-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, Ljy9P4PX734ZNk3khIxmz37zxmWE16niIDIi7XGci1s3k218dLqQC3QpcsNW6IyE SXQaMeoBYSkZGbioa7cZYQ== 0000912057-95-002728.txt : 19950427 0000912057-95-002728.hdr.sgml : 19950427 ACCESSION NUMBER: 0000912057-95-002728 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19950128 FILED AS OF DATE: 19950426 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: PENN TRAFFIC CO CENTRAL INDEX KEY: 0000077155 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-GROCERY STORES [5411] IRS NUMBER: 250716800 STATE OF INCORPORATION: PA FISCAL YEAR END: 0131 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-09930 FILM NUMBER: 95531473 BUSINESS ADDRESS: STREET 1: 319 WASHINGTON STREET CITY: JOHNSTOWN STATE: PA ZIP: 15901 BUSINESS PHONE: 8145369900 MAIL ADDRESS: STREET 1: 1200 STATE FAIR BLVD CITY: SYRACUSE STATE: NY ZIP: 13221-4737 10-K 1 10-K SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended January 28, 1995 OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ____________ to __________ Commission file number 1-9930 THE PENN TRAFFIC COMPANY (Exact name of Registrant as specified in its charter) DELAWARE 25-0716800 ---------------------------- ----------------------- (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification No.) 1200 STATE FAIR BOULEVARD, SYRACUSE, NEW YORK 13221-4737 ------------------------------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (315) 453-7284 ---------------- Securities registered pursuant to Section 12(b) of the Act: Name of each exchange Title of each class on which registered ------------------- ---------------------- Common Stock, $1.25 par value New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: NONE Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past ninety (90) days. YES X NO ---- ---- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] The aggregate market value of voting stock held by non-affiliates of the Registrant was $274,252,150 as of April 17, 1995. COMMON STOCK $1.25 PAR VALUE - SHARES OUTSTANDING - 10,879,201 AS OF APRIL 17, 1995 DOCUMENTS INCORPORATED BY REFERENCE Portions of the Proxy Statement dated May 1, 1995 provided to Registrant's stockholders in connection with the annual meeting of stockholders scheduled for June 7, 1995 are incorporated by reference in Part III of this Form 10-K. 1 FORM 10-K INDEX - ------------------------------------------------------------------------- PART I PAGE - ------------------------------------------------------------------------- Item 1. Business 3 Item 2. Properties 15 Item 3. Legal Proceedings 15 Item 4. Submission of Matters to a Vote of Security Holders 15 Supplemental Item. Executive Officers of Registrant 16 - ------------------------------------------------------------------------- PART II - ------------------------------------------------------------------------- Item 5. Market for Registrant's Common Equity and Related Stockholder Matters 19 Item 6. Selected Financial Data 19 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 19 Item 8. Financial Statements and Supplementary Data 19 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 20 - ------------------------------------------------------------------------- PART III - ------------------------------------------------------------------------- Item 10. Directors and Executive Officers of the Registrant 55 Item 11. Executive Compensation 55 Item 12. Security Ownership of Certain Beneficial Owners and Management 55 Item 13. Certain Relationships and Related Transactions 55 - ------------------------------------------------------------------------- PART IV - ------------------------------------------------------------------------- Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 56 - ------------------------------------------------------------------------- -2- PART I ITEM 1. BUSINESS (AS OF JANUARY 28, 1995 UNLESS OTHERWISE NOTED) GENERAL The Penn Traffic Company ("Penn Traffic" or the "Company") is one of the leading food retailers in the eastern United States. Penn Traffic operates 267 supermarkets in Pennsylvania, upstate New York, Ohio and northern West Virginia under the names "Riverside Markets" (24 stores), "Bi-Lo Foods" (24 stores), "Insalaco's" (30 stores), "Quality Markets" (44 stores), "P&C Foods" (68 stores), and "Big Bear" and "Big Bear Plus" (77 stores). Penn Traffic also operates a wholesale food distribution business which serves 124 licensed franchisees and 117 independent operators and a discount general merchandise business with 15 stores. Total consolidated revenues in the fiscal year ended January 28, 1995 aggregated approximately $3.3 billion. Approximately 70% of Penn Traffic's supermarket sales are in smaller communities where Penn Traffic believes it virtually always holds the number one or number two market position. The balance of Penn Traffic's sales is in Columbus, Ohio and Buffalo and Syracuse, New York. Penn Traffic believes it has the leading market share in each of these communities except Buffalo, New York. Penn Traffic's retail and wholesale operations stretch from Ohio to upstate New York. The Company operates in communities with diverse economies based on manufacturing, natural resources, retailing, health care services, education and government services. No supermarket company competes against stores representing more than 20% of Penn Traffic's revenues, with the exception of Kroger, which competes against Big Bear stores representing approximately 30% of Penn Traffic's revenues. In addition, Penn Traffic operates a full-service dairy business in Johnstown, Pennsylvania under the name "Sani-Dairy" and bakery businesses in Syracuse, New York and Columbus, Ohio under the names "Penny Curtiss" and "Big Bear Bakeries", respectively. Penn Traffic pursues an aggressive capital program that seeks to match store size and format to local demographics and competitive conditions. During the five fiscal years ended January 28, 1995, Penn Traffic has opened or remodeled approximately 70% of its retail supermarket square footage. These larger, more modern facilities strengthen Penn Traffic's competitive position and enable it to offer its customers a broader variety of specialty departments, including pharmacies, bakeries, delicatessens, floral products, greeting cards and other general merchandise. Over the next five fiscal years (including the fiscal year ending February 3, 1996), Penn Traffic expects to spend approximately $700 million on capital expenditures (including capital leases), equivalent to approximately 3.5% to 4.0% of planned retail sales over this period. These expenditures are expected to be made within or contiguous to Penn Traffic's current marketing areas, primarily to support Penn Traffic's retail supermarket business. Penn Traffic believes that it will be able to fund its capital plan through internally generated funds, borrowings under its revolving credit facility and capital leases. -3- Penn Traffic also expects to derive long-term benefits in operational performance and cost savings from its continuing investment in and implementation of technology. Examples of recent in-store projects include coupon scanning to improve customer service and reduce misredemption, automated scale management to improve price accuracy and expedite customer checkout, a direct store delivery system to speed receipt of merchandise and eliminate payment errors, and satellite transmissions that enable the Company to communicate more efficiently between the stores and headquarters. The principal executive offices of Penn Traffic are located at 1200 State Fair Boulevard, Syracuse, New York 13221-4737. The Company's telephone number is (315) 453-7284. -4- RETAIL FOOD DISTRIBUTION BUSINESS Penn Traffic is one of the leading supermarket retailers in its primary operating areas in New York, Pennsylvania and Ohio. Penn Traffic's supermarkets are primarily located in towns and small cities. In many of these communities, Penn Traffic operates or licenses one or more of a small number of supermarkets or the only supermarket in town. Penn Traffic's store sizes and formats vary widely, depending upon the demographic and competitive conditions in each location. For example, "conventional" store formats are generally more appropriate in areas of low population density, while larger or more affluent areas are better served by full service supermarkets of up to 65,000 square feet, which contain numerous specialty service departments such as bakeries, delicatessens, floral departments and fresh seafood departments. Penn Traffic's "Plus" format has store sizes ranging from 65,000 to 140,000 square feet. These full service supermarkets carry an expanded variety of nonfood merchandise. Penn Traffic's supermarkets offer a broad selection of grocery, meat, poultry, seafood, dairy, fresh fruit, vegetable and frozen food products. The stores also offer nonfood products and services such as health and beauty products, housewares, general merchandise, floral items, video rental departments and banking services. In general, Penn Traffic's larger stores carry broader selections of merchandise and feature a larger variety of service departments. Most of the supermarkets are located in shopping centers. Penn Traffic believes that its data processing and automated systems are sophisticated and up-to-date. Approximately 92% of Penn Traffic's stores use product scanning systems and proprietary software to provide inventory and shrinkage controls at both delivery and checkout points. Penn Traffic stores utilize a "Time and Attendance" system where employees use computer-coded badges which are inserted in a computer scanner at various times during a work shift to ensure that employees work only during authorized periods. Penn Traffic stores also use direct store delivery receiving systems to increase security and accountability for outside vendor product deliveries to retail locations. -5- SELECTED STATISTICS ON PENN TRAFFIC'S RETAIL FOOD STORES ARE PRESENTED BELOW.
FISCAL YEAR ENDED - ---------------------------------------------------------------------------------------------------------------------------- JANUARY 28, JANUARY 29, JANUARY 30, FEBRUARY 1, FEBRUARY 2, 1995 1994 1993 1992 1991 - ---------------------------------------------------------------------------------------------------------------------------- Average annual sales per store $11,941,000 $11,816,000 $11,433,000 $11,420,000 $10,821,000 Total store area in square feet 9,927,633 8,803,297 7,868,411 6,347,453 5,877,321 Total store selling area in square feet 7,140,390 6,333,023 5,684,179 4,561,199 4,199,008 Average total square feet per store 37,182 37,945 36,260 33,584 30,933 Average square feet of selling area per store 26,743 27,298 26,194 24,133 22,100 Annual sales per square foot of selling area $434.09 $442.23 $452.66 $485.39 $512.15 Number of stores: Remodels/expansions (over $100,000) 9 39 12 18 9 New stores opened 12 12 10 6 7 Stores acquired 31(1) 19(2) 29(2) 1 4 Stores closed 8 16 11 8 33(3) Size of stores (total store area): Up to 19,999 square feet 39 29 33 33 37 20,000 - 29,999 square feet 67 60 63 65 71 30,000 - 44,999 square feet 96 86 73 61 59 45,000 - 60,000 square feet 48 43 36 21 18 Greater than 60,000 square feet 17 14 12 9 5 Total stores open at fiscal year end 267 232 217 189 190 (1) Includes the addition of 30 of the 45 former Acme stores acquired by the Company on January 19, 1995 which Penn Traffic expects to operate. (2) Includes the addition of 12 Insalaco's stores acquired by the Company on September 27, 1993 and the addition of 23 stores acquired from the Peter J. Schmitt Co., Inc. ("Schmitt") on January 5, 1993 which the Company initially operated. (3) Includes divestiture of 26 P&C New England Division stores. See "Divestiture of P&C New England Division" on Page 13 of this Form 10-K.
-6- WHOLESALE FOOD DISTRIBUTION BUSINESS Penn Traffic licenses the use of its "Riverside Markets," "Bi-Lo Foods" and "Big M" names to 124 independently owned supermarkets that are required to maintain certain quality and other standards and 117 independent operators. The majority of these independent stores use Penn Traffic as their primary wholesaler and also receive advertising, accounting, merchandising, consulting and retail counseling services from Penn Traffic. Penn Traffic receives rent from 59 of the licensed independent operators which lease or sublease the supermarket buildings and much of the equipment used in the supermarkets from Penn Traffic. In Fiscal 1995, Penn Traffic's wholesale operations accounted for $434.4 million or 13.0% of total revenues. The incremental volume provided by wholesale operations enhances Penn Traffic's purchasing power and enables it to improve the efficiency of its distribution system. At January 28, 1995, Penn Traffic had guaranteed obligations of $2.7 million of indebtedness of certain of such licensed independent operators. Riverside receives an initial fee but no annual fee for the license of its Riverside Markets and Bi-Lo Foods names. P&C receives neither an initial fee nor an annual fee for the use of the Big M name. FOOD PROCESSING OPERATIONS Sani-Dairy owns and operates a dairy processing plant in Johnstown, Pennsylvania, which is one of the largest dairies in Pennsylvania. This plant produces over 900 dairy and dairy-related products which are distributed directly from the plant or through two Penn Traffic-owned distribution facilities in Pennsylvania and one distribution facility in northwestern Maryland. The Sani-Dairy Division sells its products to certain Penn Traffic- owned and licensed supermarkets and to other retail outlets located in Pennsylvania and adjoining states. Penn Traffic owns and operates Penny Curtiss Bakery, a bakery processing plant in Syracuse, New York. This operation primarily supplies P&C's stores and its affiliated accounts with private label fresh and frozen bakery products. In addition, Riverside and Quality Markets procure certain fresh and frozen bakery products from Penny Curtiss. Penn Traffic also owns and operates Big Bear Bakeries, a bakery in Columbus, Ohio. This operation primarily supplies Big Bear stores with private label fresh and frozen bakery products. -7- MASS MERCHANDISING BUSINESS Fourteen of the fifteen Harts stores are located in central and southern Ohio, and one is located in northern West Virginia. Harts discount general merchandise stores (other than two small variety stores) range in size from approximately 39,000 square feet to approximately 86,000 square feet. The average store (excluding the variety stores) has approximately 66,000 square feet. Harts stores sell a wide variety of products, including health and beauty care items, hardware, housewares, sporting goods, electronics and apparel. Eleven of the Harts stores have pharmacies. The lines of products carried by each store vary to some extent to meet different patterns of local demand. The profitability of the Company's general merchandise operations is much more sensitive to the Ohio economy than its supermarket operations and can be expected to be adversely impacted by a decline in economic conditions. PURCHASING AND DISTRIBUTION Penn Traffic is a large volume purchaser of products. Penn Traffic's purchases are of sufficient volume to qualify for minimum price brackets for most items. Penn Traffic purchases brand name grocery merchandise directly from national manufacturers. The Company purchases private label and generic items from TOPCO Associates, Inc., a national purchasing cooperative comprising 46 regional supermarket chains. In Fiscal 1995, purchases from TOPCO Associates accounted for approximately 14% of product purchases. Penn Traffic's principal Pennsylvania distribution facility is a Company-owned 390,000-square foot distribution center in DuBois, Pennsylvania. Penn Traffic also operates a 196,000-square foot distribution center for perishable products in DuBois, Pennsylvania. In addition, Penn Traffic leases a 70,000-square foot warehouse in New Bethlehem, Pennsylvania, which Penn Traffic uses to supplement its forward buy program, under which Penn Traffic purchases and stores for later sale certain products which from time to time are available for purchase at reduced prices. Penn Traffic also leases a 37,000-square foot warehouse in Punxsutawney, Pennsylvania, which houses certain store supplies and aerosol products and a 44,000-square foot warehouse in DuBois, Pennsylvania, which houses high-bulk grocery products. The principal New York distribution facility is a highly automated, Company- owned 498,000-square foot distribution center in Syracuse, New York. The Company also owns a 217,000-square foot distribution center for perishable products in Syracuse, New York. Penn Traffic also owns a 267,000-square foot distribution center in Jamestown, New York. In Fiscal 1995, the Company leased a 12,000-square foot perishable floral warehouse in Jamestown, New York. The primary Ohio distribution center is a leased 484,000-square foot dry grocery facility in Columbus, Ohio. Penn Traffic also owns a 208,000-square foot distribution facility for perishable goods in Columbus, Ohio. Big Bear also leases two general merchandise warehouses comprising 399,000 square feet in Columbus, Ohio. -8- In September 1993, Penn Traffic entered into a program to consolidate the purchasing and distribution of health and beauty care products and general merchandise with The Grand Union Company ("Grand Union"). Under this program, Grand Union procures health and beauty care products for both Grand Union and Penn Traffic, and Penn Traffic, through its Big Bear division, procures general merchandise for both Penn Traffic and Grand Union. Grand Union's general merchandise warehouse in Montgomery, New York is used to distribute general merchandise and health and beauty care products to Insalaco's, P&C, Quality Markets and Riverside stores. This warehouse also supplies the majority of Penn Traffic's wholesale customers, as well as Grand Union stores. Under the arrangement, the cost of operating the Montgomery warehouse is shared by Penn Traffic in an amount proportionate to Penn Traffic's usage of the facility. Penn Traffic owns the general merchandise and health and beauty care products inventory located at the Montgomery, New York warehouse. In January 1995, Grand Union filed a voluntary petition for reorganization under Chapter 11 of the United States Bankruptcy Code with the United States Bankruptcy Court, District of Delaware. The Company's ongoing relationships with Grand Union are being reevaluated in connection with the pending Grand Union bankruptcy proceedings. No determination has yet been made as to whether, or on what basis, the Company's and Grand Union's arrangement with regard to consolidated purchasing and distribution of health and beauty care products and of general merchandise will be continued. Approximately 80% of the merchandise offered in Penn Traffic's retail stores is distributed from its warehouses by its fleet of 332 tractors, 397 refrigerated trailers and 554 dry trailers. Merchandise not delivered from Penn Traffic's warehouses or from the Grand Union general merchandise warehouse in Montgomery, New York, as described above, is delivered directly to the stores by distributors, vendor drivers and salesmen for such products as beverages, snack foods and bakery items. COMPETITION The food retailing business is highly competitive and may be affected by general economic conditions. The number of competitors and the degree of competition experienced by Penn Traffic's supermarkets vary by location. Penn Traffic competes with several regional and local supermarket chains, convenience stores, stores owned and operated and otherwise affiliated with large food wholesalers, unaffiliated independent food stores, warehouse clubs, discount drug store chains and discount general merchandise chains. No other supermarket company competes against Penn Traffic stores representing more than 20% of Penn Traffic's revenues, with the exception of Kroger, which competes against Big Bear stores, representing approximately 30% of Penn Traffic's revenues. -9- EMPLOYEES Labor costs and their impact on product prices are important competitive factors in the supermarket industry. At January 28, 1995, Penn Traffic had 26,700 hourly employees and 1,800 salaried employees. Approximately 51% of Penn Traffic's hourly employees belong to the United Food and Commercial Workers union. An additional 7% of Penn Traffic's hourly employees (principally involved in the distribution function and the Company's dairy and bakery plants) belong to six other unions. The Company competes with certain independently owned and chain-owned supermarkets, discount drug stores, warehouse clubs and general merchandise stores, whose employees are not union affiliated. Penn Traffic believes its relationships with its employees are good. GOVERNMENT REGULATION The United States Department of Agriculture and the Pennsylvania Milk Marketing Board each regulate and inspect all aspects of fluid milk and dairy product production, enforcing strict standards of sanitation, product composition, packaging and labelling, as well as regulating milk and dairy product pricing. All dairy goods producers and distributors must comply with substantially similar standards, and compliance by Penn Traffic with these standards has not had and is not expected to have a significant effect on its earnings or competitive position. SEASONALITY, CUSTOMERS AND SUPPLIERS The supermarket business of Penn Traffic is generally not seasonal in nature. During the past three fiscal years, no single customer or group of customers under common control accounted for 10% or more of Penn Traffic's consolidated revenues. Groceries, general merchandise and raw materials are available from many different sources. During the past three fiscal years, no single supplier accounted for 10% or more of Penn Traffic's cost of sales except TOPCO Associates, Inc. which accounted for approximately 14% of product purchases in the fiscal year ended January 28, 1995. -10- HISTORY Penn Traffic is the successor to a retail business which can be traced to 1854. Penn Traffic, a then-publicly held corporation, was acquired in March 1987 by Riverside Acquisition Company, Limited Partnership ("RAC"), a Delaware limited partnership and an affiliate of Miller Tabak Hirsch + Co. ("MTH"). At the time of the acquisition, Penn Traffic was the largest retail and wholesale food distribution company in its principal operating area, comprising 19 counties in central and northwestern Pennsylvania and southwestern New York. In 1988, Penn Traffic again became a publicly held corporation and stated that it intended to acquire retail and wholesale food distribution companies contiguous to its operating area. In August 1988, Penn Traffic acquired P&C Food Markets, Inc. ("P&C") which operates in a contiguous market to the east of Penn Traffic's historical marketplace. In October 1991, P&C became a wholly owned subsidiary of the Company, and in April 1993, P&C was merged into the Company. P&C currently operates as a division of the Company. P&C is headquartered in Syracuse, New York and operates 68 "P&C" retail supermarkets, franchises 66 "Big M" stores and provides wholesaling services to 85 independent supermarkets. In April 1989, Penn Traffic acquired Big Bear Stores Company ("Big Bear"), a leading food retailer in Columbus and eastern Ohio, which is to the west of Penn Traffic's traditional market area. In April 1993, Big Bear was merged into the Company. Big Bear currently operates as a division of the Company. Big Bear is headquartered in Columbus, Ohio and operates 77 retail supermarkets under the names "Big Bear" and "Big Bear Plus," as well as 15 discount department stores under the "Harts" name. In January 1993, Penn Traffic acquired 28 supermarkets located in western New York and northwestern Pennsylvania from Schmitt. Eighteen of the stores are currently being operated by Penn Traffic and one store has been converted to a franchise store. In September 1993, Penn Traffic acquired the operating assets of Insalaco Supermarkets, Inc. ("Insalaco"), which consisted of 12 supermarkets with a total square footage of approximately 400,000. Two new stores totalling approximately 90,000 square feet have been opened subsequent to the original acquisition. On January 19, 1995, Penn Traffic acquired 45 supermarkets owned by American Stores Company which had operated under the Acme trade name. Forty-one of the acquired stores are located in north central and northeastern Pennsylvania and four are located in south central New York state. Fifteen of these acquired stores have been or will be closed or divested in Fiscal 1996. The Company is operating the remaining 30 stores under the Insalaco's, Bi-Lo Foods and P&C tradenames. -11- INVESTMENT IN GRAND UNION Until March 1995, Penn Traffic held an indirect ownership interest in the common stock of Grand Union Holdings Corporation ("Grand Union Holdings"), the indirect corporate parent of Grand Union. Grand Union is engaged in the food retailing business. Penn Traffic's ownership interest in Grand Union Holdings was acquired in July 1989 (Fiscal 1990) and was held through a limited partnership interest in Grand Acquisition Company, L.P. ("GAC, L.P."). As of January 28, 1995, Penn Traffic's indirect ownership interest was 17.8% on a fully diluted basis. On January 25, 1995, Grand Union filed a voluntary petition for reorganization under Chapter 11 of the United States Bankruptcy Code with the United States Bankruptcy Court, District of Delaware (the "Bankruptcy Court"). On February 16, 1995, Grand Union Holdings filed a voluntary Chapter 11 petition with the Bankruptcy Court. As a result of these bankruptcy proceedings, Penn Traffic's equity interest in Grand Union Holdings became worthless, and on March 24, 1995, Penn Traffic's limited partnership interest in GAC, L.P. was redeemed for nominal consideration. The Company accounted for its investment in Grand Union under the equity method. At the time the investment was made in July 1989, it was recorded at a cost of $18.3 million. As of February 2, 1991, Penn Traffic had recorded losses which reduced the carrying value of its investment to zero. As described elsewhere in this Form 10-K, certain of the Company's ongoing relationships with Grand Union are being reevaluated in connection with the pending Grand Union bankruptcy proceedings. No determination has yet been made as to whether, or on what basis, these relationships will be continued. Grand Union Holdings is subject to the information requirements of the Securities Exchange Act of 1934, as amended, and in accordance therewith files reports and other information with the Securities and Exchange Commission (the "Commission"). Copies of such materials may be inspected and copied at any of the offices of the Commission. -12- DIVESTITURE OF P&C NEW ENGLAND DIVISION At the time of the acquisition of Grand Union by Grand Union Holdings in July 1989, Grand Union and P&C (then a subsidiary, and now a division of Penn Traffic), operated stores in some of the same geographic areas in Vermont and upstate New York. In connection with the acquisition, agreements were entered into with federal and state antitrust authorities which required the divestiture of 16 Grand Union stores or P&C stores. The divestitures required by these agreements were completed in July 1990. P&C operated thirteen of the sixteen divested stores and Grand Union operated three. In connection with the divestiture program, P&C discontinued its New England wholesaling business. In a related transaction, in July 1990, P&C and Grand Union entered into an operating agreement (the "Operating Agreement") whereby Grand Union acquired the right to operate P&C's 13 remaining stores in New England under the Grand Union name until July 2000. Pursuant to the Operating Agreement, Grand Union agreed to pay Penn Traffic (as the successor to P&C, which was merged into the Company in April 1993) a minimum annual fee averaging $10.7 million per year during the ten-year term and, beginning