<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended February 1, 1997
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
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (315) 453-7284
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
------------------------------ ----------------------
Common Stock, $1.25 par value New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: NONE
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past ninety (90) days.
YES X NO
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ X ]
The aggregate market value of voting stock held by non-affiliates of the
Registrant was $54,230,614 as of April 24, 1997.
Common Stock $1.25 par value Shares outstanding--10,867,941 as of April 24, 1997
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement dated May 1, 1997 provided to
Registrant's stockholders in connection with the annual meeting of
stockholders scheduled for June 3, 1997 are incorporated by reference in Part
III of this Form 10-K.
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FORM 10-K INDEX
<TABLE>
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PART I PAGE
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Item 1. Business 3
Item 2. Properties 13
Item 3. Legal Proceedings 13
Item 4. Submission of Matters to a Vote of Security Holders 13
Supplemental Item. Executive Officers of Registrant 14
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PART II
- -----------------------------------------------------------------------------------------------
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters 17
Item 6. Selected Financial Data 17
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 17
Item 8. Financial Statements and Supplementary Data 17
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 18
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PART III
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Item 10. Directors and Executive Officers of Registrant 58
Item 11. Executive Compensation 58
Item 12. Security Ownership of Certain Beneficial Owners
and Management 58
Item 13. Certain Relationships and Related Transactions 58
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PART IV
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Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K 59
</TABLE>
2
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PART I
ITEM 1. BUSINESS (AS OF FEBRUARY 1, 1997 UNLESS OTHERWISE NOTED)
GENERAL
The Penn Traffic Company ("Penn Traffic" or the "Company") is one of the
leading food retailers in the eastern United States. Penn Traffic operates 265
supermarkets in Pennsylvania, upstate New York, Ohio and northern West Virginia
under the names "Big Bear" and "Big Bear Plus" (78 stores), "Bi-Lo Foods" (40
stores), "Insalaco's" (29 stores), "P&C" (66 "P&C" stores and one "Big M"
store), "Quality Markets" (42 stores) and "Riverside" (9 stores). Penn Traffic
also operates a wholesale food distribution business which serves 114 licensed
franchisees and 99 independent operators. Total revenues for the fiscal year
ended February 1, 1997 ("Fiscal 1997") aggregated approximately $3.3 billion.
Approximately 65% of Penn Traffic's retail supermarket revenues are in
smaller communities where Penn Traffic believes it virtually always holds the
number one or number two market position. The balance of Penn Traffic's retail
supermarket revenues are in Columbus, Ohio, Buffalo and Syracuse, New York and
Scranton/Wilkes-Barre, Pennsylvania.
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, natural resources, retailing, health care services,
education and government services. No supermarket company competes against Penn
Traffic supermarkets representing 25% or more of the Company's retail
supermarket revenues, with the exception of The Kroger Co. and Wegmans Food
Markets, Inc., which compete against supermarkets representing approximately 35%
and 25% of Penn Traffic's retail supermarket revenues, respectively.
In addition, Penn Traffic operates a full-service dairy business in
Johnstown, Pennsylvania under the name "Sani-Dairy" and a bakery business in
Syracuse, New York under the name "Penny Curtiss".
Penn Traffic pursues a capital program that seeks to match store size and
format to local demographics and competitive conditions. During the five fiscal
years ended February 1, 1997, Penn Traffic opened or remodeled approximately 60%
of its retail supermarket square footage. These larger, more modern facilities
strengthen Penn Traffic's competitive position and enable it to offer its
customers a broader variety of specialty departments, including pharmacies,
bakeries, delicatessens, floral products, greeting cards and other general
merchandise.
The principal executive offices of Penn Traffic are located at 1200 State
Fair Boulevard, Syracuse, New York 13221-4737. The Company's telephone number is
(315) 453-7284.
3
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Certain statements included in this Part I, Item 1, "Business", and
elsewhere in this Annual Report on 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:
general economic and business conditions; competition; the success or failure of
the Company in implementing its current business strategy; changes in the
Company's business strategy; availability, location and terms of sites for store
development; availability, terms of development of capital; labor relations; and
labor and employee benefit costs.
RETAIL FOOD DISTRIBUTION BUSINESS
Penn Traffic is one of the leading supermarket retailers in its primary
operating areas which include New York, Pennsylvania and Ohio. Penn Traffic's
supermarkets are primarily located in towns and small cities.
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 65,000 square feet, which contain numerous specialty
service departments such as bakeries, delicatessens, floral departments and
fresh seafood departments. Penn Traffic's "Plus" format stores range in size
from 65,000 to 140,000 square feet. These full service supermarkets carry an
expanded variety of nonfood merchandise.
Penn Traffic's supermarkets offer a broad selection of grocery, meat,
poultry, seafood, dairy, fresh produce, delicatessen, bakery and frozen food
products. The stores also offer nonfood products and services such as health
and beauty products, housewares, general merchandise, floral items, video
rental departments and banking services. In general, Penn Traffic's larger
stores carry broader selections of merchandise and feature a larger variety
of service departments. Most of the Company's supermarkets are located in
shopping centers.
4
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Selected statistics on Penn Traffic's retail food stores are presented
below.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
---------------------------------------------------------------------------------
FEBRUARY 1, FEBRUARY 3, JANUARY 28, JANUARY 29, JANUARY 30,
1997 1996 1995 1994 1993
----------------- ------------- ------------- ------------- -------------
(53 WEEKS)(1)
<S> <C> <C> <C> <C> <C>
Average annual revenues per store.... $ 10,598,000 $ 10,900,000 $ 11,648,000 $ 11,428,000 $ 11,441,000
Total store area in square feet...... 10,737,891 10,424,538 9,927,633 8,803,297 7,868,411
Total store selling area in square
feet............................... 7,780,811 7,527,665 7,140,390 6,333,023 5,684,179
Average total square feet per
store.............................. 40,520 39,338 37,182 37,945 36,260
Average square feet of selling area
per store.......................... 29,362 28,406 26,743 27,298 26,194
Annual revenues per square foot of
selling area....................... $ 367.52 $ 397.13 $ 423.43 $ 427.72 $ 453.00
Number of stores: Remodels/
expansions (over $100,000)......... 7 15 9 39 12
New stores opened.................... 5 11 12 12 10
Stores acquired...................... 2 2 31(2) 19(3) 29(4)
Stores closed........................ 7 15 8 16 11
Size of stores (total store area):
Up to 19,999 square feet............. 37 37 39 29 33
20,000--29,999
square feet...... 52 56 67 60 63
30,000--44,999
square feet...... 93 95 96 86 73
45,000--60,000
square feet...... 55 53 48 43 36
Greater than 60,000 square feet...... 28 24 17 14 12
Total stores open at fiscal year-
end................................ 265 265 267 232 217
</TABLE>
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(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 the addition of 12 Insalaco's stores acquired by the Company in
September 1993 which the Company initially operated.
(4) Includes the addition of 23 stores acquired from the Peter J. Schmitt Co.,
Inc. in January 1993 which the Company initially operated.
5
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WHOLESALE FOOD DISTRIBUTION BUSINESS
Penn Traffic licenses the use of its "Riverside", "Bi-Lo Foods" and "Big M"
names to 114 independently-owned supermarkets that are required to maintain
certain quality and other standards and 99 independent operators. The majority
of these independent stores use Penn Traffic as their primary wholesaler and
also receive advertising, accounting, merchandising, consulting and retail
counseling services from Penn Traffic. Penn Traffic receives rent from 63 of the
licensed independent operators which lease or sublease the supermarket
buildings.
In Fiscal 1997, Penn Traffic's wholesale operations accounted for $401.9
million or 12.2% of total revenues. The incremental volume provided by wholesale
operations enhances Penn Traffic's purchasing power and the efficiency of its
distribution system.
At February 1, 1997, Penn Traffic had guaranteed obligations of $0.5 million
of indebtedness of certain of such licensed independent operators.
FOOD PROCESSING OPERATIONS
The Company owns and operates Johnstown Sanitary Dairy ("Sani-Dairy"), a
dairy processing plant in Johnstown, Pennsylvania, which is one of the largest
dairies in Pennsylvania. Sani-Dairy sells its products to certain Penn
Traffic-owned and licensed supermarkets and to other retail outlets located in
Pennsylvania and adjoining states.
Penn Traffic owns and operates Penny Curtiss Bakery ("Penny Curtiss"), a
bakery processing plant in Syracuse, New York. This operation primarily supplies
certain of the Company's stores and its affiliated accounts with private label
fresh and frozen bakery products. In addition, Penny Curtiss supplies several
other companies unrelated to Penn Traffic with bakery products.
MASS MERCHANDISING BUSINESS
During the second quarter of Fiscal 1996, Penn Traffic decided to close 11
of its 15 remaining stand-alone general merchandise stores (Harts) in Ohio.
During Fiscal 1997, one of the four remaining Harts stores was converted to a
Big Bear Plus store. The other three former Harts stores are now operated under
the Company's "Plus" trade name.
6
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PURCHASING AND DISTRIBUTION
Penn Traffic is a large volume purchaser of products. Penn Traffic's
purchases are of sufficient volume to qualify for minimum price brackets for
most items. Penn Traffic purchases brand name grocery merchandise directly from
national manufacturers. The Company purchases private label products and
certain other grocery items from TOPCO Associates, Inc., a national products
purchasing cooperative comprising 30 regional supermarket chains. In Fiscal
1997, purchases from TOPCO Associates accounted for approximately 17% of
product purchases.
Penn Traffic's principal Pennsylvania distribution facilities are a
Company-owned 390,000-square foot distribution center in DuBois, Pennsylvania
and a Company-owned 248,000-square foot distribution center in Scranton,
Pennsylvania. Penn Traffic also operates 196,000-square foot and 86,000-square
foot distribution centers for perishable products in DuBois and Scranton,
Pennsylvania, respectively. In addition, Penn Traffic leases a 70,000-square
foot warehouse in DuBois, Pennsylvania, in which Penn Traffic houses 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, New York.
The primary Ohio distribution center is a leased 484,000-square foot dry
grocery facility in Columbus, Ohio. Penn Traffic also owns a 208,000-square foot
distribution facility for perishable goods in Columbus, Ohio. The Company also
leases three additional warehouses totaling 603,000-square feet, in Columbus,
Ohio for distribution of general merchandise and health and beauty care items to
all Penn Traffic stores.
Approximately 75% of the merchandise offered in Penn Traffic's retail stores
is distributed from its warehouses by its fleet of 343 tractors, 439
refrigerated trailers and 520 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.
7
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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 and
"supercenters" (combination supermarket and general merchandise stores). No
supermarket company competes against Penn Traffic supermarkets representing 25%
or more of the Company's retail supermarket revenues, with the exception of The
Kroger Co. and Wegmans Food Markets, Inc., which compete against supermarkets
representing approximately 35% and 25% of Penn Traffic's retail supermarket
revenues, respectively.
8
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EMPLOYEES
Labor costs and their impact on product prices are important competitive
factors in the supermarket industry. At February 1, 1997, Penn Traffic had
approximately 25,500 hourly employees and 1,800 salaried employees.
Approximately 55% of Penn Traffic's hourly employees belong to the United
Food and Commercial Workers Union. An additional 6% of Penn Traffic's hourly
employees (principally employed in the distribution function and in the
Company's dairy and bakery plants) belong to five other unions. The Company
competes with certain independently-owned and chain-owned supermarkets, discount
drug stores, warehouse clubs, general merchandise stores, convenience stores and
supercenters, whose employees are not union affiliated.
The Company experienced a work stoppage at its Sani-Dairy division from
August 1, 1996 through September 22, 1996 affecting approximately 200 employees.
On September 16, 1996, a new five-year contract covering these employees was
ratified.
While management believes that the Company's relations with its employees
are good, a prolonged labor dispute could have an adverse effect on the Company.
GOVERNMENT REGULATION
The United States Department of Agriculture and the Pennsylvania Milk
Marketing Board each regulate and inspect all aspects of fluid milk and dairy
product production, enforcing strict standards of sanitation, product
composition, packaging and labeling, as well as regulating milk and dairy
product pricing. All dairy goods producers and distributors must comply with
substantially similar standards. Compliance by Penn Traffic with these standards
has not had and is not expected to have a significant effect on its earnings or
competitive position.
SEASONALITY, CUSTOMERS AND SUPPLIERS
The supermarket business of Penn Traffic is generally not seasonal in
nature. During the past three fiscal years, no single customer or group of
customers under common control accounted for 10% or more of Penn Traffic's
consolidated revenues. Groceries, general merchandise and raw materials are
available from many different sources. During the past three fiscal years, no
single supplier accounted for 10% or more of Penn Traffic's cost of sales except
TOPCO Associates, Inc. which accounted for approximately 17% of product
purchases in Fiscal 1997.
9
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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 + Co. ("MTH"). At the time
of the acquisition, Penn Traffic was the largest retail and wholesale food
distribution company in its principal operating area, comprising 19 counties in
central and northwestern Pennsylvania and southwestern New York. In 1988, Penn
Traffic again became a publicly held corporation and stated that it intended to
acquire retail and wholesale food distribution companies contiguous to its
operating area.
In August 1988, Penn Traffic acquired P&C Food Markets, Inc. ("P&C"), which
operates in a contiguous market to the east of Penn Traffic's historical
marketplace. In October 1991, P&C became a wholly-owned subsidiary of the
Company, and in April 1993, P&C was merged into the Company. P&C currently
operates as a division of the Company. P&C is headquartered in Syracuse, New
York and operates 66 "P&C" stores and one "Big M" store, franchises 64 "Big M"
stores and provides wholesaling services to 70 independent supermarkets.
In April 1989, Penn Traffic acquired Big Bear Stores Company ("Big Bear"), a
leading food retailer in Columbus and eastern Ohio, which is to the west of Penn
Traffic's traditional market area. In April 1993, Big Bear was merged into the
Company. Big Bear currently operates as a division of the Company. Big Bear is
headquartered in Columbus, Ohio and operates 78 retail supermarkets under the
names "Big Bear" and "Big Bear Plus".
In January 1993, Penn Traffic acquired 28 supermarkets located in western
New York and northwestern Pennsylvania from Peter J. Schmitt Co., Inc. Seventeen
of the stores are currently being operated by Penn Traffic.
In September 1993, Penn Traffic acquired the operating assets of Insalaco
Supermarkets, Inc. ("Insalaco's"), which consisted of 12 supermarkets in
northeastern Pennsylvania.
In January 1995, Penn Traffic acquired 45 supermarkets owned by American
Stores Company which had operated under the Acme trade name. Eighteen of these
acquired stores have been closed or sold. The Company is operating the remaining
27 stores under the Bi-Lo Foods, Insalaco's and P&C trade names.
10
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RELATIONSHIP WITH GRAND UNION
In April 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. As of February 2, 1991, Penn
Traffic had recorded losses which reduced the carrying value of its investment
to zero. 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 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 $700,000 per year based upon
sales performance of the stores operated by Grand Union. Pursuant to the
terms of the New England Operating Agreement, a $15 million prepayment of the
operating fee was made by Grand Union to Penn Traffic in July 1992. This
prepayment reduced the future payments that Grand Union will make to Penn
Traffic pursuant to the terms of the New England Operating Agreement by
approximately $3.2 million per year.
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. In the event of such extension
of the lease term, Grand Union will pay to Penn Traffic an annual fee of $13.6
million in the first year of the extended term, $14.0 million in the second
year, $14.4 million in the third year, $14.9 million in the fourth year and
$15.3 million in the fifth year, plus contingent fees based upon the sales
performance of the stores of up to $700,000 in each year.
11
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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 (i) prior to July 30, 1998, Grand Union may purchase the
stores operated under the New England Operating Agreement from Penn Traffic for
a purchase price equal to $95 million and (ii) from July 30, 1998 and until the
expiration of the term (or the extended term) of the 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.
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 will be returned to operation by
Penn Traffic.
12
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ITEM 2. PROPERTIES
Penn Traffic follows the general industry practice of leasing the majority
of its retail supermarket locations. Penn Traffic presently owns 43 and leases
222 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 1997 to
2016, excluding option periods. Penn Traffic also owns one supermarket and
leases 62 supermarkets which are leased or subleased to independent operators.
Penn Traffic also owns 10 shopping centers, eight of which contain one of
the Company-owned or licensed supermarkets. Penn Traffic also operates major
distribution centers in DuBois and Scranton, Pennsylvania; Syracuse and
Jamestown, New York; and Columbus, Ohio; a dairy plant in Johnstown,
Pennsylvania; 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 other miscellaneous real estate.
Penn Traffic believes that all of its properties, fixtures and equipment are
well maintained and in good condition.
ITEM 3. LEGAL PROCEEDINGS
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.
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 February 1, 1997.
13
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SUPPLEMENTAL ITEM. EXECUTIVE OFFICERS OF REGISTRANT
Certain information regarding the executive officers of Penn Traffic is set
forth as follows:
<TABLE>
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NAME AGE POSITION WITH PENN TRAFFIC
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<S> <C> <C>
Gary D. Hirsch 47 Chairman and Director
Martin A. Fox 43 Director, Vice Chairman--Finance and Assistant
Secretary
Phillip E. Hawkins 45 Director, President and Chief Executive Officer
Stephen V. Breech 55 Senior Vice President and President of Big Bear
Division
Nick Campbell 38 Senior Vice President--Marketing
Roy M. Flood 56 Senior Vice President and President of P&C Foods
Division
Eugene R. Sunderhaft 49 Senior Vice President--Finance and Secretary (Chief
Financial Officer)
David A. Adamsen 45 Vice President--Manufacturing
Larry B. Ammons 45 Vice President and President of Riverside Markets
Division
Michael T. Del Viscio 48 Vice President--Nonfood Merchandising
Bradley W. Melvin 47 Vice President--Operations Support
Francis D. Price, Jr. 47 Vice President, General Counsel and Assistant
Secretary
Randall J. Sweeney 45 Vice President and General Manager of Quality Markets
Division
H. Phillip Williams 48 Vice President, Construction and Engineering
</TABLE>
Each of the executive officers is a citizen of the United States.
14
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Mr. Hirsch has been a Director and Chairman of Penn Traffic since 1987. Mr.
Hirsch has been a general partner and the managing partner of MTH
(broker-dealer) since March 1982 and a Managing Director of MTH Holdings, Inc.
("MTH Holdings") since November 1983. He is Chairman, President and a Director
of RAC Partners, Inc. ("RAC Partners"), the sole general partner of Riverside
Acquisition Company, Limited Partnership ("RAC"). Mr. Hirsch 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 its
subsidiaries for certain periods between 1992 and March 1996.
Mr. Fox has been Director and Vice Chairman--Finance since February 1993.
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 has been
Executive Vice President of MTH since 1988. 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 its subsidiaries for certain periods between 1989 and March 1996.
Mr. Hawkins has been a Director and the President and Chief Executive
Officer of the Company since April 1, 1997. Prior to joining Penn Traffic, Mr.
Hawkins spent twenty-nine years at Vons Companies, where he held various
management positions including Senior Vice President, Stores (from 1994 until
March 1997), Group Vice President, Perishables (from 1992 until 1994), Vice
President and General Manager, Pavilions Operations (from 1991 until 1992), and
Vice President, Sales and Marketing (from 1989 until 1991).
Mr. Breech has been Senior Vice President of Penn Traffic and President
of the Big Bear division since September 1995. Mr. Breech was Senior Vice
President of Store Operations of Big Bear until September 1995. He was Vice
President of Construction and Real Estate of Big Bear from 1989 until 1995.
Mr. Breech served in various other positions at Big Bear between 1958 and
1989.
Mr. Campbell has been Senior Vice President of Marketing of Penn Traffic
since April 15, 1997. Mr. Campbell was Vice President of Sales and Merchandising
of the P&C division from 1995 until April 1997. Mr. Campbell served in various
other positions at Big Bear between 1976 and 1995.
Mr. Flood has been Senior Vice President of Penn Traffic and President of
the P&C division since January 1995. Mr. Flood was Executive Vice President of
Merchandising of the Big Bear division from 1990 until January 1995. He was Vice
President of Sales and Merchandising of P&C from 1986 until 1990 and served in
various other positions at P&C between 1977 and 1986.
Mr. Sunderhaft has been Senior Vice President--Finance of Penn Traffic since
January 1995 and has been Chief Financial Officer and Secretary of Penn Traffic
since May 1993. Mr. Sunderhaft had been a Vice President of Penn Traffic from
May 1993 until January 1995 and was Treasurer of Penn Traffic from May 1993
until April 1995. He became Vice President -Finance and Chief Financial Officer
of the P&C division in 1989 and served in various other positions at P&C between
1972 and 1989.
Mr. Adamsen has been Vice President of Manufacturing of Penn Traffic since
September 1994 and President of Penny Curtiss since 1986. Mr. Adamsen served in
various other positions at Penny Curtiss between 1974 and 1986.
15
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Mr. Ammons has been Vice President of Penn Traffic and President of the
Riverside division since April 1996. Mr. Ammons was Executive Vice President of
Riverside from 1990 until April 1996. Mr. Ammons served in various other
positions at Penn Traffic divisions between 1966 and 1990.
Mr. Del Viscio has been Vice President of Nonfood Merchandising of Penn
Traffic since July 1995. Mr. Del Viscio was Senior Vice President of General
Merchandise for Montgomery Ward from September 1994 until July 1995. From June
1991 until September 1994, Mr. Del Viscio was Senior Vice President and General
Merchandise Manager for Hess Department Stores.
Mr. Melvin has been Vice President--Operations Support since April 21, 1997.
Mr. Melvin was Director of Operations Support of Vons Companies from 1992 until
April 1997. Mr. Melvin served in various other positions at Vons between 1970
and 1992.
Mr. Price has been Vice President and General Counsel and Assistant
Secretary of Penn Traffic since February 1993. He was Vice President and General
Counsel of 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. Sweeney has been Vice President of Penn Traffic since January 1995 and
General Manager of the Quality Markets division since 1993. Mr. Sweeney served
in various other positions at Quality between 1974 and 1993.
Mr. Williams has been Vice President, Construction and Engineering of Penn
Traffic since April 1996. He was Vice President, Construction and Engineering of
the Big Bear division from October 1995 until April 1996. Mr. Williams served in
various other positions at Big Bear between 1970 and 1995.
In January 1995, Grand Union filed a voluntary petition for
reorganization under Chapter 11 of the United States Bankruptcy Code with the
United States Bankruptcy Court, District of Delaware (the "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 the executive officers of Penn
Traffic. The term of office of executive officers is for a one-year period
beginning on the date of the annual meeting of stockholders, which is normally
held in June of each year.
16
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Penn Traffic's common stock is listed on the New York Stock Exchange and was
held by approximately 491 stockholders of record on February 1, 1997.
Common stock information is provided on Page 18 of this Form 10-K.
ITEM 6. SELECTED FINANCIAL DATA
The comparative summary of selected financial data of Penn Traffic for the
five years ended February 1, 1997 appears on Pages 19 through 21 of this Form
10-K.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Management's Discussion and Analysis of Financial Condition and Results of
Operations appears on Pages 22 through 29 of this Form 10-K.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Report of Independent Accountants...................................................... 30
Consolidated Financial Statements:
Statement of Operations for each of the three fiscal years ended February 1, 1997...... 31
Balance Sheet as of February 1, 1997 and February 3, 1996.............................. 32
Statement of Stockholders' Equity for each of the three fiscal years ended February 1,
1997................................................................................. 34
Statement of Cash Flows for each of the three fiscal years ended February 1, 1997...... 35
Notes to Consolidated Financial Statements............................................. 37
Financial Statement Schedule for the three years ended February 1, 1997:
Schedule VIII--Valuation and Qualifying Accounts....................................... 68
</TABLE>
17
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
NONE
Quarterly Financial Data (Unaudited)
Summarized below is quarterly financial data for the fiscal years ended
February 1, 1997 and February 3, 1996.
