-----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, Vo0+ee3G+qjgvtBnwHPD6PwWCDTnyzGFdfLqR75dr3uvBxo1594FrIbrRYMzas7Q cl7BdfpSvFGrb/G4idbzhw== 0000950142-99-000295.txt : 19990422 0000950142-99-000295.hdr.sgml : 19990422 ACCESSION NUMBER: 0000950142-99-000295 CONFORMED SUBMISSION TYPE: T-3 PUBLIC DOCUMENT COUNT: 7 FILED AS OF DATE: 19990421 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: T-3 SEC ACT: SEC FILE NUMBER: 022-22427 FILM NUMBER: 99598211 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 T-3 1 FORM T-3 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. FORM T-3 FOR APPLICATIONS FOR QUALIFICATION OF INDENTURES UNDER THE TRUST INDENTURE ACT OF 1939 THE PENN TRAFFIC COMPANY - -------------------------------------------------------------------------------- (Name of applicant) 1200 STATE FAIR BOULEVARD, SYRACUSE, NEW YORK 13221 - -------------------------------------------------------------------------------- (Address of principal executive offices) SECURITIES TO BE ISSUED UNDER THE INDENTURE TO BE QUALIFIED TITLE OF CLASS AMOUNT -------------- ------ 11% Senior Notes due 2009 $100,000,000 Approximate date of issuance: June 1, 1999 Name and address of agent for service: Francis D. Price, Esq. The Penn Traffic Company. 1200 State Fair Boulevard Syracuse, New York 13221 (315) 453-7284 With a copy to: Douglas A. Cifu, Esq. Paul, Weiss, Rifkind, Wharton & Garrison 1285 Avenue of the Americas New York, New York 10019-6064 (212) 373-3000 The applicant hereby amends this application for qualification on such date or dates as may be necessary to delay its effectiveness until (i) the 20th day after the filing of a further amendment which specifically states that it shall supersede this amendment, or (ii) such date as the Commission, acting pursuant to Section 307(c) of the Trust Indenture Act of 1939, as amended (the "Act"), may determine upon the written request of the applicant. GENERAL 1. GENERAL INFORMATION. Furnish the following as to the applicant: (a) Form or organization. A corporation. (b) State or other sovereign power under the laws of which organized. Delaware. 2. SECURITIES ACT EXEMPTION APPLICABLE. State briefly the facts relied upon by the applicant as a basis for the claim that registration of the indenture securities under the Securities Act of 1933 is not required. The Penn Traffic Company, a Delaware corporation (the "Company"), proposes to issue, as part of the Joint Plan of Reorganization of the Company and certain of its subsidiaries, dated March 1, 1999 (the "Plan of Reorganization"), its 11% Senior Notes due _________ __, 2009 (the "Senior Notes"). Pursuant to the Plan of Reorganization, the Company's (i) 11-1/2% Senior Notes due 2001, (ii) 10-1/4% Senior Notes due 2002, (iii) 8-5/8% Senior Notes due 2003, (iv) 10-3/8 Senior Notes due 2004, (v) 10.65% Senior Notes due 2004, and (vi) 11-1/2% Senior Notes due 2006 (collectively "Old Senior Notes") and 9-5/8% Senior Subordinated Debentures due 2005 ("Old Subordinated Notes"), will be exchanged in their entirety for the Senior Notes, common stock of the Company and warrants to purchase the Company's common stock in the amounts specified in the Plan of Reorganization. On April 5, 1999 the United States Bankruptcy Court for the District of Delaware (the "Bankruptcy Court") approved the Company's Disclosure Statement accompanying the Plan of Reorganization (the "Disclosure Statement") as containing "adequate information" for the purpose of soliciting votes of holders of claims (including holders of Old Senior Notes and Old Subordinated Notes) or stock interests in the Company for acceptance or rejection of the Plan of Reorganization (Case No. 99-462 (PJW)). A copy of the Disclosure Statement, with the Plan of Reorganization annexed thereto as an exhibit, is attached hereto as Exhibit T3E. The Senior Notes are to be issued under an indenture (the "Senior Note Indenture") between the Company and IBJ Whitehall Bank and Trust Company, a form of which is attached hereto as Exhibit T3C. The Company believes that the issuance of the Senior Notes is exempt from the registration requirements of the Securities Act of 1933 (the "Securities Act") pursuant to Section 1145(a)(1) of the United States Bankruptcy Code (the "Bankruptcy Code"). Generally, Section 1145(a)(1) of the Bankruptcy Code exempts the issuance of securities from the registration requirements of the Securities Act and equivalent state securities and "blue sky" laws if the following conditions are satisfied: (i) the securities are issued by a debtor, an affiliate participating in a joint plan of reorganization with the debtor, or a successor of the debtor under a plan of reorganization, (ii) the recipients of the securities hold a claim against, an interest in, or a claim for an administrative expense against, the debtor, and (iii) the securities are issued entirely in exchange for the recipient's claim against or interest in the debtor, or are issued "principally" in such exchange and "partly" for cash or property. The Company believes that the issuance of securities contemplated by the Plan of Reorganization will satisfy the aforementioned requirements. AFFILIATIONS 3. AFFILIATES. Furnish a list or diagram of all affiliates of the applicant and indicate the respective percentages of voting securities or other bases of control. The following diagram sets forth the relationship among the Company and all of its affiliates, including their respective percentages of voting securities, as of March 1, 1999. 1. Owners of Company % ----------------- - a. Officers and Directors as a group...............26.9 b. Riverside Acquisition Company 1/.................8.6 c. Gary D. Hirsch..................................19.4 2. Subsidiaries of Company..................All 100% owned ----------------------- a. Dairy Dell b. Sunrise Properties, Inc. c. Pennway Express, Inc. d. Abbott Realty Corporation e. Big M Supermarkets, Inc. f. Bradford Super Market, Inc. g. Commander Foods, Inc. h. P&C Food Markets, Inc. of Vermont i. Penny Curtiss Baking Company, Inc. j. Big Bear Distribution Company k. St. Mary's Foods, Inc. l. Seneca Falls Foods, Inc. m. Chili Paul Foods, Inc. n. 12th & Powell Foods, Inc. o. Corry Foods, Inc. p. Dunkirk Foods, Inc. - -------- 1/ RAC Partners is the sole general partner of Riverside Acquisition Company and MTH Holdings owns 100% of the stock of RAC Partners. 2 q. Jamestown Foods, Inc. r. Fredonia Foods, Inc. s. Lakewood Foods, Inc. t. East 6th Street Foods, Inc. u. Grandview Foods, Inc. v. 26th & Legion Foods, Inc. w. Eastway Foods, Inc. The following diagram sets forth the relationship among the Company and all of its affiliates, including their respective percentages of voting securities, upon the effectiveness of the Plan of Reorganization (the "Effective Date"). 1. Owners of Company % ----------------- - a. Quota Fund NV....................................5.6 b. Quantum Partners LDC............................37.2 c. Officers and Directors as a group2/..............5.5 2. Subsidiaries of Company..................All 100% owned ----------------------- a. Dairy Dell b. Sunrise Properties, Inc. c. Pennway Express, Inc. d. Abbott Realty Corporation e. Big M Supermarkets, Inc. f. Bradford Super Market, Inc. g. Commander Foods, Inc. h. P&C Food Markets, Inc. of Vermont i. Penny Curtiss Baking Company, Inc. j. Big Bear Distribution Company k. St. Mary's Foods, Inc. l. Seneca Falls Foods, Inc. m. Chili Paul Foods, Inc. n. 12th & Powell Foods, Inc. o. Corry Foods, Inc. p. Dunkirk Foods, Inc. q. Jamestown Foods, Inc. r. Fredonia Foods, Inc. s. Lakewood Foods, Inc. t. East 6th Street Foods, Inc. u. Grandview Foods, Inc. v. 26th & Legion Foods, Inc. w. Eastway Foods, Inc. - -------- 2/ Includes options to acquire shares of common stock that will be exercisable within 60 days of the Effective Date. 3 MANAGEMENT AND CONTROL 4. DIRECTORS AND EXECUTIVE OFFICERS. List the names and complete mailing addresses of all directors and executive officers of the applicant and all persons chosen to become directors or executive officers. Indicate all offices with the applicant held or to be held by each person named. Except as otherwise noted below, the address for each director and executive officer listed below is 1200 State Fair Boulevard, Syracuse, New York 13221. NAME OFFICE Gary D. Hirsch Chairman and Director 1/ Joseph V. Fisher Director, President and Chief Executive Officer Martin A. Fox Director, Vice Chairman - Finance 2/ Susan E. Engel Director 3/ James A. Lash Director 4/ Richard D. Segal Director 5/ Harold S. Poster Director 6/ Claude J. Incaudo Director Eugene A. DePalma Director 7/ Nick Campbell Senior Vice President - Marketing Robert J. Davis Senior Vice President, Chief Financial Officer and Assistant Secretary Francis D. Price, Jr. Vice President, General Counsel and Secretary Randy P. Martin Vice President - Finance and Chief Accounting Officer Charles G. Bostwick Vice President - Chief Information Officer Robert Chapman Vice President - Wholesale/Franchise Judith Crowley Vice President - Service Deli Steve Erdley Vice President - Meat - ------------------------- 1/ 411 Theodore Fremd Ave., Rye, New York 10580 2/ 411 Theodore Fremd Ave., Rye, New York 10580 3/ Department 56, Inc., One Village Place, 6436 City, West Parkway, Eden Prairie, Minnesota 55344 4/ 411 Theodore Fremd Ave., Rye, New York 10580 5/ The Encore Company, 707 Westchester Avenue, White Plains, New York 10604 6/ One William Street, New York, New York 10004 7/ P.O. Box 1939, Burnsville, Minnesota 55337 4 Linda Jones Vice President - Sales Brian Kaler Vice President - Operations Support Frederic Kopp Vice President - Advertising Stephen Lail Vice President - Service Bakery Russell Long Vice President & General Manager of Pennsylvania David Norcross Vice President - Real Estate Bernadette Randall-Barber Vice President - Human Resources Michael Smith Vice President - Produce Phil Williams Vice President - Construction & Engineering Gregory Young Vice President - Grocery Merchandising 5. PRINCIPAL OWNERS OF VOTING SECURITIES. Furnish the following information as to each person owning 10 percent or more of the voting securities of the applicant. As of March 31, 1999 (Insert date within 31 days)
- ------------------------------------------------------------------------------------------------------------------------------ NAME AND COMPLETE TITLE OF CLASS AMOUNT OWNED PERCENTAGE OF MAILING ADDRESS OWNED VOTING SECURITIES OWNED - ------------------------------------------------------------------------------------------------------------------------------ Gary D. Hirsch Common 2,102,868 19.4% 411 Theodore Fremd Ave. Rye, New York 10580 Upon the effectiveness of the Plan of Reorganization, the Company will have the following principal owners: Quantum Partners LDC Common 7,479,787 37.2% 888 Seventh Avenue 33rd Floor New York, New York 10106 Quota Fund NV Common 1,125,989 5.6% 888 Seventh Avenue 33rd Floor New York, New York 10106
UNDERWRITERS 6. UNDERWRITERS. Give the name and complete mailing address of (a) each person who, within three years prior to the date of filing the application, acted as an underwriter of any securities of the obligor which were outstanding on the date of filing the application, and (b) each proposed principal underwriter of the securities proposed to be offered. As to each person specified in (a), give the title of each class of securities underwritten. (a) None. (b) None. 5 CAPITAL SECURITIES 7. CAPITALIZATION. (a) Furnish the following information as to each authorized class of securities of the applicant.
As of March 31, 1999 (Insert date within 31 days) - ----------------------------------------------------------------------------------------------------------------------- TITLE OF CLASS AMOUNT AUTHORIZED AMOUNT OUTSTANDING - ----------------------------------------------------------------------------------------------------------------------- Common Stock, par value $1.25 per share 30,000,000 shares 10,984,600 shares Preferred Stock, par value $1.00 per share 10,000,000 shares None Old Senior Notes $750,000,000 $732,240,000 Old Subordinated Debentures $400,000,000 $400,000,000 As of the Effective Date of the Plan of Reorganization - ----------------------------------------------------------------------------------------------------------------------- TITLE OF CLASS AMOUNT AUTHORIZED AMOUNT OUTSTANDING - ----------------------------------------------------------------------------------------------------------------------- Common Stock, par value $.01 per share 30,000,000 shares 21,106,955 shares Preferred Stock, par value $.01 per share 1,000,000 shares None Senior Notes due 2009 $100,000,000 $100,000,000
(b) Give a brief outline of the voting rights of each class of voting securities referred to in paragraph (a) above. Each outstanding share of the Company's existing Common Stock and new Common Stock has or will have, as applicable, one vote with respect to all matters subject to common stockholder vote. Holders of the Old Senior Notes, Old Subordinated Debentures and the Senior Notes do not have any voting rights by reason of ownership of those securities. INDENTURE SECURITIES 8. ANALYSIS OF INDENTURE PROVISIONS. Insert at this point the analysis of indenture provisions required under Section 305(a)(2) of the Act.8/ (A) Events of Default and Notice of Default. The following are Events of Default under the Indenture: (1) the Company defaults in the payment of interest on any Security of that series when the same becomes due and payable and the Default continues for a period of 30 days after such interest becomes due and payable; (2) the Company defaults in the payment of the principal of or any premium on any Security of that series when the same becomes due and payable at maturity, upon redemption, or upon repurchase pursuant to Section 5.01 of the Indenture or otherwise; (3) the Company fails to comply with any of its other agreements or covenants in or provisions of this Indenture (other than an agreement or covenant a default in whose performance is elsewhere in this Section of the Indenture specifically dealt with or which has expressly been included in this Indenture solely for the benefit of series of Securities other than that series), and the Default 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 Securities of that series; (4) a default on other Indebtedness of the Company or any Subsidiary (including a default on Securities other than Securities of such series), which Indebtedness has an outstanding principal amount of - --------------- 8/ All capitalized terms used in this Item 8 shall have the same meaning, unless otherwise defined, as that provided in the Senior Note Indenture. 6 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, in each case, it remains unpaid; (5) one or more judgments or decrees 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; (6) the Company or any Subsidiary pursuant to or within the meaning of Title 11 of the United States Code or any similar Federal or state law for the relief of debtors (collectively, "Bankruptcy Law"): (i) commences a voluntary case in bankruptcy or any other action or proceeding for any other relief under any law affecting creditors' rights that is similar to a Bankruptcy Law; (ii) consents by answer or otherwise to the commencement against it of an involuntary case; (iii) seeks or consents to the appointment of a receiver, trustee, assignee, liquidator, custodian or similar official (collectively, a "Custodian") of it or for all or substantially all of its Property; (iv) makes a general assignment for the benefit of its creditors; or (v) generally is unable to pay its debts as the same become due; or (7) a court of competent jurisdiction enters an order or decree under any Bankruptcy Law that: (i) is for relief against the Company or any Subsidiary in an involuntary case proceeding; (ii) appoints a Custodian of the Company or any Subsidiary or for all or substantially all of its Property; or (iii) orders the liquidation of the Company or any Subsidiary, and in each case the order or decree remains unstayed and in effect for 60 days, or any dismissal, stay, rescission or termination ceases to remain in effect; or (8) any other Event of Default provided with respect to Securities of that series. (B) Authentication and Delivery of the Notes and the Application of Proceeds Thereof. At any time and from time to time after the execution and delivery of this Indenture, the Company may deliver Securities of any series executed by the Company to the Trustee for authentication, together with a Company Order for the authentication and delivery of such Securities, and the Trustee in accordance with the Company Order shall authenticate and deliver such Securities. If the form or terms of the Securities of the series have been established by or pursuant to one or more Board Resolutions or supplemental indentures as permitted by Sections 2.01 and 3.01 of the Indenture, in authenticating such Securities, and accepting the additional responsibilities under this Indenture in relation to such Securities, the Trustee shall be entitled to receive, and (subject to Section 7.01 of the Indenture) shall be fully protected in relying upon, an Opinion of Counsel stating, (1) if the form of such Securities has been established by or pursuant to Board Resolution or supplemental indenture, as the case may be, as permitted by Section 2. 01 of the Indenture, that such form has been established in conformity with the provisions of this Indenture; (2) if the terms of such Securities have been established by or pursuant to Board Resolution or supplemental indenture, as the case may be, as permitted by Section 3.01 of the Indenture, that such terms have been established in conformity with the provisions of this Indenture; and (3) that such Securities, when authenticated and delivered by the Trustee and issued by the Company in the manner and subject to any conditions specified in such Opinion of Counsel, will constitute valid and legally binding obligations of the Company enforceable in accordance with their terms, subject to 7 bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors' rights and to general equity principles. If such form or terms have been so established, the Trustee shall not be required to authenticate such Securities if the issue of such Securities pursuant to this Indenture will affect the Trustee's own rights, duties or immunities under the Securities and this Indenture or otherwise in a manner which is not reasonably acceptable to the Trustee. The Trustee shall also be entitled to receive an Officers' Certificate stating that immediately after the authentication and delivery of such Securities, (a) the aggregate principal amount of Securities Outstanding will not exceed the maximum aggregate principal amount permitted to be Outstanding pursuant to authorization by the Board of Directors and (b) the Company will not be in Default and no Event of Default will have occurred. In addition, if the form and/or terms of such Securities have been established pursuant to a supplemental indenture, the Trustee shall be entitled to receive the Opinion of Counsel referred to in Section 9.06 of the Indenture hereof. Notwithstanding the provisions of Section 3.01 of the Indenture and of the preceding paragraph, if all Securities of a series are not to be originally issued at one time, it shall not be necessary to deliver the Officers' Certificate otherwise required pursuant to Section 3. 01 of the Indenture or the Opinion of Counsel otherwise required pursuant to such preceding paragraph at or prior to the authentication of each Security of such series if such documents are delivered at or prior to the authentication upon original issuance of the first Security of such series to be issued. Each Security shall be dated the date of its authentication. A Security shall not be valid until authenticated by the manual signature of the Trustee. The signature shall be conclusive evidence that the Security has been authenticated under this Indenture. Notwithstanding the foregoing, if any Security shall have been authenticated and delivered hereunder but never issued and sold by the Company, and the Company shall deliver such Security to the Trustee for cancellation as provided in Section 3.10 of the Indenture, for all purposes of this Indenture such Security shall be deemed never to have been authenticated and delivered hereunder and shall never be entitled to the benefits of this Indenture. The Trustee may appoint an authenticating agent acceptable to the Company to authenticate Securities. An authenticating agent may authenticate Securities whenever the Trustee may do so. Each reference in this Indenture to authentication by the Trustee includes authentication by such agent. An authenticating agent has the same rights as an Agent to deal with the Company or an Affiliate. (C) Release of Property Subject to the Lien of the Indenture. The Company's obligations under the securities issued under the Senior Note Indenture are not secured by any liens or security interests on any assets of the Company. Accordingly, the Senior Note Indenture does not contain any provisions with respect to the release or the release and substitution of any property subject to such a lien. (D) Satisfaction and Discharge of Indenture. The Company may terminate its obligations under this Indenture at any time by delivering all outstanding Securities of every series to the Trustee for each such series for cancellation. The Company, at its option, may elect with respect to any series of Securities issued hereunder, upon compliance with the conditions set forth in this Article 8, (i) to be Discharged (as defined herein) from any and all obligations with respect to such series of Securities (except for certain obligations of the Company to register the transfer or exchange of the Securities, replace stolen, lost or mutilated Securities, maintain paying agencies, hold moneys for payment in trust and compensate and indemnify the Trustee as provided in Section 7.07 of the Indenture) or (ii) to be released from its obligation to comply with the restrictive covenants in Sections 4.02, 4.03, 4.04, 4.05, 4.06, 4.07, 4.09, 4.10, 4.11, 4.12, 4.14, 4.15 and 5.01 of the Indenture, in each case if the Company deposits with the Trustee for such series of Securities, 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 Securities of such series on the dates such payments are due in accordance with the terms of the Securities of such series. To exercise any such option, the Company shall deliver to the Trustee for such series of Securities (a) an Opinion of Counsel to the effect that the deposit and related defeasance would not cause the holders of the Securities of such series 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 the Company has complied with all conditions precedent to the defeasance. 8 "Discharged" means that the Company shall be deemed to have paid and discharged the entire indebtedness represented by, and obligations under, the Securities of such series and to have satisfied all the obligations under this Indenture relating to the Securities of such series (and the Trustee for such series of Securities, at the request and the expense of the Company, shall execute proper instruments acknowledging the same), except (A) the rights of the Holders of Securities of such series to receive, from the trust fund described above, payment of the principal of and the interest on the Securities of such series when such payments are due, (B) the Company's obligations with respect to the Securities under Sections 3.04, 3.05, 3.06, 3.07, 3.08, 4.17, 7.07, 7.08 and 8.04 of the Indenture and (C) the rights, powers, trusts, duties and immunities of the Trustee with respect to such series of Securities hereunder. "U.S. Government Obligations" means direct obligations of, and obligations guaranteed by, the United States of America for the payment of which the full faith and credit of the United States of America is pledged. The Trustee shall hold in trust money or U.S. Government Obligations deposited with it pursuant to Section 8.01 of the Indenture with respect to any series of Securities. It shall apply the deposited money and the money from U.S. Government Obligations through the Paying Agent and in accordance with this Indenture to the payment of principal and interest on the Securities of such series. The Trustee and the Paying Agent shall promptly pay to the Company upon written request any excess money or securities held by them at any time. The Trustee and the Paying Agent shall pay to the Company upon written request any money held by them for the payment of principal or interest that remains unclaimed for two years after the date upon which such payment shall have come due; provided, however, that the Trustee or such Paying Agent, shall, upon the written request and at the expense of the Company, cause to be published once in a newspaper of general circulation in The City of New York or mailed to each such Holder, notice that such money remains unclaimed and that, after a date specified therein, which shall not be less than 30 days from the date of such publication or mailing, any unclaimed balance of such money then remaining will be repaid to the Company. After payment to the Company, Holders entitled to the money must look to the Company for payment as general creditors unless an applicable abandoned property law designates another Person. If the Trustee or Paying Agent is unable to apply any money or U.S. Government Obligations deposited with respect to the Securities of any series in accordance with Sections 8.01 and 8.02 of the Indenture by reason of any legal proceeding or by reason of any order or judgment of any court or governmental authority enjoining, restraining or otherwise prohibiting such application, the Company's obligations under this Indenture and the Securities of such series shall be revived and reinstated as though no deposit had occurred pursuant to Section 8.01 of the Indenture until such time as the Trustee or Paying Agent is permitted to apply such money or U.S. Government Obligations in accordance with Section 8.01 of the Indenture; provided, however, that if the Company has made any payment of interest on or principal of any such Securities because of the reinstatement of its obligations, the Company shall be subrogated to the rights of the Holders of such Securities to receive such payment from the money or U.S. Government Obligations held by the Trustee or Paying Agent. (E) Evidence as to Compliance with Conditions and Covenants. The Company shall deliver to the Trustee for each series of Securities issued hereunder, within 120 days after the end of each fiscal year of the Company, an Officers' Certificate, complying with Section 314(a)(4) of the TIA, stating that a review of the activities of the Company and its Subsidiaries during the preceding fiscal year has been made under the supervision of the signing Officers with a view to determining whether the Company has kept, observed, performed and fulfilled its obligations under this Indenture and such series of Securities, and further stating, as to each such Officer signing such certificate, that to the best of his knowledge the Company has kept, observed, performed and fulfilled each and every covenant contained in this Indenture and such series of Securities and is not in default in the performance or observance of any of the terms, provisions and conditions hereof or thereof (or, if a Default or Event of Default shall have occurred, describing all such Defaults or Events of Defaults of which he may have knowledge, the status of such Default or Event of Default and what action the Company is taking or proposes to take with respect thereto). The Company will, so long as any of the Securities of any series are outstanding, deliver to the Trustee for each series of Securities issued hereunder, forthwith upon becoming aware of any Default, Event of Default or default in the performance of any covenant, agreement or condition contained in this Indenture or such series of Securities, an Officers' Certificate specifying such Default or Event of Default the status of such Default or Event of Default and what action the Company is taking or proposes to take with respect thereto. 9 9. OTHER OBLIGORS. Give the name and complete mailing address of any person, other than the applicant, who is an obligor upon the indenture securities. None CONTENTS OF APPLICATION FOR QUALIFICATION. This application for qualification comprises-- (a) Pages numbered 1 to 11, consecutively. (b) The statement of eligibility and qualification of each trustee under the indenture to be qualified. (c) The following exhibits in addition to those filed as a part of the statement of eligibility and qualification of each trustee. Exhibit T3A. Certificate of Incorporation of the Company. The Certificate of Incorporation will be amended and restated in connection with the Plan of Reorganization. The form of Amended and Restated Certificate of Incorporation of the Company is attached as well. Exhibit T3B. By-Laws of the Company. The By-Laws will be amended and restated in connection with the Plan of Reorganization. The form of Restated By-Laws of the Company is attached as well. Exhibit T3C. Form of the Senior Note Indenture between the Company and IBJ Whitehall Bank & Trust Company. Exhibit T3D. Not applicable. Exhibit T3E. A copy of the Amended Disclosure Statement regarding the Amended Joint Plan of Reorganization, with certain exhibits thereto. Exhibit T3F. A cross reference sheet showing the location in the Senior Note Indenture of the provisions inserted therein pursuant to Sections 310 through 318(a), inclusive, of the Trust Indenture Act of 1939, included in Exhibit T3C. Exhibit 99.1 Statement of Eligibility on Form T-1. 10 SIGNATURE Pursuant to the requirements of the Trust Indenture Act of 1939, the applicant, The Penn Traffic Company, a corporation organized and existing under the laws of Delaware, has duly caused this application to be signed on its behalf by the undersigned, thereunto duly authorized, and its seal to be hereunto affixed and attested, all in the city of Syracuse, and State of New York, on the 20th day of April, 1999. THE PENN TRAFFIC COMPANY Attest: /s/ Francis D. Price, Jr. By: /s/ Joseph V. Fisher ------------------------- -------------------- Francis D. Price, Jr. Joseph V. Fisher Vice President, General President and Chief Officer Counsel & Secretary 11 EX-1 2 EXHIBIT T3A CERTIFICATE OF INCORPORATION OF PENN TRAFFIC MERGER COMPANY, INCORPORATED ARTICLE I The name of the Corporation is Penn Traffic Merger Company, Incorporated. ARTICLE II The address of the Corporation's registered office in the State of Delaware is Corporation Trust Center, 1209 Orange Street, in the City of Wilmington, County of New Castle. The name of the Corporation's registered agent at such address is The Corporation Trust Company. ARTICLE III The purpose of the Corporation shall be to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of the State of Delaware. ARTICLE IV Section 1. CAPITAL STOCK. The total number of shares of all classes of capital stock which the Corporation shall have authority to issue is 40,000,000, of which 10,000,000 shares shall be Preferred Stock of the par value of $1.00 per share and 30,000,000 shares shall be Common Stock of the par value of $1.25 per share. Section 2. PREFERRED STOCK. The Board of Directors is expressly authorized, by resolution or resolutions, to provide for the issue of all or any shares of the Preferred Stock, in one or more series, and to fix for each such series such voting powers, full or limited, or no voting powers, and such designations, preferences and relative, participating, optional or other special rights and such qualifications, limitations or restrictions thereon, as shall be stated and expressed in the resolution or resolutions adopted by the Board of Directors providing for the issue of such series (a "Preferred Stock Designation") and as may be permitted by the General Corporation Law of the State of Delaware. The number of authorized shares of Preferred Stock may be increased or decreased (but not below the number of shares thereof then outstanding) by the affirmative vote of a majority of the holders of the voting power 2 of all of the then outstanding shares of the capital stock of the Corporation entitled to vote generally in the election of directors (the "Voting Stock") voting together as a single class, without a separate vote of the holders of the Preferred Stock, or any series thereof, unless a vote of any such holders is required pursuant to any Preferred Stock Designation. Section 3. COMMON STOCK. Except as otherwise provided by law or as otherwise provided in any Preferred Stock Designation, the holders of the Common Stock shall exclusively possess all voting power and each share of Common Stock shall have one vote. ARTICLE V Section 1. NUMBER, ELECTION AND TERMS OF DIRECTORS. Subject to the rights of the holders of any series of Preferred Stock to elect additional directors under specified circumstances, the number of directors shall be fixed from time to time exclusively by the Board of Directors pursuant to a resolution adopted by a majority of the number of directors that the Corporation would have if there were no vacancies (the "Whole Board"). The directors, other than those who may be elected by the holders of any series of Preferred Stock under specified circumstances, shall be classified, with respect to the time for which they severally hold office, into three classes as nearly as equal in number as possible, as shall be provided for in the By-laws of the Corporation, with the term of office of the first class to expire at the 1993 annual meeting of stockholders, the term of office of the second class to expire at the 1994 annual meeting of stockholders and the term of office of the third class to expire at the 1995 annual meeting of stockholders, with each director to hold office until his or her successor shall have been duly elected and qualified. At each annual meeting of stockholders of the Corporation, the date of which shall be fixed by or pursuant to the By-laws of the Corporation, the successors of the class of directors whose term expires at that meeting shall be elected to hold office for a term expiring at the annual meeting of stockholders held in the third year following the year of their election. Section 2. STOCKHOLDER NOMINATION OF DIRECTOR CANDIDATES. Advance notice of stockholder nominations for the election of directors and of business to be brought by stockholders before any meeting of the stockholders of the Corporation shall be given in the manner provided in the By-laws of the Corporation. Section 3. NEWLY CREATED DIRECTORSHIPS AND VACANCIES. Subject to the rights of the holders of any series of Preferred Stock, and unless the Board of Directors otherwise determines, newly created directorships resulting from any increase in the authorized number of directors or any vacancies in the Board of Directors resulting from death, resignation, retirement, disqualification, removal from office or other cause may be filled only by the affirmative vote of a majority of the remaining 3 directors then in office, although less than a quorum, or by a sole remaining director, and any director so chosen shall hold office for a term expiring at the annual meeting of stockholders at which the term of office of the class to which such director has been elected expires and until such director's successor shall have been duly elected and qualified. No decrease in the number of authorized directors constituting the entire Board of Directors shall shorten the term of any incumbent director. Section 4. REMOVAL. Subject to the rights of the holders of any series of Preferred Stock, any director, or the entire Board of Directors, may be removed from office at any time, but only for cause and only by the affirmative vote of the holders of a majority of the voting power of the then outstanding shares of the Voting Stock voting together as a single class. ARTICLE VI Subject to the rights of the holders of any series of Preferred Stock, any action required or permitted to be taken by the stockholders of the Corporation must be effected at a duly called annual or special meeting of stockholders of the Corporation and may not be effected by any consent in writing by such stockholders. Special meetings of stockholders of the Corporation may be called only by the Board of Directors pursuant to a resolution approved by a majority of the Whole Board or as otherwise provided in the By-laws of the Corporation. ARTICLE VII In furtherance and not in limitation of the powers conferred upon it by law, the Board of Directors is expressly authorized to adopt, repeal, alter or amend the By-laws of the Corporation by the vote of a majority of the Whole Board (as defined in Article VI). In addition to any requirements of law and any other provision of this Certificate of Incorporation or any resolution or resolutions of the Board of Directors adopted pursuant to Article IV of this Certificate of Incorporation (and notwithstanding the fact that a lesser percentage may be specified by law, this Certificate of Incorporation or any such resolution or resolutions), the affirmative vote of the holders of a majority of the combined voting power of the then outstanding shares of Voting Stock, voting together as a single class, shall be required to adopt, amend, alter or repeal any provision of the By-laws. 4 ARTICLE VIII Section 1. A director of the Corporation shall not be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except for liability (i) for any breach of the director's duty of loyalty to the Corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the General Corporation Law of the State of Delaware, or (iv) for any transaction from which the director derived an improper personal benefit. If the General Corporation Law of the State of Delaware is amended to authorize corporate action further eliminating or limiting the personal liability of directors, then the liability of a director of the Corporation shall be eliminated or limited to the fullest extent permitted by the General Corporation Law of the State of Delaware, as so amended. Any repeal or modification of this Article VIII by the stockholders of the Corporation shall not adversely affect any right or protection of a director of the Corporation existing at the time of such repeal or modification. Section 2. A. Each person who was or is made a party or is threatened to be made a party to or is involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative (hereinafter a "proceeding"), by reason of the fact that he or she or a person of whom he or she is the legal representa tive is or was a director or officer of the Corporation or is or was serving at the request of the Corporation as a director, officer or employee or agent of another corporation or of a partnership, joint venture, trust or other enterprise, including service with respect to employee benefit plans, whether the basis of such proceeding is alleged action in an official capacity as a director, officer, employee or agent or in any other capacity while serving as a director, officer, employee or agent, shall be indemnified and held harmless by the Corporation to the fullest extent authorized by the General Corporation Law of the State of Delaware as the same exists or may hereafter be amended (but, in the case of any such amendment, only to the extent that such amendment permits the Corporation to provide broader indemnification rights than said law permitted the Corporation to provide prior to such amendment), against all expenses, liability and loss (including attorneys' fees, judgments, fines, ERISA excise taxes or penalties and amounts paid or to be paid in settlement) reasonably incurred or suffered by such person in connection therewith and such indemnification shall continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of his or her heirs, executors and administrators; provided, however; that except as provided in paragraph B of this Section 2 with respect to proceedings seeking to enforce rights to indemnification, the Corporation shall indemnify any such person seeking indemnification in connection with a proceeding (or part thereof) initiated by such person only if such proceeding (or part thereof) was authorized by the Board of Directors of the Corporation. The right to indemnification conferred in this Section 2 shall be a contract right and shall include the right to be paid by the Corporation the expenses incurred in defending any such proceeding in advance of its final disposition; provided, however, that if the General 5 Corporation Law of the State of Delaware requires, the payment of such expenses incurred by a director or officer in his or her capacity as a director or officer (and not in any other capacity in which service was or is rendered by such person while a director or officer, including, without limitation, service to an employee benefit plan) in advance of the final disposition of a proceeding, shall be made only upon delivery to the Corporation of an undertaking by or on behalf of such director or officer, to repay all amounts so advanced if it shall ultimately be determined that such director or officer is not entitled to be indemnified under this Section 2 or otherwise. B. If a claim under paragraph A of this Section 2 is not paid in full by the Corporation within thirty days after a written claim has been received by the Corporation, the claimant may at any time thereafter bring suit against the Corporation to recover the unpaid amount of the claim and, if successful in whole or in part, the claimant shall be entitled to be paid also the expense of prosecuting such claim. It shall be a defense to any such action (other than an action brought to enforce a claim for expenses incurred in defending any proceeding in advance of its final disposition where the required undertaking, if any, is required, has been tendered to the Corpora tion) that the claimant has not met the standards of conduct which make it permissible under the General Corporation Law of the State of Delaware for the Corporation to indemnify the claimant for the amount claimed, but the burden of proving such defense shall be on the Corporation. Neither the failure of the Corporation (including its Board of Directors, independent legal counsel or stockholders) to have made a determination prior to the commencement of such action that indemnification of the claimant is proper in the circumstances because he or she has met the applicable standard of conduct set forth in the General Corporation law of the State of Delaware, nor an actual determination by the Corporation (including its Board of Directors, independent legal counsel or stockholders) that the claimant has not met such applicable standard of conduct, shall be a defense to the action or create a presumption that the claimant has not met the applicable standard of conduct. C. The right to indemnification and the payment of expenses incurred in defending a proceeding in advance of its final disposition conferred in this Section 2 shall not be exclusive of any other right which any person may have or hereafter acquire under any statute, provision of the Certificate of Incorporation, By-law, agreement, vote of stockholders or disinterested directors or otherwise. D. The Corporation may maintain insurance, at its expense, to protect itself and any director, officer, employee or agent of the Corporation or another corporation, partnership, joint venture, trust or other enterprise against any expense, liability or loss, whether or not the Corporation would have the power to indemnify such person against such expense, liability or loss under the General Corporation Law of the State of Delaware. E. The Corporation may, to the extent authorized from time to time by the Board of Directors, grant rights to indemnification, and rights to be paid by the 6 Corporation the expenses incurred in defending any proceeding in advance of its final disposition, to any employee or agent of the Corporation to the fullest extent of the provisions of this Section 2 with respect to the indemnification and advancement of expenses of directors and officers of the Corporation. ARTICLE IX The Corporation reserves the right to amend, alter, change or repeal any provision contained in this Certificate of Incorporation, and any other provisions authorized by the laws of the State of Delaware at the time in force may be added or inserted, in the manner now or hereafter provided herein or by statute, and all rights, preferences and privileges of whatsoever nature conferred upon stockholders, directors or any other persons whomsoever by and pursuant to this Certificate of Incorporation in its present form or as amended are granted subject to the rights reserved in this Article. ARTICLE X The Corporation shall be governed by Section 203 of the General Corporation Law of the State of Delaware as it may be amended from time to time. ARTICLE XI The name and mailing address of the Incorporator is Barry M. Funt, Esq., in care of Donovan Leisure Newton & Irvine, 30 Rockefeller Plaza, New York, New York 10112. IN WITNESS WHEREOF, this Certificate of Incorporation has been executed on this 22nd day of April, 1992. PENN TRAFFIC MERGER COMPANY, INCORPORATED By: /s/ Barry M. Funt ----------------- Barry M. Funt Incorporator CERTIFICATE OF MERGER OF THE PENN TRAFFIC COMPANY INTO PENN TRAFFIC MERGER COMPANY, INCORPORATED The undersigned corporation DOES HEREBY CERTIFY: FIRST: That the names and state of incorporation of each of the constituent corporations of the merger are as follows: NAME STATE OF INCORPORATION ---- ---------------------- The Penn Traffic Company Pennsylvania Penn Traffic Merger Company, Delaware Incorporated SECOND: That an Agreement of Merger between the parties to the merger has been approved, adopted, certified, executed and acknowledged by each of the constituent corporations in accordance with the requirements of Section 252 of the General Corporation Law of Delaware. THIRD: That the name of the surviving corporation of the merger is Penn Traffic Merger Company, Incorporated, which shall herewith be changed to The Penn Traffic Company, a Delaware corporation. 2 FOURTH: That as a result of the merger, the Certificate of Incorporation of Penn Traffic Merger Company, Incorporated, the surviving corporation, will be amended as follows: ARTICLE I. The name of the Corporation is The Penn Traffic Company. FIFTH: That the executed Agreement of Merger is on file at the principal place of business of the surviving corporation, the address of which is 319 Washington Street, Johnstown, PA 15901. SIXTH: That a copy of the Agreement of Merger will be furnished, on request and without cost, to any stockholder of any constituent corporation. SEVENTH: That The Penn Traffic Company, a Pennsylvania corporation, has authorized capital stock as follows: 10,000,000 shares of Common Stock, par value $1.25 per share; 2,000,000 shares of Preferred Stock, par value $1.00 per share. 3 EIGHT: That this Certificate of Merger shall be effective upon its filing with the Secretary of State of the State of Delaware. Dated: September 18, 1992 PENN TRAFFIC MERGER COMPANY, INCORPORATED By: /s/ Chairman of the Board of Directors -------------------------------------- Chairman of the Board of Directors ATTEST: By: /s/ Secretary ------------- Secretary CERTIFICATE OF OWNERSHIP AND MERGER OF PENN TRAFFIC ACQUISITION CORPORATION INTO THE PENN TRAFFIC COMPANY UNDER SECTION 253 OF THE GENERAL CORPORATION LAW OF THE STATE OF DELAWARE Pursuant to Section 253(a) of the General Corporation Law of the State of Delaware, The Penn Traffic Company, a Delaware corporation, hereby certifies the following information relating to the merger of Penn Traffic Acquisition Corporation, a Delaware corporation and a wholly owned subsidiary of The Penn Traffic Company, with and into The Penn Traffic Company. 1. The Penn Traffic Company owns 100% of the issued and outstanding shares of common stock of Penn Traffic Acquisition Corporation, a Delaware corporation, which common stock is the only class of capital stock of Penn Traffic Acquisition Corporation outstanding. 2. Attached as Annex I hereto is a copy of the resolutions of the Board of Directors of The Penn Traffic Company, adopted as of February 22, 1993, approving the merger of Penn Traffic Acquisition Corporation with and into The Penn Traffic Company (the "Merger"). 3. The surviving corporation of the Merger is The Penn Traffic Company. IN WITNESS WHEREOF, this Certificate of Ownership and Merger has been executed on this 14th day of April, 1993. THE PENN TRAFFIC COMPANY By: /s/ Martin A. Fox ----------------- Name: Martin A. Fox Title: Vice Chairman Attest: By: /s/ Robert M. Hart ------------------ Name: Robert M. Hart Title: Assistant Secretary THE PENN TRAFFIC COMPANY BOARD OF DIRECTOR RESOLUTIONS AUTHORIZING MERGER OF PENN TRAFFIC ACQUISITION CORPORATION INTO THE PENN TRAFFIC COMPANY ADOPTED FEBRUARY 22, 1993 Approval of the Mergers and Merger Agreements - --------------------------------------------- BE IT RESOLVED, that the Board of Directors hereby declares that the proposed merger of Big Bear Stores Company, a Delaware corporation ("Big Bear") and a subsidiary of the Corporation, into Penn Traffic Acquisition Corporation, a Delaware corporation ("PTAC") and a wholly owned subsidiary of the Corporation (the "Big Bear Merger"), on substantially the terms and conditions set forth in the form of Agreement and Plan of Merger attached hereto as Exhibit A (the "Big Bear Merger Agreement"), is advisable and is hereby approved; and be it further RESOLVED, that the Board of Directors hereby declares that the proposed merger of PTAC into the Corporation immediately following consummation of the Big Bear Merger (the "Subsequent Merger"), is advisable and is hereby approved; and be it further RESOLVED, that the Board of Directors hereby declares that the proposed merger of P & C Food Markets, Inc., a New York corporation ("P & C") and a wholly owned subsidiary of the Corporation, into the Corporation immediately following consummation of the Big Bear Merger (the "P & C Merger"), is advisable and is hereby approved; and be it further RESOLVED, that the "Exchange Value" of one share of common stock, par value $1.25 per share, of the Corporation (the "Common Stock") for purposes of the Big Bear Merger Agreement shall be the closing price of the Common Stock on the American Stock Exchange on the trading day prior to the execution of the Big Bear Merger Agreement; and be it further RESOLVED, that the Board of Directors hereby authorizes each of the officers of the Corporation to execute, attest and deliver on behalf of the Corporation agreements, certificates or other documents (the "Merger Documents") providing for the Big Bear Merger, the Subsequent Merger and the P & C Merger, on terms and conditions set forth in the foregoing resolutions, such Merger Documents to contain such provisions as such officers may determine necessary or appropriate, the execution, attestation and delivery of the Merger Documents by any such officers to constitute conclusive proof of said determination by said officer or officers; and be it further 2 RESOLVED, that the officers of the Corporation be, and each hereby is, authorized to vote the shares of common stock, par value $0.01 per share, of Big Bear held by the Corporation or PTAC in favor of the adoption of the Big Bear Merger and the Big Bear Merger Agreement. Ratification - ------------ BE IT RESOLVED, that the officers of the Corporation be, and they hereby are, authorized to take all such further action and to execute and deliver all such instruments and documents, and to do or cause to be done all such acts and things (including the payment of all necessary fees and expenses), in the name of and on behalf of the Corporation and under its corporate seal or otherwise, as they are any of them may deem necessary or desirable to carry out the purposes and intent of the foregoing resolutions; and be it further RESOLVED, that any action authorized by any of the foregoing resolutions which has been taken prior to the date hereof be, and the same hereby is, ratified and confirmed in all respects. CERTIFICATE OF OWNERSHIP AND MERGER OF P & C FOOD MARKETS, INC. INTO THE PENN TRAFFIC COMPANY UNDER SECTION 253 OF THE GENERAL CORPORATION LAW OF THE STATE OF DELAWARE Pursuant to Section 253(a) of the General Corporation Law of the State of Delaware, The Penn Traffic Company, a Delaware corporation, hereby certifies the following information relating to the merger of P & C Food Markets, Inc., a New York corporation and a wholly owned subsidiary of The Penn Traffic Company, with and into The Penn Traffic Company. 1. The Penn Traffic Company owns 100% of the issued and outstanding shares of common stock of P & C Food Markets, Inc., a New York corporation, which common stock is the only class of capital stock of P & C Food Markets, Inc. outstanding. 2. Attached as Annex I hereto is a copy of the resolutions of the Board of Directors of The Penn Traffic Company, adopted as of February 22, 1993, approving the merger of P & C Food Markets, Inc. with and into The Penn Traffic Company (the "Merger"). 3. The surviving corporation of the Merger is The Penn Traffic Company. IN WITNESS WHEREOF, this Certificate of Ownership and Merger has been executed on this 14th day of April, 1993. THE PENN TRAFFIC COMPANY By: /s/ Martin A. Fox ----------------- Name: Martin A. Fox Title: Vice Chairman Attest: /s/ Robert M. Hart ------------------ Name: Robert M. Hart Title: Assistant Secretary THE PENN TRAFFIC COMPANY BOARD OF DIRECTOR RESOLUTIONS AUTHORIZING MERGER OF P & C FOOD MARKETS, INC. INTO THE PENN TRAFFIC COMPANY ADOPTED FEBRUARY 22, 1993 Approval of the Mergers and Merger Agreements - --------------------------------------------- BE IT RESOLVED, that the Board of Directors hereby declares that the proposed merger of Big Bear Stores Company, a Delaware corporation ("Big Bear") and a subsidiary of the Corporation, into Penn Traffic Acquisition Corporation, a Delaware corporation ("PTAC") and a wholly owned subsidiary of the Corporation (the "Big Bear Merger"), on substantially the terms and conditions set forth in the form of Agreement and Plan of Merger attached hereto as Exhibit A (the "Big Bear Merger Agreement"), is advisable and is hereby approved; and be it further RESOLVED, that the Board of Directors hereby declares that the proposed merger of PTAC into the Corporation immediately following consummation of the Big Bear Merger (the "Subsequent Merger"), is advisable and is hereby approved; and be it further RESOLVED, that the Board of Directors hereby declares that the proposed merger of P & C Food Markets, Inc., a New York corporation ("P & C") and a wholly owned subsidiary of the Corporation, into the Corporation immediately following consummation of the Big Bear Merger (the "P & C Merger"), is advisable and is hereby approved; and be it further RESOLVED, that the "Exchange Value" of one share of common stock, par value $1.25 per share, of the Corporation (the "Common Stock") for purposes of the Big Bear Merger Agreement shall be the closing price of the Common Stock on the American Stock Exchange on the trading day prior to the execution of the Big Bear Merger Agreement; and be it further RESOLVED, that the Board of Directors hereby authorizes each of the officers of the Corporation to execute, attest and deliver on behalf of the Corporation agreements, certificates or other documents (the "Merger Documents") providing for the Big Bear Merger, the Subsequent Merger and the P & C Merger, on terms and conditions set forth in the foregoing resolutions, such Merger Documents to contain such provisions as such officers may determine necessary or appropriate, the execution, attestation and delivery of the Merger Documents by any such officers to constitute conclusive proof of said determination by said officer or officers; and be it further 2 RESOLVED, that the officers of the Corporation be, and each hereby is, authorized to vote the shares of common stock, par value $0.01 per share, of Big Bear held by the Corporation or PTAC in favor of the adoption of the Big Bear Merger and the Big Bear Merger Agreement. Ratification - ------------ BE IT RESOLVED, that the officers of the Corporation be, and they hereby are, authorized to take all such further action and to execute and deliver all such instruments and documents, and to do or cause to be done all such acts and things (including the payment of all necessary fees and expenses), in the name of and on behalf of the Corporation and under its corporate seal or otherwise, as they or any of them may deem necessary or desirable to carry out the purposes and intent of the foregoing resolutions; and be it further RESOLVED, that any action authorized by any of the foregoing resolutions which has been taken prior to the date hereof be, and the same hereby is, ratified and confirmed in all respects. CERTIFICATE OF OWNERSHIP AND MERGER MERGING HART STORES, INC. INTO THE PENN TRAFFIC COMPANY (PURSUANT TO SECTION 253 OF THE GENERAL CORPORATION LAW OF DELAWARE) The Penn Traffic Company, a Delaware corporation (the "Corporation"), does hereby certify: FIRST: That the Corporation is incorporated pursuant to the General Corporation Law of the State of Delaware. SECOND: That the Corporation owns all of the outstanding shares of each class of the capital stock of Hart Stores, Inc., a Delaware corporation. THIRD: That the Corporation, by the following resolutions of its Board of Directors, duly adopted on the 12th day of August, 1993, determined to merge into itself Hart Stores, Inc. on the conditions set forth in such resolutions: RESOLVED, that the Corporation merge into itself its subsidiary, Hart Stores, Inc., and assume all of said subsidiary's liabilities and obligations; and be it FURTHER RESOLVED, that the President and the Secretary of the Corporation be and they hereby are directed to make, execute and acknowledge a certificate of ownership and merger setting forth a copy of the resolution to merge said Hart Stores, Inc. into the Corporation and to assume said subsidiary's liabilities and obligations and the date of adoption thereof and to file the same in the office of the Secretary of State of Delaware. 2 IN WITNESS WHEREOF, The Penn Traffic Company has caused its corporate seal to be affixed and this certificate to be signed by Claude J. Incaudo, its President, and Eugene R. Sunderhaft, its Secretary, this 27th day of August, 1993. THE PENN TRAFFIC COMPANY By: /s/ President ------------- President ATTEST: By: /s/ Secretary ------------- Secretary CERTIFICATE OF OWNERSHIP AND MERGER MERGING BIG BEAR BAKERIES, INC. INTO THE PENN TRAFFIC COMPANY (PURSUANT TO SECTION 253 OF THE GENERAL CORPORATION LAW OF DELAWARE) The Penn Traffic Company, a Delaware corporation (the "Corporation"), does hereby certify: FIRST: That the Corporation is incorporated pursuant to the General Corporation Law of the State of Delaware. SECOND: That the Corporation owns all of the outstanding shares of each class of the capital stock of Big Bear Bakeries, Inc., a Delaware corporation. THIRD: That the Corporation, by the following resolutions of its Board of Directors, duly adopted on the 12th day of August, 1993, determined to merge into itself Big Bear Bakeries, Inc. on the conditions set forth in such resolutions: RESOLVED, that the Corporation merge into itself its subsidiary, Big Bear Bakeries, Inc., and assume all of said subsidiary's liabilities and obligations; and be it FURTHER RESOLVED, that the President and the Secretary of the Corporation be and they hereby are directed to make, execute and acknowledge a certificate of ownership and merger setting forth a copy of the resolution to merge said Big Bear Bakeries, Inc. into the Corporation and to assume said subsidiary's liabilities and obligations and the date of adoption thereof and to file the same in the office of the Secretary of State of Delaware. 2 IN WITNESS WHEREOF, The Penn Traffic Company has caused its corporate seal to be affixed and this certificate to be signed by Claude J. Incaudo, its President, and Eugene R. Sunderhaft, its Secretary, this 27th day of August, 1993. THE PENN TRAFFIC COMPANY By: /s/ President ------------- President ATTEST: By: /s/ Secretary ------------- Secretary CERTIFICATE OF OWNERSHIP MERGING QUALITY MARKETS, INC. INTO THE PENN TRAFFIC COMPANY (PURSUANT TO SECTION 253 OF THE GENERAL CORPORATION LAW OF DELAWARE) The Penn Traffic Company, a Delaware corporation, does hereby certify that this corporation owns all the capital stock of Quality Markets, Inc., a corporation incorporated under the laws of the State of New York, and that this corporation, by a resolution of its board of directors duly adopted by unanimous written consent on the 12th day of August, 1993, determined to and did merge into itself said Quality Markets, Inc. which resolution is in the following words to wit: WHEREAS the Corporation lawfully owns all of the outstanding stock of Quality Markets, Inc., a corporation organized and existing under the laws of New York, and WHEREAS the Corporation desires to merge into itself said Quality Markets, Inc. and to be possessed of all the estate, property, rights, privileges and franchises of said corporation. NOW, THEREFORE, BE IT RESOLVED, that the Corporation merge into itself, and it does hereby merge into itself said Quality Markets, Inc. and assumes all of its liabilities and obligations; and be it FURTHER RESOLVED, that the president or a vice-president, and the secretary or treasurer of the Corporation be and they hereby are directed to make and execute, under the corporate seal of the Corporation, a certificate of ownership setting forth a copy of the resolution, to merge said Quality Markets, Inc. and assume its liabilities and obligations, and the date of adoption thereof, and to file the same in the office of the Secretary of the State of Delaware; and be it FURTHER RESOLVED, that the officers of the Corporation be and they hereby are authorized and directed to do all acts and things whatsoever, whether within or without the State of Delaware, which may be in anywise necessary or proper to effect said merger. 2 IN WITNESS WHEREOF, the Corporation has caused this certificate to be signed by its president and attested by its secretary, and its corporate seal to be hereto affixed, the 1st day of October, 1993. By: /s/ President ------------- President ATTEST: By: /s/ Secretary ------------- Secretary AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF THE PENN TRAFFIC COMPANY This Amended and Restated Certificate of Incorporation amends and restates the Certificate of Incorporation of the Corporation originally filed April 22, 1992, as amended, pursuant to Section 245 of the General Corporation Law of Delaware. 1. NAME. The name of the corporation is The Penn Traffic Company (the "Corporation"). 2. ADDRESS; REGISTERED OFFICE AND AGENT. The address of the Corporation's registered office is 1209 Orange Street, City of Wilmington 19801, County of New Castle; and its registered agent at such address is Corporation Trust Company. 3. PURPOSE. The purpose of the Corporation is to engage in, carry on and conduct any lawful act or activity for which corporations may be organized under the Delaware General Corporation Law (as amended from time to time, the "DGCL"). 4. NUMBER OF SHARES. The total number of shares of stock that the Corporation shall have authority to issue is One Million (1,000,000) shares of Preferred Stock of $.01 par value per share (the "Preferred Stock") and Thirty Million (30,000,000) shares of Common Stock of $.01 par value per share (the "Common Stock"). Each share of Common Stock, $1.25 par value, per share, issued and outstanding or held in treasury immediately prior to the effectiveness of this Amended and Restated Certificate is automatically and without any further action by the Corporation or the holders thereof converted to 0.01 shares of Common Stock upon the filing of this Amended and Restated Certificate. To the extent required by section 1123(a)(6) of the U.S. Bankruptcy Code (11 U.S.C. ss. 1123(a)(6)), no nonvoting equity securities of the Corporation shall be issued. This provision shall have no further force and effect beyond that required by section 1123(a)(6) and is applicable only for so long as such section is in effect and applicable to the Corporation. 5. PREFERRED STOCK. The Board of Directors is expressly authorized, by resolution or resolutions, to provide for the issue of all or any shares of the Preferred Stock, in one or more series, and to fix for each such series such voting powers, full or limited or no voting powers, and such designations, preferences and relative, participating, optional or other special rights and such qualifications, limitations or restrictions thereon, as shall be stated and expressed in the resolution or resolutions adopted by the Board of Directors providing for the issue of such series (a "Preferred Stock Designation") and as may be permitted by the DGCL. The number of authorized shares of Preferred Stock may be increased or decreased (but not below the number of shares thereof then outstanding) by the affirmative vote of a majority of the holders of the voting power of all of the then outstanding shares of the capital stock of the Corporation entitled to vote generally in the election of directors (the "Voting Stock") voting together as a single class, without a separate vote of the holders of the Preferred Stock, or any series thereof, unless a vote of any such holders is required pursuant to any Preferred Stock Designation. 6. COMMON STOCK. Except as otherwise provided by law or as otherwise provided in any Preferred Stock Designation, the holders of the Common Stock shall exclusively possess all voting power and each share of Common Stock shall have one vote. 7. PROVISIONS RELATING TO LIMITATION ON STOCKHOLDER RIGHTS PLAN. Notwithstanding any other powers set forth in this Amended and Restated Certificate of Incorporation, the Board of Directors shall not adopt a stockholders "rights plan" (which for this purpose shall mean any arrangement pursuant to which, directly or indirectly, Common Stock purchase rights may be distributed to stockholders that provide all stockholders, other than persons who meet certain criteria specified in the arrangement, the right to purchase the Common Stock at less than the prevailing market price of the Common Stock), unless (i) such rights plan is adopted by the affirmative vote of no less than eighty percent (80%) of the members of the Board of Directors voting on such Rights Plan at a properly called regular or special meeting; and (ii) by its terms, such rights plan (and the rights issuable pursuant thereto) expires within one hundred twenty (120) days from the date of its adoption by the Board of Directors, unless extended by the affirmative vote of a majority of the votes cast of the capital stock of the Corporation then outstanding and entitled to vote at an election of directors and present in person or represented by proxy at the next meeting (annual or special) of stockholders, in which case such rights plan (and the rights issuable pursuant thereto) may be extended for a period of no more than ninety (90) days from the expiration of the one hundred twenty (120) day period; prior to the expiration of the first ninety (90) day extension period or any subsequent ninety (90) day extension period, such rights plan (and the rights issuable pursuant thereto) may be extended for an additional period of ninety (90) days upon the affirmative vote of a majority of the votes cast of the capital stock of the Corporation then outstanding and entitled to vote at an election of directors and present in person or represented by proxy at the next meeting (annual or special) of stockholders. 8. SECTION 203. Pursuant to section 203(b)(1) of the DGCL, the Corporation hereby expressly opts not to be governed by section 203 of the DGCL. 9. INDEMNIFICATION. 9.1 To the extent not prohibited by law, the Corporation shall indemnify any person who is or was made, or threatened to be made, a party to any threatened, pending or completed action, suit or proceeding (a "Proceeding"), whether civil, criminal, administrative or investigative, including, without limitation, an action by or in the right 2 of the Corporation to procure a judgment in its favor, by reason of the fact that such person, or a person of whom such person is the legal representative, is or was a director or officer of the Corporation, or is or was serving as a director, officer, manager, member, employee or agent or in any other capacity at the request of the Corporation, for any other corporation, company, partnership, joint venture, trust, employee benefit plan or other enterprise (an "Other Entity") while serving as a director or officer of the Corporation, against judgments, fines, penalties, excise taxes, amounts paid in settlement and costs, charges and expenses (including attorneys' fees and disbursements) actually and reasonably incurred by such person in connection with such Proceeding, if such person acted in good faith and in a manner such person believed to be in or not opposed to the best interests of the Corporation and, with respect to any criminal action or proceeding, had no reasonable cause to believe his or her conduct was unlawful. To the extent specified by the Board of Directors of the Corporation at any time and to the extent not prohibited by law, the Corporation may indemnify any person who is or was made, or threatened to be made, a party to any threatened, pending or completed Proceeding, whether civil, criminal, administrative or investigative, including, without limitation, an action by or in the right of the Corporation to procure a judgment in its favor, by reason of the fact that such person is or was an employee or agent of the Corporation, or is or was serving as a director, officer, manager, member, employee or agent or in any other capacity at the request of the Corporation, for any Other Entity, against judgment, fines, penalties, excise taxes, amounts paid in settlement and costs, charges and expenses (including attorneys' fees and disbursements) actually and reasonably incurred by such person in connection with such Proceeding, if such person acted in good faith and in a manner such person believed to be in or not opposed to the best interests of the Corporation and, with respect to any criminal action or proceeding, had no reasonable cause to believe his or her conduct was unlawful. 9.2 The Corporation shall, from time to time, reimburse or advance to any director or officer or other person entitled to indemnification hereunder the funds necessary for payment of expenses, including attorneys' fees and disbursements, incurred in connection with any Proceeding, in advance of the final disposition of such Proceeding; PROVIDED, HOWEVER, that, if required by the DGCL, such expenses incurred by or on behalf of any director or officer or other person may be paid in advance of the final disposition of a Proceeding only upon receipt by the Corporation of an undertaking, by or on behalf of such director or officer (or other person indemnified hereunder), to repay any such amount so advanced if it shall ultimately be determined by final judicial decision from which there is no further right of appeal that such director, officer or other person is not entitled to be indemnified for such expenses. 9.3 The rights to indemnification and reimbursement or advancement of expenses provided by, or granted pursuant to, this Section 9 shall not be deemed exclusive of any other rights to which a person seeking indemnification or reimbursement or advancement of expenses may have or hereafter be entitled under any statute, this Amended and Restated Certificate of Incorporation, the Amended and Restated By-laws of the Corporation (the "By-laws"), any agreement (including any policy of insurance 3 purchased or provided by the Corporation under which directors, officers, employees and other agents of the Corporation are covered), any vote of stockholders or disinterested directors or otherwise, both as to action in his or her official capacity and as to action in another capacity while holding such office. 9.4 The rights to indemnification and reimbursement or advancement of expenses provided by, or granted pursuant to, this Section 9 shall continue as to a person who has ceased to be a director or officer (or other person indemnified hereunder) and shall inure to the benefit of the executors, administrators, legatees and distributees of such person. 9.5 The Corporation shall have the power to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, member, manager, employee or agent of an Other Entity, against any liability asserted against such person and incurred by such person in any such capacity, or arising out of such person's status as such, whether or not the Corporation would have the power to indemnify such person against such liability under the provisions of this Section 9, the By-laws or under section 145 of the DGCL or any other provision of law. 9.6 The provisions of this Section 9 shall be a contract between the Corporation, on the one hand, and each director and officer who serves in such capacity at any time while this Section 9 is in effect and any other person indemnified hereunder, on the other hand, pursuant to which the Corporation and each such director, officer, or other person intend to be legally bound. No repeal or modification of this Section 9 shall affect any rights or obligations with respect to any state of facts then or theretofore existing or thereafter arising or any proceeding theretofore or thereafter brought or threatened based in whole or in part upon any such state of facts. 