<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
<TABLE>
<S> <C>
HECHINGER COMPANY
3500 PENNSY DRIVE
LANDOVER, MARYLAND 20785
- ------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JUNE 11, 1996 (HECHINGER LOGO)
</TABLE>
May 17, 1996
To Our Stockholders:
You are cordially invited to attend the Annual Meeting of Stockholders of
HECHINGER COMPANY, which will be held at the Hyatt Regency Hotel, Fairlane Town
Center, Dearborn, Michigan, on Tuesday, June 11, 1996, at 10:00 a.m., for the
following purposes:
(1) to elect nine 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; and
(3) 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 26, 1996 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,
LOGO
/s/ MARK R. ADAMS
Mark R. Adams
Senior Vice President,
Treasurer & Secretary
<PAGE> 3
HECHINGER COMPANY
LANDOVER, MARYLAND 20785
------------------------
PROXY STATEMENT
------------------------
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 11, 1996, 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 26, 1996 (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 17, 1996.
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, and FOR
the ratification of the appointment of the independent public accountants set
forth herein. 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 for quorum purposes, but
not voted.
ELECTION OF DIRECTORS
Nine 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 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.
<PAGE> 4
<TABLE>
<CAPTION>
YEAR
FIRST
ELECTED
NAME AGE DIRECTOR
--------------------------- --------
<S> <C> <C> <C> <C>
[PHOTO] John W. Hechinger 76 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, and Chairman of the
Board until 1995. He currently serves
as Chairman of the Executive Committee
of the Board of Directors.
[PHOTO] Herbert J. Broner 68 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.
[PHOTO] Kenneth J. Cort 54 1995 Mr. Cort joined Hechinger Company in
December 1992 as President of its
Hechinger Stores subsidiary. In August
1995 when the Company announced the
consolidation of its two primary
operating subsidiaries, he was named
President and Chief Operating Officer
of Hechinger Company. Prior to joining
the Company, Mr. Cort served as Chief
Operating Officer of Ames Department
Stores since April 1991.
[PHOTO] John W. Hechinger, Jr. 46 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 and was elected Chief Executive
Officer in 1990. Mr. Hechinger, Jr. was
named Chairman of the Board in August
1995.
</TABLE>
2
<PAGE> 5
<TABLE>
<CAPTION>
YEAR
FIRST
ELECTED
NAME AGE DIRECTOR
--------------------------- --------
<S> <C> <C> <C> <C>
[PHOTO] S. Ross Hechinger 44 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.
[PHOTO] Ann D. Jordan 61 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., Johnson & Johnson Corporation,
Salant Corporation, and The Travelers,
Inc.
[PHOTO] W. Clark McClelland 57 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.
[PHOTO] Melvin A. Wilmore 50 1995 Mr. Wilmore is a Director and President
and Chief Operating Officer of Ross
Stores, Inc. Prior to being elected
President in 1993, Mr. Wilmore served
as Executive Vice President and Chief
Operating Officer. Prior to joining
Ross Stores in December 1991, Mr.
Wilmore was President and Chief
Executive Officer of Live Specialty
Retail, a division of LIVE
Entertainment, Inc.
</TABLE>
3
<PAGE> 6
<TABLE>
<CAPTION>
YEAR
FIRST
ELECTED
NAME AGE DIRECTOR
--------------------------- --------
<S> <C> <C> <C> <C>
[PHOTO] Alan J. Zakon 60 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. and Autotote 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.
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. Alan J. Zakon, Chairman, David O. Maxwell
(who is retiring from the Board and not standing for re-election) and Melvin A.
Wilmore, held six meetings during the Company's last fiscal year.
The Board does not currently have a nominating committee.
The Board met seven 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 (held during the
period for which he or she has been a director) and (ii) the total number of
meetings held by all committees of the Board on which he or she served (during
the periods that 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 each Committee also
receives an additional attendance fee of $250 for each meeting chaired.
Non-Employee Directors are reimbursed for the reasonable expenses of each Board
or Committee meeting attended.
