<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant /X/
Filed by a party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12
THE PENN TRAFFIC COMPANY
- -------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- -------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
-----------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
-----------------------------------------------------------------------
(5) Total fee paid:
-----------------------------------------------------------------------
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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<PAGE>
[LOGO]
The Annual Meeting of Stockholders of The Penn Traffic Company (the
"Company") will be held on Thursday, June 4, 1998, at 1:00 p.m., local time, at
the Hotel Syracuse, 500 South Warren Street, Syracuse, New York, 13202, for the
following purposes:
1. To elect three directors for terms expiring in 2001;
2. To consider and take action upon a proposal to ratify the selection
of Price Waterhouse LLP, independent certified public accountants,
as the Company's auditors for the fiscal year ending January 30,
1999; and
3. To transact such other business as may properly come before the
meeting or any adjournment thereof.
Holders of Common Stock of the Company are entitled to vote for the
election of directors and on each of the other matters set forth above.
The stock transfer books of the Company will not be closed. The Board of
Directors has fixed the close of business on April 24, 1998 as the record date
for determining stockholders entitled to notice of and to vote at the meeting.
You are cordially invited to attend the meeting in person. A report will be made
to you on the status of the Company's affairs. We will also provide you with an
opportunity for questions and comments.
By Order of the Board of Directors
FRANCIS D. PRICE, JR.
Secretary
May 1, 1998
Syracuse, New York
IMPORTANT
Whether or not you expect to attend the meeting in person, please
complete, date and sign the enclosed form of proxy and return it without delay
in the enclosed envelope. Your proxy can be revoked at any time prior to its
being voted by giving written notice of revocation to the Secretary of the
Company, by giving a later dated proxy, or by voting at the meeting in person.
<PAGE>
T H E P E N N T R A F F I C C O M P A N Y
1200 State Fair Boulevard
Syracuse, New York 13221-4737
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
JUNE 4, 1998
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of The Penn Traffic Company, a Delaware
corporation (the "Company" or "Penn Traffic"), for use at the Annual Meeting of
Stockholders to be held on Thursday, June 4, 1998, at 1:00 p.m., local time, at
the Hotel Syracuse, 500 South Warren Street, Syracuse, New York, 13202. The
approximate date on which this Proxy Statement is first being mailed to
stockholders is May 1, 1998.
You are requested to complete, date and sign the accompanying proxy card
and return it promptly to the Company in the envelope provided. Proxies duly
executed and received in time for the meeting will be voted in accordance with
the instructions thereon. Any stockholder who has given a proxy may revoke it at
any time prior to its being voted by giving written notice of revocation to the
Secretary of the Company, by giving a later dated proxy, or by voting at the
meeting in person.
The Board of Directors has fixed the close of business on April 24, 1998
as the record date for the determination of stockholders who are entitled to
notice of and to vote at the meeting. The stock transfer books of the Company
will not be closed. As of the record date, the Company had outstanding
10,824,591 shares of common stock, par value $1.25 per share (the "Common
Stock"), the holders of which are entitled to one vote per share.
<PAGE>
1. ELECTION OF DIRECTORS
Pursuant to the Company's certificate of incorporation and by-laws, the
Board of Directors is divided into three separate classes of directors, which
are required to be as nearly equal as practicable. At each annual meeting of
stockholders, one class of directors is elected to a term of three years. On
April 2, 1998, pursuant to the Company's certificate of incorporation and
by-laws, the Board of Directors determined that the total number of directors
would be fixed at nine.
Gary D. Hirsch, James A. Lash and Richard D. Segal have been nominated by
the Board of Directors for election as directors at the 1998 Annual Meeting,
each to serve for a term of three years, until the 2001 Annual Meeting of
Stockholders and until his successor is duly elected and qualified.
Proxies in the enclosed form received from holders of Common Stock will be
voted for the election of the three nominees named above as directors of the
Company unless stockholders indicate otherwise. If any of the foregoing nominees
is unable to serve for any reason (which event is not anticipated), the shares
represented by the enclosed proxy may be voted for such other person or persons
as may be determined by the holders of such proxy unless stockholders indicate
otherwise. Directors will be elected by an affirmative vote of a plurality of
the shares of Common Stock present in person or represented by proxy and
entitled to vote at the 1998 Annual Meeting. Thus, those nominees who receive
the highest, second-highest and third-highest numbers of votes for their
election as directors will be elected, regardless of the number of shares that
are not voted for the election of such nominees. Shares with respect to which
authority to vote for any nominee or nominees is withheld will not be counted in
the total number of shares voted for such nominee or nominees.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE ELECTION OF
GARY D. HIRSCH, JAMES A. LASH AND RICHARD D. SEGAL AS DIRECTORS OF THE COMPANY.
The following information includes the age, the year in which first
elected as a director of the Company, the principal occupation, and other
directorships of each of the nominees named for election as directors, and of
the other current directors of the Company whose terms will not expire until
1999 or 2000.
2
<PAGE>
<TABLE>
<S> <C>
Nominee for Election: Mr. Hirsch has been Chairman of the Company since 1987;
Gary D. Hirsch from September 1996 until April 1, 1997, Mr. Hirsch served
Age: 48 as Chief Executive Officer of the Company and has been a
Director and Chairman general partner of the managing partner of Miller Tabak
Hirsch + Co. ("MTH") (broker-dealer) since 1982 and a
Managing Director of MTH Holdings, Inc. ("MTH Holdings")
since 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 was Chairman and a Director of Grand
Union Holdings Corporation (food distribution holding
company) ("Grand Union Holdings") between 1989 and March
1996 and of certain of Grand Union Holdings' subsidiaries
for certain periods between 1992 and March 1996.
Nominee for Election: Mr. Lash is an investor in various enterprises and served
James A. Lash as a consultant to the Company from 1987 until January
Age: 53 1998. He was Chairman and Chief Executive Officer of
Director since 1996 Reading Tube Corporation (copper tubing) from 1982 until
September 1996.
Nominee for Election: Mr. Segal has been Chairman and/or Chief Executive Officer
Richard D. Segal of Seavest, Inc. (investment management) since 1981,
Age: 44 Chairman of Encore Company, Inc. (investment banking) since
Director since 1988 1983 and managing general partner of Seavest Partners
(investment portfolio management) since 1980. Mr. Segal has
been a Director of Hudson General, Inc. (aviation services)
since 1978.
Martin A. Fox Mr. Fox has been Vice Chairman-Finance of the Company since
Age: 44 February 1993. Mr. Fox was a Vice President of the Company
Director and from 1989 until February 1993. Mr. Fox has been Assistant
Vice Chairman-Finance Secretary of Penn Traffic since 1989. Mr. Fox has been
since 1993 Executive Vice President of MTH since 1988. Mr. Fox was a
Term Expires 1999 Vice President of Grand Union Holdings between 1989 and
March 1996, a Director of Grand Union Holdings between 1992
and March 1996 and a Director and Vice President of certain
of Grand Union Holdings' subsidiaries for certain periods
between 1989 and March 1996.
Phillip E. Hawkins Mr. Hawkins has been President and Chief Executive Officer
Age: 46 of the Company since April 1, 1997. Prior to joining Penn
Director since 1997 Traffic, Mr. Hawkins spent twenty-nine years at Vons
Term Expires 1999 Companies (food distribution), where he held various
management positions including Senior Vice President,
Stores (from 1994 until March 1997), Group Vice President,
Perishables (from 1992 until 1994), Vice President and
General Manager, Pavilion Operations (from 1991 until
1992), and Vice President, Sales and Marketing (from 1989
until 1991).
Harold S. Poster Mr. Poster has been a partner in the law firm of Gilmartin,
Age: 53 Poster & Shafto since July 1991. Prior to joining
Director since 1988 Gilmartin, Poster & Shafto, he was engaged in the practice
Term Expires 1999 of law.
</TABLE>
3
<PAGE>
<TABLE>
<S> <C>
Eugene A. DePalma Mr. DePalma has been President and Chief Executive Officer of
Age: 62 Preferred Credit Corporation (mortgage lending) since January
Director since 1987 1998. Mr. DePalma was the President and Chief Executive Officer
Term Expires 2000 of Quorum Group, Inc. (litigation support services) from May 1996
to December 1997. From April 1994 until December 1995, Mr.
DePalma was Chief Executive Officer of Sausage Acquisition
Company (food processing). From October 1991 until April 1994,
Mr. DePalma was engaged in the management of private affairs. Mr.
