-----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, CFAYRluGvteFLX0xSLR6guEZx4gX50o1XtssWSdrWllaXWvKNIW5LENruR0aAmiT smasFMibSCgfzVwOFLQndg== 0000912057-96-006381.txt : 19960416 0000912057-96-006381.hdr.sgml : 19960416 ACCESSION NUMBER: 0000912057-96-006381 CONFORMED SUBMISSION TYPE: 424B2 PUBLIC DOCUMENT COUNT: 1 FILED AS OF DATE: 19960412 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: PENN TRAFFIC CO CENTRAL INDEX KEY: 0000077155 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-GROCERY STORES [5411] IRS NUMBER: 250716800 STATE OF INCORPORATION: PA FISCAL YEAR END: 0131 FILING VALUES: FORM TYPE: 424B2 SEC ACT: 1933 Act SEC FILE NUMBER: 033-51213 FILM NUMBER: 96546669 BUSINESS ADDRESS: STREET 1: 1200 STATE FAIR BLVD CITY: SRYACUSE STATE: NY ZIP: 13221-4737 BUSINESS PHONE: 8145369900 MAIL ADDRESS: STREET 1: 1200 STATE FAIR BLVD CITY: SYRACUSE STATE: NY ZIP: 13221-4737 424B2 1 424(B)(2) INFORMATION CONTAINED IN THIS PRELIMINARY PROSPECTUS SUPPLEMENT IS SUBJECT TO COMPLETION OR AMENDMENT. THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME A FINAL PROSPECTUS SUPPLEMENT IS DELIVERED. THIS PRELIMINARY PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE. SUBJECT TO COMPLETION, DATED APRIL 11, 1996 PROSPECTUS SUPPLEMENT TO PROSPECTUS DATED DECEMBER 8, 1993 $100,000,000 THE PENN TRAFFIC COMPANY % SENIOR NOTES DUE , 2006 ----------- Interest on the Senior Notes is payable on and of each year, commencing , 1996. The Senior Notes are redeemable at the option of the Company, in whole or in part, at any time on or after , 2001 at the redemption prices set forth herein, plus accrued interest to the date of redemption. The Company is required to offer to repurchase the Senior Notes at 101% of their principal amount, plus accrued interest to the date of repurchase, in the event of certain mergers or in the event of a Change of Control of the Company. The Senior Notes will be issued in fully registered form in denominations of $1,000 and any integral multiple thereof. The Senior Notes will be represented by one or more Global Securities registered in the name of DTC or its nominee. Interests in the Global Securities will be shown on, and transfers thereof will be effected only through, records maintained by DTC and its participants. Except as described under "Description of Debt Securities--Global Securities" in the accompanying Prospectus, Senior Notes in definitive form will not be issued. The Senior Notes are unsecured general obligations of the Company and will rank PARI PASSU with other unsecured general obligations of the Company. As of April 11, 1996, these obligations consisted of approximately $107 million principal amount of 11 1/2% Senior Notes due 2001, $125 million principal amount of 10 1/4% Senior Notes due 2002, $200 million principal amount of 8 5/8% Senior Notes due 2003, $100 million principal amount of 10 3/8% Senior Notes due 2004, $100 million principal amount of 10.65% Senior Notes due 2004, and other general unsecured obligations of the Company. The Senior Notes will be effectively subordinated to secured indebtedness of the Company with respect to the assets securing such secured indebtedness. The Company's Revolving Credit Facility provides for borrowings of up to $250 million, subject to a borrowing base limitation. The Revolving Credit Facility is secured by the Company's accounts receivable, inventory and related assets. See "Capitalization". The proceeds of the offering of the Senior Notes will be used to repay certain outstanding indebtedness of the Company and for general corporate purposes. See "Use of Proceeds". SEE "CERTAIN FACTORS" ON PAGE S-6 OF THIS PROSPECTUS SUPPLEMENT AND ON PAGE 5 OF THE ACCOMPANYING PROSPECTUS FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE SENIOR NOTES. ---------------- THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS TO WHICH IT RELATES. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. --------------
INITIAL PUBLIC UNDERWRITING PROCEEDS TO OFFERING PRICE(1) DISCOUNT(2) COMPANY(1)(3) --------------------- --------------------- --------------------- Per Senior Note........................... % % % Total..................................... $ $ $
- -------------------------- (1) Plus accrued interest, if any, from April , 1996. (2) The Company has agreed to indemnify the Underwriters against certain liabilities, including liabilities under the Securities Act of 1933, as amended. See "Underwriting". (3) Before deducting estimated expenses of $ payable by the Company. ---------------- The Senior Notes offered hereby are offered severally by the Underwriters, as specified herein, subject to receipt and acceptance by them and subject to their right to reject any order in whole or in part. It is expected that the Senior Notes will be ready for delivery in book-entry form through the facilities of DTC in New York, New York, on or about , 1996 against payment therefor in immediately available funds. GOLDMAN, SACHS & CO. BT SECURITIES CORPORATION MORGAN STANLEY & CO. INCORPORATED ---------------- The date of this Prospectus Supplement is April , 1996. IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE SENIOR NOTES OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED IN THE OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. S-2 SUMMARY THIS PROSPECTUS SUPPLEMENT SHOULD BE READ IN CONJUNCTION WITH THE ACCOMPANYING PROSPECTUS DATED DECEMBER 8, 1993 RELATING TO THE ISSUANCE OF UP TO $400 MILLION AGGREGATE PRINCIPAL AMOUNT OF DEBT SECURITIES. CAPITALIZED TERMS USED AND NOT OTHERWISE DEFINED HEREIN HAVE THE MEANINGS SET FORTH IN THE PROSPECTUS. THE FOLLOWING SUMMARY INFORMATION IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED INFORMATION AND FINANCIAL DATA APPEARING ELSEWHERE IN THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS, INCLUDING INFORMATION INCORPORATED THEREIN BY REFERENCE. SEE "CERTAIN FACTORS" IN THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS FOR A DISCUSSION OF CERTAIN OF THE RISKS ASSOCIATED WITH AN INVESTMENT IN THE SENIOR NOTES. THE COMPANY The Penn Traffic Company ("Penn Traffic" or the "Company") is one of the leading food retailers in the eastern United States. As of April 11, 1996, the Company operated 265 supermarkets in Pennsylvania, upstate New York, Ohio and northern West Virginia under the names "Big Bear" and "Big Bear Plus" (76 stores), "Bi-Lo Foods" (42 stores), "Insalaco's" (29 stores), "P&C" (67 stores), "Quality Markets" (42 stores) and "Riverside" (9 stores). Penn Traffic also operates a wholesale food distribution business which, as of April 11, 1996, served 124 licensed franchisees and 116 independent operators. Total revenues of Penn Traffic for the fiscal year (53 weeks) ended February 3, 1996 aggregated approximately $3.5 billion. As of April 11, 1996, approximately 65% of Penn Traffic's supermarket sales are in smaller communities where Penn Traffic believes it virtually always holds the number one or number two market position. The balance of Penn Traffic's sales are in Columbus, Ohio, Buffalo and Syracuse, New York, and Scranton/Wilkes-Barre, Pennsylvania. Penn Traffic's retail and wholesale operations stretch from Ohio to upstate New York. The Company operates in communities with diverse economies based primarily on manufacturing, natural resources, retailing, health care services, education and government services. As of April 11, 1996, no supermarket company competed against Penn Traffic supermarkets representing 25% or more of the Company's retail supermarket revenues, with the exception of The Kroger Co. and Wegmans Food Markets, Inc., which competed against supermarkets representing approximately 35% and 25% of Penn Traffic's retail supermarket revenues, respectively. In addition, the Company operates a full-service dairy business in Johnstown, Pennsylvania under the name "Sani-Dairy" and a bakery business in Syracuse, New York under the name "Penny Curtiss". The Company pursues an aggressive capital program that seeks to match store size and format to local demographics and competitive conditions. During the five fiscal years ended February 3, 1996, Penn Traffic opened or remodeled approximately 65% of its retail supermarket square footage. These larger, more modern facilities strengthen the Company's competitive position and enable it to offer its customers a broader variety of specialty departments, including pharmacies, bakeries, delicatessens, floral products, greeting cards and other general merchandise. S-3 THE OFFERING Securities Offered........... $100,000,000 principal amount of % Senior Notes due , 2006 (the "Senior Notes"). Interest Payment Dates....... and , commencing , 1996. Interest Rate................ % per annum. Redemption................... The Senior Notes are redeemable at the option of the Company, in whole or in part, on or after , 2001, at the redemption prices set forth herein, plus accrued interest to the redemption date. See "Description of Senior Notes--General--Redemption." The Senior Notes are not entitled to the benefit of any sinking fund. Ranking...................... The Senior Notes will be unsecured general obligations of Penn Traffic and will rank PARI PASSU with other unsecured general obligations of the Company. As of April 11, 1996 these obligations consisted of approximately $107 million principal amount of 11 1/2% Senior Notes due 2001, $125 million principal amount of 10 1/4% Senior Notes due 2002, $200 million principal amount of 8 5/8% Senior Notes due 2003, $100 million principal amount of 10 3/8% Senior Notes due 2004, $100 million principal amount of 10.65% Senior Notes due 2004, and other unsecured and unsubordinated obligations of Penn Traffic. The Senior Notes will be effectively subordinated to secured indebtedness of Penn Traffic with respect to the assets securing such secured indebtedness. The Company's revolving credit facility (as amended, the "Revolving Credit Facility") with National Westminster Bank USA, as Agent for a group of lending institutions, provides for borrowings of up to $250 million, subject to a borrowing base limitation. The Revolving Credit Facility is secured by the Company's accounts receivable, inventory and related assets. See "Capitalization". Principal Covenants.......... The Indenture relating to the Senior Notes (the "Senior Indenture") restricts, among other things, the ability of Penn Traffic and its Subsidiaries (i) to incur additional indebtedness, (ii) to enter into sale and leaseback transactions, (iii) to pledge or dispose of assets and (iv) to engage in transactions with affiliates. The Senior Indenture also restricts the ability of Penn Traffic (i) to make distributions on and repurchases of its common stock, (ii) to have restrictions on the ability of Subsidiaries to make dividend or other payments to Penn Traffic and (iii) to merge or consolidate with or transfer all or substantially all of its assets to another entity. The Senior Indenture also restricts the ability of Subsidiaries of Penn Traffic to issue preferred stock. The restrictions referred to in this paragraph will not apply to any subsidiary designated as an Unrestricted Subsidiary. See "Description of Debt Securities--Certain Restrictive Covenants" in the accompanying Prospectus.
S-4 Repurchase Obligation........ Penn Traffic will offer to repurchase all outstanding Senior Notes at 101% of their principal amount plus accrued interest to the date of repurchase promptly after the occurrence of a Change of Control (as defined in the Senior Indenture) of Penn Traffic or in the event of a merger where, immediately after giving effect to the merger, the surviving corporation does not meet the interest coverage ratio set forth in the Senior Indenture. See "Description of Debt Securities-- Mergers and Consolidations; Change of Control" in the accompanying Prospectus. Use of Proceeds.............. The Company will apply the net proceeds from the sale of the Senior Notes to repay certain outstanding indebtedness and for general corporate purposes. See "Use of Proceeds".
S-5 CERTAIN FACTORS Prospective purchasers of the Senior Notes should consider carefully the following factors, as well as the other information set forth or incorporated in this Prospectus Supplement or the Prospectus (including those described under the caption "Certain Factors" in the Prospectus), in deciding whether to purchase the Debt Securities. See "Certain Factors" in the Prospectus. CONTINUED OPERATING LOSSES With the exception of the fiscal year ended January 28, 1995 ("Fiscal 1995"), Penn Traffic has experienced net losses for each of the years during the five year fiscal period ended February 3, 1996. The Company's consolidated statement of operations reflects a net loss of approximately $79.6 million for the fiscal year ended February 3, 1996 (53 weeks) ("Fiscal 1996"), net income of approximately $13.2 million for Fiscal 1995, and net losses of approximately $17.7 million for the fiscal year ended January 29, 1994 ("Fiscal 1994"), $6.8 million for the fiscal year ended January 30, 1993 ("Fiscal 1993") and $67.4 million for the fiscal year ended February 1, 1992 ("Fiscal 1992"). Results for Fiscal 1996 were impacted by a $65.2 million charge related primarily to the closure of the stand-alone general merchandise business (Harts), a write-down of assets no longer used by the Company in its business and the Company's expense reduction program. Fiscal 1996 results were also impacted by the Company's adoption of Statement of Financial Accounting Standards No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, which required the Company to record a noncash charge of $46.8 million related primarily to the write-down of a portion of the recorded asset values (including allocable goodwill) of 18 of the Company's supermarkets. Results for Fiscal 1995, Fiscal 1994, Fiscal 1993 and Fiscal 1992 were impacted by extraordinary charges (net of tax benefit) of approximately $3.0 million, $25.8 million, $10.8 million and $3.7 million, respectively, related to the early retirement of debt. Fiscal 1994 results were also affected by a $4.0 million charge related to a voluntary employee separation program at the Company's P&C division and a $2.4 million charge related to the realignment of certain operations, and Fiscal 1992 results were also impacted by a $58.3 million after-tax charge resulting from the cumulative effect of a retroactive adoption of Statement of Financial Accounting Standards No. 109, Accounting For Income Taxes. In addition, earnings before income taxes and fixed charges (calculated as described in "Ratio of Earnings to Fixed Changes" in the Prospectus) were insufficient to cover fixed charges plus the pre-tax equivalent of subsidiaries' preferred stock dividends by $106.8 million for Fiscal 1996 and $5.7 million for Fiscal 1992. There can be no assurance that earnings before income taxes and fixed charges will be sufficient to cover fixed charges in future periods. It should also be noted that this measure of cash flow does not take into account capital expenditure requirements, scheduled debt repayments or any increased working capital requirements that Penn Traffic may experience. The Company's net cash flows excluding financing activities (i.e., its net cash provided by operating activities and other investing activities, less capital expenditures and acquisitions) were approximately $(40.8) million, $(138.6) million and $(166.1) million for Fiscal 1996, Fiscal 1995 and Fiscal 1994, respectively. Net cash flows excluding financing activities for this three year fiscal period were impacted by increased levels of capital expenditures and the acquisition from American Stores Company of supermarkets which had been operated under the "Acme" trade name (Fiscal 1995) and the acquisition of "Insalaco's" supermarkets (Fiscal 1994). HIGHLY LEVERAGED POSITION Penn Traffic is highly leveraged. As of February 3, 1996, the Company had total debt (including capital leases) of approximately $1,341.7 million and shareholders' equity of $(53.3) million. If future cash provided by operations is less than expected, Penn Traffic may experience difficulty in meeting the interest and principal payments due on outstanding indebtedness and other obligations. The ability of the Company to satisfy its obligations with respect to the Senior Notes will be dependent upon the Company's future performance, which will be subject to financial and business conditions and other factors. Moreover, as a result of the Company's high leverage, the Company could have a lessened financial capacity to respond to market conditions, extraordinary capital needs and other factors. S-6 RECENT SAME STORE SALES INFORMATION Same store sales for the fiscal year ended February 3, 1996 ("Fiscal 1996") decreased by 1.8% from the fiscal year ended January 28, 1995 ("Fiscal 1995") (calculated on a comparable week basis). Same store sales on a quarterly basis for Fiscal 1996 as compared to comparable periods of Fiscal 1995 were as follows:
FISCAL 1996 - ---------------------------------------------------------------------- QUARTER ENDED QUARTER ENDED QUARTER ENDED QUARTER ENDED APRIL 29, 1995 JULY 29, 1995 OCTOBER 28, 1995 FEBRUARY 3, 1996 - --------------- --------------- ----------------- ----------------- (1.6%) (0.9%) (3.9%) (0.9%)
Same store sales for the first eight-week period (ended March 30, 1996) of the Company's first fiscal quarter of the fiscal year ended February 1, 1997 ("Fiscal 1997") increased 0.5% over the comparable prior year period. There can be no assurance that this trend will continue. The Company believes that the improvement in the same store sales trend during the fourth quarter of Fiscal 1996 and the first quarter of Fiscal 1997 is attributable, in part, to the Company's recent actions, which began at the end of the third quarter of Fiscal 1996, to reposition its upstate New York stores. Penn Traffic believes that this program, which includes, among other things, increased levels of customer service and improved perishables departments, has resulted in improved sales in its upstate New York stores. Accordingly, the Company has decided to expand the program throughout its store base. Although the Company believes that this program will lead to improved sales, profitability and cash flow in future periods, the introduction of this program is requiring the Company to incur increased payroll and advertising expense. There can be no assurance that these increased expenditures will in fact lead to increased sales, profitability and cash flow in future periods. S-7 USE OF PROCEEDS The net proceeds of the offering (the "Offering") of the Senior Notes offered hereby will be used to repay certain outstanding indebtedness of the Company and for general corporate purposes. The pro forma capitalization table set forth herein (see "Capitalization") reflects the Company's expectation that all of the net proceeds of the Offering will initially be applied to repay a portion of the indebtedness outstanding under the Revolving Credit Facility. The Company may determine to allocate a portion of the net proceeds of the Offering to repay indebtedness other than indebtedness outstanding under the Revolving Credit Facility. In addition, a portion of the net proceeds of the Offering may be used for general corporate purposes. The Revolving Credit Facility bears interest at a rate per annum equal to LIBOR (as defined) plus 2.25%, as to borrowings for which the Company elects a LIBOR-based rate option, and the Base Rate (as defined) plus 1.0%, as to borrowings for which the Company elects a prime-based rate option. At February 3, 1996, the weighted average rate of interest on borrowings under the Revolving Credit Facility was approximately 8.0%. The Revolving Credit Facility will mature on April 30, 2000. S-8 CAPITALIZATION The following table sets forth the capitalization of Penn Traffic and its subsidiaries as of February 3, 1996 and as adjusted to give effect to the sale of the Senior Notes pursuant to the Offering and the expected initial use of the net proceeds of the Offering to repay a portion of the indebtedness outstanding under the Revolving Credit Facility. This table should be read in conjunction with the Consolidated Financial Statements of Penn Traffic and the related Notes thereto which are set forth in the Company's Annual Report on Form 10-K for the fiscal year ended February 3, 1996, which is incorporated by reference in the Prospectus.
AS OF FEBRUARY 3, 1996 ----------------------------- ACTUAL PRO FORMA (1) ------------- -------------- (DOLLARS IN THOUSANDS) Current Maturities of Long-Term Debt and Capital Leases............................ $ 14,463 $ 14,463 ------------- -------------- ------------- -------------- Revolving Credit Facility.......................................................... $ 144,100 $ 46,100 Other Secured Indebtedness......................................................... 24,657 24,657 Obligations Under Capital Leases................................................... 126,197 126,197 11 1/2% Senior Notes due October 2001.............................................. 107,240 107,240 10 1/4% Senior Notes due February 2002............................................. 125,000 125,000 8 5/8% Senior Notes due December 2003.............................................. 200,000 200,000 10 3/8% Senior Notes due October 2004.............................................. 100,000 100,000 10.65% Senior Notes due November 2004.............................................. 100,000 100,000 % Senior Notes due 2006............................................ -- 100,000 9 5/8% Senior Subordinated Notes due April 2005.................................... 400,000 400,000 ------------- -------------- Total Long-Term Debt and Capital Leases........................................ $ 1,327,194 $ 1,329,194 Shareholders' Equity............................................................... (53,271) (53,271) ------------- -------------- Total Capitalization........................................................... $ 1,273,923 $ 1,275,923 ------------- -------------- ------------- --------------
- ------------------------ (1) Assumes the sale by the Company of $100 million in principal amount of Senior Notes and the use of the $98 million net proceeds thereof to repay a portion of the indebtedness outstanding under the Revolving Credit Facility. As described in "Use of Proceeds," the Company may determine to allocate a portion of the net proceeds of the Offering to repay indebtedness other than indebtedness outstanding under the Revolving Credit Facility, or for general corporate purposes. See "Use of Proceeds". S-9 SELECTED CONSOLIDATED FINANCIAL DATA Set forth below is selected historical consolidated financial data of Penn Traffic for the five fiscal years ended February 3, 1996. Due to the adoption of Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" during the fiscal year ended February 3, 1996, and the adoption of Statement of Financial Accounting Standards No. 112, "Employers' Accounting for Postemployment Benefits" at the beginning of the fiscal year ended January 28, 1995, comparisons of the consolidated financial results among years are not necessarily meaningful. Furthermore, the historical consolidated financial data for the fiscal years ended January 30, 1993 and February 1, 1992 have been restated for the retroactive adoption of Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes". The selected historical consolidated financial data for the five fiscal years ended February 3, 1996 are derived from the Consolidated Financial Statements of Penn Traffic which have been audited by Price Waterhouse LLP, independent accountants. The selected historical consolidated financial data should be read in conjunction with the Consolidated Financial Statements of Penn Traffic and related Notes thereto which are set forth in the Company's Annual Report on Form 10-K for the fiscal year ended February 3, 1996, which is incorporated by reference in the Prospectus.
