SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
Filed by the Registrant [ ]
Filed by a Party other than the Registrant [ x]
Check the appropriate box:
[ x] Preliminary Proxy Statement
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or
Section 240.14a-12
Hills Stores Company
(Name of Registrant as Specified In Its Charter)
Dickstein Partners Inc.
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
[ x] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1),
or 14a-6(i)(2).
[ ] $500 per each party to the controversy pursuant to Exchange
Act Rule 14a-6(i)(3).
[ ] Fee computed on table below per Exchange Act Rules 14a-
6(i)(4) and 0-11.
1) Title of each class of securities to which transaction
applies:
2) Aggregate number of securities to which transaction
applies:
3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11: 1/
_______________________
1/ Set forth the amount on which the filing fee is calculated
and state how it was determined.
<PAGE>
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:
<PAGE>
Preliminary Copies
CONSENT STATEMENT
OF
DICKSTEIN PARTNERS INC.
9 West 57th Street
Suite 4630
New York, NY 10019
(212) 754-4000
August __, 1994
This Consent Statement (the "Consent Statement") is
furnished to you by Dickstein Partners Inc. ("Dickstein
Partners") in connection with its solicitation of written
consents ("Consents") from the holders of common stock, par value
$.01 per share (the "Common Stock"), and Series A Convertible
Preferred Stock, par value $.10 per share (the "Preferred Stock,"
and together with the Common Stock, the "Stock"), of Hills Stores
Company (the "Company"), to take action without a stockholders'
meeting.
Specifically, Dickstein Partners is asking holders of
the Stock to consent to the following proposed corporate actions:
(1) Removal of Susan E. Engel, Richard B. Loynd, James
L. Moody, Jr. and John G. Reen (collectively, the "Designated
Incumbents") as members of the Board of Directors of the Company
(the "Board");
(2) Amend the Bylaws of the Company by revising
Section 2 of Article III thereof to clarify the right of
stockholders to fill vacancies in directorships created by the
removal of directors by stockholders; and
(3) Election of Mark B. Dickstein, Mark D. Brodsky,
Mark L. Kaufman and Richard I. Wrubel (collectively, the
"Dickstein Nominees") to fill the vacancies on the Board created
by the removal of the Designated Incumbents.
The principal objective of the Consent Solicitation is
to elect directors who will place a greater emphasis on the
enhancement of shareholder value, such as by means of a major
stock repurchase program. See "Reasons for the Solicitation."
If elected, the Dickstein Nominees will constitute half of the
Company's eight member Board.
Dickstein Partners urges you to indicate your written
consent to the proposed corporate actions by marking, signing and
dating the enclosed consent form, and promptly mailing it in the
enclosed envelope. The proposed corporate actions may be taken
only if the holders of a majority of the outstanding shares of
Stock at the close of business on ___________, 1994, which is the
record date for the solicitation (the "Record Date"), submit to
Dickstein Partners a written consent to such actions. This
Consent Statement and the related consent form are first being
furnished to all holders of record of Stock on the Record Date,
on or about ___________, 1994.
Because a consent to an action is effective only if the
Company receives executed consents from the holders of a majority
of the outstanding Stock, your failure to execute a Consent has
the same effect as voting against or withholding consent for the
proposals.
Dickstein Partners is responsible for managing three
private investment funds, Dickstein & Co., L.P., Dickstein Focus
Fund L.P. and Dickstein International Limited (collectively, the
"Dickstein Funds"), which in the aggregate beneficially own
1,279,862 outstanding shares of Stock of the Company. The
Dickstein Funds invest primarily in special situations, including
the purchase of securities and other obligations of companies
that are financially distressed or have recently emerged from
bankruptcy, and risk arbitrage transactions. Dickstein Partners
manages Dickstein & Co., L.P. and Dickstein Focus Fund L.P. by
virtue of its status as the general partner of Dickstein
Partners, L.P., which in turn is the general partner of both
Dickstein & Co., L.P. and Dickstein Focus Fund L.P. Dickstein
Partners manages Dickstein International Limited by virtue of its
status as advisor to that fund. Mark B. Dickstein is the
President and sole director of Dickstein Partners. Mr.
Dickstein, Dickstein Partners, Dickstein Partners, L.P. and the
Dickstein Funds are sometimes collectively referred to herein as
the "Dickstein Group."
YOUR CONSENT IS IMPORTANT. PLEASE MARK, SIGN, AND DATE
THE ENCLOSED CONSENT FORM AND MAIL IT IN THE ENCLOSED ENVELOPE
PROMPTLY.
On the Record Date, the Dickstein Group and the
Dickstein Nominees held an aggregate of 858,065 shares of Common
Stock and 387,397 shares of Preferred Stock. Each share of
Preferred Stock is convertible into one share of Common Stock,
has one vote per share and, except as otherwise required by law,
votes together with the Common Stock as one class. The Company
has advised Dickstein Partners that on July 27, 1994 there were
9,772,095 shares of Common Stock and 3,748,022 shares of
Preferred Stock outstanding. Based on this information, on the
Record Date the Dickstein Group and the Dickstein Nominees
beneficially owned Stock representing approximately 9.2% of the
voting power of the Company. See "Voting Securities
Outstanding."