Pursuant to the terms of the Company's 1991 Stock Incentive Plan,
Non-Employee Directors receive a one-time award of a non-qualified stock option
covering 8,000 shares of Class A common stock upon the date they are first
elected to the Board, and also automatically receive each year a non-qualified
stock option covering 2,000 shares of Class A common stock immediately following
each annual meeting of the Company's stockholders. Non-Employee Directors are
also eligible for a retirement benefit after completing five years of service as
a Non-Employee Director. The benefit is equal to the annual fee paid to all
Non-Employee Directors at the time of retirement and is payable annually for the
number of years served as a Non-Employee Director.
4
<PAGE> 7
Directors who are also employees of the Company receive no additional
compensation for their service as directors or as members of Committees of the
Board.
EXECUTIVE COMPENSATION
The Summary Compensation Table sets forth individual compensation
information paid by the Company and its subsidiaries to the Chief Executive
Officer and the four other most highly paid executive officers (the "Named
Executive Officers"), for services rendered in all capacities during the fiscal
years ended February 3, 1996 ("1995"), January 28, 1995 ("1994"), and January
29, 1994 ("1993").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
-------------------------------------------
AWARDS
ANNUAL COMPENSATION ---------------------------- PAYOUTS
------------------------------------ SECURITIES -----------
OTHER ANNUAL RESTRICTED UNDERLYING PERFORMANCE ALL OTHER
NAME AND SALARY BONUS COMPENSATION STOCK AWARDS OPTIONS SHARES COMPENSATION
PRINCIPAL POSITION YEAR ($) ($) ($)(1) ($)(2) (#) ($)(3) ($)(4)
- -------------------- ----- -------- -------- ------------ ------------ ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
John W. Hechinger,
Jr. 1995 541,667 0 0 0 74,500 0 98,087
Chairman & Chief 1994 483,333 172,000 0 0 40,825 0 100,679
Executive Officer 1993 450,000 230,000 0 0 200,000 0 11,374
Kenneth J. Cort 1995 478,334 0 0 0 519,250 0 4,012
President and
Chief 1994 416,667 215,000 92,399 0 36,289 0 893
Operating Officer 1993 400,000 220,000 341,172 0 37,333 0 1,680
W. Clark McClelland 1995 332,500 0 0 0 113,333 0 3,012
Executive Vice 1994 316,667 101,000 0 0 24,742 0 6,929
President & Chief 1993 294,167 140,000 0 180,000 24,000 0 11,374
Financial Officer
S. Ross Hechinger 1995 242,000 0 0 0 32,700 0 2,557
Senior Vice
President -- 1994 232,000 150,939 0 0 17,221 0 6,929
Corporate
Administration 1993 230,833 60,000 0 0 16,533 0 1,680
Frank C. Doczi 1995 452,500 0 0 0 20,167 49,740 5,957
Former President 1994 433,333 34,000 0 0 18,144 323,072 6,929
Home Quarters
Warehouse(5) 1993 391,666 160,000 0 0 19,787 0 11,374
</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. These benefits, along with an auto allowance, were paid in 1993 and
1994.
(2) Represents 20,000 restricted shares awarded to W. Clark McClelland, 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, Jr., 0/$0; Kenneth J. Cort, 42,500/$233,750; W. Clark
McClelland, 8,000/$44,000; S. Ross Hechinger, 0/$0; and Frank C. Doczi,
44,000/$242,000. The unvested portion of restricted stock awards outstanding
will vest as follows: Kenneth J. Cort, 17,000 shares on January 11, 1997 and
25,500 shares on January 11, 1998; W. Clark McClelland, 8,000 shares on
January 1, 1997, and Frank C. Doczi, 44,000 shares on October 5, 1996.