with the year commencing July 31, 1992, to pay Penn Traffic additional contingent fees of up to $700,000 per year based upon sales performance of the stores operated by Grand Union. Penn Traffic received payment of the maximum contingent fee of $700,000 for the year ended July 30, 1994 and, based upon current sales levels, Penn Traffic expects to receive payment of the maximum contingent fee of $700,000 in the year ending July 30, 1995 and in each year remaining in the term of the Operating Agreement. Under the terms of the Operating Agreement, the recapitalization of Grand Union in July 1992 triggered a $15 million prepayment of the operating fee. This prepayment reduced the future payments that Grand Union will make to Penn Traffic pursuant to the terms of the Operating Agreement by approximately $3.2 million per year. At the expiration of the ten-year term of the Operating Agreement, Grand Union has the right to extend the term of the Operating Agreement for an additional five years. In the event of such extension of the lease term, Grand Union will pay to Penn Traffic an annual fee of $13.6 million in the first year of the extended term, $14.0 million in the second year, $14.4 million in the third year, $14.9 million in the fourth year and $15.3 million in the fifth year, plus contingent fees based upon the sales performance of the stores of up to $700,000 in each year. Penn Traffic also granted Grand Union an option (the "Purchase Option") to purchase the stores operated by Grand Union under the Operating Agreement. Grand Union paid Penn Traffic $7.5 million for the Purchase Option, which provides that (i) prior to July 30, 1998, Grand Union may purchase the stores operated under the Operating Agreement from Penn Traffic for a purchase price equal to $95 million and (ii) from July 30, 1998 and until the expiration of the term (or the extended term) of the Operating Agreement, Grand Union may purchase the stores operated under the Operating Agreement from Penn Traffic for a purchase price equal to the greater of $55 million or the amount produced under a formula based upon the stores' cash flow, provided that the purchase price shall not exceed $95 million. -13- If Grand Union does not extend the initial term of the Operating Agreement at its expiration in July 2000 or does not exercise the Purchase Option prior to the expiration of the term (or the extended term), or in the event of a default by Grand Union in the performance of its obligations pursuant to the Operating Agreement, the stores operated by Grand Union pursuant to the Operating Agreement will be returned to operation by Penn Traffic. Based on current conditions, management does not believe that the return of operation of the stores to Penn Traffic would have a significant impact on the financial condition of the Company. -14- ITEM 2. PROPERTIES Penn Traffic follows the general industry practice of leasing the majority of its retail supermarket locations. Penn Traffic presently owns 36 supermarkets and leases 231 supermarkets. The owned supermarkets range in size from 4,300 to 123,000 square feet. The leased supermarkets range in size from 8,000 to 140,000 square feet and are held under leases expiring from 1995 to 2014, excluding option periods. Penn Traffic also owns two supermarkets and leases 59 supermarkets which are leased or subleased to independent operators. Penn Traffic owns a five-story building located in Johnstown, Pennsylvania, which housed the Company's headquarters prior to relocation of the Company's headquarters to Syracuse, New York in July 1993. The building is leased to other tenants. Penn Traffic also owns nine shopping centers, eight of which contain one of the Company-owned or licensed supermarkets. Penn Traffic also operates major distribution centers in DuBois, Pennsylvania; Syracuse and Jamestown, New York; and Columbus, Ohio; a dairy plant in Johnstown, Pennsylvania; and bakery plants in Syracuse, New York and Columbus, Ohio. Penn Traffic also owns a fleet of trucks and trailers and other miscellaneous real estate and equipment used in the operation of its businesses. Penn Traffic believes that all of its properties, fixtures and equipment are well maintained and in good condition. ITEM 3. LEGAL PROCEEDINGS Penn Traffic and its subsidiaries are involved in various legal actions, some of which involve claims for substantial sums. However, any ultimate liability with respect to these contingencies is not considered by management to be material in relation to the consolidated financial position or results of operations of the Company. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matter was submitted to a vote of security holders during the fourth quarter of Fiscal 1995. -15- SUPPLEMENTAL ITEM. EXECUTIVE OFFICERS OF REGISTRANT Certain information regarding the executive officers of Penn Traffic is set forth as follows:
Name Age Position with Penn Traffic - -------------------------- --- ----------------------------------- Gary D. Hirsch 45 Chairman and Director Martin A. Fox 41 Director, Vice Chairman - Finance and Assistant Secretary John T. Dixon 55 Director, President and Chief Executive Officer Roy E. Flood 54 Senior Vice President; President of P&C Foods Division Raymond J. Heath 56 Senior Vice President; President of Riverside Markets Division John E. Josephson 47 Senior Vice President; President of Big Bear Division Eugene R. Sunderhaft 47 Senior Vice President - Finance and Secretary (Chief Financial Officer) David A. Adamsen 43 Vice President - Manufacturing Ronald E. Flowers 56 Vice President - Nonfood Merchandising Glenn L. Goldberg 43 Vice President and Assistant Secretary Francis D. Price, Jr. 45 Vice President, General Counsel and Assistant Secretary Randall J. Sweeney 43 Vice President and General Manager - Quality Markets Division Joseph S. Zoldi 50 Vice President and General Manager - Insalaco's Division William G. Berryman 51 Vice President and Chief Information Officer
Each of the executive officers is a citizen of the United States. -16- Mr. Hirsch has been a Director and Chairman of Penn Traffic since 1987. Mr. Hirsch has been a general partner and the managing partner of MTH (broker-dealer) since March 1982 and a Managing Director of MTH Holdings, Inc. ("MTH Holdings") since November 1983. He is Chairman, President and a Director of RAC Partners, Inc. ("RAC Partners"), the sole general partner of Riverside Acquisition Company, Limited Partnership ("RAC"). Mr. Hirsch has been Chairman and a Director of Grand Union Holdings (food distribution holding company) since July 1989. Mr. Hirsch became Chairman and a Director of Grand Union Capital Corporation ("Grand Union Capital") in May 1992 and Chairman and a Director of Grand Union in July 1992. Mr. Fox has been Director and Vice Chairman - Finance since February 1993. From 1989 until February 1993, Mr. Fox was a Vice President of the Company. Mr. Fox has been Assistant Secretary of Penn Traffic since 1989. Mr. Fox has been Executive Vice President of MTH since 1988. Mr. Fox became a Director, Vice President and Secretary of Grand Union Capital in May 1992 and Treasurer of Grand Union Capital in May 1993. Mr. Fox became Vice President and Assistant Secretary and a Director of Grand Union and Vice President and Secretary and a Director of Grand Union Holdings in July 1992 and Treasurer of Grand Union Holdings in May 1993. Mr. Dixon has been a Director since December 1994 and President and Chief Executive Officer of Penn Traffic since January 29, 1995. Mr. Dixon was a Vice President of Penn Traffic and the President of P&C from 1993 until January 1995. He served as President of Quality Markets, Inc. from January 1992 until August 1993 and had served in various other positions at Big Bear since 1957. Mr. Flood was appointed Senior Vice President of Penn Traffic and President of the P&C division effective January 29, 1995. Mr. Flood was Executive Vice President of Merchandising for Big Bear from 1990 until January 1995. He was Vice President of Sales and Merchandising of P&C from 1986 to 1990 and served in various other positions at P&C from 1977 to 1986. Mr. Heath was appointed Senior Vice President of Penn Traffic effective January 29, 1995. Mr. Heath was a Vice President of Penn Traffic since 1979 and has been President of the Riverside division since 1979. He had held the position of Executive Vice President and Assistant General Manager since 1976 and has served in various other positions in the Riverside division since 1967. Mr. Josephson was appointed Senior Vice President of Penn Traffic effective January 29, 1995. Mr. Josephson was a Vice President of Penn Traffic since 1989 and has been President of Big Bear since 1989. Prior to his appointment as President of Big Bear, Mr. Josephson was Senior Vice President, Finance and Treasurer of P&C from 1986 to 1989. Mr. Josephson was Vice President, Finance and Treasurer of P&C from 1983 until 1986. Mr. Sunderhaft was appointed Senior Vice President - Finance of Penn Traffic effective January 29, 1995. Mr. Sunderhaft had been Vice President - Finance since May 1993, and has been Chief Financial Officer and Secretary of Penn Traffic since May 1993. Mr. Sunderhaft was Treasurer of Penn Traffic from May 1993 until April 1995. He has been employed by P&C since 1972 and he became Vice President - Finance and Chief Financial Officer of P&C in 1989. -17- Mr. Adamsen was appointed Vice President of Manufacturing of Penn Traffic effective September 13, 1994. Mr. Adamsen has been President of Penny Curtiss Baking Company since 1986. He has been employed by P&C since 1974 serving in various positions at Penny Curtiss Baking Company including Vice President/General Manager and Vice President of Sales and Marketing. Mr. Flowers was appointed Vice President of Nonfood Merchandising of Penn Traffic on February 10, 1995. Mr. Flowers was Vice President of Nonfood Merchandising for Big Bear from 1993 until February 1995 and has served in various other positions at Big Bear since 1955. Mr. Goldberg has been a Vice President and Assistant Secretary of Penn Traffic since 1989. Mr. Goldberg has been Executive Vice President of MTH since 1988, and was Senior Vice President of MTH from 1982 to 1988. Mr. Goldberg became a Vice President, Assistant Secretary and Assistant Treasurer of each of Grand Union Capital and Grand Union Holdings in July 1992. Mr. Price has been Vice President and General Counsel and Assistant Secretary of Penn Traffic since February 1993. He was Vice President and General Counsel of P&C from 1985 until the merger of P&C into the Company in April 1993 and Secretary of P&C from 1991 until the merger of P&C into the Company in April 1993. Mr. Price has been employed by P&C since 1978. Mr. Sweeney was appointed a Vice President of Penn Traffic effective January 29, 1995. Mr. Sweeney has been General Manager of the Quality Markets division since 1993 and has served in various other positions at Quality since 1974. Mr. Zoldi was appointed a Vice President of Penn Traffic effective January 29, 1995. Mr. Zoldi has been General Manager of the Insalaco's division since 1993. Mr. Zoldi has been employed by Insalaco's since 1974. Mr. Berryman was appointed Vice President and Chief Information Officer of Penn Traffic effective April 10, 1995. Prior to joining the Company, Mr. Berryman served as a consultant for Technology Solutions Company from 1994 until April 1995. Mr. Berryman was Vice President of Management Information Services for Dominick's Finer Foods, Inc. from 1989 until 1994. On January 25, 1995, Grand Union filed a voluntary petition for reorganization under Chapter 11 of the United States Bankruptcy Code with the Bankruptcy Court. On February 6, 1995, an involuntary Chapter 11 petition was filed in the Bankruptcy Court against Grand Union Capital. On February 16, 1995, Grand Union Capital commenced a voluntary Chapter 11 case in the Bankruptcy Court by consenting to the entry of an order for relief on the involuntary Chapter 11 petition. Also on February 15, 1995, Grand Union Holdings filed a voluntary Chapter 11 petition in the Bankruptcy Court. Messrs. Hirsch and Fox are directors and executive officers of Grand Union, Grand Union Capital and Grand Union Holdings and Mr. Goldberg is an executive officer of Grand Union Capital and Grand Union Holdings. Messrs. Hirsch, Fox and Goldberg have indicated that they intend to resign from all positions which any of them hold with Grand Union, Grand Union Capital and Grand Union Holdings, such resignation to be effective no later than the date of completion of the pending Bankruptcy Court proceedings. There are no family relationships between executive officers of Penn Traffic. The term of office of executive officers is for a one-year period beginning on the date of the annual meeting, which is normally held in June of each year. -18- PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS Penn Traffic's common stock is listed on the New York Stock Exchange and was held by approximately 286 shareholders of record on January 28, 1995. Common stock information is provided on Page 20 of this Form 10-K. ITEM 6. SELECTED FINANCIAL DATA The comparative summary of selected financial data of Penn Traffic for the five years ended January 28, 1995 appears on Pages 21 and 22 of this Form 10-K. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Management's Discussion and Analysis of Financial Condition and Results of Operations appears on Pages 23 through 29 of this Form 10-K. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Index to Consolidated Financial Statements Page Report of Independent Accountants 30 Consolidated Financial Statements: Statement of Operations for each of the three fiscal years ended January 28, 1995 31 Balance Sheet as of January 28, 1995 and January 29, 1994 32 Statement of Shareholders' Equity for each of the three fiscal years ended January 28, 1995 34 Statement of Cash Flows for each of the three fiscal years ended January 28, 1995 35 Notes to Consolidated Financial Statements 37 Financial Statement Schedule for the three years ended January 28, 1995: Schedule VIII - Valuation and Qualifying Accounts 65 -19- ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None QUARTERLY FINANCIAL DATA (UNAUDITED) Summarized below are quarterly financial data for the fiscal years ended January 28, 1995 and January 29, 1994.
Fiscal 1995 Fiscal 1994 ------------------------------------------------- ----------------------------------------------- 1st 2nd 3rd 4th 1st 2nd 3rd 4th -------- -------- -------- -------- -------- -------- -------- -------- (In thousands of dollars, except per share data) Total revenues . . . . . . . $809,961 $835,767 $828,064 $859,433 $762,040 $780,996 $783,253 $845,311 Gross margin . . . . . . . . $178,503 $192,837 $188,125 $203,052 $168,283 $172,102 $173,008 $193,354 Net income (loss) before extraordinary item and cumulative effect of change in accounting principle . . . . . . . . . $ 2,256 $ 6,868 $ 4,777 $ 8,124 $ 419 $ 634 $ (503) $ 7,626 Extraordinary item . . . . . (2,276) (691) (58) (17,602) (4,477) (1,091) (2,673) Cumulative effect of change in accounting principle . . (5,790) Net (loss) income. . . . . . (5,810) 6,177 4,719 8,124 (17,183) (3,843) (1,594) 4,953 Preferred dividends. . . . . (159) Net (loss) income applicable to common stock . . . . . . . . . . . $ (5,810) $ 6,177 $ 4,719 $ 8,124 $(17,342) $ (3,843) $ (1,594) $ 4,953 Per share data: Income (loss) before extraordinary item and cumulative effect of change in accounting principle. . . . . . . . . $ 0.20 $ 0.62 $ 0.43 $ 0.73 $ 0.03 $ 0.06 $ (0.04) $ 0.68 Extraordinary item. . . . . (0.20) (0.07) (0.01) (2.03) (0.41) (0.10) (0.24) Cumulative effect of change in accounting principle. . (0.52) Net (loss) income . . . . . $ (0.52) $ 0.55 $ 0.42 $ 0.73 $ (2.00) $ (0.35) $ (0.14) $ 0.44 Dividends per preferred share: Big Bear. . . . . . . . . $ 0.46 Market value per common share: High. . . . . . . . . . . $ 44 5/8 $ 41 $ 43 1/2 $ 41 1/4 $ 42 7/8 $ 45 1/2 $ 45 3/4 $ 39 1/8 Low . . . . . . . . . . . $ 37 1/2 $ 34 3/8 $ 35 1/4 $ 36 $ 34 $ 38 1/4 $ 36 3/8 $ 34 7/8 Other data: Depreciation and amortization . . . . . . . $ 21,706 $ 21,539 $ 21,887 $ 22,679 $ 19,871 $ 20,366 $ 20,894 $ 21,738 LIFO provision . . . . . . $ 25 $ 425 $ 2,342 $ 560 $ 430 $ 100 $ (987)
SUPPLEMENTAL QUARTERLY EBITDA INFORMATION (UNAUDITED)
Fiscal 1995 Fiscal 1994 ------------------------------------------------- ----------------------------------------------- (In thousands of dollars) 1st 2nd 3rd 4th 1st 2nd 3rd 4th -------- -------- -------- -------- -------- -------- -------- -------- (In thousands of dollars, except per share data) EBITDA . . . . . . . . . . . $ 55,122 $ 64,362 $ 58,158 $ 68,696 $ 51,990 $ 57,673 $ 53,769 $ 66,558 EBITDA as a percentage of revenues . . . . . . . . . 6.8% 7.7% 7.0% 8.0% 6.8% 7.4% 6.9% 7.9%
-20- CONSOLIDATED FIVE-YEAR FINANCIAL SUMMARY Set forth below are the selected historical consolidated financial data of Penn Traffic for the five fiscal years ended January 28, 1995. Due to the adoption of Statement of Financial Accounting Standards No. 112, "Employers' Accounting for Postemployment Benefits" ("SFAS 112"), at the beginning of the fiscal year ended January 28, 1995 and the adoption of Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS 109"), retroactive to the beginning of the fiscal year ended February 1, 1992, comparisons of the consolidated financial results among years are not necessarily meaningful. The selected historical consolidated financial data for the five fiscal years ended January 28, 1995 are derived from the consolidated financial statements of Penn Traffic which have been audited by Price Waterhouse LLP, independent accountants. The selected historical consolidated financial data should be read in conjunction with the Penn Traffic consolidated financial statements and related notes included elsewhere herein.
STATEMENT OF OPERATIONS As of and for the Fiscal Year Ended (In thousands of dollars, January 28, January 29, January 30, February 1, February 2, except per share data) 1995 1994 1993 1992 1991 ---------- ---------- ---------- ---------- ---------- Total revenues. . . . . . . $3,333,225 $3,171,600 $2,832,949 $2,772,104 $2,803,781 Cost of sales . . . . . . . 2,570,708 2,464,853 2,230,493 2,195,773 2,253,619 Selling and administrative expenses. . . . . . . . . 606,782 559,729 475,839 460,684 444,280 Unusual item. . . . . . . . 6,400 ---------- ---------- ---------- ---------- ---------- Operating income. . . . . . 155,735 140,618 126,617 115,647 105,882 Interest expense. . . . . . 117,859 117,423 115,814 116,782 117,300 ---------- ---------- ---------- ---------- ---------- Income (loss) before income taxes, equity in net loss of affiliated company, extraordinary item and cumulative effect of change in accounting principle . . . . . . . . 37,876 23,195 10,803 (1,135) (11,418) Provision for income taxes (1). . . . . 15,851 15,019 6,812 4,217 2,427 ---------- ---------- ---------- ---------- ---------- Income (loss) before equity in net loss of affiliated company, extraordinary item and cumulative effect of change in accounting principle . . . . . . . . 22,025 8,176 3,991 (5,352) (13,845) Equity in net loss of Grand Union(2). . . . . . . . . (10,334) ---------- ---------- ---------- ---------- ---------- Income (loss) before extra- ordinary item and cumulative effect of change in accounting principle . . . . . . . . 22,025 8,176 3,991 (5,352) (24,179) Extraordinary item (net of tax benefit)(3) . . . . . (3,025) (25,843) (10,823) (3,718) ---------- ---------- ---------- ---------- ---------- Net income (loss) before cumulative effect of change in accounting principle . . . . . . . . 19,000 (17,667) (6,832) (9,070) (24,179) Cumulative effect of change in accounting principle (1) and (4) . . (5,790) (58,330) ---------- ---------- ---------- ---------- ---------- Net income (loss) . . . . . 13,210 (17,667) (6,832) (67,400) (24,179) Preferred dividends . . . . (159) (968) (2,768) (3,286) ---------- ---------- ---------- ---------- ---------- Net income (loss) applicable to common stock. . . . . . . $ 13,210 $ (17,826) $ (7,800) $ (70,168) $ (27,465) ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
-21- PER SHARE DATA: Income (loss) before extra- ordinary item and cumulative effect of change in accounting principle (after preferred dividends)(5). . . . . . . $ 1.97 $ 0.76 $ 0.37 $ (1.19) $ (4.94) Extraordinary item. . . . . (0.27) (2.45) (1.31) (0.54) Cumulative effect of change in accounting principle. . . . . . . . . (0.52) (8.52) ---------- ---------- ---------- ---------- ---------- Net income (loss) (5) . . . $ 1.18 $ (1.69) $ (0.94) $ (10.25) $ (4.94) ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
No dividends on common stock have been paid during the past five fiscal years. BALANCE SHEET DATA: Total assets. . . . . . . . $1,793,966 $1,632,901 $1,417,230 $1,291,691 $1,165,202 Total funded indebtedness . . . . . . . 1,277,276 1,166,025 1,005,136 912,070 884,996 Redeemable preferred stock. . . . . . . . . . . 11,477 13,846 41,080 Shareholders' equity. . . . 32,927 14,982 (40,488) (31,459) (20,369) OTHER DATA: Depreciation and amortization . . . . . . . 87,811 82,869 72,787 68,581 61,307 LIFO provision. . . . . . . 2,792 103 479 1,617 3,109 Capital expenditures, including capital leases and acquisitions. . 202,359 182,700 148,650 82,061 74,750 (1) The historical consolidated financial data for fiscal years 1995, 1994, 1993 and 1992 includes a provision for income taxes computed in accordance with SFAS 109. The provision for income taxes for fiscal year 1991 was computed in accordance with APB 11. (2) Until March 1995, Penn Traffic had a minority interest investment in Grand Union, which was accounted for under the equity method. As of February 2, 1991, Penn Traffic had recorded losses that reduced the carrying value of its investment to zero. (3) The extraordinary item (net of income tax benefits) resulted from the early retirement of debt. (4) Effective January 30, 1994, the Company adopted Statement of Financial Accounting Standards No. 112, "Employers' Accounting for Postemployment Benefits" ("SFAS 112"). SFAS 112 requires employers to recognize the obligation to provide postemployment benefits on an accrual basis if certain conditions are met. The cumulative effect of the change in accounting principle determined as of January 30, 1994, reduced net income $5.8 million, net of a $4.1 million income tax benefit, for the fifty-two week period ended January 28, 1995. (5) Net income (loss) per share of common stock is based on the average number of shares of common stock and equivalents outstanding during each period. Fully diluted net income per share is not presented since the reduction from primary net income per share is less than three percent for each period presented.
-22- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS FISCAL YEAR ENDED JANUARY 28, 1995 ("FISCAL 1995") COMPARED TO FISCAL YEAR ENDED JANUARY 29, 1994 ("FISCAL 1994") The following table sets forth Statement of Operations components expressed as percentages of total revenues for Fiscal 1995 and Fiscal 1994:
PERCENTAGE OF TOTAL REVENUES FISCAL YEAR ENDED ---------------------------- 1995 1994 ------ ------ Total revenues 100.0% 100.0% Gross profit (1) 22.9 22.3 Selling and administrative expenses 18.2 17.7 Unusual item 0.2 Operating income 4.7 4.4 Interest expense 3.6 3.7 Income before income taxes, extraordinary item and cumulative effect of change in accounting principle 1.1 0.7 (1) Total revenues less cost of goods sold.
Total revenues for Fiscal 1995 increased 5.0% to $3.33 billion from $3.17 billion in Fiscal 1994. Sales from retail supermarkets existing in both years, "same store sales," increased 0.9% in Fiscal 1995. The increase in total revenues is primarily the result of the increase in retail supermarket sales from the acquisition of the Insalaco's stores in September 1993, the increase in same store sales, and revenues from incremental stores that the Company has recently opened. Wholesale supermarket sales decreased in Fiscal 1995 to $434.4 million from Fiscal 1994 sales of $453.4 million. In Fiscal 1995, gross profit as a percentage of total revenues increased to 22.9% from 22.3% in Fiscal 1994. The increase in gross profit as a percentage of total revenues primarily resulted from a combination of reduced product procurement costs and the relative increase in retail revenues compared to wholesale revenues. Selling and administrative expenses as a percentage of total revenues increased to 18.2% for Fiscal 1995 from 17.7% in Fiscal 1994. The increase in selling and administrative expenses as a percentage of total revenues primarily resulted from the relative increase in retail revenues compared to wholesale revenues and increases in fixed and semi-variable expenses as a percentage of total revenues during a period with low food price inflation and continued consumer preferences towards lower-priced products. -23- During the second quarter of Fiscal 1994, the Company recorded certain expenses totalling $6.4 million classified as an unusual item. This unusual item was comprised of $4.0 million related to a voluntary employee separation program at the Company's P&C division and $2.4 million related to the realignment of certain operations. Depreciation and amortization of $87.8 million in Fiscal 1995 and $82.9 million in Fiscal 1994 represented 2.6% of total revenues in both years. Operating income for Fiscal 1995 was $155.7 million or 4.7% of total revenues compared to $140.6 million or 4.4% of total revenues in Fiscal 1994. Excluding the effect of the unusual item, operating income for Fiscal 1994 was $147.0 million or 4.6% of total revenues. Interest expense for Fiscal 1995 and Fiscal 1994 was $117.9 million and $117.4 million, respectively. Income before income taxes, extraordinary item and the cumulative effect of change in accounting principle was $37.9 million for Fiscal 1995 compared to $23.2 million for Fiscal 1994. The income tax provision for Fiscal 1995 was $15.9 million compared to $15.0 million in Fiscal 1994. The Fiscal 1995 income tax provision includes a $1.0 million decrease in income tax expense and the Fiscal 1994 income tax provision includes a $2.4 million charge. These adjustments are the result of changes in the statutory tax rates applicable to deferred taxes in accordance with the requirements of Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS 109"). The effective tax rates vary from the statutory rates due to differences between income for financial reporting and tax reporting purposes that primarily result from the amortization of goodwill (Note 4). The extraordinary item for Fiscal 1995 was a $3.0 million charge (net of $2.0 million income tax benefit) compared to a $25.8 million charge (net of $17.8 million income tax benefit) in Fiscal 1994. These extraordinary items relate to the early retirement of debt. During the first quarter of Fiscal 1995, the Company adopted Statement of Financial Accounting Standards No. 112, "Employers' Accounting for Postemployment Benefits" ("SFAS 112"). The cumulative effect of this change in accounting principle was a charge of $5.8 million (net of $4.1 million income tax benefit) (Note 3). This accounting change did not have a material impact on Fiscal 1995 results. -24- FISCAL YEAR ENDED JANUARY 29, 1994 ("FISCAL 1994") COMPARED TO FISCAL YEAR ENDED JANUARY 30, 1993 ("FISCAL 1993") The following table sets forth Statement of Operations components expressed as percentages of total revenues for Fiscal 1994 and Fiscal 1993:
PERCENTAGE OF TOTAL REVENUES FISCAL YEAR ENDED ---------------------------- 1994 1993 ------ ------ Total revenues. . . . . . . . . . . . . . 100.0% 100.0% Gross profit (1). . . . . . . . . . . . . 22.3 21.3 Selling and administrative expenses. . . . . . . . . . . . . . . . 17.7 16.8 Unusual item. . . . . . . . . . . . . . . 0.2 Operating income. . . . . . . . . . . . . 4.4 4.5 Interest expense. . . . . . . . . . . . . 3.7 4.1 Income before income taxes and extraordinary item. . . . . . . . . 0.7 0.4 (1) Total revenues less cost of goods sold.