AS OF AND FOR THE FISCAL YEAR ENDED ------------------------------------------------------------------------- FEBRUARY 3, 1996 (53 JANUARY 28, JANUARY 29, JANUARY 30, FEBRUARY 1, WEEKS) 1995 1994 1993 1992 ------------- ------------- ------------- ------------- ------------- (DOLLARS IN THOUSANDS) OPERATING DATA: Total revenues.............................. $ 3,536,642 $ 3,333,225 $ 3,171,600 $ 2,832,949 $ 2,772,104 Cost of sales............................... 2,724,639 2,570,708 2,464,853 2,230,493 2,195,773 Selling and administrative expenses......... 670,387 606,782 559,729 475,839 460,684 Unusual item (1)............................ 65,237 6,400 Write-down of long-lived assets (2)......... 46,847 ------------- ------------- ------------- ------------- ------------- Operating income............................ 29,532 155,735 140,618 126,617 115,647 Interest expense............................ 136,359 117,859 117,423 115,814 116,782 ------------- ------------- ------------- ------------- ------------- (Loss) income before income taxes, extraordinary item and cumulative effect of change in accounting principle............. (106,827) 37,876 23,195 10,803 (1,135) (Benefit) provision for income taxes (1)(2)..................................... (27,202) 15,851 15,019 6,812 4,217 ------------- ------------- ------------- ------------- ------------- (Loss) income before extraordinary item and cumulative effect of change in accounting principle.................................. (79,625) 22,025 8,176 3,991 (5,352) Extraordinary item (net of tax benefit) (3)........................................ (3,025) (25,843) (10,823) (3,718) ------------- ------------- ------------- ------------- ------------- (Loss) income before cumulative effect of change in accounting principle............. (79,625) 19,000 (17,667) (6,832) (9,070) Cumulative effect of change in accounting principle (net of tax benefit) (4)......... (5,790) (58,330) ------------- ------------- ------------- ------------- ------------- Net (loss) income........................... (79,625) 13,210 (17,667) (6,832) (67,400) Preferred dividends......................... (159) (968) (2,768) ------------- ------------- ------------- ------------- ------------- Net (loss) income applicable to common stock...................................... $ (79,625) $ 13,210 $ (17,826) $ (7,800) $ (70,168) ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- Ratio of earnings to fixed charges (5)...... -- 1.30x 1.18x 1.07x --
S-10
AS OF AND FOR THE FISCAL YEAR ENDED ------------------------------------------------------------------------- FEBRUARY 3, 1996 (53 JANUARY 28, JANUARY 29, JANUARY 30, FEBRUARY 1, WEEKS) 1995 1994 1993 1992 ------------- ------------- ------------- ------------- ------------- (DOLLARS IN THOUSANDS) BALANCE SHEET DATA: Total assets................................ $ 1,760,146 $ 1,793,966 $ 1,632,901 $ 1,417,230 $ 1,291,691 Total funded indebtedness................... 1,341,657 1,277,276 1,166,025 1,005,136 912,070 Redeemable preferred stock.................. 11,477 13,846 Shareholders' equity........................ (53,271) 32,927 14,982 (40,488) (31,459) OTHER DATA: Depreciation and amortization............... $ 92,479 $ 87,811 $ 82,869 $ 72,787 $ 68,581 LIFO (benefit) provision.................... (672) 2,792 103 479 1,617 Capital expenditures, including capital leases and acquisitions.................... 136,139 202,357 182,730 144,718 82,061 EBITDA (6).................................. 233,424 246,338 229,990 199,883 185,849 Cash interest expense....................... 132,062 113,664 113,270 111,478 112,228 Ratio of EBITDA to cash interest expense.... 1.77x 2.17x 2.03x 1.79x 1.66x
- ------------------------ (1) During Fiscal 1996, the Company recorded an unusual item of $65.2 million, which was related primarily to the closure of its stand-alone general merchandise business (Harts), a write-down of assets that the Company will no longer utilize in its business and the Company's expense reduction program. During the fiscal year ended January 29, 1994 ("Fiscal 1994"), the Company recorded certain expenses totalling $6.4 million classified as an unusual item. This unusual item was comprised of $4.0 million related to a voluntary employee separation program at the Company's P&C division and $2.4 million related to the realignment of certain operations. (2) As of the beginning of the fourth quarter of Fiscal 1996, the Company adopted Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of". Accordingly, the Company recorded a noncash charge of $46.8 million related primarily to the write-down of a portion of the recorded asset values (including allocable goodwill) of 18 of the Company's supermarkets. (3) The extraordinary items (net of income tax benefit) resulted from the early retirement of debt. (4) Effective January 30, 1994, the Company adopted Statement of Financial Accounting Standards No. 112, "Employers' Accounting for Postemployment Benefits" ("SFAS 112"). SFAS 112 requires employers to recognize the obligation to provide postemployment benefits on an accrual basis if certain conditions are met. The cumulative effect of the change in accounting principle determined as of January 30, 1994 reduced net income by $5.8 million, net of a $4.1 million income tax benefit, for the 52-week period ended January 28, 1995. During the first quarter of Fiscal 1994, the Company adopted Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS 109"). The cumulative effect of adopting SFAS 109 was reported as a change in accounting principle applied retroactively to the beginning of Fiscal 1992. Retained earnings were reduced at the beginning of Fiscal 1992 by approximately $58.3 million for the cumulative effect of the adoption. (5) For purposes of the computation, the ratio of earnings to fixed charges has been calculated by dividing (a) earnings before income taxes and fixed charges by (b) fixed charges plus the pre-tax equivalent of subsidiaries' preferred stock dividends. Fixed charges are equal to interest expense plus the estimated interest component of operating leases (assumed to be one-third). Earnings S-11 before income taxes and fixed charges were insufficient to cover fixed charges plus the pre-tax equivalent of subsidiaries' preferred stock dividends by $106.8 million and $5.7 million for the periods ended February 3, 1996 and February 1, 1992, respectively. (6) EBITDA is earnings before interest, depreciation, amortization, LIFO provision, unusual items (including the write-down of impaired long-lived assets), extraordinary items, the cumulative effect of changes in accounting principle and income taxes. EBITDA is a widely accepted financial indicator of a company's ability to service debt. However, EBITDA should not be construed as an alternative to operating income or to net cash provided by operating activities (as determined in accordance with generally accepted accounting principles) and should not be construed as an indication of Penn Traffic's operating performance or as a measure of liquidity. S-12 DESCRIPTION OF SENIOR NOTES THE FOLLOWING DESCRIPTION OF THE PARTICULAR TERMS OF THE SENIOR NOTES OFFERED HEREBY (REFERRED TO IN THE ACCOMPANYING PROSPECTUS AS THE "DEBT SECURITIES" OR THE "SECURITIES") SUPPLEMENTS, AND TO THE EXTENT INCONSISTENT THEREWITH, REPLACES THE DESCRIPTION OF THE GENERAL TERMS AND PROVISIONS OF DEBT SECURITIES SET FORTH IN THE ACCOMPANYING PROSPECTUS, TO WHICH DESCRIPTION REFERENCE IS HEREBY MADE. CAPITALIZED TERMS NOT DEFINED HEREIN HAVE THE MEANINGS ASSIGNED TO SUCH TERMS IN THE ACCOMPANYING PROSPECTUS. The terms of the Senior Notes include those stated in the Senior Indenture. The Senior Notes are subject to all such terms and prospective purchasers are referred to the Senior Indenture for a statement thereof. The following statements relating to the Senior Notes and the Senior Indenture are summaries and do not purport to be complete. Such summaries may make use of certain terms defined in the Senior Indenture and are qualified in their entirety by express reference to such Senior Indenture. A copy of the Senior Indenture is on file with the Commission. As permitted by the Senior Indenture and as described herein, certain terms of the Senior Notes have been established pursuant to a Board Resolution adopted by the Board of Directors of the Company on April 2, 1996. GENERAL The Senior Notes will be issued under an indenture dated as of December 15, 1993 (the "Senior Indenture") between the Company and United States Trust Company of New York, as trustee (the "Senior Trustee"). The Company's $200 million principal amount of 8 5/8% Senior Notes due 2003 and $100 million principal amount of 10.65% Senior Notes due 2004 were also issued pursuant to the Senior Indenture. The Senior Notes, which will be limited to $100 million aggregate principal amount, will constitute a series of Senior Debt Securities described in the accompanying Prospectus and will mature on , 2006. The Senior Notes will be unsecured general obligations of the Company and will be issued in denominations of $1,000 and integral multiples of $1,000. The Senior Notes will rank PARI PASSU with other unsecured general obligations of the Company. As of April 11, 1996, these obligations consisted of approximately $107 million principal amount of 11 1/2% Senior Notes due 2001, $125 million principal amount of 10 1/4% Senior Notes due 2002, $200 million principal amount of 8 5/8% Senior Notes due 2003, $100 million principal amount of 10 3/8% Senior Notes due 2004, $100 million principal amount of 10.65% Senior Notes due 2004 and other general unsecured obligations of the Company. The Senior Notes will be effectively subordinated to secured indebtedness of the Company with respect to the assets securing such secured indebtedness. The Company's Revolving Credit Facility provides for borrowings of up to $250 million, subject to a borrowing base limitation. The Revolving Credit Facility is secured by the Company's accounts receivable, inventory and related assets. See "Capitalization". The Company will pay interest on the Senior Notes on and of each year, commencing , 1996, to the persons who are registered holders at the close of business on the or immediately preceding the interest payment date. Initially, Bankers Trust Company, a New York banking corporation, will act as Paying Agent and Registrar. GLOBAL SECURITIES. The Senior Notes will be issued in the form of one or more fully registered global securities ("Global Securities") which will be deposited with, or on behalf of, The Depository Trust Company ("DTC") and registered in the name of DTC or its nominee. Interests in the Global Securities will be shown on, and transfers thereof will be effected only through, records maintained by DTC and its participants. Global Securities will not be transferrable or exchangeable for Senior Notes in definitive form except under the very limited circumstances described in the accompanying Prospectus under "Description of Debt Securities--Global Securities". DTC has advised the Company as follows: it is a limited-purpose trust company organized under the New York Banking Law, a "banking organization" within the meaning of the New York Banking Law, a member of the Federal Reserve System, a "clearing corporation" within the meaning of the New York S-13 Uniform Commercial Code, and a "clearing agency" registered pursuant to the provisions of Section 17A of the 1934 Act. DTC holds securities that its participants ("Participants") deposit with DTC. DTC also facilitates the settlement among Participants of securities transactions, such as transfers and pledges, in deposited securities through electronic computerized book-entry changes in Participants' accounts, thereby eliminating the need for physical movement of securities certificates. Direct Participants include securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is owned by a number of its Direct Participants and by the New York Stock Exchange, Inc., the American Stock Exchange, Inc., and the National Association of Securities Dealers, Inc. Access to DTC's book-entry system is also available to others such as securities brokers and dealers, banks, and trust companies that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly ("Indirect Participants"). The rules applicable to DTC and its Participants are on file with the Securities and Exchange Commission. Purchases of Senior Notes under DTC's book-entry system must be made by or through Direct Participants, which will receive a credit for the Senior Notes on DTC's records. The ownership interest of each actual purchaser of each Senior Note ("Beneficial Owner") is in turn to be recorded on the Direct or Indirect Participants' records. Beneficial Owners will not receive written confirmation from DTC of their purchase, but Beneficial Owners are expected to receive written confirmations providing details of the transaction, as well as periodic statements of their holdings, from the Direct or Indirect Participant through which the Beneficial Owner entered into the transaction. Transfers of ownership interests in the Senior Notes are to be accomplished by entries made on the books of Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interests in the Senior Notes, except in the event that use of the book-entry system for the Senior Notes is discontinued. To facilitate subsequent transfers, all Senior Notes deposited by Participants with DTC are registered in the name of DTC's partnership nominee, Cede & Co. The deposit of Senior Notes with DTC and the registration in the name of Cede & Co. effect no change in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the Senior Notes; DTC's records reflect only the identity of the Direct Participants to whose accounts such Senior Notes are credited which may or may not be the Beneficial Owners. The Participants will remain responsible for keeping account of their holdings on behalf of their customers. Conveyance of notices and other communications by DTC to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time. Redemption notices shall be sent to Cede & Co. If less than all of the Senior Notes are being redeemed, DTC's practice is to determine by lot the amount of the interest of each Direct Participant to be redeemed. Neither DTC nor Cede & Co. will consent or vote with respect to the Senior Notes. Under its usual procedures, DTC mails an Omnibus Proxy to the issuer as soon as possible after the record date. The Omnibus Proxy assigns Cede & Co.'s consenting or voting rights to those Direct Participants to whose accounts the Senior Notes are credited on the record date (identified in a listing attached to the Omnibus Proxy). Principal and interest payments on the Senior Notes will be made to DTC. DTC's practice is to credit Direct Participants' accounts on payable date in accordance with their respective holdings shown on DTC's records unless DTC has reason to believe that it will not receive payment on payable date. Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices, as is the case with securities held for the accounts of customers in bearer form or registered in "street name," and will be the responsibility of such Participant and not of DTC, the paying agent, or the Company, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of principal and interest to DTC is the responsibility of the Company or the paying agent, disbursement of such payments to Direct Participants shall be the responsibility of DTC, and disbursement of such payments to the Beneficial Owners shall be the responsibility of Direct and Indirect Participants. S-14 The information in this section concerning DTC and its book-entry system has been obtained from sources that the Company believes to be reliable, but the Company takes no responsibility for the accuracy thereof. SAME-DAY SETTLEMENT AND PAYMENT. Settlement for the Senior Notes will be made in immediately available funds. The Senior Notes will trade in DTC's Same-Day Funds Settlement System until maturity, and secondary market trading activity for the Senior Notes will therefor settle in immediately available funds. All payments of principal and interest on the Senior Notes will be made by the Company in immediately available funds. REDEMPTION. The Senior Notes will not be redeemable at the option of the Company prior to , 2001. On or after , 2001, the Senior Notes will be redeemable at the option of the Company, in whole at any time or in part, from time to time, on not less than 30 nor more than 60 days' prior notice, mailed by first-class mail to the Holders' last addresses as they appear upon the register, at the following prices (expressed in percentages of the principal amount), if redeemed during the twelve months beginning of the years indicated below, in each case together with interest accrued to the redemption date:
YEAR PERCENTAGE - ------------------------------------------------------------- ------------ 2001......................................................... % 2002......................................................... % 2003......................................................... % 2004 and thereafter.......................................... 100.00%
If less than all the Senior Notes are to be redeemed, selection of Senior Notes for redemption will be made in the manner selected by the Senior Trustee or the Registrar for the Senior Notes. The Senior Notes will not have the benefit of any sinking fund obligations. COVENANTS. The restrictive covenants described under "Description of Debt Securities--Certain Restrictive Covenants--Common Indenture Covenants" and "--Senior Indenture Covenants" in the accompanying Prospectus are applicable to the Senior Notes. Pursuant to a Board Resolution adopted on April 2, 1996, establishing certain terms of the Senior Notes, for purposes of computing the amount of Restricted Payments permitted to be made pursuant to the limitation described in clause (iii) of the paragraph of the Prospectus captioned "Description of Debt Securities--Certain Restrictive Covenants--Common Indenture Covenants--Restricted Payments," the date from which Consolidated Net Income will be calculated will be February 4, 1996 and the determination of Consolidated Net Income for any period ending prior to August 3, 1997 shall exclude the deduction of an amount equal to the aggregate charges (net of applicable tax) incurred by the Company related to the repurchase or retirement of Indebtedness prior to its stated maturity. MERGERS AND CONSOLIDATIONS; CHANGE OF CONTROL. As described under "Description of Debt Securities--Mergers and Consolidations; Change of Control" in the accompanying Prospectus, Penn Traffic will offer to repurchase all outstanding Senior Notes, at 101% of their principal amount plus accrued interest to the date of repurchase, promptly after the occurrence of a Change of Control of Penn Traffic or in the event of a merger or consolidation where, immediately after giving effect to such merger or consolidation, the surviving corporation does not meet the interest coverage ratio set forth in the Senior Indenture. EVENTS OF DEFAULT. Events of Default with respect to the Senior Notes are set forth under "Description of Debt Securities--Events of Default" in the accompanying Prospectus. S-15 UNDERWRITING Subject to the terms and conditions set forth in the Underwriting Agreement and the Pricing Agreement, the Company has agreed to sell to each of the Underwriters named below, and each of the Underwriters has severally agreed to purchase from the Company, the principal amount of the Senior Notes set forth opposite its name below:
PRINCIPAL AMOUNT UNDERWRITER OF SENIOR NOTES - --------------------------------------------------------------------------- ----------------- Goldman, Sachs & Co........................................................ $ BT Securities Corporation.................................................. Morgan Stanley & Co. Incorporated.......................................... ----------------- Total.................................................................... $ 100,000,000 ----------------- -----------------
Under the terms and conditions of the Underwriting Agreement and the Pricing Agreement, the Underwriters are committed to take and pay for all of the Senior Notes, if any are taken. The Underwriters propose to offer the Senior Notes in part directly to the public at the initial public offering price set forth on the cover page of this Prospectus Supplement and in part to certain securities dealers at such price less a concession of % of the principal amount of the Senior Notes. The Underwriters may allow, and such dealers may reallow, a concession not to exceed % of the principal amount of the Senior Notes to certain brokers and dealers. After the Senior Notes are released for sale to the public, the offering price and other selling terms may from time to time be varied by the Underwriters. The Senior Notes are a new issue of securities with no established trading market. The Company has been advised by the Underwriters that the Underwriters intend to make a market in the Senior Notes but are not obligated to do so and may discontinue market making at any time without notice. No assurance can be given as to the liquidity of the trading market for the Senior Notes. The Company has agreed to indemnify the several Underwriters against certain liabilities, including liabilities under the Securities Act of 1933. Goldman, Sachs & Co., which is an Underwriter in this Offering, has performed various investment banking services for Penn Traffic, for which it received customary fees, and from time to time has participated in underwriting securities of Penn Traffic. BT Securities Corporation, which is an Underwriter in this Offering, has participated in underwriting securities of Penn Traffic. Bankers Trust Company, an affiliate of BT Securities Corporation, will be the Paying Agent and Registrar for the Senior Notes. Morgan Stanley & Co. Incorporated, which is an Underwriter in this Offering, has participated in underwriting securities of Penn Traffic. VALIDITY OF THE SENIOR NOTES The validity of the Senior Notes will be passed upon for Penn Traffic by Donovan Leisure Newton & Irvine, New York, New York, and for the Underwriters by Sullivan & Cromwell, New York, New York. Such counsel will express no opinion as to federal or state laws relating to fraudulent transfers. See "Certain Factors--Fraudulent Conveyance" in the accompanying Prospectus. S-16 THE PENN TRAFFIC COMPANY DEBT SECURITIES ------------------ Penn Traffic may offer Debt Securities from time to time in one or more series at an aggregate initial offering price not to exceed $400,000,000 on terms determined at the time of sale. The Debt Securities will be unsecured general obligations of the Company and, at the option of the Company, may be offered as Senior Debt Securities or as Senior Subordinated Debt Securities. The specific terms of the Debt Securities in respect of which this Prospectus is being delivered, including title, aggregate principal amount, authorized denominations, initial public offering price, maturity, interest rate, if any, time of payment of any interest, and redemption terms, if any, will be set forth in the accompanying Prospectus Supplement. The Company may sell Debt Securities to or through underwriters, and also may sell Debt Securities directly to other purchasers or through agents. The accompanying Prospectus Supplement sets forth the names of any underwriters or agents involved in the sale of Debt Securities in respect of which this Prospectus is being delivered, the principal amounts, if any, to be purchased by underwriters and the compensation, if any, of such underwriters or agents. SEE "CERTAIN FACTORS" FOR A DESCRIPTION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE DEBT SECURITIES. ------------------------ THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. The date of this Prospectus is December 8, 1993. IN CONNECTION WITH THE OFFERING OF CERTAIN DEBT SECURITIES, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICES OF SUCH DEBT SECURITIES AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. AVAILABLE INFORMATION The Penn Traffic Company (the "Company" or "Penn Traffic") has filed with the Securities and Exchange Commission (the "Commission") a Registration Statement (of which this Prospectus is a part) under the Securities Act of 1933, as amended (the "1933 Act"), with respect to the securities offered hereby (the "Debt Securities"). This Prospectus does not contain all of the information set forth in the Registration Statement. Certain portions of the Registration Statement have been omitted as permitted by the rules and regulations of the Commission. Statements made in this Prospectus as to the contents of any contract, agreement or other document are not necessarily complete, and in each instance reference is made to the copy of such contract, agreement or document filed as an exhibit to the Registration Statement, each such statement being qualified in all respects by such reference and the exhibits and schedules thereto. Penn Traffic is subject to the informational requirements of the Securities Exchange Act of 1934, as amended (the "1934 Act"), and, in accordance therewith, files periodic reports and other information with the Commission. The Registration Statement, the exhibits and schedules thereto, and the reports and other information filed by Penn Traffic with the Commission may be inspected and copied at the public reference facilities maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and at the regional offices of the Commission located at 7 World Trade Center, 13th floor, New York, New York 10048; and Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511. Copies of all or any part of such materials also may be obtained from the Public Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates. In addition, the Company's Common Stock, par value $1.25 per share, is listed on the American Stock Exchange, and similar information can be inspected and copied at the American Stock Exchange, 86 Trinity Place, New York, New York 10006. INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE The following documents which have been filed with the Commission by Penn Traffic pursuant to the 1934 Act are incorporated by reference in this Prospectus: (1) Penn Traffic's Annual Report on Form 10-K for the fiscal year ended January 30, 1993, as amended by Amendment No. 1 thereto filed on Form 10-K/A on May 21, 1993 and by Amendment No. 2 thereto filed on Form 10-K/A on November 29, 1993; (2) Penn Traffic's Quarterly Report on Form 10-Q for the fiscal quarter ended May 1, 1993, as amended by Amendment No. 1 thereto filed on Form 10-Q/A on August 12, 1993 and by Amendment No. 2 thereto filed on Form 10-Q/A on November 24, 1993; (3) Penn Traffic's Quarterly Report on Form 10-Q for the fiscal quarter ended July 31, 1993; and (4) Penn Traffic's Current Report on Form 8-K dated October 8, 1993, as amended by Amendment No. 1 thereto filed on Form 8-K/A on November 24, 1993. All documents filed by the Company pursuant to Sections 13(a), 13(c), 14 or 15(d) of the 1934 Act subsequent to the date of this Prospectus and prior to the termination of the offering of the Debt Securities shall be deemed to be incorporated by reference in this Prospectus and to be part hereof from the date of filing such documents. Any statement contained herein or in a document incorporated or deemed to be incorporated by reference herein shall be deemed to be modified or superseded for purposes of this Prospectus to the extent that a statement contained herein, or in any other subsequently filed document which also is deemed to be incorporated by reference herein, modifies or supersedes such statement. Any such statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute a part of this Prospectus. Copies of all documents which are incorporated herein by reference (not including the exhibits to such information, unless such exhibits are specifically incorporated by reference in such information) will be provided without charge to each person to whom this Prospectus is delivered upon written or oral request. Copies of this Prospectus, as amended or supplemented from time to time, and any other documents (or parts of documents) that constitute part of the Prospectus under Section 10(a) of the 1933 Act will also be provided, without charge, to each such person, upon written or oral request. Requests for such documents should be directed to Eugene R. Sunderhaft, Secretary, The Penn Traffic Company, 1200 State Fair Boulevard, Syracuse, New York 13221-4737, (315) 453-7284. 