<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 21, 1994
REGISTRATION NO. 33-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------
FORM S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
HECHINGER COMPANY
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 52-1001530
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
</TABLE>
3500 PENNSY DRIVE
LANDOVER, MARYLAND 20785
TELEPHONE: (301) 341-1000
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
W. CLARK MCCLELLAND
EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
HECHINGER COMPANY
3500 PENNSY DRIVE
LANDOVER, MARYLAND 20785
(301) 341-1000
(Name, address, including zip code, and telephone
number, including area code, of agent for service)
------------------------
Please send copies of communications to:
<TABLE>
<S> <C>
STEPHEN W. HAMILTON, ESQ. SARAH JONES BESHAR, ESQ.
SKADDEN, ARPS, SLATE, MEAGHER & FLOM DAVIS POLK & WARDWELL
1440 NEW YORK AVENUE, N.W. 450 LEXINGTON AVENUE
WASHINGTON, D.C. 20005 NEW YORK, NEW YORK 10017
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the Registration Statement becomes effective.
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, check the following
box. / /
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended, other than securities offered only in connection with dividend
or interest reinvestment plans, check the following box. / /
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------
PROPOSED
PROPOSED MAXIMUM
NUMBER OF MAXIMUM AGGREGATE
TITLE OF SHARES TO OFFERING PRICE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED BE REGISTERED PER SHARE(2) PRICE(2) REGISTRATION FEE
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A Common Stock, par value,
$.10 per share.................. 5,750,000(1) $14.875 $85,531,250 $29,493.53
- --------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------
</TABLE>
(1) Includes 750,000 shares being registered in connection with an
over-allotment option granted to the underwriters.
(2) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
EXPLANATORY NOTE
This Registration Statement will contain two forms of prospectus: one to be
used in connection with a United States and Canadian offering (the "U.S.
Prospectus") and one to be used in connection with a concurrent international
offering (the "International Prospectus"). The U.S. Prospectus and the
International Prospectus will be identical in all respects except for the front
cover page. The form of U.S. Prospectus is included herein and is followed by
the front cover page for the International Prospectus which is labeled
"Alternate Page for International Prospectus."
<PAGE> 3
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF
THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE
WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE
SECURITIES LAWS OF ANY SUCH STATE.
PROSPECTUS (Subject to Completion)
Issued September 21, 1994
5,000,000 Shares
[LOGO]
CLASS A COMMON STOCK
------------------------
OF THE 5,000,000 SHARES OF CLASS A COMMON STOCK BEING OFFERED, 4,000,000 SHARES
ARE BEING OFFERED IN THE UNITED STATES AND CANADA BY THE U.S. UNDERWRITERS AND
1,000,000 SHARES ARE BEING OFFERED OUTSIDE THE UNITED STATES AND CANADA BY
THE INTERNATIONAL UNDERWRITERS. SEE "UNDERWRITERS." THE COMPANY'S CLASS A
COMMON STOCK IS TRADED IN THE OVER-THE-COUNTER MARKET UNDER THE SYMBOL
"HECHA." ON SEPTEMBER 20, 1994, THE LAST SALE PRICE FOR THE CLASS A
COMMON STOCK AS REPORTED ON THE NASDAQ NATIONAL
MARKET SYSTEM, WAS $15 PER SHARE.
------------------------
HOLDERS OF CLASS A COMMON STOCK AND HOLDERS OF CLASS B COMMON STOCK HAVE THE
SAME RIGHTS TO DIVIDENDS AND DISTRIBUTIONS EXCEPT FOR REGULAR QUARTERLY CASH
DIVIDENDS IN RESPECT OF WHICH HOLDERS OF CLASS A COMMON STOCK ARE ENTITLED
TO RECEIVE A MINIMUM OF AT LEAST $.0064 PER SHARE SUBJECT TO CERTAIN
ADJUSTMENTS BEFORE HOLDERS OF CLASS B COMMON STOCK ARE ENTITLED TO
RECEIVE ANY CASH DIVIDENDS FOR SUCH QUARTER. HOLDERS OF CLASS A
COMMON STOCK HAVE ONE VOTE PER SHARE AND HOLDERS OF CLASS B
COMMON STOCK HAVE TEN VOTES PER SHARE.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
------------------------
PRICE $ A SHARE
------------------------
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY(2)
------------- ------------- -------------
<S> <C> <C> <C>
Per Share........................................ $ $ $
Total(3)......................................... $ $ $
</TABLE>
- ------------
(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933.
(2) Before deducting expenses payable by the Company estimated at $ .
(3) The Company has granted the U.S. Underwriters an option, exercisable
within 30 days of the date hereof, to purchase up to 750,000 additional
shares of Class A Common Stock at the price to public less underwriting
discounts and commissions for the purpose of covering over-allotments,
if any. If the U.S. Underwriters exercise such option in full, the total
price to public, underwriting discounts and commissions and proceeds to
Company will be $ , $ and $ , respectively. See
"Underwriters."
------------------------
The shares of Class A Common Stock are offered, subject to prior sale,
when, as and if accepted by the Underwriters named herein and subject to
approval of certain legal matters by Davis Polk & Wardwell, counsel for the
Underwriters. It is expected that delivery of the shares of Class A Common Stock
will be made on or about , 1994 at the office of Morgan Stanley &
Co. Incorporated, New York, N.Y., against payment therefor in New York funds.
------------------------
MORGAN STANLEY & CO. MONTGOMERY SECURITIES
Incorporated
, 1994
<PAGE> 4
[INSERT MAP -- INSIDE FRONT COVER TO PROSPECTUS]
2
<PAGE> 5
NO PERSON IS AUTHORIZED IN CONNECTION WITH ANY OFFERING MADE HEREBY TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED OR INCORPORATED BY
REFERENCE IN THIS PROSPECTUS, AND ANY INFORMATION OR REPRESENTATION NOT
CONTAINED OR INCORPORATED HEREIN MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY BY ANY PERSON
IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL FOR SUCH PERSON TO MAKE SUCH AN
OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS AT ANY TIME NOR
ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCE IMPLY THAT THE INFORMATION
CONTAINED OR INCORPORATED BY REFERENCE HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information................................................................. 3
Incorporation of Certain Documents by Reference....................................... 4
Prospectus Summary.................................................................... 5
The Company........................................................................... 8
Use of Proceeds....................................................................... 9
Price Range of Common Stock; Dividends................................................ 9
Capitalization........................................................................ 10
Selected Financial and Operating Data................................................. 11
Management's Discussion and Analysis of Financial Condition and Results of
Operations.......................................................................... 12
Business.............................................................................. 15
Description of Capital Stock.......................................................... 19
Certain United States Federal Tax Considerations for Non-U.S. Holders of Class A
Common Stock........................................................................ 19
Underwriters.......................................................................... 21
Legal Matters......................................................................... 24
Experts............................................................................... 24
</TABLE>
------------------------
AVAILABLE INFORMATION
Hechinger Company (the "Company") is subject to the informational
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and in accordance therewith files reports, proxy statements and other
information with the Securities and Exchange Commission (the "Commission").
Reports, proxy statements and other information filed by the Company may be
inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, as well
as at the regional offices of the Commission at Seven World Trade Center, 13th
Floor, New York, New York 10048 and Northwestern Atrium Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661. Copies of such information can be
obtained by mail from the Public Reference Branch of the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549 at prescribed rates.
The Company has filed with the Commission a Registration Statement on Form
S-3 (the "Registration Statement") under the Securities Act of 1933, as amended
(the "Securities Act"), with respect to the shares of the Company's Class A
Common Stock, par value $.10 per share (the "Class A Common Stock"), offered
hereby. For further information with respect to the Company and the Class A
Common Stock offered hereby, reference is made to the Registration Statement and
exhibits thereto. Statements contained in this Prospectus as to the contents of
any contract or other document are not necessarily complete, and in each
instance reference is made to the copy of such contract or document filed, or
incorporated by reference as an exhibit to the Registration Statement, each such
statement being qualified in all respects by such reference.
3
<PAGE> 6
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Company incorporates by reference the following documents heretofore
filed with the Commission pursuant to the Exchange Act:
1. The Company's Quarterly Reports on Form 10-Q for the fiscal
quarters ended April 30, 1994 and July 30, 1994;
2. The Company's Annual Report on Form 10-K for the fiscal year ended
January 29, 1994 (the "1994 Form 10-K"); and
3. The description of the Class A Common Stock contained in the
Company's Form 8-B dated February 11, 1987.
All documents filed by the Company pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act after the date of this Prospectus and prior to the
termination of the offering hereby shall be deemed to be incorporated by
reference in this Prospectus and to be a part hereof from the date of filing of
such documents.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for the purpose of this Prospectus to the extent that a statement contained
herein or in any other subsequently filed document which also is or is deemed to
be incorporated by reference herein modifies or supersedes such statement. Any
statement so superseded or modified shall not be deemed to constitute a part of
this Prospectus except as so superseded or modified.
The Company will provide without charge to each person to whom this
Prospectus is delivered, on the written or oral request of any such person, a
copy of any or all of the documents which have been incorporated by reference in
the Registration Statement of which this Prospectus forms a part, other than
exhibits to such documents, unless such exhibits are specifically incorporated
by reference into the information that the Registration Statement incorporates.
Requests should be directed to Richard S. Gross, Corporate Controller, Hechinger
Company, 3500 Pennsy Drive, Landover, Maryland 20785 (telephone (301) 341-1000).
------------------------
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF OUTSTANDING 5 1/2%
CONVERTIBLE SUBORDINATED DEBENTURES DUE 2012 OF THE COMPANY, AND SHARES OF CLASS
A COMMON STOCK AND CLASS B COMMON STOCK OF THE COMPANY, AT LEVELS ABOVE THOSE
WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE
EFFECTED IN THE OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF
COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS AND SELLING GROUP
MEMBERS (IF ANY) MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE COMMON
STOCK ON NASDAQ IN ACCORDANCE WITH RULE 10B-6A UNDER THE SECURITIES EXCHANGE ACT
OF 1934. SEE "UNDERWRITERS."
4
<PAGE> 7
PROSPECTUS SUMMARY
The following is a summary of certain information contained in this
Prospectus and is qualified in its entirety by the more detailed information
included or incorporated by reference herein.
THE COMPANY
Hechinger Company (the "Company") is a leading specialty retailer providing
products and services for the care, repair, remodeling and maintenance of the
home and garden. The Company serves the growing home improvement industry
through two operating subsidiaries: Home Quarters Warehouse, Inc. ("Home
Quarters Warehouse" or "Home Quarters"), operating 59 stores primarily in the
southeastern, northeastern and midwestern parts of the United States, and
Hechinger Stores Company ("Hechinger Stores" or "Hechinger"), operating 72
stores primarily in the mid-Atlantic region of the United States. The Company's
strategy is to (i) achieve growth principally through the rapid expansion of
Home Quarters Warehouse and (ii) maintain and improve the profitability of
Hechinger Stores. For the first half of fiscal 1994, the Company reported an
increase in sales and net earnings of 18% and 23%, respectively, as compared to
the same period last year.
The Company is rapidly expanding its Home Quarters Warehouse subsidiary.
Since being acquired by the Company in February 1988, Home Quarters has grown
from seven to 59 stores, with two more units planned to open by the end of
fiscal 1994. Since the acquisition, sales and operating income at Home Quarters
have grown at a compounded annual rate of approximately 50% through the end of
fiscal 1993. For the first half of fiscal 1994, sales and operating income at
Home Quarters have increased by 44% and 57%, respectively, as compared to the
same period last year. For this same period, Home Quarters generated
approximately 60% of the Company's operating income, up from 35% in fiscal 1991.
Home Quarters Warehouse stores, with their large-scale merchandise
presentation, operate under the warehouse format, producing high sales volume by
emphasizing low pricing and superior levels of service. Home Quarters stores
offer a wide assortment of building materials and home improvement merchandise
to do-it-yourselfers and professional contractors in brightly lit, uncluttered
facilities containing, on average, approximately 90,000 square feet under roof.
Home Quarters opened a new 115,000 square foot store in Chesapeake,
Virginia in July 1993. This store incorporates many new features which the
Company believes allows it to increase productivity and to maintain and improve
its competitive position within the industry. This Chesapeake, Virginia store
achieved sales per square foot in excess of $400 in its first year of operation,
which the Company believes puts it among the leaders in the home improvement
industry. This also compares favorably to Home Quarters' average sales per
square foot of $239 for fiscal 1993. Since July 1993, the Company has opened
sixteen new "Chesapeake class" stores, which the Company believes will achieve
average annualized sales per square foot well in excess of Home Quarters'
average of $239 for fiscal 1993. The Company plans to open approximately 12 to
14 new "Chesapeake class" Home Quarters Warehouse stores (including two
relocations) in fiscal 1995.
New features in a "Chesapeake class" store include: a greenhouse and garden
center, design centers staffed with experienced professionals, merchandise
installation services, a tool rental program and a dedicated classroom called
"HQ University" for how-to clinics. The "Chesapeake class" store also has a
dedicated contractor's desk to handle the special needs of professional
contractors and commercial property owners, including its own entrance and
loading facility. In addition, the "Chesapeake class" store offers "Kids
Quarters," a supervised on-site child care facility for children ages three to
eight. As compared to earlier Home Quarters units, a "Chesapeake class" store
has approximately 25% more square footage and carries approximately 33% more
SKUs.
Since 1991, the Company has been converting its Hechinger stores to the
Home Project Center format. During this period, the Company believes that it has
improved the competitive positioning of its Hechinger Stores subsidiary. While
Hechinger Stores has significantly reduced its retail prices, it has
concurrently increased its average annual sales per store from $12 million in
fiscal 1990 to $15 million in fiscal 1993. During this same period, Hechinger
Stores reduced its annual operating expenses as a percentage of sales by
5
<PAGE> 8
approximately 400 basis points. For the first half of fiscal 1994, Hechinger
Stores' sales and operating income have increased by 4% and 20%, respectively,
as compared to the same period last year.
The Home Project Center format was developed to capitalize on the
traditional strengths of the Hechinger Stores Company, which the Company
considers to be: strong name recognition among consumers, convenient store
locations and home decor merchandising. The merchandising strength is best
exemplified in the Hechinger Home Project Center store located in Laurel,
Maryland which opened in June 1994. Highlights of this store include a large
kitchen and bath presentation located in the front of the store and a
comprehensive offering of lighting, flooring, wallcoverings, paint and other
home decor items. In addition, the store offers extensive design services
including kitchen, bath and landscaping. The store's staff includes a team of
home improvement specialists, selected on the basis of their experience and
knowledge in particular fields, who are available to guide customers through
their home improvement projects.
THE OFFERING
Common Stock offered by the
Company.................. 5,000,000 shares of Class A Common Stock(1)(2)
Common Stock to be
outstanding after the
Offering................. 35,726,499 shares of Class A Common Stock(2)
11,580,842 shares of Class B Common Stock
Use of proceeds............ To finance the Company's expansion program, the
remodeling of existing stores and for general
corporate purposes.
NASDAQ symbol.............. HECHA (Class A Common Stock)
- ---------------
(1) Of such shares, 4,000,000 are being offered in the United States and Canada
by the U.S. Underwriters and 1,000,000 are being offered outside the United
States and Canada by the International Underwriters. See "Underwriters."
