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 30, 1999
                                       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: None

Securities registered pursuant to Section 12(g) of the Act: Common Stock, 
                                                            $1.25 par value

         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. [X]

         The aggregate market value of voting stock held by non-affiliates of
the Registrant was $2,266,245 as of April 23, 1999.

       Common Stock $1.25 par value Shares outstanding - 10,695,491 as of
                                 April 23, 1999
       ------------------------------------------------------------------
<PAGE>

                                 FORM 10-K INDEX
                                 ---------------

                                                                       PAGE
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PART I
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Item  1.  Business                                                        3

Item  2.  Properties                                                     12

Item  3.  Legal Proceedings                                              12

Item  4.  Submission of Matters to a Vote of Security Holders            12

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PART II
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Item  5.  Market for Registrant's Common Equity and Related
          Stockholder Matters                                            13

Item  6.  Selected Financial Data                                        14

Item  7.  Management's Discussion and Analysis of Financial
          Condition and Results of Operations                            17

Item  8.  Financial Statements and Supplementary Data                    29

Item  9.  Changes in and Disagreements with Accountants on
          Accounting and Financial Disclosure                            58

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PART III
--------------------------------------------------------------------------------

Item 10.  Directors and Executive Officers of Registrant                 59

Item 11.  Executive Compensation                                         62

Item 12.  Security Ownership of Certain Beneficial Owners
          and Management                                                 72

Item 13.  Certain Relationships and Related Transactions                 75

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PART IV
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Item 14.  Exhibits, Financial Statement Schedules and Reports on
          Form 8-K                                                       76

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                                       -2-
<PAGE>

                                     PART I

ITEM 1.  BUSINESS (AS OF JANUARY 30, 1999 UNLESS OTHERWISE NOTED)

GENERAL

         Penn Traffic is one of the leading food retailers in the eastern United
States. As of April 1, 1999, Penn Traffic operated 216 supermarkets in upstate
New York, Pennsylvania, Ohio and northern West Virginia under the "Big Bear" and
"Big Bear Plus" (74 stores), "Bi-Lo Foods" (43 stores), "P&C Foods" (63 stores)
and "Quality Markets" (36 stores) trade names. Penn Traffic also operates
wholesale food distribution businesses serving, as of April 1, 1999, 95 licensed
franchisees and 81 independent operators.

         As of April 1, 1999, the majority of Penn Traffic's retail supermarket
revenues were generated in smaller communities where Penn Traffic believes it
virtually always holds the number one or number two market position. The balance
of Penn Traffic's retail supermarket revenues are derived from Columbus, Ohio,
Buffalo and Syracuse, New York.

         Penn Traffic's retail and wholesale operations stretch from Ohio to
upstate New York. The Company operates in communities with diverse economies
based primarily on manufacturing and distribution, natural resources, retailing,
health care services, education and government services.

         On March 1, 1999 (the "Petition Date"), Penn Traffic and certain of its
subsidiaries filed petitions for relief (the "Bankruptcy Cases") under Chapter
11 of the United States Bankruptcy Code (the "Bankruptcy Code") in the United
States Bankruptcy Court for the District of Delaware. Since the Petition Date,
Penn Traffic and these subsidiaries have continued to operate their businesses
as debtors-in-possession under the Bankruptcy Code. The Bankruptcy Cases were
commenced in order to implement a financial restructuring of Penn Traffic and
its subsidiaries that had been negotiated with holders of more than 50% of the
principal amount of both its senior and senior subordinated notes. See "Debt
Restructuring" and Item 7 -- "Management's Discussion and Analysis of Financial
Condition and Results of Operations".

                                       -3-
<PAGE>

DEBT RESTRUCTURING

         As described above, on the Petition Date, Penn Traffic and certain of
its subsidiaries commenced the Bankruptcy Cases in the Bankruptcy Court for the
District of Delaware (the "Bankruptcy Court"). Since such date, the Company and
these subsidiaries have been operating their businesses as debtors-in-possession
under the Bankruptcy Code.

         The Bankruptcy Cases were commenced in order to implement a financial
restructuring of Penn Traffic which had been negotiated with an informal
committee of some of the Company's largest noteholders (the "Informal
Committee"). As of the Petition Date, the members of the Informal Committee or
certain funds managed or advised by them, held in the aggregate more than 50% of
the outstanding principal amount of both the Company's senior notes (the "Senior
Notes") and senior subordinated notes (the "Subordinated Notes"). Prior to the
Petition Date the three members of the Informal Committee signed lock-up
agreements under which they have agreed to vote, when solicited, in favor of the
Joint Plan of Reorganization (the "Plan") within certain specified time frames.

         Under the Plan, holders of Penn Traffic's $732.2 million Senior Notes
and $400 million Subordinated Notes will exchange their notes in the following
manner: (a) holders of Senior Notes will receive their pro rata share of $100
million of newly issued 11% Senior Notes due 2009 (the "New Senior Notes") and
19,000,000 shares of new common stock of reorganized Penn Traffic (the "New
Common Stock"), and (b) holders of Subordinated Notes will receive their pro
rata share of 1,000,000 shares of New Common Stock and currently exercisable
6-year warrants to purchase an additional 1,000,000 shares of New Common Stock
at an initial exercise price of $18.30 per share (except that if the class of
subordinated note claims under the Plan votes against the Plan, then only the
individual noteholders that vote in favor of the Plan will be entitled to
receive their pro rata share of the warrants; the remainder of warrants not
distributed shall be canceled). In addition, under the Plan holders of Penn
Traffic's existing common stock will be entitled to receive 1 share of New
Common Stock for each 100 shares of existing stock which they held prior to the
effective date of the Plan or approximately 107,000 shares in the aggregate
(except that if the classes of subordinated note claims and existing common
stock do not vote in favor of the Plan, then only those individual holders of
existing common stock that voted in favor of the Plan will be entitled to
receive their pro rata share of such distribution; the remainder of such
distribution will be canceled). The Plan also provides for the reinstatement or
payment in full of all other secured and unsecured claims against Penn Traffic
and its subsidiaries upon the effective date of the Plan.

                                       -4-
<PAGE>

         In connection with the filing of the Bankruptcy Cases, shortly after
the Petition Date, the Bankruptcy Court approved, on an interim basis, $240
million of a $300 million debtor-in-possession financing (the "DIP Facility")
with Fleet Capital and a syndicate of lenders, the proceeds of which were used
to repay in full the Company's pre-petition revolving credit facility and a
mortgage financing on one of the Company's Syracuse distribution facilities. On
April 5, 1999, the Bankruptcy Court entered a final order approving the DIP
Facility. The DIP Facility expires on the earlier of (a) March 3, 2000 or (b)
the effective date of the Plan, and grants to the lenders a first priority
security interest in substantially all the assets of Penn Traffic and its
subsidiaries. Availability under the DIP Facility is calculated by reference to
a specified percentage of certain receivables, inventory, equipment and real
property interests, less certain agreed-to reserves. As of April 16, 1999, Penn
Traffic had borrowings of $102.0 million and letters of credit of $46.1 million
outstanding under the DIP Facility, with $143.6 million available for borrowings
under the DIP Facility. The Company intends to continue to use the DIP Facility
during the pendency of the Bankruptcy Cases to finance its working capital and
capital expenditure requirements, including payments to its trade creditors. In
connection with consummation of the Plan, the Company intends to enter into a
new credit facility (the "New Credit Facility"), the proceeds of which will be
used to repay the DIP Facility in full on the effective date of the Plan and
will provide the Company with funds for its expected working capital and capital
expenditure needs following such date. See Item 7 -- "Management's Discussion
and Analysis of Financial Condition and Results of Operations".

         To maintain strong relationships with its vendors, on March 2, 1999,
the Company obtained an order from the Bankruptcy Court pursuant to which it has
been authorized to pay in full all of its trade creditors that continue to
provide it with goods on customary terms and credit, or otherwise acceptable to
Penn Traffic. To date, all of Penn Traffic's trade creditors have been providing
acceptable trade terms to it, and Penn Traffic has been paying them in the
ordinary course of business.

         On April 5, 1999, the Bankruptcy Court approved Penn Traffic's Amended
Disclosure Statement (the "Disclosure Statement") relating to the Plan. Penn
Traffic has now mailed the Disclosure Statement to all of its creditors and
shareholders entitled to vote on the Plan, and the Bankruptcy Court has
scheduled a hearing on confirmation of the Plan for May 27, 1999. Assuming the
Plan is accepted by the classes of creditors and shareholders entitled to vote
on the Plan and the Bankruptcy Court approves the Plan, Penn Traffic expects the
Plan to become effective approximately two weeks following the confirmation
date. There is no assurance that the Bankruptcy Court will confirm the Plan on
May 27, 1999 and that the Plan will become effective two weeks thereafter.

                                       -5-
<PAGE>

RETAIL FOOD DISTRIBUTION BUSINESS

         Penn Traffic is one of the leading supermarket retailers in its primary
operating areas which include New York, Ohio and western Pennsylvania. Penn
Traffic's store sizes and formats vary widely, depending upon the demographic
and competitive conditions in each location. For example, "conventional" store
formats are generally more appropriate in areas of low population density, while
larger areas are better served by full-service supermarkets of up to 75,000
square feet, which contain numerous specialty service departments such as
bakeries, delicatessens, floral departments and fresh seafood departments. Penn
Traffic's "Plus" format stores range in size from 75,000 to 140,000 square feet.
These full service supermarkets carry an expanded variety of nonfood
merchandise. Penn Traffic has recently commenced a process to refine the scope
of this nonfood merchandise to a smaller number of key growth categories with a
greater depth of variety in each category.

         Penn Traffic's supermarkets offer a broad selection of grocery, meat,
poultry, seafood, dairy, fresh produce, delicatessen, bakery and frozen food
products. The stores also offer nonfood products and services such as health and
beauty care products, housewares, general merchandise, pharmacies, floral items
and banking services. In general, Penn Traffic's larger stores carry broader
selections of merchandise and feature a larger variety of service departments.
Most of the Company's supermarkets are located in shopping centers. The Company
believes that its existing store base is generally modern and provides an
attractive shopping experience for Penn Traffic customers.

         To strengthen Penn Traffic financially, since the middle of last year
the Company has undertaken a store rationalization program (the "Store
Rationalization Program") to divest itself of certain marketing areas,
principally in northeastern Pennsylvania where performance and market position
were the weakest relative to Penn Traffic's other retail stores, and to close
other underperforming stores. In connection with the implementation of this
Store Rationalization Program, Penn Traffic has sold or plans to sell 18 stores
in Ohio and eastern Pennsylvania (17 of which have been sold). These
divestitures generated net cash proceeds of approximately $40 million (after the
payment of transaction costs and other costs of sale such as inventory
mark-downs and employee-related costs). In addition, Penn Traffic has closed or
plans to close an additional 38 generally unprofitable stores. The Company
estimates that the 56 stores that have been or are expected to be closed or
divested as part of the Company's Store Rationalization Program generated
revenues of approximately $327.4 million and experienced a loss in earnings
before interest, taxes, depreciation and amortization, LIFO provision and
unusual and extraordinary items ("EBITDA") of approximately $8 million in
aggregate during the fiscal year ended January 30, 1999 (these amounts reflect
the fact that 30 of the 56 stores that have been or are expected to be sold or
closed did not operate for the entire 52-week period). Although the Store
Rationalization Program was commenced prior to the Petition Date, Penn Traffic
intends to utilize the benefits of the Bankruptcy Code to reduce its lease
rejection costs in connection with closed stores. The Store Rationalization
Program has allowed management to focus the Company's marketing and distribution
resources on a less geographically diverse store base located in upstate New
York, Ohio, western Pennsylvania and northern West Virginia.

                                       -6-
<PAGE>

Selected statistics on Penn Traffic's retail food stores are presented below.

                                      Fiscal Year Ended
--------------------------------------------------------------------------------
                 January 30, January 31, February 1, February 3, January 28,
                    1999        1998        1997        1996        1995
                    (3)                             (53 weeks)(1)
--------------------------------------------------------------------------------
Average annual
  revenues per
  store          $ 9,594,000 $ 9,811,000 $10,598,000 $10,900,000 $11,648,000

Total store area
  in square feet   9,796,604  10,787,686  10,737,891  10,424,538   9,927,633

Total store
  selling area in
  square feet      7,086,099   7,812,114   7,780,811   7,527,665   7,140,390

Average total
  square feet per
  store               42,046      40,862      40,520      39,338      37,182

Average square
  feet of selling
  area per store      30,412      29,591      29,362      28,406      26,743

Annual revenues per
  square foot of
  selling area          $321        $333        $368        $397        $423

Number of stores:
  Remodels/expansions
  (over $100,000)          5           3           7          15           9
  New stores opened        1           1           5          11          12
  Stores acquired          0           1           2           2          31(2)
  Stores closed/sold      32           3           7          15           8

Size of stores (total store area):
Up to 19,999
  square feet             29          36          37          37          39
20,000 - 29,999
  square feet             42          50          52          56          67
30,000 - 44,999
  square feet             81          92          93          95          96
45,000 - 60,000
  square feet             50          55          55          53          48
Greater than
  60,000 square
  feet                    31          31          28          24          17

Total stores open
  at fiscal year-end     233         264         265         265         267


(1)  Average annual revenues per store and annual revenues per square foot of 
     selling area are calculated on a 52-week basis.

(2)  Includes the addition of 30 of the 45 former Acme stores acquired by the 
     Company in January 1995 which the Company initially expected to operate.

(3)  Includes revenues and square footage amounts from stores to be disposed of 
     as part of the Company's Store Rationalization Program.

                                       -7-
<PAGE>

WHOLESALE FOOD DISTRIBUTION BUSINESS

         As of April 1, 1999, Penn Traffic licensed, royalty-free, the use of
its "Riverside," "Bi-Lo Foods" and "Big M" names to 95 independently-owned
supermarkets that are required to maintain certain quality and other standards.
The majority of these independent stores use Penn Traffic as their primary
wholesaler and also receive advertising, accounting, merchandising, consulting
and retail counseling services from Penn Traffic. In addition, as of April 1,
1999, Penn Traffic received rent from 47 of the licensed independent operators
which lease or sublease their supermarkets from Penn Traffic. As of April 1,
1999, the Company also acted as a food distributor to 81 other independent
supermarkets. Penn Traffic believes that it is able to leverage its existing
food supply and distribution systems by supplying these retail stores owned and
operated by third parties that are geographically proximate to its own existing
store base.

FOOD PROCESSING OPERATIONS

         Penn Traffic owns and operates Penny Curtiss, a bakery processing plant
in Syracuse, New York. Penny Curtiss manufactures and distributes fresh and
frozen bakery products for distribution to Penn Traffic's stores as well as to
unrelated third parties.


PURCHASING AND DISTRIBUTION

         Penn Traffic is a large volume purchaser of products. Penn Traffic's
purchases are generally of sufficient volume to qualify for minimum price
brackets for most items. Penn Traffic purchases brand name grocery merchandise
directly from national manufacturers. The Company also purchases private label
products and certain other grocery items from TOPCO Associates, Inc., a national
products purchasing cooperative comprising approximately 30 regional supermarket
chains. For Fiscal 1999, purchases from TOPCO Associates accounted for
approximately 21% of product purchases. In the later part of calendar year 1998
and the early portion of calendar year 1999 (prior to the Company's March 1,
1999 Chapter 11 filing), certain of Penn Traffic's suppliers reduced credit
limits to Penn Traffic which had reduced Penn Traffic's ability to supply its
stores with a full variety of products or earn promotional discounts on certain
products.

         Penn Traffic's principal Pennsylvania distribution facility is a
company-owned 390,000 square foot distribution center in DuBois, Pennsylvania.
Penn Traffic also operates a 196,000 square foot distribution center for
perishable products in DuBois, and Penn Traffic leases a 70,000 square foot
warehouse in DuBois, for grocery products, certain store supplies and aerosol
products.

         The principal New York distribution facilities are a company-owned
498,000 square foot distribution center in Syracuse, New York and a
company-owned 267,000 square foot distribution center in Jamestown, New York.
The Company also owns a 217,000 square foot distribution center for perishable
products in Syracuse.

         The Company's primary Ohio distribution center is a leased 484,000
square foot dry grocery facility in Columbus, Ohio. Penn Traffic also owns a
208,000 square foot distribution facility for perishable goods in Columbus and
leases two additional warehouses totaling 430,000 square feet, in Columbus for
distribution of general merchandise and health and beauty care items to all Penn
Traffic stores.

                                       -8-
<PAGE>

         Approximately three-quarters of the merchandise offered in Penn
Traffic's retail stores is distributed from its warehouses by its fleet of
tractors, refrigerated trailers and dry trailers. Merchandise not delivered from
Penn Traffic's warehouses is delivered directly to the stores by manufacturers,
distributors, vendor drivers and sales representatives for such products as
beverages, snack foods and bakery items.

COMPETITION

         The food retailing business is highly competitive and may be affected
by general economic conditions. The number of competitors and the degree of
competition experienced by Penn Traffic's supermarkets vary by location. Penn
Traffic competes with several multi-regional, regional and local supermarket
chains, convenience stores, stores owned and operated and otherwise affiliated
with large food wholesalers, unaffiliated independent food stores, warehouse
clubs, discount drug store chains, discount general merchandise chains,
"supercenters" (combination supermarket and general merchandise stores) and
other retailers. Many of these competitors are better capitalized than Penn
Traffic, have vastly greater resources than Penn Traffic and do not have
employees that are affiliated with unions.

EMPLOYEES

         Labor costs and their impact on product prices are important
competitive factors in the supermarket industry. At April 1, 1999, Penn Traffic
had approximately 15,900 hourly employees and 1,400 salaried employees.

         As of April 1, 1999, approximately 53% of Penn Traffic's hourly
employees belonged to the United Food and Commercial Workers Union. An
additional 7% of Penn Traffic's hourly employees (principally employed in the
distribution function and in the Company's bakery plant) belonged to four other
unions.

GOVERNMENT REGULATION

         Penn Traffic's food and drug business requires it to hold various
licenses and to register certain of its facilities with state and federal
health, drug and alcoholic beverage regulatory agencies. By virtue of these
licenses and registration requirements, Penn Traffic is obligated to observe
certain rules and regulations, and a violation of such rules and regulations
could result in a suspension or revocation of licenses or registrations. In
addition, most of Penn Traffic's licenses require periodic renewals. Penn
Traffic has experienced no material difficulties with respect to obtaining,
effecting, retaining or renewing its licenses and registrations.

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 21%, 16% and 17% of
product purchases in Fiscal 1999, Fiscal 1998 and Fiscal 1997, respectively.

                                       -9-
<PAGE>

HISTORY

         Penn Traffic is the successor to a retail business which dates back to
1854. Penn Traffic, then a publicly-held corporation, was acquired in March 1987
by Riverside Acquisition Company, Limited Partnership ("RAC"), a Delaware
limited partnership and an affiliate of Miller Tabak Hirsch + Company ("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.

         In August 1988, Penn Traffic acquired P&C Food Markets, Inc. ("P&C"),
which operated a retail and wholesale grocery business in a contiguous market to
the east of Penn Traffic's historical marketplace. In October 1991, P&C became a
wholly-owned subsidiary of the Company, and in April 1993, P&C was merged into
the Company.

         In April 1989, Penn Traffic acquired Big Bear Stores Company ("Big
Bear"), a leading food retailer in Ohio and a portion of West Virginia.
In April 1993, Big Bear was merged into the Company.

         In January 1993, Penn Traffic acquired a number of supermarkets located
in western New York and northwestern Pennsylvania from Peter J. Schmitt Co.,
Inc., certain of which are being operated by the Company under the "Quality
Markets" trade name.

         In September 1993, Penn Traffic acquired certain supermarkets from
Insalaco Supermarkets, Inc. in northeastern Pennsylvania. In addition, in
January 1995, Penn Traffic acquired certain supermarkets owned by American
Stores Company which had operated under the "Acme" trade name. As described in
Retail Food Distribution Business section, Penn Traffic has now divested itself
or closed most of these stores. The remaining stores operate under the "Bi-Lo
Foods" and "P&C Foods" trade names.

         In January 1998, Penn Traffic sold Sani-Dairy, its dairy manufacturing
operation. Concurrent with the completion of the transaction, the Company
entered into a 10-year supply agreement with the acquirer for the purchase of
products that were supplied by Sani-Diary and two other dairies.

         In March 1999, on the Petition Date, Penn Traffic filed the
Bankruptcy Cases.  See "Debt Restructuring".

                                      -10-
<PAGE>

RELATIONSHIP WITH GRAND UNION

         In 1989, Penn Traffic acquired an indirect ownership interest in the
common stock of the parent company of The Grand Union Company ("Grand Union"),
which is engaged in the food retailing business. Penn Traffic's equity interest
in Grand Union's parent company became worthless as the result of Grand Union's
filing of a voluntary petition for reorganization under Chapter 11 of the United
States Bankruptcy Code in January 1995.

         In July 1990, P&C (then a subsidiary of Penn Traffic and now a division
of Penn Traffic) and Grand Union entered into an operating agreement (the "New
England Operating Agreement") whereby Grand Union acquired the right to operate
13 P&C stores located in New England under the Grand Union name until July 2000.
Pursuant to the New England 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 10-year
term and, beginning with the year commencing July 31, 1992, to pay Penn Traffic
additional contingent fees of up to a specified amount per year (currently $1.2
million) based on sales performance of the stores operated by 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 New England Operating Agreement.
This prepayment reduced the future payments that Grand Union makes to Penn
Traffic pursuant to the terms of the New England Operating Agreement by
approximately $3.2 million per year. The Total Revenues line of the Consolidated
Statement of Operations includes pre-tax operating fees of $12.1 million for the
fiscal year ended January 30, 1999, $11.2 million for fiscal year ended January
31, 1998, and $11.2 million for the fiscal year ended February 1, 1997.

         At the expiration of the 10-year term of the New England Operating
Agreement, Grand Union has the right to extend the term of the New England
Operating Agreement for an additional five years at defined operating fees. Penn
Traffic also granted Grand Union an option (the "Purchase Option") to purchase
the stores operated by Grand Union under the New England Operating Agreement.
Grand Union paid Penn Traffic $7.5 million for the Purchase Option, which
provides that from July 30, 1998 until the expiration of the term (or the
extended term) of the New England Operating Agreement, Grand Union may purchase
the stores operated under the New England 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. Grand Union has not exercised the Purchase
Option.

         If Grand Union does not extend the initial term of the New England
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 New England Operating Agreement, the stores operated by Grand
Union pursuant to the New England Operating Agreement (currently 9 stores) will
be returned to Penn Traffic.

                                      -11-
<PAGE>

ITEM 2.  PROPERTIES

         Penn Traffic follows the general industry practice of leasing the
majority of its retail supermarket locations. As of April 1, 1999, Penn Traffic
owned 38 and leased 178 of the supermarkets that it operates. The owned
supermarkets range in size from 4,300 to 123,000 square feet. The leased
supermarkets range in size from 8,100 to 140,000 square feet and are held under
leases expiring from 1999 to 2018, excluding option periods. As of April 1,
1999, Penn Traffic owned or leased 47 supermarkets which were leased or
subleased to independent operators.

         As of April 1, 1999, Penn Traffic also owned six shopping centers, five
of which contained one of the company-owned or licensed supermarkets. As of
April 1, 1999, Penn Traffic also operated distribution centers in DuBois,
Pennsylvania; Syracuse and Jamestown, New York; and Columbus, Ohio; and a bakery
plant in Syracuse, New York. Penn Traffic also owns a fleet of trucks and
trailers, fixtures and equipment utilized in its business and certain
miscellaneous real estate.

