a significant amount of shareholder value, based on the solid operating momentum both companies have achieved, the tremendous synergy potential and ultimately, the higher strategic value of the combined operations in the Northeast. We are thrilled to add Pathmark's excellent talent, it's exceptional store portfolio, it's formidable brand strength and it's fervent consumer reputation to that of A&P. We believe Pathmark will complete our consumer-centric going-to-market strategy with their particular success in urban and ethnically diverse markets. Pathmark will become an integral part of our breadth of offerings, including our Fresh, gourmet and discount concepts.

                This transaction could not have come at a more exciting time for our company. Since we embarked on our operational transformation 18 months ago, we have made tremendous progress in all aspects of our business and we are now ready to take on the challenge of a major integration of this size and importance.

I am also excited that Ron Burkle and Yucaipa have decided to take an ownership stake in the combined company. I highly respect his industry knowledge and expertise and all of his accomplishments in our industry over the last two decades. In all of his supermarket investments, he has always created significant value for shareholders and I look forward to his guidance and counsel in the coming years. I think his commitment to A&P is a major endorsement of this combination and it demonstrates his confidence in the future of the new A&P becoming a very successful and competitive retailer in the Northeast grocery industry.

                I will turn this call over to Eric and Brenda in a minute to explain the details of the transactions and the benefits of the company going forward. But let me emphasize that this move is truly in the best interest of both A&P and Pathmark. This step will enable both companies to achieve sustainable profitability more quickly than each company could have realized on it's own. It will turn two unprofitable companies operating in a highly fragmented market into a more competitive and even more importantly, profitable entity in the future.

               And I'll now turn it over to Eric.

Eric Claus: Good morning and - sorry - good morning and thank you, Christian.

                As Christian just pointed out, this is a momentous day in both A&P and Pathmark's history. The long road to this acquisition was paved with many sometimes challenging, yet strategic endeavors. Endeavors that put this company into a position to be able to enact a transaction



such as this one. Dating back to the early 2000s, where massive technology investments were made giving us the advanced platform that we operate under today to the sale of A&P Canada, these strategic initiatives gave us the financial wherewithal needed to complete this transaction. This new A&P - Pathmark combination is a marriage that one could say is almost made in heaven.

                This is the combination of two very well known brands with a long heritage in the Northeast. Our formats are completely complimentary to each other and cover the entire demographic spectrum that we operate in. This new combination will serve the people of the Northeast well, creating a new company, one that will compete much more effectively against supermarkets, warehouse clubs, and other food retailers, benefiting from a lower cost structure and a lower cost of goods. The Pathmark brand will continue as it's own brand, banner and format. This format enhances A&P's current offerings by attracting and serving a different customer base. The consumer will not only benefit from our new collective store base, but over time, we will have the ability to interchange formats to best serve consumers in the markets in which we operate.

                We're also committed to providing the needed capital to modernize and update our collective store base over the next few years. This is a very exciting time for the people in both companies, creating a Northeast based food retailer that offers new and great opportunity for many of it's associates to grow their respective careers. We welcome the Pathmark team into the A&P family, a rejuvenated family of many creative, conceptual and exciting plans for growth that are already in the works.

                Of course, we recognize that this will not be easy for everyone. As with any acquisition of this nature, there does a come a consolidation of administrative functions and consequently, the loss of jobs. The Carteret administrative functions will be folded into and relocated to our Montvale, New Jersey headquarters. We expect this process to be complete within six months of the transaction completion date. Although there will be loss of administrative jobs, this deal will also create opportunity for some talented and dedicated associates. We are committed to making this process as pain free as possible with fair severance packages and assistance in job searches through qualified outplacement agencies.

                This A&P - Pathmark combination makes a whole lot of financial sense. The centralized Montvale operations will have the benefit not only of reducing administrative costs, but also of pooling our collective talents under one roof. This will also give us the edge in realizing on the projected cost of goods and services synergies that we forecast in our transaction model. One



could speculate or question even, this timing of this transaction given that both companies are in a rebuilding (inaudible).

The fact is, however, that this combination could not have happened at a better time. This transaction leapfrogs both companies into a combination that will drive profitability very quickly. The fact is that both companies have positive sales and earnings improvement momentum and will greatly benefit from each others strength and talent. The annual synergies that we project from this transaction, once fully realized and over the two years of this combination, are in the $150 million range and come primarily from the following areas, administration, cost of goods sold, logistics, marketing and finally, goods and services.

                Another very important point to consider that makes this transaction so compelling is the following; although the transaction in itself is large and involves numerous systems, functional areas and thousands of people, it is actually far less complex than most transactions of this scale in the retail sector.

Now, why is that? Typically, the most complex parts of a transaction such as this are logistics and information technology. CNS is our third party logistics provider for both entities, greatly simplifying the whole process. Our information technology infrastructure is designed and has the capacity to simply fold the additional stores into our platform and we expect this to be complete in six months time.

