8-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

Current Report

Pursuant to Section 13 or 15(d) of The

Securities Exchange Act of 1934

Date of Report (Date of earliest event reported):   December 21, 2008

The Penn Traffic Company

(Exact name of registrant as specified in its charter)

Delaware	0-8858	25-0716800
(State or other jurisdiction	(Commission	(IRS Employer
of incorporation)	File Number)	Identification No.)

1200 State Fair Boulevard Syracuse, New York	13221-4737
(Address of principal executive offices)	(ZIP Code)

Registrant’s telephone number, including area code:   (315) 453-7284

(Former name or former address, if changed since last report)

       Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (seeGeneral Instruction A.2. below):

o      Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

o      Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

o      Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

o      Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Item 2.01.  Completion of Acquisition or Disposition of Assets.

On December 21, 2008, pursuant to its previously announced Asset Purchase Agreement (the “Asset Purchase Agreement”), dated December 17, 2008, by and between The Penn Traffic Company (the “Company”), its wholly-owned subsidiary, Big M Supermarkets, Inc., and C&S Wholesale Grocers, Inc. (“C&S”), the Company completed the sale of its wholesale business segment to C&S for total consideration of approximately $43 million, subject to further adjustments to be made based on the number of cases of groceries and other merchandise sold by C&S to certain wholesale customers over the twelve (12) months following the completion of the sale.  A copy of the Asset Purchase Agreement was filed as Exhibit 2.1 to the Company’s Current Report on Form 8-K filed on December 23, 2008.  On December 22, 2008, the Company issued a press release regarding the completion of the asset disposition, as well as the amendment of the Company’s credit facilities providing the necessary lenders’ consent to complete the transaction and pay down debt.  A copy of this press release is furnished herewith as Exhibit 99.1 and is incorporated herein by reference.

In connection with the above-described asset sale, the Company and C&S also entered into (i) a third party logistics agreement (the “Third Party Logistics Agreement”) pursuant to which the Company will continue to handle all transportation, warehousing and distribution services to the Company’s former wholesale accounts to or for the benefit of C&S and (ii) a transition services agreement (the “Transition Services Agreement”) whereby the Company will provide various support services to the wholesale accounts during a transition period.  Furthermore, C&S and the Company made certain modifications to the Amended and Restated Penn Traffic Company Supply Agreement, dated September 10, 2008, by and between the Company and C&S, pursuant to the First Amendment to Amended and Restated Penn Traffic Company Supply Agreement (the “First Amendment”), dated December 21, 2008, by and between the Company and C&S, in consideration of the above-described asset sale.

The foregoing summary is qualified in its entirety by reference to the following, each of which is incorporated herein by reference: (i) the Asset Purchase Agreement, (ii) the Third Party Logistics Agreement, a copy of which is filed as Exhibit 2.2 hereto, (iii) the Transition Services Agreement, a copy of which is filed as Exhibit 2.3 hereto, and (iv) the First Amendment, a copy of which is filed as Exhibit 2.4 hereto.

Item 9.01.  Financial Statements and Exhibits.

(b) Pro Forma Financial Information.

The following presents our unaudited pro forma financial information for the years ended February 2, 2008 and February 3, 2007, for the 41-week period ended January 28, 2006, and for the nine months ended November 1, 2008.  The pro forma statements of operations for the years ended February 2, 2008 and February 3, 2007 and for the 41-week period ended January 28, 2006, and for the interim nine-month period ended November 1, 2008, give effect to the disposition of the wholesale business segment as if it had occurred at April 17, 2005.  The unaudited pro forma balance sheet as of November 1, 2008, has been prepared as if the disposition of the wholesale business segment had occurred on that date.  A portion of the net proceeds from the transaction are to be used to repay long-term debt, as described in the "Use of Proceeds" section.  The pro forma adjustments are based upon available information and certain assumptions that we believe are reasonable as of the date of this report.

The unaudited pro forma condensed financial information is for informational purposes only and does not purport to present what our results would actually have been had these transactions actually occurred on the dates presented or to project our results of operations or financial position for any future period.  The Company is in the process of finalizing certain technical conclusions regarding the accounting for the transaction.  The unaudited pro forma condensed financial information and the accompanying notes should be read in conjunction with the Company’s historical consolidated financial statements and related notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in the Company’s Annual Report on Form 10-K for the fiscal year ended February 2, 2008, and Quarterly Report on Form 10-Q for the quarter ended November 1, 2008.  Final true-ups for the assets transferred will be determined at a future date.

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The Penn Traffic Company
Unaudited Condensed Pro Forma Statement of Operations
Year to Date Ended November 1, 2008
(In thousands, except share and per share data)
	The Penn Traffic			Proforma		Proforma
	Company			Adjustments		Consolidated
Revenues (a)		881,233			172,564		708,669
Cost and operating expenses:
Cost of sales (b)		655,768			162,284		493,484
Selling and administrative expenses (c)		239,280			3,927		235,353
Operating (loss) income		(13,815	)		6,353		(20,168	)
Interest expense (d)		6,743			2,601		4,142
Reorganization and other expenses		366					366
(Loss) income from continuing operations before
income taxes		(20,924	)		3,752		(24,676	)
Income tax expense (e)		386					386
(Loss) income from continuing operations		(21,310	)		3,752		(25,062	)
Net (loss) income per common share:
Basic	$	(2.54	)	$	0.43	$	(2.97	)
Diluted	$	(2.54	)	$	0.43	$	(2.97	)
Weighted average shares outstanding:
Basic		8,650,110					8,650,110
Diluted		8,650,110					8,650,110

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The Penn Traffic Company
Unaudited Condensed Pro Forma Statement of Operations
Fiscal Year Ended February 2, 2008
(In thousands, except share and per share data)
	The Penn Traffic			Proforma		Proforma
	Company			Adjustments		Consolidated
Revenues (a)		1,219,541			210,046		1,009,495
Cost and operating expenses:
Cost of sales (b)		897,546			197,058		700,488
Selling and administrative expenses (c)		337,217			6,961		330,256
Operating (loss) income		(15,222	)		6,027		(21,249	)
Interest expense (d)		9,617			3,912		5,705
Reorganization and other expenses		5,365					5,365
(Loss) income from continuing operations before
income taxes		(30,204	)		2,115		(32,319	)
Income tax expense (e)		234					234
(Loss) income from continuing operations		(30,438	)		2,115		(32,553	)
Net (loss) income per common share:
Basic	$	(3.59	)	$	0.25	$	(3.84	)
Diluted	$	(3.59	)	$	0.25	$	(3.84	)
Weighted average shares outstanding:
Basic		8,501,323					8,501,323
Diluted		8,501,323					8,501,323

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The Penn Traffic Company
Unaudited Condensed Pro Forma Statement of Operations
Fiscal Year Ended February 3, 2007
(In thousands, except share and per share data)
	The Penn Traffic			Proforma		Proforma
	Company			Adjustments		Consolidated
Revenues (a)		1,293,861			217,320		1,076,541
Cost and operating expenses:
Cost of sales (b)		965,095			205,624		759,471
Selling and administrative expenses (c)		345,524			8,077		337,447
Operating (loss) income		(16,758	)		3,619		(20,377	)
Interest expense (d)		9,357			3,114		6,243
Reorganization and other expenses		1,020					1,020
(Loss) income from continuing operations before
income taxes		(27,135	)		505		(27,640	)
Income tax expense (e)		228					228
(Loss) income from continuing operations		(27,363	)		505		(27,868	)
Net (loss) income per common share:
Basic	$	(3.22	)	$	0.06	$	(3.28	)
Diluted	$	(3.22	)	$	0.06	$	(3.28	)
Weighted average shares outstanding:
Basic		8,498,752					8,498,752
Diluted		8,498,752					8,498,752

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The Penn Traffic Company
Unaudited Condensed Pro Forma Statement of Operations
Period from April 17, 2005 to January 28, 2006
(In thousands, except share and per share data)
	The Penn Traffic			Proforma		Proforma
	Company			Adjustments		Consolidated
Revenues (a)		1,003,673			171,907		831,766
Cost and operating expenses:
Cost of sales (b)		744,149			158,656		585,493
Selling and administrative expenses (c)		254,878			7,775		247,103
Operating income (loss)		4,646			5,476		(830	)
Interest expense (d)		8,289			1,951		6,338
Reorganization and other expenses		1,023					1,023
(Loss) income from continuing operations before
income taxes		(4,666	)		3,525		(8,191	)
Income tax expense (e)		200					200
(Loss) income from continuing operations		(4,866	)		3,525		(8,391	)
Net (loss) income per common share:
Basic	$	(0.57	)	$	0.41	$	(0.99	)
Diluted	$	(0.57	)	$	0.41	$	(0.99	)
Weighted average shares outstanding:
Basic		8,498,752					8,498,752
Diluted		8,498,752					8,498,752

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The Penn Traffic Company
Unaudited Condensed Pro Forma Balance Sheets
As of November 1, 2008
(in thousands)
	The Penn Traffic			Proforma			Proforma
	Company			Adjustments			Consolidated
ASSETS
Current assets:
Cash and cash equivalents (f)	$	32,896			8,594		$	41,490
Accounts and notes receivable, net (g)		30,274			(14,272	)		16,002
Inventories		51,981						51,981
Prepaid expenses and other current assets (g)		6,662			(60	)		6,602
Total current assets		121,813						116,075
Capital leases, net		7,457						7,457
Fixed assets, net		64,624						64,624
Total other assets		15,788			(119	)		15,669
Total assets	$	209,682					$	203,825
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current portion of obligations under capital leases	$	1,493					$	1,493
Current maturities of long-term debt (f)		48,365			(32,000	)		16,365
Accounts payable (g) (h)		17,448			(1,649	)		15,799
Other current liabilities (g) (i)		41,028			475			41,503
Accrued interest expense		503						503
Deferred income taxes		7,358						7,358
Liabilities subject to compromise		13						13
Total current liabilities		116,208						83,034
Total noncurrent liabilities		46,142						46,142
Total liabilities		162,350						129,176
Preferred and common stock		186						186
Capital in excess of par value		128,148						128,148
Deficit (g)		(95,769	)		27,317			(68,452	)
Accumulated other comprehensive income		14,767						14,767
Total stockholders’ equity		47,332						74,649
Total liabilities and stockholders’ equity	$	209,682					$	203,825

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NOTES TO UNAUDITED CONDENSED PRO FORMA FINANCIAL INFORMATION

1. Use of Proceeds

A portion of the proceeds from this transaction, combined with the proceeds of previously-announced store sales, are expected to be used to pay down a majority of the Company’s outstanding debt, including a $17 million revolving line of credit and approximately $15 million of the Company’s $25 million supplemental real estate facility.  The remaining proceeds from the transaction will be invested into the ongoing operations of the Company, and/or used as collateral for the Company’s borrowing base.

2. Pro Forma Adjustments

The unaudited condensed pro forma statements of operations for all periods presented have been adjusted to exclude costs directly incurred by or attributable to the wholesale business segment. Certain allocable general and administrative expenses related primarily to technology, human resources, finance and facilities support for the wholesale business as well as corporate sales and marketing expenses are not included in the pro forma adjustments included in the unaudited condensed pro forma statements of operations.  The pro forma adjustments do not reflect any changes in accounting estimates may that result from the disposition of the wholesale business segment, including any impact on our prior assessments of discontinued operations reporting for stores closed in the past twelve months.

(a)	Amounts reflect revenues earned by the wholesale business segment for the periods presented.
(b)	Amounts reflect the cost of sales incurred, associated with the revenues earned, by the wholesale business segment for the periods presented.

(c) Amounts reflect selling and administrative expenses incurred by the wholesale business segment for the periods presented, and excludes certain allocable administrative expenses, as described above, that the Company will continue to incur following the disposal.

(d) Amounts reflect actual interest expense for the periods presented that are directly related to long-term debt assumed to have been paid with the proceeds of the transaction.  The long-term debt amounts assumed to have been repaid for purposes of the pro forma presentation are based on the amounts that the Company will actually pay off with the proceeds from the transaction.  The Company’s long-term debt carries a variable interest rate.  A 1/8% change in interest rates would have impacted our pro forma interest expense adjustment by approximately $40,000 based on the amount of debt assumed to have been repaid.

(e) Represents certain state taxes that are based on the Company’s total equity.  After applying state apportionment and allocation percentages and the requisite state tax rates to the wholesale business segments’ portion of consolidated equity, the Company determined that pro forma adjustments to tax expense would not be significant.

(f) Amount reflects net cash that the Company estimates it would have received as consideration for the wholesale business segment if the transaction was completed on November 1, 2008, based on the calculation contained within the Asset Purchase Agreement (approximately $41.9 million), less related assumed payments of debt of $32.0 million and assumed payment of wholesale accounts payable that were not assumed by C&S of $1.3 million.  The amount of net cash that the Company actually received on December 22, 2008, of $40.2 million, differs from the pro forma amount as of November 1, 2008, due to liquidation of accounts receivable in the intervening period, which reduced the final purchase price of the wholesale business segment.

(g) Amounts reflect adjustments for the disposition of the assets and liabilities of the wholesale business segment as of November 1, 2008.  The pro forma adjustment amounts differ from the amounts actually recognized by the Company on December 21, 2008, when the disposition was completed, primarily do to the liquidation of accounts receivable in the intervening period.  Amounts other than accounts receivable differ by immaterial amounts, also due to normal account activity in the intervening period.

(h) Pro forma adjustments to accounts payable consist of $0.3 million of liabilities assumed by C&S as well as $1.3 million of wholesale accounts payable that were not assumed by C&S.

(i) Pro forma adjustments to other current liabilities consist of $0.3 million of liabilities assumed by C&S, offset by $0.8 million of deferred income related to a pre-payment by C&S for services to be rendered by Penn Traffic under the Transition Services Agreement described below.  This pre-payment was included in the actual consideration received by Penn Traffic upon completion of the transaction.

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Note: The pro forma adjustments under (b) and (c) above include certain expenses that, under the Transition Services Agreement and the Third Party Logistics Agreement, the Company will continue to incur subsequent to the transaction.  Under the Transition Services Agreement and the Third Party Logistics Agreement, the Company will continue to provide certain services to the wholesale business segment customers, and will be reimbursed by C&S for these costs.  The revenues expected to be generated from the Transition Services Agreement and Third Party Logistics Agreement have also been excluded from pro forma consolidated revenues.  Because the agreements are intended to be a reimbursement of the Company’s actual costs, it is expected that they would not have a significant impact on pro forma consolidated operating income / (loss).  The Company has determined that the continuing cash flows are not “direct” cash flows, as that term is defined within Emerging Issues Task Force Abstracts Issue No. 03-13.

(d)              Exhibits.

Exhibit No.	Exhibit
2.1	Asset Purchase Agreement (incorporated by reference to Exhibit 2.1 to the Current Report on Form 8-K filed by the Company on December 23, 2008)
2.2	Third Party Logistics Agreement
2.3	Transition Services Agreement
2.4	First Amendment
99.1	Press Release dated December 22, 2008

SIGNATURE

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

THE PENN TRAFFIC COMPANY

By: /s/ Daniel J. Mahoney

Name: Daniel J. Mahoney

Title: SVP, General Counsel

Dated:  December 29, 2008

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EXHIBIT INDEX

Exhibit No.	Exhibit
2.1	Asset Purchase Agreement (incorporated by reference to Exhibit 2.1 to the Current Report on Form 8-K filed by the Company on December 23, 2008)
2.2	Third Party Logistics Agreement
2.3	Transition Services Agreement
2.4	First Amendment
99.1	Press Release dated December 22, 2008

EX-2.2

THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT REQUEST.  REDACTED MATERIAL IS MARKED WITH “*” AND BRACKETS AND HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION

THIRD PARTY LOGISTICS AGREEMENT

THIS THIRD PARTY LOGISTICSAGREEMENT (“Agreement”) is made as of the 21st  day of December, 2008, by and between C&S Wholesale Grocers, Inc., a Vermont corporation having an address at 7 Corporate Drive, Keene, NH 03431 (“C&S”), and The Penn Traffic Company, a Delaware corporation having an address at 1200 State Fair Boulevard, Syracuse, NY 13221 (“Penn Traffic”).

WITNESSETH:

WHEREAS, C&S and Penn Traffic have entered into that certain Asset Purchase Agreement, dated as of December 17, 2008 (the “APA”);

WHEREAS, pursuant to the APA, Penn Traffic has sold to C&S, and C&S has purchased from Penn Traffic, all of Penn Traffic’s right, title and interest in and to substantially all of the assets owned by Penn Traffic relating to the Wholesale Business (including, without limitation, the Customer Agreements), effective as of the Closing Date;

WHEREAS, Penn Traffic and C&S have entered into that certain Transition Services Agreement dated as of the date hereof (the “TSA”), whereby Penn Traffic will provide certain retail support, accounting, administrative and other transition services to or for the benefit of C&S following the Closing with regard to the Wholesale Customers, any New Customers and the Wholesale Business;

WHEREAS, it is a condition to the obligations of C&S and Penn Traffic to consummate the closing under the APA that C&S and Penn Traffic enter into this Agreement, which generally provides for Penn Traffic to act as bailee and warehouseman for C&S, and to provide certain warehouse, distribution and related services to or for the benefit of C&S following the Closing with regard to the Wholesale Customers, any New Customers and the Wholesale Business;

WHEREAS, all capitalized terms used but not defined herein shall have the meanings ascribed to such terms in the APA; and

NOW, THEREFORE, in consideration of the mutual covenants, agreements and warranties herein contained, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto, intending to be legally bound, agree as follows, effective as of the Closing Date:

SECTION 1. BAILMENT; WAREHOUSE AND DISTRIBUTION SERVICES.

1.1            General Intent.  For the avoidance of doubt, the parties intend that (i) the warehouse, transportation and distribution services provided by Penn Traffic hereunder shall include, but not be limited to, all warehouse, transportation and distribution services that Penn Traffic was performing with regard to, or for the benefit of, the Wholesale Customers and/or the Wholesale Business within the twelve (12) months prior to the Closing Date (the “Trailing 12 Months”) (collectively, such warehouse, transportation and distribution services are referred to herein as the “Services”), and (ii) this Agreement constitutes a bailment of the Merchandise (as defined herein).  Notwithstanding anything herein to the contrary, the Services shall not include any procurement services that were provided by Penn Traffic to such Wholesale Customers and/or the Wholesale Business prior to the Closing Date (except as provided in Sections 1.8 and 1.9 below).