If your shares of Stock are held in the name of a
brokerage firm, bank nominee or other institution, only that
entity can execute a Consent with respect to your shares.
Accordingly, please contact the person responsible for your
account and give instructions for a Consent to be signed
representing your shares. Dickstein Partners urges you to
confirm in writing your instructions to the person responsible
for your account and to provide a copy of those instructions to
Dickstein Partners, so that Dickstein Partners will be aware of
all instructions given and can attempt to ensure that such
instructions are followed.
If you have any questions about executing your Consent
or require assistance please contact:
MacKenzie Partners, Inc.
156 Fifth Avenue, 9th Floor
New York, New York 10010
Tel:(212) 929-5500 (call collect)
or
Call Toll-Free (800) 322-2885
<PAGE>
REASONS FOR THE SOLICITATION
The principal objective of the Consent Solicitation is
to elect directors who will place a greater emphasis on the
enhancement of shareholder value, such as by means of a major
stock repurchase program. Dickstein Partners believes such a
stock repurchase program can be undertaken in a manner which will
not undermine the Company's financial or operating health.
If elected, the Dickstein Nominees will hold four of
eight seats on the Board. Dickstein Partners is, at present,
seeking consents to replace no more than four directors, in order
to avoid triggering the change-of-control provisions applicable
to the Company's outstanding Senior Notes and credit agreement.
Dickstein Partners believes that the presence of the four
Dickstein Nominees on the Board will influence the Board to
vigorously pursue the enhancement of shareholder value.
PROPOSED REMOVAL OF FOUR OF THE COMPANY'S DIRECTORS
The removal of the Designated Incumbents from the Board
requires the approval of the holders on the Record Date of a
majority of the outstanding shares of Stock. The Dickstein
Funds, as holders of approximately 9.2% of the outstanding Stock,
have executed consent forms which CONSENT to the removal of such
directors. DICKSTEIN PARTNERS RECOMMENDS THAT YOU CONSENT TO THE
REMOVAL OF THESE DIRECTORS FROM THE BOARD BY CONSENTING TO
PROPOSAL 1.
PROPOSED AMENDMENT TO THE COMPANY'S BYLAWS
Section 11 of Article III of the Company's Bylaws
provides that vacancies created by the removal of directors by
stockholders at a special meeting may be filled by stockholders
at the meeting held for the purpose of removal, by the
affirmative vote of a majority of the shares entitled to vote in
such meeting. Section 8 of Article II of the Company's Bylaws
provides that any action required to be taken at a meeting of
stockholders may be taken by written consent, unless otherwise
provided in the certificate of incorporation. The Company's
certificate of incorporation does not provide otherwise. Section
2 of Article III provides that vacancies on the board of
directors shall only be filled by the board of directors and, in
certain circumstances, if not so filled, by the stockholders.
Dickstein Partners believes that, notwithstanding an
arguable inconsistency between Sections 2 and 11 of Article III,
the Company's Bylaws and Delaware law permit stockholders to
remove and replace directors by written consent. However, to
remove any such arguable inconsistency, consents are being
solicited to amend Section 2 of Article III to read as follows
[new language to be inserted is shown in bold type]:
"SECTION 2. VACANCIES. Subject to the rights of the
holders of any class or series of stock having a preference
over the common stock of the corporation as to dividends or
upon liquidation and subject to the rights of stockholders
set forth in Section 11 of this Article III, any vacancies
on the board of directors resulting from death, resignation,
removal or other cause shall only be filled by the board of
directors by the affirmative vote of a majority of the
remaining directors then in office, even though less than a
quorum of the board of directors, or by a sole remaining
director, and newly created directorships resulting from an
increase in the number of directors shall be filled by the
board of directors, or if not so filled, by the stockholders
at the next annual meeting thereof or at a special meeting
called for that purpose in accordance with Section 2 of
Article II of these by-laws. Any director elected in
accordance with the preceding sentence of this Section 2
shall hold office until the next annual election and until
such director's successor shall have been elected and
qualified."
The Bylaw amendment described above requires the
approval of the holders on the Record Date of a majority of the
outstanding shares of Stock. The Dickstein Funds, as holders of
approximately 9.2% of the outstanding Stock, have executed
consent forms which CONSENT to such Bylaw amendment . DICKSTEIN
PARTNERS RECOMMENDS THAT YOU CONSENT TO THE PROPOSED BYLAW
AMENDMENT BY CONSENTING TO PROPOSAL 2.
PROPOSED ELECTION OF DIRECTORS AND INFORMATION ABOUT NOMINEES
Dickstein Partners proposes that the Dickstein Nominees
(Mark B. Dickstein, Mark D. Brodsky, Mark L. Kaufman and Richard
I. Wrubel) be elected to fill the vacancies created by the
removal of the Designated Incumbents from the Board. The
Dickstein Nominees have expressed their willingness to serve on
the Board if elected and have provided the information set forth
below for inclusion in this Consent Statement.