                Additionally and on top of all of this, we anticipate a very quick integration period completed, again, in six months. This is also an end market acquisition, again, simplifying the transaction. We also operate three compatible and very distinct formats - sorry. The acquisition is within our core business and our systems and processes are already designed with this integration capability in place.

                In closing, this is an exciting day for all of the stakeholders in both companies. Many thousands of unionized and non-unionized people that work in both companies will have a much more stable company, one with a bright long term future. Millions of customers will benefit from a more competitive provider of their food, as well as their other household needs. The many patient shareholders of both companies will finally see the returns that should be expected of a company of this scale and in this industry. Our supply partners, they will benefit from a much more financially solid Northeast player, one that can bring down their administrative and logistical costs. This is an exciting day for all and we look forward to executing a successful strategic integration plan.





                I thank you and I'll now turn it over to Brenda.

Brenda Galgano: Thank you, Eric and good morning, all.

                As both Christian and Eric described, the combination of A&P and Pathmark is an excellent strategic fit. This is one situation where one plus one does equal three, as the combined company is likely to achieve greater value creation than either business would have been able to achieve on their own given the significant synergies to be realized. This also implies a greater sustainability of the value creation as either company could deliver on a stand alone basis.

                Of the $150 million of synergies, we expect more than half will be cost savings derived from the elimination of redundant functions between the two companies, mainly in administration. We also expect to realize synergies through the reduction of cost of goods sold from larger scale purchasing and use of best practices within merchandising. We expect to fully realize synergies quickly and achieve the full run rate on the administration and advertising savings within one year. The balance, mainly reductions in product costs, should be achieved within 18 to 24 months of the closing. I will provide updates as we progress.

                Total integration costs are estimated at approximately $115 million. This amount is comprised $85 million of expenses related to employment retention and other reorganization costs, costs associated with changing certain contracts and other integration related expenses. The remaining $30 million represents capital costs, mainly relating to IT systems conversion. These costs are expected to be incurred over the first 18 months after the close.

                We have already started integration planning and will focus much of our internal people resources in fiscal 2007 on detailed integration planning and preparation. This will ensure that we are prepared to execute the integration and realize synergies as quickly as possible after the close. The new business combination of A&P and Pathmark also requires us to develop a new view on capital expenditures between now and closing.

As such, we plan to temporarily adjust our capital program which will result in the reduction of capital expenditures by approximately 25 percent until the closing. With this reduction, we expect capital spend to be approximately $150 million in fiscal 2007. Once we complete the integration in 2009, we will ramp capital back to our normal levels and expect the synergies to support increasing levels of capital expenditures beyond 2009.





                As outlined in our press release, Pathmark shareholders will receive $9 in cash and 0.12963 shares of A&P stock for each share of Pathmark stock. In addition, the warrants of Yucaipa will be converted to A&P warrants on essentially the same terms. We have fully committed financing from Bank of America and Lehman Brothers of approximately $1.4 billion. This is comprised of a combination of senior secured debt and an ABL credit facility. This financing, along with other cash resources, including proceeds from the sale of a portion of our Metro holdings, will be adequate to fund this transaction and will result in a prudent capital structure. As synergies are realized, we expect to start paying down debt beginning in the second year after the close.

                I'd like to conclude by saying how excited I am to be involved with this transformational event which will improve our financial strength and profile. With pro forma revenue of $11 billion and EBITDA margins doubling from our current stand alone level within two years, we expect to achieve positive cash flow in fiscal 2008 and attain profitability within a year of the closing. We believe this combination will create significant value for both A&P and Pathmark shareholders.

                I will now turn it back to Christian.

Christian Haub: OK. Thank you, Brenda and Eric.

                In summary, this transaction is an important step in solidifying A&P's strategic position in the highly competitive Northeast marketplace. The benefits of this combination are clearly compelling; potential for achieving significant synergies, gaining improved positions in key Northeast markets, appealing to every consumer segment with targeted formats, creating significant shareholder value, support of two highly experienced and successful industry investors, Yucaipa and Tengelmann, and establishing a platform for investment and growth in a re-invigorated industry. Naturally, a lot of work remains to bring this transaction to fruition. We have to receive clearance from FTC and the individual states, we have carefully planned the integration, and we have ensured both companies operating momentum continues on their positive track until close.

                In conclusion, let me say how personally gratifying it is to see this great company with it's rich history once again embark on a growth path. Let me also express my thanks to the Board of Directors of both companies for their support and most importantly, to the entire team that has worked tirelessly over the last few months to get us to this point. As you can imagine, our entire organization is highly motivated and energized to seize this once in a lifetime opportunity and welcome the Pathmark team into our great company.