<TABLE>
<CAPTION>
FISCAL 1997 FISCAL 1996
---------------------------------------------- ----------------------------------------------
1ST 2ND 3RD 4TH 1ST 2ND 3RD 4TH
(14 WEEKS)
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total revenues............. $ 827,658 $ 842,764 $ 811,125 $ 814,915 $ 860,028 $ 884,229 $ 844,619 $ 947,766
Gross margin............... $ 191,662 $ 194,181 $ 180,682 $ 198,556 $ 197,579 $ 198,372 $ 192,647 $ 223,405
Net (loss) income
applicable to common
stock (1) (2)............ $ (9,029) $ (10,149) $ (15,924) $ (6,328) $ 129 $ (51,704) $ (350) $ (27,700)
Per common share data:
Net (loss) income.......... $ (0.83) $ (0.93) $ (1.46) $ (0.58) $ 0.01 $ (4.76) $ (0.03) $ (2.55)
No dividends on common stock were paid during Fiscal 1997 and Fiscal 1996.
Other data:
Depreciation and
amortization................ $ 22,822 $ 22,980 $ 23,397 $ 23,506 $ 23,145 $ 22,607 $ 22,347 $ 24,380
LIFO provision (benefit)...... $ 1,000 $ 825 $ 825 $ (275) $ 858 $ 859 $ (2,389)
Market value per common share:
High.......................... $ 16 7/8 $ 13 3/4 $ 12 5/8 $ 5 3/8 $ 37 3/4 $ 35 1/2 $ 23 1/4 $ 17 3/8
Low........................... $ 13 $ 7 1/2 $ 4 7/8 $ 2 3/8 $ 30 1/2 $ 22 1/2 $ 11 1/8 $ 10 7/8
</TABLE>
- ------------------------
(1) During the second quarter of Fiscal 1996, the Company recorded certain
expenses totaling $65.2 million ($51.9 million net of tax benefit)
associated with the closure of the stand-alone general merchandise business
(Harts), a write-down of assets that the Company will no longer utilize in
its business and the Company's expense reduction program.
(2) As of the beginning of the fourth quarter of 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", which resulted in a noncash charge of $46.8 million ($27.7 million net
of tax benefit) primarily related to the write-down of a portion of the
recorded asset values (including allocable goodwill) of 18 of the Company's
supermarkets.
18
<PAGE>
CONSOLIDATED FIVE-YEAR FINANCIAL SUMMARY
Set forth below is selected historical consolidated financial data of Penn
Traffic for the five fiscal years ended February 1, 1997. 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"), and the adoption
of Statement of Financial Accounting Standards No. 112, "Employers' Accounting
for Postemployment Benefits" at the beginning of the fiscal year ended January
28, 1995, comparisons of the consolidated financial results among years are not
necessarily meaningful.
The selected historical consolidated financial data for the five fiscal
years ended February 1, 1997 are derived from the consolidated financial
statements of Penn Traffic which have been audited by Price Waterhouse LLP,
independent accountants. The selected historical consolidated financial data
should be read in conjunction with the Penn Traffic consolidated financial
statements and related notes included elsewhere herein.
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
AS OF AND FOR THE FISCAL YEAR ENDED
--------------------------------------------------------------------
FEBRUARY 3,
(IN THOUSANDS OF DOLLARS, FEBRUARY 1, 1996 JANUARY 28, JANUARY 29, JANUARY 30,
EXCEPT PER SHARE DATA) 1997 (53 WEEKS) 1995 1994 1993
- --------------------------------------------- ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Total revenues............................... $ 3,296,462 $ 3,536,642 $ 3,333,225 $ 3,171,600 $ 2,832,949
Cost of sales................................ 2,531,381 2,724,639 2,570,708 2,464,853 2,230,493
Selling and administrative expenses.......... 684,558 670,387 606,782 559,729 475,839
Unusual item (1)............................. 65,237 6,400
Write-down of long-lived assets (2).......... 46,847
------------ --------- ---------- ---------- ---------
Operating income............................. 80,523 29,532 155,735 140,618 126,617
Interest expense............................. 144,854 136,359 117,859 117,423 115,814
------------ --------- ---------- ---------- ---------
(Loss) income before income taxes,
extraordinary item and cumulative effect of
change in accounting principle............. (64,331) (106,827) 37,876 23,195 10,803
(Benefit) provision for income taxes......... (22,901) (27,202) 15,851 15,019 6,812
------------ --------- ---------- ---------- ---------
(Loss) income before extra-ordinary item and
cumulative effect of change in accounting
principle.................................. (41,430) (79,625) 22,025 8,176 3,991
Extraordinary item (net of tax benefit)(3)... (3,025) (25,843) (10,823)
------------ --------- ---------- ---------- ---------
(Loss) income before cumulative effect of
change in accounting principle............. (41,430) (79,625) 19,000 (17,667) (6,832)
Cumulative effect of change in accounting
principle (net of tax benefit) (4)......... (5,790)
------------ --------- ---------- ---------- ---------
Net (loss) income............................ (41,430) (79,625) 13,210 (17,667) (6,832)
Preferred dividends.......................... (159) (968)
------------ --------- ---------- ---------- ---------
Net (loss) income applicable to common
stock...................................... $ (41,430) $ (79,625) $ 13,210 $ (17,826) $ (7,800)
------------ --------- ---------- ---------- ---------
------------ --------- ---------- ---------- ---------
19
<PAGE>
Per Share Data:
(Loss) income before extra-ordinary item and
cumulative effect of change in accounting
principle (after preferred dividends)...... $ (3.81) $ (7.32) $ 1.97 $ 0.76 $ 0.37
Extraordinary item........................... (0.27) (2.45) (1.31)
Cumulative effect of change in accounting
principle.................................. (0.52)
------------ --------- ---------- ---------- ---------
Net (loss) income (5)........................ $ (3.81) $ (7.32) $ 1.18 $ (1.69) $ (0.94)
------------ --------- ---------- ---------- ---------
------------ --------- ---------- ---------- ---------
No dividends on common stock have been paid during the past five fiscal
years.
Balance Sheet Data:
Total assets....................... $1,704,119 $1,760,146 $1,793,966 $1,632,901 $1,417,230
Total funded indebtedness.......... 1,398,991 1,341,657 1,277,276 1,166,025 1,005,136
Redeemable preferred stock......... 11,477
Stockholders' equity............... (96,755) (53,271) 32,927 14,982 (40,488)
Other Data:
Depreciation and amortization...... 92,705 92,479 87,811 82,869 72,787
LIFO provision (benefit)........... 2,375 (672) 2,792 103 479
Capital expenditures, including
capital leases and
acquisitions..................... 69,785 136,139 202,357 182,730 144,718
Cash interest expense............. 140,289 132,062 113,664 113,270 111,478
</TABLE>
20
<PAGE>
Footnotes:
(1) 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 will
no longer utilize in its business and the Company's expense reduction
program.
During the fiscal year ended January 29, 1994 ("Fiscal 1994"), the
Company recorded certain expenses totaling $6.4 million classified as an
unusual item. This unusual item was comprised of $4.0 million related to a
voluntary employee separation program at the Company's P&C division and $2.4
million related to the realignment of certain operations.
(2) As of the beginning of the fourth quarter of 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." Accordingly, the Company recorded a noncash charge of $46.8 million
related primarily to the write-down of a portion of the recorded asset
values (including allocable goodwill) of 18 of the Company's supermarkets.
(3) The extraordinary items (net of income tax benefit) resulted from the early
retirement of debt.
(4) Effective January 30, 1994, the Company adopted Statement of Financial
Accounting Standards No. 112, "Employers' Accounting for Postemployment
Benefits" ("SFAS 112"). SFAS 112 requires employers to recognize the
obligation to provide postemployment benefits on an accrual basis if certain
conditions are met. The cumulative effect of the change in accounting
principle determined as of January 30, 1994 reduced net income by $5.8
million, net of a $4.1 million income tax benefit, for the 52-week period
ended January 28, 1995.
(5) Net (loss) income per share of common stock is based on the average number
of shares and equivalents, as applicable, of common stock outstanding during
each period. Fully diluted (loss) income per share is not presented for each
of the periods since conversion of the Company's shares under option would
be anti-dilutive or the reduction from primary (loss) income per share is
less than three percent.
21
<PAGE>
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 Annual Report on 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:
general economic and business conditions; competition; the success or failure of
the Company in implementing its current business strategy; changes in the
Company's business strategy; availability, location and terms of sites for store
development; availability, terms and development of capital; labor relations;
and labor and employee benefit costs.
RESULTS OF OPERATIONS
Fiscal Year Ended February 1, 1997 ("Fiscal 1997") Compared to Fiscal Year
Ended February 3, 1996 ("Fiscal 1996")
Fiscal 1997 was a 52-week year and Fiscal 1996 was a 53-week year.
The following table sets forth Statement of Operations components expressed
as percentages of total revenues for Fiscal 1997 and Fiscal 1996:
<TABLE>
<CAPTION>
PERCENTAGE OF TOTAL
REVENUES
FISCAL YEAR
--------------------
1997 1996
--------- ---------
<S> <C> <C>
Total revenues............................................................... 100.0% 100.0%
Gross profit (1)............................................................. 23.2 23.0
Selling and administrative expenses.......................................... 20.8 19.0
Unusual item................................................................. 1.9
Write-down of long-lived assets.............................................. 1.3
Operating income............................................................. 2.4 0.8
Interest expense............................................................. 4.4 3.8
(Loss) before income taxes................................................... (2.0) (3.0)
</TABLE>
- ------------------------
(1) Total revenues less cost of goods sold.
22
<PAGE>
Total revenues for Fiscal 1997 decreased 6.8% to $3.30 billion (52 weeks)
from $3.54 billion in Fiscal 1996 (53 weeks). Same store sales for Fiscal 1997
decreased by 3.4% from Fiscal 1996 (calculated on a comparable week basis).
The decrease in total revenues was primarily the result of the closure of
the stand-alone general merchandise business (Harts), a decline in same store
sales, a decline in wholesale revenues and the fact that Fiscal 1997 was a
52-week year while Fiscal 1996 was a 53-week year.
Fiscal 1996 revenues included $44.4 million generated by 11 of the Company's
former general merchandise stores (Harts) and two former Acme stores, which were
closed during Fiscal 1996. Excluding these closed stores, revenues for Fiscal
1997 decreased 5.6% from Fiscal 1996. Wholesale supermarket revenues decreased
in Fiscal 1997 to $401.9 million from $429.4 million in Fiscal 1996.
In Fiscal 1997, gross profit as a percentage of total revenues was 23.2%
compared to 23.0% in Fiscal 1996. The increase in gross profit as a percentage
of total revenues primarily resulted from the positive impact of the Company's
merchandising initiatives implemented during Fiscal 1997 and the classification
of certain expenses (approximately $9.7 million) as selling and administrative
expenses in Fiscal 1997 which had been recorded in cost of goods sold in Fiscal
1996. These factors were partially offset by 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.
Selling and administrative expenses as a percentage of total revenues
increased to 20.8% for Fiscal 1997 from 19.0% in Fiscal 1996. The increase in
selling and administrative expenses as a percentage of total revenues in Fiscal
1997 primarily resulted from (1) increased payroll related to the Company's
repositioning program which emphasizes increased levels of customer service and
enhanced perishables departments in stores, (2) an increase in fixed and
semi-fixed expenses as a percentage of total revenues during a period of low
price inflation and a decrease in same store sales and (3) the classification of
certain expenses (approximately $9.7 million) as selling and administrative
expenses in Fiscal 1997 which had been recorded in cost of goods sold in Fiscal
1996.
During the second quarter of Fiscal 1996, the Company recorded certain
expenses totaling $65.2 million ($51.9 million net of tax benefit) classified as
an unusual item. The unusual item was related to the closure of the stand-alone
general merchandise business (Harts), the write-off of equipment which the
Company determined would no longer utilize in its business, costs incurred in
connection with the Company's expense reduction program and an increase in the
Company's closed store reserve (Note 6).
23
<PAGE>
As of the beginning of the fourth quarter of 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"). As a result of this adoption, the Company recorded a noncash
charge of $46.8 million. This charge primarily related to the write-down of a
portion of the recorded asset values (including allocable goodwill) of 18 of the
Company's 265 supermarkets. No assets were written down in Fiscal 1997 (Note 7).
Depreciation and amortization expense of $92.7 million in Fiscal 1997 and
$92.5 million in Fiscal 1996 represented 2.8% and 2.6% of total revenues,
respectively.
The Company experienced a work stoppage at its Sani-Dairy division from
August 1, 1996 through September 22, 1996. Operating income was reduced by
approximately $2.5 million for Fiscal 1997 as a result of this work stoppage.
Operating income for Fiscal 1997 was $80.5 million or 2.4% of total revenues
compared to $29.5 million or 0.8% of total revenues in Fiscal 1996. Excluding
the effect of the unusual item and the write-down of certain impaired long-lived
assets, operating income for Fiscal 1996 was $141.6 million or 4.0% of total
revenues. The decrease in operating income (excluding the effect of the unusual
item and the write-down of certain impaired long-lived assets in Fiscal 1996) as
a percentage of total revenues in Fiscal 1997 was the result of an increase in
selling and administrative expenses as a percentage of total revenues partially
offset by an increase in gross profit as a percentage of total revenues.
Interest expense for Fiscal 1997 and Fiscal 1996 was $144.9 million and
$136.4 million, respectively. The increase in interest expense primarily
resulted from the higher debt levels outstanding during Fiscal 1997.
Loss before income taxes was $64.3 million for Fiscal 1997 compared to a
loss of $106.8 million for Fiscal 1996. Excluding the effect of the unusual item
and the write-down of certain impaired long-lived assets, income before income
taxes was $5.3 million in Fiscal 1996. The reason for the increase in loss
before income taxes in Fiscal 1997 (excluding the effect of the unusual item and
the write-down of certain impaired long-lived assets in Fiscal 1996) was the
decrease in operating income in Fiscal 1997 combined with an increase in
interest expense.
The income tax benefit for Fiscal 1997 was $22.9 million compared to a
benefit of $27.2 million in Fiscal 1996. The income tax benefit for Fiscal 1996
included a $32.4 million benefit associated with the unusual item 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 4).
24
<PAGE>
Fiscal Year Ended February 3, 1996 ("Fiscal 1996") Compared to Fiscal Year
Ended January 28, 1995 ("Fiscal 1995")
Fiscal 1996 was a 53-week year and Fiscal 1995 was a 52-week year.
The following table sets forth Statement of Operations components expressed
as percentages of total revenues for Fiscal 1996 and Fiscal 1995:
<TABLE>
<CAPTION>
PERCENTAGE OF TOTAL
REVENUES
FISCAL YEAR
--------------------
1996 1995
--------- ---------
<S> <C> <C>
Total revenues............................................................... 100.0% 100.0%
Gross profit (1)............................................................. 23.0 22.9
Selling and administrative expenses.......................................... 19.0 18.2
Unusual item................................................................. 1.9
Write-down of long-lived assets.............................................. 1.3
Operating income............................................................. 0.8 4.7
Interest expense............................................................. 3.8 3.6
(Loss) income before income taxes, extraordinary item and cumulative effect
of change in accounting principle.......................................... (3.0) 1.1
</TABLE>
- ------------------------
(1) Total revenues less cost of goods sold.
Total revenues for Fiscal 1996 increased 6.1% to $3.54 billion (53 weeks)
from $3.33 billion in Fiscal 1995 (52 weeks). The change in total revenues is
the result of the increase in retail supermarket sales resulting from the
acquisition of 45 former Acme stores (29 of which the Company is currently
operating) in January 1995 and the fact that Fiscal 1996 was a 53-week year.
Wholesale revenues decreased in Fiscal 1996 to $429.4 million from Fiscal 1995
revenues of $442.6 million. Same store sales for Fiscal 1996 decreased by 1.8%
from Fiscal 1995 (calculated on a comparable week basis). The Company's total
revenues and same store sales results for Fiscal 1996 were adversely affected by
weak consumer spending and competitive promotional activity.
25
<PAGE>
In Fiscal 1996, gross profit as a percentage of total revenues was 23.0%
compared to 22.9% in Fiscal 1995. The increase in gross profit as a percentage
of total revenues resulted from a reduced LIFO provision and the relative
increase in retail revenues compared to wholesale revenues, which were partially
offset by the cost of the Company's response to increased competitor promotional
and price initiatives.
Selling and administrative expenses as a percentage of total revenues
increased to 19.0% for Fiscal 1996 from 18.2% in Fiscal 1995. The increase in
selling and administrative expenses as a percentage of total revenues resulted
primarily from the relative increase in retail revenues compared to wholesale
revenues, increased promotional expenses and increases in fixed and
semi-variable expenses as a percentage of total revenues during a period with
low food price inflation and a decline in same store sales.
During the second quarter of Fiscal 1996, the Company recorded an unusual
item (charge) of $65.2 million. This unusual item was comprised of $50.6
million related to the closure of the stand-alone general merchandise
business (Harts) and $14.6 million related to the noncash write-off of
certain fixed assets which the Company determined during the second quarter
that it will no longer utilize in its business, costs incurred in connection
with the Company's expense reduction programs and an increase in the
Company's closed store reserve (Note 6).
As of the beginning of the fourth quarter of 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"). As a result of this adoption, the Company recorded a noncash
charge of $46.8 million. This charge primarily related to the write-down of a
portion of the recorded asset values (including allocable goodwill) of 18 of the
Company's 265 supermarkets. The adoption of SFAS 121 will result in reduced
depreciation and amortization expense in future years (Note 7).
Depreciation and amortization expense of $92.5 million in Fiscal 1996 and
$87.8 million in Fiscal 1995 represented 2.6% of total revenues in both years.
The increase in depreciation and amortization expense is the result of the
Company's capital investment program and the acquisition of 45 former Acme
stores.
26
<PAGE>
Operating income for Fiscal 1996 was $29.5 million or 0.8% of total revenues
compared to $155.7 million or 4.7% of total revenues in Fiscal 1995. Excluding
the effect of the unusual item and write-down of long-lived assets, operating
income for Fiscal 1996 was $141.6 million or 4.0% of total revenues, compared to
$155.7 million or 4.7% of total revenues in Fiscal 1995. The decrease in
operating income (excluding the effect of the unusual item and the write-down of
certain impaired long-lived assets) as a percentage of total revenues in Fiscal
1996 was the result of increased selling and administrative expenses as a
percentage of total revenues, partially offset by increased gross profit as a
percentage of total revenues.
Interest expense for Fiscal 1996 and Fiscal 1995 was $136.4 million and
$117.9 million, respectively. The increase in interest expense was due to the
higher debt levels outstanding during Fiscal 1996, which were the result of
funding the acquisition of 45 stores from American Stores Company in January
1995 and the Company's capital investment program.
Loss before income taxes, extraordinary item and the cumulative effect of
change in accounting principle was $106.8 million for Fiscal 1996 compared to
income of $37.9 million for Fiscal 1995. The reason for the decline is the
decrease in operating income (excluding the unusual item and the write-down of
certain long-lived assets), the unusual item, the write-down of certain
long-lived assets and the increase in interest expense.
The income tax benefit for Fiscal 1996 was $27.2 million compared to a
provision of $15.9 million in Fiscal 1995. The income tax benefit for Fiscal
1996 included a $32.4 million benefit associated with the unusual item and the
write-down of certain 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 4).
The extraordinary item for Fiscal 1995 was a $3.0 million charge (net of
$2.0 million income tax benefit) related to the early retirement of debt.
During the first quarter of Fiscal 1995, the Company adopted Statement of
Financial Accounting Standards No. 112, "Employers' Accounting for
Postemployment Benefits". The cumulative effect of this change in accounting
principle was a charge of $5.8 million (net of $4.1 million income tax benefit)
(Note 3).
27
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Payments of interest and principal on the Company's approximately $1.3
billion of long-term debt (excluding capital leases) will restrict funds
available to the Company to finance capital expenditures and working capital.
Principal payments of long-term debt due during Fiscal 1998, 1999 and 2000 total
$3.7 million, $3.0 million and $2.5 million, respectively.
During Fiscal 1997, the Company's internally generated funds from operations
and amounts available under the revolving credit facility described below,
provided sufficient liquidity to meet the Company's operating, capital
expenditure and debt service needs.
The Company has a revolving credit facility (the "Revolving Credit
Facility") which provides for borrowings of up to $250 million, subject to a
borrowing base limitation measured by eligible inventory and accounts receivable
of the Company. The Revolving Credit Facility matures in April 2000 and is
secured by a pledge of the Company's inventory, accounts receivable and related
assets. The interest rate on borrowings as to which the Company elects a
LIBOR-based rate option is LIBOR plus 2.75%, and the interest rate on borrowings
as to which the Company elects a prime-based rate option is prime plus 1.5%. As
of February 1, 1997, additional availability under the Revolving Credit Facility
was $108.3 million.
In April 1996, the Company issued $100 million of 11.50% Senior Notes due
April 15, 2006 (the "11.50% Senior Notes") in an underwritten public offering.
During the first quarter of Fiscal 1997, the Company elected to use the proceeds
of the issuance of the 11.50% Senior Notes to repay indebtedness then
outstanding under the Revolving Credit Facility.
The Company has two interest rate swap agreements outstanding, both of which
expire within the next two years, that effectively convert $75 million of its
fixed rate borrowings into variable rate obligations. Under the terms of these
agreements, the Company makes payments at variable rates which are based on
LIBOR and receives payments at fixed interest rates. The net amount paid or
received is included in interest expense. For Fiscal 1997, the Company recorded
$0.2 million of net interest income related to these agreements and an
additional interest rate swap agreement that expired during Fiscal 1997.
In October 1995, Penn Traffic's Board of Directors authorized the repurchase
by the Company of up to 500,000 shares of its outstanding common stock, of which
45,200 shares were repurchased in Fiscal 1996. No shares of common stock were
repurchased during Fiscal 1997. Penn Traffic's debt agreements contain
limitations on the Company's ability to repurchase its common stock which
currently prohibit it from repurchasing any additional shares of its common
stock.
28
<PAGE>
Cash flows to meet the Company's requirements for operating, investing and
financing activities during Fiscal 1997 are reported in the Consolidated
Statement of Cash Flows. 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. During the fiscal year ended February 3, 1996, the
Company's net cash used in investing activities was $121.5 million and the
Company had a $12.1 million increase in cash. These amounts were financed by net
cash provided by operating activities of $80.7 million and net cash provided by
financing activities of $52.9 million. During the fiscal year ended January 28,
1995, the Company's net cash used in investing activities was $194.8 million.
This amount was financed by net cash provided by operating activities of $56.2
million, net cash provided by financing activities of $102.6 million and a
decrease in cash of $35.9 million.
Working capital increased $15.2 million from February 3, 1996 to February 1,
1997.
The Company is in compliance with all terms and restrictive covenants of its
long-term debt agreements for the fiscal year ended and as of February 1, 1997.
The Company's debt agreements provide restrictive covenants on the payment
of dividends to its stockholders. As of February 1, 1997, no dividend payments
to the Company's stockholders could have been made under the most restrictive of
these limitations.
