PENN TRAFFIC CO, 10-K, 1995-04-26

PENN TRAFFIC CO
10-K, 1995-04-26
GROCERY STORES

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<PAGE>

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended January 28, 1995
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ____________ to __________

Commission file number 1-9930

THE PENN TRAFFIC COMPANY
(Exact name of Registrant as specified in its charter)

DELAWARE 25-0716800
---------------------------- -----------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) 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
----------------

Securities registered pursuant to Section 12(b) of the Act:

Name of each exchange
Title of each class on which registered
------------------- ----------------------
Common Stock, $1.25 par value New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: NONE

Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past ninety (90) days.

YES X NO
---- ----
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]

The aggregate market value of voting stock held by non-affiliates of
the Registrant was $274,252,150 as of April 17, 1995.

COMMON STOCK $1.25 PAR VALUE - SHARES OUTSTANDING - 10,879,201 AS OF
APRIL 17, 1995

DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement dated May 1, 1995 provided to
Registrant's stockholders in connection with the annual meeting of stockholders
scheduled for June 7, 1995 are incorporated by reference in Part III of this
Form 10-K.

1
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FORM 10-K INDEX
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PART I PAGE
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Item 1. Business 3

Item 2. Properties 15

Item 3. Legal Proceedings 15

Item 4. Submission of Matters to a Vote of Security Holders 15

Supplemental Item. Executive Officers of Registrant 16

- -------------------------------------------------------------------------
PART II
- -------------------------------------------------------------------------

Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters 19

Item 6. Selected Financial Data 19

Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 19

Item 8. Financial Statements and Supplementary Data 19

Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 20
- -------------------------------------------------------------------------
PART III
- -------------------------------------------------------------------------

Item 10. Directors and Executive Officers of the Registrant 55

Item 11. Executive Compensation 55

Item 12. Security Ownership of Certain Beneficial Owners
and Management 55

Item 13. Certain Relationships and Related Transactions 55

- -------------------------------------------------------------------------
PART IV
- -------------------------------------------------------------------------

Item 14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K 56

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PART I

ITEM 1. BUSINESS (AS OF JANUARY 28, 1995 UNLESS OTHERWISE NOTED)

GENERAL

The Penn Traffic Company ("Penn Traffic" or the "Company") is one of the leading
food retailers in the eastern United States. Penn Traffic operates 267
supermarkets in Pennsylvania, upstate New York, Ohio and northern West Virginia
under the names "Riverside Markets" (24 stores), "Bi-Lo Foods" (24 stores),
"Insalaco's" (30 stores), "Quality Markets" (44 stores), "P&C Foods" (68
stores), and "Big Bear" and "Big Bear Plus" (77 stores).

Penn Traffic also operates a wholesale food distribution business which serves
124 licensed franchisees and 117 independent operators and a discount general
merchandise business with 15 stores. Total consolidated revenues in the fiscal
year ended January 28, 1995 aggregated approximately $3.3 billion.

Approximately 70% of Penn Traffic's supermarket sales are in smaller communities
where Penn Traffic believes it virtually always holds the number one or number
two market position. The balance of Penn Traffic's sales is in Columbus, Ohio
and Buffalo and Syracuse, New York. Penn Traffic believes it has the leading
market share in each of these communities except Buffalo, New York.

Penn Traffic's retail and wholesale operations stretch from Ohio to upstate New
York. The Company operates in communities with diverse economies based on
manufacturing, natural resources, retailing, health care services, education and
government services. No supermarket company competes against stores
representing more than 20% of Penn Traffic's revenues, with the exception of
Kroger, which competes against Big Bear stores representing approximately 30% of
Penn Traffic's revenues.

In addition, Penn Traffic operates a full-service dairy business in Johnstown,
Pennsylvania under the name "Sani-Dairy" and bakery businesses in Syracuse, New
York and Columbus, Ohio under the names "Penny Curtiss" and "Big Bear Bakeries",
respectively.

Penn Traffic pursues an aggressive capital program that seeks to match store
size and format to local demographics and competitive conditions. During the
five fiscal years ended January 28, 1995, Penn Traffic has opened or remodeled
approximately 70% of its retail supermarket square footage. These larger, more
modern facilities strengthen Penn Traffic's competitive position and enable it
to offer its customers a broader variety of specialty departments, including
pharmacies, bakeries, delicatessens, floral products, greeting cards and other
general merchandise.

Over the next five fiscal years (including the fiscal year ending February 3,
1996), Penn Traffic expects to spend approximately $700 million on capital
expenditures (including capital leases), equivalent to approximately 3.5% to
4.0% of planned retail sales over this period. These expenditures are expected
to be made within or contiguous to Penn Traffic's current marketing areas,
primarily to support Penn Traffic's retail supermarket business. Penn Traffic
believes that it will be able to fund its capital plan through internally
generated funds, borrowings under its revolving credit facility and capital
leases.

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Penn Traffic also expects to derive long-term benefits in operational
performance and cost savings from its continuing investment in and
implementation of technology. Examples of recent in-store projects include
coupon scanning to improve customer service and reduce misredemption, automated
scale management to improve price accuracy and expedite customer checkout, a
direct store delivery system to speed receipt of merchandise and eliminate
payment errors, and satellite transmissions that enable the Company to
communicate more efficiently between the stores and headquarters.

The principal executive offices of Penn Traffic are located at 1200 State Fair
Boulevard, Syracuse, New York 13221-4737. The Company's telephone number is
(315) 453-7284.

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RETAIL FOOD DISTRIBUTION BUSINESS

Penn Traffic is one of the leading supermarket retailers in its primary
operating areas in New York, Pennsylvania and Ohio. Penn Traffic's supermarkets
are primarily located in towns and small cities. In many of these communities,
Penn Traffic operates or licenses one or more of a small number of supermarkets
or the only supermarket in town.

Penn Traffic's store sizes and formats vary widely, depending upon the
demographic and competitive conditions in each location. For example,
"conventional" store formats are generally more appropriate in areas of low
population density, while larger or more affluent areas are better served by
full service supermarkets of up to 65,000 square feet, which contain numerous
specialty service departments such as bakeries, delicatessens, floral
departments and fresh seafood departments. Penn Traffic's "Plus" format has
store sizes ranging from 65,000 to 140,000 square feet. These full service
supermarkets carry an expanded variety of nonfood merchandise.

Penn Traffic's supermarkets offer a broad selection of grocery, meat, poultry,
seafood, dairy, fresh fruit, vegetable and frozen food products. The stores
also offer nonfood products and services such as health and beauty products,
housewares, general merchandise, floral items, video rental departments and
banking services. In general, Penn Traffic's larger stores carry broader
selections of merchandise and feature a larger variety of service departments.
Most of the supermarkets are located in shopping centers.

Penn Traffic believes that its data processing and automated systems are
sophisticated and up-to-date. Approximately 92% of Penn Traffic's stores use
product scanning systems and proprietary software to provide inventory and
shrinkage controls at both delivery and checkout points. Penn Traffic stores
utilize a "Time and Attendance" system where employees use computer-coded badges
which are inserted in a computer scanner at various times during a work shift to
ensure that employees work only during authorized periods. Penn Traffic stores
also use direct store delivery receiving systems to increase security and
accountability for outside vendor product deliveries to retail locations.

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SELECTED STATISTICS ON PENN TRAFFIC'S RETAIL FOOD STORES ARE PRESENTED BELOW.

<TABLE>
<CAPTION>
FISCAL YEAR ENDED
- ----------------------------------------------------------------------------------------------------------------------------
JANUARY 28, JANUARY 29, JANUARY 30, FEBRUARY 1, FEBRUARY 2,
1995 1994 1993 1992 1991
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Average annual
sales per store $11,941,000 $11,816,000 $11,433,000 $11,420,000 $10,821,000

Total store area
in square feet 9,927,633 8,803,297 7,868,411 6,347,453 5,877,321

Total store
selling area in
square feet 7,140,390 6,333,023 5,684,179 4,561,199 4,199,008

Average total
square feet per
store 37,182 37,945 36,260 33,584 30,933

Average square
feet of selling
area per store 26,743 27,298 26,194 24,133 22,100

Annual sales per
square foot of
selling area $434.09 $442.23 $452.66 $485.39 $512.15

Number of stores:
Remodels/expansions
(over $100,000) 9 39 12 18 9
New stores opened 12 12 10 6 7
Stores acquired 31(1) 19(2) 29(2) 1 4
Stores closed 8 16 11 8 33(3)

Size of stores (total store area):
Up to 19,999
square feet 39 29 33 33 37
20,000 - 29,999
square feet 67 60 63 65 71
30,000 - 44,999
square feet 96 86 73 61 59
45,000 - 60,000
square feet 48 43 36 21 18
Greater than
60,000 square
feet 17 14 12 9 5

Total stores open
at fiscal year end 267 232 217 189 190

<FN>
(1) Includes the addition of 30 of the 45 former Acme stores acquired by the
Company on January 19, 1995 which Penn Traffic expects to operate.

(2) Includes the addition of 12 Insalaco's stores acquired by the Company on
September 27, 1993 and the addition of 23 stores acquired from the Peter J.
Schmitt Co., Inc. ("Schmitt") on January 5, 1993 which the Company
initially operated.

(3) Includes divestiture of 26 P&C New England Division stores. See
"Divestiture of P&C New England Division" on Page 13 of this Form 10-K.

</TABLE>

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WHOLESALE FOOD DISTRIBUTION BUSINESS

Penn Traffic licenses the use of its "Riverside Markets," "Bi-Lo Foods" and "Big
M" names to 124 independently owned supermarkets that are required to maintain
certain quality and other standards and 117 independent operators. The majority
of these independent stores use Penn Traffic as their primary wholesaler and
also receive advertising, accounting, merchandising, consulting and retail
counseling services from Penn Traffic. Penn Traffic receives rent from 59 of
the licensed independent operators which lease or sublease the supermarket
buildings and much of the equipment used in the supermarkets from Penn Traffic.

In Fiscal 1995, Penn Traffic's wholesale operations accounted for $434.4 million
or 13.0% of total revenues. The incremental volume provided by wholesale
operations enhances Penn Traffic's purchasing power and enables it to improve
the efficiency of its distribution system.

At January 28, 1995, Penn Traffic had guaranteed obligations of $2.7 million of
indebtedness of certain of such licensed independent operators. Riverside
receives an initial fee but no annual fee for the license of its Riverside
Markets and Bi-Lo Foods names. P&C receives neither an initial fee nor an
annual fee for the use of the Big M name.

FOOD PROCESSING OPERATIONS

Sani-Dairy owns and operates a dairy processing plant in Johnstown,
Pennsylvania, which is one of the largest dairies in Pennsylvania. This plant
produces over 900 dairy and dairy-related products which are distributed
directly from the plant or through two Penn Traffic-owned distribution
facilities in Pennsylvania and one distribution facility in northwestern
Maryland. The Sani-Dairy Division sells its products to certain Penn Traffic-
owned and licensed supermarkets and to other retail outlets located in
Pennsylvania and adjoining states.

Penn Traffic owns and operates Penny Curtiss Bakery, a bakery processing plant
in Syracuse, New York. This operation primarily supplies P&C's stores and its
affiliated accounts with private label fresh and frozen bakery products. In
addition, Riverside and Quality Markets procure certain fresh and frozen bakery
products from Penny Curtiss.

Penn Traffic also owns and operates Big Bear Bakeries, a bakery in Columbus,
Ohio. This operation primarily supplies Big Bear stores with private label
fresh and frozen bakery products.

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MASS MERCHANDISING BUSINESS

Fourteen of the fifteen Harts stores are located in central and southern Ohio,
and one is located in northern West Virginia. Harts discount general
merchandise stores (other than two small variety stores) range in size from
approximately 39,000 square feet to approximately 86,000 square feet. The
average store (excluding the variety stores) has approximately 66,000 square
feet.

Harts stores sell a wide variety of products, including health and beauty care
items, hardware, housewares, sporting goods, electronics and apparel. Eleven of
the Harts stores have pharmacies. The lines of products carried by each store
vary to some extent to meet different patterns of local demand.

The profitability of the Company's general merchandise operations is much more
sensitive to the Ohio economy than its supermarket operations and can be
expected to be adversely impacted by a decline in economic conditions.

PURCHASING AND DISTRIBUTION

Penn Traffic is a large volume purchaser of products. Penn Traffic's purchases
are of sufficient volume to qualify for minimum price brackets for most items.
Penn Traffic purchases brand name grocery merchandise directly from national
manufacturers. The Company purchases private label and generic items from TOPCO
Associates, Inc., a national purchasing cooperative comprising 46 regional
supermarket chains. In Fiscal 1995, purchases from TOPCO Associates accounted
for approximately 14% of product purchases.

Penn Traffic's principal Pennsylvania distribution facility is a Company-owned
390,000-square foot distribution center in DuBois, Pennsylvania. Penn Traffic
also operates a 196,000-square foot distribution center for perishable products
in DuBois, Pennsylvania. In addition, Penn Traffic leases a 70,000-square foot
warehouse in New Bethlehem, Pennsylvania, which Penn Traffic uses to supplement
its forward buy program, under which Penn Traffic purchases and stores for later
sale certain products which from time to time are available for purchase at
reduced prices. Penn Traffic also leases a 37,000-square foot warehouse in
Punxsutawney, Pennsylvania, which houses certain store supplies and aerosol
products and a 44,000-square foot warehouse in DuBois, Pennsylvania, which
houses high-bulk grocery products.

The principal New York distribution facility is a highly automated, Company-
owned 498,000-square foot distribution center in Syracuse, New York. The
Company also owns a 217,000-square foot distribution center for perishable
products in Syracuse, New York. Penn Traffic also owns a 267,000-square foot
distribution center in Jamestown, New York. In Fiscal 1995, the Company leased
a 12,000-square foot perishable floral warehouse in Jamestown, New York.

The primary Ohio distribution center is a leased 484,000-square foot dry grocery
facility in Columbus, Ohio. Penn Traffic also owns a 208,000-square foot
distribution facility for perishable goods in Columbus, Ohio. Big Bear also
leases two general merchandise warehouses comprising 399,000 square feet in
Columbus, Ohio.

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In September 1993, Penn Traffic entered into a program to consolidate the
purchasing and distribution of health and beauty care products and general
merchandise with The Grand Union Company ("Grand Union"). Under this program,
Grand Union procures health and beauty care products for both Grand Union and
Penn Traffic, and Penn Traffic, through its Big Bear division, procures general
merchandise for both Penn Traffic and Grand Union. Grand Union's general
merchandise warehouse in Montgomery, New York is used to distribute general
merchandise and health and beauty care products to Insalaco's, P&C, Quality
Markets and Riverside stores. This warehouse also supplies the majority of Penn
Traffic's wholesale customers, as well as Grand Union stores. Under the
arrangement, the cost of operating the Montgomery warehouse is shared by Penn
Traffic in an amount proportionate to Penn Traffic's usage of the facility. Penn
Traffic owns the general merchandise and health and beauty care products
inventory located at the Montgomery, New York warehouse. In January 1995, Grand
Union filed a voluntary petition for reorganization under Chapter 11 of the
United States Bankruptcy Code with the United States Bankruptcy Court, District
of Delaware. The Company's ongoing relationships with Grand Union are being
reevaluated in connection with the pending Grand Union bankruptcy proceedings.
No determination has yet been made as to whether, or on what basis, the
Company's and Grand Union's arrangement with regard to consolidated purchasing
and distribution of health and beauty care products and of general merchandise
will be continued.

Approximately 80% of the merchandise offered in Penn Traffic's retail stores is
distributed from its warehouses by its fleet of 332 tractors, 397 refrigerated
trailers and 554 dry trailers. Merchandise not delivered from Penn Traffic's
warehouses or from the Grand Union general merchandise warehouse in Montgomery,
New York, as described above, is delivered directly to the stores by
distributors, vendor drivers and salesmen for such products as beverages, snack
foods and bakery items.

COMPETITION

The food retailing business is highly competitive and may be affected by general
economic conditions. The number of competitors and the degree of competition
experienced by Penn Traffic's supermarkets vary by location. Penn Traffic
competes with several regional and local supermarket chains, convenience stores,
stores owned and operated and otherwise affiliated with large food wholesalers,
unaffiliated independent food stores, warehouse clubs, discount drug store
chains and discount general merchandise chains. No other supermarket company
competes against Penn Traffic stores representing more than 20% of Penn
Traffic's revenues, with the exception of Kroger, which competes against Big
Bear stores, representing approximately 30% of Penn Traffic's revenues.

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EMPLOYEES

Labor costs and their impact on product prices are important competitive factors
in the supermarket industry. At January 28, 1995, Penn Traffic had 26,700
hourly employees and 1,800 salaried employees.

Approximately 51% of Penn Traffic's hourly employees belong to the United Food
and Commercial Workers union. An additional 7% of Penn Traffic's hourly
employees (principally involved in the distribution function and the Company's
dairy and bakery plants) belong to six other unions. The Company competes with
certain independently owned and chain-owned supermarkets, discount drug stores,
warehouse clubs and general merchandise stores, whose employees are not union
affiliated.

Penn Traffic believes its relationships with its employees are good.

GOVERNMENT REGULATION

The United States Department of Agriculture and the Pennsylvania Milk Marketing
Board each regulate and inspect all aspects of fluid milk and dairy product
production, enforcing strict standards of sanitation, product composition,
packaging and labelling, as well as regulating milk and dairy product pricing.
All dairy goods producers and distributors must comply with substantially
similar standards, and compliance by Penn Traffic with these standards has not
had and is not expected to have a significant effect on its earnings or
competitive position.

SEASONALITY, CUSTOMERS AND SUPPLIERS

The supermarket business of Penn Traffic is generally not seasonal in nature.
During the past three fiscal years, no single customer or group of customers
under common control accounted for 10% or more of Penn Traffic's consolidated
revenues. Groceries, general merchandise and raw materials are available from
many different sources. During the past three fiscal years, no single supplier
accounted for 10% or more of Penn Traffic's cost of sales except TOPCO
Associates, Inc. which accounted for approximately 14% of product purchases in
the fiscal year ended January 28, 1995.

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HISTORY

Penn Traffic is the successor to a retail business which can be traced to 1854.
Penn Traffic, a then-publicly held corporation, was acquired in March 1987 by
Riverside Acquisition Company, Limited Partnership ("RAC"), a Delaware limited
partnership and an affiliate of Miller Tabak Hirsch + Co. ("MTH"). At the time
of the acquisition, Penn Traffic was the largest retail and wholesale food
distribution company in its principal operating area, comprising 19 counties in
central and northwestern Pennsylvania and southwestern New York. In 1988, Penn
Traffic again became a publicly held corporation and stated that it intended to
acquire retail and wholesale food distribution companies contiguous to its
operating area.

In August 1988, Penn Traffic acquired P&C Food Markets, Inc. ("P&C") which
operates in a contiguous market to the east of Penn Traffic's historical
marketplace. In October 1991, P&C became a wholly owned subsidiary of the
Company, and in April 1993, P&C was merged into the Company. P&C currently
operates as a division of the Company. P&C is headquartered in Syracuse, New
York and operates 68 "P&C" retail supermarkets, franchises 66 "Big M" stores and
provides wholesaling services to 85 independent supermarkets.

In April 1989, Penn Traffic acquired Big Bear Stores Company ("Big Bear"), a
leading food retailer in Columbus and eastern Ohio, which is to the west of Penn
Traffic's traditional market area. In April 1993, Big Bear was merged into the
Company. Big Bear currently operates as a division of the Company. Big Bear is
headquartered in Columbus, Ohio and operates 77 retail supermarkets under the
names "Big Bear" and "Big Bear Plus," as well as 15 discount department stores
under the "Harts" name.

In January 1993, Penn Traffic acquired 28 supermarkets located in western New
York and northwestern Pennsylvania from Schmitt. Eighteen of the stores are
currently being operated by Penn Traffic and one store has been converted to a
franchise store.

In September 1993, Penn Traffic acquired the operating assets of Insalaco
Supermarkets, Inc. ("Insalaco"), which consisted of 12 supermarkets with a total
square footage of approximately 400,000. Two new stores totalling approximately
90,000 square feet have been opened subsequent to the original acquisition.

On January 19, 1995, Penn Traffic acquired 45 supermarkets owned by American
Stores Company which had operated under the Acme trade name. Forty-one of the
acquired stores are located in north central and northeastern Pennsylvania and
four are located in south central New York state. Fifteen of these acquired
stores have been or will be closed or divested in Fiscal 1996. The Company is
operating the remaining 30 stores under the Insalaco's, Bi-Lo Foods and P&C
tradenames.

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INVESTMENT IN GRAND UNION

Until March 1995, Penn Traffic held an indirect ownership interest in the common
stock of Grand Union Holdings Corporation ("Grand Union Holdings"), the indirect
corporate parent of Grand Union. Grand Union is engaged in the food retailing
business. Penn Traffic's ownership interest in Grand Union Holdings was
acquired in July 1989 (Fiscal 1990) and was held through a limited partnership
interest in Grand Acquisition Company, L.P. ("GAC, L.P."). As of January 28,
1995, Penn Traffic's indirect ownership interest was 17.8% on a fully diluted
basis.

On January 25, 1995, Grand Union filed a voluntary petition for reorganization
under Chapter 11 of the United States Bankruptcy Code with the United States
Bankruptcy Court, District of Delaware (the "Bankruptcy Court"). On
February 16, 1995, Grand Union Holdings filed a voluntary Chapter 11 petition
with the Bankruptcy Court. As a result of these bankruptcy proceedings, Penn
Traffic's equity interest in Grand Union Holdings became worthless, and on
March 24, 1995, Penn Traffic's limited partnership interest in GAC, L.P. was
redeemed for nominal consideration.

The Company accounted for its investment in Grand Union under the equity method.
At the time the investment was made in July 1989, it was recorded at a cost of
$18.3 million. As of February 2, 1991, Penn Traffic had recorded losses which
reduced the carrying value of its investment to zero.

As described elsewhere in this Form 10-K, certain of the Company's ongoing
relationships with Grand Union are being reevaluated in connection with the
pending Grand Union bankruptcy proceedings. No determination has yet been made
as to whether, or on what basis, these relationships will be continued.

Grand Union Holdings is subject to the information requirements of the
Securities Exchange Act of 1934, as amended, and in accordance therewith files
reports and other information with the Securities and Exchange Commission (the
"Commission"). Copies of such materials may be inspected and copied at any of
the offices of the Commission.

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DIVESTITURE OF P&C NEW ENGLAND DIVISION

At the time of the acquisition of Grand Union by Grand Union Holdings in July
1989, Grand Union and P&C (then a subsidiary, and now a division of Penn
Traffic), operated stores in some of the same geographic areas in Vermont and
upstate New York. In connection with the acquisition, agreements were entered
into with federal and state antitrust authorities which required the divestiture
of 16 Grand Union stores or P&C stores. The divestitures required by these
agreements were completed in July 1990. P&C operated thirteen of the sixteen
divested stores and Grand Union operated three. In connection with the
divestiture program, P&C discontinued its New England wholesaling business.

In a related transaction, in July 1990, P&C and Grand Union entered into an
operating agreement (the "Operating Agreement") whereby Grand Union acquired the
right to operate P&C's 13 remaining stores in New England under the Grand Union
name until July 2000. Pursuant to the Operating Agreement, Grand Union agreed
to pay Penn Traffic (as the successor to P&C, which was merged into the Company
in April 1993) a minimum annual fee averaging $10.7 million per year during the
ten-year term and, beginning with the year commencing July 31, 1992, to pay Penn
Traffic additional contingent fees of up to $700,000 per year based upon sales
performance of the stores operated by Grand Union. Penn Traffic received
payment of the maximum contingent fee of $700,000 for the year ended July 30,
1994 and, based upon current sales levels, Penn Traffic expects to receive
payment of the maximum contingent fee of $700,000 in the year ending July 30,
1995 and in each year remaining in the term of the Operating Agreement. Under
the terms of the Operating Agreement, the recapitalization of Grand Union in
July 1992 triggered a $15 million prepayment of the operating fee. This
prepayment reduced the future payments that Grand Union will make to Penn
Traffic pursuant to the terms of the Operating Agreement by approximately $3.2
million per year.

At the expiration of the ten-year term of the Operating Agreement, Grand Union
has the right to extend the term of the Operating Agreement for an additional
five years. In the event of such extension of the lease term, Grand Union will
pay to Penn Traffic an annual fee of $13.6 million in the first year of the
extended term, $14.0 million in the second year, $14.4 million in the third
year, $14.9 million in the fourth year and $15.3 million in the fifth year, plus
contingent fees based upon the sales performance of the stores of up to $700,000
in each year.

Penn Traffic also granted Grand Union an option (the "Purchase Option") to
purchase the stores operated by Grand Union under the Operating Agreement.
Grand Union paid Penn Traffic $7.5 million for the Purchase Option, which
provides that (i) prior to July 30, 1998, Grand Union may purchase the stores
operated under the Operating Agreement from Penn Traffic for a purchase price
equal to $95 million and (ii) from July 30, 1998 and until the expiration of the
term (or the extended term) of the Operating Agreement, Grand Union may purchase
the stores operated under the Operating Agreement from Penn Traffic for a
purchase price equal to the greater of $55 million or the amount produced under
a formula based upon the stores' cash flow, provided that the purchase price
shall not exceed $95 million.

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If Grand Union does not extend the initial term of the Operating Agreement at
its expiration in July 2000 or does not exercise the Purchase Option prior to
the expiration of the term (or the extended term), or in the event of a default
by Grand Union in the performance of its obligations pursuant to the Operating
Agreement, the stores operated by Grand Union pursuant to the Operating
Agreement will be returned to operation by Penn Traffic. Based on current
conditions, management does not believe that the return of operation of the
stores to Penn Traffic would have a significant impact on the financial
condition of the Company.

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ITEM 2. PROPERTIES

Penn Traffic follows the general industry practice of leasing the majority of
its retail supermarket locations. Penn Traffic presently owns 36 supermarkets
and leases 231 supermarkets. The owned supermarkets range in size from 4,300 to
123,000 square feet. The leased supermarkets range in size from 8,000 to
140,000 square feet and are held under leases expiring from 1995 to 2014,
excluding option periods. Penn Traffic also owns two supermarkets and leases 59
supermarkets which are leased or subleased to independent operators.

