UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended October 31, 1998
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 of incorporation) (IRS Employer Identification No.)
1200 State Fair Blvd., Syracuse, NY 13221-4737
(Address of principal executive offices) (Zip Code)
(315) 453-7284
(Telephone number)
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 [ ]
Common stock, par value $1.25 per share: 10,695,491 shares
outstanding as of December 11, 1998
1 of 21
<PAGE>
PART I. FINANCIAL INFORMATION
- ------------------------------
ITEM 1. FINANCIAL STATEMENTS
THE PENN TRAFFIC COMPANY
CONSOLIDATED STATEMENT OF OPERATIONS
UNAUDITED
(All dollar amounts in thousands,
except per share data)
THIRTEEN WEEKS ENDED THIRTY-NINE WEEKS ENDED
OCTOBER 31, NOVEMBER 1, OCTOBER 31, NOVEMBER 1,
1998 1997 1998 1997
---------- ---------- ---------- ----------
TOTAL REVENUES $ 690,591 $ 726,180 $2,137,613 $2,259,458
COSTS AND OPERATING EXPENSES:
Cost of sales (including
buying and occupancy
costs) (Note 3) 548,534 561,799 1,676,553 1,735,448
Selling and administrative
expenses (Note 3) 151,173 148,161 453,208 478,262
Restructuring charges (Note 3) 10,704
Unusual items (Note 3) 45,160 45,160
Write-down of long lived
assets (Note 4) 91,512 91,512
---------- ---------- ---------- ----------
OPERATING (LOSS) INCOME (145,788) 16,220 (128,820) 35,044
Interest expense 37,132 37,548 111,252 112,208
---------- ---------- ---------- ----------
(LOSS) BEFORE INCOME TAXES (182,920) (21,328) (240,072) (77,164)
Provision (benefit) for
income taxes (Note 5) 38 (7,801) (16,558) (28,888)
---------- ---------- ---------- ----------
NET (LOSS) $ (182,958) $ (13,527) $ (223,514) $ (48,276)
========== ========== ========== ==========
PER SHARE DATA (BASIC
AND DILUTED):
Net (loss) (Note 6) $ (17.31) $ (1.28) $ (21.15) $ (4.57)
========== ========== ========== ==========
See Notes to Interim Consolidated Financial Statements.
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THE PENN TRAFFIC COMPANY
CONSOLIDATED BALANCE SHEET
(All dollar amounts in thousands)
UNAUDITED
OCTOBER 31, 1998 JANUARY 31, 1998
---------------- ----------------
ASSETS
CURRENT ASSETS:
Cash and short-term investments $ 47,887 $ 49,095
Accounts and notes receivable
(less allowance for doubtful accounts
of $5,122 and $3,597 respectively) 60,196 68,454
Inventories (Note 8) 315,345 327,389
Prepaid expenses and other current assets 15,356 16,032
---------- ----------
Total Current Assets 438,784 460,970
NONCURRENT ASSETS:
Capital leases - net 97,512 115,581
Property, plant and equipment - net 422,457 496,501
Goodwill - net 300,542 401,829
Other assets and deferred charges - net 87,744 88,705
---------- ----------
$1,347,039 $1,563,586
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of obligations
under capital leases $ 11,546 $ 13,518
Current maturities of long-term
debt (Note 9) 135,838 4,429
Trade accounts and drafts payable 156,573 149,389
Payroll and other accrued liabilities 71,625 79,763
Accrued interest expense 20,051 35,335
Payroll taxes and other taxes payable 15,326 19,208
Deferred income taxes 16,671
---------- ----------
Total Current Liabilities 410,959 318,313
NONCURRENT LIABILITIES:
Obligations under capital leases 107,542 121,436
Long-term debt (Note 9) 1,145,429 1,234,224
Other noncurrent liabilities 66,431 49,422
---------- ----------
Total Liabilities 1,730,361 1,723,395
---------- ----------
STOCKHOLDERS' EQUITY:
Preferred Stock - authorized 10,000,000
shares at $1.00 par value; none issued
Common Stock - authorized 30,000,000
shares at $1.25 par value; 10,695,491
shares and 10,824,591 shares
issued and outstanding, respectively 13,426 13,586
Capital in excess of par value 179,881 180,060
Retained deficit (565,204) (340,470)
Minimum pension liability adjustment (10,667) (10,667)
Unearned compensation (133) (1,693)
Treasury stock, at cost (625) (625)
---------- ----------
Total Shareholders' Equity (383,322) (159,809)
---------- ----------
$1,347,039 $1,563,586
========== ==========
See Notes to Interim Consolidated Financial Statements.
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THE PENN TRAFFIC COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS
UNAUDITED
(All dollar amounts in thousands)
THIRTY-NINE THIRTY-NINE
WEEKS ENDED WEEKS ENDED
OCTOBER 31, 1998 NOVEMBER 1, 1997
---------------- ----------------
OPERATING ACTIVITIES:
Net (loss) $(223,514) $ (48,276)
Adjustments to reconcile
net (loss) to net cash (used in)
by operating activities:
Depreciation and amortization 48,139 56,078
Amortization of intangibles 11,163 11,987
Other - net 136,186 (5,024)
NET CHANGE IN ASSETS AND LIABILITIES:
Accounts receivable and prepaid expenses 8,934 718
Inventories 12,044 (5,855)
Payables and accrued expenses (20,120) (12,052)
Deferred taxes (16,671) (29,000)
Deferred charges and other assets (1,013) 194
-------- --------
NET CASH (USED IN)
OPERATING ACTIVITIES (44,852) (31,230)
-------- --------
INVESTING ACTIVITIES:
Capital expenditures (11,331) (15,723)
Proceeds from sale of assets 28,227 3,770
Other - net 1,652
-------- --------
NET CASH PROVIDED BY (USED IN)
INVESTING ACTIVITIES 16,896 (10,301)
-------- --------
FINANCING ACTIVITIES:
Payments to settle long-term debt (5,503) (1,699)
Borrowing of revolver debt 101,600 332,300
Repayment of revolver debt (53,483) (285,000)
Reduction of capital lease obligations (15,866) (9,929)
Other - net 8
-------- --------
NET CASH PROVIDED BY FINANCING ACTIVITIES 26,748 35,680
-------- --------
(DECREASE) IN CASH AND
CASH EQUIVALENTS (1,208) (5,851)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 49,095 53,240
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 47,887 $ 47,389
======== ========
See Notes to Interim Consolidated Financial Statements.
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THE PENN TRAFFIC COMPANY
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited interim consolidated financial statements
have been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form 10-Q and
Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements.
The results of operations for the interim periods are not necessarily
an indication of results to be expected for the year. In the opinion of
management, all adjustments necessary for a fair presentation of the results are
included for the interim periods, and all such adjustments are normal and
recurring. These unaudited interim financial statements should be read in
conjunction with the consolidated financial statements and related notes
contained in the Annual Report on Form 10-K for the fiscal year ended January
31, 1998.
All significant intercompany transactions and accounts have been
eliminated in consolidation.
Certain prior year amounts have been reclassified on the Consolidated
Statement of Cash Flows for comparative purposes.
NOTE 2 - ASSET DISPOSITION PROCESS
On June 4, 1998, the Company announced that it had engaged Goldman
Sachs & Company to undertake a process for realizing value from certain of the
Company's Bi-Lo stores and related wholesale/franchise operations located in
Pennsylvania. To date, the Company has completed the sale of 3 stores in
Pennsylvania and certain other real estate and is currently engaged in
negotiations with potential buyers for certain other Bi-Lo stores.
The Company has determined to continue with the process of selling 22
Bi-Lo stores which, together with the 3 stores previously sold, generated
revenues of $49.5 million and $155.8 million for the 13-week and 39-week periods
ended October 31, 1998, respectively. The net proceeds from the sale of these
stores will be used by the Company to satisfy its short-term capital needs. In
addition, the Company has decided to close 21 Bi-Lo stores (9 of which were
closed in the third quarter). These 21 Bi-Lo stores generated revenues of $20.4
million and $74.6 million for the 13-week and 39-week periods ended October 31,
1998, respectively (these amounts reflect the fact that the 9 stores closed
during the third quarter did not have revenues for the entire periods
described).
The Company intends to retain and operate its 32 remaining Bi-Lo stores
and its existing wholesale/franchise operations in Pennsylvania. No assurance
can be given that any of the transactions described above will be completed nor
is it possible to predict the net proceeds to the Company of any such
transaction or the timing of such a transaction.
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NOTE 3 - SPECIAL CHARGES
During the 13-week period ended October 31, 1998, the Company recorded
a special charge of $50.4 million primarily related to (1) the decision to close
24 stores (including the 21 Bi-Lo stores referred to in Note 2 above) primarily
in connection with the process of realizing value from the Company's Bi-Lo
operations and (2) a gain related to the sale of 4 stores (including the 3 Bi-Lo
stores referred to in Note 2 above) and certain other real estate. The
components of this charge are described below.
