<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] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(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
1801 MCCORMICK DRIVE
LARGO, MARYLAND 20774
- ------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JUNE 10, 1997 (LOGO)
</TABLE>
May 12, 1997
To Our Stockholders:
You are cordially invited to attend the Annual Meeting of Stockholders of
HECHINGER COMPANY, which will be held at the Albany Marriott Hotel, 189 Wolf
Road, Albany, New York, on Tuesday, June 10, 1997, at 9:00 a.m. At the meeting,
stockholders will act on the following matters:
(1) Election of nine directors to hold office until the next Annual Meeting
and until their successors are elected and qualified;
(2) Ratification of the appointment of Ernst & Young LLP as the Company's
independent public accountants for the current fiscal year;
(3) Consideration of a stockholder proposal; and
(4) Any 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 15, 1997 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.
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,
/s/ MARK R. ADAMS
-----------------------------------
Mark R. Adams
Senior Vice President,
Treasurer & Secretary
<PAGE> 3
HECHINGER COMPANY
LARGO, MARYLAND 20774
------------------------
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 10, 1997, 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 15, 1997 (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, 1997.
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, 1801 McCormick Drive,
Largo, Maryland 20774, 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 AGAINST approval of the stockholder proposal. Stockholders' votes
cast at the meeting in person or by proxy will be tallied by the Company's
transfer agent. The presence in person or by proxy of holders of record of a
majority of the total number of votes attributable to all shares of Common Stock
outstanding and entitled to vote is required to constitute a quorum for the
transaction of business at the Annual Meeting. Abstentions and broker non-votes
are counted for purposes of determining whether the quorum requirements are
satisfied.
ITEM 1 -- 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. In tabulating the vote, abstentions and broker
non-votes will be disregarded and will have no effect on the outcome of the
vote. 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>
John W. Hechinger 77 1959 Mr. Hechinger joined Hechinger Company
PHOTO No. 1 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.
Kenneth J. Cort 55 1995 Mr. Cort joined Hechinger Company in
PHOTO No. 2 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.
John W. Hechinger, Jr. 47 1984 Mr. Hechinger, Jr., joined Hechinger
PHOTO No. 3 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.
S. Ross Hechinger 45 1984 Mr. Hechinger joined Hechinger Company
PHOTO No. 4 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 -- Administration for the
Company.
</TABLE>
2
<PAGE> 5
<TABLE>
<CAPTION>
YEAR
FIRST
ELECTED
NAME AGE DIRECTOR
--------------------------- --------
<S> <C> <C> <C> <C>
Ann D. Jordan 62 1990 Ms. Jordan is a former Associate
PHOTO No. 5 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.
W. Clark McClelland 58 1979 Mr. McClelland joined Hechinger Company
PHOTO No. 6 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.
Robert S. Parker 59 1996 Dr. Parker is dean of the Georgetown
PHOTO No. 7 School of Business. Prior to joining
Georgetown in 1986, Dr. Parker was a
partner at McKinsey & Company, an
international management consulting
firm. Dr. Parker also serves on the
board of directors of Back Bay
Restaurant Group, Inc.
Melvin A. Wilmore 51 1995 Mr. Wilmore is a Director and President
PHOTO No. 8 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>
Alan J. Zakon 61 1990 Mr. Zakon is a Director and Vice
PHOTO No. 9 Chairman of Autotote Corporation. Prior
to joining Autotote in 1995, Mr. Zakon
was a Managing Director at Bankers
Trust Company since 1989 and prior to
that, Chief Executive of the Boston
Consulting Group. Mr. Zakon also serves
on the board of directors of Arkansas-
Best 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
Ms. Ann D. Jordan, Chairman, and Messrs. Robert S. Parker and Alan J. Zakon,
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 Mr. Alan J. Zakon, Chairman, Ms. Ann D. Jordan and
Mr. Melvin A. Wilmore, held four meetings during the Company's last fiscal year.
The Board does not currently have a nominating committee.
The Board met five 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 period 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 $250 for each meeting chaired.
Non-Employee Directors are reimbursed for the reasonable expenses of each Board
or Committee meeting attended.