Penn Traffic owns a five-story building located in Johnstown, Pennsylvania,
which housed the Company's headquarters prior to relocation of the Company's
headquarters to Syracuse, New York in July 1993. The building is leased to
other tenants.

Penn Traffic also owns nine shopping centers, eight of which contain one of the
Company-owned or licensed supermarkets. Penn Traffic also operates major
distribution centers in DuBois, Pennsylvania; Syracuse and Jamestown, New York;
and Columbus, Ohio; a dairy plant in Johnstown, Pennsylvania; and bakery plants
in Syracuse, New York and Columbus, Ohio. Penn Traffic also owns a fleet of
trucks and trailers and other miscellaneous real estate and equipment used in
the operation of its businesses.

Penn Traffic believes that all of its properties, fixtures and equipment are
well maintained and in good condition.

ITEM 3. LEGAL PROCEEDINGS

Penn Traffic and its subsidiaries are involved in various legal actions, some of
which involve claims for substantial sums. However, any ultimate liability with
respect to these contingencies is not considered by management to be material in
relation to the consolidated financial position or results of operations of the
Company.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matter was submitted to a vote of security holders during the fourth quarter
of Fiscal 1995.

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SUPPLEMENTAL ITEM. EXECUTIVE OFFICERS OF REGISTRANT

Certain information regarding the executive officers of Penn Traffic is set
forth as follows:

<TABLE>
<CAPTION>
Name Age Position with Penn Traffic
- -------------------------- --- -----------------------------------
<S> <C> <C>
Gary D. Hirsch 45 Chairman and Director

Martin A. Fox 41 Director, Vice Chairman - Finance
and Assistant Secretary

John T. Dixon 55 Director, President and Chief
Executive Officer

Roy E. Flood 54 Senior Vice President; President
of P&C Foods Division

Raymond J. Heath 56 Senior Vice President; President
of Riverside Markets Division

John E. Josephson 47 Senior Vice President; President
of Big Bear Division

Eugene R. Sunderhaft 47 Senior Vice President - Finance
and Secretary
(Chief Financial Officer)

David A. Adamsen 43 Vice President - Manufacturing

Ronald E. Flowers 56 Vice President - Nonfood
Merchandising

Glenn L. Goldberg 43 Vice President and Assistant
Secretary

Francis D. Price, Jr. 45 Vice President, General Counsel
and Assistant Secretary

Randall J. Sweeney 43 Vice President and General
Manager - Quality Markets
Division

Joseph S. Zoldi 50 Vice President and General
Manager - Insalaco's Division

William G. Berryman 51 Vice President and Chief
Information Officer

</TABLE>

Each of the executive officers is a citizen of the United States.

-16-
<PAGE>

Mr. Hirsch has been a Director and Chairman of Penn Traffic since 1987. Mr.
Hirsch has been a general partner and the managing partner of MTH
(broker-dealer) since March 1982 and a Managing Director of MTH Holdings, Inc.
("MTH Holdings") since November 1983. He is Chairman, President and a Director
of RAC Partners, Inc. ("RAC Partners"), the sole general partner of Riverside
Acquisition Company, Limited Partnership ("RAC"). Mr. Hirsch has been Chairman
and a Director of Grand Union Holdings (food distribution holding company) since
July 1989. Mr. Hirsch became Chairman and a Director of Grand Union Capital
Corporation ("Grand Union Capital") in May 1992 and Chairman and a Director of
Grand Union in July 1992.

Mr. Fox has been Director and Vice Chairman - Finance since February 1993. From
1989 until February 1993, Mr. Fox was a Vice President of the Company. Mr. Fox
has been Assistant Secretary of Penn Traffic since 1989. Mr. Fox has been
Executive Vice President of MTH since 1988. Mr. Fox became a Director, Vice
President and Secretary of Grand Union Capital in May 1992 and Treasurer of
Grand Union Capital in May 1993. Mr. Fox became Vice President and Assistant
Secretary and a Director of Grand Union and Vice President and Secretary and a
Director of Grand Union Holdings in July 1992 and Treasurer of Grand Union
Holdings in May 1993.

Mr. Dixon has been a Director since December 1994 and President and Chief
Executive Officer of Penn Traffic since January 29, 1995. Mr. Dixon was a Vice
President of Penn Traffic and the President of P&C from 1993 until January 1995.
He served as President of Quality Markets, Inc. from January 1992 until August
1993 and had served in various other positions at Big Bear since 1957.

Mr. Flood was appointed Senior Vice President of Penn Traffic and President of
the P&C division effective January 29, 1995. Mr. Flood was Executive Vice
President of Merchandising for Big Bear from 1990 until January 1995. He was
Vice President of Sales and Merchandising of P&C from 1986 to 1990 and served in
various other positions at P&C from 1977 to 1986.

Mr. Heath was appointed Senior Vice President of Penn Traffic effective January
29, 1995. Mr. Heath was a Vice President of Penn Traffic since 1979 and has
been President of the Riverside division since 1979. He had held the position
of Executive Vice President and Assistant General Manager since 1976 and has
served in various other positions in the Riverside division since 1967.

Mr. Josephson was appointed Senior Vice President of Penn Traffic effective
January 29, 1995. Mr. Josephson was a Vice President of Penn Traffic since 1989
and has been President of Big Bear since 1989. Prior to his appointment as
President of Big Bear, Mr. Josephson was Senior Vice President, Finance and
Treasurer of P&C from 1986 to 1989. Mr. Josephson was Vice President, Finance
and Treasurer of P&C from 1983 until 1986.

Mr. Sunderhaft was appointed Senior Vice President - Finance of Penn Traffic
effective January 29, 1995. Mr. Sunderhaft had been Vice President - Finance
since May 1993, and has been Chief Financial Officer and Secretary of Penn
Traffic since May 1993. Mr. Sunderhaft was Treasurer of Penn Traffic from May
1993 until April 1995. He has been employed by P&C since 1972 and he became
Vice President - Finance and Chief Financial Officer of P&C in 1989.

-17-
<PAGE>

Mr. Adamsen was appointed Vice President of Manufacturing of Penn Traffic
effective September 13, 1994. Mr. Adamsen has been President of Penny Curtiss
Baking Company since 1986. He has been employed by P&C since 1974 serving in
various positions at Penny Curtiss Baking Company including Vice
President/General Manager and Vice President of Sales and Marketing.

Mr. Flowers was appointed Vice President of Nonfood Merchandising of Penn
Traffic on February 10, 1995. Mr. Flowers was Vice President of Nonfood
Merchandising for Big Bear from 1993 until February 1995 and has served in
various other positions at Big Bear since 1955.

Mr. Goldberg has been a Vice President and Assistant Secretary of Penn Traffic
since 1989. Mr. Goldberg has been Executive Vice President of MTH since 1988,
and was Senior Vice President of MTH from 1982 to 1988. Mr. Goldberg became a
Vice President, Assistant Secretary and Assistant Treasurer of each of Grand
Union Capital and Grand Union Holdings in July 1992.

Mr. Price has been Vice President and General Counsel and Assistant Secretary of
Penn Traffic since February 1993. He was Vice President and General Counsel of
P&C from 1985 until the merger of P&C into the Company in April 1993 and
Secretary of P&C from 1991 until the merger of P&C into the Company in April
1993. Mr. Price has been employed by P&C since 1978.

Mr. Sweeney was appointed a Vice President of Penn Traffic effective January 29,
1995. Mr. Sweeney has been General Manager of the Quality Markets division
since 1993 and has served in various other positions at Quality since 1974.

Mr. Zoldi was appointed a Vice President of Penn Traffic effective January 29,
1995. Mr. Zoldi has been General Manager of the Insalaco's division since 1993.
Mr. Zoldi has been employed by Insalaco's since 1974.

Mr. Berryman was appointed Vice President and Chief Information Officer of Penn
Traffic effective April 10, 1995. Prior to joining the Company, Mr. Berryman
served as a consultant for Technology Solutions Company from 1994 until April
1995. Mr. Berryman was Vice President of Management Information Services for
Dominick's Finer Foods, Inc. from 1989 until 1994.

On January 25, 1995, Grand Union filed a voluntary petition for reorganization
under Chapter 11 of the United States Bankruptcy Code with the Bankruptcy Court.
On February 6, 1995, an involuntary Chapter 11 petition was filed in the
Bankruptcy Court against Grand Union Capital. On February 16, 1995, Grand Union
Capital commenced a voluntary Chapter 11 case in the Bankruptcy Court by
consenting to the entry of an order for relief on the involuntary Chapter 11
petition. Also on February 15, 1995, Grand Union Holdings filed a voluntary
Chapter 11 petition in the Bankruptcy Court. Messrs. Hirsch and Fox are
directors and executive officers of Grand Union, Grand Union Capital and Grand
Union Holdings and Mr. Goldberg is an executive officer of Grand Union Capital
and Grand Union Holdings. Messrs. Hirsch, Fox and Goldberg have indicated that
they intend to resign from all positions which any of them hold with Grand
Union, Grand Union Capital and Grand Union Holdings, such resignation to be
effective no later than the date of completion of the pending Bankruptcy Court
proceedings.

There are no family relationships between executive officers of Penn Traffic.
The term of office of executive officers is for a one-year period beginning on
the date of the annual meeting, which is normally held in June of each year.

-18-
<PAGE>

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS

Penn Traffic's common stock is listed on the New York Stock Exchange and was
held by approximately 286 shareholders of record on January 28, 1995.

Common stock information is provided on Page 20 of this Form 10-K.

ITEM 6. SELECTED FINANCIAL DATA

The comparative summary of selected financial data of Penn Traffic for the five
years ended January 28, 1995 appears on Pages 21 and 22 of this Form 10-K.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

Management's Discussion and Analysis of Financial Condition and Results of
Operations appears on Pages 23 through 29 of this Form 10-K.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Index to Consolidated Financial Statements
Page

Report of Independent Accountants 30
Consolidated Financial Statements:
Statement of Operations for each of the three fiscal
years ended January 28, 1995 31
Balance Sheet as of January 28, 1995 and January 29, 1994 32
Statement of Shareholders' Equity for each of the three
fiscal years ended January 28, 1995 34
Statement of Cash Flows for each of the three fiscal
years ended January 28, 1995 35
Notes to Consolidated Financial Statements 37
Financial Statement Schedule for the three years ended
January 28, 1995:
Schedule VIII - Valuation and Qualifying Accounts 65

-19-

<PAGE>

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

None

QUARTERLY FINANCIAL DATA (UNAUDITED)

Summarized below are quarterly financial data for the fiscal years ended January
28, 1995 and January 29, 1994.

<TABLE>
<CAPTION>
Fiscal 1995 Fiscal 1994
------------------------------------------------- -----------------------------------------------
1st 2nd 3rd 4th 1st 2nd 3rd 4th
-------- -------- -------- -------- -------- -------- -------- --------
(In thousands of dollars, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C> <C>

Total revenues . . . . . . . $809,961 $835,767 $828,064 $859,433 $762,040 $780,996 $783,253 $845,311
Gross margin . . . . . . . . $178,503 $192,837 $188,125 $203,052 $168,283 $172,102 $173,008 $193,354
Net income (loss)
before extraordinary
item and cumulative effect
of change in accounting
principle . . . . . . . . . $ 2,256 $ 6,868 $ 4,777 $ 8,124 $ 419 $ 634 $ (503) $ 7,626
Extraordinary item . . . . . (2,276) (691) (58) (17,602) (4,477) (1,091) (2,673)
Cumulative effect of change
in accounting principle . . (5,790)
Net (loss) income. . . . . . (5,810) 6,177 4,719 8,124 (17,183) (3,843) (1,594) 4,953
Preferred dividends. . . . . (159)
Net (loss) income
applicable to common
stock . . . . . . . . . . . $ (5,810) $ 6,177 $ 4,719 $ 8,124 $(17,342) $ (3,843) $ (1,594) $ 4,953
Per share data:
Income (loss)
before extraordinary
item and cumulative effect
of change in accounting
principle. . . . . . . . . $ 0.20 $ 0.62 $ 0.43 $ 0.73 $ 0.03 $ 0.06 $ (0.04) $ 0.68
Extraordinary item. . . . . (0.20) (0.07) (0.01) (2.03) (0.41) (0.10) (0.24)
Cumulative effect of change
in accounting principle. . (0.52)
Net (loss) income . . . . . $ (0.52) $ 0.55 $ 0.42 $ 0.73 $ (2.00) $ (0.35) $ (0.14) $ 0.44
Dividends per preferred
share:
Big Bear. . . . . . . . . $ 0.46
Market value per common
share:
High. . . . . . . . . . . $ 44 5/8 $ 41 $ 43 1/2 $ 41 1/4 $ 42 7/8 $ 45 1/2 $ 45 3/4 $ 39 1/8
Low . . . . . . . . . . . $ 37 1/2 $ 34 3/8 $ 35 1/4 $ 36 $ 34 $ 38 1/4 $ 36 3/8 $ 34 7/8
Other data:
Depreciation and
amortization . . . . . . . $ 21,706 $ 21,539 $ 21,887 $ 22,679 $ 19,871 $ 20,366 $ 20,894 $ 21,738
LIFO provision . . . . . . $ 25 $ 425 $ 2,342 $ 560 $ 430 $ 100 $ (987)

</TABLE>

SUPPLEMENTAL QUARTERLY EBITDA INFORMATION (UNAUDITED)

<TABLE>
<CAPTION>
Fiscal 1995 Fiscal 1994
------------------------------------------------- -----------------------------------------------
(In thousands of dollars) 1st 2nd 3rd 4th 1st 2nd 3rd 4th
-------- -------- -------- -------- -------- -------- -------- --------
(In thousands of dollars, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
EBITDA . . . . . . . . . . . $ 55,122 $ 64,362 $ 58,158 $ 68,696 $ 51,990 $ 57,673 $ 53,769 $ 66,558
EBITDA as a percentage of
revenues . . . . . . . . . 6.8% 7.7% 7.0% 8.0% 6.8% 7.4% 6.9% 7.9%

</TABLE>
-20-
<PAGE>

CONSOLIDATED FIVE-YEAR FINANCIAL SUMMARY

Set forth below are the selected historical consolidated financial data of Penn
Traffic for the five fiscal years ended January 28, 1995. Due to the
adoption of Statement of Financial Accounting Standards No. 112, "Employers'
Accounting for Postemployment Benefits" ("SFAS 112"), at the beginning of the
fiscal year ended January 28, 1995 and the adoption of Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS 109"),
retroactive to the beginning of the fiscal year ended February 1, 1992,
comparisons of the consolidated financial results among years are not
necessarily meaningful.

The selected historical consolidated financial data for the five fiscal years
ended January 28, 1995 are derived from the consolidated financial statements of
Penn Traffic which have been audited by Price Waterhouse LLP, independent
accountants. The selected historical consolidated financial data should be read
in conjunction with the Penn Traffic consolidated financial statements and
related notes included elsewhere herein.

STATEMENT OF OPERATIONS As of and for the Fiscal Year Ended
(In thousands of dollars, January 28, January 29, January 30, February 1, February 2,
except per share data) 1995 1994 1993 1992 1991
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Total revenues. . . . . . . $3,333,225 $3,171,600 $2,832,949 $2,772,104 $2,803,781
Cost of sales . . . . . . . 2,570,708 2,464,853 2,230,493 2,195,773 2,253,619
Selling and administrative
expenses. . . . . . . . . 606,782 559,729 475,839 460,684 444,280
Unusual item. . . . . . . . 6,400
---------- ---------- ---------- ---------- ----------
Operating income. . . . . . 155,735 140,618 126,617 115,647 105,882
Interest expense. . . . . . 117,859 117,423 115,814 116,782 117,300
---------- ---------- ---------- ---------- ----------
Income (loss) before income
taxes, equity in net loss
of affiliated company,
extraordinary item and
cumulative effect of
change in accounting
principle . . . . . . . . 37,876 23,195 10,803 (1,135) (11,418)
Provision for
income taxes (1). . . . . 15,851 15,019 6,812 4,217 2,427
---------- ---------- ---------- ---------- ----------
Income (loss) before
equity in net loss of
affiliated company,
extraordinary item and
cumulative effect of
change in accounting
principle . . . . . . . . 22,025 8,176 3,991 (5,352) (13,845)
Equity in net loss of Grand
Union(2). . . . . . . . . (10,334)
---------- ---------- ---------- ---------- ----------
Income (loss) before extra-
ordinary item and
cumulative effect of
change in accounting
principle . . . . . . . . 22,025 8,176 3,991 (5,352) (24,179)
Extraordinary item (net of
tax benefit)(3) . . . . . (3,025) (25,843) (10,823) (3,718)
---------- ---------- ---------- ---------- ----------
Net income (loss)
before cumulative effect
of change in accounting
principle . . . . . . . . 19,000 (17,667) (6,832) (9,070) (24,179)
Cumulative effect of
change in accounting
principle (1) and (4) . . (5,790) (58,330)
---------- ---------- ---------- ---------- ----------
Net income (loss) . . . . . 13,210 (17,667) (6,832) (67,400) (24,179)
Preferred dividends . . . . (159) (968) (2,768) (3,286)
---------- ---------- ---------- ---------- ----------
Net income (loss)
applicable to
common stock. . . . . . . $ 13,210 $ (17,826) $ (7,800) $ (70,168) $ (27,465)
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
</TABLE>

-21-
<PAGE>

<TABLE>
<S> <C> <C> <C> <C> <C>
PER SHARE DATA:
Income (loss) before extra-
ordinary item and cumulative
effect of change in
accounting principle
(after preferred
dividends)(5). . . . . . . $ 1.97 $ 0.76 $ 0.37 $ (1.19) $ (4.94)
Extraordinary item. . . . . (0.27) (2.45) (1.31) (0.54)
Cumulative effect of change
in accounting
principle. . . . . . . . . (0.52) (8.52)
---------- ---------- ---------- ---------- ----------
Net income (loss) (5) . . . $ 1.18 $ (1.69) $ (0.94) $ (10.25) $ (4.94)
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
</TABLE>

No dividends on common stock have been paid during the past five fiscal years.

BALANCE SHEET DATA:
Total assets. . . . . . . . $1,793,966 $1,632,901 $1,417,230 $1,291,691 $1,165,202
Total funded
indebtedness . . . . . . . 1,277,276 1,166,025 1,005,136 912,070 884,996
Redeemable preferred
stock. . . . . . . . . . . 11,477 13,846 41,080
Shareholders' equity. . . . 32,927 14,982 (40,488) (31,459) (20,369)

OTHER DATA:
Depreciation and
amortization . . . . . . . 87,811 82,869 72,787 68,581 61,307
LIFO provision. . . . . . . 2,792 103 479 1,617 3,109
Capital expenditures,
including capital
leases and acquisitions. . 202,359 182,700 148,650 82,061 74,750

<FN>
(1) The historical consolidated financial data for fiscal years 1995,
1994, 1993 and 1992 includes a provision for income taxes computed in
accordance with SFAS 109. The provision for income taxes for fiscal
year 1991 was computed in accordance with APB 11.

(2) Until March 1995, Penn Traffic had a minority interest investment in
Grand Union, which was accounted for under the equity method. As of
February 2, 1991, Penn Traffic had recorded losses that reduced the
carrying value of its investment to zero.

(3) The extraordinary item (net of income tax benefits) resulted from the
early retirement of debt.

(4) Effective January 30, 1994, the Company adopted Statement of Financial
Accounting Standards No. 112, "Employers' Accounting for
Postemployment Benefits" ("SFAS 112"). SFAS 112 requires employers to
recognize the obligation to provide postemployment benefits on an
accrual basis if certain conditions are met. The cumulative effect of
the change in accounting principle determined as of January 30, 1994,
reduced net income $5.8 million, net of a $4.1 million income tax
benefit, for the fifty-two week period ended January 28, 1995.

(5) Net income (loss) per share of common stock is based on the average
number of shares of common stock and equivalents outstanding during
each period. Fully diluted net income per share is not presented
since the reduction from primary net income per share is less than
three percent for each period presented.
</TABLE>

-22-

<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

RESULTS OF OPERATIONS

FISCAL YEAR ENDED JANUARY 28, 1995 ("FISCAL 1995") COMPARED TO FISCAL YEAR
ENDED JANUARY 29, 1994 ("FISCAL 1994")

The following table sets forth Statement of Operations components expressed
as percentages of total revenues for Fiscal 1995 and Fiscal 1994:

<TABLE>
<CAPTION>
PERCENTAGE OF TOTAL REVENUES
FISCAL YEAR ENDED
----------------------------
1995 1994
------ ------
<S> <C> <C>
Total revenues 100.0% 100.0%
Gross profit (1) 22.9 22.3
Selling and administrative
expenses 18.2 17.7
Unusual item 0.2
Operating income 4.7 4.4
Interest expense 3.6 3.7
Income before income taxes,
extraordinary item and cumulative
effect of change in accounting
principle 1.1 0.7

<FN>
(1) Total revenues less cost of goods sold.
</TABLE>

Total revenues for Fiscal 1995 increased 5.0% to $3.33 billion from $3.17
billion in Fiscal 1994. Sales from retail supermarkets existing in both years,
"same store sales," increased 0.9% in Fiscal 1995. The increase in total
revenues is primarily the result of the increase in retail supermarket sales
from the acquisition of the Insalaco's stores in September 1993, the increase in
same store sales, and revenues from incremental stores that the Company has
recently opened. Wholesale supermarket sales decreased in Fiscal 1995 to $434.4
million from Fiscal 1994 sales of $453.4 million.

In Fiscal 1995, gross profit as a percentage of total revenues increased to
22.9% from 22.3% in Fiscal 1994. The increase in gross profit as a percentage
of total revenues primarily resulted from a combination of reduced product
procurement costs and the relative increase in retail revenues compared to
wholesale revenues.

Selling and administrative expenses as a percentage of total revenues
increased to 18.2% for Fiscal 1995 from 17.7% in Fiscal 1994. The increase in
selling and administrative expenses as a percentage of total revenues primarily
resulted from the relative increase in retail revenues compared to wholesale
revenues and increases in fixed and semi-variable expenses as a percentage of
total revenues during a period with low food price inflation and continued
consumer preferences towards lower-priced products.

-23-
<PAGE>

During the second quarter of Fiscal 1994, the Company recorded certain
expenses totalling $6.4 million classified as an unusual item. This unusual
item was comprised of $4.0 million related to a voluntary employee separation
program at the Company's P&C division and $2.4 million related to the
realignment of certain operations.

Depreciation and amortization of $87.8 million in Fiscal 1995 and $82.9
million in Fiscal 1994 represented 2.6% of total revenues in both years.

Operating income for Fiscal 1995 was $155.7 million or 4.7% of total
revenues compared to $140.6 million or 4.4% of total revenues in Fiscal 1994.
Excluding the effect of the unusual item, operating income for Fiscal 1994 was
$147.0 million or 4.6% of total revenues.

Interest expense for Fiscal 1995 and Fiscal 1994 was $117.9 million and
$117.4 million, respectively.

Income before income taxes, extraordinary item and the cumulative effect of
change in accounting principle was $37.9 million for Fiscal 1995 compared to
$23.2 million for Fiscal 1994.

The income tax provision for Fiscal 1995 was $15.9 million compared to
$15.0 million in Fiscal 1994. The Fiscal 1995 income tax provision includes a
$1.0 million decrease in income tax expense and the Fiscal 1994 income tax
provision includes a $2.4 million charge. These adjustments are the result of
changes in the statutory tax rates applicable to deferred taxes in accordance
with the requirements of Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes" ("SFAS 109"). The effective tax rates vary from
the statutory rates due to differences between income for financial reporting
and tax reporting purposes that primarily result from the amortization of
goodwill (Note 4).

The extraordinary item for Fiscal 1995 was a $3.0 million charge (net of
$2.0 million income tax benefit) compared to a $25.8 million charge (net of
$17.8 million income tax benefit) in Fiscal 1994. These extraordinary items
relate to the early retirement of debt.

During the first quarter of Fiscal 1995, the Company adopted Statement of
Financial Accounting Standards No. 112, "Employers' Accounting for
Postemployment Benefits" ("SFAS 112"). The cumulative effect of this change in
accounting principle was a charge of $5.8 million (net of $4.1 million income
tax benefit) (Note 3). This accounting change did not have a material impact
on Fiscal 1995 results.

-24-
<PAGE>

FISCAL YEAR ENDED JANUARY 29, 1994 ("FISCAL 1994") COMPARED TO FISCAL YEAR
ENDED JANUARY 30, 1993 ("FISCAL 1993")

The following table sets forth Statement of Operations components expressed
as percentages of total revenues for Fiscal 1994 and Fiscal 1993:

<TABLE>
<CAPTION>
PERCENTAGE OF TOTAL REVENUES
FISCAL YEAR ENDED
----------------------------
1994 1993
------ ------
<S> <C> <C>
Total revenues. . . . . . . . . . . . . . 100.0% 100.0%
Gross profit (1). . . . . . . . . . . . . 22.3 21.3
Selling and administrative
expenses. . . . . . . . . . . . . . . . 17.7 16.8
Unusual item. . . . . . . . . . . . . . . 0.2
Operating income. . . . . . . . . . . . . 4.4 4.5
Interest expense. . . . . . . . . . . . . 3.7 4.1
Income before income taxes
and extraordinary item. . . . . . . . . 0.7 0.4

<FN>
(1) Total revenues less cost of goods sold.
</TABLE>

Total revenues for Fiscal 1994 increased to $3.17 billion from $2.83
billion in Fiscal 1993. The increase in total revenues is primarily the result
of the increase in retail supermarket sales resulting from the acquisition of
the former Peter J. Schmitt and the Insalaco's stores. Retail operations,
wholesale operations and the food processing businesses contributed 81.6%, 14.5%
and 3.9%, respectively, to Fiscal 1994 total revenues. Wholesale supermarket
revenues increased in Fiscal 1994 to $453.4 million from $438.7 million in
Fiscal 1993. Sales from retail supermarkets existing in both periods, "same
store sales," for the 52 weeks ended January 29, 1994, increased 1.5%.