During the 13-week period ended October 31, 1998, the Company recorded
a charge of $60.0 million in connection with a decision to close 24 of its
stores (11 of which were closed during the third quarter). This charge is
comprised of a write-down of fixed assets ($15.3 million), a write-off of
goodwill ($16.4 million), net present value of future lease costs ($20.4
million), inventory markdowns ($5.3 million), employee severance costs and other
miscellaneous expenses ($2.6 million). All of these costs are included in the
unusual item account except for inventory markdowns which are included in cost
of sales. In addition, during the 13- week period ended October 31, 1998 the
Company sold 4 of its stores and certain other real estate and recorded a net
gain of $9.6 million. This gain is included in the unusual item account.
For the 39-week period ended November 1, 1997 the Company recorded a
charge totaling $12.7 million associated with a management reorganization and
related corporate actions ($10.7 million of this charge is included in a
restructuring charge and $1.9 million is included in selling and administrative
expenses). In addition, during the 39-week period ended November 1, 1997 the
Company recorded a charge of $5.6 million associated with the retention of
certain corporate executives, which is included in selling and administrative
expenses.
NOTE 4 - 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"). During June 1998, the Company announced its plans for realizing
value from certain of its Pennsylvania Bi-Lo stores and related wholesale
operations. The Company expects to complete this process during calendar year
1999. For the 13-week period ended October 31, 1998, the Company recorded a
noncash charge of $91.5 million to write down the carrying amounts of 22 stores
held for sale (including allocable goodwill) to estimated realizable value.
NOTE 5 - TAX BENEFITS
The tax provision for the 13-week period and the tax benefit for the
39-week period ended October 31, 1998 are not recorded at statutory rates due to
(a) differences between the income calculations for financial reporting and tax
reporting purposes and (b) the recording of a valuation allowance. A valuation
allowance is required when it is more likely than not the recorded value of a
deferred tax asset will not be realized.
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<PAGE>
NOTE 6 - NET (LOSS) PER SHARE
In the fourth quarter of Fiscal 1998, the Company adopted Statement of
Financial Accounting Standards No. 128, "Earnings per Share" ("SFAS 128"). The
previously presented EPS amount for the quarter ended November 1, 1997 has been
restated to reflect the method of computation required by SFAS 128. Shares used
in the calculation of basic EPS (weighted average shares outstanding) were
10,570,491 for the quarter ended October 31, 1998 and 10,569,641 for the quarter
ended November 1, 1997. The calculations of diluted EPS exclude the effect of
incremental dilutive potential securities aggregating 281,202 shares for the
quarter ended November 1, 1997, since they would have been antidilutive given
the net loss for the quarter. There were no incremental dilutive potential
securities for the quarter ended October 31, 1998.
NOTE 7 - SUPPLEMENTAL FINANCIAL INFORMATION
(In thousands of dollars)
Third Quarter Thirty-nine Weeks
------------- -----------------
Fiscal 1999
- -----------
Operating (Loss) $(145,788) $(128,820)
Operating (Loss) Income before
special charges (3,848) 13,120
Depreciation and Amortization 19,360 59,302
LIFO Provision 625 1,875
Cash Interest Expense 35,890 107,569
Fiscal 1998
- -----------
Operating Income $ 16,220 $ 35,044
Operating Income before
special charges 16,220 53,236
Depreciation and Amortization 22,145 67,571
LIFO Provision 750 2,000
Cash Interest Expense 36,338 108,601
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NOTE 8 - INVENTORIES
If the first-in, first-out (FIFO) method had been used by the Company,
inventories would have been $24,441,000 and $22,566,000 higher than reported at
October 31, 1998 and January 31, 1998, respectively.
NOTE 9 - LONG-TERM DEBT AND PROPOSED RESTRUCTURING
The Company and the lenders ("Bank Lenders") that are parties to the
Company's revolving credit facility ("Revolving Credit Facility") entered into
an amendment dated as of August 31, 1998 to the Revolving Credit Facility that
provides that the financial covenants contained in the Revolving Credit Facility
would not be applicable to the Company for the period from August 1, 1998 until
April 1, 1999. The Company does not believe, based upon its current operating
performance, that it will be in compliance with the financial covenants set
forth in the Revolving Credit Facility after April 1, 1999. Accordingly, the
amount outstanding under the Revolving Credit Facility as of October 31, 1998
($125.7 million) and the amount outstanding under a secured term loan ($9.5
million) which contains the same financial covenants as the Revolving Credit
Facility have been classified as Current Maturities of Long-Term Debt. In
addition, the Bank Lenders have agreed to (i) amend the Revolving Credit
Facility so that the failure by the Company to make the interest payment on its
85/8% Senior Notes described below will not constitute the failure of a
condition precedent to borrowing by the Company under the Revolving Credit
Facility and (ii) waive the occurrence of an event of default under the
Revolving Credit Facility until April 1, 1999 resulting from the failure by the
Company to make such interest payment past the applicable grace period provided
for in the indenture for the 85/8% Senior Notes.
In order to address its long-term capital and debt service
requirements, on December 10, 1998, the Company announced that it had begun
working with an informal committee comprised of more than 40% of the principal
amount of its outstanding senior notes and more than 50% of the principal amount
of its outstanding subordinated notes for the purpose of negotiating a
consensual restructuring of its outstanding securities, including the
outstanding notes. As of October 31, 1998, the Company had approximately $1.13
billion of senior and subordinated notes outstanding. The Company also announced
that it had engaged The Blackstone Group as its financial advisor in connection
with its restructuring efforts.
- 8 -
<PAGE>
The Company intends that any such restructuring plan will convert a
substantial portion of its senior and subordinated notes to equity. In addition,
the Company has advised the informal committee of noteholders that any
restructuring proposal made by the Company will provide for payment in full of
all obligations to the Company's trade creditors that continue to support the
Company with customary trade credit. The informal committee of noteholders has
informed the Company that it will support the full repayment of the Company's
trade creditors in connection with a restructuring proposal which is otherwise
acceptable to such noteholders. In addition, Fleet Bank, the agent bank for the
Company's $250 million Revolving Credit Facility, has advised the Company that
it is supporting the Company's efforts to restructure its outstanding
securities. The Company anticipates that any such consensual restructuring would
be implemented through a voluntary filing for relief under Chapter 11 of the
U.S. Bankruptcy Code.
In light of the proposed restructuring, the Company has elected to take
advantage of the 15-day grace period provided for in the Indenture for its 85/8%
Senior Note due December 15, 2003 (the "85/8% Indenture")for the payment of
interest and not pay $8.6 million of interest on $200 million of its 85/8%
Senior Notes that would otherwise be due on December 15, 1998. The failure to
make this payment constitutes a default under the 85/8% Indenture and following
a lapse of the 15-day grace period, the Trustee, on its own or as directed by at
least 25% of the noteholders, may cause the acceleration of $200 million of the
Company's 85/8% Senior Notes. The acceleration of such indebtedness would result
in the occurrence of an event of default under substantially all of the
Company's other indebtedness. Further, the failure to make the aforementioned
interest payment on the Company's 85/8% Senior Note due December 15, 2003 causes
the failure by the Company to satisfy a condition precedent to borrowing by the
Company under the Revolving Credit Facility and the continued failure to make
the $8.6 million interest payment past the 15-day grace period provided for in
the 85/8% Indenture would constitute event of default under the Company's
Revolving Credit Facility, enabling the Company's bank lenders to accelerate the
entire principal amount of such loans. As noted above, on December 15, 1998, the
Company and the Bank Lenders entered into an amendment to the Revolving Credit
Facility which (i) waived the failure by the Company to satisfy a condition
precedent to borrowing resulting from the failure by the Company to make the
interest payment on the 85/8% Senior Notes on December 15, 1998 and (ii) waived
the occurrence of an event of default under the Revolving Credit Facility
resulting from the failure, past the 15-day grace period, to pay interest on the
85/8% Senior Notes.
If the Company does not accomplish the consensual restructuring plan on
terms satisfactory to it or at all, Penn Traffic may seek or be required to file
for bankruptcy under Chapter 11 of the U.S. Bankruptcy Code without such a
prearranged consensual plan and attempt to restructure its long-term debt and
other obligations through such process. There can be no assurance that the
Company will accomplish a consensual restructuring with its noteholders on
acceptable terms or at all or that the recoveries received by holders of the
Company's securities and other creditors in a non-bankruptcy filing will not be
materially less than those that would be received in a consensual plan.
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<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Certain statements included in this Part I, Item 2, "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
elsewhere in this Quarterly Report on Form 10-Q which are not statements of
historical fact are intended to be, and are hereby identified as,
"forward-looking statements" as defined in the Securities Exchange Act of 1934,
as amended, and involve known and unknown risks, uncertainties and other factors
which may cause the actual results, performance or achievements of the Company
to be materially different from any future results, performance or achievements
expressed or implied by such forward- looking statements. Such factors include,
among other things, the following: general economic and business conditions;
competition; the success or failure of the Company in implementing its current
business and operational strategies; the ability of the Company to successfully
negotiate a consensual restructuring with its noteholders, its bank lenders and
other creditors on satisfactory terms or at all and the timing of any such
restructuring; changes in the Company's business or operational strategies;
availability, location and terms of sites for store development; the
availability and amount of proceeds generated from sale of assets; the ability
of the Company to successfully renegotiate the terms of the Revolving Credit
Facility; availability, terms and access to capital and customary trade credit;
labor relations and labor costs.
