<PAGE>
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 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from ____________ to ____________
Commission file number 0-8858
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, New York 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
---- ----
Indicate by check mark whether the registrant has filed all documents
and reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
YES X NO
---- ----
Common stock, par value $.01 per share: 20,106,955 shares
outstanding as of December 14, 1999
Page 1 of 31
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
THE PENN TRAFFIC COMPANY
CONSOLIDATED STATEMENT OF OPERATIONS
UNAUDITED
<TABLE>
<CAPTION>
(All dollar amounts in thousands,
except per share data)
SUCCESSOR PREDECESSOR
COMPANY COMPANY
----------- -----------
13 WEEKS 13 WEEKS
ENDED ENDED
OCTOBER 30, OCTOBER 31,
1999 1998
----------- -----------
<S> <C> <C>
TOTAL REVENUES $ 610,563 $ 690,591
COSTS AND OPERATING EXPENSES:
Cost of sales (including
buying and occupancy
costs) (Note 5) 466,042 548,534
Selling and administrative
expenses 130,753 151,173
Amortization of excess
reorganization value 28,552
Unusual items (Note 5) 1,900 45,160
Write-down of long-lived
assets (Note 6) 91,512
--------- ---------
OPERATING (LOSS) (16,684) (145,788)
Interest expense 9,450 37,132
--------- ---------
(LOSS) BEFORE INCOME TAXES (26,134) (182,920)
Provision for income
taxes (Note 9) 992 38
--------- ---------
NET (LOSS) $ (27,126) $(182,958)
========= =========
NET (LOSS) PER SHARE (BASIC
AND DILUTED) (NOTE 11) $ (1.34)
=========
</TABLE>
See Notes to Interim Consolidated Financial Statements. Per share data is not
presented for periods prior to June 26, 1999 due to the general lack of
comparability as a result of the revised capital structure of the Company.
-2-
<PAGE>
THE PENN TRAFFIC COMPANY
CONSOLIDATED STATEMENT OF OPERATIONS
UNAUDITED
<TABLE>
<CAPTION>
(All dollar amounts in thousands,
except per share data)
SUCCESSOR
COMPANY PREDECESSOR COMPANY
----------- ---------------------------------
18 WEEKS 21 WEEKS 39 WEEKS
ENDED ENDED ENDED
OCTOBER 30, JUNE 26, OCTOBER 31,
1999 1999 1998
---------- ---------- -----------
<S> <C> <C> <C>
TOTAL REVENUES $ 851,529 $1,006,804 $2,137,613
COSTS AND OPERATING EXPENSES:
Cost of sales (including
buying and occupancy
costs) (Notes 4 and 5) 650,803 781,342 1,676,553
Selling and administrative
expenses 181,203 226,430 453,208
Amortization of excess
reorganization value 39,534
Unusual items (Note 5) 1,900 (4,631) 45,160
Write-down of long-lived
assets (Note 6) 91,512
---------- ---------- ----------
OPERATING (LOSS) INCOME (21,911) 3,663 (128,820)
Interest expense (contractual
interest estimated at $58,772
for the twenty-one week period
ended June 26, 1999) (Note 7) 12,970 21,794 111,252
Reorganization items (Note 8) 167,031
---------- ---------- ----------
(LOSS) BEFORE INCOME TAXES AND
EXTRAORDINARY ITEMS (34,881) (185,162) (240,072)
Provision (benefit) for
income taxes (Note 9) 1,007 60 (16,558)
---------- ---------- ----------
(LOSS) BEFORE EXTRAORDINARY ITEMS (35,888) (185,222) (223,514)
Extraordinary items (Note 10) (654,928)
---------- ---------- ----------
NET (LOSS) INCOME $ (35,888) $ 469,706 $ (223,514)
========== ========== ==========
NET (LOSS) PER SHARE (BASIC
AND DILUTED) (NOTE 11) $ (1.78)
==========
</TABLE>
See Notes to Interim Consolidated Financial Statements. Per share data is not
presented for periods prior to June 26, 1999 due to the general lack of
comparability as a result of the revised capital structure of the Company.
-3-
<PAGE>
THE PENN TRAFFIC COMPANY
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
(All dollar amounts in thousands) UNAUDITED
SUCCESSOR COMPANY PREDECESSOR COMPANY
OCTOBER 30, 1999 JANUARY 30, 1999
---------------- -------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and short-term investments $ 50,430 $ 43,474
Accounts and notes receivable
(less allowance for doubtful accounts
of $10,046 and $5,731, respectively) 42,916 62,420
Inventories (Note 13) 292,910 283,631
Prepaid expenses and other current assets 10,596 14,619
---------- ----------
Total Current Assets 396,852 404,144
NONCURRENT ASSETS:
Capital leases - net 63,115 90,932
Property, plant and equipment - net (Note 14) 223,531 380,143
Beneficial leases - net 59,061 14,785
Goodwill - net 269,894
Excess reorganization value - net 302,140
Other assets and deferred charges - net 18,648 68,163
---------- ----------
Total Assets $1,063,347 $1,228,061
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Current portion of obligations
under capital leases $ 9,527 $ 11,516
Current maturities of long-term
debt (Note 15) 1,289 1,267,813
Trade accounts and drafts payable 143,671 134,432
Payroll and other accrued liabilities 85,385 81,867
Accrued interest expense 4,833 42,783
Payroll taxes and other taxes payable 11,649 15,420
---------- ----------
Total Current Liabilities 256,354 1,553,831
NONCURRENT LIABILITIES:
Obligations under capital leases 85,526 98,029
Long-term debt (Note 15) 226,751
Deferred taxes 81,203
Other noncurrent liabilities 25,744 45,907
---------- ----------
Total Liabilities 675,578 1,697,767
---------- ----------
STOCKHOLDERS' EQUITY (DEFICIT) (NOTE 16):
Preferred stock (Successor Company) -
authorized 1,000,000 shares,
$.01 par value; none issued
Common Stock (Successor Company) -
authorized 30,000,000 shares, $.01 par value;
20,106,955 shares issued and outstanding 201
Common Stock (Predecessor Company) -
authorized 30,000,000 shares, $1.25 par value;
10,824,591 shares issued and outstanding 13,425
Capital in excess of par value 416,207 179,882
Stock warrants 7,249
Retained deficit (35,888) (658,820)
Minimum pension liability adjustment (3,470)
Unearned compensation (98)
Treasury stock, at cost (625)
---------- ----------
Total Stockholders' Equity (Deficit) 387,769 (469,706)
---------- ----------
Total Liabilities and
Stockholders' Equity (Deficit) $1,063,347 $1,228,061
========== ==========
</TABLE>
See Notes to Interim Consolidated Financial Statements.
-4-
<PAGE>
THE PENN TRAFFIC COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS
UNAUDITED
<TABLE>
<CAPTION>
(All dollar amounts
in thousands)
SUCCESSOR
COMPANY PREDECESSOR COMPANY
----------- --------------------------
18 WEEKS 21 WEEKS 39 WEEKS
ENDED ENDED ENDED
OCTOBER 30, JUNE 26, OCTOBER 31,
1999 1999 1998
----------- ---------- -----------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net (loss) income $ (35,888) $ 469,706 $(223,514)
Adjustments to reconcile
net (loss) income to net cash
(used in) provided by
operating activities:
Depreciation and amortization 15,453 25,832 59,302
Amortization of excess
reorganization value 39,534
Gain on sold / closed stores (2,921)
Reorganization Items:
Gain from rejected leases (12,830)
Write-off of unamortized
deferred financing fees 16,591
Fresh-start adjustments 151,161
Extraordinary items (654,928)
Other - net 328 120 119,177
NET CHANGE IN ASSETS AND LIABILITIES:
Accounts receivable and prepaid
expenses 7,123 15,437 8,934
Inventories (35,783) 22,321 12,044
Payables and accrued expenses 3,565 13,800 (20,120)
Deferred taxes (16,671)
Deferred charges and
other assets 1,970 1,464 (1,013)
Other noncurrent liabilities (3,071) (4,797) 17,009
--------- --------- ---------
NET CASH (USED IN) PROVIDED BY
OPERATING ACTIVITIES (6,769) 40,956 (44,852)
--------- --------- ---------
INVESTING ACTIVITIES:
Capital expenditures (14,311) (6,279) (11,331)
Proceeds from sale of assets 3,227 17,273 28,227
--------- --------- ---------
NET CASH (USED IN) PROVIDED BY
INVESTING ACTIVITIES (11,084) 10,994 16,896
--------- --------- ---------
FINANCING ACTIVITIES:
Payments to settle
long-term debt (92) (9,598) (5,503)
Borrowing of pre-petition
revolver debt 31,100 101,600
Repayment of pre-petition
revolver debt (144,000) (53,483)
Borrowing of DIP revolver debt 166,751
Repayment of DIP revolver debt (166,751)
Borrowing of new term loan 115,000
Reduction of capital lease
obligations (3,158) (8,487) (15,866)
Payment of debt issuance costs (7,906)
--------- --------- ---------
NET CASH (USED IN) PROVIDED BY
FINANCING ACTIVITIES (3,250) (23,891) 26,748
--------- --------- ---------
(DECREASE) INCREASE IN CASH AND CASH
EQUIVALENTS (21,103) 28,059 (1,208)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 71,533 43,474 49,095
--------- --------- ---------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $ 50,430 $ 71,533 $ 47,887
========= ========= =========
</TABLE>
See Notes to Interim Consolidated Financial Statements.
-5-
<PAGE>
THE PENN TRAFFIC COMPANY
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED
NOTE 1 - REORGANIZATION
On March 1, 1999 (the "Petition Date"), the Penn Traffic Company (the
"Company") and certain of its subsidiaries filed petitions for relief (the
"Bankruptcy Cases") under Chapter 11 of the United States Bankruptcy Code (the
"Bankruptcy Code") in the United States Bankruptcy Court for the District of
Delaware (the "Bankruptcy Court"). On May 27, 1999, the Bankruptcy Court
confirmed the Company's Chapter 11 plan of reorganization (the "Plan") and on
June 29, 1999 (the "Effective Date"), the Plan became effective in accordance
with its terms.
Consummation of the Plan has resulted in (a) the former $732.2 million
principal amount of senior notes being exchanged for $100 million of new senior
notes (the "New Senior Notes") and 19,000,000 shares of new common stock (the
"New Common Stock"), (b) the former $400 million principal amount of senior
subordinated notes being exchanged for 1,000,000 shares of New Common Stock and
six-year warrants to purchase 1,000,000 shares of New Common Stock having an
exercise price of $18.30 per share, (c) holders of Penn Traffic's formerly
issued common stock receiving one share of New Common Stock for each 100 shares
of common stock held immediately prior to the Petition Date, for a total of
106,955 new shares. As part of the Plan, the Company also authorized for
issuance to officers and key employees options to purchase up to 2,297,000
shares of New Common Stock. The Company's New Common Stock and warrants to
purchase common stock are currently trading on the Nasdaq National Market under
the symbols "PNFT" and "PNFTW," respectively.
The Company's Plan also provided for the payment in full of all of the
Company's obligations to its other creditors.
On the Effective Date, in connection with the consummation of the Plan,
the Company entered into a new $320 million secured credit facility (the "New
Credit Facility"). The New Credit Facility includes (a) a $205 million revolving
credit facility (the "New Revolving Credit Facility") and (b) a $115 million
term loan (the "Term Loan"). The lenders under the New Credit Facility have a
first priority perfected security interest in substantially all of the Company's
assets. Proceeds from the New Credit Facility were used to satisfy the Company's
obligations under its debtor-in-possession financing (the "DIP Facility"), pay
certain costs of the reorganization process and are available to satisfy the
Company's ongoing working capital and capital expenditure requirements.
NOTE 2 - 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.
-6-
<PAGE>
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, except for fresh-start adjustments (see Note 3). These unaudited
interim financial statements should be read in conjunction with the consolidated
financial statements and related notes contained in the Company's Annual Report
on Form 10-K for the fiscal year ended January 30, 1999 and the Company's
Quarterly Reports on Form 10-Q for the thirteen weeks ended May 1, 1999 and July
31, 1999. However, as a result of the implementation of fresh-start reporting,
the financial statements of the Company after the Effective Date are not
comparable to the Company's financial statements for prior periods.
All significant intercompany transactions and accounts have been
eliminated in consolidation.
Certain amounts in the January 30, 1999 Consolidated Balance Sheet
and the Consolidated Statement of Cash Flows for the 39-week period ended
October 31, 1998 have been reclassified for comparative purposes.
NOTE 3 - FRESH-START REPORTING
As of the Effective Date, the Company adopted fresh-start reporting
pursuant to the guidance provided by the American Institute of Certified Public
Accountant's Statement of Position 90-7 "Financial Reporting by Entities in
Reorganization Under the Bankruptcy Code" ("SOP 90-7"). In connection with the
adoption of fresh-start reporting, a new entity has been created for financial
reporting purposes. The Effective Date is considered to be the close of business
on June 26, 1999 for financial reporting purposes. The periods presented prior
to June 26, 1999 have been designated "Predecessor Company" and the periods
subsequent to June 26, 1999 have been designated "Successor Company". In
accordance with fresh-start reporting, all assets and liabilities are recorded
at their respective fair market values. The fair value of the Company's
long-lived assets was determined, in part, using information provided by
third-party appraisers.
The reorganization value of the Company is now reflected as the debt
and equity value of the new company. To facilitate the calculation of the
reorganization value, the Company developed a set of financial projections.
Based on these financial projections, the reorganization value was determined by
the Company, with the assistance of a financial advisor, using various valuation
methods, including, (i) a comparison of the Company and its projected
performance to how the market values comparable companies, (ii) a calculation of
the present value of the free cash flows under the projections, including an
assumption for a terminal value, and (iii) negotiations with an informal
committee of the Company's noteholders. The estimated enterprise value is highly
dependent upon achieving the future financial results set forth in the
projections as well as the realization of certain other assumptions which are
not guaranteed.
-7-
<PAGE>
The total reorganization value as of the Effective Date was
approximately $750 million, which was approximately $342.6 million in excess of
the aggregate fair value of the Company's tangible and identifiable intangible
assets less non-interest bearing liabilities. Such excess is classified as
"Excess reorganization value" in the accompanying Consolidated Balance Sheet and
is being amortized on a straight-line basis over a three-year period.
The total outstanding indebtedness (including capital leases) as of the
Effective Date was approximately $326.3 million. The Stockholders' Equity on the
Effective Date of approximately $423.7 million was established by deducting such
total outstanding indebtedness of $326.3 million from the reorganization value
of $750 million. Stockholders' Equity includes $7.2 million representing the
fair value of the warrants to purchase shares of New Common Stock distributed in
conjunction with the consummation of the Plan.
-8-
<PAGE>
The reorganization and the adoption of fresh-start reporting resulted
in the following adjustments to the Company's Consolidated Balance Sheet as of
the Effective Date (in thousands):
<TABLE>
<CAPTION>
PREDECESSOR REORGANIZED
BALANCE SHEET REORGANIZATION FRESH-START BALANCE SHEET
JUNE 26, 1999 ADJUSTMENTS ADJUSTMENTS JUNE 26, 1999
------------- -------------- ----------- -------------
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and short-term
investments $ 40,776 $ 30,757 (a) $ 71,533
Accounts and notes
receivable - net 50,266 50,266
Inventories 261,310 $ (4,183)(i) 257,127
Prepaid expenses and
other current assets 10,369 10,369
---------- ---------- ---------- ----------
Total Current Assets 362,721 30,757 (4,183) 389,295
NONCURRENT ASSETS:
Capital leases - net 82,055 (16,127)(i) 65,928
Property, plant
and equipment - net 359,556 (137,232)(i) 222,324
Beneficial leases - net 14,610 46,588 (i) 61,198
Goodwill - net 266,434 (266,434)(j)
Excess reorganization
value - net 342,628 (k) 342,628
Other assets and
deferred charges - net 52,127 2,201 (b) (33,710)(i) 20,618
---------- ---------- ---------- ----------
Total Assets $1,137,503 $ 32,958 $ (68,470) $1,101,991
========== ========== ========== ==========
LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY
CURRENT LIABILITIES:
Current portion of
obligations under
capital leases $ 9,598 $ 9,598
Current maturities
of long-term debt 493 $ (214)(c) 279
Trade accounts and
drafts payable 134,033 134,033
Payroll and other
accrued liabilities 78,721 13,878 (d) $ 1,578 (l) 94,177
Accrued interest
expense 1,135 (766)(e) 369
Payroll taxes and
other taxes payable 12,531 863 (m) 13,394
---------- ---------- ---------- ----------
Total Current Liabilities 236,511 12,898 2,441 251,850
NONCURRENT LIABILITIES:
Obligations under
capital leases 88,613 88,613
Long-term debt 93,019 134,834 (f) 227,853
Deferred taxes 81,203 (m) 81,203
Other noncurrent liabilities 29,768 (953)(l) 28,815
---------- ---------- ---------- ----------
Total liabilities not
subject to compromise 447,911 147,732 82,691 678,334
LIABILITIES SUBJECT
TO COMPROMISE 1,194,888 (1,194,888)(g)
---------- ---------- ---------- ----------
Total Liabilities 1,642,799 (1,047,156) 82,691 678,334
---------- ---------- ---------- ----------
TOTAL STOCKHOLDERS'
(DEFICIT) EQUITY (505,296) 1,080,114 (h) (151,161)(n) 423,657
---------- ---------- ---------- ----------
Total Liabilities
and Stockholders'
(Deficit) Equity $1,137,503 $ 32,958 $ (68,470) $1,101,991
========== ========== ========== ==========
</TABLE>
-9-
<PAGE>
The explanation of the reorganization and fresh-start adjustment columns of the
Consolidated Balance Sheet as of the Effective Date are as follows:
(a) Reflects the proceeds of the New Credit Facility net of (1) the
repayment of the Company's obligations under the DIP Facility, (2)
certain mortgages repaid in connection with the reorganization and (3)
the deferred financing costs of the New Credit Facility.
(b) Reflects (1) the establishment of deferred financing costs for the New
Credit Facility and (2) the elimination of unamortized deferred
financing costs related to the DIP Facility and certain mortgages
repaid in connection with the reorganization.
(c) Reflects the repayment of certain mortgages in connection with the
reorganization.
(d) Reflects (1) the reclassification of a liability for rejected leases
(which was included in Liabilities Subject to Compromise prior to the
effectiveness of the Plan) to Payroll and other accrued liabilities and
(2) the accrual of certain deferred financing costs of the New Credit
Facility not paid as of the Effective Date.
(e) Reflects the payment of the accrued interest on the DIP Facility and
certain mortgages repaid in connection with the reorganization.
(f) Reflects (1) the issuance of the New Senior Notes ($100 million) (2)
borrowings under the New Credit Facility on the Effective Date ($115
million Term Loan) and (3) the repayment of the DIP Facility and
certain mortgages.
(g) Reflects (1) the conversion of all the Company's obligations under its
pre-petition senior and senior subordinated notes into $100 million of
New Senior Notes, approximately 99.5% of the shares of the New Common
Stock of reorganized Penn Traffic and warrants to purchase additional
shares of New Common Stock and (2) the reclassification of a liability
for rejected leases to Payroll and other accrued liabilities.
(h) Reflects the adjustment to Stockholders' (Deficit) Equity in connection
with the consummation of the Plan.
(i) Reflects the adjustment of Inventories, Capital leases, Property, plant
and equipment, Beneficial leases and Other assets and deferred charges
to fair value. The adjustment includes a provision for a change in the
method of accounting for inventories. Inventory values in the Successor
Company have been reduced for certain related periodic vendor
promotional discounts whereas the Predecessor Company recorded
inventories without reducing the value for such promotional discounts.
(j) Reflects the elimination of Goodwill.
(k) Reflects the establishment of excess reorganization value (the
reorganization value ($750 million) in excess of the aggregate fair
value of the Company's tangible and identifiable intangible assets less
non-interest bearing liabilities).
(l) Reflects (1) the elimination of a pension liability in connection with
the adjustment of pension assets and liabilities to fair value and (2)
a revaluation of the Company's workmens compensation liabilities.
(m) Reflects the recording of deferred tax liabilities associated with the
difference between the book and tax base of the Company's assets and
liabilities.
(n) Reflects the net effect on Stockholders' (Deficit) Equity of
fresh-start adjustments to the Company's assets and liabilities.
-10-
<PAGE>
NOTE 4 - SPECIAL CHARGES
During the 21-week period ended June 26, 1999, the Company decided to
commence a process to refine the scope of the nonfood merchandise carried in its
15 Big Bear Plus combination stores to a smaller number of categories with a
greater depth of variety in these categories. Accordingly, during the 21-week
period ended June 26, 1999, the Company recorded a special charge of $3.9
million associated with this repositioning of these 15 Big Bear Plus combination
stores. This charge, which consists of estimated inventory markdowns for
discontinued product lines, is included in cost of sales.
As described in Note 5 below, during the 13-week period ended October
31, 1998, the Company recorded a special charge of $50.4 million related to its
store rationalization program. In aggregate, during the third and fourth
quarters of Fiscal 1999, the Company recorded special charges of $68.2 million
related to this store rationalization program (net of a $12.7 million gain on
the sale of assets in connection with the store rationalization program). In
connection with the implementation of this program, the Company has sold or
closed 50 stores. At October 30, 1999 and January 30, 1999, the accrued
liability related to these charges was $14.6 million and $37.4 million,
respectively.
NOTE 5 - UNUSUAL ITEMS
During the 13-week and 18-week periods ended October 30, 1999, the
Company recorded an unusual item of $1.9 million associated with an early
retirement program for certain eligible employees.
During the 21-week period ended June 26, 1999, the Company recorded
unusual items (income) of $4.6 million related to (1) a reduction of closed
store reserves previously accrued in connection with the Company's store
rationalization program and (2) a gain on the disposition of certain assets sold
in connection with the Company's store rationalization program.
During the 13-week and 39-week periods ended October 31, 1998, the
Company recorded a special charge of $50.4 million primarily related to (1) the
decision to close certain underperforming stores in connection with the
Company's store rationalization program and (2) a gain related to the sale of 4
stores and certain other real estate. All of these costs are included in the
unusual item account except for inventory markdowns of $5.3 million, which are
included in cost of sales.
NOTE 6 - 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 the 13-week and 39-week periods ended October 31, 1998, the
Company recorded a non-cash charge of $91.5 million to write down the carrying
amounts (including allocable goodwill) of property held for sale in connection
with the Company's store rationalization program to estimated realizable value.
-11-
<PAGE>
NOTE 7 - INTEREST EXPENSE
As a result of the Bankruptcy Cases, on and after the Petition Date no
principal or interest payments were made on the $1.132 billion of the Company's
former senior and senior subordinated notes. Accordingly, no interest expense
for these obligations has been accrued on or after the Petition Date. Had such
interest been accrued, interest expense for the 21-week period ended June 26,
1999 would have been approximately $58.8 million.
NOTE 8 - REORGANIZATION ITEMS
Reorganization items (expense) included in the accompanying
Consolidated Statements of Operations consist of the following items (in
thousands):
PREDECESSOR
COMPANY
--------------
21 WEEKS ENDED
JUNE 26, 1999
--------------
Fresh-start adjustments $ 151,161
Gain from rejected leases (12,830)
Write-off of unamortized
deferred financing fees 16,591
Professional fees 12,109
---------
Total Expense $ 167,031
=========
The gain from rejected leases listed above is the difference between
the estimated allowed claims for rejected leases and liabilities previously
recorded for such leases. The professional fees listed above include accounting,
legal, consulting and other miscellaneous services associated with the
implementation of the Plan.
NOTE 9 - TAX PROVISION
The effective tax rate associated with the tax provision for the
13-week and 18-week periods ended October 30, 1999 varies from statutory
rates due to differences between income for financial reporting and tax
reporting purposes that result primarily from the nondeductible amortization
of excess reorganization value. Although the Company recorded income tax
provisions for the 13-week and 18-week periods ended October 30, 1999, the
Company does not expect to pay any income taxes for the fiscal year ending
January 29, 2000 because it has available net operating loss carryforwards,
as described below.
At January 30, 1999, Penn Traffic had approximately $300 million of
federal net operating loss carryforwards and various tax credits. As a result of
the gain on debt discharge, during the fiscal year ending January 29, 2000 the
Company will use the entire amount of such net operating loss carryforwards and
tax credits. In addition, after January 29, 2000, the Company will lose the vast
majority of the tax basis of its long-term assets. This will reduce the amount
of tax depreciation and amortization that the Company will be able to utilize on
its tax returns, starting in the fiscal year ending February 3, 2001.
-12-
<PAGE>
In connection with the implementation of fresh-start reporting the
Company recorded approximately $82 million of net deferred tax liabilities on
the Effective Date.
The tax provisions for the 21-week period ended June 26, 1999 and the
13-week period ended October 31, 1998 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.