In Fiscal 1994, gross profit was $706.7 million compared to Fiscal 1993
gross profit of $602.5 million, representing 22.3% and 21.3% of total revenues,
respectively. The increase in gross profit as a percentage of total revenues
was primarily the result of the reclassification of certain expenses from cost
of goods sold to selling and administration expenses and lower product
procurement costs partially offset by increased buying and occupancy costs. The
lower product procurement costs are partly the result of the Company's
continuing consolidated purchasing initiatives which have led to increased
vendor allowances and other reductions in product procurement costs.

Selling and administrative expenses for Fiscal 1994 were $559.7 million
compared with $475.8 million in Fiscal 1993. Selling and administrative
expenses as a percentage of total revenues increased to 17.7% for Fiscal 1994
from 16.8% in Fiscal 1993. The increase in selling and administrative expenses
as a percentage of total revenues was primarily due to the reclassification of
certain expenses from cost of goods sold to selling and administrative expenses
and increases in fixed and semi-variable expenses as a percentage of total
revenues during a period without food price inflation and with changes in
consumer preferences towards lower-priced products.

-25-
<PAGE>

During the second quarter of Fiscal 1994, the Company recorded certain
expenses totalling $6.4 million classified as an unusual item. This unusual
item is comprised of $4.0 million related to a voluntary employee separation
program at the Company's P&C division and $2.4 million related to the
realignment of certain operations.

Depreciation and amortization of $82.9 million in Fiscal 1994 and $72.8
million in Fiscal 1993 represented 2.6% of total revenues in both periods,
respectively.

Operating income for Fiscal 1994 increased by $14.0 million to $140.6
million from $126.6 million in Fiscal 1993. Operating income as a percentage of
total revenues was 4.4% and 4.5% in Fiscal 1994 and Fiscal 1993, respectively.
Fiscal 1994 operating income includes an unusual item of $6.4 million, or 0.2%
of total revenues.

Interest expense for Fiscal 1994 and Fiscal 1993 was $117.4 million and
$115.8 million, respectively.

Income before income taxes and extraordinary item was $23.2 million for
Fiscal 1994, compared to $10.8 million for Fiscal 1993.

The income tax provision for Fiscal 1994 was $15.0 million compared to $6.8
million in Fiscal 1993. The Fiscal 1994 income tax provision includes a $2.4
million charge relating to an increase in the federal tax rate applicable to
deferred taxes in accordance with the requirements of Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS 109"). The
effective tax rates vary from the statutory rates, due to differences between
income for financial reporting and tax reporting purposes that primarily result
from the amortization of goodwill. The income tax provisions for both years
reflect the adoption of SFAS 109 (Note 4).

The extraordinary item for Fiscal 1994 was a $25.8 million charge (net of
$17.8 million income tax benefit) compared to a $10.8 million charge (net of
$6.9 million income tax benefit) in Fiscal 1993. These extraordinary items
relate to the early retirement of debt.

Net loss was $17.7 million for Fiscal 1994 compared to $6.8 million in
Fiscal 1993. The increase in the net loss was primarily due to a $15.0 million
increase in extraordinary item relating to the early retirement of debt, an
unusual item of $6.4 million ($3.8 million net of tax benefit) and an $8.2
million increase in the tax provision (including a $2.4 million charge related
to the impact on deferred taxes resulting from the increase in the federal tax
rate), partially offset by an $18.8 million increase in income before taxes and
extraordinary item (before unusual item).

-26-
<PAGE>

LIQUIDITY AND CAPITAL RESOURCES

During Fiscal 1995, operating income increased to $155.7 million from
$140.6 million for Fiscal 1994. Interest expense for Fiscal 1995 was $117.9
million compared to $117.4 million for Fiscal 1994. Income before extraordinary
item and the cumulative effect of an accounting change for Fiscal 1995 was $22.0
million compared to $8.2 million in Fiscal 1994.

Payments of interest and principal on the Company's $1.14 billion of
long-term debt (excluding capital leases) will restrict funds available to the
Company to finance capital expenditures and working capital. Principal payments
of long-term debt due during Fiscal 1996, 1997 and 1998 total $4.1 million, $2.7
million and $2.2 million, respectively.

During Fiscal 1995, the Company's internally generated funds from
operations, proceeds from the issuance of $100 million of 10.65% Senior Notes
and amounts available under the revolving credit facility described below
provided sufficient liquidity to meet the Company's operating, capital
expenditure and debt service needs.

The Company has a revolving credit facility (the "Revolving Credit
Facility") which provides for borrowings of up to $225 million, subject to a
borrowing base limitation measured by eligible inventory and accounts receivable
of the Company. The Revolving Credit Facility matures in April 2000 and is
secured by a pledge of the Company's inventory, accounts receivable and related
assets. During Fiscal 1995, the Revolving Credit Facility was amended to
provide for certain interest rate reductions. After giving effect to the terms
of the amendment, based on the interest coverage ratio which the Company has
attained, the interest rate on borrowings as to which the Company elects a
LIBOR-based rate option is LIBOR plus 1.75%, and the interest rate on borrowings
as to which the Company elects a prime-based rate option is prime plus 0.50%.
As of January 28, 1995, total availability under the Penn Traffic Revolving
Credit Facility was $121.8 million.

In January 1995, the Company acquired 45 supermarkets from American Stores
Company formerly operated under the Acme trade name. Forty-one of these stores
are located in north central and northeastern Pennsylvania and four are located
in south central New York state. The purchase price for the 45 stores was
approximately $75 million plus inventory (approximately $16 million). As the
result of a review by the Federal Trade Commission, the Company has agreed to
divest three stores in Pennsylvania. The acquisition was funded with the
proceeds from the issuance in October 1994 of $100 million of 10.65% Senior
Notes due November 1, 2004 in an underwritten public offering.

-27-
<PAGE>

During Fiscal 1995, the Company redeemed or repurchased $52.4 million of
13 3/4% Senior Subordinated Notes due 1999 and $5.8 million of 11 1/2% Senior
Notes due 2001.

Cash flows to meet the Company's requirements for operating, investing and
financing activities during Fiscal 1995 are reported in the Consolidated
Statement of Cash Flows. During the fiscal year ended January 28, 1995, the
Company's net cash used in investing activities was $210.3 million. These
amounts were financed by net cash provided by operating activities of $71.7
million, net cash provided by financing activities of $102.6 million and
available cash of $36.0 million. During the fiscal year ended January 29, 1994,
the Company's net cash used in investing activities was $175.4 million and the
Company had an increase in cash of $27.6 million. These amounts were financed
by net cash provided by operating activities of $9.3 million and net cash
provided by financing activities of $193.7 million. During the fiscal year
ended January 30, 1993, the Company's net cash used in investing activities was
$112.9 million and the Company had an increase in cash of $17.7 million. These
amounts were financed by net cash provided by operating activities of $85.0
million and net cash provided by financing activities of $45.6 million.

Working capital decreased by $13.3 million from January 29, 1994 to January
28, 1995.

The Company is in compliance with all terms and restrictive covenants of
its Revolving Credit Facility and long-term debt agreements for the fiscal year
ended and as of January 28, 1995.

The Company's debt agreements provide restrictive covenants on the payment
of dividends to its shareholders. As of January 28, 1995, no dividend payments
to the Company's shareholders could have been made under the most restrictive of
these limitations.

Over the next five fiscal years (including the fiscal year ending February
3, 1996), the Company expects to spend approximately $700 million on capital
expenditures (including capital leases), equivalent to approximately 3.5% to
4.0% of planned retail sales over this period. Penn Traffic expects to finance
such capital expenditures (including capital leases) through cash generated from
operations, as well as amounts available under the Revolving Credit Facility and
additional capital lease obligations. The Company anticipates that these
sources of funds will be sufficient to finance its planned

-28-

<PAGE>

capital expenditures over this period. Capital expenditures will be principally
for new stores, replacement stores and remodels.

During Fiscal 1995, the Company opened six new stores, six replacement
stores and completed nine remodels/expansions. Capital expenditures (including
capitalized leases) were approximately $127 million for Fiscal 1995, excluding
the Acme acquisition.

-29-

<PAGE>

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Shareholders of The Penn Traffic Company

In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, of shareholders' equity and of cash flows
present fairly, in all material respects, the financial position of The Penn
Traffic Company and its subsidiaries (the "Company") at January 28, 1995 and
January 29, 1994, and the results of their operations and their cash flows for
each of the three years in the period ended January 28, 1995, in conformity with
generally accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.

As discussed in Note 3 to the consolidated financial statements, the Company
changed its method of accounting for postemployment benefits to adopt the
provisions of Statement of Financial Accounting Standards No. 112, "Employers'
Accounting for Postemployment Benefits," effective January 30, 1994.

Price Waterhouse LLP
Syracuse, New York
March 24, 1995

-30-

<PAGE>

THE PENN TRAFFIC COMPANY
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>

52 Weeks Ended 52 Weeks Ended 52 Weeks Ended
January 28, 1995 January 29, 1994 January 30, 1993
---------------- ---------------- ----------------
(All dollar amounts in thousands, except per share data)
<S> <C> <C> <C>
TOTAL REVENUES $3,333,225 $3,171,600 $2,832,949
COSTS AND OPERATING EXPENSES:
Cost of sales (including
buying and occupancy cost) 2,570,708 2,464,853 2,230,493
Selling and administrative
expenses 606,782 559,729 475,839
Unusual item (Note 6) 6,400
---------- ---------- ----------
OPERATING INCOME 155,735 140,618 126,617
Interest expense 117,859 117,423 115,814
---------- ---------- ----------
INCOME BEFORE INCOME TAXES,
EXTRAORDINARY ITEM
AND CUMULATIVE EFFECT OF CHANGE
IN ACCOUNTING PRINCIPLE 37,876 23,195 10,803
Provision for income taxes
(Note 4) 15,851 15,019 6,812
---------- ---------- ----------
INCOME BEFORE EXTRAORDINARY ITEM
AND CUMULATIVE EFFECT OF CHANGE
IN ACCOUNTING PRINCIPLE 22,025 8,176 3,991
Extraordinary item (net of tax
benefit) (Note 12) (3,025) (25,843) (10,823)
---------- ---------- ----------
INCOME (LOSS) BEFORE CUMULATIVE
EFFECT OF CHANGE IN ACCOUNTING
PRINCIPLE 19,000 (17,667) (6,832)
Cumulative effect of change
in accounting principle
(Note 3) (5,790)
---------- ---------- ----------
NET INCOME (LOSS) 13,210 (17,667) (6,832)
Preferred dividends (Note 7) (159) (968)
---------- ---------- ----------
NET INCOME (LOSS) APPLICABLE
TO COMMON STOCK $ 13,210 $ (17,826) $ (7,800)
---------- ---------- ----------
---------- ---------- ----------
PER SHARE DATA:
Income before extraordinary
item and cumulative effect
of change in accounting
principle (after preferred
dividends) $ 1.97 $ 0.76 $ 0.37
Extraordinary item (0.27) (2.45) (1.31)
Cumulative effect of change in
accounting principle (0.52)
---------- ---------- ----------
Net income (loss) $ 1.18 $ (1.69) $ (0.94)
---------- ---------- ----------
---------- ---------- ----------

Dividends per preferred share:
Big Bear $ 0.46 $ 1.84

---------- ----------
---------- ----------
Average number of common shares
and equivalents outstanding 11,169,337 10,561,256 8,258,113
---------- ---------- ----------
---------- ---------- ----------

</TABLE>

The accompanying notes are an integral part of these statements.

-31-

<PAGE>

THE PENN TRAFFIC COMPANY

CONSOLIDATED BALANCE SHEET

January 28, January 29,
1995 1994
---------- -----------
(In thousands of dollars)

ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and short-term investments (Note 1). . . . . . $ 46,519 $ 82,467
Accounts and notes receivable (less allowance
for doubtful accounts of $1,374 and $740,
respectively). . . . . . . . . . . . . . . . . . . 81,967 60,020
Inventories (Note 1). . . . . . . . . . . . . . . . 385,968 348,455
Prepaid expenses and other current assets . . . . . 10,913 9,939
---------- ----------
525,367 500,881
---------- ----------

FACILITIES UNDER CAPITAL LEASES (NOTE 5):
Capital leases. . . . . . . . . . . . . . . . . . . 178,198 173,690
Less: Accumulated amortization . . . . . . . . . . (50,450) (39,589)
---------- ----------
127,748 134,101
---------- ----------

FIXED ASSETS (NOTE 1):
Land. . . . . . . . . . . . . . . . . . . . . . . . 26,212 20,741
Buildings . . . . . . . . . . . . . . . . . . . . . 180,568 157,641
Furniture and fixtures. . . . . . . . . . . . . . . 439,544 389,598
Vehicles. . . . . . . . . . . . . . . . . . . . . . 19,452 19,586
Leaseholds and improvements . . . . . . . . . . . . 207,634 162,725
---------- ----------
873,410 750,291
Less: Accumulated depreciation . . . . . . . . . . (272,613) (214,563)
---------- ----------
600,797 535,728
---------- ----------

OTHER ASSETS:
Intangible assets resulting from acquisitions,
net (Note 1) . . . . . . . . . . . . . . . . . . . 451,897 377,450
Other assets and deferred charges, net. . . . . . . 88,157 84,741
---------- ----------
540,054 462,191
---------- ----------
TOTAL ASSETS. . . . . . . . . . . . . . . . . . . . . $1,793,966 $1,632,901
---------- ----------
---------- ----------
</TABLE>

The accompanying notes are an integral part of these statements.

-32-
<PAGE>

THE PENN TRAFFIC COMPANY

CONSOLIDATED BALANCE SHEET

January 28, January 29,
1995 1994
----------- -----------
(In thousands of dollars)

LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C>
CURRENT LIABILITIES:
Current portion of obligations under capital
leases (Note 5). . . . . . . . . . . . . . . . . . . . . . $ 9,962 $ 8,773
Current maturities of long-term debt (Note 2) . . . . . . . 4,118 4,208
Trade accounts and drafts payable . . . . . . . . . . . . . 209,890 183,967
Payroll and other accrued liabilities . . . . . . . . . . . 79,434 74,028
Accrued interest expense. . . . . . . . . . . . . . . . . . 30,686 28,690
Payroll taxes and other taxes payable . . . . . . . . . . . 19,582 18,901
Deferred income taxes -- current (Note 4) . . . . . . . . . 27,384 24,669
---------- -----------
381,056 343,236
---------- -----------

NONCURRENT LIABILITIES:
Obligations under capital leases (Note 5) . . . . . . . . . 126,894 131,148
Long-term debt (Note 2) . . . . . . . . . . . . . . . . . . 1,136,302 1,021,896
Deferred income taxes (Note 4). . . . . . . . . . . . . . . 73,598 72,411
Other noncurrent liabilities. . . . . . . . . . . . . . . . 43,189 49,228
---------- -----------
1,379,983 1,274,683
---------- -----------
TOTAL LIABILITIES . . . . . . . . . . . . . . . . . . . . . . 1,761,039 1,617,919
---------- -----------

SHAREHOLDERS' EQUITY (NOTE 8):
Preferred Stock--Authorized 10,000,000, $1.00 par
value; none issued . . . . . . . . . . . . . . . . . . . .
Common Stock--Authorized 30,000,000, $1.25 par value;
10,846,701 shares and 10,840,151 shares issued and
outstanding, respectively. . . . . . . . . . . . . . . . . 13,558 13,550
Capital in Excess of Par Value 179,165 179,087
Retained Deficit (149,681) (162,924)
Minimum Pension Liability Adjustment (Note 3) (356) (4,963)
Unearned Compensation (Note 8) (9,759) (9,768)
---------- -----------
TOTAL SHAREHOLDERS' EQUITY 32,927 14,982
---------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $1,793,966 $1,632,901
---------- -----------
---------- -----------
</TABLE>

The accompanying notes are an integral part of these statements.

-33-

<PAGE>

THE PENN TRAFFIC COMPANY

CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY

Minimum
Capital in Pension Total
Common Excess of Retained Liability Unearned Shareholders'
Stock Par Value Deficit Adjustment Compensation Equity
------- ----------- -------- ---------- ------------ ---------
(In thousands of dollars)
<S> <C> <C> <C> <C> <C> <C>
FEBRUARY 1, 1992 $10,322 $ 95,517 $(137,298) $(31,459)
Net loss (6,832) (6,832)
Cash dividends--preferred stock (968) (968)
Purchase of 112,140 shares of
Big Bear common stock (803) (803)
Purchase of 103,000 shares of
Big Bear redeemable convertible
8% preferred stock (291) (291)
Other (135) (135)
------- -------- ---------- ------- ------- --------
JANUARY 30, 1993 10,322 94,288 (145,098) (40,488)
Net loss (17,667) (17,667)
Cash dividends--preferred stock (159) (159)
Issuance of 2,000,000 shares of
common stock, net (Note 8) 2,500 71,888 74,388
Issuance of 307,836 shares of
common stock, net (Note 8) 385 3,276 3,661
Exercise of 11,105 common stock
option shares (Note 8) 14 196 210
Issuance of 263,100 restricted
stock shares (Note 8) 329 9,439 $(9,768)
Minimum pension liability adjustment
(Note 3) $(4,963) (4,963)
------- -------- ---------- ------- ------- --------
JANUARY 29, 1994 13,550 179,087 (162,924) (4,963) (9,768) 14,982
Net income 13,210 13,210
Exercise of 7,550 common stock
option shares (Note 8) 9 119 128
Cancellation of 1,000 restricted
stock shares (Note 8) (1) (41) 42
Minimum pension liability adjustment
(Note 3) 4,607 4,607
Unearned compensation adjustment
(Note 8) (9) 9
------- -------- ---------- ------- ------- --------
JANUARY 28, 1995 $13,558 $179,165 $(149,681) $ (356) $(9,759) $ 32,927
------- -------- ---------- ------- ------- --------
------- -------- ---------- ------- ------- --------

</TABLE>

The accompanying notes are an integral part of these statements.

-34-

<PAGE>

THE PENN TRAFFIC COMPANY

CONSOLIDATED STATEMENT OF CASH FLOWS

52 Weeks Ended 52 Weeks Ended 52 Weeks Ended
January 28, 1995 January 29, 1994 January 30, 1993
---------------- ---------------- ----------------
(In thousands of dollars)
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) . . . . . . . . . . . $ 13,210 $ (17,667) $ (6,832)
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Cumulative effect of change in
accounting principle. . . . . . . . 5,790
Depreciation and amortization. . . . 72,853 68,556 59,977
Amortization of intangibles. . . . . 14,958 14,313 12,810
Proceeds from prepayment of
operating fee . . . . . . . . . . . 15,000
Other--net . . . . . . . . . . . . . (4,245) (16,391) (10,143)
Net change in assets and
liabilities:
Accounts receivable and prepaid
expenses. . . . . . . . . . . . . . (24,031) 276 (14,501)
Inventories. . . . . . . . . . . . . (22,011) (59,002) (20,981)
Accounts payable and accrued
expenses. . . . . . . . . . . . . . 11,637 3,054 48,955
Deferred charges and other
assets. . . . . . . . . . . . . . . 3,577 16,181 678
--------- --------- ---------
NET CASH PROVIDED BY
OPERATING ACTIVITIES . . . . . . . . . . 71,738 9,320 84,963
--------- --------- ---------
INVESTING ACTIVITIES:
Capital expenditures. . . . . . . . . . (120,005) (128,103) (80,903)
Acquisition of Peter J. Schmitt
stores . . . . . . . . . . . . . . . . (38,800)
Acquisition of Insalaco's stores. . . . (51,651)
Acquisition of Acme stores. . . . . . . (91,004)
Other--net. . . . . . . . . . . . . . . 701 4,348 6,856
--------- --------- ---------
NET CASH (USED IN) INVESTING
ACTIVITIES . . . . . . . . . . . . . . . (210,308) (175,406) (112,847)
--------- --------- ---------
</TABLE>

(continued)

-35-

<PAGE>

THE PENN TRAFFIC COMPANY

CONSOLIDATED STATEMENT OF CASH FLOWS
(CONTINUED)

52 Weeks Ended 52 Weeks Ended 52 Weeks Ended
January 28, 1995 January 29, 1994 January 30, 1993
---------------- ---------------- ----------------
(In thousands of dollars)
<S> <C> <C> <C>
FINANCING ACTIVITIES:
Issuance of Penn Traffic
common stock--net. . . . . . . . . $ $ 74,388 $
Purchase of subsidiary
securities . . . . . . . . . . . . (10,814) (4,636)
Increase in long-term debt. . . . . 100,000 617,145 263,828
Payments to settle long-term
debt . . . . . . . . . . . . . . . (62,384) (443,342) (195,799)
Borrowing of revolver debt. . . . . 476,000 587,976 381,014
Repayment of revolver debt. . . . . (399,300) (600,776) (382,914)
Reduction of capital lease
obligations. . . . . . . . . . . . (8,598) (7,727) (7,949)
Payment of debt issuance costs. . . (3,224) (23,188) (6,830)
Preferred dividends and other--
net. . . . . . . . . . . . . . . . 128 51 (1,111)
--------- --------- ---------
NET CASH PROVIDED BY
FINANCING ACTIVITIES . . . . . . . . 102,622 193,713 45,603
--------- --------- ---------
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS . . . . . . . . . . (35,948) 27,627 17,719

Cash and cash equivalents at
beginning of year. . . . . . . . . 82,467 54,840 37,121
--------- --------- ---------
CASH AND CASH EQUIVALENTS AT
END OF YEAR. . . . . . . . . . . . . $ 46,519 $ 82,467 $ 54,840
--------- --------- ---------
--------- --------- ---------
</TABLE>

The accompanying notes are an integral part of these statements.

-36-

<PAGE>

THE PENN TRAFFIC COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 -- BUSINESS DESCRIPTION AND SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES:

The Penn Traffic Company ("Penn Traffic" or the "Company") is primarily
engaged in retail and wholesale food distribution. As of January 28, 1995, the
Company operated 267 supermarkets (excluding 15 acquired Acme stores to be sold
or divested) in Pennsylvania, New York, Ohio and West Virginia and supplied 124
franchise supermarkets and 117 independent wholesale accounts. It also
operated 15 general merchandise stores. The Company operated 13 modern
distribution centers with approximately 2.8 million square feet of combined
space, owned bakery and dairy operations and had approximately 28,000 employees.

PRINCIPLES OF CONSOLIDATION AND BUSINESS SEGMENT All significant
intercompany transactions and accounts have been eliminated in consolidation.
The Company is principally involved with the distribution and retail sale of
food and related products, which constitutes a single significant business
segment.

FISCAL YEAR The fiscal year of the Company ends on the Saturday nearest to
January 31.

CASH AND SHORT-TERM INVESTMENTS Short-term investments are classified as
cash and are stated at cost, which approximates market value. For the purpose
of the Consolidated Statement of Cash Flows, the Company considers all highly
liquid debt instruments purchased with a maturity of three months or less to be
cash equivalents.

INVENTORIES Inventories are valued at the lower of cost or market. The
Company's inventories, representing grocery and certain general merchandise and
manufactured inventories, are stated at cost using the last-in, first-out (LIFO)
method of valuation. Inventories stated on the LIFO basis were approximately
$17,145,000 and $14,353,000 below replacement cost at January 28, 1995 and
January 29, 1994, respectively.

FIXED ASSETS AND CAPITAL LEASES Major renewals and betterments are
capitalized, whereas maintenance and repairs are charged to operations as
incurred. Depreciation and amortization for financial accounting purposes are
provided on the straight-line method. For income tax purposes, the Company
principally uses accelerated methods. For financial accounting purposes,
depreciation and amortization are provided over the following useful lives or
lease term:

Buildings . . . . . . . . . . . . 16 to 50 years
Furniture and fixtures. . . . . . 4 to 15 years
Vehicles. . . . . . . . . . . . . 3 to 8 years
Leaseholds and improvements . . . 5 to 30 years
Capital leases. . . . . . . . . . lease term

-37-

<PAGE>

INTANGIBLE ASSETS RESULTING FROM ACQUISITIONS The excess of the costs over
the amounts attributed to tangible net assets is primarily being amortized over
40 years using the straight-line method. In addition, certain nonfinancing
costs resulting from acquisitions have been capitalized as other assets and
deferred charges. For Fiscal 1995, 1994 and 1993, amortization of intangibles
was $14,958,000, $14,313,000 and $12,810,000, respectively.

At each balance sheet date, the Company evaluates the realizability of
goodwill based on estimated future nondiscounted cash flows. Based upon its
most recent analysis, the Company believes that no impairment of goodwill exists
at January 28, 1995.

INVESTMENT IN AFFILIATED COMPANY Until March 1995, the Company had a
minority interest investment in The Grand Union Company which was carried on the
equity basis (Note 9).

DEFERRED CHARGES Deferred charges consist of debt issuance costs and
prepaid pension expense and the value of leasehold interests that were recorded
in conjunction with acquisitions. These deferred charges are being amortized
primarily on a straight-line basis over the life of the related debt, the
remaining service lives of employees and the lives of the related leases,
respectively.

STORE PRE-OPENING COSTS Store pre-opening costs are generally charged to
expense as incurred.

INCOME TAXES Income taxes are provided based on the liability method of
accounting pursuant to Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes" ("SFAS 109").

Deferred income taxes are recorded to reflect the tax consequences on
future years of temporary differences between the tax basis of assets and
liabilities and their financial reporting amounts at each year end.

NET INCOME (LOSS) PER SHARE Net income (loss) per share of common stock is
based on the average number of shares and equivalents of common stock
outstanding during each period, after giving effect to preferred stock
dividends. Fully diluted income per share is not presented for each of the
periods since the reduction from primary income per share is less than three
percent.