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<PAGE>
RESULTS OF OPERATIONS
Thirteen Weeks ("Third Quarter Fiscal 1999") and Thirty-nine Weeks Ended
October 31, 1998 Compared to Thirteen Weeks ("Third Quarter Fiscal 1998")
and Thirty-nine Weeks Ended November 1, 1997
The following table sets forth Statement of Operations components
expressed as a percentage of total revenues for Third Quarter Fiscal 1999 and
Third Quarter Fiscal 1998, and for the thirty-nine weeks ended October 31, 1998
and November 1, 1997, respectively:
<TABLE>
<CAPTION>
Third Quarter Ended Thirty-nine Weeks Ended
October 31, November 1, October 31, November 1,
1998 1997 1998 1997
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Total revenues 100.0% 100.0% 100.0% 100.0%
Gross profit (1) 20.6 22.6 21.6 23.2
Gross profit excluding
special charges (2) 21.3 22.6 21.8 23.2
Selling and administrative
expenses 21.9 20.4 21.2 21.2
Selling and administrative
expenses excluding
special charges (3) 21.9 20.4 21.2 20.8
Restructuring charges 0.5
Unusual items 6.5 2.1
Write-down of long-lived
assets 13.3 4.3
Operating (loss) income (21.1) 2.2 (6.0) 1.6
Operating (loss) income
excluding special
charges (4) (0.6) 2.2 0.6 2.4
Interest expense 5.4 5.2 5.2 5.0
(Loss) before income
taxes (26.5) (2.9) (11.2) (3.4)
(Loss) before income taxes
excluding special charges (5.9) (2.9) (4.6) (2.6)
Net (Loss) (26.5) (1.9) (10.5) (2.1)
Net (Loss) excluding
special charges (5.9) (1.9) (3.8) (1.7)
(See notes on next page)
</TABLE>
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<PAGE>
RESULTS OF OPERATIONS (continued)
(1) Total revenues less cost of sales.
(2) Gross profit excluding pre-tax special charges for the Third Quarter
Fiscal 1999 and 39-week period ended October 31, 1998 of $5.3 million
for inventory markdowns associated with the asset disposition process
(see Note 2 and Note 3).
(3) Selling and administrative expenses excluding pre-tax special charges
for the 39-week period ended November 1, 1997 of (1)$5.6 million
associated with the retention of certain corporate executives and (2)
$1.9 million of other costs associated with a management reorganization
and related corporate actions (see Note 3).
(4) Operating income for the Third Quarter Fiscal 1999 and 39-week
period ended October 31, 1998, excluding pre-tax special charges
of (1) $50.4 million associated with the asset disposition
process (see Note 2 and Note 3) and (2) $91.5 million associated
with the accounting for certain long-lived assets (see Note 4).
Operating income for the 39-week period ended November 1, 1997
excluding pre-tax special charges of $18.2 million (see Note 3).
Total revenues for Third Quarter Fiscal 1999 decreased to $690.6
million from $726.2 million in Third Quarter Fiscal 1998. Total revenues for the
39-week period ended October 31, 1998 decreased to $2.14 billion from $2.26
billion for the 39-week period ended November 1, 1997. The decrease in revenues
for the Third Quarter and the 39- week period ended October 31, 1998 is
primarily attributable to a decline in same store sales, a reduction in the
number of stores the Company operated in such periods from the prior year (see
Note 3) and a decline in wholesale revenues. Same store sales for Third Quarter
Fiscal 1999 and the 39-week period ended October 31, 1998 declined 3.7% and
4.1%, respectively. Wholesale supermarket revenues were $85.5 million in Third
Quarter Fiscal 1999 compared to $87.9 million in Third Quarter Fiscal 1998.
Wholesale supermarket revenues were $256.9 million for the 39-weeks ended
October 31, 1998 compared to $271.6 million for the 39-weeks ended November 1,
1997.
Gross profit in Third Quarter Fiscal 1999 was $142.1 million or 20.6%
of revenues compared to $164.4 million or 22.6% of revenues in Third Quarter
Fiscal 1998. In Third Quarter Fiscal 1999, gross profit, excluding pre-tax
special charges of $5.3 million (see Note 3), were $147.3 million or 21.3% of
revenues. Gross profit as a percentage of total revenues decreased to 21.6% for
the 39-week period ended October 31, 1998 from 23.2% for the 39-week period
ended November 1, 1997. For the 39-week period ended October 31, 1998 gross
profits as a percent of revenues, excluding pre-tax special charges of $5.3
million (see Note 3), were 21.8%. The decrease in gross profit, excluding
special charges, as a percentage of revenues, in Third Quarter Fiscal 1999
resulted primarily from an increase in inventory shrink expense and a reduction
in allowance income. The decrease in gross profit, excluding special charges, as
a percentage of revenues for the 39-week period ended October 31, 1998 resulted
from investments in gross margins associated with the Company's marketing
program (initiated in September 1997), an increase in inventory shrink expense
and a reduction in allowance income.
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<PAGE>
RESULTS OF OPERATIONS (continued)
Selling and administrative expenses excluding special charges were
$151.2 million or 21.9% of revenues in Third Quarter Fiscal 1999 compared to
$148.2 million or 20.4% of revenues in Third Quarter Fiscal 1998. Selling and
administrative expenses for the 39-week period ended October 31, 1998 were
$453.2 million or 21.2% of revenues compared to $478.3 million or 21.2% of
revenues for the 39-week period ended November 1, 1997. For the 39-week period
ended November 1, 1997, selling and administrative expenses, excluding pre-tax
special charges of $7.5 million (see Note 3), were $470.8 million or 20.8% of
revenues.
The increase in selling and administrative expenses excluding special
charges as a percentage of revenues in Third Quarter Fiscal 1999 and the 39-week
period ended October 31, 1998 was primarily due to increased promotional
expenses associated with the Company's marketing program (Penn Traffic accounts
for certain promotional expenses in the selling and administrative expenses line
of the Consolidated Statement of Operations) and an increase in bad check
expense. For the 39-week period ended October 31, 1998 these additional costs
were partially offset by a decrease in costs associated with the implementation
of the Company's cost reduction programs.
During the Third Quarter Fiscal 1999 the Company recorded a special
charge of $50.4 million (see Note 3) and a write-down of long-lived assets of
$91.5 million (see Note 4).
During the 39-week period ended November 1, 1997, the Company recorded
special charges of $18.2 million in connection with the management
reorganization and related corporate actions, and the retention of certain
corporate executives(see Note 3).
Depreciation and amortization expense was $19.4 million in Third
Quarter Fiscal 1999 and $22.1 million in Third Quarter Fiscal 1998, representing
2.8% and 3.0% of total revenues, respectively. Depreciation and amortization
expense was $59.3 million for the 39- week period ended October 31, 1998 and
$67.6 million for the 39-week period ended November 1, 1997, representing 2.8%
and 3.0% of total revenues, respectively.
Operating loss for Third Quarter Fiscal 1999 was $145.8 million or
21.1% of total revenues compared to operating income of $16.2 million or 2.2% of
total revenues in Third Quarter Fiscal 1998. In the Third Quarter Fiscal 1999,
operating loss, excluding pre-tax special charges of $141.9 million, was $3.8
million or 0.6% of total revenues. Operating loss for the 39-week period ended
October 31, 1998 was $128.8 million or 6.0% of total revenues compared to
operating income of $35.0 million or 1.6% of total revenues for the 39-week
period ended November 1, 1997. Operating income for the 39- week period ended
October 31, 1998, excluding pre-tax special charges of $141.9 million, was $13.1
million or 0.6% of total revenues compared to operating income of $53.2 million,
excluding pre-tax special charges of $18.2 million, or 2.4% of total revenues
for the 39-week period ended November 1, 1997. Operating (loss) income excluding
special charges declined as a percentage of revenues for Third Quarter Fiscal
1999 and the 39-week period ended October 31, 1998 due to a decrease in gross
profit excluding special charges as a percentage of revenues and an increase in
selling and administrative expenses excluding special charges as a percentage of
revenues.
- 13 -
<PAGE>
RESULTS OF OPERATIONS (continued)
Interest expense for Third Quarter Fiscal 1999 and Third Quarter Fiscal
1998 was $37.1 million and $37.5 million, respectively. Interest expense for the
39-week period ended October 31, 1998 and November 1, 1997 was $111.3 million
and $112.2 million, respectively.