During Fiscal 1997, the Company opened two new stores, acquired two stores,
opened three replacement stores and completed seven remodels. Capital
expenditures (including capitalized leases) were approximately $69.8 million for
Fiscal 1997.
During the fiscal year ending January 31, 1998, the Company expects to
invest approximately $40 million on capital expenditures (including capital
leases). Penn Traffic expects to finance such capital expenditures (including
capital leases) through cash generated from operations, as well as amounts
available under the Revolving Credit Facility and additional capital lease
obligations. Capital expenditures will be principally for new stores, store
remodels and investments in technology.
29
<PAGE>
(Price Waterhouse LLP Letterhead)
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
February 1, 1997 and February 3, 1996, and the results of their operations
and their cash flows for each of the three years in the period ended February
1, 1997, in conformity with generally accepted accounting principles. These
financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
financial statements, assessing the accounting principles used and
significant estimates made by managements, and evaluating the overall
fianncial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
As discussed in Note 1 to the consolidated financial statements, the Company
changed its method for measuring the impairment of long-lived assets to adopt
the provisions 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, effective October 29, 1995 and as discussed in Note 3 to
the consolidated financial statements, the Company changed its method of
accounting for postemployment benefits to adopt the provisions of Statement
of Financial Accounting Standards No. 112, Employers' Accounting for
Postemployment Benefits, effective January 30, 1994.
/s/ Price Waterhouse LLP
- -------------------------
PRICE WATERHOUSE LLP
Syracuse, New York
March 4, 1997
30
<PAGE>
THE PENN TRAFFIC COMPANY
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
52 WEEKS ENDED 53 WEEKS ENDED 52 WEEKS ENDED
FEBRUARY 1, FEBRUARY 3, JANUARY 28,
1997 1996 1995
--------------- --------------- ---------------
<S> <C> <C> <C>
(ALL DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
Total Revenues............................................... $ 3,296,462 $ 3,536,642 $ 3,333,225
Costs and Operating Expenses:
Cost of sales (including buying and occupancy cost).......... 2,531,381 2,724,639 2,570,708
Selling and administrative expenses.......................... 684,558 670,387 606,782
Unusual item (Note 6)........................................ 65,237
Write-down of long-lived assets (Note 7)..................... 46,847
--------------- --------------- ---------------
Operating Income............................................. 80,523 29,532 155,735
Interest expense............................................. 144,854 136,359 117,859
--------------- --------------- ---------------
(Loss) Income Before Income Taxes, Extraordinary Item and
Cumulative Effect of Change in Accounting Principle........ (64,331) (106,827) 37,876
(Benefit) provision for income taxes (Note 4)................ (22,901) (27,202) 15,851
--------------- --------------- ---------------
(Loss) Income Before Extraordinary Item and Cumulative Effect
of Change in Accounting Principle.......................... (41,430) (79,625) 22,025
Extraordinary item (net of tax benefit) (Note 12)............ (3,025)
--------------- --------------- ---------------
(Loss) Income Before Cumulative Effect of Change in
Accounting Principle....................................... (41,430) (79,625) 19,000
Cumulative effect of change in accounting principle (net of
tax benefit) (Note 3)...................................... (5,790)
--------------- --------------- ---------------
Net (Loss) Income............................................ $ (41,430) $ (79,625) $ 13,210
--------------- --------------- ---------------
--------------- --------------- ---------------
Per Share Data:
(Loss) Income before extraordinary item and cumulative effect
of change in accounting principle.......................... $ (3.81) $ (7.32) $ 1.97
Extraordinary item........................................... (0.27)
Cumulative effect of change in accounting principle.......... (0.52)
--------------- --------------- ---------------
Net (loss) income............................................ $ (3.81) $ (7.32) $ 1.18
--------------- --------------- ---------------
--------------- --------------- ---------------
Average number of common shares and equivalents
outstanding................................................ 10,864,916 10,870,418 11,169,337
--------------- --------------- ---------------
--------------- --------------- ---------------
</TABLE>
The accompanying notes are an integral part of these statements.
31
<PAGE>
THE PENN TRAFFIC COMPANY
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
FEBRUARY 1, FEBRUARY 3,
1997 1996
------------ ------------
<S> <C> <C>
(IN THOUSANDS OF DOLLARS)
ASSETS
Current Assets:
Cash and short-term investments (Note 1)... $ 53,240 $ 58,585
Accounts and notes receivable (less
allowance for doubtful accounts of $2,867
and $1,483, respectively)................ 71,874 83,519
Inventories (Note 1)....................... 340,009 356,309
Prepaid expenses and other current
assets................................... 17,266 15,717
------------ ----------
482,389 514,130
------------ ----------
Facilities Under Capital Leases (Note 5):
Capital leases............................. 201,154 183,654
Less: Accumulated amortization............. (69,083) (61,125)
------------ ----------
132,071 122,529
------------ ----------
Fixed Assets (Note 1):
Land....................................... 24,602 29,306
Buildings.................................. 204,755 195,042
Furniture and fixtures..................... 483,799 448,206
Vehicles................................... 17,775 18,262
Leaseholds and improvements................ 210,171 222,133
------------ ----------
941,102 912,949
Less: Accumulated depreciation............. (369,796) (310,509)
------------ ----------
571,306 602,440
------------ ----------
Other Assets:
Goodwill, net (Note 1)..................... 422,816 431,394
Other assets and deferred charges, net..... 95,537 89,653
------------ ----------
518,353 521,047
------------ ----------
Total Assets............................... $1,704,119 $ 1,760,146
------------ ----------
------------ ----------
</TABLE>
The accompanying notes are an integral part of these statements.
32
<PAGE>
THE PENN TRAFFIC COMPANY
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
FEBRUARY 1, FEBRUARY 3,
1997 1996
------------ ------------
<S> <C> <C>
(IN THOUSANDS OF DOLLARS)
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current portion of obligations under capital
leases (Note 5)........................... $ 13,541 $ 11,735
Current maturities of long-term debt (Note
2)........................................ 3,736 2,728
Trade accounts and drafts payable........... 159,579 208,880
Payroll and other accrued liabilities....... 82,654 82,154
Accrued interest expense.................... 35,664 33,812
Payroll taxes and other taxes payable....... 13,476 16,880
Deferred income taxes (Note 4).............. 31,029 30,385
------------ ------------
339,679 386,574
------------ ------------
Noncurrent Liabilities:
Obligations under capital leases (Note 5)... 134,976 126,197
Long-term debt (Note 2)..................... 1,246,738 1,200,997
Deferred income taxes (Note 4).............. 23,876 38,789
Other noncurrent liabilities................ 55,605 60,860
------------ ------------
1,461,195 1,426,843
------------ ------------
Total Liabilities........................... 1,800,874 1,813,417
------------ ------------
Stockholders' Equity (Note 8):
Preferred stock--authorized 10,000,000
shares, $1.00 par value; none issued
Common stock--authorized 30,000,000
shares, $1.25 par value; 10,869,441 shares
and 10,840,849 shares issued and outstanding,
respectively.............................. 13,641 13,606
Capital in excess of par value.............. 180,412 180,029
Retained deficit............................ (280,668) (235,223)
Minimum pension liability adjustment (Note
3)........................................ (8,730) (6,606)
Unearned compensation (Note 8).............. (785) (4,452)
Treasury stock, at cost (Note 8)............ (625) (625)
------------ ------------
Total Stockholders' Equity.................. (96,755) (53,271)
------------ ------------
Total Liabilities and Stockholders'
Equity.................................... $1,704,119 $ 1,760,146
------------ ------------
------------ ------------
</TABLE>
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
--------- ---------- ----------- ----------- ------------- --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS OF DOLLARS)
January 29, 1994.................. $ 13,550 $ 179,087 $ (162,924) $ (4,963) $ (9,768) $ 14,982
Net income........................ 13,210 13,210
Exercise of 7,550 common stock
option shares (Note 8).......... 9 119 128
Cancellation of 1,000 restricted
stock shares (Note 8)........... (1) (41) 42
Minimum pension liability
adjustment (Note 3)............. 4,607 4,607
Unearned compensation adjustment
(Note 8)........................ (9) 9
--------- ---------- ----------- ----------- ------------- --------- ------------
January 28, 1995.................. 13,558 179,165 (149,681) (356) (9,759) 32,927
Net loss.......................... (79,625) (79,625)
Exercise of 24,348 common stock
option shares (Note 8).......... 31 271 302
Issuance of 23,500 restricted
stock shares (Note 8)........... 29 849 (878)
Cancellation of 9,500 restricted
stock shares (Note 8)........... (12) (256) 268
Minimum pension liability
adjustment (Note 3)............. (6,250) (6,250)
Unearned compensation adjustment
(Note 8)........................ (6,185) 6,185
Treasury stock, at cost (Note
8).............................. $ (625) (625)
--------- ---------- ----------- ----------- ------------- --------- ------------
February 3, 1996.................. 13,606 180,029 (235,223) (6,606) (4,452) (625) (53,271)
Net loss.......................... (41,430) (41,430)
Exercise of 5,592 common stock
option shares (Note 8).......... 7 63 70
Issuance of 23,500 restricted
stock shares (Note 8)........... 29 323 (352)
Cancellation of 500 restricted
stock shares (Note 8)........... (1) (3) 4
Minimum pension liability
adjustment (Note 3)............. (2,124) (2,124)
Unearned compensation adjustment
(Note 8)........................ (4,019) 4,019
--------- ---------- ----------- ----------- ------------- --------- ------------
February 1, 1997.................. $ 13,641 $ 180,412 $ (280,668) $ (8,730) $ (785) $ (625) $ (96,755)
--------- ---------- ----------- ----------- ------------- --------- ------------
--------- ---------- ----------- ----------- ------------- --------- ------------
</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 53 WEEKS ENDED 52 WEEKS ENDED
FEBRUARY 1, FEBRUARY 3, JANUARY 28,
1997 1996 1995
--------------- --------------- ---------------
<S> <C> <C> <C>
(IN THOUSANDS OF DOLLARS)
Operating Activities:
Net (loss) income............................................ $ (41,430) $ (79,625) $ 13,210
Adjustments to reconcile net (loss) income to net cash
provided by operating activities:
Cumulative effect of change in accounting principle.......... 5,790
Depreciation and amortization................................ 76,328 75,375 72,853
Amortization of intangibles.................................. 16,377 17,104 14,958
(Decrease) increase in deferred taxes........................ (12,792) (31,808) 3,902
Write-off of fixed assets.................................... 16,416
Write-off of intangible assets............................... 32,809
Write-down of long-lived assets.............................. 46,847
Other--net................................................... (9,468) (13,888) (8,147)
Net change in assets and liabilities:
Accounts receivable and prepaid expenses..................... 7,872 (3,894) (24,031)
Inventories.................................................. 16,568 29,659 (37,513)
Accounts payable and accrued expenses........................ (50,388) (6,653) 11,637
Deferred charges and other assets............................ (4,361) (1,649) 3,577
--------------- --------------- ---------------
Net Cash (Used in) Provided by Operating Activities.......... (1,294) 80,693 56,236
--------------- --------------- ---------------
Investing Activities:
Capital expenditures......................................... (67,828) (124,963) (121,324)
Proceeds from sale-and-leaseback transactions................ 22,151
Proceeds from sale of assets................................. 12,297 3,423 2,020
Acquisition of Acme stores................................... (75,500)
Other--net................................................... 96 (2)
--------------- --------------- ---------------
Net Cash (Used in) Investing Activities...................... (33,284) (121,540) (194,806)
--------------- --------------- ---------------
(continued)
</TABLE>
35
<PAGE>
<TABLE>
<CAPTION>
52 WEEKS ENDED 53 WEEKS ENDED 52 WEEKS ENDED
FEBRUARY 1, FEBRUARY 3, JANUARY 28,
1997 1996 1995
--------------- --------------- ---------------
<S> <C> <C> <C>
(IN THOUSANDS OF DOLLARS)
Financing Activities:
Increase in long-term debt................................... 106,840 100,000
Payments to settle long-term debt............................ (3,258) (4,095) (62,384)
Borrowing of revolver debt................................... 430,200 588,300 476,000
Repayment of revolver debt................................... (487,500) (520,900) (399,300)
Reduction of capital lease obligations....................... (13,523) (9,889) (8,598)
Payment of debt issuance costs............................... (3,596) (225) (3,224)
Purchase of treasury stock................................... (625)
Other--net................................................... 70 347 128
--------------- --------------- ---------------
Net Cash Provided by Financing Activities.................... 29,233 52,913 102,622
--------------- --------------- ---------------
(Decrease) Increase in Cash and Cash Equivalents............. (5,345) 12,066 (35,948)
--------------- --------------- ---------------
Cash and cash equivalents at beginning of year............... 58,585 46,519 82,467
--------------- --------------- ---------------
Cash and Cash Equivalents at End of Year..................... $ 53,240 $ 58,585 $ 46,519
--------------- --------------- ---------------
--------------- --------------- ---------------
</TABLE>
The accompanying notes are an integral part of these statements.
36
<PAGE>
THE PENN TRAFFIC COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1--Business Description and Summary of Significant Accounting
Policies:
The Penn Traffic Company ("Penn Traffic" or the "Company") is primarily
engaged in retail and wholesale food distribution. As of February 1, 1997,
the Company operated 265 supermarkets in Pennsylvania, New York, Ohio and
West Virginia and supplied 114 franchise supermarkets and 99 independent
wholesale accounts. The Company also operated 13 modern distribution centers
with approximately 3.3 million square feet of combined space, a bakery and a
dairy.
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.
Certain prior year amounts have been reclassified on the Consolidated
Statement of Cash Flows for comparative purposes.
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
$20,223,000 and $17,848,000 below replacement cost at February 1, 1997 and
February 3, 1996, respectively.
During Fiscal 1997 and Fiscal 1996, 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 1997 was to
decrease cost of goods sold by $745,000 and to decrease net loss by $440,000
or $0.04 per share. The effect for Fiscal 1996 was to decrease cost of goods
sold by $1,474,000 and to decrease net loss by $869,000, or $.08 per share.
37
<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:
<TABLE>
<S> <C>
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
</TABLE>
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 1997, 1996 and 1995, amortization of
intangibles was $16,377,000, $17,104,000 and $14,958,000, respectively.
IMPAIRMENT OF LONG-LIVED ASSETS As of the beginning of the fourth quarter
of 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." Accordingly, commencing with the
fourth quarter of Fiscal 1996, 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. Previously, this
evaluation was based on cash flows and assets aggregated principally by the
operating divisions of the Company (Note 7).
INVESTMENT IN AFFILIATED COMPANY Until March 1995, the Company had a
minority interest investment in The Grand Union Company which was carried on
the equity basis (Note 9).
DEFERRED CHARGES Deferred charges consist of debt issuance costs, 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.
38
<PAGE>
Store Pre-opening Costs Store pre-opening costs are generally 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.
NET INCOME (LOSS) PER SHARE Net income (loss) per share of common stock
is based on the average number of shares and equivalents, as applicable, of
common stock outstanding during each period. Fully diluted income (loss) per
share is not presented for each of the periods since conversion of the
Company's shares under option would be anti-dilutive or the reduction from
primary income (loss) per share is less than three percent.
39
<PAGE>
NOTE 2--LONG-TERM DEBT:
The long-term debt of Penn Traffic consists of the obligations described
below:
<TABLE>
<CAPTION>
FEBRUARY 1, FEBRUARY 3,
1997 1996
-------------- ------------
<S> <C> <C>
(IN THOUSANDS OF DOLLARS)
Secured Revolving Credit Facility................. $ 86,800 $ 144,100
Other Secured Debt................................ 31,434 27,385
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
9 5/8% Senior Subordinated Notes due
April 15, 2005........................... 400,000 400,000
---------------- -------------
TOTAL DEBT ....................................... 1,250,474 1,203,725
Less: Amounts due within one year ............... 3,736 2,728
---------------- -------------
TOTAL LONG-TERM DEBT ............................. $1,246,738 $1,200,997
---------------- -------------
---------------- -------------
</TABLE>
Amounts maturing during each of the next five fiscal years are:
$3,736,000 (Fiscal 1998), $2,962,000 (Fiscal 1999), $2,512,000 (Fiscal 2000),
$94,309,000 (includes $86,800,000 outstanding as of February 1, 1997 under
the Company's secured revolving credit facility which matures in April
2000)(Fiscal 2001), and $108,078,000 (Fiscal 2002). The Company incurred
interest expense of $144,854,000, $136,359,000 and $117,859,000, including
noncash amortization of deferred financing costs of $4,565,000, $4,297,000
and $4,195,000, for Fiscal 1997, Fiscal 1996 and Fiscal 1995, respectively.
Interest paid amounted to $138,437,000, $128,936,000 and $111,669,000 for
Fiscal 1997, Fiscal 1996 and Fiscal 1995, respectively.
The estimated fair value of the Company's long-term debt, including
current maturities, was $820 million at February 1, 1997 and $1.11 billion at
February 3, 1996. 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.
The Company's secured revolving credit facility (the "Revolving Credit
Facility") provides 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 matures in April
2000 and is secured by a pledge of the Company's inventory, accounts
receivable and related assets. Additional availability under the Revolving
Credit Facility was $108.3 million at February 1, 1997. The interest rate on
borrowings as to which the Company elects a LIBOR-based rate option is LIBOR
plus 2.75%, and the interest rate on borrowings as to which the Company
elects a prime-based rate option is prime plus 1.5%. At February 1, 1997, the
weighted average rate of interest on the Revolving Credit Facility was 8.3%.
40
<PAGE>
The 11 1/2% Senior Notes due 2001, the 10 1/4% Senior Notes due 2002, the
8 5/8% Senior Notes due 2003, the 10 3/8% Senior Notes due 2004, the 10.65%
Senior Notes due 2004 and the 11 1/2% Senior Notes due 2006 (collectively,
the "Senior Notes") are unsecured obligations of Penn Traffic which rank PARI
PASSU with each other and with indebtedness under the Revolving Credit
Facility. However, indebtedness under the Revolving Credit Facility is
secured by certain assets of the Company. The 9 5/8% Senior Subordinated
Notes due 2005 (the "Senior Subordinated Notes") are subordinated to all
existing and future senior indebtedness.
The Senior Notes, the Senior Subordinated Notes and the Revolving Credit
Facility each contain certain covenants, including restrictions on incurrence of
indebtedness by Penn Traffic and limitations on the payment of dividends to Penn
Traffic's common stockholders. The Company is in compliance with all terms and
covenants of its long-term debt agreements as of and for the fiscal year ended
February 1, 1997.
The Company has two interest rate swap agreements outstanding, each of which
expires within the next two years, that effectively convert $75 million of its
fixed rate borrowings into variable rate obligations. Under the terms of these
agreements, the Company makes payments at variable rates which are based on
LIBOR and receives payments at fixed interest rates. The net amount paid or
received is included in interest expense. The estimated fair value of the
Company's interest rate swap agreements at February 1, 1997 was a $0.4 million
liability and at February 3, 1996 was a $1.2 million asset, neither of which has
been recorded on the books of the Company. The estimated fair value of these
interest rate agreements has been determined by the Company using market
information available to the Company, based on information provided by the
counterparty to each interest rate agreement.
41
<PAGE>
NOTE 3--EMPLOYEE BENEFIT PLANS:
Substantially all of the Company's employees are covered by either
defined benefit plans or defined contribution plans.
The following sets forth the net pension expense recognized for the
defined benefit pension plans and the status of the Company's defined benefit
plans:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
------------------------------------------
FEBRUARY 1, FEBRUARY 3, JANUARY 28,
1997 1996 1995
------------- ----------- ------------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Service cost--benefits earned during
the period ......................... $ 5,841 $ 4,572 $ 4,617
Interest cost on projected benefit
obligation.......................... 10,639 9,671 9,207
Actual return on plan assets......... (15,777) (22,634) (2,117)
Net amortization and deferral........ 42 9,990 (9,365)
----------- ---------- -------------
Net pension expense ................. $ 745 $ 1,599 $ 2,342
----------- ---------- -------------
----------- ---------- -------------
</TABLE>
<TABLE>
<CAPTION>
FEBRUARY 1, 1997 FEBRUARY 3, 1996
PLANS IN WHICH PLANS IN WHICH
------------------------ ------------------------
ASSETS ACCUMULATED ASSETS ACCUMULATED
EXCEED BENEFITS EXCEED BENEFITS
ACCUMULATED EXCEED ACCUMULATED EXCEED
BENEFITS ASSETS BENEFITS ASSETS
---------- ------------ ---------- ------------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C>
Actuarial present value of vested benefit obligation........ $ (56,417) $ (77,826) $ (54,802) $ (73,562)
---------- ------------ ---------- ------------
Accumulated benefit obligation ............................. $ (63,729) $ (83,781) $ (58,104) $ (78,762)
---------- ------------ ---------- ------------
Projected benefit obligation ............................... $ (73,099) $ (88,153) $ (68,799) $ (83,840)
Plan assets at fair value................................... 98,507 70,633 81,001 66,344
---------- ------------ ---------- ------------
Plan assets in excess of (less than) projected benefit
obligation................................................ 25,408 (17,520) 12,202 (17,496)
Unrecognized net transition (asset) liability .............. (1,535) 97 (1,654) 108
Unrecognized net (gain) loss ............................... (9,661) 18,910 239 16,280
Unrecognized prior service cost............................. 1,584 11,330 1,632 9,783
Minimum liability........................................... (25,965) (21,093)
---------- ------------ ---------- ------------
Net pension asset (liability)............................... $ 15,796 $ (13,148) $ 12,419 $ (12,418)
---------- ------------ ---------- ------------
---------- ------------ ---------- ------------
</TABLE>
In calculating benefit obligations and plan assets for Fiscal 1997, the
Company assumed a weighted average discount rate of 7.75%, compensation
increase rates ranging from 3.0% to 3.5% and an expected long-term rate of
return on plan assets of 10.5%. During Fiscal 1997, the discount rate used to
measure pension expense was increased to 8.5% from 7.5% to reflect current
market conditions. This change in the discount rate assumption reduced net
pension expense by approximately $2.7 million in Fiscal 1997. For Fiscal
1996, the Company assumed a weighted average discount rate of 7.5%,
compensation increase rates ranging from 2.0% to 3.5% and expected long-term
rates of return on plan assets ranging from 10.5% to 10.75%.
42
<PAGE>
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.
The Company also contributes to multi-employer pension funds, which cover
certain union employees under collective bargaining agreements. Such
contributions aggregated $3,933,000, $4,521,000 and $4,297,000 in Fiscal 1997,
1996 and 1995, respectively. The applicable portion of the total plan benefits
and net assets of these plans is not separately identifiable.
The Company contributes to profit-sharing plans for certain union employees.
There was no expense for these profit-sharing plans for Fiscal 1997, Fiscal 1996
and Fiscal 1995. In addition, the Company sponsors a deferred profit-sharing
plan for certain salaried employees. Contributions and costs totaled $750,000,
$998,000 and $845,000 in Fiscal 1997, Fiscal 1996 and Fiscal 1995, respectively.
Pursuant to the provisions of Statement of Financial Accounting Standards
No. 87, "Employers' Accounting for Pensions" ("SFAS 87"), the Company recorded
in other noncurrent liabilities an additional minimum pension liability
adjustment of $25,965,000 as of February 1, 1997, $21,093,000 as of February 3,
1996 and $7,023,000 as of January 28, 1995, 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 $8,730,000
as of February 1, 1997, $6,606,000 as of February 3, 1996 and $356,000 as of
January 28, 1995.