2 THE PENN TRAFFIC COMPANY The Penn Traffic Company ("Penn Traffic" or the "Company") is one of the leading food retailers in the eastern United States. As of November 29, 1993, the Company operated 233 supermarkets in Pennsylvania, upstate New York, Ohio and northern West Virginia under the names "Riverside Markets" (13 stores), "Bi-Lo Foods" (23 stores), "Insalaco's" (13 stores), "Quality Markets" (45 stores), "P & C Foods" (62 stores) and "Big Bear" and "Big Bear Plus" (77 stores). Included in the Company's 233 supermarkets are 19 supermarkets acquired from Peter J. Schmitt Co., Inc. ("Schmitt") in January 1993 (the "Schmitt Acquisition"). These stores are primarily located in the Erie, Pennsylvania and Buffalo, New York areas. Also included in the Company's 233 stores are 12 stores purchased from Insalaco Markets, Inc. ("Insalaco"), in September 1993 (the "Insalaco Acquisition"). These stores are located in northeastern Pennsylvania. Penn Traffic also operates a wholesale food distribution business which, as of November 29, 1993, served 138 licensed franchisees and 129 independent operators and a discount general merchandise business with 16 stores. Total revenues of Penn Traffic for the 52-week period ended October 30, 1993 aggregated approximately $3.1 billion. In addition, Penn Traffic holds an indirect ownership interest representing on a fully diluted basis approximately 17.8% of the common stock of Grand Union Holdings Corporation ("Grand Union Holdings"), the indirect parent corporation of the Grand Union Company ("Grand Union"). As of November 29, 1993, approximately 60% of the Company's supermarket sales were in communities with a population of less than 75,000, where the Company believes it virtually always holds the number one or number two market position. The balance of the Company's supermarket sales is in Columbus, Ohio; Erie, Johnstown, and Scranton/Wilkes-Barre, Pennsylvania; and Buffalo and Syracuse, New York. The Company believes it has the leading market share in each of these communities other than Buffalo, New York. Penn Traffic's retail and wholesale operations stretch from Ohio to upstate New York. The Company operates in communities with diverse economies based on manufacturing, natural resources, retailing, health care services, education and government services. As of November 29, 1993, no supermarket company competed against stores representing more than 20% of the Company's total revenues, with the exception of The Kroger Co. ("Kroger"), which competed against Big Bear stores representing approximately 30% of the Company's total revenues. The Company has achieved continued improvement in operating performance over the past several years. The Company attributes these improvements in operating performance primarily to: (1) a successful merchandising strategy which allows management to adapt its in-store presentations and advertising programs to local community preferences; (2) significant investments in store and distribution facilities permitting the Company to add higher margin products and services while increasing operating efficiencies; (3) improved merchandising and buying programs; and (4) strong cost controls assisted by efficiencies gained from investments in technology and sharing of corporate resources. The Company pursues an aggressive capital program that seeks to match store size and format to local demographics and competitive conditions. During the five fiscal years ended January 30, 1993, the Company has opened or remodeled 66% of its retail supermarket square footage (excluding stores purchased in the Schmitt Acquisition in January 1993). These larger, more modern facilities strengthen the Company's competitive position and enable it to offer its customers a broader variety of specialty departments, including pharmacies, bakeries, delicatessens, floral, greeting cards and other general merchandise. 3 During the period from January 31, 1993 to January 31, 1998, the Company expects to spend approximately $650 million on capital expenditures (including capital leases), equivalent to approximately 3.5% to 4.0% of planned retail sales over this period. These expenditures will be made within or contiguous to the Company's current marketing areas, primarily to support the Company's retail supermarket business. The Company believes that it will be able to fund its capital plan through internally generated funds, borrowings under its revolving credit facility and capital leases. As of November 29, 1993, approximately 100 senior managers of the business were direct shareholders in Penn Traffic. RECENT HISTORY THE INSALACO ACQUISITION In September 1993, Penn Traffic acquired the operating assets of Insalaco, which consisted of 12 supermarkets with a total square footage of approximately 400,000 and two new stores under construction totalling approximately 90,000 square feet. One of the stores under construction opened in October 1993 and the other is expected to open in February 1994. The purchase price for the acquisition was approximately $45 million plus approximately $8 million for the purchase of working capital. The acquisition was financed through borrowings under the Company's revolving credit facility. THE DEBT AND EQUITY OFFERINGS In April 1993, Penn Traffic effected a series of transactions which had the effect of simplifying its capital structure, consolidating virtually all of its operations in a single entity and reducing interest expense. These transactions included (i) the mergers of the Company's principal subsidiaries, P&C Food Markets, Inc. ("P&C") and Big Bear Stores Company ("Big Bear"), into the Company, (ii) the issuance of 307,850 shares of common stock of the Company (the "Common Stock") and the payment of approximately $10.8 million in cash to eliminate the minority common and preferred interests in Big Bear, (iii) the sale by the Company of 2,000,000 shares of Common Stock in a public offering (the "Equity Offering") and (iv) the sale by the Company of $400 million principal amount of 9 5/8% Senior Subordinated Notes due April 15, 2005 (the "9 5/8% Senior Subordinated Notes") in a public offering (the "Debt Offering," and together with the Equity Offering, the "April 1993 Offerings"). Since April 1993, P&C and Big Bear have been operated as divisions of the Company. A portion of the net proceeds of the April 1993 Offerings was used to repay $56.0 million of outstanding indebtedness pursuant to the three revolving credit facilities in effect prior to the mergers of P&C and Big Bear into the Company, to repurchase all $135.0 million principal amount of the 12 3/4% Senior Notes due June 1997 (the "12 3/4% Senior Notes"), to repurchase $124.4 million principal amount of the 13 3/4% Senior Subordinated Notes due October 1998, to repurchase $46.8 million principal amount of the 13 3/4% Senior Subordinated Notes due June 1999, to redeem all $35.0 million principal amount of the Senior Increasing Rate Notes due 1997 (the "Senior Increasing Rate Notes"), to repurchase $10.5 million principal amount of the 11 1/2% Senior Notes due October 2001 (the "11 1/2% Senior Notes"), to repurchase all $6.7 million principal amount of the 13 1/2% Senior Subordinated Notes due June 1998 and to pay the $10.8 million cash portion of the Big Bear merger consideration. The remaining portion of the net proceeds of the April 1993 Offerings was used for general corporate purposes. The Company estimates that its total interest expense for its fiscal year ending January 29, 1994 ("Fiscal 1994") will be approximately $115 million to $120 million and that cash interest expense for Fiscal 1994 will be approximately $110 million to $115 million. THE SCHMITT ACQUISITION In January 1993, Penn Traffic acquired certain assets and assumed certain obligations of 28 supermarkets located in western New York and northwestern Pennsylvania from Schmitt. Nineteen of such stores are being operated by Penn Traffic, eight stores have been closed and one store has been converted to a franchise store. The acquisition was funded through the issuance of the Senior Increasing Rate Notes. In April 1993, all of the outstanding Senior Increasing Rate Notes were repaid from a portion of the proceeds of the April 1993 Offerings described above. 4 CERTAIN FACTORS Prospective purchasers of the Debt Securities should consider carefully the following factors, as well as the other information set forth or incorporated in this Prospectus, in deciding whether to purchase the Debt Securities. CONTINUED OPERATING LOSSES Penn Traffic has experienced net losses for each of the years during the five fiscal year period ended January 30, 1993. Penn Traffic's consolidated statement of operations reflects a net loss of approximately $21.0 million for the twenty-six weeks ended July 31, 1993 and net losses of approximately $6.8 million for the fiscal year ended January 30, 1993 ("Fiscal 1993"), $67.4 million for the fiscal year ended February 1, 1992 ("Fiscal 1992"), $24.2 million for the fiscal year ended February 2, 1991 ("Fiscal 1991"), $29.2 million for the fiscal year ended February 3, 1990 ("Fiscal 1990") and $8.4 million for the fiscal year ended January 28, 1989 ("Fiscal 1989"). The net losses for Fiscal 1993 and Fiscal 1992 were restated for the retroactive adoption of Statement of Financial Standards No. 109, Accounting For Income Taxes ("SFAS 109"). Results for the twenty-six weeks ended July 31, 1993 and for Fiscal 1993 and Fiscal 1992 were impacted by extraordinary charges of $22.1 million, $10.8 million and $3.7 million, respectively, related to the early retirement of debt. Results for Fiscal 1992 were also impacted by the cumulative effect of a $58.3 million charge resulting from the retroactive adoption of SFAS 109. In addition, earnings before income taxes and fixed charges (calculated as described in "Ratio of Earnings to Fixed Charges") were insufficient to cover fixed charges plus the pre-tax equivalent of subsidiaries' preferred stock dividends by $5.7 million, $16.9 million, $21.5 million and $2.7 million for Fiscal 1992, Fiscal 1991, Fiscal 1990 and Fiscal 1989, respectively. The amount for Fiscal 1992 was restated for the retroactive adoption of SFAS 109. There can be no assurance that earnings before income taxes and fixed charges will be sufficient to cover fixed charges in future periods. It should also be noted that this measure of cash flow does not take into account capital expenditure requirements, scheduled debt repayments or any increased working capital requirements that Penn Traffic may experience. The Company's net cash flows excluding financing activities (i.e., its operating cash flows plus proceeds from dispositions, less capital expenditures and acquisitions) were $(78.9) million, $(27.9) million, $(9.1) million and $34.4 million for the twenty-six weeks ended July 31, 1993 and for Fiscal 1993, Fiscal 1992 and Fiscal 1991, respectively. The net cash flows for the twenty-six weeks ended July 31, 1993 and for Fiscal 1993 and Fiscal 1992 were impacted by an increase in the level of capital expenditures and by extraordinary losses related to the early retirement of debt. The Schmitt Acquisition in January 1993 further impacted Fiscal 1993. See "Recent History." HIGHLY LEVERAGED POSITION Penn Traffic is highly leveraged. As of July 31, 1993, Penn Traffic had consolidated debt (including capital leases) of $1,038.7 million (excluding approximately $53 million of debt subsequently incurred in connection with the Insalaco Acquisition) and shareholders' equity of $18.6 million. See "Recent History -- The Insalaco Acquisition." If future cash provided by operations is less than expected, Penn Traffic may experience difficulty in meeting the interest and principal payments due on outstanding indebtedness and other obligations. The ability of the Company to satisfy its obligations with respect to the Debt Securities will be dependent upon the Company's future performance, which will be subject to financial and business conditions and other factors. Moreover, as a result of Penn Traffic's high leverage, Penn Traffic could have a lessened financial capacity to respond to market corrections, extraordinary capital needs and other factors. RESTRICTIONS IMPOSED BY LENDERS The discretion of the management of Penn Traffic with respect to certain business matters is limited by covenants contained in Penn Traffic's various debt agreements. Among other things, these covenants limit or prohibit Penn Traffic and its subsidiaries from incurring additional indebtedness, creating liens upon its assets, repurchasing shares of its capital stock and making capital expenditures and certain loans, investments or guarantees. Indebtedness under certain of the debt agreements of Penn Traffic is secured by encumbrances upon certain assets of Penn Traffic. There can be no assurance that 5 Penn Traffic's leverage and such restrictions will not adversely affect Penn Traffic's ability to finance its future operations or capital needs or to engage in other business activities which may be in the interest of Penn Traffic. See "Terms of Financing Agreements". RANKING Debt Securities which are issued as Senior Debt Securities will be unsecured general obligations of Penn Traffic and will rank PARI PASSU with other unsecured general obligations of the Company. As of November 29, 1993, these obligations consisted of $125 million principal amount of 10 1/4% Senior Notes due 2002 (the "10 1/4% Senior Notes"), $100 million principal amount of 10 3/8% Senior Notes due 2004 (the "10 3/8% Senior Notes"), approximately $115 million principal amount of 11 1/2% Senior Notes and other general unsecured obligations of the Company. Debt Securities which are issued as Senior Debt Securities will be effectively subordinated to secured indebtedness of Penn Traffic with respect to assets securing such secured indebtedness. The Company's revolving credit facility (as amended, the "Revolving Credit Facility") with National Westminster Bank USA ("NatWest"), as Agent for a group of lending institutions, provides for borrowings of up to $200 million, subject to a borrowing base limitation measured by the Company's accounts receivable and inventory. The Revolving Credit Facility is secured by the Company's accounts receivable, inventory and related assets. Debt Securities which are issued as Senior Debt Securities will also be effectively subordinated to indebtedness of any subsidiaries of Penn Traffic with respect to the assets of such subsidiaries. The indenture relating to Senior Debt Securities provides that subsidiaries of the Company which are not designated as Unrestricted Subsidiaries (as defined in such indenture) may incur indebtedness so long as the limitations described under "Description of Debt Securities -- Certain Restrictive Covenants -- Senior Indenture Covenants - -- Limitation on Indebtedness" are complied with, and subsidiaries of Penn Traffic which are designated as Unrestricted Subsidiaries may incur indebtedness without limitation. The Company currently has no significant subsidiaries. Debt Securities which are issued as Senior Subordinated Debt Securities will be unsecured general obligations of Penn Traffic and will be subordinated to all Senior Indebtedness (as defined) of Penn Traffic. Senior Subordinated Debt Securities will rank PARI PASSU with the Company's other subordinated indebtedness. As of November 29, 1993, other subordinated indebtedness of the Company included $400 million principal amount of 9 5/8% Senior Subordinated Notes and approximately $101 million principal amount of 13 3/4% Senior Subordinated Notes due 1999 (the "13 3/4% Senior Subordinated Notes"). See "Description of Debt Securities." In the event of bankruptcy, liquidation or reorganization of Penn Traffic, there may not be sufficient assets remaining after payment of all secured indebtedness to pay all amounts due on the Senior Debt Securities, and there may not be sufficient assets remaining after payment of all Senior Indebtedness to pay all amounts due on the Senior Subordinated Debt Securities. GENERAL ECONOMIC CONDITIONS The Company's results, as well as those of the retail food business generally, are influenced by general economic conditions in its geographic trade areas. Such areas have been experiencing an economic downturn. There can be no assurance that, if these conditions intensify or continue for a significant period of time, the ability of the Company to improve or maintain its financial performance will not be adversely affected. COMPETITION The food retailing business is highly competitive. The number of competitors and the degree of competition experienced by Penn Traffic's supermarkets vary by location. Penn Traffic competes with several regional and local supermarket chains, convenience stores, stores owned and operated and otherwise affiliated with large food wholesalers, unaffiliated independent food stores, warehouse clubs, discount drugstore chains and discount general merchandise chains. Some of Penn Traffic's competitors have greater financial resources than the Company and could use those resources to take steps which could adversely affect the Company's competitive position. In addition, Penn Traffic's ability to 6 compete may be adversely affected by its high leverage and the limitations imposed by its debt agreements. In particular, the Revolving Credit Facility imposes certain restrictions on capital expenditures which could limit the Company's ability to expand its store base. LABOR RELATIONS Approximately 46% of the Company's hourly employees belong to the United Food and Commercial Workers Union. During the second quarter of the fiscal year ended January 30, 1993, a new three-year labor contract was negotiated with bargaining employees of Riverside Markets and new four-year labor contracts were negotiated with bargaining employees of Quality Markets and P & C Food stores. While the Company believes that its relations with its employees are satisfactory, a prolonged labor dispute could have a material adverse effect on the Company. ABSENCE OF PUBLIC MARKET FOR THE NOTES Although an underwriter may make a market in the Debt Securities, it will not be obligated to do so and there can be no assurance that an active public market for any particular issue of Debt Securities will develop or, if such market develops, that it will continue for the life of such Debt Securities. The trading prices of the Debt Securities will depend on many factors, including market conditions, prevailing interest rates, general economic conditions, Penn Traffic's financial condition and other conditions existing from time to time. The market for high yield debt, such as the Debt Securities, has fewer participants and involves a smaller amount of securities than certain other capital markets. It has historically, and particularly in recent periods, been subject to disruptions that have caused volatility in the prices of securities similar to Debt Securities. There can be no assurance that the market for the Debt Securities will not be subject to similar disruptions that will render them difficult to sell. FRAUDULENT CONVEYANCE If a court of competent jurisdiction in a suit by an unpaid creditor or a representative of creditors (such as a trustee in bankruptcy or a debtor-in-possession) were to find that, at the time of the incurrence of the indebtedness represented by any issued Debt Securities, Penn Traffic (x) intended to hinder, delay or defraud any present or future creditor or contemplated insolvency with a design to prefer one or more creditors to the exclusion in whole or in part of others, or (y) (i) was insolvent, (ii) was rendered insolvent by reason of such incurrence, (iii) was engaged in a business or transaction for which its remaining assets constituted unreasonably small capital, or (iv) intended to incur, or believed that it would incur, debts beyond its ability to pay such debts as they matured, and that the indebtedness was incurred for less than reasonably equivalent value (or that the proceeds of such indebtedness were used to refinance indebtedness incurred for less than reasonably equivalent value), then such court could void such Debt Securities. A likely consequence of such action by the court would be the subordination of such Debt Securities to existing and future indebtedness of Penn Traffic. RATIO OF EARNINGS TO FIXED CHARGES The ratio of earnings to fixed charges for the twenty-six weeks ended July 31, 1993, and for Fiscal 1993 were 1.03 and 1.07, respectively. The ratio of earnings to fixed charges is calculated by dividing (a) earnings before income taxes and fixed charges by (b) fixed charges plus the pre-tax equivalent of subsidiaries' preferred stock dividends. Fixed charges are equal to interest expense plus the estimated interest component of operating leases (assumed to be one-third). Earnings before income taxes and fixed charges were insufficient to cover fixed charges plus the pre-tax equivalent of subsidiaries' preferred stock dividends by $5.7 million, $16.9 million, $21.5 million and $2.7 million for Fiscal 1992, Fiscal 1991, Fiscal 1990 and Fiscal 1989, respectively. The above amounts for Fiscal 1993 and Fiscal 1992 were restated for the retroactive adoption of SFAS 109. USE OF PROCEEDS The net proceeds from the sale of Debt Securities may be used by the Company to repay, redeem or repurchase outstanding indebtedness, for general corporate purposes, or for such other purposes as may be specified in the accompanying Prospectus Supplement. A description of any indebtedness to be refinanced with the proceeds of Debt Securities will also be set forth in such Prospectus Supplement. 7 DESCRIPTION OF DEBT SECURITIES Debt Securities will constitute either senior or senior subordinated debt of the Company and will be issued, in the case of Debt Securities that will be senior debt ("Senior Debt Securities"), under an indenture (the "Senior Indenture"), between the Company and United States Trust Company of New York, as Trustee (the "Senior Trustee"), and, in the case of Debt Securities that will be senior subordinated debt ("Senior Subordinated Debt Securities"), under an indenture (the "Subordinated Indenture") between the Company and First Trust of California, National Association, as Trustee (the "Subordinated Trustee"). The Senior Indenture and the Subordinated Indenture are sometimes hereinafter referred to individually as an "Indenture" and collectively as the "Indentures," the Debt Securities are sometimes referred to as the "Securities," and the Senior Trustee and the Subordinated Trustee are hereinafter referred to as the "Trustee." A copy of the Senior Indenture and a copy of the Subordinated Indenture are filed as exhibits to the Registration Statement of which this Prospectus is a part. The terms of the Debt Securities are governed by the provisions of the Senior Indenture or the Subordinated Indenture, as the case may be, and the provisions of the Trust Indenture Act of 1939, as amended, incorporated by reference therein. The statements under this caption relating to the Debt Securities and the Indentures are summaries and do not purport to be complete. Such summaries may make use of certain terms defined in the Indentures and are qualified in their entirety by express reference to the Indentures. Whenever particular Sections or defined terms of the Indentures are referred to herein or in one or more supplements (each, a "Prospectus Supplement"), such Sections or defined terms are incorporated by reference herein or therein, as the case may be. In addition, certain defined terms are set forth below under "Certain Definitions." The particular terms of each issue of Debt Securities, as well as any modifications or additions to the following general terms which may be applicable in the case of such Debt Securities, will be described in the Prospectus Supplement relating to such Debt Securities. Accordingly, for a description of the terms of a particular issue of Debt Securities, reference must be made both to the Prospectus Supplement relating thereto and the following description. GENERAL The Debt Securities will represent unsecured general senior or subordinated obligations of the Company. Debt Securities which are Senior Subordinated Debt Securities will be subordinated to all Senior Indebtedness of the Company. Each Indenture provides that Debt Securities may be issued in one or more series with such terms and provisions as are not inconsistent with the Indenture, including as to maturity, principal and interest, as the Company may determine. Neither Indenture contains any limitation on the amount of Debt Securities which may be issued from time to time thereunder. The Debt Securities relating to this Prospectus may be issued from time to time in series up to an aggregate principal amount of $400,000,000. The applicable Prospectus Supplement will describe the following terms of the Debt Securities of each series: (1) the title of the Debt Securities; (2) the price or prices (expressed as a percentage of the aggregate principal amount thereof) at which the Debt Securities will be issued; (3) any limit on the aggregate principal amount of any series of the Debt Securities; (4) the date or dates on which the principal of any of such Debt Securities will be payable; (5) the rate or rates (which may be fixed or variable) per annum, or the method for determining such rate or rates, at which the Debt Securities will bear interest, if any; (6) the date from which such interest, if any, on the Debt Securities will accrue, the dates on which such interest, if any, will be payable, the date on which payment of such interest, if any, will commence and the regular record dates for any such interest payment dates; (7) the place or places, if other than as set forth in the Indenture, where the principal, premium, if any, and interest, if any, on the Debt Securities will be payable; (8) the date, if any, after which and the price or prices at which the Debt Securities may be redeemed at the option of the Company; (9) the dates, if any, on which, and the price or prices at which, the Debt Securities will, pursuant to any mandatory sinking fund provisions, or may, pursuant to any optional sinking