Pursuant to the terms of the Company's 1991 Stock Incentive Plan,
Non-Employee Directors receive a one-time award of a non-qualified stock option
covering 8,000 shares of Class A common stock upon the date they are first
elected to the Board, and also automatically receive each year a non-qualified
stock option covering 2,000 shares of Class A common stock immediately following
each annual meeting of the Company's stockholders. Non-Employee Directors are
also eligible for a retirement benefit after completing five years of service as
a Non-Employee Director. The benefit is equal to the annual fee paid to all
Non-Employee Directors at the time of retirement and is payable annually for the
number of years served as a Non-Employee Director.
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<PAGE> 7
Directors who are also employees of the Company receive no additional
compensation for their service as directors or as members of Committees of the
Board.
EXECUTIVE COMPENSATION
The Summary Compensation Table sets forth individual compensation
information paid by the Company and its subsidiaries to the Chief Executive
Officer and the most highly paid executive officers (the "Named Executive
Officers"), for services rendered in all capacities during the fiscal years
ended February 1, 1997 ("1996"), February 3, 1996 ("1995"), and January 28, 1995
("1994").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
---------------------------------------
AWARDS
ANNUAL COMPENSATION ------------------------ PAYOUTS
------------------------------------ RESTRICTED SECURITIES -----------
OTHER ANNUAL STOCK UNDERLYING PERFORMANCE ALL OTHER
NAME AND SALARY BONUS COMPENSATION AWARDS OPTIONS SHARES COMPENSATION
PRINCIPAL POSITION YEAR ($) ($) ($)(1) ($)(2) (#) ($) ($)(3)
- ---------------------- ----- -------- -------- ------------ ---------- ---------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
John W. Hechinger, Jr. 1996 600,000 318,000 269,200 0 49,000 0 382,415
Chairman & Chief 1995 541,667 0 0 0 74,500 0 98,087
Executive Officer 1994 483,333 172,000 0 0 40,825 0 100,679
Kenneth J. Cort 1996 535,000 283,550 129,200 0 38,500 0 134,665
President & Chief 1995 478,334 0 0 0 519,250 0 4,012
Operating Officer 1994 416,667 215,000 92,399 0 36,289 0 893
W. Clark McClelland 1996 335,000 177,550 247,200 0 26,666 0 264,665
Executive Vice 1995 332,500 0 0 0 113,333 0 3,012
President & Chief 1994 316,667 101,000 0 0 24,742 0 6,929
Financial Officer
</TABLE>
- ---------------
(1) For 1996, each amount represents an auto allowance of $13,200 and the
Federal and State taxes paid on each executive's behalf in connection with
the purchase of annuities under the Supplemental Executive Retirement Plan
("SERP"). The SERP benefit is described under "Pension and Retirement Plans"
on page seven. In employing Mr. Cort in December 1992, 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. A portion of these benefits,
along with an auto allowance, were paid in 1994.
(2) 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, 25,500/$51,797;
and W. Clark McClelland, 0/$0. The unvested portion of Mr. Cort's restricted
stock awards outstanding will vest January 11, 1998. Kenneth J. Cort and W.
Clark McClelland had 17,000 and 8,000 shares, respectively, become
unrestricted in 1996.
(3) For Messrs. Hechinger, Jr., Cort and McClelland, the 1996 amount includes
$283,000, $129,000 and $259,000, respectively, representing the value of
annuities purchased on behalf of each executive pursuant to the SERP. The
SERP benefit is described under "Pension and Retirement Plans" on page
seven. For Mr. Hechinger, Jr., the amounts in each year also includes an
advance of $93,750 made by the Company 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 $93,750 annually. The life insurance
policy has been assigned to the Company as security for the amounts advanced
and upon the earliest of termination of employment other than by death or
disability, age 65, or the death of Mr. Hechinger, Jr. and his spouse, the
Company is entitled to be reimbursed directly from the carrier for the
amounts
5
<PAGE> 8
advanced. The amounts also include contribution by the Company to the
Hechinger Profit Sharing and 401K Plans. Company contributions to the Profit
Sharing Plan are in such amounts as may be determined by the Board up to the
maximum amount allowable under the Internal Revenue Code of 1986, as amended
(the "Code"). Company contributions to the 401K Plan represent a match of
50% of a participant's first 6% of pay contributed subject to the maximum
amount allowable under the Code. Company contributions become 100% vested in
both plans after a participant completes prescribed Plan Service and in
certain other circumstances.
