<Page>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
<Table>
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / CONFIDENTIAL, FOR USE OF THE COMMISSION ONLY (AS PERMITTED
BY RULE 14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section240.14a-12
THE PENN TRAFFIC COMPANY
-----------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
-----------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the
Registrant)
</Table>
Payment of Filing Fee (Check the appropriate box):
<Table>
/X/ No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4)
and 0-11.
(1) Title of each class of securities to which transaction
applies:
----------------------------------------------------------
(2) Aggregate number of securities to which transaction
applies:
----------------------------------------------------------
(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (set forth the
amount on which the filing fee is calculated and state how
it was determined):
----------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
----------------------------------------------------------
(5) Total fee paid:
----------------------------------------------------------
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by
Exchange Act Rule 0-11(a)(2) and identify the filing for which
the offsetting fee was paid previously. Identify the previous
filing by registration statement number, or the Form or
Schedule and the date of its filing.
(1) Amount Previously Paid:
----------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
----------------------------------------------------------
(3) Filing Party:
----------------------------------------------------------
(4) Date Filed:
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</Table>
<Page>
[LOGO]
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
JULY 17, 2002
The Annual Meeting of Stockholders of The Penn Traffic Company (the
"Company") will be held on Wednesday, July 17, 2002, at 1:00 p.m., Eastern
Standard Time, at the Wyndham Hotel, 6301 Route 298, East Syracuse, New York
13057, for the following purposes:
1. To elect nine directors for terms expiring at the 2003 Annual Meeting
of Stockholders;
2. To consider and take action upon a proposal to ratify the selection of
PricewaterhouseCoopers LLP, independent certified public accountants,
as the Company's auditors for the fiscal year ending February 1, 2003;
and
3. To transact such other business as may properly come before the meeting
or any adjournment thereof.
Holders of common stock of the Company are entitled to vote for the
election of directors and on each of the other matters set forth above.
The stock transfer books of the Company will not be closed. The Board of
Directors has fixed the close of business on May 20, 2002, as the record date
for determining stockholders entitled to notice of and to vote at the
meeting. You are cordially invited to attend the meeting in person. A report
will be made to you on the status of the Company's affairs. We will also
provide you with an opportunity for questions and comments.
By Order of the Board of Directors
FRANCIS D. PRICE, JR.
Secretary
May 30, 2002
Syracuse, New York
- --------------------------------------------------------------------------------
IMPORTANT
Whether or not you expect to attend the meeting in person, please
complete, date and sign the enclosed form of proxy and return it without
delay in the enclosed envelope. Your proxy can be revoked at any time prior
to its being voted by giving written notice of revocation to the Secretary of
the Company, by giving a later dated proxy, or by voting at the meeting in
person.
- --------------------------------------------------------------------------------
<Page>
T H E P E N N T R A F F I C C O M P A N Y
1200 State Fair Boulevard
Syracuse, New York 13221-4737
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
JULY 17, 2002
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of The Penn Traffic Company, a Delaware
corporation (the "Company" or "Penn Traffic"), for use at the Annual Meeting of
Stockholders to be held on Wednesday, July 17, 2002, at 1:00 p.m., Eastern
Standard Time, at the Wyndham Hotel, 6301 Route 298, East Syracuse, New York
13057. The approximate date on which this Proxy Statement is first being mailed
to stockholders is May 30, 2002.
You are requested to complete, date and sign the accompanying proxy card
and return it promptly to the Company in the envelope provided. Proxies duly
executed and received in time for the meeting will be voted in accordance with
the instructions thereon. Any stockholder who has given a proxy may revoke it
at any time prior to its being voted by giving written notice of revocation to
the Secretary of the Company, by giving a later dated proxy, or by voting at the
meeting in person.
The Board of Directors has fixed the close of business on May 20, 2002 as
the record date for the determination of stockholders who are entitled to notice
of and to vote at the meeting. The stock transfer books of the Company will not
be closed. As of the record date, the Company had outstanding 20,058,264 shares
of common stock, par value $.01 per share (the "Common Stock"), the holders of
which are entitled to one vote per share.
<Page>
1. ELECTION OF DIRECTORS
Pursuant to the Company's certificate of incorporation and by-laws, the
terms of office of each director shall expire at the next Annual Meeting
following the director's election. The Company's certificate of incorporation
and by-laws fix the total number of members of the Company's Board of Directors
at no less than two or more than ten. Currently, the Board of Directors
consists of nine members. The Board of Directors has decided that it will
nominate the nine current directors for election at the Annual Meeting. Your
proxy cannot be voted at the Annual Meeting for a greater number of nominees.
The following individuals have been nominated by the Board of Directors
for election as directors at the 2002 Annual Meeting, each to serve for a term
of one year, until the 2003 Annual Meeting of Stockholders and until his
successor is duly elected and qualified:
<Table>
Byron E. Allumbaugh Gabriel S. Nechamkin
Kevin P. Collins Lief D. Rosenblatt
Joseph V. Fisher Mark D. Sonnino
Martin A. Fox Peter L. Zurkow
David B. Jenkins
</Table>
Proxies in the enclosed form received from holders of Common Stock will be
voted for the election of the nine nominees named above as directors of the
Company unless stockholders indicate otherwise. If any of the foregoing
nominees is unable to serve for any reason (which event is not anticipated), the
shares represented by the enclosed proxy may be voted for such other person or
persons as determined by the holders of such proxy, unless stockholders indicate
otherwise. Directors will be elected by an affirmative vote of a plurality of
the shares of Common Stock present in person or represented by proxy and
entitled to vote at the Annual Meeting. Thus, those nominees who receive the
nine highest numbers of votes for their election as directors will be elected,
regardless of the number of shares that are not voted for the election of such
nominees. Shares with respect to which authority to vote for any nominee or
nominees is withheld or broker non-votes will not be counted in the total number
of shares voted for such nominee or nominees.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE ELECTION OF
ITS NINE NOMINEES AS DIRECTORS OF THE COMPANY.
2
<Page>
The following information includes the age, the year in which first
elected as a director of the Company, the principal occupation, and other
directorships of each of the nominees named for election as directors.
<Table>
Byron E. Allumbaugh Mr. Allumbaugh is a business
Age: 70 consultant. Mr. Allumbaugh was the Chairman and
Director since 1999 Chief Executive Officer of the former Ralphs Grocery
Company from 1976 until he retired in
1997. Mr. Allumbaugh serves as a Director of CKE
Restaurants, Inc. (quick-service restaurant company),
El Paso Energy Company (natural gas and energy
company), Galyan's Trading Co. (sporting goods
company) and The Pantry (convenience store chain).
Kevin P. Collins Mr. Collins has been a member and a Principal of The
Age: 51 Old Hill Company LLC (financial advisory services
Director since 1999 company) since 1997. Mr. Collins was a Principal of
JHP Enterprises, Ltd. (financial advisory services)
from 1991 to 1997. Mr. Collins serves as a Director
of Key Energy Services, Inc. (provider of oilfield
services to the oil and gas industry), London Fog
Industries, Inc. (apparel company), and Metretek
Technologies, Inc. (provider of information services
to the energy industry).
Joseph V. Fisher Mr. Fisher has been a Director and the President and
Age: 60 Chief Executive Officer of the Company since
Director since 1998 November 1998. From 1992 to November 1998
Mr. Fisher held senior management positions with
Big V Supermarkets, Inc. ("Big V"), a regional
supermarket company operating primarily under the
ShopRite name, 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 was employed by Purity
Supreme, Inc. (supermarket company), from 1973 to 1991
in various management positions, including Senior Vice
President - Supermarkets from 1985 to 1991.
</Table>
3
<Page>
<Table>
Martin A. Fox Mr. Fox has been Executive Vice President of the
Age: 49 Company since February 2000 and Chief Financial
Director since 1993 Officer since June 1999. Mr. Fox was also Vice
Chairman of the Executive Committee from June 1999
until January 2000 and Vice Chairman - Finance of the
Company from 1993 until June 1999. Mr. Fox was a Vice
President of the Company from 1989 until
1993. Mr. Fox was a First Vice President of
PaineWebber, Inc., from 1986 to 1988. From 1979 to
1986, Mr. Fox was employed by Citicorp in various
positions, including Vice President.
David B. Jenkins Mr. Jenkins is a business consultant. Mr. Jenkins was
Age: 71 President and Chief Executive Officer of Shaw's
Director since 2000 Supermarkets, Inc., from 1982 until his retirement as
President and CEO in 1993, and was Chairman of the
Board until 1995. Mr. Jenkins serves as a Director of
Citizens Capital, Inc. (venture capital company), and
The Foreside Company (home furnishings
company). Mr. Jenkins served as a Director of
J. Sainsbury International (parent company of Shaw's
and a British supermarket company) from 1994 to
1995. Mr. Jenkins also served as a Director of
Nabisco Holdings Corp. and Nabisco Group Holdings
Corp. (food manufacturing company) from 1996 to 2000.