NOTE 10 - EXTRAORDINARY ITEMS
The extraordinary items recorded for the 21-week period ended June 26,
1999 are comprised of the write-off of unamortized deferred
financing fees associated with the early retirement of the Company's revolving
credit facility prior to the Petition Date (the "Pre-petition Revolving Credit
Facility") and the extraordinary gain on debt discharge recognized as a result
of the consummation of the Plan as follows (in millions):
<TABLE>
<S> <C>
Write-off of the unamortized deferred financing fees
for the Pre-petition Revolving Credit Facility $ (1.5)
Elimination of the former senior and senior
subordinated notes including accrued interest 1,182.2
Write-off of unamortized deferred financing fees
for debt repaid in connection with the Plan (2.1)
Issuance of New Senior Notes (100.0)
Issuance of New Common Stock and warrants (423.7)
--------
Total extraordinary gain $ 654.9
========
</TABLE>
No corresponding tax benefit has been recorded.
NOTE 11 - NET (LOSS) PER SHARE
Net (loss) per share is computed based on the requirements of Statement
of Financial Accounting Standards No. 128, "Earnings per Share" ("SFAS 128").
This standard requires presentation of basic earnings per share ("EPS"),
computed based on the weighted average number of common shares outstanding for
the period, and diluted EPS, which gives effect to all dilutive potential shares
outstanding (i.e., options and warrants) during the period. Shares used in the
calculation of basic and diluted EPS were 20,106,955 for the 13-week and 18-week
periods ended October 30, 1999. There were no incremental dilutive potential
securities for the 13-week and 18-week periods ended October 30, 1999 as the
exercise price for outstanding warrants (1,000,000 shares) and options
(1,972,500 shares) was greater than the average market price of the New Common
Stock. The 1,972,500 options exclude 327,000 outstanding options which could
not become exercisable simultaneously with a portion of the issued and
outstanding options.
Net (loss) per share data is not presented for periods prior to June
26, 1999 due to the general lack of comparability as a result of the revised
capital structure of the Company.
-13-
<PAGE>
NOTE 12 - SUPPLEMENTAL FINANCIAL INFORMATION
<TABLE>
<CAPTION>
(In thousands of dollars)
SUCCESSOR
COMPANY PREDECESSOR COMPANY
----------- ----------------------
13 WEEKS 13 WEEKS
ENDED ENDED
OCTOBER 30, OCTOBER 31,
1999 1998
----------- -----------
<S> <C> <C>
EBITDA $ 25,231 $ 16,137
Cash Interest Expense 9,238 35,890
<CAPTION>
18 WEEKS 21 WEEKS 39 WEEKS
ENDED ENDED ENDED
OCTOBER 30, JUNE 26, OCTOBER 31,
1999 1999 1998
----------- -------- -----------
<S> <C> <C> <C>
EBITDA $ 35,842 $ 29,772 $ 74,297
Cash Interest Expense 12,677 20,393 107,569
</TABLE>
"EBITDA" is earnings before interest, depreciation, amortization,
amortization of excess reorganization value, LIFO provision, special charges,
unusual items, the write-down of impaired long-lived assets, reorganization
items, extraordinary items, the cumulative effect of change in accounting
principle and taxes. EBITDA should not be interpreted as a measure of operating
results, cash flow provided by operating activities, a measure of liquidity, or
as an alternative to any generally accepted accounting principle measure of
performance. The Company is reporting EBITDA because it is a widely used
financial measure of the potential capacity of a company to incur and service
debt. Penn Traffic's reported EBITDA may not be comparable to similarly titled
measures used by other companies.
No interest expense for the Company's $1.132 billion of the Company's
former senior and senior subordinated notes has been accrued on or after the
Petition Date. Had such interest been accrued, cash interest expense for the
21-week period ended June 26, 1999 would have been approximately $57.4 million.
NOTE 13 - INVENTORIES
Inventories are stated at the lower of cost or market using the
last-in, first-out ("LIFO") method of valuation for the vast majority of the
Company's inventories. If the first-in, first-out ("FIFO") method had been used
by the Company, inventories would have been $0.9 million and $23.6 million
higher than reported at October 30, 1999 and January 30, 1999, respectively. In
connection with the implementation of fresh-start reporting the Company adjusted
the value of its LIFO inventories on the Effective Date to be equal to fair
value which approximates the FIFO value of inventories.
-14-
<PAGE>
NOTE 14 - PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment - net consists of the following (in
thousands):
<TABLE>
<CAPTION>
OCTOBER 30, 1999 JANUARY 30, 1999
---------------- ----------------
<S> <C> <C>
Land $ 40,152 $ 16,525
Buildings 83,585 183,660
Furniture and fixtures 103,880 455,592
Vehicles 2,385 16,792
Leasehold improvements 3,842 171,007
--------- ---------
233,844 843,576
Less: Accumulated depreciation (10,313) (463,433)
--------- ---------
Property, plant and equipment - net $ 223,531 $ 380,143
========= =========
</TABLE>
In connection with the implementation of fresh-start reporting, the
Company determined the fair value of each of its leases and recorded a
beneficial lease asset of approximately $61.2 million on June 26, 1999.
Accordingly, the Company eliminated the book value of its leasehold
improvements.
NOTE 15 - LONG-TERM DEBT
Prior to the Petition Date, the Company had the Pre-petition Revolving
Credit Facility which provided for borrowings of up to $250 million, subject to
a borrowing base limitation measured by eligible inventory and accounts
receivable of the Company. After the Petition Date, the Bankruptcy Court
approved the DIP Facility. A portion of the proceeds of the DIP Facility were
used to repay, in full, the Company's Pre-petition Revolving Credit Facility and
a mortgage on one of the Company's distribution facilities and to finance its
working capital and capital expenditure requirements. The DIP Facility matured
on June 29, 1999, the Effective Date.
The consummation of the Plan has resulted in the holders of Penn
Traffic's former senior and senior subordinated notes exchanging their notes in
the following manner: (a) the holders of the former outstanding $732.2 million
of senior notes received their pro rata share of $100 million of New Senior
Notes and 19,000,000 shares of New Common Stock, and (b) the holders of the
former outstanding $400 million of senior subordinated notes received their pro
rata share of 1,000,000 shares of New Common Stock and six-year warrants to
purchase 1,000,000 shares of New Common Stock having an exercise price of $18.30
per share.
The New Senior Notes mature on June 29, 2009 and do not contain any
mandatory redemption or sinking fund requirement provisions (other than pursuant
to certain customary exceptions including, without limitation, requiring the
Company to make an offer to repurchase the New Senior Notes upon the occurrence
of a change of control), and are optionally redeemable at prices beginning at
106% of par in 2004 and declining annually thereafter to par in 2008, and at
111% of par under other specified circumstances as dictated by the Plan.
Pursuant to the terms of the indenture for the New Senior Notes, the Company, at
its election, can choose to pay interest on the New Senior Notes, at the rate of
11% per annum, for the first two years (i.e., the first four interest payments)
through the issuance of additional notes and thereafter, interest on the New
Senior Notes will be payable, at the rate of 11% per annum in cash. Any notes
issued in lieu of interest would also mature on June 29, 2009 and bear interest
at 11% per annum.
-15-
<PAGE>
In connection with the consummation of the Plan, the Company entered
into the New Credit Facility. The New Credit Facility includes (a) the $205
million New Revolving Credit Facility and (b) the $115 million Term Loan. The
lenders under the New Credit Facility have a first priority perfected security
interest in substantially all of the Company's assets. Proceeds from the New
Credit Facility were used to satisfy the Company's obligations under its DIP
Facility, pay certain costs of the reorganization process and are available to
satisfy the Company's ongoing working capital and capital expenditure
requirements.
The Term Loan will mature on June 30, 2006. Amounts of the Term Loan
maturing in future fiscal years are outlined in the following table (in
thousands):
FISCAL YEAR AMOUNT MATURING
----------- ---------------
2001 $ 2,000
2002 4,750
2003 6,750
2004 9,750
2005 12,750
2006 7,750
2007 71,250
--------
$115,000
========
Availability under the New Revolving Credit Facility is calculated
based on a specified percentage of eligible inventory and accounts receivable of
the Company. The New Revolving Credit Facility will mature on June 30, 2005. As
of October 30, 1999, there were no borrowings under the New Revolving Credit
Facility. Availability under the New Revolving Credit Facility was approximately
$154 million as of October 30, 1999.
Total debt outstanding on October 30, 1999 was (in thousands):
Current Maturities $ 1,289
--------
New Term Loan 114,000
Other Secured Debt 12,751
New Senior Notes 100,000
--------
Total Long-Term Debt 226,751
--------
Total Debt $228,040
========
-16-
<PAGE>
NOTE 16 - COMMON STOCK OPTIONS AND WARRANTS OUTSTANDING
Pursuant to the Plan, the Company is authorized to issue 30,000,000
shares of New Common Stock. As of October 30, 1999, 20,106,955 shares of common
stock have been issued.
Pursuant to the Plan, the Company is authorized to issue 1,000,000
shares of preferred stock. No shares have been issued.
Pursuant to the Plan, the 1999 Equity Incentive Plan (the "Equity
Plan") was adopted on the Effective Date. The Equity Plan makes available the
granting of options to acquire an aggregate of 2,297,000 shares of New Common
Stock. All of the Company's officers and employees are eligible to receive
options under the Equity Plan. Options to acquire an aggregate of 1,097,000
shares were issued as of the Effective Date. Options to acquire an additional
1,067,500 shares were granted during the 18-week period ended October 30, 1999
to certain officers and employees of the Company. Options to acquire an
additional 137,500 shares may be granted by the Board of Directors' Compensation
Committee.
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" ("SFAS 123"), defines a fair value based method of
accounting for an employee stock option by which compensation cost is measured
at the grant date based on the fair value of the award and is recognized over
the service period. A company may elect to adopt SFAS 123 or elect to continue
accounting for its stock option or similar equity awards using the method of
accounting prescribed by Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees" ("APB 25"), by which compensation cost is
measured at the date of grant based on the excess of the market value of the
underlying stock over the exercise price. The Company has elected to continue to
account for its stock-based compensation plan under the provisions of APB 25. No
compensation expense has been recognized in the accompanying interim financial
statements relative to the Company's Equity Plan.
During the 18-week period ended October 30, 1999, the Company adopted
the 1999 Directors' Stock Option Plan (the "Directors' Plan"). The Directors'
Plan makes available to the Company's directors, who are not officers of the
Company, options to acquire up to 250,000 shares of New Common Stock. During the
18-week period ended October 30, 1999, the Company granted options to purchase
an aggregate of 140,000 shares to seven of the Company's directors.
Pursuant to the Plan, the Company has also issued six-year warrants to
purchase 1,000,000 shares of New Common Stock at an exercise price of $18.30 per
share.
-17-
<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"
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 Penn Traffic Company (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 achievements expressed or implied by such
forward-looking statements. Such factors include, among others, the following:
the success or failure of the Company in implementing its current business and
operational strategies; availability, terms and access to capital and customary
trade credit; general economic and business conditions; competition; changes in
the Company's business strategy; availability, location and terms of sites for
store development; unexpected costs of year 2000 compliance or failure by the
Company or other entities with which it does business to achieve compliance;
labor relations; the outcome of pending or yet-to-be instituted legal
proceedings; and labor and employee benefit costs.
OVERVIEW
As discussed in Note 1 to the accompanying Consolidated Financial
Statements, the Company emerged from its Chapter 11 proceedings effective June
29, 1999 (the "Effective Date"). For financial reporting purposes, the Company
accounted for the consummation of its plan of reorganization (the "Plan")
effective June 26, 1999. In accordance with the American Institute of Certified
Public Accountant's Statement of Position 90-7 "Financial Reporting by Entities
in Reorganization Under the Bankruptcy Code" ("SOP 90-7"), the Company has
applied fresh-start reporting as of June 26, 1999 which has resulted in
significant changes to the valuation of certain of the Company's assets and
liabilities, and to its stockholders' equity. In connection with the adoption of
fresh-start reporting, a new entity has been deemed created for financial
reporting purposes. The periods presented prior to June 26, 1999 have been
designated "Predecessor Company" and the periods subsequent to June 26, 1999
have been designated "Successor Company". For purposes of the discussion of
Results of Operations for the 39-week period ended October 30, 1999, the results
of the Predecessor Company and Successor Company have been combined since
separate discussions of these periods are not meaningful in terms of their
operating results or comparisons to the prior year.
-18-
<PAGE>
RESULTS OF OPERATIONS
THIRTEEN WEEKS ("THIRD QUARTER FISCAL 2000") AND THIRTY-NINE WEEKS ENDED OCTOBER
30, 1999 COMPARED TO THIRTEEN WEEKS ("THIRD QUARTER FISCAL 1999") AND
THIRTY-NINE WEEKS ENDED OCTOBER 31, 1998
The following table sets forth Statement of Operations components
expressed as percentages of total revenues for Third Quarter Fiscal 2000 and
Third Quarter Fiscal 1999, and for the 39-week periods ended October 30, 1999
and October 31, 1998, respectively:
<TABLE>
<CAPTION>
Third Quarter Ended Thirty-nine Weeks Ended
OCTOBER 30, October 31, OCTOBER 30, October 31,
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Total revenues 100.0% 100.0% 100.0% 100.0%
Gross profit (1) 23.7 20.6 22.9 21.6
Gross profit excluding
special charges (2) 23.7 21.3 23.1 21.8
Selling and administrative
expenses 21.4 21.9 21.9 21.2
Unusual items (3) 0.3 6.5 (0.1) 2.1
Write-down of long-lived
assets 13.3 4.3
Amortization of excess
reorganization value 4.7 2.1
Operating (loss) (2.7) (21.1) (1.0) (6.0)
Operating income (loss)
excluding unusual items,
special charges and
amortization of excess
reorganization value (4) 2.3 (0.6) 1.2 0.6
Interest expense 1.5 5.4 1.9 5.2
Reorganization items 9.0
Net (loss) income (4.4) (26.5) 23.3 (10.5)
Net income (loss) excluding unusual items,
special charges, amortization of
excess reorganization value,
reorganization items and
extraordinary items (5) 0.4 (5.9) (0.8) (3.8)
</TABLE>
(1) Total revenues less cost of sales.
(2) Gross profit excluding a special charge of $3.9 million for the 39-week
period ended October 30, 1999. Gross profit excluding a special charge
of $5.3 million for Third Quarter Fiscal 1999 and the 39-week period
ended October 31, 1998 (see Note 4 and Note 5).
-19-
<PAGE>
RESULTS OF OPERATIONS (CONTINUED)
(3) Unusual items of $1.9 million and $2.7 million (income) for Third
Quarter Fiscal 2000 and the 39-week period ended October 30, 1999,
respectively. Unusual item of $45.1 million for Third Quarter Fiscal
1999 and the 39-week period ended October 31, 1998 (see Note 5).
(4) Operating (loss) for Third Quarter Fiscal 2000 excluding an unusual
item of $1.9 million and amortization of excess reorganization value of
$28.6 million. Operating (loss) for the 39-week period ended October
30, 1999 excluding unusual items (income) of $2.7 million, a special
charge of $3.9 million and amortization of excess reorganization value
of $39.5 million. Operating (loss) for Third Quarter Fiscal 1999 and
the 39-week period ended October 31, 1998 excluding special charges of
$50.4 million and the write-down of long-lived assets of $91.5 million
(see Notes 4, 5 and 6).
(5) Net (loss) for Third Quarter Fiscal 2000 excluding an unusual item of
$1.9 million and amortization of excess reorganization value of $28.6
million. Net income for the 39-week period ended October 30, 1999
excluding unusual items (income) of $2.7 million, a special charge of
$3.9 million, amortization of excess reorganization value of $39.5
million, reorganization items (expense) of $167.0 million and
extraordinary items (income) of $654.9 million. Net (loss) for Third
Quarter Fiscal 1999 and the 39-week period ended October 31, 1998
excluding special charges of $50.4 million and the write-down of
long-lived assets of $91.5 million (see Notes 4, 5, 6, 8 and 10).
Total revenues for Third Quarter Fiscal 2000 decreased to $610.6
million from $690.6 million in Third Quarter Fiscal 1999. Total revenues for
the 39-week period ended October 30, 1999 decreased to $1.86 billion from
$2.14 billion for the 39-week period ended October 31, 1998. The decrease in
revenues for Third Quarter Fiscal 2000 and the 39-week period ended October
30, 1999 is primarily attributable to (1) a reduction in the number of stores
the Company has operated in Fiscal 2000 as compared to Fiscal 1999 resulting
from the Company's decision to close or sell certain stores, most of which
were underperforming, as part of the Company's store rationalization program,
(2) a decline in wholesale revenues and (3) for the 39-week period ended
October 30, 1999, a decline in same store sales.
Same store sales for Third Quarter Fiscal 2000 increased 0.4%. For the
39-week period ended October 30, 1999 same store sales decreased 1.8% compared
to the prior year period. Wholesale supermarket revenues were $73.0 million in
Third Quarter Fiscal 2000 compared to $85.5 million in Third Quarter Fiscal
1999. Wholesale supermarket revenues were $224.4 million for the 39-week period
ended October 30, 1999 compared to $256.9 million for the 39-week period ended
October 31, 1998. The decrease in wholesale revenues resulted primarily from a
reduction in the number of customers of the Company's wholesale/franchise
business.
-20-
<PAGE>
RESULTS OF OPERATIONS (CONTINUED)
Gross profit in Third Quarter Fiscal 2000 was 23.7% of revenues
compared to 20.6% of revenues in Third Quarter Fiscal 1999. Gross profit
excluding special charges in Third Quarter Fiscal 2000 was 23.7% of revenues
compared to 21.3% of revenues in Third Quarter Fiscal 1999. Gross profit in the
39-week period ended October 30, 1999 was 22.9% of revenues compared to 21.6% of
revenues for the 39-week period ended October 31, 1998. For the 39-week period
ended October 30, 1999, gross profit excluding special charges was 23.1% of
revenues compared to 21.8% of revenues for the 39-week period ended October 31,
1998.
The increase in gross profit excluding special charges as a
percentage of revenues in Third Quarter Fiscal 2000 compared to Third Quarter
Fiscal 1999 was primarily due to (1) the positive effect of re-establishing
the Company's traditional high/low pricing strategy in the second half of the
fiscal year ended January 30, 1999 ("Fiscal 1999"), (2) reduced inventory
shrink expense as a percentage of revenues, (3) an increase in allowance
income from the Company's vendors, (4) the positive effect of the sale or
closure of 50 stores which generally had lower gross margins than the average
for the Company as part of the Company's store rationalization program and
(5) a reduction in depreciation and amortization expense (as described below).
The increase in gross profit excluding special charges as a
percentage of revenues for the 39-week period ended October 30, 1999 was
primarily due to (1) the positive effect of re-establishing the Company's
traditional high/low pricing strategy in the second half of Fiscal 1999, (2)
reduced inventory shrink expense as a percentage of revenues, (3) the
positive effect of the sale or closure of 50 stores which generally had lower
gross margins than the average for the Company as part of the Company's store
rationalization program and (4) a reduction in depreciation and amortization
expense (as described below). These improvements in gross profit as a
percentage of revenues were partially offset by reduced allowance income from
the Company's vendors in the 39-week period ended October 30, 1999.
Selling and administrative expenses in Third Quarter Fiscal 2000 were
21.4% of revenues compared to 21.9% of revenues in Third Quarter Fiscal 1999.
For the 39-week period ended October 30, 1999, selling and administrative
expenses were 21.9% of revenues compared to 21.2% of revenues for the 39-week
period ended October 31, 1998.
The reduction in selling and administrative expenses as a percentage of
revenues in Third Quarter Fiscal 2000 was primarily due to reductions in bad
debt expense, depreciation expense (as described below) and goodwill
amortization. The Company's Goodwill was eliminated on June 26, 1999 in
connection with the implementation of fresh-start reporting. These reductions of
selling and administrative expenses as a percentage of revenues in Third Quarter
Fiscal 2000 were partially offset by (1) the Company's investment in store labor
as part of an effort to improve operations and focus on customer service and (2)
the spreading of certain fixed and semi-fixed costs over reduced revenues.
-21-
<PAGE>
RESULTS OF OPERATIONS (CONTINUED)
The increase in selling and administrative expenses as a percentage
of revenues for the 39-week period ended October 30, 1999 was primarily due
to (1) the Company's investment in store labor as part of an effort to
improve operations and focus on customer service and (2) the spreading of
certain fixed and semi-fixed costs over reduced revenues. These increases in
selling and administrative expenses were partially offset by (1) a reduction
in promotional expenses as a percentage of revenues related to the sale or
closure of 50 stores in connection with the Company's store rationalization
program which generally had higher promotional expenses than the average of
the Company (the Company accounts for certain promotional expenses in the
Selling and administrative expense line of the Consolidated Statement of
Operations), (2) a reduction in depreciation expense (as described below) and
(3) a reduction in goodwill amortization resulting from (a) the Company's
store rationalization program, commenced in the middle of Fiscal 1999, which
involved the sale or closure of certain stores and the write-off of related
goodwill and (b) the elimination of Goodwill on June 26, 1999 in connection
with the implementation of fresh-start reporting (see Note 3).
Depreciation and amortization expense was $10.8 million in Third
Quarter Fiscal 2000 and $19.4 million in Third Quarter Fiscal 1999, representing
1.8% and 2.8% of revenues, respectively. Depreciation and amortization expense
was $41.3 million for the 39-week period ended October 30, 1999 and $59.3
million for the 39-week period ended October 31, 1998, representing 2.2% and
2.8% of total revenues, respectively. Depreciation and amortization expense
decreased in Third Quarter Fiscal 2000 and the 39-week period ended October 30,
1999 primarily due to (1) a reduction in the Company's capital expenditure
program, (2) the Company's store rationalization program, commenced in the
middle of Fiscal 1999, which involved the sale or closure of certain stores, (3)
the write-down of long-lived assets recorded in Fiscal 1999 in accordance with
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of"
("SFAS 121"), (4) a reduction in the carrying value of property, plant and
equipment associated with the implementation of fresh-start reporting and (5)
the elimination of Goodwill on June 26, 1999 associated with the implementation
of fresh-start reporting.
During the 13-week and 18-week periods ended October 30, 1999,
amortization of excess reorganization value was $28.6 million and $39.5 million,
respectively. The Excess reorganization value asset of $342.6 million, which was
established on the Effective Date in connection with the implementation of
fresh-start reporting, is being amortized on a straight-line basis over a
three-year period (see Note 3).
During Third Quarter Fiscal 2000 and the 39-week period ended
October 30, 1999, the Company recorded an unusual item of $1.9 million
associated with an early retirement program for certain eligible employees
(see Note 5). In addition, during the 39-week period ended October 30, 1999,
the Company recorded unusual items (income) of $4.6 million, related to the
Company's store rationalization program. During Third Quarter Fiscal 1999 and
the 39-week period ended October 31, 1998, the Company recorded a special
charge of $50.4 million related to the Company's store rationalization program
(see Note 5).
-22-
<PAGE>
RESULTS OF OPERATIONS (CONTINUED)
During Third Quarter Fiscal 1999 and the 39-week period ended
October 31, 1998, the Company recorded a noncash charge of $91.5 million to
write down the carrying amounts (including allocable goodwill) of property held
for sale in connection with the Company's store rationalization program to
estimated realizable value (see Note 6).
Operating (loss) for Third Quarter Fiscal 2000 was $16.7 million or
2.7% of total revenues compared to an operating (loss) of $145.8 million or
21.1% of total revenues in Third Quarter Fiscal 1999. For Third Quarter
Fiscal 2000, operating income excluding an unusual item and amortization of
excess reorganization value was $13.8 million or 2.3% of revenues. For Third
Quarter Fiscal 1999, operating (loss) excluding special charges and the
write-down of long-lived assets was $3.8 million or 0.6% of revenues.
Operating income excluding unusual items, special charges and amortization of
excess reorganization value as a percentage of revenues increased due to the
increase in gross profit excluding special charges as a percentage of
revenues and a reduction in selling and administrative expenses as a
percentage of revenues.
Operating (loss) for the 39-week period ended October 30, 1999 was
$18.2 million or 1.0% of total revenues compared to an operating (loss) of
$128.8 million or 6.0% of revenues for the 39-week period ended October 31,
1998. Operating income excluding unusual items, special charges and amortization
of excess reorganization value for the 39-week period ended October 30, 1999 was
$22.5 million or 1.2% of revenues compared to $13.1 or 0.6% of revenues for the
39-week period ended October 31, 1998. Operating income excluding unusual items,
special charges and amortization of excess reorganization value as a percentage
of revenues increased in the 39-week period ended October 30, 1999 due to an
increase in gross profit excluding special charges as a percentage of revenues
partially offset by an increase in selling and administrative expenses as a
percentage of revenues.
Interest expense for Third Quarter Fiscal 2000 and Third Quarter Fiscal
1999 was $9.5 million and $37.1 million, respectively. Interest expense for the
39-week periods ended October 30, 1999 and October 31, 1998 was $34.8 million
and $111.3 million, respectively. Interest expense for Third Quarter Fiscal 2000
declined due to the implementation of the Plan on June 29, 1999, which has
substantially reduced the Company's debt. Interest expense for the 39-week
period ended October 30, 1999 declined primarily due to (1) the fact that on
March 1, 1999 (the "Petition Date"), the Company discontinued the accrual of
interest on the Company's former senior and senior subordinated notes and (2)
the implementation of the Plan on June 29, 1999, which has substantially reduced
the Company's debt.
