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SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
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
/x/ 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):
/_/ $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1),
or 14a-6(i)(2).
/x/ $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)
_______________________________________________________________
(4) Proposed maximum aggregate value of transaction:
________________________________________________________________
_________________________
(1) Set forth the amount on which the filing fee is calculated
and state how it was determined.
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/_/ 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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PRELIMINARY COPIES, DATED MAY 4, 1995
1995 ANNUAL MEETING OF STOCKHOLDERS
of
HILLS STORES COMPANY
15 Dan Road
Canton, MA 02021
______________________________
PROXY STATEMENT
of
DICKSTEIN PARTNERS INC.
______________________________
This Proxy Statement and the accompanying Letter to
Stockholders and BLUE Annual Meeting proxy card are furnished in
connection with the solicitation of proxies by Dickstein Partners
Inc. ("Dickstein Partners") to be used at the 1995 Annual Meeting
of Stockholders of Hills Stores Company, a Delaware corporation
("Hills"), to be held at _______________________ on June 12, 1995
and at any adjournments or postponements thereof (the "Annual
Meeting").
At the Annual Meeting, seven Directors of Hills will be
elected. Dickstein Partners is soliciting your proxy in support
of the election of the seven nominees of Dickstein Partners named
below (the "Dickstein Nominees") as the Directors of Hills.
DICKSTEIN PARTNERS HAS MADE A PROPOSAL TO ACQUIRE PURSUANT
TO A MERGER ALL OF HILLS' OUTSTANDING SHARES FOR AT LEAST $25 PER
SHARE IN CASH. SEE "BACKGROUND OF PROPOSED ACQUISITION AND
SOLICITATION."
ALL DICKSTEIN NOMINEES ARE COMMITTED TO A PROGRAM OF
OFFERING HILLS FOR SALE, AND SELLING HILLS, TO THE BUYER WHO IS
WILLING TO PAY THE HIGHEST PRICE, SO LONG AS THE PRICE IS AT
LEAST $25 PER SHARE OF HILLS STOCK.
The record date for determining stockholders entitled to
notice of and to vote at the Annual Meeting is April 24, 1995
(the "Record Date"). Stockholders of record at the close of
business on the Record Date will be entitled to one vote at the
Annual Meeting for each share of Hills Common Stock, par value
$.01 per share (the "Common Shares") and one vote at the Annual
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Meeting for each share of Hills Series A Convertible Preferred
Stock, par value $.10 per share (the "Preferred Shares" and,
together with the Common Shares, the "Shares"), held on the
Record Date. According to the preliminary proxy statement of
Hills filed with the Securities and Exchange Commission on
_____________ ___, 1995 (the "Hills Proxy Statement"), there were
______________ Shares issued and outstanding as of the close of
business on the Record Date.
Dickstein Partners manages three private investment funds.
As of the date of this Proxy Statement, these funds, Dickstein &
Co., L.P., Dickstein Focus Fund L.P. and Dickstein International
Limited (collectively, the "Dickstein Funds"), beneficially own
in the aggregate 1,113,459 Shares, or 10.3% of the outstanding
Shares. The address of Dickstein Partners Inc. is 9 West 57th
Street, New York, New York 10019, and its telephone number is
(212) 754-4000.
____________________________
This Proxy Statement, the accompanying Letter to
Stockholders and the BLUE Annual Meeting proxy card are first
being furnished to Hills stockholders on or about __________ ___,
1995.
IMPORTANT
At the Annual Meeting, Dickstein Partners will seek to
elect the Dickstein Nominees as the Directors of Hills. The
election of the Dickstein Nominees requires the affirmative vote
of a plurality of the votes cast, assuming a quorum is present or
otherwise represented at the Annual Meeting.
Dickstein Partners urges you to mark, sign, date and return
the enclosed BLUE Annual Meeting proxy card to vote for election
of the Dickstein Nominees.
A vote for the Dickstein Nominees is a vote for Directors
who are committed to a program of offering Hills for sale, and
selling Hills, to the buyer who is willing to pay the highest
price, so long as the price is at least $25 per Share.
DICKSTEIN PARTNERS URGES YOU NOT TO SIGN ANY PROXY CARD
SENT TO YOU BY HILLS. IF YOU HAVE ALREADY DONE SO, YOU MAY
REVOKE YOUR PROXY BY DELIVERING A WRITTEN NOTICE OF REVOCATION OR
A LATER DATED PROXY FOR THE ANNUAL MEETING TO DICKSTEIN PARTNERS,
C/O MACKENZIE PARTNERS, INC., 156 FIFTH AVENUE, NEW YORK 10010,
OR TO THE SECRETARY OF HILLS, OR BY VOTING IN PERSON AT THE
ANNUAL MEETING. SEE "PROXY PROCEDURES" BELOW.
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THE DICKSTEIN NOMINEES SUPPORT THE SALE OF HILLS
Dickstein Partners has made a proposal to acquire pursuant
to a merger all of Hills' outstanding Shares for at least $25 per
Share in cash. All Dickstein Nominees are committed to a sale of
Hills to the buyer who is willing to pay the highest price, so
long as the price is at least $25 per Share. If elected, the
Dickstein Nominees will, subject to their fiduciary duties, seek
to cause Hills to offer itself for sale, and to consummate a
sale, to the buyer who is willing to pay the highest price.
See "Background of Proposed Acquisition and Solicitation."
Dickstein Partners urges you to vote your BLUE Annual
Meeting proxy card FOR each of the Dickstein Nominees.
ELECTION OF DIRECTORS
According to publicly available information, Hills
currently has seven Directors, all of whose terms will expire at
the Annual Meeting.
Dickstein Partners proposes that Hills stockholders elect
the Dickstein Nominees as the Directors of Hills at the Annual
Meeting. If all Dickstein Nominees are elected, the Dickstein
Nominees would constitute the entire Board of Directors of Hills.
The Dickstein Nominees are listed below and have furnished the
following information concerning their principal occupations or
employment and certain other matters. Each Dickstein Nominee, if
elected, would hold office until the 1996 Annual Meeting of
Stockholders and until a successor has been elected and qualified
or until his earlier death, resignation or removal. Although
Dickstein Partners has no reason to believe that any of the
Dickstein Nominees will be unable to serve as Directors, if any
one or more of the Dickstein Nominees is not available for
election, the persons named on the BLUE Annual Meeting proxy card
will vote for the election of such other nominees as may be
proposed by Dickstein Partners. Should Hills increase the number
of Directors to be elected at the Annual Meeting, it is the
current intention of Dickstein Partners to propose additional
nominees for such directorships.
Dickstein Nominees for Directors
Chaim Y. Edelstein, age 52, was a consultant to Federated
Department Stores, Inc. from February 1994 to March 1995 and has
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been a consultant to Carson Pirie Scott & Co., a midwest
department store chain, since November 1994. From 1985 to
February 1994, he was Chairman and Chief Executive Officer of
Abraham & Straus, a division of Federated Department Stores, Inc.