Gabriel S. Nechamkin Mr. Nechamkin is a Principal of Satellite Asset
Age: 44 Management, L.P. He was previously employed at Soros
Director since 1999 Fund Management LLC from 1988 through 1999, most
recently as Managing Director and Head of Trading for
the Arbitrage, High Yield and Distressed Securities
Department.
Lief D. Rosenblatt Mr. Rosenblatt is a Principal of Satellite Asset
Age: 48 Management, L.P. He was previously employed at Soros
Director since 1999 Fund Management LLC from 1988 through 1999, most
recently as Managing Director and Head of the
Arbitrage, High Yield and Distressed Securities
Department.
</Table>
4
<Page>
<Table>
Mark D. Sonnino Mr. Sonnino is a Principal of Satellite Asset
Age: 41 Management, L.P. He was previously employed at Soros
Director since 1999 Fund Management LLC from 1988 through 1999, most
recently as Managing Director and Head of Research for
the Arbitrage, High Yield and Distressed Securities
Department. Mr. Sonnino serves as a Director of AMF
Bowling Worldwide, Inc. (sporting goods company).
Peter L. Zurkow Mr. Zurkow has been Chairman of the Board of the
Age: 48 Company since June 1999. Since January 2002,
Director since 1999 Mr. Zurkow has been a Managing Director of
Investec, Inc. (investment banking firm). From April
2001 to December 2001, Mr. Zurkow was a private
investor. From 1992 to April 2001, Mr. Zurkow was a
Managing Director of UBS Warburg (January 2001 to
April 2001) and its predecessor firm,
PaineWebber, Inc. (1992 to 2000). He served as a
Director of Streamline, Inc. (online grocery company)
from 1997 to 1998, Kash N' Karry Supermarkets from
1994 to 1996 and E-artgroup.com (online art dealer)
from 1999 to 2000.
</Table>
There are no family relationships among the directors and executive
officers of the Company.
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 in the United States Bankruptcy Court
for the District of Delaware (the "Bankruptcy Court"). On May 27, 1999, the
Bankruptcy Court confirmed the Company's Chapter 11 plan of reorganization (the
"Plan") and on June 29, 1999, the Plan became effective. The Bankruptcy Cases
were commenced in order to implement a prenegotiated financial restructuring of
the Company. Messrs. Fisher and Fox served as executive officers and directors
of Penn Traffic on the Petition Date.
The Board of Directors held 14 meetings in the fiscal year ended
February 2, 2002 ("Fiscal 2002"). Each director in office attended at least 75%
of the total number of meetings of the Board of Directors of the Company and of
the committees of such Board on which he served, except Mr. Rosenblatt.
The current members of the Executive Committee are Messrs. Fisher and
Fox. The Executive Committee did not hold any formal meetings during Fiscal
2002 but did act by its written consent. The Executive Committee may exercise
certain powers of the Board of Directors regarding the management and direction
of the business and affairs of the Company when the Board of Directors is not in
session. All action taken by the Executive Committee is reported to and
reviewed by the Board of Directors.
5
<Page>
The current members of the Compensation Committee are Messrs. Allumbaugh,
Collins, Jenkins, Nechamkin and Zurkow. Mr. Zurkow is Chairman of the
Compensation Committee. The Compensation Committee reviews the annual
recommendations of the Chief Executive Officer concerning the compensation of
officers and certain employees of the Company, including the compensation plans,
retirement plans and fringe benefit plans 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, which held seven meetings
during Fiscal 2002, also administers the Company's 1999 Equity Incentive Plan
(the "Equity Plan") and 1999 Directors' Stock Option Plan (the "Directors
Plan").
The current members of the Audit Committee are Messrs. Collins, Jenkins,
Sonnino and Zurkow. Mr. Collins is Chairman of the Audit Committee. The Audit
Committee held two meetings in Fiscal 2002. In addition, the Chairman of the
Audit Committee held discussions with the Company's financial management and the
Company's independent auditors regarding the Company's Consolidated Statement of
Operations and Consolidated Balance Sheet and matters required by the Statement
of Auditing Standards ("SAS") No. 61, as amended by SAS 89 and 90, prior to the
public announcement of the Company's financial results for the first, second and
third quarters of Fiscal 2002.
The current members of the Nominating Committee are Messrs. Allumbaugh and
Rosenblatt. Stockholder nominations of persons for election as directors are
subject to the notice requirements described below under the caption
"Stockholder Nominations and Proposals." The Nominating Committee did not meet
during Fiscal 2002.
6
<Page>
EXECUTIVE OFFICERS
Set forth below are the names, ages and positions with the Company of the
Executive Officers of the Company as of the date hereof.
<Table>
<Caption>
NAME AGE POSITION WITH PENN TRAFFIC
- ---------------------- -------- ---------------------------------------------------------
Joseph V. Fisher 60 President and Chief Executive Officer
Martin A. Fox 49 Executive Vice President and Chief Financial Officer
Leslie H. Knox 55 Senior Vice President and Chief Marketing Officer
Randy P. Martin 46 Vice President - Finance and Chief Accounting Officer
Francis D. Price Jr. 53 Vice President, General Counsel and Secretary
</Table>
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 held senior management positions with Big V, a regional supermarket
company operating primarily under the ShopRite name, 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 was employed by Purity
Supreme, Inc. (supermarket company), from 1973 to 1991 in various management
positions including Senior Vice President - Supermarkets from 1985 to 1991.
Mr. Fox has been Executive Vice President of the Company since
February 2000 and Chief Financial Officer since June 1999. Mr. Fox was also
Vice Chairman of the Executive Committee from June 1999 until January 31, 2000
and Vice Chairman - Finance of the Company from 1993 until June 1999. Mr. Fox
was a Vice President of the Company from 1989 until 1993. From 1986 to 1988,
Mr. Fox was a First Vice President of PaineWebber, Inc. From 1979 to 1986,
Mr. Fox was employed by Citicorp in various positions, including Vice President.
7
<Page>
Mr. Knox has been Senior Vice President and Chief Marketing Officer since
May 1999. From 1995 until May 1999, Mr. Knox held the position of Vice
President - Merchandising with Weis Markets, Inc. From 1984 until 1995,
Mr. Knox held various management positions with ABCO Markets, Inc., including
Senior Vice President of Sales and Marketing from 1988 to 1995. From 1969 to
1984, Mr. Knox was employed by Alpha Beta Company, a division of American Stores
Company, in various management positions.
Mr. Martin has been Vice President - Finance and Chief Accounting Officer
of Penn Traffic since January 1999. From 1997 until January 1999, he served as
the Company's Vice President of Strategic Planning and Treasurer. From 1993 to
1997, Mr. Martin served as the Company's Director of Taxes. From 1984 to 1993,
Mr. Martin was employed by Price Waterhouse in various positions, including
Senior Tax Manager from 1991 to 1993.
Mr. Price has been Vice President and General Counsel since 1993 and
became Secretary in 1997. Mr. Price was Vice President and General Counsel of
the Company's P&C division from 1985 until 1993. From 1978 to 1985, Mr. Price
served in various other management positions at P&C.
8
<Page>
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
April 26, 2002 (unless otherwise indicated) by: (i) each person who beneficially
owns 5% or more of the Common Stock; (ii) each of the nominees named for
election as Director; (iii) each of the persons named in the Summary
Compensation Table set forth herein; and (iv) all Directors and Executive
Officers as a group. The information set forth below for 5% stockholders was
derived from publicly available reports made by the persons listed below on
Forms 13G and 13D. The Company has not attempted to verify any of this
information. 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. On April 26, 2002, there were 20,058,264 shares
of Common Stock outstanding.