Mark B. Dickstein, age 35, is the President of
Dickstein Partners. As such, he is primarily responsible for the
operations of the Dickstein Funds. He is the Chairman of the
Board of Carson Pirie Scott & Co., a midwest department store
chain. He is also a director of KinderCare Learning Centers,
Inc., the largest provider of proprietary child care in the
United States, and Zale Corporation, a national jewelry retailer.
Mark D. Brodsky, age 41, has been a Vice President of
Dickstein Partners since April 1994. Previously, he had been co-
head of the bankruptcy department at the law firm of Kramer,
Levin, Naftalis, Nessen, Kamin & Frankel.
Mark L. Kaufman, age 38, has been a Vice President of
Dickstein Partners since July 1992. He was Senior Vice President
of Oppenheimer & Co., an investment banking firm, from March 1992
to July 1992 and was a Vice President of Oppenheimer & Co. from
May 1990 to February 1992. From July 1988 to April 1990, he was
Vice President of and head of strategic investments at GAF Corp.,
a chemical and roofing manufacturer. He is a director of Carson
Pirie Scott & Co.
Richard I. Wrubel, age 59, has been the owner and
President of Wrubel Associates, a retail consulting firm, since
August 1992. He was the owner and President of Richard Wrubel,
Inc., a women's specialty retailer, from 1975 through February
1994.
By virtue of his status as President and sole director
of Dickstein Partners, Mark B. Dickstein may be deemed to
beneficially own all of the Stock owned by the Dickstein Funds,
as set forth below under "Voting Securities Outstanding." Mark
L. Kaufman, Mark D. Brodsky and Richard I. Wrubel beneficially
own 2,000, 1,000 and 300 shares of Common Stock, respectively,
each of which represents less than 1% of the outstanding shares
of Common Stock.
In September 1990, the Commodity Futures Trading
Commission (the "CFTC") initiated an administrative proceeding
against Mr. Dickstein alleging that in 1987 certain of his
personal commodities trading activities were in violation of
applicable laws. Specifically, the CFTC claimed that Mr.
Dickstein, in his capacity as a local floor trader, aided and
abetted another floor trader in, among other things, non-
competitive trading and defrauding such floor trader's customers.
Without admitting or denying the CFTC's allegations, Mr.
Dickstein settled this matter in September 1991. As part of the
settlement, Mr. Dickstein agreed not to engage in commodities
transactions for a period of one year, and for two additional
years not to trade on the floor of any commodities exchange. Mr.
Dickstein also had his commodities floor brokerage license
revoked and paid a $150,000 civil penalty.
None of the Dickstein Nominees, or any of their
associates, is a party, or has a material interest, adverse to
the Company or any of its subsidiaries in any material
proceedings. None of the Dickstein Nominees, or any of their
associates, has been awarded, earned or been paid any form of
compensation for services rendered to the Company and its
subsidiaries. Each of the Dickstein Nominees will, however,
receive director's fees upon his election as a director of the
Company in accordance with the Company's current practice.
Except as set forth in this Consent Statement and
otherwise pursuant to the consummation of the Company's Plan of
Reorganization in October 1993, none of the Dickstein Nominees
has had a material direct or indirect interest in any
transactions since January 30, 1993, or has any such interest in
any currently proposed transaction or series of similar
transactions to which the Company or any subsidiary was or is to
be a party, in which the amount involved exceeds $60,000.
The election of the Dickstein Nominees requires the
approval of the holders on the Record Date of a majority of the
outstanding shares of Stock. The Dickstein Funds, as holders of
approximately 9.2% of the outstanding Stock on the Record Date,
have executed consent forms which CONSENT to the election of the
Dickstein Nominees. DICKSTEIN PARTNERS RECOMMENDS THAT YOU
CONSENT TO THE ELECTION OF THE DICKSTEIN NOMINEES TO THE BOARD BY
CONSENTING TO PROPOSAL 3.
VOTING SECURITIES OUTSTANDING
Based on information provided to Dickstein Partners by
the Company, on July 27, 1994 there were 9,772,095 shares of
Common Stock and 3,748,022 shares of Preferred Stock outstanding.
Each share of Preferred Stock is convertible into one share of
Common Stock. Each share of Common Stock and Preferred Stock
entitles its record holder to one vote. Except as otherwise
required by law, the holders of Preferred Stock vote together
with the Common Stock as a single class upon any matter submitted
to the stockholders for a vote. The vote of a majority of the
outstanding shares of Stock is necessary to express Consent to
Dickstein Partners' proposals to remove the Designated
Incumbents, to amend the Company's Bylaws as discussed above and
to elect the Dickstein Nominees to the Board.
As of August ___, 1994, members of the Dickstein Group
held an aggregate of 892,465 shares of Common Stock and 387,397
shares of Preferred Stock, representing approximately 9.5% of the
voting power of the outstanding Stock, based on the number of
outstanding shares set forth in the preceding paragraph. Based
on that number, as of August ___, 1994, members of the Dickstein
Group beneficially owned shares of Stock as set forth below in
the table. It is important to note that, as required by
applicable securities laws, the number (and percentage) of shares
of Common Stock disclosed in the table as beneficially owned
includes the shares of Common Stock which may be acquired upon
the conversion of shares of Preferred Stock owned by such
stockholder.