Total revenues for Fiscal 1994 increased to $3.17 billion from $2.83 billion in Fiscal 1993. The increase in total revenues is primarily the result of the increase in retail supermarket sales resulting from the acquisition of the former Peter J. Schmitt and the Insalaco's stores. Retail operations, wholesale operations and the food processing businesses contributed 81.6%, 14.5% and 3.9%, respectively, to Fiscal 1994 total revenues. Wholesale supermarket revenues increased in Fiscal 1994 to $453.4 million from $438.7 million in Fiscal 1993. Sales from retail supermarkets existing in both periods, "same store sales," for the 52 weeks ended January 29, 1994, increased 1.5%. In Fiscal 1994, gross profit was $706.7 million compared to Fiscal 1993 gross profit of $602.5 million, representing 22.3% and 21.3% of total revenues, respectively. The increase in gross profit as a percentage of total revenues was primarily the result of the reclassification of certain expenses from cost of goods sold to selling and administration expenses and lower product procurement costs partially offset by increased buying and occupancy costs. The lower product procurement costs are partly the result of the Company's continuing consolidated purchasing initiatives which have led to increased vendor allowances and other reductions in product procurement costs. Selling and administrative expenses for Fiscal 1994 were $559.7 million compared with $475.8 million in Fiscal 1993. Selling and administrative expenses as a percentage of total revenues increased to 17.7% for Fiscal 1994 from 16.8% in Fiscal 1993. The increase in selling and administrative expenses as a percentage of total revenues was primarily due to the reclassification of certain expenses from cost of goods sold to selling and administrative expenses and increases in fixed and semi-variable expenses as a percentage of total revenues during a period without food price inflation and with changes in consumer preferences towards lower-priced products. -25- During the second quarter of Fiscal 1994, the Company recorded certain expenses totalling $6.4 million classified as an unusual item. This unusual item is comprised of $4.0 million related to a voluntary employee separation program at the Company's P&C division and $2.4 million related to the realignment of certain operations. Depreciation and amortization of $82.9 million in Fiscal 1994 and $72.8 million in Fiscal 1993 represented 2.6% of total revenues in both periods, respectively. Operating income for Fiscal 1994 increased by $14.0 million to $140.6 million from $126.6 million in Fiscal 1993. Operating income as a percentage of total revenues was 4.4% and 4.5% in Fiscal 1994 and Fiscal 1993, respectively. Fiscal 1994 operating income includes an unusual item of $6.4 million, or 0.2% of total revenues. Interest expense for Fiscal 1994 and Fiscal 1993 was $117.4 million and $115.8 million, respectively. Income before income taxes and extraordinary item was $23.2 million for Fiscal 1994, compared to $10.8 million for Fiscal 1993. The income tax provision for Fiscal 1994 was $15.0 million compared to $6.8 million in Fiscal 1993. The Fiscal 1994 income tax provision includes a $2.4 million charge relating to an increase in the federal tax rate applicable to deferred taxes in accordance with the requirements of Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS 109"). The effective tax rates vary from the statutory rates, due to differences between income for financial reporting and tax reporting purposes that primarily result from the amortization of goodwill. The income tax provisions for both years reflect the adoption of SFAS 109 (Note 4). The extraordinary item for Fiscal 1994 was a $25.8 million charge (net of $17.8 million income tax benefit) compared to a $10.8 million charge (net of $6.9 million income tax benefit) in Fiscal 1993. These extraordinary items relate to the early retirement of debt. Net loss was $17.7 million for Fiscal 1994 compared to $6.8 million in Fiscal 1993. The increase in the net loss was primarily due to a $15.0 million increase in extraordinary item relating to the early retirement of debt, an unusual item of $6.4 million ($3.8 million net of tax benefit) and an $8.2 million increase in the tax provision (including a $2.4 million charge related to the impact on deferred taxes resulting from the increase in the federal tax rate), partially offset by an $18.8 million increase in income before taxes and extraordinary item (before unusual item). -26- LIQUIDITY AND CAPITAL RESOURCES During Fiscal 1995, operating income increased to $155.7 million from $140.6 million for Fiscal 1994. Interest expense for Fiscal 1995 was $117.9 million compared to $117.4 million for Fiscal 1994. Income before extraordinary item and the cumulative effect of an accounting change for Fiscal 1995 was $22.0 million compared to $8.2 million in Fiscal 1994. Payments of interest and principal on the Company's $1.14 billion of long-term debt (excluding capital leases) will restrict funds available to the Company to finance capital expenditures and working capital. Principal payments of long-term debt due during Fiscal 1996, 1997 and 1998 total $4.1 million, $2.7 million and $2.2 million, respectively. During Fiscal 1995, the Company's internally generated funds from operations, proceeds from the issuance of $100 million of 10.65% Senior Notes and amounts available under the revolving credit facility described below provided sufficient liquidity to meet the Company's operating, capital expenditure and debt service needs. The Company has a revolving credit facility (the "Revolving Credit Facility") which provides for borrowings of up to $225 million, subject to a borrowing base limitation measured by eligible inventory and accounts receivable of the Company. The Revolving Credit Facility matures in April 2000 and is secured by a pledge of the Company's inventory, accounts receivable and related assets. During Fiscal 1995, the Revolving Credit Facility was amended to provide for certain interest rate reductions. After giving effect to the terms of the amendment, based on the interest coverage ratio which the Company has attained, the interest rate on borrowings as to which the Company elects a LIBOR-based rate option is LIBOR plus 1.75%, and the interest rate on borrowings as to which the Company elects a prime-based rate option is prime plus 0.50%. As of January 28, 1995, total availability under the Penn Traffic Revolving Credit Facility was $121.8 million. In January 1995, the Company acquired 45 supermarkets from American Stores Company formerly operated under the Acme trade name. Forty-one of these stores are located in north central and northeastern Pennsylvania and four are located in south central New York state. The purchase price for the 45 stores was approximately $75 million plus inventory (approximately $16 million). As the result of a review by the Federal Trade Commission, the Company has agreed to divest three stores in Pennsylvania. The acquisition was funded with the proceeds from the issuance in October 1994 of $100 million of 10.65% Senior Notes due November 1, 2004 in an underwritten public offering. -27- During Fiscal 1995, the Company redeemed or repurchased $52.4 million of 13 3/4% Senior Subordinated Notes due 1999 and $5.8 million of 11 1/2% Senior Notes due 2001. The Company has entered into four interest rate swap agreements, each of which expires within the next four years, that effectively convert $155 million of its fixed rate borrowings into variable rate obligations. Under the terms of these agreements, the Company makes payments at variable rates which are based on LIBOR and receives payments at fixed interest rates. The net amount paid or received is included in interest expense. For Fiscal 1995, the Company recorded a $2.3 million reduction of interest expense related to these agreements. Cash flows to meet the Company's requirements for operating, investing and financing activities during Fiscal 1995 are reported in the Consolidated Statement of Cash Flows. During the fiscal year ended January 28, 1995, the Company's net cash used in investing activities was $210.3 million. These amounts were financed by net cash provided by operating activities of $71.7 million, net cash provided by financing activities of $102.6 million and available cash of $36.0 million. During the fiscal year ended January 29, 1994, the Company's net cash used in investing activities was $175.4 million and the Company had an increase in cash of $27.6 million. These amounts were financed by net cash provided by operating activities of $9.3 million and net cash provided by financing activities of $193.7 million. During the fiscal year ended January 30, 1993, the Company's net cash used in investing activities was $112.9 million and the Company had an increase in cash of $17.7 million. These amounts were financed by net cash provided by operating activities of $85.0 million and net cash provided by financing activities of $45.6 million. Working capital decreased by $13.3 million from January 29, 1994 to January 28, 1995. The Company is in compliance with all terms and restrictive covenants of its Revolving Credit Facility and long-term debt agreements for the fiscal year ended and as of January 28, 1995. The Company's debt agreements provide restrictive covenants on the payment of dividends to its shareholders. As of January 28, 1995, no dividend payments to the Company's shareholders could have been made under the most restrictive of these limitations. Over the next five fiscal years (including the fiscal year ending February 3, 1996), the Company expects to spend approximately $700 million on capital expenditures (including capital leases), equivalent to approximately 3.5% to 4.0% of planned retail sales over this period. Penn Traffic expects to finance such capital expenditures (including capital leases) through cash generated from operations, as well as amounts available under the Revolving Credit Facility and additional capital lease obligations. The Company anticipates that these sources of funds will be sufficient to finance its planned -28- capital expenditures over this period. Capital expenditures will be principally for new stores, replacement stores and remodels. During Fiscal 1995, the Company opened six new stores, six replacement stores and completed nine remodels/expansions. Capital expenditures (including capitalized leases) were approximately $127 million for Fiscal 1995, excluding the Acme acquisition. -29- REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Shareholders of The Penn Traffic Company In our opinion, the accompanying consolidated balance sheet and the related consolidated statements of operations, of shareholders' equity and of cash flows present fairly, in all material respects, the financial position of The Penn Traffic Company and its subsidiaries (the "Company") at January 28, 1995 and January 29, 1994, and the results of their operations and their cash flows for each of the three years in the period ended January 28, 1995, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. As discussed in Note 3 to the consolidated financial statements, the Company changed its method of accounting for postemployment benefits to adopt the provisions of Statement of Financial Accounting Standards No. 112, "Employers' Accounting for Postemployment Benefits," effective January 30, 1994. Price Waterhouse LLP Syracuse, New York March 24, 1995 -30- THE PENN TRAFFIC COMPANY CONSOLIDATED STATEMENT OF OPERATIONS
52 Weeks Ended 52 Weeks Ended 52 Weeks Ended January 28, 1995 January 29, 1994 January 30, 1993 ---------------- ---------------- ---------------- (All dollar amounts in thousands, except per share data) TOTAL REVENUES $3,333,225 $3,171,600 $2,832,949 COSTS AND OPERATING EXPENSES: Cost of sales (including buying and occupancy cost) 2,570,708 2,464,853 2,230,493 Selling and administrative expenses 606,782 559,729 475,839 Unusual item (Note 6) 6,400 ---------- ---------- ---------- OPERATING INCOME 155,735 140,618 126,617 Interest expense 117,859 117,423 115,814 ---------- ---------- ---------- INCOME BEFORE INCOME TAXES, EXTRAORDINARY ITEM AND CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE 37,876 23,195 10,803 Provision for income taxes (Note 4) 15,851 15,019 6,812 ---------- ---------- ---------- INCOME BEFORE EXTRAORDINARY ITEM AND CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE 22,025 8,176 3,991 Extraordinary item (net of tax benefit) (Note 12) (3,025) (25,843) (10,823) ---------- ---------- ---------- INCOME (LOSS) BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE 19,000 (17,667) (6,832) Cumulative effect of change in accounting principle (Note 3) (5,790) ---------- ---------- ---------- NET INCOME (LOSS) 13,210 (17,667) (6,832) Preferred dividends (Note 7) (159) (968) ---------- ---------- ---------- NET INCOME (LOSS) APPLICABLE TO COMMON STOCK $ 13,210 $ (17,826) $ (7,800) ---------- ---------- ---------- ---------- ---------- ---------- PER SHARE DATA: Income before extraordinary item and cumulative effect of change in accounting principle (after preferred dividends) $ 1.97 $ 0.76 $ 0.37 Extraordinary item (0.27) (2.45) (1.31) Cumulative effect of change in accounting principle (0.52) ---------- ---------- ---------- Net income (loss) $ 1.18 $ (1.69) $ (0.94) ---------- ---------- ---------- ---------- ---------- ---------- Dividends per preferred share: Big Bear $ 0.46 $ 1.84 ---------- ---------- ---------- ---------- Average number of common shares and equivalents outstanding 11,169,337 10,561,256 8,258,113 ---------- ---------- ---------- ---------- ---------- ----------
The accompanying notes are an integral part of these statements. -31- THE PENN TRAFFIC COMPANY CONSOLIDATED BALANCE SHEET
January 28, January 29, 1995 1994 ---------- ----------- (In thousands of dollars) ASSETS CURRENT ASSETS: Cash and short-term investments (Note 1). . . . . . $ 46,519 $ 82,467 Accounts and notes receivable (less allowance for doubtful accounts of $1,374 and $740, respectively). . . . . . . . . . . . . . . . . . . 81,967 60,020 Inventories (Note 1). . . . . . . . . . . . . . . . 385,968 348,455 Prepaid expenses and other current assets . . . . . 10,913 9,939 ---------- ---------- 525,367 500,881 ---------- ---------- FACILITIES UNDER CAPITAL LEASES (NOTE 5): Capital leases. . . . . . . . . . . . . . . . . . . 178,198 173,690 Less: Accumulated amortization . . . . . . . . . . (50,450) (39,589) ---------- ---------- 127,748 134,101 ---------- ---------- FIXED ASSETS (NOTE 1): Land. . . . . . . . . . . . . . . . . . . . . . . . 26,212 20,741 Buildings . . . . . . . . . . . . . . . . . . . . . 180,568 157,641 Furniture and fixtures. . . . . . . . . . . . . . . 439,544 389,598 Vehicles. . . . . . . . . . . . . . . . . . . . . . 19,452 19,586 Leaseholds and improvements . . . . . . . . . . . . 207,634 162,725 ---------- ---------- 873,410 750,291 Less: Accumulated depreciation . . . . . . . . . . (272,613) (214,563) ---------- ---------- 600,797 535,728 ---------- ---------- OTHER ASSETS: Intangible assets resulting from acquisitions, net (Note 1) . . . . . . . . . . . . . . . . . . . 451,897 377,450 Other assets and deferred charges, net. . . . . . . 88,157 84,741 ---------- ---------- 540,054 462,191 ---------- ---------- TOTAL ASSETS. . . . . . . . . . . . . . . . . . . . . $1,793,966 $1,632,901 ---------- ---------- ---------- ----------
The accompanying notes are an integral part of these statements. -32- THE PENN TRAFFIC COMPANY CONSOLIDATED BALANCE SHEET
January 28, January 29, 1995 1994 ----------- ----------- (In thousands of dollars) LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Current portion of obligations under capital leases (Note 5). . . . . . . . . . . . . . . . . . . . . . $ 9,962 $ 8,773 Current maturities of long-term debt (Note 2) . . . . . . . 4,118 4,208 Trade accounts and drafts payable . . . . . . . . . . . . . 209,890 183,967 Payroll and other accrued liabilities . . . . . . . . . . . 79,434 74,028 Accrued interest expense. . . . . . . . . . . . . . . . . . 30,686 28,690 Payroll taxes and other taxes payable . . . . . . . . . . . 19,582 18,901 Deferred income taxes -- current (Note 4) . . . . . . . . . 27,384 24,669 ---------- ----------- 381,056 343,236 ---------- ----------- NONCURRENT LIABILITIES: Obligations under capital leases (Note 5) . . . . . . . . . 126,894 131,148 Long-term debt (Note 2) . . . . . . . . . . . . . . . . . . 1,136,302 1,021,896 Deferred income taxes (Note 4). . . . . . . . . . . . . . . 73,598 72,411 Other noncurrent liabilities. . . . . . . . . . . . . . . . 43,189 49,228 ---------- ----------- 1,379,983 1,274,683 ---------- ----------- TOTAL LIABILITIES . . . . . . . . . . . . . . . . . . . . . . 1,761,039 1,617,919 ---------- ----------- SHAREHOLDERS' EQUITY (NOTE 8): Preferred Stock--Authorized 10,000,000, $1.00 par value; none issued . . . . . . . . . . . . . . . . . . . . Common Stock--Authorized 30,000,000, $1.25 par value; 10,846,701 shares and 10,840,151 shares issued and outstanding, respectively. . . . . . . . . . . . . . . . . 13,558 13,550 Capital in Excess of Par Value 179,165 179,087 Retained Deficit (149,681) (162,924) Minimum Pension Liability Adjustment (Note 3) (356) (4,963) Unearned Compensation (Note 8) (9,759) (9,768) ---------- ----------- TOTAL SHAREHOLDERS' EQUITY 32,927 14,982 ---------- ----------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $1,793,966 $1,632,901 ---------- ----------- ---------- -----------
The accompanying notes are an integral part of these statements. -33- THE PENN TRAFFIC COMPANY CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
Minimum Capital in Pension Total Common Excess of Retained Liability Unearned Shareholders' Stock Par Value Deficit Adjustment Compensation Equity ------- ----------- -------- ---------- ------------ --------- (In thousands of dollars) FEBRUARY 1, 1992 $10,322 $ 95,517 $(137,298) $(31,459) Net loss (6,832) (6,832) Cash dividends--preferred stock (968) (968) Purchase of 112,140 shares of Big Bear common stock (803) (803) Purchase of 103,000 shares of Big Bear redeemable convertible 8% preferred stock (291) (291) Other (135) (135) ------- -------- ---------- ------- ------- -------- JANUARY 30, 1993 10,322 94,288 (145,098) (40,488) Net loss (17,667) (17,667) Cash dividends--preferred stock (159) (159) Issuance of 2,000,000 shares of common stock, net (Note 8) 2,500 71,888 74,388 Issuance of 307,836 shares of common stock, net (Note 8) 385 3,276 3,661 Exercise of 11,105 common stock option shares (Note 8) 14 196 210 Issuance of 263,100 restricted stock shares (Note 8) 329 9,439 $(9,768) Minimum pension liability adjustment (Note 3) $(4,963) (4,963) ------- -------- ---------- ------- ------- -------- JANUARY 29, 1994 13,550 179,087 (162,924) (4,963) (9,768) 14,982 Net income 13,210 13,210 Exercise of 7,550 common stock option shares (Note 8) 9 119 128 Cancellation of 1,000 restricted stock shares (Note 8) (1) (41) 42 Minimum pension liability adjustment (Note 3) 4,607 4,607 Unearned compensation adjustment (Note 8) (9) 9 ------- -------- ---------- ------- ------- -------- JANUARY 28, 1995 $13,558 $179,165 $(149,681) $ (356) $(9,759) $ 32,927 ------- -------- ---------- ------- ------- -------- ------- -------- ---------- ------- ------- --------
The accompanying notes are an integral part of these statements. -34- THE PENN TRAFFIC COMPANY CONSOLIDATED STATEMENT OF CASH FLOWS
52 Weeks Ended 52 Weeks Ended 52 Weeks Ended January 28, 1995 January 29, 1994 January 30, 1993 ---------------- ---------------- ---------------- (In thousands of dollars) OPERATING ACTIVITIES: Net income (loss) . . . . . . . . . . . $ 13,210 $ (17,667) $ (6,832) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Cumulative effect of change in accounting principle. . . . . . . . 5,790 Depreciation and amortization. . . . 72,853 68,556 59,977 Amortization of intangibles. . . . . 14,958 14,313 12,810 Proceeds from prepayment of operating fee . . . . . . . . . . . 15,000 Other--net . . . . . . . . . . . . . (4,245) (16,391) (10,143) Net change in assets and liabilities: Accounts receivable and prepaid expenses. . . . . . . . . . . . . . (24,031) 276 (14,501) Inventories. . . . . . . . . . . . . (22,011) (59,002) (20,981) Accounts payable and accrued expenses. . . . . . . . . . . . . . 11,637 3,054 48,955 Deferred charges and other assets. . . . . . . . . . . . . . . 3,577 16,181 678 --------- --------- --------- NET CASH PROVIDED BY OPERATING ACTIVITIES . . . . . . . . . . 71,738 9,320 84,963 --------- --------- --------- INVESTING ACTIVITIES: Capital expenditures. . . . . . . . . . (120,005) (128,103) (80,903) Acquisition of Peter J. Schmitt stores . . . . . . . . . . . . . . . . (38,800) Acquisition of Insalaco's stores. . . . (51,651) Acquisition of Acme stores. . . . . . . (91,004) Other--net. . . . . . . . . . . . . . . 701 4,348 6,856 --------- --------- --------- NET CASH (USED IN) INVESTING ACTIVITIES . . . . . . . . . . . . . . . (210,308) (175,406) (112,847) --------- --------- ---------
(continued) -35- THE PENN TRAFFIC COMPANY CONSOLIDATED STATEMENT OF CASH FLOWS (CONTINUED)
52 Weeks Ended 52 Weeks Ended 52 Weeks Ended January 28, 1995 January 29, 1994 January 30, 1993 ---------------- ---------------- ---------------- (In thousands of dollars) FINANCING ACTIVITIES: Issuance of Penn Traffic common stock--net. . . . . . . . . $ $ 74,388 $ Purchase of subsidiary securities . . . . . . . . . . . . (10,814) (4,636) Increase in long-term debt. . . . . 100,000 617,145 263,828 Payments to settle long-term debt . . . . . . . . . . . . . . . (62,384) (443,342) (195,799) Borrowing of revolver debt. . . . . 476,000 587,976 381,014 Repayment of revolver debt. . . . . (399,300) (600,776) (382,914) Reduction of capital lease obligations. . . . . . . . . . . . (8,598) (7,727) (7,949) Payment of debt issuance costs. . . (3,224) (23,188) (6,830) Preferred dividends and other-- net. . . . . . . . . . . . . . . . 128 51 (1,111) --------- --------- --------- NET CASH PROVIDED BY FINANCING ACTIVITIES . . . . . . . . 102,622 193,713 45,603 --------- --------- --------- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS . . . . . . . . . . (35,948) 27,627 17,719 Cash and cash equivalents at beginning of year. . . . . . . . . 82,467 54,840 37,121 --------- --------- --------- CASH AND CASH EQUIVALENTS AT END OF YEAR. . . . . . . . . . . . . $ 46,519 $ 82,467 $ 54,840 --------- --------- --------- --------- --------- ---------
The accompanying notes are an integral part of these statements. -36- THE PENN TRAFFIC COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 -- BUSINESS DESCRIPTION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: The Penn Traffic Company ("Penn Traffic" or the "Company") is primarily engaged in retail and wholesale food distribution. As of January 28, 1995, the Company operated 267 supermarkets (excluding 15 acquired Acme stores to be sold or divested) in Pennsylvania, New York, Ohio and West Virginia and supplied 124 franchise supermarkets and 117 independent wholesale accounts. It also operated 15 general merchandise stores. The Company operated 13 modern distribution centers with approximately 2.8 million square feet of combined space, owned bakery and dairy operations and had approximately 28,000 employees. PRINCIPLES OF CONSOLIDATION AND BUSINESS SEGMENT All significant intercompany transactions and accounts have been eliminated in consolidation. The Company is principally involved with the distribution and retail sale of food and related products, which constitutes a single significant business segment. FISCAL YEAR The fiscal year of the Company ends on the Saturday nearest to January 31. CASH AND SHORT-TERM INVESTMENTS Short-term investments are classified as cash and are stated at cost, which approximates market value. For the purpose of the Consolidated Statement of Cash Flows, the Company considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents. INVENTORIES Inventories are valued at the lower of cost or market. The Company's inventories, representing grocery and certain general merchandise and manufactured inventories, are stated at cost using the last-in, first-out (LIFO) method of valuation. Inventories stated on the LIFO basis were approximately $17,145,000 and $14,353,000 below replacement cost at January 28, 1995 and January 29, 1994, respectively. FIXED ASSETS AND CAPITAL LEASES Major renewals and betterments are capitalized, whereas maintenance and repairs are charged to operations as incurred. Depreciation and amortization for financial accounting purposes are provided on the straight-line method. For income tax purposes, the Company principally uses accelerated methods. For financial accounting purposes, depreciation and amortization are provided over the following useful lives or lease term: Buildings . . . . . . . . . . . . 16 to 50 years Furniture and fixtures. . . . . . 4 to 15 years Vehicles. . . . . . . . . . . . . 3 to 8 years Leaseholds and improvements . . . 5 to 30 years Capital leases. . . . . . . . . . lease term -37- INTANGIBLE ASSETS RESULTING FROM ACQUISITIONS The excess of the costs over the amounts attributed to tangible net assets is primarily being amortized over 40 years using the straight-line method. In addition, certain nonfinancing costs resulting from acquisitions have been capitalized as other assets and deferred charges. For Fiscal 1995, 1994 and 1993, amortization of intangibles was $14,958,000, $14,313,000 and $12,810,000, respectively. At each balance sheet date, the Company evaluates the realizability of goodwill based on estimated future nondiscounted cash flows. Based upon its most recent analysis, the Company believes that no impairment of goodwill exists at January 28, 1995. INVESTMENT IN AFFILIATED COMPANY Until March 1995, the Company had a minority interest investment in The Grand Union Company which was carried on the equity basis (Note 9). DEFERRED CHARGES Deferred charges consist of debt issuance costs and prepaid pension expense and the value of leasehold interests that were recorded in conjunction with acquisitions. These deferred charges are being amortized primarily on a straight-line basis over the life of the related debt, the remaining service lives of employees and the lives of the related leases, respectively. STORE PRE-OPENING COSTS Store pre-opening costs are generally charged to expense as incurred. INCOME TAXES Income taxes are provided based on the liability method of accounting pursuant to Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS 109"). Deferred income taxes are recorded to reflect the tax consequences on future years of temporary differences between the tax basis of assets and liabilities and their financial reporting amounts at each year end. NET INCOME (LOSS) PER SHARE Net income (loss) per share of common stock is based on the average number of shares and equivalents of common stock outstanding during each period, after giving effect to preferred stock dividends. Fully diluted income per share is not presented for each of the periods since the reduction from primary income per share is less than three percent. -38- NOTE 2 -- LONG-TERM DEBT The long-term debt of Penn Traffic consists of the obligations described below:
JANUARY 28, JANUARY 29, 1995 1994 ----------- ---------- (IN THOUSANDS OF DOLLARS) Secured Revolving Credit Facility. . . . . . . . . . $ 76,700 $ Other Secured Debt . . . . . . . . . . . . . . . . . 31,480 35,681 11 1/2% Senior Notes due October 15, 2001. . . . . . 107,240 113,000 10 1/4% Senior Notes due February 15, 2002 . . . . . 125,000 125,000 8 5/8% Senior Notes due December 15, 2003 . . . . . 200,000 200,000 10 3/8% Senior Notes due October 1, 2004 . . . . . . 100,000 100,000 10.65% Senior Notes due November 1, 2004 . . . . . . 100,000 13 3/4% Senior Subordinated Notes due June 15, 1999. 52,423 9 5/8% Senior Subordinated Notes due April 15, 2005 400,000 400,000 ---------- ----------- TOTAL DEBT . . . . . . . . . . . . . . . . . . . . . 1,140,420 1,026,104 Less: Amounts due within one year . . . . . . . . . 4,118 4,208 ---------- ----------- TOTAL LONG-TERM DEBT . . . . . . . . . . . . . . . . $1,136,302 $1,021,896 ---------- ----------- ---------- -----------