9
<Page>
<Table>
<Caption>
AMOUNT & NATURE OF
NAME AND ADDRESS OF BENEFICIAL PERCENT OF
BENEFICIAL OWNER OWNERSHIP CLASS
- ---------------------------------------------------------------------------------------------------
Soros Fund Management LLC 9,032,768 (1) 45.0%
888 Seventh Avenue, 33rd Floor
New York, NY 10106
Satellite Asset Management, L.P. 9,032,768 (2) 45.0%
10 East 50th Street, 21st Floor
New York, NY 10022
DDJ Capital Management, LLC 4,460,104 (3) 22.2%
141 Linden Street, Suite 4
Wellesley, MA 02482-7910
B III Capital Partners, L.P. 2,475,246 (3) 12.3%
141 Linden Street, Suite 4
Wellesley, MA 02482-7910
DDJ Capital III, LLC 2,475,246 (3) 12.3%
141 Linden Street, Suite 4
Wellesley, MA 02482-7910
Northeast Investors Trust 1,906,164 (4) 9.5%
50 Congress Street
Boston, MA 02109-4096
Oaktree Capital Management, LLC 1,724,305 (5) 8.6%
333 South Grand Ave., 28th Floor
Los Angeles, CA 90071
General Motors Investment 1,173,950 (6) 5.9%
Management Corporation
767 5th Avenue
New York, NY 10153
General Motors Trust Company 1,173,950 (6) 5.9%
767 5th Avenue
New York, NY 10153
Byron E. Allumbaugh 22,000 (7) *
Kevin P. Collins 22,000 (7) *
Joseph V. Fisher 139,500 (8) *
Martin A. Fox 51,676 (9) *
David B. Jenkins 22,000 (10) *
Gabriel S. Nechamkin 9,054,768 (11) 45.1%
Lief D. Rosenblatt 9,054,768 (11) 45.1%
Mark D. Sonnino 9,054,768 (11) 45.1%
Peter L. Zurkow 27,000 (12) *
Leslie B. Knox 30,000 (13) *
Gerald P. Suppa 9,000 (14) *
Ralph L. Littlefield 6,000 (15) *
All Directors and Executive Officers as a Group (12 9,434,175 46.1%
persons)
</Table>
- --------------------------------------------------------------------------------
* Less than 1.0%
10
<Page>
(1) Soros Fund Management LLC ("SFM") serves as the principal investment
manager of Quantum Partners LDC ("Quantum") and Quota Fund
N.V. ("Quota"). SFM, on behalf of each of Quantum and Quota, granted
investment discretion over the securities owned by such entities to
Satellite Asset Management, L.P. ("Satellite L.P.") pursuant to an
investment advisory contract between Quantum and Satellite L.P. (the
"Quantum-Satellite Contract") and between Quota and Satellite L.P. (the
"Quota-Satellite Contract"). As a consequence of SFM's ability to
terminate the Quantum-Satellite Contract and the Quota-Satellite Contract
with respect to the securities within 60 days, SFM may be deemed to have
voting and dispositive power over the securities held for the accounts of
Quantum and Quota at Satellite L.P. George Soros, as Chairman of SFM, may
be deemed to have beneficial ownership of securities held for accounts of
Quota and Quantum.
(2) Satellite L.P. holds 9,032,768 shares of securities for the accounts of
the following entities: (i) 7,854,032 shares held for the account of
Quantum and (ii) 1,178,736 shares held for the account of
Quota. Satellite L.P. has been granted investment discretion over the
shares of Common Stock held for the accounts of Quantum and Quota pursuant
to the Quantum-Satellite Contract and the Quota-Satellite Contract,
respectively.
(3) According to the Schedule 13D filed by DDJ Capital Management, LLC
("DDJ"), dated October 26, 2001, B III Capital Partners, L.P. (the "Fund")
owns, and DDJ Capital III, LLC and DDJ beneficially own, as general
partner and investment manager, respectively of the Fund, 2,475,246 shares
or approximately 12.3% of the outstanding shares of Common Stock. B III-A
Capital Partners, L.P. ("B III-A") owns, and GP III-A, LLC and DDJ
beneficially own, as general partner and investment manager, respectively
of B III-A, 324,780 shares or approximately 1.6% of the outstanding shares
of Common Stock. The October Fund, Limited Partnership ("October"), owns,
and October G.P., LLC and DDJ beneficially own, as general partner and
investment manager, respectively of October, 33,125 shares or
approximately .2% of the outstanding shares of Common Stock. DDJ, as
investment manager to the General Motors Trust Company (the "Trust"), may
be deemed to beneficially own 1,173,950 shares or approximately 5.9% of
the outstanding shares of Common Stock. DDJ, as investment advisor to DDJ
Canadian, may be deemed to beneficially own 453,000 shares or
approximately 2.3% of the outstanding shares of Common Stock. DDJ, as
investment manager to the Fund, B III-A, October and the Trust and as
investment advisor to DDJ Canadian may be deemed to beneficially own
4,460,104 shares or approximately 22.2% of the outstanding shares of
Common Stock.
(4) According to the Schedule 13G filed by Northeast Investors Trust, dated
February 7, 2002.
(5) According to the Schedule 13G filed by Oaktree Capital Management, LLC,
dated February 10, 2000, Oaktree Capital Management LLC is the general
partner of OCM Opportunities Fund, L.P. (the "Oaktree Fund") and the
investment manager of a third-party managed account (the "Oaktree
Account"). The Oaktree Fund and the Oaktree Account together beneficially
own 1,724,305 shares of Common Stock.
(6) According to the Schedule 13G filed by General Motors Investment
Management Corporation ("GMIMCo") dated February 19, 2002, the Trust owns
and GMIMCo and DDJ as investment advisors beneficially own 1,173,950
shares or approximately 5.9% of the outstanding shares of Common
Stock. GMIMCo has the responsibility to select and terminate investment
managers with respect to the Trust. GMIMCo and DDJ have discretionary
authority over the assets of the Trust which they manage including voting
and investment power with respect to securities of Penn Traffic included
among such assets.
11
<Page>
(7) Mr. Allumbaugh and Mr. Collins are deemed to each beneficially own
(i) 20,000 shares of Common Stock by virtue of currently exercisable
options granted on July 7, 1999 to purchase 20,000 shares of Common Stock
at $12.13 per share, (ii) 1,000 shares of Common Stock by virtue of
currently exercisable options granted on July 12, 2000 to purchase 1,000
shares of Common Stock at $6.16 per share and (iii) 1,000 shares of Common
Stock by virtue of currently exercisable options granted on July 11, 2001
to purchase 1,000 shares of Common Stock at $4.48 per share.
(8) Mr. Fisher beneficially owns 3,000 shares of Common Stock and is also
deemed to beneficially own (i) 52,000 shares of Common Stock, which
represent the vested portion of the 260,000 options granted to Mr. Fisher
on October 24, 2001, with an exercise price of $4.35 per share,
(ii) 84,000 options, which represent the vested portion of the 140,000
options granted to Mr. Fisher on September 22, 1999, with an exercise
price of $8.75 per share; and (iii) 500 shares owned by Mr. Fisher's wife.
(9) Mr. Fox beneficially owns 1,676 shares of Common Stock and is also deemed
to beneficially own 50,000 shares of Common Stock, which represent the
vested portion of 250,000 options granted to Mr. Fox on October 24, 2001,
with an exercise price of $4.35 per share.
(10) Mr. Jenkins is deemed to beneficially own (i) 20,000 shares of Common
Stock by virtue of currently exercisable options granted on May 10, 2000,
with an exercise price of $5.89 per share, (ii) 1,000 shares of Common
Stock, by virtue of currently exercisable options granted July 12, 2000
to purchase 1,000 shares of Common Stock at $6.16 per share and
(iii) 1,000 shares of Common Stock by virtue of currently exercisable
options granted July 11, 2001 to purchase 1,000 shares of Common Stock at
$4.48 per share.
(11) 9,032,768 shares of Common Stock are held for the accounts of the
following entities: (i) 7,854,032 shares are held for the account of
Quantum and (ii) 1,178,736 shares are held for the account of
Quota. Satellite L.P. has been granted investment discretion over the
shares held for the accounts of Quantum and Quota pursuant to the
Quantum-Satellite Contract and the Quota-Satellite Contract. Satellite
Fund Management LLC ("Satellite LLC") is the general partner of Satellite
L.P. Messrs. Nechamkin, Rosenblatt and Sonnino are managing members of
Satellite LLC and in such capacity may be deemed to have voting and
dispositive power over the shares of Common Stock held for the accounts
of Quantum and Quota. In addition, each of Messrs. Nechamkin, Rosenblatt
and Sonnino is deemed to beneficially own (i) 20,000 shares of Common
Stock by virtue of currently exercisable options granted on July 7, 1999
to purchase 20,000 shares of Common Stock at $12.13 per share,
(ii) 1,000 shares of Common Stock by virtue of currently exercisable
options granted July 12, 2000 to purchase 1,000 shares of Common Stock at
$6.16 per share and (iii) 1,000 shares of Common Stock by virtue of
currently exercisable options granted July 11, 2001 to purchase 1,000
shares of Common Stock at $4.48 per share.
(12) Mr. Zurkow owns 5,000 shares of Common Stock, and he is also deemed to
beneficially own (i) 20,000 shares of Common Stock by virtue of currently
exercisable options granted on July 7, 1999 to purchase 20,000 shares of
Common Stock at $12.13 per share, (ii) 1,000 shares of Common Stock by
virtue of currently exercisable options granted on July 12, 2000 to
purchase 1,000 shares of Common Stock at $6.16 per share and (iii) 1,000
shares of Common Stock by virtue of currently exercisable options granted
on July 11, 2001 to purchase 1,000 shares of Common Stock at $4.48 per
share.