DePalma was Vice President, Sales for Teledyne Continental Motors
from January 1991 until October 1991.
Susan E. Engel Ms. Engel has been the Chairwoman and Chief Executive Officer of
Age: 51 Department 56, Inc. (collectibles and giftware) since September
Director since 1993 1997. Prior thereto she was President and Chief Executive Officer
Term expires 2000 (since November 1996) and President and Chief Operating Officer
(since September 1994). Ms. Engel has been a Director of K2 Inc.
(manufacture and distribution of sporting goods) since August
1996 and of Piper Jaffray, Inc. (brokerage) since April 1997.
From September 1993 until September 1994, Ms. Engel was engaged
in the management of private affairs. From July 1991 until
September 1993, Ms. Engel served as President and Chief Executive
Officer of Champion Products (manufacture and distribution of
active wear), a division of Sara Lee Corporation. She was a Vice
President and Partner with Booz Allen & Hamilton, Inc. ("Booz
Allen") (management consulting) from 1986 until October 1991,
where she led the firm's retail consulting practice in the
eastern United States. Ms. Engel held various other positions
with Booz Allen between 1977 and 1986.
Claude J. Incaudo Since February 1997, Mr. Incaudo has been engaged in the
Age: 64 management of private affairs. Mr. Incaudo was engaged as a
Director since 1988 consultant to the Company from January 1995 until February 1997.
Term expires 2000 From February 1990 until January 1995, Mr. Incaudo was President
and Chief Executive Officer of the Company. Mr. Incaudo was the
President of the P&C division between 1982 and April 1993. He
joined P&C in 1977 as Director of Store Operations and became
Senior Vice President of Store Operations in 1979. Mr. Incaudo
was a Director of Grand Union Holdings between 1992 and March
1996.
</TABLE>
There are no family relationships among the directors and executive
officers of the Company.
In January 1995, The Grand Union Company ("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"). Grand Union emerged from Chapter 11 reorganization in June
1995. In February 1995, an involuntary Chapter 11 petition was filed in the
Bankruptcy Court against Grand Union Capital Corporation ("Grand Union
Capital"), of which Grand Union was a wholly owned subsidiary. Grand Union
Capital consented to the entry of an order for relief on the involuntary Chapter
11 petition and, in February 1995, Grand Union Holdings filed a voluntary
Chapter 11 petition in the Bankruptcy Court. Grand Union Capital and Grand Union
Holdings' Bankruptcy Court proceedings were completed in March 1996. Following
completion of these proceedings, Grand Union Capital and Grand Union Holdings
were
4
<PAGE>
dissolved. At the time the Chapter 11 petitions were filed, Messrs. Hirsch and
Fox were directors and executive officers of Grand Union, Grand Union Capital
and Grand Union Holdings, and Mr. Incaudo was a director of Grand Union
Holdings. Messrs. Hirsch and Fox resigned as directors and officers of Grand
Union in June 1995 and Messrs. Hirsch, Fox and Incaudo ceased to be directors
and executive officers of Grand Union Capital and Grand Union Holdings upon the
dissolution of these companies in March 1996.
The Board of Directors of the Company held four meetings in the fiscal
year ended February 1, 1998 ("Fiscal 1998"). Each incumbent director attended
more than 75 percent of the aggregate number of meetings of the Board of
Directors of the Company and of the committees of such Board on which he or she
served.
The current members of the Executive Committee are Messrs. Hirsch and
Hawkins. Mr. Fox served as a member of the Executive Committee from September
1996 until April 1997. The Executive Committee may exercise certain powers of
the Board of Directors regarding the management and direction of the business
and affairs of the Company when the Board of Directors is not in session. All
action taken by the Executive Committee is reported to and reviewed by the Board
of Directors.
The current members of the Personnel and Compensation Committee of the
Board of Directors (the "Compensation Committee") are Messrs. DePalma and Segal.
Mr. Segal is the Chairman of the Compensation Committee. The Compensation
Committee reviews the annual recommendations of the Chief Executive Officer and
the Chairman of the Board of Directors concerning the compensation of officers
and of certain of the employees of the Company, including the compensation
plans, retirement plans and fringe benefits in which such persons participate,
and makes reports and recommendations with respect to such matters to the Board
of Directors of the Company. The Compensation Committee, which held four
meetings in Fiscal 1998, also administers the Company's 1993 Long-Term Incentive
Plan (the "1993 Plan") and the 1997 Performance Incentive Plan (the "1997
Plan").
The current members of the Audit Committee are Mr. DePalma and Ms. Engel.
Mr. DePalma is the Chairman of the Audit Committee. The Audit Committee reviews
and makes reports and recommendations to the Board of Directors with respect to
the selection of the independent auditors of the Company and its subsidiaries,
the arrangements for and the scope of the audits to be performed by them, and
the internal audit activities, accounting procedures and controls of the Company
and its subsidiaries, and reviews the annual consolidated financial statements
of the Company and its subsidiaries. The Audit Committee held three meetings in
Fiscal 1998.
The Board of Directors does not have a nominating committee. The Board of
Directors of the Company will consider nominees proposed by stockholders for
election as directors. Stockholder nominations of persons for election as
directors are subject to the notice requirements described below under the
caption "Stockholder Nominations and Proposals."
5
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table sets forth certain information known to Penn Traffic
with respect to beneficial ownership of the Common Stock as of April 24, 1998
(unless otherwise indicated) by: (i) each person who beneficially owns 5% or
more of the Common Stock; (ii) each of the nominees named for election as
director; (iii) each of the other current directors; (iv) each of the persons
named in the Summary Compensation Table set forth herein; and (v) all directors
and executive officers as a group. Except as otherwise indicated, the holders
listed below have sole voting and investment power with respect to all shares
beneficially owned by them. For purposes of this table, a person or group of
persons is deemed to have "beneficial ownership" of any shares which such person
or group of persons has the right to acquire within 60 days. For purposes of
computing the percentage of outstanding shares held by each person or group of
persons named below, any security which such person or persons has the right to
acquire within 60 days (including shares which may be acquired upon exercise of
warrants or upon exercise of vested portions of stock options) is deemed to be
outstanding, but is not deemed to be outstanding for the purpose of computing
the percentage ownership of any other person.
6
<PAGE>
<TABLE>
<CAPTION>
AMOUNT & NATURE OF
NAME AND ADDRESS OF BENEFICIAL PERCENT OF
BENEFICIAL OWNER OWNERSHIP CLASS
<S> <C> <C>
---------------------------------------------------------------------------------------------
Gary D. Hirsch 2,102,868 (1)(2) 19.4%
411 Theodore Fremd Avenue
Rye, New York 10580
Riverside Acquisition Company, 933,455 (2) 8.6%
Limited Partnership
331 Madison Avenue
New York, New York 10017
Dimensional Fund Advisors Inc. 633,600 (3) 5.9%
1299 Ocean Avenue, 11th Floor
Santa Monica, California 90401
Phillip E. Hawkins 160,100 (4) 1.5%
Martin A. Fox 79,250 (2)(5) *
Eugene A. DePalma 15,769 (2)(6) *
Susan E. Engel 9,500 (7) *
Claude J. Incaudo 115,501 (8) 1.1%
James A. Lash 159,750 (2)(9) 1.5%
Harold S. Poster 15,472 (6)(10) *
Richard D. Segal 164,215 (2)(6)(11) 1.5%
Nick Campbell 12,195 (12) *
Robert J. Davis 10,240 (13) *
Bradley W. Melvin 19,800 (14) *
Brian Kaler 14,000 (15) *
All Directors and Executive Officers as a Group (15 2,916,018 (16) 26.9%
persons)
</TABLE>
- --------------------------------------------------------------------------------
* Less than 1.0%.
(1) Mr. Hirsch is Chairman, President and a Director of RAC Partners, the sole
general partner of Riverside Acquisition Company ("RAC"). Mr. Hirsch is
also a limited partner of RAC. Mr. Hirsch is deemed to be an indirect
beneficial owner of 933,455 shares of Common Stock owned by RAC and 15,506
shares of Common Stock owned by RAC Partners. Mr. Hirsch is also the
Chairman, President and a Director of Air Partners, Inc., which is the
sole general partner of VII Partners, and is deemed to be an indirect
beneficial owner of 67,102 shares of Common Stock owned by VII Partners.
