U.S. Department of Justice
United States Attorneys Office
Northern District of New York
P.O. Box 7198
100 South Clinton Street
Syracuse, NY 13261-7198
315-448-0672
315-448-0689 (fax)

October 23, 2008

William J. Schwartz, Esq.
Cooley Godward Kronish LLP
1114 Avenue of the Americas
New York, NY 10036-7796

RE:           The Penn Traffic Company

Dear Mr. Schwartz:

This letter sets forth the agreement between the United States Attorney’s Office
for the Northern District of New York (the “USAO”), and The Penn Traffic Company
(“Penn Traffic”).

Introduction

 
1.
The USAO, in conjunction with the Federal Bureau of Investigation (“FBI”), is
conducting a criminal investigation (the “Investigation”) into matters relating
to Penn Traffic’s fiscal year 2002 and 2003 disclosures to the Securities and
Exchanges Commission (“SEC”) and investors, including its financial filings,
reports and statements, press releases, investor conference calls and related
accounting practices, activities and policies concerning promotional allowances
(“Investigated Disclosures”).  During the course of the Investigation, the USAO
notified Penn Traffic and its Audit Committee of its belief that one or more
Penn Traffic employees or former employees violated federal criminal law in
connection with the Investigated Disclosures during the course of their
employment beginning in 2001 and continuing through 2004 (the “relevant time
period”).

 
2.
Penn Traffic acknowledges that the USAO has developed evidence that one or more
Penn Traffic employees or former employees violated federal criminal law in
connection with the Investigated Disclosure during the relevant time
period.  Penn Traffic accepts responsibility for the conduct of these employees
during the relevant time period.  Penn Traffic does not endorse, ratify or
condone criminal conduct and, as set forth below, has taken steps to prevent
such conduct from occurring in the future.

 
 

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Agreement

 
3.
Conditioned upon Penn Traffic’s acceptance of responsibility in the preceding
paragraph and paragraph 7 below, its adoption of the remedial measures set forth
in paragraph 8 and 9 below, its implementation and auditing of such remedial
measures and its continued cooperation with the USAO in its investigation and
prosecutions of Penn Traffic employees or former employees as set forth in
paragraphs 4 and 6 below, the USAO agrees that it will not prosecute Penn
Traffic for any crimes committed by its employees during the relevant time
period relating to the Investigated Disclosures.  Penn Traffic understands and
agrees that if it violates this Agreement, the USAO will no longer be bound by
this Agreement and it will be free to prosecute Penn Traffic for any crimes
committed by its employees relating to the Investigated Disclosures.  This
Agreement does not provide any protection to any individual or any entity other
than Penn Traffic and its successors, and, in particular, this Agreement does
not limit in any way the USAO’s ability to prosecute any individual or entity
other than Penn Traffic and its successors for any crime.

 
4.
Penn Traffic agrees that it and its successors shall truthfully disclose to the
USAO all information with respect to the activities of Penn Traffic, its
officers and employees concerning all matters about which the USAO shall
inquire, and shall fully cooperate with the USAO throughout its investigation
and through the conclusion of any and all criminal trials concerning the
Investigated Disclosures.  This obligation of truthful disclosure and
cooperation includes an obligation upon Penn Traffic and its successors to
provide to the USAO, on request, any document, record or other tangible evidence
about which the USAO shall inquire of Penn Traffic and any successor including
any document, record or tangible evidence created, found or otherwise developed
by any attorneys, consultants and agents for or on behalf of Penn Traffic, its
Board of Directors or the Audit Committee of its Board of Directors, subject to
any existing attorney-client, work product or other applicable privilege
recognized under federal law.  This obligation of truthful disclosure and
cooperation includes an obligation to provide to the USAO and the FBI access to
Penn Traffic facilities, documents, employees, and to third party contractors
and vendors and includes directing its attorneys, consultants and agents,
including Cooley Godward Kronish LLP, Schulte Roth & Zabel LLP, Paul, Weiss,
Rifkind, Wharton & Garrison LLP and Alix Partners to provide assistance in
connection with the Investigation, trials or other legal proceedings concerning
the Investigated Disclosures, subject to any existing attorney-client, work
product or other applicable privilege recognized under federal law.

 
 

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5.
Penn Traffic agrees that upon request of the USAO, with respect to any issue
relevant to its investigation of Penn Traffic, Penn Traffic and its successors
shall, upon reasonable notice and without requiring service of a subpoena,
designate knowledgeable employees, agents or attorneys to provide information
and/or materials on Penn Traffic’s behalf to the USAO and the FBI.  Penn Traffic
agrees that it must at all times give to the USAO and the FBI complete, truthful
and accurate information.

 
6.
With respect to any information, testimony, document, record or other tangible
evidence relating to Penn Traffic provided to the USAO or a grand jury, Penn
Traffic consents to any and all disclosures to Governmental investigative,
regulatory and enforcement entities of such materials that constitute “matters
occurring before the grand jury” within the meaning of Rule 6(e) of the Federal
Rules of Criminal Procedure.  Penn Traffic further consents to a) any order
sought by the USAO permitting such disclosure and b) the USAO’s ex parte or in
camera application for such orders.