1.2            Scope of Services.  C&S will procure Merchandise for its Wholesale Customers and any New Customers that C&S will cause to be shipped to Penn Traffic’s facilities in Dubois, Pennsylvania (the “Dubois Facility”) and Syracuse, New York (the “Syracuse Facility,” and, together with the Dubois Facility, the “Facilities,” or, individually, a “Facility”).  The Services provided by Penn Traffic shall include, but not be limited to, providing sufficient space in its Facilities (or outside storage), together with all related labor, management, materials, equipment and/or services, necessary or appropriate to receive, sort, store, select, load, seal, route, deliver and otherwise distribute Merchandise to all Wholesale Customers and any New Customers of C&S, upon the terms and conditions set forth in this Agreement.  In the furnishing of such Services, (i) Penn Traffic will retain responsibility for all employees, Facility and storage leases, material handling and transportation equipment, contracts and all other liabilities associated with the Facilities and any outside storage, (ii) C&S will not operate the Facilities, nor shall it have any liability related to any warehouse, maintenance, support, distribution, storage (including outside storage) or inbound and outbound transportation related matters, and (iii) Penn Traffic shall be responsible for inbound inspection of Merchandise and any and all other quality control.  In performing the Services, Penn Traffic will comply with all Specifications (as such term is defined in the Supply Agreement Amendment)and with any product specifications provided by C&S from time-to-time, and with all specifications and regulations under the Perishable Agricultural Commodities Act guidelines (“PACA Guidelines”); provided, that to the extent that C&S provides product specifications different from the Specifications and the PACA Guidelines from time-to-time, and compliance with such specifications require Penn Traffic to incur incremental Costs that are unique to the Wholesale Customers and any New Customers, C&S shall pay such incremental Costs to Penn Traffic pursuant to Section 5 hereof.

1.3           Service Standards.  Penn Traffic covenants and agrees that it shall perform the Services (i) in compliance in all material respects with all applicable Federal, State and local laws, regulations and rules (and Penn Traffic shall maintain all permits and licenses necessary to enable Penn Traffic to provide such Services and operate the Facilities), and (ii) with the same degree of care, promptness, accuracy, skill and diligence and in substantially the same manner as such services were provided to the Wholesale Customers and/or the Wholesale Business (including the businesses associated with the Customer Sandwich Leases and the Facilities, and the assets used in providing and services to be provided hereunder and under the Transition Services Agreement) during the Trailing 12 Months (without any material deterioration in quality or promptness). To the extent that Big M Supermarkets, Inc. was, within the Trailing 12 Months, performing any of the Services to the Wholesale Customers, Penn Traffic shall provide such Services after the Closing Date in accordance herewith.

1.4            Customer Agreements. To the extent that any Services provided hereunder will be performed by Penn Traffic directly to or for the benefit of the Wholesale Customers, Penn Traffic will provide C&S and/or each Wholesale Customer with a level and scope of Services after the Closing Date that is equal to the greater of (i) the level and scope of Services that such Wholesale Customer was receiving within the Trailing 12 Months, and (ii) the level and scope of Services that are required under or pursuant to the terms of any Customer Agreement in effect with such customer as of the Closing Date.

1.5            Same Business Practices.  Penn Traffic will not prefer or advantage the Corporate Stores over the Wholesale Customers or the New Customers in its provision of the Services hereunder except to extent it did so in the Trailing 12 Months.  Penn Traffic will employ the same business practices with respect to the Facilities and/or the Services after the Closing as Penn Traffic employed while it was operating the Wholesale Business during the Trailing 12 Months [*].

1.6            Definition of Merchandise.                                                                As used in this Agreement, “Merchandise” shall mean items in the following categories procured or purchased by C&S for re-sale in the Wholesale Business: grocery, bakery, candy, spices, store supplies, fresh meat, deli, seafood, produce, dairy, floral, frozen (mainline), frozen bakery, ice cream, frozen meat, frozen seafood, ice and certain other merchandise purchased by C&S.  Merchandise that is delivered by Penn Traffic to Wholesale Customers and New Customers under this Agreement is referred to herein as “Delivered Merchandise.”  Merchandise that is picked up at the Facilities by the Wholesale Customers or New Customers under this Agreement is referred to herein as “Pick-Up Merchandise.”

1.7            C&S Ownership of Merchandise.  C&S shall at all times have and maintain all right, title and interest in, to and under the Merchandise stored at the Facilities.  Penn Traffic shall keep the Facilities and Merchandise free from all liens and encumbrances, including, but not limited to, any landlord’s, warehouseman’s, mechanics’ or materialmen’s liens.  Penn Traffic hereby expressly disclaims and waives all right, title and interest in and to the Merchandise and agrees that it will not take any action or suffer or permit any condition to exist which gives rise to any claim adverse to C&S’s title in, to or under or right to possession of the Merchandise including, without limitation, any landlord’s, warehouseman’s, mechanics’, materialmen’s or other lien, claim or encumbrance Penn Traffic may have under applicable law. Further, Penn Traffic shall, and agrees to use reasonable efforts to cause its lender(s), landlord(s) or any other third party in C&S’s reasonable discretion to, cooperate with C&S and execute any reasonable written agreement, instrument or statement or do any other acts reasonably deemed necessary to effectuate this provision (including, without limitation, obtaining lien waivers from any landlords at the Facilities in favor of C&S, together with a right of access to the Facilities in the event that C&S deems such access appropriate or necessary to the inspection, removal or custody of the inventory).  [*].

* Material omitted and filed separately with the Securities and Exchange Commission pursuant to a request for confidential treatment under Rule 24b-2 of the Securities and Exchange Act of 1934, as amended.

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1.8            Tobacco.  The parties acknowledge that Merchandise does not include cigarettes or other tobacco products, which Penn Traffic will continue to own and store at its Facilities after the Closing Date.  Beginning on the Closing Date, Penn Traffic will procure, purchase, stamp, handle, receive, sort, store, select, load, seal, route, deliver and otherwise sell and distribute cigarettes and other tobacco products to or for the Wholesale Customers and any New Customers.  Penn Traffic (i) will invoice the Wholesale Customers and any New Customers for the cigarettes and other tobacco products that Penn Traffic sells to such customers and they will be instructed to remit payment to Penn Traffic, and (ii) will provide the same level and scope of services to the Wholesale Customers (and any New Customers) with regard to the cigarette and tobacco purchases as Penn Traffic was providing to the Wholesale Business prior to the Closing (and subject to any reasonable requests from the Wholesale Customers and any New Customers following the Closing).    [*].

1.9            Additional Products.  The parties acknowledge that Merchandise does not include products that, as of the date of the Supply Agreement Amendment, (i) are seasonal GM or specialty products procured by Penn Traffic, or (ii) are products supplied by cross-dock vendors as of the date of the Supply Agreement Amendment, or converted from a warehouse item to cross-dock pursuant to Section 1.3(a) of the Supply Agreement Amendment (collectively, “Additional Products”).  Beginning on the Closing Date, Penn Traffic will arrange, manage, handle and distribute the Additional Products on behalf of C&S for the Wholesale Customers and any New Customers and provide the Services hereunder to C&S with regard to such Additional Products, all consistent with past practice.    Notwithstanding the foregoing, C&S may elect at any time after the date of this Agreement to begin to procure and purchase all or a portion of the Additional Products on behalf of the Wholesale Customers and any New Customers, in which case Penn Traffic shall only be responsible for providing the Services hereunder to C&S with regard to such Additional Products that C&S procures and purchases and such Additional Products shall be deemed Merchandise for all purposes hereunder.

SECTION 2. TERM.

2.1            Term.  The “Term” of this Agreement shall commence on the Closing Date and will end on the earlier of: (a) the date the Supply Agreement Amendment expires or otherwise terminates in accordance with its terms, and (b) the date this Agreement is terminated pursuant to Section 12 hereof; provided, that, if the Supply Agreement Amendment is terminated, then C&S may, in its sole discretion, elect to continue this Agreement in full force and effect until the earlier of: (x) October 8, 2016, (y) such earlier time as C&S shall designate, and (z) the date this Agreement is terminated pursuant to Section 12 hereof (the date of any such expiration or termination of this Agreement, the “Termination Date”).

2.2           Contract Quarters; Contract Years.  All targets, thresholds, commitments, amounts due and other obligations under this Agreement shall be measured in Contract Years and Contract Quarters, as applicable.  Each “Contract Year”means Penn Traffic’s fiscal year which is a 52-week period (or 53-week period every five to six years) that runs through the Saturday nearest the end of January.  Each Contract Year is comprised of four (4) Contract Quarters.  A “Contract Quarter”means Penn Traffic’s four (4) fiscal quarters, which together comprise Penn Traffic’s fiscal year.   The “Initial Contract Year” shall be the period beginning on February 1, 2009 and continuing through January 30, 2010.  The period commencing with the date of this Agreement and continuing through January 31, 2009 shall be referred to as the “Ramp-Up Period.”  The Ramp-Up Period shall be treated as a “stub period” and all amounts calculated on a Contract Year basis shall be prorated accordingly for the Ramp-Up Period.  Similarly, any shortened Contract Year due to a termination of the Agreement shall be a treated as a “stub period” and all amounts calculated on a Contract Year basis shall be prorated accordingly.

SECTION 3. ALLOCATION OF [*] COSTS.

3.1            General Intent.  Penn Traffic and C&S intend to establish with this Agreement, as of the Closing Date, a transparent relationship with respect to the costs related to the Services.  [*].  The parties acknowledge that neither this Section 3 nor the Schedules provided for in this Section 3 are intended as a budget or estimate of the costs of the Services hereunder for the Ramp-Up Period, or any Contract Year or stub period (which is separately addressed at Section 4 below).

3.2            [*].

3.3            [*].

3.4            [*].

3.5            [*].

3.6            [*].

SECTION 4. INITIAL APPROVED BUDGET AND ANNUAL BUDGETS.

4.1           Initial Approved Budget. During the Ramp-Up Period, the parties shall operate in accordance with the budgeted costs and income items set forth in the interim budget set forth on Schedule 4.1 attached hereto (the “Interim Budget”), and subject to the reconciliations set forth in Section 4.5.  During the Initial Contract Year, Penn Traffic and C&S shall operate in accordance with the budgeted costs and income items set forth on an initial budget to be mutually adopted on or prior to January 28, 2009 (the “Initial Approved Budget”), which Initial Approved Budget shall be consistent in form and substance with the P&L Statements and the designated line items of [*] and [*] contained therein.  All future Approved Budgets (as such term is defined herein) will comport with the form of the Initial Approved Budget, and will include the same budget summary and categories of expenses and revenues, subject to modifications mutually agreed to by the parties.  The Initial Approved Budget and each subsequent Approved Budget shall cover periods corresponding to Penn Traffic’s fiscal year, which ends on the Saturday nearest the end of January in each year.

* Material omitted and filed separately with the Securities and Exchange Commission pursuant to a request for confidential treatment under Rule 24b-2 of the Securities and Exchange Act of 1934, as amended.

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4.2           Costs; Budget and Remuneration Procedures Generally. C&S shall be responsible for its allocable share of the documented [*] and [*], based upon the then current [*] for [*] and [*], relating to the performance of the Services during the term of this Agreement (such allocable portion of the [*] and the [*], are, collectively, the “Costs”) and accordingly, C&S will pay Penn Traffic for the Costs incurred by Penn Traffic, together with other remuneration due under this Agreement, in the time and manner set forth in Section 5 below.  Annual budgets, consisting of the Initial Approved Budget and all subsequent Approved Budgets, shall be prepared, agreed upon and reviewed in accordance with the terms and conditions set forth in this Section 4.  This Section 4 also sets forth certain procedures for the parties to establish the Approved Budgets and Flex Budgets (as such term is defined herein).  [*].

4.3           Initial Approved Budget and Annual Approved Budgets.  The Initial Approved Budget is applicable to the Initial Contract Year, and is comprised of eleven (11) separate budgets that are consistent with the form and substance of the eleven (11) P&L Statements (including, but not limited to, the same designation of the line items of [*] and [*] as are contained in the P&L Statements).  For purposes of determining the estimated Costs to be paid by C&S through the Weekly 3PL Statements (as such term is defined herein), the Initial Approved Budget (and each Approved Budget) shall set forth the projected [*] for the Contract Year, which cost allocations shall be reconciled and adjusted in accordance with Section 4.5.  For each Contract Year following the Initial Contract Year, an annual budget will be prepared in accordance with the Initial Approved Budget format (each such annual budget, as approved by the parties, an “Approved Budget”).  For the purposes of this Agreement, all calculations related to the Approved Budget and any other matters in connection with the terms of this Agreement shall be calculated consistent with GAAP and the manner in which such calculations were made by Penn Traffic during the period of FYE 2008 (subject to the Schedules attached hereto).

4.4           Flex Budgets; Fuel; Emergency Expenditures.

(a)           Flexing an Approved Budget.  Any Approved Budget (including the Initial Approved Budget) or Flex Budget will be adjusted at any time for any of the following factors (any such budget as adjusted hereby, a “Flex Budget”):

i) changes in regulatory requirements, compliance with GAAP, and compliance with Laws (provided such adjustment is not required to correct Penn Traffic’s non-compliance with applicable laws in existence at the time of the last Approved Budget, including the Initial Approved Budget);

ii) market fluctuations in Penn Traffic’s actual cost of fuel, or any other uncontrollable costs;

iii) Emergency Expenditures (as such term is defined below);

iv) Any decrease or increase in actual case volume during any Contact Quarter by the Wholesale Business or the Retail Business from the budgeted volume for such Contract Quarter, as applicable;

v) any other such similar factors as may be mutually determined by Penn Traffic and C&S in connection with providing the Services.

Each Flex Budget prepared and delivered by Penn Traffic to C&S will be deemed to be approved by C&S, unless C&S objects in good faith in writing to such Flex Budget within fifteen (15) days after date of delivery.  If C&S so objects, Penn Traffic will use good faith efforts to resolve such objection with C&S, and will thereafter prepare and deliver a second Flex Budget and C&S will have an additional fifteen (15) days to object in good faith, and this process may continue unless and until C&S approves the last Flex Budget presented by Penn Traffic or C&S does not object in good faith to such last presented Flex Budget within the fifteen (15) day period following the delivery date of such budget to C&S, and such last presented Flex Budget, at the end of such fifteen (15) day period, will thereafter be and is deemed by the parties hereby to be, the Flex Budget to be utilized by the parties for all purposes requiring the utilization of an Approved Budget or Flex Budget under this Agreement, until the next Approved Budget or Flex Budget as the case may be.  Until a Flex Budget is determined as set forth above, the Approved Budget or Flex Budget, as applicable, for the then current Contract Year shall remain in full force and effect, subject to Sections 4.5 and 4.7 hereof; provided, that, if a superseding Flex Budget has not been approved and the Actual Costs, as indicated by the most recent Monthly P&L, deviate (in either direction) from then current Approved Budget or Flex Budget, as applicable, by more than $[*] per month for any consecutive [*] period, then such Approved or Flex Budget shall automatically be adjusted in the direction of such deviation for the remainder of the months covered by such budget in a monthly dollar amount equal to [*] (or until such time as a new Flex Budget is approved in accordance herewith).For clarification, during any Contract Year, each Flex Budget shall supersede and replace in its entirety the immediately preceding Approved Budget or Flex Budget, until the next Approved Budget or the Flex Budget, as the case may be.

* Material omitted and filed separately with the Securities and Exchange Commission pursuant to a request for confidential treatment under Rule 24b-2 of the Securities and Exchange Act of 1934, as amended.

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(b)           [*].

(c)           Emergency Expenditures.  An “Emergency Expenditure” shall be any cost, expense or liability incurred by Penn Traffic in an emergency in connection with the performance of the Services which Penn Traffic deems, in its reasonable business judgment, necessary in order to (i) protect or preserve the Merchandise, any Facility or any fixed assets used in connection with the performance of the Services, (ii) comply with any Laws, (iii) avoid harm to persons or property, whether employed or engaged by, owned by or related to C&S, Penn Traffic or a third party, or (iv) otherwise perform the Services.  The parties will make a good faith effort to include Emergency Expenditures in a Flex Budget.  In any event, Emergency Expenditures will be billed to C&S in accordance with the monthly reconciliation as set forth in Section 4.5(a), subject to all other terms and conditions of this Agreement.

4.5  Reporting of Variances.

(a)           Monthly Reconciliations. Within twenty (20) days of the end of each Penn Traffic monthly fiscal accounting period, Penn Traffic shall provide to C&S a detailed report prepared in a manner consistent with the form and substance of the P&L Statements (the “Monthly P&L”)containing a comparison of variances between (i) Costs actually incurred by Penn Traffic in performing the Services (the “Actual Costs”) and (ii) Costs set forth in the Approved Budget for the applicable immediately preceding monthly period or the Flex Budget for the immediately preceding monthly period, if applicable.  The report shall include a comparison between the estimated [*] and the actual [*] for the [*] (which allocation for [*] shall only change based upon Store conversions in accordance with Section 3.4 herein) and [*] for such fiscal accounting period, and make any necessary reconciliations to account for differences between the estimated and actual [*] for such fiscal period.  If PT’s Actual Costs (including unbudgeted Emergency Expenditures) set forth on the Monthly P&L for such monthly fiscal accounting period were less than the amount of Costs set forth on the Approved Budget (or Flex Budget, as applicable) paid by C&S for such fiscal accounting period (an “Over-payment”), Penn Traffic shall deduct the Over-payment from the next [*] (and provide C&S with notice of such deduction).  If Penn Traffic’s Actual Costs (including unbudgeted Emergency Expenditures) set forth on the Monthly P&L for such fiscal accounting period were greater than the Costs set forth on the Approved Budget (or Flex Budget as applicable) which were paid by C&S for such fiscal accounting period, (an “Under-payment”), Penn Traffic shall increase the next [*] by such Under-payment (and provide C&S with notice of such increase).

(b)           Quarterly Reconciliations.  Within forty-five (45) days of the end of each Contract Quarter, Penn Traffic will provide to C&S a report reconciling the Monthly P&Ls for such Contract Quarter and either (i) deduct from the next [*] an amount equal to the amount by which Penn Traffic’s Actual Costs set forth on the Monthly P&Ls for such Contract Quarter were less than the amount of Costs set forth on the Approved Budget (or Flex Budget as applicable) for such Contract Quarter paid by C&S (and provide C&S with notice of such deduction), or (ii) increase the next [*] by the amount by which Penn Traffic’s Actual Costs set forth on the Monthly P&Ls for such Contract Quarter were in excess of the Costs set forth on the Approved Budget (or Flex Budget, as applicable) for such Contract Quarter and paid by C&S for such Contract Quarter (and provide C&S with notice of such increase), in either case of (i) or (ii) taking into account any amounts previously reconciled by the parties in connection with the monthly reconciliations.  [*]  Quarterly reconciliations will be completed in conjunction with the closing of the accounts for the Penn Traffic fiscal quarter.