Kenneth J. Cort, W. Clark McClelland and Frank C. Doczi had 17,000, 36,000,
and 22,000 shares, respectively, become unrestricted in 1995. 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 50,000 shares, 200,000 shares, and 308,000
shares of Class A Common Stock was granted to John W. Hechinger, Jr. in
1995, 1993 and 1991, and the 1995 Stock Option Agreements pursuant to which
an option to
5
<PAGE> 8
purchase 500,000 shares and 100,000 shares of Class A Common Stock was
granted to Kenneth J. Cort and W. Clark McClelland, 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 or
options granted shall lapse and the executive shall receive such shares or
options free of restrictions. In addition, if such shares or options become
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 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 4,471 and 25,093 shares of Class A Common Stock in 1995
and 1994 due to Home Quarters Warehouse achieving certain specified
operating income targets over the three year period ended January 28, 1995
and January 29, 1994, respectively. The shares are valued as of March 7,
1995 and March 15, 1994, the dates such performance was determined by the
Compensation Committee.
(4) Represents contribution by the Company to the Hechinger Profit Sharing and
401K Plans. 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 to the 401K Plan represent a match of 50% of a participants
first 6% of pay contributed subject to the maximum amount allowable under
the Code. Company contributions become 100% vested in both plans after a
participant completes prescribed Plan Service and in certain other
circumstances. For Mr. Hechinger, Jr., the 1995 and 1994 amounts also
includes an advance of $93,750 made by the Company in each year pursuant to
a Split Dollar Life Insurance arrangement entered into in 1994. 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. Doczi was President of the Company's Home Quarters Warehouse subsidiary
until September 30, 1995, when he became Special Advisor to the Chairman of
the Board. The Company has agreed to employ Mr. Doczi as Special Advisor to
the Chairman of the Board through September 30, 2000. In this capacity, Mr.
Doczi shall receive as compensation, $300,000 per year from February 1, 1996
through September 30, 1997, $200,000 per year from October 1, 1997 through
September 30, 1998, and $100,000 per year from October 1, 1998 through
September 30, 2000. Mr. Doczi shall also receive other employee benefits
during the employment period.
All stock options granted to the Named Executive Officers for the three
previous fiscal years are disclosed in the Summary Compensation Table. The table
below restates the options granted to the Named Executive Officers in the last
fiscal year, and provides other information regarding such grants, including an
estimate of the Grant Date Present Value. Stock Options are granted pursuant to
the 1991 Stock Incentive Plan. The Company has not granted any stock
appreciation rights.
6
<PAGE> 9
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS GRANT DATE VALUE
-------------------------------------------------------------------- ----------------
<S> <C> <C> <C> <C> <C>
NUMBER OF PERCENT OF TOTAL EXERCISE OR
SECURITIES UNDERLYING OPTIONS GRANTED BASE PRICE GRANT DATE
OPTIONS GRANTED TO EMPLOYEES IN PER SHARE EXPIRATION PRESENT VALUE
NAME (#) FISCAL YEAR ($/SH.) DATE ($)(6)
- -------------------------------------------- ---------------- ----------- ----------- ----------------
John W. Hechinger, Jr. 74,500(1) 3.9%(1) (1) (1) $ 249,720
Kenneth J. Cort 519,250(2) 27.1%(2) (2) (2) $1,377,080
W. Clark McClelland 113,333(3) 5.9%(3) (3) (3) $ 340,464
S. Ross Hechinger 32,700(4) 1.7%(4) (4) (4) $ 99,792
Frank C. Doczi 20,167(5) 1.1%(5) $ 11.125(5) 3/07/05(5) $ 132,296
</TABLE>
- ---------------
(1) Mr. Hechinger, Jr. was granted an option to purchase 24,500 shares of Class
A Common Stock at an exercise price of $11.125 per share on March 7, 1995
and an option to purchase 50,000 shares of Class A Common Stock at an
exercise price of $4.125 per share on October 3, 1995. The option granted on
March 7, 1995 will vest on March 7, 1997 and expires on March 7, 2005. For
the option granted October 3, 1995, 16,666 shares will vest on October 3,
1997, 16,667 shares will vest on October 3, 1998, and 16,667 shares will
vest on October 3, 1999. The option will expire on October 3, 2005.