                Thanks as always for listening and we're now pleased to take your questions. Operator, could you proceed with the question and answer session now?

Operator: Yes. Thank you very much, sir. Ladies and gentlemen, the question and answer session will be conducted electronically. If you would like to ask a question, please do so by pressing the star key followed by the digit one on your touch-tone telephone. If you are using a speakerphone today, please make sure your mute function is turned off to allow your signal to reach our equipment. We will proceed in the order that you signal us and we'll take as many questions as time permits. Once again, please press star one on your touch-tone telephone to ask a question.

                We'll begin the question and answer session today with John Heinbockel with Goldman Sachs. Please go ahead, sir.

Simian Gutman: This is Simian Gutman for John. Can you please discuss how the banners will be split up geographically? And if any of them will completely disappear?

Eric Claus: This is Eric. There are no plans to eliminate any banners. For example, in the A&P portfolio is Waldbaum's, Food Emporium, or A&P. They will remain as such. We're more focused on format as opposed to banner and the Pathmark banner is not just a banner, we believe also gives us another format which is a higher volume more price sensitive or price effective model, number one, that we currently have in our portfolio.

Simian Gutman: And what about geographies?

Eric Claus: Geographies are good and as a matter of fact, we find that even in areas where we're close, we have stores that compete on the different models that we think should certainly help us when we get to the - get through the FTC process.

Simian Gutman: All right. And then, with respect to the adoption of mutual best practices, can you elaborate on what that entails for both sides? I know the IT will be rolled up into A&P's platform, but what are some other examples of some strengths on both sides?

Eric Claus: Well, this is, of course, we're very new in the process and we've got several months to work at this, with the folks at Pathmark. They certainly have some strengths, for example, the center store capabilities and their execution of center store is really excellent. And then, we have Fresh strategies that could compliment some of their strategies.




So I think the thing that we want to make sure is that we don't make some of the mistakes that A&P and others have done in the past decades in making acquisitions which is trying to, in our case, trying to A&Pize everything.

I think we'll try to execute like we did in our Fresh stores, as to take the best of what we could learn throughout our company and now this combined company, we've got to take the best of both and not make any assumptions that we're better at something just because we're on the acquiring end of the transaction.

Christian Haub: But some of the things we've learned, clearly, they have a very strong pharmacy program. They have tremendous penetration in that whole area and with that, of course, comes a very strong health and beauty aids business. Pathmark is very strong in the more urban inner city settings.

Clearly, when you look at their sales productivity which is amongst the highest in the whole country, there are a lot of things to learn, so of course, the whole price positioning, center store, execution, all of that are real strengths that we hope to transfer into our company, as well. So there's a lot of opportunities and as I think Eric mentioned, we have done a lot of work on the Fresh side and we'll spend a lot of time understanding their unique suppliers and what they are doing with - throughout parts of that business that will make this combination so compelling.

Simian Gutman: Ok and lastly, for Brenda, the $150 million of synergy that is gross of the $115 of cost that you mentioned, correct?

Brenda Galgano: That's correct.

Simian Gutman: OK. Thank you.

Operator: And ladies and gentlemen, once again, that is star one to ask a question and if you find that your question has already been answered, you may remove yourself from the queue by pressing the pound key.

We'll move onto our next question from Bryan Hunt with Wachovia. Please go ahead.

Bryan Hunt: Yes. Thank you. In the press release, you state that you're taking on the Pathmark cap leases. How about the notes? Do you plan assuming the Pathmarks notes?




Brenda Galgano: Yes. Those will be refinanced.

Bryan Hunt: So do you plan on calling those? Or will it be a one on one change in control?

Brenda Galgano: Well, we'll be calling those.

Christian Haub: They'll be calling theirs in. There's a change of control provision within those notes.

Bryan Hunt: Yes.

Christian Haub: And we will be tendering for those notes at the appropriate time.

Bryan Hunt: All right. Next question, you all have significant share within the New York metro area, pushing 30 percent according to metro market studies. Do you feel like you may have to divest any stores in particular neighborhoods? And if so, to what level?

Christian Haub: Well, this is - certainly, when you just look at the pure supermarket share, you can get to certain numbers and certain conclusions. We look at this market on a much broader basis where, as I'm sure you all know, food is not predominantly bought in just supermarkets anymore and with the advent of warehouse clubs and Wal-Mart and all kinds of other speciality formats, that that market is much more fragmented and I think we think that's particularly true here in the Northeast.

And so, I think this combination will, certainly, improve our position and we'll be able to more fully have offerings for all of the different consumer segments, some of which we are not, today, targeting as A&P.

Obviously, this will go through a review process with the FTC and with the different states and at this point, we'll go through those processes and see what the outcome is. But we believe that based on how the market really is defined today, that this is not creating any undue concerns.

