<PAGE> 1
SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement / / Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
Hechinger Company
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(i)(2)
or Item 22(a)(2) of Schedule 14A.
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and
0-11.
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
(5) Total fee paid:
- --------------------------------------------------------------------------------
/ / Fee paid previously with preliminary materials.
- --------------------------------------------------------------------------------
/ / Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the form or schedule and the date of its filing.
(1) Amount previously paid:
- --------------------------------------------------------------------------------
(2) Form, schedule or registration statement no.:
- --------------------------------------------------------------------------------
(3) Filing party:
- --------------------------------------------------------------------------------
(4) Date filed:
- --------------------------------------------------------------------------------
<PAGE> 2
HECHINGER COMPANY
3500 PENNSY DRIVE
LANDOVER, MARYLAND 20785
- ------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JUNE 13, 1995 (LOGO)
May 12, 1995
To Our Stockholders:
You are cordially invited to attend the Annual Meeting of Stockholders of
HECHINGER COMPANY, which will be held at the Stouffer Mayflower Hotel, 1127
Connecticut Avenue, NW, Washington, D.C., on Tuesday, June 13, 1995, at 10:00
a.m., for the following purposes:
(1) to elect eight directors to hold office until the next Annual Meeting
and until their successors are elected and qualified;
(2) to ratify the appointment of independent public accountants for the
current fiscal year;
(3) to approve an amendment to the Company's 1991 Stock Incentive Plan; and
(4) to transact such other business as may properly come before the meeting
or any adjournments or postponements thereof.
Only stockholders of record at the close of business on April 28, 1995 are
entitled to notice of, and to vote at, this meeting and any adjournments or
postponements thereof. Such stockholders may vote in person or by proxy.
Representation of at least a majority of all the outstanding shares of
common stock of the Company is required to constitute a quorum. Whether or not
you plan to attend the meeting, it is important that you promptly complete,
sign, date and return the accompanying proxy in the enclosed envelope at your
earliest convenience.
By Order of the Board of Directors,
Mark R. Adams
Senior Vice President,
Treasurer & Secretary
<PAGE> 3
HECHINGER COMPANY
LANDOVER, MARYLAND 20785
------------------------
PROXY STATEMENT
MAY 12, 1995
------------------------
The enclosed proxy is being solicited by the Board of Directors of
Hechinger Company (the "Company") in connection with the Company's Annual
Meeting of Stockholders (the "Annual Meeting") to be held on June 13, 1995, and
at any adjournments or postponements thereof. To assure adequate representation
at the Annual Meeting, stockholders are requested to sign, date and return
promptly the enclosed proxy. Only stockholders of record at the close of
business on April 28, 1995 (the "Record Date") will be entitled to vote at the
meeting. These proxy materials are first being mailed to stockholders of the
Company on or about May 12, 1995.
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before it is voted. Proxies may be revoked by (i) filing
with the Secretary of the Company, at or before the taking of the vote at the
Annual Meeting, a written notice of revocation bearing a later date than the
proxy, (ii) duly executing a later dated proxy relating to the same shares and
delivering it to the Secretary of the Company before the taking of the vote at
the Annual Meeting or (iii) attending the Annual Meeting and voting in person
(although attendance at the Annual Meeting will not in and of itself constitute
a revocation of a proxy). Any written notice of revocation or subsequent proxy
should be sent so as to be delivered to Hechinger Company, 3500 Pennsy Drive,
Landover, Maryland 20785, Attention: Secretary, or hand delivered to the
Secretary of the Company at or before the taking of the vote at the Annual
Meeting.
If a proxy is signed with a preference indicated thereon, the corresponding
shares will be voted accordingly, but if no choice has been specified, the
shares will be voted FOR the election of the directors nominated herein, FOR the
ratification of the appointment of the independent public accountants set forth
herein, and FOR the amendment of the Company's 1991 Stock Incentive Plan.
Stockholders' votes cast at the meeting in person or by proxy will be tallied by
the Company's transfer agent. Shares held by stockholders present at the meeting
in person who do not vote and proxies or ballots marked "abstain" or "withheld"
will be counted as present at the meeting for quorum purposes but will not be
considered to be voted at the meeting. "Broker non-votes" (i.e., shares
represented by proxies, received from a broker or nominee, indicating that the
broker or nominee has not voted the shares on a matter with respect to which the
broker or nominee does not have discretionary voting power) will be treated as
abstentions, i.e., present at the meeting but not voted.
ELECTION OF DIRECTORS
Eight directors are to be elected by plurality vote at the Annual Meeting,
each to hold office until the next Annual Meeting and until his or her successor
is elected and qualified. It is the intention of the persons named in the
enclosed proxy to vote such proxy for the selection of the nominees listed
below, unless authority to do so is withheld. All nominees are now directors of
the Company and have served continuously since their first election. In the
event that any nominee should be unable to accept the position of director,
which is not anticipated, it is intended that the persons named in the
<PAGE> 4
proxy will vote such proxy for the election of such other person in the place of
such nominee for the position of director as the Board may recommend.
<TABLE>
<CAPTION>
YEAR
FIRST
ELECTED
NAME AGE DIRECTOR
- --------------------------- --- --------
<S> <C> <C> <C>
John W. Hechinger 75 1959 Mr. Hechinger joined Hechinger Company in 1945. He became
President of the Company in 1958. He served as Co-Chairman
and Co-Chief Executive from 1986 until 1990. He currently
serves as Chairman of the Board.
Herbert J. Broner 67 1988 Mr. Broner joined Mohasco Corporation in 1968 as Director of
Marketing and Merchandising and held several executive
positions with Mohasco prior to being elected a director and
then President and Chief Operating Officer in 1980. He served
as Chief Executive Officer of Mohasco from April 1983 and
Chairman from August 1985 until his retirement in 1988.
John W. Hechinger, Jr. 45 1984 Mr. Hechinger, Jr., joined Hechinger Company in 1972. He
served in various positions with the Company before becoming
Vice President -- Corporate Development in 1982. In 1986 he
was named President and Chief Operating Officer. In March,
1990, Mr. Hechinger, Jr. was elected Chief Executive Officer.
S. Ross Hechinger 43 1984 Mr. Hechinger joined Hechinger Company in 1974. He served in
various positions with the Company before becoming Vice
President -- Distribution in 1982. In 1986 he was promoted to
Senior Vice President. He served as Senior Vice President --
Information Systems and Logistics for the Hechinger Stores
subsidiary until January 1994, when he became Senior Vice
President -- Corporate Administration for the Company.
Ann D. Jordan 60 1990 Ms. Jordan is a former Associate Fieldwork Professor, SSA,
University of Chicago, and former Director of Social
Services, University of Chicago Medical Center. She also
serves on the board of directors of Automatic Data
Processing, Inc., Capital Cities -- ABC, Inc., Johnson &
Johnson Corporation, National Health Laboratories, Inc.,
Salant Corporation, and The Travelers, Inc.
David O. Maxwell 64 1988 Mr. Maxwell joined the Federal National Mortgage Association
as President in February 1981 and was elected Chairman in May
1981. He served as Chairman and Chief Executive Officer until
his retirement in January 1991. Mr. Maxwell also serves on
the board of directors of Corporate Partners, L.P., Financial
Security Assurance Holdings, Ltd., Potomac Electric Power
Company and SunAmerica, Inc.
W. Clark McClelland 56 1979 Mr. McClelland joined Hechinger Company in 1975. He served as
Vice President, Treasurer and Secretary from 1983 until being
named Senior Vice President in 1986. Mr. McClelland was named
Executive Vice President in March 1993. He currently serves
as Executive Vice President and Chief Financial Officer.
Alan J. Zakon 59 1990 Mr. Zakon became Vice Chairman of Autotote Corporation in
1995. Prior to joining Autotote as Vice Chairman, he was a
Managing Director at Bankers Trust Company since 1989 and
served in several executive positions with the Boston
Consulting Group prior to being elected Chief Executive in
1980. Mr. Zakon also serves on the board of directors of
Arkansas-Best Corporation, Augat, Inc., Autotote Corporation
and Laurentian Capital Corporation.
</TABLE>
COMMITTEES OF THE BOARD AND MEETINGS
The Audit Committee of the Board reviews and acts upon or reports to the
Board with respect to the Company's accounting principles and accounting
procedures, financial reporting standards and practices and its internal control
and recordkeeping practices. The Audit Committee, which presently consists of
Messrs. Herbert J. Broner, Chairman, Alan J. Zakon and Ms. Ann D. Jordan, held
three meetings during the Company's last fiscal year.
2
<PAGE> 5
The Compensation Committee of the Board reviews, approves or makes
recommendations to the Board regarding compensation policies and programs of the
Company including the salaries, annual incentive and long-term incentive awards
for executive officers of the Company. The Committee administers the Company's
1991 Stock Incentive and Performance Share Plans. The Compensation Committee,
which presently consists of Messrs. David O. Maxwell, Chairman, Herbert J.
Broner and Alan J. Zakon, held four meetings during the Company's last fiscal
year.
The Board does not currently have a nominating committee.
The Board met eight times during the Company's last fiscal year. During the
Company's last fiscal year, no member of the Board attended fewer than 75% of
the aggregate of (i) the total number of meetings of the Board and (ii) the
total number of meetings held by all committees of the Board on which he or she
served.
COMPENSATION OF DIRECTORS
Directors who are not employees of the Company ("Non-Employee Directors")
receive an annual fee of $20,000 and an attendance fee of $1,000 for each Board
meeting or Committee meeting attended. The Chairman of the Board and of each
Committee also receive an additional attendance fee of $250 for each meeting
chaired. Non-Employee Directors are reimbursed for the reasonable expenses of
each Board or Committee meeting attended.
Pursuant to the terms of the Company's 1991 Stock Incentive Plan,
Non-Employee Directors receive a one-time award of a nonqualified stock option
covering 8,000 shares of Class A common stock upon the date they are first
elected to the Board, and also automatically receive each year a nonqualified
stock option covering 2,000 shares of Class A common stock immediately following
each annual meeting of the Company's stockholders. Non-Employee Directors are
also eligible for a retirement benefit after completing five years of service as
a Non-Employee Director. The benefit is equal to the annual fee paid to all
Non-Employee Directors at the time of retirement and is payable annually for the
number of years served as a Non-Employee Director.
Directors who are also employees of the Company receive no additional
compensation for their service as directors or as members of Committees of the
Board.
EXECUTIVE COMPENSATION
The Summary Compensation Table sets forth individual compensation
information paid by the Company and its subsidiaries to the Chief Executive
Officer and the four other most highly paid executive officers (the "Named
Executive Officers"), for services rendered in all capacities during the fiscal
years ended January 28, 1995 ("1994"), January 29, 1994 ("1993"), and January
30, 1993 ("1992").
3
<PAGE> 6
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
---------------------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
---------------------------------- ------------------------ -----------
OTHER RESTRICTED SECURITIES ALL
ANNUAL STOCK UNDERLYING PERFORMANCE OTHER
NAME AND SALARY BONUS COMPENSATION AWARDS OPTIONS SHARES COMPENSATION
PRINCIPAL POSITION YEAR ($) ($) ($)(1) ($)(2) (#) ($)(3) ($)(4)
- --------------------------- ----- -------- -------- ------------ -------- ---------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
John W. Hechinger(5) 1994 320,833 0 0 0 0 0 6,929
Chairman of the 1993 425,000 0 0 0 0 0 11,374
Board 1992 422,500 0 0 0 0 0 778
John W. Hechinger, Jr. 1994 483,333 172,000 0 0 40,825 0 100,679
President & Chief 1993 450,000 230,000 0 0 200,000 0 11,374
Executive Officer 1992 446,667 175,000 0 0 34,769 0 778
Kenneth J. Cort 1994 416,667 215,000 92,399 0 36,289 0 893
President 1993 400,000 220,000 341,172 0 37,333 0 1,680
Hechinger Stores 1992 33,333 150,000 0 903,125 0 0 0
Company
Frank C. Doczi 1994 433,333 34,000 0 0 18,144 323,072 6,929
President 1993 391,666 160,000 0 0 19,787 0 11,374
Home Quarters 1992 350,000 225,000 0 962,500 12,654 0 10,340
Warehouse
W. Clark McClelland 1994 316,667 101,000 0 0 24,742 0 6,929
Executive Vice 1993 294,167 140,000 0 180,000 24,000 0 11,374
President & Chief 1992 263,333 135,000 0 0 13,269 0 778
Financial Officer
</TABLE>
- ---------------
(1) Kenneth J. Cort was hired as President and Chief Executive Officer of the
Company's Hechinger Stores subsidiary in December 1992. In employing Mr.