(2) Mr. Cort was granted an option to purchase 19,250 shares of Class A Common
Stock at an exercise price of $11.125 per share on March 7, 1995; 480,000
shares of Class A Common Stock at an exercise price of $5.3125 per share on
September 1, 1995; and 20,000 shares of Class A Common Stock at an exercise
price of $5.3125 per share on January 2, 1996. The option granted on March
7, 1995 will vest on March 7, 1997 and expires on March 7, 2005. For the
option granted September 1, 1995, 160,000 shares will vest on September 1,
1997, 160,000 shares will vest on September 1, 1998, and 160,000 shares will
vest on September 1, 1999. The option will expire on September 1, 2005. For
the option granted January 2, 1996, 6,666 shares will vest on September 1,
1997, 6,667 shares will vest on September 1, 1998, and 6,667 shares will
vest on September 1, 1999. The option will expire on January 2, 2006.
(3) Mr. McClelland was granted an option to purchase 13,333 shares of Class A
Common Stock at an exercise price of $11.125 per share on March 7, 1995 and
an option to purchase 100,000 shares of Class A Common Stock at an exercise
price of $5.3125 per share on September 1, 1995. The option granted on March
7, 1995 will vest on March 7, 1997 and expires on March 7, 2005. For the
option granted September 1, 1995, 33,333 shares will vest on September 1,
1997, 33,333 shares will vest on September 1, 1998, and 33,334 shares will
vest on September 1, 1999. The option will expire on September 1, 2005.
(4) Mr. Hechinger was granted an option to purchase 8,700 shares of Class A
Common Stock at an exercise price of $11.125 per share on March 7, 1995 and
an option to purchase 24,000 shares of Class A Common Stock at an exercise
price of $4.125 per share on October 3, 1995. The option granted on March 7,
1995 will vest on March 7, 1997 and expires on March 7, 2005. The option
granted on October 3, 1995 will vest on October 3, 1997 and expires on
October 3, 2005.
(5) Mr. Doczi was granted an option on March 7, 1995 which will vest on March 7,
1997.
(6) 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 as disclosed above which is equal to, or
greater than, the fair market value of the underlying stock on the date of
grant; (b) Option terms of ten years; (c) Interest rates ranging from 5.65%
to 7.20%, representing the interest rate on a U.S. Treasury security with a
maturity date corresponding to that of the option term as of the date of
grant; (d) Volatility ranging from 49% to 52%, calculated using daily stock
prices for the one year period prior to the date of grant; and (e) Dividends
at the rate of $0.16 per share
7
<PAGE> 10
representing the annualized dividends paid with respect to a share of Class
A common stock at the date of grant. Following the end of its last fiscal
year, the Company suspended the payment of dividends on its Class A common
stock.
The ultimate value of the options will depend on the future market price of
the Company's stock, which cannot be forecasted with reasonable accuracy. The
actual value, if any, an executive will realize upon exercise of an option will
depend on the excess of the market value of the Company's common stock over the
exercise price on the date the option is exercised.
The following table sets forth certain information on options exercised
during the last fiscal year and unrealized value for both exercisable and
unexercisable options at fiscal year end.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR,
AND FISCAL YEAR END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
SHARES UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
ACQUIRED OPTIONS AT FISCAL YEAR END AT FISCAL YEAR END(1)
ON VALUE ---------------------------- ----------------------------
EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
NAME (#) ($) (#) (#) ($) ($)
- ------------------------ -------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
John W. Hechinger, Jr. 0 -- 367,529 358,525 0 68,750
Kenneth J. Cort 0 -- 37,333 555,539 0 93,750
W. Clark McClelland 0 -- 78,439 138,075 0 18,750
S. Ross Hechinger 0 -- 53,070 49,921 0 33,000
Frank C. Doczi 0 -- 56,854 38,311 0 0
</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 and Performance Restricted Stock Awards under
the 1991 Stock Incentive 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. Performance Restricted Stock awards are similar to
"Performance Grants", except that, in addition to meeting specified performance
goals, a recipient must also satisfy prescribed vesting requirements.