Eric Claus: I would add on, also, that if you look at why this - a similar transaction with (inaudible) was basically made inoperable or not possible. If you look at the market today and look at food, supermarkets, as a percentage of market share, are significantly less than what they were at that time and therefore, if you look at our share within supermarkets, it really becomes a very minuscule share of the market. So we really believe it's a completely different day and the last thing I'd add on to that is that we have very differentiated formats that actually compliment each other in the marketplaces, they're not redundant.





Bryan Hunt: So it sounds like you all feel like if there is any divestitures, they're going to be minimal. Is that a fair statement?

Christian Haub: Well, I think we will see once the process is completed. This is going to be a fairly lengthy process and I don't think it's useful to speculate on any specifics.

Bryan Hunt: OK. Next, with regards to CNS, I mean you both source from CNS and according to market reports, some felt that the Pathmark contract was relatively expensive compared to yours. Is the Pathmark supply contract going to be re-examined? And when you look at your cost savings on that cost of goods sold line, is it a purchasing benefit or a logistics benefit is the biggest part of this savings on that cost of goods sold?

Eric Claus: It's Eric, it's both. And we certainly have intentions to sit down with the folks at CNS. There's - I'll just give you an example, if we both carry an - in artificial numbers, if we both carry 3,000 SKU's in private label and decide to merge our private label brands together, you can significantly reduce your number of SKU's or picking slots in warehouses. So there's a way to make the actual warehousing and distribution a lot more effective and there's also a way to make the logistical part of it which is the distribution to the source more effective and it's in the best interest of both CNS and ourselves to take this and really look at this whole package and work out a deal that's better for both sides.

Bryan Hunt: And is Yucaipa going to take an active role in terms of consulting and/or take an active role in the Board of A&P in the future?

Christian Haub: No. Yucaipa will not be directly represented on the A&P Board. There won't be any formalized agreement with the company. But I think it's fair to say that Ron Burkle and I have established a very strong relationship throughout this process. I think he is very experienced, very knowledgeable about the industry and we will, certainly, have an ongoing dialogue.

Bryan Hunt: All right. Thank you. I'll get back in the queue.

Operator: And moving on, we'll take our next question from Perry Caicco with CIBC World Markets. Please go ahead.

Perry Caicco: Yes. Good morning. Are there any stores in the combination that might be operationally redundant?





Christian Haub: We don't plan to eliminate any stores because their stores are, of course, highly productive and are very strong stores and the benefit of operating stores and targeting every store to the best of our abilities to it's individual market, we don't see a reason to eliminate stores.

Perry Caicco: OK. And Eric, you mentioned the possibility of some interchange between the banners and you also - I think you referred to Pathmark as - or the Pathmark source as somewhat of a third format. Just talk a little bit about what possibilities there are to shift banners around among the assets and also how the Pathmark stores specifically would be differentiated from a Fresh store.

Eric Claus: OK. Well, let me start, Perry, by just saying that we're going to have to take time to really analyze this and make sure we do the right thing to the people and (inaudible) in both formats. So I don't want to get anybody worried about a quick interchange of stores. But there's clearly some areas where we believe a new A&P Fresh store could be more productive and profitable and suit that particular neighborhood better than where an existing Pathmark store is.

And by that, I mean the Pathmark is bigger on center store, not quite as deep in Fresh and the types of services that we offer in the Fresh store.

Consequently, there's some A&P stores that are in some of the urban markets where clearly we don't have a strong enough price image and we don't have that center store presence and strategy that Pathmark does that really makes them so effective and their forward EBITDAs in some of those areas because of the volume that they drive are certainly much more significant than we would in those areas.

                So I think those combinations are great for the customers and also great for the people that work in the stores because you're talking about increasing the volume either - in both of those boxes.

Perry Caicco: But Eric, the Pathmark stores are, in general, much larger than the A&P stores. I mean how do you look at the, I guess, what would be from a Fresh format point of view, somewhat excess space?

Eric Claus: Yes. The average is probably about 15,000 feet bigger than what we do and actually, in our Fresh stores, there's a lot of departments that we would like to expand, that we would like to make bigger than what we have today. There's also - without going off the deep end, there's also general merchandise strategy that's - that could be employed there and as a matter of fact, Pathmark over the past couple of years has been building some of their own GM strategy quite



successfully. And again, here's an example of where we can use some of their additional departments to fill in some of that extra space and make sure the whole box is productive.

Perry Caicco: OK. And one last question, I think, Brenda, you mentioned that you're going to ramp down on capital spending for a while, but once you come through that into, I guess, ‘08 and ‘09, have you formulated a capital spending plan specific to Pathmark? Or could you give us some idea of where your combined cap ex might be on a run rate basis down the road?

Brenda Galgano: Yes. I mean once we've ramped back up, the 2008 will be more in the - this is all subject to some fluctuation as we don't have certainty of day of close and all of that, but generally speaking, 2008 would be in the $250 million range and then, 2009 and beyond would be $300 million plus.