(2) Assumes the U.S. Underwriters' over-allotment option is not exercised. See
"Underwriters."
6
<PAGE> 9
SUMMARY FINANCIAL AND OPERATING DATA
<TABLE>
<CAPTION>
TWENTY-SIX WEEKS ENDED FISCAL YEAR ENDED
------------------------ --------------------------------------
JULY 30, JULY 31, JAN. 29, JAN. 30, FEB. 1,
1994 1993 1994 1993 1992
---------- ---------- ---------- ---------- ----------
(unaudited)
(in thousands, except per share data and Selected Operating Data)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales.......................................... $1,283,175 $1,088,377 $2,094,968 $1,869,349 $1,607,727
Cost of sales...................................... 996,074 843,143 1,632,702 1,432,340 1,201,536
Selling, general and administrative expenses....... 234,597 206,573 411,589 387,162 353,761
Interest expense................................... 14,758 10,256 23,063 14,121 11,906
Unusual charges(1)................................. -- -- -- 83,000 8,033
Income tax expense (benefit)....................... 13,401 9,487 10,611 (15,429) 10,133
Net earnings (loss)................................ 26,013 21,122 24,760 (26,272) 26,055
Net earnings (loss) per common share............... $ 0.60 $ 0.50 $ 0.59 $ (0.63) $ 0.66
Dividends per share --
Class A common................................... $ 0.08 $ 0.08 $ 0.16 $ 0.16 $ 0.16
Class B common................................... 0.03 0.03 0.06 0.06 0.06
SELECTED BALANCE SHEET DATA:
Working capital.................................... $ 294,415 $ 321,194 $ 326,980 $ 346,061 $ 320,651
Total assets....................................... 1,307,316 1,134,141 1,229,242 1,075,749 936,774
Total long-term debt and capital lease
obligations...................................... 405,142 305,084 407,873 305,974 207,485
Total stockholders' equity......................... 519,759 492,643 493,867 473,924 505,185
CASH FLOW DATA:
Depreciation and amortization...................... $ 25,071 $ 21,800 $ 45,689 $ 40,247 $ 35,266
Capital expenditures............................... 81,196 59,164 162,586 137,668 92,475
SUPPLEMENTAL FINANCIAL DATA:
Net sales
Home Quarters.................................... $ 700,221 $ 487,045 $ 995,267 $ 743,681 $ 522,191
Hechinger Stores................................. 582,954 561,251 1,056,876 1,044,971 1,017,543
Triangle(2)...................................... -- 40,081 42,825 80,697 67,993
---------- ---------- ---------- ---------- ----------
Total net sales.............................. 1,283,175 1,088,377 2,094,968 1,869,349 1,607,727
Operating income
Home Quarters.................................... 37,943 24,244 45,131 33,954 22,425
Hechinger Stores................................. 25,400 21,177 24,897 31,580 41,391
Triangle(2)...................................... -- -- -- 1,023 (13)
---------- ---------- ---------- ---------- ----------
Total operating income....................... 63,343 45,421 70,028 66,557 63,803
Pre-opening expense................................ 4,987 2,627 12,972 9,631 4,006
Corporate expense and other........................ 5,954 4,133 6,379 7,079 7,367
Earnings (loss) before income taxes................ 39,414 30,609 35,371 (41,701) 36,188
SELECTED OPERATING DATA:
Number of stores open at end of period
Home Quarters.................................... 58 45 53 43 30
Hechinger Stores................................. 72 71 72 75 76
Total square feet at end of period (000)
Home Quarters.................................... 5,378 3,952 4,794 3,757 2,563
Hechinger Stores................................. 4,934 4,730 4,846 4,931 4,814
Weighted average sales per square foot
Home Quarters.................................... $ 137 $ 126 $ 239 $ 233 $ 217
Hechinger Stores................................. 119 118 220 210 196
</TABLE>
- ---------------
(1) In fiscal 1992, the Company recorded an unusual charge of $83 million to
establish a strategic reserve to cover estimated costs associated with the
repositioning of Hechinger Stores Company. In fiscal 1991, the Company
recorded an unusual charge of $8 million which was comprised primarily of
costs associated with the closing of seven Hechinger stores.
(2) The Company closed its six Triangle Building Center stores in fiscal 1993.
7
<PAGE> 10
THE COMPANY
The Company is a leading specialty retailer providing products and services
for the care, repair, remodeling and maintenance of the home and garden. The
Company serves the growing home improvement industry through two operating
subsidiaries: Home Quarters Warehouse, Inc. ("Home Quarters Warehouse" or "Home
Quarters"), operating 59 stores primarily in the southeastern, northeastern and
midwestern parts of the United States, and Hechinger Stores Company ("Hechinger
Stores" or "Hechinger"), operating 72 stores primarily in the mid-Atlantic
region of the United States. The Company's strategy is (i) to achieve growth
principally through the rapid expansion of Home Quarters Warehouse and (ii) to
maintain and improve the profitability of Hechinger Stores. For the first half
of fiscal 1994, the Company reported an increase in sales and net earnings of
18% and 23%, respectively, as compared to the same period last year.
The Company is rapidly expanding its Home Quarters Warehouse subsidiary.
Since being acquired by the Company in February 1988, Home Quarters has grown
from seven to 59 stores, with two more units planned to open by the end of
fiscal 1994. Since the acquisition, sales and operating income have grown at a
compounded annual rate of approximately 50% through the end of fiscal 1993. For
the first half of fiscal 1994, sales and operating income at Home Quarters have
increased by 44% and 57%, respectively, as compared to the same period last
year. For this same period, Home Quarters generated approximately 60% of the
Company's operating income, up from 35% in fiscal 1991.
Home Quarters Warehouse stores, with their large-scale merchandise
presentation, operate under the warehouse format, producing high sales volume by
emphasizing low pricing and superior levels of service. Home Quarters stores
offer a wide assortment of building materials and home improvement merchandise
to do-it-yourselfers and professional contractors in brightly lit, uncluttered
facilities containing, on average, approximately 90,000 square feet under roof.
Home Quarters opened a new 115,000 square foot store in Chesapeake,
Virginia in July 1993. This store incorporates many new features which the
Company believes allows it to increase productivity and to maintain and improve
its competitive position within the industry. This Chesapeake, Virginia store
achieved sales per square foot in excess of $400 in its first year of operation,
which the Company believes puts it among the leaders in the home improvement
industry. This also compares favorably to Home Quarters' average sales per
square foot of $239 for fiscal 1993. Since July 1993, the Company has opened
sixteen new "Chesapeake class" stores, which the Company believes will achieve
average annualized sales per square foot well in excess of Home Quarters'
average of $239 for fiscal 1993. The Company plans to open approximately 12 to
14 new "Chesapeake class" Home Quarters Warehouse stores (including two
relocations) in fiscal 1995.
New features in a "Chesapeake class" store include: a greenhouse and garden
center, three design centers staffed with experienced professionals, merchandise
installation services, a tool rental program and a dedicated classroom called
"HQ University" for how-to clinics. The "Chesapeake class" store also has a
dedicated contractor's desk to handle the special needs of professional
contractors and commercial property owners, including its own entrance and
loading facility. In addition, the "Chesapeake class" store offers "Kids
Quarters," a supervised on-site child care facility for children ages three to
eight. As compared to earlier Home Quarters units, a "Chesapeake class" store
has approximately 25% more square footage and carries approximately 33% more
SKUs.
Since 1991, the Company has been converting its Hechinger stores to the
Home Project Center format. During this period, the Company believes that it has
improved the competitive positioning of its Hechinger Stores subsidiary. While
Hechinger Stores has significantly reduced its retail prices, it has
concurrently increased its average annual sales per store from $12 million in
fiscal 1990 to $15 million in fiscal 1993. During this same period, Hechinger
Stores has reduced its annual operating expenses as a percentage of sales by
approximately 400 basis points. For the first half of fiscal 1994, Hechinger
Stores' sales and operating income have increased by 4% and 20%, respectively,
as compared to the same period last year.
8
<PAGE> 11
The Home Project Center format was developed to capitalize on the
traditional strengths of the Hechinger Stores Company, which the Company
considers to be: strong name recognition among consumers, convenient store
locations and home decor merchandising. The merchandising strength is best
exemplified in the Hechinger Home Project Center store located in Laurel,
Maryland which opened in June 1994. Highlights of this store include a large
kitchen and bath presentation located in the front of the store and a
comprehensive offering of lighting, flooring, wallcoverings, paint and other
home decor items. In addition, the store offers extensive design services
including kitchen, bath and landscaping. The store's staff includes a team of
home improvement specialists, selected on the basis of their experience and
knowledge in particular fields, who are available to guide customers through
their home improvement projects.
The Company is a Delaware corporation with its principal executive offices
located at 3500 Pennsy Drive, Landover, Maryland 20785; its telephone number is
(301) 341-1000.
USE OF PROCEEDS
The net proceeds to be received by the Company from the sale of the
5,000,000 shares of Class A Common Stock offered hereby are estimated to be
$ ($ assuming that the over-allotment option granted to the
U.S. Underwriters is exercised in full). Such net proceeds, together with
existing and internally generated funds, will be used to finance the Company's
expansion program, the remodeling of existing stores and for general corporate
purposes. See "Business -- Expansion Strategy" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources." The Company anticipates that its existing and internally
generated funds and its net proceeds from this offering will be adequate to
finance such costs and expenses through fiscal 1995. Until utilized as described
above, substantially all the net proceeds of the sale of Class A Common Stock
offered hereby will be invested in high quality, marketable securities.
PRICE RANGE OF COMMON STOCK; DIVIDENDS
The Company's common stock has been traded publicly since 1972. The
following table sets forth the high and low prices of the Class A Common Stock
on the National Association of Securities Dealers, Inc. Automated Quotation
System ("NASDAQ") National Market System as reported in published financial
sources during the Company's fiscal reporting periods indicated. The Company
declared cash dividends of $.04 per share of Class A Common Stock in each of the
quarters presented.
<TABLE>
<CAPTION>
HIGH LOW
----- -----
<S> <C> <C>
FISCAL 1992
First Quarter.............................................. $14 1/2 $10
Second Quarter............................................. 12 8 1/2
Third Quarter.............................................. 12 8 3/4
Fourth Quarter............................................. 11 9 3/8
FISCAL 1993
First Quarter.............................................. $10 1/2 $ 8 1/8
Second Quarter............................................. 10 3/8 9
Third Quarter.............................................. 12 1/8 8 1/8
Fourth Quarter............................................. 11 3/8 9 1/8
FISCAL 1994
First Quarter.............................................. $15 1/4 $10
Second Quarter............................................. 16 1/2 11
Third Quarter (through September 20, 1994)................. 15 3/4 11 1/2
</TABLE>
A recent last sale price of the Class A Common Stock on the NASDAQ National
Market System is set forth on the cover of this Prospectus.
9
<PAGE> 12
CAPITALIZATION
Set forth below is the capitalization of the Company at July 30, 1994, and
as adjusted to reflect the sale of the shares of Class A Common Stock offered by
the Company hereby (excluding the effect of the exercise of the over-allotment
option by the U.S. Underwriters), net of commissions and expenses. This table
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" included herein and with the
Consolidated Financial Statements and the Notes thereto contained in documents
incorporated by reference herein.
<TABLE>
<CAPTION>
AS
ACTUAL ADJUSTED
----------- --------
(in thousands)
<S> <C> <C>
Long-term debt(1)...................................................... $ 323,050 $323,050
Other long-term debt and capital lease obligations..................... 82,092 82,092
----------- --------
Total long-term debt and capital lease obligations(2)(3).......... 405,142 405,142
----------- --------
Stockholders' Equity:
Preferred Stock, $1.00 par value, authorized 20,000,000 shares;
none issued...................................................... -- --
Class A Common Stock, $.10 par value; authorized 50,000,000
shares; 30,715,471 shares issued; 35,715,471 shares issued as
adjusted,(1)(4).................................................. 3,072 3,572
Class B Common Stock, $.10 par value; authorized 30,000,000
shares; 11,590,519 shares issued................................. 1,159 1,159
Additional paid-in capital........................................ 238,072
Retained earnings................................................. 279,707 279,707
Unearned compensation............................................. (1,901) (1,901)
Less treasury stock at cost, 6,706 Class A Common shares and
14,497 Class B Common shares..................................... (350) (350)
----------- --------
Total stockholders' equity................................... 519,759
----------- --------
Total capitalization................................................... $ 924,901 $
========= ========
</TABLE>
- ---------------
(1) Includes $123 million of the Company's 5 1/2% Convertible Subordinated
Debentures. These Debentures are convertible into Class A Common Stock at
any time at a conversion price of $27.84 per share, subject to adjustment
in certain events. At July 30, 1994, an aggregate of 4.4 million shares of
Class A Common Stock were issuable upon full conversion of the Convertible
Subordinated Debentures.
(2) Excludes current maturities of $3.2 million.
(3) See the Notes to Consolidated Financial Statements incorporated by reference
in the 1994 Form 10-K for additional information on the long-term debt and
capital lease obligations.
(4) Excludes 3.4 million shares issuable upon exercise of options outstanding as
of July 30, 1994 with a weighted average exercise price of $12.27, of which
1.6 million were exercisable at that date. See the Notes to Consolidated
Financial Statements incorporated by reference in the 1994 Form 10-K for
information regarding shares of Class A Common Stock reserved for issuance
under the Company's stock compensation plans.
10
<PAGE> 13
SELECTED FINANCIAL AND OPERATING DATA
The following table sets forth selected financial data and other operating
data of the Company. The selected financial data are derived from the
consolidated financial statements of the Company. The selected financial data
for the twenty-six weeks ended July 30, 1994 and July 31, 1993 are derived from
unaudited financial statements, which in the opinion of the management of the
Company, include all adjustments necessary (which consist of normal recurring
accruals) for a fair presentation of the financial position and the results of
operations for these periods. Operating results for the twenty-six weeks ended
July 30, 1994 are not necessarily indicative of the results that may be expected
for the entire fiscal year ended January 28, 1995. The following data should be
read in conjunction with the consolidated financial statements, related notes,
and other financial information incorporated by reference herein.
