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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
SCHEDULE 14A
PROXY STATEMENT
(PURSUANT TO SECTION 14(A) OF THE SECURITIES EXCHANGE ACT OF 1934)
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Filed by the registrant /X/
Filed by a party other than the registrant / /
Check the appropriate box:
/X/ Preliminary proxy statement
/ / Definitive proxy statement
/ / Definitive additional materials
/ / Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
CARTER HAWLEY HALE STORES, INC.
(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
MARC E. BERCOON, ESQ.
SENIOR VICE PRESIDENT, GENERAL COUNSEL AND SECRETARY
CARTER HAWLEY HALE STORES, INC.
3880 NORTH MISSION ROAD
LOS ANGELES, CALIFORNIA 90031
WITH COPIES TO:
ERIC H. SCHUNK, ESQ.
MILBANK, TWEED, HADLEY & MCCLOY
601 SOUTH FIGUEROA STREET
LOS ANGELES, CALIFORNIA 90017
(NAME OF PERSON(S) FILING PROXY STATEMENT)
Payment of filing fee (Check the appropriate box):
/X/ $125 per Exchange Act Rule 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(j)(2).
/ / $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 transactions applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:
(4) Proposed maximum aggregate value of transaction:
/ / 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:
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CARTER HAWLEY HALE STORES, INC.
3880 NORTH MISSION ROAD
LOS ANGELES, CALIFORNIA 90031
------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD AT HOTEL INTERCONTINENTAL
251 SOUTH OLIVE STREET
LOS ANGELES, CALIFORNIA 90012
To the Stockholders:
NOTICE is hereby given that the Annual Meeting of Stockholders (the "Annual
Meeting") of Carter Hawley Hale Stores, Inc. (the "Company") will be held in the
Watercourt Ballroom of Hotel InterContinental on Friday, June 17, 1994 at 10:30
a.m. local time, for the following purposes:
1. To elect ten directors to serve for a term of one year until the next
Annual Meeting of Stockholders and until their respective successors
have been duly elected and qualified;
2. To approve a proposed amendment to the Company's Amended and Restated
Certificate of Incorporation to change the Company's name to Broadway
Stores, Inc.
3. To ratify the appointment of Price Waterhouse as the Company's
independent accountants for the Company's 1994 fiscal year; and
4. To consider and transact such other business as may properly come
before the Annual Meeting or any adjournment thereof.
Holders of the Company's common stock, par value $.01 per share, and series
A exchangeable preferred stock, par value $.01 per share, at the close of
business on April 25, 1994, the record date fixed by the Board of Directors, are
entitled to notice of and to vote at the Annual Meeting. The Company's Board of
Directors urges that all stockholders of record exercise their right to vote at
the meeting personally or by proxy. Accordingly, we are sending you the
following Proxy Statement and the enclosed proxy card.
WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING, PLEASE SPECIFY YOUR
VOTE ON THE ACCOMPANYING PROXY AND SIGN, DATE AND RETURN IT AS PROMPTLY AS
POSSIBLE IN THE ENCLOSED SELF-ADDRESSED, POSTAGE-PAID ENVELOPE.
Your prompt response will be appreciated.
By Order of the Board of Directors
Marc E. Bercoon
Secretary
Los Angeles, California
April 29, 1994
<PAGE>
CARTER HAWLEY HALE STORES, INC.
3880 NORTH MISSION ROAD
LOS ANGELES, CALIFORNIA 90031
PROXY STATEMENT
The accompanying proxy is solicited by the Board of Directors (the "Board")
of Carter Hawley Hale Stores, Inc. (the "Company") to be used at the Annual
Meeting of Stockholders on Friday, June 17, 1994 (the "Annual Meeting") to be
held at 10:30 a.m. local time in the Watercourt Ballroom of the Hotel
InterContinental, Los Angeles. This Proxy Statement, the enclosed form of proxy
and the Annual Report to Stockholders are being sent to stockholders on or about
April 29, 1994.
At the Annual Meeting, stockholders will be asked to consider and vote upon
the following items:
ITEM I: The election of ten directors to serve until the 1995 Annual
Meeting of Stockholders;
ITEM II: A proposed amendment to the Company's Amended and Restated
Certificate of Incorporation to change the Company's name to
Broadway Stores, Inc.
ITEM III: A proposal to ratify the appointment of Price Waterhouse as the
Company's independent public accountants for its 1994 fiscal year.
Any stockholder giving a proxy may revoke it at any time prior to its
exercise at the Annual Meeting by giving notice of such revocation either
personally or in writing to the Secretary of the Company at the Company's
executive offices, by subsequently executing and delivering another proxy or by
voting in person at the Annual Meeting.
The Annual Report to Stockholders that accompanies this Proxy Statement is
not to be regarded as proxy soliciting material.
The Board of the Company believes that election of its director nominees and
approval of Items II and III are in the best interests of the Company and its
stockholders and recommends to the stockholders the approval of each of the
nominees and of Items II and III.
VOTING
Shares represented by duly executed and unrevoked proxies in the enclosed
form received by the Board will be voted at the Annual Meeting in accordance
with the specifications made therein by the stockholders, unless authority to do
so is withheld. If no specification is made, shares represented by duly executed
and unrevoked proxies in the enclosed form will be voted FOR the election as
directors of the nominees listed herein, FOR Items II and III and, with respect
to any other matter that may properly come before the meeting, in the discretion
of the persons voting the respective proxies.
The cost of preparing, assembling and mailing the proxy materials will be
borne by the Company. The Company has retained Chemical Bank to solicit proxies
at an estimated cost of $9000.
Only holders of record at the close of business on April 25, 1994 (the
"Record Date") of the Company's common stock, $.01 par value (the "Common
Stock"), which is listed on the New York Stock Exchange (the "NYSE") under the
symbol "CHH," and the Company's series A exchangeable preferred stock, $.01 par
value (the "Preferred Stock"), which has not been admitted or listed for trading
on any national securities exchange or on any national automated dealer
quotation system, will be entitled to vote at the Annual Meeting, voting
together as a single class. On March 25, 1994, there were 45,608,027 shares of
Common Stock and 857,315 shares of Preferred Stock outstanding. Each share of
Common Stock and each share of Preferred Stock is entitled to one vote on all
matters presented at the Annual Meeting.
VOTE REQUIRED
The election of the director nominees requires a plurality of the votes cast
in person or by proxy at the Annual Meeting. Under Delaware law, the Company's
Amended and Restated Certificate of Incorporation and the Company's By-laws,
shares as to which a stockholder abstains or withholds from voting on the
<PAGE>
election of directors and shares as to which a broker indicates that it does not
have discretionary authority to vote ("Broker Non-Votes") on the election of
directors will not be counted as voting thereon and therefore will not affect
the election of the nominees receiving a plurality of the votes cast.
Approval of the proposal to amend the Company's Amended and Restated
Certificate of Incorporation to change the Company's name to Broadway Stores,
Inc. requires the affirmative vote of a majority of the shares present in person
or represented by proxy at the Annual Meeting and entitled to vote thereat.
Under Delaware law, the Company's Amended and Restated Certificate of
Incorporation and the Company's By-laws, abstentions and Broker Non-Votes on the
proposal to change the Company's name have the same legal effect as a vote
against such proposal.
The stockholders of the Company have no dissenters' or appraisal rights in
connection with any of Items I, II, III.
The Company has been informed that a holder of more than 50% of the shares
entitled to vote, Zell/ Chilmark Fund, L.P., a Delaware limited partnership
("Zell/Chilmark"), intends to vote FOR the election of the directors nominated
by the Board and FOR Items II and III. If Zell/Chilmark does in fact so vote its
shares, the election of such directors and the approval of each of Items II and
III is assured, irrespective of the votes of other stockholders. See "Principal
Stockholders and Management Ownership--Principal Stockholders."
2
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PRINCIPAL STOCKHOLDERS AND MANAGEMENT OWNERSHIP
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information as to those persons known
to the Company to be beneficial owners (as determined in accordance with Rule
13d-3 promulgated under the Securities Exchange Act of 1934, as amended (the
"Exchange Act")) of more than 5% of the outstanding Common Stock and Preferred
Stock as of March 25, 1994. The percentage ownership figures set forth in the
table are calculated on the basis of the number of shares of Common Stock and
Preferred Stock outstanding as of March 25, 1993.
