EXECUTION
VERSION


ACKNOWLEDGMENT AND
CONSENT





This
ACKNOWLEDGMENT AND CONSENT, dated as of October
___, 2008 (this “Consent”) is by and
among: (a) THE PENN TRAFFIC COMPANY, a Delaware corporation (“Penn Traffic”), PENNY
CURTISS BAKING COMPANY, INC., a New York corporation, and BIG M SUPERMARKETS,
INC., a New York corporation (jointly, severally and collectively referred to
herein, together with Penn Traffic, as “Borrowers” and
individually as “Borrower”); (b) the
other Credit Parties signatory hereto; (c) KIMCO CAPITAL CORP., a Delaware
corporation, for itself, as Lender, and as Agent for the Lenders (in such
capacity, the “Agent”); and (d) the
other Lenders signatory hereto from time to time (collectively, the “Lenders”).




WITNESSETH:




WHEREAS,
the Borrowers, the Agent and the Lenders are parties to that certain Credit
Agreement, dated as of April 13, 2005 (including all annexes, exhibits and
schedules thereto, and as amended, restated, supplemented or otherwise modified
from time to time, the “Credit Agreement”);
and




WHEREAS,
Penn Traffic has entered into a Supply Agreement, dated as of January 29, 2008
(together with the related Inventory Agreement, the “Existing Supply
Agreement”), with C&S Wholesale Grocers, Inc. (“C&S”) pursuant to
which Penn Traffic agreed, among other things, to purchase produce from C&S
on the terms described therein;




WHEREAS,
Penn Traffic and C&S have agreed to amend and restate the Existing Supply
Agreement (the “Amended Supply
Agreement”), together with all exhibits and schedules thereto, including
the related inventory agreement (the “Non-Produce Inventory
Agreement”) for additional categories of inventory, to provide for, among
other arrangements as set forth below and in the Amended Supply Agreement, the
procurement and sale by C&S, and the purchase by Penn Traffic, of
substantially all other categories of merchandise (excluding tobacco and
pharmacy) and to make certain other modifications;




WHEREAS,
for the avoidance of doubt, particularly in light of the provisions in the
Amended Supply Agreement requiring Penn Traffic and the other Borrowers to sell
certain existing inventory to C&S, among other arrangements as described in
the Amended Supply Agreement, the Borrowers have requested that the Agent and
the Lenders consent to Penn Traffic’s entry into the Amended Supply Agreement
and to the transactions contemplated thereby on the terms and conditions
provided for herein.




NOW
THEREFORE, in consideration of the premises and for other good and valuable
consideration, the receipt, adequacy and sufficiency of which are hereby
acknowledged, the parties hereto hereby agree as follows:







1.           Definitions.
Capitalized terms not otherwise defined herein shall have the meanings ascribed
to them in the Credit Agreement or Annex A
thereto.




2.           Acknowledgment and
Consent.  Notwithstanding the provisions of Sections 1.2(b)(ii)
and 6.8 of the
Credit Agreement, the Agent and the Lenders hereby consent to (i) Penn Traffic’s
execution and delivery of the Amended Supply Agreement, a copy of which is
attached hereto as Exhibit A (it being
understood that any amendments or modifications to the Amended Supply Agreement
attached hereto as Exhibit A following
the effectiveness of this Consent that adversely affects any of the rights and
remedies of the Agent or any Lender must be acceptable to the Agent in its sole
discretion), (ii) the transactions contemplated thereby, and (iii) the
Borrowers’ and the other Credit Parties’ performance of their respective
obligations thereunder.  Furthermore, any temporary dip in Excess
Revolver Availability below any required minimums in the Credit Agreement shall
not constitute an Event of Default so long as it has been cured on or prior to
the date hereof.  In addition, the Agent and the Lenders hereby
acknowledge and agree that: (a) the sale of the Existing Inventory (as defined
in the Non-Produce Inventory Agreement) to C&S as contemplated by the
Amended Supply Agreement shall be free and clear of all existing and future
liens, claims and encumbrances of the Agent and the Lenders, and the Agent and
the Lenders hereby release any and all liens, claims or encumbrances any of them
have or may have on the Existing Inventory (as defined in the Non-Produce
Inventory Agreement) (including any Proceeds thereof until the Transfer of
Ownership (as defined below)); and (b) the Merchandise (as defined in the
Amended Supply Agreement) shall not constitute Collateral (and no lien, claim or
encumbrance of the Agent or any Lender shall attach and neither the Agent nor
any Lender shall have any remedial rights with respect thereto) until the time
that such Merchandise is loaded and sealed at a Facility (as defined in the
Amended Supply Agreement) and such Merchandise has left such Facility and is in
transit to a Penn Traffic Store (as defined in the Amended Supply Agreement;
such time, the “Transfer of
Ownership”).  The Agent, the Lenders, the Borrowers and the
other Credit Parties agree that until the Transfer of Ownership, C&S shall
retain ownership (as seller, consignor and/or bailor, as the case may be) of and
hold a lien and security interest in and to such Merchandise (including the
Proceeds thereof) until the Transfer of Ownership to secure all sums owing to
C&S pursuant to the Amended Supply Agreement or any other agreements between
C&S and the Borrowers (and, until the Transfer of Ownership, neither the
Agent, the Lenders, the Borrowers nor any Credit Party shall have any lien,
claim or encumbrances thereon, including any Proceeds thereof), and C&S may,
in its sole and absolute discretion, exercise any of its rights and remedies
with respect to all or any part of such Merchandise until the Transfer of
Ownership, and none of the Agent, the Lenders, the Borrowers or any other Credit
Party shall have any lien, claim or encumbrance including, without limitation,
any security interest in any such Merchandise until the Transfer of
Ownership.  Notwithstanding anything to the contrary contained herein,
upon the Transfer of Ownership, any lien or security interest granted to C&S
under the Supply Agreement and held by C&S upon such Merchandise shall
automatically and without further action required by any Person be released,
provided that
any such release shall not prejudice any statutory rights or liens otherwise
available to C&S under PACA, the Code or other applicable law as a seller of
goods.  With respect to the provisions of this Section 2 only,
C&S shall be deemed a third party beneficiary of this Consent, coupled with
the power of enforcement thereof.