-38-

<PAGE>

NOTE 2 -- LONG-TERM DEBT

The long-term debt of Penn Traffic consists of the obligations described
below:

JANUARY 28, JANUARY 29,
1995 1994
----------- ----------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C>
Secured Revolving Credit Facility. . . . . . . . . . $ 76,700 $
Other Secured Debt . . . . . . . . . . . . . . . . . 31,480 35,681
11 1/2% Senior Notes due October 15, 2001. . . . . . 107,240 113,000
10 1/4% Senior Notes due February 15, 2002 . . . . . 125,000 125,000
8 5/8% Senior Notes due December 15, 2003 . . . . . 200,000 200,000
10 3/8% Senior Notes due October 1, 2004 . . . . . . 100,000 100,000
10.65% Senior Notes due November 1, 2004 . . . . . . 100,000
13 3/4% Senior Subordinated Notes due June 15, 1999. 52,423
9 5/8% Senior Subordinated Notes due April 15, 2005 400,000 400,000
---------- -----------
TOTAL DEBT . . . . . . . . . . . . . . . . . . . . . 1,140,420 1,026,104
Less: Amounts due within one year . . . . . . . . . 4,118 4,208
---------- -----------
TOTAL LONG-TERM DEBT . . . . . . . . . . . . . . . . $1,136,302 $1,021,896
---------- -----------
---------- -----------
</TABLE>

Amounts maturing within the next five years are: $4,118,000,
$2,728,000, $2,186,000, $3,271,000 and $2,644,000. The Company incurred
interest expense of $117,859,000, $117,423,000 and $115,814,000, including
noncash amortization of deferred financing costs of $4,195,000, $4,153,000 and
$4,336,000 for Fiscal 1995, 1994 and 1993, respectively. Interest paid amounted
to $111,669,000, $110,070,000 and $108,789,000 for Fiscal 1995, 1994 and 1993,
respectively.

The estimated fair value of the Company's long-term debt, including current
maturities, was $1.07 billion at both January 28, 1995 and January 29, 1994.
The estimated fair value of the Company's long-term debt has been determined by
the Company using market information provided by an investment banking firm as
to the market value of such debt amounts.

The Company has a revolving credit facility (the "Revolving Credit
Facility") which provides for borrowings of up to $225 million, subject to a
borrowing base limitation measured by eligible inventory and accounts receivable
of the Company. The Revolving Credit Facility matures in April 2000 and is
secured by a pledge of the Company's inventory, accounts receivable and related
assets. Total availability under the Revolving Credit Facility was $121.8
million at January 28, 1995. Effective August 24, 1994, the Revolving Credit
Facility was amended to provide for certain interest rate reductions on
borrowings made thereunder. After giving effect to the terms of the amendment,
based on the interest coverage ratio which the Company has attained, the
interest rate on borrowings as to which the Company elects a LIBOR-based rate
option is LIBOR plus 1.75%, and the interest rate on borrowings as to which the
Company elects a prime-based rate option is prime plus 0.50%. At January 28,
1995, the weighted average rate of interest on the Revolving Credit Facility was
8.1%.

-39-

<PAGE>

In October 1994, Penn Traffic issued $100 million of 10.65% Senior Notes
due 2004. The 11 1/2% Senior Notes due 2001, the 10 1/4% Senior Notes due
2002, the 8 5/8% Senior Notes due 2003, the 10 3/8% Senior Notes due 2004 and
the 10.65% Senior Notes due 2004 are unsecured obligations of Penn Traffic
which rank pari passu with each other and with indebtedness under the Revolving
Credit Facility. However, indebtedness under the Revolving Credit Facility is
secured by certain assets of the Company. The 9 5/8% Senior Subordinated Notes
due 2005 are subordinated to all existing and future senior indebtedness.

The 11 1/2% Senior Notes due 2001, the 10 1/4% Senior Notes due 2002, the 8
5/8% Senior Notes due 2003, the 10 3/8% Senior Notes due 2004, the 10.65% Senior
Notes due 2004, the 9 5/8% Senior Subordinated Notes due 2005 and the Revolving
Credit Facility contain certain covenants, including restrictions on incurrence
of indebtedness by Penn Traffic and limitations on the payment of dividends to
Penn Traffic's common shareholders. The Company is in compliance with all terms
and covenants of its long-term debt agreements as of and for the fiscal year
ended January 28, 1995.

The Company has entered into four interest rate swap agreements, each of
which expires within the next four years, that effectively convert $155 million
of its fixed rate borrowing into variable rate obligations. Under the terms of
these agreements, the Company makes payments at variable rates which are based
on LIBOR and receives payments at fixed interest rates. The net amount paid or
received is included in interest expense. The estimated fair value of the
Company's interest rate swap agreements at January 28, 1995 was a $4.3 million
liability and a $6.7 million asset at January 29, 1994, neither of which has
been recorded on the books of the Company. The estimated fair value of these
interest rate agreements has been determined by the Company using market
information available to the Company, based on information provided by the
counterparty to each interest rate agreement.

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<PAGE>

NOTE 3 -- EMPLOYEE BENEFIT PLANS:

Substantially all of the Company's employees are covered by either defined
benefit plans or defined contribution plans.

The following sets forth the net pension expense recognized for the defined
benefit pension plans and the status of the Company's defined benefit plans:

FISCAL YEAR ENDED
JANUARY 28, JANUARY 29, JANUARY 30,
1995 1994 1993
----------- ----------- ----------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Service cost -- benefits earned
during the period. . . . . . . . . $ 4,617 $ 4,345 $ 3,996
Interest cost on projected benefit
obligation . . . . . . . . . . . . 9,207 8,281 7,014
Actual return on plan assets . . . . (2,117) (11,163) (12,212)
Net amortization and deferral. . . . (9,365) 482 1,663
-------- -------- --------
Net pension expense. . . . . . . . . $ 2,342 $ 1,945 $ 461
-------- -------- --------
-------- -------- --------
</TABLE>

JANUARY 28, 1995 JANUARY 29, 1994
PLANS IN WHICH PLANS IN WHICH
----------------------- ------------------------
ASSETS ACCUMULATED ASSETS ACCUMULATED
EXCEED BENEFITS EXCEED BENEFITS
ACCUMULATED EXCEED ACCUMULATED EXCEED
BENEFITS ASSETS BENEFITS ASSETS
----------- ---------- ----------- ----------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C>
Actuarial present value of
vested benefit obligation . . . $(52,803) $(39,608) $(60,632) $(48,265)
-------- -------- -------- --------
Accumulated benefit obligation . $(56,849) $(43,467) $(64,790) $(52,414)
-------- -------- -------- --------
Projected benefit obligation . . $(67,363) $(43,467) $(79,629) $(52,414)
Plan assets at fair value. . . . 88,964 39,159 89,035 39,265
-------- -------- -------- --------
Plan assets in excess of (less
than) projected benefit
obligation. . . . . . . . . . 21,601 (4,308) 9,406 (13,149)
Unrecognized net transition
(asset) liability . . . . . . (1,774) 119 (1,894) 130
Unrecognized net (gain) loss . . (10,235) 82 (184) 8,469
Unrecognized prior service cost. 4,478 6,822 4,879 7,420
Minimum liability. . . . . . . . (7,023) (16,019)
-------- -------- -------- --------
Net pension asset (liability). . $ 14,070 $ (4,308) $ 12,207 $(13,149)
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>

In calculating benefit obligations and plan assets for Fiscal 1995, the
Company assumed a weighted average discount rate of 9.0%, compensation increase
rates ranging from 3.0% to 3.5% and expected long-term rates of return on plan
assets ranging from 8.5% to 9.5%. For Fiscal 1994, the Company assumed a
weighted average discount rate of 7.25%, compensation increase rates ranging
from 3.0% to 3.5% and expected long-term rates of return on plan assets ranging
from 8.5% to 9.5%.

The Company's defined benefit plans generally provide a retirement benefit
to employees based on specified percentages applied to final average
compensation, as defined, coupled with years of service earned to the date of
retirement. All pension plans comply with the provisions of the Employee
Retirement Income Security Act of 1974 ("ERISA"). Generally, the Company

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<PAGE>

funds accrued pension costs as incurred. Penn Traffic's defined benefit plans'
assets are maintained in separate trusts and are managed by independent
investment managers. The assets were principally invested in equity, debt and
short-term cash securities.

Quality Markets, P&C and Big Bear also contribute to multi-employer pension
funds, which cover certain union employees under collective bargaining
agreements. Such contributions aggregated $4,297,000, $4,759,000 and $4,088,000
in Fiscal 1995, 1994 and 1993, respectively. The applicable portion of the
total plan benefits and net assets of these plans is not separately
identifiable.

The Company contributed to a separate profit-sharing retirement plan for
eligible employees of Quality Markets not covered by a union pension fund for
Fiscal 1994 and Fiscal 1993 and contributes to a profit-sharing arrangement for
certain Riverside division union employees. The expense for these
profit-sharing plans for Fiscal 1994 and 1993 was $279,000 and $572,000,
respectively. Big Bear sponsors a deferred profit-sharing plan for certain
salaried employees. Contributions and costs totalled $845,000, $1,053,000 and
$1,001,000 in Fiscal 1995, 1994 and 1993, respectively.

Pursuant to the provisions of Statement of Financial Accounting Standards
No. 87, "Employers' Accounting for Pensions" ("SFAS 87"), the Company recorded
in other noncurrent liabilities an additional minimum pension liability
adjustment of $7,024,000 as of January 28, 1995 and $16,019,000 as of January
29, 1994, representing the amount by which the accumulated benefit obligation
exceeded the fair value of plan assets plus accrued amounts previously recorded.
The additional liability has been offset by an intangible asset to the extent of
previously unrecognized prior service cost. The amount in excess of previously
unrecognized prior service cost is recorded as a reduction of shareholders'
equity in the amount of $356,000 as of January 28, 1995 and $4,963,000 as of
January 29, 1994, representing the after-tax impact.

Effective January 30, 1994, the Company adopted Statement of Financial
Accounting Standards No. 112, "Employers' Accounting for Postemployment
Benefits" ("SFAS 112"). SFAS 112 requires employers to recognize the obligation
to provide postemployment benefits on an accrual basis if certain conditions are
met. The cumulative effect of the change in accounting principle determined as
of January 30, 1994 reduced net income $5.8 million, net of a $4.1 million
income tax benefit, for the fiscal year ended January 28, 1995.

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<PAGE>

NOTE 4 -- INCOME TAXES:

The provision for income taxes charged to continuing operations was
provided as follows:

FISCAL YEAR ENDED
-----------------
JANUARY 28, JANUARY 29, JANUARY 30,
1995 1994 1993
----------- ----------- -----------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Current Tax Expense:
Federal income. . . . . . . . . . . $10,330 $ 7,728 $11,365
State income. . . . . . . . . . . . 2,682 1,690 2,430
-------- -------- --------
13,012 9,418 13,795
-------- -------- --------
Deferred Tax Expense (Benefit):
Federal income. . . . . . . . . . . 2,895 4,454 (5,936)
State income. . . . . . . . . . . . (56) 1,147 (1,047)
-------- -------- --------
2,839 5,601 (6,983)
-------- -------- --------
Provision for income taxes . . . . . . $15,851 $15,019 $ 6,812
-------- -------- --------
-------- -------- --------
</TABLE>

The differences between income taxes computed using the statutory federal
income tax rate and those shown in the Consolidated Statement of Operations are
summarized as follows:

FISCAL YEAR ENDED
-----------------
JANUARY 28, JANUARY 29, JANUARY 30,
1995 1994 1993
----------- ----------- -----------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Federal tax at statutory rates. . . . . $13,254 $ 8,118 $ 3,673
State income taxes net of federal
income tax effect . . . . . . . . . . 2,722 1,844 1,139
Nondeductible goodwill
amortization. . . . . . . . . . . . . 3,343 3,284 3,189
Capital loss carryforward . . . . . . . (992)
Miscellaneous items . . . . . . . . . . 639 (167) (343)
Increase in deferred income taxes due
to change in federal income tax rate. 2,439
Decrease in deferred income taxes due
to changes in state income tax rates. (997)
State net operating loss carryforwards. (726)
Tax credits . . . . . . . . . . . . . . (1,392) (499) (846)
------- ------- -------
Provision for income taxes. . . . . . . $15,851 $15,019 $ 6,812
------- ------- -------
------- ------- -------
</TABLE>

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<PAGE>

Components of deferred income taxes at January 28, 1995 and January 29,
1994 were as follows:

JANUARY 28, JANUARY 29,
1995 1994
----------- -----------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C>
Deferred Tax Liabilities:
Fixed assets. . . . . . . . . . . . . . $103,673 $ 98,407
Inventory . . . . . . . . . . . . . . . 30,237 30,557
Prepaid expenses and other
current assets . . . . . . . . . . . . 955 530
Goodwill amortization . . . . . . . . . 956 413
Pensions. . . . . . . . . . . . . . . . 2,142 1,119
Deferred charges and other assets . . . 6,209 4,544
-------- --------
$144,172 $135,570
-------- --------
-------- --------
Deferred Tax Assets:
Nondeductible accruals. . . . . . . . . $ 7,604 $ 11,019
Prepaid operating fee . . . . . . . . . 4,170 5,058
Capital leases. . . . . . . . . . . . . 3,791 2,429
Reserve for discontinued
operations . . . . . . . . . . . . . . 560
Net operating loss carryforward . . . . 3,863 10,077
Capital loss carryforward . . . . . . . 1,500 339
Tax credit carryforwards. . . . . . . . 22,262 9,008
-------- --------
$ 43,190 $ 38,490
-------- --------
-------- --------
Net Deferred Tax Liability. . . . . . . . $100,982 $ 97,080
-------- --------
-------- --------
</TABLE>

At January 28, 1995, Penn Traffic had alternative minimum tax credit
carryforwards of $17,945,000, general business tax credit carryforwards of
$2,354,000, targeted jobs credits of $1,313,000 and various state tax credits,
tax effected for federal income tax purposes, of $650,000 available to offset
the Company's regular income tax liability in future years. The general
business tax credit carryforwards begin to expire in 2005 and the alternative
minimum tax credit carryforwards have no expiration date. In addition, the
Company has various state net operating loss carryforwards, tax effected for
federal income tax purposes, of approximately $3,664,000. In Fiscal 1995, the
Company recorded a deferred tax asset of approximately $7,500,000 subject to a
valuation allowance of $6,000,000 for the capital loss realized on the
investment in the capital stock of Grand Union (Note 9).

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<PAGE>

NOTE 5 -- LEASES:

The following is a schedule by year of future gross minimum rental payments
for all leases with terms greater than one year reconciled to the present value
of net minimum capital lease payments as of January 28, 1995:

FISCAL YEARS ENDING IN TOTAL OPERATING CAPITAL
---------------------- ----- --------- -------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
1996. . . . . . . . . . . . . $ 58,579 $ 34,050 $ 24,529
1997. . . . . . . . . . . . . 56,011 32,333 23,678
1998. . . . . . . . . . . . . 50,856 29,425 21,431
1999. . . . . . . . . . . . . 47,474 27,263 20,211
2000. . . . . . . . . . . . . 43,774 25,338 18,436
Later years . . . . . . . . . 375,862 212,700 163,162
-------- -------- --------
Total minimum lease payments. $632,556 $361,109 271,447
-------- --------
-------- --------
Less: Executory costs . . . . (1,501)
--------
Net minimum capital
lease payments. . . . . . . 269,946
Less: Estimated amount
representing interest . . . (133,090)
--------
Present value of
net minimum capital
lease payments. . . . . . . 136,856
Less: Current portion . . . . (9,962)
--------
Long-term obligations
under capital lease at
January 28, 1995. . . . . . $126,894
--------
--------
</TABLE>

The Company principally operates in leased store facilities with terms of
up to 20 years and renewable options for additional periods. The Company
follows the provisions of Statement of Financial Accounting Standards No. 13,
"Accounting for Leases" ("SFAS 13"), in determining the criteria for capital
leases. Leases that do not meet such criteria are classified as operating
leases, and related rentals are charged to expense in the year incurred.
During Fiscal 1995, 1994 and 1993, the Company incurred capital lease
obligations (including acquired leases) of $5,533,000, $7,613,000 and
$35,515,000, respectively, in connection with lease agreements for buildings
and equipment. For Fiscal 1995, 1994 and 1993, capital lease amortization
expense was $11,887,000, $11,758,000 and $10,149,000, respectively.

Future minimum rentals have not been reduced by minimum sublease rentals of
$42,427,000 due in the future under noncancelable subleases. In addition to
minimum rentals, some leases provide for the Company to pay real estate taxes
and other expenses and, in many cases, contingent rentals based on sales.

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<PAGE>

Minimum rental payments and related executory costs for operating leases
were as follows. Contingent rentals and sublease payments include arrangements
on primary leases classified as both capital and operating leases:

FISCAL YEAR ENDED
-----------------
JANUARY 28, JANUARY 29, JANUARY 30,
1995 1994 1993
----------- ----------- -----------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Minimum rentals and executory costs. . $ 35,863 $ 30,393 $ 24,079
Contingent rentals . . . . . . . . . . 1,874 1,437 2,352
Less: Sublease payments. . . . . . . . (9,607) (8,226) (6,904)
-------- -------- --------
Net rental payments. . . . . . . . . . $ 28,130 $ 23,604 $ 19,527
-------- -------- --------
-------- -------- --------
</TABLE>

NOTE 6 -- UNUSUAL ITEM:

NOTE 7 -- REDEEMABLE CONVERTIBLE PREFERRED STOCK:

In April 1993, Big Bear was merged into Penn Traffic. At the effective
date of the merger, holders of Big Bear redeemable convertible 8% preferred
stock and Big Bear common stock received aggregate merger consideration for the
merger equal to 307,836 shares of Penn Traffic common stock and approximately
$10.8 million in cash. As a result of the merger, the Big Bear redeemable
convertible 8% preferred stock was retired.

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<PAGE>

NOTE 8 -- SHAREHOLDERS' EQUITY:

In April 1993, the Company issued 2,000,000 shares of common stock at a
price of $39.25 per share and concurrently offered $400 million of the 9 5/8%
Senior Subordinated Notes due 2005 in underwritten public offerings (the
"Offerings"). Approximately $10.8 million of the proceeds of the Offerings was
used to provide the cash portion of consideration paid to holders of Big Bear
convertible preferred stock and holders of Big Bear common stock other than Penn
Traffic in connection with the merger of Big Bear into the Company (Note 7).
Holders of Big Bear convertible preferred stock and holders of Big Bear common
stock other than Penn Traffic also received 307,836 shares of Penn Traffic
common stock as consideration for the merger. At the effective time of the
merger, the outstanding shares of Big Bear common stock owned by Penn Traffic
were canceled. The remaining proceeds of the Offerings were used to pay or
retire certain outstanding indebtedness of the Company and for general corporate
purposes.

The Company has a Long-term Incentive Plan (the "1993 Plan") which provides
for long-term incentives based upon objective, quantifiable measures of the
Company's performance over time through the payment of incentive compensation of
the types commonly known as stock options, restricted stock, performance shares,
other forms of stock-based incentives such as phantom stock and cash awards. A
maximum of 350,000 shares of common stock may be paid to participants under the
1993 Plan and/or purchased pursuant to stock options granted under the 1993
Plan, subject to antidilution and other adjustments specified in the 1993 Plan.

As of January 28, 1995, a total of 262,100 shares of restricted stock have
been awarded under the Company's 1993 Plan to 67 officers and employees of Penn
Traffic (including one independent contractor). At January 28, 1995, an
additional 87,900 shares of common stock were reserved for future grants under
the 1993 Plan. For all awards made prior to January 29, 1995, vesting of the
shares of restricted stock granted pursuant to such awards is contingent upon
attainment, subsequent to the date of grant, of EBITDA (as defined) levels of
$265 million in any four consecutive fiscal quarter period (plus $4 million for
each fiscal quarter included in the period subsequent to the acquisition of the
Acme stores in January 1995), or $500 million in any eight consecutive fiscal
quarter period (plus $4 million for each fiscal quarter included in the period
subsequent to the acquisition of the Acme stores in January 1995). Such shares
will be forfeited if such levels are not achieved by the fifth anniversary of
the date of grant. To encourage retention of such shares by the participants,
upon vesting of the restricted stock, the Company will make a cash payment to
each participant equal to the amount of income tax payable by such participant
in respect of the award and the cash payment, if such participant agrees not to
sell his shares for at least two years beyond vesting and to refund the payment
if he resigns within such two-year period. As of January 28, 1995, common stock
and capital in excess of par value were increased by $9,759,000 and unearned
compensation was recorded at the same amount to reflect the issuance of the
restricted shares. Unearned compensation, which is shown as a

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<PAGE>

separate component of shareholders' equity, will be expensed as the compensation
is earned.

The 1993 Plan was adopted in Fiscal 1994 as the successor to the Company's
1988 Stock Option Plan (the "1988 Plan"). The Company also has a stock option
plan for directors (the "Directors' Plan") pursuant to which each director of
the Company who is not an employee of the Company receives as of the date of
appointment to the Board of Directors, and thereafter annually, as of the first
business day after the conclusion of each Annual Meeting of Shareholders of the
Company, an option to purchase 1,500 shares of common stock (subject to
antidilution adjustments) at a price equal to the fair market value (as defined
in the Directors' Plan) of such shares on the date of grant.

As of January 28, 1995, options for 244,442 shares and 39,000 shares are
outstanding under the 1988 Plan and the Directors' Plan, respectively. An
additional 11,000 shares of common stock are reserved for issuance under the
Directors' Plan at January 28, 1995. Under the terms of the Directors' Plan,
option prices are 100% of the "fair market value" of the shares on the date
granted. The 1988 Plan options generally vest 20% on the date of grant and 20%
on each of the next four anniversary dates. The Directors' Plan options are
immediately exercisable. Under both plans, options expire ten years after the
date of grant. Changes during the three years ended January 28, 1995 in options
outstanding under the 1988 Plan and the Directors' Plan are as follows:

PENN TRAFFIC STOCK OPTIONS
<TABLE>
<CAPTION>

OPTION PRICE SHARES
PER SHARE UNDER OPTION
------------ ------------
<S> <C> <C>
1988 PLAN
Balance, February 1, 1992 . . . . . . . . . $12.50 - 26.75 263,863
Granted. . . . . . . . . . . . . . . . . . . $28.13 5,000
Canceled . . . . . . . . . . . . . . . . . . $12.87 - 26.75 (3,676)
-------
Balance, January 30, 1993 . . . . . . . . . $12.50 - 28.13 265,187
Granted. . . . . . . . . . . . . . . . . . . 0
Canceled . . . . . . . . . . . . . . . . . . $12.50 - 26.75 (12,935)
-------
Balance, January 29, 1994. . . . . . . . . . $12.50 - 28.13 252,252
Granted. . . . . . . . . . . . . . . . . . . 0
Canceled . . . . . . . . . . . . . . . . . . $12.50 - 26.75 (7,810)
-------
Balance, January 28, 1995. . . . . . . . . . $12.50 - 28.13 244,442
-------
-------

DIRECTORS' PLAN
Granted and outstanding at January 28, 1995 $18.44 - 42.00 39,000
-------
-------
</TABLE>

At January 28, 1995, 236,010 of the 1988 Plan options were exercisable.

At January 28, 1995, certain persons affiliated with Miller Tabak Hirsch +
Co. ("MTH") held warrants to purchase 289,000 shares at $14.00 per share.

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<PAGE>

NOTE 9 -- EQUITY INVESTMENT:

In July 1989, Penn Traffic, through its limited partnership investment in
Grand Acquisition Company, L.P. ("GAC, L.P."), acquired an indirect ownership
interest in approximately 24.3% of the currently outstanding common stock of
Grand Union Holdings Corporation (formerly named GND Holdings Corporation)
("Holdings"), the corporate parent of The Grand Union Company ("Grand Union").
GAC, L.P. owns approximately 39% of the currently outstanding common equity of
Holdings on a fully diluted basis. As of January 28, 1995, Penn Traffic's
indirect ownership interest was 17.8% on a fully diluted basis.

The Company accounted for its investment in Grand Union under the equity
method. The investment was recorded originally at a cost of $18,250,000. The
carrying value of the investment was reduced to zero as of February 2, 1991.

On January 25, 1995, Grand Union filed a voluntary petition for
reorganization under Chapter 11 of the United States Bankruptcy Code with the
United States Bankruptcy Court, District of Delaware (the "Bankruptcy Court").
On February 16, 1995, Grand Union Holdings filed a voluntary Chapter 11 petition
in the Bankruptcy Court. Penn Traffic's equity interest in Grand Union Holdings
became worthless as a result of these bankruptcy proceedings and, on March 24,
1995 Penn Traffic's limited partnership interest in GAC, L.P. was redeemed for
nominal consideration.

See Note 10 - Related Parties for a description of certain ongoing
arrangements between Penn Traffic and Grand Union.

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<PAGE>

NOTE 10 -- RELATED PARTIES:

During Fiscal 1995, the Company had an agreement for financial consulting
and business management services to be provided by MTH. Under this agreement,
the Company paid MTH an annual fee of $1,357,100. The annual fee payable to MTH
for Fiscal 1996 will increase to $1,395,100 as a result of an adjustment to such
fee based upon the increase in the consumer price index.

During Fiscal 1995, the Company paid MTH an additional fee of $500,000 for
its services in connection with assisting the Company with the acquisition of 45
former Acme stores and the public offering of $100 million in principal amount
of Penn Traffic 10.65% Senior Notes due 2004. During Fiscal 1994, the Company
paid MTH additional fees totalling $1,500,000 for its services in connection
with public offerings of debt and equity securities and with the mergers of P&C
and Big Bear into the Company. In Fiscal 1993, the Company paid MTH additional
fees totalling $1,150,000 related to debt offerings and the acquisition of 28
stores from Peter J. Schmitt.

At the time of the acquisition of Grand Union by Holdings in July 1989,
Grand Union and P&C operated stores in some of the same geographic areas in
Vermont and upstate New York. In connection with such acquisition, agreements
were entered into with federal and state antitrust authorities that required the
divestiture of 16 Grand Union stores or P&C stores. The divestitures required
by these agreements were completed on July 30, 1990. P&C operated 13 of the 16
divested stores and Grand Union operated three. In connection with the
divestiture program, P&C discontinued its New England wholesaling business in
December 1989.