9.7 The rights to indemnification and reimbursement or advancement of expenses provided by, or granted pursuant to, this Section 9 shall be enforceable by any person entitled to such indemnification or reimbursement or advancement of expenses in any court of competent jurisdiction. Neither the failure of the Corporation (including its Board of Directors, its independent legal counsel and its stockholders) to have made a determination prior to the commencement of such action that such indemnification or reimbursement or advancement of expenses is proper in the circumstances nor an actual determination by the Corporation (including its Board of Directors, its independent legal counsel and its stockholders) that such person is not entitled to such indemnification or reimbursement or advancement of expenses shall constitute a defense to the action or create a presumption that such person is not so entitled. Such a person shall also be indemnified for any expenses incurred in connection with successfully establishing his or her right to such indemnification or reimbursement or advancement of expenses, in whole or in part, in any such proceeding. 4 9.8 Any director or officer of the Corporation serving in any capacity in (i) another corporation of which a majority of the shares entitled to vote in the election of its directors is held, directly or indirectly, by the Corporation or (ii) any employee benefit plan of the Corporation or any corporation referred to in clause (i) shall be deemed to be doing so at the request of the Corporation. 9.9 Any person entitled to be indemnified or to reimbursement or advancement of expenses as a matter of right pursuant to this Section 9 may elect to have the right to indemnification or reimbursement or advancement of expenses interpreted on the basis of the applicable law in effect at the time of the occurrence of the event or events giving rise to the applicable Proceeding, to the extent permitted by law, or on the basis of the applicable law in effect at the time such indemnification or reimbursement or advancement of expenses is sought. Such election shall be made, by a notice in writing to the Corporation, at the time indemnification or reimbursement or advancement of expenses is sought; PROVIDED, HOWEVER, that if no such notice is given, the right to indemnification or reimbursement or advancement of expenses shall be determined by the law in effect at the time indemnification or reimbursement or advancement of expenses is sought. 10. COMPROMISE, ARRANGEMENT OR REORGANIZATION. Whenever a compromise or arrangement is proposed between this Corporation and its creditors or any class of them and/or between this Corporation and its stockholders, any court of equitable jurisdiction within the State of Delaware may, on the application in a summary way of this Corporation or of any creditor or stockholder thereof or on the application of any receiver or receivers appointed for this Corporation under the provisions of section 291 of the DGCL or on the application of trustees in dissolution or of any receiver or receivers appointed for this Corporation under the provisions of section 279 of the DGCL, order a meeting of the creditors or class of creditors, and/or of the stockholders of this Corporation, as the case may be, to be summoned in such manner as the said court directs. If a majority in number representing three-fourths in value of the creditors or class of creditors, and/or of the stockholders of this Corporation, as the case may be, agrees to any compromise or arrangement and to any reorganization of this Corporation as a consequence of such compromise or arrangement, the said compromise or arrangement and the said reorganization shall, if sanctioned by the court to which the said application has been made, be binding on all the creditors or class of creditors, and/or on all stockholders of this Corporation, as the case may be, and also on this Corporation. 11. LIMITATION OF LIABILITY. No director of the Corporation shall be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, including breaches resulting from such director's grossly negligent behavior, except for liability (a) for any breach of the director's duty of loyalty to the Corporation or its stockholders, (b) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (c) under section 174 of the DGCL or (d) for any transaction from which the director derived any improper 5 personal benefits. If the DGCL is hereafter amended to authorize corporate action further eliminating or limiting the personal liability of directors, then the liability of a director of the Corporation shall be eliminated or limited to the fullest extent permitted by the DGCL, as so amended. Any repeal or modification of the foregoing paragraph by the stockholders of the Corporation shall not adversely affect any right or protection of a director of the Corporation existing at the time of such repeal or modification. 12. BY-LAWS. The power to make, alter or repeal the By-laws, and to adopt any new By-law, shall be vested solely in the stockholders. The power to make, alter or repeal the By-laws, and to adopt any new By-law, shall not be vested in the Board of Directors. 13. STOCKHOLDER MEETINGS. Any action required or permitted to be taken by the stockholders of the Corporation may be effected at a duly called annual or special meeting of such holders and may also be effected by any consent in writing of such holders in lieu of a meeting. At any annual meeting or special meeting of stockholders of the Corporation, only such business shall be conducted as shall have been brought before such meeting in the manner provided by the By-laws of the Corporation. IN WITNESS WHEREOF, the Corporation has caused this Amended and Restated Certificate of Incorporation, which restates and amends the Corporation's Certificate of Incorporation, after having been duly adopted, recommended and approved by the Board of Directors and adopted by the affirmative vote of a majority of the outstanding shares of Common Stock in accordance with Sections 242 and 245 of the DGCL, to be signed by its duly authorized officer this _____day of _________, 1999. ---------------------------------- Name: Title: 6 EX-2 3 EXHIBIT T3B BY-LAWS OF THE PENN TRAFFIC COMPANY ARTICLE I STOCKHOLDERS SECTION 1. ANNUAL MEETING The annual meeting of stockholders for the election of directors and for the transaction of any other business that may properly come before the meeting shall be held not later than the last day of June in each calendar year on such date at such hour and at such place or places within or without the State of Delaware as may from time to time be determined by the Board of Directors. Any previously scheduled annual meeting of the stockholders may be postponed by action of the Board of Directors taken prior to the time previously scheduled for such annual meeting. SECTION 2. SPECIAL MEETINGS At any time in the interval between regular meetings, special meetings of stockholders may be called by the Chairman, or by a majority of the Board of Directors, to be held at such times and at such places within or without the State of Delaware as may be specified in the notices of such meetings. The notice of any special meeting shall state the purpose of the meeting and specify the action to be taken at said meeting and no business shall be transacted thereat except that specifically named in the notice. SECTION 3. NOTICE OF MEETING Notice of the time and place of every meeting of stockholders shall be delivered personally or mailed at least ten days and not more than sixty days prior thereto to each stockholder of record entitled to vote at his address as it appears on the records of the Corporation. Such further notice shall be given as may be required by law. If mailed, such notice shall be deemed given when deposited in the United States mail, postage prepaid, directed to the stockholder at such stockholder's address as it appears on the records of the Corporation. Business transacted at any special meeting shall be confined to the purpose or purposes stated in the notice of such special meeting. Meetings may be held without notice if all stockholders entitled to vote are present or if notice is waived by those not present. When a meeting is adjourned to another time or place, notice need not be given of the adjourned meeting if the time and place are announced at the meeting at which the adjournment is taken, unless the adjournment is for more than 30 days or, after adjournment, a new record date is fixed for the adjourned meeting. 2 SECTION 4. VOTING At all meetings of stockholders any stockholder entitled to vote may vote in person or by proxy. Such proxy or any revocation or amendment thereof, shall be in writing, but need not be sealed, witnessed or acknowledged, and shall be filed with the Secretary at or before the meeting. SECTION 5. QUORUM Unless otherwise required by statute or the Certificate of Incorporation of the Corporation (the "Certificate of Incorporation"), at any annual or special meeting of the stockholders, the presence in person or by proxy of stockholders entitled to cast a majority of all the votes entitled to be cast at the meeting shall constitute a quorum for the transaction of business, but if at any meeting of the stockholders there be less than a quorum present, the stockholders present at such meeting may, without further notice, adjourn the same from time to time until a quorum shall attend, but no business shall be transacted at any such adjournment except such as might have been lawfully transacted had the meeting not been adjourned. SECTION 6. ACTION AT MEETINGS Except as otherwise required by law, the Certificate of Incorporation or these By-laws, a majority of the votes cast at a meeting at which a quorum is present shall be sufficient to take or authorize action upon any matter which may properly come before the meeting, and the stockholders shall not be entitled to cumulate their votes upon the election of directors, or upon any other matter. Any action required or permitted to be taken by the stockholders must be effected at an annual or special meeting of stockholders and may not be effected by any consent in writing by such stockholders. SECTION 7. PROCEDURE AT MEETINGS At each meeting of stockholders, the Chairman of the Board or, in the absence of the Chairman of the Board, such other person as shall be selected by the Board of Directors shall act as Chairman of the meeting. The Chairman of the meeting shall determine the order of business and shall establish rules for the conduct of the meeting. The Board of Directors may appoint two or more persons to serve as inspectors of election at any meeting of stockholders. In the absence of such appointment, the Chairman of the meeting may make such appointment. The inspectors of election shall receive, examine and tabulate all ballots and proxies, including proxies filed with the Secretary, shall determine the presence or absence of 3 a quorum and shall report to the Chairman of the meeting the result of all voting taken at the meeting by ballot. SECTION 8. BUSINESS OF THE MEETING At any annual meeting of stockholders, only such business shall be conducted as shall have been brought before the meeting (i) by or at the direction of the Board of Directors or (ii) by any stockholder who is entitled to vote with respect thereto and who complies with the notice procedures set forth in this Section 8 of Article I. For business to be properly brought before an annual meeting by a stockholder, the stockholder must have given timely notice thereof in writing to the Secretary of the Corporation. To be timely, a stockholder's notice must be delivered or mailed to and received at the principal executive offices of the Corporation not less than thirty (30) days prior to the date of the annual meeting; PROVIDED, HOWEVER, that in the event that less than forty (40) days' notice or prior public disclosure of the date of the meeting is given or made to stockholders, notice by the stockholder to be timely must be received not later than the close of business on the 10th day following the day on which such notice of the date of the annual meeting was mailed or such public disclosure was made. A stockholder's notice to the Secretary shall set forth in writing as to each matter such stockholder proposes to bring before the annual meeting (i) a brief description of the business desired to be brought before the annual meeting and the reasons for conducting such business at the annual meeting; (ii) the name and address, as they appear on the Corporation's books, of the stockholder proposing such business and the beneficial owner, if any, on whose behalf the proposal is made; (iii) a representation that the stockholder is a holder of record of shares of the Corporation's capital stock entitled to vote at such meeting and intends to appear in person or by proxy at the meeting to propose such business; (iv) the class and the number of shares of the Corporation's capital stock that are owned beneficially and of record by the stockholder proposing such business and by the beneficial owner, if any, on whose behalf the proposal is made; and (v) any material interest of such stockholder in such business and any material interest of the beneficial owner, if any, on whose behalf the proposal is made in such business. Notwithstanding anything in the By-laws to the contrary, no business shall be brought before or conducted at the annual meeting except in accordance with the provisions of this Section 8 of Article I. If the facts so warrant, the Chairman of the meeting shall determine and declare to the meeting that business was not properly brought before the meeting in accordance with the provisions of this Section 8 of Article I and, if he shall so determine, he shall so declare to the meeting and any such business so determined to be not properly brought before the meeting shall not be so transacted. At any special meeting of stockholders, only such business shall be conducted as shall have been brought before the meeting by or at the direction of the Board of Directors. 4 SECTION 9. NOMINATION OF DIRECTORS Only persons who are nominated in accordance with the procedures set forth in these By-laws shall be eligible for election as directors. Nominations of persons for election to the Board of Directors of the Corporation may be made at a meeting of stockholders at which directors are to be elected only (i) by or at the direction of the Board of Directors or (ii) by any stockholder of the Corporation who is (a) a stockholder of record at the time of giving of the notice of the nomination, (b) entitled to vote for the election of directors at the meeting and (c) complies with the notice procedures set forth in this Section 9 of Article I. Such nominations, other than those made by or at the direction of the Board of Directors, shall be made by timely notice in writing to the Secretary of the Corporation. To be timely, a stockholder's notice shall be delivered or mailed to and received at the principal executive offices of the Corporation not less than thirty (30) days prior to the date of the meeting; PROVIDED, HOWEVER, that in the event that less than forty (40) days' notice or prior disclosure of the date of the meeting is given or made to stockholders, notice by the stockholder to be timely must be so received not later than the close of business on the 10th day following the date on which such notice of the date of the meeting was mailed or such public disclosure was made. Such stockholder's notice shall set forth: (i) the name and address, as they appear on the Corporation's books, of the stockholder giving the notice and of the beneficial owner, if any, on whose behalf the nomination is made; (ii) a representation that the stockholder proposing to make the nomination is a holder of record of shares of the Corporation's capital stock entitled to vote at such meeting for the election of directors and intends to appear in person or by proxy at the meeting to nominate the person or persons specified in the notice; (iii) the class and number of shares of the Corporation's capital stock that are owned beneficially and of record by the stockholder giving the notice and by the beneficial owner, if any, on whose behalf the nomination is made; (iv) a description of all arrangements or understandings between or among any of the stockholders giving notice, the beneficial owner on whose behalf the notice is given, each nominee and any other person or persons (naming such person or persons) pursuant to which the nomination or nominations are to be made by the stockholder giving the notice; and (v) as to each person whom such stockholder proposes to nominate for election as a director, all information relating to such person that is required to be disclosed in solicitations of proxies for election of directors, or is otherwise required, in each case pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended (including such person's written consent to being named in the proxy statement as a nominee and to serving as a director of the Corporation if elected). At the request of the Board of Directors, any person nominated by the Board of Directors for election as a director shall furnish to the Secretary of the Corporation that information required to be set forth in a stockholder's notice of nomination which pertains to the nominee. No person shall be eligible for election as a director of the Corporation unless nominated in accordance with the provisions of 5 this Section 9 of Article I. The Chairman of the meeting shall, if the facts so warrant, determine and declare to the meeting that a nomination was not made in accordance with this Section 9 of Article I and, if he shall so determine, he shall so declare to the meeting and the defective nomination shall be disregarded. SECTION 10. ADJOURNMENTS Any meeting of stockholders may be adjourned from time to time, whether or not a quorum is present, by the affirmative vote of a majority of the votes present and entitled to be cast at the meeting, or by the Chairman of the meeting, or by the Board of Directors. ARTICLE II DIRECTORS SECTION 1. GENERAL POWERS The business and affairs of the Corporation shall be managed by or under the direction of the Board of Directors, which may exercise all such powers of the Corporation and do all such lawful acts and things as are not by law or by the Certificate of Incorporation directed or required to be exercised or done by the stockholders. SECTION 2. NUMBER, QUALIFICATION AND ELECTION Directors (other than such directors, if any, as are elected by holders of a series of Preferred Stock of the Corporation voting as a separate class) shall be divided into three classes, which shall be as nearly equal in number as practicable. Unless changed by the Board of Directors pursuant hereto the number of directors shall be six and each class shall consist of two directors. The number of directors and the number of which each class is to consist may be increased or decreased from time to time by a resolution adopted by at least a majority of the Whole Board (as defined in the Certificate of Incorporation); provided that the number of directors may not be less than three; and provided that no decrease in the number of directors shall affect the tenure of office of any existing director. The term of office of the first class shall expire at the 1993 annual meeting of stockholders, the term of office of the second class shall expire at the 1994 annual meeting of stockholders and the term of office of the third class shall expire at the 1995 annual meeting of stockholders, with each director to hold office until his or her successor shall have been duly elected and qualified. At each annual meeting of stockholders, commencing with the 1993 annual meeting, the successors of the class of directors whose term expires at the meeting shall be elected to hold office for a term expiring at the third succeeding annual 6 meeting of stockholders after their election, with each director to hold office until his or her successor shall have been duly elected and qualified. SECTION 3. VACANCIES Subject to the rights of the holders of any series of Preferred Stock, and unless the Board of Directors otherwise determines, newly created directorships resulting from any increase in the authorized number of directors or any vacancies in the Board of Directors resulting from death, resignation, retirement, disqualification, removal from office or other cause may be filled only by the affirmative vote of a majority of the remaining directors then in office, although less than a quorum, or by a sole remaining director, and any director so chosen shall hold office for a term expiring at the annual meeting of stockholders at which the term of office of the class to which such director has been elected expires and until such director's successor shall have been duly elected and qualified. SECTION 4. REGULAR MEETINGS Regular meetings of the Board of Directors shall be held at such times and places as the Board of Directors may from time to time determine. SECTION 5. SPECIAL MEETINGS Special meetings of the Board of Directors may be called at any time, at any place and for any purpose by the Chairman of the Board or by any three directors. SECTION 6. NOTICE OF MEETING Notice of regular meetings of the Board of Directors need not be given. Notice of every special meeting of the Board of Directors shall be given to each director, by (a) deposit of such notice in the United States mail at least seventy-two hours before the meeting, or (b) telephone communication directly with such person, the dispatch of a telegraphic communication to his address, or actual delivery to his address, at least forty-eight hours before the meeting. If given to a director by mail, telegraph or actual delivery to his address, such notice shall be sent or delivered to his business or residential address as shown on the records of the Secretary or an Assistant Secretary of the Corporation, or to such other address as shall have been furnished to the Secretary or an Assistant Secretary of the Corporation by him for the purpose. Such notice need not include a statement of the business to be transacted at, or the purpose of, any such meeting. 7 SECTION 7. QUORUM; ACTION AT MEETINGS A majority of the Board of Directors shall constitute a quorum for the transaction of business, but if, at any meeting of the Board, there be less than a quorum present, the members at the meeting may, without further notice, adjourn the same from time to time until a quorum shall attend. Except as provided herein or in the Certificate of Incorporation or as required by law, a majority of such quorum shall decide any questions that may come before the meeting. SECTION 8. PARTICIPATING IN MEETING BY CONFERENCE TELEPHONE Members of the Board of Directors, or any committee thereof, may participate in a meeting of such Board or committee by means of conference telephone or similar equipment by means of which all persons participating in the meeting can hear each other at the same time and such participation shall constitute presence in person at such meeting. SECTION 9. ACTION WITHOUT MEETING Any action required or permitted to be taken at any meeting of the Board of Directors or any committee thereof may be taken without a meeting if all of the members of the Board of Directors or of any such committee consent thereto in writing and the writing or writings are filed with the minutes or proceedings of the Board of Directors or of such committee. SECTION 10. RESIGNATIONS Any director of the Corporation may at any time resign by giving written notice to the Board, the Chairman, the President or the Secretary. Such resignation shall take effect at the time specified therein or, if the time be not specified therein, upon receipt thereof; and, unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective. SECTION 11. REMOVAL OF DIRECTORS Directors may be removed only as provided in Section 4 of Article V of the Certificate of Incorporation. 8 ARTICLE III COMMITTEES OF THE BOARD OF DIRECTORS SECTION 1. ELECTION The Board of Directors may appoint an Executive Committee and other committees composed of two or more of its members, and may appoint one of the members of each such committee to the office of chairman thereof. Members of the committees of the Board of Directors shall hold office for a term of one year and until their successors are appointed and qualify or until they shall cease to be directors. SECTION 2. POWERS Subject to such limitations as may from time to time be established by resolution of the Board of Directors, the Executive Committee shall have any and may exercise all of the powers of the Board of Directors when the Board of Directors is not in session except that it shall have no power to (a) declare dividends, (b) issue stock of the Corporation, (c) recommend to the stockholders any action which requires stockholder approval, (d) alter, amend or repeal any resolution of the Board of Directors relating to the Executive Committee, or (e) take any other action which legally may be taken only by the Board of Directors. Other committees of the Board of Directors shall have such powers as shall be properly delegated to them by the Board of Directors. SECTION 3. VACANCIES If the office of any member of any committee becomes vacant by death, resignation, or otherwise, such vacancy may be filled from the members of the Board by the Board of Directors. SECTION 4. SUBSTITUTE MEMBERS In the event that a member of any committee is absent from a meeting of the committee, the members of the committee present at the meeting, whether or not they constitute a quorum, may unanimously appoint another director to act in place of the absent member. SECTION 5. MEETINGS AND NOTICE OF MEETINGS The Executive Committee shall meet from time to time on call of the Chairman of the Board, or on call of any three or more members of the Executive Committee, for the transaction of any business. 9 Notice of every meeting of the Executive Committee shall be given to each member, by (a) deposit in the mail at least seventy-two hours before the meeting, or (b) telephonic communication directly with such person, the dispatch of a telegraphic communication to his address, or actual delivery to his address, at least forty-eight hours before the meeting. If given to a member by mail, telegraph or actual delivery to his address, such notice shall be sent or delivered to his business or residential address as shown on the records of the Secretary or an Assistant Secretary of the Corporation, or to such other address as shall have been furnished to the Secretary or an Assistant Secretary of the Corporation by him for this purpose. Such notice need not include a statement of the business to be transacted at, or the purpose of, any such meeting. All other committees of the Board of Directors shall meet at such times and upon such notice as they may determine. SECTION 6. QUORUM; ACTION AT MEETINGS At any meeting of any committee, however called, a majority of the members shall constitute a quorum for the transaction of business. A majority of such quorum shall decide any question that may come before the meeting. ARTICLE IV OFFICERS SECTION 1. ELECTION AND NUMBER The Board of Directors may appoint one of its members as Chairman of the Board and may also appoint one of its members as Vice Chairman-Finance. The Board of Directors shall appoint a President from among the directors, and a Secretary and a Treasurer, who need not be directors. The Board of Directors may also appoint one or more Senior Vice Presidents and/or Vice Presidents, who need not be directors. All officers of the Corporation shall hold office at the pleasure of the Board of Directors. Any two or more offices, except those of Chairman and Vice Chairman-Finance and those of President and Vice President, may, at the discretion of the Board of Directors, be held by the same person. The Board of Directors may from time to time appoint such other officers and agents with such powers and duties as the Board of Directors may prescribe. SECTION 2. CHAIRMAN OF THE BOARD The Chairman of the Board shall preside at all meetings of the Board of Directors. Subject to the control of the Board of Directors, he shall have supervisory power and authority over the business and affairs of the Corporation and over all of 10 its officers. He shall perform such other duties and exercise such other powers as may be assigned to him from time to time by the Board of Directors. If the Chairman of the Board is designated by the Board of Directors as the Chief Executive Officer of the Corporation, he shall direct the conduct of the business of the Corporation, subject to the control of the Board of Directors. SECTION 3. VICE CHAIRMAN-FINANCE In the absence of the Chairman of the Board, the Vice Chairman- Finance shall preside at all meetings of the Board of Directors, and in case no Chairman of the Board shall have been appointed, the Vice Chairman-Finance shall assume the duties and have the powers conferred as above upon the Chairman of the Board. Subject to the control of the Board of Directors, he shall have supervisory power and authority over the financial business and affairs of the Corporation. The Vice Chairman-Finance shall perform such other duties and exercise such other powers as may be assigned to him from time to time by the Board of Directors. SECTION 4. PRESIDENT Subject to the control of the Board of Directors, the President shall have direct power and authority over the business and affairs of the Corporation. The President shall perform such other duties and exercise such other powers as are usually incident to such office and such other duties and powers as may be assigned to him from time to time by the Board of Directors or the Chairman of the Board or Vice Chairman-Finance. In the absence of both the Chairman of the Board and the Vice Chairman-Finance, the President shall preside at all meetings of the Board of Directors. In case neither a Chairman of the Board nor a Vice Chairman-Finance shall have been appointed, the President shall assume the duties and have the powers conferred as above upon the Chairman of the Board. If the Board of Directors designates the President as Chief Executive Officer of the Corporation, he shall direct the conduct of the business of the Corporation, subject to the control of the Board of Directors. SECTION 5. SENIOR VICE PRESIDENTS The Senior Vice President or Senior Vice Presidents shall perform the duties of the President in his absence or during his disability to act. In addition, the Senior Vice President or Senior Vice Presidents shall perform the duties and exercise the powers usually incident to their respective offices and/or such other duties and powers as may be properly assigned to them from time to time by the Board of Directors, the Chairman of the Board, the Vice Chairman-Finance, or the President. 11 SECTION 6. VICE PRESIDENTS The Vice President or Vice Presidents shall perform the duties of the Senior Vice President or Senior Vice Presidents in his or their absence or disability to act. In addition, the Vice President or Vice Presidents shall perform the duties and exercise the powers usually incident to their respective offices and such other duties and powers as may be properly assigned to them from time to time by the Board of Directors, the Chairman of the Board, the Vice Chairman-Finance, the President, or any Senior Vice President having supervisory authority over them. SECTION 7. SECRETARY The Secretary shall issue notices of meetings, keep minutes of meetings of the Board of Directors and its committees, have charge of the corporate seal, and perform such other duties and exercise such other powers as are usually incident to such office or are properly assigned thereto by the Board of Directors, the Chairman of the Board, the Vice Chairman-Finance, the President or any Senior Vice President or Vice President having supervisory authority over him. SECTION 8. TREASURER The Treasurer shall have charge of all monies and securities of the Corporation, other than monies and securities of any division of the Corporation which has a treasurer or financial officer appointed by the Board of Directors, and shall keep regular books of account. The funds of the Corporation shall be deposited in the name of the Corporation by the Treasurer with such banks or trust companies as the Board of Directors or the Executive Committee from time to time shall designate. He shall sign or countersign such instruments as require his signature, shall perform all such duties and have all such powers as are usually incident to such office or are properly assigned to him by the Board of Directors, the Chairman of the Board, the Vice Chairman-Finance, the President, or any Senior Vice President or Vice President having supervisory authority over him, and may be required to give bond for the faithful performance of his duties in such sum and with such surety as may be required by the Board of Directors. SECTION 9. CONTROLLER The Controller shall be responsible for the accounting policies and practices of the Corporation, maintain its financial records, collect and consolidate the financial results of its subsidiaries and other operating units, prepare its financial reports, determine the amount and source of the funds required to meet its financial obligations, and perform such other duties and exercise such other powers as are usually incident to such office or are properly assigned thereto by the Board of Directors, the Chairman of the Board, the Vice Chairman-Finance, the President, the 12 Treasurer, or any Senior Vice President or Vice President having supervisory authority over him. SECTION 10. ASSISTANT SECRETARY; ASSISTANT TREASURER The Board of Directors may appoint one or more assistant secretaries and one or more assistant treasurers, or one appointee to both such positions, which officers shall have such powers and shall perform such duties as are provided in these By-laws to the Secretary or Treasurer, as the case may be, or as are properly assigned thereto by the Board of Directors, the Chairman of the Board, the Vice Chairman-Finance, the President, the Secretary or Treasurer, as the case may be, or any other officer having supervisory authority over them. ARTICLE V FISCAL YEAR The fiscal year of the Corporation shall be a 52 or 53 week year ending the Saturday nearest January 31, or on such other day as may be fixed from time to time by the Board of Directors. ARTICLE VI SEAL The Board of Directors shall provide a suitable seal, containing the full name of the Corporation, which seal shall be in the charge of the Secretary or an Assistant Secretary. The seal may be used by causing it or a facsimile thereof to be impressed or affixed or in any other manner reproduced. ARTICLE VII STOCK SECTION 1. CERTIFICATES OF STOCK Certificates of stock shall be issued in such form as may be approved by the Board of Directors and shall be signed, by the Chairman of the Board, Vice Chairman-Finance, President, a Senior Vice President or a Vice President, and by the Treasurer, Assistant Treasurer, Secretary or Assistant Secretary, and sealed with the seal of the Corporation or a facsimile thereof. Any or all such signatures may be facsimiles if countersigned by a transfer agent or registrar. Although any officer, 13 transfer agent or registrar whose manual or facsimile signature is affixed to such a certificate ceases to be such officer, transfer agent or registrar before such certificate has been issued, it may nevertheless be issued by the Corporation with the same effect as if such officer, transfer agent or registrar were still such at the date of its issue. SECTION 2. TRANSFERS The Board of Directors shall have power and authority to make all such rules and regulations as it may deem expedient concerning the issue, transfer and registration of certificates of stock. The Board of Directors may appoint transfer agents and registrars thereof. SECTION 3. RECORD DATE; CLOSING OF TRANSFER BOOKS The Board of Directors may fix a record date or direct that the stock transfer books be closed for a stated period for the purpose of making any proper determination with respect to stockholders, including which stockholders are entitled to notice of or to vote at a meeting or any adjournment thereof, receive payment of any dividend or other distribution, or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock. The record date may not be more than sixty (60) nor less than ten (10) days before the date on which the action requiring the determination will be taken; the transfer books may not be closed for a period longer than twenty (20) days; and, in the case of a meeting of stockholders, the closing of the transfer books shall be at least ten (10) days before the date of the meeting. SECTION 4. LOST CERTIFICATES The Board of Directors may determine the conditions upon which a new certificate of stock will be issued to replace a certificate which is alleged to have been lost, stolen, mutilated or destroyed, and the Board of Directors may delegate to any officer of the Corporation the power to make such determinations and to cause such replacement certificates to be issued. SECTION 5. WARRANTS The foregoing provisions relative to certificates of stock shall also apply to allotment certificates or other certificates or warrants representing rights with respect to stock in the Corporation, which certificates or warrants may be issued from time to time by a vote of the Board of Directors in such form as they may approve. SECTION 6. STOCK LEDGER The Corporation shall maintain a stock ledger which contains the name and address of each stockholder and the number of shares of stock of each class 14 which the stockholder holds. The stock ledger may be in written form or in any other form which can be converted within a reasonable time into written form for visual inspection. The original stock ledger shall be kept at the office of the Corporation's Transfer Agent. ARTICLE VIII SIGNATURES SECTION 1. NEGOTIABLE INSTRUMENTS All checks, drafts, notes, or other obligations of the Corporation shall be signed (a) by any two officers of the Corporation of the rank of Chairman of the Board, Vice Chairman-Finance, President, Senior Vice President or Vice President, (b) by the Chairman of the Board, Vice Chairman-Finance, President, any Senior Vice President or any Vice President and by the Treasurer or Assistant Treasurer or Secretary or Assistant Secretary, or (c) as otherwise authorized by the Board of Directors or the Executive Committee; PROVIDED, HOWEVER, that bonds, debentures or notes issued under a mortgage indenture or trust agreement with a bank or trust company as trustee and coupons attached or pertaining to any such bonds, debentures or notes may be executed manually or by facsimile. SECTION 2. STOCK TRANSFERS All endorsements, assignments, transfers, stock powers or other instruments of transfer of securities standing in the name of the Corporation shall be executed for and in the name of the Corporation (a) by any two officers of the Corporation of the rank of Chairman of the Board, Vice Chairman-Finance, President, Senior Vice President or Vice President, or (b) by the Chairman of the Board, Vice Chairman-Finance, President, any Senior Vice President or any Vice President, and by the Secretary or an Assistant Secretary, or (c) as otherwise authorized by the Board of Directors. ARTICLE IX WAIVER OF NOTICE OF MEETINGS SECTION 1. STOCKHOLDERS Notice of the time, place and/or purpose of any meeting of stockholders shall not be required to be given to any stockholder who shall attend such meeting in person or by proxy; and if any stockholder shall, in a writing filed with the records of 15 the meeting, either before or after the holding thereof, waive notice of any stockholders' meeting, notice thereof need not be given to him. SECTION 2. DIRECTORS Notice of any meeting of the Board of Directors or of any committee thereof need not be given to any director if he shall attend such meeting in person, or shall in a writing filed with the records of the meeting, either before or after the holding thereof, waive such notice; and any meeting of the Board of Directors or of any committee thereof shall be a legal meeting without any notice thereof having been given if all such directors shall be present at such meeting. ARTICLE X VOTING OF STOCKS Unless otherwise ordered by the Board of Directors, the Chairman of the Board, the Vice Chairman-Finance, the President, any Senior Vice President or any Vice President of the Corporation shall have full power and authority, on behalf of the Corporation, to attend, act and vote at any meeting of the stockholders of any corporation in which this Corporation may hold stock and at such meeting may exercise any or all rights and powers incident to the ownership of such stock and which as owner thereof the Corporation might exercise if present, and to execute on behalf of the Corporation a proxy or proxies empowering others to act as aforesaid. The Board of Directors by resolution from time to time may confer like powers upon any other person or persons. ARTICLE XI CHECKS, NOTES, ETC. All checks on the Corporation's bank accounts and all drafts, bills of exchange and promissory notes, and all acceptances, obligations and other instruments for the payment of money, shall be signed by such person or persons as shall be authorized to do so from time to time by the Board of Directors or by the committee or officer or officers of the Corporation to whom the Board shall have delegated the power to authorize such signing; PROVIDED, HOWEVER, that the signature of any person so authorized on checks and drafts drawn on the Corporation's dividend and special accounts may be in facsimile if the Board of Directors or such committee or officer or officers, whichever shall have authorized such person to sign such checks or drafts, shall have authorized such person to sign in facsimile, and provided further that in case notes or other instruments for the payment of money (other than notes, bonds or debentures issued under a trust instrument of the Corporation) are required 16 to be signed by two persons, the signature thereon of only one of the persons signing any such note or other instrument may be in facsimile, and that in the case of notes, bonds or debentures issued under a trust instrument of the Corporation and required to be signed by two officers of the Corporation, the signatures of both such officers may be in facsimile if specifically authorized and directed by the Board of Directors of the Corporation and if such notes, bonds or debentures are required to be authenticated by a corporate trustee which is a party to the trust instrument and provided further that in case any person or persons who shall have signed any such note or other instrument, either manually or in facsimile, shall have ceased to be a person or persons so authorized to sign any such note or other instrument, whether because of death or by reason of any other fact or circumstance, before such note or other instrument shall have been delivered by the Corporation, such note or other instrument may, nevertheless, be adopted by the Corporation and be issued and delivered as though the person or persons who so signed such note or other instrument had not ceased to be such a person or persons. ARTICLE XII OFFICES The Corporation may have offices in addition to the registered office specified in the Certificate of Incorporation within or without the State of Delaware at such places as shall be determined from time to time by the Board of Directors. ARTICLE XIII AMENDMENTS Any By-law may be adopted, repealed, altered or amended by the affirmative vote of a majority of the Whole Board (as defined in the Certificate of Incorporation) at any meeting thereof. The stockholders of the Corporation shall also have the power to amend, alter or repeal any provision of these By-laws but only to the extent and in the manner provided in the Certificate of Incorporation. As amended April 2, 1996 AMENDED AND RESTATED BY-LAWS OF THE PENN TRAFFIC COMPANY (A DELAWARE CORPORATION) ARTICLE 1 DEFINITIONS As used in these By-laws, unless the context otherwise requires, the term: 1.1 "Assistant Secretary" means an Assistant Secretary of the Corporation. 1.2 "Assistant Treasurer" means an Assistant Treasurer of the Corporation. 1.3 "Audit Committee" means the Audit Committee of the Board. 1.4 "Board" means the Board of Directors of the Corporation. 1.5 "Business Day" means any day which is not a Saturday, a Sunday or a day on which banks are authorized to close in the City of New York. 1.6 "By-laws" means the amended and restated by-laws of the Corporation, as amended from time to time. 1.7 "Certificate of Incorporation" means the amended and restated certificate of incorporation of the Corporation, as amended, supplemented or restated from time to time. 1.8 "Chairman of the Board" means the Chairman of the Board of Directors of the Corporation. 1.9 "Chairman of the Executive Committee" means the Chairman of the Executive Committee of the Board of Directors of the Corporation. 1.10 "Chief Financial Officer" means the Chief Financial Officer of the Corporation. 1.11 "Compensation and Stock Option Committee" means the Compensation and Stock Option Committee of the Board. 1.12 "Corporation" means The Penn Traffic Company. 1.13 "Directors" means directors of the Corporation. 1.14 "Entire Board" means all directors of the Corporation in office, whether or not present at a meeting of the Board, but disregarding vacancies. 1.15 "Executive Committee" means the Executive Committee of the Board. 1.16 "General Corporation Law" means the General Corporation Law of the State of Delaware, as amended from time to time. 1.17 "Office of the Corporation" means the executive office of the Corporation, anything in Section 131 of the General Corporation Law to the contrary notwithstanding. 1.18 "President" means the President of the Corporation. 1.19 "Secretary" means the Secretary of the Corporation. 1.20 "Stockholders" means stockholders of the Corporation. 1.21 "Treasurer" means the Treasurer of the Corporation. 1.22 "Vice Chairman of the Board" means the Vice Chairman of the Board of Directors of the Corporation. 1.23 "Vice Chairman of the Executive Committee" means the Vice Chairman of the Executive Committee of the Board of Directors of the Corporation. 1.24 "Vice President" means a Vice President of the Corporation. ARTICLE 2 STOCKHOLDERS 2.1 PLACE OF MEETINGS. Every meeting of Stockholders shall be held at the office of the Corporation or at such other place within or without the State of Delaware as shall be specified or fixed in the notice of such meeting or in the waiver of notice thereof. 2.2 ANNUAL MEETING. A meeting of Stockholders shall be held annually for the election of Directors and the transaction of other business at such hour and on such business day in each year as may be determined by resolution adopted by affirmative vote of a majority vote of the Entire Board and designated in the notice of meeting, provided, 2 however, that each successive annual meeting shall be held on a date within thirteen months after the date of the preceding annual meeting. 2.3 DEFERRED MEETING FOR ELECTION OF DIRECTORS, ETC. If the annual meeting of Stockholders for the election of Directors and the transaction of other business is not held on the date designated therefor or at any adjournment of a meeting convened on such date, the Board by resolution adopted by affirmative vote of a majority vote of the Entire Board, shall call a meeting of Stockholders for the election of Directors and the transaction of other business as soon thereafter as convenient. 2.4 SPECIAL MEETINGS. A special meeting of Stockholders, unless otherwise prescribed by statute, may be called at any time by the Board, the Chairman of the Board or by the President, and shall be called by the President or Secretary at the request, in writing, of any two or more Directors then serving or of the Stockholders owning a majority of the shares of capital stock of the Corporation issued and outstanding and entitled to vote. Any such request shall state the purpose of the proposed meeting. At any special meeting of Stockholders, no business may be transacted other than (i) such business stated in the notice thereof given pursuant to Section 2.6 hereof or in any waiver of notice thereof given pursuant to Section 2.7 hereof (in a form prepared by the Secretary) or (ii) such business as is related to the purpose or purposes of such meeting and which is properly brought before the meeting by or at the direction of the Board. 2.5 FIXING RECORD DATE. For the purpose of (a) determining the Stockholders entitled (i) to notice of or to vote at any meeting of Stockholders or any adjournment thereof or (ii) to receive payment of any dividend or other distribution or allotment of any rights, or to exercise any rights in respect of any change, conversion or exchange of stock; or (b) any other lawful action, the Board may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date was adopted by the Board and which record date shall not be (x) in the case of clause (a)(i) above, more than sixty nor less than ten days before the date of such meeting and (y) in the case of clause (a)(ii) or (b) above, more than sixty days prior to such action. If no such record date is fixed: 2.5.1 the record date for determining Stockholders entitled to notice of or to vote at a meeting of Stockholders shall be at the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held; and 2.5.2 the record date for determining Stockholders for any purpose other than those specified in Section 2.5.1 shall be at the close of business on the day on which the Board adopts the resolution relating thereto. When a determination of Stockholders entitled to notice of or to vote at any meeting of Stockholders has been made as provided in this Section 2.5, such 3 determination shall apply to any adjournment thereof unless the Board fixes a new record date for the adjourned meeting. 2.6 NOTICE OF MEETINGS OF STOCKHOLDERS. Except as otherwise provided in Section 2.7 hereof, whenever under the provisions of any statute, the Certificate of Incorporation or these By-laws, Stockholders are required or permitted to take any action at a meeting, written notice shall be given stating the place, date and hour of the meeting and, in the case of a special meeting, the purpose or purposes for which the meeting is called. Unless otherwise provided by any statute, the Certificate of Incorporation or these By-laws, a copy of the notice of any meeting shall be given, personally or by mail, not less than ten nor more than sixty days before the date of the meeting, to each Stockholder entitled to notice of or to vote at such meeting. If mailed, such notice shall be deemed to be given when deposited in the United States mail, with postage prepaid, directed to the Stockholder at his or her address as it appears on the records of the Corporation. An affidavit of the Secretary or an Assistant Secretary or of the transfer agent of the Corporation that the notice required by this Section 2.6 has been given shall, in the absence of fraud, be prima facie evidence of the facts stated therein. When a meeting is adjourned to another time or place, notice need not be given of the adjourned meeting if the time and place thereof are announced at the meeting at which the adjournment is taken, and at the adjourned meeting any business may be transacted that might have been transacted at the meeting as originally called. If, however, the adjournment is for more than thirty days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each Stockholder of record entitled to vote at the meeting. 2.7 WAIVERS OF NOTICE. Whenever the giving of any notice is required by statute, the Certificate of Incorporation or these By-laws, a waiver thereof, in writing, signed by the Stockholder or Stockholders entitled to said notice, whether before or after the event as to which such notice is required, shall be deemed equivalent to notice. Attendance by a Stockholder at a meeting shall constitute a waiver of notice of such meeting except when the Stockholder attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business on the ground that the meeting has not been lawfully called or convened. 2.8 LIST OF STOCKHOLDERS. The Secretary shall prepare and make, or cause to be prepared and made, at least ten days before every meeting of Stockholders, a complete list of the Stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each Stockholder and the number of shares registered in the name of each Stockholder. Such list shall be open to the examination of any Stockholder, the Stockholder's agent or attorney, at the Stockholder's expense, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected 4 by any Stockholder who is present. The Corporation shall maintain the list of Stockholders in written form or in another form capable of conversion into written form within a reasonable time. The stock ledger shall be the only evidence as to who are the Stockholders entitled to examine the stock ledger, the list of Stockholders or the books of the Corporation, or to vote in person or by proxy at any meeting of Stockholders. 2.9 QUORUM OF STOCKHOLDERS; ADJOURNMENT. Except as otherwise provided by any statute, the Certificate of Incorporation or these By-laws, the holders of a majority of all outstanding shares of stock entitled to vote at any meeting of Stockholders, present in person or represented by proxy, shall constitute a quorum for the transaction of any business at such meeting. When a quorum is once present to organize a meeting of Stockholders, it is not broken by the subsequent withdrawal of any Stockholders. The holders of a majority of the shares of stock present in person or represented by proxy at any meeting of Stockholders, including an adjourned meeting, whether or not a quorum is present, may adjourn such meeting to another time and place. Shares of its own stock belonging to the Corporation or to another corporation, if a majority of the shares entitled to vote in the election of directors of such other corporation is held, directly or indirectly, by the Corporation, shall neither be entitled to vote nor be counted for quorum purposes; provided, however, that the foregoing shall not limit the right of the Corporation to vote stock, including but not limited to its own stock, held by it in a fiduciary capacity. 2.10 VOTING; PROXIES. Unless otherwise provided in the Certificate of Incorporation, every Stockholder of record shall be entitled at every meeting of Stockholders to one vote for each share of capital stock standing in his or her name on the record of Stockholders determined in accordance with Section 2.5 hereof. If the Certificate of Incorporation provides for more or less than one vote for any share on any matter, each reference in the By-laws or the General Corporation Law to a majority or other proportion of stock shall refer to such majority or other proportion of the votes of such stock. The provisions of Sections 212 and 217 of the General Corporation Law shall apply in determining whether any shares of capital stock may be voted and the persons, if any, entitled to vote such shares; but the Corporation shall be protected in assuming that the persons in whose names shares of capital stock stand on the stock ledger of the Corporation are entitled to vote such shares. Holders of redeemable shares of stock are not entitled to vote after the notice of redemption is mailed to such holders and a sum sufficient to redeem the stocks has been deposited with a bank, trust company, or other financial institution under an irrevocable obligation to pay the holders the redemption price on surrender of the shares of stock. At any meeting of Stockholders (at which a quorum was present to organize the meeting), all matters which may be properly considered at such meeting, except as otherwise provided by statute or by the Certificate of Incorporation or by these By-laws, shall be decided by a majority of the votes cast at such meeting by the holders of shares present in person or represented by proxy and entitled to vote thereon, whether or not a quorum is present when the vote is taken. Directors may be elected either by written ballot or by voice vote. In voting on any other question on which a vote by ballot is required by law or is demanded by any 5 Stockholder entitled to vote, the voting shall be by ballot. Each ballot shall be signed by the Stockholder voting or the Stockholder's proxy and shall state the number of shares voted. On all other questions, the voting may be by voice vote. Each Stockholder entitled to vote at a meeting of Stockholders may authorize another person or persons to act for such Stockholder by proxy. The validity and enforceability of any proxy shall be determined in accordance with Section 212 of the General Corporation Law. A Stockholder may revoke any proxy that is not irrevocable by attending the meeting and voting in person or by filing an instrument in writing revoking the proxy or by delivering a proxy in accordance with applicable law bearing a later date to the Secretary. 2.11 VOTING PROCEDURES AND INSPECTORS OF ELECTION AT MEETINGS OF STOCKHOLDERS. The Board, in advance of any meeting of Stockholders, shall appoint one or more inspectors to act at the meeting and make a written report thereof. The Board may designate one or more persons as alternate inspectors to replace any inspector who fails to act. If no inspector or alternate is able to act at a meeting, the person presiding at the meeting shall appoint one or more inspectors to act at the meeting. Each inspector, before entering upon the discharge of his or her duties, shall take and sign an oath faithfully to execute the duties of inspector with strict impartiality and according to the best of his or her ability. The inspectors shall (a) ascertain the number of shares outstanding and the voting power of each, (b) determine the shares represented at the meeting and the validity of proxies and ballots, (c) count all votes and ballots, (d) determine and retain for a reasonable period a record of the disposition of any challenges made to any determination by the inspectors, and (e) certify their determination of the number of shares represented at the meeting and their count of all votes and ballots. The inspectors may appoint or retain other persons or entities to assist the inspectors in the performance of their duties. The date and time of the opening and the closing of the polls for each matter upon which the Stockholders will vote at a meeting shall be determined by the person presiding at the meeting and shall be announced at the meeting. No ballot, proxies or votes, or any revocation thereof or change thereto, shall be accepted by the inspectors after the closing of the polls unless the Court of Chancery of the State of Delaware upon application by a Stockholder shall determine otherwise. 2.12 CONDUCT OF MEETINGS. (a) At each meeting of Stockholders, the Chairman of the Board, or if there is no Chairman of the Board or if there be one and the Chairman of the Board is absent, the Vice Chairman of the Board, or if there is no Vice Chairman of the Board or if there be one and the Vice Chairman of the Board is absent, the Chairman of the Executive Committee, or if there is no Chairman of the Executive Committee or if there be one and the Chairman of the Executive Committee is absent, the Vice Chairman of the Executive Committee, or if there is no Vice Chairman of the Executive Committee or if there be one and the Vice Chairman of the Executive Committee is absent, the President, or if there is no President or if there be one and the President is absent, a Vice President, and in case more than one Vice President shall be present, that Vice President designated by the Board (or in the absence of any such designation, the most senior Vice President, based on time served in such office, present), shall act as chairman of the meeting. The Secretary, or in his or her absence 6 one of the Assistant Secretaries, shall act as secretary of the meeting. In case none of the officers above designated to act as chairman or secretary of the meeting, respectively, shall be present, a chairman or a secretary of the meeting, as the case may be, shall be chosen by a majority of the votes cast at such meeting by the holders of shares of capital stock present in person or represented by proxy and entitled to vote at the meeting. (b) Only persons who are nominated in accordance with the following procedures shall be eligible for election as Directors. Nominations of persons for election to the Board may be made (i) by or at the direction of the Board, (ii) by any nominating committee or person appointed by the Board or (iii) by any Stockholder of the Corporation entitled to vote for the election of Directors at the meeting who complies with the provisions of the following paragraph (persons nominated in accordance with (iii) above are referred to herein as "Stockholder nominees"). In addition to any other applicable requirements, all nominations of Stockholder nominees must be made by written notice given by or on behalf of a Stockholder of record of the Corporation (the "Notice of Nomination"). The Notice of Nomination must be delivered personally to, or mailed to, and received at the principal executive offices of the Corporation, addressed to the attention of the Secretary. To be timely, Notice of Nomination must have been received by the Secretary of the Corporation (a) in the case of an annual meeting, not less than 60 nor more than 90 days in advance of the first anniversary of the previous year's annual meeting; PROVIDED, HOWEVER, that in the event that the date of the annual meeting is changed by more than 30 days from such anniversary date, the Notice of Nomination to be timely must have been received by the Secretary of the Corporation no later than the close of business on the 10th day following the day on which public announcement of the date of such meeting is first made; and (b) in the case of a special meeting at which directors are to be elected, not later than the close of business on the fifth day following such public announcement. Each such notice shall set forth: (i) the name and address, as they appear on the Corporation's books, of the Stockholder who intends to make the nomination and the name(s) and address(es) of the person or persons to be nominated; (ii) a representation that the Stockholder is a holder of record of shares of the Corporation and the number and class so held and will be entitled to vote at such meeting and intends to appear in person or by proxy at the meeting and nominate the person or persons specified in the notice; (iii) the class and number of shares of the Corporation that are beneficially owned by the Stockholder; (iv) a description of all arrangements or understandings between the Stockholder and each nominee and any other person or persons (naming such person or persons) pursuant to which the nomination or nominations are to be made by the Stockholder; (v) such other information regarding each nominee proposed by such Stockholder as would be required to be included in a definitive proxy statement filed pursuant to the proxy rules of the Securities and Exchange Commission had the nominee been nominated, or intended to be nominated, by the Board of Directors; and (vi) the consent of each nominee to serve as a director of the Corporation, if so elected. In addition, the Stockholder making such nomination shall promptly provide any other information reasonably requested by the Corporation. Notwithstanding anything in these 7 By-laws to the contrary, no person shall be eligible for election as a director of the Corporation unless nominated in accordance with the procedures set forth in this Section 2.12(b). Notwithstanding the foregoing provisions of this By-law, a Stockholder shall also comply with all applicable requirements of the Exchange Act (as hereinafter defined) and the rules and regulations thereunder with respect to the matters set forth in this By-law. Nothing in this By-law shall be deemed to affect any rights of the holders of any series of Preferred Stock to elect directors under specified circumstances. Except as otherwise required by law, the chairman of any meeting of Stockholders shall have the power and duty (i) to determine whether a nomination was made in accordance with the requirements set forth in this By-law and (ii) if any proposed nomination was not made in compliance with this By-law, to declare that such defective nomination shall be disregarded. (c) At any meeting of Stockholders, only such business shall be conducted as shall have been properly brought before the meeting. To be properly brought before a meeting of Stockholders, (i) business must be specified in the notice of meeting (or any supplement thereto) given by or at the direction of the Board, (ii) otherwise properly brought before the meeting by or at the direction of the Board or (iii) otherwise properly brought before the meeting by a Stockholder in accordance with the terms of the following paragraph (business brought before the meeting in accordance with (iii) above is referred to as "Stockholder business"). In addition to any other applicable requirements, all proposals of Stockholder business must be made by written notice given by or on behalf of a Stockholder of record of the Corporation (the "Notice of Business"). To be timely, a Stockholder's notice must have been received by the Secretary of the Corporation not less than 60 nor more than 90 days in advance of the first anniversary of the previous year's annual meeting; provided, however, that in the event that the date of the annual meeting is changed by more than 30 days from such anniversary date, notice by the stockholder to be timely must have been received no later than the close of business on the 10th day following the day on which public announcement of the date of such meeting is first made. Such Notice of Business shall set forth (i) the name and record address of the Stockholder proposing such Stockholder business; (ii) a representation that the Stockholder is a holder of record of shares of the Corporation and the number and class so held and will be entitled to vote at such meeting and intends to appear in person or by proxy at the meeting; (iii) the class and number of shares of the Corporation that are beneficially owned by the Stockholder; (iv) a brief description of the Stockholder business desired to be brought before the annual meeting and the reasons for conducting such Stockholder business at the annual meeting, and; (v) any material interest of the Stockholder in such Stockholder business. Notwithstanding anything in these By-laws to the contrary, no business shall be conducted at the annual meeting of Stockholders except in accordance with the procedures set forth in this Section 2.12(c), provided, however, that nothing in this Section 2.12(c) shall be deemed to preclude discussion by any Stockholder of any business properly brought before the annual meeting in accordance with said procedure. In addition, the Stockholder making such proposal shall promptly provide any other 8 information reasonably requested by the Corporation. Only such business shall be conducted at any annual meeting of Stockholders as shall have been brought before such meeting in accordance with the requirements set forth in this By-law. Notwithstanding the foregoing provisions of this By-law, a Stockholder shall also comply with all applicable requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the rules and regulations thereunder with respect to the matters set forth in this By-law. Nothing in this By-law shall be deemed to affect any rights of any Stockholder to request inclusion of a proposal in the Corporation's proxy statement pursuant to Rule 14a-8 under the Exchange Act. Except as otherwise required by law, the chairman of any annual meeting of Stockholders shall have power and duty (i) to determine whether any business proposed to be brought before the meeting was brought in accordance with the requirements set forth in this By-law and (ii) if any proposed business was not brought in compliance with this By-law to declare that such defective proposal shall be disregarded. For purposes of this By-law and the next preceding By-law, "public announcement" shall mean disclosure in a press release reported by the Dow Jones News Service, the Associated Press or any comparable national news service or in a document publicly filed by the Corporation with the Securities and Exchange Commission pursuant to Section 13, 14 or 15(d) of the Exchange Act. 2.13 ORDER OF BUSINESS. The order of business at all meetings of Stockholders shall be as determined by the chairman of the meeting, but the order of business to be followed at any meeting at which a quorum is present may be changed by a majority of the votes cast at such meeting by the holders of shares of capital stock present in person or represented by proxy and entitled to vote at the meeting. 2.14 ACTION BY STOCKHOLDERS. Any action required or permitted by the General Corporation Law to be taken at any annual or special meeting of Stockholders of the Corporation may be taken without a meeting if Stockholders holding a majority of the voting shares consent thereto in writing, and the writing or writings are filed with the minutes of meetings of Stockholders. ARTICLE 3 DIRECTORS 3.1 GENERAL POWERS. Except as otherwise provided in the Certificate of Incorporation or these By-laws, the business and affairs of the Corporation shall be managed by or under the direction of the Board. The Board may adopt such rules and regulations, not inconsistent with the Certificate of Incorporation or these By-laws or applicable laws, as it may deem proper for the conduct of its meetings and the management of the Corporation. In addition to the powers expressly conferred by these By-laws, the Board may exercise all powers and perform all acts that are not required, by these By-laws or the Certificate of Incorporation or by statute, to be exercised and performed by the Stockholders. 9 3.2 NUMBER; QUALIFICATION; TERM OF OFFICE. The Board shall consist of not less than 2 or more than 10 members. Until another number is fixed by Board or stockholders in accordance with the next following sentence, the Board shall consist of 10 members. The exact number of Directors within the minimum and maximum limitations specified in the preceding sentence shall be fixed from time to time by resolution adopted at any meeting of the stockholders or by a majority of the entire Board then in office, whether on not present at a meeting. The term of office of each director shall expire at the first annual meeting of Stockholders of the Corporation next following the director's election. The Board shall elect a Chairman of the Board who will serve as a non-executive Chairman of the Board. 3.3 ELECTION. Directors shall, except as otherwise required by statute or by the Certificate of Incorporation, be elected by a plurality of the votes cast at a meeting of Stockholders by the holders of shares present in person or represented by proxy at the meeting and entitled to vote in the election. 3.4 NEWLY CREATED DIRECTORSHIPS AND VACANCIES. Unless otherwise provided in the Certificate of Incorporation, newly created Directorships resulting from any increase in the authorized number of Directors and vacancies occurring in the Board for any other reason, may be filled by a resolution adopted at any meeting of the stockholders or by the affirmative votes of a majority of the entire Board, although less than a quorum, or by a sole remaining Director, and Directors so chosen shall hold office for a term expiring at the next following annual meeting of Stockholders, or, in each case until their respective successors are duly elected and qualified, or until the respective Directors' earlier death, resignation or removal. 3.5 RESIGNATION. Any Director may resign at any time by written notice to the Corporation. Such resignation shall take effect at the time therein specified, and, unless otherwise specified in such resignation, the acceptance of such resignation shall not be necessary to make it effective. 3.6 REMOVAL. Any one or more or all of the Directors may be removed, at any time, with or without cause by the Stockholders having at least a majority in voting power of the then issued and outstanding shares of capital stock of the Corporation. 3.7 COMPENSATION. Each Director, in consideration of his or her service as such, shall be entitled to receive from the Corporation such amount per annum or such fees for attendance at Directors' meetings, or both, as the Board may from time to time determine, together with reimbursement for the reasonable out-of-pocket expenses, if any incurred by such Director in connection with the performance of his or her duties. Each Director who shall serve as a member of any committee of Directors in consideration of serving as such shall be entitled to such additional amount per annum or such fees for attendance at committee meetings, or both, as the Board may from time to time determine, together with reimbursement for the reasonable out-of-pocket expenses, if any, incurred by such Director in the performance of his or her duties. Nothing 10 contained in this Section 3.7 shall preclude any Director from serving the Corporation or its subsidiaries in any other capacity and receiving proper compensation therefor. 3.8 TIMES AND PLACES OF MEETINGS. The Board may hold meetings, both regular and special, either within or without the State of Delaware. The times and places for holding meetings of the Board may be fixed from time to time by resolution of the Board or (unless contrary to a resolution of the Board) in the notice of the meeting. 3.9 ANNUAL MEETINGS. On the day when and at the place where the annual meeting of Stockholders for the election of Directors is held, and as soon as practicable thereafter, the Board may hold its annual meeting, without notice of such meeting, for the purposes of organization, the election of officers and the transaction of other business. The annual meeting of the Board may be held at any other time and place specified in a notice given as provided in Section 3.11 hereof for special meetings of the Board or in a waiver of notice thereof. 3.10 REGULAR MEETINGS. Regular meetings of the Board may be held without notice at such times and at such places as shall from time to time be determined by the Board. 