<TABLE>
<CAPTION>
TWENTY-SIX WEEKS ENDED FISCAL YEAR ENDED
------------------------ --------------------------------------
JULY 30, JULY 31, JAN. 29, JAN. 30, FEB. 1,
1994 1993 1994 1993 1992
---------- ---------- ---------- ---------- ----------
(in thousands, except per share data and Selected Operating Data)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales.......................................... $1,283,175 $1,088,377 $2,094,968 $1,869,349 $1,607,727
Cost of sales...................................... 996,074 843,143 1,632,702 1,432,340 1,201,536
Selling, general and administrative expenses....... 234,597 206,573 411,589 387,162 353,761
Interest expense................................... 14,758 10,256 23,063 14,121 11,906
Unusual charges(1)................................. -- -- -- 83,000 8,033
Income tax expense (benefit)....................... 13,401 9,487 10,611 (15,429) 10,133
Net earnings (loss)................................ 26,013 21,122 24,760 (26,272) 26,055
Net earnings (loss) per common share............... $ 0.60 $ 0.50 $ 0.59 $ (0.63) $ 0.66
Dividends per share --
Class A common................................... $ 0.08 $ 0.08 $ 0.16 $ 0.16 $ 0.16
Class B common................................... 0.03 0.03 0.06 0.06 0.06
SELECTED BALANCE SHEET DATA:
Working capital.................................... $ 294,415 $ 321,194 $ 326,980 $ 346,061 $ 320,651
Total assets....................................... 1,307,316 1,134,141 1,229,242 1,075,749 936,774
Total long-term debt and capital lease
obligations...................................... 405,142 305,084 407,873 305,974 207,485
Total stockholders' equity......................... 519,759 492,643 493,867 473,924 505,185
CASH FLOW DATA:
Depreciation and amortization...................... $ 25,071 $ 21,800 $ 45,689 $ 40,247 $ 35,266
Capital expenditures............................... 81,196 59,164 162,586 137,668 92,475
SELECTED OPERATING DATA:
Number of stores open at end of period
Home Quarters.................................... 58 45 53 43 30
Hechinger Stores................................. 72 71 72 75 76
Total square feet at end of period (000)
Home Quarters.................................... 5,378 3,952 4,794 3,757 2,563
Hechinger Stores................................. 4,934 4,730 4,846 4,931 4,814
Weighted average sales per square foot
Home Quarters.................................... $ 137 $ 126 $ 239 $ 233 $ 217
Hechinger Stores................................. 119 118 220 210 196
</TABLE>
- ---------------
(1) In fiscal 1992, the Company recorded an unusual charge of $83 million to
establish a strategic reserve to cover estimated costs associated with the
repositioning of Hechinger Stores Company. In fiscal 1991, the Company
recorded an unusual charge of $8 million which was comprised primarily of
costs associated with the closing of seven Hechinger stores.
11
<PAGE> 14
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL
The Company is a leading specialty retailer serving the growing home
improvement industry through two operating subsidiaries: Home Quarters
Warehouse, Inc., operating 59 stores primarily in the southeastern, northeastern
and midwestern parts of the United States, and Hechinger Stores Company,
operating 72 stores primarily in the mid-Atlantic region of the United States.
The Company's strategy is to (i) achieve growth through the rapid expansion of
Home Quarters Warehouse and (ii) maintain and improve the profitability of
Hechinger Stores.
The data below reflects the percentage relationship between net sales and
certain categories in the Consolidated Statements of Operations:
<TABLE>
<CAPTION>
TWENTY-SIX
WEEKS ENDED FISCAL YEAR ENDED
--------------- -------------------------
JULY JULY JAN. JAN. FEB.
30, 31, 29, 30, 1,
1994 1993 1994 1993 1992
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Net sales............................................ 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales........................................ 77.6 77.5 77.9 76.6 74.7
Selling, general and administrative expenses......... 18.3 19.0 19.6 20.7 22.0
Total costs and expenses............................. 97.1 97.4 98.7 102.5 98.0
Earnings (loss) before income taxes.................. 3.1 2.8 1.7 (2.2) 2.3
Net earnings (loss).................................. 2.0 1.9 1.2 (1.4) 1.6
</TABLE>
OPERATIONS
FOR THE FISCAL TWENTY-SIX WEEK PERIODS ENDED JULY 30, 1994 AND JULY 31, 1993
The following table sets forth the sales reported by the Company (in
millions):
<TABLE>
<CAPTION>
COMPARABLE
NET NET NET STORE
SALES SALES SALES SALES
PERIOD: JULY 30, 1994 JULY 31, 1993 INCREASE INCREASE
----------------------------------------- ------------- ------------- -------- ----------
<S> <C> <C> <C> <C>
Twenty-six weeks......................... $1,283.2 $1,088.4 18% 3%
</TABLE>
The sales increase for the twenty-six weeks ended July 30, 1994 was
primarily due to new stores opened since July 31, 1993. For the twelve month
period from July 31, 1993 to July 30, 1994, the Company opened 13 Home Quarters
stores and opened four Hechinger stores, three of which were relocations. As of
July 30, 1994 the Company operated 58 Home Quarters stores and 72 Hechinger
stores.
For the twenty-six weeks ended July 30, 1994, other income was $1.7
million, .1% of sales, compared to $2.2 million, .2% of sales for the
corresponding period last year. This decrease was primarily the result of a loss
of $.6 million on the sale of an excess parcel of land during the first quarter.
For the twenty-six weeks ended July 30, 1994, cost of sales was 77.6%
compared to 77.5% for the corresponding period last year.
For the twenty-six weeks ended July 30, 1994, selling, general and
administrative expenses were 18.3% compared to 19.0% for the corresponding
period last year. The decrease was due to the recent cost reduction efforts at
the Hechinger Stores Company and the growing effect of Home Quarters, which
operates with a lower cost structure. Pre-opening expenses of $5.0 million and
$2.6 million were included in selling, general and administrative expenses for
the twenty-six weeks ended July 30, 1994 and July 31, 1993, respectively.
For the twenty-six weeks ended July 30, 1994, interest expense, net of
capitalized interest, was $14.8 million, 1.2% of sales, compared to $10.3
million, .9% of sales, for the corresponding period last year. The increase was
primarily due to the issuance of $100 million of Senior Notes in October 1993.
12
<PAGE> 15
For the twenty-six weeks ended July 30, 1994, the effective tax rate was
34.0% compared to 31.0% for the corresponding period last year. The effective
tax rate increase was primarily due to the increase in the Federal income tax
rate and increases in state income tax rates. The effective tax rates differ
from the statutory tax rate primarily due to the effect of tax credits and
tax-free earnings on funds available for investment.
For the twenty-six weeks ended July 30, 1994, net earnings were $26.0
million, $.60 per share, compared to $21.1 million, $.50 per share, for the
corresponding period last year.
In May 1993, Statement of Financial Accounting Standards No. 115 ("SFAS
115"), Accounting for Certain Investments in Debt and Equity Securities, was
issued. The Company adopted this statement as of the first quarter of 1994 and
is classifying its investments in marketable securities as available-for-sale.
Under this classification, marketable securities are carried at fair value, with
unrealized gains and losses excluded from earnings and instead reported in
stockholders' equity until realized. In accordance with SFAS 115, prior period
financial statements have not been restated to reflect the change in accounting
principle. The cumulative effect of adopting SFAS 115 in the first quarter of
1994, as well as the effect as of July 30, 1994 on stockholders' equity were
insignificant.
FOR THE FISCAL YEARS ENDED JANUARY 29, 1994, JANUARY 30, 1993 AND FEBRUARY 1,
1992
The following table sets forth the sales reported by the Company (in
millions):
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JAN. 29, 1994 JAN. 30, 1993 FEB. 1, 1992
----------------------------------------------- ------------- ------------- ------------
<S> <C> <C> <C>
Net Sales...................................... $ 2,095 $ 1,869 $1,608
Net Sales Increase............................. 12% 16% 15%
Comparable Store Sales Increase................ 3% 7% 2%
</TABLE>
The sales increase for the current year was primarily due to sales from
stores in operation for less than one year.
The following table sets forth the number of stores operated by the
Company:
<TABLE>
<CAPTION>
HOME HECHINGER
QUARTERS STORES
-------- ---------
<S> <C> <C>
As of February 1, 1992........................................... 30 76
Fiscal year 1992 openings........................................ 14 3
Fiscal year 1992 closings........................................ (1) (4)
As of January 30, 1993........................................... 43 75
Fiscal year 1993 openings........................................ 11 3
Fiscal year 1993 closings........................................ (1) (6)
-- --
As of January 29, 1994........................................... 53 72
====== =======
</TABLE>
Other income, which consists primarily of interest income, was $7.8
million, $5.6 million and $3.7 million in 1993, 1992 and 1991, respectively. The
increase in 1993 was primarily due to gains on the disposal of property and
equipment. The increase in 1992 was primarily due to additional funds available
for investment.
Cost of sales was 77.9%, 76.6% and 74.7% of sales for 1993, 1992 and 1991,
respectively. Distribution and buying and occupancy expenses are included in
cost of sales. As a percent of sales, the increases in 1993 and 1992 were
primarily due to: (i) the lowering of retail prices in the major markets of the
Hechinger Stores subsidiary, and (ii) the growing effect of Home Quarters which
operates with lower gross margins. Cost of sales included a LIFO charge of $5.0
million in 1993 and LIFO credits of $.8 million and $1.0 million in 1992 and
1991, respectively.
Selling, general and administrative expenses were 19.6% of sales for 1993
compared to 20.7% and 22.0% of sales for 1992 and 1991, respectively. The
decreases in 1993 and 1992 were primarily due to the growing effect of Home
Quarters which operates with a lower cost structure and cost reduction efforts
at the Hechinger
13
<PAGE> 16
Stores subsidiary. Pre-opening expenses of $13.0 million, $9.6 million and $4.0
million were included in selling, general and administrative expenses for 1993,
1992 and 1991, respectively.
Interest expense, net of capitalized interest, was $23.1 million, $14.1
million and $11.9 million for 1993, 1992 and 1991, respectively. The increase in
1993 compared to the prior years was primarily the result of the issuance of
Senior Notes in 1993 and Senior Debentures in 1992. The increase in 1992
compared to prior year was primarily the result of the issuance of the Senior
Debentures.
In 1992, the Company recorded an unusual charge of $83 million to establish
a strategic reserve to cover estimated costs associated with the repositioning
of the Hechinger Stores subsidiary. The reserve is comprised primarily of
charges related to the conversion of traditional Hechinger stores to the Home
Project Center format and to the relocation of selected stores as real estate
conditions permit. In 1991, the Company incurred unusual charges totalling $8
million which were primarily comprised of $5.3 million associated with the
closing of seven Hechinger stores in early January 1992. The remainder of the
charges related to one-time costs associated with the sale of the Hechinger
Stores' accounts receivable and costs related to Home Quarters' adoption of the
LIFO inventory method.
The effective income tax rate was 30.0% of earnings before income taxes for
1993, compared to an effective income tax benefit rate of 37.0% of the loss
before income taxes for 1992 and an effective income tax rate of 28.0% of
earnings before income taxes for 1991. The effective tax rate for 1993 differed
from the statutory rate primarily due to tax-free earnings on funds available
for investment and Targeted Jobs Tax Credits. The Company has invested in two
limited real estate partnerships and, as a result, generated rehabilitation and
low income housing tax credits and other tax benefits associated with these
projects. The credits associated with these projects has significantly decreased
since 1991.
Net earnings were 1.2% of sales for 1993 compared to a net loss of 1.4% of
sales for 1992 and net earnings of 1.6% of sales for 1991.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents and marketable securities were $96.7 million as
of July 30, 1994 compared to $170.7 million as of January 29, 1994. The decrease
in cash and cash equivalents and marketable securities was primarily due to cash
required for increases in merchandise inventory and property, furniture and
equipment for new stores and remodeling of certain stores. The increase in
merchandise inventory is due to increased inventory levels at existing stores in
addition to new store openings. The increase in accounts payable and accrued
expenses was primarily due to the increase in inventory. The Company's fiscal
1995 capital expenditures are expected to range from $150 million to $200
million. The Company currently has available a revolving credit facility for $25
million which the Company believes will be increased prior to the end of fiscal
1994.
Net cash provided from operations was $27.4 million, $34.4 million and
$67.1 million in 1993, 1992 and 1991, respectively. The decrease in 1993 was
primarily due to an increase in inventory levels due to net store openings, the
majority of which occurred late in the third quarter. Cash and cash equivalents
and marketable securities were $170.7 million at January 29, 1994 compared to
$214.6 million and $104.2 million at January 30, 1993 and February 1, 1992,
respectively. Net expenditures for property, furniture and equipment and other
assets were $162.6 million in 1993 compared to $137.7 million and $92.5 million
in 1992 and 1991, respectively. These expenditures are primarily related to the
Company's ongoing store expansion and remodeling programs.
In August 1994, the Company sold 13 stores for approximately $100 million
and concurrently leased the properties back for an initial term of 25 years. The
leases are renewable at the Company's option for nine additional terms of five
years each. The Company has recorded these leases as operating leases.
The Company anticipates that its existing and internally generated funds
and the net proceeds from this offering will be adequate to finance the costs
and expenses of the Company's expansion program and the remodeling of stores
through fiscal 1995.
14
<PAGE> 17
BUSINESS
EXPANSION STRATEGY
The Company is rapidly expanding its Home Quarters Warehouse subsidiary.
Home Quarters opened a new 115,000 square foot store in Chesapeake, Virginia in
July 1993. New features in a "Chesapeake class" store include: a greenhouse and
garden center, design centers staffed with experienced professionals,
merchandise installation services, a tool rental program and a dedicated
classroom called "HQ University" for how-to clinics. The "Chesapeake class"
store also has a dedicated contractor's desk to handle the special needs of
professional contractors and commercial property owners, including its own
entrance and loading facility. In addition, the "Chesapeake class" store offers
"Kids Quarters," a supervised on-site child care facility for children ages
three to eight. As compared to earlier Home Quarters units, a "Chesapeake class"
store has approximately 25% more square footage and carries approximately 33%
more SKUs. Since July 1993, the Company has opened sixteen new "Chesapeake
class" stores, which the Company believes will achieve average annualized sales
per square foot well in excess of Home Quarters' average of $239 for fiscal
1993.
Through 1995, the Company intends to open approximately 12 to 14 new
"Chesapeake class" Home Quarters Warehouse stores (including two relocations).
The precise number of new stores will depend upon, among other things, the
availability of suitable locations and prevailing economic conditions.
The Company is converting its Hechinger stores to the Home Project Center
format. The Home Project Center format was developed to capitalize on the
traditional strengths of the Hechinger Stores Company, which the Company
considers to be: strong name awareness among consumers, convenient store
locations and home decor merchandising. This merchandising strength is best
exemplified in the Hechinger Home Project Center store located in Laurel,
Maryland, which opened in June 1994. Highlights of this store include a large
kitchen and bath presentation located in the front of the store and a
comprehensive offering of lighting, flooring, wallcoverings, paint and other
home decor items. In addition, the store offers extensive design services
including kitchen, bath and landscaping. The store's staff includes a team of
home improvement specialists, selected on the basis of their experience and
knowledge in particular fields, who are available to guide customers through
their home improvement projects. During 1995, the Company intends to relocate
two Hechinger stores.
In August 1994, the Company announced its plans to expand Hechinger Stores
subsidiary into Mexico. The Company expects to initially open four stores in
Mexico City beginning in late 1995. The Company's proposed expansion into Mexico
is in its early stages, and there can be no assurance that such expansion will
be completed successfully or that the nature of such expansion will not be
modified to reflect future events or economic conditions.
The following tables set forth the number of stores operated by the Company
and the aggregate amount of square feet of store space in such stores for the
specified periods (excluding the six Triangle Building Center stores which the
Company closed in fiscal 1993):
<TABLE>
<CAPTION>
STORE SQUARE FOOTAGE
NUMBER OF STORES (IN THOUSANDS)
---------------------- ----------------------
HOME HECHINGER HOME HECHINGER
QUARTERS STORES QUARTERS STORES
-------- --------- -------- ---------
<S> <C> <C> <C> <C>
As of February 1, 1992...................... 30 76 2,563 4,814
1992 openings............................... 14 3 1,226 351
1992 closings............................... (1) (4) (32) (234)
-- -- -------- ---------
As of January 30, 1993...................... 43 75 3,757 4,931
1993 openings............................... 11 3 1,122 270
1993 closings............................... (1) (6) (85) (355)
-- -- -------- ---------
As of January 29, 1994...................... 53 72 4,794 4,846
1994 openings (through July 30, 1994)....... 5 2 584 197
1994 closings (through July 30, 1994)....... -- (2) -- (109)
-- -- -------- ---------
As of July 30, 1994......................... 58 72 5,378 4,934
====== ======= ====== =======
</TABLE>
The Company is continuing to explore various opportunities for growth,
which may include selected acquisitions.