Cort, the Company provided relocation benefits to assist his move to the
Washington, D.C. area. These benefits included reimbursement of loss and
costs associated with the sale of his principal residence, as well as,
transportation, temporary living, storage, home purchase and other related
costs. In 1994, these benefits, along with an auto allowance, totalled
$92,399.
(2) Represents 85,000 restricted shares awarded to Kenneth J. Cort; 110,000
restricted shares awarded to Frank C. Doczi; and 20,000 restricted shares
awarded to W. Clark McClelland. Mr. McClelland also received 80,000
restricted shares during the year ended February 1, 1992 ("1991"). Each
award on this table is valued based upon the fair market value of the stock
on the date awarded. For each of the Named Executive Officers, the number
and value of the aggregate restricted stock holdings at the end of the past
fiscal year was as follows: John W. Hechinger, 0/$0; John W. Hechinger, Jr.,
0/$0; Kenneth J. Cort, 59,500/$617,313; Frank C. Doczi, 66,000/$684,750; and
W. Clark McClelland, 44,000/$456,500. The unvested portion of restricted
stock awards outstanding will vest as follows: Kenneth J. Cort, 17,000
shares on January 11, 1996, 17,000 shares on January 11, 1997 and 25,500
shares on January 11, 1998; Frank C. Doczi, 22,000 shares on October 5, 1995
and 44,000 shares on October 5, 1996; and W. Clark McClelland, 36,000 shares
on January 1, 1996 and 8,000 shares on January 1, 1997. Kenneth J. Cort,
Frank C. Doczi, and W. Clark McClelland had 17,000, 22,000, and 20,000
shares, respectively, become unrestricted in 1994. Dividends are paid on
restricted stock. The Restricted Stock Award Agreements pursuant to which
Restricted Stock was granted to Messrs. Kenneth J. Cort, Frank C. Doczi, and
W. Clark McClelland, and the Stock Option Agreements pursuant to which an
option to purchase 200,000 shares and 308,000 shares of Class A Common Stock
was granted to John W. Hechinger, Jr. in 1993 and 1991, respectively,
provide that in the event of termination of the executive's employment in
certain circumstances after a change in control, the restrictions on such
shares granted shall lapse and the executive shall receive such shares free
of the restrictive legend. In addition, if such stock becomes subject to
certain excise taxes in connection with the lapse of restrictions, the
Company shall make an additional payment to the executive to compensate for
such taxes. "Change in control" is defined generally to mean an acquisition
of beneficial ownership of 20% or more of the Company's voting power by any
person (other than the Hechinger and England families) at a time when the
Hechinger and England families beneficially own securities
4
<PAGE> 7
representing less voting power than such person, as well as certain
changes in the Board of Directors not approved by two-thirds of the then
existing directors.
(3) Mr. Doczi received 25,093 shares of Class A common stock in 1994 due to Home
Quarters Warehouse achieving certain specified operating income targets over
the three year period ended January 29, 1994. The shares are valued as of
March 15, 1994, the date such performance was determined by the Compensation
Committee.
(4) Represents contribution to the Company's Profit Sharing Plan. Company
contributions to the Profit Sharing Plan are in such amounts as may be
determined by the Board up to the maximum amount allowable under the
Internal Revenue Code of 1986, as amended (the "Code"). Company
contributions become 100% vested after a participant completes five years of
Plan Service. Company contributions also become 100% vested if the
participant is an employee of the Company at the time he attains age 65 or
in the event of the participant's death or disability while an employee. For
Mr. Hechinger, Jr., the 1994 amount also includes an advance of $93,750 made
by the Company pursuant to a Split Dollar Life Insurance arrangement entered
into in that year. Under this arrangement, a trust established by Mr.
Hechinger, Jr. has acquired an interest in a life insurance policy on the
life of Mr. Hechinger, Jr. and his spouse in the amount of $3,460,000. The
trust is responsible for the payment of premiums on the policy. Each year,
for up to twelve years, the Company has agreed to advance the premium on the
policy up to $93,750 annually. The life insurance policy has been assigned
to the Company as security for the amounts advanced and upon the earliest of
termination of employment other than by death or disability, age 65, or the
death of Mr. Hechinger, Jr. and his spouse, the Company is entitled to be
reimbursed directly from the carrier for the amounts advanced.
(5) Mr. Hechinger relinquished his duties as an officer of Hechinger Company and
has become a Non-Employee Director as of January 28, 1995.
All stock options granted to the Named Executive Officers for the three
previous fiscal years are disclosed in the Summary Compensation Table. The table
below restates the options granted to the Named Executive Officers in the last
fiscal year, and provides other information regarding such grants, including an
estimate of the Grant Date Present Value. Stock Options are granted pursuant to
the 1991 Stock Incentive Plan. The Company has not granted any stock
appreciation rights.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
GRANT
DATE
INDIVIDUAL GRANTS VALUE
---------------------------------------------------- ---------
PERCENT
OF
TOTAL
NUMBER OPTIONS EXERCISE
OF GRANTED OR
SECURITIES TO BASE GRANT
UNDERLYING EMPLOYEES PRICE DATE
OPTIONS IN PER PRESENT
GRANTED FISCAL SHARE EXPIRATION VALUE
NAME (#)(1) YEAR ($/SH.) DATE ($)(2)
- ------------------------- ------- ----- -------- -------- ---------
<S> <C> <C> <C> <C> <C>
John W. Hechinger 0 -- -- -- --
John W. Hechinger, Jr. 40,825 5.5% $ 12.875 3/15/04 $ 289,449
Kenneth J. Cort 36,289 4.9% $ 12.875 3/15/04 $ 257,289
Frank C. Doczi 18,144 2.4% $ 12.875 3/15/04 $ 128,641
W. Clark McClelland 24,742 3.3% $ 12.875 3/15/04 $ 175,421
</TABLE>
- ---------------
(1) All options granted in the past fiscal year fully vest on March 15, 1996,
which is two years after the date of grant.
(2) The estimated grant date present value reflected in the above table is
determined by using the Black-Scholes model. The material assumptions and
adjustments incorporated in the Black-Scholes model in estimating the value
of the options reflected in the above table include the following: (a) An
exercise price on the options of $12.875 which is equal to the fair market
value of the underlying stock on the date of grant; (b) Option terms of ten
years; (c) An interest rate of 6.48%, representing the interest rate on a
U.S. Treasury security with a maturity date
5
<PAGE> 8
corresponding to that of the option term as of the date of grant; (d)
Volatility of 42.3%, calculated using daily stock prices for the one year
period prior to the date of grant; and (e) Dividends at the rate of $0.16
per share representing the annualized dividends paid with respect to a
share of Class A common stock at the date of grant.
The ultimate value of the options will depend on the future market price of
the Company's stock, which cannot be forecasted with reasonable accuracy. The
actual value, if any, an executive will realize upon exercise of an option will
depend on the excess of the market value of the Company's common stock over the
exercise price on the date the option is exercised.
The following table sets forth certain information on options exercised
during the last fiscal year and unrealized value for both exercisable and
unexercisable options at fiscal year end.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR,
AND FISCAL YEAR END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED IN-THE-MONEY OPTIONS
SHARES OPTIONS AT FISCAL AT FISCAL YEAR
ACQUIRED YEAR END END(1)
ON VALUE ------------------------- -------------------------
EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
NAME (#) ($) (#) (#) ($) ($)
- -------------------------- ------ ------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
John W. Hechinger 0 -- 0 0 0 0
John W. Hechinger, Jr. 0 -- 265,929 385,625 92,993 220,000
Kenneth J. Cort 0 -- 0 73,622 0 51,333
Frank C. Doczi 0 -- 37,067 37,931 24,348 27,207
W. Clark McClelland 6,250 17,813 60,689 48,742 16,485 33,000
</TABLE>
- ---------------
(1) Market value of stock at fiscal year end less exercise price, before payment
of applicable income taxes.
The following table sets forth certain information as to awards under the
Company's Performance Share Plan. The Performance Share Plan provides for the
award of "Performance Grants" to officers and key employees of the Company and
its subsidiaries. "Performance Grants" are rights to earn shares of the Class A
common stock ("Performance Shares"), if certain performance goals are met during
a specified time period. The Performance Share Plan is administered by the
Compensation Committee. No grantee has any voting or dividend rights, or other
rights of a stockholder in respect of any Performance Shares until his name is
recorded in the Company's stockholder ledger as a record holder of shares of
Class A common stock representing such Performance Shares.
LONG-TERM INCENTIVE PLAN AWARDS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
NUMBER
OF ESTIMATED FUTURE PAYOUT
PERFORMANCE OF PERFORMANCE SHARES
SHARES PERFORMANCE ---------------------------
GRANTED PERIOD UNTIL THRESHOLD TARGET MAXIMUM
NAME (#) PAYOUT (#) (#) (#)
- --------------------------- ------ ------------------------ --------- ------ -------
<S> <C> <C> <C> <C> <C>
John W. Hechinger 0 -- -- -- --
John W. Hechinger, Jr. 0 -- -- -- --
Kenneth J. Cort 0 -- -- -- --
Frank C. Doczi(1) 6,048 Three Year Period Ended 0 4,838 8,467
February 1, 1997
W. Clark McClelland 0 -- -- -- --
</TABLE>
- ---------------
(1) Pursuant to the terms of the Company's Performance Share Plan, Mr. Doczi was
granted the right to earn between 0 and 8,467 shares of Class A common
stock upon Home Quarters
6
<PAGE> 9
Warehouse achieving a certain specified average operating income target
over the three year performance period ended February 1, 1997.
PENSION AND RETIREMENT PLANS
The Company maintains a tax-qualified defined benefit pension plan (the
"Pension Plan") pursuant to which employees of the Company or its participating
subsidiaries who have completed one year of Benefit Service, as that term is
defined in the Pension Plan, are eligible to participate. Under the terms of the
Pension Plan, which was instituted in 1981, a participant is entitled upon
normal retirement at age 65 (or, if later, the 5th anniversary of participation
in the plan) to an annual retirement benefit payable monthly for life.
For years prior to January 1, 1992, a participant's annual retirement
benefit payable at normal retirement is equal to 1% of the participant's "Final
Average Earnings" (defined as the average of the participant's highest annual
Earnings during any five calendar years of his last 10 years of employment)
multiplied by the participant's Years of Benefit Service (not in excess of 30
years). As a result of an amendment to the Pension Plan, effective January 1,
1992, the annual retirement benefit payable at a participant's normal retirement
is the sum of (i) 1% of the participant's Final Average Earnings calculated as
of December 31, 1991, multiplied by the participant's Years of Benefit Service
as of December 31, 1991 (the "Final Average Earnings Formula"); plus (ii) 1.25%
of the participant's "Career Average Earnings" beginning January 1, 1992 through
termination of employment, multiplied by the participant's Years of Benefit
Service beginning on and after January 1, 1992 (the "Career Average Earnings
Formula"). The total Years of Benefit Service taken into account in computing a
participant's normal retirement benefit will not exceed 30 years. For purposes
of this Formula, a participant's Career Average Earnings is the sum of the
participant's Earnings for each Year of Benefit Service beginning January 1,
1992 until termination of employment, divided by the number of such years. The
term "Earnings" as used in the Pension Plan means a participant's total
compensation (effective January 1, 1989, not in excess of $200,000, and
effective January 1, 1994 not in excess of $150,000, in each case subject to
adjustment for cost-of-living) for a plan year, excluding the value of group
term life insurance, income from stock options, awards under the Hechinger
Performance Share Plan and other extraordinary items. Participants earn a full
Year of Benefit Service for each year during which they complete at least 1,500
hours of service. Participants become fully vested in their benefits under the
Pension Plan upon the completion of five years of service (10 years in the case
of a participant who is not credited with at least one hour of service on or
after February 1, 1989). Participants are eligible for an actuarially reduced
early retirement benefit upon attaining age 55 and completion of 10 years of
service.