Loss before income taxes was $182.9 million for Third Quarter Fiscal
1999 compared to a loss of $21.3 million for Third Quarter Fiscal 1998. The loss
before income taxes, excluding the effect of pre-tax special charges of $141.9
million, was $41.0 million for Third Quarter Fiscal 1999. The loss before income
taxes was $240.1 million for the 39-week period ended October 31, 1998 compared
to a loss of $77.2 million for the 39-week period ended November 1, 1997. The
loss before income taxes, excluding the effect of pre-tax special charges of
$141.9 million, was $98.1 million for the 39-week period ended October 31, 1998
compared to a $59.0 million loss before income taxes, excluding the effect of
pre-tax special charges of $18.2 million, for the 39-week period ended November
1, 1997. The reason for the increase in the loss before income taxes is the
decrease in operating income for Third Quarter Fiscal 1999 and 39-week period
ended October 31, 1998.
The income tax provision for Third Quarter Fiscal 1999 was $0.0 million
compared to a benefit of $7.8 million for Third Quarter Fiscal 1998. The income
tax benefit for the 39-week period ended October 31, 1998 was $16.6 million
compared to a benefit of $28.9 million for the 39-week period ended November 1,
1997. The effective tax rates for the Third Quarter and 39-week period ended
October 31, 1998 vary from the statutory rates due to differences between income
for financial reporting and tax reporting purposes, primarily related to
goodwill amortization resulting from acquisitions and the recording of a
valuation allowance. A valuation allowance is required when it is more likely
than not that the recorded value of a deferred tax asset will not be realized.
Management presently believes that a valuation allowance will be required for
the deferred tax assets related to net operating losses and tax credit
carryforwards arising in the future. As a result, management expects the Company
will be unable to accrue a benefit for income taxes for the remainder of Fiscal
1999 and for indefinite future periods.
Net loss for Third Quarter Fiscal 1999 was $182.9 million compared to a
net loss of $13.5 million for Third Quarter Fiscal 1998. Net loss, excluding the
impact of special charges, was $41.0 million for Third Quarter Fiscal 1998. The
net loss for the 39-week period ended October 31, 1998 was $223.5 million
compared to a net loss of $48.3 million for the 39-week period ended October 31,
1997. The net loss, excluding the impact of special charges, was $81.6 million
for the 39-week period ended October 31, 1998 compared to a $37.5 million net
loss, excluding the impact of special charges, for the 39-week period ended
November 1, 1997.
- 14 -
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Amounts of the Company's debt (excluding capital leases) maturing in
the next five fiscal years are outlined on the following table:
AMOUNT MATURING
FISCAL YEAR ($ in millions)
----------- ---------------
1999 0.7 *
2000 135.3 **
2001 0.4
2002 107.6
2003 125.3
* Amount due for the remainder of Fiscal 1999.
** Amount includes $125.7 million outstanding as of October 31, 1998,
under the Company's revolving credit facility and $9.5 million
outstanding under a secured term loan.
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. As of October 31, 1998, additional availability under the Revolving
Credit Facility was $45.2 million.
The Company and the lenders ("Bank Lenders") that are parties to the
Revolving Credit Facility entered into an amendment dated as of August 31, 1998
to the Revolving Credit Facility (the "Amendment") that provides that the
financial covenants contained in the Revolving Credit Facility would not be
applicable to the Company for the period from August 1, 1998 until April 1,
1999. Without the Amendment, the Company would not have been in compliance with
certain financial covenants set forth in the Revolving Credit Facility for the
13-week period ended August 1, 1998 and an Event of Default (as defined in the
Revolving Credit Facility) would have occurred. The Company does not believe,
based upon its current operating performance, that it will be in compliance with
the financial covenants set forth in the Revolving Credit Facility after April
1, 1999. In addition, the Bank Lenders have agreed to (i) amend the Revolving
Credit Facility so that the failure by the Company to make the interest payment
on its 85/8% Senior Notes described below will not constitute the failure of a
condition precedent to borrowing by the Company under the Revolving Credit
Facility and (ii) waive the occurrence of an event of default under the
Revolving Credit Facility until April 1, 1999 resulting from the failure by the
Company to make such interest payment past the applicable grace period provided
for in the indenture for the 85/8% Senior Notes.
During Third Quarter Fiscal 1999, the Company's internally generated
funds from operations, proceeds of asset sales and amounts available under the
Revolving Credit Facility provided sufficient liquidity to meet the Company's
operating, capital expenditure and debt service needs.
- 15 -
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES (continued)
Cash flows to meet the Company's requirements for operating, investing
and financing activities in the 39-week period ended October 31, 1998 are
reported in the Consolidated Statement of Cash Flows. For the 39-week period
ended October 31, 1998, the Company experienced a negative cash flow from
operating activities of $44.8 million.
Working capital decreased by $114.8 million from January 31, 1998 to
October 31, 1998, primarily due to the reclassification of the Revolving Credit
Facility and a secured term loan which contains the same financial covenants as
the Revolving Credit Facility to Current Maturities of Long-Term Debt as
discussed in Note 9 - Long Term Debt and Current Maturities.
The Company expects to spend approximately $15-20 million on capital
expenditures (including capital leases) during Fiscal 1999. Capital expenditures
are principally for new stores, remodeled store facilities and investments in
technology. Except as disclosed below with respect to an interest payment in its
85/8% Senior Notes, the Company expects to utilize internally generated funds
from operations, amounts available under the Revolving Credit Facility and
proceeds of asset sales, if any, to satisfy its operating, capital expenditure
and debt service needs for the remainder of Fiscal 1999.
On June 4, 1998, the Company announced that it had engaged Goldman
Sachs & Company to undertake a process for realizing value from certain of the
Company's Bi-Lo stores and related wholesale/franchise operations located in
Pennsylvania. To date, the Company has completed the sale of 3 stores and
certain other real estate and is currently engaged in negotiations with
potential buyers for certain other Bi-Lo stores.
The Company has determined to continue with the process of selling 22
Bi-Lo stores which, together with the 3 stores previously sold, generated
revenues of $49.5 million and $155.8 million for the 13-week and 39-week periods
ended October 31, 1998, respectively. The net proceeds of the sale of these
stores will be used by the Company to satisfy its short-term capital needs. In
addition, the Company has decided to close 21 Bi-Lo stores (9 of which were
closed in the third quarter). These 21 Bi-Lo stores generated revenues of $20.4
million and $74.6 million for the 13-week and 39-week periods ended October 31,
1998, respectively (these amounts reflect the fact that the 9 stores closed
during the third quarter did not have revenues for the entire periods
described).
The Company intends to retain and operate its 32 remaining Bi-Lo stores
and its existing wholesale/franchise operations in Pennsylvania. No assurance
can be given that any of the transactions described above will be completed nor
is it possible to predict the net proceeds to the Company of any such
transaction or the timing of such a transaction.
- 16 -
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES (continued)
In order to address its long-term capital and debt service
requirements, on December 10, 1998, the Company announced that it had begun
working with an informal committee comprised of more than 40% of the principal
amount of its outstanding senior notes and more than 50% of the principal amount
of its outstanding subordinated notes for the purposes of negotiating a
consensual restructuring of its outstanding securities, including the
outstanding notes. As of October 31, 1998, the Company had approximately $1.13
billion of senior and subordinated notes outstanding. The Company also announced
that it had engaged The Blackstone Group as its financial advisor in connection
with its restructuring efforts.
The Company intends that any such restructuring plan will convert a
substantial portion of its senior and subordinated notes to equity. In addition,
the Company has advised the informal committee of noteholders that any
restructuring proposal made by the Company will provide for payment in full of
all obligations to the Company's trade creditors that continue to support the
Company with customary trade credit. The informal committee of noteholders has
informed the Company that it will support the full repayment of the Company's
trade creditors in connection with a restructuring proposal which is otherwise
acceptable to such noteholders. In addition, Fleet Bank, the agent bank for the
Company's $250 million Revolving Credit Facility, has advised the Company that
it is supporting the Company's efforts to restructure its outstanding
securities. The Company anticipates that any such consensual restructuring would
be implemented through a prearranged, voluntary filing for relief under Chapter
11 of the U.S. Bankruptcy Code.
In light of the proposed restructuring, the Company has elected to take
advantage of the 15-day grace period provided for in the Indenture for its 85/8%
Senior Note due December 15, 2003 (the "85/8% Indenture")for the payment of
interest and not pay $8.6 million of interest on $200 million of 85/8% Senior
Notes that would otherwise be due on December 15, 1998. The failure to make this
payment constitutes a default under the 85/8% Indenture and following a lapse of
the 15-day grace period, the Trustee, on its own or as directed by at least 25%
of the noteholders, may cause the acceleration of $200 million of the Company's
85/8% Senior Notes. The acceleration of such indebtedness would result in the
occurrence of an event of default under substantially all of the Company's other
indebtedness. Further, the failure to make the aforementioned interest payment
on the Company's 85/8% Senior Note due December 15, 2003 causes the failure by
the Company to satisfy a condition precedent to borrowing by the Company under
the Revolving Credit Facility and the continued failure to make the $8.6 million
interest payment past the 15-day grace period provided for in the 85/8%
Indenture would constitute an event of default under the Company's Revolving
Credit Facility, enabling the Company's bank lenders to accelerate the entire
principal amount of such loans. On December 15, 1998 the Company and the Bank
Lenders entered into an amendment to the Revolving Credit Facility which (i)
waived the failure by the Company to satisfy a condition precedent to borrowing
resulting from the failure by the Company to make the interest payment on the
85/8% Senior Notes on December 15, 1998 and (ii) waived the occurrence of an
event of default under the Revolving Credit Facility resulting from the failure,
past the 15-day grace period, to pay interest on the 85/8% Senior Notes.