Effective January 30, 1994, the Company adopted Statement of Financial
Accounting Standards No. 112, "Employers' Accounting for Postemployment
Benefits" ("SFAS 112"). SFAS 112 requires employers to recognize the obligation
to provide postemployment benefits on an accrual basis if certain conditions are
met. The cumulative effect of the change in accounting principle determined as
of January 30, 1994 reduced net income $5.8 million (net of a $4.1 million
income tax benefit) for the fiscal year ended January 28, 1995.
43
<PAGE>
NOTE 4--INCOME TAXES:
The provision for income taxes charged to continuing operations was
provided as follows:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
------------------------------------------------
FEBRUARY 1, FEBRUARY 3, JANUARY 28,
1997 1996 1995
-------------- ---------------- ------------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Current Tax (Benefit) Expense:
Federal income $(8,177) $ (2,126) $ 10,330
State income 233 2,682
-------------- ---------------- ------------
(7,944) (2,126) 13,012
-------------- ---------------- ------------
Deferred Tax (Benefit) Expense:
Federal income (9,697) (18,922) 2,895
State income (5,260) (6,154) (56)
-------------- ---------------- ------------
(14,957) (25,076) 2,839
-------------- ---------------- ------------
(Benefit) provision for income taxes $(22,901) $ (27,202) $ 15,851
-------------- ---------------- ------------
-------------- ---------------- ------------
</TABLE>
The differences between income taxes computed using the statutory federal
income tax rate and those shown in the Consolidated Statement of Operations are
summarized as follows:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
------------------------------------------------
FEBRUARY 1, FEBRUARY 3, JANUARY 28,
1997 1996 1995
-------------- ---------------- ------------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Federal (benefit) tax at statutory rates.......................... $ (22,516) $ (37,389) $13,254
State income taxes net of federal income tax effect............... (3,268) (3,850) 2,722
Nondeductible goodwill amortization and write-off................. 2,926 14,724 3,343
Capital loss carryforward......................................... (992)
Miscellaneous items............................................... 27 331 639
Decrease in deferred income taxes due to changes in state income
tax rates ....................................................... (232) (997)
State net operating loss carryforwards............................ (726)
Tax credits....................................................... (70) (786) (1,392)
-------------- ---------------- ------------
(Benefit) provision for income taxes.............................. $ (22,901) $ (27,202) $ 15,851
-------------- ---------------- ------------
-------------- ---------------- ------------
</TABLE>
44
<PAGE>
Components of deferred income taxes at February 1, 1997 and February 3, 1996
were as follows:
<TABLE>
<CAPTION>
FEBRUARY 1, FEBRUARY 3,
1997 1996
----------- -----------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C>
Deferred Tax Liabilities:
Fixed assets........................................................ $ 87,502 $ 85,038
Inventory........................................................... 30,394 30,132
Prepaid expenses and other current assets........................... 960 668
Goodwill amortization............................................... 4,382 2,539
Pensions............................................................ 4,952 4,202
Deferred charges and other assets................................... 10,139 9,228
----------- -----------
$ 138,329 $ 131,807
----------- -----------
----------- -----------
Deferred Tax Assets:
Nondeductible accruals............................................. $ 14,837 $ 15,784
Prepaid operating fee.............................................. 4,160 4,160
Capital leases..................................................... 5,531 4,887
Net operating loss carryforwards................................... 39,804 5,553
Capital loss carryforward.......................................... 5,375 7,074
Tax credit carryforwards........................................... 16,015 30,749
Valuation allowance--capital loss carryforward..................... (2,298) (5,574)
----------- -----------
$ 83,424 $ 62,633
----------- -----------
----------- -----------
Net Deferred Tax Liability.......................................... $ 54,905 $ 69,174
----------- -----------
----------- -----------
</TABLE>
At February 1, 1997, Penn Traffic had deferred tax assets of
approximately $31,818,000 due to federal net operating loss carryforwards
which begin to expire in 2011, and various state net operating loss
carryforwards, tax-effected for federal income tax purposes, of approximately
$7,986,000, which begin to expire in 2004. In addition, the Company has
alternative minimum tax credit carryforwards of $10,820,000, general business
tax credit carryforwards of $3,754,000 and various state tax credits,
tax-effected for federal income tax purposes, of $1,441,000 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.
45
<PAGE>
NOTE 5--LEASES:
The following is a schedule by year of future gross minimum rental
payments for all leases with terms greater than one year reconciled to the
present value of net minimum capital lease payments as of February 1, 1997:
<TABLE>
<CAPTION>
FISCAL YEARS ENDING IN TOTAL OPERATING CAPITAL
- -------------------------- ---------- ---------- ----------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
1998 ............................................................. $ 72,249 $ 43,344 $ 28,905
1999 ............................................................. 67,927 40,241 27,686
2000 ............................................................. 63,716 37,834 25,882
2001 ............................................................. 59,343 35,723 23,620
2002 ............................................................. 54,666 33,689 20,977
Later years....................................................... 429,914 292,010 137,904
---------- ----------- ----------
Total minimum lease payments $ 747,815 $ 482,841 264,974
----------- -----------
----------- -----------
Less: Executory costs (885)
----------
Net minimum capital lease payments 264,089
Less: Estimated amount representing interest (115,572)
----------
Present value of net minimum capital lease payments 148,517
Less: Current portion (13,541)
-------------
Long-term obligations under capital lease at February 1, 1997 $ 134,976
--------------
--------------
</TABLE>
The Company principally operates in leased store facilities with terms of
up to 20 years and renewable options for additional periods. The Company
follows the provisions of Statement of Financial Accounting Standards No. 13,
"Accounting for Leases" ("SFAS 13"), in determining the criteria for capital
leases. Leases that do not meet such criteria are classified as operating
leases and related rentals are charged to expense in the year incurred.
During Fiscal 1997, 1996 and 1995, the Company incurred capital lease
obligations of $24,109,000, $11,176,000 and $5,533,000, respectively, in
connection with lease agreements for buildings and equipment. For Fiscal
1997, 1996 and 1995, capital lease amortization expense was $14,463,000,
$12,485,000 and $11,887,000, respectively.
Future minimum rentals have not been reduced by minimum sublease rentals
of $49,781,000 due in the future under noncancelable subleases. In addition
to minimum rentals, some leases provide for the Company to pay real estate
taxes and other expenses and, in many cases, contingent rentals based on
sales.
46
<PAGE>
Minimum rental payments and related executory costs for operating leases
were as follows:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-------------------------------------
FEBRUARY 1, FEBRUARY 3, JANUARY 28,
1997 1996 1995
----------- ----------- -----------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Minimum rentals and executory costs........ $ 45,067 $ 40,806 $ 35,863
Contingent rentals......................... 2,760 2,264 1,874
Less: Sublease payments.................... (10,086) (9,946) (9,607)
------------ ------------ ----------
Net rental payments........................ $ 37,741 $ 33,124 $ 28,130
------------ ------------ -----------
------------ ------------ -----------
</TABLE>
47
<PAGE>
NOTE 6--UNUSUAL ITEM:
During Fiscal 1996, the Company recorded an unusual item (charge) of
$65.2 million. The Company also recorded a tax benefit of $13.3 million in
connection with this charge.
During the second quarter of Fiscal 1996, the Company decided to close 11
of its 15 remaining stand-alone general merchandise stores (Harts) in Ohio
and convert the other four stores to the Company's "Plus" format. During
Fiscal 1996 and Fiscal 1995, these 11 stores generated 1.1% and 1.8%,
respectively, of the total revenues of the Company. The impact of these
stores on the operating income of the Company was immaterial in Fiscal 1996
and Fiscal 1995. As a result of the decision to close the 11 Harts stores and
convert the remaining four stores during the second quarter of Fiscal 1996,
the Company recorded an unusual item (charge) of $50.6 million. This charge
specifically relates to the write-off of goodwill ($32.8 million), the
write-off of fixed assets ($8.4 million) and store closing costs consisting
principally of inventory markdowns ($9.4 million).
The unusual item also included $14.6 million in connection with the
noncash write-off of certain fixed assets which the Company determined during
the second quarter of Fiscal 1996 it would no longer utilize in its business
($8.0 million), costs incurred in connection with the implementation of the
Company's expense reduction programs ($4.0 million), and an increase in the
Company's closed store reserve ($2.6 million).
The noncash portion of the unusual item was approximately $57.5 million
and the cash portion was approximately $7.7 million. All costs related to the
unusual item were incurred during Fiscal 1996 with the exception of certain
facility carrying costs (primarily lease payments) for stores that have been
closed, inventory markdowns and the write-down of fixed assets for the
remaining four stores to be converted to the Company's "Plus" format. The
last scheduled lease payment will occur in 2001. The accrued liability
related to the unusual item was $8.9 million at February 1, 1997 and $10.5
million at February 3, 1996.
48
<PAGE>
NOTE 7--ACCOUNTING FOR CERTAIN LONG-LIVED ASSETS:
As of the beginning of the fourth quarter of 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"). Accordingly, the Company periodically reviews the recorded
value of its stores and other assets to determine if the future
nondiscontinued cash flows from these properties are expected to be
sufficient to recover the remaining recorded asset values. Based upon a
comprehensive review of the Company's long-lived assets, the Company recorded
a noncash charge of $46.8 million in Fiscal 1996. This charge primarily
related to the write-down of a portion of the recorded asset values
(including allocable goodwill) of 18 of the Company's 265 retail supermarkets
that were in operation as of February 3, 1996. These 18 supermarkets were
located throughout the Company's trading area and generated approximately 5%
of the Company's total revenues in Fiscal 1996. As of February 1, 1997, the
Company has not closed any of these stores. The write-down of these assets
resulted in reduced depreciation and amortization expense in Fiscal 1997 of
approximately $2.7 million and will reduce depreciation and amortization
expense in future years.
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.
49
<PAGE>
NOTE 8--STOCKHOLDERS' EQUITY:
The Company has a Long-term Incentive Plan (the "1993 Plan") which
provides for long-term incentives based upon objective, quantifiable measures
of the Company's performance over time through the payment of incentive
compensation of the types commonly known as stock options, restricted stock,
performance shares, other forms of stock-based incentives such as phantom
stock and cash awards. 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 350,000 shares of common stock may be paid to participants under
the 1993 Plan and/or purchased pursuant to stock options granted under the
1993 Plan subject to antidilution and other adjustments specified in the 1993
Plan.
As of February 1, 1997, a total of 299,100 shares of restricted stock and
3,000 options (with an exercise price of $18.19 per option share of which
1,200 are exercisable) to purchase shares of the Company's common stock are
outstanding under the Company's 1993 Plan. A total of 72 current and former
directors, officers and employees own the restricted stock and options as of
February 1, 1997. At February 1, 1997, an additional 36,900 shares of common
stock were reserved for future grants under the 1993 Plan. For all awards of
restricted stock made prior to January 29, 1995, vesting of the shares
granted pursuant to such awards is contingent upon attainment, subsequent to
the date of grant, of EBITDA (as defined) levels of $265 million in any four
consecutive fiscal quarter period, or $500 million in any eight consecutive
fiscal quarter period. Such shares will be forfeited if such levels are not
achieved by the quarter ending May 2, 1998. Vesting of awards of restricted
stock that have been made subsequent to the end of Fiscal 1995 is also
conditioned upon the recipient's remaining in the employ of the Company for
an additional two years following the last fiscal quarter in which the
required EBITDA performance level was attained. To encourage retention of
such shares by the participants, upon vesting of the restricted stock the
Company will make a cash payment to each participant equal to the amount of
income tax payable by such participant in respect of the award and the cash
payment, if such participant agrees not to sell his shares for at least two
years beyond vesting and to refund the payment if he resigns within such
two-year period. As of February 1, 1997, unearned compensation was debited in
the amount of $785,000 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.
50
<PAGE>
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 February 1, 1997,
an additional 44,000 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 expire ten years after the date
of grant. Under terms of the Directors' Plan, the options are immediately
exercisable. The 1988 and 1993 Plan options generally vest 20% on the date of
grant and 20% on each of the next four anniversary dates.
A summary of the status of the Company's 1988 Plan as of January 28,
1995, February 3, 1996 and February 1, 1997, and changes during the years
ending on those dates is presented below:
<TABLE>
<CAPTION>
FISCAL 1995 FISCAL 1996 FISCAL 1997
---------------------- ---------------------- ----------------------
WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
1988 PLAN OPTIONS SHARES PRICE SHARES PRICE SHARES PRICE
- ------------------- --------- ----------- --------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year....................... 252,252 $ 18.98 244,442 $ 19.06 223,094 $ 19.59
Granted................................................ 0 0 0
Exercised.............................................. (7,550) 16.54 (21,348) 13.56 (5,592) 12.50
Forfeited.............................................. (260) 12.50 0 (9,519) 17.14
--------- --------- ---------
Outstanding at end of year............................. 244,442 $ 19.06 223,094 $ 19.59 207,983 $ 19.89
--------- --------- ---------
--------- --------- ---------
Options exercisable at year-end........................ 227,542 $ 18.56 222,094 $ 19.55 207,983 $ 19.89
--------- --------- ---------
--------- --------- ---------
</TABLE>
As of February 1, 1997, the 207,983 options outstanding under the 1988
Plan have exercise prices between $12.50 and $28.13 and a weighted-average
remaining contractual life of 3.1 years.
51
<PAGE>
A summary of the status of the Company's Directors' Plan as of January
28, 1995, February 3, 1996 and February 1, 1997, and changes during the years
ending on those dates is presented below:
<TABLE>
<CAPTION>
FISCAL 1995 FISCAL 1996 FISCAL 1997
---------------------- ---------------------- ----------------------
WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE
DIRECTORS' PLAN EXERCISE EXERCISE EXERCISE
OPTIONS SHARES PRICE SHARES PRICE SHARES PRICE
- ---------------------- --------- ----------- --------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year .................. 31,500 $ 28.12 39,000 $ 29.65 42,000 $ 30.97
Granted............................................ 7,500 36.06 6,000 33.81 6,000 10.63
Exercised.......................................... 0 (3,000) 19.47 0
Forfeited.......................................... 0 0 0
--------- ---------- ----------
Outstanding at end of year......................... 39,000 $ 29.65 42,000 $ 30.97 48,000 $ 28.43
--------- ---------- ----------
--------- ---------- ----------
Options exercisable at year-end.................... 39,000 $ 29.65 42,000 $ 30.97 48,000 $ 28.43
--------- ---------- ----------
--------- ---------- ----------
Weighted-average fair value of options granted during
the year.......................................... $ 36.06 $ 33.81 $ 10.63
--------- ---------- ----------
--------- ---------- ----------
</TABLE>
As of February 1, 1997, the 48,000 options outstanding under the
Directors' Plan have exercise prices between $10.63 and $42.00 and a
weighted-average remaining contractual life of 6.2 years.
52
<PAGE>
At February 1, 1997, certain persons affiliated with Miller Tabak Hirsch
+ Co. ("MTH") held warrants to purchase 289,000 shares at $14.00 per share.
These warrants were issued in June 1988 and were exercisable on the date of
grant. None of these option shares have been exercised or forfeited since the
date of grant.
In November 1996, the Board of Directors of the Company adopted a new
stock-based incentive compensation plan (the "Performance Incentive Plan")
which will replace the 1993 Plan. As of February 1, 1997, no awards have been
made under the Performance Incentive Plan.
The Company applies Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" ("APB 25") and related
interpretations in accounting for its stock-based compensation plans.
Accordingly, no compensation cost has been recognized for these plans. Had
the Company applied the applicable provisions of Statement of Financial
Accounting Standards No. 123, "Accounting and Disclosure of Stock-Based
Compensation" ("SFAS 123") for the fiscal years ended February 1, 1997 and
February 3, 1996, the impact on the Company's net income and earnings per
share for each of these fiscal years would have been immaterial.
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
as well as for other corporate purposes. The Company did not purchase any
shares during Fiscal 1997. During Fiscal 1996, the Company purchased 45,200
shares at a cost of $625,000, which shares are being held in treasury. Penn
Traffic's debt agreements contain limitations which currently prohibit it
from repurchasing any additional shares of its common stock.
NOTE 9--EQUITY INVESTMENT:
In July 1989, Penn Traffic acquired an indirect ownership interest in the
common stock of Grand Union Holdings Corporation ("Grand Union Holdings"),
which was the corporate parent of The Grand Union Company ("Grand Union").
The Company accounted for its investment in Grand Union under the equity
method. The investment was recorded originally at a cost of $18,250,000. The
carrying value of the investment was reduced to zero as of February 2, 1991.
53
<PAGE>
On January 25, 1995, Grand Union filed a voluntary petition for
reorganization under Chapter 11 of the United States Bankruptcy Code with the
United States Bankruptcy Court, District of Delaware (the "Bankruptcy
Court"). On February 16, 1995, Grand Union Holdings filed a voluntary Chapter
11 petition with the Bankruptcy Court. As a result of these bankruptcy
proceedings, Penn Traffic's equity ownership interest in Grand Union
Holdings, which as of the dates of filing of the Chapter 11 petitions was
approximately 17.8% on a fully diluted basis, became worthless.
See Note 10--Related Parties for a description of certain relationships
between Penn Traffic and Grand Union.
NOTE 10--RELATED PARTIES:
During Fiscal 1997, the Company had an agreement for financial consulting
and business management services to be provided by MTH pursuant to which the
Company paid MTH fees of $1,405,600. The fee payable to MTH for Fiscal 1998
will be approximately $1,437,000.
During Fiscal 1996 and Fiscal 1995, the amounts of the annual fees paid
to MTH under the financial consulting and business management services
agreement were $1,395,100 and $1,357,100, respectively. During Fiscal 1995,
the Company paid MTH an additional fee of $500,000 for its services in
connection with assisting the Company with the acquisition of 45 former Acme
stores and the public offering of $100 million in principal amount of Penn
Traffic 10.65% Senior Notes due 2004.
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 $700,000 per year based on
sales performance of the stores operated by Grand Union. As a result of the
recapitalization of Grand Union in July 1992, Penn Traffic received a $15
million prepayment of an operating fee from Grand Union pursuant to the terms
of the New England Operating Agreement. This prepayment reduced the future
payments that Grand Union will make 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 $11.2 million for the fiscal year ended February 1,
1997, $11.4 million for the fiscal year ended February 3, 1996 and $11.2
million for the fiscal year ended January 28, 1995.
54
<PAGE>
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. In the event of such
extension of the lease term, Grand Union would pay Penn Traffic an annual fee
of $13.6 million in the first year of the extended term, $14.0 million in the
second year, $14.4 million in the third year, $14.9 million in the fourth
year and $15.3 million in the fifth year, plus contingent fees based on the
sales performance of the stores of up to $700,000 each year.
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.
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 will
be returned to operation by Penn Traffic.
From September 1993 until September 1995, Penn Traffic and Grand Union
participated in a consolidated health and beauty care and general merchandise
purchasing and distribution program.
NOTE 11--COMMITMENTS AND CONTINGENCIES:
The Company enters into various purchase commitments in the normal course
of business. No losses are expected to result from these purchase commitments.
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.
NOTE 12--EXTRAORDINARY ITEM:
During Fiscal 1995, the Company had an extraordinary item of $3,025,000
(net of $2,045,000 income tax benefit) related to the early retirement of
debt.
55
<PAGE>
NOTE 13--ACQUISITIONS:
On January 19, 1995, the Company acquired 45 food stores from American
Stores Company. The stores are located in north central and northeastern
Pennsylvania and in south central New York.
The acquisition cost of $91,570,000 was attributed to major categories of
assets obtained and obligations assumed as follows: inventories $15,502,000;
property, plant and equipment $9,638,000; other assets (goodwill)
$81,217,000; cash $566,000 and other noncurrent liabilities $15,353,000.
The unaudited consolidated results of operations on a pro forma basis as
though the American Stores Company stores had been acquired on January 30,
1994 are as follows:
<TABLE>
<CAPTION>
FOR THE 52 WEEKS ENDED
JANUARY 28,
1995
------------------------
(UNAUDITED)
(IN THOUSANDS OF DOLLARS,
EXCEPT PER SHARE AMOUNT)
<S> <C>
Total revenues............................. $ 3,599,513
Net income applicable to common stock...... $ 13,303
Net income per common share................ $ 1.19
</TABLE>
The pro forma financial information is not necessarily indicative of the
results of operations that would have occurred had the purchase been made at the
beginning of the period or of the future results of the combined operations.
56
<PAGE>
REPORT OF MANAGEMENT
Penn Traffic's management has prepared the financial statements presented
in this annual report and is responsible for the integrity of all information
contained herein. The financial statements presented in this report have been
audited by the independent accountants appointed by the Board of Directors on
the recommendation of its Audit Committee and management. The Company
maintains an effective system of internal accounting controls. The
independent accountants obtain and maintain an understanding of the Company's
internal accounting controls and conduct such tests and related procedures as
they deem necessary to express an opinion on the fairness of the presentation
of the financial statements. The Audit Committee, composed solely of outside
directors, meets periodically with management 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.
57
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT
As permitted by General Instruction G(3), information concerning the
executive officers of Penn Traffic is set forth as a supplemental item included
in Part I of the Form 10-K Report under the caption "Executive Officers of
Registrant." The information required by this item is incorporated herein by
reference to the captions "Election of Directors" and "Section 16(a) Beneficial
Ownership Reporting Compliance" in the Company's Proxy Statement dated May 1,
1997, filed or to be filed in connection with the Company's Annual Meeting of
Stockholders to be held on June 3, 1997.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is incorporated herein by reference to
the caption "Executive Compensation" in the Company's Proxy Statement dated May
1, 1997, filed or to be filed in connection with the Company's Annual Meeting of
Stockholders to be held on June 3, 1997. The information set forth in
"Compensation Committee Report" and "Performance Graph" of the Company's Proxy
Statement dated May 1, 1997, filed or to be filed in connection with the
Company's Annual Meeting of Stockholders to be held on June 3, 1997, is not
"filed" as a part hereof.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The information required by this Item is incorporated herein by reference to
the caption "Security Ownership of Certain Beneficial Owners and Management" in
the Company's Proxy Statement dated May 1, 1997, filed or to be filed in
connection with the Company's Annual Meeting of Stockholders to be held on June
3, 1997.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is incorporated herein by reference to
the captions "Certain Transactions" and "Compensation of Directors" in the
Company's Proxy Statement dated May 1, 1997, filed or to be filed in connection
with the Company's Annual Meeting of Stockholders to be held on June 3, 1997.
58
<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 17
under Item 8 of this Form 10-K.
EXHIBITS:
The following are filed as Exhibits to this Report:
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ------------- ----------------------------------------------------------------------------
<C> <S>
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).
</TABLE>
59
<PAGE>
Exhibits (continued):
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ------------- -----------------------------------------------------------------------------------------------------
<C> <S>
2.7 Asset Purchase Agreement dated as of December 29, 1992 between Penn Traffic and Peter J. Schmitt Co.,
Inc. (the "December 29, 1992 Asset Purchase Agreement") (incorporated by reference to Exhibit No. 2.2
to the Penn Traffic 1993 8-K).
2.7A Letter Agreement dated December 30, 1992 with respect to the December 29, 1992 Asset Purchase
Agreement (incorporated by reference to Exhibit No. 2.2A to the Penn Traffic 1993 8-K).