Preferred Stock Common Stock
Shares Percent-
Bene- age of
ficially Common
Name and Shares Owned and
Address Bene- (including Preferred
of Beneficial ficially Percent- Preferred Percent- Stock
Owner (1)(2) Owned age Stock) age(3) Combined
Dickstein &
Co., L.P. 287,066 7.7% 813,498 8.1% 6.0%
Dickstein
Focus Fund
L.P. 13,800 .4% 86,100 .9% .6%
Dickstein
International
Limited 86,531 2.3% 380,264 3.9% 2.8%
____________
(1) Since Dickstein Partners, L.P. is the general partner of
Dickstein & Co., L.P. and Dickstein Focus Fund L.P., it may
be deemed to beneficially own the 300,866 shares of
Preferred Stock and 899,598 shares of Common Stock shown in
the table as beneficially owned by such entities. Since
Dickstein Partners is the general partner of Dickstein
Partners, L.P. and is the advisor to Dickstein International
Limited, it may be deemed to beneficially own 387,397 shares
of Preferred Stock and 1,279,862 shares of Common Stock
shown in the table as beneficially owned by the Dickstein
Funds. Since Mark B. Dickstein is the president and sole
director of Dickstein Partners, he may be deemed to
beneficially own 387,397 shares of Preferred Stock and
1,279,862 shares of Common Stock shown in the table as
beneficially owned by the Dickstein Funds. In each case,
such beneficial ownership is disclaimed.
(2) The address of each beneficial owner is c/o Dickstein
Partners Inc., 9 West 57th Street, Suite 4630, New York, NY
10019, except that the address of Dickstein International
Limited is 129 Front Street, Hamilton HM 12, Bermuda.
(3) In calculating the percentage, applicable securities laws
require that the denominator include the shares of Common
Stock which may be acquired upon the conversion of shares of
Preferred Stock owned by such stockholder.
To the knowledge of Dickstein Partners, based on a
review of publicly available information concerning the Company,
the persons (other than the Dickstein Group) who beneficially own
more than 5% of the outstanding Common Stock are as follows:
Name and Amount and Percent of
Address Nature Percent Common and
of of of Preferred
Beneficial Beneficial Common Stock
Owner Ownership Stock(1) Combined(2)
FMR Corp.,(3) 1,743,553(3) 16.6% 12.9%
Fidelity Management
& Research Company,
Fidelity Management
Trust Company
82 Devonshire Street
Boston, MA 02109-3614
Lehman Brothers 1,068,920(4) 10.9% 7.9%
Inc.,(4)
American Express
Company
3 World Financial
Center
New York, NY 10285
ML-Lee Acquisition 703,250(5) 7.2% 5.2%
Fund II, L.P.,(5)
ML-Lee Acquisition Fund
(Retirement Accounts)
II, L.P.,
Thomas H. Lee Advisors
II, L.P.
World Financial Center
South Tower, 23rd Fl.
New York, NY 10080-6123
Apollo HDS Partners, 696,251(6) 6.9% 5.1%
L.P.(6)
c/o Apollo Advisors, L.P.
Two Manhattanville Rd.
Purchase, NY 10577
____________
(1) In calculating the percentage, applicable securities laws
require that the denominator include the shares of Common
Stock which may be acquired upon the conversion of shares of
Preferred Stock owned by such stockholder.
(2) Based on the information provided to Dickstein Partners by
the Company that on July 27, 1994 there were 9,772,095
shares of Common Stock and 3,748,022 shares of Preferred
Stock outstanding.
(3) As of July 27, 1994, as reported in Amendment No. 2 to the
Schedule 13D of FMR Corp. filed with the Securities and
Exchange Commission (the "SEC") on July 28, 1994. Includes
(i) 551,193 shares of Common Stock issuable upon conversion
of 551,193 shares of Preferred Stock and (ii) 175,456 shares
of Common Stock issuable upon exercise of 175,456 Series
1993 Stock Rights beneficially owned by Fidelity Management
Trust Company ("FMTC"). The shares listed consist of (a)
212,917 shares of Common Stock beneficially owned by
Fidelity Management & Research Company, an investment
advisor to various investment companies registered under
Section 8 of the Investment Company Act of 1940 and an
investment advisor to certain other funds which are
generally offered to limited groups of investors; and (b)
1,530,636 shares of Common Stock beneficially owned by FMTC,
a trustee or managing agent for various private investment
accounts, primarily employee benefit plans, and an
investment advisor to certain other funds which are
generally offered to limited groups of investors.
(4) As of January 10, 1994, as reported in the Schedule 13G of
these entities filed jointly with the SEC on January 10,
1994. The shares listed include 725,482 shares of Common
Stock over which Lehman Brothers Inc. has sole voting and
dispositive power and 343,438 shares of Common Stock over
which American Express Company has shared dispositive power.
(5) As of October 20, 1993, as reported in the Schedule 13D of
these entities filed jointly with the SEC on October 26,
1993. ML-Lee Acquisition Fund II, L.P. beneficially owns
458,432 shares of Common Stock, and ML-Lee Acquisition Fund
(Retirement Accounts) II, L.P. beneficially owns 244,818
shares of Common Stock. Thomas H. Lee Advisers II, L.P., as
the investment advisor to both Funds, shares the power to
vote and to direct the disposition of securities held by the
Funds and therefore may be deemed to beneficially own the
703,250 shares of Common Stock beneficially owned in the
aggregate by the Funds. Thomas H. Lee is a General Partner
of both Funds.
