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Tops again planning big bonuses for top execs — this time, post-bankruptcy

Tops Markets CEO Frank Curci and other high-ranking executives at the supermarket chain may end up getting big bonuses after all.

Just four months after Tops scrapped a controversial plan to pay up to $3.6 million in bonuses to Curci and four other high-ranking executives during its bankruptcy case, the company once again is proposing to pay $3.6 million in bonuses to its top managers.

The difference: This time, the bonuses would be paid after the company emerges from bankruptcy, possibly as early as November, rather than during the bankruptcy process itself.

That's an important distinction, because the bonus plan would have to comply with portions of federal bankruptcy laws if it were considered to be part of the ongoing bankruptcy case. But Tops argues that the new plan doesn't have to clear that hurdle because it won't pay the bonuses until after the company has emerged from bankruptcy.

And the new plan, as outlined in bankruptcy court documents, potentially could be even more valuable to the executives than the first plan, which was scrapped as part of a deal struck in June by the Amherst-based company to resolve a bitter, four-year pension dispute involving workers at its Lancaster warehouse.

The new plan, in addition to the $3.6 million in cash payments, also would grant the Top executives 10 percent of the stock in the newly reorganized company, divided among the participants. Those shares could turn out to be valuable if Tops is able to successfully emerge from bankruptcy and become solidly profitable. But the shares also could turn out to be of little value if Tops isn't able to grow and thrive as a restructured company that still will be burdened by annual interest payments of $55 million or more.

Exactly how much each executive would receive under the new bonus plan isn't disclosed in the documents that outline the terms of the bonus plan. The documents also do not identify which executives will be eligible to receive bonuses under the new plan. In the initial plan, the bonuses were limited to Curci and four other high-ranking Tops executives.

A Tops spokeswoman said the company had no further comment on the bonus plan.

The $3.6 million in cash payments that would be made to the executives under the new plan also are not linked to the financial performance of the company – unlike the bonus plan that was abandoned in June. The only part of the bonus plan that is performance-based is the stock that the executives also will receive.

The cash payments would be paid out in three installments, with the eligible executives receiving 40 percent of their bonus immediately after the company emerges from bankruptcy, followed by two separate payments equal to 30 percent of their bonus that would be made during each of the following two years, according to court documents.

Bonus plans aimed at retaining and rewarding top executives are common – even at companies that have filed for bankruptcy. Michael Buenzow, Tops' chief restructuring officer, said this spring that initial bonus plan was "essential" to the company's reorganization efforts by creating incentives to keep employees from leaving and rewarding them for doing a good job.

A bankruptcy court judge in July approved a separate bonus plan that will allow about 115 high-ranking non-union employees at Tops – but not the five highest-ranking executives – to split $3 million in bonus payments if they stay on their jobs through the end of the year.

The bonus plan for Tops' five highest-ranking executives became a lightning rod for Tops' critics, especially as it pushed forward with a restructuring that will close 10 unprofitable stores and cut the company's worker pension obligations, leaving employees with reduced retirement benefits.

The U.S. trustee, a federal bankruptcy supervisor who monitors the administration of bankruptcy cases and their compliance with bankruptcy laws, objected to the latest bonus plan, calling it an "insider retention plan" that should be subject to the provisions of bankruptcy law.

Attorneys for Tops, however, noted that the U.S. trustee's objection was the only one filed over Tops' plan to emerge from bankruptcy among more than 49,000 creditors, stock holders and other parties that have a financial interest in the supermarket chain's bankruptcy.

Tops' attorneys also contend that the latest bonus plan isn't subject to the standards imposed under federal bankruptcy law because it is a "post-emergence incentive plan."

Tops did not say in its reorganization plan how it plans to pay for the bonuses. The company's own financial projections indicate that, even with its reduced debt burden, the supermarket company's interest expenses will wipe out virtually all of its expected operating profits over the next three years. Tops projects that it will lose around $13 million in 2019 and roughly break even in 2020 and 2021. If Tops isn't profitable, it may be forced to borrow additional money to pay the bonuses.

The supermarket chain's reorganization plan will reduce Tops' debt, which exceeded $700 million at the time the company filed for bankruptcy in February, by $455 million. The company's interest payments on that debt, which reached $80 million a year before the bankruptcy filing, will be reduced by about $36 million, according court documents. And Tops will save about $27 million after renegotiating some of its store leases.

Tops had a profit of about $1 million, excluding one-time expenses for its pension settlement, during the month that ran from mid-August to mid-September, according to court documents.

The restructuring plan will give Tops "the necessary capital to invest in and grow their business and assure their long-term viability," the company said in a separate court filing this week.

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