In a related transaction, on July 30, 1990, P&C and Grand Union entered
into an agreement (the "Operating Agreement") whereby Grand Union acquired the
right to operate P&C's 13 remaining stores in New England under the Grand Union
name until July 2000. Pursuant to the Operating Agreement, Grand Union agreed
to pay Penn Traffic (as the successor of P&C, which was merged into the Company
in April 1993) a minimum annual fee averaging $10.7 million per year during the
10-year term and, beginning with the year commencing July 31, 1992, to pay Penn
Traffic additional contingent fees of up to $700,000 per year based on sales
performance of the stores operated by Grand Union. As a result of the
recapitalization of Grand Union in July 1992, Penn Traffic received a $15
million prepayment of an operating fee from Grand Union pursuant to the terms of
the Operating Agreement. This prepayment reduced the future payments that Grand
Union will make to Penn Traffic pursuant to the terms of the Operating Agreement
by approximately $3.2 million per year. The Total Revenues line of the
Consolidated Statement of Operations includes pretax operating fees of $11.2
million for the 52 weeks ended January 28, 1995, January 29, 1994 and January
30, 1993. Based on current sales levels, Penn Traffic expects to receive
payment of the maximum contingent fee of $700,000 in each year remaining in the
term of the Operating Agreement.

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<PAGE>

At the expiration of the 10-year term of the Operating Agreement, Grand
Union has the right to extend the term of the Operating Agreement for an
additional five years. In the event of such extension of the lease term, Grand
Union will pay to Penn Traffic an annual fee of $13.6 million in the first year
of the extended term, $14.0 million in the second year, $14.4 million in the
third year, $14.9 million in the fourth year and $15.3 million in the fifth
year, plus contingent fees based on the sales performance of the stores of up to
$700,000 each year.

If Grand Union does not extend the initial term of the Operating Agreement
at its expiration in July 2000 or does not exercise the Purchase Option prior to
the expiration of the term (or the extended term), or in the event of a default
by Grand Union in the performance of its obligations pursuant to the Operating
Agreement, the stores operated by Grand Union pursuant to the Operating
Agreement will be returned to operation by Penn Traffic. Based on current
conditions, management does not believe that the return of operation of the
stores to Penn Traffic would have a significant impact on the financial
condition of the Company.

Grand Union purchases bakery products from Penn Traffic's Penny Curtiss
bakery, and Penn Traffic purchases products from Grand Union's commissary. All
of such purchases are made in the ordinary course of business. The amount of
bakery products purchased by Grand Union from Penny Curtiss was approximately
$3.5 million in Fiscal 1995, $3.1 million in Fiscal 1994 and $3.1 million in
Fiscal 1993. The amount of commissary product purchased by Penn Traffic from
Grand Union was approximately $0.3 million in Fiscal 1995, $0.4 million in
Fiscal 1994 and $0.5 million in Fiscal 1993.

In September 1993, Penn Traffic entered into a program to consolidate the
purchasing and distribution of health and beauty care products and general
merchandise with Grand Union. Under this program, Grand Union procures health
and beauty care products for both Grand Union and Penn Traffic, and Penn
Traffic, through its Big Bear division, procures general merchandise for both
Penn Traffic and Grand Union. Grand Union's general merchandise warehouse in
Montgomery, New York is used to distribute general merchandise and health and
beauty care products to Insalaco's, P&C, Quality Markets and Riverside stores.
This warehouse also supplies Penn Traffic's wholesale customers, as well as
Grand Union stores. Under this arrangement, the cost of operating the
Montgomery warehouse is shared by Penn Traffic in an amount proportionate to
Penn Traffic's usage of the facility. Penn Traffic owns the general merchandise
and health and beauty care products inventory located at the Montgomery, New
York warehouse. In Fiscal 1995, the amount of product sold by Penn Traffic to
Grand Union was $87.9 million. At January 28, 1995, the Company had recorded
net accounts receivable from Grand Union of $0.2 million.

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<PAGE>

As described in Note 9, Grand Union filed a voluntary petition for
reorganization under the Bankruptcy Code in January 1995. The Company's ongoing
relationships with Grand Union are being reevaluated in connection with the
pending Grand Union bankruptcy proceedings. No determination has yet been made
as to whether or on what basis Grand Union's purchase of Penn Traffic's bakery
products and Penn Traffic's purchase of Grand Union's commissary products, or
the arrangement with regard to consolidated purchasing and distribution of
health and beauty care products and of general merchandise, will be continued.

NOTE 11 -- COMMITMENTS AND CONTINGENCIES:

The Company enters into various purchase commitments in the normal course
of business. No losses are expected to result from these purchase commitments.

At January 28, 1995, Penn Traffic had guaranteed obligations of $2.7
million of indebtedness of certain of licensed independent operators.

The Company, its subsidiaries and divisions also are involved in various
legal actions, some of which involve claims for substantial sums. However, any
ultimate liability with respect to these contingencies is not considered to be
material in relation to the consolidated financial position or results of
operations of the Company.

NOTE 12 -- EXTRAORDINARY ITEM:

During Fiscal 1995, Fiscal 1994 and Fiscal 1993, the Company had
extraordinary items of $3,025,000 (net of $2,045,000 income tax benefit),
$25,843,000 (net of $17,848,000 income tax benefit) and $10,823,000 (net of
$6,946,000 income tax benefit), respectively, relating to the early retirement
of debt.

-52-

<PAGE>

NOTE 13 -- ACQUISITIONS:

On January 19, 1995, the Company acquired 45 food stores from American
Stores Company. The stores are located in north central and northeastern
Pennsylvania and in south central New York.

The acquisition cost of $91,570,000 was attributed to major categories of
assets obtained and obligations assumed as follows: inventories $15,502,000;
property, plant and equipment $9,638,000; other assets (goodwill) $81,217,000;
cash $566,000 and other noncurrent liabilities $15,353,000.

On September 27, 1993, the Company acquired 12 food stores from Insalaco's
Markets, Inc. The stores are located in northeastern Pennsylvania.

The acquisition cost of $51,651,000 was attributed to major categories of
assets obtained and obligations assumed as follows: inventories $6,633,000;
property, plant and equipment $9,947,000; other assets (goodwill) $37,071,000
and other noncurrent liabilities $2,000,000.

The unaudited consolidated results of operations on a pro forma basis as
though the American Stores Company stores and Insalaco's stores had been
acquired on January 31, 1993 are as follows:

FOR THE 52 WEEKS ENDED
----------------------
JANUARY 28, JANUARY 29,
1995 1994
----------- ---------
(UNAUDITED)
(IN THOUSANDS OF DOLLARS,
EXCEPT PER SHARE AND
AVERAGE NUMBER OF SHARES
AND EQUIVALENTS)
<S> <C> <C>
Total revenues $ 3,599,513 $ 3,534,710
Net income (loss) applicable to common stock $ 13,303 $ (17,978)
Net income (loss) per common share $ 1.19 $ (1.71)
Average number of common shares and
equivalents outstanding 11,169,337 10,561,256
</TABLE>

The pro forma financial information is not necessarily indicative of the
results of operations that would have occurred had the purchase been made at the
beginning of the period or of the future results of the combined operations.

-53-

<PAGE>

REPORT OF MANAGEMENT

Penn Traffic's management has prepared the financial statements presented in
this annual report and is responsible for the integrity of all information
contained herein. The financial statements presented in this report have been
audited by the independent accountants appointed by the Board of Directors on
the recommendation of its Audit Committee and management. The Company maintains
an effective system of internal accounting controls. The independent
accountants obtain and maintain an understanding of the Company's internal
accounting controls and conduct such tests and related procedures as they deem
necessary to express an opinion on the fairness of the presentation of the
financial statements. The Audit Committee, composed solely of outside
directors, meets periodically with management, internal auditors and independent
accountants to review auditing and financial reporting matters and to ensure
that each group is properly discharging its responsibilities. We rely on our
internal and external auditors to assist us in fulfilling our responsibility for
the fairness of the Company's financial reporting and monitoring the
effectiveness of our system of internal accounting controls.

-54-

<PAGE>

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT

As permitted by General Instruction G(3), information concerning the executive
officers of Penn Traffic is set forth as a supplemental item included in Part I
of the Form 10-K Report under the caption "Executive Officers of Registrant."
Information concerning the directors of Penn Traffic is incorporated by
reference from pages 2 through 7 of the Proxy Statement dated May 1, 1995 filed
or to be filed in connection with the Company's Annual Meeting of Stockholders
to be held on June 7, 1995. Information concerning compliance with Section
16(a) of the Securities Exchange Act of 1934 is incorporated by reference from
page 13 of the Proxy Statement dated May 1, 1995 filed or to be filed in
connection with the Company's Annual Meeting of Stockholders to be held on June
7, 1995.

ITEM 11. EXECUTIVE COMPENSATION

The remuneration of directors and officers appearing on pages 14 through 29 of
the Company's Proxy Statement dated May 1, 1995 filed or to be filed in
connection with the Company's Annual Meeting of Stockholders to be held on
June 7, 1995 is incorporated herein by reference. The information set forth
after the first full paragraph of page 29 through page 38 of the Company's Proxy
Statement dated May 1, 1995, filed or to be filed in connection with the
Company's Annual Meeting of Stockholders to be held on June 7, 1995, is not
"filed" as a part hereof.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The security ownership of certain shareholders appearing on pages 8 through 13
of the Company's Proxy Statement dated May 1, 1995 filed or to be filed in
connection with the Company's Annual Meeting of Stockholders to be held on
June 7, 1995 is incorporated herein by reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTION

The information concerning certain relationships and related transactions
appearing on pages 39 through 41 of the Company's Proxy Statement dated
May 1, 1995 filed or to be filed in connection with the Company's Annual Meeting
of Stockholders to be held on June 7, 1995 is incorporated herein by reference.

-55-
<PAGE>

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

The index for Financial Statements and Supplementary Data is on page 19 under
Item 8 of this Form 10-K.

EXHIBITS:

The following are filed as Exhibits to this Report:

EXHIBIT NO. DESCRIPTION
- ----------- -----------
2.1 Certificate of Merger for merger of Penn Traffic Acquisition
Corporation into Penn Traffic dated April 14, 1993 (incorporated by
reference to Exhibit No. 2.5 to Penn Traffic's Registration
Statement on Form S-3 (Reg. No. 33-51213) filed on December 8, 1993
with the Securities and Exchange Commission (the "SEC") and
referred to herein as the "December 1993 Registration Statement").

2.2 Plan of Merger dated as of February 25, 1993 for the merger of P&C
Food Markets, Inc. ("P&C") into Penn Traffic (incorporated by
reference to Exhibit No. 2.6 to Penn Traffic's Registration
Statement on Form S-3 (Reg. No. 33-58918) filed on April 7, 1993
with the SEC and referred to herein as the "April 1993 Registration
Statement").

2.3 Certificates of Merger for merger of P&C into Penn Traffic dated
April 14, 1993 (incorporated by reference to Exhibit No. 2.7 to the
December 1993 Registration Statement).

-56-

<PAGE>

EXHIBITS (CONTINUED):

EXHIBIT NO. DESCRIPTION
- ----------- -----------
2.4 Agreement and Plan of Merger dated as of February 25, 1993 by and
among Penn Traffic, Penn Traffic Acquisition Corporation and Big
Bear Stores Company ("Big Bear") (incorporated by reference to
Exhibit No. 2.8 to the April 1993 Registration Statement).

2.5 Certificate of Merger for merger of Big Bear into Penn Traffic
Acquisition Corporation dated April 14, 1993 (incorporated by
reference to Exhibit No. 2.9 to the December 1993 Registration
Statement).

2.6 Asset Purchase Agreement dated as of December 9, 1992 between Penn
Traffic and Peter J. Schmitt Co., Inc. (the "December 9, 1992 Asset
Purchase Agreement") (incorporated by reference to Exhibit No. 2.1
to Penn Traffic's Current Report on Form 8-K filed on January 18,
1993 with the SEC and referred to herein as the "Penn Traffic 1993
8-K").

2.6A Letter Agreement dated December 31, 1992 with respect to the
December 9, 1992 Asset Purchase Agreement (incorporated by
reference to Exhibit No. 2.1A to the Penn Traffic 1993 8-K).

2.7 Asset Purchase Agreement dated as of December 29, 1992 between Penn
Traffic and Peter J. Schmitt Co., Inc. (the "December 29, 1992
Asset Purchase Agreement") (incorporated by reference to Exhibit
No. 2.2 to the Penn Traffic 1993 8-K).

2.7A Letter Agreement dated December 30, 1992 with respect to the
December 29, 1992 Asset Purchase Agreement (incorporated by
reference to Exhibit No. 2.2A to the Penn Traffic 1993 8-K).

2.8 Agreement of Purchase and Sale, dated as of August 27, 1993, by and
between Insalaco Markets, Inc., Insalaco's Old Forge, Inc.,
Insalaco's Clarks Green, Inc., Insalaco's Supermarkets Warehouse,
Insalaco Enterprises, Insalaco's Real Estate, Insalaco's Foodliner,
Eagle Valley Realty, Tannersville Realty Company and Penn Traffic
(incorporated by reference to Exhibit No. 10.23 to Penn Traffic's
Quarterly Report on Form 10-Q for the fiscal quarter ended July 31,
1993 and referred to herein as the "Penn Traffic July 1993 10-Q").

2.9 Asset Purchase Agreement by and among Acme Markets, Inc., American
Stores Properties, Inc., American Stores Realty Corp. and The Penn
Traffic Company, dated as of September 30, 1994 (incorporated by
reference to Exhibit 2.13 to Penn Traffic's Report on Form 8-K
dated October 12, 1994 and referred to herein as the "1994 8-K").

3.1 Certificate of Incorporation of Penn Traffic (incorporated by
reference to Exhibit No. 3.1 to Penn Traffic's Registration
Statement on Form S-3 (Reg. No. 33-51824) filed on October 2, 1992
with the SEC and referred to herein as the "October 1992
Registration Statement").

-57-

<PAGE>

EXHIBITS (CONTINUED):

EXHIBIT NO. DESCRIPTION
- ----------- -----------
3.2 Amended and Restated By-Laws of Penn Traffic (incorporated by
reference to Exhibit No. 3.2 to the December 1993 Registration
Statement).

4.1 Certificate of Incorporation of Penn Traffic (filed as Exhibit No.
3.1).

4.2 Amended and Restated By-Laws of Penn Traffic (filed as Exhibit No.
3.2).

4.3 Form of Common Stock Certificate.

4.4 Indenture, including form of 11 1/2% Senior Note Due 2001, dated
as of October 16, 1991 between P&C and Bankers Trust Company
("Bankers Trust"), as Trustee (incorporated by reference to Exhibit
No. 10.25 to P&C's quarterly report on Form 10-Q for the fiscal
quarter ended November 2, 1991 and referred to herein as the "P&C
November 1991 10-Q").

4.4A First Supplemental Indenture dated as of April 15, 1993 between the
Company and Bankers Trust, as Trustee, relating to the 11 1/2%
Senior Notes Due 2001 (incorporated by reference to Exhibit No.
4.10A to Penn Traffic's Quarterly Report on Form 10-Q for the
fiscal quarter ended May 1, 1993 and referred to herein as the
"Penn Traffic May 1993 10-Q").

4.5 Indenture, including form of 10 1/4% Senior Note Due February 15,
2002, dated as of February 18, 1992 between Penn Traffic and Marine
Midland Bank, N.A., Trustee (incorporated by reference to Exhibit
No. 4.13 to Penn Traffic's Annual Report on Form 10-K for the
fiscal year ended February 1, 1992 and referred to herein as the
"Penn Traffic 1992 10-K").

4.5A First Supplemental Indenture dated as of June 10, 1992 to the
Indenture dated as of February 18, 1992, relating to the
10 1/4% Senior Notes Due 2002, between Penn Traffic and Marine
Midland Bank, N.A., as Trustee (incorporated by reference to
Exhibit 4.15A to the October 1992 Registration Statement).

4.5B Second Supplemental Indenture dated as of September 18, 1992 to the
Indenture dated as of February 18, 1992, relating to the 10 1/4%
Senior Notes Due 2002, between Penn Traffic and Marine Midland
Bank, N.A., as Trustee (incorporated by reference to Exhibit 4.15B
to the October 1992 Registration Statement).

4.6 Indenture, including form of 10 3/8% Senior Note Due October 1,
2004, dated as of October 1, 1992, between Penn Traffic and United
States Trust Company of New York, as Trustee (incorporated by
reference to Exhibit No. 4.16 to Penn Traffic's Quarterly Report on
Form 10-Q for the fiscal quarter ended October 31, 1992).

-58-

<PAGE>

EXHIBITS (CONTINUED):

EXHIBIT NO. DESCRIPTION
- ----------- -----------
4.7 Indenture, including form of 9 5/8% Senior Subordinated Note Due
April 15, 2005, dated as of April 15, 1993, between Penn Traffic
and First Trust of California, National Association, as Trustee
(incorporated by reference to Exhibit No. 4.14 to the Penn Traffic
May 1993 10-Q).

4.8 Indenture dated as of December 15, 1993, between Penn Traffic and
United States Trust Company of New York, as Trustee (incorporated by
reference to Exhibit No. 4.9 to Penn Traffic's Form 10-K for the
fiscal year ended January 29, 1994, and referred to herein as the
"1994 10-K").

4.8A Officer's Certificate pursuant to the Indenture filed as Exhibit
4.8, dated December 21, 1993, establishing the terms of the 8 5/8%
Senior Notes due December 15, 2003.

4.8B Officer's Certificate pursuant to the Indenture filed as Exhibit
4.8, dated October 20, 1994, establishing the terms of the 10.65%
Senior Notes due November 1, 2004.

10.1 Membership and Licensing Agreement dated April 18, 1982 among TOPCO
Associates, Inc. (Cooperative), Kingston Marketing Co. and Penn
Traffic (incorporated by reference to Exhibit No. 10.2 to Penn
Traffic's Registration Statement on Form S-1 (Reg. No. 33-12926)
filed on March 27, 1987 with the SEC and referred to herein as the
"1987 Registration Statement").

*10.2 The Penn Traffic Company Incentive Compensation Plan (incorporated
by reference to Exhibit No. 10.3 to the 1987 Registration
Statement).

*10.3 The Penn Traffic Company Severance Pay Plan (incorporated by
reference to Exhibit No. 10.5 to the 1987 Registration Statement).

*10.4 Riverside Division of The Penn Traffic Company Bargaining Employees
Pension Plan (incorporated by reference to Exhibit No. 10.6 to the
1987 Registration Statement).

*10.5 Pension Plan for Non-Bargaining Employees of Riverside Division of
The Penn Traffic Company (incorporated by reference to Exhibit No.
10.7 to the 1987 Registration Statement).

*10.6 Johnstown Sanitary Dairy Pension Plan for Bargaining Employees
(incorporated by reference to Exhibit No. 10.8 to the 1987
Registration Statement).

*10.7 Johnstown Sanitary Dairy Salaried Personnel Pension Plan
(incorporated by reference to Exhibit No. 10.9 to the 1987
Registration Statement).

- ----------------------
* Management contract, compensatory plan or arrangement.

-59-

<PAGE>

EXHIBITS (CONTINUED):

EXHIBIT NO. DESCRIPTION
- ----------- -----------
*10.8 Quality Markets, Inc. ("Quality") Profit Sharing Plan (incorporated
by reference to Exhibit No. 10.11 to the 1987 Registration
Statement).

10.9 Loan and Security Agreement (the "Loan and Security Agreement")
among Penn Traffic, Quality, Dairy Dell, Big M Supermarkets, Inc.
("Big M"), Penny Curtiss Baking Company Inc. ("Penny Curtiss"),
and Hart Stores, Inc. ("Hart"), the lenders party thereto and
NatWest USA Credit Corp., as Agent, dated March 5, 1993
(incorporated by reference to Exhibit No. 10.2 to the April 1993
Registration Statement).

10.9A Amendment No. 1, dated March 12, 1993, to the Loan and Security
Agreement (incorporated by reference to Exhibit No. 10.2A to the
April 1993 Registration Statement).

10.9B Amendment No. 2, dated as of March 24, 1993, to the Loan and
Security Agreement (incorporated by reference to Exhibit No. 10.2B
to the April 1993 Registration Statement).

10.9C Waiver Letter dated as of April 14, 1993, among the lenders under
the Loan and Security Agreement, Penn Traffic, Quality, Dairy Dell,
Big M, Penny Curtiss and Hart (incorporated by reference to Exhibit
No. 10.22C to the Penn Traffic May 1993 10-Q).

10.9D Amendment No. 3, dated as of April 15, 1993, to the Loan and
Security Agreement (incorporated by reference to Exhibit No. 10.22D
to the Penn Traffic May 1993 10-Q).

10.9E Amendment No.4, dated as of August 20, 1993, to the Loan and
Security Agreement (incorporated by reference to Exhibit No. 10.22E
to the Penn Traffic July 1993 10-Q).

10.9F Amendment No. 5, dated as of August 24, 1994, to the Loan and
Security Agreement (incorporated by reference to Exhibit 10.9F to
Penn Traffic's Report on Form 10-Q for the fiscal quarter ended
July 30, 1994 and referred to herein as the "July 1994 10-Q").

10.9G Amendment No. 6, dated as of August 24, 1994, to the Loan and
Security Agreement (incorporated by reference to Exhibit 10.9G to
the July 1994 10-Q).

10.9H Consent and Amendment to the Loan and Security Agreement, dated as
of September 29, 1994 (incorporated by reference to Exhibit 10.9H
to the 1994 Form 8-K).

10.10 Engagement Letter dated as of January 30, 1994 by and among Penn
Traffic and Miller Tabak Hirsch + Co. (incorporated by reference to
Exhibit 10.10 to the 1994 10-K).

- ----------------------
* Management contract, compensatory plan or arrangement.

-60-

<PAGE>

EXHIBITS (CONTINUED):

EXHIBIT NO. DESCRIPTION
- ----------- -----------
*10.11 U-Save Foods, Inc. Employees' Retirement Plan (incorporated by
reference to Exhibit No. 10.17 to Penn Traffic's Annual Report on
Form 10-K for the fiscal year ended January 30, 1988).

*10.12 The Penn Traffic Company Directors' Stock Option Plan (incorporated
by reference to Exhibit No. 10.20 to Penn Traffic's Annual Report
on Form 10-K for the fiscal year ended February 3, 1990 and
referred to herein as the "Penn Traffic 1990 10-K").

10.13 Agreement and Master Sublease dated as of July 30, 1990, by and
between The Grand Union Company and P&C (incorporated by reference
to Exhibit No. 10.24 to Penn Traffic's Quarterly Report on Form 10-
Q for the Fiscal Quarter ended August 4, 1990 and referred to
herein as the "Penn Traffic August 1990 10-Q").

10.14 Interest Rate and Currency Exchange Agreement dated as of October
16, 1991 between Salomon Brothers Holding Company, Inc. ("SBHC")
and P&C (incorporated by reference to Exhibit No. 10.27 to the P&C
November 1991 10-Q).

- ----------------------
* Management contract, compensatory plan or arrangement.

-61-

<PAGE>

EXHIBITS (CONTINUED):

EXHIBIT NO. DESCRIPTION
- ----------- -----------
10.14A Letter Agreement dated October 16, 1991 from SBHC to P&C, setting
forth the terms and conditions of the swap transaction and interest
rate transaction entered into between SBHC and P&C on October 16,
1991 (incorporated by reference to Exhibit No. 10.27A to the P&C
November 1991
10-Q).

10.15 Interest Rate and Currency Exchange Agreement dated as of October
16, 1991 between SBHC and Big Bear (incorporated by reference to
Exhibit No. 10.22 to Big Bear's Quarterly Report on Form 10-Q for
the quarterly period ended November 2, 1991 and referred to herein
as the "Big Bear third quarter 1991 10-Q").

10.15A Letter Agreement dated October 16, 1991 from SBHC to Big Bear
setting forth the terms and conditions of the swap transaction and
interest (incorporated by reference to Exhibit No. 10.22A for the
Big Bear 1991 third quarter 10-Q).

*10.16 Employment Agreement, dated as of February 2, 1992, among Penn
Traffic, P & C and Claude J. Incaudo (incorporated by reference to
Exhibit No. 10.37 to the Penn Traffic 1992
10-K).

*10.17 The Penn Traffic Company's 1993 Long Term Incentive Plan (filed as
Exhibit "A" to Penn Traffic's Proxy Statement filed with the SEC on
May 1, 1993 and incorporated herein by reference).

10.18 First Mortgage, Security Agreement, Financing Statement and
Assignment of Leases and Rents dated as of October 25, 1993 by and
among Penn Traffic and Onondaga County Industrial Development
Agency, as mortgagor and NatWest USA Credit Corp., as mortgagee
(incorporated by reference to Exhibit No. 10.24 to Penn Traffic's
Quarterly Report on Form 10-Q for the fiscal quarter ended October
31, 1993).

10.19 Underwriting Agreement relating to Debt Securities, dated December
14, 1993, between Penn Traffic and Goldman, Sachs & Co. and BT
Securities Corporation (incorporated by reference to Exhibit 10.24
to Penn Traffic's 1994 10-K).

10.20 Agreement Containing Consent Order dated January 9, 1995 by and
between Penn Traffic and the Federal Trade Commission entered into
in the matter of The Penn Traffic Company (incorporated by
reference to Exhibit 10.25 to Penn Traffic's Report on Form 8-K
dated January 19, 1995).

10.21 Agreement, dated November 18, 1994, between Penn Traffic and Grand
Union relating to the Grand Union warehouse in Montgomery, New
York.

- ----------------------
* Management contract, compensatory plan or arrangement.

-62-

<PAGE>

EXHIBITS (CONTINUED):

EXHIBIT NO. DESCRIPTION
- ----------- -----------
*10.22 Employment Agreement, dated as of January 29, 1995, between John T.
Dixon and Penn Traffic.

21.1 Subsidiaries of Penn Traffic (incorporated by reference to Exhibit
21.1 to Penn Traffic's 1994 10-K).

23.1 Consent of Price Waterhouse LLP.

27.1 Financial Data Schedule.

- ----------------------
* Management contract, compensatory plan or arrangement.

- --------------------------------------------------------------------------------

Copies of the above exhibits will be furnished without charge to any shareholder
by writing to Treasurer, The Penn Traffic Company, 1200 State Fair Boulevard,
Syracuse, New York 13221.

REPORTS ON FORM 8-K

On October 12, 1994 and January 27, 1995, the Company filed reports on Form
8-K relating to the acquisition of 45 stores from American Stores Company.

-63-

<PAGE>

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.