All stock options granted to the Named Executive Officers for the three
previous fiscal years are disclosed in the Summary Compensation Table. The table
below restates the options granted to the Named Executive Officers in the last
fiscal year, and provides other information regarding such grants, including an
estimate of the Grant Date Present Value. Stock Options are granted pursuant to
the 1991 Stock Incentive Plan. The Company has not granted any stock
appreciation rights.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS GRANT DATE VALUE
------------------------------------------------------------------ ----------------
<S> <C> <C> <C> <C> <C>
PERCENT OF
NUMBER OF TOTAL EXERCISE OR
SECURITIES UNDERLYING OPTIONS GRANTED BASE PRICE GRANT DATE
OPTIONS GRANTED TO EMPLOYEES IN PER SHARE EXPIRATION PRESENT VALUE
NAME (#)(1) FISCAL YEAR ($/SH.) DATE ($)(2)
- -------------------------------------------------- --------------- ----------- ---------- ----------------
John W. Hechinger, Jr. 49,000 6.3% $ 3.875 3/12/06 $142,100
Kenneth J. Cort 38,500 4.9% $ 3.875 3/12/06 $111,650
W. Clark McClelland 26,666 3.4% $ 3.875 3/12/06 $ 77,331
</TABLE>
- ---------------
(1) The options to purchase these shares were granted on March 12, 1996 at an
exercise price equal to the fair market value of the Class A common stock on
that date. The options will vest on March 12, 1998.
(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 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) An interest rate of 6.27%,
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 of 58%, calculated using daily stock prices for the one year
period prior to the date of grant; and (e) No dividend payments.
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.
6
<PAGE> 9
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 -- 571,554 203,500 0 0
Kenneth J. Cort 0 -- 73,622 557,750 0 0
W. Clark McClelland 0 -- 98,431 139,999 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.
LONG-TERM INCENTIVE PLAN AWARDS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
NUMBER OF
PERFORMANCE ESTIMATED FUTURE PAYOUT
SHARES AND OF PERFORMANCE SHARES
PERFORMANCE AND PERFORMANCE RESTRICTED STOCK
RESTRICTED ---------------------------------
STOCK GRANTED PERFORMANCE PERIOD THRESHOLD TARGET MAXIMUM
NAME (#)(1) UNTIL PAYOUT (#) (#) (#)
- ----------------------- -------------- ------------------- ---------- ------- --------
<S> <C> <C> <C> <C> <C>
John W. Hechinger, Jr. 0 -- -- -- --
Kenneth J. Cort 0 -- -- -- --
W. Clark McClelland 0 -- -- -- --
</TABLE>
- ---------------
(1) No Performance Shares or Performance Restricted Stock was granted in 1996.
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 had completed one Year of Service, as that term
is defined in the Pension Plan, and who were at least 21 years old, were
eligible to participate. The Company terminated the Pension Plan effective
December 31, 1995 (the "Termination Date"). As a result of the termination, each
participant was eligible to receive the value of his or her accrued benefit as
of the Termination Date in the form of an
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<PAGE> 10
annuity or lump-sum settlement. The total annual normal retirement benefit
accrued as of the Termination Date under the Pension Plan for each Named
Executive Officer was as follows: John W. Hechinger, Jr., $31,965; Kenneth J.
Cort, $4,465; and W. Clark McClelland, $32,252. Each participant, including the
Named Executive Officers, received the value of his or her accrued benefit in
1996.
The Company has also entered into agreements with the Named Executive
Officers pursuant to the Supplemental Executive Retirement Plan (the "SERP").
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, except to the extent funded with annuity purchases as
described below, or in certain other cases including disability or Board
approved 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 normal retirement benefits accrued as of
December 31, 1996 under the SERP for each Named Executive Officer are as
follows: John W. Hechinger, Jr., $29,403; Kenneth J. Cort, $13,100; and W. Clark
McClelland, $17,423. The Company has agreed to purchase annuities to satisfy
certain obligations under the SERP for the Named Executive Officers that will
accrue through December 31, 1997 and pay Federal and State taxes on behalf of
such persons in connection with these purchases. Such purchases and related tax
payments are made in the year following the year the obligation was accrued. The
annuity reduces the Company's obligations under the SERP and the amounts above
have been reduced accordingly. The benefit payable under the SERP is based on
the following years of service credit: John W. Hechinger, Jr., 25; Kenneth J.
Cort, 4; and W. Clark McClelland, 21.
EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT AND CHANGE IN CONTROL
ARRANGEMENTS
The Company has entered into severance agreements with each of the Named
Executive Officers 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 (twenty four 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, outplacement services
and car allowances. In the event that such termination (including, in this event
by the executive with good reason) occurs within two years following a change in
control, the executive will receive a benefit equal to three times the sum of
his annual salary and the average of his last three annual bonuses in lieu of
salary continuation and the bonus payment described above. In this event, he
will also receive the continuation of benefits described above but will receive
such benefits for thirty six months. The severance agreements contain
confidentiality requirements applicable to the executive during and after his
employment with the Company.
Change in Control Arrangements are also provided in: (i) the 1992
Restricted Stock Award Agreement pursuant to which 25,500 shares of stock remain
restricted for Mr. Cort; (ii) the Stock Option Agreements pursuant to which
options to purchase 50,000 shares, 200,000 shares, and 308,000 shares of Class A
Common Stock were granted to John W. Hechinger, Jr. in 1995, 1993 and 1991,
respectively; (iii) the 1995 Stock Option Agreements pursuant to which options
to purchase
8
<PAGE> 11
500,000 shares and 100,000 shares of Class A Common Stock were granted to Mr.
Cort and Mr. McClelland, respectively, and (iv) the Performance Restricted Stock
Award Agreements pursuant to which 100,000 shares, 100,000 shares and 60,000
shares of Class A common stock were awarded in 1995 to Messrs. Hechinger, Jr.,
Cort and McClelland, respectively, (together, the "Stock Incentive Agreements").
The Stock Incentive Agreements generally provide that in the event the
executive's employment is terminated following a change in control due to death,
disability, by the executive for good reason or by the Company other than for
cause, the restrictions on such shares or options granted shall lapse and the
executive shall receive such shares or options free of restrictions.
As described under Pension and Retirement Plans on page seven, the Company
has entered into agreements with the Named Executive Officers to provide for
certain retirement benefits under the Supplemental Executive Retirement Plan
(the "SERP"). Under the SERP, in the event of a change in control, the Company
would fund a trust for the Named Executive Officers in an amount sufficient to
purchase annuities and make related tax payments for a ten year period. The
trust would then purchase annuities and make related tax payments annually
during the ten year period unless, within two years of the change in control,
such executive's employment is terminated by the executive with good reason or
by the Company for other than cause, in which case, the trust would purchase an
annuity (and make the related tax payment) on behalf of the executive equal
(together with any annuities already purchased for the executive by the trust)
to the expected benefit over such ten year period.
In addition, if such shares, options, SERP or severance payments become
subject to certain excise taxes in connection with the events described above,
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.
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:
9
<PAGE> 12
- 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 (Building Supplies) 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.
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 10.8% in 1996 over
1995. This increase resulted from an adjustment made by the Committee in 1995,
at which time Mr. Hechinger, Jr. was named Chairman of the Board of Directors.
The Committee recommended this increase after considering the factors delineated
above, in particular, changes in responsibility of the position and the fact
that Mr. Hechinger's salary was below the surveyed norm for similarly sized
retailers.
Of the remaining Named Executive Officers, the base salary of Messrs. Cort
and McClelland increased by 11.8% and .8%, respectively. Like Mr. Hechinger, the
increase for Mr. Cort reflects an adjustment made in 1995 primarily in
recognition of the increased responsibility Mr. Cort assumed at that time 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 base
salaries of the Named Executive Officers have not changed since October 1995.
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 measure adopted for the fiscal year ended February
1, 1997 ("1996") provided for awards which were based on the financial
performance of the consolidated Company versus a pre-established profit and loss
goal. Bonuses paid to the Chief Executive Officer and other Named Executive
Officers reflected the attainment of goal. Bonus targets for the Chief Executive
Officer and other Named Executive Officers are 50% of year end salary.
10
<PAGE> 13
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 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.
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 1996 using salary based formulas which are
targeted to meet competitive norms in the retail industry. No "Special" Stock
Option Grants or Restricted Stock was awarded in 1996.
The Performance Share Plan was adopted to provide incentive compensation
based on the Company's or any business unit'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. No Performance Shares were awarded in 1996.
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. No Performance Restricted Stock was awarded in
1996.