15
<PAGE> 18
CHESAPEAKE STORE LAYOUT
The "Chesapeake class" store, which exceeds 100,000 square feet under roof,
has been designed to offer customers everything they need for their home
improvement projects. The store has a center entrance and clear signage to allow
customers to quickly locate the items and services they need. Customer services
such as the Contractor's desk, tool rental, "HQ University" and "Kids Quarters"
are positioned across the front wall of the store for high visibility and easy
access. Design centers are located on a major aisle of the store and include
extensive displays to promote home improvement project ideas for customers. The
following is the layout of the Chesapeake, Virginia store.
[INSERT ART WORK HERE]
16
<PAGE> 19
PRODUCTS
All of the Company's stores offer for sale a large selection of lumber,
building materials, hardware and tools, paint, garden supplies, electrical and
plumbing supplies and other items related to the home improvement market.
The following table sets forth the percentage of sales accounted for by the
merchandise categories:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
------------------------------------------------
JAN. 29, 1994 JAN. 30, 1993 FEB. 1, 1992
------------- ------------- ------------
<S> <C> <C> <C>
Lumber and building materials.................. 29% 28% 27%
Garden supplies and furniture.................. 18 15 16
Hardware and tools............................. 13 12 12
Electrical supplies............................ 12 14 14
Plumbing supplies.............................. 12 14 13
Paint.......................................... 9 10 10
Housewares..................................... 7 7 8
--- --- ---
Total.......................................... 100% 100% 100%
========= ========= =========
</TABLE>
Many of the items sold in the Company's stores are nationally advertised,
brand name products. The Company also offers some private label items such as
garden equipment and supplies, and paint. The Company may add private label
items to its merchandise in those areas where there are no major national brands
or where management deems it an effective way to meet price competition in a
particular product line. The Company believes it has good relationships with its
suppliers and does not consider itself dependent upon any single source for its
merchandise.
MARKETING
The majority of the Company's sales are to individuals. Employees are
trained to help the do-it-yourself customer make his or her purchases and solve
technical problems related to home repair, maintenance and improvement work.
The Company employs an advertising program through the regular use of
newspaper and direct mail pieces. A "catabook", which is compact enough to carry
along as a shopping reference and serves as an "idea" book with an index and
large type prices, is heavily utilized. Advertisements feature the stores' wide
selection and values. The Company also employs television and radio advertising
where deemed effective. The Company emphasizes competitive pricing with its
policy being to meet or beat the regular or sale prices of all major
competitors. In addition, the Company offers its customers a liberal return
policy.
The Company hosts how-to clinics throughout the year at various stores. At
these clinics, trained employees, manufacturers' representatives and, at times,
nationally recognized experts, demonstrate products and conduct classes on major
home improvement projects.
The Company offers a private label credit card program pursuant to which
credit is extended to its customers by a third party financial institution. The
Company also accepts Visa, MasterCard and Discover in all stores and American
Express in its Home Quarters stores. For the fiscal year ended January 29, 1994
credit card sales accounted for 50% of the Company's total sales.
COMPETITION
The business of the Company is highly competitive. The Company competes in
each of its market areas with other home center chains, national chains of
general merchandise stores and local hardware stores, some of which have greater
financial resources than the Company.
The extent of the Company's competition varies by geographic area. New
competitors have entered several of the Company's existing markets and those
targeted for future development, and established competitors are expanding in
certain of those markets, which may, in each case, adversely affect the
17
<PAGE> 20
Company's sales. In addition, the Company's strategy to maintain competitive
pricing in certain markets may result in lower gross margins as competition
intensifies. There can be no assurance that the Company's financial results will
not be negatively impacted by existing competition or by the further expansion
of competitors into the Company's markets.
The Company believes that it is in a strong competitive position in the
majority of its established market areas, reflecting the quality of its trained
personnel, breadth and depth of merchandising, pricing, advertising policies and
store size, location and condition. The Company believes that its ability to
devote substantial capital resources to the operation and expansion of its
business will enable it to remain competitive in the industry.
EMPLOYEES
The Company has approximately 20,000 employees, approximately half of whom
are employed on a part-time basis. The Company conducts comprehensive employee
training programs. These training programs have enabled the Company to promote
from within many current store managers and merchandisers. In addition, the
Company supplements its workforce by recruiting from outside sources. The
Company believes its employee relations are satisfactory.
PROPERTIES
The Home Quarters Warehouse stores currently average approximately 90,000
square feet under roof and an additional 28,000 square feet of outdoor selling
and storage space. More recent Home Quarters stores have typically ranged from
105,000 to 115,000 square feet under roof. Hechinger stores currently average
approximately 70,000 square feet under roof and an additional 22,000 square feet
of outdoor selling and storage space.
The Company currently owns 18 stores and leases the remaining stores. The
Company believes that all of its facilities, both owned and leased, are in good
condition and well maintained. Expiration dates of the leases range from 1995 to
2023. Almost all leases contain renewal clauses or continue on a year-to-year
basis after their respective expiration dates. Twelve of the store sites are
leased from an affiliate.
Hechinger stores are serviced, in part, from the Company's modern warehouse
and distribution facility in Landover, Maryland, which has approximately 640,000
square feet under roof. In addition, Hechinger has approximately 177,000 square
feet of office space in Landover, Maryland. Home Quarters Warehouse stores
receive their merchandise directly from their suppliers. Home Quarters has
approximately 71,000 square feet of office space in Virginia Beach, Virginia.
18
<PAGE> 21
DESCRIPTION OF CAPITAL STOCK
GENERAL
The authorized capital stock of the Company consists of 20,000,000 shares
of Preferred Stock, par value $1.00 per share (the "Preferred Stock");
50,000,000 shares of Class A Common Stock; and 30,000,000 shares of Class B
Common Stock, par value $.10 per share (the "Class B Common Stock"). At July 30,
1994, no shares of Preferred Stock were issued and outstanding, 30,715,471
shares of Class A Common Stock were issued and outstanding and 11,590,519 shares
of Class B Common Stock were issued and outstanding.
DIVIDENDS, VOTING RIGHTS AND CONVERSION
The Company's Certificate of Incorporation generally provides that holders
of Class A Common Stock and holders of Class B Common Stock have the same rights
to dividends and distributions except for regular quarterly cash dividends, in
respect of which the holders of Class A Common Stock are entitled to receive a
minimum of at least $.0064 per share (the "Preference Dividend"), subject to
certain adjustments, before the holders of Class B Common Stock are entitled to
receive any cash dividend for such quarter. No cash dividend may be paid to
holders of the Class B Common Stock during any quarter of a fiscal year until
the holders of the Class A Common Stock have received their Preference Dividend
for that quarter and any preceding quarters of that particular fiscal year.
The Certificate of Incorporation further provides that a stock dividend on
Class B Common Stock cannot be paid without a stock dividend also being paid to
holders of Class A Common Stock in the amount that would maintain the same
proportionate ownership between Class A and Class B shareholders that existed on
the record date for such stock dividend.
Holders of Class A Common Stock and Class B Common Stock are entitled to
vote as separate classes to amend or repeal the Company's Certificate of
Incorporation (as and to the extent provided by law) and on such other matters
on which a class vote may be required by law.
On all other matters, the Class A Common Stock and the Class B Common Stock
vote together as a single class, provided that holders of shares of Class A
Common Stock have one vote per share and holders of Class B Common Stock have
ten votes per share. There is no cumulative voting of shares of either class of
Common Stock.
Each share of Class B Common Stock is convertible, at any time and at no
cost, at the option of the holder, into one share of Class A Common Stock. The
shares of Class A Common Stock currently outstanding are, and the shares to be
sold in this offering will be, validly issued, fully paid and non-assessable.
CERTAIN UNITED STATES FEDERAL TAX CONSIDERATIONS
FOR NON-U.S. HOLDERS OF CLASS A COMMON STOCK
The following discussion concerns the material United States federal income
and estate tax consequences of the ownership and disposition of Class A Common
Stock applicable to Non-U.S. Holders of such Class A Common Stock. In general, a
"Non-U.S. Holder" is any person holding Class A Common Stock other than (a) a
citizen or resident of the United States, (b) a corporation or partnership
created or organized in the United States or under the laws of the United States
or of any State, or (c) an estate or trust whose income is includible in gross
income for United States federal income tax purposes regardless of its source.
The discussion is based on current provisions of the Code, and administrative
and judicial interpretations of the Code as of the date hereof, all of which are
subject to change (possibly on a retroactive basis), and is for general
information only. The discussion does not address aspects of federal taxation
other than income and estate taxation and does not address all aspects of
federal income and estate taxation. The discussion does not consider any
specific facts or circumstances that may apply to a particular Non-U.S. Holder.
19
<PAGE> 22
ACCORDINGLY, PROSPECTIVE INVESTORS ARE URGED TO CONSULT THEIR TAX ADVISORS
REGARDING THE UNITED STATES FEDERAL, STATE, LOCAL AND NON-U.S. INCOME AND OTHER
TAX CONSEQUENCES OF HOLDING AND DISPOSING OF SHARES OF CLASS A COMMON STOCK.
DIVIDENDS
In general, dividends paid to a Non-U.S. Holder will be subject to United
States withholding tax at a 30% rate (or any lower rate prescribed by an
applicable tax treaty) unless the dividends are (a) effectively connected with a
trade or business carried on by the Non-U.S. Holder within the United States, or
(b) if a tax treaty applies, attributable to a United States permanent
establishment maintained by the Non-U.S. Holder. Dividends effectively connected
with such a trade or business and, if applicable, attributable to such a
permanent establishment, will generally not be subject to withholding (if the
Non-U.S. Holder files certain forms with the payor of the dividend) and will
generally be subject to United States federal income tax at the same rates
applicable to U.S. Holders. In the case of a Non-U.S. Holder which is a
corporation, such effectively connected income also may be subject to the branch
profits tax (which is generally imposed on a foreign corporation on the
repatriation from the United States of effectively connected earnings and
profits). To determine the applicability of a tax treaty providing for a lower
rate of withholding, dividends paid to an address in a foreign country are
presumed under current Treasury regulations to be paid to a resident of that
country. Proposed Treasury regulations, if finally adopted, would require
Non-U.S. Holders to file certain forms to obtain the benefit of any applicable
tax treaty providing for a lower rate of withholding tax on dividends.
SALE OF CLASS A COMMON STOCK
Generally, a Non-U.S. Holder will not be subject to United States federal
income tax on any gain realized upon the disposition of such Holder's Class A
Common Stock unless (a) the Company is or has been a "U.S. real property holding
corporation," as defined in Section 897(c)(2) of the Code (which Company does
not believe that it has been or is likely to become) and, in the event that the
Class A Common Stock is "regularly traded" for such purposes, the Non-U.S.
Holder held, directly or indirectly at any time during the five-year period
ending on the date of disposition, more than 5% of the Class A Common Stock; (b)
the gain is effectively connected with a trade or business carried on by the
Non-U.S. Holder within the United States and, if a tax treaty applies,
attributable to a permanent establishment maintained by the Non-U.S. Holder in
the United States; (c) the Class A Common Stock is disposed of by a Non-U.S.
Holder who is an individual, who holds the Class A Common Stock as a capital
asset and who is present in the United States for 183 days or more in the
taxable year of the disposition and certain other requirements are met; or (d)
the Non-U.S. Holder is an individual who is subject to tax pursuant to the
provisions of U.S. tax law applicable to certain United States expatriates.
ESTATE TAX
Class A Common Stock owned or treated as owned by an individual who is not
a citizen or resident (as defined for United States federal estate tax purposes)
of the United States at the date of death will be includible in the individual's
gross estate for United States federal estate tax purposes, unless an applicable
tax treaty provides otherwise, and may be subject to United States federal
estate tax.
BACKUP WITHHOLDING AND INFORMATION REPORTING
The Company must report annually to the Internal Revenue Service and to
each Non-U.S. Holder the amount of dividends paid to, and the tax withheld with
respect to, each Non-U.S. Holder. These reporting requirements apply regardless
of whether withholding was reduced by an applicable tax treaty. Copies of these
information returns also may be made available under the provisions of a
specific treaty or agreement to the tax authorities in the country in which the
Non-U.S. Holder resides. United States backup withholding tax (which generally
is a withholding tax imposed at the rate of 31% on certain payments to persons
that fail to furnish the information required under the United States
information reporting requirements) will generally not apply under existing
Treasury regulations to dividends paid on Class A Common Stock to a Non-U.S.
20
<PAGE> 23
Holder at an address outside the United States. This exemption may be affected,
on a prospective basis, if the Treasury regulations are revised to eliminate the
foreign address method for determining the applicability of the 30% withholding
tax or any lower treaty rate as discussed above.
The payment of the proceeds from the disposition of Class A Common Stock to
or through the United States office of a broker will be subject to information
reporting and backup withholding unless the owner certifies, among other things,
its status as a Non-U.S. Holder or otherwise establishes an exemption. The
payment of the proceeds from the disposition of Class A Common Stock to or
through a non-U.S. office of a non-U.S. broker will not be subject to backup
withholding and generally will not be subject to information reporting. Under
the existing Treasury regulations, unless the broker has documentary evidence in
its files that the owner is a Non-U.S. Holder, information reporting will apply
to dispositions through (a) a non-U.S. office of a U.S. broker, and (b) a
non-U.S. office of a non-U.S. broker that is either a "controlled foreign
corporation" for United States federal income tax purposes or a person 50% or
more of whose gross income from all sources for a certain three-year period was
effectively connected with a United States trade or business. Any amounts
withheld under the backup withholding rules from a payment to a Non-U.S. Holder
will be refunded (or credited against the Non-U.S. Holder's United States
federal income tax liability, if any), provided that the required information is
furnished to the Internal Revenue Service.
UNDERWRITERS
Under the terms and subject to the conditions in the Underwriting Agreement
dated the date hereof, the U.S. Underwriters named below, for whom Morgan
Stanley & Co. Incorporated and Montgomery Securities are serving as U.S.
Representatives, have severally agreed to purchase, and the Company has agreed
to sell to them, and the International Underwriters named below, for whom Morgan
Stanley & Co. International Limited and Montgomery Securities are serving as
International Representatives, have severally agreed to purchase, and the
Company has agreed to sell to them, the respective number of shares of Class A
Common Stock set forth opposite the names of such Underwriters below:
<TABLE>
<CAPTION>
NUMBER OF
NAME SHARES
- ---------------------------------------------------------------------------------- ---------
<S> <C>
U.S. Underwriters:
Morgan Stanley & Co. Incorporated...............................................
Montgomery Securities...........................................................
---------
Subtotal..................................................................... 4,000,000
---------
International Underwriters:
Morgan Stanley & Co. International Limited......................................