 
7.
Penn Traffic agrees that it will not, through its attorneys, Board of Directors,
agents, officers or employees make any statement in any SEC filing or any press
release that contradicts Penn Traffic’s acceptance of responsibility as set
forth in paragraph 2 above.  Any such contradictory statement by Penn Traffic,
its attorneys, Board of Directors, agents, officers or employees shall
constitute a breach of this Agreement, and Penn Traffic thereafter would be
subject to prosecution as set forth in paragraph 3 of this Agreement – provided,
however, that upon the USAO’s notifying Penn Traffic of such a contradictory
statement, Penn Traffic may avoid a breach of this Agreement by publicly
repudiating such statement with 72 hours after notification by the USAO.  This
paragraph is not intended to apply, and does not apply, to any statement made by
any person who has been charged by the USAO with a crime relating to the
Investigated Disclosures.

 
8.
The USAO acknowledges that Penn Traffic previously has provided the USAO with
information substantiating certain remedial actions it has taken to ensure the
integrity of its financial reporting, including an active investigation by its
Audit Committee, amending its company code of ethics, implementation of new
policies for proper recognition of revenues and expenses, implementation of new
policies and procedures for financial reporting and disclosure, and development
of an education program designed to train all employees involved with financial
reporting on financial reporting matters.

 
9.
Penn Traffic agrees that, as of the date of execution of this agreement, it is,
and thereafter shall remain, in compliance with all SEC rules and regulations
referenced in the “Final Judgment as to the Penn Traffic Company” (the “Final
Judgment”), executed and entered in Civil Action No. 08-Civ.-1035 (FJS) on
October 1, 2008.  Penn Traffic further agrees that, as a central component of
its obligations under this Agreement, it and its successors shall fully comply
with all requirements set forth in Sections V, VI and VII of the Final Judgment
(copy attached).

 
 

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10.
Penn Traffic agrees that, should the USAO, in its sole discretion, determine
that Penn Traffic has deliberately given false, incomplete, or misleading
information under this Agreement, or has hereafter committed any crime, or has
otherwise knowingly, intentionally and materially violated any provision of this
Agreement, Penn Traffic shall, in the USAO’s sole discretion, thereafter be
subject to prosecution for any federal criminal violation of which the USAO has
knowledge, including any federal criminal violation relating to the Investigated
Disclosures.  Penn Traffic agrees that any such prosecutions may be premised on
information provided by Penn Traffic, including information provided prior to
this Agreement.  Moreover, Penn Traffic agrees that any such prosecutions that
are not time-barred by the applicable statute of limitations on the date of this
Agreement may be commenced against Penn Traffic in accordance with this
Agreement, notwithstanding the expiration of the statute of limitations after
the effective date of this Agreement.  By this Agreement, Penn Traffic expressly
intends to and does waive any rights in this respect.

11.
Penn Traffic further agrees that in the event that the USAO, in its sole
discretion, determines that Penn Traffic or any successor has violated any
provision of this Agreement:  a) all statements made by or on behalf of Penn
Traffic to the USAO, or any testimony given by Penn Traffic before a grand jury,
the SEC, or elsewhere, whether prior or subsequent to this Agreement, or any
leads derived from such statements or testimony, shall be admissible in evidence
in any and all criminal proceedings brought by the USAO against Penn Traffic and
b) Penn Traffic shall not assert any claims under the United States
Constitution, Rule 11(f) of the Federal Rules of Criminal Procedure, Rule 410 of
the Federal Rules of Evidence, or any other federal rule, that statements made
by or on behalf of Penn Traffic prior to or subsequent to this Agreement, or any
leads therefrom, should be suppressed.

12.
Penn Traffic agrees that the decision whether conduct or statements of any
individual will be imputed to Penn Traffic for the purpose of determining
whether Penn Traffic has violated any provision of this Agreement shall be in
the sole discretion of the USAO.

13.
The USAO and Penn Traffic agree that this Agreement is binding only on the USAO
and Penn Traffic, and any successor to Penn Traffic.

14.
The USAO and Penn Traffic agree that Penn Traffic’s, and its successors’,
obligations contained in paragraphs 4 and 5 above shall continue until such time
as the USAO informs Penn Traffic that its Investigation and/or related
prosecutions are complete.  Should Penn Traffic fail to comply with its
obligations under paragraphs 4 and 5, after notice of noncompliance from the
USAO, Penn Traffic and any successor shall be liable for all expenses, including
attorney’s fees, incurred by the USAO to enforce compliance with paragraph 4
and/or 5, as well as liquidated damages of $25,000 per day.

 
 

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15.
The USAO and Penn Traffic agree that this Agreement constitutes the full and
complete agreement between them and may not be modified except in a writing
signed by all the parties.

Very truly yours,
 
ANDREW T. BAXTER
Acting United States Attorney
   
By:
   
Stephen C. Green
 
Assistant United States Attorney
   
Date:  October 28, 2008

THE PENN TRAFFIC COMPANY
         
By:
             
Date:  October 28, 2008
Gregory J. Young
   
Chief Executive Officer
   
The Penn Traffic Company
             
Date:  October 25, 2008
William J. Schwartz, Esq.
   
Counsel to The Penn Traffic Company
   

 
 

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