ITEM 3.  LEGAL PROCEEDINGS

         As a result of the filing of the Bankruptcy Cases, all pending
litigations against the Company became subject to the automatic stay imposed by
the Bankruptcy Code. The Plan provides for the payment of all litigation claims
as and when such claims are resolved. The Company and its subsidiaries are
involved in several lawsuits, claims and inquiries, most of which are routine to
the nature of the business. Estimates of future liability are based on an
evaluation of currently available facts regarding each matter. Liabilities are
recorded when it is probable that costs will be incurred and can be reasonably
estimated.

         Based on management's evaluation, the resolution of these matters is
not expected to materially affect the financial position, results of operations
or liquidity of the Company.

         Also see Item 1 -- "Debt Restructuring" for a description of the filing
of the Plan in March 1999.

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 the fiscal year ended January 30, 1999.

                                      -12-
<PAGE>

                                     PART II


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

         Penn Traffic's common stock is listed on the OTC-Bulletin Board (PNFT)
and was held by approximately 846 stockholders of record on January 30, 1999.

Common stock information is provided on Page 84 of this Form 10-K.

                                      -13-
<PAGE>

ITEM 6.  SELECTED FINANCIAL DATA

CONSOLIDATED FIVE-YEAR FINANCIAL SUMMARY

         Set forth below is selected historical consolidated financial data of
Penn Traffic for the five fiscal years ended January 30, 1999. Due to the
adoption of Statement of Financial Accounting Standards No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of"
during the fiscal year ended February 3, 1996 ("Fiscal 1996"), 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 30, 1999, are derived from the consolidated financial
statements of Penn Traffic which have been audited by PricewaterhouseCoopers
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

<TABLE>
<CAPTION>

                                            As of and for the Fiscal Year Ended
(In thousands of dollars,     January 30,  January 31,   February 1,  February 3,  January 28,
except per share data)           1999         1998          1997         1996         1995
                                                                      (53 Weeks)
-------------------------     ----------   ----------    ----------   ----------   ----------
<S>                           <C>          <C>           <C>          <C>          <C>       
  Total revenues              $2,828,109   $3,010,065    $3,296,462   $3,536,642   $3,333,225
  Cost of sales (1)            2,213,801    2,317,847     2,531,381    2,724,639    2,570,708
  Selling and administrative
    expenses (2)                 602,382      625,731       684,558      670,387      606,782
  Restructuring charges (2)                    10,704
  Gain on sale of
    Sani-Dairy (3)                            (24,218)
  Unusual items (1) (4)           61,355                                  65,237
  Write-down of long-lived
    assets (5)                   143,842       26,982                     46,847
                              ----------   ----------    ----------   ----------   ----------
  Operating (loss) income       (193,271)      53,019        80,523       29,532      155,735
  Interest expense               147,737      149,981       144,854      136,359      117,859
                              ----------   ----------    ----------   ----------   ----------
  (Loss) income before income
    taxes, extraordinary item
    and cumulative effect of
    change in accounting
    principle                   (341,008)     (96,962)      (64,331)    (106,827)      37,876
  (Benefit) provision for
    income taxes (6)             (23,914)     (35,836)      (22,901)     (27,202)      15,851
                              ----------   ----------    ----------   ----------   ----------
  (Loss) income before extra-
    ordinary item and
    cumulative effect of
    change in accounting
    principle                   (317,094)     (61,126)      (41,430)     (79,625)      22,025
  Extraordinary item (net of
    tax benefit)(7)                                                                    (3,025)
                              ----------   ----------    ----------   ----------   ----------
  (Loss) income
    before cumulative effect
    of change in accounting
    principle                   (317,094)     (61,126)      (41,430)     (79,625)      19,000
  Cumulative effect of
    change in accounting
    principle (net of tax
    benefit) (8)                                                                       (5,790)
                              ----------   ----------    ----------   ----------   ----------
  Net (loss) income
    applicable to
    common stock              $ (317,094)  $  (61,126)   $  (41,430)  $  (79,625)  $   13,210
                              ==========   ==========    ==========   ==========   ==========
</TABLE>

                                      -14-
<PAGE>

                       STATEMENT OF OPERATIONS (CONTINUED)
<TABLE>
<CAPTION>


                                            As of and for the Fiscal Year Ended
(In thousands of dollars,     January 30,  January 31,  February 1,   February 3,  January 28,
except per share data)           1999         1998         1997          1996         1995
                                                                      (53 Weeks)
                              ==========   ==========   ==========    ==========   ==========
<S>                           <C>          <C>          <C>           <C>          <C>      
PER SHARE DATA (BASIC):
  (Loss) income before extra-
   ordinary item and cumulative
   effect of change in
   accounting principle
   (after preferred
   dividends)                 $   (30.00)  $    (5.78)  $    (3.92)   $    (7.52)  $     2.02
  Extraordinary item                                                                    (0.28)
  Cumulative effect of change
   in accounting principle                                                              (0.53)
                              ----------   ----------   ----------    ----------   ----------
  Net (loss) income           $   (30.00)  $    (5.78)  $    (3.92)   $    (7.52)  $     1.21
                              ==========   ==========   ==========    ==========   ==========

PER SHARE DATA (DILUTED):
  (Loss) income before extra-
   ordinary item and cumulative
   effect of change in
   accounting principle
   (after preferred
   dividends)                 $   (30.00)  $    (5.78)  $    (3.92)   $    (7.52)  $     1.92
  Extraordinary item                                                                    (0.26)
  Cumulative effect of change
   in accounting principle                                                              (0.51)
                              ----------   ----------   ----------    ----------   ----------
  Net (loss) income           $   (30.00)  $    (5.78)  $    (3.92)   $    (7.52)  $     1.15
                              ==========   ==========   ==========    ==========   ==========

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

BALANCE SHEET DATA:

  Total assets                $1,228,061   $1,563,586    $1,704,119   $1,760,146   $1,793,966
  Total funded
   indebtedness                1,377,358    1,373,607     1,398,991    1,341,657    1,277,276
  Stockholders' equity
   (deficit)                    (469,706)    (159,809)      (96,755)     (53,271)      32,927

OTHER DATA:

  Depreciation and
   amortization                   77,179       88,966        92,705       92,479       87,811
  LIFO provision (benefit)         2,376        2,343         2,375         (672)       2,792
  Capital expenditures,
   including capital
    leases and acquisitions       14,368       22,272        69,785      136,139      202,357
  Cash interest expense          143,411      145,177       140,289      132,062      113,664
</TABLE>

Footnotes:

  (1)    During Fiscal 1999, the Company recorded special charges of $69.3
         million primarily related to: (a) the decision to close 38 of its
         stores as part of the Company's Store Rationalization Program ($75.4
         million), (b) severance and other miscellaneous employee expenses
         related to the Company's Store Rationalization Program ($5.5 million),
         (c) a gain related to the sale of 13 stores and certain other real
         estate pursuant to its Store Rationalization Program ($12.7 million)
         and (d) professional fees and other miscellaneous costs associated with
         the Company's proposed debt restructuring ($1.1 million). All of these
         items are included in the unusual items account except for $8.0 million
         of inventory markdowns, which are included in cost of sales.

                                      -15-
<PAGE>

  (2)    For the 52-week period ended January 31, 1998 ("Fiscal 1998"), the
         Company recorded pre-tax special charges totaling $18.2 million ($10.7
         million, net of tax). These special charges consisted of (a) $12.6
         million associated with a management reorganization and related
         corporate actions ($10.7 million of this charge is included in a
         restructuring charge and $1.9 million is included in selling and
         administrative expenses), and (b) $5.6 million associated with the
         retention of hired corporate executives, which is included in selling
         and administrative expenses.

  (3)    During Fiscal 1998, the Company recorded a gain totaling $24.2 million
         ($14.3 million, net of tax) related to the sale of Sani-Dairy, the
         Company's dairy manufacturing operation, for cash consideration of
         approximately $37 million.

  (4)    During Fiscal 1996, the Company recorded an unusual item of $65.2
         million, which was related primarily to the closure of its stand-alone
         general merchandise business (Harts), a write-down of assets that the
         Company would no longer utilize in its business and the Company's
         expense reduction program.

  (5)    The Company periodically reviews the recorded value of its long-lived
         assets to determine if the future cash flows to be derived from these
         properties will be sufficient to recover the remaining recorded asset
         values. During Fiscal 1999, the Company recorded a noncash charge of
         $52.3 million primarily related to the write-down of a portion of the
         recorded asset values of 14 of the Company's stores (including
         allocable goodwill) to estimated realizable values. During Fiscal 1999,
         the Company announced its plans for realizing value from certain of its
         Pennsylvania Bi-Lo stores and related wholesale operations. During
         Fiscal 1999, the Company recorded a noncash charge of $91.5 million to
         write down the carrying amounts of 22 stores held for sale (including
         allocable goodwill) at October 31, 1998 to estimated realizable values.
         Since October 31, 1998, the Company has revised its Store
         Rationalization Program and decided to continue to operate six of these
         stores and close two of them. For Fiscal 1998, the Company recorded a
         noncash charge of $27.0 million primarily related to the write-down of
         a portion of the recorded asset values of 12 of the Company's stores
         (including allocable goodwill), as well as miscellaneous real estate,
         to estimated realizable values. During Fiscal 1996, the Company adopted
         Statement of Financial Accounting Standards No. 121, "Accounting for
         the Impairment of Long-Lived Assets and for Long-Lived Assets to Be
         Disposed Of" ("SFAS 121") and recorded a noncash charge of $46.8
         million primarily related to the write-down of a portion of the
         recorded asset values (including allocable goodwill) of 18 of the
         Company's stores.

  (6)    During Fiscal 1999, the Company stopped recording a tax benefit since
         it is more likely than not that the additional deferred tax asset will
         not be realized. The tax benefit for Fiscal 1999 excludes an additional
         tax benefit of $104.3 million.

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

  (8)    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 by $5.8 million (net of a $4.1 million income tax benefit) for
         Fiscal 1995.

                                      -16-
<PAGE>

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

         Certain statements included in this Part II, Item 7, "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
elsewhere in this Form 10-K which are not statements of historical fact are
intended to be, and are hereby identified as, "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995.
Without limiting the foregoing, the words "believe," "anticipate," "plan,"
"expect," "estimate," "intend" and other similar expressions are intended to
identify forward-looking statements. The Company cautions readers that
forward-looking statements involve known and unknown risks, uncertainties and
other factors that may cause the actual results, performance or achievements of
the Company to be materially different from any future results, performance or
achievement expressed or implied by such forward-looking statements. Such
factors include, among others, the following: the success or failure of the
Company in implementing its current business and operational strategies; the
ability of the Company to consummate the Plan on the terms specified in such
Plan and the timing of such consummation; the approval of the Plan by the
Bankruptcy Court; availability, terms and access to capital and customary trade
credit; general economic and business conditions; competition; changes in the
Company's business strategy; availability, location and terms of sites for store
development; availability and terms of necessary or desirable financing or
refinancing; unexpected costs of year 2000 compliance or failure by the Company
or other entities with which it does business to achieve compliance; labor
relations; the outcome of pending or yet-to-be instituted legal proceedings; and
labor and employee benefit costs.

                                      -17-
<PAGE>

RESULTS OF OPERATIONS

         Fiscal Year Ended January 30, 1999 ("Fiscal 1999") Compared to Fiscal
Year Ended January 31, 1998 ("Fiscal 1998")

         The following table sets forth Statement of Operations components
expressed as percentages of total revenues for Fiscal 1999 and Fiscal 1998:

                                         PERCENTAGE OF TOTAL REVENUES
                                                 FISCAL YEAR
                                         ----------------------------
                                               1999       1998
                                               ----       ----

Total revenues                                100.0%     100.0%

Gross profit (1)                               21.7       23.0
Gross profit excluding
  special charges (1) (2)                      22.0       23.0

Selling and administrative
  expenses                                     21.3       20.8
Selling and administrative
  expenses excluding
  special charges (3)                          21.3       20.5

Restructuring charges                                      0.3

Unusual items                                   2.2       (0.8)

Write-down of long-lived
  assets                                        5.1        0.9

Operating (loss) income                        (6.8)       1.8
Operating income excluding
  unusual charges (4)                           0.7        2.5

Interest expense                                5.2        5.0

(Loss) before income taxes                    (12.1)      (3.2)
(Loss) before income taxes
  excluding unusual charges (4)                (4.5)      (2.5)


(1)       Total revenues less cost of sales.

(2)       Gross profit excluding special charges for Fiscal 1999 of $8.0 million
          for inventory markdowns associated with the Company's Store
          Rationalization Program (see Note 9).

(3)       Selling and administrative expenses excluding special charges for
          Fiscal 1998 of (a) $5.6 million associated with the retention of
          certain corporate executives and (b) $1.9 million of other costs
          associated with a management reorganization and related corporate
          actions (see Note 7).

(4)       Operating income and Loss before income taxes for Fiscal 1999
          excluding (a) special charges of $68.2 million associated with the
          Company's Store Rationalization Program, (b) special charges of $1.1
          million associated with the Company's proposed debt restructuring and
          (c) $143.8 million associated with the write-down of long-lived
          assets (see Notes 9 and 10).  Operating income and Loss before income
          taxes for Fiscal 1998 excluding (a) pre-tax special charges of $18.2
          million, (b) the gain on the sale of Sani-Dairy of $24.2 million and
          (c) the write-down of certain impaired long-lived assets of $27.0
          million (see Notes 7, 8 and 10).

                                      -18-
<PAGE>

         Total revenues for Fiscal 1999 decreased 6.0% to $2.83 billion from
$3.01 billion in Fiscal 1998. Same store sales for Fiscal 1999 decreased by 4.0%
from Fiscal 1998. Wholesale supermarket revenues decreased in Fiscal 1999 to
$328.7 million from $357.5 million in Fiscal 1998.

         Gross profit in Fiscal 1999 was $614.3 million or 21.7% of revenues
compared to $692.2 million or 23.0% of revenues in Fiscal 1998. In Fiscal 1999,
gross profit, excluding pre-tax special charges of $8.0 million (see Note 9),
was $622.3 million or 22.0% of revenues. The decrease in gross profit, excluding
special charges, as a percentage of revenues for Fiscal 1999 resulted from
investments in gross margins associated with the Company's prior marketing
program (initiated in the later part of Fiscal 1998), an increase in inventory
shrink expense and a reduction in allowance income.

         Selling and administrative expenses for Fiscal 1999 were $602.4 million
or 21.3% of revenues compared to $625.7 million or 20.8% of revenues for Fiscal
1998. For Fiscal 1998, selling and administrative expenses, excluding pre-tax
special charges of $7.5 million (see Note 7), were $618.2 million or 20.5% of
revenues. The increase in selling and administrative expenses excluding special
charges, as a percentage of revenues in Fiscal 1999 was primarily due to
increased promotional expenses (Penn Traffic accounts for certain promotional
expenses in the selling and administrative expenses line of the Consolidated
Statement of Operations) and an increase in bad debt expense. These additional
expenses were partially offset by a decrease in costs associated with the
implementation of the Company's cost reduction programs.

         During Fiscal 1999, the Company recorded special charges of $68.2
million associated with the Company's Store Rationalization Program and $1.1
million associated with the Company's proposed debt restructuring. $61.3 million
of these charges are included in unusual items and $8.0 million is included in
cost of sales as inventory markdowns (see Note 9). During Fiscal 1998, the
Company recorded special charges of $18.2 million ($10.7 million, net of tax) in
connection with the management reorganization and related corporate actions and
the retention of certain corporate executives. Of this charge, $7.5 million is
included in selling and administrative expenses and $10.7 million is included in
restructuring charges (see Note 7).

         During Fiscal 1998, the Company recorded a gain totaling $24.2 million
($14.3 million, net of tax) related to the sale of Sani-Dairy for cash
consideration of approximately $37 million (Note 8).

         In accordance with SFAS 121, the Company periodically reviews the
recorded value of its long-lived assets to determine if the future cash flows to
be derived from these properties will be sufficient to recover the remaining
recorded asset values. During the fourth quarter of Fiscal 1999, the Company
recorded a noncash charge of $52.3 million primarily related to the write-down
of a portion of the recorded asset values of 14 of the Company's stores
(including allocable goodwill) to estimated realizable values. During the fourth
quarter of Fiscal 1998, the Company recorded a noncash charge of $27.0 million
primarily related to the write-down of a portion of the recorded asset values of
12 of the Company's stores (including allocable goodwill) to estimated
realizable values.

         During Fiscal 1999, the Company announced its plans for realizing value
from certain of its Pennsylvania Bi-Lo stores and related wholesale operations.
In accordance with SFAS 121, during Fiscal 1999, the Company recorded a noncash
charge of $91.5 million to write down the carrying amounts of 22 stores held for
sale (including allocable goodwill) at October 31, 1998 to estimated realizable
values. Since October 31, 1998, the Company has revised its Store
Rationalization Program and has decided to continue to operate six of these
stores and close two of them.

                                      -19-
<PAGE>

         Depreciation and amortization expense was $77.2 million in Fiscal 1999
and $89.0 million in Fiscal 1998, representing 2.7% and 3.0% of total revenues,
respectively. The decrease in depreciation and amortization expense is due to
(a) a reduction in the Company's capital expenditure program, (b) the Company's
Store Rationalization Program which involves the sale or closure of several
stores and (c) the write-down of long-lived assets in Fiscal 1998 and Fiscal
1999.

         Operating loss for Fiscal 1999 was $193.3 million or 6.8% of total
revenues compared to operating income of $53.0 or 1.8% of total revenues for
Fiscal 1998. Operating income for Fiscal 1999 was $19.9 million or 0.7% of
revenues excluding unusual charges (special charges of $68.2 million associated
with the Company's Store Rationalization Program, special charges of $1.1
million associated with the Company's proposed debt restructuring and a
write-down of certain impaired long-lived assets of $143.8 million) compared to
operating income for Fiscal 1998 of $74.0 million or 2.5% of revenues excluding
unusual charges (pre-tax special charges of $18.2 million, the gain on the sale
of Sani-Dairy of $24.2 million and the write-down of certain impaired long-lived
assets of $27.0 million). Operating income excluding unusual charges declined as
a percentage of revenues due to a decrease in gross profit as a percentage of
revenues and an increase in selling and administrative expenses as a percentage
of revenues.

         Interest expense for Fiscal 1999 and Fiscal 1998 was $147.7 million and
$150.0 million, respectively.

         Loss before income taxes was $341.0 million for Fiscal 1999 compared to
a loss of $97.0 million for Fiscal 1998. The loss before income taxes, excluding
unusual charges ($68.2 million associated with the Company's Store
Rationalization Program, special charges of $1.1 million associated with the
Company's proposed debt restructuring and a write-down of certain impaired
long-lived assets of $143.8 million) was $127.8 million for Fiscal 1999 compared
to a loss before income taxes, excluding unusual charges (pre-tax special
charges of $18.2 million, the gain on the sale of Sani- Dairy of $24.2 million
and the write-down of certain impaired long-lived assets of $27.0 million) of
$76.0 million for Fiscal 1998. The reason for the increase in the loss before
income taxes (excluding unusual charges) was the reduction in operating income
(excluding unusual charges) for Fiscal 1999.

         The income tax benefit for Fiscal 1999 was $23.9 million compared to a
benefit of $35.8 million in Fiscal 1998. The effective tax rates vary from the
statutory rates due to (a) differences between income for financial reporting
and tax reporting purposes that result primarily from the amortization of
nondeductible goodwill and (b) the recording of a valuation allowance. A
valuation allowance is required when it is more likely than not that the
recorded value of a deferred tax asset will not be realized.

         Net loss for Fiscal 1999 was $317.1 million compared to a net loss of
$61.1 million for Fiscal 1998. The net loss, excluding the impact of unusual
charges, was $103.9 million for Fiscal 1999 compared to a $48.8 million net
loss, excluding the impact of unusual charges for Fiscal 1998.

                                      -20-
<PAGE>

         Fiscal Year Ended January 31, 1998 ("Fiscal 1998") Compared to Fiscal
Year Ended February 1, 1997 ("Fiscal 1997")

         The following table sets forth Statement of Operations components
expressed as percentages of total revenues for Fiscal 1998 and Fiscal 1997:

                                        PERCENTAGE OF TOTAL REVENUES
                                                 FISCAL YEAR
                                        ----------------------------
                                               1998       1997
                                               ----       ----

Total revenues                                100.0%     100.0%

Gross profit (1)                               23.0       23.2

Selling and administrative
  expenses excluding
  special charges (2)                          20.5       20.8
Selling and administrative
  expenses                                     20.8       20.8

Restructuring charges                           0.3

Gain on sale of Sani-Dairy                     (0.8)

Write-down of long-lived assets                 0.9

Operating (loss)income
  excluding special charges (3)                 2.5        2.4
Operating (loss) income                         1.8        2.4

Interest expense                                5.0        4.4

(Loss) before income taxes                     (3.2)      (2.0)


(1)      Total revenues less cost of sales.

(2)      Selling and administrative expenses, excluding pre-tax special charges
         for Fiscal 1998 of (a) $5.6 million associated with the retention of
         certain corporate executives and (b) $1.9 million of other costs
         associated with a management reorganization and related corporate
         actions (see Note 7).

(3)      Operating income excluding (a) special charges of $18.2 million, (b)
         the gain on the sale of Sani-Dairy of $24.2 million and (c) the
         write-down of certain impaired long-lived assets of $27.0 million (see
         Notes 7, 8 and 10).

         Total revenues for Fiscal 1998 decreased 8.7% to $3.01 billion from
$3.30 billion in Fiscal 1997. Same store sales for Fiscal 1998 decreased by 8.2%
from Fiscal 1997. Wholesale supermarket revenues decreased in Fiscal 1998 to
$357.5 million from $401.9 million in Fiscal 1997.

         In Fiscal 1998, gross profit as a percentage of total revenues was
23.0% compared to 23.2% in Fiscal 1997. The decrease in gross profit as a
percentage of total revenues was due to (a) investments in gross margin related
to the Company's new marketing program, and (b) an increase in certain buying
and occupancy costs as a percentage of revenues during a period of low price
inflation and a decline in same store sales. Gross profit for Fiscal 1997 was
negatively impacted by approximately $2 million due to a work stoppage at the
Company's former Sani-Dairy division ("Dairy").

                                      -21-
<PAGE>

         Selling and administrative expenses for Fiscal 1998 were $625.7 million
or 20.8% of revenues compared to $684.6 million or 20.8% of revenues in Fiscal
1997. For Fiscal 1998, selling and administrative expenses, excluding special
charges of $7.5 million (see Note 7), were $618.2 million or 20.5% of revenues.
Selling and administrative expenses, excluding special charges, decreased as a
percentage of revenues due to the Company's cost reduction programs.

         During Fiscal 1998, the Company recorded special charges of $18.2
million ($10.7 million, net of tax) in connection with the management
reorganization and related corporate actions and the retention of hired
corporate executives. Of this charge, $7.5 million is included in selling and
administrative expenses and $10.7 million is included in restructuring charges
(see Note 7).

         During Fiscal 1998, the Company recorded a gain totaling $24.2 million
($14.3 million, net of tax) related to the sale of the Dairy for cash
consideration of approximately $37 million (Note 8).

         The Company periodically reviews the recorded value of its long-lived
assets to determine if the future cash flows to be derived from these properties
will be sufficient to recover the remaining recorded asset values. In accordance
with SFAS 121, the Company recorded a noncash charge of $27.0 million ($15.9
million, net of tax) during the fourth quarter of Fiscal 1998 primarily related
to the write-down of a portion of the recorded asset values of 12 of the
Company's supermarkets, as well as certain other real estate. As a result of
these reduced carrying values of the Company's long-lived assets, depreciation
and amortization expense was reduced in the fourth quarter of Fiscal 1998 by
approximately $0.4 million (See Note 10).