Montgomery Securities...........................................................
---------
Subtotal..................................................................... 1,000,000
---------
Total................................................................... 5,000,000
========
</TABLE>
21
<PAGE> 24
The U.S. Underwriters and the International Underwriters are collectively
referred to as the "Underwriters." The Underwriting Agreement provides that the
obligations of the several Underwriters to pay for and accept delivery of the
shares of the Class A Common Stock offered hereby are subject to the approval of
certain legal matters by their counsel and to certain other conditions. The
Underwriters are obligated to take and pay for all the shares of the Class A
Common Stock offered hereby (other than those covered by the over-allotment
option described below) if any such shares are taken.
Pursuant to the Agreement Between U.S. and International Underwriters, each
U.S. Underwriter has represented and agreed that, with certain exceptions, (i)
it is not purchasing any U.S. Shares (as defined below) for the account of
anyone other than a United States or Canadian Person (as defined below) and (ii)
it has not offered or sold, and will not offer or sell, directly or indirectly,
any U.S. Shares or distribute any prospectus relating to the U.S. Shares outside
the United States or Canada or to anyone other than a United States or Canadian
Person. Pursuant to the Agreement Between U.S. and International Underwriters,
each International Underwriter has represented and agreed that, with certain
exceptions, (i) it is not purchasing any International Shares (as defined below)
for the account of any United States or Canadian Person and (ii) it has not
offered or sold, and will not offer or sell, directly or indirectly, any
International Shares or distribute any prospectus relating to the International
Shares within the United States or Canada or to any United States or Canadian
Person. With respect to any Underwriter that is a U.S. Underwriter and an
International Underwriter, the foregoing representations and agreements (i) made
by it in its capacity as a U.S. Underwriter apply only to the shares of Class A
Common Stock purchased by it in its capacity as a U.S. Underwriter, (ii) made by
it in its capacity as an International Underwriter apply only to shares of Class
A Common Stock purchased by it in its capacity as an International Underwriter
and (iii) do not restrict its ability to distribute any prospectus relating to
the shares of Class A Common Stock to any person. The foregoing limitations do
not apply to stabilization transactions or to certain other transactions
specified in the Agreement Between U.S. and International Underwriters. As used
herein, "United States or Canadian Person" means any national or resident of the
United States or Canada, or any corporation, pension, profit-sharing or other
trust or other entity organized under the laws of the United States or Canada or
of any political subdivision thereof (other than a branch located outside the
United States and Canada of any United States or Canadian Person) and includes
any United States or Canadian branch of a person who is otherwise not a United
States or Canadian Person. All shares of Class A Common Stock to be purchased by
the U.S. Underwriters and the International Underwriters are referred to herein
as the U.S. Shares and the International Shares, respectively.
Pursuant to the Agreement Between U.S. and International Underwriters,
sales may be made between the U.S. Underwriters and International Underwriters
of any number of shares of Class A Common Stock to be purchased pursuant to the
Underwriting Agreement as may be mutually agreed. The per share price of any
shares sold shall be the Price to Public set forth on the cover page hereof, in
United States dollars, less an amount not greater than the per share amount of
the concession to dealers set forth below.
Pursuant to the Agreement Between U.S. and International Underwriters, each
U.S. Underwriter has represented that it has not offered or sold, and has agreed
not to offer or sell, any shares of Class A Common Stock, directly or
indirectly, in Canada in contravention of the securities laws of Canada or any
province or territory thereof and has represented that any offer of Class A
Common Stock in Canada will be made only pursuant to an exemption from the
requirement to file a prospectus in the province or territory of Canada in which
such offer is made. Each U.S. Underwriter has further agreed to send to any
dealer who purchases from it any shares of Class A Common Stock a notice stating
in substance that, by purchasing such Class A Common Stock, such dealer
represents and agrees that it has not offered or sold, and will not offer or
sell, directly or indirectly, any of such Class A Common Stock in Canada or to,
or for the benefit of, any resident of Canada in contravention of the securities
laws of Canada or any province or territory thereof and that any offer of Class
A Common Stock in Canada will be made only pursuant to an exemption from the
requirement to file a prospectus in the province or territory of Canada in which
such offer is made, and that such dealer will deliver to any other dealer to
whom it sells any of such Class A Common Stock a notice to the foregoing effect.
22
<PAGE> 25
Pursuant to the Agreement Between U.S. and International Underwriters, each
International Underwriter has represented and agreed that (a) it has not offered
or sold and will not offer or sell any shares of Class A Common Stock in the
United Kingdom by means of any document (other than in circumstances which do
not constitute an offer to the public within the meaning of the Companies Act
1985); (b) it has complied and will comply with all applicable provisions of the
Financial Services Act 1986 with respect to anything done by it in relation to
the shares of Class A Common Stock offered hereby in, from or otherwise
involving the United Kingdom; and (c) it has only issued or passed on and will
only issue or pass on to any person in the United Kingdom any document received
by it in connection with the issue of the shares of Class A Common Stock, other
than any document which consists of, or is part of, listing particulars,
supplementary listing particulars or any other document required or permitted to
be published by listing rules under Part IV of the Financial Services Act 1986,
to any person of a kind described in Article 9(3) of the Financial Services Act
1986 (Investment Advertisements) (Exemptions) Order 1988, or to any person to
whom the document may otherwise lawfully be issued or passed on.
The Underwriters propose to offer part of the Class A Common Stock directly
to the public at the Price to Public set forth on the cover page hereof and part
to certain dealers at a price that represents a concession not in excess of
$ per share under the public offering price. Any Underwriter may allow,
and such dealers may reallow, a concession not in excess of $ per share
to other Underwriters and to certain other dealers.
Pursuant to the Underwriting Agreement, the Company has granted to the U.S.
Underwriters an option, exercisable for 30 days from the date of this
Prospectus, to purchase up to 750,000 additional shares of the Class A Common
Stock at the public offering price set forth on the cover page hereof, less
underwriting discounts and commissions. The U.S. Underwriters may exercise such
option to purchase solely for the purpose of covering over-allotments, if any,
made in connection with the offering of the shares of the Class A Common Stock
offered hereby. To the extent such option is exercised, each U.S. Underwriter
will become obligated, subject to certain conditions, to purchase approximately
the same percentage of such additional shares as the number set forth next to
such Underwriter's name in the preceding table bears to the total number of
shares of the Class A Common Stock offered by the U.S. Underwriters hereby.
The Company has agreed that, for a period of 90 days after the date of this
Prospectus, it will not, without the prior written consent of the Underwriters,
register under the Securities Act, offer, sell, contract to sell or otherwise
dispose of any Class A or Class B Common Stock or any securities convertible
into or exchangeable for Class A or Class B Common Stock, or enter into any swap
or similar agreement that transfers, in whole or in part, the economic risk of
ownership of such shares, except under certain circumstances set forth in the
Underwriting Agreement.
The Company and the several Underwriters have agreed to indemnify each
other against certain liabilities, including liabilities under the Securities
Act of 1933.
Pursuant to regulations promulgated by the Commission, market makers in the
Class A Common Stock who are Underwriters or prospective underwriters ("passive
market makers") may, subject to certain limitations, make bids for or purchases
of shares of Class A Common Stock until the earlier of the time of commencement
(the "Commencement Date") of offers or sales of the Class A Common Stock
contemplated by this Prospectus or the time at which a stabilizing bid for such
shares is made. In general, on and after the date two days prior to the
Commencement Date (1) such market maker's net daily purchases of the Common
Stock may not exceed 30% of the average daily trading volume (the "ADTV") in
such stock for the two full consecutive calendar months immediately preceding
the filing date of the registration statement of which this Prospectus forms a
part, (2) such market maker may not effect transactions in, or display bids for,
the Class A Common Stock at a price that exceeds the highest bid for the Class A
Common Stock by persons who are not passive market makers and (3) bids made by
passive market makers must be identified as such. The ADTV for the Class A
Common Stock was approximately 400,000 shares.
From time to time, Morgan Stanley & Co. Incorporated has acted as financial
advisor to the Company and has received compensation for such services.
23
<PAGE> 26
LEGAL MATTERS
The validity of the shares of Class A Common Stock offered hereby will be
passed upon for the Company by Skadden, Arps, Slate, Meagher & Flom, Washington,
D.C., and for the Underwriters by Davis Polk & Wardwell, New York, New York.
EXPERTS
The consolidated financial statements of the Company incorporated by
reference in the 1994 Form 10-K and the consolidated financial statement
schedules appearing therein have been audited by Ernst & Young LLP, independent
auditors, as set forth in their reports thereon, included and incorporated by
reference therein and incorporated herein by reference. Such consolidated
financial statements are incorporated herein by reference in reliance upon such
reports given upon the authority of such firm as experts in accounting and
auditing.
24
<PAGE> 27
[LOGO]
<PAGE> 28
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
[ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS]
PROSPECTUS (Subject to Completion)
Issued September 21, 1994
5,000,000 Shares
[LOGO]
CLASS A COMMON STOCK
------------------------
OF THE 5,000,000 SHARES OF CLASS A COMMON STOCK BEING OFFERED, 1,000,000 SHARES
ARE BEING OFFERED OUTSIDE THE UNITED STATES AND CANADA BY THE INTERNATIONAL
UNDERWRITERS AND 4,000,000 SHARES ARE BEING OFFERED IN THE UNITED STATES
AND CANADA BY THE U.S. UNDERWRITERS. SEE "UNDERWRITERS." THE COMPANY'S
CLASS A COMMON STOCK IS TRADED IN THE OVER-THE-COUNTER MARKET UNDER
THE SYMBOL "HECHA." ON SEPTEMBER 20, 1994, THE LAST SALE PRICE FOR
THE CLASS A COMMON STOCK AS REPORTED ON THE NASDAQ
NATIONAL MARKET SYSTEM, WAS $15 PER SHARE.
------------------------
HOLDERS OF CLASS A COMMON STOCK AND HOLDERS OF CLASS B COMMON STOCK HAVE THE
SAME RIGHTS TO DIVIDENDS AND DISTRIBUTIONS EXCEPT FOR REGULAR QUARTERLY CASH
DIVIDENDS IN RESPECT OF WHICH HOLDERS OF CLASS A COMMON STOCK ARE ENTITLED
TO RECEIVE A MINIMUM OF AT LEAST $.0064 PER SHARE SUBJECT TO CERTAIN
ADJUSTMENTS BEFORE HOLDERS OF CLASS B COMMON STOCK ARE ENTITLED TO
RECEIVE ANY CASH DIVIDENDS FOR SUCH QUARTER. HOLDERS OF
CLASS A COMMON STOCK HAVE ONE VOTE PER SHARE AND
HOLDERS OF CLASS B COMMON STOCK HAVE
TEN VOTES PER SHARE.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
------------------------
PRICE $ A SHARE
------------------------
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY(2)
------------- ------------- -------------
<S> <C> <C> <C>
Per Share........................................ $ $ $
Total(3)......................................... $ $ $
</TABLE>
- ------------
(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933.
(2) Before deducting expenses payable by the Company estimated at $ .
(3) The Company has granted the U.S. Underwriters an option, exercisable
within 30 days of the date hereof, to purchase up to 750,000 additional
shares of Class A Common Stock at the price to public less underwriting
discounts and commissions for the purpose of covering over-allotments,
if any. If the U.S. Underwriters exercise such option in full, the total
price to public, underwriting discounts and commissions, and proceeds to
Company will be $ , $ and $ , respectively. See
"Underwriters."
------------------------
The shares of Class A Common Stock are offered, subject to prior sale,
when, as and if accepted by the Underwriters named herein and subject to
approval of certain legal matters by Davis Polk & Wardwell, counsel for the
Underwriters. It is expected that delivery of the shares of Class A Common Stock
will be made on or about , 1994 at the office of Morgan Stanley &
Co. Incorporated, New York, N.Y., against payment therefor in New York funds.
------------------------
MORGAN STANLEY & CO. MONTGOMERY SECURITIES
International
, 1994
<PAGE> 29
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the estimated expenses payable by the
Registrant in connection with the offering described in this registration
statement.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee....................... $ 29,493
National Association of Securities Dealers, Inc. fee...................... 9,053
Legal fees................................................................ 75,000
Printing and engraving.................................................... 25,000
Accountants' fees......................................................... 25,000
Blue-Sky fees and expenses................................................ 20,000
Miscellaneous expenses.................................................... 16,454
--------
Total................................................................ $200,000
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145(a) of the Delaware General Corporation Law empowers a
corporation to indemnify any person who was or is a party or is threatened to be
made a party to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative (other than an action
by or in the right of the corporation) by reason of the fact that such person is
or was a director, officer, employee or agent of the corporation or is or was
serving at the request of the corporation as a director, officer, employee or
agent of another corporation or enterprise, against expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by such person in connection with such action, suit or
proceeding if such person acted in good faith and in a manner such person
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe such person's conduct was unlawful.
Section 145(b) of the Delaware General Corporation Law empowers a
corporation to indemnify any person who was or is a party or is threatened to be
made a party to any threatened, pending or completed action or suit by or in the
right of the corporation to procure a judgment in its favor by reason of the
fact that such person acted in any of the capacities described in the preceding
paragraph, against expenses actually and reasonably incurred by such person in
connection with the defense or settlement of such action or suit if such person
acted under standards similar to those described in the preceding paragraph,
except that no indemnification may be made in respect of any claim, issue or
matter as to which such person shall have been adjudged to be liable to the
corporation unless and only to the extent that the Delaware Court of Chancery or
the court in which such action or suit was brought shall determine that despite
the adjudication of liability such person is fairly and reasonably entitled to
indemnify for such expenses which the court shall deem proper.
Section 145 of the Delaware General Corporation Law further provides that
(i) to the extent a director or officer of a corporation has been successful in
defense of any action, suit or proceeding referred to in subsections (a) and (b)
thereof or in the defense of any claim, issue or matter therein, such person
shall be indemnified against expenses (including attorneys' fees) actually and
reasonably incurred by such person in connection therewith; (ii) the
indemnification provided for by Section 145 shall not be deemed exclusive of any
other rights to which the indemnified party may be entitled; and (iii) the
corporation may purchase and maintain insurance on behalf of a director or
officer of the corporation against any liability asserted against such person
and incurred by such person in any such capacity or arising out of such person's
status as such, whether or not the corporation would have the power to indemnity
such person against such liabilities under Section 145.
Article ELEVENTH of the Company's Certificate of Incorporation and Article
VIII of the Company's By-laws provide that the Company shall indemnify each
person who may be indemnified under Section 145 to the fullest extent permitted
thereby, which may include liabilities under the Securities Act of 1933.
II-1
<PAGE> 30
Under Section 102(b) of the Delaware General Corporation Law, a corporation
may limit or eliminate the personal liability of directors for breach of the
fiduciary duty of due care. Article ELEVENTH of the Company's Certificate of
Incorporation effects this limitation by providing that no director of the
Company shall be personally liable to the Company or its stockholders for
monetary damages for any breach of fiduciary duty by such a director as a
director, provided, however, that a director shall be liable to the extent
provided by applicable law (i) for any breach of the director's duty of loyalty
to the Company or its stockholders, (ii) for acts or omissions not in good faith
or which involve intentional misconduct or a knowing violation of law, (iii)
pursuant to Section 174 of the Delaware General Corporation Law, or (iv) for any
transaction from which such director derived an improper personal benefit. The
Company also maintains an insurance policy that provides liability coverage to
officers and directors while acting in such capacity.