12
<Page>
(13) Mr. Knox is deemed to beneficially own 30,000 shares of Common Stock,
which represent the vested portion of the 50,000 options granted to
Mr. Knox on July 7, 1999, with an exercise price of $12.13 per share.
(14) Mr. Suppa is deemed to beneficially own 9,000 shares of Common Stock,
which represent the vested portion of 15,000 options granted to
Mr. Suppa on July 7, 1999, with an exercise price of $12.13 per share.
(15) Mr. Littlefield is deemed to beneficially own 6,000 shares of Common
Stock, which represent the vested portion of 15,000 options granted to
Mr. Littlefield on November 27, 2000, with an exercise price of $3.94 per
share.
13
<Page>
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
The Company has determined that no person who at any time during Fiscal
2002 was a director, officer or beneficial owner of more than 10% of the
Company's Common Stock failed to file on a timely basis reports required by
Section 16(a) of the Securities Exchange Act of 1934, as amended. Such
determination is based solely upon the Company's review of Forms 3, 4 and 5, and
written representations that no Form 5 was required, submitted to it during or
with respect to Fiscal 2002.
14
<Page>
EXECUTIVE COMPENSATION
The following table sets forth the compensation paid or accrued by the
Company to (i) persons serving as President and Chief Executive Officer of the
Company during Fiscal 2002 and (ii) the four other most highly compensated
executive officers of the Company (collectively, the "Named Executive Officers")
during Fiscal 2002 for services rendered to the Company in all capacities during
the fiscal year ended January 29, 2000 ("Fiscal 2000"), the fiscal year ended
February 3, 2001 ("Fiscal 2001") and Fiscal 2002.
For the fiscal year ended January 30, 1999 ("Fiscal 1999") and from
February 1, 1999 through February 28, 1999, Penn Traffic engaged Miller Tabak
Hirsch + Co. ("MTH") to provide financial consulting and business management
services. Mr. Fox was an Executive Vice President of MTH until February 28,
1999. During Fiscal 1999, the Company paid MTH $1,437,000 for such financial
consulting and business management services. From March 1, 1999, until
June 29, 1999, Hirsch & Fox LLC (an entity formed by Mr. Gary D. Hirsch, the
former chairman of the Executive Committee of the Company, and Mr. Fox) provided
financial consulting and business management services to the Company, for which
Hirsch & Fox LLC received fees of $483,333. From June 29, 1999 through
January 31, 2000, Hirsch & Fox LLC provided the same services to the Company
under a management agreement (the "Management Agreement") and received fees of
$845,833. On January 31, 2000, the Management Agreement was terminated. As
required by the rules of the Securities and Exchange Commission, the amounts set
forth below for Mr. Fox for Fiscal 2000 represent the Company's best estimate of
the allocable portions of such management fees paid to the entities for the
services of Mr. Fox to Penn Traffic.
15
<Page>
SUMMARY COMPENSATION TABLE
<Table>
<Caption>
LONG-TERM
COMPENSATION
-------------
ANNUAL COMPENSATION AWARDS
---------------------------------- -------------
SECURITIES ALL
UNDERLYING OTHER
NAME AND PRINCIPAL FISCAL SALARY BONUS OPTIONS/ COMPENSATION
POSITION YEAR ($) ($)(5) SARS(#)(6) ($)
- --------------------------------------------------------------------------------------------------------------------------
Joseph V. Fisher 2002 $ 1,002,550 (1) 260,000
President and Chief Executive Officer 2001 1,021,781 (1)
2000 500,723 $ 250,000 420,000 $ 1,110,965 (7)
Martin A. Fox 2002 $ 1,002,550 (1) 250,000
Executive Vice President and Chief 2001 1,019,520 (1)
Financial Officer 2000 458,333 (2) $ 350,000 304,000 $ 1,204,167 (8)
Leslie B. Knox 2002 $ 305,242 (1)
Senior Vice President and Chief 2001 282,084 (1)
Marketing Officer 2000 206,250 (3) $ 55,000 50,000 $ 70,562 (9)
Gerald P. Suppa 2002 $ 225,000 $ 116,964 (10)
Vice President & General Manager 2001 215,769
of New York Operations 2000 144,000 $ 27,360 15,000
Ralph L. Littlefield Jr. 2002 $ 175,150 (1) $ 13,131 (9)
Vice President & General Manager 2001 120,308 (3)(4) $ 30,000 15,000 71,479 (9)
of Big Bear
</Table>
- ------------------------
(1) Amounts shown include the Company-sponsored contribution to 401(k) Plan.
(2) Amounts shown represent the Company's best estimate of the allocable
portion of management fees paid to entities that provided services of the
Named Executive Officer for such services rendered to Penn Traffic.
(3) Amounts shown represent allocable portion of base salary for the subject
year.
(4) As the Named Executive Officer did not serve as an executive officer in
prior fiscal years, such fiscal years have been omitted from the Summary
Compensation Table.
(5) As of May 22, 2002, the Company has not determined the amount of the bonus
attributable to Fiscal 2002.
(6) On June 29, 1999, pursuant to the Plan, the Company adopted the Equity
Plan. Pursuant to the Equity Plan: (i) Mr. Fisher was awarded (a) on
June 29, 1999, fully vested options to purchase 280,000 shares of Common
Stock with an exercise price equal to $18.30 per share and (b) on
September 22, 1999, options to purchase 140,000 shares of Common Stock
with an exercise price of $8.75 per share and a four-year vesting period;
(ii) on October 24, 2001, Mr. Fisher's options to purchase 280,000 shares
of Common Stock with an exercise price of $18.30 per share were canceled
and Mr. Fisher was awarded options to purchase 260,000 shares of Common
Stock with an exercise price of $4.35 per share and a four-year vesting
period; (iii) Mr. Fox was awarded (a) on June 29, 1999, fully vested
options to purchase
16
<Page>
130,000 shares of Common Stock with an exercise price of $18.30 per share,
(b) on June 29, 1999, options to purchase 87,000 shares of Common Stock
with an exercise price of $18.30 per share that vest 50% on each of the
third and fourth anniversaries of the date of grant and (c) on
September 22, 1999, options to purchase 87,000 shares of Common Stock with
an exercise price of $8.75 per share that vest upon certain specified
changes of control; (iv) on October 24, 2001, all of Mr. Fox's options to
purchase common stock were canceled and Mr. Fox was awarded options to
purchase 250,000 shares of common stock with an exercise price of $4.35
per share and a four-year vesting period; (v) on July 7, 1999, Mr. Knox
was awarded options to purchase 50,000 shares of Common Stock with an
exercise price of $12.13 per share and a four-year vesting period;
(vi) on July 7, 1999, Mr. Suppa was awarded options to purchase 15,000
shares of Common Stock with an exercise price of $12.13 per share and a
four-year vesting period; and (vii) on November 27, 2000, Mr. Littlefield
was awarded options to purchase 15,000 shares of Common Stock with an
exercise price of $3.94 per share and a four-year vesting period.
(7) The amount for Fiscal 2000 includes (i) $1,002,838 for the complete
forgiveness of all remaining outstanding principal and interest due with
respect to a loan made to Mr. Fisher in connection with the commencement
of his employment with the Company and (ii) $108,127 for reimbursement of
certain relocation expenses.
(8) On January 31, 2000, $4.9 million was paid in a lump sum to Hirsch & Fox
LLC in connection with the termination of the Management
Agreement. $1.55 million of this amount was allocated to Mr. Fox as
follows (i) $1.2 million in respect of management fees allocable to
Mr. Fox under the Management Agreement and (ii) $350,000 in respect of
Mr. Fox's annual bonus for Fiscal 2000.
(9) Primarily reimbursement of certain relocation expenses.
(10) Mr. Suppa had previously retired from the Company in Fiscal 1999 and
receives a pension of approximately $70,000 per year. The amounts
recorded under All Other Compensation for Fiscal 2002 includes such
pension payments attributable to Fiscal 2002 and retroactive payments from
the prior fiscal year.
17
<Page>
OPTION/SAR GRANTS IN FISCAL 2002
<Table>
<Caption>
POTENTIAL
REALIZABLE VALUE AT
ASSUMED ANNUAL
RATES OF STOCK PRICE
APPRECIATION
INDIVIDUAL GRANTS FOR OPTION TERM
- ------------------------------------------------------------------------------------ ------------------------
NUMBER OF % OF TOTAL
SECURITIES OPTIONS/SARS
UNDERLYING GRANTED TO EXERCISE
OPTIONS/SARS EMPLOYEES OR BASE
GRANTED IN FISCAL PRICE EXPIRATION
NAME (#) YEAR ($/SH) DATE 5% ($) 10% ($)
- ------------------------ ------------ ------------ -------- ---------------- -------- ----------
(A) (B) (C) (D) (E) (F) (G)
Joseph V. Fisher 260,000 (1) 50.98% 4.35 October 24, 2011 $711,280 $1,802,523
President and Chief
Executive Officer
Martin A. Fox 250,000 (1) 49.02% 4.35 October 24, 2011 $683,923 $1,733,195
Executive Vice
President and Chief
Financial Officer
</Table>
- ------------------------
(1) The options vest on the following schedule: 20% on the date of grant, 20% on
each of the first and second anniversaries of the date of grant and 40% on
the third anniversary of the date of grant.
