-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, NpvTtEAQ6aIXHg3WM6g22bgEahAwJdBOk1lg6Yy/QQcZGfQvULsZaNYFgPvQ9unN u8xX7UsLLqoob3MeS1KU5g== 0001047469-98-034575.txt : 19980916 0001047469-98-034575.hdr.sgml : 19980916 ACCESSION NUMBER: 0001047469-98-034575 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19980801 FILED AS OF DATE: 19980915 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-Q SEC ACT: SEC FILE NUMBER: 001-09930 FILM NUMBER: 98709482 BUSINESS ADDRESS: STREET 1: 1200 STATE FAIR BLVD CITY: SRYACUSE STATE: NY ZIP: 13221-4737 BUSINESS PHONE: 8145369900 MAIL ADDRESS: STREET 1: 1200 STATE FAIR BLVD CITY: SYRACUSE STATE: NY ZIP: 13221-4737 10-Q 1 FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly Period Ended August 1, 1998 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Transition Period from __________ to __________ Commission file number 1-9930 THE PENN TRAFFIC COMPANY (Exact name of registrant as specified in its charter) Delaware 25-0716800 (State of incorporation) (IRS Employer Identification No.) 1200 State Fair Blvd., Syracuse, NY 13221-4737 (Address of principal executive offices) (Zip Code) (315) 453-7284 (Telephone number) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past ninety (90) days. YES X . NO . --- --- Common stock, par value $1.25 per share: 10,695,491 shares outstanding as of September 11, 1998 1 0f 18 PART I. FINANCIAL INFORMATION - ------------------------------ ITEM 1. FINANCIAL STATEMENTS THE PENN TRAFFIC COMPANY CONSOLIDATED STATEMENT OF OPERATIONS UNAUDITED (All dollar amounts in thousands, except per share data)
THIRTEEN WEEKS ENDED TWENTY-SIX WEEKS ENDED AUGUST 1, AUGUST 2, AUGUST 1, AUGUST 2, 1998 1997 1998 1997 --------- --------- ---------- ---------- TOTAL REVENUES $ 730,223 $ 773,890 $1,447,022 $1,533,278 COSTS AND OPERATING EXPENSES: Cost of sales (including buying and occupancy costs) 568,629 595,643 1,128,019 1,177,260 Selling and administrative expenses (Note 2) 154,080 158,258 302,035 326,490 Restructuring charges (Note 2) 1,400 10,704 --------- --------- ---------- ---------- OPERATING INCOME 7,514 18,589 16,968 18,824 Interest expense 37,258 37,289 74,120 74,660 --------- --------- ---------- ---------- (LOSS) BEFORE INCOME TAXES (29,744) (18,700) (57,152) (55,836) (Benefit) for income taxes (Note 3) (6,246) (6,776) (16,596) (21,088) --------- --------- ---------- ---------- NET (LOSS) $ (23,498) $ (11,924) $ (40,556) $ (34,748) ========= ========= ========== ========== PER SHARE DATA (BASIC AND DILUTED): Net (loss) (Note 4) $ (2.22) $ (1.13) $ (3.84) $ (3.29) ========= ========= ========== ==========
See Notes to Interim Consolidated Financial Statements. - 2 - THE PENN TRAFFIC COMPANY CONSOLIDATED BALANCE SHEET
(All dollar amounts in thousands) UNAUDITED AUGUST 1, 1998 JANUARY 31, 1998 -------------- ---------------- ASSETS CURRENT ASSETS: Cash and short-term investments $ 45,419 $ 49,095 Accounts and notes receivable (less allowance for doubtful accounts of $5,028 and $3,597 respectively) 64,358 68,454 Inventories (Note 6) 310,473 327,389 Prepaid expenses and other current assets 15,399 16,032 ---------- ---------- Total Current Assets 435,649 460,970 NONCURRENT ASSETS: Capital leases - net 109,350 115,581 Property, plant and equipment - net 469,726 496,501 Goodwill - net 395,668 401,829 Other assets and deferred charges - net 88,823 88,705 ---------- ---------- $1,499,216 $1,563,586 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Current portion of obligations under capital leases $ 13,091 $ 13,518 Current maturities of long-term debt (Note 8) 102,644 4,429 Trade accounts and drafts payable 148,340 149,389 Payroll and other accrued liabilities 69,071 79,763 Accrued interest expense 34,519 35,335 Payroll taxes and other taxes payable 18,756 19,208 Deferred income taxes 16,671 ---------- ---------- Total Current Liabilities 386,421 318,313 NONCURRENT LIABILITIES: Obligations under capital leases 115,457 121,436 Long-term debt (Note 8) 1,155,241 1,234,224 Other noncurrent liabilities 42,462 49,422 ---------- ---------- Total Liabilities 1,699,581 1,723,395 ---------- ---------- STOCKHOLDERS' EQUITY: Preferred Stock - authorized 10,000,000 shares at $1.00 par value; none issued Common Stock - authorized 30,000,000 shares at $1.25 par value; 10,695,491 shares and 10,824,591 shares issued and outstanding, respectively 13,426 13,586 Capital in excess of par value 179,881 180,060 Retained deficit (381,997) (340,470) Minimum pension liability adjustment (10,667) (10,667) Unearned compensation (383) (1,693) Treasury stock, at cost (625) (625) ---------- ---------- Total Shareholders' Equity (200,365) (159,809) ---------- ---------- $1,499,216 $1,563,586 ========== ==========
See Notes to Interim Consolidated Financial Statements. - 3 - THE PENN TRAFFIC COMPANY CONSOLIDATED STATEMENT OF CASH FLOWS UNAUDITED
(All dollar amounts in thousands) TWENTY-SIX TWENTY-SIX WEEKS ENDED WEEKS ENDED AUGUST 1, 1998 AUGUST 2, 1997 -------------- -------------- OPERATING ACTIVITIES: Net (loss) $(40,556) $ (34,748) Adjustments to reconcile net (loss) to net cash (used in) provided by operating activities: Depreciation and amortization 32,484 37,289 Amortization of intangibles 7,458 8,136 Other - net (1,746) (4,031) NET CHANGE IN ASSETS AND LIABILITIES: Accounts receivable and prepaid expenses 4,729 5,967 Inventories 16,916 8,402 Payables and accrued expenses (13,009) 23,023 Deferred taxes (16,671) (21,162) Deferred charges and other assets (1,447) (41) -------- --------- NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES (11,842) 22,835 -------- --------- INVESTING ACTIVITIES: Capital expenditures (8,028) (9,190) Proceeds from sale of assets 3,368 1,980 Other - net 1,652 -------- --------- NET CASH (USED IN) INVESTING ACTIVITIES (4,660) (5,558) -------- --------- FINANCING ACTIVITIES: Payments to settle long-term debt (3,085) (1,165) Borrowing of revolver debt 70,800 183,700 Repayment of revolver debt (48,483) (194,000) Reduction of capital lease obligations (6,406) (6,566) -------- --------- NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 12,826 (18,031) -------- --------- (DECREASE) IN CASH AND CASH EQUIVALENTS (3,676) (754) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 49,095 53,240 -------- --------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 45,419 $ 52,486 ======== =========
See Notes to Interim Consolidated Financial Statements. - 4 - THE PENN TRAFFIC COMPANY NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS UNAUDITED NOTE 1 - BASIS OF PRESENTATION The accompanying unaudited interim consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. The results of operations for the interim periods are not necessarily an indication of results to be expected for the year. In the opinion of management, all adjustments necessary for a fair presentation of the results are included for the interim periods, and all such adjustments are normal and recurring. These unaudited interim financial statements should be read in conjunction with the consolidated financial statements and related notes contained in the Annual Report on Form 10-K for the fiscal year ended January 31, 1998. All significant intercompany transactions and accounts have been eliminated in consolidation. Certain prior year amounts have been reclassified on the Consolidated Statement of Cash Flows for comparative purposes. NOTE 2 - SPECIAL CHARGES For the 13-week and 26-week periods ended August 2, 1997 the Company recorded pre-tax charges totaling $1.6 and $12.6 million, respectively, associated with management reorganization and related corporate actions ($1.4 and $10.7 million, respectively, of these charges are included in a restructuring charge and $0.2 and $1.9 million, respectively, are included in selling and administrative expenses). In addition, during the 13-week and 26-week periods ended August 2, 1997 the Company recorded pre-tax charges