The Performance Share Plan and the 1991 Stock Incentive Plan are
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 or Performance Restricted Stock until his name is recorded in the
Company's stockholder ledger as a record holder of shares of Class A common
stock.
8
<PAGE> 11
LONG-TERM INCENTIVE PLAN AWARDS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
NUMBER OF ESTIMATED FUTURE PAYOUT
PERFORMANCE OF PERFORMANCE SHARES
SHARES AND AND PERFORMANCE RESTRICTED
PERFORMANCE STOCK
RESTRICTED -------------------------------
STOCK GRANTED PERFORMANCE PERIOD THRESHOLD TARGET MAXIMUM
NAME (#) UNTIL PAYOUT (#) (#) (#)
- ---------------------- -------------- ----------------------- --------- ------- -------
<S> <C> <C> <C> <C> <C>
John W. Hechinger, Jr. 8,167(1) Three Year Period Ended 0 6,534 11,434
January 31, 1998
100,000(2) Three Year Period Ended 0 100,000 150,000
January 31, 1998
Kenneth J. Cort 6,417(1) Three Year Period Ended 0 5,134 8,984
January 31, 1998
100,000(2) Three Year Period Ended 0 100,000 150,000
January 31, 1998
W. Clark McClelland 4,444(1) Three Year Period Ended 0 3,555 6,222
January 31, 1998
60,000(2) Three Year Period Ended 0 60,000 90,000
January 31, 1998
S. Ross Hechinger 2,900(1) Three Year Period Ended 0 2,320 4,060
January 31, 1998
Frank C. Doczi 6,722(1) Three Year Period Ended 0 5,378 9,411
January 31, 1998
</TABLE>
- ---------------
(1) Pursuant to the terms of the Company's Performance Share Plan, each Named
Executive Officer was granted the right to earn the stated range of Class A
common stock upon the Officer's business unit achieving a certain specified
earnings target over the three year performance period ended January 31,
1998.
(2) Pursuant to the terms of the Company's 1991 Stock Incentive Plan, each Named
Executive Officer was granted the right to earn the stated range of Class A
common stock upon the Company achieving certain specified levels of general
and administrative expense reduction during the three year period ended
January 31, 1998. Upon determining the actual payout amount of Performance
Restricted Stock, if any, one-third of such shares will vest. The remaining
shares, if any, will vest equally in January 1999 and January 2000. The
Performance Restricted Stock Award Agreement pursuant to which such stock
was granted provides that in the event of death, disability or termination
of the executive's employment in certain circumstances after a change in
control (as defined in Note (2) on page five) the performance conditions,
and vesting restrictions shall lapse and the executive or his heirs shall
receive such shares free of restrictions. In addition, if such shares become
subject to certain excise taxes in connection with the lapse of
restrictions, the Company shall make an additional payment to compensate for
such taxes.
PENSION AND RETIREMENT PLANS
The Company had maintained 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 Service, as that term
is defined in the Pension Plan, and who are at least 21 years old, 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. The Company intends to terminate the Pension
Plan effective December 31, 1995.
9
<PAGE> 12
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. 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, Profit
Sharing and 401K Plans of the Company. Benefits generally vest and are payable
at age 65, unless an executive obtains approval from the Board for early
retirement and in certain other cases including disability. 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,
1995 and payable at normal retirement under the Pension Plan and the
Supplemental Executive Retirement Agreements for the Named Executive officers
are as follows: John W. Hechinger, Jr., $55,045; Kenneth J. Cort, $26,472; W.