The Company has also entered into Supplemental Executive Retirement
Agreements with certain officers including the Named Executive Officers, with
the exception of John W. Hechinger. These agreements provide for retirement
benefits equal to 65% of the participant's average annual compensation as
defined by the agreements (and excluding certain non-cash compensation such as
income from the exercise of stock options and other extraordinary items) for the
five highest-paid years of the last ten years of his or her employment,
multiplied by a fraction, the numerator of which is the executive's months of
employment by the Company not in excess of 360 and the denominator of which is
360. Such benefits are reduced by the amount of an executive's Social Security
benefits and payments under the Pension and Profit Sharing Plans of the Company.
Benefits vest and are payable at age 65 unless an executive obtains approval
from the Board for early retirement. If the participant dies prior to
retirement, the participant's named beneficiary will receive an amount equal to
50% of his or her prior year's compensation, payable in equal monthly
installments, until the later of the month following the month when the
participant would have become 65 or the 120th monthly payment. The agreements
also provide for limited cost of living adjustments to an executive's retirement
benefits.
The estimated total annual retirement benefits accrued as of December 31,
1994 and payable at normal retirement under the Pension Plan and the
Supplemental Executive Retirement Agreements
7
<PAGE> 10
for the Named Executive officers (excluding John W. Hechinger) are as follows:
John W. Hechinger, Jr., $31,595; Kenneth J. Cort, $11,498; Frank C. Doczi,
$92,706; and W. Clark McClelland, $30,375. The Pension Plan portion of these
benefit amounts is based on 14 years of Benefit Service for Mr. Hechinger, Jr.
and Mr. McClelland, and 1 year of Benefit Service for Mr. Cort. Mr. Doczi is
ineligible for the Pension Plan. The portion of the benefit payable under the
Supplemental Executive Retirement Agreements is based on the following years of
service credit: John W. Hechinger, Jr., 23; Kenneth J. Cort, 2; Frank C. Doczi,
10; and W. Clark McClelland, 19.
John W. Hechinger has not entered into a Supplemental Executive Retirement
Agreement but has a separate agreement with the Company with respect to
retirement benefits. The agreement provides for retirement benefits equal to
one-half of the average of Mr. Hechinger's highest five years' earnings. The
benefit is payable for his lifetime (or that of his spouse in the event he
predeceases her). The benefits payable under the agreement will be adjusted for
changes in the Consumer Price Index. The total annual retirement benefit payable
under the Pension Plan and this agreement is $317,361. Mr. Hechinger received
his first monthly installment under this retirement agreement in February 1995.
COMPENSATION COMMITTEE REPORT
Since its inception in 1911, the Company has recognized the importance of
attracting, retaining and motivating executives of outstanding abilities. The
Company firmly believes that quality people are essential to future success.
As described in the Section entitled Committees of the Board and Meetings
on page two, the Compensation Committee is responsible for administering the
compensation program for executive officers of the Company. The Committee's
Report discusses the Company's overall compensation philosophy applicable to its
executive officers and provides specific information regarding the components of
compensation and bases for compensation of the Chief Executive Officer. The
Compensation Committee is comprised of three Non-Employee Directors.
The Omnibus Budget Reconciliation Act of 1993 (the "Revenue Act") limits
the deductibility of certain compensation in excess of $1 million per year paid
by a publicly traded corporation to an employee unless the compensation
qualifies as "performance-based." The Committee reviews the Company's executive
compensation program in light of the Revenue Act, and in this regard has
approved, subject to shareholder approval, the amendment to the 1991 Stock
Incentive Plan.
OVERALL COMPENSATION PHILOSOPHY
The Hechinger Company's executive compensation program is designed to
provide forms and levels of compensation that:
- Enable the Company to compete effectively in the labor market, by
attracting and retaining executive talent of a calibre sufficient to
meet its business goals;
- Reward executives for the accomplishment of pre-defined business
goals and objectives, thereby maintaining a "pay-for-performance"
environment; and
- Motivate executives toward gains in stockholder wealth so that
executives will be financially advantaged when stockholders are
similarly advantaged.
In implementing this philosophy, the Company targets its compensation plans
at the competitive norm for the retail industry. The competitive norm is
considered to be the average level of compensation as adjusted for company size,
in available compensation surveys of the retail industry. Because of its very
nature, this survey information will not include precisely the same companies
included in the S&P Retail - Specialty Index. In addition, individual
compensation may vary from the competitive norm based on factors specific to
each of the three main components of compensation described below.
8
<PAGE> 11
COMPONENTS OF COMPENSATION AND PERFORMANCE
BASE SALARY
Executive officer salaries are assessed annually. In determining the
appropriateness of a salary change, the Committee has generally considered four
factors:
- The relationship between current salary and the competitive norm;
- The average size of salary increases being granted by the retail
industry;
- Whether the responsibilities of the position have been changed
during the preceding year; and
- The general performance of the executive officer.
As can be seen from the Summary Compensation Table, the base salary of the
Chief Executive Officer, John W. Hechinger, Jr., increased by 7.4% in 1994 over
1993. The Committee recommended this increase given the Company's improved
performance in 1993 over 1992, and the fact that Mr. Hechinger's salary is below
the surveyed norm for similarly sized retailers.
The aggregate salary decrease for the remaining Named Executive Officers
was 1.5%. The evaluation of each Officer's increase or decrease was based on the
four factors described above.
ANNUAL INCENTIVES
Annual incentives (or bonuses) are based on performance and are intended to
focus management's attention on key financial and strategic results. It is
possible that no annual awards may be paid if corporate and subsidiary
performance objectives are not achieved.
The annual performance measures adopted for the fiscal year ended January
28, 1995 ("1994") provided for awards based primarily on the profitability of
the consolidated Company and its two subsidiaries versus pre-established goals.
In addition, the 1994 incentive plan recognized the achievement of other key
strategic objectives for certain Named Executive Officers. The strategic
objectives varied by position, as did the weight assigned these objectives.
The Chief Executive Officer's bonus for 1994 was $172,000, which was 30%
below Mr. Hechinger, Jr.'s target payout of $245,000 (50% of year end salary)
and 25% below 1993's bonus. Mr. Hechinger, Jr.'s 1994 bonus was determined by
evaluating consolidated financial performance versus a pre-established financial
goal. In arriving at the 1994 bonus payment, the Committee determined that goal
was not fully attained. Other Executive Officers were similarly evaluated. Of
the remaining Named Executive Officers who received a bonus, each had a target
payout of 45% of year end salary, and each had a bonus evaluation which was
weighted at least 80% to the achievement of financial performance goals
(consolidated and/or business unit income as appropriate), and between 0% and
20% to the achievement of specific strategic goals.
LONG-TERM INCENTIVES
The Hechinger Company's compensation philosophy is that long-term
incentives should motivate and retain executive officers. In addition, the
Committee believes that compensation, particularly at the senior executive
level, should be linked to changes in stockholder value. Toward this objective,
the Company has awarded executive officers Stock Options, Restricted Stock, and
Performance Shares. The size of Stock Option and Performance Share Awards are
targeted to meet competitive norms in the retail industry and are primarily
influenced by salary. Restricted Stock Awards and any "Special" Stock Option
Grants are more greatly influenced by specific circumstances, including
individual performance and anticipated responsibility. "Special" grants differ
from other option grants primarily in terms of being larger in size, providing
longer vesting restrictions, and including change in control provisions. The
Committee believes that these "Special" grants and Restricted Stock, because of
their limited use and unique objective, must be sufficient in size to provide a
strong incentive for executive officers to achieve the Company's long-term
business goals.
9
<PAGE> 12
All Stock Options have value for executive officers only if the price of
the Company's stock appreciates in value from the date the Stock Options are
granted. The Company has not repriced or amended the terms of the outstanding
Options; therefore, executive officers do not benefit from stock price
appreciation unless stockholders also benefit. Options granted to each Named
Executive Officer in 1994 were determined using salary based formulas which are
targeted to meet competitive norms in the retail industry. There were no
"Special" Option or Restricted Stock grants in 1994.
The Performance Share Plan was adopted to provide incentive compensation
based on the Company's and any Subsidiary's longer term financial performance.
Under the plan, Performance Shares may be granted annually as determined by the
Committee. The granting of Performance Shares to an executive has generally
resulted in a reduction in the number of Stock Options which the executive would
have been awarded. For participating executives, value is created under the
Performance Share Plan only if the Executive's business unit substantially meets
its three-year earnings targets. Only Mr. Doczi of the Named Executive Officers
was awarded Performance Shares in 1994.
Over the past several years, the Committee has approved other executive
compensation plans in order to attract and retain highly qualified senior
executives. The Company has entered into Supplemental Executive Retirement
Agreements with certain officers as discussed under Pension and Retirement Plans
on page seven. In 1994, the Company entered into a Split Dollar Life arrangement
with John W. Hechinger, Jr. which will provide a supplemental death benefit.
SUMMARY
In summary, the Committee believes that the Company's compensation programs
effectively implement its Overall Compensation Philosophy. The Committee intends
to continue to change and adapt the Company's compensation programs as business
circumstances dictate but will maintain its fundamental policy of linking
executive compensation to corporate performance, with the appropriate balancing
of both short-term and long-term objectives.
COMPENSATION COMMITTEE,
David O. Maxwell, Chairman
Herbert J. Broner
Alan J. Zakon
10
<PAGE> 13
STOCK PERFORMANCE GRAPH
The following graph compares the Company's Class A common stock performance
for each of the last five fiscal years with the performance of the Standard &
Poor's 500 Stock Index ("S&P 500") and the Standard & Poor's Retail - Specialty
Index ("S&P Retail - Specialty"). The cumulative total return assumes $100
invested on January 31, 1990 and assumes reinvestment of dividends on a
quarterly basis.
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL SHAREHOLDER RETURN*
HECHINGER COMPANY, S&P 500, AND S&P RETAIL - SPECIALTY
<TABLE>
<CAPTION>
MEASUREMENT PERIOD S&P RETAIL- HECHINGER
(FISCAL YEAR COVERED) SPECIALTY S&P 500 COMPANY
<S> <C> <C> <C>
1990 100.00 100.00 100.00
1991 114.88 108.36 61.72
1992 155.04 132.86 126.19
1993 203.82 146.82 91.35
1994 199.27 165.61 103.01
1995 198.09 166.42 94.07
</TABLE>
* TOTAL RETURN ASSUMES REINVESTMENT OF DIVIDENDS ON A QUARTERLY BASIS.
CERTAIN TRANSACTIONS
During the last fiscal year, twelve of the Company's store sites were
leased from Hechinger Enterprises ("Enterprises"), a partnership consisting of
members of the Hechinger and England families. The rentals paid by the Company
to Enterprises under these leases in the Company's last fiscal year were
$3,840,000. Only eleven of these store sites were leased at the end of the
fiscal year. In the opinion of management, the terms of these leases were at
least as favorable to the Company as those of leases which the Company has with
unaffiliated lessors for comparable premises.
EQUITY SECURITIES AND PRINCIPAL HOLDERS THEREOF
As of the Record Date, there were outstanding 30,792,567 shares of Class A
common stock and 11,479,976 shares of Class B common stock. Each share of Class
A common stock is entitled to one vote and each share of Class B common stock is
entitled to ten votes on the matters to be voted upon at the Annual Meeting.
As of April 28, 1995, to the knowledge of the management of the Company,
one stockholder of record owned more than 5% of the outstanding shares of Class
A common stock. The stockholder was J.P. Morgan & Co., Incorporated, 60 Wall
Street, New York, New York, which owned 5,344,785 shares, 17.4% of such stock,
as indicated in the Schedule 13G filed with the Securities and Exchange
Commission on December 30, 1994. Members of the Hechinger and England families
beneficially owned a total of 923,994 shares, 3.0% of the outstanding Class A
common stock.