of $1.6 and $5.6 million, respectively, associated with the retention of certain corporate executives, which are included in selling and administrative expenses. NOTE 3 - TAX BENEFITS The tax benefits for the 13-week and 26-week periods ended August 1, 1998 are not recorded at statutory rates due to (a) differences between the income calculations for financial reporting and tax reporting purposes and (b) the recording of a valuation allowance. A valuation allowance is required when it is more likely than not that the recorded value of a deferred tax asset will not be realized. - 5 - NOTE 4 - NET (Loss) PER SHARE Net (Loss) per share is computed based the requirements of Statement of Financial Accounting Standards No. 128, "Earnings per Share" ("SFAS 128"). This standard requires presentation of basic Earnings per Share ("EPS"), computed based on the weighted average number of common shares outstanding for the period, and diluted EPS, which gives effect to all dilutive potential shares outstanding (i.e., options, restricted stock and warrants) during the period. The previously presented EPS amounts for the 13-week and the 26-week periods ended August 2, 1997 have been restated to reflect the method of computation required by SFAS 128. Shares used in the calculation of basic and diluted EPS (weighted average shares outstanding) were 10,570,491 for the 13-week and 26-week periods ended August 1, 1998 and 10,569,341 for the 13-week and 26-week periods ended August 2, 1997. The calculations of diluted EPS exclude the effect of incremental dilutive potential securities aggregating 2,819 and 180,656 shares for the 13-week and 26-week periods ended August 1, 1998 and August 2, 1997, respectively, since they would have been antidulutive given the net loss. NOTE 5 - SUPPLEMENTAL FINANCIAL INFORMATION
(In thousands of dollars) Second Quarter Twenty-six Weeks -------------- ---------------- FISCAL 1999 Operating Income $ 7,514 $ 16,968 Depreciation and Amortization 19,894 39,942 LIFO Provision 625 1,250 Cash Interest Expense 36,012 71,679 FISCAL 1998 Operating Income $ 18,589 $ 18,824 Operating Income before special charges 21,739 37,016 Depreciation and Amortization 22,544 45,425 LIFO Provision 750 1,250 Cash Interest Expense 36,076 72,263
- 6 - NOTE 6 - INVENTORIES If the first-in, first-out (FIFO) method had been used by the Company, inventories would have been $23,816,000 and $22,566,000 higher than reported at August 1, 1998 and January 31, 1998, respectively. NOTE 7 - ASSET DISPOSITION PROCESS On June 4, 1998, the Company announced that it has engaged Goldman Sachs & Company to undertake a process for realizing value from certain of the Company's Bi-Lo stores and related wholesale/franchise operations (the "Pennsylvania Assets"). The Pennsylvania Assets being considered for disposition produced revenues of approximately $675 million over the past twelve months. Approximately 80% of these revenues were generated in Company supermarkets, with the remainder being revenues from the Company's Pennsylvania wholesale/franchise customer relationships. No assurance can be given that any transaction will be completed nor is it possible to predict the net proceeds to the Company of any such transaction or the timing of such a transaction. NOTE 8 - LONG-TERM DEBT AND CURRENT MATURITIES The Company and the lenders ("Bank Lenders") that are parties to the Company's revolving credit facility ("Revolving Credit Facility") entered into an amendment dated as of August 31, 1998 to the Revolving Credit Facility (the "Amendment") that provides that the financial covenants contained in the Revolving Credit Facility would not be applicable to the Company for the period from August 1, 1998 until April 1, 1999. Without the Amendment, the Company would not have been in compliance with certain financial covenants set forth in the Revolving Credit Facility for the 13-week period ended August 1, 1998 and an Event of Default (as defined in the Revolving Credit Facility) would have occurred. The Company does not currently believe, based upon its current operating performance, that it will be in compliance with some or all of the financial covenants set forth in the Revolving Credit Facility after April 1, 1999 and as a result the Company will seek an additional waiver of such covenants or renegotiation of the terms of the Revolving Credit Facility prior to that date. Accordingly, the amount outstanding under the Revolving Credit Facility as of August 1, 1998 ($99.9 million) has been classified as Current Maturities of Long-Term Debt. The Bank Lenders also consented in the Amendment to the sales of certain of the Company's retail and wholesale assets in Pennsylvania. Upon the completion of a substantial portion of the contemplated Pennsylvania asset sale transactions, the Company will seek to renegotiate the terms of the Revolving Credit Facility. This is expected to occur prior to April 1, 1999. Failure to obtain an additional waiver of financial covenant noncompliance or complete a satisfactory renegotiation of the terms of the Revolving Credit Facility may cause an acceleration of the obligations under the Revolving Credit Facility. There can be no assurance that the Bank Lenders will agree to any further waiver of financial covenant noncompliance or renegotiation of the terms of the Revolving Credit Facility on satisfactory terms or at all. - 7 - NOTE 9 - SUBSEQUENT EVENT During the 13-week period ending October 31, 1998 the Company completed the sale of two stores. In addition, the Company closed eight under-performing Bi-Lo stores in Pennsylvania. The Company will record an as-yet undetermined charge related to these actions during the 13-week period ending October 31, 1998. These 10 stores represented less than two percent of consolidated revenues. - 8 - ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Certain statements included in this Part I, Item 2, "Management's Discussion and Analysis of Financial Condition and Results of Operations" and elsewhere in this Quarterly Report on Form 10-Q which are not statements of historical fact are intended to be, and are hereby identified as, "forward-looking statements" as defined in the Securities Exchange Act of 1934, as amended, and involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such factors include, among other things, the following: general economic and business conditions; competition; the success or failure of the Company in implementing its current business and operational strategies; changes in the Company's business or operational strategies; availability, location and terms of sites for store development; the availability and amount of proceeds generated from sale of assets; the ability of the Company to successfully renegotiate the terms of the Revolving Credit Facility; availability, terms and access to capital; labor relations and labor costs. RESULTS OF OPERATIONS THIRTEEN WEEKS ("SECOND QUARTER FISCAL 1999") AND TWENTY-SIX WEEKS ENDED AUGUST 1, 1998 COMPARED TO THIRTEEN WEEKS ("SECOND QUARTER FISCAL 1998") AND TWENTY-SIX WEEKS ENDED AUGUST 2, 1997 The following table sets forth Statement of Operations components expressed as a percentage of total revenues for Second Quarter Fiscal 1999 and Second Quarter Fiscal 1998, and for the 26-weeks ended August 1, 1998 and August 2, 1997, respectively:
Second Quarter Ended Twenty-six Weeks Ended AUGUST 1, August 2, AUGUST 1, August 2, 1998 1997 1998 1997 -------- -------- -------- -------- Total revenues 100.0% 100.0% 100.0% 100.0% Gross profit (1) 22.1 23.0 22.0 23.2 Selling and administrative expenses excluding special charges (2) 21.1 20.2 20.9 20.8 Selling and administrative expenses 21.1 20.4 20.9 21.3 Restructuring charges 0.2 0.7 Operating income excluding unusual items (3) 1.0 2.8 1.2 2.4 Operating income 1.0 2.4 1.2 1.2 Interest expense 5.1 4.8 5.1 4.9 (Loss) before income taxes (4.1) (2.4) (3.9) (3.6) Net (loss) (3.2) (1.5) (2.8) (2.3)