Clark McClelland, $43,759; S. Ross Hechinger, $31,577; and Frank C. Doczi,
$103,894. The Pension Plan portion of these benefit amounts is based on 15 years
of Benefit Service for Mr. Hechinger, Jr., Mr. McClelland, and Mr. Hechinger,
and 2 years 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., 24; Kenneth J. Cort, 3; W. Clark McClelland, 20;
S. Ross Hechinger, 22; and Frank C. Doczi, 11.
10
<PAGE> 13
EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT AND CHANGE IN CONTROL
ARRANGEMENTS
The Company has entered into severance agreements with each of the Named
Executive Officers, except Frank C. Doczi, pursuant to which in lieu of benefits
under the Company's existing severance policy, the executive will receive, upon
his termination of employment by the Company for other than cause, death,
disability or retirement, salary continuation for twelve months (fourteen months
if the executive signs a release) and the average of the executive's last three
annual bonuses. In addition, the executive will receive during the period of
such salary continuation, existing medical and dental coverage (provided the
executive pays the premiums due under such plans), merchandise discounts, and
car allowances. The severance agreements contain confidentiality requirements
applicable to the executive while he is employed with the Company.
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 four, 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 currently 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 Compensation Committee intends that all
compensation paid to executive officers, to the extent possible while consistent
with its overall compensation philosophy, will qualify for deductibility under
section 162(m) of the Internal Revenue Code of 1986, as amended.
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.
11
<PAGE> 14
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 12.1% in 1995 over
1994. The Committee recommended this increase after considering the factors
delineated above, in particular, changes in responsibility of the position in
1995 and the fact that Mr. Hechinger's salary was below the surveyed norm for
similarly sized retailers. Mr. Hechinger, Jr., was named Chairman of the Board
of Directors in August 1995.
Of the remaining Named Executive Officers, Kenneth J. Cort received a base
salary increase of 14.8%. This increase was primarily in recognition of the
increased responsibility Mr. Cort assumed in 1995 by being named President and
Chief Operating Officer of the Company. Mr. Cort had previously been President
of the Company's Hechinger Stores subsidiary.
The aggregate salary increase for all other Named Executive Officers was
4.6%. The evaluation of each Officer's increase 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 February
3, 1996 ("1995") provided for awards which were substantially based on the
profitability of the consolidated Company and its two primary operating
subsidiaries versus pre-established goals. Given the fact that the Company did
not achieve its pre-established financial goals, no bonuses were paid to any
officer, including the Chief Executive Officer in 1995. The Chief Executive
Officer's bonus target is 50% of year end salary.
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,
Performance 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,
Performance Restricted Stock and any "Special" Stock Option Grants are more
greatly influenced by specific circumstances, including individual performance
and anticipated responsibility. "Special" grants generally differ from other
option grants primarily by being larger in size, providing longer vesting
restrictions, and including change in control provisions. The Committee believes
that these "Special" grants, Performance Restricted Stock 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.
12
<PAGE> 15
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 outstanding
Options; therefore, executive officers do not benefit from stock price
appreciation unless stockholders also benefit. Certain Options were granted to
each Named Executive Officer in 1995 using salary based formulas which are
targeted to meet competitive norms in the retail industry. In addition, the
Committee granted "Special" Stock Option Grants to Messrs. Hechinger, Jr., Cort,
McClelland and Hechinger, as reflected in the table "Option Grants in the Last
Fiscal Year" on page seven. These "Special" grants were awarded, in particular,
to reflect the special challenges facing each officer in consolidating the
Company's two primary operating subsidiaries.
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. Each of the Named Executive Officers was
awarded Performance Shares in 1995.
Performance Restricted Stock is similar to the granting of Performance
Shares in that no shares are awarded unless specified performance targets are
exceeded. Unlike Performance Shares, however, an executive must also satisfy
prescribed vesting requirements. In 1995, Performance Restricted Stock was
granted to Messrs. Hechinger Jr., Cort and McClelland. The important task of
reducing the Company's general and administrative expense level was specified as
the performance target for these awards.