(c)           Year-End Reconciliations.  Within ninety (90) days of the end of each Contract Year, Penn Traffic will provide to C&S a report reconciling the final Contract Quarter for such Contract Year and the entire Contract Year and either (i) deduct from the next [*] an amount equal to the amount by which Penn Traffic’s Actual Costs for such Contract Year were less than the amount of Costs set forth on the Approved Budget (or Flex Budget, as applicable) for such Contract Year paid by C&S (and provide C&S with notice of such deduction), or (ii) increase the next [*] by the amount by which Penn Traffic’s Actual Costs for such Contract Year were in excess of the Costs set forth on the Approved Budget (or Flex Budget as applicable) for such Contract Year and paid by C&S for such Contract Year (and provide C&S with notice of such increase), in either case of (i) or (ii) taking into account any amounts previously reconciled by the parties in connection with the monthly and quarterly reconciliations.  [*].  The year-end reconciliations will be completed in conjunction with the closing of the accounts for the Penn Traffic fiscal year, which is coterminous with the Contract Year.

(d)           Review of Reconciliations.  Within seven (7) days after the receipt of each of the monthly and quarterly reconciliation reports or within fourteen (14) days after the receipt of the yearly reconciliation report, representatives of the parties shall meet to review the report.  Penn Traffic will, upon reasonable request, provide documentation of costs incurred (e.g., general ledger) to support the reconciliations.  The parties will discuss, in good faith, any failure by Penn Traffic to reasonably support the reconciliations with reasonably requested documentation, and whether any purported Costs should be reversed or increased through an adjustment to the [*], similar to the manner provided in the preceding subsections.  [*].

4.6           Preparation of Subsequent Approved Budgets.  At least 30 days prior to the end of the Initial Contract Year, and each subsequent Contract Year thereafter, Penn Traffic and C&S will begin to meet to review the Approved Budget prepared by Penn Traffic for the upcoming Contract Year.  The parties shall use their reasonable best efforts to complete the approval process within the [*] period immediately prior to the commencement of the upcoming Contract Year (such commencement date, the “Budget Approval Deadline”, unless the Budget Approval Deadline is some other date agreed upon by the parties hereafter).  Upon the issuance of the initial draft Approved Budget by Penn Traffic, such Approved Budget will be subject to revision as necessary by the parties, upon each party’s good faith request for adjustments or modifications, until the Budget Approval Deadline.  Prior to the [*] period preceding the Budget Approval Deadline, Penn Traffic will make a final presentation of the Approved Budget to C&S.  If such Approved Budget is approved by C&S or if C&S does not object in good faith during the [*] period preceding the Budget Approval Deadline, such presented budget will be as of the Budget Approval Deadline, and is deemed by the parties hereby to be, the Approved Budget to be utilized by the parties for the upcoming Contract Year, subject to approval of such Approved Budget by the board of directors of Penn Traffic.  Penn Traffic shall keep its board of directors apprised of the status of the draft Approved Budget during the budget process and present the board of directors with the final Approved Budget, as approved by C&S, for approval prior to the Budget Approval Deadline.  The parties understand and agree that timely completion of the Approved Budget is a critical component of the transparent relationship between the parties, and that if there is a delay in the budgeting process the parties will dedicate whatever executive-level resources are necessary to ensure timely completion.  Until such subsequent Approved Budget is determined as set forth above, the Approved Budget for the immediately preceding Contract Year shall remain in full force and effect.  For clarification, each Approved Budget, once determined, shall supersede and replace in its entirety the immediately preceding Approved Budget or Flex Budget, until the next Approved Budget or Flex Budget, as the case may be.

* Material omitted and filed separately with the Securities and Exchange Commission pursuant to a request for confidential treatment under Rule 24b-2 of the Securities and Exchange Act of 1934, as amended.

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4.7           Excess Costs.  The parties will meet on a periodic basis to review actual performance against the Approved Budget or Flex Budget, as applicable. To the extent that the Actual Costs, in total, exceed the budgeted Costs in any Approved Budget after taking into account any Flex Budget described above, in total, such excess shall be regarded herein as “Excess Costs.”  Penn Traffic covenants that it will at all times use good faith efforts to avoid, or minimize, Excess Costs to the greatest extent possible; provided however that the parties acknowledge that certain Costs are difficult or, in some cases, not possible for Penn Traffic to control, including but not limited to, inflation in the cost rate of fuel, electricity or like commodities (e.g., natural gas); costs related to materially adverse weather conditions; costs related to actions or omissions on the part of C&S; medical-related  inflation; costs related to start-up activities (e.g., hiring, training, and related productivity); costs relating to changes in regulatory requirements, compliance with GAAP, and compliance with laws (provided such adjustment is not required to correct Penn Traffic’s non-compliance); and costs related to Force Majeure or Emergency Expenditures (“Uncontrollable Costs”).  Accordingly, any review of Actual Costs against the Approved Budget, or Flex Budget, as applicable, must take into account the extent to which any Excess Costs were caused by such Uncontrollable Costs.  If and to the extent at the conclusion of the annual reconciliation there are determined to be Excess Costs that were not the result of Uncontrollable Costs, then C&S will not be required to pay for that portion of the Excess Costs and such annual reconciliation will take into account any necessary adjustments to reimburse C&S or reduce any amounts payable to Penn Traffic for that portion of such Excess Costs.  Notwithstanding the foregoing, if one or more single line items of Costs materially exceed the Approved Budget (as Flexed) for such Cost(s) due to Penn Traffic’s wrongful neglect or intentionally wrongful actions, then C&S shall have no responsibility to pay for the amount so caused.

SECTION 5. BILLING AND PAYMENT.

5.1            Weekly 3PL Statements.  Each Sunday, Penn Traffic shall electronically transmit to C&S a statement (the “Weekly 3PL Statement”) for all billing amounts (which includes all Costs of the Services and any other billing amounts provided for hereunder) for the immediately preceding seven days (collectively, the “Weekly 3PL Statement Amount”).

5.2           Payment.  [*]

5.3           Miscellaneous Billing and Payment Matters.  Time is of the essence.  If any payment (including, but not limited to, the credits described in Section 5.2 above) by C&S is in default, Penn Traffic shall have the right (which rights shall be nonexclusive, cumulative of and additional to all other remedies) to defer further Services until all payments in default have been made or to terminate this Agreement as provided in Section 12.2(b) hereof.  [*].  Penn Traffic or C&S shall give notice to the other party of any billing adjustments it believes should be made, and the parties shall attempt to reach agreement on any adjustments within seven (7) days.  Notwithstanding the above, Penn Traffic will not have the right to defer Services unless the payment default cumulatively exceeds $[*], and for any cumulative payment default greater than $[*] but less than $[*], Penn Traffic shall be required to provide at least 1 business day (when banks in New York are legally open) notice before deferring any Services or exercising its right of termination under Section 12.2.  Penn Traffic may immediately exercise any of its rights under this Section 5.3 and otherwise in the event of any payment default equal to or greater than $[*], or if any payment default has not been cured by the next immediate Weekly 3PL Statement.

5.4            [*].

SECTION 6. BOOKS AND RECORDS; AUDITS.

6.1           Audits.  At C&S’s expense, C&S may have Penn Traffic’s records audited to confirm the Costs relating to the performance of the Services under this Agreement.  [*].  Any such audit will be conducted at Penn Traffic’s premises by a nationally or regionally recognized third party auditing firm acceptable to Penn Traffic in its reasonable discretion and any review hereunder shall be conducted by individuals knowledgeable regarding industry standards and customs, and such persons shall keep all such information strictly confidential.  C&S and Penn Traffic shall each have the right to have a representative, to be mutually agreed upon by the parties, present and participating as necessary during such audit.  Upon Penn Traffic’s request, prior to commencement of the audit, C&S agrees to require such third party auditing firm to execute any reasonable confidentiality agreement provided by Penn Traffic.  C&S will be limited to [*] audits during each year subsequent to the date hereof that Penn Traffic continues to provide Services hereunder, and each audit will be limited to information related to the [*] period immediately preceding the audit.  Notwithstanding the preceding sentence, in the event that a discrepancy is discovered by an audit during the [*] covered by such audit, then the audit may include prior periods (up to a total of [*] years) but only to verify that the same discrepancy had not occurred during such prior periods.  If the same error is found in the [*] prior years, then C&S is authorized to recoup the monies due because of the error, as well as reasonable associated expanded audit fees for additional transaction testing by the third party audit firm.  Unless any significant discrepancies are found, each such audit shall be completed within fifteen (15) business days.  The parties’ mutual objective is to identify and resolve any errors promptly after they occur rather than to rely upon the audit procedure to identify errors.

* Material omitted and filed separately with the Securities and Exchange Commission pursuant to a request for confidential treatment under Rule 24b-2 of the Securities and Exchange Act of 1934, as amended.

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6.2           Books and Records.  Penn Traffic shall maintain complete and detailed records, data, information and statements in auditable form and quality in respect of all activities related to the provision of Services on behalf of C&S and to all of Penn Traffic’s other obligations under this Agreement, as information fully integrated into the overall financial statements maintained by Penn Traffic in the ordinary course of business.  Penn Traffic shall prepare and maintain for a period of not less than [*] following the end of each fiscal year, adequate books and records with respect to:  (i) Penn Traffic’s performance of Services under this Agreement, (ii)  all amounts charged or credited by Penn Traffic to C&S under this Agreement, (iii) all Costs arising under this Agreement and (iv) such other records, data or information as may be set forth under this Agreement or by C&S from time to time.  The books and records shall be maintained consistent with GAAP, consistently applied, and shall be in a form suitable for audit, review and copying and shall be made available as reports produced from Penn Traffic’s overall financial statements maintained by Penn Traffic for its entire operations in the ordinary course of business.  All books and records shall be maintained in accordance with Penn Traffic’s document retention policy.

6.3           Access to Facilities.  In addition to the foregoing, Penn Traffic shall provide C&S with reasonable access to Penn Traffic’s Facilities in order to conduct inspections at C&S’ expense regarding the performance of the Services.  Such access shall be requested upon at least [*] advance notice (the reasonableness of such notice taking into account any exigent circumstances), shall be conducted during normal business hours and shall not materially interfere with the conduct of the Penn Traffic’s business.

6.4           Physical Count.  C&S, at its expense, shall have the right, upon reasonable notice (the reasonableness of such notice taking into account any exigent circumstances), to physically count (or require Penn Traffic to physically count) the Merchandise in Penn Traffic’s possession.  Notwithstanding anything herein to the contrary, C&S shall have the further right, at its expense, to remove or transfer any Merchandise (subject to Section 1.7 hereof), and shall have access to all Penn Traffic records pertaining to receipts, processing, and distribution of said Merchandise.  Any differences identified as a result of the physical count will be mutually reviewed and agreed upon between Penn Traffic and C&S in a reasonable time period following the count.

6.5           Limitations.  C&S will be provided access to, and have the right to audit, upon reasonable notice, any information C&S determines it needs in order to verify any of the items listed in this Section 6; provided, however, C&S will not be provided access to data or information relating to other customers of Penn Traffic or information unrelated to the performance of the warehouse, transportation and distribution services provided to the Wholesale Stores and the Corporate Stores at or from the Facilities, [*].  Further, notwithstanding any of the provisions of this Section 6, C&S will not be provided access to certain proprietary, confidential or sensitive information, as further described in Section 15.11(d).

6.6           Reporting and Accounting.  Penn Traffic conducted certain accounting and reporting, pursuant to certain allocation methodologies employed by Penn Traffic, during FYE 2008  with regard to the warehouse, transportation and distribution services at the Facilities.  Penn Traffic hereby covenants and agrees to continue to perform such accounting and reporting services, using such allocation methodologies, during the term hereof for the benefit of C&S and/or its Wholesale or New Customers as part of the Services provided hereunder, including but not limited to those accounting and reporting services set forth on Schedule 6.6 attached hereto, which Penn Traffic represents are consistent with the accounting and reporting, and underlying allocation methodologies, conducted during FYE 2008, with the exception of sub-schedule 24  (entitled “Warehouse & Distribution Allocation Summary”) set forth in Schedule 6.6 attached hereto which contains certain negotiated adjustments to such methodologies.  All such reporting and accounting by Penn Traffic under this Section 6.6 shall be with the same frequency and detail as provided during FYE 2008.

SECTION 7. DELIVERY.

7.1           Delivery Schedule.  The Delivery Schedule shall be as set forth on Schedule 7.1(a), as updated by mutual agreement, and the Store Polling Schedule is attached hereto as Schedule 7.1(b).  The Pick-Up Schedule is attached hereto as Schedule 7.1(c).  Penn Traffic agrees that, as part of the Services, it shall deliver the Merchandise (or, in the case of Pick-Up Merchandise, seal the loads for pick-up at the Facilities) pursuant to the Delivery Schedule, or the Pick-Up Schedule, as the case may be, in a manner such that the Delivery Level (as defined below) is at least [*]% (the “Required Delivery Level”).  Penn Traffic shall continue to generate for C&S the reports regarding deliveries that Penn Traffic was generating internally prior to the Closing Date listed on Schedule 7.1(d) attached hereto.

7.2           Calculation of Delivery Level. The actual Delivery Level, expressed as a percentage, shall equal [*] (the “Delivery Level”).  A delivery (or pick-up) shall be considered on time if it is delivered (or ready for pick-up) to the first or only stop for such delivery (or pick-up) within the delivery (or pick-up) window set forth in the Delivery Schedule (or Pick-Up Schedule, as applicable).  [*].  If Penn Traffic is late to the first stop, it shall communicate revised ETAs to the subsequent stops.  Each [*] will be a “Measurement Period.”

7.3           Delivery Level Termination.  If the Delivery Level is below [*] (the “Delivery Termination Level”) for any [*] consecutive Contract Quarters, or [*]-week periods during any [*]-week period, C&S may issue written notice to Penn Traffic of its intent to terminate the Agreement within [*] business days of the expiration of such applicable  period for which the Delivery Level was below the Delivery Termination Level.  If, after receipt of such notice, Penn Traffic does not achieve a Delivery Level equaling at least the Delivery Termination Level in the [*], C&S will have the right to terminate the Agreement following the end of such succeeding period by providing Penn Traffic written notice thereof. 

* Material omitted and filed separately with the Securities and Exchange Commission pursuant to a request for confidential treatment under Rule 24b-2 of the Securities and Exchange Act of 1934, as amended.

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SECTION 8. WAREHOUSE PERFORMANCE.

8.1           Scratch Rates. [*].  Nothing herein is intended to waive or limit C&S’s rights or remedies otherwise available under this Agreement.

8.2           Selection Accuracy.  [*].  Nothing herein is intended to waive or limit C&S’s rights or remedies otherwise available under this Agreement.

8.3           Code-Dating Policies.  C&S shall have the right to review and comment on Penn Traffic’s code-dating policies in effect from time-to-time.

SECTION 9. FACILITIES, INFORMATION TECHNOLOGY AND RELATED ISSUES.

9.1            Leaseholds. Penn Traffic shall not assign, sublease, license, terminate or otherwise convey or encumber its leasehold interests at the Facilities during the period that Penn Traffic is providing any of the Services if such transaction would result in a material breach by Penn Traffic of any of the provisions of this Agreement.  During the Term, Penn Traffic shall provide the Services from the Facilities.

9.2           Safeguarding Property.  At all times while Merchandise is in the Facilities, Penn Traffic is solely responsible for exercising reasonable care in safeguarding and protecting the Merchandise against any damage, loss or injury and theft.  Further, Penn Traffic is solely responsible for safeguarding, insuring and protecting Penn Traffic’s property, materials and equipment that are used at the Facilities to perform the Services, and C&S shall have no responsibility or liability therefor, other than as set forth in Sections 3, 4 and 5.

9.3           Maintenance and Repair.  Penn Traffic shall at all times be solely responsible for repairing and maintaining the Facilities and keeping such Facilities in good condition with ordinary wear and tear excepted. Penn Traffic shall perform all building maintenance and repair at the Facilities to ensure a safe, clean, and secure work environment, and no disruption of the Services to C&S.

9.4           Condition of Facilities.  Penn Traffic shall maintain a food grade environment at all times in the Facilities and such Facilities shall be clean, dry, and in orderly condition, including, but not limited to, providing a pest control program meeting reasonable industry standards.  Penn Traffic shall adhere, in all material respects, to the requirements of any and all applicable Federal, State and local laws, regulations and rules applicable to the Facilities and the provision of the Services, including, but not limited to, applicable food safety regulations and Federal and State Occupational Safety and Health laws and regulations.  Penn Traffic shall provide C&S with prompt written notice of any investigation, proceeding, inspection or other enforcement or investigatory action taken by any Federal, State or local governmental authority in relation to the Merchandise or the Facilities.  In addition to the foregoing, C&S may engage, at its expense, an accredited independent auditor (such as Steritech) to audit the Facilities on a semi-annual basis, or a monthly basis if reasonably deemed necessary by C&S.  The cost of any accredited independent auditor shall be reimbursed by Penn Traffic to C&S if the audit reveals that Penn Traffic is not in compliance with any and all applicable Federal, State and local laws, regulations and rules applicable to the Facilities and the provision of the Services.  Such auditor shall use recognized standards and shall be certified in the areas of Good Manufacturing Practices (“GMP’s”), Good Agricultural Practices (“GAP’s”), Food Safety and Security, Hazard Analysis Critical Control Point (“HACCP”) and Total Quality Management Programs.  If C&S notifies Penn Traffic concerning any food safety and/or sanitation deficiencies, Penn Traffic shall take appropriate steps to correct the problem(s) within a reasonable period of time after being notified of such deficiencies, taking into account the seriousness and nature of the deficiencies.

9.5           Equipment. Unless specified otherwise here, all equipment, supplies and furnishings  necessary for Penn Traffic to operate the Facilities and perform the Services are the sole responsibility of Penn Traffic.  Penn Traffic is responsible for maintaining such equipment in good working order.

9.6           Capacity.  Penn Traffic has the necessary capacity, facilities, employees and capital to perform its obligations under this Agreement and such employees are legally authorized to work in the United States in compliance with all applicable federal, state and local laws.

9.7           Equipment and Software. Each party shall be responsible for its own administration, support, maintenance, software licensing and disaster recovery with respect to its systems. C&S shall provide any IT equipment or software, and any administration, support, maintenance, software licensing or disaster recovery with respect thereto, required by any C&S personnel to perform C&S’s obligations under this Agreement.  Penn Traffic shall provide any IT equipment or software, and any administration, support, maintenance, software licensing or disaster recovery with respect thereto, required by any Penn Traffic personnel to perform Penn Traffic’s obligations under this Agreement.  Penn Traffic shall be responsible for developing the necessary interfaces and links so that its IT equipment and software can interface with C&S’s current systems.  C&S will develop the necessary interfaces and build links so that C&S’s inventory and billing systems are synchronized with Penn Traffic’s inventory and billing systems so that Penn Traffic can transmit and receive data consistent with C&S’s master inventory file.  [*].