         Depreciation and amortization expense was $89.0 million in Fiscal 1998
and $92.7 million in Fiscal 1997, representing 3.0% and 2.8% of total revenues,
respectively.

         Operating income for Fiscal 1998 was $53.0 million or 1.8% of total
revenues compared to $80.5 million or 2.4% of total revenues in Fiscal 1997.
Operating income excluding unusual items (special charges of $18.2 million, the
gain on the sale of the Dairy of $24.2 million and the write-down of certain
impaired long-lived assets of $27.0 million) for Fiscal 1998 was $74.0 million
or 2.5% of total revenues. The increase in operating income as a percentage of
total revenues, excluding unusual items, was the result of a decrease in selling
and administrative expenses as a percentage of total revenues, excluding special
charges, partially offset by a decrease in gross profit as a percentage of total
revenues.

         Interest expense for Fiscal 1998 and Fiscal 1997 was $150.0 million and
$144.9 million, respectively. The increase in interest expense resulted
primarily from the higher debt levels outstanding during Fiscal 1998.

         Loss before income taxes was $97.0 million for Fiscal 1998 compared to
a loss of $64.3 million for Fiscal 1997. Excluding unusual items (special
charges, the gain on the sale of the Dairy and the write-down of certain
impaired long-lived assets), loss before income taxes was $76.0 million in
Fiscal 1998. The reason for the increase in loss before income taxes, excluding
unusual items, was the decrease in operating income combined with an increase in
interest expense.

                                      -22-
<PAGE>

         The income tax benefit for Fiscal 1998 was $35.8 million compared to a
benefit of $22.9 million in Fiscal 1997. The income tax benefit for Fiscal 1998
includes an $8.6 million benefit associated with unusual items (special charges,
the gain on the sale of the Dairy and the write-down of certain impaired
long-lived assets). The effective tax rates vary from the statutory rates due to
differences between income for financial reporting and tax reporting purposes
that result primarily from the amortization of nondeductible goodwill (Note 5).

         Net loss was $61.1 million in Fiscal 1998 compared to a net loss of
$41.4 million in Fiscal 1997. The net loss, excluding the after-tax impact of
unusual items (special charges, gain on the sale of the Dairy and the write-down
of certain impaired long-lived assets) was $48.8 million in Fiscal 1998.

                                      -23-
<PAGE>

LIQUIDITY AND CAPITAL RESOURCES

         Over the last 10 years, the Company acquired several supermarkets and
invested heavily in its infrastructure. To finance these activities, the Company
issued Senior Notes and Subordinated Notes, which as of the Petition Date,
represented an outstanding balance of approximately $1.13 billion and carried
annual debt service obligations for Fiscal 2000 of approximately $113 million.
These debt service obligations together with the funding requirements of its
ongoing operations required that the Company generate sufficient levels of
EBITDA. However, the Company experienced significant declines in EBITDA during
Fiscal 1998 and even greater declines in Fiscal 1999. The Company believes that
these declines were due primarily to changes in its merchandising, marketing and
service strategies that were implemented during the second half of Fiscal 1998
and continued through the first half of Fiscal 1999. In response to these
declines, in the second half of Fiscal 1999 the Company commenced discussions
with the Informal Committee regarding a consensual restructuring of its
indebtedness and initiated certain strategic enhancements designed to improve
its sales and financial performance. These programs include (a) improvement in
its selection and presentation of its perishables and non-perishables
departments, (b) development of a five-year capital program involving investment
in several locations where management believes such investment would increase
sales and profits or mitigate the adverse effects of the entry of a new
competitor, (c) the Store Rationalization Program, (d) the hiring of a new
President and Chief Executive Officer in November 1998, and (e) the anticipated
reduction in its non-store administrative and operation personnel associated
with a smaller store base and the expected reduction in expenses related to
completion of the Year 2000 upgrades. There can be no assurance that the
implementation of such programs will improve the Company's sales and profits.

         As a result of the significant declines in EBITDA noted above, the
Company, prior to the commencement of the Bankruptcy Cases, defaulted on the
payment of interest on two classes of its Senior Notes. As a result of the
commencement of the Bankruptcy Cases, the Company has ceased making payments of
interest and principal on all of its $1.13 billion of senior and subordinated
notes. In connection with the consummation of the Plan, the entire amount of
such indebtedness ($1.13 billion) will be converted into $100 million of New
Senior Notes, approximately 99.5% of the shares of New Common Stock outstanding
on the effective date of the Plan and warrants to purchase additional shares of
New Common Stock. Following the consummation of the Plan, the reorganized
Company will be substantially deleveraged and expects to utilize its operating
cash flow and amounts available under the New Credit Facility to finance its
capital expenditure, working capital and debt service requirements. However,
there can be no assurance that the Plan or any other reorganization plan will be
consummated. In the event that no reorganization plan is consummated, it is
unlikely that the Company would be able to generate sufficient cash flow to fund
its ongoing operations and service its debt obligations.

                                      -24-
<PAGE>

         Prior to the Petition Date the Company had a revolving credit facility
(the "Prepetition Revolving Credit Facility") which provided for borrowings of
up to $250 million, subject to a borrowing base limitation measured by eligible
inventory and accounts receivable of the Company. A portion of the proceeds of
the DIP Facility were used to repay, in full, the Company's Prepetition
Revolving Credit Facility. On April 5, 1999, the Bankruptcy Court entered a
final order approving the DIP Facility. The DIP Facility expires on the earlier
of (a) March 3, 2000 or (b) effective date of the Plan and grants to the lenders
a first priority security interest in substantially all the assets of Penn
Traffic and its subsidiaries. Availability under the DIP Facility is calculated
by reference to a specified percentage of certain receivables, inventory,
equipment and real property interests, less certain agreed-to reserves. As of
April 16, 1999, Penn Traffic had borrowings of $102.0 million and $46.1 million
of letters of credit outstanding under the DIP Facility, with $143.6 million
available for borrowing under the DIP Facility. The Company intends to continue
to use the DIP Facility during the pendency of the Bankruptcy Cases to finance
its working capital and capital expenditure requirements, including payments to
its trade creditors. The Company believes the DIP Facility will be adequate to
finance these requirements. In connection with consummation of the Plan, the
Company intends to enter into the New Credit Facility, the proceeds of which
will be used to repay the DIP Facility in full on the effective date of the
Plan.

         During Fiscal 1999 the Company initiated its Store Rationalization
Program to divest itself of certain marketing areas, principally in northeastern
Pennsylvania, and to close other underperforming stores. The Company estimates
that the 56 stores that have been or are expected to be closed or divested as
part of the Store Rationalization Program generated revenues of approximately
$327.4 million and experienced an EBITDA loss of approximately $8 million in the
aggregate during Fiscal 1999 (these amounts reflect the fact that 30 of the 56
stores that have been or are expected to be sold or closed did not operate for
the entire 52-week period). As a result, the Company expects the Store
Rationalization Program to further impact its results of operation during Fiscal
2000.

         Cash flows to meet the Company's operating requirements during Fiscal
1999 are reported in the Consolidated Statement of Cash Flows. During the fiscal
year ended January 30, 1999, the Company's net cash used in operating activities
was $34.1 million. This amount was offset by net cash provided by investing
activities of $24.8 million, net cash provided by financing activities of $3.8
million and a decrease in cash of $5.6 million. During the fiscal year ended
January 31, 1998, the Company's net cash used in operating activities was $4.5
million and net cash used in financing activities was $24.7 million. These
amounts were offset by net cash provided by investing activities of $25.1
million and a decrease in cash of $4.1 million. During the fiscal year ended
February 1, 1997, the Company's net cash used in operating activities was $1.3
million and net cash used in investing activities was $33.3 million. These
amounts were financed by net cash provided by financing activities of $29.2
million and a decrease in cash of $5.3 million.

         Working capital decreased by $1.29 billion from January 31, 1998 to
January 30, 1999, primarily due to the reclassification of all long-term debt to
Current Maturities of Long-Term Debt as discussed in Note 3 - Long- Term Debt.

         During Fiscal 1999, the Company opened one new store, sold thirteen
stores, closed nineteen stores and completed five store remodels/expansions.
Capital expenditures (including capitalized leases) were approximately $14.4
million for Fiscal 1999.

                                      -25-
<PAGE>

         As discussed above, as a result of the consummation of the Plan, the
Company will substantially reduce the amount of its overall indebtedness. Upon
consummation of the Plan, approximately $1.13 billion of Senior Notes and
Subordinated Notes will be converted into $100 million of New Senior Notes,
approximately 99.5% of the shares of New Common Stock outstanding on the
effective date of the Plan and warrants to purchase additional shares of New
Common Stock.

         Pursuant to the terms of the indenture for the New Senior Notes, the
Company, at its election, can choose to pay interest on the New Senior Notes, at
the rate of 11% per annum for the first two years (i.e. the first four interest
payments) through the issuance of additional notes and thereafter, interest on
the New Senior Notes will be payable, at the rate of 11% per annum in cash. The
New Senior Notes do not contain any mandatory redemption or sinking fund
requirement provisions (other than pursuant to certain customary exceptions
including, without limitation, requiring the Company to make an offer to
repurchase the New Senior Notes upon the occurrence of a change of control), and
are optionally redeemable at prices at 106% of par beginning in the year 2004
and declining annually thereafter, and at 111% of par under other specified
circumstances as dictated by the Plan. The indenture for the New Senior Notes
will contain certain restrictions on the Company's total indebtedness, liens,
ability to pay dividends and repurchase New Common Stock and other negative
covenants, which are generally less restrictive than those contained in the DIP
Facility or that will be set forth in the New Credit Facility.

         In connection with, and as a condition precedent to the consummation of
the Plan, the Company intends to enter into the New Credit Facility with a
syndicate of lenders, a portion of the proceeds of which will be used to repay
in full the DIP Facility at the effective time of the Plan. Although the terms
of the New Credit Facility have not been fully negotiated and the Company has
not yet obtained a commitment for such financing, the Company expects that the
New Credit Facility will provide for term and revolving credit facilities of at
least $300 million in total, with availability based in part on a borrowing base
of eligible inventory and accounts receivable. The Company expects that the
lenders under the New Credit Facility will have a first priority perfected
security interest in substantially all of the Company's assets and that the New
Credit Facility will contain a variety of operational and financial covenants
intended to restrict the Company's operations. The Company intends to use
amounts available under the New Credit Facility after repayment in full of the
DIP Facility to satisfy its working capital and capital expenditure requirements
for the remainder of Fiscal 2000 and beyond.

         During the fiscal year ending January 29, 2000, the Company expects to
invest approximately $40 million in capital expenditures (including capital
leases). Penn Traffic expects to finance such capital expenditures through cash
generated from operations, proceeds of asset sales and amounts available under
the DIP Facility and New Credit Facility. Capital expenditures will be
principally for new stores, store remodels and investments in technology.

                                      -26-
<PAGE>

YEAR 2000

         Year 2000 exposures arise from the inability of some computer based
systems and equipment to correctly interpret and process dates after December
31, 1999. The basis for the exposure is that many systems and equipment carry
only the last two digits of the year field. With the year 2000, these systems
and equipment will not be able to distinguish between the year 1900 and 2000.
For those processes and procedures that use the date in calculations,
significant problems can occur.

         The Company is dependent on technology including computer hardware and
software and related electronic equipment. This technology supports key business
processes including product procurement, warehousing, product delivery,
inventory control, labor management, retail sales and financial reporting. All
of this technology and electrical equipment may be susceptible to Year 2000
problems.

         The calendar year 1999 coincides with eleven months of the Company's
fiscal year 2000. All financial systems are functioning correctly in support of
fiscal year 2000.

         In 1997, the Company assembled a project team consisting of
representatives across key departments in the organization to assess the state
of readiness and to initiate a plan and timetable to address issues encountered.
This working committee functioned under the control of the Company's Management
Information Systems Steering Committee and provided monthly updates to the
Company's senior management. The Year 2000 readiness plan addresses three major
segments: (a) Information Technology including infrastructure (i.e. mainframe,
server and personal computers and their associated networks), applications,
including all systems and operating software and in-store systems and equipment;
(b) Non-Information Technology, including telephones, time clocks, scales and
security devices and (c) External Entities, including product and service
providers and others with whom the Company interacts or exchanges information.
Each segment of the readiness plan includes data collection, assessment,
prioritization, resolution, testing, implementation, and ongoing monitoring of
compliance.

         The table below sets forth the status and expected completion date of
all phases of the readiness plan at April 1999:

                               Estimated
Information Technology      Percent Complete       Target Completion Date
----------------------      ----------------       ----------------------

Server Computers                  100%               Complete
Personal Computers                 80%               June 1999
Applications                       70%               July 1999
Mainframe Computers                80%               August 1999
Operating Software                 80%               August 1999
In-Store systems/equipment         30%               September 1999

Non-Information Technology
--------------------------

Phone Switches                     90%               May 1999
Other equipment                    50%               July 1999

External Entities
-----------------

Verification of critical
  business partner readiness       75%               June 1999
Electronic Data Interchange
  business partners                25%               September 1999

                                      -27-
<PAGE>

         The Year 2000 readiness plan has an overall strategy that combines
system replacement and remediation of existing legacy systems. Legacy financial,
payroll and human resource systems have been replaced. The remaining critical
legacy systems are subject to a three-part remediation effort. The first phase
uses a software tool to survey existing system code to determine where dates are
being used. The second phase is direct examination of date routines to determine
if they are involved in any calculations. The last phase is the actual change of
the code and subsequent test and implementation. The overall application
remediation effort is 70 percent complete with a target completion date of July
1999. This effort has utilized both in-house staff and outside consultants.

         Delays in receiving standard Year 2000 software upgrades from key
equipment vendors has affected the timing of upgrades of certain of the
Company's point of sale equipment. The Company has now received the necessary
software upgrades. The installation of these upgrades is currently in process
and is expected to be completed by September 1999.

         As part of the Company's Year 2000 readiness plan, the Company
contacted critical business partners (product suppliers, service providers and
those with whom the Company exchanges information) in the second quarter of
1998, requesting information regarding the status of their individual Year 2000
compliance plans and progress. From that survey, the Company began a program to
test electronic communications with its critical business partners. As a result,
the Company currently expects that all critical electronic data interchange
business processes will have been tested and verified by September 1999.

         Based on current information, the Company estimates the cost of Year
2000 compliance will be approximately $10 million including the purchase of
certain new hardware and software. To date such expenditures have totaled
approximately $5 million. The Company has and will continue to fund these
expenditures by utilizing the Company's operating cash flow as well as amounts
available under its then-existing credit facility. Separately, improvement in
systems functionality is being obtained from Year 2000 efforts particularly in
the infrastructure area. For example, equipment that will not be supported by
the vendor for Year 2000 is being replaced by more current technology.

         Based on current information, management expects that the Company will
not experience significant disruption to operations due to Year 2000 compliance
issues. Management believes the Company assessment has been thorough and
compliance activities will be completed by September 1999. Notwithstanding the
substantial efforts of the Company and its key business partners, the Company
could potentially still experience disruptions to parts of its various
activities and operations. Consequently, the Company is formulating contingency
plans for critical functions and processes in the event of a Year 2000 problem.
The contingency plan is expected to be completed in July 1999. This plan will
continually be reviewed throughout the balance of calendar 1999 as additional
information becomes available.

         Because the Company's Year 2000 compliance is partially dependent upon
key business partners also being Year 2000 compliant on a timely basis, there
can be no guarantee that the Company's overall efforts will prevent a material
adverse impact on its results of operations, financial condition and cash flows.
The possible consequences to the Company of not being fully Year 2000 compliant
include temporary supermarket closings, delays in the delivery of merchandise,
errors in purchase orders and other financial transactions, and the inability to
efficiently process customer purchases. In addition, business disruptions could
result from the loss of power or the loss of communication links between
supermarkets, warehouse and headquarters locations.

                                      -28-
<PAGE>

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 30, 1999                                  31
    Balance Sheet as of January 30, 1999 and January 31, 1998      32
    Statement of Stockholders' Equity for each of the three
     fiscal years ended January 30, 1999                           34
    Statement of Cash Flows for each of the three fiscal
     years ended January 30, 1999                                  35
    Notes to Consolidated Financial Statements                     36
  Financial Statement Schedule for the three fiscal years ended
    January 30, 1999:
    Schedule II -- Valuation and Qualifying Accounts               83


Supplementary Data - Quarterly Financial Data (Unaudited)          84

                                      -29-
<PAGE>

                        REPORT OF INDEPENDENT ACCOUNTANTS


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


In our opinion, the consolidated financial statements listed in the accompanying
index present fairly, in all material respects, the financial position of The
Penn Traffic Company and its subsidiaries (the "Company") at January 30, 1999
and January 31, 1998, and the results of their operations and their cash flows
for each of the three years in the period ended January 30, 1999, in conformity
with generally accepted accounting principles. In addition, in our opinion, the
financial statement schedule listed in the accompanying index presents fairly,
in all material respects, the information set forth therein when read in
conjunction with the related consolidated financial statements. These financial
statements and the financial statement schedule are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements and the financial statement schedule 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.

The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 2 to the
consolidated financial statements, on March 1, 1999, the Company filed a
voluntary petition for relief, under Chapter 11 of Title 11 of the United States
Code ("Chapter 11"), with the United States Bankruptcy Court for the District of
Delaware. As such, there is substantial doubt about the Company's ability to
continue as a going concern. Management's plans in regard to these matters are
also described in Note 2. The consolidated financial statements do not include
any adjustments that might result from the outcome of this uncertainty.


PricewaterhouseCoopers LLP

Syracuse, New York 
March 26, 1999, except for Note 2, 
as to which the date is April 5, 1999

                                      -30-
<PAGE>

                            THE PENN TRAFFIC COMPANY

                      CONSOLIDATED STATEMENT OF OPERATIONS

<TABLE>
<CAPTION>

                                      52 Weeks Ended     52 Weeks Ended     52 Weeks Ended
                                     January 30, 1999   January 31, 1998   February 1, 1997 
                                     ----------------   ----------------   ---------------- 
                                    (All dollar amounts in thousands, except per share data)
<S>                                  <C>                <C>                <C>       
TOTAL REVENUES                          $2,828,109         $3,010,065         $3,296,462
COSTS AND OPERATING EXPENSES:
  Cost of sales (including
   buying and occupancy costs)           2,213,801          2,317,847          2,531,381
  Selling and administrative
   expenses                                602,382            625,731            684,558
  Restructuring charges (Note 7)                               10,704
  Gain on sale of Sani-Dairy
   (Note 8)                                                   (24,218)
  Unusual items (Note 9)                    61,355
  Write-down of long-lived assets
   (Note 10)                               143,842             26,982
                                        ----------         ----------         ----------
OPERATING (LOSS) INCOME                   (193,271)            53,019             80,523
  Interest expense                         147,737            149,981            144,854
                                        ----------         ----------         ----------

(LOSS) BEFORE INCOME TAXES                (341,008)           (96,962)           (64,331)
  (Benefit) for income
   taxes (Note 5)                          (23,914)           (35,836)           (22,901)
                                        ----------         ----------         ----------

NET (LOSS)                              $ (317,094)        $  (61,126)        $  (41,430)
                                        ==========         ==========         ==========

PER SHARE DATA (BASIC AND DILUTED):

  Net (loss) (Note 12)                  $   (30.00)        $    (5.78)        $    (3.92)
                                        ==========         ==========         ==========
</TABLE>

        The accompanying notes are an integral part of these statements.

                                      -31-
<PAGE>

                            THE PENN TRAFFIC COMPANY

                           CONSOLIDATED BALANCE SHEET


                                                   January 30,       January 31,
                                                      1999              1998
                                                   ----------        ----------
                                                     (In thousands of dollars)
                                     ASSETS

CURRENT ASSETS:
  Cash and short-term investments (Note 1)         $   43,474        $   49,095
  Accounts and notes receivable (less allowance
   for doubtful accounts of $5,731 and $3,597,
   respectively)                                       62,420            68,454
  Inventories (Note 1)                                283,631           327,389
  Prepaid expenses and other current assets            14,619            16,032
                                                   ----------        ----------
                                                      404,144           460,970
                                                   ----------        ----------
CAPITAL LEASES (NOTES 1 AND 6):
  Capital leases                                      157,667           190,638
  Less:  Accumulated amortization                     (66,735)          (75,057)
                                                   ----------        ----------
                                                       90,932           115,581
                                                   ----------        ----------
FIXED ASSETS (NOTE 1):
  Land                                                 16,525            17,595
  Buildings                                           183,660           189,369
  Furniture and fixtures                              455,592           471,684
  Vehicles                                             16,792            15,891
  Leaseholds and improvements                         171,007           214,562
                                                   ----------        ----------
                                                      843,576           909,101
  Less:  Accumulated depreciation                    (463,433)         (412,600)
                                                   ----------        ----------
                                                      380,143           496,501
                                                   ----------        ----------
OTHER ASSETS:
  Goodwill, net (Note 1)                              269,894           401,829
  Other assets and deferred charges, net               82,948            88,705
                                                   ----------        ----------
                                                      352,842           490,534
                                                   ----------        ----------
TOTAL ASSETS                                       $1,228,061        $1,563,586
                                                   ==========        ==========

        The accompanying notes are an integral part of these statements.

                                      -32-
<PAGE>

                            THE PENN TRAFFIC COMPANY

                           CONSOLIDATED BALANCE SHEET

                                                   January 30,       January 31,
                                                      1999              1998
                                                   ----------        ----------
                                                     (In thousands of dollars)

                      LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
  Current portion of obligations under capital
   leases (Note 6)                                 $   11,516        $   13,518
  Current maturities of long-term debt (Note 3)     1,267,813             4,429
  Trade accounts and drafts payable                   134,432           149,389
  Payroll and other accrued liabilities                81,867            79,763
  Accrued interest expense                             42,783            35,335
  Payroll taxes and other taxes payable                15,420            19,208
  Deferred income taxes (Note 5)                                         16,671
                                                   ----------        ----------
                                                    1,553,831           318,313
                                                   ----------        ----------
NONCURRENT LIABILITIES:
  Obligations under capital leases (Note 6)            98,029           121,436
  Long-term debt (Note 3)                                             1,234,224
  Other noncurrent liabilities                         45,907            49,422
                                                   ----------        ----------
                                                      143,936         1,405,082
                                                   ----------        ----------
TOTAL LIABILITIES                                   1,697,767         1,723,395
                                                   ----------        ----------
STOCKHOLDERS' EQUITY (NOTE 11):
  Preferred stock--authorized 10,000,000 shares,
   $1.00 par value; none issued
   Common stock--authorized 30,000,000 shares,
   $1.25 par value; 10,695,491 shares and 10,824,591
   shares issued and outstanding, respectively         13,425            13,586
  Capital in excess of par value                      179,882           180,060
  Retained deficit                                   (658,820)         (340,470)
  Minimum pension liability adjustment (Note 4)        (3,470)          (10,667)
  Unearned compensation                                   (98)           (1,693)
  Treasury stock, at cost                                (625)             (625)
                                                   ----------        ----------
TOTAL STOCKHOLDERS' EQUITY                           (469,706)         (159,809)
                                                   ----------        ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY         $1,228,061        $1,563,586
                                                   ==========        ==========

        The accompanying notes are an integral part of these statements.