Perry Caicco: OK. That's good for now. Thanks.

Operator: And moving on, we'll take our next question from Karen Short with Friedman, Billings, & Ramsey. Please go ahead.

Karen Short: Hey, everyone. Congratulations.

Christian Haub: Thank you.

Eric Claus: Thanks.

Brenda Galgano: Thank you.

Karen Short: A couple just questions not to harp on this whole FTC issue, but and I know, I understand that it's a different market today, but when the FTC demanded that owner's divestiture requirements in 1999 or in 1998 or whatever with Pathmark and (inaudible), do you know what the combined market shares were for the companies in the markets that they needed to divest stores?

Christian Haub: No, no idea, and quite frankly, we just didn't want to go back into history and try to learn from it because the market has changed so dramatically in the last eight years in terms of different market participants, much larger representation of warehouse clubs. I mean this is one of the few markets in North America where all three warehouse club operators compete, not only Costco and Sam's, but BJ's on top of that.





If we look at the influx of new square footage by all kinds of retailers, Whole Foods, Trader Joe's, the presence of still strong independent chains that operate in the marketplace and then add to that the hundreds and hundreds of dollar stores that have now gotten into food and consumables, the drugstore chains that have consolidated in this market dramatically since 1999, I think you just can't compare those timesets any longer and therefore, our view of the market is based on really what's happening today, what do we see happening here going forward, and on that basis, look at a - the whole competitive environment.

Karen Short: Right. No, that makes sense. OK. But you guys are assuming that you will have to sell a number of stores?

Christian Haub: I think it's not, again, appropriate to get into that. I mean obviously we have made certain assumptions in the contract and once you go through that, you will see those assumptions, just to ensure you have yourself covered. But we will really need to see how the process goes and what the outcome is.

Karen Short: OK. Do you have any sense as to how long the FTC review should take? I mean you've done work kind of on your side, but...

Christian Haub: Well, we've disclosed in our press release that we expect the closing to occur during the second half of our fiscal year, so that gives you kind of an idea that we expect this process to take a certain amount of time.

Karen Short: OK. And if you do monetize some in Metro, what are the thoughts on whether it will be taxed? Or what are - are there tax implications to that?

Brenda Galgano: Karen, there would be some tax implications, but we have more than adequate NOL's to cover that. So from a cash perspective, there would be no cash associated with the tax payments, it would just be a slight utilization of our NOL's.

Karen Short: OK. And then, I guess just the last question, on the pension situation on the underfunded pensions, is there - are there any payments that may have to take place with this transaction? Or is that - just gets kind of rolled over?

Christian Haub: No, we don't anticipate any special payments or things like that.




Karen Short: OK. And then...

Brenda Galgano: The one thing I would say is and as noted in Pathmark's public filings, there are some LC's associated with the GHI liability and (inaudible) control, there is a requirement to increase the LC's associate, with that. But that is the only thing that would impact liquidity at all.

Karen Short: Do you know what the amount of the increase is off the top of your head?

Brenda Galgano: In the $20 to $30 million range.

Karen Short: OK. And I guess just the last question, do you have any sense - if you look at your management team now, Eric, or your whole team, do you think there are any gaps that you will be able to kind of fill with this acquisition? Or are there any gaps in general that you have a greater sense of urgency to fill?

Eric Claus: Well, obviously, part of what makes the large synergy number what it is, is the fact that there's a lot of administration that doesn't get duplicated, but we've - through the process, we've gotten to meet a lot of really good people at Pathmark and there's going to be some that will be interested, some that won't be interested to come for their own reasons.

And over the next several months as we go through the process, we'll get to see better who's interested, who is not and those positions that we do have available or that become available because of the creating of a new structure, they are certainly welcome - and they'll be welcome members of our team if there's room for them.

Karen Short: Do you have any sense if anyone from Pathmark's senior executive team are staying?

Eric Claus: That the...

Karen Short: Or coming over?

Eric Claus: That would be probably premature to talk about that now, Karen.

Karen Short: OK. And then just last question, Eric or I guess, Christian, could you maybe address or Brenda, could you address what level of leverage you would feel comfortable with going forward? Assuming pro forma numbers kind of thing? Like if you looked at debt to EBITDA, what is kind of an acceptable level?





Christian Haub: Well, I think our answer has always been that we want to have somewhat of a solid capital structure in place and for us, the outside limit has always been six times debt to EBITDA and ...

Brenda Galgano: That would be - yes, adjusted debt.

Christian Haub: Yes.

Karen Short: Right.

Christian Haub: And so, I don't think we'll even be at that level and as Brenda mentioned, the model anticipates debt paydown to begin the year after the integration is complete and so, we are very comfortable with the capital structure, how it will ultimately come together.