- 17 -
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES (continued)
If the Company does not accomplish the consensual restructuring plan on
terms satisfactory to it or at all, Penn Traffic may seek or be required to file
for bankruptcy under Chapter 11 of the U.S. Bankruptcy Code without such a
pre-arranged consensual plan and attempt to restructure its long-term debt and
other obligations through such process. There can be no assurance that the
Company will accomplish a consensual restructuring with its noteholders on
acceptable terms or at all or that the recoveries received by holders of the
Company's securities and other creditors in a non-prearranged bankruptcy filing
will not be materially less than those that would be received in a consensual
plan.
- 18 -
<PAGE>
YEAR 2000
Many of the Company's computer systems and certain other equipment will
require modification or replacement over the next two years in order to render
these systems compliant with the year 2000. The Company has established
processes for evaluating and managing the risks and costs associated with this
issue including the assessment of third parties who may be critical to us. The
Company expects to have all critical systems compliant. Based on current
information, the Company estimates that the cost of Year 2000 compliance during
the fiscal years ended January 30, 1999, and January 29, 2000, will be
approximately $10 million (including the purchase of certain new hardware and
software). The business of the Company could be adversely affected should the
Company or other entities with which the Company does business be unsuccessful
in completing critical modifications in a timely manner. The Company believes
that the contingency plans for non-critical systems which are not year 2000
compliant are adequate at this time.
- 19 -
<PAGE>
PART II. OTHER INFORMATION
- --------------------------
All items which are not applicable or to which the answer is negative
have been omitted from this report.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit Number Description
-------------- -----------
10.5t Amendment Number 19 to the Revolving
Credit Facility, dated as of December 14,
1998
10.21 Employment Agreement dated as of
October 30, 1998 between the Company
and Joseph V. Fisher
27.1 Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the fiscal quarter
ended October 31, 1998.
- 20 -
<PAGE>
SIGNATURES
Pursuant to the requirements 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
December 14, 1998 /s/ Joseph V. Fisher
--------------------
By: Joseph V. Fisher
President and Chief Executive
Officer
December 14, 1998 /s/ Robert J. Davis
-------------------
By: Robert J. Davis
Senior Vice President and
Chief Financial Officer
- 21 -
AMENDMENT NO. 19 AND WAIVER TO
LOAN AND SECURITY AGREEMENT
AMENDMENT NO. 19, dated as of December 14, 1998 (this "Amendment") to
that certain Loan and Security Agreement dated as of March 5, 1993, as amended
by Amendment Nos. 1, 2, 3, 4, 5, 6, 7, 8, 9, 10, ll, 12, 13, 14, 15, 16, 17 and
18 (collectively, the "Loan Agreement") among THE PENN TRAFFIC COMPANY ("Penn
Traffic"), DAIRY DELL, BIG M SUPERMARKETS, INC. and PENNY CURTISS BAKING
COMPANY, INC. (individually, each a "Borrower" and collectively, the
"Borrowers"), the Lenders listed therein (collectively, the "Lenders") and FLEET
BANK, N.A. (as successor to NatWest USA Credit Corp.), as Agent for the Lenders
(in such capacity, the "Agent"), is made by, between and among the Borrowers,
the Agent, and the Lenders. Capitalized terms used herein, except as otherwise
defined herein, shall have the meanings given to such terms in the Loan
Agreement.
WHEREAS, pursuant to the terms of the Indenture for Penn Traffic's
85/8% Senior Unsecured Notes due December 15, 2003 (the "85/8% Indenture"),
interest in the amount of $8,625,000 is due and payable on December 15, 1998
(the "Interest Payment"), and the failure to make the Interest Payment becomes
an "Event of Default" under the 85/8% Indenture following a fifteen-day grace
period.
WHEREAS, the Borrowers have requested that the Agent and the Lenders
amend the Loan Agreement to agree as set forth in paragraph 1 below.
WHEREAS, the Borrowers, the Agent and the Lenders have agreed to amend
the Loan Agreement pursuant to the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the mutual promises, covenants and
agreements hereinafter set forth, the parties hereto agree as follows:
1. Amendment and Waiver to Loan Agreement. The failure of Penn
Traffic to pay the Interest Payment on or after December 15, 1998 (including
past the fifteen-day grace period) shall not, until April 1, 1998 (if such
failure is then continuing), constitute an Event or an Event of Default under
any provision of the Loan Agreement.
2. Representations and Warranties. As an inducement to the
Agent and the Lenders to enter into this Amendment, each of the Borrowers hereby
represents and warrants to the Agent and the Lenders and agrees with the Agent
and the Lenders as follows:
(a) It has the power and authority to enter into this
Amendment and has taken all corporate action required to
authorize its execution, delivery, and performance of this
Amendment. This Amendment has been duly executed and delivered
by it and constitutes
<PAGE>
2
its valid and binding obligation, enforceable against it in
accordance with its terms. The execution, delivery, and
performance of this Amendment will not violate its certificate
of incorporation or by-laws or any agreement or legal
requirements binding upon it.
(b) As of the date hereof and after giving effect to
the terms of this Amendment: (i) the Loan Agreement is in full
force and effect and constitutes a binding obligation of the
Borrowers, enforceable against the Borrowers and owing in
accordance with its terms; (ii) the obligations are due and
owing by the Borrowers in accordance with their terms; and
(iii) Borrowers have no defense to or setoff, counterclaim, or
claim against payment of the Obligations and enforcement of
the Loan Documents based upon a fact or circumstance existing
or occurring on or prior to the date hereof.
(c) The Obligations under the Loan Agreement as
amended by this Amendment constitute "Senior Indebtedness" and
"Designated Senior Indebtedness" as defined under the
indentures relating to the Senior Notes and to the
Subordinated Notes.
3. No Implied Amendments or Waivers. Except as expressly
provided herein, the Loan Agreement and the other Loan Documents are not amended
or otherwise affected in any way by this Amendment. Except for the specific
agreement set forth in Section 1, nothing herein shall be or be deemed to be a
waiver of any covenant or agreement contained in the Loan Agreement (or any
Event or Event of Default other than specified in Section 1 hereof) and each
Borrower hereby agrees that all of the covenants and agreements contained in the
Loan Agreement are hereby ratified and confirmed in all respects.
4. Entire Agreement; Modifications; Binding Effect. This
Amendment constitutes the entire agreement of the parties with respect to its
subject matter and supersedes all prior oral or written understandings about
such matter. Each of the Borrowers confirms that, in entering into this
Amendment, it did not rely upon any agreement, representation, or warranty by
the Agent or any Lender except those expressly set forth herein. No
modification, rescission, waiver, release, or amendment of any provision of this
Amendment may be made except by a written agreement signed by the parties
hereto. The provisions of this Amendment are binding upon and inure to the
benefit of the representatives, successors, and assigns of the parties hereto;
provided, however, that no interest herein or obligation hereunder may be
assigned by any Borrower without the prior written consent of the Required
Lenders.
5. Effective Date. This Agreement shall become effective upon
compliance with the conditions set forth immediately below:
<PAGE>
3
(i) Except for the matters specified in this
Amendment, no Event or Event of Default shall have occurred
and there shall have been no material adverse change in the
business or financial condition of any of the Borrowers.
(ii) The Borrowers shall deliver to the Agent for the
benefit of the Lenders an opinion of Borrowers' counsel in
form and substance satisfactory to the Agent and its counsel
(which opinion shall cover such matters as the Agent may
reasonably request, including a statement that the Obligations
under the Loan Agreement as amended by this Amendment
constitute "Senior Indebtedness" and "Designated Senior
Indebtedness" as defined under the indentures relating to the
Senior Notes and to the Subordinated Notes).
(iii) The Borrowers shall deliver to the Agent a
certificate of the Borrowers' Chief Executive, Vice
Chairman-Finance or Chief Financial Officer with respect to
Section (i) above and such other instruments and documents as
the Agent shall reasonably request.
(iv) The Agent shall have received an original
counterpart of this Amendment, duly executed and delivered by
the Borrowers and the Required Lenders.
6. Counterparts. This Amendment may be executed in any number
of counterparts, and by each party in separate counterparts, each of which is an
original, but all of which shall together constitute one and the same agreement.