(6) As of April 28, 1994, as reported in Amendment No. 2 to the
Schedule 13D of Apollo HDS Partners, L.P. filed with the SEC
on April 28, 1994. The shares listed include 279,618 shares
of Common Stock issuable upon conversion of 279,618 shares
of Preferred Stock.
Based solely on the information set forth in the
Company's Proxy Statement for the June 1994 annual meeting of
shareholders, the following table sets forth the beneficial
ownership of the Common Stock, as of January 29, 1994, held by
each of the then directors and executive officers named in the
Summary Compensation Table therein and directors and executive
officers as a group.
<PAGE>
Amount and Percent of
Name of Nature of Percent Common and
Beneficial Beneficial of Common Preferred Stock
Owner Ownership Stock(1)(2) Combined(2)
Thomas H. Lee 785,733(3)(10) 8.0% 5.8%
Michael Bozic 0 0% 0%
Susan E. Engel 0 0% 0%
Michael S. Gross 696,251(4) 6.9% 5.1%
Richard B. Loynd 1,000 * *
Norman S. Matthews 307(5)(10) * *
James L. Moody, Jr. 1,263(6)(10) * *
John G. Reen 1,213(7)(10) * *
Andrew J. Samuto 968(8)(10) * *
Robert J. Stevenish 0 0% 0%
E. Jackson Smailes 0 0% 0%
Directors and 1,487,981(9)(10) 14.7% 11.0%
Executive
Officers as a
Group (14
Persons)
___________________
* Represents less than 1% of outstanding shares.
(1) In calculating the percentage, applicable securities laws
require that the denominator include the shares of Common
Stock which may be acquired upon the conversion of shares of
Preferred Stock or upon the exercise of Series 1993 Warrants
beneficially owned by such stockholder.
(2) Based on information provided to Dickstein Partners by the
Company that on July 27, 1994 there were 9,772,095 shares of
Common Stock and 3,748,022 shares of Preferred Stock
outstanding.
(3) Includes (i) 703,250 shares of Common Stock beneficially
owned by ML-Lee Acquisition Fund II L.P. and ML-Lee
Acquisition Fund (Retirement Accounts) II, L.P., of which
Mr. Lee is a general partner and (ii) 4,724 shares of Common
Stock and 77,759 Series 1993 Warrants to purchase Common
Stock held by the 1989 Thomas H. Lee Nominee Trust, of which
Mr. Lee is the beneficiary and settlor. Mr. Lee disclaims
beneficial ownership of 87 Series 1993 Warrants he holds as
custodian for his minor son.
(4) Represents shares held by Apollo HDS Partners, L.P.
described in footnote (6) to the previous table. Mr. Gross
disclaims beneficial ownership of these securities.
(5) Represents 307 Series 1993 Warrants to purchase Common
Stock.
(6) Includes 1,000 shares of Common Stock and 263 Series 1993
Warrants to purchase Common Stock.
(7) Includes 284 shares of Common Stock and 929 Series 1993
Warrants to purchase Common Stock.
(8) Includes 858 shares of Common Stock and 110 Series 1993
Warrants to purchase Common Stock.
(9) Consists of 1,407,925 shares of Common Stock (including
279,618 shares issuable upon conversion of Preferred Stock)
and 80,056 Series 1993 Warrants to purchase Common Stock.
(10) Although each Series 1993 Warrant is immediately convertible
into one share of Common Stock, they are, at present,
significantly "out of the money" ($30 per share exercise
price versus $21.25 per share closing price on the New York
Stock Exchange on August 15, 1994).
<PAGE>
GENERAL INFORMATION ABOUT SOLICITATION OF CONSENTS
Removal and Replacement of Directors
Section 141(k) of the General Corporation Law of the
State of Delaware (the "Delaware Code") states that, unless the
directors have staggered terms or the corporation has cumulative
voting, any number of directors may be removed, with or without
cause, by the holders of a majority of the shares then entitled
to vote at an election of directors. The Company's directors do
not have staggered terms and the Company's certificate of
incorporation and Bylaws do not provide for cumulative voting.
Dickstein Partners believes that the Company's Bylaws
permit stockholders to act by written consent to elect directors
to fill vacancies resulting from removal of directors by
stockholders. See "Proposed Amendment to the Company's Bylaws"
above. However, to remove an arguable inconsistency in the
Company's Bylaws described under that heading, Consents are being
solicited to amend Section 2 of Article III of the Company's
Bylaws to remove that arguable inconsistency.
Consent Procedure; Effectiveness; Record Date
Section 228 of the Delaware Code states that, unless
otherwise provided in a corporation's certificate of
incorporation, any action that may be taken at any annual or
special meeting of stockholders, may be taken without a meeting,
without prior notice and without a vote, if consents in writing,
setting forth the action so taken, shall be signed by the holders
of outstanding stock having not less than the minimum number of
votes that would be necessary to authorize or take such action at
a meeting at which all shares entitled to vote thereon were
present and voted, and those consents are delivered to the
corporation by delivery to its registered office in Delaware, its
principal place of business, or an officer or agent of the
corporation having custody of the books in which proceedings of
meetings of stockholders are recorded. The Company's certificate
of incorporation does not prohibit the use of such consents.