Mr. Hirsch is a general partner of the managing general partner of MTH and
is deemed to be an indirect beneficial owner of 328,906 shares of Common
Stock owned by MTH and 229,228 shares of Common Stock owned by MTH
Funding, L.P. Includes 125,000 shares of restricted stock, which shares
are subject to forfeiture under certain circumstances, awarded to Mr.
Hirsch pursuant to the Company's 1993 Plan. Includes 17,280 shares of
Common Stock owned by Mr. Hirsch's children. Also includes a currently
exercisable warrant held by Mr. Hirsch, and warrants held by certain of
his relatives, to purchase up to 63,800 and 84,800 shares of Common Stock,
respectively, at $14.00 per share. Mr. Hirsch
7
<PAGE>
disclaims beneficial ownership of the 84,800 shares subject to the
warrants held by his relatives.
(2) The sole general partner of RAC is RAC Partners, a wholly owned subsidiary
of MTH Holdings, which is an affiliate of MTH. Messrs. DePalma, Fox,
Hirsch, Lash and Segal own limited partnership interests in RAC.
(3) According to a Schedule 13G Statement filed by Dimensional Fund Advisors
Inc., dated February 5, 1997, Dimensional Fund Advisors Inc. has sole
power to vote 423,300 shares of Common Stock and sole power to dispose of
633,600 shares of Common Stock.
(4) Mr. Hawkins was granted options to purchase 400,000 shares of Common Stock
at $4.0625 per share on March 11, 1997; these options, which are subject
to vesting limitations, are currently exercisable for up to 40% of the
total number of shares subject to the options, with the remaining 60%
vesting in three equal installments on March 11 of each of 1999, 2000 and
2001. Includes 100 shares of Common Stock owned by a member of Mr.
Hawkins' family, as to which he disclaims beneficial ownership.
(5) Includes 15,000 shares of restricted stock, which shares are subject to
forfeiture under certain circumstances, awarded to Mr. Fox pursuant to the
Company's 1993 Plan. Includes a currently exercisable warrant held by Mr.
Fox to purchase up to 13,000 shares of Common Stock at $14.00 per share.
Includes currently exercisable options to purchase 2,500 shares of Common
Stock at $18.375 per share. Also includes options granted on July 24, 1997
to purchase 50,000 shares of Common Stock at $7.6875 per share, which are
subject to vesting limitations and are currently exercisable for up to 20%
of the total number of shares subject to the options with the remaining
80% vesting in four equal installments on July 24 of each of 1998, 1999,
2000 and 2001.
(6) Includes currently exercisable options to purchase 1,500 shares of Common
Stock at $20.50 per share, 1,500 shares of Common Stock at $18.44 per
share, 1,500 shares of Common Stock at $28.69 per share, 1,500 shares of
Common Stock at $27.50 per share, 1,500 shares of Common Stock at $42.00
per share, 1,500 shares of Common Stock at $36.06 per share, 1,500 shares
of Common Stock at $33.81 per share, 1,500 shares of Common Stock at
$10.63 per share and 1,500 shares of Common Stock at $6.94 per share.
(7) Includes currently exercisable options to purchase 1,500 shares of Common
Stock at $41.88 per share, 1,500 shares of Common Stock at $36.06 per
share, 1,500 shares of Common Stock at $33.81 per share, 1,500 shares of
Common Stock at $10.63 per share and 1,500 shares of Common Stock at $6.94
per share.
(8) Includes currently exercisable options to purchase 10,435 shares of Common
Stock at $12.50 per share, 10,000 shares of Common Stock at $18.375 per
share and 40,000 shares of Common Stock at $24.25 per share and 1,915
shares owned by Mr. Incaudo's wife and three children.
(9) Includes 7,500 shares of restricted stock, which shares are subject to
forfeiture under certain circumstances, awarded to Mr. Lash pursuant to
the Company's 1993 Plan. Includes a currently exercisable warrant held by
Mr. Lash to purchase up to 15,000 shares of Common Stock at $14.00 per
share. Also includes options granted on July 24, 1997 to purchase 15,000
shares of Common Stock at $7.6875 per share, which are subject to vesting
limitations and are currently exercisable for up to 20% of the total
number of shares subject to the options with the remaining 80% vesting in
four equal installments on July 24 of each of 1998, 1999, 2000 and 2001.
8
<PAGE>
(10) Includes 1,972 shares of Common Stock owned by Burrows + Poster Profit
Sharing Plan.
(11) Includes 65,459 shares of Common Stock owned by Seavest Partners and
9,633 shares of Common Stock acquired through the Company's employee
stock purchase plan. Includes 8,929 shares owned by the Marilyn N. Segal
Revocable Trust, 13,394 shares owned by Wendi S. Masi and 30,000 shares
of Common Stock owned by Fourth Generation Partners, as to which Mr.
Segal disclaims beneficial ownership.
(12) Includes options granted on July 24, 1997 to purchase 30,000 shares of
Common Stock at $7.6875 per share, which are subject to vesting
limitations and are currently exercisable for up to 20% of the total
number of shares subject to the options with the remaining 80% vesting in
four equal installments on July 24 of each of 1998, 1999, 2000 and 2001.
(13) Includes options granted on July 24, 1997, to purchase 30,000 shares of
Common Stock at $7.6875 per share, which are subject to vesting
limitations and are currently exercisable for up to 20% of the total
number of shares subject to the options with the remaining 80% vesting in
four equal installments on July 24 of each of 1998, 1999, 2000 and 2001.
(14) Includes options granted on July 24, 1997 to purchase 30,000 shares of
Common Stock at $7.6875 per share, which are subject to vesting
limitations and are currently exercisable for up to 20% of the total
number of shares subject to the options with the remaining 80% vesting in
four equal installments on July 24 of each of 1998, 1999, 2000 and 2001.
Also includes options granted on April 21, 1997 to purchase 10,000 shares
of Common Stock at $6.375 per share, which are subject to vesting
limitations, and are currently exercisable for up to 40% of the total
number of shares subject to the options with the remaining 60% vesting in
three equal installments on April 21 of 1999, 2000 and 2001. Also
includes options to purchase 2,000 shares at $6.375 and 500 at $7.875 per
share, which are currently exercisable, held by Mr. Melvin's spouse and
of which he disclaims beneficial ownership.
(15) Includes options granted on July 24, 1997 to purchase 10,000 shares of
Common Stock at $7.6875 per share, which are subject to vesting
limitations and are currently exercisable for up to 20% of the total
number of shares subject to the options, with the remaining 80% vesting
in four equal installments on July 24 of each of 1998, 1999, 2000 and
2001. Also includes options granted on April 21, 1997 to purchase 5,000
shares of Common Stock at $6.375 per share, which are subject to vesting
limitations and are currently exercisable for up to 40% of the total
number of shares subject to the options with the remaining 60% vesting in
three equal installments on April 21 of 1999, 2000 and 2001.
(16) Includes shares of Common Stock owned by the immediate family of some
directors or officers of Penn Traffic, vested options and warrants and
shares of Common Stock held by other affiliates of officers and
directors. Includes shares of restricted stock awarded under the
Company's 1993 Plan, all of which shares are subject to forfeiture under
certain circumstances, as follows: Mr. Gary Hirsch--125,000 shares, Mr.
Martin Fox--15,000 shares, Mr. James Lash--7,500 shares, Mr. Nick
Campbell--4,000 shares, Mr. Robert Davis--1,500 shares and Mr. Francis D.
Price, Jr.-- 3,000 shares.
9
<PAGE>
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
The Company has determined that no person who at any time during Fiscal
1998 was a director, officer or beneficial owner of more than ten percent of the
Company's Common Stock failed to file on a timely basis reports required by
Section 16(a) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), except that Ms. Engel omitted to include one transaction in a report
filed by her (which was subsequently amended). Such determination is based
solely upon the Company's review of Forms 3, 4 and 5, and written
representations that no Form 5 was required, submitted to it during or with
respect to Fiscal 1998.
EXECUTIVE COMPENSATION
See "Compensation of Directors" for a description of the agreement
pursuant to which MTH provides financial consulting and business management
services to the Company. Mr. Hirsch is a general partner of the managing general
partner of MTH and Mr. Fox is an executive officer of MTH. From September 1996
until April 1, 1997, Mr. Hirsch acted as Chief Executive Officer of the Company
but received no salary or bonus from the Company for such service.