Amounts maturing within the next five years are: $4,118,000, $2,728,000, $2,186,000, $3,271,000 and $2,644,000. The Company incurred interest expense of $117,859,000, $117,423,000 and $115,814,000, including noncash amortization of deferred financing costs of $4,195,000, $4,153,000 and $4,336,000 for Fiscal 1995, 1994 and 1993, respectively. Interest paid amounted to $111,669,000, $110,070,000 and $108,789,000 for Fiscal 1995, 1994 and 1993, respectively. The estimated fair value of the Company's long-term debt, including current maturities, was $1.07 billion at both January 28, 1995 and January 29, 1994. The estimated fair value of the Company's long-term debt has been determined by the Company using market information provided by an investment banking firm as to the market value of such debt amounts. The Company has a revolving credit facility (the "Revolving Credit Facility") which provides for borrowings of up to $225 million, subject to a borrowing base limitation measured by eligible inventory and accounts receivable of the Company. The Revolving Credit Facility matures in April 2000 and is secured by a pledge of the Company's inventory, accounts receivable and related assets. Total availability under the Revolving Credit Facility was $121.8 million at January 28, 1995. Effective August 24, 1994, the Revolving Credit Facility was amended to provide for certain interest rate reductions on borrowings made thereunder. After giving effect to the terms of the amendment, based on the interest coverage ratio which the Company has attained, the interest rate on borrowings as to which the Company elects a LIBOR-based rate option is LIBOR plus 1.75%, and the interest rate on borrowings as to which the Company elects a prime-based rate option is prime plus 0.50%. At January 28, 1995, the weighted average rate of interest on the Revolving Credit Facility was 8.1%. -39- In October 1994, Penn Traffic issued $100 million of 10.65% Senior Notes due 2004. The 11 1/2% Senior Notes due 2001, the 10 1/4% Senior Notes due 2002, the 8 5/8% Senior Notes due 2003, the 10 3/8% Senior Notes due 2004 and the 10.65% Senior Notes due 2004 are unsecured obligations of Penn Traffic which rank pari passu with each other and with indebtedness under the Revolving Credit Facility. However, indebtedness under the Revolving Credit Facility is secured by certain assets of the Company. The 9 5/8% Senior Subordinated Notes due 2005 are subordinated to all existing and future senior indebtedness. The 11 1/2% Senior Notes due 2001, the 10 1/4% Senior Notes due 2002, the 8 5/8% Senior Notes due 2003, the 10 3/8% Senior Notes due 2004, the 10.65% Senior Notes due 2004, the 9 5/8% Senior Subordinated Notes due 2005 and the Revolving Credit Facility contain certain covenants, including restrictions on incurrence of indebtedness by Penn Traffic and limitations on the payment of dividends to Penn Traffic's common shareholders. The Company is in compliance with all terms and covenants of its long-term debt agreements as of and for the fiscal year ended January 28, 1995. The Company has entered into four interest rate swap agreements, each of which expires within the next four years, that effectively convert $155 million of its fixed rate borrowing into variable rate obligations. Under the terms of these agreements, the Company makes payments at variable rates which are based on LIBOR and receives payments at fixed interest rates. The net amount paid or received is included in interest expense. The estimated fair value of the Company's interest rate swap agreements at January 28, 1995 was a $4.3 million liability and a $6.7 million asset at January 29, 1994, neither of which has been recorded on the books of the Company. The estimated fair value of these interest rate agreements has been determined by the Company using market information available to the Company, based on information provided by the counterparty to each interest rate agreement. -40- NOTE 3 -- EMPLOYEE BENEFIT PLANS: Substantially all of the Company's employees are covered by either defined benefit plans or defined contribution plans. The following sets forth the net pension expense recognized for the defined benefit pension plans and the status of the Company's defined benefit plans:
FISCAL YEAR ENDED JANUARY 28, JANUARY 29, JANUARY 30, 1995 1994 1993 ----------- ----------- ---------- (IN THOUSANDS OF DOLLARS) Service cost -- benefits earned during the period. . . . . . . . . $ 4,617 $ 4,345 $ 3,996 Interest cost on projected benefit obligation . . . . . . . . . . . . 9,207 8,281 7,014 Actual return on plan assets . . . . (2,117) (11,163) (12,212) Net amortization and deferral. . . . (9,365) 482 1,663 -------- -------- -------- Net pension expense. . . . . . . . . $ 2,342 $ 1,945 $ 461 -------- -------- -------- -------- -------- --------
JANUARY 28, 1995 JANUARY 29, 1994 PLANS IN WHICH PLANS IN WHICH ----------------------- ------------------------ ASSETS ACCUMULATED ASSETS ACCUMULATED EXCEED BENEFITS EXCEED BENEFITS ACCUMULATED EXCEED ACCUMULATED EXCEED BENEFITS ASSETS BENEFITS ASSETS ----------- ---------- ----------- ---------- (IN THOUSANDS OF DOLLARS) Actuarial present value of vested benefit obligation . . . $(52,803) $(39,608) $(60,632) $(48,265) -------- -------- -------- -------- Accumulated benefit obligation . $(56,849) $(43,467) $(64,790) $(52,414) -------- -------- -------- -------- Projected benefit obligation . . $(67,363) $(43,467) $(79,629) $(52,414) Plan assets at fair value. . . . 88,964 39,159 89,035 39,265 -------- -------- -------- -------- Plan assets in excess of (less than) projected benefit obligation. . . . . . . . . . 21,601 (4,308) 9,406 (13,149) Unrecognized net transition (asset) liability . . . . . . (1,774) 119 (1,894) 130 Unrecognized net (gain) loss . . (10,235) 82 (184) 8,469 Unrecognized prior service cost. 4,478 6,822 4,879 7,420 Minimum liability. . . . . . . . (7,023) (16,019) -------- -------- -------- -------- Net pension asset (liability). . $ 14,070 $ (4,308) $ 12,207 $(13,149) -------- -------- -------- -------- -------- -------- -------- --------
In calculating benefit obligations and plan assets for Fiscal 1995, the Company assumed a weighted average discount rate of 9.0%, compensation increase rates ranging from 3.0% to 3.5% and expected long-term rates of return on plan assets ranging from 8.5% to 9.5%. For Fiscal 1994, the Company assumed a weighted average discount rate of 7.25%, compensation increase rates ranging from 3.0% to 3.5% and expected long-term rates of return on plan assets ranging from 8.5% to 9.5%. The Company's defined benefit plans generally provide a retirement benefit to employees based on specified percentages applied to final average compensation, as defined, coupled with years of service earned to the date of retirement. All pension plans comply with the provisions of the Employee Retirement Income Security Act of 1974 ("ERISA"). Generally, the Company -41- funds accrued pension costs as incurred. Penn Traffic's defined benefit plans' assets are maintained in separate trusts and are managed by independent investment managers. The assets were principally invested in equity, debt and short-term cash securities. Quality Markets, P&C and Big Bear also contribute to multi-employer pension funds, which cover certain union employees under collective bargaining agreements. Such contributions aggregated $4,297,000, $4,759,000 and $4,088,000 in Fiscal 1995, 1994 and 1993, respectively. The applicable portion of the total plan benefits and net assets of these plans is not separately identifiable. The Company contributed to a separate profit-sharing retirement plan for eligible employees of Quality Markets not covered by a union pension fund for Fiscal 1994 and Fiscal 1993 and contributes to a profit-sharing arrangement for certain Riverside division union employees. The expense for these profit-sharing plans for Fiscal 1994 and 1993 was $279,000 and $572,000, respectively. Big Bear sponsors a deferred profit-sharing plan for certain salaried employees. Contributions and costs totalled $845,000, $1,053,000 and $1,001,000 in Fiscal 1995, 1994 and 1993, respectively. Pursuant to the provisions of Statement of Financial Accounting Standards No. 87, "Employers' Accounting for Pensions" ("SFAS 87"), the Company recorded in other noncurrent liabilities an additional minimum pension liability adjustment of $7,024,000 as of January 28, 1995 and $16,019,000 as of January 29, 1994, representing the amount by which the accumulated benefit obligation exceeded the fair value of plan assets plus accrued amounts previously recorded. The additional liability has been offset by an intangible asset to the extent of previously unrecognized prior service cost. The amount in excess of previously unrecognized prior service cost is recorded as a reduction of shareholders' equity in the amount of $356,000 as of January 28, 1995 and $4,963,000 as of January 29, 1994, representing the after-tax impact. Effective January 30, 1994, the Company adopted Statement of Financial Accounting Standards No. 112, "Employers' Accounting for Postemployment Benefits" ("SFAS 112"). SFAS 112 requires employers to recognize the obligation to provide postemployment benefits on an accrual basis if certain conditions are met. The cumulative effect of the change in accounting principle determined as of January 30, 1994 reduced net income $5.8 million, net of a $4.1 million income tax benefit, for the fiscal year ended January 28, 1995. -42- NOTE 4 -- INCOME TAXES: The provision for income taxes charged to continuing operations was provided as follows:
FISCAL YEAR ENDED ----------------- JANUARY 28, JANUARY 29, JANUARY 30, 1995 1994 1993 ----------- ----------- ----------- (IN THOUSANDS OF DOLLARS) Current Tax Expense: Federal income. . . . . . . . . . . $10,330 $ 7,728 $11,365 State income. . . . . . . . . . . . 2,682 1,690 2,430 -------- -------- -------- 13,012 9,418 13,795 -------- -------- -------- Deferred Tax Expense (Benefit): Federal income. . . . . . . . . . . 2,895 4,454 (5,936) State income. . . . . . . . . . . . (56) 1,147 (1,047) -------- -------- -------- 2,839 5,601 (6,983) -------- -------- -------- Provision for income taxes . . . . . . $15,851 $15,019 $ 6,812 -------- -------- -------- -------- -------- --------
The differences between income taxes computed using the statutory federal income tax rate and those shown in the Consolidated Statement of Operations are summarized as follows:
FISCAL YEAR ENDED ----------------- JANUARY 28, JANUARY 29, JANUARY 30, 1995 1994 1993 ----------- ----------- ----------- (IN THOUSANDS OF DOLLARS) Federal tax at statutory rates. . . . . $13,254 $ 8,118 $ 3,673 State income taxes net of federal income tax effect . . . . . . . . . . 2,722 1,844 1,139 Nondeductible goodwill amortization. . . . . . . . . . . . . 3,343 3,284 3,189 Capital loss carryforward . . . . . . . (992) Miscellaneous items . . . . . . . . . . 639 (167) (343) Increase in deferred income taxes due to change in federal income tax rate. 2,439 Decrease in deferred income taxes due to changes in state income tax rates. (997) State net operating loss carryforwards. (726) Tax credits . . . . . . . . . . . . . . (1,392) (499) (846) ------- ------- ------- Provision for income taxes. . . . . . . $15,851 $15,019 $ 6,812 ------- ------- ------- ------- ------- -------
-43- Components of deferred income taxes at January 28, 1995 and January 29, 1994 were as follows:
JANUARY 28, JANUARY 29, 1995 1994 ----------- ----------- (IN THOUSANDS OF DOLLARS) Deferred Tax Liabilities: Fixed assets. . . . . . . . . . . . . . $103,673 $ 98,407 Inventory . . . . . . . . . . . . . . . 30,237 30,557 Prepaid expenses and other current assets . . . . . . . . . . . . 955 530 Goodwill amortization . . . . . . . . . 956 413 Pensions. . . . . . . . . . . . . . . . 2,142 1,119 Deferred charges and other assets . . . 6,209 4,544 -------- -------- $144,172 $135,570 -------- -------- -------- -------- Deferred Tax Assets: Nondeductible accruals. . . . . . . . . $ 7,604 $ 11,019 Prepaid operating fee . . . . . . . . . 4,170 5,058 Capital leases. . . . . . . . . . . . . 3,791 2,429 Reserve for discontinued operations . . . . . . . . . . . . . . 560 Net operating loss carryforward . . . . 3,863 10,077 Capital loss carryforward . . . . . . . 1,500 339 Tax credit carryforwards. . . . . . . . 22,262 9,008 -------- -------- $ 43,190 $ 38,490 -------- -------- -------- -------- Net Deferred Tax Liability. . . . . . . . $100,982 $ 97,080 -------- -------- -------- --------
At January 28, 1995, Penn Traffic had alternative minimum tax credit carryforwards of $17,945,000, general business tax credit carryforwards of $2,354,000, targeted jobs credits of $1,313,000 and various state tax credits, tax effected for federal income tax purposes, of $650,000 available to offset the Company's regular income tax liability in future years. The general business tax credit carryforwards begin to expire in 2005 and the alternative minimum tax credit carryforwards have no expiration date. In addition, the Company has various state net operating loss carryforwards, tax effected for federal income tax purposes, of approximately $3,664,000. In Fiscal 1995, the Company recorded a deferred tax asset of approximately $7,500,000 subject to a valuation allowance of $6,000,000 for the capital loss realized on the investment in the capital stock of Grand Union (Note 9). -44- NOTE 5 -- LEASES: The following is a schedule by year of future gross minimum rental payments for all leases with terms greater than one year reconciled to the present value of net minimum capital lease payments as of January 28, 1995:
FISCAL YEARS ENDING IN TOTAL OPERATING CAPITAL ---------------------- ----- --------- ------- (IN THOUSANDS OF DOLLARS) 1996. . . . . . . . . . . . . $ 58,579 $ 34,050 $ 24,529 1997. . . . . . . . . . . . . 56,011 32,333 23,678 1998. . . . . . . . . . . . . 50,856 29,425 21,431 1999. . . . . . . . . . . . . 47,474 27,263 20,211 2000. . . . . . . . . . . . . 43,774 25,338 18,436 Later years . . . . . . . . . 375,862 212,700 163,162 -------- -------- -------- Total minimum lease payments. $632,556 $361,109 271,447 -------- -------- -------- -------- Less: Executory costs . . . . (1,501) -------- Net minimum capital lease payments. . . . . . . 269,946 Less: Estimated amount representing interest . . . (133,090) -------- Present value of net minimum capital lease payments. . . . . . . 136,856 Less: Current portion . . . . (9,962) -------- Long-term obligations under capital lease at January 28, 1995. . . . . . $126,894 -------- --------
The Company principally operates in leased store facilities with terms of up to 20 years and renewable options for additional periods. The Company follows the provisions of Statement of Financial Accounting Standards No. 13, "Accounting for Leases" ("SFAS 13"), in determining the criteria for capital leases. Leases that do not meet such criteria are classified as operating leases, and related rentals are charged to expense in the year incurred. During Fiscal 1995, 1994 and 1993, the Company incurred capital lease obligations (including acquired leases) of $5,533,000, $7,613,000 and $35,515,000, respectively, in connection with lease agreements for buildings and equipment. For Fiscal 1995, 1994 and 1993, capital lease amortization expense was $11,887,000, $11,758,000 and $10,149,000, respectively. Future minimum rentals have not been reduced by minimum sublease rentals of $42,427,000 due in the future under noncancelable subleases. In addition to minimum rentals, some leases provide for the Company to pay real estate taxes and other expenses and, in many cases, contingent rentals based on sales. -45- Minimum rental payments and related executory costs for operating leases were as follows. Contingent rentals and sublease payments include arrangements on primary leases classified as both capital and operating leases:
FISCAL YEAR ENDED ----------------- JANUARY 28, JANUARY 29, JANUARY 30, 1995 1994 1993 ----------- ----------- ----------- (IN THOUSANDS OF DOLLARS) Minimum rentals and executory costs. . $ 35,863 $ 30,393 $ 24,079 Contingent rentals . . . . . . . . . . 1,874 1,437 2,352 Less: Sublease payments. . . . . . . . (9,607) (8,226) (6,904) -------- -------- -------- Net rental payments. . . . . . . . . . $ 28,130 $ 23,604 $ 19,527 -------- -------- -------- -------- -------- --------
NOTE 6 -- UNUSUAL ITEM: During the second quarter of Fiscal 1994, the Company recorded certain expenses totalling $6.4 million classified as an unusual item. This unusual item is comprised of $4.0 million related to a voluntary employee separation program at the Company's P&C division and $2.4 million related to the realignment of certain operations. NOTE 7 -- REDEEMABLE CONVERTIBLE PREFERRED STOCK: In April 1993, Big Bear was merged into Penn Traffic. At the effective date of the merger, holders of Big Bear redeemable convertible 8% preferred stock and Big Bear common stock received aggregate merger consideration for the merger equal to 307,836 shares of Penn Traffic common stock and approximately $10.8 million in cash. As a result of the merger, the Big Bear redeemable convertible 8% preferred stock was retired. -46- NOTE 8 -- SHAREHOLDERS' EQUITY: In April 1993, the Company issued 2,000,000 shares of common stock at a price of $39.25 per share and concurrently offered $400 million of the 9 5/8% Senior Subordinated Notes due 2005 in underwritten public offerings (the "Offerings"). Approximately $10.8 million of the proceeds of the Offerings was used to provide the cash portion of consideration paid to holders of Big Bear convertible preferred stock and holders of Big Bear common stock other than Penn Traffic in connection with the merger of Big Bear into the Company (Note 7). Holders of Big Bear convertible preferred stock and holders of Big Bear common stock other than Penn Traffic also received 307,836 shares of Penn Traffic common stock as consideration for the merger. At the effective time of the merger, the outstanding shares of Big Bear common stock owned by Penn Traffic were canceled. The remaining proceeds of the Offerings were used to pay or retire certain outstanding indebtedness of the Company and for general corporate purposes. The Company has a Long-term Incentive Plan (the "1993 Plan") which provides for long-term incentives based upon objective, quantifiable measures of the Company's performance over time through the payment of incentive compensation of the types commonly known as stock options, restricted stock, performance shares, other forms of stock-based incentives such as phantom stock and cash awards. A maximum of 350,000 shares of common stock may be paid to participants under the 1993 Plan and/or purchased pursuant to stock options granted under the 1993 Plan, subject to antidilution and other adjustments specified in the 1993 Plan. As of January 28, 1995, a total of 262,100 shares of restricted stock have been awarded under the Company's 1993 Plan to 67 officers and employees of Penn Traffic (including one independent contractor). At January 28, 1995, an additional 87,900 shares of common stock were reserved for future grants under the 1993 Plan. For all awards made prior to January 29, 1995, vesting of the shares of restricted stock granted pursuant to such awards is contingent upon attainment, subsequent to the date of grant, of EBITDA (as defined) levels of $265 million in any four consecutive fiscal quarter period (plus $4 million for each fiscal quarter included in the period subsequent to the acquisition of the Acme stores in January 1995), or $500 million in any eight consecutive fiscal quarter period (plus $4 million for each fiscal quarter included in the period subsequent to the acquisition of the Acme stores in January 1995). Such shares will be forfeited if such levels are not achieved by the fifth anniversary of the date of grant. To encourage retention of such shares by the participants, upon vesting of the restricted stock, the Company will make a cash payment to each participant equal to the amount of income tax payable by such participant in respect of the award and the cash payment, if such participant agrees not to sell his shares for at least two years beyond vesting and to refund the payment if he resigns within such two-year period. As of January 28, 1995, common stock and capital in excess of par value were increased by $9,759,000 and unearned compensation was recorded at the same amount to reflect the issuance of the restricted shares. Unearned compensation, which is shown as a -47- separate component of shareholders' equity, will be expensed as the compensation is earned. The 1993 Plan was adopted in Fiscal 1994 as the successor to the Company's 1988 Stock Option Plan (the "1988 Plan"). The Company also has a stock option plan for directors (the "Directors' Plan") pursuant to which each director of the Company who is not an employee of the Company receives as of the date of appointment to the Board of Directors, and thereafter annually, as of the first business day after the conclusion of each Annual Meeting of Shareholders of the Company, an option to purchase 1,500 shares of common stock (subject to antidilution adjustments) at a price equal to the fair market value (as defined in the Directors' Plan) of such shares on the date of grant. As of January 28, 1995, options for 244,442 shares and 39,000 shares are outstanding under the 1988 Plan and the Directors' Plan, respectively. An additional 11,000 shares of common stock are reserved for issuance under the Directors' Plan at January 28, 1995. Under the terms of the Directors' Plan, option prices are 100% of the "fair market value" of the shares on the date granted. The 1988 Plan options generally vest 20% on the date of grant and 20% on each of the next four anniversary dates. The Directors' Plan options are immediately exercisable. Under both plans, options expire ten years after the date of grant. Changes during the three years ended January 28, 1995 in options outstanding under the 1988 Plan and the Directors' Plan are as follows: PENN TRAFFIC STOCK OPTIONS
OPTION PRICE SHARES PER SHARE UNDER OPTION ------------ ------------ 1988 PLAN Balance, February 1, 1992 . . . . . . . . . $12.50 - 26.75 263,863 Granted. . . . . . . . . . . . . . . . . . . $28.13 5,000 Canceled . . . . . . . . . . . . . . . . . . $12.87 - 26.75 (3,676) ------- Balance, January 30, 1993 . . . . . . . . . $12.50 - 28.13 265,187 Granted. . . . . . . . . . . . . . . . . . . 0 Canceled . . . . . . . . . . . . . . . . . . $12.50 - 26.75 (12,935) ------- Balance, January 29, 1994. . . . . . . . . . $12.50 - 28.13 252,252 Granted. . . . . . . . . . . . . . . . . . . 0 Canceled . . . . . . . . . . . . . . . . . . $12.50 - 26.75 (7,810) ------- Balance, January 28, 1995. . . . . . . . . . $12.50 - 28.13 244,442 ------- ------- DIRECTORS' PLAN Granted and outstanding at January 28, 1995 $18.44 - 42.00 39,000 ------- -------
At January 28, 1995, 236,010 of the 1988 Plan options were exercisable. At January 28, 1995, certain persons affiliated with Miller Tabak Hirsch + Co. ("MTH") held warrants to purchase 289,000 shares at $14.00 per share. -48- NOTE 9 -- EQUITY INVESTMENT: In July 1989, Penn Traffic, through its limited partnership investment in Grand Acquisition Company, L.P. ("GAC, L.P."), acquired an indirect ownership interest in approximately 24.3% of the currently outstanding common stock of Grand Union Holdings Corporation (formerly named GND Holdings Corporation) ("Holdings"), the corporate parent of The Grand Union Company ("Grand Union"). GAC, L.P. owns approximately 39% of the currently outstanding common equity of Holdings on a fully diluted basis. As of January 28, 1995, Penn Traffic's indirect ownership interest was 17.8% on a fully diluted basis. The Company accounted for its investment in Grand Union under the equity method. The investment was recorded originally at a cost of $18,250,000. The carrying value of the investment was reduced to zero as of February 2, 1991. On January 25, 1995, Grand Union filed a voluntary petition for reorganization under Chapter 11 of the United States Bankruptcy Code with the United States Bankruptcy Court, District of Delaware (the "Bankruptcy Court"). On February 16, 1995, Grand Union Holdings filed a voluntary Chapter 11 petition in the Bankruptcy Court. Penn Traffic's equity interest in Grand Union Holdings became worthless as a result of these bankruptcy proceedings and, on March 24, 1995 Penn Traffic's limited partnership interest in GAC, L.P. was redeemed for nominal consideration. See Note 10 - Related Parties for a description of certain ongoing arrangements between Penn Traffic and Grand Union. -49- NOTE 10 -- RELATED PARTIES: During Fiscal 1995, the Company had an agreement for financial consulting and business management services to be provided by MTH. Under this agreement, the Company paid MTH an annual fee of $1,357,100. The annual fee payable to MTH for Fiscal 1996 will increase to $1,395,100 as a result of an adjustment to such fee based upon the increase in the consumer price index. During Fiscal 1995, the Company paid MTH an additional fee of $500,000 for its services in connection with assisting the Company with the acquisition of 45 former Acme stores and the public offering of $100 million in principal amount of Penn Traffic 10.65% Senior Notes due 2004. During Fiscal 1994, the Company paid MTH additional fees totalling $1,500,000 for its services in connection with public offerings of debt and equity securities and with the mergers of P&C and Big Bear into the Company. In Fiscal 1993, the Company paid MTH additional fees totalling $1,150,000 related to debt offerings and the acquisition of 28 stores from Peter J. Schmitt. At the time of the acquisition of Grand Union by Holdings in July 1989, Grand Union and P&C operated stores in some of the same geographic areas in Vermont and upstate New York. In connection with such acquisition, agreements were entered into with federal and state antitrust authorities that required the divestiture of 16 Grand Union stores or P&C stores. The divestitures required by these agreements were completed on July 30, 1990. P&C operated 13 of the 16 divested stores and Grand Union operated three. In connection with the divestiture program, P&C discontinued its New England wholesaling business in December 1989. In a related transaction, on July 30, 1990, P&C and Grand Union entered into an agreement (the "Operating Agreement") whereby Grand Union acquired the right to operate P&C's 13 remaining stores in New England under the Grand Union name until July 2000. Pursuant to the Operating Agreement, Grand Union agreed to pay Penn Traffic (as the successor of P&C, which was merged into the Company in April 1993) a minimum annual fee averaging $10.7 million per year during the 10-year term and, beginning with the year commencing July 31, 1992, to pay Penn Traffic additional contingent fees of up to $700,000 per year based on sales performance of the stores operated by Grand Union. As a result of the recapitalization of Grand Union in July 1992, Penn Traffic received a $15 million prepayment of an operating fee from Grand Union pursuant to the terms of the Operating Agreement. This prepayment reduced the future payments that Grand Union will make to Penn Traffic pursuant to the terms of the Operating Agreement by approximately $3.2 million per year. The Total Revenues line of the Consolidated Statement of Operations includes pretax operating fees of $11.2 million for the 52 weeks ended January 28, 1995, January 29, 1994 and January 30, 1993. Based on current