fund provisions, be redeemed by the Company; (10) the dates, if any, on which and the price or prices at which the Debt Securities will be repurchased by the Company at the option of the Holders thereof; 8 (11) the denominations in which any Debt Securities will be issuable, if other than denominations of $1,000 and any integral multiple thereof; (12) if other than the entire principal amount thereof, the portion of the principal amount of such Debt Securities which shall be payable upon declaration of acceleration of the Maturity thereof; (13) any index used to determine the amount of payments of principal, premium, if any, and interest, if any, on the Debt Securities; (14) if the principal amount payable at the Stated Maturity of any of such Debt Securities will not be determinable as of any one or more dates prior to the Stated Maturity, the amount which will be deemed to be such principal amount as of any such date for any purpose, including the principal amount thereof which will be due and payable upon any Maturity other than the Stated Maturity or which will be deemed to be Outstanding as of any such date (or, in any such case, the manner in which such deemed principal amount is to be determined); (15) whether any of such Debt Securities will be issuable in whole or in part in the form of one or more Global Securities and, if so, the respective Depositaries for such Global Securities, the form of any legend or legends to be borne by any such Global Security and, if different from those described under "Global Securities" below, any circumstances under which any such Global Security may be exchanged in whole or in part for Debt Securities registered, and any transfer of such Global Security in whole or in part may be registered, in the names of Persons other than the Depositary for such Global Security or its nominee; (16) ranking as Senior Subordinated Debt Securities, if applicable, and the terms of any such subordination provisions if different from those set forth under "Subordination of the Senior Subordinated Debt Securities" below; (17) any addition to or change in the Events of Default applicable to any of such Debt Securities and any change in the right of the Trustee or the Holders to declare the principal amount of any such Debt Securities due and payable; (18) any addition to or change in the covenants in the Indenture described under "Certain Restrictive Covenants" below applicable to such Debt Securities; and (19) any other terms of such Debt Securities not inconsistent with the provisions of the Senior Indenture or the Subordinated Indenture, as the case may be. CERTAIN DEFINITIONS The following definitions are applicable to both the Senior Indenture and the Subordinated Indenture: "AFFILIATE" means, with respect to any referenced Person, a Person (i) which directly or indirectly through one or more intermediaries controls, or is controlled by, or is under common control with, such referenced Person, (ii) which directly or indirectly through one or more intermediaries beneficially owns or holds 5% or more of the combined voting power of the total Voting Stock of such referenced Person or (iii) of which 5% or more of the combined voting power of the total Voting Stock (or in the case of a Person which is not a corporation, 5% or more of the equity interest) directly or indirectly through one or more intermediaries is beneficially owned or held by such referenced Person, or a Subsidiary or an Unrestricted Subsidiary of such referenced Person. When used herein without reference to any Person, Affiliate means an Affiliate of the Company. "ASSET SALE" means the sale or other disposition, in a transaction which is not a Sale and Leaseback Transaction, by the Company or one of its Subsidiaries to any Person other than the Company or one of its Subsidiaries of (i) any of the Capital Stock of any of the Subsidiaries or Unrestricted Subsidiaries of the Company or (ii) any other assets of the Company or any other assets of its Subsidiaries outside the ordinary course of business of the Company or such Subsidiary. "AVERAGE LIFE" means, as of the date of determination, with respect to any debt security, the quotient obtained by dividing (i) the sum of the products of the numbers of years from the date of determination to the dates of each successive scheduled principal payment of such debt security multiplied by the amount of such principal payment by (ii) the sum of all such principal payments. "BOARD OF DIRECTORS" means the board of directors of the Company or any authorized committee of such Board. 9 "BOARD RESOLUTION" means a copy of a resolution certified by the Secretary or an Assistant Secretary of the Company to have been duly adopted by the Board of Directors and to be in full force and effect on the date of such certification, and delivered to the Trustee. "CAPITAL STOCK" means, with respect to any Person, any and all shares, interests, participations, rights in or other equivalents (however designated) of such Person's capital stock, and any rights (other than debt securities convertible into capital stock), warrants or options exchangeable for or convertible into such capital stock. "CAPITALIZED LEASE OBLIGATION" means, as to any Person, the obligation of such Person to pay rent or other amounts under a lease of (or other agreement conveying the right to use) real or personal Property which obligation is required to be classified and accounted for as a capital lease obligation on a balance sheet of such Person under generally accepted accounting principles and, for purposes of the Indenture, the amount of such obligation at any date shall be the outstanding amount thereof at such date, determined in accordance with generally accepted accounting principles. "CHANGE OF CONTROL" means, with respect to the Company, an event or series of events by which (i) any "person" (as such term is used in Sections 13(d) and 14(d) of the Exchange Act) (other than Riverside Acquisition Company, Limited Partnership, Miller Tabak Hirsch + Co. or any Affiliate of either thereof) is or becomes the "beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the Exchange Act, except that a person shall be deemed to have "beneficial ownership" of all shares that any such person has the right to acquire, whether such right is exercisable immediately or only after the passage of time), directly or indirectly, of 50% or more of the outstanding shares of common stock of the Company or securities representing 50% or more of the combined voting power of the Company's Voting Stock, (ii) the Company consolidates with or merges into another Person or conveys, transfers, sells or leases all or substantially all of its assets to any Person, or any Person consolidates with or merges into the Company, in either event pursuant to a transaction in which the outstanding Voting Stock of the Company is changed into or exchanged for cash, securities or other Property, other than any such transaction between the Company and its wholly owned Subsidiaries (which wholly owned subsidiaries are United States corporations), with the effect that any "person" (other than Riverside Acquisition Company, Limited Partnership, Miller Tabak Hirsch + Co. or any Affiliate of either thereof) becomes the "beneficial owner," directly or indirectly, of 50% or more of the outstanding shares of common stock of the Company or securities representing 50% or more of the combined voting power of the Company's Voting Stock or (iii) during any consecutive two-year period, individuals who at the beginning of such period constituted the Company's Board of Directors (together with any new directors whose election by the Company's Board of Directors, or whose nomination for election by the Company's shareholders, was approved by a vote of at least a majority of the directors then still in office who were either directors at the beginning of such period or whose election or nomination for election was previously so approved) cease for any reason to constitute a majority of the directors then in office. "COMPANY REQUEST" or "COMPANY ORDER" means a written request or order signed in the name of the Company by its Chairman of the Board, its Vice Chairman of the Board, its President or a Vice President, and by its Treasurer, an Assistant Treasurer, its Secretary or an Assistant Secretary, and delivered to the Trustee. "CONSOLIDATED INTEREST COVERAGE RATIO" means, with respect to the Company for any period, the ratio of (i) the aggregate amount of Consolidated Operating Income of the Company for the four consecutive fiscal quarters for which financial information in respect thereof is available immediately prior to the Transaction Date to (ii) the aggregate amount of Consolidated Interest Expense of the Company for the four consecutive fiscal quarters for which financial information in respect thereof is available immediately prior to the Transaction Date; PROVIDED that for purposes of calculating the Consolidated Interest Coverage Ratio of the Company, (a) Consolidated Operating Income shall be calculated on the basis of first-in, first-out method of inventory valuation, as determined in accordance 10 with generally accepted accounting principles, (b) the Consolidated Operating Income and Consolidated Interest Expense of the Company shall include the Consolidated Operating Income and Consolidated Interest Expense of any Person to be acquired by the Company or any of its Subsidiaries in connection with the transaction giving rise to the need to calculate the Consolidated Interest Coverage Ratio, on a pro forma basis, for the four consecutive fiscal quarters for which financial information in respect thereof is available immediately prior to the Transaction Date, and shall also include the Consolidated Operating Income and Consolidated Interest Expense of any other Person which has been acquired by the Company or any of its Subsidiaries during such four consecutive fiscal quarters, on a pro forma basis, for such four consecutive fiscal quarters, the Consolidated Operating Income and Consolidated Interest Expense of any such Person or Persons to be determined on the same basis as determining such items for the Company and (c) Consolidated Interest Expense and Redeemable Dividends shall be calculated as if (i) any Indebtedness incurred or issued since the beginning of the four consecutive fiscal quarters for which financial information in respect thereof is available immediately prior to the Transaction Date, or to be incurred or issued at or prior to the time the transaction giving rise to the need to calculate the Consolidated Interest Coverage Ratio is effected (the "Transaction Time"), had been incurred or issued as of the beginning of such four quarter period and (ii) any Indebtedness repaid since the beginning of such four quarter period, or to be repaid with the proceeds of Indebtedness or equity incurred or issued or to be incurred or issued at or prior to the Transaction Time, had been repaid as of the beginning of such four quarter period. For purposes of determining the Consolidated Interest Coverage Ratio of the Company for any period, (i) any Indebtedness incurred or proposed to be incurred or Redeemable Stock issued or proposed to be issued which for purposes of clause (c) above is deemed to have been incurred or issued as of the beginning of the four quarter period described in clause (c) which bears interest at a fluctuating rate will be deemed to have borne interest during such four quarter period at the rate in effect on the Transaction Date and (ii) "Subsidiary" shall mean any Subsidiary of the Company other than any Subsidiary (and Subsidiaries of such Subsidiary) of which the Company does not own or control, directly or indirectly, a sufficient amount of Voting Stock in order to cause a merger of such Subsidiary into the Company or another Subsidiary without the approval of any other holder of Voting Stock of such Subsidiary. "CONSOLIDATED INTEREST EXPENSE" means, for any period, without duplication, (A) the sum of (i) the aggregate amount of interest recognized by the Company and its Subsidiaries during such period in respect of Indebtedness of the Company and its Subsidiaries (including, without limitation, all interest capitalized by the Company or any of its Subsidiaries during such period and all commissions, discounts and other fees and charges owed by the Company and its Subsidiaries with respect to letters of credit and bankers' acceptance financing and the net costs associated with Interest Swap Obligations of the Company and its Subsidiaries), (ii) the aggregate amount of the interest component of rentals in respect of Capitalized Lease Obligations recognized by the Company and its Subsidiaries during such period, (iii) to the extent any Indebtedness of any Person is Guaranteed by the Company or any of its Subsidiaries (other than Guarantees relating to obligations of customers of the franchise or wholesale business of the Company or any of its Subsidiaries which Guarantees are in the ordinary course of business and consistent with past practices of the Company or its Subsidiaries), the aggregate amount of interest paid or accrued by such Person during such period attributable to any such Indebtedness and (iv) the aggregate amount of Redeemable Dividends accrued during such period with respect to Redeemable Stock of the Company or any of its Subsidiaries, whether or not declared during such period, less (B) amortization or write-off of deferred financing costs of the Company and its Subsidiaries during such period and, to the extent included in (A) above, any charge related to any premium or penalty paid in connection with redeeming or retiring any Indebtedness prior to its stated maturity, in the case of both (A) and (B) above, after elimination of intercompany accounts among the Company and its Subsidiaries and as determined in accordance with generally accepted accounting principles. "CONSOLIDATED NET INCOME" means, for any period, the aggregate net income of the Company and its Subsidiaries for such period on a consolidated basis, determined in accordance with generally accepted accounting principles, PROVIDED that there shall be excluded therefrom after giving effect to any related tax effect (i) gains and losses from Asset Sales or reserves relating thereto (except gains on Asset 11 Sales relating to an Unrestricted Subsidiary, including the sale or other disposition of all or a portion of the Capital Stock of an Unrestricted Subsidiary, to the extent of the amount of cash dividends or other cash distributions in respect of its Capital Stock relating to the sale of the Property or Capital Stock of such Unrestricted Subsidiary that are actually paid to and received by the Company during such period out of funds legally available therefor), (ii) items classified as extraordinary or nonrecurring, (iii) the income (or loss) of any Unrestricted Subsidiary and any Joint Venture, except to the extent of the amount of cash dividends or other distributions in respect of its Capital Stock or interest in the Joint Venture actually paid to and received by the Company or any of its Subsidiaries during such period by such Unrestricted Subsidiary or Joint Venture out of funds legally available therefor, (iv) except to the extent includable pursuant to clause (iii), the income (or loss) of any Person accrued or attributable to any period prior to the date it becomes a Subsidiary of the Company or is merged into or consolidated with the Company or any of its Subsidiaries or that Person's assets (or a portion thereof) are acquired by the Company or any of its Subsidiaries and (v) the cumulative effect of changes in accounting principles in the year of adoption of such change. "CONSOLIDATED OPERATING INCOME" means, with respect to the Company for any period, the Consolidated Net Income of the Company and its Subsidiaries for such period (A) increased by the sum of (i) Consolidated Interest Expense of the Company for such period, (ii) income tax expense of the Company and its Subsidiaries, on a consolidated basis, for such period (after giving effect to any income tax expense adjustments made in arriving at Consolidated Net Income), (iii) depreciation expense of the Company and its Subsidiaries, on a consolidated basis, for such period, (iv) amortization expense of the Company and its Subsidiaries, on a consolidated basis, for such period, (v) amortization or write-off of deferred financing costs of the Company and its Subsidiaries, on a consolidated basis, for such period and (vi) other noncash items, but only to the extent the items referred to in subclauses (i) through (vi) of this clause (A) reduced such Consolidated Net Income, and (B) decreased by the sum of (i) noncash items increasing such Consolidated Net Income and (ii) any revenues received or accrued by the Company or any of its Subsidiaries from any Person (other than the Company or any of its Subsidiaries) in respect of any Investment for such period (other than revenue from any Qualified Investment), but only to the extent the items referred to in subclauses (i) and (ii) of this clause (B) increased such Consolidated Net Income, all as determined in accordance with generally accepted accounting principles. "CONTROL AFFILIATE" means, with respect to the Company, any Affiliate that directly or indirectly through one or more intermediaries (i) controls the Company or (ii) beneficially owns, holds or controls 10% or more of the combined voting power of the total Voting Stock of the Company. "DEPOSITARY" means, with respect to Securities of any series issuable in whole or in part in the form of one or more Global Securities, a clearing agency registered under the 1934 Act that is designated to act as Depositary for such Securities as contemplated by Section 3.01 of the Indenture. "FAIR MARKET VALUE" means, with respect to an Asset Sale involving any Property or any noncash consideration received by or transferred to any Person, the fair market value of such Property or such noncash consideration as determined in good faith (i) in the case of any Asset Sale involving any Property or any such noncash consideration with a fair market value of less than $5 million, by the Company as evidenced by an Officers' Certificate and (ii) in the case of any Asset Sale involving any Property or any such noncash consideration with a fair market value of more than $5 million, by the Board of Directors of the Company. "GLOBAL SECURITY" means a Security that evidences all or part of the Securities of any series and bears the legend set forth in Section 2.02 of the Indenture (or such legend as may be specified as contemplated by Section 3.01 of the Indenture for such Securities). "GUARANTEE" means any direct or indirect obligation, contingent or otherwise, of a Person guaranteeing or having the economic effect of guaranteeing any Indebtedness of any other Person in any manner. 12 "INDEBTEDNESS," as applied to any Person, means, without duplication, (i) any obligation, contingent or otherwise, for borrowed money (whether or not the recourse of the lender is to the whole of the assets of such Person or only to a portion thereof), (ii) any obligation owed for all or any part of the purchase price of Property or other assets or for the cost of Property or other assets constructed or of improvements thereto (including any obligation under or in connection with any letter of credit related thereto), other than accounts payable included in current liabilities incurred in respect of Property and services purchased in the ordinary course of business, (iii) except to the extent supporting other Indebtedness of a Person, any obligation of such Person under or in connection with any letter of credit issued for the account of such Person, and, without duplication, all drafts drawn, or demands for payment honored, thereunder, (iv) any obligation, contingent or otherwise, as set forth in subclauses (i) and (ii) of this definition, secured by any Lien in respect of Property even though the Person owning the Property has not assumed or become liable for payment of such obligation, (v) any Capitalized Lease Obligation, (vi) any note payable or draft accepted representing an extension of credit (other than extensions of credit for Property and services purchased in the ordinary course of business), whether or not representing an obligation for borrowed money, (vii) the maximum fixed repurchase price of any Redeemable Stock, (viii) obligations in respect of Interest Swap Obligations and (ix) any obligation which is in economic effect a Guarantee, regardless of its characterization, with respect to Indebtedness (of a kind otherwise described in this definition) of another Person. For purposes of the preceding sentence, the maximum fixed repurchase price of any Redeemable Stock which does not have a fixed repurchase price shall be calculated in accordance with the terms of such Redeemable Stock as if such Redeemable Stock were repurchased on any date on which Indebtedness shall be required to be determined pursuant to the Indenture. The amount of Indebtedness of any Person at any date shall be the outstanding balance at such date of all unconditional obligations as described above and the maximum liability of any such contingent obligations at such date. "INTEREST SWAP OBLIGATIONS" means the obligations of any Person pursuant to any interest rate swap agreement, interest rate cap, collar or floor agreement or other similar agreement or arrangement. "INVESTMENT" means, with respect to any Person (such Person being referred to in this definition as the "Investor"), (i) any amount paid by the Investor, directly or indirectly, or any transfer of Property by the Investor, directly or indirectly (such amount to be the Fair Market Value of such Property at the time of transfer by the Investor), to any other Person for Capital Stock of, or as a capital contribution to, any other Person and (ii) any direct or indirect loan or advance by the Investor to any other Person (other than accounts receivable of such Investor arising in the ordinary course of business). "JOINT VENTURE" means any Person (other than a Subsidiary of the Company) in which any Person other than the Company or any of its Subsidiaries has a joint or shared equity interest with the Company or any of its Subsidiaries. "LIEN" means any mortgage, lien (statutory or other), charge, pledge, hypothecation, conditional sales agreement, adverse claim, title retention agreement or other security interest, encumbrance or title defect in or on, or any interest or title of any vendor, lessor, lender or other secured party to or of such Person under any conditional sale, trust receipt or other title retention agreement with respect to, any Property or asset of such Person. "MATERIAL ACQUISITION" means any merger, consolidation, acquisition or lease of assets, acquisition of securities or other business combination or acquisition, or any two or more such transactions if part of a common plan to acquire a business or group of businesses, if the assets thus acquired in the aggregate would have constituted a Material Subsidiary if they had been acquired by a Subsidiary, based upon the consolidated financial statements of the Company and its Subsidiaries for the most recent fiscal year for which financial statements are available. "MATERIAL SUBSIDIARY" means, with respect to the Company at any time, each existing Subsidiary and each Subsidiary hereafter acquired or formed which (i) for the most recent fiscal year of the Company for which financial statements are available accounted for more than 10% of the consolidated revenues of 13 the Company and its Subsidiaries or (ii) as at the end of such fiscal year, was the owner (beneficial or otherwise) of more than 10% of the consolidated assets of the Company and its Subsidiaries, all as shown on the consolidated financial statements of the Company and its Subsidiaries for such fiscal year. "MATURITY," when used with respect to any Security, means the date on which the principal of such Security or an installment of principal becomes due and payable as provided in such Security or in the Indenture, whether at the Stated Maturity or by declaration of acceleration, call for redemption or otherwise. "OUTSTANDING," when used with respect to Securities, means, as of the date of determination, all Securities theretofore authenticated and delivered under the Indenture, except: (1) Securities theretofore cancelled by the Trustee or delivered to the Trustee for cancellation; (2) Securities for whose payment or redemption money in the necessary amount has been theretofore deposited with the Trustee or any Paying Agent (other than the Company) in trust or set aside and segregated in trust by the Company (if the Company shall act as its own Paying Agent) for the Holders of such Securities; PROVIDED that, if such Securities are to be redeemed, notice of such redemption has been duly given pursuant to the Indenture or provision therefor satisfactory to the Trustee has been made; (3) Securities as to which the Company's obligations have been discharged as provided in Article 8 of the Indenture; and (4) Securities which have been paid pursuant to Section 3.08 of the Indenture or in exchange for or in lieu of which other Securities have been authenticated and delivered pursuant to the Indenture, other than any such Securities in respect of which there shall have been presented to the Trustee proof satisfactory to it that such Securities are held by a bona fide purchaser in whose hands such Securities are valid obligations of the Company; PROVIDED, HOWEVER, that in determining whether the Holders of the requisite principal amount of the Outstanding Securities have given, made or taken any request, demand, authorization, direction, notice, consent, waiver or other action hereunder as of any date, Securities owned by the Company or any Affiliate shall be disregarded and deemed not to be Outstanding, except that, in determining whether the Trustee shall be protected in relying upon any such request, demand, authorization, direction, notice, consent, waiver or other action, only Securities which the Trustee knows to be so owned shall be so disregarded. Securities so owned which have been pledged in good faith may be regarded as Outstanding if the pledgee establishes to the satisfaction of the Trustee the pledgee's right so to act with respect to such Securities and that the pledgee is not the Company or any Affiliate of the Company. "PROPERTY" means any interest in any kind of property or asset, whether real, personal or mixed, or tangible or intangible. "QUALIFIED INVESTMENT" means the following kinds of instruments if, on the date of purchase or other acquisition of any such instrument by the Company or any Subsidiary the remaining term to maturity thereof is not more than one year: (i) obligations issued or unconditionally guaranteed as to principal and interest by the United States of America or by any agency or authority controlled or supervised by and acting as an instrumentality of the United States of America; (ii) obligations (including, but not limited to, demand or time deposits, bankers' acceptances and certificates of deposit) issued by (a) a depository institution or trust company incorporated under the laws of the United States of America, any state thereof or the District of Columbia, (b) a United States branch office or agency of any foreign depository institution