CHAPMAN RESIGNATION ANOTHER QUESTION FOR PENN TRAFFIC

JON SPRINGER

SYRACUSE, N.Y. - The mysteries of post-bankruptcy Penn Traffic here continued last week when chief executive officer Bob Chapman abruptly resigned and the company assigned two men to replace him.

Gregory J. Young and Bob Panasuk were named co-chief operating officers. It was unclear last week whether Penn Traffic would initiate a search for a new CEO.

Chapman, a 38-year veteran of Penn Traffic, served as CEO since 2004 but took what some sources called "early retirement" last week. What, if any, progress the retailer-distributor made during Chapman's tenure has been obscured by ongoing internal and external investigations into accounting practices that the company said have prevented it from releasing any financial results.

Penn Traffic has not made any financial statements since an unaudited monthly operating report on Jan. 29, 2005, as required by bankruptcy court. Quarterly results have not been posted since before the chain sought Chapter 11 bankruptcy protection in 2002.

Penn Traffic emerged from bankruptcy 17 months ago.

Last week's executive changes were met with the same confusion some investors had previously expressed about the ongoing reporting delays at Penn Traffic: They weren't sure what was happening, and left to speculate as to the meaning.

"It looks like a bad sign, since Chapman was there for so long, but at the same time I don't know what happened," one source, who asked not to be identified, told SN last week. "One could also look at them naming two COOs, and not one CEO, as a possible sign that the company may be being set up for a sale. You wouldn't need a CEO if the company was going to be acquired."

A Penn Traffic spokesman told SN that company officials were not available for comment last week. The spokesman could provide no information beyond a press statement, which made no mention of a search for a new chief executive.

Adding to deal speculation was an 8-K filing this summer granting Robert Kelly, Penn Traffic's chairman of the board, with additional duties as an adviser to the company. "They didn't say what they needed an adviser for," a source told SN. "Typically, you hire an adviser when you're going to sell the company, though there hasn't been any description as to what [Kelly's] duties are."

Other sources said they suspected friction between Chapman and the board of directors over the direction of the company. According to Burt P. Flickinger III, managing director of Strategic Resource Group, New York, Chapman tried and failed to get a slate of board members approved.

"The CEO had no say in the makeup of the board, and had to deal with a board he didn't know," Flickinger told SN. "Bob Chapman was doing a heroic job turning the company around, but he was skating shorthanded."

In a press statement, Kelly said Chapman "played a very important role by leading the company out of Chapter 11 and did so in a very competitive environment. He devoted a large part of his life to Penn Traffic. Bob is respected by our employees, vendors and community, and he will be missed by us all."

Flickinger praised Chapman for effectively dealing with vendors, communities and organized labor, but said recent visits to Penn Traffic's Quality Market and P&C Foods stores revealed pricing that was not in line with competitors. "It seems as if they're going for short-term earning gains," he said.

Penn Traffic's newly named co-COOs were both former employees of A&P, Montvale, N.J. Young, who joined Penn Traffic as a senior vice president this summer, formerly was a group vice president at A&P and more recently headed retail operations for C&S Wholesale Grocers, Keene, N.H. Panasuk most recently was an executive vice president at A&P but left that company nearly a year ago in an executive shake-up.

Young will oversee merchandising and marketing areas while Panasuk will focus on operations and finance, Penn Traffic said.

Some sources told SN last week that Penn Traffic was planning a conference call by the end of the month during which officials would talk with analysts and investors and discuss unaudited financials. But a Penn Traffic spokesman was unable to confirm that last week.