9.8           Receivings.  Penn Traffic will receive all Merchandise on its loading docks consistent with Penn Traffic’s past practices.  C&S will create and send POs to Penn Traffic.  Penn Traffic will enter receivings into its warehouse management system.  Penn Traffic will adjust the POs to reflect what was received versus what was ordered and will send the adjusted POs back to C&S.   The parties agree to review receivings on at least a weekly basis.

* Material omitted and filed separately with the Securities and Exchange Commission pursuant to a request for confidential treatment under Rule 24b-2 of the Securities and Exchange Act of 1934, as amended.

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9.9            Store Orders.  Penn Traffic will be responsible for the polling process and generating store selection orders.  Penn Traffic personnel will select orders, load and seal trucks, route and deliver the orders to the Wholesale Customers and any New Customers, all in the ordinary course of its business.

9.10            Billing.  Penn Traffic will issue the Weekly 3PL Statement (as defined herein) to C&S each Sunday (as indicated in Section 4 above) for the Services hereunder.  Further, if Penn Traffic collects any amounts from vendors or other third parties to which C&S is entitled with regard to the Merchandise, Penn Traffic will promptly notify C&S and reduce the next [*] or remit such funds to C&S within a reasonable period of time after receipt of such funds.

9.11            Inventory Responsibility.  Penn Traffic will maintain inventory, price maintenance and set-up maintenance, and handle all labeling, adjustments and substitutions.  Penn Traffic is responsible for inventory control at the Facilities.  The inventory procedures for the Facilities shall be Penn Traffic’s current procedures attached to the Supply Agreement Amendment as Schedule 12(b).  Penn Traffic agrees to observe a warehouseman’s duty of care under applicable New York and Pennsylvania law with respect to the Merchandise.  Notwithstanding anything to the contrary set forth herein, each party shall be responsible for its own leftover ad product and the disposition of unique items.  The parties will work together in good faith to allocate such leftover ad or unique items appropriately.

9.12           Risk of Loss. [*].

9.13           PACA.  The parties will work together to add any necessary language to the Weekly 3PL Statement (as defined herein), account statements, purchase orders, invoices or other documents and to take any other actions necessary to ensure that both parties are in compliance with PACA and that, with respect to PACA regulated commodities sold hereunder, C&S can preserve its rights to the PACA trust.

SECTION 10. EMPLOYEES.

Penn Traffic and C&S are independent contractors.  Neither party has the right or power, express or implied, to do any act or thing that would bind the other party, except as expressly set forth herein.  All employees at or relating to the Facilities and all individuals otherwise employed by Penn Traffic, with the exception of the Wholesale Employees (collectively, the “Penn Traffic Employees”), are and will continue to be the employees solely of Penn Traffic.  In connection with the Penn Traffic Employees, Penn Traffic acknowledges that it is responsible for complying with all federal, state, and local common and statutory laws and regulations.  Nothing in this Agreement shall alter the status of the Penn Traffic Employees, and the Penn Traffic Employees shall not be considered or deemed in any way to be employees of C&S.  C&S shall not exercise any authority over the Penn Traffic Employees, including, but not limited to, selecting, engaging, fixing the compensation of, discharging and otherwise managing, supervising and controlling the Penn Traffic Employees and no joint employer relationship shall exist.  The Wholesale Employees will be the employees solely of C&S.  Penn Traffic shall not exercise any authority over the Wholesale Employees, including, but not limited to, selecting, engaging, fixing the compensation of, discharging and otherwise managing, supervising and controlling the Wholesale Employees and no joint employer relationship shall exist.  Penn Traffic acknowledges that the Wholesale Employees currently based in the Facilities as of the Closing will remain located in the Facilities unless and until C&S decides to change their location base.

SECTION 11. INDEMNITY AND INSURANCE.

11.1            Indemnification. Without limiting any indemnification obligations set forth elsewhere in this Agreement, the parties agree as follows:

(a)           C&S.  C&S shall defend, indemnify and hold harmless Penn Traffic and its subsidiaries and affiliates, and its and their directors, officers, employees, servants, agents, successors and assigns from any and allthird party losses, claims, charges and expenses including reasonable attorneys’ fees and costs of settlement (“Losses”) which are incurred by virtue of or result from (i) C&S’ business or other operations, incurring or accruing at any time (other than pursuant to the Related Agreements); (ii) the inaccuracy in or breach of any representation or warranty made by C&S in this Agreement; (iii) the non-fulfillment of any covenant, provision or agreement to be performed by C&S under this Agreement during the Term; or (iv) any claims for injury to person or damage to property arising out of or resulting from (A) acts or omissions of C&S, its employees, and agents in any manner relating to the procurement of, handling, storage, transportation or delivery to the Facilities (but only where C&S actually performed, or omitted to perform, such action itself) of the Merchandise or (B) the willful misconduct or negligent acts of C&S or its employees or agents; provided, however, this indemnification and hold harmless shall not apply to the extent of any claims arising from or as a result of the omission, willful misconduct or negligent acts of Penn Traffic, its employees or agents.  Whenever Penn Traffic receives notice of a claim or demand that would be covered by this provision, Penn Traffic shall in turn provide C&S with prompt written notice of such claim or demand and shall tender the defense and handling of such claim to C&S.

* Material omitted and filed separately with the Securities and Exchange Commission pursuant to a request for confidential treatment under Rule 24b-2 of the Securities and Exchange Act of 1934, as amended.

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(b)           Penn Traffic.  Penn Traffic shall defend, indemnify and hold harmless C&S and its subsidiaries and affiliates, and its and their directors, officers, employees, servants, agents, successors and assigns from any and all third party Losses which are incurred by virtue of or result from (i) claims of entitlement to liens and/or ownership of C&S’s inventory in the Facilities; provided that this shall only apply to instances where C&S can demonstrate that such Losses resulted from Penn Traffic failing to fulfill an affirmative obligation to C&S; (ii) Penn Traffic’s business or other operations, incurring or accruing at any time, including, but not limited to, those relating to: (A) the Facilities or other Penn Traffic facilities, outside storage and any real estate leases; (B) environmental matters; (C) material handling and transportation equipment; (D) contractual obligations (other than this Agreement or any other agreement between Penn Traffic and C&S, except as set forth herein); (E) Penn Traffic Employees (including pension withdrawal liability); and (F) Penn Traffic’s Corporate Stores; (iii) the inaccuracy in or breach of any representation or warranty made by Penn Traffic in this Agreement; (iv) the non-fulfillment of any covenant, provision or agreement to be performed by Penn Traffic under this Agreement during the Term (including, but not limited to, adherence to the Delivery Schedule and the Pick-Up Schedule); or (v) any claims for injury to person or damage to property arising out of or resulting from (A) acts or omissions of Penn Traffic, its employees, and agents in any manner relating to the Services or (B) the willful misconduct or negligent acts of Penn Traffic, or its employees or agents; provided, however, this indemnification and hold harmless shall not apply to the extent of any claims arising from or as a result of the omission, willful misconduct or negligent acts of C&S, its employees or agents.  Whenever C&S receives notice of a claim or demand that would be covered by this provision or any other indemnification obligation herein, C&S shall in turn provide Penn Traffic with prompt written notice of such claim or demand and shall tender the defense and handling of such claim to Penn Traffic.

(c)           Product Liability.  Notwithstanding any provision to the contrary contained herein, with respect to product liability claims or claims arising in connection with any Merchandise delivered by Penn Traffic (or picked up by customers at the Facilities) pursuant to this Agreement (including liability for or claims of Infringement arising in connection with such products), the parties shall look to the manufacturer and/or vendor (or broker) of such product for any and all defense, indemnity or hold harmless claims.  If the manufacturer and/or vendor (or broker) is unable to provide such defense, indemnification or hold harmless, then C&S agrees to defend, indemnify and hold harmless Penn Traffic and its subsidiaries and affiliates, and its and their directors, officers, employees, servants, agents, successors and assigns from, against, and in respect of, any such claims, absent the gross negligence or willful misconduct of Penn Traffic.  For purposes of this Section, “Infringement” shall mean alleged or real infringement, of any trademark, patent, copyright or other intellectual property right.

11.2            Insurance.  During the Term, Penn Traffic shall maintain in place the insurance coverages required by Section 13.3 of the Supply Agreement Amendment, which are incorporated herein by reference.  In addition, Penn Traffic shall maintain Warehouse Legal Liability Insurance insuring Penn Traffic against liability for loss of or damage to freight while in the custody, possession or control of Penn Traffic, in customary and reasonable amounts and such policy shall not exclude coverage for fraud, dishonesty or criminal acts of Penn Traffic’s employees, agents, temporary labor associates, officers, and directors.

11.3             Survival.  Section 11.1 above shall survive termination of this Agreement.

SECTION 12. TERMINATION.

12.1            Termination by C&S.

(a)            C&S may terminate this Agreement without cause upon at least three (3) months advance written notice to Penn Traffic; provided, that, any such termination without cause may not be effective prior to February 15, 2011.

(b)            C&S may terminate this Agreement for cause (i) if Penn Traffic fails to pay any undisputed amount or amounts cumulatively exceeding: (A) $[*] to C&S when due, under this Agreement or the TSA or (B) $[*] to C&S when due, under the Supply Agreement Amendment or any other agreement between Penn Traffic and C&S or their respective controlled affiliates or subsidiaries, and such failure continues for 1 business day (where banks in New York are legally open) after C&S has provided Penn Traffic written notice of such failure; (ii) if Penn Traffic has breached any material obligation (other than a payment obligation which is covered under (i) above) under this Agreement, and, if such breach is curable, remains uncured after thirty (30) days following written notice of such breach from C&S; or (iii) if C&S has terminated the TSA pursuant to Section 22(f) thereof, or the Supply Agreement Amendment pursuant to Section 14.1(a) thereof; (iv) if Penn Traffic has filed for bankruptcy protection or a  proceeding shall be instituted against Penn Traffic seeking to adjudicate it bankrupt or insolvent and such proceeding shall remain undismissed or unstayed for a period of 60 days, provided that C&S shall not terminate this Agreement in such an event if Penn Traffic is otherwise in compliance with the terms of this Agreement and Penn Traffic provides adequate assurance of future performance under this Agreement; or (v) if General Electric Capital Corporation or Kimco Capital Corp. or any other material credit or lending party has declared that Penn Traffic has committed an Event of Default as defined under its respective credit agreement with Penn Traffic and has ceased extending Penn Traffic credit, provided that C&S shall not terminate this Agreement in such an event if Penn Traffic is otherwise in compliance with the terms of this Agreement and Penn Traffic provides adequate assurance of future performance under this Agreement.  If C&S terminates this Agreement pursuant to this Section 12.1(b), (i) Penn Traffic shall pay any and all amounts outstanding, charges and fees incurred through termination, and (ii) C&S may, at its election, and after providing Penn Traffic with 1 business day (where banks in New York are legally open) enter Penn Traffic’s Facilities to remove its Merchandise at the Facilities, or to arrange for shipment of the Merchandise to a third party and Penn Traffic agrees to cooperate with C&S in its efforts to assemble and remove its Merchandise.  Upon C&S’s election, C&S may (but is not required to) offer all or a portion of the Merchandise to Penn Traffic for purchase by Penn Traffic, calculated at [*].  In the event that Penn Traffic declines such an offer from C&S, and C&S then sells, liquidates or otherwise disposes of the Merchandise first offered to Penn Traffic, Penn Traffic shall remain liable for any deficiency resulting from such sale, liquidation or disposition of the Merchandise as compared to the value of the Merchandise calculated at [*].  Penn Traffic shall pay any and all reasonable costs and expenses in conjunction with C&S’s retrieval of C&S’s Merchandise, as well as fulfill all other obligations stated herein.  The parties agree and acknowledge that the remedies under this section are nonexclusive, cumulative of and additional to all other rights or remedies in law or equity of C&S (including rights or remedies afforded to C&S under the Uniform Commercial Code (UCC)), including C&S’s right to seek and recover demonstrated lost profits for the remainder of the Term of the Agreement.  Further, all provisions surviving termination of this Agreement (such as an indemnification obligation) shall remain in full force and effect.

* Material omitted and filed separately with the Securities and Exchange Commission pursuant to a request for confidential treatment under Rule 24b-2 of the Securities and Exchange Act of 1934, as amended.

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12.2            Termination by Penn Traffic.

(a)            Penn Traffic may terminate this Agreement without cause upon at least three (3) months advance written notice to C&S; provided, that, any such termination without cause may not be effective prior to February 15, 2011.

(b)           Penn Traffic may terminate this Agreement for cause (i) if C&S fails to pay any undisputed amount or amounts cumulatively exceeding: (A) $[*] to Penn Traffic when due, under this Agreement or the TSA, or (B) $[*] to Penn Traffic when due, under the Supply Agreement Amendment or any other agreement between Penn Traffic and C&S or their respective controlled affiliates or subsidiaries, and such failure continues for 1 business day (where banks in New York are legally open) after Penn Traffic has provided C&S written notice of such failure; (ii) if C&S has breached any material obligations (other than a payment obligation which is covered under (i) above) under this Agreement, and, if such breach is curable, remains uncured after thirty (30) days following written notice of such breach from Penn Traffic; (iii) if C&S has filed for bankruptcy protection or a proceeding shall be instituted against C&S seeking to adjudicate it bankrupt or insolvent and such proceeding shall remain undismissed or unstayed for a period of 60 days, provided that Penn Traffic shall not terminate this Agreement in such an event if C&S is otherwise in compliance with the terms of this Agreement and C&S provides adequate assurance of future performance under this Agreement; or (iv) any material credit or lending party has declared that C&S has committed an Event of Default as defined under its respective credit agreement with C&S and has ceased extending C&S credit, provided that Penn Traffic shall not terminate this Agreement in such an event if C&S is otherwise in compliance with the terms of this Agreement and C&S provides adequate assurance of future performance under this Agreement.  If Penn Traffic terminates this Agreement pursuant to this Section 12.2(b), C&S shall pay any and all amounts outstanding and charges and fees incurred through termination.  The parties agree and acknowledge that the remedies under this section are nonexclusive, cumulative of and additional to all other rights or remedies in law or equity of Penn Traffic (including rights or remedies afforded to Penn Traffic under the Uniform Commercial Code (UCC)), including Penn Traffic’s right to seek and recover demonstrated lost profits for the remainder of the Term of the Agreement.  Further, all provisions surviving termination of this Agreement (such as an indemnification obligation) shall remain in full force and effect.

12.3           Survival.  This Section 12 shall survive termination of this Agreement.

SECTION 13. FORCE MAJEURE.  Neither party shall be liable in any respect for failures to perform hereunder directly resulting from acts of God, acts of terrorism, acts of civil or military authority, adverse weather, fires, floods, epidemics, quarantine restrictions, armed hostilities or riots.  In the event of any labor dispute, pickets, shut down, work stoppage or sit-in, the parties shall collectively work together to minimize the effects of any of the foregoing on the operation of the Wholesale Business.  In the event that the Services cannot be performed as a result of an event described in the two preceding sentences (each, a “Force Majeure”), (i) the affected provisions and other requirements of this Agreement shall be suspended during the period of such Force Majeure (and performance of the affected party shall be excused to the extent it is delayed, hindered or prevented by any such events), (ii) Penn Traffic shall immediately notify C&S of such event of Force Majeure and its estimated duration, (iii) C&S shall be entitled to acquire the Services from an alternative source, at its sole cost and expense, during the period of such Force Majeure, and (iv) C&S shall not be obligated to pay Penn Traffic for the Services during the period of such Force Majeure.[*]

SECTION 14. NOTICES.  All notices hereunder shall be sent by telephone (confirmed immediately in writing), telex, facsimile copier or in writing and shall be deemed to have been duly given if hand-delivered or mailed by registered or certified mail, postage prepaid and addressed as follows, unless and until either party notifies the other in accordance with this Agreement of a change of address:

If to C&S: C&S Wholesale Grocers, Inc.

7 Corporate Drive

Keene, NH 03431

Attn: Richard B. Cohen, Chief Executive Officer

Phone: (603) 354-4601

Fax: (603) 354-4692

With a copy to:

General Counsel

C&S Wholesale Grocers, Inc.

7 Corporate Drive

Keene, NH 03431

Phone: (603) 354-5885

Fax: (603) 354-4694

* Material omitted and filed separately with the Securities and Exchange Commission pursuant to a request for confidential treatment under Rule 24b-2 of the Securities and Exchange Act of 1934, as amended.

11

If to Penn Traffic:

The Penn Traffic Company

1200 State Fair Blvd.

Syracuse, NY 13221

Attn:  Gregory J. Young, Chief Executive Officer

Phone: (315) 461-2382

Fax:  (315) 461-2474

With a copy to:

General Counsel

The Penn Traffic Company

1200 State Fair Blvd.

Syracuse, NY 13221

Phone: (315) 461-2347

Fax: (315) 461-2532

SECTION 15. MISCELLANEOUS.

15.1           No Agency.  Each party shall be an independent contractor hereunder, and this Agreement shall not be construed to create any other relationship between the parties, as principal and agent, employee and employer, joint venturers or otherwise. Except as expressly stated otherwise herein, neither party is authorized to enter into agreements for or on behalf of the other party, collect any obligation due or owed to the other party, accept service of process for the other party, or bind the other party in any manner whatsoever.

15.2           Severability.  Any term or provision of this Agreement that is held by a court of competent jurisdiction or other authority to be invalid, void or unenforceable in any situation in any jurisdiction shall not affect the validity or enforceability of the remaining terms and provisions hereof or the validity or enforceability of the offending term or provision in any other situation or in any other jurisdiction.

15.3           Interpretation.  Whenever the words “include,” “includes” or “including” are used in this Agreement they shall be deemed to be followed by the words “without limitation.”

15.4           Headings.  The headings preceding the text of the paragraphs and other headings of this Agreement and the schedules and exhibits hereto are for convenience of reference only and shall not be deemed part of or in any way affect the meaning or interpretation of this Agreement.