Federated Department Stores, Inc. filed a petition for
reorganization under the Bankruptcy Code in 1990 and has since
emerged from bankruptcy. Mr. Edelstein is a director of Jan-Bell
Marketing, Inc., a jewelry retailer which is publicly held. Mr.
Edelstein's business address is c/o JBM Inc., 13801 Northwest
14th Street, Sunrise, Florida 33323.
John W. Burden III, age 57, has been a semi-retired
consultant and partner in Retail Options, Inc., a retail
consultant, since November 1993. From December 1990 to March
1993, Mr. Burden's principal occupation was as an officer in
Pelican Palms Realty Corporation, a real estate sales company.
From August 1988 to February 1990, Mr. Burden served as Chairman
and Chief Executive Officer of Federated Department Stores, Inc.
and Allied Stores Corporation, each a department store chain, and
was Vice Chairman of Federated Department Stores, Inc. from
December 1985 to July 1988. Federated Department Stores, Inc.
filed a petition for reorganization under the Bankruptcy Code in
1990 and has since emerged from bankruptcy. Mr. Burden is a
director of Carson Pirie Scott & Co., Bernard Chaus, Inc., a
manufacturer of women's and children's clothing, and Jan-Bell
Marketing, Inc., each of which is publicly held. Mr. Burden's
business address is c/o Retail Options, Inc., 15 East 26th
Street, New York, New York 10010.
Mark Dickstein, age 36, has been the President of Dickstein
Partners since prior to 1989 and is primarily responsible for the
operations of the Dickstein Funds. He is the Chairman of the
Board of Carson Pirie Scott & Co. He is also director of
KinderCare Learning Centers, Inc., the largest provider of
proprietary child care in the United States, and Zale
Corporation, a national jewelry retailer. Carson Pirie Scott &
Co., KinderCare Learning Centers, Inc. and Zale Corporation are
publicly held. Mr. Dickstein's business address is c/o Dickstein
Partners Inc., 9 West 57th Street, New York, New York 10019.
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. Mr. Kaufman's business address is c/o
Dickstein Partners Inc., 9 West 57th Street, New York, New York
10019.
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David Brail, age 30, has been a Vice President of Dickstein
Partners Inc. and has otherwise been associated with the
Dickstein Funds since prior to 1989. Mr. Brail is a director of
Amerihost Properties, Inc., a hotel management and development
company, Banyan Strategic Land Fund II, a real estate investment
company, and New Dimensions in Medicine, Inc., a medical device
company, each of which is publicly held. Mr. Brail's business
address is c/o Dickstein Partners Inc., 9 West 57th Street
New York, New York 10019.
Mark D. Brodsky, age 41, has been a Vice President of
Dickstein Partners since April 1994. Previously, since 1986, he
had been co-head of the bankruptcy department at the law firm of
Kramer, Levin, Naftalis, Nessen, Kamin & Frankel. Mr. Brodsky's
business address is c/o Dickstein Partners, Inc., 9 West 57th
Street, New York, New York 10019.
Samuel L. Katz, age 29, has been a Vice President of
Dickstein Partners since July 1993. Previously, since February
1992, Mr. Katz was the Co-Chairman of Saber Capital Inc., a firm
making private equity investments. Before that, since 1988, Mr.
Katz was an Associate and then a Vice President of The Blackstone
Group, an investment and merchant bank, where he focused on
leveraged buyout transactions. Mr. Katz's business address is
c/o Dickstein Partners Inc., 9 West 57th Street, New York, New
York 10019.
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.
It is anticipated that each of the Dickstein Nominees, upon
his election as a director of Hills, will receive director's fees
consistent with Hills' past practice. According to the Hills
Proxy Statement, Directors who are not employees of Hills receive
$2,000 per month plus $1,000 for each meeting of the board and
$500 for each committee meeting attended plus reimbursement for
expenses. Committee chairmen receive $750 for each committee
meeting attended. In addition, Dickstein Partners has agreed to
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indemnify each of the Dickstein Nominees against any claims and
expenses, including legal fees, arising out of their
participation in the proxy solicitation for their election.
Except as set forth above or under "Background of Proposed
Acquisition and Solicitation" below, none of Dickstein Partners,
the Dickstein Nominees or any of their respective associates (i)
has any arrangements or understandings with any person or persons
with respect to any future employment by Hills or its affiliates,
or with respect to any future transactions to which Hills or any
of its affiliates may be a party; (ii) has carried on any
occupation or employment with Hills or any corporation or
organization which is or was a parent, subsidiary or other
affiliate of Hills; (iii) has received any cash compensation,
cash bonuses, deferred compensation, compensation pursuant to
plans, or other compensation, from, or in respect of, services
rendered to or on behalf of Hills; (iv) since January 30, 1994,
has engaged in or has a direct or indirect material interest in
any transaction or series of similar transactions to which Hills
or any of its subsidiaries was or is to be a party in which the
dollar amount involved exceeded, or is expected to exceed,
$60,000 in the aggregate; (v) since January 30, 1994, has been
indebted to Hills or any of its subsidiaries in an amount in
excess of $60,000; or (vi) is a party adverse to Hills or any of
its subsidiaries in any material proceedings or has a material
interest adverse to the interest of Hills or any of its
subsidiaries in any such proceedings. No family relationships
exist among the Dickstein Nominees or between any of the
Dickstein Nominees and any Director or executive officer of
Hills.
Certain additional information relating to, among other
things, the ownership, purchase and sale of securities of Hills
by Dickstein Partners, the Dickstein Nominees and their
respective associates, or arrangements with respect thereto, is
set forth in "Security Ownership of Dickstein Partners and
Affiliates" and in Schedule II.
Voting Procedures
Election of the Dickstein Nominees requires the affirmative
vote of a plurality of the votes cast in the election at the
Annual Meeting, assuming a quorum is present or otherwise
represented at the Annual Meeting. Shares voted as abstentions
and "broker non-votes" are considered present at the Annual
Meeting for the purposes of determining the presence of a quorum.
"Broker non-votes" relate to shares of stock held of record by a
broker as to which no discretionary authority or voting
directions exist.
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The accompanying BLUE Annual Meeting proxy card will be
voted at the Annual Meeting in accordance with your instructions
on such card. You may vote FOR the election of each of the
Dickstein Nominees as Directors of Hills or withhold authority to
vote for the election of all the Dickstein Nominees by marking
the proper box on the BLUE Annual Meeting proxy card. You may
also withhold your vote from any one or more of the Dickstein
Nominees by writing the name of such nominee(s) in the space
provided on the BLUE Annual Meeting proxy card. IF NO MARKING IS
MADE, YOU WILL BE DEEMED TO HAVE GIVEN A DIRECTION TO VOTE THE
SHARES REPRESENTED BY THE BLUE ANNUAL MEETING PROXY CARD FOR THE
ELECTION OF ALL THE DICKSTEIN NOMINEES PROVIDED THAT YOU HAVE
SIGNED AND DATED THE PROXY CARD. The Dickstein Funds, which in
the aggregate own approximately 10.3% of the Shares outstanding,
will vote their Shares FOR the election of the Dickstein
Nominees.