sales levels, Penn Traffic expects to receive payment of the maximum contingent fee of $700,000 in each year remaining in the term of the Operating Agreement. -50- At the expiration of the 10-year term of the Operating Agreement, Grand Union has the right to extend the term of the Operating Agreement for an additional five years. In the event of such extension of the lease term, Grand Union will pay to Penn Traffic an annual fee of $13.6 million in the first year of the extended term, $14.0 million in the second year, $14.4 million in the third year, $14.9 million in the fourth year and $15.3 million in the fifth year, plus contingent fees based on the sales performance of the stores of up to $700,000 each year. Penn Traffic also granted Grand Union an option (the "Purchase Option") to purchase the stores operated by Grand Union under the Operating Agreement. Grand Union paid Penn Traffic $7.5 million for the Purchase Option. If Grand Union does not extend the initial term of the Operating Agreement at its expiration in July 2000 or does not exercise the Purchase Option prior to the expiration of the term (or the extended term), or in the event of a default by Grand Union in the performance of its obligations pursuant to the Operating Agreement, the stores operated by Grand Union pursuant to the Operating Agreement will be returned to operation by Penn Traffic. Based on current conditions, management does not believe that the return of operation of the stores to Penn Traffic would have a significant impact on the financial condition of the Company. Grand Union purchases bakery products from Penn Traffic's Penny Curtiss bakery, and Penn Traffic purchases products from Grand Union's commissary. All of such purchases are made in the ordinary course of business. The amount of bakery products purchased by Grand Union from Penny Curtiss was approximately $3.5 million in Fiscal 1995, $3.1 million in Fiscal 1994 and $3.1 million in Fiscal 1993. The amount of commissary product purchased by Penn Traffic from Grand Union was approximately $0.3 million in Fiscal 1995, $0.4 million in Fiscal 1994 and $0.5 million in Fiscal 1993. In September 1993, Penn Traffic entered into a program to consolidate the purchasing and distribution of health and beauty care products and general merchandise with Grand Union. Under this program, Grand Union procures health and beauty care products for both Grand Union and Penn Traffic, and Penn Traffic, through its Big Bear division, procures general merchandise for both Penn Traffic and Grand Union. Grand Union's general merchandise warehouse in Montgomery, New York is used to distribute general merchandise and health and beauty care products to Insalaco's, P&C, Quality Markets and Riverside stores. This warehouse also supplies Penn Traffic's wholesale customers, as well as Grand Union stores. Under this arrangement, the cost of operating the Montgomery warehouse is shared by Penn Traffic in an amount proportionate to Penn Traffic's usage of the facility. Penn Traffic owns the general merchandise and health and beauty care products inventory located at the Montgomery, New York warehouse. In Fiscal 1995, the amount of product sold by Penn Traffic to Grand Union was $87.9 million. At January 28, 1995, the Company had recorded net accounts receivable from Grand Union of $0.2 million. -51- As described in Note 9, Grand Union filed a voluntary petition for reorganization under the Bankruptcy Code in January 1995. The Company's ongoing relationships with Grand Union are being reevaluated in connection with the pending Grand Union bankruptcy proceedings. No determination has yet been made as to whether or on what basis Grand Union's purchase of Penn Traffic's bakery products and Penn Traffic's purchase of Grand Union's commissary products, or the arrangement with regard to consolidated purchasing and distribution of health and beauty care products and of general merchandise, will be continued. NOTE 11 -- COMMITMENTS AND CONTINGENCIES: The Company enters into various purchase commitments in the normal course of business. No losses are expected to result from these purchase commitments. At January 28, 1995, Penn Traffic had guaranteed obligations of $2.7 million of indebtedness of certain of licensed independent operators. The Company, its subsidiaries and divisions also are involved in various legal actions, some of which involve claims for substantial sums. However, any ultimate liability with respect to these contingencies is not considered to be material in relation to the consolidated financial position or results of operations of the Company. NOTE 12 -- EXTRAORDINARY ITEM: During Fiscal 1995, Fiscal 1994 and Fiscal 1993, the Company had extraordinary items of $3,025,000 (net of $2,045,000 income tax benefit), $25,843,000 (net of $17,848,000 income tax benefit) and $10,823,000 (net of $6,946,000 income tax benefit), respectively, relating to the early retirement of debt. -52- NOTE 13 -- ACQUISITIONS: On January 19, 1995, the Company acquired 45 food stores from American Stores Company. The stores are located in north central and northeastern Pennsylvania and in south central New York. The acquisition cost of $91,570,000 was attributed to major categories of assets obtained and obligations assumed as follows: inventories $15,502,000; property, plant and equipment $9,638,000; other assets (goodwill) $81,217,000; cash $566,000 and other noncurrent liabilities $15,353,000. On September 27, 1993, the Company acquired 12 food stores from Insalaco's Markets, Inc. The stores are located in northeastern Pennsylvania. The acquisition cost of $51,651,000 was attributed to major categories of assets obtained and obligations assumed as follows: inventories $6,633,000; property, plant and equipment $9,947,000; other assets (goodwill) $37,071,000 and other noncurrent liabilities $2,000,000. The unaudited consolidated results of operations on a pro forma basis as though the American Stores Company stores and Insalaco's stores had been acquired on January 31, 1993 are as follows:
FOR THE 52 WEEKS ENDED ---------------------- JANUARY 28, JANUARY 29, 1995 1994 ----------- --------- (UNAUDITED) (IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE AND AVERAGE NUMBER OF SHARES AND EQUIVALENTS) Total revenues $ 3,599,513 $ 3,534,710 Net income (loss) applicable to common stock $ 13,303 $ (17,978) Net income (loss) per common share $ 1.19 $ (1.71) Average number of common shares and equivalents outstanding 11,169,337 10,561,256
The pro forma financial information is not necessarily indicative of the results of operations that would have occurred had the purchase been made at the beginning of the period or of the future results of the combined operations. -53- REPORT OF MANAGEMENT Penn Traffic's management has prepared the financial statements presented in this annual report and is responsible for the integrity of all information contained herein. The financial statements presented in this report have been audited by the independent accountants appointed by the Board of Directors on the recommendation of its Audit Committee and management. The Company maintains an effective system of internal accounting controls. The independent accountants obtain and maintain an understanding of the Company's internal accounting controls and conduct such tests and related procedures as they deem necessary to express an opinion on the fairness of the presentation of the financial statements. The Audit Committee, composed solely of outside directors, meets periodically with management, internal auditors and independent accountants to review auditing and financial reporting matters and to ensure that each group is properly discharging its responsibilities. We rely on our internal and external auditors to assist us in fulfilling our responsibility for the fairness of the Company's financial reporting and monitoring the effectiveness of our system of internal accounting controls. -54- PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT As permitted by General Instruction G(3), information concerning the executive officers of Penn Traffic is set forth as a supplemental item included in Part I of the Form 10-K Report under the caption "Executive Officers of Registrant." Information concerning the directors of Penn Traffic is incorporated by reference from pages 2 through 7 of the Proxy Statement dated May 1, 1995 filed or to be filed in connection with the Company's Annual Meeting of Stockholders to be held on June 7, 1995. Information concerning compliance with Section 16(a) of the Securities Exchange Act of 1934 is incorporated by reference from page 13 of the Proxy Statement dated May 1, 1995 filed or to be filed in connection with the Company's Annual Meeting of Stockholders to be held on June 7, 1995. ITEM 11. EXECUTIVE COMPENSATION The remuneration of directors and officers appearing on pages 14 through 29 of the Company's Proxy Statement dated May 1, 1995 filed or to be filed in connection with the Company's Annual Meeting of Stockholders to be held on June 7, 1995 is incorporated herein by reference. The information set forth after the first full paragraph of page 29 through page 38 of the Company's Proxy Statement dated May 1, 1995, filed or to be filed in connection with the Company's Annual Meeting of Stockholders to be held on June 7, 1995, is not "filed" as a part hereof. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The security ownership of certain shareholders appearing on pages 8 through 13 of the Company's Proxy Statement dated May 1, 1995 filed or to be filed in connection with the Company's Annual Meeting of Stockholders to be held on June 7, 1995 is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTION The information concerning certain relationships and related transactions appearing on pages 39 through 41 of the Company's Proxy Statement dated May 1, 1995 filed or to be filed in connection with the Company's Annual Meeting of Stockholders to be held on June 7, 1995 is incorporated herein by reference. -55- PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K The index for Financial Statements and Supplementary Data is on page 19 under Item 8 of this Form 10-K. EXHIBITS: The following are filed as Exhibits to this Report: EXHIBIT NO. DESCRIPTION - ----------- ----------- 2.1 Certificate of Merger for merger of Penn Traffic Acquisition Corporation into Penn Traffic dated April 14, 1993 (incorporated by reference to Exhibit No. 2.5 to Penn Traffic's Registration Statement on Form S-3 (Reg. No. 33-51213) filed on December 8, 1993 with the Securities and Exchange Commission (the "SEC") and referred to herein as the "December 1993 Registration Statement"). 2.2 Plan of Merger dated as of February 25, 1993 for the merger of P&C Food Markets, Inc. ("P&C") into Penn Traffic (incorporated by reference to Exhibit No. 2.6 to Penn Traffic's Registration Statement on Form S-3 (Reg. No. 33-58918) filed on April 7, 1993 with the SEC and referred to herein as the "April 1993 Registration Statement"). 2.3 Certificates of Merger for merger of P&C into Penn Traffic dated April 14, 1993 (incorporated by reference to Exhibit No. 2.7 to the December 1993 Registration Statement). -56- EXHIBITS (CONTINUED): EXHIBIT NO. DESCRIPTION - ----------- ----------- 2.4 Agreement and Plan of Merger dated as of February 25, 1993 by and among Penn Traffic, Penn Traffic Acquisition Corporation and Big Bear Stores Company ("Big Bear") (incorporated by reference to Exhibit No. 2.8 to the April 1993 Registration Statement). 2.5 Certificate of Merger for merger of Big Bear into Penn Traffic Acquisition Corporation dated April 14, 1993 (incorporated by reference to Exhibit No. 2.9 to the December 1993 Registration Statement). 2.6 Asset Purchase Agreement dated as of December 9, 1992 between Penn Traffic and Peter J. Schmitt Co., Inc. (the "December 9, 1992 Asset Purchase Agreement") (incorporated by reference to Exhibit No. 2.1 to Penn Traffic's Current Report on Form 8-K filed on January 18, 1993 with the SEC and referred to herein as the "Penn Traffic 1993 8-K"). 2.6A Letter Agreement dated December 31, 1992 with respect to the December 9, 1992 Asset Purchase Agreement (incorporated by reference to Exhibit No. 2.1A to the Penn Traffic 1993 8-K). 2.7 Asset Purchase Agreement dated as of December 29, 1992 between Penn Traffic and Peter J. Schmitt Co., Inc. (the "December 29, 1992 Asset Purchase Agreement") (incorporated by reference to Exhibit No. 2.2 to the Penn Traffic 1993 8-K). 2.7A Letter Agreement dated December 30, 1992 with respect to the December 29, 1992 Asset Purchase Agreement (incorporated by reference to Exhibit No. 2.2A to the Penn Traffic 1993 8-K). 2.8 Agreement of Purchase and Sale, dated as of August 27, 1993, by and between Insalaco Markets, Inc., Insalaco's Old Forge, Inc., Insalaco's Clarks Green, Inc., Insalaco's Supermarkets Warehouse, Insalaco Enterprises, Insalaco's Real Estate, Insalaco's Foodliner, Eagle Valley Realty, Tannersville Realty Company and Penn Traffic (incorporated by reference to Exhibit No. 10.23 to Penn Traffic's Quarterly Report on Form 10-Q for the fiscal quarter ended July 31, 1993 and referred to herein as the "Penn Traffic July 1993 10-Q"). 2.9 Asset Purchase Agreement by and among Acme Markets, Inc., American Stores Properties, Inc., American Stores Realty Corp. and The Penn Traffic Company, dated as of September 30, 1994 (incorporated by reference to Exhibit 2.13 to Penn Traffic's Report on Form 8-K dated October 12, 1994 and referred to herein as the "1994 8-K"). 3.1 Certificate of Incorporation of Penn Traffic (incorporated by reference to Exhibit No. 3.1 to Penn Traffic's Registration Statement on Form S-3 (Reg. No. 33-51824) filed on October 2, 1992 with the SEC and referred to herein as the "October 1992 Registration Statement"). -57- EXHIBITS (CONTINUED): EXHIBIT NO. DESCRIPTION - ----------- ----------- 3.2 Amended and Restated By-Laws of Penn Traffic (incorporated by reference to Exhibit No. 3.2 to the December 1993 Registration Statement). 4.1 Certificate of Incorporation of Penn Traffic (filed as Exhibit No. 3.1). 4.2 Amended and Restated By-Laws of Penn Traffic (filed as Exhibit No. 3.2). 4.3 Form of Common Stock Certificate. 4.4 Indenture, including form of 11 1/2% Senior Note Due 2001, dated as of October 16, 1991 between P&C and Bankers Trust Company ("Bankers Trust"), as Trustee (incorporated by reference to Exhibit No. 10.25 to P&C's quarterly report on Form 10-Q for the fiscal quarter ended November 2, 1991 and referred to herein as the "P&C November 1991 10-Q"). 4.4A First Supplemental Indenture dated as of April 15, 1993 between the Company and Bankers Trust, as Trustee, relating to the 11 1/2% Senior Notes Due 2001 (incorporated by reference to Exhibit No. 4.10A to Penn Traffic's Quarterly Report on Form 10-Q for the fiscal quarter ended May 1, 1993 and referred to herein as the "Penn Traffic May 1993 10-Q"). 4.5 Indenture, including form of 10 1/4% Senior Note Due February 15, 2002, dated as of February 18, 1992 between Penn Traffic and Marine Midland Bank, N.A., Trustee (incorporated by reference to Exhibit No. 4.13 to Penn Traffic's Annual Report on Form 10-K for the fiscal year ended February 1, 1992 and referred to herein as the "Penn Traffic 1992 10-K"). 4.5A First Supplemental Indenture dated as of June 10, 1992 to the Indenture dated as of February 18, 1992, relating to the 10 1/4% Senior Notes Due 2002, between Penn Traffic and Marine Midland Bank, N.A., as Trustee (incorporated by reference to Exhibit 4.15A to the October 1992 Registration Statement). 4.5B Second Supplemental Indenture dated as of September 18, 1992 to the Indenture dated as of February 18, 1992, relating to the 10 1/4% Senior Notes Due 2002, between Penn Traffic and Marine Midland Bank, N.A., as Trustee (incorporated by reference to Exhibit 4.15B to the October 1992 Registration Statement). 4.6 Indenture, including form of 10 3/8% Senior Note Due October 1, 2004, dated as of October 1, 1992, between Penn Traffic and United States Trust Company of New York, as Trustee (incorporated by reference to Exhibit No. 4.16 to Penn Traffic's Quarterly Report on Form 10-Q for the fiscal quarter ended October 31, 1992). -58- EXHIBITS (CONTINUED): EXHIBIT NO. DESCRIPTION - ----------- ----------- 4.7 Indenture, including form of 9 5/8% Senior Subordinated Note Due April 15, 2005, dated as of April 15, 1993, between Penn Traffic and First Trust of California, National Association, as Trustee (incorporated by reference to Exhibit No. 4.14 to the Penn Traffic May 1993 10-Q). 4.8 Indenture dated as of December 15, 1993, between Penn Traffic and United States Trust Company of New York, as Trustee (incorporated by reference to Exhibit No. 4.9 to Penn Traffic's Form 10-K for the fiscal year ended January 29, 1994, and referred to herein as the "1994 10-K"). 4.8A Officer's Certificate pursuant to the Indenture filed as Exhibit 4.8, dated December 21, 1993, establishing the terms of the 8 5/8% Senior Notes due December 15, 2003. 4.8B Officer's Certificate pursuant to the Indenture filed as Exhibit 4.8, dated October 20, 1994, establishing the terms of the 10.65% Senior Notes due November 1, 2004. 10.1 Membership and Licensing Agreement dated April 18, 1982 among TOPCO Associates, Inc. (Cooperative), Kingston Marketing Co. and Penn Traffic (incorporated by reference to Exhibit No. 10.2 to Penn Traffic's Registration Statement on Form S-1 (Reg. No. 33-12926) filed on March 27, 1987 with the SEC and referred to herein as the "1987 Registration Statement"). *10.2 The Penn Traffic Company Incentive Compensation Plan (incorporated by reference to Exhibit No. 10.3 to the 1987 Registration Statement). *10.3 The Penn Traffic Company Severance Pay Plan (incorporated by reference to Exhibit No. 10.5 to the 1987 Registration Statement). *10.4 Riverside Division of The Penn Traffic Company Bargaining Employees Pension Plan (incorporated by reference to Exhibit No. 10.6 to the 1987 Registration Statement). *10.5 Pension Plan for Non-Bargaining Employees of Riverside Division of The Penn Traffic Company (incorporated by reference to Exhibit No. 10.7 to the 1987 Registration Statement). *10.6 Johnstown Sanitary Dairy Pension Plan for Bargaining Employees (incorporated by reference to Exhibit No. 10.8 to the 1987 Registration Statement). *10.7 Johnstown Sanitary Dairy Salaried Personnel Pension Plan (incorporated by reference to Exhibit No. 10.9 to the 1987 Registration Statement). - ---------------------- * Management contract, compensatory plan or arrangement. -59- EXHIBITS (CONTINUED): EXHIBIT NO. DESCRIPTION - ----------- ----------- *10.8 Quality Markets, Inc. ("Quality") Profit Sharing Plan (incorporated by reference to Exhibit No. 10.11 to the 1987 Registration Statement). 10.9 Loan and Security Agreement (the "Loan and Security Agreement") among Penn Traffic, Quality, Dairy Dell, Big M Supermarkets, Inc. ("Big M"), Penny Curtiss Baking Company Inc. ("Penny Curtiss"), and Hart Stores, Inc. ("Hart"), the lenders party thereto and NatWest USA Credit Corp., as Agent, dated March 5, 1993 (incorporated by reference to Exhibit No. 10.2 to the April 1993 Registration Statement). 10.9A Amendment No. 1, dated March 12, 1993, to the Loan and Security Agreement (incorporated by reference to Exhibit No. 10.2A to the April 1993 Registration Statement). 10.9B Amendment No. 2, dated as of March 24, 1993, to the Loan and Security Agreement (incorporated by reference to Exhibit No. 10.2B to the April 1993 Registration Statement). 10.9C Waiver Letter dated as of April 14, 1993, among the lenders under the Loan and Security Agreement, Penn Traffic, Quality, Dairy Dell, Big M, Penny Curtiss and Hart (incorporated by reference to Exhibit No. 10.22C to the Penn Traffic May 1993 10-Q). 10.9D Amendment No. 3, dated as of April 15, 1993, to the Loan and Security Agreement (incorporated by reference to Exhibit No. 10.22D to the Penn Traffic May 1993 10-Q). 10.9E Amendment No.4, dated as of August 20, 1993, to the Loan and Security Agreement (incorporated by reference to Exhibit No. 10.22E to the Penn Traffic July 1993 10-Q). 10.9F Amendment No. 5, dated as of August 24, 1994, to the Loan and Security Agreement (incorporated by reference to Exhibit 10.9F to Penn Traffic's Report on Form 10-Q for the fiscal quarter ended July 30, 1994 and referred to herein as the "July 1994 10-Q"). 10.9G Amendment No. 6, dated as of August 24, 1994, to the Loan and Security Agreement (incorporated by reference to Exhibit 10.9G to the July 1994 10-Q). 10.9H Consent and Amendment to the Loan and Security Agreement, dated as of September 29, 1994 (incorporated by reference to Exhibit 10.9H to the 1994 Form 8-K). 10.10 Engagement Letter dated as of January 30, 1994 by and among Penn Traffic and Miller Tabak Hirsch + Co. (incorporated by reference to Exhibit 10.10 to the 1994 10-K). - ---------------------- * Management contract, compensatory plan or arrangement. -60- EXHIBITS (CONTINUED): EXHIBIT NO. DESCRIPTION - ----------- ----------- *10.11 U-Save Foods, Inc. Employees' Retirement Plan (incorporated by reference to Exhibit No. 10.17 to Penn Traffic's Annual Report on Form 10-K for the fiscal year ended January 30, 1988). *10.12 The Penn Traffic Company Directors' Stock Option Plan (incorporated by reference to Exhibit No. 10.20 to Penn Traffic's Annual Report on Form 10-K for the fiscal year ended February 3, 1990 and referred to herein as the "Penn Traffic 1990 10-K"). 10.13 Agreement and Master Sublease dated as of July 30, 1990, by and between The Grand Union Company and P&C (incorporated by reference to Exhibit No. 10.24 to Penn Traffic's Quarterly Report on Form 10- Q for the Fiscal Quarter ended August 4, 1990 and referred to herein as the "Penn Traffic August 1990 10-Q"). 10.14 Interest Rate and Currency Exchange Agreement dated as of October 16, 1991 between Salomon Brothers Holding Company, Inc. ("SBHC") and P&C (incorporated by reference to Exhibit No. 10.27 to the P&C November 1991 10-Q). - ---------------------- * Management contract, compensatory plan or arrangement. -61- EXHIBITS (CONTINUED): EXHIBIT NO. DESCRIPTION - ----------- ----------- 10.14A Letter Agreement dated October 16, 1991 from SBHC to P&C, setting forth the terms and conditions of the swap transaction and interest rate transaction entered into between SBHC and P&C on October 16, 1991 (incorporated by reference to Exhibit No. 10.27A to the P&C November 1991 10-Q). 10.15 Interest Rate and Currency Exchange Agreement dated as of October 16, 1991 between SBHC and Big Bear (incorporated by reference to Exhibit No. 10.22 to Big Bear's Quarterly Report on Form 10-Q for the quarterly period ended November 2, 1991 and referred to herein as the "Big Bear third quarter 1991 10-Q"). 10.15A Letter Agreement dated October 16, 1991 from SBHC to Big Bear setting forth the terms and conditions of the swap transaction and interest (incorporated by reference to Exhibit No. 10.22A for the Big Bear 1991 third quarter 10-Q). *10.16 Employment Agreement, dated as of February 2, 1992, among Penn Traffic, P & C and Claude J. Incaudo (incorporated by reference to Exhibit No. 10.37 to the Penn Traffic 1992 10-K). *10.17 The Penn Traffic Company's 1993 Long Term Incentive Plan (filed as Exhibit "A" to Penn Traffic's Proxy Statement filed with the SEC on May 1, 1993 and incorporated herein by reference). 10.18 First Mortgage, Security Agreement, Financing Statement and Assignment of Leases and Rents dated as of October 25, 1993 by and among Penn Traffic and Onondaga County Industrial Development Agency, as mortgagor and NatWest USA Credit Corp., as mortgagee (incorporated by reference to Exhibit No. 10.24 to Penn Traffic's Quarterly Report on Form 10-Q for the fiscal quarter ended October 31, 1993). 10.19 Underwriting Agreement relating to Debt Securities, dated December 14, 1993, between Penn Traffic and Goldman, Sachs & Co. and BT Securities Corporation (incorporated by reference to Exhibit 10.24 to Penn Traffic's 1994 10-K). 10.20 Agreement Containing Consent Order dated January 9, 1995 by and between Penn Traffic and the Federal Trade Commission entered into in the matter of The Penn Traffic Company (incorporated by reference to Exhibit 10.25 to Penn Traffic's Report on Form 8-K dated January 19, 1995). 10.21 Agreement, dated November 18, 1994, between Penn Traffic and Grand Union relating to the Grand Union warehouse in Montgomery, New York. - ---------------------- * Management contract, compensatory plan or arrangement. -62- EXHIBITS (CONTINUED): EXHIBIT NO. DESCRIPTION - ----------- ----------- *10.22 Employment Agreement, dated as of January 29, 1995, between John T. Dixon and Penn Traffic. 21.1 Subsidiaries of Penn Traffic (incorporated by reference to Exhibit 21.1 to Penn Traffic's 1994 10-K). 23.1 Consent of Price Waterhouse LLP. 27.1 Financial Data Schedule. - ---------------------- * Management contract, compensatory plan or arrangement. - -------------------------------------------------------------------------------- Copies of the above exhibits will be furnished without charge to any shareholder by writing to Treasurer, The Penn Traffic Company, 1200 State Fair Boulevard, Syracuse, New York 13221. REPORTS ON FORM 8-K On October 12, 1994 and January 27, 1995, the Company filed reports on Form 8-K relating to the acquisition of 45 stores from American Stores Company. -63- SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. THE PENN TRAFFIC COMPANY April 26, 1995 By: /s/ John T. Dixon -------------- ---------------------------- DATE John T. Dixon, President, Chief Executive Officer and Director Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. /s/ Gary D. Hirsch /s/ Eugene R. Sunderhaft - ------------------------------------- ----------------------------- Gary D. Hirsch, Chairman of the Board Eugene R. Sunderhaft, and Director Senior Vice President and Secretary April 26, 1995 (Principal Financial Officer and -------------- Principal Accounting Officer) DATE April 26, 1995 -------------- DATE /s/ Eugene A. DePalma - ------------------------------------- ----------------------------- Susan E. Engel, Director Eugene A. DePalma, Director April 26, 1995 April 26, 1995 -------------- ------------- DATE DATE /s/ Martin A. Fox - ------------------------------------- ----------------------------- Martin A. Fox, Director Joseph J. McCaig, Director April 26, 1995 April 26, 1995 -------------- -------------- DATE DATE /s/ Guido Malacarne /s/ Harold S. Poster - ------------------------------------- ----------------------------- Guido Malacarne, Director Harold S. Poster, Director April 26, 1995 April 26, 1995 -------------- -------------- DATE DATE /s/ Richard D. Segal /s/ Claude J. Incaudo - ------------------------------------- ----------------------------- Richard D. Segal, Director Claude J. Incaudo, Director April 26, 1995 April 26, 1995 -------------- -------------- DATE DATE -64- THE PENN TRAFFIC COMPANY SCHEDULE VIII VALUATION AND QUALIFYING ACCOUNTS (IN THOUSANDS OF DOLLARS)
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E - -------- -------- -------- -------- -------- ADDITIONS BALANCE CHARGED DEDUCTIONS BALANCE AT BEGINNING TO COSTS FROM AT END DESCRIPTION OF PERIOD AND EXPENSES ACCOUNTS OF PERIOD - ----------- --------- ------------ -------- ---------- Reserve deducted from asset to which it applies: FOR THE 52 WEEKS ENDED JANUARY 28, 1995 Provision for doubtful accounts. . . . . . . . . . $ 740 $ 1,610 $ 976(a) $ 1,374 ------- ------- ------- ------- ------- ------- ------- ------- FOR THE 52 WEEKS ENDED JANUARY 29, 1994 Provision for doubtful accounts. . . . . . . . . . $ 661 $ 1,806 $ 1,727(a) $ 740 ------- ------- ------- ------- ------- ------- ------- ------- FOR THE 52 WEEKS ENDED JANUARY 30, 1993 Provision for doubtful accounts. . . . . . . . . . $ 643 $ 1,196 $ 1,178(a) $ 661 ------- ------- ------- ------- ------- ------- ------- ------- (a) Uncollectible receivables written off net of recoveries.