15.5           Binding Nature; Assignment.  Neither this Agreement nor any of the rights, interests or obligations hereunder shall be assigned by either party (whether by operation of law or otherwise) without the prior written consent of the other party hereto.  Notwithstanding the preceding sentence, either party may assign any or all of its rights and obligations hereunder to an Affiliate without the other party’s consent.  Subject to the foregoing consent rights, this Agreement shall be binding upon, inure to the benefit of and be enforceable by the parties and their respective successors and permitted assigns, as well as (i) any transferee in connection with a sale of all or substantially all of the assets of a party, (ii) any surviving corporation in any merger or consolidation in which a party is not the surviving corporation following such merger or consolidation, or (iii) either party upon any sale of a controlling equity, shareholder or other ownership interest in such party.

15.6           Applicable Law.  This Agreement shall be governed by, and construed in accordance with, the laws of the State of New York, without regard to the principles of conflicts of laws thereof.

15.7           Entire Understanding.  This Agreement, together with the APA and Related Agreements, and the exhibits and schedules hereto and thereto, sets forth the entire agreement and understanding of the parties hereto in respect to the transactions contemplated hereby, and this Agreement, together with the APA and Related Agreements, and the exhibits and schedules hereto and thereto, supersede all prior agreements, arrangements and understandings relating to the subject matter hereof (including, without limitation, that certain letter agreement between C&S and Penn Traffic dated as of September 10, 2008, which is hereby terminated effective as of the date hereof) and are not intended to confer upon any other party other than the parties hereto any rights and remedies, claims or courses of action hereunder.

15.8           Counterparts and Execution.  This Agreement may be executed simultaneously in counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same agreement and shall become effective when two or more counterparts have been signed by each of the parties and delivered to the other parties.  Any counterpart may be executed by facsimile signature and such facsimile signature shall be deemed an original.

15.9           Cooperation.  Penn Traffic and C&S agree to cooperate with each other and act in good faith to implement the provisions of this Agreement, including, without limitation, to affect a smooth, orderly and cost-efficient transfer of the Acquired Assets  to C&S.

15.10                      Corporate Authority.

(a)           Penn Traffic.  Penn Traffic is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware.  Penn Traffic has full corporate power and authority to execute and deliver this Agreement and to consummate the transactions contemplated herein.  This Agreement is a valid and binding obligation of Penn Traffic, enforceable against Penn Traffic in accordance with its terms.

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(b)           C&S.  C&S is a corporation duly organized, validly existing and in good standing under the laws of the State of Vermont.  C&S has full corporate power and authority to execute and deliver this Agreement and to consummate the transactions contemplated herein.  This Agreement is a valid and binding obligation of C&S, enforceable against C&S in accordance with its terms.

15.11                      Customer Relationships; Confidential Information.

(a)           Relationships.  Penn Traffic shall (i) not impair C&S’s development of positive business relationships with the Wholesale Customers, any New Customers, the vendor community and all other third parties involved with or relating to the Wholesale Business, and (ii) promptly notify C&S upon the occurrence of an event which may result in a material adverse change in the Wholesale Business or C&S’s relationship with any Wholesale Customer or New Customer, including, but not limited to, complaints by Wholesale Customers or New Customers.  Prior to the first anniversary of the Closing Date, C&S shall provide Penn Traffic with prompt notice of any event which may result in a material adverse change in the Wholesale Business or C&S’s relationship with any Wholesale Customer or New Customer, including any complaints by or defaults in payment or performance by such Wholesale Customers or New Customer, or if such customer ceases to be supplied by C&S.  Following the first anniversary of the Closing Date, C&S shall provide Penn Traffic with prompt notice of any Wholesale Customer or New Customer that ceases to be supplied by C&S.The parties shall reasonably cooperate in resolving any customer complaints.   Penn Traffic will seek guidance, instruction and authorization from C&S as necessary or appropriate in connection with Penn Traffic’s provision of the Services.

(b)           Penn Traffic Confidentiality.  Penn Traffic acknowledges that disclosure to third parties of product cost, product specifications, wholesale information and other non-public business or financial information of C&S obtained by Penn Traffic in the course of this Agreement could have a substantial adverse effect on C&S.  Penn Traffic further acknowledges that such commercial information obtained by Penn Traffic regarding C&S’s wholesale operations is proprietary to C&S.  Penn Traffic agrees to maintain any such commercial information in strict confidence.  Penn Traffic agrees to restrict access to and use of any such commercial information to only those Penn Traffic employees deemed necessary to fulfill its responsibilities under this Agreement and further agrees to not disclose any such commercial information except as otherwise required by law.  If Penn Traffic is required by law to disclose any confidential information, Penn Traffic shall notify C&S and cooperate with C&S in its efforts to limit such disclosure or to seek confidential treatment with respect to all or a portion of such confidential information or to seek such a protective order or other remedy as may be available by law.

(c)           C&S Confidentiality.  C&S acknowledges that disclosure to third parties of service cost, service specifications, the terms of this Agreement and other non-public business or financial information of Penn Traffic obtained by C&S in the course of this Agreement could have a substantial adverse effect on Penn Traffic.  C&S further acknowledges that such commercial information obtained by C&S regarding Penn Traffic (or its affiliates or subsidiaries) logistics operations is proprietary to Penn Traffic.  C&S agrees to maintain any such commercial information in strict confidence.  C&S agrees to restrict access to any such commercial information to only those C&S employees deemed necessary to fulfill its responsibilities under this Agreement and further agrees to not disclose any such commercial information except as otherwise required by law.  If C&S is required by law to disclose any confidential information, C&S shall notify Penn Traffic and cooperate with Penn Traffic in its efforts to limit such disclosure or to seek confidential treatment with respect to all or a portion of such confidential information or to seek such a protective order or other remedy as may be available by law.

(d)           Audit Confidentiality.  Without limiting the above or any other terms of this Agreement, the reports, documents, information and materials provided to C&S  in connection with the access and audit provisions of Section 6 are highly confidential, non-public information which shall be protected from disclosure pursuant to Section 15.11(c) above.  In certain cases, notwithstanding the execution of this Agreement and the confidentiality obligations set forth herein, due to the sensitive nature of certain information and/or other confidentiality obligations of Penn Traffic, Penn Traffic may not disclose certain information to C&S in its original format.  It is the intent of the parties that to the extent Penn Traffic is prohibited or unwilling to share certain information due to its proprietary, confidential or sensitive nature, Penn Traffic will provide C&S with such information in a redacted or summary format (which is still subject to C&S' confidentiality obligation) and such redacted or summary format will be accepted by C&S.  Further, C&S agrees, upon Penn Traffic's request, to execute any confidentiality agreement in a form reasonably satisfactory to C&S.  In addition to the above, C&S understands and agrees that information related to  Costs and other non-public information related to Penn Traffic’s provision of the Services is highly sensitive and shall be subject to a heightened level of confidentiality and restricted access.  Accordingly, in order for Penn Traffic to agree to provide such confidential information, C&S agrees that it will allow access to such confidential information only to those C&S employees or third party agents who have a need to know such confidential information in connection with any C&S' audit.  All such confidential information may not be copied or reproduced by C&S in any form, and may only be used pursuant to the uses permitted hereunder.

15.12                      Relationship Managers. Each party will appoint an individual (each, a “Relationship Manager”) who, from the date of this Agreement until replaced by the appointing party, will serve as that party’s representative under this Agreement.    Each party will cause its Relationship Manager to (i) manage and coordinate the performance of that party’s obligations under this Agreement, and (ii) be authorized to act for and on behalf of such party with regard to all matters under this Agreement.  A party may only replace a Relationship Manager upon seven (7) days written notice to the other party.  As of the Closing, the Relationship Manager for Penn Traffic is Tim Cipiti and the Relationship Manager for C&S is Robert Chapman.

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15.13                      [*]

[Remainder of Page Intentionally Blank]

[Signature Page Follows]

* Material omitted and filed separately with the Securities and Exchange Commission pursuant to a request for confidential treatment under Rule 24b-2 of the Securities and Exchange Act of 1934, as amended.

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IN WITNESS WHEREOF, the parties have duly executed this Third Party Logistics Agreement under seal as of the date first above written.

THE PENN TRAFFIC COMPANY
By:
	Name
	Title

C&S WHOLESALE GROCERS, INC.
By:
	Name
	Title

LIST OF SCHEDULES

Schedule 3.2	P&L Statements
Schedule 3.4	Basis for [*]
Schedule 3.5	[*]
Schedule 4.1	Interim Budget
Schedule 6.6	Accounting and Reporting
Schedule 7.1(a)	Delivery Schedule
Schedule 7.1(b)	Store Polling Schedule
Schedule 7.1(c)	Pick-Up Schedule
Schedule 7 .1(d)	List of Delivery Level Reports

EX-2.3

THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT REQUEST.  REDACTED MATERIAL IS MARKED WITH “*” AND BRACKETS AND HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION

TRANSITION SERVICES AGREEMENT

THIS TRANSITION SERVICES AGREEMENT, dated as of December 21, 2008 (this “Agreement”), is made by and between C&S Wholesale Grocers, Inc., a Vermont corporation having an address at 7 Corporate Drive, Keene, NH 03431 (“C&S”), and The Penn Traffic Company, a Delaware corporation having an address at 1200 State Fair Boulevard, Syracuse, NY 13221 (“Penn Traffic”) and Big M Supermarkets, Inc., a New York corporation and wholly-owned subsidiary of Penn Traffic having an address at 1200 State Fair Boulevard, Syracuse, NY 13221 (“Big M”, and together with Penn Traffic, the “Seller Companies”).

WITNESSETH:

WHEREAS, C&S and the Seller Companies have entered into that certain Asset Purchase Agreement, dated as of December 17, 2008 (the “APA”);

WHEREAS, pursuant to the APA, the Seller Companies have sold to C&S, and C&S has purchased from the Seller Companies, all of the Seller Companies’ right, title and interest in and to substantially all of the assets owned by the Seller Companies relating to the Wholesale Business (including, without limitation, the Customer Agreements);

WHEREAS, Penn Traffic and C&S have entered into that certain Third Party Logistics Agreement dated as of the date hereof (the “3PL Agreement”), whereby Penn Traffic will perform certain warehouse, transportation and distribution services to or for the benefit of C&S as of the Closing with regard to the Wholesale Customers, any New Customers and the Wholesale Business;

WHEREAS, as a material inducement to C&S entering into, and performing under, the APA, the Seller Companies have agreed to provide certain transition services to or on behalf of C&S with regard to the Wholesale Business following the Closing, upon the terms and conditions set forth herein;

WHEREAS, all capitalized terms used but not defined herein shall have the meanings ascribed to such terms in the APA, provided, that, the “Wholesale Business” as used herein shall mean the Seller Companies’ wholesale grocery business including the businesses associated with the Customer Sandwich Leases and the Facilities, and the assets used in providing and services to be provided hereunder and under the 3PL Agreement; and

NOW, THEREFORE, in consideration of the mutual covenants, agreements and warranties herein contained, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto, intending to be legally bound, agree as follows, effective as of the Closing Date:

1.           Description of RWS Services.

a. The Seller Companies shall provide: (i) the Wholesale Customers with the retail services that the Seller Companies were generally providing to the Wholesale Customers, and (ii) C&S with all the systems, support and administrative services that the Seller Companies were generally providing to the Wholesale Business, in each case, within the trailing twelve (12) months prior to the Closing Date (the “Trailing 12 Months”), set forth on Schedule 1(a) attached hereto (the “RWS Services”).  If requested by C&S, the Seller Companies shall also provide (i) RWS Services directly to any New Customers, and to C&S with respect to any such New Customers, and (ii) any RWS Services that the Seller Companies did not provide directly to specific Wholesale Customers, or to C&S with respect to such Wholesale Customers, in each case during the Trailing 12 Months (“Expanded RWS Services”); provided, that, C&S shall provide the Seller Companies with reasonable advance notice of any New Customers, or Wholesale Customers requiring Expanded RWS Services, and the specific level and scope of services that such New Customers or Wholesale Customers will require.

b. The Seller Companies will provide each Wholesale Customer with a level and scope of RWS Services after the Closing Date that is equal to the greater of (i) the level and scope of RWS Services that such Wholesale Customer was receiving within the Trailing 12 Months, and (ii) the level and scope of RWS Services that are required under or pursuant to the terms of any Customer Supply Agreement or Customer License Agreement in effect with such customer as of the Closing Date.  The Seller Companies will provide C&S with the same level and scope of RWS Services after the Closing Date that the Wholesale Business was receiving from the Seller Companies through its “Corporate Division” or otherwise within the Trailing 12 Months.  Each Wholesale Customer (or C&S, with respect to such customer) who receives Expanded RWS Services will receive up to a level and scope of such services from the Seller Companies after the Closing Date that is equal to the level and scope of such services generally available to the Wholesale Customers (or C&S, with respect to such customers) during the Trailing 12 Months.  Any New Customers (or C&S, with respect to such customer) shall not be entitled to receive any Expanded RWS Services from the Seller Companies that are beyond the level or scope of RWS Services generally available to the Wholesale Customers (or C&S, with respect to such customers) during the Trailing 12 Months.  Notwithstanding the foregoing, C&S reserves the exclusive right, in its sole discretion, to temporarily or permanently reduce the level or scope of all or any of the RWS Services and Expanded RWS Services (or portions thereof) provided to all or any of the Wholesale Customers or the New Customers at any time; provided, that, C&S must provide thirty (30) days’ advance written notice to Penn Traffic of any such reduction (unless such notice would be impracticable under the circumstances).  Notwithstanding the foregoing, C&S shall not implement any such reduction with regard to the Wholesale Customers (or C&S, with respect to such customers) prior to the first anniversary of the Closing Date unless (i) such reduction, individually or in the aggregate with any other reductions, is immaterial to the Wholesale Business as of the date hereof, or (ii) C&S has arranged for the RWS Services or Expanded RWS Services it has elected the Seller Companies will cease to provide to Wholesale Customers to continue to be provided to the Wholesale Customers (through in-sourcing or otherwise), and Penn Traffic has agreed in writing to such arrangement (which agreement shall not be unreasonably withheld, delayed or conditioned), or (iii) a Wholesale Customer has requested the reduction, or (iv) Penn Traffic has agreed in writing to such reduction.

2. [Intentionally Omitted.]

3.           Term of RWS Services.  The Seller Companies shall provide the RWS Services and any Expanded RWS Services for an initial term of three (3) years, which 3-year period shall commence as of the Closing Date (the “Initial Term”).  Provided that C&S is not then in default under this Agreement beyond any applicable cure period, C&S shall have the option of renewing this Agreement with regard to the RWS Services and/or any Expanded RWS Services (or any portion thereof) for two (2) additional terms of one (1) year each (together, the “Renewal Periods,” or, individually, a “Renewal Period”).  C&S shall provide the Seller Companies with written notice of the exercise of its renewal option not later than ninety (90) days prior to the expiration of the Initial Term or the first Renewal Period, as the case may be.

4. Payment for RWS Services.

a. In consideration of the RWS Services to be provided during the Initial Term to Wholesale Customers and C&S (but not New Customers), C&S shall pay [*].

b. In consideration of the RWS Services to be provided to New Customers and C&S, and the Expanded RWS Services to be provided to Wholesale Customers and C&S, in each case, during the Initial Term, C&S shall pay Penn Traffic [*].

Each Sunday, Penn Traffic shall electronically transmit to C&S a statement (the “Weekly TSA Statement”) setting forth all amounts payable by C&S pursuant to this Section 4(b) and Sections 4(a), 4(d), 7(a), 7(b), 10 and 13 hereof for Transition Services provided by the Seller Companies during the immediately preceding seven days (collectively, the “Weekly TSA Statement Amount”).   [*].

c. In the event that C&S reduces the level or scope of all or any of the RWS Services (or portions thereof) during the Initial Term, pursuant to (and subject to the limitations in) subsection 1(b), [*] all fees payable under subsection 4(a) shall not be subject to reduction or return to C&S, unless such service reduction is the result of a material breach by the Seller Companies of its obligations hereunder that extends beyond any applicable cure period (in which case the parties shall negotiate an appropriate reduction to, and  return of, the fees payable pursuant to subsection 4(a), including [*]).

d. In consideration of (i) the RWS Services to be provided to C&S, New Customers and Wholesale Customers and (ii) the Expanded RWS Services to be provided to Wholesale Customers and C&S during a Renewal Period, if any, C&S shall pay Penn Traffic [*].

* Material omitted and filed separately with the Securities and Exchange Commission pursuant to a request for confidential treatment under Rule 24b-2 of the Securities and Exchange Act of 1934, as amended.

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e. In the event that C&S reduces the level or scope of (i) all or any of the Expanded RWS Services (or portions thereof) during the Initial Term, or (ii) all or any of the RWS Services or the Expanded RWS Services (or portions thereof) during a Renewal Period, pursuant to subsection 1(b), Penn Traffic shall not invoice C&S for any costs associated with the services that have been reduced and C&S shall not be responsible for any costs associated therewith.

5.           Description of Retail Accounting Services.

a. In addition to the RWS Services described herein, the Seller Companies shall also provide each Wholesale Customer the retail accounting services that the Seller Companies were generally providing to such Wholesale Customer within the Trailing 12 Months (the “Retail Accounting Services”) set forth on Schedule 5(a) attached hereto. If requested by C&S, the Seller Companies shall also provide (i) any New Customers with the Retail Accounting Services, and (ii) any Wholesale Customers with additional Retail Accounting Services that the Seller Companies did not provide to those specific Wholesale Customers during the Trailing 12 Months (“Expanded Retail Accounting Services”); provided, that, C&S shall provide Penn Traffic with reasonable advance notice of any New Customers, or Wholesale Customers requiring Expanded Retail Accounting Services, and the specific level and scope of services that such New Customers or Wholesale Customers will require.

b. The Seller Companies will provide each Wholesale Customer with a level and scope of Retail Accounting Services after the Closing Date that is equal to the greater of (i) the level and scope of Retail Accounting Services that such Wholesale Customer was receiving within the Trailing 12 Months, and (ii) the level and scope of Retail Accounting Services that are required under or pursuant to the terms of any Customer Supply Agreement or Customer License Agreement in effect with such customer as of the Closing Date.  Each Wholesale Customer who receives Expanded Retail Accounting Services will receive up to a level and scope of such services from the Seller Companies after the Closing Date that is equal to the level and scope of such services generally available to the Wholesale Customers during the Trailing 12 Months.  It is further the intent of the parties that any New Customers shall not be entitled to receive any retail accounting services from the Seller Companies that are beyond the level or scope of Retail Accounting Services that was generally available to the Wholesale Customers during the Trailing 12 Months.  Notwithstanding the foregoing, C&S reserves the exclusive right, in its sole discretion, to temporarily or permanently reduce the level or scope of all or any of the Retail Accounting Services (or portions thereof) provided to all or any of the Wholesale Customers or the New Customers at any time; provided, that, C&S must provide thirty (30) days’ advance written notice to Penn Traffic of any such reduction (unless such notice would be impracticable under the circumstances).  Notwithstanding the foregoing, C&S shall not implement any such reduction with regard to the Wholesale Customers prior to the first anniversary of the Closing Date unless (i) such reduction, individually or in the aggregate with any other reductions, is immaterial to the Wholesale Business, or (ii) C&S has arranged for the Retail Accounting Services it has elected the Seller Companies will cease to provide to continue to be provided to the Wholesale Customers (through in-sourcing or otherwise), and Penn Traffic has agreed in writing to such arrangement (which agreement shall not be unreasonably withheld, delayed or conditioned), or (iii) a Wholesale Customer has requested the reduction, or (iv) Penn Traffic has agreed in writing to such reduction.