<TABLE>
<CAPTION>
AMOUNT AND
NATURE
OF
TITLE NAME AND ADDRESS BENEFICIAL PERCENT
OF CLASS OF BENEFICIAL OWNER OWNERSHIP OF CLASS
- -------------- ---------------------------------- --------------- ----------------
<S> <C> <C> <C>
Common Stock Zell/Chilmark Fund, L.P. 24,800,866(1) 54.4%
Two North Riverside Plaza, Suite
1500
Chicago, IL 60606
Common Stock Mellon Bank, N.A., as 2,500,000(2) 5.5%
Trustee for
First Plaza Group Trust
One Mellon Center
Pittsburgh, PA 15258
Common Stock FMR Corp. 3,253,069(3) 7.1%
82 Devonshire Street
Boston, MA 02109-3614
Common Stock Trimark Investment Management Inc. 3,068,000(4) 6.7%
One First Canadian Place
Suite 5600, P.O. Box 487
Toronto, Ontario M5X 1E5
Canada
Preferred Bankers Trust Company 581,117(5) 67.8%
Stock One Bankers Trust Plaza
New York, NY 10006
<FN>
- ------------------------
(1) The sole general partner of Zell/Chilmark is ZC Limited Partnership, an
Illinois limited partnership ("ZC Limited"). The sole general partner of
ZC Limited is ZC Partnership, a Delaware general partnership ("ZC"). The
general partners of ZC are ZC, Inc., an Illinois corporation ("ZCI"), and
CZ, Inc., a Delaware corporation ("CZI"). The Samuel Zell Revocable Trust
dated January 17, 1990 (the "SZ Trust") is the sole stockholder of ZCI.
Mr. Samuel Zell is trustee and the beneficiary of the SZ Trust. Mr. David
M. Schulte is the sole stockholder of CZI. One of the limited partners of
ZC Limited is COP General Partnership, an Illinois general partnership
("COP"). One of the general partners of COP is COP Seniors General
Partnership, an Illinois general partnership ("COP Seniors"). One of the
general partners of COP Seniors is Mr. Shkolnik. Messrs. Zell, Schulte and
Shkolnik may each be deemed to share beneficial ownership of the shares
referenced, but each disclaims beneficial ownership of such shares.
(2) Mellon Bank, N.A., acts as the trustee (the "Trustee") of First Plaza
Group Trust ("First Plaza"), a trust under and for the benefit of certain
employee benefit plans of General Motors Corporation ("GM") and its
subsidiaries. First Plaza may be deemed to beneficially own the shares
referenced. Additionally, General Motors Investment Management
Corporation, a Delaware corporation and a wholly-owned subsidiary of GM,
may be deemed to beneficially own these shares because it serves as
investment manager for First Plaza with respect to such shares and has the
power to direct the Trustee as to voting and disposition of such shares.
The Pension Investment Committee of GM may also be deemed to beneficially
own such shares by virtue of its authority to select the investment
manager of such shares.
(3) Fidelity Management & Research Company ("Fidelity"), a wholly-owned
subsidiary of FMR Corp. ("FMR"), is the beneficial owner of 3,123,000
shares or 6.85% of the Company's outstanding Common Stock in its capacity
as investment adviser to several investment companies. Fidelity Management
Trust Company ("FMTC"), a wholly-owned subsidiary of FMR, is the
beneficial owner of 130,069 shares or 0.29% of the Company's outstanding
Common Stock in its capacity as investment
</TABLE>
3
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<TABLE>
<S> <C>
manager of certain institutional accounts. Edward C. Johnson 3d, the
Chairman of FMR, owns 34% of the outstanding voting common stock of FMR.
Certain of Mr. Johnson's family members and related trusts also own shares
of FMR voting common stock (together with Mr. Johnson, the "Johnson
Family"). The Johnson Family, FMR Corp., Fidelity and FMTC may thus be
deemed to have beneficial ownership of all or a portion of the shares
referenced.
(4) Trimark Investment Management Inc. ("TIMI") is the investment manager for,
and sole trustee of, three mutual funds, Trimark Fund, Trimark Select
Growth Fund and Trimark Select Canadian Growth Fund (collectively, the
"Trimark Funds"), each of which is the record owner of a portion of the
referenced shares. As investment manager and sole trustee for the Trimark
Funds, TIMI has sole voting and dispositive power in respect of such
shares and may thus be deemed to be have beneficial ownership of such
shares.
(5) Bankers Trust Company holds these shares in its capacity as the trustee of
the Company's 401(k) Savings and Investment Plan (the "401(k) Plan").
Bankers Trust Company disclaims beneficial ownership of such shares.
</TABLE>
MANAGEMENT OWNERSHIP
The following table indicates the total number of equity securities of the
Company beneficially owned by each of the Company's directors, the Named
Executive Officers, as defined below, director nominees and all directors and
executive officers as a group as of March 25, 1994. Beneficial ownership has
been calculated in accordance with Rule 13d-3 promulgated under the Exchange
Act. Unless otherwise indicated, all shares are owned directly and the owner has
sole voting and investment power with respect thereto.
<TABLE>
<CAPTION>
TITLE NAME OF AMOUNT AND NATURE OF
OF CLASS BENEFICIAL OWNER BENEFICIAL OWNERSHIP PERCENT OF CLASS
- -------------- ----------------------- -------------------- -------------------
<S> <C> <C> <C>
DIRECTORS:
Common Stock David L. Dworkin 666,666(1) *
Common Stock Leobardo F. Estrada 10,000(2) *
Common Stock Sidney R. Petersen 10,825(2)(3) *
Common Stock Terry Savage 11,000(2)(4) *
Common Stock David M. Schulte 24,800,866(5) 54.4%(5)
Common Stock Sanford Shkolnik 24,920,866(6) 54.6%(6)
Common Stock Robert M. Solow 10,000(2) *
Common Stock Dennis C. Stanfill 12,710(2)(7) *
Common Stock James D. Woods 13,000(2) *
Common Stock Samuel Zell 24,800,866(8) 54.4%(8)
NAMED EXECUTIVE OFFICERS:
Common Stock Philip M. Hawley 480,000(9) 1.1%
Common Stock William J. Podany 36,666(10) *
Common Stock Gerald J. Mathews 0 *
Common Stock Patricia A. Warren 0 *
Common Stock Brian L. Fleming 16,185(11) *
Common Stock Edwin J. Holman 17,590(12) *
Common Stock Larry G. Petersen 3,722(13) *
All Directors and
Executive Officers as a
Group (18 persons)
25,729,705(5) 56.4%
(6)(8)(14)
<FN>
- ------------------------
* Less than 1 percent.
(1) In connection with Mr. Dworkin's election to the positions of President
and Chief Executive Officer, on February 18, 1993 the Stock Option
Committee of the Board granted Mr. Dworkin options for 1,000,000 shares of
Common Stock. Under the terms of such grant, options to purchase 333,333
shares of Common Stock became vested on each of March 24, 1993 and March
24, 1994. The 666,666 options are currently exercisable. For a description
of the agreement in principle between Mr. Dworkin and the Company
regarding Mr. Dworkin's employment with the Company, see "Employment and
Change-in-Control Arrangements--Employment Agreement with Mr. Dworkin."
(2) Includes currently exercisable options to purchase 10,000 shares of Common
Stock.
</TABLE>
4
<PAGE>
<TABLE>
<S> <C>
(3) Includes 405 shares of Common Stock and Warrants to purchase 420 shares of
Common Stock, all of which are held by Mr. Petersen and his wife as
trustees for the Petersen Family Trust.
(4) Includes 1,000 shares of Common Stock held by Ms. Savage as trustee for
Terry Savage Productions Limited, Retirement Plan and Trust dated June 1,
1982.
(5) The shares listed for Mr. Schulte are held of record by Zell/Chilmark. Mr.
Schulte may be deemed to share, with others, voting and dispositive power
with respect to the shares owned by Zell/Chilmark. Mr. Schulte disclaims
beneficial ownership of all of such shares. See footnote 1 to the table
under the heading "Principal Stockholders and Management
Ownership--Principal Stockholders."
(6) Includes currently exercisable options to purchase 110,000 shares of
Common Stock plus 10,000 shares of Common Stock owned directly. 24,800,866
of the shares listed for Mr. Shkolnik are held of record by Zell/Chilmark.
The sole general partner of Zell/Chilmark is ZC Limited. One of the
limited partners of ZC Limited is COP. One of the general partners of COP
is COP Seniors. One of the general partners of COP Seniors is Mr.
Shkolnik. Mr. Shkolnik may be deemed to share, with others, voting and
dispositive power with respect to the shares owned by Zell/Chilmark. Mr.
Shkolnik disclaims beneficial ownership of all shares held by
Zell/Chilmark. See footnote 1 to the table under the heading "Principal
Stockholders and Management Ownership--Principal Stockholders."
(7) Includes Warrants to purchase 210 shares of Common Stock.
(8) The shares listed for Mr. Zell are held of record by Zell/Chilmark. Mr.
Zell may be deemed to share, with others, voting and dispositive power
with respect to the shares owned by Zell/Chilmark. Mr. Zell disclaims
beneficial ownership of all of such shares. See footnote 1 to the table
under the heading "Principal Stockholders and Management
Ownership--Principal Stockholders."
(9) Includes currently exercisable options to purchase 480,000 shares of
Common Stock. Mr. Hawley resigned as Chief Executive Officer effective
February 1993 and resigned as director in June 1993.
(10) Includes currently exercisable options to purchase 36,666 shares of Common
Stock.
(11) Includes currently exercisable options to purchase 14,666 shares of Common
Stock and warrants to purchase 361 shares of Common Stock.