During the 39-week period ended October 30, 1999, the Company recorded
reorganization items (expense) of $167.0 million (see Note 8).
-23-
<PAGE>
RESULTS OF OPERATIONS (CONTINUED)
Income tax provision was $1.0 million for Third Quarter Fiscal 2000
compared to a tax provision of $0.0 million in Third Quarter Fiscal 1999.
Income tax provision for the 39-week period ended October 30, 1999 was $1.1
million compared to a tax benefit of $16.6 million for the 39-week period
ended October 31, 1998. The effective tax rate for Third Quarter Fiscal 2000
varies from statutory rates due to differences between income for financial
reporting and tax reporting purposes that result primarily from the
nondeductible amortization of excess reorganization value. Although the
Company recorded an income tax provision for Third Quarter Fiscal 2000, the
Company does not expect to pay any income taxes for the fiscal year ending
January 29, 2000 due to the utilization of net operating loss carryforwards.
The effective tax rate for the 39-week period ended October 30, 1999 varies
from statutory rates due to (1) differences in income for financial reporting
and tax reporting purposes for the 18-week period ended October 30, 1999 that
result primarily from the nondeductible amortization of excess reorganization
value and (2) the fact the Company recorded a valuation allowance for all
income tax benefits generated in the 21-week period ended June 26, 1999 (see
Note 9).
During the 39-week period ended October 30, 1999, the Company recorded
an extraordinary gain of $654.9 million (see Note 10).
Net (loss) for Third Quarter Fiscal 2000 was $27.1 million compared
to a net (loss) of $182.9 million for Third Quarter Fiscal 1999. Net income
excluding unusual items, special charges and amortization of excess
reorganization value was $2.5 million for Third Quarter Fiscal 2000 compared
to a net (loss) of $41.0 million for Third Quarter Fiscal 1999. Net income
for the 39-week period ended October 30, 1999 was $433.8 million compared to
a net (loss) of $223.5 million for the 39-week period ended October 31, 1998.
Net (loss) excluding unusual items, special charges, amortization of excess
reorganization value, reorganization items and extraordinary items was $14.2
million for the 39-week period ended October 30, 1999 compared to a net
(loss) of $81.6 million for the 39-week period ended October 31, 1998.
-24-
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
As a result of the consummation of the Plan, the Company
substantially reduced the amount of its overall indebtedness. In connection
with the consummation of the Plan, approximately $1.13 billion of senior
notes and senior subordinated notes were converted into $100 million of newly
issued 11% Senior Notes due 2009 (the "New Senior Notes"), approximately
99.5% of the shares of the new common stock of reorganized Penn Traffic (the
"New Common Stock") outstanding on the Effective Date and warrants to
purchase additional shares of New Common Stock. Upon consummation of the Plan
on June 29, 1999, the Company had approximately $326 million of outstanding
indebtedness (including capital leases).
The New Senior Notes mature on June 29, 2009 and do not contain any
mandatory redemption or sinking fund requirement provisions (other than
pursuant to certain customary exceptions including, without limitation,
requiring the Company to make an offer to repurchase the New Senior Notes
upon the occurrence of a change of control), and are optionally redeemable at
prices at 106% of par beginning in the year 2004 and declining annually
thereafter to par in 2008, and at 111% of par under other specified
circumstances as dictated by the Plan. Pursuant to the terms of the indenture
for the New Senior Notes, the Company, at its election, can choose to pay
interest on the New Senior Notes at the rate of 11% per annum, for the first
two years (i.e., the first four interest payments) through the issuance of
additional notes and thereafter, interest on the New Senior Notes will be
payable, at the rate of 11% per annum in cash. Any notes issued in lieu of
interest would also mature on June 29, 2009 and bear interest at 11% per
annum. The Company has decided to pay the interest on the New Senior Notes in
cash for the initial interest period ending December 29, 1999. The Company
also currently expects to make all future interest payments on the New Senior
Notes in cash instead of through the issuance of any additional notes.
Prior to the Petition Date, the Company had a revolving credit facility
(the "Pre-petition Revolving Credit Facility") which provided for borrowings of
up to $250 million, subject to a borrowing base limitation measured by eligible
inventory and accounts receivable of the Company. After the Petition Date, the
United States Bankruptcy Court for the District of Delaware (the "Bankruptcy
Court") approved a $300 million debtor-in-possession financing (the "DIP
Facility"). A portion of the proceeds of the DIP Facility were used to repay, in
full, the Company's Pre-petition Revolving Credit Facility and a mortgage on one
of the Company's distribution facilities and to finance its working capital and
capital expenditure requirements. The DIP Facility matured on June 29, 1999, the
Effective Date.
On June 29, 1999, in connection with the consummation of the Plan, the
Company entered into a new $320 million secured credit facility (the "New Credit
Facility"). The New Credit Facility includes (a) a $205 million revolving credit
facility (the "New Revolving Credit Facility") and (b) a $115 million term loan
(the "Term Loan"). The lenders under the New Credit Facility have a first
priority perfected security interest in substantially all of the Company's
assets and the New Credit Facility contains a variety of operational and
financial covenants intended to restrict the Company's operations. Proceeds from
the New Credit Facility were used to satisfy the Company's obligations under its
DIP Facility, pay certain costs of the reorganization process and are available
to satisfy the Company's ongoing working capital and capital expenditure
requirements.
-25-
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
The Term Loan will mature on June 30, 2006. Amounts of the Term Loan
maturing in future fiscal years are outlined in the following table (in
thousands):
FISCAL YEAR AMOUNT MATURING
----------- ---------------
2001 $ 2,000
2002 4,750
2003 6,750
2004 9,750
2005 12,750
2006 7,750
2007 71,250
--------
$115,000
========
Availability under the New Revolving Credit Facility is calculated
based on a specified percentage of eligible inventory and accounts receivable of
the Company. The New Revolving Credit Facility will mature on June 30, 2005. As
of October 30, 1999, there were no borrowings under the New Revolving Credit
Facility. Availability under the New Revolving Credit Facility was approximately
$154 million as of October 30, 1999.
During Third Quarter Fiscal 2000, the Company's internally generated
funds from operations and amounts available under the New Credit Facility
provided sufficient liquidity to meet the Company's operating, capital
expenditure and debt service needs, and pay expenditures related to the
Company's debt restructuring. The Company expects to utilize internally
generated funds from operations and amounts available under the New Credit
Facility to satisfy its operating, capital expenditure and debt service
needs, and pay expenditures related to the Company's debt restructuring for
the remainder of Fiscal 2000.
Cash flows to meet the Company's operating requirements during the
39-week period ended October 30, 1999 are reported in the Consolidated Statement
of Cash Flows. During the 18-week period ended October 30, 1999, the Company's
net cash used in operating activities, investing activities, and financing
activities were $6.8 million, $11.1 million, and $3.2 million, respectively.
During the 21-week period ended June 26, 1999, the Company's net cash provided
by operating activities and net cash provided by investing activities were $41.0
million and $11.0 million, respectively. These amounts were partially offset by
net cash used in financing activities of $23.9 million. As of October 30, 1999,
the Company had not paid approximately $10 million of expenditures related to
its debt restructuring.
During the fiscal years ending January 29, 2000 and
February 3, 2001, the Company expects to make capital expenditures (including
capital leases) totaling approximately $40 million and $70 million,
respectively. The Company expects to finance such capital expenditures through
cash generated from operations and amounts available under the New Credit
Facility. Capital expenditures will be principally for new stores, store
remodels and investments in the Company's distribution infrastructure and
technology.
-26-
<PAGE>
YEAR 2000
Year 2000 exposures arise from the inability of some computer-based
systems and equipment to correctly interpret and process dates after December
31, 1999. The basis for the exposure is that many systems and equipment carry
only the last two digits of the year field. With the year 2000, these systems
and equipment will not be able to distinguish between the year 1900 and 2000.
For those processes and procedures that use the date in calculations,
significant problems can occur.
The Company is dependent on technology including computer hardware and
software and related electronic equipment. This technology supports key business
processes including product procurement, warehousing, product delivery,
inventory control, labor management, retail sales and financial reporting. All
of this technology and electrical equipment may be susceptible to Year 2000
problems.
The calendar year 1999 coincides with eleven months of the Company's
fiscal year 2000. All financial systems have been and currently are functioning
correctly in support of fiscal year 2000.
In 1997, the Company assembled a project team consisting of
representatives across key departments in the organization to assess the state
of readiness and to initiate a plan and timetable to address issues encountered.
This working committee functioned under the control of the Company's Management
Information Systems Steering Committee and provided monthly updates to the
Company's senior management. The Year 2000 readiness plan addresses three major
segments: (a) Information Technology including infrastructure (i.e., mainframe,
server and personal computers and their associated networks), applications,
including all systems and operating software and in-store systems and equipment;
(b) Non-Information Technology, including telephones, time clocks, scales and
security devices and (c) External Entities, including product and service
providers and others with whom the Company interacts or exchanges information.
Each segment of the readiness plan includes data collection, assessment,
prioritization, resolution, testing, implementation, and ongoing monitoring of
compliance.
The table below sets forth the status and expected completion date of
all phases of the readiness plan at December 10, 1999:
<TABLE>
<CAPTION>
ESTIMATED
INFORMATION TECHNOLOGY PERCENT COMPLETE TARGET COMPLETION DATE
- ---------------------- ---------------- ----------------------
<S> <C> <C>
Server Computers 100% Complete
Personal Computers 100% Complete
Applications 95% December 1999
Mainframe Computers 100% Complete
Operating Software 100% Complete
In-Store systems/equipment 95% December 1999
NON-INFORMATION TECHNOLOGY
Phone Switches 100% Complete
Other equipment 100% Complete
EXTERNAL ENTITIES
Verification of critical
business partner readiness 99% On-going
Electronic Data Interchange
business partners 97% On-going
</TABLE>
-27-
<PAGE>
YEAR 2000 (CONTINUED)
The Year 2000 readiness plan has an overall strategy that combines system
replacement and remediation of existing legacy systems. Virtually all critical
equipment and computer programs have been modified or replaced where necessary,
and are now implemented. This includes computing systems and other equipment in
all retail stores, distribution centers, manufacturing facilities and offices.
The remaining installations are underway and will be completed in December 1999.
The Company plans to continue testing systems under various year 2000 dates to
ensure the programs implemented remain year 2000 ready. This effort utilizes
both in-house staff and outside consultants.
As part of the Company's Year 2000 readiness plan, the Company
contacted critical business partners (product suppliers, service providers
and those with whom the Company exchanges information) in the second quarter
of calendar year 1998, requesting information regarding the status of their
individual Year 2000 compliance plans and progress. From that survey, and
updates obtained since then, the Company began a program to test electronic
communications with its critical business partners and convert each to a year
2000 ready state. All critical business partners have had electronic data
interchange formats tested and verified and 99% of such critical business
partners are communicating with the company in year 2000 ready transaction
formats. The Company is continuing to test electronic communications with a
number of smaller supply chain vendors. The Company will commence electronic
communications in a year 2000 ready state with these smaller vendors as soon
as possible. The volume of business represented by these smaller vendors is
not deemed significant to the Company's business. The Company's strategy is
to convert any vendor which the Company communicates with using electronic
data interchange, which is not year 2000 ready by December 27, 1999, to a
modified process allowing for automatic translation of electronic data
interchange to facsimile, thus ensuring uninterrupted communications with
such vendors without significant additional cost to the Company.
Based on current information, management expects that the Company will
not experience significant disruption to operations due to Year 2000 compliance
issues. Management believes the Company compliance assessment and remediation
effort has been thorough. Notwithstanding the substantial efforts of the Company
and its key business partners, the Company could experience disruptions to parts
of its various activities and operations. Consequently, the Company has
formulated a business contingency plan for critical functions and processes that
may be adversely affected by a Year 2000 related problem. The plan considers the
potential for disruption in utilities such as power and telecommunications,
banking, state and local government, and transportation industries, and
addresses provisioning of inventory and supplying stores and customers in the
weeks leading up to and beyond January 1, 2000, communication with employees and
customers, payment to employees and remittance to suppliers, and other areas.
The contingency plan, while complete, will continually be reviewed throughout
the balance of the calendar year as additional information becomes available.
Based on current information, the Company estimates the cost of Year
2000 compliance will be approximately $9 million including the purchase of
certain new hardware and software. To date such expenditures have totaled
approximately $8.1 million. The Company has and will continue to fund these
expenditures by utilizing the Company's operating cash flow as well as amounts
available under its New Credit Facility.
-28-
<PAGE>
YEAR 2000 (CONTINUED)
Because the Company's Year 2000 compliance is partially dependent upon
key business partners also being Year 2000 compliant on a timely basis, there
can be no guarantee that the Company's overall efforts will prevent a material
adverse impact on its results of operations, financial condition and cash flows.
The possible consequences to the Company of not being fully Year 2000 compliant
include temporary supermarket closings, delays in the delivery of merchandise,
errors in purchase orders and other financial transactions, and the inability to
efficiently process customer purchases. In addition, business disruptions could
result from the loss of power or the loss of communication links between
supermarkets, warehouse and headquarters locations.
-29-
<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 1. LEGAL PROCEEDINGS
Reorganization. Reference is made to Note 1 of the Consolidated
Financial Statements in Part I and is incorporated by reference herein.
ITEM 2. CHANGE IN SECURITIES
The information required by this item is furnished by incorporation by
reference to the information regarding the material features of the Plan
contained in Note 1 of the Consolidated Financial Statements in Part I of this
Form 10-Q.
ITEM 5. OTHER INFORMATION
Trading of the New Common Stock and warrants on the Nasdaq National
Market under the symbols "PNFT" and "PNFTW," respectively, commenced on
September 15, 1999.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
EXHIBIT NUMBER DESCRIPTION
10.21B Amendment No. 2 to Employment Agreement
of Joseph V. Fisher, dated December 2,
1999
10.23A Amended and Restated Management Agreement
of Hirsch & Fox LLC, dated December 2,
1999
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 30, 1999.
-30-
<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, 1999 /s/- JOSEPH V. FISHER
---------------------
By: Joseph V. Fisher
President, Chief Executive
Officer and Director
December 14, 1999 /s/- MARTIN A. FOX
------------------
By: Martin A. Fox
Vice Chairman of the
Executive Committee and
Chief Financial Officer
-31-
<PAGE>
Exhibit 10.21(b)
AMENDMENT NO. 2 TO EMPLOYMENT AGREEMENT
This Amendment No. 2 To Employment Agreement (the "AMENDMENT") is
entered into as of this 2nd day of December, 1999 by and between The Penn
Traffic Company (the "COMPANY") and Joseph V. Fisher ("EXECUTIVE").
WHEREAS, the Executive has been employed by the Company as its
President and Chief Executive Officer pursuant to an Employment Agreement
entered into as of October 30, 1998 (the "EMPLOYMENT AGREEMENT");
WHEREAS, the Company, on June 29, 1999, consummated the
"pre-negotiated" plan of reorganization (the "PLAN") under Chapter 11 of Title
11 of the United States Code, 11 U.S.C.ss. 101 et seq., (the "BANKRUPTCY COde");
WHEREAS, as part of the Plan, on June 29, 1999, the Company and
Executive executed an amendment to the Employment Agreement; and
WHEREAS, the Company and Executive desire to further amend the
Employment Agreement in order to provide Executive with additional stock options
and to provide for certain payments upon a change of control.
NOW, THEREFORE, in consideration of the premises and mutual covenants
and agreements set forth herein, and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties agree
as follows:
1. Section 4(e) of the Employment Agreement shall be modified by adding
the following language after the end of the second sentence:
"In addition, Executive shall be granted as of September 22, 1999,
options to purchase 140,000 shares of the Common Stock with an exercise
price equal to $8.75 per share. Such options shall vest 20% as of
September 22, 1999, and 20% on each of the four anniversaries thereof.
Such options generally must be exercised on or before the tenth
anniversary of such date. A copy of the Award Agreement for such
options is attached hereto as EXHIBIT B."
<PAGE>
2
2. Section 11(a) shall be amended by adding the following language to
the end thereof:
"In addition, if a Section 11(c) Change of Control (as defined
below) occurs on or before the Determination Date (as defined below) but
following such termination, then notwithstanding the termination of this
Agreement by the Company for any reason other than Cause (or by the Executive
for Good Reason), the Company shall, in addition to the payments required
pursuant to this Section 11(a), make the Change of Control Payment as provided
in Section 11(c) on the dates provided in such section, LESS the amount of Base
Salary to be paid by the Company to Executive pursuant to this Section 11(a)
with respect to any period following the date the Change of Control Payment is
made until the end of the Term."
3. The third sentence of Section 11(b) shall be deleted and replaced
in its entirety with the following:
"For purposes of this Agreement, "Change of Control" shall
mean the occurrence of any event where (i) any "person" (as
such term is used in Sections 13(d) and 14(d) of the Exchange
Act) is or becomes the "beneficial owner" (as defined in Rules
13d-3 and 13d-5 under the Securities Exchange Act of 1934,
except that a person shall be deemed to have "beneficial
ownership" of all shares that any 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 stock, (ii) the Company
consolidates with or merges into another person or conveys,
transfers, sells or leases all or substantially all of its
assets to any person, or any person consolidates with or
merges into the Company, in either event pursuant to a
transaction in which the outstanding voting stock of the
Company is changed into or exchanged for cash, securities or
other property, other than any such transaction between the
Company and its wholly owned subsidiaries (which wholly owned
subsidiaries are United States corporations), with the effect
that any "person"
<PAGE>
3
becomes the "beneficial owner," 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 stock or (iii) during any
consecutive two-year period, individuals who at the beginning
of such period constituted the Board (together with any new
directors whose election by the Board, or whose nomination for
election by the Company's stockholders, 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."
4. A new Section 11(c) shall be added to the Employment Agreement,
which shall read in its entirety as follows:
"(c) If at any time prior to the "DETERMINATION DATE" (as
defined below) a "SECTION 11(C) CHANGE OF CONTROL" (as defined below)
occurs, then in lieu of the payments provided under Section 11(b)
above, Executive shall be entitled to receive the "CHANGE OF CONTROL
PAYMENT" (as defined below) on the date of the occurrence of a Section
11(c) Change of Control and to acceleration of the forgiveness of the
Loan contemplated under Section 4(d) hereof. Upon Executive's receipt
of the Change of Control Payment in full (subject to offset as set
forth in Section 11(a)), this Agreement shall be terminated
automatically and Executive shall no longer be entitled to any further
payments described herein except for (i) the payments required to be
made pursuant to Section 11(a) following termination of this Agreement
and (ii) reimbursement of expenses contemplated by Section 5(c).
For purposes of this Agreement, the following terms shall have
the following meanings:
(i) "DETERMINATION DATE" shall mean December 31, 2000;
PROVIDED, THAT, if a definitive agreement (as such agreement may be
amended, modified or supplemented from time to time) with respect to an
event which would constitute a Section 11(c) Change of Control is
executed on or before August 31, 2000, or if such definitive agreement
is terminated and within six months of
<PAGE>
4
the date of such termination the Company enters into another definitive
agreement with respect to an event which would constitute a Section
11(c) Change of Control with the same entity (or such entity's
affiliate) that was a party to the first such agreement, then the
Determination Date for purposes of determining Executive's rights under
this Section 11(c) shall be the date on which the transaction
contemplated by such definitive agreement is consummated.
(ii) "SECTION 11(C) CHANGE OF CONTROL" shall have the same
meaning as clauses (i) and (ii) of the definition of "Change of
Control" in Section 11(b) above and shall also include an event that
results in Byron Allumbaugh, Kevin Collins, Thomas Harberts, Gabriel
Nechamkin, Lief Rosenblatt, Mark Sonnino and Peter Zurkow who, as of
June 29, 1999, constituted the independent directors of the Board,
ceasing to constitute a majority of the independent directors then in
office.
(iii) "CHANGE OF CONTROL PAYMENT" shall mean the sum of the
greater of (I) Base Salary for the remainder of the Term (but not less
than one-year's Base Salary) and (II) $5,000,000, MINUS the SUM of (A)
the "in-the-money" value on the date of the occurrence of a Section
11(c) Change of Control of the options granted to Executive on June 29,
1999 under Section 4(e) hereof (I.E., 280,000 options MULTIPLIED by the
DIFFERENCE between the (1) closing price of the Common Stock on the
Nasdaq National Market on the last trading date immediately prior to
the date of the occurrence of a Section 11(c) Change of Control (or if
the transaction which triggers the Section 11(c) Change of Control is a
cash tender offer, the cash tender offer per share price) AND (2)
$18.30) PLUS (B) the "in-the-money" value on the date of the occurrence
of a Section 11(c) Change of Control of Executive's options granted on
September 22, 1999 under Section 4(e) hereof that are vested and
exercisable (I.E., up to 140,000 options MULTIPLIED by the DIFFERENCE
between (1) the closing price of the Common Stock on the Nasdaq
National Market on the last trading date immediately prior to the date
of the occurrence of a Section 11(c) Change of Control (or if the
transaction which triggers the Section 11(c) Change of Control is a
cash tender offer, the cash tender offer per share price) AND (2)
$8.75)."
5. A new Section 11(d) shall be added to the Employment Agreement which
shall read in its entirety as follows:
"(d) GROSS-UP PAYMENT. In the event it shall be determined
that any
<PAGE>
5
payment or distribution of any type to or for the benefit of the
Executive, by the Company, any of its affiliates, any Person who
acquires ownership or effective control of the Company or ownership of
a substantial portion of the Company's assets (within the meaning of
IRC ss. 280G and the regulations thereunder) or any affiliate of such
Person, whether paid or payable or distributed or distributable
pursuant to the terms of this Agreement or otherwise (the "TOTAL
PAYMENTS"), would be subject to the excise tax imposed by Section 4999
of the Internal Revenue Code of 1986, as amended (the "CODE"), or any
interest or penalties with respect to such excise tax (such excise tax,
together with any such interest and penalties, are collectively
referred to as the "EXCISE TAX"), then the Executive shall be entitled
to receive an additional payment (a "GROSS-UP PAYMENT") in an amount
such that after payment by the Executive of all taxes (including any
interest or penalties imposed with respect to such taxes), including
any Excise Tax, imposed upon the Gross-Up Payment, the Executive
retains an amount of the Gross-Up Payment equal to the Excise Tax
imposed upon the Total Payments."
6. Other than as amended herein, the Employment Agreement, as amended
by the June 29, 1999 amendment, shall continue in full force and effect. In the
event of a explicit conflict between the Employment Agreement and this
Amendment, the Amendment will govern.
7. This Amendment may be executed in counterparts, each of which, when
so executed and delivered, shall be an original, but all of which together shall
constitute one document.
<PAGE>
6
IN WITNESS WHEREOF, the parties have executed this Amendment as of the
date first above written.
THE PENN TRAFFIC COMPANY
/s/ Francis D. Price /s/ Joseph V. Fisher
- -------------------------------------- -----------------------------------
By: Francis D. Price Joseph V. Fisher
Title: Vice President, General Counsel
<PAGE>
Exhibit 10.23(a)
AMENDED AND RESTATED MANAGEMENT AGREEMENT
AMENDED AND RESTATED MANAGEMENT AGREEMENT (the"Agreement"), dated as of
December 2, 1999 among THE PENN TRAFFIC COMPANY, a Delaware corporation, (the
"COMPANY"), HIRSCH & FOX, L.L.C., a Delaware limited liability company
("MANAGER"), Gary D. Hirsch ("HIRSCH") and Martin A. Fox ("FOX"; and
collectively with Hirsch, the "EXECUTIVES"), amending and restating that certain
Management Agreement, dated June 29, 1999 (the "ORIGINAL AGREEMENT"), by and
among the parties hereto.
WHEREAS, on June 29, 1999, the Company successfully completed the
reorganization of certain outstanding indebtedness and liabilities of, and
equity interests in, the Company and certain of its subsidiaries through
confirmation of a "pre-negotiated" plan of reorganization for the Company (the
"PLAN") under Chapter 11 of Title 11 of the United States Code, 11 U.S.C.ss. 101
et seq., (the "BANKRUPTCY COde");
WHEREAS, concurrently with the consummation of the Plan, the Company,
the Manager and the Executives entered into the Original Agreement, which sets
forth the terms and conditions upon which the Manager would provide services to
the Company; and
WHEREAS, the Company, Manager and the Executives now desire to amend
and restate the Original Agreement upon the terms and conditions contained
herein.
NOW, THEREFORE, for good and valuable consideration, the receipt of
which is hereby acknowledged, the parties hereto agree as follows:
1. APPOINTMENT. The Company hereby engages Manager for the services of
the Executives, and Manager hereby agrees under the terms and conditions set
forth herein, to provide the services of the Executives to the Company as
described in Section 3 herein. Manager agrees to assign to the Executives the
engagement hereunder and Hirsch and Fox agree to accept such assignment to
fulfill the Manager's duties hereunder.
2. TERM. The initial term (the "INITIAL TERM") of this Agreement
<PAGE>
2
shall be two years from the date of the Original Agreement (the "EFFECTIVE
DATE"). This Agreement shall be renewed automatically for one additional
two-year term (the "RENEWAL TERM") thereafter unless the Board of Directors of
the Company (the "BOARD") or Manager shall give notice in writing to the other
within 120 days before the expiration of the Initial Term of its desire to
terminate this Agreement upon expiration of such Initial Term. Notwithstanding
anything to the contrary set forth herein, Sections 5 and 8 shall survive any
termination of this Agreement.