10
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term Compensation
Annual Compensation Awards
<S> <C> <C> <C> <C> <C> <C>
<CAPTION>
Restricted Securities All
Stock Underlying Other
Name and Principal Salary Bonus Award(s) Options/ Compensation
Position Year ($) ($) ($)(1) SARs (#)(2) ($)(3)
- --------------------------------------- --------- --------- --------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Phillip E. Hawkins 1998 $ 382,448 $ 225,000 $ 0 400,000 $2,542,613(4)
President and Chief Executive Officer
Nick Campbell 1998 $ 177,659 $ 10,000 $ 0 30,000 $ 0
Senior Vice President, Marketing 1997 122,854 0 0 0 5,241(5)
1996 92,534 0 52,062 0 50,104(6)
Robert J. Davis 1998 $ 175,320 $ 35,000 $ 0 30,000 $ 0
Senior Vice President and Chief 1997 112,231 0 0 0 0
Financial Officer 1996 89,081 0 22,312 0 77,431(5)
Bradley A. Melvin 1998 $ 140,292 $ 45,000 $ 0 40,000 $ 182,758(7)
Senior Vice President, Operations
Brian Kaler 1998 $ 99,071 $ 32,500 $ 0 15,000 $ 157,951(7)
Vice President, Operations Support
</TABLE>
- ---------------------
(1) Awards made pursuant to the 1993 Plan of shares of restricted stock.
Pursuant to Securities and Exchange Commission rules, these dollar values
have been calculated by multiplying the closing market price of the
Company's Common Stock on the date of the respective grants by the number
of shares awarded on such date. The aggregate number of shares of
restricted stock in the table held by each of the named executives and the
dollar value of such shares of restricted stock at the end of Fiscal 1998
were as follows: Mr. Campbell--3,500 shares, $23,408 value; Mr. Davis--
1,500 shares, $10,032 value.
Vesting of the shares of restricted stock is contingent upon attainment,
subsequent to the date of grant, of certain EBITDA levels (as defined) by
the end of the fiscal quarter ending May 2, 1998. Those levels will not be
achieved and the shares of restricted stock will be forfeited in calendar
1998.
(2) Mr. Hawkins was awarded, pursuant to the 1993 Plan and the 1997 Plan,
respectively, options to purchase 36,900 and 363,100 shares of Common
Stock at $4.0625 per share. These options, which are subject to vesting
limitations, are currently exercisable for up to 40% of the total number
of shares subject to the options, with the remaining 60% vesting in three
equal installments on March 11 of each of 1999, 2000 and 2001. The
following options were granted under the 1997 Performance Incentive Plan:
Nick Campbell received 30,000 options to purchase Common Stock at $7.6875
per share; Robert Davis received 30,000 options to purchase Common Stock
at $7.6875 per share; Bradley Melvin received 30,000 options to purchase
Common Stock at $7.6875 per share and 10,000 options to purchase Common
Stock
11
<PAGE>
at $6.375 per share; Brian Kaler received 5,000 options to purchase Common
Stock at $6.375 per share and 10,000 options to purchase Common Stock at
$7.6875 per share. Such options, all of which are subject to vesting
limitations, are currently exercisable for up to 20% of the total number
in the case of those granted at $7.6875 per share and for up to 40% of the
total number in the case of those granted at $6.375 per share; all options
will vest in equal annual 20% installments on July 24, 1998, 1999, 2000
and 2001 in the case of those granted at $7.6875 per share and on April
21, 1999, 2000 and 2001 in the case of those granted at $6.375 per share.
(3) During Fiscal 1998, the Company gave written assurances to certain key
members of middle and senior management of the Company (including Messrs.
Campbell, Davis, Melvin, and Kaler) that in the event of an involuntary
termination of employment (other than for certain stated causes) prior to
December 31, 1999, their salary and benefits would be continued for
periods of up to eighteen months following termination.
(4) Includes amounts paid by the Company to Mr. Hawkins in consideration of
his loss of benefits at his prior employment and incidental costs incurred
by Mr. Hawkins as a result of entering into an employment agreement with
and being employed by the Company. Also includes $239,613 reimbursed to
Mr. Hawkins for certain relocation expenses he incurred in connection with
his relocation to Syracuse, New York.
(5) Compensation for certain relocation expenses.
(6) Includes contributions to the Big Bear Profit Sharing Plan and
compensation for certain relocation expenses.
(7) Includes amounts paid upon commencement of employment in consideration of
loss of benefits at the executive's prior employment, to induce executive
to become an employee of the Company and for certain relocation expenses.
12
<PAGE>
OPTION/SAR GRANTS IN FISCAL 1998
<TABLE>
<CAPTION>
Potential
Realizable Value at
Assumed Annual
Rates of Stock Price
Appreciation
Individual Grants for Option Term
- ---------------------------------------------------------------------------------------------------------- --------------------
<S> <C> <C> <C> <C> <C> <C>
(a) (b) (c) (d) (e) (f) (g)
<CAPTION>
Number of % of Total
Securities Options/SARs
Underlying Granted to Exercise
Options/SARs Employees or Base
Granted in Fiscal Price Expiration
Name (#) Year ($/Sh) Date 5% ($) 10% ($)
- --------------------------------------------- ------------- --------------- ----------- -------------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Phillip E. Hawkins 400,000 36.36% 4.0625 March 10, 2007 $1,021,954 $2,589,831
President and Chief Executive Officer
Nick Campbell 30,000 2.73% 7.6875 July 23, 2007 $ 145,039 $ 367,557
Senior Vice President, Marketing
Robert J. Davis 30,000 2.73% 7.6875 July 23, 2007 $ 145,039 $ 367,557
Senior Vice President and Chief Financial
Officer
Bradley A. Melvin 30,000 2.73% 7.6875 July 23, 2007 $ 145,039 $ 367,557
Senior Vice President, Operations 10,000 0.91% 6.3750 April 20, 2007 $ 40,092 $ 101,601
Brian Kaler 10,000 0.91% 7.6875 July 23, 2007 $ 48,346 $ 122,519
Vice President, Operations Support 5,000 0.45% 6.3750 April 20, 2007 $ 20,046 $ 50,801
</TABLE>
13
<PAGE>
AGGREGATED OPTIONS/SAR EXERCISES
IN LAST FISCAL YEAR, AND FY-END
OPTIONS/SAR VALUES
The following table sets forth information concerning the value of
unexercised options held by each of the persons named in the Summary
Compensation Table, as of January 31, 1998. No options were exercised by such
persons during Fiscal 1998.
<TABLE>
<CAPTION>
Number of Securities
Underlying Unexercised Value of Unexercised
Options/SARs at FY-End (#) In-the-Money Options/SARs
At FY-End ($)
-------------------------- ------------------------------
<S> <C> <C> <C> <C>
Name Exercisable Unexercisable Exercisable(1) Unexercisable(1)
- ------------------------------------------------- ----------- ------------- ------------- ---------------
Phillip E. Hawkins 160,000 240,000 $ 420,080 $ 630,120
Nick Campbell 6,000 24,000 N/A N/A
Robert J. Davis 6,000 24,000 N/A N/A
Bradley A. Melvin 6,000 24,000 N/A N/A
Bradley A. Melvin 4,000 6,000 1,252 1,878
Brian Kaler 2,000 3,000 626 939
Brian Kaler 2,000 8,000 N/A N/A
</TABLE>
- ---------------------
(1) Based on the fair market value of $6.688 per share on January 30, 1998.
14
<PAGE>
PENSION PLANS AND OTHER BENEFIT PLANS
CORPORATE PENSION PLAN
Messrs. Hawkins, Campbell, Davis, Melvin and Kaler participate in a
tax-qualified, defined benefit pension plan (the "Corporate Pension Plan") for
all regular full-time employees of the Company, other than employees subject to
a collective bargaining agreement and other than participants in other pension
plans to which the Company or any of the Company's subsidiaries contributes. The
normal monthly pension benefit payable to Messrs. Hawkins, Campbell, Davis,
Melvin and Kaler under the Corporate Pension Plan would equal (((a) times (b)),
plus ((c) times (d))), times (e), where:
(a) is 0.40% of average monthly compensation up to $2,500;
(b) is credited service to retirement date, not to exceed 20 years;
(c) is 0.90% of average monthly compensation plus 1.35% of the average
monthly compensation in excess of the average Social Security wage base;
(d) is credited service to normal retirement date, not to exceed 35
years; and
(e) is the ratio of credited service to date to potential credited
service to retirement date.
In general, accrued benefits vest after five years of service. The
projected years of credited service to age 65 for Messrs. Hawkins, Campbell,
Davis, Melvin and Kaler are 18, 25, 20, 16 and 29 years, respectively.