3.11 SPECIAL MEETINGS. Special meetings of the Board may be called by the Chairman of the Board, the Vice Chairman of the Board, the Chairman of the Executive Committee, the Vice Chairman of the Executive Committee, the President or the Secretary or by any two or more Directors then serving on at least one day's notice to each Director given by one of the means specified in Section 3.14 hereof other than by mail, or on at least three business days' notice if given by mail. Special meetings shall be called by the Chairman of the Board, President or Secretary in like manner and on like notice on the written request of any two or more of the Directors then serving. 3.12 TELEPHONE MEETINGS. Directors or members of any committee designated by the Board may participate in a meeting of the Board or of such committee by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and participation in a meeting pursuant to this Section 3.12 shall constitute presence in person at such meeting. 3.13 ADJOURNED MEETINGS. A majority of the Directors present at any meeting of the Board, including an adjourned meeting, whether or not a quorum is present, may adjourn such meeting to another time and place. At least one day's notice of any adjourned meeting of the Board shall be given to each Director whether or not present at the time of the adjournment, if such notice shall be given by one of the means specified in Section 3.14 hereof other than by mail, or at least three days' notice if by mail. Any business may be transacted at an adjourned meeting that might have been transacted at the meeting as originally called. 11 3.14 NOTICE PROCEDURE. Subject to Sections 3.11 and 3.15 hereof, whenever, under the provisions of any statute, the Certificate of Incorporation or these By-laws, notice is required to be given to any Director, such notice shall be deemed given effectively if given in person or by telephone, by mail addressed to such Director at such Director's address as it appears on the records of the Corporation, with postage thereon prepaid, or by telegram, telex, telecopy or similar means addressed as aforesaid. 3.15 WAIVER OF NOTICE. Whenever the giving of any notice is required by statute, the Certificate of Incorporation or these By-laws, a waiver thereof, in writing, signed by the person or persons entitled to said notice, whether before or after the event as to which such notice is required, shall be deemed equivalent to notice. Attendance by a person at a meeting shall constitute a waiver of notice of such meeting except when the person attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business on the ground that the meeting has not been lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the Directors or a committee of Directors need be specified in any written waiver of notice unless so required by statute, the Certificate of Incorporation or these By-laws. 3.16 ORGANIZATION. At each meeting of the Board, the Chairman of the Board, or in the absence of the Chairman of the Board, the Chairman of the Executive Committee, or in the absence of the Chairman of the Board the President, or in the absence of the President a chairman chosen by a majority of the Directors present, shall preside. The Secretary shall act as secretary at each meeting of the Board. In case the Secretary shall be absent from any meeting of the Board, an Assistant Secretary shall perform the duties of secretary at such meeting; and in the absence from any such meeting of the Secretary and all Assistant Secretaries, the person presiding at the meeting may appoint any person to act as secretary of the meeting. 3.17 QUORUM OF DIRECTORS. The presence in person of a majority of the entire Board shall be necessary and sufficient to constitute a quorum for the transaction of business at any meeting of the Board, but a majority of a smaller number may adjourn any such meeting to a later date. 3.18 ACTION BY MAJORITY VOTE. Except as otherwise expressly required by statute, the Certificate of Incorporation or these By-laws, the act of a majority of the Directors present at a meeting at which a quorum is present shall be the act of the Board. 3.19 ACTION WITHOUT MEETING. Any action required or permitted to be taken at any meeting of the Board or of any committee thereof may be taken without a meeting if all Directors or members of such committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the Board or committee. 12 3.20 The power to make, alter or repeal these By-laws, and to adopt any new By-law, shall be vested solely in the stockholders. The power to make, alter or repeal these By-laws, and to adopt any new By-law, shall not be vested in the Board of Directors. ARTICLE 4 COMMITTEES OF THE BOARD 4.1 COMMITTEES. The Board may, by resolution passed by a vote of the entire Board, designate one or more committees of the Board, each committee to consist of one or more of the Directors of the Corporation and shall designate the following committees of the Board, each committee to consist of one or more of the Directors of the Corporation: (a) EXECUTIVE COMMITTEE. An Executive Committee of the Board to manage the business of the Company and such Executive Committee shall have all of the authority customarily delegated to the senior executive officers of a corporation, subject to oversight of the entire Board. The positions of Chairman of the Executive Committee and Vice-Chairman of the Executive Committee will be senior executive officer positions of the Corporation. The Corporation's Chief Executive Officer will report to the Chairman of the Executive Committee on all matters under the authority of the Executive Committee. During the term of the Management Agreement dated as of the date hereof, among the Corporation, Hirsch & Fox, L.L.C., Gary D. Hirsch and Martin A. Fox, as from time to time supplemented, amended or modified, the members of the Executive Committee shall consist of Gary D. Hirsch (Chairman of the Executive Committee), Martin A. Fox (Vice Chairman of the Executive Committee) and the President of the Corporation. (b) AUDIT COMMITTEE. An Audit committee to be composed solely of independent Directors responsible for reviewing the Company's financial statements and the selection of the Corporation's independent auditors. (c) COMPENSATION AND STOCK OPTION COMMITTEE. A Compensation and Stock Option Committee to be composed solely of independent Directors that will approve all officer compensation arrangements and grants of stock options under the Company's equity incentive program, taking into account, in each case, the recommendations of the Executive Committee. 4.2 ALTERNATE COMMITTEE MEMBERS. The Board may designate one or more Directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of such committee. If a member of a committee shall be absent from any meeting, or disqualified from voting thereat, the remaining member or members present and not disqualified from voting, whether or not such 13 member or members constitute a quorum, may, by a unanimous vote, appoint another member of the Board to act at the meeting in the place of any such absent or disqualified member. Any such committee, to the extent provided in the resolution of the Board passed as aforesaid, shall have and may exercise all the powers and authority of the Board in the management of the business and affairs of the Corporation, and may authorize the seal of the Corporation to be impressed on all papers that may require it, but no such committee shall have the power or authority of the Board in reference to amending the Certificate of Incorporation, adopting an agreement of merger or consolidation under section 251 or section 252 of the General Corporation Law, recommending to the Stockholders (a) the sale, lease or exchange of all or substantially all of the Corporation's property and assets, or (b) a dissolution of the Corporation or a revocation of a dissolution, or amending the By-laws of the Corporation; and, unless the resolution designating it expressly so provides, no such committee shall have the power and authority to declare a dividend, to authorize the issuance of stock or to adopt a certificate of ownership and merger pursuant to Section 253 of the General Corporation Law. Unless otherwise specified in the resolution of the Board designating a committee, at all meetings of such committee a majority of the total number of members of the committee shall constitute a quorum for the transaction of business, and the vote of a majority of the members of the committee present at any meeting at which there is a quorum shall be the act of the committee. Each committee shall keep regular minutes of its meetings. Unless the Board otherwise provides, each committee designated by the Board may make, alter and repeal rules for the conduct of its business. In the absence of such rules each committee shall conduct its business in the same manner as the Board conducts its business pursuant to Article 3 of these By-laws. 4.3 COMMITTEE MINUTES. The committees shall keep regular minutes of their proceedings and report the same to the Board. ARTICLE 5 OFFICERS 5.1 POSITIONS. The officers of the Corporation shall be a President, a Secretary, a Treasurer or a Chief Financial Officer and such other officers as the Board may appoint, including a Chairman of the Board, Vice Chairman of the Board, a Chairman of the Executive Committee, a Vice Chairman of the Executive Committee, one or more Vice Presidents and one or more Assistant Secretaries and Assistant Treasurers, who shall exercise such powers and perform such duties as shall be determined from time to time by the Board. The Board may designate one or more Vice Presidents as Executive Vice Presidents and may use descriptive words or phrases to designate the standing, seniority or areas of special competence of the Vice Presidents elected or appointed by it. Any number of offices may be held by the same person unless the Certificate of Incorporation or these By-laws otherwise provide. 14 5.2 APPOINTMENT. The officers of the Corporation shall be chosen by the Board at its annual meeting or at such other time or times as the Board shall determine. 5.3 COMPENSATION. The compensation of all officers of the Corporation shall be fixed by the Board. No officer shall be prevented from receiving a salary or other compensation by reason of the fact that the officer is also a Director. 5.4 TERM OF OFFICE. Each officer of the Corporation shall hold office for the term for which he or she is elected and until such officer's successor is chosen and qualifies or until such officer's earlier death, resignation or removal. Any officer may resign at any time upon written notice to the Corporation. Such resignation shall take effect at the date of receipt of such notice or at such later time as is therein specified, and, unless otherwise specified, the acceptance of such resignation shall not be necessary to make it effective. The resignation of an officer shall be without prejudice to the contract rights of the Corporation, if any. Any officer elected or appointed by the Board may be removed at any time, with or without cause, by vote of a majority of the entire Board. Any vacancy occurring in any office of the Corporation shall be filled by the Board. The removal of an officer without cause shall be without prejudice to the officer's contract rights, if any. The election or appointment of an officer shall not of itself create contract rights. 5.5 FIDELITY BONDS. The Corporation may secure the fidelity of any or all of its officers or agents by bond or otherwise. 5.6 CHAIRMAN OF THE BOARD. The Chairman of the Board, if one shall have been appointed, shall preside at all meetings of the Board and shall exercise such powers and perform such other duties as shall be determined from time to time by the Board. The Chairman of the Board shall not be an executive officer of the Corporation. 5.7 VICE CHAIRMAN OF THE BOARD. The Vice Chairman of the Board, if one shall have been appointed, shall, in the absence of the Chairman of the Board, preside at all meetings of the Board and shall exercise such powers and perform such other duties as shall be determined from time to time by the Board. 5.8 CHAIRMAN OF THE EXECUTIVE COMMITTEE. The Chairman of the Executive Committee shall be the most senior executive officer of the Corporation and shall, together with the other members of the Executive Committee, have general supervision over the business of the Corporation, subject to the oversight of the Board only. The Chairman of the Executive Committee shall preside at all meetings of the Executive Committee. The Chairman of the Executive Committee may sign and execute in the name of the Corporation deeds, mortgages, bonds, contracts, and other instruments except in cases in which the signing and execution thereof shall be expressly delegated by the Board or these By-laws to some other officer or agent of the Corporation or shall be required by statute or otherwise to be signed or executed and, in general, the Chairman of the Executive Committee shall perform all duties that are customarily 15 delegated to senior executive officers of a corporation and such other duties as may from time to time be assigned to the Chairman of the Executive Committee by the Board that are consistent with his position. 5.9 VICE CHAIRMAN OF THE EXECUTIVE COMMITTEE. The Vice Chairman of the Executive Committee shall be a member of the Executive Committee and shall, together with the other members of the Executive Committee have general supervision over the business of the Corporation, subject to the oversight of the Chairman of the Executive Committee and the Board. The Vice Chairman of the Executive Committee shall preside at all meetings of the Executive Committee at all meetings of the Executive Committee at which the Chairman of the Executive Committee (if there is one) is not present. The Vice Chairman of the Executive Committee may sign and execute in the name of the Corporation deeds, mortgages, bonds, contracts and other instruments except in cases in which the signing and execution thereof shall be expressly delegated by the Board, the Executive Committee or these By-laws to some other officer or agent of the Corporation or shall be required by statute or otherwise to be signed or executed and, in general, the Vice Chairman of the Executive Committee shall perform all duties that are customarily delegated to senior executive officers of a corporation and such other duties as may from time to time be assigned to the Vice Chairman of the Executive Committee Chairman by the Executive Committee that are consistent with his position. 5.10 PRESIDENT. The President shall be the Chief Executive Officer of the Corporation and shall have general supervision over the business of the Corporation, subject, however, to the control of the Board and the Executive Committee. The President may sign and execute in the name of the Corporation deeds, mortgages, bonds, contracts and other instruments except in cases in which the signing and execution thereof shall be expressly delegated by the Board or by these By-laws to some other officer or agent of the Corporation or shall be required by statute otherwise to be signed or executed and, in general, the President shall perform all duties incident to the office of President of a corporation and such other duties as may from time to time be assigned to the President by the Board and the Executive Committee. 5.11 VICE PRESIDENTS. At the request of the President, or, in the President's absence, at the request of the Board, the Vice Presidents shall (in such order as may be designated by the Board or, in the absence of any such designation, in order of seniority based on age) perform all of the duties of the President and, in so performing, shall have all the powers of, and be subject to all restrictions upon, the President. Any Vice President may sign and execute in the name of the Corporation deeds, mortgages, bonds, contracts or other instruments, except in cases in which the signing and execution thereof shall be expressly delegated by the Board or by these By-laws to some other officer or agent of the Corporation, or shall be required by, statute otherwise to be signed or executed, and each Vice President shall perform such other duties as from time to time may be assigned to such Vice President by the Board or by the President. 16 5.12 SECRETARY. The Secretary shall attend all meetings of the Board and of the Stockholders and shall record all the proceedings of the meetings of the Board and of the Stockholders in a book to be kept for that purpose, and shall perform like duties for committees of the Board, when required. The Secretary shall give, or cause to be given, notice of all special meetings of the Board and of the Stockholders and shall perform such other duties as may be prescribed by the Board or by the President, under whose supervision the Secretary shall be. The Secretary shall have custody of the corporate seal of the Corporation, and the Secretary, or an Assistant Secretary, shall have authority to impress the same on any instrument requiring it, and when so impressed the seal may be attested by the signature of the Secretary or by the signature of such Assistant Secretary. The Board may give general authority to any other officer to impress the seal of the Corporation and to attest the same by such officer's signature. The Secretary or an Assistant Secretary may also attest all instruments signed by the President or any Vice President. The Secretary shall have charge of all the books, records and papers of the Corporation relating to its organization and management, shall see that the reports, statements and other documents required by statute are properly kept and filed and, in general, shall perform all duties incident to the office of Secretary of a corporation and such other duties as may from time to time be assigned to the Secretary by the Board or by the President. 5.13 TREASURER OR CHIEF FINANCIAL OFFICER. The Treasurer or Chief Financial Officer shall have charge and custody of, and be responsible for, all funds, securities and notes of the Corporation; receive and give receipts for moneys due and payable to the Corporation from any sources whatsoever; deposit all such moneys and valuable effects in the name and to the credit of the Corporation in such depositories as may be designated by the Board; against proper vouchers, cause such funds to be disbursed by checks or drafts on the authorized depositories of the Corporation signed in such manner as shall be determined by the Board and be responsible for the accuracy of the amounts of all moneys so disbursed; regularly enter or cause to be entered in books or other records maintained for the purpose full and adequate account of all moneys received or paid for the account of the Corporation; have the right to require from time to time reports or statements giving such information as the Treasurer or Chief Financial Officer may desire with respect to any and all financial transactions of the Corporation from the officers or agents transacting the same; render to the President or the Board, whenever the President or the Board shall require the Treasurer or Chief Financial Officer so to do, an account of the financial condition of the Corporation and of all financial transactions of the Corporation; exhibit at all reasonable times the records and books of account to any of the Directors upon application at the office of the Corporation where such records and books are kept; disburse the funds of the Corporation as ordered by the Board; and, in general, perform all duties incident to the office of Treasurer or Chief Financial Officer of a corporation and such other duties as may from time to time be assigned to the Treasurer or Chief Financial Officer by the Board or the President. 5.14 ASSISTANT SECRETARIES AND ASSISTANT TREASURERS. Assistant Secretaries and Assistant Treasurers shall perform such duties as shall be assigned to them by the 17 Secretary or by the Treasurer or Chief Financial Officer, respectively, or by the Board or by the President. ARTICLE 6 CONTRACTS, CHECKS, DRAFTS, BANK ACCOUNTS, ETC. 6.1 EXECUTION OF CONTRACTS. The Board, except as otherwise provided in these By-laws, may prospectively or retroactively authorize any officer or officers, employee or employees or agent or agents, in the name and on behalf of the Corporation, to enter into any contract or execute and deliver any instrument, and any such authority may be general or confined to specific instances, or otherwise limited. 6.2 LOANS. The Board may prospectively or retroactively authorize the President or any other officer, employee or agent of the Corporation to effect loans and advances at any time for the Corporation from any bank, trust company or other institution, or from any firm, corporation or individual, and for such loans and advances the person so authorized may make, execute and deliver promissory notes, bonds or other certificates or evidences of indebtedness of the Corporation, and, when authorized by the Board so to do, may pledge and hypothecate or transfer any securities or other property of the Corporation as security for any such loans or advances. Such authority conferred by the Board may be general or confined to specific instances, or otherwise limited. 6.3 CHECKS, DRAFTS, ETC. All checks, drafts and other orders for the payment of money out of the funds of the Corporation and all evidences of indebtedness of the Corporation shall be signed on behalf of the Corporation in such manner as shall from time to time be determined by resolution of the Board. 6.4 DEPOSITS. The funds of the Corporation not otherwise employed shall be deposited from time to time to the order of the Corporation with such banks, trust companies, investment banking firms, financial institutions or other depositories as the Board may select or as may be selected by an officer, employee or agent of the Corporation to whom such power to select may from time to time be delegated by the Board. ARTICLE 7 STOCK AND DIVIDENDS 7.1 CERTIFICATES REPRESENTING SHARES. The shares of capital stock of the Corporation shall be represented by certificates in such form (consistent with the provisions of Section 158 of the General Corporation Law) as shall be approved by the Board. Such certificates shall be signed by the Chairman of the Board, the President or 18 a Vice President and by the Secretary or an Assistant Secretary or the Treasurer or Chief Financial Officer or an Assistant Treasurer, and may be impressed with the seal of the Corporation or a facsimile thereof. The signatures of the officers upon a certificate may be facsimiles, if the certificate is countersigned by a transfer agent or registrar other than the Corporation itself or its employee. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon any certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, such certificate may, unless otherwise ordered by the Board, be issued by the Corporation with the same effect as if such person were such officer, transfer agent or registrar at the date of issue. 7.2 TRANSFER OF SHARES. Transfers of shares of capital stock of the Corporation shall be made only on the books of the Corporation by the holder thereof or by the holder's duly authorized attorney appointed by a power of attorney duly executed and filed with the Secretary or a transfer agent of the Corporation, and on surrender of the certificate or certificates representing such shares of capital stock properly endorsed for transfer and upon payment of all necessary transfer taxes. Every certificate exchanged, returned or surrendered to the Corporation shall be marked "Cancelled," with the date of cancellation, by the Secretary or an Assistant Secretary or the transfer agent of the Corporation. A person in whose name shares of capital stock shall stand on the books of the Corporation shall be deemed the owner thereof to receive dividends, to vote as such owner and for all other purposes as respects the Corporation. No transfer of shares of capital stock shall be valid as against the Corporation, its Stockholders and creditors for any purpose, except to render the transferee liable for the debts of the Corporation to the extent provided by law, until such transfer shall have been entered on the books of the Corporation by an entry showing from and to whom transferred. 7.3 TRANSFER AND REGISTRY AGENTS. The Corporation may from time to time maintain one or more transfer offices or agents and registry offices or agents at such place or places as may be determined from time to time by the Board. 7.4 LOST, DESTROYED STOLEN AND MUTILATED CERTIFICATES. The holder of any shares of capital stock of the Corporation shall immediately notify the Corporation of any loss, destruction, theft or mutilation of the certificate representing such shares, and the Corporation may issue a new certificate to replace the certificate alleged to have been lost, destroyed, stolen or mutilated. The Board may, in its discretion, as a condition to the issue of any such new certificate, require the owner of the lost, destroyed, stolen or mutilated certificate, or his or her legal representatives, to make proof satisfactory to the Board of such loss, destruction, theft or mutilation and to advertise such fact in such manner as the Board may require, and to give the Corporation and its transfer agents and registrars, or such of them as the Board may require, a bond in such form, in such sums and with such surety or sureties as the Board may direct, to indemnify the Corporation and its transfer agents and registrars against any claim that may be made against any of them on account of the continued existence of any such certificate so alleged to have been lost, destroyed, stolen or mutilated and against any expense in connection with such 19 claim. 7.5 RULES AND REGULATIONS. The Board may make such rules and regulations as it may deem expedient, not inconsistent with these By-laws or with the Certificate of Incorporation, concerning the issue, transfer and registration of certificates representing shares of its capital stock. 7.6 RESTRICTION ON TRANSFER OF STOCK. A written restriction on the transfer or registration of transfer of capital stock of the Corporation, if permitted by Section 202 of the General Corporation Law and noted conspicuously on the certificate representing such capital stock, may be enforced against the holder of the restricted capital stock or any successor or transferee of the holder, including an executor, administrator, trustee, guardian or other fiduciary entrusted with like responsibility for the person or estate of the holder. Unless noted conspicuously on the certificate representing such capital stock, a restriction, even though permitted by Section 202 of the General Corporation Law, shall be ineffective except against a person with actual knowledge of the restriction. A restriction on the transfer or registration of transfer of capital stock of the Corporation may be imposed either by the Certificate of Incorporation or by an agreement among any number of Stockholders or among such Stockholders and the Corporation. No restriction so imposed shall be binding with respect to capital stock issued prior to the adoption of the restriction unless the holders of such capital stock are parties to an agreement or voted in favor of the restriction. 7.7 DIVIDENDS, SURPLUS, ETC. Subject to the provisions of the Certificate of Incorporation and of law, the Board: 7.7.1 may declare and pay dividends or make other distributions on the outstanding shares of capital stock in such amounts and at such time or times as it, in its discretion, shall deem advisable giving due consideration to the condition of the affairs of the Corporation; 7.7.2 may use and apply, in its discretion, any of the surplus of the Corporation in purchasing or acquiring any shares of capital stock of the Corporation, or purchase warrants therefor, in accordance with law, or any of its bonds, debentures, notes, scrip or other securities or evidences of indebtedness; and 7.7.3 may set aside from time to time out of such surplus or net profits such sum or sums as, in its discretion, it may think proper, as a reserve fund to meet contingencies, or for equalizing dividends or for the purpose of maintaining or increasing the property or business of the Corporation, or for any purpose it may think conducive to the best interests of the Corporation. 20 ARTICLE 8 INDEMNIFICATION 8.1 INDEMNITY UNDERTAKING. To the extent not prohibited by law, the Corporation shall indemnify any person who is or was made, or threatened to be made, a party to any threatened, pending or completed action, suit or proceeding (a "Proceeding"), whether civil, criminal, administrative or investigative, including, without limitation, an action by or in the right of the Corporation to procure a judgment in its favor, by reason of the fact that such person, or a person of whom such person is the legal representative, is or was a Director or officer of the Corporation, or is or was serving as a director, officer, employee or agent or in any other capacity at the request of the Corporation for any other corporation, partnership, joint venture, trust, employee benefit plan or other enterprise (an "Other Entity") while serving as a Director or officer of the Corporation, against judgments, fines, penalties, excise taxes, amounts paid in settlement and costs, charges and expenses (including attorneys' fees and disbursements) actually and reasonably incurred by such person in connection with such Proceeding if such person acted in good faith and in a manner such person believed to be in or not opposed to the best interests of the Corporation and, with respect to any criminal action or proceeding, had no reasonable cause to believe his or her conduct was unlawful. To the extent specified by the Board at any time and to the extent not prohibited by law, the Corporation may indemnify any person who is or was made, or threatened to be made, a party to any threatened, pending or completed Proceeding, whether civil, criminal, administrative or investigative, including, without limitation, an action by or in the right of the Corporation to procure a judgment in its favor, by reason of the fact that such person is or was an employee or agent of the Corporation, or is or was serving as a director, officer, employee or agent or in any other capacity at the request of the Corporation for any Other Entity, against judgments, fines, penalties, excise taxes, amounts paid in settlement and costs, charges and expenses (including attorneys' fees and disbursements) actually and reasonably incurred by such person in connection with such Proceeding if such person acted in good faith and in a manner such person believed to be in or not opposed to the best interests of the Corporation and, with respect to any criminal action or proceeding, had no reasonable cause to believe his or her conduct was unlawful. 8.2 ADVANCEMENT OF EXPENSES. The Corporation shall, from time to time, reimburse or advance to any Director or officer or other person entitled to indemnification hereunder the funds necessary for payment of expenses, including attorneys' fees and disbursements, incurred in connection with any Proceeding, in advance of the final disposition of such Proceeding; provided, however, that, if required by the General Corporation Law, such expenses incurred by or on behalf of any Director or officer or other person may be paid in advance of the final disposition of a Proceeding only upon receipt by the Corporation of an undertaking, by or on behalf of such Director or officer (or other person indemnified hereunder), to repay any such amount so advanced if it shall ultimately be determined by final judicial decision from which there 21 is no further right of appeal that such Director, officer or other person is not entitled to be indemnified for such expenses. 8.3 RIGHTS NOT EXCLUSIVE. The rights to indemnification and reimbursement or advancement of expenses provided by, or granted pursuant to, this Article 8 shall not be deemed exclusive of any other rights to which a person seeking indemnification or reimbursement or advancement of expenses may have or hereafter be entitled under any statute, the Certificate of Incorporation, these By-laws, any agreement (including any policy of insurance purchased or provided by the Corporation under which directors, officers, employees and other agents of the Corporation are covered), any vote of Stockholders or disinterested Directors or otherwise, both as to action in his or her official capacity and as to action in another capacity while holding such office. 8.4 CONTINUATION OF BENEFITS. The rights to indemnification and reimbursement or advancement of expenses provided by, or granted pursuant to, this Article 8 shall continue as to a person who has ceased to be a Director or officer (or other person indemnified hereunder) and shall inure to the benefit of the executors, administrators, legatees and distributees of such person. 8.5 INSURANCE. The Corporation shall have power to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of an Other Entity, against any liability asserted against such person and incurred by such person in any such capacity, or arising out of such person's status as such, whether or not the Corporation would have the power to indemnify such person against such liability under the provisions of this Article 8, the Certificate of Incorporation or under section 145 of the General Corporation Law or any other provision of law. 8.6 BINDING EFFECT. The provisions of this Article 8 shall be a contract between the Corporation, on the one hand, and each Director and officer who serves in such capacity at any time while this Article 8 is in effect and any other person entitled to indemnification hereunder, on the other hand, pursuant to which the Corporation and each such Director, officer or other person intend to be, and shall be legally bound. No repeal or modification of this Article 8 shall affect any rights or obligations with respect to any state of facts then or theretofore existing or thereafter arising or any proceeding theretofore or thereafter brought or threatened based in whole or in part upon any such state of facts. 8.7 PROCEDURAL RIGHTS. The rights to indemnification and reimbursement or advancement of expenses provided by, or granted pursuant to, this Article 8 shall be enforceable by any person entitled to such indemnification or reimbursement or advancement of expenses in any court of competent jurisdiction. Neither the failure of the Corporation (including its Board, its independent legal counsel and its Stockholders) to have made a determination prior to the commencement of such action that such 22 indemnification or reimbursement or advancement of expenses is proper in the circumstances nor an actual determination by the Corporation (including its Board, its independent legal counsel and its Stockholders) that such person is not entitled to such indemnification or reimbursement or advancement of expenses shall constitute a defense to the action or create a presumption that such person is not so entitled. Such a person shall also be indemnified for any expenses incurred in connection with successfully establishing his or her right to such indemnification or reimbursement or advancement of expenses, in whole or in part, in any such proceeding. 8.8 SERVICE DEEMED AT CORPORATION'S REQUEST. Any Director or officer of the Corporation serving in any capacity in (a) another corporation of which a majority of the shares entitled to vote in the election of its directors is held, directly or indirectly, by the Corporation or (b) any employee benefit plan of the Corporation or any corporation referred to in clause (a) shall be deemed to be doing so at the request of the Corporation. 8.9 ELECTION OF APPLICABLE LAW. Any person entitled to be indemnified or to reimbursement or advancement of expenses as a matter of right pursuant to this Article 8 may elect to have the right to indemnification or reimbursement or advancement of expenses interpreted on the basis of the applicable law in effect at the time of the occurrence of the event or events giving rise to the applicable Proceeding, to the extent permitted by law, or on the basis of the applicable law in effect at the time such indemnification or reimbursement or advancement of expenses is sought. Such election shall be made, by a notice in writing to the Corporation, at the time indemnification or reimbursement or advancement of expenses is sought; PROVIDED, HOWEVER, that if no such notice is given, the right to indemnification or reimbursement or advancement of expenses shall be determined by the law in effect at the time indemnification or reimbursement or advancement of expenses is sought. ARTICLE 9 BOOKS AND RECORDS 9.1 BOOKS AND RECORDS. There shall be kept at the principal office of the Corporation correct and complete records and books of account recording the financial transactions of the Corporation and minutes of the proceedings of the Stockholders, the Board and any committee of the Board. The Corporation shall keep at its principal office, or at the office of the transfer agent or registrar of the Corporation, a record containing the names and addresses of all Stockholders, the number and class of shares held by each and the dates when they respectively became the owners of record thereof. 9.2 FORM OF RECORDS. Any records maintained by the Corporation in the regular course of its business, including its stock ledger, books of account, and minute books, may be kept on, or be in the form of, punch cards, magnetic tape, photographs, microphotographs, or any other information storage device, provided that the records so 23 kept can be converted into clearly legible written form within a reasonable time. The Corporation shall so convert any records so kept upon the request of any person entitled to inspect the same. 9.3 INSPECTION OF BOOKS AND RECORDS. Except as otherwise provided by law, the Board shall determine from time to time whether, and, if allowed, when and under what conditions and regulations, the accounts, books, minutes and other records of the Corporation, or any of them, shall be open to the Stockholders for inspection. ARTICLE 10 SEAL The corporate seal shall have inscribed thereon the name of the Corporation, the year of its organization and the words "Corporate Seal, Delaware." The seal may be used by causing it or a facsimile thereof to be impressed or affixed or otherwise reproduced. ARTICLE 11 FISCAL YEAR The fiscal year of the Corporation shall end on the Saturday closest to January 31 of each year, and may be changed by resolution of the Board. ARTICLE 12 PROXIES AND CONSENTS Unless otherwise directed by the Board, the Chairman of the Board, the President, any Vice President, the Secretary or the Treasurer or Chief Financial Officer, or any one of them, may execute and deliver on behalf of the Corporation proxies respecting any and all shares or other ownership interests of any Other Entity owned by the Corporation. Any such officer may appoint such person or persons as the officer shall deem proper to (a) represent and vote the shares or other ownership interests so owned by the Corporation at any and all meetings of holders of shares or other ownership interests of such Other Entity, whether general or special, and (b) execute and deliver consents respecting such shares or other ownership interests. Any such officer may also attend any meeting of the holders of shares or other ownership interests of such Other Entity and thereat vote or exercise any or all other powers of the Corporation as the holder of such shares or other ownership interests. 24 ARTICLE 13 EMERGENCY BY-LAWS Unless the Certificate of Incorporation provides otherwise, the following provisions of this Article 13 shall be effective during an emergency, which is defined as when a quorum of the Corporation's Directors cannot be readily assembled because of some catastrophic event. During such emergency: 13.1 NOTICE TO BOARD MEMBERS. Any one member of the Board or any one of the following officers: Chairman of the Board, President, any Vice President, Secretary, or Treasurer or Chief Financial Officer, may call a meeting of the Board. Notice of such meeting need be given only to those Directors whom it is practicable to reach, and may be given in any practical manner, including by publication and radio. Such notice shall be given at least six hours prior to commencement of the meeting. 13.2 TEMPORARY DIRECTORS AND QUORUM. One or more officers of the Corporation present at the emergency Board meeting, as is necessary to achieve a quorum, shall be considered to be Directors for the meeting, and shall so serve in order of rank, and within the same rank, in order of seniority. In the event that less than a quorum of the Directors are present (including any officers who are to serve as Directors for the meeting), those Directors present (including the officers serving as Directors) shall constitute a quorum. 13.3 ACTIONS PERMITTED TO BE TAKEN. The Board as constituted in Section 13.2, and after notice as set forth in Section 13.1 may: 13.3.1 prescribe emergency powers to any officer of the Corporation; 13.3.2 delegate to any officer or Director, any of the powers of the Board; 13.3.3 designate lines of succession of officers and agents, in the event that any of them are unable to discharge their duties; 13.3.4 relocate the principal place of business, or designate successive or simultaneous principal places of business; and 13.3.5 take any other convenient, helpful or necessary action to carry on the business of the Corporation. 25 ARTICLE 14 AMENDMENTS Any By-laws may be adopted, amended or repealed by a vote of the Stockholders having at least a majority in voting power of the then issued and outstanding shares of capital stock of the Corporation. Amended and Restated as of _________ __, 1999. 26 EX-3 4 EXHIBIT T3C THE PENN TRAFFIC COMPANY SENIOR DEBT SECURITIES INDENTURE Dated as of _______________ _____, 1999 IBJ WHITEHALL BANK & TRUST COMPANY Trustee CROSS REFERENCE TABLE 1/ Trust Indenture Reference Act Section Section - --------------- --------- 310(a)(l) 7.10 (a)(2) 7.10 (a)(3) N.A. (a)(4) N.A. (a)(5) 7.10 (b) 7.10 (c) N.A. 311(a) 7.11 (b) 7.11 (c) N.A. 312(a) 3.06 (b) 11.03 (c) 11.03 313(a) 7.06 (b)(1) N.A. (b)(2) 7.06 (c) 7.06, 11.02 (d) 7.06 314(a) 4.08, 4.18 (b) N.A. (c)(1) 11.04 (c)(2) 11.04 (c)(3) 11.04 (d) N.A. (e) 11.05 315(a) 7.01(b) (b) 7.05, 11.02 (c) 7.01(a) (d) 7.01(c) (e) 6.11 316(a) N.A. (a)(1)(A) 6.05 (a)(1)(B) 6.04 (a)(2) N.A. (b) 6.07 (c) 9.04(b) 317(a)(1) 6.08 - -------- 1/ This Cross-Reference Table is not part of the Indenture. (a)(2) 6.09 (b) 3.05 318(a) 11.01 N.A. means not applicable TABLE OF CONTENTS Page ---- RECITALS OF THE COMPANY.................................................1 ARTICLE 1 DEFINITIONS AND INCORPORATION BY REFERENCE.............................................1 SECTION 1.01 Definitions..........................................1 SECTION 1.02 Other Definitions...................................15 SECTION 1.03 Incorporation by Reference of Trust Indenture Act...16 SECTION 1.04 Rules of Construction...............................16 ARTICLE 2 FORM OF THE SECURITIES..................................17 SECTION 2.01 Form................................................17 SECTION 2.02 Form of Legend for Global Securities................17 SECTION 2.03 Form of Trustee's Certificate of Authentication.....18 ARTICLE 3 THE SECURITIES..........................................18 SECTION 3.01 Amount Unlimited; Issuable in Series................18 SECTION 3.02 Denominations.......................................21 SECTION 3.03 Execution, Authentication, Delivery and Dating......21 SECTION 3.04 Registrar and Paying Agent..........................23 SECTION 3.05 Paying Agent to Hold Money in Trust.................23 SECTION 3.06 Holder Lists........................................24 SECTION 3.07 Transfer and Exchange...............................24 SECTION 3.08 Replacement Securities..............................25 SECTION 3.09 Temporary Securities................................26 SECTION 3.10 Cancellation........................................26 SECTION 3.11 Defaulted Interest..................................26 SECTION 3.12 Persons Deemed Owners...............................26 SECTION 3.13 Computation of Interest.............................27 ARTICLE 4 COVENANTS...............................................27 SECTION 4.01 Payment of Securities...............................27 SECTION 4.02 Limitation on Restricted Payments...................28 SECTION 4.03 Limitation on Indebtedness..........................29 SECTION 4.04 Limitation on Liens.................................32 SECTION 4.05 Limitation on Sale and Leaseback Transactions.......35 SECTION 4.06 Limitation on Asset Sales...........................35 SECTION 4.07 Limitation on Investments...........................36 SECTION 4.08 SEC Reports.........................................37 SECTION 4.09 Limitation on Payment Restrictions Affecting Subsidiaries........................................37 SECTION 4.10 Limitation on Issuance of Indebtedness and Preferred Stock by Subsidiaries.....................38 i SECTION 4.11 Transactions with Affiliates........................38 SECTION 4.12 Restrictions on Becoming an Investment Company......39 SECTION 4.13 Continued Existence and Rights......................39 SECTION 4.14 Maintenance of Properties and Other Matters.........39 SECTION 4.15 Taxes and Claims....................................40 SECTION 4.16 Usury Laws..........................................40 SECTION 4.17 Money for Security Payments to be Held in Trust.....41 SECTION 4.18 Compliance Certificate..............................41 ARTICLE 5 SUCCESSORS; CHANGE OF CONTROL; OPTIONAL PREPAYMENT..............................................42 SECTION 5.01 When Company May Merge, etc.; Change of Control; Holders' Right of Optional Prepayment......42 ARTICLE 6 DEFAULTS AND REMEDIES...................................44 SECTION 6.01 Events of Default...................................44 SECTION 6.02 Acceleration........................................46 SECTION 6.03 Other Remedies......................................47 SECTION 6.04 Waiver of Defaults..................................47 SECTION 6.05 Control by Majority.................................47 SECTION 6.06 Limitation on Suits.................................48 SECTION 6.07 Rights of Holders to Receive Payment................48 SECTION 6.08 Collection Suit by Trustee..........................48 SECTION 6.09 Trustee May File Proofs of Claim....................49 SECTION 6.10 Priorities..........................................49 SECTION 6.11 Undertaking for Costs...............................49 ARTICLE 7 TRUSTEE.................................................50 SECTION 7.01 Duties of Trustee...................................50 SECTION 7.02 Rights of Trustee...................................51 SECTION 7.03 Individual Rights of Trustee........................52 SECTION 7.04 Trustee's Disclaimer................................52 SECTION 7.05 Notice of Defaults..................................52 SECTION 7.06 Reports by Trustee to Holders.......................52 SECTION 7.07 Compensation and Indemnity..........................53 SECTION 7.08 Replacement of Trustee..............................53 SECTION 7.09 Successor Trustee by Merger, etc....................55 SECTION 7.10 Eligibility; Disqualification.......................56 SECTION 7.11 Preferential Collection of Claims Against Company.............................................56 SECTION 7.12 Authenticating Agent................................56 ARTICLE 8 DISCHARGE OF INDENTURE..................................57 SECTION 8.01 Termination of Company's Obligations................57 SECTION 8.02 Application of Trust Money..........................58 ii SECTION 8.03 Repayment to Company................................59 SECTION 8.04 Reinstatement.......................................59 ARTICLE 9 AMENDMENTS..............................................59 SECTION 9.01 Without Consent of Holders..........................59 SECTION 9.02 With Consent of Holders.............................60 SECTION 9.03 Compliance with Trust Indenture Act.................61 SECTION 9.04 Revocation and Effect of Consents...................61 SECTION 9.05 Notation on or Exchange of Securities...............62 SECTION 9.06 Trustee Protected...................................62 ARTICLE 10 REDEMPTIONS.............................................63 SECTION 10.01 Election to Redeem; Notice to Trustee..............63 SECTION 10.02 Selection of the Securities to be Redeemed.........63 SECTION 10.03 Notice of Redemption...............................63 SECTION 10.04 Effect of Notice of Redemption.....................64 SECTION 10.05 Deposit of Redemption Price on Optional Redemption.........................................64 SECTION 10.06 Securities Redeemed in Part........................64 ARTICLE 11 MISCELLANEOUS...........................................65 SECTION 11.01 Trust Indenture Act Controls.......................65 SECTION 11.02 Notices............................................65 SECTION 11.03 Communication by Holders with Other Holders........66 SECTION 11.04 Certificate and Opinion as to Conditions Precedent.66 SECTION 11.05 Statements Required in Certificate or Opinion......66 SECTION 11.06 Rules by Trustee and Agents........................67 SECTION 11.07 Legal Holidays.....................................67 SECTION 11.08 No Recourse Against Others.........................67 SECTION 11.09 Duplicate Originals................................67 SECTION 11.10 Governing Law......................................67 SECTION 11.11 No Adverse Interpretation of Other Agreements......67 SECTION 11.12 Successors.........................................68 SECTION 11.13 Severability.......................................68 SECTION 11.14 Table of Contents, Headings, etc...................68 SECTION 11.15 Benefits of Indenture..............................68 iii INDENTURE dated as of _____________________________, 1999 between THE PENN TRAFFIC COMPANY, a Delaware corporation (the "Company"), and IBJ WHITEHALL BANK & TRUST COMPANY, a New York banking corporation, as Trustee (the "Trustee"). RECITALS OF THE COMPANY The Company has duly authorized the execution and delivery of this Indenture to provide for the issuance from time to time of its unsecured debentures, notes or other evidences of indebtedness (herein called the "Securities"), to be issued in one or more series as in this Indenture provided. All things necessary to make this Indenture a valid agreement of the Company, in accordance with its terms, have been done. NOW, THEREFORE, THIS INDENTURE WITNESSETH: For and in consideration of the premises and the purchase of the Securities by the Holders thereof, it is mutually agreed, for the equal and proportionate benefit of all Holders of the Securities or of series thereof, as follows: ARTICLE 1 DEFINITIONS AND INCORPORATION BY REFERENCE SECTION 1.01 Definitions. "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. "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. 2 "Agent" means any Registrar, Paying Agent or co-Registrar. "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. "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. "Business Day" means any day which is not a Legal Holiday. "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 this 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) is or becomes the "beneficial owner" (as defined in Rules 13d3 and 13d5 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 3 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" 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 from and after the date of this Indenture, 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" means the Person designated as the "Company" in the first paragraph of this instrument until any successor corporation shall have become such pursuant to the applicable provisions of this Indenture, and thereafter "Company" shall mean any such successor corporation. "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 Chairman of the Executive Committee, its Vice Chairman of the Executive Committee, 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 with generally accepted accounting principles, (b) the Consolidated Operating Income and Consolidated 4 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 5 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 writeoff 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 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, (v) the cumulative effect of changes in accounting principles in the year of adoption of such change, and (vi) the effect of the amortization of excess reorganization value. "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), 6 (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 writeoff 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. "Consolidated Revenue" means, with respect to the Company and its Subsidiaries, for any period the total revenues of the Company and its Subsidiaries as determined in accordance with generally accepted accounting principles for such period on a consolidated basis. "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. "Default" means an event or condition the occurrence of which would, with the lapse of time or the giving of notice or both, become an Event of Default as defined in Section 6.01. "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 Exchange Act that is designated to act as Depositary for such Securities as contemplated by Section 3.01. "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 (or such legend as may be specified as contemplated by Section 3.01 for such Securities). 7 "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. "Holder" means a Person in whose name a Security is registered. "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 this 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. "Indenture" means this Indenture, as amended, modified or supplemented from time to time, together with any exhibits, schedules or other attachments hereto. The term "Indenture" shall also include the terms of particular series of Securities established as contemplated by Section 3.01. "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. 8 "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. "Management Agreement" means, the Management Agreement dated as of the date hereof, among the Company, Hirsch & Fox, L.L.C., Gary D. Hirsch and Martin A. Fox, as the same may be modified, amended or supplemented from time to time. "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 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 9 payable as therein or herein provided, whether at the Stated Maturity or by declaration of acceleration, call for redemption or otherwise. "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. "Officer" means the Chairman of the Board of Directors, the Vice Chairman of the Board of Directors, Chairman of the Executive Committee of the Board of Directors, Vice Chairman of the Executive Committee of the Board of Directors, the President, any Vice President, the Treasurer, the Secretary, any Assistant Treasurer or any Assistant Secretary of the Company. "Officers' Certificate" means a certificate signed by two Officers of the Company, one of whom must be the Chairman of the Board of Directors, the Vice Chairman of the Board of Directors, Chairman of the Executive Committee of the Board of Directors, Vice Chairman of the Executive Committee of the Board of Directors, the President, any Vice President or the Treasurer of the Company. "Opinion of Counsel" means a written opinion from legal counsel who is acceptable to the Trustee. The counsel may be an employee of or counsel to the Company or the Trustee. "Other Senior Indebtedness" means, at any date, outstanding Indebtedness of the Company, other than the Securities, that is pari passu in any respect in right of payment with the Securities, including, without limitation, Indebtedness outstanding under the Secured Credit Facility. 10 "Outstanding," when used with respect to Securities, means, as of the date of determination, all Securities theretofore authenticated and delivered under this Indenture, except: (a) Securities theretofore cancelled by the Trustee or delivered to the Trustee for cancellation; (b) 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 this Indenture or provision therefor satisfactory to the Trustee has been made; (c) Securities as to which the Company's obligations have been discharged as provided in Article 8 hereof; and (d) Securities in exchange for or in lieu of which other Securities have been authenticated and delivered pursuant to this 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. "Person" means any individual, partnership, corporation, venture, joint venture, unincorporated organization, or a government or agency or political subdivision thereof. "Principal" or "principal" of a debt security means the principal amount of a debt security plus the premium, if any, on such debt security. "Property" means any interest in any kind of property or asset, whether real, personal or mixed, or tangible or intangible. 11 "Qualified Equity Offering" means an issuance and offering for cash by the Company of shares of its Capital Stock, other than Redeemable Stock. "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 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 Ratings Service 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 A1 by Standard & Poor's Ratings Service or P1 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 Ratings Service 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. 12 "Redemption Date" means, when used with respect to any Security to be redeemed, the date fixed for such redemption pursuant to this Indenture. "Redemption Price" means, when used with respect to any Security to be redeemed, the price fixed for such redemption pursuant to this Indenture and the Securities as set forth in Article 10 of this Indenture. "Representative" means the indenture trustee or other trustee, agent or representative for an issue of Senior Debt. "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). "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 this 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. "SEC" means the Securities and Exchange Commission. "Secured Credit Amount" means as of any date an amount equal to the greater of (i) $350.0 million or (ii) 15% of the Company's Consolidated Revenue for the four quarters ended as of the last fiscal quarter immediately preceding such date for which financial results are available. "Secured Credit Facility" means (i) the Loan and Security Agreement dated ____________, 1999 between the Company, its Subsidiaries and the lenders named therein, and Fleet Bank, as agent, as the same may be amended, modified, renewed, refunded, replaced or refinanced from time to time with the same or different lenders or Subsidiaries, including, without limitation, any security 13 agreements, pledge agreements, notes, letters of credit, guarantees, collateral documents, instruments and agreements executed in connection therewith, in each case as such agreements may be amended, restated, replaced, renewed, refunded, refinanced, supplemented or otherwise modified from time to time; and (ii) any senior secured or unsecured notes issued by the Company to refund, replace or refinance all or a portion of the foregoing or any Indebtedness that refinances, refunds, replaces or renews any such refinancing Indebtedness. "Securities" has the meaning set forth in the first recital of this Indenture and more particularly means any Securities authenticated and delivered under this Indenture. "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 Securities. "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. "Subordinated Debt" means, at any date, any Indebtedness of the Company that is subordinated in any respect in right of payment to the Securities or any Other Senior Indebtedness including, without limitation, principal, premium, interest, fees, indemnities and amounts in respect of claims and rights of rescission. "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 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 this 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. "TIA" means the Trust Indenture Act of 1939 (15 U.S.C. ss.ss. 77aaa77bbbb), as amended by the Trust Indenture Reform Act of 1990, as in effect on the date of execution of this Indenture, except as provided in Section 9.03. 14 "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 under Section 4.03(a) hereof 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 this instrument above unless and until a successor replaces it in accordance with the terms of this Indenture and thereafter, "Trustee" shall mean or include each Person who is then a Trustee hereunder, 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. "Trust Officer," when used with respect to the Trustee, means any officer within the Corporate Trust Department (or any successor group) of the Trustee, including without limitation any Vice President, Assistant Vice President, any Assistant Secretary or any other officer of the Trustee customarily performing functions similar to those performed by any of the above-designated officers and also means, with respect to a particular corporate trust matter, any other officer of the Trustee to whom corporate trust matters are referred because of his knowledge of and familiarity with the particular subject. 15 "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 2.0 to 1 and (2) there would not exist any Default under this 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 2.0 to 1 and (2) there would not exist any Default under this Indenture. "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). "Wholly Owned Subsidiary" means any Subsidiary of which 100% of the total Voting Stock is at the time owned by the Company or by a Wholly Owned Subsidiary of the Company. SECTION 1.02 Other Definitions. Term Defined in Section ---- ------------------ "Authenticating Agent" 7.12 "Bankruptcy Law" 6.01 "Change of Control Date" 5.01 "Custodian" 6.01 "Discharged" 8.01 "Event of Default" 6.01 "Exchange Act" 4.08 "Legal Holiday" 11.07 "Paying Agent" 3.04 "Registrar" 3.04 "U.S. Government Obligations" 8.01 16 SECTION 1.03 Incorporation by Reference of Trust Indenture Act. Whenever this Indenture refers to a provision of the TIA, the provision is incorporated by reference in and made a part of this Indenture. The following TIA terms used in this Indenture have the following meanings: "indenture securities" means the Securities; "indenture security holder" means a Holder; "indenture to be qualified" means this Indenture; "indenture trustee" or "institutional trustee" means the Trustee; "obligor" on the Securities means the Company. All other terms used in this Indenture that are defined by the TIA, defined by TIA reference to another statute or defined by SEC rule under the TIA have the meanings assigned to them thereby. SECTION 1.04 Rules of Construction. Unless the context otherwise requires: (a) a term has the meaning assigned to it; (b) an accounting term not otherwise defined has the meaning assigned to it in accordance with generally accepted accounting principles in effect on the date of the construction of such term; (c) "or" is not exclusive; (d) words in the singular include the plural, and in the plural include the singular; and (e) provisions apply to successive events and transactions. 17 ARTICLE 2 FORM OF THE SECURITIES SECTION 2.01 Form. The Securities of each series shall be substantially in the form of Exhibit A, which is part of this Indenture or in such other form as shall be established by or pursuant to a Board Resolution or in one or more indentures supplemental hereto, in each case with such appropriate insertions, omissions, substitutions and other variations as are required or permitted by this Indenture, and may have such letters, numbers or other marks of identification and such legends or endorsements placed thereon as may be required to comply with the rules of any securities exchange or Depositary therefor or as may, consistently herewith, be determined by the officers executing such Securities, as evidenced by their execution thereof. If determined to be necessary by the Company or its counsel, the Company may require that a legend be placed on the Securities of any series relating to original issue discount or other applicable tax matters. The Company shall furnish any such legends or endorsements to the Trustee in writing. If the form of Securities of any series is established by action taken pursuant to a Board Resolution, a copy of an appropriate record of such action shall be certified by the Secretary or an Assistant Secretary of the Company and delivered to the Trustee at or prior to the delivery of the Company Order contemplated by Section 3.03 for the authentication and delivery of such Securities. SECTION 2.02 Form of Legend for Global Securities. Unless otherwise specified as contemplated by Section 3.01 for the Securities evidenced thereby, every Global Security authenticated and delivered hereunder shall bear a legend in substantially the following form: THIS SECURITY IS A GLOBAL SECURITY WITHIN THE MEANING OF THE INDENTURE HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITORY OR A NOMINEE OF A DEPOSITORY. THIS GLOBAL SECURITY IS EXCHANGEABLE FOR SECURITIES REGISTERED IN THE NAME OF A PERSON OTHER THAN THE DEPOSITORY OR ITS NOMINEE ONLY IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE, AND NO TRANSFER OF THIS SECURITY (OTHER THAN A TRANSFER OF THIS SECURITY AS A WHOLE BY THE DEPOSITORY TO A NOMINEE OF THE DEPOSITOR OR BY A NOMINEE OF THE DEPOSITORY TO THE DEPOSITORY OR ANOTHER NOMINEE OF THE DEPOSITORY) MAY BE REGISTERED EXCEPT IN SUCH LIMITED CIRCUMSTANCES. EVERY SECURITY DELIVERED UPON REGISTRATION OF TRANSFER OF, OR IN EXCHANGE FOR, OR IN LIEU OF THIS GLOBAL SECURITY SHALL BE A GLOBAL SECURITY SUBJECT TO THE FOREGOING, EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED ABOVE. 18 UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS TO BE MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN. SECTION 2.03 Form of Trustee's Certificate of Authentication. The Trustee's certificates of authentication shall be in substantially the following form: "This is one of the Securities of the series designated therein referred to in the within-mentioned Indenture. IBJ WHITEHALL BANK & TRUST COMPANY, As Trustee By_________________________________ Authorized Signatory" ARTICLE 3 THE SECURITIES SECTION 3.01 Amount Unlimited; Issuable in Series. The aggregate principal amount of Securities which may be authenticated and delivered under this Indenture is unlimited. The Securities may be issued in one or more series. There shall be established in or pursuant to a Board Resolution and, subject to Section 3.03, set forth, or determined in the manner provided, in an Officers' Certificate, or established in one or more indentures supplemental hereto, prior to the issuance of Securities of any series: 19 (a) the title of the Securities of the series (which shall distinguish the Securities of the series from Securities of any other series); (b) any limit upon the aggregate principal amount of the Securities of the series which may be authenticated and delivered under this Indenture (except for Securities authenticated and delivered upon registration of transfer of, or in exchange for, or in lieu of, other Securities of the series pursuant to Section 3.07, 3.08 or 3.09 and except for any Securities which, pursuant to Section 3.03, are deemed never to have been authenticated and delivered hereunder); (c) the Person to whom any interest on a Security of the series shall be payable, if other than the Person in whose name that Security (or one or more predecessor Securities) is registered at the close of business on the regular record date for such interest; (d) the date or dates on which the principal of any Securities of the series is payable; (e) the rate or rates (which may be fixed or variable) per annum, or the method for determining such rate or rates, at which any Securities of the series shall bear interest, if any, the date or dates from which any such interest shall accrue, the date on which each installment of any such interest shall be payable and the record date for any such payment of interest, and the method for the payment of interest on any Securities, whether in cash or through the issuance of additional Securities; (f) the place or places, if other than as set forth in the Indenture, where the principal of and any premium and interest on any Securities of the series shall be payable; (g) the period or periods within which, the price or prices at which and the terms and conditions upon which any Securities of the series may be redeemed in whole or in part at the option of the Company and, if other than by a Board Resolution, the manner in which any election by the Company to redeem the Securities shall be evidenced; (h) the obligation, if any, of the Company to redeem or purchase any Securities of the series pursuant to any sinking fund or analogous provisions or at the option of the Holder thereof and the period or periods within which, the price or prices at which and the terms and conditions upon which any Securities of the series shall be redeemed or purchased in whole or in part pursuant to such obligation; (i) if other than denominations of $1,000 and any integral multiple thereof, the denominations in which any Securities of the series shall be issuable; 20 (j) if the amount of principal of or any premium or interest on any Securities of the series may be determined with reference to an index or pursuant to a formula, the manner in which such amounts shall be determined; (k) if other than the entire principal amount thereof, the portion of the principal amount of any Securities of the series which shall be payable upon declaration of acceleration of the Maturity thereof pursuant to Section 6.02; (l) if the principal amount payable at the Stated Maturity of any Securities of the series will not be determinable as of any one or more dates prior to the Stated Maturity, the amount which shall be deemed to be the principal amount of such Securities as of any such date for any purpose thereunder or hereunder, including the principal amount thereof which shall be due and payable upon any Maturity other than the Stated Maturity or which shall be deemed to be Outstanding as of any date prior to the Stated Maturity (or, in any such case, the manner in which such amount deemed to be the principal amount shall be determined); (m) if applicable, that any Securities of the series shall be issuable in whole or in part in the form of one or more Global Securities and, in such case, the respective Depositaries for such Global Securities, the form of any legend or legends which shall be borne by any such Global Security in addition to or in lieu of that set forth in Section 2.02 and any circumstances in addition to or in lieu of those set forth in Clause (2) of the last paragraph of Section 3.07 in which any such Global Security may be exchanged in whole or in part for Securities registered, and any transfer of such Global Security in whole or in part may be registered, in the name or names of Persons other than the Depositary for such Global Security or a nominee thereof; (n) any addition to or change in the Events of Default which applies to any Securities of the series and any change in the right of the Trustee or the requisite Holders of such Securities to declare the principal amount thereof due and payable pursuant to Section 6.02; (o) any addition to or change in the covenants set forth in Article 4 which applies to Securities of the series; and (p) any other terms of the series (which terms shall not be inconsistent with the provisions of this Indenture, except as permitted by Section 9.01(6)). All Securities of any one series shall be substantially identical except as to denomination and except as may otherwise be provided in or pursuant to the Board Resolution referred to above and (subject to Section 3.03) set forth, or determined in the manner provided, in the Officers' Certificate referred to above or in any such indenture supplemental hereto. 