ITEM 16. EXHIBITS.
The following exhibits are filed herewith or, as indicated, have been
heretofore filed with the Commission as the exhibits in the file numbers
indicated and are incorporated herein by reference.
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
- ---------------------------------------------------------------------------------------------
<S> <C>
1 -- Underwriting Agreement
4(a) -- Certificate of Incorporation, as amended (incorporated by reference
to Exhibit 4.1 to Registration Statement on Form S-8, File No.
33-27134)
4(b) -- By-laws, as amended (incorporated by reference to Exhibit 3(b) to
Annual Report on Form 10-K for the fiscal year ended February 3,
1990, File No. 0-7214)
5 -- Opinion of Skadden, Arps, Slate, Meagher & Flom
23(a) -- Consent of Ernst & Young LLP
23(b) -- Consent of Skadden, Arps, Slate, Meagher & Flom (included in the
opinion filed as Exhibit 5)
25 -- Power of Attorney (included on signature page)
</TABLE>
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
(3) For purposes of determining liability under the Securities Act of
1933, each filing of the registrant's annual report pursuant to Section
13(a) or Section 15(d) of the Securities Exchange Act of 1934 that is
incorporated by reference in the registration statement shall be deemed to
be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions referred to in Item 15 above, or
otherwise, the registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a claim
for indemnification against such liabilities (other than the payment by
II-2
<PAGE> 31
the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question of whether
or not such indemnification by it is against public policy as expressed in the
Act and will be governed by the final adjudication of such issue.
II-3
<PAGE> 32
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all the
requirements for filing on Form S-3 and has duly caused this amendment to the
registration statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Landover, State of Maryland, on the 21st day of
September, 1994.
HECHINGER COMPANY
By: /s/ JOHN W. HECHINGER, JR.
------------------------------------
John W. Hechinger, Jr.
President and Chief Executive
Officer
Each person whose signature appears below constitutes and appoints John W.
Hechinger, Jr., W. Clark McClelland and Mark R. Adams, and each of them, his or
her true and lawful attorney-in-fact and agent, with full powers of substitution
and resubstitution, for such person and in his or her name, place and stead, in
any and all capacities, to sign any or all amendments to this registration
statement, and to file the same, with all exhibits thereto, and other documents
in connection therewith, with the Securities and Exchange Commission, granting
unto said attorney-in-fact and agent, each acting alone, full power and
authority to do and perform each and every act and thing requisite and necessary
to be done in and about the premises, as fully to all intents and purposes as he
or she might or could do in person, hereby ratifying and confirming all that
said attorney-in-fact and agent, each acting alone, full power and authority to
do and perform each and every act and thing requisite and necessary to be done
in and about the premises, as fully to all intents and purposes as he or she
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, each acting alone, or his substitute, may lawfully
do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this amendment
to the registration statement has been signed below by the following persons in
the capacities indicated, on the 21st day of September, 1994.
<TABLE>
<CAPTION>
SIGNATURES TITLE
- --------------------------------------------- ----------------------------------------------
<C> <S>
Chairman of the Board of Directors
- ---------------------------------------------
John W. Hechinger
/s/ HERBERT J. BRONER Director
- ---------------------------------------------
Herbert J. Broner
/s/ JOHN W. HECHINGER, JR. President, Chief Executive Officer and
- --------------------------------------------- Director
John W. Hechinger, Jr.
/s/ S. ROSS HECHINGER Senior Vice President -- Corporate
- --------------------------------------------- Administration and Director
S. Ross Hechinger
/s/ ANN D. JORDAN Director
- ---------------------------------------------
Ann D. Jordan
/s/ DAVID O. MAXWELL Director
- ---------------------------------------------
David O. Maxwell
/s/ W. CLARK MCCLELLAND Executive Vice President, Chief Financial
- --------------------------------------------- Officer and Director
W. Clark McClelland
/s/ ALAN J. ZAKON Director
- ---------------------------------------------
Alan J. Zakon
/s/ RICHARD S. GROSS Corporate Controller
- ---------------------------------------------
Richard S. Gross
</TABLE>
II-4
<PAGE> 33
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
NUMBER DESCRIPTION PAGE
- ----------- --------------------------------------------------------------- ----
<S> <C> <C>
1 -- Underwriting Agreement
5 -- Opinion of Skadden, Arps, Slate, Meagher & Flom
23(a) -- Consent of Ernst & Young LLP
</TABLE>
<PAGE> 34
EDGAR APPENDIX
On page 2 in the printed version of this document appears a map entitled
"Hechinger Company Markets" which indicates by market area the number of
stores operated by the Company.
On page 16 in the printed version of this document appears a map of the
Home Quarters Warehouse store in Chesapeake, Virginia.
<PAGE> 1
_________ Shares
Hechinger Company
Class A Common Stock ($0.10 par value)
UNDERWRITING AGREEMENT
____________ __, 1994
<PAGE> 2
____________ __, 1994
Morgan Stanley & Co.
Incorporated
Montgomery Securities
c/- Morgan Stanley & Co.
Incorporated
1251 Avenue of the Americas
New York, New York 10020
Morgan Stanley International Limited
Montgomery Securities
c/- Morgan Stanley International Limited
25 Cabot Square
Canary Wharf
London E14 4QA
England
Dear Sirs:
Hechinger Company, a Delaware corporation (the "Company"),
proposes to issue and sell to the several Underwriters shares of its
Class A Common Stock ($0.10 par value) (the "Firm Shares").
It is understood that, subject to the conditions hereinafter
stated, _________ Firm Shares (the "U.S. Firm Shares") will be sold to the
several U.S. Underwriters named in Schedule I hereto in connection with the
offering and sale of such U.S. Firm Shares in the United States and Canada to
United States and Canadian Persons (as such terms are defined in the Agreement
Between U.S. and International Underwriters of even date herewith), and
_______ Firm Shares (the "International Shares") will be sold to the several
International Underwriters named in Schedule II hereto in connection with the
offering and sale of such International Shares outside the United States and
Canada to persons other than United States and Canadian Persons. Morgan
Stanley & Co. Incorporated and Montgomery Securities shall act as
representatives (the "U.S. Representatives") of the several U.S. Underwriters,
and Morgan Stanley International Limited and Montgomery Securities shall act as
representatives (the "International Representatives") of the several
International Underwriters. The U.S. Underwriters and the International
Underwriters are hereinafter collectively referred to as the Underwriters.
<PAGE> 3
The Company also proposes to issue and sell to the several
U.S. Underwriters not more than an additional ________ shares of its Class A
Common Stock ($0.10 par value) (the "Additional Shares") if and to the extent
that the U.S. Representatives shall have determined to exercise, on behalf of
the U.S. Underwriters, the right to purchase such shares of common stock
granted to the U.S. Underwriters in Article II hereof. The Firm Shares and the
Additional Shares are hereinafter collectively referred to as the Shares. The
shares of Class A Common Stock ($0.10 par value) of the Company to be
outstanding after giving effect to the sales contemplated hereby are
hereinafter referred to as the Common Stock.
The Company has filed with the Securities and Exchange
Commission (the "Commission") a registration statement relating to the Shares.
The registration statement contains two prospectuses to be used in connection
with the offering and sale of the Shares: the U.S. prospectus, to be used in
connection with the offering and sale of Shares in the United States and Canada
to United States and Canadian Persons, and the international prospectus, to be
used in connection with the offering and sale of Shares outside the United
States and Canada to persons other than United States and Canadian Persons.
The international prospectus is identical to the U.S. prospectus except for the
outside front cover page. The registration statement as amended at the time it
becomes effective, including the information (if any) deemed to be part of the
registration statement at the time of effectiveness pursuant to Rule 430A under
the Securities Act of 1933, as amended (the "Securities Act"), is hereinafter
referred to as the Registration Statement; the U.S. prospectus and the
international prospectus in their respective forms first used to confirm sales
of Shares are hereinafter collectively referred to as the Prospectus
(including, in the case of all references to the Registration Statement and the
Prospectus, documents incorporated therein by reference).
I.
The Company represents and warrants to each of the
Underwriters that:
(a) The Registration Statement has become effective; no stop
order suspending the effectiveness of the Registration Statement is in
effect, and no proceedings for such purpose are pending before or, to
the knowledge of the Company, threatened by the Commission.
2
<PAGE> 4
(b) The Company has been duly incorporated, is validly
existing as a corporation in good standing under the laws of the State
of Delaware, has the corporate power and authority to own its property
and to conduct its business as described in the Prospectus and is duly
qualified to transact business and is in good standing in each
jurisdiction in which the conduct of its business or its ownership or
leasing of property requires such qualification, except to the extent
that the failure to be so qualified or be in good standing would not
have a material adverse effect on the Company and its subsidiaries,
taken as a whole.
(c) Each of Home Quarters Warehouse, Inc., Hechinger
Investment Company of Delaware, Inc. and Hechinger Stores Company
(the "Material Subsidiaries") has been duly incorporated, is validly
existing as a corporation in good standing under the laws of the
jurisdiction of its incorporation, has the corporate power and
authority to own its property and to conduct its business as described
in the Prospectus and is duly qualified to transact business and is in
good standing in each jurisdiction in which the conduct of its
business or its ownership or leasing of property requires such
qualification, except to the extent that the failure to be so
qualified or be in good standing would not have a material adverse
effect on the Company and its subsidiaries, taken as a whole.
(d) The authorized capital stock of the Company conforms to
the description thereof contained in the Prospectus.
(e) The shares of Common Stock outstanding prior to the
issuance of the Shares have been duly authorized and are validly
issued, fully paid and non-assessable.
(f) The Shares have been duly authorized and, when issued and
delivered in accordance with the terms of this Agreement, will be
validly issued, fully paid and non-assessable, and the issuance of
such Shares is not subject to any preemptive or similar rights.
(g) This Agreement has been duly authorized, executed and
delivered by or on behalf of the Company.
(h) The execution and delivery by the Company of, and the
performance by the Company of its obligations under, this Agreement
will not contravene any provision of applicable law or the certificate
of incorporation or by-laws of the Company or, to the Company's best
knowledge, any agreement or other instrument binding upon the Company
3
<PAGE> 5
or any of its subsidiaries that is material to the Company and its
subsidiaries, taken as a whole, or any judgment, order or decree of
any governmental body, agency or court having jurisdiction over the
Company or any subsidiary, and no consent, approval or authorization
or order of, or qualification with, any governmental body or agency is
required for the performance by the Company of its obligations under
this Agreement, except such as may be required by the securities or
Blue Sky laws of the various states in connection with the offer and
sale of the Shares.
(i) There has not been any material adverse change, or any
development involving a prospective material adverse change, in the
condition, financial or otherwise, or in the earnings, business or
operations of the Company and its subsidiaries, taken as a whole, from
that set forth in the Prospectus.
(j) To the Company's best knowledge, there are no legal or
governmental proceedings pending or threatened to which the Company or
any of its subsidiaries is a party or to which any of the properties
of the Company or any of its subsidiaries is subject that are required
to be described in the Registration Statement or the Prospectus and
are not so described or any statutes, regulations, contracts or other
documents that are required to be described in the Registration
Statement or the Prospectus or to be filed as an exhibit to the
Registration Statement that are not described or filed as required.
(k) Each of the Company and the Material subsidiaries has all
necessary consents, authorizations, approvals, orders, certificates
and permits of and from, and has made all declarations and filings
with, all federal, state, local and other governmental authorities,
all self-regulatory organizations and all courts and other tribunals,
to own, lease, license and use its properties and assets and to
conduct its business in the manner described in the Prospectus, except
to the extent that the failure to obtain or file would not have a
material adverse effect on the Company and its subsidiaries, taken as
a whole.
(l) Each preliminary prospectus filed as part of the
registration statement as originally filed or as part of any amendment
thereto, or filed pursuant to Rule 424 under the Securities Act,
complied when so filed in all material respects with the Securities
Act and the rules and regulations of the Commission thereunder.
4
<PAGE> 6
(m) (i) Each part of the Registration Statement, when such
part became effective, did not contain and each such part, as amended
or supplemented, if applicable, will not contain, any untrue statement
of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein not
misleading, (ii) the Registration Statement and the Prospectus comply
and, as amended or supplemented, if applicable, will comply in all
material respects with the Securities Act and the applicable rules and
regulations of the Commission thereunder and (iii) the Prospectus does
not contain and, as amended or supplemented, if applicable, will not
contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements therein, in the light
of the circumstances under which they were made, not misleading,
except that the representations and warranties set forth in this
paragraph (m) do not apply to statements or omissions in the
Registration Statement, the Prospectus or any preliminary prospectus
based upon information furnished to the Company in writing by any
Underwriter through the U.S. Representatives expressly for use
therein.
(n) The Company has complied with all provisions of
Section 517.075 Florida Statutes (Chapter 92-198, Laws of Florida).
(o) The Company is not an "investment company" or an entity
"controlled" by an "investment company" as such terms are defined in
the Investment Company Act of 1940, as amended.
II.
The Company hereby agrees to sell to the several Underwriters
named in Schedules I and II hereto, and the Underwriters, upon the basis of the
representations and warranties herein contained, but subject to the conditions
hereinafter stated, agree, severally and not jointly, to purchase from the
Company the respective numbers of Firm Shares set forth opposite their names in
Schedules I and II hereto at $ _____ a share - the purchase price.
On the basis of the representations and warranties contained
in this Agreement, and subject to its terms and conditions, the Company agrees
to sell to the U.S. Underwriters the Additional Shares, and the U.S.
Underwriters shall have a one-time right to purchase, severally and not
jointly, up to
5
<PAGE> 7
_______ Additional Shares at the purchase price. Additional Shares may be
purchased as provided in Article IV hereof solely for the purpose of covering
over-allotments made in connection with the offering of the Firm Shares. If
any Additional Shares are to be purchased, each U.S. Underwriter agrees,
severally and not jointly, to purchase the number of Additional Shares (subject
to such adjustments to eliminate fractional shares as you may determine) that
bears the same proportion to the total number of Additional Shares to be
purchased as the number of U.S. Firm Shares set forth in Schedule I hereto
opposite the name of such Underwriter bears to the total number of U.S. Firm
Shares. The Additional Shares to be purchased by the U.S. Underwriters
hereunder and the U.S. Firm Shares and hereinafter collectively referred to as
the U.S. Shares.
The Company hereby agrees that, without the prior written
consent of Morgan Stanley & Co. Incorporated, it will not offer, sell, contract
to sell or otherwise dispose of any shares of Class A or Class B Common Stock
of the Company or any securities convertible into or exercisable or
exchangeable for Class A or Class B Common Stock or enter into any swap or
similar agreement that transfers, in whole or in part, the economic risk of
ownership of the Class A or Class B Common Stock for a period of 90 days after
the date of the initial public offering of the Shares, other than (i) the
Shares to be sold hereunder, (ii) any Class A or Class B Common Stock sold upon
the exercise of an option or warrant or the conversion of a security
outstanding on the date hereof, (iii) any shares or stock options issued
pursuant to the Company's stock option plans existing on the date hereof, and
(iv) any shares or stock options issued pursuant to the [Hechinger Company 1991
Stock Incentive Plan described in the Company's Proxy Statement dated May 12,
1994.]