Contributions are not credited to individual participants' accounts and
the amount contributed on behalf of each individual is not and cannot readily be
separately or individually calculated by the Corporate Pension Plan's actuary.
The following table sets forth the amount of annual pension benefit, calculated
as a straight life annuity, that would be available to individual retirees
retiring at age 65 after the stated number of years of credited service. The
term "average monthly compensation" as used in the calculation above means the
monthly average of a participant's highest aggregate compensation (including
salary or wages and bonuses) during a period of five consecutive years of
employment covered by the Corporate Pension Plan.
15
<PAGE>
Corporate Pension Plan Table
<TABLE>
<CAPTION>
Years of Credited Service
-----------------------------------------------------
Compensation 15 20 25 30 35
- ------------------------------------------------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
$125,000 $ 25,575 $ 34,099 $ 42,024 $ 49,949 $ 57,874
150,000 30,636 40,848 50,460 60,072 69,684
175,000 35,698 47,597 58,896 70,195 81,495
200,000 40,762 54,350 67,336 80,324 93,311
225,000 45,824 61,098 75,773 90,447 105,122
250,000 50,885 67,847 84,209 100,570 116,932
300,000 61,011 81,348 101,085 120,822 140,559
400,000 81,260 108,347 134,834 161,320 187,807
450,000 91,386 121,848 151,710 181,572 211,434
500,000 101,512 135,349 168,587 201,824 235,061
550,000 111,635 148,847 185,459 222,070 258,682
600,000 121,761 162,348 202,335 242,322 282,309
650,000 131,887 175,849 219,211 262,574 305,936
700,000 142,010 189,347 236,084 282,820 329,557
</TABLE>
- ---------------------
NOTE: The amounts shown above are not subject to offset for Social Security
benefits payable to participants in the Corporate Pension Plan.
Additionally, the above table does not recognize statutory limitations
imposed by the Internal Revenue Code of 1986, as amended (the "Code"),
which establish a maximum compensation level (increased by certain cost of
living adjustments) for determining the annual benefit amount.
BIG BEAR EMPLOYEES' PENSION PLAN AND TRUST
In general, accrued benefits vest after five years of service. The
following table sets forth the estimated annual benefits payable under the Big
Bear Plan, assuming payments made on a straight-life annuity basis and not under
any of the Big Bear Plan's survivor options to a participant upon retirement at
age 62 with the indicated final average annual compensation and years of
credited service.
16
<PAGE>
Big Bear Pension Plan Table
<TABLE>
<CAPTION>
Years of Credited Service
----------------------------------------------------------------------
Compensation 15 20 25 30 35 40
- ----------------------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
$125,000 $ 18,750 $ 25,000 $ 31,250 $ 37,500 $ 43,750 $ 43,750
150,000 22,500 30,000 37,500 45,000 52,500 52,500
175,000 26,250 35,000 43,750 52,500 61,250 61,250
200,000 30,000 40,000 50,000 60,000 70,000 70,000
225,000 33,750 45,000 56,250 67,500 78,750 78,750
250,000 37,500 50,000 62,500 75,000 87,500 87,500
300,000 45,000 60,000 75,000 90,000 105,000 105,000
400,000 60,000 80,000 100,000 120,000 140,000 140,000
450,000 67,500 90,000 112,500 135,000 157,500 157,500
500,000 75,000 100,000 125,000 150,000 175,000 175,000
550,000 82,500 110,000 137,500 165,000 192,500 192,500
600,000 90,000 120,000 150,000 180,000 210,000 210,000
650,000 97,500 130,000 162,500 195,000 227,500 227,500
700,000 105,000 140,000 175,000 210,000 245,000 245,000
</TABLE>
- ---------------------
NOTE: The amounts shown above are not subject to offset for Social Security
benefits payable to participants in the Big Bear Plan. Additionally, the
above table does not recognize statutory limitations imposed by the Code,
which establish a maximum compensation level (increased by certain cost of
living adjustments) for determining the annual benefit amount.
Prior to becoming a participant in the Corporate Pension Plan, Mr.
Campbell participated in the Big Bear Plan for 19 years.
SUPPLEMENTAL RETIREMENT INCOME PLAN
Effective July 1, 1996, Penn Traffic established the Supplemental
Retirement Income Plan (the "Supplemental Plan"), an unfunded, non-qualified
plan pursuant to which certain employees of the Company will earn an additional
retirement benefit. None of the persons named in the Summary Compensation Table
participated in Fiscal 1998. Participants in the Supplemental Plan are
designated by the Compensation Committee of the Board of Directors, which is
responsible for the administration of the Supplemental Plan. The Supplemental
Plan provides an annual retirement benefit to a participant with at least 30
years of credited service equal to 40% of the yearly average of the highest
aggregate compensation (including salary or wages, bonuses and certain other
payments) received by the participant during a period of five consecutive years
of employment, less offsets for benefits paid under the Company's other
retirement plans.
Participants are fully vested upon five years of credited service. The
annual retirement benefit payable under the Supplemental Plan will be
proportionately reduced for participants who retire with fewer than 30 years of
credited service and will also be reduced for participants who retire prior to
age 65.
17
<PAGE>
Supplemental Retirement Plan Table
<TABLE>
<CAPTION>
Years of Credited Service
----------------------------------------------------------------
Compensation 5 10 15 20 25 30
- ------------------------------------------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
$125,000 $ 8,333 $ 16,667 $ 25,000 $ 33,333 $ 41,667 $ 50,000
150,000 10,000 20,000 30,000 40,000 50,000 60,000
175,000 11,667 23,333 35,000 46,667 58,333 70,000
200,000 13,333 26,667 40,000 53,333 66,667 80,000
225,000 15,000 30,000 45,000 60,000 75,000 90,000
250,000 16,667 33,333 50,000 66,667 83,333 100,000
275,000 18,333 36,667 55,000 73,333 91,667 110,000
300,000 20,000 40,000 60,000 80,000 100,000 120,000
325,000 21,667 43,333 65,000 86,667 108,333 130,000
350,000 23,333 46,667 70,000 93,333 116,667 140,000
375,000 25,000 50,000 75,000 100,000 125,000 150,000
400,000 26,667 53,333 80,000 106,667 133,333 160,000
425,000 28,333 56,667 85,000 113,333 141,667 170,000
450,000 30,000 60,000 90,000 120,000 150,000 180,000
475,000 31,667 63,333 95,000 126,667 158,333 190,000
500,000 33,333 66,667 100,000 133,333 166,667 200,000
525,000 35,000 70,000 105,000 140,000 175,000 210,000
550,000 36,667 73,333 110,000 146,667 183,333 220,000
575,000 38,333 76,667 115,000 153,333 191,667 230,000
600,000 40,000 80,000 120,000 160,000 200,000 240,000
625,000 41,667 83,333 125,000 166,667 208,333 250,000
650,000 43,333 86,667 130,000 173,333 216,667 260,000
675,000 45,000 90,000 135,000 180,000 225,000 270,000
700,000 46,667 93,333 140,000 186,667 233,333 280,000
</TABLE>
- ---------------------
NOTE: The amounts shown above are subject to offset for benefits paid under the
Company's other retirement plans.
CERTAIN REVISIONS OF PENSION AND BENEFIT PLAN STRUCTURE
On May 31, 1998, the existing tax-qualified retirement plans for non-union
employees of the Company will be merged into a single, new retirement plan.
These plans include the Pension Plan for Non-Bargaining Employees of
Riverside/Insalaco Division of The Penn Traffic Company, the Big Bear Stores
Employees' Pension Plan, and The Penn Traffic Corporate/P&C Foods Pension Plan.
The new retirement program, effective June 1, 1998, for all non-union employees
of the Company will be a defined benefit pension plan structured as a "cash
balance" arrangement. Under a cash balance plan, employees' pensions are
measured by reference to account balances to which credits are made based on a
fixed percentage of compensation paid for the year, plus interest at a rate
comparable to the yield on long-term treasury securities. Upon retirement,
employees are permitted to take a lump-sum distribution equal to their account
balance, or receive an annuity benefit, based on formulas set forth in the plan.
In connection with the proposed changes to the Company's defined benefit pension
plans, the Company will also begin making certain matching contributions to its
401(k) profit sharing plan for those employees who are also participants in the
cash balance plan.