2.8 Agreement of Purchase and Sale, dated as of August 27, 1993, by and between Insalaco Markets, Inc.,
Insalaco's Old Forge, Inc., Insalaco's Clarks Green, Inc., Insalaco's Supermarkets Warehouse,
Insalaco Enterprises, Insalaco's Real Estate, Insalaco's Foodliner, Eagle Valley Realty, Tannersville
Realty Company and Penn Traffic (incorporated by reference to Exhibit No. 10.23 to Penn Traffic's
Quarterly Report on Form 10-Q for the fiscal quarter ended July 31, 1993 and referred to herein as
the "Penn Traffic July 1993 10-Q").
2.9 Asset Purchase Agreement by and among Acme Markets, Inc., American Stores Properties, Inc., American
Stores Realty Corp. and The Penn Traffic Company, dated as of September 30, 1994 (incorporated by
reference to Exhibit 2.13 to Penn Traffic's Report on Form 8-K dated October 12, 1994 and referred to
herein as the "1994 8-K").
3.1 Certificate of Incorporation of Penn Traffic (incorporated by reference to Exhibit No. 3.1 to Penn
Traffic's Registration Statement on Form S-3 (Reg. No. 33-51824) filed on October 2, 1992 with the
SEC and referred to herein as the "October 1992 Registration Statement").
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").
</TABLE>
60
<PAGE>
Exhibits (continued):
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ------------- -----------------------------------------------------------------------------------------------------
<C> <S>
4.4 Indenture, including form of 11 1/2% Senior Note Due 2001, dated as of October 16, 1991 between P&C
and Bankers Trust Company ("Bankers Trust"), as Trustee (incorporated by reference to Exhibit No.
10.25 to P&C's quarterly report on Form 10-Q for the fiscal quarter ended November 2, 1991 and
referred to herein as the "P&C November 1991 10-Q").
4.4A First Supplemental Indenture dated as of April 15, 1993 between the Company and Bankers Trust, as
Trustee, relating to the 11 1/2% Senior Notes Due 2001 (incorporated by reference to Exhibit No.
4.10A to Penn Traffic's Quarterly Report on Form 10-Q for the fiscal quarter ended May 1, 1993 and
referred to herein as the "Penn Traffic May 1993 10-Q").
4.5 Indenture, including form of 10 1/4% Senior Note Due February 15, 2002, dated as of February 18, 1992
between Penn Traffic and Marine Midland Bank, N.A., Trustee (incorporated by reference to Exhibit No.
4.13 to Penn Traffic's Annual Report on Form 10-K for the fiscal year ended February 1, 1992 and
referred to herein as the "Penn Traffic 1992 10-K").
4.5A First Supplemental Indenture dated as of June 10, 1992 to the Indenture dated as of February 18,
1992, relating to the 10 1/4% Senior Notes Due 2002, between Penn Traffic and Marine Midland Bank,
N.A., as Trustee (incorporated by reference to Exhibit 4.15A to the October 1992 Registration
Statement).
4.5B Second Supplemental Indenture dated as of September 18, 1992 to the Indenture dated as of February
18, 1992, relating to the 10 1/4% Senior Notes Due 2002, between Penn Traffic and Marine Midland
Bank, N.A., as Trustee (incorporated by reference to Exhibit 4.15B to the October 1992 Registration
Statement).
4.6 Indenture, including form of 10 3/8% Senior Note Due October 1, 2004, dated as of October 1, 1992,
between Penn Traffic and United States Trust Company of New York, as Trustee (incorporated by
reference to Exhibit No. 4.16 to Penn Traffic's Quarterly Report on Form 10-Q for the fiscal quarter
ended October 31, 1992).
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).
</TABLE>
61
<PAGE>
Exhibits (continued):
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ------------- -----------------------------------------------------------------------------------------------------
<C> <S>
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).
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).
</TABLE>
- ------------------------
* Management contract, compensatory plan or arrangement.
62
<PAGE>
Exhibits (continued):
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------------------------------------------------------------------------------------------------
<C> <S>
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).
</TABLE>
63
<PAGE>
Exhibits (continued):
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ------------- -----------------------------------------------------------------------------------------------------
<C> <S>
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).
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).
10.6 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).
</TABLE>
- ------------------------
* Management contract, compensatory plan or arrangement.
64
<PAGE>
Exhibits (continued):
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ------------- -----------------------------------------------------------------------------------------------------
<C> <S>
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).
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.
21.1 Subsidiaries of Penn Traffic (incorporated by reference to Exhibit 21.1 to Penn Traffic's 1994 10-K).
27.1 Financial Data Schedule.
</TABLE>
- ------------------------
* Management contract, compensatory plan or arrangement.
65
<PAGE>
Copies of the above exhibits will be furnished without charge to any
shareholder by writing to Treasurer, The Penn Traffic Company, 1200 State Fair
Boulevard, Syracuse, New York 13221.
REPORTS ON FORM 8-K
No reports on Form 8-K were filed during the fiscal quarter ended February
1, 1997.
66
<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, 1997 By: /s/ Phillip E. Hawkins
- --------------------------- --------------------------
DATE Phillip E. Hawkins,
President, Chief Executive
Officer and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
/s/ Gary D. Hirsch /s/ Eugene R. Sunderhaft
- ----------------------- ----------------------
Gary D. Hirsch, Eugene R. Sunderhaft,
Chairman of the Board and Director Senior Vice President and
Secretary (Principal
Financial Officer and
Principal
April 30, 1997 Accounting Officer)
- --------------
DATE April 30, 1997
------------------
DATE
/s/ Eugene A. DePalma /s/ Susan E. Engel
- ------------------------- ------------------------
Eugene A. DePalma, Director Susan E. Engel, Director
April 30, 1997 April 30, 1997
- --------------- ---------------
DATE DATE
/s/ Martin A. Fox /s/ Claude J. Incaudo
- -------------------- -------------------------
Martin A. Fox, Director Claude J. Incaudo, Director
April 30, 1997 April 30, 1997
- --------------------- ------------------
DATE DATE
/s/ James A. Lash /s/ Harold S. Poster
- --------------------------- --------------------------
James A. Lash, Director Harold S. Poster, Director
April 30, 1997 April 30, 1997
- --------------- -----------------
DATE DATE
/s/ Richard D. Segal
- ----------------------------
Richard D. Segal, Director
April 30, 1997
- -------------------
DATE
67
<PAGE>
THE PENN TRAFFIC COMPANY
SCHEDULE VIII
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 February 1, 1997
Provision for doubtful accounts............................. $ 1,483 $ 8,414 $ 7,030(a) $ 2,867
------ ------ ----------- -----------
------ ------ ----------- -----------
For the 53 Weeks Ended February 3, 1996
Provision for doubtful accounts............................. $ 1,374 $ 3,926 $ 3,817(a) $ 1,483
------ ------ ----------- -----------
------ ------ ----------- -----------
For the 52 Weeks Ended January 28, 1995
Provision for doubtful accounts............................. $ 740 $ 2,782 $ 2,148(a) $ 1,374
------ ------ ----------- -----------
------ ------ ----------- -----------
</TABLE>
- ------------------------
(a) Uncollectible receivables written off net of recoveries.
68
<PAGE>
Exhibit 10.16
EARLY RETIREMENT AGREEMENT AND RELEASE
The Penn Traffic Company, including all of its divisions (hereinafter
referred to as "Penn Traffic" or the "Company"), and John T. Dixon
("Employee"), of 37 West Lake Road, Skaneateles, New York 13152, hereby
enter into this EARLY RETIREMENT AGREEMENT AND RELEASE ("Agreement"),
effective September 3, 1996, and the Company and Employee each hereby agree
as follows:
1. The Employee will be entitled to all employee benefits,
including, but not limited to pension, for the period through January 17,
1998, which shall be considered his normal retirement date.
2. The Employee's last day of active employment with the Company is
September 30, 1996. The Employee hereby resigns as a Director of the
Company, effective September 3, 1996, and as an Officer of the Company and
all of its subsidiaries and divisions on which he serves, including as a
director, effective September 30, 1996,
3. The terms and conditions of this Agreement have been fully
explained to the Employee.
4. The Employee has been advised that he may take up to twenty-one
(21) days to review and consider entering into this Early Retirement
Agreement and Release and has been advised that he may consult with an
attorney or anyone of his choosing and, by executing same, has decided he
wants to sign it.
5. The Employee is entitled to change his mind and revoke this
Agreement within seven (7) days of signing it. This Agreement will not
become effective until the eighth (8th) day after he signs it.
6. In consideration of the execution by the Employee of this Early
Retirement Agreement and Release and compliance with the promises made
herein, the Company will pay the Employee the following amounts and provide
the following benefits:
(a) Salary Continuation. The Employee shall receive a sum
equal to his weekly salary for the period through January 17, 1998, with
normal payroll deductions being withheld. This sun shall be paid as
follows:
(1) $365,000, with normal payroll deductions being
withheld, within fourteen (14) days of the execution of this
Early Retirement Agreement, and
(2) the balance in weekly payments of $2,622.86 through
January 17, 1998, with normal payroll deductions being withheld.
<PAGE>
(b) Insurance Benefits:
(1) The Company will provide coverage for the Employee and
his spouse in the Company Health Care Plan for the period through
November 30, 2004, or until the Employee becomes employed and has
comparable insurance coverage. Such coverage will be subject to
the same terms and conditions that apply to all non-union covered
employees of the Company. After November 30, 2004, the Company
will extend the Company's group health care benefits to Employee
and his spouse, at his cost, but at Company's group rate, as
provided under COBRA, if the Employee does not already have
insurance coverage through a new employer.
(2) The Company will provide group term life insurance in
the amount of $500,000 for the Employee for the period through
November 30, 1999.
(c) Incentive Compensation. The Employee will be eligible for a
prorated Incentive Compensation Bonus for Calendar 1996. Penn Traffic
agrees to pay the Employee said applicable Calendar 1996 bonus, if any,
minus withholding and other normal deductions, all in accordance with the
terms and provisions of the Penn Traffic Incentive Compensation Plan. The
Employee shall not be eligible for any Incentive Compensation for any
period after September 30, 1996.
(d) Stock Options. The Employee shall have, unless earlier
terminated pursuant to the normal terms of the Plan, until January 17,
2003, whichever occurs first, to exercise any of his stock options, as
applicable under the respective Stock Option Plans.
(e) Restricted Stock. The Employee shall continue to retain his
27,500 shares of restricted stock, which shall not terminate as a result of
this resignation and early retirement. The Employee shall not be entitled
to any loan from the Company under any circumstances, and the restricted
stock shall otherwise be governed by the terms and conditions of The Penn
Traffic Company 1993 Long Term Incentive Plan as though the Employee were
still employed by the Company.
(f) Company Vehicle. The Employee agrees to return all gas,
credit and other cards associated with the Company vehicle to the Company
on or before September 30, 1996. The Company shall transfer ownership of
the 1995 Cadillac which has been assigned to the Employee as a Company car
within thirty (30) days of the execution of this Early Retirement
Agreement. The book value of this car at that time, approximately $30,000,
will be reported as compensation to the Employee on his W-2 Form for 1996.
(g) Moving Expenses. The Employee intends to sell his residence
in Skaneateles, New York and plans on moving to the State of Tennessee.
The Company agrees to reimburse the Employee in connection with real estate
brokers' commissions, attorneys' fees, other related expenses with regard
to the sale of his Skaneateles, New
2
<PAGE>
York residence and transportation and moving expenses to the State of
Tennessee up to an aggregate amount not to exceed $35,000,
(h) Pension. The Employee is eligible under the Company's
Supplemental Retirement Income Plan to receive an annual pension benefit
for an eligible Employee with at least thirty (30) years of credited
service equal to forty percent (40%) of the yearly average of the highest
aggregate compensation received by the Employee during a period of five
(5) consecutive years of employment, less offsets for benefits paid under
the Company's other retirement plans and for Social Security benefits.
7. The Employee acknowledges that he knows there are various State
and Federal laws which prohibit employment discrimination on the basis of
race, color, creed, sex, age, national origin, marital status, religion,
disability or veteran status.
In consideration for the Company's making the payments listed in this
Agreement, which it is not otherwise required to make, the Employee intends
to voluntarily give up any rights he may have under these or any other laws
with respect to his employment with the Company or the retirement and
termination of his employment, including his rights under the Age
Discrimination in Employment Act and Title VII of the Civil Rights Act of
1964.
8. The Employee agrees not to disclose, either directly or
indirectly, to any person or entity, any information whatsoever regarding
the existence or substance of this Early Retirement Agreement and Release.
The Employee also agrees not to disclose, either directly or indirectly, to
any person or entity, any information concerning the business, operations
or condition (financial or otherwise) of the Company.
Employee will effect and will provide all reasonable cooperation in
effecting a prompt and orderly transition of his responsibilities at the
Company. Employee agrees to cooperate fully with the Company in connection
with litigations, arbitrations and governmental or other proceedings to
which the Company is or may be from time to time a party, without
compensation, provided that the Company's requests for such cooperation are
reasonable under the circumstances.
9. The Employee hereby agrees that he will not compete in any
capacity whatsoever, directly or indirectly, with the Company in any area
in which the Company presently conducts its business for the period through
January 17, 2000. In the event Employee breaches this Agreement, he shall
no longer be entitled to any of the benefits and payments set forth in this
Agreement.
10. In exchange for the payments the Employee will receive under this
Early Retirement Agreement and Release, the Employee, on behalf of himself,
his heirs, executors, administrators, successors and assigns, hereby
releases and forever discharges the Company from any and all causes of
action, charges or claims and/or damages of any kind arising out of
employment, including the January 29, 1995 Employment Agreement between the
Employee and the Company, and retirement from the beginning of his
employment to and including the effective date of this Agreement. This
includes, but is not limited to, claims arising under the
3
<PAGE>
Federal Age Discrimination in Employment Act of 1967 and Title VII of the
Civil Rights Act of 1964, as amended, and claims of discrimination based on
race, creed, color, sex, age, national origin, disability or marital
status.
11. This Early Retirement Agreement and Release sets forth the entire
agreement between the Company and the Employee and shall supersede any and
all prior agreements or understandings between the parties, except as
otherwise specified in this Early Retirement Agreement and Release. It may
not be amended, except by a written agreement signed by both parties.
12. BY SIGNING THIS AGREEMENT AND GENERAL RELEASE AND WAIVER, THE
EMPLOYEE STATES THAT: HE HAS READ IT; HE UNDERSTANDS IT; HE AGREES WITH
EVERYTHING IN IT; HE WAS TOLD, IN WRITING, TO CONSULT AN ATTORNEY BEFORE
SIGNING IT; HE HAS BEEN GIVEN TWENTY-ONE (21) DAYS TO REVIEW THE AGREEMENT
AND TO THINK ABOUT WHETHER OR NOT HE WANTS TO SIGN IT; AND HAS SIGNED IT
KNOWINGLY AND VOLUNTARILY.
THE PENN TRAFFIC COMPANY
By: /s/ Gary D. Hirsch
----------------------
Gary D. Hirsch, Chairman
AGREED:
/s/ John T. Dixon
- --------------------
John T. Dixon
Dated: October 5, 1996
4
<PAGE>
Exhibit 10.17
EMPLOYMENT AGREEMENT
AGREEMENT, made as of March 11, 1997 (the "Effective Date"), by and
between The Penn Traffic Company, a Delaware corporation (the "Company") and
Phillip E. Hawkins ("Executive").
R E C I T A L S:
In order to induce Executive to serve as the President and Chief
Executive Officer of the Company, the Company desires to provide Executive with
compensation and other benefits on the terms and conditions set forth in this
Agreement.
Executive is willing to accept such employment and perform services
for the Company, on the terms and conditions hereinafter set forth.
It is therefore hereby agreed by and between the parties as follows:
1. Employment.
1.1 Subject to the terms and conditions of this Agreement, the
Company agrees to employ Executive as an employee as of the date of this
Agreement and, during the Executive Term hereof (as that term is defined in
Section 2), as its President and Chief Executive Officer.
1.2 Subject to the terms and conditions of this Agreement, Executive
hereby accepts employment as the President and Chief Executive Officer of the
Company during the Executive Term and agrees to devote his full working time and
efforts (except for permitted vacation periods and periods of illness and other
incapacity), to the best of his ability, experience and talent, to the
performance of services, duties and responsibilities of the President and Chief
Executive Officer in connection therewith. During the Executive Term, Executive
shall perform such duties and exercise such powers as are consistent with his
position as President and Chief Executive Officer and perform such other duties
and exercise such other powers as the Board of Directors (the "Board") may from
time to time delegate to him.
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1.3 The Company hereby agrees to take all reasonable and necessary
corporate action to cause Executive to be appointed or elected to the Board of
Directors as soon as is practicable and, if so appointed or elected, the
Executive agrees to serve as a director of the Company, so long as Executive
holds the position of President and Chief Executive Officer, without additional
compensation.
1.4 Executive may, while serving as President and Chief Executive
Officer, (and so long as such activities do not materially interfere with his
duties and responsibilities hereunder) engage in charitable and community
affairs, may manage any passive investment made by him in publicly traded equity
securities or other property (provided that no such investment may exceed 2% of
the equity of any operating entity without the prior approval of the Board) and
may, subject to the prior approval of the Board, serve as a member of the board
of directors or as a trustee of any other corporation, association or entity.
2. Term of Employment. Executive's term of employment under this
Agreement as President and Chief Executive Officer (the "Executive Term") shall
commence on April 1, 1997 or on such earlier date following the Effective Date
as Executive may elect and, subject to the terms hereof, shall terminate (the
"Termination Date") on the earlier of (i) January 31, 2001 or (ii) termination
of Executive's employment pursuant to this Agreement.
3. Compensation.
3.1 Salary. The Company shall pay Executive a base salary ("Base
Salary") of (a) $1,000 per week for the period from the Effective Date to the
beginning of the Executive Term, such amount to be paid in a lump sum upon the
commencement of the Executive Term, and (b) at the rate of $450,000 per annum
for the period commencing at the beginning of the Executive Term and ending on
the Termination Date. Base Salary shall be payable in accordance with the
ordinary payroll practices of the Company. Any increase in Base Salary shall be
in the discretion of the Board and Executive's salary, after giving effect to
any such increase, shall constitute "Base Salary" hereunder.
3.2 Annual Bonus. In addition to his Base Salary, Executive shall be
eligible to be paid an annual cash bonus (the "Bonus") during the term of his
employment hereunder. The bonus payable in respect of any year shall be paid,
on a
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date to be determined by the Board, during the first quarter of the next fiscal
year.
The Bonus which may range from 0% to 100% of Base Salary depending on
the performance of the Company each fiscal year. Executive shall receive not
less than 50% of Base Salary (the "Target Bonus") in respect of any fiscal year
during the Executive Term hereof in which the Company shall have reached its
budgeted goals for the year as determined by the Board and communicated to
Executive in writing (the "Performance Target"). The budgeted goals for
determining eligibility for the Target Bonus in any year, and the criteria for
determining deviations from the Target Bonus amount if budgeted goals are
exceeded or not attained, shall be determined by the Board in advance of the
year in respect of which the Bonus is to be paid. For the fiscal year ending
approximately January 31, 1998, Executive's Bonus shall be $225,000 and shall be
paid to Executive without regard to the achievement of the Performance Target.
3.3 Supplemental Payment. On April 2, 1997, unless Executive shall
have failed or refused to begin performance of the Executive Term as set forth
in this Agreement, and in consideration and full satisfaction of (i) such loss
of present benefits and other incidental costs which Executive may incur as a
result of his entering into this Agreement and being employed by the Company and
(ii) the covenants and agreements of Executive in Section 5 hereof, the Company
shall pay to Executive $2,300,000 less the minimum amount required to be
withheld by applicable statutes by check or any other method of payment
acceptable to Executive and the Company, provided, however, that such amount
will be adjusted (either by reduction before the payment is made or by refund
after it is made) by an amount equal to 47.7% of the aggregate amount which
Executive receives, either before or after the Effective Date, with respect to
his present employer's Amended and Restated Severance Plan for Senior Management
and Key Employees and with respect to his present employer's supplemental
retirement plan, as well as by 47.5% of the fair market value (on the date of
vesting) of all stock options from his present employer which become vested
after March 1, 1998 or by 47.5% of any amounts received by Executive in lieu of
such payments or stock options; and provided further that if the Executive Term
does not commence because of any action or refusal on the part of Executive,
then the entire amount of the payment made to Executive pursuant to this Section
3.3 shall be refunded by Executive to the Company.
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3.4 Compensation Plans and Programs. Executive shall be eligible to
participate in any compensation plan or program maintained by the Company for
its senior executives as a group, on terms at least as favorable as those
applicable to such other senior executives.
3.5 Relocation and Payment of Relocation Expenses. During the
Executive Term, the Executive shall perform his duties in the Syracuse, New York
area, except that the Executive agrees to make such business trips to such other
locations as may be reasonably necessary and appropriate in the performance of
his duties. Executive agrees that he shall relocate to the Syracuse, New York
area no later than the commencement of the Executive Term and shall use his best
efforts to relocate his family to the Syracuse, New York area no later than
September 1, 1997. To assist the Executive with his relocation to the Syracuse,
New York area, the Company agrees to provide Executive with the benefits and
reimbursements set forth on Schedule A hereto to the extent actually incurred by
Executive in connection with his relocation from his present home.
4. Employee Benefits.
4.1 Employee Benefit Programs, Plans and Practices. The Company
shall provide Executive during the term of his employment hereunder with
coverage under all employee pension and welfare benefit programs, plans and
practices (commensurate with his position in the Company and to the extent
permitted under any such employee benefit plan) in accordance with the terms
thereof, which the Company makes available to its senior executives as a group.
4.2 Vacation and Fringe Benefits. During the Executive Term,
Executive shall be entitled to four weeks of paid vacation in each calendar
year, which shall be taken at such times as are consistent with Executive's
responsibilities hereunder. Executive shall also be entitled to the perquisites
and other fringe benefits made available to senior executives of the Company as
a group, commensurate with his position with the Company.
4.3 Expenses. Executive is authorized to incur reasonable expenses
in carrying out his duties and responsibilities under this Agreement, including,
without limitation, expenses for travel (including reasonable travel expenses
for Executive's spouse for relevant industry
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meetings) and similar items related to such duties and responsibilities. The
Company will reimburse Executive for all such expenses upon presentation by
Executive from time to time of appropriately itemized and approved (consistent
with the Company's policy) accounts of such expenditures.
5. No Competition; Confidentiality. (a) The Executive agrees that
while this Agreement is in effect and for a period of three (3) years after the
Termination Date, the Executive will not without the prior written consent of
the Company, as principal, agent, employee, employer, consultant, stockholder
(other than as the holder of shares of capital stock of the Company or of not
more than 2% of the shares of any other corporation), director or co-partner, or
in any other individual or representative capacity whatever, directly or
indirectly:
(i) engage in any way in any wholesale and/or retail food business which
operates in any state in the United States in which the Company
operates during the Executive Term;
(ii) induce or attempt to induce any person who is in the employ of the
Company or any subsidiary thereof to leave the employ of the Company
or such subsidiary, or employ or attempt to employ any such person or
any person who at any time during the preceding twelve (12) months was
in the employ of the Company or any subsidiary thereof; or
(iii)induce or attempt to induce or assist any other person, firm or
corporation to do any of the actions referred to in (i) or (ii) above
(provided, that this Section 5 shall not be interpreted so as to
prohibit the Executive from providing references for employees of the
Company or its subsidiaries or Affiliates who have been solicited by
an employee or prospective employer without violation of (ii) above.