                                      -33-
<PAGE>

                            THE PENN TRAFFIC COMPANY

                 CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
                                                                              Minimum
                                                     Capital in               Pension                                Total
                                          Common      Excess of   Retained   Liability      Unearned    Treasury  Stockholders'
                                           Stock      Par Value    Deficit   Adjustment   Compensation    Stock      Equity
                                          ------     ----------   --------   ----------   ------------  --------  ------------
                                                                      (In thousands of dollars)
<S>                                       <C>        <C>          <C>        <C>          <C>           <C>       <C>     
February 3, 1996                          13,606        180,029   (235,223)      (6,606)        (4,452)     (625)      (53,271)

  Comprehensive (loss):
  Net (loss)                                                       (41,430)
  Minimum pension liability adjustment
   (Note 4)                                                                      (2,124)
  Total comprehensive (loss)                                                                                           (43,554)

  Exercise of 5,592 common stock
   option shares (Note 11)                     7             63                                                             70
  Issuance of 23,500 restricted stock
   shares (Note 11)                           29            323                                   (352)

  Cancellation of 500 restricted stock
   shares (Note 11)                           (1)            (3)         4
  Unearned compensation adjustment
   (Note 11)                                                        (4,019)                      4,019
                                          ------     ----------   --------   ----------   ------------  --------  ------------

February 1, 1997                          13,641        180,412   (280,668)      (8,730)          (785)     (625)      (96,755)

  Comprehensive (loss):
  Net (loss)                                                       (61,126)
  Minimum pension liability adjustment
   (Note 4)                                                                      (1,937)
  Total comprehensive (loss)                                                                                           (63,063)

  Exercise of 1,150 common stock
   option shares (Note 11)                     3              6                                                              9

  Cancellation of 46,000 restricted stock
   shares (Note 11)                          (58)          (358)       416
  Unearned compensation adjustment
   (Note 11)                                                           908                        (908)
                                          ------     ----------   --------   ----------   ------------  --------  ------------

January 31, 1998                         $13,586       $180,060  $(340,470)    $(10,667)       $(1,693)    $(625)    $(159,809)

  Comprehensive (loss):
  Net (loss)                                                      (317,094)
  Minimum pension liability adjustment
   (Note 4)                                                                       7,197
  Total comprehensive (loss)                                                                                          (309,897)

  Cancellation of 129,100 restricted stock
   shares (Note 11)                         (161)          (178)       339
  Unearned compensation adjustment
   (Note 11)                                                        (1,595)                      1,595
                                          ------     ----------   --------   ----------   ------------  --------  ------------
January 30, 1999                         $13,425       $179,882  $(658,820)     $(3,470)          $(98)    $(625)    $(469,706)
                                          ======     ==========   ========   ==========   ============  ========  ============
</TABLE>

        The accompanying notes are an integral part of these statements.

                                      -34-
<PAGE>

                            THE PENN TRAFFIC COMPANY

                      CONSOLIDATED STATEMENT OF CASH FLOWS

<TABLE>
<CAPTION>

                                      52 Weeks Ended    52 Weeks Ended    52 Weeks Ended
                                     January 30, 1999  January 31, 1998  February 1, 1997 
                                     ----------------  ----------------  ----------------
                                                  (In thousands of dollars)
<S>                                  <C>               <C>                <C>       
OPERATING ACTIVITIES:
  Net (loss)                               $ (317,094)       $  (61,126)       $  (41,430)
  Adjustments to reconcile net (loss)
   to net cash (used in)
   operating activities:
     Depreciation and amortization             63,075            73,422            76,328
     Amortization of intangibles               14,104            15,544            16,377
     Write-down of long-lived assets          143,842            26,982
     Gain on sale of Sani-Dairy                                 (24,218)
     Loss on sold/closed stores                23,285
     Deferred taxes                           (16,671)          (38,234)          (12,792)
     Other--net                                10,171            (5,759)          (10,852)
  Net change in assets and liabilities:
     Accounts receivable and prepaid
      expenses                                  7,356             2,758             9,256
     Inventories                               43,758             9,136            16,568
     Accounts payable and accrued
      expenses                                 (9,193)           (5,213)          (50,388)
     Deferred charges and other
      assets                                    3,218             2,178            (4,361)
                                           ----------        ----------        ---------- 
NET CASH (USED IN)
 OPERATING ACTIVITIES                         (34,149)           (4,530)           (1,294)
                                           ----------        ----------        ---------- 
INVESTING ACTIVITIES:
  Capital expenditures                        (14,368)          (21,833)          (67,828)
  Proceeds from sale-and-leaseback
   transactions                                                                    22,151
  Proceeds from sale of assets                 39,145             9,880            12,297
  Proceeds from sale of Sani-Dairy                               37,067
  Other--net                                                                           96
                                           ----------        ----------        ---------- 
NET CASH PROVIDED BY (USED IN)
 INVESTING ACTIVITIES                          24,777            25,114           (33,284)
                                           ----------        ----------        ---------- 
FINANCING ACTIVITIES:
  Increase in long-term debt                                                      106,840
  Payments to settle long-term
   debt                                        (6,157)           (2,231)           (3,258)
  Borrowing of revolver debt                  122,200           369,483           430,200
  Repayment of revolver debt                  (86,883)         (378,700)         (487,500)
  Reduction of capital lease
   obligations                                (25,409)          (13,290)          (13,523)
  Payment of debt issuance costs                                                   (3,596)
  Other--net                                                          9                70
                                           ----------        ----------        ---------- 
NET CASH PROVIDED BY (USED IN)
 FINANCING ACTIVITIES                           3,751           (24,729)           29,233
                                           ----------        ----------        ---------- 
(DECREASE) IN CASH AND
 CASH EQUIVALENTS                              (5,621)           (4,145)           (5,345)

CASH AND CASH EQUIVALENTS AT
 BEGINNING OF YEAR                             49,095            53,240            58,585
                                           ----------        ----------        ---------- 
CASH AND CASH EQUIVALENTS AT
 END OF YEAR                               $   43,474        $   49,095        $   53,240
                                           ==========        ==========        ==========
</TABLE>

        The accompanying notes are an integral part of these statements.

                                      -35-
<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 30, 1999, the
Company operated 233 supermarkets in Pennsylvania, New York, Ohio and West
Virginia, and supplied 103 franchise supermarkets and 82 independent wholesale
accounts. The Company also operated 10 distribution centers with approximately
2.8 million square feet of combined space and a bakery. On March 1, 1999 (the
"Petition Date"), Penn Traffic and certain of its subsidiaries filed petitions,
seeking relief under Chapter 11 of the U.S. Bankruptcy Code (the "Bankruptcy
Code") in the Bankruptcy Court for the District of Delaware. Since the Petition
Date, the Company and certain subsidiaries have operated their businesses as
debtors-in-possession under the U.S. Bankruptcy Code.

         BASIS OF PRESENTATION All significant intercompany transactions and
accounts have been eliminated in consolidation.

         The Company is principally involved in 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 $23.6
million and $21.2 million below replacement cost at January 30, 1999, and
January 31, 1998, respectively.

         During Fiscal 1999, Fiscal 1998 and Fiscal 1997, inventory quantities
were reduced, which resulted in a liquidation of certain LIFO inventory layers
carried at lower costs which prevailed in prior years. The effect for Fiscal
1999 was to decrease cost of goods sold by $1.6 million and net loss by
approximately $1.6 million or $0.15 per share. The effect for Fiscal 1998 was to
decrease cost of goods sold by approximately $0.6 million and net loss by $0.3
million or $0.03 per share. The effect for Fiscal 1997 was to decrease cost of
goods sold by approximately $0.7 million and net loss by $0.4 million or $0.04
per share.

                                      -36-
<PAGE>

         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 40 years
         Furniture and fixtures                         4 to 15 years
         Vehicles                                       3 to  8 years
         Leaseholds and improvements                    5 to 30 years
         Capital leases                                 lease term

         INTANGIBLES The excess of the costs over the amounts attributed to the
fair value of net assets acquired (goodwill) is being amortized primarily over
40 years using the straight-line method. In addition, certain other nonfinancing
costs resulting from acquisitions have been capitalized as other assets and
deferred charges. For Fiscal 1999, 1998 and 1997, amortization of intangibles
was $14.1 million, $15.5 million and $16.4 million, respectively.

         IMPAIRMENT OF LONG-LIVED ASSETS In accordance with Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" ("SFAS 121"),
assets are generally evaluated on a market-by-market basis in making a
determination as to whether such assets are impaired. At each year-end, the
Company reviews its long-lived assets (including goodwill) for impairment based
on estimated future nondiscounted cash flows attributable to the assets. In the
event such cash flows are not expected to be sufficient to recover the recorded
value of the assets, the assets are written down to their estimated fair values
(Note 10).

         DEFERRED CHARGES Deferred charges consist of debt issuance costs,
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 charged to expense
as incurred.

         USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.

         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.

                                      -37-
<PAGE>

NOTE 2 -- DEBT RESTRUCTURING

         Over the last 10 years, the Company acquired several supermarkets and
invested heavily in its infrastructure. To finance these activities, the Company
issued senior notes (the "Senior Notes") and senior subordinated notes (the
"Subordinated Notes"), which as of the Petition Date, represented an outstanding
balance of approximately $1.13 billion and carried annual debt service
obligations for Fiscal 2000 of approximately $113 million. These debt service
obligations together with the funding requirements of its ongoing operations
required that the Company generate sufficient levels of earnings before
interest, taxes, depreciation and amortization, LIFO provision and unusual and
extraordinary items ("EBITDA"). However, the Company experienced significant
declines in EBITDA during Fiscal 1998 and even greater declines in Fiscal 1999.
The Company believes that these declines were due primarily to changes in its
merchandising, marketing and service strategies that were implemented during the
second half of Fiscal 1998 and continued through the first half of Fiscal 1999.
In response to these declines, in the second half of Fiscal 1999, the Company
commenced discussions with an informal committee of some of its largest
noteholders (the "Informal Committee") regarding a consensual restructuring of
its indebtedness and initiated certain strategic enhancements designed to
improve its sales and financial performance. These programs include (a)
improvement in its selection and presentation of its perishables and
non-perishables departments, (b) development of a five-year capital program
involving investment in several locations where management believes such
investment would increase sales and profits or mitigate the adverse effects of
the entry of a new competitor, (c) the Store Rationalization Program (see Note
9), (d) the hiring of a new President and Chief Executive Officer in November
1998, and (e) the anticipated reduction in its non-store administrative and
operation personnel associated with a smaller store base and the expected
reduction in expenses related to completion of the Year 2000 upgrades. There can
be no assurance that the implementation of such programs will improve the
Company's sales and profits.

         On the Petition Date, Penn Traffic and certain of its subsidiaries
filed petitions for relief (the "Bankruptcy Cases") under the Bankruptcy Code in
the Bankruptcy Court for the District of Delaware (the "Bankruptcy Court").
Since the Petition Date, the Company and these subsidiaries have been operating
their businesses as debtors-in-possession under the Bankruptcy Code.

         The Bankruptcy Cases were commenced in order to implement a financial
restructuring of Penn Traffic which had been negotiated with the Informal
Committee. As of the Petition Date, the members of the Informal Committee or
certain funds managed or advised by them, held in the aggregate more than 50% of
the outstanding principal amount of both the Company's Senior Notes and
Subordinated Notes. Prior to the Petition Date, the three members of the
Informal Committee signed lock-up agreements under which they have agreed to
vote, when solicited, in favor of the Joint Plan of Reorganization (the "Plan")
within certain specified time frames.

                                      -38-
<PAGE>

         Under the Plan, holders of Penn Traffic's $732.2 million Senior Notes
and $400 million Subordinated Notes will exchange their notes in the following
manner: (a) holders of Senior Notes will receive their pro rata share of $100
million of newly issued 11% Senior Notes due 2009 (the "New Senior Notes") and
19,000,000 shares of new common stock of reorganized Penn Traffic (the "New
Common Stock"), and (b) holders of Subordinated Notes will receive their pro
rata share of 1,000,000 shares of New Common Stock and currently exercisable
6-year warrants to purchase an additional 1,000,000 shares of New Common Stock
at an initial exercise price of $18.30 per share (except that if the class of
subordinated note claims under the Plan votes against the Plan, then only the
individual noteholders that vote in favor of the Plan will be entitled to
receive their pro rata share of the warrants; the remainder of warrants not
distributed shall be canceled). In addition, under the Plan holders of Penn
Traffic's existing common stock will be entitled to receive 1 share of New
Common Stock for each 100 shares of existing stock which they held prior to the
effective date of the Plan or approximately 107,000 shares in the aggregate
(except that if the classes of subordinated note claims and existing common
stock do not vote in favor of the Plan, then only those individual holders of
existing common stock that voted in favor of the Plan will be entitled to
receive their pro rata share of such distribution; the remainder of such
distribution will be canceled). The Plan also provides for the reinstatement or
payment in full of all other secured and unsecured claims against Penn Traffic
and its subsidiaries upon the effective date of the Plan.

         In connection with the filing of the Bankruptcy Cases, shortly after
the Petition Date, the Bankruptcy Court approved, on an interim basis, $240
million of a $300 million debtor-in-possession financing (the "DIP Facility")
with Fleet Capital and a syndicate of lenders, the proceeds of which were used
to repay in full the Company's pre-petition revolving credit facility and a
mortgage financing on one of the Company's Syracuse distribution facilities. On
April 5, 1999, the Bankruptcy Court entered a final order approving the DIP
Facility. The DIP Facility expires on the earlier of (a) March 3, 2000 or (b)
the effective date of the Plan, and grants to the lenders a first priority
security interest in substantially all the assets of Penn Traffic and its
subsidiaries. Availability under the DIP Facility is calculated by reference to
a specified percentage of certain receivables, inventory, equipment and real
property interests, less certain agreed-to reserves. As of April 16, 1999, Penn
Traffic had borrowings of $102.0 million and letters of credit of $46.1 million
outstanding under the DIP Facility, with $143.6 million available for borrowings
under the DIP Facility. The Company intends to continue to use the DIP Facility
during the pendency of the Bankruptcy Cases to finance its working capital and
capital expenditure requirements, including payments to its trade creditors. In
connection with consummation of the Plan, the Company intends to enter into a
new credit facility (the "New Credit Facility"), the proceeds of which will be
used to repay the DIP Facility in full on the effective date of the Plan and
will provide the Company with funds for its expected working capital and capital
expenditure needs following such date.

         To maintain strong relationships with its vendors, on March 2, 1999,
the Company obtained an order from the Bankruptcy Court pursuant to which it has
been authorized to pay in full all of its trade creditors that continue to
provide it with goods on customary terms and credit, or otherwise acceptable to
Penn Traffic. To date, all of Penn Traffic's trade creditors have been providing
acceptable trade terms to it, and Penn Traffic has been paying them in the
ordinary course of business.

                                      -39-
<PAGE>

         On April 5, 1999, the Bankruptcy Court approved Penn Traffic's Amended
Disclosure Statement (the "Disclosure Statement") relating to the Plan. Penn
Traffic has now mailed the Disclosure Statement to all of its creditors and
shareholders entitled to vote on the Plan, and the Bankruptcy Court has
scheduled a hearing on confirmation of the Plan for May 27, 1999. Assuming the
Plan is accepted by the classes of creditors and shareholders entitled to vote
on the Plan and the Bankruptcy Court approves the Plan, Penn Traffic expects the
Plan to become effective approximately two weeks following the confirmation
date. There is no assurance that the Bankruptcy Court will confirm the Plan on
May 27, 1999 and that the Plan will become effective two weeks thereafter.

         There also can be no assurance that, without approval of the Bankruptcy
Court of a plan of reorganization, the Company can generate sufficient cash to
sustain its operations. If at any time an interested party to the Bankruptcy
Cases believes that the Company is or will not be in a position to sustain
operations, such party can move the Bankruptcy Court to compel liquidation of
the Company's estate by conversion of the Bankruptcy Cases to Chapter 7 (the
liquidation provisions of the Bankruptcy Code). In the event that liquidation is
forced upon the Company because it cannot generate sufficient cash flow to
sustain its operations, it is likely that the Company's equity holders will
receive nothing from the net proceeds generated by liquidation and that
recoveries to the Company's creditors, as a whole, would be significantly less
than if the Company's Plan became effective.

                                      -40-
<PAGE>

NOTE 3 -- LONG-TERM DEBT:

         The long-term debt of Penn Traffic consists of the obligations
described below:
<TABLE>
<CAPTION>
                                                       January 30,      January 31,
                                                          1999             1998
                                                       ----------       ----------
                                                        (In thousands of dollars)
<S>                                                    <C>              <C>       
Secured Revolving Credit Facility                      $  112,900       $   77,583
Other Secured Debt                                         22,673           28,830
11 1/2% Senior Notes due October 15, 2001                 107,240          107,240
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          100,000
11 1/2% Senior Notes due April 15, 2006                   100,000          100,000
 9 5/8% Senior Subordinated Notes due April 15, 2005      400,000          400,000
                                                       ----------       ----------
TOTAL DEBT                                              1,267,813        1,238,653
 Less: Amounts due within one year                     (1,267,813)          (4,429)
                                                       ----------       ----------
TOTAL LONG-TERM DEBT                                   $        0       $1,234,224
                                                       ==========       ==========
</TABLE>


         All of the Company's $1.27 billion of debt was classified as current
maturities of long-term debt as a result of the failure by the Company to make
the interest payment on its 85/8% Senior Notes that was due on December 15,
1998. The Company incurred interest expense of $147.7 million, $150.0 million
and $144.9 million, including noncash amortization of deferred financing costs
of $4.3 million, $4.8 million and $4.6 million, for Fiscal 1999, Fiscal 1998 and
Fiscal 1997, respectively. Interest paid amounted to $136.0 million, $145.5
million and $138.4 million for Fiscal 1999, Fiscal 1998 and Fiscal 1997,
respectively.

         The estimated fair value of the Company's long-term debt, including
current maturities, was $514.0 million at January 30, 1999, and $976.0 million
at January 31, 1998. 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
estimated fair market value of the Company's long-term debt does not necessarily
reflect the amount at which the debt would be settled. In connection with the
Company's proposed Plan, $1.13 billion of the Company's indebtedness will be
exchanged for $100 million of New 11% Senior Notes due 2009 and substantially
all of the equity of the reorganized company.

         The Company's secured revolving credit facility (the "Revolving Credit
Facility") provided for borrowings of up to $250 million, subject to a borrowing
base limitation measured by eligible inventory and accounts receivable of the
Company. The Revolving Credit Facility was secured by a pledge of the Company's
inventory, accounts receivable and related assets. At January 30, 1999 there
were $112.9 million of borrowings and $41.2 million of letters of credit
outstanding under the Revolving Credit Facility. The interest rate on borrowings
for which the Company elected a LIBOR-based rate option is LIBOR plus 2.75%, and
the interest rate on borrowings for which the Company elected a prime- based
rate option was prime plus 1.5%. At January 30, 1999, the weighted average rate
of interest on the Revolving Credit Facility was 8.1%. Subsequent to January 30,
1999, all amounts outstanding under the Revolving Credit Facility were repaid
(see Note 2).

                                      -41-
<PAGE>

NOTE 4 -- EMPLOYEE BENEFIT PLANS:

         Effective January 30, 1999, the Company adopted Statement of Financial
Accounting Standards No. 132, "Employers' Disclosures about Pensions and Other
Postretirement Benefits" ("SFAS 132"). The provisions of SFAS 132 revise
employers' disclosures about pension and other postretirement benefit plans. It
does not change the measurement or recognition of these plans. It standardizes
the disclosure requirements for pensions and other postretirement benefits to
the extent practicable.

         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 30,  January 31,  February 1,
                                          1999         1998         1997
                                       -----------  -----------  -----------
                                             (In thousands of dollars)
Service cost -- benefits earned
  during the period                    $     6,430  $     6,474  $     5,841
Interest cost on projected benefit
  obligation                                12,434       12,371       10,639
Expected return on plan assets             (19,556)     (17,860)     (16,518)
Net amortization and deferral                  596        1,961          783
                                       -----------  -----------  -----------
Net pension (income) expense           $       (96) $     2,946  $       745
                                       ===========  ===========  ===========

                                                  Pension Benefits
                                             Fiscal 1999   Fiscal 1998
                                             -----------   -----------
                                             (In thousands of dollars)
Change in benefit obligation:
Benefit obligation at
  Beginning of year                          $   180,429   $   161,252
Service cost                                       6,430         6,474
Interest cost                                     12,434        12,371
Actuarial loss                                     8,832        18,165
Benefits paid                                    (16,007)      (10,102)
Divestiture of Sani-Dairy                                       (7,731)
Plan amendments                                   (6,280)
Curtailments                                        (474)
                                             -----------   -----------
Benefit obligation at
  End of year                                $   185,364   $   180,429
                                             ===========   ===========
Change in plan assets:
Fair value of plan assets at
  Beginning of year                          $   185,559   $   169,140
Actual return on plan assets                      24,248        29,533
Company contributions                              6,753         6,793
Benefits paid                                    (16,007)      (10,102)
Divestiture of Sani-Dairy                                       (9,805)
                                             -----------   -----------
Fair value of plan assets at
  End of year                                $   200,553   $   185,559
                                             ===========   ===========

Funded status of the plans                   $    15,189   $     5,130
Unrecognized actuarial loss                       19,484        15,885
Unrecognized prior service
  cost (benefit)                                   4,145        11,084
Unrecognized net transition
  obligation (asset)                              (1,283)       (1,396)
                                             -----------   -----------
Net prepaid (accrued)
  benefit cost                               $    37,535   $    30,703
                                             ===========   ===========

                                      -42-
<PAGE>

Amounts recognized in the Consolidated Balance Sheet consist of:


                                                  Pension Benefits
                                             Fiscal 1999   Fiscal 1998
                                             -----------   -----------
                                             (In thousands of dollars)

Prepaid benefit cost for overfunded plans    $    34,906   $    18,587
Accrued benefit liability for
  underfunded plans                               (5,316)      (15,605)
Intangible asset                                   4,475         9,661
Accumulated other comprehensive income             3,470        18,060
                                             -----------   -----------
Net amount recognized                        $    37,535   $    30,703
                                             ===========   ===========

         The projected benefit obligation, accumulated benefit obligation, and
fair value of plan assets for the pension plans with accumulated benefit
obligations in excess of plan assets were $39.7 million, $39.5 million and $34.2
million, respectively, as of January 30, 1999. The projected benefit obligation,
accumulated benefit obligation, and fair value of plan assets for the pension
plans with accumulated benefit obligations in excess of plan assets were $104.9
million, $101.0 million and $85.5 million, respectively, as of January 31, 1998.

         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 $7.9 million as of January 30, 1999, $27.7 million as of January
31, 1998 and $26.0 million as of February 1, 1997, 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
(after tax) is recorded as a reduction of stockholders' equity in the amount of
$3.5 million as of January 30, 1999, $10.7 million as of January 31, 1998, and
$8.7 million as of February 1, 1997.

         In calculating benefit obligations and plan assets for Fiscal 1999, the
Company assumed a weighted average discount rate of 6.75%, compensation increase
rates ranging from 3.0% to 3.5% and an expected long-term rate of return on plan
assets of 10.5%. In calculating benefit obligations and plan assets for Fiscal
1998, the Company assumed a weighted average discount rate of 7.25%,
compensation increase rates ranging from 3.0% to 3.5% and an expected long-term
rate of return on plan assets of 10.5%.

         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"). Penn Traffic's defined benefit
plans' assets are maintained in separate trusts and are managed by independent
investment managers. The assets are invested primarily in equity, debt and
short-term cash securities.