(12) Includes currently exercisable options to purchase 11,667 shares of Common
Stock, warrants to purchase 840 shares of Common Stock and 1,855 shares of
Preferred Stock, which shares of Preferred Stock are currently
exchangeable for warrants to purchase 1,855 shares of Common Stock. The
1,855 shares of Preferred Stock owned by Mr. Holman constitute less than
one percent of the shares of Preferred Stock outstanding. Mr. Holman left
the employ of the Company in October 1993.
(13) Includes Warrants to purchase 840 shares of Common Stock and includes
1,055 shares of Preferred Stock, which shares of Preferred Stock are
currently exchangeable for Warrants to purchase 1,055 shares of Common
Stock. Mr. Petersen left the employ of the Company in October 1993. The
1,055 shares of Preferred Stock owned by Mr. Petersen constitute less than
one percent of the shares of Preferred Stock outstanding.
(14) Includes currently exercisable options to purchase 907,997 shares of
Common Stock, Warrants to purchase 630 shares of Common Stock and 859
shares of Preferred Stock, which shares of Preferred Stock are currently
exchangeable for Warrants to purchase 859 shares of Common Stock.
</TABLE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Equity Properties and Development Company ("EP&D"), an affiliate of Equity
Financial and Management Company ("EF&M"), a company that is chaired by Samuel
Zell, the Company's Chairman of the Board, indirectly owns Southland Mall,
located in Hayward, California. The Company operates an Emporium store at
Southland Mall pursuant to a long-term lease with the owner of the mall. The
Company's monthly payments under such lease amount to $50,000. Additionally, the
Company must pay the owner of the mall certain fees to cover common area
maintenance expenses and real estate taxes.
See "Employment and Change-in-Control Arrangements--Employment Agreement
with Mr. Dworkin" for a discussion of the legal fees to be paid to Mr. Dworkin's
brother-in-law in connection with his providing Mr. Dworkin legal advice in
connection with the negotiation of Mr. Dworkin's employment arrangements with
the Company.
NOMINEES FOR ELECTION AS DIRECTORS
The Company's Amended and Restated Certificate of Incorporation and By-laws
require that the number of directors on the Board be not less than three nor
more than twenty-five. The Board currently
5
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consists of the following ten persons: David L. Dworkin, Leobardo F. Estrada,
Sidney R. Petersen, Dennis C. Stanfill, Terry Savage, David M. Schulte, Sanford
Shkolnik, Robert M. Solow, James D. Woods and Samuel Zell. At each annual
meeting of stockholders, the term of each director expires and director nominees
are elected to the Board for terms of one year.
At the Annual Meeting ten directors are to be elected to serve until the
1995 Annual Meeting of Stockholders and until their successors are elected and
qualified. Unless authority to vote for directors is withheld in the proxy card,
it is the intention of the persons named in the enclosed form of proxy to vote
FOR the re-election of David L. Dworkin, Leobardo F. Estrada, Sidney R.
Petersen, Dennis C. Stanfill, Terry Savage, David M. Schulte, Sanford Shkolnik,
Robert M. Solow, James D. Woods and Samuel Zell as directors. The persons
designated as proxies will have discretion to cast votes for other persons in
the event any nominee for director is unable to serve. At present, it is not
anticipated that any nominee will be unable to serve.
DIRECTOR NOMINEES
DAVID L. DWORKIN, 50
Mr. Dworkin has been a director since March 24, 1993. He has been President
and Chief Executive Officer of the Company since March 1993. Mr. Dworkin served
as Chairman and Chief Executive Officer of British Home Stores, a division of
Storehouse PLC, a London, England based retailer, from November 1989 until July
1992, and as Group Chief Executive of the Storehouse PLC from July 1992 until
joining the Company in March of 1993. Mr. Dworkin has in excess of 25 years
experience in the retail industry, including service as President & Chief
Executive Officer of Bonwit Teller from 1988 through 1989, President & Chief
Operating Officer of Neiman Marcus from 1984 through 1988, and Executive Vice
President of Marshall Fields, a division of Dayton-Hudson Corp.
DR. LEOBARDO F. ESTRADA, 48
Dr. Estrada has been a director since 1992. He has been an Associate
Professor at the Graduate School of Architecture and Urban Planning at the
University of California at Los Angeles for more than the past five years.
SIDNEY R. PETERSEN, 63
Mr. Petersen has been a director since 1989. For more than the past five
years, he has been a private investor and consultant. He is the retired Chairman
of the Board and Chief Executive Officer for Getty Oil Company, positions which
he held from 1980 to 1984. He is also a director of Avery Dennison Corporation,
NICOR, Inc., Global Natural Resources, Inc. and Union Bank.
TERRY SAVAGE, 49
Ms. Savage has been a director since 1992. She is a financial analyst and
author. For the past five years, she has been a syndicated columnist for the
Chicago Sun-Times. Additionally, Ms. Savage was a financial and business
reporter for the CBS-owned television station in Chicago, WBBM-TV, from 1982
through 1991. She is also a director of McDonald's Corporation.
DAVID M. SCHULTE, 47
Mr. Schulte has been a director since 1992. He is the sole shareholder of
one of the two partners of the sole general partner of ZC Limited, the sole
general partner of Zell/Chilmark, which owns 54.4% of the Company's outstanding
Common Stock. Since 1984, Mr. Schulte has been managing general partner of
Chilmark Partners, L.P., a merchant banking firm, which currently devotes all of
its time to the affairs of Zell/ Chilmark. Mr. Schulte is a director of Revco
D.S., Inc., Jacor Communications, Inc. and Sealy Corporation.
SANFORD SHKOLNIK, 54
Mr. Shkolnik has been a director since 1992. He served as Vice Chairman of
the Company from October 1992 through March 1993. For more than the past five
years he has been Executive Vice President of EF&M, a company chaired by Mr.
Zell. He is also Chairman of the Board of EP&D, an affiliate of EF&M. Mr.
Shkolnik is an indirect limited partner of ZC Limited, the sole general partner
of Zell/Chilmark.
6
<PAGE>
DR. ROBERT M. SOLOW, 69
Dr. Solow has been a director since 1992. He is Institute Professor at the
Massachusetts Institute of Technology. He is the 1987 recipient of the Nobel
Memorial Prize in Economic Science. In addition to his professorship at M.I.T.,
Dr. Solow serves on the board of directors of Yamaichi Global Funds and is a
member of the Corporate Technology Committee of the Norton Co. He also serves as
a member of the advisory committee of Zell/Chilmark. He is former Chairman of
the Federal Reserve Bank of Boston and a former member and Chairman of General
Motors Science Advisory Committee.
DENNIS C. STANFILL, 66
Mr. Stanfill has been a director since 1987. He was Co-Chairman, Co-Chief
Executive Officer and a director of Metro-Goldwyn-Mayer Inc. from January 1992
until August 1993. From August 1990 to December 1991, he served as Chairman of
the Board and Chief Executive Officer of AME, Inc., a video post-production
company. AME, Inc. is currently the subject of a reorganization petition under
chapter 11 of title 11 of the United States Code filed in the United States
Bankruptcy Court Central District of California on July 22, 1992. Prior to
August 1990, Mr. Stanfill was President of Stanfill, Bowen & Co., Inc., a
private investment and venture capital firm. He is also a director of The Dial
Corporation.
JAMES D. WOODS, 61
Mr. Woods has been a director since 1992. He has served as the Chairman of
the Board of Baker Hughes Incorporated since January 1989 and as President and
Chief Executive Officer of Baker Hughes Incorporated since April 1987. Mr. Woods
is also a Director of Varco International, Inc., Wynn's International, Inc. and
AMAX Inc.
SAMUEL ZELL, 52
Mr. Zell has been a director since 1992 and Chairman of the Board since
March 4, 1993. He is Chairman of the Board of EF&M and Equity Group Investments,
Inc., two privately-owned affiliated investment and management companies. Mr.
Zell is the trustee and beneficiary of a trust that is the sole shareholder of
one of the two partners of the sole general partner of ZC Limited, the sole
general partner of Zell/Chilmark, which holds 54.4% of the Company's outstanding
Common Stock; Chairman of the Board of Itel Corporation; Chairman of the Board,
President and Chief Executive Officer of Great American Management and
Investment, Inc.; Chairman of the Board and Chief Executive Officer of Nucorp,
Inc.; Chairman of the Board of Eagle Industries, Inc.; and Co-Chairman of
Manufactured Home Communities, Inc. Mr. Zell is also a director of Catellus
Development Corporation, The Delta Queen Steamboat Co., Jacor Communications,
Inc., Sealy Corporation and The Vigoro Corporation, and is Co-Chairman of the
Board of Revco D.S., Inc. Prior to October 4, 1991, Mr. Zell was President of
Madison Management Group, Inc., which company filed for protection under chapter
11 of title 11 of the United States Code on November 8, 1991. The case has
subsequently been converted to a proceeding under chapter 7 of such code.
INFORMATION REGARDING THE BOARD OF DIRECTORS
AND ITS COMMITTEES
The Board met 9 times during fiscal 1993. With the exception of James D.