or (c) wholly owned Subsidiaries of any U.S. depository institution guaranteed by such U.S. bank or depository, PROVIDED that such U.S. bank, trust company or United States branch office or agency has, at the time of the Company's or any Subsidiary's investment therein or contractual commitment providing for such investment, capital, surplus or undivided profits (as of the date of such institution's most recently published financial statements) in excess of $100 million and the long-term unsecured debt obligations (other than such obligations rated on the basis of the credit of a person or 14 entity other than such institution) of such institution, at the time of the Company's or any Subsidiary's investment therein or contractual commitment providing for such investment, is rated at least A by Standard & Poor's Corporation or A3 by Moody's Investors Service, Inc.; and (iii) debt obligations (including, but not limited to, commercial paper and medium term notes) issued or unconditionally guaranteed as to principal and interest by any corporation, state or municipal government or agency or instrumentality thereof, or foreign sovereignty if the commercial paper of such corporation, state or municipal government or foreign sovereignty has, at the time of the Company's or any Subsidiary's investment therein or contractual commitment providing for such investment, credit ratings of A-1 by Standard & Poor's Corporation or P-1 by Moody's Investors Service, Inc., or the debt obligations of such corporation, state or municipal government or foreign sovereignty, at the time of the Company's or any Subsidiary's investment therein or contractual commitment providing for such investment, have credit ratings of at least A by Standard & Poor's Corporation or A3 by Moody's Investors Service, Inc. "REDEEMABLE DIVIDEND" means, for any dividend payable with regard to Redeemable Stock, the quotient of the dividend divided by the difference between one and the maximum statutory federal income tax rate (expressed as a decimal number between 1 and 0) then applicable to the issuer of such Redeemable Stock. "REDEEMABLE STOCK" means, with respect to any Person, any equity security that by its terms or otherwise is required to be redeemed or is redeemable at the option of the holder at any time prior to the maturity of the Securities. "RESTRICTED PAYMENT" means (i) a dividend or other distribution declared and paid on the Capital Stock of the Company or any of its Subsidiaries, other than dividends or distributions consisting of shares of the Capital Stock of such entity (or rights or warrants to subscribe for or purchase shares of such Capital Stock) and other than dividends or distributions declared and paid by any Subsidiary to the Company or to any other direct or indirect wholly owned Subsidiary of the Company, (ii) a payment made by the Company, any Subsidiary or any Unrestricted Subsidiary (other than to the Company or any Subsidiary) to purchase, redeem, acquire or retire any Capital Stock of the Company (or rights or warrants to subscribe for or purchase shares of such Capital Stock) or (iii) a payment made by the Company, any Subsidiary or any Unrestricted Subsidiary (other than to the Company or any Subsidiary) to acquire, retire or redeem any debt of or equity interest in or otherwise to make any Investment in any Control Affiliate of the Company (other than a Subsidiary of the Company). "REVOLVING CREDIT FACILITY" means the Loan and Security Agreement dated March 5, 1993, among the Company, Quality Markets, Inc., Dairy Dell, Big M Supermarkets, Inc., Penny Curtiss Baking Company Inc., Hart Stores, Inc., the lenders party thereto and NatWest USA Credit Corp., as Agent, and any credit facility that replaces such Loan and Security Agreement in whole or in part, or any credit facility secured by accounts receivable, inventory, franchise agreements and related assets, together with documents related thereto, including, without limitation, any security agreements and pledge agreements, in each case as such agreements may be amended, restated, supplemented or otherwise modified from time to time. "SALE AND LEASEBACK TRANSACTION" means any direct or indirect arrangement with any Person or to which such Person is a party, providing for the leasing to the Company or a Subsidiary of any Property, whether owned at the date of issuance of a particular series of Securities pursuant to the Indenture or thereafter acquired, which has been or is to be sold or transferred by the Company or such Subsidiary to such Person, or to any other Person to whom funds have been or are to be advanced by such Person, on the security of such Property. "STATED MATURITY," when used with respect to any Security or any installment of principal thereof or interest thereon, means the date specified in such Security as the fixed date on which the principal of such Security or such installment of principal or interest is due and payable. "SUBSIDIARY" means, with respect to any Person, any corporation, association or other business entity of which securities representing more than 50% of the combined voting power of the total Voting 15 Stock (or, in the case of an association or other business entity which is not a corporation, more than 50% of the equity interest) is at the time owned or controlled, directly or indirectly, by that Person or one or more of the other Subsidiaries of that Person or a combination thereof, PROVIDED that an Unrestricted Subsidiary shall not be deemed to be a Subsidiary for purposes of the Indenture. When used herein without reference to any Person, Subsidiary means a Subsidiary of the Company. "SURVIVING CORPORATION" means the corporation formed by or surviving any consolidation or merger involving the Company or to which a transfer, sale or lease of all or substantially all of the Company's Property is made. "TRANSACTION DATE" means the date of the transaction giving rise to the need to calculate the Consolidated Interest Coverage Ratio, PROVIDED that if such transaction is related to or in connection with any acquisition of any Person, the Transaction Date shall be the earlier of (i) the date on which the Company or any of its Subsidiaries enters into an agreement with such Person to effect such acquisition, (ii) the date on which the Company or any of its Subsidiaries first makes a public announcement of such acquisition or any offer or proposal to effect such acquisition, (iii) the date on which the Company or any of its Subsidiaries first makes a filing with the SEC or the Federal Trade Commission in connection with any proposed acquisition and (iv) the date such acquisition is consummated, PROVIDED, HOWEVER, that if subsequent to the occurrence of an event described in clause (i), (ii) or (iii) above or clause (A), (B) or (C) below the Company or any of its Subsidiaries shall amend the terms of such acquisition with respect to the consideration payable by the Company or any of its Subsidiaries in connection with such acquisition, the Transaction Date shall be the earlier of (A) the date on which the Company or any of its Subsidiaries enters into a binding written agreement with such Person to effect such acquisition on such amended terms, (B) the date on which the Company or any of its Subsidiaries makes a public announcement of any offer or proposal to effect such acquisition on such amended terms and (C) the date on which the Company or any of its Subsidiaries first makes a filing disclosing such amended terms with the SEC or the Federal Trade Commission in connection with any proposed acquisition. The second proviso above shall not be applicable if, as of the initial Transaction Date with respect to any acquisition, the Company could incur at least $1.00 of additional Indebtedness pursuant to the terms described below in the first paragraph of "Limitation on Indebtedness" in respect of the Senior Indenture or the Subordinated Indenture, as applicable, when the Consolidated Interest Coverage Ratio of the Company is calculated on the basis of the amended terms of such acquisition and the Indebtedness to be incurred by the Company and its Subsidiaries in connection therewith. "TRUSTEE" means the party named as such in the first paragraph of the applicable Indenture, unless and until a successor replaces it in accordance with the terms of the Indenture and thereafter, "Trustee" shall mean or include each Person who is then a Trustee thereunder, and if at any time there is more than one such Person, "Trustee" as used with respect to the Securities of any series shall mean the Trustee with respect to Securities of that series. "UNRESTRICTED SUBSIDIARY" means (i) any corporation, association or other business entity which would be a Subsidiary but for its designation as an Unrestricted Subsidiary by the Board of Directors of the Company at or before the time of determination as provided below, and (ii) any Subsidiary of an Unrestricted Subsidiary. The Board of Directors may designate any Subsidiary (including any newly acquired or newly formed Subsidiary) to be an Unrestricted Subsidiary unless such Subsidiary owns any Capital Stock of or owns or holds any Lien on any Property of the Company or any other Subsidiary of the Company which is not a Subsidiary of the Subsidiary to be so designated, PROVIDED that either (x) the Subsidiary to be so designated has total assets of $1,000 or less or (y) immediately after giving pro forma effect to such designation (1) the Consolidated Interest Coverage Ratio would be greater than 1.7 to 1 and (2) there would not exist any Default under the Indenture. The Board of Directors of the Company may designate any Unrestricted Subsidiary to be a Subsidiary, PROVIDED that, immediately after giving pro forma effect to such designation, (1) the Consolidated Interest Coverage Ratio would be greater than 1.7 to 1 and (2) there would not exist any Default under the Indenture. 16 "VOTING STOCK" means any class of Capital Stock of any Person then outstanding normally entitled to vote in elections of directors, managers or trustees of any such Person (irrespective of whether or not at the time stock of any class or classes will have or might have voting power by reason of the happening of any contingency). "10 1/4% SENIOR NOTES" means the Company's 10 1/4% Senior Notes due February 15, 2002. "10 3/8% SENIOR NOTES" means the outstanding 10 3/8% Senior Notes due October 1, 2004 of the Company. "11 1/2% SENIOR NOTES" means the outstanding 11 1/2% Senior Notes due October 15, 2001 of the Company. "13 3/4% SENIOR SUBORDINATED NOTES" means the outstanding 13 3/4% Senior Subordinated Notes due June 15, 1999 of the Company. "9 5/8% SENIOR SUBORDINATED NOTES" means the outstanding 9 5/8% Senior Subordinated Notes due April 15, 2005 of the Company. The following definitions are applicable to the Senior Indenture only: "ADDITIONAL ASSETS" means any Property or assets substantially related to the Company's primary business and, in the case of proceeds received by the Company from the sale of the Capital Stock of an Unrestricted Subsidiary, shall also mean Investments in another Unrestricted Subsidiary. "NET PROCEEDS" means, with respect to an Asset Sale by the Company or any of its Subsidiaries, (i) the gross proceeds received by the Company or its Subsidiary in connection with such Asset Sale (the amount of any noncash consideration received as proceeds to be the Fair Market Value of such consideration, PROVIDED that liabilities assumed by the buyer shall not be deemed proceeds received by the Company or its Subsidiary), less (ii) the sum of (a) reasonable fees and expenses incurred by the Company or such Subsidiary in connection with such Asset Sale, (b) taxes payable by the Company or such Subsidiary as a result of and in connection with such Asset Sale, including any tax on income resulting from the gain realized from such Asset Sale, (c) payments made with respect to liabilities associated with the assets which are the subject of the Asset Sale, including, without limitation, trade payables and other accrued liabilities, and payments made to retire Indebtedness where the assets disposed of in such Asset Sale constituted security for or had been pledged to secure such Indebtedness and payment of such Indebtedness is required in connection with such Asset Sale and (d) appropriate amounts to be provided by the Company or any Subsidiary thereof, as the case may be, as a reserve, in accordance with generally accepted accounting principles, against any liabilities associated with such assets and retained by the Company or any Subsidiary thereof, as the case may be, after such Asset Sale, including, without limitation, liabilities under any indemnification obligations and severance and other employee termination costs associated with such Asset Sale. "OTHER SENIOR INDEBTEDNESS" means, at any date, outstanding Indebtedness of the Company, other than the Senior Debt Securities, that is PARI PASSU in any respect in right of payment with the Senior Debt Securities, including, without limitation, the 10 1/4% Senior Notes, the 10 3/8% Senior Notes, the 11 1/2% Senior Notes and Indebtedness outstanding under the Revolving Credit Facility. "SENIOR INDEBTEDNESS" means, at any date, any outstanding Indebtedness of the Company that is PARI PASSU in any respect in right of payment with the Senior Debt Securities. "SUBORDINATED DEBT" means, at any date, (i) outstanding Indebtedness under the 13 3/4% Senior Subordinated Notes and the 9 5/8% Senior Subordinated Notes and (ii) any other Indebtedness of the Company that is subordinated in any respect in right of payment to the Senior Debt Securities or any Other Senior Indebtedness including, without limitation, as to principal, premium, interest, fees, indemnities and amounts in respect of claims and rights of rescission. 17 The following definitions are applicable to the Subordinated Indenture only: "CASH EQUIVALENT" means, at any time, (i) any evidence of Indebtedness with a maturity of 180 days or less issued or directly and fully guaranteed or insured by the United States of America or any agency or instrumentality thereof (provided that the full faith and credit of the United States of America is pledged in support thereof); (ii) certificates of deposit or acceptances with a maturity of 180 days or less of any financial institution that is a member of the Federal Reserve System having combined capital and surplus and undivided profits of not less than $500,000,000; (iii) commercial paper with a maturity of 180 days or less issued by a corporation that is not an Affiliate of the Company organized under the laws of any state of the United States of America or the District of Columbia and rated at least A-1 by Standard & Poor's Corporation or at least P-1 by Moody's Investors Service, Inc.; and (iv) repurchase agreements and reverse repurchase agreements relating to marketable direct obligations issued or unconditionally guaranteed by the government of the United States of America or issued by any agency thereof and backed by the full faith and credit of the United States of America, in each case maturing within one year from the date of acquisition; PROVIDED that the terms of such agreement comply with the guidelines set forth in the Federal Financial Agreements of Depository Institutions With Securities Dealers and Others, as adopted by the Comptroller of the Currency on October 31, 1985. "DESIGNATED SENIOR INDEBTEDNESS" means (i) all Senior Indebtedness under the Revolving Credit Facility, (ii) Indebtedness evidenced by Senior Debt Securities; (iii) the 10 1/4% Senior Notes, (iv) the 10 3/8% Senior Notes, (v) the 11 1/2% Senior Notes and (vi) any other Senior Indebtedness in an original principal amount of not less than $10 million which, at the time of the incurrence of such Indebtedness, is specifically designated in the instrument evidencing such Senior Indebtedness as "Designated Senior Indebtedness" by the Company and in respect of which a resolution of the Board of Directors of the Company setting forth such designation by the Company has been filed with the Trustee. "SENIOR INDEBTEDNESS" means, at any date, (i) Indebtedness under the Revolving Credit Facility, including interest thereon accruing on or after the filing of any petition in bankruptcy or for reorganization of the Company, whether or not a claim for post-petition interest is allowed under the Bankruptcy Code, and all other obligations and indemnities owing thereunder, (ii) Indebtedness arising as a result of Interest Swap Obligations of the Company, (iii) any other Indebtedness of the Company for money borrowed or under letters of credit, whether created, incurred, assumed or Guaranteed on or prior to the date of the Indenture or thereafter incurred, created, assumed or Guaranteed, other than the Senior Subordinated Debt Securities, the 13 3/4% Senior Subordinated Notes and the 9 5/8% Senior Subordinated Notes and (iv) any renewals, extensions, modifications, amendments or refundings of Senior Indebtedness; PROVIDED, HOWEVER, the following shall not constitute Senior Indebtedness: (A) any Indebtedness owed to a person when such person is a Subsidiary of the Company; (B) any Indebtedness incurred, created, assumed or Guaranteed in violation of the Subordinated Indenture; or (C) any Indebtedness which is subordinated in right of payment in any respect to any other Indebtedness of the Company. For purposes of this definition, "Indebtedness" includes any obligation to pay principal, premium (if any) and interest. For purposes of this definition, "Indebtedness" does not include Capitalized Lease Obligations. "SENIOR REPRESENTATIVE" means the agent under the Revolving Credit Facility or any other representative, designated in writing to the Trustee in respect of any series of Senior Subordinated Debt Securities, of the holders of any class of Designated Senior Indebtedness. "SUBORDINATED DEBT" means, at any date, (i) outstanding Indebtedness under the Senior Subordinated Debt Securities; (ii) outstanding Indebtedness under the 13 3/4% Senior Subordinated Notes and the 9 5/8% Senior Subordinated Notes and (iii) any other Indebtedness of the Company that is subordinated in any respect in right of payment to any Senior Debt Securities, the 10 1/4% Senior Notes, the 10 3/8% Senior Notes, the 11 1/2% Senior Notes, the Revolving Credit Facility or any other Senior Indebtedness including, without limitation, principal, premium, interest, fees, indemnities and amounts in respect of claims and rights of rescission. 18 FORM, EXCHANGE AND TRANSFER The Securities of each series will be issuable only in fully registered form, without coupons, and, unless otherwise specified in the applicable Prospectus Supplement, only in denominations of $1,000 and integral multiples thereof. At the option of the Holder, subject to the terms of the Indenture and the limitations applicable to Global Securities, Securities of each series will be exchangeable for other Securities of the same series of any authorized denomination and of a like tenor and aggregate principal amount. Subject to the terms of the Indenture and the limitations applicable to Global Securities, Securities may be presented for exchange as provided above or for registration of transfer (duly endorsed or with the form of transfer endorsed thereon duly executed) at the office of the Registrar or at the office of any transfer agent designated by the Company for such purpose. No service charge will be made for any registration of transfer or exchange of Securities, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge payable in connection therewith. If the Securities of any series (or of any series and specified terms) are to be redeemed in part, the Company will not be required to (i) issue, register the transfer of or exchange any Security of that series (or of that series and specified terms, as the case may be) during a period beginning at the opening of business 15 days before the day of any selection of Securities of such series for redemption and ending at the close of business on the day of such day of selection or (ii) register the transfer of or exchange any Security so selected for redemption in whole or in part except the unredeemed portion of any such Security being redeemed in part. GLOBAL SECURITIES Some or all of the Securities of any series may be represented in whole or in part by one or more Global Securities which will have an aggregate principal amount equal to that of the Securities represented thereby. Each Global Security will be registered in the name of a Depositary or a nominee thereof identified in the applicable Prospectus Supplement, will be deposited with such Depositary or nominee or a custodian therefor and will bear a legend regarding the restrictions on exchanges and registration of transfer thereof referred to below and any such other matters as may be provided for pursuant to the Indenture. Notwithstanding any provision of any Indenture or Security described herein, no Global Security may be exchanged in whole or in part for Securities registered, and no transfer of a Global Security in whole or in part may be registered, in the name of any Person other than the Depositary for such Global Security or any nominee of such Depositary, unless (i) the Depositary has notified the Company that it is unwilling or unable to continue as Depositary for such Global Security or has ceased to be qualified to act as such as required by the Indenture, (ii) there shall have occurred and be continuing an Event of Default with respect to the Securities represented by such Global Security or (iii) there shall exist such circumstances, if any, in addition to or in lieu of those described above as may be described in the applicable Prospectus Supplement. All Securities issued in exchange for a Global Security or any portion thereof will be registered in such names as the Depositary may direct. As long as the Depositary, or its nominee, is the registered Holder of a Global Security, the Depositary or such nominee, as the case may be, will be considered the sole owner and Holder of such Global Security and the Securities represented thereby for all purposes under the Securities and the applicable Indenture. Except in the limited circumstances referred to above, owners of beneficial interests in a Global Security will not be entitled to have such Global Security or any Securities represented thereby registered in their names, will not receive or be entitled to receive physical delivery of certificated Securities in exchange therefor and will not be considered to be the owners or Holders of such Global Security or any Securities represented thereby for any purpose under the Securities or the applicable Indenture. All payments of principal of and any premium and interest on a Global Security will be made 19 to the Depositary or its nominee, as the case may be, as the Holder thereof. The laws of some jurisdictions require that certain purchasers of securities take physical delivery of such securities in definitive form. These laws may impair the ability to transfer beneficial interests in a Global Security. Ownership of beneficial interests in a Global Security will be limited to institutions that have accounts with the Depositary or its nominee ("participants") and to persons that may hold beneficial interests through participants. In connection with the issuance of any Global Security, the Depositary will credit, on its book-entry registration and transfer system, the respective principal amounts of Securities represented by the Global Security to the accounts of its participants. Ownership of beneficial interests in a Global Security will be shown only on, and the transfer of those ownership interests will be effected only through, records maintained by the Depositary (with respect to participants' interests) or any such participant (with respect to interests of persons held by such participants on their behalf). Payments, transfers, exchanges and other matters relating to beneficial interests in a Global Security may be subject to various policies and procedures adopted by the Depositary from time to time. None of the Company, any Trustee or any agent of the Company or any Trustee (including without limitation the Registrar or the Paying Agent) will have any responsibility or liability for any aspect of the Depositary's or any participant's records relating to, or for payments made on account of, beneficial interests in a Global Security, or for maintaining, supervising or reviewing any records relating to such beneficial interests. Secondary trading in notes and debentures of corporate issuers is generally settled in clearing-house or next-day funds. In contrast, beneficial interests in a Global Security, in some cases, may trade in the Depositary's same-day funds settlement system, in which secondary market trading activity in those beneficial interests would be required by the Depositary to settle in immediately available funds. There is no assurance as to the effect, if any, that settlement in immediately available funds would have on trading activity in such beneficial interests. Also, settlement for purchases of beneficial interests in a Global Security upon the original issuance thereof may be required to be made in immediately available funds. PAYMENT AND PAYING AGENTS Unless otherwise indicated in the applicable Prospectus Supplement, payment of interest on a Security on any interest payment date will be made to the Person in whose name such Security (or one or more predecessor securities) is registered at the close of business on the regular record date for such interest. Principal and premium, if any, will be payable at the principal corporate trust office of the Trustee in The City of New York or at such other places in The City of New York as the Company may designate, and may be paid by check. At the option of the Company, interest, if any, payable on any interest payment date may be paid at the corporate trust office of the Trustee or by checks mailed to the Holders at their registered addresses. Unless otherwise specified in the accompanying Prospectus Supplement, Bankers Trust Company, a New York banking corporation, initially will act as Paying Agent and Registrar. REDEMPTION The date, if any, after which and the price or prices at which any series of Securities may be redeemed at the option of the Company will be set forth in the Prospectus Supplement. Holders will be given at least 30 and not more than 60 days' prior notice, mailed by first-class mail to the holders' last addresses as they shall appear upon the register of any such optional redemption by the Company. If less than all the Securities of any series are to be redeemed, selection of Securities for redemption will be made pro rata, by lot or in a manner selected by the Trustee or the Registrar for such series of Securities. 