3. SERVICES. From and after the Effective Date until the termination of
the Initial Term or the Renewal Term, as the case may be, Manager shall provide
the services of Hirsch and Fox as (i) members of the Board of Directors of the
Company and (ii) Chairman of the Executive Committee of the Board of Directors
of the Company (the "EXECUTIVE COMMITTEE") and Vice Chairman of the Executive
Committee, respectively. These positions shall constitute corporate offices of
the Company and the Company's Amended and Restated By-laws shall so provide. In
these positions, Hirsch and Fox shall (i) report directly and only to the
Company's Board of Directors, (ii) have all authority customarily delegated to
the most senior executive officers of a corporation, subject to the reasonable
oversight of the entire Board and (iii) perform such other duties as may be
requested from time to time by the Board as are consistent with their positions
as Chairman and Vice Chairman of the Executive Committee and senior executive
officers of the Company. Hirsch and Fox agree to perform their duties, as set
forth herein, in a faithful manner and to the best of their abilities. Hirsch
and Fox also agree to devote predominantly all of their full working time and
energy to the business and affairs of the Company and to use their best efforts
and all of their skills, experience and knowledge to promote the interests of
the Company. During the Initial Term and the Renewal Term, if any, the Executive
Committee shall at all times consist of three members, Hirsch, Fox and Mr.
Joseph V. Fisher.
4. COMPENSATION; EARLY TERMINATION; CHANGE OF CONTROL. (a) In
consideration of the services to be provided in accordance with Section 3, the
Company shall pay to the Manager a management fee at the annual rate of
$1,450,000 (the "MANAGEMENT FEE"), accruing from the Effective Date and payable
monthly in advance (or such pro rata amounts for partial months) on the first
day of each month, commencing on the Effective Date. In addition, the Company
shall pay to the Manager an annual bonus of $350,000 (the "ANNUAL BONUS") for
the fiscal year ended January 29, 2000. If Martin Fox continues to serve as the
Company's Chief Financial Officer during a subsequent fiscal year, the Company
shall pay to the Manager an additional $350,000 Annual Bonus, which shall be
appropriately prorated for that portion of the fiscal year that Mr. Fox serves
as the Company's Chief Financial Officer. The Annual Bonus shall be paid to the
Manager on the same date bonuses are paid to the Company's senior executive
officers, but in no event later than April 30th of each such year. Neither the
Manager nor the Executives shall be considered employees of the Company. The
Manager and the Executives, as the case may be, shall bear sole responsibility
for payment on behalf of itself and Executives for any
<PAGE>
3
federal, state and/or local income tax withholding, social security, workers'
compensation coverage and unemployment insurance and, other than as expressly
provided herein, employee benefits. To this end, Manager and the Executives
shall provide the Company with reasonable proof demonstrating compliance with
the foregoing at the Company's request. Further, the Manager and the Executives
agree to indemnify and hold harmless the Company from and against any claims,
liabilities, or expenses, including reasonable attorney's fees and
disbursements, relating to such compensation, tax, insurance and/or benefit
matters.
(b) In the event this Agreement is terminated by the Company before the
expiration of the Initial Term or the Renewal Term, as the case may be, for
reasons other than for Cause (as defined) or the occurrence of a Section 4(d)
Change of Control (as defined), then the Company shall immediately pay to
Manager the entire amount of all remaining unpaid Management Fees and Annual
Bonus that would have been payable through the end of such term but for such
early termination. In addition, if a Section 4(d) Change of Control (as defined
below) occurs on or before the Determination Date (as defined below) but after
such termination, then notwithstanding the termination of this Agreement by the
Company for any reason other than for Cause, the Company shall, in addition to
the payments required pursuant to this Section 4(b), make the Change of Control
Payment as provided in Section 4(d) on the dates provided in such section, LESS
the amount of any Management Fees previously paid by the Company to the Manager
pursuant to this Section 4(b) with respect to any period following the date the
Change of Control Payment is made until the end of the Initial Term or the
Renewal Term, as the case may be. For purposes of this Agreement, "CAUSE" shall
mean a conviction or guilty plea of a felony or any other crime involving fraud
or embezzlement.
The Company may immediately terminate this Agreement in the event both
Hirsch and Fox shall do or cause to be done any act which constitutes Cause. If
only one of Hirsch or Fox does or causes to be done any act which constitutes
Cause (other than any such act that relates to the services to be provided for
herein by Hirsch and Fox) (a "CAUSE REDUCTION EVENT"), then the Agreement may
not be terminated by the Company but the Management Fee paid to Manager under
Section 4(a) shall be reduced in accordance with Section 8(c); PROVIDED,
HOWEVER, that the Agreement may be terminated if such act constitutes Cause and
relates to the services to be provided for herein by Hirsch and Fox. Should this
Agreement be terminated by the Company for Cause, the Company shall only be
required to pay the Manager the portion of Management Fee provided for in
Section 4(a) that has accrued to the effective date of such termination and
shall reimburse all expenses incurred by the Manager that are reimbursable
pursuant to Section 5 through such effective date.
(c) If at any time prior to the expiration of the Initial Term or the
<PAGE>
4
Renewal Term, as the case may be, a "CHANGE OF CONTROL" (as defined) occurs,
Manager shall have the option, within 12 months from the date of such occurrence
and only in the event that the Executives' duties and responsibilities provided
for herein have been significantly reduced, diminished, altered or amended
following such Change of Control, to terminate this Agreement and continue to
receive its Management Fee in accordance with Section 4(a) for the remainder of
such term as if the Agreement were still in effect.
For purposes of this Agreement, "Change of Control" shall mean the
occurrence of any event where (i) any "person" (as such term is used in Sections
13(d) and 14(d) of the Exchange Act) is or becomes the "beneficial owner" (as
defined in Rules 13d-3 and 13d-5 under the Securities Exchange Act of 1934,
except that a person shall be deemed to have "beneficial ownership" of all
shares that any 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 stock, (ii) the Company consolidates with or merges into
another Person or conveys, transfers, sells or leases all or substantially all
of its assets to any Person, or any Person consolidates with or merges into the
Company, in either event pursuant to a transaction in which the outstanding
voting stock of the Company is changed into or exchanged for cash, securities or
other Property, other than any such transaction between the Company and its
wholly owned subsidiaries (which wholly owned subsidiaries are United States
corporations), with the effect that any "person" becomes the "beneficial owner,"
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 stock or (iii) during any consecutive two-year
period, individuals who at the beginning of such period constituted the Board
(together with any new directors whose election by the Board, or whose
nomination for election by the Company's stockholders, 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.
(d) If at any time prior to the "DETERMINATION DATE" (as defined below)
a "SECTION 4(D) CHANGE OF CONTROL" (as defined below) occurs, then in lieu of
the payments provided under Section 4(a) or (c) above, the Manager shall be
entitled to receive the "CHANGE OF CONTROL PAYMENT" (as defined) on the date of
the occurrence of a Section 4(d) Change of Control. Upon the Manager's receipt
of the Change of Control Payment in full (subject to offset as set forth in
Section 4(b)), the Agreement shall be terminated automatically and none of
Hirsch, Fox or Manager shall be entitled to any further Management Fees or other
payments under Section 4(a) or Section 4(c).
<PAGE>
5
For purposes of this Agreement, the following terms shall have the
following meanings:
(i) "DETERMINATION DATE" shall mean December 31, 2000; PROVIDED, THAT,
if a definitive agreement (as such agreement may be amended, modified or
supplemented from time to time) with respect to an event which would constitute
a Section 4(d) Change of Control is executed on or before August 31, 2000, or if
such definitive agreement is terminated and within six months of the date of
such termination the Company enters into another definitive agreement with
respect to an event which would constitute a Section 4(d) Change of Control with
the same entity (or such entity's affiliate) that was a party to the first such
agreement, then the Determination Date for purposes of determining Hirsch's and
Fox's rights under this Section 4(d) shall be the date on which the transaction
contemplated by such definitive agreement is consummated.
(ii) "SECTION 4(D) CHANGE OF CONTROL" shall have the same meaning as
clauses (i) and (ii) of the definition of "Change of Control" in Section 4(c)
above and shall also include an event that results in Byron Allumbaugh, Kevin
Collins, Thomas Harberts, Gabriel Nechamkin, Lief Rosenblatt, Mark Sonnino and
Peter Zurkow, who at the Effective Date constituted the independent directors of
the Board, ceasing to constitute a majority of the independent directors then in
office.
(iii) "CHANGE OF CONTROL PAYMENT" shall mean: the sum of
(a) the greater of (I) the PRODUCT of (x) 79,166 MULTIPLIED BY
(y) number of full months remaining in the Initial Term and (II) $5,000,000,
MINUS the SUM of (A) the "in-the-money" value on the date of the occurrence of a
Section 4(d) Change of Control of Hirsch's options granted under Section 6(c)
below (I.E., 240,000 options MULTIPLIED by the DIFFERENCE between (1) the
closing price of the Common Stock on the Nasdaq National Market on the last
trading date immediately prior to the date of the occurrence of a Section 4(d)
Change of Control (or if the transaction which triggers the Section 4(d) Change
of Control is a cash tender offer, the cash tender offer per share price) AND
(2) $8.75) PLUS (B) the "in-the-money" value on the date of the occurrence of a
Section 4(d) Change of Control of Hirsch's options granted under Section 6(b)
below (I.E., 360,000 options MULTIPLIED by the DIFFERENCE between (1) the
closing price of the Common Stock on the Nasdaq National Market on the last
trading date immediately prior to the date of the occurrence of a Section 4(d)
Change of Control (or if the transaction which triggers the Section 4(d) Change
of Control is a cash tender offer, the cash tender offer per share price) AND
(2) $18.30); PLUS
<PAGE>
6
(b) the greater of (I) the PRODUCT of (x) 41,666 MULTIPLIED BY
(y) the number of full months remaining in the Initial Term and (II) $2,000,000
MINUS the SUM of (A) the "in-the-money" value on the date of the occurrence of a
Section 4(d) Change of Control of Fox's options granted under Section 6(c) below
(I.E., 87,000 options MULTIPLIED by the DIFFERENCE between (1) the closing price
of the Common Stock on the Nasdaq National Market on the last trading date
immediately prior to the date of the occurrence of a Section 4(d) Change of
Control (or if the transactions which triggers the Section 4(d) Change of
Control is a cash tender offer, the cash tender offer price per share) AND (2)
$8.75) PLUS (B) the "in-the-money" value on the date of the occurrence of a
Section 4(d) Change of Control of Fox's options granted under Section 6(b) below
(I.E. 130,000 options MULTIPLIED by the difference between (1) the closing price
of the Common Stock on the Nasdaq National Market on the last trading date
immediately prior to the date of the occurrence of a Section 4(d) Change of
Control (or if the transaction which triggers the Section 4(d) Change of Control
is a cash tender offer, the cash tender offer price per share) AND (2) $18.30);
PLUS
(c) the amount of the prorated Annual Bonus payable through
the date of the occurrence of a Section 4(d) Change of Control.
In the event of a stock split, combination or subdivision of shares of
the Company's common stock, the number of options and exercise prices utilized
in subclauses (a)(II) and (b)(II) of this clause (iii) shall be adjusted in the
same manner as the number of options and exercise prices applicable to the
options granted pursuant to Section 6(c) below are adjusted pursuant to the EIP
(as defined below).
5. REIMBURSEMENT. Manager, Hirsch and Fox shall be entitled to
reimbursement of all reasonable out-of-pocket expenses (including travel
expenses) incurred in connection with the performance of this Agreement, which
amounts shall be promptly reimbursed by the Company upon request, provided that
the Manager shall be required to account to the Company for such expenses in the
manner prescribed by the Company.
6. EQUITY PURCHASE; OPTIONS. (a) Subject to the restrictions and
limitations imposed by federal securities law (including Rule 10b-5 promulgated
under Section 16 of the Securities Exchange Act of 1934, as amended), Hirsch,
within six months from the Effective Date, will acquire in a public or private
transaction shares of Common Stock or warrants to acquire such Common Stock that
have an initial acquisition price of at least $500,000 in the aggregate.
(b) Pursuant to the terms of The Penn Traffic Company 1999 Equity
Incentive Plan (the "EIP"), Hirsch and Fox will, on the Effective Date hereof,
receive fully-vested options to acquire 360,000 and 130,000 shares of Common
Stock,
<PAGE>
7
respectively, at an exercise price equal to $18.30 per share pursuant to Option
Agreements attached hereto as Exhibits A-1 and A-2. In addition, Hirsch and Fox
will, on the Effective Date, receive options to purchase 240,000 and 87,000
shares of Common Stock, respectively, 50% of which will vest on each of the 3rd
and 4th anniversaries of the Effective Date, assuming Messrs. Fox and Hirsch
continue to provide services to the Company on such dates pursuant to the Option
Agreements attached hereto as Exhibits B-1 and B-2. The exercise price for the
unvested options granted to each of Fox and Hirsch under this Section will also
be $18.30 per share. The options referred to in this paragraph and Section 6(c)
shall be granted pursuant to stock option agreements, which shall be in a form
attached hereto and otherwise be governed by the terms and conditions of the
EIP. To the extent permitted by the Internal Revenue Code of 1986, as amended
("IRC") all such options granted to Hirsch and Fox will qualify as incentive
stock options under the IRC. The shares of Common Stock issuable upon exercise
of such options shall be registered by the Company pursuant to a Registration
Statement on Form S-8 under the Securities Act of 1933, as amended.
(c) Hirsch and Fox will, pursuant to the terms of EIP, also receive,
effective as of September 22, 1999, options to acquire 240,000 and 87,000 shares
of Common Stock, respectively, at an exercise price equal to $8.75 per share
(the "EXERCISE PRICE") pursuant to Option Agreements attached hereto as Exhibits
C-1 and C-2. These options will vest in full and be fully exercisable only upon
the consummation of a Section 4(d) Change of Control transaction that occurs on
or before the Determination Date. If no Section 4(d) Change of Control occurs on
or before that date, the options shall expire. In the event the options vest,
they will only be exercisable for the 180-day period following consummation of
the Section 4(d) Change of Control transaction.
7. EMPLOYEE BENEFITS. During the Initial Term or the Renewal
Term, as the case may be, Hirsch and Fox shall have the right to participate in
the Company's medical, dental, disability, life and other insurance plans
maintained during such time by the Company for executives of similar stature and
rank, and any other plans and benefits, if any, generally maintained by the
Company for executives of similar stature and rank, in each case in accordance
with the terms and conditions of such plan as from time-to-time in effect or
have the Company reimburse Hirsch and Fox for such benefits at a annual cost not
to exceed $25,000 per Executive. In connection with the execution of this
Agreement, the Company agrees to provide Fox and Hirsch with pension benefits in
accordance with the terms of The Penn Traffic Supplemental Retirement Plan for
Non-Employee Executives, attached hereto as Exhibit D.
8. TERMINATION OF AGREEMENT BY REASON OF DEATH OR DISABILITY.
(a)
<PAGE>
8
If either Hirsch or Fox shall die or become Disabled (as defined below) during
either the Initial Term or the Renewal Term, as the case may be, the Manager's
engagement and this Agreement shall continue, subject to Section 8(c), for the
balance of such term; PROVIDED, HOWEVER, that if Hirsch and Fox both die or
become Disabled during the Initial Term or the Renewal Term, then the Manager's
engagement and this Agreement shall terminate automatically as of the date both
Hirsch and Fox are terminated as a result of their being deceased or the date
that either is terminated in accordance with Section 8(b) due to their
disability, whichever date is later. If both Hirsch and Fox's engagement are
terminated due either to their respective deaths and/or disabilities, then the
Company shall only be obligated to pay the Manager the portion of the Management
Fee provided for in Section 4(a) that has accrued to the effective date of such
termination; PROVIDED, HOWEVER, that upon such termination, their respective
options and other rights that would have vested within one year of such date
shall be deemed vested.
(b) For purposes of this Agreement, the term "Disabled" shall mean that
Hirsch or Fox has suffered a disability which, in fact, prevents him from
substantially performing his duties hereunder for a period of 180 consecutive
days or 230 days in the aggregate, in any period of 12 consecutive months. In
such event, the Company may terminate Hirsch's or Fox's services hereunder only
by a written notice to either, as applicable, setting forth the grounds for such
termination with specificity, which termination will take effect 30 days after
such notice is given. Hirsch or Fox 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 Hirsch's or Fox's disability for the purposes of this Agreement
shall be determined by a physician mutually selected by the Company and Hirsch
or Fox, as the case may be, and Hirsch and Fox agree to submit to an examination
by such physician for purposes of such determination.
(c) If Hirsch's engagement is terminated due to his death or disability
or due to a Cause Reduction Event during either the Initial Term or the Renewal
Term, as the case may be (and Fox's engagement continues), then the Management
Fee to be paid under Section 4(a) shall be reduced to $500,000 as of the date of
such termination. If Fox's engagement is terminated due to his death or
disability or due to a Cause Reduction Event during either the Initial Term or
the Renewal Term, as the case may be (and Hirsch's engagement continues), then
the Management Fee to be paid under Section 4(a) shall be reduced to $950,000 as
of the date of termination.
9. NO LIABILITY. The Company hereby agrees to indemnify each
Indemnified Party to the fullest extent permitted by law from and against all
losses, liabilities, damages, deficiencies, demands, claims, actions, judgments
or causes of
<PAGE>
9
action, assessments, costs or expenses (including, without limitation, interest,
penalties and reasonable fees, expenses and disbursements of attorneys, experts,
personnel and consultants reasonably incurred by the Indemnified Party in any
action or proceeding) based upon, arising out of or otherwise in respect of each
Executive's services as, and/or for activities engaged in by each Executive
while each Executive is, an officer and/or director of the Company or any
affiliate thereof, including either paying or reimbursing each Executive,
promptly after request, for any reasonable and documented expenses and
attorney's fees and costs actually incurred by each 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 (other than any claim, action, suit or proceeding
brought by the former principals of Miller Tabak & Hirsch + Company against the
Manager or the Executives); PROVIDED, however, that no such indemnification
shall be paid for damages or losses incurred by each Executive that result from
actions by him that Delaware law explicitly prohibits a corporation from
indemnifying its directors or officers against, including, without limitation,
to the extent any such damages or losses arise through gross negligence, bad
faith or misconduct. This indemnity shall survive the termination of this
Agreement. The Company represents and warrants that it has $15 million dollars
of director's and officer's insurance available on the date hereof and that it
will use its reasonable commercial efforts to maintain such policy throughout
the Term; provided further that the Company shall obtain "tail" coverage under
its existing director's and officer's policy covering its current directors and
officers for any claims brought against them, which coverage shall extend for a
period of not less than six (6) years after the Effective Date.
10. NOTICES. Any notice or other communication required or permitted
hereunder shall be in writing and shall be delivered personally, sent by
facsimile transmission or sent by certified, registered or express mail, postage
prepaid. Any such notice shall be deemed given when so delivered personally or
sent by facsimile transmission or, if mailed, five days after the date of
deposit in the United States mails, as follows:
(A) IF TO THE COMPANY TO:
The Penn Traffic Company
1200 State Fair Boulevard
Syracuse, New York 13209
Attention: Francis D. Price, Esq.
TELEPHONE: (315) 461-2347
FACSIMILE: (315) 461-2532
(B) IF TO MANAGER OR THE EXECUTIVES TO:
<PAGE>
10
Hirsch & Fox, L.L.C.
411 Theodore Fremd Avenue
Rye, New York 10580
Attention: Gary D. Hirsch
TELEPHONE: (914) 921-3000
FACSIMILE: (914) 921-3031
Any party may by notice given in accordance with this Section to the other
parties designate another address or person for receipt of notices hereunder.
11. GOVERNING LAW. ALL QUESTIONS CONCERNING THE CONSTRUCTION, VALIDITY
AND INTERPRETATION OF THIS AGREEMENT WILL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE INTERNAL LAW (AND NOT THE LAW OF CONFLICTS) OF THE STATE OF
NEW YORK.
12. ASSIGNMENT. This Agreement shall not be assignable by either party
hereto without the express written consent of the other party; PROVIDED, THAT,
Manager may assign this Agreement to any other entity that is controlled by the
Manager or Hirsch and Fox and which entity assumes the obligations of Manager
and provides the services of Hirsch and Fox under this Agreement.
13. CONFIDENTIALITY. (a) During the Initial Term, the Renewal Term and
thereafter, each of the Executives and the Manager agree that they shall not,
directly or indirectly, for their own account or as agent, employee, officer,
director, trustee, consultant or shareholder of any corporation, or any member
of any firm or otherwise, divulge, furnish or make accessible to any person, or
himself or itself make use other than for the sole benefit of the Company, any
material confidential or proprietary information of the Company obtained by him
or it while in the employ or engagement of the Company other than disclosures
made by Executive based on Executive's reasonable belief that such disclosures
were in furtherance of his duties as set forth herein, 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 or it will, prior to or
upon the termination of his or its engagement by 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 or its possession or
custody or under his or its
<PAGE>
11
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), (y) the Executive may disclose such information
known generally to the public (without any action on the part of the Executive
prohibited by the restrictions of this paragraph), and (z) 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.
(b) Notwithstanding the foregoing, in the event that Manager and/or
either Executive receives a subpoena or other process or order which may require
it or him to disclose any confidential information, the Manager and Executive
agree (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 reasonable 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 that is required to be disclosed.
(c) The obligations of the Manager and the Executives under this
Section 13 shall survive any termination of this Agreement.
14. NON-COMPETITION. During the Initial Term and the Renewal Term, if
this Agreement is extended pursuant to Section 2, each of the Executives and
Manager agree that they will not, directly or indirectly, for their own account
or as agent, employee, officer, director, trustee consultant or shareholder of
any corporation or a member of any firm or otherwise: (i) engage in any way in
any wholesale and/or retail food business which operates within 30 miles of any
retail store operated by the Company at the time during the Initial Term or the
Renewal Term, as the case may be, that the Executives or the Manager wish to so
engage; (ii) induce or attempt to induce any person with an annual salary in
excess of $75,000 who is in the employ of the Company or any subsidiary or
affiliate thereof to leave the employ of the Company or such subsidiary or
affiliate; 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 14 shall not prohibit (A) Executive from owning
less than 5% of the equity of any entity that engages in the actions described
in (i), (ii) or (iii) above and (B) the Executives from providing references for
employees of the Company or its subsidiaries or affiliates who have been
solicited by a prospective employer without violation of (ii) above); provided,
however, that in the event the Company terminates the Agreement prior to the end
of the Initial Term or the Renewal Term, if
<PAGE>
12
this Agreement is extended pursuant to Section 2, for reasons other than Cause
and fails to provide the Executives with the payments required by Section 4(b)
and in the manner provided therein, the provisions of this Section shall not
survive such termination.
15. EQUITABLE REMEDIES. The Executives acknowledge that the remedy at
law for any breach or threatened breach of Sections 13 or 14 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. In addition, the Executives
acknowledge and agree that in the event the time limitation or geographic scope
of the restriction set forth in Section 14 is found to be unreasonable by a
court of competent jurisdiction, such time limitation and geographic scope shall
be deemed to be reduced to the broadest area or period as the court may
determine to be reasonable.
16. INTEGRATION. This Agreement constitutes the entire agreement
between the parties hereto with respect to the subject matter hereof and
supersedes all prior negotiations, understandings and writings, whether oral or
written between the parties hereto relating to the subject matter hereof.
17. COUNTERPARTS. This Agreement may be executed in counterparts, each
of which, when so executed and delivered, shall be an original, but all of which
together constitute one document.
18. GROSS-UP PAYMENT. In the event it shall be determined that any
payment or distribution of any type to or for the benefit of the Executives, by
the Company, any of its affiliates, any Person who acquires ownership or
effective control of the Company or ownership of a substantial portion of the
Company's assets (within the meaning of IRC ss. 280G and the regulations
thereunder) or any affiliate of such Person, whether paid or payable or
distributed or distributable pursuant to the terms of this Agreement or
otherwise (the "TOTAL PAYMENTS"), would be subject to the excise tax imposed by
Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code"), or
any interest or penalties with respect to such excise tax (such excise tax,
together with any such interest and penalties, are collectively referred to as
the "EXCISE TAX"), then the Executives shall be entitled to receive an
additional payment (a "GROSS-UP PAYMENT") in an amount such that after payment
by the Executives of all taxes (including any interest or penalties imposed with
respect to such taxes), including any Excise Tax, imposed upon the Gross-Up
Payment, the Executives retain an amount of the Gross-Up Payment equal to the
Excise Tax imposed upon the Total Payments.
<PAGE>
13
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the date first written above.
THE PENN TRAFFIC COMPANY
By: /s/ Francis D. Price
-------------------------------------
Name: Francis D. Price
Title: Vice President, General Counsel
HIRSCH & FOX, LLC
By: /s/ Gary D. Hirsch
-------------------------------------
Name: Gary D. Hirsch
Title: Managing Member
/s/ Gary D. Hirsch
-----------------------------------------
Gary D. Hirsch
/s/ Martin A. Fox
-----------------------------------------
Martin A. Fox
<PAGE>
Ex A-1
AWARD AGREEMENT
THIS AGREEMENT (the "Agreement"), is made effective as of the 29th day
of June, 1999, (hereinafter called the "Date of Grant"), between Penn Traffic
Company, a Delaware corporation (hereinafter called the "Company"), and Gary D.