Woods and Robert M. Solow, each current director attended at least 75% of the
total number of meetings of the Board and each of the committees of the Board on
which such director served held during the period for which he or she has been a
director. The Board has standing Executive, Audit, Compensation, Stock Option
and Nominating Committees. The current members of each of the Board's committees
are listed below.
THE EXECUTIVE COMMITTEE
The current members of the Executive Committee are David L. Dworkin, David
M. Schulte, Sanford Shkolnik and Samuel Zell. The Executive Committee did not
meet during fiscal 1993.
The Executive Committee has all of the authority of the Board except the
authority to amend by-laws, fix director compensation, authorize special
distributions to stockholders, fill Board vacancies and act with respect to
certain other limited matters.
7
<PAGE>
THE AUDIT COMMITTEE
The current members of the Audit Committee are David M. Schulte, Sidney R.
Petersen and James D. Woods. During the 1993 fiscal year, the Audit Committee
met 4 times.
The Audit Committee, composed solely of outside directors, meets
periodically with the Company's independent accountants, management and internal
auditors to discuss accounting principles, financial and accounting controls,
the scope of the annual audit, internal control and other matters; advises the
Board on matters related to accounting and auditing; and reviews management's
selection of independent accountants. The independent accountants and the
internal auditors have complete access to the committee without management
present, to discuss results of their audit and their opinions on adequacy of
internal controls, quality of financial reporting, and other accounting and
auditing matters.
THE COMPENSATION COMMITTEE
The current members of the Compensation Committee are Terry Savage, David M.
Schulte, Dr. Robert M. Solow and Dennis C. Stanfill. The Compensation Committee
met 8 times during fiscal 1993.
The Compensation Committee, composed solely of outside directors, reviews
and takes action regarding terms of compensation, employment contracts and
pension matters that concern officers and key employees of the Company.
THE STOCK OPTION COMMITTEE
The current members of the Stock Option Committee are David M. Schulte and
Samuel Zell. The Stock Option Committee met 10 times during the 1993 fiscal
year.
The Stock Option Committee administers the Company's 1992 Stock Incentive
Plan, as amended (the "Amended Plan"), which task includes, among other things,
granting and setting the terms of stock options and stock appreciation rights.
THE NOMINATING COMMITTEE
The current members of the Nominating Committee are Dr. Leobardo F. Estrada
and Samuel Zell. The Nominating Committee did not meet in fiscal 1993.
The Nominating Committee recommends to the Board nominees for Board
membership and makes recommendations as to Board policies concerning the
selection, tenure and qualification of directors.
The Nominating Committee reviews the qualifications of, among others, those
persons recommended for nomination to the Board by stockholders. A stockholder
suggesting a nominee to the Board should send the nominee's name, biographical
material, beneficial ownership of the Company's stock and other relevant
information in writing to the Secretary of the Company in a timely manner as set
forth in the Company's By-laws, accompanied by a consent of such nominee to
serve as a director if elected. Nominees must be willing to devote the time
required to serve effectively as a director and as a member of one or more Board
committees. In order to submit a nomination, a stockholder must be a holder of
record on the date of such submission and on the record date for determining
stockholders entitled to vote at the meeting at which the election will take
place.
8
<PAGE>
COMPENSATION OF EXECUTIVE OFFICERS AND DIRECTORS
SUMMARY OF COMPENSATION
Table I sets forth information concerning the annual and long-term
compensation for services in all capacities to the Company for the fiscal years
1993, 1992 and 1991, of those persons who at any time during fiscal 1993 served
as the chief executive officer, at the end of Fiscal 1993 were the four most
highly compensated executive officers of the Company, and two other
highly-compensated executive officers who were not serving as such at the close
of fiscal 1993 (collectively, the "Named Executive Officers").
TABLE I
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
-----------------------------------------------------------
OTHER
NAME AND ANNUAL ALL OTHER
PRINCIPAL SALARY BONUS COMPENSATION OPTIONS COMPENSATION
POSITION YEAR ($) ($) ($) (#) ($)
<S> <C> <C> <C> <C> <C> <C>
D.L. Dworkin 1993 856,409 0 0 1,000,000 1,477,664(1)
Chairman & CEO 1992 0 0 0 0 0
1991 0 0 0 0 0
W.J. Podany 1993 325,000 0 0 40,000 26,651(2)
EVP, Merchandising 1992 305,208 0 0 110,000 156,836
1991 0 0 0 0 0
G.J. Mathews 1993 243,748 0 0 150,000 154,264(3)
EVP, Stores 1992 0 0 0 0 0
1991 0 0 0 0 0
P.A. Warren 1993 224,166 0 0 150,000 186,373(4)
EVP, Merchandising 1992 0 0 0 0 0
1991 0 0 0 0 0
B.L. Fleming 1993 275,000 0 0 0 2,297(5)
SVP, Accounting & 1992 272,356 0 0 44,000 9,006
Taxes 1991 250,000 0 0 0 2,175
FORMER EXECUTIVE OFFICERS
P.M. Hawley 1993 0 0 126,438(6) 0 0
Former Chairman & 1992 787,500(7) 0 0 480,000 1,750,960(8)
Chief 1991 750,000 0 0 0 7,429
Executive Officer
E.J. Holman 1993 466,667 7,088(9) 0 170,000 6,960(10)
Former Vice Chairman 1992 393,750 0 0 130,000 6,682
& COO 1991 350,000 0 0 0 6,139
L.G. Petersen 1993 350,000 5,982(11) 241(12) 0 5,846(13)
Former EVP-CFO 1992 337,500 0 568 110,000 5,846
1993 250,000 0 76 0 4,475
<FN>
- ------------------------
(1) Includes a $1,000,000 sign-on bonus, a $375,000 bonus to compensate Mr.
Dworkin for the loss of his bonus from his prior employment, $97,444 as
compensation for relocation costs and $5,220 as the imputed value of life
insurance benefits.
</TABLE>
9
<PAGE>
<TABLE>
<S> <C>
(2) The amount shown for 1993 includes $21,222 as compensation for relocation
costs and $5,428 as the imputed value of life insurance benefits. The
amount shown for 1992 includes a $75,000 sign-on bonus, $76,860 as
compensation for relocation costs and $4,976 as imputed value of life
insurance benefits.
(3) Includes a $38,301 sign-on bonus, $115,963 as compensation for relocation
costs and $1,891 as the imputed value of life insurance benefits.
(4) Includes a $104,044 sign-on bonus, $79,313 as compensation for relocation
costs and $3,016 as the imputed value of life insurance benefits.
(5) The amounts shown for 1993 and 1991 include $2,297 and $2,175,
respectively, as the imputed value of life insurance benefits. The amount
shown for 1992 includes $6,743 as the value of new stock and warrants from
1987 restricted stock grant and $2,263 as the imputed value of life
insurance benefits. Mr. Fleming left the employ of the Company on April 1,
1994.
(6) In connection with an agreement entered into in October 1992 regarding his
cessation of activities as Chief Executive Officer, Mr. Hawley agreed to
retire as Chief Executive Officer as of December 31, 1992 and the Company
agreed to pay him $2 million in full satisfaction of, among other things,
the remaining term of his employment agreement. Pursuant to such
agreement, the Company also agreed (i) to provide Mr. Hawley with office
space and secretarial and ancillary office services in the Los Angeles
area until December 31, 1994, and (ii) to reimburse Mr. Hawley for certain
business expenses incurred by him. Mr. Hawley and the Company entered into
an agreement dated as of December 31, 1992 under which Mr. Hawley agreed
to continue to serve as Chairman of the Board for an undetermined period
of time after his cessation of activities as Chief Executive Officer and
agreed to provide certain consulting services to the Company. This
agreement obligated the Company to make six quarterly payments of
consulting fees to Mr. Hawley in the amount of $41,666 each. The amount
shown for 1993 reflects the payment of $83,332 in consulting fees and
$37,690 in expenses related to the provision to Mr. Hawley of office space
and secretarial and ancillary office services.
(7) The $2 million payment to Mr. Hawley referred to in note 6 above has been
allocated in this table between the Salary column and All Other
Compensation column. The amount shown in the Salary column reflects the
aggregate salary Mr. Hawley earned at the rate provided under his
employment agreement from the beginning of the 1992 fiscal year through
October 15, 1992, plus that portion of the $2 million payment attributable
to Mr. Hawley's agreeing to continue to serve as Chief Executive Officer
from October 15, 1992 through his retirement date. Subsequent to entering
into the October agreement referred to above, Mr. Hawley agreed to
continue to perform the functions of Chief Executive Officer through the
end of the Company's fiscal year.
(8) Of the figure shown for 1992, $1,744,000 reflects the portion of the
$2,000,000 payment received by Mr. Hawley in connection with his
retirement that was not allocated to salary for fiscal 1992 as described
in footnote 7. Of the figures shown for all three years, $6,960 reflects
payments made by the Company on behalf of Mr. Hawley for life insurance
benefits. $469 and $2,047 of the amounts shown for 1991 and 1990,
respectively, reflect registrant contributions to the 401(k) Plan.
(9) 1992 Annual Incentive Plan Award paid in April 1993.