11
<PAGE> 14
Pursuant to a ten year voting agreement entered into in 1990 by members of the
Hechinger and England families, and entities controlled by them (the "Voting
Agreement"), John W. Hechinger, John W. Hechinger, Jr., and S. Ross Hechinger
together hold a proxy to vote these 923,994 shares of Class A common stock held
by certain members of the Hechinger and England families and certain entities
controlled by them.
The following table provides information as to the only stockholders of
record known to management of the Company to own more than 5% of the outstanding
shares of Class B common stock. The share totals and percentages set forth below
reflect duplicative counting of shares in certain instances where the beneficial
ownership is attributable to more than one stockholder in accordance with the
definition of "beneficial ownership" set forth in the rules and regulations
applicable to proxy statement disclosure. For example, John W. Hechinger, John
W. Hechinger, Jr., and S. Ross Hechinger are deemed to each have beneficial
ownership of 10,138,834 shares of Class B common stock for which they together
hold a proxy to vote pursuant to the Voting Agreement, as described below. The
address for each individual and entity listed in the following table is 3500
Pennsy Drive, Landover, Maryland 20785.
<TABLE>
<CAPTION>
CLASS B
SHARES PERCENT
BENEFICIALLY OF
NAME AND ADDRESS OWNED CLASS B
- ----------------------------------------------------------- ----------- --------
<S> <C> <C>
Joan England Akman 478,132(2) 4.16%
Catherine S. England 541,002(3) 4.71%
Lois H. England 1,284,521(4) 11.19%
Richard England 1,284,521(5) 11.19%
Richard England, Jr. 1,048,983(6) 9.14%
John W. Hechinger 10,138,834(7)(1) 88.32%
John W. Hechinger, Jr. 10,138,834(8)(1) 88.32%
June R. Hechinger 2,646,369(9) 23.05%
S. Ross Hechinger 10,138,834(10)(1) 88.32%
Nancy Hechinger Lowe 1,031,043(11) 8.98%
Sally Hechinger Rudoy 1,031,042(12) 8.98%
June Limited Partnership(13) 2,601,229 22.66%
Lois Associates Limited Partnership(14) 1,386,455 12.08%
</TABLE>
- ---------------
(1) Members of the Hechinger and England families beneficially own a total of
10,138,834 shares (88.32%) of the outstanding Class B common stock.
Pursuant to the Voting Agreement with members of the Hechinger and England
families and entities controlled by them, John W. Hechinger, John W.
Hechinger, Jr., and S. Ross Hechinger together hold a proxy to vote these
10,138,834 shares of Class B common stock held by certain members of the
Hechinger and England families and entities controlled by them.
(2) Represents 467,262 shares held indirectly by Ms. Akman by virtue of her
holdings in family partnerships and 10,870 shares held indirectly by Ms.
Akman as custodian for her minor children.
(3) Represents 59,160 shares held directly by Ms. England, 467,262 shares held
indirectly by Ms. England by virtue of her holdings in family partnerships,
6,715 shares held directly by Ms. England's former spouse and 7,865 shares
held indirectly by Ms. England as custodian for her minor children.
(4) Represents 590,468 shares held directly by Mrs. England, 103,585 shares
held indirectly by Mrs. England by virtue of her holdings in a family trust
and 590,468 shares held directly by Mrs. England's spouse.
12
<PAGE> 15
(5) Represents 590,468 shares held directly by Mr. England, 590,468 shares held
directly by Mr. England's spouse and 103,585 shares held indirectly by Mr.
England's spouse by virtue of her ownership interests in a family trust.
(6) Represents 581,722 shares held directly by Mr. England, Jr. and 467,261
shares held indirectly by Mr. England, Jr. by virtue of his holdings in
family partnerships.
(7) Includes 1,152,836 shares held directly by Mr. Hechinger, 669,824 shares
held indirectly by Mr. Hechinger by virtue of his holdings in a family
partnership and a family trust, 489,917 shares held directly by Mr.
Hechinger's spouse and 333,792 shares held indirectly by Mr. Hechinger's
spouse by virtue of her ownership interest in a family partnership.
(8) Includes 376,566 shares held directly by Mr. Hechinger, Jr., 628,383 shares
held indirectly by Mr. Hechinger, Jr. by virtue of his holdings in family
partnerships and his children's trusts, 5,827 shares held directly by Mr.
Hechinger, Jr.'s spouse, 4,614 shares held indirectly by Mr. Hechinger,
Jr.'s spouse as custodian for her minor children and 23,481 shares held
indirectly by Mr. Hechinger, Jr. as custodian for his minor children.
(9) Represents 489,917 shares held directly by Mrs. Hechinger, 333,792 shares
held indirectly by Mrs. Hechinger by virtue of her holdings in a family
partnership, 1,152,836 shares held directly by Mrs. Hechinger's spouse and
669,824 shares held indirectly by Mrs. Hechinger's spouse by virtue of his
ownership interest in a family partnership and a family trust.
(10) Includes 471,180 shares held directly by Mr. Hechinger, 538,383 shares held
indirectly by Mr. Hechinger by virtue of his holdings in family
partnerships, 5,827 shares held directly by Mr. Hechinger's spouse and
23,481 shares held indirectly by Mr. Hechinger as custodian for his minor
children.
(11) Represents 471,180 shares held directly by Mrs. Lowe through a revocable
trust, 538,382 shares held indirectly by Mrs. Lowe by virtue of her
holdings in family partnerships, 5,827 shares held directly by Mrs. Lowe's
spouse and 15,654 shares held indirectly by Mrs. Lowe as custodian for her
minor children.
(12) Represents 471,180 shares held directly by Mrs. Rudoy, 538,381 shares held
indirectly by Mrs. Rudoy by virtue of her holdings in family partnerships,
5,827 shares held directly by Mrs. Rudoy's spouse and 15,654 shares held
indirectly by Mrs. Rudoy as custodian for her minor children.
(13) June Limited Partnership is a partnership consisting of members of the
family of John W. Hechinger.
(14) Lois Associates Limited Partnership is a partnership consisting of members
of the family of Richard England.
13
<PAGE> 16
The following table sets forth the beneficial ownership of the Company's
common stock by each of the directors and nominees, each Named Executive
Officer, and all of the Company's directors and executive officers as a group as
of April 28, 1995.
<TABLE>
<CAPTION>
CLASS A CLASS B
SHARES SHARES
BENEFICIALLY BENEFICIALLY
OWNED OWNED
APRIL 28, % OF APRIL 28, % OF
NAME 1995 CLASS 1995 CLASS
- ---------------------------- --------- ------------- ------------ -------------
<S> <C> <C> <C> <C>
John W. Hechinger (1)(3) (1) (1) (1)
Herbert J. Broner 11,000(3) less than 1% -- --
Kenneth J. Cort 114,833(3) less than 1% -- --
Frank C. Doczi 167,186(3) less than 1% -- --
John W. Hechinger, Jr. (2)(3) (2) (2) (2)
S. Ross Hechinger (2)(3) (2) (2) (2)
Ann D. Jordan 10,300(3) less than 1% -- --
David O. Maxwell 11,000(3) less than 1% -- --
W. Clark McClelland 152,151(3) less than 1% 1,592 less than 1%
Alan J. Zakon 10,000(3) less than 1% 2,000 less than 1%
All Directors and Executive 1,312,596 4.26% 4,727,703 41.18%
Officers as a group (11
persons)
</TABLE>
- ---------------
(1) By virtue of their direct holdings of the Company's shares and their
ownership interests in a family partnership and a family trust, Mr. and Mrs.
John W. Hechinger own 130,443 shares (.42%) and 90,252 shares (.29%),
respectively, of Class A common stock and 1,822,660 shares (15.88%) and
823,709 shares (7.18%), respectively, of Class B common stock. Pursuant to
the Voting Agreement with members of the Hechinger and England families and
entities controlled by them, John W. Hechinger, together with John W.
Hechinger, Jr. and S. Ross Hechinger, holds a proxy to vote a total of
923,994 shares (3.00%) of Class A common stock and 10,138,834 shares
(88.32%) of Class B common stock held by certain members of the Hechinger
and England families and certain family partnerships.
(2) John W. Hechinger, Jr. and S. Ross Hechinger are the adult sons of John W.
Hechinger. By virtue of their direct holdings of the Company's shares, their
spouses' holdings, their holdings as custodians for their minor children and
their interests in family partnerships, and stock option grants which are
currently exercisable into Class A common stock, John W. Hechinger, Jr. owns
409,995 shares (.1.33%) of Class A common stock and 1,038,871 shares (9.05%)
of Class B common stock and S. Ross Hechinger owns 157,136 shares (.51%) of
Class A common stock and 1,038,871 shares (9.05%) of Class B common stock.
Pursuant to the Voting Agreement with members of the Hechinger and England
families and entities controlled by them, John W. Hechinger, Jr., and S.
Ross Hechinger, together with John W. Hechinger, hold proxies to vote a
total of 923,994 shares (3.00%) of Class A common stock and 10,138,834
shares (88.32%) of Class B common stock held by certain members of the
Hechinger and England families and entities controlled by them.
(3) The number and percentage of shares of Class A common stock represented in
the table as beneficially owned by John W. Hechinger, Herbert J. Broner,
Kenneth J. Cort, Frank C. Doczi, John W. Hechinger, Jr., S. Ross Hechinger,
Ann D. Jordan, David O. Maxwell, W. Clark McClelland and Alan J. Zakon
include 0; 10,000; 37,333; 56,854; 305,929; 53,070; 10,000; 10,000; 78,439;
and 10,000, respectively, of stock option grants which are currently
exercisable into Class A common stock.
14
<PAGE> 17
As required by Section 16 of the Securities Exchange Act of 1934, the
following individuals or entities filed the indicated number of Form 4 reports
after the required filing date. All of these filings were made one day after the
required filing date. The number of transactions covered by such reports is also
indicated.
<TABLE>
<CAPTION>
NUMBER
OF NUMBER
FORM OF
4 TRANSACTIONS
NAME FILINGS COVERED
- ------------------------------------------------------------------- --- -----
<S> <C> <C>
Joan England Akman 1 2
Catherine S. England 1 3
Lois Associates Limited Partnership 1 1
Caran Associates Limited Partnership 1 1
</TABLE>
RATIFICATION OF SELECTION OF INDEPENDENT PUBLIC ACCOUNTANTS
The firm of Ernst & Young LLP, 1225 Connecticut Avenue, N.W., Washington,
D.C. 20036, served as independent public accountants for the Company with
respect to the fiscal year ended January 28, 1995. The Board desires that firm
to continue in that capacity with respect to the current fiscal year.
Accordingly, a resolution will be presented to the meeting to ratify the
appointment by the Board of Ernst & Young LLP as independent public accountants
to audit the accounts and records of the Company for the current fiscal year and
to perform other appropriate services. Ratification of the appointment of Ernst
& Young LLP requires the affirmative vote of the holders of at least a majority
of the total votes cast, in person or by proxy, on the proposal to approve the
ratification of Ernst & Young LLP. Representatives of Ernst & Young LLP will be
present at the Annual Meeting. They will have an opportunity to make a statement
if they desire to do so and will be available to respond to appropriate
questions from stockholders. No determination has been made as to what action
the Board would take if stockholders do not ratify the selection.
AMENDMENT OF 1991 STOCK INCENTIVE PLAN
The Company is asking the stockholders to approve an amendment to the 1991
Stock Incentive Plan (the "Incentive Plan") that, if approved by the
stockholders, will increase from 4,000,000 to 8,000,000 the number of shares of
the Company's Class A common stock authorized for issuance upon exercise of
options ("Options") granted or as restricted stock ("Restricted Stock") awards,
and will, as of January 1, 1995, amend the Incentive Plan to comply with certain
requirements of Section 162(m) of the Internal Revenue Code of 1986, as amended
(the "Code"), by (1) imposing a 500,000 share limit on the number of options
that can be granted to any participant in any calendar year, and (2) requiring
that the Committee administering the Incentive Plan be composed of two or more
"outside directors" within the meaning of Section 162(m) of the Code.