THE PENN TRAFFIC COMPANY

April 26, 1995 By: /s/ John T. Dixon
-------------- ----------------------------
DATE John T. Dixon, President,
Chief Executive Officer and
Director

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.

/s/ Gary D. Hirsch /s/ Eugene R. Sunderhaft
- ------------------------------------- -----------------------------
Gary D. Hirsch, Chairman of the Board Eugene R. Sunderhaft,
and Director Senior Vice President
and Secretary
April 26, 1995 (Principal Financial Officer and
-------------- Principal Accounting Officer)
DATE

April 26, 1995
--------------
DATE

/s/ Eugene A. DePalma
- ------------------------------------- -----------------------------
Susan E. Engel, Director Eugene A. DePalma, Director

April 26, 1995 April 26, 1995
-------------- -------------
DATE DATE

/s/ Martin A. Fox
- ------------------------------------- -----------------------------
Martin A. Fox, Director Joseph J. McCaig, Director

April 26, 1995 April 26, 1995
-------------- --------------
DATE DATE

/s/ Guido Malacarne /s/ Harold S. Poster
- ------------------------------------- -----------------------------
Guido Malacarne, Director Harold S. Poster, Director

April 26, 1995 April 26, 1995
-------------- --------------
DATE DATE

/s/ Richard D. Segal /s/ Claude J. Incaudo
- ------------------------------------- -----------------------------
Richard D. Segal, Director Claude J. Incaudo, Director

April 26, 1995 April 26, 1995
-------------- --------------
DATE DATE

-64-

<PAGE>

THE PENN TRAFFIC COMPANY

SCHEDULE VIII

VALUATION AND QUALIFYING ACCOUNTS

(IN THOUSANDS OF DOLLARS)

COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- -------- -------- -------- -------- --------
ADDITIONS
BALANCE CHARGED DEDUCTIONS BALANCE
AT BEGINNING TO COSTS FROM AT END
DESCRIPTION OF PERIOD AND EXPENSES ACCOUNTS OF PERIOD
- ----------- --------- ------------ -------- ----------
<S> <C> <C> <C> <C>

Reserve deducted from asset
to which it applies:

FOR THE 52 WEEKS ENDED
JANUARY 28, 1995
Provision for doubtful
accounts. . . . . . . . . . $ 740 $ 1,610 $ 976(a) $ 1,374
------- ------- ------- -------
------- ------- ------- -------

FOR THE 52 WEEKS ENDED
JANUARY 29, 1994
Provision for doubtful
accounts. . . . . . . . . . $ 661 $ 1,806 $ 1,727(a) $ 740
------- ------- ------- -------
------- ------- ------- -------

FOR THE 52 WEEKS ENDED
JANUARY 30, 1993
Provision for doubtful
accounts. . . . . . . . . . $ 643 $ 1,196 $ 1,178(a) $ 661
------- ------- ------- -------
------- ------- ------- -------

<FN>
(a) Uncollectible receivables written off net of recoveries.
</TABLE>

-65-

<PAGE>

NUMBER SHARES
PT
[Seal] American Bank Note Company

COMMON STOCK COMMON STOCK

[Graphic]

INCORPORATED UNDER THE LAWS SEE REVERSE FOR
OF THE STATE OF DELAWARE CERTAIN DEFINITIONS

[LOGO] CUSIP 707832 10 1

THE PENN TRAFFIC COMPANY

THIS CERTIFIES THAT

IS THE OWNER OF

FULLY PAID AND NON-ASSESSABLE COMMON SHARES OF THE PAR VALUE OF $1.25 PER SHARE
OF

CERTIFICATE OF STOCK

THE PENN TRAFFIC COMPANY (THE "COMPANY"), TRANSFERABLE ON THE BOOKS OF THE
COMPANY IN PERSON OR BY DULY AUTHORIZED ATTORNEY ON SURRENDER OF THIS
CERTIFICATE PROPERLY ENDORSED. THIS CERTIFICATE IS NOT VALID UNLESS
COUNTERSIGNED BY THE TRANSFER AGENT AND REGISTERED BY THE REGISTRAR.

WITNESS THE FACSIMILE CORPORATE SEAL AND THE FACSIMILE SIGNATURES OF THE
COMPANY'S DULY AUTHORIZED OFFICERS.

DATED

COUNTERSIGNED AND REGISTERED:

HARRIS TRUST COMPANY OF NEW YORK,
TRANSFER AGENT
AND REGISTRAR,

AUTHORIZED SIGNATURE.

/s/ Eugene R. Sunderhaft /s/ Claude J. Incaudo
SECRETARY PRESIDENT AND
CHIEF EXECUTIVE OFFICER

<PAGE>

THE PENN TRAFFIC COMPANY
NOTICE

The Company or any of its Transfer Agents will furnish to any shareholder
upon request and without charge a statement, in full, of (1) all of the
designations, preferences, qualifications, limitations, restrictions, and
special or relative rights of the shares of each class of stock authorized to be
issued by the Company, (2) the variations in the relative rights and preferences
as between shares of different series of preferred and preference stock, and (3)
the authority of the Board of Directors to fix and determine the relative rights
and preferences of series of preferred or preference stock.

- --------------------------------------------------------------------------------

The following abbreviations, when used in the inscription on the face of
this Certificate, shall be construed as though the words set forth below
opposite each abbreviation were written out in full according to applicable laws
or regulations:

TEN COM -- as tenants in common

TEN ENT -- as tenants by the entireties

JT TEN -- as joint tenants with right of survivorship and not as tenants in
common

UNIF GIFT MIN ACT-- _______________ Custodian _______________
(Cust) (Minor)
under Uniform Gifts to Minors

Act _______________
(State)

Additional abbreviations may also be used though not in the above list.
- --------------------------------------------------------------------------------

FOR VALUE RECEIVED _______________________ HEREBY SELL, ASSIGN AND TRANSFER UNTO

PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE

- --------------------------------------
| |
- --------------------------------------

________________________________________________________________________________

(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)

________________________________________________________________________________

__________________________________________________________________________SHARES

OF THE CAPITAL STOCK REPRESENTED BY THE WITHIN CERTIFICATE, AND DO HEREBY
IRREVOCABLY CONSTITUTE AND APPOINT

________________________________________________________________________ATTORNEY

TO TRANSFER THE SAID STOCK ON THE BOOKS OF THE WITHIN-NAMED COMPANY WITH FULL
POWER OF SUBSTITUTION IN THE PREMISES.

DATED__________________

__________________________________________________

NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND
WITH THE NAME AS WRITTEN UPON THE FACE OF THE
CERTIFICATE IN EVERY PARTICULAR, WITHOUT
ALTERATION OR ENLARGEMENT, OR ANY CHANGE WHATEVER.

SIGNATURE GUARANTEE:
________________________________________________________________________________

The signature(s) must be guaranteed by an eligible guarantor institution (Banks,
Stockbrokers, Savings and Loan Associations and Credit Unions with membership in
an approved signature guarantee Medallion Program), pursuant to S.E.C.
Rule 17Ad-15.

________________________________________________________________________________

THIS SPACE MUST NOT BE COVERED IN ANY WAY

<PAGE>

THE PENN TRAFFIC COMPANY

OFFICERS' CERTIFICATE

Pursuant to Sections 3.01, 3.03 and 11.04
of the Indenture

Claude J. Incaudo, President and Chief Executive Officer of The Penn
Traffic Company, a Delaware corporation (the "Company"), and Eugene R.
Sunderhaft, Vice President-Finance, Secretary and Treasurer of the Company, DO
HEREBY CERTIFY:

1. Each of the undersigned (i) has read Sections 2.01, 3.01, 3.03,
3.04, 11.04 and 11.05 of the Indenture dated as of December 15, 1993 (the
"Indenture") between the Company and United States Trust Company of New
York, as Trustee; (ii) has examined such accounts and records of the
Company and made such inquiries of officers, employees and agents of the
Company as he has deemed necessary to express his opinion as contained
herein; and (iii) is of the opinion that such examinations and inquiries
are sufficient to enable him to express an informed opinion as to whether
or not the covenants and conditions precedent which are stated herein to be
complied with have been complied with;

2. Attached hereto as Exhibit A is a true and correct copy of a
specimen of the Company's 8 5/8% Senior Notes due December 15, 2003 (the
"Notes"), the aggregate principal amount of which shall be limited to
$200,000,000 and which shall have the terms set forth in such Exhibit A;

3. After giving effect to the authentication and delivery of the
Notes pursuant to the Company Order dated the date hereof (i) the aggregate
principal amount of Notes Outstanding will not exceed the maximum aggregate
principal amount permitted to be Outstanding pursuant to authorization by
the Company's Board of Directors; and (ii) the Company will not be in
Default and no Event of Default will have occurred; and

<PAGE>

4. All conditions precedent provided for in the Indenture relating to
the authentication and delivery of the Notes have been complied with.

Capitalized terms used herein that are not otherwise defined shall
have the meanings ascribed thereto in the Indenture.

This Certificate may be executed in counterparts, each one of which
shall be deemed an original and which together shall constitute one document.

IN WITNESS WHEREOF, the undersigned have executed this Certificate
this 21st day of December, 1993.

/s/ Claude J. Incaudo
------------------------
Claude J. Incaudo
President and Chief
Executive Officer

/s/ Eugene R. Sunderhaft
--------------------------
Eugene R. Sunderhaft
Vice President-Finance,
Secretary and Treasurer

-2-

<PAGE>
Exhibit A

No. $200,000,000.00
-------- ---------------
CUSIP 707832 AE1

THE PENN TRAFFIC COMPANY

Incorporated under the laws of the
State of Delaware

8 5/8% Senior Notes due December 15, 2003

THE PENN TRAFFIC COMPANY, for value received, hereby promises to pay
to _________________________ or registered assigns, the principal sum of
$200,000,000.00 Dollars on December 15, 2003 and to pay interest thereon
semiannually in arrears at the rate of 8 5/8% per annum on June 15 and December
15 of each year until the principal hereof is paid or made available for
payment. Payment of principal, premium, if any, and interest shall be made in
the manner and subject to the terms set forth in provisions appearing on the
reverse hereof, which provisions, in their entirety, shall for all purposes have
the same effect as if set forth at this place.

<PAGE>

IN WITNESS WHEREOF, THE PENN TRAFFIC COMPANY has caused this
instrument to be executed in its corporate name by the manual or facsimile
signature of its President or a Vice President and attested by its Secretary or
an Assistant Secretary.

Dated: December 21, 1993

THE PENN TRAFFIC COMPANY

By
-------------------------
Eugene R. Sunderhaft
Vice President - Finance,
Secretary and Treasurer

Attest:
-------------------------
Francis D. Price, Jr.
Vice President and
Assistant Secretary

[SEAL]

- 2 -

<PAGE>

This is one of the Securities of the series designated therein referred to
in the within-mentioned Indenture.

Dated: December 21, 1993

UNITED STATES TRUST COMPANY
OF NEW YORK, as Trustee

By:_______________________________
Authorized Signatory

UNITED STATES TRUST COMPANY
OF NEW YORK, as Trustee

By: BANKERS TRUST COMPANY, as
Authenticating Agent

By:
---------------------------
Authorized Signatory

- 3 -

<PAGE>

(Back of Security)

THE PENN TRAFFIC COMPANY

8 5/8% Senior Notes due December 15, 2003.

1. INTEREST. THE PENN TRAFFIC COMPANY (the "Company"), a Delaware
corporation, promises to pay interest on the principal amount of this Security
at the rate per annum shown above. The Company will pay interest semiannually
in arrears on June 15 and December 15 of each year. Interest on the Securities
will accrue from the most recent date on which interest has been paid or, if no
interest has been paid, from December 21, 1993. Interest will be computed on
the basis of a 360-day year of twelve 30-day months.

2. METHOD OF PAYMENT. The Company will pay interest on the
Securities (except defaulted interest) to the Persons who are registered Holders
of Securities at the close of business on the regular record date, which shall
be the June 1 and December 1, as the case may be, next preceding the interest
payment date even though Securities are cancelled after the record date and on
or before the interest payment date. Any such interest not so punctually paid
or duly provided for, and any interest payable on such defaulted interest (to
the extent lawful), will forthwith cease to be payable to the Holder on such
regular record date and shall be payable to the Person in whose name this
Security is registered at the close of business on a special record date for the
payment of such defaulted interest to be fixed by the Company, notice of which
shall be given to Holders not less than 5 days prior to such special record
date. Holders must surrender Securities to a Paying Agent to collect principal
payments. The Company will pay principal and interest in money of the United
States that at the time of payment is legal tender for payment of public and
private debts. However, the Company may pay principal, premium, if any, and
interest by check payable in such money. It may mail an interest check to a
Holder's registered address.

3. PAYING AGENT AND REGISTRAR. Bankers Trust Company, a New York
banking corporation, will act as Paying Agent and Registrar. The Company may
change any Paying Agent, Registrar or co-Registrar without notice to any Holder.
The Company may act in any such capacity.

- 4 -

<PAGE>

Reform Act of 1990, as in effect on the date of the Indenture ("TIA"). The
Securities are subject to all such terms, and Holders are referred to the
Indenture and such Act for a statement of such terms. This Security is one of
the series designated on the face hereof limited to $200,000,000.00 in an
aggregate principal amount. The Securities are unsecured general obligations of
the Company. Unless otherwise defined herein, all capitalized terms shall have
the meanings assigned to them in the Indenture.

5. DENOMINATIONS, TRANSFER, EXCHANGE. The Securities are in
registered form without coupons in denominations of $1,000 and integral
multiples thereof. The transfer of Securities may be registered and Securities
may be exchanged as provided in the Indenture. The Registrar may require a
Holder, among other things, to furnish appropriate endorsements and transfer
documents and to pay any taxes and fees required by law or permitted by the
Indenture. The Registrar need not exchange or register the transfer of any
Security or portion of a Security selected for redemption. Also, it need not
exchange or register the transfer of any Securities for a period of 15 days
before a selection of Securities to be redeemed.

6. OPTIONAL REDEMPTION. The Securities may not be redeemed prior to
December 15, 1998. On or after such date, the Securities may be redeemed at the
election of the Company as a whole at any time or in part from time to time at
the Redemption Prices (expressed in percentages of principal amount) set forth
below plus accrued interest to the Redemption Date, if redeemed during the
12-month period beginning December 15 of the years indicated below:

Year Percentage
---- ----------

1998.................... 103.234%
1999.................... 102.156%
2000.................... 101.078%
2001 and thereafter..... 100.000%

Notice of redemption will be mailed at least 30 days but not more than 60
days before the Redemption Date to each Holder of Securities to be redeemed, at
his registered address. Securities in denominations larger than $1,000 may be
redeemed in part but only in whole multiples of $1,000. On and after the
Redemption Date interest ceases to accrue on Securities or portions of them
called for redemption.

These Securities shall not have the benefit of any sinking fund
obligations.

7. PERSONS DEEMED OWNERS. The registered Holder of a Security may be
treated as its owner for all purposes.

- 5 -
<PAGE>

8. AMENDMENTS AND WAIVERS. Subject to certain exceptions, the Indenture
and the rights of the Holder of the Securities of each series to be affected
under the Indenture may be amended at any time by the Company and the Trustee
with the consent of the Holders of at least a majority in principal amount of
the Securities at the time Outstanding of each series to be affected. The
Indenture also contains provisions permitting the Holders of specified
percentages in principal amount of the Securities of each series at the time
Outstanding, on behalf of the Holders of all Securities of such series, to waive
compliance by the Company with certain provisions of the Indenture and certain
past defaults under the Indenture and their consequences. Without the consent
of any Holder, the Indenture or the Securities may be amended to cure any
ambiguity, defect or inconsistency; to comply with Section 5.01 of the
Indenture; to make any change that does not adversely affect the legal rights of
any Holder; to comply with the requirements of the SEC to maintain qualification
of the Indenture under the TIA; to add to or change the provisions of the
Indenture to such extent as shall be necessary to permit or facilitate the
issuance of Securities in bearer form, registrable or not registrable as to
principal, and with or without interest coupons, or to permit or facilitate the
issuance of Securities in uncertificated form; or to provide for the appointment
of a successor Trustee with respect to one or more (but not all) series of
Securities issued pursuant to the Indenture, as provided in Section 7.08 of the
Indenture.

9. REMEDIES. As provided in and subject to the provisions of the
Indenture, the Holder of this Security shall not have the right to institute any
proceeding with respect to the Indenture or for the appointment of a receiver or
trustee of for any other remedy thereunder, unless such Holder shall have
previously given the Trustee written notice of a continuing Event of Default
with respect to the Securities of this series, the Holders of not less than 25%
in principal amount of the Securities of this series at the time Outstanding
shall have made written request to the Trustee to institute proceedings in
respect of such Event of Default as Trustee and offered the Trustee reasonable
indemnity, and the Trustee shall not have received from the Holders of a
majority in principal amount of Securities of this series at the time
Outstanding a direction inconsistent with such request, and shall have failed to
institute any such proceeding, for 60 days after receipt of such notice, request
and offer of indemnity. The foregoing shall not apply to any suit instituted by
the Holder of this Security for the enforcement of any payment of principal
hereof or any premium or interest hereon on or after the respective due dates
expressed herein.

- 6 -

<PAGE>

not meet the Consolidated Interest Coverage Ratio set forth in the Indenture,
the Company shall be obligated to make an offer to purchase this Security at a
purchase price in cash equal to 101% of its principal amount plus accrued
interest, after the occurrence of such Change in Control or merger. Holders of
Securities which are the subject of such an offer to repurchase shall receive an
offer to repurchase and may elect to have such Securities repurchased in
accordance with the provisions of the Indenture pursuant to and in accordance
with the terms of the Indenture. The Company shall give the Holder of this
Security notice of such right of repurchase not less than 20 nor more than 60
business days prior to the consummation of a merger, consolidation, transfer,
sale or lease that would require the Company to offer to repurchase the
Securities and not more than 45 business days following any other event
constituting a Change of Control, mailed by first-class mail to the Holder's
last address as it appears upon the register. The Holder shall have the right
to have this Security repurchased if, among other things, the Security is
tendered for repurchase no later than five business days prior to the applicable
repurchase date. The Company shall have no obligation to consummate any merger,
consolidation, transfer, sale or lease that is the subject of any such notice,
and if any such merger, consolidation, transfer, sale or lease that was the
subject of any notice described above is not consummated, the Holder will not be
entitled to have this Security prepaid, and any Securities tendered for
prepayment will be returned.

11. TRUSTEE DEALINGS WITH THE COMPANY. United States Trust Company of New
York, the Trustee under the Indenture, in its individual or any other capacity,
may become the owner or pledgee of Securities and may otherwise deal with the
Company or any Affiliate with the same rights it would have as if it were not
the Trustee.

12. NO RECOURSE AGAINST OTHERS. A director, officer, employee or
stockholder, as such, of the Company shall not have any liability for any
obligations of the Company under the Securities or the Indenture or for any
claim based on, in respect of or by reason of such obligations or their
creation. Each Holder by accepting a Security waives and releases all such
liability. This waiver and release are part of the consideration for the issue
of the Securities.

13. UNCLAIMED MONEY. If money for the payment of principal of or interest
on any Security remains unclaimed for two years after the date on which such
payment shall have come due, the Trustee or Paying Agent will pay the money back
to the Company at the Company's written request. After that, Holders entitled
to this money must look to the Company for payment, unless a law governing
abandoned property designates another Person.

- 7 -
<PAGE>

14. DISCHARGE UPON REDEMPTION OR MATURITY. Subject to the terms of the
Indenture, the Indenture will be discharged and cancelled with respect to
Securities of any series upon the payment of all Securities of such series. The
Indenture contains provisions for defeasance at any time of certain restrictive
covenants with respect to this Security (in each case upon compliance with
certain conditions set forth therein).

15. AUTHENTICATION. This Security shall not be valid until authenticated
by the manual signature of the Trustee or an authenticating agent.

16. GOVERNING LAW. THE LAWS OF THE STATE OF NEW YORK SHALL GOVERN THIS
SECURITY AND THE INDENTURE.

17. ABBREVIATIONS. Customary abbreviations may be used in the name of a
Holder or an assignee, such as TEN COM (= tenants in common), TEN ENT (= tenants
by the entireties), JT TEN (= joint tenants with right of survivorship and not
as tenants in common), CUST (= Custodian), and UNIF GIFT MIN ACT (= Uniform
Gifts to Minors Act).

The Company will furnish to any Holder upon written request and without
charge a copy of the Indenture, which has in it the text of this Security in
larger type. Requests may be made to The Penn Traffic Company, 1200 State Fair
Boulevard, Syracuse, New York 13221, Attention: Eugene R. Sunderhaft.

- 8 -

<PAGE>

OPTION OF HOLDER TO ELECT REPURCHASE

If you want to elect to have this Security purchased by the Company
pursuant to Section 5.01 of the Indenture, check the box:

/ /

Dated: ______________ Your signature:__________________

_________________________________
(Sign exactly as name appears
on the other side of this
Security)

Signature Guarantee: ______________________________________
(Signature must be guaranteed by
a member firm of the New York Stock
Exchange or a commercial bank or
trust company)

- 9 -

<PAGE>

ASSIGNMENT FORM

To assign this Security, fill in the form below: I or we assign and transfer
this Security to

________________________________________________________
(Insert assignee's soc. sec. or tax I.D. no.)

________________________________________________________
________________________________________________________
________________________________________________________
(Print or type assignee's name, address and zip code)

and irrevocably appoint _______________________________ agent to transfer this
Security on the books of the Company. The agent may substitute another to act
for him.

________________________________________________________

Dated:_____________________ Your signature: _______________

_______________________________
(Sign exactly as your name
appears on the other side of
this Security)

Signature Guarantee: ____________________________________
(Signature must be guaranteed by a
member firm of the New York Stock
Exchange or a commercial bank or
trust company)

- 10 -

<PAGE>

THE PENN TRAFFIC COMPANY

Officers' Certificate
Pursuant to Sections 3.01, 3.03 and 11.04
of the Indenture

Claude J. Incaudo, President and Chief Executive Officer of The Penn
Traffic Company, a Delaware corporation (the "Company"), and Eugene R.
Sunderhaft, Vice President - Finance, Secretary and Treasurer of the Company, DO
HEREBY CERTIFY:

2. Attached hereto as Exhibit A is a true and correct copy of a
specimen of the Company's 10.65% Senior Notes due November 1, 2004 (the
"Notes"), the aggregate principal amount of which shall be limited to
$100,000,000 and which shall have the terms set forth in such Exhibit A;

3. The Notes shall be issuable in the form of one or more Global
Securities to be deposited with or on behalf of, The Depositary Trust
Company and the form of the legends for such Global Securities are as set
forth in the attached Exhibit A;

<PAGE>

4. After giving effect to the authentication and delivery of the Notes
pursuant to the Company Order dated the date hereof (i) the aggregate
principal amount of Notes Outstanding will not exceed the maximum aggregate
principal amount permitted to be Outstanding pursuant to authorization by
the Company's Board of Directors; and (ii) the Company will not be in
Default and no Event of Default will have occurred; and

5. All conditions precedent provided for in the Indenture relating to
the authentication and delivery of the Notes have been complied with.

Capitalized terms used herein that are not otherwise defined shall
have the meanings ascribed thereto in the Indenture.

This Certificate may be executed in counterparts, each one of which
shall be deemed an original and which together shall constitute one document.

IN WITNESS WHEREOF, the undersigned have executed this Certificate
this 20th day of October, 1994.

/s/ Claude J. Incaudo
-------------------------
Claude J. Incaudo
President and Chief
Executive Officer

/s/ Eugene R. Sunderhaft
------------------------
Eugene R. Sunderhaft
Vice President - Finance,
Secretary and Treasurer

-2-
<PAGE>

THIS SECURITY IS A GLOBAL SECURITY WITHIN THE MEANING OF THE INDENTURE
HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITARY OR A
NOMINEE THEREOF. THIS SECURITY MAY NOT BE EXCHANGED IN WHOLE OR IN PART FOR A
SECURITY REGISTERED, AND NO TRANSFER OF THIS SECURITY IN WHOLE OR IN PART MAY BE
REGISTERED, IN THE NAME OF ANY PERSON OTHER THAN SUCH DEPOSITARY OR A NOMINEE
THEREOF, EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE.

UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO ISSUER OR ITS AGENT
FOR REGISTRATION OF TRANSFER, EXCHANGE, OR PAYMENT, AND ANY CERTIFICATE ISSUED
IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY
AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO
SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY
TRANSFER PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON
IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST
HEREIN.

THE PENN TRAFFIC COMPANY

Incorporated under the laws of the
State of Delaware

10.65% Senior Notes due November 1, 2004

THE PENN TRAFFIC COMPANY, for value received, hereby promises to pay
to ________ or registered assigns, the principal sum of $100,000,000.00 on
November 1, 2004 and to pay interest thereon semiannually in arrears at the rate
of 10.65% per annum on May 1 and November 1 of each year, commencing May 1,
1995, until the principal hereof is paid or made available for payment. All
payments of principal, premium, if any, and interest shall be made in
immediately available funds and in the manner and subject to the terms set forth
in provisions appearing on the reverse hereof, which provisions, in their
entirety, shall for all purposes have the same effect as if set forth at this
place.

-3-
<PAGE>

Dated: October 20, 1994

THE PENN TRAFFIC COMPANY

By____________________________
Eugene R. Sunderhaft
Vice President - Finance,
Secretary and Treasurer

Attest:____________________
Francis D. Price, Jr.
Vice President and
Assistant Secretary

[SEAL]

-4-
<PAGE>

This is one of the Securities of the series designated therein
referred to in the within-mentioned Indenture.

Dated: October 20, 1994

UNITED STATES TRUST COMPANY
OF NEW YORK, as Trustee

By:___________________________
Authorized Signatory

UNITED STATES TRUST COMPANY
OF NEW YORK, as Trustee

By: BANKERS TRUST COMPANY, as
Authenticating Agent

By:_______________________
Authorized Signatory

-5-

<PAGE>

(Back of Security)

THE PENN TRAFFIC COMPANY

10.65% Senior Notes due November 1, 2004.