(10) Includes $6,960 and $6,682 as the imputed value of life insurance benefits
for 1993 and 1992, respectively.
(11) 1992 Annual Incentive Plan Award paid in April 1993.
(12) Preferential earnings on deferred compensation based at rate of 10.16%
(20% above Basic Rate of 7.16%).
(13) Includes $5,846 and as the imputed value of life insurance benefits for
1993 and 1992. The amount shown for 1991 includes $4,475 as the imputed
value of life insurance benefits and a $313 contribution to Mr. Petersen's
account under the 401(k) Plan.
</TABLE>
OPTION GRANTS IN LAST FISCAL YEAR
Table II presents information regarding stock option grants made during
fiscal 1993 to each of the Named Executive Officers pursuant to the Amended
Plan. No Stock Appreciation Rights ("SARs") were granted to any Named Executive
Officer in fiscal 1993.
10
<PAGE>
TABLE II
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS VALUE AT ASSUMED ANNUAL
------------------------------------------------------- RATE OF STOCK PRICE
PERCENT OF TOTAL APPRECIATION FOR
OPTIONS/ OPTIONS/SARS EXERCISE OPTION TERM
SARS GRANTED TO OR BASE -----------------------
GRANTED EMPLOYEES IN PRICE EXPIRATION 5% 10%
NAME (#) FISCAL YEAR (%) ($/SHARE) DATE ($) ($)
<S> <C> <C> <C> <C> <C> <C>
D.L. Dworkin 1,000,000 32.289 10.220 02/18/03 6,427,000 16,288,000
G.J. Matthews 110,000 3.552 12.875 05/04/03 890,672 2,257,138
G.J. Matthews 40,000 1.292 13.750 11/09/03 345,892 892,558
W.J. Podany 40,000 1.292 13.375 11/09/03 336,440 852,640
P.A. Warren 110,000 3.552 13.750 07/01/03 951,170 2,410,540
P.A. Warren 40,000 1.292 13.375 11/09/03 336,440 852,640
FORMER EXECUTIVE OFFICERS
E.J. Holman(1) 170,000 5.489 % $ 11.500 04/01/03 1,229,490 3,115,767
<FN>
- ------------------------
(1) Mr. Holman left the employ of the Company on October 22, 1993. At that
time, he had 43,333 options that were exercisable until October 21, 1994;
all of his unexercisable options were cancelled. As of fiscal year-end, he
had 11,667 options that were exercisable.
</TABLE>
OPTION EXERCISES AND YEAR-END VALUES
Table III sets forth information regarding unexercised stock options held by
each of the Named Executive Officers. The only Named Executive Officers to have
exercised any stock options during fiscal 1993 were Messrs. Holman and Petersen,
as set forth below.
11
<PAGE>
TABLE III
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
VALUE OF
UNEXERCISED
NUMBER OF IN-THE-MONEY
UNEXERCISED OPTIONS
OPTIONS AT FY-END
SHARES ACQUIRED VALUE AT FY-END ----------------------------
ON EXERCISE REALIZED ----------------------------- EXERCISABLE UNEXERCISABLE
NAME (#) ($) EXERCISABLE UNEXERCISABLE ($) ($)
<S> <C> <C> <C> <C> <C> <C>
D.L. Dworkin 0 0 333,333 666,667 0 0
W.J. Podany 0 0 36,667 113,333 0 0
G.J. Mathews 0 0 0 150,000 0 0
P.A. Warren 0 0 0 150,000 0 0
B.L. Fleming 0 0 14,667 29,333 0 0
FORMER EXECUTIVE OFFICERS
P.M. Hawley 0 0 480,000 4,800 0 0
E.J. Holman 31,666 $127,822.23 11,667(1) 0 0 0
L.G. Petersen 36,667 $138,959.76 0 0 0 0
<FN>
- ------------------------
(1) These options will expire on October 21, 1994.
</TABLE>
PENSION AND SUPPLEMENTAL EXECUTIVE RETIREMENT PLANS
All employees, other than employees covered by pension plans of applicable
labor unions, are eligible to participate in the Company's pension plan (the
"Pension Plan"). As of March 25, 1994, approximately 16,500 employees were
eligible to participate. The Company makes contributions to the Pension Plan
based upon the funding requirements of the Employee Retirement Income Security
Act of 1974, as amended. Such contributions are held by Bankers Trust Company,
which acts as trustee of the Pension Plan.
Benefits under the Pension Plan are based on a percentage of each
participant's yearly total of salary and bonus (collectively, "earnings"). In
general, every year, each participant earns a "Benefit" that equals 1% of such
participant's total earnings plus an additional 1/2% of such participant's
earnings that exceed the social security wage base. Benefits are added yearly
and become fully vested after five years of service. In general, upon a
participant's retirement at or after age 65, such participant shall be entitled
to receive monthly payments under the Pension Plan. Such monthly payments are
calculated on a straight life annuity basis and shall equal 1/12th of the
aggregate of all Benefits earned during employment. Participants who retire
after attaining age 55 but before attaining age 65 and after having accumulated
15 years of service with the Company shall be entitled to reduced payments under
the Pension Plan if they elect to receive such payments before age 65.
Table IV sets forth total benefits payable to executive employees, including
the Named Executive Officers, who participate in the Company's Supplemental
Executive Retirement Plan (the "SERP"). Amounts shown represent the aggregate
amounts to which such employees are entitled under both the Pension Plan and the
SERP, but do not reflect the deduction of 50% of social security benefits that
such employees will receive on retirement. Benefits are reduced if payments
begin prior to age 62.
12
<PAGE>
TABLE IV
PENSION PLAN TABLE
<TABLE>
<CAPTION>
AVERAGE YEARS OF SERVICE
ANNUAL COMPENSATION* 15 20 25 30
<S> <C> <C> <C> <C>
$ 100,000............................ $ 22,500 $ 30,000 $ 37,500 $ 45,000
$ 200,000............................ $ 45,000 $ 60,000 $ 75,000 $ 90,000
$ 300,000............................ $ 67,500 $ 90,000 $ 112,500 $ 135,000
$ 400,000............................ $ 90,000 $ 120,000 $ 150,000 $ 180,000
$ 500,000............................ $ 112,500 $ 150,000 $ 187,500 $ 225,000
$ 600,000............................ $ 135,000 $ 180,000 $ 225,000 $ 270,000
$ 700,000............................ $ 157,500 $ 210,000 $ 262,500 $ 315,000
$ 800,000............................ $ 180,000 $ 240,000 $ 300,000 $ 360,000
$ 900,000............................ $ 202,500 $ 270,000 $ 337,500 $ 405,000
$1,000,000........................... $ 225,000 $ 300,000 $ 375,000 $ 450,000
$1,100,000........................... $ 247,500 $ 330,000 $ 412,500 $ 495,000
$1,200,000........................... $ 270,000 $ 360,000 $ 450,000 $ 540,000
<FN>
- ------------------------------
* Annual compensation consists of all amounts received under the categories
salary and bonus as shown in Table I.
</TABLE>
Employees whose annual base salary is $100,000 or more, or certain employees
who had achieved SERP eligibility prior to the Company's reorganization, may
also participate in the SERP. The threshold annual base salary rate is indexed
and adjusted annually to the rate of increase in the social security wage base.
The SERP presently covers approximately 150 executive employees. SERP benefits
are based on a percentage of average earnings for the five highest of the final
ten years' employment, less 50% of age 65 social security benefits and less
Benefits paid under the Pension Plan and certain supplemental amounts which may
be payable under certain individual employment contracts. Benefits generally are
computed on a straight life annuity basis. However, certain executives have
individual employment contracts that provide for supplemental payments, the
benefits of which are computed on a life annuity basis with a two-thirds benefit
to a surviving spouse. Except in the case of certain executives with special
provisions in their employment agreements, participants are entitled to receive
SERP benefits only upon (i) attaining age 55 and having accumulated 15 years of
service with the Company or (ii) attaining age 65 and having accumulated five
years of service with the Company.
Messrs. Dworkin, Podany, Mathews and Fleming and Ms. Warren, respectively,
have 1, 2.1, 0.9, 20 and 0.8 years of credited service under the Pension Plan
and the SERP.
COMPENSATION OF DIRECTORS
Directors who are not employees of the Company receive an annual retainer of
$22,000 plus $750 for each Board or committee meeting attended. Directors are
also eligible to receive stock option grants under the Amended Plan.
Non-employee directors who do not have any vested interest in the SERP or
the Pension Plan may receive benefits under the Company's Retirement Plan for
Non-Employee Directors. Under such plan, upon retirement, each eligible director
shall receive monthly payments equal to 1/12 of the annual retainer in effect at
the time of retirement. Such payments shall continue for a period of months
equal to the number of months the director receiving the payments served, but
shall cease upon such director's death. To be eligible for benefits under this
plan, a director must have served for a minimum of 36 months. Notwithstanding
the foregoing, if a director retires on or after attainment of age 72, such
director shall receive retirement payments for a minimum period of 60 months or
until death. No director who is terminated for cause shall be entitled to any
benefits under this plan.