III.
The Company is advised by you that the Underwriters propose to
make a public offering of their respective portions of the Shares as soon after
the Registration Statement and this Agreement have become effective as in your
judgment is advisable. The Company is further advised by you that the Shares
are to be offered to the public initially at $_____ a share (the public
offering price) and to certain dealers selected by you at a price that
represents a concession not in excess of $____ a share under the public
offering price, and that any Underwriter may allow, and such dealers may
reallow, a concession, not in excess of $____ a share, to any Underwriter or to
certain other dealers.
6
<PAGE> 8
Each U.S. Underwriter hereby makes to and with the Company the
representations and agreements of such U.S. Underwriter contained in the fifth
paragraph of Article III of the Agreement Between U.S. and International
Underwriters of even date herewith. Each International Underwriter hereby
makes to and with the Company the representations and agreements of such
International Underwriter contained in the seventh, eighth, ninth and tenth
paragraphs of Article III of such Agreement.
IV.
Payment for the Firm Shares shall be made by certified or
official bank check or checks payable to the order of the Company in New York
Clearing House funds at the office of Morgan Stanley & Co. Incorporated, 1251
Avenue of the Americas, New York, New York, at 10:00 A.M., local time, on
_______, 1994, or at such other time on the same or such other date, not later
than ______, 1994, as shall be mutually agreed upon by the U.S.
Representatives and the Company. The time and date of such payment are
hereinafter referred to as the Closing Date.
Payment for any Additional Shares shall be made by certified
or official bank check or checks payable to the order of the Company in New
York Clearing House funds at the office of Morgan Stanley & Co. Incorporated,
1251 Avenue of the Americas, New York, New York, at 10:00 A.M., local time, on
such date (which may be the same as the Closing Date but shall in no event be
earlier than the Closing Date nor later than ten business days after the giving
of the notice hereinafter referred to) as shall be designated in a written
notice from the U.S. Representatives to the Company of its determination, on
behalf of the U.S. Underwriters, to purchase a number, specified in said
notice, of Additional Shares, or on such other date, in any event not later
than _______, 1994, as shall be designated in writing by the U.S.
Representatives. The time and date of such payment are hereinafter referred to
as the Option Closing Date. The notice of the determination to exercise the
option to purchase Additional Shares and of the Option Closing Date may be
given at any time within 30 days after the date of this Agreement.
Certificates for the Firm Shares and Additional Shares shall
be in definitive form and registered in such names and in such denominations as
you shall request in writing not later than two full business days prior to the
Closing Date or the Option Closing Date, as the case may be. The certificates
evidencing the Firm Shares and Additional Shares shall be delivered to you on
the Closing Date or the Option Closing Date, as the case may be, for the
respective accounts of the several Underwriters, with
7
<PAGE> 9
any transfer taxes payable in connection with the transfer of the Shares to the
Underwriters duly paid, against payment of the purchase price therefor.
V.
The obligations of the Company and the several obligations of
the Underwriters hereunder are subject to the condition that the Registration
Statement shall have become effective not later than the date hereof.
The several obligations of the Underwriters hereunder are
subject to the following further conditions:
(a) (i) The Registration Statement is in effect; no stop
order suspending the effectiveness of the Registration Statement shall
be in effect, and no proceedings for such purpose shall be pending
before or threatened by the Commission;
(ii) subsequent to the date of the most recent financial
statements in the Prospectus, there shall not have occurred
any change, or any development involving a prospective change,
in the condition, financial or otherwise, or in the earnings,
business or operations, of the Company and its subsidiaries,
taken as a whole, from that set forth in the Registration
Statement, that, in your judgment, is material and adverse and
that makes it, in your judgment, impracticable to market the
Shares on the terms and in the manner contemplated in the
Prospectus; and
(iii) the U.S. Representatives, on behalf of the
Underwriters, shall have received on the Closing Date a
certificate, dated the Closing Date and signed by an executive
officer of the Company, to the effect set forth in clause (i)
above, to the effect that the representations and warranties
of the Company contained herein are true and correct as of the
Closing Date and to the effect that, subsequent to the date of
the most recent financial statements in the Prospectus, there
has not occurred any material adverse change, or any
development involving a prospective material adverse change,
in the condition, financial or otherwise, or in the earnings,
business or operations, of the Company and its subsidiaries,
taken as a whole, from that set forth in the Registration
Statement.
8
<PAGE> 10
The officer signing and delivering such certificate may rely
upon the best of his knowledge as to proceedings threatened.
(b) You shall have received on the Closing Date an opinion of
Skadden, Arps, Slate, Meagher & Flom, counsel for the Company, dated
the Closing Date, to the effect that:
(i) the Company has been duly incorporated, is
validly existing as a corporation in good standing under the
laws of the State of Delaware, has the corporate power and
authority to conduct its business as described in the
Prospectus and is duly qualified to transact business and is
in good standing in each jurisdiction in which the conduct of
its business or its ownership or leasing of property requires
such qualification, except to the extent that the failure to
be so qualified or be in good standing would not have a
material adverse effect on the business of the Company and its
subsidiaries taken as a whole;
(ii) each of the Material Subsidiaries has been duly
incorporated, is validly existing as a corporation in good
standing under the laws of the jurisdiction of its
incorporation, has the corporate power and authority to
conduct its business as described in the Prospectus and is
duly qualified to transact business and is in good standing in
each jurisdiction in which the conduct of its business or its
ownership or leasing of property requires such qualification,
except to the extent that the failure to be so qualified or be
in good standing would not have a material adverse effect on
the business of the Company and its subsidiaries taken as a
whole;
(iii) the shares of Common Stock outstanding prior to the
issuance of the Shares have been duly authorized and are
validly issued, fully paid and non-assessable;
(iv) the Shares have been duly authorized and, when
issued, delivered and paid for in accordance with the terms of
this Agreement, will be validly issued, fully paid and
non-assessable, and the issuance of such Shares is not subject
to any preemptive or similar rights;
(v) this Agreement has been duly authorized, executed
and delivered by or on behalf of the Company;
(vi) the execution and delivery by the Company of, and
the performance by the Company of its obligations
9
<PAGE> 11
under, this Agreement will not contravene (1) the certificate
of incorporation or by-laws of the Company, (2) any provision
of Applicable Law, as defined below, (3) to such counsel's
knowledge, any agreement or other instrument binding upon the
Company or any Material Subsidiary that is material to the
Company and its subsidiaries, taken as a whole, except for any
such violations which either individually or in the aggregate
would not have any material adverse affect on you or the
Company and would not deprive you of any material benefit
under this Agreement, or (4) those Orders, as defined below,
specifically identified to such counsel by the Company, after
inquires of responsible officers of the Company, as being
Orders to which it is subject;
(vii) to the best of such counsel's knowledge, no
Governmental Approval, as defined below, which has not been
obtained, taken or made (other than pursuant to any state
securities or Blue Sky laws, as to which such counsel need not
express any opinion) is required for performance by the
Company of its obligations under this Agreement, such opinion
relating only to Governmental Approvals required under (1)
Applicable Laws and (2) court orders and judgments
specifically identified to such counsel by the Company, after
inquires of responsible officers of the Company, as being
orders to which it is subject;
(viii) the statements (1) in the Prospectus under
"Description of Capital Stock", (2) describing the terms of
this Agreement in the Prospectus under "Underwriters", and (3)
in the Registration Statement in Item 15, insofar as such
statements constitute a summary of the legal matters,
documents or proceedings referred to therein, fairly present
the information called for with respect to such legal matters,
documents and proceedings;
(ix) after due inquiry, such counsel does not know of any
legal or governmental proceeding pending or threatened to
which the Company or any of its subsidiaries is a party or to
which any of the properties of the Company or any of its
subsidiaries is subject that is required to be described in
the Registration Statement or the Prospectus and is not so
described or of any statutes, regulations, contracts or other
documents that are required to be described in the
Registration Statement or the Prospectus or to be filed as
exhibits to the Registration Statement that
10
<PAGE> 12
are not described or filed as required;
(x) each document incorporated by reference in the
Registration Statement and the Prospectus which was filed with
the Commission pursuant to the Securities Exchange Act of
1934, as amended (the "Exchange Act") complied as to form in
all material respects with the Exchange Act and the rules and
regulations of the Commission thereunder when so filed except
that in each case such counsel need express no opinion as to
the financial statements, schedules or other financial data
contained or incorporated by reference in the Registration
Statement or the Prospectus, and need not assume any
responsibility for the accuracy, completeness or fairness of
the statements contained in documents incorporated by
reference in the Registration Statement and the Prospectus;
(xi) the Registration Statement, as of its effective
date, and the Prospectus, as of its date and as of the Closing
Date, shall, comply as to form in all material respects with
the requirements of the Securities Act and the General Rules
thereunder, except that in each case such counsel need not
express any opinion as to the financial statements, schedules
and other financial data included in the Registration
Statement or excluded therefrom, and such counsel need not
assume any responsibility for the accuracy, completeness or
fairness of the statements contained in the Registration
Statement and the Prospectus (other than as specified in
subparagraph (viii) above insofar as the captions referred to
therein relate to provisions of documents); and
(xii) such counsel has participated in conferences with
directors, officers and representatives of the Company,
representatives of the independent accountants of the Company
and you and your counsel, at which the contents of the
Registration Statements and the Prospectus and related matters
were discussed and, although such counsel need not pass upon,
and need not assume any responsibility for, the accuracy,
completeness or fairness of the statements contained in the
Registration Statement or the Prospectus and need not make any
independent check or verification thereof (other than as
specified in subparagraph (viii) above insofar as the captions
referred to therein relate to provisions of documents), on the
basis of the foregoing, no facts have come to such counsel's
attention that have led such counsel to believe that
11
<PAGE> 13
the Registration Statement, at the time it became effective,
contained an untrue statement of a material fact or omitted to
state any material fact required to be stated therein or
necessary to make the statements therein not misleading, or
that the Prospectus, as of its date and as of the Closing
Date, shall contain an untrue statement of a material fact or
omit to state a material fact required to be stated therein or
necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading,
except that such counsel need express no opinion or belief
with respect to the financial statements, schedules and other
financial information included in the Registration Statement
or excluded therefrom or with respect to any of the exhibits
incorporated by reference in the Registration Statement except
to the extent that such exhibits may be described or
referred to in the Prospectus.
In rendering any such opinion, such counsel may rely, as to
matters of fact, on certificates of responsible officers of the Company and
public officials. For purposes of such opinion (i) the term "Applicable Laws"
shall mean those laws, rules and regulations of the United States of America,
the State of Delaware and the State of New York or any provision of other law
known to such counsel, in each case which, in such counsel's experience, are
normally applicable to transactions of the type contemplated by this Agreement
(including transactions such as the issuance and sale by the Company of the
Shares); (ii) the term "Orders" shall mean those orders, judgments, or degrees
of Governmental Authorities (as hereinafter defined) having jurisdiction over
the Company; (iii) the term "Governmental Authorities" shall mean any
legislative, judicial, administrative or regulatory body of the State of New
York, the State of Delaware or the United States of America; and (iv) the term
"Governmental Approval" shall mean any consent, approval, or authorization or
order of or qualification with any governmental body or agency.
(c) You shall have received on the Closing Date an opinion of
Davis Polk & Wardwell, counsel for the Underwriters, dated the Closing
Date, in form and substance satisfactory to you.
(d) You shall have received on the date of this Agreement a
letter dated such date and also on the Closing Date a letter dated the
Closing Date, in each case in form and substance satisfactory to you,
from Ernst & Young LLP independent public accountants, containing
statements and information of the type ordinarily included in
accountants'
12
<PAGE> 14
"comfort letters" to underwriters with respect to the financial
statements and certain financial information contained in or
incorporated by reference into the Registration Statement and the
Prospectus.
(e) The agreements between you and certain shareholders of
the Company relating to restrictions on sales or other dispositions by
such shareholders of Common Stock of the Company delivered to you on
or prior to the date hereof, shall be in full force and effect on the
date hereof and on the Closing Date.
The several obligations of the U.S. Underwriters to purchase
Additional Shares hereunder are subject to the delivery to the U.S.
Representatives on the Option Closing Date of such documents as it may
reasonably request with respect to the good standing of the Company, the due
authorization and issuance of the Additional Shares and other matters related
to the issuance of the Additional Shares.
VI.
In further consideration of the agreements of the Underwriters
herein contained, the Company covenants as follows:
(a) To furnish you, without charge, four signed copies of the
Registration Statement (including exhibits thereto and documents
incorporated therein by reference) and to each other Underwriter a
conformed copy of the Registration Statement (without exhibits thereto
but including documents incorporated therein by reference) and, during
the period mentioned in paragraph (c) below, as many copies of the
Prospectus, any documents incorporated therein by reference, and any
supplements and amendments thereto as you may reasonably request. The
terms "supplement" and "amendment" or "amend" as used in this
Agreement shall include all documents subsequently filed by the
Company with the Commission pursuant to the Exchange Act, that are
deemed to be incorporated by reference in the Prospectus.
(b) Before amending or supplementing the Registration
Statement or the Prospectus, to furnish you a copy of each such
proposed amendment or supplement.
(c) If, during such period after the first date of the public
offering of the Shares as in the opinion of your counsel the
Prospectus is required by law to be delivered in connection with sales
by an Underwriter or dealer, any event
13
<PAGE> 15
shall occur as a result of which it is necessary to amend or
supplement the Prospectus in order to make the statements therein, in
the light of the circumstances when the Prospectus is delivered to a
purchaser, not misleading, or if it is necessary to amend or
supplement the Prospectus to comply with law, forthwith to prepare and
furnish, at its own expense, to the Underwriters and to the dealers
(whose names and addresses you will furnish to the Company) to which
Shares may have been sold by you on behalf of the Underwriters and to
any other dealers upon request, either amendments or supplements to
the Prospectus so that the statements in the Prospectus as so amended
or supplemented will not, in the light of the circumstances when the
Prospectus is delivered to a purchaser, be misleading or so that the
Prospectus will comply with law.
(d) To endeavor to qualify the Shares for offer and sale
under the securities or Blue Sky laws of such jurisdictions as you
shall reasonably request and to pay all expenses (including fees and
disbursements of counsel) in connection therewith and in connection
with any review of the offering of the Shares by the National
Association of Securities Dealers, Inc.; provided, however, that in
connection therewith the Company shall not be required to qualify as a
foreign corporation or to execute a general consent to service of
process in any jurisdiction.
(e) To make generally available to the Company's security
holders as soon as practicable an earnings statement covering the
twelve-month period ending October 31, 1995, that satisfies the
provisions of Section 11(a) of the Securities Act and the rules and
regulations of the Commission thereunder.
(f) To pay all document production charges and expenses
of Davis Polk & Wardwell, counsel for the Underwriters (but not
including their fees for professional services), in connection with
the preparation of this Agreement.
VII.