7. Governing Law. This Amendment is deemed to have been made
in the State of New York and is governed by and interpreted in accordance with
the laws of such state, provided that no doctrine of choice of law (except as
may be applicable under the UCC with respect to the Security Interest) shall be
used to apply the laws of any other state or jurisdiction.
IN WITNESS WHEREOF, the parties have entered into this
Amendment as of the date first above written.
BORROWERS:
THE PENN TRAFFIC COMPANY
By:______________________________
Title:
<PAGE>
4
DAIRY DELL
By:______________________________
Title:
BIG M SUPERMARKETS, INC.
By:______________________________
Title:
PENNY CURTISS BAKING
COMPANY, INC.
By:______________________________
Title:
LENDERS:
Commitment: $35,000,000 FLEET BANK, N.A. (as successor to
Pro-Rata Share: 14% NatWest USA Credit Corp.)
Lending Office:
60 East 42nd Street
New York, New York 10017 By:______________________________
Title:
Commitment: $20,000,000 NATIONAL BANK OF CANADA
Pro-Rata Share: 8%
Lending Office:
Main Place Tower
Suite 2540
350 Main Street
Buffalo, New York 14202 By:______________________________
Title:
Commitment: $10,000,000 TRANSAMERICA BUSINESS CREDIT
Pro-Rata Share: 4% CORP.
Lending Office:
555 Theodore Fremd Avenue
Suite C301
Rye, New York 10580 By:______________________________
Title:
<PAGE>
5
Commitment: $30,000,000 SANWA BUSINESS CREDIT
Pro-Rata Share: 12% CORPORATION
Lending Office:
One South Wacker Drive
Suite 2800
Chicago, IL 60606 By:______________________________
Title:
Commitment: $45,000,000 BANKAMERICA BUSINESS CREDIT,
Pro-Rata Share: 18% INC.
Lending Office:
40 East 52nd Street
Second Fl.
New York, New York 10022 By:______________________________
Title:
Commitment: $50,000,000 HELLER FINANCIAL, INC.
Pro-Rata Share: 20%
Lending Office:
101 Park Avenue, 12th Fl.
New York, New York 10178 By:______________________________
Title:
Commitment: $10,000,000 LEHMAN COMMERCIAL PAPER,
Pro-Rata Share: 4% INC.
Lending Office:
3 World Financial Center
10th Fl.
New York, New York 10285 By:______________________________
Title:
Commitment: $10,000,000 AMSOUTH BANK
Pro-Rata Share: 4%
Lending Office:
350 Park Avenue
New York, New York 10022 By:______________________________
Title:
Commitment: $15,000,000 THE CIT GROUP/BUSINESS CREDIT,
Pro-Rata Share: 6% INC.
Lending Office:
300 South Grand Avenue
3rd Fl.
Los Angeles, CA 90071 By:______________________________
Title:
Commitment: $25,000,000 COMPAGNIE FINANCIERE DE CIC
Pro-Rata Share: 10% ET DE L'UNION EUROPEENNE
Lending Office:
520 Madison Avenue
37th Floor
New York, New York 10022 By:______________________________
Title:
<PAGE>
6
AGENT:
FLEET BANK, N.A. (as Successors to
NatWest USA Credit Corp.),
As Agent
By:_______________________________
Title:
EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") is entered into as of this 30th
day of October, 1998, by and between The Penn Traffic Company (the "Company")
and Joseph V. Fisher ("Executive").
1. EMPLOYMENT. (a) The Company hereby agrees to engage, hire and employ
Executive as an employee as of the Effective Date (as defined) and, during the
Term (as defined), as President and Chief Executive Officer of the Company.
(b) Executive hereby accepts employment as the President and
Chief Executive Officer of the Company and agrees to provide to the Company his
full-time services as President and Chief Executive Officer of the Company,
performing such duties as shall reasonably be required of a President and Chief
Executive Officer and otherwise on the terms and subject to the conditions set
forth in this Agreement. In such capacity, Executive will report to, and serve
under the direction of, the Chairman of the Company and the Board of Directors
of the Company (the "Board"). Throughout the Term (as hereinafter defined),
Executive shall devote his full working time and energy exclusively to
performing the services and duties of his employment hereunder to the best of
his ability and utilizing all of his skills, experience and knowledge. In
addition, the Company will use its reasonable efforts to cause Executive to be
elected to the Board. Other than services to be rendered in connection with
charitable activities and trade association activities which do not interfere
with Executive's day-to-day responsibilities to the Company, without limiting
the generality of Paragraph 6, Executive shall not, directly or
<PAGE>
2
indirectly, engage in or participate in the operation or management of, or
render any services to, any other business, enterprise or individual.
2. TERM. The term of employment of Executive under this Agreement shall
commence effective on November 23, 1998 (the "Effective Date") and will continue
until the earlier of (i) February 1, 2002 or (ii) the date that Executive or the
Company terminates this Agreement pursuant to Paragraph 7, 8 or 9 (the "Term").
Notwithstanding the foregoing, Executive acknowledges and agrees that the
Company may contact certain professional references provided by Executive
(following an opportunity by Executive to first contact such references)
following the date hereof, but prior to the Effective Date. If as a result of
such reference checks, the Company determines in its good faith reasonable
discretion as a result of such reference checks that Executive has
misrepresented any matter to the Company or the Company determines in its good
faith reasonable discretion as a result of such contacts that the Executive's
experience and performance are inconsistent with the requirements of the
position of President and Chief Executive Officer of the Company, it may
terminate this Agreement by delivery of written notice to the Executive and (i)
if the Executive is not employed by the Prior Employer (as defined below) within
3 months of the date of such notice, the Company shall engage the Executive as a
consultant for a period equal to the shorter of (x) one year or (y) the date
Executive obtains employment, at a rate of $41,667 per month and (ii) this
Agreement shall terminate, be void and of no further force and effect without
liability to either party.
3. LOCATION OF EMPLOYMENT. Executive shall render services primarily at
the Company's offices that are located in Syracuse, New York. Notwithstanding
the foregoing, Executive acknowledges and agrees that Executive's duties
hereunder will include travel outside the Syracuse, New York area, including
frequent travel to such geographic locations where the
<PAGE>
3
Company owns or operates supermarkets or retail grocery stores, as well as other
locations within and outside the United States, to attend meetings and other
functions as the performance of Executive's duties hereunder may require. In an
effort to assist Executive in relocating his primary residence to the Syracuse,
New York area, the Company shall provide Executive with relocation assistance in
the manner set forth on Schedule A attached hereto.
4. COMPENSATION.
(a) Base Salary. The Company shall pay to Executive a base
salary of not less than $500,000 per annum ("Base Salary") for the period
commencing on the Effective Date and ending on the date this Agreement is
terminated in accordance with Paragraph 2. Executive's Base Salary will be
reviewed periodically by the Board and may be increased at such times if the
Board, in its sole discretion, determines that an increase is warranted. The
Base Salary shall be paid in accordance with the Company's standard payroll
practices and will be subject to withholding and other applicable taxes.
(b) Target Bonus. Subject to the provisions of this Paragraph
4(b), the Executive shall be entitled to receive an annual cash bonus (the
"Target Bonus") for each fiscal year of the Company (i.e, year ending on or
about January 30 of each year). The Target Bonus shall range from 0% to 100% of
Base Salary depending upon whether the Company meets, exceeds or falls short of
the Board-approved budgeted goals for the applicable fiscal year ("Target
Performance") and based on criteria established in advance of such fiscal year.
Notwithstanding the preceding sentence, the Target Bonus Executive shall be
entitled to receive for each of the fiscal years ending January 30, 1999 and
January 29, 2000 shall not be less than 50% of Base Salary as in effect during
the subject fiscal year; provided, that Executive's Target Bonus for the fiscal
year ending January 30, 1999 shall be pro rated (calculated on the basis of
<PAGE>
4
a 365 day year) for the number of days Executive is employed by the Company in
such year. Payments of Target Bonus for any fiscal year shall be made during the
first quarter of the fiscal year immediately following the year in respect of
which the Target Bonus is payable.
(c) Signing Bonus. In addition to the Target Bonus, Executive
shall receive on November 6, 1998 a one-time payment of $1,000,000 (subject to
adjustment as described below) in respect of a signing bonus (the "Signing
Bonus"); provided, that Executive shall be required to return such amount to the
Company in the event Executive fails to report to work on the Effective Date. If
Executive after the date hereof receives payments from Big V Holding Corp. (or
any of its subsidiaries or affiliates) (collectively, the "Prior Employer")
pursuant to the Prior Employer's Annual Incentive Bonus Plan and Long Term
Incentive Plan (collectively, the "Plans"), the Signing Bonus shall then be
reduced by an amount equal to 25% of the aggregate amount of such payments (the
"Reduction Amount"). Such reduction shall occur in the following manner: (i) in
the event such payments are received by Executive prior to Executive's receipt
of the Signing Bonus, the Signing Bonus Executive receives shall be reduced by
the Reduction Amount; (ii) in the event such payments are received by the
Executive after Executive has received the Signing Bonus in full, Executive
shall pay to the Company within five days after his receipt of such payments an
amount equal to the Reduction Amount; and (iii) if Executive receives such
payments both before and after the date Executive receives the Signing Bonus,
clauses (i) and (ii) shall apply as appropriate.