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, and Severance Agreements with certain officers as discussed under
Employment Contracts, Termination of Employment and Change in Control
Arrangements on page eight. 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
Ann D. Jordan
Melvin A. Wilmore
11
<PAGE> 14
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 (Building
Supplies) Index ("S&P Retail - Building Supplies"). The cumulative total return
assumes $100 invested on January 31, 1992 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 - BUILDING SUPPLIES
<TABLE>
<CAPTION>
S&P RETAIL
MEASUREMENT PERIOD (BUILDING
(FISCAL YEAR COVERED) HECHINGER COMPANY S&P 500 SUPPLIES)
<S> <C> <C> <C>
1/92 100.00 100.00 100.00
1/93 72.39 110.50 131.46
1/94 81.63 124.65 128.53
1/95 74.55 125.26 127.76
1/96 42.92 173.47 119.15
1/97 15.16 219.07 142.85
</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 $3.3
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 32,540,274 shares of Class A
common stock and 9,671,874 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 15, 1997, to the knowledge of the management of the Company,
the only holders of more than 5% of the outstanding shares of Class A common
stock are Franklin Resources, Inc. and its two principal shareholders, Charles
B. Johnson and Rupert H. Johnson, Jr., 777 Mariners Island Blvd., San Mateo, CA
94404, who are deemed to beneficially own 3,871,776 shares, 11.9% of such stock.
Of these 3,871,776 shares, Templeton Investment, Inc., 500 East Broward Blvd.,
Suite 2100, Fort Lauderdale, FL 33394, an investment advisory subsidiary of
Franklin Resources, Inc., is
12
<PAGE> 15
deemed to beneficially own 2,125,000 shares, 6.5% of such stock. (This
information is based upon Amendment No. 2 to the Schedule 13G filed with the
Securities and Exchange Commission on February 12, 1997.) Members of the
Hechinger and England families beneficially owned a total of 951,064 shares,
2.92% 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 951,064 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 8,380,813 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 1801
McCormick Drive, Largo, Maryland 20774.
<TABLE>
<CAPTION>
CLASS B SHARES
BENEFICIALLY PERCENT OF
NAME AND ADDRESS OWNED CLASS B
- ---------------------------------------------------------- -------------- ----------
<S> <C> <C>
Joan England Akman 478,132(2) 4.94%
Catherine S. England 541,002(3) 5.59%
Lois H. England 0 0%
Richard England 0 0%
Richard England, Jr. 1,048,983(4) 10.85%
John W. Hechinger 8,380,813(5)(1) 86.65%
John W. Hechinger, Jr. 8,380,813(6)(1) 86.65%
June R. Hechinger 2,502,869(7) 25.88%
S. Ross Hechinger 8,380,813(8)(1) 86.65%
Nancy Hechinger Lowe 901,043(9) 9.32%
Sally Hechinger Rudoy 831,042(10) 8.59%
June Limited Partnership(11) 2,601,229 26.89%
Lois Associates Limited Partnership(12) 1,386,455 14.33%
</TABLE>
- ---------------
(1) Members of the Hechinger and England families beneficially own a total of
8,380,813 shares (86.65%) 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 8,380,813 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 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.
13
<PAGE> 16
(5) Includes 1,009,336 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.
(6) 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.
(7) 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, 1,009,336 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.
(8) 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.
(9) Represents 323,404 shares held directly by Mrs. Lowe, 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.
(10) Represents 271,180 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.
(11) June Limited Partnership is a partnership consisting of members of the
family of John W. Hechinger.
(12) Lois Associates Limited Partnership is a partnership consisting of members
of the family of Richard England.
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 15, 1997.