20 CERTAIN RESTRICTIVE COVENANTS COMMON INDENTURE COVENANTS Each of the Senior Indenture and the Subordinated Indenture contains, among others, the following covenants, which shall be applicable to each series of Securities issued under either the Senior Indenture or the Subordinated Indenture, unless otherwise provided in the applicable Prospectus Supplement. RESTRICTED PAYMENTS. Each Indenture provides that the Company shall not, nor will it permit any of its Subsidiaries or Unrestricted Subsidiaries to, make any Restricted Payment if, after giving effect thereto, with respect to any particular series of Securities issued pursuant to the Indenture, (i) any Default shall have occurred and be continuing, (ii) the Company could not incur at least $1.00 of additional Indebtedness under the limitations described in the first paragraph of "Limitation on Indebtedness" in respect of the Senior Indenture or the Subordinated Indenture, as applicable, or (iii) the aggregate of such payments made by the Company and its Subsidiaries and Unrestricted Subsidiaries subsequent to the date of issuance of such series of Securities would exceed the sum of (x) 50% (or minus 100% in the event of a deficit) of aggregate Consolidated Net Income of the Company for the period commencing on the date established for this purpose by the Board Resolution setting forth the terms of such series of Securities and ending on the last day of the fiscal quarter immediately preceding the date of such Restricted Payment and (y) the aggregate net proceeds, including cash and the Fair Market Value of Property other than cash, received by the Company subsequent to the date of issuance of such series of Securities from capital contributions from any of its stockholders or from the issuance or sale (other than to a Subsidiary or Unrestricted Subsidiary) subsequent to the date of issuance of such series of Securities of shares of its Capital Stock of any class, other than Redeemable Stock (or rights or warrants to subscribe for or purchase shares of such Capital Stock, other than Redeemable Stock) or of any convertible securities or debt obligations which have been converted into, exchanged for or satisfied by the issuance of shares of Capital Stock of any class, other than Redeemable Stock. For purposes of computing the amount in clause (iii) above, the determination of Consolidated Net Income of the Company for any fiscal period ending prior to the date established for this purpose by the Board Resolution setting forth the terms of such series of Securities shall exclude the deduction of an amount equal to the aggregate charges (net of applicable tax) incurred by the Company related to the repurchase or retirement of Indebtedness prior to its stated maturity. The foregoing limitations do not prevent the Company from paying a dividend on Capital Stock of any class within 60 days after the declaration thereof if, on the date when the dividend was declared, the Company could have paid such dividend in accordance with the provisions of the Indenture. The Indenture does not prevent the Company from repurchasing shares of its Capital Stock in the following situations: (a) solely in exchange for other shares of Capital Stock (other than Redeemable Stock); (b) to eliminate fractional shares; (c) redemptions or repurchases of common stock in connection with repurchase provisions under employee stock option or stock purchase agreements or other agreements to compensate management employees of the Company; or (d) pursuant to a court order. Payments made pursuant to this paragraph shall be included in all subsequent computations relating to any Restricted Payment. Aggregate amounts paid pursuant to subclause (b) above shall not exceed $250,000 in any fiscal year. LIMITATION ON INVESTMENTS. Each Indenture provides that the Company shall not, and shall not permit any of its Subsidiaries to, make any Investment in (i) any Unrestricted Subsidiary or (ii) an Affiliate (other than a wholly owned Subsidiary) that is not a Control Affiliate unless, as determined at the date such Investment is made and after giving effect thereto, (a) the Company could incur at least $1.00 of additional Indebtedness under the limitations described in the first paragraph of "Limitation on Indebtedness" in respect of the Senior Indenture or the Subordinated Indenture, as applicable, and (b) there would not exist any Default under such Indenture. The Company may not, and may not permit any 21 Subsidiary or Unrestricted Subsidiary to, make any Investment in any Control Affiliate other than in compliance with the provisions of the Indenture relating to Restricted Payments, as described under "Restricted Payments" above. TRANSACTIONS WITH AFFILIATES. Each Indenture provides that, with respect to any particular series of Securities issued pursuant to the Indenture, the Company shall not, and shall not permit any Subsidiary to, following the date of issuance of such series of Securities, enter into any transaction with any Affiliate (other than the Company or a Subsidiary) unless (i) the Board of Directors of the Company determines, in its reasonable good faith judgment, that such transaction is in the best interests of the Company or such Subsidiary based on full disclosure of all relevant facts and circumstances and (ii) such transaction is on terms no less favorable to the Company or such Subsidiary than those that could be obtained in a comparable arms' length transaction with an entity that is not an Affiliate. LIMITATION ON PAYMENT RESTRICTIONS AFFECTING SUBSIDIARIES. Each Indenture provides that the Company shall not, and shall not permit any Subsidiary to, create or otherwise cause or suffer to exist or become effective any consensual encumbrance or restriction which encumbrance or restriction by its terms expressly restricts the ability of any such Subsidiary to (i) pay dividends or make any other distributions on such Subsidiary's Capital Stock or pay any Indebtedness owed to the Company or any Subsidiary, (ii) make any loans or advances to the Company or any Subsidiary or (iii) transfer any of its Property to the Company or any Subsidiary, other than, with respect to clauses (ii) and (iii), encumbrances or restrictions contained in any agreement or instrument (a) with respect to any particular series of Securities issued pursuant to the Indenture, relating to any Indebtedness of the Company or any Subsidiary existing on the date of issuance of such series of Securities; (b) with respect to any particular series of Securities issued pursuant to the Indenture, relating to any Property acquired by the Company or any of its Subsidiaries after the date of issuance of such series of Securities, PROVIDED that such encumbrance or restriction relates only to the Property which is acquired and, in the case of any encumbrance or restriction that constitutes a Lien, that the Company would be permitted to incur such Lien; (c) relating to (x) any industrial revenue or development bonds, (y) any obligation of the Company or any Subsidiary incurred in the ordinary course of business to pay the purchase price of Property acquired by the Company or such Subsidiary and (z) any lease of Property by the Company or such Subsidiary in the ordinary course of business, PROVIDED that such encumbrance or restriction relates only to the Property which is the subject of such industrial revenue or development bond, such Property purchased or such Property leased and any such lease, as the case may be; (d) relating to any Indebtedness of any Subsidiary at the date of acquisition of such Subsidiary by the Company or any Subsidiary of the Company, PROVIDED that such Indebtedness was not incurred in connection with or in anticipation of such acquisition, and PROVIDED FURTHER that the Company would be permitted to incur any Lien securing such Indebtedness; or (e) replacing or refinancing of any agreement or instrument referred to in clause (a), (b) or (c), PROVIDED that the provisions relating to such encumbrance or restriction contained in any such replacement or refinancing agreement or instrument are no more restrictive than the provisions relating to such encumbrance or restriction contained in such original agreement or instrument. INVESTMENT COMPANY ACT. Each Indenture provides that the Company shall not become an investment company within the meaning of the Investment Company Act of 1940. SENIOR INDENTURE COVENANTS In addition to the covenants set forth under "Common Indenture Covenants" above, the Senior Indenture contains the following covenants, which shall be applicable to each series of Securities issued under the Senior Indenture, unless otherwise provided in the applicable Prospectus Supplement: LIMITATION ON INDEBTEDNESS. The Senior Indenture provides that the Company shall not, nor will it permit any of its Subsidiaries to, create, incur, assume, Guarantee or otherwise become liable with respect to, or become responsible for the payment of, any Indebtedness unless, after giving effect thereto, the Consolidated Interest Coverage Ratio of the Company would be greater than 1.7 to 1. 22 Notwithstanding the foregoing, the Company and its Subsidiaries may incur, create, assume or Guarantee or otherwise become liable with respect to, any or all of the following: (i) with respect to any particular series of Securities issued pursuant to the Senior Indenture, Indebtedness issued pursuant to either the Senior Indenture or the Subordinated Indenture at or prior to the issuance of such series of Securities; (ii) Indebtedness evidenced by the 10 1/4% Senior Notes, 10 3/8% Senior Notes, 11 1/2% Senior Notes, 13 3/4% Senior Subordinated Notes and 9 5/8% Senior Subordinated Notes; (iii) Indebtedness in an aggregate amount not to exceed the sum of 65% of the total inventory of the Company and its Subsidiaries (calculated on a "first-in, first-out" basis) and 85% of the total accounts receivable of the Company and its Subsidiaries; (iv) Indebtedness the proceeds of which are used to refinance (w) all or a portion of the Securities issued pursuant to the Senior Indenture, (x) all or a portion of the 10 1/4% Senior Notes, the 10 3/8% Senior Notes or 11 1/2% Senior Notes, (y) Indebtedness of its Subsidiaries and any other Indebtedness of the Company that is PARI PASSU with the Senior Debt Securities (other than Indebtedness incurred, created, assumed or Guaranteed under clause (iii) above) or (z) successor or replacement Indebtedness, in each case in a principal amount not to exceed the principal amount so refinanced (or, if such Indebtedness provides for an amount less than the principal amount thereof to be due and payable upon a declaration of acceleration of the maturity thereof, in an amount not greater than such lesser amount) plus any prepayment penalties and premiums (including the contractual premiums and any premium reasonably determined by the Company as necessary to accomplish such refinancing by means of a tender offer or privately negotiated repurchases), accrued and unpaid interest on the Indebtedness so refinanced, plus customary fees, expenses and costs related to the incurrence of such refinancing Indebtedness, PROVIDED that, in the case of this clause (iv), (1) with respect to any particular series of Securities issued pursuant to the Senior Indenture, if the Securities of such series are refinanced in part, such new Indebtedness is expressly made PARI PASSU or subordinate in right of payment to the remaining Securities of such series, and (2) if the Indebtedness to be refinanced is PARI PASSU in right of payment to the Securities issued pursuant to the Senior Indenture, such new Indebtedness is expressly made PARI PASSU or subordinate in right of payment to the Securities issued pursuant to the Senior Indenture; (v) Indebtedness the proceeds of which are used to refinance Subordinated Debt, in each case in a principal amount not to exceed the principal amount so refinanced (or, if such Indebtedness provides for an amount less than the principal amount thereof to be due and payable upon a declaration of acceleration of the maturity thereof, in an amount not greater than such lesser amount) plus any prepayment penalties and premiums (including the contractual premiums and any premium reasonably determined by the Company as necessary to accomplish such refinancing by means of a tender offer or privately negotiated repurchases), accrued and unpaid interest on the Indebtedness so refinanced, plus customary fees, expenses and costs related to the incurrence of such refinancing Indebtedness, PROVIDED that such new Indebtedness (a) is expressly made subordinate in right of payment to the Securities issued pursuant to the Senior Indenture at least to the extent that the Indebtedness to be refinanced is subordinate to the Securities issued pursuant to the Senior Indenture, (b) with respect to any particular series of Securities issued pursuant to the Senior Indenture, does not mature prior to the final scheduled maturity date of such series of Securities and (c) with respect to any particular series of Securities issued pursuant to the Senior Indenture, has an Average Life equal to or greater than the remaining Average Life of such series of Securities; (vi) with respect to any particular series of Securities issued pursuant to the Senior Indenture, Indebtedness of the Company and its Subsidiaries remaining outstanding immediately after the issuance of such series of Securities; 23 (vii) Indebtedness of the Company to a Subsidiary of the Company or Indebtedness of a Subsidiary of the Company to the Company or to another Subsidiary of the Company; (viii) Indebtedness incurred in connection with the refurbishment, improvement, construction or acquisition (whether by acquisition of stock, assets or otherwise) of any Property or Properties of the Company or a Subsidiary of the Company that constitute a part of the then present business of the Company or any Subsidiary of the Company (or incurred within twelve months of any such acquisition or the completion of such refurbishment, improvement or construction), PROVIDED that (a)(1) such Indebtedness, together with any other Indebtedness incurred during the preceding twelve month period in reliance upon the exception of this clause (viii), does not exceed, in the aggregate, 3% of net sales and service fees of the Company and its Subsidiaries during the preceding twelve-month period on a consolidated basis and (2) such Indebtedness, together with all then outstanding Indebtedness incurred in reliance upon the exception of this clause (viii), does not exceed, in the aggregate, 3% of the aggregate net sales and service fees of the Company and its Subsidiaries during the preceding thirty-six months on a consolidated basis, in each case as such amounts may be adjusted as set forth below, or (b) such Indebtedness does not exceed the amount of proceeds received by the Company or any of its Subsidiaries from insurance policies maintained by the Company or any Subsidiary in respect of such Property or Properties; (ix) Indebtedness consisting of Guarantees by the Company or a Subsidiary of the Company of (a) other Indebtedness of the Company or any such Subsidiary, PROVIDED that such other Indebtedness is otherwise permitted under this covenant limiting incurrence of Indebtedness and (b) obligations of customers of the franchise or wholesale business of the Company or a Subsidiary of the Company which Guarantees are in the ordinary course of business consistent with the past practice of the Company or its Subsidiaries; (x) Indebtedness created by a Lien to which Property owned or held by the Company or a Subsidiary of the Company is subject, PROVIDED that the Indebtedness secured is Indebtedness of the Company or a Subsidiary of the Company which is otherwise permitted under this covenant limiting the incurrence of Indebtedness; (xi) Indebtedness incurred in connection with a repurchase of Securities of any series issued pursuant to the Senior Indenture as described in "Mergers and Consolidations; Change of Control" below and in connection with the repurchase of any notes of the Company which require the Company to repurchase such notes in the event of certain merger, consolidation or change of control transactions, in an aggregate principal amount not to exceed the aggregate repayment price (equal to the repurchase price paid, including premium and accrued interest thereon through the date of repurchase) of such Securities and such other notes of the Company plus the amount of fees and expenses associated with the incurrence of such Indebtedness, PROVIDED that to the extent any such notes of the Company which are required to be so repurchased constitute Subordinated Debt, any new Indebtedness incurred in connection with the repurchase of such notes (a) is expressly made subordinate to the Securities issued pursuant to the Senior Indenture at least to the extent that such notes are subordinate to the Securities issued pursuant to the Senior Indenture, (b) with respect to any particular series of Securities issued pursuant to the Senior Indenture, does not mature prior to the final scheduled maturity date of such series of Securities and (c) with respect to any particular series of Securities issued pursuant to the Senior Indenture, has an Average Life equal to or greater than the remaining Average Life of such series of Securities; (xii) Indebtedness under Interest Swap Obligations, PROVIDED that such Interest Swap Obligations are related to payment obligations on Indebtedness otherwise permitted under this covenant limiting the incurrence of Indebtedness and, in the aggregate, do not relate to a principal amount of Indebtedness in excess of the Indebtedness permitted under this covenant limiting the incurrence of Indebtedness; (xiii) commercial letters of credit and standby letters of credit incurred in the ordinary course of business by the Company or its Subsidiaries; 24 (xiv) Indebtedness represented by industrial revenue or development bonds, PROVIDED that the aggregate amount of Indebtedness incurred in reliance upon the exception of this clause (xiv) shall not exceed at any one time an aggregate principal amount outstanding of $25 million; (xv) Capitalized Lease Obligations relating to Property used in the business of the Company or its Subsidiaries; (xvi) Indebtedness incurred in respect of performance bonds and Guarantees and completion Guarantees incurred in the ordinary course of business and refinancings thereof; and (xvii) Indebtedness arising from the honoring by a bank or other financial institution of a check, draft or similar instrument inadvertently (except in the case of daylight overdrafts) drawn against insufficient funds in the ordinary course of business, PROVIDED that such Indebtedness is extinguished within five business days of its incurrence. The aggregate amounts of Indebtedness that the Company is permitted to incur pursuant to clause (viii) above shall be reduced by the difference between (1) the aggregate principal amount of any mortgages that the Company is deemed to have entered into in connection with any Sale and Leaseback Transaction that the Company is permitted to enter into under the terms of the Senior Indenture described under "Limitation on Sale and Leaseback Transactions" and (2) the aggregate principal amount of any Senior Indebtedness that is repaid with the Net Proceeds of any Sale and Leaseback Transactions that are entered into within twelve months of the acquisition, or completion of construction or refurbishment, of the Property that is the subject of any such transaction. The Senior Indenture contains no limitations on the amount of Indebtedness which any Unrestricted Subsidiary may incur, create, assume, Guarantee, or otherwise become liable for. LIMITATION ON LIENS. The Senior Indenture provides that neither the Company nor any Subsidiary shall create, incur, assume or permit to exist any Lien on or with respect to any Property or assets of the Company or any such Subsidiary or any interest therein or any income or profits therefrom, except the following: (i) with respect to any particular series of Securities issued pursuant to the Senior Indenture, any Lien existing as of the date of issuance of such series of Securities; (ii) any Lien on the Company's or a Subsidiary's accounts receivable, inventories, franchise agreements, proprietary rights and related assets securing the Company's obligations under the Revolving Credit Facility; (iii) any Lien arising in the ordinary course of business, other than in connection with Indebtedness for borrowed money; (iv) any Lien on the Company's or a Subsidiary's accounts receivable, inventories, franchise agreements, proprietary rights and related assets securing Indebtedness permitted to be incurred under the terms of the Senior Indenture described in clause (iii) of the second paragraph under "Senior Indenture Covenants -- Limitation on Indebtedness" above; (v) with respect to any particular series of Securities issued pursuant to the Senior Indenture, any Lien on Property acquired by the Company or any Subsidiary after the date of issuance of such series of Securities created solely to secure Indebtedness incurred to finance such acquisition or assumed in connection with such acquisition, whether by acquisition of stock, assets or otherwise (or entered into in connection with Indebtedness that is permitted under the terms of the Senior Indenture described in clause (viii) of the second paragraph under "Senior Indenture Covenants -- Limitation on Indebtedness"), PROVIDED that in each case such acquisition does not constitute a Material Acquisition; 25 (vi) any Lien on Property acquired by the Company or any Subsidiary which constitutes a Material Acquisition created solely to secure Indebtedness incurred to finance such Material Acquisition or assumed in connection with such Material Acquisition, PROVIDED that after giving effect to such Indebtedness the Consolidated Interest Coverage Ratio would be greater than 1.7 to 1; (vii) any Lien on any asset of the Company or any Subsidiary created solely to secure Indebtedness incurred to finance the refurbishment, improvement, construction or acquisition (whether by acquisition of stock, assets or otherwise) of such asset (or created within twelve months of any such acquisition or the completion of such refurbishment, improvement or construction) or relating to Indebtedness assumed in connection with such acquisition, PROVIDED that such Lien secures Indebtedness permitted under the terms of the Senior Indenture described in clause (viii) of the second paragraph under "Senior Indenture Covenants -- Limitation on Indebtedness"; (viii) any Lien created in connection with a Capitalized Lease Obligation that the Company or a Subsidiary is permitted to enter into under the terms of the Senior Indenture, PROVIDED that such Capitalized Lease Obligation relates to Property used in the business of the Company or a Subsidiary; (ix) any Lien relating to a judgment or award that the Company or any Subsidiary is contesting in good faith; (x) any Lien for taxes that are not yet due or that the Company or any Subsidiary is contesting in good faith; and (xi) any Lien extending, renewing or replacing any Liens permitted by clauses (i), (ii), (iv), (v), (vi), (vii) or (viii). In the case of Liens permitted under clauses (i), (iv), (v), (vi), (vii), (viii) and (xi), with respect to any particular series of Securities issued pursuant to the Senior Indenture, such Liens may relate solely to the Property (including any improvements thereon) subject thereto as of the date of issuance of such series of Securities or the date such Lien was incurred, as the case may be, and may secure the payment only of the Indebtedness so secured as of such date. The Senior Indenture provides that if any security interest or lien securing the Company's obligations under the Revolving Credit Facility is invalidated, avoided or otherwise deemed unenforceable with respect to any collateral securing such obligations, any payment that would be made to holders of the Securities issued pursuant to the Senior Indenture from or attributable to the proceeds of such collateral (but not any other payments) shall nevertheless be paid to the lenders under the Revolving Credit Facility in preference to payments to the holders of the Securities issued pursuant to the Senior Indenture until such indebtedness under the Revolving Credit Facility is paid in full. LIMITATION ON SALE AND LEASEBACK TRANSACTIONS. The Senior Indenture provides that the Company shall not, and shall not permit any Subsidiary to, enter into, assume, Guarantee or otherwise become liable with respect to any Sale and Leaseback Transaction, PROVIDED, that the Company may enter into (i) a Sale and Leaseback Transaction that, had such Sale and Leaseback Transaction been structured as a mortgage rather than as a Sale and Leaseback Transaction, the Company would have been permitted to enter into such transaction under the limitations described in "Senior Indenture Covenants -- Limitation on Indebtedness" and in clause (viii) of "Senior Indenture Covenants -- Limitation on Liens" above, (ii) with respect to any particular series of Securities issued pursuant to the Senior Indenture, a Sale and Leaseback Transaction entered into prior to the date of issuance of such series of Securities, (iii) a Sale and Leaseback Transaction the proceeds of which are applied to repayment of Other Senior Indebtedness and (iv) a Sale and Leaseback Transaction if within 90 days of entering into such arrangement, the Company makes a PRO RATA offer to all holders of any one or more series of Senior Debt Securities as may be selected by the Company to repurchase such Senior Debt Securities at 100% of their principal amount, plus accrued and unpaid interest through the date of repurchase, and in an aggregate amount equal to (x) the greater of the Net Proceeds of the sale of the Property leased pursuant to such Sale and 26 Leaseback Transaction or the Fair Market Value of the Property so leased at the time of entering into such Sale and Leaseback Transaction less (y) the amount of Net Proceeds which are applied to repayment of Other Senior Indebtedness. LIMITATION ON ASSET SALES. The Senior Indenture provides that neither the Company nor any Subsidiary shall consummate any Asset Sale unless (i) such sale is for Fair Market Value and (ii) at least 75% of the Net Proceeds thereof received by the Company or such Subsidiary is in the form of cash; PROVIDED, that for purposes of this covenant, securities received by the Company or any Subsidiary from such transferee that are promptly converted by the Company or such Subsidiary into cash shall be deemed to be cash, and PROVIDED FURTHER, that notwithstanding any other provision in this paragraph, the Company or any Subsidiary may consummate Asset Sales for which it receives aggregate Net Proceeds from the applicable purchaser or purchasers in an amount not to exceed $25,000,000 in connection with any and all such Asset Sales without regard to the foregoing limitation on receiving a specified percentage of the Net Proceeds in cash. To the extent the Company has not reinvested such Net Proceeds in Additional Assets or used such Net Proceeds to repay Other Senior Indebtedness within twelve months following the consummation of the Asset Sale (or in the case of Net Proceeds in the form of securities rather than cash, within twelve months after such securities become cash), the Company shall either apply such Net Proceeds (or any portion thereof) to the repayment of Other Senior Indebtedness or apply such Net Proceeds (or the remaining portion thereof) in accordance with the following sentence. If no Other Senior Indebtedness is outstanding at such time or the Company does not apply any or applies only a portion of such Net Proceeds to the repayment of Other Senior Indebtedness or the application of such Net Proceeds results in the payment of all outstanding Other Senior Indebtedness, then such Net Proceeds or any remaining portion thereof, in each case not so applied to the payment of Other Senior Indebtedness, shall be applied to a PRO RATA offer to all holders of any one or more series of Senior Debt Securities as may be selected by the Company to repurchase such Senior Debt Securities at 100% of their principal amount plus accrued and unpaid interest through the date of repurchase. Notwithstanding the foregoing, in the event the Net Proceeds resulting from any Asset Sale, after giving effect to any related repayment of Other Senior Indebtedness, are less than $10,000,000, the application of such Net Proceeds to a PRO RATA offer to all holders of any one or more series of Senior Debt Securities as may be selected by the Company to repurchase such Senior Debt Securities at 100% of their principal amount, plus accrued and unpaid interest, may be deferred until such time as such Net Proceeds, plus the aggregate amount of Net Proceeds resulting from any subsequent Asset Sale or Asset Sales not otherwise reinvested in Additional Assets or applied to repay Other Senior Indebtedness as required are at least equal to $10,000,000, at which time the Company shall apply all such Net Proceeds to a PRO RATA offer to all holders of any one or more series of Senior Debt Securities as may be selected by the Company to repurchase such Senior Debt Securities at 100% of their principal amount, plus accrued and unpaid interest through the date of repurchase. 