Dickstein Partners believes that it is in your best
interest to elect the Dickstein Nominees at the Annual Meeting.
Dickstein Partners has made a proposal to acquire pursuant to a
merger all of Hills' outstanding Shares for at least $25 per
share in cash. See "Background of Proposed Acquisition and
Solicitation." All Dickstein Nominees are committed to a program
of offering Hills for sale, and selling Hills, to the buyer who
is willing to pay the highest price, so long as the price
is at least $25 per Share.
DICKSTEIN PARTNERS STRONGLY RECOMMENDS A VOTE FOR THE
ELECTION OF THE DICKSTEIN NOMINEES.
OTHER MATTERS TO BE CONSIDERED AT THE ANNUAL MEETING
Dickstein Partners is not aware of any proposals other than
the election of Directors to be brought before the Annual
Meeting. Should any other proposal be brought before the Annual
Meeting, the vote required for approval of such proposal would be
as prescribed by Hills' charter or bylaws or by applicable law.
Generally, approval of a proposal would require the vote of a
majority of the Shares represented at the Annual Meeting and
entitled to vote on the matter. Shares voted as abstentions
would have the same effect as a negative vote. Shares with
respect to which a broker submits a "broker non-vote" on a matter
are not counted in calculating the number of Shares entitled to
vote on a matter and have the effect of reducing the number of
votes required for approval of the matter.
Should other proposals be brought before the Annual
Meeting, the persons named on the BLUE Annual Meeting proxy card
will abstain from voting on such proposals unless such proposals
adversely affect the interests of Dickstein Partners as
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determined by Dickstein Partners in its sole discretion, in which
event such persons will vote on such proposals at their
discretion.
PROXY PROCEDURES
Stockholders are urged to mark, sign and date the enclosed
BLUE Annual Meeting proxy card and return it to Dickstein
Partners, c/o MacKenzie Partners, Inc., 156 Fifth Avenue, 9th
Floor, New York, New York 10010 in the enclosed envelope in time
to be voted at the Annual Meeting. Execution of the BLUE Annual
Meeting proxy card will not affect your right to attend the
Annual Meeting and to vote in person. Any proxy may be revoked
at any time prior to the Annual Meeting by delivering a written
notice of revocation or a later dated proxy at the particular
meeting. Only your latest dated proxy for the Annual Meeting
will count.
Only holders of record as of the close of business on the
Record Date will be entitled to vote. If you were a stockholder
of record on the Record Date, you may vote your Shares at the
Annual Meeting even if you have sold your Shares before or after
the Record Date. Accordingly, please vote the Shares held by you
on the Record Date, or grant a proxy to vote such Shares, on the
BLUE Annual Meeting proxy card, even if you have sold your Shares
before or after the Record Date.
If any of your Shares are held in the name of a brokerage
firm, bank, bank nominee or other institution on the Record Date,
only it can vote such Shares and only upon receipt of your
specific instructions. Accordingly, please contact the person
responsible for your account and instruct that person
to execute on your behalf the BLUE Annual Meeting proxy card.
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BACKGROUND OF PROPOSED ACQUISITION AND SOLICITATION
In August 1994, Dickstein Partners commenced a consent
solicitation to remove and replace four of Hills' eight
directors, the principal objective of which was to elect
directors who would place a greater emphasis on the enhancement
of stockholder value, such as by means of a major stock
repurchase program. In its consent solicitation, Dickstein
Partners proposed that Hills repurchase up to 5.5 million Shares
in exchange for $27 principal amount per Share of notes, which
proposal was subsequently modified to a proposed repurchase of
4.63 million Shares for $27 principal amount per Share. After
commencement of the consent solicitation, Hills commenced
litigation against Dickstein Partners which was subsequently
discontinued. In September 1994, Dickstein Partners and Hills
agreed to a settlement pursuant to which, among other things,
Dickstein Partners terminated its consent solicitation of Hills
stockholders, and Hills agreed to commence a self-tender offer to
purchase up to 3.0 million Common Shares at $25 per share in
cash. As part of the settlement, Hills agreed not to hold its
next annual meeting prior to June 1, 1995 or to adopt by-law
amendments related to the nomination or election of directors
prior to such annual meeting. Hills also agreed to pay Dickstein
Partners $600,000 in reimbursement for the out-of-pocket fees and
expenses incurred by Dickstein Partners and its affiliates
in connection with the consent solicitation.
Hills consummated its self-tender offer on February 21,
1995. The Dickstein Funds sold in the self-tender offer an
aggregate of 313,798 Shares.
On May 3, 1995, Mark Dickstein, the President of Dickstein
Partners, telephoned Hills and spoke with William K. Friend,
Vice President-Secretary and Corporate Counsel of Hills. Mr.
Dickstein advised Mr. Friend that Dickstein Partners proposed to
acquire all of the outstanding stock of Hills in a merger
transaction. Following the telephone call, Mr. Dickstein sent
the following letter on behalf of Dickstein Partners to Michael
Bozic, President and Chief Executive Officer of Hills. The
letter reflects a good faith proposal that Dickstein Partners
would expect to consummate upon execution of definitive
transaction documentation with Hills. Prior to the execution of
such documentation, the proposal is subject to change or
withdrawal.
"Dear Mike:
As you are aware Dickstein Partners Inc. manages
three investment funds which collectively own approximately
10.3% of Hills voting stock. We have been keenly observing
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your efforts to convince the investment community that by
spending more than $70 million annually on capital
expenditures, Hills will achieve increases in earnings per
share that justify valuing Hills as a growth stock.
Obviously, either the message has not been communicated or
it has not been believed.
We seriously question the wisdom, in the existing
retail environment, of spending the capital necessary to
open twenty new stores a year, particularly when
weighed against the alternative of repurchasing Hills' own
stock in the marketplace at approximately three times
EBITDA and when you have not yet gone up against Target
Stores, who is likely to be Hills' toughest competition.
Notwithstanding the above, we do believe that Hills'
existing franchise is a strong one and as a result we
are proposing to acquire, pursuant to a merger, all of
Hills outstanding shares for $25 per share in cash.
Dickstein Partners has retained National
Westminster Bank Plc to serve as its financial advisor for
this transaction. At this time we are having discussions
with NatWest Bank N.A. and National Westminster Bank Plc
regarding their arranging the bank debt portion, and
assisting in placing the subordinated debt portion of the
acquisition financing, respectively. As warranted, we will
promptly inform you of further developments regarding these
efforts.