<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES
BENEFICIALLY BENEFICIALLY
OWNED OWNED
NAME APRIL 15, 1997 % OF CLASS APRIL 15, 1997 % OF CLASS
- ------------------------------ -------------- ------------- -------------- -------------
<S> <C> <C> <C> <C>
John W. Hechinger (1)(3) (1) (1) (1)
Kenneth J. Cort 118,372(3) less than 1% -- --
John W. Hechinger, Jr. (2)(3) (2) (2) (2)
S. Ross Hechinger (2)(3) (2) (2) (2)
Ann D. Jordan 14,300(3) less than 1% -- --
W. Clark McClelland 159,145(3) less than 1% 1,592 less than 1%
Robert S. Parker 0(3) -- -- --
Melvin A. Wilmore 0(3) -- -- --
Alan J. Zakon 14,000(3) less than 1% 2,000 less than 1%
All Directors and Executive 2,010,426 6.18% 8,384,405 86.69%
Officers as a group (9
persons)
</TABLE>
14
<PAGE> 17
- ---------------
(1) By virtue of their direct holdings of the Company's shares, their ownership
interests in a family partnership and a family trust, and stock option
grants which are currently exercisable into Class A Common Stock, Mr. and
Mrs. John W. Hechinger own 77,360 shares (.24%) and 67,335 shares (.21%),
respectively, of Class A common stock and 1,679,160 shares (17.36%) and
823,709 shares (8.52%), 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
951,064 shares (2.92%) of Class A common stock and 8,380,813 shares (86.65%)
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 804,705 shares (2.47%) of Class A common
stock and 1,038,871 shares (10.74%) of Class B common stock and S. Ross
Hechinger owns 219,071 shares (.67%) of Class A common stock and 1,038,871
shares (10.74%) 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 951,064 shares (2.92%) of
Class A common stock and 8,380,813 shares (86.65%) 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, Kenneth J. Cort, John
W. Hechinger, Jr., S. Ross Hechinger, Ann D. Jordan, W. Clark McClelland,
Robert S. Parker, Melvin A. Wilmore and Alan J. Zakon include 8,000; 92,872;
671,304; 74,241; 14,000; 107,014; 0; 0; and 14,000, 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 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.
ITEM 2 -- 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 1, 1997. Services provided to the
Company and its subsidiaries in fiscal 1996 included the examination of
Company's consolidated financial statements, limited reviews of quarterly
reports, services related to filings with the Securities and Exchange Commission
and consultations on various tax and information services matters.
Ratification of the appointment of Ernst & Young LLP requires the
affirmative vote of a majority of the votes attributable to all shares of Common
Stock represented at the meeting, in person or by proxy, and entitled to vote.
In determining whether the ratification of Ernst & Young LLP has
15
<PAGE> 18
received the requisite number of affirmative votes, abstentions and broker
non-votes will be counted and will have the same effect as a vote against the
proposal. 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.
THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS A VOTE "FOR" RATIFICATION
OF THE APPOINTMENT OF ERNST & YOUNG LLP AS THE COMPANY'S INDEPENDENT PUBLIC
ACCOUNTANTS FOR THE CURRENT FISCAL YEAR.
ITEM 3 -- STOCKHOLDER PROPOSAL
Mr. Klaus M. Belohoubek, and his wife, Carla M. Belohoubek, P.O. Box 137
Chadds Ford, PA 19317, have informed the Company that they plan to introduce the
following proposal at the Annual Meeting. Mr. and Mrs. Belohoubek jointly are
the record holders of 4,500 shares of Class A common stock.
"The Board of Directors of the Company is requested to promptly retain a
nationally recognized investment banking firm in order to evaluate
actions which could increase shareholder value, including, but not
limited to, evaluation of a negotiated sale of all or substantially all
of the Company's assets. The Board of Directors is further requested to
promptly report to the shareholders on the recommendations of any
investment banking firm which they may retain for this purpose. Should
the Board of Directors choose not to retain the services of an
investment banking firm, it is requested to report to the shareholders
how each Director of the Company voted on this matter."
Mr. and Mrs. Belohoubek's statement in support of their proposal is as
follows:
"In light of the Company's financial results over the past several
years, in light of the decrease in the value of the Class A common stock
of the Company, and in light of the ownership and control exercised by
persons in the Hechinger family, we believe that an independent
evaluation of actions which could increase shareholder value by a
nationally recognized investment banking firm would be beneficial to all
shareholders."
THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS A VOTE "AGAINST" THIS
PROPOSAL FOR THE FOLLOWING REASONS.
The Board of Directors has always been, and will continue to be, active
in exploring strategic alternatives to enhance shareholder value. Over
the years, the Company has maintained close relationships with several
nationally recognized investment banking firms and has obtained their
advice on various matters relating to increasing shareholder value.
Further, management regularly reviews and reports to the Board regarding
the productivity of the Company's various assets and has taken action
based on such review. The Board also believes that it can most
effectively function when such planning and review is conducted
confidentially, subject, of course, to the Company's disclosure
obligations under the federal securities laws. In this way, thoughts can
be freely developed and deliberated upon without concern that they will
lead to rumors or actions that could harmfully restrict the Board's
choices or disrupt the public market for the Company's stock.