6.           Term of Retail Accounting Services.  The Seller Companies shall provide the Retail Accounting Services and any Expanded Retail Accounting Services for an initial term of one (1) year, which 1-year period shall commence as of the Closing Date (the “Initial Accounting Term”).  Provided that C&S is not then in default under this Agreement beyond any applicable cure period, C&S shall have the option of renewing this Agreement with regard to the Retail Accounting Services or any Expanded Retail Accounting Services (or any portion thereof) for two (2) additional terms of one (1) year each (together, the “Accounting Renewal Periods,” or, individually, an “Accounting Renewal Period”).  C&S shall provide Penn Traffic with written notice of the exercise of its renewal option at least ninety (90) days prior to the expiration of the Initial Accounting Term or the first Accounting Renewal Period, as the case may be.

7. Payment for Retail Accounting Services.

a. In consideration of the Retail Accounting Services to be provided during the Initial Accounting Term to Wholesale Customers, C&S shall pay [*] to Penn Traffic, payable as follows:  [*].

b. In consideration of the Retail Accounting Services to be provided to New Customers, and any Expanded Retail Accounting Services provided to Wholesale Customers, in each case, during the Initial Accounting Term, C&S shall pay [*].

c. In the event that C&S reduces the level or scope of all or any of the Retail Accounting Services (or portions thereof) during the Initial Accounting Term, pursuant to subsection 5(b), the fees payable under subsection 7(a) shall not be subject to reduction or return to C&S, unless such service reduction is the result of a material breach by Penn Traffic of its obligations hereunder that extends beyond any applicable cure period (in which case the parties shall negotiate an appropriate reduction to, or return of, the fees payable pursuant to subsection 7(a)).

d. [*].

e. In the event that C&S reduces the level or scope of (i) all or any of the Expanded Accounting Services (or portions thereof) during the Initial Accounting Term, or (ii) all or any of the Retail Accounting Services or any Expanded Retail Accounting Services (or portions thereof) during an Accounting Renewal Period, pursuant to subsection 5(b), Penn Traffic shall not invoice C&S for any costs associated with the services that have been reduced and C&S shall not be responsible for any costs associated therewith.

* Material omitted and filed separately with the Securities and Exchange Commission pursuant to a request for confidential treatment under Rule 24b-2 of the Securities and Exchange Act of 1934, as amended.

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8.           Description of Miscellaneous Services.

a. The Seller Companies shall also provide each Wholesale Customer the miscellaneous services that the Seller Companies were generally providing to such Wholesale Customer within the Trailing 12 Months (the “Miscellaneous Services”) set forth on Schedule 8(a) attached hereto.  If requested by C&S, the Seller Companies shall also provide (i) any New Customers with the Miscellaneous Services, and (ii) any Wholesale Customers with additional Miscellaneous Services that the Seller Companies did not provide to those specific Wholesale Customers during the Trailing 12 Months (“Expanded Miscellaneous Services”); provided, that, C&S shall provide the Seller Companies with reasonable advance notice of any New Customers, or Wholesale Customers requiring Expanded Miscellaneous Services, and the specific level and scope of services that such New Customers or Wholesale Customers will require.

b. The Seller Companies will provide each Wholesale Customer with a level and scope of Miscellaneous Services after the Closing Date that is equal to the greater of (i) the level and scope of Miscellaneous Services that such Wholesale Customer was receiving within the Trailing 12 Months, and (ii) the level and scope of Miscellaneous Services that are required under or pursuant to the terms of any Customer Supply Agreement or Customer License Agreement in effect with such customer as of the Closing Date.  Each Wholesale Customer who receives Expanded Miscellaneous Services will receive up to a level and scope of such services from the Seller Companies after the Closing Date that is equal to the level and scope of such services generally available to the Wholesale Customers during the Trailing 12 Months.  Any New Customers shall not be entitled to receive any Miscellaneous Services from the Seller Companies that are beyond the level or scope of Miscellaneous Services generally available to the Wholesale Customers during the Trailing 12 Months.  Notwithstanding the foregoing, C&S reserves the exclusive right, in its sole discretion, to temporarily or permanently reduce the level or scope of all or any of the Miscellaneous Services and Expanded Miscellaneous Services (or portions thereof) provided to all or any of the Wholesale Customers  or the New Customers at any time; provided, that, C&S must provide thirty (30) days’ advance written notice to Penn Traffic of any such reduction (unless such notice would be impracticable under the circumstances). Notwithstanding the foregoing, C&S shall not implement any such reduction with regard to the Wholesale Customers prior to the first anniversary of the Closing Date unless (i) such reduction, individually or in the aggregate with any other reductions, is immaterial to the Wholesale Business, or (ii) C&S has arranged for the Miscellaneous Services or Expanded Miscellaneous Services it has elected the Seller Companies will cease to provide to continue to be provided to the Wholesale Customers (through in-sourcing or otherwise), and Penn Traffic has agreed in writing to such arrangement (which agreement shall not be unreasonably withheld, delayed or conditioned), or (iii) a Wholesale Customer has requested the reduction, or (iv) Penn Traffic has agreed in writing to such reduction.

9.           Term of Miscellaneous Services.  The Seller Companies shall provide the Miscellaneous Services for an initial term of one (1) year, which 1-year period shall commence as of the Closing Date (the “Initial Miscellaneous Term”).  Provided that C&S is not then in default under this Agreement beyond any applicable cure period, C&S shall have the option of renewing this Agreement with regard to the Miscellaneous Services (or any portion thereof) for two (2) additional terms of one (1) year each (together, the “Miscellaneous Renewal Periods,” or, individually, a “Miscellaneous Renewal Period”).  C&S shall provide Penn Traffic with written notice of the exercise of its renewal option at least ninety (90) days prior to the expiration of the Initial Miscellaneous Term or the first Miscellaneous Renewal Period, as the case may be.

10.           Payment for Miscellaneous Services.

a. In consideration of the Miscellaneous Services to be provided during the Initial Miscellaneous Term and any Miscellaneous Renewal Period to Wholesale Customers or New Customers, C&S shall pay to Penn Traffic the amounts set forth on Schedule 8(a) hereto (specifically excluding any severance or multi-employer or company pension plan withdrawal costs).  These amounts shall be included in the Weekly TSA Statement Amount, all estimates thereof, and the credit provided by C&S on the Weekly Statement (unless they have already been paid by C&S), in each case pursuant to Section 4(b) hereof.

b. In the event that C&S reduces the level or scope of all or any of the Miscellaneous Services or any Expanded Miscellaneous Services (or portions thereof) during the Initial Miscellaneous Term or during a Miscellaneous Renewal Period, pursuant to subsection 8(b), Penn Traffic shall not invoice C&S for any costs associated with the services that have been reduced and C&S shall not be responsible for any costs associated therewith.

11.           Description of Wholesale Employee Services.

a.	In addition to the RWS Services, Retail Accounting Services and Miscellaneous Services described herein, the Seller Companies shall also provide C&S with all of the wholesale services that were generally being provided to the Wholesale Business within the Trailing 12 Months by the Wholesale Employees listed on Schedule 11(a) attached hereto (the “Wholesale Employee Services”).
b.	The Seller Companies will provide C&S with the same level and scope of Wholesale Employee Services from the Seller Companies after the Closing Date that the Wholesale Business was receiving from the Seller Companies through their Wholesale Employees within the Trailing 12 Months.

12.           Term of Wholesale Employee Services.  The Seller Companies shall provide the Wholesale Employee Services during the period, if any, from the Closing Date until the Employee Closing (the “WES Term”).  The WES Term may be extended by mutual agreement of the parties.

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13.           Payment for Wholesale Employee Services.In consideration of the Wholesale Employee Services to be provided during the WES Term, C&S shall pay [*].

14.           Service Standards.  The Seller Companies shall perform the RWS Services, the Expanded RWS Services, the Retail Accounting Services, the Expanded Retail Accounting Services, the Miscellaneous Services, the Expanded Miscellaneous Services and the Wholesale Employee Services (collectively, the “Transition Services”) (i) in compliance in all material respects with all applicable laws, regulations and rules (and the Seller Companies shall maintain all material permits and licenses necessary to enable Penn Traffic or Big M to provide such Transition Services),  (ii) with substantially the same degree of care, promptness, accuracy, skill and diligence and in substantially the same manner as such services were provided to the Wholesale Business in the Trailing 12 Months (including, but not limited to, financial and operational reporting with substantially the same frequency, format and detail as during such Trailing 12 Months and without any material deterioration in quality or promptness), and (iii) in all respects in accordance with any terms, conditions and parameters set forth in Schedules 1(a), 5(a), 8(a) and 11(a) attached hereto.  In addition to the foregoing, Penn Traffic conducted certain accounting and reporting, pursuant to certain allocation methodologies employed by Penn Traffic, during the fiscal year ended February 2, 2008 with regard to the RWS Services, the Retail Accounting Services and the Miscellaneous Services.  Penn Traffic hereby covenants and agrees to continue to perform such accounting and reporting services, using such allocation methodologies, during the term hereof for the benefit of C&S and/or its Wholesale or New Customers as part of the Transition Services provided hereunder, including but not limited to those accounting and reporting services set forth on Schedule 14 attached hereto, which Penn Traffic represents are consistent with the accounting and reporting, and underlying allocation methodologies, conducted during the fiscal year ended February 2, 2008, with the exception of sub-schedule 24  (entitled “Warehouse & Distribution Allocation Summary”) set forth in Schedule 14 attached hereto which contains certain negotiated adjustments to such methodologies.  All such reporting and accounting by Penn Traffic under this Section 14 shall be with the same frequency and detail as provided during the fiscal year ended February 2, 2008.

15.           Sufficiency of Services.

a. Each of the Seller Companies represents and warrants that the Transition Services to be provided by the Seller Companies hereunder, when taken together with the services to be provided under the 3PL Agreement, the Acquired Assets, the businesses associated with the Customer Sandwich Leases and the Facilities, and the services set forth on Schedule 15(a) attached hereto (the “Additional Services”), constitute, in all material respects, the same services used by or provided to the Wholesale Business within the Trailing 12 Months.The Seller Companies agree to provide the Additional Services for at least twelve (12) months following the Closing Date and to provide such Additional Services (i) in compliance in all material respects with all applicable laws, regulations and rules (and the Seller Companies shall maintain all material permits and licenses necessary to enable Penn Traffic or Big M to provide such Additional Services), and (ii) with substantially the same degree of care, promptness, accuracy, skill and diligence and in substantially the same manner as such Additional Services were provided to the Wholesale Business in the Trailing 12 Months (without any material deterioration in quality or promptness).  All such Additional Services shall be provided by the Seller Companies directly to the Wholesale Customers and any New Customers, and the Seller Companies shall be responsible for all expenses and entitled to all revenues associated with their provision of the Additional Services.  Notwithstanding the foregoing, the Seller Companies shall not directly solicit Wholesale Customers and any New Customers for the provision of the Additional Services and any such Additional Services shall be arranged through C&S.

b. If, after the Closing Date, the level or scope of the Transition Services, when taken together with the services to be provided under the 3PL Agreement, the Acquired Assets, and the Additional Services, are insufficient to enable C&S to operate the Wholesale Business as it was operated by the Seller Companies in the ordinary course within the Trailing 12 Months (exclusive of the businesses associated with the Customer Sandwich Leases and the Facilities), the Seller Companies shall, as soon as reasonably practicable but in no event later than ten (10) days after receiving written notice from C&S indicating such deficiency, begin to provide, or arrange for the provision of, such additional services as are necessary to cure such deficiency.  The parties shall in good faith designate the deficient service as either a RWS Service, a Retail Accounting Service, a Miscellaneous Service, a Wholesale Employee Service or an Additional Service, and such designation shall be used to determine whether and how Penn Traffic will be compensated for the provision of the deficient service.  In addition to the foregoing, if, after the Closing Date, a party believes that a Transition Service described in the Schedules attached hereto has been incorrectly designated as either a RWS Service, a Retail Accounting Service, a Miscellaneous Service, a Wholesale Employee Service or an Additional Service, the parties shall meet and, in good faith, provide a designation for the Transition Service(s) in question that is consistent with its treatment by the Seller Companies in the Trailing 12 Months.

16.           Books and Records;Audits.

a. At C&S’ expense, C&S may have Penn Traffic’s records audited to confirm the Seller Companies’ costs relating to the performance of the Transition Services under this Agreement. [*]. Any such audit will be conducted at Penn Traffic’s premises by a nationally or regionally recognized third party auditing firm acceptable to Penn Traffic in its reasonable discretion and any review hereunder shall be conducted by individuals knowledgeable regarding industry standards and customs, and such persons shall keep all such information strictly confidential.  C&S shall have the right to have a representative, to be mutually agreed upon by the parties, present and participating as necessary during such audit.  Upon Penn Traffic’s request, prior to commencement of the audit, C&S agrees to require such third party auditing firm to execute any reasonable confidentiality agreement provided by Penn Traffic.  C&S will be limited to [*] audits during each year subsequent to the date hereof that Penn Traffic continues to provide services hereunder, and each audit will be limited to information related to the [*] period immediately preceding the audit.  Notwithstanding the preceding sentence, in the event that a discrepancy is discovered by an audit during the [*] covered by such audit, then the audit may include prior periods (up to a total of [*] years) but only to verify that the same discrepancy had not occurred during such prior periods.  If the same error is found in the [*] prior years then C&S is authorized to recoup the monies due because of the error, as well as reasonable associated expanded audit fees for additional transaction testing by the third party audit firm. Unless any significant discrepancies are found, each such audit shall be completed within fifteen (15) business days.  The parties' mutual objective is to identify and resolve any errors promptly after they occur rather than to rely upon the audit procedure to identify errors.

* Material omitted and filed separately with the Securities and Exchange Commission pursuant to a request for confidential treatment under Rule 24b-2 of the Securities and Exchange Act of 1934, as amended.

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b. Penn Traffic shall maintain complete and detailed records, data, information and statements in auditable form and quality in respect of all activities related to the provision of Transition Services on behalf of C&S and to all of Penn Traffic’s other obligations under this Agreement, as information fully integrated into the overall financial statements maintained by Penn Traffic in the ordinary course of business.  Penn Traffic shall prepare and maintain for a period of not less than [*] years following the end of each fiscal year, adequate books and records with respect to:  (i) Penn Traffic’s performance of Transition Services under this Agreement, (ii) all amounts charged or credited by Penn Traffic to C&S under this Agreement, (iii) all costs arising under this Agreement and (iv) such other records, data or information as may be set forth under this Agreement or by C&S from time to time.  The books and records shall be maintained consistent with GAAP, consistently applied, and shall be in a form suitable for audit, review and copying and shall be made available as reports produced from Penn Traffic’s overall financial statements maintained by Penn Traffic for its entire operations in the ordinary course of business.  All books and records shall be maintained in accordance with Penn Traffic’s document retention policy.

c. In addition to the foregoing, the Seller Companies shall provide C&S with reasonable access to the Seller Companies’ books, records and Facilities in order to conduct inspections regarding the performance of the Transition Services.  Such access shall be requested upon at least two (2) days’ advance notice, shall be conducted during normal business hours and shall not materially interfere with the conduct of the Seller Companies’ business.

17.           Customer Relationships; Confidential Information.

a. In connection with providing the Transition Services, the Seller Companies shall (i) not impair C&S’s development and maintenance of positive business relationships with the Wholesale Customers, any New Customers, the vendor community and all other third parties involved with or relating to the Wholesale Business, and (ii) promptly notify C&S upon the occurrence of an event which may result in a material adverse change in the Wholesale Business or C&S’s relationship with any Wholesale Customer or New Customer, including, but not limited to, complaints by Wholesale Customers or New Customers or defaults in payment or performance by such Wholesale Customers or New Customers.  Prior to the first anniversary of the Closing Date, C&S shall provide Penn Traffic with prompt notice of any event which may result in a material adverse change in the Wholesale Business or C&S’s relationship with any Wholesale Customer or New Customer, including any complaints by Wholesale Customers or New Customers or defaults in payment or performance by such Wholesale Customers or New Customers, or if such customer ceases to be supplied by C&S.  Following the first anniversary of the Closing Date, C&S shall provide Penn Traffic with prompt notice of any Wholesale Customer or New Customer that ceases to be supplied by C&S. The parties shall reasonably cooperate in resolving any customer complaints.  The Seller Companies shall not take any enforcement actions with regard to defaults by the Wholesale Customers or New Customers, without C&S’s prior consent.

b. Penn Traffic acknowledges that C&S has ultimate control over, and final decision-making authority with regard to, the Wholesale Business and the business relationships with the Wholesale Customers and the New Customers.  As such, Penn Traffic will seek guidance, instruction and authorization from C&S as necessary or appropriate in connection with Penn Traffic’s provision of the Transition Services, including, but not limited to, setting or revising the charges to the Wholesale Customers and New Customers for any of the Transition Services.

c. Each party hereto acknowledges that, in connection with Penn Traffic’s provision of the Transition Services, it may have access to Confidential Information relating to the Transition Services, the Wholesale Business, the Wholesale Customers, the New Customers and/or the other party.  Each party hereto shall (i) maintain the other’s Confidential Information in strict confidence, (ii) use such Confidential Information only as necessary to provide the Transition Services or perform its obligations hereunder, as the case may be, and for no other purpose, and (iii) not disclose the Confidential Information to any third party (except as required by applicable law, but only after discussing such disclosure with the other party and giving that party opportunity to seek an adequate protective order).  Each party agrees that it will allow access to such Confidential Information only to those employees or third party agents who have a need to know such confidential information and have been apprised of such party’s obligations hereunder.  Further, each party agrees, upon request, to execute any confidentiality agreement provided by the requesting party and shall cause its officers or other employees (or third party agents) who will have access to Confidential Information to execute any individual affirmations of their confidentiality obligations as requested and in a form provided by the requesting party and reasonably satisfactory to the requested party.As used herein, “Confidential Information” shall mean all non-public information relating to either party, the Transition Services, the Wholesale Business and/or the Wholesale Customers and the New Customers, including, but not limited to, C&S’s Wholesale Customer List, and each party’s business methods, pricing, margins, rebates, vendor information, customer programs and account information.

d. Penn Traffic acknowledges C&S owns the inventory being supplied to the Wholesale Customers and the New Customers and any amounts paid by C&S for the Transition Services provided herein shall not reflect or relate to the cost of such inventory.