21 If any of the terms of the series are established by action taken pursuant to a Board Resolution, a copy of an appropriate record of such action shall be certified by the Secretary or an Assistant Secretary of the Company and delivered to the Trustee at or prior to the delivery of the Officers' Certificate setting forth the terms of the series. The Securities shall rank pari passu with Other Senior Indebtedness and senior to Subordinated Debt. SECTION 3.02 Denominations. The Securities of each series shall be issuable only in registered form without coupons and only in such denominations as shall be specified as contemplated by Section 3.01. In the absence of any such specified denomination with respect to the Securities of any series, the Securities of such series shall be issuable in denominations of $1,000 and any integral multiple thereof. SECTION 3.03 Execution, Authentication, Delivery and Dating. The Securities shall be signed for the Company by the Company's President or any Vice Chairman or Vice President and shall be attested by the Company's Secretary or an Assistant Secretary, in each case by manual or facsimile signature. The Company's seal shall be reproduced on the Securities. If an Officer whose signature is on a Security no longer holds that office at the time the Security is authenticated, the Security shall nevertheless be valid. At any time and from time to time after the execution and delivery of this Indenture, the Company may deliver Securities of any series executed by the Company to the Trustee for authentication, together with a Company Order for the authentication and delivery of such Securities, and the Trustee in accordance with the Company Order shall authenticate and deliver such Securities. If the form or terms of the Securities of the series have been established by or pursuant to one or more Board Resolutions or supplemental indentures as permitted by Sections 2.01 and 3.01, in authenticating such Securities, and accepting the additional responsibilities under this Indenture in relation to such Securities, the Trustee shall be entitled to receive, and (subject to Section 7.01) shall be fully protected in relying upon, an Opinion of Counsel stating, (a) if the form of such Securities has been established by or pursuant to Board Resolution or supplemental indenture, as the case may be, as permitted by Section 2.01, that such form has been established in conformity with the provisions of this Indenture; 22 (b) if the terms of such Securities have been established by or pursuant to Board Resolution or supplemental indenture, as the case may be, as permitted by Section 3.01, that such terms have been established in conformity with the provisions of this Indenture; and (c) that such Securities, when authenticated and delivered by the Trustee and issued by the Company in the manner and subject to any conditions specified in such Opinion of Counsel, will constitute valid and legally binding obligations of the Company enforceable in accordance with their terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors' rights and to general equity principles. If such form or terms have been so established, the Trustee shall not be required to authenticate such Securities if the issue of such Securities pursuant to this Indenture will affect the Trustee's own rights, duties or immunities under the Securities and this Indenture or otherwise in a manner which is not reasonably acceptable to the Trustee. The Trustee shall also be entitled to receive an Officers' Certificate stating that immediately after the authentication and delivery of such Securities, (a) the aggregate principal amount of Securities Outstanding will not exceed the maximum aggregate principal amount permitted to be Outstanding pursuant to authorization by the Board of Directors and (b) the Company will not be in Default and no Event of Default will have occurred. In addition, if the form and/or terms of such Securities have been established pursuant to a supplemental indenture, the Trustee shall be entitled to receive the Opinion of Counsel referred to in Section 9.06 hereof. Notwithstanding the provisions of Section 3.01 and of the preceding paragraph, if all Securities of a series are not to be originally issued at one time, it shall not be necessary to deliver the Officers' Certificate otherwise required pursuant to Section 3.01 or the Opinion of Counsel otherwise required pursuant to such preceding paragraph at or prior to the authentication of each Security of such series if such documents are delivered at or prior to the authentication upon original issuance of the first Security of such series to be issued. Each Security shall be dated the date of its authentication. A Security shall not be valid until authenticated by the manual signature of the Trustee. The signature shall be conclusive evidence that the Security has been authenticated under this Indenture. Notwithstanding the foregoing, if any Security shall have been authenticated and delivered hereunder but never issued and sold by the Company, and the Company shall deliver such Security to the Trustee for cancellation as provided in Section 3.10, for all purposes of this Indenture such Security shall be deemed never to 23 have been authenticated and delivered hereunder and shall never be entitled to the benefits of this Indenture. The Trustee may appoint an authenticating agent acceptable to the Company to authenticate Securities. An authenticating agent may authenticate Securities whenever the Trustee may do so. Each reference in this Indenture to authentication by the Trustee includes authentication by such agent. An authenticating agent has the same rights as an Agent to deal with the Company or an Affiliate. SECTION 3.04 Registrar and Paying Agent. The Company shall maintain an office or agency where Securities may be presented for registration of transfer or for exchange ("Registrar") and an office or agency where Securities may be presented for payment ("Paying Agent"). The Registrar shall keep a register of the Securities and of their transfer and exchange. The Company may appoint one or more co-Registrars and one or more additional Paying Agents. The term Paying Agent includes any additional Paying Agent. The Company or any of its subsidiaries may act as Paying Agent, Registrar or co-Registrar. The Company shall enter into an appropriate agency agreement with any Agent not a party to this Indenture that shall implement the provisions of this Indenture that relate to such Agent. The Company shall give prompt written notice to the Trustee of the name and address of any such Agent and any change in the address of such Agent. If the Company fails to maintain a Registrar or Paying Agent, the Trustee shall act as such. The Company initially appoints the Trustee, as Paying Agent and Registrar. SECTION 3.05 Paying Agent to Hold Money in Trust. The Company shall require each Paying Agent other than the Trustee to execute and deliver to the Trustee an instrument in which such Paying Agent shall agree that such Paying Agent will: (a) hold all sums held by it for the payment of the principal of or interest on the Securities in trust for the benefit of the Persons entitled thereto until such sums shall be paid to such Persons or otherwise disposed of as herein provided; (b) give the Trustee notice of any default by the Company (or any other obligor upon the Securities) in the making of any payment of principal or interest; and (c) at any time during the continuance of any such default, upon the written request of the Trustee, forthwith pay to the Trustee all sums so held in trust by such Paying Agent. 24 Upon such payment over to the Trustee, the Paying Agent shall have no further liability for such money. SECTION 3.06 Holder Lists. The Trustee shall preserve in as current a form as is reasonably practicable the most recent list available to it of the names and addresses of Holders. If the Trustee is not the Registrar, the Company shall furnish or cause to be furnished to the Trustee not less than ten days before each interest payment date and at such other times as the Trustee may request in writing all information in the possession or control of the Company or any Paying Agent as to the names and addresses of the Holders, in such form and as of such date as the Trustee may reasonably require. SECTION 3.07 Transfer and Exchange. When Securities of any series are presented to the Registrar or a co-Registrar with a request to register the transfer of, or to exchange them for an equal principal amount of Securities of such series of other denominations, the Registrar shall register the transfer or make the exchange if its requirements for such transactions are met. To permit registrations of transfer and exchanges of Securities of any series, the Company shall issue and the Trustee shall authenticate Securities of such series at the Registrar's request. No service charge shall be made for any registration of transfer or exchange of Securities of any series, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection with any registration of transfer or exchange. The Company shall not be required (i) to issue, register the transfer of or exchange Securities of any series during a period beginning at the opening of business 15 days before the day of any selection of Securities of such series for redemption under Section 10.02 and ending at the close of business on the day of such day of selection or (ii) to 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. The provisions of Clauses (1), (2), (3) and (4) below shall apply only to Global Securities: (a) Each Global Security authenticated under this Indenture shall be registered in the name of the Depositary designated for such Global Security or a nominee thereof and delivered to such Depositary or a nominee thereof or custodian therefor, and each such Global Security shall constitute a single Security for all purposes of this Indenture. 25 (b) Notwithstanding any other provision in this Indenture, 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 a nominee thereof unless (A) such Depositary (i) has notified the Company that it is unwilling or unable to continue as Depositary for such Global Security or (ii) has ceased to be a clearing agency registered under the Exchange Act, (B) there shall have occurred and be continuing an Event of Default with respect to the Securities represented by such Global Security or (C) there shall exist such circumstances, if any, in addition to or in lieu of the foregoing as have been specified for this purpose as contemplated by Section 3.01. (c) Subject to Clause (2) above, any exchange of a Global Security for other Securities may be made in whole or in part, and all Securities issued in exchange for a Global Security or any portion thereof shall be registered in such names as the Depositary for such Global Security shall direct. (d) Every Security authenticated and delivered upon registration of transfer of, or in exchange for or in lieu of, a Global Security or any portion thereof, whether pursuant to this Section, Section 3.08 or 3.09 or otherwise, shall be authenticated and delivered in the form of, and shall be, a Global Security, unless such Security is registered in the name of a Person other than the Depositary for such Global Security or a nominee thereof. SECTION 3.08 Replacement Securities. If any mutilated Security is surrendered to the Trustee, the Company shall execute and the Trustee shall authenticate and deliver in exchange therefor a new Security of the same series and of like tenor and principal amount and bearing a number not contemporaneously outstanding. If the Holder of a Security of any series claims that the Security has been lost, destroyed or wrongfully taken, the Company shall issue and the Trustee shall authenticate a replacement Security of the same series if Trustee's requirements are met. If required by the Trustee or the Company, such Holder shall provide an indemnity bond sufficient in the judgment of both the Company and the Trustee to protect the Company, the Trustee, any Agent or any authenticating agent from any loss which any of them may suffer if a Security is replaced. The Company may charge the Holder for its expenses in replacing a Security. Every replacement Security of any series issued pursuant to the provisions of this Section 3.08 by virtue of the fact that any Security of such series is destroyed, lost or stolen shall constitute an additional contractual obligation of the Company, whether or not the destroyed, lost or stolen Security shall be found at any 26 time, and shall be entitled to all the benefits of this Indenture equally and proportionally with any and all other Securities of such series duly issued hereunder. SECTION 3.09 Temporary Securities. Until definitive Securities of any series are ready for delivery, the Company may prepare and the Trustee shall authenticate temporary Securities of such series. Temporary Securities shall be substantially in the form of definitive Securities but may have variations that the Company considers appropriate for temporary Securities. If temporary Securities of any series are issued, without unreasonable delay, the Company shall prepare and deliver to the Trustee, and the Trustee shall authenticate, definitive Securities of that series in exchange for such temporary Securities. SECTION 3.10 Cancellation. The Company at any time may deliver Securities to the Trustee for cancellation. The Registrar and the Paying Agent shall forward to the Trustee any Securities surrendered to them for registration of transfer, exchange or payment. The Trustee shall cancel all Securities surrendered for registration of transfer, exchange, payment, replacement or cancellation and shall destroy cancelled Securities and deliver a certificate of such destruction to the Company. Subject to Section 3.08, the Company may not issue new Securities to replace Securities that it has paid or that have been delivered to the Trustee for cancellation. SECTION 3.11 Defaulted Interest. If the Company fails to make a payment of interest on the Securities of any series on the date that payment of such interest is due, it shall pay such interest thereafter in any lawful manner. It may pay such interest, plus any interest payable on it, to the Persons who are Holders on a subsequent special record date. The Company shall fix such special record date and payment date. At least 5 days before such record date, the Company shall mail to Holders, the Trustee and any paying agents a notice that states the record date, payment date, and amount of such interest to be paid. SECTION 3.12 Persons Deemed Owners. Prior to due presentment of a Security for registration of transfer, the Company, the Trustee and any agent of the Company or the Trustee (including, without limitation, the Registrar and the Paying Agent) may treat the Person in whose name such Security is registered as the owner of such Security for the purpose of receiving payment of principal of and any premium and any interest on such Security and for all other purposes whatsoever, whether or not such Security be overdue, and neither the Company, the Trustee nor any agent of the Company or the Trustee 27 (including, without limitation, the Registrar and the Paying Agent) shall be affected by notice to the contrary. SECTION 3.13 Computation of Interest. Except as otherwise specified as contemplated by Section 3.01 for Securities of any series, interest on the Securities of each series shall be computed on the basis of a 360-day year of twelve 30-day months. ARTICLE 4 COVENANTS The Company covenants and agrees, with respect to each series of Securities issued hereunder, that it will comply with the covenants set forth in this Article 4, as such covenants may be changed or supplemented with respect to such series of Securities as contemplated by Section 3.01 hereof. SECTION 4.01 Payment of Securities. The Company covenants and agrees for the benefit of each series of Securities that it will duly and punctually pay the principal of and any premium and interest on the Securities of that series in accordance with the terms of the Securities and this Indenture. Principal, premium and interest shall be considered paid on the date due if the Paying Agent holds on that date money (or other consideration permitted to be paid by the terms of such series of Securities) designated for and sufficient to pay all principal, premium and interest then due. With respect to any series of Securities permitted by its terms to pay interest thereon by the issuance of additional Securities of such series, the Company shall notify the Trustee in writing of its election to pay interest on such Securities through the issuance of additional Securities of such series and the aggregate amount of such additional Securities of such series to be issued not less than 10 nor more than 45 days prior to the record date for the interest payment date on which additional Securities of such series will be issued. On each such interest payment date, the Trustee shall authenticate additional Securities of such series for original issuance to each Holder on the relevant record date in the aggregate principal amount required to pay such interest. Each such additional Security of such series is an additional obligation of the Company and shall be governed by, and entitled to the benefits of, this Indenture and shall be subject to the terms of this Indenture and shall rank pari passu with and be subject to the same terms (including the rate of interest from time to time payable thereon) as the Securities (except, as the case may be, with respect to the issuance date and aggregate principal amount). 28 The Company shall pay interest on overdue principal of any series of Securities at the rate borne by such series of Securities; it shall pay interest on overdue installments of interest on any series of Securities at the same rate to the extent permitted by law. SECTION 4.02 Limitation on Restricted Payments. (a) 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 hereunder, (i) any Default shall have occurred and be continuing or (ii) the Company could not incur at least $1.00 of additional Indebtedness under Section 4.03(a) hereof 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 by Board Resolution for this purpose as permitted by Section 3.01 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 by Board Resolution for this purpose as permitted by Section 3.01 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. (b) The provisions of this Section 4.02 shall 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 of declaration, the Company could have paid such dividend in compliance with the other provisions of this Section 4.02. With respect to any particular series of Securities issued hereunder, the aggregate amount of dividends paid by the Company pursuant to this subsection subsequent to the date of issuance of such series of Securities shall be included in all subsequent computations under this Section 4.02. 29 (c) The provisions of this Section 4.02 shall also not prevent the Company from redeeming or repurchasing shares of its Capital Stock (1) solely in exchange for other shares of Capital Stock (other than Redeemable Stock), (2) to eliminate fractional shares, (3) in connection with repurchase provisions under employee stock option or stock purchase agreements or other agreements to compensate management employees of the Company or (4) pursuant to a court order. With respect to any particular series of Securities issued hereunder, the aggregate amount of consideration paid by the Company pursuant to this subsection subsequent to the date of issuance of such series of Securities shall be included in all subsequent computations under this Section 4.02. The aggregate consideration paid pursuant to subclause (2) shall not exceed $250,000 in any fiscal year. SECTION 4.03 Limitation on Indebtedness. (a) 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 is greater than 2.0 to 1. (b) 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 hereunder, Indebtedness evidenced by securities issued at or prior to the issuance of such series of Securities pursuant to this Indenture; (ii) Intentionally Omitted. (iii) Indebtedness under the Secured Credit Facility in an aggregate amount not to exceed the Secured Credit Amount; (iv) Indebtedness the proceeds of which are used to refinance (x) all or a portion of the Securities of any series issued pursuant to this Indenture, (y) any Indebtedness of its Subsidiaries and any other Indebtedness of the Company that is pari passu with the 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 30 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 hereunder, 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 this Indenture, such new Indebtedness is expressly made pari passu or subordinate in right of payment to the Securities issued pursuant to this Indenture; (v) Intentionally Omitted. (vi) with respect to any particular series of Securities issued hereunder, Indebtedness of the Company and its Subsidiaries remaining outstanding immediately after the date of issuance of such series of Securities; (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 twelvemonth 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 twelvemonth 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 31 any such Subsidiary, provided that such other Indebtedness is otherwise permitted under this Section 4.03 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 Section 4.03; (xi) Indebtedness incurred in connection with a repurchase of the Securities of any series issued pursuant to this Indenture as provided in Section 5.01 hereof 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 hereunder at least to the extent that such notes are subordinate to the Securities issued hereunder, (b) with respect to any particular series of Securities issued hereunder, 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 hereunder, 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 Section 4.03 and, in the aggregate, do not relate to a principal amount of Indebtedness in excess of the Indebtedness permitted under this Section 4.03; (xiii) commercial letters of credit and standby letters of credit incurred in the ordinary course of business by the Company or its Subsidiaries; (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; 32 (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; (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; and (xviii) other Indebtedness (which may be secured or unsecured) which, together with any obligations in respect of Sale and Leaseback Transactions (other than Sale and Leaseback Transactions permitted under Section 4.05(i) through (iv)) does not exceed $50 million in the aggregate. 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 clause (i) of Section 4.05 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. SECTION 4.04 Limitation on Liens. (a) The Company shall not, nor will it permit any of its Subsidiaries to, 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. (b) Notwithstanding the foregoing, the Company and its Subsidiaries may create, incur, assume or permit to exist the following Liens: (i) with respect to any particular series of Securities issued hereunder, any Lien existing as of the date of issuance of such series of Securities; (ii) any Lien on all of the Company's or a Subsidiary's properties and assets, including without limitation, accounts receivable, inventories, franchise agreements, property, equipment, trademarks, 33 proprietary rights, leasehold interests, cash and all other assets and the proceeds thereof securing the Company's obligations under the Secured Credit Facility, as to which the Holders agree that if any such Lien is invalidated, avoided or otherwise deemed unenforceable with respect to any collateral securing such obligations, any payment that would be made to the Holders from or attributable to the proceeds of such collateral (but not any other payments) shall nevertheless be paid to the lenders under the Secured Credit Facility instead of to the Holders until all indebtedness under the Secured Credit Facility is paid in full; (iii) any Lien arising in the ordinary course of business, other than in connection with Indebtedness for borrowed money, such as (A) Liens to secure payments of workers' compensation, unemployment insurance, old age pensions or other social security or retirement benefits, or to secure the performance of bids, tenders, contracts (other than for the payment of money) or to secure public or statutory obligations of the Company, or any Subsidiary, or to secure surety bonds to which the Company or any Subsidiary is a party and (B) materialmen's, mechanics', workmen's, repairmen's, warehousemen's, landlords', vendors' or carriers' Liens created by law, or deposits or pledges arising and continuing in the ordinary course of business to obtain the release of any such Liens; (iv) any Lien on the Company's or a Subsidiary's accounts receivable, inventories, franchise agreements, proprietary rights and related assets and proceeds of any of the foregoing, or deposit accounts, credits, balances with, and money and securities in transit to, any financial institution or any books and records relating to any of the foregoing incurred to secure Indebtedness permitted under Section 4.03(b)(iii); (v) with respect to any particular series of Securities issued hereunder, 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 any Lien entered into in connection with Indebtedness that is permitted under Section 4.03(b)(viii)), provided that in each case such acquisition does not constitute a Material Acquisition; (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 is greater than 2.0 to 1; 34 (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 incurred 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 Section 4.03(b)(viii) ; (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 this Indenture, provided that such Capitalized Lease Obligation relates to Property used in the business of the Company or a Subsidiary; (ix) any Lien arising out of judgments or awards against the Company or any Subsidiary with respect to which the Company or such Subsidiary shall in good faith be prosecuting an appeal or proceedings for review or Liens incurred by the Company or a Subsidiary for the purpose of obtaining a stay or discharge in the course of any legal proceeding to which the Company or such Subsidiary is a party; (x) any Lien for taxes not yet subject to penalties for nonpayment or contested in good faith in accordance with Section 4.15 or minor survey exceptions, or minor encumbrances, easements or reservations of, or rights of others for, rights of way, sewers, electric lines, telegraph and telephone lines and other similar purposes, or zoning or other restrictions as to the use of real properties, which encumbrances, easements, reservations, rights and restrictions do not, in the aggregate, have a material negative economic effect on the Company or any Subsidiary or materially impair the ability of the Company or any Subsidiary to conduct its operations; (xi) any Lien extending, renewing or replacing any Lien permitted by clause (i), (ii), (iv), (v), (vi), (vii), (viii) or (xii) of this Section 4.04; and (xii) any other Lien securing up to $50.0 million of Indebtedness permitted by Section 4.03(b)(xviii). 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 hereunder, 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. 35 SECTION 4.05 Limitation on Sale and Leaseback Transactions. 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 this Section 4.05 shall not prohibit: (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 Sections 4.03 and 4.04(b)(vii), (ii) with respect to any particular series of Securities issued hereunder, 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, (iv) a Sale and Leaseback Transaction if within 90 days of entering into such arrangement, the Company makes a pro rata offer or pro rata offers to all Holders of any one or more series of Securities issued hereunder as may be selected by the Company to repurchase such 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 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; and (v) any other Sale and Leaseback Transaction of which the cash proceeds to the Company do not exceed the difference between (x) $50.0 million and (y) the amount of Indebtedness incurred pursuant to Section 4.03(b)(xviii). SECTION 4.06 Limitation on Asset Sales. (a) The Company shall not, and shall not permit any Subsidiary to, consummate any Asset Sale unless (A) such sale is for Fair Market Value and (B) 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 Section 4.06, 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, (a) 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 Assets Sales without regard to the foregoing limitation on receiving a specified percentage of the Net Proceeds in cash and (b) to the extent that 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 36 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 repayment of Other Senior Indebtedness, shall be applied to a pro rata offer or pro rata offers to all Holders of any one or more series of Securities issued hereunder as may be selected by the Company to repurchase such 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 or pro rata offers to all Holders of any one or more series of Securities issued hereunder as may be selected by the Company to repurchase such 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 or pro rata offers to all Holders of any one or more series of Securities issued hereunder as may be selected by the Company to repurchase such Securities at 100% of their principal amount, plus accrued and unpaid interest through the date of repurchase. (b) Pending application thereof in accordance with Section 4.06(a), 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. SECTION 4.07 Limitation on Investments. 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 Section 4.03(a), and (b) there would not exist any Default. The Company may not, and may not permit any Subsidiary or Unrestricted Subsidiary to, make any Investment in any Control Affiliate other than in compliance with Section 4.02. The determination of whether the Company or any of its Subsidiaries may make an Investment under this Section shall be made at the earliest of the date such Investment is made, the date such Investment is committed to be made by the Company or any of its Subsidiaries or, if such Investment is in respect of an acquisition, the Transaction Date for such acquisition. 37 SECTION 4.08 SEC Reports. (a) The Company shall file with the Trustee within 15 days after it files them with the SEC copies of the annual reports and of the information, documents and other reports (or copies of such portions of any of the foregoing as the SEC may by rules and regulations prescribe) which the Company files with the SEC pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). The Company shall continue to file with the SEC and the Trustee on the same timely basis such reports, information and other documents as the Company would be required to file with the SEC as if the Company were subject to the requirements of such Section 13 or 15(d) of the Exchange Act notwithstanding that the Company may no longer be subject to Section 13 or 15(d) of the Exchange Act and that the Company would be entitled not to file such reports, information and other documents with the SEC. The Company also shall comply with the other provisions of TIA ss. 314(a). (b) So long as any of the Securities of any series remain outstanding, the Company shall cause any annual report to stockholders and any quarterly or other financial reports furnished by it to stockholders, excluding internal management reports and distributions to stockholders in their capacity as directors or officers of the Company, to be filed with the Trustee and mailed to the Holders at their addresses appearing in the register of Securities of each series maintained by the Registrar. If the Company is not required to furnish annual or quarterly reports to its stockholders pursuant to the Exchange Act, the Company shall cause its consolidated financial statements, including any notes thereto, and a "Management's Discussion and Analysis of Financial Condition and Results of Operations", comparable to that which would have been required to appear in annual or quarterly reports filed under Section 13 or 15(d) of the Exchange Act to be so filed with the Trustee and mailed to the Holders at their addresses appearing in the register of Securities of each series maintained by the Registrar within 90 days after the end of each fiscal year and within 60 days after the end of each of the Company's first three fiscal quarters in each fiscal year. SECTION 4.09 Limitation on Payment Restrictions Affecting Subsidiaries. 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 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 38 hereunder, 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 hereunder, 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, the Company would be permitted to incur the Lien under Section 4.04; (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 under Section 4.04; and (e) replacing or refinancing agreements or instruments referred to in clauses (a), (b) and (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. SECTION 4.10 Limitation on Issuance of Indebtedness and Preferred Stock by Subsidiaries. The Company shall not permit any Subsidiary to create, incur, assume or Guarantee any Indebtedness or issue any preferred or preference stock, except for (i) with respect to any particular series of Securities issued hereunder, preferred stock outstanding on the date of issuance of such series of Securities, (ii) Indebtedness permitted under Section 4.03, (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). SECTION 4.11 Transactions with Affiliates. With respect to any particular series of Securities issued hereunder, the Company shall not, and shall not permit any Subsidiary to, following the date of issuance of such series of Securities, except for the Management Agreement, enter into any transaction (including, without limitation, the purchase, sale or exchange of 39 Property, the making of any Investment, the giving of any Guarantee or the rendering of any service) with any Affiliate (other than the Company or a Subsidiary) unless (i) the Board of Directors 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. SECTION 4.12 Restrictions on Becoming an Investment Company. The Company shall not become an investment company within the meaning of the Investment Company Act of 1940 as such statute and the regulations thereunder and any successor statute or regulations thereto may from time to time be in effect. SECTION 4.13 Continued Existence and Rights. Subject to Article 5, the Company will do or cause to be done all things necessary to preserve and keep in full force and effect its existence as a corporation, and its rights and franchises. SECTION 4.14 Maintenance of Properties and Other Matters. The Company shall, and shall cause each of its Subsidiaries to, maintain its Properties in good working order and condition and make all necessary repairs, renewals, replacements, additions, betterments and improvements thereto; provided, however, that nothing in this Section 4.14 shall prevent the Company or any of its Subsidiaries from discontinuing the operation and maintenance of any of its Properties, if such discontinuance is, in the judgment of the Company or the Subsidiary, as the case may be, desirable in the conduct of its respective business and not disadvantageous in any material respect to the Holders. The Company will insure and keep insured, and will cause each Subsidiary to insure and keep insured, with financially sound and reputable insurers, so much of their respective Properties and in such amounts as is usually and customarily insured by companies engaged in a similar business with respect to Properties of a similar character against loss by fire and the extended coverage perils. None of the Company or any of its Subsidiaries will maintain a system of self insurance in lieu of or in combination with the foregoing, provided that deductibles under the insurance policy or policies of the Company and its Subsidiaries shall not be considered to be self insurance as long as such deductibles accord with financially sound and approved practices of companies owning or operating Properties of a similar character and maintaining similar insurance coverage. The Trustee shall not be required to see that such insurance is effected or maintained. 40 The Company will keep, and will cause each Subsidiary to keep, proper books of record and account in which full and correct entries will be made of all its business transactions, and will reflect in its financial statements adequate accruals and appropriations to reserves. The Company shall cause its books of record and account and those of each of its Subsidiaries to be examined, either on a consolidated or individual basis, by one or more firms of independent public accountants not less frequently than annually and shall not make any change in the accounting principles applied to its financial statements not concurred in by such firm or firms. The Company shall prepare its financial statements in accordance with generally accepted accounting principles. The Company shall, and shall cause each of its Subsidiaries to, comply with all statutes, laws, ordinances, or government rules and regulations to which it is subject and to obtain any licenses, permits, franchises or other governmental authorizations necessary to the ownership or operation of its Properties or to the conduct of its business, if noncompliance or failure to obtain materially adversely affects or, so far as the Company can at the time foresee, is reasonably likely to materially adversely affect the business, earnings, Properties or condition, financial or other, of the Company and its Subsidiaries taken as a whole. SECTION 4.15 Taxes and Claims. The Company shall, and shall cause each of its Subsidiaries to, pay (or, if appropriate, withhold and pay over) prior to delinquency: (a) all taxes, assessments and governmental charges or levies imposed upon it or its Property (or required by it to withhold and pay over), and (b) all claims or demands of materialmen, mechanics, carriers, warehousemen, landlords and other like Persons which if unpaid might result in the creation of a Lien upon its Properties; provided that items of the foregoing description need not be paid while being contested in good faith (and by appropriate proceedings in the opinion of the Company's independent counsel in any case involving more than $500,000); and provided further that adequate book reserves (in the opinion of the Company's independent accountants) have been established with respect thereto; and provided further that the owning company's title to, and its right to use, its Property is not materially adversely affected thereby. SECTION 4.16 Usury Laws. The Company will not voluntarily claim and will actively resist any attempts to claim the benefit of any usury laws against the Holders of the Securities of any series issued pursuant to this Indenture. 41 SECTION 4.17 Money for Security Payments to be Held in Trust. If the Company shall at any time act as its own Paying Agent with respect to any series of Securities, it will, on or before each due date of the principal of or interest on the Securities of that series, segregate and hold in trust for the benefit of the Persons entitled thereto a sum sufficient to pay the principal or interest so becoming due until such sum shall be paid to such Persons or otherwise disposed of as herein provided, and will promptly notify the Trustee of its action or failure so to act. Whenever the Company shall have one or more Paying Agents with respect to any series of Securities, it will, on or prior to each date for the payment of the principal of or interest on any Securities of that series, deposit with a Paying Agent a sum sufficient to pay the principal or interest so becoming due, such sum to be held in trust for the benefit of the Persons entitled to such payments; and, unless such Paying Agent is the Trustee, the Company will promptly notify the Trustee of its action or failure so to act. For the purpose of obtaining the satisfaction and discharge of this Indenture or for any other purpose, the Company may at any time pay, or direct any Paying Agent to pay, to the Trustee all sums held in trust by the Company or such Paying Agent, such sums to be held by the Trustee upon the same trusts as those upon which such sums were held by the Company or such Paying Agent; and, upon such payment by the Company or any Paying Agent to the Trustee, the Company or such Paying Agent, as the case may be, shall be released from all further liability with respect to such money. SECTION 4.18 Compliance Certificate. The Company shall deliver to the Trustee for each series of Securities issued hereunder, within 120 days after the end of each fiscal year of the Company, an Officers' Certificate, complying with Section 314(a)(4) of the TIA, stating that a review of the activities of the Company and its Subsidiaries during the preceding fiscal year has been made under the supervision of the signing Officers with a view to determining whether the Company has kept, observed, performed and fulfilled its obligations under this Indenture and such series of Securities, and further stating, as to each such Officer signing such certificate, that to the best of his knowledge the Company has kept, observed, performed and fulfilled each and every covenant contained in this Indenture and such series of Securities and is not in default in the performance or observance of any of the terms, provisions and conditions hereof or thereof (or, if a Default or Event of Default shall have occurred, describing all such Defaults or Events of Defaults of which he may have knowledge, the status of such Default or Event of Default and what action the Company is taking or proposes to take with respect thereto). 42 The Company will, so long as any of the Securities of any series are outstanding, deliver to the Trustee for each series of Securities issued hereunder, forthwith upon becoming aware of any Default, Event of Default or default in the performance of any covenant, agreement or condition contained in this Indenture or such series of Securities, an Officers' Certificate specifying such Default or Event of Default the status of such Default or Event of Default and what action the Company is taking or proposes to take with respect thereto. ARTICLE 5 SUCCESSORS; CHANGE OF CONTROL; OPTIONAL PREPAYMENT SECTION 5.01 When Company May Merge, etc.; Change of Control; Holders' Right of Optional Prepayment. (a) 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 and such Wholly Owned Subsidiary unconditionally assumes by supplemental indenture all the Company's obligations under this 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 this Indenture, and (ii) immediately after giving effect to such transaction no Default or Event of Default exists. If immediately after and giving effect to any such consolidation, merger, transfer, sale or lease permitted under the foregoing provision (other than a consolidation or merger of the Company with, or a transfer, sale or lease by the Company of all or substantially all of its Property to, a Wholly Owned Subsidiary of the Company which is a United States corporation with a positive consolidated net worth, as permitted under Section 5.01(a) above) and any financings or other transactions in connection therewith the Consolidated Interest Coverage Ratio of the Surviving Corporation is less than 2.0 to 1, each Holder of any series of Securities issued pursuant to this Indenture shall have the right, pursuant to the procedures of Section 5.01(c), to require the Surviving Corporation to repurchase any Securities held by such Holder, 43 in whole but not in part, at a purchase price in cash equal to 101% of its principal amount plus accrued interest, promptly following 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 this Indenture. (b) Upon the occurrence of a Change of Control (the "Change of Control Date") with respect to the Company, each Holder of any series of Securities issued pursuant to this Indenture shall have the right, pursuant to the procedures of Section 5.01(c), to require the Company to repurchase any Securities held by such Holder at a purchase price in cash equal to 101% of the principal amount of such Securities plus accrued interest through the date of repurchase. (c) Not less than 20 nor more than 60 business days prior to the consummation of a merger consolidation, transfer, sale or lease that would require the Company to repurchase the Securities of any series issued pursuant to this Indenture pursuant to Section 5.01(a) and not more than 45 business days following the occurrence of any other event constituting a Change of Control, the Company shall give Holders notice of such right of repurchase, mailed by first-class mail to the Holders' last addresses as they appear upon the register. Such notice shall state: (i) that Holders are entitled to have their Securities repurchased in whole but not in part at 101% of their principal amount plus accrued interest through the date of repurchase pursuant to this Section 5.01; (ii) in the case of Section 5.01(b), that a Change of Control has occurred, or in the case of Section 5.01(a), the proposed date of the consummation of the merger, consolidation, transfer, sale or lease; (iii) that Holders will be entitled to tender their Securities for repurchase, specifying the purchase price and the date of repurchase (the "Repurchase Date") (which, in the case of Section 5.01(a), shall not be later than the consummation date of the merger, consolidation, transfer, sale or lease and, in the case of Section 5.01(b) shall be no earlier than 30 days and no later than 60 days after the date such notice is mailed) and that Holders will be entitled to tender their Securities for repurchase until five business days prior to the Repurchase Date, (iv) the name and address of the Paying Agent, (v) that the Securities must be tendered to the Paying Agent by five business days prior to the Repurchase Date to collect the principal and accrued interest thereon, (vi) that any Security not tendered by five business days prior to the Repurchase Date will continue to accrue interest at the applicable rate borne by the Security, (vii) that any Security accepted for repurchase will cease to accrue interest after the Repurchase Date, (viii) that Holders electing to have a Security repurchased will be required to surrender the Security, with the form entitled "Option of Holder to Elect Repurchase" on the reverse of the Security completed, to the Paying Agent at the address specified in the notice on or prior to the close of business on the fifth business day preceding the Repurchase Date, (ix) that Holders will be entitled to withdraw their election if the Paying Agent receives, not later than the close of business on the fifth business day preceding the Repayment Date, a telegram, telex, 44 facsimile transmission or letter setting forth the name of the Holder, the principal amount of Securities the Holder delivered for repurchase, the certificate number(s) of the Securities the Holder delivered for repurchase and a statement that such Holder is withdrawing his election to have such Securities repurchased, (i) that Holders electing to have their Securities repurchased must tender all Securities which they hold and (xi) any other information necessary to enable Holder to tender Securities and have such Securities repurchased pursuant to this Section. Notwithstanding that the Company shall have given any such notice pursuant to this Section 5.01(c), the Company shall have no obligation to consummate a merger, consolidation, transfer, sale or lease that is the subject of any such notice, provided that the Company will mail a notice to Holders, stating that the proposed merger, consolidation, transfer, sale or lease was not consummated and that Holders will not have the right to require the Company to prepay their Securities, not later than two business days after the Company determines that any proposed merger, consolidation, transfer, sale or lease will not be consummated, and the Company will promptly return any Securities tendered for repurchase to their respective Holders. The Company shall deliver to the Trustee, contemporaneously with the mailing of the notice specified in the preceding paragraph informing Holders of their right to tender their Securities for repurchase, (i) an Officers' Certificate to the foregoing effect stating that the Holders are entitled to have their Securities repurchased and (ii) an Opinion of Counsel stating that the proposed transaction complies with this Indenture and that all conditions precedent to the consummation of the transaction under this Indenture have been met. The Company shall also deliver to the Trustee an Officers' Certificate and an Opinion of Counsel in connection with any Supplemental Indenture upon the execution thereof, as specified in Section 9.06. The Surviving Corporation shall be the successor Company, but the predecessor Company in the case of a transfer, sale or lease shall not be released from the obligation to pay the principal of and interest on the Securities. ARTICLE 6 DEFAULTS AND REMEDIES SECTION 6.01 Events of Default. "Event of Default," whenever used herein with respect to Securities of any series, means any one of the following events: (a) the Company defaults in the payment of interest on any Security of that series when the same becomes due and payable and the Default continues for a period of 30 days after such interest becomes due and payable; 45 (b) the Company defaults in the payment of the principal of or any premium on any Security of that series when the same becomes due and payable at maturity, upon redemption, or upon repurchase pursuant to Section 5.01 or otherwise; (c) the Company fails to comply with any of its other agreements or covenants in or provisions of this Indenture (other than an agreement or covenant a default in whose performance is elsewhere in this Section specifically dealt with or which has expressly been included in this Indenture solely for the benefit of series of Securities other than that series), and the Default 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 Securities of that series; (d) a default on other Indebtedness of the Company or any Subsidiary (including a default on Securities other than Securities of such series), which Indebtedness has 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, in each case, it remains unpaid; (e) one or more judgments or decrees 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; (f) the Company or any Subsidiary pursuant to or within the meaning of Title 11 of the United States Code or any similar Federal or state law for the relief of debtors (collectively, "Bankruptcy Law"): (i) commences a voluntary case in bankruptcy or any other action or proceeding for any other relief under any law affecting creditors' rights that is similar to a Bankruptcy Law; (ii) consents by answer or otherwise to the commencement against it of an involuntary case; (iii) seeks or consents to the appointment of a receiver, trustee, assignee, liquidator, custodian or similar official (collectively, a "Custodian") of it or for all or substantially all of its Property; . (iv) makes a general assignment for the benefit of its creditors; or 46 (v) generally is unable to pay its debts as the same become due; or (g) a court of competent jurisdiction enters an order or decree under any Bankruptcy Law that: (i) is for relief against the Company or any Subsidiary in an involuntary case proceeding; (ii) appoints a Custodian of the Company or any Subsidiary or for all or substantially all of its Property; or (iii) orders the liquidation of the Company or any Subsidiary, and in each case the order or decree remains unstayed and in effect for 60 days, or any dismissal, stay, rescission or termination ceases to remain in effect; or (h) any other Event of Default provided with respect to Securities of that series. SECTION 6.02 Acceleration. If an Event of Default (other than an Event of Default specified in clauses (6) and (7) of Section 6.01) with respect to Securities of any series at the time Outstanding occurs and is continuing, the Trustee by notice in writing to the Company, or the Holders of at least 25% in principal amount of the Outstanding Securities of that series by notice in writing to the Company and the Trustee, may declare the principal of and accrued interest on all the Securities of that series to be due and payable. Upon such declaration, the principal and interest shall be due and payable immediately without any presentment, demand, protest or notice to the Company, all of which the Company expressly waives. If an Event of Default specified in clauses (6) or (7) of Section 6.01 occurs, the principal of and accrued interest on all the Securities shall ipso facto become and be immediately due and payable without any declaration or other act on the part of the Trustee or any Holder. At any time after such a declaration of acceleration with respect to Securities of any or all series has been made and before a judgment or decree for payment of the money due has been obtained by the Trustee as hereinafter in this Article provided, the Holders of a majority in principal amount of the Outstanding Securities of that series by notice to the Trustee may rescind an acceleration and its consequences (i) if the rescission would not conflict with any judgment or decree, (ii) if all existing Events of Default have been cured or waived except nonpayment of principal or interest that has become due solely because of the acceleration, (iii) to the extent the payment of such interest is lawful, interest on overdue installments of interest and overdue principal, which has become due otherwise than by such 47 declaration of acceleration, has been paid, and (iv) in the event of the cure or waiver of a Default under clause (4) of Section 6.01, the Trustee shall have received an Officers' Certificate and an Opinion of Counsel that such Default has been cured or waived. SECTION 6.03 Other Remedies. If an Event of Default with respect to Securities of any series occurs and is continuing, the Trustee may pursue any available remedy by an action at law, suit in equity or other appropriate proceeding to collect the payment of principal of or interest on such series of Securities or to enforce the performance of any provision of this Indenture. The Trustee may maintain a proceeding even if it does not possess any of the Securities of such series or does not produce any of them in the proceeding. A delay or omission by the Trustee or any Holder in exercising any right or remedy accruing upon an Event of Default or a Default shall not impair the right or remedy or constitute a waiver of or acquiescence in such Event of Default or a Default. All remedies are cumulative to the extent permitted by law. SECTION 6.04 Waiver of Defaults. Subject to Section 6.07, the Holders of at least a majority in principal amount of the Outstanding Securities of any series by notice to the Trustee may waive any existing Default or Event of Default with respect to such series and its consequences except a continuing Default or Event of Default in the payment of the principal of or interest on any Security of that series. SECTION 6.05 Control by Majority. The Holders of a majority in principal amount of the Outstanding Securities of any series may 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 it. However, the Trustee may refuse to follow any direction that conflicts with law or this Indenture, is unduly prejudicial to the rights of other Holders of Outstanding Securities of that series or would subject the Trustee to personal liability. The Company may, but shall not be obligated to, pursuant to the procedures of Section 9.04(b), fix a record date for the purpose of determining the Holders of Outstanding Securities of any series entitled to vote on the direction of any such proceeding. 48 SECTION 6.06 Limitation on Suits. No Holder of any Security of any series shall have any right to institute a proceeding, judicial or otherwise, with respect to this Indenture, or for the appointment of a receiver or trustee, or for any other remedy hereunder, unless: (a) the Holder gives to the Trustee written notice of a continuing Event of Default with respect to the Securities of that series; (b) the Holders of at least 25% in principal amount of the Outstanding Securities of that series make a written request to the Trustee to pursue the remedy; (c) such Holder or Holders offer to the Trustee indemnity satisfactory to the Trustee against any loss, liability or expense; (d) the Trustee does not comply with the request within 60 days after the receipt of the request and the offer of indemnity; and (e) during such 60-day period the Holders of a majority in principal amount of the Outstanding Securities of that series do not give the Trustee a direction inconsistent with the request; it being understood and intended that no one or more of such Holders shall have any right in any manner whatever by virtue of, or by availing of, any provision of this Indenture to affect, disturb or prejudice the rights of any other of such Holders, or to obtain or to seek to obtain priority or preference over any other of such Holders or to enforce any right under this Indenture, except in the manner herein provided and for the equal and ratable benefit of all of such Holders. SECTION 6.07 Rights of Holders to Receive Payment. Subject to the provisions of Section 6.02, notwithstanding any other provision of this Indenture, the right of any Holder of any Security to receive payment of principal of and interest on such Security on or after the respective due dates expressed in such Security, or to bring suit for the enforcement of any such payment on or after such respective dates, shall not be impaired or affected without the consent of the Holder. SECTION 6.08 Collection Suit by Trustee. If an Event of Default with respect to Securities of any series specified in Section 6.01(l) or (2) occurs and is continuing, the Trustee may recover, in any proceeding that it deems, in its sole discretion, most effective to protect the interests of the Holders of the Securities of such series, judgment in its own name and as 49 trustee of an express trust against the Company for the whole amount of principal and interest remaining unpaid on such Securities. SECTION 6.09 Trustee May File Proofs of Claim. The Trustee may file such proofs of claim and other papers or documents as may be necessary or advisable in order to have the claims of the Trustee and the Holders allowed in any judicial proceedings relative to the Company, its creditors or its Property. Nothing herein contained shall be deemed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any Holder any plan of reorganization, arrangement, adjustment or composition affecting the Securities or the rights of any Holder thereof, or to authorize the Trustee to vote in respect of the claim of any Holder in any such proceeding. SECTION 6.10 Priorities. If the Trustee collects any money pursuant to this Article, it shall pay out the money or property in the following order: First: To the Trustee for amounts due under Section 7.07; Second: To the payment of the amounts then due and unpaid for principal of and any premium and interest on the Securities in respect of which or for the benefit of which such money has been collected, ratably, without preference or priority of any kind, according to the amounts due and payable on such Securities for principal and interest, respectively; and Third: to the Company. The Trustee may fix a record date and payment date for any payment to Holders under this Section. SECTION 6.11 Undertaking for Costs. In any suit for the enforcement of any right or remedy under this Indenture or in any suit against the Trustee for any action taken or omitted to be taken by it as a Trustee, a court in its discretion may require the filing by any party litigant in the suit of an undertaking to pay the costs of the suit, and the court in its discretion may assess reasonable costs, including reasonable attorneys' fees and disbursements, against any party litigant in the suit, having due regard to the merits and good faith of the claims or defenses made by the party litigant. This Section does not apply to a suit by the Trustee, a suit by a Holder pursuant to Section 6.06, or a 50 suit by Holders of more than 10% in principal amount of the Outstanding Securities of any series. ARTICLE 7 TRUSTEE SECTION 7.01 Duties of Trustee. (a) If an Event of Default with respect to Securities of any series at the time Outstanding has occurred and is continuing, the Trustee shall exercise such of the rights and powers vested in it by this Indenture, and use the same degree of care and skill in their exercise, as a prudent man would exercise or use under the circumstances in the conduct of his own affairs. (b) Except during the continuance of an Event of Default: (i) the Trustee need perform only those duties that are specifically set forth in this Indenture and no others and no implied covenants or obligations shall be read into this Indenture against the Trustee; and (ii) the Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, in the absence of bad faith on its part, upon certificates or opinions furnished to the Trustee and conforming to the requirements of this Indenture. The Trustee, however, shall examine the certificates and opinions to determine whether or not they conform to the requirements of this Indenture but need not verify the accuracy of the contents thereof. (c) The Trustee may not be relieved from liability for its own gross negligent action, its own grossly negligent failure to act, or its own willful misconduct, except that: (d) this paragraph does not limit the effect of paragraph (b) of this Section; (i) the Trustee shall not be liable for any error of judgment made in good faith by a Trust Officer, unless it is proved that the Trustee was negligent in ascertaining the pertinent facts; and (ii) the Trustee shall not be liable with respect to any action it takes or omits to take in good faith in accordance with a direction received by it pursuant to Section 6.05. 51 (e) Every provision of this Indenture that in any way relates to the Trustee is subject to paragraphs (a), (b) and (c) of this Section. (f) The Trustee may refuse to perform any duty or exercise any right or power unless it receives indemnity satisfactory to it against any loss, liability or expense. (g) The Trustee shall not be liable for interest on any money received by it except as the Trustee may agree with the Company. Money held in trust by the Trustee need not be segregated from other funds, except to the extent required by law. (h) No provision of this Indenture shall require the Trustee to expend or risk any of its own funds or incur any liability. (i) The permissive right of the Trustee to act hereunder shall not be construed as a duty. SECTION 7.02 Rights of Trustee. (a) The Trustee may rely on any document believed by it to be genuine and to have been signed or presented by the proper Person. The Trustee need not investigate any fact or matter stated in the document. The Trustee may conclusively rely as to the identity and addresses of Holders and other matters contained therein on the register of the Securities maintained by the Registrar pursuant to Section 3.04 and shall not be affected by notice to the contrary. (b) Before the Trustee acts or refrains from acting, it may require an Officers' Certificate and an Opinion of Counsel. The Trustee shall not be liable for any action it takes or omits to take in good faith in reliance on such Certificate or opinion or both. The Trustee may consult with counsel, including counsel employed by the Trustee, and the oral or written advice of such counsel or any opinion of counsel shall be full and complete authorization and protection in respect of any action taken, suffered or omitted to be taken by it hereunder in good faith and reliance thereon. (c) The Trustee may act through agents and shall not be responsible for the misconduct or gross negligence of any agent appointed with due care. (d) The Trustee shall not be liable for any action it takes or omits to take in good faith which it believes to be authorized or within its rights or powers. 52 SECTION 7.03 Individual Rights of Trustee. The Trustee in its individual or any other capacity may become the owner or pledgee of Securities and may otherwise deal with the Company or any Affiliate with the same rights it would have as if it were not Trustee. Any Agent may do the same with like rights. The Trustee, however, is subject to Sections 7.10 and 7.11. SECTION 7.04 Trustee's Disclaimer. The Trustee makes no representation as to the validity or adequacy of this Indenture or the Securities, it shall not be accountable for the Company's use of the proceeds from the Securities, or any money paid to the Company or upon the Company's direction under any provision hereof, it shall not be responsible for the use or application of any money received by any Paying Agent other than the Trustee, and it shall not be responsible for any statement in the Securities other than its authentication or for any statement of the Company in the Indenture. SECTION 7.05 Notice of Defaults. If a Default or Event of Default occurs and is continuing hereunder with respect to Securities of any series, and if such Default or Event of Default is known to a Trust Officer of the Trustee, the Trustee shall mail the Holders of Securities of such series a notice of the Default or Event of Default within 90 days after it occurs. Except in the case of a Default or Event of Default in payment on any Security of any series, the Trustee may withhold notice if and so long as a trust committee of Trust Officers of the Trustee in good faith determines that withholding the notice is in the interest of Holders of Securities of such series. SECTION 7.06 Reports by Trustee to Holders. Within 60 days after each May 15, commencing May 15, 2000, following the date of this Indenture, the Trustee shall mail to Holders and the Company a brief report dated as of such May 15 that complies with TIA ss. 313(a). The Trustee shall also comply with TIA ss. 313(b)(2) and transmit all reports in accordance with TIA ss. 313(c). A copy of each such report shall be filed, at the time of its mailing to Holders, with the SEC and each stock exchange, if any, on which any Securities are listed. The Company shall notify the Trustee when any Securities are listed on any stock exchange. 53 SECTION 7.07 Compensation and Indemnity. The Company shall pay to the Trustee from time to time reasonable compensation for its services as agreed to in writing. The Trustee's compensation shall not be limited by any law on compensation of a trustee of an express trust. The Company shall reimburse the Trustee upon request for all reasonable out-of-pocket expenses incurred by it. Such expenses shall include the reasonable compensation and out-of-pocket expenses of the Trustee's agents and counsel. The Company shall defend and indemnify the Trustee against any loss, liability or expense incurred by it in connection with its services hereunder, including the costs and expenses of defending itself against any claim or liability in connection with the exercise or performance of any of its powers or duties hereunder, except as set forth in the next paragraph. The Trustee shall notify the Company promptly of any claim for which it may seek indemnity. The Company need not reimburse any expense or indemnify against any loss, liability or expense incurred by the Trustee through gross negligence, bad faith or willful misconduct. The Trustee may have separate counsel, and the Company shall pay the reasonable fees and expenses of such counsel. To secure the Company's payment obligations in this Section, the Trustee shall have a lien prior to the Securities on all money or Property held or collected by the Trustee, except that held in trust to pay principal and interest on particular Securities. Such lien shall survive the satisfaction and discharge of this Indenture or any other termination under any Bankruptcy Law. When the Trustee incurs expenses or renders services after an Event of Default specified in Section 6.01(6) or (7) occurs, such expenses and the compensation for such services are intended to constitute expenses of administration under any Bankruptcy Law. SECTION 7.08 Replacement of Trustee. A resignation or removal of the Trustee and appointment of a successor Trustee shall become effective only upon the successor Trustee's acceptance of appointment as provided in this Section. The Trustee may resign by so notifying the Company. The Holders of a majority in principal amount of the Outstanding Securities of any series may remove the Trustee with respect to the Securities of such series by so notifying the Trustee and the Company. The Company may remove the Trustee with respect to all Securities if: 54 (a) the Trustee fails to comply with Section 7.10; (b) the Trustee is adjudged a bankrupt or an insolvent or an order for relief is entered with respect to the Trustee under any Bankruptcy Law; (c) a Custodian or public officer takes charge of the Trustee or its Property; or (d) the Trustee becomes incapable of acting. If the Trustee with respect to the Securities of one or more or all such series resigns or is removed or if a vacancy exists in the office of Trustee for any reason, the Company shall promptly appoint a successor Trustee with respect to the Securities of such series. Within one year after the successor Trustee takes office (it being understood that any such successor Trustee may be appointed with respect to the Securities of one or more or all of such series and that at any time there shall be only one Trustee with respect to the Securities of any particular series), the Holders of a majority in principal amount of the Outstanding Securities of such series may appoint a successor Trustee to replace the successor Trustee appointed by the Company. If a successor Trustee with respect to the Securities of any series does not take office within 60 days after the retiring Trustee resigns or is removed, the retiring Trustee, the Company or the Holders of at least 10% in principal amount of the Outstanding Securities of such series may petition any court of competent jurisdiction for the appointment of a successor Trustee with respect to the Securities of such series. If the Trustee with respect to the Securities of any series fails to comply with Section 7.10, any Holder of Securities of such series may petition any court of competent jurisdiction for the removal of such Trustee and the appointment of a successor Trustee with respect to the Securities of such series. In case of the appointment hereunder of a successor Trustee with respect to all Securities, every such successor Trustee so appointed shall execute, acknowledge and deliver to the Company and to the retiring Trustee an instrument accepting such appointment, and thereupon the resignation or removal of the retiring Trustee shall become effective and such successor Trustee, without any further act, deed or conveyance, shall become vested with all the rights, powers, trusts and duties of the retiring Trustee. Upon the written request of the Company or the successor Trustee, such retiring Trustee shall, upon payment of its charges, execute and deliver an instrument transferring to such successor Trustee all the rights, powers and trusts of the retiring Trustee and shall duly assign, transfer and deliver to such successor Trustee all property and money held by such retiring Trustee hereunder. The successor Trustee shall mail a notice of its succession to Holders of all Securities. 55 In case of the appointment hereunder of a successor Trustee with respect to the Securities of one or more (but not all) series, the Company, the retiring Trustee and each successor Trustee with respect to the Securities of one or more series shall execute and deliver an indenture supplemental hereto wherein each successor Trustee shall accept such appointment and which (1) shall contain such provisions as shall be necessary or desirable to transfer and confirm to, and to vest in, each successor Trustee all the rights, powers, trusts and duties of the retiring Trustee with respect to the Securities of that or those series to which the appointment of such successor Trustee relates, (2) if the retiring Trustee is not retiring with respect to all Securities, shall contain such provisions as shall be deemed necessary or desirable to confirm that all the rights, powers, trusts and duties of the retiring Trustee with respect to the Securities of that or those series as to which the retiring Trustee is not retiring shall continue to be vested in the retiring Trustee, and (3) shall add to or change any of the provisions of this Indenture as shall be necessary to provide for or facilitate the administration of the trusts hereunder by more than one Trustee, it being understood that nothing herein or in such supplemental indenture shall constitute such Trustees co-trustees of the same trust and that each such Trustee shall be trustee of a trust or trusts hereunder separate and apart from any trust or trusts hereunder administered by any other such Trustee; and upon the execution and delivery of such supplemental indenture the resignation or removal of the retiring Trustee shall become effective to the extent provided therein and each such successor Trustee, without any further act, deed or conveyance, shall become vested with all the rights, powers, trusts and duties of the retiring Trustee with respect to the Securities of that or those series to which the appointment of such successor Trustee relates. Upon the written request of the Company or any successor Trustee, such retiring Trustee shall, upon payment of its charges, execute and deliver an instrument transferring to such successor Trustee all the rights, powers and duties of the retiring Trustee with respect to the Securities of that or those series and shall duly assign, transfer and deliver to such successor Trustee all property and money held by such retiring Trustee hereunder with respect to the Securities of that or those series to which the appointment of such successor Trustee relates. The successor Trustee shall mail a notice of its succession to Holders of those series of Securities in respect of which it acts as Trustee. Notwithstanding the replacement of the Trustee with respect to the Securities of one or more series pursuant to this Section 7.08, the Company's obligations under Section 7.07 hereof shall continue for the benefit of the retiring Trustee in connection with the rights and duties hereunder prior to such replacement. SECTION 7.09 Successor Trustee by Merger, etc. If the Trustee consolidates, merges or converts into, or transfers all or substantially all of its corporate trust business to, another corporation, the successor corporation without any further act shall be the successor Trustee. 