Approval of the stockholder proposal requires the affirmative vote of a
majority of the votes attributable to all shares of Common Stock represented at
the meeting, in person or by proxy, and entitled to vote. In determining whether
the proposal has received the requisite number of affirmative votes, abstentions
will be counted and will have the same effect as a vote against the proposal;
broker non-votes will be disregarded and will have no effect on the outcome of
the vote.
16
<PAGE> 19
ACCORDINGLY, THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "AGAINST" THIS
PROPOSAL, AND YOUR PROXY WILL BE SO VOTED IF THE PROPOSAL IS PRESENTED UNLESS
YOU SPECIFY OTHERWISE.
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 1, 1997. 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 next year's Annual
Meeting must be received by the Secretary of the Company, 1801 McCormick Drive,
Largo, Maryland 20774, no later than January 12, 1998, in order to be considered
for inclusion in next year's 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,
/s/ MARK R. ADAMS
----------------------------------
Mark R. Adams
Senior Vice President,
Treasurer & Secretary
17
<PAGE> 20
HECHINGER COMPANY
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JUNE 10, 1997
COMMON CLASS A
The undersigned, having received the notice of meeting and Proxy
Statement, hereby appoints W. CLARK McCLELLAND and MARK R. ADAMS, and each of
them, proxies, with full power of substitution, to act for and in the name of
the undersigned to attend the annual meeting of the stockholders of HECHINGER
COMPANY to be held on June 10, 1997, at 9:00 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 of said Company which the undersigned is entitled to vote, 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, KENNETH J. CORT, JOHN W. HECHINGER, JR.,
S. ROSS HECHINGER, ANN D. JORDAN, W. CLARK McCLELLAND,
ROBERT S. PARKER, MELVIN A. WILMORE, 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 LLP as independent auditors of the
Company for the fiscal year ending January 31, 1998;
3. FOR \ \ AGAINST \ \ ABSTAIN \ \ the stockholder proposal; and
4. On such other matters as may properly come before the meeting or at
any adjournments thereof.
(Continued on reverse side)
<PAGE> 21
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, "FOR" THE RATIFICATION OF THE APPOINTMENT OF ERNST & YOUNG LLP,
"AGAINST" THE STOCKHOLDER PROPOSAL, AND IN THE DISCRETION OF THE PROXIES AS TO
ANY OTHER MATTERS PRESENTED AT THE ANNUAL MEETING.
Dated: , 1997
-----------------
-----------------------------
-----------------------------
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
<PAGE> 22
HECHINGER COMPANY
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JUNE 10, 1997
COMMON CLASS B
The undersigned, having received the notice of meeting and Proxy
Statement, hereby appoints W. CLARK McCLELLAND and MARK R. ADAMS, and each of
them, proxies, with full power of substitution, to act for and in the name of
the undersigned to attend the annual meeting of the stockholders of HECHINGER
COMPANY to be held on June 10, 1997, at 9:00 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 Class B
common stock of said Company which the undersigned is entitled to vote, 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, KENNETH J. CORT, JOHN W. HECHINGER, JR.,
S. ROSS HECHINGER, ANN D. JORDAN, W. CLARK McCLELLAND,
ROBERT S. PARKER, MELVIN A. WILMORE, ALAN J. ZAKON
(INSTRUCTIONS: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL
NOMINEE, WRITE THAT NOMINEE'S NAME ON THE SPACE PROVIDED BELOW.)
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2. FOR \ \ AGAINST \ \ ABSTAIN \ \ ratification of the
appointment of Ernst & Young LLP as independent auditors of the
Company for the fiscal year ending January 31, 1998;
3. FOR \ \ AGAINST \ \ ABSTAIN \ \ the stockholder proposal; and
4. On such other matters as may properly come before the meeting or at
any adjournments thereof.
(Continued on reverse side)
<PAGE> 23
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, "FOR" THE RATIFICATION OF THE APPOINTMENT OF ERNST & YOUNG LLP,
"AGAINST" THE STOCKHOLDER PROPOSAL, AND IN THE DISCRETION OF THE PROXIES AS TO
ANY OTHER MATTERS PRESENTED AT THE ANNUAL MEETING.
Dated: , 1997
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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