Dickstein Partners is willing to provide up to one
half of the $75 million of equity capital we believe will
be required to finance this transaction. We intend to
expeditiously initiate discussions with third parties in
order to raise the balance of the equity capital.
Depending on the level of interest, we may be able to
increase our proposal to materially higher than $25 per
share. Toward this end, we request that the Hills board
modify its shareholder rights plan to permit us to discuss
with other Hills shareholders their interest in
contributing equity capital to our proposed transaction
without causing a `triggering' of the rights.
If we are successful in acquiring Hills, our
preference would be to continue to employ existing
management. However, we have prepared for the
possibility of existing management leaving by retaining
Chaim Edelstein, who we would intend to install as Hills'
interim Chief Executive Officer while we search for a
permanent management team. Mr. Edelstein was formerly
chairman of Abraham & Straus/Jordan Marsh, a division of
Federated Department Stores.
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In case the Hills Board chooses to reject our
acquisition proposal we are taking the precaution of
nominating a slate of directors for election at Hills'
upcoming annual meeting. Our nominees are Mr. Edelstein,
John Burden, formerly CEO of Federated Department Stores,
and Mark Dickstein, Mark Brodsky, Mark Kaufman, Sam Katz
and David Brail of Dickstein Partners. If elected, our
nominees would, as soon as practicable, seek to have Jack
Reen and yourself added to the Board. Our nominees would
seek to have Hills sold to the highest bidder. Subject
to obtaining financing and other standard conditions we
would be prepared to offer at least $25 per share in cash
for Hills in such an auction.
NatWest Bank N.A. has also advised us that,
subject to certain conditions, it is `highly confident'
that it can arrange up to $335 million of new senior
secured bank financing which may be required, together
with Hills' available cash, to refinance those portions of
Hills' existing debt (i.e., the working capital facility
and the $160 million of public debt) which could
accelerate upon the change of control that will occur if
our nominees are elected to the Hills Board.
If Hills would allow us access to its non-public
information in order to facilitate our due diligence
review we may be prepared to improve our proposal to
materially higher than $25 per share.
We await your prompt response.
Sincerely,
Mark Dickstein"
Dickstein Partners intends to seek to negotiate with Hills
regarding its proposal to acquire Hills. Such negotiations could
result in, among other things, termination of this proxy
solicitation and submission of a different acquisition proposal
to Hills. Although Dickstein Partners does not presently intend,
in the event the Dickstein Nominees are elected, to alter the
terms of the proposed acquisition to provide for the issuance of
securities or other consideration in exchange for Shares, it is
possible that, depending on the facts and circumstances existing
at the time, the terms might be altered in this or other
respects.
As indicated elsewhere in this Proxy Statement, the
Dickstein Nominees, if elected, will, subject to their fiduciary
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duties, seek to cause Hills to offer itself for sale, and to
consummate a sale, to the buyer who is willing to pay the highest
price, so long as the price is at least $25 per Share. There can
be no assurance, however, that a buyer other than Dickstein
Partners will offer to purchase Hills at all or for a price that
is higher than the price offered by Dickstein Partners. It is
anticipated that if the Dickstein Nominees are elected, the board
will form a committee of Directors who are not employees of, or
have a financial interest in, Dickstein Partners or any of its
affiliates, to consider, negotiate and determine to recommend
approval of the terms of a sale of Hills. The members of such a
committee are currently expected to be Messrs. Burden and
Edelstein. The committee will establish procedures, possibly
including auctioning or actively shopping Hills, to maximize the
price at which Hills may be sold.
Dickstein Partners has retained Chaim Y. Edelstein, a
Dickstein Nominee, as a consultant for a one-year period
beginning in May 1995. Mr. Edelstein's primary responsibilities
will be to assist Dickstein Partners in its financial and
qualitative analysis of Hills, to conduct due diligence of Hills
and to assist Dickstein Partners in its strategic planning.
Dickstein Partners will pay Mr. Edelstein a consulting fee of
$50,000 and a contingent fee equal to 1.5% of Net Profits (as
defined in the consulting agreement) in respect of the investment
of the Dickstein Funds in Hills, and will reimburse Mr. Edelstein
for his reasonable and customary out-of-pocket expenses. If the
Dickstein Nominees are elected and Hills' existing senior
management do not exercise their rights to resign, the Dickstein
Nominees intend to use their best efforts to have Hills retain
Mr. Edelstein as a management consultant at a negotiated annual
retainer of at least $50,000. In the event that senior
management exercise their rights to resign, the Dickstein
Nominees intend to use their best efforts to retain Mr. Edelstein
as Hills' interim chief executive officer with negotiated
compensation commensurate with such executive position.
In connection with the agreement of John W. Burden III to
serve as a Dickstein Nominee, Dickstein Partners will pay Mr.
Burden a fee of $10,000 and will reimburse Mr. Burden for
reasonable and customary out-of-pocket expenses.
If the Dickstein Nominees are elected and Michael Bozic and
John Reen so agree, the Dickstein Nominees intend to elect
Messrs. Bozic and Reen as members of the Board of Directors of
Hills. However, the Dickstein Nominees will elect Mr. Bozic and
Mr. Reen only if they remain employed by Hills and do not
exercise their change of control rights referred to below. Mr.
Bozic is currently President, Chief Executive Officer and a
Director of Hills, and Mr. Reen is currently Executive Vice
President-Chief Financial Officer and a Director of Hills.
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According to the Hills Proxy Statement, each of Mr. Bozic and Mr.
Reen has been nominated for election as a Director at the Annual
Meeting.
Change in Control
Based upon publicly available information concerning Hills,
the following would be the consequences of a change in control of
Hills occasioned by the election of the Dickstein Nominees to a
majority of the board of directors of Hills (a "Dickstein Change
of Control").
Financial Arrangements. Hills' wholly-owned operating
subsidiary, Hills Department Store Company, has entered into a
$225 million Revolving Credit Agreement (the "Credit Agreement"),
of which up to $75 million is available as a letter of credit
facility. The obligations under the Credit Agreement are
guaranteed by Hills. Under the terms of the Credit Agreement,
the lenders would have the option to terminate their commitments
and declare the outstanding loans thereunder due and payable upon
the occurrence of a Dickstein Change of Control. As of January
28, 1995, $32.6 million face amount of letters of credit and no
loans were outstanding under the Credit Agreement.
Under the terms of the indenture governing Hills' 10.25%
Senior Notes due September 30, 2003 (the "Senior Notes"), Hills
would be required to offer to redeem the Senior Notes at a price
of 101% of principal amount plus accrued interest upon the
occurrence of a Dickstein Change of Control. A notice offering
to redeem the Senior Notes would be required to be mailed to all
holders of the Senior Notes within 30 days following the
occurrence of a Dickstein Change of Control, with a redemption
date no later than 60 days from the date of such mailing. Prior
to the mailing, Hills would be required to offer to repay the
indebtedness outstanding under the Credit Agreement and to obtain
the requisite consent under the Credit Agreement for the
redemption of the Senior Notes. As of January 28, 1995, $160
million principal amount of Senior Notes was outstanding.