56 SECTION 7.10 Eligibility; Disqualification. There shall at all times be one (and only one) Trustee hereunder with respect to the Securities of each series, which may be a Trustee hereunder for Securities of one or more other series. Each Trustee shall be a Person that satisfies the requirements of TIA ss. 310(a), and has a combined capital and surplus of at least $50,000,000 as set forth in its most recent published annual report of condition. Neither the Company nor any Person directly or indirectly controlling, controlled by, or under common control with the Company shall serve as trustee. The Trustee is subject to TIA ss. 310(b). SECTION 7.11 Preferential Collection of Claims Against Company. The Trustee is subject to TIA ss. 311(a), excluding any creditor relationship listed in TIA ss. 311(b). A Trustee who has resigned or been removed shall be subject to TIA ss. 311(a) to the extent indicated therein. SECTION 7.12 Authenticating Agent. Each authenticating agent appointed by the Trustee with respect to one or more series of Securities pursuant to Section 3.03 (an "Authenticating Agent") shall at all times be a corporation organized and doing business under the laws of the United States, any State thereof or the District of Columbia, authorized under such laws to act as Authenticating Agent, having a combined capital and surplus of not less than $5,000,000 and subject to supervision or examination by federal or state authority. If such Authenticating Agent publishes reports of condition at least annually, pursuant to law or to the requirements of said supervising or examining authority, then for the purposes of this Section, the combined capital and surplus of such Authenticating Agent shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. If at any time an Authenticating Agent shall cease to be eligible in accordance with the provisions of this Section, such Authenticating Agent shall resign immediately in the manner and with the effect specified in this Section. Any corporation into which an Authenticating Agent may be merged or converted or with which it may be consolidated, or any corporation resulting from any merger, conversion or consolidation to which such Authenticating Agent shall be a party, or any corporation succeeding to the corporate agency or corporate trust business of an Authenticating Agent, shall continue to be an Authenticating Agent, provided such corporation shall be otherwise eligible under this Section, without the execution or filing of any paper or any further act on the part of the Company, the Trustee or the Authenticating Agent. An Authenticating Agent may resign at any time by giving written notice thereof to the Trustee and to the Company. The Trustee may at any time 57 terminate the agency of an Authenticating Agent by giving written notice thereof to such Authenticating Agent and to the Company. Upon receiving such a notice of resignation or upon such a termination, or in case at any time such Authenticating Agent shall cease to be eligible in accordance with the provisions of this Section 7.12, the Trustee may appoint a successor Authenticating Agent which shall be acceptable to the Company and shall mail written notice of such appointment to all Holders of the Securities with respect to which such Authenticating Agent will serve. Any successor Authenticating Agent, upon acceptance of its appointment hereunder, shall become vested with all the rights, powers and duties of its predecessor hereunder, with like effect as if originally named as an Authenticating Agent. No successor Authenticating Agent shall be appointed unless eligible under the provisions of this Section. The Company agrees to pay each Authenticating Agent from time to time reasonable compensation for its services under Section 3.03 and this Section 7.12 and the Trustee shall be entitled to be reimbursed for any such payments made by it. If an appointment with respect to one or more series is made pursuant to Section 3.03 or this Section 7.12, the Securities of such series may have endorsed thereon, in addition to the Trustee's certificate of authentication, an alternate certificate of authentication in the following form: "This is one of the Securities of the series designated therein referred to in the within-mentioned Indenture. Dated: ______________ IBJ WHITEHALL BANK & TRUST COMPANY, as Trustee By: [_____________________________________], as Authenticating Agent By: _____________________________________ Authorized Signatory" ARTICLE 8 DISCHARGE OF INDENTURE SECTION 8.01 Termination of Company's Obligations. The Company may terminate its obligations under this Indenture at any time by delivering all outstanding Securities of every series to the Trustee for each such series for cancellation. The Company, at its option, may elect with respect to any series of Securities issued hereunder, upon compliance with the conditions set 58 forth in this Article 8, (i) to be Discharged (as defined herein) from any and all obligations with respect to such series of Securities (except for certain obligations of the Company to register the transfer or exchange of the Securities, replace stolen, lost or mutilated Securities, maintain paying agencies, hold moneys for payment in trust and compensate and indemnify the Trustee as provided in Section 7.07 of this Indenture) or (ii) to be released from its obligation to comply with the restrictive covenants in Sections 4.02, 4.03, 4.04, 4.05, 4.06, 4.07, 4.09, 4.10, 4.11, 4.12, 4.14, 4.15 and 5.01 of this Indenture, in each case if the Company deposits with the Trustee for such series of Securities, 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 Securities of such series on the dates such payments are due in accordance with the terms of the Securities of such series. To exercise any such option, the Company shall deliver to the Trustee for such series of Securities (a) an Opinion of Counsel to the effect that the deposit and related defeasance would not cause the holders of the Securities of such series 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 the Company has complied with all conditions precedent to the defeasance. "Discharged" means that the Company shall be deemed to have paid and discharged the entire indebtedness represented by, and obligations under, the Securities of such series and to have satisfied all the obligations under this Indenture relating to the Securities of such series (and the Trustee for such series of Securities, at the request and the expense of the Company, shall execute proper instruments acknowledging the same), except (A) the rights of the Holders of Securities of such series to receive, from the trust fund described above, payment of the principal of and the interest on the Securities of such series when such payments are due, (B) the Company's obligations with respect to the Securities under Sections 3.04, 3.05, 3.06, 3.07, 3.08, 4.17, 7.07, 7.08 and 8.04 and (C) the rights, powers, trusts, duties and immunities of the Trustee with respect to such series of Securities hereunder. "U.S. Government Obligations" means direct obligations of, and obligations guaranteed by, the United States of America for the payment of which the full faith and credit of the United States of America is pledged. SECTION 8.02 Application of Trust Money. The Trustee shall hold in trust money or U.S. Government Obligations deposited with it pursuant to Section 8.01 with respect to any series of Securities. It shall apply the deposited money and the money from U.S. Government Obligations through the Paying Agent and in accordance with this Indenture to the payment of principal and interest on the Securities of such series. 59 SECTION 8.03 Repayment to Company. The Trustee and the Paying Agent shall promptly pay to the Company upon written request any excess money or securities held by them at any time. The Trustee and the Paying Agent shall pay to the Company upon written request any money held by them for the payment of principal or interest that remains unclaimed for two years after the date upon which such payment shall have come due; provided, however, that the Trustee or such Paying Agent, shall, upon the written request and at the expense of the Company, cause to be published once in a newspaper of general circulation in The City of New York or mailed to each such Holder, notice that such money remains unclaimed and that, after a date specified therein, which shall not be less than 30 days from the date of such publication or mailing, any unclaimed balance of such money then remaining will be repaid to the Company. After payment to the Company, Holders entitled to the money must look to the Company for payment as general creditors unless an applicable abandoned property law designates another Person. SECTION 8.04 Reinstatement. If the Trustee or Paying Agent is unable to apply any money or U.S. Government Obligations deposited with respect to the Securities of any series in accordance with Sections 8.01 and 8.02 by reason of any legal proceeding or by reason of any order or judgment of any court or governmental authority enjoining, restraining or otherwise prohibiting such application, the Company's obligations under this Indenture and the Securities of such series shall be revived and reinstated as though no deposit had occurred pursuant to Section 8.01 until such time as the Trustee or Paying Agent is permitted to apply such money or U.S. Government Obligations in accordance with Section 8.01; provided, however, that if the Company has made any payment of interest on or principal of any such Securities because of the reinstatement of its obligations, the Company shall be subrogated to the rights of the Holders of such Securities to receive such payment from the money or U.S. Government Obligations held by the Trustee or Paying Agent. ARTICLE 9 AMENDMENTS SECTION 9.01 Without Consent of Holders. The Company, when duly authorized by resolution of its Board of Directors, and the Trustee may amend this Indenture or the Securities without the consent of any Holder: 60 (a) to cure any ambiguity, defect or inconsistency with any other provision herein; (b) to comply with Section 5.01; (c) to make any change that does not adversely affect the legal rights hereunder of any Holder; (d) to comply with the requirements of the SEC in order to effect or maintain the qualification of this Indenture under the TIA, as contemplated by Section 11.01 or otherwise; (e) to add to or change any of the provisions of this Indenture to such extent as shall be necessary to permit or facilitate the issuance of Securities in bearer form, registrable or not registrable as to principal, and with or without interest coupons, or to permit or facilitate the issuance of Securities in uncertificated form; (f) to add to, change or eliminate any of the provisions of this Indenture in respect of one or more series of Securities, provided that any such addition, change or elimination (A) shall neither (i) apply to any Security of any series created prior to the execution of such supplemental indenture and entitled to the benefit of such provision nor (ii) modify the rights of the Holder of any such Security with respect to such provision or (B) shall become effective only when there is no such Security Outstanding; (g) to provide for the appointment of a successor Trustee with respect to the Securities of one or more (but not all) series of Securities issued hereunder, as provided in Section 7.08 hereof; or (h) to establish the form or terms of Securities of any series as permitted by Sections 2.01 and 3.01. After an amendment under this Section becomes effective, the Company shall mail to Holders of all series of Securities affected by such amendment a notice briefly describing the amendment. SECTION 9.02 With Consent of Holders. The Company, when duly authorized by resolution of its Board of Directors, and the Trustee may amend this Indenture with the written consent of the Holders of at least a majority in principal amount of the Outstanding Securities of each series affected by such amendment. However, without the consent of the Holder of each Outstanding Security affected thereby, an amendment under this Section may not: 61 (a) reduce the percentage in principal amount of the Outstanding Securities of any series, the consent of whose Holders is required for any such amendment; (b) reduce the rate of or change the time for payment of interest, including defaulted interest, on any Security; (c) reduce the principal of or change the fixed maturity of any Security, or change the date on which any Security may be subject to redemption or reduce Redemption Price therefor; (d) make any Security payable in currency other than that stated in the Security; (e) make any change in Section 6.04 or 6.07 or this Section 9.02; (f) make any change in the ranking of the Securities with respect to any other obligation of the Company in a way that adversely affects the rights of any Holder; or (g) waive a Default in the payment of the principal of, and interest on, any Security. After an amendment under this Section becomes effective, the Company shall mail to Holders of all series of Securities affected by such amendment a notice briefly describing the amendment. SECTION 9.03 Compliance with Trust Indenture Act. Every amendment to this Indenture shall be set forth in a supplemental indenture that complies with the TIA as then in effect. SECTION 9.04 Revocation and Effect of Consents. (a) Until an amendment or waiver becomes effective, a consent to it by a Holder of a Security is a continuing consent by the Holder and every subsequent Holder of a Security or portion of a Security that evidences the same debt as the consenting Holder's Security, even if notation of the consent is not made on any Security. However, any such Holder or subsequent Holder may revoke the consent as to his Security or portion of a Security if the Trustee receives written notice of revocation before the date on which the Trustee receives an Officers' Certificate certifying that the Holders of the requisite principal amount of each series of Outstanding Securities affected by such amendment or waiver have consented to such amendment or waiver. An amendment or waiver becomes effective upon receipt by the Trustee of such Officers' Certificate and the written consents from the Holders of 62 the requisite percentage in principal amount of each series of Outstanding Securities affected by such amendment or waiver. (b) The Company may, but shall not be obligated to, fix a record date for the purpose of determining the Holders of each series of Securities entitled to consent to any amendment or waiver, which record date shall be at least 5 business days prior to the first solicitation of such consent. If a record date is fixed, then notwithstanding the second and third sentence of paragraph (a) of this Section 9.04, those persons who were Holders at such record date (or their duly designated proxies), and only those persons, shall be entitled to consent to such amendment or waiver or to revoke any consent previously given, whether or not such persons continue to be Holders after such record date. No such consent shall be valid or effective for more than 120 days after such record date. (c) After an amendment or waiver becomes effective, it shall bind every Holder. SECTION 9.05 Notation on or Exchange of Securities. Upon the Company's request, the Trustee shall place an appropriate notation (to be provided by the Company and in form and substance satisfactory to the Trustee) about an amendment or waiver on any Security affected by such amendment or waiver thereafter authenticated. The Company in exchange for all Securities affected by such amendment or waiver may issue and the Trustee shall authenticate new Securities that reflect the amendment or waiver. SECTION 9.06 Trustee Protected. The Trustee shall sign all supplemental indentures, except that the Trustee need not sign any supplemental indenture that adversely affects its rights. In signing or refusing to sign such amendment or Supplemental Indenture, the Trustee shall be entitled to receive and, subject to Section 7.01, shall be fully protected in relying upon, an Officers' Certificate and an Opinion of Counsel as conclusive evidence that such amendment or Supplemental Indenture is authorized or permitted by this Indenture, that it is not inconsistent herewith, that all conditions precedent to the execution thereof have been met, that it will be valid and binding upon the Company in accordance with its terms and that, after the execution thereof, the Company will not be in Default and no Event of Default will have occurred and be continuing with respect to any series of Securities affected by such amendment or supplemental indenture. 63 ARTICLE 10 REDEMPTIONS SECTION 10.01 Election to Redeem; Notice to Trustee. Securities of any series which are redeemable before their Stated Maturity shall be redeemable, in whole at any time or in part from time to time, in accordance with their terms and (except as otherwise specified for such Securities as contemplated by Section 3.01) in accordance with this Article. In order to effect any such redemption, the Company shall notify the Trustee of the Redemption Date and the principal amount of Securities to be redeemed and it shall deliver to the Trustee an Officers' Certificate certifying resolutions of the Board of Directors authorizing the redemption and an Opinion of Counsel with respect to the due authorization of such redemption and that such redemption is being made in accordance with this Indenture and the Securities. The Company shall give such notice provided for in this Section at least 30 days but not more than 45 days before the Redemption Date or at such other date as shall be satisfactory to the Trustee. SECTION 10.02 Selection of the Securities to be Redeemed. If less than all the Securities of any series are to be redeemed, the Trustee or the Registrar for the Securities, pro rata or by lot, or by any manner that is acceptable to the Trustee or Registrar, as the case may be, shall select, subject to the remainder of this Section, the particular Securities to be redeemed. The Trustee shall make the selection not more than 60 days and not less than 30 days before each Redemption Date from Outstanding Securities of such series not previously called for redemption. The Trustee may select for redemption portions of the principal of Securities of such series that have denominations larger than $1,000. Securities and portions of them it selects shall be in amounts of $100 or integral multiples of $100. Provisions of this Indenture that apply to Securities called for redemption shall also apply to portions of Securities called for redemption. The Trustee shall notify the Company promptly of the Securities or portions of Securities to be called for redemption. SECTION 10.03 Notice of Redemption. At least 15 but not more than 45 days before a Redemption Date, the Company shall mail a notice of redemption by first-class mail to each Holder whose securities are to be redeemed. The notice shall identify the Securities to be redeemed and shall state: 64 (a) the Redemption Date; (b) the Redemption Price and the amount of accrued interest to be paid; (c) the name and address of the Paying Agent; (d) that the Securities called for redemption must be surrendered to the Paying Agent to collect the Redemption Price and accrued interest, if any; (e) that, unless the Company defaults in making the redemption payment, interest on the Securities called for redemption ceases to accrue on and after the specified Redemption Date; and (f) if any Security is being redeemed in part, the portion of the principal amount (equal to $100 or any integral multiple thereof) of such Security to be redeemed and that, on or after the Redemption Date, upon surrender of such Security, a new Security or Securities in principal amount equal to the unredeemed portion thereof will be issued. At the Company's request, the Trustee shall give the notice of redemption in the Company's name and at its expense. SECTION 10.04 Effect of Notice of Redemption. Once notice of redemption is mailed, the Securities called for redemption become due and payable on the specified Redemption Date at the Redemption Price. SECTION 10.05 Deposit of Redemption Price on Optional Redemption. On or before each Redemption Date the Company shall deposit with the Paying Agent money (which shall be immediately available funds if deposited on the Redemption Date and which must be received by such Paying Agent prior to 10:00 a.m. New York City time) sufficient to pay the Redemption Price of and accrued interest on all Securities to be redeemed on that date. The Paying Agent shall return to the Company any money not required for that purpose. SECTION 10.06 Securities Redeemed in Part. Upon surrender of a Security that is redeemed in part, the Company shall issue and the Trustee shall authenticate a new Security equal in principal amount to the unredeemed portion of the Security surrendered. 65 ARTICLE 11 MISCELLANEOUS SECTION 11.01 Trust Indenture Act Controls. If any provision of this Indenture limits, qualifies, or conflicts with another provision which is required to be included in this Indenture by the TIA, the required provision shall control. SECTION 11.02 Notices. Any notice or communication to the Company or the Trustee is duly given if in writing and (i) delivered in Person, (ii) mailed by first-class mail or (iii) transmitted by facsimile transmission (confirmed by guaranteed overnight courier) to the following addresses: The Company's address is: 1200 State Fair Boulevard Syracuse, New York 13221 Attention: [Robert J. Davis] [Telephone number: (315) 4579460 Facsimile number: (315) 4530353] With a copy to: The Penn Traffic Company 411 Theodore Fremd Avenue Rye, New York 10580 Attention: Martin A. Fox Telephone number: (914) 9213000 Facsimile number: (914) 9213031 The Trustee's address is: One State Street New York, New York 1000 Telephone number: (212) 8582000 Facsimile number: (212) 852-2952 Attention: Corporate Trust Division The Company or the Trustee by notice to the other may designate additional or different addresses for subsequent notices or communications. 66 Any notice or communication to a Holder shall be mailed by first-class mail to his address shown on the register kept by the Registrar; provided, that items required under the TIA to be sent to Holders in compliance with TIA ss. 313(c) shall be mailed to Holders in compliance with such section. Failure to mail a notice or a communication to a Holder or any defect in it shall not affect its sufficiency with respect to other Holders. If a notice or communication is delivered, mailed or transmitted in the manner provided above within the time prescribed, it is duly given, whether or not the addressee receives it. If the Company mails a notice or communication to Holders, it shall mail a copy to the Trustee and each Agent at the same time. SECTION 11.03 Communication by Holders with Other Holders. Holders may communicate pursuant to TIA ss. 312(b) with other Holders with respect to their rights under this Indenture or the Securities. The Trustee shall comply with the provisions of TIA ss. 312(b). The Company, the Trustee, the Registrar and any agent of any of them shall have the protection of TIA ss. 312(c). SECTION 11.04 Certificate and Opinion as to Conditions Precedent. Upon any request or application by the Company to the Trustee to take any action under this Indenture, the Company shall furnish to the Trustee: (a) an Officers' Certificate stating that, in the opinion of the signers, all conditions precedent, if any, provided for in this Indenture relating to the proposed action have been complied with; and (b) an Opinion of Counsel stating that, in the opinion of such counsel, all such conditions precedent have been complied with. SECTION 11.05 Statements Required in Certificate or Opinion. Each certificate or opinion with respect to compliance with a condition or covenant provided for in this Indenture shall include: (a) a statement that the Person making such certificate or opinion has read such covenant or condition; (b) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based; 67 (c) a statement that, in the opinion of such Person, he has made Such examination or investigation as is necessary to enable him to express an informed opinion as to whether or not such covenant or condition has been complied with; and (d) a statement as to whether or not, in the opinion of such Person, such condition or covenant has been complied with. SECTION 11.06 Rules by Trustee and Agents. The Trustee may make reasonable rules for action by or a meeting of Holders. The Registrar or Paying Agent may make reasonable rules and set reasonable requirements for its functions. SECTION 11.07 Legal Holidays. A "Legal Holiday" is a Saturday, a Sunday or a day on which banking institutions in the State of New York are not required to be open. If a payment date is a Legal Holiday at a place of payment, payment may be made at that place on the next succeeding day that is not a Legal Holiday, and no interest shall accrue for the intervening period. SECTION 11.08 No Recourse Against Others. The Securities and the obligations of the Company under this Indenture are solely obligations of the Company and no officer, director, employee or stockholder, as such, of the Company shall be liable for any failure by the Company to pay any amounts on the Securities when due or perform any such obligation. SECTION 11.09 Duplicate Originals. The parties may sign any number of copies of this Indenture. One signed copy is enough to prove this Indenture. SECTION 11.10 Governing Law. THE LAWS OF THE STATE OF NEW YORK SHALL GOVERN THIS INDENTURE AND THE SECURITIES. SECTION 11.11 No Adverse Interpretation of Other Agreements. This Indenture may not be used to interpret another indenture, loan or debt agreement of the Company or a Subsidiary. Any such indenture, loan or debt agreement may not be used to interpret this Indenture. 68 SECTION 11.12 Successors. All agreements of the Company in this Indenture and the Securities shall bind its successor. All agreements of the Trustee in this Indenture shall bind its successor. SECTION 11.13 Severability. In case any provision in this Indenture or in the Securities shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. SECTION 11.14 Table of Contents, Headings, etc. The Table of Contents, Cross-Reference Table, and headings of the Articles and Sections of this Indenture have been inserted for the convenience of reference only, are not to be considered a part hereof, and shall in no way modify or restrict any of the terms or provisions hereof. SECTION 11.15 Benefits of Indenture. Nothing in this Indenture or in the Securities, express or implied, shall give to any Person, other than the parties hereto and their successors hereunder and the Holders, any benefit or any legal or equitable right, remedy or claim under this Indenture. 69 SIGNATURES Dated: ________________, 1999 THE PENN TRAFFIC COMPANY By:__________________________ Name: Title: Attest: ____________________________ (SEAL) Name: Francis D. Price, Jr. Title: Vice President and Assistant Secretary Dated: ________________, 1999 IBJ WHITEHALL BANK & TRUST COMPANY, Trustee By:__________________________ Name: Title: Attest: ____________________________ (SEAL) Name: Title: Exhibit A [FORM OF SECURITY] No. $__________ THE PENN TRAFFIC COMPANY Incorporated under the laws of the State of Delaware _______%; Senior Notes due _______________________ THE PENN TRAFFIC COMPANY, for value received, hereby promises to pay to _________________________or registered assigns, the principal sum of_____________ Dollars on _________________ and to pay interest thereon semiannually in arrears at the rate of ____% per annum on _________________ and _________ of each year commencing _____ __, ____until the principal hereof is paid or made available for payment. Payment of principal, premium, if any, and interest shall be made in the manner and subject to the terms set forth in provisions appearing on the reverse hereof, which provisions, in their entirety, shall for all purposes have the same effect as if set forth at this place. IN WITNESS WHEREOF, THE PENN TRAFFIC COMPANY has caused this instrument to be executed in its corporate name by the manual or facsimile signature of its President or any Vice Chairman or Vice President and attested by its Secretary or an Assistant Secretary. THE PENN TRAFFIC COMPANY By:__________________________ Title: Attest:____________________________ Title: [SEAL] [FORM OF TRUSTEE'S CERTIFICATE OF AUTHENTICATION] This is one of the Securities of the series designated therein referred to in the within-mentioned Indenture. Dated: IBJ WHITEHALL BANK & TRUST COMPANY, Trustee By: _______________________ Authorized Signatory (Back of Security) THE PENN TRAFFIC COMPANY _______________% Senior Notes due __________________ 1. Interest. THE PENN TRAFFIC COMPANY (the "Company"), a Delaware corporation, promises to pay interest on the principal amount of this Security at the rate per annum shown above. The Company will pay interest semiannually in arrears on __________________ and ______________________ of each year. Interest on the Securities will accrue from the most recent date on which interest has been paid or, if no interest has been paid, from ___________________. Interest will be computed on the basis of a 360-day year of twelve 30-day months. 2. Method of Payment. The Company will pay interest on the Securities (except defaulted interest) to the Persons who are registered Holders of Securities at the close of business on the regular record date, which shall be the __________________ and ____________________, as the case may be, next preceding the interest payment date even though Securities are cancelled after the record date and on or before the interest payment date. Any such interest not so punctually paid or duly provided for, and any interest payable on such defaulted interest (to the extent lawful), will forthwith cease to be payable to the Holder on such regular record date and shall be payable to the Person in whose name this Security is registered at the close of business on a special record date for the payment of such defaulted interest to be fixed by the Company, notice of which shall be given to Holders not less than 5 days prior to such special record date. Holders must surrender Securities to a Paying Agent to collect principal payments. The Company will pay principal and interest in money of the United States that at the time of payment is legal tender for payment of public and private debts. However, the Company may pay principal, premium, if any, and interest by check payable in such money. It may mail an interest check to a Holder's registered address. 3. Paying Agent and Registrar. The Trustee will act as Paying Agent and Registrar. The Company may change any Paying Agent, Registrar or co- Registrar without notice to any Holder. The Company may act in any such capacity. 4. Indenture. This Security is one of a duly authorized issue of securities of the Company (herein called the "Securities"), issued and to be issued under an Indenture dated as of ______________, 1999 (the "Indenture") between the Company and the Trustee. The terms of the Securities include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939 (15 U.S.C. ss.ss. 77aaa77bbbb), as amended by the Trust Indenture Reform Act of 1990, as in effect on the date of the Indenture ("TIA"). The Securities are subject to all such terms, and Holders are referred to the Indenture and such Act for a statement of such terms. This Security is one of the series designated on the face hereof limited to $___________in an aggregate principal amount. The Securities are unsecured general obligations of the Company. Unless otherwise defined herein, all capitalized terms shall have the meanings assigned to them in the Indenture. 5. Denominations. Transfer. Exchange. The Securities are in registered form without coupons in denominations of $1,000 and integral multiples thereof unless issued in lieu of an interest payment. The transfer of Securities may be registered and Securities may be exchanged as provided in the Indenture. The Registrar may require a Holder, among other things, to furnish appropriate endorsements and transfer documents and to pay any taxes and fees required by law or permitted by the Indenture. The Registrar need not exchange or register the transfer of any Security or portion of a Security selected for redemption. Also, it need not exchange or register the transfer of any Securities for a period of 15 days before a selection of Securities to be redeemed. 6. Optional Redemption. The Securities may not be redeemed prior to __________________. On or after such date, the Securities may be redeemed at the election of the Company as a whole at any time or in part from time to time at the Redemption Prices (expressed in percentages of principal amount) set forth below plus accrued interest to the Redemption Date, if redeemed during the 12-month period beginning __________________ of the years indicated below: Year Percentage _____ _____% _____ _____% _____ _____% _____ and thereafter 100.00% Notice of redemption will be mailed at least 30 days but not more than 60 days before the Redemption Date to each Holder of Securities to be redeemed, at his registered address. Securities in denominations larger than $1,000 may be redeemed in part but only in whole multiples of $1,000. On and after the Redemption Date interest ceases to accrue on Securities or portions of them called for redemption. These Securities shall not have the benefit of any sinking fund obligations. 1. Persons Deemed Owners. The registered Holder of a Security may be treated as its owner for all purposes. 2. Amendments and Waivers. Subject to certain exceptions, the Indenture and the rights of the Holder of the Securities of each series to be affected under the Indenture may be amended at any time by the Company and the Trustee with the consent of the Holders of at least a majority in principal amount of the Securities at the time Outstanding of each series to be affected. The Indenture also contains provisions permitting the Holders of specified percentages in principal amount of the Securities of each series at the time Outstanding, on behalf of the Holders of all Securities of such series, to waive compliance by the Company with certain provisions of the Indenture and certain past defaults under the Indenture and their consequences. Without the consent of any Holder, the Indenture or the Securities may be amended to cure any ambiguity, defect or inconsistency; to comply with Section 5.01 of the Indenture; to make any change that does not adversely affect the legal rights of any Holder; to comply with the requirements of the SEC to maintain qualification of the Indenture under the TIA; to add to or change the provisions of the Indenture to such extent as shall be necessary to permit or facilitate the issuance of Securities in bearer form, registrable or not registrable as to principal, and with or without interest coupons, or to permit or facilitate the issuance of Securities in uncertificated form; or to provide for the appointment of a successor Trustee with respect to one or more (but not all) series of Securities issued pursuant to the Indenture, as provided in Section 7.08 of the Indenture. 3. Remedies. As provided in and subject to the provisions of the Indenture, the Holder of this Security shall not have the right to institute any proceeding with respect to the Indenture or for the appointment of a receiver or trustee of for any other remedy thereunder, unless such Holder shall have previously given the Trustee written notice of a continuing Event of Default with respect to the Securities of this series, the Holders of not less than 25% in principal amount of the Securities of this series at the time Outstanding shall have made written request to the Trustee to institute proceedings in respect of such Event of Default as Trustee and offered the Trustee reasonable indemnity, and the Trustee shall not have received from the Holders of a majority in principal amount of Securities of this series at the time Outstanding a direction inconsistent with such request, and shall have failed to institute any such proceeding, for 60 days after receipt of such notice, request and offer of indemnity. The foregoing shall not apply to any suit instituted by the Holder of this Security for the enforcement of any payment of principal hereof or any premium or interest hereon on or after the respective due dates expressed herein. 4. Prepayment at Holder's Option Upon Certain Merger and Change of Control Events. In the event of a Change of Control or in the event of a merger where, immediately after giving effect to the merger, the surviving corporation does not meet the Consolidated Interest Coverage Ratio set forth in the Indenture, the Company shall be obligated to make an offer to purchase this Security at a purchase price in cash equal to 101% of its principal amount plus accrued interest, after the occurrence of such Change in Control or merger. Holders of Securities which are the subject of such an offer to repurchase shall receive an offer to repurchase and may elect to have such Securities repurchased in accordance with the provisions of the Indenture pursuant to and in accordance with the terms of the Indenture. The Company shall give the Holder of this Security notice of such right of repurchase not less than 20 nor more than 60 business days prior to the consummation of a merger, consolidation, transfer, sale or lease that would require the Company to offer to repurchase the Securities and not more than 45 business days following any other event constituting a Change of Control, mailed by first-class mail to the Holder's last address as it appears upon the register. The Holder shall have the right to have this Security repurchased if, among other things, the Security is tendered for repurchase no later than five business days prior to the applicable repurchase date. The Company shall have no obligation to consummate any merger, consolidation, transfer, sale or lease that is the subject of any such notice, and if any such merger, consolidation, transfer, sale or lease that was the subject of any notice described above is not consummated, the Holder will not be entitled to have this Security prepaid, and any Securities tendered for prepayment will be returned. 5. Trustee Dealings with the Company. IBJ WHITEHALL BANK & TRUST COMPANY, the Trustee under the Indenture, in its individual or any other capacity, may become the owner or pledgee of Securities and may otherwise deal with the Company or any Affiliate with the same rights it would have as if it were not the Trustee. 6. No Recourse Against Others. A director, officer, employee or stockholder, as such, of the Company shall not have any liability for any obligations of the Company under the Securities or the Indenture or for any claim based on, in respect of or by reason of such obligations or their creation. Each Holder by accepting a Security waives and releases all such liability. This waiver and release are part of the consideration for the issue of the Securities. 7. Unclaimed Money. If money for the payment of principal of or interest on any Security remains unclaimed for two years after the date on which such payment shall have come due, the Trustee or Paying Agent will pay the money back to the Company at the Company's written request. After that, Holders entitled to this money must look to the Company for payment, unless a law governing abandoned property designates another Person. 8. Discharge Upon Redemption or Maturity. Subject to the terms of the Indenture, the Indenture will be discharged and cancelled with respect to Securities of any series upon the payment of all Securities of such series. The Indenture contains provisions for defeasance at any time of certain restrictive covenants with respect to this Security (in each case upon compliance with certain conditions set forth therein). 9. Authentication. This Security shall not be valid until authenticated by the manual signature of the Trustee or an authenticating agent. 10. GOVERNING LAW. THE LAWS OF THE STATE OF NEW YORK SHALL GOVERN THIS SECURITY AND THE INDENTURE. 11. Abbreviations. Customary abbreviations may be used in the name of a Holder or an assignee, such as TEN COM (= tenants in common), TEN ENT (= tenants by the entireties), JT TEN (= joint tenants with right of survivorship and not as tenants in common), CUST (= Custodian), and UNIF GIFT MIN ACT (= Uniform Gifts to Minors Act). The Company will furnish to any Holder upon written request and without charge a copy of the Indenture, which has in it the text of this Security in larger type. Requests may be made to The Penn Traffic Company, 1200 State Fair Boulevard, Syracuse, New York 13221, Attention: ____________________. OPTION OF HOLDER TO ELECT REPURCHASE If you want to elect to have this Security purchased by the Company pursuant to Section 5.01 of the Indenture, check the box: ( Dated: _________________ Your signature: ________________________ _________________________________ (Sign exactly as name appears on the other side of this Security) Signature Guarantee:________________________ Signature must be guaranteed by an eligible guarantor institution within the meaning of Securities and Exchange Commission Rule 17Ad-15 (including banks, stock brokers, savings and loan associations, national securities exchanges, registered securities associations, clearing agencies and credit unions) with membership or participation in an approved signature guarantee medallion program if this Security is to be delivered other than to and in the name of the registered holder. ASSIGNMENT FORM To assign this Security, fill in the form below: I or we assign and transfer this Security to - -------------------------------------------------------------------------------- (Insert assignee's soc. sec. or tax I.D. no.) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- (Print or type assignee's name, address and zip code) and irrevocably appoint ____________________________________________ agent to transfer this Security on the books of the Company. The agent may substitute another to act for him. - -------------------------------------------------------------------------------- Dated:_________________ Your signature:_____________________________ ____________________________________________ (Sign exactly as your name appears on the other side of this Security) Signature Guarantee:___________________________ Signature must be guaranteed by an eligible guarantor institution within the meaning of Securities and Exchange Commission Rule 17Ad-15 (including banks, stock brokers, savings and loan associations, national securities exchanges, registered securities associations, clearing agencies and credit unions) with membership or participation in an approved signature guarantee medallion program if this Security is to be delivered other than to and in the name of the registered holder. EX-4 5 EXHIBIT T3E UNITED STATES BANKRUPTCY COURT DISTRICT OF DELAWARE In re: ) Chapter 11 ) THE PENN TRAFFIC COMPANY, et al., ) Case No. 99-462 (PJW) ) Debtors. ) Jointly Administered AMENDED DISCLOSURE STATEMENT ACCOMPANYING AMENDED JOINT PLAN OF REORGANIZATION OF THE PENN TRAFFIC COMPANY, DAIRY DELL, INC., BIG M SUPERMARKETS, INC. AND PENNY CURTISS BAKING COMPANY, INC. UNDER CHAPTER 11 OF THE BANKRUPTCY CODE PAUL, WEISS, RIFKIND, WHARTON & YOUNG CONAWAY STARGATT & GARRISON TAYLOR, LLP Alan W. Kornberg James L. Patton, Jr. Jeffrey D. Saferstein 1110 N. Market Street Brian S. Hermann P.O. Box 391 1285 Avenue of the Americas Rodney Square North, 11th Floor New York, New York 10019-6064 Wilmington, Delaware 19801 (212) 373-3000 (302) 571-6600 Dated: March 1, 1999, as amended April 2, 1999 ALL CREDITORS ARE ADVISED AND ENCOURAGED TO READ THIS DISCLOSURE STATEMENT AND THE PLAN IN THEIR ENTIRETY BEFORE VOTING TO ACCEPT OR REJECT THE PLAN. PLAN SUMMARIES AND STATEMENTS MADE IN THIS DISCLOSURE STATEMENT, INCLUDING THE FOLLOWING SUMMARY, ARE QUALIFIED IN THEIR ENTIRETY BY REFERENCE TO THE PLAN, OTHER EXHIBITS ANNEXED TO THE PLAN, THE PLAN SUPPLEMENT, AND THIS DISCLOSURE STATEMENT. THE STATEMENTS CONTAINED IN THIS DISCLOSURE STATEMENT ARE MADE ONLY AS OF THE DATE HEREOF UNLESS OTHERWISE SPECIFIED, AND THERE CAN BE NO ASSURANCE THAT THE STATEMENTS CONTAINED HEREIN WILL BE CORRECT AT ANY TIME AFTER SUCH DATE. ALL CREDITORS AND EQUITY INTEREST HOLDERS SHOULD READ CAREFULLY THE "RISK FACTORS" SECTION HEREOF BEFORE VOTING FOR OR AGAINST THE PLAN. SEE "CERTAIN RISK FACTORS" SECTION IX. THIS DISCLOSURE STATEMENT HAS BEEN PREPARED IN ACCORDANCE WITH SECTION 1125 OF THE BANKRUPTCY CODE AND RULE 3016 OF THE FEDERAL RULES OF BANKRUPTCY PROCEDURE AND NOT NECESSARILY IN ACCORDANCE WITH FEDERAL OR STATE SECURITIES LAWS OR OTHER APPLICABLE LAW. THIS DISCLOSURE STATEMENT HAS NEITHER BEEN APPROVED NOR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION (THE "SEC") NOR HAS THE SEC PASSED UPON THE ACCURACY OR ADEQUACY OF THE STATEMENTS CONTAINED HEREIN. PERSONS OR ENTITIES TRADING IN OR OTHERWISE PURCHASING, SELLING, OR TRANSFERRING SECURITIES OF THE DEBTORS SHOULD EVALUATE THIS DISCLOSURE STATEMENT AND THE PLAN IN LIGHT OF THE PURPOSES FOR WHICH THEY WERE PREPARED. CERTAIN STATEMENTS CONTAINED IN THIS DISCLOSURE STATEMENT, INCLUDING PROJECTED FINANCIAL INFORMATION AND OTHER FORWARD-LOOKING STATEMENTS, ARE BASED ON ESTIMATES AND ASSUMPTIONS. THERE CAN BE NO ASSURANCE THAT SUCH STATEMENTS WILL REFLECT ACTUAL OUTCOMES. THE INFORMATION IN THIS DISCLOSURE STATEMENT IS BEING PROVIDED SOLELY FOR PURPOSES OF VOTING TO ACCEPT OR REJECT THE PLAN. NOTHING IN THIS DISCLOSURE STATEMENT MAY BE USED BY ANY ENTITY FOR ANY OTHER PURPOSE. THE FACTUAL INFORMATION CONTAINED IN THIS DISCLOSURE STATEMENT, INCLUDING THE DESCRIPTION OF THE DEBTORS, THEIR BUSINESSES, AND EVENTS LEADING TO THE COMMENCEMENT OF THE CHAPTER 11 CASES, HAS BEEN OBTAINED FROM VARIOUS DOCUMENTS, AGREEMENTS, AND OTHER WRITINGS RELATING TO THE DEBTORS. NEITHER THE DEBTORS NOR ANY OTHER PARTY MAKES ANY REPRESENTATION OR WARRANTY REGARDING SUCH INFORMATION. (i) THE TERMS OF THE PLAN GOVERN IN THE EVENT OF ANY INCONSISTENCY WITH THE SUMMARIES IN THIS DISCLOSURE STATEMENT. ALL EXHIBITS TO THE DISCLOSURE STATEMENT ARE INCORPORATED INTO AND ARE A PART OF THIS DISCLOSURE STATEMENT AS IF SET FORTH IN FULL HEREIN. THE STATEMENTS CONTAINED IN THIS DISCLOSURE STATEMENT ARE MADE AS OF THE DATE HEREOF UNLESS OTHERWISE SPECIFIED. AS TO CONTESTED MATTERS, EXISTING LITIGATION INVOLVING THE DEBTORS, ADVERSARY PROCEEDINGS, AND OTHER ACTIONS OR THREATENED ACTIONS, THIS DISCLOSURE STATEMENT SHALL NOT CONSTITUTE OR BE CONSTRUED AS AN ADMISSION OF ANY FACT OR LIABILITY, STIPULATION, OR WAIVER, BUT RATHER AS A STATEMENT MADE WITHOUT PREJUDICE SOLELY FOR SETTLEMENT PURPOSES, WITH FULL RESERVATION OF RIGHTS, AND IS NOT TO BE USED FOR ANY LITIGATION PURPOSE WHATSOEVER. AS SUCH, THIS DISCLOSURE STATEMENT SHALL NOT BE ADMISSIBLE IN ANY NONBANKRUPTCY PROCEEDING INVOLVING THE DEBTORS, OR ANY OTHER PARTY IN INTEREST, NOR SHALL IT BE CONSTRUED TO BE CONCLUSIVE ADVICE ON THE TAX, SECURITIES, FINANCIAL OR OTHER EFFECTS OF THE REORGANIZATION AS TO HOLDERS OF CLAIMS AGAINST OR EQUITY INTERESTS IN THE DEBTORS. (ii) TABLE OF CONTENTS Page I. INTRODUCTION.....................................................1 A. HOLDERS OF CLAIMS AND EQUITY INTERESTS ENTITLED TO VOTE....................................................3 B. VOTING PROCEDURES..........................................4 C. CONFIRMATION HEARING.......................................5 II. OVERVIEW OF THE PLAN.............................................5 III. OVERVIEW OF CHAPTER 11...........................................8 IV. DESCRIPTION OF THE DEBTORS' BUSINESS.............................9 A. General....................................................9 B. Retail Food Distribution Business..........................9 C. Wholesale Food Distribution Business......................10 D. Food Processing Operations................................11 E. Purchasing and Distribution...............................11 F. Competition...............................................12 G. Employees.................................................12 H. Government Regulation.....................................12 I. History...................................................12 J. Properties................................................13 K. The Prepetition Loan Documents............................14 V. KEY EVENTS LEADING TO COMMENCEMENT OF THE CHAPTER 11 CASES............................................15 A. Decrease in Overall Store Performance and Operating Results...................................................15 B. Defaults under Indentures and Credit Agreement............16 C. Discussions with Financial Advisors, Regulatory Authorities and Informal Committee....................................17 D. Steps Taken to Strengthen The Debtors' Operations and Financial Performance.....................................18 VI. THE CHAPTER 11 CASES............................................20 A. Disclosure Statement/Plan Confirmation Hearings...........20 B. Significant "First Day" Motions During the Chapter 11 Cases.....................................................20 C. DIP Credit Facility.......................................20 D. Last Date to File Proofs of Claim.........................22 E. Assumption/Rejection of Leases Executory Contracts........22 F. The Official Committee of Unsecured Creditors.............22 VII. SUMMARY OF THE PLAN OF REORGANIZATION...........................23 A. Introduction..............................................23 i B. Classification and Treatment of Administrative Claims, Claims and Equity Interests Under the Plan................23 1 Unclassified -- Administrative Claims...............25 2 Unclassified -- Professional Compensation and Reimbursement Claims................................26 3 Unclassified -- Priority Tax Claims.................27 4 Class 1 -- Other Priority Claims....................28 5 Class 2 -- Other Secured Claim......................28 6 Class 3 -- DIP Financing Claims.....................29 7 Class 4 -- Trade Claims.............................29 8 Class 5 -- General Unsecured Claims.................30 9 Class 6 -- Senior Note Claims.......................30 10 Class 7 -- Senior Subordinated Note Claims..........31 11 Class 8 -- Equity Interests.........................32 C. Substantive Consolidation.................................33 D. Provisions Regarding Corporate Governance and Management of the Reorganized Debtors................................34 1 Directors and Officers of Reorganized Penn Traffic..34 (a) The Initial Board of Directors................34 (b) Management of Reorganized Penn Traffic........34 (c) Other Committees of the Board of Directors....35 2 Directors and Officers of Dairy Dell, Big M and Penny Curtiss.......................................35 3 Corporate Action....................................35 (a) Amended Penn Traffic Certificate of Incorporation and Amended Penn Traffic By-Laws.......................................35 (b) Amended Other Debtor Certificate of Incorporation and Amended Other Debtor By-Laws.......................................36 4 Securities to Be Issued Pursuant to the Plan........36 (a) New Common Stock..............................36 (b) New Senior Notes..............................37 (c) The New Warrants..............................39 E. Securities Laws Matters...................................40 F. Equity Incentive Plan.....................................40 1 Penn Traffic Company 1999 Equity Incentive Plan.....40 2 Description of 1999 Penn Traffic Company Equity Incentive Plan......................................40 G. New Management Agreement and Amendment to Joseph Fisher's Employment Agreement......................................42 H. Distributions Under the Plan..............................43 1 Method of Distribution Under the Plan...............43 (a) Date and Delivery of Distributions............43 (b) Distribution of Cash..........................44 (c) Distribution of Unclaimed Property............44 (d) Saturdays, Sundays, or Legal Holidays.........44 ii (e) Fractional Dollars and Fractional Shares and Warrants......................................44 (f) Distributions to Holders as of the Record Date..........................................45 2 Disputed Trade Claims and General Unsecured Claims..45 (a) Distributions Withheld For Disputed Trade Claims........................................45 (b) Distributions Withheld for Disputed General Unsecured Claims..............................46 I. Objections To And Resolution Of Administrative Claims and Claims; Administrative and Priority Claims Reserve........46 1 Objections To And Resolution of Administrative Claims and Claims...................................46 2 Administrative and Priority Claims Reserve..........47 (a) Establishment of Administrative Claims Reserve.......................................47 (b) Cash Held in Administrative and Priority Claims Reserve................................47 J. Allocation of Consideration...............................47 K. Cancellation and Surrender of Existing Securities and Agreements................................................48 L. Indenture Trustee Fees....................................48 M. Implementation of the Plan................................50 1 Registration Rights Agreement, New Notes Indenture, the Amended Penn Traffic Certificate of Incorporation, the Amended Penn Traffic By-Laws, the Amended Subsidiaries Certificates of Incorporation, the Amended Subsidiaries By- Laws, the New Management Agreement, the Equity Incentive Plan, the Warrant Agreement, the Supplemental Retirement Plan, the Amendment to Joseph V. Fisher's Employment Agreement and Other Implementation Documents...........................................50 2 The Debtors' Release................................50 3 Waiver of Claims; Covenant Not To Sue...............51 N. Effect of Confirmation of the Plan........................51 1 Continued Corporate Existence and Vesting of Assets in the Reorganized Debtors..........................51 2 Termination of Subordination Rights.................52 3 Discharge of the Debtors............................52 4 Injunction..........................................53 5 Preservation of Rights..............................53 6 Votes Solicited in Good Faith.......................54 7 Administrative Claims Incurred after the Confirmation Date...................................54 8 Exculpation and Release of Released Parties; Injunction..........................................54 9 Preservation of Insurance...........................55 10 Term of Bankruptcy Injunction or Stays..............55 11 Officers' and Directors' Indemnification Rights and Insurance...........................................55 12 Limitation of Governmental Release..................55 O. Retention of Jurisdiction.................................56 P. Miscellaneous Provisions..................................56 1 Payment of Statutory Fees...........................56 iii 2 Dissolution of Creditors Committee..................57 3 Modification of the Plan............................57 4 Governing Law.......................................57 5 Filing or Execution of Additional Documents.........57 6 Withholding and Reporting Requirements..............57 7 Exemption From Transfer Taxes.......................57 8 Section 1145 Exemption..............................58 9 Waiver of Federal Rule of Civil Procedure 62(a).....58 10 Plan Supplement.....................................58 Q. Executory Contracts and Unexpired Leases..................58 R. Benefit Plans.............................................59 S. Pension Plans.............................................60 VIII. PROJECTIONS AND VALUATION ANALYSIS..............................61 A. Projections...............................................61 B. Valuation.................................................63 IX. CERTAIN RISK FACTORS TO BE CONSIDERED...........................64 1 Projected Financial Information.....................65 2 Ability to Refinance Certain Indebtedness and Restrictions Imposed by Indebtedness................65 3 Competitive Conditions and Need to Fund Future Capital Requirements................................66 4 Significant Holders.................................66 5 Lack of Established Market for New Common Stock and Warrants............................................66 6 Lack of Trading Market for New Notes................67 7 Dividend Policies...................................67 8 Certain Bankruptcy Law Considerations...............67 (a) Risk of Non-Confirmation of the Plan..........67 (b) Risk of Non-Occurrence of the Effective Date..68 9 Certain Tax Matters.................................68 X. CONFIRMATION PROCEDURE..........................................68 A. Solicitation of Votes.....................................68 B. The Confirmation Hearing..................................69 C. Confirmation..............................................70 1 Acceptance..........................................70 2 Unfair Discrimination and Fair and Equitable Tests..70 (a) Secured Creditors.............................70 (b) Unsecured Creditors...........................70 (c) Equity Interests..............................71 3 Feasibility.........................................71 4 Best Interests Test.................................72 iv XI. EFFECTIVENESS OF THE PLAN.......................................74 A. Conditions Precedent to Effectiveness.....................74 B. Waiver of Conditions......................................74 C. Effect of Failure of Conditions...........................74 D. Vacatur of Confirmation Order.............................75 XII. SECURITIES LAWS MATTERS.........................................75 A. Bankruptcy Code Exemptions from Registration Requirements.75 1 Initial Offer and Sale of Plan Securities...........75 2 Subsequent Transfers of Plan Securities.............76 3 Certain Transactions by Stockbrokers................78 B. Registration Rights.......................................79 XIII. FINANCIAL INFORMATION...........................................79 A. Financial Statements......................................79 B. Management's Discussion and Analysis of Financial Condition and Results of Operations.......................80 C. Recent Performance........................................80 XIV. ALTERNATIVES TO CONFIRMATION AND CONSUMMATION OF THE PLAN........................................................80 A. Liquidation Under Chapter 7...............................80 B. Alternative Plan of Reorganization........................81 XV. CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE PLAN.............81 A. Consequences to Creditors.................................82 1 Tax Securities......................................82 2 Claims and Consideration Constituting Tax Securities..........................................83 3 Claims or Consideration Not Constituting Tax Securities..........................................83 4 Application of OID Rules............................85 B. Consequences to the Debtors...............................86 1 Cancellation of Debt................................86 2 Applicable High-Yield Discount Obligations..........86 3 Alternative Minimum Tax.............................87 C. Additional Tax Considerations for All Claim Holders.......87 1 Distributions in Discharge of Accrued Interest......87 2 Subsequent Sale of New Senior Notes, New Common Stock, or New Warrants..............................88 3 Market Discount.....................................88 4 Withholding ........................................89 XVI. CONCLUSION......................................................90 v I. INTRODUCTION On March 1, 1999 (the "Petition Date"), The Penn Traffic Company ("Penn Traffic" or the "Company"), Dairy Dell, Inc. ("Dairy Dell"), Big M Supermarkets, Inc. ("Big M") and Penny Curtis Baking Company, Inc. ("Penny Curtis", together with Penn Traffic, Dairy Dell and Big M, the "Debtors") filed petitions for relief under chapter 11 of the Bankruptcy Code with the United States Bankruptcy Court for the District of Delaware. On the same day, the Debtors also filed their proposed plan of reorganization, dated March 1, 1999 (as it may be amended, modified, or supplemented, the "Plan") which sets forth the manner in which Claims against and Equity Interests in the Debtors will be treated. This Disclosure Statement describes certain aspects of the Plan, the Debtors' businesses and related matters. Unless otherwise defined herein, all capitalized terms contained herein have the meanings ascribed to them in the Plan. After a long and careful review of the Debtors' businesses and the Debtors' prospects as going concerns, the Debtors, in consultation with their legal and financial advisors and an informal committee of certain major holders of Penn Traffic's debt securities that was formed prior to the Petition Date (the "Informal Committee") and the Informal Committee's legal and financial advisors, concluded that recoveries to creditors and equity holders would be maximized by the Debtors' continued operation as a going concern under the terms of the Plan. In other words, the Debtors are worth more to their creditors and equity holders as a going concern than they would be upon liquidation. To achieve that higher value, the Plan (if approved by all impaired Classes) contemplates (i) paying the Claims of all general unsecured creditors in full, (ii) distributing $100 million of new senior notes and 19,000,000 shares of New Common Stock to holders of Penn Traffic's Senior Notes, (iii) distributing 1,000,000 shares of New Common Stock and 6-year warrants to purchase an additional 1,000,000 shares of New Common Stock, having an exercise price of $18.30 per share, to the holders of Penn Traffic's Senior Subordinated Notes, and (iv) converting each 100 shares of Penn Traffic's common stock outstanding on the Petition Date into 1 share of New Common Stock. This Disclosure Statement is submitted pursuant to section 1125 of the Bankruptcy Code to holders of Claims against and Equity Interests in the Debtors in connection with (i) the solicitation of acceptances of the Debtors' Plan and (ii) the hearing to consider confirmation of the Plan (the "Confirmation Hearing") scheduled for May 27, 1999, at 9:30 a.m., Eastern Time. 1 Attached as Exhibits to this Disclosure Statement are copies of the following: o The Plan (Exhibit A); o An Order of the Court dated April 5, 1999 (the "Disclosure Statement Order"), among other things, approving the Disclosure Statement and establishing certain procedures with respect to the solicitation and tabulation of votes to accept or reject the Plan (Exhibit B); o The Penn Traffic Company, et al. 1998 Form 10-K and Annual Report (Exhibit C); o The Penn Traffic Company, et al. Projected Financial Information (Exhibit D); o The Penn Traffic Company, et al. Liquidation Analysis (Exhibit E); o The Penn Traffic Company, et al. Organizational Chart (Exhibit F); and o The Penn Traffic Company, et al. October 31, 1998 Form 10-Q (Exhibit G). o The Penn Traffic Company, et al. Recovery Analysis (Exhibit H). o The Penn Traffic Company, et al. Fourth Quarter Fiscal 1999 Earnings Press Release dated April 1, 1999 (Exhibit I). In addition, a Ballot for the acceptance or rejection of the Plan is enclosed with the Disclosure Statement submitted to the holders of Claims and Equity Interests that the Debtors believe are entitled to vote to accept or reject the Plan. On April 5, 1999, after notice and a hearing, the Bankruptcy Court signed the Disclosure Statement Order approving this Disclosure Statement as containing adequate information of a kind and in sufficient detail to enable hypothetical, reasonable investors typical of the Debtors' creditors and equity interest holders to make an informed judgment whether to accept or reject the Plan. APPROVAL OF THIS DISCLOSURE STATEMENT DOES NOT, HOWEVER, CONSTITUTE A DETERMINATION BY THE COURT AS TO THE FAIRNESS OR MERITS OF THE PLAN. 2 The Disclosure Statement Order, a copy of which is annexed hereto as Exhibit B, sets forth in detail the deadlines, procedures and instructions for voting to accept or reject the Plan and for filing objections to confirmation of the Plan, the record date for voting purposes, and the applicable standards for tabulating Ballots. In addition, detailed voting instructions accompany each Ballot. Each holder of a Claim or an Equity Interest entitled to vote on the Plan should read in their entirety the Disclosure Statement, the Plan, the Disclosure Statement Order and the instructions accompanying the Ballots before voting on the Plan. These documents contain, among other things, important information concerning the classification of Claims and Equity Interests for voting purposes and the tabulation of votes. No solicitation of votes to accept the Plan may be made except pursuant to section 1125 of the Bankruptcy Code. A. HOLDERS OF CLAIMS AND EQUITY INTERESTS ENTITLED TO VOTE. Pursuant to the provisions of the Bankruptcy Code, only holders of allowed claims or equity interests in classes of claims or equity interests that are impaired are entitled to vote to accept or reject a proposed chapter 11 plan. Classes of claims or equity interests in which the holders of claims or equity interests are unimpaired under a chapter 11 plan are deemed to have accepted the plan and are not entitled to vote to accept or reject the plan. Classes 5 (General Unsecured Claims), 6 (Senior Note Claims), 7 (Senior Subordinated Note Claims) and 8 (Equity Interests) of the Plan are impaired. To the extent Claims and Equity Interests in such Classes are Allowed Claims and Allowed Equity Interests, the holders of such Claims and Equity Interests are entitled to vote to accept or reject the Plan. Classes 1, 2, 3 and 4 of the Plan are unimpaired. Holders of Claims in Classes 1, 2, 3 and 4 are conclusively deemed to have accepted the Plan. Therefore, the Debtors are soliciting acceptances only from holders of Allowed Claims and Allowed Equity Interests in Classes 5, 6, 7 and 8. The Bankruptcy Code defines "acceptance" of a plan by a class of claims as acceptance by creditors in that class that hold at least two-thirds in dollar amount and more than one-half in number of the claims that cast ballots for acceptance or rejection of the plan. Acceptance of a plan by a class of equity interests requires acceptance by at least two-thirds of the number of shares in such class that cast ballots for acceptance or rejection of the plan. For a more detailed description of the requirements for confirmation of the Plan, see Section X. "Confirmation Procedure." If one or more of the Classes of Claims or Equity Interests entitled to vote on the Plan votes to reject the Plan, the Debtors intend to request confirmation of the Plan pursuant to section 1129(b) of the Bankruptcy Code. Section 1129(b) permits the confirmation of a plan of reorganization notwithstanding the 3 nonacceptance of a plan by one or more impaired classes of claims or equity interests. Under that section, a plan may be confirmed by a bankruptcy court if it does not "discriminate unfairly" and is "fair and equitable" with respect to each nonaccepting class. The determination as to whether to seek confirmation of the Plan under such circumstances will be announced before or at the Confirmation Hearing. For a more detailed description of the requirements for confirmation of a nonconsensual plan, see Section X.C "Confirmation Procedure" and "Unfair Discrimination and Fair and Equitable Tests." B. VOTING PROCEDURES. If you are entitled to vote to accept or reject the Plan, a Ballot is enclosed for the purpose of voting on the Plan. If you hold Claims in more than one class, or Claims and Equity Interests, and you are entitled to vote Claims in more than one Class, you will receive separate Ballots which must be used for each separate Class of Claims or Equity Interests. Please vote and return your Ballot(s) to: Donlin, Recano & Co., Inc. P.O. Box 2034 Murray Hill Station New York, New York 10156-0701 Attn: The Penn Traffic Company Ballot Tabulation DO NOT RETURN YOUR NOTES OR SECURITIES WITH YOUR BALLOT. TO BE COUNTED, YOUR BALLOT INDICATING ACCEPTANCE OR REJECTION OF THE PLAN MUST BE RECEIVED NO LATER THAN 5:00 P.M., EASTERN STANDARD TIME, ON May 21, 1999. ANY EXECUTED BALLOT RECEIVED THAT DOES NOT INDICATE EITHER AN ACCEPTANCE OR REJECTION OF THE PLAN SHALL BE DEEMED TO CONSTITUTE AN ACCEPTANCE OF THE PLAN. Any Claim or Equity Interest in an impaired Class as to which an objection or request for estimation is pending or which is scheduled by the Debtors as unliquidated, disputed or contingent is not entitled to vote unless the holder of such Claim or Equity Interest has obtained an order of the Court temporarily allowing such Claim or Equity Interest for the purpose of voting on the Plan. Pursuant to the Disclosure Statement Order, the Court set April 5, 1999 as the record date for voting on the Plan. Accordingly, only holders of record as of April 5, 1999 that are otherwise entitled to vote under the Plan will receive a Ballot and may vote on the Plan. 4 If you are a holder of a Claim or Equity Interest entitled to vote on the Plan and did not receive a Ballot, received a damaged Ballot or lost your Ballot, or if you have any questions concerning the Disclosure Statement, the Plan or the procedures for voting on the Plan, please call Donlin, Recano & Co., Inc. at (212) 481-1411 from 10:00 a.m. to 4:00 p.m. Monday through Friday. C. CONFIRMATION HEARING. Pursuant to section 1128 of the Bankruptcy Code, the Confirmation Hearing will be held on May 27, 1999 at 9:30 a.m., Eastern Time, before the Honorable Peter J. Walsh, United States Bankruptcy Court, 824 North Market Street, Wilmington, Delaware. The Court has directed that objections, if any, to confirmation of the Plan be served and filed so that they are received on or before May 21, 1999 at 4:00 p.m., Eastern Time, in the manner described below in Section X.B "The Confirmation Hearing." The Confirmation Hearing may be adjourned from time to time by the Court without further notice except for the announcement of the adjournment date made at the Confirmation Hearing or at any subsequent adjourned Confirmation Hearing. THE DEBTORS BELIEVE THAT THE PLAN WILL ENABLE THEM TO SUCCESSFULLY REORGANIZE AND TO ACCOMPLISH THE OBJECTIVES OF CHAPTER 11 AND THAT ACCEPTANCE OF THE PLAN IS IN THE BEST INTERESTS OF THE DEBTORS AND THEIR CREDITORS AND EQUITY INTEREST HOLDERS. THE DEBTORS URGE CREDITORS AND EQUITY INTEREST HOLDERS TO VOTE TO ACCEPT THE PLAN. AS DESCRIBED IN THE ENCLOSED LETTER, THE OFFICIAL COMMITTEE OF UNSECURED CREDITORS APPOINTED IN THE DEBTORS' CHAPTER 11 CASES SUPPORTS THE PLAN AND RECOMMENDS THAT UNSECURED CREDITORS VOTE TO ACCEPT THE PLAN. II. OVERVIEW OF THE PLAN The following table briefly summarizes the classification and treatment of Claims and Equity Interests under the Plan. 5 SUMMARY OF CLASSIFICATION AND TREATMENT OF CLAIMS AND EQUITY INTERESTS UNDER THE PLAN 1/
Type of Claim or Estimated Estimated Class Equity Interest Treatment Claim Amount Recovery - ----- ---------------- --------- ------------ --------- - -- Administrative Unimpaired; paid in full, in Cash, or $9mm 2/ 100% Claims in accordance with the terms and conditions of transactions or agreements relating to obligations incurred in the ordinary course of business during the pendency of the Chapter 11 Cases or assumed by the Debtors in Possession. - -- Priority Tax Claims Unimpaired; at the option of the $0.00 100% Debtors either (i) paid in full, in Cash, or (ii) paid over a six-year period from the date of assessment as provided in section 1129(a)(9)(C) of the Bankruptcy Code with interest payable at the rate of 8 1/4% per annum. 1 Other Priority Unimpaired; paid in full, in Cash. $0.00 100% Claims
- -------- 1/ This table is only a summary of the classification and treatment of Claims and Equity Interests under the Plan. All amounts set forth in this table are in millions of dollars. Reference should be made to the entire Disclosure Statement and the Plan for a complete description of the classification and treatment of Claims and Equity Interests. 2/ This amount excludes claims of entities against the Debtors for (i) goods provided after the Petition Date by such entities to the Debtors for resale to the general public in the ordinary course of business, and (ii) goods (not resold to the general public) and services provided to the Debtors in the ordinary course of the Debtors' businesses. These claims are being paid in the ordinary course of business. 6
Type of Claim or Estimated Estimated Class Equity Interest Treatment Claim Amount Recovery - ----- ---------------- --------- ------------ --------- 2 Other Secured Claims Unimpaired; at the option of the $30mm 100% Debtors either (i) reinstated by curing all outstanding defaults with all legal, equitable and contractual rights remaining unaltered, (ii) paid in full, in Cash, plus any interest required to be paid pursuant to section 506(b) of the Bankruptcy Code, or (iii) fully and completely satisfied by delivery or retention of the collateral securing the Other Secured Claim and payment of any interest required to be paid pursuant to section 506(b) of the Bankruptcy Code. 3 DIP Financing Unimpaired; paid in full, in Cash. $183mm 100% Claims 4 Trade Claims 3/ Unimpaired; to the extent not paid in N/A 100% the ordinary course of business, all legal, equitable and contractual rights will remain unaltered by the Plan. 5 General Unsecured Impaired; at the option of the Debtors $20mm 100% Claims either (i) paid in full in Cash, or (ii) reinstated by curing all outstanding defaults with all legal, equitable and contractual rights remaining unaltered. 6 Senior Note Claims Impaired; distribution of $100 million $768.5mm 59% 4/ of New Senior Notes and 19,000,000 shares of Reorganized Penn Traffic's New Common Stock.
- -------- 3/ A Claim of an entity against the Debtors for (i) goods provided prior to the Petition Date by such entity to the Debtors for resale to the general public in the ordinary course of business; provided, however, that such entity has continued to provide goods to the Debtors before and after the Petition Date on customary terms and credit, or as otherwise acceptable to the Debtors and (ii) goods (not resold to the general public) and services provided to the Debtors in the ordinary course of the Debtors' businesses. 4/ For an analysis of the estimated recovery, see Recovery Analysis attached as Exhibit H. 7
Type of Claim or Estimated Estimated Class Equity Interest Treatment Claim Amount Recovery - ----- ---------------- --------- ------------ --------- 7 Senior Subordinated Impaired; distribution of 1,000,000 $414.4mm 6% 5/ Claim shares of Reorganized Penn Traffic's New Common Stock and 6-year warrants to purchase 1,000,000 shares of New Common Stock, having an exercise price of $18.30 per share. 8 Equity Interests Impaired; distribution of 1 share of N/A $2mm 5/ Reorganized Penn Traffic's New Common Stock for each 100 shares of Penn Traffic common stock held on the Record Date.