Hirsch (hereinafter called the "Participant"):
R E C I T A L S:
- - - - - - - -
WHEREAS, the Company has adopted the Penn Traffic Company 1999 Equity
Incentive Plan (the "Plan"), which Plan is incorporated herein by reference and
made a part of this Agreement. Capitalized terms not otherwise defined herein
shall have the same meanings as in the Plan; and
WHEREAS, the Committee has determined that it would be in the best
interests of the Company and its stockholders to grant the option provided for
herein (the "Option") to the Participant pursuant to the Plan and the terms set
forth herein.
NOW THEREFORE, in consideration of the mutual covenants hereinafter set
forth, the parties hereto agree as follows:
1. GRANT OF THE OPTION. The Company hereby grants to the Participant
the right and option (the "Option") to purchase, on the terms and conditions
hereinafter set forth, all or any part of an aggregate of 360,000 Common Shares,
subject to adjustment as set forth in the Plan. The purchase price of the Shares
subject to the Option shall be $18.30 per Share (the "Exercise Price").
2. VESTING.
Upon grant, one hundred percent (100%) of the Shares initially covered
by the Option shall be immediately vested and exercisable.
3. EXERCISE OF OPTION.
(a) PERIOD OF EXERCISE. Subject to the provisions of the Plan and this
Agreement, the Participant may exercise all or any part of the Option at any
time prior to the earliest to occur of:
<PAGE>
2
(i) the sixth anniversary of the Date of Grant;
(ii) sixty days following the date that the Participant no
longer provides services to the Company pursuant to the Management
Agreement, any amendment, modification or successor to such agreement
or any other similar management or employment agreement for "Cause;" or
(iii) the later of (x) sixty days following the date the
Participant no longer provides services to the Company pursuant to the
Management Agreement, any amendment, modification or successor to such
agreement or any other similar management or employment agreement for
any reason other than "Cause" and (y) the sixth anniversary of the
effective date of the Date of Grant.
For purposes of this agreement:
"Cause" shall mean (i) a felony conviction or guilty plea or (ii) a
conviction or guilty plea of any crime involving fraud or embezzlement.
(b) METHOD OF EXERCISE.
(i) Subject to Section 3(a), the Option may be exercised by delivering
to the Company at its principal office written notice of intent to so exercise;
PROVIDED that, the Option may be exercised with respect to whole Shares only.
Such notice shall specify the number of Shares for which the Option is being
exercised and shall be accompanied by payment in full of the Exercise Price. The
payment of the Exercise Price may be made in cash, or its equivalent, or (x) by
exchanging Shares owned by the Participant (which are not the subject of any
pledge or other security interest and which have been owned by the Participant
for at least 6 months), (y) subject to such rules as may be reasonably
established by the Committee, through delivery of irrevocable instructions to a
broker to sell a portion of the Shares otherwise deliverable upon the exercise
of the Option and to deliver promptly to the Company an amount equal to the
aggregate exercise price of the portion of the Option so exercised or (z) by the
promissory note and agreement of the Participant providing for the payment with
interest of the unpaid balance accruing at a rate not less than needed to avoid
the imputation of income under Code section 7872 and upon such terms and
conditions (including the furnishing of security, if any therefor) as the
Committee may
<PAGE>
3
determine, or by a combination of the foregoing.
(ii) Notwithstanding any other provision of the Plan or this Agreement
to the contrary, the Option may not be exercised prior to the completion of any
registration or qualification of the Option or the Shares under applicable state
and federal securities or other laws, or under any ruling or regulation of any
governmental body or national securities exchange that the Committee shall in
its sole discretion determine to be necessary or advisable.
(iii) Upon the Company's determination that the Option has been validly
exercised as to any of the Shares, the Company shall issue certificates in the
Participant's name for such Shares. However, the Company shall not be liable to
the Participant for damages relating to any delays in issuing the certificates
to him, any loss of the certificates, or any mistakes or errors in the issuance
of the certificates or in the certificates themselves.
(iv) In the event of the Participant's death, the Option shall remain
exercisable by the Participant's executor or administrator, or the person or
persons to whom the Participant's rights under this Agreement shall pass by will
or by the laws of descent and distribution as the case may be, to the extent set
forth in Section 3(a). Any heir or legatee of the Participant shall take rights
herein granted subject to the terms and conditions hereof.
4. NO RIGHT TO CONTINUED EMPLOYMENT. Neither the Plan nor this
Agreement shall be construed as (i) giving the Participant the right to be
retained in the employ of, or in any consulting relationship to, the Company or
any Affiliate or (ii) in any way affecting the rights of the parties under the
Management Agreement. Further, the Company or an Affiliate may at any time
dismiss the Participant or discontinue any consulting relationship, free from
any liability or any claim under the Plan or this Agreement, except as otherwise
expressly provided herein.
5. LEGEND ON CERTIFICATES. The certificates representing the Shares
purchased by exercise of the Option shall be subject to such stop transfer
orders and other restrictions as the Committee may deem advisable under the Plan
or the rules, regulations, and other requirements of the Securities and Exchange
Commission, any stock exchange upon which such Shares are listed, and any
applicable Federal or state laws, and the Committee may cause a legend or
legends to be put on any such certificates to make appropriate reference to such
restrictions.
<PAGE>
4
6. TRANSFERABILITY. The Option may not be assigned, alienated, pledged,
attached, sold or otherwise transferred or encumbered by the Participant
otherwise than by will or by the laws of descent and distribution, and any such
purported assignment, alienation, pledge, attachment, sale, transfer or
encumbrance shall be void and unenforceable against the Company or any
Affiliate; provided that the designation of a beneficiary shall not constitute
an assignment, alienation, pledge, attachment, sale, transfer or encumbrance. No
such permitted transfer of the Option to heirs or legatees of the Participant
shall be effective to bind the Company unless the Committee shall have been
furnished with written notice thereof and a copy of such evidence as the
Committee may deem necessary to establish the validity of the transfer and the
acceptance by the transferee or transferees of the terms and conditions hereof.
During the Participant's lifetime, the Option is exercisable only by the
Participant.
Notwithstanding the foregoing, the vested portion of this Option,
insofar as such vested portion is not intended to be treated as an Incentive
Stock Option that complies with section 422 of the Internal Revenue Code of
1986, as amended, may be transferred by the Participant (the "Grantee") without
consideration, subject to such rules as the Committee may adopt to preserve the
purposes of the Plan, to:
(A) any or all of the Grantee's spouse, children or
grandchildren (including adopted and stepchildren and
grandchildren) (collectively, the "Immediate Family");
(B) a trust solely for the benefit of the Grantee and/or his
or her Immediate Family (a "Family Trust"); or
(C) a partnership or limited liability company whose only
partners or shareholders are the Grantee and/or his or her
Immediate Family and/or a Family Trust;
(each transferee described in clauses (A), (B) and (C) above is
hereinafter referred to as a "Permitted Transferee"); PROVIDED that the
Grantee gives the Committee advance written notice describing the terms
and conditions of the proposed transfer and the Committee notifies the
Grantee in writing that such a transfer would comply with the
requirements of the Plan and this Agreement.
If any portion of this Option is transferred in accordance
with the
<PAGE>
5
immediately preceding sentence, the terms of this Option shall apply to
the Permitted Transferee and any reference in this Agreement to an
optionee, Grantee or Participant shall be deemed to refer to the
Permitted Transferee, except that (a) Permitted Transferees shall not
be entitled to transfer this Option, other than by will or the laws of
descent and distribution; (b) Permitted Transferees shall not be
entitled to exercise the transferred Option unless there shall be in
effect a registration statement on an appropriate form covering the
shares to be acquired pursuant to the exercise of such Option if the
Committee determines that such registration statement is necessary or
appropriate, (c) the Committee or the Company shall not be required to
provide any notice to a Permitted Transferee, whether or not such
notice is or would otherwise have been required to be given to the
Grantee under the Plan or otherwise and (d) the consequences of
termination of the Grantee's employment by, or services to, the Company
under the terms of the Plan and this Agreement shall continue to be
applied with respect to the Grantee, following which the Option shall
be exercisable by the Permitted Transferee only to the extent, and for
the periods, specified in the Plan and this Agreement.
7. WITHHOLDING.
(a) The Participant may be required to pay to the Company or any
Affiliate and the Company or any Affiliate shall have the right and is hereby
authorized to withhold from any Shares or other property deliverable under the
Option or from any compensation or other amount owing to the Participant or to
Hirsch & Fox, L.L.C. the amount (in cash, Shares or other property) of any
applicable withholding taxes in respect of the Option, its exercise, or any
payment or transfer under the Option or under the Plan and to take such other
action as may be necessary in the opinion of the Company to satisfy all
obligations for the payment of such taxes.
(b) Without limiting the generality of Section 7(a) above, the
Participant may satisfy, in whole or in part, the foregoing withholding
liability by delivery of Shares owned by the Participant (which are not subject
to any pledge or other security interest and which have been owned by the
Participant for at least 6 months) with a Fair Market Value equal to such
withholding liability or by having the Company withhold from the number of
Shares otherwise issuable pursuant to the exercise of the option a number of
Shares with a Fair Market Value equal to such withholding liability.
<PAGE>
6
(c) The Company may, as a condition of Option exercise, require that
satisfactory arrangements have been made in advance to satisfy all tax
withholding obligations.
8. SECURITIES LAWS. Upon the acquisition of any Shares pursuant to the
exercise of the Option, the Participant will make or enter into such written
representations, warranties and agreements as the Committee may reasonably
request in order to comply with applicable securities laws or with this
Agreement.
9. NOTICES. Any notice necessary under this Agreement shall be
addressed to the Company in care of its Secretary at the principal executive
office of the Company and to the Participant at the address appearing in the
personnel records of the Company for the Participant or to either party at such
other address as either party hereto may hereafter designate in writing to the
other. Any such notice shall be deemed effective upon receipt thereof by the
addressee.
10. CHOICE OF LAW. THE INTERPRETATION, PERFORMANCE AND ENFORCEMENT OF
THIS AGREEMENT SHALL BE GOVERNED BY THE LAWS OF THE STATE OF DELAWARE WITHOUT
REGARD TO PRINCIPLES OF CONFLICTS OF LAW.
11. ANTI-DILUTION. The provisions of Section 4(b) and Section 7(c) of
the Plan, shall be applied in a manner that is no less favorable than if the
Option granted hereunder were subject to the anti-dilution and adjustment
provisions of warrants granted pursuant to the Warrant Agreement, dated as of
June 29, 1999, among the Company and Harris Bank and Trust, as Warrant Agent. In
addition, if there occurs any consolidation or merger of the Company with or
into any other person or entity (other than a merger consolidation of the
Company in which the Company is the continuing corporation and which does not
result in any reclassification or change of the outstanding Common Shares) or
sale, transfer or other disposition of all or substantially all of the assets of
the Company to another person or entity, then each Option shall thereafter be
exercisable into the same kind and amount of securities (including shares of
stock) or other assets, or both, which were issuable or distributable to holders
of outstanding Common Shares upon such consolidation, merger, sale or conveyance
in respect of that number of Common Shares into which the Options might have
been converted immediately prior to such consolidation, merger, sale or
<PAGE>
7
conveyance and in any such case appropriate adjustments shall be made to insure
that the provisions set forth herein shall be thereafter applicable as
reasonably may be practicable in relation to any securities or other assets
thereafter deliverable upon exercise of the Options.
12. OPTION SUBJECT TO PLAN. By entering into this Agreement the
Participant agrees and acknowledges that the Participant has received and read a
copy of the Plan. The Option is subject to the Plan. The terms and provisions of
the Plan as it may be amended from time to time are hereby incorporated herein
by reference. In the event of a conflict between any term or provision contained
herein and a term or provision of the Plan, the applicable terms and provisions
of the Plan will govern and prevail.
13. SIGNATURE IN COUNTERPARTS. This Agreement may be signed in
counterparts, each of which shall be an original, with the same effect as if the
signatures thereto and hereto were upon the same instrument.
<PAGE>
8
IN WITNESS WHEREOF, the parties hereto have executed this Agreement.
PENN TRAFFIC COMPANY
/s/ Francis D. Price
--------------------------------------
By: Francis D. Price
Title: Vice President, General Counsel
OPTIONEE
/s/ Gary D. Hirsch
--------------------------------------
Gary D. Hirsch
<PAGE>
Ex A-2
AWARD AGREEMENT
THIS AGREEMENT (the "Agreement"), is made effective as of the 29th day
of June, 1999, (hereinafter called the "Date of Grant"), between Penn Traffic
Company, a Delaware corporation (hereinafter called the "Company"), and Martin
A. Fox (hereinafter called the "Participant"):
R E C I T A L S:
- - - - - - - -
WHEREAS, the Company has adopted the Penn Traffic Company 1999 Equity
Incentive Plan (the "Plan"), which Plan is incorporated herein by reference and
made a part of this Agreement. Capitalized terms not otherwise defined herein
shall have the same meanings as in the Plan; and
WHEREAS, the Committee has determined that it would be in the best
interests of the Company and its stockholders to grant the option provided for
herein (the "Option") to the Participant pursuant to the Plan and the terms set
forth herein.
NOW THEREFORE, in consideration of the mutual covenants hereinafter set
forth, the parties hereto agree as follows:
1. GRANT OF THE OPTION. The Company hereby grants to the Participant
the right and option (the "Option") to purchase, on the terms and conditions
hereinafter set forth, all or any part of an aggregate of 130,000 Common Shares,
subject to adjustment as set forth in the Plan. The purchase price of the Shares
subject to the Option shall be $18.30 per Share (the "Exercise Price").
2. VESTING.
Upon grant, one hundred percent (100%) of the Shares initially covered
by the Option shall be immediately vested and exercisable.
3. EXERCISE OF OPTION.
(a) PERIOD OF EXERCISE. Subject to the provisions of the Plan and this
Agreement, the Participant may exercise all or any part of the Option at any
time prior to the earlier to occur of:
<PAGE>
2
(i) the sixth anniversary of the Date of Grant;
(ii) sixty days following the date that the Participant no
longer provides services to the Company pursuant to the Management
Agreement, any amendment, modification or successor to such agreement
or any other similar management or employment agreement for "Cause;" or
(iii) the later of (x) sixty days following the date the
Participant no longer provides services to the Company pursuant to the
Management Agreement, any amendment, modification or successor to such
agreement or any other similar management or employment agreement for
any reason other than "Cause" and (y) the sixth anniversary of the
effective date of the Date of Grant.
For purposes of this agreement:
"Cause" shall mean (i) a felony conviction or guilty plea or (ii) a
conviction or guilty plea of any crime involving fraud or embezzlement.
(b) METHOD OF EXERCISE.
(i) Subject to Section 3(a), the Option may be exercised by delivering
to the Company at its principal office written notice of intent to so exercise;
PROVIDED that, the Option may be exercised with respect to whole Shares only.
Such notice shall specify the number of Shares for which the Option is being
exercised and shall be accompanied by payment in full of the Exercise Price. The
payment of the Exercise Price may be made in cash, or its equivalent, or (x) by
exchanging Shares owned by the Participant (which are not the subject of any
pledge or other security interest and which have been owned by the Participant
for at least 6 months), (y) subject to such rules as may be reasonably
established by the Committee, through delivery of irrevocable instructions to a
broker to sell a portion of the Shares otherwise deliverable upon the exercise
of the Option and to deliver promptly to the Company an amount equal to the
aggregate exercise price of the portion of the Option so exercised or (z) by the
promissory note and agreement of the Participant providing for the payment with
interest of the unpaid balance accruing at a rate not less than needed to avoid
the imputation of income under Code section 7872 and upon such terms and
conditions (including the furnishing of security, if any therefor) as the
Committee may
<PAGE>
3
determine, or by a combination of the foregoing.
(ii) Notwithstanding any other provision of the Plan or this Agreement
to the contrary, the Option may not be exercised prior to the completion of any
registration or qualification of the Option or the Shares under applicable state
and federal securities or other laws, or under any ruling or regulation of any
governmental body or national securities exchange that the Committee shall in
its sole discretion determine to be necessary or advisable.
(iii) Upon the Company's determination that the Option has been validly
exercised as to any of the Shares, the Company shall issue certificates in the
Participant's name for such Shares. However, the Company shall not be liable to
the Participant for damages relating to any delays in issuing the certificates
to him, any loss of the certificates, or any mistakes or errors in the issuance
of the certificates or in the certificates themselves.
(iv) In the event of the Participant's death, the Option shall remain
exercisable by the Participant's executor or administrator, or the person or
persons to whom the Participant's rights under this Agreement shall pass by will
or by the laws of descent and distribution as the case may be, to the extent set
forth in Section 3(a). Any heir or legatee of the Participant shall take rights
herein granted subject to the terms and conditions hereof.
4. NO RIGHT TO CONTINUED EMPLOYMENT. Neither the Plan nor this
Agreement shall be construed as (i) giving the Participant the right to be
retained in the employ of, or in any consulting relationship to, the Company or
any Affiliate or (ii) in any way affecting the rights of the parties under the
Management Agreement. Further, the Company or an Affiliate may at any time
dismiss the Participant or discontinue any consulting relationship, free from
any liability or any claim under the Plan or this Agreement, except as otherwise
expressly provided herein.
5. LEGEND ON CERTIFICATES. The certificates representing the Shares
purchased by exercise of the Option shall be subject to such stop transfer
orders and other restrictions as the Committee may deem advisable under the Plan
or the rules, regulations, and other requirements of the Securities and Exchange
Commission, any stock exchange upon which such Shares are listed, and any
applicable Federal or state laws, and the Committee may cause a legend or
legends to be put on any such
<PAGE>
4
certificates to make appropriate reference to such restrictions.
6. TRANSFERABILITY. The Option may not be assigned, alienated, pledged,
attached, sold or otherwise transferred or encumbered by the Participant
otherwise than by will or by the laws of descent and distribution, and any such
purported assignment, alienation, pledge, attachment, sale, transfer or
encumbrance shall be void and unenforceable against the Company or any
Affiliate; provided that the designation of a beneficiary shall not constitute
an assignment, alienation, pledge, attachment, sale, transfer or encumbrance. No
such permitted transfer of the Option to heirs or legatees of the Participant
shall be effective to bind the Company unless the Committee shall have been
furnished with written notice thereof and a copy of such evidence as the
Committee may deem necessary to establish the validity of the transfer and the
acceptance by the transferee or transferees of the terms and conditions hereof.
During the Participant's lifetime, the Option is exercisable only by the
Participant.
Notwithstanding the foregoing, the vested portion of this Option,
insofar as such vested portion is not intended to be treated as an Incentive
Stock Option that complies with section 422 of the Internal Revenue Code of
1986, as amended, may be transferred by the Participant (the "Grantee") without
consideration, subject to such rules as the Committee may adopt to preserve the
purposes of the Plan, to:
(A) any or all of the Grantee's spouse, children or
grandchildren (including adopted and stepchildren and
grandchildren) (collectively, the "Immediate Family");
(B) a trust solely for the benefit of the Grantee and/or his
or her Immediate Family (a "Family Trust"); or
(C) a partnership or limited liability company whose only
partners or shareholders are the Grantee and/or his or her
Immediate Family and/or a Family Trust;
(each transferee described in clauses (A), (B) and (C) above is
hereinafter referred to as a "Permitted Transferee"); PROVIDED that the
Grantee gives the Committee advance written notice describing the terms
and conditions of the proposed transfer and the Committee notifies the
Grantee in writing that such a transfer would comply with the
requirements of the Plan and this Agreement.
<PAGE>
5
If any portion of this Option is transferred in accordance
with the immediately preceding sentence, the terms of this Option shall
apply to the Permitted Transferee and any reference in this Agreement
to an optionee, Grantee or Participant shall be deemed to refer to the
Permitted Transferee, except that (a) Permitted Transferees shall not
be entitled to transfer this Option, other than by will or the laws of
descent and distribution; (b) Permitted Transferees shall not be
entitled to exercise the transferred Option unless there shall be in
effect a registration statement on an appropriate form covering the
shares to be acquired pursuant to the exercise of such Option if the
Committee determines that such registration statement is necessary or
appropriate, (c) the Committee or the Company shall not be required to
provide any notice to a Permitted Transferee, whether or not such
notice is or would otherwise have been required to be given to the
Grantee under the Plan or otherwise and (d) the consequences of
termination of the Grantee's employment by, or services to, the Company
under the terms of the Plan and this Agreement shall continue to be
applied with respect to the Grantee, following which the Option shall
be exercisable by the Permitted Transferee only to the extent, and for
the periods, specified in the Plan and this Agreement.
7. WITHHOLDING.
(a) The Participant may be required to pay to the Company or any
Affiliate and the Company or any Affiliate shall have the right and is hereby
authorized to withhold from any Shares or other property deliverable under the
Option or under the Plan or from any compensation or other amount owing to a
Participant or to Hirsch & Fox, L.L.C. the amount (in cash, Shares or other
property) of any applicable withholding taxes in respect of the Option, its
exercise, or any payment or transfer under the Option or under the Plan and to
take such other action as may be necessary in the opinion of the Company to
satisfy all obligations for the payment of such taxes.
(b) Without limiting the generality of Section 7(a) above, the
Participant may satisfy, in whole or in part, the foregoing withholding
liability by delivery of Shares owned by the Participant (which are not subject
to any pledge or other security interest and which have been owned by the
Participant for at least 6 months) with a Fair Market Value equal to such
withholding liability or by having the Company withhold from the number of
Shares otherwise issuable pursuant to the exercise of the option a number of
Shares with a Fair Market Value equal to such withholding liability.
<PAGE>
6
(c) The Company may, as a condition of Option exercise, require that
satisfactory arrangements have been made in advance to satisfy all tax
withholding obligations.
8. SECURITIES LAWS. Upon the acquisition of any Shares pursuant to the
exercise of the Option, the Participant will make or enter into such written
representations, warranties and agreements as the Committee may reasonably
request in order to comply with applicable securities laws or with this
Agreement.
9. NOTICES. Any notice necessary under this Agreement shall be
addressed to the Company in care of its Secretary at the principal executive
office of the Company and to the Participant at the address appearing in the
personnel records of the Company for the Participant or to either party at such
other address as either party hereto may hereafter designate in writing to the
other. Any such notice shall be deemed effective upon receipt thereof by the
addressee.
10. CHOICE OF LAW. THE INTERPRETATION, PERFORMANCE AND ENFORCEMENT OF
THIS AGREEMENT SHALL BE GOVERNED BY THE LAWS OF THE STATE OF DELAWARE WITHOUT
REGARD TO PRINCIPLES OF CONFLICTS OF LAW.
11. ANTI-DILUTION. The provisions of Section 4(b) and Section 7(c) of
the Plan, shall be applied in a manner that is no less favorable than if the
Option granted hereunder were subject to the anti-dilution and adjustment
provisions of warrants granted pursuant to the Warrant Agreement, dated as of
June 29, 1999, among the Company and Harris Bank and Trust, as Warrant Agent. In
addition, if there occurs any consolidation or merger of the Company with or
into any other person or entity (other than a merger consolidation of the
Company in which the Company is the continuing corporation and which does not
result in any reclassification or change of the outstanding Common Shares) or
sale, transfer or other disposition of all or substantially all of the assets of
the Company to another person or entity, then each Option shall thereafter be
exercisable into the same kind and amount of securities (including shares of
stock) or other assets, or both, which were issuable or distributable to holders
of outstanding Common Shares upon such consolidation, merger, sale or conveyance
in respect of that number of Common Shares into which the Options might have
been converted immediately prior to such consolidation, merger, sale or
conveyance and in any such case appropriate adjustments shall be made to insure
that
<PAGE>
7
the provisions set forth herein shall be thereafter applicable as reasonably may
be practicable in relation to any securities or other assets thereafter
deliverable upon exercise of the Options.
12. OPTION SUBJECT TO PLAN. By entering into this Agreement the
Participant agrees and acknowledges that the Participant has received and read a
copy of the Plan. The Option is subject to the Plan. The terms and provisions of
the Plan as it may be amended from time to time are hereby incorporated herein
by reference. In the event of a conflict between any term or provision contained
herein and a term or provision of the Plan, the applicable terms and provisions
of the Plan will govern and prevail.
13. SIGNATURE IN COUNTERPARTS. This Agreement may be signed in
counterparts, each of which shall be an original, with the same effect as if the
signatures thereto and hereto were upon the same instrument.
<PAGE>
8
IN WITNESS WHEREOF, the parties hereto have executed this Agreement.
PENN TRAFFIC COMPANY
/s/ Francis D. Price
--------------------------------------
By: Francis D. Price
Title: Vice President, General Counsel
OPTIONEE
/s/ Martin A. Fox
--------------------------------------
Martin A. Fox
<PAGE>
Ex B-1
AWARD AGREEMENT
THIS AGREEMENT (the "Agreement"), is made effective as of the 29th day
of June, 1999, (hereinafter called the "Date of Grant"), between Penn Traffic
Company, a Delaware corporation (hereinafter called the "Company"), and Gary D.