EMPLOYMENT AND CHANGE-IN-CONTROL ARRANGEMENTS AND CERTAIN TRANSACTIONS
EMPLOYMENT AGREEMENT WITH MR. DWORKIN. As of March 24, 1993, the Company
entered into an agreement with David L. Dworkin whereby Mr. Dworkin has agreed
to serve as the Company's President and Chief Executive Officer for a term of
three years. He received a $1,000,000 bonus upon commencing his duties as Chief
Executive Officer on March 24, 1993. Under such agreement Mr. Dworkin receives
an annual
13
<PAGE>
base salary of $1,000,000 and a guaranteed bonus of at least $400,000 payable in
April 1994 and at least $300,000 payable in April 1995. Upon commencing his
duties as Chief Executive Officer. Mr. Dworkin also received $375,000 as
compensation for the loss of his bonus from his prior employer plus relocation
and interim housing expenses associated with his moving from London to Southern
California, which expenses were paid for in such a manner that Mr. Dworkin was
not attributed any taxable income or paid as taxable income to Mr. Dworkin in a
sufficient gross amount such that after payment of applicable taxes Mr. Dworkin
will have been reimbursed for all appropriate expenses associated with
relocation. Mr. Dworkin was also afforded an opportunity to invest $250,000 in
Zell/Chilmark on the same terms as its general partners at any time on or before
August 15, 1993. He did not make such an investment.
Additionally, the Company paid the legal fees incurred by Mr. Dworkin in
connection with Mr. Dworkin's severance of his employment arrangement with his
prior employer, British Home Stores, and with the negotiations regarding his
employment arrangement with the Company. Mr. Dworkin's brother-in-law acted as
Mr. Dworkin's attorney with respect to these transactions. The legal fees of Mr.
Dworkin's brother-in-law for serving as such were $150,000.
Such agreement also provided for the granting to Mr. Dworkin of options to
purchase 1,000,000 shares of Common Stock under the Amended Plan. On February
18, 1993, the Stock Option Committee granted Mr. Dworkin nonqualified stock
options to purchase 1,000,000 shares of Common Stock. Options with respect to
333,333 shares of Common Stock became vested on each of March 24, 1993 and March
24, 1994, respectively. The remaining 333,334 options will vest on March 24,
1995. The exercise price of all options granted is $10.22 per share. In addition
to the terms provided in the Amended Plan, in the event that Mr. Dworkin is
involuntarily terminated or there occurs a "change-in-control," as defined
below, all of Mr. Dworkin's options will become immediately exercisable. For
purposes of the immediately preceding sentence, a "change-in-control" occurs if
(i) the nominees or designees of Zell/Chilmark cease to compose a majority of
the Board, (ii) certain changes in the Company's senior management occur, (iii)
Zell/Chilmark ceases to own 36% of the outstanding shares of the Company's
voting stock, or (iv) the Company ceases to own all of the outstanding shares of
CHH Receivables, Inc., a Delaware corporation and a wholly-owned subsidiary of
the Company. Mr. Dworkin will have 90 days to exercise the options that vest as
a result of his involuntary termination or any of the events described in
clauses (i) through (iv) above.
Because Mr. Dworkin has served as President and Chief Executive Officer of
the Company for at least one year, pursuant to his contract, upon retirement he
will be guaranteed benefits under the SERP, as defined below. The amount to
which he will be entitled will be determined based on the number of years that
he serves. If he is involuntarily terminated or if there occurs a
change-in-control as defined in the preceding paragraph, he will receive two
years' salary as a termination benefit. The Company's obligations under Mr.
Dworkin's agreement are guaranteed by Zell/Chilmark.
EMPLOYMENT AND TERMINATION AGREEMENTS WITH NAMED EXECUTIVE OFFICERS. Each
of the Named Executive Officers has entered into employment agreements with the
Company.
William J. Podany and Brian L. Fleming are parties to agreements with the
Company providing for three-year terms of employment that commenced July 21,
1992. Their annual base salaries are $325,000 and $275,000, respectively. Gerald
J. Mathews and Patricia A. Warren are parties to agreements with the Company
providing for three-year terms of employment that commenced on May 3, 1993 and
May 24, 1993, respectively. Their annual base salaries are $325,000. Mr.
Mathews' contract provided for a net after tax signing bonus of $25,000.
Prior to his retirement as Chairman of the Board and Chief Executive
Officer, Philip M. Hawley was party to an Assumption & Amendment to Employment
Agreement (the "Assumption Agreement") under which he was to serve as Chief
Executive Officer until July 20, 1995. Under the Assumption Agreement, Mr.
Hawley's annual base salary was $750,000. The Assumption Agreement was
terminated by this agreement upon Mr. Hawley's retirement on December 31, 1992.
See footnotes 6, 7 and 8 to Table I.
Edwin J. Holman, the Company's former Vice Chairman and Chief Operating
Officer, was party to an agreement with the Company providing for a three-year
term of employment that commenced July 21, 1992.
14
<PAGE>
As of April 1, 1993, his annual base salary was increased from $400,000 to
$480,000. Mr. Holman's employment agreement guaranteed him receipt of SERP
retirement benefits if he was terminated without cause. Larry G. Petersen, the
Company's former Executive Vice President and Chief Financial Officer, was party
to an employment agreement with the Company that provided for a three-year term
of employment that commenced July 21, 1992. Under this agreement, Mr. Petersen's
base salary was $350,000. Messrs. Holman and Petersen left the Company in
October 1993. Pursuant to the terms of their employment agreements, the Company
will continue to pay base salaries to Messrs. Holman and Petersen through the
term of such agreements to the extent they do not receive compensation for
services from other sources.
CHANGE-IN-CONTROL ARRANGEMENTS. The Amended Plan enables the Company to
grant stock options and SARs to certain key employees, officers, directors and
consultants. Under the Amended Plan, upon the occurrence of a "Change of
Control," as defined therein, all outstanding options shall become immediately
exercisable except as otherwise provided in any option holder's "Award
Agreement," as defined in the Amended Plan, with respect to such holder's
options. See "Employment Agreement with Mr. Dworkin" for a discussion of
change-in-control arrangements between Mr. Dworkin and the Company.
CERTAIN TRANSACTIONS. In January 1994, the Company extended a three-year
loan in the principal amount of $100,000 to Robert J. Lambert, Executive Vice
President, Human Resources, to assist Mr. Lambert in the purchase of a home in
the Southern California area. So long as Mr. Lambert remains employed by the
Company, the loan does not bear interest (on a net tax free basis to Mr.
Lambert) and the principal amount of the loan is forgiven based on daily
amortization over its three-year term. In the event Mr. Lambert voluntarily
leaves the Company or is terminated with cause, the remaining principal balance
of the loan will begin to accrue interest at the prime rate as published in the
Wall Street Journal and such remaining principal will become due and payable in
30 days. In the event Mr. Lambert is terminated without cause, the remaining
principal balance of the loan on the date of such termination will be forgiven.
REPORT ON REPRICING OF OPTIONS/SARS
On July 1, 1993, the Stock Option Committee cancelled options that had
previously been granted to certain associates and executive officers with
exercise prices of ranging from $15.625 to $16.125 per share (representing the
market price of the Common Stock on the date such options were initially
granted), and granted an identical number of new options with identical terms
and vesting periods (the "New Options") to these persons with an exercise price
of $13.75, the offering price per share of Common Stock offered to the public in
the Company's equity offering that was completed in July 1993 (the "Equity
Offering"). On July 1, 1993, the last reported sale price per share of the
Common Stock, as reported on the NYSE, was $13.75.
The Stock Option Committee took this action so that these key associates and
executive officers would have options at a price that was in line with that paid
by purchasers in the Equity Offering. The original option grants to these
individuals occurred in the period from late May through June, 1993, during
which time the price of the Company's Common Stock temporarily surged near its
52-week high. Because stock options are priced at or above the prevailing
trading price of the Common Stock on the grant date, the exercise prices of the
options granted to these individuals were relatively high. Because the Stock
Option Committee believed that the relatively high-priced options would not
provide the intended incentives to these individuals, the committee decided to
replace those options with options that had an exercise price equal to the price
per share in the Equity Offering. The following table summarizes all repricings
of options or SARs held by any executive officer of the Company during the last
ten fiscal years.