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3.           Covenants.  In
consideration of the foregoing:




(a)           Penn
Traffic agrees to provide the Agent with (i) not less than ten (10) Business
Days’ prior written notice of its intention to exercise the right of early
termination pursuant to Section 14.2 of the
Amended Supply Agreement, (ii) written notice of any material breach by C&S
under the Amended Supply Agreement that gives Penn Traffic the right to
terminate the Amended Supply Agreement as soon as practicable following Penn
Traffic becoming aware thereof, and (iii) written notice as soon as practicable
following Penn Traffic being notified of C&S’s early termination pursuant to
Section 14.1 of
the Amended Supply Agreement.  In addition, Penn Traffic agrees to
provide the Agent with not less than three (3) Business Days’ prior written
notice of its intention or requirement to make a payment to C&S pursuant to
Section 14 of
the Amended Supply Agreement, except with respect to any termination by C&S
pursuant to Section
14.1(a) thereof.  By signing the acknowledgement below, C&S
agrees to provide the Agent with not less than three (3) Business Days’ prior
written notice of its intention to exercise the right of early termination
pursuant to Section
14.1(a)(ii), (iii) or (iv) of the Amended Supply Agreement and one (1)
Business Day’s prior written notice of its intention to exercise the right of
early termination pursuant to Section 14.1(a)(i) of
the Amended Supply Agreement.




(b)           Penn
Traffic agrees for the benefit of the Agent and the Lenders to segregate any
inventory held at any Facility (as defined in the Amended Supply Agreement) that
does not constitute Merchandise (as defined in the Amended Supply
Agreement).




Failure
by Penn Traffic to comply with any covenant contained in Section 3(a) or 3(b)
above shall constitute an immediate Event of Default under the Credit
Agreement.




4.           Representations and
Warranties.  To induce the Agent to enter into this Consent,
each of the Credit Parties, jointly and severally, makes the following
representations and warranties to the Agent and the Lenders:




(a)           The
execution, delivery and performance of this Consent and the performance of the
Credit Agreement after giving effect to this Consent by such Credit Party party
thereto: (i) are within such Person’s corporate or limited liability company
power, as applicable; (ii) have been duly authorized by all necessary corporate
or limited liability company; (iii) do not contravene any provision of such
Person’s charter, bylaws or operating agreement as applicable; (iv) do not
violate any law or regulation, or any order or decree of any court or
Governmental Authority by which such Person or its assets are bound; (v) do not
conflict with or result in the breach or termination of, constitute a default
under or accelerate or permit the acceleration of any performance required by,
any indenture, mortgage, deed of trust, material lease, material agreement or
other material instrument to which such Person is a party or by which such
Person or any of its property is bound; (vi) do not result in the creation or
imposition of any Lien upon any of the property of such Person other than those
in favor of Agent, on behalf of itself and Lenders, pursuant to the Loan
Documents; and (vii) other than the consents being obtained on or prior to the
date hereof, do not require the consent or approval of any Governmental
Authority or any other Person.


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(b)           This
Consent has been duly executed and delivered by or on behalf of such Credit
Party.




(c)           This
Consent constitutes a legal, valid and binding obligation of such Credit Party,
enforceable against such Credit Party in accordance with its terms.




(d)           No
Default or Event of Default has occurred and is continuing after giving effect
to this Consent.