-65- EX-4.3 2 EXHIBIT 4-3 NUMBER SHARES PT [Seal] American Bank Note Company COMMON STOCK COMMON STOCK [Graphic] INCORPORATED UNDER THE LAWS SEE REVERSE FOR OF THE STATE OF DELAWARE CERTAIN DEFINITIONS [LOGO] CUSIP 707832 10 1 THE PENN TRAFFIC COMPANY THIS CERTIFIES THAT IS THE OWNER OF FULLY PAID AND NON-ASSESSABLE COMMON SHARES OF THE PAR VALUE OF $1.25 PER SHARE OF CERTIFICATE OF STOCK THE PENN TRAFFIC COMPANY (THE "COMPANY"), TRANSFERABLE ON THE BOOKS OF THE COMPANY IN PERSON OR BY DULY AUTHORIZED ATTORNEY ON SURRENDER OF THIS CERTIFICATE PROPERLY ENDORSED. THIS CERTIFICATE IS NOT VALID UNLESS COUNTERSIGNED BY THE TRANSFER AGENT AND REGISTERED BY THE REGISTRAR. WITNESS THE FACSIMILE CORPORATE SEAL AND THE FACSIMILE SIGNATURES OF THE COMPANY'S DULY AUTHORIZED OFFICERS. DATED COUNTERSIGNED AND REGISTERED: HARRIS TRUST COMPANY OF NEW YORK, TRANSFER AGENT AND REGISTRAR, BY AUTHORIZED SIGNATURE. /s/ Eugene R. Sunderhaft /s/ Claude J. Incaudo SECRETARY PRESIDENT AND CHIEF EXECUTIVE OFFICER THE PENN TRAFFIC COMPANY NOTICE The Company or any of its Transfer Agents will furnish to any shareholder upon request and without charge a statement, in full, of (1) all of the designations, preferences, qualifications, limitations, restrictions, and special or relative rights of the shares of each class of stock authorized to be issued by the Company, (2) the variations in the relative rights and preferences as between shares of different series of preferred and preference stock, and (3) the authority of the Board of Directors to fix and determine the relative rights and preferences of series of preferred or preference stock. - -------------------------------------------------------------------------------- The following abbreviations, when used in the inscription on the face of this Certificate, shall be construed as though the words set forth below opposite each abbreviation were written out in full according to applicable laws or regulations: TEN COM -- as tenants in common TEN ENT -- as tenants by the entireties JT TEN -- as joint tenants with right of survivorship and not as tenants in common UNIF GIFT MIN ACT-- _______________ Custodian _______________ (Cust) (Minor) under Uniform Gifts to Minors Act _______________ (State) Additional abbreviations may also be used though not in the above list. - -------------------------------------------------------------------------------- FOR VALUE RECEIVED _______________________ HEREBY SELL, ASSIGN AND TRANSFER UNTO PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE - -------------------------------------- | | - -------------------------------------- ________________________________________________________________________________ (PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE) ________________________________________________________________________________ ________________________________________________________________________________ __________________________________________________________________________SHARES OF THE CAPITAL STOCK REPRESENTED BY THE WITHIN CERTIFICATE, AND DO HEREBY IRREVOCABLY CONSTITUTE AND APPOINT ________________________________________________________________________ATTORNEY TO TRANSFER THE SAID STOCK ON THE BOOKS OF THE WITHIN-NAMED COMPANY WITH FULL POWER OF SUBSTITUTION IN THE PREMISES. DATED__________________ __________________________________________________ NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT, OR ANY CHANGE WHATEVER. SIGNATURE GUARANTEE: ________________________________________________________________________________ The signature(s) must be guaranteed by an eligible guarantor institution (Banks, Stockbrokers, Savings and Loan Associations and Credit Unions with membership in an approved signature guarantee Medallion Program), pursuant to S.E.C. Rule 17Ad-15. ________________________________________________________________________________ THIS SPACE MUST NOT BE COVERED IN ANY WAY EX-4.8A 3 EXHIBIT 4-8A THE PENN TRAFFIC COMPANY OFFICERS' CERTIFICATE Pursuant to Sections 3.01, 3.03 and 11.04 of the Indenture Claude J. Incaudo, President and Chief Executive Officer of The Penn Traffic Company, a Delaware corporation (the "Company"), and Eugene R. Sunderhaft, Vice President-Finance, Secretary and Treasurer of the Company, DO HEREBY CERTIFY: 1. Each of the undersigned (i) has read Sections 2.01, 3.01, 3.03, 3.04, 11.04 and 11.05 of the Indenture dated as of December 15, 1993 (the "Indenture") between the Company and United States Trust Company of New York, as Trustee; (ii) has examined such accounts and records of the Company and made such inquiries of officers, employees and agents of the Company as he has deemed necessary to express his opinion as contained herein; and (iii) is of the opinion that such examinations and inquiries are sufficient to enable him to express an informed opinion as to whether or not the covenants and conditions precedent which are stated herein to be complied with have been complied with; 2. Attached hereto as Exhibit A is a true and correct copy of a specimen of the Company's 8 5/8% Senior Notes due December 15, 2003 (the "Notes"), the aggregate principal amount of which shall be limited to $200,000,000 and which shall have the terms set forth in such Exhibit A; 3. After giving effect to the authentication and delivery of the Notes pursuant to the Company Order dated the date hereof (i) the aggregate principal amount of Notes Outstanding will not exceed the maximum aggregate principal amount permitted to be Outstanding pursuant to authorization by the Company's Board of Directors; and (ii) the Company will not be in Default and no Event of Default will have occurred; and 4. All conditions precedent provided for in the Indenture relating to the authentication and delivery of the Notes have been complied with. Capitalized terms used herein that are not otherwise defined shall have the meanings ascribed thereto in the Indenture. This Certificate may be executed in counterparts, each one of which shall be deemed an original and which together shall constitute one document. IN WITNESS WHEREOF, the undersigned have executed this Certificate this 21st day of December, 1993. /s/ Claude J. Incaudo ------------------------ Claude J. Incaudo President and Chief Executive Officer /s/ Eugene R. Sunderhaft -------------------------- Eugene R. Sunderhaft Vice President-Finance, Secretary and Treasurer -2- Exhibit A No. $200,000,000.00 -------- --------------- CUSIP 707832 AE1 THE PENN TRAFFIC COMPANY Incorporated under the laws of the State of Delaware 8 5/8% Senior Notes due December 15, 2003 THE PENN TRAFFIC COMPANY, for value received, hereby promises to pay to _________________________ or registered assigns, the principal sum of $200,000,000.00 Dollars on December 15, 2003 and to pay interest thereon semiannually in arrears at the rate of 8 5/8% per annum on June 15 and December 15 of each year until the principal hereof is paid or made available for payment. Payment of principal, premium, if any, and interest shall be made in the manner and subject to the terms set forth in provisions appearing on the reverse hereof, which provisions, in their entirety, shall for all purposes have the same effect as if set forth at this place. IN WITNESS WHEREOF, THE PENN TRAFFIC COMPANY has caused this instrument to be executed in its corporate name by the manual or facsimile signature of its President or a Vice President and attested by its Secretary or an Assistant Secretary. Dated: December 21, 1993 THE PENN TRAFFIC COMPANY By ------------------------- Eugene R. Sunderhaft Vice President - Finance, Secretary and Treasurer Attest: ------------------------- Francis D. Price, Jr. Vice President and Assistant Secretary [SEAL] - 2 - This is one of the Securities of the series designated therein referred to in the within-mentioned Indenture. Dated: December 21, 1993 UNITED STATES TRUST COMPANY OF NEW YORK, as Trustee By:_______________________________ Authorized Signatory or UNITED STATES TRUST COMPANY OF NEW YORK, as Trustee By: BANKERS TRUST COMPANY, as Authenticating Agent By: --------------------------- Authorized Signatory - 3 - (Back of Security) THE PENN TRAFFIC COMPANY 8 5/8% Senior Notes due December 15, 2003. 1. INTEREST. THE PENN TRAFFIC COMPANY (the "Company"), a Delaware corporation, promises to pay interest on the principal amount of this Security at the rate per annum shown above. The Company will pay interest semiannually in arrears on June 15 and December 15 of each year. Interest on the Securities will accrue from the most recent date on which interest has been paid or, if no interest has been paid, from December 21, 1993. Interest will be computed on the basis of a 360-day year of twelve 30-day months. 2. METHOD OF PAYMENT. The Company will pay interest on the Securities (except defaulted interest) to the Persons who are registered Holders of Securities at the close of business on the regular record date, which shall be the June 1 and December 1, as the case may be, next preceding the interest payment date even though Securities are cancelled after the record date and on or before the interest payment date. Any such interest not so punctually paid or duly provided for, and any interest payable on such defaulted interest (to the extent lawful), will forthwith cease to be payable to the Holder on such regular record date and shall be payable to the Person in whose name this Security is registered at the close of business on a special record date for the payment of such defaulted interest to be fixed by the Company, notice of which shall be given to Holders not less than 5 days prior to such special record date. Holders must surrender Securities to a Paying Agent to collect principal payments. The Company will pay principal and interest in money of the United States that at the time of payment is legal tender for payment of public and private debts. However, the Company may pay principal, premium, if any, and interest by check payable in such money. It may mail an interest check to a Holder's registered address. 3. PAYING AGENT AND REGISTRAR. Bankers Trust Company, a New York banking corporation, will act as Paying Agent and Registrar. The Company may change any Paying Agent, Registrar or co-Registrar without notice to any Holder. The Company may act in any such capacity. 4. INDENTURE. This Security is one of a duly authorized issue of securities of the Company (herein called the "Securities"), issued and to be issued under an Indenture dated as of December 15, 1993 (the "Indenture") between the Company and the Trustee. The terms of the Securities include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939 (15 U.S.C. Sections 77aaa-77bbbb), as amended by the Trust Indenture - 4 - Reform Act of 1990, as in effect on the date of the Indenture ("TIA"). The Securities are subject to all such terms, and Holders are referred to the Indenture and such Act for a statement of such terms. This Security is one of the series designated on the face hereof limited to $200,000,000.00 in an aggregate principal amount. The Securities are unsecured general obligations of the Company. Unless otherwise defined herein, all capitalized terms shall have the meanings assigned to them in the Indenture. 5. DENOMINATIONS, TRANSFER, EXCHANGE. The Securities are in registered form without coupons in denominations of $1,000 and integral multiples thereof. The transfer of Securities may be registered and Securities may be exchanged as provided in the Indenture. The Registrar may require a Holder, among other things, to furnish appropriate endorsements and transfer documents and to pay any taxes and fees required by law or permitted by the Indenture. The Registrar need not exchange or register the transfer of any Security or portion of a Security selected for redemption. Also, it need not exchange or register the transfer of any Securities for a period of 15 days before a selection of Securities to be redeemed. 6. OPTIONAL REDEMPTION. The Securities may not be redeemed prior to December 15, 1998. On or after such date, the Securities may be redeemed at the election of the Company as a whole at any time or in part from time to time at the Redemption Prices (expressed in percentages of principal amount) set forth below plus accrued interest to the Redemption Date, if redeemed during the 12-month period beginning December 15 of the years indicated below: Year Percentage ---- ---------- 1998.................... 103.234% 1999.................... 102.156% 2000.................... 101.078% 2001 and thereafter..... 100.000% Notice of redemption will be mailed at least 30 days but not more than 60 days before the Redemption Date to each Holder of Securities to be redeemed, at his registered address. Securities in denominations larger than $1,000 may be redeemed in part but only in whole multiples of $1,000. On and after the Redemption Date interest ceases to accrue on Securities or portions of them called for redemption. These Securities shall not have the benefit of any sinking fund obligations. 7. PERSONS DEEMED OWNERS. The registered Holder of a Security may be treated as its owner for all purposes. - 5 - 8. AMENDMENTS AND WAIVERS. Subject to certain exceptions, the Indenture and the rights of the Holder of the Securities of each series to be affected under the Indenture may be amended at any time by the Company and the Trustee with the consent of the Holders of at least a majority in principal amount of the Securities at the time Outstanding of each series to be affected. The Indenture also contains provisions permitting the Holders of specified percentages in principal amount of the Securities of each series at the time Outstanding, on behalf of the Holders of all Securities of such series, to waive compliance by the Company with certain provisions of the Indenture and certain past defaults under the Indenture and their consequences. Without the consent of any Holder, the Indenture or the Securities may be amended to cure any ambiguity, defect or inconsistency; to comply with Section 5.01 of the Indenture; to make any change that does not adversely affect the legal rights of any Holder; to comply with the requirements of the SEC to maintain qualification of the Indenture under the TIA; to add to or change the provisions of the Indenture to such extent as shall be necessary to permit or facilitate the issuance of Securities in bearer form, registrable or not registrable as to principal, and with or without interest coupons, or to permit or facilitate the issuance of Securities in uncertificated form; or to provide for the appointment of a successor Trustee with respect to one or more (but not all) series of Securities issued pursuant to the Indenture, as provided in Section 7.08 of the Indenture. 9. REMEDIES. As provided in and subject to the provisions of the Indenture, the Holder of this Security shall not have the right to institute any proceeding with respect to the Indenture or for the appointment of a receiver or trustee of for any other remedy thereunder, unless such Holder shall have previously given the Trustee written notice of a continuing Event of Default with respect to the Securities of this series, the Holders of not less than 25% in principal amount of the Securities of this series at the time Outstanding shall have made written request to the Trustee to institute proceedings in respect of such Event of Default as Trustee and offered the Trustee reasonable indemnity, and the Trustee shall not have received from the Holders of a majority in principal amount of Securities of this series at the time Outstanding a direction inconsistent with such request, and shall have failed to institute any such proceeding, for 60 days after receipt of such notice, request and offer of indemnity. The foregoing shall not apply to any suit instituted by the Holder of this Security for the enforcement of any payment of principal hereof or any premium or interest hereon on or after the respective due dates expressed herein. 10. PREPAYMENT AT HOLDER'S OPTION UPON CERTAIN MERGER AND CHANGE OF CONTROL EVENTS. In the event of a Change of Control or in the event of a merger where, immediately after giving effect to the merger, the surviving corporation does - 6 - not meet the Consolidated Interest Coverage Ratio set forth in the Indenture, the Company shall be obligated to make an offer to purchase this Security at a purchase price in cash equal to 101% of its principal amount plus accrued interest, after the occurrence of such Change in Control or merger. Holders of Securities which are the subject of such an offer to repurchase shall receive an offer to repurchase and may elect to have such Securities repurchased in accordance with the provisions of the Indenture pursuant to and in accordance with the terms of the Indenture. The Company shall give the Holder of this Security notice of such right of repurchase not less than 20 nor more than 60 business days prior to the consummation of a merger, consolidation, transfer, sale or lease that would require the Company to offer to repurchase the Securities and not more than 45 business days following any other event constituting a Change of Control, mailed by first-class mail to the Holder's last address as it appears upon the register. The Holder shall have the right to have this Security repurchased if, among other things, the Security is tendered for repurchase no later than five business days prior to the applicable repurchase date. The Company shall have no obligation to consummate any merger, consolidation, transfer, sale or lease that is the subject of any such notice, and if any such merger, consolidation, transfer, sale or lease that was the subject of any notice described above is not consummated, the Holder will not be entitled to have this Security prepaid, and any Securities tendered for prepayment will be returned. 11. TRUSTEE DEALINGS WITH THE COMPANY. United States Trust Company of New York, the Trustee under the Indenture, in its individual or any other capacity, may become the owner or pledgee of Securities and may otherwise deal with the Company or any Affiliate with the same rights it would have as if it were not the Trustee. 12. NO RECOURSE AGAINST OTHERS. A director, officer, employee or stockholder, as such, of the Company shall not have any liability for any obligations of the Company under the Securities or the Indenture or for any claim based on, in respect of or by reason of such obligations or their creation. Each Holder by accepting a Security waives and releases all such liability. This waiver and release are part of the consideration for the issue of the Securities. 13. UNCLAIMED MONEY. If money for the payment of principal of or interest on any Security remains unclaimed for two years after the date on which such payment shall have come due, the Trustee or Paying Agent will pay the money back to the Company at the Company's written request. After that, Holders entitled to this money must look to the Company for payment, unless a law governing abandoned property designates another Person. - 7 - 14. DISCHARGE UPON REDEMPTION OR MATURITY. Subject to the terms of the Indenture, the Indenture will be discharged and cancelled with respect to Securities of any series upon the payment of all Securities of such series. The Indenture contains provisions for defeasance at any time of certain restrictive covenants with respect to this Security (in each case upon compliance with certain conditions set forth therein). 15. AUTHENTICATION. This Security shall not be valid until authenticated by the manual signature of the Trustee or an authenticating agent. 16. GOVERNING LAW. THE LAWS OF THE STATE OF NEW YORK SHALL GOVERN THIS SECURITY AND THE INDENTURE. 17. ABBREVIATIONS. Customary abbreviations may be used in the name of a Holder or an assignee, such as TEN COM (= tenants in common), TEN ENT (= tenants by the entireties), JT TEN (= joint tenants with right of survivorship and not as tenants in common), CUST (= Custodian), and UNIF GIFT MIN ACT (= Uniform Gifts to Minors Act). The Company will furnish to any Holder upon written request and without charge a copy of the Indenture, which has in it the text of this Security in larger type. Requests may be made to The Penn Traffic Company, 1200 State Fair Boulevard, Syracuse, New York 13221, Attention: Eugene R. Sunderhaft. - 8 - OPTION OF HOLDER TO ELECT REPURCHASE If you want to elect to have this Security purchased by the Company pursuant to Section 5.01 of the Indenture, check the box: / / Dated: ______________ Your signature:__________________ _________________________________ (Sign exactly as name appears on the other side of this Security) Signature Guarantee: ______________________________________ (Signature must be guaranteed by a member firm of the New York Stock Exchange or a commercial bank or trust company) - 9 - ASSIGNMENT FORM To assign this Security, fill in the form below: I or we assign and transfer this Security to ________________________________________________________ (Insert assignee's soc. sec. or tax I.D. no.) ________________________________________________________ ________________________________________________________ ________________________________________________________ (Print or type assignee's name, address and zip code) and irrevocably appoint _______________________________ agent to transfer this Security on the books of the Company. The agent may substitute another to act for him. ________________________________________________________ Dated:_____________________ Your signature: _______________ _______________________________ (Sign exactly as your name appears on the other side of this Security) Signature Guarantee: ____________________________________ (Signature must be guaranteed by a member firm of the New York Stock Exchange or a commercial bank or trust company) - 10 - EX-4.8B 4 EXHIBIT 4-8B THE PENN TRAFFIC COMPANY Officers' Certificate Pursuant to Sections 3.01, 3.03 and 11.04 of the Indenture Claude J. Incaudo, President and Chief Executive Officer of The Penn Traffic Company, a Delaware corporation (the "Company"), and Eugene R. Sunderhaft, Vice President - Finance, Secretary and Treasurer of the Company, DO HEREBY CERTIFY: 1. Each of the undersigned (i) has read Sections 2.01, 3.01, 3.03, 3.04, 11.04 and 11.05 of the Indenture dated as of December 15, 1993 (the "Indenture") between the Company and United States Trust Company of New York, as Trustee; (ii) has examined such accounts and records of the Company and made such inquiries of officers, employees and agents of the Company as he has deemed necessary to express his opinion as contained herein; and (iii) is of the opinion that such examinations and inquiries are sufficient to enable him to express an informed opinion as to whether or not the covenants and conditions precedent which are stated herein to be complied with have been complied with; 2. Attached hereto as Exhibit A is a true and correct copy of a specimen of the Company's 10.65% Senior Notes due November 1, 2004 (the "Notes"), the aggregate principal amount of which shall be limited to $100,000,000 and which shall have the terms set forth in such Exhibit A; 3. The Notes shall be issuable in the form of one or more Global Securities to be deposited with or on behalf of, The Depositary Trust Company and the form of the legends for such Global Securities are as set forth in the attached Exhibit A; 4. After giving effect to the authentication and delivery of the Notes pursuant to the Company Order dated the date hereof (i) the aggregate principal amount of Notes Outstanding will not exceed the maximum aggregate principal amount permitted to be Outstanding pursuant to authorization by the Company's Board of Directors; and (ii) the Company will not be in Default and no Event of Default will have occurred; and 5. All conditions precedent provided for in the Indenture relating to the authentication and delivery of the Notes have been complied with. Capitalized terms used herein that are not otherwise defined shall have the meanings ascribed thereto in the Indenture. This Certificate may be executed in counterparts, each one of which shall be deemed an original and which together shall constitute one document. IN WITNESS WHEREOF, the undersigned have executed this Certificate this 20th day of October, 1994. /s/ Claude J. Incaudo ------------------------- Claude J. Incaudo President and Chief Executive Officer /s/ Eugene R. Sunderhaft ------------------------ Eugene R. Sunderhaft Vice President - Finance, Secretary and Treasurer -2- THIS SECURITY IS A GLOBAL SECURITY WITHIN THE MEANING OF THE INDENTURE HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITARY OR A NOMINEE THEREOF. THIS SECURITY MAY NOT BE EXCHANGED IN WHOLE OR IN PART FOR A SECURITY REGISTERED, AND NO TRANSFER OF THIS SECURITY IN WHOLE OR IN PART MAY BE REGISTERED, IN THE NAME OF ANY PERSON OTHER THAN SUCH DEPOSITARY OR A NOMINEE THEREOF, EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE. UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO ISSUER OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE, OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN. THE PENN TRAFFIC COMPANY Incorporated under the laws of the State of Delaware 10.65% Senior Notes due November 1, 2004 THE PENN TRAFFIC COMPANY, for value received, hereby promises to pay to ________ or registered assigns, the principal sum of $100,000,000.00 on November 1, 2004 and to pay interest thereon semiannually in arrears at the rate of 10.65% per annum on May 1 and November 1 of each year, commencing May 1, 1995, until the principal hereof is paid or made available for payment. All payments of principal, premium, if any, and interest shall be made in immediately available funds and in the manner and subject to the terms set forth in provisions appearing on the reverse hereof, which provisions, in their entirety, shall for all purposes have the same effect as if set forth at this place. -3- IN WITNESS WHEREOF, THE PENN TRAFFIC COMPANY has caused this instrument to be executed in its corporate name by the manual or facsimile signature of its President or a Vice President and attested by its Secretary or an Assistant Secretary. Dated: October 20, 1994 THE PENN TRAFFIC COMPANY By____________________________ Eugene R. Sunderhaft Vice President - Finance, Secretary and Treasurer Attest:____________________ Francis D. Price, Jr. Vice President and Assistant Secretary [SEAL] -4- This is one of the Securities of the series designated therein referred to in the within-mentioned Indenture. Dated: October 20, 1994 UNITED STATES TRUST COMPANY OF NEW YORK, as Trustee By:___________________________ Authorized Signatory or UNITED STATES TRUST COMPANY OF NEW YORK, as Trustee By: BANKERS TRUST COMPANY, as Authenticating Agent By:_______________________ Authorized Signatory -5- (Back of Security) THE PENN TRAFFIC COMPANY 10.65% Senior Notes due November 1, 2004. 1. INTEREST. THE PENN TRAFFIC COMPANY (the "Company"), a Delaware corporation, promises to pay interest on the principal amount of this Security at the rate per annum shown above. The Company will pay interest semiannually in arrears on May 1 and November 1 of each year, commencing May 1, 1995. Interest on the Securities will accrue from the most recent date on which interest has been paid or, if no interest has been paid, from October 20, 1994. Interest will be computed on the basis of a 360-day year of twelve 30-day months. 2. METHOD OF PAYMENT. The Company will pay interest on the Securities (except defaulted interest) to the Persons who are registered Holders of Securities at the close of business on the regular record date, which shall be the April 15 and October 15, as the case may be, next preceding the interest payment date even though Securities are cancelled after the record date and on or before the interest payment date. Any such interest not so punctually paid or duly provided for, and any interest payable on such defaulted interest (to the extent lawful), will forthwith cease to be payable to the Holder on such regular record date and shall be payable to the Person in whose name this Security is registered at the close of business on a special record date for the payment of such defaulted interest to be fixed by the Company, notice of which shall be given to Holders not less than 5 days prior to such special record date. Holders must surrender Securities to a Paying Agent to collect principal payments. The Company will pay principal and interest in money of the United States that at the time of payment is legal tender for payment of public and private debts. All payments of principal, premium, if any, and interest on the Securities will be made by the Paying Agent by wire transfer of immediately available funds to a separate account of DTC or its nominee, provided that, the Company may pay principal, premium, if any, and interest to Holders other than the DTC or its nominee by check in immediately available funds. The Company may mail an interest check to such Holder's registered address. -6- 3. PAYING AGENT AND REGISTRAR. Bankers Trust Company, a New York banking corporation, will act as Paying Agent and Registrar. The Company may change any Paying Agent, Registrar or co-Registrar without notice to any Holder. The Company may act in any such capacity. 4. INDENTURE. This Security is one of a duly authorized issue of securities of the Company (herein called the "Securities"), issued and to be issued under an Indenture dated as of December 15, 1993 (the "Indenture") between the Company and the Trustee. The terms of the Securities include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939 (15 U.S.C. Sections 77aaa-77bbbb), as amended by the Trust Indenture Reform Act of 1990, as in effect on the date of the Indenture ("TIA"). The Securities are subject to all such terms, and Holders are referred to the Indenture and such Act for a statement of such terms. This Security is one of the series designated on the face hereof limited to $100,000,000.00 in aggregate principal amount. The Securities are unsecured general obligations of the Company. Unless otherwise defined herein, all capitalized terms shall have the meanings assigned to them in the Indenture. 5. DENOMINATIONS, TRANSFER, EXCHANGE. The Securities are in registered form without coupons in denominations of $1,000 and integral multiples thereof. The transfer of Securities may be registered and Securities may be exchanged as provided in the Indenture. The Registrar may require a Holder, among other things, to furnish appropriate endorsements and transfer documents and to pay any taxes and fees required by law or permitted by the Indenture. The Registrar need not exchange or register the transfer of any Security or portion of a Security selected for redemption. Also, it need not exchange or register the transfer of any Securities for a period of 15 days before a selection of Securities to be redeemed. 