18
<Page>
TEN-YEAR OPTION/SAR REPRICING
FISCAL 2002
<Table>
<Caption>
LENGTH OF
NUMBER OF MARKET ORIGINAL
SECURITIES PRICE OF EXERCISE OPTION TERM
UNDERLYING STOCK AT PRICE REMAINING
OPTIONS/SARS TIME OF AT TIME OF NEW AT DATE OF
REPRICED OR REPRICING OR REPRICING OR EXERCISE REPRICING OR
NAME DATE AMENDED AMENDMENT AMENDMENT PRICE AMENDMENT
- ------------------------- ---------------- ------------ ------------ ------------ -------- ------------
(A) (B) (C) (D) (E) (F) (G)
Joseph V. Fisher October 24, 2001 280,000 (1) $4.35 $18.30 $4.35 7.7
President and Chief
Executive Officer
Martin A. Fox October 24, 2001 217,000 (2) $4.35 $18.30 $4.35 7.7
Executive Vice October 24, 2001 87,000 (2) $4.35 $ 8.75 $4.35 7.9
President and Chief
Financial Officer
</Table>
- ------------------------
(1) On October 24, 2001, 280,000 options previously granted to Mr. Fisher were
canceled in their entirety. On the same date, 260,000 options to purchase
shares of Common Stock were issued to Mr. Fisher (see table entitled
"Option/SAR Grants In Fiscal 2002" above).
(2) On October 24, 2001, 304,000 options (all of the options previously granted
to Mr. Fox) were canceled in their entirety. On the same date, 250,000
options to purchase shares of Common Stock were issued to Mr. Fox (see table
entitled "Option/SAR Grants In Fiscal 2002" above).
19
<Page>
AGGREGATED OPTION/SAR EXERCISES
IN LAST FISCAL YEAR, AND FY-END
OPTION/SAR VALUES
The following table sets forth information concerning the value of
unexercised options held by each of the persons named in the Summary
Compensation Table, as of February 2, 2002. No options were exercised by such
persons during Fiscal 2002.
<Table>
<Caption>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS/SARS
OPTIONS/SARS AT FY-END AT FY-END
(#) ($)
------------------------------ ------------------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE(1) UNEXERCISABLE(1)
- ---- ----------- ------------- -------------- ----------------
Joseph V. Fisher 136,000 264,000 $135,200 $540,800
Martin A. Fox 50,000 200,000 130,000 520,000
Leslie B. Knox 30,000 20,000 N/A N/A
Gerald P. Suppa 9,000 6,000 N/A N/A
Ralph L. Littlefield 6,000 9,000 18,075 27,113
</Table>
- ------------------------------
(1) Based on the fair market value of $6.95 per share on February 2, 2002.
20
<Page>
PENSION PLANS AND OTHER BENEFIT PLANS
THE PENN TRAFFIC CASH BALANCE PLAN
Messrs. Fisher, Fox, Knox, Littlefield, and Suppa participated in a
tax-qualified, defined benefit pension plan (the "Cash Balance Plan") for all
eligible employees of the Company other than employees subject to a collective
bargaining agreement. The Cash Balance Plan took effect 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 benefits payable
at normal retirement age for Messrs. Fisher, Fox, Knox, Littlefield and Suppa
are $93,929, $28,211, $15,447, $49,441 and $80,722, respectively, based upon
projected amounts accrued to normal retirement age.
In connection with the 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
"Salary."
SUPPLEMENTAL RETIREMENT PLAN FOR CERTAIN EXECUTIVES
Effective June 29, 1999, Penn Traffic established the Supplemental
Retirement Plan for Non-Employee Executives (the "Non-Employee Plan"), an
unfunded deferred compensation plan, pursuant to which certain non-employee
executives would be able to earn retirement benefits. Pursuant to the
Non-Employee Plan, Messrs. Hirsch and Fox would be able to accrue pay-based
retirement benefits in the amount of 3% of the management fees allocable to
Messrs. Hirsch and Fox during a plan year, and accrue interest credits on the
outstanding balance of their accumulated pay-based credits in the amount of 5%
each year. During Fiscal 2001, in accordance with Mr. Fox's employment
agreement, the Company established a supplemental retirement plan (the "Fox
Supplemental Plan") under which Mr. Fox is entitled to (i) retain all of his
accrued benefits under the Non-Employee Plan (including service from 1988 to the
date the new plan was established) and (ii) continue to accrue retirement
benefits in a comparable fashion to the manner in which his retirement benefits
were accrued under the Non-Employee Plan. The supplemental retirement benefit
under the Fox Supplemental Plan is based on an account balance, which was
$249,872 as of December 31, 2001. Mr. Fox accrues service credits under the Fox
Supplemental Plan at the rate of $15,000 per year and interest credits
21
<Page>
on his account balance in the amount of 5% per year. The estimated annual
benefit payable at normal retirement age for Mr. Fox under the Fox Supplemental
Plan is $86,326 based upon projected amounts accrued to normal retirement age.
Effective December 19, 2001, Penn Traffic established the Supplemental
Retirement Plan for Joseph V. Fisher (the "Fisher Supplemental Plan"), which
provides Mr. Fisher with a supplemental retirement benefit under an unfunded
deferred compensation plan. Mr. Fisher's supplemental retirement benefit will
be based on an account balance equal to the sum of the service credits and
interest credits under the Fisher Supplemental Plan described below less his
vested accrued benefit under the Cash Balance Plan attributable to periods of
service through January 31, 2005. At the inception of the Fisher Supplemental
Plan, Mr. Fisher was provided with a service credit of $318,449 for prior
service through January 31, 2001. On January 31, 2002, Mr. Fisher was provided
with a service credit of $100,028. Provided that he remains employed with the
Company on each January 31 of the years 2003, 2004 and 2005, Mr. Fisher will
accrue additional service credits in the amount of $100,028. If, prior to
January 31, 2005, (i) Mr. Fisher's employment is terminated by the Company
without cause, or by Mr. Fisher for "good reason," or (ii) Mr. Fisher's
employment agreement is terminated due to a "change of control," Mr. Fisher will
receive his service credits under the normal terms of the Fisher Supplemental
Plan notwithstanding the termination of his employment with the
Company. Additionally, at the end of each plan year until Mr. Fisher receives a
distribution under the Fisher Supplemental Plan, Mr. Fisher's account under the
Fisher Supplemental Plan will be increased with an interest credit in an amount
equal to 6% of his account balance.
In conjunction with the establishment of the Fisher Supplemental Plan,
Penn Traffic has amended the Cash Balance Plan to provide as much of the Fisher
Supplemental Plan benefits as possible and still comply with the benefit
limitation requirements of Internal Revenue Code section 415 and the
non-discrimination requirements of Internal Revenue Code
section 401(a)(4). The estimate of annual benefits payable to Mr. Fisher in the
description of the Penn Traffic Cash Balance Plan above assumes that all Fisher
Supplemental Plan benefits will be payable through the Cash Balance Plan.
22
<Page>
EMPLOYMENT CONTRACTS
EMPLOYMENT AGREEMENT WITH JOSEPH V. FISHER
On December 19, 2001, the Company and Mr. Fisher entered into an
employment agreement which amended and restated in its entirety Mr. Fisher's
earlier employment agreement with the Company and provides for Mr. Fisher to
continue to serve in the position of President and Chief Executive Officer of
the Company for a term commencing on December 19, 2001 and ending on
January 31, 2005. The following describes the principal terms of Mr. Fisher's
employment agreement.
Mr. Fisher is entitled to receive an annual base salary of $1,000,000 and
a discretionary bonus ranging from 0 to 75% of his base salary depending on
performance. On October 24, 2001, as an inducement to enter into the employment
agreement, Mr. Fisher was granted ten-year options to purchase 260,000 shares of
Penn Traffic's Common Stock at an exercise price of $4.35 per share. The
options vest on the following schedule: 20% on the date of grant, 20% on each of
the first and second anniversaries of the date of grant and 40% on the third
anniversary of the date of grant. In addition, Mr. Fisher holds ten-year
options with a four-year vesting schedule to purchase 140,000 shares of Penn
Traffic's Common Stock with an exercise price of $8.75 per share that were
granted to him on September 22, 1999.