(b) The Executive agrees that while this Agreement is in effect and
for a period of three years following the Termination Date he will not at any
time from and after the date hereof, divulge, furnish or make accessible to any
person, or himself make use of other than for the sole benefit of the Company,
any confidential or
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proprietary information of the Company obtained by him while in the employ of
the Company other than in connection with his employment with the Company as
provided hereunder, including, without limitation, information with respect to
any products, services, improvements, formulas, designs, styles, processes,
research, analyses, suppliers, customers, methods of distribution or
manufacture, contract terms and conditions, pricing, financial condition,
organization, personnel, business activities, budgets, plans, objectives or
strategies of the Company or its proprietary products or of any subsidiary or
Affiliate of the Company and that he will, prior to or upon the termination of
his employment with the Company, return to the Company all such confidential or
non-public information, whether in written or other physical form or stored
electronically on computer disks or tapes or any other storage medium, and all
copies thereof, in his possession or custody or under his control; provided,
however, that (x) the restrictions of this paragraph shall not apply to publicly
available information or information known generally to the public (without any
action on the part of the Executive prohibited by the restrictions of this
paragraph), and (y) the Executive may disclose such information as may be
required pursuant to any subpoena or other lawful process issued pursuant to any
applicable law, rule or regulation.
Notwithstanding the foregoing, in the event that the Executive
receives a subpoena or other process or order which may require him to disclose
any confidential information, the Executive agrees (i) to notify the Company
promptly of the existence, terms and circumstances surrounding such process or
order, and (ii) to cooperate with the Company, at the Company's request and at
its expense including but not limited to attorneys' fees and expenses, in taking
legally available steps to resist or narrow such process or order and to obtain
an order (or other reliable assurance reasonably satisfactory to the Company)
that confidential treatment will be given to such information as is required to
be disclosed.
As used in this Section 5, "Affiliate" shall have the meaning set
forth in Section 6.4 hereof.
(c) In view of the services which the Executive will perform for the
Company and its subsidiaries and Affiliates, which are special, unique,
extraordinary and intellectual in character and will place him in a position of
confidence and trust with the customers and employees of the
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Company and its subsidiaries and Affiliates and will provide him with access to
confidential financial information, trade secrets, "know-how" and other
confidential and proprietary information of the Company and its subsidiaries and
Affiliates, and recognizing the substantial sums paid and to be paid to the
Executive pursuant to the terms hereof, the Executive expressly acknowledges
that the restrictive covenants set forth in this Section 5 are necessary in
order to protect and maintain the proprietary interests and other legitimate
business interests of the Company and its subsidiaries and Affiliates and that
the enforcement of such restrictive covenants will not prevent him from earning
a livelihood. The Executive acknowledges that the remedy at law for any breach
or threatened breach of this Section 5 will be inadequate and, accordingly, that
the Company shall, in addition to all other available remedies (including,
without limitation, seeking damages sustained by reason of such breach), be
entitled to specific performance or injunctive relief without being required to
post bond or other security and without having to prove the inadequacy of the
available remedies at law.
6. Termination.
6.1 Death of the Executive. The Executive Term hereof shall
automatically terminate upon the death of the Executive.
6.2 By the Executive. The Executive shall be entitled to terminate
the Executive Term (i) for Good Reason (as defined in Section 6.4 below)
following a Change of Control (as defined in Section 6.4 below) by giving to the
Company ten (10) days' prior written notice, (ii) in the event of Executive's
Disability (as defined in Section 6.4 below), or (iii) at any time after the
Effective Date by giving to the Company thirty (30) days prior written notice of
his intention to terminate.
6.3 By the Company. The Company shall be entitled to terminate the
Executive Term (i) in the event of the Executive's Disability (as defined in
Section 6.4 below); (ii) for Cause (as defined in Section 6.4 below) by giving
to Executive ten (10) days' prior written notice thereof; or (iii) at the
Company's sole discretion for any reason other than Disability or Cause by
giving to Executive thirty (30) days' prior written notice thereof.
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6.4 Definitions. For purposes of this Agreement, the following terms
shall have the following meanings:
(a) Affiliate. "Affiliate" shall mean, with respect to any
person, a person (i) which directly or indirectly through one or more
intermediaries controls, or is controlled by, or is under common
control with, such person, (ii) which directly or indirectly through
one or more intermediaries beneficially owns or holds 5% or more of
the combined voting power of the total voting securities of such
person or (iii) of which 5% or more of the combined voting power of
the total voting securities (or in the case of a person which is not a
corporation, 5% or more of the equity interest) directly or indirectly
through one or more intermediaries is beneficially owned or held by
such person, or a subsidiary of such person.
(b) Cause. "Cause" shall mean (x) indictment of the Executive
for a felony, provided, however, that in the event Executive is
subsequently found not guilty or the charges against Executive are
dismissed, any amounts that would have been due Executive hereunder if
he had been terminated without Cause shall be paid to Executive on the
same basis as if a termination without Cause had occurred on the date
he was actually terminated, or (y) intentional misappropriation of
property of the Company or any subsidiary thereof or other intentional
dishonesty or intentional fraud with respect to the Company or any
subsidiary thereof, or (z) the Executive's willful malfeasance or
willful misconduct in the performance of his obligations under this
Agreement, or any intentional breach of Section 5 hereof.
(c) Disability. "Disability" shall mean (i) the Executive's
failure substantially to perform his services hereunder on a full-time
basis for a period of six consecutive months, or for shorter periods
aggregating six months in any twelve-month period, as a result of
incapacity due to physical or mental illness, or (ii) if the Executive
becomes disabled to an extent which entitles him to long-term benefits
under the
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Company's long-term disability benefit plan applicable to senior executive
officers as in effect on the first date of such entitlement.
(d) Good Reason. "Good Reason" shall mean the occurrence of any
of the following events following a Change in Control of the Company:
(i) The assignment to the Executive of any duties inconsistent
with the Executive's positions, duties, responsibilities and
status with the Company prior to the Change in Control, or a
substantial diminution in the nature or status of the Executive's
responsibilities from those in effect immediately prior to the
Change in Control;
(ii) The taking of any action by the Company which would
materially reduce Executive's compensation or his participation
in or his benefits under, any of plans, programs or arrangements
enjoyed by the Executive (or deprive the Executive of any
material fringe benefit) pursuant hereto immediately prior to the
Change in Control; or
(iii) The requirement subsequent to a Change of Control that the
Executive be based at a location more than 25 miles from the
location where the Executive is based immediately prior to the
Change in Control.
(e) Change in Control. A "Change in Control" shall mean an
event or series of events by which (i) any "person" (as such term is
used in Section 13(d) and 14(d) of the Securities Exchange Act of 1934
(the "Exchange Act")) (other than Riverside Acquisition Company,
Limited Partnership ("RAC"), Miller Tabak Hirsch + Co. ("MTH") or any
Affiliate of either thereof) is or becomes the "beneficial owner" (as
defined in Rules 13d-3 and 13d-5 under the Exchange Act, except that a
person shall be deemed to have "beneficial ownership" of all shares
that any
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such person has the right to acquire, whether such right is exercisable
immediately or only after the passage of time), directly or indirectly, of
50% or more of the outstanding shares of common stock of the Company or
securities representing 50% or more of the combined voting power of the
Company's voting securities, (ii) the Company consolidates with or merges
into another corporation or conveys, transfers or leases all or
substantially all of its assets to any person, or any corporation
consolidates with or merges into the Company, in each case pursuant to a
transaction (other than a transaction between the Company and its
subsidiaries) (A) after giving effect to which persons who were Directors
of the Company immediately prior to the transaction do not constitute a
majority of the Board of Directors of the successor or survivor entity and
(B) in which the outstanding voting securities of the Company are changed
into or exchanged for cash, securities or other property, with the effect
that all or substantially all of the individuals and entities who were the
respective beneficial owners of the common stock and voting securities of
the Company immediately prior to such reorganization, merger or
consolidation do not, following such reorganization, merger or
consolidation, beneficially own, directly or indirectly, more than fifty
percent (50%) of the then outstanding shares of common stock and of the
combined voting power of the then outstanding voting securities entitled to
vote generally in the election of directors of the corporation resulting
from such reorganization, merger or consolidation, or (iii) during any
period of two consecutive years, individuals who at the beginning of such
period constituted the Company's Board of Directors (together with any new
or replacement directors whose election by the Company's Board of
Directors, or whose nomination for election by the Company's shareholders,
was approved by a vote of at least a majority of the directors then still
in office who were either directors at the beginning of such period or
whose election or nomination for election was previously so approved) cease
for
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any reason to constitute a majority of the directors then in office.
7. Payments to Executive Upon Early Termination of Employment.
7.1 Termination Not for Cause or for Good Reason. If during the
Executive Term Executive's employment is (x) terminated by the Company
other than for Cause or Disability (as defined in Section 6.4 hereof) or
(y) if Executive terminates his employment for Good Reason (as defined in
Section 6.4 hereof):
(a) if such termination occurs on or prior to February 1, 2000,
Executive shall receive, in cash, on the date of termination such Base
Salary and Target Bonus payments as he would have been entitled to
receive in accordance with normal payroll practices of the Company if
termination had not occurred and the Company had attained a Target
Performance in the year of termination and in each succeeding twelve
month period up to and including the period ending February 1, 2001;
(b) if such termination occurs subsequent to February 1, 2000,
Executive shall receive, in cash, on the date of termination a
lump-sum payment equal to one year's Base Salary and the Target Bonus
in respect thereof which he would have been entitled to receive if the
Company had attained a Target Performance for the fiscal year ending
February 1, 2001; or
(c) whether such termination occurs prior or subsequent to
February 1, 2000, Executive shall receive for the greater of the
remainder of the Executive Term or a period of twelve months following
the date of termination such payments, if any, under applicable
benefit plans or programs of the type referred to in Section 4.1
hereof, to which he would be entitled pursuant to the terms of such
plans or programs, as well as a cash lump sum payment in respect of
accrued but unused vacation days (the "Vacation Payment") and all
compensation earned but not yet paid (including any deferred Bonus
payments ) (the "Compensation Payment").
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7.2 Disability. If Executive suffers a Disability (as defined in
Section 6.4) during the Executive Term, the Company or Executive may
terminate Executive's employment on written notice thereof to the other,
and Executive shall receive in cash, in addition to Base Salary through the
date of termination and in accordance with normal payroll practices of the
Company:
(a) the Target Bonus in respect of the fiscal year in which
his termination occurs, prorated by a fraction the numerator of
which is the number of days of the fiscal year elapsed prior to
the date of termination and the denominator of which is 365;
(b) the Vacation Payment and the Compensation Payment; and
(c) such payments under applicable plans or programs of the
type referred to in Section 4.1 hereof to which he is entitled
pursuant to the terms of such plans or programs.
7.3 Death. In the event of Executive's death during the Executive
Term hereunder, Executive's estate or designated beneficiaries shall receive in
cash, in addition to Base Salary through the date of death and in accordance
with normal payroll practices of the Company:
(a) the Target Bonus in respect of the fiscal year in which
his death occurs, prorated by a fraction, the numerator of which is
the number of days of the fiscal year elapsed prior to the date of his
death and the denominator of which is 365;
(b) any death benefits provided under the employee benefit
programs, plans and practices referred to in Section 4.1 hereof, in
accordance with their terms; and
(c) the Vacation Payment and the Compensation Payment.
7.4 Voluntary Termination by Executive; Discharge for Cause. The
Company shall have the right to terminate the employment of Executive for Cause
(as defined in Section
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6.4). In the event that Executive's employment is terminated by the Company for
Cause or by Executive other than (x) for Good Reason or (y) as a result of the
Executive's Disability or death, Executive shall be entitled to receive in cash
only his Base Salary through the date of termination in accordance with normal
payroll practices, the Compensation Payment, the Vacation Payment and any other
benefits which Executive is entitled to receive on the date of termination
(whether or not payable on that date or a deferred or future date) pursuant to
the employee benefit program plans and practices referred to in Section 4.1
hereof. Executive shall not be entitled, among other things, to the payment of
any Bonus in respect of all or any portion of the fiscal year in which such
termination occurs. After the termination of Executive's employment under this
Section 7.4, the obligations of the Company under this Agreement to make any
further payments, or provide any benefits specified herein, to Executive shall
thereupon cease and terminate.
8. Stock Arrangements.
8.1 Grant of Options. Executive shall be granted on the Effective
Date options to purchase 400,000 shares of Common Stock, par value $1.25, of the
Company with an exercise price equal to the Fair Market Value thereof as defined
in the Plans. Such options may be granted, at the Company's election, under the
1993 Long Term Incentive Plan and/or the Performance Incentive Plan of the
Company (together, the "Plans") and shall vest in five (5) substantially equal
annual increments on the date of commencement of the Executive Term and on each
of the first four anniversaries of the commencement of the Executive Term on
which Executive is still employed as President and Chief Executive Officer. To
the extent lawful, the Company shall grant options which will qualify as
incentive stock options under the Internal Revenue Code.
8.2 Option Agreements. As soon as practicable, Executive and the
Company will enter into option agreements, in the form contemplated under the
Plans, with respect to the award of options referred to in Section 8.1.
8.3 Stockholder Action. At its Annual Meeting of Stockholders in
1997, the Company will submit the Performance Incentive Plan to the stockholders
of the Company for approval. In the event of disapproval of the Plan by the
stockholders, however, the options granted to Executive shall
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continue to be valid and subsisting and enforceable by Executive and the Company
in accordance with their terms.
9. Mitigation of Damages. Executive shall not be required to
mitigate damages or the amount of any payment provided for under this Agreement
by seeking other employment or otherwise after the termination of his employment
hereunder.
10. Notices. All notices or communications hereunder shall be in
writing, addressed as follows:
To the Company:
Gary D. Hirsch
Chairman
The Penn Traffic Company
411 Theodore Fremd Avenue
Rye, New York 10580
with a copy to:
Francis D. Price, Esq.
Vice President, General
Counsel and Secretary
The Penn Traffic Company
P.O. Box 4737
1200 State Fair Blvd.
Syracuse, New York 13221-4737
To Executive:
Phillip E. Hawkins
1817 Via Arriba
Palos Verdes Estates, California 90274
with a copy to:
Ronald L. Fein, Esq.
Stutman, Treister & Glatt
3699 Wilshire Boulevard
Suite 900
Los Angeles, California 90010-2739
Any such notice or communication shall be delivered by hand or by
courier or sent certified or registered mail, return receipt requested, postage
prepaid, addressed as above (or to such other address as such party may
designate in a
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notice duly delivered as described above) and, if mailed, the fifth business day
after the actual date of mailing shall constitute the time at which notice was
given.
11. Separability; Legal Fees. (a) If any provision of this Agreement
shall be declared to be invalid or unenforceable, in whole or in part, such
invalidity or unenforceability shall not affect the remaining provisions hereof
which shall remain in full force and effect. Each party shall bear the costs of
any legal fees and other fees and expenses which may be incurred in respect of
enforcing its respective rights under this Agreement. The Company shall,
however, reimburse Executive for the reasonable fees and disbursements (not in
excess of $10,000) of Executive's legal counsel in connection with the
negotiation and execution of this Agreement and the other documents contemplated
hereby; provided, however, that no such payment shall be made without reasonable
substantiation of the amounts.
12. Assignment. This contract shall be binding upon and inure to the
benefit of the heirs and representatives of Executive and the assigns and
successors of the Company, but neither this Agreement nor any rights or
obligations hereunder shall be assignable or otherwise subject to hypothecation
by Executive (except by will or by operation of the laws of intestate
succession) or by the Company, except that the Company may assign this Agreement
to any successor (whether by merger, purchase or otherwise) to all or
substantially all of the stock, assets or businesses of the Company, if such
successor expressly agrees to assume the obligations of the Company hereunder.
13. Amendment. This Agreement may only be amended by written
agreement of the parties hereto.
14. Beneficiaries; References. Executive shall be entitled to select
(and change, to the extent permitted under any applicable law) a beneficiary or
beneficiaries to receive any compensation or benefit payable hereunder following
Executive's death, and may change such election, in either case by giving the
Company written notice thereof. In the event of Executive's death or a judicial
determination of his incompetence, reference in this Agreement to Executive
shall be deemed, where appropriate, to refer to his beneficiary, estate or other
legal representative. Any reference to the masculine gender in this Agreement
shall include, where appropriate, the feminine.
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15. Survivorship. The respective rights and obligations of the
parties hereunder shall survive any termination of this Agreement to the extent
necessary to the intended preservation of such rights and obligations. The
provisions of this Section 15 are in addition to the survivorship provisions of
any other section of this Agreement.
16. Governing Law. This Agreement shall be construed, interpreted
and governed in accordance with the laws of the state of New York, without
reference to rules relating to conflicts of law.
17. Effect on Prior Agreements. This Agreement contains the entire
understanding between the parties hereto and supersedes in all respects any
prior or other agreement or understanding between the Company or any affiliate
of the company and Executive.
18. Withholding. The Company shall be entitled to withhold from
payment any amount of withholding required by law.
19. Survival. Notwithstanding the expiration of the Term of this
Agreement, the provisions of Section 5 hereof shall remain in effect as long as
is necessary to give effect thereto.
20. Counterparts. This Agreement may be executed in two or more
counterparts, each of which will be deemed an original.
THE PENN TRAFFIC COMPANY
By: /s/ Martin A. Fox
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Name: Martin A. Fox
Title: Vice Chairman - Finance
/s/ Phillip E. Hawkins
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Phillip E. Hawkins
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Schedule A
Relocation Assistance
The Company will pay, or reimburse Executive for, the
following costs upon presentation of invoices or other satisfactory evidence
thereof.
1. The cost of packing, moving and unpacking (together
with the cost of temporary storage, if required) of the household possessions
of Executive and his family.
2. Executive's closing costs relating to the sale of
Executive's present home at 1817 Via Arriba, Palos Verdes Estates, California
including a selling broker's commission equal to not more than 6% of the sale
price.
3. Executive's closing costs relating to the purchase of
a new home in the Syracuse area, including reimbursement of a loan
origination fee or "points" equal to not more than 1% of the amount of any
first mortgage loan obtained by Executive.
4. The cost for Executive and his family to make a
reasonable number of trips of reasonable and appropriate duration to the
Syracuse, New York area to make arrangements for permanent housing.
5. The cost of suitable temporary living quarters for
Executive and his family, as needed, until September 1, 1997.
6. If Executive closes the purchase of a new home in
Syracuse before closing the sale of his present home, the interest cost and
property taxes on his present home for a period not to exceed 12 months from
September 1, 1997.
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Exhibit 10.18
The Penn Traffic Company
1997 Performance Incentive Plan
1. Purposes of the Plan.
This Performance Incentive Plan, first adopted November 21, 1996 and
amended and restated as of April 1, 1997, shall be known as "The Penn Traffic
Company 1997 Performance Incentive Plan" (hereinafter referred to as the
"Plan"). The purposes of the Plan are to further the long-term growth of The
Penn Traffic Company (the "Corporation"), to the benefit of its stockholders, by
providing incentives to the officers, employees and independent contractors of
the Corporation and its subsidiaries who will be largely responsible for such
growth, and to assist the Corporation and its subsidiaries in attracting and
retaining executives of experience and ability on a basis competitive with
industry practices. The Plan permits the Corporation to provide incentive
compensation of the types commonly known as restricted stock, stock options and
phantom stock, as well as other types of incentive compensation. For purposes
of this Plan, "Award" shall mean and include any Option, SAR, Restricted Stock,
Common Stock granted as a bonus or in lieu of other awards, other Stock-Based
Award, Tax Bonus, or other cash payments granted to a participant under the
Plan.
2. Administration of the Plan.
The Plan shall be administered by the Personnel and Compensation
Committee of the Board of Directors of the Corporation (the "Committee").
Subject to the provisions of the Plan, the Committee shall have exclusive power
to select the officers, employees and independent contractors of the Corporation
and its subsidiaries to participate in the Plan; to determine the type, size and
terms of Awards to be made to each participant selected, to determine whether,
to what extent, and under what circumstances an Award may be settled, or the
exercise price of an Award may be paid, in cash, Common Stock, other Awards or
other property, or an Award may be cancelled, forfeited, or surrendered; to
determine whether, and to certify that, performance goals to which the
settlement of an Award is subject are satisfied; to correct any defect or supply
any omission or reconcile any inconsistency in the Plan, and to adopt, amend and
rescind such rules and regulations as, in its opinion, may be advisable in the
administration of the Plan; and to make all other determinations as it may deem
necessary or advisable for the administration of the Plan. The Committee's
interpretation of the Plan, any Awards granted thereunder or any Award
Agreements shall be final and binding on all parties concerned, including the
Corporation and any participant. Any action of the Committee in administering
the Plan shall be final, conclusive and binding on all persons, including the
Corporation, its subsidiaries, employees, participants, persons claiming rights
from or through participants and stockholders of the Corporation.
3. Participation.
Participants in the Plan shall be selected by the Committee from among
the officers, employees and independent contractors of the Corporation and its
subsidiaries. The term "subsidiary" shall mean any corporation, partnership,
joint venture or other business entity a majority of whose outstanding voting
securities is beneficially owned, directly or indirectly, by the Corporation.
Participants may receive multiple Awards under the Plan.
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4. Awards.
(a) Types. Awards under the Plan may include, but need not be limited to,
cash and/or shares of the Corporation's common stock, $1.25 par value ("Common
Stock"), rights to receive cash and/or shares of Common Stock, and options
("Options") to purchase shares of Common Stock, including options designated as
qualifying as incentive stock options ("Incentive Stock Options" or "ISOs")
under Section 422 of the Internal Revenue Code of 1986, as amended ("Code"), and
options not intended so to qualify. The terms of any Option granted under the
Plan as an ISO shall comply in all respects with the provisions of Section 422
of the Code, including, but not limited to, the requirement that no ISO shall be
granted more than ten years after the effective date of the Plan. The Committee
may also make any other type of Award deemed by it to be consistent with the
purposes of the Plan.
(b) Vesting, Performance Requirements and Forfeiture. In granting any
Awards, the Committee (1) may specify that the right to exercise such Awards or
the right to receive payment of such cash and/or shares of Common Stock or to
retain any shares of Common Stock so transferred shall be conditional upon the
fulfillment of specified conditions, including, without limitation, completion
of specified periods of service in the employ of the Corporation or its
subsidiaries, and the achievement of specified business and/or personal
performance goals, and (2) may provide for the forfeiture of all or any portion
of any such Awards in specified circumstances. The Committee may also specify
by whom and/or in what manner the accomplishment of any such performance goals
shall be determined.
(c) Agreements. Awards under the Plan shall be evidenced by an agreement
(an "Award Agreement"), which, subject to the provisions of the Plan, may
contain such terms and conditions as may be approved by the Committee, and shall
be executed by an officer on behalf of the Corporation and by the recipient of
the Award.
5. Shares of Stock Subject to the Plan.
Subject to adjustment as provided in Section 7(a) hereof, the number
of shares of Common Stock which may be paid to participants under the Plan
and/or purchased pursuant to Options granted under the Plan shall not exceed an
aggregate of one million five hundred thousand (1,500,000) shares. In the event
that any shares of Common Stock subject to an Award are forfeited or such Award
is settled in cash or otherwise terminated for any reason without an actual
distribution of shares of Common Stock to the participant, such shares may again
be awarded under the Plan. If the terms of any Award allow a participant to
acquire or receive payment with regard to a stated number or maximum number of
shares of Common Stock by alternatively exercising Options or receiving cash
and/or shares pursuant to other forms of Awards or forfeiting without
consideration any Restricted Stock (whether or not any of the foregoing shall
have been granted at the same or at a different time), the total number of
shares of Common Stock which shall be deemed granted shall be limited to only
the maximum number which can be so acquired or received. Shares to be delivered
or purchased under the Plan may be either authorized but unissued shares of
Common Stock or shares of Common Stock held by the Corporation as treasury
shares.