INCREASE IN NUMBER OF AUTHORIZED SHARES
The amendment increasing the number of shares of the Company's Class A
common stock authorized for issuance is intended to enable the Company to
continue to provide long-term incentives to directors and key management
employees who can contribute to the success of the Company. Inasmuch as fewer
than 700,000 shares remain available for grant under the Incentive Plan and the
Company anticipates making Stock Option and Restricted Stock awards in the
future, an amendment to increase the number of shares available under the
Incentive Plan will enable the Company to carry out the Incentive Plan's
purpose.
15
<PAGE> 18
COMPLIANCE WITH SECTION 162(m) OF THE CODE
For fiscal years commencing on or after January 1, 1994, Section 162(m) of
the Code will generally limit to $1 million the Company's federal income tax
deduction for compensation paid in any year to its Chief Executive Officer and
its four highest paid Executive Officers to the extent that such compensation is
not "performance-based." Under recently proposed Treasury regulations, and
subject to certain transition rules, a stock option will, in general, qualify as
"performance-based" compensation if (1) it has an exercise price of not less
than the fair market value of the underlying stock on the date of grant; (2) it
is granted under a plan that limits the number of shares for which options may
be granted to a participant, and that plan is approved generally by a majority
of the stockholders voting thereon; and (3) it is granted by a Compensation
Committee consisting solely of at least two "outside directors" within the
meaning of Section 162(m) of the Code. By amending the Incentive Plan to limit
to 500,000 the number of options that can be granted to any participant in any
calendar year, and by requiring that the Compensation Committee administering
the Incentive Plan be composed of two or more "outside directors," options
granted under the Incentive Plan at not less than fair market value will qualify
as "performance-based."
On May 8, 1995, the last trading day prior to the printing of this Proxy
Statement, the last quoted price for shares of Class A common stock, as reported
by The Nasdaq Stock Market's National Market was $9.00 per share. Approval of
the amendment requires the affirmative vote of the holders of at least a
majority of the total votes cast, in person or by proxy, on the proposal to
approve the amendment of the Incentive Plan. As of May 8, 1995 approximately 300
employees were eligible to participate in the Incentive Plan.
SUMMARY OF THE INCENTIVE PLAN
The following description is a summary of the Incentive Plan, as amended.
It does not purport to be complete and is qualified, in its entirety, by
reference to the amended and restated Incentive Plan, the full text of which is
attached to this Proxy Statement as Appendix A.
GENERAL PURPOSE
The purpose of the Incentive Plan is to assist the Company in attracting,
retaining and providing incentives to Directors and selected key management
employees by offering them the opportunity to acquire or increase their
proprietary interest in the Company, and thus, in its growth and success.
ELIGIBILITY; SHARES SUBJECT TO THE PLAN
Officers and other key management employees of the Company and its
subsidiaries (collectively, the "Group") are eligible to be selected by the
Board's Compensation Committee to receive awards of Stock Options and Restricted
Stock under the Incentive Plan. No determination has been made concerning which
employees will receive future awards under the Plan. Employees and Non-Employee
Directors who receive awards under the Incentive Plan are herein referred to as
"participants." Prior to the proposed amendment, the maximum number of shares of
Class A common stock available for issuance under the Incentive Plan is
4,000,000 shares, subject to adjustment for stock splits, stock dividends and
similar events. The proposed amendment will increase to 8,000,000, subject to
adjustment, the number of shares available for issuance.
ADMINISTRATION
The Incentive Plan is administered by the Board's Compensation Committee.
All members of the Compensation Committee are required to be "disinterested
persons," as that term is defined under rules promulgated by the Securities and
Exchange Commission, and under the Incentive Plan, as amended, are required to
be "outside directors" within the meaning of Section 162(m) of the Code. The
Compensation Committee serves at the pleasure of the Board. The Compensation
Committee, in its discretion, selects the employees to whom awards are granted
and determines the
16
<PAGE> 19
specific terms of each such grant, subject to the provisions of the Incentive
Plan. The Compensation Committee is authorized to interpret the Incentive Plan
and to adopt such rules and regulations as it deems advisable. Under the terms
of the Plan, no member of the Board or the Compensation Committee, or any
officer or employee of the Company acting on behalf of the Board or the
Compensation Committee, is personally liable for any action taken in good faith
with respect to the Incentive Plan.
STOCK OPTIONS
AWARD OF STOCK OPTIONS
Under the Incentive Plan, Incentive Stock Options and Nonqualified Stock
Options (each, as defined in the Incentive Plan) may be granted to employees of
the Group in the discretion of the Compensation Committee. Each Non-Employee
Director automatically receives under the Incentive Plan a one-time award of a
Nonqualified Stock Option covering 8,000 shares of Class A common stock on the
later of March 5, 1992 or the date the Non-Employee Director is first elected to
the Board. In addition, each Non-Employee Director also automatically receives
each year a Nonqualified Stock Option covering 2,000 shares of the Company's
Class A common stock immediately following each annual meeting of the Company's
stockholders. Each Option granted under the Incentive Plan will be evidenced by
a written Option agreement that specifies the terms and conditions of the grant.
EXERCISE PRICE AND TERM
The price per share of Class A common stock at which a Nonqualified Stock
Option granted to an employee may be exercised is established by the
Compensation Committee at the time of grant and may not be less than 40% of the
Fair Market Value (as defined in the Incentive Plan) of a share of Class A
common stock on the date of grant of the Option. In the case of an Incentive
Stock Option, the exercise price per share of Class A common stock may not be
less than 100% of the Fair Market Value of a share of Class A common stock on
the date of grant. Notwithstanding the foregoing, in the case of an Incentive
Stock Option granted to an employee who is a Ten Percent Shareholder (as defined
in the Incentive Plan), the exercise price per share of Class A common stock may
not be less than 110% of the Fair Market Value of a share of Class A common
stock on the date on which the Option is granted. Nonqualified Stock Options
awarded to Non-Employee Directors are required to have an exercise price per
share equal to 100% of the Fair Market Value of a share of Class A common stock
on the date of grant.
All Options granted to employees under the Incentive Plan are exercisable
at such times and under such conditions as determined by the Compensation
Committee; provided, however, that no Option may be exercised after the
expiration of ten years (five years in the case of an Incentive Stock Option
granted to a Ten Percent Shareholder) from the date the Option is granted. All
Nonqualified Stock Options awarded to Non-Employee Directors have a term of ten
years and are fully exercisable after the expiration of two years from the date
of grant. Prior to the expiration of two years from the date of grant, such
Options are not exercisable.
PAYMENT OF OPTION PRICE
An Option may be exercised in whole or in part by giving written notice of
exercise to the Company specifying the number of shares of Class A common stock
to be purchased, accompanied by payment in full of the exercise price in cash.
To the extent provided in the applicable Option agreement, the exercise price of
an Option granted to an employee may be paid in whole or in part in the form of
shares of Class A common stock already owned by the employee, based on the Fair
Market Value of the shares of Class A common stock on the date the Option is
exercised. Nonqualified Stock Options granted to Non-Employee Directors
automatically permit the exercise price to be paid in whole or in part in Class
A common stock. In no event may any shares of Class A
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common stock that are acquired by a participant pursuant to the exercise of an
Option be delivered as payment of the exercise price of an Option, unless such
shares have been held by the participant for at least six months.
TRANSFERABILITY
No Option will be transferable other than by will or the laws of descent
and distribution, except to the extent required by applicable law. During the
lifetime of a participant who has been awarded an Option, such Option may be
exercised only by such participant, except as otherwise required by applicable
law.
TERMINATION OF EMPLOYMENT OR MEMBERSHIP ON THE
BOARD OTHER THAN BY REASON OF DEATH
If a participant who holds an outstanding Option ceases to be an employee
of the Company (or a member of the Board in the case of a Non-Employee Director)
other than by reason of death, such option may be exercised (to the extent the
Option was exercisable by the participant at the time of termination of his
employment or membership on the Board) at any time (i) within one year after
such termination due to Disability (as defined in the Incentive Plan), (ii)
within three years after such termination by reason of Retirement (as defined in
the Incentive Plan), or (iii) within three months after such termination other
than as described in the preceding clauses (i) and (ii); provided, however, that
in the case of awards made to employees, the Compensation Committee may specify
a shorter period after any such termination during which an Option may be
exercised or may provide that an Option will be canceled, in whole or in part,
upon termination of employment. Notwithstanding the foregoing, in no event may
an Option be exercised after the expiration of its stated term.
DEATH OF OPTION HOLDER
In the event of the death of a participant who holds an outstanding Option,
such Option may be exercised (to the extent the Option was exercisable at the
time of the participant's death) by a legatee or legatees of such participant
under his last will, or by his personal representatives or distributees, at any
time within a period of one year. Notwithstanding the foregoing, in no event may
an Option be exercised after the expiration of its stated term.
RESTRICTED STOCK
RESTRICTED STOCK AGREEMENT
Restricted Stock awarded under the Incentive Plan is required to be
evidenced by a written Restricted Stock award agreement that specifies the terms
and conditions of the award.
PURCHASE PRICE
Unless the Compensation Committee determines otherwise, a participant who
is awarded Restricted Stock is required to pay to the Company an amount equal to
the par value of each share of Class A common stock subject to the award.
RESTRICTED PERIOD
The Compensation Committee prescribes a Restricted Period (as defined in
the Incentive Plan) with respect to each award of Restricted Stock, which period
may not be less than one year from the date of the award, except that the
Compensation Committee may provide for the Restricted Period to lapse prior to
one year in the event of the death or Disability of a participant. Restricted
Stock awarded to participants may not be sold, assigned, transferred, pledged or
otherwise encumbered during the Restricted Period. Except as otherwise
prescribed by the Compensation Committee,
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Restricted Stock with respect to which the Restricted Period has not lapsed is
forfeited upon a participant's termination of employment. Except for such
restrictions on transfer and any restrictions imposed by the Compensation
Committee in the applicable Restricted Stock award agreement, a participant has
all the rights of a stockholder with respect to Restricted Stock held by such
participant, including but not limited to the right to receive all dividends
paid on such Restricted Stock and the right to vote such Restricted Stock.
OTHER PROVISIONS
SUBSTITUTED OPTIONS AND RESTRICTED STOCK
Options and Restricted Stock may, in the discretion of the Board or
Compensation Committee, be granted under the Incentive Plan in substitution for
restricted stock and options to purchase shares of stock of another corporation
which is merged into, consolidated with, or all or a substantial portion of the
property or stock of which is acquired by the Company or one of its
subsidiaries. The terms and conditions of such Restricted Stock and/or
substitute Options may vary from the terms and conditions set forth in the
Incentive Plan to such extent as the Board or Compensation Committee at the time
of grant may deem appropriate (but only to the extent consistent with the
requirements of Rule 16b-3 under the Securities Exchange Act of 1934, as amended
(the "Exchange Act")) in order to conform, in whole or in part, to the
provisions of the options and/or restricted stock in substitution for which they
are granted.
CHANGES IN CONTROL
Notwithstanding any other provision in the Incentive Plan to the contrary,
the Compensation Committee may, in its sole discretion, provide in the
applicable Option or Restricted Stock award agreements (other than with respect
to awards to Non-Employee Directors) for the full vesting of such awards in the
event of a change in control of the Company (as defined in the Committee's
discretion) or in the event of certain terminations of employment following a
change in control. The Committee may also, in its sole discretion, provide in
applicable Option or Restricted Stock award agreements (other than with respect
to awards to Non-Employee Directors) for payments to participants to reimburse
such participants for the effect of any excise taxes imposed under Section 4999
of the Code on "excess parachute payments" with respect to awards granted under
the Incentive Plan.
REGULATORY APPROVAL AND COMPLIANCE
The Company is not required to issue any certificate or certificates for
shares of Class A common stock with respect to awards under the Incentive Plan,
or record any person as a holder of record of such shares, without obtaining, to
the complete satisfaction of the Compensation Committee, the approval of all
regulatory bodies deemed necessary by the Compensation Committee, and without
complying to the Compensation Committee's complete satisfaction with all rules
and regulations under federal, state or local law deemed applicable by the
Compensation Committee.