III. OVERVIEW OF CHAPTER 11 Chapter 11 is the principal business reorganization chapter of the Bankruptcy Code. Under chapter 11, a debtor is authorized to reorganize its business for the benefit of itself, its creditors and equity interest holders. In addition to permitting rehabilitation of a debtor, another goal of chapter 11 is to promote equality of treatment for similarly situated creditors and equity interest holders with respect to the distribution of a debtor's assets. The commencement of a chapter 11 case creates an estate that is comprised of all of the legal and equitable interests of the debtor as of the filing date. The Bankruptcy Code provides that the debtor may continue to operate its business and remain in possession of its property as a "debtor in possession." The consummation of a plan of reorganization is the principal objective of a chapter 11 reorganization case. A plan of reorganization sets forth the means for satisfying claims against and interests in the debtor. Confirmation of a plan of reorganization by the bankruptcy court makes the plan binding upon a debtor, any issuer of securities under the plan, any person acquiring property under the plan and any creditor or equity interest holder of a debtor. Subject to certain limited - -------- 5/ For an analysis of the estimated recovery, see Recovery Analysis attached as Exhibit H. 8 exceptions, the confirmation order discharges a debtor from any debt that arose prior to the date of confirmation of the plan and substitutes therefor the obligations specified under the confirmed plan. After a plan of reorganization has been filed, the holders of claims against or interests in a debtor are permitted to vote to accept or reject the plan. Before soliciting acceptances of the proposed plan, however, section 1125 of the Bankruptcy Code requires a debtor to prepare a disclosure statement containing adequate information of a kind, and in sufficient detail, to enable a hypothetical reasonable investor to make an informed judgment about the plan. The Debtors are submitting this Disclosure Statement to holders of Claims against and Equity Interests in the Debtors to satisfy the requirements of section 1125 of the Bankruptcy Code. IV. DESCRIPTION OF THE DEBTORS' BUSINESSES A. GENERAL Penn Traffic is one of the leading food retailers in the eastern United States. As of April 1, 1999, Penn Traffic operated 216 supermarkets in upstate New York, Pennsylvania, Ohio and northern West Virginia under the "Big Bear" and "Big Bear Plus" (74 stores), "Bi-Lo Foods" (43 stores), "P&C Foods" (63 stores) and "Quality Markets" (36 stores) trade names. Penn Traffic also operates wholesale food distribution businesses serving, as of April 1, 1999, 95 licensed franchisees and 81 independent operators. As of the Petition Date, the majority of Penn Traffic's retail supermarket revenues were generated 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 retail supermarket revenues are derived from Columbus, Ohio and Buffalo and Syracuse, 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 primarily on manufacturing and distribution, natural resources, retailing, health care services, education and government services. B. RETAIL FOOD DISTRIBUTION BUSINESS Penn Traffic is one of the leading supermarket retailers in its primary operating areas which include New York, Ohio and western Pennsylvania. To strengthen Penn Traffic financially, since the middle of last year the Company has undertaken a program to divest itself of certain marketing areas, principally in northeastern Pennsylvania where performance and market position were the weakest 9 relative to Penn Traffic's other retail stores, and to close other underperforming stores. This rationalization process has allowed management to focus the Company's market and distribution resources on a less geographically diverse store base located in upstate New York, Ohio, western Pennsylvania and northern West Virginia. Penn Traffic's store sizes and formats vary widely, depending upon the demographic and competitive conditions in each location. For example, "conventional" store formats are generally more appropriate in areas of low population density, while larger areas are better served by full-service supermarkets of up to 75,000 square feet, which contain numerous specialty service departments such as bakeries, delicatessens, floral departments and fresh seafood departments. Penn Traffic's "Plus" format stores range in size from 75,000 to 140,000 square feet. These full service supermarkets carry an expanded variety of nonfood merchandise. Penn Traffic has recently commenced a process to refine the scope of this nonfood merchandise to a smaller number of categories with a greater depth of variety in these categories. Penn Traffic's supermarkets offer a broad selection of grocery, meat, poultry, seafood, dairy, fresh produce, delicatessen, bakery and frozen food products. The stores also offer nonfood products and services such as health and beauty products, housewares, general merchandise, floral items and banking services. In general, Penn Traffic's larger stores carry broader selections of merchandise and feature a larger variety of service departments. Most of the Company's supermarkets are located in shopping centers. The Company believes that its existing store base is generally modern and provides an attractive shopping experience for Penn Traffic customers. C. WHOLESALE FOOD DISTRIBUTION BUSINESS As of April 1, 1999, Penn Traffic licensed, royalty-free, the use of its "Riverside," "Bi-Lo Foods" and "Big M" names to 95 independently-owned supermarkets that are required to maintain certain quality and other standards. The majority of these independent stores use Penn Traffic as their primary wholesaler and also receive advertising, accounting, merchandising, consulting and retail counseling services from Penn Traffic. In addition, as of April 1, 1999, Penn Traffic received rent from 47 of the licensed independent operators which lease or sublease their supermarkets from Penn Traffic. The Company also acts as a food distributor to 81 other independent supermarkets. Penn Traffic believes that it is able to leverage its existing food supply and distribution systems by supplying these retail stores owned and operated by third parties that are geographically proximate to its own existing store base. Penn Traffic intends to assume substantially all of the executory contracts and leases with respect to its wholesale food distribution business. Penn Traffic does not believe that there will be any cure amounts owed upon the assumption of such contracts and leases. 10 D. FOOD PROCESSING OPERATIONS Penn Traffic owns and operates Penny Curtiss, a bakery processing plant in Syracuse, New York. Penny Curtiss manufactures and distributes fresh and frozen bakery products for distribution to Penn Traffic's stores as well as to unrelated third parties. E. PURCHASING AND DISTRIBUTION Penn Traffic is a large volume purchaser of products. Penn Traffic's purchases are generally of sufficient volume to qualify for minimum price brackets for most items. Penn Traffic purchases brand name grocery merchandise directly from national manufacturers. The Company also purchases private label products and certain other grocery items from TOPCO Associates, Inc., a national products purchasing cooperative comprising approximately 30 regional supermarket chains. Prior to the Petition Date, certain of Penn Traffic's suppliers had reduced credit limits to Penn Traffic which has reduced Penn Traffic's ability to supply its stores with a full variety of products or earn promotional discounts on certain products. Penn Traffic's principal Pennsylvania distribution facility is a company-owned 390,000 square foot distribution center in DuBois, Pennsylvania. Penn Traffic also operates a 196,000 square foot distribution center for perishable products in DuBois, and Penn Traffic leases a 70,000 square foot warehouse in DuBois, for grocery products, certain store supplies and aerosol products. The principal New York distribution facilities are a company-owned 498,000 square foot distribution center in Syracuse, New York and a company-owned 267,000 square foot distribution center in Jamestown, New York. The Company also owns a 217,000 square foot distribution center for perishable products in Syracuse. The Company's primary Ohio distribution center is a leased 484,000 square foot dry grocery facility in Columbus, Ohio. Penn Traffic also owns a 208,000 square foot distribution facility for perishable goods in Columbus and leases two additional warehouses totaling 430,000 square feet, in Columbus for distribution of general merchandise and health and beauty care items to all Penn Traffic stores. Approximately three-quarters of the merchandise offered in Penn Traffic's retail stores is distributed from its warehouses by its fleet of tractors, refrigerated trailers and dry trailers. Merchandise not delivered from Penn Traffic's warehouses is delivered directly to the stores by manufacturers, distributors, vendor drivers and sales representatives for such products as beverages, snack foods and bakery items. 11 F. COMPETITION The food retailing business is highly competitive and may be affected by general economic conditions. The number of competitors and the degree of competition experienced by Penn Traffic's supermarkets vary by location. Penn Traffic competes with several multi-regional, 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 drug store chains, discount general merchandise chains, "supercenters" (combination supermarket and general merchandise stores) and other retailers. G. EMPLOYEES Labor costs and their impact on product prices are important competitive factors in the supermarket industry. As of the Petition Date, approximately 55% of Penn Traffic's hourly employees belonged to the United Food and Commercial Workers Union. An additional 7% of Penn Traffic's hourly employees (principally employed in the distribution function and in the Company's bakery plant) belonged to four other unions. The Company competes with certain independently-owned and chain-owned supermarkets, discount drug stores, warehouse clubs, general merchandise stores, convenience stores, supercenters, and other retailers whose employees are not union affiliated. Penn Traffic intends to assume its collective bargaining agreements and does not believe that there will be any cure amounts owed upon such assumption. H. GOVERNMENT REGULATION Penn Traffic's food and drug business requires it to hold various licenses and to register certain of its facilities with state and federal health, drug and alcoholic beverage regulatory agencies. By virtue of these licenses and registration requirements, Penn Traffic is obligated to observe certain rules and regulations, and a violation of such rules and regulations could result in a suspension or revocation of licenses or registrations. In addition, most of Penn Traffic's licenses require periodic renewals. Penn Traffic has experienced no material difficulties with respect to obtaining, effecting or retaining its licenses and registrations. I. HISTORY Penn Traffic is the successor to a retail business which dates back to 1854. Penn Traffic, then a publicly-held corporation, was acquired in March 1987 by Riverside Acquisition Company, Limited Partnership ("RAC"), a Delaware limited partnership. At the time of the acquisition, Penn Traffic was the largest retail and wholesale food distribution company in its principal operating area, comprising 19 12 counties in central and northwestern Pennsylvania and southwestern New York. In 1988, Penn Traffic again became a publicly held corporation. In August 1988, Penn Traffic acquired P&C Food Markets, Inc. ("P&C"), which operated a retail and wholesale grocery business in a contiguous market to the east of Penn Traffic's historical marketplace. In October 1991, P&C became a wholly-owned subsidiary of the Company, and in April 1993, P&C was merged into the Company. In April 1989, Penn Traffic acquired Big Bear Stores Company ("Big Bear"), a leading food retailer in Ohio and a portion of West Virginia. In April 1993, Big Bear was merged into the Company. In January 1993, Penn Traffic acquired a number of supermarkets located in western New York and northwestern Pennsylvania from Peter J. Schmitt Co., Inc. certain of which are being operated, as of the Petition Date, by the Company under the "Quality Markets" trade name. In September 1993, Penn Traffic acquired certain supermarkets from Insalaco Supermarkets, Inc. in northeastern Pennsylvania. In addition, in January 1995, Penn Traffic acquired certain supermarkets owned by American Stores Company which had operated under the "Acme" trade name. As described in Section IV.B. above, Penn Traffic has now divested itself or closed most of these stores. The remaining stores operate under the "Bi-Lo Foods" and "P&C Foods" trade names. In January 1998, Penn Traffic sold Sani-Dairy, its dairy manufacturing operation. Concurrent with the completion of the transaction, the Company entered into a 10-year supply agreement with the acquirer for the purchase of products that were supplied by Sani-Diary and two other dairies. These transactions were arms-length with third parties who were not insiders of the Company. J. PROPERTIES Penn Traffic follows the general industry practice of leasing the majority of its retail supermarket locations. As of April 1, 1999, Penn Traffic owned 38 and leased 178 of the supermarkets that it operates. The owned supermarkets range in size from 4,300 to 123,000 square feet. The leased supermarkets range in size from 8,100 to 140,000 square feet and are held under leases expiring from 1999 to 2018, excluding option periods. As of April 1, 1999, Penn Traffic owned or leased 47 supermarkets which are leased or subleased to independent operators. As of the Petition Date, Penn Traffic also owned six shopping centers, five of which contain one of the company-owned or licensed supermarkets. As of the Petition Date, Penn Traffic also operated distribution centers in DuBois, Pennsylvania; Syracuse and Jamestown, New York; and Columbus, Ohio; and a 13 bakery plant in Syracuse, New York. As of the Petition Date, Penn Traffic also owned a fleet of trucks and trailers, fixtures and equipment utilized in its business and certain miscellaneous real estate. K. THE PREPETITION LOAN DOCUMENTS Prior to the Petition Date, the Debtors had entered into a Loan and Security Agreement dated as of March 5, 1993 (the "Prepetition Loan Agreement") with the lenders identified therein (the "Prepetition Lenders") and Fleet Bank, N.A. (as successor to NatWest USA Credit Corp.) ("Fleet"), as agent (the "Prepetition Agent"), pursuant to which the Prepetition Lenders made available to the Debtors a secured revolving credit facility in an aggregate amount not to exceed $250,000,000, with a sublimit for letters of credit in the aggregate amount of $60,000,000. Credit availability under the Prepetition Loan Agreement was determined by reference to a specified percentage of eligible receivables and inventory, less certain reserves, all as set forth in a borrowing base certificate delivered by the Debtors to the Prepetition Agent on a periodic basis. The obligations under the Prepetition Loan Agreement were secured by a pledge of the Company's inventory, accounts receivable and related assets. As of the Petition Date, the Debtors were indebted to the Prepetition Lenders and the Prepetition Agent under the Prepetition Loan Agreement in the aggregate principal amount as of February 26, 1999 of approximately $116 million, together with all accrued, but unpaid, interest, fees and expenses, including attorneys' fees, in respect thereof. In addition, as of the Petition Date, letters of credit having an aggregate face amount equal to approximately $46 million remained issued and outstanding under the Prepetition Loan Agreement. Before the Petition Date, Penn Traffic also executed and delivered to Fleet a Term Note dated October 25, 1993 (the "Term Note") in the principal amount of $15,000,000, which Term Note evidences term loans made to Penn Traffic in like amount. As of the Petition Date, the principal amount of $9,000,000, together with interest thereon, remained outstanding. Pursuant to the terms of that certain First Mortgage, Security Agreement, Financing Statement and Assignment of Leases and Rents (the "Mortgage") by and among Penn Traffic, as mortgagor, the Onondaga County Industrial Development Agency (the "Agency;" together with Penn Traffic, the "Mortgagors"), as co-mortgagor, and Fleet, as mortgagee, Penn Traffic's Obligations under the Term Note were secured by the Mortgagors' respective interests in certain real property located in the Town of Van Buren in the State of New York on which Penn Traffic operates a distribution center. 14 V. KEY EVENTS LEADING TO COMMENCEMENT OF THE CHAPTER 11 CASES A. DECREASE IN OVERALL STORE PERFORMANCE AND OPERATING RESULTS As described above under the caption "Description of the Business," over the last ten (10) years Penn Traffic acquired a number of supermarkets and invested significantly in its store base and distribution facilities. These acquisitions and investments were financed in part through the issuance of Senior Notes and Senior Subordinated Notes. As a result, as of the Petition Date, Penn Traffic had approximately $1.13 billion of Senior Notes and Senior Subordinated Notes outstanding that required approximately $113 million of debt service for the fiscal year ending January 29, 2000 ("Fiscal 2000"). The Company's high degree of leverage and the cash required to satisfy its debt service obligations and capital expenditure and working capital needs meant Penn Traffic could not effectively operate and service its debt obligations if its earnings before interest, taxes, depreciation and amortization, LIFO provision and unusual and extraordinary items ("EBITDA") declined significantly over an extended period. Penn Traffic experienced declines in revenues, EBITDA and operating income during the fiscal year ended January 31, 1998 ("Fiscal 1998") and incurred significantly greater declines during the fiscal year ended January 30, 1999 ("Fiscal 1999"). For the nine months ended October 31, 1998, same store sales declined 4.1% from the comparable period in the preceding year. For the three and nine months ended October 31,1998, EBITDA declined 58.7% and 39.5%, respectively. Penn Traffic believes that these significant declines were due primarily to changes in the Company's merchandising, marketing and service strategies that were implemented during the second half of the fiscal year ended January 31, 1998 and continued through the first half of the fiscal year ended January 30, 1999. Generally, the changes implemented during Fiscal 1998 involved the attempted repositioning of the Company's stores from a traditional high/low format with a reputation for high service and quality to a less promotional, lower price operation. To offset the reductions in gross margins, the Company reduced store payrolls and to some extent variety and quality. For example, the Company had traditionally offered choice beef exclusively in its stores. As part of the changes the Company began offering lower quality select beef at a lower price. Similarly, the Company had many service seafood departments that were closed or whose hours were curtailed in order to save payroll costs. Also, the Company's ad format was changed from an 8-page broadsheet circular with extensive presentations of perishable items, to a 4-page tabloid format with fewer items. These changes were in part implemented to lower advertising costs. 15 These operational changes, which began during the third quarter of calendar 1997, were not well received by Penn Traffic's customers. In particular sales in the Company's Big Bear (Ohio and West Virginia) and eastern Pennsylvania Bi-Lo stores, were disproportionately affected due to these stores historical reputation of high quality and high service. Ultimately, as of the third quarter of Fiscal 1999, operating performance was not improving and with interest payments on its Senior Notes coming due, the Company's liquidity became a concern. B. DEFAULTS UNDER INDENTURES AND CREDIT AGREEMENT Penn Traffic's worsening financial performance began to affect its continuing compliance with its existing Credit Facility and the indentures on its Senior Notes during the fiscal year ended January 30, 1999. For example, the Company would not have been in compliance with certain financial covenants set forth in its existing Credit Facility for the quarter ended August 1, 1998, but for a Waiver and Amendment given by the lenders under the existing Credit Facility that waived compliance with such financial covenants through April 1, 1999. In a move designed to preserve capital and maintain flexibility while it considered its restructuring alternatives and in light of the restructuring process which was under way with holders of Senior Notes and Senior Subordinated Notes, Penn Traffic decided not to make its scheduled debt service payments on its (i) 85/8% Senior Notes on December 15, 1998 or (ii) 10 1/4% Senior Notes on February 15, 1999. The failure to make the scheduled interest payments constituted payment defaults under the indentures relating to such notes which became (due to a lapse of the grace period) an event of default under the indenture for the 85/8% Senior Notes on December 30, 1998, and would, but for the filing of these cases, have become an event of default under the indenture for the 10 1/4% Senior Notes on March 2, 1999. In addition, the failure to make the December 15 interest payment on December 30 would have resulted in an event of default under the existing Credit Facility had the Company not obtained an additional waiver from the lenders under such Facility. These waivers enabled Penn Traffic to continue borrowing through the Petition Date. The holders of the 85/8% Senior Notes, but for the Chapter 11 Cases, would have been able to declare the outstanding principal amount thereof, together with accrued and unpaid interest thereon, to be due and payable immediately, which would have triggered a cross-default and acceleration right in respect of substantially all of the Company's indebtedness. If such indebtedness had been accelerated, Penn Traffic would not have had the ability to repay such indebtedness and would have been forced to seek protection from creditors under chapter 11 of the Bankruptcy Code. 16 C. DISCUSSIONS WITH FINANCIAL ADVISORS, REGULATORY AUTHORITIES AND INFORMAL COMMITTEE In response to Penn Traffic's liquidity concerns, Penn Traffic engaged The Blackstone Group L.P. ("Blackstone") in November 1998 to act as its financial advisor to explore its strategic alternatives and to assist it in negotiating a consensual restructuring. Around the same time, institutions holding a substantial amount of Penn Traffic's Senior Notes and Senior Subordinated Notes (collectively, the "Notes") formed an Informal Committee to negotiate a consensual restructuring. As of the Petition Date, the members of the Informal Committee, or certain funds managed or advised by them, held in the aggregate more than 50% of the outstanding principal amount of the Notes. The members of the Informal Committee are: Satellite Fund Management LLC; Loomis Sayles & Company, L.P.; DDJ Capital Management, LLC The Informal Committee engaged Stroock & Stroock & Lavan LLP ("Stroock") as its legal counsel and Houlihan, Lokey, Howard & Zukin, Inc. ("Houlihan Lokey") as its financial advisor. The Informal Committee then commenced negotiations with Penn Traffic regarding the terms of a consensual restructuring of its indebtedness. In February, 1999, these negotiations resulted in an agreement in principle between Penn Traffic and the Informal Committee on the terms of a restructuring. Thereafter and through the Petition Date, Penn Traffic and the Informal Committee continued to negotiate the definitive terms of the Plan and prepared the documentation necessary to effectuate it. Prior to the Petition Date, members of the Informal Committee signed lock-up agreements (collectively, the "Lock-Up Agreements") making certain undertakings and representations for the benefit of the members of the Informal Committee and Penn Traffic. Pursuant to these Lock-Up Agreements, members of the Informal Committee have agreed that (i) when solicited to do so they will vote in favor of the Plan and (ii) they will not, directly or indirectly, sell or otherwise transfer any of the Notes held by them or any interest or participation therein, other than to a person who agrees in writing to be subject to the terms and undertakings contained in the Lock-Up Agreements. 17 D. STEPS TAKEN TO STRENGTHEN THE DEBTORS' OPERATIONS AND FINANCIAL PERFORMANCE In response to Penn Traffic's declining operating performance, management initiated strategic enhancements commencing in the second half of calendar 1998. These changes are designed to improve sales and financial performance: MERCHANDISING MANAGEMENT. Penn Traffic has comprehensively evaluated its merchandising strategy and implemented or planned significant changes intended to improve both sales and margins by improving the selection and presentation of both its perishables and non-perishables departments. Foremost, these changes are designed to return the Company's stores to their traditional level of high quality fresh product and strong customer service. If successful, these steps will result in both greater sales overall and improved sales of higher margin perishables departments (e.g., produce, meat and bakery). In addition, increased sales of perishable items further improve margins by increasing inventory turns and decreasing inventory losses due to shrink. Some of the most important enhancements being made to the Company's perishables' offerings include: improved beef quality, variety and presentation; reopened seafood shops; broader variety of fresh high quality produce; more extensive in-store bakery variety and displays. As part of this program, the Company has added appropriate payroll hours to service these departments. These changes were initially implemented at certain of the Company's Big Bear stores during the fall of calendar 1998. Sales and margin trends at these stores have improved at least as much as planned. Should these positive trends continue, appropriate aspects of these programs will be extended to all Penn Traffic stores during calendar 1999. The Company is also seeking to improve the sales and margins from its non-perishable products. During calendar 1998, the Company completed the initial phases of a category management process. This program is designed to analyze individual product movement and the impact of promotional decisions. This allows category managers to design category plans that result in improved store assortments and pricing decisions. When initially implemented during the fall of calendar 1998 in a few categories, the Company generally met or exceeded its goals for improved category sales and/or margins. Plans are underway to complete and implement category plan for categories comprising approximately 50 percent of the total sales of grocery, dairy and frozen items during calendar 1999. 18 In addition, the Company believes that its gross margins have been adversely impacted from the reduced availability of certain promotional allowances during the second half of Fiscal 1999. The completion of the plan of reorganization will allow the Company to generate increased promotion allowance income. DEVELOPMENT OF FIVE YEAR CAPITAL PROGRAM. In calendar 1997 and 1998, the Company curtailed its capital investment program in response to liquidity concerns. Given significant investments made in the Company's store base in prior years, management believes that most of its stores are modern and well maintained. Nevertheless, the Company has a significant number of locations where management believes that capital investment will produce increases in sales and profits or such investment would mitigate the adverse effect of the entry of a new competitor. Additionally, the Company has opportunities to invest in new store locations, particularly in the growing central Ohio market. To take advantage of the investment opportunities, the Company has developed a capital program for the five years ending January 31, 2004. This program totals approximately $300 million. It includes extensive investments during the first two years in remodeling, enlarging or replacing existing stores. In subsequent years, the plan continues the ongoing process of improving existing facilities while adding approximately 14 new stores. The completion of the plan of reorganization is expected to provide Penn Traffic with sufficient capital resources to complete this program. IMPLEMENTED DIVESTITURE AND RATIONALIZATION PROGRAM. Penn Traffic anticipates the sale of approximately 18 stores in Ohio and eastern Pennsylvania (17 completed as of the Petition Date). Upon completion, these divestitures will have generated net proceeds of approximately $40 million. In addition, Penn Traffic has closed or plans to close an additional 38 generally unprofitable stores. Management estimates that the 56 stores that have been or are expected to be closed or divested experienced an EBITDA loss of approximately $8 million in aggregate during the fiscal year ended January 30, 1999. MANAGEMENT. Penn Traffic retained Joseph Fisher as President and Chief Executive Officer in November 1998. Mr. Fisher brings approximately 30 years of industry expertise to Penn Traffic, including most recently six years at Big V Supermarkets, Inc. (operator of supermarkets under the ShopRite name in the Hudson Valley region of New York, northeastern Pennsylvania and northern New Jersey) where he served as President and CEO from 1995 until joining Penn Traffic. ADMINISTRATIVE COST REDUCTIONS. With a smaller store base, Penn Traffic will be able to reduce non-store administrative and operational personnel. Additionally, in the fiscal year ending January 28, 2001, the Company expects to reduce its level of spending on Management Information Systems as it completes projects associated with upgrading systems to address Year 2000 issues. 19 VI. THE CHAPTER 11 CASES A. DISCLOSURE STATEMENT/PLAN CONFIRMATION HEARINGS Simultaneously with the filing of their chapter 11 petitions, the Debtors filed a motion seeking an order from the Court scheduling a hearing to consider the adequacy of this Disclosure Statement. On April 5, 1999, the Court entered the Disclosure Statement Order. As provided by the Disclosure Statement Order, hearing on confirmation of the Plan is scheduled for May 27, 1999. B. SIGNIFICANT "FIRST DAY" MOTIONS DURING THE CHAPTER 11 CASES On the Petition Date and during the first few weeks of the Chapter 11 Cases, the Bankruptcy Court entered several orders authorizing the Debtors to pay various prepetition claims. These orders were designed to ease the strain on the Debtors' relationships with customers and employees as a consequence of the filings. The Bankruptcy Court entered orders authorizing the Debtors to, among other things, (i) pay prepetition compensation, benefits and employee reimbursement to employees and (ii) honor certain prepetition obligations to customers, including obligations relating to the Debtors' return policy, gift certificates and coupon programs. The Debtors also obtained an Order from the Bankruptcy Court authorizing them to pay certain prepetition Claims of trade creditors and service providers. With respect to trade creditors, the Bankruptcy Court has authorized payment to such trade creditors, provided such trade creditors provide the Debtors with customary trade credit and terms or on such terms that are otherwise acceptable to the Debtors. In addition, the Debtors filed numerous motions seeking orders from the Bankruptcy Court authorizing the Debtors to retain professionals. Specifically, the Debtors filed motions for authorization to retain (i) Paul, Weiss, Rifkind, Wharton & Garrison ("Paul Weiss") and Young, Conaway, Stargatt & Taylor ("Young Conaway"), as co-counsel, (ii) Blackstone, as financial advisor, (iii) certain ordinary course professionals, (iv) PricewaterhouseCoopers, as accountants, and (v) Donlin, Recano & Co., Inc., as voting, tabulation and noticing agent. The Debtors also filed motions seeking certain relief from administrative requirements of the Bankruptcy Code. C. DIP CREDIT FACILITY To provide the Debtors with the cash and liquidity necessary to continue operations and to maintain normal vendor relations, Penn Traffic, Big M, Dairy Dell and Penny Curtiss (the "Borrowers") have entered into a $300 million debtor-in-possession facility in the form of a Loan and Security Agreement (the "DIP 20 Credit Facility"), dated as of March 2, 1999, among the Borrowers, the lenders identified therein (the "Lenders"), including Fleet Capital Corporation ("Fleet"), and Fleet, as administrative agent (the "Agent"). On March 2, 1999, the Bankruptcy Court entered an interim order authorizing the Borrowers to borrow up to an aggregate amount of $240 million under the DIP Credit Facility. On April 5, 1999, the Bankruptcy Court entered a final order (the "Order") approving the DIP Credit Facility. Pursuant to the Order, the Borrowers have been authorized to borrow up to an aggregate amount of $300 million, approximately $125 million of which has been utilized by the Borrowers to satisfy the Debtors' prepetition obligations under (i) the Prepetition Loan Agreement and (ii) the Term Note (collectively, the "Prepetition Loan Agreements"). In addition, pursuant to the Order and the DIP Credit Facility, all letters of credit outstanding on the Petition Date (the "Prepetition Letters of Credit") under the Prepetition Loan Agreements in the aggregate face amount of approximately $46 million were deemed to be outstanding letters of credit under the DIP Credit Facility. The DIP Credit Facility has a $60 million sublimit for letters of credit. The balance of amounts available under the DIP Credit Facility will be utilized by the Debtors for on-going working capital needs. Availability under the DIP Credit Facility for each Debtor is calculated by reference to a specified percentage of certain receivables, inventory, equipment and real property interests of such Debtor, less certain agreed-to reserves, all as set forth in a borrowing base certificate delivered to the Agent on a periodic basis. As of March 19, 1999, there were total borrowings outstanding under the DIP Credit Facility of $104.8 million, outstanding letters of credit in an aggregate face amount of approximately $46 million and additional availability in the amount of $89.2 million (these amounts are based on the $240 million authorized under the interim financing order; based on $300 million, the Debtors would have had availability of $144.6 million on such date). The Borrowers' obligations to the Agent and the Lenders under the DIP Credit Facility (the "DIP Obligations") are secured by a first priority security interest in certain of the Debtors' real and personal property, including inventory, accounts receivable, equipment, certain real property interests and amounts held in certain deposit accounts, subject only to Permitted Liens (as defined in the DIP Credit Facility) and Carve-Out Expenses (as defined below). In addition, pursuant to the Order, the DIP Obligations have been accorded administrative expense status with priority over all other administrative claims, other than certain agreed-to administrative claims, including the fees and expenses of professionals retained by the Debtors' and any official committees appointed in the Chapter 11 Cases (the "Carve- Out Expenses"). The DIP Credit Facility expires on the earlier of (x) March 3, 2000 and (y) the Commitment Termination Date (as defined in the DIP Credit Facility). 21 D. LAST DATE TO FILE PROOFS OF CLAIM Simultaneously with the filing of their petitions, the Debtors filed a motion seeking an order (the "Bar Date Order") from the Court requiring any person or entity holding or asserting a Claim against the Debtors to file a written proof of claim with the Clerk of the Court, United States Bankruptcy Court for the District of Delaware, 824 Market Street, Wilmington, DE 19801, on or before 4:00 p.m. (EST) on April 19, 1999 (the "Bar Date"). Such motion requested that any person or entity (other than, among others, employees, individual holders of Senior Notes and Senior Subordinated Notes and the Indenture Trustees) which fails to timely file a proof of claim will be forever barred, estopped and enjoined from voting on, or receiving a distribution under, the Plan and will be forever barred, estopped and enjoined from asserting a Claim against the Debtors, their estates, the Reorganized Debtors, and any of their successors or assigns. On March 5, 1999, the Court entered the Bar Date Order and established April 19, 1999 as the Bar Date. E. ASSUMPTION/REJECTION OF LEASES EXECUTORY CONTRACTS Pursuant to the Bankruptcy Code, the Debtors have 60 days after the entry of the order for relief (which is the Petition Date) to assume or reject executory contracts or unexpired leases. The Debtors have already sought Bankruptcy Court approval to reject 26 leases. The Debtors are reviewing their remaining leases and will decide shortly whether to reject any other leases. The Debtors, in conjunction with their attorneys, financial advisors and accountants will also review the Debtors' executory contracts to determine which, if any, of such contracts should be assumed or rejected. The Debtors will make any appropriate motions with respect to assumed or rejected leases and existing contracts within the time period established by the Bankruptcy Code or such other time as set by the Bankruptcy Court. F. THE OFFICIAL COMMITTEE OF UNSECURED CREDITORS On March 22, 1999, the United States Trustee appointed an Official Committee of Unsecured Creditors (the "Creditors Committee") in the Chapter 11 Cases. The Creditors Committee currently consists of Loomis Sayles & Co., L.P., Quantum Partners LDC & Quota Fund N.V., DDJ Capital Management LLC, Topco Associates, Inc., AmeriSource Corp., Bankers Trust Co., as indenture trustee, U.S. Bank Trust National Association, as indenture trustee, United States Trust Company of New York, as indenture trustee and Norwest Bank Minnesota N.A., as indenture trustee. The Creditors Committee is seeking the retention of Stroock and Morris, Nichols, Arsht & Tunnell as co-counsel to the Creditors Committee and Houlihan Lokey as its financial advisor. 22 VII. SUMMARY OF THE PLAN OF REORGANIZATION A. INTRODUCTION The Debtors believe that confirmation of the Plan is critical to their continued survival and that the Plan provides the best opportunity for maximum recoveries for its Creditors and Equity Interestholders. The Debtors believe, and will demonstrate to the Court, that Creditors and Equity Interestholders will receive at least as much, if not more, in value under the Plan than they would receive in a liquidation under chapter 7 of the Bankruptcy Code. The following is a summary of the Plan, in pertinent part. The Plan is attached as Exhibit A to this Disclosure Statement. The terms of the Plan govern in the event of any discrepancies with the following discussion. B. CLASSIFICATION AND TREATMENT OF ADMINISTRATIVE CLAIMS, CLAIMS AND EQUITY INTERESTS UNDER THE PLAN Only administrative expenses, claims and equity interests that are "allowed" may receive distributions under a chapter 11 plan. An "allowed" administrative expense, claim or equity interest simply means that the debtor agrees, or in the event of a dispute, that the court determines, that the administrative expense, claim or equity interest, including the amount, is in fact a valid obligation of the debtor. Section 502(a) of the Bankruptcy Code provides that a timely filed administrative expense, claim or equity interest is automatically "allowed" unless the debtor or another party in interests objects. However, section 502(b) of the Bankruptcy Code specifies certain claims that may not be "allowed" in a bankruptcy case even if a proof of claim is filed. These include, without limitation, claims that are unenforceable under the governing agreement or applicable non-bankruptcy law, claims for unmatured interest, property tax claims in excess of the debtor's equity in the property, claims for certain services that exceed their reasonable value, lease and employment contract rejection damage claims in excess of specified amounts, and late-filed claims. In addition, Bankruptcy Rule 3003(c)(2) prohibits the allowance of any claim or equity interest that either is not listed on the debtor's schedules or is listed as disputed, contingent, or unliquidated, if the holder has not filed a proof of claim or equity interest before the deadline to file proofs of claim and equity interests. The Bankruptcy Code also requires that, for purposes of treatment and voting, a chapter 11 plan divide the different Claims against, and Equity Interests in, the debtor into separate classes based upon their legal nature. Claims of a substantially similar legal nature are usually classified together, as are equity interests of a substantially similar legal nature. Because an entity may hold multiple Claims and/or Equity Interests which give rise to different legal rights, the holders of such 23 Claims and/or Equity Interests may find themselves members of multiple classes of Claims and/or Equity Interests. As a result, under the Plan, for example, a creditor that holds both a Claim based on a Senior Note and Old Common Stock would have its Claim classified in Class 6 and its Equity Interest classified in Class 8. To the extent of this holder's Claim, the holder would be entitled to the voting and treatment rights that the Plan provides with respect to Class 6, and, to the extent of the holder's Equity Interest, the voting and treatment rights that the Plan provides with respect to Class 8. Under a chapter 11 plan, the separate classes of claims and equity interests must be designated either as "impaired" (altered by the plan in any way) or "unimpaired" (unaltered by the plan). If a class of claims is "impaired," the Bankruptcy Code affords certain rights to the holders of such claims, such as the right to vote on the plan (unless the plan provides for no distribution to the holder, in which case, the holder is deemed to reject the plan), and the right to receive an amount under the chapter 11 plan that is not less than the value that the holder would receive if the debtor were liquidated under chapter 7. Under section 1124 of the Bankruptcy Code, a class of claims or interests is "impaired" unless, with respect to each claim or interest of such class, the plan (i) does not alter the legal, equitable, and contractual rights of the holders of such claims or interests or (ii) irrespective of the holder's right to receive accelerated payment of such claims or interests after the occurrence of a default, cures all defaults (other than those arising from, among other things, the debtor's insolvency or the commencement of a bankruptcy case), reinstates the maturity of the claims or interests in the class, compensates the holders of such claims or interests for any damages incurred as a result of their reasonable reliance upon any acceleration rights, and does not otherwise alter their legal, equitable or contractual rights. Typically, this means that the holder of an unimpaired claim will receive on the later of the effective date of the plan of reorganization or the date on which amounts owing are due and payable, payment in full, in cash, with postpetition interest to the extent permitted and provided under the governing agreement between the parties (or if there is no agreement, under applicable non-bankruptcy law), and the remainder of the debtor's obligations, if any, will be performed as they come due in accordance with their terms. Thus, other than its right to accelerate the debtor's obligations, the holder of an unimpaired claim will be placed in the position it would have been in had the debtor's case not been commenced. Consistent with these requirements, the Plan divides the Claims against, and Equity Interests in, the Debtors into the following Classes: Unclassified Administrative Claims Paid in full Unclassified Priority Tax Claims Unimpaired Class 1 Other Priority Claims Unimpaired 24 Class 2 Other Secured Claims Unimpaired Class 3 DIP Financing Claims Unimpaired Class 4 Trade Claims Unimpaired Class 5 General Unsecured Claims Impaired/ Paid in full Class 6 Senior Note Claims Impaired Class 7 Senior Subordinated Note Claims Impaired Class 8 Equity Interests Impaired For purposes of computing distributions under the Plan, Allowed Claims do not include postpetition interest unless otherwise specified in the Plan. 1 UNCLASSIFIED -- ADMINISTRATIVE CLAIMS Administrative Claims are Claims constituting a cost or expense of administration of the Chapter 11 Cases allowed under sections 503(b) and 507(a)(1) of the Bankruptcy Code. Such Claims include any actual and necessary costs and expenses of preserving the estates of the Debtors, any actual and necessary costs and expenses of operating the Debtors in Possession's businesses, any indebtedness or obligations incurred or assumed by the Debtors in Possession in connection with the conduct of their businesses including, without limitation, for the acquisition or lease of property or an interest in property or the rendition of services, all compensation and reimbursement of expenses to the extent Allowed by the Court under section 330, 331 or 503 of the Bankruptcy Code, and any fees or charges assessed against the estates of the Debtors under section 1930 of chapter 123 of title 28 of the United States Code. Except as provided for below with respect to Professional Compensation and Reimbursement Claims, pursuant to the Plan, Administrative Claims will be paid in full, in Cash, on the later of the Effective Date and the date such Administrative Claim becomes an Allowed Claim, or as soon thereafter as is practicable. Allowed Administrative Claims representing obligations incurred in the ordinary course of business by the Debtors in Possession (including amounts owed to vendors and suppliers that have sold goods or furnished services to the Debtors in Possession since the Petition Date) will be assumed and paid by the Reorganized Debtors in accordance with the terms and conditions of the particular transactions and any agreements relating thereto. The Debtors anticipate that most Administrative Expenses will be paid as they come due during the Chapter 11 Cases and that the Administrative Claims to 25 be paid on the Effective Date essentially will comprise the Allowed fees and expenses incurred by professionals in the Chapter 11 Cases. 2 UNCLASSIFIED -- PROFESSIONAL COMPENSATION AND REIMBURSEMENT CLAIMS Compensation and Reimbursement Claims are Administrative Claims for the compensation of professionals and reimbursement of expenses incurred by such professionals pursuant to sections 503(b)(2), 503(b)(3), 503(b)(4) and 503(b)(5) of the Bankruptcy Code (the "Compensation and Reimbursement Claims"). All payments to professionals for Compensation and Reimbursement Claims will be made in accordance with the procedures established by the Bankruptcy Code, the Bankruptcy Rules and the Bankruptcy Court relating to the payment of interim and final compensation for services rendered and reimbursement of expenses. The Bankruptcy Court will review and determine all applications for compensation for services rendered and reimbursement of expenses. Section 503(b) of the Bankruptcy Code provides for payment of compensation to creditors, indenture trustees and other entities making a "substantial contribution" to a reorganization case, and to attorneys for and other professional advisors to such entities. The amounts, if any, which may be sought by entities for such compensation are not known by the Debtors at this time. Requests for compensation must be approved by the Bankruptcy Court after a hearing on notice at which the Debtors and other parties in interest may participate and, if appropriate, object to the allowance of any compensation and reimbursement of expenses; provided, however that barring any disputes between the Debtors and the Indenture Trustee, the payment of the reasonable fees and expenses of the Indenture Trustees shall be made on the Effective Date without application by or on behalf of such Indenture Trustee or their respective counsel to the Court and any dispute as to fees and expenses shall be resolved by agreement between the Debtors or the Reorganized Debtors and the respective Indenture Trustee or by an appropriate State Court. Pursuant to the Plan, each holder of a Compensation and Reimbursement Claim (i) shall file its respective final application for allowance of compensation for services rendered and reimbursement of expenses incurred through the Confirmation Date by the date that is 30 days after the Effective Date or such other date as may be fixed by the Bankruptcy Court, and (ii) if granted such an award by the Court, shall be paid in full in such amounts as are Allowed by the Bankruptcy Court (a) on the date such Compensation and Reimbursement Claim becomes an Allowed Administrative Claim, or as soon thereafter as is practicable, or (b) upon such other terms as may be mutually agreed upon between such holder of such Compensation and Reimbursement Claim and the Debtors in Possession or, on and after the Effective Date, the Reorganized Debtors. The Debtors estimate that Allowed Compensation and Reimbursement Claims should not exceed $9 million in the aggregate. 26 The reasonable fees and expenses incurred after the Petition Date by the Informal Committee's counsel and financial advisors, including, without limitation, the success fee payable to Houlihan, Lokey, Howard & Zukin, Inc. pursuant to its engagement letter with the Debtors dated as of December 15, 1998, (who were retained by agreement with the Debtors prior to the Petition Date (together with the reasonable fees and expenses of local counsel) with respect to these Chapter 11 Cases) shall be paid (without application by or on behalf of any such professionals to the Bankruptcy Court and without notice and a hearing) by the Reorganized Debtors as an Administrative Claim under the Plan. If the Reorganized Debtors and any such professional retained by the Informal Committee cannot agree on the amount of fees and expenses to be paid to such professional, the amount of any such fees and expenses shall be determined by the Bankruptcy Court. 3 UNCLASSIFIED -- PRIORITY TAX CLAIMS A Priority Tax Claim consists of any Claim of a governmental unit of the kind specified in sections 502(i) and 507(a)(8) of the Bankruptcy Code. These unsecured Claims are given a statutory priority in right of payment. Except to the extent that a holder of an Allowed Priority Tax Claim has been paid by the Debtors prior to the Effective Date or agrees to a different treatment, each holder of an Allowed Priority Tax Claim will receive, at the sole option of the Debtors, (a) Cash in an amount equal to such Allowed Priority Tax Claim on the later of the Effective Date and the date such Priority Tax Claim becomes an Allowed Priority Tax Claim, or as soon thereafter as is practicable, or (b) equal annual Cash payments in an aggregate amount equal to such Allowed Priority Tax Claim, together with interest at the rate of 8 1/4% per annum over a period through the sixth anniversary of the date of assessment of such Allowed Priority Tax Claim, commencing on the first anniversary of the Effective Date, or upon such other terms as may be determined by the Bankruptcy Court to provide the holder of such Allowed Priority Tax Claim deferred Cash payments having a value, as of the Effective Date, equal to such Allowed Priority Tax Claim. The Debtors are essentially current with respect to all Priority Tax Claims and estimate that on the Effective Date, the allowed amount of such Claims will be de minimis, if any. Under applicable law, the Debtors' tax returns are subject to review for at least three years after filing. This means that the Debtors' and Penn Traffic's non-debtor Subsidiaries that file consolidated tax returns may have contingent tax obligations which have not been determined at the time of the Petition Date. The Plan provides that each Priority Tax Claim that is not payable on or before the Effective Date will survive confirmation of the Plan, remain unaffected thereby, and be paid as and when due, except to the extent any holder of such a Claim agrees to a different treatment. 27 4 CLASS 1 -- OTHER PRIORITY CLAIMS (UNIMPAIRED; THEREFORE, DEEMED TO HAVE ACCEPTED THE PLAN AND NOT ENTITLED TO VOTE.) Other Priority Claims are Claims which are entitled to priority in accordance with section 507(a) of the Bankruptcy Code (other than Administrative Claims and Priority Tax Claims). Such Claims include (i) Unsecured Claims for accrued employee compensation earned within 90 days prior to the commencement of the Chapter 11 Cases to the extent of $4,300 per employee and (ii) contributions to employee benefit plans arising from services rendered within 180 days prior to the commencement of the Chapter 11 Cases, but only for each such plan to the extent of (a) the number of employees covered by such plan multiplied by $4,300, less (b) the aggregate amount paid to such employees from the estate for wages, salaries or commissions. Pursuant to the Plan, holders of Allowed Other Priority Claims, if any exist, will be paid in full, in Cash on the later of the Effective Date and the date such Other Priority Claim becomes an Allowed Claim, or as soon thereafter as is practicable. The legal, equitable and contractual rights of the holders of Other Priority Claims, if any exist, are not altered by the Plan. Because the Bankruptcy Court entered an order authorizing the Debtors to pay, among other things, prepetition compensation and benefits, the Debtors estimate that the Allowed Claims in Class 1 that are due and payable pursuant to the Plan on or before the Effective Date will be de minimis, if any. 5 CLASS 2 -- OTHER SECURED CLAIMS (UNIMPAIRED; THEREFORE, DEEMED TO HAVE ACCEPTED THE PLAN AND NOT ENTITLED TO VOTE.) Other Secured Claims include Claims (other than the DIP Financing Claims), to the extent reflected in the Schedules or a proof of claim as a Secured Claim which is secured by a Lien on collateral to the extent of the value of such collateral, as determined in accordance with section 506(a) of the Bankruptcy Code, or, in the event that such Claim is subject to setoff under section 553 of the Bankruptcy Code, to the extent of such setoff. The Other Secured Claims consist mainly of mortgage debt on certain of the Debtors' owned real estate facilities and equipment capital leases. Except to the extent that a holder of an Allowed Other Secured Claim agrees to a different treatment, at the sole option of the Debtors, (i) each Allowed Other Secured Claim shall be reinstated and rendered unimpaired in accordance with section 1124(2) of the Bankruptcy Code, notwithstanding any contractual provision or applicable nonbankruptcy law that entitles the holder of an Allowed Other Secured Claim to demand or receive payment of such Allowed Other Secured Claim prior to the stated maturity of such Allowed Other Secured Claim from and after the occurrence of a default, (ii) each holder of an Allowed Other Secured Claim shall receive Cash in an amount equal to such Allowed Other Secured Claim, including any 28 interest on such Allowed Other Secured Claim required to be paid pursuant to section 506(b) of the Bankruptcy Code, on the later of the Effective Date and the date such Allowed Other Secured Claim becomes an Allowed Other Secured Claim, or as soon thereafter as is practicable, or (iii) each holder of an Allowed Other Secured Claim shall receive the collateral securing its Allowed Other Secured Claim and any interest on such Allowed Secured Claim required to be paid pursuant to section 506(b) of the Bankruptcy Code, in full and complete satisfaction of such Allowed Other Secured Claim on the later of the Effective Date and the date such Allowed Other Secured Claim becomes an Allowed Other Secured Claim, or as soon thereafter as is practicable. 6 CLASS 3 -- DIP FINANCING CLAIMS (UNIMPAIRED; THEREFORE, DEEMED TO HAVE ACCEPTED THE PLAN AND NOT ENTITLED TO VOTE.) DIP Financing Claims consist of the Claims of the Lenders arising under the DIP Credit Facility and all agreements and instruments relating thereto, which claims are secured by a first priority security interest in certain of the Debtors' real and personal property, including inventory, accounts receivable, equipment, certain real property interests and amounts held in certain deposit accounts, subject only to Permitted Liens (as defined in the DIP Credit Facility). Each holder of a DIP Financing Claim (which shall be deemed allowed) shall receive Cash in an amount equal to its Allowed DIP Financing Claim on the Effective Date. 7 CLASS 4 -- TRADE CLAIMS (UNIMPAIRED; THEREFORE, DEEMED TO HAVE ACCEPTED THE PLAN AND NOT ENTITLED TO VOTE.) Trade Claims consist of Unsecured Claims of entities against the Debtors for (i) goods provided prior to the Petition Date by such entities to the Debtors for resale to the general public in the ordinary course of business; provided, however, that such entities have continued to provide goods to the Debtors before and after the Petition Date on customary terms and credit or as otherwise acceptable to the Debtors and (ii) goods (not resold to the general public) and services provided to the Debtors in the ordinary course of the Debtors' businesses. To the extent not satisfied by the Debtors in the ordinary course of business prior to the Effective Date, in full and final satisfaction of such Claims, the legal, equitable, and contractual rights to which such Allowed Trade Claim entitles the holder thereof shall be left unaltered and, accordingly, shall be satisfied on the latest of (i) the Effective Date, (ii) the date a Trade Claim becomes an Allowed Claim, (iii) the date an Allowed Trade Claim becomes due and payable in the ordinary course of business consistent with the Debtors' ordinary payment practices, 29 and (iv) the date on which the Debtors and the holder of such Allowed Trade Claim agree in writing. In addition, holders of Allowed Trade Claims shall retain any prepetition security arrangements that were in existence as of the Petition Date (and extended pursuant to the Order Authorizing Payment of Prepetition Claims of Certain Trade Creditors and Goods and Service Providers dated March 2, 1999) to secure post-confirmation obligations and such prepetition security interests shall continue to the same extent and priority as they existed as of the Petition Date, without the necessity of any further actions to continue the perfection of such security interests. 8 CLASS 5 -- GENERAL UNSECURED CLAIMS (IMPAIRED; THEREFORE, ENTITLED TO VOTE TO ACCEPT OR REJECT THE PLAN.) Class 5 includes all Unsecured Claims against the Company other than Administrative Claims, Priority Tax Claims, Other Priority Claims, Trade Claims, Senior Note Claims and Senior Subordinated Note Claims. Class 5 shall also include claims of entities that have not continued to provide goods to the Debtors on customary terms and credit, or as otherwise acceptable to the Debtors; in other words, such entities shall not hold "Trade Claims" in Class 4. The Debtors are not currently aware of any such claims. Notwithstanding that the Claims in Class 5 are unsecured and in a liquidation might rank pari passu with the Claims in Classes 6 and 7, the Debtors believe that the separate classification of these Claims is appropriate and that a reasonable basis exists for classifying them separately. The Debtors estimate that the Allowed Claims in Class 5 will be approximately $20 million. On the Effective Date, or as soon thereafter as practicable, or upon such later date when the Claim becomes an Allowed Claim, in full and final satisfaction of such Claim, at the Debtors' sole option (i) each holder will receive payment in full in Cash of its Allowed General Unsecured Claim, or (ii) the Company will reinstate such Allowed General Unsecured Claim by curing all outstanding defaults with all legal, equitable and contractual rights remaining unaltered. 9 CLASS 6 -- SENIOR NOTE CLAIMS (IMPAIRED; THEREFORE, ENTITLED TO VOTE TO ACCEPT OR REJECT THE PLAN.) Class 6 includes all claims against the Debtors (including principal and interest accrued at the non-default rate6/ through the Petition Date but excluding the fees and expenses of the Indenture Trustees) based upon Penn Traffic's 11 1/2% Senior Notes due October 15, 2001, 10 1/4% Senior Notes due February 15, 2002, 85/8% Senior Notes due December 15, 2003, 103/8% Senior Notes due October 1, 2004, - -------- 6/ All claims for default rate interest shall be deemed to be waived and released. 30 10.65% Senior Notes due November 1, 2004, and 11 1/2% Senior Notes due April 15, 2006. The Senior Note Claims shall be Allowed in the following aggregate amounts: the 11 1/2% 2001 Senior Notes, $111,933,239; the 10 1/4% Senior Notes, $132,004,878; the 85/8% Senior Notes, $212,423,714; the 103/8% Senior Notes, $104,322,917; the 10.65% Senior Notes, $103,550,000; and the 11 1/2 2006 Senior Notes, $104,344,444. The holders of Senior Note Claims and Indenture Trustees under the Senior Note Indentures shall not be required to file proofs of claim. The fees and expenses of Indenture Trustees shall be paid in accordance with Section VII.C.6. of the Plan. See Section VII.L. of this Disclosure Statement for a description of the treatment of the Indenture Trustee's fees and expenses. On the Effective Date, or as soon thereafter as practicable, in full and final satisfaction of such Senior Note Claims, each holder of an Allowed Senior Note Claim will receive its Pro Rata share of (i) $100 million principal amount of New Senior Notes, and (ii) 19,000,000 shares of New Common Stock. In addition, if Class 7 does not vote in favor of the Plan, the holders of Allowed Senior Note Claims shall receive, on the Effective Date, the New Warrants that would have been distributed to the holders of Allowed Senior Subordinated Note Claims if Class 7 voted in favor of the Plan and the New Common Stock that would have been distributed to the holders of Allowed Equity Interests. The New Warrants and New Common Stock received by the holders of Allowed Senior Note Claims pursuant to the preceding sentence shall be distributed to the holders of Allowed Senior Subordinated Note Claims and Allowed Equity Interests that voted in favor of the Plan and did not object to the Plan. Any New Warrants and New Common Stock remaining after distribution of such New Warrants and New Common Stock to the holders of Allowed Senior Subordinated Note Claims and Equity Interests shall be canceled. 10 CLASS 7 -- SENIOR SUBORDINATED NOTE CLAIMS (IMPAIRED; THEREFORE, ENTITLED TO VOTE TO ACCEPT OR REJECT THE PLAN.) Class 7 includes all claims against the Debtors (including principal and interest accrued at the non-default rate7/ through the Petition Date, but excluding the fees and expenses of the Indenture Trustee) based upon Penn Traffic's 95/8% Senior Subordinated Notes due April 15, 2005. The Senior Subordinated Note Claims shall be Allowed in the aggregate amount of $414,437,500 and the holders of Senior Subordinated Note Claims (and their Indenture Trustee) shall not be required to file proofs of claim. The fees and expenses of Indenture Trustees shall be paid in accordance with Section VII.C.6. of the Plan. See Section VII.L. of this Disclosure Statement for a description of the treatment of the Indenture Trustee's fees and expenses. - -------- 7/ All claims for default rate interest shall be deemed to be waived and released. 31 On the Effective Date, or as soon thereafter as practicable, in full and final satisfaction of such Senior Subordinated Note Claims, each holder of an Allowed Senior Subordinated Note Claim will receive its pro rata share of (i) 1,000,000 shares of New Common Stock; and (ii) warrants to purchase 1,000,000 shares of New Common Stock (the "New Warrants"). Notwithstanding anything to the contrary, it shall be a condition to the receipt by holders of Senior Subordinated Note Claims of the distribution of Warrants under the Plan that Class 7 vote in favor of the Plan. If such condition is not satisfied, Class 7 shall receive only the New Common Stock and not warrants and holders of Senior Note Claims shall receive the New Warrants that would have been distributed to the holders of the Allowed Senior Subordinated Note Claims if Class 7 voted in favor of the Plan; provided, however, that any holder of a Senior Subordinated Note Claim that votes in favor of the Plan (and does not object to the Plan) shall receive its Pro Rata share of New Warrants from the holders of Allowed Senior Note Claims as if Class 7 had voted in favor of the Plan. All remaining New Warrants held by the holders of Allowed Senior Note Claims after distribution to holders of Allowed Senior Subordinated Note Claims that vote in favor of the Plan (and do not object to the Plan) shall be canceled. If the provision of New Warrants is not permitted by the Bankruptcy Court, holders of Senior Subordinated Note Claims shall only receive New Common Stock. This treatment represents a compromise of the intercreditor issues between Class 6 and Class 7 which compromise will only become effective in the event that the Plan is confirmed and the Effective Date occurs. 11 CLASS 8 -- EQUITY INTERESTS (IMPAIRED; THEREFORE, ENTITLED TO VOTE TO ACCEPT OR REJECT THE PLAN.) Class 8 includes the outstanding common stock of Penn Traffic and any option, warrant or right, contractual or otherwise, to acquire any such interest. On the Effective Date or as soon thereafter as practicable, each 100 shares of Old Common Stock of the Company shall entitle the holder thereof to receive 1 share of New Common Stock; provided, however, that if Class 7 (Senior Subordinated Note Claims) or Class 8 votes against the Plan, the holders of Allowed Equity Interests shall receive no distributions whatsoever and the holders of Allowed Senior Note Claim shall receive the New Common Stock that would have been distributed to the holders of Allowed Equity Interests if Classes 7 and 8 voted in favor of the Plan; provided, however, that if permitted by the Bankruptcy Court a holder of an Equity Interest that votes in favor of the Plan (and does not object to the Plan) shall receive its Pro Rata share of New Common Stock from the holders of Allowed Senior Note Claims as if Classes 7 and 8 had voted in favor of the Plan. All remaining New Common Stock held by the holders of Allowed Senior Note Claims that would have been distributed to holders of Equity Interests, had they voted in favor of the Plan, shall be canceled. All Equity Interests other than Old Common 32 Stock shall be canceled on the Effective Date and the holders thereof shall receive no distributions. C. SUBSTANTIVE CONSOLIDATION Substantive consolidation is an equitable remedy that a bankruptcy court may be asked to apply in chapter 11 cases involving affiliated debtors. Substantive consolidation involves the pooling and merging of the assets and liabilities of the affected debtors. All of the debtors in the substantively consolidated group are treated as if they were a single corporate and economic entity. Consequently, a creditor of one of the substantively consolidated debtors is treated as a creditor of the substantively consolidated group of debtors and issues of individual corporate ownership of property and individual corporate liability on obligations are ignored. Substantive consolidation of two or more debtors' estates generally results in the deemed consolidation of the assets and liabilities of the debtors, the deemed elimination of intercompany claims, subsidiary equity or ownership interests, multiple and duplicative creditor claims, joint and several liability claims and guarantees, and the payment of allowed claims from a common fund. At the Confirmation Hearing, the Debtors will seek the substantive consolidation of the Chapter 11 Cases for all purposes related to the Plan, including, without limitation, for purposes of voting, confirmation and distribution. Subject to the occurrence of the Effective Date, (i) all assets and liabilities of the Subsidiaries shall be deemed merged or treated as though they were merged into and with the assets and liabilities of Penn Traffic, (ii) no distributions shall be made under the Plan on account of intercompany Claims among the Debtors and any such Claims shall be discharged on the Effective Date, (iii) no distributions under the Plan shall be made on account of Subsidiary Equity Interests, (iv) all guarantees of the Debtors of the obligations of any other Debtor shall be deemed eliminated so that any claim against any Debtor and any guarantee thereof executed by any other Debtor and any joint or several liability of any of the Debtors shall be deemed to be one obligation of the consolidated Debtors, and (v) each and every Claim filed or to be filed in the Chapter 11 Case of any of the Debtors shall be deemed filed against the consolidated Debtors, and shall be deemed one Claim against and obligation of the consolidated Debtors. Such substantive consolidation shall not (other than for purposes related to the Plan) affect (i) the legal and corporate structures of the Reorganized Debtors, (ii) Subsidiary Equity Interests and (iii) pre- and post-Petition Date guarantees that are required to be maintained (a) in connection with executory contracts, unexpired leases or credit facilities that were entered into during the Chapter 11 Cases or that have been or will be assumed, or (b) pursuant to the Plan, or (c) in connection with any financing entered into by the Reorganized Debtors on the Effective Date. 33 D. PROVISIONS REGARDING CORPORATE GOVERNANCE AND MANAGEMENT OF THE REORGANIZED DEBTORS 1 DIRECTORS AND OFFICERS OF REORGANIZED PENN TRAFFIC (a) The Initial Board of Directors. The initial Board of Directors of Reorganized Penn Traffic will consist of ten (10) members, seven (7) of whom will be designated by Satellite Fund Management, LLC, DDJ Capital Management, LLC and Loomis Sayles & Company LP and whose names shall be disclosed on or before the date of the Confirmation Hearing; and three (3) of whom shall be Joseph V. Fisher, Martin A. Fox and Gary D. Hirsch, who currently serve as Penn Traffic's President and Chief Executive Officer, Vice Chairman-Finance and Chairman, respectively. The Board of Directors will select a Chairman of the Board of Directors at their initial meeting who will not initially serve as an executive officer of Reorganized Penn Traffic. (b) Management of Reorganized Penn Traffic. Effective as of the Effective Date, an Executive Committee of the Board of Directors shall manage the business of Reorganized Penn Traffic and shall have all of the authority customarily delegated to the most senior executive officers of a corporation, subject to oversight of the entire Board of Directors. The members of the Executive Committee will consist of Gary D. Hirsch, Martin A. Fox and Joseph V. Fisher, with Mr. Hirsch serving as Chairman of the Executive Committee and Mr. Fox as Vice- Chairman. Mr. Fisher, Penn Traffic's President and Chief Executive Officer, will report to the Chairman of the Executive Committee on all matters that fall within such Committee's responsibilities and the Company's Board of Directors on all other matters. Set forth below is the name, age and proposed positions with Reorganized Penn Traffic of each of Messrs. Hirsch, Fox and Fisher. Name Age Title - ------------------------ ------- -------------------------------------------- Gary D. Hirsch 49 Chairman of Executive Committee and Director Martin A. Fox 45 Vice-Chairman of Executive Committee and Director Joseph V. Fisher 56 President, Chief Executive Officer and Director (c) Other Committees of the Board of Directors. The Board of Directors will also establish such other committees it deems appropriate including an Audit Committee and a Compensation and Stock Option Committee that will be composed only of independent Directors who do not serve as executive officers of Penn Traffic. The Audit Committee will be responsible for review and approval of 34 the Company's financial statements and for the selection of the Company's independent certified public accountants (currently PricewaterhouseCoopers LLP). The Compensation and Stock Option Committee will, subject to existing contractual arrangements, approve compensation arrangements for the Company's executive officers and grant additional stock options under the Company's Equity Incentive Plan, taking into account, in each case, the recommendations of the Executive Committee. 2 DIRECTORS AND OFFICERS OF DAIRY DELL, BIG M AND PENNY CURTISS The initial board of directors of the Reorganized Subsidiaries shall be Gary D. Hirsch, Martin A. Fox and Joseph V. Fisher. Mr. Hirsch shall be Chairman. The officers of the Reorganized Subsidiaries immediately prior to the Effective Date shall serve as the initial officers of the Reorganized Subsidiaries on and after the Effective Date. Such officers shall serve in accordance with any employment agreement with the Reorganized Subsidiaries and applicable nonbankruptcy law. 3 CORPORATE ACTION (a) Amended Penn Traffic Certificate of Incorporation and Amended Penn Traffic By-Laws. The adoption of the Amended Certificate of Incorporation and Amended By-Laws will be deemed to have occurred and be effective as of the Effective Date without any further action by the directors or stockholders of the Debtors. The Amended Certificate of Incorporation will, among other things, contain appropriate provisions consistent with the Plan (i) governing the authorization of up to 30,000,000 shares of New Common Stock (up to 20,106,955 will be issued on the Effective Date) and 1,000,000 shares of preferred stock, par value of $.01 per share (the "Preferred Stock"), that will be available for issuance (although no issuance is currently contemplated) and whose terms and conditions may be established by the Board of Directors, from time to time, (ii) prohibiting the issuance of nonvoting equity securities as required by section 1123(a)(6) of the Bankruptcy Code, (iii) establishing the Executive Committee, an Audit Committee and a Compensation and Stock Option Committee and defining their roles, and (iv) implementing such other matters as stockholders and directors of Reorganized Penn Traffic believe are necessary and appropriate to effectuate the terms and conditions of the Plan. The Amended Penn Traffic Certificate of Incorporation will not include any "super-majority" voting provisions. In addition, Reorganized Penn Traffic has opted out of the provisions of Section 203 of the Delaware General Corporation Law (the "DGCL") in the Amended Penn Traffic Certificate of Incorporation. The Amended Penn Traffic Certificate of Incorporation also limits the ability of Reorganized Penn Traffic's Board of Directors to adopt a stockholders 35 rights plan or a "poison pill" unless such plan (x) is adopted by 80% of the members of Reorganized Penn Traffic's Board of Directors and (y) by its terms, such rights plan or "poison pill" expires within 120 days of such adoption unless extended by the Company's stockholders during such period in which case such rights plan shall be extended for a period of no more than 90 days (such 90 day period and any additional 90 day periods may be extended for additional periods of 90 days by a vote of a majority of the holders of New Common Stock). On or prior to the Effective Date, Penn Traffic will file with the Secretary of State of the State of Delaware, in accordance with Sections 103 and 303 of the DGCL, the Amended Penn Traffic Certificate of Incorporation and such certificate shall be the certificate of incorporation for Reorganized Penn Traffic. The Amended Penn Traffic Certificate of Incorporation shall be substantially in the form contained in the Plan Supplement. (b) Amended Other Debtor Certificate of Incorporation and Amended Other Debtor By-Laws. The adoption of the Amended Subsidiaries Certificate of Incorporation and Amended Subsidiaries By-Laws will be deemed to have occurred and be effective as of the Effective Date without any further action by the directors or stockholders of the Debtors or the Reorganized Debtors. The Amended Subsidiaries Certificate of Incorporation will, among other things, contain appropriate provisions (i) prohibiting the issuance of nonvoting equity securities as required by section 1123(a)(6) of the Bankruptcy Code, and (ii) implementing such other matters as stockholders and directors of the Reorganized Subsidiaries believe are necessary and appropriate to effectuate the terms and conditions of the Plan. The Amended Subsidiaries Certificate of Incorporation will not include any "super-majority" voting provisions. On or prior to the Effective Date, the Subsidiaries will file with the Secretary of State of the State of Delaware, in accordance with Sections 103 and 303 of the DGCL, the Amended Subsidiaries Certificate of Incorporation and such certificate shall be the certificate of incorporation for the Reorganized Subsidiaries. The Amended Subsidiaries Certificate of Incorporation shall be substantially in the form contained in the Plan Supplement. 