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6. Options and Other Awards.
(a) Term of Options. The term of any Option shall be determined by the
Committee, but in no event shall any Option designated as an Incentive Stock
Option be exercisable more than ten years after the date on which it was
granted.
(b) Option Price; Fair Market Value. The price ("Option Price") at which
shares of Common Stock may be purchased pursuant to any Option shall be
determined by the Committee at the time the Option is granted, but in no event
shall the Option Price be less than 100 per cent of the Fair Market Value of
such shares on the date the Option is granted. For all purposes of the Plan,
"Fair Market Value" is the mean of the high and low sales prices of the Common
Stock on the relevant date as reported on the stock exchange or market on which
the Common Stock is primarily traded, or, if no sale is made on such date, then
"Fair Market Value" is a weighted average of the mean of the high and low sales
prices of the Common Stock on the next preceding day and the next succeeding day
on which such sales were made as reported on the stock exchange or market on
which the Common Stock is primarily traded.
(c) Payment Upon Exercise. The Committee shall determine the time or
times at which an Option may be exercised in whole or in part, whether the
Option Price shall be paid in cash or by the surrender at Fair Market Value of
Common Stock, or by any combination of cash and shares of Common Stock,
including, without limitation, cash, Common Stock, other Awards, or other
property (including notes or other contractual obligations of participants to
make payment on a deferred basis, such as through "cashless exercise"
arrangements, to the extent permitted by applicable law), and the methods by
which Common Stock will be delivered or deemed to be delivered to participants.
Upon exercise of an Option, the Option Price shall be payable to the Corporation
in cash, or, at the discretion of the Committee, in shares of Common Stock
valued at the Fair Market Value thereof on the date of payment, or in a
combination of cash and shares of Common Stock.
(d) Surrender of Options. The Corporation may, if the Committee so
determines, accept the surrender by a participant, or the personal
representative of a participant, of an Option, in consideration of a cash
payment by the Corporation equal to the difference obtained by subtracting the
aggregate Option Price from the aggregate Fair Market Value of the Common Stock
covered by the Option on the date of such surrender, or partly in shares of
Common Stock and partly in cash.
(e) Restricted Stock. The Committee is authorized to award shares of
Common Stock which are, in accordance with this Section 6(e), subject to
restrictions and a risk of forfeiture ("Restricted Stock") to participants on
the following terms and conditions:
(i) Restricted Period. Restricted Stock awarded to a participant
shall be subject to such restrictions on transferability and other restrictions
for such periods as shall be established by the Committee, in its discretion, at
the time of such Award, which restrictions may lapse separately or in
combination at such times, under such circumstances, or otherwise, as the
Committee may determine.
(ii) Forfeiture. Restricted Stock shall be forfeitable to the
Corporation upon termination of employment during the applicable restricted
periods. The Committee, in its
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discretion, whether in an Award Agreement or anytime after an Award is made,
may accelerate the time at which restrictions or forfeiture conditions will
lapse or remove any such restrictions, including upon death, disability or
retirement, whenever the Committee determines that such action is in the best
interests of the Corporation.
(iii) Certificates for Stock. Restricted Stock granted under the
Plan may be evidenced in such manner as the Committee shall determine. If
certificates representing Restricted Stock are registered in the name of the
participant, such certificates may bear an appropriate legend referring to the
terms, conditions and restrictions applicable to such Restricted Stock.
(iv) Rights as a Shareholder. Subject to the terms and conditions of
the Award Agreement, the participant shall have all the rights of a stockholder
with respect to shares of Restricted Stock awarded to him or her, including,
without limitation, the right to vote such shares and the right to receive all
dividends or other distributions made with respect to such shares. If any such
dividends or distributions are paid in Common Stock, the Common Stock shall be
subject to restrictions and a risk of forfeiture to the same extent as the
Restricted Stock with respect to which the Common Stock has been distributed.
(f) Stock Appreciation Rights. The Committee is authorized to grant to
participants a right ("Stock Appreciation Rights" or "SARs") to receive, upon
exercise thereof, the excess of (A) the Fair Market Value of one share of Common
Stock on the date of exercise over (B) the grant price of the SAR as determined
by the Committee as of the date of grant of the SAR, which grant price (except
as provided in Section 6(j)) shall not be less than the Fair Market Value of one
share of Common Stock on the date of grant. The Committee shall determine the
time or times at which an SAR may be exercised in whole or in part, the method
of exercise, method of settlement, form of consideration payable in settlement,
method by which Common Stock will be delivered or deemed to be delivered to
participants, whether or not an SAR shall be in tandem with any other Award, and
any other terms and conditions of any SAR.
(g) Bonus Stock and Awards in Lieu of Cash Obligations. The Committee is
authorized to grant Common Stock as a bonus, or to grant Common Stock or other
Awards in lieu of Corporation or subsidiary obligations to pay cash or deliver
other property under other plans or compensatory arrangements; provided that, in
the case of participants subject to Section 16 of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), such cash amounts are determined under
such other plans in a manner that complies with applicable requirements thereof
and of the rules promulgated pursuant thereto so that the acquisition of Common
Stock or Awards hereunder shall be exempt from Section 16(b) liability. Common
Stock or Awards granted hereunder shall be subject to such other terms as shall
be determined by the Committee.
(h) Other Stock-Based Awards. The Committee is authorized, subject to
limitations under applicable law, to grant to participants rights denominated or
payable in, or valued in whole or in part by reference to the market value of,
Common Stock ("Stock-Based Awards"), including, but not limited to, any Option,
SAR, Restricted Stock, Common Stock granted as a bonus or Awards in lieu of cash
obligations, as deemed by the Committee to be consistent with the purposes of
the Plan. The Committee shall determine the terms and conditions of such
Stock-Based Awards. Common Stock delivered pursuant to an Award in the nature
of a purchase right granted under this Section 6(h) shall be purchased for such
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consideration and paid for at such times, by such methods, and in such forms
including, without limitation, cash, Common Stock, other Awards, or other
property, as the Committee shall determine.
(i) Cash Payments and Tax Bonuses. The Committee is authorized to grant
cash payments to participants, whether awarded separately or as a supplement to
any Award. The Committee is further authorized, subject to limitations under
applicable law, to grant to a participant a payment in cash, in the year in
which an amount is included in the gross income of a participant in respect of
an Award, of an amount equal to the federal, foreign, if any, and applicable
state and local income and employment tax liabilities payable by the participant
as a result of (i) the amount included in gross income in respect of the Award
and (ii) the payment of the amount in clause (i) and the amount in this clause
(ii) (a "Tax Bonus"). For purposes of determining the amount to be paid to a
participant as a Tax Bonus, the participant shall be deemed to pay federal,
foreign, if any, and state and local income taxes at the highest marginal rate
of tax imposed upon ordinary income for the year in which an amount in respect
of the Award is included in gross income, after giving effect to any deductions
therefrom or credits available with respect to the payment of any such taxes.
The Committee shall determine the terms and conditions of such Awards of Tax
Bonuses and other cash payments.
(j) Additional Provisions Applicable to Awards
(i) Stand-Alone, Additional, Tandem, and Substitute Awards. Awards
granted under the Plan may, in the discretion of the Committee, be granted
either alone or in addition to, in tandem with, or in substitution for, any
other Award granted under the Plan or any award granted under any other plan of
the Corporation or any subsidiary, or any business entity acquired by the
Corporation or any subsidiary, or any other right of a participant to receive
payment from the Corporation or any subsidiary (all of the foregoing being
referred to for purposes of this subparagraph (j) as "Awards"). If an Award is
granted in substitution for another Award, the Committee shall require the
surrender of such other Award in consideration for the grant of the new Award.
Awards granted in addition to, or in tandem with other Awards may be granted
either as of the same time as, or a different time from, the grant of such other
Awards. The per share Option Price of any Option, grant price of any SAR, or
purchase price of any other Award conferring a right to purchase Common Stock:
(A) granted in substitution for an outstanding Award, shall be
not less than the lesser of (A) the Fair Market Value of a share of
Common Stock at the date such substitute Award is granted or (B)
such Fair Market Value at that date, reduced to reflect the Fair
Market Value at that date of the Award required to be surrendered
by the participant as a condition to receipt of the substitute
Award; or
(B) retroactively granted in tandem with an outstanding Award,
shall not be less than the lesser of the Fair Market Value of a
share of Common Stock at the date of grant of the later Award or at
the date of grant of the earlier Award.
(ii) Exchange and Buy Out Provisions. The Committee may at any time
offer to exchange or buy out any previously granted Award for a payment in cash,
Common Stock, other Awards (subject to clause (i) of this Section 6(j)), or
other property based on
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such terms and conditions as the Committee shall determine and communicate to
a participant at the time that such offer is made.
(iii) Performance Conditions. The right of a participant to exercise
or receive a grant or settlement of any Award, and the timing thereof, may be
subject to such performance conditions as may be specified by the Committee.
(iv) Term of Awards. The term of each Award shall, except as
provided herein, be for such period as may be determined by the Committee;
provided, however, that in no event shall the term of any ISO, or any SAR
granted in tandem therewith, exceed a period of ten years from the date of its
grant (or such shorter period as may be applicable under Section 422 of the
Code).
(v) Form of Payment. Subject to the terms of the Plan and any
applicable agreement with a participant, payments or transfers to be made by the
Corporation or a subsidiary upon the grant or exercise of an Award may be made
in such forms as the Committee shall determine, including, without limitation,
cash, Common Stock, other Awards, or other property (and may be made in a single
payment or transfer, in installments, or on a deferred basis), in each case
determined in accordance with rules adopted by, and at the discretion of, the
Committee. (Such payments may include, without limitation, provisions for the
payment or crediting of reasonable interest on installments or deferred
payments.) The Committee, in its discretion, may accelerate any payment or
transfer upon a change in control as defined by the Committee. The Committee
may also authorize payment upon the exercise of an Option by net issuance or
other cashless exercise methods.
(vi) Loan Provisions. With the consent of the Committee, and subject
at all times to laws and regulations and other binding obligations or provisions
applicable to the Corporation, the Corporation may make, guarantee, or arrange
for a loan or loans to a participant with respect to the exercise of any Option
or other payment in connection with any Award, including the payment by a
participant of any or all federal, foreign, if any, state, or local income or
other taxes due in connection with any Award. Subject to such limitations, the
Committee shall have full authority to decide whether to make a loan or loans
hereunder and to determine the amount, terms, and provisions of any such loan or
loans, including the interest rate to be charged in respect of any such loan or
loans, whether the loan or loans are to be with or without recourse against the
borrower, the terms on which the loan is to be repaid and the conditions, if
any, under which the loan or loans may be forgiven.
(vii) Change of Control. In the event of a Change of Control of the
Corporation, all Awards granted under the Plan (including Performance-Based
Awards, as defined below) that are still outstanding and not yet vested or
exercisable or which are subject to restrictions shall become immediately 100%
vested in each participant or shall be free of any restrictions, as of the first
date that the definition of Change of Control has been fulfilled, and shall be
exercisable for the remaining duration of the Award. All Awards that are
exercisable as of the effective date of the Change of Control will remain
exercisable for the remaining duration of the Award. A "Change of Control"
shall mean an event or series of events by which (i) any "person" (as such term
is used in Section 13(d) and 14(d) of the Exchange Act) (other than Riverside
Acquisition Company, Limited Partnership ("RAC"), Miller Tabak Hirsch + Co.
("MTH") or any Affiliate of either thereof) is or becomes the "beneficial owner"
(as defined in Rules 13d-3 and 13d-5 under the Exchange Act, except that a
person shall be deemed to have "beneficial ownership" of all shares that any
such person
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has the right to acquire, whether such right is exercisable immediately or
only after the passage of time), directly or indirectly, of 50% or more of
the outstanding shares of Common Stock of the Corporation or securities
representing 50% or more of the combined voting power of the Corporation's
voting securities, (ii) the Corporation consolidates with or merges into
another corporation or conveys, transfers or leases all or substantially all
of its assets to any person, or any corporation consolidates with or merges
into the Corporation, in each case pursuant to a transaction (other than a
transaction between the Corporation and its subsidiaries)
(A) after giving effect to which persons who were Directors of the Corporation
immediately prior to the transaction do not constitute a majority of the Board
of Directors of the successor or survivor entity and (B) in which the
outstanding voting securities of the Corporation are changed into or exchanged
for cash, securities or other property, with the effect that all or
substantially all of the individuals and entities who were the respective
beneficial owners of the common stock and voting securities of the Company
immediately prior to such reorganization, merger or consolidation do not,
following such reorganization, merger or consolidation, beneficially own,
directly or indirectly, more than fifty percent (50%) of the then outstanding
shares of common stock and of the combined voting power of the then outstanding
voting securities entitled to vote generally in the election of directors of the
corporation resulting from such reorganization, merger or consolidation, or
(iii) during any period of two consecutive years, individuals who at the
beginning of such period constituted the Corporation's Board of Directors
(together with any new or replacement directors whose election by the
Corporation's Board of Directors, or whose nomination for election by the
Corporation's shareholders was approved by a vote of at least a majority of the
directors then still in office who were either directors at the beginning of
such period or whose election or nomination for election was previously so
approved), cease for any reason to constitute a majority of the directors then
in office.
(viii) Awards to Comply with Section 162(m). The Committee may (but
is not required to) grant an Award pursuant to the Plan to a participant who, in
the year of grant, may be a "covered employee," within the meaning of Section
162(m) of the Code, which is intended to qualify as "performance-based
compensation" under Section 162(m) of the Code (a "Performance-Based Award").
The right to receive a Performance-Based Award, other than Options and SARs
granted at not less than Fair Market Value, shall be conditional upon the
achievement of performance goals established by the Committee in writing at the
time such Performance-Based Award is granted. Such performance goals, which may
vary from participant to participant and from Performance-Based Award to
Performance-Based Award, shall be based upon the attainment by the Corporation
or any subsidiary, division or department of specific amounts of, or increases
in, one or more of the following, any of which may be measured either in
absolute terms or as compared to another company or companies: revenues,
earnings, earnings per share, operating income, cash flow, net worth, book
value, stockholders' equity, financial return ratios, market performance and/or
total stockholder return. Before any compensation pursuant to a
Performance-Based Award is paid, the Committee shall certify in writing that the
performance goals applicable to the Performance-Based Award were in fact
satisfied.
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The maximum amount which may be granted as Performance-Based Awards to
any participant in any calendar year shall not exceed (i) Stock-Based Awards for
500,000 shares of Common Stock (whether payable in cash or Common Stock),
subject to adjustment as provided in Section 7(a) hereof, (ii) a Tax Bonus
payable with respect to the Stock-Based Awards described in clause (i) and (iii)
cash payments (other than Tax Bonuses) of $500,000.
7. Dilution and Other Adjustments.
(a) Changes in Capital Structure. In the event of any subdivision or
combination of the outstanding shares of Common Stock, stock dividend, capital
reorganization, liquidation, reclassification of shares, merger, consolidation,
or sale, lease or transfer of substantially all of the assets of the
Corporation, the Board of Directors of the Corporation shall make such equitable
adjustments as it may deem appropriate in the Plan and the Awards thereunder,
including, without limitation, any adjustment in the total number of shares of
Common Stock which may thereafter be delivered or purchased under the Plan.
Agreements evidencing Options may include such provisions as the Committee may
deem appropriate with respect to the adjustments to be made to the terms of such
Options upon the occurrence of any of the foregoing events.
(b) Tender Offers and Exchange Offers. In the event of any tender offer
or exchange offer, by any person other than the Corporation, for shares of
Common Stock, the Committee may make such adjustments in outstanding Awards and
authorize such further action as it may deem appropriate to enable the
recipients of outstanding awards to avail themselves of the benefits of such
offer, including, without limitation, acceleration of the exercise date of
outstanding Options so that they become immediately exercisable in whole or in
part, or offering to acquire all or any portion of specified categories of
Options for a price determined pursuant to Section 6(d) hereof, or acceleration
of the payment of outstanding awards payable, in whole or in part, in shares of
Common Stock.
(c) Other Events. In addition, the Committee is authorized to make
adjustments in the terms and conditions of, and the criteria included in, Awards
in recognition of unusual or nonrecurring events (including, without limitation,
events described in the preceding subparagraphs) affecting the Corporation or
any subsidiary, or in response to changes in applicable laws, regulations, or
accounting principles. Notwithstanding the foregoing, no adjustment shall be
made which would cause the Plan or any outstanding Option to violate Section
422(b)(1) of the Code with respect to ISOs or would adversely affect the status
of a Performance-Based Award as "performance-based compensation" under Section
162(m) of the Code.
8. Miscellaneous Provisions.
(a) Right to Awards. No employee or other person shall have any claim or
right to be granted any Award under the Plan.
(b) No Assurance of Employment. Neither the Plan nor any action taken
thereunder shall be construed as giving any employee any right to be retained in
the employ of the Corporation or any subsidiary.
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(c) Costs and Expenses. All costs and expenses incurred in administering
the Plan shall be borne by the Corporation.
(d) Unfunded Plan. The Plan shall be unfunded. The Corporation shall not
be required to establish any special or separate fund nor to make any other
segregation of assets to assure the payment of any Award under the Plan.
(e) Withholding Taxes. The Corporation shall have the right to deduct
from all Awards hereunder paid in cash any federal, state, local or foreign
taxes required by law to be withheld with respect to such payments and, with
respect to Awards paid in Common Stock, to require the payment (through
withholding from the employee's salary or otherwise) of any such taxes, but the
Committee may make such arrangements for the payment of such taxes as the
Committee in its discretion shall determine, including payment with shares of
Common Stock.
(f) Assignment or Transfer. No Awards under the Plan nor any rights or
interests therein shall be assignable or transferable by the recipient thereof
except, in the event of a participant's death, to his designated beneficiary as
hereinafter provided, or by will or the laws of descent and distribution.
During the lifetime of the participant, Awards under the Plan requiring exercise
shall be exercisable only by such holder or by the guardian or legal
representative of such holder. Notwithstanding the foregoing, the Committee
may, in its discretion, provide that Awards or other rights or interests of a
participant granted pursuant to the Plan (other than an ISO) be transferable,
without consideration, to immediate family members (i.e., children,
grandchildren or spouse), to trusts for the benefit of such immediate family
members and to partnerships in which such family members are the only partners.
The Committee may attach to such transferability feature such terms and
conditions as it deems advisable. In addition, a participant may, in the manner
established by the Committee, designate a beneficiary (which may be a person or
a trust) to exercise the rights of the participant, and to receive any
distribution, with respect to any Award upon the death of the participant. A
beneficiary, guardian, legal representative or other person claiming any rights
under the Plan from or through any participant shall be subject to all terms and
conditions of the Plan and any Award Agreement applicable to such participant,
except as otherwise determined by the Committee, and to any additional
restrictions deemed necessary or appropriate by the Committee.
(g) Nature of Benefits. Awards under the Plan, and payments made pursuant
thereto, are not a part of salary or base compensation.
(h) Compliance with Legal Requirements. The obligation of the Corporation
to issue or deliver shares of Common Stock upon exercise of Options or otherwise
shall be subject to satisfaction of all applicable legal and securities exchange
requirements, including, without limitation, the provisions of the Securities
Act of 1933, as amended, and the Exchange Act. The Corporation shall endeavor
to satisfy all such requirements in such a manner as to permit at all times the
exercise of all outstanding Options in accordance with their terms and to permit
the issuance and delivery of shares of Common Stock whenever provided for by the
terms of any award made under the Plan.
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(i) Discretion. In exercising, or declining to exercise, any grant of
authority or discretion hereunder, the Committee may consider or ignore such
factors or circumstances and may accord such weight to such factors and
circumstances as the Committee alone and in its sole judgment deems appropriate
and without regard to the effect such exercise, or declining to exercise such
grant of authority or discretion, would have upon the affected participant, any
other participant, any employee, the Corporation, any subsidiary, any
stockholder or any other person.
9. Amendment or Termination of the Plan.
The Board of Directors of the Corporation, without the consent of any
participant, may at any time terminate or from time to time amend the Plan in
whole or in part, provided, however, that no such action shall adversely affect
any rights or obligations with respect to any Awards theretofore made under the
Plan, and provided further, that no amendment, without approval of the holders
of Common Stock by an affirmative vote of a majority of the shares of Common
Stock voted thereon in person or by proxy, shall (i) increase the aggregate
number of shares subject to the Plan (other than increases pursuant to Section 7
hereof), (ii) increase the maximum term for which Options may be issued under
the Plan, (iii) decrease the minimum Option Price at which ISOs may be issued
under the Plan, or (iv) materially modify the requirements for eligibility to
participate in the Plan. The Committee may amend outstanding agreements
evidencing Awards under the Plan, and may amend the terms of Awards not
evidenced by such agreements, in any manner not inconsistent with the terms of
the Plan. The Committee may waive any conditions or rights under, or amend,
alter, suspend, discontinue, or terminate, any Award theretofore granted and any
Award Agreement relating thereto; provided, however, that without the consent of
an affected participant, no such amendment, alteration, suspension,
discontinuation, or termination of any Award may materially and adversely affect
the rights of such participant under such Award.
The foregoing notwithstanding, any performance condition specified in
connection with an Award shall not be deemed a fixed contractual term, but shall
remain subject to adjustment by the Committee, in its discretion at any time in
view of the Committee's assessment of the Corporation's strategy, performance of
comparable companies, and other circumstances, except to the extent that any
such adjustment to a performance condition would adversely affect the status of
a Performance-Based Award as "performance-based compensation" under Section
162(m) of the Code.
10. Effective Date and Term of Plan.
This Plan shall be effective as of November 21, 1996, and shall be
submitted for approval by the stockholders of the Corporation at the 1997 Annual
Meeting of Stockholders. Unless otherwise specified in the terms of any
particular Award when such Award is made, any Award granted after the effective
date hereof and prior to the submission of this Plan for approval by the
stockholders of the Corporation at the 1997 Annual Meeting of Stockholders shall
continue to be outstanding and may be exercised in accordance with its terms;
provided, however, that if this Plan shall be disapproved by the stockholders of
the Corporation at the 1997 Annual Meeting of Stockholders, no Award shall be
made hereunder after the date of such disapproval. The Plan shall terminate at
the close of business on the date on which all of the shares of Common Stock
provided for under the Plan have been used, unless sooner terminated by action
of the Board of Directors of the Corporation. No
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Award may be granted hereunder after termination of the Plan, but such
termination shall not affect the validity of any award then outstanding.
11. Law Governing.
The validity and construction of the Plan and any agreements entered
into thereunder shall be governed by the laws of the State of New York, but
without regard to the conflict laws of the State of New York, except to the
extent that such conflict laws require application of the laws of the State of
Delaware.