                                      -43-
<PAGE>

         In Fiscal 1999, the Company merged several of its defined benefit plans
together to form the Penn Traffic Company Cash Balance Plan (the "Cash Balance
Plan"). The Cash Balance Plan is a defined benefit plan which assigns account
balances to the individual participants. Account balances are credited based on
a fixed percentage of each participant's compensation paid for the year, plus
interest at a rate comparable to the yield on long-term treasury securities.
Upon retirement, employees are permitted to take a lump-sum distribution equal
to their account balance, or receive an annuity benefit based on formulas set
forth in the Plan. The net impact of merging several of the defined benefit
plans into the Cash Balance Plan was to reduce the minimum pension liability
previously reported by those plans by $19.6 million, and the related pretax
charge to equity by $14.7 million.

         In connection with the new Cash Balance Plan, the Company began
contributing to its 401(K) Plan in Fiscal 1999. Contributions by the Company
totaled approximately $0.4 million for Fiscal 1999.

         The Company also contributes to multi-employer pension funds, which
cover certain union employees under collective bargaining agreements. Such
contributions aggregated $4.5 million, $4.8 million and $3.9 million in Fiscal
1999, 1998 and 1997, respectively. The applicable portion of the total plan
benefits and net assets of these plans is not separately identifiable. The
Company is currently the majority contributor to a multi-employer plan covering
substantially all of its employees in eastern Pennsylvania. Due to the Company's
decision to exit certain markets (see Note 9), the Company may be liable for a
withdrawal liability to cover its pro rata portion of future benefit payments in
this plan.

         The Company sponsors a deferred profit-sharing plan for certain
salaried employees. There were no contributions by the Company in Fiscal 1999.
Contributions and costs totaled approximately $0.1 million and $0.8 million in
Fiscal 1998 and Fiscal 1997, respectively.

                                      -44-
<PAGE>

NOTE 5 -- INCOME TAXES:

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

                                                 Fiscal Year Ended
                                       January 30,  January 31,  February 1,
                                          1999         1998         1997
                                       -----------  -----------  -----------
                                             (In thousands of dollars)
Current Tax (Benefit):
  Federal income                       $            $            $    (8,177)
  State income                                 150          250          233
                                       -----------  -----------  -----------
                                               150          250       (7,944)
                                       -----------  -----------  -----------
Deferred Tax (Benefit):
  Federal income                           (18,642)     (27,894)      (9,697)
  State income                              (5,422)      (8,192)      (5,260)
                                       -----------  -----------  -----------
                                           (24,064)     (36,086)     (14,957)
                                       -----------  -----------  -----------
(Benefit) for income taxes             $   (23,914) $   (35,836) $   (22,901)
                                       ===========  ===========  ===========


         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 30,  January 31,  February 1,
                                          1999         1998         1997
                                       -----------  -----------  -----------
                                             (In thousands of dollars)

Federal (benefit) at statutory rates     $(119,353)    $(33,937)    $(22,516)
State income taxes net of federal
  income tax effect                         (3,427)      (5,162)      (3,268)
Nondeductible goodwill
  amortization and write-off                 9,771        3,312        2,926
Miscellaneous items                             62           35           27
Tax credits                                                 (84)         (70)
Valuation allowance                         89,033
                                       -----------  -----------  -----------
(Benefit) for income taxes                $(23,914)    $(35,836)    $(22,901)
                                       ===========  ===========  ===========

                                      -45-
<PAGE>

         Components of deferred income taxes at January 30, 1999, and January
31, 1998, were as follows:

                                                  Fiscal Year Ended
                                            January 30,       January 31,
                                               1999              1998    
                                            -----------       -----------
                                              (In thousands of dollars)

Deferred Tax Liabilities:
  Fixed assets                              $    20,498       $    77,438
  Inventory                                      30,435            29,043
  Prepaid expenses and other
   current assets                                   959               984
  Goodwill amortization                           2,010             3,225
  Pensions                                        7,240             4,594
  Deferred charges and other assets              11,725            11,725
                                            -----------       -----------
                                            $    72,867       $   127,009
                                            ===========       ===========
Deferred Tax Assets:
  Nondeductible accruals                    $    29,662       $    19,531
  Capital leases                                  4,942             6,005
  Net operating loss carryforwards              125,121            67,339
  Tax credit carryforwards                       17,463            17,463
  Valuation allowance                          (104,321)
                                            -----------       -----------
                                            $    72,867       $   110,338
                                            ===========       ===========

Net Deferred Tax Liability                  $         0       $    16,671
                                            ===========       ===========


         At January 30, 1999, Penn Traffic had deferred tax assets of
approximately $105.2 million due to federal net operating loss carryforwards of
approximately $300 million which begin to expire in 2011 and various state net
operating loss carryforwards, tax-effected for federal income tax purposes, of
approximately $19.9 million which begin to expire in 2004. In addition, the
Company has alternative minimum tax credit carryforwards of $12.0 million,
general business tax credit carryforwards of $3.8 million and various state tax
credits, tax-effected for federal income tax purposes, of $1.7 million available
to offset the Company's regular income tax liability in future years. The
general business tax credit carryforwards begin to expire in 2004 and the
alternative minimum tax credit carryforwards have no expiration date.

         A valuation allowance is required when it is more likely than not that
the recorded value of a deferred tax asset will not be realized. In the
judgement of management, such allowance is required at January 30, 1999.
Management presently believes that a valuation allowance will be required for
some portion or all of any deferred tax assets related to net operating loss and
tax credit carryforwards arising in the future.

         If the Plan becomes effective, it is expected that the Company will
lose the entire amount of the net operating loss carryforwards and tax credits
described above. In addition, the Company would lose the vast majority of the
tax basis of its long-term assets. This would reduce the amount of tax
depreciation and amortization that the Company would be able to utilize on its
tax returns starting in the fiscal year ending January 28, 2001.

                                      -46-
<PAGE>

NOTE 6 -- LEASES:

         The Company principally operates in leased store facilities with terms
of up to 20 years with 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. In addition to
minimum rentals, substantially all store leases provide for the Company to pay
real estate taxes and other expenses. The majority of store leases also provide
for the Company to pay contingent rentals based on a percentage of the store's
sales in excess of stipulated amounts.

         For Fiscal 1999, 1998 and 1997, capital lease amortization expense was
$11.8 million, $13.8 million and $14.5 million, respectively. The following is
an analysis of the leased property under capital leases by major classes:


                                                   Asset Balances at:
                                              January 30,      January 31,
                                                 1999             1998
                                              -----------      -----------
                                                (In thousands of dollars)

 Store facilities                             $   124,896      $   154,945
 Warehousing and distribution                      30,382           32,619
 Other                                              2,389            3,074
                                              -----------      -----------
 Total                                        $   157,667      $   190,638
 Less: Accumulated amortization                   (66,735)         (75,057)
                                              -----------      -----------

 Capital lease assets, net                    $    90,932      $   115,581
                                              ===========      ===========

         The following is a summary by year of future minimum rental payments
for capitalized leases and for operating leases that have initial or remaining
noncancelable terms in excess of one year as of January 30, 1999:


 Fiscal Years Ending:                        Total       Operating      Capital
 --------------------                        -----       ---------      -------
                                                  (In thousands of dollars)

 2000                                      $ 60,728      $ 37,715      $ 23,013
 2001                                        58,308        36,908        21,400
 2002                                        53,080        34,172        18,908
 2003                                        47,183        30,204        16,979
 2004                                        42,037        27,557        14,480
 Later years                                295,008       198,633        96,375
                                           --------      --------      --------

 Total minimum lease payments              $556,344      $365,189       191,155
                                           ========      ========      
 Less: Executory costs                                                     (477)
                                                                       --------

 Net minimum capital lease payments                                     190,678
 Less: Estimated amount
   representing interest                                                (81,133)

 Present value of net minimum capital
   lease payments                                                       109,545
 Less: Current portion                                                  (11,516)

 Long-term obligations under capital lease at
   January 30, 1999                                                    $ 98,029
                                                                       ========

                                      -47-
<PAGE>

         Future gross minimum rentals include $34.5 million in lease payments
for stores closed or slated to be closed under the Company's Store
Rationalization Program. Future minimum rentals have not been reduced by minimum
sublease rental income of $36.4 million due in the future under noncancelable
subleases.

         During Fiscal 1999, 1998 and 1997, the Company incurred capital lease
obligations of $0, $0.4 million and $24.1 million, respectively, in connection
with lease agreements for buildings and equipment. Minimum rental payments and
related executory costs for operating leases were as follows:

                                                 Fiscal Year Ended
                                      January 30,     January 31,   February 1,
                                         1999            1998          1997
                                      ----------      ----------    ----------
                                              (In thousands of dollars)

Minimum rentals and executory costs   $   46,250      $   44,560    $   45,067
Contingent rentals                         3,082           2,691         2,760
Less: Sublease payments                  (10,865)         (9,577)      (10,086)
                                      ----------      ----------    ----------
Net rental payments                   $   38,467      $   37,674    $   37,741
                                      ==========      ==========    ==========


NOTE 7 -- RESTRUCTURING CHARGES:

         During Fiscal 1998 the Company recorded pre-tax charges of $18.2
million ($10.7 million, net of tax). The special charges consist of (a) $12.6
million associated with a management reorganization and related corporate
actions, and (b) $5.6 million associated with the retention of corporate
executives. These charges are included in the restructuring charges and selling
and administrative expenses lines of the Consolidated Statement of Operations as
described below.

         The management reorganization included the centralization of management
in the Company's Syracuse, New York, headquarters and other actions to
streamline the Company's organizational structure. The management reorganization
was implemented during the second and third quarters of Fiscal 1998. It resulted
in the layoff of approximately 375 employees, with most of the layoffs coming in
the Company's Columbus, Ohio, and DuBois, Pennsylvania, divisional headquarters.

         The restructuring charges of $10.7 million for Fiscal 1998 included
$9.7 million of severance costs and $1.0 million of miscellaneous other costs
recorded in connection with the management reorganization.

         Selling and administrative expenses for Fiscal 1998 included pre-tax
special charges of (a) $5.6 million incurred in connection with the retention of
corporate executives (consisting of $3.4 million paid to hired executives
primarily to reimburse them for loss of benefits under arrangements with their
prior employers and $2.2 million of relocation and other miscellaneous expenses
associated with their retention), and (b) $1.9 million of other costs recorded
in connection with management reorganization and related corporate actions.

         The accrued liability related to the special charges was $2.1 million
at January 31, 1998 and was paid during Fiscal 1999.

                                      -48-
<PAGE>

NOTE 8 -- GAIN ON SALE OF SANI-DAIRY:

         During Fiscal 1998, the Company recorded a gain of approximately $24.2
million ($14.3 million, net of tax) related to the sale of Sani-Dairy, the
Company's dairy manufacturing operation, for cash consideration of approximately
$37 million. Concurrent with the completion of the transaction, the Company
entered into a 10-year supply agreement with the acquirer for the purchase of
products that were supplied by Sani-Dairy and two other dairies.

NOTE 9 -- UNUSUAL ITEMS:

         To strengthen Penn Traffic financially, since the middle of last year
the Company has undertaken a store rationalization program (the "Store
Rationalization Program") to divest itself of certain marketing areas,
principally in northeastern Pennsylvania where performance and market position
were the weakest relative to Penn Traffic's other retail stores, and to close
other underperforming stores. The Store Rationalization Program involves selling
18 stores in eastern Pennsylvania and Ohio and closing an additional 38
generally unprofitable stores.

         For the 52-week period ended January 30, 1999 ("Fiscal 1999"), the
Company recorded special charges (as described below) of $69.3 million primarily
related to (a) the decision to close 38 of its stores as part of the Company's
Store Rationalization Program, (b) severance and other miscellaneous employee
expenses related to the Company's Store Rationalization Program, (c) a gain
related to the sale of 13 stores and certain other real estate pursuant to its
Store Rationalization Program and (d) professional fees and other miscellaneous
costs associated with the Company's proposed debt restructuring:

(a)      During Fiscal 1999, the Company recorded a charge of $75.4 million in
         connection with the decision to close 38 of its stores as part of its
         Store Rationalization Program.  This charge is comprised of a write-
         down of fixed assets ($16.8 million), a write-off of goodwill ($20.7
         million), net present value of future lease costs ($26.8 million),
         inventory markdowns ($8.0 million) and other miscellaneous expenses
         ($3.1 million).  Of the 38 stores to be closed, 17 were closed by year
         end and the remainder are expected to be closed by the end of 1999.
         Revenues for these 38 stores were $197.9 million for Fiscal 1999 (this
         amount takes into account that 17 of these 38 stores did not operate
         for the entire 52-week period).

(b)      During Fiscal 1999, the Company recorded $5.5 million of severance and
         other miscellaneous employee expenses associated with the Company's
         Store Rationalization Program.

(c)      During Fiscal 1999, the Company recorded a net gain of $12.7 million
         related to the sale of 13 of its stores and certain other real estate
         pursuant to its Store Rationalization Program.

(d)      During Fiscal 1999, the Company also recorded $1.1 million of
         professional fees and other miscellaneous costs associated with the
         Company's proposed debt restructuring.

         All of these items are included in the unusual items account except for
inventory markdowns, which are included in cost of sales. At January 30, 1999,
the accrued liability related to these charges was $48.7 million. This amount is
principally related to future lease costs and severance; $31.6 million of the
accrued liability is a noncurrent liability.

                                      -49-
<PAGE>

NOTE 10 -- ACCOUNTING FOR CERTAIN LONG-LIVED ASSETS:

         The Company periodically reviews the recorded value of its long-lived
assets to determine if the future cash flows to be derived from these properties
will be sufficient to recover the remaining recorded asset values. In accordance
with SFAS 121, during the fourth quarter of Fiscal 1999, based upon a
comprehensive review of the Company's long-lived assets the Company recorded a
noncash charge of $52.3 million primarily related to the write-down of a portion
of the recorded asset values of 14 of the Company's supermarkets that were
operating as of January 30, 1999 (including allocable goodwill) to estimated
realizable values. The 14 supermarkets are located throughout the Company's
trading area.

         During June 1998, the Company announced its plans for realizing value
from certain of its Pennsylvania Bi-Lo stores and related wholesale operations.
The Company recorded a noncash charge of $91.5 million to write down the
carrying amounts of 22 stores held for sale (including allocable goodwill) at
October 31, 1998 to estimated realizable values. Since October 31, 1998, the
Company has revised its Store Rationalization Program and decided to continue to
operate six of these stores and close two of them. The Company has continued to
depreciate the stores held for sale in the normal course of business.

         During Fiscal 1999, 9 of these stores were sold yielding cash proceeds
of $7.4 million and a gain of $0.2 million. At January 30, 1999, 5 stores with a
net book value of $15.3 million were held for sale. Subsequent to year end, 4 of
these stores were sold for cash proceeds of approximately $16 million. Revenues
of the 14 stores sold or held for sale were $129.5 million for Fiscal 1999
(these amounts reflect the fact that 9 of these did not operate for the entire
52-week period).

         Based upon a comprehensive review of the Company's long-lived assets,
the Company recorded a noncash charge of $27.0 million in Fiscal 1998. This
charge primarily related to the write-down of a portion of the recorded asset
values (including allocable goodwill) of 12 of the Company's supermarkets that
were in operation as of January 31, 1998, as well as certain other real estate.
These 12 supermarkets were located throughout the Company's trading area.

         The Company performed a comprehensive review of its long-lived assets
as of the end of Fiscal 1997. Based on this review, no additional assets were
deemed to be impaired.

                                      -50-
<PAGE>

NOTE 11 -- STOCKHOLDERS' EQUITY:

         The Company has a Long-term Incentive Plan (the "1993 Plan") and a
Performance Incentive Plan (the "1997 Plan"), each of 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
and other forms of stock-based incentives such as phantom stock and cash awards.
The 1997 Plan was adopted in Fiscal 1998 as the successor to the 1993 Plan. The
1993 Plan was adopted in Fiscal 1994 as the successor to the Company's 1988
Stock Option Plan (the "1988 Plan"). A maximum of 1,500,000 shares of common
stock were authorized for grants under the 1997 Plan and 350,000 shares for
grants under the 1993 Plan.

         As of January 30, 1999, a total of 1,063,450 options to purchase shares
of the Company's common stock (with exercise prices ranging from $1.25 to $9.31
per option share) were outstanding under the Company's 1997 Plan. As of January
30, 1999, 320,780 of those shares were currently exercisable. At January 30,
1999, 435,400 shares of common stock remained available for future grants under
the 1997 Plan.

         As of January 30, 1999, 125,000 shares authorized under the 1993 Plan
had been used in grants of restricted stock; 225,000 shares were available at
that date for future grants. Since the required EBITDA levels were not achieved,
129,100 shares of the restricted stock granted in prior years were forfeited
during Fiscal 1999. The vesting requirements for 125,000 shares of restricted
stock relate to improvement in the market value of the Company's common stock.
Those shares would become vested if, for a period of ten consecutive trading
days, the closing price of shares of the Company's common stock is at least
$14.00 per share during the period from August 15, 1998, through August 14,
1999; $16.00 per share during the period from August 15, 1999, through August
14, 2000; $18.00 per share during the period from August 15, 2000, through
August 14, 2001; $20.00 per share during the period from August 15, 2001,
through August 14, 2002; or upon a change in control (as defined). Those shares
will be forfeited to the Company if not vested by August 14, 2002.

         As of January 30, 1999, unearned compensation was credited in the
amount of $1.6 million to reflect the impact of the outstanding restricted
shares. Unearned compensation, which is shown as a separate component of
stockholders' equity, will be expensed as the compensation is earned.

         As of January 30, 1999, a total of 94,390 options to purchase shares of
the Company's common stock (with exercise prices ranging from $12.88 to $28.13
per option share) were outstanding under the Company's 1988 Plan. As of January
30, 1999 all of those shares were exercisable.

         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 Stockholders 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. At January 30, 1999, an additional 32,000 shares of common stock
are reserved for issuance under the Directors' Plan.

         Under each of the plans, option prices are 100% of the "fair market
value" of the shares on the date granted and the options expire 10 years after
the date of grant. Under terms of the Directors' Plan, the options are
exercisable six months after the date of grant. The 1988, 1993 and 1997 Plan
options generally vest 20% on the date of grant and 20% on each of the next four
anniversary dates.

                                      -51-
<PAGE>

         A summary of the status of the Company's 1988 Plan, 1993 Plan and 1997
Plan, as of February 1, 1997, January 31, 1998, and January 30, 1999, and
changes during the years ended on those dates is presented below:


                       Fiscal 1997          Fiscal 1998          Fiscal 1999
                    ------------------   ------------------   ------------------
                             Weighted-            Weighted-            Weighted-
                              Average              Average              Average
1988/1993/1997               Exercise             Exercise             Exercise
Plan Options          Shares    Price      Shares    Price      Shares    Price
--------------      ---------  -------   ---------  -------   ---------  -------
Outstanding at
  beginning of year   226,094   $19.57     210,983   $19.86   1,237,413   $ 8.16
Granted                                  1,100,100     6.42     523,000     1.34
Exercised              (5,592)   12.50      (1,150)    7.69
Forfeited              (9,519)   17.14     (72,520)   15.83    (602,573)    6.12
                      -------            ---------            ---------
Outstanding at
  end of year         210,983   $19.86   1,237,413   $ 8.16   1,157,840   $ 6.14
                      =======            =========            =========
Options exercisable
  at year-end         209,783   $19.72     383,141   $12.12     415,170   $ 9.68
                      =======            =========            =========

         As of January 30, 1999, the 1,157,840 options outstanding under the
1988 Plan, the 1993 Plan, and the 1997 Plan have exercise prices between $1.25
and $28.13 and a weighted-average remaining contractual life of 8.6 years.

         A summary of the status of the Company's Directors' Plan as of February
1, 1997, January 31, 1998, and January 30, 1999, and changes during the years
ended on those dates is presented below:

                       Fiscal 1997          Fiscal 1998          Fiscal 1999
                    ------------------   ------------------   ------------------
                             Weighted-            Weighted-            Weighted-
                              Average              Average              Average
Directors' Plan              Exercise             Exercise             Exercise
Options              Shares     Price     Shares     Price     Shares     Price
---------------     ---------  -------   ---------  -------   ---------  -------
Outstanding at
  beginning of year    42,000   $30.97      48,000   $28.43      54,000   $26.04
Granted                 6,000    10.63       6,000     6.94       6,000     3.59
Exercised
Forfeited

Outstanding at
  end of year          48,000   $28.43      54,000   $26.04      60,000   $23.79
                       ======               ======               ======

Options exercisable
  at year-end          48,000   $28.43      54,000   $26.04      60,000   $23.79
                       ======               ======               ======

         As of January 30, 1999, the 60,000 options outstanding under the
Directors' Plan have exercise prices between $3.59 and $42.00 and a
weighted-average remaining contractual life of 5.1 years.

                                      -52-
<PAGE>

         The following table summarizes information about stock options
outstanding at January 30, 1999:

                          Options Outstanding           Options Exercisable

                               Weighted-                           Weighted-
                               Average    Remaining                Average
Exercise Price       Shares     Price       Life        Shares      Price
--------------       ------     -----       ----        ------      -----
Less than $5         529,000    $ 1.36       9.8        110,600     $ 1.46
$5 to $10            546,450      7.79       8.5        222,180       7.78
Greater than $10     142,390     24.98       2.8        142,390      24.98


         Upon consummation of the Plan, all outstanding stock options will be
canceled.

         Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" ("SFAS 123"), defines a fair value based method of
accounting for an employee stock option by which compensation cost is measured
at the grant date based on the fair value of the award and is recognized over
the service period. A company may elect to adopt SFAS 123 or elect to continue
accounting for its stock option or similar equity awards using the method of
accounting prescribed by Accounting Principles Board Opinion No. 25 ("APB 25"),
"Accounting for Stock Issued to Employees", by which compensation cost is
measured at the date of grant based on the excess of the market value of the
underlying stock over the exercise price. The Company has elected to continue to
account for its stock-based compensation plans under the provisions of APB 25.
No compensation expense has been recognized in the accompanying financial
statements relative to the Company's stock option plans.

         Pro forma information regarding net (loss) and (loss) per share is
required by SFAS 123 and has been determined as if the Company had accounted for
its employee stock options under the fair value method of that statement. The
weighted average fair value of options granted in Fiscal 1999 was $1.05. The
fair value of these options was estimated at the date of grant using the
Black-Scholes options pricing model with the following weighted-average
assumptions: Risk-free interest rate of 4.97%; volatility factor of the expected
market price of the Company's common stock of 75.0%; a weighted-average expected
life of the option of eight years; and that no dividends would be paid on common
stock.

         For purposes of the pro forma disclosures, the estimated fair value of
the options is amortized to expense over the options' vesting period. The
Company's pro forma information for Fiscal 1998 and Fiscal 1999 follows (in
thousands, except for earnings per share information):


                                        Fiscal 1998     Fiscal 1999
                                        -----------     -----------
    Net (loss) - as reported             $ (61,126)      $(317,094)

    Net (loss) - pro forma                 (62,331)       (317,233)

    Net (loss) per share - as reported:
      Basic and diluted                      (5.78)         (30.00)

    Net (loss) per share - pro forma:
      Basic and diluted                      (5.89)         (30.01)

         The pro forma disclosures include only options granted during Fiscal
1998 and Fiscal 1999. Options granted in Fiscal 1997 were immaterial and
therefore the pro forma effect is not presented.