(See notes on next page) - 9 - RESULTS OF OPERATIONS (CONTINUED) (1) Total revenues less cost of sales. (2) Selling and administrative expenses include pre-tax special charges for Second Quarter Fiscal 1998 and the 26-week period ended August 2, 1997 of (1) $1.6 and $5.6 million, respectively, associated with the retention of certain corporate executives and (2) $0.2 and $1.9 million, respectively, of other costs associated with a management reorganization and related corporate actions (see Note 2). (3) Operating income for the Second Quarter Fiscal 1998 and the 26-week period ended August 2, 1997 excluding pre-tax special charges of $3.2 and $18.2 million, respectively (see Note 2). Total revenues for Second Quarter Fiscal 1999 decreased to $730.2 million from $773.9 million in Second Quarter Fiscal 1998. Total revenues for the 26-week period ended August 1, 1998 decreased to $1.447 billion from $1.533 billion for the 26-week period ended August 2, 1997. The decrease in revenues for the Second Quarter and the 26-week period ended August 1, 1998 is primarily attributable to a decline in same store sales and a decline in wholesale revenues. Same store sales for Second Quarter Fiscal 1999 and the 26-week period ended August 1, 1998 declined 4.4% and 4.3%, respectively. Wholesale supermarket revenues were $84.2 million in Second Quarter Fiscal 1999 compared to $93.3 million in Second Quarter Fiscal 1998. Wholesale supermarket revenues were $164.9 million for the 26-weeks ended August 1, 1998 compared to $183.7 million for the 26-weeks ended August 2, 1997. Gross profit in Second Quarter Fiscal 1999 was $161.6 million or 22.1% of revenues compared to $178.2 million or 23.0% of revenues in Second Quarter Fiscal 1998. Gross profit as a percentage of total revenues decreased to 22.0% for the 26-week period ended August 1, 1998 from 23.2% for the 26-week period ended August 2, 1997. The decrease in gross profit as a percentage of total revenues primarily resulted from investments in gross margins associated with the Company's marketing program (initiated in September 1997) and an increase in inventory shrink expense. Selling and administrative expenses in Second Quarter Fiscal 1999 were $154.1 million or 21.1% of revenues compared to $158.3 million or 20.4% of revenues in Second Quarter Fiscal 1998. In Second Quarter Fiscal 1998, selling and administrative expenses, excluding pre-tax special charges of $1.8 million (see Note 2), were $156.5 million or 20.2% of revenues. Selling and administrative expenses for the 26-week period ended August 1, 1998 were $302.0 million or 20.9% of revenues compared to $326.5 million or 21.3% of revenues for the 26-week period ended August 2, 1997. For the 26-week period ended August 2, 1997, selling and administrative expenses, excluding pre-tax special charges of $7.5 million (see Note 2), were $319.0 million or 20.8% of revenues. - 10 - RESULTS OF OPERATIONS (CONTINUED) Selling and administrative expenses, excluding special charges, increased as a percentage of revenues due to increased promotional expenses associated with the Company's marketing program (Penn Traffic accounts for certain promotional expenses in the selling and administrative expenses line of the Consolidated Statement of Operations) and a non-recurring charge of $1.0 million incurred in connection with the settlement of personal injury litigation. These additional costs were partially offset by a decrease in costs associated with the implementation of the Company's cost reduction programs. During Second Quarter Fiscal 1998 and the 26-week period ended August 2, 1997, the Company recorded special charges of $3.2 and $18.2 million in connection with the management reorganization and related corporate actions, and the retention of certain corporate executives(see Note 2). Depreciation and amortization expense was $19.9 million in Second Quarter Fiscal 1999 and $22.5 million in Second Quarter Fiscal 1998, representing 2.7% and 2.9% of total revenues, respectively. Depreciation and amortization expense was $40.0 million for the 26-week period ended August 1, 1998 and $45.4 million for the 26-week period ended August 2, 1997, representing 2.8% and 3.0% of total revenues, respectively. Operating income for the Second Quarter Fiscal 1999 was $7.5 million or 1.0% of total revenues compared to $18.6 million or 2.4% of total revenues in Second Quarter Fiscal 1998. In the Second Quarter Fiscal 1998, operating income, excluding pre-tax special charges of $3.2 million, was $21.8 million or 2.8% of total revenues. Operating income, for the 26-week period ended August 1, 1998 was $17.0 million or 1.2% of total revenues compared to $18.8 million or 1.2% of total revenues for the 26-week period ended August 2, 1997. Operating income for the 26-week period ended August 2, 1997, excluding pre-tax special charges of $18.2 million, was $37.0 million or 2.4% of total revenues. Interest expense for both the Second Quarter Fiscal 1999 and Second Quarter Fiscal 1998 was $37.3 million. Interest expense for the 26-week period ended August 1, 1998 and August 2, 1997 was $74.1 million and $74.7 million, respectively. Loss before income taxes was $29.7 million for Second Quarter Fiscal 1999 compared to a loss of $18.7 million for Second Quarter Fiscal 1998. The loss before income taxes, excluding the effect of pre-tax special charges of $3.2 million, was $15.5 million for Second Quarter Fiscal 1998. Loss before income taxes was $57.2 million for the 26-week period ended August 1, 1998 compared to a loss of $55.8 million for the 26-week period ended August 2, 1997. The loss before income taxes, excluding the effect of pre-tax special charges of $18.2 million, was $37.6 million for the 26-week period ended August 2, 1997. The reason for the increase in the loss before income taxes is the decrease in operating income for Second Quarter Fiscal 1999 and 26-week period ended August 1, 1998. - 11 - RESULTS OF OPERATIONS (CONTINUED) The income tax benefit for Second Quarter Fiscal 1999 was $6.2 million compared to a benefit of $6.8 million for Second Quarter Fiscal 1998. The income tax benefit, excluding the effect of pre-tax special charges of $3.2 million, was $5.5 million for Second Quarter Fiscal 1998. The income tax benefit for the 26-week period ended August 1, 1998 was $16.6 million compared to a benefit of $21.1 million for the 26-week period ended August 2, 1997. The income tax benefit, excluding the effect of pre-tax special charges of $18.2 million, was $13.6 million for the 26-week period ended August 2, 1997. The effective tax rates for the Second Quarter and 26-week period ended August 1, 1998 vary from the statutory rates due to differences between income for financial reporting and tax reporting purposes, primarily related to goodwill amortization resulting from acquisitions and the recording of a valuation allowance. A valuation allowance is required when it is more likely than not that the recorded value of a deferred tax asset will not be realized. Management presently believes that a valuation allowance will be required for the deferred tax assets related to net operating losses and tax credit carryforwards arising in the future. As a result, management expects the Company will be unable to accrue a benefit for income taxes for the remainder of Fiscal 1999 and for indefinite future periods. Net loss for Second Quarter Fiscal 1999 was $23.5 million compared to a net loss of $11.9 million for Second Quarter Fiscal 1998. Net loss, excluding the after-tax impact of special charges, was $10.1 million for Second Quarter Fiscal 1998. The net loss for the 26-week period ended August 1, 1998 was $40.6 million compared to a net loss of $34.7 million for the 26-week period ended August 2, 1997. The net loss, excluding the after-tax impact of special charges, was $24.0 million for the 26-week period ended August 2, 1997. - 12 - LIQUIDITY AND CAPITAL RESOURCES Payments of interest and principal on the Company's approximately $1.26 billion of debt (excluding capital leases) will restrict funds available to the Company to finance capital expenditures and working capital. Amounts of the Company's debt (excluding capital leases) maturing in the next five years are outlined on the following table:
AMOUNT MATURING FISCAL YEAR ($ in millions) ----------- --------------- 1999 1.3 * 2000 102.6 ** 2001 7.5 2002 107.7 2003 125.4
* Amount due for the remainder of Fiscal 1999. ** Amount includes $99.9 million outstanding as of August 1, 1998, under the Company's revolving credit facility. The Company has a revolving credit facility (the "Revolving Credit Facility") which provides for borrowings of up to $250 million, subject to a borrowing base limitation measured by eligible inventory and accounts receivable of the Company. The Revolving Credit Facility matures in April 2000 and is secured by a pledge of the Company's inventory, accounts receivable and related assets. As of August 1, 1998, additional availability under the Revolving Credit Facility was $69.2 million. The Company and the lenders ("Bank Lenders") that are parties to the Revolving Credit Facility entered into an amendment dated as of August 31, 1998 to the Revolving Credit Facility (the "Amendment") that provides that the financial covenants contained in the Revolving Credit Facility would not be applicable to the Company for the period from August 1, 1998 until April 1, 1999. Without the Amendment, the Company would not have been in compliance with certain financial covenants set forth in the Revolving Credit Facility for the 13-week period ended August 1, 1998 and an Event of Default (as defined in the Revolving Credit Facility) would have occurred. The Company does not currently believe, based upon its current operating performance, that it will be in compliance with some or all of the financial covenants set forth in the Revolving Credit Facility after April 1, 1999 and as a result the Company will seek an additional waiver of such covenants or renegotiation of the terms of the Revolving Credit Facility prior to that date. - 13 - LIQUIDITY AND CAPITAL RESOURCES (CONTINUED) The Bank Lenders also consented in the Amendment to the sales of certain of the Company's retail and wholesale assets in Pennsylvania. Upon the completion of a substantial portion of the contemplated Pennsylvania asset sale transactions, the Company will seek to renegotiate the terms of the Revolving Credit Facility. This is expected to occur prior to April 1, 1999. Failure to obtain an additional waiver of financial covenant noncompliance or complete a satisfactory renegotiation of the terms of the Revolving Credit Facility may cause an acceleration of the obligations under the Revolving Credit Facility. There can be no assurance that the Bank Lenders will agree to any further waiver of financial covenant noncompliance or renegotiation of the terms of the Revolving Credit Facility on satisfactory terms or at all. During Second Quarter Fiscal 1999, the Company's internally generated funds from operations, proceeds of asset sales and amounts available under the Revolving Credit Facility provided sufficient liquidity to meet the Company's operating, capital expenditure and debt service needs. Cash flows to meet the Company's requirements for operating, investing and financing activities in the 26-week period ended August 1, 1998 are reported in the Consolidated Statement of Cash Flows. For the 26-week period ended August 1, 1998, the Company experienced a negative cash flow from operating activities of $11.8 million. Working capital decreased by $93.4 million from January 31, 1998 to August 1, 1998, primarily due to the reclassification of the Revolving Credit Facility to Current Maturities of Long-Term Debt as discussed in Note 8 - Long Term Debt and Current Maturities. The Company expects to spend approximately $20 million on capital expenditures (including capital leases) during Fiscal 1999. Capital expenditures will be principally for new stores, remodeled store facilities and investments in technology. The Company expects to utilize internally generated funds from operations, amounts available under the Revolving Credit Facility and proceeds of asset sales, if any, to satisfy its operating, capital expenditure and debt service needs for the remainder of Fiscal 1999. On June 4, 1998, the Company announced that it has engaged Goldman Sachs & Company to undertake a process for realizing value from certain of the Company's Bi-Lo stores and related wholesale/franchise operations (the "Pennsylvania Assets"). The Pennsylvania Assets being considered for disposition produced revenues of approximately $675 million over the past twelve months. Approximately 80% of these revenues were generated in Company supermarkets, with the remainder being revenues from the Company's Pennsylvania wholesale/franchise customer relationships. No assurance can be given that any transaction will be completed nor is it possible to predict the net proceeds to the Company of any such transaction or the timing of such a transaction. - 14 - LIQUIDITY AND CAPITAL RESOURCES (CONTINUED) The Company intends to satisfy its long-term capital requirements by (1) improving its results from operations thereby increasing its operating cash flow, (2) applying the proceeds from contemplated sales of certain Pennsylvania assets to repay a portion of its debt and working capital obligations and (3) renegotiating and extending the Revolving Credit Facility, as described above. If the Company does not accomplish some or all of these objectives, Penn Traffic may seek or be required to sell additional assets or sell additional debt or equity securities in public or private transactions to satisfy its debt and other capital requirements or otherwise seek to restructure its debt obligations. There can be no assurance that the Company will accomplish any of the foregoing on satisfactory terms or at all. - 15 - YEAR 2000 Many of the Company's computer systems and certain other equipment will require modification or replacement over the next two years in order to render these systems compliant with the year 2000. The Company has established processes for evaluating and managing the risks and costs associated with this issue including the assessment of third parties who may be critical to us. The Company expects to have all critical systems compliant. Based on current information, the Company estimates that the cost of Year 2000 compliance during the fiscal years ended January 30, 1999, and January 29, 2000, will be approximately $10 million (including the purchase of certain new hardware and software). The business of the Company could be adversely affected should the Company or other entities with which the Company does business be unsuccessful in completing critical modifications in a timely manner. The Company believes that the contingency plans for non-critical systems which are not year 2000 compliant are adequate at this time. - 16 - PART II. OTHER INFORMATION All items which are not applicable or to which the answer is negative have been omitted from this report. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits Exhibit Number Description -------------- ----------- 10.5S Amendment No. 18 to the Revolving Credit Facility dated as of August 31, 1998. 10.20 Termination Agreement dated as of August 6, 1998 between the Company and Phillip E. Hawkins. 