The employment agreement provides that if Mr. Fisher's employment is
terminated by the Company other than as a result of death, disability or for
cause, or if Mr. Fisher terminates his employment for "good reason," the Company
will pay Mr. Fisher a lump sum payment equal to the aggregate amount of his base
salary then in effect for the period from the date of termination through
January 31, 2005; provided that, if the termination occurs between January 31,
2004 and January 31, 2005, he will receive a lump sum payment equal to the
aggregate of 12 months of his base salary and the Company will continue to
provide Mr. Fisher with benefits for a period of 12 months.
The employment agreement also provides that Mr. Fisher will be entitled to
receive certain lump sum payments upon certain specified changes of control
provided that Mr. Fisher's employment has not been terminated by the Company for
"cause" or he has not terminated his employment other than for "good reason"
during the term of the employment agreement (subject to offset as set forth in
the last sentence of this paragraph). Specifically, if at any time prior to
January 31, 2005, the Company enters into a definitive agreement with respect to
a change of control (as defined) or a change of control occurs, then Mr. Fisher
will be entitled to receive on the date of the occurrence of a change of control
a lump sum payment in the following amount (the "Change of Control Payment"):
the greater of (i) Mr. Fisher's base salary for the remainder of the term and
(ii) three times his annual base salary. Further, if the Company enters into a
definitive agreement with respect of a change of control or a change of control
occurs prior to the
23
<Page>
"Carryover Determination Date" (as described below), Mr. Fisher may elect to
receive, at his option, the Change of Control Payment or the Carryover Change of
Control Payment (as described below) on the date of the occurrence of such
change of control. Under the employment agreement, the "Carryover Determination
Date" means the later of (i) January 31, 2002 or (ii) one year following the
termination of any engagement letter entered into between the Company and an
investment bank retained prior to January 31, 2002 for purposes of advising the
Company with respect to any change of control transaction. "Carryover Change of
Control Payment" means the greater of (a) Mr. Fisher's base salary for the
remainder of the term of the employment agreement (but not less than one year's
base salary) and (b) $4.9 million minus the "in the money value" on the date of
the occurrence or a "change of control" of Mr. Fisher's options granted on
September 22, 1999 and October 24, 2001 that are vested and exercisable. All
payments described in this paragraph would be offset by any payments Mr. Fisher
receives as a result of his termination by the Company other than as a result of
death, disability or "cause" or his resignation for "good reason" for periods
following a "change of control."
In the event that any payment made to Mr. Fisher pursuant to a "change of
control" is subject to the excise tax imposed by Section 4999 of the Internal
Revenue Code of 1986, as amended, Mr. Fisher shall be entitled to an additional
payment amount such that, after payment of all taxes by Mr. Fisher, including
any excise tax imposed on such additional payment, he will retain an amount
equal to the excise tax imposed on the payment made to him upon a "change of
control."
EMPLOYMENT AGREEMENT WITH MARTIN A. FOX
On December 19, 2001, the Company and Mr. Fox entered into an employment
agreement which amended and restated in its entirety Mr. Fox's earlier
employment agreement with the Company and provides for Mr. Fox to continue to
serve in the position of Executive Vice President and Chief Financial Officer of
the Company for a term commencing on December 19, 2001 and ending on
December 31, 2004. The following describes the principal terms of Mr. Fox's
employment agreement.
Mr. Fox is entitled to receive an annual base salary of $1,000,000 and a
discretionary bonus ranging from 0 to 37.5% of his base salary depending on
performance. On October 24, 2001, as an inducement to enter into the employment
agreement, Mr. Fox was granted ten-year options to purchase 250,000 shares of
Penn Traffic's Common Stock at an exercise price of $4.35 per share. The
options vest on the following schedule: 20% on the date of grant, 20% on each of
the first and second anniversaries of the date of grant and 40% on the third
anniversary of the date of grant.
The employment agreement also provides that if Mr. Fox's employment is
terminated by the Company other than as a result of death, disability or for
"cause" or if Mr. Fox terminates his employment for "good reason," the Company
will pay Mr. Fox a
24
<Page>
lump sum payment equal to the aggregate amount of his base salary then in effect
for the period from the date of termination through December 31, 2004 and
continue to provide Mr. Fox with benefits for a period of 12 months.
The employment agreement also provides that Mr. Fox will be entitled to
receive certain lump sum payments upon certain specified changes of control,
provided that Mr. Fox's employment has not been terminated by the Company for
"cause" or he has not terminated his employment other than for "good reason"
during the term of the employment agreement (subject to offset as set forth in
the last sentence of this paragraph). Specifically, if at any time prior to
December 31, 2004, the Company enters into a definitive agreement with respect
to a change of control (as defined) or a change of control occurs, then Mr. Fox
will be entitled to receive a lump sum payment on the date of the occurrence of
a change of control in the following amount (the "Change of Control Payment"):
the greater of (i) Mr. Fox's salary for the remainder of the term and (ii) two
times his annual base salary. Further, if the Company enters into a definitive
agreement with respect of a change of control or a change of control occurs
prior to the "Carryover Determination Date" (as described below), Mr. Fox may
elect to receive, at his option, the Change of Control Payment or the Carryover
Change of Control Payment (as described below) on the date of the occurrence of
such change of control. Under the employment agreement, the "Carryover
Determination Date" means the later of (i) December 31, 2001 or (ii) one year
following the termination of any engagement letter entered into between the
Company and an investment bank retained prior to December 31, 2001 for purposes
of advising the Company with respect to any "change of control"
transaction. "Carryover Change of Control Payment" means the greater of
(a) Mr. Fox's base salary for the remainder of the term of the employment
agreement and (b) $2.9 million minus the "in the money value" on the date of the
occurrence of a change of control of Mr. Fox's options granted on October 24,
2001 that are vested and exercisable. All payments described in this paragraph
would be offset by any payments Mr. Fox receives as a result of his termination
by the Company other than as a result of death, disability or "cause" or his
resignation for "good reason" for periods following a "change of control."
In the event that any payment made to Mr. Fox pursuant to a "change of
control" is subject to the excise tax imposed of Section 4999 of the Internal
Revenue Code of 1986, as amended, Mr. Fox shall be entitled to an additional
payment amount such that, after payment of all taxes by Mr. Fox, including any
excise tax imposed on such additional payment, he will retain an amount equal to
the excise tax imposed on the payment made to him upon a "change of control."
25
<Page>
TERMINATION OF MANAGEMENT AGREEMENT WITH HIRSCH & FOX LLC
On January 31, 2000, the Company and Hirsch & Fox LLC entered into an
agreement terminating the management agreement pursuant to which Hirsch & Fox
LLC provided management and consulting services to the Company (the "Termination
Agreement"). Under the Termination Agreement, Hirsch & Fox LLC received, among
other things, a lump sum payment of $4.9 million (the "Cash Payment") and
reimbursement for all of its documented expenses incurred through
January 31, 2000. The Cash Payment was allocated as follows:
(i) $1.35 million in full satisfaction of management fees allocable to
Mr. Hirsch under the Management Agreement, (ii) $1.7 million in full
satisfaction of Mr. Hirsch's right to receive a payment upon a change of control
as contemplated by the Management Agreement, (iii) $300,000 in exchange for the
cancellation of his then-exercisable options to purchase 360,000 shares of
Common Stock and (iv) $1.55 million in full satisfaction of management fees and
annual bonus allocable to Mr. Fox under the Management Agreement. In exchange
for these payments and other non-cash consideration, Hirsch & Fox LLC agreed to
forego the remainder of the term under the Management Agreement, which was
scheduled to expire on June 30, 2001. In addition, Mr. Fox entered into a
separate employment agreement with the Company on January 31, 2000 to act as the
Company's Executive Vice President and Chief Financial Officer. Such agreement
was amended and restated on December 19, 2001 (see "Employment Agreement with
Martin A. Fox" above).
CHANGE OF CONTROL POLICY
The Company's Executive Enhanced Severance Policy, effective from
January 1, 2000 through December 31, 2003, provides that in the event of a
"Change of Control" (as defined in the policy), certain executives of the
Company will be eligible to receive severance payments ranging from six months
to 18 months of base salary if such executive's employment is terminated within
one year of such change of control for reasons other than "Cause" or "Total
Disability" (each as defined in the policy) or if the executive terminates
his/her employment for "Good Reason" (as defined in the policy) within one year
of such change of control. Under the policy, each executive has the option of
receiving his/her severance payment in a lump sum or in the same manner as base
salary would have been paid to the executive had he/she remained employed by the
Company within one year of such change of control.
26
<Page>
COMPENSATION OF DIRECTORS
In Fiscal 2002, directors who were not regularly employed by the Company
received an annual fee of $25,000 ($6,250 per quarter). Each such director was
also paid a fee of $2,500 for attendance at each Board meeting and $1,500 for
attending telephonic meetings of the Board. Committee members of the Board
receive $5,000 per annum ($1,250 per quarter) and $1,000 for attending meetings
of committees (other than telephonic meetings) and $500 for attending meetings
of the committee held in conjunction with the Board meeting attended. Directors
who are officers of the Company do not receive fees for attending meetings of
the Board of Directors or its committees. On July 11, 2001,
Messrs. Allumbaugh, Collins, Jenkins, Nechamkin, Rosenblatt, Sonnino and Zurkow
each received a grant of 1,000 fully vested options to purchase Common Stock
with an exercise price of $4.48 per share pursuant to the Directors Plan.