                                      -53-
<PAGE>

         At January 30, 1999, certain persons affiliated or previously
affiliated with Miller Tabak Hirsch + Co. ("MTH") held warrants to purchase
289,000 shares at $14.00 per share, ("Warrants"). The Warrants were issued in
June 1988 and are exercisable until June 23, 2001. None of the Warrants has been
exercised or forfeited since the date of grant; however, upon consummation of
the Plan, all outstanding warrants will be canceled.

         In October 1995, the Company's Board of Directors authorized the
repurchase by the Company of up to 500,000 shares of its outstanding common
stock, either in the open market or in private transactions. Shares which are
repurchased will be available for issuance upon exercise of outstanding options
which have been granted under the Company's equity incentive programs and for
other corporate purposes. The Company did not purchase any shares during Fiscal
1999, Fiscal 1998, or Fiscal 1997. During Fiscal 1996, the Company purchased
45,200 shares at a cost of approximately $0.6 million which shares are being
held in treasury.

NOTE 12 -- NET (LOSS) PER SHARE

         In the fourth quarter of Fiscal 1998, the Company adopted Statement of
Financial Accounting Standards No. 128, "Earnings per Share" ("SFAS 128"). This
standard requires presentation of basic earnings per share ("EPS"), computed
based on the weighted average number of common shares outstanding for the
period, and diluted EPS, which gives effect to all dilutive potential shares
outstanding (i.e., options, restricted stock and warrants) during the period.
Income used in the EPS calculation is net (loss) for each year. Shares used in
the calculation of basic and diluted EPS were (in thousands):

                                                  1999         1998        1997
                                                 ------       ------      -----
   Shares used in the calculation of
     Basic EPS (weighted average
     shares outstanding)                         10,570       10,570      10,570

   Effect of dilutive potential securities            0            0           0

   Shares used in the calculation of
     Diluted EPS                                 10,570       10,570      10,570
                                                 ======       ======      ======

The Fiscal 1999, 1998 and 1997 calculations of diluted EPS exclude the effect of
incremental dilutive potential securities aggregating approximately 20,000,
203,000 and 4,000 shares, respectively, because they would have been
antidilutive given the net loss for the year. The shares used in the calculation
of diluted EPS exclude options and warrants to purchase shares whenever the
exercise price was greater than the average market price of common shares for
the year. Such shares aggregated approximately 1,487,000, 1,377,000 and 544,000
in Fiscal 1999, 1998 and 1997, respectively.

                                      -54-
<PAGE>

NOTE 13 -- EQUITY INVESTMENT:

         In 1989, Penn Traffic acquired an indirect ownership interest in the
common stock of the parent company of The Grand Union Company ("Grand Union"),
which is engaged in the food retailing business. Penn Traffic's equity interest
in Grand Union's parent company became worthless as the result of Grand Union's
filing of a voluntary petition for reorganization under Chapter 11 of the United
States Bankruptcy Code in January 1995.

         See Note 14 - Related Parties for a description of certain
relationships between Penn Traffic and Grand Union.

                                      -55-
<PAGE>

NOTE 14 -- RELATED PARTIES:

         During Fiscal 1999, the Company's Chairman and Vice Chairman of the
Board of Directors served as a general partner of the managing partner of MTH
and Executive Vice President of MTH, respectively. During Fiscal 1999, Fiscal
1998 and Fiscal 1997 the Company paid MTH fees of $1,437,000, $1,437,000 and
$1,405,600, respectively for financial consulting and business management
services provided by MTH to the Company. During Fiscal 1998, in consideration
for services rendered in connection with the sale of the Company's Sani-Dairy
operation, the Company agreed to extend the expiration date of the Warrants from
June 23, 1998, to June 23, 2001. See Note 11 concerning issuance of options,
warrants and restricted stock to officers and directors of the Company.

         On February 28, 1999, the Company terminated its agreement with MTH and
on March 1, 1999, the Company engaged the services of Hirsch & Fox LLC (an
entity formed by the Company's Chairman and Vice Chairman) to provide similar
financial consulting and business management services during the pendency of the
Bankruptcy Cases, for which the Company will pay Hirsch & Fox LLC a management
fee at an annual rate of $1.45 million. On the effective date of the Plan, the
Company and Hirsch & Fox LLC will enter into a new two-year management
agreement. Pursuant to the new management agreement, Hirsch & Fox LLC will
provide the services of the principals of Hirsch & Fox LLC as Chairman and Vice
Chairman, respectively, of the Executive Committee of the Company. In return for
these services, Hirsch & Fox LLC will receive management fees at an annual rate
of $1.45 million.

         On July 30, 1990, P&C (then a subsidiary and now a division of Penn
Traffic) and Grand Union entered into an agreement (the "New England Operating
Agreement") whereby Grand Union acquired the right to operate 13 P&C stores
located in New England under the Grand Union name until July 2000. Pursuant to
the New England 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 a specific amount per year (currently $1.2 million)
based on sales performance of the stores operated by 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 New England Operating Agreement. This
prepayment reduced the future payments that Grand Union makes to Penn Traffic
pursuant to the terms of the New England Operating Agreement by approximately
$3.2 million per year. The Total Revenues line of the Consolidated Statement of
Operations includes pretax operating fees of $12.1 million for the fiscal year
ended January 30, 1999, $11.2 million for the fiscal year ended January 31,
1998, and $11.2 million for the fiscal year ended February 1, 1997.

         At the expiration of the 10-year term of the New England Operating
Agreement, Grand Union has the right to extend the term of the New England
Operating Agreement for an additional five years at defined operating fees. Penn
Traffic also granted Grand Union an option (the "Purchase Option") to purchase
the stores operated by Grand Union under the New England Operating Agreement.
Grand Union paid Penn Traffic $7.5 million for the Purchase Option, which
provides that from July 30, 1998 until the expiration of the term (or the
extended term) of the New England Operating Agreement, Grand Union may purchase
the stores operated under the New England 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. Grand Union has not exercised the Purchase
Option.

                                      -56-
<PAGE>

         If Grand Union does not extend the initial term of the New England
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 New England Operating Agreement, the stores operated by Grand
Union pursuant to the New England Operating Agreement (currently 9 stores) will
be returned to Penn Traffic.

NOTE 15 -- 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.

         The Company and its subsidiaries are involved in several lawsuits,
claims and inquiries, most of which are routine to the nature of the business.
Estimates of future liability are based on an evaluation of currently available
facts regarding each matter. Liabilities are recorded when it is probable that
costs will be incurred and can be reasonably estimated.

         Based on management's evaluation, the resolution of these matters will
not materially affect the financial position, results of operations or liquidity
of the Company.

                                      -57-
<PAGE>

REPORT OF MANAGEMENT

         Penn Traffic's management has prepared the financial statements
presented in this Annual Report on Form 10-K 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 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.

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

None

                                      -58-
<PAGE>

                                    PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT

Set forth below are the names, ages and positions with the Company of Directors
and Executive Officers of the Company as of the date hereof. Upon consummation
of the Plan, the Board of Directors will be reconstituted in the manner
described in the Plan.

        Name              Age          Position with Penn Traffic
        ----              ---          --------------------------

Gary D. Hirsch             49          Chairman and Director

Martin A. Fox              45          Director, Vice Chairman - Finance
                                        and Assistant Secretary

Joseph V. Fisher           56          President and Chief Executive
                                        Officer

Robert J. Davis            45          Senior Vice President - Chief
                                        Financial Officer and
                                        Assistant Secretary

Francis D. Price, Jr.      49          Vice President, General Counsel
                                        and Secretary

Randy P. Martin            43          Vice President - Finance and
                                        Chief Accounting Officer

Eugene A. DePalma          63          Director

Susan E. Engel             52          Director

Claude J. Incaudo          65          Director

James A. Lash              54          Director

Harold S. Poster           54          Director

Richard D. Segal           45          Director


Mr. Hirsch has been a Director and Chairman of Penn Traffic since 1987 with his
current term expiring in 2001. From September 1996 until April 1, 1997, Mr.
Hirsch served as Chief Executive Officer of the Company. From 1982 until 1999,
Mr. Hirsch was a general partner of the managing partner of MTH (broker-dealer)
and from 1983 to 1999, a Managing Director of MTH Holdings, Inc. ("MTH
Holdings"). 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 was Chairman and a Director of Grand Union
Holdings Corporation ("Grand Union Holdings") (food distribution holding
company) between 1989 and March 1996 and of certain of Grand Union Holdings'
subsidiaries for certain periods between 1992 and March 1996.

Mr. Fox has been Director and Vice Chairman - Finance since February 1993
with his current term expiring in 1999.  Mr. Fox was a Vice President of
the Company from 1989 until February 1993.  Mr. Fox has been Assistant
Secretary of Penn Traffic since 1989.  Mr. Fox was an Executive Vice
President of MTH from 1988 until 1999.  Mr. Fox was a Vice President of
Grand Union Holdings between 1989 and March 1996, a Director of Grand Union
Holdings between 1992 and March 1996 and a Director and Vice President of
certain of Grand Union Holdings' subsidiaries for certain periods between
1989 and March 1996.

                                      -59-
<PAGE>

Mr. Fisher has been a Director and the President and Chief Executive Officer of
the Company since November 1998. From 1992 to November 1998 Mr. Fisher worked
for Big V Supermarkets Inc. ("Big V"), a regional supermarket company operating
primarily under the ShopRite name, in various management positions, including
President and Chief Executive Officer (from 1995 to 1998), Executive Vice
President-Marketing and Operations and Chief Operating Officer (from 1994 to
1995), Senior Vice President-Marketing and Operations (from 1993 to 1994) and
Vice President-Store Operations (from 1992 to 1993). He also served as a
Director of Big V from 1993 to 1998. Prior to joining Big V, Mr. Fisher worked
for Purity Supreme, Inc. (supermarkets) from 1973 to 1991 in various management
positions including Senior Vice President-Supermarkets from 1985 to 1991.

Mr. Davis has been Senior Vice President and Chief Financial Officer of
Penn Traffic since May 1997.  From 1995 until May 1997 he served as the
Company's Treasurer.  Prior to 1995, Mr. Davis served in various finance
and management positions at Sandoz Corporation, B.F. Goodrich Company and
Marathon Oil Company.

Mr. Price has been Vice President and General Counsel and Assistant Secretary of
Penn Traffic since February 1993 and became Secretary in 1997. Mr. Price was
Vice President and General Counsel of the P&C division from 1985 until April
1993 and Secretary of P&C from 1991 until April 1993. Mr. Price served in
various other positions at P&C between 1978 and 1985.

Mr. Martin has been Vice President-Finance and Chief Accounting Officer of
Penn Traffic since January 1999.  From November 1997 until January 1999 he
served as Vice President of Strategic Planning and Treasurer.  From
September 1993 to November 1997 Mr. Martin served as the Company's Director
of Taxes.  Prior to 1993 Mr. Martin was employed at Price Waterhouse, most
recently as Senior Tax Manager.

Mr. DePalma has been a Director since 1987 with his current term expiring
in 2000.  Mr. DePalma has been engaged in the management of private affairs
since May 1998.  From January 1998 to May 1998, he was President and Chief
Executive Officer of Preferred Credit Corporation (mortgage lending).
Mr. DePalma was the President and Chief Executive Officer of Quorum Group,
Inc. (litigation support services) from May 1996 to December 1997.  From
April 1994 until December 1995, Mr. DePalma was Chief Executive Officer of
Sausage Acquisition Company (food processing).  From October 1991 until
April 1994, Mr. DePalma was engaged in the management of private affairs.
Mr. DePalma was Vice President, Sales for Teledyne Continental Motors from
January 1991 until October 1991.

Ms. Engel has been a Director since 1993 with her current term expiring in 2000.
Ms. Engel has been the Chairwoman and Chief Executive Officer of Department 56,
Inc. (collectibles and giftware) since September 1997. Prior thereto she was
President and Chief Executive Officer (since November 1996) and President and
Chief Operating Officer (since September 1994). Ms. Engel has been a Director of
K2 Inc. (manufacture and distribution of sporting goods) since August 1996 and
of Piper Jaffray, Inc. (brokerage) since April 1997. From September 1993 until
September 1994, Ms. Engel was engaged in the management of private affairs. From
July 1991 until September 1993, Ms. Engel served as President and Chief
Executive Officer of Champion Products (manufacture and distribution of active
wear), a division of Sara Lee Corporation. She was a Vice President and Partner
with Booz Allen & Hamilton, Inc. ("Booz Allen") (management consulting) from
1986 until October 1991, where she led the firm's retail consulting practice in
the eastern United States. Ms. Engel held various other positions with Booz
Allen between 1977 and 1986.

                                      -60-
<PAGE>

Mr. Incaudo has been a Director since 1988 with his current term expiring
in 2000.  Mr. Incaudo served as acting President and Chief Executive
Officer from August 1998 until November 1998.  Prior to that, Mr. Incaudo
had been engaged in the management of private affairs since February 1997.
Mr. Incaudo was engaged as a consultant to the Company from January 1995
until February 1997.  From February 1990 until January 1995, Mr. Incaudo
was President and Chief Executive Officer of the Company.  Mr. Incaudo was
the President of the Company's P&C division between 1982 and April 1993.
Mr. Incaudo was a Director of Grand Union Holdings between 1992 and March
1996.

Mr. Lash has been a Director since 1996 with his current term expiring in
2001.  Mr. Lash is an investor in various enterprises and served as a
consultant to the Company from 1987 until January 1998.  He was Chairman
and Chief Executive Officer of Reading Tube Corporation (copper tubing)
from 1982 until September 1996.

Mr. Poster has been a Director since 1988 with his current term expiring in
1999.  Mr. Poster has been a partner in the law firm of Gilmartin, Poster
& Shafto since July 1991.  Prior to joining Gilmartin, Poster & Shafto, he
was engaged in the practice of law.

Mr. Segal has been a Director since 1988 with his current term expiring in
2001.  Mr. Segal has been Chairman and/or Chief Executive Officer of
Seavest, Inc. (investment management) since 1981, Chairman of Encore
Company, Inc. (investment banking) since 1983 and managing general partner
of Seavest Partners (investment portfolio management) since 1980.  Mr.
Segal has been a Director of Hudson General, Inc. (aviation services) since
1978.

In January 1995, The Grand Union Company ("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"). Grand Union emerged from Chapter 11 reorganization in June
1995. In February 1995, an involuntary Chapter 11 petition was filed in the
Bankruptcy Court against Grand Union Capital Corporation ("Grand Union
Capital"), of which Grand Union was a wholly-owned subsidiary. Grand Union
Capital consented to the entry of an order for relief on the involuntary Chapter
11 petition and, in February 1995, Grand Union Holdings filed a voluntary
Chapter 11 petition in the Bankruptcy Court. Grand Union Capital's and Grand
Union Holdings' Bankruptcy Court proceedings were completed in March 1996.
Following completion of these proceedings, Grand Union Capital and Grand Union
Holdings were dissolved. At the time the Chapter 11 petitions were filed,
Messrs. Hirsch and Fox were directors and executive officers of Grand Union,
Grand Union Capital and Grand Union Holdings. Messrs. Hirsch and Fox resigned as
directors and officers of Grand Union in June 1995, and ceased to be directors
and executive officers of Grand Union Capital and Grand Union Holdings upon the
dissolutions of these companies in March 1996.

There are no family relationships between any of the Directors or the Executive
Officers. All of the Executive Officers were Executive Officers of the Company
on March 1, 1999, the date the Bankruptcy Cases were commenced.

                                      -61-
<PAGE>

ITEM 11. EXECUTIVE COMPENSATION

         The Compensation Committee of the Board of Directors has the
responsibility to ensure that the compensation practices of the Company are
competitive and effectively designed to attract, retain and motivate executive
officers whose contributions are critical to the long-term success of the
Company. The Company uses a total compensation program that consists of annual
compensation paid in the form of salary and cash bonuses under short-term
incentive plans, and compensation paid under long-term incentive plans and
options awarded under the 1997 Plan. The Compensation Committee of the Board of
Directors is currently composed of Messrs. Segal (Chairman) and DePalma.

EXECUTIVE COMPENSATION

         See "Management Agreement" for a description of the agreement pursuant
to which MTH has provided financial consulting and business management services
to the Company in the past, and a description of the agreements with Hirsch &
Fox LLC to provide similar services to the Company in the future. During Fiscal
1999, Mr. Hirsch was a general partner of and the managing general partner of
MTH and Mr. Fox was an executive officer of MTH. From September 1996 until April
1, 1997, Mr. Hirsch acted as Chief Executive Officer of the Company but received
no salary or bonus from the Company for such service.

         The following table sets forth the compensation paid or accrued by the
Company to (a) persons serving as President and Chief Executive Officer of the
Company during Fiscal 1999 and (b) each of the four other most highly
compensated executive officers of the Company during Fiscal 1999 for services
rendered to the Company in all capacities during Fiscal 1997, 1998 and 1999
(collectively, the "Named Executive Officers").

                           Summary Compensation Table
                           --------------------------
<TABLE>
<CAPTION>
                                                                             Long-Term
                                                                            Compensation
                                                 Annual Compensation           Awards
                                                                        Restricted  Securities       All
                                                                          Stock     Underlying      Other
            Name and Principal                    Salary     Bonus       Award(s)   Options/    Compensation
                 Position                  Year     ($)       ($)         ($)(2)   SAR's (#)(3)    ($)(4)
---------------------------------------    ----  --------  ----------   --------   -----------  -------------
<S>                                        <C>   <C>       <C>           <C>       <C>          <C>          
Joseph V. Fisher                           1999  $ 96,154  $   48,072    $     0     500,000    $1,060,000(5)
  President and Chief Executive Officer
  (Effective November 23, 1998)

Claude J. Incaudo                          1999  $      0  $        0    $     0           0    $  232,300(10)
  Acting President and Chief               1998         0           0          0           0        24,000(11)
  Executive Officer                        1997         0           0          0           0       169,000(12)
  (August 7, 1998 through
   November 22, 1998)

Phillip E. Hawkins                         1999  $230,466  $   18,974    $     0           0    $  550,000(6)
  Former President and Chief               1998   382,448     225,000          0     400,000     2,542,613(7)
  Executive Officer
  (Through July 31, 1998)

Nick Campbell                              1999  $195,912  $    6,227    $     0           0    $      273(8)
  Former Senior Vice President,            1998   177,659      10,000          0      30,000             0
  Marketing (1)                            1997   122,854           0          0           0         5,241(9)

Robert J. Davis                            1999  $190,015  $    6,227    $     0           0    $      335(8)
  Senior Vice President and Chief          1998   175,320      35,000          0      30,000             0
  Financial Officer                        1997   112,231           0          0           0             0

Charles G. Bostwick                        1999  $141,902  $   28,434    $     0      15,000    $   57,913(9)
  Vice President and Chief
  Information Officer

Francis D. Price, Jr.                      1999  $155,376  $    4,357    $     0           0    $      178(8)
  Vice President, General Counsel          1998   152,659      20,277          0      10,000             0
  and Secretary                            1997   138,552      24,585          0           0             0

-------------
</TABLE>

 (1)     Mr. Campbell resigned his position with the Company on April 19, 1999.

                                      -62-
<PAGE>

 (2)     Awards made pursuant to the 1993 Plan of shares of restricted stock.
         None of the Named Executive Officers currently holds any shares of
         restricted stock.

 (3)     Messrs. Bostwick and Fisher were awarded in Fiscal 1999, pursuant to
         the 1997 Plan, options to purchase 15,000 and 500,000 shares,
         respectively, of Common Stock at $3.25 and $1.25 per share,
         respectively. These options are currently exercisable for up to 20% of
         the total number of shares subject to the options, and the remaining
         80% are scheduled to vest in four equal installments on June 4 and
         November 23, respectively, of each of 1999, 2000, 2001 and 2002. Mr.
         Hawkins was awarded, pursuant to the 1993 Plan and the 1997 Plan,
         respectively, options to purchase 36,900 and 363,100 shares of Common
         Stock at $4.0625 per share. All of these options were forfeited during
         Fiscal 1999 after Mr. Hawkins left the Company. In Fiscal 1998, Messrs.
         Campbell and Davis each received 30,000 options and Mr. Price received
         10,000 options under the 1997 Performance Incentive Plan to purchase
         Common Stock at $7.6875 per share. Such options, all of which are
         subject to vesting limitations, are currently exercisable for up to 40%
         of the total number of shares subject to the options with the remaining
         60% vesting in three equal installments on July 24 of each of 1999,
         2000 and 2001.

 (4)     During Fiscal 1998, the Company gave written assurances to certain key
         members of middle and senior management of the Company (including
         Messrs. Campbell, Price and Davis) that in the event of an involuntary
         termination of employment (other than for certain stated causes) prior
         to December 31, 1999, their salary and benefits would be continued for
         periods of up to eighteen months following termination.

 (5)     Includes $1 million in the form of a signing bonus paid to Mr. Fisher
         upon the commencement of his employment with the Company. Also includes
         interest and principal forgiven in Fiscal 1999 relating to a $1 million
         loan to Mr. Fisher, which as part of his employment agreement will be
         forgiven over 12 consecutive quarterly periods (or immediately, in the
         event Mr. Fisher terminates his employment for "good reason", is
         terminated for reasons other than "cause", or in certain circumstances
         following a change in control).

 (6)     Compensation for severance in connection with Mr. Hawkins' termination
         as of July 31, 1998. See also "Severance Agreement with Phillip E.
         Hawkins" below.

 (7)     Includes amounts paid by the Company in Fiscal 1998 to Mr. Hawkins in
         consideration of his loss of benefits at his prior employment and
         incidental costs incurred by Mr. Hawkins as a result of entering into
         an employment agreement with and being employed by the Company. Also
         includes $239,613 reimbursed to Mr. Hawkins for certain relocation
         expenses he incurred in connection with his relocation to Syracuse, New
         York.

 (8)     Includes Company - sponsored contributions to the 401(k) Plan under
         which company sponsored contributions began June 1, 1998 in connection
         with the new Penn Traffic Cash Balance Pension Plan.

 (9)     Includes compensation for certain relocation expenses.

(10)     Includes compensation paid to Mr. Incaudo in as follows; $157,300 in
         fees for serving as acting-President from August to November 1998,
         $25,000 in fees for serving as a Director and $50,000 as a
         Board-directed bonus in appreciation for contributions made during
         Fiscal 1999.

(11)     Includes $24,000 in fees paid to Mr. Incaudo in a non-employee capacity
         for serving as a Director.

(12)     Includes compensation paid to Mr. Incaudo in a non-employee capacity as
         follows; $150,000 in consulting fees and $19,000 in fees for serving as
         a Director.

                                      -63-
<PAGE>

CASH BONUS PLANS

         Cash bonuses are paid to executive officers under the Company's
Corporate Incentive Plan. Participants in the Corporate Incentive Plan are
determined by the Board of Directors upon recommendation of the Compensation
Committee. Target bonus opportunities under the Corporate Incentive Plan are
based on achievement of previously established financial results for the
Company, and on achievement of individual objectives.

         For Fiscal 1999, no bonuses were paid pursuant to the Corporate
Incentive Plan. Some bonuses were paid in Fiscal 1998 and 1999 in appreciation
for contributions made during those years by selected officers. These amounts
are included in the "Bonus" column of the Summary Compensation Table.

LONG-TERM INCENTIVE PLANS

         In addition to annual compensation, the Company provides to certain of
its officers, employees and independent contractors long-term incentive
compensation under the Company's 1993 Plan, which was adopted in March 1993 as
the successor to the Company's 1988 Stock Option Plan.