The Record Date is __________, 1994, which is the date
on which a Consent of Dickstein & Co., L.P. was delivered to the
Company. Under Section 213(b) of the Delaware Code, the Record
Date is the first date a signed Consent is delivered to the
Company, unless the Board has previously fixed a record date. To
Dickstein Partners' knowledge, the Board did not do so. Only the
holders of record of Stock on the Record Date may execute
Consents.
The corporate actions proposed herein will be adopted
when properly completed, unrevoked Consents are signed by the
holders of record on the Record Date of a majority of the shares
of Stock then outstanding and those Consents are presented to the
Company. However, all Consents will expire, unless so presented,
on the date 60 days after the first Consent is delivered to the
Company, which was done on the Record Date. Dickstein Partners
plans to present the results of a successful solicitation with
respect to the corporate actions proposed herein to the Company
as soon as possible.
If the corporate actions described herein are taken
pursuant to the consent procedure, Dickstein Partners will cause
the Company, pursuant of Section 228(d) of the Delaware Code and
Section 8 of Article II of the Company's Bylaws, to give prompt
notice thereof to those stockholders who have not executed
Consents to the actions taken.
Voting Rights
The unrevoked signed Consents representing the holders
of record on the Record Date of at least a majority of the
outstanding shares of Stock are necessary to effect the removal
of the Designated Incumbents, the amendment to the Company's
Bylaws discussed above and the election of the Dickstein
Nominees.
As of the Record Date, the Dickstein Funds and the
Dickstein Nominees owned Stock representing approximately 9.2% of
the total voting power of the Stock. See "Proposed Election of
Directors and Information About Nominees" and "Voting Securities
Outstanding." The Dickstein Funds and the Dickstein Nominees
have consented to all of the actions for which Consents are being
solicited, with respect to all such shares. Accordingly, the
unrevoked Consents of other stockholders owning approximately
40.9% of the outstanding shares of Stock on the Record Date are
required to adopt the proposals to which this solicitation
relates.
Solicitations of Consents
Solicitations of Consents will be made by Dickstein
Partners and its employees. Consents will be solicited by mail,
telephone or telecopier and in person. No such persons will
receive any additional compensation for such solicitation.
In addition, Dickstein Partners has retained MacKenzie
Partners, Inc. to assist in the solicitation, to which it will
pay a fee of at least $______ and has agreed to reimburse it for
its reasonable expenses. The Dickstein Funds have additionally
agreed to indemnify MacKenzie Partners, Inc. under certain
circumstances.
Brokers, custodians, nominees and fiduciaries will be
requested to forward solicitation material to beneficial owners
of the Stock. Dickstein Partners and its affiliates will
reimburse brokers, custodians, nominees and fiduciaries for their
reasonable expenses for sending solicitation material to the
beneficial owners of Stock.
Subject to the following paragraph, the cost of
solicitation will be borne initially by Dickstein Partners and
its affiliates in a manner to be determined. The anticipated
cost of the solicitation is estimated to be approximately
$_______.
Dickstein Partners will seek reimbursement of the costs
of this solicitation of Consents to the extent legally
permissible. The question of the Company's reimbursement of such
solicitation expenses will not be submitted to a vote of
stockholders unless such submission is required by law.
Revocation of Consents
An executed consent form may be revoked at any time
before expiration by signing, dating, and delivering a written
revocation before the time that the action authorized by the
executed Consent becomes effective. A revocation may be in any
written form validly signed by the record holder as long as it
clearly states that the Consent previously given is no longer
effective. The delivery of a subsequently dated consent form
which is properly completed will constitute a revocation of any
earlier Consent. The revocation may be delivered either to
Dickstein Partners c/o MacKenzie Partners, Inc. at 156 Fifth
Avenue, 9th Floor, New York, NY 10010 or to the Company at 15 Dan
Road, Canton, Massachusetts 02021.
Although a revocation delivered only to the Company
will be effective, Dickstein Partners requests that if a
revocation is delivered to the Company, a photostatic copy of the
revocation also be delivered to Dickstein Partners c/o MacKenzie
Partners, Inc. at the address set forth in the preceding
paragraph, so that the Dickstein Group will be aware of all
revocations and can more accurately determine if and when the
actions described herein have received the approval of a majority
of the shares of Stock outstanding on the Record Date.
Special Instructions
If you wish to Consent to one or more of the actions
proposed in this Consent Statement and were a record holder of
Stock on the Record Date, please mark the appropriate "CONSENT"
box or boxes on the accompanying consent form and sign, date and
mail it promptly to the Dickstein Partners in the enclosed
envelope.
If you do not wish to Consent to an action proposed in
this Consent Statement and were a record holder of Stock on the
Record Date, you may mark the appropriate "Consent Withheld" or
"Abstains" box on the accompanying consent form, and sign, date
and mail the form in the enclosed envelope. In addition, by not
returning a consent form, a holder of Common Stock will be deemed
not to have consented to any of the proposals.