4 SECURITIES TO BE ISSUED PURSUANT TO THE PLAN (a) New Common Stock On the Effective Date, pursuant to the Plan Penn Traffic will issue 20,106,955 shares of New Common Stock without further act or action under applicable law, regulation, rule or order. Penn Traffic shall, subject to the provisions of the Plan, issue and distribute 19,000,000 of such shares to the holders of Senior Note Claims (Class 6), 1,000,000 of such shares to the holders of Senior Subordinated Note Claims (Class 7) and 106,955 of such shares to holders of Equity Interests (Class 8). Each share of New Common Stock will entitle its holder to one 36 vote. Holders of New Common Stock will have the right to participate proportionately in any dividends distributed by Penn Traffic, subject to the dividend preference of any shares of Preferred Stock that may be issued after the Effective Date. (b) New Senior Notes The New Senior Notes will be issued by Penn Traffic pursuant to an indenture (the "New Notes Indenture"), which will be qualified under the Trust Indenture Act of 1939, as amended. An indenture trustee will be selected prior to the Confirmation Hearing. The New Senior Notes will be issued in the aggregate principal amount of $100,000,000 and distributed to holders of Senior Note Claims. The New Senior Notes will bear interest at a fixed annual rate of 11%, payable semi-annually each year commencing approximately six months from the Effective Date. Interest under the New Senior Notes shall begin accruing on the Effective Date. Interest shall be payable for the first two (2) years, at the Reorganized Penn Traffic's option, through the issuance of additional New Senior Notes or in cash, and for the next eight (8) years only in cash. All of the outstanding principal amount of the New Senior Notes and any accrued but unpaid interest will be payable upon the maturity of the New Senior Notes, or approximately ten (10) years from the Effective Date. The New Senior Notes will be unsecured. 37 The New Senior Notes Indenture will also contain the following material terms and provisions: o Optional Redemption. The New Notes may be redeemed in whole or in part at the option of Reorganized Penn Traffic at any time after approximately five (5) years from the Effective Date in accordance with the following schedule: during the sixth year after the Effective Date 106.0% during the seventh year after the Effective Date 104.5% during the eighth year after the Effective Date 103.0% during the ninth year after the Effective Date 101.5% during the tenth year after the Effective Date to Maturity Date 100% In addition, Reorganized Penn Traffic may redeem (i) at any time on or before approximately three years from the Effective Date up to 25% of the original principal amount of the New Senior Notes at a redemption price of no more than 111% with the net cash proceeds of a qualified equity offering and (ii) at any time following the occurrence of a Change of Control all or any portion of the New Senior Notes at a redemption price of no more than 111%, plus all accrued but unpaid interest on the Notes to the date of redemption. Except as set forth below upon the occurrence of a Change in Control, the New Senior Notes are not subject to any mandatory redemption or other sinking fund provisions. o Mandatory Redemption Upon Change of Control. Upon a "Change in Control," the Company is required to make an offer to purchase the New Senior Notes at a price equal to 101% of the outstanding principal amount plus all accrued and unpaid interest to the date of redemption. A "Change of Control" will be defined under the New Notes Indenture as the occurrence of any of the following events: (i) any "person" (as such term is used in Sections 13(d) and 14(d) of the Exchange Act) is or becomes the "beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the Securities Exchange Act of 1934, 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 New 38 Common Stock or securities representing 50% or more of the combined voting power of the Company's voting stock, (ii) Reorganized Penn Traffic 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 Reorganized Penn Traffic, in either event pursuant to a transaction in which the outstanding voting stock of Reorganized Penn Traffic is changed into or exchanged for cash, securities or other property, other than any such transaction between Reorganized Penn Traffic and its wholly-owned subsidiaries (which wholly-owned subsidiaries are domestic United States corporations), with the effect that any "person" becomes the "beneficial owner," directly or indirectly, of 50% or more of the outstanding shares of New Common Stock or securities representing 50% or more of the combined voting power of Reorganized Penn Traffic's voting stock or (iii) during any consecutive two-year period, individuals who at the beginning of such period constituted Reorganized Penn Traffic's Board of Directors (together with any new directors whose election by Reorganized Penn Traffic's Board of Directors, or whose nomination for election by Reorganized Penn Traffic'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. The New Notes Indenture also will contain customary and usual affirmative covenants as may be mutually agreeable to the Reorganized Debtors and the Informal Committee, including compliance with laws, payment of taxes and maintenance of corporate existence, properties and insurance, and negative covenants, including limitations on (i) the incurrence of new indebtedness and liens, subject to permitted exceptions, (ii) sale/leaseback transactions, subject to permitted exceptions, (iii) dispositions of assets, (iv) transactions with affiliates and (v) restricted payments. events of default for the New Senior Notes will be usual for indebtedness of this kind, with customary grace and notice provisions, including non-payment of principal and interest, violation of covenants, cross-default and cross-acceleration, material judgments and bankruptcy. A copy of the New Notes Indenture will be included in the Plan Supplement. (c) The New Warrants On the Effective Date, the issuance of Warrants to purchase up to 1,000,000 shares of New Common Stock (without giving effect to any options that may be issued under the Equity Incentive Plan) will be authorized under the Plan without further act or action under applicable law, regulation, rule or order. The Warrants will entitle the holders thereof to purchase New Common Stock, on a one-for-one basis, at an initial exercise price of $18.30 per share. The Warrants will be subject to customary anti-dilution provisions and will expire on the sixth anniversary 39 of the Effective Date. The Plan contemplates, subject to certain conditions, that on the Effective Date, 1,000,000 Warrants will be issued to the Class 7 holders. A copy of a Warrant Agreement will be included in the Plan Supplement. E. SECURITIES LAWS MATTERS Pursuant to the Plan, each Holder receiving a distribution of New Common Stock or New Senior Notes representing more than 10% of the aggregate New Common Stock issued on the Effective Date shall be entitled to become a party to the Registration Rights Agreement, which provides that Reorganized Penn Traffic will file and maintain the effectiveness of a shelf registration right statement for such Holder of the New Common Stock, the shares of New Common Stock issuable upon exercise of the New Warrants, the New Warrants and the New Senior Notes, covering the resale of all such securities. Certificates evidencing shares of New Common Stock received by an Initial Holder who is deemed to be an affiliate of the Debtors by reason of its equity holdings or otherwise will bear a legend stating, in substance, that such shares have not been registered under the Securities Act or under the securities laws of any state or other jurisdiction and may not be sold, offered for sale or otherwise transferred unless registered or qualified under such Act and applicable state securities laws or unless the Reorganized Debtors receive a certificate executed by a duly authorized officer of such Initial Holder or an opinion of counsel, as applicable, reasonably satisfactory to them that such registration or qualification is not required. The Registration Rights Agreement will be in substantially the form included in the Plan Supplement. F. EQUITY INCENTIVE PLAN 1 PENN TRAFFIC COMPANY 1999 EQUITY INCENTIVE PLAN. If not theretofore adopted by the Debtors, on the Effective Date, Reorganized Penn Traffic will adopt a stock option plan which permits Reorganized Penn Traffic to grant to its officers and directors options to acquire shares of New Common Stock. Such stock option plan shall be in substantially the form contained in the Plan Supplement. Options granted under the stock option plan are generally intended to qualify as "incentive stock options" described in the Internal Revenue Code. 2 DESCRIPTION OF 1999 PENN TRAFFIC COMPANY EQUITY INCENTIVE PLAN. The purposes of the Penn Traffic Company 1999 Equity Incentive Plan (the "Equity Plan") are to promote the interests of Reorganized Penn Traffic and its shareholders by (i) attracting and retaining exceptional officers, directors and key employees of Reorganized Penn Traffic and its subsidiaries and (ii) enabling such individuals to participate in the long-term growth and financial success of Reorganized 40 Penn Traffic. In connection with and pursuant to the Plan, the Equity Plan will be adopted and certain of the options will be granted to certain persons under the Equity Plan, effective as of the Effective Date. The Equity Plan makes available the grant of options to acquire an aggregate 2,297,000 of shares of New Common Stock and an aggregate of 1,097,000 will be issued as of the Effective Date. The remaining 1,200,000 options will be issued by the Reorganized Penn Traffic's Compensation and Stock Option Committee taking into consideration the recommendations of the Executive Committee. All of Penn Traffic's directors, officers and employees are eligible to receive options under the Equity Plan. The following are further terms respecting the Equity Plan: % of Issued and Outstanding Date of Grants: Issuance Date New Common Stock ----------------------------------------------------- First 8/ Effective Date 5.5% Other Determined by the 6% Compensation and Stock Option Committee taking into account the recommendation of the Executive Committee Vesting: The majority of options available shall vest in the following manner: 20% shall vest upon the date of grant with the remaining 80% vesting in four (4) equal installments on the four (4) immediately succeeding anniversary dates of the grant date or such other manner as the Committee shall determine. Certain options shall vest in full immediately upon grant while certain other options shall vest 50% on each of the 3rd and 4th anniversaries of the Effective Date. Term: 10 years from the date of grant and are generally exercisable for a period of 60 days following an option holder's termination of employment. Certain executives' options will generally not expire before the sixth anniversary of the Effective Date. Exercise Price: For certain options granted on the Effective Date, the exercise price will be $18.30 per share. Other options shall have an exercise price as determined by the Compensation and Stock Option Committee taking - -------- 8/ These options are being issued to Messrs. Hirsch, Fox and Fisher. 41 into account the recommendations of the Executive Committee and provided in an Award Agreement. G. NEW MANAGEMENT AGREEMENT AND AMENDMENT TO JOSEPH FISHER'S EMPLOYMENT AGREEMENT 1. On the Effective Date, Reorganized Penn Traffic will enter into a management agreement with Hirsch & Fox LLC (the "New Management Agreement"). The New Management Agreement is included in the Plan Supplement. The following is a brief summary of the terms of the New Management Agreement. The initial term (the "Initial Term") of the New Management Agreement will be two years from the Effective Date with one automatic two-year renewal period (the "Renewal Term") unless Reorganized Penn Traffic or Hirsch & Fox LLC provide timely notice that they do not wish to renew the agreement. Pursuant to the New Management Agreement, Hirsch & Fox LLC will provide the services of Messrs. Hirsch and Fox as Chairman and Vice Chairman, respectively, of the Executive Committee of Reorganized Penn Traffic. Messrs. Hirsch and Fox, together with Mr. Joseph Fisher, the Company's President and Chief Executive Officer, will have all authority customarily delegated to the senior executive officers of a corporation, subject to the oversight and direction of the Board. In return for these services, Hirsch & Fox LLC will continue to receive an annual management fee in the amount of $1.45 million. In the event, however, that the New Management Agreement is terminated by the Company before the end of the Initial Term or the Renewal Term, as the case may be, for reasons other than "cause" (as such term is defined in the New Management Agreement), the remaining unpaid portion of the aggregate fee to be received by Hirsch & Fox through the end of such term will be accelerated and paid immediately by Reorganized Penn Traffic, but Messrs. Hirsch and Fox would not, however, be able to compete with Penn Traffic for the remainder of the applicable term in such event within a specified area near Penn Traffic's stores. The New Management Agreement will also provide that Mr. Hirsch will be required within six months from the Effective Date to acquire additional shares of New Common Stock or New Warrants having an initial acquisition price of at least $500,000 in the aggregate. Mr. Hirsch will purchase such New Common Stock or New Warrants in a public or private transaction and not from the Company. Mr. Hirsch will provide Penn Traffic's Board of Directors with evidence of his compliance with such requirement. Mr. Fox will receive pension benefits from Reorganized Penn Traffic for past service performed and both Messrs. Hirsch and Fox will receive pension benefits for the services to be provided on and after the Effective Date pursuant to the New Management Agreement. See Exhibit C to the Plan for a description of such benefits. In addition, on the Effective Date, Mr. Hirsch and Mr. Fox will receive fully-vested options to purchase 360,000 and 130,000 shares of New Common Stock, respectively, and Messrs. Fox and Hirsch will also receive on the Effective Date options to purchase an additional 87,000 and 42 240,000 shares of New Common Stock, respectively, which options will vest 50% on each of the 3rd and 4th anniversaries of the Effective Date. The exercise price for the options to be granted to Messrs. Hirsch and Fox on the Effective Date will be $18.30 per share. 2. On October 30, 1998, Penn Traffic entered into an employment agreement (the "Employment Agreement") with Mr. Joseph V. Fisher for Mr. Fisher to assume the position of President and Chief Executive Officer of the Company from November 23, 1998 until February 1, 2002. Pursuant to the Employment Agreement, Mr. Fisher is entitled to receive an annual base salary of $500,000, a target bonus ranging from 0-100% of his base salary depending on performance (provided that Mr. Fisher is guaranteed to receive at least a 50% target bonus for the fiscal years ended January 30, 1999 and ending January 29, 2000). As an inducement to enter into the Employment Agreement, Mr. Fisher received (i) a signing bonus of $1,000,000, (ii) a loan from Penn Traffic in the amount of $1,000,000, which will be forgiven over 12 consecutive quarterly periods (or immediately, in the event Mr. Fisher terminates his employment for "good reason" or in certain circumstances following a change of control) provided that Mr. Fisher has not been terminated for cause or due to his death or disability as of the end of any such period, and (iii) ten-year options with a four year vesting period to purchase 500,000 shares of Penn Traffic's existing common stock at an exercise price equal to fair market value at the time of exercise. The Employment Agreement further provides that upon the occurrence of a "change of control" all unvested options shall immediately vest. On the Effective Date, Penn Traffic and Mr. Fisher will enter into an Amendment to the Employment Agreement in order to (i) appoint Mr. Fisher to the Board of Directors and the Executive Committee of Reorganized Penn Traffic, (ii) provide Mr. Fisher with the grant of stock options pursuant to the terms of the Plan and (iii) provide that Reorganized Penn Traffic will obtain six-year "tail" coverage on its directors and officers liability insurance. The Plan provides that, on the Effective Date, Mr. Fisher will receive ten-year, fully-vested options to purchase 280,000 shares of New Common Stock at an exercise price of $18.30 per share. The Employment Agreement will otherwise remain in full force and effect throughout its term. H. DISTRIBUTIONS UNDER THE PLAN 1 METHOD OF DISTRIBUTION UNDER THE PLAN (a) Date and Delivery of Distributions. Distributions under the Plan shall be made by the Reorganized Debtors or their designee to the holders of Allowed Administrative Claims, Allowed Priority Tax Claims, Allowed Other Priority Claims, Allowed DIP Financing Claims, Allowed Other Secured Claims, Allowed 43 Trade Claims, Allowed General Unsecured Claims, and Allowed Equity Interests at the addresses set forth on the Schedules, unless such addresses are superseded by proofs of claim or transfers of claims filed pursuant to Bankruptcy Rule 3001 (or at the last known addresses of such holders if the Debtors or the Reorganized Debtors have been notified in writing of a change of address). Distributions under the Plan to the holders of Allowed Senior Note Claims and Allowed Senior Subordinated Note Claims shall be made to the New Notes Indenture Trustee who shall make the distributions to the holders of Allowed Senior Note Claims and Allowed Senior Subordinated Note Claims. New Senior Notes (including any interest earned thereon), New Common Stock (including dividends paid on account thereof) and New Warrants shall be held in trust by the disbursing agent or the Reorganized Debtors, as applicable, for the benefit of the potential claimants of such securities and shall not constitute property of the Reorganized Debtors. (b) Distribution of Cash. Any payment of Cash by the Reorganized Debtors pursuant to the Plan shall be made at the option and in the sole discretion of the Reorganized Debtors, by (i) a check drawn on, or (ii) wire transfer from, a domestic bank selected by the Reorganized Debtors. (c) Distribution of Unclaimed Property. Any distribution of Cash under the Plan which is unclaimed after the later to occur of (a) two years after distribution and (b) six months after the date on which such claimant's Claim is Allowed shall be transferred to the Reorganized Debtors notwithstanding state or other escheat or similar laws to the contrary. Distributions under the Plan consisting of New Notes, New Common Stock or New Warrants that are unclaimed for a period of two years after distribution shall be canceled and any dividends or interest which has been paid with respect to such securities shall be transferred to the Reorganized Debtors and entitlement by the holder of a Claim or Equity Interest to such distribution shall be extinguished and forever barred. The Debtors shall file with the Court a list of holders of unclaimed distributions of Cash, New Notes, New Common Stock and New Warrants on the first and second anniversaries of the Effective Date. (d) Saturdays, Sundays, or Legal Holidays. If any payment or act under the Plan is required to be made or performed on a date that is not a Business Day, then the making of such payment or the performance of such act may be completed on the next succeeding Business Day, and shall be deemed to have been completed as of the required date. (e) FRACTIONAL DOLLARS AND FRACTIONAL SHARES AND WARRANTS. (i) Fractional Dollars. Whenever the issuance of any New Senior Note would otherwise call for the issuance in an amount for a fraction of a dollar, the actual issuance of such New Senior Note shall reflect a rounding of such fraction to the nearest whole dollar (up or down), with half dollars being rounded down. 44 (ii) Fractional Shares and Warrants. Whenever any distribution of shares of New Common Stock or New Warrant to a holder would otherwise call for the distribution of a fractional share or warrant, the Transfer Agent or Warrant Agent shall allocate one whole share or one whole warrant to holders in order of the fractional portion of their entitlements, starting with the largest fractional portion until all remaining shares and warrants have been allocated. Upon the allocation of a whole share or a whole warrant to a holder in respect of the fraction portion of its entitlement, such fractional portion shall be canceled. If two or more holders are entitled to equal fractional entitlements and the number of holders so entitled exceeds the number of whole shares or whole warrants, as the case may be, which remain to be allocated, the Transfer Agent or Warrant Agent shall allocate the remaining whole shares or whole warrants to such holders by random lot or such other impartial method as the Transfer Agent or Warrant Agent deems fair, in the Transfer Agent's or Warrant Agent's sole discretion. Upon the allocation of all of the whole shares or whole warrants authorized under the Plan, all remaining fractional portions of the entitlements shall be canceled and shall be of no further force and effect. (f) Distributions to Holders as of the Record Date. As at the close of business on the Record Date, the claims register (for Claims) and transfer ledger (for Equity Interests) shall be closed, and there shall be no further changes in the record holders of any Claims or Equity Interests. The Debtors and the Reorganized Debtors shall have no obligation to recognize any transfer of any Claims or Equity Interests occurring after the Record Date. The Debtors and the Reorganized Debtors shall instead be entitled to recognize and deal for purposes under the Plan (except as to voting to accept or reject the Plan) with only those record holders stated on the claims register (for Claims) and transfer ledgers (for Equity Interests) as of the close of business on the Record Date. 2 DISPUTED TRADE CLAIMS AND GENERAL UNSECURED CLAIMS (a) Distributions Withheld For Disputed Trade Claims. (i) Establishment And Maintenance Of Reserve. On the Effective Date, the Reorganized Debtors shall place into a reserve an amount of Cash, equal to 100% of the distributions to which holders of Disputed Trade Claims would be entitled under the Plan as of such date if such Trade Claims were Allowed Claims (the "Reserve"). Notwithstanding that the Debtors may dispute such Claims, such disputed Claims, if Allowed, will be treated under the Plan as Class 4 Trade Claims. (ii) Property Held in Reserve. Cash held in the Reserve, if any, shall be deposited in a segregated bank account or accounts in the name of the Reorganized Debtors and designated as held in trust for the 45 benefit of holders of Allowed Trade Claims. Cash held in the Reserve shall not constitute property of the Reorganized Debtors. The Reorganized Debtors shall invest the Cash held in the Reserve in a manner consistent with the investment guidelines set forth in the Plan Supplement. The Reorganized Debtors shall pay, or cause to be paid, out of the funds held in the Reserve, any tax imposed on the Reserve by any governmental unit with respect to income generated by the property held in the Reserve. The yield earned on such invested Cash (net of applicable taxes) shall be distributed to the Reorganized Debtors on the last Subsequent Distribution Date under the Plan. (iii) Distributions Upon Allowance of Disputed Trade Claims. The holder of a Disputed Trade Claim that becomes an Allowed Claim subsequent to the Initial Distribution Date shall receive a distribution of Cash from the Reserve on the next Subsequent Distribution Date that follows the Quarter during which such Disputed Trade Claim becomes an Allowed Claim pursuant to a Final Order. Such distributions shall be made in accordance with the Plan based upon the distributions that would have been made to such holder under the Plan if the Disputed Trade Claim had been an Allowed Claim on or prior to the Effective Date. Any Cash held in the Reserve after all Trade Claims have been Allowed or disallowed shall be transferred to and become the property of the Reorganized Debtors. (b) Distributions Withheld for Disputed General Unsecured Claims. The holder of a Disputed General Unsecured Claim that becomes an Allowed Claim subsequent to the Initial Distribution Date shall receive a distribution of Cash from the Reorganized Debtors on the next Subsequent Distribution Date that follows the Quarter during which such Disputed General Unsecured Claim becomes an Allowed Claim pursuant to Final Order. Such distributions shall be made in accordance with the Plan based on the distributions that would have been made to such holder under the Plan if the Disputed General Unsecured Claim had been an Allowed Claim on or prior to the Effective Date. I. OBJECTIONS TO AND RESOLUTION OF ADMINISTRATIVE CLAIMS AND CLAIMS; ADMINISTRATIVE AND PRIORITY CLAIMS RESERVE 1 OBJECTIONS TO AND RESOLUTION OF ADMINISTRATIVE CLAIMS AND CLAIMS Except as to applications for allowances of compensation and reimbursement of expenses under sections 330 and 503 of the Bankruptcy Code, the Debtors and the Reorganized Debtors shall have the exclusive right to make and file objections to Administrative Claims, Claims and Equity Interests subsequent to the Confirmation Date. All objections shall be litigated to Final Order; provided, however, that the Reorganized Debtors shall have the authority to compromise, settle, otherwise resolve or withdraw any objections, without approval of the Bankruptcy 46 Court. Unless otherwise ordered by the Bankruptcy Court, the Debtors and the Reorganized Debtors shall file all objections to Administrative Claims, Claims and Equity Interests that are the subject of proofs of claims or requests for payment filed with the Bankruptcy Court (other than applications for allowances of compensation and reimbursement of expenses) or proofs of interest and serve such objections upon the holder of the Administrative Claim, Claim or Equity Interest as to which the objection is made as soon as is practicable, but in no event later than 60 days after the Effective Date or such later date as may be approved by the Bankruptcy Court. 2 ADMINISTRATIVE AND PRIORITY CLAIMS RESERVE (a) Establishment of Administrative Claims Reserve. On the Effective Date, the Reorganized Debtors shall place into reserve an amount of Cash equal to (i) the sum of the aggregate amount of all Disputed Administrative Claims, Disputed Priority Tax Claims, and Disputed Other Priority Claims, plus (ii) an amount to be determined by the Bankruptcy Court to be reserved for any Disputed Administrative Claims, Disputed Priority Tax Claims and Disputed Other Priority Claims that are unliquidated (the "Administrative and Priority Claims Reserve"). (b) Cash Held in Administrative and Priority Claims Reserve. Cash held in the Administrative and Priority Claims Reserve shall be deposited in a segregated bank account or accounts in the name of the Reorganized Debtors and designated as held in trust for the benefit of holders of Allowed Administrative Claims, Allowed Priority Tax Claims and Allowed Other Priority Claims. Cash held in the Administrative and Priority Claims Reserve shall not constitute property of the Reorganized Debtors. The Reorganized Debtors shall invest the Cash held in the Administrative and Priority Claims Reserve in a manner consistent with investment guidelines to be included in the Plan Supplement. The Reorganized Debtors shall pay, or cause to be paid, out of the funds held in the Administrative and Priority Claims Reserve, any tax imposed on the Administrative and Priority Claims Reserve by any governmental unit with respect to income generated by Cash held in the Administrative and Priority Claims Reserve. Any Cash held in the Administrative and Priority Claims Reserve after all Administrative and Priority Claims have been Allowed or disallowed shall be transferred to and become the property of the Reorganized Debtors. J. ALLOCATION OF CONSIDERATION The aggregate consideration to be distributed to the holders of Allowed Claims in each Class under the Plan shall be treated as first satisfying an amount equal to the stated principal amount of the Allowed Claim for such holders and any remaining consideration as satisfying accrued, but unpaid, interest and costs, if any, and attorneys' fees where applicable. 47 K. CANCELLATION AND SURRENDER OF EXISTING SECURITIES AND AGREEMENTS On the Effective Date, the Senior Notes, Senior Subordinated Notes and Equity Interests shall be deemed canceled and such agreements and securities, including the Senior Note Indentures and the Senior Subordinated Note Indenture, together with all instruments issued pursuant thereto, shall have no further legal effect other than as evidence of any right to receive distributions, fees and expenses under the Plan. In addition, the Note Indentures shall be terminated and each of the Indenture Trustee's obligations shall be discharged. Notwithstanding any other provision of the Plan, as a condition precedent to receiving any distribution under the Plan, each holder of a promissory note, share certificate, or other instrument or security evidencing a Claim or Equity Interest must surrender such promissory note, share certificate, or other instrument or security to the Reorganized Debtors or their designee or must execute and deliver an affidavit of loss and furnish an indemnity or bond in substance and amount reasonably satisfactory to the Reorganized Debtors or their designee, as the case may be. Any holder of a Claim or Equity Interest that fails to surrender such instrument or security or to provide the affidavit and indemnity or bond, before the later to occur of (i) the second anniversary of the Effective Date and (ii) six months following the date such holder's Claim becomes an Allowed Claim or Equity Interest shall be deemed to have forfeited all rights, Claims, and/or Equity Interests and may not receive or participate in any distribution under the Plan. L. INDENTURE TRUSTEE FEES On or prior to the Effective Date, each Indenture Trustee shall furnish to the Debtors a certification stating the aggregate amount of (i) its previously invoiced but then unpaid fees and unreimbursed expenses (including the fees and expenses of its counsel), in accordance with and to the extent provided for in its Note Indenture, whether incurred prior or subsequent to the Petition Date, and (ii) an estimate of such fees and expenses from the latest date covered by its last invoice to and including the Effective Date and an estimate of any post-Effective Date fees and expenses. On the Effective Date, in full satisfaction of such fees and expenses, each Indenture Trustee shall receive an amount of Cash equal to the aggregate amount stated in its aforementioned certification, without application by or on behalf of such Indenture Trustee or its respective counsel to the Court. In the event the Debtors deliver written notice to an Indenture Trustee that the Debtors contest the amount certified to by such Indenture Trustee, the amount not in dispute shall be paid to such Indenture Trustee on the Effective Date, and the balance of the amount so certified will be held in trust, in a segregated interest bearing money market account (the "Segregated Account"), until the final resolution of the dispute. The respective Indenture Trustee and the Reorganized Debtors, to the extent to which each is entitled 48 to the funds so held in the Segregated Account, shall also be entitled to all interest and income earned thereon. Distributions made to the holders of Allowed Claims pursuant to the Plan will not be reduced on account of such payments to each Indenture Trustee or funds held in the Segregated Account as set forth above. The Confirmation order shall provide that each Indenture Trustee Charging Lien shall attach to all Cash to be distributed under the Plan until the aggregate amount stated in its certification has been paid in full or, to the extent contested by the Debtors, paid into the Segregated Account referred to in the preceding paragraph and the balance paid the Indenture Trustee, whereupon the respective Indenture Trustee Charging Lien shall be released as to funds paid to the Indenture Trustee and shall be transferred to the Segregated Account to the extent of the amount in dispute. The amount by which an Indenture Trustee's actual fees and expenses which were estimated as referred to in (ii) above are later determined by the Indenture Trustee to exceed or be less than its estimate, as well as the amount of any Indenture Trustee's fees and expenses for services requested by any of the Reorganized Debtors after the Effective Date, shall be promptly paid by or reimbursed to (as the case may be) the Reorganized Debtors upon receipt of certification thereof from the Indenture Trustee or, where appropriate, the amount held in the Segregated Account adjusted accordingly. Any dispute between the Debtors or the Reorganized Debtors and any Indenture Trustee regarding such Indenture Trustee's fees and expenses, unless resolved by agreement of the Debtors or the Reorganized Debtors and any Indenture Trustee, shall be determined only in the appropriate state court in accordance with the provisions of the respective Note Indenture. If no such action is instituted by the Debtors or the Reorganized Debtors within 90 days after the Effective Date, the amount in dispute and all interest and income earned thereon shall be promptly turned over to the respective Indenture Trustee, free and clear of any interest of the Reorganized Debtors. The Reorganized Debtors shall bear all reasonable legal fees and expenses of each Indenture Trustee to the extent incurred in the Indenture Trustee's successful pursuit of funds held in the aforementioned Segregated Account. 49 M. IMPLEMENTATION OF THE PLAN 1 REGISTRATION RIGHTS AGREEMENT, NEW NOTES INDENTURE, THE AMENDED PENN TRAFFIC CERTIFICATE OF INCORPORATION, THE AMENDED PENN TRAFFIC BY-LAWS, THE AMENDED SUBSIDIARIES CERTIFICATES OF INCORPORATION, THE AMENDED SUBSIDIARIES BY- LAWS, THE NEW MANAGEMENT AGREEMENT, THE EQUITY INCENTIVE PLAN, THE WARRANT AGREEMENT, THE SUPPLEMENTAL RETIREMENT PLAN, THE AMENDMENT TO JOSEPH V. FISHER'S EMPLOYMENT AGREEMENT AND OTHER IMPLEMENTATION DOCUMENTS On or before the Effective Date, pursuant to the Plan, the Reorganized Debtors will execute the Registration Rights Agreement, the New Notes Indenture, the Amended Penn Traffic Certificate of Incorporation, the Amended Penn Traffic By-Laws, the Amended Subsidiaries Certificates of Incorporation, the Amended Subsidiaries By-Laws, the New Management Agreement, the Equity Incentive Plan, the Warrant Agreement, the Supplemental Retirement Plan, the Amendment to Joseph V. Fisher's Employment Agreement and all other documents required and necessary to implement the Plan without the requirement of any further corporate action. 2 THE DEBTORS' RELEASE On the Effective Date, pursuant to the Plan, the Debtors and the Reorganized Debtors on behalf of themselves, and their estates, shall be deemed to release unconditionally all of their respective officers, directors, employees, advisors, attorneys, financial advisors, accountants, and other professionals and each of the Indenture Trustees, counsel to each of the respective Indenture Trustees, the Creditors' Committee members, counsel to the Creditors' Committee, the Informal Committee members, counsel to the Informal Committee, financial advisors to the Creditors' Committee and Informal Committee and each of their representatives and agents (including any professionals retained by such persons or entities) (the "Released Parties") from any and all claims, obligations, suits, judgments, damages, rights, Causes of Action and liabilities whatsoever, whether known or unknown, foreseen or unforeseen, existing or hereafter arising, in law, equity or otherwise, based in whole or in part upon actions taken in their respective capacities described above or any omission, transaction, event or other occurrence taking place on or prior to the Effective Date in any way relating to the Debtors, the Chapter 11 Cases or the Plan, except that (i) no individual shall be released from any act or omission that constitutes gross negligence or willful misconduct and (ii) the Reorganized Debtors shall not relinquish or waive the right to assert any of the foregoing as a legal or equitable defense or right of set-off or recoupment against any Claims of any such persons asserted against the Debtors. 50 The Debtors do not believe that they have any claims against any of their current officers and directors or against the members of the Informal Committee or their advisors. 3 WAIVER OF CLAIMS; COVENANT NOT TO SUE The Plan provides that effective as of the Confirmation Date, but subject to the occurrence of the Effective Date, and except as otherwise expressly provided in the Plan or the Confirmation Order, the Debtors and Debtors in Possession (x) shall be deemed to have covenanted with each of the present officers and directors of the Debtors, to waive and not to (1) sue or otherwise seek any recovery from such officers and directors or their respective property, whether for tort, fraud, contract, violations of federal or state securities laws, or otherwise, based in whole or in part upon any act or omission, transaction, event, or other occurrence taking place on or before the Effective Date in any way relating to the Debtors, the Chapter 11 Cases, or the Plan or (2) assert against any of the Debtor's present officers and directors, or their respective property, any claim, obligation, right, cause of action, or liability which the Debtors may be entitled to assert in any case, whether for tort, fraud, contract, violations of federal or state securities laws, or otherwise, whether known or unknown, foreseen or unforeseen, existing or hereafter arising, based in whole or in part upon any act or omission, transaction, or other occurrence taking place on or before the Effective Date in any way relating to the Debtors, the Chapter 11 Cases, or the Plan and (y) are permanently enjoined, on and after the Effective Date, from commencing or continuing in any manner any action or other proceeding of any kind with respect to such Claims, obligations, rights, causes of action, or liabilities released or waived hereunder; except that (i) the foregoing waivers and covenants shall not apply to any act or omission of any individual that constitutes gross negligence or willful misconduct and (ii) the Reorganized Debtors shall not relinquish or waive the right to assert any of such Claims, obligations, rights, causes of action, or liabilities, as a legal or equitable defense or right of set-off or recoupment against any Claims of any such persons asserted against the Debtors. Notwithstanding the above, the Debtors do not believe that any such claims exist. N. EFFECT OF CONFIRMATION OF THE PLAN 1 CONTINUED CORPORATE EXISTENCE AND VESTING OF ASSETS IN THE REORGANIZED DEBTORS The Debtors, as the Reorganized Debtors, shall continue to exist after the Effective Date with all powers of a corporation under the laws of their state of incorporation and without prejudice to any right to alter or terminate such existence (whether by merger or otherwise) under such applicable state law. Except as otherwise expressly provided in the Plan, on the Effective Date, the Reorganized Debtors shall be vested with all of the property of their estates free and clear of all claims, liens, encumbrances, charges and other interests of creditors and equity 51 security holders, and the Reorganized Debtors may operate their businesses free of any restrictions imposed by the Bankruptcy Code, the Bankruptcy Rules or by the Court, subject only to the terms and conditions of the Plan. 2 TERMINATION OF SUBORDINATION RIGHTS All Claims of the holders of Senior Notes and Senior Subordinated Notes against the Debtors and all rights and Claims between or among the holders of Senior Notes and Senior Subordinated Notes relating in any manner whatsoever to claimed subordination rights, rights to postpetition and default interest, or similar rights, if any (collectively, "Subordination-Related Rights"), shall be deemed satisfied by the distributions under, described in, contemplated by, and/or implemented by, the Plan to holders of such Claims and such rights shall be deemed waived, released, discharged, and terminated as of the Effective Date, and all actions related to the enforcement of such Subordination-Related Rights shall be permanently enjoined. Distributions under, described in, contemplated by, and/or implemented by, the Plan shall not be subject to levy, garnishment, attachment, or like legal process by any holder of a Claim, including, but not limited to, holders of Senior Note Claims, by reason of any claimed Subordination-Related Rights or otherwise, so that each holder of a Claim shall have and receive the complete benefit of the distributions in the manner set forth and described in the Plan. 3 DISCHARGE OF THE DEBTORS The rights afforded in the Plan and the treatment of all Claims and Equity Interests in the Plan shall be in exchange for and in complete satisfaction, discharge, and release of all Claims and Equity Interests of any nature whatsoever, including any interest accrued on such Claims from and after the Petition Date, against the Debtors, the Debtors in Possession, or any of their assets or properties arising prior to the Effective Date. Except as otherwise expressly specified in the Plan, the Confirmation Order shall act as of the Effective Date as a discharge of all debts of, Claims against, liens on, and Equity Interests in the Debtors, their assets and properties, arising at any time before the entry of the Confirmation Order, regardless of whether a proof of claim or interest with respect thereto was filed, whether the Claim or Equity Interest is Allowed, or whether the holder thereof votes to accept the Plan or is entitled to receive a distribution thereunder. Except as otherwise expressly specified in the Plan, after the Effective Date, any holder of such discharged Claim or Equity Interest shall be precluded from asserting against the Debtors, the Reorganized Debtors, or any of their assets or properties, any other or further Claim or Equity Interest based on any document, instrument, act, omission, transaction, or other activity of any kind or nature that occurred before the entry of the Confirmation Order. 52 4 INJUNCTION Except as otherwise expressly provided in the Plan, the Confirmation Order, or a separate order of the Court, all entities who have held, hold, or may hold Claims against or Equity Interests in the Debtors which arose before or were held as of the Effective Date, are permanently enjoined, on and after the Effective Date, from (a) commencing or continuing in any manner any action or other proceeding of any kind against the Debtors with respect to any such Claim or Equity Interest, (b) the enforcement, attachment, collection, or recovery by any manner or means of any judgment, award, decree, or order against the Debtors on account of any such Claim or Equity Interest, (c) creating, perfecting, or enforcing any encumbrance of any kind against the Debtors or against the property or interests in property of the Debtors on account of any such Claim or Equity Interest and (d) asserting any right of setoff, subrogation, or recoupment of any kind against any obligation due from the Debtors or against the property or interests in property of the Debtors on account of any such Claim or Equity Interest. Such injunction shall extend to successors of the Debtors (including, without limitation, the Reorganized Debtors) and their respective properties and interests in property. 5 PRESERVATION OF RIGHTS Pursuant to the Plan and sections 544, 548, 549, 550, 551, 553 and 1123(b)(3)(B) of the Bankruptcy Code, the Debtors and the Reorganized Debtors shall retain all rights and all Causes of Action accruing to the Debtors, their estates, or the Reorganized Debtors, including, without limitation, (i) the avoidance of any transfer of an interest of the Debtors in property or any obligation incurred by the Debtors; provided, however, that the Debtors waive any and all claims and Causes of Action related to payments made before the Petition Date on account of the Senior Notes or the Senior Subordinated Notes, or (ii) the turnover of any property to the estates, and except as expressly provided in the Plan or the Confirmation Order, nothing contained in the Plan or the Confirmation Order shall be deemed to be a waiver or relinquishment of any such rights or Causes of Action. Nothing contained in the Plan or the Confirmation Order shall be deemed to be a waiver or relinquishment of any Claim, Cause of Action, right of setoff, or other legal or equitable defense which the Debtors had immediately prior to the Petition Date which is not expressly waived or relinquished pursuant to the Plan or the Confirmation Order. The Reorganized Debtors shall have, retain, reserve and be entitled to assert all such Claims, Causes of Action, rights of setoff and other legal or equitable defenses which the Debtors had immediately prior to the Petition Date as fully as if the Chapter 11 Cases had not been commenced; and all of the Reorganized Debtors' legal and equitable rights respecting any Claim which are not expressly waived or relinquished pursuant to the Plan or the Confirmation Order may be asserted after the Effective Date to the same extent as if the Chapter 11 Cases had not been commenced. Notwithstanding the Debtors' preservation of rights, the Debtors do not believe any such claims or Causes of Action exist. 53 6 VOTES SOLICITED IN GOOD FAITH The Plan provides that pursuant to section 1125(e) of the Bankruptcy Code, the Debtors have, and upon confirmation of the Plan shall be deemed to have, solicited acceptances of the Plan in good faith and in compliance with the applicable provisions of the Bankruptcy Code. The Plan further provides that pursuant to section 1125(e) of the Bankruptcy Code, the Debtors (and each of their respective affiliates, agents, directors, officers, employees, advisors, and attorneys) have participated in good faith and in compliance with the applicable provisions of the Bankruptcy Code in the offer, issuance, sale, and purchase of the securities offered and sold under the Plan and therefore are not, and on account of such offer, issuance, sale, solicitation, and/or purchase will not be, liable at any time for the violation of any applicable law, rule, or regulation governing the solicitation of acceptances or rejections of the Plan or the offer, issuance, sale, or purchase of the securities offered and sold under the Plan. 7 ADMINISTRATIVE CLAIMS INCURRED AFTER THE CONFIRMATION DATE Administrative Claims incurred by the Reorganized Debtors after the date and time of the entry of the Confirmation Order, including (without limitation) Claims for professionals' fees and expenses incurred after such date, shall not be subject to application and may be paid by the Reorganized Debtors in the ordinary course of business and without application for or Court approval. 8 EXCULPATION AND RELEASE OF RELEASED PARTIES; INJUNCTION The Plan provides that the Debtors and the Reorganized Debtors and the Released Parties shall have no liability whatsoever to any holder or purported holder of an Administrative Claim, Claim, or Equity Interest for any act or omission in connection with, or arising out of, the negotiation of the Plan, the negotiation of the other documents included in the Plan Supplement, the pursuit of approval of the Disclosure Statement or the solicitation of votes for or confirmation of the Plan, the Chapter 11 Cases, the consummation of the Plan, the administration of the Plan or the property to be distributed under the Plan, or the various management, employee and director incentive bonus and stock option plans, employment contracts, programs and arrangements adopted in connection with the Plan or the Chapter 11 Cases, except for willful misconduct or gross negligence as determined by a Final Order, and, in all respects, shall be entitled to rely upon the advice of counsel with respect to their duties and responsibilities. This exculpation shall be in addition to, and not in limitation of, all other releases, indemnities, exculpations and any other applicable law or rules protecting such Released Parties from liability. The Plan provides that pursuant to section 105 of the Bankruptcy Code, no holder or purported holder of an Administrative Claim, Claim or Equity Interest shall be permitted to commence or continue any action, employment of process, or an 54 act to collect, offset, or recover any claim against a Released Party that accrued prior to the Effective Date and has been released or waived pursuant to the Plan. 9 PRESERVATION OF INSURANCE The Plan provides that the Debtors' discharge and release from all Claims as provided in the Plan, except as necessary to be consistent with the Plan, shall not diminish or impair the enforceability of any insurance policy that may cover Claims against the Debtors, the Reorganized Debtors (including, without limitation, its officers and directors) or any other person or entity. 10 TERM OF BANKRUPTCY INJUNCTION OR STAYS The Plan provides that all injunctions or stays provided for in the Chapter 11 Cases under sections 105 or 362 of the Bankruptcy Code, or otherwise, and in existence on the Confirmation Date, shall remain in full force and effect until the Effective Date. 11 OFFICERS' AND DIRECTORS' INDEMNIFICATION RIGHTS AND INSURANCE The Plan provides that notwithstanding any other provision of the Plan, the obligations of the Debtors to indemnify their directors, officers, and employees against any obligations, liabilities, costs or expenses pursuant to the articles of incorporation or by-laws of the Debtors, applicable state law, specific agreement, or any combination of the foregoing, shall survive the Effective Date. In addition, the Reorganized Debtors shall obtain tail coverage under their existing directors and officers insurance policy covering their existing directors and officers for any and all claims brought against them, which coverage shall extend for a period of not less than 6 years after the Effective Date, subject to the reasonable approval of price and terms thereof by Satellite Fund Management, LLC, DDJ Capital Management, LLC and Loomis Sayles & Company LP. The Debtors are not currently aware of any claims that will give rise to indemnification of their directors, officers or employees. 12 LIMITATION OF GOVERNMENTAL RELEASE Notwithstanding Sections VIII.J.1 and 2 of the Plan, the Plan shall not release, discharge, or exculpate any non-debtor party from any debt owed to the Government, or from any liability arising under the Internal Revenue Code, the Employee Retirement Income Security Act of 1974, as amended, or environmental laws, securities laws or criminal laws of the United States. In addition, notwithstanding Sections VIII.J.1 and 2 of the Plan, the Plan shall not enjoin or prevent the Government from collecting any such liability from any such non-debtor party. 55 O. RETENTION OF JURISDICTION The Court shall have exclusive jurisdiction of all matters arising out of, and related to, the Chapter 11 Cases and the Plan pursuant to, and for the purposes of, section 105(a) and section 1142 of the Bankruptcy Code and for, among other things, the following purposes: (1) to hear and determine applications for the assumption or rejection of executory contracts or unexpired leases pending on the date the Plan is confirmed, and the allowance of Claims resulting therefrom; (2) to determine any other applications, adversary proceedings, and contested matters pending on the Effective Date; (3) to ensure that distributions to holders of Allowed Claims and Allowed Equity Interests are accomplished as provided by the Plan; (4) to resolve disputes as to the ownership of any Claim or Equity Interest; (5) to hear and determine timely objections to Administrative Claims and Claims; (6) to enter and implement such orders as may be appropriate if the Confirmation Order is for any reason stayed, revoked, modified or vacated; (7) to issue such orders in aid of execution of the Plan, to the extent authorized by section 1142 of the Bankruptcy Code; (8) to consider any modifications of the Plan, to cure any defect or omission, or to reconcile any inconsistency in any order of the Court, including, without limitation, the Confirmation Order; (9) to hear and determine all applications for compensation and reimbursement of expenses of professionals under sections 330, 331, and 503(b) of the Bankruptcy Code; (10) to hear and determine disputes arising in connection with the interpretation, implementation, or enforcement of the Plan; (11) to hear and determine any issue for which the Plan requires a Final Order of the Court; (12) to hear and determine matters concerning state, local, and federal taxes in accordance with sections 346, 505, and 1146 of the Bankruptcy Code; (13) to hear any other matter not inconsistent with the Bankruptcy Code; (14) to hear and determine disputes arising in connection with compensation and reimbursement of expenses of professionals for services rendered during the period commencing on the Confirmation Date through and including the Effective Date; and (15) to enter a final decree closing the Chapter 11 Cases. P. MISCELLANEOUS PROVISIONS 1 PAYMENT OF STATUTORY FEES All fees payable on or before the Effective Date (i) pursuant to section 1930 of title 28 of the United States Code, as determined by the Court at the Confirmation Hearing, and (ii) to the United States Trustee, shall be paid by the Debtors on or before the Effective Date and all such fees payable after the Effective Date shall be paid by the Reorganized Debtors. 56 2 DISSOLUTION OF CREDITORS COMMITTEE The appointment of the Creditors Committee shall terminate on the Effective Date except that it shall survive for the limited purposes of reviewing any applications for final allowance of compensation and reimbursement of expenses of professionals and with respect to any appeals of the Confirmation Order. 3 MODIFICATION OF THE PLAN The Debtors reserve the right, in accordance with the Bankruptcy Code, to amend or to modify the Plan prior to the entry of the Confirmation Order. After entry of the Confirmation Order, the Reorganized Debtors or the Debtors may amend or modify the Plan, or remedy any defect or omission or reconcile any inconsistency in the Plan in such a manner as may be necessary to carry out the purpose and intent of the Plan. Any material modifications to the Plan shall be subject to the Creditors Committee's Consent. 4 GOVERNING LAW Unless a rule of law or procedure is supplied by Federal law (including the Bankruptcy Code and Bankruptcy Rules) or the Delaware General Corporation Law or such other corporate laws that may apply to the Subsidiaries, the laws of the State of New York (without reference to the conflicts of laws provisions thereof) shall govern the construction and implementation of the Plan and any agreements, documents, and instruments executed in connection with the Plan. 5 FILING OR EXECUTION OF ADDITIONAL DOCUMENTS On or before the Effective Date, the Debtors or the Reorganized Debtors, shall file with the Court or execute, as appropriate, such agreements and other documents as may be necessary or appropriate to effectuate and further evidence the terms and conditions of the Plan. 6 WITHHOLDING AND REPORTING REQUIREMENTS In connection with the Plan and all instruments issued in connection therewith and distributions thereon, the Reorganized Debtors shall comply with all withholding and reporting requirements imposed by any federal, state, local, or foreign taxing authority and all distributions thereunder shall be subject to any such withholding and reporting requirements. 7 EXEMPTION FROM TRANSFER TAXES Pursuant to section 1146(c) of the Bankruptcy Code, the issuance, transfer or exchange of New Senior Notes, New Common Stock or New Warrants 57 under the Plan, the making or assignment of any lease or sublease or the making or delivery of any other instrument whatsoever, in furtherance of or in connection with the Plan shall not be subject to any stamp, real estate transfer, recording or other similar tax. 8 SECTION 1145 EXEMPTION Pursuant to, in accordance with, and solely to the extent provided under section 1145 of the Bankruptcy Code, the issuance of the New Senior Notes, New Common Stock and New Warrants under the Plan is exempt from the registration requirements of Section 5 of the Securities Act, as amended, and any State or local law requiring registration for offer or sale of a security or registration or licensing of an issuer of, underwriter of, or broker or dealer in such New Senior Notes, New Common Stock or New Warrants and is deemed to be a public offering of New Senior Notes, New Common Stock and New Warrants. 9 WAIVER OF FEDERAL RULE OF CIVIL PROCEDURE 62(A) The Debtors may request that the Confirmation Order include (a) a finding that Fed. R. Civ. P. 62(a) shall not apply to the Confirmation Order and (b) authorization for the Debtors to consummate the Plan immediately after entry of the Confirmation Order. 10 PLAN SUPPLEMENT Forms of the documents relating to the Amended Penn Traffic Certificate of Incorporation, the Amended Penn Traffic By-laws, the Amended Subsidiaries Certificates of Incorporation, the Amended Subsidiaries By-laws, the Warrant Agreement, the New Notes Indent re, the Registration Rights Agreement, the New Management Agreement, the investment guidelines referred to in Section VI.C.2.(a)(ii) of the Plan, the Supplemental Retirement Plan, the Amendment to Joseph V. Fisher's Employment Agreement and the Equity Incentive Plan shall be contained in the Plan Supplement which has been filed with the Clerk of the Court. The Plan Supplement may be inspected in the office of the Clerk of the Court during normal court hours. Holders of Claims or Equity Interests may obtain a copy of the Plan Supplement upon written request to the Debtors in accordance with Section X.L. of the Plan. Q. EXECUTORY CONTRACTS AND UNEXPIRED LEASES The Bankruptcy Code grants the Debtors the power, subject to the approval of the Court, to assume or reject executory contracts and unexpired leases. If an executory contract or unexpired lease is rejected, the other party to the agreement may file a claim for damages, if any, incurred by reason of the rejection. 58 In the case of rejection of leases of real property and employment agreements, such damage claims are subject to certain limitations imposed by the Bankruptcy Code. Other than (i) executory contacts or unexpired leases which are the subject of a motion to reject pending on the Confirmation Date and (ii) employment agreements, if any, terminated prior to or in connection with the Plan, all of the executory contracts, unexpired leases and employment agreements that exist between the Debtors and any person, are specifically assumed as of the Effective Date pursuant to the Plan. All Claims for damages arising from the rejection of executory contracts or unexpired leases must be filed with the Court in accordance with the terms of the order authorizing such rejection. Any Claims not filed within such time will be forever barred from assertion against the Debtors, their estates and the Reorganized Debtors. All Allowed Claims arising from the rejection of executory contracts or unexpired leases shall be treated as Class 5 Claims. The Reorganized Debtors, except as otherwise agreed by the parties, will cure any and all undisputed defaults within 60 days of the Effective Date under any executory contract, unexpired lease or employment agreement assumed pursuant to the Plan in accordance with section 365 of the Bankruptcy Code. All disputed defaults that are required to be cured shall be cured either within 30 days of the entry of a Final Order determining the amount, if any, of the Debtors' or the Reorganized Debtors' liability with respect thereto, or as may otherwise be agreed to by the parties. Notwithstanding the above, the Debtors do not currently intend to reject any executory contracts. R. BENEFIT PLANS The Plan provides that all employment and severance agreements and policies, and all employee compensation and benefit plans, policies, and programs of the Debtors applicable generally to its employees, including agreements and programs subject to section 1114 of the Bankruptcy Code, as in effect on the Effective Date, including, without limitation, all savings plans, retirement plans, health care plans, disability plans, severance benefit plans, incentive plans, and life, accidental death, and dismemberment insurance plans, shall be deemed to be, and shall be treated as though they are, executory contracts that are assumed under the Plan, but only to the extent that rights under such agreements and programs are held by the Debtors or individuals who are the Reorganized Debtors' employees as of and after the Effective Date, and the Debtors' obligations under such agreements and programs to individuals who are employees of the Debtors on and after the Effective Date shall survive the Effective Date of the Plan, without prejudice to the Reorganized Debtors' rights under applicable non-bankruptcy law to modify, amend, or terminate the foregoing arrangements, except for (i) such executory contracts or plans specifically rejected pursuant to the Plan (to the extent such rejection does not violate section 1114 of the Bankruptcy Code) and (ii) such executory contracts or plans as have previously been terminated, or rejected, pursuant to a Final Order, or specifically waived by the beneficiaries of such plans, contracts, or programs. 59 S. PENSION PLANS The Debtors sponsor the P&C Foods Pension Plan for Represented Employees, the Big Bear General Merchandise Plan, the Big Bear Food Warehouse Hourly Plan, the Penn Traffic Company Cash Balance Plan, the Riverside Division of Penn Traffic Company Pension Plan for Bargaining Employees, the Pension Plan for the Bargaining Employees of Insalco Markets, and any other tax qualified defined benefit pension plan, insured by the Pension Benefit Guaranty Corporation (the "PBGC") under Title IV of ERISA and maintained by the Debtors, as well as any successor plan, (the "Pension Plans"), which are tax qualified defined benefit pension plans covered by Title IV of the Employee Retirement Income Security Act of 1975, as amended ("ERISA"). The Debtors have continued to fund and administer the Pension Plans in compliance with applicable laws. Under ERISA, the Debtors and the members of their controlled group are jointly and severally liable to PBGC for unfunded benefit liabilities, as defined in ERISA ss. 4001(a)(18), 29 U.S.C. ss. 1301(a)(18), if the Pension Plans terminate. In addition, the Debtors and members of their controlled group are jointly and severally liable for the contribution amounts necessary to satisfy ERISA's minimum funding standards. See ERISA ss.ss. 302, 4062(c), 29 U.S.C. ss.ss. 1082 and 1362(c); I.R.C. ss. 412, 26 U.S.C. ss. 412. Also the Debtors and members of their controlled group are jointly and severally liable for premiums, interest and penalties imposed by ERISA for plans covered by Title IV of ERISA. ERISA ss. 4007(a), (b), (c), 29 U.S.C. ss. 1307(a), (b), (e), 29 C.F.R. ss. 4007.12(a). The Debtors presently intend to continue the Pension Plans, fund the Pension Plans in accordance with the minimum funding standards under the Internal Revenue Code and ERISA, pay all required PBGC insurance premiums, and to continue to administer and operate the Pension Plans in accordance with the terms of the Pension Plans and the provisions of ERISA. The Chapter 11 Cases, and in particular, the Plan, shall not, in any way, be construed as discharging, releasing or relieving the Debtors, the Reorganized Debtors, or any party, in any capacity, from any liability with respect to the Pension Plans under ERISA and under Internal Revenue Code Section 412. PBGC and the Pension Plans shall not be enjoined or precluded from enforcing such liability as a result of any of the provisions of the Plan or Confirmation. 60 VIII. PROJECTIONS AND VALUATION ANALYSIS The Debtors and their advisors developed a set of financial projections (summarized below and in Exhibit D) to assess the value of the Reorganized Debtors generally, and specifically the value of the New Common Stock to be distributed to Classes 6, 7 and 8 under the Plan. In addition, the Debtors and their advisors have developed a recovery analysis (attached as Exhibit H) describing the estimated recoveries to holders of Claims and Equity Interests in Classes 6, 7 and 8 under the Plan. The projections and valuations set forth below and in Exhibit D are based on a number of significant assumptions including, among other things, the successful reorganization of the Debtors, an assumed Effective Date of June 26, 1999 and no significant downturn in the specific markets in which the Debtors operate. THE PROJECTIONS ARE BASED UPON A NUMBER OF SIGNIFICANT ASSUMPTIONS. ACTUAL OPERATING RESULTS AND VALUES MAY VARY. A. PROJECTIONS As a condition to confirmation of a plan, the Bankruptcy Code requires, among other things, that the Bankruptcy Court determine that confirmation is not likely to be followed by the liquidation or the need for further financial reorganization of the debtor. In connection with the development of the Plan, and for purposes of determining whether the Plan satisfies this feasibility standard, Penn Traffic's management has, through the development of financial projections (the "Projections"), analyzed the ability of Penn Traffic to meet its obligations under the Plan to maintain sufficient liquidity and capital resources to conduct its business. The Projections were also prepared to assist each holder of a Claim or Equity Interest in Classes 5, 6, 7 or 8 in determining whether to accept or reject the Plan. The Projections should be read in conjunction with the assumptions, qualifications and footnotes to tables containing the Projections set forth herein and in Exhibit D, the historical consolidated financial information (including the notes and schedules thereto) and the other information set forth in Penn Traffic's Annual Report on Form 10K for the fiscal year ended January 31, 1998, Penn Traffic's Quarterly Report on Form 10Q for the period ended October 31, 1998 and Penn Traffic's Fourth Quarter Fiscal 1999 Earnings Press Release, annexed hereto as Exhibits C, G and I, respectively, the full texts of which are incorporated herein by reference. The Projections were prepared in good faith based upon assumptions believed to be reasonable. Most of the assumptions about the operations of the business after the assumed Effective Date which are utilized in the Projections were prepared in December 1998 and were based, in part, on economic, competitive, and general business conditions prevailing at the time. While as of the date of this Disclosure 61 Statement such conditions have not materially changed, any future changes in these conditions may materially impact the ability of Penn Traffic to achieve the Projections. THE PROJECTIONS WERE NOT PREPARED WITH A VIEW TOWARDS COMPLYING WITH THE GUIDELINES FOR PROSPECTIVE FINANCIAL STATEMENTS PUBLISHED BY THE AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS. PENN TRAFFIC'S INDEPENDENT ACCOUNTANT, PRICEWATERHOUSECOOPERS LLP, HAS NEITHER COMPILED NOR EXAMINED THE ACCOMPANYING PROSPECTIVE FINANCIAL INFORMATION TO DETERMINE THE REASONABLENESS THEREOF AND, ACCORDINGLY, HAS NOT EXPRESSED AN OPINION OR ANY OTHER FORM OF ASSURANCE WITH RESPECT THERETO. PENN TRAFFIC DOES NOT, AS A MATTER OF COURSE, PUBLISH PROJECTIONS OF ITS ANTICIPATED FINANCIAL POSITION, RESULTS OF OPERATIONS OR CASH FLOWS. ACCORDINGLY, PENN TRAFFIC DOES NOT INTEND TO, AND DISCLAIMS ANY OBLIGATION TO (A) FURNISH UPDATED PROJECTIONS TO HOLDERS OF CLAIMS OR EQUITY INTERESTS PRIOR TO THE EFFECTIVE DATE OR TO HOLDERS OF NEW COMMON STOCK OR ANY OTHER PARTY AFTER THE EFFECTIVE DATE, (B) INCLUDE SUCH UPDATED INFORMATION IN ANY DOCUMENTS THAT MAY BE REQUIRED TO BE FILED WITH THE SEC, OR (C) OTHERWISE MAKE SUCH UPDATED INFORMATION PUBLICLY AVAILABLE. THE PROJECTIONS PROVIDED IN THE DISCLOSURE STATEMENT HAVE BEEN PREPARED EXCLUSIVELY BY PENN TRAFFIC'S MANAGEMENT. THESE PROJECTIONS, WHILE PRESENTED WITH NUMERICAL SPECIFICITY, ARE NECESSARILY BASED ON A VARIETY OF ESTIMATES AND ASSUMPTIONS WHICH, THOUGH CONSIDERED REASONABLE BY MANAGEMENT, MAY NOT BE REALIZED, AND ARE INHERENTLY SUBJECT TO SIGNIFICANT BUSINESS, ECONOMIC AND COMPETITIVE UNCERTAINTIES AND CONTINGENCIES, MANY OF WHICH ARE BEYOND PENN TRAFFIC'S CONTROL. PENN TRAFFIC CAUTIONS THAT NO REPRESENTATIONS CAN BE MADE AS TO THE ACCURACY OF THESE FINANCIAL PROJECTIONS OR TO REORGANIZED PENN TRAFFIC'S ABILITY TO ACHIEVE THE PROJECTED RESULTS. SOME ASSUMPTIONS INEVITABLY WILL NOT MATERIALIZE. FURTHER, EVENTS AND CIRCUMSTANCES OCCURRING SUBSEQUENT TO THE DATE ON WHICH THESE PROJECTIONS WERE PREPARED MAY BE DIFFERENT FROM THOSE ASSUMED OR, ALTERNATIVELY, MAY HAVE BEEN UNANTICIPATED, AND THUS THE OCCURRENCE OF THESE EVENTS MAY AFFECT FINANCIAL RESULTS IN A MATERIAL AND POSSIBLY ADVERSE MANNER. THE PROJECTIONS, THEREFORE, MAY NOT BE RELIED UPON AS A 62 GUARANTY OR OTHER ASSURANCE OF THE ACTUAL RESULTS THAT WILL OCCUR. FINALLY, THE PROJECTIONS INCLUDE ASSUMPTIONS AS TO THE ENTERPRISE VALUE OF REORGANIZED PENN TRAFFIC, THE FAIR VALUE OF ITS ASSETS AND ITS ACTUAL LIABILITIES AS OF THE EFFECTIVE DATE. REORGANIZED PENN TRAFFIC WILL BE REQUIRED TO MAKE SUCH ESTIMATIONS AS OF THE EFFECTIVE DATE. SUCH DETERMINATION WILL BE BASED UPON THE FAIR VALUES AS OF THAT DATE, WHICH COULD BE MATERIALLY GREATER OR LOWER THAN THE VALUES ASSUMED IN THE FOREGOING ESTIMATES. B. VALUATION Two methodologies were used to derive the value of Reorganized Penn Traffic based on the Projections: (i) a comparison of the company and its projected performance to how the market values comparable companies, and (ii) a calculation of the present value of the free cash flows under the Projections, including an assumption for a terminal value. The market based approach involves identifying a group of publicly traded companies whose businesses or product lines are comparable to those of Penn Traffic as a whole or significant portions of the company's operations, and then calculating ratios of various financial results to the public market values of these companies. The ranges of ratios derived are then applied to Penn Traffic's projected financial results to derive a range of implied values. The discounted cash flow approach involves deriving the unlevered free cash flows that Penn Traffic would generate assuming the projections were realized. These cash flows, and an estimated value of the company at the end of the projected period (the "Terminal Value"), are discounted to the present at Penn Traffic's estimated post-restructuring weighted average cost of capital to determine the company's enterprise value. ESTIMATES OF VALUE DO NOT PURPORT TO BE APPRAISALS NOR DO THEY NECESSARILY REFLECT THE VALUES WHICH MAY BE REALIZED IF ASSETS ARE SOLD. THE ESTIMATES OF VALUE REPRESENT HYPOTHETICAL REORGANIZED ENTERPRISE VALUES ASSUMING THE IMPLEMENTATION OF MANAGEMENT'S BUSINESS PLAN AS WELL AS OTHER SIGNIFICANT ASSUMPTIONS. SUCH ESTIMATES WERE DEVELOPED SOLELY FOR PURPOSES OF FORMULATING AND NEGOTIATING A PLAN OF REORGANIZATION AND ANALYZING THE PROJECTED RECOVERIES THEREUNDER. Based upon the methods described above, the estimated enterprise value for Reorganized Penn Traffic is between $700 million and $800 million, with a midpoint value of $750 million. After deducting the estimated, long-term indebtedness 63 of Penn Traffic at the Effective Date of approximately $368 million, the estimated total equity value is between $332 million and $432 million, with a midpoint value of $382 million. Therefore, assuming 20,106,955 shares of New Common Stock will be issued on the Effective Date, the midpoint value of New Common Stock is estimated to be $18.63 per share, after the assumed impact on the value of the stock from the issuance of the New Warrants. Penn Traffic has estimated the value of the New Warrants to be $7.2 million, or $7.25 per warrant, using the Black-Scholes option pricing method; the valuation of the New Warrants was based upon, among other things, estimates of volatility of the New Common Stock. See Exhibit H to the Disclosure Statement for a more detailed analysis of the recoveries to creditors and Equity Interestholders. THE ESTIMATED ENTERPRISE VALUE IS HIGHLY DEPENDENT UPON ACHIEVING THE FUTURE FINANCIAL RESULTS SET FORTH IN THE PROJECTIONS AS WELL AS THE REALIZATION OF CERTAIN OTHER ASSUMPTIONS WHICH ARE NOT GUARANTEED. THE VALUATIONS SET FORTH HEREIN REPRESENT ESTIMATED REORGANIZATION VALUES AND DO NOT NECESSARILY REFLECT VALUES THAT COULD BE ATTAINABLE IN PUBLIC OR PRIVATE MARKETS. THE EQUITY VALUE ASCRIBED IN THE ANALYSIS DOES NOT PURPORT TO BE AN ESTIMATE OF THE POST-REORGANIZATION MARKET VALUE. SUCH TRADING VALUE, IF ANY, MAY BE MATERIALLY DIFFERENT FROM THE REORGANIZATION EQUITY VALUE RANGES ASSOCIATED WITH THE VALUATION ANALYSIS. IX. CERTAIN RISK FACTORS TO BE CONSIDERED HOLDERS OF CLAIMS AGAINST, AND EQUITY INTERESTS IN, THE DEBTORS SHOULD READ AND CONSIDER CAREFULLY THE FACTORS SET FORTH BELOW AS WELL AS THE OTHER INFORMATION SET FORTH IN THIS DISCLOSURE STATEMENT (AND THE DOCUMENTS DELIVERED TOGETHER HEREWITH AND/OR INCORPORATED BY REFERENCE), PRIOR TO VOTING TO ACCEPT OR REJECT THE PLAN. THESE RISK FACTORS SHOULD NOT, HOWEVER, BE REGARDED AS CONSTITUTING THE ONLY RISKS INVOLVED IN CONNECTION WITH THE PLAN AND ITS IMPLEMENTATION. The ultimate recoveries under the Plan to holders of Claims and Equity Interests (other than those holders who are paid solely in cash under the Plan) depend upon the realizable value of the New Notes, New Common Stock and the Warrants. The securities to be issued pursuant to the Plan are subject to a number of material 64 risks, including, but not limited to, those specified below. The factors specified below assume that the Plan is approved by the Bankruptcy Court and that the Effective Date occurs on or about June 26, 1999. Although such risk factors are based upon a June 26, 1999 Effective Date, Penn Traffic believes that an actual Effective Date later in the second quarter of Fiscal 1999 would not have any material effect on the risk factors. 1 PROJECTED FINANCIAL INFORMATION The financial projections included in this Disclosure Statement are dependent upon the successful implementation of the business plan and the validity of the other assumptions contained therein. These projections reflect numerous assumptions, including confirmation and consummation of the Plan in accordance with its terms, and anticipated future performance of Penn Traffic, retail industry performance, certain assumptions with respect to competitors of Penn Traffic, general business and economic conditions and other matters, many of which are beyond the control of Penn Traffic. In addition, unanticipated events and circumstances occurring subsequent to the preparation of the projections may affect the actual financial results of Penn Traffic. Although Penn Traffic believes that the projections are reasonably attainable, variations between the actual financial results and those projected may occur and be material. 