On May 3, 1995, NatWest Bank N.A. ("NatWest") delivered to
Dickstein Partners a letter stating, subject to certain
conditions, that it is "highly confident" of its ability to
arrange up to $335 million of new secured senior bank financing
that, together with the Company's available cash, may be required
to refinance the Credit Agreement and the Senior Notes upon the
occurrence of a Dickstein Change of Control (the "Change of
Control Refinancing"). Also on May 3, 1995, Dickstein Partners
engaged NatWest as its financial advisor in connection with the
Change of Control Refinancing. Dickstein Partners has agreed
that, if the Dickstein Nominees are elected, and subject to the
fiduciary duties of the Dickstein Nominees, Dickstein Partners
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would seek to cause Hills to offer NatWest a right of first
refusal to arrange the Change of Control Refinancing. Dickstein
Partners has agreed to pay or cause Hills to pay to NatWest in
the aggregate up to $1,250,000 in connection with a Change of
Control Refinancing (exclusive of any customary bank agency
fees). This amount includes fees payable in the event that the
Dickstein Nominees are elected, NatWest indicates in good faith
that it is prepared to arrange the Change of Control Refinancing
and another financial institution arranges such refinancing. In
the event that an agreement is executed with Hills to consummate
the acquisition proposed by Dickstein Partners, Dickstein
Partners has agreed to offer to NatWest the right to arrange the
senior bank financing for such acquisition. If NatWest indicates
in good faith that it is prepared to arrange such financing and
another financial institution arranges such financing or the
Credit Agreement and the Senior Notes are amended, renewed or
extended such that such financing is not required, Dickstein
Partners has agreed to pay or cause Hills to pay to NatWest a fee
of up to $1 million.
In addition, in the event that Dickstein Partners does not
consummate the acquisition of Hills, Dickstein Partners has
agreed to make a payment to NatWest in the amount of a percentage
of the net profits, if any, on the investment of the Dickstein
Funds in Hills, defined as the excess of the proceeds realized by
the Dickstein Funds on the sale of their Shares over the sum of
the cost of such Shares, at $20 per Share (or, with respect to
any Shares purchased after May 3, 1995, the actual cost of such
Shares), and all out-of-pocket expenses of Dickstein Partners
incurred in connection with this proxy solicitation and the
proposed acquisition of Hills. If the Dickstein Funds do not
sell their Shares within a six-month period from the date of the
NatWest engagement (subject to extension to nine months at the
option of NatWest), the net profits, if any, of the Dickstein
Funds will be based upon the market value of the Shares following
the end of such period (calculated according to a prescribed
formula). If the Dickstein Funds sell some but less than all
their Shares, the net profits, if any, of the Dickstein Funds
will be calculated based upon the sale price of the Shares that
have been sold and the market value of the Shares that have not
been sold. If less than 50% of the Shares are sold, the value of
the unsold Shares will be determined, and payment will be made,
following the end of six month (or nine month) period as
aforesaid. If 50% or more of the Shares are sold, the value of
the unsold Shares will be determined, and payment will be made,
following the time of such sale. NatWest is currently entitled
to 5% of the net profits of the Dickstein Funds under these
arrangements, which percentage will increase to 10% at such time
as NatWest delivers a "highly confident" letter in respect of the
senior bank debt financing for the acquisition of Hills proposed
by Dickstein Partners. In the event that Hills is acquired by
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persons other than Dickstein Partners and NatWest is prepared to
but does not arrange the financing for such acquisition, NatWest
will be entitled to receive from Dickstein Partners the greater
of $500,000 and an amount equal to the percentage of the net
profits of the Dickstein Funds described above. In addition, if
any break-up, termination, topping or similar fee is paid to
Dickstein Partners, NatWest will be entitled to receive 25% of
the excess of any such fee over the expenses of Dickstein
Partners incurred as aforesaid.
Dickstein Partners has also agreed to reimburse NatWest for
up to $75,000 of its reasonable out-of-pocket expenses incurred
through June 12, 1995 and to indemnify NatWest on customary
terms.
Benefits Arrangements. Hills has entered into employment
agreements with Michael Bozic, President and Chief Executive
Officer; John G. Reen, Executive Vice President and Chief
Financial Officer; E. Jackson Smailes, Executive Vice President
and General Merchandise Manager; Andrew J. Samuto, Executive Vice
President, Real Estate and Support Services; and Robert J.
Stevenish, Executive Vice President, Store and Distribution
Operations, which would permit these executives to resign upon
the occurrence of a Dickstein Change of Control without the
approval of the existing Directors of Hills. Following such
resignation, each of these executives would be entitled to a lump
sum payment equal to (i) all earned but unpaid salary and a pro
rated bonus to the time of termination, (ii) three times such
executive's annual base compensation and (iii) three times any
bonus compensation such executive was entitled to earn during the
year of termination (calculated as if all goals were attained).
In addition, upon the occurrence of a Dickstein Change of Control
without the approval of the existing Directors of Hills, all
outstanding unvested stock options of such executives would
become immediately exercisable. According to the Hills Proxy
Statement, as of ___________, these executives held stock options
to acquire _________ Shares, of which options with respect to
____________ Shares had not yet vested.
According to the Hills Proxy Statement, in fiscal 1995, the
following were the base salaries and bonus levels for the Hills
executive officers named above:
Base Bonus
Executive Officer Salary Level
- ----------------- ------ -----
Michael Bozic. . . . . . . . . . . . . . $ 50%
Andrew J. Samuto . . . . . . . . . . . . 50
John G. Reen . . . . . . . . . . . . . . 50
E. Jackson Smailes . . . . . . . . . . . 50
Robert J. Stevenish. . . . . . . . . . . 50
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A consulting agreement with Norman S. Matthews, a Hills
director, would permit Mr. Matthews to resign upon the occurrence
of a Dickstein Change of Control without the approval of the
existing Directors of Hills. Following his resignation, Mr.
Matthews would be entitled to a lump sum payment equal to (i) all
earned but unpaid salary and a pro rated bonus to the time of
termination, (ii) three times his annual base compensation and
(iii) three times any bonus compensation he was entitled to earn
during the year of termination (calculated as if all goals were
attained). In addition, upon the occurrence of a Dickstein
Change of Control without the approval of the existing Directors
of Hills, all of Mr. Matthews' unvested stock options would
become immediately exercisable. Under Mr. Matthews' consulting
agreement, he has a base salary of $500,000, with a bonus level
equal to 50% of base salary.