-11-
<PAGE>
The Penn Traffic Company
Supplemental Retirement Income Plan
July 1, 1996
<PAGE>
TABLE OF CONTENTS
Page
----
Article I. ......................................................1
1.1 Establishment...........................................1
1.2 Purpose.................................................1
1.3 Effective Date..........................................1
Article II.......................................................1
2.1 Definitions.............................................1
2.2 Other Defined Terms.....................................3
2.3 Gender and Number.......................................3
Article III......................................................3
3.1 Vesting Schedule........................................3
Article IV.......................................................3
4.1 Amount..................................................3
4.2 Form of Benefit.........................................5
4.3 Payment of Normal Retirement Benefit....................5
4.4 Termination Prior to Normal Retirement..................6
Article V........................................................7
<PAGE>
5.1 Written Request.........................................7
5.2 Notice of Denial........................................7
5.3 Content of Notice.......................................8
5.4 Review Procedures.......................................8
5.5 Decision on Review......................................8
Article VI.......................................................9
6.1 Administration..........................................9
6.2 Funding.................................................9
6.3 No Employment Contract..................................9
6.4 Spendthrift Provision...................................9
6.5 Binding Effect..........................................9
6.6 Applicable Law.........................................10
6.7 Administrative Discretion..............................10
6.8 Withholding............................................10
6.9 Severability...........................................10
6.10 Amendment and Termination..............................10
6.11 Titles and Headings Not to Control.....................11
6.12 Small Benefits.........................................11
Exhibit A -- Plan Participants..............................
Exhibit B -- Beneficiary Designations.......................13
3
<PAGE>
THE PENN TRAFFIC COMPANY
SUPPLEMENTAL RETIREMENT INCOME PLAN
Article I.
Establishment, Purpose and Effective Date of Plan
1.1 Establishment. The Penn Traffic Company, a Delaware
corporation, hereby establishes a supplemental executive
retirement program, which shall be known as The Penn Traffic
Company Supplemental Retirement Income Plan ("Plan").
1.2 Purpose. The purpose of the Plan is to provide to the
Executives named in Exhibit "A," as amended from time to time,
supplemental retirement income in excess of the retirement
benefits otherwise provided to employees under the Company's
Qualified Retirement Plans. Payment of the retirement
benefits under this Plan shall be made from the general assets
of Company, or by such other method as is consistent with
Section 6.2 of this Plan and which is agreed to by the
Executives and the Company.
1.3 Effective Date. The Plan shall be effective as of July 1,
1996.
Article II.
Definitions
2.1 Definitions. Whenever used herein, the following terms shall
have their respective meanings set forth below:
(A) "Actuarial Equivalent" means a benefit payable in a
different form, but having the same value when computed
using the mortality and interest rate assumptions set
forth in Attachment A to the Corporate Plan for
determining distributions other than lump sums.
(B) "Average Annual Compensation" means the annual amount
determined by averaging an Executive's annual
Compensation for the five (5) consecutive Years of
Service that produce the highest average.
(C) "Beneficiary" means the person(s) properly designated to
receive, under provisions of the Plan, benefits payable
in the event of the Executive's death.
(D) "Board" means the Board of Directors of The Penn Traffic
Company.
(E) "Code" means the Internal Revenue Code of 1986, as
amended from time to time, and any regulations relating
thereto.
(F) "Committee" means the Personnel and Compensation
Committee of the Board.
(G) "Company" means The Penn Traffic Company and all
Subsidiaries, with the following exception. The Penn
Traffic Company shall retain full authority to
<PAGE>
administer, amend and terminate the Plan without the
consent of any Subsidiary. Therefore, in applying all
Plan provisions that relate to these functions and
responsibilities, as opposed to substantive benefit
provisions, the term "Company" shall be read to refer
only to The Penn Traffic Company. In this regard, the
term "Board" refers specifically to the Board of
Directors of The Penn Traffic Company, as stated in
Section 2.1(D).
(H) "Compensation" means the total income paid to the
Executive by the Company as reported on Form W-2, plus
any amounts of income deferred under a qualified or
non-qualified deferred compensation plan and including
bonuses. Compensation shall not include any
contributions to a plan of nontaxable fringe benefits,
employer matching contributions to a qualified or
non-qualified deferred compensation plan, contributions
to or payments from a pension, profit-sharing or similar
plan, and moving expenses. For purposes of this Plan,
Compensation shall not be limited by Section 401(a)(17)
of the Code.
If an Executive is credited with Years of Service during
an absence, in accordance with the provisions of Section
2. 1 (S), the Executive's Compensation during that
absence shall be assumed to be equal to the Compensation
that would have been credited if the Executive had
remained employed at the rate of Compensation that was in
effect when the absence began.
(I) "Corporate Plan" means The Penn Traffic Corporate/P & C
Foods Pension Plan.
(J) "Executive" means those select management and/or highly
compensated employees designated from time to time by the
Committee to participate in the Plan as named in Exhibit
"A," which is attached to this Plan.
(K) "Normal Retirement" means the termination of the
Executive's employment upon attaining age 65 and after
having completed five (5) Years of Service.
(L) "Normal Retirement Date" means the first day of the month
coinciding with or next following the date the Executive
attains age 65 and completes five (5) Years of Service.
(M) "Plan" means The Penn Traffic Company Supplemental
Retirement Income Plan, as amended from time to time.
(N) "Plan Year" means the twelve-month period from January I
through December 31.
(0) "Qualified Retirement Plan" means the Corporate Plan and
any other tax-qualified retirement plan maintained by the
Company for the benefit of its employees including the
Executives.
2
<PAGE>
(P) "Subsidiary" means any corporation or other entity in
which The Penn Traffic Company directly or indirectly has
at least a 51% ownership interest.
(Q) "Supplemental Retirement Benefit" means the benefit
payable to the Executive pursuant to Article IV of the
Plan by reason of his termination of employment with the
Company for any reason other than death. In the case of
the Executive's death, a benefit shall be payable as
described in Section 4.4(b).
(R) "Surviving Spouse" means a person who is married to the
Executive at the date of his death, provided the
Executive was married to that person throughout the
one-year period ending on the date of death.
(S) "Years of Service" means the number of twelve-month
periods (and fractions thereof) of time (whether before
or after the Effective Date) commencing upon an
Executive's employment with the Company, and ending on
the Executive's termination of employment with the
Company for any reason. (Since the term "Company" refers
to The Penn Traffic Company and Subsidiaries, service
with all "Companies" is added to determine total "Years
of Service.")
Years of Service also shall be credited during absences
from work occasioned by temporary illness or accident,
Total and Permanent Disability or service with the Armed
Forces of the United States, as and to the extent
provided in the Corporate Plan.
2.2 Other Defined Terms. Any capitalized terms that are used in
the Plan, which are not defined in this Article, shall have
the meaning stated in the Corporate Plan.
2.3 Gender and Number. Except when otherwise indicated by the
context, words in the masculine gender when used in the Plan
shall include the feminine gender, the singular shall include
the plural, and the plural shall include the singular.
Article III.
Vesting
3.1 Vesting Schedule. All benefits under this Plan shall be fully
vested upon the Executive's completion of five (5) Years of
Service.
Article IV.
Supplemental Retirement Benefit
4.1 Amount. In general, the Supplemental Retirement Benefit
payable to the Executive at his Normal Retirement Date, in the
form provided in Section 4.2, shall be equal to (a) minus (b):
3
<PAGE>
(a) a monthly benefit payable as a single life annuity
equal to 40% of the Executive's Average Annual
Compensation divided by 12, reduced proportionately
for Years of Service less than 30.
(b) the sum of the following amounts, if any, payable to
the Executive:
(i) the monthly Company-provided normal retirement
benefit(s) which the Executive has accrued
under any Qualified Retirement Plan that is a
defined benefit plan, calculated in accordance
with that plan as of his date of termination
(no reduction shall be made for any supplements
that are paid under the Corporate Plan to an
Executive who qualifies for early retirement
benefits under the Rule of 85);
(ii) the monthly amount that would be payable to the
Executive as a single life annuity that is the
Actuarial Equivalent of the Executive's
"Account balance" under any Qualified
Retirement Plan that is a defined contribution
plan, determined by employing the assumptions
set forth in Section 2. 1 (A). In making the
foregoing calculation, the following rules
shall apply, as pertinent:
(A) the term "Account balance" (1) shall not
include amounts attributable to:
"employee contributions; rollover or
transfer contributions from plans not
maintained by the Company; or elective
deferrals under a cash or deferred
arrangement within the meaning of Code
Section 401(k); but (II) shall include all
other Company contributions, including
matching contributions within the meaning
of Code Section 401(m); and
(B) the Account balance shall be determined as
of the date that the Executive begins to
receive a benefit under this Plan
("Determination Date"), subject to the
following adjustment. If the Executive
has received any full or partial
distribution of his Account balance before
the Determination Date (including
in-service withdrawals), the value of the
Executive's Account balance shall be
determined by including the amounts
received and assuming that such amounts
would have earned interest at an annual
rate of 8% from the date received to the
Determination Date; and
(iii)the monthly benefits that the Executive would be
entitled to receive pursuant to the Federal
Social Security Act ("Social Security Benefits"),
as of the Determination Date, if the Executive
timely filed an application, whether or not the
Executive actually
4
<PAGE>
receives Social Security benefits at that time.
If the Executive is not eligible to receive
Social Security Benefits as of the
Determination Date, the determination of the
Social Security Benefits, and the reduction of
the Executive's monthly Supplemental Retirement
Benefit by the amount of the Executive's Social
Security Benefits, shall be made as of the
monthly payment hereunder for the first month
for which the Executive would be entitled to
begin receiving Social Security Benefits, upon
timely filing an application. However, the
reduction for Social Security Benefits
described in this subsection (iii) shall not
apply when calculating the death benefit under
this Plan pursuant to Section 4.4(b).
The Executive shall provide such financial and other
information as the Company may reasonably require to determine
amounts payable under other Qualified Retirement Plans and the
Federal Social Security Act.
4.2 Form of Benefit. The Supplemental Retirement Benefit payable
to the Executive shall be paid in any one of the following
forms as determined by the Committee, in its sole discretion,
after non-binding consultation with the Executive:
(a) a single life annuity, payable monthly,
(b) a 50% joint and survivor annuity, payable monthly,
(c) a 100% joint and survivor annuity, payable monthly,
or
(d) a single life annuity, payable monthly, with 10
years certain.
Each of the optional forms of benefit under Sections 4.2(b)
through (d) shall be the Actuarial Equivalent of a single life
annuity, determined by employing the assumptions set forth in
Section 2.1(A).
For the joint and survivor options in Section 4.2(b) and (c)
above, the Executive shall designate a single Beneficiary
before the commencement date described in Section 4.3
("commencement date"). The designation may be changed up to
the commencement date, but not thereafter. Thus, no survivor
benefits shall be payable if the Beneficiary predeceases the
Executive after the commencement date. For the 10-year
certain option in Section 4.2(d), (i) the Executive may
designate one or more primary Beneficiaries and one or more
secondary Beneficiaries; (ii) the designation may be changed
up to the Executive's date of death; and (iii) if no
designated Beneficiary survives the Executive, any payments
due for the 10-year period shall be paid to the Executive's
estate. Sample Beneficiary designations are attached at
Exhibit B.
4.3 Payment of Normal Retirement Benefit. Once the Executive has
reached the Executive's Normal Retirement Date, payment of the
Supplemental Retirement Benefit shall
5
<PAGE>
commence on the first day of the month following the month in
which termination of employment occurs. Payment of the
Supplemental Retirement Benefit shall cease as of the first
day of the month following the death of the Executive or the
Executive's Beneficiary, as the case may be, except when paid
in the form of a single life annuity with 10 years certain and
the Executive dies prior to the receipt of 120 monthly
payments, in which case payments shall cease upon payment of
the 120th monthly payment.
4.4 Termination Prior to Normal Retirement. In the event the
Executive terminates employment prior to the Executive's
Normal Retirement Date, the Executive shall be entitled to be
paid his Supplemental Retirement Benefit pursuant to this
Article IV as follows:
(a) Early Retirement. In the event the Executive has
attained at least age fifty-five (55), has ten (10)
Vesting Years of Service, and terminates employment
for any reason other than death, the Executive shall
be entitled to receive his Supplemental Retirement
Benefit. The Supplemental Retirement Benefit shall
be determined by: (i) applying the formula in
Section 4.1 as of the date benefits commence ("early
retirement date"), including all reductions that
then apply under Section 4. 1 (b); and (ii) reducing
the resulting amount by one-third of one percent (1
/3 %) for each month by which the early retirement
date precedes the Executive's sixty-fifth (65th)
birthday, with the following exception. The
reduction for age described in clause (ii) shall not
apply if the Executive's age plus Years of Service
equals or exceeds 85.
If the early retirement benefit initially payable to
the Executive under the rules in the preceding
paragraph does not include a reduction for Social
Security Benefits because the Executive is not yet
eligible for Social Security Benefits, the early
retirement benefit shall be redetermined as of the
monthly payment for the first month for which the
Executive is eligible to receive Social Security
Benefits, as provided in Section 4. 1 (b)(iii). As
of that month, the Executive's early retirement
benefit shall be recalculated by subtracting the
Social Security Benefits from the amount previously
determined under Section 4. 1 (a)(i), and the new
resulting amount shall be reduced for age under
Section 4. 1 (a)(ii), based on the Executive's age
at the early retirement date. (No reduction for age
shall be made if the "rule of 85" described in the
preceding paragraph applied at the Executive's early
retirement date.)
In the event the Executive terminates employment
before reaching age 55, but has ten (10) Vesting
Years of Service, the Executive shall be entitled to
receive, upon reaching age 55, the reduced
Supplemental Retirement Benefit described in the
preceding paragraphs of this Section 4.4(a), except
that the foregoing shall not apply to determine an
Executive's eligibility for an unreduced early
retirement benefit under the "rule of 85".
6
<PAGE>
(b) Death. If the Executive dies prior to the
commencement of any benefit payments under this Plan
and after attaining his "earliest retirement age, "
the Executive's Surviving Spouse shall receive the
same benefit that would have been payable had the
Executive terminated employment the day before the
Executive's death and elected a 50% joint and
survivor annuity, except that the benefit formula in
Section 4.1 shall be applied without any reduction
for Social Security Benefits, as stated in Section
4. l(b)(iii). The Executive's "earliest retirement
age" is age 55 if the Executive had ten (10) Vesting
Years of Service, and age 65 if the Executive had at
least five (5) Years of Service, but did not have
ten (10) Vesting Years of Service.
If the Executive dies prior to the commencement of
any benefit payments under this Plan but prior to
attaining his earliest retirement age, the
Executive's Surviving Spouse shall receive the same
benefit that would have been payable, had the
Executive terminated employment on the date of his
death, survived until Ms earliest retirement age,
and then retired on that date, elected a 50% joint
and survivor annuity, and then died. The Surviving
Spouse shall begin to receive payments as of the
date when the Executive would have reached his
earliest retirement age.
The foregoing rules regarding the payment of death
benefits under the Plan also shall apply if the
Executive terminates employment after his Normal
Retirement Date, if the Executive dies before the
commencement of benefit payments under the Plan.
(c) Before Vesting. If the Executive terminates his
employment with the Company before he has completed
5 Years of Service, no benefits shall be payable
pursuant to this Plan to such Executive or his
Surviving Spouse.
(d) No Survivors. If the Executive dies prior to the
commencement of any benefit payments under this
Plan, without being survived by a Surviving Spouse,
no benefits shall be payable pursuant to this Plan.
If the Executive dies after the commencement of
benefit payments under this Plan, benefits shall
continue to the extent called for under the optional
form of benefit which had previously commenced.
Article V.
Claims Procedure
5.1 Written Request. Any claim for benefits by the Executive or
his Beneficiaries shall be made in writing to the Committee.
In this Article V, the Executive and his Beneficiaries are
referred to collectively as claimants.
5.2 Notice of Denial. If the Committee denies a claim in whole or
in part, it shall send the claimant a written notice of the
denial within 90 days after the date it receives a claim,
7
<PAGE>
unless it needs additional time to make its decision. In that
case, the Committee may authorize an extension of up to an
additional 90 days, if it notifies the claimant of the
extension within the initial 90-day period. The extension
notice shall state the reasons for the extension and the
expected decision date.
5.3 Content of Notice. A denial notice shall be written in a
manner calculated to be understood by the claimant and shall
contain:
(a) the specific reason or reasons for the denial of the
claim;
(b) specific reference to pertinent Plan provisions upon
which the denial is based;
(c) a description of any additional material or
information necessary to perfect the claim, with an
explanation of why the material or information is
necessary; and
(d) an explanation of the review procedures provided
below.
5.4 Review Procedures.
(a) Within 60 days after the claimant receives a denial
notice, the claimant may file a request for review
with the Committee. Any such request must be made
in writing.
(b) A claimant who timely requests a review shall have
the right to review pertinent documents, to submit
additional information or written comments, and to
be represented.
5.5 Decision on Review.
(a) The Committee shall send the claimant a written
decision on any request for review within 60 days
after the date it receives a request for review,
unless an extension of time is needed, due to
special circumstances. In that case, the Committee
may authorize an extension of up to an additional 60
days, provided it notifies the claimant of the
extension within the initial 60-day period.
(b) The review decision shall be written in a manner
calculated to be understood by the claimant and
shall contain:
(i) the specific reason or reasons for the
decision; and
(ii) specific reference to the pertinent Plan
provisions upon which he decision is based.
8
<PAGE>
(c) If the Committee does not send the claimant a review
decision within the applicable time period, the
claim shall be deemed denied on review.
(d) The review decision (including a deemed decision)
shall be the Committee final decision.
Article VI.
General Provisions
6.1 Administration. The Committee shall be responsible for the
general operation and administration of the Plan and for
carrying out the provisions hereof. The Committee shall be
entitled to rely conclusively upon all tables, valuations
certificates, opinions and reports furnished by any actuary,
accountant, controller, counsel or other person employed or
engaged by the Company with respect to the Plan.
6.2 Funding. The Board, in its sole discretion, may elect to fund
the benefits payable under the Plan, through various
investments. However, any such investment shall remain the
property of the Company and be subject to the claims of
general creditors of the Company. The Executive shall have
only the rights of a general unsecured creditor of the Company
with respect to any rights under this Plan. The Executive may
not pledge as collateral any investments purchased to fund
benefits under the Plan. Nothing contained in the Plan shall
constitute a guaranty by the Company or any other entity or
person that assets of the Company will be sufficient to pay
any benefit hereunder. It is the intention of the parties
that this Plan will be an unfunded deferred compensation plan
solely for the benefit of management and highly compensated
employees for tax purposes and for purposes of Title I of the
Employee Retirement Income Security Act of 1974, as amended
("ERISA").
6.3 No Employment Contract. Nothing contained in this Plan shall
be construed as a contract of employment between the Company
and the Executive or as a right of the Executive to be
continued in the employment of the Company or as a limitation
on the right of the Company to discharge the Executive at any
time with or without cause and without regard to the effect
that such discharge may have upon the Executive's rights or
potential rights, if any, under this Plan.
6.4 Spendthrift Provision. No interest of any person or entity
in, or right to receive a benefit under, the Plan shall be
subject in any manner to sale, transfer, assignment, pledge,
attachment, garnishment, or other alienation or encumbrance of
any kind; nor may such interest or right to receive a benefit
be taken, either voluntarily or involuntarily, for the
satisfaction of the debts of or other obligations or claims
against, such person or entity, including claims or alimony,
support, separate maintenance and claims in bankruptcy
proceedings.
6.5 Binding Effect. This Plan shall be binding upon and inure to
the benefit of the Executives, their Surviving Spouses and
Beneficiaries, the Company and any successor to the Company,
whether by merger, consolidation, purchase, or otherwise.
9
<PAGE>
6.6 Applicable Law. The Plan shall be governed by and construed
in accordance with the laws of the State of New York, except
to the extent preempted by ERISA.
6.7 Administrative Discretion. The Committee shall have the
exclusive authority and discretion to interpret this Plan, and
shall have the authority and discretion to construe any
uncertain or disputed term or provision in this Plan. The
Committee's exercise of its discretionary authority to
construe the terms and provisions of this Plan, and all its
interpretations and determinations, shall be conclusive and
binding upon the Company, the Executive and all other persons
having or claiming an interest under this Plan, shall be
entitled to deference upon review by any court, agency or
other entity empowered to review its decisions, and shall not
be overturned or set aside by any court, agency or other
entity unless found to be arbitrary, capricious or made in bad
faith.
6.8 Withholding. Any payment made pursuant to this Plan shall be
reduced by federal and state income, FICA or other employee
payroll, withholding or other similar taxes that the Company
may be required to withhold. In addition, as the Supplemental
Retirement Benefit accrues during the Executive's employment
with the Company, the Company may withhold from the
Executive's regular compensation from the Company any FICA or
other employee payroll, withholding or other similar taxes the
Company may be required to withhold on the accrual of
benefits.
6.9 Severability. If one or more provisions of this Plan, or any
part thereof, shall be determined by a court of competent
jurisdiction to be invalid or unenforceable, then the Plan
shall be administered as if such invalid or unenforceable
provision had not been contained in the Plan. The invalidity
or unenforceability of any Plan provision, or any part
thereof, shall not effect the validity and enforceability of
any other Plan provision or any part thereof.
6.10 Amendment and Termination. The Company intends to maintain
this Plan until all benefit payments are made pursuant to the
Plan. However, the Plan is entirely voluntary on the part of
the Company, continuation of the Plan is not a contractual
obligation of the Company, and the Company reserves the right,
in its sole discretion, to amend, suspend, or terminate the
Plan at any time or from time to time, in whole or in part.
Any such amendment, suspension or termination shall be made
pursuant to resolutions of the Board. No amendment,
suspension, or termination of the Plan shall affect directly
or indirectly the rights of an Executive who has become vested
in his Plan benefits prior to the effective date of the
resolution amending, suspending, or terminating the Plan.
(However, if the Plan is terminated, an Executive's benefit
shall be based on Compensation and Years of Service as of the
termination date.) Further, the Company, in the sole
discretion of the Board, may pay such Executive, in a lump
sum, the actuarial equivalent of the benefit provided by the
Plan in complete satisfaction of its obligations under the
Plan. For this purpose, actuarial equivalence shall be
determined by applying the interest rate and mortality
assumptions that are used to determine lump sums under the
Corporate Plan. Notwithstanding any other provision in the
Plan to the contrary, the
10
<PAGE>
Plan shall terminate automatically upon the final payment of
all amounts payable hereunder.
6.11 Titles and Headings Not to Control. The titles to the
Articles and the headings of Sections in the Plan are placed
herein for convenience of reference only, and in case of any
conflict, the text of this instrument, rather that such titles
or headings, shall control.
6.12 Small Benefits. If any monthly benefit that shall be payable
to any person under the Plan shall be less than $400, then, if
the Committee shall so direct, the aggregate of the amounts
which shall be payable to such person in any year shall be
paid in quarterly, semiannual or annual installments. If the
present value of the nonforfeitable accrued benefit of any
Executive who has terminated his employment prior to age 55 is
less than $3,500, then the Committee may at any time direct
that the actuarial equivalent of such benefits (determined
using the assumptions under Section 6. 10 hereof) shall be
paid to him in a lump sum in lieu of any benefits to which he
may be entitled under this Plan.
IN WITNESS WHEREOF, the Company has executed this Agreement this
29th of August, 1996.
THE PENN TRAFFIC COMPANY
By: /s/ John T. Dixon
--------------------
John T. Dixon
President
11
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<PAGE>
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<S> <C>
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<PERIOD-START> FEB-04-1996
<PERIOD-END> FEB-01-1997
<CASH> 53,240
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<RECEIVABLES> 71,874
<ALLOWANCES> 2,867
<INVENTORY> 340,009
<CURRENT-ASSETS> 482,389
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<BONDS> 1,398,991
0
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<COMMON> 13,641
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<TOTAL-LIABILITY-AND-EQUITY> 1,704,119
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<CGS> 2,531,381
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<INCOME-PRETAX> (64,331)
<INCOME-TAX> (22,901)
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