1. INTEREST. THE PENN TRAFFIC COMPANY (the "Company"), a Delaware
corporation, promises to pay interest on the principal amount of this Security
at the rate per annum shown above. The Company will pay interest semiannually
in arrears on May 1 and November 1 of each year, commencing May 1, 1995.
Interest on the Securities will accrue from the most recent date on which
interest has been paid or, if no interest has been paid, from October 20, 1994.
Interest will be computed on the basis of a 360-day year of twelve 30-day
months.

2. METHOD OF PAYMENT. The Company will pay interest on the
Securities (except defaulted interest) to the Persons who are registered Holders
of Securities at the close of business on the regular record date, which shall
be the April 15 and October 15, as the case may be, next preceding the interest
payment date even though Securities are cancelled after the record date and on
or before the interest payment date. Any such interest not so punctually paid
or duly provided for, and any interest payable on such defaulted interest (to
the extent lawful), will forthwith cease to be payable to the Holder on such
regular record date and shall be payable to the Person in whose name this
Security is registered at the close of business on a special record date for the
payment of such defaulted interest to be fixed by the Company, notice of which
shall be given to Holders not less than 5 days prior to such special record
date. Holders must surrender Securities to a Paying Agent to collect principal
payments. The Company will pay principal and interest in money of the United
States that at the time of payment is legal tender for payment of public and
private debts. All payments of principal, premium, if any, and interest on the
Securities will be made by the Paying Agent by wire transfer of immediately
available funds to a separate account of DTC or its nominee, provided that, the
Company may pay principal, premium, if any, and interest to Holders other than
the DTC or its nominee by check in immediately available funds. The Company may
mail an interest check to such Holder's registered address.

-6-
<PAGE>

4. INDENTURE. This Security is one of a duly authorized issue of
securities of the Company (herein called the "Securities"), issued and to be
issued under an Indenture dated as of December 15, 1993 (the "Indenture")
between the Company and the Trustee. The terms of the Securities include those
stated in the Indenture and those made part of the Indenture by reference to the
Trust Indenture Act of 1939 (15 U.S.C. Sections 77aaa-77bbbb), as amended by the
Trust Indenture Reform Act of 1990, as in effect on the date of the Indenture
("TIA"). The Securities are subject to all such terms, and Holders are referred
to the Indenture and such Act for a statement of such terms. This Security is
one of the series designated on the face hereof limited to $100,000,000.00 in
aggregate principal amount. The Securities are unsecured general obligations of
the Company. Unless otherwise defined herein, all capitalized terms shall have
the meanings assigned to them in the Indenture.

6. OPTIONAL REDEMPTION. The Securities may not be redeemed prior to
November 1, 1999. On or after such date, the Securities may be redeemed at the
election of the Company as a whole at any time or in part from time to time at
the Redemption Prices (expressed in percentages of principal amount) set forth
below plus accrued interest to the Redemption Date, if redeemed during the 12-
month period beginning November 1 of the years indicated below:

-7-

<PAGE>

Year Percentage
---- ----------
1999.................. 104.00%
2000.................. 102.66%
2001.................. 101.33%
2002 and thereafter... 100.00%
------

Notice of redemption will be mailed at least 30 days but not more than
60 days before the Redemption Date to each Holder of Securities to be redeemed,
at his registered address. Securities in denominations larger than $1,000 may
be redeemed in part but only in whole multiples of $1,000. On and after the
Redemption Date interest ceases to accrue on Securities or portions of them
called for redemption.

These Securities shall not have the benefit of any sinking fund
obligations.

7. PERSONS DEEMED OWNERS. The registered Holder of a Security may be
treated as its owner for all purposes.

8. AMENDMENTS AND WAIVERS. Subject to certain exceptions, the
Indenture and the rights of the Holder of the Securities of each series to be
affected under the Indenture may be amended at any time by the Company and the
Trustee with the consent of the Holders of at least a majority in principal
amount of the Securities at the time Outstanding of each series to be affected.
The Indenture also contains provisions permitting the Holders of specified
percentages in principal amount of the Securities of each series at the time
Outstanding, on behalf of the Holders of all Securities of such series, to waive
compliance by the Company with certain provisions of the Indenture and certain
past defaults under the Indenture and their consequences. Without the consent
of any Holder, the Indenture or the Securities may be amended to cure any
ambiguity, defect or inconsistency; to comply with Section 5.01 of the
Indenture; to make any change that does not adversely affect the legal rights of
any Holder; to comply with the requirements of the SEC to maintain qualification
of the Indenture under the TIA; to add to or change the provisions of the
Indenture to such extent as shall be necessary to permit or facilitate the
issuance of Securities in bearer form, registrable or not registrable as to
principal, and with or without interest coupons, or to permit or facilitate the
issuance of Securities in uncertificated form; or to provide for the appointment
of a

-8-
<PAGE>

successor Trustee with respect to one or more (but not all) series of Securities
issued pursuant to the Indenture, as provided in Section 7.08 of the Indenture.

10. PREPAYMENT AT HOLDER'S OPTION UPON CERTAIN MERGER AND CHANGE OF
CONTROL EVENTS. In the event of a Change of Control or in the event of a merger
where, immediately after giving effect to the merger, the surviving corporation
does not meet the Consolidated Interest Coverage Ratio set forth in the
Indenture, the Company shall be obligated to make an offer to purchase this
Security at a purchase price in cash equal to 101% of its principal amount plus
accrued interest, after the occurrence of such Change in Control or merger.
Holders of Securities which are the subject of such an offer to repurchase shall
receive an offer to repurchase and may elect to have such Securities repurchased
in accordance with the provisions of the Indenture pursuant to and in accordance
with the terms of the Indenture. The Company shall give the Holder of this
Security notice of such right of repurchase not less than 20 nor more than 60
business days prior to the consummation of a merger, consolidation, transfer,
sale or lease that would require the Company to offer to repurchase the
Securities and not more than 45 business days following any other event
constituting a Change of Control, mailed by first-class mail

-9-
<PAGE>

to the Holder's last address as it appears upon the register. The Holder shall
have the right to have this Security repurchased if, among other things, the
Security is tendered for repurchase no later than five business days prior to
the applicable repurchase date. The Company shall have no obligation to
consummate any merger, consolidation, transfer, sale or lease that is the
subject of any such notice, and if any such merger, consolidation, transfer,
sale or lease that was the subject of any notice described above is not
consummated, the Holder will not be entitled to have this Security prepaid, and
any Securities tendered for prepayment will be returned.

11. TRUSTEE DEALINGS WITH THE COMPANY. United States Trust Company
of New York, the Trustee under the Indenture, in its individual or any other
capacity, may become the owner or pledgee of Securities and may otherwise deal
with the Company or any Affiliate with the same rights it would have as if it
were not the Trustee.

13. UNCLAIMED MONEY. If money for the payment of principal of or
interest on any Security remains unclaimed for two years after the date on which
such payment shall have come due, the Trustee or Paying Agent will pay the money
back to the Company at the Company's written request. After that, Holders
entitled to this money must look to the Company for payment, unless a law
governing abandoned property designates another Person.

14. DISCHARGE UPON REDEMPTION OR MATURITY. Subject to the terms of
the Indenture, the Indenture will be discharged and cancelled with respect to
Securities of any series upon the payment of all Securities of such series. The
Indenture contains provisions for defeasance at any time of certain restrictive
covenants with respect to this Security (in each case upon compliance with
certain conditions set forth therein).

-10-
<PAGE>

15. AUTHENTICATION. This Security shall not be valid until
authenticated by the manual signature of the Trustee or an authenticating agent.

16. GOVERNING LAW. THE LAWS OF THE STATE OF NEW YORK SHALL GOVERN
THIS SECURITY AND THE INDENTURE.

17. ABBREVIATIONS. Customary abbreviations may be used in the name
of a Holder or an assignee, such as TEN COM (= tenants in common), TEN ENT
(= tenants by the entireties), JT TEN (= joint tenants with right of
survivorship and not as tenants in common), CUST (= Custodian), and UNIF GIFT
MIN ACT (= Uniform Gifts to Minors Act).

The Company will furnish to any Holder upon written request and
without charge a copy of the Indenture, which has in it the text of this
Security in larger type. Requests may be made to The Penn Traffic Company, 1200
State Fair Boulevard, Syracuse, New York 13221, Attention: Eugene R.
Sunderhaft.

-11-
<PAGE>

OPTION OF HOLDER TO ELECT REPURCHASE

If you want to elect to have this Security purchased by the Company
pursuant to Section 5.01 of the Indenture, check the box:

/ /

Dated:____________________ Your Signature:________________
(Sign exactly as name appears on
the other side of this Security)

Signature Guarantee:__________________________________________________________
(Signature must be guaranteed by a member firm of the New
York Stock Exchange or a commercial bank or trust company)

-12-
<PAGE>

ASSIGNMENT FORM

To assign this Security, fill in the form below: I or we assign and transfer
this Security to

_____________________________________________________________
(Insert assignee's soc. sec. or tax I.D. no.)

_____________________________________________________________
_____________________________________________________________
_____________________________________________________________
(Print or type assignee's name, address and zip code)

and irrevocably appoint _______________________ agent to transfer this Security
on the books of the Company. The agent may substitute another to act for him.

_____________________________________________________________

Dated:______________________ Your Signature:________________
(Sign exactly as your name
appears on the other side of
this Security)

Signature Guarantee: _______________________________________
(Signature must be guaranteed by a
member firm of the New York Stock
Exchange or a commercial bank or trust
company)

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<PAGE>

MONTGOMERY
AGREEMENT

AGREEMENT, made this 18th day of November, 1994 between THE PENN TRAFFIC
COMPANY, a Delaware Corporation, with its principal office located at 1200 State
Fair Boulevard, Syracuse, New York 13209 ("Penn Traffic") and THE GRAND UNION
COMPANY, a Delaware Corporation, with its principal office located at 201
Willowbrook Boulevard, Wayne, New Jersey 07470 ("Grand Union").

R E C I T A L S

1. Penn Traffic desires to deliver to, store at and withdraw from the
Grand Union warehouse, located at 124 Bracken Road, Montgomery, New York 12549
("Montgomery Warehouse") , health and beauty care products ("HBC Products") and
general merchandise products ("GM Products") owned by Penn Traffic (collectively
the "Products").

2. Grand Union sold to Penn Traffic, and Penn Traffic purchased from
Grand Union, all of the Products located at the Montgomery Warehouse on
September 29, 1993 free and clear of any and all liens, claims, encumbrances, of
whatever kind, nature and description in consideration of the total purchase
price of $12,820,851.00, the receipt of which has been acknowledged.

3. Grand Union procures HBC Products for both Grand Union and Penn
Traffic, and Penn Traffic, through its Big

<PAGE>

Bear division, procures GM Products for both Penn Traffic and Grand Union.
(However, the parties acknowledge that effective on or about August 15, 1994 Big
Bear resumed procuring its own HBC Products.)

NOW, THEREFORE, in consideration of the mutual covenants set forth in this
Agreement, and for other good and valuable consideration, the receipt and
sufficiency of which are mutually acknowledged, the parties agree as follows:

1. AUTHORIZATION AS AGENT. Penn Traffic authorizes Grand Union to act as
its agent for the procurement of HBC Products and the storage and shipments of
the Products stored at the Montgomery Warehouse. Grand Union authorizes Penn
Traffic to act as its agent for the procurement of GM Products, which will be
stored at the Montgomery Warehouse.

2. PROCUREMENT OF HEALTH & BEAUTY CARE. Grand Union shall negotiate,
procure, purchase and pay for all HBC Products to be delivered to the Montgomery
Warehouse and to Penn Traffic's Big Bear Warehouse in Columbus, Ohio, until Big
Bear resumes purchasing its own HBC Product as referred to in recital #1 set
forth above. Penn Traffic shall reimburse Grand Union for these purchases
within 28 calendar days of the week ending date of the receipt of the HBC
Product, unless there is a major change in overall average days to pay terms,
for example a recently announced change in

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<PAGE>

terms by Proctor & Gamble to be effective on or about October 1, 1994, in which
case the parties shall mutually agree to new terms.

3. BUYER/MERCHANDISING COST. The cost of those employees of Grand Union
and Penn Traffic responsible for the purchase and merchandising of HBC Product
and GM Product for delivery to Montgomery and Columbus (for Product commonly
carried) shall be shared between Penn Traffic and Grand Union on a pro rata
basis, based upon the dollar amount of warehouse withdrawals at cost of each
company for the 28 day period such costs are incurred and payable the later of
(i) 14 days after the end of the 28 day period during which such costs are
incurred or (ii) 14 days after receipt of such information, which shall include
a schedule of the employees, job descriptions and costs.

4. STORAGE OF PRODUCTS AND AUTHORIZATION TO SHIP PRODUCTS. Grand Union
agrees to make available to Penn Traffic such a portion of the storage capacity
of the Montgomery Warehouse as Penn Traffic may require from time to time for
the storage of the Products. Grand Union shall take all steps necessary,
including physical segregation of products, to assure that the Products, in Penn
Traffic's sole judgment, are isolated and readily identifiable as the sole and
exclusive property of Penn Traffic. Penn Traffic

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<PAGE>

authorizes Grand Union to ship product from the Montgomery Warehouse to Grand
Union and Penn Traffic based on orders placed by the individual parties. Grand
Union and Penn Traffic each acknowledge and agree that the manner in which the
products are being stored and segregated in October and November 1994 is
satisfactory and acceptable pursuant to this paragraph 4.

5. TITLE, RISK OF LOSS, ETC.

A. Title to and risk of loss of the Products shall at all times
remain in Penn Traffic, including while in storage at the Montgomery Warehouse
or in possession of freight carriers for Product purchased FOB shipping point,
and Penn Traffic shall provide adequate insurance coverage commensurate with
accepted business practice. Grand Union shall use reasonable care in the
storage of the Products. Grand Union shall indemnify Penn Traffic for any loss
sustained by Penn Traffic, limited to the extent of any insurance deductible, as
a result of damage to the Products caused by the negligence or misconduct of
Grand Union and Penn Traffic shall indemnify Grand Union for any loss, net of
insurance proceeds, sustained by Grand Union as a result of damage to the
Montgomery Warehouse caused by the negligence or misconduct of Penn Traffic.

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<PAGE>

B. Ownership and title of the Product shall remain with Penn Traffic
at all times and Grand Union shall have no right to pledge, grant a security
interest in or otherwise encumber the Product.

C. Grand Union warrants that it has not and will not issue warehouse
receipts or similar documents with respect to the Product located in Montgomery.

D. Grand Union shall give Penn Traffic immediate notice of any event
that will affect Penn Traffic's ownership and title to the Product.

6. PERPETUAL INVENTORY. Grand Union shall maintain daily perpetual
inventory reports consistent with Grand Union's current internal practices.
Grand Union agrees to make available Penn Traffic with all information necessary
to maintain a perpetual inventory, including vendor invoices, purchase orders,
receiving documents, warehouse receipts and other data. Grand Union shall
provide Penn Traffic with a weekly recap of the daily inventory movement, no
later than the Wednesday following each week. Additionally, the weekly recap
should be reconciled to the daily perpetual inventory. Grand Union agrees to
provide Penn Traffic with inventory reports necessary for the accurate reporting
of inventory necessary to meet SEC and income tax reporting.

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<PAGE>

7. PHYSICAL INVENTORY. There shall be a minimum of two (2) physical
inventories of the Penn Traffic Product at the Montgomery Warehouse conducted
each Penn Traffic fiscal year unless Grand Union and Penn Traffic agree that
additional inventories are necessary. The two regularly scheduled inventories
shall occur at Penn Traffic's sole discretion, provided Penn Traffic gives Grand
Union at least thirty (30) days' prior written notice of the physical inventory.
The inventory shall be administrated by Grand Union warehouse and supervisory
personnel and other outside services, as deemed appropriate, and supervised by
Penn Traffic management personnel. Thirty days prior to the inventory, Grand
Union and Penn Traffic shall establish the procedures of the inventory,
including inventory recount parameters, order polling schedules, cutoff
procedures and the like. Grand Union shall provide Penn Traffic with a
preliminary priced inventory at the conclusion of the physical inventory and a
final priced inventory within seven (7) calendar days of the physical inventory.

Penn Traffic shall provide Grand Union with a reconciliation of the final
priced inventory to the book amounts within thirty (30) days of the physical
inventory. Grand Union shall have the right to examine, inspect and audit the
reconciliation of the priced physical inventory to

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<PAGE>

the book amounts. All shortages will be shared by Penn Traffic and Grand Union
in the proportion of the cost of product shipped from the Montgomery Warehouse
to Penn Traffic and Grand Union stores calculated over the period of time since
the last physical inventory. Grand Union shall reimburse Penn Traffic for all
shortages in excess of .25 percent of store shipments, unless the shortage is
specifically identifiable as related to Penn Traffic.

All overages will be shared by Penn Traffic and Grand Union by the
proportion of product shipped from the warehouse to Penn Traffic and Grand Union
stores calculated over the period of time since the last physical inventory.

However, to the extent there is a loss on any physical inventory in excess
of .25 percent of store shipments which immediately follows or immediately
precedes a physical inventory which produced a physical inventory gain, the
respective gain and loss shall be netted for purposes of calculating the amount
in excess of .25 percent of shipments.

8. WAREHOUSING AND HANDLING SERVICES. All costs, charges and expenses of
operating the Montgomery Warehouse shall be divided between Penn Traffic and
Grand Union on a prorated basis based upon the units shipped to each company for
each 28 day period such costs, charges and expenses are incurred, when the ratio
of total costs are equal to or less

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<PAGE>

than 3.5% of product cost. When the aforementioned ratio is in excess of 3.5%,
the prorated basis will be based upon the dollar amount of warehouse withdrawals
of each company.

Penn Traffic shall pay Grand Union for Penn Traffic's prorated share of
said costs and expenses 14 days after the end of the 28 day period in which such
costs were incurred.

9. CARRYING CHARGES. Grand Union shall pay Penn Traffic for Grand
Union's prorated share of the interest carrying costs allocated to the Penn
Traffic inventory held at Montgomery on a weekly basis. The interest carrying
cost will be based on an interest rate of ten percent (10%) and computed as set
forth on Exhibit A. Penn Traffic and Grand Union will periodically evaluate the
inventory on hand and seek to (a) provide consistent days on hand levels of HBC
Product and GM Product and (b) minimize such inventory levels, each consistent
with good business practices.

10. SHIPMENTS OF PRODUCTS FROM MONTGOMERY TO GRAND UNION STORES. Grand
Union agrees to purchase GM Products and HBC Products for its stores from the
Penn Traffic inventory at the Montgomery Warehouse based on the weekly average
cost of the Products. Grand Union shall reimburse Penn Traffic for these
purchases within 28 calendar days of the week ending date of the receipt of the
Products. Title to the GM and HBC Product shall pass immediately to Grand Union
upon

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<PAGE>

the Product leaving the Montgomery Warehouse if the final destination of that
Product is a Grand Union store.

11. STORE CREDITS.

A. Redlines (cross offs) are to be deducted from each store invoice
order on a per order basis. The amount due for each order will be the gross
invoice amount less redlines.

B. Product returns will be returned to the receiving company
(Division) reclamation center. Major returns to the Montgomery Warehouse will
be permitted upon prior authorization from the Montgomery Warehouse management.

C. Billing errors are to be corrected by Grand Union and a complete
detail provided to Penn Traffic each Tuesday for the prior week.

D. Discrepancy rate - Grand Union and Penn Traffic agree to allow
stores a discrepancy rate credit for the purpose of eliminating the need to
process requests for credit due to selection discrepancies.

Grand Union and Penn Traffic agree that the discrepancy rate will
be applied to all store shipments and is to be established based on a joint
audit of a selected number of store orders. From time to time Penn Traffic will
have the right to audit further orders on an unannounced basis for the purpose
of validating and adjusting the

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<PAGE>

discrepancy rate. All audits shall be conducted with a representative of Grand
Union in attendance.

12. VENDOR RETURNS AND PRODUCT RECALLS. Grand Union shall promptly
process all HBC Product vendor returns and product recalls and remit to Penn
Traffic such credits within 7 calendar days of the week ending date of the
collection of the credits from vendors. Grand Union agrees to provide all
required vendor authorization documents for HBC Product stored at Montgomery in
a timely manner. Penn Traffic agrees to provide all required vendor
authorization documents for GM Product in a timely manner. Grand Union agrees
to process all returns to vendor no later than 14 days of the week ending date
of the vendor return shipment.

13. SALVAGE AND DIVERTER SALES. Penn Traffic authorizes Grand Union, upon
Penn Traffic's written consent, to make sales of HBC Product to diverters and
salvagers as may be requested. Penn Traffic will provide the Montgomery
Warehouse with written authorization for release of HBC Product and GM Product
for each sale to a diverter or salvager. All funds collected from these sales
by Grand Union shall be reimbursed to Penn Traffic within 7 days of the week
ending date of the sale.

14. ALLOWANCES. All revenues derived from the purchase of the Products,
including but not limited to allowances,

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<PAGE>

cash discounts, slotting allowances, placement allowances and advertising
allowances, net of required repayments (except for allowances which Penn Traffic
and Grand Union jointly agree shall be allocated to the participating parties
specifically), shall be shared between Penn Traffic and Grand Union on a
prorated basis, based upon the dollar amount of warehouse withdrawals of each
company at cost for the 28 day period such allowances are recorded. Whether
allocated specifically or based on warehouse withdrawals, Grand Union shall pay
Penn Traffic for Penn Traffic's prorated share of HBC Product allowances and
Penn Traffic shall pay Grand Union for Grand Union's prorated share of GM
Product allowances 14 days after the end of the 28 day period in which such
allowances are recorded.

15. VENDOR COUPON AND RECLAMATION CLAIMS. Vendor coupon and reclamation
claims relating to HBC Products shall be collected by Grand Union and those
relating to GM Products shall be collected by Penn Traffic providing the
collecting party has the exclusive vendor purchasing relationship. It is the
responsibility of the claimant to supply to the deducting entity information in
sufficient detail, as agreed by Grand Union and Penn Traffic from time to time,
to allow the deduction to be processed. Any cash received directly by the
claimant must be communicated promptly to the deducting

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<PAGE>

party so that the deduction may be canceled or repaid. Deductions, net of
required repayments, shall be remitted by the deducting party to the claimant 7
days after the end of the week during which the deductions were made.

16. PURCHASE ORDER INVOICE DIFFERENCES. A net account payable,
representing differences between amounts recorded upon receipt of inventory
based on purchase order cost and amounts actually paid to vendors (the net of
(A) and (B) below), will be calculated for each 28 day period during which such
differences occur as follows:

A. Amounts payable to Penn Traffic

(i) the amount by which the received inventory cost of HBC
products purchased by Grand Union exceeds the related amounts
paid to vendors plus

(ii) the amount by which payments to vendors for general
merchandise products purchased by Penn Traffic exceeds the
received inventory cost of such products less

(iii) the amount of physical inventory (29E) cost adjustments
made to inventory relating to (A)(i) and (A)(ii) above.

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<PAGE>

B. Amounts payable to Grand Union

(i) the amount by which the received inventory cost of general
merchandise purchased by Penn Traffic exceeds the related amounts
paid to vendors plus

(ii) the amount by which payments to vendors for HBC products
purchased by Grand Union exceeds the received inventory cost of
such products less

(iii) the amount of physical inventory (29E) cost adjustments
made to inventory relating to (B)(i) and (B)(ii) above.

Such net amount calculated above shall be shared between Penn Traffic
and Grand Union on a pro rata basis, based upon the dollar amount of warehouse
withdrawals at cost of each company for the 28 day period such costs are
incurred and payable 14 days after the end of the 28 day period during which
such costs are incurred. Grand Union and Penn Traffic agree to provide each
other upon request vendor and item detail for each transaction affecting the net
account payable. This detail will include but not be limited to vendor name,
item, received cost, invoiced cost, allowances and all applicable discounts.

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<PAGE>

17. OTHER MISCELLANEOUS DEDUCTIONS. Other miscellaneous deductions or
payments which may be made by either Penn Traffic or Grand Union for the benefit
of the other party shall be remitted directly or shared based on pro rata
shipments depending on the nature of the item and as agreed to by the parties
from time to time.

18. START-UP COSTS. Start-up costs solely related to the joint buying
program shall be identified by Penn Traffic and Grand Union and shall be shared
between Penn Traffic and Grand Union on a pro rata basis, based upon the dollar
amount of warehouse withdrawals at cost of each company for an agreed upon
period which reflects full participation usage of the Montgomery facility by
each company.

19. TERM. This Agreement shall continue until July 1, 1995. This
Agreement shall then continue thereafter, subject to the right of either party
to terminate it at any time upon not less than six (6) months' prior written
notice ("Notice of Termination"). Upon Notice of Termination, Grand Union and
Penn Traffic each agree to cooperate and use their respective best efforts to
minimize the procurement of any inventory which Grand Union does not use in its
normal course of business. A physical inventory shall be conducted no later
than the last day this contract remains in effect ("Termination Date") or the
termination date set forth in the

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<PAGE>

Notice of Termination. Upon such termination, Grand Union shall purchase each
of the Penn Traffic Products located at the Montgomery Warehouse authorized in
Grand Union stores and in reasonable quantities and pay Penn Traffic for same by
wire transfer a preliminary estimate of the value of such products within two
(2) business days of the physical inventory with a final settlement to be made
upon completion of the inventory valuation within 30 days of the physical
inventory. Grand Union is authorized to ship product to its stores during the
period from the inventory until final settlement. Any Product which Grand Union
does not use in its normal course of business shall be removed from the facility
on a timely basis in a manner such as to minimize costs associated with such
removal. Any costs associated with the termination of this Agreement shall be
divided between Penn Traffic and Grand Union on a prorated basis, based upon the
last six month average of units shipped to each company immediately prior to the
Notice of Termination, payable within 30 days of the Termination Date. The
parties agree to cooperate with each other in reducing the level of inventory
during the period prior to the termination date.