27.1 Financial Data Schedule (b) Reports on Form 8-K No reports on Form 8-K were filed during the fiscal quarter ended August 1, 1998. - 17 - SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. THE PENN TRAFFIC COMPANY September 14, 1998 /s/- Claude J. Incaudo --------------------------------- By: Claude J. Incaudo President and Chief Executive Officer September 14, 1998 /s/- Robert J. Davis --------------------------------- By: Robert J. Davis Senior Vice President and Chief Financial Officer - 18 - EX-10.5S 2 AMEND#8 TO REVOLVING CREDIT FACILITY Exhibit 10.5S AMENDMENT NO. 18 AND WAIVER TO LOAN AND SECURITY AGREEMENT AMENDMENT No. 18, dated as of August 31, 1998 (this "AMENDMENT") to that certain Loan and Security Agreement dated as of March 5, 1993, as amended by Amendment Nos. 1, 2, 3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14, 15, 16 and 17 (collectively, the "LOAN AGREEMENT") among THE PENN TRAFFIC COMPANY ("Penn Traffic"), DAIRY DELL, BIG M SUPERMARKETS, INC. and PENNY CURTISS BAKING COMPANY, INC. (individually, each a "BORROWER" and collectively, the "BORROWERS"), the Lenders listed therein (collectively, the "LENDERS") and FLEET BANK, N.A. (as successor to NatWest USA Credit Corp.), as Agent for the Lenders (in such capacity, the "AGENT"), is made by, between and among the Borrowers, the Agent, and the Lenders. Capitalized terms used herein, except as otherwise defined herein, shall have the meanings given to such terms in the Loan Agreement. WHEREAS, the Borrowers have requested that the Agent and the Lenders amend the Loan Agreement to, among other things, (i) waive the existing Interest Coverage ratio set forth in Section 10.18 of the Loan Agreement through March 31, 1999; (ii) waive the Consolidated Adjusted Net Worth covenant set forth in Section 10.19 of the Loan Agreement through March 31, 1999; (iii) waive the Consolidated EBDAIT covenant set forth in Section 10.20 of the Loan Agreement through March 31, 1999 and (iv) modify the restrictions on sales of assets set forth in Section 10.5 of the Loan Agreement and certain reporting requirements. WHEREAS, the Borrowers, the Agent and the Lenders have agreed to amend the Loan Agreement pursuant to the terms and conditions set forth herein. WHEREAS, the Borrowers have agreed to pay an amendment fee in the aggregate amount of $500,000 to the Agent on behalf of, and for the benefit of, those Lenders only which have executed this Agreement (the "AMENDMENT FEE"). NOW, THEREFORE, in consideration of the mutual promises, covenants and agreements hereinafter set forth, the parties hereto agree as follows: 1. AMENDMENTS TO LOAN AGREEMENT. The Loan Agreement is hereby amended as of the effective date hereof as follows: (i) Section 10.5 of the Loan Agreement shall be amended by deleting the word "and" immediately prior to clause (i) and adding a new clause immediately prior to the period at the end of the penultimate sentence of such Section, which new clause shall read in its entirety as follows: "and (j) sales of (i) certain retail stores located in Pennsylvania, and (ii) the wholesale and franchise operations located in Pennsylvania and all related assets in Pennsylvania including the Dubois warehouse, in each case which have previously been identified to the Agent, provided that such sales are for fair market value to Persons who are not Affiliates of the Borrowers and provided that the net proceeds of each such sale is remitted to the Agent for application to the Obligations; PROVIDED, HOWEVER, that applying the net proceeds of each such sale to the Obligations shall not reduce the Commitments or prevent the Borrowers from borrowing Revolving Loans hereunder to the extent they are otherwise permitted to do so." (ii) Section 7.8 of the Loan Agreement shall be amended by adding a new sentence at the end reading in its entirety as follows: "At such time, if any, that the Borrowers' availability to borrow Revolving Loans is $25,000,000 or less on an aggregate basis, each Borrower will provide the Agent no later than Friday of each week during which the Borrowers' availability to borrow Revolving Loans is $25,000,000 or less, a Borrowing Base Certificate calculated as of a date no earlier than the Friday of the immediately preceding week. 2. WAIVERS TO LOAN AGREEMENT. The Lenders hereby agree that from August 1, 1998 through March 31, 1999 the Borrowers shall not be required to comply with Sections 10.18, 10.19 and 10.20 of the Loan Agreement. 3. REPRESENTATIONS AND WARRANTIES. As an inducement to the Agent and the Lenders to enter into this Amendment, each of the Borrowers hereby represents and warrants to the Agent and the Lenders and agrees with the Agent and the Lenders as follows: (a) It has the power and authority to enter into this Amendment and has taken all corporate action required to authorize its execution, delivery, and performance of this Amendment. This Amendment has been duly executed and delivered by it and constitutes its valid and binding obligation, enforceable against it in accordance with its terms. The execution, delivery, and performance of this Amendment will not violate its certificate of incorporation or by-laws or any agreement or legal requirements binding upon it. (b) As of the date hereof and after giving effect to the terms of this Amendment: (i) the Loan Agreement is in full force and effect 2 and constitutes a binding obligation of the Borrowers, enforceable against the Borrowers and owing in accordance with its terms; (ii) the Obligations are due and owing by the Borrowers in accordance with their terms; and (iii) Borrowers have no defense to or setoff, counterclaim, or claim against payment of the Obligations and enforcement of the Loan Documents based upon a fact or circumstance existing or occurring on or prior to the date hereof. (c) The Obligations under the Loan Agreement as amended by this Amendment constitute "Senior Indebtedness" and "Designated Senior Indebtedness" as defined under the indentures relating to the Senior Notes and to the Subordinated Notes. 4. NO IMPLIED AMENDMENTS OR WAIVERS. Except as expressly provided herein, the Loan Agreement and the other Loan Documents are not amended or otherwise affected in any way by this Amendment. Except for the specific waivers set forth in Section 2, nothing herein shall be or be deemed to be a waiver of any covenant or agreement contained in the Loan Agreement and each Borrower hereby agrees that all of the covenants and agreements contained in the Loan Agreement are hereby ratified and confirmed in all respects. 5. ENTIRE AGREEMENT; MODIFICATIONS; BINDING EFFECT. This Amendment constitutes the entire agreement of the parties with respect to its subject matter and supersedes all prior oral or written understandings about such matter. Each of the Borrowers confirms that, in entering into this Amendment, it did not rely upon any agreement, representation, or warranty by the Agent or any Lender except those expressly set forth herein. No modification, rescission, waiver, release, or amendment of any provision of this Amendment may be made except by a written agreement signed by the parties hereto. The provisions of this Amendment are binding upon and inure to the benefit of the representatives, successors, and assigns of the parties hereto; provided, however, that no interest herein or obligation hereunder may be assigned by any Borrower without the prior written consent of the Required Lenders. 6. EFFECTIVE DATE. This Amendment shall become effective upon compliance with the conditions set forth immediately below: (i) No Event or Event of Default shall have occurred and there shall have been no material adverse change in the business or financial condition of any of the Borrowers. (ii) The Borrowers shall deliver to the Agent for the benefit of the Lenders an opinion of Borrowers' counsel in form and substance satisfactory to the Agent and its counsel (which opinion shall cover such matters as the Agent may reasonably request, including a 3 statement that the Obligations under the Loan Agreement as amended by this Agreement constitute "Senior Indebtedness" and "Designated Senior Indebtedness" as defined under the indentures relating to the Senior Notes and to the Subordinated Notes). (iii) The Borrowers shall deliver to the Agent a certificate of the Borrowers' Chief Executive, Vice Chairman-Finance or Chief Financial Officer with respect to Section (i) above and such other instruments and documents as the Agent shall reasonably request. (iv) The Agent shall have received an original counterpart of this Amendment, duly executed and delivered by the Borrowers and the Required Lenders. (v) The Agent shall have received payment of the Amendment Fee, which shall be paid pro-rata to those Lenders which have executed this Agreement. 