On March 29, 2001, the Board created the position of Lead Outside Director
and appointed Mr. Collins to that position. The Lead Outside Director is
responsible for, among other things, coordinating the activities of the
independent directors and serving as Chairman of the Audit Committee. The Lead
Outside Director received an annual fee of $25,000 ($6,250 per quarter) in
Fiscal 2002 in addition to the fees described above.
In July 1999, the Company adopted the Directors Plan. The Directors Plan
makes available to the Company's directors, who are not employees of the
Company, options to acquire in the aggregate up to 250,000 shares of Common
Stock. Under the terms of the Directors Plan, each eligible director receives
as of the date of appointment to the Board of Directors an option to purchase
20,000 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. The Directors Plan also provides for the issuance of
additional options annually thereafter as of the first business day after the
conclusion of each Annual Meeting of Stockholders of the Company. In July 2000
and July 2001, each director received options to purchase an additional 1,000
shares. The options expire ten years after the date of grant and vest
immediately upon issuance. Options to acquire an additional 76,000 shares may
be granted under the Directors Plan.
27
<Page>
COMPENSATION AND STOCK OPTION COMMITTEE
The Compensation and Stock Option Committee (the "Compensation Committee")
of the Board of Directors is currently composed of Messrs. Allumbaugh, Collins,
Jenkins, Nechamkin and Zurkow with Mr. Zurkow as Chairman.
The Compensation Committee reviews the annual recommendations of the Chief
Executive Officer 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 Equity Plan and
Directors Plan.
ANNUAL COMPENSATION
SALARY
Salary adjustments for executive officers are generally made annually and
are based on salary for the prior year, executive salary movement nationally and
within the food distribution industry, individual performance, length of service
and internal comparability considerations.
CASH BONUS PLANS
Cash bonuses are paid to executive officers under the Company's Corporate
Incentive Plan (the "CIP"). Participants in the CIP are determined by the Board
of Directors upon recommendation of the Compensation Committee. Target bonus
opportunities under the CIP are based on achievement of previously established
financial goals for the Company, and on achievement of individual objectives.
For Fiscal 2002, bonuses were accrued pursuant to the CIP. For Fiscal
2001, no bonuses were paid pursuant to the CIP, except for
Mr. Littlefield. For Fiscal 2000, bonuses were accrued and paid pursuant to the
CIP.
STOCK OPTIONS
In addition to Annual Compensation, the Company provides to certain of its
officers and employees long-term incentive compensation under the Company's
Equity Plan. Most of the stock options granted under the Equity Plan vest over
a period of years determined by the Company's Compensation Committee. The
Equity Plan provides for long-term incentives based upon objective, quantifiable
measures of the Company's performance over time through the payment of incentive
compensation, including the grant of stock options. See also "Executive
Compensation - Summary Compensation Table" above.
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<Page>
On October 24, 2001, the Company canceled 497,000 options with an exercise
price of $18.30 (280,000 of which were held by Mr. Fisher and 217,000 of which
were held by Mr. Fox) and 87,000 options with an exercise price of $8.75 (all
held by Mr. Fox). On the same date, 510,000 new options were issued (260,000 to
Mr. Fisher and 250,000 to Mr. Fox) with an exercise price of $4.35 (the market
price on the grant date). In determining to cancel and reissue these options,
the Board of Directors considered that the primary purpose of issuing stock
options was to provide the Company's executives with additional incentive to
perform at high levels and to continue their employment with the Company. The
Board of Directors noted at the time of the negotiations with Messrs. Fisher and
Fox concerning their continued employment with the Company that their
outstanding options, whether or not they were currently exercisable, had
exercise prices that were significantly higher than the current market price of
the Common Stock. The Board of Directors believed these options were unlikely
to be exercised in the foreseeable future. By offering to cancel certain of
Mr. Fisher's and all of Mr. Fox's existing options and issue new options that
would have an exercise price equal to the market value of the Common Stock on
the grant date, the Board of Directors intended to provide Messrs. Fisher and
Fox with improved performance incentives for increasing stockholder value.
OTHER COMPENSATION
The Company also provides to its executive officers other compensation,
such as retirement income, described elsewhere in this Proxy Statement. The
amounts of these benefits generally are tied directly to salaries, as variously
defined in the relevant plans. Such additional benefits are believed to be
typical of the benefits provided by other public companies to their executives.
CHIEF EXECUTIVE OFFICER COMPENSATION
Mr. Fisher receives his annual compensation pursuant to his employment
agreement. In addition, Mr. Fisher received grants of options to purchase
400,000 shares of Common Stock that are intended to provide him with an
incentive to increase stockholder value. For a more in-depth discussion of
Mr. Fisher's employment agreement, please see the discussion of Joseph V.
Fisher's compensation under his employment agreement above.
Peter L. Zurkow, Chairman
Byron E. Allumbaugh
Kevin P. Collins
David B. Jenkins
Gabriel S. Nechamkin
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REPORT OF THE AUDIT COMMITTEE
The Audit Committee is composed of four independent directors and operates
under a written charter adopted by the Board of Directors. The charter was
reproduced in the Fiscal 2001 Proxy Statement as Exhibit A. The current members
of the Committee are Messrs. Collins (Chairman), Jenkins, Sonnino and Zurkow,
each an outside independent director. The members of the Audit Committee held
two meetings during Fiscal 2002. In addition, the Chairman of the Audit
Committee held discussions with the Company's financial management and the
Company's independent auditors regarding the Company's Consolidated Statement of
Operations and Consolidated Balance Sheet and matters required by the Statement
of Auditing Standards ("SAS") No. 61, as amended by SAS 89 and 90, prior to the
public announcement of financial results of the Company's financial results for
the first, second and third quarters of Fiscal 2002, and reviewed the Company's
Form 10-Q's prior to such reports being filed with the Securities and Exchange
Commission. Further, the Audit Committee reviewed the Company's Form 10-K for
Fiscal 2002 prior to such report being filed with the Securities and Exchange
Commission.
The Audit Committee's primary function is to assist the Board of Directors
in fulfilling its oversight responsibilities by reviewing (i) the financial
reports and other financial information provided by the Company to the
shareholders, the public and others, (ii) the systems of internal controls
regarding finance, accounting, legal compliance and ethical behavior that
management and the Board of Directors have established and (iii) the Company's
auditing, accounting and financial reporting process generally.
The Company's independent auditors provided to the Audit Committee the
written disclosures required by Independence Standards Board Standard No. 1
(Independence Discussions with the Audit Committee) and the Audit Committee has
discussed with the independent auditors that firm's independence. Based on this
discussion, the Audit Committee recommends to the Board of Directors the
appointment of PricewaterhouseCoopers LLP as the Company's independent auditors.
Based on the Audit Committee's review of the Company's consolidated
financial statements and its discussions with management and the Company's
independent auditors, the Audit Committee recommended that the Board of
Directors include the audited consolidated financial statements for Fiscal 2002,
in the Company's 10-K filed with the Securities and Exchange Commission.
AUDIT FEES
Aggregate fees, including out-of-pocket expenses, for professional
services rendered by PricewaterhouseCoopers LLP in connection with (i) the audit
of the Company's consolidated financial statements for Fiscal 2002 and (ii) the
limited review of the Company's unaudited consolidated interim financial
statements, were $375,000.
30
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ALL OTHER FEES
In addition to the Audit Fees described above, the Company paid
PricewaterhouseCoopers LLP an aggregate of $730,100 for pension, actuarial, tax
and other services rendered during Fiscal 2002. No fees were paid during Fiscal
2002 for information technology consulting services.
The Audit Committee considered whether the non-audit services rendered by
PricewaterhouseCoopers LLP were compatible with maintaining
PricewaterhouseCoopers LLP's independence as auditors of our consolidated
financial statements.
Kevin P. Collins, Chairman
David B. Jenkins
Mark D. Sonnino
Peter L. Zurkow
31
<Page>
PERFORMANCE GRAPH
The following are graphs which compare the cumulative total stockholder
return of the Company's Common Stock, the cumulative total return of Standard &
Poor's 500 Stock Index ("S&P Index") and the cumulative total return of
Standard & Poor's Retail Food Index ("S&P Food Index") for (i) the period from
February 1, 1997 through June 28, 1999 and (ii) the period from June 29, 1999
through February 2, 2002. The Company includes two graphs to demonstrate
(i) the performance of its former Common Stock through the date of the
completion of the Company's financial restructuring and (ii) the performance of
the Common Stock since the completion of the Company's financial restructuring
on June 29, 1999.