18
<PAGE>
The Company believes that this consolidation and conversion of the
existing retirement plans for non-union employees into a simpler, single
arrangement that uses an account balance approach for measuring retirement
benefit accruals will both simplify existing benefit structures and enhance
employee understanding and appreciation of the benefits offered by the Company.
The combination of the benefits from the cash balance plan and employer matching
contributions to the 401(k) plan are comparable to those of the current plan for
the average participant.
COMPENSATION OF DIRECTORS
In Fiscal 1998, directors who were not regularly employed by the Company
received an annual fee of $20,000. Each such director was also paid a fee of
$1,000 for attendance at each Board meeting or committee meeting he or she
attended and a fee of $500 for each committee meeting held in conjunction with a
Board meeting he or she attended. Directors were also paid $1,000 for each full
day and $500 for each half day on which they performed duties on behalf of the
Board at the request of the Chairman or Chief Executive Officer if such duties
required them to be away from their principal place of occupation. Directors who
are officers of the Company do not receive fees for attending meetings of the
Board of Directors or its committees.
During Fiscal 1998, Penn Traffic engaged MTH to provide financial
consulting and business management services, for which MTH received fees of
$1,437,000. Subject to such adjustments as may be made by the Company and MTH,
the fees payable to MTH for such services during Fiscal 1999 will be
approximately the same. Mr. Hirsch is a general partner of the managing general
partner of MTH, and Mr. Fox is an Executive Vice President of MTH.
During Fiscal 1998, Penn Traffic paid fees of $150,000 to J.A. Lash & Co.,
a management consulting company organized by Mr. Lash.
Certain of the Company's directors have been awarded shares of restricted
stock under the 1993 Plan, which was approved by the vote of a majority of the
stockholders of Penn Traffic at the 1993 Annual Meeting of Stockholders and/or
under the 1997 Plan, which was approved by the vote of a majority of the
stockholders of Penn Traffic at the 1997 Annual Meeting of Stockholders. During
Fiscal 1994, 125,000 shares of restricted stock were awarded under the 1993 Plan
to Mr. Hirsch, 15,000 shares of restricted stock were awarded to Mr. Fox and
7,500 shares of restricted stock were awarded to Mr. Lash. These shares were
valued at $4,687,500, $562,000 and $281,250, respectively, on the date of grant.
Vesting of the shares of restricted stock granted pursuant to such awards is
contingent upon attainment, subsequent to the date of grant, of EBITDA levels of
$265 million in any period of four consecutive fiscal quarters or $500 million
in any period of eight consecutive fiscal quarters. Since such performance
levels will not be achieved by the end of the fiscal quarter ending May 2, 1998,
the shares granted to Messrs. Lash and Fox will be forfeited during calendar
1998. The vesting requirements for the shares of restricted stock awarded
19
<PAGE>
to Mr. Hirsch were replaced during Fiscal 1998 by vesting requirements related
to improvement in the market value of the Company's Common Stock. Those shares
of restricted stock will become vested if, for a period of ten consecutive
trading days, the closing price of shares of the Company's common stock is at
least: $12.00 per share during the period from August 15, 1997 through August
14, 1998; $14.00 per share during the period from August 15, 1998 through August
14, 1999; $16.00 per share during the period from August 15, 1999 through August
14, 2000; $18.00 per share during the period from August 15, 2000 through August
14, 2001; or $20.00 per share during the period from August 15, 2001 through
August 14, 2002. Those shares of restricted stock will be forfeited to the
Company if not vested by August 14, 2002. No other directors have received
awards of restricted stock under the 1993 Plan. See "Executive
Compensation--Compensation Committee Report." During Fiscal 1998, options to
purchase shares of Common Stock were awarded to Messrs. Fox and Lash in the
respective amounts of 50,000 and 15,000 shares, all at an exercise price of
$7.6875. The options vest 20% on the date of grant and 20% on each anniversary
thereof, vesting fully on the fourth anniversary of the grant, subject to
acceleration upon the occurence of certain events.
The Penn Traffic Company Amended and Restated Directors' Stock Option Plan
(the "Restated Directors' Plan") was adopted by the Board of Directors on April
2, 1996 as the successor to The Penn Traffic Company Directors' Stock Option
Plan. The Restated Directors' Plan was approved by the vote of a majority of the
stockholders of Penn Traffic at the 1996 Annual Meeting of Stockholders. The
Restated Plan provides for the automatic grant to non-employee directors of an
option to purchase 1,500 shares of Common Stock (subject to antidilution
adjustments) upon appointment to the Board of Directors and thereafter annually
as of the first business day after the conclusion of each Annual Meeting of
Stockholders, at a price equal to the fair market value of such shares on the
date of the grant. On June 4, 1997, pursuant to the Restated Directors' Plan,
each of Messrs. DePalma, Poster, Segal and Ms. Engel received an option to
purchase 1,500 shares of Common Stock at a price of $6.937 per share.
In 1988, the Company issued to Miller Tabak Hirsch + Co. warrants,
exercisable until June 23, 1998, to purchase 289,000 shares of Common Stock at
an exercise price of $14.00 per share. On January 20, 1998, the exercise date
was extended to June 23, 2001 in consideration of Miller Tabak Hirsch + Co.
agreeing to forego any fee for investment banking services rendered to the
Company in connection with its sale of the Company's Sani-Dairy division. Of the
outstanding warrants, 63,800 are owned by Mr. Hirsch, 84,800 by members of his
family, 15,000 by Mr. Lash and 13,000 by Mr. Fox. The remaining 112,400 Warrants
are owned by certain persons affiliated or previously affiliated with Miller
Tabak Hirsch + Co.
EMPLOYMENT CONTRACTS
The Company and Mr. Hawkins have entered into an employment agreement
which agreement provides for the appointment of Mr. Hawkins as President and
Chief Executive
20
<PAGE>
Officer of the Company for a term commencing on April 1, 1997 and ending on
January 31, 2001. Pursuant to the agreement, Mr. Hawkins receives an initial
annual base salary of $450,000, subject to increase at the discretion of the
Board of Directors (the "Base Salary"). The agreement also provides that Mr.
Hawkins will be eligible to receive an annual cash bonus of up to 100% of his
Base Salary depending on the Company's performance during each fiscal year,
provided that Mr. Hawkins' bonus will not be less than 50% of his Base Salary
(the "Target Bonus") in respect of any fiscal year in which the Company reaches
its performance goals for the year as determined by the Board of Directors. For
Fiscal 1998, Mr. Hawkins received a fixed bonus of $225,000, payable without
regard to the Company's attainment of the performance goals. In addition, in
April 1997, Mr. Hawkins received (i) a supplemental cash payment of $2,303,000
in compensation for loss of benefits under arrangements with his prior employer
and (ii) reimbursement of certain relocation expenses.
Pursuant to his employment agreement, on March 11, 1997, Mr. Hawkins was
granted an award of options to purchase 400,000 shares of Common Stock at an
exercise price of $4.0625 per share, equal to the fair market value of the
shares of Common Stock underlying the options on the date of the grant. These
options are subject to vesting limitations and are currently exercisable for up
to 40% of the total number of shares subject to the options, with the remaining
60% vesting in three equal installments on March 11 of each of 1999, 2000 and
2001. Options to purchase 36,900 shares of Common Stock (all of which are
designated as "incentive stock options") were awarded pursuant to the Company's
1993 Plan, and options to purchase 363,100 shares of Common Stock (86,175 of
which are designated as "incentive stock options") were awarded pursuant to the
Company's 1997 Performance Incentive Plan.
The employment agreement provides that if the employment of Mr. Hawkins is
terminated by the Company other than (i) as a result of Mr. Hawkins' disability
or (ii) for cause, or if Mr. Hawkins terminates his employment for good reason
(as defined) following a change in control, the Company will be required to make
certain payments to Mr. Hawkins, including the following: (x) if such
termination occurs on or prior to February 1, 2000, Base Salary and Target Bonus
payments equal to the amounts he would have been entitled to receive in
accordance with the Company's normal payroll practices if the termination had
not occurred and the Company had attained its performance goals in the year of
termination and in each succeeding twelve-month period up to and including
February 1, 2001, or (y) if such termination occurs subsequent to February 1,
2000, a lump-sum payment equal to one year's Base Salary and the Target Bonus in
respect thereof which Mr. Hawkins would have been entitled to receive if the
Company had attained its performance goals for the fiscal year ending February
1, 2001.
21
<PAGE>
COMPENSATION COMMITTEE REPORT
The Compensation Committee of the Board of Directors is currently composed
of Messrs. Segal (Chairman) and DePalma.