(e)           After
giving effect to this Consent, the representations and warranties of such Credit
Party contained in the Credit Agreement and each other Loan Document shall be
true and correct on and as of the date hereof with the same effect as if such
representations and warranties had been made on and as of such date, except that
any such representation or warranty which is expressly made only as of a
specified date need be true only as of such date and except for changes therein
expressly permitted by the Credit Agreement.




5.           No Other
Amendments/Waivers.  Except as expressly amended herein, the
Credit Agreement and the other Loan Documents shall be unmodified and shall
continue to be in full force and effect in accordance with their
terms.  In addition, except as expressly set forth herein, this
Consent shall not be deemed a waiver of any term or condition of any Loan
Document and shall not be deemed to prejudice any right or rights which Agent,
for itself and Lenders, may now have or may have in the future under or in
connection with any Loan Document or any of the instruments or agreements
referred to therein, as the same may be amended from time to time.




6.           Expenses.  Each
Borrower hereby reconfirms its respective obligations pursuant to Section 11.3 of the
Credit Agreement to pay and reimburse the Agent, for all reasonable costs and
expenses (including, without limitation, reasonable fees of counsel) incurred in
connection with the negotiation, preparation, execution and delivery of this
Consent and all other documents and instruments delivered in connection
herewith.




7.           Effectiveness.  This
Consent shall become effective as of the date hereof only upon satisfaction in
full in the reasonable judgment of the Agent of each of the following
conditions:




(a)           Consent.  The
Agent shall have received counterpart signature pages of this Consent duly
executed and delivered by each of the Agent, the Lenders and the
Borrowers.




(b)           Amendment and Consent to GE
Credit Agreement.  The Agent shall have received evidence that
the Borrowers have received a duly executed amendment, acknowledgement and
consent to the GE Credit Agreement, in substantially the form attached hereto as
Exhibit
B.




(c)           Representations and
Warranties.  The representations and warranties of the Credit
Parties in this Consent shall be true and correct on and as of the date hereof,
except that any such representation or warranty which is expressly made only as
of a specified date need be true only as of such date.


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(d)           Net Sale
Proceeds.  The proceeds payable by C&S under the Amended
Supply Agreement with respect to the purchase of the Existing Inventory (defined
in the Non-Produce Inventory Agreement) by C&S as described in the second
sentence of Section
2 hereof shall be received by the GE Credit Agreement Agent by wire
transfer in immediately available funds.




8.           GOVERNING LAW. THIS
CONSENT SHALL BE GOVERNED BY, AND INTERPRETED IN ACCORDANCE WITH, THE INTERNAL
LAWS OF THE STATE OF NEW YORK.




9.           Counterparts.  This
Consent may be executed by the parties hereto on any number of separate
counterparts and all of said counterparts taken together shall be deemed to
constitute one and the same instrument.




10.           Notice.  Any
notice to be delivered to the Agent hereunder shall be delivered to following
addresses:




KIMCO
Capital Corp.


3333 New
Hyde Park Road


New Hyde
Park, New York  11042


Attn:
Joseph Stevens


Telephone
No.:  (516) 869-7263


Telecopier
No.:  (516) 336-5691





With a
copy to:





Morgan,
Lewis & Bockius LLP


101 Park
Avenue


New York,
New York 10178


Attention:
Kristin C. Wigness, Esq.


Telephone
No.:  (212) 309-6307


Telecopier
No.:  (212) 309-6001





Any
notice to be delivered to C&S hereunder shall be delivered to following
addresses:





C&S
Wholesale Grocers, Inc.


7
Corporate Drive


Keene,
New Hampshire  03431


Attention:
Richard B. Cohen, Chief Executive Officer


Telephone
No.: (603) 354-4601


Telecopier
No.: (603) 354-4692


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With a
copy to:





General
Counsel


C&S
Wholesale Grocers, Inc.


7
Corporate Drive


Keene,
New Hampshire  03431


Telephone
No.: (603) 354-5885


Telecopier
No.: (603) 354-4694


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





BORROWERSTHE
      PENN TRAFFIC COMPANYBy:Name:Title:PENNY
      CURTISS BAKING COMPANY, INC.By:Name:Title:BIG
      M SUPERMARKETS, INC.By:Name:Title:





LENDERSKIMCO CAPITAL CORP.,as
      Agent and LenderBy:Name:Title:JUBILEE-VI LLC,a
      Delaware limited liability company),As
      successor-in-interest toJUBILEE
      LIMITED PARTNERSHIP V,as
      LenderBy:Name:Title:








The
following Persons are signatories to this Consent in their capacity as Credit
Parties and not as Borrowers.





SUNRISE
      PROPERTIES, INC.By:Name:Title:PENNWAY
      EXPRESS, INC.By:Name:Title:COMMANDER
      FOODS INC.By:Name:Title:P
      AND C FOOD MARKETS INC. OF VERMONTBy:Name:Title:P.T.
      DEVELOPMENT, LLCBy:Name:Title:P.T.
      FAYETTEVILLE/UTICA, LLCBy:Name:Title:





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