AMENDMENT AND TERMINATION
The Board may amend, alter or terminate the Incentive Plan in any respect
at any time. Notwithstanding the foregoing, no amendment, alteration or
termination of the Incentive Plan may be made by the Board without approval of
(i) the Company's stockholders, to the extent stockholder approval of the
amendment, alteration or termination is required to comply with the requirements
of Rule 16b-3 under the Exchange Act or Section 162(m) of the Code, and (ii)
each affected participant, if such amendment, alteration or termination would
impair the rights of a participant under any award theretofore granted. To the
extent required by Rule 16b-3 under the Exchange Act, the provisions of the
Incentive Plan relating to the award of Nonqualified Stock Options to Non-
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Employee Directors may not be amended more than once during any six-month
period. Unless sooner terminated by the Board, the Incentive Plan will terminate
on June 25, 2001.
NEW PLAN BENEFITS
The grants awarded under the Incentive Plan are generally subject to the
discretion of the Compensation Committee and are not prospectively determinable,
other than the formula grants awarded to Non-Employee Directors. Information
concerning Option grants that were made under the Incentive Plan during 1994
relating to the Named Executive Officers are set forth in the table entitled
"Option Grants in Last Fiscal Year" on page five. There were no Restricted Stock
grants under the Incentive Plan in 1994. Options to purchase 18,000 shares of
the Company's Class A common stock will be granted to the existing Non-Executive
Director Group (i.e., Non-Employee Directors) in 1995. Based on the trading
price of the Company's Class A common stock on May 8, 1995 of $9.00, the market
value of the common stock underlying these Options was $162,000. With respect to
the Executive Officer Group as a whole, Options to purchase 93,075 shares of the
Company's Class A common stock were granted in 1995. Based on the May 8, 1995
trading price of $9.00, the market value of shares underlying these Options was
$837,675. With respect to the Non-Executive Officer Employee Group as a whole,
Options to purchase 566,438 shares of the Company's common stock were granted in
1995. Based on the May 8, 1995 trading price of $9.00, the market value of
shares underlying these Options was $5,097,942.
If stockholders approve the Incentive Plan, as amended, the maximum number
of shares subject to Options under the Incentive Plan which may be granted to
any participant in any calendar year will be limited to 500,000.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of certain federal income tax consequences of
transactions under the Incentive Plan based on current federal income tax laws.
This summary is not intended to be exhaustive and does not describe state, local
or other tax consequences.
If the Incentive Plan is amended as proposed, Options granted thereunder
with an exercise price not less than fair market value as of date of grant will
qualify as "performance-based", within the meaning of Section 162(m) of the
Code. Awards of Restricted Stock, however, will not generally qualify as
"performance-based" unless the vesting or purchase of the Restricted Stock is
contingent on the satisfaction of certain performance goals. If a grant under
the Incentive Plan is not "performance-based", then the amount that would
otherwise be deductible as compensation by the Company will be disallowed to the
extent that the executive's aggregate non "performance-based" compensation for
the applicable year exceeds $1 million.
NONQUALIFIED STOCK OPTIONS
The grant of a Nonqualified Stock Option under the Incentive Plan will not
result in the recognition of taxable income to the participant or in a deduction
to the Company. In general, subject to the limitations of Section 162(m) of the
Code, upon exercise, a participant will recognize ordinary income in an amount
equal to the excess of the Fair Market Value of the shares of Class A common
stock purchased over the exercise price. The Company is required to withhold tax
on the amount of income so recognized, and is entitled to a tax deduction equal
to the amount of such income. Gain or loss upon a subsequent sale of any shares
of Class A common stock received upon the exercise of a Nonqualified Stock
Option is taxed as capital gain or loss (long-term or short-term, depending upon
the holding period of the stock sold).
INCENTIVE STOCK OPTIONS
In general, no income will be recognized by an optionee and no deduction
will be allowed to the Company with respect to the grant or exercise of an
Incentive Stock Option granted under the
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Incentive Plan, provided that the Option is exercised within three months after
the termination of the participant's employment (one year in the case of the
participant's disability) other than by reason of death. The difference between
the exercise price and the Fair Market Value of the shares of Class A common
stock on the date the Option is exercised is, however, an adjustment item for
the participant for purposes of the alternative minimum tax. When the stock
received upon exercise of the Option is sold, provided that the stock is held
for more than two years from the date of grant of the Option and more than one
year from the date of exercise, the participant will recognize long-term capital
gain or loss equal to the difference between the amount realized and the
exercise price of the Option related to such stock. If the above mentioned
holding period requirements of the Code are not satisfied, the subsequent sale
of stock received upon exercise of an Incentive Stock Option is treated as a
"disqualifying disposition". In general, the participant will recognize taxable
income at the time of such disqualifying disposition as follows: (i) ordinary
income in an amount equal to the excess of (A) the lesser of the Fair Market
Value of the shares of Class A common stock on the date the Incentive Stock
Option is exercised or the amount realized on such disqualifying disposition
over (B) the exercise price and (ii) capital gain to the extent of any excess of
the amount realized on such disqualifying disposition over the Fair Market Value
of the shares of Class A common stock on the date the Incentive Stock Option is
exercised (or capital loss to the extent of any excess of the exercise price
over the amount realized on disposition). Any capital gain or loss recognized by
the participant will be long-term or short-term depending upon the holding
period for the stock sold. Subject to the limitations of Section 162(m) of the
Code, the Company may claim a deduction at the time of the disqualifying
disposition equal to the amount of ordinary income the participant recognizes.
If an Incentive Stock Option is not exercised within three months after the
termination of the participant's employment (one year in the case of the
disability of the participant) other than by reason of death, it will be treated
for federal income tax purposes as a Nonqualified Stock Option, as described
above.
RESTRICTED STOCK; NO SECTION 83(B) ELECTION FILED
A participant who has been awarded Restricted Stock under the Incentive
Plan and who has not made an election under Section 83(b) of the Code will not
recognize taxable incomes at the time of the award and the Company will not be
entitled to a deduction at that time. At the time the Restricted Stock becomes
vested (i.e., the Restricted Period expires), the participant will recognize
ordinary income in an amount equal to the Fair Market Value of the Restricted
Stock at such time and, subject to the limitations of Section 162(m) of the
Code, the Company will be entitled to a corresponding deduction for federal
income tax purposes, provided that it complies with applicable requirements
regarding tax withholding on the amount of income the participant recognizes.
Dividends paid to a participant with respect to his Restricted Stock during the
Restricted Period will be ordinary income to the participant and, subject to the
limitations of Section 162(m) of the Code, the Company will be entitled to a
deduction in an equal amount. For participants who do not make a Section 83(b)
election with respect to their Restricted Stock, the holding period for purposes
of determining whether a subsequent sale of the shares results in long-term or
short-term capital gain or loss begins on the day after expiration of the
Restricted Period with respect to such shares.
RESTRICTED STOCK; SECTION 83(B) ELECTION FILED
A participant who has been awarded Restricted Stock under the Incentive
Plan may elect to be taxed at the time of award on the excess of the current
Fair Market Value of the Restricted Stock (not taking into account the transfer
restrictions) over the amount which the participant paid for such Restricted
Stock, by making an election under Section 83(b) of the Code within 30 days
after the date the Restricted Stock was awarded. If such an election is made (i)
subject to the limitations of Section 162(m) of the Code, the Company will be
entitled to a deduction at that time equal to the amount of income the
participant recognizes (provided that the Company withholds any required
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taxes on the amount of such income); (ii) dividends paid to the participant with
respect to such Restricted Stock during the Restricted Period will be taxable as
a dividend to the participant; and (iii) the participant will not recognize any
additional income and the Company will not be entitled to any further deductions
at the time the Restricted Stock becomes vested. For participants who make a
Section 83(b) election with respect to their Restricted Stock, the holding
period for purposes of determining whether a subsequent sale of the shares
results in long-term or short-term capital gain or loss begins on the day after
the date that the Restricted Stock was awarded.
The Board recommends that stockholders vote for the Amendment to the
Incentive Plan.
SOLICITATION OF PROXIES
The cost of the solicitation of proxies will be borne by the Company. To
assist in the proxy solicitation, the Company has engaged W. F. Doring & Co.,
Inc. for a fee of $2,500 plus out-of-pocket expenses. In addition to the use of
the mails, proxies may be solicited personally or by telephone, by a few regular
employees of the Company. The Company will reimburse brokers and other persons
holding stock in their names, or in the names of nominees, for their expenses
for sending proxy materials to principals and obtaining their proxies.
This Proxy Statement is accompanied by the Annual Report, or has been
preceded by the Annual Report of the Company, which includes financial
statements for the year ended January 28, 1995. The Annual Report is not to be
regarded as part of the proxy solicitation materials.
SUBMISSION OF STOCKHOLDER PROPOSALS
Proposals of stockholders intended to be presented at the 1996 Annual
Meeting must be received by the Secretary of the Company, 3500 Pennsy Drive,
Landover, Maryland 20785, no later than January 19, 1996, in order to be
considered for inclusion in the 1996 Proxy Statement.
OTHER MATTERS
So far as management knows, there are no matters to come before the Annual
Meeting, other than those set forth in this Proxy Statement. If any further
business is properly presented to the meeting, the persons named in the enclosed
form of proxy and acting thereunder will have discretion to vote on such matters
in accordance with their best judgment.
By Order of the Board of Directors,
Mark R. Adams
Senior Vice President,
Treasurer and Secretary
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APPENDIX A
HECHINGER COMPANY
1991 STOCK INCENTIVE PLAN
(AS AMENDED AND RESTATED)
SECTION 1. General Purpose of Plan; Definitions.
The Hechinger Company 1991 Stock Incentive Plan, as amended and restated
(the "Plan") is designed to assist Hechinger Company (the "Company") in
attracting, retaining and providing incentives to directors and selected key
management personnel by offering them the opportunity to acquire or increase
their proprietary interest in the Company and thus, in its growth and success.
For purposes of the Plan, the following terms shall have the meanings set
forth below:
(a) "Board" means the Board of Directors of the Company.
(b) "Code" means the Internal Revenue Code of 1986, as amended from
time to time, or any successor thereto.
(c) "Committee" means the Compensation Committee of the Board, or any
other committee the Board may subsequently appoint to administer the Plan
as provided herein. The Committee shall be composed of two or more members
of the Board, all of whom are Disinterested Persons. If at any time no
Committee shall be in office, then the functions of the Committee specified
in this Plan shall be exercised by the members of the Board who are Non-
Employee Directors. Notwithstanding the foregoing, effective as of January
1, 1995, the Committee shall at all times be constituted to comply with the
applicable requirements of Section 162(m) of the Code and the regulations
promulgated thereunder.
(d) "Common Stock" means shares of the Class A common stock, $0.10 par
value of the Company.
(e) "Company" means Hechinger Company, a corporation organized under
the laws of the State of Delaware (or any successor corporation).
(f) "Disability" means permanent and total disability within the
meaning of Section 22(e)(3) of the Code.
(g) "Disinterested Person" shall have the meaning set forth in Rule
16b-3(c)(2)(i) as promulgated by the Securities and Exchange Commission
under the Exchange Act or any successor definition adopted by the
Commission.
(h) "Eligible Employee" means an employee of the Group as described in
Section 4 hereof.
(i) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
(j) "Fair Market Value" means (i) if the shares of Common Stock are
listed or admitted to trading on any securities exchange in the United
States, the closing price, regular way, on such day on the principal
securities exchange in the United States on which shares of Common Stock
are traded, (ii) if the shares of Common Stock are not then listed or
admitted to trading on any such day, or if no sale takes place on such day,
the average of the closing bid and asked prices in the United States on
such day, as reported by a reputable quotation source designated by the
Committee, and (iii) if the shares of Common Stock are not then listed or
admitted to trading on any such securities exchange and no such reported
sale price or bid and asked prices are available, the average of the
reported high bid and low asked prices in the United States on such day, as
reported in The Wall Street Journal (Eastern edition) or other newspaper
designated by the Committee. Notwithstanding the foregoing, the Committee
may, in its
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discretion, prescribe alternative methods of determining Fair Market Value
that satisfy the regulations under Section 422 of the Code.