(d) Loan. In addition to the other amounts payable under this
Paragraph 4, the Company shall, on the Effective Date, provide the Executive
with a loan in the amount of $1,000,000 (subject to adjustment as described
below) (the "Loan"). The Loan shall be evidenced by a non-negotiable full
recourse 6% promissory note (the "Note") in a form
<PAGE>
5
attached hereto as Exhibit A. In the event Executive receives payments from the
Prior Employer pursuant to the Plans, (i) the outstanding principal amount of
the Loan shall be reduced by an amount equal to the Reduction Amount if such
payments are received before the Effective Date or (ii) the Executive shall pay
to the Company within five days after receipt of such payments an amount equal
to the Reduction Amount and such payment shall reduce the outstanding principal
amount of the Loan and pro rata the principal amount to be forgiven pursuant to
the next succeeding paragraph.
On each quarterly anniversary of the Effective Date on which
Executive remains employed by the Company, the Loan shall be forgiven in the
amount of one-twelfth (1/12) of the principal amount of the Note (as adjusted by
the Reduction Amount if received after the Effective Date) plus all accrued and
unpaid interest to such date until the principal amount thereof is reduced to
zero. If at any time prior to the principal amount of the Note being reduced to
zero, Executive (i) has been terminated by the Company other than (A) for Cause
(as defined), or (B) due to Executive's death or disability, or (ii) terminates
his employment (A) with Good Reason (as defined) or, (B) within six months after
the occurrence of a Change of Control (as defined), the entire outstanding
principal amount of the Note, plus all accrued and unpaid interest to date shall
at that time be forgiven in full and the Company shall have no continuing claim
in respect thereof. In the event that Executive (i) is terminated for Cause,
(ii) terminates his employment other than for Good Reason or (iii) is terminated
from employment with the Company due to his death or disability, then, in
addition to any other rights and remedies the Company may have against the
Executive, in any such case, the entire outstanding principal amount of the
Note, plus all accrued and unpaid interest to date, shall become immediately due
and payable by Executive.
<PAGE>
6
(e) Options. Executive shall be granted on the Effective Date
ten-year options to purchase 500,000 shares of the Company's common stock, par
value $1.25 per share (the "Common Stock"), with an exercise price equal to the
"Fair Market Value" thereof (as defined under the Company's 1993 Long Term
Incentive Plan or Performance Incentive Plan (the "Incentive Plans"). Such
options may be granted, at the Company's election, under the Incentive Plans and
shall vest in five (5) substantially equal annual increments on the Effective
Date and on each of the first four anniversaries of the Effective Date 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. Should Executive for any reason
discontinue to serve as President (or in another comparable position) of the
Company prior to 100% vesting of the options, Executive shall forever forfeit
the unvested portion of the options. In the event of a "change of control," (as
defined in the governing documents of the Incentive Plans), all options that
remain unvested at such date shall thereupon become immediately vested in full.
As soon as practicable, Executive and the Company will enter into option
agreements, in the form contemplated under the Incentive Plans, with respect to
the award of options referred to in this Paragraph 4(e).
5. FRINGE BENEFITS.
(a) Executive shall, from and after the Effective Date, have
the right to participate in the Company's medical, dental, disability, life and
other insurance plans maintained during the Term by the Company for executives
of the stature and rank of Executive, and any other plans and benefits, if any,
generally maintained by the Company for executives of the stature and rank of
Executive during the Term, in each case in accordance with the terms
<PAGE>
7
and conditions of such plan as from time-to-time in effect (collectively
referred to herein as "Fringe Benefits").
(b) Subject to the requirements of Executive's office,
Executive shall be entitled to four weeks annual vacation to be taken in
accordance with the vacation policy of the Company.
(c) The Company will, upon being provided with reasonable
supporting documentation thereof, promptly reimburse Executive for actual,
ordinary and necessary travel and accommodation cost, entertainment and other
business expenses incurred as a necessary part of discharging Executive's duties
hereunder, including, without limitation, allowance for one-time initiation fees
and annual dues for a membership in a country club of Executive's choice.
(d) The Company will, upon being provided with reasonable
supporting invoices and documentation thereof, promptly pay or reimburse the
fees and expenses of Pollack & Kaminsky incurred by Executive in connection with
the negotiation and execution of this Agreement up to a maximum amount of
$12,500.
6. NO COMPETITION; CONFIDENTIALITY.
(a) Executive agrees that while this Agreement is in effect
and for a period of 12 months (with respect to the matters referred to in clause
(i) below) and 18 months (with respect to the matters referred to in clauses
(ii) and (iii) below) after the termination of this Agreement pursuant to
Paragraph 2 (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
whatsoever, directly or indirectly:
<PAGE>
8
(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 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 Paragraph 6 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).
Notwithstanding the foregoing, the provisions of this Section 6(a)
shall not apply if this Agreement is terminated by the Executive for Good
Reason.
(b) 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 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
<PAGE>
9
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 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 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.
(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 Company and its
subsidiaries and affiliates and will provide him with access to confidential
financial information, trade secrets, "know-how" and other
<PAGE>
10
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 Paragraph 6 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 Executive from
earning a livelihood. The Executive acknowledges that the remedy at law for any
breach or threatened breach of this Paragraph 6 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.
7. GROUNDS FOR TERMINATION BY COMPANY. The Company may terminate this
Agreement and Executive's employment hereunder for "Cause" by written notice to
Executive setting forth the grounds for termination with specificity, and
following, in the case of clauses (iii) - (v) below, a ten (10) business day
opportunity by the Executive to remedy any such conduct, which shall include an
opportunity by Executive to discuss the matter with the Company's Board of
Directors. "Cause" shall mean (i) the commission by the Executive of an act of
fraud or embezzlement (including the unauthorized disclosure of confidential or
proprietary information of the Company or any of its subsidiaries that results
in, or that could reasonably be expected to result in, a material injury to the
Company or such subsidiary); (ii) a felony conviction or guilty plea of the
Executive or a conviction or guilty plea of any other crime involving moral
turpitude; (iii) willful misconduct as an employee of the Company that
<PAGE>
11
results in material injury to the Company; (iv) the willful failure of the
Executive to render services to the Company in accordance with his employment,
which failure amounts to a material neglect of his duties to the Company, as
determined in each case by the Board in good faith; and (v) willful and material
insubordination on the part of the Executive.
Any termination for Cause shall be effective upon notice by the Company
to Executive as provided at the beginning of this Paragraph 7.
8. GROUNDS FOR TERMINATION BY EXECUTIVE. Executive may terminate this
Agreement and his employment hereunder for Good Reason (as hereinafter defined)
by written notice to the Company setting forth the grounds for termination with
specificity. "Good Reason" shall mean (a) the failure to elect or appoint the
Executive as President and Chief Executive Officer and to the Board of Directors
of the Company or (b) the failure by the Company to pay any compensation or
other amount due to the Executive under this Agreement, which failure is not
remedied within ten (10) business days after written notice thereof is delivered
to the Company by Executive. Any termination for Good Reason shall be effective
as of the business day immediately following the date upon which the Company was
required to (but did not) remedy such failure.
9. TERMINATION FOR DEATH OR DISABILITY.
(a) If during the Term, Executive should die, Executive's
employment shall be deemed to have terminated as of the date of death.
(b) If during the Term, Executive should suffer a disability
which, in fact, prevents Executive from substantially performing his duties
hereunder for a period of 180 consecutive days or 230 or more days in the
aggregate, in any period of 12 consecutive months, then and in any such event
the Company may terminate Executive's services hereunder by a
<PAGE>
12
written notice to Executive setting forth the grounds for such termination with
specificity, which termination will take effect 30 days after such notice is
given. Executive may only be terminated for disability if the Company's
termination notice is given within 60 days following the end of the
aforementioned 180- or 230-day period, whichever the Company relies upon. The
existence of Executive's disability for the purposes of this Agreement shall be
determined by a physician mutually selected by the Company and Executive, and
Executive agrees to submit to an examination by such physician for purposes of
such determination.
10. DESIGNATION OF BENEFICIARY OR BENEFICIARIES. As to any payment to
be made under this Agreement to a beneficiary designated by Executive, it is
agreed that Executive shall designate such beneficiary (or beneficiaries) or
change his designation of such beneficiary (or beneficiaries) from time-to-time
by written notice to the Company. In the event Executive fails to designate a
beneficiary (or beneficiaries) as herein provided, any payments which are to be
made to Executive's designated beneficiary (or beneficiaries) under this
Agreement shall be made to Executive's widow, if any, during her lifetime,
thereafter to his issue, if any, including legally adopted children, and then to
Executive's personal representative.