Hirsch (hereinafter called the "Participant"):
R E C I T A L S:
- - - - - - - -
WHEREAS, the Company has adopted the Penn Traffic Company 1999 Equity
Incentive Plan (the "Plan"), which Plan is incorporated herein by reference and
made a part of this Agreement. Capitalized terms not otherwise defined herein
shall have the same meanings as in the Plan; and
WHEREAS, the Committee has determined that it would be in the best
interests of the Company and its stockholders to grant the option provided for
herein (the "Option") to the Participant pursuant to the Plan and the terms set
forth herein.
NOW THEREFORE, in consideration of the mutual covenants hereinafter set
forth, the parties hereto agree as follows:
1. GRANT OF THE OPTION. The Company hereby grants to the Participant
the right and option (the "Option") to purchase, on the terms and conditions
hereinafter set forth, all or any part of an aggregate of 240,000 Common Shares,
subject to adjustment as set forth in the Plan. The purchase price of the Shares
subject to the Option shall be $18.30 per Share (the "Exercise Price").
2. VESTING.
(a) Subject to the Participant's continued employment with the Company,
the Option shall vest and become exercisable with respect to fifty percent (50%)
of the Shares initially covered by the Option on each of the third and fourth
anniversaries of the Date of Grant.
At any given time, the portion of the Option which has become vested
and exercisable as described above is hereinafter referred to as the "Vested
Portion".
(b) If the Participant ceases to provide services to the Company under
<PAGE>
2
the Management Agreement for any reason other than the Participant's death or
disability, the Option shall, to the extent not then vested, be canceled by the
Company without consideration and the Vested Portion of the Option shall remain
exercisable for the period set forth in Section 3(a).
(c) Notwithstanding any provision of this Agreement to the contrary, in
the event that the Participant ceases to render services to the Company pursuant
to the Management Agreement as a result of the Participant's death or permanent
disability (as determined in accordance with the Management Agreement), the
Participant (or his beneficiaries) shall be immediately vested in such
additional Shares as would have become vested if the Participant had continued
to render service to the Company pursuant to the Management Agreement for a
period of one year beyond the date the Participant ceases to provide services
pursuant to the Management Agreement.
(d) In the event of a Change of Control (as defined in the Plan) the
Option shall, to the extent not then vested and not previously canceled,
continue to vest and become exercisable in accordance with Section 2(a) and (b)
above notwithstanding such Change of Control.
3. EXERCISE OF OPTION.
(a) PERIOD OF EXERCISE. Subject to the provisions of the Plan and this
Agreement, the Participant may exercise all or any part of the Vested Portion of
the Option at any time prior to the earliest to occur of:
(i) the tenth anniversary of the Date of Grant;
(ii) sixty days following the date that the Participant no
longer provides services to the Company pursuant to the Management
Agreement, any amendment, modification or successor to such agreement
or any other similar management or employment agreement for "Cause;" or
(iii) the later of (x) sixty days following the date the
Participant no longer provides services to the Company pursuant to the
Management Agreement, any amendment, modification or successor to such
agreement or any other similar management or employment agreement for
any reason other than "Cause" and (y) the sixth anniversary of the
<PAGE>
3
effective date of the Date of Grant.
For purposes of this agreement:
"Cause" shall mean (i) a felony conviction or guilty plea or (ii) a
conviction or guilty plea of any crime involving fraud or embezzlement.
(b) METHOD OF EXERCISE.
(i) Subject to Section 3(a), the Option may be exercised by delivering
to the Company at its principal office written notice of intent to so exercise;
PROVIDED that, the Option may be exercised with respect to whole Shares only.
Such notice shall specify the number of Shares for which the Option is being
exercised and shall be accompanied by payment in full of the Exercise Price. The
payment of the Exercise Price may be made in cash, or its equivalent, or (x) by
exchanging Shares owned by the Participant (which are not the subject of any
pledge or other security interest and which have been owned by the Participant
for at least 6 months), (y) subject to such rules as may be reasonably
established by the Committee, through delivery of irrevocable instructions to a
broker to sell a portion of the Shares otherwise deliverable upon the exercise
of the Option and to deliver promptly to the Company an amount equal to the
aggregate exercise price of the portion of the Option so exercised or (z) by the
promissory note and agreement of the Participant providing for the payment with
interest of the unpaid balance accruing at a rate not less than needed to avoid
the imputation of income under Code section 7872 and upon such terms and
conditions (including the furnishing of security, if any therefor) as the
Committee may determine, or by a combination of the foregoing.
(ii) Notwithstanding any other provision of the Plan or this Agreement
to the contrary, the Option may not be exercised prior to the completion of any
registration or qualification of the Option or the Shares under applicable state
and federal securities or other laws, or under any ruling or regulation of any
governmental body or national securities exchange that the Committee shall in
its sole discretion determine to be necessary or advisable.
(iii) Upon the Company's determination that the Option has been validly
exercised as to any of the Shares, the Company shall issue certificates in the
Participant's name for such Shares. However, the Company shall not be liable to
the Participant for damages relating to any delays in issuing the certificates
to him, any loss
<PAGE>
4
of the certificates, or any mistakes or errors in the issuance of the
certificates or in the certificates themselves.
(iv) In the event of the Participant's death, the Vested Portion of the
Option shall remain exercisable by the Participant's executor or administrator,
or the person or persons to whom the Participant's rights under this Agreement
shall pass by will or by the laws of descent and distribution as the case may
be, to the extent set forth in Section 3(a). Any heir or legatee of the
Participant shall take rights herein granted subject to the terms and conditions
hereof.
4. NO RIGHT TO CONTINUED EMPLOYMENT. Neither the Plan nor this
Agreement shall be construed as (i) giving the Participant the right to be
retained in the employ of, or in any consulting relationship to, the Company or
any Affiliate or (ii) in any way affecting the rights of the parties under the
Management Agreement. Further, the Company or an Affiliate may at any time
dismiss the Participant or discontinue any consulting relationship, free from
any liability or any claim under the Plan or this Agreement, except as otherwise
expressly provided herein.
5. LEGEND ON CERTIFICATES. The certificates representing the Shares
purchased by exercise of the Option shall be subject to such stop transfer
orders and other restrictions as the Committee may deem advisable under the Plan
or the rules, regulations, and other requirements of the Securities and Exchange
Commission, any stock exchange upon which such Shares are listed, and any
applicable Federal or state laws, and the Committee may cause a legend or
legends to be put on any such certificates to make appropriate reference to such
restrictions.
6. TRANSFERABILITY. The Option may not be assigned, alienated, pledged,
attached, sold or otherwise transferred or encumbered by the Participant
otherwise than by will or by the laws of descent and distribution, and any such
purported assignment, alienation, pledge, attachment, sale, transfer or
encumbrance shall be void and unenforceable against the Company or any
Affiliate; provided that the designation of a beneficiary shall not constitute
an assignment, alienation, pledge, attachment, sale, transfer or encumbrance. No
such permitted transfer of the Option to heirs or legatees of the Participant
shall be effective to bind the Company unless the Committee shall have been
furnished with written notice thereof and a copy of such evidence as the
Committee may deem necessary to establish the validity of the transfer and the
acceptance by the transferee or transferees of the terms and conditions hereof.
During the Participant's lifetime, the Option is exercisable only by the
Participant.
<PAGE>
5
Notwithstanding the foregoing, the vested portion of this Option,
insofar as such vested portion is not intended to be treated as an Incentive
Stock Option that complies with section 422 of the Internal Revenue Code of
1986, as amended, may be transferred by the Participant (the "Grantee") without
consideration, subject to such rules as the Committee may adopt to preserve the
purposes of the Plan, to:
(a) any or all of the Grantee's spouse, children or
grandchildren (including adopted and stepchildren and
grandchildren) (collectively, the "Immediate Family");
(b) a trust solely for the benefit of the Grantee and/or his
or her Immediate Family or (a "Family Trust"); or
(c) a partnership or limited liability company whose only
partners or shareholders are the Grantee and/or his or her
Immediate Family and/or a Family Trust;
(each transferee described in clauses (a), (b) and (c) above is
hereinafter referred to as a "Permitted Transferee"); PROVIDED that the
Grantee gives the Committee advance written notice describing the terms
and conditions of the proposed transfer and the Committee notifies the
Grantee in writing that such a transfer would comply with the
requirements of the Plan and this Agreement.
If any portion of this Option is transferred in accordance
with the immediately preceding sentence, the terms of this Option shall
apply to the Permitted Transferee and any reference in this Agreement
to an optionee, Grantee or Participant shall be deemed to refer to the
Permitted Transferee, except that (a) Permitted Transferees shall not
be entitled to transfer this Option, other than by will or the laws of
descent and distribution; (b) Permitted Transferees shall not be
entitled to exercise the transferred Option unless there shall be in
effect a registration statement on an appropriate form covering the
shares to be acquired pursuant to the exercise of such Option if the
Committee determines that such registration statement is necessary or
appropriate, (c) the Committee or the Company shall not be required to
provide any notice to a Permitted Transferee, whether or not such
notice is or would otherwise have been required to be given to the
Grantee under the Plan or otherwise and (d) the consequences of
termination of the Grantee's employment by, or services to, the
<PAGE>
6
Company under the terms of the Plan and this Agreement shall continue
to be applied with respect to the Grantee, following which the Option
shall be exercisable by the Permitted Transferee only to the extent,
and for the periods, specified in the Plan and this Agreement.
7. WITHHOLDING.
(a) The Participant may be required to pay to the Company or any
Affiliate and the Company or any Affiliate shall have the right and is hereby
authorized to withhold from any Shares or other property deliverable under the
Option or from any compensation or other amount owing to a Participant or Hirsch
& Fox, L.L.C. the amount (in cash, Shares or other property) of any applicable
withholding taxes in respect of the Option, its exercise, or any payment or
transfer under the Option or under the Plan and to take such other action as may
be necessary in the opinion of the Company to satisfy all obligations for the
payment of such taxes.
(b) Without limiting the generality of Section 7(a) above, the
Participant may satisfy, in whole or in part, the foregoing withholding
liability by delivery of Shares owned by the Participant (which are not subject
to any pledge or other security interest and which have been owned by the
Participant for at least 6 months) with a Fair Market Value equal to such
withholding liability or by having the Company withhold from the number of
Shares otherwise issuable pursuant to the exercise of the option a number of
Shares with a Fair Market Value equal to such withholding liability.
(c) The Company may, as a condition of Option exercise, require that
satisfactory arrangements have been made in advance to satisfy all tax
withholding obligations.
8. SECURITIES LAWS. Upon the acquisition of any Shares pursuant to the
exercise of the Option, the Participant will make or enter into such written
representations, warranties and agreements as the Committee may reasonably
request in order to comply with applicable securities laws or with this
Agreement.
9. NOTICES. Any notice necessary under this Agreement shall be
addressed to the Company in care of its Secretary at the principal executive
office of the Company and to the Participant at the address appearing in the
personnel records of the Company
<PAGE>
7
for the Participant or to either party at such other address as either party
hereto may hereafter designate in writing to the other. Any such notice shall be
deemed effective upon receipt thereof by the addressee.
10. CHOICE OF LAW. THE INTERPRETATION, PERFORMANCE AND ENFORCEMENT OF
THIS AGREEMENT SHALL BE GOVERNED BY THE LAWS OF THE STATE OF DELAWARE WITHOUT
REGARD TO PRINCIPLES OF CONFLICTS OF LAW.
11. ANTI-DILUTION. The provisions of Section 4(b) and Section 7(c) of
the Plan, shall be applied in a manner that is no less favorable than if the
Option granted hereunder were subject to the anti-dilution and adjustment
provisions of warrants granted pursuant to the Warrant Agreement, dated as of
June 29, 1999, among the Company and Harris Bank and Trust, as Warrant Agent. In
addition, if there occurs any consolidation or merger of the Company with or
into any other person or entity (other than a merger consolidation of the
Company in which the Company is the continuing corporation and which does not
result in any reclassification or change of the outstanding Common Shares) or
sale, transfer or other disposition of all or substantially all of the assets of
the Company to another person or entity, then each Option shall thereafter be
exercisable into the same kind and amount of securities (including shares of
stock) or other assets, or both, which were issuable or distributable to holders
of outstanding Common Shares upon such consolidation, merger, sale or conveyance
in respect of that number of Common Shares into which the Options might have
been converted immediately prior to such consolidation, merger, sale or
conveyance and in any such case appropriate adjustments shall be made to insure
that the provisions set forth herein shall be thereafter applicable as
reasonably may be practicable in relation to any securities or other assets
thereafter deliverable upon exercise of the Options.
12. OPTION SUBJECT TO PLAN. By entering into this Agreement the
Participant agrees and acknowledges that the Participant has received and read a
copy of the Plan. The Option is subject to the Plan. The terms and provisions of
the Plan as it may be amended from time to time are hereby incorporated herein
by reference. In the event of a conflict between any term or provision contained
herein and a term or provision of the Plan, the applicable terms and provisions
of the Plan will govern and prevail.
13. SIGNATURE IN COUNTERPARTS. This Agreement may be signed in
counterparts, each of which shall be an original, with the same effect as if the
signatures thereto and hereto were upon the same instrument.
<PAGE>
8
IN WITNESS WHEREOF, the parties hereto have executed this Agreement.
PENN TRAFFIC COMPANY
/s/ Francis D. Price
--------------------------------------
By: Francis D. Price
Title: Vice President, General Counsel
OPTIONEE
/s/ Gary D. Hirsch
--------------------------------------
Gary D. Hirsch
<PAGE>
Ex B-2
AWARD AGREEMENT
THIS AGREEMENT (the "Agreement"), is made effective as of the 29th day
of June, 1999, (hereinafter called the "Date of Grant"), between Penn Traffic
Company, a Delaware corporation (hereinafter called the "Company"), and Martin
A. Fox (hereinafter called the "Participant"):
R E C I T A L S:
- - - - - - - -
WHEREAS, the Company has adopted the Penn Traffic Company 1999 Equity
Incentive Plan (the "Plan"), which Plan is incorporated herein by reference and
made a part of this Agreement. Capitalized terms not otherwise defined herein
shall have the same meanings as in the Plan; and
WHEREAS, the Committee has determined that it would be in the best
interests of the Company and its stockholders to grant the option provided for
herein (the "Option") to the Participant pursuant to the Plan and the terms set
forth herein.
NOW THEREFORE, in consideration of the mutual covenants hereinafter set
forth, the parties hereto agree as follows:
1. GRANT OF THE OPTION. The Company hereby grants to the Participant
the right and option (the "Option") to purchase, on the terms and conditions
hereinafter set forth, all or any part of an aggregate of 87,000 Common Shares,
subject to adjustment as set forth in the Plan. The purchase price of the Shares
subject to the Option shall be $18.30 per Share (the "Exercise Price").
2. VESTING.
(a) Subject to the Participant's continued employment with the Company,
the Option shall vest and become exercisable with respect to fifty percent (50%)
of the Shares initially covered by the Option on each of the third and fourth
anniversaries of the Date of Grant.
At any given time, the portion of the Option which has become vested
and exercisable as described above is hereinafter referred to as the "Vested
Portion".
(b) If the Participant ceases to provide services to the Company under
<PAGE>
2
the Management Agreement for any reason other than the Participant's death or
disability, the Option shall, to the extent not then vested, be canceled by the
Company without consideration and the Vested Portion of the Option shall remain
exercisable for the period set forth in Section 3(a).
(c) Notwithstanding any provision of this Agreement to the contrary, in
the event that the Participant ceases to render services to the Company pursuant
to the Management Agreement as a result of the Participant's death or permanent
disability (as determined in accordance with the Management Agreement), the
Participant (or his beneficiaries) shall be immediately vested in such
additional Shares as would have become vested if the Participant had continued
to render service to the Company pursuant to the Management Agreement for a
period of one year beyond the date the Participant ceases to provide services
pursuant to the Management Agreement.
(d) In the event of a Change of Control (as defined in the Plan) the
Option shall, to the extent not then vested and not previously canceled,
continue to vest and become exercisable in accordance with Section 2(a) and (b)
above notwithstanding such Change of Control.
3. EXERCISE OF OPTION.
(a) PERIOD OF EXERCISE. Subject to the provisions of the Plan and this
Agreement, the Participant may exercise all or any part of the Vested Portion of
the Option at any time prior to the earlier to occur of:
(i) the tenth anniversary of the Date of Grant;
(ii) sixty days following the date that the Participant no
longer provides services to the Company pursuant to the Management
Agreement, any amendment, modification or successor to such agreement
or any other similar management or employment agreement for "Cause;" or
(iii) the later of (x) sixty days following the date the
Participant no longer provides services to the Company pursuant to the
Management Agreement, any amendment, modification or successor to such
agreement or any other similar management or employment agreement for
any reason other than "Cause" and (y) the sixth anniversary of the
<PAGE>
3
effective date of the Date of Grant.
For purposes of this agreement:
"Cause" shall mean (i) a felony conviction or guilty plea or (ii) a
conviction or guilty plea of any crime involving fraud or embezzlement.
(b) METHOD OF EXERCISE.
(i) Subject to Section 3(a), the Option may be exercised by delivering
to the Company at its principal office written notice of intent to so exercise;
PROVIDED that, the Option may be exercised with respect to whole Shares only.
Such notice shall specify the number of Shares for which the Option is being
exercised and shall be accompanied by payment in full of the Exercise Price. The
payment of the Exercise Price may be made in cash, or its equivalent, or (x) by
exchanging Shares owned by the Participant (which are not the subject of any
pledge or other security interest and which have been owned by the Participant
for at least 6 months), (y) subject to such rules as may be reasonably
established by the Committee, through delivery of irrevocable instructions to a
broker to sell a portion of the Shares otherwise deliverable upon the exercise
of the Option and to deliver promptly to the Company an amount equal to the
aggregate exercise price of the portion of the Option so exercised or (z) by the
promissory note and agreement of the Participant providing for the payment with
interest of the unpaid balance accruing at a rate not less than needed to avoid
the imputation of income under Code section 7872 and upon such terms and
conditions (including the furnishing of security, if any therefor) as the
Committee may determine, or by a combination of the foregoing.
(ii) Notwithstanding any other provision of the Plan or this Agreement
to the contrary, the Option may not be exercised prior to the completion of any
registration or qualification of the Option or the Shares under applicable state
and federal securities or other laws, or under any ruling or regulation of any
governmental body or national securities exchange that the Committee shall in
its sole discretion determine to be necessary or advisable.
(iii) Upon the Company's determination that the Option has been validly
exercised as to any of the Shares, the Company shall issue certificates in the
Participant's name for such Shares. However, the Company shall not be liable to
the Participant for damages relating to any delays in issuing the certificates
to him, any loss
<PAGE>
4
of the certificates, or any mistakes or errors in the issuance of the
certificates or in the certificates themselves.
(iv) In the event of the Participant's death, the Vested Portion of the
Option shall remain exercisable by the Participant's executor or administrator,
or the person or persons to whom the Participant's rights under this Agreement
shall pass by will or by the laws of descent and distribution as the case may
be, to the extent set forth in Section 3(a). Any heir or legatee of the
Participant shall take rights herein granted subject to the terms and conditions
hereof.
4. NO RIGHT TO CONTINUED EMPLOYMENT. Neither the Plan nor this
Agreement shall be construed as (i) giving the Participant the right to be
retained in the employ of, or in any consulting relationship to, the Company or
any Affiliate or (ii) in any way affecting the rights of the parties under the
Management Agreement. Further, the Company or an Affiliate may at any time
dismiss the Participant or discontinue any consulting relationship, free from
any liability or any claim under the Plan or this Agreement, except as otherwise
expressly provided herein.
5. LEGEND ON CERTIFICATES. The certificates representing the Shares
purchased by exercise of the Option shall be subject to such stop transfer
orders and other restrictions as the Committee may deem advisable under the Plan
or the rules, regulations, and other requirements of the Securities and Exchange
Commission, any stock exchange upon which such Shares are listed, and any
applicable Federal or state laws, and the Committee may cause a legend or
legends to be put on any such certificates to make appropriate reference to such
restrictions.
6. TRANSFERABILITY. The Option may not be assigned, alienated, pledged,
attached, sold or otherwise transferred or encumbered by the Participant
otherwise than by will or by the laws of descent and distribution, and any such
purported assignment, alienation, pledge, attachment, sale, transfer or
encumbrance shall be void and unenforceable against the Company or any
Affiliate; provided that the designation of a beneficiary shall not constitute
an assignment, alienation, pledge, attachment, sale, transfer or encumbrance. No
such permitted transfer of the Option to heirs or legatees of the Participant
shall be effective to bind the Company unless the Committee shall have been
furnished with written notice thereof and a copy of such evidence as the
Committee may deem necessary to establish the validity of the transfer and the
acceptance by the transferee or transferees of the terms and conditions hereof.
During the Participant's lifetime, the Option is exercisable only by the
Participant.
<PAGE>
5
Notwithstanding the foregoing, the vested portion of this Option,
insofar as such vested portion is not intended to be treated as an Incentive
Stock Option that complies with section 422 of the Internal Revenue Code of
1986, as amended, may be transferred by the Participant (the "Grantee") without
consideration, subject to such rules as the Committee may adopt to preserve the
purposes of the Plan, to:
(A) any or all of the Grantee's spouse, children or
grandchildren (including adopted and stepchildren and
grandchildren) (collectively, the "Immediate Family");
(B) a trust solely for the benefit of the Grantee and/or his
or her Immediate Family or (a "Family Trust"); or
(C) a partnership or limited liability company whose only
partners or shareholders are the Grantee and/or his or her
Immediate Family and/or a Family Trust;
(each transferee described in clauses (A), (B) and (C) above is
hereinafter referred to as a "Permitted Transferee"); PROVIDED that the
Grantee gives the Committee advance written notice describing the terms
and conditions of the proposed transfer and the Committee notifies the
Grantee in writing that such a transfer would comply with the
requirements of the Plan and this Agreement.
If any portion of this Option is transferred in accordance
with the immediately preceding sentence, the terms of this Option shall
apply to the Permitted Transferee and any reference in this Agreement
to an optionee, Grantee or Participant shall be deemed to refer to the
Permitted Transferee, except that (a) Permitted Transferees shall not
be entitled to transfer this Option, other than by will or the laws of
descent and distribution; (b) Permitted Transferees shall not be
entitled to exercise the transferred Option unless there shall be in
effect a registration statement on an appropriate form covering the
shares to be acquired pursuant to the exercise of such Option if the
Committee determines that such registration statement is necessary or
appropriate, (c) the Committee or the Company shall not be required to
provide any notice to a Permitted Transferee, whether or not such
notice is or would otherwise have been required to be given to the
Grantee under the Plan or otherwise and (d) the consequences of
termination of the Grantee's employment by, or services to, the
<PAGE>
6
Company under the terms of the Plan and this Agreement shall continue
to be applied with respect to the Grantee, following which the Option
shall be exercisable by the Permitted Transferee only to the extent,
and for the periods, specified in the Plan and this Agreement.
7. WITHHOLDING.
(a) The Participant may be required to pay to the Company or any
Affiliate and the Company or any Affiliate shall have the right and is hereby
authorized to withhold from any Shares or other property deliverable under the
Option or from any compensation or other amount owing to a Participant or Hirsch
& Fox, L.L.C. the amount (in cash, Shares, or other property) of any applicable
withholding taxes in respect of the Option, its exercise, or any payment or
transfer under the Option or under the Plan and to take such other action as may
be necessary in the opinion of the Company to satisfy all obligations for the
payment of such taxes.
(b) Without limiting the generality of Section 7(a) above, the
Participant may satisfy, in whole or in part, the foregoing withholding
liability by delivery of Shares owned by the Participant (which are not subject
to any pledge or other security interest and which have been owned by the
Participant for at least 6 months) with a Fair Market Value equal to such
withholding liability or by having the Company withhold from the number of
Shares otherwise issuable pursuant to the exercise of the option a number of
Shares with a Fair Market Value equal to such withholding liability.
(c) The Company may, as a condition of Option exercise, require that
satisfactory arrangements have been made in advance to satisfy all tax
withholding obligations.
8. SECURITIES LAWS. Upon the acquisition of any Shares pursuant to the
exercise of the Option, the Participant will make or enter into such written
representations, warranties and agreements as the Committee may reasonably
request in order to comply with applicable securities laws or with this
Agreement.
9. NOTICES. Any notice necessary under this Agreement shall be
addressed to the Company in care of its Secretary at the principal executive
office of the Company and to the Participant at the address appearing in the
personnel records of the Company for the Participant or to either party at such
other address as either party hereto may
<PAGE>
7
hereafter designate in writing to the other. Any such notice shall be deemed
effective upon receipt thereof by the addressee.
10. CHOICE OF LAW. THE INTERPRETATION, PERFORMANCE AND ENFORCEMENT OF
THIS AGREEMENT SHALL BE GOVERNED BY THE LAWS OF THE STATE OF DELAWARE WITHOUT
REGARD TO PRINCIPLES OF CONFLICTS OF LAW.