20. BOOKS OF ACCOUNT. Grand Union shall prepare and keep at its principal
office for a period of not less than five years following the end of each fiscal
year of Penn

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<PAGE>

Traffic, accurate books of accounts and records for the Montgomery Warehouse of
weekly receipts and shipments as well as HBC Product procurement documentation.
Penn Traffic shall have the right to examine, inspect and audit Grand Union's
books and records with regard to the HBC Product procurement costs and the costs
of operating the Montgomery Warehouse at its sole cost. Penn Traffic shall keep
GM Product procurement documentation for a period of not less than five years
following the end of each fiscal year of Penn Traffic. Grand Union shall have
the right to examine, inspect and audit Penn Traffic's books and records with
regard to the GM Product procurement costs at its sole cost. If, as a result of
said inspection, any dispute arises between Penn Traffic and Grand Union, then
the parties agree to retain and engage Price Waterhouse to review the dispute.
The parties shall equally share the costs of Price Waterhouse's audit. All
determinations made by Price Waterhouse pursuant to the provisions of this
Agreement shall be conclusive and binding on all of the parties and judgment may
be rendered thereon.

21. ABSOLUTE RIGHT OF OFFSET. Each party shall have the full and absolute
right of offset with regard to any obligations that are required to be paid to
the other party under this Agreement.

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<PAGE>

22. NOTICES. All notices provided under the Agreement shall be in writing
and may be delivered manually or sent by certified mail postage prepaid to the
following addresses:

TO PENN TRAFFIC: 1200 State Fair Boulevard
Post Office Box 4737
Syracuse, New York 13221
Attention: Controller

With a Copy To: 1200 State Fair Boulevard
Post Office Box 4737
Syracuse, New York 13221
Attention: Chief Financial
Officer

TO GRAND UNION: 201 Willowbrook Boulevard
Wayne, New Jersey 07470
Attention: Executive Vice
President

With a Copy To: 201 Willowbrook Boulevard
Wayne, New Jersey 07470
Attention: Chief Financial
Officer

Notice shall be deemed complete upon three (3) business days after mailing by
United States certified mail, postage prepaid, as stated above. Addresses for
the giving of notices may be changed by written notice to the other party given
in the manner as stated above.

23. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
between the parties and this Agreement may only be modified by a writing signed
by both parties.

24. GOVERNING LAW. This Agreement shall be governed in all respects by
the laws of the State of New York and shall

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<PAGE>

be construed and enforced in accordance with the laws of that State.

25. ASSIGNS. This Agreement shall benefit and inure to bind the
successors and assigned of both parties.

IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
by the duly authorized representatives as of the date first above written, but
to be effective as of September 29, 1993.

THE GRAND UNION COMPANY
ATTEST:

/s/ Kenneth R. Baum By: /s/ William A. Louttit
- ------------------- ----------------------
William A. Louttit
Executive Vice President

THE PENN TRAFFIC COMPANY
ATTEST:

/s/ Francis D. Price By: /s/ Claude J. Incaudo
- -------------------- ---------------------
Claude J. Incaudo
President

-18-

<PAGE>

EMPLOYMENT AGREEMENT

EMPLOYMENT AGREEMENT ("Agreement"), dated as of January 29, 1995, by
and among THE PENN TRAFFIC COMPANY, a Delaware corporation with its principal
offices located at 1200 State Fair Boulevard, Syracuse, New York 13221-4737
("Penn Traffic" or the "Company"), and JOHN T. DIXON, residing at 37 West Lake
Street, Skaneateles, New York 13152 (the "Executive").

W I T N E S S E T H:

WHEREAS, the Executive has been appointed by the Board of Directors of
Penn Traffic to the positions of President and Chief Executive Officer,
effective as of the date hereof; and

WHEREAS, the Executive and the Company desire to enter into this
Agreement pertaining to the terms of the employment of the Executive by the
Company in such capacities;

NOW, THEREFORE, in consideration of the mutual covenants and promises
contained herein, and other good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the parties agree as follows:

1. TERM. The Executive's "Employment Period", as this phrase is used
throughout this Agreement, shall commence on the date hereof and end on the last
date of the fiscal year commencing on the date hereof, and shall be
automatically extended at the end of such fiscal year (and any subsequent fiscal
year into which the Employment Period has been extended) for a period, in each
case, the duration of which is coterminous with that of the then next succeeding
fiscal year, unless, in each case, notice of termination has been given by the
Company or the Executive not later than 30 days prior to the end of the
Employment Period.

2. EMPLOYMENT. During the Employment Period, the Company hereby
agrees to employ the Executive and the Executive hereby accepts such employment
by the Company, upon the terms and conditions herein set forth. The Executive
shall be employed as the President and Chief Executive Officer of the Company
during the Employment Period. During
<PAGE>

the Employment Period, the Executive shall have duties and responsibilities
relating to the supervision, control and general management and operations of
the Company and shall report only to the Board of Directors and Chairman of the
Company. Throughout the Employment Period, the Executive shall devote his
full-time efforts during normal business hours to the business and affairs of
the Company, except for vacation periods and periods of illness or incapacity.
If any of the positions of President or Chief Executive Officer of the Company
shall cease to exist at any time during the Employment Period due to a merger or
any other corporate combination or reorganization, the Executive agrees to
accept another position, having the scope and responsibilities of President and
Chief Executive Officer of the historical businesses of the Company, as shall be
assigned to him from time to time by the Board of Directors and Chairman of the
Company or its successor, and to perform the duties thereof under the terms of
this Agreement. During the Employment Period, the Executive shall perform his
duties in the Syracuse, New York area, except that the Executive agrees to make
such business trips to such other locations as may be reasonably necessary and
appropriate in the performance of his duties.

3. COMPENSATION AND BENEFITS DURING THE EMPLOYMENT PERIOD.

As compensation for the Executive's services to be rendered as
provided for in this Agreement, during the Employment Period the Company shall
pay compensation and provide benefits to the Executive as follows:

(a) BASE SALARY. During the Employment Period, the Company shall pay
the Executive an annual base salary, subject to increase, but not decrease, from
time to time by the Board of Directors of the Company, in the aggregate amount
of $400,000 (the "Base Salary"), payable in equal weekly installments. The Base
Salary may be increased from time to time at the discretion of the Board of
Directors of the Company, and in such event, references herein to "Base Salary"
shall mean the Base Salary as so increased.

(b) INCENTIVE COMPENSATION. As incentive compensation hereunder, the
Executive shall be eligible for cash bonus awards, at the sole discretion of the
Board of Directors, not to exceed, with respect to any fiscal year within the
Employment Period, an amount equal to 50% of the

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<PAGE>

Base Salary with respect to such fiscal year (a "Cash Bonus").

(c) ADDITIONAL BENEFITS. During the Employment Period, the Executive
shall be entitled to all rights and benefits for which he is otherwise eligible
under any generally instituted insurance plans and benefit plans of the Company
applicable to senior executives of the Company and to any additional fringe
benefits which may be authorized and approved from time to time by the Board of
Directors of the Company. Specifically, without limitation, the Executive shall
receive the following benefits:

(i) RETIREMENT BENEFITS. The Executive shall continue to be a
participant in the Penn Traffic Corporate/P&C Foods Pension Plan (the
"Pension Plan").

(ii) REIMBURSEMENT FOR EXPENSES. During the Employment Period, to
the extent such expenditures meet the requirements and the policies of the
Company, the Company shall reimburse the Executive promptly for all travel,
entertainment, parking, business meeting and similar expenditures in
pursuance and furtherance of the Company's business. The Executive shall
provide documentation to the Company of such expenses incurred.

(iii) AUTOMOBILE. During the Employment Period, the Company shall
provide the Executive an automobile of his choice appropriate to his
position, comparable or superior in quality to a Buick and at any time not
more than three years old. All expenses relating to such automobile,
including, without limitation, those with respect to insurance, gasoline,
tolls, parking, repairs and maintenance, shall be paid for by the Company
or reimbursed by the Company to the Executive.

(iv) References in this paragraph (c) to any plans, insurance
arrangements or other benefits to be provided by the Company shall be
applicable to any successor to the Company.

4. PERFORMANCE OF DUTIES. The Executive agrees that during the
Employment Period he will faithfully perform his duties hereunder subject to the
direction of the Board of Directors and Chairman of the Company. In addition to
performance of his duties for the Company, if so requested, the Executive agrees
to serve as a director of the Company without additional compensation.

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<PAGE>

5. NO COMPETITION; CONFIDENTIALITY. The Executive agrees that while
this Agreement is in effect and for a period of five (5) years after termination
of the Employment Period, the Executive will not without the prior written
consent of the Company, as principal, agent, employee, employer, consultant,
stockholder (other than as the holder of shares of capital stock of the Company
or of less than 5% of the shares of any other corporation), director or
co-partner, or in any other individual or representative capacity whatever,
directly or indirectly:

(a) engage in any business activity located in the United States in
competition with the Company or any subsidiary or Affiliate thereof;

(b) induce or attempt to induce any person who is then in the employ of
the Company or any subsidiary or Affiliate thereof to leave the employ
of the Company or such subsidiary or Affiliate, or employ or attempt
to employ any such person or any person who at any time during the
preceding twenty-four (24) months was in the employ of the Company or
any subsidiary or Affiliate thereof; or

(c) induce or attempt to induce any other person, firm or corporation to
do any of the above (provided, that this Section 5 shall not be
interpreted so as to prohibit the Executive from providing references
for employees of the Company or its subsidiaries or Affiliates which
have been solicited by an employee or prospective employer).

The Executive agrees that he will not at any time from and after the date
hereof, divulge, furnish or make accessible to any person, or himself make use
of, any confidential or proprietary information of the Company obtained by him
while in the employ of the Company other than in connection with his employment
with the Company as provided hereunder, including, without limitation,
information with respect to any products, services, improvements, formulas,
designs, styles, processes, research, analyses, suppliers, customers, methods of
distribution or manufacture, contract terms and conditions, pricing, financial
condition, organization, personnel, business activities, budgets, plans,
objectives or strategies of the Company or its proprietary products or of any
subsidiary or Affiliate of the Company and that he will, prior to or upon the
termination of his employment with the

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<PAGE>

Company, return to the Company all such confidential or non-public information
in written or other physical form or which has been reduced to written or other
physical form or stored electronically on computer disks or tapes, and all
copies thereof, in his possession or custody or under his control; PROVIDED,
HOWEVER, that (x) confidential information shall not include publicly available
information or information known generally to the public (without fault on the
part of the Executive), and (y) the Executive may disclose such information as
may be required pursuant to any applicable law, rule or regulation or in
connection with any judicial or administrative proceeding or inquiry.

Notwithstanding the foregoing, in the event that the Executive
receives a subpoena or other process or order issued by a court which may
require him to disclose any confidential information, the Executive agrees (i)
to notify the Company as promptly as practicable of the existence, terms and
circumstances surrounding such process or order, and (ii) to cooperate with the
Company, at the Company's request, in taking legally available steps to resist
or narrow such process or order and to obtain an order or other reliable
assurance that confidential treatment will be given to such information as is
required to be disclosed.

As used in this Section 5, "Affiliate" shall have the meaning set
forth in Section 6(d) hereof.

In view of the services which the Executive will perform for the
Company and its subsidiaries and Affiliates in his positions as an executive
officer thereof, which are special, unique, extraordinary and intellectual in
character and will place him in a position of confidence and trust with the
customers and employees of the Company and its subsidiaries and Affiliates and
will provide him with access to confidential financial information, trade
secrets, "know-how" and other confidential and proprietary information of the
Company and its subsidiaries and Affiliates, and recognizing the substantial
sums paid and to be paid to the Executive pursuant to the terms hereof, the
Executive expressly acknowledges that the restrictive covenants set forth in
this Section 5 are necessary in order to protect and maintain the proprietary
interests and other legitimate business interests of the Company and its
subsidiaries and Affiliates and that the enforcement of such restrictive
covenants will not prevent him from earning a livelihood. The Executive
acknowledges that the remedy at law for any breach or threatened breach of this
Section 5 will be

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<PAGE>

inadequate and, accordingly, that the Company shall, in addition to all other
available remedies (including, without limitation, seeking such damages as it
can show it has sustained by reason of such breach), be entitled to specific
performance or injunctive relief without being required to post bond or other
security and without having to prove the inadequacy of the available remedies at
law.

6. TERMINATION OF THE EMPLOYMENT PERIOD.

(a) DEATH OF THE EXECUTIVE. The Employment Period shall
automatically terminate upon the death of the Executive.

(b) BY THE EXECUTIVE. The Executive shall be entitled to terminate
the Employment Period for Good Reason (as defined in paragraph (d) below)
following a Change of Control (as defined in paragraph (d) below).

(c) BY THE COMPANY. The Company shall be entitled to terminate the
Employment Period (1) in the event of the Executive's Disability (as defined in
paragraph (d) below); (2) for Cause (as defined in paragraph (d) below); or (3)
for any reason other than Disability or Cause.

(d) DEFINITIONS. For purposes of this Agreement, the following terms
shall have the following meanings:

(i) AFFILIATE. "Affiliate" shall mean, with respect to any person, a
person (i) which directly or indirectly through one or more
intermediaries controls, or is controlled by, or is under common
control with, such person, (ii) which directly or indirectly
through one or more intermediaries beneficially owns or holds 5%
or more of the combined voting power of the total voting
securities of such person or (iii) of which 5% or more of the
combined voting power of the total voting securities (or in the
case of a person which is not a corporation, 5% or more of the
equity interest) directly or indirectly through one or more
intermediaries is beneficially owned or held by such person, or a
subsidiary of such person.

(ii) CAUSE. "Cause" shall mean (x) conviction of the Executive of a
felony, or (y) the

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<PAGE>

Executive's willful and continued failure substantially to
perform his obligations under this Agreement, or (z) the
Executive's willfully engaging in conduct which is demonstrably
and materially injurious to the Company, monetarily or otherwise.
For purposes of this subparagraph (ii), no act, or failure to
act, on the Executive's part shall be considered "willful" unless
done, or omitted to be done, by the Executive not in good faith
and without reasonable belief that the Executive's action or
omission was in the best interest of the Company. Termination
for Cause shall be effected by a notice thereof delivered by the
Company to the Executive and shall be effective as of the date of
such notice; PROVIDED, HOWEVER, that (x) if such termination is
because of the Executive's willful and continued failure
substantially to perform his obligations under this Agreement,
(y) such notice is the first such notice of termination for any
reason delivered by the Company to the Executive within any
twelve-month period, and (z) within seven days following the date
of such notice the Executive shall cease his refusal and shall
use his best efforts to perform such obligations, the notice of
termination shall not be effective.

(iii) DISABILITY. "Disability" shall mean the Executive's failure
substantially to perform his services hereunder on a full-time
basis for a period of six consecutive months, or for shorter
periods aggregating six months in any twelve-month period, as a
result of incapacity due to physical or mental illness.

(iv) GOOD REASON. "Good Reason" shall mean the occurrence of any of
the following events following a Change in Control of the
Company:

(x) The assignment to the Executive of any duties inconsistent
with the Executive's positions, duties, responsibilities
and status with the Company prior to a Change in Control, or a
substantial change in the nature or status of the Executive's
responsibilities

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<PAGE>

from those in effect immediately prior to a Change in Control;

(y) The material breach by the Company of any of the terms and
conditions hereof or the taking of any action by the Company
which would adversely affect the Executive's compensation or his
participation in, or materially reduce the Executive's benefits
under, any of plans, programs or arrangements enjoyed by the
Executive (or deprive the Executive of any material fringe
benefit) pursuant hereto immediately prior to the Change in
Control which is not cured within ten (10) days of written notice
from the Executive, specifying in reasonable detail such alleged
breach or adverse action; or

(z) The requirement subsequent to a Change of Control that the
Executive be based at a location more than 25 miles from the
location where the Executive is based immediately prior to the
Change in Control.

(v) CHANGE IN CONTROL. A "Change in Control" shall mean an event or
series of events by which (i) any "person" (as such term is used
in Section 13(d) and 14(d) of the Securities Exchange Act of 1934
(the "Exchange Act")) (other than Riverside Acquisition Company,
Limited Partnership ("RAC"), Miller Tabak Hirsch + Co. ("MTH") or
any Affiliate of either thereof) is or becomes the "beneficial
owner" (as defined in Rules 13d-3 and 13d-5 under the Exchange
Act, except that a person shall be deemed to have "beneficial
ownership" of all shares that any such person has the right to
acquire, whether such right is exercisable immediately or only
after the passage of time), directly or indirectly, of 50% or
more of the outstanding shares of common stock of the Company or
securities representing 50% or more of the combined voting power
of the Company's voting securities, (ii) the Company consolidates
with or merges into another corporation or conveys, transfers or
leases all or substantially all of its assets to any person, or
any

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<PAGE>

corporation consolidates with or merges into the Company, in
either event pursuant to a transaction in which the outstanding
voting securities of the Company are changed into or exchanged
for cash, securities or other property, other than any such
transaction between the Company and its subsidiaries, with the
effect that any "person" (other than RAC, MTH or any Affiliate of
either thereof) becomes the "beneficial owner," directly or
indirectly, of 50% or more of the outstanding shares of common
stock of the Company or securities representing 50% or more of
the combined voting power of the voting securities of the
Company, or (iii) during any period of two consecutive years,
individuals who at the beginning of such period constituted
Penn Traffic's Board of Directors (together with any new or
replacement directors whose election by the Company's Board of
Directors, or whose nomination for election by the Company's
shareholders, was approved by a vote of at least a majority of
the directors then still in office who were either directors at
the beginning of such period or whose election or nomination for
election was previously so approved) cease for any reason to
constitute a majority of the directors then in office.

7. COMPENSATION UPON TERMINATION OF EMPLOYMENT.

Upon the termination of this Agreement during the Employment Period,
the Company and the Executive shall each have no further obligation or liability
to each other subsequent to such termination except as set forth in paragraphs
(a) through (f) below:

(a) If the Employment Period is terminated (i) by the Executive other
than for Good Reason following a Change in Control or (ii) by the Company or its
successor for Cause, the Company (or its successor) shall be required to pay the
Executive the Base Salary which is accrued but unpaid as of the date of
termination.

(b) If no Change of Control has occurred and the Employment Period is
terminated by the Company for a reason other than (i) for Cause or (ii) the
death or Disability of the Executive, the Company shall be required to continue
to

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<PAGE>

pay to the Executive a lump sum in an amount equal to the sum of (A) an amount
equal to 100% of the Executive's Base Salary for the year in which such
termination occurs plus (B) an amount equal to the Maximum Cash Bonus which the
Executive would have been entitled to receive in respect of such year (i.e.,
50% of the Executive's Base Salary) prorated to reflect the actual number of
days the Executive was employed during the fiscal year of such termination. In
the event of such termination, the Executive shall also be entitled to receive
the continuation of life and health insurance benefits for a period of two
years from the date of such termination. Such termination of the Employment
Period by the Company for a reason other than (i) for Cause or (ii) the death or
Disability of the Executive shall be effective seven days after the delivery of
notice of termination to the Executive.

(c) (1) If, following a Change of Control, the Employment Period is
terminated (i) by the Company or its successor for a reason other than (x) for
Cause or (y) the death or Disability of the Executive, or (ii) by the Executive
for Good Reason, then the Company or its successor shall be required to pay to
the Executive a lump sum in an amount equal to the sum of (A) an amount equal to
100% of the Executive's Base Salary for the year in which such termination
occurs plus (B) an amount equal to the Maximum Cash Bonus which the Executive
would have been eligible to receive in respect of such year (i.e., 50% of the
Executive's Base Salary). In addition, in the event of such termination of the
Employment Period, the Company or its successor shall be required to continue to
provide the Executive and his spouse, at the Company's or its successor's
expense, with coverage under the Company's life and health insurance plans as
in effect immediately prior to the delivery of notice of such termination, or to
provide the Executive, at the Company's or its successor's expense, with life
and health insurance benefits comparable to those received by the Executive
under the Company's life and health insurance plans as in effect immediately
prior to the delivery of notice of such termination, during a period of two
years from the date of such termination. Such termination of the Employment
Period shall be effective seven days after the delivery of notice of termination
to the Executive, in the case of termination by the Company or its successor
for a reason other than (i) for Cause or (ii) the death or Disability of the
Executive, or, in the case of termination by the Executive for Good Reason,
seven days after the delivery of notice of termination to the Company or its
successor. The lump sum payment required to

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<PAGE>

be paid to the Executive hereunder in the event of such termination shall be
made on the date of termination.

(c) (2) If there is a substantial risk that, absent the application of
this Section 7(c)(2), a payment to the Executive under Section 7(c)(1) of this
Agreement might constitute a "parachute payment" (as such term is defined in
Section 280G(b)(2) of the Internal Revenue Code of 1986 (the "Code")), and the
maximum dollar amount of the payment which could be paid to the Executive
pursuant to Section 7(c)(1) of this Agreement without subjecting him to the tax
imposed by Section 4999 of the Code exceeds the present value (using the rate
specified in Section 1274(b)(2)(B) of the Code) of all payments to be made and
benefits to be provided to the Executive under such Section 7(c)(1) of this
Agreement (without regard to the application of this Section 7(c)(2)) reduced by
the sum of (i) the tax imposed by Section 4999 of the Code on these payments and
(ii) the income taxes (at the highest marginal Federal and State and local
income tax rates applicable to the Executive) on the tax imposed by Section 4999
of the Code and the income taxes on the amount in this clause (ii), then the
payment to be made to the Executive pursuant to Section 7(c)(1) of this
Agreement shall be reduced so that the amount of that payment, when combined
with all other payments to be paid and benefits to be provided to the Executive
pursuant to this Agreement which could constitute a parachute payment, will be
$1.00 less than the amount which, if paid to the Executive, would constitute a
parachute payment. Donovan Leisure Newton & Irvine (or another law firm
mutually acceptable to the Executive and the Company (or its successor)) shall
determine whether any payment to be made under this Agreement constitutes a
"parachute payment" and the amount of any reduction, if any, in the payment
pursuant to Section 7(c)(1) hereof.

(d) If the Employment Period is terminated because of the Executive's
death, the Executive's estate or beneficiaries shall be entitled to receive a
lump sum payment equal to 100% of his Base Salary at the time of such
termination. If the Employment Period is terminated because of the Executive's
Disability, the Executive shall be entitled to continue to receive an amount
equal to 100% of his Base Salary and to continuation of health insurance
benefits for a period of one calendar year from the date of such termination by
reason of Disability.

(e) Notwithstanding the termination of the Employment Period, the
provisions of Sections 5 and 8 of this

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<PAGE>

Agreement shall continue in full force and effect and shall not be limited by
reason of such termination.

8. MITIGATION OF DAMAGES. In the event of termination of the
Employment Period by the Company (or its successor) following a Change of
Control for a reason other than for Cause, or in the event of the termination of
the Employment Period by the Executive for Good Reason following a Change of
Control, the Executive shall not be required to mitigate the amount of any
payment provided for in this Agreement by seeking other employment or otherwise.

9. MISCELLANEOUS.

(a) SUCCESSORS; BINDING AGREEMENT. This Agreement shall be binding
upon any successor to the Company in the event of a Change in Control, and shall
inure to the benefit of and be enforceable by Executive's personal or legal
representatives, beneficiaries, designees, executors, administrators,
successors, heirs, distributees, devisees, and legatees.

(b) MODIFICATION; NO WAIVER. No provision of this Agreement may be
modified, waived, or discharged unless such waiver, modification, or discharge
is agreed to in writing signed by the Executive and by the Company. No waiver
by either party hereto at any time of any breach by the other party hereto of,
or compliance with, any condition or provision of this Agreement to be performed
by such other party shall be deemed a waiver of similar or dissimilar provisions
or conditions at the time of or at any prior or subsequent time. A failure of
the Executive to claim or take any benefit provided by this Agreement shall not
constitute a waiver of such benefit, or any other benefit provided by this
Agreement.

(c) SEVERABILITY. The covenants and agreements contained herein are
separate and severable and the invalidity or unenforceability of any one or more
of such covenants or agreements, if not material to the employment arrangement
that is the basis for this Agreement, shall not affect the validity or
enforceability of any other covenant or agreement contained herein. In
addition, if, in any judicial proceeding, a court shall refuse to enforce one or
more of the covenants or agreements contained herein because the duration
thereof is too long, or the scope thereof is too broad, it is expressly agreed
between the parties hereto that such duration or scope shall be deemed reduced
to the extent

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<PAGE>

necessary to permit the enforcement of such covenants or agreements.

(d) NOTICES. All notices and other communications required or
permitted hereunder shall be in writing and shall be delivered personally or
sent by registered or certified mail, return receipt requested, to the parties
hereto at their respective addresses as set forth at the beginning of this
Agreement or at such other addresses as they shall designate in writing by
notice duly given hereunder. All notices and other communications required or
permitted hereunder and delivered to the Company by the Executive shall be
addressed to the attention of the Chairman of the Board of the Company.

(e) ASSIGNMENT. This Agreement shall not be assignable by either
party without the prior written consent of the other party.

(f) COMPLETE UNDERSTANDING. This Agreement constitutes the entire
understanding between the parties hereto and no agreement, representation,
warranty or covenant has been made by either party except as expressly set forth
herein. Effective upon the execution and delivery of this Agreement, all prior
agreements with respect to the subject matter thereof shall be terminated,
provided that any payments due and payable thereunder shall be made to the
Executive by the Company. This Agreement shall not be altered, waived, modified
or amended except by a written instrument executed by the parties hereto.

10. GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE
WITH AND GOVERNED FOR ALL PURPOSES BY

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<PAGE>

THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS EXECUTED AND WHOLLY
PERFORMED WITHIN SUCH STATE.

IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and year first above written.

THE PENN TRAFFIC COMPANY

Attest:
By /s/ Gary D. Hirsch
----------------------------

/s/ Francis D. Price
- ----------------------------

/s/ John T. Dixon
----------------------------
JOHN T. DIXON
Witness:

- ----------------------------

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<PAGE>

[Letterhead]

EXHIBIT 23.1

CONSENT OF INDEPENDENT ACCOUNTANTS

We hereby consent to the incorporation by reference in the Prospectus
constituting part of the Registration Statement on Form S-3 (No. 33-51213) of
The Penn Traffic Company of our report dated March 24, 1995 appearing on page
30 of this Form 10-k.

/s/ PRICE WATERHOUSE LLP
PRICE WATERHOUSE LLP
Syracuse, New York
April 26, 1995

<PAGE>
<ARTICLE> 5

<S> <C>
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0
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