Karen Short: All right. Great. Thanks a lot.

Eric Claus: Thanks.

Operator: Moving on, we'll take our next question from Karen Howland with Lehman Brothers. Please go ahead.

Karen Howland: Good morning and congratulations on the transaction.

Christian Haub: Thank you.

Brenda Galgano: Thank you.

Karen Howland: I was wondering if you could talk a little bit about the condition of the Pathmark store base. I know A&P still has quite a few stores that have been underinvested in. Is it possible to kind of bucket Pathmark stores into how many stores have been invested in, in the past, I don't know, year to two years? Five to seven? And then above and beyond that?

Christian Haub: I don't think we have specific statistics to share with you today, but of course, we have reviewed every single store and had an assessment done and quite frankly, the store base is not in bad shape and Pathmark has throughout all of the years, continued to invest into their store base to have relatively modern equipment and good infrastructure. So I don't think there is a



huge amount of kind of catch up capital that you would have to pour into those stores. I would say that probably on average their physical conditions of stores are probably better than ours. Now we've put a lot of capital in the last 12 to 18 months, so our store, particularly in the Northeast, is on an improving trend for sure and so we don't see this really as a significant issue.

Eric Claus: Yes. I would sort of categorize them as, let's start with A&P, that we had stores that were really, really in very, very bad shape. Very, very old stores that just needed a lot of work and then, we had some that were still a decent supermarket and then, we have our very invested in Fresh stores and I think most of the Pathmark stores sort of fit into that middle profile, whereas they haven't spent a lot of capital, but they've always been pretty judicious about spending enough capital to keep their stores in relatively good shopping condition and it looks like their equipment is in pretty good condition.

So overall, the combined company, if you look at it, is not in bad shape because there's no major bush fire going on that you would need some really, really quick action and well, like Brenda had mentioned, we will cut back a little bit in ‘07 our capital spend just so that we can focus on the integration. And then, we're going to ramp back up in 2008, 2009 and we'll also be very, very careful how we invest in the Pathmark stores, perhaps starting with what we know best which is markets where they underperformed may be better as a Fresh store and vice versa for our A&P stores.

Hope that ...

Karen Howland: Thank you so much for that color. Then, switching over to your non-core stores in the New Orleans and Michigan areas, any plans on what you're going to be doing with those stores?

Christian Haub: Yes. At this point, we have been focusing on putting this transaction together and so, really at this point, we have no specific plans about these markets. They are contributing positive EBITDA to the company so we are under no pressure to make any quick decisions there and that's about it.

Karen Howland: OK. Thanks very much. Brenda, the NOL's that you guys have, what level is that right now?

Brenda Galgano: As of the end of our third quarter, the level of NOL's was approximately $480 million in that range.




Karen Howland: And some of that will be used to offset the Metro tax implications, but other than that, that could be used immediately to offset any earnings that you guys have?

Brenda Galgano: Absolutely.

Karen Howland: OK. Great. And then, the Yucaipa stakes that they'll own in A&P, are they locked up at all?

Christian Haub: What do you mean with locked up?

Karen Howland: Can they sell the day after it closes, if they want to?

Christian Haub: I believe so.

Karen Howland: OK. Great. That was - that's all I had. Congratulations.

Christian Haub: Thanks.

Brenda Galgano: Thanks.

Eric Claus: Thanks.

Operator: We'll take our next question from Gary Giblen with Brean Murray. Please go ahead.

Gary Giblen: Hi, good morning, congratulations on the transaction.

Christian Haub: Thank you.

Brenda Galgano: Thank you.

Gary Giblen: You mentioned, previously, that it would take 18 to 24 months for the distribution and logistics and buying synergies to kick in. So why is that? Because it would seem as though that would be among the faster synergies.

Eric Claus: On the surface, it would look like that's something you do quickly, but you really have to go back and assess both companies' suppliers, methods of buying, who you're buying from, and work with those companies, also establish what their cost savings are over periods of time there



because their logistical distributions change as opposed to shipping to two companies or shipping to one, their administrative and selling costs go down.

So typically, we've done a fair bit of analysis in the - we look at the transaction that happened between Metro and A&P and that's taken and is going very, very well and exceeding expectations very successful, but that they're into it now a year and a half and they're not complete with it. And we've looked at a couple of transactions that happened in the UK and also a major one in France and typically, that would be the time, 16 to 18 to 24 months, especially for the buying. The logistics can come a little bit quicker than that.

Gary Giblen: OK. I understand a lot better. Thanks. And then, is CNS flexible on actual pricing in the Pathmark part of the contract? Or is it more logistical things like the elimination of SKU's that you had mentioned, as an example previously?