* Material omitted and filed separately with the Securities and Exchange Commission pursuant to a request for confidential treatment under Rule 24b-2 of the Securities and Exchange Act of 1934, as amended.

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18.           Insurance.  Penn Traffic shall purchase and maintain, at its own expense, insurance coverages in such amounts as are deemed commercially reasonable and consistent with industry practices in relation to Penn Traffic’s provision of the Transition Services.  All insurance coverages must be provided by insurance companies that are financially sound with a rating of A or higher by A.M. Best Co as of the Closing Date.  Penn Traffic shall provide C&S with certificates evidencing all insurance coverages maintained in accordance with this Section 18.

19.           Representations and Warranties.

Each of the Seller Companies hereby represents and warrants as follows:

a. None of the Wholesale Employees provided any of the RWS Services, Retail Accounting Services, Miscellaneous Services or the Additional Services for or on behalf of the Seller Companies within the Trailing 12 Months.  Following the Closing, none of the services of the Wholesale Employees shall be required by the Seller Companies to adequately perform the Transition Services, with the exception of the Wholesale Employee Services during the WES Term.

b. During the period covered by the Adjusted Wholesale P&L Statement, (i) the Retail Accounting Services and Miscellaneous Services were provided by employees of the Seller Companies, the actual expenses of which were reflected on the Adjusted Wholesale P&L Statement, (ii) the adjustments to the Adjusted Wholesale P&L Statement include an $[*] charge for certain RWS Services provided by Seller Companies through its “Corporate Division”, and (iii) the Additional Services were provided by employees of the Seller Companies, the expenses of which were not reflected on the Adjusted Wholesale P&L Statement.

c. The Adjusted Wholesale P&L Statement (i) contains all revenues and expenses associated with the Retail Accounting Services and Miscellaneous Services, (ii) contains the revenues but not the expenses associated with the RWS Services, other than the $[*] charge for certain RWS Services provided by Seller Companies through its “Corporate Division” reflected in the adjustments to the Adjusted Wholesale P&L Statement, and (iii) does not include revenues and expenses associated with the Additional Services.

d. Penn Traffic is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware.  Penn Traffic has full corporate power and authority to execute and deliver this Agreement and to consummate the transactions contemplated herein.  This Agreement is a valid and binding obligation of Penn Traffic, enforceable against Penn Traffic in accordance with its terms.

e. Big M is a corporation duly organized, validly existing and in good standing under the laws of the State of New York.  Big M has full corporate power and authority to execute and deliver this Agreement and to consummate the transactions contemplated herein.  This Agreement is a valid and binding obligation of Big M, enforceable against Big M in accordance with its terms.

C&S hereby represents and warrants as follows:

a. C&S is a corporation duly organized, validly existing and in good standing under the laws of the State of Vermont.  C&S has full corporate power and authority to execute and deliver this Agreement and to consummate the transactions contemplated herein.  This Agreement is a valid and binding obligation of C&S, enforceable against C&S in accordance with its terms.

20. Certain Covenants.

 Each of the Seller Companies hereby covenants as follows:

a. [*].

b. The Seller Companies will cooperate with C&S in notifying all Wholesale Customers of the sale of the Wholesale Business to C&S prior to Closing and in providing payment instructions to such Wholesale Customers for the services and products to be purchased by such customers from C&S.  C&S shall establish a bank deposit account for the receipt of all payments from the Wholesale Customers or New Customers (the “Deposit Account”).  The Seller Companies acknowledge that (i) all revenues associated with or generated by C&S’ operation of the Wholesale Business (including, but not limited to, revenues arising from the Wholesale Customers and any New Customers) following the Closing Date will belong to, and be for the account of, C&S, with the exception of revenues associated with the Additional Services, and (ii) any funds collected or received by the Seller Companies from the Wholesale Customers or any New Customers in connection with delivery of, or in accordance with, the RWS Services, the Expanded RWS Services, the Retail Accounting Services, the Expanded Retail Accounting Services, the Miscellaneous Services, the Expanded Miscellaneous Services or the Wholesale Employee Services, or the operation of the Wholesale Business by C&S following the Closing Date, shall belong to, and be for the account of, C&S.  The Seller Companies shall hold all such funds in trust for the benefit of C&S and shall, on a daily basis, deposit such funds into the Deposit Account.  The Seller Companies shall provide C&S with a daily report of the funds deposited directly into the Deposit Account by Wholesale Customers and any New Customers and any funds received or collected from Wholesale Customers, New Customers or otherwise by the Seller Companies.

* Material omitted and filed separately with the Securities and Exchange Commission pursuant to a request for confidential treatment under Rule 24b-2 of the Securities and Exchange Act of 1934, as amended.

7

c. In connection with those Transition Services provided by the Seller Companies that require the Seller Companies to advance funds or make third party payments on behalf of a Wholesale Customer or any New Customer (including, but not limited to, any DSD payables or rent), C&S shall establish a bank disbursement account with the funds necessary to meet such accounts payable on behalf of the Wholesale Customers or New Customers (the “Disbursement Account”).  The Seller Companies, solely for the purpose of performing the Transition Services, shall have access to the Disbursement Account and, upon instructions from C&S, shall have the authority to disburse funds from such account.  The Seller Companies shall provide C&S with daily reporting of the funds disbursed by the Seller Companies from the Disbursement Account.  The Seller Companies acknowledge that C&S will have full visibility with regard to the Disbursement Account.

d. To the extent it would not be inconsistent with the manner in which the Seller Companies provided the Transition Services in the Trailing 12 Months, the Seller Companies will not prefer or advantage the Corporate Stores over the Wholesale Customers or the New Customers in their provision of the Transition Services hereunder.  The Seller Companies will employ the same business practices with respect to the Transition Services after the Closing as the Seller Companies employed while it was operating the Wholesale Business during the Trailing 12 Months.

e. Penn Traffic shall not assign, sublease, license, terminate or otherwise convey or encumber its leasehold interests at the Facilities during the period that Penn Traffic is providing any of the Transition Services if such transaction would impair Penn Traffic’s ability to perform any of its obligations under this Agreement.

f. [*].  The Budgeted Funds, netted to a daily settlement amount, are set forth in Schedule 20(f) attached hereto.  Penn Traffic will either (i) remit to C&S on the Weekly TSA Statement the net allocable portion of the Budgeted Funds to which C&S is entitled under this subsection (f) or (ii) take credit on the Weekly TSA Statement in the amount of the net allocable portion of the Budgeted Funds to which Penn Traffic is entitled under this subsection (f), as and when earned by Penn Traffic or C&S, based upon Penn Traffic’s estimate of the Budgeted Funds for the applicable period (the “Budgeted Funds Allocation”), which will be reconciled to actual results on a monthly, quarterly and annual basis.  [*].

21. Exclusive Remedy; Survival.  In the absence of fraud or an intentional and knowing breach of this Agreement and except with regard to remedies that cannot be waived as a matter of law and injunctive or provisional relief (including an action for specific performance), the indemnification provisions set forth in Article XI of the APA shall provide the exclusive remedy for breach of any representation, warranty, covenant or agreement set forth in this Agreement; provided, that, Section 11.4 of the APA shall not apply to this Agreement.  All representations and warranties herein shall survive in accordance with Section 13.10 of the APA.  The covenants and agreements contained in this Agreement shall survive in accordance with their terms.

22. Term andTermination.

a. Unless sooner terminated in accordance with this Section 22, (i) the Seller Companies shall provide the RWS Services during the Initial Term and any Renewal Period, in accordance with Section 3 above, (ii) the Seller Companies shall provide the Retail Accounting Services during the Initial Accounting Term and any Accounting Renewal Period, in accordance with Section 6 above, (iii) the Seller Companies shall provide the Miscellaneous Services during the Initial Miscellaneous Term and any Miscellaneous Renewal Period, and (iv) the Seller Companies shall provide the Wholesale Employee Services during the WES Term, in accordance with Section 11 above.

b. The Seller Companies may not terminate this Agreement or any of the Transition Services except as provided in Section 22(g) hereof.  C&S may not terminate this Agreement or any of the Transition Services prior to the first anniversary of the Closing Date, except, with respect to a reduction or termination of particular Transition Services, as provided for in Sections 1(b), 2(b), 5(b) and 8(b) hereof.

c. Beginning on the first anniversary of the Closing Date, C&S shall have the right to terminate the RWS Services upon at least sixty (60) days prior written notice to the Seller Companies.  [*].  In the event that C&S terminates the RWS Services pursuant to this subsection (c) during a Renewal Period, C&S’s sole obligation hereunder shall be to pay the Seller Companies for the RWS Services up to the date of termination (including the notice period).

d. During an Accounting Renewal Period, if any, C&S shall have the right to terminate the Retail Accounting Services without cause upon at least sixty (60) days  prior written notice to Penn Traffic.  In the event that C&S terminates the Retail Accounting Services without cause, pursuant to this subsection (d), C&S’s sole obligation hereunder shall be to pay Penn Traffic for the Retail Accounting Services up to the date of termination (including the notice period).

e. During a Miscellaneous Renewal Period, if any, C&S shall have the right to terminate the Miscellaneous Services without cause upon at least sixty (60) days  prior written notice to Penn Traffic.  In the event that C&S terminates the Miscellaneous Services without cause, pursuant to this subsection (e), C&S’s sole obligation hereunder shall be to pay Penn Traffic for the Miscellaneous Services up to the date of termination (including the notice period).

f. If (i) the Seller Companies materially breach any of their representations, warranties, covenants or other obligations under this Agreement, and the breaching party does not cure such breach within thirty (30) days of receiving written notice of such breach from C&S, or (ii) C&S has terminated the 3PL Agreement pursuant to Section 12.1(b) thereof, or the Supply Agreement Amendment pursuant to Section 14.1(a) thereof, then C&S may, at its option, terminate this Agreement or any or all of the Transition Services (or portions thereof) for cause by providing written notice of such termination to the Seller Companies.  In addition to all other rights and remedies at law or in equity to pursue money damages or otherwise, in such a case, C&S shall be entitled to (x) receive from the Seller Companies the unearned portion of any fees or payments made to the Seller Companies for Transition Services prior to the date of termination, including, but not limited to, [*], but only to the extent that C&S’ termination of this Agreement was due to Penn Traffic’s material failure to perform the Transition Services for which such fees or payments were made and cure such failure within thirty (30) days of receiving written notice thereof from C&S, and, and (y) upon twenty-four (24) hours’ written notice, [*] or recoup any amounts due from the Seller Companies as a result of any material breach against any amounts due from C&S to the Seller Companies under this Agreement or any other agreement between the parties, including, but not limited to, the Supply Agreement Amendment.

* Material omitted and filed separately with the Securities and Exchange Commission pursuant to a request for confidential treatment under Rule 24b-2 of the Securities and Exchange Act of 1934, as amended.

8

g. If C&S materially breaches any of its representations, warranties, covenants or other obligations under this Agreement, and it does not cure such breach within thirty (30) days of receiving written notice of such breach from the Seller Companies, then the Seller Companies may, at their option, suspend their performance of the Transition Services related to such breach by providing written notice of such suspension to C&S, until such time as C&S has cured the breach in all material respects.  In addition, upon twenty-four (24) hours’ written notice, the Seller Companies may [*] or recoup any amounts due from C&S as a result of such material breach against any amounts due from the Seller Companies to C&S under this Agreement or any other agreement between the parties, including, but not limited to, the Supply Agreement Amendment.

23.           No Agency.  Each party shall be an independent contractor hereunder, and this Agreement shall not be construed to create any other relationship between the parties, as principal and agent, employee and employer, joint venturers or otherwise. Except as expressly stated otherwise herein, neither party is authorized to enter into agreements for or on behalf of the other party, collect any obligation due or owed to the other party, accept service of process for the other party, or bind the other party in any manner whatsoever.

24.           Severability.  Any term or provision of this Agreement that is held by a court of competent jurisdiction or other authority to be invalid, void or unenforceable in any situation in any jurisdiction shall not affect the validity or enforceability of the remaining terms and provisions hereof or the validity or enforceability of the offending term or provision in any other situation or in any other jurisdiction.

25.           Interpretation.  Whenever the words “include,” “includes” or “including” are used in this Agreement they shall be deemed to be followed by the words “without limitation.”

26.           Headings.  The headings preceding the text of the paragraphs and other headings of this Agreement and the schedules and exhibits hereto are for convenience of reference only and shall not be deemed part of or in any way affect the meaning or interpretation of this Agreement.

27.           Force Majeure.  Neither party shall be liable in any respect for failures to perform hereunder directly resulting from acts of God, acts of terrorism, acts of civil or military authority, adverse weather, fires, floods, epidemics, quarantine restrictions, armed hostilities or riots.  In the event of any labor dispute, pickets, shut down, work stoppage or sit-in, the parties shall collectively work together to minimize the effects of any of the foregoing on the operation of the Wholesale Business.  In the event that the Transition Services cannot be performed as a result of an event described in the two preceding sentences (each, a “Force Majeure”), (i) the affected provisions and other requirements of this Agreement shall be suspended during the period of such Force Majeure (and performance of the affected party shall be excused to the extent it is delayed, hindered or prevented by any such events), (ii) the affected party shall as soon as is reasonably practicable notify the other parties of such event of Force Majeure and its estimated duration, (iii) to the extent such Force Majeure prevents the Seller Companies from providing any of the Transition Services, C&S shall be entitled to acquire such Services from an alternative source, at its sole cost and expense, until the Seller Companies can again provide such Services, and (iv) to the extent such Force Majeure prevents the Seller Companies from providing any of the Transition Services, C&S shall not be obligated to pay Penn Traffic for such Services ([*]).

28.           Binding Nature; Assignment.  Neither this Agreement nor any of the rights, interests or obligations hereunder shall be assigned by either party (whether by operation of law or otherwise) without the prior written consent of the other party hereto.  Notwithstanding the preceding sentence, C&S may assign any or all of its rights and obligations hereunder to an affiliate without the consent of the Seller Companies.  Subject to the foregoing consent rights, this Agreement shall be binding upon, inure to the benefit of and be enforceable by the parties and their respective successors and permitted assigns, as well as (i) any transferee in connection with a sale of all or substantially all of the assets of a party, (ii) any surviving corporation in any merger or consolidation in which a party is not the surviving corporation following such merger or consolidation, or (iii) either party upon any sale of a controlling equity, shareholder or other ownership interest in such party.

29.           Applicable Law.  This Agreement shall be governed by, and construed in accordance with, the laws of the State of New York, without regard to the principles of conflicts of laws thereof.

30.           Entire Understanding.  This Agreement, together with the APA and Related Agreements, and the exhibits and schedules hereto and thereto, sets forth the entire agreement and understanding of the parties hereto in respect to the transactions contemplated hereby, and this Agreement, together with the APA and Related Agreements, and the exhibits and schedules hereto and thereto, supersede all prior agreements, arrangements and understandings relating to the subject matter hereof and are not intended to confer upon any other party other than the parties hereto any rights and remedies, claims or courses of action hereunder.

31.           Counterparts and Execution.  This Agreement may be executed simultaneously in counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same agreement and shall become effective when two or more counterparts have been signed by each of the parties and delivered to the other parties.  Any counterpart may be executed by facsimile signature and such facsimile signature shall be deemed an original.

* Material omitted and filed separately with the Securities and Exchange Commission pursuant to a request for confidential treatment under Rule 24b-2 of the Securities and Exchange Act of 1934, as amended.

9

32.           Cooperation.  The Seller Companies and C&S agree to cooperate with each other and act in good faith to implement the provisions of this Agreement, including, without limitation, to affect a smooth, orderly and cost-efficient transfer of the Acquired Assets and the Wholesale Business to C&S.

33.           Employees.  The Seller Companies and C&S are independent contractors.  Neither party has the right or power, express or implied, to do any act or thing that would bind the other party, except as expressly set forth herein.  All employees at or relating to the Facilities, all employees relating to the Dubois or Syracuse divisions or the Corporate Stores, all Retail Accounting Personnel and Corporate Division Personnel and all individuals otherwise employed by Penn Traffic, with the exception of the Wholesale Employees from and after the Employee Closing (collectively, the “Penn Traffic Employees”), are and will continue to be the employees solely of Penn Traffic.  In connection with the Penn Traffic Employees, Penn Traffic acknowledges that it is responsible for complying with all federal, state, and local common and statutory laws and regulations.  Nothing in this Agreement shall alter the status of the Penn Traffic Employees, and the Penn Traffic Employees shall not be considered or deemed in any way to be employees of C&S.  C&S shall not exercise any authority over the Penn Traffic Employees, including, but not limited to, selecting, engaging, fixing the compensation of, discharging and otherwise managing, supervising and controlling the Penn Traffic Employees and no joint employer relationship shall exist.  Once employed by C&S as of the Employee Closing, the Wholesale Employees will be the employees solely of C&S, and the Seller Companies shall not exercise any authority over the Wholesale Employees, including, but not limited to, selecting, engaging, fixing the compensation of, discharging and otherwise managing, supervising and controlling the Wholesale Employees and no joint employer relationship shall exist.  Penn Traffic acknowledges and agrees that the Wholesale Employees based in the Facilities as of the Employee Closing will remain located in the Facilities unless and until C&S decides to change their location base.  Representatives of C&S shall have reasonable periodic access to the Facilities during normal business hours and upon reasonable prior notice in order to meet with the Wholesale Employees and/or the Penn Traffic Employees providing the Transition Services.

34.           Third Party Beneficiaries.  This Agreement shall be binding upon and inure solely to the benefit of Penn Traffic and C&S and their permitted successors and assigns, and nothing herein, express or implied, is intended to or shall confer upon an other person any legal or equitable right, benefit or remedy of any nature whatsoever, including, but not limited, the Wholesale Customers, the New Customers or the Wholesale Employees.

35.           Relationship Managers.  Each party will appoint an individual (each, a “Relationship Manager”) who, from the date of this Agreement until replaced by the appointing party, will serve as that party’s representative under this Agreement.  Each party will cause its Relationship Manager to (i) manage and coordinate the performance of that party’s obligations under this Agreement, and (ii) be authorized to act for and on behalf of such party with regard to all matters under this Agreement.  A party may only replace a Relationship Manager upon seven (7) days written notice to the other parties.  As of the Closing, the Relationship Manager for the Seller Companies is Chris McMahon and the Relationship Manager for C&S is Robert Chapman.