Engagement of Financial Advisor
Dickstein Partners has engaged National Westminster Bank
plc, New York Branch ("NatWest Markets"), an affiliate of
NatWest, as its exclusive financial advisor in connection with
the proposed acquisition of Hills. In connection with such
engagement, Dickstein Partners has agreed to pay NatWest Markets
up to $1,000,000, including fees payable to NatWest Markets if
the acquisition proposed by Dickstein Partners is consummated, or
if Dickstein Partners and its affiliates acquire a majority of
the stock or substantially all the assets of Hills, in each case
within two years. Dickstein Partners may engage NatWest Capital
Markets Limited ("NatWest Capital Markets"), an affiliate of
NatWest and NatWest Markets, or NatWest Markets as underwriter or
placement agent for the sale of up to $250 million of
subordinated debt in connection with the acquisition of Hills
proposed by Dickstein Partners. If NatWest Capital Markets or
NatWest Markets is so engaged, it will be entitled to receive at
least 40% of the aggregate net underwriting discounts and
commissions or placement fees with respect to the sale of such
securities. If NatWest Capital Markets or NatWest Markets is not
so engaged, NatWest Markets will be entitled to be paid an amount
equal to 0.75% of the gross proceeds of the sale of such
securities, provided that NatWest has advised Dickstein Partners
that it is prepared to deliver a "highly confident" letter in
respect of the senior bank financing for the acquisition.
Dickstein Partners has also agreed to reimburse NatWest
Markets for up to $25,000 of its reasonable out-of-pocket
expenses and to indemnify NatWest Markets on customary terms.
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SOLICITATION OF PROXIES
Proxies may be solicited by mail, advertisement, telephone
or telecopier or in person. Solicitations may be made by
directors, officers and employees of Dickstein Partners, none of
whom will receive additional compensation for such solicitations.
Dickstein Partners has requested banks, brokerage houses and
other custodians, nominees and fiduciaries to forward all its
solicitation materials to the beneficial owners of the Shares
they hold of record. Dickstein Partners will reimburse these
record holders for customary clerical and mailing expenses
incurred by them in forwarding these materials to their
customers.
Dickstein Partners has retained MacKenzie Partners, Inc.
(the "Agent") for solicitation and advisory services in
connection with the solicitation, for which the Agent is to
receive a fee of $20,000, plus an additional fee of $50,000 if
the Dickstein Nominees are elected, together with reimbursement
for its reasonable out-of-pocket expenses. Dickstein Partners
has also agreed to indemnify the Agent against certain
liabilities and expenses, including liabilities and expenses
under the federal securities laws. The Agent will solicit
proxies for the Annual Meeting from individuals, brokers, banks,
bank nominees and other institutional holders. It is anticipated
that the Agent will employ approximately 35 persons to solicit
stockholders for the Annual Meeting.
Certain information about directors and officers of
Dickstein Partners who may also assist in soliciting proxies, is
set forth in the attached Schedule I.
The entire expense of soliciting proxies for the Annual
Meeting is being borne by Dickstein Partners. Dickstein Partners
intends to seek reimbursement for such expenses from Hills, but
does not expect that the question of such reimbursement will be
submitted to a vote of stockholders. Costs incidental to this
solicitation of proxies include expenditures for printing,
postage, legal, accounting, public relations, advertising and
related expenses and are expected to be approximately $________;
costs incurred to the date of this Proxy Statement are
approximately $_____________.
If the Dickstein Nominees are elected, Dickstein Partners
will seek to cause the Dickstein Nominees to have Dickstein
Partners reimbursed by Hills for all expenses paid or incurred,
or for which Dickstein Partners or any of its affiliates may
otherwise be liable, in connection with this proxy solicitation
and the proposed acquisition of Hills, including, without
limitation, the fees paid or to be paid to NatWest and NatWest
Markets. See "Background of Proposed Acquisition and
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Solicitation -- Change in Control" and "-- Engagement of
Financial Advisor."
If Dickstein Partners should withdraw, or materially change
the terms of, this solicitation of proxies prior to the Annual
Meeting, Dickstein Partners will supplement this Proxy Statement
or otherwise publicly disseminate information regarding such
withdrawal or change and, in appropriate circumstances, will
provide stockholders with a reasonable opportunity to revoke
their proxies prior to the Annual Meeting.
SECURITY OWNERSHIP OF DICKSTEIN PARTNERS AND AFFILIATES
As of the date of this Proxy Statement, the Dickstein Funds
beneficially own an aggregate of 1,113,459 Shares, representing
approximately 10.3% of the Shares outstanding on the Record Date.
The Shares beneficially owned by the Dickstein Funds are owned as
set forth in the following table:
Shares Percentage of
Name and Address of Beneficially Shares
Beneficial Owner Owned Outstanding
- ------------------- ------------ -------------
Dickstein & Co., L.P. 727,315 6.7%
c/o Dickstein Partners Inc.
9 West 57th Street
New York, New York 10019
Dickstein Focus Fund L.P. 90,995 0.9%
c/o Dickstein Partners Inc.
9 West 57th Street
New York, New York 10019
Dickstein International Limited 295,149 2.7%
129 Front Street
Hamilton H 12, Bermuda
Dickstein Partners is the general partner of Dickstein
Partners, L.P., which is the general partner of Dickstein & Co.,
L.P. and Dickstein Focus Fund L.P. Dickstein Partners is also the
advisor to Dickstein International Limited. Mark Dickstein, a
Dickstein Nominee, is the President and sole stockholder of
Dickstein Partners. By reason of such relationships, Dickstein
Partners, L.P. may be deemed to beneficially own the Shares owned
by Dickstein & Co., L.P. and Dickstein Focus Fund L.P., and
Dickstein Partners and Mark Dickstein may be deemed to
beneficially own the Shares owned by Dickstein & Co., L.P.,
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Dickstein Focus Fund L.P. and Dickstein International Limited.
Each of Dickstein Partners, L.P., Dickstein Partners and Mark
Dickstein disclaims beneficially ownership of the Shares which it
or he may be deemed to own by reason of such relationships,
except to the extent of its or his actual economic interest in
the Dickstein Funds. 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.
Mark Kaufman, a Dickstein Nominee and a Vice President of
Dickstein Partners, owns 2,000 Shares. Mark Brodsky, a Dickstein
Nominee and a Vice President of Dickstein Partners, owns 679
Shares.
Except as set forth above, none of Dickstein Partners, any
of the Dickstein Nominees or any of their respective associates
owns beneficially or of record any securities of Hills or any of
its subsidiaries. Schedule II sets forth certain additional
information relating to the Shares beneficially owned by the
Dickstein Funds and Messrs. Kaufman and Brodsky.
OTHER INFORMATION
Security Ownership of Certain Beneficial Owners
Certain information regarding Shares held by Hills'
directors, nominees, management and other 5% stockholders is
contained in the Hills Proxy Statement and is incorporated herein
by reference.
Proposals of Security Holders
Information concerning the date by which proposals of
security holders intended to be presented at the next annual
meeting of stockholders of Hills must be received by Hills for
inclusion in Hills' proxy statement and form of proxy for that
meeting is contained in the Hills Proxy Statement and is
incorporated herein by reference.