(k) "Group" means the Company and its Subsidiaries.
(l) "Incentive Stock Option" means a Stock Option that is intended to
qualify as an incentive stock option within the meaning of Section 422 of
the Code.
(m) "Non-Employee Director" means a member of the Board who is not an
employee of the Group.
(n) "Nonqualified Stock Option" means a Stock Option that is not an
Incentive Stock Option.
(o) "Participant" means any Eligible Employee or Non-Employee Director
who has been awarded a Stock Option and/or Restricted Stock.
(p) "Restricted Stock" means an award of shares of Common Stock that
are subject to restrictions as described in Section 7 hereof.
(q) "Retirement" means a Participant's termination of employment with
the Group on or after attaining age 55 or such later date prescribed by the
Committee in the applicable Stock Option or Restricted Stock Award
Agreement; provided, however, that in the case of a Participant who is a
Non-Employee Director, "Retirement" shall mean the Director's termination
of membership on the Board after attaining age 55.
(r) "Stock Option" means any option to purchase shares of Common Stock
granted pursuant to Sections 5 or 6 hereof.
(s) "Subsidiary" means any corporation (other than the Company) in an
unbroken chain of corporations beginning with the Company if each of the
corporations (other than the last corporation in the unbroken chain) owns
stock possessing 50% or more of the total combined voting power of all
classes of stock in one of the other corporations in the chain.
SECTION 2. Administration.
The Committee shall have plenary authority, in its discretion, to determine
the terms of all awards of Stock Options (other than awards of Stock Options to
Non-Employee Directors, which shall be subject to the terms specified in Section
6 hereof) and Restricted Stock hereunder (which terms need not be identical),
including, without limitation, the exercise price of Stock Options, whether par
value will be paid by Participants for shares of Restricted Stock, the Eligible
Employees to whom, and the time or times at which awards are made, the number of
shares covered by awards (subject to the limitations set forth in Section 3
hereof), whether an option shall be an Incentive Stock Option or a Nonqualified
Stock Option, and the period during which Stock Options may be exercised and
Restricted Stock shall be subject to restrictions. In making such
determinations, the Committee may take into account the nature of the services
rendered by the respective employees, their present and potential contributions
to the success of the Group, and such other factors as the Committee in its
discretion shall deem relevant. Subject to the express provisions of the Plan,
the Committee shall have plenary authority to interpret the Plan, to prescribe,
amend and rescind rules and regulations relating to it and to make all other
determinations deemed necessary or advisable for the administration of the Plan.
The determinations of the Committee on the matters referred to in this Section 2
shall be conclusive.
SECTION 3. Stock Subject to Plan; Adjustments; Limitations.
The total number of shares of Common Stock reserved and available for
issuance under the Plan shall be 8,000,000. Such shares may consist, in whole or
in part, of authorized and unissued shares or treasury shares. If (a) any Stock
Option expires or otherwise terminates without being
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exercised or (b) any shares of Restricted Stock awarded hereunder are forfeited,
the shares covered by the applicable award shall again be available for issuance
in connection with subsequent awards under the Plan to the maximum extent
consistent with Rule 16b-3 under the Exchange Act and Section 162(m) of the
Code.
Notwithstanding the foregoing, as of January 1, 1995, grants of Stock
Options under the Plan to any Participant shall be limited in any calendar year
to Stock Options to purchase no more than 500,000 shares of Common Stock.
In the event of any merger, reorganization, consolidation,
recapitalization, reclassification, stock dividend, stock split, combination or
exchange of shares, or other change in corporate structure affecting the Common
Stock, a substitution or adjustment shall be made in (i) the aggregate number of
shares reserved for issuance under the Plan, (ii) the number of shares covered
by the Stock Options to be granted to Non-Employee Directors annually and upon
election to the Board pursuant to Section 6 hereof and (iii) the number and
option price of shares subject to outstanding Stock Options granted under the
Plan, as may be determined by the Committee in its sole discretion. The number
of shares subject to any award shall always be a whole number. Such other
substitutions or adjustments shall be made as may be determined by the
Committee, in its sole discretion.
SECTION 4. Participation in the Plan.
Officers and other key management employees of the Group (whether or not
such employees may also be members of the Board) shall be eligible to receive
awards of Stock Options and Restricted Stock pursuant to Sections 5 and 7
hereof. Awards of Stock Options and Restricted Stock to such employees shall be
made by the Committee, in its sole and absolute discretion, at such times as may
be determined by the Committee. Non-Employee Directors shall receive awards of
Stock Options only to the extent provided by Section 6 hereof. Non-Employee
Directors shall not be eligible to receive awards of Restricted Stock.
SECTION 5. Stock Option Awards to Employees.
Stock Options granted under the Plan to Eligible Employees shall be either
Incentive Stock Options or Nonqualified Stock Options, as designated by the
Committee. Each such Stock Option granted under the Plan shall be clearly
identified either as a Nonqualified Stock Option or an Incentive Stock Option
and shall be evidenced by a written Stock Option agreement that specifies the
terms and conditions of the grant. Such Stock Options shall be subject to the
following terms and conditions and such other terms and conditions not
inconsistent with this Plan as the Committee may specify:
(a) Price.
The price per share of Common Stock at which a Nonqualified Stock
Option granted pursuant to this Section 5 may be exercised shall not be
less than forty percent of the Fair Market Value of the Common Stock on the
date of grant of the Stock Option, and in the case of an Incentive Stock
Option, the exercise price per share of Common Stock shall not be less than
one hundred percent of the Fair Market Value of the Common Stock on the
date of grant. Notwithstanding the foregoing, in the case of an Incentive
Stock Option granted to a Participant who (applying the rules of Section
424(d) of the Code) owns stock possessing more than ten percent of the
total combined voting power of all classes of stock of the Company or a
Subsidiary (a "Ten-Percent Shareholder"), the exercise price per share
shall not be less than one hundred and ten percent of the Fair Market Value
of the Common Stock on the date on which the option is granted.
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(b) Exercisability.
All Stock Options granted pursuant to this Section 5 shall be
exercisable at such times and under such conditions as shall be determined
by the Committee; provided, however, that no Stock Option shall he
exercisable after the expiration of ten years (five years in the case of an
Incentive Stock Option granted to a Ten-Percent Shareholder) from the date
the option is granted.
(c) Payment of Option Price.
Subject to Section 5(b), Stock Options granted pursuant to this
Section 5 may be exercised, in whole or in part, at any time during the
term of the option by giving written notice of exercise to the Company
specifying the number of shares to be purchased, accompanied by payment in
full of the purchase price in cash. To the extent provided in the
applicable Stock Option Agreement, payment may also be made in whole or in
part, in the form of Common Stock already owned by the Participant, based
on the Fair Market Value of the Common Stock on the date the Stock Option
is exercised. In no event may any shares of Common Stock that are acquired
by a Participant pursuant to the exercise of a Stock Option be delivered as
payment of the exercise price of a Stock Option, unless such shares have
been held by the Participant for at least six months.
(d) Transferability.
No Stock Option shall be transferable other than by will or the laws
of descent and distribution, except to the extent required by applicable
law. During the lifetime of a Participant who has been awarded a Stock
Option, such Stock Option may only be exercised by such Participant, except
as otherwise required by applicable law.
(e) Termination of Employment Other Than by Reason of Death.
If a Participant who holds an outstanding Stock Option granted
pursuant to this Section 5 ceases to be an employee of the Group other than
by reason of death, such option may, subject to the provisions of this
Section 5, be exercised (to the extent the option was exercisable by the
Participant at the time of termination of his employment) at any time (i)
within one year after the termination of his employment due to Disability,
(ii) within three years after the termination of employment by reason of
Retirement or (iii) within three months after the termination of employment
other than as described in the preceding clauses (i) and (ii); provided,
however, that the Committee may specify a shorter period after a
termination of employment during which an option may be exercised, or may
provide that a Stock Option is canceled, in whole or in part, upon
termination of employment. Notwithstanding the foregoing, in no event may a
Stock Option be exercised after expiration of its stated term. Stock
Options granted pursuant to this Section 5 shall not be affected by a
change of employment, provided the Participant continues to be an employee
of the Group. The Committee may, in its discretion, specify rules with
respect to the effect of approved leaves of absence.
(f) Death of Option Holder.
In the event of the death of a Participant who holds an outstanding
Stock Option granted pursuant to this Section 5, such Stock Option may be
exercised (to the extent the option was exercisable at the time of the
Participant's death) by a legatee or legatees of such Participant under his
last will, or by his personal representatives or distributees, at any time
within a period of one year (notwithstanding any longer period of time that
would otherwise be permitted under Section 5(e)). Notwithstanding the
foregoing, in no event may a Stock Option be exercised after the expiration
of its stated term.
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SECTION 6. Stock Option Awards to Non-Employee Directors.
Each person who is a Non-Employee Director as of March 5, 1992, shall be
granted as of March 5, 1992, a Nonqualified Stock Option to purchase 8,000
shares of Common Stock. Each Non-Employee Director who is first elected to the
Board after March 5, 1992 shall be automatically granted upon such election a
Nonqualified Stock Option to purchase 8,000 shares of Common Stock. In addition
to such grants, commencing June 17, 1992, immediately following each annual
meeting of the stockholders of the Company during the term of this Plan, each
Non-Employee Director shall be granted a Nonqualified Stock Option to purchase
2,000 shares of Common Stock. Stock Options granted pursuant to this Section 6
shall be evidenced by a written Stock Option Agreement and shall specify the
following terms and conditions:
(a) Price.
The price per share of Common Stock at which the Stock Option may be
exercised shall be equal to the Fair Market Value of the Common Stock as of
the date of grant of the Stock Option.
(b) Exercisability.
Stock Options granted pursuant to this Section 6 shall be fully
exercisable as to all shares of Common Stock covered by the Stock Option
upon the expiration of two years from the date of grant of the Stock
Option. Prior to such date, the Stock Option shall not be exercisable.
Stock Options granted pursuant to this Section 6 shall not be exercisable
after the expiration of ten years from the date of grant nor, except as
provided in Sections 6(e) and 6(f), after a Non-Employee Director ceases to
be a member of the Board.
(c) Payment of Option Price.
Subject to Section 6(b), Stock Options awarded pursuant to this
Section may be exercised in whole or in part at any time during the term of
the option by giving prior written notice to the Company specifying the
number of shares to be purchased, accompanied by payment in full of the
purchase price in cash. Payment may also be made, in whole or in part, in
the form of Common Stock already owned by the Non-Employee Director based
on the Fair Market Value of the Common Stock on the date the Stock Option
is exercised. In no event may any shares of Common Stock that are acquired
by a Non-Employee Director pursuant to the exercise of a Stock Option be
delivered as payment of the exercise price of a Stock Option, unless such
shares have been held by the Non-Employee Director for at least six months.
(d) Transferability.
Stock Options granted pursuant to this Section 6 shall be subject to
the same transfer restrictions as specified in Section 5(d) of this Plan.
(e) Termination of Membership on the Board Other Than by Reason of
Death.
If a Non-Employee Director who holds an outstanding Stock Option
ceases to be a member of the Board other than by reason of death, such
option may, subject to the provisions of this Section 6, be exercised (to
the extent the option was exercisable by the Non-Employee Director at the
time of termination of his membership on the Board) at any time (i) within
one year after the termination of his membership on the Board due to
Disability, (ii) within three years after the termination of membership on
the Board by reason of Retirement or (iii) within three months after
termination of membership on the Board other than as described in the
preceding clauses (i) and (ii). Notwithstanding the foregoing, in no event
may a Stock Option be exercised after expiration of its stated term.
(f) Death of Non-Employee Director.