An important objective of the Compensation Committee is to ensure that the
compensation practices of the Company are competitive and effectively designed
to attract, retain and motivate executive officers whose contributions are
critical to the long-term success of the Company. The Company uses a total
compensation program that consists of annual compensation paid in the form of
salary and cash bonuses under short-term incentive plans, and compensation paid
under long-term incentive plans and options awarded under the 1997 Plan.
ANNUAL COMPENSATION
SALARY
Salary adjustments for executive officers are generally made annually and
are based on salary for the prior year, executive salary movement nationally
within the food distribution industry, individual performance, length of service
and internal comparability considerations. Pursuant to the employment agreement
entered into by the Company and Mr. Hawkins dated March 11, 1997 in connection
with Mr. Hawkins' appointment as President and Chief Executive Officer for a
term commencing on April 1, 1997 and ending on January 31, 2001, Mr. Hawkins
will receive an annual Base Salary of not less than $450,000; in Fiscal 1998,
his salary was $375,715 (partial year).
CASH BONUS PLANS
Cash bonuses are paid to executive officers under the Company's Corporate
Incentive Plan. Participants in the Corporate Incentive Plan are determined by
the Board of Directors upon recommendation of the Compensation Committee. Target
bonus opportunities under the Corporate Incentive Plan are based on achievement
of previously established financial results for the Company, and on achievement
of individual objectives. Messrs. Hawkins, Campbell, Davis, Melvin and Kaler
will be eligible to participate in the Corporate Incentive Plan in the fiscal
year ending January 30, 1999.
For Fiscal 1998, no bonuses were paid pursuant to the Corporate Incentive
Plan although Messrs. Campbell, Davis and Kaler received bonuses of $10,000,
$35,000 and $10,000, respectively, in recognition of their contributions during
the year and Messrs. Hawkins, Melvin and Kaler received fixed bonuses of
$225,000, $45,000 and $22,500, respectively, as part of the compensation
arrangements made with each of them upon joining the Company.
22
<PAGE>
LONG-TERM INCENTIVE PLANS
In addition to annual compensation, the Company provides to certain of its
officers, employees and independent contractors long-term incentive compensation
under the Company's 1993 Plan, which was adopted in March 1993 as the successor
to the Company's 1988 Stock Option Plan.
The 1993 Plan was approved by the vote of a majority of the stockholders
of the Company at the 1993 Annual Meeting of Stockholders. The 1993 Plan permits
the Company to provide incentive compensation of the types commonly known as
restricted stock, stock options, stock appreciation rights, and phantom stock,
as well as other types of incentive compensation. All awards under the 1993 Plan
were made in the form of awards of shares of restricted stock or awards of
options to purchase shares of Common Stock. The 1993 Plan provided that a
maximum of 350,000 shares of Common Stock could 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 described above ("Compensation of Directors") the vesting requirements
for 125,000 shares of restricted stock have been amended to vest only upon
attainment of certain specified market values of the Company's Common Stock. An
additional 129,100 shares of restricted stock will be forfeited in calendar 1998
since required EBITDA levels will not be achieved. After giving effect to the
shares to be forfeited, a total of 188,100 shares will be available for future
grants under the 1993 plan.
On June 3, 1997 the Shareholders approved the adoption by the Board of
Directors of the 1997 Plan. The 1997 plan also permits the Company to provide
incentive compensation of the types commonly known as restricted stock, stock
options, stock appreciation rights, and phantom stock, as well as other types of
incentive compensation. All awards made to date under the 1997 Plan have been in
the form of stock options. Options are presently outstanding for 1,030,940
shares of the total of 1,500,000 shares authorized for grant under the 1997
Plan.
CHIEF EXECUTIVE OFFICER COMPENSATION
In connection with Mr. Hawkins' employment with the Company commencing on
March 11, 1997, the Company and Mr. Hawkins entered into an employment agreement
dated as of that date. This agreement provides for the appointment of Mr.
Hawkins as President and Chief Executive Officer of the Company for a term
commencing on April 1, 1997 and ending on January 31, 2001. Pursuant to the
agreement, Mr. Hawkins will receive an initial annual Base Salary of $450,000,
subject to increase at the discretion of the Board of Directors. The agreement
also provides that Mr. Hawkins will be eligible to receive an annual cash bonus
of up to 100% of his Base Salary depending on the Company's performance during
each fiscal year, provided that Mr. Hawkins' bonus will not be less than 50% of
his Base Salary in respect of any fiscal year in which the Company reaches its
performance goals for the year as determined by the Board of Directors. For
Fiscal 1998,
23
<PAGE>
Mr. Hawkins received a bonus of $225,000, which was paid to him without regard
to the Company's attainment of the performance goals. In addition, in April
1997, Mr. Hawkins received a supplemental cash payment of $2,303,000, which
payment compensated him for loss of benefits under arrangements with his prior
employer, as well as reimbursement of relocation expenses.
Pursuant to his employment agreement, on March 11, 1997, Mr. Hawkins was
granted an award of options to purchase 400,000 shares of Common Stock at an
exercise price of $4.0625 per share, equal to the fair market value of the
shares of Common Stock underlying the options on the date of the grant. These
options are subject to vesting limitations and are currently exercisable for up
to 40% of the total number of shares subject to the options, with the remaining
60% vesting in three equal installments on March 11 of each of 1999, 2000 and
2001. Options to purchase 36,900 shares of Common Stock (all of which are
designated as "incentive stock options") were awarded pursuant to the Company's
1993 Plan, and options to purchase 363,100 shares of Common Stock (86,175 of
which are designated as "incentive stock options") were awarded pursuant to the
Company's 1997 Performance Incentive Plan. In determining the salary to be paid
to Mr. Hawkins, the Board of Directors considered the salaries paid to chief
executive officers at other supermarket companies comparable in size to Penn
Traffic. With regard to the supplemental cash payment of $2,303,000 made to Mr.
Hawkins in April 1997, the Board of Directors considered the need to compensate
Mr. Hawkins for loss of benefits under arrangements with his prior employer. In
determining to award Mr. Hawkins options to purchase 400,000 shares of Common
Stock, the Compensation Committee desired to provide Mr. Hawkins with a
significant incentive for the creation of stockholder value over the long term.
The Revenue Reconciliation Act of 1993 added Section 162(m) to the
Internal Revenue Code of 1986, as amended (the "Code"). Section 162(m), which
became effective for tax years beginning January 1, 1994, disallows a deduction
to the Company for any compensation paid to a "covered employee" in excess of $1
million per year, subject to certain exceptions. In general, "covered employees"
include the Chief Executive Officer and the four other most highly compensated
executive officers of the Company who are in the employ of the Company at the
end of the tax year. Among other exceptions, the deduction limit does not apply
to compensation that meets the specified requirements for "performance-based
compensation." Those requirements include the establishment of objective
performance goals by a committee of the Board of Directors composed solely of
two or more outside directors, stockholder approval of the material terms of the
performance goals under which the compensation is to be paid prior to payment of
such compensation, and certification by the Compensation Committee that the
performance goals have been achieved. While the Compensation Committee believes
that the Company should seek to obtain maximum deductibility of compensation
paid to executive officers, the Compensation Committee also believes that the
interests of the Company and its stockholders are best served by assuring that
appropriate compensation arrangements are established to attract, retain and
motivate executive officers.
24
<PAGE>
In order to attract Mr. Hawkins to the Company, the Compensation Committee
determined that the award of options to purchase shares of Common Stock made to
Mr. Hawkins in March 1997 should not be conditioned upon stockholder approval of
the 1997 Plan, and neither the award of options made to Mr. Hawkins pursuant to
the 1997 Plan nor the award of options made to Mr. Hawkins pursuant to the 1993
Plan will qualify as "performance-based compensation" for purposes of Section
162(m). The supplemental cash payment of $2,303,000 made to Mr. Hawkins as
compensation for loss of benefits under arrangements with his prior employer
does not qualify for any exception from Section 162(m). The Compensation
Committee believes that, in light of the future contribution which Mr. Hawkins
is expected to make to the success of the Company, it was in the Company's best
interests to enter into the above-described compensation arrangements with Mr.
Hawkins in order to attract him to the Company.
With respect to other compensation that may be paid to executive officers
of the Company in the future, the Compensation Committee will consider the
requirements of Section 162(m) and will make determinations based upon the best
interests of the Company and its stockholders.