When the stockholder whose Consent is solicited
specifies a choice with respect to any matter identified therein,
the Consent shall be given in accordance with the specifications
so made. If the stockholder has failed to check a box marked
"CONSENT," "CONSENT WITHHELD" or "ABSTAINS" for a proposal, such
stockholder shall be deemed to have CONSENTED to the actions
described in that proposal, except that such stockholder will not
be deemed to have consented to the removal of any incumbent
director or the election of any Dickstein Nominee whose name is
written in the appropriate space on the consent form.
If the holders on the Record Date of a majority of the
outstanding Stock approve the resolution removing the Designated
Incumbents from the Board but do not approve the election of all
of the Dickstein Nominees, then the Consents would be effective
to remove such directors from the present Board. In such event,
vacancies will exist on the Board; however, under Delaware law
and under the Company's Bylaws, the remaining directors would
have the power to fill such vacancies created as a result of such
removal. The resolution electing the Dickstein Nominees as
directors, if adopted, will only be effective to the extent
vacancies exist as a result of the removal of other directors by
stockholders.
IMPORTANT
DICKSTEIN PARTNERS RECOMMENDS THAT YOU CONSENT TO THE
REMOVAL OF THE DESIGNATED INCUMBENTS NAMED HEREIN, THE AMENDMENT
TO THE COMPANY'S BYLAWS DISCUSSED ABOVE AND THE ELECTION OF THE
DICKSTEIN NOMINEES.
YOUR CONSENT IS IMPORTANT. PLEASE MARK, SIGN AND DATE
THE ENCLOSED CONSENT FORM AND MAIL IT IN THE ENCLOSED ENVELOPE
PROMPTLY.
FAILURE TO RETURN YOUR CONSENT HAS THE SAME EFFECT AS A
VOTE TO RETAIN THE CURRENT DIRECTORS.
If your shares of Stock are held in the name of a
brokerage firm, bank nominee or other institution, only it can
sign a Consent with respect to your shares. Accordingly, please
contact the person responsible for your account and give
instructions for a Consent to be signed representing your shares.
IF YOU HAVE ANY QUESTIONS REGARDING THIS CONSENT
STATEMENT OR THE EXECUTION OF YOUR CONSENT, PLEASE CONTACT:
MacKenzie Partners, Inc.
156 Fifth Avenue, 9th Floor
New York, New York 10010
Tel: (212) 929-5500 (call collect)
or
Call Toll-Free (800) 322-2885
<PAGE>
Preliminary Copies
CONSENT OF STOCKHOLDER OF HILLS STORES COMPANY
TO ACTION WITHOUT A MEETING
THIS CONSENT IS SOLICITED BY DICKSTEIN PARTNERS INC.
Unless otherwise indicated below, the undersigned, a
stockholder on _______, 1994 (the "Record Date") of Hills Stores
Company (the "Company"), hereby consents, pursuant to Section 228
of the General Corporation Law of the State of Delaware, with
respect to all shares of Common Stock, par value $.01 per share,
of the Company (the "Common Stock") and Series A Convertible
Preferred Stock, par value $.10 per share, of the Company (the
"Preferred Stock," and together with the Common Stock, the
"Stock"), held by the undersigned, to each of the following
actions without a meeting, without prior notice and without a
vote:
DICKSTEIN PARTNERS INC. STRONGLY RECOMMENDS THAT YOU
CONSENT TO ALL OF THE FOLLOWING RESOLUTIONS.
1. RESOLVED THAT: the following persons are hereby removed as
directors of the Company: Susan E. Engel, Richard B. Loynd,
James L. Moody, Jr. and John G. Reen.
__ __ __
/_/ CONSENT /_/ CONSENT WITHHELD /_/ ABSTAIN
INSTRUCTIONS: To consent, withhold consent or abstain from
consenting to the removal of all of the above-named directors,
check the appropriate box above. If you wish to consent to the
removal of certain of the above-named directors, but not all of
them, check the "consent" box above and write the name of each
person you do not wish removed in the following space:
_____________________________________________________.
If no box is marked above with respect to this Proposal, the
undersigned will be deemed to consent to such Proposal, except
that the undersigned will not be deemed to consent to the removal
of any incumbent director whose name is written in the space
provided above.
2. RESOLVED THAT: Section 2 of Article III of the Company's
Bylaws be amended to read as follows:
"SECTION 2. VACANCIES. Subject to the rights of the
holders of any class or series of stock having a preference
over the common stock of the corporation as to the dividends
or upon liquidation and subject to the rights of
stockholders set forth in Section 11 of this Article III,
any vacancies on the board of directors resulting from
death, resignation, removal or other cause shall only be
filled by the board of directors by the affirmative vote of
a majority of the remaining directors then in office, even
though less than a quorum of the board of directors, or by a
sole remaining director, and newly created directorships
resulting from an increase in the number of directors shall
be filled by the board of directors, or if not so filled, by
the stockholders at the next annual meeting thereof or at a
special meeting called for that purpose in accordance with
Section 2 of Article II of these by-laws. Any director
elected in accordance with the preceding sentence of this
Section 2 shall hold office until the next annual election
and until such director's successor shall have been elected
and qualified."