Eric Claus: Well, I think it would be premature to speculate on something like that, what I can tell you though is that this is a big deal that's very, very good for CNS, as well as for us, and we really have to sit down and put all of our cards on the table and say, ‘Well, what does this new picture look like? And how do we make this new picture a better picture for both companies?' And - so I think, the short answer is I can't tell you for sure, but I think there's savings in all aspects of it.

Gary Giblen: Great. And then, on advertising on that part of the synergies, since you're consolidating banners, is the advertising savings from simply more advertising buying power or flexibility? Or just could you (inaudible) a little bit?

Eric Claus: That's where the most of it comes from, so for example, when we're negotiating paper costs for flyers because we go through truckloads and truckloads of paper, printing...

Christian Haub: Distribution...

Eric Claus: ... distribution, it's - all of sudden, it's a much, much bigger business that again you're dealing with one company, one point of focus. So there should be and historically, the transactions we've looked at also there are those types of synergies. So when we talk about synergies, we've done our homework to make sure that they really - they've happened in other companies prior to - try to work on them in this deal.




Gary Giblen: Sure. OK. I understand that better. And is your field organization currently large enough and have enough time on their plate enough to increase their load to do whatever you're going to do with Pathmark? Or do you have add people? Or retrain them? Or...

Eric Claus: There's no real increase or decrease in the load of the field people as field people, it's pretty standard within the industry that you have a district manager for so many districts. Pathmark has that in place. We have that in place. It's just to get our two groups together and again, pick the best practices of both and then sort of redraft what our operational policies are and our go-to-market strategies. We've got a lot to learn from them, they do some really great stuff in the inner markets. They probably have a few things they can learn from us. So - and it's also a great opportunity for people to - and for managers to interchange stores because it's great for managers to change stores, not to be in the same store for 10 -15 years. So we'll have a better base from which to work with.

                So there's no real up or down, there's just basically sideways motion when it comes to the people in the field.

Gary Giblen: Understood. And final question is on cap ex, you laid out, nicely, the gradual increase in cap ex from the initial reduction. So is the $350 million level, I guess, that was going to be the ‘09 level or so, is that a steady state dollar level? Or would it increase from there?

Brenda Galgano: Gary, just to clarify what I had said is in ‘08 that the number would be approximately $250 million ...

Gary Giblen: Right. Yes and ‘09 sounds like...

Brenda Galgano: ... and then, ‘09 $300 million plus.

Gary Giblen: Oh, OK. Sorry, I wrote down the wrong number. OK. So $300 plus about the steady state rate?

Brenda Galgano: Yes.

Gary Giblen: OK. Great. Thank you and good luck with the transaction.

Christian Haub: Thank you.




Eric Claus: Thank you.

Operator: And ladies and gentlemen, as a reminder if you have a question today, please press star followed by the digit one on your touch-tone telephone. Moving on, we'll take our next question from Jim Durran; he's with National Bank Financial. Please go ahead.

Jim Durran: Congratulations. Just wanted to go back to the Metro share sale and some other issues surrounding it. Metro is in the process of trying to get and develop stand alone IT systems for the A&P Canada business. Does that process have any interaction with the timing of the Pathmark IT systems integration?

Christian Haub: It actually does not and as you probably know, the plan is that by the end of the summer, Metro would be completed with that integration. We have every reason to believe that that will be accomplished on time and since we expect this transaction to close during the second half of our fiscal year, it's going to be actually great to have that project completed so then our IT organization can shift their focus from the ongoing support of the Canadian integration to the integration of Pathmark. So absolutely no concerns. I mean timing is - will work very well.

Jim Durran: And can you share with us your thinking as to why you wanted to liquidate part of the Metro stake?

Christian Haub: Well, I think we have seen a tremendous increase in the value of our Metro stake over the last year and a half as the integration of A&P Canada has gone better than anticipated. And looking at the value creation potential of this transaction, which of course for A&P is tremendous and then you start assessing what value creation do you anticipate from your Metro investment and what is the right capital structure and how do you bring all of that into a balance that you are comfortable with led to the conclusion that it probably makes sense for us to reduce our stake in Metro, as much as we completely believe in the strategy and the management team and their execution and we will hold on to a large part of our investment to benefit from that outside going forward. But in total, taking everything into consideration, it makes sense for us to realize some of the value increase we have achieved.

Jim Durran: Great. Thanks, Christian.

Operator: And we'll take our final question from Lionel Innocent with Pali Capital. Please go ahead.




Matthew Pilkington: Hi, my name is Matthew Pilkington, my colleague here is Lionel Innocent and I just - a couple of brief questions. One is I know that Yucaipa had $15 warrants and wondering how those might be treated in the take out? And there are also some public warrants which are around $22 strike and how they are being treated? And I'm sorry, I did join the call late and I was just wondering whether also you could just tell the full year EBITDA for 2006 for Pathmark.