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 nine, and Severance Agreements with certain officers as discussed under
Employment Contracts, Termination of Employment and Change in Control
Arrangements on page eleven. 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,
Alan J. Zakon, Chairman
David O. Maxwell
Melvin A. Wilmore
13
<PAGE> 16
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, 1991 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 HECHINGER S&P RETAIL-
(FISCAL YEAR COVERED) COMPANY S&P 500 SPECIALTY
<S> <C> <C> <C>
1/91 100.00 100.00 100.00
1/92 204.44 122.61 134.96
1/93 148.00 135.49 177.43
1/94 166.89 152.83 173.46
1/95 152.40 153.58 172.44
1/96 87.76 212.69 160.81
</TABLE>
* TOTAL RETURN ASSUMES REINVESTMENT OF DIVIDENDS ON A QUARTERLY BASIS.
CERTAIN TRANSACTIONS
During the last fiscal year, eleven 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 $3.8
million. 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 31,058,821 shares of Class A
common stock and 11,186,395 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 26, 1996, to the knowledge of the management of the Company,
three stockholders of record owned more than 5% of the outstanding shares of
Class A common stock. The stockholders were J.P. Morgan & Co., Incorporated, 60
Wall Street, New York, New York 10260, which owned 3,550,018 shares, 11.4% of
such stock; Radnor Capital Management, Inc., Two Radnor Corporate Center, 100
Matsonford Road, Suite 250, Radnor, Pennsylvania 19087, which owned 2,370,000
shares, 7.7% of such stock; and, Hughes Investment Management Company on
14
<PAGE> 17
behalf of the Master Trust for the Hughes Aircraft Company Retirement Plans,
7200 Hughes Terrace, Los Angeles, California 90045-0066, which owned 2,400,000
shares, 7.8% of such stock, as indicated in the Schedule 13G's filed with the
Securities and Exchange Commission on February 15, 1996, February 13, 1996, and
February 13, 1996, respectively. Members of the Hechinger and England families
beneficially owned a total of 1,235,358 shares, 3.98% of the outstanding Class A
common stock. 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 1,235,358 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 9,908,834 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
BENEFICIALLY PERCENT OF
NAME AND ADDRESS OWNED CLASS B
- ---------------------------------------------------------- -------------- ----------
<S> <C> <C>
Joan England Akman 478,132(2) 4.27%
Catherine S. England 541,002(3) 4.84%
Lois H. England 1,284,521(4) 11.48%
Richard England 1,284,521(5) 11.48%
Richard England, Jr. 1,048,983(6) 9.38%
John W. Hechinger 9,908,834(7)(1) 88.58%
John W. Hechinger, Jr. 9,908,834(8)(1) 88.58%
June R. Hechinger 2,546,369(9) 22.76%
S. Ross Hechinger 9,908,834(10)(1) 88.58%
Nancy Hechinger Lowe 901,043(11) 8.05%
Sally Hechinger Rudoy 1,031,042(12) 9.22%
June Limited Partnership(13) 2,601,229 23.25%
Lois Associates Limited Partnership(14) 1,386,455 12.39%
</TABLE>
- ---------------
(1) Members of the Hechinger and England families beneficially own a total of
9,908,834 shares (88.58%) 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 9,908,834 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.
15
<PAGE> 18
(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.
(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 1,052,836 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, 1,052,836 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 323,404 shares held directly by Mrs. Lowe through a revocable
trust, 556,158 shares held indirectly by Mrs. Lowe by virtue of her
holdings in family partnerships and her children's trusts, 5,827 shares
held directly by Mrs. Lowe's spouse and 15,654 shares held indirectly by
Mrs. Lowe as custodian for her 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.
16
<PAGE> 19
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 26, 1996.