6. OPTIONAL REDEMPTION. The Securities may not be redeemed prior to November 1, 1999. On or after such date, the Securities may be redeemed at the election of the Company as a whole at any time or in part from time to time at the Redemption Prices (expressed in percentages of principal amount) set forth below plus accrued interest to the Redemption Date, if redeemed during the 12- month period beginning November 1 of the years indicated below: -7- Year Percentage ---- ---------- 1999.................. 104.00% 2000.................. 102.66% 2001.................. 101.33% 2002 and thereafter... 100.00% ------ Notice of redemption will be mailed at least 30 days but not more than 60 days before the Redemption Date to each Holder of Securities to be redeemed, at his registered address. Securities in denominations larger than $1,000 may be redeemed in part but only in whole multiples of $1,000. On and after the Redemption Date interest ceases to accrue on Securities or portions of them called for redemption. These Securities shall not have the benefit of any sinking fund obligations. 7. PERSONS DEEMED OWNERS. The registered Holder of a Security may be treated as its owner for all purposes. 8. AMENDMENTS AND WAIVERS. Subject to certain exceptions, the Indenture and the rights of the Holder of the Securities of each series to be affected under the Indenture may be amended at any time by the Company and the Trustee with the consent of the Holders of at least a majority in principal amount of the Securities at the time Outstanding of each series to be affected. The Indenture also contains provisions permitting the Holders of specified percentages in principal amount of the Securities of each series at the time Outstanding, on behalf of the Holders of all Securities of such series, to waive compliance by the Company with certain provisions of the Indenture and certain past defaults under the Indenture and their consequences. Without the consent of any Holder, the Indenture or the Securities may be amended to cure any ambiguity, defect or inconsistency; to comply with Section 5.01 of the Indenture; to make any change that does not adversely affect the legal rights of any Holder; to comply with the requirements of the SEC to maintain qualification of the Indenture under the TIA; to add to or change the provisions of the Indenture to such extent as shall be necessary to permit or facilitate the issuance of Securities in bearer form, registrable or not registrable as to principal, and with or without interest coupons, or to permit or facilitate the issuance of Securities in uncertificated form; or to provide for the appointment of a -8- successor Trustee with respect to one or more (but not all) series of Securities issued pursuant to the Indenture, as provided in Section 7.08 of the Indenture. 9. REMEDIES. As provided in and subject to the provisions of the Indenture, the Holder of this Security shall not have the right to institute any proceeding with respect to the Indenture or for the appointment of a receiver or trustee of for any other remedy thereunder, unless such Holder shall have previously given the Trustee written notice of a continuing Event of Default with respect to the Securities of this series, the Holders of not less than 25% in principal amount of the Securities of this series at the time Outstanding shall have made written request to the Trustee to institute proceedings in respect of such Event of Default as Trustee and offered the Trustee reasonable indemnity, and the Trustee shall not have received from the Holders of a majority in principal amount of Securities of this series at the time Outstanding a direction inconsistent with such request, and shall have failed to institute any such proceeding, for 60 days after receipt of such notice, request and offer of indemnity. The foregoing shall not apply to any suit instituted by the Holder of this Security for the enforcement of any payment of principal hereof or any premium or interest hereon on or after the respective due dates expressed herein. 10. PREPAYMENT AT HOLDER'S OPTION UPON CERTAIN MERGER AND CHANGE OF CONTROL EVENTS. In the event of a Change of Control or in the event of a merger where, immediately after giving effect to the merger, the surviving corporation does not meet the Consolidated Interest Coverage Ratio set forth in the Indenture, the Company shall be obligated to make an offer to purchase this Security at a purchase price in cash equal to 101% of its principal amount plus accrued interest, after the occurrence of such Change in Control or merger. Holders of Securities which are the subject of such an offer to repurchase shall receive an offer to repurchase and may elect to have such Securities repurchased in accordance with the provisions of the Indenture pursuant to and in accordance with the terms of the Indenture. The Company shall give the Holder of this Security notice of such right of repurchase not less than 20 nor more than 60 business days prior to the consummation of a merger, consolidation, transfer, sale or lease that would require the Company to offer to repurchase the Securities and not more than 45 business days following any other event constituting a Change of Control, mailed by first-class mail -9- to the Holder's last address as it appears upon the register. The Holder shall have the right to have this Security repurchased if, among other things, the Security is tendered for repurchase no later than five business days prior to the applicable repurchase date. The Company shall have no obligation to consummate any merger, consolidation, transfer, sale or lease that is the subject of any such notice, and if any such merger, consolidation, transfer, sale or lease that was the subject of any notice described above is not consummated, the Holder will not be entitled to have this Security prepaid, and any Securities tendered for prepayment will be returned. 11. TRUSTEE DEALINGS WITH THE COMPANY. United States Trust Company of New York, the Trustee under the Indenture, in its individual or any other capacity, may become the owner or pledgee of Securities and may otherwise deal with the Company or any Affiliate with the same rights it would have as if it were not the Trustee. 12. NO RECOURSE AGAINST OTHERS. A director, officer, employee or stockholder, as such, of the Company shall not have any liability for any obligations of the Company under the Securities or the Indenture or for any claim based on, in respect of or by reason of such obligations or their creation. Each Holder by accepting a Security waives and releases all such liability. This waiver and release are part of the consideration for the issue of the Securities. 13. UNCLAIMED MONEY. If money for the payment of principal of or interest on any Security remains unclaimed for two years after the date on which such payment shall have come due, the Trustee or Paying Agent will pay the money back to the Company at the Company's written request. After that, Holders entitled to this money must look to the Company for payment, unless a law governing abandoned property designates another Person. 14. DISCHARGE UPON REDEMPTION OR MATURITY. Subject to the terms of the Indenture, the Indenture will be discharged and cancelled with respect to Securities of any series upon the payment of all Securities of such series. The Indenture contains provisions for defeasance at any time of certain restrictive covenants with respect to this Security (in each case upon compliance with certain conditions set forth therein). -10- 15. AUTHENTICATION. This Security shall not be valid until authenticated by the manual signature of the Trustee or an authenticating agent. 16. GOVERNING LAW. THE LAWS OF THE STATE OF NEW YORK SHALL GOVERN THIS SECURITY AND THE INDENTURE. 17. ABBREVIATIONS. Customary abbreviations may be used in the name of a Holder or an assignee, such as TEN COM (= tenants in common), TEN ENT (= tenants by the entireties), JT TEN (= joint tenants with right of survivorship and not as tenants in common), CUST (= Custodian), and UNIF GIFT MIN ACT (= Uniform Gifts to Minors Act). The Company will furnish to any Holder upon written request and without charge a copy of the Indenture, which has in it the text of this Security in larger type. Requests may be made to The Penn Traffic Company, 1200 State Fair Boulevard, Syracuse, New York 13221, Attention: Eugene R. Sunderhaft. -11- OPTION OF HOLDER TO ELECT REPURCHASE If you want to elect to have this Security purchased by the Company pursuant to Section 5.01 of the Indenture, check the box: / / Dated:____________________ Your Signature:________________ (Sign exactly as name appears on the other side of this Security) Signature Guarantee:__________________________________________________________ (Signature must be guaranteed by a member firm of the New York Stock Exchange or a commercial bank or trust company) -12- ASSIGNMENT FORM To assign this Security, fill in the form below: I or we assign and transfer this Security to _____________________________________________________________ (Insert assignee's soc. sec. or tax I.D. no.) _____________________________________________________________ _____________________________________________________________ _____________________________________________________________ (Print or type assignee's name, address and zip code) and irrevocably appoint _______________________ agent to transfer this Security on the books of the Company. The agent may substitute another to act for him. _____________________________________________________________ Dated:______________________ Your Signature:________________ (Sign exactly as your name appears on the other side of this Security) Signature Guarantee: _______________________________________ (Signature must be guaranteed by a member firm of the New York Stock Exchange or a commercial bank or trust company) -13- EX-10.21 5 EXHIBIT 10-21 MONTGOMERY AGREEMENT AGREEMENT, made this 18th day of November, 1994 between THE PENN TRAFFIC COMPANY, a Delaware Corporation, with its principal office located at 1200 State Fair Boulevard, Syracuse, New York 13209 ("Penn Traffic") and THE GRAND UNION COMPANY, a Delaware Corporation, with its principal office located at 201 Willowbrook Boulevard, Wayne, New Jersey 07470 ("Grand Union"). R E C I T A L S 1. Penn Traffic desires to deliver to, store at and withdraw from the Grand Union warehouse, located at 124 Bracken Road, Montgomery, New York 12549 ("Montgomery Warehouse") , health and beauty care products ("HBC Products") and general merchandise products ("GM Products") owned by Penn Traffic (collectively the "Products"). 2. Grand Union sold to Penn Traffic, and Penn Traffic purchased from Grand Union, all of the Products located at the Montgomery Warehouse on September 29, 1993 free and clear of any and all liens, claims, encumbrances, of whatever kind, nature and description in consideration of the total purchase price of $12,820,851.00, the receipt of which has been acknowledged. 3. Grand Union procures HBC Products for both Grand Union and Penn Traffic, and Penn Traffic, through its Big Bear division, procures GM Products for both Penn Traffic and Grand Union. (However, the parties acknowledge that effective on or about August 15, 1994 Big Bear resumed procuring its own HBC Products.) NOW, THEREFORE, in consideration of the mutual covenants set forth in this Agreement, and for other good and valuable consideration, the receipt and sufficiency of which are mutually acknowledged, the parties agree as follows: 1. AUTHORIZATION AS AGENT. Penn Traffic authorizes Grand Union to act as its agent for the procurement of HBC Products and the storage and shipments of the Products stored at the Montgomery Warehouse. Grand Union authorizes Penn Traffic to act as its agent for the procurement of GM Products, which will be stored at the Montgomery Warehouse. 2. PROCUREMENT OF HEALTH & BEAUTY CARE. Grand Union shall negotiate, procure, purchase and pay for all HBC Products to be delivered to the Montgomery Warehouse and to Penn Traffic's Big Bear Warehouse in Columbus, Ohio, until Big Bear resumes purchasing its own HBC Product as referred to in recital #1 set forth above. Penn Traffic shall reimburse Grand Union for these purchases within 28 calendar days of the week ending date of the receipt of the HBC Product, unless there is a major change in overall average days to pay terms, for example a recently announced change in -2- terms by Proctor & Gamble to be effective on or about October 1, 1994, in which case the parties shall mutually agree to new terms. 3. BUYER/MERCHANDISING COST. The cost of those employees of Grand Union and Penn Traffic responsible for the purchase and merchandising of HBC Product and GM Product for delivery to Montgomery and Columbus (for Product commonly carried) shall be shared between Penn Traffic and Grand Union on a pro rata basis, based upon the dollar amount of warehouse withdrawals at cost of each company for the 28 day period such costs are incurred and payable the later of (i) 14 days after the end of the 28 day period during which such costs are incurred or (ii) 14 days after receipt of such information, which shall include a schedule of the employees, job descriptions and costs. 4. STORAGE OF PRODUCTS AND AUTHORIZATION TO SHIP PRODUCTS. Grand Union agrees to make available to Penn Traffic such a portion of the storage capacity of the Montgomery Warehouse as Penn Traffic may require from time to time for the storage of the Products. Grand Union shall take all steps necessary, including physical segregation of products, to assure that the Products, in Penn Traffic's sole judgment, are isolated and readily identifiable as the sole and exclusive property of Penn Traffic. Penn Traffic -3- authorizes Grand Union to ship product from the Montgomery Warehouse to Grand Union and Penn Traffic based on orders placed by the individual parties. Grand Union and Penn Traffic each acknowledge and agree that the manner in which the products are being stored and segregated in October and November 1994 is satisfactory and acceptable pursuant to this paragraph 4. 5. TITLE, RISK OF LOSS, ETC. A. Title to and risk of loss of the Products shall at all times remain in Penn Traffic, including while in storage at the Montgomery Warehouse or in possession of freight carriers for Product purchased FOB shipping point, and Penn Traffic shall provide adequate insurance coverage commensurate with accepted business practice. Grand Union shall use reasonable care in the storage of the Products. Grand Union shall indemnify Penn Traffic for any loss sustained by Penn Traffic, limited to the extent of any insurance deductible, as a result of damage to the Products caused by the negligence or misconduct of Grand Union and Penn Traffic shall indemnify Grand Union for any loss, net of insurance proceeds, sustained by Grand Union as a result of damage to the Montgomery Warehouse caused by the negligence or misconduct of Penn Traffic. -4- B. Ownership and title of the Product shall remain with Penn Traffic at all times and Grand Union shall have no right to pledge, grant a security interest in or otherwise encumber the Product. C. Grand Union warrants that it has not and will not issue warehouse receipts or similar documents with respect to the Product located in Montgomery. D. Grand Union shall give Penn Traffic immediate notice of any event that will affect Penn Traffic's ownership and title to the Product. 6. PERPETUAL INVENTORY. Grand Union shall maintain daily perpetual inventory reports consistent with Grand Union's current internal practices. Grand Union agrees to make available Penn Traffic with all information necessary to maintain a perpetual inventory, including vendor invoices, purchase orders, receiving documents, warehouse receipts and other data. Grand Union shall provide Penn Traffic with a weekly recap of the daily inventory movement, no later than the Wednesday following each week. Additionally, the weekly recap should be reconciled to the daily perpetual inventory. Grand Union agrees to provide Penn Traffic with inventory reports necessary for the accurate reporting of inventory necessary to meet SEC and income tax reporting. -5- 7. PHYSICAL INVENTORY. There shall be a minimum of two (2) physical inventories of the Penn Traffic Product at the Montgomery Warehouse conducted each Penn Traffic fiscal year unless Grand Union and Penn Traffic agree that additional inventories are necessary. The two regularly scheduled inventories shall occur at Penn Traffic's sole discretion, provided Penn Traffic gives Grand Union at least thirty (30) days' prior written notice of the physical inventory. The inventory shall be administrated by Grand Union warehouse and supervisory personnel and other outside services, as deemed appropriate, and supervised by Penn Traffic management personnel. Thirty days prior to the inventory, Grand Union and Penn Traffic shall establish the procedures of the inventory, including inventory recount parameters, order polling schedules, cutoff procedures and the like. Grand Union shall provide Penn Traffic with a preliminary priced inventory at the conclusion of the physical inventory and a final priced inventory within seven (7) calendar days of the physical inventory. Penn Traffic shall provide Grand Union with a reconciliation of the final priced inventory to the book amounts within thirty (30) days of the physical inventory. Grand Union shall have the right to examine, inspect and audit the reconciliation of the priced physical inventory to -6- the book amounts. All shortages will be shared by Penn Traffic and Grand Union in the proportion of the cost of product shipped from the Montgomery Warehouse to Penn Traffic and Grand Union stores calculated over the period of time since the last physical inventory. Grand Union shall reimburse Penn Traffic for all shortages in excess of .25 percent of store shipments, unless the shortage is specifically identifiable as related to Penn Traffic. All overages will be shared by Penn Traffic and Grand Union by the proportion of product shipped from the warehouse to Penn Traffic and Grand Union stores calculated over the period of time since the last physical inventory. However, to the extent there is a loss on any physical inventory in excess of .25 percent of store shipments which immediately follows or immediately precedes a physical inventory which produced a physical inventory gain, the respective gain and loss shall be netted for purposes of calculating the amount in excess of .25 percent of shipments. 8. WAREHOUSING AND HANDLING SERVICES. All costs, charges and expenses of operating the Montgomery Warehouse shall be divided between Penn Traffic and Grand Union on a prorated basis based upon the units shipped to each company for each 28 day period such costs, charges and expenses are incurred, when the ratio of total costs are equal to or less -7- than 3.5% of product cost. When the aforementioned ratio is in excess of 3.5%, the prorated basis will be based upon the dollar amount of warehouse withdrawals of each company. Penn Traffic shall pay Grand Union for Penn Traffic's prorated share of said costs and expenses 14 days after the end of the 28 day period in which such costs were incurred. 9. CARRYING CHARGES. Grand Union shall pay Penn Traffic for Grand Union's prorated share of the interest carrying costs allocated to the Penn Traffic inventory held at Montgomery on a weekly basis. The interest carrying cost will be based on an interest rate of ten percent (10%) and computed as set forth on Exhibit A. Penn Traffic and Grand Union will periodically evaluate the inventory on hand and seek to (a) provide consistent days on hand levels of HBC Product and GM Product and (b) minimize such inventory levels, each consistent with good business practices. 10. SHIPMENTS OF PRODUCTS FROM MONTGOMERY TO GRAND UNION STORES. Grand Union agrees to purchase GM Products and HBC Products for its stores from the Penn Traffic inventory at the Montgomery Warehouse based on the weekly average cost of the Products. Grand Union shall reimburse Penn Traffic for these purchases within 28 calendar days of the week ending date of the receipt of the Products. Title to the GM and HBC Product shall pass immediately to Grand Union upon -8- the Product leaving the Montgomery Warehouse if the final destination of that Product is a Grand Union store. 11. STORE CREDITS. A. Redlines (cross offs) are to be deducted from each store invoice order on a per order basis. The amount due for each order will be the gross invoice amount less redlines. B. Product returns will be returned to the receiving company (Division) reclamation center. Major returns to the Montgomery Warehouse will be permitted upon prior authorization from the Montgomery Warehouse management. C. Billing errors are to be corrected by Grand Union and a complete detail provided to Penn Traffic each Tuesday for the prior week. D. Discrepancy rate - Grand Union and Penn Traffic agree to allow stores a discrepancy rate credit for the purpose of eliminating the need to process requests for credit due to selection discrepancies. Grand Union and Penn Traffic agree that the discrepancy rate will be applied to all store shipments and is to be established based on a joint audit of a selected number of store orders. From time to time Penn Traffic will have the right to audit further orders on an unannounced basis for the purpose of validating and adjusting the -9- discrepancy rate. All audits shall be conducted with a representative of Grand Union in attendance. 12. VENDOR RETURNS AND PRODUCT RECALLS. Grand Union shall promptly process all HBC Product vendor returns and product recalls and remit to Penn Traffic such credits within 7 calendar days of the week ending date of the collection of the credits from vendors. Grand Union agrees to provide all required vendor authorization documents for HBC Product stored at Montgomery in a timely manner. Penn Traffic agrees to provide all required vendor authorization documents for GM Product in a timely manner. Grand Union agrees to process all returns to vendor no later than 14 days of the week ending date of the vendor return shipment. 13. SALVAGE AND DIVERTER SALES. Penn Traffic authorizes Grand Union, upon Penn Traffic's written consent, to make sales of HBC Product to diverters and salvagers as may be requested. Penn Traffic will provide the Montgomery Warehouse with written authorization for release of HBC Product and GM Product for each sale to a diverter or salvager. All funds collected from these sales by Grand Union shall be reimbursed to Penn Traffic within 7 days of the week ending date of the sale. 14. ALLOWANCES. All revenues derived from the purchase of the Products, including but not limited to allowances, -10- cash discounts, slotting allowances, placement allowances and advertising allowances, net of required repayments (except for allowances which Penn Traffic and Grand Union jointly agree shall be allocated to the participating parties specifically), shall be shared between Penn Traffic and Grand Union on a prorated basis, based upon the dollar amount of warehouse withdrawals of each company at cost for the 28 day period such allowances are recorded. Whether allocated specifically or based on warehouse withdrawals, Grand Union shall pay Penn Traffic for Penn Traffic's prorated share of HBC Product allowances and Penn Traffic shall pay Grand Union for Grand Union's prorated share of GM Product allowances 14 days after the end of the 28 day period in which such allowances are recorded. 15. VENDOR COUPON AND RECLAMATION CLAIMS. Vendor coupon and reclamation claims relating to HBC Products shall be collected by Grand Union and those relating to GM Products shall be collected by Penn Traffic providing the collecting party has the exclusive vendor purchasing relationship. It is the responsibility of the claimant to supply to the deducting entity information in sufficient detail, as agreed by Grand Union and Penn Traffic from time to time, to allow the deduction to be processed. Any cash received directly by the claimant must be communicated promptly to the deducting -11- party so that the deduction may be canceled or repaid. Deductions, net of required repayments, shall be remitted by the deducting party to the claimant 7 days after the end of the week during which the deductions were made. 16. PURCHASE ORDER INVOICE DIFFERENCES. A net account payable, representing differences between amounts recorded upon receipt of inventory based on purchase order cost and amounts actually paid to vendors (the net of (A) and (B) below), will be calculated for each 28 day period during which such differences occur as follows: A. Amounts payable to Penn Traffic (i) the amount by which the received inventory cost of HBC products purchased by Grand Union exceeds the related amounts paid to vendors plus (ii) the amount by which payments to vendors for general merchandise products purchased by Penn Traffic exceeds the received inventory cost of such products less (iii) the amount of physical inventory (29E) cost adjustments made to inventory relating to (A)(i) and (A)(ii) above. -12- B. Amounts payable to Grand Union (i) the amount by which the received inventory cost of general merchandise purchased by Penn Traffic exceeds the related amounts paid to vendors plus (ii) the amount by which payments to vendors for HBC products purchased by Grand Union exceeds the received inventory cost of such products less (iii) the amount of physical inventory (29E) cost adjustments made to inventory relating to (B)(i) and (B)(ii) above. Such net amount calculated above shall be shared between Penn Traffic and Grand Union on a pro rata basis, based upon the dollar amount of warehouse withdrawals at cost of each company for the 28 day period such costs are incurred and payable 14 days after the end of the 28 day period during which such costs are incurred. Grand Union and Penn Traffic agree to provide each other upon request vendor and item detail for each transaction affecting the net account payable. This detail will include but not be limited to vendor name, item, received cost, invoiced cost, allowances and all applicable discounts. -13- 17. OTHER MISCELLANEOUS DEDUCTIONS. Other miscellaneous deductions or payments which may be made by either Penn Traffic or Grand Union for the benefit of the other party shall be remitted directly or shared based on pro rata shipments depending on the nature of the item and as agreed to by the parties from time to time. 18. START-UP COSTS. Start-up costs solely related to the joint buying program shall be identified by Penn Traffic and Grand Union and shall be shared between Penn Traffic and Grand Union on a pro rata basis, based upon the dollar amount of warehouse withdrawals at cost of each company for an agreed upon period which reflects full participation usage of the Montgomery facility by each company. 19. TERM. This Agreement shall continue until July 1, 1995. This Agreement shall then continue thereafter, subject to the right of either party to terminate it at any time upon not less than six (6) months' prior written notice ("Notice of Termination"). Upon Notice of Termination, Grand Union and Penn Traffic each agree to cooperate and use their respective best efforts to minimize the procurement of any inventory which Grand Union does not use in its normal course of business. A physical inventory shall be conducted no later than the last day this contract remains in effect ("Termination Date") or the termination date set forth in the -14- Notice of Termination. Upon such termination, Grand Union shall purchase each of the Penn Traffic Products located at the Montgomery Warehouse authorized in Grand Union stores and in reasonable quantities and pay Penn Traffic for same by wire transfer a preliminary estimate of the value of such products within two (2) business days of the physical inventory with a final settlement to be made upon completion of the inventory valuation within 30 days of the physical inventory. Grand Union is authorized to ship product to its stores during the period from the inventory until final settlement. Any Product which Grand Union does not use in its normal course of business shall be removed from the facility on a timely basis in a manner such as to minimize costs associated with such removal. Any costs associated with the termination of this Agreement shall be divided between Penn Traffic and Grand Union on a prorated basis, based upon the last six month average of units shipped to each company immediately prior to the Notice of Termination, payable within 30 days of the Termination Date. The parties agree to cooperate with each other in reducing the level of inventory during the period prior to the termination date. 20. BOOKS OF ACCOUNT. Grand Union shall prepare and keep at its principal office for a period of not less than five years following the end of each fiscal year of Penn -15- Traffic, accurate books of accounts and records for the Montgomery Warehouse of weekly receipts and shipments as well as HBC Product procurement documentation. Penn Traffic shall have the right to examine, inspect and audit Grand Union's books and records with regard to the HBC Product procurement costs and the costs of operating the Montgomery Warehouse at its sole cost. Penn Traffic shall keep GM Product procurement documentation for a period of not less than five years following the end of each fiscal year of Penn Traffic. Grand Union shall have the right to examine, inspect and audit Penn Traffic's books and records with regard to the GM Product procurement costs at its sole cost. If, as a result of said inspection, any dispute arises between Penn Traffic and Grand Union, then the parties agree to retain and engage Price Waterhouse to review the dispute. The parties shall equally share the costs of Price Waterhouse's audit. All determinations made by Price Waterhouse pursuant to the provisions of this Agreement shall be conclusive and binding on all of the parties and judgment may be rendered thereon. 