15
<PAGE>
TABLE V
TEN-YEAR OPTION/SAR REPRICINGS
<TABLE>
<CAPTION>
NUMBER OF LENGTH OF
SECURITIES MARKET PRICE EXERCISE ORIGINAL
UNDERLYING OF STOCK AT PRICE AT OPTION TERM
OPTIONS/SARS TIME OF TIME OF NEW REMAINING AT
REPRICED REPRICING OR REPRICING OR EXERCISE DATE OF
OR AMENDED AMENDMENT AMENDMENT PRICE REPRICING OR
NAME DATE (#) ($) ($) ($) AMENDMENT
<S> <C> <C> <C> <C> <C> <C>
E. Garofolo July 1, 1993 110,000 13.75 15.625 13.75 2.9 years
EVP, Marketing & Sales
Promotion
P. Warren July 1, 1993 110,000 13.75 15.625 13.75 2.9 years
EVP, Merchandising, Women's
Apparel
T. Brockdorf July 1, 1993 10,000 13.75 16.125 13.75 2.98 years
VP, Marketing & Sales
Promotion, Finance
L. Mattes July 1, 1993 10,000 13.75 16.125 13.75 2.98 years
VP, Advertising
Administration
J. Zimmerman July 1, 1993 10,000 13.75 16.125 13.75 2.98 years
DMM, Accessories
T. Foster July 1, 1993 7,000 13.75 16.125 13.75 2.98 years
DMM, Electronics
V. Singler July 1, 1993 7,000 13.75 16.125 13.75 2.98 years
DMM, Special Sizes
J. Castro July 1, 1993 4,000 13.75 16.125 13.75 2.98 years
St. Mgr., Mountain View
H. Langer July 1, 1993 4,000 13.75 16.125 13.75 2.98 years
St. Mgr., Tanforan
</TABLE>
<TABLE>
<CAPTION>
STOCK OPTION COMMITTEE
OF THE BOARD OF DIRECTORS
- ---------------------------------------------
<S> <C>
Samuel Zell (Chairman)
David M. Schulte
</TABLE>
REPORT OF THE COMPENSATION COMMITTEE
AND THE STOCK OPTION COMMITTEE
The Compensation Committee is responsible for setting the terms of and
reviewing the compensation of the Company's officers and key employees. The
Stock Option Committee is responsible for administering the Amended Plan, which
plays an important role in the compensation of the Company's key employees. The
Compensation Committee and the Stock Option Committee are collectively referred
to herein as the "Committees."
COMPENSATION OF MR. DWORKIN
In March of 1993, Mr. Dworkin assumed the position of Chief Executive
Officer of the Company pursuant to an agreement under which Mr. Dworkin received
a $1,000,000 signing bonus, $375,000 as compensation for the loss of his bonus
from his prior employer, an annual base salary of $1,000,000 for a term of three
years, guaranteed bonuses of at least $400,000 payable in April 1994 and
$300,000 payable in April 1995 and other benefits. In addition, Mr. Dworkin was
granted options to purchase 1,000,000 shares of Common Stock. See "Employment
and Change-in-Control Arrangements Employment Agreement with Mr. Dworkin." The
Compensation Committee believes that this compensation package was necessary (i)
to provide Mr. Dworkin with a sufficiently attractive compensation package
compared to those available to him including that available to him at his
previous position at Storehouse PLC, and (ii) to provide him with
16
<PAGE>
significant incentives to improve the Company's performance. The three-year
term, salary level and other benefits are commensurate with the Compensation
Committee's belief that Mr. Dworkin, who has a proven record with retail firms
undergoing reorganization, will be a strong leader.
CURRENT COMPENSATION PHILOSOPHY
The attraction and retention of highly competent and motivated executives is
an important objective of the Company's compensation practices. The Committees
believe they can achieve this goal by providing top employees with competitive
salaries, offering bonuses to reward the achievement of Company goals, such as
specified earnings levels, and providing long-term incentives through stock
options, which give executives an opportunity to share in the Company's success
as reflected by increases in its stock price.
BASE SALARY AND BONUS. The Compensation Committee plays a significant role
with respect to officers' compensation by setting the bonuses of the Company's
officers. In the upcoming year, the Compensation Committee will award such
bonuses based on the Company's success. One measure of the Company's success
will be management's ability to achieve specified earnings levels. The
Compensation Committee has commissioned Management to make recommendations to
refine a new annual incentive plan. Management has retained an independent
consultant to assist the Company in this process. Throughout the coming year the
Compensation Committee will additionally focus on setting the terms of
compensation for new top level employees. In determining competitive salaries
for such individuals, the Compensation Committee will compare the salaries
offered by the Company to those provided by other entities competing for
similarly-skilled executives. In the past when setting executive compensation,
the Company has looked to the Hay Retail Industry Senior Executive Total
Remuneration Survey, a report that compares various compensation components for
participating retail companies. The Hay survey or an equivalent survey is
expected to be a continued reference for the Compensation Committee.
In light of the fact that the Company emerged from its Bankruptcy proceeding
in October 1992, the Committee has found it necessary to deviate from some of
its philosophy on compensation in order to attract the key executives Mr.
Dworkin feels are necessary to lead the Company back to profitability.
Accordingly, in certain cases, signing bonuses were granted to attract
executives who would be foregoing a bonus at their previous job or, in some
cases, to compensate the executive for the relatively high cost of housing in
the Los Angeles area. Management has advised the Committee that, except for the
position of Chief Financial Officer, most all of these positions have now been
filled.
INCENTIVE COMPENSATION. The Amended Plan provides an incentive for key
employees, directors and consultants of the Company to increase stockholder
value by aligning their own interests with those of the Company's stockholders.
Because the exercise price of stock options granted under the Amended Plan may
not be set at less than market value, participants will not realize value on
such options unless the Company's stock price increases. Under the Amended Plan,
the Stock Option Committee determines who shall be granted options and sets the
terms of option grants. The Stock Option Committee intends to make future grants
to those employees who make or who because of their positions are expected to
make material contributions to the Company's success and demonstrate effective
management skills. Accordingly, future grants to key employees are expected to
be in similar ranges for new hires of similar status.
PHILOSOPHY ON THE DEDUCTIBILITY OF COMPENSATION
The Compensation Committee designs its compensation arrangements to provide
competitive levels of compensation that align compensation with the Company's
annual and long-term performance goals, reward strong performance, recognize
individual achievement and assist the Company in attracting and retaining
qualified executives, and in this way, achieve the best returns for the
Company's stockholders.
Under tax legislation enacted during 1993, beginning in 1994, the amount of
compensation paid to or accrued for the Chief Executive Officer and the four
other most highly compensated Executive Officers which may be deductible by the
Company for federal income tax purposes is limited to $1,000,000 per person per
year, except that compensation which is performance-based will be excluded for
purposes of calculating the amount of deductible compensation. The Internal
Revenue Service has proposed regulations to implement this legislation, but they
have not been finalized.
17
<PAGE>
As stated above, the Compensation Committee designs its compensation
arrangements to achieve various objectives and, to the extent these objectives
can be achieved in a manner which maximizes the deductibility of compensation
paid by the Company, it will seek to do so.
The Compensation Committee will continue to strive to achieve its
compensation objectives in a manner which causes the incentive compensation paid
to the Company's executive officers to be fully deductible and will consider
possible changes to the Company's compensation policies when final regulations
are issued.
<TABLE>
<CAPTION>
STOCK OPTION COMMITTEE
COMPENSATION COMMITTEE OF THE BOARD OF
OF THE BOARD OF DIRECTORS DIRECTORS
- --------------------------- -----------------------
<S> <C>
David M. Schulte (Chairman) Samuel Zell (Chairman)
Terry Savage David M. Schulte
Robert M. Solow
Dennis C Stanfill
</TABLE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Stock Option Committee administers the Amended Plan. The members of the
Stock Option Committee are David Schulte and Samuel Zell.
Mr. Schulte is the sole shareholder of one of two partners of the sole
general partner of ZC Limited, the sole general partner of Zell/Chilmark, which
currently owns 24,800,866 shares of Common Stock, or 54.4% of the shares of
Common Stock outstanding.
Mr. Zell is the trustee and beneficiary of a trust that is the sole
shareholder of one of two partners of the sole general partner of ZC Limited,
the sole general partner of Zell/Chilmark, which currently owns 24,800,866
shares of Common Stock, or 54.4% of the shares of Common Stock outstanding.
STOCK PERFORMANCE GRAPH
The graph below compares the cumulative total shareholder return of the
Company, based on share price (the Company did not grant any dividends during
the period shown), with the cumulative total return of the Standard & Poor's 500
Stock Index and the cumulative total return of the Standard & Poor's Retail
Stores Composite Index. Except as set forth in the next sentence, the graph
assumes $100 invested on July 31, 1988 in the Company's Old Common Stock (as
defined below) and each of the other indices. Because of the change in the
Company's capital structure upon emergence from bankruptcy on October 8, 1992
(the "Effective Date"), for periods subsequent to the Effective Date the graph
assumes $100 invested on the Effective Date in the Company's Common Stock and
each of the other indices. Effective as of the Effective Date and pursuant to
the Reorganization Plan, holders of the Company's common stock, par value $.01
per share, outstanding prior to the effectiveness of the Reorganization Plan
(the "Old Common Stock") received .081 shares of Common Stock in exchange for
each share of Old Common Stock. Additionally, certain unsecured creditors of the
Company received .046 shares of Common Stock for each $1.00 of allowed claims
against the Company.