11. ANTI-DILUTION. The provisions of Section 4(b) and Section 7(c) of
the Plan, shall be applied in a manner that is no less favorable than if the
Option granted hereunder were subject to the anti-dilution and adjustment
provisions of warrants granted pursuant to the Warrant Agreement, dated as of
June 29, 1999, among the Company and Harris Bank and Trust, as Warrant Agent. In
addition, if there occurs any consolidation or merger of the Company with or
into any other person or entity (other than a merger consolidation of the
Company in which the Company is the continuing corporation and which does not
result in any reclassification or change of the outstanding Common Shares) or
sale, transfer or other disposition of all or substantially all of the assets of
the Company to another person or entity, then each Option shall thereafter be
exercisable into the same kind and amount of securities (including shares of
stock) or other assets, or both, which were issuable or distributable to holders
of outstanding Common Shares upon such consolidation, merger, sale or conveyance
in respect of that number of Common Shares into which the Options might have
been converted immediately prior to such consolidation, merger, sale or
conveyance and in any such case appropriate adjustments shall be made to insure
that the provisions set forth herein shall be thereafter applicable as
reasonably may be practicable in relation to any securities or other assets
thereafter deliverable upon exercise of the Options.
12. OPTION SUBJECT TO PLAN. By entering into this Agreement the
Participant agrees and acknowledges that the Participant has received and read a
copy of the Plan. The Option is subject to the Plan. The terms and provisions of
the Plan as it may be amended from time to time are hereby incorporated herein
by reference. In the event of a conflict between any term or provision contained
herein and a term or provision of the Plan, the applicable terms and provisions
of the Plan will govern and prevail.
13. SIGNATURE IN COUNTERPARTS. This Agreement may be signed in
counterparts, each of which shall be an original, with the same effect as if the
signatures thereto and hereto were upon the same instrument.
<PAGE>
8
IN WITNESS WHEREOF, the parties hereto have executed this Agreement.
PENN TRAFFIC COMPANY
/s/ Francis D. Price
--------------------------------------
By: Francis D. Price
Title: Vice President, General Counsel
OPTIONEE
/s/ Martin A. Fox
--------------------------------------
Martin A. Fox
<PAGE>
Ex C-1
AWARD AGREEMENT
THIS AGREEMENT (the "Agreement"), is made effective as of September 22,
1999, (hereinafter called the "Date of Grant"), between Penn Traffic Company, a
Delaware corporation (hereinafter called the "Company"), and Gary D. Hirsch
(hereinafter called the "Participant"):
R E C I T A L S:
- - - - - - - -
WHEREAS, the Company has adopted the Penn Traffic Company 1999 Equity
Incentive Plan (the "Plan"), which Plan is incorporated herein by reference and
made a part of this Agreement;
WHEREAS, the Company and Hirsch & Fox L.L.C. have amended and restated
the Management Agreement between them as of the date hereof (as so amended and
restated, the "Management Agreement");
WHEREAS, capitalized terms not otherwise defined herein shall have the
same meanings as in the Plan; and
WHEREAS, the Committee has determined that it would be in the best
interests of the Company and its stockholders to grant the option provided for
herein (the "Option") to the Participant pursuant to the Plan and the terms set
forth herein.
NOW THEREFORE, in consideration of the mutual covenants hereinafter set
forth, the parties hereto agree as follows:
1. GRANT OF THE OPTION. The Company hereby grants to the Participant
the right and option (the "Option") to purchase, on the terms and conditions
hereinafter set forth, all or any part of an aggregate of 240,000 Common Shares,
subject to adjustment as set forth in the Plan. The purchase price of the Shares
subject to the Option shall be $8.75 per Share (the "Exercise Price").
2. VESTING.
One hundred percent (100%) of the Shares initially covered by the
Option shall be immediately vested and exercisable upon the occurrence of a
Section 4(d) Change of Control (as defined in the Management Agreement) on or
before the
<PAGE>
2
Determination Date (as defined in the Management Agreement).
3. EXERCISE OF OPTION.
(a) PERIOD OF EXERCISE. Subject to the provisions of the Plan and this
Agreement, the Participant may exercise all or any part of the Option at any
time prior to 180 days following consummation of the Section 4(d) Change of
Control.
(b) METHOD OF EXERCISE.
(i) Subject to Section 3(a), the Option may be exercised by delivering
to the Company at its principal office written notice of intent to so exercise;
PROVIDED that, the Option may be exercised with respect to whole Shares only.
Such notice shall specify the number of Shares for which the Option is being
exercised and shall be accompanied by payment in full of the Exercise Price. The
payment of the Exercise Price may be made in cash, or its equivalent, or (x) by
exchanging Shares owned by the Participant (which are not the subject of any
pledge or other security interest and which have been owned by the Participant
for at least 6 months), (y) subject to such rules as may be reasonably
established by the Committee, through delivery of irrevocable instructions to a
broker to sell a portion of the Shares otherwise deliverable upon the exercise
of the Option and to deliver promptly to the Company an amount equal to the
aggregate exercise price of the portion of the Option so exercised or (z) by the
promissory note and agreement of the Participant providing for the payment with
interest of the unpaid balance accruing at a rate not less than needed to avoid
the imputation of income under Code section 7872 and upon such terms and
conditions (including the furnishing of security, if any therefor) as the
Committee may determine, or by a combination of the foregoing.
(ii) Notwithstanding any other provision of the Plan or this Agreement
to the contrary, the Option may not be exercised prior to the completion of any
registration or qualification of the Option or the Shares under applicable state
and federal securities or other laws, or under any ruling or regulation of any
governmental body or national securities exchange that the Committee shall in
its sole discretion determine to be necessary or advisable.
(iii) Upon the Company's determination that the Option has been validly
exercised as to any of the Shares, the Company shall issue certificates in the
Participant's name for such Shares. However, the Company shall not be liable to
the
<PAGE>
3
Participant for damages relating to any delays in issuing the certificates to
him, any loss of the certificates, or any mistakes or errors in the issuance of
the certificates or in the certificates themselves.
(iv) In the event of the Participant's death, the Option shall remain
exercisable by the Participant's executor or administrator, or the person or
persons to whom the Participant's rights under this Agreement shall pass by will
or by the laws of descent and distribution as the case may be, to the extent set
forth in Section 3(a). Any heir or legatee of the Participant shall take rights
herein granted subject to the terms and conditions hereof.
4. NO RIGHT TO CONTINUED EMPLOYMENT. Neither the Plan nor this
Agreement shall be construed as (i) giving the Participant the right to be
retained in the employ of, or in any consulting relationship to, the Company or
any Affiliate or (ii) in any way affecting the rights of the parties under the
Management Agreement. Further, the Company or an Affiliate may at any time
dismiss the Participant or discontinue any consulting relationship, free from
any liability or any claim under the Plan or this Agreement, except as otherwise
expressly provided herein.
5. LEGEND ON CERTIFICATES. The certificates representing the Shares
purchased by exercise of the Option shall be subject to such stop transfer
orders and other restrictions as the Committee may deem advisable under the Plan
or the rules, regulations, and other requirements of the Securities and Exchange
Commission, any stock exchange upon which such Shares are listed, and any
applicable Federal or state laws, and the Committee may cause a legend or
legends to be put on any such certificates to make appropriate reference to such
restrictions.
6. TRANSFERABILITY. The Option may not be assigned, alienated, pledged,
attached, sold or otherwise transferred or encumbered by the Participant
otherwise than by will or by the laws of descent and distribution, and any such
purported assignment, alienation, pledge, attachment, sale, transfer or
encumbrance shall be void and unenforceable against the Company or any
Affiliate; provided that the designation of a beneficiary shall not constitute
an assignment, alienation, pledge, attachment, sale, transfer or encumbrance. No
such permitted transfer of the Option to heirs or legatees of the Participant
shall be effective to bind the Company unless the Committee shall have been
furnished with written notice thereof and a copy of such evidence as the
Committee may deem necessary to establish the validity of the transfer and the
acceptance by the transferee or transferees of the terms and conditions hereof.
During
<PAGE>
4
the Participant's lifetime, the Option is exercisable only by the Participant.
Notwithstanding the foregoing, the vested portion of this Option,
insofar as such vested portion is not intended to be treated as an Incentive
Stock Option that complies with section 422 of the Internal Revenue Code of
1986, as amended, may be transferred by the Participant (the "Grantee") without
consideration, subject to such rules as the Committee may adopt to preserve the
purposes of the Plan, to:
(A) any or all of the Grantee's spouse, children or
grandchildren (including adopted and stepchildren and
grandchildren) (collectively, the "Immediate Family");
(B) a trust solely for the benefit of the Grantee and/or his
or her Immediate Family (a "Family Trust"); or
(C) a partnership or limited liability company whose only
partners or shareholders are the Grantee and/or his or her
Immediate Family and/or a Family Trust;
(each transferee described in clauses (A), (B) and (C) above is
hereinafter referred to as a "Permitted Transferee"); PROVIDED that the
Grantee gives the Committee advance written notice describing the terms
and conditions of the proposed transfer and the Committee notifies the
Grantee in writing that such a transfer would comply with the
requirements of the Plan and this Agreement.
If any portion of this Option is transferred in accordance
with the immediately preceding sentence, the terms of this Option shall
apply to the Permitted Transferee and any reference in this Agreement
to an optionee, Grantee or Participant shall be deemed to refer to the
Permitted Transferee, except that (a) Permitted Transferees shall not
be entitled to transfer this Option, other than by will or the laws of
descent and distribution; (b) Permitted Transferees shall not be
entitled to exercise the transferred Option unless there shall be in
effect a registration statement on an appropriate form covering the
shares to be acquired pursuant to the exercise of such Option if the
Committee determines that such registration statement is necessary or
appropriate, (c) the Committee or the Company shall not be required to
provide any notice to a Permitted Transferee, whether or not such
notice is or would otherwise have been required to be given to the
Grantee under the Plan or otherwise and (d) the consequences of
termination of the Grantee's employment by, or services to, the
<PAGE>
5
Company under the terms of the Plan and this Agreement shall continue
to be applied with respect to the Grantee, following which the Option
shall be exercisable by the Permitted Transferee only to the extent,
and for the periods, specified in the Plan and this Agreement.
7. WITHHOLDING.
(a) The Participant may be required to pay to the Company or any
Affiliate and the Company or any Affiliate shall have the right and is hereby
authorized to withhold from any Shares or other property deliverable under the
Option or from any compensation or other amount owing to the Participant or to
Hirsch & Fox, L.L.C. the amount (in cash, Shares or other property) of any
applicable withholding taxes in respect of the Option, its exercise, or any
payment or transfer under the Option or under the Plan and to take such other
action as may be necessary in the opinion of the Company to satisfy all
obligations for the payment of such taxes.
(b) Without limiting the generality of Section 7(a) above, the
Participant may satisfy, in whole or in part, the foregoing withholding
liability by delivery of Shares owned by the Participant (which are not subject
to any pledge or other security interest and which have been owned by the
Participant for at least 6 months) with a Fair Market Value equal to such
withholding liability or by having the Company withhold from the number of
Shares otherwise issuable pursuant to the exercise of the option a number of
Shares with a Fair Market Value equal to such withholding liability.
(c) The Company may, as a condition of Option exercise, require that
satisfactory arrangements have been made in advance to satisfy all tax
withholding obligations.
8. SECURITIES LAWS. Upon the acquisition of any Shares
pursuant to the exercise of the Option, the Participant will make or enter into
such written representations, warranties and agreements as the Committee may
reasonably request in order to comply with applicable securities laws or with
this Agreement.
9. NOTICES. Any notice necessary under this Agreement shall be
addressed to the Company in care of its Secretary at the principal executive
office of the Company and to the Participant at the address appearing in the
personnel records of the Company for the Participant or to either party at such
other address as either party hereto may
<PAGE>
6
hereafter designate in writing to the other. Any such notice shall be deemed
effective upon receipt thereof by the addressee.
10. CHOICE OF LAW. THE INTERPRETATION, PERFORMANCE AND ENFORCEMENT OF
THIS AGREEMENT SHALL BE GOVERNED BY THE LAWS OF THE STATE OF DELAWARE WITHOUT
REGARD TO PRINCIPLES OF CONFLICTS OF LAW.
11. ANTI-DILUTION. The provisions of Section 4(b) and Section 7(c) of
the Plan, shall be applied in a manner that is no less favorable than if the
Option granted hereunder were subject to the anti-dilution and adjustment
provisions of warrants granted pursuant to the Warrant Agreement, dated as of
June 29, 1999, among the Company and Harris Bank and Trust, as Warrant Agent. In
addition, if there occurs any consolidation or merger of the Company with or
into any other person or entity (other than a merger consolidation of the
Company in which the Company is the continuing corporation and which does not
result in any reclassification or change of the outstanding Common Shares) or
sale, transfer or other disposition of all or substantially all of the assets of
the Company to another person or entity, then each Option shall thereafter be
exercisable into the same kind and amount of securities (including shares of
stock) or other assets, or both, which were issuable or distributable to holders
of outstanding Common Shares upon such consolidation, merger, sale or conveyance
in respect of that number of Common Shares into which the Options might have
been converted immediately prior to such consolidation, merger, sale or
conveyance and in any such case appropriate adjustments shall be made to insure
that the provisions set forth herein shall be thereafter applicable as
reasonably may be practicable in relation to any securities or other assets
thereafter deliverable upon exercise of the Options. In addition, in the event
the Section 4(d) Change of Control which resulted (or would result upon
consummation) in the Options vesting pursuant to Section 2 is a tender offer or
exchange offer, the Company, at the Participant's option, shall (i) in the case
of a cash tender offer, pay the Participant the difference between the cash
consideration in the tender offer and the exercise price of the Options and (ii)
in the case of any other tender offer or exchange offer, provide,
notwithstanding the provisions of Section 2 hereof, that the Participant shall
be permitted to exercise the Options immediately prior to the consummation of
such tender offer or exchange offer so that the Participant may tender any or
all of the Shares received upon exercise of the Options in such tender offer or
exchange offer.
12. OPTION SUBJECT TO PLAN. By entering into this Agreement the
Participant
<PAGE>
7
agrees and acknowledges that the Participant has received and read a copy of the
Plan. The Option is subject to the Plan. The terms and provisions of the Plan as
it may be amended from time to time are hereby incorporated herein by reference.
In the event of a conflict between any term or provision contained herein and a
term or provision of the Plan, the applicable terms and provisions of the Plan
will govern and prevail.
13. SIGNATURE IN COUNTERPARTS. This Agreement may be signed in
counterparts, each of which shall be an original, with the same effect as if the
signatures thereto and hereto were upon the same instrument.
<PAGE>
8
IN WITNESS WHEREOF, the parties hereto have executed this Agreement.
PENN TRAFFIC COMPANY
/s/ Francis D. Price
--------------------------------------
By: Francis D. Price
Title: Vice President, General Counsel
OPTIONEE
/s/ Gary D. Hirsch
--------------------------------------
Gary D. Hirsch
<PAGE>
Ex. C-2
AWARD AGREEMENT
THIS AGREEMENT (the "Agreement"), is made effective as of September 22,
1999, (hereinafter called the "Date of Grant"), between Penn Traffic Company, a
Delaware corporation (hereinafter called the "Company"), and Martin A. Fox
(hereinafter called the "Participant"):
R E C I T A L S:
- - - - - - - -
WHEREAS, the Company has adopted the Penn Traffic Company 1999 Equity
Incentive Plan (the "Plan"), which Plan is incorporated herein by reference and
made a part of this Agreement;
WHEREAS, the Company and Hirsch & Fox L.L.C. have amended and restated
the Management Agreement between them as of the date hereof (as so amended and
restated, the "Management Agreement");
WHEREAS, capitalized terms not otherwise defined herein shall have the
same meanings as in the Plan; and
WHEREAS, the Committee has determined that it would be in the best
interests of the Company and its stockholders to grant the option provided for
herein (the "Option") to the Participant pursuant to the Plan and the terms set
forth herein.
NOW THEREFORE, in consideration of the mutual covenants hereinafter set
forth, the parties hereto agree as follows:
1. GRANT OF THE OPTION. The Company hereby grants to the Participant
the right and option (the "Option") to purchase, on the terms and conditions
hereinafter set forth, all or any part of an aggregate of 87,000 Common Shares,
subject to adjustment as set forth in the Plan. The purchase price of the Shares
subject to the Option shall be $8.75 per Share (the "Exercise Price").
2. VESTING.
One hundred percent (100%) of the Shares initially covered by the
Option shall be immediately vested and exercisable upon the occurrence of a
Section 4(d) Change of Control (as defined in the Management Agreement) on or
before the
<PAGE>
2
Determination Date (as defined in the Management Agreement).
3. EXERCISE OF OPTION.
(a) PERIOD OF EXERCISE. Subject to the provisions of the Plan and this
Agreement, the Participant may exercise all or any part of the Option at any
time prior to 180 days following consummation of the Section 4(d) Change of
Control.
(b) METHOD OF EXERCISE.
(i) Subject to Section 3(a), the Option may be exercised by delivering
to the Company at its principal office written notice of intent to so exercise;
PROVIDED that, the Option may be exercised with respect to whole Shares only.
Such notice shall specify the number of Shares for which the Option is being
exercised and shall be accompanied by payment in full of the Exercise Price. The
payment of the Exercise Price may be made in cash, or its equivalent, or (x) by
exchanging Shares owned by the Participant (which are not the subject of any
pledge or other security interest and which have been owned by the Participant
for at least 6 months), (y) subject to such rules as may be reasonably
established by the Committee, through delivery of irrevocable instructions to a
broker to sell a portion of the Shares otherwise deliverable upon the exercise
of the Option and to deliver promptly to the Company an amount equal to the
aggregate exercise price of the portion of the Option so exercised or (z) by the
promissory note and agreement of the Participant providing for the payment with
interest of the unpaid balance accruing at a rate not less than needed to avoid
the imputation of income under Code section 7872 and upon such terms and
conditions (including the furnishing of security, if any therefor) as the
Committee may determine, or by a combination of the foregoing.
(ii) Notwithstanding any other provision of the Plan or this Agreement
to the contrary, the Option may not be exercised prior to the completion of any
registration or qualification of the Option or the Shares under applicable state
and federal securities or other laws, or under any ruling or regulation of any
governmental body or national securities exchange that the Committee shall in
its sole discretion determine to be necessary or advisable.
(iii) Upon the Company's determination that the Option has been validly
exercised as to any of the Shares, the Company shall issue certificates in the
Participant's name for such Shares. However, the Company shall not be liable to
the
<PAGE>
3
Participant for damages relating to any delays in issuing the certificates to
him, any loss of the certificates, or any mistakes or errors in the issuance of
the certificates or in the certificates themselves.
(iv) In the event of the Participant's death, the Option shall remain
exercisable by the Participant's executor or administrator, or the person or
persons to whom the Participant's rights under this Agreement shall pass by will
or by the laws of descent and distribution as the case may be, to the extent set
forth in Section 3(a). Any heir or legatee of the Participant shall take rights
herein granted subject to the terms and conditions hereof.
4. NO RIGHT TO CONTINUED EMPLOYMENT. Neither the Plan nor this
Agreement shall be construed as (i) giving the Participant the right to be
retained in the employ of, or in any consulting relationship to, the Company or
any Affiliate or (ii) in any way affecting the rights of the parties under the
Management Agreement. Further, the Company or an Affiliate may at any time
dismiss the Participant or discontinue any consulting relationship, free from
any liability or any claim under the Plan or this Agreement, except as otherwise
expressly provided herein.
5. LEGEND ON CERTIFICATES. The certificates representing the Shares
purchased by exercise of the Option shall be subject to such stop transfer
orders and other restrictions as the Committee may deem advisable under the Plan
or the rules, regulations, and other requirements of the Securities and Exchange
Commission, any stock exchange upon which such Shares are listed, and any
applicable Federal or state laws, and the Committee may cause a legend or
legends to be put on any such certificates to make appropriate reference to such
restrictions.
6. TRANSFERABILITY. The Option may not be assigned, alienated, pledged,
attached, sold or otherwise transferred or encumbered by the Participant
otherwise than by will or by the laws of descent and distribution, and any such
purported assignment, alienation, pledge, attachment, sale, transfer or
encumbrance shall be void and unenforceable against the Company or any
Affiliate; provided that the designation of a beneficiary shall not constitute
an assignment, alienation, pledge, attachment, sale, transfer or encumbrance. No
such permitted transfer of the Option to heirs or legatees of the Participant
shall be effective to bind the Company unless the Committee shall have been
furnished with written notice thereof and a copy of such evidence as the
Committee may deem necessary to establish the validity of the transfer and the
<PAGE>
4
acceptance by the transferee or transferees of the terms and conditions hereof.
During the Participant's lifetime, the Option is exercisable only by the
Participant.
Notwithstanding the foregoing, the vested portion of this Option,
insofar as such vested portion is not intended to be treated as an Incentive
Stock Option that complies with section 422 of the Internal Revenue Code of
1986, as amended, may be transferred by the Participant (the "Grantee") without
consideration, subject to such rules as the Committee may adopt to preserve the
purposes of the Plan, to:
(A) any or all of the Grantee's spouse, children or
grandchildren (including adopted and stepchildren and
grandchildren) (collectively, the "Immediate Family");
(B) a trust solely for the benefit of the Grantee and/or his
or her Immediate Family (a "Family Trust"); or
(C) a partnership or limited liability company whose only
partners or shareholders are the Grantee and/or his or her
Immediate Family and/or a Family Trust;
(each transferee described in clauses (A), (B) and (C) above is
hereinafter referred to as a "Permitted Transferee"); PROVIDED that the
Grantee gives the Committee advance written notice describing the terms
and conditions of the proposed transfer and the Committee notifies the
Grantee in writing that such a transfer would comply with the
requirements of the Plan and this Agreement.
If any portion of this Option is transferred in accordance
with the immediately preceding sentence, the terms of this Option shall
apply to the Permitted Transferee and any reference in this Agreement
to an optionee, Grantee or Participant shall be deemed to refer to the
Permitted Transferee, except that (a) Permitted Transferees shall not
be entitled to transfer this Option, other than by will or the laws of
descent and distribution; (b) Permitted Transferees shall not be
entitled to exercise the transferred Option unless there shall be in
effect a registration statement on an appropriate form covering the
shares to be acquired pursuant to the exercise of such Option if the
Committee determines that such registration statement is necessary or
appropriate, (c) the Committee or the Company shall not be required to
provide any notice to a Permitted Transferee, whether or not such
notice is or would otherwise have
<PAGE>
5
been required to be given to the Grantee under the Plan or otherwise
and (d) the consequences of termination of the Grantee's employment by,
or services to, the Company under the terms of the Plan and this
Agreement shall continue to be applied with respect to the Grantee,
following which the Option shall be exercisable by the Permitted
Transferee only to the extent, and for the periods, specified in the
Plan and this Agreement.
7. WITHHOLDING.
(a) The Participant may be required to pay to the Company or any
Affiliate and the Company or any Affiliate shall have the right and is hereby
authorized to withhold from any Shares or other property deliverable under the
Option or under the Plan or from any compensation or other amount owing to a
Participant or to Hirsch & Fox, L.L.C. the amount (in cash, Shares or other
property) of any applicable withholding taxes in respect of the Option, its
exercise, or any payment or transfer under the Option or under the Plan and to
take such other action as may be necessary in the opinion of the Company to
satisfy all obligations for the payment of such taxes.
(b) Without limiting the generality of Section 7(a) above, the
Participant may satisfy, in whole or in part, the foregoing withholding
liability by delivery of Shares owned by the Participant (which are not subject
to any pledge or other security interest and which have been owned by the
Participant for at least 6 months) with a Fair Market Value equal to such
withholding liability or by having the Company withhold from the number of
Shares otherwise issuable pursuant to the exercise of the option a number of
Shares with a Fair Market Value equal to such withholding liability.
(c) The Company may, as a condition of Option exercise, require that
satisfactory arrangements have been made in advance to satisfy all tax
withholding obligations.
8. SECURITIES LAWS. Upon the acquisition of any Shares pursuant to the
exercise of the Option, the Participant will make or enter into such written
representations, warranties and agreements as the Committee may reasonably
request in order to comply with applicable securities laws or with this
Agreement.
9. NOTICES. Any notice necessary under this Agreement shall be
addressed to the Company in care of its Secretary at the principal executive
office of the Company
<PAGE>
6
and to the Participant at the address appearing in the personnel records of the
Company for the Participant or to either party at such other address as either
party hereto may hereafter designate in writing to the other. Any such notice
shall be deemed effective upon receipt thereof by the addressee.
10. CHOICE OF LAW. THE INTERPRETATION, PERFORMANCE AND ENFORCEMENT OF
THIS AGREEMENT SHALL BE GOVERNED BY THE LAWS OF THE STATE OF DELAWARE WITHOUT
REGARD TO PRINCIPLES OF CONFLICTS OF LAW.