11. EFFECT OF COMPANY'S TERMINATION OTHER THAN UNDER PARAGRAPH 7 OR 9
OR EFFECT OF EXECUTIVE'S TERMINATION UNDER PARAGRAPH 8. If (i) the Company
terminates Executive's employment under this Agreement for any reason other than
Cause, or other than due to his death or disability or (ii) Executive terminates
Executive's employment under this Agreement for Good Reason, then:
(a) The Company shall continue to pay to Executive his Base
Salary then in effect (in the manner in which Base Salary payments have
theretofore been paid) for a period equal to the lesser of (x) 24 months from
the date of termination and (y) the number of
<PAGE>
13
months remaining from the effective date of termination until February 1, 2002;
provided, that if such termination occurs between February 1, 2001 and February
1, 2002, such Base Salary payments shall continue for 12 months from the date of
termination.
(b) The Company shall continue to provide to the Executive the
benefits described in Paragraph 5(a) hereof for a period of 12 months from the
date of termination. If during Executive's employment hereunder a Change of
Control (as defined) occurs, and following such Change of Control, Executive
resigns from his position with the Company or, is terminated from employment
within the Company within six months from the date of such Change of Control,
Executive shall be entitled to enter into a consulting agreement with the
Company providing for the Executive to receive a lump sum payment in an amount
equal to 24 months of Base Salary. For purposes of this Agreement "Change of
Control" shall mean any 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), 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 members of the Board
immediately prior to the transaction do not constitute a majority of the Board
of Directors of the successor or survivor
<PAGE>
14
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 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 Company 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 (together with any new or replacement directors
whose election by the Board, or whose nomination for election by the Company's
shareholders, was approved by a vote of at least a majority of the directors
then still in office who were either directors at the beginning of such period
or whose election or nomination for election was previously so approved) cease
for any reason to constitute a majority of the directors then in office.
12. EFFECT OF COMPANY'S TERMINATION FOR CAUSE, EXECUTIVE'S TERMINATION
WITHOUT GOOD REASON, TERMINATION UPON DEATH OR DISABILITY.
(a) If the Company terminates Executive's employment under
this Agreement for Cause or Executive terminates his employment under this
Agreement other than for Good Reason, or if Executive's employment is terminated
due to his death or disability, then the Company shall continue to pay Executive
(or his designated beneficiary) his Base Salary through the effective date of
termination and, in the case of termination due to Executive's death or
disability, Executive shall also be entitled to receive a pro rata portion
(calculated on the basis
<PAGE>
15
of a 365 day year) of the Executive's Target Bonus for the year in which such
termination occurs.
13. EXECUTIVE'S REPRESENTATIONS AND WARRANTIES. Executive represents
and warrants to the Company as follows:
(a) Executive has the unfettered right to enter into this
Agreement on the terms and subject to the conditions hereof, and Executive has
not done or permitted to be done anything which may curtail or impair any of the
rights granted to the Company herein.
(b) Neither the execution and delivery of this Agreement by
Executive nor the performance by Executive of any of Executive's obligations
hereunder constitute or will constitute a violation or breach of, or a default
under, any agreement, arrangement or understanding, or any other restriction of
any kind, to which Executive is a party or by which Executive is bound.
14. INDEMNIFICATION, ETC.. The Company agrees to hold harmless and
promptly indemnify Executive to the fullest extent permitted by law against all
damages and/or losses which Executive may suffer as a result of Executive's
services as, and/or for activities engaged in by Executive while Executive is,
an officer and/or employee of the Company or any affiliate thereof, including
either paying or reimbursing Executive, promptly after request, for any
reasonable and documented expenses and all attorneys' fees and costs actually
incurred by Executive in connection with defending, or himself instituting
and/or maintaining, any claim, action, suit or proceeding arising from
circumstances to which the Company's above indemnification relates; provided,
however, that no such indemnification shall be paid for damages or losses
incurred by Executive that result from actions by Executive that Delaware law
explicitly prohibits an employer from indemnifying its directors or employees
against, including,
<PAGE>
16
without limitation, to the extent any such damages or losses arise through the
gross negligence, bad faith or misconduct of Executive or the breach by
Executive of any of Executive's obligations under or representations and
warranties made pursuant to this Agreement. This indemnity shall survive the
termination of this Agreement. The Company represents and warrants that it has
$15 million of director's and officer's insurance available on that date hereof
and that it will use its reasonable commercial efforts to maintain such policy
throughout the Term.
15. NOTICES. Any notice, consent, termination or other communication
under this Agreement shall be in writing and shall be considered given on the
date when hand delivered or, if sent by registered or certified mail, on the
fifth day after such notice is mailed or, if sent by overnight courier
guaranteeing overnight delivery, on the day after such notice is so sent, in
each case to the parties at the following addresses (or at such other address as
a party may specify by notice in accordance with the provisions hereof to the
other):
IF TO EXECUTIVE, TO EXECUTIVE AT:
Mr. Joseph V. Fischer
227 Sheridan Avenue
Ho-Ho-Kus, New Jersey 07423
IF TO THE COMPANY:
The Penn Traffic Company
1200 State Fair Boulevard
Syracuse, New York 13221
Attn: Francis D. Price, General Counsel
WITH A COPY TO:
The Penn Traffic Company
411 Theodore Fremd Ave.
Rye, New York 10580
Attn: Martin A. Fox, Vice Chairman - Finance
<PAGE>
17
16. COMPLETE AGREEMENT AND MODIFICATION. This Agreement contains a
complete statement of all the arrangements between the parties with respect to
Executive's employment by the Company, supersedes all existing agreements or
arrangements between them concerning Executive's employment, and can only be
amended or modified by a written instrument signed by the Company and Executive.
17. SEVERABILITY PROVISIONS. If any provision of this Agreement is
declared invalid, illegal or incapable of being enforced by any court of
competent jurisdiction, all of the remaining provisions of this Agreement shall
nevertheless continue in full force and effect and no provisions shall be deemed
dependent upon any other provision unless expressly set forth herein.
18. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York applicable to agreements
entered into and performed entirely within such State.
19. WAIVER. The failure of a party to insist upon strict adherence to
any term of this Agreement shall not be considered a waiver or deprive that
party of the right thereafter to insist upon strict adherence to that term or
any other term of this Agreement.
20. HEADING. The headings in this Agreement are solely for the
convenience of reference and shall not affect its interpretation.
21. WITHHOLDING. Any amount payable under this Agreement shall be
reduced by any amount that the Company is obligated by law or regulation to
withhold in respect of any such payment.
22. HEIRS, SUCCESSORS AND ASSIGNS. This Agreement will inure to the
benefit of, and be enforceable by, Executive's heirs and the Company's
successors and assigns. The
<PAGE>
18
Company shall have the right to assign this Agreement or any part hereof or any
rights hereunder to any successor-in-interest to the Company and to any
affiliate of the Company; provided, however, that in the event of any such
assignment the assignee shall expressly agree in writing to assume all of the
Company's obligations under this Agreement, and Company shall remain secondarily
liable to Executive for the performance of all such obligations.
<PAGE>
19
WHEREFORE, the parties hereto have executed this Agreement as of the day and
year first above written.
THE PENN TRAFFIC COMPANY
By:_________________________ _____________________________
Name: Joseph V. Fisher
Title:
<PAGE>
20
SCHEDULE A
RELOCATION ASSISTANCE
The Company will pay, or reimburse Executive for, the following costs
upon presentation of invoices or other satisfactory evidence thereof.
(i) 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.
(ii) Executive's closing costs relating to the sale of
Executive's present home at 227 Sheridan Avenue, Ho-Ho-Kus, NJ 07423 including a
selling broker's commission equal to not more than 6% of the sale price.
(iii) 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.
(iv) 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.
(v) The cost of suitable temporary living quarters for
Executive and his family, as needed, until September 1, 1999.
(vi) 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, 1999.
<PAGE>
21
EXHIBIT A
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000077155
<NAME> The Penn Traffic Company
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-30-1999
<PERIOD-START> AUG-02-1998
<PERIOD-END> OCT-31-1998
<CASH> 47,887
<SECURITIES> 0
<RECEIVABLES> 65,318
<ALLOWANCES> 5,122
<INVENTORY> 315,345
<CURRENT-ASSETS> 438,784
<PP&E> 861,042
<DEPRECIATION> 438,585
<TOTAL-ASSETS> 1,347,039
<CURRENT-LIABILITIES> 408,911
<BONDS> 1,255,019
0
0
<COMMON> 13,426
<OTHER-SE> (396,748)
<TOTAL-LIABILITY-AND-EQUITY> 1,347,039
<SALES> 2,098,683
<TOTAL-REVENUES> 2,137,613
<CGS> 1,676,553
<TOTAL-COSTS> 1,676,553
<OTHER-EXPENSES> 589,880
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 111,252
<INCOME-PRETAX> (240,072)
<INCOME-TAX> 16,558
<INCOME-CONTINUING> (223,514)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (223,514)
<EPS-PRIMARY> (21.15)
<EPS-DILUTED> 0
</TABLE>