7. COUNTERPARTS. This Amendment may be executed in any number of counterparts, and by each party in separate counterparts, each of which is an original, but all of which shall together constitute one and the same agreement. 8. GOVERNING LAW. This Amendment is deemed to have been made in the State of New York and is governed by and interpreted in accordance with the laws of such state, provided that no doctrine of choice of law (except as may be applicable under the UCC with respect to the Security Interest) shall be used to apply the laws of any other state or jurisdiction. 4 IN WITNESS WHEREOF, the parties have entered into this Amendment as of the date first above written. BORROWERS: THE PENN TRAFFIC COMPANY By: ------------------------------------- Title: DAIRY DELL By: ------------------------------------- Title: BIG M SUPERMARKETS, INC. By: ------------------------------------- Title: PENNY CURTISS BAKING COMPANY, INC. By: ------------------------------------- Title: LENDERS: Commitment: $35,000,000 FLEET BANK, N.A. (as successor to Pro-Rata Share: 14% NatWest USA Credit Corp.) Lending Office: 60 East 42nd Street New York, New York 10017 By: ------------------------------------- Title: Senior Vice President Commitment: $20,000,000 NATIONAL BANK OF CANADA Pro-Rata Share: 8% Lending Office: Main Place Tower By: Suite 2540 ------------------------------------- 350 Main Street Title: Vice President Buffalo, New York 14202 By: ------------------------------------- Title: Marketing Officer 5 Commitment: $10,000,000 TRANSAMERICA BUSINESS Pro-Rata Share: 4% CREDIT CORP. Lending Office: 555 Theodore Fremd Avenue Suite C301 By: Rye, New York 10580 ------------------------------------- Title: Senior Vice President Commitment: $30,000,000 SANWA BUSINESS CREDIT Pro-Rata Share: 12% CORPORATION Lending Office: One South Wacker Drive Suite 2800 By: Chicago, IL 60606 ------------------------------------- Title: Commitment: $45,000,000 BANKAMERICA BUSINESS Pro-Rata Share: 18% CREDIT, INC. Lending Office: 40 East 52nd Street Second Fl By: New York, New York 10022 ------------------------------------- Title: Vice President Commitment: $50,000,000 HELLER FINANCIAL, INC. Pro-Rata Share: 20% Lending Office: 101 Park Avenue, 12th Fl. By: New York, New York 10178 ------------------------------------- Title: Senior Vice President Commitment: $10,000,000 LEHMAN COMMERCIAL Pro-Rata Share: 4% PAPER, INC. Lending Office: 3 World Financial Center 10th Fl. By: New York, New York 10285 ------------------------------------- Title: Authorized Signatory Commitment: $10,000,000 AMSOUTH BANK Pro-Rata Share: 4% Lending Office: 350 Park Avenue By: New York, New York 10022 ------------------------------------- Title: Attorney-in-Fact 6 Commitment: $15,000,000 THE CIT GROUP/BUSINESS Pro-Rata Share: 6% CREDIT, INC. Lending Office: 300 South Grand Avenue 3rd Fl. By: Los Angeles, CA 90071 ------------------------------------- Title: Assistant Secretary Commitment: $25,000,000 COMPAGNIE FINANCIERE DE CIC Pro-Rata Share: 10% ET DE L'UNION EUROPEENNE Lending Office: 520 Madison 37th Floor By: New York, New York 10022 ------------------------------------- Title: First Vice President Vice President AGENT: FLEET BANK, N.A. (as successor to NatWest USA Credit Corp.), As Agent By: ------------------------------------- Title: Senior Vice President 7 EX-10.20 3 TERMINATION AGREEMENT Exhibit 10.20 THE PENN TRAFFIC COMPANY 1200 State Fair Boulevard Syracuse, New York 13209 August 6, 1998 Mr. Phillip E. Hawkins 26140 Birchfield Drive Rancho Palos Verdes, CA 90275 Dear Mr. Hawkins: Reference is hereby made to that certain Employment Agreement entered into as of March 11, 1997 (the "EMPLOYMENT AGREEMENT") between Phillip E. Hawkins (the "EXECUTIVE") and The Penn Traffic Company, a Delaware corporation (the "COMPANY"). The Company and the Executive desire to terminate the Employment Agreement and the employment by the Company of the Executive thereunder, subject to the terms and upon the conditions set forth below. The effective date of termination of the Employment Agreement and such employment thereunder shall be as of July 31, 1998 (the "EFFECTIVE DATE"). Capitalized terms used in this Letter Agreement but not otherwise defined shall have the respective meanings given to them in the Employment Agreement. 1. TERMINATION OF EMPLOYMENT AGREEMENT. Each of the Company and the Executive hereby acknowledges the termination of the Employment Agreement, effective as of the Effective Date; PROVIDED, HOWEVER, that it is expressly agreed and understood that Sections 5(a), 5(b) and 5(c) of the Employment Agreement shall survive beyond the Effective Date in accordance with the terms of those sections. Notwithstanding anything stated in the proviso of the immediately preceding sentence, nothing in Section 5(a) of the Employment Agreement shall apply to any of the entities listed on SCHEDULE 1 hereto or their respective affiliates. 2. COMPENSATION AND PAYMENT. Subject to the terms and conditions set forth in this Letter Agreement, and in lieu of any amounts that otherwise would be payable to Executive pursuant to (i) the Employment Agreement or (ii) any other agreement or understanding between the Executive and the Company, the Executive shall be entitled 2 to receive (a) his Base Salary through the Effective Date in accordance with the ordinary payroll practices of the Company, (b) reimbursement for all documented expenses incurred by Executive through the Effective Date pursuant to Section 4.3 of the Employment Agreement, (c) $450,000 (the "BASE AMOUNT") and (d) $100,000 representing compensation to Executive in respect of relocating his primary residence from the Syracuse, New York area (the "RELOCATION AMOUNT"). Subject to Section 5 hereof, the Base Amount shall be paid to the Executive as follows: (i) Executive shall receive by check or via wire transfer a lump sum payment of $225,000 (the "INITIAL PAYMENT") within three business days of the date hereof and (ii) Executive shall receive by check or via wire transfer 24 consecutive weekly payments of $9,375 commencing on September 1, 1998 and ending February 9, 1999. Subject to Section 5 hereof, the Relocation Amount shall be paid to the Executive in its entirety within three business days of the date hereof by check or via wire transfer. 3. BENEFITS. From and after the Effective Date until the earlier of the 18 month anniversary of the Effective Date or the date upon which Executive obtains employment with another employer, the Executive shall be entitled to continuation of coverage under the medical insurance plan maintained by the Company for the most senior management of the Company as in effect from time to time; PROVIDED, THAT, the Company shall only bear the costs and expenses of such coverage until the earlier of the first anniversary of the Effective Date or the date upon which Executive obtains employment with another employer (and after such date, Executive shall bear all costs and expenses related to such coverage if Executive elects to so continue such coverage). 4. RESIGNATIONS; FULL SATISFACTION. 4.1 The Executive hereby resigns, effective as of the Effective Date, from the Executive's positions as President and Chief Executive Officer of the Company and from all other positions (including that of officer or director) that the Executive holds with the Company or any of its respective subsidiaries or Affiliates (each, a "PT ENTITY"). 