__ __ __
/_/ CONSENT /_/ CONSENT WITHHELD /_/ ABSTAIN
INSTRUCTIONS: To consent, withhold consent or abstain from
consenting to the amendment to the Company's Bylaws, check the
appropriate box above.
3. RESOLVED THAT: the following persons are hereby elected as
directors of the Company, to fill the vacancies on the Board of
Directors created by such removals: Mark B. Dickstein, Mark D.
Brodsky, Mark L. Kaufman and Richard I. Wrubel.
__ __ __
/_/ CONSENT /_/ CONSENT WITHHELD /_/ ABSTAIN
INSTRUCTIONS: To consent, withhold consent or abstain from
consenting to the election of all of the above-named persons,
check the appropriate box above. If you wish to consent to the
election of certain of the above-named persons, but not all of
them, check the "consent" box above and write the name of each
such person you do not wish elected in the following space:
__________________________________________________________.
If no box is marked above with respect to this Proposal, the
undersigned will be deemed to consent to such Proposal, except
that the undersigned will not be deemed to consent to the
election of any candidate whose name is written in the space
provided above.
PLEASE DATE, SIGN AND MAIL THE CONSENT PROMPTLY, USING THE
ENCLOSED ENVELOPE.
Dated:______________________, 1994
________________________________
(Signature)
________________________________
(Title or authority, if applicable)
_______________________________
(Signature if held jointly)
Please sign exactly as name appears on this Consent. If shares
are registered in more than one name, the signatures of all such
persons are required. A corporation should sign in its full
corporate name by a duly authorized officer, stating his/her
title. Trustees, guardians, executors and administrators should
sign in their official capacity, giving their full title as such.
If a partnership, please sign in the partnership name by
authorized person. This Consent shall vote all shares to which
the signatory is entitled.
<PAGE>
DICKSTEIN PARTNERS INC.
9 West 57th Street
Suite 4630
New York, New York 10019
August __, 1994
Dear Hills Stores Stockholder:
We are writing to solicit your support to replace four
of Hills' eight directors because we believe that the election of
our nominees will produce improved value for all stockholders.
We are proposing to replace only four directors, in order to
avoid triggering the change-of-control provisions applicable to
the Company's debt.
Dickstein Partners is an investment firm that, through
its affiliates, owns 1,279,862 shares (approximately 9.5%) of
Hills' voting stock. Principals of Dickstein Partners presently
serve on numerous boards of directors, including those of Carson
Pirie Scott & Co. and Zale Corporation -- two retailers that, like
Hills, recently emerged from bankruptcy.
We appreciate the job Hills' management has done
rebuilding the franchise and producing positive operating results
since the bankruptcy. Unfortunately, we believe that the current
board has failed to translate this operating performance into
profits for stockholders in the market.
Although Hills' post-bankruptcy operating performance
has exceeded the Company's projections, the market price of Hills
common stock through the date on which we announced that we might
seek control (July 22, 1994) has languished at levels lower than
when Hills stock first started trading upon emerging from
bankruptcy on October 4, 1993. In our opinion, the stock
continues to be significantly undervalued by the market.
We believe that the new Board could adopt a program to
enhance shareholder value without undermining Hills' financial or
operating health by pursuing the repurchase of a material portion
of the outstanding stock. There are various ways to do this and,
recognizing that circumstances may change, our current plan would
be as follows:
First, Hills' stock would be converted through a merger
into equivalent stock of a new holding company, which would own
Hills. This conversion transaction would not affect stockholder
ownership interests and would be subject to prior stockholder
approval pursuant to a separate proxy solicitation. This step is
needed to ensure that the second step, described below, can be
accomplished in compliance with the terms of Hills' public debt
indenture.
Second, the new holding company, pursuant to an
exchange offer, would offer to repurchase up to 5.5 million
shares in exchange for $27 principal amount per share of its new
12-year senior notes. The new notes would bear interest at 12%
payable in cash or 15% payable in kind. Based on the Company's
current profitability levels and the covenants in Hills' existing
public debt indenture, we believe the operating business would
easily be able to dividend sufficient cash to the new holding
company to allow interest on the new debt to be paid in cash.
Prior to commencing the exchange offer it would be
necessary to obtain waivers from the Company's existing bank
lenders allowing Hills to upstream the monies for the parent
company's annual cash interest payment. We believe that the
Company should be able to obtain the requisite waivers
expeditiously. Our plan would result in only an additional $18
million annually to Hills' consolidated cash interest expense
while maintaining a healthy EBITDA-to-interest ratio in excess of
2.5 to 1. The plan should also have the additional desired
result of materially improving pro forma net operating income per
share, while maintaining Hills' current cash position for use in
the current store expansion policy or for future acquisitions.
We are hopeful that once you have had an opportunity to
consider our proposal, you will execute the enclosed written
consent and mail it promptly in the enclosed envelope to
____________________. If you require any further information or
have any questions, please call us directly at (212) 754-4000 or
call MacKenzie Partners, Inc. Toll Free at (800) 322-2885.
We appreciate your prompt consideration of this
important matter.
Very truly yours,