Dickstein Partners assumes no responsibility for the
accuracy or completeness of any information contained herein
which is based on, or incorporated by reference to, the Hills
Proxy Statement or Hills public filings.
_________________________________
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PLEASE INDICATE YOUR SUPPORT OF THE DICKSTEIN NOMINEES BY
COMPLETING, SIGNING AND DATING THE ENCLOSED BLUE ANNUAL MEETING
PROXY CARD AND RETURN IT PROMPTLY TO MACKENZIE PARTNERS, INC.,
156 FIFTH AVENUE, 9TH FLOOR, NEW YORK, NEW YORK 10010 IN THE
ENCLOSED ENVELOPE. NO POSTAGE IS NECESSARY IF THE ENVELOPE IS
MAILED IN THE UNITED STATES
DICKSTEIN PARTNERS INC.
May __, 1995
20
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SCHEDULE I
INFORMATION CONCERNING DIRECTORS AND OFFICERS
OF DICKSTEIN PARTNERS
The following table sets forth the name and the present
principal occupation or employment, and the name, principal
business and address of any corporation or other organization in
which such employment is carried on, of the directors and
officers of Dickstein Partners who may also solicit proxies from
Hills stockholders. The principal business address of each of
the sole director and the officers of Dickstein Partners named
below is c/o Dickstein Partners Inc., 9 West 57th Street, New
York, New York 10019.
Present Principal Occupation
Name and Positions Held or Employment
- ----------------------- ----------------------------
Mark Dickstein President and Sole Director
President and Sole Director of Dickstein Partners Inc.
Tod Black Vice President of Dickstein
Vice President Partners Inc.
David Brail Vice President of Dickstein
Vice President Partners Inc.
Mark D. Brodsky Vice President of Dickstein
Vice President Partners Inc.
Alan S. Cooper Vice President and General
Vice President and General Counsel Counsel of Dickstein
Partners Inc.
Steven Cornick Vice President of Dickstein
Vice President Partners Inc.
Edward Farr Vice President of Dickstein
Vice President Partners Inc.
Samuel L. Katz Vice President of Dickstein
Vice President Partners Inc.
Mark Kaufman Vice President of Dickstein
Vice President Partners Inc.
Arthur Wrubel Vice President of Dickstein
Vice President Partners Inc.
S-I-1
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SCHEDULE II
SHARES HELD BY DICKSTEIN PARTNERS, ITS DIRECTORS
AND OFFICERS, AND THE DICKSTEIN NOMINEES
Except as disclosed in this Schedule or in the accompanying
Proxy Statement, none of Dickstein Partners, any of its directors
or officers named in Schedule I or the Dickstein Nominees, or any
of their respective associates, owns any securities of Hills or
any subsidiary of Hills, beneficially or of record, has purchased
or sold any of such securities within the past two years or is or
was within the past year a party to any contract, arrangement or
understanding with any person with respect to any such
securities. Shares purchased by Dickstein & Co., L.P., Dickstein
Focus Fund L.P. and Dickstein International Limited were funded
out of these entities' working capital, which may at any time
include margin loans made by brokerage firms in the ordinary
course of their business.
COMMON STOCK
Dickstein & Co., L.P. Number of Shares
Date Purchased Sold
10/4/93 159,907(1)
1/3/94 10,000(2)
2/4/94 24,000
3/31/94 50,000
4/26/94 21,000
4/29/94 153,000
5/2/94 14,500
5/17/94 2,000
5/18/94 60,000
6/27/94 6,000
7/19/94 16,771(1)
7/21/94 32,154
7/22/94 145,100
3/6/95 129,115
3/9/95 8,000
3/22/95 36,000
4/25/95 114,000
4/26/95 27,300
______________
(1) Received as a distribution pursuant to the Consolidated Plan
of Reorganization of Hills and certain affiliates in Case
No. 91B 10488 (TLB), United States Bankruptcy Court,
Southern District of New York (the "Hills Plan").
(2) Sold to Dickstein International Limited.
S-II-1
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Dickstein Focus Fund L.P.
Number of Shares
Date Purchased Sold
1/3/94 15,000
3/31/94 3,000
4/26/94 1,500
4/29/94 9,100
5/2/94 900
5/18/94 3,000
6/27/94 400
7/21/94 2,000
7/22/94 21,000
7/25/94 10,500
7/28/94 4,000
8/8/94 1,000
8/9/94 1,500
8/10/94 5,400
3/6/95 17,722
3/9/95 3,100
3/22/95 1,500
4/25/95 20,900
4/26/95 3,500
Dickstein International Limited
Date Purchased Sold
10/4/93 21,046(1)
1/3/94 10,000(3)
2/1/94 8,500
_____________________
(1) Received as distribution pursuant to the Hills Plan.
(3) Purchased from Dickstein & Co., L.P.
S-II-2
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2/4/94 6,000
3/31/94 4,000
4/26/94 5,200
4/29/94 38,000
5/2/94 3,600
5/18/94 15,000
6/27/94 1,400
7/19/94 2,184(1)
7/21/94 8,300
7/22/94 84,000
7/25/94 42,000
7/28/94 16,000
8/8/94 9,000
8/9/94 8,500
8/10/94 31,000
2/22/95 1,000
2/24/95 10,000
2/27/95 14,000
3/6/95 72,000
3/9/95 3,000
3/22/95 6,100
4/25/95 25,100
4/26/95 11,100
Mark D. Brodsky
Date Purchased Sold
8/15/94 1,000
1/3/95 100
3/8/95 221
_________________________
(1) Received as distribution pursuant to the Hills Plan.
S-II-3
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Mark Kaufman
Date Purchased Sold
11/15/93 1,000
1/5/94 1,000
S-II-4
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SERIES A CONVERTIBLE PREFERRED STOCK
(All Series A Convertible Preferred Stock was converted to Common
Stock on 3/7/95.)
Dickstein & Co., L.P.
Number of Shares
Date Purchased Sold
10/4/93 138,551(1)
1/3/94 9,200(2)
7/19/94 14,528(1)
7/21/94 143,185
3/6/95 70,366
Dickstein Focus Fund L.P.
Number of Shares
Date Purchased Sold
7/21/94 8,800
7/27/94 4,000
8/8/94 1,000
3/6/95 3,383
Dickstein International Limited
Number of Shares
Date Purchased Sold
10/4/93 18,236(1)
1/3/94 9,200(3)
7/19/94 1,895(1)
7/21/94 37,200
7/27/94 16,000
8/8/94 4,000
3/6/95 21,212
___________________________
(1) Received as distribution pursuant to the Hills Plan.
(2) Sold to Dickstein International Limited.
(3) Purchased from Dickstein & Co., L.P.