4.2 The Executive acknowledges and agrees that, except as expressly set forth in this Letter Agreement, the Executive shall not be entitled to any other compensation or benefits, including, without limitation, any amounts relating to Executive's Bonus or Target Bonus, sick pay, vacation pay, health and welfare benefits or stock options, from any PT Entity, whether by way of the Employment Agreement or otherwise. The Executive hereby acknowledges that (i) all stock options held by Executive on the Effective Date, whether vested or unvested, shall terminate on August 1, 1998 and (ii) the Base Amount and the Relocation Amount, as and when received, and the medical benefits provided for herein, represent payment in full of all sums that were heretofore and may be hereafter due and owing to the Executive in respect of the Executive's employment services to the Company under the Employment Agreement. Nothing in this Letter Agreement or in the Executive 3 Release executed pursuant hereto shall be deemed to release, discharge, limit or otherwise affect any rights of indemnification to which Executive may be entitled against any PT Entity pursuant to any statute, the common law or otherwise. Without limiting the generality of the foregoing, the Company hereby agrees to indemnify, defend and hold harmless the Executive from any and all liabilities, losses, damages, claims, actions, obligations, amounts paid in settlement, fines, penalties, deficiencies, costs and expenses (including reasonable attorney's fees and expenses) arising in connection with the proposed lawsuit set forth on SCHEDULE 2 hereto or any of the claims underlying such proposed lawsuit (the "Lawsuit"); PROVIDED, THAT, the Company shall no longer be obligated to indemnify Executive with respect to the Lawsuit pursuant to this Section 4.2 or otherwise (i) in the event Executive fails to comply with the provisions of Section 10 hereof or (ii) if Executive's actions or omissions in connection with the Lawsuit constitute acts or omissions for which indemnification would be prohibited under Delaware law. 5. WITHHOLDING AND TAXES. The Executive acknowledges and agrees that he shall be exclusively liable for the payment of all Federal, state, local and foreign taxes that may be due as a result of the payments to be made to the Executive hereunder and the benefits to be received by the Executive hereunder. The Company shall be entitled to and shall withhold from the Base Amount and/or the Relocation Amount such amounts that it is required by law or regulation to withhold in connection with such payments and the medical benefits received by the Executive from (or procured by) the Company pursuant to the terms hereof. The Company shall deliver to the Executive documentation evidencing the calculation of the amount of taxes withheld or to be withheld by the Company in respect of the Base Amount, the Relocation Amount and such medical benefits. 6. RELEASE AND PAYMENT. 6.1 As a material inducement for the Company to enter into this Letter Agreement and in consideration of the monies agreed to be paid to the Executive and the benefits contemplated to be provided to the Executive hereunder, the Executive hereby acknowledges that he is executing simultaneously herewith and delivering to the Company on the date hereof a release, dated such date and in the form of EXHIBIT A hereto (the "EXECUTIVE RELEASE"). 6.2 As a material inducement for the Executive to enter into this Letter Agreement, the Company acknowledges that it is executing simultaneously herewith and delivering to the Executive a release, dated the date hereof and in the form of EXHIBIT B hereto (the "COMPANY RELEASE"). 4 7. NON-DISPARAGEMENT. 7.1 The Executive hereby agrees that he shall not at any time make any written or oral statements, representations or other communications that disparage or are damaging to the business or reputation of any PT Entity or any officer, director or employee of any PT Entity other than to the extent reasonably necessary in order (x) to assert a bona fide claim that is not a Released Executive Claim (as defined in EXHIBIT A hereto) or (y) respond in an appropriate manner to any legal process or give appropriate testimony in a legal or regulatory proceeding. 7.2 The Company agrees that it shall not at any time make and shall not suffer or permit any employee, officer or director of the Company to make any written or oral statements, representations or other communications that disparage or are damaging to the reputation of the Executive, other than to the extent reasonably necessary in order (x) to assert a bona fide claim that is not a Released Company Claim (as defined in EXHIBIT B hereto) or (y) respond in an appropriate manner to any legal process or give appropriate testimony in a legal or regulatory proceeding. 7.3 Each of the Executive and the Company acknowledges and agrees that the remedies available to the Company and the Executive, respectively, at law for a breach or threatened breach of any of the provisions of Section 7.1 and Section 7.2, respectively, would be inadequate and, in recognition of this fact, each of the Executive and the Company agrees that, in the event of a breach or threatened breach, in addition to any remedies at law, each of the Company and the Executive shall be entitled to obtain equitable relief in the form of specific performance, temporary restraining order, temporary or permanent injunction or any other equitable remedy that may then be available. 8. ADDITIONAL AGREEMENTS. 8.1 The Company, on the one hand, and the Executive, on the other hand, represent, covenant and agree to the other that neither they, nor their agents, assignees, successors, heirs or executors (as applicable) have commenced, continued or joined in, and will not hereafter commence, continue, or join in, any lawsuit, arbitration or other action or proceeding asserting any Released Company Claim or Released Executive Claim, respectively, against the other or in any other manner attempt to assert any Released Company Claim or Released Executive Claim, respectively, against the other. 8.2 The Executive agrees that he shall maintain in confidence and shall not at any time disclose or reveal to any Person any of the terms of this Letter Agreement, the Executive Release, the Company Release or the Employment Agreement. Notwithstanding the foregoing, the Executive may disclose such information (i) to his family members and advisors who will be informed of, and bound by, this Section 8.2 and (ii) to the extent it is required to be disclosed by 5 applicable law or judicial order; PROVIDED, that, in the case of clause (ii), the Executive shall notify the Company as promptly as practicable (and, if possible, prior to making such disclosure) of the information to be disclosed. The Company also agrees to maintain in confidence and not at any time disclose or reveal to any Person any of the terms of this Letter Agreement, the Executive Release, the Company Release or the Employment Agreement. Notwithstanding the foregoing, the Company may disclose such information (i) to advisors to the Company and its Affiliates, who will be informed of, and bound by, this Section 8.2, (ii) to employees, consultants and agents of the Company and its Affiliates who have a reasonable need to know such information, who will be informed of, and bound by, this Section 8.2, and (iii) to the extent it is required to be disclosed by applicable law, judicial order or pursuant to any listing agreement with, or the rules or regulations of, any securities exchange on which securities of the Company or any of its Affiliates are or may be listed or traded. 