<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES
BENEFICIALLY BENEFICIALLY
OWNED OWNED
NAME APRIL 26, 1996 % OF CLASS APRIL 26, 1996 % OF CLASS
- ------------------------------ -------------- ------------- -------------- -------------
<S> <C> <C> <C> <C>
John W. Hechinger (1)(3) (1) (1) (1)
Herbert J. Broner 13,000(3) less than 1% -- --
Kenneth J. Cort 143,057(3) less than 1% -- --
Frank C. Doczi 175,254(3) less than 1% -- --
John W. Hechinger, Jr. (2)(3) (2) (2) (2)
S. Ross Hechinger (2)(3) (2) (2) (2)
Ann D. Jordan 12,300(3) less than 1% -- --
David O. Maxwell 13,000(3) less than 1% -- --
W. Clark McClelland 154,736(3) less than 1% 1,592 less than 1%
Melvin A. Wilmore 0(3) -- -- --
Alan J. Zakon 12,000(3) less than 1% 2,000 less than 1%
All Directors and Executive 2,277,350 7.33% 9,912,426 88.61%
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 210,443 shares (.68%) and 70,252 shares (.23%),
respectively, of Class A common stock and 1,722,660 shares (15.40%) and
823,709 shares (7.36%), 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
1,235,358 shares (3.98%) of Class A common stock and 9,908,834 shares
(88.58%) 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,
their interests in family partnerships and their children's trusts, and
stock option grants which are currently exercisable into Class A common
stock, John W. Hechinger, Jr. owns 575,184 shares (1.85%) of Class A common
stock and 1,038,871 shares (9.29%) of Class B common stock and S. Ross
Hechinger owns 197,121 shares (.63%) of Class A common stock and 1,038,871
shares (9.29%) 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 1,235,358 shares (3.98%) of
Class A common stock and 9,908,834 shares (88.58%) 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, Melvin A. Wilmore and
Alan J. Zakon include 0; 12,000; 73,622; 74,998; 448,354; 70,291; 12,000;
12,000; 98,431; 0; and 12,000, respectively, of stock option grants which
are currently exercisable into Class A common stock.
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors, executive officers, and persons who own more than 10% of a registered
class of the Company's
17
<PAGE> 20
equity securities, to file with the Securities and Exchange Commission (the
"Commission") initial reports of ownership and reports of changes in ownership
of shares of the Company's common stock and other equity securities of the
Company. Executive officers, directors and beneficial owners of greater than 10%
of the Company's common stock are required by Commission regulation to furnish
the Company with copies of all Section 16(a) forms they file.
To the Company's knowledge, based on review of the copies of such reports
furnished to the Company and representations from certain persons that no other
reports or forms were required for such persons, all Section 16(a) filing
requirements applicable to its officers, directors and greater than 10%
beneficial owners were complied with during the last fiscal year.
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 February 3, 1996. 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.
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 February 3, 1996. 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 1997 Annual
Meeting must be received by the Secretary of the Company, 3500 Pennsy Drive,
Landover, Maryland 20785, no later than February 12, 1997, in order to be
considered for inclusion in the 1997 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
18
<PAGE> 21
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,
/s/ MARK R. ADAMS
Mark R. Adams
Senior Vice President,
Treasurer & Secretary
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<PAGE> 22
[HECHINGER LOGO]
<PAGE> 23
HECHINGER COMPANY
PROXY FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JUNE 11, 1996
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 11,
1996, 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
Nominees: JOHN W. HECHINGER, JR., HERBERT J. BRONER, KENNETH J. CORT, JOHN W.
HECHINGER, S. ROSS HECHINGER, ANN D. JORDON, W. CLARK McCLELLAND,
MELVIN A. WILMORE, ALAN J. ZAKON.
<TABLE>
<C> <C>
/ / FOR all nominees listed above (except as marked to the contrary below) / / WITHHOLD AUTHORITY to vote for all nominees listed
above
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(INSTRUCTIONS: To withhold authority to vote for any individual nominee, write
that nominee's name on the line above)
2. Ratification of the appointment of Ernst & Young as independent auditors of
the Company; and
/ / FOR / / AGAINST / / ABSTAIN
3. On such matters as may properly come before the meeting or at any
adjournments thereof.
<PAGE> 24
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 nine director nominees listed in the Proxy
Statement, and FOR the ratification of the appointment of Ernst & Young.
Dated: , 1996
----------------------------
-----------------------------------------
(Signature)
-----------------------------------------
(Signature)
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