S-II-5
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IMPORTANT
Your proxy is important. No matter how many Shares you
own, please give Dickstein Partners your proxy FOR the election
of the Dickstein Nominees by:
MARKING the enclosed BLUE Annual Meeting
proxy card,
SIGNING the enclosed BLUE Annual Meeting
proxy card,
DATING the enclosed BLUE Annual Meeting
proxy card and
MAILING the enclosed BLUE Annual Meeting
proxy card TODAY in the envelope provided (no
postage is required if mailed in the United
States).
If you have already submitted a proxy to Hills for the
Annual Meeting, you may change your vote to a vote FOR the
election of the Dickstein Nominees by marking, signing, dating
and returning the enclosed BLUE proxy card for the Annual
Meeting, which must be dated after any proxy you may have
submitted to Hills. Only your latest dated proxy for the Annual
Meeting will count at such meeting.
If you have any questions or require any additional
information concerning this Proxy Statement or the proposal by
the Dickstein Group to acquire Hills, please contact MacKenzie
Partners, Inc. at the address set forth below. IF ANY OF YOUR
SHARES ARE HELD IN THE NAME OF A BROKERAGE FIRM, BANK NOMINEE OR
OTHER SUCH INSTITUTION, ONLY IT CAN VOTE SUCH SHARES AND ONLY
UPON RECEIPT OF YOUR SPECIFIC INSTRUCTIONS. ACCORDINGLY, PLEASE
CONTACT THE PERSON RESPONSIBLE FOR YOUR ACCOUNT AND INSTRUCT THAT
PERSON TO EXECUTE THE BLUE ANNUAL MEETING PROXY CARD.
MACKENZIE PARTNERS, INC.
156 Fifth Avenue
New York, New York 10010
Tel: (212) 929-5500 (call collect)
or
Call Toll-Free (800) 322-2885
<PAGE>
HILLS STORES COMPANY
ANNUAL MEETING OF STOCKHOLDERS
THIS PROXY IS SOLICITED BY DICKSTEIN PARTNERS INC.
The undersigned stockholder of Hills Stores Company hereby
appoints each of Mark D. Brodsky and Alan S. Cooper, and each of
them with full power of substitution, for and in the name of the
undersigned, to represent and to vote, as designated below, all
shares of Common Stock and Series A Convertible Preferred Stock
of Hills Stores Company that the undersigned is entitled to vote
if personally present at the 1995 Annual Meeting of Stockholders
of Hills Stores Company, and at any adjournment or postponement
thereof. The undersigned hereby revokes any previous proxies
with respect to the matters covered by this Proxy.
DICKSTEIN PARTNERS INC. RECOMMENDS A VOTE FOR PROPOSAL 1.
(Please mark each proposal with an "X" in the appropriate box)
1. ELECTION OF DIRECTORS:
Election of Chaim Y. Edelstein, John W. Burden III, Mark
Dickstein, Mark L. Kaufman, David Brail, Mark D. Brodsky and
Samuel L. Katz.
/_/ FOR all nominees except /_/ WITHHOLD AUTHORITY for
as marked below all nominees
(INSTRUCTION: To withhold authority to vote for one or more
nominees, mark FOR above and print the name(s) of the person(s)
with respect to whom you wish to withhold authority in the space
provided below.)
________________________________________________________________
2. IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE
UPON SUCH OTHER BUSINESS AS MAY PROPERLY COME BEFORE THE MEETING
OR ANY ADJOURNMENT THEREOF.
PLEASE MARK, SIGN DATE AND RETURN THIS PROXY CARD PROMPTLY IN THE
ENCLOSED ENVELOPE PROVIDED.
<PAGE>
This Proxy, when properly executed, will be voted in the
manner marked herein by the undersigned stockholder. IF NO
MARKING IS MADE, THIS PROXY WILL BE DEEMED TO BE A DIRECTION TO
VOTE FOR PROPOSAL 1.
Please date and sign this proxy
exactly as your name appears hereon.
_____________________________________
(Signature)
_____________________________________
(Signature, if held jointly)
_____________________________________
(Title)
Dated:_______________________________
When shares are held by joint
tenants, both should sign. When
signing as attorney-in-fact,
executor, administrator, trustee,
guardian, corporate officer or
partner, please give full title as
such. If a corporation, please sign
in corporate name by President or
other authorized officer. If a
partnership, please sign in
partnership name by authorized
person.
To vote in accordance with the Dickstein Partners recommendation,
just sign and date this proxy; no boxes need to be checked.
<PAGE>
<PAGE>
DICKSTEIN PARTNERS INC.
9 West 57th Street
Suite 4630
New York, New York 10019
May __, 1995
Dear Fellow Hills Stores Stockholder:
At the 1995 Hills Stores Company Annual Meeting of
Stockholders, seven Directors of the Company will be elected. We
solicit your support to elect our nominees for Directors who
support the sale of the Company to the highest bidder who is
willing to pay at least $25 per share in cash. As you will read
in the accompanying proxy materials, we have made such a proposal
to acquire the Company in a merger transaction for at least $25
per share in cash.
Dickstein Partners is an investment firm that, through
its affiliates, owns 1,113,459 shares (approximately 10.3%) 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 believe that the current Board's existing "growth"
strategy of spending $70 million annually to open twenty new
stores a year to be an extremely high risk undertaking in today's
retail environment. This strategy is particularly questionable
considering that the Company could have been repurchasing its own
stock in the marketplace at approximately three times EBITDA and
that the Company is only beginning to compete against Target
Stores.
Last summer we commenced a consent solicitation to
elect Directors on a platform of enhancing stockholder value
through a stock repurchase program. As a result, the Company
repurchased 3 million shares at $25 per share. We continue to
believe there is value in the Company that under the Company's
current strategy will not be recognized in the market place. We
believe that the only way in the current environment to unlock
this value is to put the Company up for sale and to sell the
Company to the highest bidder willing to pay at least $25 per
share in cash.
<PAGE>
<PAGE>
DICKSTEIN PARTNERS HAS MADE A PROPOSAL TO ACQUIRE
PURSUANT TO A MERGER ALL OF THE COMPANY'S OUTSTANDING SHARES FOR
AT LEAST $25 PER SHARE IN CASH.
ALL DICKSTEIN NOMINEES ARE COMMITTED TO A PROGRAM OF
OFFERING HILLS FOR SALE, AND SELLING HILLS, TO THE BUYER WHO IS
WILLING TO PAY THE HIGHEST PRICE, SO LONG AS THE PRICE IS AT
LEAST $25 PER SHARE OF HILLS STOCK.
We urge you to vote your BLUE Annual Meeting proxy card
FOR each of the nominees of Dickstein Partners and mail it
promptly in the enclosed envelope.
Please review the accompanying proxy materials for
information concerning Dickstein Partners, our nominees and our
proposal to acquire the Company. 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,
/s/ Mark B. Dickstein
Mark B. Dickstein
President