The Company agrees to indemnify and hold harmless each
Underwriter and each person, if any, who controls any Underwriter within the
meaning of either Section 15 of the Securities Act or Section 20 of the
Exchange Act, from and against any and all losses, claims, damages and
liabilities caused by any untrue statement or alleged untrue statement of a
material fact
14
<PAGE> 16
contained in the Registration Statement or the Prospectus (as amended or
supplemented if the Company shall have furnished any amendments or supplements
thereto) or any preliminary prospectus, or caused by any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, except insofar as such
losses, claims, damages or liabilities are caused by any such untrue statement
or omission or alleged untrue statement or omission based upon information
furnished to the Company in writing by any Underwriter through you expressly
for use therein; provided, however, that the foregoing indemnity agreement with
respect to any preliminary prospectus shall not inure to the benefit of any
Underwriter from whom the person asserting any such losses, claims, damages or
liabilities purchased Shares, or any person controlling such Underwriter, if a
copy of the Prospectus (as then amended or supplemented if the Company shall
have furnished any amendments or supplements thereto) was not delivered or
given by or on behalf of such Underwriter to such person, if required by law so
to have been delivered at or prior to the written confirmation of the sale of
the Shares to such person, and if the Prospectus (as so amended or
supplemented) would have cured the defect giving rise to such losses, claims,
damages or liabilities.
Each Underwriter agrees, severally and not jointly, to
indemnify and hold harmless the Company, its directors, its officers who sign
the Registration Statement and each person, if any, who controls the Company
within the meaning of either Section 15 of the Securities Act or Section 20 of
the Exchange Act to the same extent as the foregoing indemnity from the Company
to each Underwriter, but only with reference to information furnished to the
Company in writing by such Underwriter through you expressly for use in the
Registration Statement, the Prospectus, any amendment or supplement thereto, or
any preliminary prospectus.
In case any proceeding (including any governmental
investigation) shall be instituted involving any person in respect of which
indemnity may be sought pursuant to either of the two preceding paragraphs,
such person (hereinafter called the indemnified party) shall promptly notify
the person against whom such indemnity may be sought (hereinafter called the
indemnifying party) in writing and the indemnifying party, upon request of the
indemnified party, shall retain counsel reasonably satisfactory to the
indemnified party to represent the indemnified party and any others the
indemnifying party may designate in such proceeding and shall pay the
reasonable fees and disbursements of such counsel related to such proceeding.
In any such proceeding, any indemnified party shall have the right to retain
its own counsel, but the fees and expenses of such counsel shall be at
15
<PAGE> 17
the expense of such indemnified party unless (i) the indemnifying party and the
indemnified party shall have mutually agreed to the retention of such counsel
or (ii) the named parties to any such proceeding (including any impleaded
parties) include both the indemnifying party and the indemnified party and
representation of both parties by the same counsel would be inappropriate due
to actual or potential differing interests between them. It is understood that
the indemnifying party shall not, in connection with any proceeding or related
proceedings in the same jurisdiction, be liable for the fees and expenses of
more than one separate firm (in addition to any local counsel, provided that
only one firm of attorneys shall act as local counsel for any one party in any
single jurisdiction) for all such indemnified parties, and that all such fees
and expenses shall be reimbursed as they are incurred. In the case
of any such separate firm for the Underwriters and such control persons
of Underwriters, such firm shall be designated in writing by Morgan
Stanley & Co. Incorporated. In the case of any such separate firm for the
Company, and such directors, officers and control persons of the Company, such
firm shall be designated in writing by the Company. The indemnifying party
shall not be liable for any settlement of any proceeding effected without its
written consent, but if settled with such consent or if there be a final
judgment for the plaintiff, the indemnifying party agrees to indemnify the
indemnified party from and against any loss or liability by reason of such
settlement or judgment. No indemnifying party shall, without the prior
written consent of the indemnified party, effect any settlement of any pending
or threatened proceeding in respect of which any indemnified party is or could
have been a party and indemnity could have been sought hereunder by such
indemnified party, unless such settlement includes an unconditional release of
such indemnified party from all liability on claims that are the subject matter
of such proceeding.
If the indemnification provided for in the second or third
paragraph of this Article VII is unavailable to an indemnified party in respect
of any losses, claims, damages or liabilities referred to therein, then each
indemnifying party under such paragraph, in lieu of indemnifying such
indemnified party thereunder, shall contribute to the amount paid or payable by
such indemnified party as a result of such losses, claims, damages or
liabilities (i) in such proportion as is appropriate to reflect the relative
benefits received by the Company and the Underwriters from the offering of the
Shares or (ii) if the allocation provided by clause (i) above is not permitted
by applicable law, in such proportion as is appropriate to reflect not only the
relative benefits referred to in clause (i) above but also the relative fault
of the Company and of the Underwriters in connection with the statements or
omissions that
16
<PAGE> 18
resulted in such losses, claims, damages or liabilities, as well as any other
relevant equitable considerations. The relative benefits received by the
Company and the Underwriters shall be deemed to be in the same respective
proportions as the net proceeds from the offering (before deducting expenses)
received by the Company and the total underwriting discounts and commissions
received by the Underwriters, in each case as set forth in the table on the
cover of the Prospectus, bear to the aggregate public offering price of the
Shares. The relative fault of the Company and the Underwriters shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to
state a material fact relates to information supplied by the Company or by the
Underwriters and the parties' relative intent, knowledge, access to information
and opportunity to correct or prevent such statement or omission.
The Company and the Underwriters agree that it would not be
just and equitable if contribution pursuant to this Article VII were determined
by pro rata allocation (even if the Underwriters were treated as one entity for
such purpose) or by any other method of allocation that does not take account
of the equitable considerations referred to in the immediately preceding
paragraph. The amount paid or payable by an indemnified party as a result of
the losses, claims, damages and liabilities referred to in the immediately
preceding paragraph shall be deemed to include, subject to the limitations set
forth above, any legal or other expenses reasonably incurred by such
indemnified party in connection with investigating or defending any such action
or claim. Notwithstanding the provisions of this Article VII, no Underwriter
shall be required to contribute any amount in excess of the amount by which the
total price at which the Shares underwritten by it and distributed to the
public were offered to the public exceeds the amount of any damages that such
Underwriter has otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission or alleged omission. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. The Underwriters' obligations to
contribute pursuant to this Article VII are several, in proportion to the
respective number of Firm Shares to be purchased by each of such Underwriters
as set forth opposite each Underwriter's name in Schedules I and II hereto plus
any additional Firm Shares which such Underwriter may become obligated to
purchase under this Agreement or the Agreement Among Underwriters, and not
joint.
The indemnity and contribution agreements contained in this
Article VII and the representations and warranties of the
17
<PAGE> 19
Company contained in this Agreement shall remain operative and in full force
and effect regardless of (i) any termination of this Agreement, (ii) any
investigation made by or on behalf of any Underwriter or any person controlling
any Underwriter or by or on behalf of the Company, its officers or directors or
any other person controlling the Company and (iii) acceptance of and payment
for any of the Shares.
VIII.
This Agreement shall be subject to termination in your
absolute discretion, by notice given to the Company, if (a) after the execution
and delivery of this Agreement and prior to the Closing Date (i) trading
generally shall have been suspended or materially limited on or by, as the case
may be, any of the New York Stock Exchange, the American Stock Exchange, the
National Association of Securities Dealers, Inc., the Chicago Board Options
Exchange, the Chicago Mercantile Exchange or the Chicago Board of Trade, (ii)
trading of any securities of the Company shall have been suspended on any
exchange or in any over-the-counter market, (iii) a general moratorium on
commercial banking activities in New York shall have been declared by either
Federal or New York State authorities, or (iv) there shall have occurred any
outbreak or escalation of hostilities or any change in financial markets or any
calamity or crisis that, in your judgment, is material and adverse and (b) in
the case of any of the events specified in clauses (a)(i) through (iv), such
event singly or together with any other such event makes it, in your judgment,
impracticable to market the Shares on the terms and in the manner contemplated
in the Prospectus.
IX.
This Agreement shall become effective upon the later of (x)
execution and delivery hereof by the parties hereto and (y) release of
notification of the effectiveness of the Registration Statement by the
Commission.
If, on the Closing Date or the Option Closing Date, as the
case may be, any one or more of the Underwriters shall fail or refuse to
purchase Shares that it or they have agreed to purchase hereunder on such date,
and the aggregate number of Shares which such defaulting Underwriter or
Underwriters agreed but failed or refused to purchase is not more than
one-tenth of the aggregate number of the Shares to be purchased on such date,
the other Underwriters shall be obligated severally in the
18
<PAGE> 20
proportions that the number of Firm Shares set forth opposite their respective
names in Schedule I or Schedule II bears to the aggregate number of Firm Shares
set forth opposite the names of all such non-defaulting Underwriters, or in
such other proportions as you may specify, to purchase the Shares which such
defaulting Underwriter or Underwriters agreed but failed or refused to purchase
on such date; provided that in no event shall the number of Shares that any
Underwriter has agreed to purchase pursuant to Article II be increased pursuant
to this Article IX by an amount in excess of one-ninth of such number of Shares
without the written consent of such Underwriter. If, on the Closing Date or
the Option Closing Date, as the case may be, any Underwriter or Underwriters
shall fail or refuse to purchase Shares and the aggregate number of Shares with
respect to which such default occurs is more than one-tenth of the aggregate
number of Shares to be purchased on such date, and arrangements satisfactory to
you and the Company for the purchase of such Shares are not made within 36
hours after such default, this Agreement shall terminate without liability on
the part of any non-defaulting Underwriter or the Company. In any such case
either you or the Company shall have the right to postpone the Closing Date or
the Option Closing Date, as the case may be, but in no event for longer than
seven days, in order that the required changes, if any, in the Registration
Statement and in the Prospectus or in any other documents or arrangements may
be effected. Any action taken under this paragraph shall not relieve any
defaulting Underwriter from liability in respect of any default of such
Underwriter under this Agreement.
If this Agreement shall be terminated by the Underwriters, or
any of them, because of any failure or refusal on the part of the Company to
comply with the terms or to fulfill any of the conditions of this Agreement, or
if for any reason the Company shall be unable to perform its obligations under
this Agreement, the Company will reimburse the Underwriters or such
Underwriters as have so terminated this Agreement with respect to themselves,
severally, for all out-of-pocket expenses (including the fees and disbursements
of their counsel) reasonably incurred by such Underwriters in connection with
this Agreement or the offering contemplated hereunder.
This Agreement may be signed in two or more counterparts, each
of which shall be an original, with the same effect as if the signatures
thereto and hereto were upon the same instrument.
19
<PAGE> 21
This Agreement shall be governed by and construed in
accordance with the laws of the State of New York.
Very truly yours,
Hechinger Company
By
------------------------
Accepted, _______, 1994
Morgan Stanley & Co.
Incorporated
Montgomery Securities
Acting severally on behalf
of itself and the several
U.S. Underwriters named in
Schedule I hereto.
By Morgan Stanley & Co.
Incorporated
By
--------------------------
MORGAN STANLEY INTERNATIONAL LIMITED
MONTGOMERY SECURITIES
Acting severally on behalf of itself
and the several International Underwriters
named in Schedule II hereto.
By Morgan Stanley International Limited
By
--------------------------
20
<PAGE> 22
SCHEDULE I
U.S. Underwriters
<TABLE>
<CAPTION>
Number of
Firm Shares
Underwriter To Be Purchased
----------- ---------------
<S> <C>
Morgan Stanley & Co. Incorporated
Montgomery Securities
---------------
Total U.S. Firm Shares ........
===============
</TABLE>
<PAGE> 23
SCHEDULE II
International Underwriters
<TABLE>
<CAPTION>
Number of
Firm Shares
Underwriter To Be Purchased
----------- ---------------
<S> <C>
Morgan Stanley International Limited
Montgomery Securities
---------------
Total International Firm Shares ......
===============
</TABLE>
<PAGE> 1
September 21, 1994
Hechinger Company
3500 Pennsy Drive
Landover, MD 20785
Dear Ladies and Gentlemen:
We have acted as counsel to Hechinger Company, a Delaware
corporation (the "Company"), in connection with the underwritten public
offering by the Company of up to 5,750,000 shares (including an underwriters'
over-allotment option of 750,000 shares) (the "Shares") of the Company's Class
A Common Stock, par value $.10 per share (the "Common Stock"), pursuant to an
Underwriting Agreement to be entered into by the Company, Morgan Stanley & Co.
Incorporated and Montgomery Securities, as representatives of the several U.S.
underwriters to be named in Schedule I thereto, and Morgan Stanley
International and Montgomery Securities, as representatives of the several
international underwriters to be named in Schedule II thereto (the
"Underwriting Agreement").
This opinion is delivered in accordance with the requirements
of Item 601(b)(5) of Regulation S-K under the Securities Act of 1933, as
amended (the "Act").
In connection with this opinion, we have examined (i) the
Registration Statement of the Company on Form S-3 relating to the Shares filed
with the Securities and Exchange Commission (the "Commission") on September __,
1994 (the "Registration Statement"), (ii) the Certificate of Incorporation and
the By-laws of the Company, in each case as amended to the date hereof, (iii)
certain resolutions of the Board of Directors of the Company relating to the
issuance of the Shares, (iv) the Underwriting Agreement, (v) a specimen
certificate evidencing the Common Stock and (vi) such other documents as we
have deemed necessary or appropriate for the opinions expressed below.
<PAGE> 2
Hechinger Company
September 21, 1994
Page 2
In our examination we have assumed the genuineness of all
signatures, the legal capacity of all natural persons, the authenticity of all
documents submitted to us as originals, the conformity to the original
documents of all documents submitted to us as certified or photostatic copies
and the authenticity of the originals of such copies. As to any facts material
to the opinions expressed below which we did not independently establish or
verify, we have relied upon oral or written statements and representations of
officers and other representatives of the Company and others.
Members of our firm are admitted to the Bar of the State of
Delaware and we do not express any opinion as to the law of any other
jurisdiction.
Based upon and subject to the foregoing, and assuming that the
Underwriting Agreement is in substantially the form in which it was filed as an
exhibit to the Registration Statement and has been duly executed and delivered
by the parties thereto, we are of the opinion that the issuance of the Shares
has been duly authorized and, when certificates for the Shares in the form of
the specimen certificates examined by us have been duly executed, delivered and
paid for in accordance with the terms of the Underwriting Agreement, the Shares
will be validly issued, fully paid and nonassessable.
We hereby consent to the filing of this opinion as an exhibit
to the Registration Statement and to the reference to our firm under the
caption "Legal Matters" in each of the prospectuses which constitute a part of
the Registration Statement. In giving such consent, we do not thereby admit
that we are in the category of persons whose consent is required under Section
7 of the Act or the rules and regulations of the Commission promulgated
thereunder.
Very truly yours,
/s/ SKADDEN, ARPS, SLATE, MEAGHER & FLOM
----------------------------------------
Skadden, Arps, Slate, Meagher & Flom
<PAGE> 1
Consent of Independent Auditors
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement (Form S-3 No. 33-xxxxx) and the related Prospectus of
Hechinger Company dated September 21, 1994 and to the incorporation by
reference therein of our reports dated February 25, 1994, with respect to the
consolidated financial statements of Hechinger Company incorporated by
reference in its Annual Report (Form 10-K) for the year ended January 29, 1994
and the related financial statement schedules included therein, filed with the
Securities and Exchange Commission.
ERNST & YOUNG LLP
Washington, D.C.
September 20, 1994