The Company also provides to its executive officers other compensation,
such as retirement income, described elsewhere in this Proxy Statement. The
amounts of these benefits generally are tied directly to salaries, as variously
defined in the relevant plans. Such additional benefits are believed to be
typical of the benefits provided by other public companies to their executives.
Richard D. Segal, Chairman
Eugene A. DePalma
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<PAGE>
PERFORMANCE GRAPH(1)
Following is a graph which compares for fiscal years 1994 through 1998 the
cumulative total stockholder return on the Common Stock, the cumulative total
return on Standard & Poor's 500 Stock Index (the "S&P 500 Index") and the
cumulative total return on Standard & Poor's Food Retail Index(2) (the "S&P Food
Retail Index").
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
PENN TRAFFIC S&P 500 INDEX S&P FOOD
<S> <C> <C> <C>
1993 $ 100 100 100
1994 $ 112 110 93
1995 $ 111 107 101
1996 $ 48 145 126
1997 $ 8 179 145
1998 $ 20 223 196
</TABLE>
(1) Assumes $100 invested on February 1, 1993 in Penn Traffic Common Stock, S&P
500 Index and S&P Food Retail Index (also assumes reinvestment of
dividends).
(2) Includes Albertson's, American Stores, Giant Food, Great Atlantic & Pacific,
Kroger and Winn-Dixie. For fiscal years 1993 through 1996, Bruno's was
included in the S&P Food Retail Index.
26
<PAGE>
CERTAIN TRANSACTIONS
Mr. Poster, a director of the Company, is a partner in the law firm of
Gilmartin, Poster & Shafto. During Fiscal 1998, Gilmartin, Poster & Shafto
provided legal services to Penn Traffic in connection with various matters, for
which Gilmartin, Poster & Shafto received fees in the aggregate amount of
$120,691.25.
See also "Compensation of Directors" above.
2. RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS
The Board of Directors has selected Price Waterhouse LLP, independent
certified public accountants, as independent auditors for the Company for the
fiscal year ending January 30, 1999. A proposal to ratify such selection will be
submitted to stockholders at the 1998 Annual Meeting. Although ratification by
stockholders is not a prerequisite to the ability of the Board of Directors to
select Price Waterhouse LLP as the Company's independent auditors, the Company
believes such ratification to be desirable. If the stockholders do not ratify
the selection of Price Waterhouse LLP, the selection of independent auditors
will be reconsidered by the Board of Directors; however, the Board of Directors
may select Price Waterhouse LLP notwithstanding the failure of the stockholders
to ratify its selection.
It is expected that a representative of Price Waterhouse LLP will be
present at the meeting, will have an opportunity to make statements, if he
desires to do so, and will be available to respond to appropriate questions.
Price Waterhouse LLP has performed the annual examination of the Company's
financial statements since 1981.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THIS PROPOSAL. PROXIES
SOLICITED BY THE BOARD OF DIRECTORS WILL BE SO VOTED UNLESS STOCKHOLDERS SPECIFY
A CONTRARY VOTE.
3. ALL OTHER MATTERS THAT MAY COME BEFORE THE MEETING
As of the date of this Proxy Statement, the Board of Directors knows of no
business that will be presented for consideration at the meeting other than that
referred to above. As to other business, if any, that may come before the
meeting, proxies in the enclosed form will be voted in accordance with the
judgment of the person or persons voting the proxies.
4. STOCKHOLDER NOMINATIONS AND PROPOSALS
The Company's by-laws require that there be furnished to the Company
written notice with respect to the nomination of a person for election as a
director (other than a
27
<PAGE>
person nominated at the direction of the Board of Directors), as well as the
submission of a proposal (other than a proposal submitted at the direction of
the Board of Directors) at a meeting of stockholders. In order for any such
nomination or submission to be proper, the notice must contain certain
information concerning the nominating or proposing stockholder, and the nominee
or the proposal, as the case may be, and must be furnished to the Company
generally not less than 30 days prior to the meeting. A copy of the applicable
by-law provisions may be obtained, without charge, upon written request to the
Secretary of the Company at its principal executive offices.
In accordance with the rules of the Securities and Exchange Commission,
any proposal of a stockholder intended to be presented at the Company's 1999
Annual Meeting of Stockholders must be received by the Secretary of the Company
by January 4, 1999 in order for the proposal to be considered for inclusion in
the Company's notice of meeting, proxy statement and proxy relating to the 1999
Annual Meeting of Stockholders.
5. ADDITIONAL INFORMATION
At any time prior to their being voted, the enclosed proxies are revocable
by written notice to the Secretary of the Company, by giving a later dated proxy
or by appearance at the meeting and voting in person. A quorum comprising the
holders of a majority of the outstanding shares of Common Stock on the record
date must be present in person or represented by proxy for the transaction of
business at the 1998 Annual Meeting.
Solicitation of proxies will be made by mail, telephone and, to the extent
necessary, by telegrams and personal interviews. Expenses in connection with the
solicitation of proxies will be borne by the Company. Brokers, custodians and
fiduciaries will be requested to transmit proxy material to the beneficial
owners of Common Stock held of record by such persons, at the expense of the
Company. The Company has retained W.F. Doring to aid in the solicitation of
proxies, and for its services the Company expects to pay fees of approximately
$3,500 plus expenses.
By Order of the Board of Directors
FRANCIS D. PRICE, JR.
Secretary
May 1, 1998
Syracuse, New York
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<PAGE>
PROXY THE PENN TRAFFIC COMPANY PROXY
This Proxy is Solicited on Behalf of the Board of Directors of the Company
for the Annual Meeting of Stockholders--June 4, 1998
The undersigned hereby appoints Martin A. Fox and Francis D. Price, Jr.
proxies, each with the power to appoint his substitute and with authority in
each to act in the absence of the other, to represent and to vote all shares
of common stock of The Penn Traffic Company which the undersigned is entitled
to vote at the Annual Meeting of Stockholders to be held at the Hotel
Syracuse, 500 South Warren Street, Syracuse, NY 13202 on Thursday, June 4,
1998 at 1:00 P.M. local time, and at all adjournments thereof, as indicated
on the proposals described in the Proxy Statement, and all other matters
properly coming before said meeting.
THIS PROXY WILL BE VOTED IN ACCORDANCE WITH THE SPECIFICATIONS MADE ON THE
REVERSE SIDE, BUT IF NO CHOICES ARE INDICATED, THIS PROXY WILL BE VOTED FOR
ALL NOMINEES LISTED ON THE REVERSE SIDE AND FOR PROPOSAL 2. ---
---
PLEASE MARK, SIGN, DATE AND MAIL THIS PROXY CARD PROMPTLY
USING THE ENCLOSED ENVELOPE.
- -----------------------------------------------------------------------------
<PAGE>
THE PENN TRAFFIC COMPANY
PLEASE MARK VOTE IN OVAL IN THE FOLLOWING MANNER USING DARK INK ONLY. [X]
The Board of Directors recommends a vote FOR all Nominees listed in Proposal
1 and FOR approval of Proposal 2. Unless otherwise specified, this Proxy will
be voted FOR all Nominees listed in Proposal 1 and FOR approval of Proposal 2.
1. Election of Directors-- FOR ALL
Nominees: Gary D. Hirsch, James A. Lash and FOR WITHHOLD EXCEPT
Richard D. Segal. [] [] []
INSTRUCTION: To withhold authority to vote
for an individual nominee, write that
nominee's name in the following space:
---------------------------------------------
2. The proposal to ratify the appointment of
Price Waterhouse LLP as the independent FOR AGAINST ABSTAIN
accountants for The Penn Traffic Company for [] [] []
the fiscal year ending January 30, 1999.
3. To consider and approve such other matters as may properly come before
the meeting,
All Proxies to vote at said Meeting or any adjournments thereof heretofore
given by the undersigned are hereby revoked. Receipt of Notice of Annual
Meeting and Proxy Statement is hereby acknowledged.
Dated: -------------------------, 1998
Signature(s) ----------------------------------------------------------------
- -----------------------------------------------------------------------------
(Please sign as name(s) appear on this proxy card. if joint account, each
joint owner should sign. When signing as attorney, executor, administrator,
trustee or guardian, please give full title as such. If corporation, please
sign in full corporate name by President or other authorized officer. If a
partnership, please sign in partnership name by authorized person.)
- -----------------------------------------------------------------------------
FOLD AND DETACH HERE
YOUR VOTE IS IMPORTANT!
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD
USING THE ENCLOSED ENVELOPE.