8.3 In consideration of the payments agreed to be paid to the Executive and the benefits contemplated to be provided to the Executive hereunder, during the period from the date hereof through and including August 6, 2002, the Executive agrees to cooperate with the Company and any other PT Entity, as reasonably requested by the Company, in the handling or investigation of any action, suit, proceeding, arbitration, investigation or dispute against or affecting the Company or any other PT Entity or any of their respective properties, assets or operations that relate to matters that arose while the Executive was an employee of the Company (or officer or director of the Company or any other PT Entity) and to consult with the Company, any other PT Entity and their respective advisors, as reasonably requested, on any inquiry related to any such matters. In making any such requests, the Company shall take all reasonable steps so as to avoid (i) placing unreasonable travel or time burdens on Executive and (ii) materially interfering with Executive's obligations to his then-current employer, it being expressly understood that Executive will not be obligated to comply with any request which would result in the consequences described in either clause (i) or (ii) of this sentence. The Company shall reimburse the Executive for any reasonable out-of-pocket expenses (including, without limitation, reasonable attorneys' fees) incurred by the Executive by reason of such cooperation and consultation. 8.4 Each of the Executive and the Company hereby agrees to execute such further documents or take such further actions as may be reasonably required or desirable to carry out the provisions hereof, including, without limitation, any documents necessary to effect the resignations contemplated under Section 4.1 hereof. 9. AUTHORIZATION. The Company represents that (i) its execution of this Agreement and the Company Release have been duly authorized by all requisite corporate action on the part of the Company and when executed and delivered, will 6 be binding obligations on the part of the Company and (ii) it has the authority to execute the Company Release on behalf of the other PT Entities. 10. INFORMATION. As a material inducement for the Company to enter into this Letter Agreement and in consideration of the monies agreed to be paid to the Executive and the benefits contemplated to be provided to the Executive hereunder, Executive hereby covenants and agrees that he shall not in any way utilize or disclose (unless he is required to do so by applicable law or judicial order), whether for profit or otherwise, any of the intellectual property, information, trade secrets or know-how (collectively, the "INFORMATION") owned by the company (or any parent, subsidiary or affiliate thereof) named in the caption of the Lawsuit, including the Information upon which the Lawsuit is, has been or may be based in any of Executive's future endeavors, including, without limitation, in connection with any position Executive may hold as officer or otherwise with any employer. If Executive shall at any time breach the covenant set forth in this Section 10, any and all claims that the Company may have against the Executive in connection with such breach shall be specifically excluded from the Released Company Claims (as defined in EXHIBIT B hereto) and Executive shall no longer be entitled to indemnification from the Company for such matter pursuant to Section 4.2 hereof. 11. ENTIRE AGREEMENT; AMENDMENT. This Letter Agreement (including the provisions of the Employment Agreement referred to in Section 1 hereof, the Executive Release and the Company Release) sets forth the entire understanding of the Company and the Executive with respect to the subject matter hereof and, except as set forth herein, supersedes all prior agreements and understandings, both written and oral, between the parties with respect thereto. This Letter Agreement cannot be amended or modified except by a writing signed by the Company and the Executive. 12. GOVERNING LAW; SEVERABILITY. This Letter Agreement shall be governed by and interpreted in accordance with the laws of the State of New York, without giving effect to the choice-of-law provisions thereof. If, under such law, any portion of this Letter Agreement is at any time deemed to be in conflict with any applicable statute, rule, regulation or ordinance, such portion shall be deemed to be modified or altered to conform thereto or, if that is not possible, to be omitted from this Letter Agreement, and the invalidity of such portion shall not affect the force, effect and validity of the remaining portion hereof. 13. JURISDICTION; VENUE; ATTORNEYS FEES. 13.1 Each of the Company and the Executive agrees that any action, suit or proceeding arising under or relating in any way to this Letter Agreement or the transactions contemplated hereby may only be brought in the Supreme Court of the State of New York, New York County, or in the United States District Court for the Southern District of New York, and each of the parties hereto irrevocably consents to the jurisdiction of each such court in respect of any such action, suit or 7 proceeding. Each of the Company and the Executive further irrevocably consents to the service of process in any such action, suit or proceeding by the mailing of copies thereof by registered or certified mail, postage prepaid, return receipt requested to such party at its address as provided for notices hereunder. 13.2 Each of the Company and the Executive hereby irrevocably waives any objection that it or he may have on the basis of venue to any action, suit or proceeding brought in the courts set forth in Section 13.1 hereof, and hereby further irrevocably waives any claim that such courts are not convenient forums for any such action, suit or proceeding. 13.3 Each of the Company and the Executive hereby agrees that the non-prevailing party in any action, suit or proceeding brought pursuant to the terms of or relating to the matters covered in this Letter Agreement, the Executive Release or the Company Release shall be responsible for paying in full all reasonable and documented attorneys' fees incurred by the prevailing party in connection with such action, suit or proceeding. 14. NOTICES. Any and all notices or consents required or permitted to be given under any of the provisions of this Letter Agreement shall be in writing or by written telecommunication and delivered either by hand delivery or by registered or certified mail, return receipt requested, to the relevant addresses set out below (or such other address as shall be specified by like notice), in which event they shall be deemed to have been duly given upon receipt. If to the Executive, to: Phillip E. Hawkins 26140 Birchfield Drive Rancho Palos Verdes, CA 90275 with a copy to: Richard Pachulski, Esq. Pachulski, Stang, Ziehl & Young Suite 1100 10100 Santa Monica Boulevard Los Angeles, California 90067 If to the Company, to: Gary D. Hirsch Chairman The Penn Traffic Company 411 Theodore Fremd Avenue 8 Rye, New York 10580 with a copy to: Francis D. Price, Esq. Vice President, General Counsel and Secretary The Penn Traffic Company P.O. Box 4737 1200 State Fair Boulevard Syracuse, New York 13221-4737 and a copy to: James M. Dubin, Esq. Paul, Weiss, Rifkind, Wharton & Garrison 1285 Avenue of the Americas New York, New York, 10019-6064 9 15. COUNTERPARTS. This Letter Agreement may be executed in counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same instrument. Very truly yours, THE PENN TRAFFIC COMPANY By: -------------------------------- Name: Gary D. Hirsch Title: Chairman Agreed to and accepted this 6th day of August, 1998 - ----------------------------------- Phillip E. Hawkins EX-27.1 4 FINANCIAL DATA SCHEDULE
5 1,000 OTHER JAN-30-1999 MAY-03-1998 AUG-01-1998 45,419 0 66,511 5,028 310,473 435,649 901,285 431,559 1,499,216 386,421 1,270,698 0 0 13,426 (213,791) 1,499,216 1,421,072 1,447,022 1,128,019 1,128,019 302,035 0 74,120 (57,152) 16,596 (40,556) 0 0 0 (40,556) (2.22) 0
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