In the event of the death of a Non-Employee Director who holds an
outstanding Stock Option, such Stock Option may be exercised (to the extent
the option was exercisable at the
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time of the Non-Employee Director's death) by a legatee or legatees of such
Non-Employee Director under his last will, or by his personal
representatives or distributees, at any time within a period of one year
(notwithstanding any longer period of time that would otherwise be
permitted under Section 6(e)). Notwithstanding the foregoing, in no event
may a Stock Option be exercised after the expiration of its stated term.
SECTION 7. Restricted Stock Awards.
Restricted Stock awarded under the Plan shall be evidenced by a written
Restricted Stock Award agreement that specifies the terms and conditions of the
award. Restricted Stock awarded under the Plan shall be subject to the following
terms and conditions and such other terms and conditions not inconsistent with
this Plan as the Committee may specify.
(a) Purchase Price.
Unless the Committee determines otherwise, a Participant who is awarded
Restricted Stock shall be required to pay to the Company an amount equal to the
par value of each share of Restricted Stock subject to the award.
(b) Restricted Period.
The Committee shall prescribe a "Restricted Period" with respect to each
award of Restricted Stock hereunder, which period shall be not less than one
year; provided, however, that the Committee may provide in applicable Restricted
Stock Award Agreements for the Restricted Period to lapse with respect to all or
a portion of an award prior to the expiration of one year in the event of the
death or Disability of a Participant. Shares of Restricted Stock awarded to
Participants may not be sold, assigned, transferred, pledged or otherwise
encumbered during the Restricted Period, except by will or the laws of descent
and distribution or as required by applicable law. Except as otherwise
prescribed by the Committee in the applicable Restricted Stock Award agreement,
shares of Restricted Stock with respect to which the Restricted Period has not
lapsed shall be forfeited upon a participant's termination of employment by the
Group. The Committee may, in its discretion, specify rules with respect to
approved leaves of absence. Except for such restrictions on transfer imposed
pursuant to this Section 7(b) and except as otherwise provided by the terms of
the applicable Restricted Stock Award agreement, the Participant shall have all
the rights of a shareholder, including but not limited to the right to receive
all dividends paid on such shares and the right to vote such shares.
(c) Registration and Legend.
Each certificate issued in respect of shares of Restricted Stock awarded
under the Plan shall be registered in the name of the Participant and deposited
by such Participant, together with a stock power endorsed in blank, with the
Company and shall bear the following legend:
"The transferability of this certificate and the shares of stock
represented hereby are subject to the terms and conditions of the Hechinger
Company 1991 Stock Incentive Plan and a Restricted Stock Award agreement
entered into between the registered owner and Hechinger Company. Copies of
such Plan and agreement are on file in the offices of Hechinger Company."
(d) Restrictions Imposed on Certain Distributions.
Each Participant who has an outstanding award of Restricted Stock that is
subject to restrictions imposed pursuant to this Section 7 shall deposit with
the Company the stock, securities or other property that the Participant is
entitled to receive with respect to his shares of Restricted Stock by reason of
an event described in the third paragraph of Section 3 hereof, and such stock,
securities or other property will be subject to the restrictions imposed
pursuant to this Section 7.
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(e) Delivery of Shares after Lapse of Restrictions.
Certificates (or other applicable evidence of ownership) for shares of
unrestricted stock (or securities or other property, if applicable) shall be
delivered to the Participant promptly after, and only after, the Restricted
Period shall expire without forfeiture with respect to such shares of Restricted
Stock (or securities or other property, if applicable).
SECTION 8. Substituted Options and Restricted Stock.
Notwithstanding any other provision of this Plan to the contrary, Incentive
Stock Options, Nonqualified Stock Options and Restricted Stock may, in the
discretion of the Board or Committee, be granted under the Plan in substitution
for restricted stock and options to purchase shares of stock of another
corporation, which is merged into, consolidated with, or all or a substantial
portion of the property or stock of which is acquired by the Company or one of
its Subsidiaries. The terms and conditions of such substitute Restricted Stock
and/or substitute Stock Options may vary from the terms and conditions set forth
in this Plan to such extent as the Board or Committee at the time of grant may
deem appropriate (but only to the extent consistent with the requirements of
Rule 16b-3 under the Exchange Act and Section 162(m) of the Code) in order to
conform, in whole or part, to the provisions of the stock options and/or
restricted stock in substitution for which they are granted.
SECTION 9. Changes in Control.
Notwithstanding any other provision in the Plan to the contrary, the
Committee may, in its sole discretion, provide in the applicable Stock Option
and Restricted Stock award agreements for the full vesting of awards granted
hereunder in the event of a change in control of the Company (as defined in the
Committee's discretion) or in the event of certain terminations of employment
following a change in control. The Committee may also, in its sole discretion,
provide in applicable Stock Option and Restricted Stock award agreements for
payments to Participants to reimburse such Participants for the effect of any
excise taxes imposed under Section 4999 of the Code with respect to awards
hereunder. Notwithstanding the foregoing, this Section 9 shall not apply to
Stock Options awarded to Non-Employee Directors pursuant to Section 6 hereof.
SECTION 10. Regulatory Approval and Compliance.
The Company shall not be required to issue any certificate or certificates
for shares of its Common Stock with respect to awards under this Plan, or record
any person as a holder of record of such shares, without obtaining, to the
complete satisfaction of the Committee, the approval of all regulatory bodies
deemed necessary by the Committee, and without complying to the Committee's
complete satisfaction, with all rules and regulations, under federal, state or
local law deemed applicable by the Committee.
SECTION 11. Withholding Taxes.
Federal, state or local law may require the withholding of taxes applicable
to income resulting from the exercise of the Stock Options granted hereunder and
the award or expiration of restrictions on Restricted Stock. Unless otherwise
prohibited by the Committee, and in accordance with rules prescribed by the
Committee, each Participant may satisfy any such withholding tax obligation by
any of the following means or by a combination of such means: (a) tendering a
cash payment; (b) authorizing the Company to withhold from the Common Stock
otherwise issuable to the Participant as the result of the exercise of a Stock
Option or lapse of restrictions on Restricted Stock, a number of shares having a
Fair Market Value, as of the date the withholding tax obligation arises, less
than or equal to the amount of the withholding tax obligation; or (c) delivering
to the Company already owned and unencumbered shares of Common Stock having a
Fair Market Value, as of the date the withholding tax obligation arises, less
than or equal to the amount of the
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withholding tax obligation. All Nonqualified Stock Options awarded to
Non-Employee Directors shall permit the satisfaction of applicable withholding
taxes by any of the means described in clauses (a), (b), and (c) of the
preceding sentence.
SECTION 12. Amendment and Termination.
The Board may amend alter or terminate the Plan in any respect at any time;
provided, however, that no amendment, alteration or termination of the Plan
shall be made by the Board without approval of (i) the Company's shareholders to
the extent shareholder approval of the amendment is required to comply with the
requirements of Rule 16b-3 under Section 16 of the Exchange Act or Section
162(m) of the Code, and (ii) each affected Participant if such amendment,
alteration or termination would impair the rights of a Participant under any
award theretofore granted. Notwithstanding the foregoing, to the extent required
by Rule 16b-3(c)(2) under the Exchange Act, Section 6 hereof may not be amended
more than once during any six month period.
The Board may amend the terms of any award theretofore granted,
prospectively or retroactively, but no such amendment shall impair the rights of
any Participant with respect to such award without such Participant's consent.
SECTION 13. General Provisions.
(a) The Committee may require each person purchasing shares pursuant to
awards hereunder to represent to and agree with the Company in writing that such
person is acquiring the shares without a view to distribution thereof. The
certificates for such shares may include any legend that the Committee deems
appropriate to reflect any restrictions on transfer.
All certificates for shares of Common Stock issued pursuant to the Plan
shall be subject to such stock transfer orders and other restrictions as the
Committee may deem advisable under the rules, regulations and other requirements
of the Securities and Exchange Commission, any stock exchange upon which the
Common Stock is then listed, and any applicable federal or state securities
laws. The Committee may place a legend or legends on any such certificates to
make appropriate reference to such restrictions.
(b) Nothing contained in this Plan shall prevent the Board or Committee
from adopting other or additional compensation arrangements, subject to
stockholder approval if such approval is required; and such arrangements may be
either generally applicable or applicable only in specific cases. The adoption
of the Plan shall not confer upon (i) any member of the Board any right to
continued membership on the Board, or (ii) any employee of the Group any right
to continued employment with the Group, nor shall it interfere in any way with
the right of the Group to terminate the employment of any of its employees at
any time.
(c) No member of the Board or the Committee, nor any officer or employees
of the Group acting on behalf of the Board or the Committee, shall be personally
liable for any action, determination, or interpretation taken or made in good
faith with respect to the Plan, and all members of the Board or the Committee
and each and any officer or employee of the Group acting on their behalf shall,
to the extent permitted by law, be fully indemnified and protected by the
Company in respect of any such action, determination or interpretation.
(d) The masculine pronoun wherever used shall include the feminine pronoun,
and the singular shall include the plural unless the context clearly indicates
the distinction.
SECTION 14. Effective Date of Plan.
The effective date of the Plan is June 25, 1991 (the "Effective Date").
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SECTION 15. Term of Plan.
Unless the Plan shall have previously been terminated in accordance with
Section 12 hereof, the Plan shall terminate and no Stock Options or shares of
Restricted Stock shall be granted pursuant to the Plan after the tenth
anniversary of the Effective Date. Notwithstanding the foregoing, all Stock
Options and Restricted Stock granted under the Plan prior to such date shall
remain in effect until such Stock Options and Restricted Stock have either been
exercised, expired, or are no longer subject to restrictions in accordance with
their terms and the term of this Plan.
SECTION 16. Governing Law.
This Plan shall be construed, administered and enforced according to laws
of the State of Delaware, without giving effect to the principles of conflicts
of law thereof.
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(LOGO)
<PAGE> 35
HECHINGER COMPANY
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON JUNE 13, 1995
The undersigned, having received notice of meeting and management's Proxy
Statement, hereby appoint(s) W. CLARK McCLELLAND and MARK R. ADAMS, or either
one of them, attorneys, agents or proxies (with full power of substitution in
them and each of them) for and in the name(s) of the undersigned to attend the
annual meeting of the stockholders of HECHINGER COMPANY to be held on June 13,
1995, at 10:00 a.m. and any and all adjournments thereof, and there in their
discretion to vote and act in regard to all matters which may properly come
before said meeting (except those matters as to which authority is hereinafter
withheld) upon and in respect of all shares of Class A common stock and Class B
common stock of said Company which the undersigned would possess, if personally
present, and especially (but without limiting the general authorization and
power hereby given) to vote and act as follows:
1. ELECTION OF DIRECTORS
FOR / / all nominees listed below (except as marked to the contrary below):
WITHHOLDING AUTHORITY / / to vote for all nominees listed below:
JOHN W. HECHINGER, HERBERT J. BRONER, JOHN W. HECHINGER, JR., S. ROSS HECHINGER,
ANN D. JORDAN, DAVID O. MAXWELL, W. CLARK McCLELLAND, ALAN J. ZAKON
(INSTRUCTIONS: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, WRITE
THAT NOMINEE'S NAME ON THE SPACE PROVIDED BELOW.)
- --------------------------------------------------------------------------------
2. FOR / / AGAINST / / ABSTAIN / / ratification of the appointment of Ernst &
Young as independent auditors of the Company;
3. FOR / / AGAINST / / ABSTAIN / / approval of an amendment to the 1991 Stock
Incentive Plan; and,
4. On such other matters as may properly come before the meeting or at any
adjournments thereof.
(Continued on reverse side)
<PAGE> 36
The shares represented by this proxy will be voted as directed by the
stockholder. If no instructions are indicated, the undersigned's vote will be
cast FOR the election of the eight director nominees listed in the Proxy
Statement, FOR the ratification of the appointment of Ernst & Young and FOR
approval of an amendment to the 1991 Stock Incentive Plan.
Dated: , 1995
----------------
-------------------------------
-------------------------------
Signature(s)
Please sign exactly as your
name appears hereon. For stock
held jointly, each joint owner
should personally sign. For
stock held by corporation,
please affix corporate seal.
Persons signing in a fiduciary
capacity, please give full
title.
THIS PROXY IS BEING SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