         The 1993 Plan was approved by the vote of a majority of the
stockholders of the Company at the 1993 Annual Meeting of Stockholders. The 1993
Plan permits the Company to provide incentive compensation of the types commonly
known as restricted stock, stock options, stock appreciation rights, and phantom
stock, as well as other types of incentive compensation. All awards under the
1993 Plan were made in the form of awards of shares of restricted stock or
awards of options to purchase shares of Common Stock. The 1993 Plan provided
that a maximum of 350,000 shares of Common Stock could be granted 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 described below ("Compensation of Directors") the vesting
requirements for 125,000 shares of restricted stock have been amended to vest
only upon attainment of certain specified market values of the Company's Common
Stock or upon a change of control (as defined). 129,100 shares of restricted
stock not included in the aforementioned amendment were forfeited in Fiscal 1999
since required EBITDA levels were not achieved. As of January 30, 1999, 225,000
shares were available for future grants under the 1993 Plan.

         On June 3, 1997, the Shareholders approved the adoption by the Board of
Directors of the 1997 Plan. The 1997 Plan permits the Company to provide
incentive compensation of the types commonly known as restricted stock, stock
options, stock appreciation rights, and phantom stock, as well as other types of
incentive compensation. All awards made to date under the 1997 Plan have been in
the form of stock options. Options are presently outstanding for 1,063,450
shares of the total of 1,500,000 shares authorized for grant under the 1997
Plan.

         Upon consummation of the Plan, all outstanding stock options will be
canceled.

                                      -64-
<PAGE>

         The following Option Grants Table sets forth, as to the Named Executive
Officers, certain information related to stock options granted during Fiscal
1999:

                        Options/SAR Grants In Fiscal 1999
                        ---------------------------------
<TABLE>
<CAPTION>
                                                                                                     (1)
                                                                                                  Potential
                                                                                             Realizable Value at
                                                                                                Assumed Annual
                                                                                            Rates of Stock Price
                                                                                                Appreciation
                              Individual Grants                                                for Option Term
------------------------------------------------------------------------------------------- --------------------
                                        Number of   % of Total
                                       Securities  Options/SARs
                                       Underlying   Granted to  Exercise
                                      Options/SARs  Employees    or Base
                                        Granted     in Fiscal     Price      Expiration
            Name                          (#)          Year      ($/Sh)         Date         5% ($)    10% ($)
------------------------------------- ------------ ------------ --------- ----------------- --------  ----------
<S>                                   <C>          <C>          <C>       <C>               <C>       <C>
Joseph V. Fisher                        500,000      94.52%       $1.25   November 22, 2008 $393,059  $996,089

Claude J. Incaudo                             0       N/A          N/A           N/A           N/A       N/A

Phillip E. Hawkins                            0       N/A          N/A           N/A           N/A       N/A

Robert J. Davis                               0       N/A          N/A           N/A           N/A       N/A

Nick Campbell                                 0       N/A          N/A           N/A           N/A       N/A

Charles G. Bostwick                      15,000       2.84%       $3.25     June 3, 2008    $ 30,659  $ 77,695

Francis D. Price, Jr.                         0       N/A          N/A           N/A           N/A       N/A
</TABLE>

(1)      The value of the Common Stock was $0.7812 per share based upon the
         trading value of the Common Stock as of January 30, 1999. Based upon
         the exercise prices, the amounts shown in these columns are the
         potential realizable value of options granted at assumed rates of stock
         price appreciation (5% and 10%, as set by the executive compensation
         disclosure provisions of the rules of the Securities and Exchange
         Commission) compounded annually over the option term and have not been
         discounted to reflect the present value of such amounts. The assumed
         rates of stock price appreciation are not intended to forecast the
         future appreciation of the Common Stock.

                                      -65-
<PAGE>

                         Aggregated Option/SAR Exercises
                         In Last Fiscal Year, and FY-End
                               Options/SAR Values

         The following table sets forth information concerning the value of
unexercised options held by each of the persons named in the Summary
Compensation Table, as of January 30, 1999. No options were exercised by such
persons during Fiscal 1999.

<TABLE>
<CAPTION>
                                                     Number of Securities
                                                    Underlying Unexercised          Value of Unexercised
                                                   Options/SARs at FY-End         In-the-Money Options/SARs
                                                             (#)                        At FY-End ($)
Name                                             Exercisable   Unexercisable   Exercisable(1)   Unexercisable(1)
----                                             -----------   -------------   -----------      -------------
<S>                                              <C>           <C>             <C>              <C>                     
Joseph V. Fisher                                   100,000        400,000           N/A              N/A

Claude J. Incaudo                                   50,000              0           N/A              N/A

Phillip E. Hawkins                                       0              0           N/A              N/A

Nick Campbell                                       12,800(2)      18,000(2)        N/A              N/A
 
Robert J. Davis                                     12,000         18,000           N/A              N/A

Charles G. Bostwick                                  3,000         12,000           N/A              N/A

Francis D. Price, Jr.                                5,000          6,000           N/A              N/A

-----------
</TABLE>

(1) Based on the fair market value of $0.7812 per share on January 30, 1999.

(2) Will be forfeited if not exercised by June 18, 1999.


PENSION PLANS AND OTHER BENEFIT PLANS

The Penn Traffic Cash Balance Pension Plan

         Messrs. Fisher, Campbell, Davis, Bostwick and Price participate in a
tax-qualified, defined benefit pension plan (the "Cash Balance Plan") for all
non-union full-time employees of the Company, other than employees subject to a
collective bargaining agreement. Mr. Incaudo does not currently participate in
the Cash Balance Plan but does receive benefits from past participation. The
Cash Balance Plan took affect on June 1, 1998 replacing several other plans
covering non-union employees. Under the Cash Balance Plan, employees' pensions
are measured by reference to account balances to which credits are made based on
a fixed percentage of compensation paid for the year, plus interest at a rate
comparable to the yield on long-term treasury securities. Upon retirement,
employees are permitted to take a lump-sum distribution equal to their account
balance, or receive an annuity benefit, based on formulas set forth in the plan.
The estimated annual benefit payable upon retirement at normal retirement age
for each of the Named Executive Officers are as follows; Mr. Fisher $9,672, Mr.
Campbell $73,056, Mr. Davis $44,688, Mr. Bostwick $31,200, and Mr. Price
$53,844. Mr. Incaudo received $37,807 in annual benefits under this plan and its
predecessor in each of Fiscal 1999 and 1998, and $40,958 in Fiscal 1997. Mr.
Hawkins will receive no benefit as he was not vested prior to his departure.

         In connection with the new Cash Balance Plan effective June 1, 1998,
the Company also began making certain matching contributions to its 401(k)
profit sharing plan for those employees who are also participants in the Cash
Balance Plan. The amounts contributed for the benefit of the Named Executive
Officers under this plan are included in the Summary Compensation Table under
the heading "All Other Compensation".

                                      -66-
<PAGE>

Supplemental Retirement Income Plan

         Effective July 1, 1996, Penn Traffic established the Supplemental
Retirement Income Plan (the "Supplemental Plan"), an unfunded, non-qualified
plan pursuant to which certain employees of the Company will earn an additional
retirement benefit. Mr. Campbell, Mr. Davis and Mr. Price are the only persons
named in the Summary Compensation Table who participated in the Supplemental
Plan in Fiscal 1999. Mr. Incaudo received annual Supplemental Plan benefits of
$61,664 in each of Fiscal 1999 and 1998, and $66,803 in Fiscal 1997.
Participants in the Supplemental Plan are designated by the Compensation
Committee of the Board of Directors, which is responsible for the administration
of the Supplemental Plan. The Supplemental Plan provides an annual retirement
benefit to a participant with at least 30 years of credited service equal to 40%
of the yearly average of the highest aggregate compensation (including salary or
wages, bonuses and certain other payments) received by the participant during a
period of five consecutive years of employment, less offsets for benefits paid
under the Company's other retirement plans.

         Participants are fully vested upon five years of credited service. The
projected years of credited service to age 65 for Mr. Campbell, Mr. Davis and
Mr. Price are 24, 19 and 15 years, respectively. The annual retirement benefit
payable under the Supplemental Plan will be proportionately reduced for
participants who retire with fewer than 30 years of credited service and will
also be reduced for participants who retire prior to age 65.

                       Supplemental Retirement Plan Table
                       ----------------------------------
<TABLE>
<CAPTION>
                                               Years of Credited Service
                                --------------------------------------------------------
Compensation                       5        10        15        20        25       30
------------                    -------   -------   -------   -------   -------  -------
<S>                             <C>       <C>       <C>       <C>       <C>      <C>    
$125,000                        $ 8,333   $16,667   $25,000   $33,333   $41,667  $50,000
 150,000                         10,000    20,000    30,000    40,000    50,000   60,000
 175,000                         11,667    23,333    35,000    46,667    58,333   70,000
 200,000                         13,333    26,667    40,000    53,333    66,667   80,000
 225,000                         15,000    30,000    45,000    60,000    75,000   90,000
 250,000                         16,667    33,333    50,000    66,667    83,333  100,000
 275,000                         18,333    36,667    55,000    73,333    91,667  110,000
 300,000                         20,000    40,000    60,000    80,000   100,000  120,000
 325,000                         21,667    43,333    65,000    86,667   108,333  130,000
 350,000                         23,333    46,667    70,000    93,333   116,667  140,000
 375,000                         25,000    50,000    75,000   100,000   125,000  150,000
 400,000                         26,667    53,333    80,000   106,667   133,333  160,000
 425,000                         28,333    56,667    85,000   113,333   141,667  170,000
 450,000                         30,000    60,000    90,000   120,000   150,000  180,000
 475,000                         31,667    63,333    95,000   126,667   158,333  190,000
 500,000                         33,333    66,667   100,000   133,333   166,667  200,000
 525,000                         35,000    70,000   105,000   140,000   175,000  210,000
 550,000                         36,667    73,333   110,000   146,667   183,333  220,000
 575,000                         38,333    76,667   115,000   153,333   191,667  230,000
 600,000                         40,000    80,000   120,000   160,000   200,000  240,000
 625,000                         41,667    83,333   125,000   166,667   208,333  250,000
 650,000                         43,333    86,667   130,000   173,333   216,667  260,000
 675,000                         45,000    90,000   135,000   180,000   225,000  270,000
 700,000                         46,667    93,333   140,000   186,667   233,333  280,000
</TABLE>

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

Note:  The amounts shown above are subject to offset for benefits paid under the
       Company's other retirement plans.

                                      -67-
<PAGE>

COMPENSATION OF DIRECTORS

         In Fiscal 1999, directors who were not regularly employed by the
Company received an annual fee of $20,000. Each such director was also paid a
fee of $1,000 for attendance at each Board meeting or committee meeting he or
she attended and a fee of $500 for each committee meeting held in conjunction
with a Board meeting he or she attended. Directors were also paid $1,000 for
each full day and $500 for each half day on which they performed duties on
behalf of the Board at the request of the Chairman or Chief Executive Officer if
such duties required them to be away from their principal place of occupation.
Directors who are officers of the Company do not receive fees for attending
meetings of the Board of Directors or its committees.

         See "Management Agreement" for a description of the agreement pursuant
to which MTH has provided financial consulting and business management services
to the Company in the past, and a description of the agreements with Hirsch &
Fox LLC to provide similar services to the Company in the future.

         Certain of the Company's directors have been awarded shares of
restricted stock under the 1993 Plan, which was approved by the vote of a
majority of the stockholders of Penn Traffic at the 1993 Annual Meeting of
Stockholders and/or under the 1997 Plan, which was approved by the vote of a
majority of the stockholders of Penn Traffic at the 1997 Annual Meeting of
Stockholders. During Fiscal 1994, 125,000 shares of restricted stock were
awarded under the 1993 Plan to Mr. Hirsch, 15,000 shares of restricted stock
were awarded to Mr. Fox and 7,500 shares of restricted stock were awarded to Mr.
Lash. These shares were valued at $4.7 million, $0.6 million and $0.3 million,
respectively, on the date of grant. Vesting of the shares of restricted stock
granted pursuant to such awards was contingent upon attainment, subsequent to
the date of grant, of EBITDA levels of $265 million in any period of four
consecutive fiscal quarters or $500 million in any period of eight consecutive
fiscal quarters. Since such performance levels were not achieved by the end of
the fiscal quarter ending May 2, 1998, the shares granted to Messrs. Lash and
Fox were forfeited during calendar 1998. The vesting requirements for the shares
of restricted stock awarded to Mr. Hirsch were replaced during Fiscal 1998 by
vesting requirements related to improvement in the market value of the Company's
Common Stock. Those shares of restricted stock will become vested if, for a
period of ten consecutive trading days, the closing price of shares of the
Company's common stock is at least: $14.00 per share during the period from
August 15, 1998 through August 14, 1999; $16.00 per share during the period from
August 15, 1999 through August 14, 2000; $18.00 per share during the period from
August 15, 2000 through August 14, 2001; or $20.00 per share during the period
from August 15, 2001 through August 14, 2002; or upon a change of control (as
defined). Those shares of restricted stock will be forfeited to the Company if
not vested by August 14, 2002. No other directors have received awards of
restricted stock under the 1993 Plan. During Fiscal 1998, options to purchase
shares of Common Stock were awarded to Messrs. Fox and Lash in the respective
amounts of 50,000 and 15,000 shares, all at an exercise price of $7.6875. The
options vest 20% on the date of grant and 20% on each anniversary thereof,
vesting fully on the fourth anniversary of the grant, subject to acceleration
upon the occurrence of certain events.

         The Penn Traffic Company Amended and Restated Directors' Stock Option
Plan (the "Restated Directors' Plan") was adopted by the Board of Directors on
April 2, 1996 as the successor to The Penn Traffic Company Directors' Stock
Option Plan. The Restated Directors' Plan was approved by the vote of a majority
of the stockholders of Penn Traffic at the 1996 Annual Meeting of Stockholders.
The Restated Plan provides for the automatic grant to non-employee directors of
an option to purchase 1,500 shares of Common Stock (subject to antidilution
adjustments) upon appointment to the Board of Directors and thereafter annually
as of the first business day after the conclusion of each Annual Meeting of
Stockholders, at a price equal to the fair market value of such shares on the
date of the grant. On June 5, 1998, pursuant to the Restated Directors' Plan,
each of Messrs. DePalma, Poster, Segal and Ms. Engel received an option to
purchase 1,500 shares of Common Stock at a price of $3.59 per share.

                                      -68-
<PAGE>

         In 1988, the Company issued to MTH warrants, exercisable until June 23,
1998, to purchase 289,000 shares of Common Stock at an exercise price of $14.00
per share. On January 20, 1998, the exercise date was extended to June 23, 2001
in consideration of MTH agreeing to forego any fee for investment banking
services rendered to the Company in connection with its sale of the Company's
Sani-Dairy division. Of the outstanding warrants, 63,800 are owned by Mr.
Hirsch, 84,800 by members of his family, 15,000 by Mr. Lash and 13,000 by Mr.
Fox. The remaining 112,400 Warrants are owned by certain persons affiliated or
previously affiliated with MTH.

         Upon consummation of the Plan, all outstanding stock options and
warrants will be canceled.

MANAGEMENT AGREEMENT

         During Fiscal 1999, Penn Traffic engaged MTH to provide financial
consulting and business management services, for which MTH received fees of
$1,437,000 million. Mr. Hirsch was a general partner of the managing general
partner of MTH, and Mr. Fox was an Executive Vice President of MTH during Fiscal
1999.

         On February 28, 1999, the Company terminated its management agreement
with MTH and on March 1, 1999, the Company engaged the services of Hirsch & Fox
LLC to provide the services of Gary D. Hirsch and Martin A. Fox during the
pendency of the Bankruptcy Cases. During this period, Messrs. Hirsch and Fox
shall continue in their roles with the Company as Chairman of the Board and Vice
Chairman--Finance, respectively, and shall receive a management fee at an annual
rate of $1.45 million, payable monthly in advance. Messrs. Hirsch and Fox shall
also be entitled during this period to receive expense reimbursement (including
travel-related expenses) and to participate in the Company's medical, dental,
disability, and life insurance plans maintained during such time for executives
of similar stature and rank, and any other plans and benefits, if any, generally
maintained by the Company for executives of similar stature and rank, in each
case in accordance with the terms and conditions of such plan as from
time-to-time in effect or have the Company reimburse Hirsch and Fox for such
benefits at an annual cost not to exceed $25,000 per person (pro rated on a
monthly basis during such period).

         On the effective date of the Plan (the "Effective Date"), Hirsch & Fox
LLC's engagement as described in the paragraph above will terminate and the
reorganized Company will immediately thereafter enter into a management
agreement with Hirsch & Fox LLC (the "New Management Agreement"). The following
is a brief summary of the terms of the New Management Agreement.

         The initial term (the "Initial Term") of the New Management Agreement
will be two years from the Effective Date with one automatic two-year renewal
period (the "Renewal Term") unless reorganized Penn Traffic or Hirsch & Fox LLC
provide timely notice that they do not wish to renew the agreement. Pursuant to
the New Management Agreement, Hirsch & Fox LLC will provide the services of
Messrs. Hirsch and Fox as Chairman and Vice Chairman, respectively, of the
Executive Committee of the Company. Messrs. Hirsch and Fox, together with Mr.
Joseph Fisher, the Company's President and Chief Executive Officer, will have
all authority customarily delegated to the senior executive officers of a
corporation, subject to the oversight and direction of the board of directors.
In return for these services, Hirsch & Fox LLC will receive management fees at
an annual rate of $1.45 million. In the event, however, that the New Management
Agreement is terminated by the Company before the end of the Initial Term or the
Renewal Term, as the case may be, for reasons other than "cause" (as such term
is defined in the New Management Agreement), the remaining unpaid portion of the
aggregate fee to be received by Hirsch & Fox through the end of such term will
be accelerated and paid immediately, but Messrs. Hirsch and Fox would not,
however, be able to compete with Penn Traffic for the remainder of the
applicable term in such event within a specified area near Penn Traffic's
stores.

                                      -69-
<PAGE>

         The New Management Agreement will also provide that Mr. Hirsch will be
required within six months from the Effective Date to acquire additional shares
of New Common Stock or warrants to purchase shares of New Common Stock having an
initial acquisition price of at least $500,000 in the aggregate. Mr. Fox will
receive pension benefits from the Company for past service performed and both
Messrs. Hirsch and Fox will receive pension benefits for the services to be
provided on and after the Effective Date pursuant to the New Management
Agreement. In addition, on the Effective Date, Mr. Hirsch and Mr. Fox will
receive fully-vested options to purchase 360,000 and 130,000 shares of New
Common Stock, respectively, and Messrs. Fox and Hirsch will also receive on the
Effective Date options to purchase an additional 87,000 and 240,000 shares of
New Common Stock, respectively, which options will vest 50% on each of the 3rd
and 4th anniversaries of the Effective Date. The exercise price for the options
to be granted to Messrs. Hirsch and Fox on the Effective Date will be $18.30 per
share.

EMPLOYMENT CONTRACTS

Employment Contract With Joseph V. Fisher

         On October 30, 1998, Penn Traffic entered into an employment agreement
with Mr. Joseph V. Fisher for Mr. Fisher to assume the position of President and
Chief Executive Officer of the Company from November 23, 1998 until February 1,
2002. The Plan provides that Mr. Fisher's employment agreement will be amended
on the Plan's effective date. The following describes the principal terms of Mr.
Fisher's employment agreement in its original form as well as the effects that
the amendment would have.

         Under his employment agreement, Mr. Fisher is entitled to receive an
annual base salary of $500,000 and a bonus ranging from 0 - 100% of his base
salary depending on performance (provided that Mr. Fisher is guaranteed to
receive at least a 50% bonus for the fiscal year ended January 30, 1999 (pro
rata based on days employed) and the fiscal year ending January 29, 2000). As an
inducement to enter into the employment agreement, Mr. Fisher received (a) a
signing bonus of $1 million, (b) a loan from Penn Traffic in the amount of $1
million, which will be forgiven over 12 consecutive quarterly periods (or
immediately, in the event Mr. Fisher terminates his employment for "good reason"
or in certain circumstances following a change of control) provided that Mr.
Fisher has not been terminated for cause or due to his death or disability as of
the end of any such period, and (c) ten-year options with a four year vesting
period to purchase 500,000 shares of Penn Traffic's existing common stock at an
exercise price equal to fair market value at the grant date. The employment
agreement further provides that upon the occurrence of a "change of control" all
unvested options shall immediately vest.

         The employment agreement also provides that if the employment agreement
of Mr. Fisher is terminated other than (a) as a result of disability or (b) for
cause, or if Mr. Fisher terminates his employment for "good reason," the Company
shall continue to pay to Mr. Fisher his base salary then in effect (in the
manner in his salary payments have been paid) for the lesser of (x) 24 months
from the date of termination and (y) the number of months remaining from the
effective date of termination until February 1, 2002; provided, that if the
termination occurs between February 1, 2001 and February 1, 2002, his base
salary payments will continue for 12 months from the date of termination. In
addition, if during Mr. Fisher's employment a "change of control" occurs, and
following that event Mr. Fisher resigns from his position with the Company or,
is terminated from within six months from the date of that event, Mr. Fisher
will be entitled to enter into a consulting agreement with the Company and
receive a lump sum payment in an amount equal to 24 months of his base salary.

                                      -70-
<PAGE>

         The amendment to Mr. Fisher's employment agreement would have the
following effects (a) Mr. Fisher will be appointed to the Board of Directors and
the Executive Committee of reorganized Penn Traffic and (b) as part of the Plan,
Mr. Fisher's options to purchase 500,000 shares of existing common stock (as
described in the paragraph above) will be exchanged for ten-year, fully- vested
options to purchase 280,000 shares of New Common Stock at an exercise price of
$18.30 per share. Otherwise, Mr. Fisher's original employment agreement with the
Company will remain in full force and effect throughout its term.

Severance Agreement With Phillip E. Hawkins

         On August 6, 1998, the Company and Phillip E. Hawkins entered into a
Severance Agreement providing for the discontinuation of Mr. Hawkins as the
Company's President and Chief Executive Officer, effective as of July 31, 1998,
and for Mr. Hawkins to receive $550,000 in additional compensation by way of
severance. In addition, as part of the severance arrangement, each of Penn
Traffic and Mr. Hawkins executed and delivered general releases covering any
past or future claims either may have against the other.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

         The current members of the Personnel and Compensation Committee of the
Board of Directors (the "Compensation Committee") are Messrs. DePalma and Segal.
Mr. Segal is the Chairman of the Compensation Committee. The Compensation
Committee reviews the annual recommendations of the Chief Executive Officer and
the Chairman of the Board of Directors concerning the compensation of officers
and of certain of the employees of the Company, including the compensation
plans, retirement plans and fringe benefits in which such persons participate,
and makes reports and recommendations with respect to such matters to the Board
of Directors of the Company. The Compensation Committee also administers the
Company's 1993 Plan and the 1997 Plan.

                                      -71-
<PAGE>

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth certain information known to Penn Traffic with
respect to beneficial ownership of the Common Stock as of March 31, 1999 (unless
otherwise indicated) by: (a) each person who beneficially owns 5% or more of the
Common Stock; (b) each of the current directors; (c) each of the persons named
in the Summary Compensation Table set forth in Item II; and (d) all directors
and executive officers as a group. Except as otherwise indicated, the holders
listed below have sole voting and investment power with respect to all shares
beneficially owned by them. For purposes of this table, a person or group of
persons is deemed to have "beneficial ownership" of any shares which such person
or group of persons has the right to acquire within 60 days. For purposes of
computing the percentage of outstanding shares held by each person or group of
persons named below, any security which such person or persons has the right to
acquire within 60 days (including shares which may be acquired upon exercise of
warrants or upon exercise of vested portions of stock options) is deemed to be
outstanding, but is not deemed to be outstanding for the purpose of computing
the percentage ownership of any other person.