18
<PAGE>
COMPARISON OF CUMULATIVE TOTAL RETURN
CARTER HAWLEY HALE STORES, INC., S&P 500 INDEX, AND S&P RETAIL STORES COMPOSITE
INDEXED / CUMULATIVE RETURNS
<TABLE>
<CAPTION>
BASE
PERIOD RETURN RETURN RETURN RETURN RETURN
COMPANY / INDEX NAME JULY 1988 JULY 1989 JULY 1990 JAN. 1991 JAN. 1992 SEP. 1992
- ----------------------------------------------- ------------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
CARTER HAWLEY HALE STORES 100 140.74 51.85 29.63 17.28 12.35
RETAIL STORES-COMPOSITE 100 139.25 153.95 153.70 214.76 230.61
S&P 500 INDEX 100 131.93 140.51 138.25 169.63 177.10
</TABLE>
<TABLE>
<CAPTION>
BASE
PERIOD RETURN RETURN
COMPANY / INDEX NAME OCT. 9, 1992 JAN. 1993 JAN. 1994
- -------------------------------------------- --------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
CARTER HAWLEY HALE STORES 100 151.92 150.00
RETAIL STORES-COMPOSITE 100 114.15 110.02
S&P 500 INDEX 100 109.73 123.86
</TABLE>
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Section 16(a) of the Exchange Act requires the Company's directors, officers
and persons who own more than 10% of the Common Stock to file reports of
ownership and changes in ownership of such equity securities with the Securities
and Exchange Commission ("SEC") and NYSE. Directors, officers and greater than
10% stockholders are required by SEC regulations to furnish the Company with
copies of all Section 16(a) forms they file. The following information is based
solely upon a review of copies of such Forms 3, 4 and 5 that have been furnished
to the Company, or, in the case of Forms 5, written representations that no
Forms 5 were required.
The Company believes that the following current officers of the Company
failed to file a Form 3 in connection with their becoming executive officers of
the Company within the meaning of Section 16 of the Securities Exchange Act of
1934, as amended, within the time period required: (i) Mr. Gerald J. Mathews,
Executive Vice President, Stores, filed a Form 3 on January 31, 1994, although
such form was due on May 13, 1993, (ii) Ms. Elayne M. Garofolo, Executive Vice
President, Marketing and Sales Promotion, filed a Form 3 on January 31, 1994,
although such form was due on June 4, 1993, (iii) Ms. Patricia A. Warren,
Executive Vice President, Merchandising, Women's Apparel, filed a Form 3 on
January 31, 1994, although such form was due on June 4, 1993, (iv) Mr. William
J. Podany, Executive Vice President, Merchandising, Home, Men's and Cosmetics,
filed a Form 3 on January 31, 1994, although such form was due on April 10,
1993, (v) Mr. Robert J. Lambert, Executive Vice President, Human Resources,
filed a Form 3 on February 1, 1994, although such form was due on January 13,
1993, and (vi) Mr. Robert M. Menar, Executive Vice President, Logistics and
Information Services, filed a Form 3 on January 31, 1994, although such form was
due on November 11, 1993. The Company believes that the following officers of
the Company failed to file a Form 5 with respect to a grants of options to
purchase Common Stock: (i) Mr. Brian L. Fleming, Senior Vice President,
Accounting and Taxes, failed to file a Form 5 with respect to a grant made on
October 8, 1992 of options to purchase 44,000 shares of Common Stock, and (ii)
Mr. Marc E. Bercoon, Senior Vice President, General Counsel and Secretary,
failed to file a Form 5 with respect to grants of options to purchase 30,000
shares of Common Stock. The Company believes that Mr. Estrada, Mr. Solow and Mr.
Petersen, each of whom is a current director of the Company, each failed to file
a Form 5 with respect to a grant of options to purchase 10,000 shares of Common
Stock made on November 9, 1992.
All of these individuals have advised the Company that they plan to make
their respective filings prior to the Annual Meeting.
19
<PAGE>
APPROVAL OF THE PROPOSED AMENDMENT TO THE COMPANY'S
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION IN ORDER
TO CHANGE THE NAME OF THE COMPANY TO BROADWAY STORES, INC.
The Board recommends to the shareholders that the Company's Amended and
Restated Certificate of Incorporation be amended to change the name of the
Company to "Broadway Stores, Inc."
The Board believes that the name "Broadway Stores, Inc." more accurately
identifies its operating business, as 52 of its 83 stores presently operate
under the "Broadway" name, and will be more recognizable by the Company's
customers and the general public. No stores are operated under the Company's
current name. There will be relatively little cost associated with the change.
Virtually no advertising will be required.
If the amendment to the Amended and Restated Certificate of Incorporation is
approved, the Company will use the name "Broadway Stores, Inc." in its business
operations and the Common Stock of the Company will trade on the NYSE under the
symbol "BWY."
SELECTION OF INDEPENDENT ACCOUNTANTS
The Board has selected Price Waterhouse to serve as the Company's
independent accountants to audit the financial statements of the Company for the
1994 fiscal year. A representative of Price Waterhouse will attend the Annual
Meeting, will be given an opportunity to make a statement and will be available
to answer appropriate questions. The Board recommends, on the advice of its
Audit Committee, that the stockholders vote FOR ratification of the appointment
of Price Waterhouse as the Company's independent auditors for fiscal 1994.
OTHER MATTERS
The Board is not aware of any other matters to be presented at the meeting.
If any other matters should properly come before the meeting, the persons named
in the proxy will vote the proxies according to their best judgment.
STOCKHOLDER PROPOSALS
Stockholder proposals, if any, which may be considered for inclusion in the
Company's proxy materials for the 1995 Annual Meeting must be received by the
Company at its offices at 3880 North Mission Road, Los Angeles, California 90031
not later than December 30, 1994.
ANNUAL REPORT
The Annual Report to Stockholders for fiscal 1993 was mailed to stockholders
on April 29, 1993. The Company files an annual report on Form 10-K with the SEC.
Stockholders may obtain a copies of these reports without charge by writing to
the Secretary of the Company.
20
<PAGE>
[LOGO] CARTER HAWLEY HALE
THE BROADWAY--EMPORIUM--WEINSTOCKS
PROXY SOLICITED BY THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING--JUNE 17, 1994
CARTER HAWLEY HALE STORES, INC.
3880 NORTH MISSION ROAD
LOS ANGELES, CALIFORNIA 90031
The undersigned hereby appoints DAVID L. DWORKIN and MARC E. BERCOON, and
each of them, proxies, each with full power of substitution, to vote all stock
of the undersigned at the annual meeting of stockholders of Carter Hawley Hale
Stores, Inc. (the "Company") to be held June 17, 1994 at 10:30 a.m. in the
Watercourt Ballroom of the Hotel InterContinental, Los Angeles, California,
and/or at any adjournment of the annual meeting in the manner indicated on the
reverse side, all in accordance with and as more fully described in the notice
of Annual Meeting and accompanying Proxy Statement for the meeting, receipt of
which is hereby acknowledged.
(CONTINUED ON REVERSE SIDE)
FOLD AND DETACH HERE
<PAGE>
<TABLE>
<C> <C> <S>
- --------------- ----------------- /X/ PLEASE MARK YOUR VOTES LIKE THIS
COMMON PREFERRED
</TABLE>
THE SHARES REPRESENTED BY THIS PROXY SHALL BE VOTED AS INDICATED BELOW:
<TABLE>
<C> <C> <C> <S>
1. To elect David L. Dworkin, Leobardo F. Estrada, Sidney R. 4. To vote in their discretion on such other business as
Petersen, Terry Savage, David M. Schulte, Sanford Shkolnik, Robert may properly come before the annual meeting or any
M. Solow, Dennis C. Stanfill, James D. Woods and Samuel Zell as adjournment thereof.
directors to serve for a term of one year until the next Annual
Meeting of Stockholders and until their respective successors have
been duly elected and qualified.
FOR AGAINST ABSTAIN IF ANY OTHER BUSINESS IS PRESENTED, THIS PROXY SHALL BE
/ / / / / / VOTED IN ACCORDANCE WITH THE RECOMMENDATIONS OF
MANAGEMENT.
2. To approve a proposed amendment to the Company's Amended and Please mark, date and sign as your name appears to the
Restated Certificate of Incorporation to change the Company's name left and return in the enclosed envelope. If acting as
to Broadway Stores, Inc. executor, administrator, trustee or guardian, state your
full title and authority when signing. If the signer is a
corporation, please
FOR AGAINST ABSTAIN sign the full corporate name, by a duly authorized
/ / / / / / officer. If shares are held jointly, each stockholder
named should sign.
Date --------------------------------------------------
3. To ratify the appointment of Price Waterhouse as the Company's Signature(s) -------------------------------------------
independent accountants for the Company's 1994 Fiscal Year.
FOR AGAINST ABSTAIN PLEASE SIGN, DATE AND RETURN THIS PROXY IN THE
/ / / / / / ENCLOSED POSTAGE-PAID ENVELOPE
</TABLE>
FOLD AND DETACH HERE
[LOGO]CARTER HAWLEY HALE
THE BROADWAY--EMPORIUM--WEINSTOCKS
YOUR VOTE IS IMPORTANT TO THE COMPANY
PLEASE SIGN AND RETURN YOUR PROXY BY
TEARING OFF THE TOP PORTION OF THIS SHEET
AND RETURNING IT IN THE ENCLOSED POSTAGE-PAID ENVELOPE
