WAIVER AND FORBEARANCE AGREEMENT



         WAIVER AND FORBEARANCE AGREEMENT dated as of August 30, 2002 (the

"AGREEMENT"), among The Penn Traffic Company, Dairy Dell, Inc., Big M

Supermarkets Inc. and Penny Curtiss Baking Company Inc. (individually and

collectively, the "BORROWERS"), the Lenders (as defined below) and Fleet Capital

Corporation as Administrative Agent (the "AGENT"). This Agreement is made with

reference to the Revolving Credit and Term Loan Agreement dated as of June 29,

1999 (as the same has been and may be further amended, supplemented or modified

from time to time in accordance with its terms, the "CREDIT AGREEMENT"), among

the Borrowers, the Lenders party thereto (the "LENDERS"), the Agent, GMAC

Business Credit LLC as documentation agent ("GMAC") and AmSouth Bank and Bank of

America Trust and Savings Association as co-agents (together with GMAC, the

"ADDITIONAL AGENTS"). Capitalized terms used herein and not otherwise defined

shall have the meanings assigned to such terms in the Credit Agreement.



         WHEREAS, the Borrowers, the Lenders, the Agent and the Additional

Agents are parties to the Credit Agreement;



         WHEREAS, the Borrowers have (i) informed the Agent and the Lenders that

certain Events of Default currently exist, may exist or may arise under the

Credit Agreement and (ii) requested that the Agent and the Lenders temporarily

waive the effect of such Events of Default and forbear from exercising their

rights and remedies under the Credit Agreement;



         NOW THEREFORE, for good and valuable consideration, the receipt and

sufficiency of which is hereby acknowledged, the parties hereto agree as

follows:



                         SECTION I. WAIVER; FORBEARANCE



         1.01     ACKNOWLEDGMENT OF EVENTS OF DEFAULT. The Borrowers represent,

acknowledge and agree that (a) because of an accounting misstatement resulting

primarily from an inventory overstatement continuing for approximately three

years and three months in the Borrowers' Penny Curtiss baking operation, certain

Events of Default have or may have occurred and be continuing, and may arise

prior to the Forbearance Termination Date (as hereinafter defined), under the

Credit Agreement on account of such inventory overstatement, and (b) the

Borrowers may currently and/or prior to the Forbearance Termination Date be out

of compliance with one or more of Sections 8.14, 8.15, 8.16 and 8.17 of the

Credit Agreement which noncompliance would now or hereafter constitute one or

more Events of Default (as so described or specified in clauses (a) and (b),

collectively, the "DESIGNATED EVENTS OF DEFAULT"). The Borrowers also

acknowledge and agree that, but for the terms of this Agreement, the Agent and

the Lenders may, if they so elect, proceed to enforce their rights and remedies

under the Loan Documents. In addition, the Borrowers acknowledge and agree that

as a result of the Designated Events of Default, the Lenders are under no

obligation to advance additional funds to the Borrowers pursuant to the Credit

Agreement.



         1.02     WAIVER; FORBEARANCE. Subject to all of the terms and

conditions set forth herein, the Agent and each of the Lenders agree to waive

the Designated Events of Default and



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agree to forbear from exercising their rights and remedies under the Credit

Agreement and the other Loan Documents with respect to the Designated Events of

Default until that date (the "FORBEARANCE TERMINATION DATE") which is the

earliest to occur of (a) the failure after the date hereof of the Borrowers to

comply with any of the terms or conditions set forth in the Credit Agreement

and/or the other Loan Documents (except as waived by this Agreement), (b) the

occurrence after the date hereof of any Event of Default other than the

Designated Events of Default, (c) the failure of the Borrowers to comply with

any term set forth in this Agreement, including, without limitation, the

Borrowers' undertakings set forth in Section 5 hereof, (d) the date that the

Borrowers, any affiliate of the Borrowers or any person or entity claiming by or

through the Borrowers joins in, assists, cooperates or participates as an

adverse party or adverse witness in any suit or other proceeding against the

Agent, the Lenders the Additional Agents or any affiliate of the Agent or any

Lender or any Additional Agent relating to the indebtedness referred to as the

Obligations or any amounts owing hereunder in connection with or related to any

of the transactions contemplated by the Credit Agreement, the other Loan

Documents, this Agreement or any documents, agreements or instruments executed

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