2 ABILITY TO REFINANCE CERTAIN INDEBTEDNESS AND RESTRICTIONS IMPOSED BY INDEBTEDNESS Following the Effective Date of the Plan, the Reorganized Debtors' working capital borrowings and letters of credit requirements are anticipated to be funded by a new credit facility (the "New Credit Facility"), a portion of the proceeds of which will be used to repay in full the DIP Financing Facility. There can be no assurance that the Reorganized Debtors will be able to obtain such financing or that such financing may be obtained on acceptable terms. The New Credit Facility and the New Notes Indenture will restrict, among other things, the Company's ability to incur additional indebtedness, pay dividends or make certain other restricted payments, consummate certain asset sales, create liens on assets, enter into transactions with affiliates, make investments, loans or advances, consolidate or merge with or into any other person or convey, transfer or lease all or substantially all of its assets or change the business conducted by Reorganized Penn Traffic. In addition, the New Credit Facility will contain certain other and more restrictive covenants and will prohibit Penn Traffic from prepaying certain indebtedness, including the New Senior Notes. A breach of any of these covenants could result in a default under the New Credit Facility or the New Notes Indenture. Further, the restrictions in the New Notes Indenture and the New Credit Facility will therefore restrict Penn Traffic's ability to obtain additional financing for working capital, capital expenditures or general corporate purposes. 65 Reorganized Penn Traffic's indebtedness will also require substantial debt service payments which will restrict its ability to use its operating cash flow for capital expenditures and other working capital requirements. In addition, substantially all of the assets of Penn Traffic will be pledged as security under the New Credit Facility. Finally, it is anticipated that the Subsidiaries will guarantee the New Credit Facility. 3 COMPETITIVE CONDITIONS AND NEED TO FUND FUTURE CAPITAL REQUIREMENTS The food retailing business is highly competitive and may be affected by general economic conditions. The number of competitors and the degree of competition experienced by Penn Traffic's supermarkets vary by location. Penn Traffic competes with several multi-regional, 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 drug store chains, discount general merchandise chains, "supercenters" (combination supermarket and general merchandise stores) and other retailers. In addition, in order to continue to remain competitive over time, Penn Traffic will be required to make substantial capital expenditures to remodel and replace its existing retail stores. Penn Traffic anticipates utilizing its operating cash flow and amounts available under the New Credit Facility to finance these capital expenditure requirements. 4 SIGNIFICANT HOLDERS If holders of significant numbers of shares of New Common Stock were to act as a group, such holders could be in a position to control the outcome of actions requiring stockholder approval, including the election of directors. This concentration of ownership could also facilitate or hinder a negotiated change of control of the Reorganized Debtors and, consequently, have an impact upon the value of the New Common Stock. Further, the possibility that one or more of the holders of significant numbers of shares of New Common Stock may determine to sell all or a large portion of their shares of New Common Stock in a short period of time may adversely affect the market price of the New Common Stock. 5 LACK OF ESTABLISHED MARKET FOR NEW COMMON STOCK AND WARRANTS The Debtors shall use reasonable commercial efforts to cause the New Common Stock to be listed on a national securities exchange or the Nasdaq National Market. There can be no assurance that such an application will be approved. 66 The New Common Stock will be issued to holders of pre-Petition Date Claims, some or all of whom may prefer to liquidate their investment rather than to hold it on a long-term basis. There currently is no trading market for the New Common Stock nor is it known whether or when one would develop. Further, there can be no assurance as to the degree of price volatility in any such market. While the Plan was developed based on an assumed reorganization value of $18.63 per share of the New Common Stock (which was calculated based on the Company's mid-point enterprise valuation), such valuation is not an estimate of the price at which the New Common Stock may trade in the market. Penn Traffic has not attempted to make any such estimate in connection with the development of the Plan. No assurance can be given as to the market prices that will prevail following the Effective Date. 6 LACK OF TRADING MARKET FOR NEW NOTES After the issuance of the New Notes pursuant to the Plan, there can be no assurance that an active trading market will develop therefor. Further, there can be no assurance as to the degree of price volatility in any such market. Accordingly, no assurance can be given that any holder of such securities will be able to sell such securities or as to the price at which any sale may occur. If such market were to exist, such securities could trade at prices higher or lower than the value attributed to such securities hereunder, depending upon many factors, including, without limitation, the prevailing interest rates, markets for similar securities, industry conditions and the performance of, and investor expectations for, Penn Traffic on a reorganized basis. 7 DIVIDEND POLICIES The Debtors do not anticipate paying any dividends on the New Common Stock in the foreseeable future. In addition, the covenants in certain debt instruments to which Reorganized Penn Traffic will be a party (including the New Credit Facility) may limit the ability of Penn Traffic to pay dividends. Certain institutional investors may only invest in dividend-paying equity securities or may operate under other restrictions which may prohibit or limit their ability to invest in New Common Stock. 8 CERTAIN BANKRUPTCY LAW CONSIDERATIONS (a) Risk of Non-Confirmation of the Plan Although Penn Traffic believes that the Plan will satisfy all requirements necessary for confirmation by the Court, there can be no assurance that the Bankruptcy Court will reach the same conclusion. Moreover, there can be no assurance that modifications of the Plan will not be required for confirmation or that such modifications would not necessitate the resolicitation of votes. 67 (b) Risk of Non-Occurrence of the Effective Date Although Penn Traffic believes that the Effective Date may occur as soon as 10 days after the entry of the Confirmation Order, there can be no assurance as to such timing or that such conditions will ever occur. 9 CERTAIN TAX MATTERS For a summary of certain federal income tax consequences of the Plan to holders of Claims and Equity Interests and to Penn Traffic, see Section XV. "CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE PLAN." X. CONFIRMATION PROCEDURE Under the Bankruptcy Code, the following steps must be taken to confirm the Plan: A. SOLICITATION OF VOTES In accordance with sections 1126 and 1129 of the Bankruptcy Code, the Claims and Equity Interests in Classes 5, 6, 7 and 8 of the Plan are impaired and the holders of Allowed Claims and Allowed Equity Interests in each of such Classes are entitled to vote to accept or reject the Plan. Claims in Classes 1, 2, 3 and 4 are unimpaired. The holders of Allowed Claims in each of such Classes are conclusively presumed to have accepted the Plan and the solicitation of acceptances with respect to such Classes therefore is not required under section 1126(f) of the Bankruptcy Code. As to classes of claims entitled to vote on a plan, the Bankruptcy Code defines acceptance of a plan by a class of creditors as acceptance by holders of at least two-thirds in dollar amount and more than one-half in number of the claims of that class that have timely voted to accept or reject a plan. As to classes of interests entitled to vote on a plan, acceptance is defined as acceptance by holders of at least two-thirds of the number of shares in such class that have timely voted to accept or reject a plan. A vote may be disregarded if the Court determines, after notice and a hearing, that acceptance or rejection was not solicited or procured in good faith or in accordance with the provisions of the Code. Any creditor in an impaired Class (i) whose Claim has been listed by the Debtors in the Debtors' Schedules filed with the Court (provided that such Claim 68 has not been scheduled as disputed, contingent or unliquidated) or (ii) who filed a proof of claim on or before April 19, 1999 (or, if not filed by such date, any proof of claim filed within any other applicable period of limitations or with leave of the Court), which Claim is not the subject of an objection or request for estimation, is entitled to vote. Pursuant to the Disclosure Statement Order, holders of Allowed Equity Interests as of April 5, 1999, are entitled to vote their Equity Interests. B. THE CONFIRMATION HEARING The Bankruptcy Code requires the Court, after notice, to hold a confirmation hearing. The Confirmation Hearing in respect of the Plan has been scheduled for May 27, 1999 at 9:30 a.m., Eastern Time, before the Honorable Peter J. Walsh at the United States Bankruptcy Court for the District of Delaware, 824 North Market Street, Wilmington, Delaware 19801. The Confirmation Hearing may be adjourned from time to time by the Court without further notice except for an announcement of the adjourned date made at the Confirmation Hearing. Any objection to confirmation must be made in writing and specify in detail the name and address of the objector, all grounds for the objection and the amount of the Claim or number of shares of common stock of the Debtors or other Interests held by the objector. Any such objection must be filed with the Court and served so that it is received by the Court and the following parties on or before May 21, 1999 at 4:00 p.m., Eastern Time: Paul, Weiss, Rifkind, Wharton & Garrison Young Conaway Stargatt & Taylor, LLP Attorneys for the Debtors Attorneys for the Debtors 1285 Avenue of the Americas 1110 North Market Street New York, New York 10019-6064 Rodney Square North, 11th Floor Attn: Alan W. Kornberg, Esq. Wilmington, Delaware 19801 Jeffrey D. Saferstein, Esq. Attn: James L. Patton, Esq. Stroock & Stroock & Lavan LLP Morris, Nichols, Arsht & Tunnell Attorneys for the Creditors Attorneys for the Creditors Committee Committee 1201 North Market Street 180 Maiden Lane P.O. Box 1347 New York, New York 10038 Wilmington, Delaware 19899-1347 Attn: Daniel Golden, Esq. Attn: Robert J. Dehney Office of the United States Trustee 601 Walnut Street Curtis Center, Suite 950 West Philadelphia, Pennsylvania 19106 Attn: Objections to confirmation of the Plan are governed by Bankruptcy Rule 9014 and orders of the Bankruptcy Court. 69 C. CONFIRMATION At the Confirmation Hearing, the Court will confirm the Plan only if all of the requirements of section 1129 of the Bankruptcy Code are met. Among the requirements for confirmation of a plan are that the plan is (i) accepted by all impaired classes of claims and equity interests or, if rejected by an impaired class, that the plan "does not discriminate unfairly" and is "fair and equitable" as to such class, (ii) feasible and (iii) in the "best interests" of creditors and stockholders that are impaired under the plan. 1 ACCEPTANCE Classes 5, 6, 7 and 8 of the Plan are impaired under the Plan and are entitled to vote to accept or reject the Plan. Classes 1, 2, 3 and 4 of the Plan are unimpaired and, therefore, are conclusively presumed to have voted to accept the Plan. The Debtors reserve the right to amend the Plan in accordance with Section X.C of the Plan or to seek nonconsensual confirmation of the Plan under section 1129(b) of the Bankruptcy Code, or both, with respect to any Class of Claims or Equity Interests that is entitled to vote to accept or reject the Plan, if such Class rejects the Plan. 2 UNFAIR DISCRIMINATION AND FAIR AND EQUITABLE TESTS To obtain nonconsensual confirmation of the Plan, it must be demonstrated to the Court that the Plan "does not discriminate unfairly" and is "fair and equitable" with respect to each impaired, nonaccepting Class. The Bankruptcy Code provides a non-exclusive definition of the phrase "fair and equitable." The Bankruptcy Code establishes "cram down" tests for unsecured creditors and equity holders, as follows: (a) Secured Creditors. Either (i) each impaired creditor retains its liens securing its secured claim and receives on account of its secured claim deferred cash payments having a present value equal to the amount of its allowed secured claim, (ii) each impaired secured creditor realizes the "indubitable equivalent" of its allowed secured claim or (iii) the property securing the claim is sold free and clear of liens with such liens to attach to the proceeds of the sale and the treatment of such liens on proceeds to be as provided in clause (i) or (ii) of this subparagraph. (b) Unsecured Creditors. Either (i) each impaired unsecured creditor receives or retains under the plan property of a value equal to the amount of its allowed claim or (ii) the holders of claims and interests that are junior to the claims of the dissenting class will not receive any property under the plan. (c) Equity Interests. Either (i) each holder of an equity interest will receive or retain under the plan property of a value equal to the greatest of the fixed 70 liquidation preference to which such holder is entitled, the fixed redemption price to which such holder is entitled or the value of its interest or (ii) the holder of an interest that is junior to the nonaccepting class will not receive or retain any property under the plan. 3 FEASIBILITY The Bankruptcy Code permits a plan to be confirmed if it is not likely to be followed by liquidation or the need for further financial reorganization. For purposes of determining whether the Plan meets this requirement, the Debtors have analyzed their ability to meet their obligations under the Plan. As part of this analysis, the Debtors have prepared projections of their financial performance for the 31-week period ending January 29, 2000 and each of the four subsequent fiscal years thereafter ending January 31, 2004 (the "Projection Period"). These projections, and the assumptions on which they are based, are included in the Projected Financial Information, annexed hereto as Exhibit D. Based upon such projections, the Debtors believe that they will be able to make all payments required pursuant to the Plan and, therefore, that confirmation of the Plan is not likely to be followed by liquidation or the need for further reorganization. The financial information and projections appended to the Disclosure Statement include for the Projection Period: o Pro-forma Reorganized Penn Traffic balance sheet at June 26, 1999, including all reorganization and fresh-start adjustments. o Projected balance sheets for fiscal years ending in 2000, 2001, 2002, 2003 and 2004. o Projected income statements for the 31-week period ending January 29, 2000 and fiscal years ending in 2001, 2002, 2003 and 2004. o Projected statements of cash flow for the 31-week period ending January 29, 2000 and fiscal years ending in 2001, 2002, 2003 and 2004. The pro forma financial information and the projections are based on the assumption that the Plan will be confirmed by the Court and, for projection purposes, that the Effective Date under the Plan will occur on June 26, 1999. Although the projections and information are based upon a June 26, 1999 Effective Date, the Debtors believe that an actual Effective Date in the second quarter of Fiscal 2000 (13 week period ending July 31, 1999) would not have any material effect on the projections. 71 The Debtors have prepared these financial projections based upon certain assumptions that they believe to be reasonable under the circumstances. Those assumptions considered to be significant are described in the financial projections, which are annexed hereto as Exhibit D. The financial projections have not been examined or compiled by independent accountants. The Debtors make no representation as to the accuracy of the projections or their ability to achieve the projected results. Many of the assumptions on which the projections are based are subject to significant uncertainties. Inevitably, some assumptions will not materialize and unanticipated events and circumstances may affect the actual financial results. Therefore, the actual results achieved throughout the Projection Period may vary from the projected results and the variations may be material. All holders of Claims and Equity Interests that are entitled to vote to accept or reject the Plan are urged to examine carefully all of the assumptions on which the financial projections are based in evaluating the Plan. 4 BEST INTERESTS TEST With respect to each impaired Class of Claims and Equity Interests, confirmation of the Plan requires that each holder of a Claim or Equity Interest either (i) accept the Plan or (ii) receive or retain under the Plan property of a value, as of the Effective Date, that is not less than the value such holder would receive or retain if the Debtors were liquidated under chapter 7 of the Bankruptcy Code. To determine what holders of Claims and Equity Interests of each impaired Class would receive if the Debtors were liquidated under chapter 7, the Bankruptcy Court must determine the dollar amount that would be generated from the liquidation of the Debtors' assets and properties in the context of a chapter 7 liquidation case. The Cash amount that would be available for satisfaction of Unsecured Claims and Equity Interests would consist of the proceeds resulting from the disposition of the unencumbered assets and properties of the Debtors, augmented by the unencumbered Cash held by the Debtors at the time of the commencement of the liquidation case. Such Cash amount would be reduced by the amount of the costs and expenses of the liquidation and by such additional administrative and priority claims that might result from the termination of the Debtors' businesses and the use of chapter 7 for the purposes of liquidation. The Debtors' costs of liquidation under chapter 7 would include the fees payable to a chapter 7 trustee, as well as those fees that might be payable to attorneys and other professionals that such a trustee might engage. In addition, claims would arise by reason of the breach or rejection of obligations incurred and leases and executory contracts assumed or entered into by the Debtors during the pendency of the Chapter 11 Cases. The foregoing types of claims and other claims that might arise in a liquidation case or result from the pending Chapter 11 Cases, including any unpaid expenses incurred by the Debtors and the Creditors' Committee during the Chapter 11 Cases such as compensation for attorneys, financial advisors and accountants, would be paid in full from the liquidation proceeds before the 72 balance of those proceeds would be made available to pay prepetition Unsecured Claims. To determine if the Plan is in the best interests of each impaired class, the present value of the distributions from the proceeds of a liquidation of the Debtors' unencumbered assets and properties, after subtracting the amounts attributable to the foregoing claims, are then compared with the value of the property offered to such Classes of Claims and Equity Interests under the Plan. After considering the effects that a chapter 7 liquidation would have on the ultimate proceeds available for distribution to creditors in the Chapter 11 Cases, including (i) the increased costs and expenses of a liquidation under chapter 7 arising from fees payable to a trustee in bankruptcy and professional advisors to such trustee, (ii) the erosion in value of assets in a chapter 7 case in the context of the expeditious liquidation required under chapter 7 and the "forced sale" atmosphere that would prevail and (iii) the substantial increases in Claims which would be satisfied on a priority basis or on parity with creditors in the Chapter 11 Cases, the Debtors have determined that confirmation of the Plan will provide each holder of an Allowed Claim or Equity Interest with a recovery that is not less than such holder would receive pursuant to liquidation of the Debtors under chapter 7. The Debtors also believe that the value of any distributions to each class of Allowed Claims in a chapter 7 case, including all Secured Claims, would be less than the value of distributions under the Plan because such distributions in a chapter 7 case would not occur for a substantial period of time. It is likely that distribution of the proceeds of the liquidation could be delayed for two years after the completion of such liquidation in order to resolve Claims and prepare for distributions. In the likely event litigation were necessary to resolve Claims asserted in the chapter 7 case, the delay could be prolonged. The Debtors' Liquidation Analysis is attached hereto as Exhibit E. The information set forth in Exhibit E provides a summary of the liquidation values of the Debtors' assets, assuming a chapter 7 liquidation in which a trustee appointed by the Bankruptcy Court would liquidate the assets of the Debtors' estates. Reference should be made to the Liquidation Analysis for a complete discussion and presentation of the Liquidation Analysis. The Liquidation Analysis was prepared by the Debtors with the assistance of Blackstone. Underlying the Liquidation Analysis are a number of estimates and assumptions that, although developed and considered reasonable by management, are inherently subject to significant economic and competitive uncertainties and contingencies beyond the control of the Debtors and their management. The Liquidation Analysis is also based on assumptions with regard to liquidation decisions that are subject to change. Accordingly, the values reflected might not be realized if the Debtors were, in fact, to undergo such a liquidation. The chapter 7 liquidation 73 period is assumed to be a period of more than one year, allowing for, among other things, the (i) discontinuation of operations, (ii) selling of assets and (iii) collection of receivables. XI. EFFECTIVENESS OF THE PLAN A. CONDITIONS PRECEDENT TO EFFECTIVENESS The Plan shall not become effective unless and until it has been confirmed and the following conditions have been satisfied in full or waived pursuant to Section XIII.B.2 thereof: (1) the Confirmation Order in a form satisfactory to the Debtors and the Creditors Committee shall have become a Final Order; (2) the Effective Date shall have occurred within six months following the Petition Date; (3) the Amended Penn Traffic Certificate of Incorporation and Amended Subsidiaries Certificates of Incorporation shall have been properly filed with the Secretary of State in their respective state of incorporation; (4) all authorizations, consents and regulatory approvals required (if any) for the Plan's effectiveness shall have been obtained; (5) the Court shall have ordered the substantive consolidation of the Chapter 11 Cases as provided in Section VI of the Plan; (6) the aggregate amount of Class 5 Claims does not exceed $50 million; and (7) on the Effective Date, the Reorganized Debtors have entered into a senior secured credit facility of not less than $275 million consisting of a term loan and a revolving working capital facility that will have not less than $50 million of undrawn availability thereunder in form acceptable to Satellite Fund Management, LLC, DDJ Capital Management, LLC and Loomis Sayles & Company LP. B. WAIVER OF CONDITIONS The Debtors may waive any or all of the other conditions set forth in Section XIII.B.1 of the Plan, with the prior consent of the Creditors Committee, without leave of or order of the Court and without any formal action. C. EFFECT OF FAILURE OF CONDITIONS In the event that the Effective Date does not occur on or before sixty (60) days after the Confirmation Date, upon notification submitted by the Debtors to the Court: (a) the Confirmation Order shall be vacated, (b) no distributions under the Plan shall be made, (c) the Debtors and all holders of Claims and Equity Interests shall be restored to the STATUS QUO ANTE as of the day immediately preceding the Confirmation Date as though the Confirmation Date had never occurred, and (d) the Debtors' obligations with respect to the Claims and Equity Interests shall remain unchanged and nothing contained in the Plan shall constitute or be deemed a waiver 74 or release of any Claims or Equity Interests by or against the Debtors or any other person or to prejudice in any manner the rights of the Debtors or any person in any further proceedings involving the Debtors. D. VACATUR OF CONFIRMATION ORDER If an order denying confirmation of the Plan is entered, then the Plan shall be null and void in all respects, and nothing contained in the Plan shall (a) constitute a waiver or release of any Claims against or Equity Interests in the Debtors; (b) prejudice in any manner the rights of the holder of any Claim against, or Equity Interest in, the Debtors; (c) prejudice in any manner any right, remedy or claim of the Debtors; or (d) be deemed an admission against interest by the Debtors. XII. SECURITIES LAWS MATTERS No registration statement will be filed under the Securities Act of 1933, as amended (the "Securities Act"), or any state securities laws with respect to the offer and distribution under the Plan of New Common Stock, New Notes and Warrants (including the New Common Stock issuable upon exercise thereof) (collectively, the "Plan Securities"). The Debtors believe that the provisions of section 1145(a)(1) (and, with respect to the New Common Stock issuable upon exercise of the Warrants, section 1145(a)(2)) exempt the offer and distribution of the Plan Securities from federal and state securities registration requirements. A. BANKRUPTCY CODE EXEMPTIONS FROM REGISTRATION REQUIREMENTS 1 INITIAL OFFER AND SALE OF PLAN SECURITIES Section 1145(a)(1) of the Bankruptcy Code exempts the offer and sale of securities under a plan of reorganization from registration under the Securities Act and state laws if three principal requirements are satisfied: (i) the securities must be offered and sold under a plan of reorganization and must be securities of the debtor, of an affiliate participating in a joint plan with the debtor or of a successor to the debtor under the plan; (ii) the recipients of the securities must each hold a prepetition or administrative expense claim against the debtor or an interest in the debtor; and (iii) the securities must be issued entirely in exchange for the recipient's claim against or interest in the debtor, or principally in such exchange and partly for cash or property. Penn Traffic believes that the offer and sale of the Plan Securities under the Plan satisfy the requirements of section 1145(a)(1) of the Bankruptcy Code and are, therefore, exempt from registration under the Securities Act and state securities laws. 75 Section 1145(a)(2) of the Bankruptcy Code exempts the offer of a security through any warrant, option or right to subscribe that was sold in the manner specified in section 1145(a)(1) of the Bankruptcy Code and the sale of a security upon the exercise of such a warrant, option or right to subscribe. Penn Traffic believes that the offer and sale of New Common Stock pursuant to the Warrants, satisfy the requirements of section 1145(a)(2) of the Bankruptcy Code and are, therefore, exempt from registration under the Securities Act and state securities laws. 2 SUBSEQUENT TRANSFERS OF PLAN SECURITIES In general, all resales and subsequent transactions in (i) the New Common Stock, New Notes and Warrants distributed under the Plan and (ii) the New Common Stock issued upon the exercise of Warrants will be exempt from registration under the Securities Act pursuant to section 4(1) of the Securities Act, unless the holder thereof is deemed to be an "underwriter" with respect to such securities, an "affiliate" of the issuer of such securities or a "dealer." Section 1145(b) of the Bankruptcy Code defines four types of "underwriters": (i) persons who purchase a claim against, an interest in or a claim for administrative expense against the debtor with a view to distributing any security received in exchange for such a claim or interest ("accumulators"); (ii) persons who offer to sell securities offered under a plan for the holders of such securities ("distributors"); (iii) persons who offer to buy securities from the holders of such securities, if the offer to buy is (a) with a view to distributing such securities and (b) made under a distribution agreement; and (iv) a person who is an "issuer" with respect to the securities, as the term "issuer" is defined in section 2(11) of the Securities Act. Under section 2(11) of the Securities Act, an "issuer" includes any "affiliate" of the issuer, which means any person directly or indirectly through one or more intermediaries controlling, controlled by or under common control with the issuer. Under section 2(12) of the Securities Act, a "dealer" is any person who engages either for all or part of his or her time, directly or indirectly, as agent, broker or principal, in the business of offering, buying, selling or otherwise dealing or trading in securities issued by another person. Whether or not any particular person would be deemed to be an "underwriter" or an "affiliate" with respect to any Plan Security or to be a "dealer" would depend upon various facts and circumstances applicable to that person. Accordingly, Penn Traffic expresses no view as to whether any person would be an "underwriter" or an "affiliate" with respect to any Plan Security or would be a "dealer." Because certain holders of large amounts of Senior Notes and 76 Senior Subordinated Notes (who will receive New Common Stock under the Plan) may be considered "affiliates" of Penn Traffic, Penn Traffic has agreed to enter into a Registration Rights Agreement with such holders to register under the Securities Act resale of the Plan Securities to be received by such holders. SEE "Securities Law Matters -- Registration Rights." The SEC has taken the position that resales by accumulators and distributors of securities distributed under a plan of reorganization who are not affiliates of the issuer of such securities are exempt from registration under the Securities Act if effected in "ordinary trading transactions." The staff of the SEC has indicated in this context that a transaction by such non-affiliates may be considered an "ordinary trading transaction" if it is made on an exchange or in the over-the-counter market and does not involve any of the following factors: (i) (a) concerted action by the recipients of securities issued under a plan in connection with the sale of such securities or (b) concerted action by distributors on behalf of one or more such recipients in connection with such sales; (ii) the use of informational documents concerning the offering of the securities prepared or used to assist in the resale of such securities, other than a bankruptcy court-approved disclosure statement and supplements thereto, and documents filed with the SEC pursuant to the Exchange Act; or (iii) the payment of special compensation to brokers and dealers in connection with the sale of such securities designed as a special incentive to the resale of such securities (other than the compensation that would be paid pursuant to arm's-length negotiations between a seller and a broker or dealer, each acting unilaterally, not greater than the compensation that would be paid for a routine similar-sized sale of similar securities of a similar issuer). THE VIEWS OF THE SEC ON THE MATTER HAVE NOT, HOWEVER, BEEN SOUGHT BY PENN TRAFFIC AND, THEREFORE, NO ASSURANCE CAN BE GIVEN REGARDING THE PROPER APPLICATION OF THE "ORDINARY TRADING TRANSACTION" EXEMPTION DESCRIBED ABOVE. ANY PERSON INTENDING TO RELY ON SUCH EXEMPTION IS URGED TO CONSULT HIS OR HER COUNSEL AS TO THE APPLICABILITY THEREOF TO HIS OR HER CIRCUMSTANCES. Securities Act Rule 144 provides an exemption from registration under the Securities Act for certain limited public resales of unrestricted securities by "affiliates" of the issuer of such securities. Rule 144 allows a holder of unrestricted securities that is an affiliate of the issuer of such securities to sell, without registration, within any three-month period a number of shares of such unrestricted 77 securities that does not exceed the greater of one percent (1%) of the number of outstanding securities in question or the average weekly trading volume in the securities in question during the four calendar weeks preceding the date on which notice of such sale was filed pursuant to Rule 144, subject to the satisfaction of certain other requirements of Rule 144 regarding the manner of sale, notice requirements and the availability of current public information regarding the issuer. Penn Traffic believes that, pursuant to section 1145(c) of the Bankruptcy Code, the Plan Securities will be unrestricted for purposes of Rule 144. GIVEN THE COMPLEX NATURE OF THE QUESTION OF WHETHER A PARTICULAR PERSON MAY BE AN UNDERWRITER, THE DEBTORS MAKE NO REPRESENTATIONS CONCERNING THE RIGHT OF ANY PERSON TO TRADE IN THE PLAN SECURITIES. THE DEBTORS RECOMMEND THAT HOLDERS OF CLAIMS AND INTERESTS CONSULT THEIR OWN COUNSEL CONCERNING WHETHER THEY MAY FREELY TRADE SUCH SECURITIES. State securities laws generally provide registration exemptions for subsequent transfers by a bona-fide owner for his or her own account and subsequent transfers to institutional or accredited investors. Such exemptions are generally expected to be available for subsequent transfers of New Common Stock, New Notes and Warrants. 3 CERTAIN TRANSACTIONS BY STOCKBROKERS Under section 1145(a)(4) of the Bankruptcy Code, stockbrokers effecting transactions in the New Common Stock, New Notes or Warrants prior to the expiration of 40 days after the Confirmation Date are required to deliver to the purchaser of such securities a copy of this Disclosure Statement (and supplements hereto, if any, if ordered by the Court) at or before the time of delivery of such securities to such purchaser. In connection with prior cases under the Bankruptcy Code, the staff of the SEC has taken so-called "no-action" positions with respect to noncompliance by stockbrokers with such requirement in circumstances in which the debtor was, and the reorganized debtor was to continue to be, subject to and in compliance with the periodic reporting requirements of the Exchange Act. Penn Traffic was and will continue to be subject to the periodic reporting requirements of the Exchange Act. THE VIEWS OF THE SEC ON THE MATTER HAVE NOT, HOWEVER, BEEN SOUGHT BY PENN TRAFFIC AND, THEREFORE, NO ASSURANCE CAN BE GIVEN REGARDING THE POSSIBLE CONSEQUENCES OF NONCOMPLIANCE BY STOCKBROKERS WITH THE DISCLOSURE STATEMENT DELIVERY REQUIREMENTS OF SECTION 1145(A)(4). STOCKBROKERS ARE URGED TO CONSULT THEIR OWN COUNSEL WITH RESPECT TO SUCH REQUIREMENTS. 78 B. REGISTRATION RIGHTS Pursuant to the Plan, Penn Traffic will agree to enter into a Registration Rights Agreement with certain entities (i.e., the Initial Holders) providing for the registration of the New Common Stock, the shares of New Common Stock issuable upon exercise of the New Warrants, the New Warrants and the New Senior Notes under the Plan. Only entities entitled to receive distributions pursuant to the Plan of New Common Stock representing at least 10% of the aggregate New Common Stock issuable pursuant to the Plan (collectively, "Eligible Security Holders") will be entitled to enter into the Registration Rights Agreement. The Debtors believe that there are only two holders of Senior Notes who will be Eligible Security Holders and who will be entitled to registration rights. Under the Registration Rights Agreement, during the period commencing on the Effective Date and ending on the first date on which there are no registerable securities, Penn Traffic will be required, subject to certain black-out periods, to maintain for five years an effective "shelf" registration statement covering the resale by the Eligible Security Holders under the Securities Act of the shares of New Common Stock, Warrants or New Senior Notes, as the case may be received by such Eligible Security Holders under the Plan. PENN TRAFFIC DOES NOT PRESENTLY INTEND TO SUBMIT ANY NO-ACTION OR INTERPRETATIVE REQUESTS TO THE COMMISSION WITH RESPECT TO ANY SECURITIES LAWS MATTERS DISCUSSED HEREIN. XIII. FINANCIAL INFORMATION A. FINANCIAL STATEMENTS The audited consolidated balance sheets of the Debtors for the fiscal years ended January 31, 1998 and February 1, 1997 and the related consolidated statements of operations, cash flows and shareholders' equity (deficit) for the 3 years ended January 31, 1998, are contained in "Financial Statements" in the Annual Report on Form 10-K, a copy of which is annexed as Exhibit C to this Disclosure Statement and the full text of which is incorporated herein by reference. This financial information is provided to permit the holders of Claims and Equity Interests to better understand the Debtors' historical business performance and the impact of the Chapter 11 Cases on the Debtors' businesses. During the Chapter 11 Cases, the Debtors are required to file monthly operating reports with the Court. Such financial information is on file with the Court and available to the public for review. 79 B. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS For a detailed discussion by management of the Debtors' financial condition, most recent results of operations, liquidity, and capital resources, see Item 7 -- "Management's Discussion and Analysis of Financial Condition and Results of Operations" in the Annual Report on Form 10-K and the Form 10-Q for the quarter ended on October 31, 1998, annexed as Exhibits C and G, respectively, to this Disclosure Statement. C. RECENT PERFORMANCE See the Annual Report on Form 10-K for the fiscal year ended January 31, 1998, the Form 10-Q for the quarter ended on October 31, 1998 and the Fourth Quarter Fiscal 1999 Earnings Press Release annexed as Exhibits C, G and I, respectively, to this Disclosure Statement. XIV. ALTERNATIVES TO CONFIRMATION AND CONSUMMATION OF THE PLAN If the Plan is not confirmed and consummated, the alternatives to the Plan include (i) liquidation of the Debtors under chapter 7 of the Bankruptcy Code and (ii) an alternative plan of reorganization. A. LIQUIDATION UNDER CHAPTER 7 If no plan is confirmed, the Chapter 11 Cases may be converted to cases under chapter 7 of the Bankruptcy Code, pursuant to which a trustee would be elected to liquidate the Debtors' assets for distribution in accordance with the priorities established by chapter 7. A discussion of the effects that a chapter 7 liquidation would have on the recoveries of holders of Claims and Equity Interests and the Debtors' liquidation analysis are set forth herein. The Debtors believe that liquidation under chapter 7 would result in (i) smaller distributions being made to creditors than those provided for in the Plan because of (a) the likelihood that the Debtors' assets would have to be sold or otherwise disposed of in a less orderly fashion over a shorter period of time, (b) additional administrative expenses involved in the appointment of a trustee, and (c) additional expenses and claims, some of which would be entitled to priority, which would be generated during the liquidation and from the rejection of leases and other executory contracts in connection with a cessation of the Debtors' operations, and (ii) no distributions being made to the holders of Equity Interests. 80 B. ALTERNATIVE PLAN OF REORGANIZATION If the Plan is not confirmed, the Debtors (or if the Debtors' exclusive period in which to file a plan of reorganization has expired, any other party in interest) could attempt to formulate a different plan. Such a plan might involve either a reorganization and continuation of the Debtors' businesses or an orderly liquidation of their assets. With respect to an alternative plan, the Debtors have explored various alternatives in connection with the formulation and development of the Plan. The Debtors believe that the Plan, as described herein, enables creditors and Equity Interest holders to realize the most value under the circumstances. In a liquidation under chapter 11, the Debtors' assets would be sold in an orderly fashion over a more extended period of time than in a liquidation under chapter 7, possibly resulting in somewhat greater (but indeterminate) recoveries than would be obtained in chapter 7. Further, if a trustee were not appointed, because such appointment is not required in a chapter 11 case, the expenses for professional fees would most likely be lower than those incurred in a chapter 7 case. Although preferable to a chapter 7 liquidation, the Debtors believe that any alternative liquidation under chapter 11 is a much less attractive alternative to creditors and Equity Interest holders than the Plan because of the greater returns provided by the Plan. XV. CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE PLAN The following discussion summarizes certain federal income tax consequences of the implementation of the Plan to holders of Senior Notes and Senior Subordinated Notes and to the Debtors. It does not address the federal income tax consequences to holders whose secured or priority Claims are entitled to reinstatement or payment in full in cash under the Plan. The following summary is based on the Internal Revenue Code of 1986, as amended (the "Tax Code"), Treasury regulations promulgated and proposed thereunder, judicial decisions, and published administrative rules and pronouncements of the IRS in effect on the date hereof. Changes in, or new interpretations of, such rules may have retroactive effect and could significantly affect the federal income tax consequences described below. The federal income tax consequences of the Plan are complex and are subject to uncertainties. The Debtors have not requested a ruling from the IRS or an opinion of counsel with respect to any of the tax aspects of the Plan. Thus, no assurance can be given as to the interpretation that the IRS will adopt. In addition, this summary does not address foreign, state, or local tax consequences of the Plan, and it does not purport to address the federal income tax consequences of the Plan to special classes of taxpayer (such as foreign taxpayers, broker-dealers, banks, mutual 81 funds, insurance companies, financial institutions, small business investment companies, regulated investment companies, tax-exempt organizations, and investors in pass-through entities). ACCORDINGLY, THE FOLLOWING SUMMARY OF CERTAIN FEDERAL INCOME TAX CONSEQUENCES IS FOR INFORMATIONAL PURPOSES ONLY AND IS NOT A SUBSTITUTE FOR CAREFUL TAX PLANNING AND ADVICE BASED UPON THE INDIVIDUAL CIRCUMSTANCES OF A HOLDER OF A CLAIM OR EQUITY INTEREST. EACH HOLDER OF A CLAIM OR EQUITY INTEREST IS URGED TO CONSULT ITS OWN TAX ADVISOR FOR THE FEDERAL, STATE, LOCAL, AND OTHER TAX CONSEQUENCES APPLICABLE UNDER THE PLAN. A. CONSEQUENCES TO CREDITORS 1 TAX SECURITIES The federal income tax consequences of the Plan may vary depending upon, among other things, whether a holder's Claim being exchanged constitutes a "security" of the Debtors for federal income tax purposes (a "Tax Security"). The term "security" is not defined in the Tax Code but is generally understood to include stock, rights to purchase stock, and debt instruments with a maturity more than 10 years from the date of issuance, although the determination whether a particular claim or debt constitutes a Tax Security depends upon an overall evaluation of the nature of the claim or debt. An instrument with an original term of as little as 5 years may qualify. Under these principles, the New Common Stock and New Warrants will be characterized as Tax Securities, and it is likely that the Senior Notes, the Senior Subordinated Notes, and the New Senior Notes will be characterized as Tax Securities. However, each holder should consult its tax advisor regarding the tax status of its Claim or Claims. The Tax Security issue arises because the Tax Code's corporate reorganization provisions generally provide that a holder recognizes no gain or loss upon exchanging an issuer's Tax Securities for other Tax Securities of such issuer (except that consideration received for a claim for accrued but unpaid interest must be included as current income). By contrast, a holder will recognize gain upon exchanging (i) an issuer's obligations that are not Tax Securities for Tax Securities of such issuer, or (ii) an issuer's Tax Securities for obligations of such issuer that are not Tax Securities. See also subsection A.3 below ("Consequences to Creditors--Claims or Consideration Not Constituting Tax Securities"). To the extent a Claim holder's receipt of the New Senior Notes, New Common Stock, or New Warrants is attributable to accrued interest, the exchanging holder will recognize current income. 82 2 CLAIMS AND CONSIDERATION CONSTITUTING TAX SECURITIES In general, each holder of a Claim that constitutes a Tax Security will not recognize any gain or loss upon implementation of the Plan, but may recognize gain (computed as described below in section A.3), to the extent of any consideration other than Tax Securities issued by the Debtors in satisfaction of its Claim. The character of any such gain or loss would be determined in accordance with the principles discussed below in subsection A.3. See also section C below ("Additional Tax Considerations for All Holders of Claims"). A holder's tax basis in New Senior Notes, New Common Stock, and New Warrants received in satisfaction of a Claim represented by a Tax Security of the Debtors will be such holder's adjusted tax basis in such Claim, decreased by the sum of the cash and the fair market value of any notes received that are not Tax Securities, and increased by any gain recognized by such holder on the exchange. A holder that receives Tax Securities of the Debtor and whose exchanged Claim constitutes a Tax Security must apportion its adjusted tax basis in such Claim (decreased by any cash received and the fair market value of any obligations received that are not Tax Securities, and increased by any gain recognized) between the New Senior Notes, the New Common Stock, and the New Warrants it receives in accordance with their relative fair market values. If a holder of a Claim constituting a Tax Security receives Debtors' obligations that are Tax Securities, such holder may have a tax basis in the new obligations that exceeds the stated principal amount of such obligations. In such case, the excess basis may be the subject of annual deductions to the holder under the bond premium amortization rules of the Tax Code, or the holder may be entitled to exclude from income all or a portion of any original issue discount income on the obligations. See the discussion of the OID rules in subsection A.4 below ("Consequences to Creditors--Application of OID Rules"). A holder's holding period for New Senior Notes, New Common Stock, and New Warrants received in exchange for the Debtors' Tax Securities will include such holder's holding period for the obligations so exchanged, except to the extent the New Senior Notes, New Common Stock, or New Warrants were issued in respect of such holder's Claim for accrued interest. A holder's holding period for New Senior Notes, New Common Stock, or New Warrants issued in respect of its Claim for accrued interest (or in respect of which the holder is otherwise required to recognize gain) will begin on the day after their issuance. 3 CLAIMS OR CONSIDERATION NOT CONSTITUTING TAX SECURITIES If any of the Senior Notes, the Senior Subordinated Notes, the New Senior Notes, the New Common Stock, or the New Warrants were not treated as Tax 83 Securities, all or a portion of the exchange of (i) Senior Notes for New Senior Notes and New Common Stock, or (ii) Senior Subordinated Notes for New Common Stock and New Warrants, would constitute a taxable transaction. See also subsection C.1 below ("Additional Tax Considerations for All Holders of Claims--Distributions in Discharge of Accrued Interest"). If the Senior Notes and/or the Senior Subordinated Notes were not treated as Tax Securities, an exchange relating to such notes that were not treated as Tax Securities would constitute a taxable event in which a holder of Senior Notes or Senior Subordinated Notes would generally recognize gain or loss in an amount equal to the difference between (a) the "amount realized," i.e., the cash and/or aggregate fair market value of all property received by the Claim holder in exchange for its Claim (other than a Claim for interest), and (b) its adjusted basis in the exchanged debt instruments (exclusive of any basis attributable to accrued interest). If the Senior Notes were characterized as Tax Securities but the New Senior Notes were not, a holder of Senior Notes would recognize gain upon receipt of New Senior Notes equal to the lesser of (a) the fair market value of such New Senior Notes received in exchange for its Senior Notes, and (b) the total gain realized in the exchange, which amount would equal the difference between the Senior Note holder's tax basis in its Senior Note and the aggregate fair market value of the New Senior Notes and New Common Stock received in the exchange. The character of any gain or loss recognized as long-term or short-term capital gain or loss or as ordinary income or loss will be determined by a number of factors, including the tax status of the holder, whether the claim constitutes a capital asset in the hand of the holder, whether the claim has been held for more than twelve months, whether the claim was purchased at a discount (in which case the market discount rules of the Tax Code may apply to recharacterize a portion of any gain as ordinary income), and whether and to what extent the holder has previously claimed a bad debt deduction in respect of such Claim. Also in this regard, Tax Code Section 582(c) provides that the sale or exchange of a bond, debenture, note, certificate, or other evidence of indebtedness by certain financial institutions will be considered the sale or exchange of a non-capital asset. Accordingly, any gain or loss recognized by such financial institutions as a result of the implementation of the Plan will be ordinary gain or loss, regardless of the nature of their claims. See also section C below ("Additional Tax Considerations for All Holders of Claims"). A holder's tax basis in any New Senior Notes, New Common Stock, or New Warrants will be the fair market value thereof included in the holder's amount realized on the exchange. The holding period for the New Senior Notes, New Common Stock, or New Warrants so received will begin on the day following the exchange. 84 4 APPLICATION OF OID RULES Under the Tax Code, a holder of a debt instrument that has original issue discount ("OID") must include a portion of the OID in gross income in each taxable year or portion thereof in which the holder holds the debt instrument, even if the holder has not received a cash payment in respect of such OID. In general, OID is equal to the excess of (i) an instrument's "stated redemption price at maturity" over (ii) its "issue price." The "issue price" of a debt instrument issued for property (such as an outstanding debt instrument) depends upon the circumstances surrounding its issuance. The issue price of a debt instrument that is publicly traded is generally the fair market value of the debt instrument when issued. The fair market value is generally determined from the price at which such debt instrument trades on the first day after issuance. If the new debt instrument is not publicly traded and is issued for property (such as an outstanding debt instrument) that is publicly traded, then the issue price is generally determined from the price at which such property trades on the issue date. Although the matter is not free from doubt, the Debtors expect that the outstanding Senior Notes will constitute publicly traded property for purposes of applying the foregoing rules. Accordingly, the issue price of the New Senior Notes is expected to be their fair market value, as described above. Although the Debtors believe that such fair market value will be the face value of the New Senior Notes, their fair market value will be determined by the actual trading prices at the time the New Senior Notes are issued. If the New Senior Notes are issued at a discount from face value, they would have OID of at least the amount of such discount. The "stated redemption price at maturity" of a debt instrument is the sum of all payments to be made on such instrument, other than certain interest payments based on a fixed rate payable unconditionally at fixed periodic intervals of one year or less during the entire term of the instrument. Under the applicable regulations, payments on the New Senior Notes will not be treated as such qualified periodic interest payments. Accordingly, in all events, the New Senior Notes will have OID and each holder will be required to include a portion thereof in gross income for each taxable year even if the holder receives no payments during that year or only receives payment in the form of additional New Senior Notes. However, the precise amount and timing of inclusions will depend on a number of factors, including whether the New Senior Notes are treated as issued at a discount or at par and accordingly will not be determinable until the New Senior Notes are issued. The Debtors will furnish annually to the Internal Revenue Service (other than with respect to certain exempt holders) and to holders of New Senior Notes information with respect to the OID accruing while such New Senior Notes are held by such holders. Treasury regulations provide that a holder acquiring a debt instrument in a reorganization exchange may exclude all of the OID on such debt instrument from such holder's taxable income if it is acquired at a "premium" (i.e., if the 85 adjusted tax basis in the acquired debt instrument exceeds the sum of all payments due on the instrument after the acquisition date, less certain stated interest) and may exclude a part of the OID on such debt instrument from such holder's taxable income if it is acquired at an "acquisition premium" (i.e., if the adjusted tax basis in the acquired debt instrument exceeds its adjusted issue price). B. CONSEQUENCES TO THE DEBTORS The Debtors have reported for federal income tax purposes substantial consolidated net operating loss ("NOL") carryforwards. In addition, the Debtors have substantial tax basis in their assets. As discussed below, certain tax attributes of the Debtors, such as NOLs and tax basis, will be subject to reduction and limitation as a result of implementing the Plan. 1 CANCELLATION OF DEBT In general, the Tax Code provides that a debtor in a bankruptcy case does not include cancellation of debt ("COD") income in its gross income, but rather must reduce its tax attributes, to the extent it has such attributes to reduce, by the amount of COD that otherwise would have been recognized. The amount of COD is the amount by which the indebtedness discharged exceeds the consideration for which it is exchanged. A debtor's tax attributes are generally reduced in the following order until COD is exhausted: NOLs, general business credits, alternative minimum tax credits, capital losses, the tax basis of its assets, passive activity losses, and credits and foreign tax credits. Losses (and tax credits) are reduced only after the debtor's tax liability for the current year is determined (with, in each case, current-year losses being reduced before any carryforwards from prior years), and tax basis is reduced as of the first day of the succeeding year. A debtor's tax basis in its assets will not be reduced below the amount of its liabilities (as defined) outstanding immediately after the COD is recognized. Any COD remaining after exhausting available tax attributes is simply forgiven. Any reduction of tax attributes generally occurs on a separate company basis, even though the Debtors file a consolidated federal income tax return. As a result of the reduction of the Debtors' indebtedness pursuant to the Plan, the Debtors will suffer attribute reduction. The Debtors believe they will have significant COD. The extent of resulting attribute reduction to the Debtors will depend, however, primarily upon the amount of its liabilities outstanding on the Effective Date. The attribute reduction is expected to eliminate NOL carryforwards that otherwise might be available to the Debtors and the vast majority of the tax basis of the Debtors' long-term assets. This will reduce the amount of tax depreciation and amortization that the Company will be able to utilize on its tax returns starting in the fiscal year ending January 28, 2001, and therefore potentially may increase taxes due in future tax periods. 86 2 APPLICABLE HIGH-YIELD DISCOUNT OBLIGATIONS If the yield to maturity of the New Senior Notes (as determined for U.S. federal income tax purposes) exceeds the "applicable federal rate" ("AFR") plus 500 basis points, the New Senior Notes will be subject to the applicable high-yield discount obligation ("AHYDO") rules of the Code. The AFR will be determined according to the month in which the New Senior Notes are issued. The yield to maturity of the New Senior Notes is expected to exceed the appropriate AFR for the month of issue plus 500 basis points. In such case, under the AHYDO rules the Debtors' deductions with respect to OID will be suspended until such amounts are actually paid, and the "disqualified portion" of such OID (defined as the portion that is attributable to the yield on such New Senior Note in excess of the AFR plus 600 basis points), if any, will be permanently nondeductible. The AHYDO rules generally do not affect the amount, timing, or character of a holder's income. However, domestic corporate holders of New Senior Notes may be eligible for a dividends-received deduction with respect to their inclusion in income of the "disqualified portion" if such amount, if paid with respect to stock, would have constituted a dividend for U.S. federal income tax purposes. The availability of a dividends-received deduction is subject to a number of complex limitations. 3 ALTERNATIVE MINIMUM TAX In general, an alternative minimum tax ("AMT") is imposed on a corporation's alternative minimum taxable income ("AMTI") at a 20-percent rate to the extent such tax exceeds the corporation's regular federal income tax. For purposes of computing AMTI, certain tax deductions and other beneficial allowances are modified or eliminated. In particular, even though a corporation otherwise might be able to offset all its taxable income for regular tax purposes by available NOL carryforwards, only 90 percent of AMTI may be offset by available NOL carryforwards (as computed for AMT purposes). Any AMT a corporation pays will generally be allowed as a nonrefundable credit against its regular federal income tax liability in future taxable years when the corporation is no longer subject to AMT. C. ADDITIONAL TAX CONSIDERATIONS FOR ALL CLAIM HOLDERS 1 DISTRIBUTIONS IN DISCHARGE OF ACCRUED INTEREST A Claim holder that receives stock or other property in discharge of a Claim for interest accrued during the period the holder owned such Claim and not previously included in such holder's income will be required to recognize ordinary income equal to the fair market value of the New Senior Notes, New Common Stock, and New Warrants, as the case may be, received in respect of such Claim. A holder generally will recognize a deductible loss (or, possibly, a write-off against a reserve for bad debts) to the extent any accrued interest claimed was previously included in 87 its gross income and is not paid in full by the Debtors. The tax basis of any New Senior Notes, New Common Stock, or New Warrants received in exchange for Claims for accrued interest will be the fair market value of the New Common Stock and New Warrants on the day of the exchange or the issue price of the New Senior Notes, as the case may be. The holding period for such New Senior Notes, New Common Stock, and New Warrants will begin the day after the exchange. Under the Plan, distributions in respect of Allowed Claims will be allocated first to the stated principal amount of such Claims, with any excess allocated to interest. However, there can be no assurance that the IRS or the courts will respect the Plan allocation for federal income tax purposes. 2 SUBSEQUENT SALE OF NEW SENIOR NOTES, NEW COMMON STOCK, OR NEW WARRANTS Any gain recognized by a holder upon a subsequent taxable disposition of New Senior Notes, New Common Stock, or New Warrants received pursuant to the Plan in satisfaction of a Claim (or any stock or other property received for them in a later tax-free exchange) may be treated as ordinary income to the extent of (i) any bad debt deductions (or additions to a bad debt reserve) previously claimed with respect to its Claim and any ordinary loss deduction incurred upon satisfaction of its Claim, less any income (other than interest income) recognized by the holder upon satisfaction of its Claim, (ii) with respect to a cash-basis holder, any amounts that would have been included in its gross income if the holder's Claim had been satisfied in full but were not included by reason of the cash method of accounting, and (iii) any accrued market discount that is assigned to the New Senior Notes, New Common Stock, or New Warrants, as discussed in subsection C.3 below ("Additional Tax Considerations for All Claim Holders--Market Discount"). 3 MARKET DISCOUNT The Treasury Department is expected to promulgate regulations that will provide that any accrued "market discount" not treated as ordinary income upon a tax-free exchange of market-discount bonds (generally, bonds acquired for less than their issue price) would carry over to any nonrecognition property received in the exchange. If such regulations are promulgated and applicable to the Plan, any accrued but unrecognized market discount on an exchanged Claim that constitutes a Tax Security would carry over to any New Senior Notes, New Common Stock, or New Warrants received pursuant to the Plan. Any gain recognized by a holder upon a subsequent disposition of such New Senior Notes, New Common Stock, or New Warrants also would be treated as ordinary income to the extent of any accrued market discount not previously included in such holder's income. Holders are urged to consult their tax advisors as to the application of the market discount rules. 88 4 WITHHOLDING All distributions to holders of Allowed Claims under the Plan are subject to applicable withholding (including employment tax withholding). Under federal income tax law, interest, dividends, and other reportable payments may, under certain circumstances, be subject to "backup withholding" at a 31% rate. Backup withholding generally applies if the holder (a) fails to furnish its social security number or other taxpayer identification number ("TIN"), (b) furnishes an incorrect TIN, (c) fails to report properly interest or dividends, or (d) under certain circumstances, fails to provide a certified statement, signed under penalty of perjury, that the TIN provided is its correct number and that it is not subject to backup withholding. Backup withholding is not an additional tax, but merely an advance payment that may be refunded to the extent it results in an overpayment of tax. Certain persons are exempt from backup withholding. THE FOREGOING FEDERAL INCOME TAX SUMMARY HAS BEEN PROVIDED FOR INFORMATIONAL PURPOSES ONLY. ALL CREDITORS AND EQUITY HOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS CONCERNING THE FEDERAL, STATE, LOCAL, AND OTHER TAX CONSEQUENCES OF THE PLAN. [INTENTIONALLY LEFT BLANK] 89 XVI. CONCLUSION The Debtors believe the Plan is in the best interests of all Creditors and Equity Interestholders and urge those entitled to vote to accept the Plan. Dated: April 2, 1999 THE PENN TRAFFIC COMPANY By: ___________________________ Name: Martin A. Fox Title: Vice President-Finance DAIRY DELL, INC. By: ___________________________ Name: Martin A. Fox Title: Vice President BIG M SUPERMARKETS, INC. By: ___________________________ Name: Martin A. Fox Title: Vice President PENNY CURTISS BAKING COMPANY, INC. By: ___________________________ Name: Martin A. Fox Title: Vice President 90 EXHIBITS TO THE DISCLOSURE STATEMENT A PROPOSED PLAN OF REORGANIZATION B DISCLOSURE STATEMENT ORDER C ANNUAL REPORT ON FORM 10-K D FINANCIAL PROJECTIONS E LIQUIDATION ANALYSIS F ORGANIZATIONAL CHART G QUARTERLY REPORT ON FORM 10-Q H RECOVERY ANALYSIS I FOURTH QUARTER FISCAL 1999 EARNINGS PRESS RELEASE 91 EX-5 6 EXHIBIT T3F EXHIBIT T3F CROSS-REFERENCE TABLE* Trust Indenture Act Section Indenture Section - --------------------------- ----------------- 310(a)(1).............................................................7.10 (a)(2)............................................................7.10 (a)(3)............................................................N.A. (a)(4)............................................................N.A. (a)(5)............................................................7.10 (b)...............................................................7.10 (c)...............................................................N.A. 311(a)................................................................7.11 (b)...............................................................7.11 (c)...............................................................N.A. 312(a)................................................................3.06 (b)..............................................................11.03 (c)..............................................................11.03 313(a)................................................................7.06 (b)(1)............................................................N.A. (b)(2)............................................................7.06 (c)........................................................7.06, 11.02 (d)...............................................................7.06 314(a)..........................................................4.08, 4.18 (b)...............................................................N.A. (c)(1)...........................................................11.04 (c)(2)...........................................................11.04 (c)(3)...........................................................11.04 (d)...............................................................N.A. (e)..............................................................11.05 (f)...............................................................7.01 315(a).........................................................7.05, 11.02 (b)............................................................7.01(a) (c)............................................................7.01(c) (d)............................................................7.01(c) (e)...............................................................6.11 316(a)................................................................N.A. (a)(1)(A).........................................................6.05 (a)(1)(B).........................................................6.04 (a)(2)............................................................N.A. (b)...............................................................6.07 (c)............................................................9.04(b) 317(a)(1).............................................................6.08 (a)(2)............................................................6.09 (b)...............................................................3.05 318(a)...............................................................11.01 - ------------------ "N.A." means not applicable. *This Cross-Reference Table is not part of the Indenture. 12 EX-99.1 7 EXHIBIT 99.1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 ---------- FORM T-1 STATEMENT OF ELIGIBILITY UNDER THE TRUST INDENTURE ACT OF 1939, AS AMENDED, OF A CORPORATION DESIGNATED TO ACT AS TRUSTEE CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF A TRUSTEE PURSUANT TO SECTION 305-(b) (2) --------- IBJ WHITEHALL BANK & TRUST COMPANY (EXACT NAME OF TRUSTEE AS SPECIFIED IN ITS CHARTER) New York 13-5375195 (State of Incorporation (I.R.S. Employer if not a U.S. national bank) Identification No.) One State Street, New York, New York 10004 (Address of principal executive offices) (Zip code) Stephen J. Giurlando, Vice President IBJ Whitehall Bank & Trust Company One State Street New York, New York 10004 (212) 858-2000 (Name, Address and Telephone Number of Agent for Service) The Penn Traffic Company (Exact name of each registrant as specified in its charter) Delaware (I.R.S. Employer (State or jurisdiction of Identification No.) incorporation or organization) 13221 1200 State Fair Boulevard (Zip code) Syracuse, New York 13221 (Address of principal executive office) 11% Senior Notes due 2009 (Title of Indenture Securities) 2 Item 1. General information Furnish the following information as to the trustee: (a) Name and address of each examining or supervising authority to which it is subject. New York State Banking Department, Two Rector Street, New York, New York Federal Deposit Insurance Corporation, Washington, D.C. Federal Reserve Bank of New York Second District, 33 Liberty Street, New York, New York (b) Whether it is authorized to exercise corporate trust powers. Yes Item 2. Affiliations with the Obligors. If the obligors are an affiliate of the trustee, describe each such affiliation. The obligors are not an affiliate of the trustee. 3 Item 13. Defaults by the Obligors. (a) State whether there is or has been a default with respect to the securities under this indenture. Explain the nature of any such default. None (b) If the trustee is a trustee under another indenture under which any other securities, or certificates of interest or participation in any other securities, of the obligors are outstanding, or is trustee for more than one outstanding series of securities under the indenture, state whether there has been a default under any such indenture or series, identify the indenture or series affected, and explain the nature of any such default. None Item 16. List of exhibits. List below all exhibits filed as part of this statement of eligibility. *1. A copy of the Charter of IBJ Whitehall Bank & Trust Company as amended to date. (See Exhibit 1A to Form T-1, Securities and Exchange Commission File No. 22-18460 & 333-46849). *2. A copy of the Certificate of Authority of the trustee to Commence Business (Included in Exhibit 1 above). *3. A copy of the Authorization of the trustee to exercise corporate trust powers, as amended to date (See Exhibit 4 to Form T-1, Securities and Exchange Commission File No. 22-19146). 4 *4. A copy of the existing By-Laws of the trustee, as amended to date (See Exhibit 4 to Form T-1, Securities and Exchange Commission File No. 333-46849). 5. Not Applicable 6. The consent of United States institutional trustee required by Section 321(b) of the Act. 7. A copy of the latest report of condition of the trustee published pursuant to law or the requirements of its supervising or examining authority. * The Exhibits thus designated are incorporated herein by reference as exhibits hereto. Following the description of such Exhibits is a reference to the copy of the Exhibit heretofore filed with the Securities and Exchange Commission, to which there have been no amendments or changes. NOTE In answering any item in this Statement of Eligibility which relates to matters peculiarly within the knowledge of the obligors and its directors or officers, the trustee has relied upon information furnished to it by the obligors. Inasmuch as this Form T-1 is filed prior to the ascertainment by the trustee of all facts on which to base responsive answers to Item 2, the answer to said Item is based on incomplete information. Item 2, may, however, be considered as correct unless amended by an amendment to this Form T-1. Pursuant to General Instruction B, the trustee has responded to Items 1, 2 and 16 of this form since to the best knowledge of the trustee as indicated in Item 13, the obligors are not in default under any indenture under which the applicant is trustee. 5 SIGNATURE Pursuant to the requirements of the Trust Indenture Act of 1939, the trustee, IBJ Whitehall Bank & Trust Company, a corporation organized and existing under the laws of the State of New York, has duly caused this statement of eligibility to be signed on its behalf by the undersigned, thereunto duly authorized, all in the City of New York, and State of New York, on the 19th day of April, 1999. IBJ WHITEHALL BANK & TRUST COMPANY By: /s/ Stephen J. Giurlando ------------------------ Stephen J. Giurlando Vice President 6 EXHIBIT 6 CONSENT OF TRUSTEE Pursuant to the requirements of Section 321(b) of the Trust Indenture Act of 1939, as amended, in connection with the issue by The Penn Traffic Company, of it's 11% Senior Notes due 2009, we hereby consent that reports of examinations by Federal, State, Territorial, or District authorities may be furnished by such authorities to the Securities and Exchange Commission upon request therefor. IBJ WHITEHALL BANK & TRUST COMPANY By: /s/ Stephen J. Giurlando ------------------------ Stephen J. Giurlando Vice President Dated: April 19, 1999 7 EXHIBIT 7 CONSOLIDATED REPORT OF CONDITION OF IBJ SCHRODER BANK & TRUST COMPANY OF NEW YORK, NEW YORK AND FOREIGN AND DOMESTIC SUBSIDIARIES REPORT AS OF DECEMBER 31, 1998 DOLLAR AMOUNTS IN THOUSANDS ------------ ASSETS ------ 1. Cash and balance due from depository institutions: a. Non-interest-bearing balances and currency and coin....$ 26,852 b. Interest-bearing balances..............................$ 17,489 2. Securities: a. Held-to-maturity securities............................$ -0- b. Available-for-sale securities..........................$ 207,069 3. Federal funds sold and securities purchased under agreements to resell in domestic offices of the bank and of its Edge and Agreement subsidiaries and in IBFs Federal Funds sold and Securities purchased under agreements to resell.......................................................$ 80,389 4. Loans and lease financing receivables: a. Loans and leases, net of unearned income......$ 2,033,599 b. LESS: Allowance for loan and lease losses.....$ 62,853 c. LESS: Allocated transfer risk reserve.........$ -0- d. Loans and leases, net of unearned income, allowance, and reserve.................................$ 1,970,746 5. Trading assets held in trading accounts......................$ 848 6. Premises and fixed assets (including capitalized leases).....$ 1,583 7. Other real estate owned......................................$ -0- 8. Investments in unconsolidated subsidiaries and associated companies....................................................$ -0- 9. Customers' liability to this bank on acceptances outstanding..................................................$ 340 10. Intangible assets............................................$ 11,840 8 11. Other assets.................................................$ 66,691 12. TOTAL ASSETS.................................................$ 2,383,847 9 LIABILITIES ----------- 13. Deposits: a. In domestic offices....................................$ 804,562 (1) Noninterest-bearing...........................$ 168,822 (2) Interest-bearing..............................$ 635,740 b. In foreign offices, Edge and Agreement subsidiaries, and IBFs...................................................$ 885,076 (1) Noninterest-bearing...........................$ 16,554 (2) Interest-bearing..............................$ 868,522 14. Federal funds purchased and securities sold under agreements to repurchase in domestic offices of the bank and of its Edge and Agreement subsidiaries, and in IBFs: Federal Funds purchased and Securities sold under agreements to repurchase...................................................$ 225,000 15. a. Demand notes issued to the U.S. Treasury.................$ 674 b. Trading Liabilities......................................$ 560 16. Other borrowed money: a. With a remaining maturity of one year or less............$ 38,002 b. With a remaining maturity of more than one year..........$ 1,375 c. With a remaining maturity of more than three years.......$ 1,550 17. Not applicable. 18. Bank's liability on acceptances executed and outstanding.....$ 340 19. Subordinated notes and debentures............................$ 100,000 20. Other liabilities............................................$ 74,502 21. TOTAL LIABILITIES............................................$ 2,131,641 22. Limited-life preferred stock and related surplus............. N/A 10 EQUITY CAPITAL -------------- 23. Perpetual preferred stock and related surplus................$ -0- 24. Common stock.................................................$ 28,958 25. Surplus (exclude all surplus related to preferred stock).....$ 210,319 26. a. Undivided profits and capital reserves...................$ 11,655 b. Net unrealized gains (losses) on available-for-sale securities...............................................$ 1,274 27. Cumulative foreign currency translation adjustments..........$ -0- 28. TOTAL EQUITY CAPITAL.........................................$ 252,206 29. TOTAL LIABILITIES AND EQUITY CAPITAL.........................$ 2,383,847 -----END PRIVACY-ENHANCED MESSAGE-----