27 Pending application thereof in accordance with the foregoing paragraph, the Company shall either apply the Net Proceeds of any Asset Sale to repay temporarily Other Senior Indebtedness or invest such Net Proceeds in Qualified Investments. LIMITATION ON INDEBTEDNESS AND PREFERRED STOCK OF SUBSIDIARIES. The Senior Indenture provides that the Company shall not permit any Subsidiary to incur, create, assume or Guarantee any Indebtedness or issue any preferred or preference stock, except for (i) with respect to any particular series of Securities issued pursuant to the Senior Indenture, preferred stock outstanding on the date of issuance of such series of Securities, (ii) Indebtedness permitted under the terms of the Indenture described under "Senior Indenture Covenants -- Limitation on Indebtedness" above, (iii) preferred stock issued to and held by the Company or a wholly owned Subsidiary (but only so long as held or owned by the Company or a wholly owned Subsidiary) and (iv) preferred stock issued by a Person prior to the time (a) such Person becomes a Subsidiary, (b) such Person merges with or into a Subsidiary or (c) a Subsidiary merges with or into such Person, PROVIDED that such preferred stock was not issued or incurred by such Person in anticipation of the type of transaction contemplated by subclauses (a), (b) or (c). The Senior Indenture contains no limitation on the amount of Indebtedness which any Unrestricted Subsidiary may incur, create, assume or Guarantee or on the amount of preferred or preference stock that any Unrestricted Subsidiary may issue. SUBORDINATED INDENTURE COVENANTS In addition to the covenants set forth under "Common Indenture Covenants" above, the Subordinated Indenture contains the following covenants, which shall be applicable to each series of Securities issued under the Subordinated Indenture unless otherwise provided in the Prospectus Supplement: LIMITATION ON OTHER SENIOR SUBORDINATED INDEBTEDNESS. The Subordinated Indenture provides that the Company will not incur, create, issue, assume, Guarantee or otherwise become liable for any Indebtedness which is expressly subordinate or junior in any respect in right of payment to any Senior Indebtedness and expressly senior in any respect in right of payment to the Senior Subordinated Debt Securities. LIMITATION ON INDEBTEDNESS. The Subordinated Indenture provides that the Company shall not, nor will it permit any of its Subsidiaries to, create, incur, assume, Guarantee or otherwise become liable with respect to, or become responsible for the payment of, any Indebtedness unless, after giving effect thereto, the Consolidated Interest Coverage Ratio of the Company would be greater than 1.7 to 1. Notwithstanding the foregoing, the Company and its Subsidiaries may incur, create, assume or Guarantee or otherwise become liable with respect to any or all of the following: (i) with respect to any particular series of Securities issued pursuant to the Subordinated Indenture, Indebtedness issued pursuant to either the Subordinated Indenture or the Senior Indenture at or prior to the issuance of such series of Securities; (ii) Indebtedness evidenced by the 10 1/4% Senior Notes, 10 3/8% Senior Notes, 11 1/2% Senior Notes, 13 3/4% Senior Subordinated Notes and 9 5/8% Senior Subordinated Notes; (iii) Indebtedness in an aggregate amount not to exceed the sum of 65% of the total inventory of the Company and its Subsidiaries (calculated on a "first-in, first-out" basis) and 85% of the total accounts receivable of the Company and its Subsidiaries; (iv) Indebtedness the proceeds of which are used to refinance (w) all or a portion of the Debt Securities which may be issued pursuant to the Subordinated Indenture or the Senior Indenture, (x) all or a portion of the 10 1/4% Senior Notes, the 10 3/8% Senior Notes, the 11 1/2% Senior Notes, the 13 3/4% Senior Subordinated Notes or the 9 5/8% Senior Subordinated Notes, (y) any other Indebtedness of the Company and its Subsidiaries (other than Indebtedness incurred, created, assumed or Guaranteed under clause (iii) above) or (z) successor or replacement Indebtedness, in each case in a principal amount not to exceed the principal amount so refinanced (or, if such Indebtedness provides for an amount less than the principal amount thereof to be due and payable upon a 28 declaration of acceleration of the maturity thereof, in an amount not greater than such lesser amount) plus any prepayment penalties and premiums (including the contractual premiums and any premium reasonably determined by the Company as necessary to accomplish such refinancing by means of a tender offer or privately negotiated repurchases), accrued and unpaid interest on the Indebtedness so refinanced, plus customary fees, expenses and costs related to the incurrence of such refinancing Indebtedness, PROVIDED that, in the case of this clause (iv), (1) with respect to any particular series of Securities issued pursuant to the Subordinated Indenture, if the Securities of such series are refinanced in part, such new Indebtedness is expressly made PARI PASSU or subordinate in right of payment to the remaining Securities of such series, (2) if the Indebtedness to be refinanced is PARI PASSU in right of payment to the Securities issued pursuant to the Subordinated Indenture, such new Indebtedness is expressly made PARI PASSU or subordinate in right of payment to the Securities issued pursuant to the Subordinated Indenture, (3) if the Indebtedness to be refinanced is subordinate in right of payment to the Securities issued pursuant to the Subordinated Indenture, such new Indebtedness is expressly made subordinate in right of payment to the Securities issued pursuant to the Subordinated Indenture, at least to the extent that the Indebtedness to be refinanced is subordinate to the Securities issued pursuant to the Subordinated Indenture, and (4) with respect to any particular series of Securities issued pursuant to the Subordinated Indenture, if the Securities of such series are refinanced in part, or if the Indebtedness to be refinanced is PARI PASSU or subordinate in right of payment to the Securities of any series issued pursuant to the Subordinated Indenture and scheduled to mature after the maturity date of the Securities of such series, such new Indebtedness as of the date of incurrence does not mature prior to the final scheduled maturity date of the Securities of such series and has an Average Life equal to or greater than the remaining Average Life of such series of Securities; (v) with respect to any particular series of Securities issued pursuant to the Subordinated Indenture, Indebtedness of the Company and its Subsidiaries remaining outstanding immediately after the date of issuance of such series of Securities; (vi) Indebtedness of the Company to a Subsidiary of the Company or Indebtedness of a Subsidiary of the Company to the Company or to another Subsidiary of the Company; (vii) Indebtedness incurred in connection with the refurbishment, improvement, construction or acquisition (whether by acquisition of stock, assets or otherwise) of any Property or Properties of the Company or a Subsidiary of the Company that constitute a part of the then present business of the Company or any Subsidiary of the Company (or incurred within twelve months of any such acquisition or the completion of such refurbishment, improvement or construction), PROVIDED that (a)(1) such Indebtedness, together with any other Indebtedness incurred during the preceding twelve-month period in reliance upon the exception of this clause (vii), does not exceed, in the aggregate, 3% of net sales and service fees of the Company and its Subsidiaries during the preceding twelve-month period on a consolidated basis and (2) such Indebtedness, together with all then outstanding Indebtedness incurred in reliance upon the exception of this clause (vii), does not exceed, in the aggregate, 3% of the aggregate net sales and service fees of the Company and its Subsidiaries during the preceding thirty-six months on a consolidated basis, or (b) such Indebtedness does not exceed the amount of proceeds received by the Company or any of its Subsidiaries from insurance policies maintained by the Company or any Subsidiary in respect of such Property or Properties; (viii) Indebtedness consisting of Guarantees by the Company or a Subsidiary of the Company of (a) other Indebtedness of the Company or any such Subsidiary, PROVIDED that such other Indebtedness is otherwise permitted under this covenant limiting incurrence of Indebtedness and (b) obligations of customers of the franchise or wholesale business of the Company or a Subsidiary of the Company which Guarantees are in the ordinary course of business consistent with the past practice of the Company or its Subsidiaries; 29 (ix) Indebtedness created by a Lien to which Property owned or held by the Company or a Subsidiary of the Company is subject, PROVIDED that the Indebtedness secured is Indebtedness of the Company or a Subsidiary of the Company which is otherwise permitted under this covenant limiting the incurrence of Indebtedness; (x) Indebtedness incurred in connection with a repurchase of Securities as described in "Mergers and Consolidations; Change of Control" and in connection with the repurchase of any notes of the Company which require the Company to repurchase such notes in the event of certain merger, consolidation or change of control transactions, in an aggregate principal amount not to exceed the aggregate repurchase price (equal to the repurchase price paid, including premium and accrued interest thereon through the date of repurchase) of the Securities and such other notes of the Company plus the amount of fees and expenses associated with the incurrence of such Indebtedness; (xi) Indebtedness under Interest Swap Obligations, PROVIDED that such Interest Swap Obligations are related to payment obligations on Indebtedness otherwise permitted under this covenant limiting the incurrence of Indebtedness and, in the aggregate, do not relate to a principal amount of Indebtedness in excess of the Indebtedness permitted under this covenant limiting the incurrence of Indebtedness; (xii) commercial letters of credit and standby letters of credit incurred in the ordinary course of business by the Company or its Subsidiaries; (xiii) Indebtedness represented by industrial revenue or development bonds, PROVIDED that the aggregate amount of Indebtedness incurred in reliance upon the exception of this clause (xiii) shall not exceed at any one time an aggregate principal amount outstanding of $25 million; (xiv) Capitalized Lease Obligations relating to Property used in the business of the Company or its Subsidiaries; (xv) Indebtedness incurred in respect of performance bonds and Guarantees and completion Guarantees incurred in the ordinary course of business and refinancings thereof; and (xvi) Indebtedness arising from the honoring by a bank or other financial institution of a check, draft or similar instrument inadvertently (except in the case of daylight overdrafts) drawn against insufficient funds in the ordinary course of business, PROVIDED that such Indebtedness is extinguished within five business days of its incurrence. The Subordinated Indenture contains no limitations on the amount of Indebtedness which any Unrestricted Subsidiary may incur, create, assume, Guarantee or otherwise become liable for. SUBORDINATION OF THE SENIOR SUBORDINATED DEBT SECURITIES The Senior Subordinated Debt Securities are subordinated to the prior payment of all Senior Indebtedness whether outstanding on the date of issuance of any series of Senior Subordinated Debt Securities or thereafter created, incurred, assumed or Guaranteed. Upon (i) the maturity of any Senior Indebtedness, including by acceleration, redemption or acceptance of an offer of prepayment or otherwise, or any default in the payment of any Senior Indebtedness when due or (ii) any distribution of the assets of the Company upon any liquidation, dissolution, bankruptcy, reorganization, or similar proceeding relating to the Company, the holders of Senior Indebtedness will be entitled to receive payment in full, in cash or Cash Equivalents or, as acceptable to the holders of Senior Indebtedness, in any other manner, before the holders of the Senior Subordinated Debt Securities are entitled to receive any payment (other than Permitted Junior Securities, as defined below), and any payment or distribution of assets of the Company of any kind or character, whether in cash, property or securities, by set-off or otherwise, to which the holders of the Senior Subordinated Debt Securities or the Trustee would be entitled but for the provisions of the Subordinated Indenture relating to subordination (excluding shares of Capital Stock of the Company or securities of the Company which are subordinated in right of payment to all Senior Indebtedness to substantially the same extent as the Senior Subordinated Debt 30 Securities are so subordinated, which shares of Capital Stock or other securities of the Company are issued pursuant to a plan of reorganization or readjustment (the "Permitted Junior Securities")) shall be paid by the liquidating trustee or agent or other person making such payment or distribution directly to the holders of Senior Indebtedness (or to the representatives or agents of such holders) ratably according to the aggregate amounts remaining unpaid on account of the Senior Indebtedness to the extent necessary to make payment in full of all Senior Indebtedness remaining unpaid, after giving effect to any concurrent payment or distribution to or for the holders of Senior Indebtedness. In the event that, notwithstanding the foregoing, the Trustee or any holder of Senior Subordinated Debt Securities shall have received payment or distribution of assets of the Company of any kind or character, whether in cash, property or securities, other than Permitted Junior Securities, in a manner prohibited by the provisions described in the preceding sentence, before all Senior Indebtedness is paid in full or payment thereof is provided for, then such payment or distribution will be paid over or delivered to the trustee in bankruptcy, receiver, liquidating trustee, custodian, assignee, agent or other person making payment or distribution of assets of the Company for application to the payment of all Senior Indebtedness remaining unpaid to the extent necessary to pay all Senior Indebtedness in full, in cash or Cash Equivalents or, as acceptable to the holders of Senior Indebtedness, any other manner, after giving effect to any concurrent payment or distribution to or for the holders of Senior Indebtedness. In the event of the occurrence of any continuing default (other than a payment default) with respect to Designated Senior Indebtedness permitting acceleration of the maturity thereof, and upon receipt by the Company and the Trustee of notice (from a Person entitled to give such notice) of such occurrence and requiring payments on the Senior Subordinated Debt Securities to cease, no payment or other distribution may be made on the Senior Subordinated Debt Securities for a period of 179 days after such notice, but payments may be resumed upon cure or waiver of such default, discharge or payment in full, in cash or cash equivalents of such Designated Senior Indebtedness, written notice of termination of the 179-day period by the Person initiating such period to the Company or the Trustee or at the conclusion of the 179-day period, unless (i) such default is then the subject of judicial proceedings to determine whether it in fact is a default with respect to Designated Senior Indebtedness, (ii) Designated Senior Indebtedness shall have been accelerated and not paid in full and such acceleration shall not have been rescinded or (iii) a payment default shall have occurred and be continuing under Designated Senior Indebtedness (in which case payments may be resumed on the first day after the 179-day period on which the event specified in clause (i), (ii) or (iii), as the case may be, shall no longer be continuing). The Subordinated Indenture provides that only one notice relating to the same event of default or any other event of default (other than a payment default) on the same issue of Designated Senior Indebtedness existing on the date of such notice and known to the Person giving such notice may be given during any 360-day period and any default (other than a payment default) that serves as a basis for such a notice may not be the basis for a second such notice unless such default has been cured or waived for a period of at least 90 days. The failure to make a payment of the principal of or interest on any series of the Senior Subordinated Debt Securities because of such restrictions shall not be construed as preventing the occurrence of an Event of Default or impairing the right to accelerate the maturity of such series of the Senior Subordinated Debt Securities upon the occurrence thereof. MERGERS AND CONSOLIDATIONS; CHANGE OF CONTROL MERGERS AND CONSOLIDATIONS; PAYMENT AT HOLDERS' OPTION. Each Indenture provides that the Company shall not consolidate or merge with or into, or transfer, sell or lease all or substantially all of its Property to, any Person (except a wholly owned Subsidiary of the Company which is a United States corporation with a positive consolidated net worth, provided that following and after giving effect to such consolidation, merger, transfer, sale or lease there exists no Default or Event of Default under the Indenture) unless (i)(a) the Company is the surviving corporation in the case of a consolidation or merger and its Voting Stock is not changed into or exchanged for cash, securities or other Property of another corporation or (b) the corporation formed by such consolidation or merger or to which such transfer, sale or lease occurs is a United States corporation and such corporation unconditionally assumes by supplemental indenture all of the obligations of the Company under the Indenture and (ii) immediately 31 after giving effect to such transaction there exists no Default or Event of Default under the Indenture. In the event that immediately after and giving effect to any such consolidation, merger, transfer, sale or lease permitted under the foregoing provisions (except such transaction with or to a wholly owned Subsidiary of the Company which is a United States corporation with a positive consolidated net worth) and any financings or other transactions in connection therewith the Consolidated Interest Coverage Ratio of the surviving corporation is less than 1.7 to 1, each Holder shall have the right to require the surviving corporation to repurchase any Security held by such Holder, in whole but not in part, at a purchase price in cash equal to 101% of its principal amount plus accrued interest, after the consummation of any such merger, consolidation, transfer, sale or lease and the Indebtedness of the surviving corporation, after giving effect to such transaction and any financing or other transactions in connection therewith, shall not be deemed to have been incurred in violation of any covenant of the Indenture. In addition, certain mergers may constitute a Change of Control that would give each Holder the right to require the Company to repurchase any Security held by such Holder at a purchase price in cash equal to 101% of its principal amount plus accrued interest. See "Change of Control" below. The Company shall give Holders notice of such right of repurchase not less than 20 nor more than 60 business days prior to the date of such consummation, mailed by first-class mail to the Holders' last addresses as they appear upon the register. Holders will be entitled to have their Securities repurchased if such Securities are tendered for repurchase at least five business days prior to the consummation of such transaction. Holders shall be entitled to withdraw Securities so tendered until five business days prior to the consummation of such transaction. Notwithstanding that the Company shall have given any such notice, the Company shall have no obligation to repurchase any Securities if the merger, consolidation, transfer, sale or lease which is the subject of any such notice is not consummated. CHANGE OF CONTROL. In the event of a Change of Control with respect to the Company, each Holder shall have the right to require the Company to repurchase any Security held by such Holder at a purchase price in cash equal to 101% of its principal amount plus accrued interest, after the occurrence of such Change of Control. The Company shall give Holders notice of such right of repurchase not more than 45 business days following such Change of Control, mailed by first-class mail to the Holders' last addresses as they appear upon the register. Holders will have the right to have their Securities repurchased if such Securities are tendered for repurchase no later than five business days prior to the applicable repurchase date. The Change of Control provision of the Securities may make more difficult or discourage a takeover of the Company. In the event that the Company is required to repurchase the Securities, the Company intends to comply with any applicable securities laws and regulations, including any applicable requirements of Section 14(e) of, and Rule 14e-1 under, the 1934 Act. The indentures relating to the Company's 10 1/4% Senior Notes, 10 3/8% Senior Notes, 11 1/2% Senior Notes and 9 5/8% Senior Subordinated Notes contain similar change of control provisions which would be triggered in the event of a Change of Control. In addition, a Change of Control would constitute an Event of Default under the Company's Revolving Credit Facility. Any repurchase of Senior Debt Securities would be effectively subordinated to any secured Indebtedness of the Company (including the Revolving Credit Facility) with respect to the pledged assets. Any repurchase of the Senior Subordinated Debt Securities would be subordinated to the Senior Debt Securities, the 10 1/4% Senior Notes, the 10 3/8% Senior Notes, the 11 1/2% Senior Notes, the Company's Revolving Credit Facility and any other Senior Indebtedness. EVENTS OF DEFAULT Each Indenture defines the following events as "Events of Default" with respect to any series of Debt Securities issued thereunder: (i) the failure to pay interest on any Debt Security of such series for a period of 15 days after such interest becomes due and payable; (ii) the failure to pay the principal of or any premium on any Debt Security of such series when such principal or premium becomes due and payable, at maturity or otherwise; (iii) a default in the observance of any other agreement or covenant (other than a covenant whose performance is elsewhere in this section specifically dealt with or which 32 expressly has been included in the Indenture solely for the benefit of series of Debt Securities issued pursuant to such Indenture other than that series) contained in the Indenture that continues for 30 days after the Company has been given notice of the default by the Trustee or the holders of 25% in principal amount of the outstanding Debt Securities of that series; (iv) a default on other Indebtedness of the Company or any Subsidiary (including a default on Debt Securities issued pursuant to such Indenture other than that series) having an outstanding principal amount of more than $1,000,000 individually or in the aggregate if such Indebtedness has attained final maturity or if the holders of such Indebtedness have accelerated payment thereof under the terms of the instrument under which such Indebtedness is or may be outstanding and it remains unpaid; (v) one or more judgments or decrees have been entered against the Company or any Subsidiary involving a liability (not paid by insurance) of $1,000,000 or more in the case of any one such judgment or decree or $1,000,000 or more in the aggregate for all such judgments and decrees for the Company and all its Subsidiaries and all such judgments or decrees have not been vacated, discharged or stayed or bonded pending appeal within 60 days from the entry thereof; (vi) certain events of bankruptcy, insolvency, or reorganization affecting the Company or any Subsidiary; and (vii) any other Event of Default provided with respect to Debt Securities of such series. No Event of Default (except an Event of Default described in clause (vi) above) with respect to a particular series of Debt Securities issued under any Indenture necessarily constitutes an Event of Default with respect to any other series of Debt Securities issued under such Indenture or any other Indenture. Each Indenture provides that the Trustee with respect to any series of Debt Securities issued thereunder, within 90 days after the occurrence of an Event of Default with respect to such series of Debt Securities that is continuing and is known to a Trust Officer of the Trustee, will give notice thereof to the holders of the Debt Securities of such series; PROVIDED, HOWEVER, that, except in the case of a default in payment of principal of or interest on any series of Debt Securities, the Trustee may withhold such notice as long as it in good faith determines that such withholding is in the interest of the holders of such series of Debt Securities. If an Event of Default (other than an Event of Default described in clause (vi) above) with respect to Debt Securities of any series at the time outstanding occurs and is continuing, the Trustee or the Holders of not less than 25% in principal amount of the outstanding Debt Securities of that series, by notice in writing, may declare to be due and payable immediately the principal amount of such series of Debt Securities, plus accrued interest. If an Event of Default described in clause (vi) above occurs and is continuing, the principal amount of all outstanding Debt Securities, plus accrued interest, shall be due and payable without any declaration or any act on the part of the Trustee or the holders of any series of Debt Securities. Any declaration of acceleration by the Trustee or the Holders of any series of Debt Securities may be rescinded and past defaults may be waived (except, unless theretofore cured, a default in payment of principal or interest) by the holders of a majority in principal amount of such series of Debt Securities upon conditions provided in the Indenture. Except to enforce the right to receive payment of principal or interest when due, no holder of any series of Debt Securities may institute any proceeding with respect to the Indenture or for any remedy thereunder unless such holder has previously given to the Trustee written notice of a continuing Event of Default and unless the holders of at least 25% in principal amount of such series of Debt Securities have requested the Trustee to pursue remedies in respect of such Event of Default and have offered the Trustee indemnity satisfactory to the Trustee against loss, liability, or expense to be thereby incurred and the Trustee has failed so to act for 60 days after receipt of the same. Subject to certain restrictions, the holders of a majority in principal amount of the outstanding Debt Securities of any series are given the right to direct the time, method, and place of conducting any proceeding for any remedy available to the Trustee or exercising any trust or power conferred on the Trustee with respect to such series of Debt Securities. The Trustee, however, may refuse to follow any direction that conflicts with law or the Indenture, that is unduly prejudicial to the rights of any holder of such series of Debt Securities or that would subject the Trustee to personal liability. 