21. ABSOLUTE RIGHT OF OFFSET. Each party shall have the full and absolute right of offset with regard to any obligations that are required to be paid to the other party under this Agreement. -16- 22. NOTICES. All notices provided under the Agreement shall be in writing and may be delivered manually or sent by certified mail postage prepaid to the following addresses: TO PENN TRAFFIC: 1200 State Fair Boulevard Post Office Box 4737 Syracuse, New York 13221 Attention: Controller With a Copy To: 1200 State Fair Boulevard Post Office Box 4737 Syracuse, New York 13221 Attention: Chief Financial Officer TO GRAND UNION: 201 Willowbrook Boulevard Wayne, New Jersey 07470 Attention: Executive Vice President With a Copy To: 201 Willowbrook Boulevard Wayne, New Jersey 07470 Attention: Chief Financial Officer Notice shall be deemed complete upon three (3) business days after mailing by United States certified mail, postage prepaid, as stated above. Addresses for the giving of notices may be changed by written notice to the other party given in the manner as stated above. 23. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement between the parties and this Agreement may only be modified by a writing signed by both parties. 24. GOVERNING LAW. This Agreement shall be governed in all respects by the laws of the State of New York and shall -17- be construed and enforced in accordance with the laws of that State. 25. ASSIGNS. This Agreement shall benefit and inure to bind the successors and assigned of both parties. IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by the duly authorized representatives as of the date first above written, but to be effective as of September 29, 1993. THE GRAND UNION COMPANY ATTEST: /s/ Kenneth R. Baum By: /s/ William A. Louttit - ------------------- ---------------------- William A. Louttit Executive Vice President THE PENN TRAFFIC COMPANY ATTEST: /s/ Francis D. Price By: /s/ Claude J. Incaudo - -------------------- --------------------- Claude J. Incaudo President -18- EX-10.22 6 EXHIBIT 10-22 EMPLOYMENT AGREEMENT EMPLOYMENT AGREEMENT ("Agreement"), dated as of January 29, 1995, by and among THE PENN TRAFFIC COMPANY, a Delaware corporation with its principal offices located at 1200 State Fair Boulevard, Syracuse, New York 13221-4737 ("Penn Traffic" or the "Company"), and JOHN T. DIXON, residing at 37 West Lake Street, Skaneateles, New York 13152 (the "Executive"). W I T N E S S E T H: WHEREAS, the Executive has been appointed by the Board of Directors of Penn Traffic to the positions of President and Chief Executive Officer, effective as of the date hereof; and WHEREAS, the Executive and the Company desire to enter into this Agreement pertaining to the terms of the employment of the Executive by the Company in such capacities; NOW, THEREFORE, in consideration of the mutual covenants and promises contained herein, and other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties agree as follows: 1. TERM. The Executive's "Employment Period", as this phrase is used throughout this Agreement, shall commence on the date hereof and end on the last date of the fiscal year commencing on the date hereof, and shall be automatically extended at the end of such fiscal year (and any subsequent fiscal year into which the Employment Period has been extended) for a period, in each case, the duration of which is coterminous with that of the then next succeeding fiscal year, unless, in each case, notice of termination has been given by the Company or the Executive not later than 30 days prior to the end of the Employment Period. 2. EMPLOYMENT. During the Employment Period, the Company hereby agrees to employ the Executive and the Executive hereby accepts such employment by the Company, upon the terms and conditions herein set forth. The Executive shall be employed as the President and Chief Executive Officer of the Company during the Employment Period. During the Employment Period, the Executive shall have duties and responsibilities relating to the supervision, control and general management and operations of the Company and shall report only to the Board of Directors and Chairman of the Company. Throughout the Employment Period, the Executive shall devote his full-time efforts during normal business hours to the business and affairs of the Company, except for vacation periods and periods of illness or incapacity. If any of the positions of President or Chief Executive Officer of the Company shall cease to exist at any time during the Employment Period due to a merger or any other corporate combination or reorganization, the Executive agrees to accept another position, having the scope and responsibilities of President and Chief Executive Officer of the historical businesses of the Company, as shall be assigned to him from time to time by the Board of Directors and Chairman of the Company or its successor, and to perform the duties thereof under the terms of this Agreement. During the Employment Period, the Executive shall perform his duties in the Syracuse, New York area, except that the Executive agrees to make such business trips to such other locations as may be reasonably necessary and appropriate in the performance of his duties. 3. COMPENSATION AND BENEFITS DURING THE EMPLOYMENT PERIOD. As compensation for the Executive's services to be rendered as provided for in this Agreement, during the Employment Period the Company shall pay compensation and provide benefits to the Executive as follows: (a) BASE SALARY. During the Employment Period, the Company shall pay the Executive an annual base salary, subject to increase, but not decrease, from time to time by the Board of Directors of the Company, in the aggregate amount of $400,000 (the "Base Salary"), payable in equal weekly installments. The Base Salary may be increased from time to time at the discretion of the Board of Directors of the Company, and in such event, references herein to "Base Salary" shall mean the Base Salary as so increased. (b) INCENTIVE COMPENSATION. As incentive compensation hereunder, the Executive shall be eligible for cash bonus awards, at the sole discretion of the Board of Directors, not to exceed, with respect to any fiscal year within the Employment Period, an amount equal to 50% of the -2- Base Salary with respect to such fiscal year (a "Cash Bonus"). (c) ADDITIONAL BENEFITS. During the Employment Period, the Executive shall be entitled to all rights and benefits for which he is otherwise eligible under any generally instituted insurance plans and benefit plans of the Company applicable to senior executives of the Company and to any additional fringe benefits which may be authorized and approved from time to time by the Board of Directors of the Company. Specifically, without limitation, the Executive shall receive the following benefits: (i) RETIREMENT BENEFITS. The Executive shall continue to be a participant in the Penn Traffic Corporate/P&C Foods Pension Plan (the "Pension Plan"). (ii) REIMBURSEMENT FOR EXPENSES. During the Employment Period, to the extent such expenditures meet the requirements and the policies of the Company, the Company shall reimburse the Executive promptly for all travel, entertainment, parking, business meeting and similar expenditures in pursuance and furtherance of the Company's business. The Executive shall provide documentation to the Company of such expenses incurred. (iii) AUTOMOBILE. During the Employment Period, the Company shall provide the Executive an automobile of his choice appropriate to his position, comparable or superior in quality to a Buick and at any time not more than three years old. All expenses relating to such automobile, including, without limitation, those with respect to insurance, gasoline, tolls, parking, repairs and maintenance, shall be paid for by the Company or reimbursed by the Company to the Executive. (iv) References in this paragraph (c) to any plans, insurance arrangements or other benefits to be provided by the Company shall be applicable to any successor to the Company. 4. PERFORMANCE OF DUTIES. The Executive agrees that during the Employment Period he will faithfully perform his duties hereunder subject to the direction of the Board of Directors and Chairman of the Company. In addition to performance of his duties for the Company, if so requested, the Executive agrees to serve as a director of the Company without additional compensation. -3- 5. NO COMPETITION; CONFIDENTIALITY. The Executive agrees that while this Agreement is in effect and for a period of five (5) years after termination of the Employment Period, the Executive will not without the prior written consent of the Company, as principal, agent, employee, employer, consultant, stockholder (other than as the holder of shares of capital stock of the Company or of less than 5% of the shares of any other corporation), director or co-partner, or in any other individual or representative capacity whatever, directly or indirectly: (a) engage in any business activity located in the United States in competition with the Company or any subsidiary or Affiliate thereof; (b) induce or attempt to induce any person who is then 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 employ or attempt to employ any such person or any person who at any time during the preceding twenty-four (24) months was in the employ of the Company or any subsidiary or Affiliate thereof; or (c) induce or attempt to induce any other person, firm or corporation to do any of the above (provided, that this Section 5 shall not be interpreted so as to prohibit the Executive from providing references for employees of the Company or its subsidiaries or Affiliates which have been solicited by an employee or prospective employer). The Executive agrees that he will not at any time from and after the date hereof, divulge, furnish or make accessible to any person, or himself make use of, any confidential or proprietary information of the Company obtained by him while in the employ of the Company other than in connection with his employment with the Company as provided hereunder, including, without limitation, information with respect to any products, services, improvements, formulas, designs, styles, processes, research, analyses, suppliers, customers, methods of distribution or manufacture, contract terms and conditions, pricing, financial condition, organization, personnel, business activities, budgets, plans, objectives or strategies of the Company or its proprietary products or of any subsidiary or Affiliate of the Company and that he will, prior to or upon the termination of his employment with the -4- Company, return to the Company all such confidential or non-public information in written or other physical form or which has been reduced to written or other physical form or stored electronically on computer disks or tapes, and all copies thereof, in his possession or custody or under his control; PROVIDED, HOWEVER, that (x) confidential information shall not include publicly available information or information known generally to the public (without fault on the part of the Executive), and (y) the Executive may disclose such information as may be required pursuant to any applicable law, rule or regulation or in connection with any judicial or administrative proceeding or inquiry. Notwithstanding the foregoing, in the event that the Executive receives a subpoena or other process or order issued by a court which may require him to disclose any confidential information, the Executive agrees (i) to notify the Company as promptly as practicable of the existence, terms and circumstances surrounding such process or order, and (ii) to cooperate with the Company, at the Company's request, in taking legally available steps to resist or narrow such process or order and to obtain an order or other reliable assurance that confidential treatment will be given to such information as is required to be disclosed. As used in this Section 5, "Affiliate" shall have the meaning set forth in Section 6(d) hereof. In view of the services which the Executive will perform for the Company and its subsidiaries and Affiliates in his positions as an executive officer thereof, which are special, unique, extraordinary and intellectual in character and will place him in a position of confidence and trust with the customers and employees of the Company and its subsidiaries and Affiliates and will provide him with access to confidential financial information, trade secrets, "know-how" and other confidential and proprietary information of the Company and its subsidiaries and Affiliates, and recognizing the substantial sums paid and to be paid to the Executive pursuant to the terms hereof, the Executive expressly acknowledges that the restrictive covenants set forth in this Section 5 are necessary in order to protect and maintain the proprietary interests and other legitimate business interests of the Company and its subsidiaries and Affiliates and that the enforcement of such restrictive covenants will not prevent him from earning a livelihood. The Executive acknowledges that the remedy at law for any breach or threatened breach of this Section 5 will be -5- inadequate and, accordingly, that the Company shall, in addition to all other available remedies (including, without limitation, seeking such damages as it can show it has sustained by reason of such breach), be entitled to specific performance or injunctive relief without being required to post bond or other security and without having to prove the inadequacy of the available remedies at law. 6. TERMINATION OF THE EMPLOYMENT PERIOD. (a) DEATH OF THE EXECUTIVE. The Employment Period shall automatically terminate upon the death of the Executive. (b) BY THE EXECUTIVE. The Executive shall be entitled to terminate the Employment Period for Good Reason (as defined in paragraph (d) below) following a Change of Control (as defined in paragraph (d) below). (c) BY THE COMPANY. The Company shall be entitled to terminate the Employment Period (1) in the event of the Executive's Disability (as defined in paragraph (d) below); (2) for Cause (as defined in paragraph (d) below); or (3) for any reason other than Disability or Cause. (d) DEFINITIONS. For purposes of this Agreement, the following terms shall have the following meanings: (i) AFFILIATE. "Affiliate" shall mean, with respect to any person, a person (i) which directly or indirectly through one or more intermediaries controls, or is controlled by, or is under common control with, such person, (ii) which directly or indirectly through one or more intermediaries beneficially owns or holds 5% or more of the combined voting power of the total voting securities of such person or (iii) of which 5% or more of the combined voting power of the total voting securities (or in the case of a person which is not a corporation, 5% or more of the equity interest) directly or indirectly through one or more intermediaries is beneficially owned or held by such person, or a subsidiary of such person. (ii) CAUSE. "Cause" shall mean (x) conviction of the Executive of a felony, or (y) the -6- Executive's willful and continued failure substantially to perform his obligations under this Agreement, or (z) the Executive's willfully engaging in conduct which is demonstrably and materially injurious to the Company, monetarily or otherwise. For purposes of this subparagraph (ii), no act, or failure to act, on the Executive's part shall be considered "willful" unless done, or omitted to be done, by the Executive not in good faith and without reasonable belief that the Executive's action or omission was in the best interest of the Company. Termination for Cause shall be effected by a notice thereof delivered by the Company to the Executive and shall be effective as of the date of such notice; PROVIDED, HOWEVER, that (x) if such termination is because of the Executive's willful and continued failure substantially to perform his obligations under this Agreement, (y) such notice is the first such notice of termination for any reason delivered by the Company to the Executive within any twelve-month period, and (z) within seven days following the date of such notice the Executive shall cease his refusal and shall use his best efforts to perform such obligations, the notice of termination shall not be effective. (iii) DISABILITY. "Disability" shall mean the Executive's failure substantially to perform his services hereunder on a full-time basis for a period of six consecutive months, or for shorter periods aggregating six months in any twelve-month period, as a result of incapacity due to physical or mental illness. (iv) GOOD REASON. "Good Reason" shall mean the occurrence of any of the following events following a Change in Control of the Company: (x) The assignment to the Executive of any duties inconsistent with the Executive's positions, duties, responsibilities and status with the Company prior to a Change in Control, or a substantial change in the nature or status of the Executive's responsibilities -7- from those in effect immediately prior to a Change in Control; (y) The material breach by the Company of any of the terms and conditions hereof or the taking of any action by the Company which would adversely affect the Executive's compensation or his participation in, or materially reduce the Executive's benefits under, any of plans, programs or arrangements enjoyed by the Executive (or deprive the Executive of any material fringe benefit) pursuant hereto immediately prior to the Change in Control which is not cured within ten (10) days of written notice from the Executive, specifying in reasonable detail such alleged breach or adverse action; or (z) The requirement subsequent to a Change of Control that the Executive be based at a location more than 25 miles from the location where the Executive is based immediately prior to the Change in Control. (v) CHANGE IN CONTROL. A "Change in Control" shall mean an event or series of events by which (i) any "person" (as such term is used in Section 13(d) and 14(d) of the Securities Exchange Act of 1934 (the "Exchange Act")) (other than Riverside Acquisition Company, Limited Partnership ("RAC"), Miller Tabak Hirsch + Co. ("MTH") or any Affiliate of either thereof) is or becomes the "beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the Exchange Act, except that a person shall be deemed to have "beneficial ownership" of all shares that any such person has the right to acquire, whether such right is exercisable immediately or only after the passage of time), directly or indirectly, of 50% or more of the outstanding shares of common stock of the Company or securities representing 50% or more of the combined voting power of the Company's voting securities, (ii) the Company consolidates with or merges into another corporation or conveys, transfers or leases all or substantially all of its assets to any person, or any -8- corporation consolidates with or merges into the Company, in either event pursuant to a transaction in which the outstanding voting securities of the Company are changed into or exchanged for cash, securities or other property, other than any such transaction between the Company and its subsidiaries, with the effect that any "person" (other than RAC, MTH or any Affiliate of either thereof) 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 voting securities of the Company, or (iii) during any period of two consecutive years, individuals who at the beginning of such period constituted Penn Traffic's Board of Directors (together with any new or replacement directors whose election by the Company's Board of Directors, or whose nomination for election by the Company's shareholders, was approved by a vote of at least a majority of the directors then still in office who were either directors at the beginning of such period or whose election or nomination for election was previously so approved) cease for any reason to constitute a majority of the directors then in office. 7. COMPENSATION UPON TERMINATION OF EMPLOYMENT. Upon the termination of this Agreement during the Employment Period, the Company and the Executive shall each have no further obligation or liability to each other subsequent to such termination except as set forth in paragraphs (a) through (f) below: (a) If the Employment Period is terminated (i) by the Executive other than for Good Reason following a Change in Control or (ii) by the Company or its successor for Cause, the Company (or its successor) shall be required to pay the Executive the Base Salary which is accrued but unpaid as of the date of termination. (b) If no Change of Control has occurred and the Employment Period is terminated by the Company for a reason other than (i) for Cause or (ii) the death or Disability of the Executive, the Company shall be required to continue to -9- pay to the Executive a lump sum in an amount equal to the sum of (A) an amount equal to 100% of the Executive's Base Salary for the year in which such termination occurs plus (B) an amount equal to the Maximum Cash Bonus which the Executive would have been entitled to receive in respect of such year (i.e., 50% of the Executive's Base Salary) prorated to reflect the actual number of days the Executive was employed during the fiscal year of such termination. In the event of such termination, the Executive shall also be entitled to receive the continuation of life and health insurance benefits for a period of two years from the date of such termination. Such termination of the Employment Period by the Company for a reason other than (i) for Cause or (ii) the death or Disability of the Executive shall be effective seven days after the delivery of notice of termination to the Executive. (c) (1) If, following a Change of Control, the Employment Period is terminated (i) by the Company or its successor for a reason other than (x) for Cause or (y) the death or Disability of the Executive, or (ii) by the Executive for Good Reason, then the Company or its successor shall be required to pay to the Executive a lump sum in an amount equal to the sum of (A) an amount equal to 100% of the Executive's Base Salary for the year in which such termination occurs plus (B) an amount equal to the Maximum Cash Bonus which the Executive would have been eligible to receive in respect of such year (i.e., 50% of the Executive's Base Salary). In addition, in the event of such termination of the Employment Period, the Company or its successor shall be required to continue to provide the Executive and his spouse, at the Company's or its successor's expense, with coverage under the Company's life and health insurance plans as in effect immediately prior to the delivery of notice of such termination, or to provide the Executive, at the Company's or its successor's expense, with life and health insurance benefits comparable to those received by the Executive under the Company's life and health insurance plans as in effect immediately prior to the delivery of notice of such termination, during a period of two years from the date of such termination. Such termination of the Employment Period shall be effective seven days after the delivery of notice of termination to the Executive, in the case of termination by the Company or its successor for a reason other than (i) for Cause or (ii) the death or Disability of the Executive, or, in the case of termination by the Executive for Good Reason, seven days after the delivery of notice of termination to the Company or its successor. The lump sum payment required to -10- be paid to the Executive hereunder in the event of such termination shall be made on the date of termination. (c) (2) If there is a substantial risk that, absent the application of this Section 7(c)(2), a payment to the Executive under Section 7(c)(1) of this Agreement might constitute a "parachute payment" (as such term is defined in Section 280G(b)(2) of the Internal Revenue Code of 1986 (the "Code")), and the maximum dollar amount of the payment which could be paid to the Executive pursuant to Section 7(c)(1) of this Agreement without subjecting him to the tax imposed by Section 4999 of the Code exceeds the present value (using the rate specified in Section 1274(b)(2)(B) of the Code) of all payments to be made and benefits to be provided to the Executive under such Section 7(c)(1) of this Agreement (without regard to the application of this Section 7(c)(2)) reduced by the sum of (i) the tax imposed by Section 4999 of the Code on these payments and (ii) the income taxes (at the highest marginal Federal and State and local income tax rates applicable to the Executive) on the tax imposed by Section 4999 of the Code and the income taxes on the amount in this clause (ii), then the payment to be made to the Executive pursuant to Section 7(c)(1) of this Agreement shall be reduced so that the amount of that payment, when combined with all other payments to be paid and benefits to be provided to the Executive pursuant to this Agreement which could constitute a parachute payment, will be $1.00 less than the amount which, if paid to the Executive, would constitute a parachute payment. Donovan Leisure Newton & Irvine (or another law firm mutually acceptable to the Executive and the Company (or its successor)) shall determine whether any payment to be made under this Agreement constitutes a "parachute payment" and the amount of any reduction, if any, in the payment pursuant to Section 7(c)(1) hereof. (d) If the Employment Period is terminated because of the Executive's death, the Executive's estate or beneficiaries shall be entitled to receive a lump sum payment equal to 100% of his Base Salary at the time of such termination. If the Employment Period is terminated because of the Executive's Disability, the Executive shall be entitled to continue to receive an amount equal to 100% of his Base Salary and to continuation of health insurance benefits for a period of one calendar year from the date of such termination by reason of Disability. (e) Notwithstanding the termination of the Employment Period, the provisions of Sections 5 and 8 of this -11- Agreement shall continue in full force and effect and shall not be limited by reason of such termination. 8. MITIGATION OF DAMAGES. In the event of termination of the Employment Period by the Company (or its successor) following a Change of Control for a reason other than for Cause, or in the event of the termination of the Employment Period by the Executive for Good Reason following a Change of Control, the Executive shall not be required to mitigate the amount of any payment provided for in this Agreement by seeking other employment or otherwise. 9. MISCELLANEOUS. (a) SUCCESSORS; BINDING AGREEMENT. This Agreement shall be binding upon any successor to the Company in the event of a Change in Control, and shall inure to the benefit of and be enforceable by Executive's personal or legal representatives, beneficiaries, designees, executors, administrators, successors, heirs, distributees, devisees, and legatees. (b) MODIFICATION; NO WAIVER. No provision of this Agreement may be modified, waived, or discharged unless such waiver, modification, or discharge is agreed to in writing signed by the Executive and by the Company. No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the time of or at any prior or subsequent time. A failure of the Executive to claim or take any benefit provided by this Agreement shall not constitute a waiver of such benefit, or any other benefit provided by this Agreement. (c) SEVERABILITY. The covenants and agreements contained herein are separate and severable and the invalidity or unenforceability of any one or more of such covenants or agreements, if not material to the employment arrangement that is the basis for this Agreement, shall not affect the validity or enforceability of any other covenant or agreement contained herein. In addition, if, in any judicial proceeding, a court shall refuse to enforce one or more of the covenants or agreements contained herein because the duration thereof is too long, or the scope thereof is too broad, it is expressly agreed between the parties hereto that such duration or scope shall be deemed reduced to the extent -12- necessary to permit the enforcement of such covenants or agreements. (d) NOTICES. All notices and other communications required or permitted hereunder shall be in writing and shall be delivered personally or sent by registered or certified mail, return receipt requested, to the parties hereto at their respective addresses as set forth at the beginning of this Agreement or at such other addresses as they shall designate in writing by notice duly given hereunder. All notices and other communications required or permitted hereunder and delivered to the Company by the Executive shall be addressed to the attention of the Chairman of the Board of the Company. (e) ASSIGNMENT. This Agreement shall not be assignable by either party without the prior written consent of the other party. (f) COMPLETE UNDERSTANDING. This Agreement constitutes the entire understanding between the parties hereto and no agreement, representation, warranty or covenant has been made by either party except as expressly set forth herein. Effective upon the execution and delivery of this Agreement, all prior agreements with respect to the subject matter thereof shall be terminated, provided that any payments due and payable thereunder shall be made to the Executive by the Company. This Agreement shall not be altered, waived, modified or amended except by a written instrument executed by the parties hereto. 10. GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED FOR ALL PURPOSES BY -13- THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS EXECUTED AND WHOLLY PERFORMED WITHIN SUCH STATE. IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of the day and year first above written. THE PENN TRAFFIC COMPANY Attest: By /s/ Gary D. Hirsch ---------------------------- /s/ Francis D. Price - ---------------------------- /s/ John T. Dixon ---------------------------- JOHN T. DIXON Witness: - ---------------------------- -14- EX-23.1 7 EXHIBIT 23-1 [Letterhead] EXHIBIT 23.1 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Prospectus constituting part of the Registration Statement on Form S-3 (No. 33-51213) of The Penn Traffic Company of our report dated March 24, 1995 appearing on page 30 of this Form 10-k. /s/ PRICE WATERHOUSE LLP PRICE WATERHOUSE LLP Syracuse, New York April 26, 1995 EX-27.1 8 EXHIBIT 27-1
5 12-MOS JAN-28-1995 JAN-28-1995 45,519 0 83,341 1,374 385,968 525,367 873,410 272,613 1,793,966 381,056 1,277,276 13,558 0 0 19,369 1,793,966 3,277,205 3,333,225 2,570,708 2,570,708 606,782 976 117,859 37,876 15,851 22,025 0 (3,025) (5,790) 13,210 1.18 0
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