<TABLE>
<CAPTION>

                                                         Amount & Nature of
Name and Address of                                          Beneficial         Percent of
Beneficial Owner                                             Ownership             Class
-------------------------------------------------------------------------------------------
<S>                                                      <C>                    <C>  
Gary D. Hirsch                                            2,102,868 (1)(2)         19.7%
411 Theodore Fremd Avenue
Rye, New York 10580

Riverside Acquisition Company,                              933,455 (2)             8.7%
Limited Partnership
331 Madison Avenue
New York, New York 10017

Dimensional Fund Advisors Inc.                              633,600 (3)             5.8%
1299 Ocean Avenue, 11th Floor
Santa Monica, California 90401

Goldman, Sachs & Company Inc.                               542,700 (4)             5.1%
The Goldman Sachs Group, L.P.
85 Broad Street
New York, New York 10004

Richard D. Segal                                            172,312 (2)(6)(11)      1.6%

James A. Lash                                               162,750 (2)(9)          1.5%

Claude J. Incaudo                                           105,066 (8)             1.0%

Joseph V. Fisher                                            100,000 (16)            0.9%

Martin A. Fox                                                74,250 (2)(5)            *

Francis D. Price, Jr.                                        27,868 (14)              *

Eugene A. DePalma                                            17,269 (2)(6)            *

Harold S. Poster                                             16,972 (6)(10)           *

Robert J. Davis                                              14,740 (13)              *

Nick Campbell                                                14,504 (12)(13)(19)      *

Susan E. Engel                                               11,000 (7)               *

Charles G. Bostwick                                           3,000 (15)              *

Phillip E. Hawkins                                              100 (17)              *

All Directors and Executive Officers
 as a Group (14 persons)                                  2,824,040 (18)           26.4%
-------------------------------------------------------------------------------------------
</TABLE>
*  Less than 1.0%.

                                      -72-
<PAGE>

(1)      Mr. Hirsch is Chairman, President and a Director of RAC Partners, the
         sole general partner of RAC. Mr. Hirsch is also a limited partner of
         RAC. Mr. Hirsch may be deemed to be an indirect beneficial owner of
         933,455 shares of Common Stock owned by RAC and 15,506 shares of Common
         Stock owned by RAC Partners. Mr. Hirsch is also the Chairman, President
         and a Director of Air Partners, Inc., which is the sole general partner
         of VII Partners, and may be deemed to be an indirect beneficial owner
         of 67,102 shares of Common Stock owned by VII Partners. Mr. Hirsch was
         a general partner of the managing general partner of MTH and may be
         deemed to be an indirect beneficial owner of 328,906 shares of Common
         Stock owned by MTH and 229,228 shares of Common Stock owned by MTH
         Funding, L.P. Includes 125,000 shares of restricted stock, which shares
         are subject to forfeiture under certain circumstances, awarded to Mr.
         Hirsch pursuant to the Company's 1993 Plan. Includes 17,280 shares of
         Common Stock owned by Mr. Hirsch's children. Also includes a currently
         exercisable warrant held by Mr. Hirsch, and warrants held by certain of
         his relatives, to purchase up to 63,800 and 84,800 shares of Common
         Stock, respectively, at $14.00 per share. Mr. Hirsch disclaims
         beneficial ownership of the 84,800 shares subject to the warrants held
         by his relatives.

(2)      The sole general partner of RAC is RAC Partners, a wholly owned
         subsidiary of MTH Holdings, which is an affiliate of MTH. Messrs.
         DePalma, Fox, Hirsch, Lash and Segal own limited partnership interests
         in RAC.

(3)      According to a Schedule 13G Statement filed by Dimensional Fund
         Advisors Inc., dated February 11, 1999, Dimensional Fund Advisors Inc.
         has sole power to vote and dispose of 619,000 shares of Common Stock.

(4)      According to a Schedule 13G Statement filed by Goldman, Sachs & Company
         Inc. and The Goldman Sachs Group, L.P. ("Goldman Sachs") dated December
         31, 1998, Goldman Sachs has shared power to vote and dispose of 542,700
         shares of Common Stock.

(5)      Includes a currently exercisable warrant held by Mr. Fox to purchase up
         to 13,000 shares of Common Stock at $14.00 per share. Includes
         currently exercisable options to purchase 2,500 shares of Common Stock
         at $18.375 per share. Also includes options granted on July 24, 1997 to
         purchase 50,000 shares of Common Stock at $7.6875 per share, which are
         subject to vesting limitations and are currently exercisable for up to
         40% of the total number of shares subject to the options with the
         remaining 60% vesting in three equal installments on July 24 of each of
         1999, 2000 and 2001.

(6)      Includes currently exercisable options to purchase 1,500 shares of
         Common Stock at $20.50 per share, 1,500 shares of Common Stock at
         $18.44 per share, 1,500 shares of Common Stock at $28.69 per share,
         1,500 shares of Common Stock at $27.50 per share, 1,500 shares of
         Common Stock at $42.00 per share, 1,500 shares of Common Stock at
         $36.06 per share, 1,500 shares of Common Stock at $33.81 per share,
         1,500 shares of Common Stock at $10.63 per share, 1,500 shares of
         Common Stock at $6.94 per share and 1,500 shares of Common Stock at
         $3.59 per share.

(7)      Includes currently exercisable options to purchase 1,500 shares of
         Common Stock at $41.88 per share, 1,500 shares of Common Stock at
         $36.06 per share, 1,500 shares of Common Stock at $33.81 per share,
         1,500 shares of Common Stock at $10.63 per share, 1,500 shares of
         Common Stock at $6.94 per share and 1,500 shares of Common Stock at
         $3.59 per share.

(8)      Includes currently exercisable options to purchase 10,000 shares of
         Common Stock at $18.375 per share and 40,000 shares of Common Stock at
         $24.25 per share. Includes 1,915 shares owned by Mr. Incaudo's wife and
         three children, as to which he disclaims beneficial ownership.

(9)      Includes a currently exercisable warrant held by Mr. Lash to purchase
         up to 15,000 shares of Common Stock at $14.00 per share. Also includes
         options granted on July 24, 1997 to purchase 15,000 shares of Common
         Stock at $7.6875 per share, which are subject to vesting limitations
         and are currently exercisable for up to 40% of the total number of
         shares subject to the options with the remaining 60% vesting in three
         equal installments on July 24 of each of 1999, 2000 and 2001.

                                      -73-
<PAGE>

(10)     Includes 1,972 shares of Common Stock owned by the Burrows + Poster 
         Profit Sharing Plan.

(11)     Includes 65,459 shares of Common Stock owned by Seavest Partners and
         16,230 shares of Common Stock acquired through the Company's employee
         stock purchase plan. Includes 8,929 shares owned by the Marilyn N.
         Segal Revocable Trust, 13,394 shares owned by Wendi S. Masi and 30,000
         shares of Common Stock owned by Fourth Generation Partners, as to which
         Mr. Segal disclaims beneficial ownership.

(12)     Includes currently exercisable options to purchase shares of Common
         Stock as follows: 500 shares at $25.25 per share and 300 shares at
         $26.75 per share.

(13)     Includes options granted on July 24, 1997, to purchase 30,000 shares of
         Common Stock at $7.6875 per share, which are subject to vesting
         limitations and are currently exercisable for up to 40% of the total
         number of shares subject to the options with the remaining 60% vesting
         in three equal installments on July 24 of each of 1999, 2000 and 2001.

(14)     Includes currently exercisable options to purchase 1,000 shares of
         Common Stock at $26.75 per share. Includes additional options granted
         on July 24, 1997 to purchase 10,000 shares of Common Stock at $7.6875
         per share, which are subject to vesting limitations and are currently
         exercisable for up to 40% of the total number of shares subject to the
         options with the remaining 60% vesting in three equal installments on
         July 24 of each of 1999, 2000 and 2001.

(15)     Includes options granted on June 4, 1998 to purchase 15,000 shares of
         Common Stock at $3.25 per share, which are subject to vesting
         limitations and are currently exercisable for up to 20% of the total
         number of shares subject to the options with the remaining 80% vesting
         in four equal installments on June 4 of each of 1999, 2000, 2001 and
         2002.

(16)     Includes options granted on November 23, 1998 to purchase 500,000
         shares of Common Stock at $1.25 per share, which are subject to vesting
         limitations and are currently exercisable for up to 20% of the total
         number of shares subject to the options with the remaining 80% vesting
         in four equal installments on November 23 of each of 1999, 2000, 2001
         and 2002.

(17)     Includes 100 shares of Common Stock owned by a member of Mr. Hawkins'
         family, as to which he disclaims beneficial ownership.

(18)     Includes shares of Common Stock owned by the immediate family of some
         directors or officers of Penn Traffic, vested options and warrants and
         shares of Common Stock held by other affiliates of officers and
         directors. Includes 125,000 shares of restricted stock owned by Mr.
         Hirsch awarded under the Company's 1993 Plan which are subject to
         forfeiture under certain circumstances.

(19)     Mr. Campbell resigned his position with the Company effective April 19,
         1999. As such, in accordance with the stock option plans, all
         unexercised options will be forfeited three months from his resignation
         date.

                                      -74-
<PAGE>

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         Mr. Poster, a director of the Company, is a partner in the law firm
Gilmartin, Poster & Shafto. During Fiscal 1999, Gilmartin, Poster & Shafto
provided legal services to Penn Traffic in connection with various matters, for
which Gilmartin, Poster & Shafto received fees in the aggregate amount of
approximately $140,000.

See also "Compensation of Directors" within Item 11 above.

                                      -75-
<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 29
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).

     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).

                                      -76-
<PAGE>

EXHIBITS (CONTINUED):

  Exhibit No.                                Description
  -----------                                -----------

     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").

     3.2                By-Laws of Penn Traffic as amended through April 2, 1996
                        (incorporated by reference to Exhibit No. 3.2 to Penn
                        Traffic's Annual Report on Form 10-K for the fiscal year
                        ended February 3, 1996 and referred to herein as the
                        "1996 10-K").

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

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

     4.3                Form of Common Stock Certificate (incorporated by
                        reference to Exhibit No. 4.2 to Penn Traffic's Annual
                        Report on Form 10-K for the fiscal year ended January
                        28, 1995 and referred to herein as the "1995 10-K").

     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).

                                      -77-
<PAGE>

EXHIBITS (CONTINUED):

  Exhibit No.                                Description
  -----------                                -----------
     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).
 
     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
                        (incorporated by reference to Exhibit 4.8A to the 1995
                        10-K).

     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
                        (incorporated by reference to Exhibit 4.8B to the 1995
                        10-K).

     4.8C               Officer's Certificate pursuant to the Indenture filed as
                        Exhibit 4.8, dated April 23, 1996, establishing the
                        terms of the 11.50% Senior Notes due April 15, 2006
                        (incorporated by reference to Exhibit 4.8C to Penn
                        Traffic's Quarterly Report on Form 10-Q for the fiscal
                        quarter ended May 4, 1996 (the "May 1996 10-Q").

    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                Quality Markets, Inc. ("Quality") Profit Sharing Plan
                        (incorporated by reference to Exhibit No. 10.11 to the
                        1987 Registration Statement).

                                      -78-
<PAGE>

EXHIBITS (CONTINUED):

  Exhibit No.                                Description
  -----------                                -----------
    10.5                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).

   10.5A                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).

   10.5B                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).

   10.5C                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).

   10.5D                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).

   10.5E                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).

   10.5F                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").

   10.5G                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).

   10.5H                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).

   10.5I                Amendment No. 8, dated as of November 4, 1994, to the
                        Loan and Security Agreement (incorporated by reference
                        to Exhibit No. 10.9I to Penn Traffic's Quarterly Report
                        on Form 10-Q for the fiscal quarter ended April 29, 1995
                        and referred to herein as the "April 1995 10-Q").

   10.5J                Amendment No. 9, dated as of May 10, 1995, to the Loan
                        and Security Agreement (incorporated by reference to
                        Exhibit No. 10.9J to the April 1995 10-Q).

   10.5K                Amendment No. 10, dated as of August 31, 1995, to the
                        Loan and Security Agreement (incorporated by reference
                        to Exhibit No. 10.9K to Penn Traffic's Quarterly Report
                        on Form 10-Q for the fiscal quarter ended July 29,
                        1995).

   10.5L                Amendment No. 11, dated as of October 16, 1995, to the
                        Loan and Security Agreement (incorporated by reference
                        to Exhibit No. 10.9L to Penn Traffic's Quarterly Report
                        on Form 10-Q for the fiscal quarter ended October 28,
                        1995).

   10.5M                Amendment No. 12, dated as of March 7, 1996, to the Loan
                        and Security Agreement (incorporated by reference to
                        Exhibit No. 10.5M to the 1996 10-K).

                                      -79-
<PAGE>

EXHIBITS (CONTINUED):

  Exhibit No.                                Description
  -----------                                -----------
   10.5N                Amendment No. 13, dated as of May 31, 1996, to the Loan
                        and Security Agreement (incorporated by reference to
                        Exhibit No. 10.5N to the May 1996 10-Q).

   10.5O                Amendment No. 14, dated as of October 16, 1996, to the
                        Loan and Security Agreement (incorporated by reference
                        to Exhibit No. 10.5O to Penn Traffic's Current Report on
                        Form 8-K dated October 16, 1996).

   10.5P                Amendment No. 15, dated as of May 27, 1997, to the Loan
                        and Security Agreement (incorporated by reference to
                        Exhibit 10.5P to Penn Traffic's report of Form 8-K as
                        filed with the SEC on June 2, 1997).

   10.5Q                Amendment No. 16, dated as of January 20, 1998, to the
                        Loan and Security Agreement.

   10.5R                Amendment No. 17, dated as of March 13, 1998, to the
                        Loan and Security Agreement (incorporated by reference
                        to Exhibit 10.5R to Penn Traffic's report of Form 8-K as
                        filed with the SEC on March 24, 1998).

   10.5S                Amendment No. 18, dated as of August 31, 1998, to the
                        Loan and Security Agreement.

   10.5T                Amendment No. 19, dated as of December 14, 1998, to the
                        Loan and Security Agreement.

   10.5U                Amendment No. 20, dated as of February 12, 1999, to the
                        Loan and Security Agreement.

   10.6                 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).

  *10.7                 The Penn Traffic Company Amended and Restated Directors'
                        Stock Option Plan (filed as Exhibit "A" to Penn
                        Traffic's Proxy Statement filed with the SEC on May 1,
                        1996 and incorporated herein by reference).

   10.8                 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 (Securities and Exchange
                        Commission File No. 1-9930) and referred to herein as
                        the "Penn Traffic August 1990 10-Q").

   10.9                 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).

  *10.10                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).

  *10.11                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).

   10.12                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).

                                      -80-
<PAGE>

EXHIBITS (CONTINUED):

  Exhibit No.                                Description
  -----------                                -----------

   10.13                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).

   10.14                Agreement, dated November 18, 1994, between Penn Traffic
                        and Grand Union relating to the Grand Union warehouse in
                        Montgomery, New York (incorporated by reference to
                        Exhibit No. 10.21 to the 1995 10-K).

  *10.15                Employment Agreement, dated as of January 29, 1995,
                        between John T. Dixon and Penn Traffic (incorporated by
                        reference to Exhibit No. 10.22 to the 1995 10-K).

  *10.16                Agreement dated October 5, 1996, between John T. Dixon
                        and Penn Traffic.

  *10.17                Employment Agreement, dated as of March 11, 1997,
                        between Phillip E. Hawkins and Penn Traffic.

  *10.18                Penn Traffic's 1997 Performance Incentive Plan.

  *10.19                Penn Traffic's Supplemental Retirement Income Plan.

  *10.20                Termination Agreement, dated as of August 6, 1998,
                        between Phillip E. Hawkins and Penn Traffic.

  *10.21                Employment Agreement, dated as of October 30, 1998,
                        between Joseph V. Fisher 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 Independent Accountants

   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 The Chief Accounting Officer, The Penn Traffic Company, 1200 State
Fair Boulevard, Syracuse, New York 13221-4737.

REPORTS ON FORM 8-K

On March 24, 1998, the Company filed a report on Form 8-K relating to Amendment
Number 17 to the Revolving Credit Facility, dated March 13, 1998, which modified
certain covenants.

On March 2, 1999, the Company filed a report on Form 8-K relating to the
Company's filing, on March 1, 1999, of a Joint Plan of Reorganization under
chapter 11 of the U.S. Bankruptcy Code in the United States Bankruptcy Court for
the District of Delaware.

                                      -81-
<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 30, 1999             By: /s/ Joseph V. Fisher
       --------------                 --------------------
            DATE                      Joseph V. Fisher,
                                      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/ Robert J. Davis
------------------                   -------------------
Gary D. Hirsch, Chairman of the      Robert J. Davis,
Board and Director                   Senior Vice President and
                                     Chief Financial Officer
       April 30, 1999
       --------------
            DATE                         April 30, 1999
                                         --------------
                                              DATE

/s/ Eugene A. DePalma                /s/ Randy P. Martin
---------------------                -------------------
Eugene A. DePalma, Director          Randy P. Martin,
                                     Vice President Finance and
                                     Chief Accounting Officer

       April 30, 1999                         April 30, 1999
       --------------                         --------------
            DATE                                   DATE


/s/ Martin A. Fox                    /s/ Susan E. Engel
-----------------                    ------------------
Martin A. Fox, Director              Susan E. Engel, Director

       April 30, 1999                         April 30, 1999
       --------------                         --------------
            DATE                                   DATE


/s/ James A. Lash                    /s/ Claude J. Incaudo
-----------------                    ---------------------
James A. Lash, Director              Claude J. Incaudo, Director

       April 30, 1999                         April 30, 1999
       --------------                         --------------
            DATE                                   DATE


/s/ Richard D. Segal                 /s/ Harold S. Poster
--------------------                 --------------------
Richard D. Segal, Director           Harold S. Poster, Director

       April 30, 1999                         April 30, 1999
       --------------                         --------------
            DATE                                   DATE

                                      -82-
<PAGE>

                            THE PENN TRAFFIC COMPANY

                                   SCHEDULE II

                        VALUATION AND QUALIFYING ACCOUNTS

                            (IN THOUSANDS OF DOLLARS)

<TABLE>
<CAPTION>

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 30, 1999
   Provision for doubtful
    accounts                   $ 3,597        $ 7,055       $ 4,921(a)      $ 5,731
                               =======        =======       =======         =======


FOR THE 52 WEEKS ENDED
 JANUARY 31, 1998
   Provision for doubtful
    accounts                   $ 2,867        $ 2,585       $ 1,855(a)      $ 3,597
                               =======        =======       =======         =======


FOR THE 52 WEEKS ENDED
 FEBRUARY 1, 1997
   Provision for doubtful
    accounts                   $ 1,483        $ 8,414       $ 7,030(a)      $ 2,867
                               =======        =======       =======         =======
</TABLE>

(a)  Uncollectible receivables written off net of recoveries.

                                 -83-
<PAGE>

                            THE PENN TRAFFIC COMPANY

                               SUPPLEMENTARY DATA

QUARTERLY FINANCIAL DATA (UNAUDITED)

Summarized below is quarterly financial data for the fiscal years ended January
30, 1999 ("Fiscal 1999"), and January 31, 1998 ("Fiscal 1998"):

<TABLE>
<CAPTION>

                                               Fiscal 1999                                          Fiscal 1998
                              ------------------------------------------------    ------------------------------------------------
                                 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                $ 716,799    $ 730,223    $ 690,591    $ 690,496    $ 759,388    $ 773,890    $ 726,180    $ 750,607
Gross margin (1)              $ 157,409    $ 161,594    $ 142,057    $ 153,248    $ 177,771    $ 178,247    $ 164,381    $ 171,819
Net (loss)
  applicable to common
  stock (1)(2)(3)(4)(5)       $ (17,058)   $ (23,498)   $(182,958)   $ (93,580)   $ (22,824)   $ (11,924)   $ (13,527)   $ (12,850)
Per common share data (Basic and Diluted):
  Net (loss)                  $   (1.61)   $   (2.22)   $  (17.31)   $   (8.85)   $   (2.16)   $   (1.13)   $   (1.28)   $   (1.22)

No dividends on common stock were paid during Fiscal 1999 and Fiscal 1998.

Other data:
  Depreciation and
  amortization                $  20,048    $  19,894    $  19,360    $  17,877    $  22,882    $  22,544     $ 22,145    $  21,395
LIFO provision                $     625    $     625    $     625    $     501    $     500    $     750     $    750    $     343

Market value per common share:
  High                        $   6.688    $   5.063    $   3.063    $   2.490    $   7.625    $   9.000     $ 10.500    $   9.813
  Low                         $   4.000    $   2.563    $   1.000    $   0.470    $   2.375    $   5.750     $  6.813    $   5.875
</TABLE>

(1)  During Fiscal 1999, the Company recorded special charges of $69.3 million
     primarily related to: (a) the decision to close 38 of its stores as part of
     the Company's Store Rationalization Program ($75.4 million), (b) severance
     and other miscellaneous employee expenses related to the Company's Store
     Rationalization Program ($5.5 million), (c) a gain related to the sale of
     13 stores and certain other real estate pursuant to its Store
     Rationalization Program ($12.7 million) and (d) professional fees and other
     miscellaneous costs associated with the Company's proposed debt
     restructuring ($1.1 million). The Company recorded $50.4 million of this
     charge during the third quarter and $18.9 million of this charge during the
     fourth quarter of Fiscal 1999. $5.3 million of this charge in the third
     quarter and $2.7 million of this charge in the fourth quarter were
     inventory mark-downs included in cost of sales.

(2)  During Fiscal 1998, the Company recorded pre-tax charges totaling $18.2
     million in connection with a management reorganization and related
     corporate actions and the retention of hired corporate executives. The
     Company recorded $15.1 million of these charges during the first quarter
     and $3.1 million during the second quarter of Fiscal 1998.

(3)  During the fourth quarter of Fiscal 1998, the Company recorded a gain
     totaling $24.2 million ($14.3 million, net of tax) related to the sale of
     Sani-Dairy, the Company's dairy manufacturing operation, for cash
     consideration of approximately $37 million.

(4)  The Company periodically reviews the recorded value of its long-lived
     assets to determine if the future cash flows to be derived from these
     properties will be sufficient to recover the remaining recorded asset
     values. In accordance with SFAS 121, during the fourth quarter of Fiscal
     1999, the Company recorded a noncash charge of $52.3 million primarily
     related to the write-down of a portion of the recorded asset values of 14
     of the Company's stores (including allocable goodwill) to estimated
     realizable values. During the fourth quarter of Fiscal 1998, the Company
     recorded a noncash charge of $27.0 million primarily related to the
     write-down of a portion of the recorded asset values of 12 of the Company's
     stores (including allocable goodwill), as well as miscellaneous real
     estate, to estimated realizable values.

     During Fiscal 1999, the Company announced its plans for realizing value
     from certain of its Pennsylvania Bi-Lo stores and related wholesale
     operations. During Fiscal 1999, the Company recorded a noncash charge of
     $91.5 million to write down the carrying amounts of 22 stores held for sale
     (including allocable goodwill) at October 31, 1998 to estimated realizable
     values. Since October 31, 1998, the Company has revised its Store
     Rationalization Program and decided to continue to operate six of these
     stores and close two of them.

(5)  During Fiscal 1999, the Company stopped recording a tax benefit since it is
     more likely than not that the additional deferred tax asset will not be
     realized. The second, third and fourth quarters exclude an additional tax
     benefit of $5.0 million, $67.7 million and $31.6 million, respectively.

                                      -84-