11. ANTI-DILUTION. The provisions of Section 4(b) and Section 7(c) of
the Plan, shall be applied in a manner that is no less favorable than if the
Option granted hereunder were subject to the anti-dilution and adjustment
provisions of warrants granted pursuant to the Warrant Agreement, dated as of
June 29, 1999, among the Company and Harris Bank and Trust, as Warrant Agent. In
addition, if there occurs any consolidation or merger of the Company with or
into any other person or entity (other than a merger consolidation of the
Company in which the Company is the continuing corporation and which does not
result in any reclassification or change of the outstanding Common Shares) or
sale, transfer or other disposition of all or substantially all of the assets of
the Company to another person or entity, then each Option shall thereafter be
exercisable into the same kind and amount of securities (including shares of
stock) or other assets, or both, which were issuable or distributable to holders
of outstanding Common Shares upon such consolidation, merger, sale or conveyance
in respect of that number of Common Shares into which the Options might have
been converted immediately prior to such consolidation, merger, sale or
conveyance and in any such case appropriate adjustments shall be made to insure
that the provisions set forth herein shall be thereafter applicable as
reasonably may be practicable in relation to any securities or other assets
thereafter deliverable upon exercise of the Options. In addition, in the event
the Section 4(d) Change of Control which resulted (or would result upon
consummation) in the Options vesting pursuant to Section 2 is a tender offer
or exchange offer, the Company, at the Participant's option, shall (i) in the
case of a cash tender offer, pay the Participant the difference between the
cash consideration in the tender offer and the exercise price of the Options
and (ii) in the case of any other tender offer or exchange offer, provide,
notwithstanding the provisions of Section 2 hereof, that the Participant shall
be permitted to exercise the Options immediately prior to the consummation of
such tender offer or exchange offer so that the Participant may tender any or
all of the Shares received upon exercise of the Options in such tender offer or
exchange offer.
<PAGE>
7
12. OPTION SUBJECT TO PLAN. By entering into this Agreement the
Participant agrees and acknowledges that the Participant has received and read a
copy of the Plan. The Option is subject to the Plan. The terms and provisions of
the Plan as it may be amended from time to time are hereby incorporated herein
by reference. In the event of a conflict between any term or provision contained
herein and a term or provision of the Plan, the applicable terms and provisions
of the Plan will govern and prevail.
13. SIGNATURE IN COUNTERPARTS. This Agreement may be signed in
counterparts, each of which shall be an original, with the same effect as if the
signatures thereto and hereto were upon the same instrument.
<PAGE>
8
IN WITNESS WHEREOF, the parties hereto have executed this Agreement.
PENN TRAFFIC COMPANY
/s/ Francis D. Price
--------------------------------------
By: Francis D. Price
Title: Vice President, General Counsel
OPTIONEE
/s/ Martin A. Fox
--------------------------------------
Martin A. Fox
<PAGE>
Ex D
THE PENN TRAFFIC COMPANY
SUPPLEMENTAL RETIREMENT PLAN
FOR
NON-EMPLOYEE EXECUTIVES
<PAGE>
TABLE OF CONTENTS
Article I Establishment, Purpose and Effective Date of Plan....................1
1.1 Establishment........................................................1
1.2 Purpose..............................................................1
1.3 Effective Date.......................................................1
Article II Definitions.........................................................1
2.1 Definitions..........................................................1
2.2 Other Defined Terms..................................................4
2.3 Gender and Number....................................................4
Article III Vesting............................................................4
3.1 Vesting..............................................................4
Article IV Accounts and Credits To Accounts....................................4
4.1 Accounts.............................................................4
4.2 Basic Pay-Based Credits..............................................4
4.3 Interest Credits.....................................................5
4.4 Opening Account Balance..............................................5
Article V Retirement Benefits..................................................6
5.1 Normal Retirement Benefit............................................6
5.2 Late Retirement Benefit..............................................6
5.3 Early Retirement Benefit.............................................6
5.4 Disability Benefit...................................................7
5.5 Form of Benefit......................................................7
5.6 Payment of Normal Retirement Benefit.................................8
5.7 Termination Prior to Normal Retirement...............................8
5.8 Limitation on Annual Benefits.......................................10
Article VI Claims Procedure...................................................11
6.1 Written Request.....................................................11
6.2 Notice of Denial....................................................11
6.3 Content of Notice...................................................11
6.4 Review Procedures...................................................12
6.5 Decision on Review..................................................12
Article VII General Provisions................................................13
7.1 Administration......................................................13
7.2 Funding.............................................................13
7.3 No Employment Contract..............................................13
7.4 Spendthrift Provision...............................................14
7.5 Binding Effect......................................................14
i
<PAGE>
7.6 Applicable Law......................................................14
7.7 Administrative Discretion...........................................14
7.8 Withholding.........................................................14
7.9 Severability........................................................15
7.10 Amendment and Termination...........................................15
7.11 Titles and Headings Not to Control..................................16
7.12 Small Benefits......................................................16
EXHIBIT A Actuarial Equivalence Factors
EXHIBIT B Beneficiary Designations
FORM I Beneficiary Designation
FORM II Beneficiary Designation for 50% or 100% Joint and Survivor Annuity
FORM III Beneficiary Designation for 10 Year Certain Life Annuity
ii
<PAGE>
THE PENN TRAFFIC COMPANY
SUPPLEMENTAL RETIREMENT PLAN
FOR
NON-EMPLOYEE EXECUTIVES
ARTICLE I
ESTABLISHMENT, PURPOSE AND EFFECTIVE DATE OF PLAN
1.1 ESTABLISHMENT. The Penn Traffic Company ("Company"), a Delaware
corporation, hereby establishes a supplemental retirement program for
certain non-employee executives, which shall be known as The Penn
Traffic Company Supplemental Retirement Plan For Non-Employee
Executives ("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, retirement income.
Payment of the retirement benefits under this Plan shall be made from
the general assets of the Company, or by such other method as is
consistent with Section 7.2 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 June 29, 1999.
ARTICLE II
DEFINITIONS
2.1 DEFINITIONS. Whenever used herein, the following terms shall have their
respective meanings set forth below:
(A) "Account" means the bookkeeping account established and
maintained with respect to an Executive pursuant to Section
4.1.
<PAGE>
(B) "Accrued Benefit" means, with respect to an Executive, the
monthly benefit determined in accordance with Section 5.1,
payable in the form of a single life annuity commencing at
Normal Retirement Date, or, if later, actual Termination Date.
(C) "Actuarial Equivalent", means with respect to a specified
annuity or benefit, another annuity or benefit commencing at a
different date and/or payable in a different form, but which
has the same present value when computed using the applicable
mortality and interest rate assumptions set forth in Exhibit
A, attached hereto.
(D) "Beneficiary" means the person(s) properly designated to
receive, under provisions of the Plan, benefits payable in the
event of the Executive's death.
(E) "Board" means the Board of Directors of the Company.
(F) "Code" means the Internal Revenue Code of 1986, as amended
from time to time, and any regulations relating thereto.
(G) "Committee" means the Compensation and Stock Option Committee
of the Board.
(H) "Company" means The Penn Traffic Company, a Delaware
corporation.
(I) "Compensation" means (i) with respect to Gary D. Hirsch,
$950,000 per annum and (ii) with respect to Martin A. Fox,
$500,000 per annum, prorated by days for the short year in
which their Termination Date occurs.
(J) "Corporate Plan" means The Penn Traffic Company Cash Balance
Pension Plan.
2
<PAGE>
(K) "Disability" means being Disabled under Section 8(b) of the
Management Agreement.
(L) "Effective Date" means June 29, 1999.
(M) "Executive" means Gary D. Hirsch ("Hirsch") and Martin A. Fox
("Fox").
(N) "Interest Credits" means additions to an Executive's Account
determined pursuant to Section 4.3. Interest Credits shall be
earned each Plan Year based on the "Applicable Interest Rate"
as defined in Exhibit A, attached hereto.
(O) "Management Agreement" means the management agreement between
the Company and Hirsch & Fox, L.L.C. dated June 29, 1999 and
any extension or renewal thereof, or successor agreement
thereto.
(P) "Normal Retirement Date" means the first day of the month
coinciding with or next following the date the Executive
attains age 65.
(Q) "Opening Account Balance" means the initial bookkeeping
account established pursuant to Section 4.4 of the Plan.
(R) "Pay-Based Credit" means additions to an Executive's Account
determined pursuant to Section 4.2.
(S) "Plan" means The Penn Traffic Company Supplemental Retirement
Plan for Non-Employee Executives, as amended from time to
time.
(T) "Plan Year" means the period June 29, 1999 through December
31, 1999 and each subsequent twelve-month period from January
1st through December 31st for which this Plan is in effect.
3
<PAGE>
(U) "Retirement Benefit" means the benefit payable to the
Executive on or after his Termination Date, but prior to his
death, pursuant to Article V of the Plan.
(V) "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 his death.
(W) "Termination Date" means the date on which the Executive
ceases to provide services to the Company under the Management
Agreement for any reason.
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. All benefits under this Plan shall be fully vested and
nonforfeitable at all times.
ARTICLE IV
ACCOUNTS AND CREDITS TO ACCOUNTS
4.1 Accounts.
(B) When an Account is initially established for an Executive, the
Account shall be credited with an Opening Account Balance in accordance
with Section 4.4
4.2 BASIC PAY-BASED CREDITS. An Executive shall accrue a Pay-Based Credit
under this Section 4.2 for each Plan Year. The amount of the Pay-Based
Credit for an Executive shall be three percent (3%) of the Executive's
Compensation for such Plan Year. The
4
<PAGE>
determination of the amount creditable hereunder for a Plan Year shall
be made as of the last day of the Plan Year.
4.3 INTEREST CREDITS. Each Plan Year each Executive's Account shall be
automatically increased as of the last day of such Plan Year by
crediting the balance in such Account as of the last day of the
previous Plan Year (or, in the case of the first Plan Year, as of the
Effective Date), with an Interest Credit equal to said Account balance
multiplied by 5%. Such Interest Credits shall continue after the
Executive's Termination Date, provided, however, that no Interest
Credits shall be made to an Executive's Account for any Plan Year
beginning on or after the date on which payment of his benefit
commences. For the Plan Year in which the Executive's benefit
commencement date occurs, an Interest Credit shall be made on a pro
rata basis through the end of the month prior to the month in which the
date of benefit commencement occurs.
4.4 OPENING ACCOUNT BALANCE. Fox shall have an Opening Account Balance as
of the Effective Date which shall be reflected in an initial
bookkeeping account established on his behalf. Fox's Opening Account
Balance shall be $175,000.
5
<PAGE>
ARTICLE V
RETIREMENT BENEFITS
5.1 NORMAL RETIREMENT BENEFIT. An Executive whose Termination Date is on or
after his Normal Retirement Date shall be entitled to receive a "Normal
Retirement Benefit" commencing on his Normal Retirement Date. An
Executive's Normal Retirement Benefit shall be the monthly benefit
payable as a single life annuity which is the Actuarial Equivalent of
the Executive's Account value as of the Executive's Normal Retirement
Date. An Executive's Accrued Benefit as of any date prior to the
Executive's Normal Retirement Date shall be the monthly benefit payable
as a single life annuity which is the Actuarial Equivalent of the
Executive's Account value at the date of determination projected to the
value it would have at the Executive's Normal Retirement Date assuming
additional Interest Credits continue to be made to the Account through
the Executive's Normal Retirement Date.
5.2 LATE RETIREMENT BENEFIT. If an Executive remains employed beyond his
Normal Retirement Date, he shall be entitled to receive a retirement
benefit equal to the greater of (i) the monthly benefit payable as a
single life annuity that is the Actuarial Equivalent of the value of
his Account as of his actual retirement date, considering all Pay-Based
Credits and Interest Credits thereto after his Normal Retirement Date,
or (ii) the Actuarial Equivalent of his Normal Retirement Benefit
computed at Normal Retirement Date, but based on payment commencing at
the time of actual retirement.
5.3 EARLY RETIREMENT BENEFIT. An Executive who has attained age 55 may
elect to retire prior to his Normal Retirement Date. Such an Executive
shall receive a retirement benefit commencing at Normal Retirement Date
equal to his Normal Retirement Benefit.
6
<PAGE>
5.4 DISABILITY BENEFIT. An Executive who incurs a Disability prior to his
Termination Date has a right to a Retirement Benefit. Such a Disabled
Executive, or an Executive who, subsequent to his Termination Date
becomes Disabled, shall be entitled to receive a Retirement Benefit
payable as of the first day of any month subsequent to the
determination of Disability under the Management Agreement. The amount
of the disability benefit shall be the Actuarial Equivalent of the
Normal Retirement Benefit.
5.5 FORM OF BENEFIT. At least six months prior to the Executive's
Termination Date, or, subject to the consent of the Committee, at any
time prior to the Executive's Termination Date, the Executive may elect
to receive his Retirement Benefit in one of the following forms:
(B) a 50% joint and survivor annuity, payable monthly,
(D) a single life annuity, payable monthly, with 10 years
certain; or Each of the optional forms of benefit under Sections 5.5(B)
through (E) above, shall be the Actuarial Equivalent of the Executive's
Retirement Benefit. Unless the Executive shall have otherwise elected
as described above, the Executive's Retirement Benefit shall be paid in
a single lump sum, notwithstanding any other provision of the Plan. For
the joint and survivor options in Section 5.5(B) and (C) above, the
Executive shall designate a single Beneficiary before the commencement
date described in Section 5.6 ("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 purposes of any benefit
payable upon the Executive's death prior to the commencement of his
benefit payments
7
<PAGE>
and for purposes of the 10-year certain option in Section 5.5(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 as the result of
the Executive's death prior to the commencement of payments or due for
the remainder of the10-year period shall be paid to the Executive's
estate. Sample Beneficiary designations are attached at Exhibit B.
5.6 PAYMENT OF NORMAL RETIREMENT BENEFIT. Once the Executive has reached
the Executive's Normal Retirement Date, payment of the Retirement
Benefit shall commence on the first day of the month following the
month in which the Termination Date occurs. Other than in the case of a
lump sum payment, payment of the 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.
5.7 TERMINATION PRIOR TO NORMAL RETIREMENT. In the event the Executive's
Termination Date is prior to the Executive's Normal Retirement Date,
the Executive shall be entitled to be paid his Retirement Benefit
pursuant to this Article V as follows:
(A) EARLY RETIREMENT. In the event the Executive's Termination
Date is after he has attained at least age fifty-five (55),
the Executive shall be entitled to receive his Retirement
Benefit. The Retirement Benefit shall be determined by: (i)
applying
8
<PAGE>
the formula in Section 4.1 as of the date benefits commence
("early retirement date"); 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. In the event the Executive's
Termination Date is before January 1, 2003 and before he has
attained age 55, the Executive shall be entitled to receive,
upon reaching age 55, the reduced Retirement Benefit described
in the preceding sentence.
(B) EARLY PAYMENT. In lieu of a Retirement Benefit commencing at
Normal Retirement Date or an Early Retirement Benefit,
described in Subsection (A), above, an Executive may elect
early payment of the Actuarial Equivalent of his Normal
Retirement Benefit in a lump sum or annuity form of payment.
Such benefit may commence at the later of January 1, 2003 or
the first day of the month following his Termination Date.
(C) DEATH. If the Executive dies prior to the commencement of any
benefit payments under this Plan whether before or after his
Termination Date, the Executive's Beneficiary shall be
entitled to commence payment of a death benefit as of the
first day of any month after the Executive's death. Unless the
Beneficiary elects a form of benefit payment listed under
Section 5.5(A) through (D), the death benefit shall be payable
in a single lump sum in an amount which is the Actuarial
Equivalent of the Executive's Account value at the date of his
death increased by any Interest Credits made under the Plan
prior to the date on which distribution of the benefit is made
or commences. The foregoing rules regarding the payment of
9
<PAGE>
death benefits under the Plan also shall apply if the
Executive's Termination Date is after his Normal Retirement
Date and the Executive dies before the payment of benefits
commences under the Plan.
(D) DEATH AFTER BENEFIT PAYMENTS Commence. 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.
5.8 LIMITATION ON ANNUAL BENEFITS. Notwithstanding anything to the contrary
set forth herein, the annual "pension expense" of the Company with
respect to this Plan for any Plan Year with respect to the Executives
as of the Effective Date shall not exceed $100,000 (or, for any Plan
Year consisting of less than twelve (12) months, the product of (A)
$100,000 and (B) a fraction, the numerator of which is the number of
full months in such short Plan Year, and the denominator of which is
twelve) ("Annual Limit"). For purposes of this Section 5.8, the term
"pension expense" shall mean the annual pension expense of the Company
as determined pursuant to Financial Accounting Standard #87, as
calculated by the Company's regular independent accounting firm. In the
event the Company's annual pension expense, determined in the absence
of this Section 5.8, would exceed the Annual Limit (the "Excess Pension
Expense"), the benefit of the Executives accrued for such Plan Year
shall be reduced in the following manner:
(i) by reducing the Interest Credits under Section 4.1 by
50% of the Excess Pension Expense and allocating the
reduction in proportion to the amount
10
<PAGE>
of such Interest Credits attributable to each
Executive prior to the reduction mandated by this
Section 5.8; and
(ii) by reducing the Pay-Based Credits under Section 4.2
by 50% of the Excess Pension Expense and allocating
the reduction in proportion to the Pay-Based Credit
for each Executive prior to the application of the
reduction mandated by this Section 5.8.
ARTICLE VI
CLAIMS PROCEDURE
6.1 WRITTEN REQUEST. Any claim for benefits by the Executive or his
Beneficiaries shall be made in writing to the Committee. In this
Article VI, the Executive and his Beneficiaries are referred to
collectively as claimants.
6.2 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 if receives a claim, 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.
6.3 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
11
<PAGE>
(D) an explanation of the review procedures provided below.
6.4 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 b 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.
6.5 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 the decision is based.
(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's final decision.
12
<PAGE>
ARTICLE VII
GENERAL PROVISIONS
7.1 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.
7.2 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 non-employee executives and
thus would not be subject to the Employee Retirement Income Security
Act of 1974, as amended ("ERISA"). However, if the Plan is interpreted
to be subject to ERISA, it is the intention of the parties that this
Plan 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 ERISA.
7.3 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 limitation on the right of
13
<PAGE>
the Company to terminate, discontinue , or fail to renew or extend the
Management Agreement, subject to the terms and conditions thereof, and
without regard to the effect that such discontinuity may have upon the
Executive's rights or potential rights, if any, under this Plan.
7.4 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 for alimony, support,
separate maintenance and claims in bankruptcy proceedings.
7.5 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.
7.6 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, if it is determined that the Plan is subject to
ERISA.
7.7 ADMINISTRATIVE DISCRETION. The Plan shall be administered by the
Committee.
7.8 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 Executive's employer may be required to
withhold. In addition, as the Retirement Benefit accrues during the
period of time that the Executive provides services to the Company
14
<PAGE>
under the Management Agreement, the regular payments that the Company
makes to Hirsch & Fox LLC with respect to the Executive's services to
the Company shall be subject to FICA or other employee payroll,
withholding or other similar taxes which the Company may be required to
withhold on the accrual of benefits. The Company and Hirsch & Fox LLC
shall make such arrangements as are necessary and appropriate, in the
judgment of the Committee, to assure that the proper amount of federal
and state income, FICA or other employee payment, withholding or
similar tax has been withheld and reported to the appropriate
governmental authority or authorities without duplication.
7.9 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.
7.10 AMENDMENT AND TERMINATION. The Company intends to maintain this Plan
until all benefit payments are made pursuant to the Plan. However,
except as otherwise required by the Management Agreement, 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
15
<PAGE>
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. Notwithstanding any other provision in the
Plan to the contrary, the Plan shall terminate automatically upon the
final payment of all amounts payable hereunder.
7.11 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.
7.12 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 accrued benefit of any
Executive whose Termination Date is 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 7.10 hereof) shall be paid to his in a lump sum in lieu of any
benefits to which he may be entitled under this Plan.
THE PENN TRAFFIC COMPANY
By: /s/ Francis D. Price
------------------------------------
Francis D. Price, Jr.
Vice President and Assistant Secretary
16
<PAGE>
EXHIBIT A
ACTUARIAL EQUIVALENCE FACTORS
The interest rate, mortality table and other factors, if any, applicable for
purposes of determining an Actuarial Equivalent benefit under Plan shall be
determined in accordance with the applicable section of this Exhibit A as set
forth below.
For purposes of this Exhibit A, "APPLICABLE MORTALITY TABLE" means the mortality
table prescribed by the Internal Revenue Service, which shall be based on the
prevailing commissioner's standard table (described in ss.807(d)(5)(A) of the
Code) used to determine reserves for group annuity contracts issued on the date
as of which a present value is determined (without regard to any other
subparagraph of ss.807(d)(5) of the Code) as specified by the Internal Revenue
Service.
Also for purposes of this Exhibit A, "APPLICABLE INTEREST RATE" means, for a
Plan Year, the annual rate of interest on 30-year Treasury securities as
specified by the Internal Revenue Service for August of the preceding Plan Year,
in revenue rulings, notices or other guidance published in the Internal Revenue
Bulletin.
LUMP SUM VALUE OF ACCRUED BENEFIT - For purposes of determining the Actuarially
Equivalent lump sum value as of any determination date of a Participant's
Accrued Benefit under the Plan, Actuarial Equivalence will be based upon
the following:
MORTALITY: Applicable Mortality Table
INTEREST RATE: Applicable Interest Rate
CONVERSION OF ACCOUNT TO SINGLE-LIFE ANNUITY - For purposes of determining the
Actuarially Equivalent single life annuity value of a Participant's Account
under the Plan, Actuarial Equivalence will be based upon the following:
MORTALITY: Applicable Mortality Table
INTEREST RATE: Applicable Interest Rate
OPTIONAL FORMS - For purposes of converting a single life annuity to an
Actuarially Equivalent optional form of payment under the Plan, other than
a lump sum, Actuarial Equivalence will be based upon the following:
MORTALITY: 1983 GAM (Unisex Table)
INTEREST RATE: 7%
REDUCTION FOR EARLY RETIREMENT BENEFIT PAYMENTS PRIOR TO NORMAL RETIREMENT AGE -
A Participant's Accrued Benefit shall be reduced by 5% for each year (or
5/12% for each full month) prior to Normal Retirement Date that such
benefit is paid.
<PAGE>
OTHER ACTUARIAL EQUIVALENCE DETERMINATIONS. The Applicable Interest Rate and
the Applicable Mortality Table shall be used for all other actuarial
equivalence determinations.
2
<PAGE>
EXHIBIT B
Beneficiary Designations
1. Sample Beneficiary Form I is to be used for the Executive to designate
one or more Beneficiaries to receive his benefit under the Plan if he
dies prior to commencement of his benefit payments.
2. Sample Beneficiary Form II is to be used if the Executive's benefits
will be paid as a 50% or 100% joint and survivor annuity.
3. Sample Beneficiary Form III is to be used if the Executive's benefits
will be paid as a single life annuity with 10 years certain life
annuity.
3
<PAGE>
FORM I
THE PENN TRAFFIC COMPANY
EXECUTIVES' RETIREMENT PLAN
BENEFICIARY DESIGNATION
Executive:_____________________ Social Security Number:_______________
Primary Beneficiary:__________________________________________
Social Security Number:_______________________________________
Relationship:___________________________________________________________________
Address:________________________________________________________________________
INSTRUCTION: USE THE FOLLOWING SPACE TO PROVIDE THIS SAME INFORMATION ABOUT
ADDITIONAL PRIMARY BENEFICIARIES, IF YOU WISH TO NAME MORE THAN ON PRIMARY
BENEFICIARY. FOLLOWING THIS SAME INSTRUCTION BELOW, IF YOU WISH TO NAME MORE
THAN ONE CONTINGENT BENEFICIARY.
Contingent Beneficiary:_______________________________________
Social Security Number:_______________________________________
Relationship:___________________________________________________________________
Address:________________________________________________________________________
Date:___________________ ____________________________________
<PAGE>
FORM II
THE PENN TRAFFIC COMPANY
EXECUTIVES' RETIREMENT PLAN
BENEFICIARY DESIGNATION FOR 50% OR 100% JOINT AND SURVIVOR ANNUITY
Executive:_____________________________________
Social Security Number:________________________
Beneficiary:___________________________________
Social Security Number:________________________
Relationship:___________________________________________________________________
Address:________________________________________________________________________
________________________________________________________________________________
Date:___________________ ___________________________________
<PAGE>
FORM III
THE PENN TRAFFIC COMPANY
EXECUTIVES' RETIREMENT PLAN
BENEFICIARY DESIGNATION FOR 10 YEAR CERTAIN LIFE ANNUITY
Executive:________________ Social Security Number:_______________
Primary Beneficiary:__________________________________________
Social Security Number:_______________________________________
Relationship:___________________________________________________________________
Address:________________________________________________________________________
INSTRUCTION: USE THE FOLLOWING SPACE TO PROVIDE THIS SAME INFORMATION ABOUT
ADDITIONAL PRIMARY BENEFICIARIES, IF YOU WISH TO NAME MORE THAN ON PRIMARY
BENEFICIARY. FOLLOWING THIS SAME INSTRUCTION BELOW, IF YOU WISH TO NAME MORE
THAN ONE CONTINGENT BENEFICIARY.
Contingent Beneficiary:__________________________________
Social Security Number:__________________________________
Relationship:___________________________________________________________________
Address:________________________________________________________________________
Date:___________________ ________________________________
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<PERIOD-END> OCT-30-1999
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0
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