[Remainder of Page Intentionally Blank]

[Signature Page Follows]

10

IN WITNESS WHEREOF, the parties hereto have caused this Transition Services Agreement to be duly executed as of the date first written above.

THE PENN TRAFFIC COMPANY
By:
	Name
	Title

C&S WHOLESALE GROCERS, INC.
By:
	Name
	Title

BIG M SUPERMARKETS, INC.
By:
	Name
	Title

LIST OF SCHEDULES

Schedule 1(a)	RWS Services
Schedule 5(a)	Retail Accounting Services
Schedule 8(a)	Miscellaneous Services
Schedule 11(a)	List of Wholesale Employees
Schedule 14	Reporting and Accounting
Schedule 15(a)	Additional Services
Schedule 20(f)	Calculation of Budgeted Funds

EX-2.4

THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT REQUEST.  REDACTED MATERIAL IS MARKED WITH “*” AND BRACKETS AND HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION

FIRST AMENDMENT

TO

AMENDED AND RESTATED PENN TRAFFIC COMPANY SUPPLY  AGREEMENT

THIS FIRST AMENDMENT TO AMENDED AND RESTATED PENN TRAFFIC COMPANY SUPPLY AGREEMENT, made and effective as of the 21st day of December, 2008 (this “First Amendment”), is by and between The Penn Traffic Company (“Penn Traffic”) and C&S Wholesale Grocers, Inc. (“C&S”).

Preliminary Statement.  C&S and Penn Traffic entered into that certain Amended and Restated Penn Traffic Company Supply Agreement dated as of September 10, 2008 (the “Supply Agreement”), whereby C&S agreed to procure and to sell, and Penn Traffic agreed to purchase from C&S, except as otherwise specifically set forth therein, Penn Traffic’s entire requirements of Merchandise for the Penn Traffic Stores, pursuant to the terms and subject to the conditions set forth in the Supply Agreement.

All capitalized terms used but not defined in this First Amendment shall have the meanings ascribed to such terms in the Supply Agreement.

By that certain Asset Purchase Agreement dated as of December 17, 2008 (the “APA”), by and between Penn Traffic and Big M Supermarkets, Inc., as “Sellers”, and C&S, as “Purchaser”, C&S purchased certain assets of the Sellers’ Wholesale Business (as such term is defined in the APA) from Sellers on December 21, 2008 (the “Closing Date”).

In connection with, and as a condition of, the closing of the purchase and sale contemplated in the APA, Penn Traffic and C&S now desire to amend certain provisions of the Supply Agreement, upon the terms and conditions set forth herein to be effective as of the date of this First Amendment.

Agreement.  In consideration of the premises and of the mutual covenants and agreements hereinafter set forth, the parties, intending to be legally bound, agree as follows:

1.            Penn Traffic Stores.  The definition of “Penn Traffic Stores” in Section 1.5 of the Supply Agreement is hereby deleted in its entirety and replaced with the following Section 1.5:

“Penn Traffic Corporate Stores.  “Penn Traffic Stores” shall mean all stores owned and operated by Penn Traffic or any subsidiary or affiliate of Penn Traffic (excluding any such stores closed by or disposed of by Penn Traffic subsequent to the date hereof), in all instances above, at any time during the Term (as defined herein) hereof.  For the avoidance of doubt, and consistent with the definition of Penn Traffic Stores, the sharing of the [*] and the Procurement Fee and [*] under this Agreement shall apply exclusively to Penn Traffic’s corporate stores, and shall not include the Wholesale Customers or any New Customers (as such terms are defined in the APA, and being referred to herein, together, as the “C&S Customers”).”

2.           [*].

3.           [*].

4.           Inventory Policy.  Section 12 of the Supply Agreement is hereby deleted in its entirety and replaced with the following Section 12:

“Penn Traffic will continue to manage and issue store credits to the Penn Traffic Stores (and to the C&S Customers, in accordance with that certain Transition Services Agreement dated as of December 21, 2008, by and between Sellers and C&S (the “TSA”)), and, while Penn Traffic is obligated to perform such services under the TSA, handle all call-ins and handle customer service issues.  Penn Traffic is responsible for inventory control and any and all shortages or gains in the Facilities with regard to the Penn Traffic Stores and the C&S Customers.  Penn Traffic will allocate to the C&S Customers a portion of the shortages and gains in the Facilities pursuant to that certain Third Party Logistics Agreement dated as of December 21, 2008, by and between Penn Traffic and C&S (the “3PL Agreement”).  Further, Penn Traffic is fully responsible for the cost and disposition of leftover ad product, out-of-code, dead, excess or discontinued inventory with regard to the Penn Traffic Stores and the C&S Customers (in the case of the C&S Customers subject to the terms of the 3PL Agreement).  The above is pursuant to and further described on Schedule 12(a) attached hereto.  Amounts due by Penn Traffic or credited to Penn Traffic pursuant to this Section 12 will be estimated weekly and trued up at the close of each C&S fiscal period, provided, however, that all Merchandise governed by PACA will be paid for within thirty (30) days as set forth in Section 5.2 above.  The inventory procedures for the Facilities will be Penn Traffic's current procedures attached hereto as Schedule 12(b).  Penn Traffic agrees to observe a warehouseman’s duty of care under applicable New York and Pennsylvania law with respect to the Merchandise. Penn Traffic agrees, upon C&S's request, to allow C&S reasonable access to the Facilities to inspect its inventory (subject to exigent circumstances), and to confirm that Penn Traffic is following the attached procedures and otherwise accurately accounting for the inventory under GAAP principles.  Notwithstanding anything to the contrary set forth herein, each party shall be responsible for its own leftover ad product and the disposition of unique items.  The parties will work together in good faith to allocate such leftover ad or unique items appropriately.”

5.           Termination by C&S.  Section 14.1(a) of the Supply Agreement is hereby deleted in its entirety and replaced with the following Section 14.1(a):

“(a)        C&S may terminate this Agreement for cause (i) if Penn Traffic fails to pay any undisputed amount or amounts cumulatively exceeding $[*] to C&S when due, under this Agreement, the GM/HBC Agreement (as defined herein) or any other agreement between Penn Traffic and C&S or their respective controlled affiliates or subsidiaries, and such failure continues for 1 business day (where banks in New York are legally open) after C&S has provided Penn Traffic written notice of such failure; (ii) if Penn Traffic has breached any material obligation (other than a payment obligation which is covered under (i) above) under this Agreement or the Inventory Agreement, and if such breach is curable, remains uncured after 60 days following written notice of such breach from C&S; (iii) if C&S terminates the 3PL Agreement pursuant to Section 12.1(b)(ii) thereof, (iv) if Penn Traffic has filed for bankruptcy protection or a  proceeding shall be instituted against Penn Traffic seeking to adjudicate it bankrupt or insolvent and such proceeding shall remain undismissed or unstayed for a period of 60 days, provided that C&S shall not terminate this Agreement in such an event if Penn Traffic is otherwise in compliance with the terms of this Agreement and Penn Traffic provides adequate assurance of future performance under this Agreement; or (v) if General Electric Capital Corporation or Kimco Capital Corp. or any other material credit or lending party has declared that Penn Traffic has committed an Event of Default as defined under its respective credit agreement with Penn Traffic and has ceased extending Penn Traffic credit, provided that C&S shall not terminate this Agreement in such an event if Penn Traffic is otherwise in compliance with the terms of this Agreement and Penn Traffic provides adequate assurance of future performance under this Agreement.”

6.           Termination by Penn Traffic.  Section 14.2 of the Supply Agreement is hereby deleted in its entirety and replaced with the following Section 14.2:

“Penn Traffic may terminate this Agreement for cause (i) if C&S has breached any material obligations under this Agreement or the Inventory Agreement and if such breach is curable, remains uncured after 60 days following written notice of such breach from Penn Traffic; or (ii) if C&S has filed for bankruptcy protection, or a proceeding shall be instituted against C&S seeking to adjudicate it bankrupt or insolvent and such proceeding shall remain undismissed or unstayed for a period of 60 days, provided that Penn Traffic shall not terminate this Agreement in such an event if C&S is otherwise in compliance with the terms of this Agreement and C&S provides adequate assurance of future performance under this Agreement.

* Material omitted and filed separately with the Securities and Exchange Commission pursuant to a request for confidential treatment under Rule 24b-2 of the Securities and Exchange Act of 1934, as amended.

2

Penn Traffic shall have the right to terminate all components of this Agreement, with the exception of the produce-related components of the Agreement which will remain in full force and effect, for cause if (x) C&S fails to pay any undisputed amount or amounts cumulatively exceeding $[*] to Penn Traffic when due, under this Agreement, the GM/HBC Agreement or any other agreement between Penn Traffic and C&S or their respective controlled affiliates or subsidiaries, and such failure continues for 1 business day (where banks in New York are legally open) after Penn Traffic has provided C&S written notice of such failure; or (y) Penn Traffic terminates the 3PL Agreement pursuant to Section 12.2(b)(ii), (iii) or (iv) thereof; or (z) C&S elects to terminate the 3PL Agreement pursuant to Section 12.1(a) thereof, [*].

[*].  

[*].  In the event that Penn Traffic terminates the Agreement pursuant to this Section 14.2, C&S shall pay any and all amounts outstanding, rebates, charges and fees incurred through termination.  The parties agree and acknowledge that the remedies under this section are nonexclusive, cumulative of and additional to all other rights or remedies in law or equity of Penn Traffic.  Further, all provisions surviving termination of this Agreement (such as an indemnification obligation) shall remain in full force and effect.

[*]

[*].

In addition to the foregoing, in the event that C&S terminates the 3PL Agreement pursuant to Section 12.1(b)(iii), (iv) or (v) thereof and C&S has not otherwise already terminated (or initiated steps to terminate) this Agreement pursuant to Section 14.1(a) herein, Penn Traffic may elect to terminate this Agreement, in which case such termination shall be treated for all purposes as an expiration of the Term pursuant to Section 14.3 of this Agreement and the rights and obligations of the parties hereto shall be as set forth in Section 14.3.  Penn Traffic shall provide C&S with written notice of such election within thirty (30) days of C&S’s termination of such 3PL Agreement.”

7.           Confidentiality.  Section 18.9(b) of the Supply Agreement is hereby deleted in its entirety and replaced with the following Section 18.9(b):

“(b)           Price Verification and [*].  Without limiting the above or any other terms of this Agreement, the reports, documents, information and materials provided to Penn Traffic and its auditors  in connection with price verification and audit procedures pursuant to Sections 6.1 and 6.2 are highly confidential, non-public information which shall be protected from disclosure pursuant to Section 18.9(a) above.  In certain cases, notwithstanding the execution of this Agreement and the confidentiality obligations set forth herein, due to the sensitive nature of certain information and/or other confidentiality obligations of C&S, C&S may not disclose certain information to Penn Traffic in its original format (e.g. [*]).  [*].  Further, Penn Traffic agrees, prior to disclosure by C&S, to require its third party auditors to execute a confidentiality agreement in a form reasonably satisfactory to  C&S.  In addition to the above, Penn Traffic understands and agrees that information related to [*].  Accordingly, in order for C&S to agree to provide such confidential information, Penn Traffic agrees that it will only allow access to such confidential information by Penn Traffic’s third party auditors when they  have a need to know such confidential information in connection with Penn Traffic's price verification and [*].  All such confidential information may not be copied or reproduced by Penn Traffic’s third party auditors or provided to Penn Traffic or any other party in any form, and may only be used pursuant to the uses permitted hereunder.”

8.    [*].

9.   Further Assurances.  Penn Traffic and C&S shall each execute such other instruments, certificates and agreements as is necessary or appropriate to fully carry out the intent of this First Amendment and the transactions contemplated herein.

10.  Full Force and Effect.  All terms and conditions of the Supply Agreement, except those which are expressly modified by this First Amendment, shall remain in full force and effect, and Penn Traffic and C&S each hereby ratifies and confirms the Supply Agreement, as amended and modified by this First Amendment.

11.  Authority.  Penn Traffic and C&S each hereby represents to the other that the person executing this First Amendment on behalf of such party is authorized to do so by all requisite corporate action of such party.

* Material omitted and filed separately with the Securities and Exchange Commission pursuant to a request for confidential treatment under Rule 24b-2 of the Securities and Exchange Act of 1934, as amended.

3

12.  Applicable Law.  THIS FIRST AMENDMENT SHALL BE GOVERNED BY AND CON­STRUED PURSUANT TO THE INTERNAL APPLICABLE LAW (AND NOT THE CONFLICTS LAW) OF THE STATE OF NEW YORK.

13.  Binding Effect.  This First Amendment shall be binding upon the parties and their respective successors or assigns, as well as any transferee of substantially all of the assets of a party, provided, however, that neither party may assign this First Amendment without the written consent of the other party.

14.  Counterparts.  This First Amendment may be executed in any number of counterparts, each of which when so executed and delivered shall be deemed an original and all of which when taken together shall constitute but one and the same instrument.

[SIGNATURE PAGE TO FOLLOW]

4

IN WITNESS WHEREOF, the parties have duly executed this First Amendment to Amended and Restated Penn Traffic Company Supply Agreement under seal as of the date first above written.

THE PENN TRAFFIC COMPANY
By:
	Name
	Title

C&S WHOLESALE GROCERS, INC.
By:
	Name
	Title

5

EX-99.1

FOR IMMEDIATE RELEASE: December 22, 2008

PENN TRAFFIC COMPLETES WHOLESALE BUSINESS SEGMENT DIVESTITURE AND ENTERS THE NEW YEAR FOCUSED ON ITS RETAIL GROCERY BUSINESS

-- Lenders provide consent to previously announced $43 million transaction and

$32 million debt pay down--

-- Company secures extension of all credit facilities through April 2010 –

SYRACUSE, N.Y. – The Penn Traffic Company (“Pink Sheets”: PTFC) amended its existing credit agreements and closed the previously announced sale of its wholesale business segment and related accounts receivable to C&S Wholesale Grocers, Inc.

Penn Traffic will be completing the pay down of $32 million, or 62 percent of its outstanding funded debt, by its fiscal year-end, using proceeds from the wholesale divestiture as well as from two recently announced store sales.  Specifically, the company will pay down its $17 million revolving line of credit to zero and approximately $15 million of the company’s $25 million supplemental real estate facility.  The company’s $6 million term loan will continue to remain outstanding.  The company believes these actions will significantly improve availability in excess of outstanding letters of credit.

The company’s lenders have agreed to amendments and waivers to the existing credit agreements and provided the necessary consent to allow Penn Traffic to complete the all-cash transaction and debt pay down.  Penn Traffic has also secured a new extension, through April 2010, of its existing working capital revolver and supplemental real estate facility, which maintain the existing pricing structure.

“Penn Traffic enters the new year as a renewed company, squarely focused on our P&C, Quality and BiLo banners and the consumers they serve,” stated President and Chief Executive Officer Gregory J. Young.  “I am confident that today Penn Traffic is a stronger company with a brighter future than it had one year ago.  Our work continues.  Our team is committed to rebuilding the company during what may be the most challenging recession our industry, communities and customers have faced in generations,” he added.  “The wholesale divestiture and debt reduction we’ve just completed are the latest steps forward, and demonstrate the actions we continue to take as part of our strategy to rebuild the company, restore profitability and position Penn Traffic for long-term success.”

During the past 18 months Penn Traffic has resolved many of its legacy legal and regulatory issues, exited the unprofitable commercial bakery business and lowered corporate administrative expenses.  The company continues to evaluate its retail store portfolio and intends to dedicate resources to investment in remodels, renovations and expansions of certain of its top-performing and highest-potential store locations.

The amendments to the credit agreements will be available as exhibits to a Form 8-K to be filed by the company, which will be available from the Securities and Exchange Commission’s EDGAR database (www.sec.gov/edgar.shtml) and by written request to Penn Traffic, Corporate Secretary, P.O. Box 4737, Syracuse, NY 13221-4737.

About Penn Traffic

The Penn Traffic Company, headquartered in Syracuse, N.Y., owns and operates 91 supermarkets in Upstate New York, Pennsylvania, Vermont and New Hampshire under the P&C, Quality and BiLo banners.  More information on the company may be found at www.penntraffic.com.

Forward Looking Statements

This press release contains forward-looking statements, as defined in the Private Securities Litigation Reform Act of 1995, as amended, reflecting management’s current analysis and expectations, based on what management believes to be reasonable assumptions. These forward-looking statements include statements relating to our anticipated financial performance and business prospects. Statements preceded by, followed by or that include words such as “believe,” “anticipate,” “estimate,” “expect,” “could,” and other similar expressions are to be considered such forward-looking statements. Forward-looking statements may involve known and unknown risks, uncertainties and other factors, which may cause the actual results to differ materially from those projected, stated or implied, depending on such factors as: the ability of the company to improve its operating performance and effectuate its business plans; the ability of the company to operate pursuant to the terms of its credit facilities and to comply with the terms of its lending agreements or to amend or modify the terms of such agreements as may be needed from time to time; the ability of the company to generate cash; the ability of the company to attract and maintain adequate capital; the ability of the company to refinance; increases in prevailing interest rates; the ability of the company to obtain trade credit, and shipments and terms with vendors and service providers for current orders; the ability of the company to maintain contracts that are critical to its operations; potential adverse developments with respect to the company’s liquidity or results of operations; general economic and business conditions; competition, including increased capital investment and promotional activity by the company’s competitors; availability, location and terms of sites for store development; the successful implementation of the company’s capital expenditure program; labor relations; labor and employee benefit costs including increases in health care and pension costs and the level of contributions to the company sponsored pension plans; the result of the pursuit of strategic alternatives; economic and competitive uncertainties; the ability of the company to pursue strategic alternatives; economic and competitive uncertainties; changes in strategies; changes in generally accepted accounting principles; adverse changes in economic and political climates around the world, including terrorist activities and international hostilities; and the outcome of pending, or the commencement of any new, legal proceedings against, or governmental investigations of the company. The company cautions that the foregoing list of important factors is not exhaustive. Accordingly, there can be no assurance that the company will meet future results, performance or achievements expressed or implied by such forward-looking statements. This paragraph is included to provide safe harbor for forward-looking statements, which are not generally required to be publicly revised as circumstances change, and which the company does not intend to update.

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FOR PENN TRAFFIC:

Investors and business/financial media contact Jeffrey Schoenborn of Travers, Collins & Company Investor Relations, 716.842.2222, jschoenborn@traverscollins.com.

Trade and local media contact Chuck Beeler of Eric Mower and Associates, 315.413.4346, cbeeler@mower.com.