<Table>
<Caption>
02/01/97 01/31/98 01/30/99 06/28/99 06/29/99 01/29/00 02/03/01 02/02/02
-------- -------- -------- -------- -------- -------- -------- --------
Penn Traffic........................... $100 $255 $30 $ 6 $100 $63 $32 $53
S & P 500.............................. 100 125 163 169 100 101 100 83
S & P Food............................. 100 135 180 154 100 66 81 68
</Table>
(1) Assumes $100 invested on February 1, 1997, in the Company's former
common stock, the S&P 500 Index and the S&P Food Index (also assumes
reinvestment of dividends).
(2) Assumes $100 invested on June 29, 1999, in Penn Traffic Common Stock,
the S&P 500 Index and the S&P Food Index (also assumes reinvestment of
dividends).
(3) The stockholder returns shown are neither determinative nor indicative
of future performance.
32
<Page>
2. RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS
The Board of Directors has selected PricewaterhouseCoopers LLP,
independent certified public accountants, as independent auditors for the
Company for the fiscal year ending February 1, 2003. A proposal to ratify such
selection will be submitted to stockholders at the Annual Meeting. Although
ratification by stockholders is not a prerequisite for the Board of Directors to
select PricewaterhouseCoopers LLP as the Company's independent auditors, the
Company believes such ratification to be desirable. If the stockholders do not
ratify the selection of PricewaterhouseCoopers LLP, the selection of independent
auditors will be reconsidered by the Board of Directors; however, the Board of
Directors may select PricewaterhouseCoopers LLP notwithstanding the failure of
the stockholders to ratify its selection.
It is expected that a representative of PricewaterhouseCoopers LLP will be
present at the meeting, will have an opportunity to make statements and will be
available to respond to appropriate questions.
PricewaterhouseCoopers LLP, or its predecessor, has performed the annual
examination of the Company's financial statements since 1981.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THIS
PROPOSAL. PROXIES SOLICITED BY THE BOARD OF DIRECTORS WILL BE SO VOTED UNLESS
STOCKHOLDERS SPECIFY A CONTRARY VOTE.
33
<Page>
3. ALL OTHER MATTERS THAT MAY COME BEFORE THE MEETING
As of the date of this Proxy Statement, the Board of Directors knows of no
business that will be presented for consideration at the meeting other than that
referred to above. As to other business, if any, that may come before the
meeting, proxies in the enclosed form will be voted in accordance with the
judgment of the person or persons voting the proxies.
4. STOCKHOLDER NOMINATIONS AND PROPOSALS
The Company's by-laws require that there be furnished to the Company
written notice with respect to the nomination of a person for election as a
director (other than a person nominated as a director by the Board of
Directors), as well as the submission of a proposal (other than a proposal
submitted at the direction of the Board of Directors) at a meeting of
stockholders. For any such nomination or submission to be proper, the notice
must contain certain information concerning the nominating or proposing
stockholder, and the nominee or the proposal, as the case may be, and must be
furnished to the Company generally not less than 30 days prior to the
meeting. A copy of the applicable by-law provisions may be obtained, without
charge, upon written request to the Secretary of the Company at its principal
executive offices.
In accordance with the rules of the Securities and Exchange Commission,
any proposal of a stockholder intended to be presented at the Company's 2003
Annual Meeting of Stockholders must be received by the Secretary of the Company
by April 16, 2003, for the proposal to be considered for inclusion in the
Company's notice of meeting, proxy statement and proxy relating to the 2003
Annual Meeting of Stockholders, provided, however, that in the event that the
date of the annual meeting is changed by more than 30 days from such anniversary
date (July 17, 2002), notice by the stockholder to be timely must be received no
later than the close of business on the 10th day following the day on which
public announcement of the date of such meeting is first made.
34
<Page>
5. ADDITIONAL INFORMATION
At any time prior to their being voted, the enclosed proxies are revocable
by written notice to the Secretary of the Company, by giving a later dated proxy
or by appearance at the meeting and voting in person. A quorum comprising the
holders of a majority of the outstanding shares of Common Stock on the record
date must be present in person or represented by proxy for the transaction of
business at the Annual Meeting.
Solicitation of proxies will be made by mail, telephone and, to the extent
necessary, by telegrams and personal interviews. Expenses in connection with
the solicitation of proxies will be borne by the Company. Brokers, custodians
and fiduciaries will be requested to transmit proxy material to the beneficial
owners of Common Stock held of record by such persons, at the expense of the
Company. The Company has retained W.F. Doring to aid in the solicitation of
proxies, and for its services the Company expects to pay fees of approximately
$3,500 plus expenses.
By Order of the Board of Directors
FRANCIS D. PRICE JR.
Secretary
May 30, 2002
Syracuse, New York
35
<Page>
PROXY - THE PENN TRAFFIC COMPANY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF THE COMPANY FOR
THE ANNUAL MEETING OF STOCKHOLDERS - JULY 17, 2002
The undersigned hereby appoints Peter L. Zurkow, Joseph V. Fisher and Martin A.
Fox proxies, each with the power to appoint his substitute and with authority in
each to act in the absence of the other, to represent and to vote all shares of
common stock of The Penn Traffic Company which the undersigned is entitled to
vote at the Annual Meeting of Shareholders to be held at the Wyndham Hotel, 6301
Route 298, East Syracuse, New York 13057 on July 17, 2002 at 1:00 P.M. Eastern
Standard Time, and at all adjournments thereof, as indicated on the proposals
described in the Proxy Statement, and all other matters properly coming before
said meeting.
THIS PROXY WILL BE VOTED IN ACCORDANCE WITH THE SPECIFICATIONS MADE ON THE
REVERSE SIDE, BUT IF NO CHOICES ARE INDICATED, THIS PROXY WILL BE VOTED FOR ALL
NOMINEES LISTED ON THE REVERSE SIDE AND FOR PROPOSAL 2. ---
---
YOUR VOTE IS IMPORTANT!
PLEASE MARK, SIGN, DATE AND MAIL THIS PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE.
<Page>
<Table>
000000 0000000000 0 0000
THE PENN TRAFFIC COMPANY 000000000.000 ext
000000000.000 ext
000000000.000 ext
000000000.000 ext
000000000.000 ext
000000000.000 ext
MR A SAMPLE 000000000.000 ext
DESIGNATION (IF ANY)
ADD 1
ADD 2 HOLDER ACCOUNT NUMBER
ADD 3
ADD 4 C 1234567890 JNT
ADD 5
ADD 6
Use a black pen. Mark with
an X inside the grey areas /X/ / / Mark this box with an X if you have
as shown in this example. made changes to your name or address
details above.
- ------------------------------------------------------------------------------------------------------------------------------------
ANNUAL MEETING PROXY CARD
- ------------------------------------------------------------------------------------------------------------------------------------
A ELECTION OF DIRECTORS
1. The Board of Directors recommends a vote FOR all Nominees listed in Proposal 1.
FOR WITHHOLD FOR WITHHOLD FOR WITHHOLD
01 - Byron E. Allumbaugh / / / / 04 - Martin A. Fox / / / / 07 - Lief D. Rosenblatt / / / /
02 - Kevin P. Collins / / / / 05 - David B. Jenkins / / / / 08 - Mark D. Sonnino / / / /
03 - Joseph V. Fisher / / / / 06 - Gabriel S. Nechamkin / / / / 09 - Peter L. Zurkow / / / /
B ISSUES
The Board of Directors recommends a vote FOR Proposal 2.
FOR AGAINST ABSTAIN
2. The proposal to ratify the appointment / / / / / /
of PricewaterhouseCoopers LLP as the
independent accountants for The Penn
Traffic Company for the fiscal year
ending February 1, 2003.
To consider and approve such other
matters as may properly come before the
meeting.
All Proxies to vote at said Meeting or
any adjournments thereof heretofore
given by the undersigned are hereby
revoked. Receipt of Notice of Annual
Meeting and Proxy Statement is hereby
acknowledged.
C AUTHORIZED SIGNATURES - SIGN HERE - THIS SECTION MUST BE COMPLETED FOR YOUR
INSTRUCTIONS TO BE EXECUTED.
Please sign as name(s) appears on this proxy card. If joint account, each joint
owner should sign. When signing as attorney, executor, administrator, trustee or
guardian, please give full title as such. If corporation, please sign in full
corporate name by President or other authorized officer. If a partnership,
please sign in partnership name by authorized person.
Signature 1 - Please keep signature within the box Signature 2 - Please keep signature within the box Date (dd/mm/2002)
- --------------------------------------------------- --------------------------------------------------- -----------------------
/ / 2002
- --------------------------------------------------- --------------------------------------------------- -----------------------
</Table>