33 The Company is required to deliver to the Trustee for each series of Securities issued pursuant to the Senior Indenture or the Subordinated Indenture, as applicable, within 120 days after the end of each fiscal year of the Company, a certificate indicating whether the Company has complied with the terms of the Indenture and whether an Event of Default exists. SATISFACTION AND DISCHARGE OF INDENTURE; DEFEASANCE Each Indenture provides that the Company may terminate its obligations with respect to any series of Debt Securities issued thereunder at any time by delivering all outstanding Debt Securities of such series to the Trustee for cancellation. The Company, at its option, (i) will be Discharged (as defined) from any and all obligations with respect to Debt Securities of such series (except for certain obligations of the Company to register the transfer or exchange of Debt Securities of such series, replace stolen, lost, or mutilated Debt Securities of such series, maintain paying agencies, and hold moneys for payment in trust and to compensate the Trustee as provided in the Indenture) or (ii) need not comply with certain restrictive covenants in the applicable Indenture, in each case if the Company deposits with the Trustee, in trust, money or U.S. Government Obligations which, through the payment of interest thereon and principal thereof in accordance with their terms, will provide money in an amount sufficient to pay all the principal of and interest on the Debt Securities of such series on the dates such payments are due in accordance with the terms of such series of Debt Securities. To exercise any such option, the Company is required to deliver to the Trustee (a) an opinion of counsel to the effect that the deposit and related defeasance would not cause the holders of such series of Debt Securities to recognize income, gain, or loss for federal income tax purposes and, in the case of a Discharge pursuant to clause (i) above, accompanied by a ruling to such effect received from or published by the United States Internal Revenue Service and (b) an officers' certificate and an opinion of counsel to the effect that all conditions precedent to the defeasance have been complied with. REPORTS TO HOLDERS Each Indenture provides that so long as the Company is subject to the periodic reporting requirements of the 1934 Act, it will continue to furnish the information required thereby to the Commission and to the holders of the Debt Securities of each series. Each Indenture further provides that even if the Company is entitled under the 1934 Act not to furnish such information to the Commission or to the holders of Debt Securities, it will nonetheless continue to furnish such information to the Commission, the Trustee and the holders of Debt Securities as if it were subject to such periodic reporting requirements. NO PERSONAL LIABILITY OF SHAREHOLDERS, OFFICERS, DIRECTORS AND EMPLOYEES Each Indenture provides that no shareholder, officer, director or employee, as such, of the Company shall be liable for any failure by the Company to pay any amounts on any series of Debt Securities when due or to perform any obligation of the Company pursuant to any series of Debt Securities or the Indenture. MODIFICATION OF THE INDENTURE Each Indenture provides that from time to time, the Company and the Trustee, without the consent of the holders of any series of Debt Securities, may amend the Indenture or such series of Debt Securities for certain specified purposes, including curing ambiguities, defects, or inconsistencies and making any change that does not adversely affect the rights of any holder of such series of Debt Securities. Other modifications and amendments of the Indenture or the Debt Securities of any series may be made with the consent of the holders of a majority in principal amount of then outstanding Debt Securities of each series affected by such modification or amendment, except that, without the consent of the Holders of each Debt Security then outstanding affected thereby, no amendment may reduce the remaining principal amount of, or rate of interest on, any Debt Security, change the date on which payment of principal or interest is due or the currency in which it is payable, change the date on which any Debt Security may be subject to redemption, reduce the redemption price, change the ranking of any series of Debt Securities with respect to any other obligation of the Company in a way that adversely affects the rights of the Holders of such series of Debt Securities, or reduce the percentage of holders 34 necessary to modify or alter the Indenture or the Debt Securities. The Subordinated Indenture provides that no modification or amendment of the Subordinated Indenture may be made the effect of which is directly or indirectly to terminate or impair the rights of holders of Senior Indebtedness pursuant to the subordination provisions set forth in the Subordinated Indenture. THE TRUSTEES Each Indenture provides that, except during the continuance of an Event of Default, the Trustee will perform only such duties as are specifically set forth in the Indenture. During the existence of an Event of Default, the Trustee will exercise such rights and powers vested in it under the Indenture and use the same degree of care and skill in its exercise as a prudent man would exercise under the circumstances in the conduct of his own affairs. Each Indenture, including the provisions of the Trust Indenture Act of 1939, as amended, incorporated by reference therein, contains limitations on the rights of the Trustee, should it become a creditor of the Company, to obtain payment of claims in certain cases or to realize on certain property received by it in respect of any such claim as security or otherwise. The Trustee is permitted to engage in other transactions with the Company or any Affiliate, PROVIDED, HOWEVER, that if it acquires any conflicting interest (as defined in the Indenture or in the Trust Indenture Act of 1939, as amended), it must eliminate such conflict or resign. CERTAIN TRANSACTIONS The Company has engaged Miller Tabak Hirsch + Co. ("MTH") as a financial advisor and investment banker for Fiscal 1994 for an annual fee of $1,324,000, payable in twelve equal monthly installments. Penn Traffic had in effect through January 30, 1993 an agreement with MTH providing for financial consulting and business management services. Under this agreement, Penn Traffic paid MTH annual fees of $1,282,000 in Fiscal 1993, $1,250,000 in Fiscal 1992 and $1,000,000 in Fiscal 1991. Although the fees under the engagement agreements described above were not negotiated at arms' length, the management of the Company believes that the terms of such engagements were and are no less favorable to Penn Traffic than could have been obtained in transactions negotiated at arms' length with unaffiliated third parties. In addition to services to be provided pursuant to the current engagement agreement described above, it is anticipated that MTH will periodically provide investment banking services to Penn Traffic in connection with acquisition and other transactions for which MTH will receive reasonable and customary fees. Upon the issuance of any Debt Securities, MTH will receive a fee equal to 0.25% of the aggregate principal amount of Debt Securities issued. During Fiscal 1994, MTH has received a fee of $1,000,000 for services relating to the April 1993 Offerings and the mergers of P&C and Big Bear into Penn Traffic. During Fiscal 1993, MTH received a fee of $400,000 for its services in connection with assisting the Company with the Schmitt Acquisition and fees aggregating $750,000 for services relating to the offering of $100 million principal amount of the 10 3/8% Senior Notes and to the offering of $125 million principal amount of the 10 1/4% Senior Notes. During Fiscal 1992, MTH received fees aggregating $750,000 for services relating to the arrangement of the Company's prior secured term loan, the merger of P&C into a wholly owned subsidiary of the Company and the issuance by P&C of the 11 1/2% Senior Notes. In Fiscal 1991, MTH received a fee of $100,000 for its services to arrange for a $10 million increase in the Company's revolving credit facility. Management believes that the amounts of all of such fees are reasonable and customary. 35 Penn Traffic holds an indirect ownership interest representing approximately 17.8% of the common stock of Grand Union Holdings, the indirect corporate parent of Grand Union, on a fully diluted basis. Penn Traffic's ownership interest in Grand Union Holdings was acquired in July 1989 (Fiscal 1990) and is held through GAC Holdings Limited Partnership ("GAC Holdings"), whose other investors include MTH and individuals affiliated with MTH, certain management employees of Penn Traffic and other investors. At the time of the acquisition of Grand Union by Grand Union Holdings, Grand Union and P&C operated stores in some of the same geographic areas in Vermont and upstate New York. In connection with the acquisition, agreements were entered into with federal and state antitrust authorities which required the divestiture of 16 Grand Union stores or P&C stores. The divestitures required by these agreements were completed on July 30, 1990. Thirteen of the sixteen stores divested were P&C stores, and three were Grand Union stores. In a related transaction, on July 30, 1990 Penn Traffic entered into the Operating Agreement whereby Grand Union acquired the right to operate P&C's thirteen remaining stores in New England under the Grand Union name until July 2000, with an option to extend the term of such operation for an additional five years. Penn Traffic also granted Grand Union an option to purchase such stores. In connection with these transactions, Grand Union agreed to pay Penn Traffic a minimum annual fee which will average $10.7 million per year during the ten-year lease term plus, beginning with the year commencing July 31, 1992, additional contingent fees of up to $700,000 per year based upon sales performance of the stores operated by Grand Union. In addition, Grand Union paid Penn Traffic $7.5 million for the option to purchase the stores. Under the terms of the Operating Agreement, the recapitalization of Grand Union which occurred on July 22, 1992 triggered a $15 million prepayment of an operating fee. Such prepayment will reduce future payments made by Grand Union to Penn Traffic pursuant to the terms of the Operating Agreement by approximately $3.2 million per year. Grand Union purchases frozen bakery products from Penn Traffic's Penny Curtiss bakery, and Penn Traffic purchases products from Grand Union's commissary. All of such purchases are made in the ordinary course of business. The amount of frozen bakery products purchased by Grand Union from Penny Curtiss was approximately $3.1 million in Fiscal 1993, $2.6 million in Fiscal 1992 and $1.4 million in Fiscal 1991. The amount of commissary product purchased by Penn Traffic from Grand Union in Fiscal 1993 was approximately $0.5 million in Fiscal 1993, $0.8 million in Fiscal 1992 and $0.9 million in Fiscal 1991. In late September 1993, Penn Traffic entered into a program to consolidate the purchasing and distribution of health and beauty care products and of general merchandise with Grand Union. Under this program, Grand Union procures health and beauty care products for both Grand Union and Penn Traffic, and Penn Traffic, through its Big Bear division, procures general merchandise for both Penn Traffic and Grand Union. Grand Union's general merchandise warehouse in Montgomery, New York will be used to distribute general merchandise and health and beauty care products to P & C Foods, Quality Markets, Riverside Markets and Bi-Lo Foods stores, and to supply Penn Traffic's wholesale customers, as well as Grand Union stores. The implementation of this program is scheduled to be completed during the first quarter of Fiscal 1995. Penn Traffic owns both the general merchandise and health and beauty care products inventory located at the Montgomery, New York warehouse. Under this arrangement, the cost of operating the Montgomery warehouse is being shared by Penn Traffic in an amount proportionate to Penn Traffic's usage of the facility. TERMS OF FINANCING AGREEMENTS The description of Penn Traffic's financing agreements which follows does not purport to be complete and is subject to and qualified in its entirety by reference to such financing agreements, all of which have been filed with the Commission. In April 1993, Penn Traffic entered into a new revolving credit facility (the "Revolving Credit Facility") with NatWest, as Agent for a group of lending institutions. The Revolving Credit Facility replaced three separate existing revolving credit facilities of Penn Traffic, P&C and Big Bear which were in effect until the 36 mergers of P&C and Big Bear into Penn Traffic. The Revolving Credit Facility provides for borrowings of up to $200 million, subject to a borrowing base limitation measured by the Company's eligible inventory and accounts receivable. The Revolving Credit Facility matures April 30, 2000 and is secured by a pledge of the Company's inventory, accounts receivable and related assets. The Revolving Credit Facility bears interest at a rate per annum, at the Company's option, equal to the Base Rate (as defined) plus 1% or LIBOR (as defined) plus 2.5% until such time as the Company has reported an interest coverage ratio on a trailing four-quarter basis (defined generally as the ratio of earnings before interest expense, income taxes, depreciation, amortization, LIFO provision and extraordinary items to cash interest expense) of 2:1, at which point the Revolving Credit Facility will bear interest at a rate per annum, at the Company's option, equal to the Base Rate plus .75% or LIBOR plus 2.25%. Indebtedness under the Revolving Credit Facility ranks pari passu with the Company's other senior debt, including the 11 1/2% Senior Notes, the 10 1/4% Senior Notes and the 10 3/8% Senior Notes, and will rank pari passu with any Debt Securities which are designated as Senior Debt Securities (see "Description of Debt Securities"); however, unlike the 11 1/2% Senior Notes, the 10 1/4% Senior Notes and the 10 3/8% Senior Notes and unlike any Debt Securities, indebtedness under the Revolving Credit Facility is secured. The Revolving Credit Facility requires the Company to meet certain financial tests, including minimum net worth, minimum cumulative EBITDA and minimum interest coverage ratios. The Revolving Credit Facility contains covenants which, among other things, restrict capital expenditures and investments and limit the incurrence of additional indebtedness, transactions with affiliates, mergers and consolidations, liens and encumbrances and other matters customarily restricted in such agreements. In addition, the Revolving Credit Facility prohibits the payment of dividends. The Company had approximately $49 million of available and unused credit under the Revolving Credit Facility at October 30, 1993. The 11 1/2% Senior Notes are redeemable in whole or in part at the redemption prices expressed in percentages of the principal amount of 104.25% in 1996, 102.25% in 1997 and 100.0% in 1998 and thereafter, beginning October 15 of the applicable year. The 10 1/4% Senior Notes are redeemable in whole or in part at the redemption prices expressed in percentages of the principal amount of 104.0% in 1997, 102.0% in 1998 and 100.0% in 1999 and thereafter, beginning February 15 of the applicable year. The 10 3/8% Senior Notes are redeemable in whole or in part at the redemption prices expressed in percentages of the principal amount of 104.0% in 1997, 102.67% in 1998, 101.33% in 1999 and 100.0% in 1999 and thereafter, beginning October 1 of the applicable year. The indentures relating to the 11 1/2% Senior Notes, the 10 1/4% Senior Notes and the 10 3/8% Senior Notes contain certain covenants, including a restriction on incurrence of indebtedness by Penn Traffic and certain of its subsidiaries, a restriction on the incurrence of liens on the properties or assets of Penn Traffic and certain of its subsidiaries, and a limitation on the payment of dividends to Penn Traffic's common shareholders. The indentures also provide that, in the event of a change in control of Penn Traffic (as defined) or in the event of a merger or consolidation of Penn Traffic where, immediately after such merger or consolidation, the surviving corporation does not meet a specified interest coverage ratio, each holder of 11 1/2% Senior Notes, 10 1/4% Senior Notes or 10 3/8% Senior Notes has the right to require Penn Traffic to repurchase any note held by such holder at a purchase price in cash equal to 101% of its principal amount plus accrued interest. The right of holders to have their notes repurchased in the event of a change in control or in the event of certain mergers or consolidations may make more difficult or discourage a takeover of Penn Traffic. The 13 3/4% Senior Subordinated Notes due 1999 are redeemable in whole or in part at the redemption prices expressed in percentages of the principal amount of 104.0% in 1994, 102.0% in 1995, 101.0% in 1996 and 100.0% in 1997 and thereafter, beginning June 15 of the applicable year. The 9 5/8% Senior Subordinated Notes due 2005 are redeemable in whole or in part at the redemption prices expressed in percentages of the principal amount of 104.0% in 1998, 102.67% in 1999, 101.33% in 2000 and 100.0% in 2001 and thereafter, beginning April 15 of the applicable year. The indentures relating to the 13 3/4% Senior Subordinated Notes and to the 9 5/8% Senior Subordinated Notes contain certain covenants, including a restriction on incurrence of indebtedness by Penn Traffic and certain of its subsidiaries and a limitation on the payment of dividends to Penn Traffic's common shareholders. The indentures also provide that, in the event of a change in control of Penn Traffic (as defined) or in the event of a merger or 37 consolidation of Penn Traffic where, immediately after such merger or consolidation, the surviving corporation does not meet a specified interest coverage ratio, each holder of 13 3/4% Senior Subordinated Notes or 9 5/8% Senior Subordinated Notes has the right to require Penn Traffic to repurchase any note held by such holder at a purchase price in cash equal to 101% of its principal amount plus accrued interest. Any repurchase of 13 3/4% Senior Subordinated Notes or 9 5/8% Senior Subordinated Notes would be subordinated to the 11 1/2% Senior Notes, the 10 1/4% Senior Notes, the 10 3/8% Senior Notes, the Revolving Credit Facility and any Senior Debt Securities or other Senior Indebtedness (as defined). The right of holders to have their notes repurchased in the event of a change in control or in the event of certain mergers or consolidations may make more difficult or discourage a takeover of Penn Traffic. Penn Traffic is in compliance with all the terms and restrictive covenants of its debt agreements as of and for the quarter ended July 31, 1993. PLAN OF DISTRIBUTION The Company may sell Debt Securities to or through underwriters, and also may sell Debt Securities directly to other purchasers or through agents. The distribution of Debt Securities may be effected from time to time in one or more transactions at a fixed price or prices, which may be changed, or at market prices prevailing at the time of sale, at prices related to such prevailing market prices or at negotiated prices. In connection with the sale of Debt Securities, underwriters may receive compensation from the Company or from purchasers of Debt Securities for whom they may act as agents in the form of discounts, concessions or commissions. Underwriters may sell Debt Securities to or through dealers, and such dealers may receive compensation in the form of discounts, concessions or commissions from the underwriters and/or commissions from the purchasers for whom they may act as agents. Underwriters, dealers and agents that participate in the distribution of Debt Securities may be deemed to be underwriters, and any discounts or commissions received by them from the Company and any profit on the resale of Debt Securities by them may be deemed to be underwriting discounts and commissions under the 1933 Act. Any such underwriter or agent will be identified and any such compensation received from the Company will be described in the Prospectus Supplement. Under agreements which may be entered into by the Company, underwriters and agents who participate in the distribution of Debt Securities may be entitled to indemnification by the Company against certain liabilities, including liabilities under the 1933 Act. If so indicated in the Prospectus Supplement, the Company will authorize underwriters or other persons acting as the Company's agents to solicit offers by certain institutions to purchase Debt Securities from the Company pursuant to contracts providing for payment and delivery on a future date. Institutions with which such contracts may be made include commercial and savings banks, insurance companies, pension funds, investment companies, educational and charitable institutions and others, but in all cases such institutions must be approved by the Company. The obligations of any purchaser under any such contract will be subject to the condition that the purchase of the Debt Securities shall not at the time of delivery be prohibited under the laws of the jurisdiction to which such purchaser is subject. The underwriters and such other agents will not have any responsibility in respect of the validity or performance of such contracts. VALIDITY OF THE DEBT SECURITIES The validity of the Debt Securities offered hereby will be passed upon for Penn Traffic by Donovan Leisure Newton & Irvine, New York, New York, and for any underwriters by Sullivan & Cromwell, New York, New York. Such counsel will express no opinion as to federal or state laws relating to fraudulent transfers. See "Certain Factors -- Fraudulent Conveyance." 38 EXPERTS The consolidated financial statements of Penn Traffic incorporated in this Prospectus by reference to the Annual Report on Form 10-K for the fiscal year ended January 30, 1993, as amended by Amendment No. 1 thereto filed on Form 10-K/A on May 21, 1993 and by Amendment No. 2 thereto filed on Form 10-K/A on November 29, 1993, and the statements of assets acquired and of store level operations of the Insalaco Supermarkets acquired by Penn Traffic for the fiscal year ended January 2, 1993 appearing in Amendment No. 1 dated November 24, 1993 to Penn Traffic's Form 8-K dated October 8, 1993, have been so incorporated in reliance on the reports of Price Waterhouse, independent accountants, given on the authority of said firm as experts in accounting and auditing. Documents incorporated herein by reference in the future will include financial statements, related schedules (if required) and auditors' reports which financial statements and schedules will have been audited to the extent and for the periods set forth in such reports by the firm or firms rendering such reports and, to the extent such financial statements are so audited and to the extent that consent to incorporation by reference is given, will be incorporated herein by reference in reliance upon such reports given upon the authority of such firms as experts in accounting and auditing. 39 - ---------------------------------------------- ---------------------------------------------- - ---------------------------------------------- ---------------------------------------------- NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED. THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS DO NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES DESCRIBED IN THIS PROSPECTUS SUPPLEMENT OR AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS NOR ANY SALE MADE HEREUNDER OR THEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN OR THEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE OF SUCH INFORMATION. ------------------------ TABLE OF CONTENTS PROSPECTUS SUPPLEMENT
PAGE --------- Summary............................................ S-3 Certain Factors.................................... S-6 Recent Same Store Sales Information................ S-7 Use of Proceeds.................................... S-8 Capitalization..................................... S-9 Selected Consolidated Financial Data............... S-10 Description of Senior Notes........................ S-13 Underwriting....................................... S-16 Validity of the Senior Notes....................... S-16 PROSPECTUS Available Information.............................. 2 Incorporation of Certain Documents by Reference.... 2 The Penn Traffic Company........................... 3 Recent History..................................... 4 Certain Factors.................................... 5 Ratio of Earnings to Fixed Charges................. 7 Use of Proceeds.................................... 7 Description of Debt Securities..................... 8 Certain Transactions............................... 35 Terms of Financing Agreements...................... 36 Plan of Distribution............................... 38 Validity of the Debt Securities.................... 38 Experts............................................ 39
$100,000,000 THE PENN TRAFFIC COMPANY % SENIOR NOTES DUE , 2006 ----------- PROSPECTUS SUPPLEMENT ----------- GOLDMAN, SACHS & CO. BT SECURITIES CORPORATION MORGAN STANLEY & CO. INCORPORATED - ---------------------------------------------- ---------------------------------------------- - ---------------------------------------------- ---------------------------------------------- -----END PRIVACY-ENHANCED MESSAGE-----