Christian Haub: The full year EBITDA numbers have not been disclosed yet, so we are not in the position to do that. And the warrants that are outstanding that have a right to be converted into Pathmark shares will be exchanged for new warrants in A&P exchangeable for A&P shares at essentially the same terms, in terms of using the same conversion ratio and so, their number of warrants get adjusted, their strike price gets adjusted to reflect the same value that the transaction is being made at.

Matthew Pilkington: Right. What do you do with the $9 cash part which would really be worthless right now to an out of the money warrant? Is that - is it considered ...

Christian Haub: That doesn't get considered for the warrants.

Matthew Pilkington: So you just only consider the equity portion?

Christian Haub: No. You take the conversion ratio of the Pathmark transaction value in relation to the A&P stock price that is being used, you will find it all in the details of the agreements that are being filed today.

Matthew Pilkington: Thank you. All right. Thank you.

Operator: Mr. Moss, at this particular time, there are no further questions from the phone audience. I will turn it back over to you for any closing remarks.

William Moss: OK. Thanks, everyone. Appreciate you all calling in today and taking an interest in the transaction and we look forward to speaking with you on our next conference call. Thank you.

Eric Claus: Thank you.

Operator: And that does conclude today's presentation. We thank you very much for your participation. You may now disconnect. Have a great day.


EX-99.3 6 ex99_3.htm EXHIBIT 99.3 Exhibit 99.3
The New A&P
Creating Shareholder Value
Acquisition of Pathmark Stores,Inc.
March 5, 2007
 
 

 
fresh thinking since 1859
This presentation contains forward-looking statements about the future
performance of A&P and Pathmark, which are based on
management’s assumptions and beliefs in light of the information
currently available to it. A&P and Pathmark assume no obligation to
update the information contained herein. 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: statements about the anticipated closing
of the merger and the expected future business and financial
performance of A&P and Pathmark resulting from and following the
merger; competitive practices and pricing in the food industry
generally and particularly in A&P’s and Pathmark’s principal markets;
A&P’s and Pathmark’s relationships with their employees and the
terms of future collective bargaining agreements; the costs and other
effects of legal and administrative cases and proceedings; the nature
and extent of continued consolidation in the food industry; changes in
the financial markets which may affect A&P’s and Pathmark’s cost of
capital and the ability of A&P and Pathmark to access capital; supply
or quality control problems with A&P’s and Pathmark’s vendors; and
changes in economic conditions which affect the buying patterns of
A&P’s and Pathmark’s customers.
 
 

 
fresh thinking since 1859
Transaction Overview
§
A&P has reached an agreement to acquire
Pathmark Stores, Inc.
§
Total consideration of $1.3 billion to be paid in
cash, A&P stock and debt
§
All financing commitments are in place
§
Integration synergies of $150 million are
expected within 2 years
§
The Boards of Directors of A&P and Pathmark
have approved the transaction
 
 

 
fresh thinking since 1859
Transaction Overview
§
Pro forma, A&P shareholder base will be
comprised of:
40.9%Existing A&P public shareholders
44.8% Tengelmann Group
  9.0%Existing Pathmark public shareholders
  5.3% Yucaipa Companies
§
Expected to close in 2nd half of fiscal year
2007
Subject to Federal and State Regulatory review
Subject to A&P and Pathmark Stockholder approval
 
 

 
fresh thinking since 1859
Transaction Rationale
  A&P – Pathmark combination is strategically compelling
§
Improves cost structure and enhances ability to
better compete in fragmented Northeast
market 
§
Creates attractive portfolio of real estate and
store locations
§
Improved financial profile
$11 billion of combined revenues
EBITDA margins expected to double following
implementation of the integration plan
Expected annualized synergies of approximately
$150 million within 2 years
 
 

 
fresh thinking since 1859
Transaction Rationale
  A&P – Pathmark combination is strategically compelling
§
Strong Infrastructure
Information systems and a supply chain already
capable of handling additional stores
Leverage programs, best practices, management
capabilities across larger store network to improve
profitability through cost savings and sales growth
§
Combined company likely to achieve greater
value creation than standalone businesses
§
Combined company will be well positioned to
compete vigorously in the dynamic food and
consumables market in the Northeast
 
 

 
Stores
LTM Sales   (in millions)
Source:  A&P management and public filings
* Includes synergies
LTM EBITDA   (in millions)
LTM EBITDA Margin
Pro Forma Transaction Impact
 
 

 
fresh thinking since 1859
Next Steps
§
Federal and State Regulatory approval
§
A&P and Pathmark Stockholder approval
§
Integration Planning between A&P and
Pathmark management teams
§
Expected to close in 2nd half of fiscal year
2007
 
 

 
The New A&P
Creating Shareholder Value
Acquisition of Pathmark Stores,Inc.
 
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-----END PRIVACY-ENHANCED MESSAGE-----